AD Banker Comprehensive Practice Exam

A benefit provided exclusively to certain retirees, such as executives, is known as what?

1. Corporate pension plan

2. Deferred compensation plan

3. Nonqualified plan

4. Qualified plan

The correct answer is: Nonqualified plan

A benefit provided exclusively to certain retirees, such as executives, is recognized as a nonqualified plan because it does not meet the requirements set forth by the Internal Revenue Code for qualified plans. Nonqualified plans offer more flexibility in terms of contribution limits and eligibility, allowing corporations to design benefits that can be tailored to select employees, particularly high-level executives. These plans can include features that differentiate them from qualified plans, such as the ability to provide larger benefits or to structure payouts in unique ways. The primary distinction is that nonqualified plans do not provide the same tax advantages as qualified plans but allow employers more freedom in their structure. Such exclusivity is often used to attract and retain key talent within the organization. In contrast, qualified plans must adhere strictly to various regulations and provide certain universal benefits, making them less flexible in terms of eligibility and benefit distribution compared to nonqualified plans.