Certified Financial Consultant (CFC) Practice Exam

Employer contributions made to a qualified plan are subject to:

1. Immediate payout options

2. Vesting requirements

3. Tax penalties

4. Voluntary contributions

The correct answer is: Vesting requirements

Employer contributions made to a qualified plan are subject to vesting requirements because these requirements dictate how and when an employee earns ownership of the contributions made by the employer to a retirement plan. Vesting schedules can vary; they may be immediate, cliff-based, or graded over a certain number of years. This is an essential aspect of qualified plans, ensuring that employees have a vested interest in their own retirement benefits, promoting retention and encouraging long-term employment. In contrast, immediate payout options pertain to aspects of benefit distribution rather than employer contributions. Tax penalties generally apply to early withdrawals, but they do not directly pertain to employer contributions themselves. Voluntary contributions refer to amounts that employees choose to contribute from their paychecks, which differ from mandatory employer contributions. Thus, understanding vesting requirements is critical in the context of employer contributions to qualified retirement plans.