SIE Exam Question 536: Answer and Explanation

Question: 536

Profit sharing plans have which of the following characteristics?

• A. They favor older employees.
• B. They can be invested entirely in company stock.
• C. They are a type of defined contribution pension plan.
• D. The minimum funding standard requires the employer to make an annual contribution.

Correct Answer: B

Explanation:

Profit sharing plans tend to favor younger employees, and they are not limited in their investment of company stock. Profit sharing plans are a type of defined contribution plan other than a pension plan. Their contributions must be substantial and recurring, but are not required annually.