California Life and Health Insurance Practice Exam

Retirement plans are prevented from favoring highly compensated employees under which government regulation?

1. Nondiscrimination

2. Equal Opportunity

3. Fair Labor Standards

4. Employee Benefits Security

The correct answer is: Nondiscrimination

The correct answer is based on regulations governing retirement plans, specifically the Nondiscrimination rules. These rules are designed to ensure that retirement plans do not disproportionately benefit highly compensated employees over rank-and-file employees. Essentially, the aim is to promote fairness and equal opportunity in retirement benefits across different employee levels. Under the Nondiscrimination rules, employers must demonstrate that their benefit plans are providing equitable benefits for all employees, regardless of their salary levels. This means that if a retirement plan benefits highly compensated employees significantly more than it benefits lower-paid employees, it can be deemed discriminatory and potentially in violation of the law. This concept is foundational for ensuring that retirement plans maintain a level playing field for all participants, encouraging broader employee participation and investment in their retirement savings. Regulations like these are crucial for promoting workforce equity and ensuring that the financial benefits of retirement plans are accessible to a wider range of employees.