CFA Practice Question

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CFA Practice Question

Companies generally design pension plans that are

A. contributory or noncontributory.
B. insured.
C. qualified.
Correct Answer: C

Tax incentives are a powerful motivation for firms both to create pension plans and to overfund them. Contributions to qualified pension plans are tax-deductible and the income earned by the funds is tax-exempt.

User Contributed Comments 1

User Comment
blackyosh1 qualified plan: employers contributions are deductible as a business expense but are not taxable income to employee until they are received as benefits. investment earnings on funds held by trustee for plan are not subject to income taxes as they are earned

nonqualified plans: employer funding contributions cannot be deducted as business expense unless classified as compensation to employee, in which case they become taxable income for employee.

basically no tax benefits. usually for highly paid executives benefit?
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