Question

For which of the following reasons might an employer consider choosing a nonqualified plan over a qualified plan?

A) Greater flexibility
B) Can discriminate in favor of highly compensated employees
C) Subject to fewer ERISA reporting and disclosure requirements
D) Typically provides an immediate income tax deduction for the employer

Answer 1

An employer might choose a nonqualified plan over a qualified plan for greater flexibility, the ability to discriminate in favor of highly compensated employees, and fewer ERISA reporting requirements.

Step-by-step explanation:

An employer might consider choosing a nonqualified plan over a qualified plan for several reasons:

1. Greater flexibility: Nonqualified plans offer more flexibility in terms of contribution amounts, eligibility requirements, and distribution options.
2. Ability to discriminate: Nonqualified plans allow employers to discriminate in favor of highly compensated employees, whereas qualified plans must meet certain nondiscrimination rules.
3. Less ERISA reporting: Nonqualified plans are subject to fewer reporting and disclosure requirements under ERISA (Employee Retirement Income Security Act).

Therefore, an employer might choose a nonqualified plan if they value flexibility, want to favor highly compensated employees, or prefer to have fewer ERISA reporting obligations.