LLQP Segregated Funds & Annuities · Component 2.4 · 30% of the exam
An employer asks whether staff may contribute to the company's deferred profit sharing plan. The agent should answer that:
- Aonly employees may contribute, with the employer acting solely as plan administrator
- Bemployee contributions are permitted but are not deductible from their taxable income
- only the employer may contribute, and the contributions must come from business profits
- Demployees may contribute up to the same amount the employer has contributed on their behalf
Correct answer: C) only the employer may contribute, and the contributions must come from business profits
A deferred profit sharing plan is funded by employer contributions alone. Members do not contribute, and certain connected persons such as significant shareholders and their relatives cannot be members of the plan at all.
Why the other options are wrong
- AThe employer is the contributor; that is the defining feature of the arrangement.
- BEmployee contributions are not permitted, so deductibility does not arise.
- DMatching employee contributions are a feature of group savings plans, not this plan.
Exam tip
Deferred profit sharing plan equals employer contributions only, with connected persons excluded.
Common mistake
Treating a profit sharing plan like a group savings plan with a member match.
What this tests
CISRO competency component 2.4 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.