Certified Payroll Professional Practice Exam

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What type of plan promises to provide benefits in the future for services currently performed by employees?

  1. Defined contribution plan

  2. Qualified plan

  3. Defined benefit plan

  4. Non-qualified plan

The correct answer is: Non-qualified plan

A defined benefit plan promises to provide benefits in the future for services currently performed by employees. In a defined benefit plan, the employer guarantees a specified retirement benefit amount to employees based on a specific formula. This is different from a defined contribution plan where the employer contributes a defined amount into an employee's individual account, and the final benefit amount depends on contributions made and investment performance. Qualified plans are retirement plans that meet specific requirements under the Internal Revenue Code for preferential tax treatment. Non-qualified plans are retirement plans that do not meet the specific requirements of qualified plans.

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