Massachusetts Life Insurance Practice Exam 2025 – Complete Study Guide

One key feature of nonqualified retirement plans is that they can discriminate in favor of certain employees. This means that employers have the flexibility to choose which employees are eligible for the plan, often favoring higher-paid executives or key personnel. Unlike qualified retirement plans, which must adhere to strict non-discrimination rules set by the IRS—ensuring that benefits are distributed fairly among all employees—nonqualified plans allow for selective participation and benefit levels. This characteristic makes them attractive for companies looking to offer enhanced retirement benefits to select employees without the same regulatory constraints.

In contrast, the other options either pertain to characteristics of qualified plans or highlight rules that do not apply to nonqualified plans. For example, nonqualified plans do not require IRS approval, contributions are typically not tax-deductible for the employee, and participation can be limited rather than open to all employees without restrictions.