Chapter 11
QUALIFIED PLAN INVESTMENTS
LEARNING OBJECTIVES:

Identify key factors relating to qualified plan investments

Have a basic understanding of fiduciary requirements for qualified plans
REVIEW:
This chapter begins by discussing fiduciary requirements of the Employee
Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC).
Space is given to definitions and duties of fiduciaries. Prohibited plan
transactions are covered next, followed by a brief discussion of unrelated
business taxable income (UBTI). A broader section follows, covering investment
policy and strategy. Types of investment vehicles are briefly discussed within this
section. The chapter closes with a short section on social effects, using the
financial clout of the plan to impact social and/or corporate policy.
CHAPTER OUTLINE:
I. Fiduciary Requirements of ERISA and the Internal Revenue Code
II. Prohibited Transactions
III. Unrelated Business Income
IV. Investment Policy
A. Investment Vehicles
V. Investment Strategy
VI. Social Effects
VII. Chapter Endnotes
FEATURED TOPICS:
ERISA and IRC Fiduciary Requirements
1
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Plan Investment Policy and Strategy
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 66: Investment considerations for retirement plans
A. Suitability
B. Time horizons
C. Diversification
D. Fiduciary considerations
E. Unrelated Business Taxable Income (UBTI)
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Identify key factors relating to qualified plan investments
2. Have a basic understanding of fiduciary requirements for qualified
plans
KEY WORDS:
Internal Revenue Code
Party-in-interest
Disqualified person
Unrelated business income
Investment policy
DISCUSSION:
1. Discuss qualified plan fiduciary requirements along with the duties and impact
of being named a plan fiduciary.
2. Discuss types of investments that may be appropriate for use in qualified
plans. Contrast these with investments that may not be appropriate.
QUESTIONS:
1. The fiduciary responsibility net includes any person who:
(1) exercises any discretionary authority or control over plan management
(2) exercises any control over plan asset management
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(3) renders investment advice for compensation
(4) has discretionary authority or responsibility in plan administration
a.
b.
c.
d.
(1) only
(1) and (2) only
(1), (2), and (3) only
(1), (2), (3), and (4)
Chapter 11, p. 107
2. Which one of the following best identifies the term used to identify a
fiduciary’s general investment responsibility?
a.
b.
c.
d.
prudent man requirement
trusted advisor requirement
diversification requirement
investment policy requirement
Chapter 11, p. 108
3. In general terms, a number of transactions are prohibited between the plan
and a number of people, including: a fiduciary, a person providing service to
the plan, an employer, owner, or employee organization. Which one of the
following correctly identifies the term used to describe these people?
a.
b.
c.
d.
employee-in-general
owner of a 5% or more interest
party-in-interest
a Department of Labor administrator
Chapter 11, p. 109
4. Which one of the following is the term used to identify income of a tax-exempt
organization that may be subject to taxation?
a.
b.
c.
d.
loan to an Employee Stock Ownership Plan (ESOP)
unrelated business taxable income
prohibited transaction exclusion
specific statutory exemption
Chapter 11, pp. 109, 110
ANSWERS:
1. d
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2. a
3. c
4. b