Massachusetts Life Producer Practice Exam

What rule is violated if an officer takes out multiple unsecured loans from the company's qualified retirement plan?

1. Employee benefit rule

2. Exclusive benefit rule

3. Investment diversification rule

4. Contribution limit rule

The correct answer is: Exclusive benefit rule

The exclusive benefit rule is a crucial regulation under the Employee Retirement Income Security Act (ERISA) that mandates that a retirement plan must primarily serve to benefit the employees and their beneficiaries. If an officer takes out multiple unsecured loans from the company’s qualified retirement plan, this could potentially violate the exclusive benefit rule because it implies that the officer is using plan assets for personal benefit rather than for the intended purpose of providing retirement income for employees. This rule is designed to prevent any misuse of plan assets that does not align with the best interests of all plan participants. In this scenario, the officer's actions may compromise the integrity of the retirement plan by diverting funds, which could ultimately harm other employees who are dependent on the plan for their future financial security. Other options, while they relate to retirement plans, do not directly address the misuse of plan assets for personal loans. The employee benefit rule pertains broadly to the benefits provided by the plan itself, the investment diversification rule ensures that retirement plans have a mix of investment options to minimize risk, and the contribution limit rule controls how much can be contributed to a retirement account in a given year. However, none of these rules directly cover the scenario of taking out multiple loans in a manner that could be deemed self-serving to