Prohibited transactions, under the Employee Retirement Income Security Act (ERISA), are certain types of transactions that are not allowed between a retirement plan and a disqualified person.
Which of the following is considered a disqualified person under ERISA?
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A) A plan participant's spouse is considered a disqualified person under ERISA, as they are a family member of a plan participant. B) A plan participant's neighbor is not considered disqualified under ERISA. C) A plan participant's coworker is not considered disqualified under ERISA. D) A plan participant's friend is not considered disqualified under ERISA.
Which of the following is an example of a prohibited transaction under ERISA?
A) A retirement plan investing in a diversified mutual fund is not prohibited under ERISA. B) A retirement plan purchasing real estate from a fiduciary is prohibited under ERISA, as it involves a transaction between the plan and a disqualified person. C) A retirement plan investing in a low-cost index fund is not a prohibited transaction under ERISA. D) A retirement plan purchasing government bonds is not prohibited under ERISA.
In the late 1980s, a large company's retirement plan engaged in prohibited transactions involving purchasing real estate from a disqualified person. The transactions were discovered during a routine audit, and the company had to pay significant penalties and take corrective action to restore the plan's assets.
What is the primary purpose of ERISA's prohibited transaction rules?
A) Ensuring that retirement plans only invest in suitable investments is not the primary purpose of ERISA's prohibited transaction rules, although it may be a related concern. B) The primary purpose of ERISA's prohibited transaction rules is to prevent conflicts of interest and self-dealing by fiduciaries and other disqualified persons. C) Regulating the fees charged by investment advisers is not the primary purpose of ERISA's prohibited transaction rules. D) Protecting investors from fraudulent securities offerings is not the primary purpose of ERISA's prohibited transaction rules.
A financial advisor who is also a fiduciary for a client's retirement plan recommends that the plan invest in a real estate project that the advisor personally owns. This would be considered a prohibited transaction under ERISA, as the advisor is using plan assets for their benefit.
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Example Series 65 Example Practice Question
- *Prohibited Transactions*: Transactions that are not allowed under the Employee Retirement Income Security Act (ERISA) of 1974, which are designed to protect retirement plan participants and beneficiaries from conflicts of interest, self-dealing, and other unethical practices.
- *Prohibited Transaction Example*: A plan fiduciary using plan assets to purchase property for their personal use violates ERISA.