Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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If an employer makes a Keogh contribution on its own behalf, what must they also do for their employees?

Make a matching contribution
Provide a taxable bonus
Reimburse employees for their contributions
No additional actions required

The correct answer is: Make a matching contribution

The requirement for an employer who makes a Keogh plan contribution on their own behalf to also contribute on behalf of employees stems from the non-discrimination rules set forth by the IRS. When an employer establishes a Keogh plan, which is intended for self-employed individuals and their employees, they must ensure that contributions are made fairly and equally to prevent discriminatory practices. Therefore, if an employer contributes to their own Keogh account, they must make a matching or comparable contribution for eligible employees. This requirement promotes equitable benefits within the retirement plan and ensures that all individuals participating in the plan receive appropriate retirement benefits. In contrast, options that suggest providing a taxable bonus or reimbursing employees for their contributions do not align with the regulations governing Keogh plans. Such actions do not replace the obligation to contribute to the retirement plan itself. Instilling a direct matching contribution requirement helps foster an environment where both employees and employers are equally invested in the retirement planning process.