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

Under ERISA, are there standards required for the investment of money within retirement plans?

1. Yes, there are strict guidelines

2. No, there are no guidelines

3. Yes, but only for private plans

4. No, but guidance is suggested

The correct answer is: Yes, there are strict guidelines

Under the Employee Retirement Income Security Act (ERISA), there are indeed strict guidelines established to ensure that retirement plans are managed prudently and in the best interest of plan participants and beneficiaries. This legislation sets forth fiduciary responsibilities, which require plan fiduciaries to act with care, skill, prudence, and diligence in making investment decisions. The law mandates that fiduciaries must diversify plan investments to minimize the risk of large losses, and they must follow specific criteria to ensure that all investment decisions are made solely in the interest of the participants. The importance of these guidelines lies in their role in protecting the retirement savings of individuals, providing a framework that encourages safe and sound investment practices. ERISA also stipulates that employers have a responsibility to inform plan participants about their rights and the details of the plan, further emphasizing the protective nature of these regulations. Overall, the strict guidelines under ERISA ensure that retirement plans are operated with transparency and accountability, primarily focusing on the financial security of the plan participants.