Advanced Diploma of Financial Planning (ADFP) Practice Test

What is one benefit of an employee being vested in a retirement plan?

1. They have no ownership of contributed funds

2. They can access funds without penalties

3. They gain rights to the employer’s contributions

4. They can withdraw funds tax-free

The correct answer is: They gain rights to the employer’s contributions

Being vested in a retirement plan means that an employee has earned the right to retain the employer's contributions to their retirement account, even if they leave the company. This is a significant benefit because it provides financial security and incentive for employees to remain with their employer long enough to fully own their pension or contribution benefits. When employees are vested, they can count on these contributions as part of their retirement savings, enhancing their overall financial stability and future outlook. In contrast, the other options do not accurately reflect the benefits of vesting. For instance, not having ownership of contributed funds contradicts the very concept of vesting. Additionally, while accessing retirement funds without penalties or withdrawing them tax-free can have various conditions, these situations are generally governed by laws and specific plan rules, and not directly related to the concept of vesting.