Accredited Wealth Management Advisor Practice Exam

In terms of investment strategies, who typically funds the employer’s promise to pay deferred amounts to employees?

1. The employees fund it.

2. The employer funds it through insurance.

3. The government funds it.

4. Shareholders fund it.

The correct answer is: The employer funds it through insurance.

In the context of investment strategies, when discussing deferred compensation arrangements or promises made by an employer to pay employees at a later date, the employer typically funds these obligations through the purchase of insurance policies. This method not only provides a way to secure the future payout but also allows the employer to manage the risks associated with these deferred payments effectively. By funding these liabilities through insurance, the employer can ensure that there are sufficient resources available to honor the promises made to employees when the deferred compensation becomes due. This approach also allows the employer to have a better understanding of cash flow requirements and mitigate potential financial risks related to these payouts. This option is significant because it highlights the proactive measures that employers can take to fulfill their long-term obligations to employees, especially in scenarios where cash flow might be impacted in the future or where investments are used to grow the funds available for such payouts. This funding strategy showcases best practices in corporate finance related to employee benefits and deferred compensation planning.