General Securities Sales Supervisor (Series10) Practice Exam

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If the President of a corporation wishes to sell a personal investment to the corporation's pension trust at a discount, what is the result?

A Permitted if the pension fund benefits
B Permitted if a legal opinion is obtained
C Prohibited due to direct real estate investment rules
D Prohibited because the President is considered a party-in-interest

The correct answer is: D Prohibited because the President is considered a party-in-interest

In this scenario, the correct choice is based on the definition of "party-in-interest" as it relates to pension plans. The President of the corporation holds a position that could influence the decision-making process regarding the trust's investments. According to the Employee Retirement Income Security Act (ERISA), transactions between a pension fund and a party-in-interest can lead to potential conflicts of interest, creating both ethical and legal issues. When the President seeks to sell a personal investment to the corporation’s pension trust at a discount, it raises concerns about fairness and whether the transaction is truly in the best interest of the plan participants. The regulations are designed to protect employee benefits by preventing transactions that could benefit insiders at the expense of plan participants. Thus, the transaction is prohibited precisely because the President's role as a party-in-interest creates an inherent conflict that can undermine the fiduciary responsibilities owed to the pension plan participants.