What characterizes a Qualified Plan?

A Qualified Plan is characterized by its eligibility for favorable tax treatment under the Internal Revenue Code, making the answer that highlights this aspect the correct choice. Such plans provide tax-deferred growth on contributions, which can be an incentive for both employers and employees to participate and save for retirement. Contributions made to these plans are often tax-deductible for the employer, and the employees usually do not pay taxes on the contributions or earnings until they withdraw funds in retirement, thus promoting long-term savings.

The other options do not accurately describe the nature of Qualified Plans. For instance, Qualified Plans are indeed subject to ERISA (the Employee Retirement Income Security Act), which sets minimum standards for plans in private industry to protect participants. They are not limited to state employees; in fact, they can apply to a broad range of employees across various sectors. Additionally, Qualified Plans can be established by employers, including corporations and nonprofit organizations, rather than being restricted to individuals. Therefore, the favorable tax treatment is what truly defines a Qualified Plan and is a significant motivation for both employers and employees to engage with such retirement offerings.