Retirement Exam 3

D [The amount of taxable income for Topdollar is the difference between the fair market value of the shares at the date of purchase and the option price ($100,000 - $60,000 = $40,000. Good Company can take a tax deduction when the option is exercised and shares are purchased.]

. Executive Topdollar was given an option in 2011 to purchase 1,000 shares of Good Company stock at $200 per share, the 2014 market price. Topdollar can exercise the option anytime over the next 3 years. In 2015, Topdollar purchases 300 shares for a total of $60,000. The fair market value of the shares in 2015 is $100,000. Which of the following options best describes the tax consequences of Topdollar's stock option? a. Good Company had a tax deduction of $40,000 in 2014 b. Topdollar must pay ordinary income tax on $40,000 c. Topdollar must pay ordinary income tax on $60,000 d. a and b e. a and c

False

A "one size fits all" type of health plan is generally cheaper and is accepted by employees just as well as a health plan that tries to consider individual characteristics.

True

A Health Savings Account (HSA) uses a savings account and insurance to cover health care needs.

True

A basic health insurance plan primarily covers hospitalizations.

True

A basic principle of Blue Cross/Blue Shield plan is to offer coverage to any individual who requests it.

True

A comprehensive plan combines the coverage of basic and major medical plans in a single plan.

False

A defined contribution health plan places all burden of payment on the employer.

False

A flexible spending account can be used to pay health insurance premiums.

True

A flexible spending account is a type of cafeteria plan funded with salary reductions that an employee elects annually.

True

A flexible spending plan can reduce employment taxes paid by an employer.

D

A flexible spending plan is beneficial when a. employees need benefits that are difficult to provide on a group basis. b. employees have coinsurance and deductibles to meet for health insurance. c. employer wants to provide relatively more benefits to highly compensated employees. d. a and b. e. a and c.

True

A leveraged ESOP can borrow funds to acquire company stock. The employer can make a tax-deductible contribution to the ESOP that lets the trustee repay the loan principal and interest.

False

A nonstatutory stock option provides greater tax deferral than an ISO.

False

A plan cannot qualify if it involves employees of only one member of a controlled group.

C

A qualified long-term care insurance contract a. is not renewable. b. employer's premium payments are not tax-deductible. c. has no cash surrender value. d. is inexpensive. e. can be paid for from a cafeteria or flexible spending account type of plan.

True

A restricted stock plan can be used to keep recent retiree available for consulting services for a specified period of time.

False

A restricted stock plan cannot be used as a way of keeping retirees tied to the company for a specified time.

True

A stock plan can be more valuable than cash compensation.

False

According to tax law, a Health Savings Account can only be established by an employer on behalf of an employee.

False

According to tax law, individuals with preexisting conditions can be excluded from participation in a group health plan for up to eighteen months.

D

Advantages of a restricted stock plan include which of the following? a. employee can defer taxation until the year restricted stock becomes substantially vested b. employer can give an executive equity interest in the company but withdraw it if certain conditions are not met c. executive has all advantages of stock ownership, but is able to defer taxation d. all of the above e. only a and c

D

Advantages of an incentive stock option (ISO) include which of the following? a. ISOs do not require much, if any, outlay of cash b. income from the sale of stock obtained through exercise of an ISO may be eligible for capital gain treatment c. ISOs generate greater deferral of taxes to an executive than nonstatutory stock options d. all of the above e. only a and b

E

All of the following are components of designing and maintaining a health benefit plan, except a. communicating with employees. b. financing the plan. c. paying claims. d. periodically reviewing and updating the plan. e.selecting participating physicians

True

All trustees are fiduciaries.

False

Although fiduciaries should act in the best interest of plan participants, no actions are specifically prohibited.

E

An ESOP enables the employer company to borrow money on a favorable basis. All of the following are true about ESOP loans, except a. the ESOP trustee borrows money from a lending institution, such as a bank. b. the trustee uses the loan proceeds to purchase stock of the employer from the employer corporation or from principal shareholders. c. the employer makes tax-deductible contributions to the ESOP in amounts sufficient to enable the trustee to pay off the principal and interest of the loan to the lender. d. the leveraging feature of an ESOP loan distinguishes an ESOP from a regular stock bonus plan. e. all of the above are true.

True

An ESOP must meet a requirement that it be invested primarily in employer securities.

B

An ESPP is popular with employees as a type of a. protection from company reductions in the workforce. b. savings. c. welfare benefit. d. portfolio diversity. e. pension.

D

An FSA can include a "grace period" provision under which expenses incurred after the end of the year can be covered under the preceding year's FSA account. How long is the grace period? a. 1 month. b. 1½ months. c. 2 months. d. 2½ months. e. 3 months.

False

An advantage of an employee stock purchase plan is that its value is directly related to employee performance.

C

An all-causes deductible is a. cumulative over a given period. b. a deductible that applies separately to each type of medical expense. c. a deductible that applies to all medical expenses, whether or not for the same condition. d. a and b. e. a and c.

D

An employee can purchase no more than $_____ of stock under an ESPP in any one calendar year. a. 10,000 b. 15,000 c. 20,000 d. 25,000 e. 50,000

True

An employee may have to pay tax when restricted stock is receieved even though, under state law, the employee does not completely own the stock.

True

An employee stock purchase plan generates little to no out-of-pocket cost to the company.

True

An employee stock purchase plan gives employees an interest in the financial success of the business.

False [The plan is for a broad group of employees.]

An employee stock purchase plan is a plan for compensating a select group of employees by giving them the option to purchase company stock at a specified price. (Section 423 Plan)

B

An employee stock purchase plan is a tax-advantaged form of employee compensation that is most effectively used in a a. family corporation. b. large corporation with publicly traded stock. c. closely held corporation. d. all of the above e. only a and c

True

An employee stock purchase plan is a tax-deferred form of compensation.

D

An employer can use a restricted stock plan to a. create a performance incentive for an executive b. discourage employees from setting up a rival business c. retain employees d. all of the above e. only a and c

False

An employer receives a tax deduction for a restricted stock plan in the year that the stock plan is adopted.

True

An executive is not subject to federal income tax on an ISO when the option is granted or exercised.

True

An executive may incur an alternative minimum tax (AMT) liability when an ISO option is exercised.

True

An executive must have cash to exercise an incentive stock option.

False

An executive who receives a stock option must always include in his or her taxable income the fair market value of the stock in the year the stock option was granted.

false

An option has readily ascertainable fair market value if it has value that can be determined at the time of the grant and the option can be traded on an established market.

B

Appleton Enterprises, Inc. is a closely held corporation that employs members of the Appleton family. The company's ESOP has more than 10 percent of plan assets in Appleton stock. Appleton's stock is not publicly traded. Appleton must give employees the right to vote on all corporate issues. a. true. b. false.

B

Arnold Nash, owner of Nash Car Sales, wants to offer his employees a health plan that allows individual contributions as well as individual salary-reduction contributions and employer contributions. He wants the plan to work in conjunction with high-deductible insurance. Nash should select a(n) a. health expenditure plan. b. HSA. c. Archer MSA. d. HRA. e. flexible spending arrangement.

D

As the employee benefit specialist for Alpha Corp., you are explaining COBRA benefits to a group of pre-retirees, between fifty-five and sixty-four years of age. Which of the following do you not list for the group as a qualifying event for COBRA? a. a minor-aged child becomes of legal age. b. employee dies. c. legal separation of employee and spouse. d. employee takes a leave under the Family Medical Leave Act. e. employee becomes eligible for Medicare.

A

Assuming appropriate regulations and requirements are followed, which of the following correctly identify tax issues related to ESPPs? (1) gain on the sale of stock is taxed as a capital gain (2) there is no taxation to the employee until the stock is sold (3) the employee is taxed when the ESPP option is granted (4) the employee will be taxed when the ESPP option is exercised a. (1) and (2) only b. (2) and (3) only c. (3) and (4) only (1) (3) and (4) only

A

At what point does an employer normally receive a tax deduction for a restricted stock plan? a. the year in which the property becomes substantially vested b. two years following a Section 83(b) election c. when the employee purchases stock under the plan d. when the employee sells stock purchased under the plan

B

Baldwin Tire Company wants to provide executives with long-term disability coverage that has different amounts of coverage and terms and conditions than what's provided for rank-and-file employees. If Baldwin takes this action, its long-term disability coverage plan will be deemed discriminatory and disallowed. a. true. b. false.

B (The employees do not meet the criteria of leased employees. Bee Magic works for four separate growers rather than a single grower. Bee Magic is free to accept work from other growers.)

Bee Magic is a beekeeping business that provides bees to pollinate the orchards of local growers. For the past twelve years, Bee Magic has signed contracts with the same four local growers. Are the employees of Bee Magic leased? a. yes, the employees are leased. b. no, the employees are not leased.

A [Ben has a $5,000 deductible on his health insurance policy. Once the $5,000 deductible is paid, the health insurance company will pay remaining costs. Ben can draw out $5,000 from his HSA to cover the deductible.]

Ben Hurten has employer-provided health insurance with a $5,000 deductible that covers himself and his family. On January three of this year, Ben contributed $7,100 to his HSA, the maximum allowed. On January 27, Ben's fourteen-year-old daughter, Ima, had an emergency appendectomy. Ben incurred $10,000 in expenses. How much of the expenses will not be covered by insurance or Ben's HSA? a. $0. b. $4,350. c. $5,000. d. $5,650. e. $10,000.

False

Benefits from health insurance are included in employee taxable income as an in-kind benefit.

B

Bill Martin had $5,000 in his flexible spending account this year to cover dental, medical, and dependent care expenses. During this year, his qualified expenses under the plan were $1,000 in dental expenses, $1,500 in medical expenses, and $2,000 in dependent care expenses. He anticipates $500 in dental, $2,000 in medical and $3,000 in dependent care expenses for next year. a. Bill can roll his unused dollars to the next plan year. b. Bill forfeits $500. c. Bill's dental and medical expenses are paid in full, but only part of the dependent care expenses are covered since $2,000 exceeds one-third of his contribution for the three types of expenses. d. If Bill has an emergency related to a covered expense over $500, he can contribute more to his plan before the close of the plan year to cover the additional expenses. e. Bill can withdraw unspent funds at year-end, add them to his ordinary income, and pay taxes accordingly.

A (Using the plan's assets to buy Lewsky stock could affect the price of the stock he has personally purchased.)

Brady Lewsky is the fiduciary for a benefit plan. Lewsky, Inc. is a company established and later sold by his father. The company is now traded on the stock market and Brady has invested personal funds in the company because he thinks it's a good investment. After additional research and careful consideration, Brady wants to invest the plan's assets in Lewsky, Inc. Would this investment breach Brady's responsibilities to the plan? a. yes, investing the plan's assets would breach Brady's responsibilities to the plan. b. no, investing the plan's assets would not breach Brady's responsibilities to the plan.

A

Braxton Kelly is a highly sought after computer technician. Braxton has a restricted stock plan with his employer that stipulates that if he goes to work for a competitor, he will forfeit his rights under the restricted stock plan. This limitation is sufficient for the IRS to conclude that a substantial risk for forfeiture exists for Braxton. a. True b. False

D

Common exclusions in a long-term disability policy include which of the following? a. disability during a time the employee is not under a physician's care. b. disability caused by a self-inflicted injury. c. disability beginning before the employee is eligible for plan coverage. d. all of the above. e. only a and b.

E

Common features of long-term disability policies include a. waiting period of three to twelve months before eligible for benefits. b. coverage of full-time employees only. c. a broad definition of disability. d. all of the above. e. only a and b.

C

Conservative Corp. wants to provide employees with low cost long-term disability coverage. As the company's financial advisor, you explain that integrating long-term disability coverage with ________ will accomplish that goal. a. Social Security. b. worker's compensation. c. a and b.

E

Corporate stockholders must approve the ISO plan _____ it is adopted by the company's board of directors. a. when b. within one week of the time c. within 10 days of the time d. within one month of the time e. within one year of the time

True

Corporate-owned life insurance is an option for providing continuing health coverage for retirees.

True

Defined contribution health plans shift payment and selection features of health insurance from employers to employees.

C

Disadvantages of a flexible spending account include all of the following except a. a flexible spending account must meet complex nondiscrimination requirements. b. benefit elections are generally fixed for the entire plan year. c. employer must contribute to employee flexible spending accounts. d. flexible spending accounts must be used within a calendar year or forfeited. e. administration of a flexible spending account plan is relatively more expensive for an employer than a standard benefit package.

D

Disadvantages of a stock option include which of the following? a. employee bears market risk b. market fluctuation may have little relationship with employee performance c. employee must have a source of funds to purchase stock d. all of the above e. only a and b

A

Disadvantages of an HMO include a. except for certain emergencies, HMO subscribers must receive care from physicians who are part of the HMO. b. an HMO is more costly if employees are relatively young. c. HMOs offer fewer health care services than traditional health insurance. d. a and b. e. b and c.

D

Disadvantages of an employee stock purchase plan include a. the employee bears the market risk. b. the employee must have a source of funds to purchase the stock. c. the employer usually does not receive a tax deduction under an employee stock purchase plan. d. all of the above e. only a and b

E

Disadvantages of restricted stock plans from the view of the employer include all of the following, except a. issue of new shares of restricted stock tends to dilute ownership b. change in stock value may be unrelated to executive performance c. S corporations must ensure restrictions do not create a second class of stocks d. employer may have no control over amount or timing of tax deduction e. substantial risk of forfeiture must be established for the employee to obtain favorable tax treatment

B (The affiliated service group rules basically eliminate this type of planning or restrict it severely.)

Dr. Xavier Ray, a radiologist, set up a private practice. He formed a separate support business that became the employer of his service staff. Dr. Ray wants to know if he can now set up a qualified plan to cover himself and not the employees of the support business. a. yes, Xavier can have a qualified plan that covers him and not the employees. b. no, the employees should be covered by a qualified plan.

A

ERISA requirements of long-term disability plans include which of the following? a. plan provisions written and communicated to employees in a Summary Plan Document (SPD). b. meeting eligibility and vesting rules. c. meeting funding requirements. d. a and c. e. b and c.

True

ESPP benefits are forbidden to people who own more than 5%.

True

ESPP options must be exercised within 5 years.

True

ESPPS have little to no out of pocket costs to the company.

False

ESPPs are used by closely held corporations.

True

Employer health insurance plans generally cover all employees.

False

Employer payment of premium for long-term disability insurance on an employee is taxable to that employee in the year the payment is made.

False

Employer-provided long-term disability plans are subject to nondiscrimination rules.

True

Employers can use a restricted stock plan to reduce the chance that a savvy executive would learn trade secrets and then go to work for a competitor.

True

Equity based compensation is very useful as an executive incentive in high growth companies.

D

Erin Lauder elected in December of last year to have $300 a month redirected from her salary to her flexible spending account with her employer. In January of this year, Erin was in a car accident. Her medical expenses that were covered by her FSA plan amounted to $900, but she had deposited only $300 into her FSA so far this year. a. Erin can only get $300 reimbursement from her FSA in January. b. Erin can get $900 from her FSA, but $600 will be taxed as ordinary income. c. Erin can get $900, but she must be willing to accept $300 per month for three months. d. Erin can get $900, but her employer is at risk of loss if Erin leaves the corporation before she has deposited an amount equivalent to her withdrawal. e. Erin can get $900, but she must wait until the beginning of April when she has $900 deposited into her account.

False

Essential benefits under the Affordable Care Act exclude wellness services.

C

Evaluating expenses to determine if they are reasonable complies with the a. duty of loyalty. b. duty to diversify. c. "exclusive purpose" rule. d. "prudent person" rule.

False

Excluding stock from consideration when identifying a controlled group makes it less likely that the tests will be met.

A

Executive Michael Waldron has company stock obtained through an incentive stock option plan. Waldron has held the stock 3 years after the option was granted and 2 years after exercise of the option. Michael sold the stock last month. Tax consequences for Michael include a. gain on sale is taxed at long-term capital gain rates b. gain on sale is taxed at short-term capital gain rates c. gain on sale is taxed as ordinary income d. difference between option price and fair market value is taxed as ordinary income e. difference between option price and fair market value is taxed as short-term capital gains

D [Topdollar's basis is $60,000 paid for the shares + $40,000 of ordinary income (calculated as $100,000 fair market value on date of purchase less $60,000 option price), or $100,000.]

Executive Topdollar was given an option in 2011 to purchase 1,000 shares of Good Company stock at $200 per share, the 2011 market price. In 2013, Topdollar purchases 300 shares for a total of $60,000. The fair market value of the shares in 2013 is $100,000. Topdollar sold the 300 shares of stock in 2015 for $500 per share. Topdollar's basis in the shares acquired under his stock option plan is a. $0. b. $40,000. c. $60,000. d. $100,000. e. $200,000

E

Factors that may be taken into account in determining whether a covenant not to compete constitutes a substantial risk of forfeiture include a. the employee's skill level. b. the employee's age. c. the employer's willingness to enforce noncompete agreements. d. the employer's goals. e. all of the above

False

Fiduciaries are required to act in accordance with a plan's terms if they differ from ERISA.

D

Fiduciaries have been sued for breach of loyalty for a. making prudent investments. b. maintaining investment policy statements. c. engaging a service provider. d. using plan assets to purchase shares in companies to advance their own interests in those companies.

True

Fiduciaries may breach the duty of loyalty by acting in the interests of third parties.

D

Fiduciary status is determined by a. ERISA. b. the person's title. c. a financial institution. d. the functions that a person performs relative to an employee benefit plan.

False

Flexibile spending account benefits can be provided to self-employed persons—partners or sole proprietors.

D

For a single individual, contributions may be made by the following methods except a. through salary reductions under an employer cafeteria plan. b. directly by employers. c. directly by an individual. d. by the employee at the family coverage rate. e. by check.

False

Funds in an HSA can be used for a broad array of medical services, including cosmetic surgery.

False

Funds in an HSA can be used to pay for the employee's share of health care coverage such as co-pays or deductibles.

True

HMOs try to control costs by emphasizing preventative care.

True

HSAs may provide employers a way to save on health insurance costs or offer an exit strategy for high-cost plans.

C [Hall did not hold Global stock long enough to get tax benefits. Because he did not meet holding period requirements, Hal has additional compensation income = $1,000 fair market value at purchase - $500 option price = $500]

Hal Overton is a middle manager of Global Corporation. One year ago, Hal received a stock option for 100 shares of stock from Global. The option price was $5.00 a share. When he exercised his option three months ago, the stock had risen to $10.00 per share. Hal resigned from Global last month to take an executive position at rival Universal Corporation. Tax consequences for Hal include a. taxable income at the time the stock option was granted. b. no taxable income at the time the stock option was exercised. c. $500 in taxable compensation income. d. $1,000 in taxable compensation income payable this year. e. $1,000 in taxable compensation income payable next tax year.

B [Hammond wants to keep the business in the family; transfer of stock to an outside hire will dilute ownership.]

Hammond Publishing is a closely held company. The owner wants to keep the company in the Hammond family. Hammond wants to attract an effective CEO to join the company and cannot hire within the family to fill this position. Use of a stock option would help Hammond accomplish all of the company's important objectives. a. True b. False

A

Hank Zetter is an executive at Marco Fashions. Marco Fashions has given Hank a restricted stock plan that states if he fails to achieve $500,000 in sales each quarter for the next 10 years, he forfeits his claim on the stock in the plan. The IRS would view this provision as a substantial risk of forfeiture. a. True b. False

True

Health FSAs must comply with COBRA and HIPAA.

B

Hedgepeth Insdustries granted an incentive stock option (ISO) to executive Jason Meric. Hedgepeth can take a tax deduction when the ISO is granted. a. True b. False

A

High-deductible health insurance is required with which of the following? a. a Health Savings Account. b. a Health Reimbursement Arrangement. c. flexible spending account. d. a and b. e. a and c.

D

Homer Tanner, a foreman at Wellville Steel, pays the premium for a long-term disability policy that has a three-month waiting period and replaces 70 percent of pay. Homer suffered brain damage in an auto accident. Full recovery took nine months. Six months after the accident, Homer was able to return to work on a part-time basis. Still very unsteady on his feet, Homer oversaw just one section of the production line while in a wheelchair. Homer's long-term disability payments ceased when he went back to work. Which of the following is true? (1) Homer's long-term disability payments were taxed as ordinary income (2) Homer's long-term disability payments were tax-free (3) the definition of disability in his long-term disability policy was "own occupation" (4) the definition of disability in his long-term disability policy was "qualified for" (5) the definition of disability in his long-term disability policy was "total and permanent" a. (1) and (2) only. b. (2) and (3) only. c. (1) and (4) only. d. (2) and (4) only. e. (1) and (5) only.

B

How long must stock acquired by an employee under the ISO be held to satisfy section 422 regulations? (1) at least two years after the option grant (2) one year from the date stock is transferred to the employee (3) until the fifth year of employment (4) one year after the option grant a. (1) only b. (1) and (2) only c. (1) (2) and (3) only d. (2) (3) and (4) only

A [The plan can exclude those with less than 2 years of service, part-time employees that work less than 20 hours per week, and highly compensated; so must cover 60 - 5 = 55]

Hudson Bellington owns 51% of the stock of Bellington Corporation. Two key employees each own 15% of the company. Bellington Corporation has 60 other employees, including five that joined the company last year. In addition to these workers, two part-timers share a job as office assistants, each working a 15-hour week. Bellington has just installed an employee stock purchase plan as an incentive plan. The plan must cover _____ employees. a. 55 b. 60 c. 62 d. 63 e. 65

A [selling price ($17 × 200 = 3,400) less purchase price ($10 × 200 = $2,000) equals gain ($1,400); amount reported as wages is (value at option less option price) × # shares {($13 - $10) × 200 = $600; gain ($1,400) less wages ($600) = capital gain ($800)]

Hugh Green's employer, Jolly Foods, granted Hugh a stock option under its employee stock purchase plan to buy 200 shares of Jolly Foods stock for $10 per share when the market price was $13 per share. A year and a half later, when the stock had a value of $15 per share, Hugh exercised his option. Fourteen months later, when the stock was $17 per share, Hugh sold his stock. In the year of sale, Hugh had to report _____ as wages and _____ as capital gains. a. $600, $800 b. $600, $1400 c. $1,000, $400 d. $300, $1,100 e. $1,100, $400

False

If a state does not establish an exchange individuals and small employers must buy health insurance directly from insurance companies.

True

If a stock option has no readily ascertainable fair market value at the time it is transferred to an executive, there is no taxable income to the executive at the date of the grant.

C

In 2017 Susan is granted stock options for 500 shares of her publicly-traded employer. The option price is $40 per share, and at the time the options are granted the stock is trading for $67 per share. Susan does not exercise her options until 2019, at which time the stock is trading for $80 per share. As a result of exercising the options: a. Susan will have $20,000 in additional income in 2017 and she must file an amended return. b. Susan will have $11,500 in income in 2019. c. Susan will have $20,000 in income in 2019. d. Susan will not have any additional income until she sells the stock.

False

In ESOPs and stock bonus plans, employer contributions are always in the form of shares of stock.

E

In November of last year, Alice Cramer directed her employer to deposit $400 per month via salary reduction into a flexible spending account (FSA) to cover dependent care expenses for her two-year-old daughter, Shasta. The FSA year runs from January to December. Her husband lost his job in August of this year. Alice and her husband decide they can save money if he takes care of Shasta during the day and gets a part-time job in the evening. a. Alice must wait until November of this year to make any changes in her FSA. b. Alice's situation is not a qualifying event; income tax on all prior salary reductions for the year will be charged if Alice changes her FSA salary reduction during the benefit year. c. Alice's situation is not a qualifying event; she must treat the funds that formerly went to the salary reduction FSA as ordinary income and pay taxes accordingly. d. Alice's situation is a qualifying event; she will be assessed a penalty of 10 percent of her salary reduction if she changes her FSA salary reduction during the benefit year. e. Alice's situation is a qualifying event; she can make a change in her FSA salary reduction without penalty.

True

In a controlled group, employees of an affiliated service group can be treated as employed by a single employer.

D

In health insurance plan design, which of the following are vitally important aspects of that design? a. efficient delivery of benefits. b. meeting employer's cost constraints. c. having employees see the plan in a positive light. d. all of the above. e. only a and b.

D

In selecting a managed care plan, Tipton Enterprises wanted to be certain that decisions to perform a medical or surgical procedure are reviewed by qualified medical providers and approved before being completed. The health care management tool(s) that Tipton should be sure is (are) included in a managed care contract is (are) a. peer review. b. utilization review. c. quality review. d. only a or b. e. only a or c.

B

In the absence of any additional agreement, when is the employee usually taxed on stock options? a. when the option is issued b. when the option is exercised c. when the underlying stock reaches a target price d. when the underlying stock splits

True

In the event of a severe, long-term disability, Social Security disability benefit levels are not adequate for highly paid employees to maintain their standard of living.

A

Incentive stock options are used mostly by a. large C corporations with public stock. b. S corporations. c. closely held businesses. d. only a and b e. only b and c

True

Individual long-term care policies may become more common than employer plans because employers may not be able to provide this benefit on a cost-effective basis,

E

Jackson Kerpatrik, age forty, is an employee of Beason Industries. Beason has an ESOP. This year, the ESOP purchased stock for $500 and allocated it to Jackson's account. Twenty-five years from today, Jackson retires and receives this stock in a lump sum distribution. At the time of his retirement, the stock that was allocated to Jackson's account this year is worth $5,000. Jackson pays taxes on a. $5,500. b. $4,500. c. $5,000. d. no tax at time of distribution; all initial deposits and gains taxed when stock is sold. e. $500 at time of distribution; gains are taxed when the stock is sold.

D (At this point, neither Janey nor Julia has performed an action that must be made by a fiduciary.)

Janey and Julia Rand shared many of the tasks involved in establishing a benefit plan for their company. Janey established the plan. Julia selected the benefits that would be provided, which meant Janey had to make changes to the plan. Julia educated plan participants and provided some general training about how to select investments. Who was the plan's fiduciary? a. Janey Rand. b. Julia Rand. c. both Janey and Julia Rand. d. neither Janey nor Julia Rand.

D

Jim and Tim are partners in JT Enterprises. The partnership contributes $1,000 annually to each partner account to cover a $12,000 deductible health policy. Jim and Tim have asked you to explain the consequences of treating HSA contributions as guaranteed payments. You tell Jim and Tim if they do so, guaranteed payments a. are deductible to the partnership. b. do not change the amount of partnership income taxed to any partner. c. are excluded from partner's net earnings from self-employment. d. a and b. e. a and c.

D (Courts focus on a fiduciary's conduct in arriving at an investment decision, not on the decision's results.)

Liza Mayfair is the fiduciary for a company plan in which all investment decisions are made by the fiduciary. Liza made some investments with the plan's assets that lost a lot of money. The board of directors has politely requested her presence at the next board meeting. How should Liza defend herself? a. the board's actions are not consistent with ERISA. b. the plan participants should select their own investments. c. Liza made the investments to diversify. d. Liza complied with the "prudent person" rule to select the investments and monitored the investments after purchase.

False

Long-term disability payments generally replace close to 100 percent of salary for a limited time (e.g., six months) and then drop down to around 60 percent of former income.

E

Meg Tandour owns ChipSet, a computer chip manufacturing firm. Meg has built the company from the ground up and has decided that it is now large enough to benefit from hiring a CEO to free her to do other things. ChipSet is a closely held company. A restricted stock plan would a. allow Meg to have a no-compete clause in the CEO's contract that carried some weight b. dilute company ownership c. give Meg a tax deduction the year that stock is given to an employee d. all of the above e. only a and b

C

Megan Farley received $150,000 worth of incentive stock option (ISO) stock in November of last year that is exercisable for the first time during the next calendar year. Which of the following best describes the tax consequences that Megan faces as a result of the ISO? a. Megan is subject to federal income tax on the ISO when it is granted b. Megan is subject to federal income tax on the ISO when she exercises her option c. $50,000 of Megan's ISO stock is treated as a nonstatutory stock option d. a and c e. a and d

B (Melissa, Mandy, and their employees now work for Vacay, Inc. They will be taken into consideration by Vacay's qualified plan.)

Melissa and Mandy Day inherited Daybreak, a bed and breakfast business, from their parents. They sold the business to Vacay, Inc., but remained as managers Daybreak. They receive a salary for managing Daybreak and a commission for new reservations. Melissa and Mandy manage the facility and employees. Can they continue the qualified plan their parents had that covers Melissa, Mandy, and their employees? a. yes, they can continue the existing qualified plan. e. no, they can't continue the existing qualified plan.

E

Moribund Industries, Inc., is a five-year-old company with twenty-five employees between eighteen and twenty-four years of age. As a financial advisor to the company owner, which of the following approaches to health care coverage for employees would you not recommend? a. Blue Cross. b. Blue Shield. c. commercial health insurance. d. health maintenance organization. e. self-funding.

C

Mosher Gahn's employer, Ace Accounting and Bookkeeping Services, provides long-term disability insurance for employees. Ace pays 70 percent of the premium and the employee pays 30 percent. Last year, Mosher had a serious heart attack and could not work at all for nine months. Then he returned to work on a part-time basis for a couple of months before returning full time almost a year after the heart attack. Which of the following is (are) true regarding Mosher's long-term disability benefits? a. Mosher will be taxed on the entire benefit. b. Mosher will pay income tax on 30 percent of the benefits received. c. Mosher will pay income tax on 70 percent of the benefits received. d. Mosher will pay no income tax on the benefits received. e. As long as Mosher cannot work, he does not pay tax on benefits earned. Once he begins working again, however, he must pay income tax on the entire benefit received.

False

Most employees are willing to accept less cash compensation in return for health benefits.

False

Most major medical plans cover routine doctor visits.

A

On what basis are stock options usually taxed when the option has no readily ascertainable fair market value? a. the difference between the fair market value of the shares when purchased and the option price b. the fair market value of the shares c. the option price plus ½ the fair market value of the stock when sold d. the price when the shares are sold minus the original option value

E

Only the first $_____ worth of ISO stock granted any one employee is entitled to favorable tax treatment. a. 10,000 b. 25,000 c. 50,000 d. 75,000 e. 100,000

C

Pamela Renquist, owner of Advance Software Solutions, Inc., wants to install a stock-based retirement plan for herself and her employees. She has a young company that has averaged 5 percent a year growth since opening five years ago. Pamela has asked you, her financial advisor, to help her understand which type of plan would be more advantageous for Advance Software Solutions—a stock bonus plan or an ESOP. You tell Pamela that a. both plans are identical except that an ESOP can be integrated with Social Security while a stock bonus plan cannot, making an ESOP less expensive to provide. b. only a stock bonus plan requires a "put option," making it more difficult to retire employees when company cash is short. c. the ability to use the ESOP to borrow money with tax-deductible dollars could be advantageous to a young and growing business. d. an ESOP will dilute company ownership, but the diversification requirements in a stock bonus plan prevent that from happening. e. only an ESOP can be used to fund a corporate buy-sell agreement and should be used if Pamela wants to control business succession.

False

Participants in an ESOP hold company stock, but they do not have voting rights on corporate issues.

False

Partnerships and proprietorships can't be controlled groups.

E

Premiums for commercial health insurance contracts include all of the following except a. administrative expenses. b. profit for insurance provider. c. expected benefit payments. d. commissions. e. federal premium taxes.

True

Premiums for commercial health insurance include such costs as commissions and state premium taxes.

True

Prospective pricing means the employer negotiates price of health care services before the services are needed.

True

Restricted stock arrangements often qualify for exemption from registration with the Securities and Exchange Commission.

D

Sal Holbert receives restricted stock in 2015 that is deemed for tax purposes to be substantially vested in 2013 a. Sal pays tax in 2015 b. Sal's employer gets a tax deduction in 2015 c. restrictions on the stock can prohibit Sal from selling the stock in 2015 d. all of the above e. only a and b

B

Set-up of an employee stock purchase plan requires a. a written plan. b. approval by stockholders of granting corporation within a year before or after plan adoption. c. notification of employees that plan has been initiated. d. all of the above e. only b and c

C

Some health economists argue that offering an HSA as an alternative to traditional health insurance will eventually increase premiums for traditional health insurance because a. older employees will tend to use the HSA. b. employees that are younger and healthier will want to have coverage under a traditional plan. c. healthy, high-income employees will select the HSA, leaving relatively sicker and older employees in the traditional health plan. d. premiums of the traditional plan will go up with inflation, but HSA costs are fixed by long-term contract. e.distributions from an HSA are included in employee income and taxed, while the proceeds from traditional insurance is not, increasing demand for traditional health coverage

A (The employees meet the criteria of leased employees. They have worked full-time for Spaw Day for more than a year and the services are performed under Spaw Animal Clinic's primary direction and control.)

Spaw Day is a dog grooming service that has been in business for five years. It employs two full-time groomers and several part-time workers. All appointments are made through Dr. Jeffrey Barker's Spaw Animal Clinic, the pets are groomed in a separate area in the animal clinic, and all of the pets groomed are Dr. Barker's clients. Are the employees of Spaw Day leased? a. yes, the employees are leased. b. no, the employees are not leased.

C

Steve Stockton's employer gave him a stock option under its employee stock purchase plan to buy 500 shares of company stock. Steve held the stock for 1 year before he exercised the option and then sold it six months later. Which of the following is true? a. Steve must treat the total amount received from the sale as taxable wage income. b. Steve's employer receives no tax deduction. c. Steve's employer receives a tax deduction equal to the amount that Steve must include as income. d. Steve has no taxable income from receiving or selling the stock. e. Steve must treat the total amount received from the sale as a capital gain.

D

Stock bonus plans and ESOPs share many characteristics, but ESOPs have some unique characteristics. Which of the following characteristics is (are) unique to an ESOP? a. accounts of employees over fifty-five must be offered diversification. b. employer's ability to borrow to leverage ownership. c. tax-free treatment of appreciated company stock distributed to a retiree. d. a and b. e. b and c.

False

Stock option plans are most often used by closely held corporations.

False

Stock option plans must comply with nondiscrimination coverage rules.

True

Stock options are a form of deferred compensation, with the amount of compensation based on increases in the value of the company's stock.

False

Stock options are a high out-of-pocket expense for companies with high stock prices.

True

Stock options are form of compensation with little or no out of pockets costs to the company.

False

Stock options often are used by closely held corporations as a way to reward executives.

False

Tax laws are the same whether or not company stock has readily ascertainable fair market value at the time that is granted.

B

The Aglow Candle Shoppe has five full-time and two part-time employees. The two part-time employees and one full-time employee are college students. A flexible spending plan would be an appropriate employee benefit for this business. a. true. b. false.

True

The HSA fund is not subject to income tax.

False

The IRC generally limits the amount of employer stock that can be in a retirement plan. Diversification is not required, however, for employee stock ownership plans (ESOPs).

B

The _____ definition of disability is defined as the total and continuous inability of the employee to engage in any and every gainful occupation for which he or she is qualified or shall reasonably become qualified by reason of training, education, or experience. a. Social Security. b. qualified for. c. total and permanent. d. regular occupation. e. own occupation.

True

The ability to treat subsequent gains in stock value at favorable capital gain rates make a section 83(b) attractive to executives.

D

The bargain element is a. the lowest price of a stock option in the year it was granted. b. the negotiated value of a stock option when it is sold. c. the difference between the lowest value and the highest value of a stock option between the time it is granted and sold. d. the difference between the fair market value of the shares at the date of purchase and the option price e. the amount a company would pay for its own stock rather than the amount any other buyer would pay for the company's stock.

True

The common control rules are complicated, because the forms in which businesses can be owned are complicated.

False

The company bears investment risk when granting stock option to executives.

True

The corporation gets a deduction for the compensation income element that an executive must recognize if stock is sold before the two year/one year holding period.

False

The corporation granting an incentive stock option (ISO) receives a tax deduction when the employee exercises the option.

A

The disadvantages of an incentive stock option (ISO) include all of the following except a. the recipient must pay tax when the ISO is issued. b. the recipient must have sufficient cash to exercise the ISO. c. the granting corporation does not receive a tax deduction at any time. d. the plan must meet complex Internal Revenue Code rulings. e. the exercise price of an ISO must at least equal the fair market value of the stock when the option is granted.

False

The employer bears the market risk of ESPP.

A

The final step in enacting a plan is a. forfeiture of unused funds in the employee's benefit account. b. making a list of expenses in each benefit category. c. employee review of benefit needs. d. selection of the benefits provided. e. adopting the plan.

True

The granting corporation does not get a tax deduction for granting an ISO.

True

The incentive stock option (ISO) provides greater deferral of taxes to the executive than a nonstatutory stock option.

D

The owner of Hearth Home Bakery wants to install a health plan that will place greater responsibility for maintaining low health care costs directly on employees. The best way of doing this is for Hearth Home to offer employees a. traditional health care insurance. b. a managed care health plan. c. a Health Reimbursement Arrangement. d. a Health Savings Account. e. prospective pricing on health care.

C

The owner of Pinnacle Management Services, Inc., wants to provide health benefits for the executive staff that are over and above the benefits provided for the rank-and-file employees. The best way of doing this is for Pinnacle to utililize a. traditional health care insurance. b. a managed care health plan. c. a Health Reimbursement Arrangement. d. a Health Savings Account. e. prospective pricing on health care.

B

The owner of Sierra Sporting Goods encourages her employees to stay healthy. An employee benefit is an annual membership to the local athletic club. Every year, the store sponsors a mini-triathlon for area sports enthusiasts and awards a $100 bonus to each employee who participates and finishes the mini-triathlon and a $250 bonus to any employee who places in the top three on any race in the mini-triathlon. The health care management tool(s) that Sierra's owner is using is (are) a. peer review. b. lifestyle management. c. cost sharing. d. a and b. e. b and c.

E

The owners of Best Manufacturing are third-generation members of the Best family and do not want to share ownership of their closely held business. For day-to-day operations of the business, the owners have a CEO and employees who are not related to the business. Best is considering using a stock ownership plan to provide some additional reward for its CEO after she led the company to record high earnings for two straight years. You advise the owners that use of a stock option plan will a. result in little out-of-pocket costs to Best Manufacturing. b. allow Best Manufacturing to take a tax deduction in the year the stock option is granted to the CEO. c. give the CEO an ownership interest in the company. d. all of the above e. only a and c

E

The owners of MegaStat Corporation have asked for your help in designing a health benefit program for retirees. The owners tell you that they need a plan that has a low initial cash flow, is simple to implement, and has no nondiscrimination requirements to meet. You recommend a. a VEBA. b. corporate-owned life insurance. c. increased pension benefits. d. a health maintenance plan. e. a pay-as-you-go system.

True

The purpose of cost sharing is to encourage employees to limit health care spending.

False

The special tax treatment of ISOs is automatic, no further tax rules must be met.

D

The stock of Vagabond Corporation is not publicly traded. Vagabond has an ESOP. A. Wanderer, an employee, a. can expect that stock valuations will be made by an independent appraiser. b. can demand that distributions from the ESOP be made in the form of employer stock. c. can exercise a "put option." d. all of the above. e. only a and b.

A

Three or more corporations each of which is a member of a parent-subsidiary group or a brother-sister group and one of which is a common parent of a parent-subsidiary group and is also included in a brother-sister group is known as a. a. combined group. b. sibling group. c. master group. d. family group.

C

To be a brother-sister controlled group, the 80 percent test is applied to a. profit. b. stock ownership. c. voting power. d. an interest in profits or a capital interest.

D

To be a parent-subsidiary controlled group, the 80 percent test is applied to a. profit. b. stock ownership. c. voting power. d. an interest in profits or a capital interest.

B

To be eligible for a small business health plan tax credit, a business must a. employ members of the owner's family. b. have fewer than twenty-five full-time workers. c. have an average wage less than $30,000. d. not have any creditors. e. all of the above.

B

To comply with the "prudent person" rule, fiduciaries a. pay expenses for administering the plan. b. investigate the merits of potential investments. c. invest in securities. d. act in accordance with the plan's terms.

True

To enjoy favorable tax treatment with an incentive stock option (ISO), the exercise price of the option must be at least equal to the fair market value of the stock on the date the option is granted.

True

Traditional health care plans are postponed.

True

Traditional health insurance plans are postpaid plans.

D

Under the Affordable Care Act, all of the following are considered essential benefits, except a. preventive and wellness services. b. emergency care services. c. prescription drugs. d. hearing care services and devices. e. mental health and substance abuse disorder services.

B

Valquez Alura, an executive with Harbor Millwork, is covered under her company's incentive stock option (ISO) plan. Under the plan, Valquez is granted an option in 2012 to purchase company stock for $50 per share. In April of 2014, Valquez exercises this option and purchases 100 shares for $5,000. The fair market value of the shares when she exercised the option was $7,500. In November of 2015, she sold the 100 shares for $10,000. What is Valquez's compensation income from this transaction? a. $0 b. $2,500 c. $5,000 d. $7,500 e. $10,000

True

Vesting can be tied to a performance goal to encourage employees to achieve business goals.

B

Wally Fishbein made contributions to an HSA while an employee of Fishing Expeditions. Wally retired this year at age sixty-five and is now enrolled in Medicare. Which of the following is (are) true for Wally? a. Wally is still eligible for an HSA. b. Wally's distributions from his HSA are tax free if used to pay qualified medical expenses. c. distributions from his HSA are taxable, but not subject to a 20 percent penalty because Wally is sixty-five. d. a and b. e. b and c.

A

What amount is included in the executive's AMT calculation when an ISO is exercised? a. excess of the stock's fair market value over the option price at time of exercise b. excess of the option price over the stock's fair market value at time of exercise c. option price of stock at time of grant d. fair market value of stock at time of grant

D

What benefit is gained by offering an ISO? (1) there may be AMT when an ISO is exercised (2) the ISO provides greater tax deferral than a nonstatutory option (3) income from sale of stock received at exercise may be eligible for preferential capital gain treatment (4) the company has little or no out-of-pocket cost with an ISO a. (1) only b. (1) and (2) only c. (1) (2) and (3) only d. (2) (3) and (4) only

B

What does an owner of a small business expect to happen after his or her death? a. the company will sell the owner's shares to another company. b. the company will buy the owner's shares from the estate. c. the owner's shares will no longer exist. d. the owner's shares will be reallocated to the other owners.

D

What is considered to be the basis in shares acquired under a stock option plan when an option has no readily ascertainable fair market value? a. the option price plus the difference between the price of the stock and the exercise price b. the strike price plus any commissions c. the amount paid for the stock minus any additional taxable income d. the amount paid for the stock plus the amount of taxable income reported at the time the option was exercised

C

What is the minimum allowable exercise price of the option? a. fair market value of the stock on date of exercise, less 25% b. option price plus 25% of the current market price c. fair market value of the stock on the date the option is granted d. one-half the current fair market value of the stock

A

What is the purpose of a common control group? a. to prevent a business owner from getting around the coverage and nondiscrimination requirements for qualified plans. b. to simplify administration of an employee benefits plan. c. to reduce the cost of an employee benefits plan. d. to segregate employees who get better benefits from employees who get few or no benefits.

D

What tax rules apply when an option does have a readily ascertainable fair market value at the time of the grant? (1) the option is taxed based on the difference between the stock price and the option's value at the time of the grant (2) the option is taxed at the time of the grant (3) the employer receives a tax deduction at the time of the grant (4) the employee has no further taxable compensation income when the option is exercised a. (1) and (3) only b. (1) (2) and (3) only c. (2) (3) and (4) only d. (1) (2) (3) and (4)

False

When determining if a fiduciary followed the "prudent person" rule, courts must consider the results of an investment.

D

Which of the following ERISA requirements must be met by ESPPs? (1) Form 5500 reporting (2) participation (3) funding (4) vesting a. (1) and (2) only b. (3) and (4) only c. all of the above d. none of the above

C

Which of the following are estate planning-related problems that an ESOP or stock bonus plan may help to reduce or eliminate? (1) plan income is taxed at the lower 15 percent marginal tax rate (2) funds accumulated by the corporation for the purchase of stock at death may result in exposure to the accumulated earnings tax (3) receipt by the corporation of life insurance proceeds may trigger the corporate AMT (4) insurance owned by the corporation to fund a buyout increases corporate value and, thereby, federal estate tax a. (1) and (3) only. b. (1) (2) and (3) only. c. (2) and (4) only. d. (1) (2) (3) and (4).

D

Which of the following are reasons why an employer might use an ESOP/stock bonus plan? (1) to guarantee specific retirement income amounts for employees (2) to provide a tax-advantaged means for employees to acquire company stock (3) to allow the company to borrow money for business needs (4) to broaden company ownership to help prevent a hostile takeover a. (1) only. b. (1) and (2) only. c. (1) (2) and (3) only. d. (2) (3) and (4) only.

C

Which of the following are regulations governing ESPPs? (1) benefits are limited to $25,000 per year (2) benefits are forbidden to more than 5% owners (3) the plan must cover all employees, with few exceptions (4) the plan may not cover employees of the employer's parent corporation a. (1) only b. (1) and (2) only c. (1) (2) and (3) only d. (2) (3) and (4) onlyC

B

Which of the following benefits are not allowed in a flexible spending account? a. dental care. b. long-term care. c. dependent care reimbursement. d. purchase of eyeglasses. e. purchase of hearing aids.

B

Which of the following contains common control rules? a. 404(b). b. 414(b). c. 410(m). d. 412(n).

A

Which of the following correctly identifies the ESOP/stock bonus plan requirement that an employer must repurchase stock that is not traded on an established market? a. put option. b. ESOP loan. c. deemed IRA option. d. ERISA 10 percent requirement.

D

Which of the following implications of federal securities laws may apply to restricted stock? (1) no federal securities laws ever apply (2) if stock is issued without cost, federal securities registrations are not generally required (3) securities laws may apply to stock issued to executives (4) the private placement securities exemption may apply a. (1) only b. (2) and (3) only c. (3) and (4) only d. (2) (3) and (4) only

D [voting rights are more limited if the stock is privately held]

Which of the following is (are) true regarding an ESOP or stock bonus plan? a. participant's accounts are stated in terms of stock. b. employer contributions to employee accounts can be in stock or cash. c. stockholders must be given the right to vote on all issues. d. a and b. e. a and c.

A

Which of the following is a fiduciary function? a. selecting a service provider for a plan. b. establishing a plan. c. selecting a plan's benefits. d. providing actuarial services.

A

Which of the following is not a managed health care tool or technique? a. reimbursement for out-of-pocket costs. b. negotiated discounts with health care service providers. c. quality review. d. cost sharing with employees. e. lifestyle management.

E

Which of the following is not an advantage of HSAs? a. HSAs offer tax-saving opportunities to eligible individuals. b. the amount that can be accumulated in an HSA can be considerable because there is no actual requirement that HSA account balances be used to pay medical expenses. c. a participant in an employer's qualified plan can contribute to an HSA regardless of income. d. unused funds in an HSA are not forfeited at year-end and can grow tax free. e. when it comes to the 20 percent penalty for early distributions, HSAs have more exceptions than do IRAs.

D

Which of the following is true regarding HSA funding? a. IRS permission is needed to establish the fund. b. amounts not used for qualified medical expenses during a calendar year are forfeited. c. there is a cap on asset accumulation in an HSA. d. HSA funding is not subject to income tax. e.HSA funds can be withdrawn only if used for qualified medical expenses

D

Which of the following is true regarding health care costs? a. health care costs have risen faster than the rate of inflation. b. employers face increasing cost pressures relative to health care costs. c. traditional health care plans allow employers fewer methods of cost control than managed health care. d. all of the above. e. only a and b.

D

Which of the following is true regarding restricted stock plans? a. restricted stock plans can be designed as incentive plans, similar to bonus plans b. restricted stock plans should be used only when the employer is willing to create new shareholders of the company c. restricted stock plans may include a provision that the employee cannot re-sell the stock without first offering it back to the company d. all of the above e. only a and b

B

Which of the following may be required for a C corporation to be able to deduct dividends paid on stock acquired with an ESOP loan? (1) dividends must be paid in cash (2) dividends must be used to make payments on certain loans incurred to acquire employer stock (3) dividends must be paid to the plan and distributed within 90 days to plan participants or beneficiaries (4) dividends must be guaranteed a. (1) and (3) only. b. (1) (2) and (3) only. c. (2) (3) and (4) only. d. (1) (2) (3) and (4).

E

Which of the following options is (are) true regarding the tax implications of a stock option that does not have a readily ascertainable fair market value at the time of the grant? a. no taxable income to the employee at the date of the grant b. employer receives a tax deduction at the time of the grant c. employer receives a tax deduction when the employee exercises the option d. a and b e. a and c

D

Which of the following options is (are) true regarding the tax implications of a stock option that has a readily ascertainable fair market value at the time of the grant? a. option is taxed at the time of the grant b. employer receives a tax deduction at the time of the grant c. employer receives a tax deduction when the employee exercises the option d. a and b e. a and c

D

Which of the following types of businesses can have an ESOP or stock bonus plan? a. S corporation. b. professional corporation. c. incorporated business. d. a and c. e. b and c.

E

Which of the following types of health insurance was originally designed by an organization of hospitals and physicians to facilitate payment of hospital and doctor bills? a. hospital contract plans. b. health maintenance organizations. c. commercial health insurance. d. self-insurance. e. Blue Cross / Blue Shield.

C

Which one of the following may be accomplished through a section 83(b) election? a. the employer gets a tax deduction if the property subsequently increased in value in the hands of the employee b. subsequent appreciation of the property is taxed as ordinary income c. income is recognized when the employee receives the restricted property d. income is recognized at the point where the employee becomes substantially vested in the restricted property

B

Which one of the following must be avoided by S corporations using a restricted stock plan? a. the possibility of a Section 83(b) election b. creation of a second class of stock c. granting of an equity interest in the company d. creation of new shareholders of the company

B

Which one of the following weakens the value of an ESPP as a performance incentive? a. the employee is taxed when the stock is sold b. fluctuation in the market value of the stock is likely to have little or no relation to employee performance c. the ESPP is a form of equity compensation d. all covered employees must have the same rights and benefits

D [$100 + $100+ $700 - $500 deductible = $400; because there is a carryover provision, the deductible is considered paid for the January bill]

Will Hurt has an employer-provided health plan that has a $500 calendar-year deductible with a three-month carryover provision. Will has $100 in medical bills in June that are covered by the plan. In late November, he has $100 additional medical expenses. Then in January, he has another $700 in medical expenses. Will's health care plan will cover _____ of his expenses a. $1,400. b. $900. c. $800. d. $400. e. $300.

B

Yolanda Balfour has been hired by the benefit plan at Maintain a Plane to perform accounting services for the plan. Which of the following statements is true? a. Yolanda is a fiduciary. b. Yolanda's tasks are ministerial. c. Yolanda is liable for investment results. d. Yolanda is performing settlor functions.