Employee Benefits all quizzes
Bankroll Corp. sponsors a profit sharing plan in which Bankroll's 4 employees made elective deferrals. The payroll of Bankroll Corp. is $500,000. Bankroll's deduction under the limits enacted by EGTRRA 2001 is:
$125,000
Shannon McDougal will retire December 31 of this year. Shannon has worked for Shamrock Construction for 30 years. During his last 5 years, he earned $40,000, $47,000, $44,000, $46,000 and $48,000. Shamrock's retirement plan uses a unit credit formula that awards employees 1.5% for each year of service using a financial average of the last 3 years. Shannon's annual benefit will be:
$20,700
Jim Tandy, age 65, will retire next month from Algor Industries. Last month, Jim withdrew $40,000 from his qualified retirement savings plan at work. Before the withdrawal, Jim had an account balance of $500,000. While employed at Algor, Jim made $100,000 of after-tax contributions to his retirement plan. The taxable portion of his withdrawal is:
$32,000
Jackson Kerpatrik, age 40, 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 $5000. Jackson pays taxes on:
$500 at time of time of distribution, gains are taxed when the stock is sold
jackson Kerpatrik, age 40, 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 $5000. Jackson pays taxes on:
$500 at time of time of distribution, gains are taxed when the stock is sold
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
$500 in taxable compensation income
Sandy Beech earns $40,000 as a guide for Tropical Tours, Inc. Tropical Tours typically contributes 10% of profit to their profit sharing plan. Total payroll for Tropical Tours is $120,000. This year, Topical Tours will contribute $21,000 to their profit sharing plan. Sandy's share this year will be:
7000
August Winter has a Tax Deferred Annuity (TDA) at her place of employment. Currently, she has almost 80% very conservatively invested. She wants to reallocate her plan assets so that only 10% is very conservatively invested and the remainder is invested in moderate to high risk investments. To make sure the fund transfer is not a taxable event:
August can receive a distribution from the TDA in the form of a check made out to her; then deposit the check with the brokerage firm that has the investments that she wants to make August can direct the mutual fund company that holds her original investment to transfer assets directly to the new mutual funds that she designates August can structure the transaction as a direct rollover from the old plan to the new plan August can do either b or c to keep the transfer tax free
In a rush to get a qualified retirement plan installed before the deadline for the year, the owner of Baxter Concrete failed to get a determination letter from the IRS. Five years later, Baxter is audited. If the IRS finds a disqualifying provision or if an essential provision is missing from Baxter's plan
Baxter's tax deduction for the year being audited could be lost Baxter's employees could be required to pay tax on their vested benefits Baxter's plan fund could lose its tax-exempt status all of the above***
Which of the following cannot be accomplished with a qualified retirement plan?
Customize benefits for selected executives
Which of the following is (are) true regarding HSA funding
HSA funding is not subject to income tax
Bob died in 2009 at age 60. Bob named his spouse, Jessica (age 58), as beneficiary of his qualified plan.
Jessica can roll over the qualified plan assets to a traditional IRA. If she does so, minimum distributions from the IRA must begin when Jessica attains age 70½
Johannes Broghurt is an engineer with Tackett and Kamp Engineering. Which of the following types of education would be an example of a tax deductible education expense?
Johannes takes classes to earn a certificate in an area of engineering related to his present employment
Mrs. Albright is covered under Medicare Part A. She was hospitalized on June 4. She was discharged on June 10. She was hospitalized again in late September for 5 days. Which of the following is true?
Medicare Part A will cover both hospitalizations, but Mrs. Albright must pay a deductible for each one
Otis Carrington, a 50-year-old self-employed person, was severely injured in an auto accident and is no longer able to perform the tasks of any occupation.
Otis can withdraw any contributions and earnings without penalty
Which of the following types of businesses can have an ESOP or stock bonus plan?
S corporation professional corporation incorporated business a and c***
Each of the following is true regarding a SEP except:
SEP contributions must be 'recurring and substantial' to maintain tax favored status
Sal Holbert receives restricted stock in 2009 that is deemed for tax purposes to be substantially vested in 2009
Sal pays tax in 2009 Sal's employer gets a tax deduction in 2009 restrictions on the stock can prohibit Sal from selling the stock in 2009 all of the above***
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
Social Security qualified or nonqualified retirement plans worker's compensation all of the above**
The owner of Hilton Tours is considering installing a money purchase plan and integrating it with Social Security. Which of the following is true?
Social Security integration will allow Hilton Tours to make greater contributions to higher paid employees Hilton's owner must use the excess method for integrating defined contribution formulas with Social Security Hilton's owner must use the offset method for integrating defined contribution formulas with Social Security a and b***
Sport Wheels, Inc., is developing policy on use of a company car or a reimbursement plan for its sales force. If Sport Wheels wants to maximize tax benefits for its employees, which of the following arrangements should Sport Wheels make with its employees?
Sport Wheels provides the car to employees and pays all maintenance costs
Wally Fishbein made contributions to an HSA while an employee of Fishing Expeditions. Wally retired this year at age 65 and is now enrolled in Medicare. Which of the following is (are) true for Wally?
Wally's distributions from his HSA are tax free if used to pay qualified medical expenses
Which of the following is (are) true?
a bonus can become very large if based on company profit or earnings a bonus does not give any opportunity to defer taxation bonus arrangements are simple, flexible, and easy to design a and c***
For purposes of required minimum distributions from an IRA or qualified plan, which of the following cannot be a designated beneficiary?
a charity
Jane Browder, age 30, has worked full time each year since age 19. Jane was killed in an auto accident just after her sixth wedding anniversary. Her husband and two sons, age 2 and 4 can receive
a child's benefit for each son as long as he is unmarried and under age 18
An all-causes deductible is
a deductible that applies to all medical expenses, whether for the same condition or not
Bob D. Builder, owner of Bob's Construction, would like to install a retirement plan that would help reduce turnover. Bob should consider using a
a defined benefit plan
Dr. I. L. Pullem, Dr. Ben Shur, and Dr. Jana Whitebite, are dentists. They have two full time and one part time office staff as the only employees in a professional corporation. The doctors want to maximize tax-favored benefits for themselves and lesser benefits for their employees. They should consider:
a defined benefit plan
The benefit formula of a death benefit only plan can be:
a fixed dollar amount for each employee covered under the plan based on average compensation over a period of time tied dollar for dollar to a life insurance policy only a and b***
High deductible health insurance is required with which of the following?
a health savings account
In general, the tax consequences of a severance pay plan are similar to
a nonqualified deferred compensation plan
Alice Compton, owner of Fashion Design, wants to install a retirement plan that will give her employees an incentive to maximize their performance. Alice should consider
a profit sharing plan
Acorn Booksellers is a small business interested in adopting a qualified retirement plan. The owner of Acorn wants to be able to choose from more than one financial institution when implementing the plan. Acorn's owner also wants to determine such things as the vesting schedule, and the contribution or benefit formula. As a small business, Acorn wants to keep costs down. You recommend that Acorn use
a prototype plan because it would give Acorn choice in funding institution or medium while keeping installation and implementation costs low
An employer who adopts a SIMPLE IRA cannot also, in the same year offer employees
a qualified plan a tax sheltered annuity a SEP all of the above***
An employer who wants to reward an employee's years of service and contribution to the company (measured as salary) would use a defined benefit plan formula based on:
a unit credit formula
Advantages of a money purchase plan from the employer's point of view include which of the following:
ability to use employee salary reductions or before-tax bonuses to decrease employer contribution to the plan tax deduction when contributions made to employee account employees bear investment risk only b and c***
Which of the following is (are) true regarding elective deferrals in a Section 401(k)?
account funds can be withdrawn without a premature distribution penalty if the employee becomes disabled or dies
Disadvantages of a 401(k) plan include:
accounts of employees over 55 must be offered diversification employer's ability to borrow to leverage ownership tax free treatment of appreciated company stock distributed to a retiree a and b**
Gene and Norma Alton are both age 65 and will retire later this year. Their financial planner evaluated their financial situation and found that the Altons are going to be approximately $100 per month short of what they need to sustain their desired lifestyle. The Altons should consider:
adjusting their expenses downward before and during retirement and saving more placing the bulk of their retirement assets into one or two risky assets with good potential for a high yield continuing to work and contribute to a retirement plan for a few more years ***a and c
B. G. Hart, owner of Beneficial Industries, has 50 employees. His 5 top managers are in their 50's. Ten of his assistant managers are in their mid-to-late 40's. Average age of his line workers is 29. Advantages of offering long term care insurance as an employee benefit include all but which of the following?
all of his employees are likely to appreciate employer assistance with long term care
A traditional IRA
allows a couple to set aside money for retirement even if one spouse is not employed has higher contribution limits than an employer-sponsored IRA is often used as a supplement to employer sponsored retirement plans a and c***
A nondeductible traditional IRA
allows prior nondeductible contributions to be distributed tax free
Which of the following is (are) true regarding an "educational benefit trust"?
an employer creates a trust fund to pay for educational expenses for employee dependents covered under the plan benefits under the trust can be made available to all employees current tax law makes this arrangement very advantageous to the employee a and b**
Which of the following is (are) true regarding timing of corporate deduction for compensation payments
an employer must deduct current compensation at the time it is accrued whether an amount is treated as current or deferred depends on the type of employee a more than 50% owner of the corporation cannot take advantage of safe harbor rules all of the above***
Which of the following is (are) true regarding entitlement to Social Security retirement benefits
an individual must be fully insured to receive Social Security retirement benefits reduced Social Security benefits are available at age 60 age for receiving full Social Security benefits is gradually being increased to 67 ***a and c
A tax-free rollover of a Roth IRA can be made to
another roth IRA
Set up of an employee stock purchase plan requires
approval by stockholders of granting corporation within a year before or after plan adoption
Common objectives of employer-provided life insurance include all but which of the following:
as an employee incentive to increase company profitability
Makework Corp. has an unfunded nonqualified deferred compensation plan. Employees covered under the plan can defer taxes on plan contributions if plan funds are
available to company creditors subject to substantial risk of forfeiture placed in a designated trust a and b***
Walburg Pharmaceuticals is installing a cafeteria plan and is concerned about meeting nondiscrimination requirements. Walburg needs to be sure that their plan:
benefits a group of employees classified in a way that does not overly favor officers in the corporation or their dependents covers all employees within 3 years of service qualified benefits to the key employees do not exceed 25% of the value of benefits provided to all employees all of the above***
Will Bumpum is chairman of the board for Accidental Airlines. Will and his executive staff can fly free at any time, but other employees must pay the same fare as the public to fly on Accidental. What are the tax implications for Will?
both Will and his executives must include the value of the airline tickets in their taxable income
Brothers Tim and Jim Shanton have asked you, their financial advisor, to settle a friendly quarrel between them. Tim argues that a Roth IRA and a traditional IRA are actuarially equivalent if $4,000 is available for investing on a before-tax basis, contributions to the traditional IRA are deductible, tax rates are expected to stay the same, and both have the same interest rates. So, it makes no difference which vehicle one uses to save for retirement. Jim insists that a Roth IRA is the better investment. You tell them
both are right; the two investments are actuarially equivalent, but absence of a minimum distribution date and more liberal penalty-free withdrawal options may make the Roth IRA more attractive
Disadvantages of cafeteria plans include all but which of the following
cafeteria plans provide numerous different benefits to employees in addition to basic benefits shared by all employees
The stock of Vagabond Corporation is not publicly traded. Vagabond has an ESOP. A. Wanderer, an employee
can expect that stock valuations will be made by an independent appraiser can demand that distributions from the ESOP can be made in the form of employer stock can exercise a 'put option' all of the above***
Which of the following is (are) true regarding vesting in a profit sharing plan
cliff vesting can be used in profit sharing plans plan forfeitures can be reallocated in proportions that favor owners and highly compensated employees vesting provisions favor long term employees a and c
Adequate liquidity is one of several specific investment objectives in a qualified plan. Which of the following types of assets offers the most liquidity?
common stock traded on the stock market
Reed Collier works for Encyclopedia, Inc. He has an informally funded nonqualified deferred compensation plan. Encyclopedia, Inc. can use life insurance to fund this plan.
complete the appropriate tax form file the appropriate tax form prior to tax filing date for year the SEP is to take effect commit to contributing to the SEP every year for at least five years in a row only a and b***
To install a SEP, an employer must
complete the appropriate tax form file the appropriate tax form prior to tax filing date for year the SEP is to take effect commit to contributing to the SEP every year for at least five years in a row only a and b***
Amalgamated Industries, Inc. wants to install a plan that will be effective in January of next year. Amalgamated Industries uses a calendar year for tax reporting. Which of the following must happen before December of next year?
corporate board must pass a resolution adopting the plan either a trust agreement needs to be signed and established under state law or an application for a group pension contract must be made and accepted by an insurance company the plan must be communicated to employees, orally or in writing all of the above***
Which of the following is (are) true regarding the alternative minimum tax (AMT)?
corporations must pay the larger of regular tax or AMT AMT has favorable provisions for corporate owned life insurance death proceeds to employer may be taxed under AMT a and c***
Which of the following is a qualified dependent care expense for working parents?
cost of a housekeeper to care for two preschool aged children
An employer can use a restricted stock plan to:
create a performance incentive for an executive discourage employees from setting up a rival business retain employees all of the above***
Which plan has benefit levels that are guaranteed by both the employer and the Pension Benefit Guaranty Corporation (PBGC)?
defined benefit plan
Employee benefits with substantial tax benefits include which of the following?
dependent case assistance plans incentive stock options group health insurance all of the above***
Common exclusions in a long-term disability policy include which of the following:
disability during a time the employee is not under a physician's care disability caused by a self-inflicted injury disability beginning before the employee is eligible for plan coverage all of the above**
Under the 'prudent man' rule, a fiduciary must consider
diversification of plan portfolio liquidity and current return of the portfolio relative to the anticipated cash flow requirements of the plan the projected return of the portfolio relative to the plan's funding objectives all of the above***
Advantages of an age-weighted plan include each of the following except:
due to their predetermined structure, an age weighted plan is exempt from nondiscrimination rules
All of the following statutory provisions would allow deferred compensation beyond the annual dollar limit except:
eligible plans
Disadvantages of a stock option include which of the following?
employee bears market risk market fluctuation may have little relationship with employee performance employee must have source of funds to purchase stock all of the above***
A disadvantage of profit sharing plans is that
employee bears the investment risk actuarial costs make the plan expensive to administer there is no predictable level of employer funding under the plan a and c***
Advantages of moving expense reimbursement include all of the following except:
employee can deduct expenses associated with sale, purchase, or lease of residence
Advantages of a restricted stock plan include which of the following?
employee can defer taxation until year restricted stock becomes substantially vested employer can give executive equity interest in company but withdraw it if certain conditions are not met executive has all advantages of stock ownership, but is able to defer taxation all of the above***
Under a nonqualified deferred compensation plan, constructive receipt occurs in which of the following:
employee does not actually receive payment
From the employer's point of view, concerns about offering employees a legal services plan include all but which of the following?
employees can only use the plan to get legal advice on employment-related issues
Disadvantages of a legal services plan include all of the following except:
employees can use the plan to take legal action against their employer
Which of the following is (are) true regarding Section 401(k) plans?
employees decide how much of their compensation is to be deferred all types of employers can adopt a Section 401(k) plan Section 401(k) plans can allow hardship withdrawals both a and c***
Disadvantages of educational assistance plans include:
employees may train with one employer for a job with another employer beyond certain limits, educational assistance is taxable compensation to employee travel expenses to a location away from work for education are not tax deductible all of the above***
Which of the following is (are) true regarding the tax implications of having a money purchase plan?
employer contributions and plan earnings are tax deferred for the employee employers beginning a new plan are eligible for a $2,500 business tax credit in the first year to help with start-up costs the employer tax deduction is limited to 25% of total payroll of the employees covered under the plan a and c***
Annual additions to an age-weighted plan include
employer contributions to participants' accounts employee contributions to own account forfeitures from other accounts all of the above***
An advantage of a profit sharing plan from the employer's point of view includes which of the following?
employer contributions to the plan are discretionary plan can benefit long term employees non-vested benefits can be reallocated to remaining employees allows integration with Social Security all of the above***
All of the following are true statements about savings plans except:
employer matching contributions must follow a 3 to 7 year vesting schedule
Disadvantages of a flexible spending account include all but which of the following
employer must contribute to employee flexible spending accounts
Alternatives to a death benefit only plan include which of the following?
employer provided group-term life insurance life insurance in a qualified plan individually owned life insurance all of the above***
All of the following approaches are commonly used to increase the security of benefits for an employee under a nonqualified deferred compensation plan except:
employer's general assets
Disadvantages of an HMO include:
except for certain emergencies, HMO subscribers must receive care from physicians who are part of the HMO
"Valuation of car availability" can be established by all but which of the following:
fair market value of the car
A Tax Deferred Annuity is not subject to Section 415 limits.
false
A cash balance plan establishes a separate fund for each plan participant.
false
A cash balance plan favors older workers.
false
A cash balance plan is not guaranteed by the Pension Benefit Guaranty Corporation.
false
A flexible spending account can be used to pay health insurance premiums.
false
A loan to an executive provides tax advantages to the employer who makes the loan.
false
A money purchase plan provides adequate retirement benefits for all older employees.
false
A moving expense reimbursement plan must meet ERISA requirements since it is classified as a welfare benefit plan.
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 18 months.
false
Account holders with more than one Roth IRA can treat them as separate accounts when calculating tax consequences of distributions from any of them.
false
All group insurance programs offered to employees must comply with ERISA reporting and disclosure requirements
false
Amounts deferred under nonqualified deferred compensation are never subject to social security taxes or Medicare taxes.
false
An employee cannot be covered under both a defined benefit and a defined contribution plan.
false
An employee cannot contribute to a profit sharing plan.
false
An employer must obtain approval from the IRS before offering a cafeteria plan.
false
An executive loan is considered a welfare benefit plan under ERISA.
false
An individual who has a Keogh plan cannot also invest in a traditional or Roth IRA
false
An individual who has a Keogh plan cannot also invest in a traditional or Roth IRA.
false
Ann has a Roth IRA. She died this year. Her son, Jim, is the designated beneficiary. Jim is not required to start minimum distributions next year because Roth IRAs are not subject to the required minimum distribution rules after death.
false
Any participant in a Section 457 plan who is over age 50 can take advantage of the 50-or-over catchup contributions.
false
Appleton Enterprises, Inc. is a closely held corporation that employs members of the Appleton family. The company's ESOP has more than 10% 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.
false
Approval from the IRS is needed before an employer can establish an educational assistance plan.
false
Benefits from health insurance are included in employee taxable income as an in-kind benefit.
false
COBRA continuing coverage requirements apply to long term care plans.
false
Corporate owned key employee life insurance has no effect on a deceased key employee's estate.
false
Distributions from a traditional IRA cannot be made before the participant turns 59½ unless the IRA owner dies.
false
Employee discounts can only be offered to active employees.
false
Employees can elect a salary reduction to fund their 401(k) plan either before or within a month after compensation is earned.
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.
false
Enrollment in Medicare Part A for individuals aged 65 and older who are entitled to Social Security retirement benefits is voluntary and requires payment of a nominal monthly premium.
false
Expenses for travel to a qualified educational institution are always deductible as a job-related educational expense.
false
Fiduciary rules indicate the specific responsibilities of each person involved in designing and maintaining a qualified plan.
false
Following ERISA guidelines for qualified plan investments generally results in selecting from a rather narrow range of investment strategies.
false
Funds can be used to pay for the employee's share of health care coverage such as co-pays or deductibles.
false
Funds in an HSA can be used for a broad array of medical services, including cosmetic surgery.
false
Group term life insurance must cover all employees.
false
IRAs can be invested in a variety of investment vehicles, including mutual funds, stocks, bonds, and life insurance contracts.
false
IRS, ERISA and other governmental regulatory requirements do not apply to nonqualified plans.
false
If an employer has a profit, at least some contribution must be made that year to the profit sharing plan.
false
In qualified retirement plans, employers get a tax deduction when an employee retires and draws down their company retirement funds.
false
In-service withdrawals are not permitted in a Tax Deferred Annuity
false
In-service withdrawals are not permitted in a Tax Deferred Annuity.
false
Keogh plans are much simpler and less costly to administer than other forms of qualified retirement plans.
false
Magnum Enterprises is located 5 miles out of town. Magnum provides a hot and cold lunch on-site for employees without cost. Employees must include the value of meals eaten as part of their taxable income.
false
Maria Estaban has a flexible spending plan at her place of employment. Maria can use funds from her flexible spending plan to pay her share of the premiums for long term care insurance offered as an employer-sponsored plan.
false
Medicare Advantage (Part C) plans are limited to Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) and Provider Sponsored Organizations (PSOs).
false
Parachute rules apply to payments from both S and C corporations.
false
Remarriage of a surviving spouse does not affect receipt of a mother's or father's benefit from Social Security as long as the surviving spouse is caring for their own or adopted child under age 16 or a child disabled before age 22.
false
The Prescription Drug Insurance offered as Medicare Part D is funded solely by the government.
false
The amount that a client has invested in real estate is not included in an assessment of retirement income need.
false
The employee's share of premiums for purchase of an employer-provided long term care plan can be paid from a cafeteria or flexible spending type of account.
false
The only cost associated with provision of a loan to executives is the administrative cost.
false
The owner of Aging Industries is interested in offering his workforce long term care insurance as an employee benefit. The average age of his workforce is 52 and several employees are already struggling with finding care for aging parents. The owner of Aging, however, is concerned that meeting COBRA provisions coupled with the high cost of long term care insurance will place a heavy burden on company finances since a relatively large number of employees are retiring this year. The owner of Aging Industries' concern about this high cost is valid.
false
The retirement plan for Bethel Shalom synagogue must adhere to ERISA reporting and disclosure rules.
false
To comply with the pension plan reporting and disclosure rules under ERISA, employers must use the Annual Report to describe major provisions of the plan to plan participants in plain language.
false
Universal life insurance cannot be used to provide an insured death benefit under a qualified plan.
false
Premiums for commercial health insurance contracts include all but which of the following:
federal premium taxes
Savings plans and profit sharing plans share which of the following features?
generous provision for employee withdrawal of funds all contributions made on a before-tax basis participants can select investment vehicles from a broad range of options a and c***
KinderBook Publishing has an educational assistance plan for employees. Section 127 of the Code allows this educational assistance plan to have the following characteristics:
graduate education can qualify as "qualified education assistance"
Advantages of cash contributions include:
greater certainty of receipt than with deferred compensation reduction of unknown or uncertain costs for employer employer receives a tax deduction for any level of cash contribution only a and b***
Advantages of using life insurance in a qualified plan include all of the following except:
greater rates of return on insurance cash value than alternative investments
Alternatives to using life insurance in a qualified plan include
group term life insurance split dollar life insurance personally owned life insurance all of the above***
Any distribution from a qualified retirement plan is eligible for a rollover except which of the following?
hardship withdrawal a required minimum distribution a distribution from a series of substantially equal payments all of the above only a and c***
Blake Johnston retired from Brumley Enterprises a month after his 56th birthday. Blake began receiving a series of substantially equal periodic payments from his qualified plan based on his life expectancy. When he turned 59, he decided that he wanted to alter his payments so that he would receive a higher monthly payment. If Blake does this
he will not incur any additional taxes
John Wald has participated in his company's profit sharing plan for the past 15 years and currently has an account balance of $250,000. Last month, his 12-year-old son had to have an emergency appendectomy. Complications extended his hospital stay to a week. Right before the accident, John used all of the family savings to purchase a new car. John must pay a $2,000 deductible and an additional $5,000 for medical expenses not covered under his medical plan. If John withdraws $7,000 from his profit sharing plan,
he would pay income tax, but no early withdrawal penalty to the extent the medical expenses are tax deductible
Disadvantages of defined benefit plans include
higher installation and administrative costs as compared with a defined contribution plan
Disadvantages of cross-tested plans include:
hire of new employees can upset the age distribution in the plan discourages hire of older employees complex rules all of the above***
Deductible moving expenses include reasonable costs for all of the following except:
home improvements to sell old house
Which of the following parts of Medicare is (are) completely funded by payroll tax?
hospital insurance
Mandy Thomas, age 47, is the owner of The Golf Pro Shop. Mandy wants to retire at age 55. The company adopted a defined benefit plan 2 years ago, 3 years after the business opened. Mandy wants to increase the amount that she contributes to her own retirement. Mandy can
increase the amount within limits set by the Internal Revenue Code
Ways that a Roth IRA differs from a traditional IRA include:
initial investment and earnings can be withdrawn tax-free
Which of the following is a disadvantage of a cash balance plan?
is difficult to fund with a large number of middle income employees
Borrowing from an IRA
is not allowed
Alex Raul is reimbursed by his employer for expenses incurred in educating his two children. The reimbursement:
is taxable income to Alex is deductible as compensation by employer may not qualify as a tax deduction for Alex only a and b***
The feature that sets a Keogh plan apart from other plans is that:
it is established by self employed individuals, such as sole proprietorships or partnerships
An employee stock purchase plan is a tax-advantaged form of employee compensation that is most effectively used in a
large corporation with publicly traded stock
Disadvantages of loans to executives include each of the following except:
loan provisions must comply with ERISA
The cafeteria plan at Blazer Industries can contain any of the following except:
long term care insurance
Benefits that are excluded from a cafeteria plan include:
long term care insurance a 401(k) arrangement scholarship and fellowships a and c***
Orville Winbacher died last year at age 58, leaving $500,000 accumulated in a Roth IRA. Which of the following is (are) true?
monies in the Roth IRA must be distributed within a year of the Orville's death either to his estate or to a beneficiary distribution from the account can be made over the life of a designated beneficiary if begun within a year of Orville's death initial distribution of Orville's Roth IRA funds to a beneficiary are tax free, but subsequent investment returns on amounts distributed are taxable b and c****
Advantages of the collateral assignment method of split dollar life insurance policy ownership include which of the following:
more protection is given the employee it is easier to implement using existing insurance policies owned by the employee the employer has greater control over the policy a and b***
Disadvantages of an employee stock purchase plan include:
mployee bears market risk employee must have a source of funds to purchase the stock employer usually does not receive a tax deduction under an employee stock purchase plan all of the above***
Dr. Curt N. Short practiced medicine in a general partnership for 15 years prior to his retirement this year at age 55. Is he eligible for Medicare benefits this year?
no
If a spouse is to be beneficiary of an IRA or a qualified plan, it is generally preferrable to leave the IRA or qualified plan
outright to the spouse
A service related factor can be added to the benefit formula for a money purchase plan. Service related factors usually favor:
owners and key employees
Employer plans that can provide a death benefit to an employee's beneficiaries include:
pension plans profit share plans split dollar life plans all of the above***
Which of the following types of health care is not covered under Medicare Part A
physical therapy
Disadvantages of a VEBA include all of the following except:
plan must be structured for exclusive benefit of highly compensated employees
Bill U. Later has elected to defer earnings under an unfunded deferred compensation agreement AFTER he performed services for his company. To defer taxation on the deferred income
plan provisions must clearly stipulate "substantial risk of forfeiture" conditions
ERISA requirements of long-term disability plans include which of the following:
plan provisions written and communicated to employees in a summary plan document (SPD)
Advantages of a SEP include
portable benefits for employees contribution, deduction, and exclusion amounts equal those available in other defined contribution plans flexibility for employer in timing plan contributions a and c***
Tax benefits for a long term care plan are
premium costs deducible to the employer premiums and benefits are nontaxable to employees within certain limits premiums and benefits are nontaxable to beneficiaries within certain limits all of the above***
Some health economists argue that offering an HSA as an alternative to traditional health insurance will eventually increase premiums for traditional health insurance because
premiums of the traditional plan will go up with inflation, but HSA costs are fixed by long term contract
Evergreen Semiconductors, Inc. is a young and innovative company with 25 employees between 24 and 35 years of age. Turnover has averaged about 2% per year for the 9 year old company. Profit has been intermittent. The owners believe that a substantial investment will need to be made in new equipment next year. Which of the following retirement savings plans is best for Evergreen?
profit sharing plan
A Health Reimbursement Arrangement cannot do which of the following?
provide extra benefits exclusively for a business owner and key employees
For which of the following reasons do employers offer loans to executives?
purchase of a home payment of college or private school tuition cost of a divorce settlement all of the above***
Which of the following can be provided on a cash option basis?
qualified transportation
A qualified plan must satisfy which of the following tests?
ratio percentage test average benefit test highly compensated test either a or b***
The disadvantages of an incentive stock option (ISO) include all but which of the following:
recipient must pay tax when the ISO is issued
An athletic facility that can be used only by select executives is tax-free to those executives:
regardless of location if it is operated by the employer if it is for exclusive use by the executives and their dependents b and c**
Which of the following is not a managed health care tool or technique?
reimbursement for out-of-pocket costs
A savings/match plan works best in a company that has:
relatively young employees employees willing to accept investment risk employees who vary widely in their need or desire to save for retirement all of the above***
Employment after retirement will
result in loss of some or all Social Security Benefits only for those under Normal Retirement Age who have earning above a specified threshold
Employees of the Design Line, an exclusive women's clothing store, can purchase clothing from the store at 20% off retail. The owner of Design Line can also offer this employee discount to:
retired employees the widow or widower of a former employee the spouse or dependent child of a current employee all of the above**
All of the following are prohibited as a VEBA benefit except:
severance benefits
A Tax Deferred Annuity Plan can invest in all of the following except:
shares of stock
Abigail Thompson is a self-employed business woman. At age 62, she is interested in purchasing qualified long-term care insurance through her business. If she does so,
she can deduct 100% of premiums, limited first to the 7.5 percent of adjusted gross income floor under the tax code
Which of the following is (are) true when comparing short-term disability with long-term disability
short-term disability typically covers more employees than long term disability long-term disability policies use a 'regular occupation' definition of disability instead of the "any occupation" definition used in short-term disability policies short-term disability policies are typically more generous only a and c**
The employer must prepare a summary plan description (SPD) to meet ERISA requirements. The employer can also use a SPD to
show employee full value of their benefit plan
Which of the following employer-provided life insurance plans allows recovery of employer dollars used for the life insurance product?
split dollar life
Which of the following is (are) sometimes referred to as a "closed panel" plan?
staff model group practice individual practice association a and b**
All of the following are examples of nondeductible moving expenses except:
storage and insurance of personal property for up to a 30-day period
Disadvantages of restricted stock plans from the view of the employer include all of the following except:
substantial risk of forfeiture must be established for the employee to obtain favorable tax treatment
Tara designated a trust as beneficiary of her IRA. The following are beneficiaries of the trust at Tara's death: her spouse (age 70), her brother (age 72), her daughter (age 50), and her son (age 48). The life expectancy of which trust beneficiary is used to determine required minimum distributions?
the brother
Plan distributionsfrom a Section 457 plan cannot be made before
the calendar year in which the participant reaches age 70 ½ severance from employment occurrence of an 'unforeseen emergency' any of the above***
A 'fiduciary' typically includes which of the following?
the employer the retirement plan trustee an accountant who only renders actuarial services for the retirement plan all of the above only a and b**
Which of the following is (are) true regarding key employee life insurance?
the employer may have to pay an accumulated earnings tax
To obtain the $50,000 exclusion, a group term life insurance plan must have which of the following characteristics?
the insurance policy premiums must be paid by the employee insurance amounts must be determined in a manner that precludes individual selection the insurance must be offered to a group of employees, but 'group' can be defined to include only highly compensated employees b and c ***
Requirements for participant loans from qualified retirement plans include which of the following:
the loan must bear reasonable repayment terms the loan may not exceed specific dollar limits a written loan contract signed by all parties must be used a and b***
A long term care policy contract has the same tax treatment as an accident and health insurance contract if
the only insurance provided is qualified long term care services refunds of premium are paid to the employee the contract has no cash surrender value a and c***
Which of the following is (are) true regarding entitlement to Social Security disability benefits
the worker must be currently or fully insured the worker must have been disabled for at least 18 months or expected to be disabled for 18 months the worker must have completed a 6 month waiting period or be specifically exempted from this requirement all of the above only a and c***
Which of the following is true about a SIMPLE IRA?
there is a 25% early distribution penalty for the first two years of participation
Advantages of rolling a qualified plan over to an IRA include
there may be more investment flexibility with an IRA
Employee benefits under a health reimbursement arrangement are tax free if
they qualify as a medical expense under IRS code the plan is nondiscriminatory the plan is fully funded by the employer rather than by an insurance company only a and b**
"Defined contribution" health plans shift payment and selection features of health insurance from employers to employees.
true
A Keogh plan is a qualified retirement plan that covers self-employed business owners and partners.
true
A Section 457 plan that includes limits on the amount deferred is generally referred to as an eligible Section 457 plan.
true
A death benefit only plan can replace a split dollar plan when an employee's share of insurance protection increases rapidly due to age.
true
A defined benefit plan can help an older controlling employee in a small business maximize tax-deferred savings.
true
A flexible spending plan can reduce employment taxes paid by an employer.
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.
true
A money purchase plan must provide a joint and survivor annuity as the automatic form of benefit.
true
A profit share plan may provide some death benefits.
true
A savings plan is a qualified defined contribution plan that encourages employee after-tax contributions.
true
A self-employed person with less than 10 employees can use a money purchase plan to fund his or her own retirement.
true
A top-heavy plan is one that provides more than 60% of its aggregate accrued benefits or account balances to key employees.
true
A worker is currently insured under Social Security if he or she has acquired at least six quarters of coverage during the full 13-quarter period ending with the calendar quarter in which she or she died or became eligible for disability or retirement benefits.
true
An employee can use an employer-provided legal service plan to obtain legal advice on a divorce proceeding.
true
An employer can make contributions to the SIMPLE IRA of an employee aged 72.
true
An employer can use a nonqualified plan as a form of "golden handcuffs" that bind an executive to remain with a company and meet certain conditions.
true
As a general rule, the IRC does not allow a tax deduction for a publicly held corporation for compensation in excess of $1,000,000 for the company CEO.
true
As part of the employee benefit process, a schedule should be established for reviewing and monitoring plan effectiveness.
true
Benefits in a death benefit only plan can be based on an employee's average compensation over a specified period of time.
true
Bob Everett is covered under a funded nonqualified deferred compensation plan that has an irrevocable trust set up for his benefit. Bob must pay income tax as soon as he is vested in contributions made to the fund, even though he does not have a right to withdraw cash from the fund until he retires.
true
Bonuses are taxable to the employee as ordinary income.
true
By law, sick pay or short-term disability benefits must be explained to employees in a written summary plan description.
true
Cafeteria plans must include a cash option.
true
Defined benefit plans must have a joint and survivor annuity as the default form of benefit.
true
Disability benefits are subject to federal income tax withholding if paid directly by employer.
true
Employees can make in-service withdrawals from their 401(k) plans.
true
Employer contributions to purchase life insurance within a qualified plan are not tax deductible.
true
Employer matching contributions to a savings plan are subject to the same vesting requirements as applied to top-heavy plans.
true
Employer reimbursement of an employee's expenses for educating the employee's children is considered taxable income to the employee.
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
Employers match employee contributions to 401(k) plans to increase participation and help the plan meet nondiscrimination requirements.
true
Every qualified plan must identify a "named fiduciary" in the plan document.
true
Expenses of a legal services plan are tax deductible for the employer.
true
For a self-employed person using the car for business purposes, interest on a car loan is tax deductible to the extent that the vehicle was used in company business.
true
If a qualified plan is to be funded through an insurance contract, the insurer must accept the application for the contract before the end of the year, but the contract need not be formally adopted in final form at that time
true
If a severance pay plan is structured as a parachute, the employer deduction is limited and the employee is subject to penalty.
true
In a profit-sharing plan, forfeitures may be reallocated or used to reduce future employer contributions
true
Insurance providing a permanent benefit can be used in a group-term life insurance plan.
true
Michelle Fenner is the qualified plan trustee for the defined benefit plan held by Flatt Tire Company. Flatt Tire uses life insurance as part of their qualified defined contribution plan. Currently, the cash value of the life insurance policies in the plan amounts to $50,000. Ms. Fenner can borrow against the cash value of the life insurance policies held in the plan.
true
Nonqualified plans can provide benefits to executives beyond the limits allowed in qualified plans.
true
Obtaining a determination letter from the IRS cannot prevent the IRS from later stating that a qualified retirement plan is discriminatory in operation.
true
One method that a corporation can use to justify reasonableness of compensation is to cite local and national economic conditions that were favorable to increased sales of the company's profit.
true
One purpose of a well-designed retirement plan is to discourage collective bargaining.
true
Qualified plans and IRAs may be subject to both estate tax and income tax
true
Reed Collier works for Encyclopedia, Inc. He has an informally funded nonqualified deferred compensation plan. Encyclopedia, Inc. can use life insurance to fund this plan
true
Subject to an age-based limitation, a self-employed person can deduct 100% of premiums for a qualified long term care contract.
true
Tax Deferred Annuity plans allow employer contributions in addition to, or instead of, employee salary reductions.
true
The death benefits of key employee life insurance are payable to the employer.
true
The dollar value of employer-provided legal services is considered taxable income to the employee.
true
The penalty for early withdrawal from a qualified plan does not apply to distributions from the plan if the employee has separated from service after attaining age 55.
true
Under current tax law, a nonrefundable tax credit is available for some lower income taxpayers who make a contribution to a traditional IRA.
true
Unlike a traditional IRA, a Roth IRA contribution is not restricted by active participation in an employer's retirement plan.
true
When a key employee dies, key employee life insurance provides the employer with liquid assets to facilitate control of corporate operations.
true
Workers who continue their employment between age 65 and 70 receive an increase in Social Security retirement benefits.
true
Buster Keaton, owner of Keaton Property Management, Inc. wants to establish a bonus plan for his employees. Buster must:
understand that employees must treat bonuses as taxable income and thus the plan may not be seen as a benefit
Which of the following is taxable to the recipient?
use of company car last month to take a three day vacation
Common features of long-term disability policies include:
waiting period of 3 to 12 months before eligibilty for benefits cover full-time employees only a broad definition of disability a and b**
An employer-provided long term care plan is useful
when the employee group is relatively older because it reduces cost of obtaining coverage because employee share of premium can be paid with a flexible spending account or cafeteria plan only a and b**
Which of the following can an employer choose when designing a short-term disability or sick pay policy?
who is covered level of benefits terms and conditions of coverage all of the above**
In a combination plan, retirement benefits are funded with a combination of
whole life policies term life policies assets in a 'side fund' a and c***
Angus Deter, age 60, had a 60% interest in Amalgamated Manufacturing before his death this year. Corporate owned key employee life insurance on Angus named Trisha, his 35 year old wife, as the beneficiary of the $500,000 policy. Angus believed Trisha would share the proceeds with the corporation to ease any transition costs. Distribution of this life insurance policy:
will be taxed as part of Angus's estate as life insurance
A Medigap policy
will cover any out-of-pocket expenses is designed to help pay deductibles and coinsurance incurred by those enrolled in Part A and Part B of Medicare may pay for certain items or services not covered by Medicare ***b and c
The "small welfare plan exemption" that exempts an employer from filing an annual report applies to welfare plans
with fewer than 100 participants that are fully insured that are paid out of employer's general assets all of the above***
