Retirement Planning: Employee Benefit Plans (Module 9)

There are various types of PPO plans that are available. However, we will look at three general types of PPO plans. What are they?

- the gatekeeper plan - the open panel plan - the exclusive provider plan

Which of the following are excluded from FSA benefits? 1. Self-employed 2. Employers with more than 25 employees 3. Sole prepreitors 4. Partners

1, 3, 4 FSA benefits cannot be provided to self-employed persons, partners, or sole proprietors

Nick works for XYZ corporation as a sales manager. The company has a salary continuation disability insurance program, and it pays the full premium. Nick's benefit under the plan is 10,000 per month. Calculate Nick's net-of-tax monthly benefit if his tax bracket is 36% during disability. a. $6,400 b. $3,600 c. $5,000 d. $10,000

A Benefits are taxed at 36. He nets 64%.

Preferred provider organizations (PPOs)

A health care delivery system through which providers contract to offer medical services to benefit plan enrollees on a fee-for-service basis at various reimbursement levels in return for more patients and/or timely payment.

Health Reimbursement Arrangement

A self-employed individual is not eligible to contribute.

Medical Savings Account

A self-employed individual may contribute if they maintain a high-deductible health plan.

A health FSA cannot pay for which of the following? 1. Health insurance premiums 2. Cosmetic items 3. Cosmetic surgery 4. Items that can improve "general health"

All All of the above (including health insurance premiums) are not eligible expenses. Answer IV is too broad an answer to be correct. This is a tough question.

Section 119

All meals provided to employees on business premises are excluded from income if more than half of the employees are provided with meals.

Which of the following benefits is not included under a VEBA? a. Disability benefits b. Deferred compensation c. Legal expenses d. Unemployment benefits

B Benefits do not include any benefit that is similar to a pension or annuity at the time of mandatory or voluntary retirement.

Which type of PPO plan allows patients to self-refer themselves to specialists within the network? A. Gatekeeper B. Open Panel C. Exclusive Provider D. Medical Referral

Correct Answer: B. Open Panel Explanation: In an Open Panel plan, the patient can see different primary care providers and refer himself or herself to a specialist within the network.

Which of the following types of deferred compensation plans can be included in a cafeteria plan? a. 457 - governmental b. SARSEP (Salary Reduction Simplified Employee Pension plan) c. SIMPLE d. 401(k) - profit sharing plan with match

D The only type of qualified plan that can be part of a cafeteria plan is a 401(k).

all-causes deductibles

Most deductibles are all-causes deductibles, that is, the deductible is cumulative over the year or other period, even though the medical bills may reflect many different illnesses or medical conditions.

Are the coverage amounts over $50k taxed at the FICA, FUTA & state taxes?

Yes

Who sponsors the long-term disability program to provide disability income to employees who are disabled beyond a specified period?

the employer sponsors the long-term disability program to provide disability income to employees who are disabled beyond a specified period

What is the maximum amount that can be rolled over from one year to next in a FSA?

$500 anything above this will be forfeited

What is the limit for tax free life insurance coverage in employer provided life insurance?

$50k

The benefit rules for group-term life insurance are described below?

- Benefits must not discriminate in favor of key employees. - All benefits available to key employees must be available to other plan participants. - Life insurance coverage equal to the same percentage of compensation for all participants will not violate the benefit nondiscrimination rule. There is no dollar limit on the amount of compensation that can be taken into account for this purpose.

Employers fund the postpaid-type health plans in one or a combination of three ways, what are they?

- Commercial insurance company contracts - Blue Cross/Blue Shield contracts - Self-funding or self insurance, which is without an insurance contract

Who can be excluded from group term life insurance plans?

- Employees who have not completed 3 years of service, - Part-time or seasonal employees, and - Employees not included in the plan who are part of a collective bargaining unit that has engaged in good faith bargaining on the issue of death benefits.

How are qualified transportation fringes different from most other fringes?

- For example, the employer can offer a group of employees the choice of receiving a monthly transit pass worth $50 or $50 more in cash that month. Those who choose the transit pass do not pay federal income taxes on its value. Only those who choose the cash option must pay taxes on the $50 monthly benefit. By contrast, if an employer offered another fringe benefit on this basis, all employees would be taxable on the value of the benefit, whether they took cash or not. - There are no nondiscrimination requirements for qualified transportation fringes. For example, parking can be provided tax-free even if it is available only to selected executives.

An athletic facility available to employees is tax free to them if what three factors are met?

- It is located on the premises of the employer. - It is operated by the employer - Substantially all of the facility's use is by employees, their spouses, and their dependent children

What are the alternatives to group term life insurance plans?

- Life insurance in a qualified plan - Split-dollar life insurance - Death benefit only (employer death benefit) - Personally owned insurance

Under ERISA regulations, to avoid characterization as deferred compensation, a severance plan should meet the following requirements?

- Payments must not be directly or indirectly contingent on retirement. - The total amount of payments must not exceed twice the employee's annual compensation in his or her last year. - Payments must be completed within 24 months of termination of employment.

There are two main types of health insurance plans, what are they?

- Prepaid plans, in which health care providers are paid in advance of providing services. Typical form of prepaid plan is an HMO - Postpaid plans, which pay health care providers for services rendered, or reimburse employees for payments to providers.

A policy with a permanent benefit may be treated as part of a group-term plan if what happens?

- The amount of death benefit considered part of the group-term plan is specified in writing, and - The group-term portion of the death benefit each year complies with a formula in the regulations.

In Section 132(e) if an employer operates an eating facility for employees, the value of meals is not taxable to employees if the following conditions are met?

- The eating facility is located on or near the business premises of the employer. - Revenue derived from the facility normally equals or exceeds the direct operating costs of the facility. - If the employee is highly compensated, the meal is taxable unless access to the eating facility is available on substantially the same terms to each member of a group of employees that is defined in a nondiscriminatory way.

If an employer furnishes meals for employees, or their spouses or dependents, the value of the meals is excluded from the employee's income if what two factors are met?

- The meals are for the convenience of the employer, and - The meals are furnished on the business premises of the employer.

A group life insurance plan does NOT discriminate if it meets what qualifications?

- The plan benefits 70 percent or more of all employees of the employer or, - At least 85 percent of all employees who are participants under the plan are not key employees or, - The plan meets the requirements of a cafeteria plan under Section 125.

The advantages of carve-out coverage over group-term coverage are what?

- The plan can provide cash growth that is a "portable" benefit for the executive - Executives can be provided with more insurance than would be available under a group-term plan. - cost to the employer can be favorable - Carving out the discriminatory benefits in a group-term plan can save an otherwise discriminatory plan.

What are the advantages of HMO's?

- cover more health care services than traditional health insurance, with fewer deductibles and lower co-payments. - emphasize preventive medicine, and thus control overall costs better than plans that pay only when employees are hospitalized or sick.

The regulations for Code Section 79 require group-term insurance to have the following characteristics in order to obtain the $50,000 exclusion. What are they?

- general death benefit - group of employees as compensation of services - employer must carry insurance directly or indirectly

What are the disadvantages of HMO's?

- must see a doctor who is a part of the HMO. Except for certain emergencies, the HMO will not pay for services of non-HMO providers. - The cost advantage, if any, of HMOs may be due to the fact that they enroll younger and healthier participants than traditional health insurance plans, which emphasize coverage for major medical procedures. In time, therefore, it is argued that the cost advantage of HMOs will diminish.

How does a scheduled legal service plan differ from a comprehensive legal service plan?

- scheduled: only covers benefits that are listed in the plan - comprehensive: pays for all legal advice except those listed as excluded

Which of the following statements are true about VEBAs? 1. a reversion of assets to the employer is effectively prohibited 2. smaller employers will find these plans feasible only if they use a vendor of packaged plans provided to groups of employers 3. the funding of VEBA plans through a section 419A(f)(6) plan is theoretically sound, there is no possibility of an IRS changes in the Code affecting these programs 4. installing and administering a WBT or VEBA is easy and inexpensive

1, 2 Installing and administering a WBT or VEBA is complex and costly. A reversion of assets to the employer is effectively prohibited. Smaller employers will find these plans feasible only if they use a vendor of packaged plans provided to groups of employers. While the funding of such plans through a Section 419A(f)(6) plan is theoretically sound, there is a possiblity of an IRS attack or changes in the Code affecting these programs

Mr. Baker owns Baker Industries, Inc. which is an S corporation. The Corporation pays the premium of Mr. Baker's personally owned disability policy. Which of the following are true? 1. Baker Industries can deduct the premium 2. Benefits payable to Mr. Baker under the policy will be tax-free

1, 2 The premium payment passes through to Mr. Baker as taxable income (conduit principal). He pays taxes on it; therefore, the benefits are tax-free.

Which of the following best describes a VEBA? 1. funds into which employers make deposits that will be used to provide specified employee benefits in the future 2. it is a nontaxable trust 3. it is similar to a prefunded welfare benefit plan 4. it is a taxable trust

1, 2, 3 A VEBA is a kind of organization, either a trust or a corporation, which is set up by an employer, or through collective bargaining, to hold funds used to pay benefits under an employee benefit plan. Income of the VEBA is exempt from regular income tax if the VEBA meets the requirements of Code Section 501 (c)(9)

HSA funds can be used to cover additional expenses that generally are not covered by a health policy. Which of the following apply? 1. Dental expenses 2. Psychiatric visits 3. Physical therapy 4. Acupuncture 5. Non-prescription cough syrup

1, 2, 3, 4 After 2011, over-the-counter drugs will no longer qualify as a medical expense. HSAs can cover all of the listed expenses (as well as maternity expenses) not covered by a health insurance policy. Tax-free distribution can come from HSAs to pay insurance policy and insurance premiums for qualified long-term care insurance. NOTE: Most health insurance policies exclude or limit the above expenses.

Tim is an employee of a company. What benefits can Tim pay for using FSA contributions (pretax and pre-FICA)? 1. Qualified medical insurance deductibles and medical expenses that have been claimed, but not covered by the health insurance policy. 2. Qualified dental insurance deductibles and dental expenses that have been claimed but not covered by the health insurance policy. 3. Long-term care premiums. 4. Dependent care benefits not to exceed $5,000.

1, 2, 4 ? No kind of health premiums, including LTC premiums, may be paid by Tim through an FSA plan. The employer can provide coverage (pay premium) for long-term-care services, but it is included in the employee's gross income. However, expense reimbursements are okay.

Participants may not be excluded or required to pay an extra premium on the basis of which of the following? 1. genetic information 2. age of participants 3. medical history 4. health status

1, 3, 4 Participants may not be excluded or required to pay an extra premium on the basis of the following: health status, medical condition (physical or mental), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability

COBRA provides for continued coverage to all except? 1. directors 2. small business of 50 employees 3. independent contractors 4. self-employed individuals

1, 3, 4 Self-employed individuals, independent contractors, and directors are not counted and exempted from COBRA

Which of the following are alternatives to a cafeteria plan? 1. Cash compensation 2. Flexible Spending Account (FSA) 3. Fixed Benefit Program 4. PPO 5. Group Life Insurance

1, 3, 5 Alternatives to a cafeteria plan are a flexible spending account (FSA), a fixed benefit program, and cash compensation

What are the main differences between PPOs and HMOs? 1. PPO participants have financial incentives to use the preferred provider network 2. In PPOs, the fee schedule is different for each participant in the plan 3. In PPOs, the primary care physician has control over a participants access to specialists 4. PPOs provide benefits on a fee-for-service basis as their services are used

1, 4 PPOs typically differ from HMOs in two aspects: First, they provide benefits on a fee-for-service basis as their services are used. Fees are usually subject to a schedule that is the same for all participants in the PPO. Second, plan participants have financial incentives to use the preferred provider network. The primary care physician does not control a particpants access to specialists, as is the case in most HMO plans

Out of the following three definitions of disability list them from most strict to least: - Qualified for definition - Social Security or total and permanent definition - Regular occupation or own occupation definition

1. Social Security or total and permanent definition 2. Qualified for definition 3. Regular occupation or own occupation definition

Health plan coverage must be continued for _____ months after termination of employment or reduction in hours of employment, other than for gross misconduct. If termination is due to disability, coverage must be continued for _____ months.

18 ; 29

Section 79 regulations for group-term insurance require which of the following? 1. must be carried directly or indirectly by the employee 2. must provide a general death benefit 3. must provide compensation for services to a group of employees 4. must determine insurance amounts for employees

2, 3, 4 Section 79 regulations for group-term insurance require that a general death benefit be provided, compensation for services to a group of employees be provided, insurance amounts for employees are determined, and the employer must carry it directly or indirectly

Which type of benefit provides the most tax advantages to executives in prefunded welfare benefit plans? 1. welfare benefit 2. death benefit 3. retirement benefit 4. severance benefit

2, 4 Prefunded welfare benefit plans designed primarily for executives generally provide severance pay benefits, death benefits, or a combination of the two, since these are the benefits that tend to provide the most tax advantages

Because of administrative costs, FSAs are usually impractical for businesses with only a few employees. Most FSAs involve employers with ______ or more employees, but the plan could be considered for as few as ______ employees.

25 ; 10

Brad is considering adopting an FSA if the partnership adopts an HSA. What benefits or options are available from an FSA? 1. Dependent care (maximum of $5,000 per dependent) and long- term care. 2. Deferred compensation and life insurance. 3. FSA contributions can be made to a HSA, and the partnership can save on FICA & FUTA taxes on contributions to the FSA (and HSA). 4. Medical expense FSA benefits (but not HSA benefits) can continue under COBRA if a triggering event occurs and can allow the participant to avoid the 10% AGI floor that otherwise limits itemized deductions for medical costs.

3, 4 Answer I is wrong because the dependent care limit is $5,000 per year per employee, not per dependent. Answer II is wrong because deferred compensation is not available under an FSA. Some types of life insurance may be offered under a Section 125 (cafeteria) plan, but life insurance is not available under an FSA. FSAs may offer medical expense benefits without establishing an HSA.

Under ERISA, what are the two types of employee benefit plans? 1. employee plan 2. insurance plan 3. pension plan 4. welfare plan

3, 4 Under ERISA, employee benefit plans are divided into two types: pension and welfare plans

Stop-loss coverage is most likely to be used by what type of company to partially self-insure its employee medical Insurance program? a. Companies with as little as 100 employees b. Only large companies c. Medium-to-large companies

A A small company could self-insure employee claims to $250,000. Claims above $250,000 in aggregate would be paid by an insurance company. Claims under $250,000 in aggregate would be financed by the employee, employer contributions, and potentially reduced health insurance premium costs. The dollar amount ($250,000) is just used to justify the answer. It could be $100,000 to $1,000,000.

Which of the following is false about HSA contribution rules? a. Contributions are not aggregated. b. Contributions can be made by either the employer, the individual, or both. c. Contributions made by the employer are tax-deductible and not taxable to the individual. d. Contributions made by the individual are an above-the-line tax deduction.

A Aggregated just means contributions from the employee and employer are combined.

What is the limit on total medical expenses that can be covered under a health FSA for 2019? a. $2,700 per year b. $2700 per person per year c. $5,000 per year d. No limit

A For 2019, there is a cap on both the health FSA ($2,700) and the dependent care ($5,000).

Beth works for B & B Interiors. The company has a contributory long-term group disability policy. Beth's benefits under the policy are $3,000 per month. If she contributes 50% of the premium due each month, what happens if she becomes disabled? a. She will receive $3,000 of benefits. 50% will be taxable, and 50% will be tax-free. b. She will receive $1,500 of benefits tax-free, and the company will get $1,500 of benefits (taxable). c. She will only receive $1,500 of benefits tax-free. d. She will receive $3,000 of benefits.

A She is paying for half the premium with after-tax dollars. Half the benefits she receives will be tax-free. The other half are taxable (to her - not the company).

Betty elects a salary reduction of $5,000 for dependent child care. Which of the following is false? Why? a. If Betty fails to use all the salary reduction ($5,000) by year end, the remaining dollars can be used in the 2 1/2 month grace period. b. The FSA is typically funded entirely through employee salary reductions. c. The salary reduction is not subject to withholding. d. The salary reduction is not subject to FICA and FUTA.

A The new rule allows workers an extra 2 1/2 months to spend the money (until March 15th) for the medical expense portion only. This question is referring to dependent care FSA only.

Todd Smith works for XYZ, Inc. The company has a contributory long-term group disability plan. Todd's benefits under the policy are $5,000 / month. If he contributes 100% of the premium due each month, what happens if he becomes disabled and collects benefits? a. The benefits are tax free. b. The plan is discriminatory. c. The plan is not a group disability but an individual disability plan. d. 100% of the benefits are taxable.

A The plan is paid for with after-tax dollars (fully contributory), which means that the benefits are tax-free.

VEBAs (voluntary employees' beneficiary association)

A VEBA is a kind of organization, either a trust or a corporation, that is set up by an employer, or through collective bargaining, to hold funds used to pay benefits under an employee benefit plan. Income of the VEBA is exempt from regular income tax if the VEBA meets the requirements of Code Section 501(c)(9).

Flexible Spending Account (FSA)

A flexible spending account or FSA, is a type of cafeteria plan. Under this plan employees can choose between cash and specified benefits that are funded through salary reductions elected by employees each year.

salary continuation plan

An arrangement whereby an income, usually related to an employee's salary, is continued upon employee's retirement, death, or disability.

Sherry has a choice between two disability policies. She is healthy, has a professional and stable job, and is single. She will pay the premium and needs the coverage for a long time. Policy A Policy B $3,000 / month of benefits $4,000 / month of benefits 90-day wait 30-day wait Benefits to age 65 Benefits to age 65 Noncancellable Noncancellable Own occupation Any occupation Premium: $3,900 / year Premium: $3,000 / year Which policy would you recommend based on these descriptions? a. Policy A, because a good, stable job should allow her to begin self-insuring for disability. b. Policy A, because of its own occupation definition of total disability. c. Policy B, because it has a 30-day wait and the premium will be substantially less over time. d. Policy B, because she is healthy and the premium will be substantially less over time.

B "Own occupation" is the best answer on the Exam. If she has a professional and stable job, she must be educated and can do some other (any) occupation.

Lori is covered under a coinsurance provision and is responsible for 20% of covered expenses. She has a deductible of $250. Lori incurs expenses of $2k during the year. How much will she have to pay and how much will the company pay? a. Lori will pay $400 and the company will pay $1,600 b. Lori will pay $600 and the company will pay $1,400 c. Lori will pay $250 and the company will pay $1,750 d. Lori will pay $650 and the company will pay $1,350

B Lori will pay $600 ($2000 - $250 = $1750 x 20% = $350 ($250+$350 = $600)) and the campny will pay $1,400 ($2,000-$600)

Which type of employer typically uses legal services plans? a. medium size employers b. large employers c. small employers

B for employees in collective bargaining units

Karen is a professional consultant. Her earned income is $120,000 per year. If she applies for an individual disability policy, how much will the maximum monthly benefit be? a. $8,000 b. $10,000 c. $5,000 d. $4,000

C The answer is approximately 50% of her earned income.

Joe and Samantha wish to exclude from their income the value of certain retirement planning services provided by their employer for this year. The employer is currently maintaining their qualified retirement plan. Choose the correct options regarding qualified retirement planning services from the given options. 1. Exclusions are available only if they are highly compensated employees 2. Services like tax preparation are included in income 3. Accounting services are included in income 4. Legal services are included in income 5. Brokerage services are included in income

Correct Answer: 2, 3, 4, 5 Explanation: Services such as tax preparation, accounting, legal, or brokerage services are included in income, without regard to whether they relate to retirement planning.

An employer's deduction for contributions to a welfare benefit fund that is not part of a 10-or-more employer plan is generally limited to which of the following? A. The fund's qualified cost for the tax year B. The fund's qualified direct cost for the tax year C. The amount that can be added to the fund's qualified asset account for the tax year D. The fund's after-tax income

Correct Answer: A. The fund's qualified cost for the tax year Explanation: If a VEBA is not part of the 10-or-more-employer plan and does not qualify under Code Section 419 A(f)(6), then deductible contributions are severely limited. But the VEBA income is set aside in excess of the Code Section 419A limits. So if the contributions are deductible under provisions of the Code in absence of 419 and 419A, they are done under the deduction acceleration limits of the Code Sections 419 and 419A. Thus the employer's deduction for the taxable year is limited to the qualified cost of the funds.

A short-term disability plan, often an insured plan, goes into effect when sick pay benefits cease, and will typically extend until? A. a six-month benefit period has been satisfied and Social Security benefits or the employer's long-term plan goes into effect B. the employee is fully recovered from sickness or accident C. the employer cannot fund the plan any longer D. sick pay benefits are renewed and begin with the new calendar/fiscal year for the employee

Correct Answer: A. a six-month benefit period has been satisfied and Social Security benefits or the employer's long-term plan goes into effect Explanation: A short-term disability plan fills the gap between sick pay and the employee's long-term disability plans. It goes into effect when the employee's sick pay benefits run out and extends until the six-month limit has been reached, when the employer's long-term disability plan, if any, and Social Security disability go into effect.

Smith files an FSA election with his employer to reduce his salary by $1,500, which was placed into his FSA benefit book account. At the end of the year, $550 remains in his account. What can Smith do with the amount? A. may carry over the full $550 in his account to the following year B. may carry over only a maximum of $500 in his account to the next year C. may receive the $550 in cash but must include the full amount in income for the current year D. will forfeit the full $550 if he has not used it by the end of the year

Correct Answer: B. He will forfeit $50 if he has not used it by the end of the year Explanation: At the end of the year, if expenses are less than predicted, it is forfeited. Only $500 can be carried over to the next year. The amount forfeited reverts to the employer as it means that the compensation is not to be paid.

Which type of plan or contract is not considered a postpaid-type health plan? A. Commercial insurance contracts B. Health maintenance organizations (HMOs) C. Self-funded plans D. Blue Cross/Blue Shield contracts

Correct Answer: B. Health maintenance organizations (HMOs) Explanation: Health insurance plans can be of two types - prepaid or postpaid. The principal form of prepaid plan is the health maintenance organization (HMO), where the health care provider is paid in advance.

Which of these employee groups can never be excluded from group-term life insurance that an employer maintains? A. employees with two years of service B. employees with five years of service C. part-time employees D. employees who are part of a collective bargaining unit

Correct Answer: B. employees with five years of service Explanation: The design feature of group-term life insurance includes the exclusion criteria. When calculating the percent of employees to be covered under the group-term insurance, employees with less than three years of service, part-time/seasonal employees, and employees of the collective bargaining unit can be excluded. Employees with greater than three years service are included in the plan.

Which of the following methods may NOT be used to finance a group-term carve-out arrangement? A. death benefit only plans B. profit sharing plans C. split-dollar arrangements D. bonus plans set up under Section 162

Correct Answer: B. profit sharing plans Explanation: Financing a group-term carve-out arrangement requires the implementation of methods such as bonus plans, split-dollar plans, and death benefit plans. In order for carve-out programs to work as intended, they need to be carefully designed to avoid Section 79 status. This can be achieved if the coverage involves either/and the split-dollar, bonus, or death benefit only plans.

Which type of HMO plan involves medical groups but does not directly employ individual doctors and other providers? A. Staff model HMO B. Individual practice associations (IPAs) C. Group practice D. Open panel plans

Correct Answer: C. Group practice Explanation: HMOs are basically organized in one of three ways - staff model, group practice or medical group model, and individual practice association. In the group practice model, a contract is signed between the HMO and the medical group or groups that would provide the services to subscribers. However, while the HMO does not directly employ the individual doctors and other providers, subscribers must use only the services of those employed by the HMO under the contract.

Which of the following is NOT an element in the definition of a "qualified long-term care insurance contract" under Code Section 7702B? A. the only insurance protection provided under the contract is coverage of "qualified long-term care services" B. the contract is guaranteed renewable C. the COBRA continuation coverage requirements D. the contract has no cash value

Correct Answer: C. the COBRA continuation coverage requirements Explanation: IRC Section 4980B provides that the COBRA coverage requirements do not apply to coverage under qualified long-term care services. Qualified long-term care services means only specified services provided to chronically ill persons as defined in Code Section 7702B. So all of the above are part of the definition of qualified long-term care services except the COBRA continuation coverage requirements.

What are the taxation rates used to measure the value of group-term life insurance in excess of $50,000 generally referred to as? A. the P.S. 38 rates· B. the 1980 CSO rates C. the Table I rates D. the P.S. 58 (or Table 2001) rates

Correct Answer: C. the Table I rates Explanation: The cost of the first $50,000 of group-term insurance is tax-free to the employees. However, for coverage above $50,000, the amount taxable to the employees, or rather the value of the group-term life insurance needs to be calculated on a monthly basis. This is done by multiplying by the Table I rates..

Of the disability definitions described below, which is the strictest one or the least preferred by employees? A. "qualified for" definition B. "regular occupation" definition C. "own occupation" definition D. "total and permanent" definition

Correct Answer: D. "total and permanent" definition Explanation: The strictest definition of disability is the total and permanent definition that states the disability condition under which an employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. Because of the nature of the defining disability, it is least favorable to the employees.

Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), an employer must provide an option to continue health insurance coverage for an employee whose termination from employment is due to disability for what period of time? A. 12 months B. 36 months C. 18 months D. 29 months

Correct Answer: D. 29 months Explanation: Many employers provide benefit plans of continuing insurance coverage for employees and their dependents for some time after the termination of employment under the COBRA rule. COBRA requires that if the termination of employment is due to disability, then the coverage should continue for a period of 29 months. If the termination is due to death of the employee, divorce or separation, or bankruptcy, then the continuation period is 36 months, and in all other cases, except misconduct, the time period is 18 months.

Benefits for the following will not be paid even if the definition of disability is met EXCEPT? A. during periods when the employee is not under a physician's care B. caused by an intentionally self-inflicted injury C. before the employee became eligible for plan coverage D. medical expenses incurred for treatment of an injury that caused disability

Correct Answer: D. medical expenses incurred for treatment of an injury that caused disability Explanation: Disability plans usually have specific exclusions under which benefits are not paid even if they meet the definitions of disability. All of the above are excluded from payment even if they comply with disability definition, except for medical expenses incurred for treatment of an injury that caused disability. In this case disability benefits are paid due to injury.

Which of the following employer-provided employee benefit plans does NOT provide a death benefit or capital accumulation? 1. a dependent care assistance plan 2. short-term disability plan 3. a profit sharing plan 4. a group-term life insurance plan 5. a nonqualified deferred compensation plan

Correct Answers: 1, 2 Explanation: Qualified plans such as profit sharing, group-term life insurance, and nonqualified deferred compensation all provide some form of death benefits or capital accumulations in their plan. But dependant care assistance or short-term disability plans do not provide for death benefits, as they are provided only for a small period of time and do not consider benefit provision in lieu of death.

Why are cafeteria plans popular among employees and employers? 1. they help choose the form of benefits needed 2. they include cash options in lieu of noncash benefits of same value 3. they provide tax benefits to key employees 4. they are simple to design and less expensive 5. they help control cost of the benefit package to the employer

Correct Answers: 1, 2, 5 Explanation: Cafeteria plans allow employees to choose the form of employee benefits. These plans must include a cash option, wherein employees have an option to receive cash in lieu of noncash benefits of equal value. Cafeteria plans also help control the cost of the benefit package to the employer, as the benefits that are not taken by the employees reduce the employer's provisionary costs

Under a Section 125 plan (a cafeteria plan), "qualified benefits" - include all of the following except? 1. Cash 2. Scholarships and fellowships 3. Medical expenses 4. Disability income insurance 5. Retirement benefits (not including 401(k) plans)

Correct Answers: 2, 5 Explanation: Under Code Section 125 and its regulations, only certain qualified benefits can be made available. Cash and most tax-free benefits such as medical expenses and disability income insurance are part of the basic benefit package, but the plan excludes scholarships and fellowships under Section 117 and retirement benefits such as qualified or nonqualified deferred compensations.

Which of the following would be taxable to an employee recipient under Code Section 132? 1. the infrequent use of company employees to type personal correspondence 2. season tickets for a major league baseball team 3. flowers sent to the funeral of an employee's family member 4. occasional tickets to the theater 5. weekend vacation in company apartment

Correct Answers: 2, 5 Explanation: Under Code Section 132, benefits that are often referred to as de minimis fringe benefit, states that property or services provided to the employees are not taxable if they are too small to be accountable. IRS regulations have provided guidelines with respect to this so that employees cannot misuse the term "small".

Tom is in poor health. He is 62 years old. He works for a large company. He is covered under his company's group health insurance plan. How long does Tom need to work to maintain his health insurance? a. He can quit now. b. Until death c. To 63-1/2 d. To age 65

D The best answer is To age 65. Actually, answers To 63-1/2 and He can quit now. could be answer. He could receive COBRA coverage for 18 months; then at 65 he will be eligible for Medicare coverage. He could do a combination of COBRA and HIPAA to get to age 65 (He can quit now.). Yes, this is subjective subject to the test writers evaluation. COBRA would be extremely expensive ($1,500 per month single and $3,000 per month - married). Can he afford that? The Affordable Care Act (ACA)can effect this question, but due to the ACA's uncertainty and other issues it is not tested yet.

How is short term disability plans setup as?

Either as sick pay or short-term disability

Health Savings Account

Employer contributions are fully deductible and any contributions made on behalf of the employee are fully vested and non-forfeitable.

Why may it be a benefit to executives to be "carved-out" of a group plan and given a separate individual policy provided by the employer?

Executives can be provided with more insurance than would be available under a group-term plan. In addition, the plan can provide cash growth that is a "portable" benefit for the executive

Blue Cross plans are used for doctors' bills, and Blue Shield plans used for hospital bills. True or false? Why?

False Blue Cross plans are used for hospital bills, and Blue Shield used for doctors' bills

Most legal services plans are not designed to cover catastrophic legal expenses, such as a criminal trial. True or false? Why?

False Legal expenses such as the cost of a criminal trial can be the kind of catastrophic expense that is best provided through an insurance type or group benefit program such as a legal services plan

Salary reductions elected by employees to fund nontaxable benefits under a FSA are subject to federal income taxes. True or false?

False. They are not subject

Why are HMO's beneficial for younger employees and employees with many dependents?

HMOs are attractive to younger employees and employees with many dependents, because the HMO typically covers all medical expenses without significant deductibles or co-pay provisions. Where such employees are predominant in an employer's workforce, the employer may get the most perceived value for its benefit dollar by offering an HMO, or choice of HMOs, as its health benefit plan.

VEBA (Voluntary Employees' Beneficiary Association) or other trust fund

Here assets are set aside to meet the future insurance liability in a separate trust fund. A VEBA is a tax-exempt arrangement that can be used for this purpose. The approach is similar to using a Section 401(h) account, but the limits on contributions are not subject to the 25% incidental benefit rule, but rather to the rules for prefunded welfare benefits under Sections 419 and 419A.

The Open Panel Plan

In this plan, patients can see different primary care providers and refer themselves to specialists within the network. The financial penalties are not as great if the patient goes out of the network in this plan.

The gatekeeper plan

In this plan, patients must choose their primary care provider from the PPO network. In order to see a specialist, they must get a referral from their primary care provider. If patients refer themselves to a specialist, they will not get the PPO cost savings.

Though the tax benefits are the same, how are long-term care plans different from health insurance?

Long-term care plans are similar to health insurance in terms of tax benefits. However, long-term care services provide coverage of nursing home or home health expenses for chronically ill beneficiaries that are generally not included in health care plan

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Many employers have plans that continue health insurance coverage for employees and their dependents for a period of time after termination of employment.

per-family deductible

Most employee plans use a per-family deductible as well as individual deductibles to minimize the payment burden for families. For example, the plan may have a $200 per individual deductible, but also a provision under which the plan pays for all covered expenses in full when total expenses for all family members exceed $500.

Are there nondiscrimination requirements for athletic facilities?

No provision. It can be offered to selected executives in a tax-free manner

Do nondiscrimination rules apply to employer long-term disability plans?

No they do not. Employer is free to decide who gets the plan

What percentage of employees must be covered if a company's plan is nondiscriminatory?

Rules cover 70% of all employees, 85% of non-key employees, nondsicriminatory classified employees as mentioned by the IRS, or those who meet Section 125 nondiscrimination rules

De minimis fringe

Section 132 provision where property or services are not taxable to an employee if their value is so small it makes accounting for them unreasonable.

Section 119, how is it proven if meals are for the convenience of the employer?

The issue of whether the plan serves the convenience of the employer is a factual one, with guidelines set out in the regulations under Section 119. If more than half of the employees are provided with meals that meet the above tests, all meals provided to employees on business premises are excluded from income.

de minimis fringes

These benefits are so small that accounting for them is impractical

Corporate-owned life insurance

This is again a variation on the pay-as-you-go approach, but with a dedicated corporate asset reserve in the form of corporate-owned life insurance. The insurance is maintained on the life of each covered employee, with the corporation as owner and beneficiary. The tax-free cash buildup of the policy is used to pay the after-tax cost of health insurance premiums for retired employees. When the insured employee dies, the tax-free death benefit allows the company to recover part or all of its costs for the plan.

The Exclusive Provider Plan

This plan is very similar to an HMO and shifts all the costs onto patients if they see a non-network care provider.

Employee discounts on merchandise are an advantage to the employer because they can still make a profit on the items sold or at least recover its cost, but does not have to bear the full cost of marketing and selling the items to the public. True or false? Why?

True Discounts on merchandise are almost as valuable as cash to employees, but are very inexpensive for the employer because the employer can still make a profit on the items sold or at least recover its cost, but does not have to bear the full cost of marketing and selling the items to the public

Increase pension benefits

Under this alternative, there is no formal health insurance continuation plan for retirees except for the required COBRA coverage, but pension benefits are increased to provide employees with additional money to pay insurance premiums. This alternative allows a current deduction to the employer for the extra costs and tax-free accumulation of investment returns, but the pension nondiscrimination rules require that the increased benefits be provided to all employees covered under the pension plan.

Incidental benefit in qualified plan

Under this approach, continued health insurance coverage is provided as an incidental benefit under a qualified pension or profit sharing plan. The health insurance coverage is funded as part of the plan cost

Earmarked corporate assets

Under this approach, the plan is essentially a pay-as-you-go arrangement, but to provide a better indication of responsible financial management the corporation sets aside specified assets to offset the additional liability that the FASB rules would impose.

Why would an employer use VEBAS?

When an employer wants to provide benefit security for all covered employees by placing funding amounts in trust, for the exclusive benefit of employees and beyond the reach of corporate creditors.

When are cafeteria plans used?

When employee benefit needs to vary within the employee group. For example, cafeteria plans are used where the employee mix includes young, unmarried people with minimal life insurance and medical benefit needs as well as older employees with families who need maximum medical and life insurance benefits.

Pay as you go

With this alternative, there is no advance funding or financing; health insurance premiums are simply paid each year after the covered employee retires. This alternative is simple and offers the lowest initial cost. There are no nondiscrimination requirements if the plan is insured, so the plan can be offered only to selected executives.

Are legal service plan costs deductible to the employer?

Yes

Which of the following services is allowed from qualified retirement planning services? a. general advice regarding retirement planning b. legal services c. tax preparation d. accounting services e. brokerage services

a Services may include general advice regarding the employee's and the spouse's overall plan for retirement, of which the employer's qualified plan is only a part

Cafeteria Plan

allocates a certain amount of money to each employee that can be spent on benefits. Cafeteria plans must include a cash option that is an option to receive cash in lieu of noncash benefits of equal value.

Fringe Benefits

are noncash compensation benefits to employees.

Why do death benefit plans not provide postretirement death benefits?

because they are more likely to be treated as deferred compensation plans

Open-panel prepayment legal service plan

employees can choose their own lawyer or choose a lawyer from an approved list. The lawyer must agree in advance to a fee schedule set by the legal services plan.

The nondiscrimination requirements of Section 79 prescribe against what?

favoritism for key employees

For example, an employee has a group-term plan that pays two times salary upon death, and the employee currently makes $65,000 for XYZ Corporation. XYZ, a C corporation. How would a carve out plan work for this employee?

has a carve-out plan for amounts in excess of $50,000. The employee's coverage provided is $130,000 ($65,000 x 2) of which $50,000 is a term policy and the remaining $80,000 is a permanent life insurance policy. The employee will be taxed on amounts above $50,000, as W-2 compensation and all premiums will deductible by XYZ.

HMO: group practice or medical group model

involves contracts between the HMO and a medical group or groups that provide services to subscribers. The individual doctors and other providers are not directly employed by the HMO as an entity. Both staff model and group practice HMOs are sometimes referred to as closed panel plans, because subscribers must use doctors and other providers who are employed by the HMO or under contract to the HMO.

A sick pay or short-term disability plan

is a plan that continues employees' salary or wages for a limited time during periods of illness or other disability. Generally, sick pay or short-term disability payments do not extend beyond about six months. Programs covering disabilities lasting longer than six months are generally considered long-term disability programs.

A qualified transportation fringe

is a plan that provides one or more of the following benefits for employees: - Transportation in a commuter highway vehicle, - A transit pass for use on a transit system, public or private, - Qualified parking

HMO: Staff Model

is an HMO organization which directly employs doctors and other health care providers who provide the HMO's services to subscribers.

long-term care plan

is an employer-provided benefit similar to health insurance. Benefits generally cover "nursing home" or home health expenses for chronically ill beneficiaries. Tax benefits are similar to those for employer-provided health insurance. Premium costs are deductible to the employer, and premiums and benefits are nontaxable to the employee or beneficiary within certain limits.

Health Maintenance Organization (HMO)

is an organization of physicians or other health care providers that provides a broad and nearly complete range of health care services on a prepaid basis

Highly Compensated Employee

is any employee who during the year or the preceding year: - Was at any time an owner of more than 5 percent of the business, or - Received compensation from the employer in excess of $125,000 (2019) in the prior year.

What death benefits do death benefit plans typically provide?

plans typically provide preretirement death benefits, but no postretirement death benefits

Health Maintenance Organizations provide health care on a ___________ basis

prepaid

legal services plan

sometimes referred to as a prepaid legal services plan, is an employer-funded plan that makes legal services available to employees when needed. The expenses of the plan are deductible to the employer. Benefits are generally taxable as compensation to the employees

Welfare benefit trusts

taxable trust

According to Section 119 the amount paid by the employee in meals is not __________

taxed If an employer furnishes meals for employees, the value of the meals is excluded from the employee's income if the meals are for the convenience of the employer, and the meals are furnished on the business premises of the employer

If permanent insurance is used in a group-term plan, whats included in income?

the cost of the permanent benefit, less any amount contributed by the employee towards that permanent benefit, is included in the employee's taxable income for the year.

per-cause deductibles

the deductible amount must be satisfied for each separate illness or other medical condition.

closed-panel prepayment legal service plan

the most common type, employees must obtain covered services from specified groups of lawyers who are either employed by or under contract with the plan.

HMO: individual practice association or IPA plan

under which the HMO is an association of individual doctors or medical groups that practice in their own offices. Most see non-HMO as well as HMO patients. These plans are often referred to as open panel plans, since HMO subscribers can choose any doctor who is part of the IPA. In some areas, many doctors participate in these plans, giving HMO subscribers a wide range of choice.

Are legal service plan benefits taxable to employees?

yes