Review
Chapter 1 Review Questions


What determines the value of a nonqualified plan?

A.     Its enabling the employer to recover its costs
B.     Its enabling the employer to meet its objectives in establishing the plan
C.     Its ability to allow the employer to discriminate
D.     Its ability to minimize employer benefit costs



Which of the following benefits is NOT typically found in nonqualified plans?

A.     Employer tax-deductibility of plan contributions
B.     The ability to tailor a plan to fit the executive’s needs
C.     Employer cost recovery
D.     The ability to favor one key employee



Which of the following business needs may be met through a nonqualified plan?

A.     Humanely retiring all of a firm’s employees
B.     Attracting a key executive
C.     Arranging for business succession
D.     Funding an ESOP



 Which of the following nonqualified plans is routinely referred to a “golden handcuffs”?

A.     Split dollar plans
B.     Executive bonus plans
C.     Salary continuation plans
D.     Group carve out plans



Which of the following is NOT a qualified plan requirement?

A.     Minimum coverage requirement
B.     Non-discrimination requirement
C.     Vesting requirement
D.     Cost recovery requirement

Chapter 2 Review Questions

All of the following benefits are frequently included in a deferred compensation plan EXCEPT:

A.     retirement benefits
B.     medical reimbursement benefits
C.     disability benefits
D.     pre-retirement survivor benefits



What is the normal tax treatment of survivor benefits received under a deferred compensation plan?

A.     Survivor benefits are always tax-free
B.     Survivor benefits are subject to capital gain taxation
C.     Survivor benefits are income taxable up to the policy’s cash value
D.     Survivor benefits are fully taxable as income




Which of the following organizations may NOT establish a deferred compensation plan for an executive?

A.     A regular corporation
B.     An S corporation
C.     A sole proprietorship
D.     Regular corporations, S corporations and sole proprietorships may all establish deferred compensation plans for executives




All of the following would be reasons for an executive in a close corporation to prefer a deferred compensation plan rather than an ownership stake EXCEPT:

A.     Lack of a ready market in which to sell shares
B.     Deferred compensation plans normally give participants vested interests
C.     Restrictions on the right to sell shares
D.     A desire on the part of the owners to limit ownership



Which of the following trusts exempts certain deferred compensation assets from being attached by an employer’s creditors?

A.     Rabbi trust
B.     Secular trust
C.     Grantor retained income trust
D.     Secular trust


Chapter 3  Review Questions


What portion of the annual premium in a traditional split dollar plan is paid by the employer?

A.     The entire premium
B.     The portion of the premium that is equal to the policy’s cash value increase
C.     One-half the annual premium
D.     The portion of the premium equal to the reportable economic benefit



Who or what owns the life insurance policy in a traditional split dollar plan?

A.     The insured
B.     A trust
C.     The employer
D.     The beneficiary


What is the most frequent use of split dollar plans to meet business needs?

A.     Funding a deferred compensation plan
B.     To provide death benefits in qualified plans
C.     To provide key person coverage
D.     To fund buy-sell agreements




What is the principal determinant of the tax treatment given split dollar plans?

A.     The type of split dollar plan
B.     The size of the death benefit
C.     The ownership of the policy
D.     The age of the insured



If an employee owns the life insurance policy in the split dollar plan and is not required to repay the employer’s premium payments, the premium payments are:

A.     below market loans
B.     additional compensation
C.     a gift
D.     a bequest

Chapter 4 Review Questions


Who normally owns the life insurance policy in an executive bonus plan?

A.     The insured
B.     The employer
C.     The beneficiary
D.     A trust



The executive bonus plan premium payment is _________ to the insured.

A.     taxable as ordinary income
B.     tax-free
C.     tax-deferred
D.     taxable as a dividend



The board resolution authorizing an executive bonus plan should accomplish all of the following EXCEPT:

A.     identify the plan participants by name
B.     state that the bonus is additional compensation
C.     recite the ERISA provision under which the plan will be approved
D.     identify each participant as a member of a select group of corporate managers




In what way does universal life insurance facilitate the operation of an executive bonus plan?

A.     Premium flexibility permits different bonus payments each year only
B.     Universal life cash value withdrawals permit easy access to cash value only
C.     Both premium flexibility and easy cash value access
D.     Neither premium flexibility nor easy cash value access





When may the executive access the policy’s cash value in an executive bonus plan?

A.     At retirement only
B.     At any time permitted by the board resolution
C.     At retirement or in the case of hardship only
D.     At any time


Chapter 5 Review Questions

What are the consequences if a group term life insurance plan is deemed discriminatory?

A.     The employer is fined
B.     Its tax advantages may be lost
C.     The plan is disqualified
D.     The employees are subject to tax audit



In a group carve out plan group term life insurance amounts in excess of ________ are replaced by individual life insurance policies.

A.     $50,000
B.     $75,000
C.     $100,000
D.     $250,000



The employer’s premium for group term life insurance is tax-deductible to the employer as:

A.     additional compensation
B.     bonus compensation
C.     an employee benefit
D.     a dividend



The employer’s premium for the individual life insurance policies issued in the group carve out plan is tax-deductible to the employer as:

A.     compensation
B.     an employee benefit
C.     a dividend
D.     a charitable contribution



What happens to the $50,000 of group term life insurance in a group insurance plan with a group carve out if the executive terminates his service with the employer?

A.     The coverage terminates
B.     The coverage is portable and stays with the executive
C.     The coverage reduces by 50%
D.     The coverage becomes fully paid-up for the executive