REVIEW QUESTIONS
A Benefits paid from a deferred compensation plan are tax-free
B Deferred compensation payments to a beneficiary are not subject to estate tax
C Qualified plans are subject to complex nondiscrimination rules
D Earnings on assets held in a qualified plan are not sheltered from current income tax
A Benefits are based on the employee's compensation from the employer both before and after adoption of the plan
B The employer is named beneficiary if life insurance is used to fund the plan
C The employee gains a nonforfeitable right to assets set aside to fund the plan after no more than five years of service
D Benefits are paid after an employee's termination of employment without further restriction
I. It is flexible and adapts easily to variations in premium payments
II. It provides easy access to policy cash values
III. It often produces greater cash values when compared to annuities and other types of permanent life insurance
A I only
B II only
C I and II only
D I, II, and III
A zero
B cash value minus basis
C fair market value of policy at time of transfer
D amount of deduction employer took prior to retirement
A Executive Bonus plan
B Excess Benefit plan
C SERP
D Top Hat plan
A purchase of insurance on Joanne's life by BWG
B withdrawal of funds from the trust
C purchase of life insurance by Joanne on her own life
D contribution by BWG to the trust
A Demand payment at any time
B Borrow from his account
C Demand payment after five years of service
D None of the above
A the employer selects an amount of income to be paid at retirement under the plan
B it is more complex than the defined contribution approach
C the cash value of the life insurance policy at retirement determines the amount of income the executive will receive
D the employer must calculate the contribution amount level that will provide the promised retirement benefit
A the premiums paid are considered contributions to a nonqualified plan and are deductible by the employer
B plan costs are reduced because the employer need not include all employees
C there are generally no reporting or disclosure requirements that apply
D plan administration is very simple
A Benefits under the life insurance policy stop.
B The employer must continue making bonused premium payments until age 65.
C The executive may not continue paying premiums on the policy.
D None of the above
I. Loss of control over the life insurance policy
II. Inability to recover costs
III. No tax benefits for sole proprietors or S corporation owners
A I only
B I and II only
C II and III only
D I, II and III only
A he must pay income tax only on this amount
B he must pay Social Security tax only on this amount
C he must pay both income tax and Social Security tax on this amount
D there is no additional income tax liability
I. The proceeds will be included in her estate.
II. The proceeds will be excluded from her estate.
III. The beneficiary must pay income tax on the proceeds.
A I only
B II only
C I and III only
D II and III only
A The $400,000 is considered taxable income, subject to capital gains tax rates.
B The $400,000 is considered taxable income, subject to ordinary income tax rates.
C Jeff will owe no income tax on either the $500,000 or the $400,000 loan.
D none of the above are true
A LIFO accounting
B FIFO accounting
C capital gains treatment
D constructive receipt doctrine
A $180,000
B $200,000
C $220,000
D $500,000
A long-term capital gain
B ordinary income
C dividend income
D modified endowment income
A They must be ordinary and necessary expenses
B They must be paid or incurred by the employer
C They must be paid for services actually rendered
D All of the above
A Contributions to qualified plans are nondeductible items for federal income tax purposes
B Qualified plans may not discriminate in favor of highly compensated employees
C Benefits under qualified plans are not subject to dollar limits
D Investment earnings in a qualified plan are tax-deferred
A Employee's terminating employment to work for a competitor
B Employee's disability
C Employee's death
D Employee's retirement
A 401(k) plan
B Any qualified plan
C Secular trust
D Deferred compensation plan
A the practice of establishing a deferred compensation plan on a handshake rather than putting it into writing
B any funding plan other than life insurance
C use of a corporate-owned non-allocated asset to meet the obligations of the deferred compensation plan
D setting aside specific assets to provide deferred compensation benefits
A qualified plan
B SERP
C rabbi trust
D secular trust
A economic benefit doctrine
B transfer for value rule
C like-kind exchange rule
D at-risk doctrine
A. $500,000
B. $1,000,000
C. $2,000,000
D. $2,500,000
A. Employer owns policy, beneficiary is employee
B. Employer owns policy and is the beneficiary
C. Employee owns policy and is the beneficiary
D. Employee owns policy, beneficiary is employer
A. A spouse
B. A trust
C. Minor children
D. The employer
A. 10%
B. 15%
C. 25%
D. There is no IRS penalty associated with a withdrawal from a life insurance policy in an executive bonus plan
A. $300,000
B. $200,000
C. $175,000
D. Nothing
A. P.S.58 rates
B. Table 2001 rates
C. Table I rates
D. P.S.38 rates
A. $100
B. $150
C. $250
D. nothing
A. Post-retirement death benefits
B. Portability
C. Tax-deferral of employer premium payments
D. Supplemental executive retirement plan
A. Traditional split dollar plan
B. Salary continuation plan
C. True deferred compensation plan
D. Executive bonus plan
A. Obtaining compensation for the death of a key executive
B. Attracting key talent
C. Retaining key executives
D. Rewarding high-impact achievers
A. excess benefit plan
B. executive bonus plan
C. top hat plan
D. supplemental executive retirement plan
A. SERP
B. executive bonus plan
C. rabbi trust
D. group carve out plan
A. The executive receives a lump-sum distribution
B. The executive forfeits the salary continuation benefits
C. The executive’s benefits are reduced by one-half
D. Nothing, salary continuation plan benefits are always fully vested
A. Deductibility of plan contributions
B. Whose money is used to provide the benefits
C. The executives that are covered by the plan
D. Cost recovery
A. Split dollar plans
B. Deferred compensation plans
C. Group carve out plans
D. Executive bonus plans
A. Executive bonus plans
B. True deferred compensation plans
C. Salary continuation plans
D. Endorsement split dollar plans
A. defined benefit pension
B. executive bonus
C. salary continuation
D. profit sharing
A. Term insurance
B. Whole life insurance
C. Universal life insurance
D. Endowment insurance
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
A. Humanely retiring all of a firm’s employees
B. Attracting a key executive
C. Arranging for business succession
D. Funding an ESOP
A. Excess Benefit Plans
B. Executive bonus plans
C. Salary continuation plans
D. Group carve out plans
A. Minimum coverage requirement
B. Non-discrimination requirement
C. Vesting requirement
D. Cost recovery requirement
A. retirement benefits
B. medical reimbursement benefits
C. disability benefits
D. pre-retirement survivor benefits
A Tom may continue insurance coverage after retirement.
B Tom may continue coverage if he quits jobs.
C Tom can make voluntary contributions to the universal life insurance policy that will grow tax-deferred.
D All of the above
A Costs may increase.
B Costs may decrease.
C Both A and B
D Neither A nor B
I No plan discrimination concerns
II Current income tax deduction for premiums
III Cost increase is offset by premium deductions
A I only
B I and II only
C I and III only
D II only
A The premiums paid for the group term life insurance are deductible by the employer as an employee benefit.
B The premiums paid for the universal life insurance policy are deductible by the employer as compensation.
C Both A and B
D Neither A nor B
A $50,000
B $100,000
C $150,000
D None must be reported.
A increased
B reduced
C eliminated
D maintained at the same level
A Executive
B Employer
C Both A and B
D Neither A nor B
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
A. A regular corporation
B. An S corporation
C. Partnership
D. Any of the above
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
A. Rabbi trust
B. Secular trust
C. Grantor retained income trust
D. Secular trust
A. The insured
B. The employer
C. The beneficiary
D. A trust
A. taxable as ordinary income
B. tax-free
C. tax-deferred
D. taxable as a dividend
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
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
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
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
A. $50,000
B. $75,000
C. $100,000
D. $250,000
A. additional compensation
B. bonus compensation
C. an employee benefit
D. a dividend
A. compensation
B. an employee benefit
C. a dividend
D. a charitable contribution
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
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