Transcript Retirement Big Concepts

CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
CFP 4
True/False Questions
©2014, College for Financial Planning, all rights reserved.
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Module 1
Planning for Retirement &
Social Security
©2014, College for Financial Planning, all rights reserved.
Module 1 True/False
1.
The source of funds for OASDI is a special tax on
employers, employees, and self-employed persons.
Your answer
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3
Module 1 True/False
2. Automatic cost-of-living increases in OASDI benefits are
3.
4.
based upon changes in the consumer price index.
There is a reduction in OASDI benefits if the benefits
begin after an insured worker reaches full retirement
age (FRA).
OASDI retirement benefits are exempt from income
taxation for all recipients in the current year.
4
Module 1 True/False
5. An individual receiving Social Security retirement
6.
7.
benefits who has not attained full retirement age (FRA)
and who has excess earnings may lose some or all of
his or her OASDI retirement benefits for the current
year.
Individuals are fully insured for OASDI programs if they
have at least six quarters of coverage.
The Basic Hospital Insurance Plan of Medicare provides
benefits to all individuals age 65 or over, subject to
payment of a monthly premium.
5
Module 1 True/False
8.
9.
The Supplementary Medical Benefits Plan under
Medicare normally pays 80% of approved medical
costs after the patient pays a deductible.
A covered worker, currently married for five years, has
had two previous marriages, which lasted for eleven
years and nine years, respectively. All three spouses
may be able to collect OASDI retirement benefits
based on the worker’s earnings.
6
Module 1 True/False
10. A spouse, age 55, who has the responsibility for a 14-
11.
12.
year-old child of the other spouse (who is disabled)
will receive a Social Security benefit equal to 70% of
the disabled spouse’s PIA.
A widow, age 59, who has a daughter, age 17, will
receive a Social Security widow’s benefit; the daughter
will be eligible to receive a child’s benefit at age 18.
A disabled worker covered by Social Security is eligible
for Medicare coverage after being entitled to Social
Security disability benefits for 24 months.
7
Module 1 True/False
13. The cost of prescription drugs to be taken daily while
14.
15.
traveling will be covered by Medicare Part B if the
patient is a Social Security recipient.
Within the preretirement income range of $15,000 to
$60,000, the lower the preretirement income level is,
the higher the income replacement level will be.
Social Security is an inflation-adjusted source of
retirement income that a planner should include as
part of a retirement savings need analysis if the
client’s wages are subject to FICA taxes.
8
Module 1 True/False
16. An income replacement ratio of 60% generally is
17.
18.
appropriate for establishing a retirement income level
for a 55-year-old client.
The higher a client’s income level is, the more
valuable a tax-favored retirement plan is likely to be.
Assuming an inflation rate that exceeds the
investment return rate will result in a negative
inflation-adjusted yield.
9
Module 1 True/False
19. If the inflation rate is assumed to equal the
20.
investment return rate, the inflation-adjusted yield will
equal zero.
If a client has a $50,000 annual retirement income
need and expects to receive Social Security benefits of
$10,000 per year and a level pension of $15,000 per
year, the client’s income deficit, which will grow with
inflation, will be $25,000 per year.
10
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Module 2
Fundamentals of Defined
Benefit Plans
©2014, College for Financial Planning, all rights reserved.
Module 2 True/False
1.
2.
3.
4.
Higher-than-expected investment earnings in a
defined benefit plan could decrease the employer’s
annual contribution.
A flat-benefit formula in a defined benefit plan is
especially appropriate if an employer wants to base a
retirement benefit in part upon length of service.
Defined benefit plans must pass the 50/40 test and
either the ratio percentage test or average benefits
test.
A defined benefit test should be recommended
whenever an owner is over age 50.
12
Module 2 True/False
5.
6.
7.
For an employee retiring at age 60, the maximum
annual retirement benefit is $210,000 in 2014,
actuarially adjusted downward.
In a defined benefit plan, the highest years’ average
pay formula generally is more favorable to employees
than career average pay, which considers the average
of earnings over the entire period of plan
participation.
The standard funding account compares actual plan
results with a hypothetical amount needed to provide
promised benefits.
13
Module 2 True/False
8.
9.
10.
11.
If an actuarial interest rate assumption is altered from
5% to 7%, the employer will have to increase plan
contributions.
A participant’s years of participation in the plan is a
factor that affects a participant’s retirement benefit in
a defined benefit plan.
If an employer wants to take into account past
service, they would use the “attained age level”
method.
The use of salary scales by the actuary will increase
the annual funding cost for the employer.
14
Module 2 True/False
12. All pension plans are guaranteed by PBGC.
13. Key employees are used when calculating the ratio
14.
15.
16.
percentage and average benefits tests.
Cash balance plans can use either three-year cliff or
two-to six-year graded vesting.
PBGC does not cover all traditional defined benefit
plans and cash balance plans.
The plan’s mortality assumption is a factor that affects
a participant’s retirement benefit in a defined benefit
plan.
15
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Module 3
Fundamentals of Defined
Contribution Plans
©2014, College for Financial Planning, all rights reserved.
Module 3 True/False
1.
2.
3.
Money purchase plans satisfy the “definitely
determinable benefits” requirement by specifying the
amount of the participant’s retirement benefit.
“Annual additions” to a defined contribution plan
consist of employer and employee contributions and
forfeiture reallocations.
For an employer’s contribution to a qualified plan to
be tax deferred, the contribution must be within
statutory limits on the allowable amount, and it must
be authorized by the plan document.
17
Module 3 True/False
4.
5.
6.
Higher-than-expected investment earnings in a
defined contribution plan can be expected to decrease
the employer’s annual contribution.
Annual contributions to a profit sharing plan may vary
each year (both in amount and as a percentage of
covered payroll), which accommodates fluctuating
business performance.
One advantage of a profit sharing plan for a 55-yearold owner is that it probably will provide him or her
with the maximum possible retirement fund at age 65.
18
Module 3 True/False
7.
8.
9.
10.
An ESOP limits plan ownership of employer stock to
25% of total plan value.
In a money purchase plan, annual employer
contributions are a fixed percentage of covered
payroll.
In a company that offers a profit sharing plan, an
employer contribution must be made in any year in
which profits are realized.
A target benefit plan allows discretionary annual
contributions.
19
Module 3 True/False
11. In a target benefit plan, forfeitures may be reallocated
12.
13.
to the accounts of remaining participants or applied to
reduce the employer contribution.
In 2014, elective deferrals to defined contribution
plans are limited to $17,500 annually, plus $5,500 for
the age 50 catch-up if it applies.
Since employee elective deferrals are considered
employer contributions, the employer’s 25% deduction
limit is reduced by the amount of elective deferrals.
20
Module 3 True/False
14. SEPs, profit sharing plans, stock bonus plans, and
15.
16.
money purchase plans are permitted to offer 401(k)
provisions.
Both employer contributions and elective deferrals are
exempt from income tax withholding, but only
employer contributions are exempt from FICA and
FUTA; elective deferrals are subject to FICA and FUTA
taxes.
A self-employed owner/employee may contribute a
maximum of 25% of net business profits to his or her
account in a profit sharing Keogh plan.
21
Module 3 True/False
17. To determine net earnings, a self-employed individual
18.
19.
20.
must subtract his self-employment tax deduction from
business profit.
A self-employed individual will have lump-sum
treatment available from a Keogh plan upon death,
disability, or attainment of age 59½.
The maximum vesting schedule for defined
contribution plans is either two-year cliff or two- to
six-year graded.
Jack works for ABC Corp. and earns $270,000 a year.
If his company installs a 10% profit sharing plan, his
contribution amount would be $27,000.
22
Module 3 True/False
21. Net unrealized appreciation is always taxed as a long22.
23.
term capital gain, and taxation can occur upon
distribution or upon sale.
Jane, age 44, has left YAM Industries and taken a
stock distribution from the company’s ESOP. Her basis
in the stock is $23,000, and it will be subject to
ordinary income taxes as well as a 10% penalty tax.
ESOPs require that employers allow participants to
diversify after three years of service.
23
Module 3 True/False
24. Social Security integration is allowed with ESOPs, but
25.
not with stock bonus plans.
A cross-test profit sharing plan could provide equal
contributions to two owners, ages 35 and 50, who
both make $180,000 a year.
24
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Module 4
Fundamentals of 401(k)
Plans
©2014, College for Financial Planning, all rights reserved.
Module 4 True/False
1.
2.
A profit sharing 401(k) plan to which highly
compensated employees deferred an average of 6%
of compensation and to which nonhighly compensated
employees deferred an average of 4% of
compensation would pass the ADP test.
If a profit sharing 401(k) plan participant meets the
criteria for a hardship withdrawal, then his or her full
account balance is available for withdrawal.
26
Module 4 True/False
3.
4.
5.
6.
Employer matching provisions may be incorporated
into a 401(k) plan to strengthen the plan’s ability to
pass nondiscrimination tests.
A safe harbor 401(k) plan avoids the need to do either
the ADP or ACP test.
Any qualified plan can establish 401(k) provisions.
Employee deferrals must be taken into account when
calculating an employer’s 25% contribution limit into a
profit sharing 401(k) plan.
27
Module 4 True/False
7.
8.
9.
10.
The maximum age 50 catch-up contribution amount
for 401(k) plans is $5,500 in 2014.
Corporations can establish 401(k) plans; however, sole
proprietors cannot.
A 401(k) plan must allow participation to anyone who
is at least age 21, and has completed one year of
service (over 1,000 hours).
A highly compensated employee in 2014 would
include employees who had compensation of at least
$115,000 in 2013.
28
Module 4 True/False
11. Highly compensated employees are used in the ADP
12.
13.
and ACP tests, and key employees are used in the
ratio percentage and average benefits tests.
A plan with the employer matching 100% of the first
6% of compensation with immediate vesting would
qualify as a safe harbor plan.
A qualified automatic contribution arrangement
(QACA) is a type of safe harbor plan in which, if
matching contributions are made, the employer must
match 100% of the first 1% of compensation, and
50% of compensation above 1% and up to 6%.
29
Module 4 True/False
14. Any employer contributions made in a QACA must be
15.
16.
17.
immediately 100% vested.
If a sole proprietor has a profit of $100,000, then the
maximum contribution that he or she could make into
a solo 401(k) plan would be $52,000.
Employer stock distributions from a KSOP are eligible
for net unrealized appreciation (NUA) treatment.
Unlike traditional Roth IRAs, which have phaseout
limit amounts, there are no income phaseout limits for
Roth 401(k)s.
30
Module 4 True/False
18. With a SIMPLE 401(k), the employer must either
19.
20.
21.
22.
match at least the first 3% of compensation or make
a nonelective contribution of at least 2%.
A SIMPLE 401(k) plan is not subject to ADP testing.
SARSEPs allow employees to defer up to $17,500 (in
2014), and also allow for an age 50 catch-up of
$5,500 (in 2014).
If an employer has a SARSEP, they are not allowed to
also have a qualified plan.
An employee must be a participant in a profit sharing
401(k) plan for at least two years before an in-service
withdrawal could be allowed.
31
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Module 5
Traditional, Roth &
SIMPLE IRAs
©2014, College for Financial Planning, all rights reserved.
Module 5 True/False
1.
2.
3.
An IRA contribution for a given tax year can be made
until the due date for filing that year’s federal income
tax return, including extensions.
An IRA distribution that is one of a series of
substantially equal periodic payments over life
expectancy and that is received before age 59½ is not
subject to the 10% early withdrawal penalty.
Alimony received is considered compensation for the
purpose of calculating the amount an individual may
contribute to an IRA.
33
Module 5 True/False
4.
5.
6.
7.
8.
The value of collectibles is deductible as an IRA
contribution.
Regardless of age, any working individual may make a
deductible or nondeductible IRA contribution.
IRA assets cannot be pledged as collateral for a loan.
A distribution from an IRA may escape current income
taxation by being rolled over to another plan within 60
days.
IRA distributions must begin no later than April 15 of
the year the owner turns age 70½.
34
Module 5 True/False
9.
10.
11.
12.
A person who is eligible to deduct an IRA contribution
may choose to make a nondeductible contribution
instead.
The spouse may roll over an IRA when the owner
dies.
When received as distributions after age 59½,
nondeductible IRA contributions may be taxed
according to the exclusion ratio.
Earnings on investments held by qualified plans are
taxable to the employer.
35
Module 5 True/False
13. Favorable forward-averaging tax treatment may be
14.
15.
available on distributions from qualified plans, IRAs,
and TSAs.
Active participation status needs to be determined for
traditional IRA deductibility, but not for Roth IRA
eligibility.
The five-year clock for Roth IRAs starts on January 1st
of the year for which the contribution was made,
which is not necessarily the same year as the
contribution itself is made.
36
Module 5 True/False
16. There are three ways in which a substantially equal
17.
18.
19.
and periodic payment can be calculated, but only one
of the ways results in a payment that will vary from
year to year.
Roth IRA contributions can be made at age 80.
As is the case with any IRA accounts, ERISA
protection does not apply to deemed IRAs.
SIMPLE IRAs have the same employee deferral limit as
401(k) plans.
37
Module 5 True/False
20. With SIMPLE IRA plans, employers must match at
21.
22.
least 3% of compensation, or make a nonelective
contribution of at least 2% of compensation.
If a 39-year-old-employee is making $45,000 a year,
the maximum contribution to a SIMPLE IRA plan with
an employer match would be $13,350.
If a 48-year-old employee who has been in the plan
for just one year takes a distribution from his or her
SIMPLE IRA, that employee will be subject to a 10%
early withdrawal penalty tax.
38
Module 5 True/False
23. SEPs are normally employer funded, but employee
24.
25.
26.
deferrals can be allowed at the discretion of the
employer.
The special eligibility requirements for SEPs generally
makes them unsuitable for employers with seasonal
employees.
The Keogh plan rules apply for self employed
individuals who establish a SEP.
SIMPLE IRAs must be established by October 1st for
the current year, whereas SEPs can be established up
until April 15th for the previous year.
39
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Module 6
403(b) Plans &
Other Plan Issues
©2014, College for Financial Planning, all rights reserved.
Module 6 True/False
1.
2.
3.
4.
Only public school teachers and administrators may
maintain TSAs.
The TSA past service credit, which is incorporated into
the formula for calculating the maximum TSA
deduction, in effect permits employees to use
previously unused portions of their exclusion
allowances for earlier years.
TSA contributions made pursuant to a salary reduction
agreement are subject to FICA (Social Security)
withholding.
TSA funds may be invested only in annuities.
41
Module 6 True/False
5.
6.
7.
8.
9.
The TSA salary reduction limit per year is $17,500 in
2014.
In the event of a hardship withdrawal from a TSA,
there is a 10% penalty only if the owner is under age
59½.
The age 50 catch-up and the long service catch-up
(15 years of service) may not be used at the same
time.
Section 457 plan distributions must be available when
an employee separates from service.
A TSA may be entirely employer funded.
42
Module 6 True/False
10. If a Section 457 plan participant has previously
11.
12.
underutilized the maximum annual salary deferrals, he
or she may be allowed to defer a total of twice the
regular deferral per year in the three years prior to
retirement.
Roth 403(b) plans have the same contribution limits
as traditional 403(b) plans, however Roth 403(b)
plans have an eligibility income phaseout limit.
If a TSA only has elective deferrals, then the
nondiscrimination test is met if all employees who are
willing to have a salary reduction of at least $200 per
year are allowed to participate.
43
Module 6 True/False
13. Loans are permitted from a 403(b) plan, but not
14.
15.
hardship withdrawals.
If a participant has both a 403(b) plan, and a Section
457 plan, they may contribute up to $17,500 into each
plan (in 2014).
If a company has a defined benefit plan that is subject
to PBGC coverage and a profit sharing plan, and at
least one employee is covered by both plans, the
overall deduction limit on employer contributions to
both plans is the greater of (1) 25% of compensation
or (2) the amount necessary to meet the minimum
funding requirement of the defined benefit plan for
the plan year.
44
Module 6 True/False
16. Two or more businesses will be treated as one for
17.
18.
purposes of qualified plan coverage requirements if
there is a brother-sister relationship.
A premium for term life insurance protection is
considered an incidental benefit in a pension plan if it
amounts to less than 25% of the cost of all plan
benefits.
If a company has a profit sharing plan and a defined
benefit plan that is exempt from PBGC coverage, and
no employee is covered by both plans, the overall
deduction limit on employer contributions does not
apply.
45
Module 6 True/False
19. A qualified plan could be disqualified by the IRS if
20.
21.
loans of equal proportion are not available to all
participants on a nondiscriminatory basis.
Organization A directly controls Organization B (85%
ownership), and Organization B directly controls
Organization C (70% ownership); a parent-subsidiary
relationship exists only between Organization A and
Organization B.
Oil and gas exploratory drilling funds generally are
good investment vehicles for qualified retirement
plans.
46
Module 6 True/False
22. A qualified plan trust could have taxable income if it
23.
24.
purchased common stock on margin, but not if it
purchased real estate with debt.
The family members of a fiduciary are disqualified
persons for purposes of the prohibited transaction
rules, but they are not personally liable for the tax
resulting from a prohibited transaction.
Both governmental and non-governmental 457 plans
are considered to be unfunded plans.
47
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Module 7
Retirement Plan
Distributions &
Plan Selection
©2014, College for Financial Planning, all rights reserved.
Module 7 True/False
1.
2.
3.
The minimum distribution rules require that
distributions commence by April 15 of the calendar
year following the later of (1) the calendar year in
which the employee attains age 70½, or (2) the
calendar year in which the employee retires.
A beneficiary under age 59½ who receives a
distribution due to the owner’s death will be exempt
from the 10% premature distribution penalty.
John Jikes, age 64, plans to retire this year. He will be
eligible for 10-year forward averaging.
49
Module 7 True/False
4.
5.
If a beneficiary is not a participant’s spouse, the entire
amount of the participant’s plan funds must be
distributed within five years of his or her death if
distributions had not yet begun; unless the beneficiary
elects to receive payments over his or her life
expectancy or qualifies to roll the distribution into his
or her IRA.
The full amount of a qualified plan credited to a
participant’s account, when paid in several payments
in one taxable year, qualifies as a lump-sum
distribution.
50
Module 7 True/False
6.
7.
8.
An entire plan account distributed to a 56-year-old
corporate employee at termination qualifies for
forward-averaging tax treatment.
A partial distribution from a qualified plan, 403(b),
IRA, SEP, or governmental 457 plan can be rolled over
to a qualified plan, 403(b), IRA, SEP, or governmental
457 plan (that accounts for such rollovers separately)
only if the distribution is due to death or disability.
A conduit IRA allows a rollover from a qualified plan to
be rolled over to another qualified plan, but it does
not preserve eligibility for tax-favored forwardaveraging treatment.
51
Module 7 True/False
9.
10.
11.
The exclusion ratio allows a recovery of cost basis
with no further income taxation.
Plans that are subject to minimum funding standards
must provide lifetime survivor benefits in the event of
a vested, married participant’s death. These benefits
will be in the form of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity,
unless the plan offers full payment of the participant’s
nonforfeitable accrued benefit.
Defined benefit plans do not typically allow in-service
withdrawals because of the complex record keeping
that would be involved.
52
Module 7 True/False
12. Only qualified plans are required to withhold 20% of
13.
14.
15.
16.
any distribution paid directly to a participant.
A hardship withdrawal from a 401(k) or 403(b) plan
for tuition payments would not be subject to the 10%
early withdrawal penalty.
If a terminated employee has $5,000 or less in their
retirement account, then they may be subject to an
involuntary cash out.
There are three possible ways to calculate a series of
“substantially equal periodic payments” and thus avoid
a 10% early withdrawal penalty.
A withdrawal from an IRA account for post-secondary
tuition would not be subject to the 10% early
withdrawal penalty.
53
Module 7 True/False
17. If a surviving spouse is the sole beneficiary of a plan,
18.
he may start distributions in the year following death
based on the deceased’s life-expectancy; or, if it is
preferable, he can roll the assets over into his own
plan and wait until he attains age 70½ before
beginning to take distributions.
Betsy took out a $10,000 hardship withdrawal from
her 401(k), and then received a $50,000 inheritance
the very next day. Betsy may enact a rollover and put
the $10,000 back into a retirement plan now that she
no longer needs it.
54
Module 7 True/False
19. Distributions from qualified plans and IRAs are exempt
20.
from the 10% early withdrawal penalty if the
participant has separated from service and attained
age 55.
Regardless of the type of retirement account, whether
a qualified plan, 403(b) plan, or IRA, there is no 10%
early withdrawal penalty for medical expenses in
excess of 7.5% of AGI.
55
Module 7 True/False
21. The owner of a mature company with an erratic cash
22.
flow history has found it easy to attract employees,
but the owner is concerned about the company’s
image. This employer would find a defined benefit
plan the most appropriate, as it would offer incentives
to employees to remain with the company.
A qualified plan generally would be inappropriate for
an employer who is strongly opposed to additional
administrative burdens and costs.
56
Module 7 True/False
23. In qualified defined contribution plans, a participant
24.
25.
26.
must be allowed to direct the investment of funds.
Within legal guidelines, an employer can favor certain
groups of employees.
The recommendation of a specific type of retirement
plan for an employer is dependent only on the
business’s cash flow outlook and the employer’s
attitude.
If a client’s retirement savings need exceeds the
amount of cash flow available for his or her portion of
a qualified plan contribution, then the client’s
expected retirement lifestyle will need to be reduced.
57
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Module 8
Deferred Compensation &
Stock Plans
©2014, College for Financial Planning, all rights reserved.
Module 8 True/False
1.
2.
3.
Top hat unfunded deferred compensation plans are
exempt from most ERISA requirements except
reporting and disclosure.
An employee’s access to nonqualified deferred
compensation is essentially the same as access to a
qualified plan, such as a 401(k) account.
A nonqualified deferred compensation plan may not
discriminate in favor of selected employees.
59
Module 8 True/False
4.
5.
6.
Lump-sum distributions from a nonqualified deferred
compensation plan are not eligible for 10-year forward
averaging.
An employee would not be taxed if there is
constructive receipt.
If an employee makes an election under a private
unfunded plan to defer compensation prior to
performance of services, the compensation will not be
taxed until receipt of payment.
60
Module 8 True/False
7.
8.
9.
“Substantial risk of forfeiture” is an important concept
in the income taxation of funded plans.
When a phantom stock plan is used to informally fund
a deferred compensation agreement, the employee
receives shares of the employer’s stock.
“Split” funding of a deferred compensation plan
means that both insurance and equity products are
used as funding mechanisms.
61
Module 8 True/False
10. Both an excess benefit plan and a SERP provide
11.
12.
13.
retirement benefits that are not permitted by IRC
Section 415.
An employee is not taxed on contributions made to a
secular trust or a rabbi trust.
An employee generally has no constructive receipt of
funds invested in an informally funded, nonqualified
deferred compensation plan.
Nonqualified stock options are subject to payroll taxes
and income taxes upon exercise, whether the stock is
sold or not.
62
Module 8 True/False
14. Long-term capital gains treatment is available for an
15.
16.
17.
ISO if the stock is held at least one year from the
grant date, and two years from the exercise date.
The exercise price of an ISO must be at least the fair
market value of the stock at the time the ISO is
granted.
Nonqualified stock options are potentially subject to
AMT in the year of exercise.
There is a lifetime limit of $100,000 on the value of
ISOs that can be granted to any one employee.
63
Module 8 True/False
18. If an employer is concerned about potential dilution of
19.
20.
21.
ownership of the company’s stock, a potential way to
award a key employee would be with stock
appreciation rights (SARs) or through a phantom stock
plan.
An employee is subject to taxation upon receiving
restricted stock, and the employer receives a
deduction.
Section 457 plans are a type of nonqualified deferred
compensation.
Employee stock purchase plans (ESPPs) have the
same holding period requirement as ISOs for
preferential capital gain treatment.
64
Module 8 True/False
22. With a restricted stock plan, an employee can make a
23.
Section 83(b) election and be taxed at the point in
time when he or she becomes fully vested. By making
this election, the employee will be taxed at capital
gains rates on any gain made since the restricted
stock was originally received by the employee.
If an employee exercises an ISO three years after the
grant date, and then sells the stock nine months after
the exercise date, it would be considered a
“disqualifying disposition” and subject to appropriate
taxes and penalties.
65
Module 8 True/False
24. Performance unit or share plans provide an award to
the employee based upon attainment of an earnings
goal that is typically measured over a long period of
time.
66
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
Module 9
Employee Group Benefits
©2014, College for Financial Planning, all rights reserved.
Module 9 True/False
1.
2.
3.
4.
A group paid-up insurance policy is based upon a
combination of whole life and group term life
insurance units.
A group term life insurance policy often provides a
conversion privilege upon an employee’s separation
from service.
The cost of employer-provided group term life
insurance coverage that is in excess of $50,000 is
taxable to key employees only.
Employer payments for life insurance coverage of an
employee’s dependents are tax exempt to the
employee if the payments do not provide coverage in
excess of $2,000.
68
Module 9 True/False
5.
6.
7.
A right to convert the policy after group term life
insurance coverage terminates is considered a
permanent benefit.
The cost of employer-paid premiums on group
permanent life insurance normally is includible in an
employee’s gross income.
At least 85% of participants must be non-key
employees in order to meet one of the four
nondiscrimination tests required of a group term life
policy.
69
Module 9 True/False
8.
9.
10.
Each employee electing group survivor income
insurance must select the same beneficiary that was
named for his or her group term life coverage.
Dependent group life covers the employee’s spouse
and all unmarried children up to age 26.
Group universal life insurance is actually an individual
plan of insurance owned by the employee.
70
Module 9 True/False
11. Comprehensive medical expense protection commonly
12.
13.
includes coinsurance and deductible amounts that are
payable by the employee.
Although a cafeteria plan generally may not include
retirement plans, 401(k) and 401(m) plans (and
employer matching contributions) are permitted.
All of the premiums paid on health insurance for
partners can be deducted by the partnership as an
ordinary and necessary business expense.
71
Module 9 True/False
14. Employees may exclude from their income employer
15.
16.
contributions for all benefits selected under a cafeteria
plan.
Dependent care assistance is an example of qualified
benefits that may be offered in a cafeteria plan.
A flexible spending arrangement may offer the same
types of benefits as a cafeteria plan, but such an
arrangement is funded by salary reduction.
72
Module 9 True/False
17. Severance pay and supplemental unemployment
18.
19.
compensation cannot be provided by a VEBA, but life,
sickness, and accident benefits usually are.
If a corporation pays and deducts the premiums for
an employee’s disability insurance, the benefits will be
fully taxable to the employee.
A reduction in an employee’s hours will require an
employer to offer continued medical insurance
coverage due to COBRA.
73
Module 9 True/False
20. If the employer and employee share the costs of long21.
22.
term disability insurance premiums, the benefit is not
taxable to the employee.
The Health Insurance Portability and Accountability
Act of 1996 (HIPAA ‘96) requires that all small group
health plans are guaranteed issue.
HIPAA ‘96 allows employer-sponsored group health
benefit plans to apply a preexisting condition
limitation to maternity if the individual has been
treated or diagnosed within the six months prior to
the effective date of coverage.
74
Module 9 True/False
23. HIPAA ‘96 defines a preexisting condition as any
24.
condition for which medical advice, care, or treatment
was received, or for which a prudent person would
have sought medical advice, care, or treatment within
the six months prior to the effective date of coverage.
An individual who satisfies the preexisting condition
limitation period under one group plan and then
changes employers will face a 12-month period during
which the different employer’s group plan can exclude
coverage for a preexisting condition.
75
Module 9 True/False
25. Due to HIPAA ‘96, long-term care insurance can now
26.
27.
28.
be included as a qualified benefit under a cafeteria
plan.
The COBRA continuation of coverage requirements
that pertain to group health coverage do not apply to
contracts that provide for long-term care.
Any individual can establish a health savings account
(HSA).
For an individual to qualify for an HSA, he or she can
have coverage only under a high-deductible health
plan.
76
Module 9 True/False
29. Contributions to an HSA for 2014 are limited to $3,300
30.
31.
32.
for singles, and $6,550 for a family.
For persons age 55 or older, an additional $1,000 may
be contributed to a HSA account.
Funds deposited into a flexible spending account
(FSA) are not subject to income taxes, but are subject
to Social Security taxes.
Salary deferrals into a 401(k) plan are not subject to
current come taxation, but are subject to Social
Security taxes.
77
Module 9 True/False
33. Small companies (fewer than 20 employees) are
34.
35.
exempt from the continuation of health care coverage
requirement of COBRA.
An employee can receive a parking benefit worth up
to $250 per month and have it excludible from income
for tax purposes.
Long-term care insurance premiums are deductible for
individuals above the 7.5% medical expense
threshold, subject to limitation.
78
CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Retirement Planning & Employee Benefits
True/False Questions
End of Slides
©2014, College for Financial Planning, all rights reserved.