Ch 7 Practice Test Flashcards
Which one of the following is a requirement of an unfunded excess benefit plan?
A. The plant must generally comply with both the disclosure requirements and the filing requirements under ERISA
B. The plane must comply with the fine requirements form 5500, but not the disclosure requirements, under ERISA
C. The plan must file a notice of its form 6547 with the department of labor, but no other filing or disclosure is required.
D. The client has no disclosure or filing requirements under ERISA.
D. The client has no disclosure or filing requirements under ERISA.
A nonqualified client does not need to comply with either the disclosure requirements or the filing requirements of ERISA. In fact, an unfunded excess benefit plan is fully exempt from ERISA requirements.
which one of the following accurately represents the general tax consequences to an employer and employee under a non-qualified plan?
A. An employer receives a deduction for a contribution to an employee when paid, and the employee will not be taxed on the contribution until it is withdrawn.
B. An employer receive a deduction with asset investments are made to informally find an employees non-qualified plan benefit, and the employee recognizes an identical amount as income at the same time.
C. An employer received an immediate deduction for the contribution for an employee when paid, and the employee will recognize the income with the amount credited to his or her account is nonforfeitable.
D. It employer does not receive a deduction for a contribution to an employee until the employee recognizes the income upon receipt.
A. An employer receives a deduction for a contribution to an employee when paid, and the employee will not be taxed on the contribution until it is withdrawn.
Generally, an employer does not receive a deduction of when a contribution is made for an employee.
Which one of the following statements regarding a qualified plan is correct?
A. The employers deduction is available in the year that a contribution is made.
B. Certain plans are partially exempt from ERISA requirements.
C. Distributions from pension plans or taxed capital gains rates if contributions have been in the plan for more than 12 months.
D. The plan may discriminate.
A. The employers deduction is available in the year that a contribution is made.
With a qualified plan, the employer made deduct plan contributions in the year that those contributions are made.
Which one of the following is a tax consequence of a rabbi trust?
A. The employer is taxed on taxable earnings in the plan as they accumulate.
B. The trust assets may be available for general use by the employer.
C. Rabbi trust are deferred compensation plans that do not need to meet requirements opposed by the IRS.
D. Rabbi trust assets are excluded from general creditors in bankruptcy proceedings
A. The employer is taxed on taxable earnings in the plan as they accumulate.
Tax referral in an unfunded plan
A. Depends on whether an executive right to compensation is subject to a substantial risk of forfeiture.
B. Maybe achieved even if executives compensation is subject to substantial risk of receipt.
C. Maybe achieved if client assets are subject to company creditors
D. May be achieved if the referral is agreed upon at any time prior to the time the compensation is paid.
C. Maybe achieved if client assets are subject to company creditors
A funded deferred compensation plan
A. Will be taxable to an employee if nonforfeitable.
B. Will provide tax deferral for an employer.
C. Will provide an immediate deduction to an employer.
D. Must be made available to all employees.
A. Will be taxable to an employee if nonforfeitable.
Which of these is frequently used to informally fund a deferred compensation plan?
A. Corporate owned mutual funds.
B. Corporate owned cash value life insurance.
C. Corporate own term life insurance.
D. Corporate owned annuities.
B. Corporate owned cash value life insurance.
Which statement regarding excess benefit plans is correct?
A. Employees recognize income when an unfunded plan is established.
B. The plant must be unfunded.
C. Both management and non-management employees may be covered by a plan.
D. Unplug the excess benefit appliances are subject to ERISA requirements.
C. Both management and non-management employees may be covered by a plan.
Which statement is correct regarding a top half plan? The plan
A. May be funded or unfunded.
B. Benefits are paid from an account funded by the employee.
C. Is intended to provide benefits to all employees of a company.
D. Is subject to the reporting and disclosure requirements of ERISA.
D. Is subject to the reporting and disclosure requirements of ERISA.
Assumed that an employer plans to use corporate own life insurance to informally fund a nonqualified deferral compensation agreement, and would like to have the flexibility to invest in a number of different asset categories. Which type of life insurance should this employer choose?
A. Term insurance
B. Whole life insurance.
C. Universal life insurance.
D. Variable life insurance.
D. Variable life insurance.
All the following are requirements of an incentive stock option (ISO) except
A. The options exercise date cannot exceed 10 years from the date of the Grant
B. The exercise price cannot be less than the market price of the stock on the date of the Grant
C. It must be part of a written plan approved by the employees supervisor
D. There’s an annual limit of $100,000 on the value of the ISO‘s granted during any one year to any employee
C. It must be part of a written plan approved by the employees supervisor
Fine Inc. is a small publicly traded corporation. The company wants to provide an incentive for Ian. Good, it’s vice president of cells, to continue with the company. However, the company does not want to deplete. It’s much needed cash account. Based on the characteristic of providing the greatest instead of without depleting cash, Fine Inc. Should establish
A. Quarterly bonus plan.
B. And executive bonus plan.
C. A restricted stock plan.
D. A split dollar plan.
C. A restricted stock plan.
Gary and Julie participate in a section 457 and section 403B plan, respectively. Which of these statements correctly indicate how their respective plans compared to each other?
I. Both plants are based on contracts with the employer.
II. Both planets are subject to a $23,000 limit on salary referrals in 2024.
III. Neither plant is able to use forward averaging tax treatment for distributions.
IV. Both plants are subject to the minimum distribution requirements that apply to qualified plans.
A. I and III
B. I and II
C. I, II, III, and IV
D. I, II and IV
D. I, II and IV
Which of the following are characteristics of supplemental executive retirement plans (SERPs)?
I. SERPs do not provide disability retirement benefits
II. SERPs are designed for a select group of management or highly compensated employees.
III. SERPs must be unfunded.
IV. Benefits are paid by the employer out of general assets.
A. II and III
B. I, II, III, and IV
C. II and IV
D. I, III and IV
C. II and IV
which type of insurance plan is vital to help a business survive potential economic losses, due to the entirely death of an important worker, whose subsequent absence would result in a loss of revenue, higher expenses, or both?
A. Top hat plans.
B. Key employee life insurance plans.
C. Executive bonus plans.
D. Split dollar life insurance plans.
B. Key employee life insurance plans.
Which of these is not a reason why an employer might consider choosing an unqualified plan over a qualified plan?
A. Subject to fewer ERISA reporting and disclosure requirements
B. Can’t discriminate in favor or highly compensated employees.
C. Greater flexibility.
D. Typically provides an immediate income tax deduction for the employer.
D. Typically provides an immediate income tax deduction for the employer.
The constructive receipt doctor and states that income is
A. Taxable when it’s constructively received even though it may not be actually received
B. Tax when it is actually received during the taxable year.
C. Recognized and tax when it is received, regardless of when it was actually earned.
D. Not tax until it is actually received.
A. Taxable when it’s constructively received even though it may not be actually received
Which non-qualified deferred compensation arrangement features and employer placing the assets into an irrevocable trust where they remain subject to the claim of the employers general creditors
A. Grantor trust.
B. Revocable trust.
C. Rabbi trust.
D. Surety trust.
C. Rabbi trust.
When trust assets are established correctly, they are available
A. Only to pay benefits to the employees, and earnings on the assets are taxable to the employer.
B. For the employer for any purpose, and earnings on the assets or taxable to the employee.
C. Only to pay benefits to the employees, and are taxable to the employee
D. For the employer for any purpose, and earnings of the assets are taxable to the employer.
A. Only to pay benefits to the employees, and earnings on the assets are taxable to the employer.
Which of these is not a characteristic of a section 457 plan?
A. The plant is used for for-profit organizations.
B. The internal revenue code places special limits of the amount of compensation that may be deferred under this type of plan.
C. Any assets used to formally fund the plan will also be subject to the claims of tax exempt organizations creditors.
D. The plan has special rules regarding catch-up for visions.
A. The plant is used for for-profit organizations.
Which statement regarding an executive bonus plan is not correct?
A. The employer may also bonus, the employee, the amount of additional income tax, resulting from the payment of the premium amount.
B. The employer owns the policy and named the designated beneficiary.
C. The employer receives an income tax deduction for the amount of the bonus pay to the insured employee.
D. The plant is used with the employer wants to provide individual life insurance coverage for specific employees.
B. The employer owns the policy and named the designated beneficiary.
A disadvantage to using life insurance to informally fund an nonqualified plan is
A. The employer is free from the burden of investment management.
B. Policy loans are permitted.
C. Additional death benefit proceeds would be paid to a beneficiary for an ex executive with potentially a largest state.
D. Life insurance provides a schedule amount tax deferred return.
C. Additional death benefit proceeds would be paid to a beneficiary for an ex executive with potentially a largest state.
Over the past 20 years, green corporation stock has appreciated on average of 15% per year. The management of the closely held corporation would like to provide a benefit to all employees that will allow the employees to take advantage of this growth. However, they do not want to give the employees any control of the company. Which arrangement would be most appropriate for Green corporation?
A. Restricted stock plan.
B. Employee stock purchase plan.
C. Not qualified stock options.
D. Phantom stock plan.
D. Phantom stock plan.
Which one of the following is not a type of equity based compensation plan
A. An unrestricted stock plan.
B. A phantom stock plan.
C. Incentive stock options.
D. Non qualified stock options.
A. An unrestricted stock plan.
