Retirement: 9: Employee Group Benefits Flashcards Preview

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Flashcards in Retirement: 9: Employee Group Benefits Deck (115)
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1

Retirement 9-1: Group Life Insurance

A group life policy can be established as a contributory plan (employee pays some portion of premiums) or a noncontributory plan (employer pays entire premium cost). Employee contributions generally are made with _____ dollars.

a. pretax

b. after tax

b. after tax

Only if the coverage is part of a cafeteria (Section 125) plan will the employee be able to use pretax dollars for contributions.

2

Retirement 9-1: Group Life Insurance

Among the advantages of group term life for the employee, including the owner/employee, are the absence of a medical exam requirement and the tax free nature of the first _____ of coverage.

a. $50,000

b. $60,000

a. $50,000

3

Retirement 9-1: Group Life Insurance

A group term life insurance policy typically includes ancillary benefits, such as the right to convert to permanent coverage after the group coverage terminates, an additional feature or features that provide no economic benefit other than current insurance protection, and term life coverage with level premiums for up to _____ years. These ancillary benefits are not considered permanent benefits.

a. 5

b. 10

a. 5

4

Retirement 9-1: Group Life Insurance

For the plan to qualify for favorable tax treatment (i.e., the employee’s $50,000 exclusion and employer’s deduction), Internal Revenue Code Section 79 requires that a group term policy furnished by the employer must not discriminate in favor of _____ employees.

a. HCE's

b. key

b. key

5

Retirement 9-1: Group Life Insurance

The term “key employees” is defined under IRC Section 416(i). It includes any employee who, at any time during the plan year containing the determination date for the plan year to be tested, was

1. an officer of the employer whose annual compensation from the employer exceeded $170,000 in 2016;

2. a greater than _____% owner of the employer; or

3. a greater than 1% owner of the employer having annual compensation from the employer in excess of $150,000.

a. 5%

b. 10%

a. 5%

6

Retirement 9-1: Group Life Insurance

Eligibility is considered to be nondiscriminatory if it meets the following criteria:

1. At least _____ of all employees benefit from the plan (or any group term plan through the employer).

2. At least 85% of participating employees are not key employees (of all group term plan participants).

3. The plan benefits a nondiscriminatory employee classification.

4. If the plan is part of a cafeteria plan, coverage complies with the Section 125 nondiscrimination requirements.

a. 50%

b. 70%

b. 70%

7

Retirement 9-1: Group Life Insurance

The following employees need not be counted in measuring the plan’s compliance of the above requirements:

1. employees with less than _____ years of service
2. part-time and seasonal employees
3. employees excluded because they are covered by a collective bargaining agreement and group term life was the subject of good-faith bargaining
4. certain nonresident aliens

a. two

b. three

b. three

8

Retirement 9-1: Group Life Insurance

An accidental death and dismemberment (AD and D) policy provides a lump-sum benefit for loss of life or body parts due to an accident. This coverage may be included in a group life insurance policy or in a group health policy. Often the benefit is a percentage of group term life coverage. Two types of AD and D coverage are available: business travel insurance, which generally covers specified classes of employees only while they are traveling for business purposes; and _____ accident insurance, which covers accidents at any time, related to any activity, either personal or business.

a. voluntary

b. private pay

a. voluntary

Payments for dismemberment of specific limbs usually are a percentage of the AD and D coverage amount (e.g., 10% of $10,000 for loss of one arm and one leg).

9

Retirement 9-1: Group Life Insurance

While group term life insurance is the most common type of group policy, the employer may choose to offer a plan that permits employees to build some permanent insurance coverage (To say a policy includes “permanent benefits” means it provides an economic value extending beyond _____.) If either a group ordinary or group paid-up policy is implemented, the permanent portion of total coverage grows as the employee approaches retirement.

a. one policy year

b. two policy years

a. one policy year

At retirement the policy can be converted to an individual policy at a more reasonable cost than if it had been a pure term policy converted at the same age.

10

Retirement 9-1: Group Life Insurance

Designed to address the need for employees to have more than temporary term coverage, _____ coverage consists of increasing units of whole life and decreasing units of group term.

a. group paid-up

b. group paid-in

a. group paid-up

Generally, the employee makes an after-tax contribution that is allocated to purchase whole life insurance. The employer purchases sufficient group term life insurance to provide the scheduled total amount of insurance coverage to the employee. Each year the accumulated, paid-up insurance grows, and the employee’s level contribution purchases less and less additional paid-up insurance, while the employer’s contribution purchases a decreasing amount of term coverage.

11

Retirement 9-1: Group Life Insurance

A _____ (Section 79) plan offers employees the opportunity to participate in _____ whole life insurance funded by employee and employer contributions. Whether employees choose to participate in or waive the contributory permanent coverage, they will benefit from the employer paid term life insurance portion of the coverage. Because of earlier abuses, these plans are not common since they are subject to complex rules that require the employer to pay only the term cost and the permanent portion to be entirely supported by the employee.

a. Group ordinary

b. Group universal

a. Group ordinary

12

Retirement 9-1: Group Life Insurance

A _____ is underwritten on a group basis. These benefits include flexible premiums, death benefit options, and potentially high returns due to interest sensitivity. Since the program is implemented through individual contracts with each participant, premiums usually are employee-paid. Because of the efficiency of dealing with a large group, administrative, marketing, and commission expenses are typically lower than those associated with individual universal life policies.

a. Group ordinary

b. Group universal

b. Group universal (GULP)

13

Retirement 9-1: Group Life Insurance

Supplemental Insurance Coverage

Characteristics that distinguish ______ insurance from other types of group insurance include the absence of a lump-sum payment option, the employee’s lack of choice in beneficiaries (spouse and children only), and the requirement that benefits will be paid only if there is an eligible survivor. Since the payments are conditional based on whether there is a survivor or not, this is not considered to be life insurance, and any payments to the surviving spouse and/or children would be taxable.

a. Group survivor income

b. Dependents’ group life

c. Supplemental group term life

d. Group carve-out

a. Group survivor income

Proceeds from a group survivor income policy are payable monthly over a specified period, which may be a given number of years or until the spouse’s remarriage, death, or attainment of a certain age. Benefits to children usually continue until age 18 or 24 if in school. The monthly payment schedule is intended to ensure ongoing support for the family.
Dependents’

14

Retirement 9-1: Group Life Insurance

Supplemental Insurance Coverage

Employers can offer group life insurance coverage for the employee’s spouse and any children up to age 26. Normally, _____ coverage is offered only with group term coverage on the employee.

a. Group survivor income

b. Dependents’ group life

c. Supplemental group term life

d. Group carve-out

b. Dependents’ group life

The NAIC model limits the amount of life insurance coverage for a dependent spouse or dependent child—the coverage on any dependent cannot exceed 50% of the insurance for the employee. Normally, coverage for the spouse and children is limited to $2,000 since coverage in greater amounts is subject to taxation. For children, a typical amount of coverage may range from $500 for ages 14 days to six months, then increase to either $1,000 or $2,000.

15

Retirement 9-1: Group Life Insurance

Supplemental Insurance Coverage

Additional group term coverage may be provided on a contributory basis to a class of employees or to all employees through a _____. Such coverage cannot be offered to just a few individuals, but can be provided to a class of employees, such as salaried employees. In other words, the coverage must be offered on a nondiscriminatory basis. If this condition is met, the plan will not be considered discriminatory even if only a few members of the class choose to participate.

a. Group survivor income

b. Dependents’ group life

c. Supplemental group term life

d. Group carve-out

c. Supplemental group term life

Coverage amounts may be specified by the employer or selected by the employee from available options. Often the insurance company will require evidence of insurability, since there is greater risk of adverse selection in a voluntary policy. The amount of coverage is selected and paid for, after-tax, by the employee and is usually a multiple of the employee’s compensation.

16

Retirement 9-1: Group Life Insurance

Supplemental Insurance Coverage

The employer can make enhanced benefits available to a group of executives by removing them from the company’s group term coverage and providing them with amounts of coverage that may vary from one executive to another. A _____ is not subject to any nondiscrimination requirements. Split-dollar life insurance is one method of implementing this discriminatory individual coverage, and the executives must include the apportioned cost of the coverage in their gross income.

a. Group survivor income

b. Dependents’ group life

c. Supplemental group term life

d. Group carve-out

d. Group carve-out

A carve-out plan can be the answer to correcting a discriminatory group term plan; removing the executives probably will bring the group term plan into compliance with Section 79 requirements (see discussion later in this module) based on the remaining participants.

17

Retirement 9-1: Group Life Insurance

Since group life insurance is an “employee welfare benefit plan,” group life plans are subject to certain requirements of ______.

a. NAIC

b. ERISA

b. ERISA

18

Retirement 9-2,3: Tax Consequences of Group Life

Death benefits paid to beneficiaries of group (or individual) term or permanent life insurance policies _____ subject to income tax.

a. are

b. are not

b. are not

19

Retirement 9-2,3: Tax Consequences of Group Life

An employer can provide up to $50,000 of group term life insurance coverage on the life of an employee without tax consequences to the employee, if the group term coverage meets the requirements of IRC Section 79. The cost of employer provided coverage in excess of the $50,000 face amount is taxable to the employee, based upon what is referred to as “Table I” cost per $1,000 of coverage each _____.

a. month

b. year

a. month

20

Retirement 9-2,3: Tax Consequences of Group Life

Retired lives reserve is a plan that prefunds the cost of post retirement group life insurance coverage. The employer pays the current cost and an additional sum to a “retired lives” reserve account. The account may be either an insurance company separate account or a trust account providing group term life for retired employees. An employer’s contributions to the retired lives reserve account _____ be taxable to the pre-retirement employee as long as the employee has no constructive receipt or economic benefit.

a. will

b. will not

b. will not

21

Retirement 9-2,3: Tax Consequences of Group Life

If proceeds are payable to the employee’s designated beneficiary and the employee has vested rights in the premiums as they are paid, the cost of employer-provided permanent life insurance coverage _____ reported as taxable income to the employee, based on the cost of the coverage.

a. is

b. is not

a. is

If the group policy includes both term and permanent insurance, the cost of the permanent coverage is determined using an allocation formula. However, due to the infrequent use of group ordinary and group paid-up policies, practical application of the allocation formula is limited.

22

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Provides eligible individuals access to coverage that does not impose any coverage exclusions for preexisting conditions.

a. Immediate access to insurance for uninsured individuals with a preexisting condition

b. Eliminating preexisting condition exclusion

c. Rescissions prohibited

d. Eliminating annual and lifetime limits

e. Preventive health care coverage

f. Increased age for coverage of young adults

g. Discounts in the Part D “donut hole.”

h. Increased additional tax for nonqualified medical expenses

i. FSA contribution limit reduction

j. Increased medical expense deduction threshold

k. Additional hospital insurance (HI) for high wage workers

l. Additional tax on net investment income for high wage workers

m. Mandatory individual coverage

n. Mandatory employer coverage

a. Immediate access to insurance for uninsured individuals with a preexisting condition

23

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Health insurance companies cannot impose preexisting condition exclusions on coverage.

a. Immediate access to insurance for uninsured individuals with a preexisting condition

b. Eliminating preexisting condition exclusion

c. Rescissions prohibited

d. Eliminating annual and lifetime limits

e. Preventive health care coverage

f. Increased age for coverage of young adults

g. Discounts in the Part D “donut hole.”

h. Increased additional tax for nonqualified medical expenses

i. FSA contribution limit reduction

j. Increased medical expense deduction threshold

k. Additional hospital insurance (HI) for high wage workers

l. Additional tax on net investment income for high wage workers

m. Mandatory individual coverage

n. Mandatory employer coverage

b. Eliminating preexisting condition exclusion

24

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Prohibits insurance companies from rescinding existing health insurance policies when a person becomes sick as a way of avoiding the costs of coverage.

a. Immediate access to insurance for uninsured individuals with a preexisting condition

b. Eliminating preexisting condition exclusion

c. Rescissions prohibited

d. Eliminating annual and lifetime limits

e. Preventive health care coverage

f. Increased age for coverage of young adults

g. Discounts in the Part D “donut hole.”

h. Increased additional tax for nonqualified medical expenses

i. FSA contribution limit reduction

j. Increased medical expense deduction threshold

k. Additional hospital insurance (HI) for high wage workers

l. Additional tax on net investment income for high wage workers

m. Mandatory individual coverage

n. Mandatory employer coverage

c. Rescissions prohibited

25

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Prohibits insurance companies from imposing annual and lifetime limit on benefits.

a. Immediate access to insurance for uninsured individuals with a preexisting condition

b. Eliminating preexisting condition exclusion

c. Rescissions prohibited

d. Eliminating annual and lifetime limits

e. Preventive health care coverage

f. Increased age for coverage of young adults

g. Discounts in the Part D “donut hole.”

h. Increased additional tax for nonqualified medical expenses

i. FSA contribution limit reduction

j. Increased medical expense deduction threshold

k. Additional hospital insurance (HI) for high wage workers

l. Additional tax on net investment income for high wage workers

m. Mandatory individual coverage

n. Mandatory employer coverage

d. Eliminating annual and lifetime limits

26

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

All new group health plans and plans in the individual market must provide for first dollar coverage (no co-pay) for preventive services.

a. Immediate access to insurance for uninsured individuals with a preexisting condition

b. Eliminating preexisting condition exclusion

c. Rescissions prohibited

d. Eliminating annual and lifetime limits

e. Preventive health care coverage

f. Increased age for coverage of young adults

g. Discounts in the Part D “donut hole.”

h. Increased additional tax for nonqualified medical expenses

i. FSA contribution limit reduction

j. Increased medical expense deduction threshold

k. Additional hospital insurance (HI) for high wage workers

l. Additional tax on net investment income for high wage workers

m. Mandatory individual coverage

n. Mandatory employer coverage

e. Preventive health care coverage

27

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Requires insurers that provide dependent coverage for children to continue to offer coverage until the child turns age 26.

a. Immediate access to insurance for uninsured individuals with a preexisting condition

b. Eliminating preexisting condition exclusion

c. Rescissions prohibited

d. Eliminating annual and lifetime limits

e. Preventive health care coverage

f. Increased age for coverage of young adults

g. Discounts in the Part D “donut hole.”

h. Increased additional tax for nonqualified medical expenses

i. FSA contribution limit reduction

j. Increased medical expense deduction threshold

k. Additional hospital insurance (HI) for high wage workers

l. Additional tax on net investment income for high wage workers

m. Mandatory individual coverage

n. Mandatory employer coverage

f. Increased age for coverage of young adults

28

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Provides for an annually increasing discount on all brand-name and biologics in the donut hole. Donut hole is to be completely filled by 2020.

a. Immediate access to insurance for uninsured individuals with a preexisting condition

b. Eliminating preexisting condition exclusion

c. Rescissions prohibited

d. Eliminating annual and lifetime limits

e. Preventive health care coverage

f. Increased age for coverage of young adults

g. Discounts in the Part D “donut hole.”

h. Increased additional tax for nonqualified medical expenses

i. FSA contribution limit reduction

j. Increased medical expense deduction threshold

k. Additional hospital insurance (HI) for high wage workers

l. Additional tax on net investment income for high wage workers

m. Mandatory individual coverage

n. Mandatory employer coverage

g. Discounts in the Part D “donut hole.”

29

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Applies to HSAs (Health Savings Accounts) and MSAs (Medical Savings Accounts); the penalty tax for withdrawals prior to age 65 for nonqualified medical expenses increases to 20%.

a. Immediate access to insurance for uninsured individuals with a preexisting condition

b. Eliminating preexisting condition exclusion

c. Rescissions prohibited

d. Eliminating annual and lifetime limits

e. Preventive health care coverage

f. Increased age for coverage of young adults

g. Discounts in the Part D “donut hole.”

h. Increased additional tax for nonqualified medical expenses

i. FSA contribution limit reduction

j. Increased medical expense deduction threshold

k. Additional hospital insurance (HI) for high wage workers

l. Additional tax on net investment income for high wage workers

m. Mandatory individual coverage

n. Mandatory employer coverage

h. Increased additional tax for nonqualified medical expenses

30

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

The allowable contribution amount to an FSA account is reduced to $2,550 a year (2016), and indexed to the CPI for subsequent years.

a. Immediate access to insurance for uninsured individuals with a preexisting condition

b. Eliminating preexisting condition exclusion

c. Rescissions prohibited

d. Eliminating annual and lifetime limits

e. Preventive health care coverage

f. Increased age for coverage of young adults

g. Discounts in the Part D “donut hole.”

h. Increased additional tax for nonqualified medical expenses

i. FSA contribution limit reduction

j. Increased medical expense deduction threshold

k. Additional hospital insurance (HI) for high wage workers

l. Additional tax on net investment income for high wage workers

m. Mandatory individual coverage

n. Mandatory employer coverage

i. FSA contribution limit reduction