Chapter 7

Question 1

Aggregate funding method

Answer 1

Method whereby the necessary contributions for a plan are calculated for the entire group of plan participants

Question 2

BOLI

Answer 2

Life insurance owned by the bank

Question 3

Defined Benefit Pension Plan

Answer 3

A plan that provides for a specified monthly benefit in retirement.

Question 4

Defined Contribution Pension Plan

Answer 4

A plan at which the employee or employer (or both) contribute to the employee’s individual account under the plan.

Question 5

Employee Stock Ownership Plan (ESOP)

Answer 5

a form of defined contribution plan in which investments are primarily in employer stock

Question 6

Executive Bonus Plan or Section 162 Bonus Plan

Answer 6

a plan whereby an employee owns a life insurance policy that was purchased, all or in part, by the employer.

Question 7

Internal Rate of Return (IRR)

Answer 7

the average rate earned by each and every dollar invested during the period.

Question 8

Multiples

Answer 8

set amount of death benefit expressed in thousands of dollars that are multiplied by the number of plan participants to determine the maximum amount of death benefit available on any one life.

Question 9

Private Placement Insurance Products

Answer 9

Nonregistered life insurance products only available to a qualified purchaser

Question 10

Qualified Purchaser

Answer 10

an individual with at least $5 million in investments or a corporation or trust with at least $25 million in assets

Question 11

Sinking fund

Answer 11

a sperate accumulation of cash or investments in a fund in accordance with the terms of a trust agreement

Question 12

Stacking

Answer 12

a legal term referring to using the limits of multiple policies to one claim or event.

Question 13

Spread of Risk

Answer 13

Relates to how much insurance is allowed on any one life relative to the group

Question 14

Guaranteed Issue

Answer 14

Does not include any traditional individual underwriting

Question 15

Simplified Issue

Answer 15

Includes some nominal amount of individual underwriting

Question 16

Non voluntary plans

Answer 16

Plan participation is compulsory

Question 17

Voluntary plans

Answer 17

not protected from adverse selection because plan participation is not compulsory

Question 18

Tiered plans

Answer 18

those where amounts of insurance vary by title or salary

Question 19

Bundled underwriting

Answer 19

Full underwriting but one or more modestly substandard risks can be accepted

Question 20

Non qualified executive compensation plans (4)

Answer 20

1. Deferred compensation plans
2. Supplemental executive retirement plans (SERPS)
3. section 162 bonus plan
4. equity repurchase plans

Question 21

Deferred Compensation and SERP plans are favorable plan designs for guaranteed issue because:

Answer 21

the insured is not interested in the death benefit but rather the cash value of the policy. (tax advantages)

Question 22

Pension protection act defined a highly compensated employee as

Answer 22

1. a 5% or more shareholder position at any time during the preceding year
2. an earned compensation of $95,000 (for 2005, indexed for inflation) in the preceding year.
3. One of the five highest paid officers
4. Among the highest paid 35% of all employees