Employee Benefits Flashcards
True or False: The employer gets a current deduction for a contribution to a qualified plan even though the employee does not have income until they withdraw cash from the plan.
True.
True or False: One of the major advantages of a non-qualified plan is that it is more flexible than a qualified plan (i.e., the non-qualified plan does not need to meet the restrictions required of a qualified plan).
True.
True or False: For a non-qualified plan, the employer generally only gets a deduction when the employee recognizes taxable income.
True.
True or False: Qualified plans do not need to meet various anti-discrimination requirements.
False. Qualified plans do need to meet various anti-discrimination requirements.
True or False: Qualified plans are generally protected from bankruptcy of both the employer and the employee.
True.
Defined Contribution or Defined Benefit: If an employer contributes 5% of an employee’s annual compensation to the plan
Defined contribution
Defined Contribution or Defined Benefit: If an employer agrees to pay 50% of the employee’s highest 5 year’s compensation to the employee for the remainder of the employee’s life
Defined benefit
Defined Contribution or Defined Benefit: Employer bares the risk.
Defined benefit
Defined Contribution or Defined Benefit: Employee bares the risk.
Defined contribution
Assume in year 1 an executive is awarded 10,000 shares of restricted stock that 100% vests in 2 years. Further assume (i) that 100% of the stock is sold in year 5, and (ii) the value of the stock at the following dates is as follows:
- Grant Date $1.00
- Vesting date in year 3 $1.15
- Stock sold in year 5 $1.25
Given these facts, please complete the table below showing (i) how much taxable income the executive recognizes and (ii) the character of such income (i.e., ordinary vs. capital) at various dates. Assume the executive does not make an IRC 83(b) election.
- Grant Date $ - 0 - n/a
- Year 3 11,500 Ordinary
- Year 5 1,000 Long-term capital
Assume in year 1 an executive is awarded 10,000 shares of restricted stock that 100% vests in 2 years. Further assume (i) that 100% of the stock is sold in year 5, and (ii) the value of the stock at the following dates is as follows:
- Grant Date $1.00
- Vesting date in year 3 $1.15
- Stock sold in year 5 $1.25
Given these facts, please complete the table below showing (i) how much taxable income the executive recognizes and (ii) the character of such income (i.e., ordinary vs. capital) at various dates. Assume the executive makes an IRC 83(b) election.
Grant Date $10,000 Ordinary
Year 3 0 n/a
Year 5 2,500 Long-term capital
True or False: The major tax benefit of a tax qualified plan is that the employer gets a deduction at the time of making a contribution to the plan, but the employee does not recognize income until the employee withdraws cash from the plan.
True.
True or False: The major detriment of a non-qualified plan is that the employer must follow detailed tax rules required to obtain tax qualified status, including non-discrimination requirements (i.e., the plan needs to generally benefit all employees, not just higher paid executives).
False. The statement is applicable to qualified plans rather than non-qualified plans.
True or False: A defined benefit plan specifies how much the plan will pay an employee at retirement (e.g., 70% pf their highest 3 years earnings).
True.
True or False: A defined contribution plan specifies how much an employer will contribute to a plan on behalf of an employee (e.g., if the employer contributes 5% of the employee’s annual base salary).
True.
