Employee Group Benefits Flashcards
What is a contributory plan?
Employees contribute to a group plan (i.e. group life insurance premiums)
What is a non-contributory plan?
Employees do not contribute to a group plan - the employer does
What are common formulas for calculating group life insurance coverages?
A percentage or multiplier of earnings
An amount of coverage based on years of service
A coverage limit for different classes of employees
What are the 4 requirements for group term life to qualify for section 79 tax benefits?
Coverage must provide a general benefit
Coverage must be provided to a group of employees (>10) without discrimination
The policy must be a master policy or group of individual policies
The amount of insurance to each employee must be consistent
What are the two types of Accidental Death and Dismemberment coverages?
Business travel: coverage for employees only while traveling for business
Voluntary accident: coverage for employees at any time on any activity, personal or business
How is the term “key employee” defined?
An officer of the employer with annual comp exceeding $185,000
A greater than 5% owner of the employer
A greater than 1% owner and having annual comp exceeding $150,000
What is group paid up insurance?
Consists of increasing units of whole life and decreasing units of term life. It is scheduled in such a way that by the time the employee reaches the end of his/her career, the whole life is paid up. If they leave early, they can cash out or leave the paid up portion at no additional cost.
What is group ordinary insurance?
A section 79 plan in which the employer pays the term and the employee pays the whole life coverages respectively.
What is group universal insurance?
Similar to individual universal insurance, these benefits allow flexible premiums, health benefits and potentially high returns on interest. These and variable universal life are fairly similar to the individual policies.
What is Group Survivor Income?
NOT INSURANCE. Only spouse and children can benefit and all payments are taxable.
What is supplemental group term life?
Must not be discriminatory, but is an election which means more scrutiny for adverse selection - meaning the insurance company is going to look for insurability.
What is Group Carve Out?
A replacement for the $50,000 group term - Enhanced benefits available to a group of employees such as executives for excess coverage above the group term limits. Permanent insurance is often used.
If group survivor benefits are not subject to income tax, why would group survivor income potentially be subject to income tax?
IRS rules state that in order for survivor benefits to avoid taxation, there must be a payment regardless of any surviving beneficiaries. Group income benefits are dependent on there being a beneficiary.
What is the amount of group term life coverage that remains non-taxable to the employee and deductible by the employer?
$50,000
What are the two situations where going above the $50,000 remains tax-free?
Individuals who are disabled or retired under certain conditions
Individuals who designate the employer or charitable organization as the beneficiary
What is a retired lives reserve?
Employer pre-funded retirement plan premiums. This account saves for the premiums of a future-dated policy.
What are the tax consequences of group permanent insurance?
If the employee has vested rights in the premiums and has designated beneficiaries, then the employee will be taxed on employer contributions. Dividends may be taxable to the employee.
What is the calculation for determining the annual employee premium amount when group term exceeds $50,000?
(Face Value - $50,000 / $1,000) x (table I age) x 12 = annual premium
What is the exception for use of HSA funds for paying an insurance premium?
HSAs can be used to pay for LTC insurance