Employee Group Benefits Flashcards

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1
Q

What is a contributory plan?

A

Employees contribute to a group plan (i.e. group life insurance premiums)

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2
Q

What is a non-contributory plan?

A

Employees do not contribute to a group plan - the employer does

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3
Q

What are common formulas for calculating group life insurance coverages?

A

A percentage or multiplier of earnings

An amount of coverage based on years of service

A coverage limit for different classes of employees

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4
Q

What are the 4 requirements for group term life to qualify for section 79 tax benefits?

A

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

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5
Q

What are the two types of Accidental Death and Dismemberment coverages?

A

Business travel: coverage for employees only while traveling for business

Voluntary accident: coverage for employees at any time on any activity, personal or business

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6
Q

How is the term “key employee” defined?

A

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

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7
Q

What is group paid up insurance?

A

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.

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8
Q

What is group ordinary insurance?

A

A section 79 plan in which the employer pays the term and the employee pays the whole life coverages respectively.

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9
Q

What is group universal insurance?

A

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.

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10
Q

What is Group Survivor Income?

A

NOT INSURANCE. Only spouse and children can benefit and all payments are taxable.

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11
Q

What is supplemental group term life?

A

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.

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12
Q

What is Group Carve Out?

A

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.

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13
Q

If group survivor benefits are not subject to income tax, why would group survivor income potentially be subject to income tax?

A

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.

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14
Q

What is the amount of group term life coverage that remains non-taxable to the employee and deductible by the employer?

A

$50,000

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15
Q

What are the two situations where going above the $50,000 remains tax-free?

A

Individuals who are disabled or retired under certain conditions

Individuals who designate the employer or charitable organization as the beneficiary

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16
Q

What is a retired lives reserve?

A

Employer pre-funded retirement plan premiums. This account saves for the premiums of a future-dated policy.

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17
Q

What are the tax consequences of group permanent insurance?

A

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.

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18
Q

What is the calculation for determining the annual employee premium amount when group term exceeds $50,000?

A

(Face Value - $50,000 / $1,000) x (table I age) x 12 = annual premium

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19
Q

What is the exception for use of HSA funds for paying an insurance premium?

A

HSAs can be used to pay for LTC insurance

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20
Q

What IRC section governs the taxation of group life policies?

A

Section 79

21
Q

What are some benefits to a company self-funding health insurance?

A

The company is not governed by ERISA and does not have to comply with state regulations

The employer can save on insurance company risk fees and state tax, possibly freeing up funding towards other health plan benefits.

22
Q

What is the aggregate stop loss?

A

Applies to the entire group. Calculated at the end of the year. If the total claims exceeded the aggregate stop loss, the carrier will reimburse the company

23
Q

What is a minimum premium plan?

A

Allows for the calculation and carrier reimbursement for claims over a predetermined level for the month (vice at the end of the year with aggravated stop loss)

24
Q

What is a section 125 plan?

A

A cafeteria plan in which employers / employees can select which benefits are best for the company to offer or best for the employee to have.

25
Q

What benefits are prohibited from section 125 plans?

A
LTC insurance
Education benefits
Employee discounts
No cash fringe benefits
Commuter benefits
26
Q

What is the FSA tax savings equation?

A

(est healthcare cost) / (1 - [tax bracket] - .0565 FICA) = healthcare cost + taxes

27
Q

What are the tax rules for HSAs?

A

Contributions to an HSA are tax deductible, earnings grow tax deferred, and distributions are tax free when used to pay for qualified expenses.

28
Q

What are eligibility rules for HSAs?

A
Must be enrolled in a HDHP
Not covered by a non-HDHP
Not covered by Medicare
Not claimed on another's taxes
Not have any other health care
29
Q

What is a health reimbursement arrangement (HRA)?

A

An employer-only funded account for reimbursement of substantiated medical expenses. Distributions to the employee for qualified expenses are exempt from taxes.

30
Q

What is a Voluntary Employee’s Benefits Association (VEBA) trust?

A

A trust established by one or 10 or more employers in which they can fund non-retirement benefits and take the deduction immediately. VEBAs are expensive to start and maintain, but do provide security for employers who want to offer benefits above qualified plan limits.

As long as the VEBA trust complies with 501(c)(9) non-discrimination and 505(b)(7), the earnings are tax exempt.

31
Q

What is a welfare benefit trust?

A

Modeled after a VEBA trust, differences are that earnings are fully taxable to the employer. They do have fewer IRS requirements than VEBAs, but must still be compliant with ERISA.

32
Q

What are the benefits of VEBA?

A

Out of IRC 501(c)(9): “provide life, sickness, accident, and other benefits”. Other benefits can include vacation, child care, facilities, legal services, severance pay, education and job training, and supplemental unemployment compensation.

33
Q

What is a cafeteria plan?

A

Allows participants to pick and choose the benefits that are most useful to them. Section 125 requires that a cafeteria plan offer:

  • a cash benefit that is generally taxable to the employee
  • one or more qualified benefits that are not taxable to the employee
34
Q

What are the general differences in group disability plans vs individual?

A

Usually less expensive, but also fewer benefits. Group coverage also usually comes with both short and long term disability.

35
Q

What is a sick-pay plan?

A

Usually a continuation of compensation. Unless the compensation comes from VEBA, it is usually taxable to the employee

36
Q

When does short term disability kick in?

A

Usually after sick-benefits are exhausted… around a one week waiting period. Benefit period can be 13, 26, or 52 weeks

37
Q

When does long term disability kick in?

A

The waiting period can be 60, 90, 180 days. The first two years of the benefit period is based on the same eligibility for STD. After two years, the liability definition is in line with either anyocc or ownocc depending on the coverage.

38
Q

What are the tax implications for group disability to the employee and employer?

A

If the employer pays the premiums and the benefit is not to the employer, that employer can deduct the premiums as a business expense

The benefits are includable in the employees taxable income although there may be a tax credit for being disabled.

39
Q

What are the three categories of fringe benefits not includable in compensation?

A

No-additional cost services: benefits offered to employees in the same business of paying customers (offering flights to airline employees)

Qualified employee discounts: not to exceed 20% and offered to all employees in the same line of work as a paying customer (discount on food at a restaurant)

De Minimus fringe benefits: benefits so small that accounting would be impractical or unreasonable.

40
Q

What are the seven classes of benefits of workers comp for employees?

A
Medical expenses
Total temporary disability
Partial temporary disability
Total permanent disability
Partial permanent disability
Survivors death benefit
Rehabilitation benefits
41
Q

What is the tax implication for using a company car for personal use?

A

In the employee’s income, [s]he will have to include the value of the use via an IRS formula.

42
Q

What is the tax implication of regular personal use of a company car?

A

The fair market value is taxable to the employee based on the cost of leasing the same or a comparable vehicle from an unrelated third party under the same or comparable lease terms

43
Q

What are the tax implications for employer-paid LTC insurance?

A

Employer payments for group long-term care policies are tax deductible for the company and nontaxable income to the employee.

44
Q

What are the tax implications for group LTC insurance for employer-paid or employee-split premium payments?

A

If ER-paid, premiums are tax deductible by the ER and the payout is fully taxable to the EE

If EE-split premiums, that amount is not tax deductible by the EE, but that portion of the benefit is then not taxable to the EE

45
Q

How long is company disability insurance provided for?

A

A group long-term group disability income plan is sometimes broader than an individual plan and is usually less expensive.

It provides coverage for a specified term longer than two years, until an employee’s normal retirement age (usually age 65), or until death, if sooner

46
Q

What is the penalty for using an HSA for non-qualified medical expenses?

A

20% of the money used

47
Q

Which of the following statements regarding Voluntary Employees’ Beneficiary Associations (VEBAs) are CORRECT?

VEBAs permit an acceleration of the employer’s tax deduction in funding future benefits (meaning they can deduct in the year of funding)

Income from VEBAs may be tax exempt to the employer.

A

Both statements are correct

48
Q

Which of the following are classes of benefits payable under workers’ compensation laws?

  1. Rehabilitation benefits
  2. Disability benefits
  3. Survivors death benefits
  4. Medical expenses
A

All of them

49
Q

Can a client contribute to a FSA and HSA in the same year?

A

Yes