Group Benefits

Question 1

Under what two (2) circumstances is the cost of group term insurance above 50k tax-exempt?

Answer 1

1) individuals who are disabled or retired, under certain circumstances.
2) if the insured has designated the employer or a charitable organization as beneficiary.

Question 2

What is considered a highly compensated employee (HCE) with regard to group benefits?

Answer 2

• top 25% in pay
• officers of the employer
• > 5% owner

Question 3

What are COBRA qualifying events and how long must coverage be granted?

Answer 3

• termination (18m)
• FT to PT (18m)
• Disability (29m) - Social security definition
• death (36m)
• Divorce (36m)
• EE qualifies for MediCare (36m)
• loss of depend an status (36m)
• plan termination (36 m)

Question 4

What are the non-cash fringe benefits that are taxed as income to the employee.

Answer 4

• personal use of company vehicles ( auto, plane, etc.) or lodging
• season tickets provided by employer
• country club dues
• any discounts that are available only to HCEs and not “rank and file” employees

Question 5

If taxable to the employee, what is the withholding on fringe benefits?

Answer 5

Flat 25%

Question 6

What are the 5 basics of workers comp laws (which are statutory)?

Answer 6

1) negligence it a factor in liability
2) indemnity is partial but final
3) periodic payments
4) cost is treated as a cost of doing business
5) insurance is required

Question 7

What requirements must be met to qualify as group life insurance (IRC Section 79)?

Answer 7

• 70% of employees must benefit
• 85% of participants are not KEY employees
• cover a nondiscriminatory class of employees
• comply with IRC Section 125 if part of a cafeteria plan

Question 8

Who can be excluded from group benefits under IRC Section 79 (group life)?

Answer 8

• employees < 3 years
• part time or seasonal employees
• those covered under a collective bargaining agreement
• certain nonresident aliens

Question 9

Who must comply with the Family & Medical Leave Act (FMLA)?

Answer 9

Employers with 50 or more employees in the previous year with-in a 75 mile radius of the workspace.

Question 10

What are the de minimis fringe benefits?

Answer 10

• limited use of the copy machine
• occasional tickets for business purposes
• public transportation up to $125/month
• parking up to $240/month

Question 11

What types of benefits does worker’s compensation provide?

Answer 11

• medical expenses
• disability expenses
• survivor death benefits
• rehab benefits

Question 12

SARs

Answer 12

Stock appreciation rights

Question 13

SARs benefit taxation

Answer 13

Considered wages so OI and payroll taxes

Question 14

Difference between SAR and phantom stock plans

Answer 14

SARs can choose the exercise date

Question 15

Section 83(b)

Answer 15

“Legally mandated gamble”

Can pay taxes on current invested shares to get additional gains treated as capital gains

Question 16

Excess benefit plan

Answer 16

Supplemental deferred comp plan that provides benefit beyond Section 415 limits

For example, 10% of comp up to 250k into profit sharing..10% of salary in EXCESS of 250k goes to deferred comp plan

Question 17

SERP

Answer 17

Supplemental executive retirement plan

Question 18

DBO plan

Answer 18

Death benefit only plan

Taxed as OI to beneficiary

Question 19

Secular trust

Answer 19

Protected from creditors so is taxed to EE and deducted by ER

Question 20

Rabbi trust

Answer 20

Informally funded deferred comp

Trust setup with 2 beneficiaries…EE and creditors
Cannot be offshore
Cannot have any financial triggers

Question 21

Top hat plan

Answer 21

Unfunded SERP

Question 22

Who gets SS benefits of living worker

Answer 22

50% reduced…spouse 62-NRA
50%…spouse NRA+
50%…spouse any age caring for child under 17
50%…unmarried child under 18
50%…unmarried child any age if disabled

Question 23

Who gets SS benefits of dead worker?

Answer 23

100% reduced…spouse 62-NRA
100%…spouse NRA+
75%…spouse any age caring for child under 17
75%…unmarried child under 18
75%…unmarried child any age if disabled

Question 24

Compensation NOT included as taxable wages

Answer 24

1) sick days beyond 6 months
2) medical or hospital expenses paid by ER
3) ER payments to retirement plans
4) deferred comp as long as subject to risk of forfeiture

Question 25

OASDI “quarter”

Answer 25

$1130

Question 26

OASDI benefit reduction

Answer 26

62 to FRA-1…..-$1 for every $2 over 14640

FRA year…-$1 for ever $3 over 38880

Question 27

SS taxation

Answer 27

SGL….50% 25-34……34+@85%

JNT…..50% 32-44……44+@85%

Question 28

Calc taxation of SS

Answer 28

AGI + tax-free income + 1/2 SS then compare like marginal brackets

Question 29

Group paid up LI

Answer 29

incr. units of EE paid whole +

decr. Units of ER paid term

Question 30

Group ordinary LI

Answer 30

EE elect to participate in whole life

ER pays for term coverage

Question 31

Group universal LI

Answer 31

Has same advantages of personal UL

Usually EE paid

Question 32

Group survivor income

Answer 32

Monthly payments to spouse and children

NO CHOICE of beneficiary

Question 33

Group carve-out

Answer 33

Remove executives from group term coverage

CAN discriminate

Question 34

Retired lives reserve

Answer 34

A LI plan that prefunds the cost of post retirement group LI coverage.

It is not currently taxable to EE as there is no present interest.

Question 35

Archer MSA penalty

Answer 35

15% if not used for medical

Question 36

Length of COBRA coverage

Answer 36

18 months for termination
29 months for disability
36 months for death, divorce, EE age 65, plan terminates, loss of dependent status

Question 37

VEBA

Answer 37

Voluntary EE benefit association

Purpose to provide LI, SICK, ACCIDENT….NOT RETIREMENT

Question 38

Fringe benefits

Answer 38

• EE discounts not to exceed 20%
• working condition benefits (I.e., paying for licenses)
• gym operated by ER
• transportation benefits not to exceed $125
• services at no additional cost (jump seat)
• meal or cafeteria in ER facility