quiz misses 0629

Question 1

FSA Features include:

Answer 1

technically a cafeteria plan benefit that can be used by itself or as part of a broader cafeteria plan.

A separate FSA salary reduction must be made for each type of eligible benefit.

A salary reduction for an FSA will lower an employee’s income for social security tax purposes if the employee earns less than the social security wage base.

however, they have a “use-it-or-lose-it” provision which requires any funds not used to pay qualified claims during the plan year be forfeited back to the plan sponsor. Forfeited funds cannot be rebated back to the individual employee who forfeited the funds.

Question 2

group universal life insurance plan advantages include:

Answer 2

It allows employees to borrow or withdraw cash.
It provides an opportunity to continue coverage after retirement.
It provides flexibility in designing coverage to best meet individual needs.
the employee may be required to pay a portion or all of the premium (benefit to employER)

Question 3

what is the maximum integrated stock bonus rate?

Answer 3

maximum excess rate is 2 times the contribution rate limited to a disparity of 5.7%. Therefore, 2 x 10% would be 20%. However, since the disparity is limited to 5.7% the maximum excess rate is 15.7% (10% + 5.7%).

Question 4

Dues to business-related organizations provided as a fringe benefit are includible/ excludible WHEN

Answer 4

excluded from taxable income if directly related to the employee’s job.
included in income if NOT directly related to the employee’s job

Question 5

In a money purchase plan that utilizes plan forfeitures to reduce future employer plan contributions, which of the following components must be factored into the calculation of the maximum annual addition limit?

Answer 5

Employer and employee contributions to all defined contribution plans.

Annual earnings and rollover contributions are not included in annual additions. Annual additions are defined as new money contributed into the individual account of a participant. Because forfeitures reduced employer contributions and not added directly to employee’s individual accounts, the forfeitures are not included in annual additions.

Question 6

what can establish a social security integrated plan using the offset method

Answer 6

Defined Benefit Pension Plan.
Only defined benefit plans can use the offset method.

The Money Purchase Pension plan is a Defined Contribution Plan and must use the excess method.

Simple’s and ESOPs cannot be integrated.

Question 7

to retire at age 62 in the current year, AND be eligible for reduced OASDHI retirement benefits, how many quarters of coverage must have been earned?

Answer 7

40

Question 8

Which types of funding vehicles are eligible (approved) for TSAs?

Answer 8

TSA can be invested in annuities and mutual funds.
Fixed Annuity Contracts.
Mutual funds.
Variable annuity contracts.

NOT
Life Insurance policy which develops large cash values.
Custodial accounts holding individual stocks and bonds.
Credit union share account.

Question 9

What are income tax implications of employer premium payments for group health insurance?

Answer 9

If stockholder/employees of a closely held C corporation are covered as employees, the premiums are fully deductible.

Partners are able to deduct 100% of the health insurance premium on their individual tax returns.

Non-owner employee health premiums are fully deductible to both entities.

S Corporations and proprietorships cannot deduct any premiums for group health insurance for owners.

Question 10

is an employer-subsidized van pool provided as a fringe benefit considered included or excluded for tax purposes?

Answer 10

Excludable from the taxable income of all covered employees. this is a statutorily exempt benefit

Question 11

Which groups would have to be considered in meeting the statutory coverage and participation tests for a profit sharing plan for eligible employees.

Answer 11

• subsidiaries where the parent owns more than 80%
• leased employees must be considered because their leasing company’s is not a pension plan
• Union employees are excluded (collectively bargained)

Question 12

characteristics of the use of life insurance as an incidental benefit provided by a qualified retirement plan

Answer 12

I. The premiums paid for the life insurance policy within the qualified plan are taxable to the participant at the time of payment.

II. Under the 25 percent test, if term insurance or universal life is involved, the aggregate premiums paid for the policy cannot exceed 25 percent of the employer’s aggregate contributions to the participant’s account. If a whole life policy other than universal life is used, however, the aggregate premiums paid for the whole life policy cannot exceed 50 percent of the employer’s aggregate contributions to the participant’s account. In either case, the entire value of the life insurance contract must be converted into cash or periodic income at or before retirement.

Question 13

characteristics of a direct withdrawal from a profit sharing plan

Answer 13

• Eligible for Rollover
• Subject to mandatory 20% withholding
• Exempt from the 10% early withdrawal penalty if over 55 or qualifying for an exemption

Question 14

characteristics of a loan from a 403(b) plan

Answer 14

Maximum loan amount is lesser of 50% of vested amount or $50,000 paid in quarterly (or more frequent) payments over five years, unless used for home purchase. Loan must carry reasonable interest rate.

Question 15

When can a participant utilize a long service catch up provision

Answer 15

must work for same employer for 15 years or more
must be a “HER” organization (health, Ed, Religious)
addl annual catch-up allowed up to the lesser of:
$3,000
$15,000, reduced by increases to the general limit that were allowed in previous years due to 15-year rule
$5,000 times the number of years of service, subtracted by the total elective deferrals made by employee for earlier years

Question 16

characteristics of a non-qualified deferred compensation agreement for an individual

Answer 16

I. May provide benefits in excess of qualified plan limits.

II. The contribution underlying the agreement may be structured as additional compensation to the employee.

III. Must be entered into prior to the rendering of services to achieve deferral of compensation.

IV. The contribution underlying the agreement may be paid from the current compensation of the employee.

Question 17

In an ISO, when can the employer deduct the bargain element of the option as an expense

Answer 17

if the sale is a disqualifying disposition (defined below)

• selling, transferring, or exchanging ISO shares before satisfying the ISO holding-period requirements: two years from date of grant and one year from date of exercise.
• If you sell, transfer, gift, or short the stock too soon, you lose the tax benefits of ISOs that occur with a qualifying disposition.
• Transfers of ISO stock to a spouse, to joint tenancy, to a brokerage account (and from one account to another), in a divorce, or after your death are not dispositions.

e.g. Your company receives a tax deduction when you make a disqualifying disposition equal to the amount of ordinary income you recognize for your early sale. It needs to report this income on your Form W-2. Therefore, companies use various methods to track stock sales. These methods include mandatory sale reports, surveys, and even requirements to keep the stock in an account at a certain brokerage firm or transfer agent until the holding period is completed.

Question 18

characteristics of determination letters for qualified plans

Answer 18

• Issued by the IRS at the request of the plan sponsor.
• Sponsor is not required to request a determination letter.
• Even if the determination letter is requested and approved, the IRS may still disqualify the plan.

Question 19

characteristics of non qualified deferred comp

Answer 19

Employer contributions are not tax deductible to the employer until the employee has constructive receipt and is taxed on the income.

• Designed to avoid constructive receipt by the employee until retirement.
• In a formally funded plan (Rabbi trust), the employee has the segregated assets as security of the agreement, assuming the employer remains solvent and the assets are not taken by the employer’s creditors. This risk of having creditors take the assets inside a “Rabbi trust” is what constitutes a substantial risk of loss or forfeiture and keeps the employee from being considered in “constructive receipt” of the formally funded assets.

Question 20

characteristics of rabbi trusts

Answer 20

I. A rabbi trust is a trust established and sometimes funded by the employer that is subject to the claims of the employer’s creditors, but any funds in the trust cannot generally be used by or revert back to the employer.
II. A rabbi trust may not be held off-shore as a result of the American Jobs Creation Act of 2004.
III. The American Jobs Creation Act of 2004 allows “springing irrevocability” for a rabbi trust if there is a change of control or ownership.
IV. The American Jobs Creation Act of 2004 prohibits “springing irrevocability” for a rabbi trust if there is a bankruptcy

Question 21

characteristic(s) of Tax-Sheltered annuities (TSAs)

Answer 21

TSAs are also known as 403(b) plans and provide:

I. Salary reduction contributions are NOT reported as W-2 income and are subject to Social Security tax.

II. The maximum salary deferral limit is $18,000 for a newly hired employee in 2015, under age 50.

III. Employer contributions are deductible by the employer.

IV. Loans and “catch-up” contributions may be permitted.

Question 22

Safe harbor requirements to exclude leased employees from an employer’s retirement plan include:

Answer 22

the plan must provide:

• a 10%, non-integrated money purchase plan with immediate vesting
• No more than 20% of the employer’s non-highly compensated employees may be leased

Question 23

A plan which requires annual employer contributions equal to a formula determined by each participant’s salary” is a…

Answer 23

Money Purchase Plan

Question 24

characteristics of an excess benefit plan

Answer 24

extends the benefits of a company’s qualified plan above the Section 415 limits but still adheres to maximum salary limitations.

Differs from a SERP in that a SERP does NOT have salary limitations

Question 25

characteristics of a SERP

Answer 25

Supplemental Executive Retirement Plans supplements the pension plan without regard to limits imposed upon salary levels (i.e., maximum salary of $265,000 in 2015) or the maximum funding levels of Section 415

Question 26

characteristics of distributions from an IRA:

Answer 26

I. AFTER-tax contributions are NOT subject to taxation or premature distribution taxation.

II. Section 72 annuity rules govern an IRA distribution that includes non-deductible and deductible contributions.

III. All IRA $s distributed are included in the decedent’s gross estate.

IV. Distributions made due to the death of the owner are exempt from the premature distribution penalty tax.

Question 27

characteristics of a qualified, money purchase plan

Answer 27

I. A definite and non-discretionary employer contribution formula.

II. Forfeitures can be reallocated to the remaining participants’ accounts in a non-discriminatory manner or used to reduce employer contributions.

III. An individual account must be maintained for each employee of employer contributions.

IV. The normal retirement age does NOT have to be specified, as this is only a requirement in Defined Benefit plans, and a Money Purchase Plan is a defined contribution plan!

Question 28

characteristics of a VEBA

Answer 28

voluntary employee beneficiary association plans offer:
I. Life, sickness and accident benefits
II. Severance and supplemental unemployment
III. Job training

VEBAs can NOT offer Retirement benefits or Commuter benefits

Question 29

Wage Replacement Ratio (WRR) - what percentage of income is subtracted for a self-employed individual for Social Security and Medicare Taxes?

Answer 29

SELF employed reduce 7.65 employee and 7.65 employer = 15.3 total

Question 30

COBRA Provisions

Answer 30

• All employers offering group health insurance with 20+ employees must provide COBRA continuation benefits.
• COBRA benefit durations vary from 18, 29, or 36 months depending upon the qualifying event.
• COBRA eligible coverages do not include: dental plans, vision plans, Medical FSAs, prescription drug plans and mental health plans.
• COBRA eligibility ceases when a covered participant becomes eligible to participate in another group health plan or Medicare.

Question 31

Characteristics of Section 457 plans

Answer 31

I. Eligible plan sponsors include non-profit organizations and governmental entities (BUT NOT CHURCHES).
II. In-service distributions after age 70 1/2 are allowed in a 457 plan.
III. Salary deferrals are subject to Social Security, Medicare, and Federal unemployment tax in the year of the deferral.
IV. Assets of the plans for non-government entities are subject to the claims of the sponsor’s general creditors.