Retirement: 9: Employee Group Benefits

Question 1

Retirement 9-1: Group Life Insurance

A group life policy can be established as a contributory plan (employee pays some portion of premiums) or a noncontributory plan (employer pays entire premium cost). Employee contributions generally are made with _____ dollars.

a. pretax
b. after tax

Answer 1

b. after tax

Only if the coverage is part of a cafeteria (Section 125) plan will the employee be able to use pretax dollars for contributions.

Question 2

Retirement 9-1: Group Life Insurance

Among the advantages of group term life for the employee, including the owner/employee, are the absence of a medical exam requirement and the tax free nature of the first _____ of coverage.

a. $50,000
b. $60,000

Answer 2

a. $50,000

Question 3

Retirement 9-1: Group Life Insurance

A group term life insurance policy typically includes ancillary benefits, such as the right to convert to permanent coverage after the group coverage terminates, an additional feature or features that provide no economic benefit other than current insurance protection, and term life coverage with level premiums for up to _____ years. These ancillary benefits are not considered permanent benefits.

a. 5
b. 10

Answer 3

a. 5

Question 4

Retirement 9-1: Group Life Insurance

For the plan to qualify for favorable tax treatment (i.e., the employee’s $50,000 exclusion and employer’s deduction), Internal Revenue Code Section 79 requires that a group term policy furnished by the employer must not discriminate in favor of _____ employees.

a. HCE’s
b. key

Answer 4

b. key

Question 5

Retirement 9-1: Group Life Insurance

The term “key employees” is defined under IRC Section 416(i). It includes any employee who, at any time during the plan year containing the determination date for the plan year to be tested, was

1. an officer of the employer whose annual compensation from the employer exceeded $170,000 in 2016;
2. a greater than _____% owner of the employer; or
3. a greater than 1% owner of the employer having annual compensation from the employer in excess of $150,000.
   a. 5%
   b. 10%

Answer 5

a. 5%

Question 6

Retirement 9-1: Group Life Insurance

Eligibility is considered to be nondiscriminatory if it meets the following criteria:

1. At least _____ of all employees benefit from the plan (or any group term plan through the employer).
2. At least 85% of participating employees are not key employees (of all group term plan participants).
3. The plan benefits a nondiscriminatory employee classification.
4. If the plan is part of a cafeteria plan, coverage complies with the Section 125 nondiscrimination requirements.
   a. 50%
   b. 70%

Answer 6

b. 70%

Question 7

Retirement 9-1: Group Life Insurance

The following employees need not be counted in measuring the plan’s compliance of the above requirements:

1. employees with less than _____ years of service
2. part-time and seasonal employees
3. employees excluded because they are covered by a collective bargaining agreement and group term life was the subject of good-faith bargaining
4. certain nonresident aliens

a. two
b. three

Answer 7

b. three

Question 8

Retirement 9-1: Group Life Insurance

An accidental death and dismemberment (AD and D) policy provides a lump-sum benefit for loss of life or body parts due to an accident. This coverage may be included in a group life insurance policy or in a group health policy. Often the benefit is a percentage of group term life coverage. Two types of AD and D coverage are available: business travel insurance, which generally covers specified classes of employees only while they are traveling for business purposes; and _____ accident insurance, which covers accidents at any time, related to any activity, either personal or business.

a. voluntary
b. private pay

Answer 8

a. voluntary

Payments for dismemberment of specific limbs usually are a percentage of the AD and D coverage amount (e.g., 10% of $10,000 for loss of one arm and one leg).

Question 9

Retirement 9-1: Group Life Insurance

While group term life insurance is the most common type of group policy, the employer may choose to offer a plan that permits employees to build some permanent insurance coverage (To say a policy includes “permanent benefits” means it provides an economic value extending beyond _____.) If either a group ordinary or group paid-up policy is implemented, the permanent portion of total coverage grows as the employee approaches retirement.

a. one policy year
b. two policy years

Answer 9

a. one policy year

At retirement the policy can be converted to an individual policy at a more reasonable cost than if it had been a pure term policy converted at the same age.

Question 10

Retirement 9-1: Group Life Insurance

Designed to address the need for employees to have more than temporary term coverage, _____ coverage consists of increasing units of whole life and decreasing units of group term.

a. group paid-up
b. group paid-in

Answer 10

a. group paid-up

Generally, the employee makes an after-tax contribution that is allocated to purchase whole life insurance. The employer purchases sufficient group term life insurance to provide the scheduled total amount of insurance coverage to the employee. Each year the accumulated, paid-up insurance grows, and the employee’s level contribution purchases less and less additional paid-up insurance, while the employer’s contribution purchases a decreasing amount of term coverage.

Question 11

Retirement 9-1: Group Life Insurance

A _____ (Section 79) plan offers employees the opportunity to participate in _____ whole life insurance funded by employee and employer contributions. Whether employees choose to participate in or waive the contributory permanent coverage, they will benefit from the employer paid term life insurance portion of the coverage. Because of earlier abuses, these plans are not common since they are subject to complex rules that require the employer to pay only the term cost and the permanent portion to be entirely supported by the employee.

a. Group ordinary
b. Group universal

Answer 11

a. Group ordinary

Question 12

Retirement 9-1: Group Life Insurance

A _____ is underwritten on a group basis. These benefits include flexible premiums, death benefit options, and potentially high returns due to interest sensitivity. Since the program is implemented through individual contracts with each participant, premiums usually are employee-paid. Because of the efficiency of dealing with a large group, administrative, marketing, and commission expenses are typically lower than those associated with individual universal life policies.

a. Group ordinary
b. Group universal

Answer 12

b. Group universal (GULP)

Question 13

Retirement 9-1: Group Life Insurance

Supplemental Insurance Coverage

Characteristics that distinguish ______ insurance from other types of group insurance include the absence of a lump-sum payment option, the employee’s lack of choice in beneficiaries (spouse and children only), and the requirement that benefits will be paid only if there is an eligible survivor. Since the payments are conditional based on whether there is a survivor or not, this is not considered to be life insurance, and any payments to the surviving spouse and/or children would be taxable.

a. Group survivor income
b. Dependents’ group life
c. Supplemental group term life
d. Group carve-out

Answer 13

a. Group survivor income

Proceeds from a group survivor income policy are payable monthly over a specified period, which may be a given number of years or until the spouse’s remarriage, death, or attainment of a certain age. Benefits to children usually continue until age 18 or 24 if in school. The monthly payment schedule is intended to ensure ongoing support for the family.
Dependents’

Question 14

Retirement 9-1: Group Life Insurance

Supplemental Insurance Coverage

Employers can offer group life insurance coverage for the employee’s spouse and any children up to age 26. Normally, _____ coverage is offered only with group term coverage on the employee.

a. Group survivor income
b. Dependents’ group life
c. Supplemental group term life
d. Group carve-out

Answer 14

b. Dependents’ group life

The NAIC model limits the amount of life insurance coverage for a dependent spouse or dependent child—the coverage on any dependent cannot exceed 50% of the insurance for the employee. Normally, coverage for the spouse and children is limited to $2,000 since coverage in greater amounts is subject to taxation. For children, a typical amount of coverage may range from $500 for ages 14 days to six months, then increase to either $1,000 or $2,000.

Question 15

Retirement 9-1: Group Life Insurance

Supplemental Insurance Coverage

Additional group term coverage may be provided on a contributory basis to a class of employees or to all employees through a _____. Such coverage cannot be offered to just a few individuals, but can be provided to a class of employees, such as salaried employees. In other words, the coverage must be offered on a nondiscriminatory basis. If this condition is met, the plan will not be considered discriminatory even if only a few members of the class choose to participate.

a. Group survivor income
b. Dependents’ group life
c. Supplemental group term life
d. Group carve-out

Answer 15

c. Supplemental group term life

Coverage amounts may be specified by the employer or selected by the employee from available options. Often the insurance company will require evidence of insurability, since there is greater risk of adverse selection in a voluntary policy. The amount of coverage is selected and paid for, after-tax, by the employee and is usually a multiple of the employee’s compensation.

Question 16

Retirement 9-1: Group Life Insurance

Supplemental Insurance Coverage

The employer can make enhanced benefits available to a group of executives by removing them from the company’s group term coverage and providing them with amounts of coverage that may vary from one executive to another. A _____ is not subject to any nondiscrimination requirements. Split-dollar life insurance is one method of implementing this discriminatory individual coverage, and the executives must include the apportioned cost of the coverage in their gross income.

a. Group survivor income
b. Dependents’ group life
c. Supplemental group term life
d. Group carve-out

Answer 16

d. Group carve-out

A carve-out plan can be the answer to correcting a discriminatory group term plan; removing the executives probably will bring the group term plan into compliance with Section 79 requirements (see discussion later in this module) based on the remaining participants.

Question 17

Retirement 9-1: Group Life Insurance

Since group life insurance is an “employee welfare benefit plan,” group life plans are subject to certain requirements of ______.

a. NAIC
b. ERISA

Answer 17

b. ERISA

Question 18

Retirement 9-2,3: Tax Consequences of Group Life

Death benefits paid to beneficiaries of group (or individual) term or permanent life insurance policies _____ subject to income tax.

a. are
b. are not

Answer 18

b. are not

Question 19

Retirement 9-2,3: Tax Consequences of Group Life

An employer can provide up to $50,000 of group term life insurance coverage on the life of an employee without tax consequences to the employee, if the group term coverage meets the requirements of IRC Section 79. The cost of employer provided coverage in excess of the $50,000 face amount is taxable to the employee, based upon what is referred to as “Table I” cost per $1,000 of coverage each _____.

a. month
b. year

Answer 19

a. month

Question 20

Retirement 9-2,3: Tax Consequences of Group Life

Retired lives reserve is a plan that prefunds the cost of post retirement group life insurance coverage. The employer pays the current cost and an additional sum to a “retired lives” reserve account. The account may be either an insurance company separate account or a trust account providing group term life for retired employees. An employer’s contributions to the retired lives reserve account _____ be taxable to the pre-retirement employee as long as the employee has no constructive receipt or economic benefit.

a. will
b. will not

Answer 20

b. will not

Question 21

Retirement 9-2,3: Tax Consequences of Group Life

If proceeds are payable to the employee’s designated beneficiary and the employee has vested rights in the premiums as they are paid, the cost of employer-provided permanent life insurance coverage _____ reported as taxable income to the employee, based on the cost of the coverage.

a. is
b. is not

Answer 21

a. is

If the group policy includes both term and permanent insurance, the cost of the permanent coverage is determined using an allocation formula. However, due to the infrequent use of group ordinary and group paid-up policies, practical application of the allocation formula is limited.

Question 22

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Provides eligible individuals access to coverage that does not impose any coverage exclusions for preexisting conditions.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 22

a. Immediate access to insurance for uninsured individuals with a preexisting condition

Question 23

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Health insurance companies cannot impose preexisting condition exclusions on coverage.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 23

b. Eliminating preexisting condition exclusion

Question 24

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Prohibits insurance companies from rescinding existing health insurance policies when a person becomes sick as a way of avoiding the costs of coverage.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 24

c. Rescissions prohibited

Question 25

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Prohibits insurance companies from imposing annual and lifetime limit on benefits.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 25

d. Eliminating annual and lifetime limits

Question 26

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

All new group health plans and plans in the individual market must provide for first dollar coverage (no co-pay) for preventive services.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 26

e. Preventive health care coverage

Question 27

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Requires insurers that provide dependent coverage for children to continue to offer coverage until the child turns age 26.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 27

f. Increased age for coverage of young adults

Question 28

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Provides for an annually increasing discount on all brand-name and biologics in the donut hole. Donut hole is to be completely filled by 2020.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 28

g. Discounts in the Part D “donut hole.”

Question 29

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Applies to HSAs (Health Savings Accounts) and MSAs (Medical Savings Accounts); the penalty tax for withdrawals prior to age 65 for nonqualified medical expenses increases to 20%.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 29

h. Increased additional tax for nonqualified medical expenses

Question 30

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

The allowable contribution amount to an FSA account is reduced to $2,550 a year (2016), and indexed to the CPI for subsequent years.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 30

i. FSA contribution limit reduction

Question 31

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Increases the threshold for claiming the itemized deduction for medical expenses to 10% from the current 7.5%. Individuals over age 65 would continue to be able to use the 7.5% threshold through 2016.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 31

j. Increased medical expense deduction threshold

Question 32

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

The HI insurance (Medicare tax) will increase by 0.9% on wages over $200,000 for an individual, and $250,000 for married couples filing jointly. Currently the tax is 2.9% (1.45% paid by employer, 1.45% paid by employee). This would increase to 3.8% (2.35% paid by employee and 1.45% paid by employer).

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 32

k. Additional hospital insurance (HI) for high wage workers

Question 33

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

A new 3.8% tax will be levied on the net investment income of high wage workers (wages over $200,000 for single, $250,000 married filing jointly).

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 33

l. Additional tax on net investment income for high wage workers

Question 34

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Requires most individuals to obtain health care insurance coverage or pay a penalty. The penalty is $695 (or up to 2.5% of income) in 2016. Families will pay half of the amount for children, up to a cap of $2,250 per family. After 2016 amounts will be indexed.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 34

m. Mandatory individual coverage

Question 35

Retirement 9-4,5: Group Health and Disability Plans

Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights (ObamaCare)

Requires employers with 50 or more employees to offer coverage to their employees or be subject to fines. For some employers, the fine will actually be less than it would cost to comply. These employers might simply pay the fine and continue to not offer coverage while other employers might actually drop their existing coverage.

a. Immediate access to insurance for uninsured individuals with a preexisting condition
b. Eliminating preexisting condition exclusion
c. Rescissions prohibited
d. Eliminating annual and lifetime limits
e. Preventive health care coverage
f. Increased age for coverage of young adults
g. Discounts in the Part D “donut hole.”
h. Increased additional tax for nonqualified medical expenses
i. FSA contribution limit reduction
j. Increased medical expense deduction threshold
k. Additional hospital insurance (HI) for high wage workers
l. Additional tax on net investment income for high wage workers
m. Mandatory individual coverage
n. Mandatory employer coverage

Answer 35

n. Mandatory employer coverage

Question 36

Retirement 9-4,5: Group Health and Disability Plans

A _____ provides benefits for diagnostic, medical, hospital, and surgical services. This coverage includes both services covered by a basic health insurance plan (hospital and surgical procedures) and those covered by a major medical plan (diagnostic and medical services). Generally, the insured employee pays the full cost of medical expenses up to a specified annual deductible amount (e.g., $100 per individual, $300 family maximum), and the comprehensive plan pays for some portion of the expenses beyond the deductible—usually 80%.

comprehensive expense plan

fully insured expense plan

Answer 36

comprehensive expense plan

Question 37

Retirement 9-4,5: Group Health and Disability Plans

To protect the employee from extraordinary medical expenses, a policy usually will set a limit (_____) on the total annual amount of co-payments the employee will pay. Beyond this coinsurance limit, the policy will pay 100% of the covered costs up to the overall policy limit.

stop-gap

stop-loss

Answer 37

stop-loss

Question 38

Retirement 9-4,5: Group Health and Disability Plans

Comprehensive Medical Expense Protection

_____ may be able to take advantage of a health care tax credit. In order to claim the credit, the business must have no more than 25 full-time equivalent employees (two half-time employees equal one full-time employee) and pay an average wage of less than $50,000 a year. The average wage would be calculated by dividing total wages by the number of full time equivalent employees. The business must also cover at least 50% of the cost of single (not family) health care coverage for each employee.

a. Small business health care
b. Preferred provider organization (PPO)
c. Point-of-service (POS) plans
d. Health maintenance organizations

Answer 38

a. Small business health care

Question 39

Retirement 9-4,5: Group Health and Disability Plans

Comprehensive Medical Expense Protection

As a method to restrain the ever increasing cost of health care, the vast majority of employees under employer based group health insurance have some type of managed care, i.e., _____ or health maintenance organization (HMO). A large number have either a this plan or a variation of a this plan. This plan is still a “fee-for service” plan versus the “prepaid” approach of HMOs. However, under this plan, the insurance carrier contracts with a network of health care providers. The network agrees to provide the carrier a discount for any patients who receive care from it.

a. Small business health care
b. Preferred provider organization (PPO)
c. Point-of-service (POS) plans
d. Health maintenance organizations

Answer 39

b. Preferred provider organization (PPO)

Question 40

Retirement 9-4,5: Group Health and Disability Plans

Comprehensive Medical Expense Protection

_____ plans operate similar to a PPO, i.e., there is a network of providers available, and the maximum benefit is received via use of network providers. POS these plans were initially offered as an addition to, and in conjunction with, an HMO. By having this plan in addition to an HMO, plan participants would have the lowest out-of-pocket expense following the HMO guidelines. However, individuals wanting to see a provider outside of the HMO network would have coverage through this plan if they were willing to pay additional out of-pocket expenses. Although these plans were initially offered only in conjunction with an HMO, stand-alone versions of this plan are available

a. Small business health care
b. Preferred provider organization (PPO)
c. Point-of-service (POS) plans
d. Health maintenance organizations

Answer 40

c. Point-of-service (POS) plans

Question 41

Retirement 9-4,5: Group Health and Disability Plans

Comprehensive Medical Expense Protection

An _____ provides an alternative for health insurance coverage consisting of a prepaid plan arranged between the plan and health care providers. This coverage generally is broader than a health insurance policy’s coverage, and deductible amounts usually are lower or nonexistent. Employees must choose doctors or other health care providers from members of the organization; these providers often are salaried employees of the organization.

a. Small business health care
b. Preferred provider organization (PPO)
c. Point-of-service (POS) plans
d. Health maintenance organizations

Answer 41

d. Health maintenance organizations

Question 42

Retirement 9-4,5: Group Health and Disability Plans

Funding for Group Health and Other Benefits

In a _____, an insurance company provides benefit coverage based on a contract between the employer and the insurance provider. The employer pays premiums to the insurance company, and the insurance company, in turn, administers the policy and is responsible for claims procedures and paying claims. The insurance company also assumes the risk of claims exceeding premiums.

a. Traditional insurance company contract (“fully insured”)
b. Self-funded (“self-insured,” “uninsured”) plan
c. Aggregate stop-loss
d. Minimum premium plans

Answer 42

a. Traditional insurance company contract (“fully insured”)

The employer has a fiduciary responsibility to determine that the strength of the selected insurance company is adequate to bear this risk; that is, the employer should go through a due diligence process on any insurance company under consideration. The employer’s role is limited to facilitating the insurance company’s education of employees and collecting any employee-paid amounts to fund its premium payments. Considering the minimal risk and administrative burden associated with the traditional approach, it generally is the most appropriate approach for the small company, as well as many larger companies.

Question 43

Retirement 9-4,5: Group Health and Disability Plans

Funding for Group Health and Other Benefits

An employer may assume the responsibility for funding claims and administering its benefit program. This approach requires extensive administrative support and the ability to forecast claims and absorb unexpected charges. Thus, a _____ plan generally is most feasible for a large employer with an established claims history.

a. Traditional insurance company contract (“fully insured”)
b. Self-funded (“self-insured,” “uninsured”) plan
c. Aggregate stop-loss
d. Minimum premium plans

Answer 43

b. Self-funded (“self-insured,” “uninsured”) plan

Question 44

Retirement 9-4,5: Group Health and Disability Plans

Funding for Group Health and Other Benefits

The _____ pertains to the entire group, and normally is not calculated until the end of the plan year. The aggregate stop-loss may be based upon set figures for the single participants and a different figure for family units. At the end of the year, the attachment point is calculated based upon the number of single participants and family units that had been covered. If the total claims exceed the attachment point, the carrier reimburses the plan.

a. Traditional insurance company contract (“fully insured”)
b. Self-funded (“self-insured,” “uninsured”) plan
c. Aggregate stop-loss
d. Minimum premium plans

Answer 44

c. Aggregate stop-loss

Question 45

Retirement 9-4,5: Group Health and Disability Plans

Funding for Group Health and Other Benefits

Another method is called “_____.” In essence, a minimum premium plan limits an employer’s potential liability on a monthly basis. As indicated above, the aggregate stop-loss is frequently not calculated until the end of the plan year. Although the employer’s liability for the year is limited, the employer may not be reimbursed for the excess of the aggregate for several months after the end of the policy year. With the this plan plan, the carrier reimburses the plan during the year when benefit payments have exceeded a predetermined level.

a. Traditional insurance company contract (“fully insured”)
b. Self-funded (“self-insured,” “uninsured”) plan
c. Aggregate stop-loss
d. Minimum premium plans

Answer 45

d. Minimum premium plans

Question 46

Retirement 9-4,5: Group Health and Disability Plans

Employee benefits programs make up a significant part of employers’ compensation costs. Because of this fact, it is incumbent upon employers to make the most efficient use of benefit dollars. A _____ approach allows employees to participate only in those benefits they find useful. That is, the employee can pick and choose from a menu of possible benefits only those benefits found to be appropriate or desirable.
Section 125 requires a _____ to offer:

1. a cash benefit that generally is taxable to the employee as compensation, and
2. one or more qualified benefits that are not taxable to the employee.

a. Traditional insurance company contract (“fully insured”)
b. Cafeteria plan

Answer 46

b. Cafeteria plan

Question 47

Retirement 9-4,5: Group Health and Disability Plans

_____ plans are simply a continuation of compensation for short periods. Normally “sick days” are accumulated each year to build a balance of days. When the employee is ill, he or she simply calls in the fact and remains home. Unless insured or funded by a separate trust, such as a VEBA, the benefit is received as compensation subject to all the payroll withholding and tax requirements, including FICA and FUTA. Essentially the missed workday has no impact on the employee’s paycheck.

Sick pay

Short-term disability

Long-term disability

Answer 47

Sick pay

Question 48

Retirement 9-4,5: Group Health and Disability Plans

_____ benefits are scheduled to begin after a specified period of total disability (waiting period)—usually 60, 90, or 180 days. Generally, eligibility for long-term disability benefits during the first two years is based on the same definition of disability as for short-term disability benefits (inability to perform own occupation). After 24 months, the “total disability” required for eligibility is defined as the inability to perform any occupation for which the disabled worker’s education, training, or experience might have prepared him or her.

Sick pay

Short-term disability

Long-term disability

Answer 48

Long-term disability

Question 49

Retirement 9-4,5: Group Health and Disability Plans

Self-insured or self-funded plans, however, are required to meet eligibility and benefits tests to establish nondiscriminatory status. A plan meets the eligibility test if it benefits:

at least ____ of all employees; 80% of eligible employees, if at least 70% of employees are eligible; or

a class of employees that is considered nondiscriminatory.

80%

70%

Answer 49

70%

Question 50

Retirement 9–6: Income Tax Consequences

Tax Implications of Group Health Insurance Premiums

Employer Deduction: If stockholder/employees are not covered as employees, premiums are not deductible. If stockholder/employees are covered as employees, premiums are deductible.

C corporation

Closely held C corporation

Partnership

Sole proprietorship

S corporation stockholder/ employee

Answer 50

Closely held C corporation

Question 51

Retirement 9–6: Income Tax Consequences

Tax Implications of Group Health Insurance Premiums

Employer Deduction: Premiums for coverage on employees are deductible. Owner may deduct the premium for his/her coverage on his/her 1040

C corporation

Closely held C corporation

Partnership

Sole proprietorship

S corporation stockholder/ employee

Answer 51

Sole proprietorship

Question 52

Retirement 9–6: Income Tax Consequences

Tax Implications of Group Health Insurance Premiums

Employer Deduction: Corporation deducts entire premium cost as ordinary and necessary business expense.

C corporation

Closely held C corporation

Partnership

Sole proprietorship

S corporation stockholder/ employee

Answer 52

S corporation stockholder/ employee

Question 53

Retirement 9–6: Income Tax Consequences

Tax Implications of Group Health Insurance Premiums

Employer Deduction: Premiums are fully deductible as business expense.

C corporation

Closely held C corporation

Partnership

Sole proprietorship

S corporation stockholder/ employee

Answer 53

C corporation

Question 54

Retirement 9–6: Income Tax Consequences

HSA

Contributions may be made up to _____ and are to be reported on Form 8889.

December 31st

April 15th

Answer 54

April 15th

Question 55

Retirement 9–6: Income Tax Consequences

HSA

The HSA participant’s contributions provide an “______” deduction for the participant.

above-the-line

below the line

Answer 55

above-the-line

Question 56

Retirement 9–6: Income Tax Consequences

Health reimbursement arrangements (HRAs) are entirely funded by the employee. _____ employee contributions are allowed.

Some

No

Answer 56

No

Question 57

Retirement 9–6: Income Tax Consequences

Health reimbursement arrangements (HRAs) any unused amounts _____ carried forward into the following year.

are

are not

Answer 57

are

Question 58

Retirement 9–6: Income Tax Consequences

Like the cafeteria plan, HRAs _____ available for self-employed individuals, partners, or 2% shareholders in an S corporation. Reimbursement for medical expenses from the plan to the employee are excludible from the employee’s income, and deductible by the employer.

are

are not

Answer 58

are not

Question 59

Retirement 9–6: Income Tax Consequences

Tax Consequences of Special Uses of Disability Insurance:

The employer cannot deduct the premium, but the proceeds (benefits) are not taxable.

a. The employer is purchasing disability insurance on a key employee, with benefits payable to employer.
b. The owner/operator is purchasing overhead expense disability insurance.
c. The owner/operator is purchasing standard personal disability insurance or a policy to fund a disability buyout.

Answer 59

a. The employer is purchasing disability insurance on a key employee, with benefits payable to employer.

Question 60

Retirement 9–6: Income Tax Consequences

Tax Consequences of Special Uses of Disability Insurance:

The premiums are deductible; the proceeds are taxable.

a. The employer is purchasing disability insurance on a key employee, with benefits payable to employer.
b. The owner/operator is purchasing overhead expense disability insurance.
c. The owner/operator is purchasing standard personal disability insurance or a policy to fund a disability buyout.

Answer 60

b. The owner/operator is purchasing overhead expense disability insurance.

Question 61

Retirement 9–6: Income Tax Consequences

Tax Consequences of Special Uses of Disability Insurance:

The premiums are not deductible; the proceeds are not taxable.

a. The employer is purchasing disability insurance on a key employee, with benefits payable to employer.
b. The owner/operator is purchasing overhead expense disability insurance.
c. The owner/operator is purchasing standard personal disability insurance or a policy to fund a disability buyout.

Answer 61

c. The owner/operator is purchasing standard personal disability insurance or a policy to fund a disability buyout.

Question 62

Retirement 9–6: Income Tax Consequences

Long-Term Care: The premiums are _____ deductible for a self-employed person.

50%

100%

Answer 62

100%

Question 63

Retirement 9–6: Income Tax Consequences

Long-term care insurance premiums are considered a
qualified medical expense under an HSA, which means that funds in a health savings account ______ be used to pay long-term care insurance premiums.

can

can not

Answer 63

can

Question 64

Retirement 9–6: Income Tax Consequences

Qualified long-term care insurance premiums _____ deductible for individuals above the 10% medical expense threshold with limitations based upon age, as illustrated in Table 7. (Through 2016, taxpayers 65 or older can substitute 7.5% for the 10% limit.)

are

are not

Answer 64

are

Question 65

Retirement 9–6: Income Tax Consequences

Qualified long-term care services required by a chronically ill individual. The term “chronically ill individual” applies to an individual certified by a licensed health practitioner as

1. unable to perform at least two activities of daily living (ADLs) without substantial assistance for at least __ days, or
2. requiring substantial supervision due to cognitive impairment.

Activities of daily living include “eating, toileting, transferring, bathing, dressing, and continence.”

30

90

Answer 65

90

Question 66

Retirement 9–7: Group Insurance Provisions Required by the Federal Government

Any insured or self-insured group health plan sponsored by an employer ____ provide the continuation of coverage defined by COBRA.

may

must

Answer 66

must

Amounts accumulated for deductibles must be carried forward to the COBRA continuation plan.

Question 67

Retirement 9–7: Group Insurance Provisions Required by the Federal Government

The Peanut Factory has only 10 full-time employees, but also has 20 part-time employees. Are they subject to COBRA?

yes

no

Answer 67

yes

The answer is yes—two part-time employees count as one full-time employee, so for COBRA purposes
The Peanut Factory has 20 employees. Firms that employ 20 or more employees for more than 50% of the calendar year are required to provide continuation of coverage under COBRA.

Question 68

Retirement 9–7: Group Insurance Provisions Required by the Federal Government

COBRA. Coverage times required, by event, are: Termination, Change from FT to PT status

a. 18 months for worker, spouse, and dependents
b. 29 months for worker, spouse, and dependents
c. 36 months for spouse and dependents
d. 36 months for dependent

e. 36 months for worker, spouse, and
dependents

Answer 68

a. 18 months for worker, spouse, and dependents

Question 69

Retirement 9–7: Group Insurance Provisions Required by the Federal Government

COBRA. Coverage times required, by event, are: Disability

a. 18 months for worker, spouse, and dependents
b. 29 months for worker, spouse, and dependents
c. 36 months for spouse and dependents
d. 36 months for dependent

e. 36 months for worker, spouse, and
dependents

Answer 69

b. 29 months for worker, spouse, and dependents

Question 70

Retirement 9–7: Group Insurance Provisions Required by the Federal Government

COBRA. Coverage times required, by event, are: Death, Divorce, Employee eligible for Medicare

a. 18 months for worker, spouse, and dependents
b. 29 months for worker, spouse, and dependents
c. 36 months for spouse and dependents
d. 36 months for dependent

e. 36 months for worker, spouse, and
dependents

Answer 70

c. 36 months for spouse and dependents

Question 71

Retirement 9–7: Group Insurance Provisions Required by the Federal Government

COBRA. Coverage times required, by event, are: Loss of dependent status (child no longer eligible to be in the plan

a. 18 months for worker, spouse, and dependents
b. 29 months for worker, spouse, and dependents
c. 36 months for spouse and dependents
d. 36 months for dependent

e. 36 months for worker, spouse, and
dependents

Answer 71

d. 36 months for dependent

Question 72

Retirement 9–7: Group Insurance Provisions Required by the Federal Government

COBRA. Coverage times required, by event, are: Plan terminates

a. 18 months for worker, spouse, and dependents
b. 29 months for worker, spouse, and dependents
c. 36 months for spouse and dependents
d. 36 months for dependent

e. 36 months for worker, spouse, and
dependents

Answer 72

e. 36 months for worker, spouse, and

dependents

Question 73

Retirement 9–8, 9: Non cash Fringe Benefits

Free services provided to employees by the employer at little or no cost to the employer. These are services of a type normally provided to the public by the employer, where the employer does not incur a substantial additional cost by making such services available at a favorable cost or free of charge to employees (e.g., air travel to an airline employee).

a. No-additional-cost services
b. Qualified employee discounts
c. De minimis fringe benefits
d. Working condition fringe benefits
e. Transportation fringe benefits with a cash option
f. Athletic facilities
e. Meals and lodging

Answer 73

a. No-additional-cost services

Question 74

Retirement 9–8, 9: Non cash Fringe Benefits

Discounts on goods not in excess of the selling price of the goods multiplied by the employer’s gross profit
percentage; and discounts on services, not to exceed 20%.

a. No-additional-cost services
b. Qualified employee discounts
c. De minimis fringe benefits
d. Working condition fringe benefits
e. Transportation fringe benefits with a cash option
f. Athletic facilities
e. Meals and lodging

Answer 74

b. Qualified employee discounts

Question 75

Retirement 9–8, 9: Non cash Fringe Benefits

Benefits that are so small that accounting would be impractical or unreasonable. Preparing personal letters, limited use of the copy machine, occasional tickets to theater or sporting events, parties, group meals, picnics, etc., occasional paid transportation home after working overtime, and employer-provided refreshments are all examples of de minimis fringe benefits.

a. No-additional-cost services
b. Qualified employee discounts
c. De minimis fringe benefits
d. Working condition fringe benefits
e. Transportation fringe benefits with a cash option
f. Athletic facilities
e. Meals and lodging

Answer 75

c. De minimis fringe benefits

Question 76

Retirement 9–8, 9: Non cash Fringe Benefits

Not subject to the nondiscrimination requirements. The requirement for these benefits is that their cost would have been deductible by the employee as a business expense if the employee had purchased the service or product for him or herself. If substantiated for a
business purpose, club dues, the use of a company car, limousine services, installing security devices at an executive’s home, travel for spouses, payment of professional dues and subscriptions, and outplacement assistance (not offered in lieu of cash) are examples of working condition fringe benefits. Note again, these expenses must be business related and substantiated.

a. No-additional-cost services
b. Qualified employee discounts
c. De minimis fringe benefits
d. Working condition fringe benefits
e. Transportation fringe benefits with a cash option
f. Athletic facilities
e. Meals and lodging

Answer 76

d. Working condition fringe benefits

Question 77

Retirement 9–8, 9: Non cash Fringe Benefits

Not subject to the nondiscrimination requirements of Section 132. These plans offer employees
a choice between cash and one or more qualified transportation benefit choices. If cash is chosen, it is includible as ordinary income to the employee. The noncash transportation benefit is excludible from the
employee’s income for tax purposes. The benefit is indexed and limited to $255 per month (2016) for commuter highway vehicle transportation and
transit passes and $255 per month (2016) for parking.

a. No-additional-cost services
b. Qualified employee discounts
c. De minimis fringe benefits
d. Working condition fringe benefits
e. Transportation fringe benefits with a cash option
f. Athletic facilities
e. Meals and lodging

Answer 77

e. Transportation fringe benefits with a cash option

Question 78

Retirement 9–8, 9: Non cash Fringe Benefits

This includes use of certain employer-operated or on premises athletic facilities for employees only. The employer may discriminate as to who can use the facility, however, no deduction is allowed if the facility is for only officers, owners, or highly compensated employees.

a. No-additional-cost services
b. Qualified employee discounts
c. De minimis fringe benefits
d. Working condition fringe benefits
e. Transportation fringe benefits with a cash option
f. Athletic facilities
e. Meals and lodging

Answer 78

f. Athletic facilities

Question 79

Retirement 9–8, 9: Non cash Fringe Benefits

Furnished infrequently to the employee for the
employer’s convenience. May discriminate.

a. No-additional-cost services
b. Qualified employee discounts
c. De minimis fringe benefits
d. Working condition fringe benefits
e. Transportation fringe benefits with a cash option
f. Athletic facilities
e. Meals and lodging

Answer 79

e. Meals and lodging

Question 80

Retirement 9–8, 9: Non cash Fringe Benefits

Employee Benefit Tax Rules:

Premium passed through, then deducted on a personal
level (with S corps the premium is passed through, but
it is not deducted on the personal level, rather, it is
taken as a fringe benefit deduction by the S corp)

a. Health Care Premiums
b. Life Insurance Premiums
c. Life Insurance Death Benefits
d. Disability Insurance Premiums
e. Disability Insurance Benefits
f. Fringe Benefits

Answer 80

a. Health Care Premiums

Question 81

Retirement 9–8, 9: Non cash Fringe Benefits

Employee Benefit Tax Rules:

Group term: $50,000 tax-free benefit not available

a. Health Care Premiums
b. Life Insurance Premiums
c. Life Insurance Death Benefits
d. Disability Insurance Premiums
e. Disability Insurance Benefits
f. Fringe Benefits

Answer 81

b. Life Insurance Premiums

Question 82

Retirement 9–8, 9: Non cash Fringe Benefits

Employee Benefit Tax Rules:

Tax free in most cases

a. Health Care Premiums
b. Life Insurance Premiums
c. Life Insurance Death Benefits
d. Disability Insurance Premiums
e. Disability Insurance Benefits
f. Fringe Benefits

Answer 82

c. Life Insurance Death Benefits

Question 83

Retirement 9–8, 9: Non cash Fringe Benefits

Employee Benefit Tax Rules:

Not deductible

a. Health Care Premiums
b. Life Insurance Premiums
c. Life Insurance Death Benefits
d. Disability Insurance Premiums
e. Disability Insurance Benefits
f. Fringe Benefits

Answer 83

d. Disability Insurance Premiums

Question 84

Retirement 9–8, 9: Non cash Fringe Benefits

Employee Benefit Tax Rules:

Not taxable

a. Health Care Premiums
b. Life Insurance Premiums
c. Life Insurance Death Benefits
d. Disability Insurance Premiums
e. Disability Insurance Benefits
f. Fringe Benefits

Answer 84

e. Disability Insurance Benefits

Question 85

Retirement 9–8, 9: Non cash Fringe Benefits

Employee Benefit Tax Rules:

No tax benefits

a. Health Care Premiums
b. Life Insurance Premiums
c. Life Insurance Death Benefits
d. Disability Insurance Premiums
e. Disability Insurance Benefits
f. Fringe Benefits

Answer 85

f. Fringe Benefits

Question 86

(LO 9-1) Module Exam

Question 1 of 30

Which of the following describe a characteristic of group term life insurance coverage?

I. it provides payment of face amount to designated beneficiary at death of insured
II. it is low cost, simple to administer, and tax advantaged
III. it is seldom used because of unfavorable tax treatment
IV. it consists of individual contracts, not a master group policy

I and II only

II and III only

III and IV only

I, II, and IV only

Answer 86

I and II only

Characteristics of group term life insurance include payment of a face amount to the beneficiary named at the time of death of the insured and low cost, simple administration, and tax advantages.

Question 87

(LO 9-1) Module Exam

Question 2 of 30

Employer-provided group term life insurance coverage is considered to be a welfare benefit plan as defined by ERISA. Which ERISA requirement(s) must these plans meet?

reporting and disclosure requirements

the vesting requirement

the funding requirement

plan termination insurance provisions

Answer 87

reporting and disclosure requirements

As a welfare benefit plan, group life insurance coverage must comply with ERISA reporting, disclosure, and fiduciary responsibility requirements.

Question 88

(LO 9-1) Module Exam

Question 3 of 30

Which one of the following criteria must be met by a group life insurance plan to meet the nondiscrimination test?

At least 66% of all employees benefit from the plan.

At least 70% of participants are not key employees.

The plan benefits a nondiscriminatory class of employees.

Answer 88

The plan benefits a nondiscriminatory class of employees.

The plan will meet the test if it benefits a nondiscriminatory class of employees.

Question 89

(LO 9-3) Module Exam

Question 4 of 30

Joseph Scarpelli is an employee of Cabinet Masters, Inc., a publicly held corporation. Joseph’s salary is $35,000 per year. Cabinet Masters is considering the adoption of a group term life insurance plan on its 5,000 employees, whereby each will be offered life insurance in an amount equal to twice his or her current salary. The premiums will be paid by Cabinet Masters. Joseph, a single individual, wants to name the American Cancer Society, a charitable organization, as beneficiary of his group life proceeds. Which of the following identifies the income tax implications of the cost of this group term life insurance coverage for Joseph?

The cost of $20,000 of the coverage will be taxable income.

With this beneficiary arrangement, Joseph will not have any tax consequences.

The Table 2001 rate will be used to calculate the taxable income.

Answer 89

With this beneficiary arrangement, Joseph will not have any tax consequences.

There are no tax implications because the beneficiary is a charity.

Question 90

(LO 9-2) Module Exam

Question 5 of 30

A policy includes permanent benefits if it provides an economic value extending beyond one policy year. Which of the following identifies a provision usually included in a group term life insurance policy that is not considered a permanent benefit?

the right to convert after group coverage terminates

a feature under which term life is provided at level premiums for no longer than 10 years

a cash surrender value available at the time of termination

Answer 90

the right to convert after group coverage terminates

A group term policy can include the conversion option without creating what is considered a permanent benefit.

Question 91

(LO 9-4) Module Exam

Question 6 of 30

Which of the following describes benefits that can be included in a cafeteria plan?

commuter benefits

ESOP

401(k)

employee discounts

Answer 91

401(k)

401(k) plans and employer matching can be included in a cafeteria plan.

Question 92

(LO 9-5) Module Exam

Question 7 of 30

Which of the following describes a characteristic of a self-funded plan?

the insurance company assumes the risk and administrative burden

the employer pays the premium, communicates information regarding coverage, and collects any employee contributions

medical and short-term disability insurance are less common in self-funded plans

life and long-term disability insurance are less common in self-funded plans

Answer 92

life and long-term disability insurance are less common in self-funded plans

It is uncommon for life or long-term disability plans to be self-funded plans.

Question 93

(LO 9-5) Module Exam

Question 8 of 30

If a self-funded plan is discriminatory, which of the following statements describes the income tax consequences?

If highly compensated employees receive excess benefit, the excess benefit amount is includible in highly compensated employees’ income.

Benefits received by nonhighly compensated employees generally are considered taxable income based upon Table 2001 rates.

If the plan is discriminatory, the employer is not allowed any tax deduction for payment of benefits.

Answer 93

If highly compensated employees receive excess benefit, the excess benefit amount is includible in highly compensated employees’ income.

The excess benefit received by highly compensated employees would be treated as taxable income.

Question 94

(LO 9-5) Module Exam

Question 9 of 30

Which of the following statements describes the tax implications of disability insurance.

If premiums are paid 100% by the employer, benefits are not considered taxable income to the employee as long as the employee qualifies under the Social Security definition of disability.

If the employee pays 100% of the premiums, benefits paid to the employee are not considered taxable income.

If the employer purchases disability coverage on a key employee and benefits are payable to the employer, the employer can deduct the expense of premium payments, but benefits are taxable income.

Answer 94

If the employee pays 100% of the premiums, benefits paid to the employee are not considered taxable income.

Benefits are not taxable if the employee pays the full premium.

Question 95

(LO 9-5) Module Exam

Question 10 of 30

Which of the following statements describes a provision of HIPAA regarding long-term care insurance?

Premiums are deductible for individuals as long as the premiums do not exceed 10% of the individual’s AGI.

Employer-paid premiums are treated as income for the employee, but the benefits may be tax free.

An employer can deduct as a business expense premiums paid for long-term care insurance for employees.

Answer 95

An employer can deduct as a business expense premiums paid for long-term care insurance for employees.

Premiums paid by the employer can be deducted as a business expense by the employer.

Question 96

(LO 9-5) Question 11 of 30

With the medical insurance used with an HSA, the approximate out-of-pocket maximum cannot exceed ___________ for an individual.

$1,300

$2,600

$6,550

$31,100

Answer 96

$6,550

$6,550 is the approximate limit on out-of-pocket expenses for an individual’s health plan used with an HSA.

Question 97

(LO 9-6) Module Exam

Question 12 of 30

Jerry Johnson is a partner in the firm of Johnson & Novak, CPAs. The firm recently purchased disability insurance coverage on Jerry and will make premium payments on the policy from business funds. Johnson & Novak is named beneficiary on any income benefits payable in the event of Jerry’s disability. Which of the following statements identifies the income tax implications for Johnson & Novak of this business use of health insurance?

The premiums for key man disability insurance are deductible, as the firm is the beneficiary; the proceeds are excludible.

The premiums for key man disability insurance are not deductible, as the firm is the beneficiary; the proceeds are taxable to the firm.

The premiums for key man disability insurance are not deductible, as the firm is the beneficiary; the proceeds are excludible.

Answer 97

The premiums for key man disability insurance are not deductible, as the firm is the beneficiary; the proceeds are excludible.

Premiums are not deductible, but the proceeds would not create taxable income for the firm.

Question 98

(LO 9-6) Module Exam

Question 13 of 30

Kevin and Cathy Ashley paid and deducted $5,000 in medical expenses last year. They received a reimbursement check from Kevin’s company health insurance plan in May of this year in the amount of $4,500. Which of the following statements describes the tax implications?

If Kevin and Cathy deducted the allowable portion of the $5,000 last year, the reimbursement received this year would be includible in their taxable income for this year.

There are no tax implications; Kevin and Cathy simply deduct the $4,500 from any medical expense deduction for this year.

The $4,500 will qualify as capital gains in for this year.

Answer 98

If Kevin and Cathy deducted the allowable portion of the $5,000 last year, the reimbursement received this year would be includible in their taxable income for this year.

If the expense was deducted in the prior year, the current year reimbursement is includible in taxable income for the current year to the extent of the deduction taken.

Question 99

(LO 9-7) Module Exam

Question 14 of 30

Which of the following types of employers are exempt from COBRA?

I. government
II. church
III. employers with fewer than 50 employees

I only

II only

I and II only

I, II, and III

Answer 99

I and II only

Governments and church employers are exempt from COBRA.

Question 100

(LO 9-7) Module Exam

Question 15 of 30

Which of the following events are considered as qualifying under COBRA?

I. involuntary termination of an employee due to gross misconduct

II. any voluntary termination or a change from fulltime to part-time status

III. dependent’s loss of dependent status

IV. employee’s death or divorce

I and II only

II and III only

II, III, and IV only

I, II, III, and IV

Answer 100

II, III, and IV only

All three events are qualifying.

Question 101

(LO 9-7) Module Exam

Question 16 of 30

Which of the following statements describes how the Affordable Care Act (ACA) limits the definition of preexisting conditions?

Preexisting conditions can be defined only as conditions treated within 12 months prior to the effective date.

Except for late enrollees, the limitation applicable to preexisting conditions can be only for six months following the date of enrollment.

Limitations no longer can be applied to preexisting conditions.

Answer 101

Limitations no longer can be applied to preexisting conditions.

Question 102

(LO 9-7) Module Exam

Question 17 of 30

Which of the following statements is correct?

HIPAA stipulates that benefits paid from qualified long-term care plans are not taxable income up to $330 per day.

HIPAA allows any withdrawals from an IRA account to not be subject to the 10% early withdrawal penalty.

HIPAA allows for any premiums paid on a qualified long-term care policy to be deductible.

Answer 102

HIPAA stipulates that benefits paid from qualified long-term care plans are not taxable income up to $330 per day.

Question 103

(LO 9-8) Module Exam

Question 18 of 30

Which of the following benefits would not create taxable income for employees, assuming that the plans are nondiscriminatory?

I. country club dues paid by the employer
II. de minimis fringe benefits
III. qualified employee discounts
IV. business use of an employer-owned automobile

I and II only

II and III only

II, III, and IV only

I, II, III, and IV

Answer 103

II, III, and IV only

These three benefits are excludible.

Question 104

(LO 9-10) Module Exam

Question 19 of 30

Which of the following is not a class of benefits payable under workers’ compensation coverage?

total temporary disability

partial temporary disability

partial permanent disability

legal expenses

Answer 104

legal expenses

Legal expenses are not included under benefits paid under workers’ compensation.

Question 105

(LO 9-10) Module Exam

Question 20 of 30

Unemployment benefits generally are payable for ____ weeks.

13

26

39

Answer 105

26

In most states, unemployment benefits are payable up to 26 weeks.

Question 106

(LO 9-1) Module Exam

Question 21 of 30

Which one of the following statements best describes a characteristic of group life insurance?

The amount of coverage is usually a flat amount for each participant to avoid having the plan be discriminatory.

Group life insurance coverage usually is based on a percentage (or multiple) of compensation.

Group life insurance coverage usually is based upon years of service.

Answer 106

Group life insurance coverage usually is based on a percentage (or multiple) of compensation.

Group life insurance coverage usually is based on a percentage (or multiple) of compensation, thus reflecting the value of the employee to the organization and keeping pace with cost-of-living increases.

Question 107

(LO 9-2) Module Exam

Question 22 of 30

If a retired lives reserve is set up,

the fund must be used exclusively for premiums covering active or retired employees.

employer contributions are generally taxable to the participants.

the reserve account is a cash value account that the employee has access to.

Answer 107

the fund must be used exclusively for premiums covering active or retired employees.

Deposits into the fund must not exceed the cost of insurance on the covered employees, and the employer cannot have rights to assets in the fund until the last employee covered under the plan has died.

Question 108

(LO 9-1) Module Exam

Question 23 of 30

Most group life insurance plans sponsored by an employer

are subject to the participation and vesting requirements of the Employee Retirement Income Security Act of 1974 (ERISA).

are required to meet ERISA’s reporting, disclosure, and fiduciary responsibility provisions.

including church and government employers, are subject to the ERISA plan termination insurance provisions.

Answer 108

are required to meet ERISA’s reporting, disclosure, and fiduciary responsibility provisions.

Generally, welfare benefit plans are required to meet ERISA’s reporting, disclosure, and fiduciary responsibility provisions but are exempt from the participation, vesting, funding, and plan termination provisions. (Church, government, and unfunded excess benefit plans are generally exempt from ERISA.)

Question 109

(LO 9-1) Module Exam

Question 24 of 30

For a group life insurance plan to not be considered discriminatory,

benefits would have to be the same for key and non-key employees.

the same formula for coverage amounts must be applied to all employees.

it must pass either the ratio percentage test or the average benefits test.

Answer 109

the same formula for coverage amounts must be applied to all employees.

Uniformity of benefit amounts does not mean that all employees must receive the same dollar amount of coverage—only that the same formula for coverage amounts must be applied to all employees. Thus, all benefits available to key employees must be available to all participants, using a uniform formula.

Question 110

(LO 9-2) Module Exam

Question 25 of 30

Ralph’s employer provides group life insurance equal to three times Ralph’s salary of $30,000. The policy is a group term plan, and the employer pays 100% of the premium. Which one of the following statements best describes the tax implications of Ralph’s coverage?

Since it is group term, Ralph is not subject to any federal income tax on this benefit.

The cost of employer-provided coverage in excess of the $50,000 face amount is taxable to the employee.

Ralph’s employer would not be able to deduct the cost of coverage in excess of the $50,000 face amount.

Answer 110

The cost of employer-provided coverage in excess of the $50,000 face amount is taxable to the employee.

The cost of employer-provided coverage in excess of the $50,000 face amount is taxable to the employee, based upon what is referred to as “Table I” cost per $1,000 of coverage each month.

Question 111

(LO 9-4) Question 26 of 30

Which one of the following statements best describes a characteristic of a cafeteria plan?

Through a cafeteria plan, highly compensated employees can receive, on a tax-free basis, benefits not provided to non-key employees.

Cafeteria plans provide a method of choosing from among several welfare benefit plans (with benefits not providing for retirement) sponsored by the employer.

Cafeteria plans typically apply to employee dollars that are redirected for the tax-free purchase of benefits such as unreimbursed health expenses, child care, or various additional health insurance plans available through the employer and desired by the employee.

Answer 111

Cafeteria plans provide a method of choosing from among several welfare benefit plans (with benefits not providing for retirement) sponsored by the employer.

Cafeteria plans provide a method of choosing from among several welfare benefit plans (with benefits not providing for retirement) sponsored by the employer in order to optimize the use of company-provided benefits through allowing the employee to select only those benefits that fit the employee’s need.

Question 112

(LO 9-5) Module Exam

Question 27 of 30

Which one of the following statements is the best characteristic of a self-funded insurance plan?

A self-funded plan is generally more appropriate for a large employer that has an established claims history.

Life insurance and long-term disability benefits are common components of self-funded plans because of their relative predictability.

Medical and short-term disability benefits are less often self-funded because of the potential risk of extraordinary claims.

Answer 112

A self-funded plan is generally more appropriate for a large employer that has an established claims history.

Although health insurance claims may be predictable, there still may be exceptions. Since claims generally are paid directly by the employer from current cash flow, the employer has to be prepared to sustain the potential risk of extraordinary claims.

Question 113

(LO 9-4) Question 28 of 30

VEBAs

can be used to fund a retirement plan in addition to providing life or health coverage.

may not offer retirement benefits.

may offer commuting benefits, or miscellaneous fringe benefits.

Answer 113

may not offer retirement benefits.

VEBAs may not offer retirement benefits, commuting benefits, or miscellaneous fringe benefits.

Question 114

(LO 9-5) Module Exam

Question 29 of 30

Through its benefit structure,

a PPO gives participants incentives to see network providers.

a PPO uses the “prepaid approach” of health care to restrain the increasing cost of health care.

Employees must choose doctors or other health care providers from members of the PPO network; these providers often are salaried employees of the PPO.

Answer 114

a PPO gives participants incentives to see network providers.

Under a PPO, a participant who sees a network physician may have a copayment of $10, while a participant who sees a provider outside of the network may have to pay a deductible and 20% of the cost.

Question 115

(LO 9-5) Module Exam

Question 30 of 30

Long-term disability benefits range from

50% to 60% of compensation and generally continue until a disabled worker for 5 years.

50% to 70% of compensation and generally continue until a disabled worker reaches age 65.

70% to 100% of compensation and generally continue until a disabled worker reaches Social Security full retirement age.

Answer 115

50% to 70% of compensation and generally continue until a disabled worker reaches age 65.

Benefits under a long-term disability plan frequently run until the disabled person reaches age 65 and provide a benefit of 50% to 70% of compensation prior to the disability.