Compared to alternative plan investment, life insurance typically provides lower expenses and higher rates of return.
True
False
Question 2
The advantages of key employee life insurance include all of the following except:
the value of owners business investment is stabilized
instant capital is available at the death of a key employee
the premiums can be paid with after-tax dollars
there are no restrictions on how the proceeds are used
Question 3
Which of the following is one of the key advantages of using life insurance in a qualified plan?
more favorable rates of return as compared with comparable investments
lower expense and commission costs as compared with comparable investments
the ability of an employer to provide employees with retirement benefits on more favorable terms than would be available through individually purchased products
tax free recovery of all death proceeds, including cash values
Question 4
Three of the following are advantages of fully-insured pension plans (i.e., plans holding only life insurance and annuity contracts that meet certain requirements). Which statement is not an advantage of fully insured plans?
fully insured plans are exempt from the actuarial certification requirement, which reduces administrative overhead
fully insured plan cash values are not subject to income tax
fully insured plans are exempt from the minimum funding standards
fully insured plans are permitted a higher initial level of deductible plan contributions than are regular trusteed plans
Question 5
In order for a participant to avoid current taxation of his benefits under a nonqualified deferred compensation plan, he must not be deemed to have constructive receipt of income under the plan. Constructive receipt can be avoided if certain provisions are included in the design of the plan. Which one of the three following provisions will not avoid constructive receipt?
a provision requiring that compensation must be deferred before it is earned
a provision that the employer’s promise to pay benefits is completely unsecured
a provision that the ultimate payment of benefits is conditioned on passage of a specified period of time or the occurrence of an event beyond the employee’s control
a provision that permits the employee to place his benefits beyond the reach of the employer’s creditors if he suspects that the employer is in financial difficulty
The principle advantage of pension maximization is increased planning flexibility.
True
False
Question 7
Under the insurance feature of the joint & survivor annuity, the pensioner generally has no rights to:
accelerate benefit payments if a need occurs
choose an alternative or substitute beneficiary
wait to select the type of benefit to be paid
all of the above
Question 8
All of these recent changes in qualified plan pension law have made nonqualifying deferred compensation plans more attractive, except
the amount that can be paid under qualifying plans is severely restricted.
all qualified retirement plans are limited with respect to maximum compensation.
participants must become fully vested much more quickly
easier nondiscrimination rules place fewer restraints on employer’s discretion
Question 9
Which of the following is one of the advantages of a pension maximization strategy?
insurability of the participant is not an issue with a pension maximization strategy
the difference between a single life payout and a joint and survivor payout is nearly always sufficient to fund the needed purchase of life insurance
the pension maximization strategy is most cost effective if implementation of it is postponed until retirement
the life insurance policy provides more planning flexibility as compared with a joint and survivor payout
Question 10
The sale of a key employee policy to the employee following his retirement or termination will trigger the transfer for value rule.
True
False
Question 11
True
False
Question 12
Which of the following features is a characteristic of key employee life insurance?
The policy is owned by the key employee.
The key employee is taxed on the policy’s benefits.
The policy proceeds are payable to a beneficiary designated by the key employee.
The corporation pays the premiums on the policy
Question 13
Which of the following circumstances, if true, would make a nonqualified deferred compensation plan inadvisable?
the business is not likely to survive the death, disability or retirement of its key employees
the employer is a closely held corporation that must to compete with larger, publicly held employers for key personnel
the key employees of the employer are already receiving the maximum permitted benefits or contributions under the employer’s qualified plan
the employer wishes to avoid the costs and aggravation of covering most or all employees under a qualified plan
Question 14
The term “pension maximizing” refers to
using life insurance in a defined benefit plan
using employee after-tax contributions to purchase life insurance which is then held by the plan
a strategy for providing a more attractive overall benefit package for married couples by insuring the participant’s life outside the plan
using a “sub trust” to hold life insurance policies in a qualified plan
uestion 15
The life insurance products used to fund a qualified plan may provide employees with retirement benefits at more favorable terms than individual contracts.
True
False
Question 16
All of the following statements about the income taxation of an insured death benefit received by a plan participant’s beneficiary are accurate except:
the total of all P.S. 58 costs paid by the participant can be received tax free from the plan death benefit if it is paid from the same insurance contracts that gave rise to the P.S. 58 costs.
the entire death benefit received by a plan participant’s beneficiary is recovered tax free
the “pure insurance” element of an insured death benefit (i.e., the amount in excess of the cash surrender value) is income tax free to the participant’s beneficiary
the sum of all nondeductible contributions toward the plan made by the employee in a contributory plan is tax free to the participant’s beneficiary.
Question 17
Which of the following goals can be achieved by the use of key employee life insurance?
Provide adequate retirement funds to the key employee through the buildup of policy cash values.
Avoid the corporate alternative minimum tax upon the death of the key employee.
Assure shareholders of a public corporation that the price of the stock will not plummet at the death of a president or other senior executive.
By use of a policy exchange rider, permit substitution of a new key employee under the original policy without payment of income tax on the gain on the policy.
Question 18
Premiums paid by the corporation for key employee life insurance are deductible for federal income tax purposes.
True
False
Question 19
Premiums on life insurance in a qualified plan are deductible by the employer as part of its annual contribution for covered employees.
True
False
Question 20
The principal requirement in implementing a pension maximization strategy is compliance with ERISA.
True
False
