Deck 11: Nonqualified Deferred Compensation Plans for Executives

Question 1

Collateral approach is a term used to indicate employer ownership of an insurance policy. (Split-Dollar Life Insurance)

Answer 1

False

Question 2

Unfunded plans are subject to employee rights protection under ERISA. (Funding Status)

Answer 2

False

Question 3

Funded plans allocate money to trust funds or insurance companies in an executive's name. (Funding Status)

Answer 3

True

Question 4

For funded plans,executives generally pay federal income taxes when they begin to receive payments from these plans. (Funding Mechanisms and Tax Obligations)

Question 5

A stock option is a company's offering of stock to an employee. (Basic Terminology)

Question 6

Excess benefits plans can only be funded plans. (Excess Benefit Plans)

Question 7

An employee in a high policymaking role manages the overall company and directs the work of two or more people. (Mandatory Retirement Age)

Question 8

The Age Discrimination in Employment Act does not forbid employers from setting a mandatory retirement age for employees who are 65 years old. (Mandatory Retirement Age)

Question 9

Capital gains is the term used to describe the market value of stock options as listed on the NYSE. (Incentive Stock Options)

Question 10

Pension plans that do not meet all the ERISA minimum standards are known as nonqualified plans. (ERISA Qualification Criteria)

Question 11

Coverage requirements limit the freedom of employers to exclude employees from participation. (ERISA Qualification Criteria)

Question 12

The IRS uses the term "key employees" for nondiscrimination rules in employer-sponsored health insurance plans. (Who are Executives?)

Question 13

Corporate-owned life insurance can be used by employers to recover the costs of nonqualified deferred compensation. (Corporate-Owned Life Insurance)

Question 14

The IRS has no impact on nonqualified plans. (The Internal Revenue Service)

Question 15

Constructive receipt guides the timing of an executive's obligation to pay income taxes for funded nonqualified plans. (Funding Mechanisms and Tax Obligations)

Question 16

The IRS limits the annual benefit amounts for a defined benefit plans to the lesser of $185,000 in 2012. (Objectives of Nonqualified Plans)

Question 17

The endorsement approach designates the employer as owner. (Split-Dollar Life Insurance)

Question 18

Top hat plans are unfunded plans. (Supplemental Executive Retirement Plans (SERPs))

Question 19

Excess benefit plans generally have longer vesting periods than SERPs. (Supplemental Executive Retirement Plans (SERPs))

Question 20

The Sarbanes-Oxley Act of 2002 weakens the oversight of the SEC. (Securities and Exchange Commission)

Question 21

What was the IRS limit for annual earnings amount for determining qualified plan benefits in 2012? (Objectives of Nonqualified Plans)

A)$150,000
B)$175,000
C)$200,000
D)$250,000

Question 22

One of the objectives of nonqualified plans is restoration. (Objectives of Nonqualified Plans)

Question 23

Exercise of stock option refers to an employee's purchase of stock using stock options. (Basic Terminology)

Question 24

Top hat plans are exempt from which ERISA Title I regulation? (Supplemental Executive Retirement Plans (SERPs))

A)Funding
B)Reporting and disclosure
C)Continuation coverage
D)Administration and enforcement

Question 25

Which of the following ERISA Title I parts does not apply to nonqualified plans? (Supplemental Executive Retirement Plans (SERPs))

A)Funding
B)Reporting and disclosure
C)Fiduciary responsibility
D)Administration and enforcement

Question 26

Which one of the following is not an unfunded plan? (Secular Trusts)

A)General asset approach
B)Secular trusts
C)Corporate life insurance
D)Rabbi trusts

Question 27

Which of the following is not true of the endorsement approach under the split dollar insurance plan? (Split-Dollar Life Insurance)

A)Employee pays for most or the entire premium
B)Employer has the right to borrow against the cash value of the policy for business purposes
C)Executive reimburses the employer for the portion of the premium cost
D)Employer names itself as beneficiary

Question 28

Companies benefit from golden parachute payments because they can treat these payments as business expenses. (Golden Parachutes)

Question 29

Which is not a factor associated with the decision to fund a nonqualified plan? (Funding Status)

A)Competitive pressures
B)Corporate cultures
C)Liability management
D)Press coverage

Question 30

Which of the following is not a feature of excess benefits plans? (Excess Benefit Plans)

A)Extended provisions of existing qualified plans.
B)Increased retirement benefits by the amount lost due to contribution and annual addition limits set by the Internal Revenue Service
C)Funded excess benefit plans are subject to ERISA regulations
D)Unfunded excess benefit plans are subject to some ERISA regulations

Question 31

This type of executive retirement plan is unfunded and can be issued upon retirement or termination without cause,but the assets must be released to creditors if the company files for insolvency or bankruptcy. (Rabbi Trusts)

A)Employee-owned annuities
B)Secular trusts
C)Rabbi trusts
D)Corporate-owned life insurance

Question 32

Secular trusts are subject to a company's creditors in the event of bankruptcy or insolvency. (Secular Trusts)

Question 33

Stock grant refers to sale of stock by the stockholder. (Basic Terminology)

Question 34

Nonqualified retirement plans for executives are generally divided into these two broad classes. (Nonqualified Retirement Plans for Executives)

A)Top hat plans and supplemental executive retirement plans
B)Excess benefit plans and supplemental executive retirement plans
C)Offset benefit plans and supplemental executive retirement plans
D)Target benefit plans and supplemental executive retirement plans

Question 35

ERISA Title I exempts nonqualified plans from fiduciary responsibility. (Supplemental Executive Retirement Plans (SERPs))

Question 36

Sarbanes-Oxley Act of 2002 also commonly referred to as Dodd-Frank Act. (Securities and Exchange Commission)

Question 37

Which one of the following is not true about stock appreciation rights? (Stock Appreciation Rights)

A)Provide income to executives at the end of a designated period, much as with restricted stock options
B)Executives always have to exercise their stock rights to receive income
C)The company simply awards payment to executives based on the difference in stock price between the time the company granted the stock rights at fair market value to the end of the designated period, permitting the executives to keep the stock
D)Neither the employee nor employer pays taxes when stock appreciation rights are granted

Question 38

Under SERP,nonexecutive employees earn an annual retirement benefit equal to 50% of the highest average annual salary for a consecutive three-year period. (Objectives of Nonqualified Plans)

Question 39

Which of the following is not a type of stock ownership plan? (Stock and Stock Option Plans for Incentive Compensation and Retirement)

A)Incentive stock options
B)Phantom stocks
C)Restricted stocks
D)Profit sharing

Question 40

Companies use platinum parachutes to avoid legal battles or negative media publicity by paying off a CEO to give up his or her post. (Platinum Parachutes)

Question 41

Nonstatutory stock options are characterize by which one of the following features? (Nonstatutory Stock Options)

A)They qualify for favorable tax treatment
B)They are awarded at discounted prices
C)Executives do not have any ownership control over the disposition of the stock for 5 to 10 years
D)Executives pay taxes in the future when they choose to exercise their nonstatutory stock options

Question 42

Which one of the following is not a characteristic of employee owned annuities? (Employee-Owned Annuities)

A)Offers financial security
B)Third party vendors are involved
C)Employee pays the cost of the annuity
D)Not subject to ERISA provisions

Question 43

Briefly discuss the issue of mandatory retirement age with regard to nonqualified plans. (Mandatory Retirement Age)

Question 44

Who are executives? Explain. (Defining Executive Employment Status)

Question 45

Which one of the following is not a feature of corporate owned life insurance? (Corporate-Owned Life Insurance)

A)Employers use it to recover cost of qualified plans
B)Designated amount paid to designated beneficiaries of deceased
C)The goal is to purchase policies that match the amount of deferred compensation promised to executives
D)Using it does not create a funded plan

Question 46

Discount stocks are similar to which one of the following? (Discount Stock Options)

A)Incentive stock options
B)Phantom stocks
C)Nonstatutory stock options
D)Restricted stocks

Question 47

Rabbi trusts are characterized by which one of the following features? (Rabbi Trusts)

A)Is a revocable grantor trust
B)Employer maintains ownership
C)No financial lending institutions are involved
D)Are funded plans

Question 48

Discuss the main features of top hat plans. (Supplemental Executive Retirement Plans (SERPs))

Question 49

Which of the following is not one of the objectives of SERP? (Supplemental Executive Retirement Plans (SERPs))

A)Use of SERPs as a tool in executive-level succession planning
B)Rewarding substantially higher retirement benefits
C)Compensating for long-term employment
D)Compensating for older new hires

Question 50

A phantom stock option is characterized by which one of the following? (Phantom Stock Options)

A)Board of directors compensate executives
B)There are no specific conditions for converting these into shares
C)There are no tax advantages
D)Retirees' income tax is higher