USE THESE QUESTIONS FOR THE FINAL EXAM

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" colspan=2 height=90 BGCOLOR="#006699" TEXT="#080000" bgproperties="fixed" background="122285a1erlcgo.gif"> <div> <FONT SIZE="5" COLOR="#FFCC66" FACE="Arial" ><B>Non-Qualified Plans</B></FONT><B>     |     </B><A HREF="index.htm" TARGET="_top" TITLE="NonQualified Plans"><U><B>home</B></U></A><B>    |     </B><A HREF="id16.htm" TARGET="_top" TITLE="TABLE OF CONTENTS"><U>TABLE OF CONTENTS</U></A>   |   <A HREF="id17.htm" TARGET="_top" TITLE="GLOSSARY"><U>GLOSSARY</U></A>   |   <A HREF="id63.htm" TARGET="_top" TITLE="Review"><U>Review</U></A>   |   <A HREF="id18.htm" TARGET="_top" TITLE="FINAL EXAM"><U>FINAL EXAM</U></A>   |   <A HREF="id64.htm" TARGET="_top" TITLE="Print Version"><U>Print Version</U></A></div> <bR> <div> </div> </td> </tr><tr> <td valign="top" width=210 BGCOLOR="#FFCC66" TEXT="#080000" background="121d2c00dkelyh.gif"> <bR> <div> <A HREF="mailto:instructor@wallstreetinstructors.com" TARGET="_top" TITLE="mailto:instructor@wallstreetinstructors."><U><IMG SRC="130af630.gif" border=0 width="175" height="99" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></U></A></div> <bR> <div> <I><B> <TABLE BORDER="2" CELLPADDING="2" CELLSPACING="1" WIDTH="83" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 16 ><NOBR><div> <A HREF="mailto:instructor@wallstreetinstructors.com" TARGET="_top" TITLE="mailto:instructor@wallstreetinstructors."><U>Instructor</U></A></div> </NOBR></tD> </tR> </TABLE></B></I></div> <div> Copyright <FONT SIZE="2" COLOR="#000080" FACE="Arial" >©2004</FONT> Wall Street Instructors, Inc. All rights reserved. No portion of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without prior written permission of Wall Street Instructors, Inc.</div> <bR> </td> <td valign="top" height=390 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> <I>USE THESE QUESTIONS FOR THE FINAL EXAM</I></div> <bR> <div> <A HREF="id23_executive_bonus_plans.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>In which of the following nonqualified plans does an employer normally receive a tax deduction when making contributions?</U></A></div> <bR> <div> A.     Traditional split dollar plan</div> <div> B.     Salary continuation plan</div> <div> C.     True deferred compensation plan</div> <div> D.     <B>Executive bonus plan</B></div> <bR> <bR> <bR> <div> <A HREF="id21.htm" TARGET="_top" TITLE="Meeting the Needs of Businesses"><U>Which of the following is NOT a business need that could be met through a nonqualified plan?</U></A></div> <bR> <div> A.     <B>Obtaining compensation for the death of a key executive</B></div> <div> B.     Attracting key talent</div> <div> C.     Retaining key executives</div> <div> D.     Rewarding high-impact achievers</div> <bR> <bR> <bR> <div> <A HREF="id23_deferred_compensation.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>A nonqualified deferred compensation plan may be either a “true” deferral plan or a:</U></A></div> <bR> <div> A.     split dollar plan</div> <div> B.     executive bonus plan</div> <div> C.     group carve out plan</div> <div> D.     <B>salary continuation plan</B></div> <bR> <bR> <bR> <div> <A HREF="id23_deferred_compensation.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>Under the terms of a ________, the executive participant may receive a percentage of final salary for 10 or more years beyond retirement in addition to any regular pension benefit.</U></A></div> <bR> <div> A.     <B>salary continuation plan</B></div> <div> B.     executive bonus plan</div> <div> C.     split dollar plan</div> <div> D.     group carve out plan</div> <bR> <bR> <bR> <div> <A HREF="id23_deferred_compensation.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>What normally occurs in a salary continuation plan if the executive terminates his employment before retirement?</U></A></div> <bR> <div> A.     The executive receives a lump-sum distribution</div> <div> B.     <B>The executive forfeits the salary continuation benefits</B></div> <div> C.     The executive’s benefits are reduced by one-half</div> <div> D.     Nothing, salary continuation plan benefits are always fully vested</div> <bR> <bR> <bR> <bR> <div> <A HREF="id23_deferred_compensation.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>What is the principal difference between the two types of nonqualified deferred compensation plans?</U></A></div> <bR> <div> A.     Deductibility of plan contributions</div> <div> B.     <B>Whose money is used to provide the benefits</B></div> <div> C.     The executives that are covered by the plan</div> <div> D.     Cost recovery</div> <bR> <bR> <bR> <div> <A HREF="id23_split_dollar_.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>In which nonqualified plan does a party with financial resources assist in purchasing a life insurance policy for another party?</U></A></div> <bR> <div> A.     executive bonus</div> <div> B.     deferred compensation</div> <div> C.     group carve out</div> <div> D.     <B>split dollar</B></div> <bR> <bR> <bR> <div> <A HREF="id23_split_dollar_.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>Jim Wilson wanted to assist his new unemployed son-in-law to purchase a large life insurance policy.  To accomplish that, he probably would use a/an:</U></A></div> <bR> <div> A.     <B>private split dollar plan</B></div> <div> B.      employer-pay-all split dollar plan</div> <div> C.     executive bonus plan</div> <div> D.     deferred compensation plan</div> <bR> <bR> <bR> <div> <A HREF="id23_split_dollar_.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>Which of the following is NOT split in a split dollar plan?</U></A></div> <bR> <div> A.     Premiums</div> <div> B.     <B>Identity of the insured</B></div> <div> C.     Cash value</div> <div> D.     Ownership</div> <bR> <bR> <bR> <div> <A HREF="id23_split_dollar_.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>Which of the following is likely to have a significant impact on the income tax treatment given to a split dollar plan?</U></A></div> <bR> <div> A.     The amount of the death benefit</div> <div> B.     The split of premiums between the employer and employee</div> <div> C.     <B>Who owns the policy</B></div> <div> D.     Whether the third party is a trust</div> <bR> <bR> <bR> <div> <A HREF="id23_executive_bonus_plans.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>Which of the following is considered the simplest of nonqualified plans?</U></A></div> <bR> <div> A.     Split dollar plans</div> <div> B.     Deferred compensation plans</div> <div> C.     Group carve out plans</div> <div> D.     <B>Executive bonus plans</B></div> <bR> <bR> <bR> <div> <A HREF="id23_executive_bonus_plans.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>Under which of the following nonqualified plans is a life insurance policy owned by the participating executive?</U></A></div> <bR> <div> A.     <B>Executive bonus plans</B></div> <div> B.     True deferred compensation plans</div> <div> C.     Salary continuation plans</div> <div> D.     Endorsement split dollar plans</div> <bR> <bR> <bR> <div> <A HREF="id23_executive_bonus_plans.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>In a ___________ plan, an employer agrees to pay some or all of the premiums on a life insurance policy owned by an executive.</U></A></div> <bR> <div> A.     defined benefit pension</div> <div> B.     <B>executive bonus</B></div> <div> C.     salary continuation</div> <div> D.     profit sharing</div> <bR> <bR> <bR> <div> <A HREF="id23_group_carve_out_plans.htm" TARGET="_top" TITLE="Important Types of NonQualified Plans"><U>What type of life insurance plan is normally used to replace excess group term life insurance in a group carve out plan?</U></A></div> <bR> <div> A.     Term insurance</div> <div> B.     Whole life insurance</div> <div> C.     <B>Universal life insurance</B></div> <div> D.     Endowment insurance</div> <bR> <bR> <bR> <div> <A HREF="id3_management.htm" TARGET="_top" TITLE="Chapter 2"><U>What is generally considered the principal difference between successful businesses and unsuccessful ones?</U></A></div> <bR> <div> A.     Products</div> <div> B.     Capitalization</div> <div> C.     Customers</div> <div> D.     <B>Management</B></div> <bR> <bR> <bR> <div> <A HREF="id2_employer_aims.htm" TARGET="_top" TITLE="Chapter 1"><U>What determines the value of a nonqualified plan?</U></A></div> <bR> <div> A.     Its enabling the employer to recover its costs</div> <div> B.     <B>Its enabling the employer to meet its objectives in establishing the plan</B></div> <div> C.     Its ability to allow the employer to discriminate</div> <div> D.     Its ability to minimize employer benefit costs</div> <bR> <bR> <bR> <div> <A HREF="id22.htm" TARGET="_top" TITLE="Comparing NonQualified and Qualified Pla"><U>Which of the following benefits is NOT typically found in nonqualified plans?</U></A></div> <bR> <div> A.     <B>Employer tax-deductibility of plan contributions</B></div> <div> B.     The ability to tailor a plan to fit the executive’s needs</div> <div> C.     Employer cost recovery</div> <div> D.     The ability to favor one key employee </div> <bR> <bR> <bR> <div> <A HREF="id21_attracting_key_talent.htm" TARGET="_top" TITLE="Meeting the Needs of Businesses"><U>Which of the following business needs may be met through a nonqualified plan?</U></A></div> <bR> <div> A.     Humanely retiring all of a firm’s employees</div> <div> B.     <B>Attracting a key executive</B></div> <div> C.     Arranging for business succession</div> <div> D.     Funding an ESOP</div> <bR> <bR> <bR> <div> <A HREF="id21_retaining_key_executives.htm" TARGET="_top" TITLE="Meeting the Needs of Businesses"><U> Which of the following nonqualified plans is routinely referred to a “golden handcuffs”?</U></A></div> <bR> <div> A.     Split dollar plans</div> <div> B.     Executive bonus plans</div> <div> C.     <B>Salary continuation plans</B></div> <div> D.     Group carve out plans</div> <bR> <bR> <bR> <div> <A HREF="id22_cost_recovery.htm" TARGET="_top" TITLE="Comparing NonQualified and Qualified Pla"><U>Which of the following is NOT a qualified plan requirement?</U></A></div> <bR> <div> A.     Minimum coverage requirement</div> <div> B.     Non-discrimination requirement</div> <div> C.     Vesting requirement</div> <div> D.     <B>Cost recovery requirement</B></div> <bR> <bR> <div> <A HREF="id8.htm" TARGET="_top" TITLE="Typical Deferred Compensation Plan Benef"><U>All of the following benefits are frequently included in a deferred compensation plan EXCEPT:</U></A></div> <bR> <div> A.     retirement benefits</div> <div> B.     <B>medical reimbursement benefits</B></div> <div> C.     disability benefits</div> <div> D.     pre-retirement survivor benefits</div> <bR> <bR> <bR> <div> <A HREF="id8_tax___survivor_benefits.htm" TARGET="_top" TITLE="Typical Deferred Compensation Plan Benef"><U>What is the normal tax treatment of survivor benefits received under a deferred compensation plan?</U></A></div> <bR> <div> A.     Survivor benefits are always tax-free</div> <div> B.     Survivor benefits are subject to capital gain taxation</div> <div> C.     Survivor benefits are income taxable up to the policy’s cash value</div> <div> D.     <B>Survivor benefits are fully taxable as income</B></div> <bR> <bR> <bR> <bR> <div> <A HREF="id9.htm" TARGET="_top" TITLE="Deferred Compensation Plan Eligibility"><U>Which of the following organizations may NOT establish a deferred compensation plan for an executive?</U></A></div> <bR> <div> A.     A regular corporation</div> <div> B.     An S corporation</div> <div> C.     A sole proprietorship</div> <div> D.     <B>Regular corporations, S corporations and sole proprietorships may all establish deferred compensation plans for executives</B></div> <bR> <bR> <bR> <bR> <div> <A HREF="id27_substitute_for_an_ownership_stake_.htm" TARGET="_top" TITLE="Motivations for Deferred Compensation Pl"><U>All of the following would be reasons for an executive in a close corporation to prefer a deferred compensation plan rather than an ownership stake EXCEPT:</U></A></div> <bR> <div> A.     Lack of a ready market in which to sell shares</div> <div> B.     <B>Deferred compensation plans normally give participants vested interests</B></div> <div> C.     Restrictions on the right to sell shares</div> <div> D.     A desire on the part of the owners to limit ownership</div> <bR> <bR> <bR> <div> <A HREF="id29_secular_trusts_.htm" TARGET="_top" TITLE="Providing Additional Guarantees through "><U>Which of the following trusts exempts certain deferred compensation assets from being attached by an employer’s creditors?</U></A></div> <bR> <div> A.     Rabbi trust</div> <div> B.     Secular trust</div> <div> C.     Grantor retained income trust</div> <div> D.     <B>Secular trust</B></div> <bR> <bR> <bR> <div> <A HREF="id33.htm" TARGET="_top" TITLE="Traditional Split Dollar Plan Approach"><U>What portion of the annual premium in a traditional split dollar plan is paid by the employer?</U></A></div> <bR> <div> A.     The entire premium</div> <div> B.     <B>The portion of the premium that is equal to the policy’s cash value increase</B></div> <div> C.     One-half the annual premium</div> <div> D.     The portion of the premium equal to the reportable economic benefit</div> <bR> <bR> <bR> <div> <A HREF="id8.htm" TARGET="_top" TITLE="Typical Deferred Compensation Plan Benef"><U>Who or what owns the life insurance policy in a traditional split dollar plan?</U></A></div> <bR> <div> A.     The insured</div> <div> B.     A trust</div> <div> C.     <B>The employer</B></div> <div> D.     The beneficiary</div> <bR> <bR> <div> <A HREF="id35_buy_sell.htm" TARGET="_top" TITLE="Prospects for Split Dollar Plans"><U>What is the most frequent use of split dollar plans to meet business needs?</U></A></div> <bR> <div> A.     Funding a deferred compensation plan</div> <div> B.     To provide death benefits in qualified plans</div> <div> C.     To provide key person coverage</div> <div> D.     <B>To fund buy-sell agreements</B></div> <bR> <bR> <bR> <bR> <div> <A HREF="id38.htm" TARGET="_top" TITLE="Split Dollar Taxation"><U>What is the principal determinant of the tax treatment given split dollar plans?</U></A></div> <bR> <div> A.     The type of split dollar plan</div> <div> B.     The size of the death benefit</div> <div> C.     <B>The ownership of the policy</B></div> <div> D.     The age of the insured</div> <bR> <bR> <bR> <div> <A HREF="id38_employee_tax.htm" TARGET="_top" TITLE="Split Dollar Taxation"><U>If an employee owns the life insurance policy in the split dollar plan and is not required to repay the employer’s premium payments, the premium payments are:</U></A></div> <bR> <div> A.     below market loans</div> <div> B.     <B>additional compensation</B></div> <div> C.     a gift</div> <div> D.     a bequest</div> <bR> <bR> <div> <A HREF="id41.htm" TARGET="_top" TITLE="The Why and How of an Executive Bonus Pl"><U>Who normally owns the life insurance policy in an executive bonus plan?</U></A></div> <bR> <div> A.    <B> The insured</B></div> <div> B.     The employer</div> <div> C.     The beneficiary</div> <div> D.     A trust</div> <bR> <bR> <bR> <div> <A HREF="id41_the_bonus.htm" TARGET="_top" TITLE="The Why and How of an Executive Bonus Pl"><U>The executive bonus plan premium payment is _________ to the insured.</U></A></div> <bR> <div> A.     <B>taxable as ordinary income</B></div> <div> B.     tax-free</div> <div> C.     tax-deferred</div> <div> D.     taxable as a dividend</div> <bR> <bR> <bR> <div> <A HREF="id41_the_board_resolution_________.htm" TARGET="_top" TITLE="The Why and How of an Executive Bonus Pl"><U>The board resolution authorizing an executive bonus plan should accomplish all of the following EXCEPT:</U></A></div> <bR> <div> A.     identify the plan participants by name</div> <div> B.     state that the bonus is additional compensation</div> <div> C.     <B>recite the ERISA provision under which the plan will be approved</B></div> <div> D.     identify each participant as a member of a select group of corporate managers</div> <bR> <bR> <div> <A HREF="id41_the_life_insurance_sale.htm" TARGET="_top" TITLE="The Why and How of an Executive Bonus Pl"><U>In what way does universal life insurance facilitate the operation of an executive bonus plan?</U></A></div> <bR> <div> A.     Premium flexibility permits different bonus payments each year only</div> <div> B.     Universal life cash value withdrawals permit easy access to cash value only</div> <div> C.     <B>Both premium flexibility and easy cash value access</B></div> <div> D.     Neither premium flexibility nor easy cash value access</div> <bR> <bR> <bR> <div> <A HREF="id43_portable_and_flexible.htm" TARGET="_top" TITLE="Executive Bonus Plan Advantages"><U>When may the executive access the policy’s cash value in an executive bonus plan?</U></A></div> <bR> <div> A.     At retirement only</div> <div> B.     At any time permitted by the board resolution</div> <div> C.     At retirement or in the case of hardship only</div> <div> D.     <B>At any time</B></div> <bR> <bR> <bR> <div> <A HREF="id49_non_discrimination_requirement.htm" TARGET="_top" TITLE="A Group Carve Out Primer"><U>What are the consequences if a group term life insurance plan is deemed discriminatory?</U></A></div> <bR> <div> A.     The employer is fined</div> <div> B.     <B>Its tax advantages may be lost</B></div> <div> C.     The plan is disqualified</div> <div> D.     The employees are subject to tax audit</div> <bR> <bR> <bR> <bR> <div> <A HREF="id49_operation_of_the_group_carve_out_plan.htm" TARGET="_top" TITLE="A Group Carve Out Primer"><U>In a group carve out plan group term life insurance amounts in excess of ________ are replaced by individual life insurance policies.</U></A></div> <bR> <div> A.     <B>$50,000</B></div> <div> B.     $75,000</div> <div> C.     $100,000</div> <div> D.     $250,000</div> <bR> <bR> <div> <A HREF="id50_current_employer_tax_deduction.htm" TARGET="_top" TITLE="Group CarveOut Advantages"><U>The employer’s premium for group term life insurance is tax-deductible to the employer as:</U></A></div> <bR> <div> A.     additional compensation</div> <div> B.     bonus compensation</div> <div> C.     <B>an employee benefit</B></div> <div> D.     a dividend</div> <bR> <bR> <div> <A HREF="id50_current_employer_tax_deduction.htm" TARGET="_top" TITLE="Group CarveOut Advantages"><U>The employer’s premium for the individual life insurance policies issued in the group carve out plan is tax-deductible to the employer as:</U></A></div> <bR> <div> A.     <B>compensation</B></div> <div> B.     an employee benefit</div> <div> C.     a dividend</div> <div> D.     a charitable contribution</div> <bR> <bR> <div> <A HREF="id49_coverage_is_portable.htm" TARGET="_top" TITLE="A Group Carve Out Primer"><U>What happens to the $50,000 of group term life insurance in a group insurance plan with a group carve out if the executive terminates his service with the employer?</U></A></div> <bR> <div> A.     <B>The coverage terminates</B></div> <div> B.     The coverage is portable and stays with the executive</div> <div> C.     The coverage reduces by 50%</div> <div> D.     The coverage becomes fully paid-up for the executive</div> <bR> <bR> <bR> <bR> </td> </tr></table></body>