CEBS Executive Compensation & Nonqualified Plans

Question 1

Which IRS code section governs nonqualified deferred compensation plans and imposes strict rules on deferral elections and distributions?

Accepted Answer

Section 409A

Answer

Section 401(k)

Answer

Section 457(b)

Answer

Section 125

Question 2

A Supplemental Executive Retirement Plan (SERP) is best described as:

Accepted Answer

A nonqualified plan that provides retirement benefits above qualified plan limits

Answer

A qualified defined benefit plan available to all employees

Answer

A Section 403(b) annuity for nonprofit executives

Answer

A federally insured executive savings account

Question 3

Under ERISA, a 'top-hat' plan is exempt from most ERISA requirements because it:

Accepted Answer

Covers only a select group of management or highly compensated employees

Answer

Is funded exclusively through insurance contracts

Answer

Has fewer than 25 participants

Answer

Is maintained by a tax-exempt organization

Question 4

A rabbi trust used in a nonqualified deferred compensation plan provides:

Accepted Answer

A tax-free distribution to the executive upon retirement

Answer

Protection against employer insolvency for deferred compensation assets

Answer

Security from employer creditors in the event of bankruptcy

Answer

An irrevocable set-aside of assets outside the employer's reach

Question 5

Which of the following is the primary disadvantage of a secular trust compared to a rabbi trust for nonqualified deferred compensation?

Accepted Answer

The executive is taxed on contributions when they are made to the secular trust

Answer

Assets in a secular trust are not protected from employer creditors

Answer

Secular trusts cannot hold life insurance contracts

Answer

Secular trusts are prohibited under Section 409A

Question 6

Split-dollar life insurance arrangements in the executive benefits context are primarily used to:

Accepted Answer

Share the cost and benefits of a permanent life insurance policy between employer and executive

Answer

Provide group term life insurance to all employees on a tax-free basis

Answer

Fund a qualified pension plan for highly compensated employees

Answer

Replace 401(k) matching contributions for executives

Question 7

Under the economic benefit doctrine applicable to nonqualified plans, an executive is taxed when:

Accepted Answer

The executive receives a transfer of property or an economic benefit with ascertainable value

Answer

The plan is established and employer contributions begin

Answer

The executive reaches the plan's stated retirement age

Answer

The employer deducts contributions from its taxable income