RFC Business Planning & Owner Strategies 2

Question 1

Key person life insurance purchased by a business to protect against the loss of a critical employee is owned by and payable to whom?

Accepted Answer

The business entity

Answer

The key employee and their named beneficiary

Answer

A trust established by the key employee

Answer

The key employee's surviving spouse

Question 2

In a nonqualified deferred compensation plan using a 'rabbi trust,' an executive's deferred benefits are:

Accepted Answer

Subject to claims of the employer's general creditors in bankruptcy

Answer

Fully shielded from the employer's creditors in all circumstances

Answer

Immediately taxable to the executive when contributed to the trust

Answer

Guaranteed by a federal insurance program similar to PBGC

Question 3

Under IRC Section 409A, which of the following is NOT a permissible distribution trigger for a nonqualified deferred compensation plan?

Accepted Answer

The executive's voluntary request at any time

Answer

Separation from service

Answer

Change in control of the employer

Answer

Death or disability

Question 4

Under a split-dollar life insurance arrangement, which feature makes it attractive as an executive benefit?

Accepted Answer

The employer can recover its premium outlay from the policy's cash value or death benefit

Answer

Premium costs are always tax-deductible by the employer

Answer

The employee receives current income tax-free death benefit protection with no reportable income

Answer

It qualifies as a defined benefit plan under ERISA

Question 5

An executive receives incentive stock options (ISOs). At the time of exercise, the tax consequence for regular income tax purposes is:

Accepted Answer

No regular income tax is recognized, though the spread may be an AMT preference item

Answer

Ordinary income equal to the entire spread between exercise price and FMV

Answer

Capital gains tax is triggered immediately

Answer

The employer receives a compensation deduction equal to the spread

Question 6

A 'golden parachute' payment triggers a 20% excise tax under IRC Section 4999 when it equals or exceeds what threshold?

Accepted Answer

3 times the executive's average annual compensation

Answer

1 times the executive's average annual compensation

Answer

2 times the executive's average annual compensation

Answer

5 times the executive's average annual compensation

Question 7

Which of the following best describes a Supplemental Executive Retirement Plan (SERP)?

Accepted Answer

A nonqualified promise by the employer to pay a supplemental retirement benefit, typically to selected executives

Answer

A qualified defined benefit plan subject to ERISA funding requirements

Answer

A government-sponsored retirement program for corporate executives

Answer

An IRA-based plan with higher contribution limits for high-income earners