A Health Reimbursement Arrangement cannot

-be a substitute for health insurance.

-be a supplement to cover medical expenses not covered under a company health plan.

-pay medical benefits in excess of limits in a company health plan.

-provide extra benefits exclusively for a business owner and key employees.

-cover dental expenses.

-provide extra benefits exclusively for a business owner and key employees.

Question 2 2 / 2 pts Which of the following employers can offer a Section 457 plan?

-a public school.

-a tax-exempt organization.

-a church or synagogue.

-a and b.

-b and c.

-a and b.

Question 3 2 / 2 pts Plan loans are allowed in a SEP.

True

False

False

Question 4 2 / 2 pts Arthur works as a janitor for the Municipal School district weekday evenings and part-time for the Municipal Power Plant on weekends. He earns $25,000 from the school district and $10,000 from the power plant each year. Both employers have a Section 457 plan. Which of the following is true?

-Arthur can contribute the maximum allowed by law to both plans.

-Arthur's total contribution to both plans must be at or below plan limits set by Congress for the year that the contribution was made.

-Arthur can only contribute to one of the plans up to the maximum allowed by law.

-according to federal law, Arthur cannot contribute to the Section 457 plan at the Municipal Power Plant because he is a part-time employee.

-none of the above.

-Arthur's total contribution to both plans must be at or below plan limits set by Congress for the year that the contribution was made.

Question 5 2 / 2 pts Maria Valquez is a public school teacher. Her employer provides a tax deferred annuity (TDA). She began working for this employer 4 years ago and started her TDA at that time. Over those 4 years, she has contributed $1,000, $2,500, $3,000, $3,000 to her TDA through salary reduction. Her employer matches $1 for $1 up to $100 and offers graded vesting at the rate required by law for TDA accounts. Currently, Maria's vested interest in the plan is

-$9,500.

-$9,580.

-$9,660.

-$9,740.

-$9,900.

-$9,740.

Question 6 2 / 2 pts Makework Corp. has an unfunded nonqualified deferred compensation plan. Employees covered under the plan can defer taxes on plan contributions if plan funds are -available to company creditors. -subject to substantial risk of forfeiture. -placed in a designated trust. -a and b. -b and c.

-a and b.

Question 7 2 / 2 pts Which of the following statements about a tax deferred annuity plan is (are) true?

-an employer can contribute to an employees account.

-tax deferred annuity plans are relatively inexpensive and simple to administer.

-employers bear the investment risk under the plan.

-a and b.

-b and c.

-an employer can contribute to an employees account.

Question 8 2 / 2 pts For a self-employed individual, "earned income" takes the place of "compensation" in applying the qualified plan rules.

-True

-False

-true

Question 9 0 / 2 pts Which of the following is not true about a SIMPLE IRA? -an employer may deduct contributions (both employee salary reductions and employer matching contributions) if certain requirements are met.

-if the employer maintains a SIMPLE IRA, it may not maintain a qualified plan for that year.

-employer contributions are not subject to FICA or FUTA taxes.

-certain lower-income taxpayers may claim a temporary, nonrefundable credit for elective deferrals to SIMPLE IRAs.

-an employee covered under a SIMPLE IRA would be considered an active participant whether or not salary reductions or employer contributions were allocated to his/her account during the year.

-an employee covered under a SIMPLE IRA would be considered an active participant whether or not salary reductions or employer contributions were allocated to his/her account during the year.

Question 10 2 / 2 pts The owner of Sierra Sporting Goods encourages her employees to stay healthy. An employee benefit is an annual membership to the local athletic club. Every year, the store sponsors a mini-triathlon for area sports enthusiasts and awards a $100 bonus to each employee who participates and finishes the mini-triathlon and a $250 bonus to any employee who places in the top three on any race in the mini-triathlon. The health care management tool(s) that Sierra's owner is using is (are)

-peer review.

-lifestyle management.

-cost sharing.

-a and b.

-b and c.

-lifestyle management.

Question 11 2 / 2 pts Anchor Hardware Store has a SEP and a qualified profit sharing plan. When Anchor Hardware makes a contribution to the SEP, contributions to the qualified profit share plan are not affected.

-true.

-false.

-false.

Question 12 2 / 2 pts All of the following organizations can adopt a TDA plan, except -an organization operated exclusively for religious purposes. -a political organization that is formed to influence legislation.

-an organization that promotes prevention of cruelty to animals.

-a charitable organization.

-an organization that fosters a national amateur sport competition.

a political organization that is formed to influence legislation.

Question 13 2 / 2 pts Bob Jolly is seventy-three this year. He has been a key employee of Appleton Bookkeeping Services since he joined the company fifty years ago. The owner of Appleton would love it if Bob stayed on indefinitely. Bob is in excellent health and has developed a wide clientele that enjoys his wit and charm as well as his broad experience and expertise. Bob says he'll retire at seventy-five "while he still has some time to enjoy retirement." Appleton Bookkeeping established SIMPLE IRAs for employees five years ago. Which of the following is (are) true for Bob?

-Bob can make a deductible contribution to his own traditional IRA.

-Appleton cannot make a matching contribution to Bob's SIMPLE IRA because he is over 72.

-Appleton can make a salary reduction contribution to Bob's SIMPLE IRA.

-a and b.

-a and c.

-Appleton can make a salary reduction contribution to Bob's SIMPLE IRA

Question 14 2 / 2 pts The owner of Pinnacle Management Services, Inc., wants to provide health benefits for the executive staff that are over and above the benefits provided for the rank-and-file employees. The best way of doing this is for Pinnacle to utililize

-traditional health care insurance.

-a managed care health plan.

-a Health Reimbursement Arrangement.

-a Health Savings Account.

-prospective pricing on health care.

-a Health Reimbursement Arrangement.

Question 15 2 / 2 pts An employer cannot use a salary reduction SEP unless _____ percent or more of the employees eligible to participate elect to make SEP contributions.

-10.

-25.

-50.

-75.

50.

Question 16 2 / 2 pts Under the Affordable Care Act, all of the following are considered essential benefits, except -preventive and wellness services.

-emergency care services.

-prescription drugs.

-hearing care services and devices.

-mental health and substance abuse disorder services.

-hearing care services and devices.

Question 17 2 / 2 pts Ima Sapp is the sole proprietor of Maple Sweet, a candy business that uses Maple syrup. Maple Sweet is an unincorporated business. Based on this information, can Ima adopt a SIMPLE IRA?

-yes.

-no.

yes

Question 18 2 / 2 pts An employer must make SEP contributions every year, regardless of company performance.

-True

-False

false

Question 19 2 / 2 pts Which of the following is not a managed health care tool or technique?

-reimbursement for out-of-pocket costs.

-negotiated discounts with health care service providers.

- quality review.

-cost sharing with employees.

-lifestyle management.

reimbursement for out-of-pocket costs.

Question 20 2 / 2 pts Bill Brown, age fifty-one, is planning to retire in five years and withdraw funds from his tax deferred annuity. Bill can make this withdrawal, but he must pay a 10 percent penalty for early withdrawal.

-true.

-false.

false

Question 21 2 / 2 pts Which of the following is true about a SIMPLE IRA?

- only employee contributions can be made to a SIMPLE IRA.

- there is a 25 percent early distribution penalty for the first two years of participation.

- employee salary reduction contributions are not subject to FICA and FUTA taxes.

- an unlimited, refundable tax credit is available to SIMPLE IRA participants.

- distributions from a SIMPLE IRA are eligible for the ten-year averaging provisions available for some qualified plan distributions.

there is a 25 percent early distribution penalty for the first two years of participation.

Question 22 2 / 2 pts A SEP may not maintain Roth IRAs. -True -False

true

Question 23 2 / 2 pts A SIMPLE plan can be used by an employer that has 150 or fewer employees.

-True

-False

false

Question 24 2 / 2 pts Otis Carrington, a fifty-year-old self-employed person, was severely injured in an auto accident and is no longer able to perform the tasks of any occupation. Which of the following is true?

- funds cannot be withdrawn from Otis' Keogh until he is age 59½ or he dies.

- Otis must first apply for and receive Social Security disability before he can withdraw funds from his Keogh plan without penalty.

- until he reaches age 59½, Otis can only withdraw his original Keogh contributions without penalty.

- Otis will pay a 10 percent early withdrawal penalty on any dollars taken out of his Keogh.

- Otis can withdraw any contributions and earnings without penalty.

Otis can withdraw any contributions and earnings without penalty.

Question 25 2 / 2 pts Premiums for commercial health insurance contracts include all of the following except

- administrative expenses.

- profit for insurance provider.

- expected benefit payments.

- commissions.

- federal premium taxes.

federal premium taxes

Question 26 2 / 2 pts Mosher Gahn's employer, Ace Accounting and Bookkeeping Services, provides long-term disability insurance for employees. Ace pays 70 percent of the premium and the employee pays 30 percent. Last year, Mosher had a serious heart attack and could not work at all for nine months. Then he returned to work on a part-time basis for a couple of months before returning full time almost a year after the heart attack. Which of the following is (are) true regarding Mosher's long-term disability benefits?

-Mosher will be taxed on the entire benefit.

-Mosher will pay income tax on 30 percent of the benefits received.

-Mosher will pay income tax on 70 percent of the benefits received.

-Mosher will pay no income tax on the benefits received.

-As long as Mosher cannot work, he does not pay tax on benefits earned. Once he begins working again, however, he must pay income tax on the entire benefit received.

Mosher will pay income tax on 70 percent of the benefits received

Question 27 2 / 2 pts Arnold Nash, owner of Nash Car Sales, wants to offer his employees a health plan that allows individual contributions as well as individual salary-reduction contributions and employer contributions. He wants the plan to work in conjunction with high-deductible insurance. Nash should select a(n)

-health expenditure plan.

-HSA.

-Archer MSA.

-HRA.

-flexible spending arrangement.

HSA.

Question 28 2 / 2 pts Because of administrative costs and complexity, cafeteria plans generally are used by large employers.

-True

-False

true

Question 29 2 / 2 pts A flexible spending account can be used to pay health insurance premiums.

-True

-False

false

Question 30 2 / 2 pts Cafeteria plans must include a cash option.

-True

-False

true

Question 31 2 / 2 pts Devon McArdy, a highly paid executive, was covered under his company's Health Reimbursement Arrangement when he was hired. The rank-and-file employees, however, have to wait for three years before being covered. This year, Devon was reimbursed $10,000 for hospital and surgical expenses for care of a broken arm and shoulder after a skiing accident. In the same year, amounts reimbursed to all highly compensated employees through the company's Health Reimbursement Arrangement totaled $20,000 out of a total of $100,000 of reimbursements to all employees. Devon must report $_____ as additional taxable income.

-$10,000.

-$ 8,000.

-$ 5,000.

-$ 4,000.

-$ 2,000.

$ 2,000.

Question 32 2 / 2 pts Conservative Corp. wants to provide employees with low cost long-term disability coverage. As the company's financial advisor, you explain that integrating long-term disability coverage with ________ will accomplish that goal.

-Social Security.

-worker's compensation.

-a and b.

a and b

Question 33 2 / 2 pts By law, sick pay or short-term disability benefits must be explained to employees in a written Summary Plan Description (SPD).

-True

-False

true

Question 34 2 / 2 pts According to tax law, a Health Savings Account can only be established by an employer on behalf of an employee.

-True

-False

false

Question 35 2 / 2 pts Crocker Technologies wants to provide a sick pay plan that has more favorable benefits for its executives than for its line workers. Under ERISA, however, such an approach would be deemed discriminatory and thus disallowed.

-true.

-false.

false

Question 36 2 / 2 pts A flexible spending account is a type of cafeteria plan funded with salary reductions that an employee elects annually.

-True

-False

true

Question 37 2 / 2 pts Which of the following is true regarding HSA funding?

-IRS permission is needed to establish the fund.

-amounts not used for qualified medical expenses during a calendar year are forfeited.

-there is a cap on asset accumulation in an HSA.

-HSA funding is not subject to income tax.

-HSA funds can be withdrawn only if used for qualified medical expenses.

HSA funding is not subject to income tax.

Question 38 2 / 2 pts An FSA can include a "grace period" provision under which expenses incurred after the end of the year can be covered under the preceding year's FSA account. How long is the grace period?

-1 month.

-1½ months.

-2 months.

-2½ months.

-3 months.

-2½ months.

Question 39 2 / 2 pts Some health economists argue that offering an HSA as an alternative to traditional health insurance will eventually increase premiums for traditional health insurance because

-older employees will tend to use the HSA.

-employees that are younger and healthier will want to have coverage under a traditional plan.

-healthy, high-income employees will select the HSA, leaving relatively sicker and older employees in the traditional health plan.

-premiums of the traditional plan will go up with inflation, but HSA costs are fixed by long-term contract.

-distributions from an HSA are included in employee income and taxed, while the proceeds from traditional insurance is not, increasing demand for traditional health coverage.

-healthy, high-income employees will select the HSA, leaving relatively sicker and older employees in the traditional health plan.

Question 40 2 / 2 pts If a cafeteria plan fails to meet nondiscrimination tests, the result is that otherwise nontaxable benefits become taxable to all employees. -True -False

false

Question 41 2 / 2 pts Baldwin Tire Company wants to provide executives with long-term disability coverage that has different amounts of coverage and terms and conditions than what's provided for rank-and-file employees. If Baldwin takes this action, its long-term disability coverage plan will be deemed discriminatory and disallowed.

true.

false.

false

Question 42 2 / 2 pts Employer-provided long-term disability plans are subject to nondiscrimination rules.

True

False

false

Question 43 2 / 2 pts Walburg Pharmaceuticals is installing a cafeteria plan and is concerned about meeting nondiscrimination requirements. Walburg needs to be sure that its plan: -benefits a group of employees classified in a way that does not overly favor officers in the corporation or their dependents.

-covers all employees within three years of service.

-does not provide qualified benefits to the key employees that exceed 25

-percent of the value of benefits provided to all employees.

-all of the above.

-only a and c.

all of the above.

Question 44 2 / 2 pts Benefits from health insurance are included in employee taxable income as an in-kind benefit.

True

False

false

Question 45 2 / 2 pts Disability benefits are subject to federal income tax withholding if paid directly by employer.

True

False

true

Question 46 2 / 2 pts In the event of a severe, long-term disability, Social Security disability benefit levels are not adequate for highly paid employees to maintain their standard of living.

True

False

true

Question 47 2 / 2 pts In November of last year, Alice Cramer directed her employer to deposit $400 per month via salary reduction into a flexible spending account (FSA) to cover dependent care expenses for her two-year-old daughter, Shasta. The FSA year runs from January to December. Her husband lost his job in August of this year. Alice and her husband decide they can save money if he takes care of Shasta during the day and gets a part-time job in the evening.

-Alice must wait until November of this year to make any changes in her FSA.

-Alice's situation is not a qualifying event; income tax on all prior salary reductions for the year will be charged if Alice changes her FSA salary reduction during the benefit year.

-Alice's situation is not a qualifying event; she must treat the funds that formerly went to the salary reduction FSA as ordinary income and pay taxes accordingly.

-Alice's situation is a qualifying event; she will be assessed a penalty of 10 percent of her salary reduction if she changes her FSA salary reduction during the benefit year.

-Alice's situation is a qualifying event; she can make a change in her FSA salary reduction without penalty.

Alice's situation is a qualifying event; she can make a change in her FSA salary reduction without penalty

Question 48 2 / 2 pts Common exclusions in a long-term disability policy include which of the following?

-disability during a time the employee is not under a physician's care.

-disability caused by a self-inflicted injury.

-disability beginning before the employee is eligible for plan coverage.

-all of the above.

-only a and b.

-all of the above.

Question 49 2 / 2 pts According to tax law, individuals with preexisting conditions can be excluded from participation in a group health plan for up to eighteen months.

-True

-False

false

Question 50 2 / 2 pts Which of the following is not an advantage of HSAs?

-HSAs offer tax-saving opportunities to eligible individuals. -the amount that can be accumulated in an HSA can be considerable because there is no actual requirement that HSA account balances be used to pay medical expenses.

-a participant in an employer's qualified plan can contribute to an HSA regardless of income.

-unused funds in an HSA are not forfeited at year-end and can grow tax free.

-when it comes to the 20 percent penalty for early distributions, HSAs have more exceptions than do IRAs.

-when it comes to the 20 percent penalty for early distributions, HSAs have more exceptions than do IRAs.