AWMA Module 6 Quiz Executive Benefits
Planning for High Net Worth Clients
Which one of the following accurately represents the general tax consequences to an employer and
employee under a nonqualified plan?
A) An employer does not receive a deduction for a contribution to an employee until the employee
recognizes the income upon receipt.
B) An employer receives a deduction for a contribution to an employee when paid, and the employee
will not be taxed on the contribution until it is withdrawn.
C) An employer receives an immediate deduction for a contribution when made, and the employee will
recognize income when the amount credited to his or her account is nonforfeitable.
D) An employer receives a deduction when asset investments are made to informally fund an employee's
nonqualified plan benefit and the employee recognizes an identical amount as income at the same time.
- correct answer ✔✔A)
An employer receives a deduction for a contribution when an employee recognizes the income, and not
before that.
Which one of the following statements regarding a qualified plan is correct?
A) The employer's deduction is available in the year that a contribution is made.
B) Certain plans are partially exempt from ERISA requirements.
C) The plan may discriminate.
D) Distributions from pension plans are taxed at capital gains rates if contributions have been in the plan
for more than 12 months. - correct answer ✔✔A)
With a qualified plan, the employer may deduct plan contributions in the year that those contributions
are made.
Which statement is true with regard to a rabbi trust?
A) The employer is taxed on taxable earnings in the plan as they accumulate.
, B) The trust assets may be available for general use by the employer.
C) Rabbi trust assets are excluded from general creditors in bankruptcy proceedings.
D) Distributions from a rabbi trust can be rolled over to an IRA. - correct answer ✔✔A)
In a rabbi trust, as plan earnings accumulate they are taxed to the employer.
Tax deferral in an unfunded plan
A) depends on whether an executive's right to compensation is subject to a substantial risk of forfeiture.
B) may be achieved if plan assets are subject to company creditors.
C) may be achieved even if an executive's compensation is subject to constructive receipt.
D) may be achieved if the deferral is agreed upon at any time prior to the compensation being paid. -
correct answer ✔✔B)
The employer's promise must be merely a naked promise and must not be secured in any fashion.
A funded deferred compensation plan
A) will be taxable to an employee if nonforfeitable.
B) does not avoid current income taxation.
C) will provide an immediate deduction to an employer.
D) must be made available to all employees. - correct answer ✔✔A)
If the employee has constructive receipt of plan compensation (funds are nonforfeitable), such
compensation will be taxable to the employee.
Which of the following is frequently used to informally fund a deferred compensation plan?
A) Corporate-owned mutual funds
B) Corporate-owned cash value life insurance
C) Corporate-owned term life insurance
D) None of these are used as a means of informal funding - correct answer ✔✔B)
Planning for High Net Worth Clients
Which one of the following accurately represents the general tax consequences to an employer and
employee under a nonqualified plan?
A) An employer does not receive a deduction for a contribution to an employee until the employee
recognizes the income upon receipt.
B) An employer receives a deduction for a contribution to an employee when paid, and the employee
will not be taxed on the contribution until it is withdrawn.
C) An employer receives an immediate deduction for a contribution when made, and the employee will
recognize income when the amount credited to his or her account is nonforfeitable.
D) An employer receives a deduction when asset investments are made to informally fund an employee's
nonqualified plan benefit and the employee recognizes an identical amount as income at the same time.
- correct answer ✔✔A)
An employer receives a deduction for a contribution when an employee recognizes the income, and not
before that.
Which one of the following statements regarding a qualified plan is correct?
A) The employer's deduction is available in the year that a contribution is made.
B) Certain plans are partially exempt from ERISA requirements.
C) The plan may discriminate.
D) Distributions from pension plans are taxed at capital gains rates if contributions have been in the plan
for more than 12 months. - correct answer ✔✔A)
With a qualified plan, the employer may deduct plan contributions in the year that those contributions
are made.
Which statement is true with regard to a rabbi trust?
A) The employer is taxed on taxable earnings in the plan as they accumulate.
, B) The trust assets may be available for general use by the employer.
C) Rabbi trust assets are excluded from general creditors in bankruptcy proceedings.
D) Distributions from a rabbi trust can be rolled over to an IRA. - correct answer ✔✔A)
In a rabbi trust, as plan earnings accumulate they are taxed to the employer.
Tax deferral in an unfunded plan
A) depends on whether an executive's right to compensation is subject to a substantial risk of forfeiture.
B) may be achieved if plan assets are subject to company creditors.
C) may be achieved even if an executive's compensation is subject to constructive receipt.
D) may be achieved if the deferral is agreed upon at any time prior to the compensation being paid. -
correct answer ✔✔B)
The employer's promise must be merely a naked promise and must not be secured in any fashion.
A funded deferred compensation plan
A) will be taxable to an employee if nonforfeitable.
B) does not avoid current income taxation.
C) will provide an immediate deduction to an employer.
D) must be made available to all employees. - correct answer ✔✔A)
If the employee has constructive receipt of plan compensation (funds are nonforfeitable), such
compensation will be taxable to the employee.
Which of the following is frequently used to informally fund a deferred compensation plan?
A) Corporate-owned mutual funds
B) Corporate-owned cash value life insurance
C) Corporate-owned term life insurance
D) None of these are used as a means of informal funding - correct answer ✔✔B)
