TOOLS & TECHNIQUES OF EMPLOYEE BENEFIT AND RETIREMENT PLANNING
11th Edition
College Course Materials
Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®
Associate Professor
CFP® Program Director
Personal Financial Planning Department
University of Missouri-Columbia
Please Note: Correct answers for each question are indicated in bold type. After each question,
the number of the page containing information relevant to answering the question is given. When
a calculation is necessary or the reasoning behind a given answer may be unclear, a brief
rationale for the correct answer is also given.
Part B: Employee Benefit Planning
Overview
Chapter 28: The Process of Employee Benefit Planning
True/False
28.1
Employee benefits have primarily been designed to give an employer a way to reduce tax
liability.
28.2
In qualified retirement plans, employers get a tax deduction when an employee retires and
draws down their company retirement funds.
28.3
As part of the employee benefit process, a schedule should be established for reviewing
and monitoring plan effectiveness.
Answers:
28.1 false [p. 257]
28.2 false [p. 257]
28.3 true [p. 260]
Multiple Choice
28.4
Employee benefits with substantial tax benefits include which of the following?
a.
b.
c.
d.
e.
dependent case assistance plans
incentive stock options
group health insurance
all of the above
only b and c
Answer: D [p. 257]
28.5
Objectives that employers have for benefit plans include
a.
b.
c.
d.
e.
28.6
maximizing benefits for shareholder-employees
matching benefit levels of local competitors
minimizing costs
all of the above
only b and c
Answer: D [pp. 258 - 259]
The employer must prepare a summary plan description (SPD) to meet ERISA
requirements. The employer can also use a SPD to
a. be sure the company is minimizing plan costs
b. communicate company actions to non-employee shareholders of an incorporated
business
c. show employee full value of their benefit plan
d. a and c
e. b and c
Answer: C [p. 259 - 260]
Application
28.7
Tod Gristham, owner of Gristham Enterprises, wants to implement one retirement plan that
will reduce turnover to about 2% a year, will favor key employees, help forestall unionizing
among his rank and file workers and hold costs down to between 1 to 2 percent of
company net profit. When you meet with Tod, which step of the employee benefit planning
process is most important to cover with Tod?
a.
b.
c.
d.
e.
meet the client and gather data
formulate a new overall employee compensation plan
analyze existing plans to identify weaknesses and needs for revision
develop a program for periodic review of the plan’s effectiveness
identify the employer’s objectives; quantify and prioritize them
Answer: E [p.258-259]
28.8
The owner of Appleton Manufacturing has provided employees with a health care program
that limits their out-of-pocket costs to an annual $500 deductible, a 10% match to the
company’s 401(k) plan, and a flexible spending account. During the past few years,
employees have become increasingly vocal about what they consider to be low pay.
Which of the following steps in the employee benefit planning process has the owner of
Appleton neglected?
a.
b.
c.
d.
e.
identify the employee’s objectives; quantify and prioritize them
communicate the plan effectively
formulate a new overall employee pension plan
analyze existing plans to identify weaknesses and needs for revision
develop a program for periodic review of the plan’s effectiveness
Answer: B [p. 259 - 260]
28.9
Morgan Bank and Trust Company wants to install executive benefit planning for the bank
owners and five top executives that will be more extensive and generous than the
employee benefits offered to the tellers and mid-level managers. The financial planner
working with Morgan will need information about the executive’s individual financial and
estate planning situations and needs.
a. true
b. false
Answer: A [p. 258]
28.10 Seven years ago, Alten Tool and Die installed a profit share plan and a managed care
plan. Three years ago, the director of Alten retired. The new director was an outside hire
who changed several aspects of business organization, but left the existing benefit
program in place. During the past five years, tensions among union and nonunion workers
resulted in about 10% turnover in the workforce. The current set of workers is about 3
years younger, on average, than the previous set of workers. Which step in the employee
benefit planning process has the director of Alten neglected?
a.
b.
c.
d.
e.
identify the employer’s objectives; qualify and prioritize them
formulate a new overall employee compensation plan
gather data
communicate the existing plan effectively
develop and implement a program for regular, periodic plan review
Answer: E [p. 294]