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
Equity Options
Chapter 38: Restricted Stock Plan
True/False
38.1
Employers can use a restricted stock plan to reduce the chance that a savvy executive
would learn trade secrets and then go to work for a competitor.
38.2
An employer receives a tax deduction for a restricted stock plan in the year that the stock
plan is adopted.
38.3
Restricted stock arrangements often quality for exemption from registration with the
Securities and Exchange Commission.
Answers:
38.1 True [p. 299]
38.2 True [p. 299]
38.3 True[p. 303]
Multiple Choice
38.4
Advantages of a restricted stock plan include which of the following?
a. employee can defer taxation until year restricted stock becomes substantially vested
b. employer can give executive equity interest in company but withdraw it if certain
conditions are not met
c. executive has all advantages of stock ownership, but is able to defer taxation
d. all of the above
e. only a and c
Answer: D [p. 299]
38.5
An employer can use a restricted stock plan to:
a.
b.
c.
d.
e.
create a performance incentive for an executive
discourages employee from setting up a rival business
retain employees
all of the above
only a and c
Answer: D [p. 300]
38.6
Disadvantages of restricted stock plans from the view of the employer include all of the
following except:
a.
b.
c.
d.
e.
issue of new shares of restricted stock tends to dilute ownership
change in stock value may be unrelated to executive performance
S corporations must ensure restrictions do not create a second class of stocks
employer may have no control over amount or timing of tax deduction
substantial risk of forfeiture must be established for the employee to obtain favorable
tax treatment
Answer: E [p. 299-301]
Application
38.7
Hank Zetter is an executive in Marco Fashions. Marco Fashions has given Hank a
Restricted Stock Plan that states if he fails to achieve $500,000 in sales each quarter for
the next 10 years, he forfeits his claim on the stock in the plan. The IRS would view this
provision as a substantial risk of forfeiture.
a. True
b. False
Answer: A [p. 301]
38.8
Meg Tandour owns ChipSet, a computer chip manufacturing firm. Meg has built the
company from the ground up and has decided that it is now large enough to benefit from
hiring a CEO to free her to do other things. ChipSet is a closely held company. A
restricted stock plan would
a.
b.
c.
d.
e.
allow Meg to have a no-compete clause in the CEO’s contract that carried some weight
dilute company ownership
give Meg a tax deduction the year that stock is given to an employee
all of the above
only a and b
Answer: E [p. 299-300]
38.9
Sal Holbert receives restricted stock in 2009 that is deemed for tax purposes to be
substantially vested in 2009
a.
b.
c.
d.
e.
Sal pays tax in 2009
Sal’s employer gets a tax deduction in 2009
restrictions on the stock can prohibit Sal from selling the stock in 2009
all of the above
only a and b
Answer: D [p. 300]
38.10 Braxton Kelly is a highly sought after computer technician. Braxton has a restricted stock
plan with his employer that stipulates that if he goes to work for a competitor, he will forfeit
his rights under the restricted stock plan. This limitation is sufficient for the IRS to conclude
that a substantial risk for forfeiture exists for Braxton.
a. True
b. False
Answer: A [p. 301]