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
Life Insurance Plans
Chapter 42: Split Dollar life Insurance
True/False
42.1
The employer gets a tax deduction for the employer’s share of premium payments under a
split dollar life insurance plan.
42.2
In most types of split dollar plans, the employer’s outlay is at all times fully secured.
42.3
According to the Treasury Regulations, a split dollar life plan may only be used in an
employer-employee relationship.
Answers:
42.1 False [325]
42.2 True [p. 328]
42.3 False [p. 325]
Multiple Choice
42.4
Advantages of the collateral assignment method of split dollar life insurance policy
ownership include which of the following:
a.
b.
c.
d.
e.
more protection is given the employee
it is easier to implement using existing insurance policies owned by the employee
the employer has greater control over the policy
a and b
a and c
Answer: D [p. 329]
42.5
All of the following are disadvantages of split dollar life insurance except:
a.
b.
c.
d.
e.
the plan must remain in effect over 10 years to maximize plan benefits
the employer must pay tax on the current cost of the life insurance
new tax law makes use of split dollar life insurance unfavorable
a and b
a and c
Answer: E [p. 326]
42.6
A split dollar arrangement between employer and employee can split which of the
following?
a.
b.
c.
d.
e.
premium cost
cash value
policy ownership
all of the above
only b and c
Answer: D [pp. 326, 328
Application
42. 7
Templeton Resorts established a split-dollar life insurance plan with Terrance Everton, an
executive with the corporation. The disadvantages of this type of plan for Templeton
Resorts include all but which of the following:
a. Templeton Resorts receives no tax deduction for its share of premium payments for the
split-dollar life insurance plan
b. relatively few types of split dollar designs are possible, making it difficult to customize
the plan to meet Templeton Resorts’ specific needs
c. the plan must remain in effect for one or two decades before plan benefits are
maximized
d. if Terrance terminates employment with Templeton in the early years of the contract,
Templeton may lose money on the premium outlay
e. new tax regulations have eliminated some former benefits of split dollar life insurance
plans
Answer: B [p. 326]
42.8
Arlington Textiles, Inc. wants to establish a split dollar life plan for each of four top
executives in the company. Arlington Textiles wants to reduce the employee’s out-ofpocket cost for the arrangement and to ‘zero out’ the executive’s’ income tax cost for the
plan. Arlington Textiles should use a ______ for the premium cost split:
a. employer pay all plan
b. level premium plan
c. classic split dollar plan with a bonus for each executive equal to employee’s payment
under the split dollar plan
d. standard split dollar plan
e. offset plan with a bonus for each executive equal to employee’s payment under the
split dollar plan
Answer: E [pp. 326, 329]
42.9
Halifax Publishing, Inc. used the endorsement method to arrange policy ownership for the
three split dollar life plans established for the company executives. The advantages of this
arrangement for Halifax Publishing include all but which of the following:
a.
b.
c.
d.
Halifax Publishing has greater control over the policy
Halifax Publishing receives a tax deduction for its share of the premium payments
this type of plan is simple for Halifax Publishing to install and administer
Halifax could use an existing key employee policy on the employees rather than having
to issue a new policy
e. Halifax Publishing can avoid unfavorable consequences of having an arrangement
deemed a loan under current regulations
Answer: B [pp. 328-329]
42.10 Octagon Construction initiated a split dollar plan for O. B. Tuse by transferring an existing
corporate-owned key employee policy to a third party beneficiary. If O. B. Tuse dies
a. the policy will be deemed as ‘transferred for value’
b. the tax free nature of death benefits from the plan for Ocatgon Construction are lost
c. the tax free nature of the death benefits from the plan for O. B. Tuse’s beneficiaries is
lost
d. all of the above
e. only b and c
Answer: D [pp. 329-330]