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
Health Coverage
Chapter 49: Long-Term Care Plan
True/False
49.1
COBRA continuing coverage requirements apply to long term care plans
49.2
The employee’s share of premiums for purchase of an employer-provided long term care
plan can be paid from a cafeteria or flexible spending type of account
49.3
Subject to an age-based limitation, a self-employed person can deduct 100% of premiums
for a qualified long term care contract.
Answers:
49.1 False [p. 377]
49.2 False [p. 377]
49.3 True [p. 378]
Multiple Choice
49.4
Tax benefits for a long term care plan are
a.
b.
c.
d.
e.
premium costs deducible to the employer
premiums and benefits are nontaxable to employees within certain limits
premiums and benefits are nontaxable to beneficiaries within certain limits
all of the above
only a and b
Answer: D [p. 378]
49.5
An employer-provided long term care plan is useful
a. when the employee group is relatively older
b. because it reduces cost of obtaining coverage
c. because employee share of premium can be paid with a flexible spending account or
cafeteria plan
d. a and b
e. a and c
Answer: D [p. 377]
49.6
A long term care policy contract has the same tax treatment as an accident and health
insurance contract if
a.
b.
c.
d.
e.
the only insurance provided is qualified long term care services
refunds of premium are paid to the employee
the contract has no cash surrender value
a and b
a and c
Answer: E [p. 378]
Application
49.7
B. G. Hart, owner of Beneficial Industries, has 50 employees. His 5 top managers are in
their 50’s. Ten of his assistant manages are in their mid-to-late 40’s. Average age of his
line workers is 29. Advantages of offering long term care insurance as an employee
benefit include all but which of the following?
a. he can offer employee a tax-favored benefit that employees might not be able to afford
on their own
b. all of his employees are likely to appreciate employer assistance with long term care
c. Beneficial’s payment of the premium will not result in taxable income to employees
d. employees or their beneficiaries will receive plan benefits tax-free
e. Beneficial gets a tax deduction for making premium payments
Answer: B [p. 377]
49.8
Abigail Thompson is a self-employed business woman. At age 62, she is interested in
purchasing qualified long-term care insurance through her business. If she does so,
a.
b.
c.
d.
she cannot deduct any premiums costs but may get a lower price
she can deduct 100% of premiums regardless of cost
she can deduct 50% of premiums regardless of cost
she can deduct 100% of premiums, limited first to the 7.5 percent of adjusted gross
income floor under the tax code
e. she can deduct 100% of premiums after she reaches age 65
Answer: D [p. 378]
49.9
Maria Estaban has a flexible spending plan at her place of employment. Maria can use
funds from her flexible spending plan to pay her share of the premiums for long term care
insurance offered as an employer-sponsored plan.
a. true
b. false
Answer: B [p. 377]
49.10 The owner of Aging Industries is interested in offering his workforce long term care
insurance as an employee benefit. The average age of his workforce is 52 and several
employees are already struggling with finding care for aging parents. The owner of Aging,
however, is concerned that meeting COBRA provisions coupled with the high cost of long
term care insurance will place a heavy burden on company finances since a relatively large
number of employees are retiring this year. The owner of Aging Industries’ concern about
this high cost is valid.
a. true
b. false
Answer: B [p. 377]