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
Disability
Chapter 50: Sick Pay (Short-Term Disability)
True/False
50.1
By law, sick pay or short-term disability benefits must be explained to employees in a
written summary plan description
50.2
The definition of disability is typically more restrictive in short-term disability plans than in
long term disability plans.
50.3
Disability benefits are subject to federal income tax withholding if paid directly by employer.
Answers:
50.1 True [p. 379]
50.2 False [p. 380]
50.3 True [p. 380]
Multiple Choice
50.4
Which of the following can an employer chose when designing a short-term disability or
sick pay policy?
a.
b.
c.
d.
e.
who is covered
level of benefits
terms and conditions of coverage
all of the above
only b and c
Answer: D [p. 379]
50.5
Common characteristics of a sick pay plan include
a.
b.
c.
d.
e.
coverage for full time employees only
providing 100% of salary for up to 6 months
allowing carryover of unused benefits subject to employer imposed maximum
a and c
b and c
Answer: D [p. 379]
50.6
Which of the following is (are) true when comparing short-term disability with long-term
disability
a. short-term disability typically covers more employees than long term disability
b. long-term disability policies use a ‘regular occupation’ definition of disability instead of
the “any occupation” definition used in short-term disability policies
c. short-term disability policies are typically more generous
d. a and b
e. a and c
Answer: E [p. 380]
Application
50.7
Crocker Technologies wants to provide a sick pay plan that has more favorable benefits for
their executives than for their line workers. Under ERISA, however, such an approach
would be deemed discriminatory and thus disallowed.
a. true
b. false
Answer: B [p. 382]
50.8
Harriet Jacobs earns $140 per day as an associate manager at Praxton Manufacturing.
Praxton provides all employees with three sick days a month at full pay. Unused sick pay
benefits can be accumulated to a maximum of 90 days. Harriet has accumulated 5 days of
unused sick pay. Praxton also pays premiums on short-term disability insurance for all
employees. The short-term disability insurance pays 80% of earnings from 10 business
days after onset of illness or injury to return to work or six months, whichever occurs first.
Last month, Harriet was in an auto accident and broke both legs and her left arm. She was
unable to work for three full weeks. How much income will Harriet receive while she is
unable to work?
a.
b.
c.
d.
e.
$420
$560
$1260
$1680
$2100
Answer: C [p. 379 – Harriet is out 3 full weeks or 15 working days. She has 5 days of sick pay so
she will receive full pay for 5 days $140 x 5 = $700. The short-term disability policy will pay
beginning business day 10 from onset of injury. Days 10 to 15, Harriet will receive 80% of her
regular pay or ($140 x 5) x .80 = $560. Thus, all together, Harrier will receive $700 + $560 =
$1260 from a combination of her sick pay and short-term disability policy. Notice she receives no
income for the 5 days after her sick pay benefits have ended and her short-term disability have not
yet begun.]
50.9
Albert Johnson pays part of the premium for a short-term disability insurance policy
through payroll deductions. Albert can deduct the cost of the policy when he files his
personal income tax.
a. true
b. false
Answer: B [p. 380]
50.10 Movin’ On, a local moving and storage company, pays short-term disability insurance
premiums for the company’s 30 employees. These premiums are treated as wages and
are subject to Social Security (FICA) and employment taxes (FUTA).
a. true
b. false
Answer: B [p. 382]