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
Fringe Benefits
Chapter 56: Legal Services Plan
True/False
56.1
Expenses of a legal services plan are tax deductible for the employer.
56.2
The dollar value of employer-provided legal services is considered taxable income to the
employee.
56.3
An employee can use an employer-provided legal service plan to obtain legal advice on a
divorce proceeding.
Answers:
56.1 True [p. 410]
56.2 True [p. 410]
56.3 True [p. 410]
Multiple Choice
56.4
From the employer’s point of view, concerns about offering employee a legal services plan
include all but which of the following?
a. employees may not fully appreciate the value of the plan as an employee benefit
b. such a plan is difficult to fund
c. such a plan is difficult to administer
d. employees can only use the plan to get legal advice on employment-related issues
e. use of the services by employees creates taxable income to the employee
Answer: D [p. 409]
56.5
Common exclusions in a legal services plan include all but which of the following:
a.
b.
c.
d.
e.
class action suits
personal bankruptcy
actions against a labor union
audits by the IRS
actions arising out of an employee’s business transactions that are not related to the
employer providing the legal services plan
Answer: B [pp. 409-410]
56.6
Disadvantages of a legal services plan include all of the following except:
a.
b.
c.
d.
e.
it may not be a widely used employee benefit
employees can use the plan to take legal action against their employer
it is difficult to fund a legal services plan
administration of a legal services plan is difficult
value of legal services provided is taxable income to employees
Answer: B [p. 409]
Application
56.7
Afton Granger is one of your clients. Recently, Afton received notice from the IRS that he
will be audited this year. Afton’s employer has a legal services plan, set up on a
comprehensive basis that contains the most common exclusions. Can Afton use the legal
services plan at his place of employment if he needs the services of a lawyer to while
contending with the IRS audit.
a. yes
b. no
Answer: B [pp. 409-410]
56.8
Beneficient Enterprises is considering installing a legal services plan, but is concerned
about controlling costs. As her financial advisor, you tell the owner of Beneficent that she
can limit benefits under the plan:
a.
b.
c.
d.
e.
to a flat amount for a given service
by setting a maximum hourly rate
by putting a cap on the amount of benefit each employee receives
all of the above
only a and c
Answer: D [p. 410]
56.9
As Joe Burton’s financial advisor, you’ve encouraged Joe to see a lawyer to finalize his will
and to resolve a legal dispute that has arisen over an easement on a lot that Joe owns.
Joe tells you that he has a legal services plan at work that will provides up to $1,000 in
legal service fees per year. Since he’s friends with the company accountant, he knows
that his employer has a “pay-as-you-go”-plan. Joe asks you about the tax consequences
of using the legal services plan. You tell Joe:
a.
b.
c.
d.
e.
if he’s fully vested in the benefit, he’ll get the legal service benefits tax-free
he’ll be taxed on the value of the benefits that he receives
his employer will get a tax deduction
a and c
b and c
Answer: E [p. 410 – “A” is true if the employer pays a group legal insurance premium to an
insurance company. In this case, however, the employer pays for benefits out of current revenue
as employees receive benefits. With this structure, the employee is taxed on the value of benefits
as they are received, and the employer gets a tax deduction.]
56.10 The owner of Braxton Steel Corporation and you have been discussing installation of a
legal services plan at Braxton. The owner has asked you to explain the features of an
open-panel prepayment legal services plan. You reply:
a.
b.
c.
d.
e.
the employees can choose their own lawyer
the employees can choose a lawyer from an approved list
the lawyer must agree in advance to a fee schedule set by the legal services plan
all of the above
only a and c
Answer: D [p. 410]