1. Characteristics of a properly structured nonqualified plan include which of the following?

I. fully secured benefit promises

II. deferral of taxation until benefit receipt

(a) I only

(b) II only

(c) Both I and II

(d) Neither I nor II

2. Which of the following statements about nonqualified stock options (NQSOs) are correct?

I. There is only one specified manner in which nonqualified stock option plans may be designed.

II. There are no nondiscrimination rules to apply when establishing one of these plans.

III. The option price when granted may be less than the fair market value of the underlying stock at that time.

IV. When the employee purchases shares, the employer must withhold and pay federal income taxes with respect to the "bargain element" of the shares purchased.

(a) I and II only

(b) II and IV only

(c) III and IV only

(d) I, II and III only

3. The biggest disadvantage for the employee with a funded, vested, nonqualified deferred compensation plan is:

(a) The employer can easily change its mind and take the money back.

(b) The money the employer set aside for future payment is taxed to the employee now.

(c) The employer cannot take a current deduction for the payments, reducing the amount it is willing to contribute.

(d) It typically cuts in to badly needed current income.