Certified Human Resource Professional (CHRP) Practice Exam

In what type of plan is the employer's contribution taxable to the employee?

1. Registered pension plan

2. Long-term disability insurance

3. Deferred profit sharing plan

4. Group life insurance

The correct answer is: Group life insurance

Group life insurance is a type of plan where the employer’s contribution is taxable to the employee. In general, contributions that an employer makes to group life insurance policies for the benefit of employees may be considered taxable income. This means that if an employer pays for group life insurance on behalf of employees, the value of that coverage could be included in the employee’s taxable income. This is primarily because the benefit is seen as part of the employee’s compensation package. In contrast, registered pension plans and deferred profit-sharing plans typically offer tax advantages that allow contributions to be made without immediate taxation to the employee. These plans are structured to provide retirement benefits and the contributions grow tax-deferred until withdrawals are made during retirement. Long-term disability insurance often provides taxable income when benefits are received, but the contributions themselves are usually not taxable to the employee at the time they are made. Therefore, the nature of group life insurance contributions makes it unique in that it directly impacts the employee's taxable income at the time of the employer's contribution.