Employee Benefit Plans - Review Questions

Question 1

Section 79 regulations for group-term insurance require which of the following? (Select all that are true.)

1) Must provide a general death benefit
2) Must provide compensation for services to a group of employees
3) Must determine insurance amounts for employees
4) Must be carried directly or indirectly by the employee

Answer 1

1) Must provide a general death benefit
2) Must provide compensation for services to a group of employees
3) Must determine insurance amounts for employees

Section 79 regulations for group-term insurance require that a general death benefit be provided, compensation for services to a group of employees be provided, insurance amounts for employees are determined, and the employer must carry it directly or indirectly.

Question 2

Why may it be a benefit to executives to be “carved-out” of a group plan and given a separate individual policy provided by the employer?

Answer 2

Executives can be provided with more insurance than would be available under a group-term plan. In addition, the plan can provide cash growth that is a “portable” benefit for the executive.

Question 3

Under ERISA, what are the two types of employee benefit plans? (Select all that are true.)

1) Pension plan
2) Welfare plan
3) Employee Plan
4) Insurance Plan

Answer 3

1) Pension plan
2) Welfare plan

Under ERISA, employee benefit plans are divided into two types: pension plans and welfare plans.

Question 4

Who sponsors the long-term disability program to provide disability income to employees who are disabled beyond a specified period?

Answer 4

The employer sponsors the long-term disability program to provide disability income to employees who are disabled beyond a specified period.

Question 5

Lori is covered under a coinsurance provision and is responsible for 20% of covered expenses. She has a deductible of $250. Lori incurs expenses of $2,000 during the year. How much will she have to pay and how much will the company pay?

Choose the best answer.

1) Lori will pay $600 and the company will pay $1,400.
2) Lori will pay $400 and the company will pay $1,600
3) Lori will pay $250 and the company will pay $1,750
4) Lori will pay $650 and the company will pay $1,350

Answer 5

1) Lori will pay $600 and the company will pay $1,400.

Lori will pay $600 ($2,000 - $250 = $1,750 x 20% = $350 ($250 + $350 = $600)) and the company will pay $1,400 ($2,000 - $600).

Question 6

Blue Cross plans are used for doctors’ bills, and Blue Shield plans used for hospital bills.

Choose the best answer.

True
False

Answer 6

False

Blue Cross plans are used for hospital bills, and Blue Shield plans used for doctors’ bills.

Question 7

Participants may not be excluded or required to pay an extra premium on the basis of which of the following? (Check all that are true.)

1) Health status
2) Medical history
3) Age of participants
4) Genetic information

Answer 7

1) Health status
2) Medical history
4) Genetic information

Participants may not be excluded or required to pay an extra premium on the basis of the following: health status, medical condition (physical and mental), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability.

Question 8

What groups are not counted and exempted from COBRA requirements for employers? (Select all that are true.)

1) Self-employed individuals
2) Independent contractors
3) Directors
4) Small Business of 50 employees

Answer 8

1) Self-employed individuals
2) Independent contractors
3) Directors

Self-employed individuals, independent contractors, and directors are not counted and exempted from COBRA.

Question 9

What are the main differences between PPOs and HMOs? (Select all that are true.)

1) PPOs provide benefits on a fee-for-service basis as their services are used.
2) PPO participants have financial incentives to use the preferred provider network.
3) In PPOs, the primary care physician has control over a participant’s access to specialists.
4) In PPOs, the fee schedule is different for each participant in the plan.

Answer 9

1) PPOs provide benefits on a fee-for-service basis as their services are used.
2) PPO participants have financial incentives to use the preferred provider network.

PPOs typically differ from HMOs in two aspects: First, they provide benefits on a fee-for-service basis as their services are used. Fees are usually subject to a schedule that is the same for all participants in the PPO. Second, plan participants have financial incentives to use the preferred provider network. The primary care physician does not control a participant’s access to specialists, as is the case in most HMO plans.

Question 10

Which of the following statements is true regarding Health Reimbursement Arrangements (HRA)?

Choose the best answer.

1) Self-employed persons are eligible.
2) Qualified medical expenses from an HRA can be taken as an itemized deduction, subject to 10% of AGI.
3) Employees do not have to be covered under any other healthcare plan to participate.

Answer 10

3) Employees do not have to be covered under any other healthcare plan to participate.

Employees do NOT have to be covered under any other healthcare plan to participate in a HRA, but self-employed persons are not eligible for this type of health savings account. The qualified medical expenses from an HRA cannot be taken as an itemized deduction on Schedule A.

Question 11

Which of the following are alternatives to a cafeteria plan? (Check all that are true.)

1) Flexible Spending Account (FSA)
2) Fixed Benefit Program
3) Cash Compensation
4) PPO
5) Group Life Insurance

Answer 11

1) Flexible Spending Account (FSA)
2) Fixed Benefit Program
3) Cash Compensation

Alternatives to a cafeteria plan are a flexible spending account (FSA), a fixed benefit program, and cash compensation.

Question 12

Which of the following are excluded from FSA benefits? (Check all that are true.)

1) Self-employed
2) Partners
3) Sole proprietors
4) Employers with more than 25 employees

Answer 12

1) Self-employed
2) Partners
3) Sole proprietors

FSA benefits cannot be provided to self-employed persons, partners, or sole proprietors

Question 13

Employee discounts on merchandise are an advantage to the employer because they can still make a profit on the items sold or at least recover its cost, but do not have to bear the full cost of marketing and selling the items to the public.

Choose the best answer.

True
False

Answer 13

True

Discounts on merchandise are almost as valuable as cash to employees, but are very inexpensive for the employer because the employer can still make a profit on the items sold or at least recover its cost, but does not have to bear the full cost of marketing and selling the items to the public.

Question 14

Which of the following services is allowed from qualified retirement planning services?

Choose the best answer.

1) tax preparation
2) accounting services
3) legal services
4) brokerage services
5) general advice regarding retirement planning

Answer 14

5) general advice regarding retirement planning

Services may include general advice regarding the employee’s and the spouse’s overall plan for retirement, of which the employer’s qualified plan is only a part.

Question 15

Which type of employer typically uses legal services plans?

Choose the best answer.

1) Large employers
2) Medium-size employers
3) Small employers

Answer 15

1) Large employers

Legal services plans are used primarily by larger employers for employees in collective bargaining units.

Question 16

Most legal services plans are not designed to cover catastrophic legal expenses, such as a criminal trial.

Choose the best answer.

True
False

Answer 16

False

Legal expenses such as the cost of a criminal trial can be the kind of catastrophic expense that is best provided through an insurance-type or group benefit program such as a legal services plan

Question 17

Which of the following best describes the rates used to determine taxable income resulting from employer-provided group life insurance in excess of $50,000? (Check all that are true.)

1) P.S. 58 (or Table 2001) Rates
2) 1980 CSO rates
3) P.S. 38 Rates
4) Table I Rates

Answer 17

4) Table I Rates

Question 18

Carve-out life insurance arrangements may be funded by all of the following EXCEPT:

Choose the best answer.

1) Profit Sharing Plans
2) Bonus Plans Under Section 162
3) Death Benefit Only Plans
4) Split-Dollar Arrangements

Answer 18

1) Profit Sharing Plans

Question 19

All of the following types of medical plans would be considered postpaid EXCEPT:

Choose the best answer.

1) Self-funded Plans
2) POS Insurance Contract
3) Health Maintenance Organization (HMO)
4) Blue Cross/Blue Shield Plan

Answer 19

3) Health Maintenance Organization (HMO)

Question 20

For what period of time are employers required to provide access to continued enrollment in a group health plan under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)?

Choose the best answer.

1) 12 months for dependent coverage, and 18 months for coverage of the participating employee
2) 29 months when coverage is lost due to disability, and 36 months for all other eligible causes
3) 18 months for dependent coverage, and 29 months for coverage of the participating employee
4) 36 months when coverage is lost due to disability, and 29 months for all other eligible causes

Answer 20

2) 29 months when coverage is lost due to disability, and 36 months for all other eligible causes

Question 21

Which of the following are true statements concerning the advantages of Section 125 Cafeteria Plan?

I) They may help to control employer costs
II) Tax benefits are available from the plan specifically for key employees
III) Employees have the choice to receive cash payments in place of additional benefits
IV) The plans are simple to design and inexpensive to administer
V) Employees may choose the types of benefits that most suit their needs

Choose the best answer.

1) II, III, and IV
2) I, II, IV, and V
3) III, and V
4) I, III, and V

Answer 21

4) I, III, and V

Question 22

An employer may offer a tax-advantaged employee discount under Code Section 132 to all of the following EXCEPT:

Choose the best answer.

1) A retired employee
2) An officer of an important supplier to the business
3) The spouse of a current employee
4) Current employees

Answer 22

2) An officer of an important supplier to the business

Under section 132 discounts may only be provided to active employees, retired and disabled employees, a widow or widower of an employee of the business, and a spouse or dependent child of an employee.

Question 23

Which of the following would qualify as a non-taxable De Minimis fringe benefit?

I) Cocktails and dinner at the annual company holiday party
II) Weekend use of the company’s downtown executive apartment
III) Season tickets to a local major league sports team
IV) Theater tickets to host an important client for an evening on the town

Choose the best answer.

1) I only
2) II and III
3) I and IV
4) I, III, and IV

Answer 23

3) I and IV