FAQs

Question 1

Under what circumstances would a short-term disability plan be considered a
welfare benefit plan subject to ERISA?

Answer 1

If a disability plan provides more than the employee’s normal compensation or if
it is funded in any manner such as with insurance, then the program will be
considered a welfare benefit plan, which in turn becomes subject to ERISA.

Study Guide, Module 1, Pg. 8, Learning Outcome 1.6

Question 2

If a new Summary Plan Description (SPD) is distributed, when does the new 5 or
10-year time period begin?

Answer 2

A new SPD must be distributed every 5 years if there has been a material
change during that time. Otherwise, it must be distributed at least every 10
years. Whether 5 or 10 years have elapsed since the last distribution, once there
has been another distribution, the time begins to run again.

Study Guide, Module 1, Pg. 15, Learning Outcome 3.2

Question 3

How long must welfare plan records be maintained for ERISA purposes?

Answer 3

Records must be maintained for at least six years from the date the plan’s 5500
form is filed. However, there is a recommendation to maintain records for eight
years after the end of the plan year.

Study Guide, Module 1, Pg. 19, Learning Outcome 4.3 and Candidate Note

Question 4

What determines whether employer contributions toward health insurance are
free from FICA and FUTA taxes?

Answer 4

To be free from FICA and FUTA taxes, employer contributions toward health
insurance must be made under a plan. One of the following requirements must
be met to prove the plan exists, such as:

a. The plan is referred to in an employment contract.
b. The employer can document that the employees contribute to the plan.
c. The employer is required to make contributions.
d. The plan is in writing and copies are made available to employees.
e. The plan must benefit employees and their dependents for tax exclusion
to apply.

Study Guide, Module 2, Pg. 7, Learning Outcome 1.4

Question 5

When are ESOPs not taxable wages and not subject to FIT, FICA, or FUTA
taxes?

Answer 5

These types of plans are not taxable and not subject to the FIT, FICA or FUTA
unless they exceed 100% of the employee’s annual compensation or the annual
inflation-adjusted limit, whichever is identified as less.

Study Guide, Module 2, Pg. 25, Learning Outcome 7.3

Question 6

Is all group-term life insurance taxed?

Answer 6

The IRS Code Section IRC 79 provides for a tax exclusion on the first $50,000 of
group-term life insurance coverage provided directly or indirectly by an employer.
The imputed cost of coverage in excess of $50,000 must be included in one’s
income using an IRS premium table. This is also subject to Medicare and Social
Security.

Study Guide, Module 2, Pg. 22, Learning Outcome 6.6

Question 7

What is the difference between an Investment Policy Statement and an SPD for
a retirement plan?

Answer 7

The SPD outlines the features of the retirement plan and fulfills the legal
requirements of the plan. The Investment Policy Statement is the foundation for
how a retirement plan investment program is expected to operate.

Study Guide, Module 3 Pg. 10, Learning Outcomes 2.2 and 2.4; Text, Pgs. 76 and 77

Question 8

What is the value of a SOC-1 Report?

Answer 8

A SOC-1 report is prepared by an auditor assessing the controls in place at the
outside service organization. This is an efficient method to show that the controls
are in place and operating effectively.

Study Guide, Module 3 Pg. 20, Learning Outcome 4.6; Text, Pg. 94

Question 9

What is the main difference between a market-driven approach and the
traditional approach in benefit plan communications? Why is it important to have
a market-driven approach over the traditional approach?

Answer 9

Unlike the traditional approach, which is general in nature, the market-driven
approach has specific objectives of the communication strategy. In addition, the
market-driven approach focuses on changing and affecting attitudes and
behaviors rather than explaining the benefits.

Study Guide, Module 3 Pg. 16, Learning Outcome 3.5; Text, Pg. 87

Question 10

Why are employee benefit plans so vulnerable to cyberattacks and identify
theft?

Answer 10

The vulnerability exists because of the massive amount of personal and
identifiable information involved in the administration of the benefit plans.
Electronic health records are particularly valuable to cyber criminals and are
often not properly protected.

Study Guide, Module 4, Pg. 5, Learning Outcome 1.1
Text, Pgs. 117-118

Question 11

Of the four common types of cyber threats, which is probably the costliest to
recover from?

Answer 11

The four types of cyber threats include ransomware, phishing, wire transfer or
e-mail fraud, and malware via external devices. Ransomware is extremely
costly because cybercriminals encrypt and seize entire hard drives and will
only release the data for a very high ransom. This could mean hundreds of
thousands of dollars of costs before the data is recovered.

Study Guide, Module 4, Pg. 8, Learning Outcome 2.1(a)
Text, Pg. 133

Question 12

Why is it so important to have the best possible due diligence process in
place when choosing service providers for plan fiduciaries?

Answer 12

During the due diligence process, strong documentation can provide plan
fiduciaries with a defensible record if there is a data breach and the service
providers’ practices are challenged.

Study Guide, Module 4, Pg. 15, Learning Outcome 4.2
Text, Pgs. 123-124

Question 13

Why is the Management Comments Letter so important in audit proceedings?

Answer 13

This communication is important because it discusses plan management and provides information for the individuals in charge of the plan’s operations. This
communication from the auditor
provides information on deficiencies and identifies significant weaknesses.

Study Guide, Module 5, Page 18, Learning Outcome 4.4; Text, Pg. 205

Question 14

Why is a deficiency related to ERISA Section 408(b)(2) so impactful?

Answer 14

This identified deficiency relating to ERISA Section 408(b)(2) relates to a lack of proper monitoring of service provider fees and disclosures. This deficiency is important because a plan service provider is considered a party in interest. If there are no properly written disclosure documents, any amounts received by the service provider are considered unreasonable and the related statutory exemption does not apply. In turn, this results in prohibited transactions.

Study Guide, Module 5, Page 20, Learning Outcome 4.7; Text, Pg. 207

Question 15

Why do plan fiduciaries consider financial statement fraud the more concerning of the two primary types of fraud?

Answer 15

A plan’s financial statements can be compromised, which can lead to deceiving plan participants. The participants’ accounts may not be correct. They depend on financial statements to make accurate financial decisions.

Study Guide, Module 5, Pg. 24, Learning Outcome 6.1; Text, Pgs. 214-215

Question 16

Why was the Supreme Court decision in Tibble vs. Edison so impactful to the retirement world?

Answer 16

The Supreme Court decision removed any barriers that blocked plan participants from filing a lawsuit relating to an improperly monitored plan investment. The court ruled that the failure to properly monitor an investment fund would still be exposed to claims for six years from the date of a monitoring failure.

In Tibble, the Supreme Court found that fiduciaries of plans governed by
ERISA have a continuing duty to monitor the prudence of plan investments.

Study Guide, Module 6, Page 7, Learning Outcome 1.2
Text, Page 225

Question 17

Who does the Department of Labor consider responsible for accurately
maintaining required plan records?

Answer 17

The DOL considers the plan administrator responsible for the maintenance of required plan records, not the plan service provider. The plan administrator maintains the plan documents, compliance documents, and employee communications as well as payroll records.

Study Guide, Module 6, Page 13, Learning Outcome 3.1
Text, Page 236

Question 18

What effect did the Pension Protection Act of 2006 have on money market funds being the default option for deferred compensation funds?

Answer 18

Prior to the PPA Act of 2006, money market funds were seen as the default option for deferred compensation plans. These were lower risk funds, but not seen as an effective way to grow assets for the long-term. After the PPA of 2006, target date funds became the most popular default deferred compensation option. These funds have greater risk and seek higher returns.

Study Guide, Module 6, Page 18, Learning Outcome 4.2
Text, Page 244

Question 19

Why do companies choose self-funded health insurance plans over fully insured
plans?

Answer 19

Over the years, organizations have steadily moved from fully insured plans to
self-insured plans to have the opportunity to lower health care costs and to be
able to have more flexibility in plan design.

Study Guide, Module 7, Page 17, Learning Outcome 4.1

Question 20

What are the differences between the types of plan audits?

Answer 20

a. Transitional audit – ensures a plan has been set up appropriately when
moving from one carrier to another
b. Operational audit – looks at procedures associated with enrollment such as
card processing and customer standards
c. Reinsurance audit – discovers charges that should have been paid by the
reinsurance carrier, but were not

Study Guide, Module 7, Page 20, Learning Outcome 4.10

Question 21

What is the difference between predictive modeling and data analytics?

Answer 21

Predictive modeling is a statistical technique used for forecasting purposes such
as future outcomes. Data analytics uses a process to inspect, clean, transform,
and model data to discover trends that can aid in benefit plan decisions.

Study Guide, Module 7, Page 6, Learning Outcomes 1.1 and 1.2

Question 22

How is the prudent man theory relevant to investing strategies?

Answer 22

The prudent man or prudent person rule gives discretion to a fiduciary or
especially a trustee to manage another person’s affairs and invest their money
with the skill and care one would use with their own investments.

Study Guide, Module 8, Page 18, Learning Objective 4.5
Text, Page 310

Question 23

What is the difference between a closed-end fund and an open-end fund?

Answer 23

Closed-end funds typically do not redeem their shares. Investors sell shares on
the market to other investors. These funds are often more expensive and tend to
be actively managed.

Study Guide, Module 8, Page 23, Learning Objective 6.3
Textbook, Page 320

Question 24

What is the benefit of purchasing a Qualified Longevity Annuity Contract (QLAC)
for older workers?

Answer 24

QLACs offer an opportunity for people to start investing at an older age.
A QLAC is an investment vehicle that guarantees that the funds in a qualified retirement plan such as a 401(k), 403(b), or IRA can be turned into lifetime income without violating required minimum distribution rules.

Study Guide, Module 8, Page 12, Learning Objectives 2.1 and 2.3
Text, Pages 296 and 297
Study Materials Update—April 2023 (SECURE 2.0 Act), Pages 5 and 19 to 20

Question 25

How do you know if severance payments paid over a specific period of time are
considered to be subject to ERISA regulation?

Answer 25

In the court case Delaye v. Agripac, Inc., the Ninth Circuit stated that although
the executive’s severance payments were to be disbursed over two years, it did
not require an ongoing administrative scheme; therefore, these payments are not
subject to ERISA regulation.

Study Guide, Module 9, Page 10, Learning Objective 2.6
Text, Page 353

Question 26

Does ERISA regulate oral severance arrangements?

Answer 26

ERISA requires that employee benefit plans be prepared as a written document.
If an employer has not complied with preparing a written document, it is still
considered an ERISA plan as supported by several court cases.

Study Guide, Module 9, Page 10, Learning Objective 2.4
Text, Pages 351-352

Question 27

What is the purpose of Section 502(c)(1)?

Answer 27

The purpose is not to compensate participants and beneficiaries for injuries, but
to induce plan administrators to comply with the ERISA statutory disclosure
mandate and to punish administrators for non-compliance with that mandate.

Study Guide, Module 9, Page 14, Learning Objective 4.6
Text, Page 365

Question 28

How is a person’s Social Security retirement amount calculated?

Answer 28

A person’s Social Security amount is based on a worker’s primary insurance
amount (PIA), a monthly amount paid to a retired worker at full retirement age or
to a disabled worker. The PIA is based on a worker’s average indexed monthly
earning (AIME). This method updates the worker’s past earnings based on
increases in the average wage.

Study Guide, Module 10, Page 13, Learning Objective 4.1
Text, Pages 393-394

Question 29

What is the difference between social adequacy and individual equity?

Answer 29

Benefits are based on both social adequacy and individual equity. Social
adequacy means that benefits provide at least a minimum
“floor of protection” for workers and workers with families get benefits for their
dependents. Individual equity means a worker’s benefit amount is related to their
earnings.

Study Guide, Module 10, Page 7, Learning Objective 1.5
Text, Page 387

Question 30

What must one do to meet the criteria for being “disability insured” (DI)?

Answer 30

A worker must meet two work tests to be considered disability insured – a recent
work test and a duration of work test. The number of credits that are required to
meet the recent work test depends on a person’s age and when one becomes
disabled. A duration of work test does not have to occur within a certain period
of time.

Study Guide, Page 10, Learning Objective 2.4
Text, Pages 390-391

Question 31

What is a benefit period relative to Medicare Part A?

Answer 31

A benefit period begins when a recipient of Medicare enters a hospital. The
benefit period ends when there has been a break of at least 60 consecutive days
since inpatient hospital or skilled nursing care was provided.
If an individual exhausts 90 days of inpatient hospital care in a benefit period,
they can elect to use lifetime reserve days, up to 60 total additional days.

Study Guide, Module 11, Page 7, Learning Outcome 1.7

Question 32

Is there ever a time that an individual would have to pay for Part A of Medicare?

Answer 32

Most people do not have a premium for Part A, but if they do, they can enroll
voluntarily and pay a monthly premium. However, they also have to enroll in Part
B Medicare. No premium will be charged if one meets the following:
a. The person has at least 40 calendar quarters of work in any job where
they paid Social Security taxes in the U.S.
b. They are eligible for Railroad Retirement benefits
c. They have a spouse that qualifies for premium-free Part A

Study Guide, Module 11, Page 15, Learning Outcome 3.7

Question 33

What if a hospice patient requires treatment not related to their terminal illness?

Answer 33

If a hospice patient needs treatment that is unrelated to their terminal illness,
Medicare will pay for all covered services that are necessary for the treatment of
that specified condition.

Study Guide, Module 11, Page 7, Learning Outcome 1.6

Question 34

What is the primary disadvantage of using the dual employment method for
international assignments?

Answer 34

The primary disadvantage is that dual employment creates many administrative
difficulties and can be difficult to achieve totally. This particular type of
international assignment also creates more risk because the employing entity
tries to recoup lost revenue in many ways.

Study Guide, Module 12, Page 12, Learning Outcome 2.4
Text, Pages 482-483

Question 35

What is the difference between tax equalization and tax protection?

Answer 35

Tax protection reimburses the employee only in the event they pay higher taxes
as a result of the international assignment. Tax equalization requires an
employee to pay a tax equal to what they would have paid in their home
jurisdiction.

Study Guide, Module 12, Page 13, Learning Outcome 2.6
Text, Pages 485-487

Question 36

What is a totalization agreement?

Answer 36

Social security totalization agreements provide relief from dual social security
coverage and taxation under both systems. It integrates or synchronizes the
benefits earned under more than one system. Generally, the employee will be
taxed only by the jurisdiction where their services are performed.

Study Guide, Module 12, Page 13, Learning Outcome 2.7(b); Text, Page 488