Module 4: Compensation & Benefits

Question 0

FLSA regs for children

Answer 0

Under 14: prohibited from most non-farm work, may be employed by parents except in hazardous industries, certain jobs permitted, eg actors

Ages 14-15: during school - 3/day, 16/wk; during vacation - 8/day, 40/wk, work hours 7-7 or until 9pm from June 1 to Labor Day

16-17: no hazardous jobs

Question 1

Name the three types of person-based pay systems.

P. 116

Answer 1

Pay in which employee characteristics rather than the job determine the pay.

Knowledge-based systems- based on level of knowledge (e.g. Professors)

Skill-based systems - based on number of skills known (e.g. Cross training in a production environment.

Competency-based systems - employees can operate on defined competencies. (E.g. Professional groups of employees)

Question 2

Compa-ratio equation

P.91

Answer 2

Pay rate Divided by midpoint

When pay ranges are based on the target market rate, compa-ratios are an indicator as to how actual wages match, lead, or lag the target market

Question 3

Restrictive Stock Grants

P.146

Answer 3

transfer of stock or gift to an executive or member of an organization’s board of directors, with forfeiture provisions that result in a possible loss of the shares if certain requirements are not met.

Executives can vote the shares and receive all dividends but cannot sell the stock until the specified time period has passed or vesting has occurred

Question 4

Experience rating

P.232

Answer 4

charging lower percentages to employers who have terminated fewer workers. Relates to unemployment insurance and workers compensation

Question 5

Quantitative vs. non quantitative methods of job evaluation

Answer 5

Nonquantitative methods try to establish a relative order of jobs.

Quantitative methods try to establish how much more one job is worth compared to another job by using a scaling system.

Question 6

Dodd-Frank Wall Street Reform

P.47&48

Answer 6

The law’s provisions call for fundamental changes in executive compensation disclosure, compensation committee independence, shareholder voting rights, and clawback provisions in publicly traded companies

Question 7

ISO’s / NQSO’s

Answer 7

Incentive stock options - stock option plan with favorable irs treatment, but many restrictions.

non qualified stock options - stock option plan w/o favorable irs treatment.

Stock option plans are shares that are given to employees. Used typically for executives or key personnel.

Question 8

Phantom stock & RSU’s

Answer 8

Tbd

Question 9

RSU’s

Answer 9

Restricted stock units: The grantee does not have actual equity ownership.

The ultimate payout to the grantee is in the form of a future transfer of stock.

Question 10

Leveraged and nonleverages esop’s

Answer 10

In a nonleveraged ESOP, the employer contributes stock or cash or provides employee discounts to buy stock. The stock is then allocated to accounts of the employees.
In a leveraged ESOP, the employer borrows money from a financial institution or the plan sponsor to finance the organization’s stock rather than contribute the cash or stock directly. The employer establishes a trust, called an employee stock-ownership trust. The stock bought with the loan is allocated to the individual accounts of employees. Over time, the organization makes payments to the trust to repay the amount borrowed.

Question 11

Voluntary and involuntary payroll deductions

Answer 11

voluntary deductions include union dues, contributions toward health insurance, some charitable contributions, and contributions to retirement programs. Involuntary deductions, or wage attachments, include items such as tax levies, court-ordered child support payments, and garnishments.

Involuntary deductions are withheld from paychecks before voluntary ones.

Question 12

Calculating social security and Medicare tax

Answer 12

“The Social Security tax is a percentage (which changes periodically) of the employee’s salary up to a yearly maximum, with the employer matching that amount. All employers are required to withhold and match up to the maximum each year regardless of an employee’s previous earnings with another employer. Medicare taxes (also based on a percentage of wages) are withheld with no yearly maximum. The employer matches Medicare taxes

Question 13

Straight-piece and differential-piece system

Answer 13

With a straight piece-rate system, the employee receives a base wage rate and is awarded additional compensation for the amount of output produced.

With a differential piece-rate system, the employee receives one piece rate up to the standard and then a higher rate once the standard has been exceeded.

Question 14

Retirement equity act (REA)

Answer 14

Married participants in plans that provide an annuity cannot change distribution elections or spousal beneficiary designations or do an in-service withdrawal without written spousal consent. Married participants in defined contribution plans that do not offer annuities as their form of payment (i.e., 401(k) plan with a lump sum distribution option) cannot change their spousal beneficiary designations without written spousal consent but may change their withdrawal options.

Question 14

COBRA

P.170

Answer 14

Consolidated omnibus budget reconciliation act - provides individuals and their dependents who otherwise would lose their coverage due to a COBRA qualifying event with an opportunity to pay to continue their group medical coverage for 18-36 months.

(Loss due to divorce or death, or if the loss of coverage is for a child, than 36mos. If disabled when coverage list than 29mos)

Question 15

HIPAA

Answer 15

Health insurance portability and accountability act - ensures that individuals who leave (or lose) their jobs can obtain health coverage even if they or a member of their immediate family has a serious illness or injury or is pregnant.

The HIPAA Privacy Rule applies to health plans, health-care providers that transmit health information in electronic form, and health-care clearing-houses. If an employee health plan is self-administered and has fewer than 50 participants, it is excluded from this rule; otherwise, the rule applies to all health plans.

HIPAA security rule requires administrative safeguards, physical safeguards, technical security services & technical security mechanisms.

Question 16

Older workers benefit protection act (OWBPA)

P.183

Answer 16

prohibits discrimination in employee benefits and includes specific requirements for waivers of claims.

Older workers may not waive rights under the Age Discrimination in Employment Act unless they are given 21 days (in the case of an individual termination) or 45 days (in cases of group termination or voluntary retirement programs) to consider the agreement and consult an attorney.

Employees must be given seven days to revoke the agreement after signing it (individual and group terminations)

Question 17

ERISA

P.164

Answer 17

Employee Retirement income Security Act - establish uniform minimum standards to ensure that employee benefit plans are established and maintained in a fair and financially sound manner.
Applies to most private-sector employee benefit programs. Many public-sector employers and churches are not subject to ERISA.

Question 18

LaRue v. DeWolff

P. 166

Answer 18

Allowed individuals to sue plan sponsors under ERISA.

Question 19

Cliff vesting and graded vesting

Answer 19

cliff vesting - benefits become 100% nonforfeitable after passage of a certain number of years
graded vesting - benefits become incrementally nonforfeitable over a set period of years.

Question 20

ERISA Vesting requirements of Defined Benefit Plan

P. 167

Answer 20

Plan that promises employee retirement benefit amount based on a formula.

Cliff vesting < 5years
Graded vesting < 7 years w/employees receiving 20%/yr at 3rd year of service

Question 21

ERISA vesting requirements of Defined Contribution Plan

P.168

Answer 21

Plan in which the employer and sometimes the employee make an annual payment to the employee’s retirement plan account.

Cliff vesting < 3 years
Graded vesting < 6 years w/employees receiving 20%/yr at 2nd year of service

Question 22

COBRA regs of 2004 - COBRA notice requirements

P.172

Answer 22

• plan specific information
• general notice within 90 days of being covered
• who to contact and deadlines
• notice within 14 days if not eligible for coverage
• notice of coverage ending
• notice of no longer eligible for coverage

Question 23

COBRA Amendments: ARRA, PPACA

P.173

Answer 23

American recovery and reinvestment act - additional notice requirements and changes to continuation of coverage rules. Provides funding for health care information systems. Amends HIPAA as we’ll.

Patient protection and affordable care act - requires coverage for children up to age 26

Question 24

Leggett v. First National Bank of Oregon

P.179

Answer 24

Violation of HIPAA via EAP program

Question 25

FMLA

P.184

Answer 25

Family medical leave act

• 50+ employees for 20+ workweeks
• employee must have worked at least 12 months (total) for the employer, for at least 1,250 hours in the 12-month period preceding the commencement of the leave, and at a site within 75 miles of which 50 or more employees work.
• If both employees work for the same employer and are married, the employees are collectively allowed a total of 12 weeks of FMLA leave.
• covers caring for parent, child, spouse or in loco parent is

Question 26

What is a serious health condition by FMLA standards?

P.187

Answer 26

one requiring inpatient hospital, hospice, or residential care or continuing treatment by a health-care provider. Condition which involves employee incapacity for more than three consecutive calendar days plus two visits to a health-care provider or one visit to a health-care provider plus a regimen of continuing treatment. In addition, for chronic serious health conditions, the employee must visit a health-care provider at least twice per year.

Question 27

USERRA

P.193

Answer 27

Uniformed Services Employment and Reemployment Rights Act - protects the employment, Reemployment, and retention rights of persons who serve in the uniformed services.

• requires employees to provide notice of need for leave (30 days if possible)
• allows for 5 years of leave
• gives employee on leave same seniority-based benefits.
• continue coverage on health plans for 24 months

Question 28

MHPA

P.197

Answer 28

Mental Health Parity Act - Applies to group health plans of more than 50 employees. Changes made by the Mental Health Parity And Addiction Equity Act (MHPAEA) required covered employers that provide group health plans to cover mental illness and substance abuse on the same basis as physical conditions.

Question 29

GINA

P.199

Answer 29

Genetic Information Nondiscrimination Act - protects individuals from having genetic information used in employment or to impact health plan eligibility. Limits genetic testing to wellness programming, physicians request, & checking biological effects of toxic substances in the workplace.

Question 30

PPA

P.200

Answer 30

Pension Protection Act:

• requires pension plans to become fully funded over 7 year period
• allows employers to automatically enroll employees into 401(k)
• allows non-spouse beneficiaries to transfer assets from qualified retirement plan into IRA
• requires plans to provide benefit statements and SPD’s
• makes 403(b)s more like 401(k)s

Question 31

PPACA

P.203

Answer 31

Patient Protection and Affordable Care Act - health care reform impacting:

• affordable minimum coverage
• eliminates lifetime max
• eliminates annual max
• all preventive care covered
• extends dependent care coverage through age 26
• creates state health marketplaces

Question 32

EGTRRA

P.209

Answer 32

Economic Growth and Tax Relief Reconciliation Act: made permanent by PPA

• adjusts minimum vesting schedule for employer matching contributions to defined contribution plans to 3yrs cliff vesting and 6 yrs graded (20%/yr after 2 yrs)
• sets permissible comp limits / sets limits on annual pensions
• permits catch-up contributions (over 50)

Question 33

What is a blackout period?

P.211

Answer 33

The blackout period is any period of more than three consecutive business days during which participants or beneficiaries cannot direct or diversify assets credited to their accounts or obtain loans or distributions.

Question 34

SOX

P.210

Answer 34

Sarbanes-Oxley Act - response to Enron. Requires administrators to notify plan participants of blackout periods.
Prohibits insider trading during blackout periods.
Also covers insider trading and whistleblowing issues.
requires that publicly held companies not only ensure that their financial statements are accurate but also demonstrate that they have processes in place to ensure accuracy and compliance with accounting standards.

Question 35

FASB

P.216

Answer 35

Financial Accounting and Standards Board enforces accounting standards. The FASB is a private, not-for-profit body that decides how public financial executives should report their firms’ financial information to their shareholders

Question 36

Steps in a Benefit Needs Assessment

P.158

Answer 36

1. Reviewing the organizations strategy
2. Reviewing the organizations total rewards philosophy
3. Analyze demographics of workforce
4. Analyze design and utilization data on all benefit plans
5. Gap analyses: compare the organizational needs (including budget), the employee needs, and the existing set of benefits

Question 37

Travel time for nonexempt employees

P.40

Answer 37

Under the portal-to-portal act, employers do not have to pay a nonexempt employee for hours spent traveling when those travel hours occur outside the employees normal workdays AND normal work hours and the employee does not work during those hours. Unless both conditions are met, employees must be paid for those hours

Question 38

Incentive pay program

Answer 38

paying for performance beyond expectations

Question 39

Gain sharing program

Answer 39

In gainsharing plans, a portion of the gains an organization realizes from group effort is shared with the group. For example, when an organizational profitability goal is met, each group member receives the same cash reward.

Question 40

Social Security

P.224

Answer 40

• Retirement, disability, death and survivor benefits
• must work 40 quarters/10 years
• set percentage of salary up to a yearly maximum.
• no age limit - employees who continue to work while they are receiving payments must also pay into it.
• employer matches employee contributions
• reduced benefits at 62, full at 65-67
• disability after 5 mos

Question 41

Medicare

P.228

Answer 41

• employee & employer pay a percentage of salary w/ no annual maximum
• eligible at 65
• part a (a for always): hospital is mandatory
• part b: medical is optional
• part c: Medicare advantage is optional
• part d (d for drug): is optional

Question 42

Unemployment insurance

P.233

Answer 42

To qualify for unemployment insurance benefits in most states, an unemployed worker must:

• Be available and be actively seeking work.
• Not refuse suitable employment.
• Not have left the job voluntarily.
• Not be unemployed because of a labor dispute
• Not have been terminated for misconduct.
• Have worked a minimum number of weeks.

26 weeks

Question 43

Qualified and nonqualified deferred compensation plans

P.241

Answer 43

• qualified deferred compensation plans: plans that provide tax benefits and are offered to all employees in the organization
• nonqualified deferred compensation plans: plans that may provide some tax benefits but are offered to only select employees

Question 44

Cash-balance plan

P.246

Answer 44

Qualified Defined benefit plan, defines the promised benefit in terms of hypothetical account balance and features benefit portability.

Question 45

Indemnity health care plans

P.268

Answer 45

An indemnity health-care plan (or fee-for-service health-care plan) is a full-choice plan, and covered employees can go to any qualified physician or hospital and submit claims to the insurance company.

Question 46

Managed care plans

P.269

Answer 46

Managed care is a general term for a medical plan that seeks to ensure that the treatments a person receives are medically necessary and provided in a cost-effective manner.
Managed care options include health maintenance organizations (HMOs), which are prepaid capitated health-care plans structured to emphasize preventive care and cost containment. The physician is paid on a per capita (per head) basis rather than for the actual treatment provided. Members voluntarily enroll by paying a set monthly or annual fee.

Question 47

What are two types of self-funded insurance plans?

P.273

Answer 47

Administrative-services-only (ASO) plan. With an administrative-services-only (ASO) health-care plan, risk is assumed by the employer. In essence, the employer hires only the claims department of the insurance company.
Third-party administrator (TPA) plan. Third-party administrator (TPA) health-care plans are much like an ASO arrangement, but they utilize an independent (not usually insurer-related) claims department.

Question 48

HIPCs

P.274

Answer 48

Health insurance purchasing cooperatives (HIPCs) act as purchasing agents for large groups of employers in a region. The goal of such health alliances is to provide small organizations with the needed economic clout to negotiate more advantageous rates than they can get acting independently.

Question 49

Excess Group Life Insurance

P.299

Answer 49

Frequently, the value of group-term life insurance is kept at $50,000 or less because such policies are not taxable to employees when the plan is considered nondiscriminatory. When this type of policy is greater than $50,000, the amount over $50,000 is referred to as excess group-term life insurance and is taxed as imputed income. Imputed income is the IRS estimated amount of the premium for coverage over $50,000, based on the age of the employee and the amount of coverage over $50,000. The employee does not actually receive the benefit in real dollars but pays taxes on it. Imputed income is added to other income and appears on the employee’s Form W-2.

Question 49

Factors that define the Relevant Labor Market

P.62

Answer 49

Organizations compete for employees with other organizations who share their:
Industry—The organizations have similar products or services.

Occupation—The organizations employ workers with the same experience or skills.

Location—The organizations employ workers in the same geographical area.

Question 50

SUB

P.302

Answer 50

Some employers provide supplemental unemployment benefits (SUB) in addition to the required government unemployment benefits. SUB clauses are most often found in unionized environments where cyclical employment patterns are common.
Under the Internal Revenue Code, such plans may be exempt from federal income taxes for employers (but not for employees).

Question 51

STD duration

P.297

Answer 51

Short term disability for up to 6 mos.

Question 52

Localizations

P.314

Answer 52

Localizations (employees sent to work in another country, usually with some allowances to get there, but hired as local employees).

Question 53

Bilateral Social Security Agreement

P.323

Answer 53

The existence of a bilateral social security agreement will not exempt an employee from a country’s social security program. Instead, the country that will continue to insure the worker must issue a certificate of coverage to the country from which an exemption is sought. Once filed with the appropriate government entities, the certificate of coverage is used for subsequent filing in compliance with the relevant social insurance agencies.

Question 54

Two types of IRS rulings

Answer 54

Revenue rulings are published as general guidelines to all taxpayers and organizations. Private letter rulings are addressed only to the specific taxpayer or organization who requested a ruling.

Question 55

EPO

Answer 55

Exclusive provider organization requires participants to use providers in the network or no payment will be made.

Question 56

Totalization agreements

Answer 56

Totalizator agreements (international social security agreements) help to eliminate situations in which workers or employees are required to pay social security taxes to two countries on the same earnings

Question 57

Single or flat-rate pay system

Answer 57

All employees are paid the same rate of pay regardless of performance or seniority.

Question 58

Equal Pay Act

Answer 58

prohibits unequal pay for equal or “substantially equal” work performed by men and women.

Equal work is defined by equal skills, equal effort, equal responsibility, and similar working conditions in the same establishment.

Question 59

Line of site

Answer 59

Incentive pay plans and performance measures for top management, middle management, and nonmanagement employees should reflect the results that an employee can control. Employees must be able to influence the attainment of the goal and see the direct results of their efforts. This concept is called line of sight.

Question 60

To qualify under ERISA, a pension plan must…

Answer 60

The plan must be in writing and communicated to employees, and it must contain a vesting schedule that lets employees know when they are eligible for accrued benefits.

Question 61

Lead-lag strategy

Answer 61

A lead-lag strategy pays above market at the beginning of the plan year and behind the market at the end of the plan year. When designed correctly, the organization would pay at market halfway through the plan year.