Docsity
Docsity

Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity


Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan


Guidelines and tips
Guidelines and tips

CEBS GBA Exam 3 Test Questions with Complete Solutions Latest Update 2025, Exams of Nursing

CEBS GBA Exam 3 Test Questions with Complete Solutions Latest Update 2025

Typology: Exams

2024/2025

Available from 12/04/2024

rodhah
rodhah 🇺🇸

462 documents

Partial preview of the text

Download CEBS GBA Exam 3 Test Questions with Complete Solutions Latest Update 2025 and more Exams Nursing in PDF only on Docsity!

CEBS GBA Exam 3 Test Questions with Complete Solutions

Latest Update 2025

An employee welfare benefit plan has four basis elements. What are these elements? (Mod 1.1) - Correct answer 1) There must be a plan, fund or program.

  1. The plan, fund or program is established or maintained by an employer.
  2. The plan, fund or program is for the purpose of providing specifically listed benefits, through the purchase of insurance or otherwise.
  3. Benefits are provided to participants and beneficiaries. Explain how a "plan, fund or program" for an employee benefit plan is defined (Mod 1.1) - Correct answer The phrase "plan, fund or program" is not defined in ERISA but rather has been laid out in several court cases. Courts have held a "plan, fund or program" under ERISA is established if, from the surrounding circumstances, a reasonable person can ascertain the intended benefits, the class of beneficiaries, the source of financing and the procedure to receive benefits. Describe the procedures required to establish an ERISA employee welfare benefit plan (Mod 1.1) - Correct answer No particular formalities are required to create an ERISA plan and no single action in and of itself necessarily constitutes establishment of ERISA employee welfare benefit plan. Thus, ERISA plans have been deemed to be "established or maintained" by a practice that would cause a reasonable EE to perceive an ongoing commitment by the ER to provide EE benefits. This would include any contributions by an ER toward payment of benefits or by the ER simply administering the benefit. It is easy to have a plan, fund or program - generally any ongoing administrative scheme will satisfy this condition. Showing that an ER maintains a plan is also easy - any contribution by the ER towards payment of benefits or administration of the plan is enough (including a contribution toward insurance coverage). List the types of employee welfare benefit plans not covered under ERISA and specifically excluded under the statute (Mod 1.1) - Correct answer 1) Governmental Plans: includes plans established by the US Gov't, the gov't of any state or political subdivision and any agency of any of the foregoing or a plan to which the Railroad Retirement Act applies, as well as certain plans associated with Native American Tribal gov'ts.
  4. Church plans: a plan established and maintained for its EE's by a church or by a convention or association of churches is exempt from tax under IRC Sec 501.
  5. A plan maintained to comply with state laws on Worker's Comp, Unemployment or Mandated Disability Insurance.
  6. A plan maintained outside the US primarily for nonresident aliens.
  7. Plans that cover only self-employed individuals and that cover no "common-law employees" generally not subject to ERISA.
  8. Plans that cover only married shareholders of a corporation are not treated as ERISA plans. ER should be aware that is may be required to comply with other federal laws that affect EE benefit plans.

List the types of benefits provided by ERISA health and welfare, and provide examples of such plans (Mod 1.1) - Correct answer a) Medical, Surgical or Hospital Care or Benefits b) Benefits in the event of sickness, accident, disability, death or unemployment c) Vacation Benefits d) Apprenticeship or other training benefits e) Day-care centers f) Scholarship funds g) Prepaid legal services Ex: Medical Insurance, Dental, Vision, Prescription Drug Plans, Drug or Alcohol Treatment programs, FSAs, EAPs, Wellness Programs, AD&D and STD/LTD Plans. Discuss whether plans that involve payroll practices are treated as ERISA health and welfare plans (Mod 1.1) - Correct answer The payment of an employee's normal compensation in full or in part out of the employer's general assets for periods when the employee is physically or mentally unable to work—that is, an unfunded short-term disability plan—is generally not a welfare benefit plan subject to ERISA. However, if a disability program provides more than an employee's normal compensation or is funded in any way—for example, it is provided through insurance - the program will be a welfare benefit plan subject to ERISA. The Dept of Labor (DOL) regulations list additional types of payroll practices as not being ERISA plans. These include plans where compensation is paid to an EE: While absent on holiday/vacation While absent on active military duty While absent for jury duty/witness On account of periods of time during which the EE performs little or no work while in training EE is relieved of duties while on sabbatical leave or while pursuing further education. For a voluntary benefit arrangement to be exempt from ERISA based on the DOL safe harbor, it must meet certain requirements, which are? (Mod 1.1) - Correct answer a) No ER or EE organization contributions b) Participation is completely voluntary c) No ER consideration except for reasonable compensation and administration d) No employer endorsement Explain the meaning of the term "no employer endorsement" (Mod 1.1) - Correct answer Means an ER can publicize, collect premiums, remit premiums, provide employee information to an insurance company and maintain a file on the voluntary plan. However, an employer cannot express positive normative judgment and cannot urge/encourage employee participation. The participation of the employer or employee organization should be limited to the duties specified in the regulation, none of which involve the exercise of discretionary duties. An

employer hoping to rely on this exemption should also be careful not to create the impression that the benefit is part of its benefit package by, for example, including it in enrollment materials or encouraging employees to enroll. DOL warns in the final Family and Medical Leave (FMLA) regulations that if a plan is intended to be exempt from ERISA under this provision, the ER should not pay an EE's premium while the EE is on FMLA leave. Define each of the following ERISA terms: plan administrator/sponsor participant beneficiary (Mod 1.2) - Correct answer (a) Plan administrator/plan sponsor A plan administrator is a person with statutory responsibility for ensuring that all of the required filings with the federal government are timely made and is the person upon whom the statute imposes authority to make important disclosures to participants about plan benefits. Generally, the plan administrator is designated in the plan document. However, if the plan administrator is not so designated, then the responsibility defaults to the plan sponsor, which is usually the employer. Generally, in a single employer situation, the employer is the plan sponsor. Therefore, the employer is ultimately responsible for all reporting and disclosure requirements and should implement a process to make certain those responsibilities are followed. b) Participant: The term participant has been interpreted broadly to include employees in, or reasonably expected to be in, currently covered employment. This would include employees who are eligible for a plan but who are not enrolled. However, employees in a class not eligible to participate in a plan are not participants under the ERISA definition. In addition, because the definition is not limited to current employees, it can include COBRA-qualified beneficiaries, covered retirees and other former EE's who may remain eligible under a plan. (c) Beneficiary: A beneficiary is any person designated by a participant (or by the terms of an ERISA plan) who is or may become entitled to a benefit under the plan. A beneficiary has rights provided under the plan in question, and the plan fiduciaries owe fiduciary duties to plan beneficiaries as well as to plan participants. A beneficiary may sue under ERISA for plan benefits and to remedy ERISA violations. A beneficiary also has the right to examine and request copies of plan documents. What are the main disclosure requirements under ERISA? (Mod 1.2) - Correct answer (a) A plan document must exist for each plan (b) A summary plan description (SPD) must be furnished automatically to participants (c) A summary of material modifications (SMM) must be furnished automatically to participants when a plan is amended

(d) A four-page summary of benefits and coverage (SBC) must be provided to applicants and enrollees before enrollment or reenrollment (e) Copies of certain plan documents must be furnished to participants and beneficiaries upon written request (f) Claim procedures must be established and followed when processing benefits claims and when reviewing appeals of denied claims What are the main requirements that pertain to ERISA plan assets? (Mod 1.2) - Correct answer a) Plan assets, including participant contributions, may be used only to pay plan benefits and reasonable admin costs. b) For some plans, plan assets may have to be held in trust. A fidelity bond must be purchased to cover every person who handles plan funds. Define plan document and explain why it is vital to meet the written document requirement (Mod 1.2) - Correct answer ERISA requires that every ERISA health and welfare plan be established and maintained in writing, and the scope of an ERISA plan is defined by the official plan document. The plan document describes the plan's terms and conditions related to the operation and administration of a plan. An insurance company's master contract, certificate of coverage or summary of benefits is usually not sufficient to serve as a legal plan document and rarely fully protects the plan sponsor. Every plan participant has the right to examine the plan document. What specific liabilities or problems exist for an ER that fails to have a plan document? (Mod 1.2) - Correct answer An ERISA plan may still exist even w/o a written plan document. A plan administrator's failure or refusal to put a plan in writing is merely a violation of ERISA and does not avoid coverage of the plan by ERISA. Failure to have a plan established in writing can result in the following liabilities or problems for the employer: Participants and beneficiaries may bring suit to enforce the ERISA written plan document requirement. Legal action may require the preparation of a formal document where none currently exists. A plan document must be furnished in response to a participant's written request. The plan administrator may be charged up to $110 per day if the document is not provided within 30 days of a request.* Criminal penalties may be imposed on any individual or company that willfully violates any requirement of Title I of ERISA, which includes disclosure rules. The penalty per conviction could be $100, and/or imprisonment for up to ten years. The fine can be increased up to $500,000 if it is against a company. It can be difficult to prove plan terms and thus enforce plan provisions. Participants and beneficiaries who sue to enforce informal, unwritten plans can base their claims on past practice or other evidence outside the actual terms of a written plan document that is favorable to their position. A plan sponsor may not be able to amend or terminate an informal plan until it first adopts a written plan instrument, complete with the required ERISA procedure for amending the plan and for identifying persons having authority to amend the plan. ERISA requires a fiduciary to act "in accordance with the documents and instruments governing the plan." This duty provides yet another incentive for careful plan drafting since, once reduced to writing as part of the plan document, plan language must generally be followed.

*The $110 per day amount along with other civil penalties violating ERISA provisions was increased in Aug 2016

  • in addition, the DOL announced inflation adjustments to these penalties will occur annually. Describe a "wrapper plan document" (Mod 1.2) - Correct answer A wrapper plan document is the typical way of supplementing an insurance company's certificate of coverage or insurance contract with the missing ERISA provisions. The wrapper document should make clear to the participants that its contents and the carrier's documents together constitute the plan document for the plan. If more than one benefit program is included under a single ERISA plan number (e.g., health, vision, dental and employee assistance plan benefits), then a wrapper plan document should be prepared to evidence the bundled approach. The result will be a single plan document that lists all of the welfare benefit options under that ERISA plan number. When multiple contracts or benefit arrangements are bundled under a single wrapper plan document, differences among the parts are inevitable. These differences should be identified and addressed at the outset as a matter of wrapper plan design. Explain the two often conflicting requirements embodied in SPDs (Mod 1.3) - Correct answer ERISA provides that an SPD (Summary Plan Description) must be "written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." Great care must be taken in composing the SPD language to meet these two often-conflicting requirements. In addition, plan sponsors generally want SPDs and other communication materials to convey positive messages to EEs about their benefits. Explain how often a new SPD is required (Mod 1.3) - Correct answer At a minimum, ERISA requires ERs to prepare new SPDs and distribute them to participants at least every ten years. For many plans, however, a five- year rule applies. A new SPD must be distributed to plan participants every five years if there has been a material change in the plan during that time. Each time a new SPD is distributed, a new five or ten year clock begins to run. How does the DOL define a "material reduction" in covered services/benefits in a health plan that requires SMMs be distributed within 60 days after the modification or change? (Mod 1.3) - Correct answer SMM = Summary of Material Modifications DOL defines a "material reduction" in a health plan as any modification or change that: Eliminates benefits payable under the plan Reduces benefits payable under the plan (for example, from a change in formulas, methodologies or schedules that serve as the basis for benefit determinations) Increases deductibles, copayments or other amounts paid by a participant or beneficiary Reduces the service area covered by a health maintenance organization (HMO) Establishes new requirements (for example, preauthorization requirements) to obtain services or benefits.

Discuss the acceptable methods of distributing required ERISA disclosure documents (Mod 1.3) - Correct answer SPDs and SMMs must be furnished in a manner "reasonably calculated to ensure actual receipt of the material." Acceptable methods include: In-hand delivery to employees First-class mail Second or third-class mail, but only if return and forwarding postage is guaranteed and address correction is requested Inclusion in a union or company publication, but only if certain requirements are met Disclosure to participants (both employees and nonemployees) may be made electronically (for example, by e-mail, an intranet or the Internet). This option is not without limit, however. DOL issued a safe harbor rule, meaning that plans are not required to comply with its conditions; however, compliance ensures that DOL will find a plan's electronic delivery method acceptable. As outlined in the rule, all ERISA Title I plan documents and notices, including SPDs, SMMs and summary annual reports (SARs), may be furnished electronically. Compliance with the safe harbor rules for electronic distribution depends on whether the plan participant has work-related computer access or non-work related computer access. Explain the purposes of the SBC (Mod 1.3) - Correct answer SBC = Summary of Benefits and Coverage ERISA disclosure requirements have been expanded by the health care reform requirement to provide a four- page SBC to applicants and enrollees before enrollment or reenrollment. The summary must accurately describe the "benefits and coverage under the applicable plan or coverage." The SBC requirement applies in addition to the SPD and SMM requirements under ERISA. Describe the basic rules for presenting the SBC to entitled parties (Mod 1.3) - Correct answer The statute requires that the SBC must be presented in a uniform format, utilize terminology understandable by the average plan participant, not exceed four pages in length and not include print smaller than 12-point font. While the health care reform law called for a four-page summary, the proposed regulations interpret the four-page limitation as four double-sided pages. This will give employers additional flexibility in providing the required information. The SBC must be provided as a standalone document. It must be presented in a culturally and linguistically appropriate manner. In general, the rules provide that, in specified counties of the US, plans and insurers must provide interpretive services. List the problems or penalties a plan sponsor might incur if they do not provide SPDs or SMMs as required (Mod 1.4) - Correct answer (a) A plan sponsor may be charged a penalty per day if it does not provide a plan participant with an SPD or SMM within 30 days of an individual's request. (b) Many courts look to the SPD and other plan descriptive material as important evidence of the benefits employees have been promised by the employer. For this reason, a clearly worded SPD is an important line of defense for employers in benefit disputes. (c) The plan may be forced to provide benefits described in any other written documents describing the plan. (d) Participants and beneficiaries may bring a civil action in federal district court to enforce any provision of ERISA.

Criminal penalties may be imposed against any individual or company that willfully violates any ERISA reporting and disclosure requirements. Failure to distribute SPDs or SMMs could be used against the plan sponsor, in actions brought by the gov't or plan participants and beneficiaries, to argue that the sponsor has engaged in a pattern of noncompliance with or violations of ERISA. (A pattern of noncompliance usually would cause DOL or the court to be less sympathetic to any arguments the plan sponsor may use.) In certain situations it might give the government impetus to initiate an audit of the sponsor's benefit programs in order to look for other ERISA violations. Briefly describe the SAR (Mod 1.4) - Correct answer SAR = Summary Annual Report An SAR is considered a plan disclosure requirement under ERISA. An SAR is a summary of certain information contained in a plan's Form 5500 Annual Report/Return, along with notification to participants of their rights under ERISA to receive additional information. ERISA requires that an SAR be given to each participant, including former employees who are still covered by a plan (for example, COBRA participants or retirees with plan coverage), in an ERISA welfare benefit plan. It is not necessary to file an SAR with DOL, because the SAR contains information already reported to DOL on the Form 5500. An SAR does not have to be provided if the plan is a totally unfunded welfare plan under which benefits are paid solely from the general assets of the employer or employee organization maintaining the plan. Describe the general types of information that must be maintained for an ERISA welfare benefit plan and the record retention requirement for these documents (Mod 1.4) - Correct answer Employers are required to keep sufficiently detailed information and data necessary to verify, explain, clarify or check on documents for accuracy and completeness, including vouchers, worksheets, receipts and applicable resolutions. Records must be maintained for six years for ERISA purposes, but other laws may require record retention for longer periods. ERISA stipulates that records be maintained for at least six years from the date the plan's associated Form 5500 is filed; however, because of filing extensions, practitioners recommend retaining records for eight years after the end of the applicable plan year. Discuss the obligation that the plan administrator for an ERISA welfare benefit plan has when electronic recordkeeping has been delegated to another party (Mod 1.4) - Correct answer The duty to maintain records as required by ERISA cannot be avoided by contract, delegation or otherwise. Thus, the use of a third party to provide an electronic recordkeeping system does not relieve the person responsible for maintaining and retaining records under ERISA of those duties. For example, the preamble states that when a plan administrator contracts with a service provider for the preparation, maintenance and retention of the plan's records, it nonetheless remains the plan administrator's obligation to ensure that the records are properly maintained and retained under ERISA. In addition, in the event of a DOL investigation, the plan administrator would be required to provide the necessary equipment and resources (including software, hardware and personnel) for inspecting, examining and converting electronic records into legible and readable paper copies.

To which federal taxes are benefits such as health insurance, sick pay, disability pay, worker's compensation insurance and retirement savings plans subject to? (Mod 2.1) - Correct answer The different types of benefits, such as health insurance, sick pay, disability pay, workers' compensation insurance and retirement savings plans, are funded by employers and in part by employee contributions through salary reductions. Whether employer and employee contributions and benefit payments received by employees are subject to withholding for federal income taxes (FIT), Social Security and Medicare (FICA) taxes or Federal Unemployment Tax Act (FUTA) taxes varies among benefit types. Are employer contributions made on an EE's behalf to a health insurance plan considered wages? (Mod 2.1) - Correct answer Generally not considered wages and therefore, are not FIT, FICA or FUTA taxable. On the other hand, EE contributions to such plans are included in the employee's taxable income for purposes of all of these taxes unless the contributions are made through a cafeteria plan in accordance with Internal Revenue Code (IRC) §125. Thus, if the employer does not offer the benefits through a cafeteria plan, and if the employee may choose whether to have the employer pay health insurance premiums in lieu of receiving the same amount in wages, the amounts are fully taxable to the employee whether they are received as wages or as employer-paid premiums. Are health and accident insurance plan payment benefits received by an EE taxable? (Mod 2.1) - Correct answer No. Health & Accident plan payments received by EE, Spouse or Dependents are not taxable income to the EE so long as the EE's expenses are for medical care. The IRS defines what constitutes medical care. What requirements must be met for ER contributions to be exempted from FICA and FUTA taxation (Mod 2.1) - Correct answer Exempted if a plan exists such that any one of the following requirements is met: The plan is in writing and copies of the plan details are made available to employees either in print (e.g., in a booklet, pamphlet or other periodical) or electronically by e-mail. The plan is referred to in an employment contract. The employer can document that employees contribute to the plan. Employer contributions are kept in a separate account from the employer's salary account. The employer is required to make the contributions. In addition, the plan must benefit employees and their dependents for the tax exclusion to apply. Explain the tax treatment of health benefits offered by ERs to EE's same-sex spouses and their eligible dependents (Mod 2.2) - Correct answer The value of health insurance benefits offered by employers to employees' same-sex spouses and their eligible dependents is not subject to federal income or FICA tax withholding and, in addition, employers are permitted to offer this benefit on a pretax basis. Legally married same-sex couples must be treated as spouses, regardless of their state of residence or state of celebration (state where marriage was performed).

Discuss the regulations issued in 2016 by the IRS that codified a nationally uniform rule regarding the tax treatment of benefits provided to individuals in a same-sex marriage (Mod 2.2) - Correct answer The 2016 IRS final regulations define the terms spouse, husband and wife in a gender-neutral way, for all federal tax purposes, to mean an individual lawfully married to another individual; the phrase husband and wife means two individuals lawfully married to each other. According to these regulations, if a couple is married in a state, territory or possession that recognizes same-sex marriage, the marriage is legal for all federal tax purposes regardless of where the couple lives. Marriages performed in a foreign country are recognized as valid in the United States for all federal tax purposes if at least one state, territory or possession recognizes the marriage as valid. This requirement is easily met because of the 2015 Supreme Court decision mandating that all states have to recognize same sex marriage. List the benefits that an ER may provide to an EE's same-sex spouse tax-free under federal law (Mod 2.2) - Correct answer (a) Health benefits (b) Qualified tuition reduction (c) Meals and lodging provided as a condition of employment (d) Dependent care benefits No-additional-cost services Qualified employee discounts Working condition fringe benefits Qualified transportation fringe benefits De minimis fringe benefits Qualified moving expenses Qualified retirement planning services Access to on-premises gyms and other athletic facilities. Under federal law, how is the value of all benefits provided to an employee's same-sex civil union partner or domestic partner treated? (Mod 2.2) - Correct answer Under federal law, the value of all benefits provided to an employee's same-sex domestic partner or a same-sex civil union partner under applicable state law (or provided to the partner's children) is not exempt from FIT unless the person is a "dependent" as defined in the IRC. (That is, if benefits are provided to a non-dependent partner in a same-sex civil union or domestic partnership, FIT are withheld, and they are based on the fair market value (FMV) of the benefits. In taxation terms, FMV is referred to as imputed income.) Explain the nondiscrimination requirements that the Patient Protection and Affordable Care Act (ACA) enacted for health insurance plans and its current enforcement status (Mod 2.3) - Correct answer Prior to ACA, employers could structure health insurance plans offered through a third party insurance company to favor highly compensated employees (HCEs) without jeopardizing the tax exclusion for employer contributions and reimbursements. ACA changed the rules to require such plans to meet the same nondiscrimination requirements that self-insured plans must meet in order to retain tax-favored status.

However, IRS has said that it will not require employers to comply with the new nondiscrimination provisions or enforce the penalties until it issues regulations or administrative guidance on the new requirements. Candidate Note: In January 2017 President Trump signed an executive order (EO) giving the Dept of Health and Human Services and "other executive departments and agencies" the authority and discretion to roll back certain aspects of ACA. As of this writing, because of the EO, the IRS is easing off the enforcement of some ACA provisions, however the law remains on the books and only Congress can repeal. What new requirements did ACA impose on the W2 Form, Wage and Tax Statement reporting? (Mod 2.3) - Correct answer All employers that provide group health care coverage that is excludable from employees' gross income must report the aggregate cost of the coverage to employees on their Forms W-2 in order to inform them of the cost of the coverage. This requirement is strictly for consumer informational purposes only and does not cause employer-provided health care coverage that is not taxable to become taxable. This includes the portion of the cost paid by the employer and the portion paid by the employee. Among the coverage types and arrangements that need NOT be reported on W2 are: Long-term care coverage Health Insurance Portability and Accountability Act (HIPAA) "excepted benefits" and dental or vision plan coverage that is not part of a group health plan Medical savings account (MSA) and health savings account (HSA ) contributions (reporting health reimbursement arrangement (HRA) employer contributions is optional Cost of EAP, wellness program and on-site medical clinic, unless the ER charges COBRA premium for continued coverage Salary reduction election amounts contributed to FSAs Employers that file fewer than 250 W2's for the preceding year do not have to report EE health benefits until IRS issues further notice. Summarize the information that must be reported to EEs and to IRS on the new ACA enacted Form 1095-C (Mod 2.3) - Correct answer All large, insured employers (i.e., an employer with at least 50 full-time employees, including full-time equivalent employees) must report whether they offer group health insurance to full-time employees and their non-spouse dependents, and whether that insurance provides minimum value and is affordable. Large self-insured employers must report whether they offer group health insurance to any employees (including part-time employees). This information is reported to employees and to IRS on Form 1095- C. Small self-insured employers (i.e., an employer with fewer than 50 full-time employees) must complete and file Form 1095-B. There are transmittal forms containing summary information that these respective ERs must submit to IRS along with 1095-C and 1095-B. Describe the characteristics of an HRA (Mod 2.4) - Correct answer HRA = Health Reimbursement Account

ERs may provide HRA to reimburse current and former (retired) EE's for medical expenses of the EEs and their spouses, dependents and eligible adult children (e.g., through the age of 26). HRAs are fully funded by the employer and cannot be offered to employees through a cafeteria plan or salary reduction. Employees are reimbursed on a pretax basis up to a set maximum amount for each period of coverage. Any amount not used by an employee by the end of the period is not lost and can be carried over to the next period at the employer's discretion. All of the following three conditions must be met for HRA coverage and reimbursements not to be included in an employee's gross income: a) the HRA only reimburses medical care expenses, as defined by IRC; b) every request for reimbursement is substantiated; c) the HRA does not reimburse medical expenses for a prior tax year, expenses incurred before the HRA plan became effective or expenses incurred before the EE enrolled In addition, while ER contributions to HRA are tax-free to the EE, ACA requires HRAs be integrated into a primary group's major medical plan and that the EE actually enroll in that primary group plan (exceptions for retiree only and one person stand alone HRAs). What is the criteria that a small ER must meet to qualify for a standalone HRA not linked to HDHP? (Mod 2.4) - Correct answer A small employer (i.e., an employer that does not have at least 50 full-time employees, including full-time equivalent employees) that does not offer its employees group major medical coverage may offer standalone qualified small employer health reimbursement arrangements (QSEHRAs) without running afoul of ACA market reform provisions. An employer's contribution into employees' QSEHRAs, however, is limited to specified amounts for employees depending on their marital status. These amounts are adjusted for inflation. Amounts exceeding those limits, and amounts that an employee does not use to purchase an individual policy that offers minimum essential coverage, are taxable to the employee. Medical Savings Accounts (MSAs) were made obsolete (although existing ones were grandfathered) by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) with the creation of HSAs. What are some of the unique features of HSAs? (Mod 2.4) - Correct answer HSAs are tax-exempt accounts used by employees to pay for medical expenses for themselves, their spouses and dependents. Employers can offer HSAs to employees who are enrolled in an HDHP. This plan has higher annual deductibles than a typical health insurance plan for self-only coverage and for family coverage. Annual out-of-pocket expenses are statutorily limited to certain amounts for both types of coverage. In addition, annual caps apply to the amount of contributions that may be made to an HSA for both types of coverage. All of these statutory amounts are adjusted annually for inflation. Extra catch-up contributions can be made to an HSA by individuals aged 55 and older until they are eligible to enroll in Medicare. No contributions of any kind can be made once an individual enrolls in Medicare.

Note: While Archer MSAs were replaced by HSAs in 2003, there are Medicare MSAs. They are uncommon but available with a HDHP through Medicare private health plans called Medicare Advantage Plans. How are contributions to HSAs taxed? (Mod 2.4) - Correct answer ERs and EEs can contribute up to HSAs annual limits. Contributions made by or for a covered individual up to the maximum annual limit are deductible by the individual. Employer contributions are excluded from the employee's gross income and are not taxable wages for purposes of withholding FIT, FICA taxes and FUTA taxes if, when the contributions are made, the employer reasonably believes it is excludable. Any employer contributions that exceed the annual limit or that are made for a noneligible individual are included in the employee's gross income. In addition, the HSA beneficiaries will pay a 6% excise tax on the excess contributions. HSAs and HDHPs can be offered as part of a cafeteria plan. How is pay for sick days associated with brief minor illnesses treated for tax purposes? (Mod 2.5) - Correct answer Sick pay is usually provided by ERs so that EEs do not lose wages when they are absent from work bc of brief, minor illness such as cold or flu. This type of sick pay is subject to FIT, FICA & FUTA taxes when paid. How are sick pay benefits for lengthier absences treated for tax purposes? (Mod 2.5) - Correct answer Employers may provide sick pay under a plan for lengthier absences, either as short term or long-term disability pay. These benefits are paid either by the employer or a third party such as an insurance company. Benefits that can be attributed to employee contributions made with after-tax dollars are not taxable income to the employee. Benefits that can be attributed to employee pretax contributions or employer contributions are included in the employee's taxable income and may be taxable for FIT, FICA taxes and FUTA taxes. If both the employer and employee contribute, the benefits are taxable only to the extent of the employer's contribution. The manner in which any required taxes are withheld while benefits are being paid out is dependent on several factors: Is the employer self-funding the benefits? Are the benefits administered by a third-party agent? Is the third-party payer an insurer that is not the employer's agent? Explain the taxation of permanent total disability benefits (Mod 2.5) - Correct answer Payments made to EEs who are permanently disabled and not returning to work are subject to FIT withholding to the extent that the premiums were paid by the employer or the employee on a pretax basis. Payments made under a plan after the employment relationship ends because of disability, retirement or death are not subject to FICA taxes or to FUTA taxes unless the payments would have been made even if the employment had not ended for one of those reasons. In addition, special rules apply to permanent disability payments made under a plan to an employee who is receiving Social Security disability insurance benefits. Outline the general rules to which workers' compensation benefits are subject (Mod 2.5) - Correct answer When employees suffer a work-related injury or illness, they may receive workers' compensation benefits. As a general rule, workers' compensation benefits are not subject to FIT or FICA taxes on amounts that do not exceed the

amount of benefits provided under federal, state or local law. However, under an arrangement where the ER pays part or all of an EE's salary while receiving benefits in return for all of the benefit payments received by the EE, FIT, FICA and FUTA taxes must be withheld on any amounts the ER pays to the EE that exceed the amount of benefits received by the EE. The excess amounts are considered taxable wages. Describe a cafeteria plan (Mod 2.6) - Correct answer A cafeteria plan is a type of benefit plan permitted by IRS §125 in which the employer offers employees a choice, much like a menu, of benefits that are either in the form of taxable cash compensation or tax-free (qualified) benefits. The plan must include at least one taxable and one qualified benefit. If a plan in which employees are offered this choice does not meet the requirements of §125, IRS-proposed regulations (on which an employer may rely until final regulations are published) provide that all the benefits, even those that would be considered nontaxable benefits, are non-qualified and are taxable income to the employees. The employee will be taxed as though he or she chose the taxable benefit with the greatest value, even if the employee chooses only nontaxable benefits. The amount is included in the employee's gross income in the year the EE would have received the taxable benefit. What types of plans may be offered under a cafeteria plan? (Mod 2.6) - Correct answer a) 401K Plan b) Health and Accident Insurance Plan c) HSA contributions LTD and STD COBRA continuation coverage premiums List benefits that are nonqualified, are taxable income to EE's and may not be offered as part of a cafeteria plan (Mod 2.6) - Correct answer (a) Scholarships and fellowships (b) Nontaxable fringe benefits under § (c) Educational assistance benefits (d) Meals and lodging provided for the employer's benefit MSA contributions made by the employer Certain HSAs Certain long-term care insurance benefits Certain group-term life insurance benefits Tax-sheltered annuity plan elective deferrals under 403(b) A health FSA is an arrangement under which EE's may reduce their current cash compensation (ie make pre-tax contributions) and instead have that amount contributed to a plan for use in reimbursing them or their dependents for medical expenses. Describe the following features of a health FSA: Integration into group health plans Unused amount Contribution limits (Mod 2.6) - Correct answer a) Integration in group health: Under ACA, group plans must meet certain market reforms, including providing preventative services at no cost to an EE and their dependents. The market reforms, however, do not apply to a group health plan that offers

excepted benefits. Health FSAs are group plans that must meet the market reform provisions, but they will be considered to provide only excepted benefits if the employer also makes available group coverage that is not limited to excepted benefits, and if the health FSA is structured so that the maximum benefit payable to any participant does not exceed two times the participant's salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant's salary reduction election). If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the market reforms, including the preventive services requirements. (b) Unused amounts (Carryover vs. grace period): An employee who has unused funds in their FSA by the end of the year may be eligible to carry over up to $ of the unused amount from one plan year to the next. Under a prior IRS rule, amounts remaining in an FSA at the end of a plan year are forfeited by the employee at the end of the plan year (referred to as the use-it-or-lose-it rule) or 2. months after the end of the FSA plan year if the ER has adopted a grace period. The carryover option provides an alternative to the grace period. A plan may not include both the carryover option and the grace period. The carryover option is not mandatory for employers. In order to adopt the option, the plan document must be amended to provide for the carryover provision and eliminate any grace period if one is provided. The carryover of up to $500 does not count against the statutory maximum contribution for the next plan year. (c) Contribution limits: There is a maximum amount, annually adjusted for inflation, that employees may contribute to a health FSA ($2,600 in 2017). The statutory limit does not apply to employer flex credits. Pretax contributions that erroneously exceed the plan year maximum must be treated as taxable wages Summarize the taxation requirements of a cafeteria plan (Mod 2.6) - Correct answer Employer contributions to a qualified cafeteria plan that relate to tax-free benefits chosen by an employee are not included in the employee's income and are not taxable for FIT, FICA taxes or FUTA taxes. If the employer contributions relate to taxable benefits, they are included in the employee's income and are subject to FIT, FICA taxes and FUTA taxes. Employee salary reduction contributions made on a pretax basis, whether made to purchase taxable or qualified benefits, are not included in the EE's income are are not FIT, FICA or FUTA taxable. What special rules apply to 401(k) plans and group term life insurance offered under a qualified cafeteria plan? (Mod 2.6) - Correct answer Special rules apply to 401(k) plans and group-term life insurance. Pretax §401(k) plan employer contributions under a qualified cafeteria plan are subject to FICA and FUTA taxes and must be reported on an employee's Form W-2 along with amounts withheld. Elective deferrals (contributions made on a pretax basis) are also reported on the Form W-2.

In addition, cafeteria plans may offer employees more than $50,000 of group-term life insurance to an employee as a qualified benefit. (IRC §79 provides an exclusion for the first $50,000 of group-term life insurance coverage provided under a policy carried directly or indirectly by an employer. There are no tax consequences if the total amount of such policies does not exceed $50,000. The imputed cost of coverage in excess of $50,000 must be included in income, using the IRS Premium Table, and are subject to Social Security and Medicare taxes.) Contributions to a qualified cafeteria plan made with post tax dollars are included in the EE's income and are FIT, FICA an FUTA taxable, but the benefits purchased are not taxable. Under a cafeteria plan, if an EE elects to receive cash rather than to purchase benefits, how is the cash treated for tax purposes? (Mod 2.6) - Correct answer Cash is considered wages and is FIT, FICA and FUTA taxable. Also, if cafeteria plan discriminates in favor of highly compensated EEs or key EEs, those individuals are FIT, FICA and FUTA taxable on the combined taxable benefits with the highest total value. Upon what factors does the tax treatment of qualified pension and profit-sharing plans depend? (Mod 2.7) - Correct answer The tax treatment of contributions to qualified pension and profit sharing plans depends on who makes the contributions. Employee after-tax contributions are included in employee income and are FIT, FICA and FUTA taxable. This applies even if the employees are required to participate in the plan and get a refund of contributions if they leave employment before retirement or death. Voluntary EE contributions are always taxable income. Employee elective deferrals (i.e. contributions made on pre-tax basis) are FICA and FUTA taxable. ER contributions to qualified plans are not included in EE taxable wages and are not FIT, FICA or FUTA taxable. EEs are taxed on pension plan payments when they are received to the extent that they are based on ER contributions, pretax deferrals or investment gains. They are only subject to FIT, however, and not to FICA or FUTA. Payment amounts based on EE after tax contributions are not taxable. If the plan is a qualified annuity plan, ER contributions are not considered wages and not subject to FIT, FICA or FUTA. Are contributions to 401(k) plans considered wages? (Mod 2.7) - Correct answer Employee elective (i.e., pretax) deferrals to §401(k) plans and employer matching contributions are not considered wages and are not subject to FIT withholding. Only distributions from the plan are taxable. However, employee elective deferrals are subject to FICA and FUTA taxes, even though employer matching contributions are not. Employee contributions to a §401(k) plan are subject to an annual, inflation-adjusted limitation amount. Employees who will be aged 50 or older by the end of the plan year are allowed to make catch-up contributions above the annual contribution limit up to an annual maximum amount. These amounts are adjusted annually for inflation. In addition, the IRC §415 limits the total amount of all elective deferrals, employer matching contributions and employee after-tax contributions in a year to an annual amount, which is also adjusted annually for inflation.

An annual amount of compensation can also be taken into account when determining the maximum contributions to an employee's defined contribution plan account for each plan year (indexed annually). Pretax elective deferrals to a §401(k) plan are included in an employee's compensation when determining the maximum contribution limit for the EE. Explain the taxability of the following types of retirement accounts: IRAs (Individual Retirement Accounts) Roth IRAs Simplified Employee Pension (SEP) Employee Stock Ownership Plan (ESOP) (Mod 2.7) - Correct answer (a) IRAs: Employers may offer employees the option to participate in an IRA in addition to a qualified retirement plan. Employer IRA contributions are included in the income of employees but they are not subject to FIT withholding up to the amount the employer reasonably believes employees will be able to deduct on their personal income tax returns. Income earned on contributions is not taxable until distributed to employees. Employer contributions are subject to FICA and FUTA taxes. (b) Roth IRAs: Roth IRAs differ from standard IRAs in that contributions are not deductible from employee income, and distributions are excluded from gross income if certain qualifications are met. Employees can contribute the maximum deductible amount for a standard IRA to a Roth IRA, excluding amounts contributed by the employee to other IRAs in the same year. In addition, the amount that can be contributed to a Roth IRA is phased out once the employee's adjusted gross income exceeds certain annual limits. Employees also can transfer amounts from their §401(k), §403(b) or §457(b) retirement accounts to a designated Roth account, provided the retirement plan has a qualified Roth contribution program. The amounts transferred are taxable at the time transferred and are treated as a qualified rollover contribution to the Roth account. (c) SEP plans: An SEP plan is an option for employers that do not have the financial resources to administer more complicated deferred compensation plans such as §401(k) plans. Employer contributions to a SEP, up to the annual limit, are not FIT, FICA or FUTA taxable, and any contributions over the limit are wages to employees. Employee elective deferral contributions are excluded from wages up to the deferral limit but are FICA and FUTA taxable. (d) ESOP: ESOPs are defined contribution plans that give employees the chance to own shares of the employer's stock. Employer contributions to a qualified ESOP are not taxable wages and not FIT, FICA or FUTA taxable, provided they do not

exceed 100% of the employee's annual compensation or the annual inflation-adjustment limit, whichever is less. What is the "Windsor" effect and what is its impact on plan documents? (Mod 3.1) - Correct answer Supreme Court ruling in US v Windsor extended federal tax and benefit rights to couples in a same sex marriage. The ruling means plan sponsors should review plan docs to ensure language is current and compliant. List 5 main ERISA reporting and disclosure requirements (Mod 3.1) - Correct answer 1) A written plan document

  1. A summary plan description
  2. A summary of material modification
  3. An annual financial report (Form 5500)
  4. A summary annual report -Qualified pension benefit plans are subject to additional disclosure & reporting requirements Describe the written plan document requirement and state the purpose of it (Mod 3.1) - Correct answer All plans subject to ERISA must be established & maintained pursuant to a written plan document that describes the benefits provided under the plan, names the individual(s) responsible for the operation of the plan and outlines the arrangements for funding and amending the plan. The purpose of the plan document is to set forth the rules and requirements governing the plan. The plan fiduciary is obligated to follow the terms and conditions of the plan, as long as the plan is compliant with the law. ERISA does not specifically define what should be included in a plan document. List the elements that would be prudent to include in a plan document (Mod 3.1) - Correct answer (a) The name(s) of the plan fiduciary(ies) (b) Policies and procedures relating to plan administration (c) Funding requirements (d) A description of how benefit payments will be made (e) Claims and appeals procedures (f) Plan amendment and termination authority and procedures Method for distribution of plan assets upon plan termination A statement that plan assets can be used to pay reasonable costs of plan administration Guidance provided by IRS affirms that a legally married same sex spouse must be treated as a spouse for all qualified pension and retirement benefit plan purposes. List some of these purposes (Mod 3.1) - Correct answer (a) As a named beneficiary, unless the spouse consents to another beneficiary (b) If a retirement plan provides a qualified joint and survivor annuity or a qualified preretirement survivor annuity, the same-sex spouse would be entitled to these benefits. (c) In regard to minimum distribution and rollover rules (d) In regard to withdrawals, loans and hardship distributions (e) In regard to alternative payee rights for distributions under a qualified domestic relations order (f) In regard to family attribution and other ownership rules applicable to retirement plans

What is a summary plan description (SPD) and when must it be given to participants? (Mod 3.1) - Correct answer The SPD contains a summary of the provisions of the plan, including details about eligibility, benefits, plan operations, funding and claims procedures as well as a statement of ERISA rights. The initial SPD must be distributed to participants and beneficiaries within 120 days of the date the plan becomes subject to ERISA disclosure requirements. Subsequent to the initial distribution, an SPD reflecting plan changes must be distributed every five years (every ten years if no changes are made to the plan). The SPD must be distributed by the 210th day following the close of the relevant plan year to which the SPD applies, unless there is a material reduction in benefits. New participants must be provided an SPD within 90 days of becoming participants in the plan. Identify the plan documents that, according to best practice guidelines, should be in place at a minimum, for the management of plan investments (Mod 3.2) - Correct answer a) SPD b) Investment committee charter Investment policy statement (IPS) Briefly describe the SPD for a retirement plan (Mod 3.2) - Correct answer The SPD outlines the key features of the retirement plan. This document fulfills the legal requirements and provides participants with an understanding of basic plan provisions. A plan SPD outlines the rules by which the plan is governed and covers such topics as employer contribution and vesting information, eligibility, plan loans and withdrawals, distributions and contact information for questions. The SPD should be written in language participants can easily understand. Describe the investment committee charter (Mod 3.2) - Correct answer The committee charter is an important component of plan governance. It does not need to be elaborate but should outline some fundamentals, providing committee members with the scope and range of authority to empower them to manage the plan and fulfill their fiduciary responsibilities. The committee charter should: Specify activities for which the committee is responsible, such as coordinating vendor analysis and recommending plan design features Define the governing bodies with whom the committee must consult and to whom they need to provide recommendations Define how committee members are selected or appointed Establish how often regular committee meetings should occur Define the roles of any outside consultants Describe the IPS (Mod 3.2) - Correct answer The IPS is the foundation for how the retirement plan investment program is expected to operate. The IPS should provide guidelines for selecting, monitoring, measuring and making decisions for the plan's investments. The IPS should: Define the plan and its purpose Describe responsibilities for those involved with the investment program

Establish the investment menu structure Assign investment performance benchmarks and develop performance measurement standards and processes Determine criteria for selecting and terminating investment managers Document the investment decision-making process List the components that should be included in a well constructed IPS (Mod 3.2) - Correct answer (a) Statement of purpose (b) Statement of roles and responsibilities (c) Asset allocation (d) Investment goals and objectives Investment guidelines Investment performance review and evaluation Comment on the number of committee members that should compromise an investment committee (Mod 3.2) - Correct answer The number of committee members that sit on an investment committee is important. Very large committees begin to lose their effectiveness and ability to make decisions efficiently; large groups can end up paralyzed and unable to reach consensus. A smaller group that has enough diversity to engender meaningful discussion and healthy debate is optimal. There is no perfect number, but five to seven members seem to meet objectives, while more than ten is typically too unwieldy. Lastly, having an odd number of members can prevent votes from being tied. Comment on the composition of an investment committee (Mod 3.2) - Correct answer The investment committee should include a representative from Sr Management (typically either the CFO or COO) as well as anyone who serves as a fiduciary to the plan. The organization's legal counsel should either be on the committee or simply attend committee meetings in an advisory capacity. Although they are not usually voting members, committee meetings should be attended by representatives from plan providers such as the trustee, investment consultant and recordkeeper. It is important that the committee represents the participants, since it will be making decisions for the participant population. For this reason, committees may want to include members from different disciplines and different areas of the organization, such as human resources and finance. A diverse mixture including more than just managers will help to create a more representative group. Committee membership should be voluntary. Most committees elect at least a chairperson and a secretary; other elected positions depend on the needs of the committee. Establishing a term of service for committee members can help to keep the committee fresh. Bringing in new members periodically can add the benefit of new perspectives to the team and keep it flexible. On the other hand, the experience and knowledge of long-term committee members can be of great value. Finding a balance may mean rotating some committee positions while retaining others for longer time periods.

Educating committee members is critical to the long term success of the committee as a governing body. Committee education can be broken down into 3 important segments. What are these segments? (Mod 3.2) - Correct answer (1) Understanding fiduciary responsibility. -Committee members should be aware of what their fiduciary responsibilities are and what liability they have. (2) Education about functioning as a committee. -Knowledge of techniques for inviting participation and encouraging different points of view, as well as avoiding common group pitfalls, can help a committee make better decisions as a group. (3) Investment education. -Committee members are likely to have varying degrees of investment knowledge and sophistication. Because they will be ultimately responsible for making investment decisions on the plan's behalf, committee members should have a fundamental understanding of investment concepts. How often should a committee meet? (Mod 3.2) - Correct answer At a minimum, annually. Generally, quarterly or twice a year is considered best practice. List the topics that should be covered in investment committee meetings (Mod 3.2) - Correct answer (a) Followup on discussion from previous committee meetings (b) Review of investment performance and investment options (c) Review of legislative and regulatory updates: Has anything in the regulatory or legislative environment changed that would affect the plan? (d) Review of vendor services and fees (e) Review of the IPS: Is it still in line with the needs of the overall investment program? Discussion of any potential plan improvements. How often should a recordkeeper request for proposal (RFP) be issued? (Mod 3.2) - Correct answer While not mandated by regulations, general recommendation every 3 to 5 years. What is a less demanding alternative to an RFP for investment committee members? (Mod 3.2) - Correct answer A request for information (RFI) may be somewhat less demanding than a full RFP while still providing some of the benefits, such as comparing costs and services w/other providers. Explain how the purpose of the employee benefit plan communications has changed recently (Mod 3.3) - Correct answer In the past, benefit communication was very basic. An employer's main communication objectives were keeping benefit booklets updated, making sure claim forms were available and issuing an occasional memo or newsletter summarizing updates and improvements to benefits. No longer is benefit communication merely concerned with providing employees

with information about plans over which they have little or no influence. Instead, employers must change their communication objectives to focus on motivating employees to make decisions about how to best utilize their benefits in a way that is economical to both the plan sponsor and the employee's family. Describe the basic ways in which employee benefit plan communications have change (Mod 3.3) - Correct answer Benefit programs and the information employers are required to communicate to employees are becoming increasingly complex and regulated, such as the relatively new fee disclosure and fiduciary rules from the Department of Labor (DOL).* Along with increased complexity and regulation, benefit programs are now more costly than ever. In addition, they are arguably more closely tied to an organization's overall business strategies. Benefits can play a major role in an organization's ability to attract and retain the diverse workforce necessary to compete in a changing business marketplace. Of course, benefits also clearly affect the organization's "bottom line." Communication is essential for benefits to support an organization's goals. They must be recognized, appreciated and understood by employees to further these goals. *As of this writing, the adoption of the new fiduciary rules from DOL planned for 2016 was uncertain. List the factors that influence the shape and scope of an organization's benefit communications (Mod 3.3) - Correct answer (a) Highlight the value of employee benefits (b) Create involvement and ownership with employees (c) Encourage better utilization of benefits (d) Support and facilitate benefits administration (e) Satisfy legal requirements What is a "total compensation statement" and what is its purpose? (Mod 3.3) - Correct answer Employers can increase the return on their investment in benefits by making employees aware of the cost of benefits and the effect of the cost on the company. This is often accomplished by a total compensation statement, wherein the cost of the benefits is computed and added with pay to reveal the employee's actual total compensation. Good communication can increase employee appreciation of the value of their benefits and create a positive attitude toward the company. Explain the differences between a market-driven approach to employee benefit plan communications and the traditional approach to such communications (Mod 3.3) - Correct answer There are five significant differences between a market-driven approach to employee benefit plan communications and the traditional approach to such communications. These are: In the market-driven approach, objectives are specific, not general as they are in the traditional approach. In the traditional approach, the focus is on informing or explaining the benefits; in the market-driven approach, the focus is on affecting or changing attitudes or behaviors. Success is often hard to measure in the traditional approach, while it is directly measurable in the market-driven approach.

In the traditional approach, messages are sent to a single mass audience, but messages are targeted to specific audiences in the market-driven approach. The communication tone is neutral in the traditional approach; in the market-driven approach, it is direct. Describe the basic steps involved in moving to a market-driven approach to an employee benefit plan communication system (Mod 3.3) - Correct answer (a) Research the audience to find out who they are, how they currently feel, what they want to hear, what will motivate them or change their attitudes, and how and when to reach them. (b) Set goals based on the anticipated results of a communication. Consider the knowledge needed or actions taken by employees as a result of the communication. Goals should be measurable, such as a stated percentage of employee participation in a managed care medical plan. (c) Plan the messages and media so that they are targeted to the appropriate market segments in the audience. Last century, it was print, telephone calls, promotions and more. This century, things have changed so quickly that it is imperative to meet the target audience where it sits (which will be somewhere on its smartphone) (d) Implement the communication campaign, which should be developed based on the results of the research step. In addition, the employer can test-market the communication along the way to make sure the messages are reaching the targeted audience. This can be done by soliciting feedback from a sample of employees prior to widescale distribution of the communication. (e) Test and measure the results of the communication. IRS has stated the reasons for urging plan sponsors to establish a strong internal control environment. What are these reasons? (Mod 3.4) - Correct answer In a recent presentation on internal controls, IRS examination leaders stated the reasons they favor strong internal controls. These are: Good internal controls can eliminate or reduce errors in the operation of the plan. They can help a plan sponsor quickly identify errors and initiate their own corrections without relying on regulators to catch mistakes, which reduces the cost of corrections. Good controls can help keep an audit of the plan focused, reducing the time dedicated to conducting an examination. They can shorten the turnaround time on any requests for additional information. They generally promote clear communication between examiners and representatives of the plan. What do DOL and IRS expect auditors to do regarding internal controls? (Mod 3.4) - Correct answer DOL and IRS have made it clear to auditors that they expect auditors to take a close look at internal controls as part of their routine audit procedures. It is an aspect of employee benefit audits that seems "widely misunderstood, or even widely unknown," says DOL on its website. "Auditors do not merely reconcile financial statements. In addition to their many other audit tasks, auditors review internal controls to determine whether they provide adequate safeguards for plan participants."

Who is responsible for establishing and maintaining an effective system of internal controls over employee benefit plans? Controls generally fall into which specific areas? (Mod 3.4) - Correct answer The plan sponsor and plan administrator are responsible for establishing and maintaining an effective system of controls. Controls generally fall into these areas: Plan documentation and any amendments Plan testing and administration as well as contributions, participant data, compensation, distributions, loans and plan expenses Controls at any third-party administrator Controls might also be necessary to address multiple plans, multiple subsidiaries or business units, or merging plans in the event of a business combination. Defined benefit pension plans also have additional controls to address actuarial assumptions and the proper distribution of funds. Describe the problem commonly encountered by auditors in employee benefit plan audits with the allocation of funds to employee accounts (Mod 3.4) - Correct answer Employee contributions to plans often are administered by payroll deductions. Auditors sometimes find that while contribution amounts are deducted from payroll according to a sound method, the funds are not always remitted timely to the employee benefit plan. For plans with more than 100 participants, funds must be remitted as soon as they reasonably can be segregated but not more than 15 days into the month following the month in which they are withheld from payroll. The timing on this transaction is critical, but it is not uncommon to find plan administrators are not following a sound process for ensuring it. Name areas that have been identified as especially in need of internal controls (Mod 3.4) - Correct answer Many areas have been identified as especially in need of internal controls. Some of them are: Distributions and loans Hardship withdrawals Nondiscrimination testing Contributions Compensation and personal data. What is an "SOC 1 Report?" (Mod 3.4) - Correct answer It is difficult to review and assess controls at an outside service organization, which is why third-party administrators should provide plan sponsors with an audit report of their own, commonly called a SOC 1 Report. Under professional standards, it is known more formally as a Report on Controls at a Service Organization Relevant to User Entities' Internal Control Over Financial Reporting. A SOC 1 Report is prepared by an auditor engaged by the third-party administrator to review and assess controls at that service organization, and the service organization provides the report to any entity relying on its controls. This is a more efficient means of showing controls are in place and operating effectively than having the service organization consent to audit requests from each of its individual clients.

How has IRS helped organizations with their internal control obligations? Explain. (Mod 3.4) - Correct answer IRS has taken note of where it most often sees control problems with employee benefit plans, and it provides checklists to help companies keep their plans in compliance. IRS also provides tools on its website that can be helpful to companies reviewing their controls or establishing controls in a more formal way. Discuss employee benefit plans' vulnerability to cyberattacks and other data breaches (Mod 4.1) - Correct answer Employee benefit plans are susceptible to cyberattacks, identity theft and other forms of data malfeasance due to the broad range of personal, identifiable information involved in plan administration and its potential market value. Health care systems and insurers appear to be at significant risk for cyberattack because electronic health records are particularly valuable to cyber criminals, and the security measures for these records are often not properly implemented, making breaches quite common. Significant costs are incurred when cyberattacks succeed. What challenges do plan sponsors and fiduciaries confront in dealing with cyberattacks and other data breaches? (Mod 4.1) - Correct answer Plan sponsors and fiduciaries may be challenged by limited resources, insufficient technical expertise and lack of clear standards. Individuals responsible for benefit plan management rarely have expertise in cybersecurity, yet benefit plans contain significant sensitive individual data that could be prone to a cyber breach. Consequently, plan sponsors and fiduciaries may want to carefully consider whether to consult with a cybersecurity expert when developing a cybersecurity strategy for their plans. In addition, firms that are small or do not have the resources or capacity to develop a customized, robust cybersecurity risk management strategy may need to consider using cloud-based resources to offload cybersecurity burdens onto the cloud provider. Alternatively, cyber insurance or other tools may be useful in designing a cost effective program. The data elements that benefit plans typically maintain and are subject to regulatory oversight have been classified as (a) personally identifiable information (PII) and (b) protected health information (PHI). Define these terms. (Mod 4.1) - Correct answer (a) PII is information that can be used to distinguish or trace an individual's identity, such as their name, social security number, biometric records, etc., both alone or when combined with other personal or identifying information that is linked or linkable to a specific individual, such as date and place of birth, mother's maiden name, etc. (b) PHI is a term derived from the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule standards that address the use and disclosure of individuals' health information. PHI is defined as information that is a subset of health information, including demographic information collected from an individual, and: is created or received by a health care provider, health plan, employer, or health care clearinghouse; and relates to the past, present, or future physical or mental health or condition of an individual; the provision of health care to an individual; or the past, present, or future payment for the provision of health care to an individual; and (i) that identifies the individual; or

(ii) with respect to which there is a reasonable basis to believe the information can be used to identify the individual. What arrangements linked to employee benefit plan administration are likely to increase privacy data? (Mod 4.1)

  • Correct answer Plan sponsors assume greater privacy risks when providing sensitive personal data of participants to service providers for plan administration. This additional risk is unavoidable, since administering an employee benefit plan typically involves the assistance of service providers such as third-party administrators (TPAs), outside payroll providers, benefits consultants, investment funds, investment advisors and others. Service providers acting on behalf of employee benefit plans collect and process large amounts of personal, medical and financial information with respect to participants and beneficiaries. Among the information stored are Social Security numbers, email accounts, retirement assets and income figures. The collection and processing function is done through automated systems that rely upon the Internet and thus call for close monitoring of the way service providers will manage this information. Describe the non-HIPAA compliance issues associated with the information accumulated by medical plans and their service providers (Mod 4.1) - Correct answer More than just HIPAA compliance is at stake with protecting the massive amount of information accumulated by medical plans. A plan fiduciary cannot assume that service providers will handle all compliance obligations. Failure to identify and address privacy and security considerations with service providers may create exposure for Employee Retirement Income Security Act (ERISA) fiduciaries. Section 404(a) of ERISA generally requires a fiduciary to discharge his or her duties with respect to a plan "solely in the interest of the participants and beneficiaries" and with "the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." Hiring a service provider to provide services to an ERISA-covered employee benefit plan is itself a fiduciary act, because it requires discretionary control or authority over plan administration. Similarly, removing or retaining a service provider is a fiduciary act. Provide examples of common cyberthreats in the environment where benefit plans operate (Mod 4.2) - Correct answer (a) Ransomware, where cybercriminals encrypt and seize an entire hard drive and will only release it for a high ransom (b) Phishing, where fraudulent e-mails are sent with the objective of enticing the user to interact and inadvertently provide an avenue for a cybercriminal to infiltrate a computer network (c) Wire transfer e-mail fraud, where cybercriminals pretend to be senior executives asking employees to transfer funds (d) Malware via external devices, where intrusive and harmful software is stored on an external drive that is inserted into and executed on a network computer. List data breaches that have occurred with retirement plans (Mod 4.2) - Correct answer (a) Failure to install security system updates (b) E-mail hoax (phishing attack) (c) Downloads of plan information to a home computer