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CEBS GBA EXAM 3 QUESTIONS AND ANSWERS
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CEBS GBA EXAM 3 QUESTIONS AND ANSWERS
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CEBS GBA EXAM 3 QUESTIONS AND ANSWERSAn employee welfare benefit plan has four basis elements. What are these elements?
(Mod 1.1) - answer- 1) There must be a plan, fund or program.
2) The plan, fund or program is established or maintained by an employer.
3) The plan, fund or program is for the purpose of providing specifically listed benefits,
through the purchase of insurance or otherwise.
4) Benefits are provided to participants and beneficiaries.
Explain how a "plan, fund or program" for an employee benefit plan is defined (Mod 1.1)
- 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) - 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.
Discuss whether plans that involve payroll practices are treated as ERISA health and
welfare plans (Mod 1.1) - 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:
a) While absent on holiday/vacation
b) While absent on active military duty
c) While absent for jury duty/witness
d) On account of periods of time during which the EE performs little or no work while in
training
e) 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) - 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) - 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:
a) plan administrator/sponsor
b) participant
c) beneficiary (Mod 1.2) - 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) - 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) - 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.
c) 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) - 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) - 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:
(a) 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.
, (b) 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.*
(c) 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 $100,000 and/or imprisonment for up to ten years. The
fine can be increased up to $500,000 if it is against a company.
(d) It can be difficult to prove plan terms and thus enforce plan provisions.
(e) 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.
(f) 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.
(g) 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 langua
Describe a "wrapper plan document" (Mod 1.2) - 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.
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) - 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.
2) 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.
3) A plan maintained to comply with state laws on Worker's Comp, Unemployment or
Mandated Disability Insurance.
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