CEBS GBA Exam 1 Questions & Answers 2024
Broad view of Employee Benefits (Mod 1.1) - ANSWER-Considers Employee Benefits to be virtually any form of compensation other than direct wages paid to Employees (Ex: WC, Unemployment, State DI, SS, Vacation, Holidays, 401K/Retirement, Employer share of Medical, Severance Pay, Child Care, etc..)
Narrow view of Employee Benefits (Mod 1.1) - ANSWER-Any type of plan sponsored or initiated by Employees and Employers and engaged in providing benefits that result from the employment relationship and that are not underwritten or paid directly by the government; (Ex: Benefits excluded include those legally mandated - WC, SS).
Impact of Labor Unions on Employee Benefits (Mod 1.2) - ANSWER-Through Collective Bargaining, Employee Benefit Plans have been impacted. In 1948 ruling states that the duty to bargain in good faith over wages also included insurance and fringes (pension). In WW Cross & Co, NLRB ruled wages included
health and accident plan.
What is the Taft-Hartley Act? (Mod 1.2) - ANSWER-The Labor Management Relations Act of 1947 is a United States federal law that restricts the activities and power of labor unions. This set forth good-faith collective bargaining over wages, hours, terms of employment and benefits.
3 Examples of Tax Advantages of Employee Benefit Plans (Mod 1.2) - ANSWER-1: Employer Contributions
are Tax Deductible
2: Employer Contributions are not considered income to Employees
3: Certain Retirement Benefits Accumulate Tax-Free until distributed.
Examples of Questions that should be addressed when creating benefit objectives (Mod 1.3) - ANSWER-
Ex: What benefits should be provided? Who should be covered? Should Employees have options? How should plan be financed? How should plan be administered? How should plan be communicated to Employees?
What is the Functional Approach to Employee Benefit Planning? (Mod 1.4) - ANSWER-Application of a systematic method of analysis to an Employer's Total Employee Benefits Program. It analyzes the organization's EBP as a whole in terms of its ability to meet various employee's needs and to manage loss exposures within the overall compensation goals and parameters.
Why is the Functional Approach appropriate when planning, designing and administering Employee Benefits? (Mod 1.4) - ANSWER-1: EE Benefits Significant Element of EE Comp and are a Tax-Effective Way to Compensate
2: EE Benefit Represent Large Labor Cost, so ER's should effectively plan/cost-control
3: In the past, EE Benefits were adopted on piece-meal basis; helps to now fill gaps/overlap
4: Systematic Approach to planning helps to keep the EBP current, competitive and in compliance with updated requirements (ACA)
5: Benefits to be integrated properly together
Compare Compensation/Service Oriented Benefit Philosophy with the Needs-Oriented (Mod 1.4) - ANSWER-Compensation/Service: EBP comprised of primarily compensation, service or both. Level of benefits tied to salary or pay levels/years of service
Needs Orientated: Focuses on Needs of EE's and their dependents
Identify Steps in Applying Functional Approach (Mod 1.4) - ANSWER-1: Classify EE/Dep Needs & Objectives (in logical/functional categories)
2: Classify Categories of EE's to be protected
3: Analyze present benefits in terms of functional categories of needs/objectives, persons to benefit, and
regulatory requirements
4: Determine any gaps or overlap in benefits from all sources in terms of functional categories of needs & the persons to be protected
5: Consider recommendations for changes
6: Estimate costs/savings from each recommendation
7: Evaluate alternative methods of financing for those recommended benefits (and existing ben)
8: Consider other cost-saving techniques
9: Decide upon appropriate benefits and methods of financing as a result of analysis
10: Implement Changes
11: Communication Changes to Employees
12: Periodically re-evaluate EBP Define Needs/Exposures covered under EBP (Mod 1.4) - ANSWER-1: Medical Expenses (EE/Dep)
2: Losses due to Disability (Short/Long Term)
3: Death (EE/Dep/Retirees)
4: Retirement Needs
5: Capital Accumulation Needs/Goals
6: Needs for Unemployment/Layoff/Termination
7: Needs for Financial/Retirement Counseling
8: Losses from property/liability exposures
9: Needs for Dependent Care Assistance
10: Needs for Educational Assistance (EE/Dep)
11: Needs for Custodial-Care Expenses (LTC)
12: Other Needs/Goals (Stock Purchase Plan)
Explain Concept of Replacement Ratio in terms of creating Retirement/Disability Plans (Mod 1.5) - ANSWER-A Replacement Ratio is a person's gross income after retirement, divided by his or her gross income before retirement. Should include SS, capital accumulation benefits as well as retirement plans.
Define Protection-Oriented Benefits (Mod 1.5) - ANSWER-Consist of Medical Expense Benefits, Life/STD/LTD Insurance - protect against serious loss exposures that could spell immediate financial disaster. As such, they have a relatively short probationary period due to the need of immediate coverage.
Define Accumulation-Orientated Benefits (Mod 1.5) - ANSWER-Consist of Pension Plans, Profit-Sharing, Savings, 401K, etc...which reward an Employee for long service with an Employer. Involve a longer probationary period since viewed as a reward - not a disadvantage for long-term employees.
Impact of making a plan Contributory on Employee Participation (Mod 1.5) - ANSWER-Impacts group as a
whole - not everyone will elect due to cost. If participation is mandatory in a contributory plan, may create employee relations problem. Describe arguments of flexibility in designing employee benefit plans as it relates to functional approach (Mod 1.5) - ANSWER-Argument 1: More flexibility EE has, more likely he or she will select a benefit that best meets needs/goals - thus, flexibility in plan design/options facilitates functional approach.
Argument 2: Works against functional approach because some EE's may not recognize all their needs and
leave some uncovered.
Define concept of risk (Mod 2.1) - ANSWER-Uncertainty with respect to possible losses. Inability to determine with certainty the actual number and value of claims.
Define relationship between peril and hazard (Mod 2.1) - ANSWER-Peril: Cause of a loss (fires, floods, theft, death)
Hazard: Condition that increases probability that a peril will occur or tends to increase severity of loss when a peril occurs.
Define physical hazard, moral hazard, morale hazard (Mod 2.1) - ANSWER-Physical: Physical Condition (Defective Wiring, No Fire Extinguisher), increases chance of loss
Moral: Dishonesty increases chance of loss (Arson)...b/c of Moral, premiums are higher to all. Attempt to
control by careful UW and provisions such as deductibles, waiting periods, exclusions
Morale: Carelessness or Indifference by insureds since they have insurance (protected from loss).
How does pure risk differ from speculative risk (Mod 2.2) - ANSWER-Pure Risk: Situations where two alternatives are possible - risk will happen (no loss) or it will happen and a financial loss takes place. Many EB Coverages fall into this classification. Nothing positive can result from Pure Risk, but many are insured (Fire, Auto, Illness, Disability)
Speculative Risk: Involve a possibility (that is not present in pure risk) of a gain. Three potential outcomes: Loss, No Loss, Gain (Ex: Purchase Stock, Gambling)
Most Important Type of Pure Risk (Mod 2.2) - ANSWER-Personal Risk (Death, Illness, DI, Unemployment)
Summarize Methods for Handling Risk (Mod 2.2) - ANSWER-1: Avoidance - does not take on risk/gets rid of
2: Control - attempts to prevent or reduce the probability/severity of a loss taking place
3: Retention - risk is assumed and paid for by the person suffering the loss
