Chapter 13
BENEFITS
Test Bank Questions, 5e
MULTIPLE CHOICE QUESTIONS
1. Defined benefit pension plans:
a. promise a specific pension benefit upon retirement
b. are insured through the Pension Benefit Guaranty Corporation (PBGC)
c. all of the above
d. none of the above
2. Summary plan descriptions (SPDs):
a. must be provided to new employees before they begin their employment
b. provide a brief overview of the terms of employee benefit plans
c. can be the basis for claims that employees did not receive promised benefits
d. all of the above
e. none of the above
3. Regarding the Pension Benefit Guarantee Corporation (PBGC), which of the following
statements is true?
a. The PBGC is an agency that insures defined benefit pension plans.
b. The PBGC is an agency that insures defined contribution pension plans.
c. The PBGC’s fund is running out of money, due to the increase in the failure of the
pension plans it insures.
d. a and c only
e. b and c only
4. Which of the following is a fiduciary duty under ERISA?
a. ensuring that plans operate in accordance with plan documents and ERISA
b. diversifying pension fund assets to minimize the risk of large losses
c. managing benefit plans and funds solely in the interest of plan beneficiaries
d. all of the above
e. none of the above
5. An employer would likely prefer this kind of pension plan:
a. a defined benefit plan
b. a defined contribution plan
c. a hybrid plan
d. none of these
6. Which of the following is true regarding vesting requirements under ERISA?
a. once pension rights vest, employees are entitled to receive full pensions upon
leaving employment
b. once pension rights vest, employees’ pension plans cannot be discontinued or
changed
c. vesting usually occurs after five or seven years of service
d. vesting is never required but is purely a contractual provision negotiated between
the employer and employee
7. Which of the following is true of the Employee Retirement Income Security Act
(ERISA)?
a. it requires employers to provide pensions for most of their employees
b. it is superseded by state laws that relate to employee benefit plans
c. it does not apply to benefit plans administered by public employers
d. it requires that once a plan is in place, it can not be changed or modified without
the employees consent
e. all of the above
8. Defined contribution pension plans:
a. are insured by the Pension Benefit Guaranty Corporation (PBGC)
b. are prone to under-diversification of investments
c. are not subject to ERISA vesting requirements
d. guarantee specific pension benefits to the employee when the plan is entered into
9. The Patient Protection & Affordable Care Act was challenged in a lawsuit alleging that
the federal government exceeded its authority under the constitution by requiring that
people buy health insurance. The case went to the U.S. Supreme Court, which ruled:
a. striking down the law, on the basis that the federal government had violated the
commerce clause
b. striking down the law, on the grounds that nothing in the Constitution authorized
the law
c. upholding the law as valid, on the grounds that it did not violate the commerce
clause
d upholding the law as valid, on the grounds that it constituted a tax on the lack of
health insurance
10. Which of the following is a qualifying event necessitating an offer of COBRA
continuation coverage?
a. an employee quits his job
b. an employee’s hours are cut
c. a spouse and an employee get divorced
d. all of the above
e. none of the above
11. An employee is terminated for poor attendance. The employer sends a letter on May 1
notifying him of his right to receive continuation health insurance coverage. The letter
states that the former employee must respond by May 30 to be eligible for up to 6 months
of continuation coverage. The employer’s letter:
a. accurately states the former employee’s rights under COBRA
b. should state that the employee has 45 days to decide on coverage that would last
up to 3 years
c. should state that the employee has 60 days to decide on coverage that would last
up to 3 years
d. should state that the employee has 60 days to decide on coverage that would last
up to 18 months
e. should not have been sent since a termination for poor attendance is not a
qualifying event under COBRA
12. The Mental Health Parity and Addiction Equity Act requires:
a. that employers include mental health conditions in their health insurance coverage
b. that employers include addiction in their health insurance coverage
c. that if employers include mental health conditions in their health insurance
coverage, they must do so at the same level and under the same terms as medical
and surgical treatments
d. none of thee
13. Regarding the topic of employment benefits, it is correct to say that:
a. both employment and tax laws affect employment benefits
b. the law on this topic has been very much in flux
c. the law on this topic has largely been settled
d. public policy debates concerning this topic have occurred in recent years
e. a, b and d
f. a, c and d
14. The Pregnancy Discrimination Act provides for each of the following EXCEPT:
a. health plans must cover expenses for pregnancy-related medical care on the same
basis as for other medical conditions
b. because of the extreme costs and because men do not avail themselves of
pregnancy benefits, larger deductibles or co-pays may be charged
c. both married and unmarried employees must be covered
d. the same level of coverage must be provided for the spouses of male employees as
is provided for the spouses of female employees
15. Regarding employment benefits, the general rule is that:
a. employers are legally required to provide employment benefits in the form of
basic health care, vacation pay, and pension or profit sharing plans
b. employers are legally required to provide basic health care, but no other benefits,
although they may do so voluntarily
c. only employers with 50 or more employees are legally required to provide basic
health care, but no other benefits, although they may do so voluntarily
d. none of these
16. An employee whose wife suffered from breast cancer was terminated after a change of
ownership of the company. He asked whether their health insurance would continue, and
was told verbally that it would. Nine months later when his wife sought treatment, she
was advised the policy had been terminated. He and his wife sued for a violation of
COBRA. The court should rule:
a. for the employer, since it was a new owner, and not the employer of the
employee.
b. for the employer, since the employee never requested in writing that their
insurance be continued
c. for the employee, since he was not given notice of his COBRA rights in writing
d. for the employee’s wife, because she was also an insured, but was given no notice
of her COBRA rights
17. You have just been hired as the new Human Resources Manager for your firm. On your
second day, an employee filed for disability benefits due to a recent injury. Not knowing
about a disability policy through this firm, you search the files and discover that the firm
cancelled a long term disability on the employee without notifying him. What should
you do?
a. nothing; maybe the employee will withdraw his claim for disability benefits
b. send official notice that the disability policy had previously been cancelled
c. call the employee to tell him that the disability policy had previously been
cancelled
d. b and c
e. none of these
18. About ERISA, the Employee Retirement Income Security Act, it is correct to say that:
a. the law governs only pension plans
b. the law governs benefit plans broadly, not just pension plans
c. the law only applies to “welfare” plans
d. none of these
19. An employee would likely prefer this kind of pension plan:
a. a defined benefit plan
b. a defined contribution plan
c. a hybrid plan
d. none of these
20. HIPAA, the Health Insurance Portability and Accountability Act provides all of these
EXCEPT:
a. it greatly restricts the use of the pre-existing exclusion
b. it provides that exclusionary periods can be no longer than 30 days
c. it provides that pregnancy cannot be deemed a pre-existing condition
d. it provides that a certificate of creditable coverage reduces the exclusionary time
period for a pre-existing condition
ESSAY QUESTIONS
1. Why is each of the following good legal advice?
a. Benefit plan administrators must base their decisions about eligibility for benefits on plan
documents, have reasons for their decisions, and use all of the current, relevant
information available to them.
b. Health insurance plans must cover medical expenses related to childbirth and not impose
deductibles or co-payments for such treatment that exceed those required for other
medical treatments.
c. Group health plans must not limit eligibility based on health status, medical condition,
claims experience, medical history, genetic information, or the disability of an employee
or dependent.
d. A pension plan must have mandatory vesting.
e. Employers should be careful in advising employees about their benefits and refer them
back to SPD’s and other plan documents.
2. Previously in stock-drop cases, courts used a presumption of prudence standard,
presuming investment of company stock in company pension plans to have been prudent
and therefore valid, despite problems with the stock. But a recent Supreme Court case
ruled that the managers of company stock funds enjoy no special presumption of
prudence. Discuss the potential impact of this ruling.