CHAPTER 13

BENEFITS

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
Answer: C

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
Answer: C

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
Answer: D

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
Answer: D
5. In Fought v. UNUM Life Insurance Company of America, Fought underwent surgery for
coronary artery disease, a pre-existing condition at the time she qualified for her
employer’s disability policy. Weeks after the surgery, she developed a staph infection,
became disabled, and applied for coverage under her company’s disability insurance. The
insurer denied coverage on the basis of a pre-existing condition, her coronary artery
disease, and Fought sued. As to the issue of causation, the court ruled:
a. for the insurer, since Fought would not have had surgery which resulted in the
infection but for the pre-existing coronary artery disease
b. for the insurer, since the staph infection was a previously undiscovered pre-
existing condition
c. for Fought, since the staph infection was not a pre-existing condition, and was not
a necessary consequence of her coronary artery disease
d. for Fought, because the insurer had a conflict of interest

Answer: C

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
Answer: C

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
Answer: C

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
Answer: B
9. Which of the following is NOT a part of the Patient Protection & Affordable Care Act?
a. a temporary insurance program for high-risk individuals with pre-existing
conditions and no health insurance
b. a prohibition against denying coverage to children based on pre-existing
conditions
c. a requirement that plans cover all immunizations and routine health care
d a prohibition against requiring pre-authorization for emergency care
Answer: C

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
Answer: D

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
Answer: D

12. Which of the following is one of HIPAA’s requirements regarding pre-existing condition
exclusions in group health plans?
a. exclusionary periods can last no longer than 6 months
b. exclusionary periods must be reduced by any periods of prior coverage under a
group health plan, as long as the break in coverage was no more than 63 days.
c. certificates of creditable coverage are used to document that employees have pre-
existing conditions to which exclusionary periods would apply
d. prior coverage under a group health plan does not include any period of
continuation coverage under COBRA
e. none of the above
Answer: B
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
Answer: E

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
Answer: B

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
Answer: D

16. In McDowell vs. Krawchison, 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 ruled:
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
Answer: D
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
Answer: D

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
Answer: B

19. The problem with a Cash Balance or Hybrid pension plan is:
a. that the employee bears the risk of loss of the investment
b. that because of the way benefits are calculated, older employees receive less than
younger employees
c. that they are not covered by ERISA
d. none of these
Answer: B

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
Answer: B

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.
 Answer: ERISA – denial of benefits claims – The standard most often used in denial of
benefits cases is “abuse of discretion.” This standard is deferential to plan administrators,
but requires that decisions not be arbitrary and capricious.

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.

Answer: Pregnancy Discrimination Act – The PDA requires that pregnancy and related
medical conditions be treated the same as other medical conditions under employer’s
health plans.

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.

Answer: HIPAA requirement.

d. With just a few exceptions, employers must not establish mandatory retirement ages.

Answer: ADEA requirement

e. Employers should be careful in advising employees about their benefits and refer them
back to SPD’s and other plan documents.

Answer: ERISA – The law places a premium on informing employees about their
benefits. SPD’s and other written plan documents take precedence over oral
representations.

2. There is no question that health care and other benefits often become available to family
members without question. How does the law currently look at the extension of benefits
to domestic partners?

Answer: Persons that live together without marriage are at best disadvantaged. Federal
law does not prohibit discrimination based on sexual orientation nor does federal law
require that benefits be made available to domestic partners, regardless of sex. While a
few state courts and several state and city governments have made decisions favorable to
domestic partner eligibility for benefits, the number and class of people covered are very
narrowly defined and small. Currently, it is up to individual employers to decide whether
they wish to institute a policy extending benefits to those domestic partners not required
to be covered under federal or state law, except where that policy is prohibited by state
law.