CEBS GBA Exam 3
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).
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.
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)
- 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.
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.
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.
4) A plan maintained outside the US primarily for nonresident aliens.
,5) Plans that cover only self-employed individuals and that cover no "common-law
employees" generally not subject to ERISA.
6) 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:
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) - 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:
a) plan administrator/sponsor
b) participant
c) 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.
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) - 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:
(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.
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).
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.
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)
- 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.
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.
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.
4) A plan maintained outside the US primarily for nonresident aliens.
,5) Plans that cover only self-employed individuals and that cover no "common-law
employees" generally not subject to ERISA.
6) 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:
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) - 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:
a) plan administrator/sponsor
b) participant
c) 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.
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) - 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:
(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.
