CEBS GBA Exam 3 Questions and Answers |Complete Solutions Graded A+ |100% Correct
Describe briefly four common organizations structures that are used for international
assignments (Mod 12.2) (a) Foreign employer. In this structure, the employee is simply
made an employee of the host jurisdiction employer and is no longer an employee of the home
jurisdiction employer.
(b) Employer with secondment. In this structure, the employee is kept as an employee of the
home jurisdiction employer and merely "seconded" from the home jurisdiction employer to the
host jurisdiction employer. This is much like loaning the employee to the host jurisdiction
company.
(c) Dual employment. In this situation, the employee becomes an employee of both
the home jurisdiction employer and the host jurisdiction employer, and the two organizations
agree upon some type of split regarding the employee's compensation.
(d) Special service company. In this structure, the employee is made an employee of a special
services company (usually located in a tax haven jurisdiction), which seconds the employee to
the host jurisdiction employer.
Explain the primary disadvantage or problem with each of the following organizational
structures that are used for international assignments: (a) foreign
employer, (b) dual employment and (c) special services company (Mod 12.2) (a) The primary
disadvantage of using a foreign employer is the fact that the employee typically cannot
continue participation in the home jurisdiction benefit plans, and generally his or her wages will
no longer be covered by the
home jurisdiction's social security system (for accruing coverage).
(b) The primary disadvantage of using dual employment is the fact that dual employment
generates some administrative difficulties and can be quite difficult to achieve. Additionally,
this approach entails more risk because international taxing authorities have become more
proficient at evaluating the use of these
arrangements and look to recoup lost revenue.
(c) A special service company has the disadvantage of extra associated costs involved in the
creation of a special organization to handle expatriates and inpatriates.
,List the important terms that should be included in an agreement for the international
assignment of employees (Mod 12.2) (a) Term of the assignment. How long does the
organization expect the assignment to last?
(b) Position title and duties
(c) Terminations. Under what rules can the employee be terminated?
(d) Restrictive covenants. These restrictions may not be enforceable in the same manner from
jurisdiction to jurisdiction.
(e) Choice of law. Which law will apply to disputes?
(f) Written acceptance by the employee
(g) Compensation package
List the additional compensation benefits that might be involved when an employee takes an
international assignment (Mod 12.2) (a) Tax equalization or tax protection. Tax equalization
requires an employee to pay a tax equal to the same home jurisdiction tax he or she would
have paid had he or she remained in his or her home. Tax protection is designed to reimburse
the employee only in the event he or she pays higher taxes as a result of the
international assignment.
(b) Cost-of-living allowances. These are payments to compensate the employee if he
or she has to cover a higher cost of living than he or she had in the United States.
(c) A housing differential allowance compensates for any higher housing costs.
(d) Relocation bonus
(e) Moving expenses
(f) Reimbursement of expenses related to the sale or rental of a principal residence
(g) Dependent education allowance
(h) Automobile allowance
(i) A home leave allowance compensates for the cost for the employee (and/or the
employee's family) to return to the U.S. for visits.
Define (a) Section 3121(I) agreement and (b) social security totalization agreement (Mod 12.2)
(a) In the U.S., if the employee transfers to an affiliate host jurisdiction employer, the U.S.
,employer can file a Section 3121(l) agreement with the Internal Revenue Service (IRS) that
allows the employee to continue paying payroll taxes into the U.S. system. IRS permits this
because the affiliate in the host jurisdiction is
considered to be merely an extension of the U.S. employer. However, the U.S. employer may
not want to utilize a Section 3121(l) agreement, and employees will work for a separate host
jurisdiction employer that has its own social insurance contribution program.
(b) Social security totalization agreements provide relief from dual social security coverage and
taxation under both systems and integrates or synchronizes the benefits earned under more
than one system. Generally, the employee will be taxed only by the jurisdiction where his or her
services are performed.
The U.S. health care system is unique in a number of ways in comparison to the systems in
other countries. Briefly summarize the ways in which the U.S. system is different (Mod 12.3)
(a) The U.S. is the only large economy in the world that does not offer its citizens universal
access to medical care.
(b) Medical benefit service pricing has not been subject to legal ceilings or regulated
pricing controls.
(c) There is a significant layer of cost caused by inordinate malpractice insurance premiums.
(d) Labor law is flexible relative to that of most other countries. The employer is generally able
to unilaterally adjust plan provisions in order to reduce benefits or require employees to share
a higher proportion of the annual cost.
(e) There are very few restrictions and/or deterrents in terms of funding vehicle choices
available for employer medical plans.
List some of the most popular measures used by multinational corporations to control the rising
costs of health care (Mod 12.3) (a) Tight local procurement of insurance
(b) Local self-insurance
(c) Multinational pooling
(d) Captive reinsurance
(e) Bulk purchasing across countries
, Briefly describe the problems or disadvantages associated with the cost control measures used
by multinational corporations on health care (Mod 12.3) (a) Tight local procurement of
insurance: This approach has rendered some success, but it eventually becomes relatively
ineffective as markets stabilize and recurring adverse loss ratios mount.
(b) Local self-insurance: Most multinational corporations lack the economies of scale (size) for
effective self-insurance because only a handful maintain international locations with over 1,000
employees. Even when a company has the size and willingness to adopt this funding approach,
actual execution is impaired due to an often inadequate medical service delivery infrastructure
at the local level. Furthermore, many companies that have actually tried self-insurance have in
fact exacerbated the financial performance of their plans due to poor administration.
(c) Multinational pooling: Pooling medical plans has not resulted in up-front premium
reductions that would be expected from lower premium charges. Furthermore, medical plans
are systematically being phased out of multinational pools.
(d) Captive reinsurance: First, there are only a few global carriers to front the risk locally with a
robust medical service delivery infrastructure that competes with leading local players. Second,
low potential for favorable underwriting experience has to be tackled. Third, there can be
excessive transactional costs. Fourth, there are employee contribution considerations, including
the respective
fiduciary controls, and employee consent requirements.
(e) Bulk purchasing across countries: This technique is often discouraged by local
labor, tax and insurance laws that require locally admitted policies and adherence to local
pricing norms. Further barriers are a scarcity of global providers with geographically widespread
medical plan offerings.
Aside from the structural factors that are driving medical costs for multinational corporations,
there are exogenous factors that preclude an employer's ability to manage medical costs. What
are these exogenous factors? (Mod 12.3) (a) Acquired rights: Acquired rights labor laws exist
in most international locations where multinationals operate. Essentially, these laws make it
difficult or impossible for a plan sponsor to amend existing plans in order to introduce cost-
containment features, since these measures are seen as taking away benefits already earned by
the employees. This effectively reduces the employer's ability to fight the annual medical trend
through plan design changes.
(b) Mounting regulatory requirements: Regulations to explicitly or implicitly mandate employer-
sponsored plans or to enhance medical plan coverage are rapidly emerging.
Describe briefly four common organizations structures that are used for international
assignments (Mod 12.2) (a) Foreign employer. In this structure, the employee is simply
made an employee of the host jurisdiction employer and is no longer an employee of the home
jurisdiction employer.
(b) Employer with secondment. In this structure, the employee is kept as an employee of the
home jurisdiction employer and merely "seconded" from the home jurisdiction employer to the
host jurisdiction employer. This is much like loaning the employee to the host jurisdiction
company.
(c) Dual employment. In this situation, the employee becomes an employee of both
the home jurisdiction employer and the host jurisdiction employer, and the two organizations
agree upon some type of split regarding the employee's compensation.
(d) Special service company. In this structure, the employee is made an employee of a special
services company (usually located in a tax haven jurisdiction), which seconds the employee to
the host jurisdiction employer.
Explain the primary disadvantage or problem with each of the following organizational
structures that are used for international assignments: (a) foreign
employer, (b) dual employment and (c) special services company (Mod 12.2) (a) The primary
disadvantage of using a foreign employer is the fact that the employee typically cannot
continue participation in the home jurisdiction benefit plans, and generally his or her wages will
no longer be covered by the
home jurisdiction's social security system (for accruing coverage).
(b) The primary disadvantage of using dual employment is the fact that dual employment
generates some administrative difficulties and can be quite difficult to achieve. Additionally,
this approach entails more risk because international taxing authorities have become more
proficient at evaluating the use of these
arrangements and look to recoup lost revenue.
(c) A special service company has the disadvantage of extra associated costs involved in the
creation of a special organization to handle expatriates and inpatriates.
,List the important terms that should be included in an agreement for the international
assignment of employees (Mod 12.2) (a) Term of the assignment. How long does the
organization expect the assignment to last?
(b) Position title and duties
(c) Terminations. Under what rules can the employee be terminated?
(d) Restrictive covenants. These restrictions may not be enforceable in the same manner from
jurisdiction to jurisdiction.
(e) Choice of law. Which law will apply to disputes?
(f) Written acceptance by the employee
(g) Compensation package
List the additional compensation benefits that might be involved when an employee takes an
international assignment (Mod 12.2) (a) Tax equalization or tax protection. Tax equalization
requires an employee to pay a tax equal to the same home jurisdiction tax he or she would
have paid had he or she remained in his or her home. Tax protection is designed to reimburse
the employee only in the event he or she pays higher taxes as a result of the
international assignment.
(b) Cost-of-living allowances. These are payments to compensate the employee if he
or she has to cover a higher cost of living than he or she had in the United States.
(c) A housing differential allowance compensates for any higher housing costs.
(d) Relocation bonus
(e) Moving expenses
(f) Reimbursement of expenses related to the sale or rental of a principal residence
(g) Dependent education allowance
(h) Automobile allowance
(i) A home leave allowance compensates for the cost for the employee (and/or the
employee's family) to return to the U.S. for visits.
Define (a) Section 3121(I) agreement and (b) social security totalization agreement (Mod 12.2)
(a) In the U.S., if the employee transfers to an affiliate host jurisdiction employer, the U.S.
,employer can file a Section 3121(l) agreement with the Internal Revenue Service (IRS) that
allows the employee to continue paying payroll taxes into the U.S. system. IRS permits this
because the affiliate in the host jurisdiction is
considered to be merely an extension of the U.S. employer. However, the U.S. employer may
not want to utilize a Section 3121(l) agreement, and employees will work for a separate host
jurisdiction employer that has its own social insurance contribution program.
(b) Social security totalization agreements provide relief from dual social security coverage and
taxation under both systems and integrates or synchronizes the benefits earned under more
than one system. Generally, the employee will be taxed only by the jurisdiction where his or her
services are performed.
The U.S. health care system is unique in a number of ways in comparison to the systems in
other countries. Briefly summarize the ways in which the U.S. system is different (Mod 12.3)
(a) The U.S. is the only large economy in the world that does not offer its citizens universal
access to medical care.
(b) Medical benefit service pricing has not been subject to legal ceilings or regulated
pricing controls.
(c) There is a significant layer of cost caused by inordinate malpractice insurance premiums.
(d) Labor law is flexible relative to that of most other countries. The employer is generally able
to unilaterally adjust plan provisions in order to reduce benefits or require employees to share
a higher proportion of the annual cost.
(e) There are very few restrictions and/or deterrents in terms of funding vehicle choices
available for employer medical plans.
List some of the most popular measures used by multinational corporations to control the rising
costs of health care (Mod 12.3) (a) Tight local procurement of insurance
(b) Local self-insurance
(c) Multinational pooling
(d) Captive reinsurance
(e) Bulk purchasing across countries
, Briefly describe the problems or disadvantages associated with the cost control measures used
by multinational corporations on health care (Mod 12.3) (a) Tight local procurement of
insurance: This approach has rendered some success, but it eventually becomes relatively
ineffective as markets stabilize and recurring adverse loss ratios mount.
(b) Local self-insurance: Most multinational corporations lack the economies of scale (size) for
effective self-insurance because only a handful maintain international locations with over 1,000
employees. Even when a company has the size and willingness to adopt this funding approach,
actual execution is impaired due to an often inadequate medical service delivery infrastructure
at the local level. Furthermore, many companies that have actually tried self-insurance have in
fact exacerbated the financial performance of their plans due to poor administration.
(c) Multinational pooling: Pooling medical plans has not resulted in up-front premium
reductions that would be expected from lower premium charges. Furthermore, medical plans
are systematically being phased out of multinational pools.
(d) Captive reinsurance: First, there are only a few global carriers to front the risk locally with a
robust medical service delivery infrastructure that competes with leading local players. Second,
low potential for favorable underwriting experience has to be tackled. Third, there can be
excessive transactional costs. Fourth, there are employee contribution considerations, including
the respective
fiduciary controls, and employee consent requirements.
(e) Bulk purchasing across countries: This technique is often discouraged by local
labor, tax and insurance laws that require locally admitted policies and adherence to local
pricing norms. Further barriers are a scarcity of global providers with geographically widespread
medical plan offerings.
Aside from the structural factors that are driving medical costs for multinational corporations,
there are exogenous factors that preclude an employer's ability to manage medical costs. What
are these exogenous factors? (Mod 12.3) (a) Acquired rights: Acquired rights labor laws exist
in most international locations where multinationals operate. Essentially, these laws make it
difficult or impossible for a plan sponsor to amend existing plans in order to introduce cost-
containment features, since these measures are seen as taking away benefits already earned by
the employees. This effectively reduces the employer's ability to fight the annual medical trend
through plan design changes.
(b) Mounting regulatory requirements: Regulations to explicitly or implicitly mandate employer-
sponsored plans or to enhance medical plan coverage are rapidly emerging.
