CEBS GBA 1 PRACTICE EXAM GUIDE: 200 QUESTIONS
WITH CORRECT ANSWERS & RATIONALES FOR THE
2026/2027 EXAM
1. An employer is designing a new benefits package and wants to
include virtually any form of compensation other than direct wages.
This approach is best described as:
A. The narrow view of employee benefits
B. The functional approach to benefit planning
C. The broad view of employee benefits
D. The compensation/service oriented philosophy
Correct Answer: C
Rationale: The broad view considers employee benefits to be virtually
any form of compensation other than direct wages paid to employees,
including WC, unemployment, state DI, SS, vacation, holidays,
401(k)/retirement, employer share of medical, severance pay, child
care, etc.
2. Under ERISA, which of the following is considered a fiduciary based
on function rather than title?
A. Any employee who receives benefits from the plan
B. An investment advisor who provides recommendations but has no
discretionary authority
C. A plan administrator who exercises discretionary authority over plan
,management
D. The insurance agent who sold the policy but has no decision-making
power
Correct Answer: C
Rationale: ERISA defines a fiduciary based on function—anyone who
exercises discretionary authority or control over plan management or
assets, or who renders investment advice for a fee, is a fiduciary.
3. A plan sponsor selects a high-fee, consistently underperforming
mutual fund for the company's retirement plan because the fund
manager is a personal friend of the CEO. Which core ERISA fiduciary
duty is primarily violated?
A. The duty of diversification
B. The duty of loyalty (Exclusive benefit rule)
C. The prudent man rule
D. The duty to report
Correct Answer: B
Rationale: The duty of loyalty requires fiduciaries to act solely in the
best interest of plan participants and beneficiaries. Selecting a fund
based on personal friendship rather than participant interests violates
this duty.
4. Which of the following is NOT a characteristic of an ideally insurable
risk?
A. Loss should be verifiable and measurable
B. Loss should be catastrophic in nature
,C. Large number of similar risks (law of large numbers)
D. Loss should be accidental and unintentional from the insured's
standpoint
Correct Answer: B
Rationale: For a risk to be insurable, the loss should NOT be
catastrophic in nature. Catastrophic losses are difficult to insure
because they can overwhelm the insurer's capacity to pay claims.
5. What is the replacement ratio in the context of retirement
planning?
A. The ratio of employer contributions to employee contributions
B. A person's gross income after retirement divided by gross income
before retirement
C. The percentage of employees who replace their old benefits with
new ones
D. The ratio of defined benefit to defined contribution plan assets
Correct Answer: B
Rationale: A replacement ratio is a person's gross income after
retirement divided by his or her gross income before retirement. It
should include Social Security, capital accumulation benefits, and
retirement plans.
6. The Taft-Hartley Act of 1947 is also known as:
A. The Employee Retirement Income Security Act
B. The Labor Management Relations Act
, C. The Affordable Care Act
D. The Social Security Act
Correct Answer: B
Rationale: The Taft-Hartley Act is the Labor Management Relations Act
of 1947, a United States federal law that restricts the activities and
power of labor unions and sets forth good-faith collective bargaining
over wages, hours, terms of employment, and benefits.
7. Which risk handling technique is mutually exclusive with all other
techniques?
A. Retention
B. Transfer
C. Avoidance
D. Reduction
Correct Answer: C
Rationale: Avoidance is mutually exclusive because when you avoid a
risk, you have no losses, so there is no need for other techniques such
as retention, transfer, or reduction.
8. Protection-oriented benefits typically have a relatively short
probationary period because:
A. They are less expensive to administer
B. They protect against serious loss exposures that could spell
immediate financial disaster
C. Employees prefer shorter waiting periods for all benefits
D. Regulatory requirements mandate immediate coverage
WITH CORRECT ANSWERS & RATIONALES FOR THE
2026/2027 EXAM
1. An employer is designing a new benefits package and wants to
include virtually any form of compensation other than direct wages.
This approach is best described as:
A. The narrow view of employee benefits
B. The functional approach to benefit planning
C. The broad view of employee benefits
D. The compensation/service oriented philosophy
Correct Answer: C
Rationale: The broad view considers employee benefits to be virtually
any form of compensation other than direct wages paid to employees,
including WC, unemployment, state DI, SS, vacation, holidays,
401(k)/retirement, employer share of medical, severance pay, child
care, etc.
2. Under ERISA, which of the following is considered a fiduciary based
on function rather than title?
A. Any employee who receives benefits from the plan
B. An investment advisor who provides recommendations but has no
discretionary authority
C. A plan administrator who exercises discretionary authority over plan
,management
D. The insurance agent who sold the policy but has no decision-making
power
Correct Answer: C
Rationale: ERISA defines a fiduciary based on function—anyone who
exercises discretionary authority or control over plan management or
assets, or who renders investment advice for a fee, is a fiduciary.
3. A plan sponsor selects a high-fee, consistently underperforming
mutual fund for the company's retirement plan because the fund
manager is a personal friend of the CEO. Which core ERISA fiduciary
duty is primarily violated?
A. The duty of diversification
B. The duty of loyalty (Exclusive benefit rule)
C. The prudent man rule
D. The duty to report
Correct Answer: B
Rationale: The duty of loyalty requires fiduciaries to act solely in the
best interest of plan participants and beneficiaries. Selecting a fund
based on personal friendship rather than participant interests violates
this duty.
4. Which of the following is NOT a characteristic of an ideally insurable
risk?
A. Loss should be verifiable and measurable
B. Loss should be catastrophic in nature
,C. Large number of similar risks (law of large numbers)
D. Loss should be accidental and unintentional from the insured's
standpoint
Correct Answer: B
Rationale: For a risk to be insurable, the loss should NOT be
catastrophic in nature. Catastrophic losses are difficult to insure
because they can overwhelm the insurer's capacity to pay claims.
5. What is the replacement ratio in the context of retirement
planning?
A. The ratio of employer contributions to employee contributions
B. A person's gross income after retirement divided by gross income
before retirement
C. The percentage of employees who replace their old benefits with
new ones
D. The ratio of defined benefit to defined contribution plan assets
Correct Answer: B
Rationale: A replacement ratio is a person's gross income after
retirement divided by his or her gross income before retirement. It
should include Social Security, capital accumulation benefits, and
retirement plans.
6. The Taft-Hartley Act of 1947 is also known as:
A. The Employee Retirement Income Security Act
B. The Labor Management Relations Act
, C. The Affordable Care Act
D. The Social Security Act
Correct Answer: B
Rationale: The Taft-Hartley Act is the Labor Management Relations Act
of 1947, a United States federal law that restricts the activities and
power of labor unions and sets forth good-faith collective bargaining
over wages, hours, terms of employment, and benefits.
7. Which risk handling technique is mutually exclusive with all other
techniques?
A. Retention
B. Transfer
C. Avoidance
D. Reduction
Correct Answer: C
Rationale: Avoidance is mutually exclusive because when you avoid a
risk, you have no losses, so there is no need for other techniques such
as retention, transfer, or reduction.
8. Protection-oriented benefits typically have a relatively short
probationary period because:
A. They are less expensive to administer
B. They protect against serious loss exposures that could spell
immediate financial disaster
C. Employees prefer shorter waiting periods for all benefits
D. Regulatory requirements mandate immediate coverage
