CEBS GBA Exam 1 Questions & Answers
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Broad view of Employee Benefits (Mod 1.1) - ANSWERConsiders Employee Benefits to be virtually
any form of compensation other than direct wages paid to Employees (Ex: WC, Unemployment, State
DI, SS, Vacation, Holidays, 401K/Retirement, Employer share of Medical, Severance Pay, Child Care,
etc..)
Narrow view of Employee Benefits (Mod 1.1) - ANSWERAny type of plan sponsored or initiated by
Employees and Employers and engaged in providing benefits that result from the employment
relationship and that are not underwritten or paid directly by the government; (Ex: Benefits excluded
include those legally mandated - WC, SS).
Impact of Labor Unions on Employee Benefits (Mod 1.2) - ANSWERThrough Collective Bargaining,
Employee Benefit Plans have been impacted. In 1948 ruling states that the duty to bargain in good
faith over wages also included insurance and fringes (pension). In WW Cross & Co, NLRB ruled wages
included health and accident plan.
What is the Taft-Hartley Act? (Mod 1.2) - ANSWERThe Labor Management Relations Act of 1947 is a
United States federal law that restricts the activities and power of labor unions. This set forth good-
faith collective bargaining over wages, hours, terms of employment and benefits.
3 Examples of Tax Advantages of Employee Benefit Plans (Mod 1.2) - ANSWER1: Employer
Contributions are Tax Deductible
2: Employer Contributions are not considered income to Employees
3: Certain Retirement Benefits Accumulate Tax-Free until distributed.
Examples of Questions that should be addressed when creating benefit objectives (Mod 1.3) -
ANSWEREx: What benefits should be provided? Who should be covered? Should Employees have
options? How should plan be financed? How should plan be administered? How should plan be
communicated to Employees?
What is the Functional Approach to Employee Benefit Planning? (Mod 1.4) - ANSWERApplication of a
systematic method of analysis to an Employer's Total Employee Benefits Program. It analyzes the
organization's EBP as a whole in terms of its ability to meet various employee's needs and to manage
loss exposures within the overall compensation goals and parameters.
,Why is the Functional Approach appropriate when planning, designing and administering Employee
Benefits? (Mod 1.4) - ANSWER1: EE Benefits Significant Element of EE Comp and are a Tax-Effective
Way to Compensate
2: EE Benefit Represent Large Labor Cost, so ER's should effectively plan/cost-control
3: In the past, EE Benefits were adopted on piece-meal basis; helps to now fill gaps/overlap
4: Systematic Approach to planning helps to keep the EBP current, competitive and in compliance
with updated requirements (ACA)
5: Benefits to be integrated properly together
Compare Compensation/Service Oriented Benefit Philosophy with the Needs-Oriented (Mod 1.4) -
ANSWERCompensation/Service: EBP comprised of primarily compensation, service or both. Level of
benefits tied to salary or pay levels/years of service
Needs Orientated: Focuses on Needs of EE's and their dependents
Identify Steps in Applying Functional Approach (Mod 1.4) - ANSWER1: Classify EE/Dep Needs &
Objectives (in logical/functional categories)
2: Classify Categories of EE's to be protected
3: Analyze present benefits in terms of functional categories of needs/objectives, persons to benefit,
and regulatory requirements
4: Determine any gaps or overlap in benefits from all sources in terms of functional categories of
needs & the persons to be protected
5: Consider recommendations for changes
6: Estimate costs/savings from each recommendation
7: Evaluate alternative methods of financing for those recommended benefits (and existing ben)
8: Consider other cost-saving techniques
9: Decide upon appropriate benefits and methods of financing as a result of analysis
10: Implement Changes
11: Communication Changes to Employees
12: Periodically re-evaluate EBP
Define Needs/Exposures covered under EBP (Mod 1.4) - ANSWER1: Medical Expenses (EE/Dep)
2: Losses due to Disability (Short/Long Term)
3: Death (EE/Dep/Retirees)
,4: Retirement Needs
5: Capital Accumulation Needs/Goals
6: Needs for Unemployment/Layoff/Termination
7: Needs for Financial/Retirement Counseling
8: Losses from property/liability exposures
9: Needs for Dependent Care Assistance
10: Needs for Educational Assistance (EE/Dep)
11: Needs for Custodial-Care Expenses (LTC)
12: Other Needs/Goals (Stock Purchase Plan)
Explain Concept of Replacement Ratio in terms of creating Retirement/Disability Plans (Mod 1.5) -
ANSWERA Replacement Ratio is a person's gross income after retirement, divided by his or her gross
income before retirement. Should include SS, capital accumulation benefits as well as retirement
plans.
Define Protection-Oriented Benefits (Mod 1.5) - ANSWERConsist of Medical Expense Benefits,
Life/STD/LTD Insurance - protect against serious loss exposures that could spell immediate financial
disaster. As such, they have a relatively short probationary period due to the need of immediate
coverage.
Define Accumulation-Orientated Benefits (Mod 1.5) - ANSWERConsist of Pension Plans, Profit-
Sharing, Savings, 401K, etc...which reward an Employee for long service with an Employer. Involve a
longer probationary period since viewed as a reward - not a disadvantage for long-term employees.
Impact of making a plan Contributory on Employee Participation (Mod 1.5) - ANSWERImpacts group
as a whole - not everyone will elect due to cost. If participation is mandatory in a contributory plan,
may create employee relations problem.
Describe arguments of flexibility in designing employee benefit plans as it relates to functional
approach (Mod 1.5) - ANSWERArgument 1: More flexibility EE has, more likely he or she will select a
benefit that best meets needs/goals - thus, flexibility in plan design/options facilitates functional
approach.
Argument 2: Works against functional approach because some EE's may not recognize all their needs
and leave some uncovered.
, Define concept of risk (Mod 2.1) - ANSWERUncertainty with respect to possible losses. Inability to
determine with certainty the actual number and value of claims.
Define relationship between peril and hazard (Mod 2.1) - ANSWERPeril: Cause of a loss (fires, floods,
theft, death)
Hazard: Condition that increases probability that a peril will occur or tends to increase severity of
loss when a peril occurs.
Define physical hazard, moral hazard, morale hazard (Mod 2.1) - ANSWERPhysical: Physical Condition
(Defective Wiring, No Fire Extinguisher), increases chance of loss
Moral: Dishonesty increases chance of loss (Arson)...b/c of Moral, premiums are higher to all.
Attempt to control by careful UW and provisions such as deductibles, waiting periods, exclusions
Morale: Carelessness or Indifference by insureds since they have insurance (protected from loss).
How does pure risk differ from speculative risk (Mod 2.2) - ANSWERPure Risk: Situations where two
alternatives are possible - risk will happen (no loss) or it will happen and a financial loss takes place.
Many EB Coverages fall into this classification. Nothing positive can result from Pure Risk, but many
are insured (Fire, Auto, Illness, Disability)
Speculative Risk: Involve a possibility (that is not present in pure risk) of a gain. Three potential
outcomes: Loss, No Loss, Gain (Ex: Purchase Stock, Gambling)
Most Important Type of Pure Risk (Mod 2.2) - ANSWERPersonal Risk (Death, Illness, DI,
Unemployment)
Summarize Methods for Handling Risk (Mod 2.2) - ANSWER1: Avoidance - does not take on risk/gets
rid of
2: Control - attempts to prevent or reduce the probability/severity of a loss taking place
3: Retention - risk is assumed and paid for by the person suffering the loss
4: Transfer - one shifts the financial burden of risk to another party
5: Insurance - form of transfer which the financial burden is transferred to insurance company
How is insurance a mechanism for EBP's? (Mod 2.3) - ANSWERInsured (EE/ER) pays money
(premium) into a fund (insurance company). Upon occurrence of loss, reimbursement is provided to
person suffering loss. Thus, risk has been reduced/eliminated and all who paid into the fund share
the resulting loss.
