GBA/RPA 3
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What kinds of benefit plans does the Employee Retirement Income Security Act primarily regulate?
Private-sector pension plans and employee welfare benefit plans.
Does an employer have to establish a pension or welfare plan?
No. The law regulates covered plans once they exist; it does not require an employer to create them.
What four facts help a reasonable person recognize an employee benefit plan?
Intended benefits, eligible beneficiaries, financing source, and how to obtain benefits.
Must specific formalities be completed for an employee welfare plan to exist?
No. An ongoing employer commitment or administrative practice may establish the plan.
Can an employee welfare plan be covered without a written plan document?
Yes. A plan may exist, but failure to maintain it in writing violates the law.
What is a common payroll-practice exclusion from employee welfare plan regulation?
Normal compensation paid from employer general assets during certain absences, such as short-term illness.
What changes a short-term disability payroll practice into a regulated welfare plan?
Funding through insurance or paying more than an employeeâs normal compensation.
Which employer-sponsored plans are generally excluded from this law?
Governmental plans, certain church plans, and certain other statutory exceptions.
What four conditions are required for the voluntary-benefit safe harbor?
No employer contributions, voluntary participation, no prohibited employer consideration, and no endorsement.
What may an employer do while avoiding endorsement of a voluntary benefit?
Publicize the offering and collect or remit premiums without urging employees to enroll.
Which behavior can eliminate the voluntary-benefit safe harbor?
Encouraging enrollment or presenting the benefit as an employer-endorsed program.
Who is the plan administrator if none is named in the plan document?
The plan sponsor, usually the employer.
Who may count as an employee benefit plan participant?
An employee eligible for the plan even if not enrolled, and certain former employees or retirees.
What does a beneficiary mean in an employee benefit plan?
A person designated by the participant or plan terms to receive benefits.
Who must be covered by an employee benefit plan fidelity bond?
Every person who handles plan funds.
What are employee benefit plan assets permitted to pay for?
Benefits and reasonable plan administration costs.
What is the official employee benefit plan document used for?
Stating the planâs binding terms, operation, administration, and amendment procedures.
What is a wrapper plan document?
A document adding missing legal provisions to insurance contracts or certificates; it may combine benefits under one plan.
What is a summary plan description used for?
Clearly explaining participant rights, obligations, benefits, and plan operations.
How often must a summary plan description be redistributed if material changes occurred?
At least every 5 years.
How often must a summary plan description be redistributed without material changes?
At least every 10 years.
What is a summary of material modifications used for?
Notifying participants of material changes to a benefit plan.
What is the deadline for notice of a material reduction in health plan benefits?
Generally within 60 days after the change.
What are examples of a material reduction in health plan benefits?
Higher deductibles or copayments, eliminated benefits, smaller service area, or new preauthorization rules.
What is a summary of benefits and coverage intended to communicate?
A uniform, concise description of health coverage before enrollment or reenrollment.
What minimum font size is cited for a summary of benefits and coverage?
12-point type.
How is the four-page limit for a summary of benefits and coverage interpreted in the guide?
Four double-sided pages.
What does a summary annual report communicate?
A participant-friendly summary of annual reporting information and participant rights.
What welfare plan may be exempt from distributing a summary annual report?
A totally unfunded welfare plan paying benefits solely from employer general assets.
How must required disclosure documents be delivered?
By a method reasonably calculated to ensure actual receipt.
When may electronic delivery of benefit disclosures be used?
When applicable electronic disclosure conditions or safe harbor requirements are met.
What deadline triggers the potential daily penalty for failing to give requested plan documents?
30 days after a participantâs written request.
What maximum daily document-disclosure penalty is quoted in the guide?
Up to $110 per day, with annual inflation adjustments noted by the guide.
What criminal consequences are quoted for a willful disclosure violation by an individual?
Up to $100,000 and/or 10 years in prison per conviction.
What maximum criminal company fine is quoted for a willful disclosure violation?
Up to $500,000 per conviction.
How long must supporting employee benefit plan records generally be kept?
At least 6 years after the related Form 5500 annual return is filed.
What longer employee benefit plan recordkeeping period is recommended for practical purposes?
About 8 years after the applicable plan year.
Are employer-paid health coverage contributions generally taxable wages?
No. They are generally excluded from federal income, Social Security, Medicare, and unemployment taxes.
When can employee-paid health insurance premiums be pretax?
When paid through a qualifying Section 125 cafeteria plan.
What choice must a Section 125 cafeteria plan offer?
At least one taxable benefit, such as cash, and at least one qualified tax-free benefit.
Can a Section 403(b) tax-sheltered annuity elective deferral be a cafeteria plan qualified benefit?
No. It is listed among the nonqualified benefits.
Can a Section 401(k) elective deferral be offered in a cafeteria plan?
Yes, subject to applicable cafeteria plan rules.
What happens when an employee elects taxable cash instead of tax-free benefits?
Cash is generally treated as taxable wages.
Which part of employer-provided group-term life coverage is generally excluded from income?
The first $50,000 of coverage; excess coverage can produce imputed taxable income.
How are employer-funded disability payments generally taxed?
The portion funded with employer contributions is generally taxable to the employee.
How are disability payments funded by employee after-tax premiums generally taxed?
The portion funded by after-tax employee premiums is generally not taxable.
How is regular employer-paid sick leave typically taxed?
As normal wages subject to federal income and payroll taxes.
How are qualifying workersâ compensation benefits generally treated for federal taxation?
Generally excluded, up to the legally provided benefit amount.
What is a health reimbursement arrangement funded by?
The employer, not employee pretax salary reductions.
Can unused health reimbursement arrangement money be carried forward?
Yes, if the employer's arrangement permits it.
Which employers can generally sponsor a qualified small employer health reimbursement arrangement?
Eligible employers with fewer than 50 full-time employees including equivalents, and no group major medical plan.
What coverage is required to contribute to a health savings account?
Enrollment in a qualifying high-deductible health plan and satisfaction of other eligibility rules.
At what age may a health savings account owner make catch-up contributions?
Age 55 or older, before Medicare enrollment.
What happens to eligibility to contribute to a health savings account after Medicare enrollment?
Contributions are no longer permitted.
What excise tax applies to excess health savings account contributions in the guide?
6%.
What are two options for unused health flexible spending account money?
A limited carryover or a 2½-month grace period, if the employer adopts that option.
May a health flexible spending account offer both carryover and a grace period?
No. The guide says the two options cannot be combined.
Does health flexible spending account carryover reduce the following year's contribution maximum?
No. The permitted carryover does not count against the next year's salary-reduction limit.
What happens to unused health flexible spending account money without carryover or grace period?
It is generally forfeited under the use-it-or-lose-it rule.
What federal income tax treatment applies to employer qualified pension contributions when contributed?
Generally excluded from employees' taxable wages at contribution; benefits are generally taxable on distribution.
What payroll tax treatment applies to employee pretax retirement elective deferrals?
Federal income tax is deferred, but Social Security and Medicare payroll taxes generally apply.
How is a same-sex spouse treated for federal tax purposes?
As a spouse, consistently with the treatment of other legally married spouses.
When may benefits for an unmarried domestic partner be tax-free?
Generally when the person qualifies as the employee's tax dependent under relevant rules.
What does employer reporting of health coverage cost on an employee wage statement mean?
It is generally informational and does not itself make excluded coverage taxable.
What is the large-employer Affordable Care Act reporting threshold?
50 or more full-time employees, including full-time equivalents.
Which Affordable Care Act coverage statement is generally used by applicable large employers?
Form 1095-C.
Which Affordable Care Act coverage statement is generally used by smaller self-insured employers?
Form 1095-B.
What does an investment committee charter document?
The committee's responsibilities, authority, structure, and governance procedures.
What does an investment policy statement document?
Investment objectives, selection, measurement, monitoring, and review guidelines.
Does the law expressly require an investment policy statement for every retirement plan?
No. It is a widely recommended governance best practice.
What committee size is described as useful for investment decisions?
About 5 to 7 members; more than 10 can become unwieldy.
How often should an investment committee generally meet under the guide's best practices?
Quarterly or twice a year, depending on the committee and plan needs.
What is a major purpose of documenting investment committee decisions?
Showing that fiduciaries used a deliberate, informed, and prudent process.
What does a service organization controls report focused on financial reporting assess?
Relevant controls at a service provider that may affect the plan's financial reporting.
What is the main difference between traditional and market-driven benefits communication?
Traditional explains benefits; market-driven targets measurable changes in participant behavior.
What is shown on a total compensation statement?
Pay plus the employer-provided value of employee benefits.
What is a request for proposal used for in vendor selection?
A structured, formal process for inviting and comparing vendor proposals.
What is a request for information used for in vendor selection?
An earlier, lighter information-gathering or comparison process.
What are examples of basic benefit-plan internal controls?
Authorized transactions, reconciliations, segregation of duties, and record accuracy checks.
What is personally identifiable information?
Information that can identify or trace a specific individual.
What is protected health information?
Health, care, or payment information protected under health privacy rules.
What is ransomware?
Malicious software that blocks access to data or systems and demands payment.
What is phishing?
Deceptive messages that try to steal credentials or induce unsafe actions.
What is a common security practice for employee benefit account access?
Multifactor authentication plus strong credential protection.
What is an employer's basic responsibility when outsourcing sensitive benefits data?
Careful vendor selection, contractual safeguards, and ongoing monitoring.
What should a privacy-sensitive service provider contract cover?
Data use, confidentiality, breach notice, security, subcontractors, compliance, and oversight rights.
What does the Federal Trade Commission medical transcription case illustrate?
The importance of high standards in selecting and supervising vendors handling personal health information.
What was the length of the Federal Trade Commission order in the medical transcription case?
20 years, with independent evaluations every 2 years.
What three areas are covered by Department of Labor retirement plan cybersecurity guidance?
Hiring service providers, cybersecurity best practices, and online security tips for participants.
What is a settlor function in benefits governance?
An employer business decision, such as plan design or termination, rather than plan fiduciary administration.
What is a ministerial function in benefits administration?
A routine administrative task involving no discretionary decision-making.
Which accounting standards topic applies to defined benefit pension plans?
Financial Accounting Standards Board Accounting Standards Codification Topic 960.
Which accounting standards topic applies to defined contribution pension plans?
Financial Accounting Standards Board Accounting Standards Codification Topic 962.
Which accounting standards topic applies to health and welfare benefit plans?
Financial Accounting Standards Board Accounting Standards Codification Topic 965.
What is the goal of Statement on Auditing Standards Number 136?
Improving plan audit quality and clarifying responsibilities and reporting.
What is the newer name for a limited-scope employee benefit plan audit?
An Employee Retirement Income Security Act Section 103(a)(3)(C) audit.
May a plan administrator demand to inspect an independent plan auditor's workpapers?
No. The administrator has no right to examine them, even to assess audit quality.
What does an audit engagement letter establish?
Scope and objectives of the audit and management's and auditor's responsibilities.
Who prepares plan financial statements and maintains effective financial reporting controls?
Plan management, not the independent auditor.
What does an independent plan auditor provide?
An audit opinion based on reasonableânot absoluteâassurance.