AFC Employment Benefits and Workplace Financial Programs — Questions and Answers
Question 1: A client leaves their employer and wants to continue their group health insurance. Under which federal law may they continue coverage, and for how long (for an individual employee)?
- COBRA; up to 18 months (Correct answer)
- ERISA; up to 12 months
- HIPAA; up to 36 months
- ACA; up to 24 months
Correct answer: COBRA; up to 18 months
COBRA (Consolidated Omnibus Budget Reconciliation Act) allows workers who lose employer-sponsored health coverage to continue that coverage for up to 18 months (36 months for dependents in certain qualifying events like divorce or death). The employee pays the full premium plus a 2% administrative fee.
Question 2: What is the key difference between a Flexible Spending Account (FSA) and a Health Savings Account (HSA)?
- FSA funds generally expire at year-end ('use it or lose it'), while HSA funds roll over indefinitely (Correct answer)
- HSAs are only available to employees with PPO plans
- FSA contributions are made by employers only
- HSAs must be used within 12 months or are forfeited
Correct answer: FSA funds generally expire at year-end ('use it or lose it'), while HSA funds roll over indefinitely
The critical difference is portability and rollover: FSA funds are 'use it or lose it' (with limited grace period exceptions), while HSA funds roll over year to year and are owned by the individual. HSAs also require enrollment in a High-Deductible Health Plan (HDHP) and offer triple tax advantages.
Question 3: An employer offers a 401(k) match of 50% of employee contributions up to 6% of salary. An employee earning $60,000 contributes 4% to their 401(k). How much will the employer contribute annually?
- $1,200 (Correct answer)
- $1,800
- $3,600
- $2,400
Correct answer: $1,200
Employee contribution: $60,000 × 4% = $2,400. Employer matches 50% of that: $2,400 × 50% = $1,200. Note: the employee is leaving money on the table by not contributing at least 6% to capture the full match. Full match would be $60,000 × 6% × 50% = $1,800.
Question 4: A client asks about contributing to a Dependent Care FSA (DCFSA). Which of the following expenses is eligible for reimbursement?
- Licensed daycare costs for a child under age 13 (Correct answer)
- College tuition for a 20-year-old dependent
- Overnight summer camp for a 12-year-old
- Medical expenses for a dependent child
Correct answer: Licensed daycare costs for a child under age 13
DCFSAs cover work-related dependent care expenses for children under age 13 (or disabled dependents of any age). Licensed daycare qualifies. Overnight camps are explicitly excluded (only day camps qualify). College tuition and medical expenses are not covered — medical FSAs cover healthcare costs separately.
Question 5: What does 'vesting schedule' mean in the context of employer-sponsored retirement benefits?
- The timeline over which an employee earns ownership of employer contributions to their retirement account (Correct answer)
- The schedule for when an employee must begin taking required minimum distributions
- The period during which an employee can change their investment allocation
- The deadline by which the employee must enroll in the retirement plan
Correct answer: The timeline over which an employee earns ownership of employer contributions to their retirement account
Vesting refers to the employee's ownership rights over employer contributions. Under a cliff vesting schedule, ownership is 0% until a specific date then 100%; under graded vesting, ownership increases incrementally over years. Employees always own 100% of their own contributions immediately.
Question 6: An employee wants to reduce their taxable income by maximizing pre-tax benefit contributions. Which of the following is a pre-tax benefit that directly lowers federal income tax liability?
- Traditional 401(k) contributions (Correct answer)
- Roth IRA contributions
- After-tax brokerage account deposits
- Personal savings account deposits
Correct answer: Traditional 401(k) contributions
Traditional 401(k) contributions are made pre-tax, reducing the employee's current taxable income dollar-for-dollar (subject to IRS limits). Roth IRA and after-tax contributions are made with after-tax dollars and do not reduce current taxable income. Personal savings accounts have no tax advantage.
AFC Employment Benefits and Workplace Financial Programs
A client leaves their employer and wants to continue their group health insurance.
Under which federal law may they continue coverage, and for how long (for an individual employee)?