aPHR Compensation and Benefits 4 — Questions and Answers
Question 1: What is the primary difference between a defined benefit plan and a defined contribution plan?
- Defined benefit plans are funded only by employees
- Defined benefit plans guarantee a specific retirement income (Correct answer)
- Defined contribution plans guarantee retirement income
- Defined contribution plans are only for executives
Correct answer: Defined benefit plans guarantee a specific retirement income
A defined benefit plan promises a specific monthly benefit at retirement, while a defined contribution plan specifies only the amount contributed, not the eventual benefit.
Question 2: Under FLSA, which of the following employees is most likely classified as exempt from overtime requirements?
- A retail cashier earning $12/hour
- A non-supervisory production line worker
- A salaried marketing manager earning $60,000/year meeting duties tests (Correct answer)
- A part-time data entry clerk
Correct answer: A salaried marketing manager earning $60,000/year meeting duties tests
To be FLSA exempt, an employee must meet both the salary level test (currently $684/week) and a duties test for executive, administrative, or professional roles.
Question 3: Which short-term incentive plan distributes a share of profits to employees based on company financial performance?
- Stock option plan
- Profit-sharing plan (Correct answer)
- Gain-sharing plan
- Phantom stock plan
Correct answer: Profit-sharing plan
Profit-sharing plans distribute a portion of company profits to employees, typically annually, based on the company's financial results.
Question 4: Pay compression most commonly occurs when:
- Senior employees earn significantly more than new hires
- New hire salaries approach or exceed those of longer-tenured employees (Correct answer)
- All employees receive equal pay regardless of role
- Executive pay is capped by regulation
Correct answer: New hire salaries approach or exceed those of longer-tenured employees
Pay compression happens when market rates for new hires rise faster than internal merit increases, narrowing the gap between new and tenured employee pay.
Question 5: Which tax-advantaged account is paired exclusively with a High Deductible Health Plan (HDHP) and allows funds to roll over year to year?
- FSA (Flexible Spending Account)
- HRA (Health Reimbursement Arrangement)
- HSA (Health Savings Account) (Correct answer)
- LSA (Lifestyle Spending Account)
Correct answer: HSA (Health Savings Account)
An HSA can only be paired with an HDHP, and unlike FSAs, unused funds roll over indefinitely and are owned by the employee.
Question 6: A company grants employees the right to purchase company stock at a fixed price after a vesting period. What is this benefit called?
- Restricted stock units (RSUs)
- Employee stock purchase plan (ESPP)
- Stock option (Correct answer)
- Phantom stock
Correct answer: Stock option
Stock options give employees the right to buy company shares at a predetermined exercise price after meeting vesting requirements.
Question 7: Which FLSA provision requires that the regular rate of pay for overtime calculation must include which type of compensation?
- Expense reimbursements
- Discretionary bonuses
- Non-discretionary bonuses (Correct answer)
- Health insurance premiums
Correct answer: Non-discretionary bonuses
Non-discretionary bonuses (those promised in advance or tied to performance metrics) must be included in the regular rate when calculating overtime pay.
aPHR Compensation and Benefits 4
What is the primary difference between a defined benefit plan and a defined contribution plan?