CPC Compensation & Benefits Administration 3 — Questions and Answers
Question 1: A company uses a broadbanding compensation structure instead of traditional salary grades. What is the main advantage of this approach?
- It makes it easier to maintain strict pay grade boundaries
- It provides greater flexibility to recognize lateral career movement and skill growth (Correct answer)
- It reduces the need for market salary surveys
- It automatically eliminates pay equity issues
Correct answer: It provides greater flexibility to recognize lateral career movement and skill growth
Broadbanding consolidates many narrow pay grades into fewer, wider bands, giving managers more flexibility to recognize employees for lateral moves and skill development.
Question 2: Under ERISA, what is the maximum vesting period allowed for a cliff vesting schedule in a 401(k) employer match?
- 1 year
- 2 years
- 3 years (Correct answer)
- 5 years
Correct answer: 3 years
ERISA requires that cliff vesting for employer 401(k) matching contributions occur no later than 3 years of service.
Question 3: Which compensation component is specifically designed to retain key executives by paying out a large lump sum only if they remain employed through a specified date or event?
- Annual performance bonus
- Retention bonus / stay bonus (Correct answer)
- Profit-sharing distribution
- Sign-on bonus
Correct answer: Retention bonus / stay bonus
A retention (stay) bonus is specifically structured to reward employees financially for remaining with the company through a defined period or critical event such as a merger.
Question 4: A staffing firm's client asks about co-employment risks. Which benefit-related practice most commonly creates co-employer liability exposure?
- Providing contractors with business cards
- Allowing contract workers to participate in the client's employee benefits plans (Correct answer)
- Assigning work tasks directly to contractors
- Setting contractors' hourly bill rates
Correct answer: Allowing contract workers to participate in the client's employee benefits plans
Allowing contract workers to participate in a client's benefits plans is a strong indicator of co-employment because it blurs the distinction between the staffing firm's employees and the client's employees.
Question 5: What does a 'compa-ratio' of 0.85 indicate about an employee's pay?
- The employee is paid 15% above the salary range midpoint
- The employee is paid 15% below the salary range midpoint (Correct answer)
- The employee's pay is exactly at market median
- The employee has received an 85% performance rating
Correct answer: The employee is paid 15% below the salary range midpoint
A compa-ratio below 1.0 means the employee's salary is below the midpoint; 0.85 means they are paid at 85% of the midpoint, or 15% below it.
Question 6: Which federal law requires employers to offer continued health insurance coverage to employees and their dependents after qualifying events such as job loss?
- ERISA
- HIPAA
- COBRA (Correct answer)
- ACA
Correct answer: COBRA
COBRA (Consolidated Omnibus Budget Reconciliation Act) requires group health plans to offer continuation coverage to employees and dependents who lose coverage due to qualifying events.
Question 7: An employer offers a Flexible Spending Account (FSA) for dependent care. What is the primary tax advantage of this benefit?
- Contributions grow tax-deferred until retirement
- Employee contributions reduce taxable income and are not subject to FICA taxes (Correct answer)
- The employer can deduct 150% of contributions
- Unused funds carry over indefinitely
Correct answer: Employee contributions reduce taxable income and are not subject to FICA taxes
Dependent care FSA contributions are made pre-tax, reducing both federal income tax and FICA (Social Security and Medicare) obligations for both employee and employer.
CPC Compensation & Benefits Administration 3
A company uses a broadbanding compensation structure instead of traditional salary grades.
What is the main advantage of this approach?