CPM Benefits Enrollment & Deductions 3 — Questions and Answers
Question 1: Under COBRA, how long must continuation coverage be offered to a qualified beneficiary who loses coverage due to voluntary termination?
- 18 months (Correct answer)
- 29 months
- 36 months
- 12 months
Correct answer: 18 months
COBRA requires 18 months of continuation coverage for qualified beneficiaries who lose coverage due to termination of employment or reduction in hours.
Question 2: An HSA-eligible employee can make contributions only if they are enrolled in which type of health plan?
- Any employer-sponsored health plan
- A High-Deductible Health Plan (HDHP) (Correct answer)
- A Health FSA with rollover option
- A PPO with first-dollar coverage
Correct answer: A High-Deductible Health Plan (HDHP)
To contribute to an HSA, an individual must be covered by an HDHP and cannot be covered by any non-HDHP health coverage.
Question 3: Employee payroll deductions for group-term life insurance premiums on coverage up to $50,000 are:
- Always taxable to the employee
- Pre-tax and excluded from gross income (Correct answer)
- Subject to FICA but not federal income tax
- Reported on Form 1099-MISC
Correct answer: Pre-tax and excluded from gross income
Employer-provided group-term life insurance up to $50,000 is excluded from an employee's gross income and is not subject to income tax or FICA.
Question 4: A new hire must be offered HIPAA special enrollment rights if they declined health coverage at hire and later:
- Complete their probationary period
- Experience a loss of other health coverage (Correct answer)
- Request enrollment by phone
- Obtain a note from their physician
Correct answer: Experience a loss of other health coverage
HIPAA requires plans to allow employees who lose other coverage to enroll in the employer's plan outside of open enrollment within 30 days of losing coverage.
Question 5: When processing a mid-year Section 125 plan change, payroll must verify that the change is:
- Approved by HR and processed any time during the year
- Consistent with a permitted election change event under the IRS regulations (Correct answer)
- Requested at least 30 days before the effective date
- Reviewed by the plan's actuary
Correct answer: Consistent with a permitted election change event under the IRS regulations
IRS regulations under Section 125 restrict mid-year election changes to specific permitted events such as changes in status, cost, or coverage.
Question 6: An employee's bi-weekly health insurance premium deduction is $150. This deduction is taken on a pre-tax basis. What is the FICA tax savings to the employee per pay period if their FICA rate is 7.65%?
- $7.65
- $11.48 (Correct answer)
- $22.95
- $15.00
Correct answer: $11.48
Pre-tax deductions reduce FICA-taxable wages; $150 × 7.65% = $11.475, or approximately $11.48 in FICA tax savings per pay period.
Question 7: Which form does the employer use to notify employees of their COBRA rights upon a qualifying event?
- Form 5500
- COBRA Election Notice (Correct answer)
- Form W-2
- Notice of Creditable Coverage
Correct answer: COBRA Election Notice
Upon a qualifying event, the plan administrator must provide a COBRA Election Notice to qualified beneficiaries within 14 days of receiving notice of the event.
CPM Benefits Enrollment & Deductions 3
Under COBRA, how long must continuation coverage be offered to a qualified beneficiary who loses coverage due to voluntary termination?