CPP Benefits Administration — Questions and Answers
Question 1: What is a Section 125 (cafeteria) plan?
- A benefit plan allowing employees to choose from various pre-tax benefit options including health insurance and FSAs (Correct answer)
- A meal plan for employee cafeterias
- A restaurant discount program for employees
- A tax on employer-provided meals
Correct answer: A benefit plan allowing employees to choose from various pre-tax benefit options including health insurance and FSAs
Section 125 plans allow employees to pay for qualified benefits (health insurance premiums, FSAs, dependent care) with pre-tax dollars, reducing their taxable income.
Question 2: What is a Health Savings Account (HSA)?
- A tax-advantaged savings account paired with a high-deductible health plan for medical expenses (Correct answer)
- A general savings account at any bank
- A mandatory health insurance premium account
- A government program providing free healthcare
Correct answer: A tax-advantaged savings account paired with a high-deductible health plan for medical expenses
An HSA is a tax-advantaged account available to individuals enrolled in high-deductible health plans, offering triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses.
Question 3: What is COBRA continuation coverage?
- A federal law requiring employers with 20+ employees to offer continued health coverage to employees who lose their jobs (Correct answer)
- A type of snake bite insurance
- An automatic enrollment in a new health plan
- Free healthcare provided by the government after job loss
Correct answer: A federal law requiring employers with 20+ employees to offer continued health coverage to employees who lose their jobs
COBRA (Consolidated Omnibus Budget Reconciliation Act) allows employees and dependents to continue group health coverage for 18-36 months after qualifying events like job loss, though they pay the full premium.
Question 4: What is the employer's responsibility regarding 401(k) plan administration?
- Timely deposit of employee contributions, compliance with plan documents, and annual reporting/testing (Correct answer)
- Only offering the plan is sufficient with no ongoing obligations
- Guaranteeing investment returns for participants
- Personally managing each employee's investment selections
Correct answer: Timely deposit of employee contributions, compliance with plan documents, and annual reporting/testing
Employers must timely deposit employee contributions (generally within 7 business days), follow plan documents, perform annual non-discrimination testing, file Form 5500, and provide required notices.
Question 5: What is imputed income for tax purposes?
- The value of certain employer-provided benefits that must be included in taxable wages, such as group life insurance over $50,000 (Correct answer)
- Income that an employee could have earned but chose not to
- A type of commission payment
- Tips that employees forget to report
Correct answer: The value of certain employer-provided benefits that must be included in taxable wages, such as group life insurance over $50,000
Imputed income is the taxable value of non-cash benefits or fringe benefits provided by an employer, such as the cost of group term life insurance coverage exceeding $50,000.
Question 6: What is the Family and Medical Leave Act (FMLA) and how does it affect payroll?
- A federal law providing up to 12 weeks of unpaid, job-protected leave, affecting benefit continuation and time tracking (Correct answer)
- A law requiring paid maternity leave for all employers
- FMLA only applies to government employees
- A state-level law that varies by jurisdiction only
Correct answer: A federal law providing up to 12 weeks of unpaid, job-protected leave, affecting benefit continuation and time tracking
FMLA requires covered employers to provide up to 12 weeks of unpaid leave for qualifying reasons while maintaining health benefits. Payroll must track FMLA usage and manage any intermittent leave.
CPP Benefits Administration
What is a Section 125 (cafeteria) plan?