PFS Employee Benefits Planning 3

Question 1

A Section 125 cafeteria plan allows employees to choose between which types of benefits?

Accepted Answer

Taxable benefits and qualified non-taxable benefits funded with pre-tax dollars

Answer

Only taxable cash compensation components

Answer

Employer-selected benefits only, with no employee choice

Answer

Post-tax benefits exclusively, with no payroll tax advantage

Question 2

Which of the following benefits generally CANNOT be offered through a Section 125 cafeteria plan?

Accepted Answer

Scholarships and educational tuition reduction programs

Answer

Group accident and health insurance premiums

Answer

Dependent care FSA contributions

Answer

Group term life insurance (up to $50,000)

Question 3

What is a phantom stock plan, and how does it function as an employee benefit?

Accepted Answer

A plan providing employees with cash payments tied to the value of company stock without granting actual equity

Answer

A plan that grants employees actual ownership shares with full voting rights

Answer

A plan giving employees the right to purchase company stock at a fixed strike price

Answer

A plan that converts employee bonuses into restricted stock units on a deferred basis

Question 4

Under ERISA fiduciary standards, which duty specifically requires a plan fiduciary to act solely in the interest of plan participants and beneficiaries, not the employer?

Accepted Answer

Duty of loyalty

Answer

Duty of prudence

Answer

Duty of diversification

Answer

Duty of disclosure

Question 5

An Employee Stock Ownership Plan (ESOP) is designed to invest primarily in which type of asset?

Accepted Answer

The sponsoring employer company's own stock

Answer

Diversified mutual funds and ETFs

Answer

U.S. government Treasury bonds

Answer

Commercial real estate investment trusts (REITs)

Question 6

How are employer-paid premiums for group health insurance treated for federal income tax purposes from the employee's perspective?

Accepted Answer

Premiums are excluded from the employee's gross income under IRC Section 106

Answer

Premiums are included in the employee's gross income as taxable compensation

Answer

Premiums are deductible by the employee as a below-the-line itemized deduction

Answer

Premiums are subject to payroll taxes (FICA) but exempt from federal income tax

Question 7

When helping a client maximize their employer benefits package, which strategy should a PFS typically recommend as the highest priority?

Accepted Answer

Maximize elective deferrals to capture the full employer match before allocating funds to other investment vehicles

Answer

Ignore employer matching contributions and focus entirely on maximizing take-home pay

Answer

Always select the lowest-deductible health plan regardless of the client's expected medical expenses

Answer

Defer the maximum allowable compensation in all available plans without regard to current liquidity needs