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

Section 125 cafeteria plans allow employees to choose between taxable cash and qualified non-taxable benefits (such as health insurance premiums and FSAs), with employee pre-tax contributions reducing taxable wages.

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

Scholarships and tuition reduction programs do not qualify as benefits under Section 125; qualified cafeteria plan benefits are limited to accident/health coverage, FSAs, group term life, and similar items listed in the code.

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 phantom stock plan provides cash payments equal to the appreciation or full value of company stock without issuing actual shares, giving employees an economic interest in company performance.

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

The duty of loyalty under ERISA requires fiduciaries to act solely in the interest of plan participants and beneficiaries for the exclusive purpose of providing benefits and defraying plan expenses.

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

An ESOP is a qualified retirement plan specifically designed to invest primarily in the employer company's own stock, aligning employee wealth with company performance.

(PFS) Personal Financial Specialist Practice Test

(PFS) Personal Financial Specialist Practice Test

PFS Employee Benefits Planning 3