SHRM Total Rewards & Compensation 3 — Questions and Answers
Question 1: Which retirement plan type guarantees a specific monthly benefit at retirement based on salary and years of service?
- Defined contribution plan
- Defined benefit plan (Correct answer)
- 403(b) plan
- SIMPLE IRA
Correct answer: Defined benefit plan
A defined benefit plan promises a predetermined retirement income calculated from factors like salary history and years of service.
Question 2: A gain sharing plan like Scanlon or Rucker distributes financial rewards based on:
- Individual sales quotas
- Company stock price appreciation
- Measurable improvements in organizational productivity or cost savings (Correct answer)
- CEO discretion at year-end
Correct answer: Measurable improvements in organizational productivity or cost savings
Gain sharing programs reward employees collectively for measurable efficiency or cost improvements over a baseline period.
Question 3: What is the primary purpose of conducting a salary survey?
- To determine internal pay equity ratios
- To gather external market data on competitive pay rates (Correct answer)
- To calculate the total cost of benefits
- To set the annual merit budget
Correct answer: To gather external market data on competitive pay rates
Salary surveys collect data on what other organizations pay for similar jobs, enabling competitive market-based pay decisions.
Question 4: Under ERISA, which fiduciary duty requires plan administrators to act solely in the interest of plan participants and beneficiaries?
- Duty of loyalty (Correct answer)
- Duty of diversification
- Duty of disclosure
- Duty of prudence
Correct answer: Duty of loyalty
ERISA's duty of loyalty (exclusive benefit rule) requires fiduciaries to act solely in the interest of plan participants and beneficiaries.
Question 5: An employee receives stock options with a four-year cliff vesting schedule. What does this mean?
- Options vest 25% each year over four years
- All options vest at once after four years of continuous service (Correct answer)
- Options expire after four years regardless
- The employee can exercise options only twice per year
Correct answer: All options vest at once after four years of continuous service
Cliff vesting means no ownership is earned until the full vesting period is completed, at which point 100% vests at once.
Question 6: Which concept describes the perception that one's pay is fair compared to coworkers doing similar work within the same organization?
- External equity
- Individual equity
- Internal equity (Correct answer)
- Procedural equity
Correct answer: Internal equity
Internal equity refers to fairness in pay relationships among employees within the same organization based on job value and contribution.
Question 7: What is the purpose of a Section 125 Cafeteria Plan?
- To provide subsidized employee meals
- To allow employees to pay for certain benefits with pre-tax dollars (Correct answer)
- To fund executive deferred compensation
- To create a defined contribution retirement account
Correct answer: To allow employees to pay for certain benefits with pre-tax dollars
A Section 125 Cafeteria Plan lets employees use pre-tax salary dollars to pay for qualified benefits like health insurance and FSAs.
SHRM Total Rewards & Compensation 3
Which retirement plan type guarantees a specific monthly benefit at retirement based on salary and years of service?