Deck 12: Designing Indirect Pay Plans

Question 1

Which of the following nonmandatory major benefits is the most common among Canadian organizations with 10 or more employees?

A) life insurance
B) supplemental unemployment benefits
C) formal pension plans
D) group RRSPs

Answer 1

A

Question 2

Which of the following is NOT a government-regulated benefit?

A) outplacement services
B) rest breaks
C) vacation time
D) statutory holidays

Answer 2

A

Question 3

Ricardo has worked for a local company for the last 25 years. Upon retirement, Ricardo has been guaranteed a salary of $2,000.00 per month under the company's retirement plan. What kind of retirement benefit program is this company using?

A) defined contribution plan
B) tax-deferred plan
C) defined benefit plan
D) registered retirement savings plan

Answer 3

C

Question 4

A force hindering flexible benefits plans is loss of economies of scale in the purchase of benefits.

Question 5

As a result of a recent human resource audit, it was determined that a particular company has an "underfund liability" associated with its retirement plan, requiring an immediate injection of cash. What type of pension plan or retirement plan is this company likely using?

A) hybrid flexible plan
B) registered retirement savings plan (RRSP)
C) mandatory retirement plan
D) defined benefit plan

Question 6

Defined contribution plans ultimately transfer retirement income risk from the employer to the employee.

Question 7

Which of the following is a company pension plan that guarantees a certain benefit to retirees regardless of market conditions?

A) defined benefit plan
B) money purchase plan
C) defined contribution plan
D) Canada Pension Plan

Question 8

Research shows that satisfaction with a benefits plan declines as employees learn more about it.

Question 9

Which of the following variables has NOT caused Canadian organizations to move away from pensions that have defined benefits?

A) inflationary pressures during the early 1980s
B) tax issues associated with the manner in which pension plans are funded
C) market returns associated with pension funds
D) rising life expectancies of employees

Question 10

Deferred profit-sharing plans tend to be classified as "contributory."

Question 11

A force promoting flexible benefits plans is the increasing diversity of the work force.

Question 12

Which managerial strategy is likely to embrace the notion of providing employees with a pension plan?

A) human relations
B) classical
C) innovator
D) analyzer

Question 13

Mandatory benefits are those components of indirect pay that the employer makes compulsory for all employees.

Question 14

As a member of the company's defined benefit plan, employees receive a pension based on one percent of the average of their best three years' earnings for each year of service. What will be your annual pension if you retire after 30 years of service and have averaged $50,000 per year during your three best years?

A) $28,000
B) $15,000
C) unable to determine, as we need to have know the average return on the investments funding the pension
D) depends on how much money is in the investment trust

Question 15

It is not cost effective having employers purchase dental coverage on behalf of their employees.

Question 16

What component of a company's benefits package is second only to mandatory benefits in terms of cost for an organization?

A) employment assistance programs
B) wellness and recreational plans
C) retirement plans
D) pay for time not worked plans

Question 17

In Canada, only Quebec has legislation regarding benefits for part-time employees.

Question 18

Some benefits consultants are starting to turn against flexible benefits plans, arguing in favour of semi-flexible systems

Question 19

One drawback associated with outsourcing routine benefits administration is the notion that employers will begin to lose touch with benefit needs and issues important to employees.

Question 20

Which of the following variables is NOT used to determine the income level provided to employees upon retirement under a "defined benefit program"?

A) some variable (percentage) of the average income over a certain period of time, usually three to five years
B) the company's profit level over a period of three to five years
C) employees' years of service
D) employees' salary level

Question 21

Which of the following plans would NOT be classified as noncontributory?

A) defined benefit pension plans
B) defined contribution pension plans
C) deferred profit-sharing plans
D) registered retirement saving plans

Question 22

Offering free onsite massages during peak times, fitness club memberships, and Internet stations in lounge areas are examples of which type of employee services?

A) work-life balance
B) outplacement services
C) employee assistance programs
D) wellness and recreational

Question 23

Which of the following processes of evaluating benefits systems considers the net benefits associated with a particular benefit system?

A) competitive analysis
B) cost break-even analysis
C) cost analysis
D) employee surveys

Question 24

From a funding obligation perspective, why do employers prefer to use a defined contribution pension plan?

A) Liability is limited to the amount placed into the plan.
B) Actuarial predictions are made easier.
C) Pensioners are guaranteed a fixed sum of money.
D) This avoids "underfunded" plans.

Question 25

Which of the following is usually NOT considered by courts in establishing awards relating to notice periods or severance in lieu of notice?

A) whether some element of enticement was involved
B) the likelihood that the employee will secure employment quickly
C) the employee's age
D) the employee's gender

Question 26

Which of the following plans allows you to tailor your benefit plan to suit your needs and even trade off benefits that are not important to you?

A) health care spending accounts
B) simplified flex plan
C) flexible benefits plan
D) fixed benefits plan

Question 27

Providing which of the following benefits will reinforce your strong commitment to helping your employees balance work and personal activities?

A) group banking package discount rates
B) paid time off for community service
C) subsidized meals and free hot drinks
D) computer purchase plan

Question 28

Which of the following is NOT a consideration in deciding whether to include a particular benefit in indirect pay?

A) whether it contributes to the objectives of indirect pay
B) whether or not there is a union
C) whether it is valued by employees
D) whether it adds much net value to the compensation package

Question 29

Which of the following questions is NOT one of the four main issues in deciding the structure of each benefit?

A) What will the benefit provide?
B) Who will pay for it?
C) Who is eligible to receive it?
D) Is it tax-favoured or not?

Question 30

What is a likely reason that a company using a classical management philosophy would want to implement a flexible benefit plan?

A) to lower administrative costs
B) an opportunity to cut overall benefit costs
C) to enhance employment engagement
D) to take advantage of economies of scale associated with flexible programs

Question 31

What is the first issue in developing an effective benefit system?

A) determining the tax implications
B) examining the compensation cost structure of the organization
C) establishing the administration process
D) determining the role of indirect pay in compensation strategy

Question 32

Which of the following is NOT a source of unexpected cost for defined benefit plans?

A) work force diversity
B) inflation
C) negative market returns
D) life expectancy increases

Question 33

Experts will support the notion that employee participation in the process of designing a benefits plan is highly desirable. Which of the following goals do experts NOT identify as a positive outcome of having employee involvement?

A) better understanding of needs
B) support mechanism in communicating the plan
C) increased level of acceptance
D) decreased overall plan costs

Question 34

Teresa has a dental plan through her employer. Recently, she has undergone dental work costing the plan $2,500. Luckily for Teresa, this particular dental work was covered completely by her dental plan. What are the tax consequences as a result of Teresa not having to pay for the dental work?

A) Her employer will add the $2,500.00 as an expense in their income statement.
B) She will have to include the $2,500.00 as additional income.
C) There are no tax consequences at all as benefits are tax-free.
D) Teresa will have to claim half of the benefit as income.

Question 35

What benefit system provides employees with the choice between two or more fixed plans?

A) modular benefits plan
B) "core" benefits plan
C) flexible benefits plan
D) "Beneflex" plan

Question 36

From an employee's point of view, what advantage do defined contribution plans have over defined benefit plans?

A) The employer assumes the risk of investments.
B) They tend to be more portable.
C) They provide a higher pension for those who join the company later in life.
D) Risk is averaged over a large group of employees.

Question 37

Which of the following is NOT an issue in establishing an indirect pay system?

A) determining the role of employee performance in establishing benefits
B) choosing a process for plan design
C) choosing the benefits system and specific benefits
D) determining the structure of each benefit

Question 38

Which of the following is NOT a possible reason for implementing flexible benefit plans?

A) cutting benefit costs
B) developing a more diverse work force
C) lowering overall administrative costs
D) shifting employee perspective away from an entitlement approach

Question 39

Life and accident insurance is almost always included in benefit plans. Which of the following statements relating to life and accident insurance is NOT true?

A) Often a spouse or partner may be included under the coverage.
B) Coverage amounts may be increased at the employee's expense, or on a cost-sharing basis.
C) Often the coverage is based on a multiple of the employee's annual salary.
D) Recent changes to the tax code have made group life insurance products much more tax-friendly to employees.

Question 40

Your organization has decided to terminate a couple of production workers without cause. The manager of the department approaches you and asks for your advice regarding the minimum amount of working notice or severance in lieu that should be provided. Assume both workers have been with the company for 24 months, and it is a non-unionized environment. What advice would you provide if you were going to use recent court cases to inform your answer?

A) There is no need to provide notice, given that they have been employed with the organization for only 24 months.
B) Two months should be a minimum.
C) Four months should be a minimum.
D) Recent court cases have awarded one week per year of employment to a maximum of two months.

Question 41

Describe how a health care spending account works.

Question 42

Describe the main issues in designing the benefits system.

Question 43

Identify and briefly explain the types of pension plans discussed in the text.

Question 44

Identify and briefly explain the most common and important employee services.

Question 45

Discuss the pros and cons of flexible versus fixed benefits plans.