20 Benefits & Retirement Practice Questions & Answers

1. 1. An employee wants a plan that lets her see a specialist without a referral and still pays something when she uses an out-of-network provider. Which plan design fits?

   • A.A preferred provider organization, which covers out-of-network care at a lower level✓ Answer
   • B.An exclusive provider organization, which pays for network care only except emergencies
   • C.A health maintenance organization, which requires a primary care referral for specialists
   • D.A point-of-service plan, which routes specialist access through the primary care physician

   A preferred provider organization keeps a preferred network but still pays out-of-network claims at a reduced benefit level, and it uses no gatekeeper, so members may self-refer to specialists. HMO and POS designs require a primary care referral, and an EPO pays nothing outside the network except in an emergency.

   Source: HRCI aPHR Exam Content Outline, Compensation and Benefits functional area; standard managed care plan definitions (HMO, PPO, EPO, POS)Report a problem with this question

2. 2. What does a health plan's annual out-of-pocket maximum represent?

   • A.The amount the member pays before the plan begins to share the cost of care
   • B.The fixed dollar amount the member pays at each office visit or prescription fill
   • C.The total the member pays in monthly premiums over the course of the plan year
   • D.The most the member pays in cost sharing before the plan covers 100% of covered charges✓ Answer

   The out-of-pocket maximum caps the member's annual cost sharing — deductible, copayments and coinsurance combined — after which the plan pays covered charges in full. Premiums are the price of having coverage and never count toward it; the last option describes the deductible and the third describes a copayment.

   Source: CMS Uniform Glossary of Health Coverage and Medical Terms; HRCI aPHR Exam Content Outline, Compensation and Benefits functional areaReport a problem with this question

3. 3. A plan has a $1,000 deductible and 80/20 coinsurance. The employee has already met the deductible and then receives a $500 covered service. What does the employee owe for that service?

   • A.$0, because meeting the deductible ends the member's cost sharing
   • B.$100, which is the employee's 20 percent share of the charge✓ Answer
   • C.$400, because the plan pays the 20 percent share of the charge
   • D.$500, because coinsurance starts at the out-of-pocket maximum

   Coinsurance takes effect only after the deductible is satisfied and splits the remaining covered charge by percentage. In an 80/20 arrangement the plan pays 80 percent and the member pays 20 percent, so 20 percent of $500 is $100, and that amount continues until the out-of-pocket maximum is reached.

   Source: CMS Uniform Glossary of Health Coverage and Medical Terms, definitions of deductible and coinsuranceReport a problem with this question

4. 4. Which condition must an employee meet to be eligible to contribute to a health savings account?

   • A.Enrollment in a preferred provider organization that has a low deductible feature
   • B.Enrollment in any employer group health plan offered through a cafeteria plan
   • C.Enrollment in Medicare along with an employer sponsored group health plan option
   • D.Enrollment in a high deductible health plan with no other disqualifying coverage✓ Answer

   A health savings account is available only to someone covered by a qualifying high deductible health plan, because the account is meant to fund the higher deductible. Other non-HDHP medical coverage, enrollment in Medicare, or being claimed as another taxpayer's dependent each end eligibility to contribute.

   Source: IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health PlansReport a problem with this question

5. 5. An employee married in July and wants to add her spouse to the medical plan before the next open enrollment. What allows this change?

   • A.The employer may add any dependent whenever the employee submits a request
   • B.A spouse may be added only before the new hire waiting period has ended
   • C.The employee must wait for the annual open enrollment period to add a spouse
   • D.Marriage is a qualifying life event that opens a special enrollment window✓ Answer

   Elections made under a cafeteria plan are locked for the plan year unless a permitted change-in-status event occurs and the change is consistent with it. Marriage is such an event and also triggers special enrollment rights, so the employee may add the spouse outside the annual open enrollment period.

   Source: HIPAA special enrollment rights administered by the U.S. Department of Labor, Employee Benefits Security Administration; IRC Section 125 change-in-status rulesReport a problem with this question

6. 6. An employee changing jobs wants to move a 401(k) balance into the new employer's plan without triggering mandatory federal withholding. What should the employee request?

   • A.A direct rollover, in which the money moves from trustee to trustee and never to the employee✓ Answer
   • B.An indirect rollover, in which the money is paid to the employee and then redeposited
   • C.A plan loan, which lets the employee move the balance and repay it with interest later
   • D.A hardship distribution, which escapes withholding when the money is reinvested

   In a direct rollover the distributing plan pays the money straight to the receiving plan or IRA, so the participant never takes possession and no mandatory federal income tax withholding applies. Money handed to the participant instead is withheld on and must be redeposited within the rollover deadline or it becomes taxable.

   Source: IRS rollover guidance for retirement plan distributions; IRC Section 401(a)(31) direct rollover requirementReport a problem with this question

7. 7. An employee with a health savings account leaves the company at the end of the year. What happens to the unused account balance?

   • A.The employer may move the balance into the employee's retirement plan
   • B.The employee keeps the account and the balance carries over indefinitely✓ Answer
   • C.The unused balance is forfeited to the employer under the use it or lose it rule
   • D.The balance must be spent before the plan's grace period ends or is lost

   A health savings account is owned by the individual, not by the employer, so both employee and employer contributions belong to the accountholder, roll over from year to year and travel with the employee after termination. That portability is the clearest line between an HSA and a health flexible spending account.

   Source: IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health PlansReport a problem with this question

8. 8. Which statement about unused health flexible spending account funds at the end of the plan year is correct?

   • A.A plan may offer both a limited carryover and a grace period each year
   • B.A plan may offer a limited carryover or a grace period, but not both✓ Answer
   • C.A plan must let employees cash out the unused balance as taxable wages
   • D.A plan must carry the entire unused balance into the following plan year

   Health flexible spending accounts run on the use it or lose it principle. A plan may soften that by adopting either a limited carryover of unused amounts into the next year or a grace period after the plan year in which to incur expenses, but the two features may not be used together in the same plan.

   Source: IRS Publication 969 and IRS guidance on health flexible spending arrangement carryovers and grace periodsReport a problem with this question

9. 9. In January an employee elects an annual health FSA amount and only one payroll deduction has been taken. How much can be reimbursed for a February expense?

   • A.Only the amount deducted so far, just as with a health savings account
   • B.Nothing yet, because the employee has not contributed for a full quarter
   • C.The full annual election, because the plan must advance that amount✓ Answer
   • D.Half of the annual election, because the plan advances funds quarterly

   The uniform coverage rule requires a health flexible spending account to make the entire annual election available from the first day of the plan year, no matter how little has been contributed so far. A health savings account works the opposite way: funds can be used only as they are actually deposited.

   Source: IRS Publication 969; uniform coverage rule for health flexible spending arrangements under IRC Section 125Report a problem with this question

10. 10. Which statement correctly describes a health reimbursement arrangement?

    • A.It requires that the employee first enroll in a high deductible plan
    • B.It is owned by the employee and can be carried to any new employer
    • C.It is funded by employee salary reduction under a cafeteria plan election
    • D.It is funded only by the employer and reimburses documented medical expenses✓ Answer

    A health reimbursement arrangement is funded exclusively with employer money and remains the employer's; employees may never contribute to it by salary reduction. It pays or reimburses substantiated medical expenses up to the credited amount, and the employer decides whether any unused credit carries forward.

    Source: IRS Publication 969, Health Reimbursement ArrangementsReport a problem with this question

11. 11. How does long-term disability coverage typically differ from short-term disability coverage?

    • A.It has a longer elimination period and pays benefits for a longer duration✓ Answer
    • B.It covers only conditions that arise out of and in the course of employment
    • C.It has a shorter elimination period and replaces a larger share of base pay
    • D.It begins on the first day of absence and ends when paid sick leave runs out

    Long-term disability is designed to pick up where short-term disability ends, so its elimination period is much longer and is usually aligned with the end of the short-term benefit, after which it pays for years or to retirement age. Work-related injuries are handled by workers' compensation, not by disability insurance.

    Source: HRCI aPHR Exam Content Outline, Compensation and Benefits functional area; standard group disability plan designReport a problem with this question

12. 12. An employer pays the entire premium for a group disability plan with pre-tax dollars. How are the benefits treated when an employee collects them?

    • A.The benefits are taxable income to the employee who receives them✓ Answer
    • B.The benefits are tax free up to the employee's regular weekly wage
    • C.The benefits are tax free because the employee paid no premium
    • D.The benefits are taxable only for the amount above base salary

    Taxation of a disability benefit follows who paid the premium and with what kind of money. Premiums paid by the employer, or by the employee on a pre-tax basis, were never taxed, so the benefit is taxable when received; when the employee pays with after-tax dollars, the benefit arrives tax free.

    Source: IRS Publication 525, taxability of sick pay and disability benefitsReport a problem with this question

13. 13. Which statement best describes a typical employee assistance program?

    • A.It provides ongoing medical treatment reported to the employee's direct supervisor
    • B.It offers confidential short-term counseling and referrals at no cost to employees✓ Answer
    • C.It replaces the group health plan's mental health and substance use benefits
    • D.It reimburses employees for gym memberships and similar wellness purchases

    An employee assistance program is employer sponsored and free to the user, and it delivers a limited number of confidential counseling sessions plus referral to outside resources for personal, family, financial or legal problems. The employer receives only aggregate utilization data, never information about an individual's case.

    Source: HRCI aPHR Exam Content Outline, Compensation and Benefits functional area, supplemental wellness and fringe benefit programsReport a problem with this question

14. 14. A wellness program gives a premium discount only to employees whose cholesterol is below a set level. What must the program also provide?

    • A.A waiver of the screening for employees who decline to share results
    • B.An identical discount for every employee who completes the screening
    • C.A reasonable alternative standard for employees who cannot meet it✓ Answer
    • D.A larger discount for employees whose numbers improve the next year

    Conditioning a reward on hitting a biometric target makes the program outcome-based and therefore health-contingent. Such a program must give a reasonable alternative standard, or waive the standard, for anyone for whom it is unreasonably difficult or medically inadvisable, and must disclose that alternative in its materials.

    Source: U.S. Department of Labor, Employee Benefits Security Administration guidance on wellness programs under HIPAA and the Affordable Care ActReport a problem with this question

15. 15. Which of the following is NOT an example of a supplemental fringe benefit an employer may choose to offer?

    • A.A monthly transit stipend that helps employees cover commuting costs
    • B.Relocation assistance that helps a new hire move near the work location
    • C.An online therapy service offered alongside the group health plan
    • D.The employee share of Social Security tax withheld from each paycheck✓ Answer

    Fringe benefits are discretionary programs an employer chooses to add to the total rewards package, such as commuter stipends, relocation help and online counseling services. The employee share of Social Security tax is a mandatory statutory payroll deduction the employer must withhold, so it is not a benefit offered at all.

    Source: HRCI aPHR Exam Content Outline, Compensation and Benefits functional area, supplemental wellness and fringe benefit programs; FICA withholding requirementReport a problem with this question

16. 16. Which statement correctly distinguishes a defined benefit plan from a defined contribution plan?

    • A.In a defined contribution plan the benefit comes from a years of service formula
    • B.In a defined benefit plan the employer bears the investment risk of the promised payout✓ Answer
    • C.In a defined contribution plan the employer guarantees a monthly payout for life
    • D.In a defined benefit plan the employee chooses investments and bears the market risk

    A defined benefit plan promises a formula-driven payout, usually built from service, pay and a multiplier, so the employer must fund that promise and absorbs the investment and longevity risk. In a defined contribution plan only the contribution is defined, and the participant's account value, and therefore the risk, depends on investment results.

    Source: U.S. Department of Labor, Employee Benefits Security Administration retirement plan guidance; Pension Benefit Guaranty Corporation materials on defined benefit plansReport a problem with this question

17. 17. A 401(k) plan uses a six-year graded vesting schedule. An employee leaves after three completed years of service. What does the employee take?

    • A.Only the employer match, because deferrals vest after six years
    • B.The entire account balance, because three years completes the schedule
    • C.All elective deferrals but none of the employer matching money
    • D.All elective deferrals plus the vested part of the employer match✓ Answer

    An employee's own deferrals are fully vested at all times, so they always leave with the employee. Under a graded schedule the employer match vests in yearly increments rather than all at once, so after three years the departing employee keeps the deferrals plus the percentage of the match earned to that point.

    Source: IRC Section 411(a) minimum vesting standards as amended by the Pension Protection Act of 2006 (three-year cliff or six-year graded schedules)Report a problem with this question

18. 18. Which contributions to a 401(k) plan are always 100 percent vested the moment they are made?

    • A.The employer's matching contributions credited to the account each year
    • B.The investment earnings on employer contributions held in the account
    • C.The employer's discretionary profit sharing contributions for the year
    • D.The employee's own elective salary deferrals into the plan account✓ Answer

    Elective deferrals are the employee's own wages redirected into the plan, so federal law treats them as immediately and fully vested and no schedule may apply to them. Only employer money — matching, profit sharing and nonelective contributions — and the earnings on it may be subject to a vesting schedule.

    Source: IRC Section 411(a)(1), nonforfeitable right to employee elective deferralsReport a problem with this question

19. 19. When may a participant begin making catch-up contributions to a 401(k) plan?

    • A.Beginning in the calendar year in which the participant reaches age 50✓ Answer
    • B.Beginning in the calendar year the participant reaches age 55
    • C.Once the participant reaches the plan's normal retirement age
    • D.After the participant completes ten full years of plan service

    Catch-up contributions let participants who reach age 50 during the calendar year defer above the normal limit, and eligibility turns on age rather than on service or retirement date. Age 55 is the catch-up threshold for health savings accounts, and reversing the two ages is the error candidates make most often.

    Source: IRC Section 414(v), catch-up contributions for participants age 50 or overReport a problem with this question

20. 20. Which statement about a hardship distribution from a 401(k) plan is correct?

    • A.It is free of income tax when used for qualified medical expenses
    • B.It cannot be repaid to the plan or rolled over to another account✓ Answer
    • C.It must be repaid with interest over a term set in the plan document
    • D.It may be rolled into an individual retirement account by the employee

    A hardship distribution is a permanent withdrawal for an immediate and heavy financial need, limited to the amount necessary. Unlike a plan loan it is included in taxable income, may carry an additional early distribution tax, and by rule may not be returned to the plan or rolled over into another retirement account.

    Source: IRS Retirement Topics — Hardship Distributions; IRC Section 401(k) hardship distribution rulesReport a problem with this question

Practice questions based on the HRCI aPHR Exam Content Outline and on federal employment law. aPHR and HRCI are marks of the HR Certification Institute; this site is not affiliated with or endorsed by HRCI. Employment law changes and much of it varies by state — this bank tests federal structure and durable HR practice, so confirm the rules in effect where you work, and study the official Exam Content Outline before testing. Based on the HRCI aPHR Exam Content Outline