CEBS GBA Exam 1 Actual Study Questions
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1. Broad view of Employee Benefits (Mod 1.1) - ANSWER Considers
Employee Benefits to be virtually any form of compensation other than
direct wages paid to Employees (Ex: WC, Unemployment, State DI, SS,
Vacation, Holidays, 401K/Retirement, Employer share of Medical,
Severance Pay, Child Care, etc..)
2. Compare Compensation/Service Oriented Benefit Philosophy with the
Needs-Oriented (Mod 1.4) - ANSWER Compensation/Service: EBP
comprised of primarily compensation, service or both. Level of benefits tied
to salary or pay levels/years of service
Needs Orientated: Focuses on Needs of EE's and their dependents
3. Examples of Questions that should be addressed when creating benefit
objectives (Mod 1.3) - ANSWER Ex: What benefits should be provided?
Who should be covered? Should Employees have options? How should plan
be financed? How should plan be administered? How should plan be
communicated to Employees?
4. What is the Functional Approach to Employee Benefit Planning? (Mod 1.4)
- ANSWER Application of a systematic method of analysis to an
Employer's Total Employee Benefits Program. It analyzes the organization's
EBP as a whole in terms of its ability to meet various employee's needs and
to manage loss exposures within the overall compensation goals and
parameters.
,5. Why is the Functional Approach appropriate when planning, designing and
administering Employee Benefits? (Mod 1.4) - ANSWER 1: EE Benefits
Significant Element of EE Comp and are a Tax-Effective Way to
Compensate
2: EE Benefit Represent Large Labor Cost, so ER's should effectively plan/cost-
control
3: In the past, EE Benefits were adopted on piece-meal basis; helps to now fill
gaps/overlap
4: Systematic Approach to planning helps to keep the EBP current, competitive
and in compliance with updated requirements (ACA)
5: Benefits to be integrated properly together
6. Impact of making a plan Contributory on Employee Participation (Mod 1.5)
- ANSWER Impacts group as a whole - not everyone will elect due to cost.
If participation is mandatory in a contributory plan, may create employee
relations problem.
7. Describe arguments of flexibility in designing employee benefit plans as it
relates to functional approach (Mod 1.5) - ANSWER Argument 1: More
flexibility EE has, more likely he or she will select a benefit that best meets
needs/goals - thus, flexibility in plan design/options facilitates functional
approach.
Argument 2: Works against functional approach because some EE's may not
recognize all their needs and leave some uncovered.
8. Define concept of risk (Mod 2.1) - ANSWER Uncertainty with respect to
possible losses. Inability to determine with certainty the actual number and
value of claims.
9. Define relationship between peril and hazard (Mod 2.1) - ANSWER Peril:
Cause of a loss (fires, floods, theft, death)
,Hazard: Condition that increases probability that a peril will occur or tends to
increase severity of loss when a peril occurs.
10.Define physical hazard, moral hazard, morale hazard (Mod 2.1) - ANSWER
Physical: Physical Condition (Defective Wiring, No Fire Extinguisher),
increases chance of loss
Moral: Dishonesty increases chance of loss (Arson)...b/c of Moral, premiums
are higher to all. Attempt to control by careful UW and provisions such as
deductibles, waiting periods, exclusions
Morale: Carelessness or Indifference by insureds since they have insurance
(protected from loss).
11.How does pure risk differ from speculative risk (Mod 2.2) - ANSWER Pure
Risk: Situations where two alternatives are possible - risk will happen (no
loss) or it will happen and a financial loss takes place. Many EB Coverages
fall into this classification. Nothing positive can result from Pure Risk, but
many are insured (Fire, Auto, Illness, Disability)
Speculative Risk: Involve a possibility (that is not present in pure risk) of a
gain. Three potential outcomes: Loss, No Loss, Gain (Ex: Purchase Stock,
Gambling)
12.Most Important Type of Pure Risk (Mod 2.2) - ANSWER Personal Risk
(Death, Illness, DI, Unemployment)
13.Summarize Methods for Handling Risk (Mod 2.2) - ANSWER 1:
Avoidance - does not take on risk/gets rid of
2: Control - attempts to prevent or reduce the probability/severity of a loss
taking place
3: Retention - risk is assumed and paid for by the person suffering the loss
4: Transfer - one shifts the financial burden of risk to another party
, 5: Insurance - form of transfer which the financial burden is transferred to
insurance company
14.How is insurance a mechanism for EBP's? (Mod 2.3) - ANSWER Insured
(EE/ER) pays money (premium) into a fund (insurance company). Upon
occurrence of loss, reimbursement is provided to person suffering loss. Thus,
risk has been reduced/eliminated and all who paid into the fund share the
resulting loss.
15.Compare insurance mechanism to gambling (Mod 2.3) - ANSWER
Insurance is a mechanism to handling existing risk - gambling creates risk
where one did not previously exist. Risk caused by gambling is 100%
speculative, while insurance deals with pure risk. Gambling involves a gain
for one party while insurance is a mutual sharing of any losses. The loser in
the gambling transaction remains in a negative situation while the insured is
financially restored in whole or part to prior condition.
16.Define Indemnification (Mod 2.3) - ANSWER Principle of making the
insured whole again after reimbursement for covered loss takes place -
similar financial situation than prior to claim.
17.Which risk handling technique is mutually exclusive (Mod 2.3) - ANSWER
Avoidance - when you avoid a risk, you have no losses so there is no need
for other techniques
18.State advantages/disadvantages of using insurance to fund an EBP (Mod 2.3)
- ANSWER Advantages:
-Known Premiums (Budgeting)
-Outside Administration (Handled by Insurance)
-Financial Backing
with Already Graded A+ Answers | Brand
New Version
1. Broad view of Employee Benefits (Mod 1.1) - ANSWER Considers
Employee Benefits to be virtually any form of compensation other than
direct wages paid to Employees (Ex: WC, Unemployment, State DI, SS,
Vacation, Holidays, 401K/Retirement, Employer share of Medical,
Severance Pay, Child Care, etc..)
2. Compare Compensation/Service Oriented Benefit Philosophy with the
Needs-Oriented (Mod 1.4) - ANSWER Compensation/Service: EBP
comprised of primarily compensation, service or both. Level of benefits tied
to salary or pay levels/years of service
Needs Orientated: Focuses on Needs of EE's and their dependents
3. Examples of Questions that should be addressed when creating benefit
objectives (Mod 1.3) - ANSWER Ex: What benefits should be provided?
Who should be covered? Should Employees have options? How should plan
be financed? How should plan be administered? How should plan be
communicated to Employees?
4. What is the Functional Approach to Employee Benefit Planning? (Mod 1.4)
- ANSWER Application of a systematic method of analysis to an
Employer's Total Employee Benefits Program. It analyzes the organization's
EBP as a whole in terms of its ability to meet various employee's needs and
to manage loss exposures within the overall compensation goals and
parameters.
,5. Why is the Functional Approach appropriate when planning, designing and
administering Employee Benefits? (Mod 1.4) - ANSWER 1: EE Benefits
Significant Element of EE Comp and are a Tax-Effective Way to
Compensate
2: EE Benefit Represent Large Labor Cost, so ER's should effectively plan/cost-
control
3: In the past, EE Benefits were adopted on piece-meal basis; helps to now fill
gaps/overlap
4: Systematic Approach to planning helps to keep the EBP current, competitive
and in compliance with updated requirements (ACA)
5: Benefits to be integrated properly together
6. Impact of making a plan Contributory on Employee Participation (Mod 1.5)
- ANSWER Impacts group as a whole - not everyone will elect due to cost.
If participation is mandatory in a contributory plan, may create employee
relations problem.
7. Describe arguments of flexibility in designing employee benefit plans as it
relates to functional approach (Mod 1.5) - ANSWER Argument 1: More
flexibility EE has, more likely he or she will select a benefit that best meets
needs/goals - thus, flexibility in plan design/options facilitates functional
approach.
Argument 2: Works against functional approach because some EE's may not
recognize all their needs and leave some uncovered.
8. Define concept of risk (Mod 2.1) - ANSWER Uncertainty with respect to
possible losses. Inability to determine with certainty the actual number and
value of claims.
9. Define relationship between peril and hazard (Mod 2.1) - ANSWER Peril:
Cause of a loss (fires, floods, theft, death)
,Hazard: Condition that increases probability that a peril will occur or tends to
increase severity of loss when a peril occurs.
10.Define physical hazard, moral hazard, morale hazard (Mod 2.1) - ANSWER
Physical: Physical Condition (Defective Wiring, No Fire Extinguisher),
increases chance of loss
Moral: Dishonesty increases chance of loss (Arson)...b/c of Moral, premiums
are higher to all. Attempt to control by careful UW and provisions such as
deductibles, waiting periods, exclusions
Morale: Carelessness or Indifference by insureds since they have insurance
(protected from loss).
11.How does pure risk differ from speculative risk (Mod 2.2) - ANSWER Pure
Risk: Situations where two alternatives are possible - risk will happen (no
loss) or it will happen and a financial loss takes place. Many EB Coverages
fall into this classification. Nothing positive can result from Pure Risk, but
many are insured (Fire, Auto, Illness, Disability)
Speculative Risk: Involve a possibility (that is not present in pure risk) of a
gain. Three potential outcomes: Loss, No Loss, Gain (Ex: Purchase Stock,
Gambling)
12.Most Important Type of Pure Risk (Mod 2.2) - ANSWER Personal Risk
(Death, Illness, DI, Unemployment)
13.Summarize Methods for Handling Risk (Mod 2.2) - ANSWER 1:
Avoidance - does not take on risk/gets rid of
2: Control - attempts to prevent or reduce the probability/severity of a loss
taking place
3: Retention - risk is assumed and paid for by the person suffering the loss
4: Transfer - one shifts the financial burden of risk to another party
, 5: Insurance - form of transfer which the financial burden is transferred to
insurance company
14.How is insurance a mechanism for EBP's? (Mod 2.3) - ANSWER Insured
(EE/ER) pays money (premium) into a fund (insurance company). Upon
occurrence of loss, reimbursement is provided to person suffering loss. Thus,
risk has been reduced/eliminated and all who paid into the fund share the
resulting loss.
15.Compare insurance mechanism to gambling (Mod 2.3) - ANSWER
Insurance is a mechanism to handling existing risk - gambling creates risk
where one did not previously exist. Risk caused by gambling is 100%
speculative, while insurance deals with pure risk. Gambling involves a gain
for one party while insurance is a mutual sharing of any losses. The loser in
the gambling transaction remains in a negative situation while the insured is
financially restored in whole or part to prior condition.
16.Define Indemnification (Mod 2.3) - ANSWER Principle of making the
insured whole again after reimbursement for covered loss takes place -
similar financial situation than prior to claim.
17.Which risk handling technique is mutually exclusive (Mod 2.3) - ANSWER
Avoidance - when you avoid a risk, you have no losses so there is no need
for other techniques
18.State advantages/disadvantages of using insurance to fund an EBP (Mod 2.3)
- ANSWER Advantages:
-Known Premiums (Budgeting)
-Outside Administration (Handled by Insurance)
-Financial Backing
