D352 | D352 Objective Assessment Employment
and Labor Law Exam 3 Version 2 Questions with
Correct Answers and Expert Explanation for Each
Question
1. Under the Employee Retirement Income Security Act (ERISA), which of the following
best describes the ‘Fiduciary Duty’ of a plan administrator?
A. Automatically approving all benefit claims regardless of the plan’s written terms.
B. Maximizing the employer’s profit margins by minimizing the payout of
discretionary benefits.
C. Ensuring that the company’s stock price remains stable even if it requires
reducing plan assets.
D. Acting solely in the interest of plan participants and beneficiaries for the
exclusive purpose of providing benefits.
Correct Answer: D
Expert Explanation: ERISA mandates that fiduciaries act with the care, skill,
prudence, and diligence that a prudent person would use. The primary
responsibility of a fiduciary is to run the plan solely in the interest of participants
and beneficiaries. This duty includes defraying reasonable expenses of
administering the plan while providing promised benefits. Fiduciaries can be held
personally liable if they fail to follow these high legal standards. This legal
,framework ensures that retirement and health assets are protected from employer
mismanagement.
2. Which document is required by ERISA to be provided to participants to explain their
rights and benefits in a way that the average participant can understand?
A. The Annual Corporate Tax Return
B. The Articles of Incorporation
C. The Employee Performance Handbook
D. The Summary Plan Description (SPD)
Correct Answer: D
Expert Explanation: The Summary Plan Description is the primary vehicle for
informing participants and beneficiaries about their plan. It must be written in plain
language to ensure that employees can actually understand their benefits. ERISA
requires this document to be updated periodically and distributed within specific
timeframes. Failure to provide an accurate SPD can lead to legal liability for the plan
sponsor. This document serves as the foundation for the legal relationship between
the plan and the participant.
,3. A company with 60 employees is downsizing and terminates an employee. Under
COBRA, how long must the employer generally allow the former employee to
continue their health coverage?
A. 18 months
B. 12 months
C. 6 months
D. 36 months
Correct Answer: A
Expert Explanation: COBRA generally requires that group health plans sponsored
by employers with 20 or more employees offer continuation coverage. For standard
termination of employment, the coverage period is usually 18 months. The former
employee is typically responsible for paying the full premium plus a small
administrative fee. This law prevents workers from experiencing a sudden lapse in
health insurance during career transitions. Longer periods like 36 months are
reserved for specific qualifying events like divorce or death of the covered
employee.
, 4. What is the primary difference between a Defined Benefit plan and a Defined
Contribution plan?
A. Defined Benefit plans put the investment risk on the employee, while Defined
Contribution plans put it on the employer.
B. Only Defined Benefit plans are subject to the Health Insurance Portability and
Accountability Act (HIPAA).
C. Defined Contribution plans are illegal under ERISA, while Defined Benefit plans
are mandatory.
D. Defined Benefit plans guarantee a specific monthly payout at retirement, while
Defined Contribution plans do not.
Correct Answer: D
Expert Explanation: A Defined Benefit plan provides a fixed, pre-established
benefit for employees at retirement, often based on salary and years of service. In
contrast, a Defined Contribution plan like a 401(k) depends on the amount
contributed and investment performance. The employer bears the investment risk
in a Defined Benefit plan to ensure the promised payout. Employees bear the risk in
Defined Contribution plans because the final balance is not guaranteed. ERISA
provides different regulatory oversight for these two distinct types of retirement
vehicles.
and Labor Law Exam 3 Version 2 Questions with
Correct Answers and Expert Explanation for Each
Question
1. Under the Employee Retirement Income Security Act (ERISA), which of the following
best describes the ‘Fiduciary Duty’ of a plan administrator?
A. Automatically approving all benefit claims regardless of the plan’s written terms.
B. Maximizing the employer’s profit margins by minimizing the payout of
discretionary benefits.
C. Ensuring that the company’s stock price remains stable even if it requires
reducing plan assets.
D. Acting solely in the interest of plan participants and beneficiaries for the
exclusive purpose of providing benefits.
Correct Answer: D
Expert Explanation: ERISA mandates that fiduciaries act with the care, skill,
prudence, and diligence that a prudent person would use. The primary
responsibility of a fiduciary is to run the plan solely in the interest of participants
and beneficiaries. This duty includes defraying reasonable expenses of
administering the plan while providing promised benefits. Fiduciaries can be held
personally liable if they fail to follow these high legal standards. This legal
,framework ensures that retirement and health assets are protected from employer
mismanagement.
2. Which document is required by ERISA to be provided to participants to explain their
rights and benefits in a way that the average participant can understand?
A. The Annual Corporate Tax Return
B. The Articles of Incorporation
C. The Employee Performance Handbook
D. The Summary Plan Description (SPD)
Correct Answer: D
Expert Explanation: The Summary Plan Description is the primary vehicle for
informing participants and beneficiaries about their plan. It must be written in plain
language to ensure that employees can actually understand their benefits. ERISA
requires this document to be updated periodically and distributed within specific
timeframes. Failure to provide an accurate SPD can lead to legal liability for the plan
sponsor. This document serves as the foundation for the legal relationship between
the plan and the participant.
,3. A company with 60 employees is downsizing and terminates an employee. Under
COBRA, how long must the employer generally allow the former employee to
continue their health coverage?
A. 18 months
B. 12 months
C. 6 months
D. 36 months
Correct Answer: A
Expert Explanation: COBRA generally requires that group health plans sponsored
by employers with 20 or more employees offer continuation coverage. For standard
termination of employment, the coverage period is usually 18 months. The former
employee is typically responsible for paying the full premium plus a small
administrative fee. This law prevents workers from experiencing a sudden lapse in
health insurance during career transitions. Longer periods like 36 months are
reserved for specific qualifying events like divorce or death of the covered
employee.
, 4. What is the primary difference between a Defined Benefit plan and a Defined
Contribution plan?
A. Defined Benefit plans put the investment risk on the employee, while Defined
Contribution plans put it on the employer.
B. Only Defined Benefit plans are subject to the Health Insurance Portability and
Accountability Act (HIPAA).
C. Defined Contribution plans are illegal under ERISA, while Defined Benefit plans
are mandatory.
D. Defined Benefit plans guarantee a specific monthly payout at retirement, while
Defined Contribution plans do not.
Correct Answer: D
Expert Explanation: A Defined Benefit plan provides a fixed, pre-established
benefit for employees at retirement, often based on salary and years of service. In
contrast, a Defined Contribution plan like a 401(k) depends on the amount
contributed and investment performance. The employer bears the investment risk
in a Defined Benefit plan to ensure the promised payout. Employees bear the risk in
Defined Contribution plans because the final balance is not guaranteed. ERISA
provides different regulatory oversight for these two distinct types of retirement
vehicles.
