CPS CPS Benefits & Deductions Management 1 — Questions and Answers
Question 1: Which section of the Internal Revenue Code governs pre-tax flexible spending accounts (FSAs) offered by employers?
- Section 401(k)
- Section 125 (Correct answer)
- Section 457
- Section 403(b)
Correct answer: Section 125
Section 125 of the IRC establishes 'cafeteria plans,' which allow employees to pay for qualified benefits such as FSAs with pre-tax dollars.
Question 2: What type of payroll deduction is processed only after all applicable taxes have been calculated and withheld?
- Pre-tax deduction
- Tax-exempt deduction
- Post-tax deduction (Correct answer)
- Mandatory deduction
Correct answer: Post-tax deduction
Post-tax deductions, such as Roth 401(k) contributions or voluntary life insurance premiums beyond tax-exempt limits, are taken from net pay after taxes.
Question 3: Under ERISA, which type of employee benefit plan is required to provide employees with a Summary Plan Description (SPD)?
- State disability plans only
- Both welfare benefit plans and pension plans covered by ERISA (Correct answer)
- Only defined contribution plans
- Only group health plans
Correct answer: Both welfare benefit plans and pension plans covered by ERISA
ERISA requires plan administrators of both welfare benefit plans (health, dental, life) and pension plans to furnish participants with an SPD outlining plan terms.
Question 4: Which of the following deductions is considered MANDATORY and cannot be refused by an employee?
- 401(k) contributions
- Union dues
- Federal income tax withholding (Correct answer)
- Health insurance premiums
Correct answer: Federal income tax withholding
Federal income tax withholding is a mandatory payroll deduction required by law, regardless of the employee's preferences.
Question 5: What is the primary purpose of a Section 129 Dependent Care Flexible Spending Account (DCFSA)?
- To allow employees to set aside pre-tax funds for qualified childcare and dependent care expenses (Correct answer)
- To cover the cost of elder care insurance premiums only
- To provide post-tax savings for college tuition
- To fund employer-sponsored daycare facilities exclusively
Correct answer: To allow employees to set aside pre-tax funds for qualified childcare and dependent care expenses
A Section 129 DCFSA allows employees to contribute pre-tax dollars to pay for qualifying dependent care expenses such as childcare, enabling tax savings.
Question 6: What federal law requires employers to offer COBRA continuation coverage to employees who lose group health insurance due to a qualifying event?
- ADA
- ERISA's COBRA provisions under the Consolidated Omnibus Budget Reconciliation Act (Correct answer)
- HIPAA
- FMLA
Correct answer: ERISA's COBRA provisions under the Consolidated Omnibus Budget Reconciliation Act
COBRA, enacted as part of the Consolidated Omnibus Budget Reconciliation Act, requires employers with 20+ employees to offer continuation of group health coverage after qualifying events.
CPS CPS Benefits & Deductions Management 1
Which section of the Internal Revenue Code governs pre-tax flexible spending accounts (FSAs) offered by employers?