Employee Benefits and Group Insurance
What the exam tests
Employee Benefits and Group Insurance tests group underwriting, ERISA, COBRA, cafeteria plans, and the tax treatment of employer-provided coverage. Expect group term life imputed-income math.
Core rules
- Group insurance uses experience rating and typically requires a minimum participation percentage. Contributory plans need higher participation than noncontributory plans.
- Employer-paid group term life over $50,000 creates imputed income under IRC §79, using IRS Table I rates. The first $50,000 is excluded.
- ERISA imposes fiduciary, reporting, and disclosure duties on welfare and pension plans. COBRA continuation generally lasts 18 months, 29 months for disability, and 36 months for certain dependent events.
- HIPAA provides special enrollment rights and portability. FMLA provides unpaid job-protected leave.
- Section 125 cafeteria plans allow pre-tax premiums and FSAs. FSAs are generally use-it-or-lose-it; HSAs require an HDHP and cannot coexist with disqualifying coverage.
Worked example
An employee age 45 has $250,000 of employer-paid group term life. The excess over $50,000 is $200,000. Table I for age 45 is $0.15 per $1,000 per month. Imputed income = 200 × $0.15 = $30 per month, or $360 per year. Only the excess is imputed, not the full $250,000.
Traps that cost marks
Do not impute the entire group term benefit. COBRA is not free; the beneficiary generally pays 102% of cost. FSA and HSA rules can conflict. ERISA does not mandate that every employer offer health insurance.