Chap 012

Chapter 12 - The Benefit Determination Process
Chapter 12
The Benefit Determination Process
Multiple Choice Questions
1. The total cost of employee benefits in the U. S. is _____ dollars.

A. two trillion
B. one trillion
C. five trillion
D. one billion
2. In 1959, benefits were approximately _____ percent of payroll and in 2008, the percent was
_____.
A. 30, 50
B. 20, 38
C. 25, 43
D. 30, 60
3. For the past 15 years, health care costs have risen an average of nearly _____ percent per
year.
A. 16
B. 3
C. 12
D. 6
4. All of the following factors are reasons for the growth of benefits except:
A. foreign competition.
B. unions.
C. cost effectiveness of benefits.
D. government impetus.
12-1
5. Which of the following benefits are not mandated by state or federal legislation?
A. Workers' compensation
B. Pensions
C. Social security
D. Unemployment insurance
6. The typical employee can recall _____ percent of the benefits they receive.
A. almost 50
B. less than 15
C. over 30
D. 40
7. Advantages of employer sponsored life and health insurance include all of the following
except:
A. favorable tax treatment.
B. lower rates.
C. employees can choose coverage levels.
D. easy qualifying standards.
8. Surveys show that the most highly valued benefit is:

A. dental plans.
B. a pension.
C. paid vacation and holidays.
D. medical insurance.
9. Which of the following benefits is rated lowest by employees?

A. Long-term disability
B. Sick pay
C. Pensions
D. Dental insurance
12-2
10. A study of the factors affecting MBA students' job choice showed _____ was ranked as
least important.
A. geographic location
B. promotion opportunities
C. employee benefits
D. opportunity for advancement
11. Which of the following is a major benefits planning and design issue?
A. Benefit adequacy
B. Competitiveness of benefits
C. Cost effectiveness
D. Diversity compliance
12. The first issue in setting up a benefits package is:

A. who should be protected or benefited.
B. how much choice should employees have among benefits.
C. how should benefits be financed.
D. are benefits legally defensible.
13. Which of the following is not a benefit administration issue?

A. Benefit adequacy
B. Benefit financing
C. Degree of choice among benefits
D. Legal defensibility of benefits
14. While approximately _____ percent of fulltime U. S. employees receive paid vacations
and holidays, _____ percent of part time workers receive these benefits.
A. 80, 60
B. 90, 36
C. 70, 50
D. 90, 60
12-3
15. In the _____ benefit package, a package is designed with the average employee in mind.
A. shared
B. standard
C. cafeteria-style
D. federal
16. A type of benefit plan that allocates a set dollar amount to employees and allows them to
select benefits is called _____ plan.
A. a select choice
B. a no-deductible
C. flexible benefit
D. flat dollar benefit
17. All of the following are advantages of flexible benefits except:

A. costs of benefits are contained.
B. employee understanding of benefits increases.
C. introduction of new benefits is less costly.
D. administrative expenses increase.
18. _____ is/are the primary reason why businesses adopt flexible benefit programs.
A. Cost savings
B. Increased employee understanding
C. Federal requirements under EEO laws
D. Maintaining external equity
19. _____ is not an example of an approach to customer-driven health care.

A. Tiered networks
B. Cafeteria plans
C. Managed competition
D. Full-defined contribution
12-4
20. A _____ is an employer-provided subsidized basic medical plan with buy-up options.
A. full-defined contribution
B. menu-driven health-care plan
C. managed competition
D. health savings account
21. A customer-driven health care plan that offers employees a choice of medical plans that
include systems of varying cost is the:
A. full-defined contribution.
B. health savings account.
C. managed competition.
D. tiered networks.
22. A major approach to increasing employee awareness of health care choices and cost is:
A. customer-driven health care.
B. cafeteria plans.
C. large deductibles.
D. large co-pays.
23. Alternatives to financing benefit plans include all of the following except:
A. contributory
B. 401K
C. noncontributory
D. employee financed
24. All of the following except _____ are factors affecting employer choices of components
of a benefits package.
A. relationship to total compensation costs
B. legal requirements
C. equity
D. competitor offerings
12-5
25. The best way for companies to decide whether or not the company can afford a benefit is
on a _____ basis.
A. package
B. first dollar deductible
C. discounted cost
D. cost-centered
26. Which of the following is not a part of the cost-centered approach for deciding to provide
a benefit?
A. Checking compliance
B. Evaluating competitiveness of current benefits
C. Examining employee preferences
D. Basing benefits on historical costs
27. The most widely used benefit survey is conducted by:

A. the U. S. Chamber of Commerce.
B. Watson-Wyatt.
C. the Society for Human Resource Management.
D. the American Compensation Association.
28. Various studies have found that only two specific benefits curtailed employee turnover:
_____ and _____.
A. vacation days; dental plans
B. profit-sharing plans; life insurance
C. retirement benefits; paid vacations
D. pensions; medical coverage
29. One reason employee benefits may have value to employers is there is some evidence that
_____ programs raise productivity by as much as 25%.
A. employee assistance
B. elder care
C. childcare
D. flexible benefits
12-6
30. Which of the following benefits has been found to increase productivity in organizations?
A. Child care
B. Employee stock options
C. Health care
D. Short- and long-term disability care
31. _____ mandates 12 weeks of leave for all workers at companies that employ 50 or more
people.
A. Health Maintenance Act 1973
B. FLSA 1938
C. FMLA 1993
D. COBRA 1984
32. _____ allows employees who have resigned or were laid off to continue to purchase
health insurance under their employer's plan.
B. FLSA 1938
C. Tax reforms of 1982, 1986
D. COBRA 1984
33. _____ is/are one of the most preferred benefits.

A. Stock plans
B. Profit sharing
C. Shorter working hours
D. Early retirement
34. _____ is/are not a method of determining employee benefit preferences.

A. Demographic data
B. Competitor pay surveys
C. Employee surveys
D. A supermarket plan
12-7
35. _____ is the most frequent method of benefit communication.

A. An orientation session
B. On-line benefits information
C. An employee benefit handbook
D. A meeting with supervisor
36. Most employers say that their primary benefits objective is to:
A. obtain employee cooperation in controlling benefit costs.
B. increase employee knowledge of benefit costs.
C. encourage employee responsibility for their own financial security.
D. increase employee understanding of plan objectives.
37. All of the following are advantages of managing benefits via the internet or intranet
except:
A. employees have fewer interactions with HR staff.
B. benefit handbook cost is minimized.
C. benefit transactions costs are reduced.
D. fewer employee benefits staff are required.
38. All of the following are cost containment practices except:

A. probationary periods.
B. physical exams of all new hires.
C. copay.
D. seeking competitive bids for benefit delivery.
39. The biggest trend in cost-containment is:

A. benefit limitations.
B. HMO's.
C. outsourcing.
D. higher deductibles.
12-8
40. Which of the following would an employer be least likely to use if they sought to reduce
benefit costs?
A. Dual coverage
B. Benefit ceiling
C. Coinsurance
D. Defined benefit plans
True / False Questions
41. The average per hour cost of benefits is higher in state and local governments than in the
private sector.
True False
42. Before World War II, hourly employees were given time off for holidays but without pay.
True False
43. Today, benefits are twenty-five percent of payroll costs.

True False
44. General Motors spends more than twice as much for employee health insurance as for the
steel that goes into each car they produce.
True False
45. While health care costs have risen rapidly during the past two decades, pension costs have
been declining due to the strong stock market.
True False
12-9
46. Employee benefits may be accurately described as a costly entitlement of the American
workforce.
True False
47. Though employer provided benefits cost less due to group rates, they are taxed the same
as wages and salaries.
True False
48. The favorable tax status granted to many benefits is safe from the threat of recurrent tax
reform proposals.
True False
49. According to a recent SHRM survey, pay is the top factor driving job satisfaction.
True False
50. Benefits can be an effective tool to attract and retain employees when benefits address
needs of a target group.
True False
51. The percent of employers willing to absorb rising benefit costs has remained about the
same the past few years.
True False
52. Flexible benefit plans are complex requiring many choices that lead to poor employee
understanding of benefits.
True False
12-10
53. Flexible benefits allow organizations to control benefit costs.

True False
54. If adverse selection occurs for one or more benefits in a flexible benefits plan, those
benefits may be dropped from the plan.
True False
55. Cost pressure related to increasing diversity of the workforce is one of the reasons
companies are offering flexible benefit plans.
True False
56. The biggest current trend in health care is market-based or customer-driven.

True False
57. Employers prefer the noncontributory approach to financing benefits because this allows
greater control of costs.
True False
58. For most benefits, providing a level of coverage is more costly to employers than
providing a benefit at a specific cost level.
True False
59. When future cost containment of a benefit may be a problem, the benefit should be
offered on a noncontributory basis.
True False
60. Most employers prefer to avoid providing benefits on a defined-level basis.

True False
12-11
61. Though commonly believed by managers, there is only anecdotal evidence supporting the
belief that higher benefit levels increase employee retention.
True False
62. The only two benefits shown to reduce turnover are pensions and medical coverage.
True False
63. The goal of employee benefits should be to keep turnover to near zero.
True False
64. The Employment Retirement Income Security Act (1974) requires employers to offer
some form of pension.
True False
65. According to available evidence, a good strategy for a company to remain non-union is to
offer the same benefits as those provided by unionized firms.
True False
66. The "bandwagon" effect is when an employer offers a new benefit offered by a competitor
without careful consideration.
True False
67. Employees' preferences for various benefits can be predicted well from demographic
data.
True False
68. The ideal approach to determining employee benefit preferences is a flexible benefit plan.
True False
12-12
69. Employees feel their benefits are very fair when they are given extensive communications
about benefits but plan design is left to experts.
True False
70. Dual coverage is when a portion of insurance premiums is paid by the employee.
True False
Short Answer Questions
71. What is the role of the government impetus in the development of employee benefits?
72. Which are the four major administration issues regarding in setting up a benefit package?
73. What are the major disadvantages of a flexible benefits package?
12-13
74. List some examples of customer-driven healthcare benefits packages.
75. What can administrators do to control the increasing benefits costs?
76. What is the importance of the demographic approach in determining employee

preferences?
77. What is the "bandwagon" effect in benefits administration?
12-14
78. Which if the most popular empirical method of identifying individual preferences in
benefits packages?
79. Illustrate the issue of communication of benefits to the employees.
80. What are some of the common cost-containment practices with regard to benefits
administration?
12-15
Chapter 12 The Benefit Determination Process Answer Key
Multiple Choice Questions
1. (p. 411) The total cost of employee benefits in the U. S. is _____ dollars.
A. two trillion
B. one trillion
C. five trillion
D. one billion
Difficulty: Easy
2. (p. 415) In 1959, benefits were approximately _____ percent of payroll and in 2008, the
percent was _____.
A. 30, 50
B. 20, 38
C. 25, 43
D. 30, 60
Difficulty: Difficult
12-16
3. (p. 416) For the past 15 years, health care costs have risen an average of nearly _____ percent
per year.
A. 16
B. 3
C. 12
D. 6
4. (p. 416-417) All of the following factors are reasons for the growth of benefits except:
A. foreign competition.
B. unions.
C. cost effectiveness of benefits.
D. government impetus.
Difficulty: Medium
12-17
5. (p. 417) Which of the following benefits are not mandated by state or federal legislation?
A. Workers' compensation
B. Pensions
C. Social security
D. Unemployment insurance
Difficulty: Medium
6. (p. 417) The typical employee can recall _____ percent of the benefits they receive.
A. almost 50
B. less than 15
C. over 30
D. 40
Difficulty: Medium
7. (p. 417-418) Advantages of employer sponsored life and health insurance include all of the
following except:
A. favorable tax treatment.
B. lower rates.
C. employees can choose coverage levels.
D. easy qualifying standards.
8. (p. 417-418) Surveys show that the most highly valued benefit is:
A. dental plans.
B. a pension.
C. paid vacation and holidays.
D. medical insurance.
Difficulty: Medium
12-18
9. (p. 418) Which of the following benefits is rated lowest by employees?

A. Long-term disability
B. Sick pay
C. Pensions
D. Dental insurance
Difficulty: Medium
10. (p. 418) A study of the factors affecting MBA students' job choice showed _____ was ranked
as least important.
A. geographic location
B. promotion opportunities
C. employee benefits
D. opportunity for advancement
Difficulty: Easy
11. (p. 419) Which of the following is a major benefits planning and design issue?
A. Benefit adequacy
B. Competitiveness of benefits
C. Cost effectiveness
D. Diversity compliance
Difficulty: Easy
12. (p. 420) The first issue in setting up a benefits package is:
A. who should be protected or benefited.
B. how much choice should employees have among benefits.
C. how should benefits be financed.
D. are benefits legally defensible.
Difficulty: Medium
12-19
13. (p. 419-420) Which of the following is not a benefit administration issue?
A. Benefit adequacy
B. Benefit financing
C. Degree of choice among benefits
D. Legal defensibility of benefits
Difficulty: Medium
14. (p. 420) While approximately _____ percent of fulltime U. S. employees receive paid
vacations and holidays, _____ percent of part time workers receive these benefits.
A. 80, 60
B. 90, 36
C. 70, 50
D. 90, 60
Difficulty: Medium
15. (p. 421) In the _____ benefit package, a package is designed with the average employee in
mind.
A. shared
B. standard
C. cafeteria-style
D. federal
Difficulty: Medium
16. (p. 420) A type of benefit plan that allocates a set dollar amount to employees and allows
them to select benefits is called _____ plan.
A. a select choice
B. a no-deductible
C. flexible benefit
D. flat dollar benefit
Difficulty: Easy
12-20
17. (p. 422) All of the following are advantages of flexible benefits except:
A. costs of benefits are contained.
B. employee understanding of benefits increases.
C. introduction of new benefits is less costly.
D. administrative expenses increase.
Difficulty: Medium
18. (p. 422) _____ is/are the primary reason why businesses adopt flexible benefit programs.
A. Cost savings
B. Increased employee understanding
C. Federal requirements under EEO laws
D. Maintaining external equity
Difficulty: Medium
19. (p. 422) _____ is not an example of an approach to customer-driven health care.
A. Tiered networks
B. Cafeteria plans
C. Managed competition
D. Full-defined contribution
Difficulty: Medium
20. (p. 422) A _____ is an employer-provided subsidized basic medical plan with buy-up
options.
A. full-defined contribution
B. menu-driven health-care plan
C. managed competition
D. health savings account
12-21
21. (p. 422) A customer-driven health care plan that offers employees a choice of medical plans
that include systems of varying cost is the:
A. full-defined contribution.
B. health savings account.
C. managed competition.
D. tiered networks.
22. (p. 422) A major approach to increasing employee awareness of health care choices and cost
is:
A. customer-driven health care.
B. cafeteria plans.
C. large deductibles.
D. large co-pays.
Difficulty: Medium
23. (p. 423) Alternatives to financing benefit plans include all of the following except:
A. contributory
B. 401K
C. noncontributory
D. employee financed
Difficulty: Easy
24. (p. 423-427) All of the following except _____ are factors affecting employer choices of
components of a benefits package.
A. relationship to total compensation costs
B. legal requirements
C. equity
D. competitor offerings
Difficulty: Medium
12-22
25. (p. 423-424) The best way for companies to decide whether or not the company can afford a
benefit is on a _____ basis.
A. package
B. first dollar deductible
C. discounted cost
D. cost-centered
Difficulty: Medium
26. (p. 424-425) Which of the following is not a part of the cost-centered approach for deciding to
provide a benefit?
A. Checking compliance
B. Evaluating competitiveness of current benefits
C. Examining employee preferences
D. Basing benefits on historical costs
Difficulty: Easy
27. (p. 425) The most widely used benefit survey is conducted by:
A. the U. S. Chamber of Commerce.
B. Watson-Wyatt.
C. the Society for Human Resource Management.
D. the American Compensation Association.
Difficulty: Medium
28. (p. 425) Various studies have found that only two specific benefits curtailed employee
turnover: _____ and _____.
A. vacation days; dental plans
B. profit-sharing plans; life insurance
C. retirement benefits; paid vacations
D. pensions; medical coverage
Difficulty: Medium
12-23
29. (p. 426) One reason employee benefits may have value to employers is there is some
evidence that _____ programs raise productivity by as much as 25%.
A. employee assistance
B. elder care
C. childcare
D. flexible benefits
30. (p. 426) Which of the following benefits has been found to increase productivity in
organizations?
A. Child care
B. Employee stock options
C. Health care
D. Short- and long-term disability care
31. (p. 427) _____ mandates 12 weeks of leave for all workers at companies that employ 50 or
more people.
B. FLSA 1938
C. FMLA 1993
D. COBRA 1984
Difficulty: Medium
32. (p. 427) _____ allows employees who have resigned or were laid off to continue to purchase
health insurance under their employer's plan.
B. FLSA 1938
C. Tax reforms of 1982, 1986
D. COBRA 1984
Difficulty: Medium
12-24
33. (p. 428) _____ is/are one of the most preferred benefits.
A. Stock plans
B. Profit sharing
C. Shorter working hours
D. Early retirement
34. (p. 428) _____ is/are not a method of determining employee benefit preferences.
A. Demographic data
B. Competitor pay surveys
C. Employee surveys
D. A supermarket plan
Difficulty: Medium
35. (p. 431) _____ is the most frequent method of benefit communication.
A. An orientation session
B. On-line benefits information
C. An employee benefit handbook
D. A meeting with supervisor
Difficulty: Easy
36. (p. 432) Most employers say that their primary benefits objective is to:
A. obtain employee cooperation in controlling benefit costs.
B. increase employee knowledge of benefit costs.
C. encourage employee responsibility for their own financial security.
D. increase employee understanding of plan objectives.
Difficulty: Medium
12-25
37. (p. 432) All of the following are advantages of managing benefits via the internet or intranet
except:
A. employees have fewer interactions with HR staff.
B. benefit handbook cost is minimized.
C. benefit transactions costs are reduced.
D. fewer employee benefits staff are required.
38. (p. 433) All of the following are cost containment practices except:
A. probationary periods.
B. physical exams of all new hires.
C. copay.
D. seeking competitive bids for benefit delivery.
Difficulty: Medium
39. (p. 433) The biggest trend in cost-containment is:

A. benefit limitations.
B. HMO's.
C. outsourcing.
D. higher deductibles.
Difficulty: Medium
40. (p. 434) Which of the following would an employer be least likely to use if they sought to
reduce benefit costs?
A. Dual coverage
B. Benefit ceiling
C. Coinsurance
D. Defined benefit plans
12-26
True / False Questions
41. (p. 411) The average per hour cost of benefits is higher in state and local governments than in
the private sector.
TRUE
Difficulty: Medium
42. (p. 414) Before World War II, hourly employees were given time off for holidays but without
pay.
TRUE
Difficulty: Easy
43. (p. 415) Today, benefits are twenty-five percent of payroll costs.
FALSE
Difficulty: Medium
44. (p. 415) General Motors spends more than twice as much for employee health insurance as
for the steel that goes into each car they produce.
TRUE
Difficulty: Medium
45. (p. 415-416) While health care costs have risen rapidly during the past two decades, pension
costs have been declining due to the strong stock market.
FALSE
Difficulty: Medium
12-27
46. (p. 417) Employee benefits may be accurately described as a costly entitlement of the
American workforce.
TRUE
Difficulty: Easy
47. (p. 417) Though employer provided benefits cost less due to group rates, they are taxed the
same as wages and salaries.
FALSE
Difficulty: Medium
48. (p. 417) The favorable tax status granted to many benefits is safe from the threat of recurrent
tax reform proposals.
FALSE
Difficulty: Medium
49. (p. 418) According to a recent SHRM survey, pay is the top factor driving job satisfaction.
FALSE
Difficulty: Medium
50. (p. 418) Benefits can be an effective tool to attract and retain employees when benefits
address needs of a target group.
TRUE
Difficulty: Easy
12-28
51. (p. 420) The percent of employers willing to absorb rising benefit costs has remained about
the same the past few years.
FALSE
Difficulty: Medium
52. (p. 421) Flexible benefit plans are complex requiring many choices that lead to poor
employee understanding of benefits.
FALSE
Difficulty: Medium
53. (p. 422) Flexible benefits allow organizations to control benefit costs.
TRUE
Difficulty: Medium
54. (p. 422) If adverse selection occurs for one or more benefits in a flexible benefits plan, those
benefits may be dropped from the plan.
TRUE
55. (p. 412-413) Cost pressure related to increasing diversity of the workforce is one of the
reasons companies are offering flexible benefit plans.
TRUE
Difficulty: Medium
12-29
56. (p. 422) The biggest current trend in health care is market-based or customer-driven.
TRUE
Difficulty: Medium
57. (p. 423) Employers prefer the noncontributory approach to financing benefits because this
allows greater control of costs.
FALSE
Difficulty: Medium
58. (p. 424) For most benefits, providing a level of coverage is more costly to employers than
providing a benefit at a specific cost level.
TRUE
Difficulty: Medium
59. (p. 425) When future cost containment of a benefit may be a problem, the benefit should be
offered on a noncontributory basis.
FALSE
Difficulty: Medium
60. (p. 425) Most employers prefer to avoid providing benefits on a defined-level basis.
TRUE
Difficulty: Easy
12-30
61. (p. 426) Though commonly believed by managers, there is only anecdotal evidence
supporting the belief that higher benefit levels increase employee retention.
TRUE
Difficulty: Medium
62. (p. 425) The only two benefits shown to reduce turnover are pensions and medical coverage.
TRUE
Difficulty: Medium
63. (p. 426) The goal of employee benefits should be to keep turnover to near zero.
FALSE
64. (p. 417) The Employment Retirement Income Security Act (1974) requires employers to
offer some form of pension.
FALSE
Difficulty: Medium
65. (p. 428) According to available evidence, a good strategy for a company to remain non-union
is to offer the same benefits as those provided by unionized firms.
FALSE
Difficulty: Medium
12-31
66. (p. 428) The "bandwagon" effect is when an employer offers a new benefit offered by a
competitor without careful consideration.
TRUE
Difficulty: Easy
67. (p. 428) Employees' preferences for various benefits can be predicted well from demographic
data.
FALSE
Difficulty: Medium
68. (p. 428) The ideal approach to determining employee benefit preferences is a flexible benefit
plan.
TRUE
Difficulty: Medium
69. (p. 431) Employees feel their benefits are very fair when they are given extensive
communications about benefits but plan design is left to experts.
FALSE
70. (p. 434) Dual coverage is when a portion of insurance premiums is paid by the employee.
FALSE
Difficulty: Easy
12-32
Short Answer Questions
71. (p. 417) What is the role of the government impetus in the development of employee
benefits?
Three employee benefits are mandated by either the state or federal government: workers'
compensation (state), unemployment insurance (federal), and social security (federal). In
addition, most other employee benefits are affected by such laws as the Employee Retirement
Income Security Act (ERISA affects pension administration) and various sections of the
Internal Revenue Code.
Difficulty: Medium
72. (p. 420) Which are the four major administration issues regarding in setting up a benefit
package?
Four major administration issues arise in setting up a benefit package: (1) Who should be
protected or benefited?; (2) How much choice should employees have among an array of
benefits?; (3) How should benefits be financed?; and (4) Are your benefits legally defensible?
Difficulty: Easy
73. (p. 422) What are the major disadvantages of a flexible benefits package?
The major disadvantages of a flexible benefits package are:

 Employees make bad choices and find themselves not covered for predictable emergencies.
 Administrative burdens and expenses increase.
 Adverse selection: Employees pick only benefits they will use; the subsequent high benefit
utilization increases its cost.
 Subject to nondiscrimination requirements in Section 125 of the Internal Revenue Code.
Difficulty: Medium
12-33
74. (p. 422) List some examples of customer-driven healthcare benefits packages.
There are many variants on consumer-driven health care. Some of the basic choices are:
 Full-defined Contribution
 Tiered Networks
 Menu-driven
 Managed Competition
 Health Savings Accounts
Difficulty: Easy
75. (p. 423-424) What can administrators do to control the increasing benefits costs?
To control spiraling benefit costs, administrators should adopt a broader, cost-centered

approach. As a first step, this approach would require policy decisions on the level of benefit
expenditures acceptable both in the short and the long runs. Factors affecting this decision
include an evaluation of benefits offered by other firms and the competitiveness of the
existing package. Also important is compliance with various legal requirements as they
change over time. Finally, the actual benefit of a new option must be explored in relation to
employee preferences.
76. (p. 428) What is the importance of the demographic approach in determining employee
preferences?
The demographic approach assumes that demographic groups (e.g., young versus old, married
versus unmarried) can be identified for which benefit preferences are fairly consistent across
members of the group. Furthermore, it assumes that meaningful differences exist between
groups in terms of benefit preferences. It has to be noted that evidence says that these
assumptions are only partially correct.
Difficulty: Medium
12-34
77. (p. 428) What is the "bandwagon" effect in benefits administration?
An issue while determining benefits is the perceived fairness in comparison to other

organizations. Occasionally this comparison process leads to a "bandwagon" effect, in which
new benefits offered by a competitor are adopted without careful consideration, simply
because the employer wants to avoid hard feelings. This phenomenon is particularly apparent
for employers with strong commitments to maintaining a totally or partially nonunion work
force. While the effectiveness of this strategy in thwarting unionization efforts has not been
demonstrated, many nonunion firms would prefer to provide the benefit as a safety measure.
78. (p. 428-429) Which if the most popular empirical method of identifying individual preferences
in benefits packages?
The most popular method of identifying individual employee preferences is commonly known
as a flexible benefit plan (also called a cafeteria-style plan or a supermarket plan). Employees
are allotted a fixed amount of money and permitted to spend that amount in the purchase of
benefit options. From a theoretical perspective, this approach to benefit packaging is ideal.
Employees directly identify the benefits of greatest value to them, and by constraining the
dollars employees have to spend, benefit managers are able to control benefit costs.
Difficulty: Medium
79. (p. 431) Illustrate the issue of communication of benefits to the employees.
The most frequent method for communicating employee benefits today is still the employee
benefit handbook. To be most effective, the benefit manual should be accompanied by group
meetings and videotapes. While some organizations may supplement this initial benefit
discussion with periodic refreshers, a more typical approach involves one-on-one discussions
between the benefit administrator and an employee seeking information on a particular
benefit. In recent years, personalized benefit statements generated by computer software
programs are also becoming popular.
Difficulty: Medium
12-35
80. (p. 433) What are some of the common cost-containment practices with regard to benefits
administration?
Employers are auditing their benefit options for cost containment opportunities. The most
prevalent practices include:
 Probationary periods—excluding new employees from benefit coverage until some term of
employment (e.g., 3 months) is completed.
 Benefit limitations—limit disability income payments to some maximum percentage of
income and to limit medical/dental coverage for specific procedures to a certain fixed amount.
 Copay—requiring that employees pay a fixed or percentage amount for coverage.
 Administrative cost containment—controlling costs through policies such as seeking
competitive bids for program delivery.
12-36

Chap 012

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chap 012

Uploaded by

Copyright:

Available Formats

Chapter 12 - The Benefit Determination Process

Multiple Choice Questions

1. The total cost of employee benefits in the U. S. is _____ dollars.

8. Surveys show that the most highly valued benefit is:

9. Which of the following benefits is rated lowest by employees?

12. The first issue in setting up a benefits package is:

13. Which of the following is not a benefit administration issue?

17. All of the following are advantages of flexible benefits except:

19. _____ is not an example of an approach to customer-driven health care.

27. The most widely used benefit survey is conducted by:

33. _____ is/are one of the most preferred benefits.

34. _____ is/are not a method of determining employee benefit preferences.

35. _____ is the most frequent method of benefit communication.

38. All of the following are cost containment practices except:

39. The biggest trend in cost-containment is:

True / False Questions

43. Today, benefits are twenty-five percent of payroll costs.

53. Flexible benefits allow organizations to control benefit costs.

56. The biggest current trend in health care is market-based or customer-driven.

60. Most employers prefer to avoid providing benefits on a defined-level basis.

Short Answer Questions

73. What are the major disadvantages of a flexible benefits package?

74. List some examples of customer-driven healthcare benefits packages.

75. What can administrators do to control the increasing benefits costs?

76. What is the importance of the demographic approach in determining employee

77. What is the "bandwagon" effect in benefits administration?

79. Illustrate the issue of communication of benefits to the employees.

Chapter 12 The Benefit Determination Process Answer Key

Multiple Choice Questions

9. (p. 418) Which of the following benefits is rated lowest by employees?

39. (p. 433) The biggest trend in cost-containment is:

The major disadvantages of a flexible benefits package are:

To control spiraling benefit costs, administrators should adopt a broader, cost-centered

77. (p. 428) What is the "bandwagon" effect in benefits administration?

An issue while determining benefits is the perceived fairness in comparison to other

You might also like