Lesson 3 Flashcards

1
Q

3.1.1 Describe the functional approach

A

A functional approach to benefits plan design is a systematic method for analyzing a plan sponsor’s benefit plan..

It analyzes the plan as a coordinated whole in terms of its ability to met plan members’ and others needs and to manage loss exposures within the plan sponsor organization’s overall compensation goals and cost parameters

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2
Q

3.1.2 Outline 5 advantages of using a functional approach in plan design and evaluation

A

1) It assists in effectively meeting plan embers’ needs, which is important because benefits are a significant element in total compensation
2) It assists in effective benefit planning and avoids waste
3) It assist in coordinating new benefits with an existing plan and reviewing changes. Can help identify gaps or overlaps in coverage
4) It assists in keeping the benefits plan current, cost effective and in compliance with regulations
5) It assists in properly integrating different benefit plans with each other

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3
Q

3.2.1 Explain why an organization using a functional approach might not include a specific benefit or entirely cover a certain plan member need related to a benefit

A

Because the organizations total compensation philosophy calls for a relatively low level of benefits or benefits are oriented in a different direction

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4
Q

3.2.3 Identify the type of remuneration strategy that would usually apply to an organization in a developing industrial sector with a working climate stressing growth and creativity

A

A strategy of investment and growth would likely apply. The remuneration strategy for this type of organization and working climate may be a medium base salary, high short term incentives and low noncash benefits that are short term oriented

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5
Q

3.2.4 Compare compensation/service oriented benefits philosophy and a benefits/needs orientation philosophy.

A

A plan sponsor must balance compensation/service oriented benefits with a need oriented philosophy.

Plan sponsor that tend towards the first relate benefits to level of compensation or service. (life & pensions)

Plan sponsors that prefer the latter approach focus on the needs of plan members and their dependents (health coverage)

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6
Q

3.3.1 Outline the main steps of the functional approach to benefits plan design or revision (13)

A

1) Classify plan member and dependent needs/objectives into functional categories
2) Classify categories of individuals to be covered
3) Analyze current benefits plan structure
4) Determine gaps or overlaps in benefits
5) Consider changes to fill gaps/eliminate overlaps
6) Estimate cost/savings of recommended changes
7) Evaluate alternative methods of funding sources
8) evaluate alternative methods of funding sources
9) consider cost saving or containment techniques
10) Finalize appropriate benefits and methods of funding
11) Implement changes
12) Communicate changes to plan members
13) Reevaluate the benefits periodically

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7
Q

3.3.2 list 13 categories of plan member and dependent needs and exposures to loss under the functional approach (13)

A

1) Health care expenses
2) STD and LTD
3) losses from deaths
4) needs for long term care
5) needs for dependent care assistance (child/elder care)
6) retirement needs
7) capital accumulation needs, long/short term
8) capital accumulation needs or goals
9) needs arising from unemployment or temporary termination or suspension of employment
10) needs for financial, retirement and other counselling services
11) losses resulting from property and liability exposure
12) Needs for educational assistance for plan members
13) other benefits needs or goals, such as corporate stock plans

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8
Q

3.4.1 Outline the categories of individuals a plan sponsor might consider protecting (8) (active, inactive etc)

A

1) Active permanent EEs
2) dependents of active EEs
3) retired former members
4) disabled plan members and their dependents
5) surviving dependents of deceased employees
6) terminates employees and their dependents
7) employees temporarily separated from the plan sponsor’s service (layoffs, leave of absence, strikes)
8) Individuals other than permanent active EEs (temporary part-time, directors, etc.)

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9
Q

3.4.2 Explain why the process of categorizing the individuals the plan sponsor wants to protect is an important plan design decision

A

The scope of group benefit plans has increase both in benefits provided and in terms of continuing protection once the formal employment relationship has ended.

The latter issue has become important due to increased costs of providing benefit plans and increased legislative and other requirements, funding and accounting considerations, union negotiations and benefits practices in the particular industry and geographic area

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10
Q

3.4.3 Outline the issues to be considered when determining eligibility for benefits 8

A

1) Which dependents should be covered?
2) Should retirees and their dependents be covered? For what benefits?
3) Should survivors of deceased members be covered? What benefits and for how long?
4) Should survivors of former retired employees be covered? For what benefits?
5) Should disabled members and their dependents be covered? For what benefits and under what conditions?
6) Should coverage be extended to plan members during layoffs, leaves of absence, strikes? What benefits and for how long?
7) Should coverage be made available to individuals after termination of employment and on what basis?
8) Should coverage be limited to permanent full time employees?

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11
Q

3.5.1 Describe the purpose of analyzing the current benefits plan under the functional approach

A

It is an in depth study of benefits and compares needs and goals for each class of individual against the objectives and criteria set out by the functional approach analysis

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12
Q

3.5.2 Justify the inclusion of optional benefits in an evaluation of the levels of benefits and benefits adequacy

A

An evaluation of levels of benefits and benefit adequacy should recognize that plan members’ needs may exceed the basic level of benefits provided by the plan sponsor to make benefits more adequate and in certain specific areas.

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13
Q

3.5.3 Explain why benefit waiting periods are considered

A

Waiting periods expose plan members and their dependents to a loss not covered by the benefits plan.

The functional approach analyzes the benefits plan to determine if any resulting gaps in coverage caused by a waiting period are appropriate and consistent with the plan sponsor’s objectives and plan member’s needs

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14
Q

3.5.4.a Discuss why certain benefits are more suited to longer waiting periods than others

A

A plan sponsor may want to use waiting periods for accumulation oriented benefits but not protection oriented benefits.

Protection oriented benefits protect against serious loss exposures that, if not immediately coverage, could create financial consequences for plan members, dependents, or both.

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15
Q

3.5.4.b What benefits are protection oriented benefits?

A

Life insurances, weekly Indemnity/STD, LTD

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16
Q

3.5.4.c What benefits are accumulation oriented?

A

Pension plans, profit sharing plans, stock bonus plans ect

17
Q

3.6.1 Discuss the impact of requiring plan member contributions on how well a group benefits plan meets the needs of the group as a whole

A

Requiring EE contributions reduces participation rates.

One approach to balancing these concerns is to rank group benefits in terms of the relative degree to which the plan sponsor feels all members & dependents should be protected. Allowing for some benefits to be targeted as contributory and noncontributory with non contributory encouraging higher participation.

18
Q

3.6.2 Explain how actual participation rates of plan members and their dependents for a particular group can aid plan design decisions.

A

If participation rates are low the benefit may not be meeting the plan sponsor’s goals an compensation objectives. Especially for optional contributory benefits.

A plan sponsor may wish to investigate the reason for low participation and what steps may be taken

19
Q

3.7.1 Outline 9 cost containment techniques that can be implemented under the functional approach to benefits design

A

1) Elimination or reduction of certain benefits
2) Changes in funding sources (contribution rates)
3) Adoption or modification of a flexible benefits approach
4) Use of alternative funding arrangements for certain benefits
5) Use of a utilization review for health care expenses
6) Use of disability management and rehabilitation
7) Changes in insurers or servicing organizations
8) Adoption for a wellness program
9) Changes in investment policies or advisors

20
Q

3.7.2 Explain why it is important to reevaluate a benefits plan on a regular basis

A

Plan member needs, the benefits available to meet those needs, how those benefits should be made available to plan members and regulatory requirements are constantly changing.

Benefit plans need to be reevaluated on a regular basis to ensure that they are continuing to meet plan members’ needs