Long Term Disability Lab Review

Question 1

Qualifying period

Answer 1

elimination period, waiting period

Work in a position that’s at least half-time. Have 6 months of active service. Have completed 6 months of Short Term Illness and Injury Plan (STIIP) benefits

Question 2

Own Occupation

Answer 2

Will typically cover up to 24 months after incident. The insurance company worries they will not ever return to own occupation so turns to any occupation.

Question 3

Any Occupation

Answer 3

after 24 months

Question 4

All Source Maximum Income

Answer 4

they don’t want you to be better off after claiming disability. It’s never allowed to have more money on disability than your original paycheck.

Question 5

Waiver of Premium

Answer 5

once people go off long term disability, they don’t have to pay the premium

Question 6

Benefit Schedule

Answer 6

% of pre-disability earnings 65% - 75% might be common

Question 7

Benefit Volume

Answer 7

the amount of money that is covered, not necessarily the original paycheck. It could be 70% of pre-disability earning

Question 8

How are premiums calculated?

Answer 8

Premiums are calculated based on a rate per $100 of benefit.

Example:
EE’s salary = $40,000
70% of earnings

Benefit schedule: 70% of earnings, to a maximum benefit of $5000/ month.

Premium rate: $1.20 per $100 of benefit volume.

What is benefit volume?
40,000 * .70 = $28,000 per year

Monthly premium?
28,000 / 100 = 280

280*1.20 = $336 per year
$336/12 = $28 per month

Question 9

value investing

Warren Buffet

Answer 9

when stock sells at a discount compared to their intrinsic worth

world’s greatest value investor.

Question 10

indexed pension

Answer 10

An “indexed pension” is one that is increased periodically to reflect increases in the consumer price index (CPI).

Question 11

Employee Benefits

Answer 11

that part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments

Question 12

Non-contributory

Contributory

Answer 12

employer pays total costs

costs shared between employer and employee

Question 13

Coinsurance

Answer 13

% of eligible expense above deductible that is paid by benefits insurance plan (eg: 80% coinsurance for drug costs)

Question 14

Pros & Cons of one size fits all

Answer 14

Pros

• simpler to manage
• equitable (sort of)

Cons

• potentially more costly to maintain as time goes by
• inequitable (sort of)

Question 15

Flex Benefits

Pros & Cons

Answer 15

Pros

• EEs have different needs
• easier to change/allow for change
• EEs need to be involved
• helps with cost containment

Cons

• EEs make bad choices and not covered
• admin burdens increase
• adverse selection/anti-selection (EEs only pick benefits they wil use so the subsequent high benefit utilization increases its cost)

Question 16

Pros & Cons of HSCA

Answer 16

Pros

• allows EEs to save up for larger expenses
• turns a personal health-related expense into a tax deduction for ER & tax free benefit for EE

Cons
- complex since CRA maintains a list of tax-exempt expenses

Question 17

WSA
&
FSA

Answer 17

wellness spending account
- not tax exempt
(gym, bike)
- ER decides what is covered

FSA

• flexible spending account
• combo of HCSA & WSA

Question 18

Flex plans design process (5)

Answer 18

1. establish objectives
2. status quo/new plan
3. test focus groups
4. adjust
5. implement
   - communicate
   - administer
   - election periods / triggers

Question 19

EAP definition

Answer 19

A employer-sponsored benefit program designed to assist employees with the identification and resolution of personal issues which may be impacting productivity.

Examples-
Substance abuse
Mental health
Grief counselling
Stress reduction
Anger management
Legal problems
Credit counselling
Health maintenance consultations

Question 20

Corporate Governance

What

Why

Who

Answer 20

What is it:
- Rules and procedures for decision making

• Tools for monitoring what companies do
• Determination of rights and responsibilities among stakeholders

WHY
Fraud 
Incompetence
Experiences from 2001, 2008, etc.
Fiduciary Duty vs Agency Theory/ Problem

WHO
Exec comp legislation also applies to:
Most publicly funded entities
Covers CEOs and next 4 highest paid executives with annual base pay of $125,000 or more. 
(NEOs: Named Executive Officers)

Question 21

4 Corporate Governance Bodies

Answer 21

Canadian Securities Administrators (CSA)
Securities Exchange Commission (SEC - US)

Canadian Coalition for Good Governance (CCGG)
Institutional Shareholders Service (ISS)

Question 22

Canadian Securities Administrators (CSA):

Answer 22

Sets the minimum rules for Provincial Regulators – Ont. Securities Comm – TSX
Requires public co.s to have a board level Comp Committee
Linking at-risk pay to performance
Disclosure rules: Must list and price/ value every item
Must report total comp as “One big number”

Question 23

1 CSA Requirement

Answer 23

Compensation Discussion and Analysis

section in Management Proxy Circulars which must include:

Plan design
Plan objectives
Every element of exec comp
Why each element is included
Performance levels and metrics

Question 24

Shareholder Activism

Answer 24

a way that shareholders can influence a corporation’s behavior by exercising their rights as partial owners. Classes of shares allow for distinct voting privileges, in addition to dividend entitlements

Launching an average of 240 campaigns in each of the past three years—more than double the number a decade ago.
Analysis of 400 activist campaigns finds that the median activist campaign reverses downward co. performance and generates excess shareholder returns that persist for at least 36 months

Question 25

Canadian Coalition for Good Governance Executive Compensation Principles (source: CCGG website)

6 principles

Answer 25

PRINCIPLE 1: A significant component of executive compensation should be “at risk” and based on performance

PRINCIPLE 2: “Performance” should be based on key business metrics that are aligned with corporate strategy and the period during which risks are being assumed

PRINCIPLE 3: Executives should build equity in the company to align their interests with those of shareholders

PRINCIPLE 4 : A company may choose to offer pensions, benefits and severance and change-of-control entitlements. When such perquisites are offered, the company should ensure that the benefit entitlements are not excessive.

PRINCIPLE 5: Compensation structure should be simple and easily understood by management, the board and shareholders

PRINCIPLE 6 : Boards and shareholders should actively engage with each other and consider each other’s perspective on executive compensation matters