Module 2 Flashcards
Outline factors affecting the scope of the benefits plan management function and process
Overall group benefits plan management function and processes (e.g., who makes plan decisions, how they make them, who is accountable and applicable legislative requirements) vary depending on who the plan sponsor is. Other factors that affect plan management include the complexity and comprehensiveness of benefits coverage, size of the group, uniformity of benefits for different categories of members, geographical dispersion of members, whether the plan offers insured benefits and the number of service providers involved in insuring and/or administering the plan (e.g., insurers, advisors and third-party administrators (TPAs)).
List three common plan activities which take place regardless of what type of entity acts as the plan sponsor
Regardless of what type of entity acts as the plan sponsor, there are common plan activities that fall into three key areas: plan design, plan administration and plan funding. These three areas are interrelated; decision making in one area can strongly influence decision making in another. At the same time, each area has a distinct and specific focus and set of activities. The plan sponsor must also consider decisions in one area in the context of the overall governance of the benefits plan.
Outline plan features generally focused on in group benefits plan design (6)
Group benefits plan design includes the plan sponsor’s analysis and decision-making process when implementing a new plan or reviewing/changing an established plan. While plan design considers all possible benefits/provisions a group plan typically offers (in addition to funding and administration methods), plan design activities generally focus on:
(a) Benefits plan philosophy/objectives
(b) Categories of individuals eligible for benefits coverage
(c) Type and level of benefits provided and under what terms and conditions
(d) Whether plan members can choose some of their benefits
(e) Who pays for coverage
(f) How to manage plan costs.
Discuss the role of the insurer in determining a plan sponsor’s funding arrangement options.
The funding arrangement relates to who will be financially and legally responsible for payment of claims and expenses incurred under the benefits plan. Ultimately, the insurer determines which funding arrangement options are available to a plan sponsor based on the size of the plan, types of benefits provided, volume of contributions to the plan or volume of premiums for insured benefits, volume of claims, regulatory requirements, tax considerations, the degree of financial risk the plan sponsor can assume and the insurer’s willingness to assume (i.e., underwrite) the risk associated with the plan. The factors affecting the choice of funding arrangement apply to all types of plan sponsors (single employers, trustees of multi-employer plans (MEPs), associations, etc.).
When the funding arrangement includes sharing risk with an insurer, the insurer uses the underwriting process to evaluate the risk of the plan and decide whether to insure it and at what price. Essentially, underwriting is the assessment of risk for the purpose of pricing group insurance (i.e., setting premium rates). Pricing involves determining the cost of expected claims plus administration charges, and from these projected costs, setting premium rates.
Describe the broad categories of activities required in benefits plan administration. (3)
While activities vary depending on whether it is an established plan or is undergoing changes in benefits, insurer or other service providers, or is a new plan (start-up), plan administration generally requires:
(a) Determining an appropriate administrative approach.
(b) Performing plan member enrollment and benefit eligibility activities
(c) Evaluating the overall benefits program and specific benefits against appropriate performance standards
Identify the policyholder in association plans
The association is the group policyholder. It signs the master contract, decides what types of insurance to purchase, negotiates the terms of the contract with the insurer, makes decisions regarding plan amendments, administers the plan, and collects and remits all premiums.
Discuss factors that influence the viability of employer association plans from an insurer’s perspective (4)
While generally a good insurable risk, the viability of employer association plans depends on:
- A close relationship between members and the association
- A committed association executive
- Association administration capability
- A long-term, sustainable, competitive plan
Identify challenges with plans for an association of individuals. (3)
Challenges with these plans typically stem from the fact that the plan is not based on an employer-employee relationship, which means:
(a) There are no employer contributions made to the plan
(b) There is no centralized automatic mechanism (e.g., payroll) for collecting premiums. Pre-authorized payments from plan members mitigate this challenge.
(c) Member solicitation must be done individually (in contrast to soliciting employers for employee groups), increasing marketing costs.
Describe key characteristics of MEPs
MEPs generally cover employees working under the terms of a collective agreement. Typically, a MEP covers members of a union within a single trade (e.g., a construction trade, such as carpenters or electricians, or members of a union that represents multiple trades or industries). In these types of industries, union members can work for many employers within the industry (employers who are unrelated financially) throughout their career; therefore, there is not a standard employer-employee relationship.
A MEP commonly uses a trust structure, managed by trustees, to deliver benefits. A trust fund or trust funds are created to receive contributions from participating employers on behalf of each union member they employ, and the supporting plan or plans are created to provide benefits to members. Similar to association plans, MEPs can achieve a larger contributing group and a larger pool of funds by pooling the contributions of many employers.
Explain the significance of the trust agreement and the participation agreement in managing a MEP.
The “sponsors” (who may be a union or one or more unions together with an employer/association group) normally establish the trust agreement. In trusts, the sponsors are the “settlors.” The settlors establish the trust, support the collective bargaining agreement requirements that ensure funds are contributed to the trust, set and amend the terms of the trust, appoint the trustees and determine the beneficiaries.
A trust agreement establishes the terms and conditions for overall trust management and empowers the trustees to make decisions related to the trust operations (e.g., adopting policies for benefits, investment of funds, governance, etc.)
Unless an employer is a signatory to a collective bargaining agreement that specifically indicates it has received and adopted the trust agreement, it is not necessarily bound to the trust or to any rules the trustee establishes. If employers are not parties to the trust agreement, there should be robust participation agreements between the employer and the trust fund.
Outline the rules trustees must adhere to in administering a MEP (7)
- Duty to obey the trust instrument (This is the primary duty)
- Duty of care
- Duty of loyalty (act in the best interests of beneficiaries)
- Duty of discretion
- No-delegation rule
- Duty of confidentiality
- Duty of disclosure
Explain why single employers are the most attractive type of benefits plan sponsor for insurers
The most prevalent type of plan sponsor is the single employer. Single employers include corporations, partnerships and sole proprietorships as well as government organizations and government-sponsored agencies such as school boards and social work agencies. Single employer groups satisfy the five fundamental principles of insurance, and insurers consider them a desirable risk.
Identify the policyholder in a single employer plan.
In single employer plans, the employer is the group policyholder. It signs the master contract, decides what types of group insurance coverage to purchase, negotiates terms of the contract with the insurer, makes decisions regarding plan amendments, administers the plan, and collects and remits all premiums.
Explain the role of governance in benefits plan management. (6)
Good governance can help plan sponsors ensure legal compliance and avoid liability. Good plan governance:
(a) Is essential for meeting fiduciary and other obligations
(b) Minimizes risks and maximizes efficiency
(c) Promotes accurate, timely and cost-effective delivery of benefits
(d) Promotes consistent administration of the plan in the best interests of plan members and beneficiaries
(e) Requires control mechanisms that encourage good decision making, proper and efficient practices, clear accountability, and regular review and evaluation
(f) Contributes to positive plan performance and helps to demonstrate due diligence on the part of the plan sponsor.
Identify tools available to support good governance practices in group benefit plans
Group benefit plan sponsors can draw on guidance provided to pension plan sponsors through various bodies, such as Canadian Association of Pension Supervisory Authorities (CAPSA), to improve their own benefits plan governance structures and processes. The CAPSA Pension Plan Governance Guideline No. 4 describes the structure and processes for the effective administration of a pension plan to ensure the plan administrator meets its fiduciary and other responsibilities.
Group benefit plan sponsors can draw on guidance provided to pension plan sponsors through various organizations, such as Canadian Association of Pension Supervisory Authorities (CAPSA), to improve their benefits plan governance structures and processes. Outline the eleven principles contained in the CAPSA governance guidelines.
(a) Principle 1: Fiduciary responsibility
(b) Principle 2: Governance framework
(c) Principle 3: Roles and responsibilities
(d) Principle 4: Performance monitoring
(e) Principle 5: Knowledge and skills
(f) Principle 6: Governance information
(g) Principle 7: Risk management
(h) Principle 8: Oversight and compliance
(i) Principle 9: Transparency and accountability
(j) Principle 10: Code of conduct and conflict of interest
(k) Principle 11: Governance review
What are the key government-sponsored plans that coordinate with group benefit plans, and what types of benefits do they provide? (4)
(a) Provincial/territorial health insurance plans, which provide basic medical and hospital services
(b) Canada/Quebec Pension Plans (CPP/QPP), which provide retirement and disability pensions.
(c) Employment Insurance (EI), which provides income benefits to insured workers who are temporarily unemployed through no fault of their own as well as special income benefits to employees who have an interruption of earnings due to certain events (e.g., parental and maternity leave, sickness and leave to provide compassionate care).
(d) Workers’ compensation (WC), which provides workers with a no-fault guarantee of compensation, including income replacement for disabled workers, survivor benefits if workers die as a result of a work accident, and payment of medical and rehabilitation expenses for work-related injuries or illnesses.
Explain the significance of human rights legislation for group benefit plans sponsors and service providers
Human rights legislation makes it illegal to discriminate against an individual on numerous prohibited grounds.
In the context of insurance, group benefit plans cannot discriminate on a prohibited ground in terms of eligibility requirements or amount of coverage provided unless there is bona fide justification for the differential treatment or unless legislation permits it.
Discrimination is reasonable if based on a sound and accepted insurance practice and there is no practical alternative.
Explain the significance of employment standards legislation for group benefits plan management.
Employment standards legislation provides for statutorily protected leaves of absences. All jurisdictions provide for unpaid pregnancy and parental/adoptive leave. Benefits must be continued during these protected leaves. Neither employees nor employers can contract out of these standards. If an employee receives a greater right than that provided by statute (e.g., through an employment contract or collective bargaining agreements), this greater right prevails over the corresponding minimum standard.
Explain the significance of section 6(1)(a)(i) of the Income Tax Act (ITA) for group benefit plans.
Section 6(1)(a)(i) of ITA addresses taxation of employee benefits. The paragraph’s general thrust is to include in employment income “the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment.” This includes most fringe benefits. However, there are a number of specific exemptions, many of which can be described as relating to the health and welfare of the employee.
Provide examples of both taxable benefits and allowances as outlined in Income Tax Folio /S2-F3-C2
(a) Free or subsidized board and lodging
(b) Cash gifts and awards
(c) Personal use of an employer’s automobile or vacation property
(d) Holiday trips, prizes and incentive awards for an employee and employee’s family
(e) Provincial health insurance premiums in provinces where premiums are payable by residents
(f) Life insurance premiums
(g) Employer contributions to a group sickness or accident insurance plan (except wage loss replacement plans)
(h) Reimbursement for tools used by employees in employment
(i) Low and interest-free loans
(j) Financial counselling and income tax return preparation.
Give examples of nontaxable benefits from employment
(a) Contributions to a registered pension plan (RPP) or deferred profit-sharing plan (DPSP)
(b) Counselling services related to mental or physical health, termination of employment or retirement
(c) Distinctive uniforms and special clothing required for employment
(d) Transportation to place of employment if provided directly by the employer
(e) Use of an employer’s recreational facilities
(f) Recreational facility dues if membership is required and benefits the employer (the expense is not deductible to the employer, however)
(g) Non-cash incentive awards of up to $500 to mark achievements such as length of service or safety standard awards
(h) Employer contributions to a wage loss replacement plan that pays benefits on a periodic basis
(i) Contributions to a private health insurance plan (except in Quebec for provincial income tax purposes)
Explain the significance of privacy laws for group benefits plan management
Privacy legislation directly impacts all benefits plan administration activities, including enrolling employees, confirming eligibility, obtaining evidence of insurability, managing coverage provisions, processing claims, communicating with plan members and other stakeholders, and overall management of the data stored in the benefits administration systems. To avoid liability, plan sponsors must establish proper procedures, policies and forms to ensure staff and service providers adhere to privacy rules.
Describe the regulation of Canadian insurance companies
In Canada, the regulation of insurance companies has two different but interrelated purposes: the regulation of insurance industry solvency (i.e., financial soundness) and the regulation of insurers’ market conduct. Solvency regulation is the responsibility of both provincial/territorial governments and the federal government, depending on where the company is incorporated. Insurers that incorporate federally are subject to the financial soundness/solvency regime administered by the Office of the Superintendent of Financial Institutions (OSFI). OSFI is an independent agency of the Government of Canada. Insurers that incorporate in a specific province or territory are subject to the oversight of that province or territory.
