Textbook Notes (369,133)
Canada (162,403)
Finance (362)
FIN 512 (27)
Chapter 7

Chapter 7.docx

15 Pages

Course Code
FIN 512
Giulio Iacobelli

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Chapter 7: Income Protection Plans Income protection is crucial for most workers during times of job loss, illness, or sickness because when someone cannot work, in addition to losing income, there are frequently additional expenses Income protection plans are even more important than life insurance since a person has a 33% chance of being off work for at least 6 months due to illness or accident between the ages of 35 and 65 but only 15.6% of men and 9.4% of women die between those two ages All government plans are mandatory Group and individual plans can supplement government plans in those instances where government coverage is either not available or inadequate Government Plans: there are 3 government plans that offer income protection for workers who are not able to work due to the following: - Ill health, which is covered by Workers Compensation, Employment Insurance, and Canada Pension Plan disability benefit, and - Unemployment that is short-term and involuntary and is often covered by Employment Insurance Social Insurance: - All of these government programs fall under the descriptor social insurance because their primary focus is to provide compulsory protection for personal risks - Other benefits also fall under this heading, such as Canada Pension Plan, retirement benefits, and death benefits - Social insurance exists for the following reason: 1. To help solve social problems that result from economic changes beyond the control of both employers and employees. 2. To provide coverage for perils that are difficult to insure privately because they either a. Affect a large number of people at the same time (unemployment), or b. Are a result of workplace conditions (health and safety standards enacted by each employer) 3. To provide a base of economic security for employees. - Social insurance programs share the following characteristics: 1. They are compulsory- all employers and employees must participate unless the coverage is provided in another form in the organization. 2. They provide benefits that relate to income with a ceiling on both contributions and benefits. 3. The benefits are prescribed by law 4. Benefits are not means-tested, that is, people receive the benefit because they qualify for it, not because they need it. 5. Contributions are made by employees, employers, or both 6. Benefits are funded, that is, contributions are made for the specific program. The benefits are paid out of the fund and are not paid out of general tax revenues, as are the benefits under the Old Age Security Program. - All three of government programs- Workers Compensation, Employment Insurance, and Canada Pension Plan- meet all of these criteria Workers Compensation: - Canadas first social program - It was favoured by both workers groups (unions) and employers hoping to avoid lawsuits - The system of Canada arose after an inquiry by Ontario Chief Justice William Meredith, who outlined a system whose workers could be compensated for workplace injuries but they had to give up their right to sue their employers - Workers Compensation is a provincial and territorial responsibility and, as a result, each jurisdiction has its own legislation - It was introduced at different dates in each province and territory- Ontario was first in 1915, Manitoba in 1916, B.C. in 1917 - In most provinces it is solely concerned with insurance - However, in some jurisdictions, the program also has a preventative role to ensure workplace safety - The objectives of Workers Compensation are as follows: To provide: o Substantial replacement of lost employee earnings for occupational injury and disease, o Medical care and rehabilitation services, o A pension if an injury results in a permanent disability, and o Pensions to dependents of employees who are fatally injured in the course of employment To encourage safety To reduce lawsuits - There are 4 underlying principles to Workers Compensation: 1. Employers bear the direct cost of compensation, that is, employers pay the premiums based on payroll, job classifications, and their history of accidents, receiving in return protection from lawsuits arising from injuries. 2. Workers give up the right to sue their employers and receive in return compensation benefits at no cost for work-related injuries. 3. Negligence and fault for the cause of injury are not considered except as premiums are increased to reflect experience. 4. The system is administered by a neutral agency having exclusive jurisdiction over all matters arising out of the enabling legislation. - The Government Employees Compensation Act provides for workers compensation to all federal government employees, including employees posted outside Canada, and to employees from outside Canada who are locally engaged and are injured in the course of their duties and are not covered under any local legislation Industrial and occupational diseases are treated the same way as work-related injuries Operations of Boards - Workers Compensation in each jurisdiction is operated by a board (WCB) that has a different name in some jurisdictions, like the Workplace Safety and Insurance Board (WSIF) in Ontario (sometimes called commissions) - The Association of Workers Compensation Boards of Canada (AWCBC) was founded in 1919 as a non-profit organization to facilitate the exchange of information between Workers Compensation Boards and Commissions in different jurisdictions - AWCBC refers to individuals Boards and Commissions collectively as WCB/Commissions - These WCB/Commissions compensate employees for lost income, permanent disability, cost for survivors, and rehabilitation due to work-related injuries - Jurisdictions having a large proportion of self-employed people, such as fishers and farmers, have lower rates of participation in Workers Comp. (Table 7.1 page 232) - The WCB/Compensation charge employers to cover their employees and pay the insured worker or survivor directly - A few employers are self-insured, meaning the Board of Commission pays the cost of benefits provided to their injured workers plan and the employer reimburses the Board - Workers Compensation is a large industry receiving some $9 billion a year in total income and paying $9.6 billion in benefits in 2007 (it also invests in Occupational Health and Safety (OHS) to reduce worker injury - Table 7.1: Workers Compensation Boards and Commissions Income and Expenses, 2007 (page 232) Employers Costs: - In 2007 weighted average premium rate for Canada is $1.98 for every $100 of gross insurable earnings before deductions - Premium rates for individual rate groups are recalculated annually based on injury frequency and on claims costs for individual rate groups - There are 18 rate groups (Divisions): Table 7.2 Workers Compensation Employer Assessment Divisions (page 233) - Each division is subdivided into a Major Group and then further subdivided (for example, Division A, Agriculture and Related Services contains two major groups: Major Group 01 is Agriculture, and Major Group 2 is Incidental Services) - Major Group 1 in Division A contains 6 sub-groups (011- Livestock Farms, 012- Other Animal Specialties, 013- Field Crop Farms, 015- Fruit and Vegetable Farms, 016- Horticulture, 017- Combination Farms - Sub-group 011- Livestock Farms is further broken down into 6 categories- Dairy, Cattle, Hog, Poultry and Egg, Sheep and Goats and Feedlots - Table 7.3 Employer Assessment Rates for 2009 (page 233) shows the following: Maximum assessable earnings, the maximum amount of earnings for each employee covered by Workers Comp. The highest and lowest rates in each jurisdiction The rates for each jurisdiction for Major Group 70, Deposit Accepting Intermediary in Division K, Finance and Insurance Industries whose rates are the lowest rates in 8 jurisdictions - Why is it so much more dangerous to work in Financial Services in some jurisdictions? No idea, Rates are per $100 of assessable earnings and are based, in part, on the experience of each employer and also of the industry - Example 1: page 235 (use table 7.3) Given a small branch which has 5 employees earning an average of $40,000 each in B.C., the bank will pay Workers Comp a total each year of: 1. 40,000 x 5 = $200,000 [total wages] 2. 200,000 / 100 = $2000 [total wages / 100] 3. $2000 x $0.08 (estimated lowest assessmen
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