1) What is “Risk Appetite” for Pension Fund like Registered Education Savings Plan?Requirement: Prepare a one-page PowerPoint presentation with at least 5 bullet points describing some possible areas of risk that you believe would be relevant to present to the Board to help them understand the risks2) As a follow up to the above exercise, could you please identify one Key Risk Metric (KRI) for each of the areas of risk you have presented that would be used to monitor the risk3) Please review the attached process document for EAP setting and provide a document which outline the following:A critique of the process documentationAt least 3 risks in this process and how they can be mitigatedAt least 3 areas where this process can be improvedName of Process:
Process Owner:
Education Assistance Payment (EAP) Setting Process
Manager, Investment Finance
Created By:
Date Created:
Last Updated By:
February 22, 2018
Last Revision Date:
November 2, 2018
Process Purpose: The purpose of the EAP Setting process is to establish an annual EAP Account
Payment and Group Plan Bonus per unit for each Group Plan.
Process Scope: This process pertains to Group Plans only. Family and individual Plans are outside
the scope of this process.
Process Input: The process input for the EAP Setting Process is a selected date of every calendar
year prior to the acceptance and enrollment of beneficiaries into various qualifying
educational institutions. February 28 has been the selected date historically.
Process Trigger: Two weeks before the selected calendar date of February 28.
Process Flow: An EAP consists of the following 4 components:
1.
2.
3.
4.
A beneficiary’s Government Grants
A beneficiary’s Income on their Government Grants
A beneficiary’s share of the EAP Account
A beneficiary’s share of the Group Plan Bonus
The EAP Setting Process computes the EAP Account payable (#3 above) per unit and
the Group Plan Bonus payable (#4 above) per unit for a Beneficiary Group of a given
Group Plan.
An EAP Accounts is made up of:
a. Income earned on Contributions made by all Subscribers to a specific
Group Plan. This includes the forfeited income earned on all cancelled
plans.
A Group Plan Bonus is paid out of the General Fund and is made up of:
a. Income earned on amounts transferred to the EAP Account at the
Maturity Date of each Subscribers’ Education Savings Plan Agreement;
b. Income earned on amounts transferred to the EAP Account through
Pre-Maturity Attrition;
c. Income set aside for future EAPs which is not collected by Beneficiaries
before December 31st of the 36th year of the plan; and
d. Unclaimed net Contributions, and Income.
“EAP Account” payable per Unit
1.
To establish the annual “EAP Account” payable per unit for a Group Plan, a
request is submitted to IT to make a copy of the Production Alberta Database as
at February 28 into the test environment to enable business to run various
reports.
2.
the Manager, Plan and Investment Accounting must first obtain the total dollars
available in the “EAP Account” for a given year of eligibility as at February 28 of
a calendar year.
3.
To obtain the total dollars available in the “EAP Account”, the Manager, Plan and
Investment Accounting runs a “Scholarship Pool Status” report (FIN560) as of
February 28 for each Group Plan from the test environment prepared by IT. The
“Scholarship Pool Status” report provides the total accumulated income for each
year of eligibility.
4.
In addition to the “Pool Amount Available” from the FIN560 report, the Manager,
Plan and Investment Accounting must add all partial EAP payments already made
for the respective year to the “Pool Amount Available” since these payments
reduced the “Pool Amount Available” for the respective year prior to this
calculation.
5.
To obtain the partial EAP payments already made for the respective year, the
Manager, Plan and Investment Accounting runs a “Scholarship Status” report
(FIN510) as of February 28 for each Group Plan. The “Scholarship Status” report
lists the various status categories for each year of eligibility including “Partial EAP
Units Paid”. Partial EAP Units are then multiplied with the EAP Partial unit values
to come up with the partial EAP payments.
6.
The last addition to calculate the “EAP Account” payable per unit is the interest
that will move to the Scholarship Pool when all units in the year of eligibility
mature. This interest is referred to as “Active Interest”.
7.
To obtain the “Active Interest” for the year of eligibility, the Manager, Plan and
Investment Accounting runs “Financial Agreement Summary” report (formerly
FIN440A) as of February 28 for each Group Plan. The “Financial Agreement
Summary” lists all active units and “Active Interest” per year of eligibility.
8.
The Manager, Plan and Investment Accounting now has the total available for the
“EAP Account” distribution, which is the sum of:
“Pool Amount Available” from the FIN560
“Partial EAP Payments” from the FIN510 & Partial Unit values
“Active Interest” from the Financial Agreement Summary
9.
To calculate the “EAP Account” distribution on a unit basis, the Manager, Plan and
Investment Accounting must calculate an expected number of units that will
receive an “EAP Account” distribution for each of the 4 years over which the “EAP
Account” will be distributed for the year of eligibility.
10. The Manager, Plan and Investment Accounting will estimate the expected
number of units that will participate in the “EAP Account” distribution by
multiplying the total number of “matured” and “active” units per year of eligibility
by the attrition rates from prior years. “Matured” units are defined as a
beneficiary’s proportionate share of the EAP Account for beneficiaries that have
turned 18 in the given year. While “Active” units are defined as a beneficiary’s
proportionate share of the EAP Account for plans that are still active but will
mature during the year for the collection of EAPs.
11. To obtain, the matured and active units per year of eligibility, the Manager, Plan
and Investment Accounting will extract the “matured units” per year of eligibility
contained in the FIN510 report and the “active units” per year of eligibility
contained in the Financial Agreement Summary report and populate the Unit
Participation Tab in the EAP Values excel workbook.
12. The Manager, Plan and Investment Accounting must factor in the past
participation rates to compute the expected number of units that will participate
in the “EAP Account” distribution. Currently, the Manager, Plan and Investment
Accounting is using the number of units paid as a percentage of eligible units per
year of eligibility for 5 historical years (2007-2011) as an estimate for the
participation rate. The historical data is extracted from the prior fiscal year end’s
FIN510 report (i.e. October 31 of prior calendar end) and is manually entered in
the Participation Rates Tab in the EAP Values excel workbook.
13. The 5-year participation rates for each EAP payment are then carried forward to
the Unit Participation Tab in the EAP Values workbook and multiplied by the total
number of “matured” and “active” units to obtain the expected number of units
that will participate in the “EAP Account” distribution.
14. The final calculation to compute the “EAP Account” distribution on a unit basis is
done on the Pool Summary and EAP’s Tab of the EAP Values workbook.
➢ The total available for the “EAP Account” distribution as defined in paragraph
8 above, is manually input and fed from other tabs in the EAP Values
workbook.
➢ The total available for the “EAP Account” distribution is then divided by the
number of remaining EAP payments for the year of eligibility to equally
apportion the pool by year, by way of a manual cell formula in excel. As an
example, in computing the per year “EAP Account” in 2017 for the 2015
year of eligibility, the total available for the “EAP Account” distribution
would be divided by 2 since 2 “EAP Account” distribution remain. In
comparison, the 2017 year of eligibility divides the total available for the
“EAP Account” distribution by 4 since all 4 of the “EAP Account”
distributions remain.
➢ This “EAP Account” per year is then divided by the expected number of
units that will participate in the “EAP Account” distribution calculated in
paragraph 13 above by way of a manual cell formula in excel in the Pool
Summary and EAP’s Tab of the EAP Values excel workbook.
“Group Plan Bonus” payable per Unit
15. Once the “EAP Account” payable per Unit is calculated, the Manager, Plan and
Investment Accounting needs to determine the “Group Plan Bonus” payable per
unit from the General Fund. The initial number for the “Group Plan Bonus”
payable is calculated based on a projected General Fund balance at year end.
16. The projected balance for the General Fund at year end is calculated in the
General Fund Summary Tab of the EAP Values workbook:
I.
II.
III.
The Manager, Plan and Investment Accounting enters the General Fund
Balance and the Donation Balance from the financial statements as at
February 28
The above balance is then adjusted for:
a. Deferred payments which have been previously committed but
uncollected to this date and still exist against the General Fund
b. Amounts remaining in the Scholarship Pool for years of
eligibility that no longer have EAP payment scheduled (source
is the FIN560 report)
The final adjustment is for the total annual donation expected from the
Foundation if any.
17. To calculate the “Group Plan Bonus” payable on a unit basis, the projected
balance for the General Fund calculated in paragraph 16 above is divided by the
total number of units that have been set for the given year. As an example, the
2017 calculation set the number of units for EAP4 of 2014, EAP3 of 2015, EAP2 of
2016 and EAP1 of 2017.
18. The “Group Plan Bonus” payable on a unit basis is then fed into the Pool Summary
and EAP’s Tab of the EAP Values workbook and adjusted for each EAP payment
that is being set. The adjustments are calculated by adding the “EAP Account
payable per unit” and the “Group Plan Bonus payable per unit” for each given
year. The total EAP is then rounded to the nearest dollar and the rounding
adjustment is applied to the “Group Plan Bonus payable per unit”.
19. The Manager, Plan and Investment Accounting gathers EAP Base and Group Plan
Bonus information from competitors group plans and prepares competitive
analysis of EAP values.
20. The EAP values and competitive analysis information is presented to the Director
Investment Finance, Vice President Finance and CFO and President and CEO for
review and approval
21. Once an internal approval is received the EAP values workbook along with the FIN
510, FIN 560 and Financial Agreements Summary reports are provided to the
external auditors (Deloitte) for their review.
22. RBC Investor Services (RBCIS) as the Trustee also reviews and approves EAP
values. The Manager, Plan and Investment accounting schedules a meeting
between CSTC representatives (Manager, Plan and Investment Accounting,
Director Investment Finance and VP, CFO) and RBCIS to review the EAP values
once Deloitte has completed their assessment. A presentation on the
calculations of EAP values is prepared by the Manager, Plan and Investment
Accounting, reviewed and approved by the Director, Investment Finance and the
VP, CFO to discuss at the meeting with the Trustee. The Trustee provides a
written letter of agreement on the EAP calculations completed by CST and
reviewed by Deloitte.
23. After the approvals the Manager, Plan and Investment Accounting enters the
value of the “EAP Account” payable per unit and the “Group Bonus Plan” payable
per unit for the respective EAP payment that is being set for the year of eligibility
into Alberta.
24. Once all values have been entered into Alberta, the Manager, Plan and
Investment Accounting prints a Scholarship Values Inputted report (FIN516) and
provides the report along with the approved EAP values to the Director, Customer
Experience to validate the accuracy of the entry in Alberta.
25. The Manager, Plan and Investment Accounting prepares an EAP Setting Update
memo for the Audit Committee (AC) of the Board of Directors, this memo is
reviewed and approved by Director Investment Finance, CFO, and President and
CEO before its submission to AC.
Process Output: EAP Account and Group Plan Bonus per unit for each Group Plan for a given year.
1) The Board does not understand CST’s “Risk Appetite”. As the Manager, Process Improvement
and Risk I would like you to prepare a one-page PowerPoint presentation with at least 5 bullet
points describing some possible areas of risk that you believe would be relevant to present to
the Board to help them understand CST’s risks.
2) As a follow up to the above exercise, could you please identify one Key Risk Metric (KRI) for each
of the areas of risk you have presented that would be used to monitor the risk.
3) Please review the attached process document for EAP setting and provide a document which
outline the following:
a. A critique of the process documentation
b. At least 3 risks in this process and how they can be mitigated
c. At least 3 areas where this process can be improved
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