Glossary

Pay practices claims are one of the two types of wage and hour claims made by employees against their employers. Pay practices claims involve "all other" types of claims that do not fall within the category of "misclassification claims." The most common types of pay practices claims include (but are not limited to) miscalculating the amount of wages owed to an employee; requiring employees to work "off the clock" and not paying them for such work; not paying workers for their time spent in "donning" and "doffing" specialized equipment required for their work; not allowing employees to take rest or meal breaks; and not paying workers on a timely basis. (The other type of wage and hour claim is known as a "misclassification claim" in which an employer misclassifies and thus fails to pay overtime wages to an employee.) Insurers universally exclude indemnity coverage for both types of wage-and-hour claims (i.e., misclassification and pay practices) under employment practices liability insurance (EPLI) policies. However, a handful of insurers offer coverage for the costs of defending such claims, albeit subject to sublimits, typically $100,000 or $250,000.

Pay transparency refers to sharing information about compensation with job applicants, current employees, or governmental agencies. There is not a single federal pay transparency law, and the laws passed by some states and localities vary. However, the principal aim of the laws is to remove the secrecy around how much employees are paid. Some of these laws require that employers include a pay range with job postings, provide pay scales to current employees, and even ban salary history questions of applicants.

Peer review refers to a process in a professional firm whereby one or more professionals reviews and critiques the work of another professional within the organization on a given project. Underwriters consider peer reviews a key element in preventing claims against professional firms. Accordingly, peer reviews should be conducted on every major engagement, with the work reviewed by at least one professional who did not personally perform it. Peer review is especially important on large-scale service projects in which less experienced members of a firm performed the bulk of the work.

Peer-to-peer sharing refers to an arrangement in which individuals use an online platform or app to share, rent, lend, or provide access to personally owned property, services, or assets directly to other individuals. A fee is often involved in these arrangements. Common examples include peer-to-peer vehicle sharing, home sharing, equipment rental, and task-based services. Such arrangements can create insurance coverage issues because standard personal auto, homeowners, or renters policies may exclude or limit losses arising from business, rental, or commercial use.

Similar to an insurance policy limit, the penal sum represents the maximum amount a surety company will pay under a bond. The amount of the penal sum is typically stated as a percentage of the underlying contract price. The required percentage will vary based on the type of the bond.

A pension is an arrangement in which employees are provided with an income during retirement, usually in the form of monthly payments once they are no longer working. Most often, pensions are funded during a person's working years by means of joint contributions from both workers and their employers. Pensions are operated by private employers or by government (i.e., federal, state, or local) employers. The three major types of pensions are (1) defined benefit plans, in which the monthly benefit is determined by formula (based on earnings and years of service); (2) defined contribution plans, in which the contributions are paid into the individual account of each employee and whose monthly benefit is a function of the amounts of and the investment returns on those contributions (e.g., 401(k) accounts); and (3) cash balance plans, which are also known as "hybrid plans," since they combine features of both defined benefit and defined contribution plans (i.e., the employer promises a specific rate of return on the employer's contribution, for which the employee retains an individual account).

The Pension Benefit Guaranty Corporation (PBGC) is an independent agency of the federal government that was established in 1974 as part of the Employee Retirement Income Security Act (ERISA). The purpose of the PBGC is to ensure that corporate pension obligations will be honored. In the event that a company's pension plan encounters financial difficulty in paying pension benefits to former employees, such as when a company declares bankruptcy, the PBGC will make the payments promised by the plans. However, these payments are subject to certain maximum monthly amounts per employee, based on age and years of service. The PBGC is funded by premiums paid from pension plans.

The Pension Protection Act of 2006 is a federal law affecting major aspects of the Pension Benefit Guaranty Corporation (PBGC) and defined contribution (i.e., 401(k)) plans. The intent of the Act was twofold: (1) to ensure the solvency of defined benefit pension plans and (2) to encourage employee participation in defined contribution/401(k) plans by making it easier for employees to increase their retirement plan balances. Among the key provisions are (1) a requirement that a company must have in its defined benefit pension fund 92 percent of the money needed to meet its pension obligations in 2008, 94 percent in 2009, 96 percent in 2010, and 100 percent by 2011; (2) allowance of higher dollar contribution amounts for 401(k) savings plans, including "catch-up" contributions for older (i.e., 50 and up) workers; and (3) provisions allowing automatic enrollment of workers in 401(k) plans, whereby every new employee is automatically enrolled in the company's plan, unless the employee specifically opts out of enrollment. In December of 2008, however, defined benefit plan funding requirements (item 1) were relaxed considerably, given the fact that the stock market had suffered severe losses during the preceding year. This circumstance vastly reduced the assets of nearly every pension fund in the United States, thereby making it nearly impossible for such plans to comply with the more stringent funding requirements originally mandated by the Act.

A per-loss deductible specifies the amount of first-dollar loss paid by the insured for each loss.

Percentage participation refers to a provision in a health insurance contract stipulating that the insurer and insured will share covered losses in agreed proportions. For example, the insurer may be required to pay 80 percent of the insured's hospital costs with the insured responsible for the remainder.