Has anyone accepted a lump sum payout from their former employer pension plan? I already have had CPPD approved and my LTD was reduced which is the status quo. However, in Dec 2020 I accepted a pension buyout and automatically it moved half of that buyout into a locked in RRSP. The balance was paid out to me and we used it to put into my husbands RRSP. But I didnt realize that portion would be considered income. Now I am completing an update form and I have to disclose this to my LTD provider. I am wondering can your LTD payment be reduced to zero? I am permanently disabled and will be on LTD until I retire (approx. 10 years). Do they take that additional income and reduce my monthly payments? How does it work - does any one have experience with this? My LTD booklet says “they may reduce payment based on income from other sources”.
You have to look at what your master LTD policy states with regards to pension income. Every LTD policy is different, and it will state what deductions the insurer are contractually allowed to make.
Ask your insurer for the master policy, as booklets don’t have all the information or specific details.
Mine is reduced for income related to the disability (something like that).
It does say something about pensions.
I don’t know if they reduce your LTD until the pension part is “paid”.
I don’t think so but they may reduce pension payout/divided by monthly LTD payout and then after those months of $0 LTD, LTD would resume.
I am guessing though.
As @Bucket365 said, check your policy or contact a lawyer if you can’t figure it out.
Thank you both for your feedback. I was advised that my ins co. will have to adjust my benefits because of my pension payout. However, I just don’t understand the calculation (see below).
In addition, because half had to be placed into a LIRA, and I took the balance, paid withholding taxes and place that balance into an RSP, I did not receive any cash in hand that would have increased my monthly income. Further if they do require all of those funds be offset, because I paid withholding taxes, that shouldn’t be considered income, actually neither should the LIRA, what do you think?
I have an additional question but no answers for you. For how long does the deduction occur? It talks about monthly payments so hopefully it’s only a deduction for the month you actually received the transfer of funds…
They might be taking 50% of your lump sum pension payout (regardless if goes to a retirement savings plan or anywhere else) and will keep your monthly LTD payment at $0 untill it equals the 50% of your pension payout, after that they’ll resume your LTD monthly payment.
I agree with Caro. If it was me I’d tell them the offsets they can deduct as per the LTD contract are monthly. I would think it reasonable to treat the income as one month occurence so only one month of LTD goes to zero. The insurer will say you’re wrong, but I’d get a lawyer to look at it. A poorly worded LTD contract usually goes in favor to the disabled.
I just looked at my LTD master policy. It has wording about lump sums will be converted to monthly equivalents.
So I’m guessing your master LTD policy says the same thing, but you need to get a copy of your master policy…or at the very least ask them for the specific wording that deals with this for your policy.
It’s mandatory to have withholding taxes deducted but you may get that back in taxes.
The insurance company doesn’t care if you owe tax or not.
I would contact a disability lawyer because it makes a big difference.
