Can LTD insurer take cash portion of commuted pension

I am on LTD, past the two year point. I am considering resigning from my job and taking the commuted value of my pension. The quote I received from the pension plan shows that some of the money gets paid into a LIRA and a large chunk gets paid out in cash to me. Of course, my plan is to have all of the funds sent directly to my financial planner at my bank to invest for my retirement. The insurer says that they can set off the cash portion against my benefits. Essentially, my benefits would go down to zero for a number of years because the cash portion is large. I got a copy of the policy and it says that my benefits will be reduced by “retirement or disability benefits provided by the employer”. Can the insurer pay me nothing for the next 5 years because they think I’m collected a benefit elsewhere, when I will not be using this money to live on until after age 65 (when my LTD ends)?

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I think mine says something like “benefits related to the disability”.
I would think the insurance company could claim you retired and never pay you again.
I wouldn’t advise quitting.
It sounds like it would benefit the insurance company.

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Hi Rosie, this is a complicated question to answer and I can’t really give a general answer here or in a free consult. It is possible they will be able to offset as they are saying. Also possible they clearly can’t. Also, possible it is a grey area and would have to be fought over.

I recommend you get a specific legal opinion from us or another disability law firm. A lawyer would need to see your LTD plan and any information you have about your pension. If you wanted to learn about our document review service , use the contact number or free consult link below and our team can explain.

David Brannen

Disability Lawyer with Resolute Legal

The response posted above is based on the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with a lawyer, fully explain your situation, and allow the lawyer enough time to research the applicable law and facts required to give an adequate opinion. The basic information provided above is intended as a public service only, a full one-on-one discussion with a lawyer should be done before taking any any action. The information posted on this forum is available to the viewing public and is not intended to create a lawyer client relationship with any person. If you want one-on-one advice, please click here to request a free consultation or call toll free 1-877-282-5188 to speak with a member with our disability claim support team.

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They won’t take a portion of your commuted value, they will reduce your benefits.

Most long term disability policies typically have provisions which reduce the monthly payment you receive by accounting for:
 Benefits payable from any Workers’ Compensation plan, including Workplace Safety Insurance payments
 Disability benefits received under any other government program such as, Canadian Pension Plan- Disability, Provincial Disability Support Program, Employment Insurance- Sickness Benefits, etc.
 Any income provided under a retirement or pension plan of the employer
 Income from the Criminal Injuries Compensation Act
 Wages or remuneration payable from, any employer, including any statutory or common law termination and/or severance pay

The commuted value may not be specifically mentioned but the cash portion can be considered as taxable income under a pension plan. It is a refund mostly of your personal contributions and interest. For commuted value, any excess amount over the maximum transfer limit will be paid to you as a taxable lump sum cash payment.

Sometimes, there are eligible transfers of this cash amount to an RRSP, you may want to do this but see a Certified Financial Planner (CFP) versed in pensions, not a bank advisor. I would recommend an unbiased Fee for Service CFP who charges by the hour, helps you set up a LIRA at an independent financial institution where investments fees are low and they are not compensated on the investments, if you eventually go this route.

Be careful with termination. Investigate all that would happen. As part of your LTD, they may continue to pay into your pension while you are on LTD, this is a big benefit you would lose by taking a commuted value now. You may also lose your health benefits such as coverage for prescriptions, health care practitioners, dental, etc. (Do not listen to a bank advisor.)

Also, see if they would be open to negotiating a lump sum payment for LTD if it suits your circumstances. After you get that, then you can take your commuted value. Review all tax issues with a CFP versed in tax.

Paul, thank you so much for your very thoughtful and detailed response. I really appreciate the time that you have taken.

Mine would also reduce because of the income from the retirement plan.