CPP LUMP SUM and REPAYMENT QUESTIONS

Disability Insurance
1

Hello

I have been on LTD for years, and recently I have applied and have been approved x CPP. In particular, very recently I
received a lump sum payment from CPP.

In this post I have specific questions about the lump sum and the repayment of it to my insurance company.

I will try to be logical and make sense, (and hopefully I will suceed). First I will present the relevant data, then I will quote what I think is relevant in my contract, then, in the last part of the post I will ask a few questions.

THE DATA:
I received the CPP lump sum refund in the last days of March.
In particular, they paid me a lump sum of 12,335$, with an effective date of November 2016.
The curmore rent monthly amount I qualify for is 735$.
(Note that the sum I received IS LESS than 735$ multiplied by 17 months, where 17 is the number of months between the effective date and the current date)

THE RELEVANT CONTRACT PARTS:
(Note: CPP is defined elsewhere in the contract as an ā€œOther Income Benefitā€)

ā€œIncreases in Other Income Benefits
Any increase in Other Income Benefits during a period of Disability due to a cost of living adjustment will not be
considered in calculating your Disability Benefits after the first reduction is made for any Other Income Benefits. This
section does not apply to any cost of living adjustment for Disability Earnings.ā€

ā€œLump Sum Payments
Other Income Benefits or earnings paid in a lump sum will be prorated over the period for which the sum is given. If no
time is stated, the lump sum will be prorated over five years. If no specific allocation of a lump sum payment is made, then
the total payment will be an Other Income Benefitā€

"Recovery of Overpayment
We have the right to recover any benefits we have overpaid. We may use any or all of the following to recover an
overpayment:

  1. request a lump sum payment of the overpaid amount;
  2. reduce any amounts payable under this Policy; and/or
  3. take any appropriate collection activity available to us.
    The Minimum Benefit amount will not apply when Disability Benefits are reduced in order to recover any overpayment."

THE QUESTIONS:

  1. I am unclear about what prorating means? Is it just another word for spreading out?

  2. Based on the EFFECTIVE DATE of November 2016 and PAYMENT DATE of end of March 2018, the total amount
    covers 17 months.
    Since, however, 17 multiplied by 735$ (which is the current monthly benefit amount ) is MORE than the paid amount of 12.335$, am I correct in assuming that the monthly amounts for 2016 were less than the monthly amounts for 2017, which are less than the amount for 2018, ie 735$?
    (I assume the reason to be cost of living adjustments. The alternative explanation would be that November 2016 was only
    partially paid out.)

  3. Based on my contract, (in particular I am referring to the ā€œIncreases in other income benefitsā€ quote above) can I make
    the case that the OFFSET TO THE CURRENT AND FUTURE LTD PAYMENTS SHOULD BE THE 2016 AMOUNT as
    opposed to the current payable CPP amount of 735$?
    How do I find out the correct amount for 2016?

  4. My goal is to verify if the contract allows the insurance company to claim repayment on the gross lump sum.
    (I am ALREADY pursuing the fact that my insurance company should be deducting going forward only the NET CPP from my
    LTD payments, instead of the gross 735$, and if that is the case, then it should follow that by default, they should not be
    able to claim the gross sum)
    However, based on the 3 quotes from my contract, (see above), is there any indication that they are allowed to claim the gross sum?

Many thanks.
Any feedback is greatly appreciated.
Alex

2

Alex - Good job in describing the scenario!

CPPD went up 1.4% in Jan. 2017 and another 1.5% in 2018.

It looks like your insurance company is following the Canadian Life and Health Insurance Association (CLHIA) guidelines that specify if your LTD benefit is not indexed to inflation then the the cost of living increase portion of the CPPD offset is NOT deducted from your LTD amount. You are correct, your CPPD monthly amount of $714.14 will be the amount deducted from your ongoing LTD benefits

Your CPPD lump sum is comprised of Nov & Dec 2016 (2 x $714.14), Jan-Dec 2017 (12 x $724.13) and Jan-Mar 2018 (3 x 735) for a total of $12,322. You should receive some paperwork with these details from Service Canada shortly.

Prorating isnā€™t really that relevant to your situation because it is an overpayment and the time period is 17 months, all of which occurred while you were on LTD. The insurance company will expect $12,140 (17 x $714.14) and I expect they will pursue you quite aggressively for repayment of this sum.

  1. Question for you - Are your LTD monthly payments taxable or non-taxable?

Cheers!

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Alex, I just noticed your earlier posting that says you LTD payments are non-taxable.

The arguments you make about deducting the gross amount of CPPD from a non-taxable monthly LTD amount are, unfortunately, not novel and every person in your situation has this reaction and makes this argument (although not quite as eloquently as you do!). Once the person on non-taxable LTD qualifies for CPPD, his after tax income could go down by the amount of tax he has to pay on his CPPD. This doesnā€™t apply to everyone, since lots of people get their LTD tax-free and pay little or no tax on their CPPD since their taxable income is very low. Almost every person on LTD beyond 2 years, ends up qualifying for CPPD at some point, and their LTD premiums assumed they would collect CPPD if they were on LTD for a long time. Without this gross CPPD offset, your LTD premiums would have been much, much higher as LTD claimants with severe, prolonged illnesses cost sponsors and insurance companies huge claims $. Of course, had you known you would become sick, you might have chosen an upgraded policy or bought a supplemental one (geeā€¦ I wish I HAD BEEN SMARTER when I was young).

The insurance company will very likely expect to receive the gross amount of the CPPD lump sum. When you file your 2018 taxes, you can file it on paper and ask CRA to do a special calculation to determine whether it would be to your financial advantage to calculate the 2016/17 portions of the back payments as if you had received them in those years. This will only help if your taxable income was quite a bit lower in 2016 or 2017 than 2018.

Based on your comments in your other posting, you know a lot about tax and made great arguments about how irrelevant the tax credit argument was to explain away the pain of a unrelated point (turning non-taxable LTD into taxable CPPD). Anyway, just in case you or others have non-taxable LTD and a high taxable income from other sources, note that CPPD is considered earned income and you may be able to defer some tax by making an RRSP contribution on 18% of the gross amount. This wonā€™t help this year, but could help in future years. There are lots of technical details and if you are a member of a pension plan your pension adjustment may preclude you from making any RRSP contributions. I thought I should mention it, just in case it could help somebody out.

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If your LTD benefits are non-taxable you should ensure that the insurer deducts only the net amount you receive from CPP. Most policies are silent on the issue of whether the LTD insurer is entitled to deduct the net or gross amount of the CPP disability benefit. There is an Ontario Court of Appeal decision, however, which strongly suggests that the LTD insurer is entitled to deduct only the net amount received by the disabled person.
Good case reasoning is Bapoo v. Co-Operators (1997) CanLii 6320 (ONCA) https://www.canlii.org/en/on/onca/doc/1997/1997canlii6320/1997canlii6320.html?searchUrlHash=AAAAAQAdQmFwb28gdi4gQ28tT3BlcmF0b3JzICgxOTk3KSAAAAAAAQ&resultIndex=1

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This is a major upset to most who have non taxable LTD and then get taxed on CPP-D. This has not been challenged in court, so if it does not say gross you should challenge it.

You could sue in small claims for the difference

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Allyoops - it has been challenged in court many times. Why do you think it hasnā€™t been challenged in court?

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Show me the case where it has been challenged?

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I donā€™t have access to the legal databases but perhaps David can respond.

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I think it should be.
My insurance company is deducting my CPP-D including cost of living which I think is incorrect.
Iā€™ve been trying for 2 months to get them to explain it me but they are passing the buck and not calling me back.

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Send by email or fax requesting an explanation

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Hi Gang. A good friend of mine and I are in the same LTD/CPPD/CFSA boat. For the last two years we have engaged federal Liberal MPsā€“Andrew Leslie and Scott Brissonā€“to no avail. As with the rest of you my bridge amount has been cut, the overpayment amount went to Sun Life, I have a massive tax bill for 2017, my net income has been reduced by over $1000.00/month, and I am forced to repay the overpayment. Quite frustrating. It appears that the politicians do not understand the issue or are unwilling to listen, and the bureaucrats will not take any action. My next step is to go to PWGSC, who administers CPPD or CFSA, and request to have my overpayment amount ā€˜written off.ā€™ Not sure where else to go, and the negative energy this generates is unhealthy for me so I need to let it go. Peace to you all, Rob

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Hi RCM

I think you are taking a good approach, because being disabled and battling something you probably canā€™t change isnā€™t helpful.

Feeling that you are being robbed or not listened to can be even worse. Iā€™d like to share my information with you and I hope you wonā€™t hate me or think Iā€™m insensitive or donā€™t care, because I really do careā€¦ A LOTā€¦ remember, Iā€™m in the same boat as everyone else, plus I have background in some key related business areas and I researched this issue because I was worried that vulnerable people were being taken advantage of.

I donā€™t think you are really in the same boat as many of the other folks here. Each situation is different and some are a bit complicated. My comments below donā€™t apply if your compensation is for Canadian service related injuries.

You are in the same situation when you say CPPD is offset from your LTD payments. Thatā€™s the case for almost everyone. Assuming you have a typical LTD plan where your LTD payments are NOT indexed for inflation, you do keep all of the indexing portion of your CPPD . You will almost always keep 100% of any childrenā€™s CPPD benefits unless your plan has an all source cap and you have exceeded that cap for some reason. If you have non-taxable LTD, you will now pay tax on CPPD, including the back payment. No tax is payable on the childrenā€™s benefits. If your LTD is taxable, you will NOT have any tax bill whatsoever. Itā€™s a timing issue.

You could be technically correct when you say the overpayment went to Sun Life, but there may be more to the story. Some retired Canadian Forces personnel end up working for the Canadian Federal Public Service. If that happens to be your case, then Sun Life is the administrator of your current employerā€™s LTD plan, and your monthly LTD amount is really paid by the Federal Government and most of the CPPD back payment went from Sun Life back to the Federal Government.

The early retirement pension you receive from the Canadian Forces is reduced going forwarded by the bridge benefit component of your Canadian Forces pension. In addition, since your CPPD was backdated to 2017, your Canadian Forces pension is in an overpayment situation by the amount of its bridge benefit.

While your elected MPā€™s probably donā€™t understand the technicalities of your issue, or all the other issues of their constituents, I would not underestimate the competence, dedication or integrity of our Canadian Federal Public Service. The Federal Superannuation Acts that apply to government employees and Canadian Forces employees are very clear about the pension benefits and the bridge benefits associated with your pensions. They clearly state that the bridge benefit portion of your early pension will cease should you receive CPPD benefits before the normal retirement age of 65. This isnā€™t an accident. Itā€™s a deliberate plan design. This information is on all the member websites, communications and forms throughout the membersā€™ retirement years. The concept of a ā€œbridge benefitā€ is a foreign one to many Canadians these days, as defined benefit pension plans have declined dramatically and those that still exist rarely have bridge benefits or unreduced, early retirement benefits. You will still find them in the Federal government and a few other public sector or union pensions, although these employers have been cutting back at every opportunity because they cannot afford the costs and the pensions are out of step with the marketplace.

The other difference with your current LTD plan and others on this forum could be that the Forces pension you receive is not deducted dollar-for-dollar from your LTD payment. Thatā€™s the case for some retired Canadian Forces folks who go on to work for the Federal Public Service and is indeed a unique situation. Most group LTD plans deduct not only CPPD, but all sorts of income including any pension income from the same employer or any employer.

I think the Federal Government bureaucrats fully understand your situation and have
probably explained it thoroughly to your MPs and many other MPs and disabled retirees before them.

Please let me know if Iā€™ve missed something important or material as there are lots of twists and turns.

What your MPā€™s might not be saying to you, at risk of alienating you or making you feel that your military service was not important or appreciated, is that there is little support within the government, political parties (whether currently in power or not) or the Canadian public to make enhancements to enhance the public sector Superannuation Act or benefits to make them richer than they currently exist. Iā€™m sure you noticed that the early retirement age was increased by 5 years fairly recently for new hires. Iā€™m believe many of the other features that may appear minor, but are really incredibly generous, will be eliminated over the coming years (i.e. pension buyback to name only one).

In case you are wondering, I donā€™t work for the Federal Government, although I was a Federal Government employee as my first job. I was very well paid. I had NO idea how well paid or rich the pension or benefits were. My mother was stunned that I quit that job within the first year. Iā€™m really glad I quit because studies have shown that Federal Government employees can be exposed to workplace conditions that create very high disability rates.

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CANADA PENSION PLAN DISABILITY BENEFITS

Majority of policies permit the deduction of CPP disability benefits. As such, many insurers require that a person apply for the benefit.

Dependant benefits ā€“ court of appeal ruled that these benefits were properly deducted as ā€œdisability benefitsā€. This despite the fact that the parent did not have ā€œentitlementā€ to the monies (Ruffolo v. Sun Life Assurance Company of Canada, 2009 ONCA 274).

Taxation ā€“ does the insurer receive the gross deduction or net deduction? Ontario arbitration decisions have permitted insurers to deduct the gross amount. However, in the context of deductions from Income Replacement Benefits the Ontario Court of Appeal in Bapoo v. Co-operators General Insurance, 1997 CanLII 6320 should be used as authority that only the net amount is deducted. The court reasoned that this was a ā€œjustā€ result.

MY NOTE ā€“ the court of appeal struggled in this decision. Insurers will rely on cases establishing ā€œavailabilityā€ to mean something less than ā€œreceiptā€. As such, the issue of net versus gross deduction is still alive depending on the specific contract wording. (Not my wording copied from another site)

Joanneā€“I so appreciate all of your amazing knowledge as many others here and in the future will benefit from your postings. This issue of CPP-D and taxation is close to my heart right now as my spouse is in litigation. As he was wrongly told that he had to apply for CPP-D, he is arguing that the Insurance contract was breached and the Insurer is not entitled to the offset, alternatively that only the net CPP-D should be deducted. If he losses on the first issue. So I have spoken to more than one lawyer that has advised that he has a claim on this. That is why I am interested if there is any case law and have been advised there is not.

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Not sure if bankruptcy is n optionā€“you could speak to a trustee if you do not have much in assets. See if you can claim the over payment in your bankruptcy and then move to have your LTD go back to full payment.

I am not a trustee but have read of others doing that when they in error spent the over payment. Also see about including your tax bill. Only if you have very little in assets

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Allyoops, If you ever have a chance to talk to the LTD industry they might tell you that claimants are enraged about lots of things, but the topic of CPPD offset is a huge one and an even bigger one when the LTD payment is non-taxable and the person ends up paying income tax. When I spoke to the CPPD person at my insurer to nicely ask technical questions about all those forms about authorizing Service Canada to directly pay the insurer (I am fairly technical as you can see), she was very helpful, but I sensed she was a little nervous or worried. I assured her that I fully understood why they wanted me to apply for CPPD and that I knew they were entitled to the full gross amount of my back payment and ongoing payments because that is part of the contract. I donā€™t expect to receive anything MORE or anything LESS than the contract (thatā€™s the BIG issue - why fight the CPPD set when your main concern should be being unfairly cut off). She calmed down and told me that many claimants refuse to pay back the overpayment. They get into debates about what they ā€œreceivedā€ even though NOTHING is deducted from the gross CPP amount unless you have a debt that can legally be deducted from a CPP payment (CRA debt, garnishments?, child support, Iā€™m guessing). They talk about the impact of their voluntary tax deductions from the payments. People debate about the cross impact of other offsets from other policies or the overall impact on their tax return, even though some people can control or manipulate lots of these impacts (i.e. pension credit splitting, RRSP deductions, investment income, etc). In the extreme, some folks believe they are entitled to the full amount of all disability income from all sources whether it be from workers compensation, CPPD, EI, group LTD, private LTD, severance, weekly indemnity automobile, early retirement medical, etc. The insurer has heard it all and the claimant making the argument who continues to feel heā€™s being wronged, really needs to find somebody objective and very knowledgeable to help them sort it out. Even when it is explained to the claimaint by his own objective and knowledgeable resource person, some people continue to recruit ā€œnegative advocatesā€ (Bill Eddy, LCSW, Esq.) to their cause and spin in circles for years to no avail and to the detriment of their own personal and financial health. The bottom line is that people are not entitled to MORE or LESS than what their contracts say, and if the contract or legislation clearly states the terms, thatā€™s what they bought. With offsets, plan sponsors and the insurance industry try to prevent people from receiving so much disability income that it incentivizes them to become or remain disabled. You cannot buy a private disability policy that exceeds a certain level of your ā€œprovableā€ income for the same reason that I cannot buy a life insurance policy on Donald Trump. LTD and CPPD are almost always well coordinated, but there are still situations where people receive disability income that is in excess of what their net income was when they were working either due to poor plan design or multiple sources of ā€œdisability typeā€ income that is not offset. I was amazed at what I heard about the reaction of LTD claimants directed to the insurance company re the offsets, assuming they are proper offsets of course, and wondered whether these folks realize the picture they might be inadvertently painting of themselves about entitlement and financial motivation and how badly that could hurt them.

Youā€™ll periodically see stories in the paper about disabled people being ripped off by big insurance companies and professionals weigh in with their opinions about how wrong this is. Often, the professional is a personal injury lawyer and he or she is advertising. Be very, very careful about what you read on blogs and websites of lawyers. David is one exception and I would not spend a second of my time writing these notes if I didnā€™t think so highly of Resolute Legal (I have never spoken to anyone there, by the way!). Every litigation and personal injury lawyer in Canada will have seen clients with similar issues to what you describe above. Very few of them practice LTD insurance law in depth. Could that lawyer tell you off the top of his head the names of the in-house counsel or law firms supporting all of the major LTD insurers in Canada??? David has said STD and LTD insurance is quite specialized from a legal perspective and I trust he is probably right.

There are a few specific things about some offsets that I personally think are unfair, but they are not generally applicable and fuelling the ā€œnegative energyā€ as RCM described is not supportive or helpful to others on the forum as transitioning from a victim to a more positive state gives you the best chance to return to work as fas as possible or, at minimum, ease that part of your suffering.

Allyoops - I would suggest you consult with a disability lawyer if there are large dollars involved. If he/she is not willing to take on your case on a contingency basis, then he is telling you something, perhaps without using wordsā€¦1) you may believe you have a case, like all those people I described above, but you donā€™t 2) yes, you might have a case, but the costs/risk to my law firm are huge and the potential benefit is small so I canā€™t take you on 3) Hmm, sounds interesting, but I donā€™t really know too much about this or it isnā€™t in line with my business strategy 4) I donā€™t want you as a client - you will be high maintenance client or I can see already that you might not be credible, causing me to lose the case and my money 5) Really? In principle, you do have a case. Youā€™ve been screwed, but obsessing on it and battling for years is simply not worth it. You should get on with your life (think about those ridiculous divorce battles over furniture). 6) ā€¦ 7) ā€¦

OK. My rambling is done. I donā€™t know if this is helpful, but that is my intention.

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Thank you for your considered responses Joanne and Allyoops. I guess my primary issue is the backdating of the original CPPD award, which goes directly to the insurer. Had CPPD gone from the decision date firward, I would have no problem. There would be no overpayment issue and I would go forward without this large debt. I must admit my mental health two years ago was not good (I am an Afghan war-injured veteran), so I would have been unable to address the issue appropriately. What I would recommend for military veterans receiving a CF pension, and being pushed by the public service insurer (Sun Life) to apply for CPPD, would be to immediately have the bridge amount of the pension withheld from payment. In this way, when the overpayment is eventually made, the money would be there. Again, thanks for this support, itā€™s nice to know itā€™s out there. Peace, Rob

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Me either :slight_smile:

I have been involved in the past on a 6 year lawsuit-which I won but the battle scars linger. Your advice is so accurate on making sure the lawyer you retain is specialized in LTD and in evaluating if moving into litigation is worth the battle.

I also support that not all Insurers are bad and that many do right and act in good faith in handling claims.

I do not think that CPP-D is calculated as a gross deduction if that is not specified in the contract. I believe someone could politely ask their Insurer where in the contract it specifies that it is the gross CPP-D. Then keep the response in your files in case you ever are wrongfully cut off.

Insurers typically do not challenge those that will likely return to workā€“but if your are younger and have 'an invisible" illness or have chronic pain and can not return to employmentā€“it is likely at some point you may need to consult a lawyer. So often my posts are aimed at those who are being treated unfairly or sent to rehabilitation that is more harmful than helpful.

100 to 3ā€“the Insurer is more likely to abuse its power than a claimant would be asking for more than they are entitled.

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That is solid adviceā€“you should send that advice to your past co-workers. I know my husbandā€™s LTD is higher because a past co-worker begged the Union to increase the coverage amountā€“even though that co-worker would not benefit from the increase.

Sharing is caring :slight_smile:

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Hi

Thank you very much for all your replies.

Alex

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