Public Service Pension - Retirement due to disability


#1

On research of Gov’t of Canada Website: Digest of Benefit Entitlement Principles Chapter 5, Sect 13. I read that Disability Pensions of any type are specifically excluded as earnings (5.13.14). …This includes disability pensions under the CPP… Therefore, a few queries:
-if excluded as income, then why is CPPD taxed?
In addition, if one is entitled to retire from Federal Government due to disability, may be a play on words, but this chapter explains that “A retirement due to a disability is not the same as taking early retirement. Disability provisions contained within a pension plan are designed to provide income support when an individual can no longer work due to a disability but cannot otherwise qualify for a retirement pension”. Therefore if it looks, smells and acts like a duck!?.. So then it is a disability pension which then should also be exempt from earnings?
BIGGER QUESTION: If both CPPD and the PS pension (disability) is not earned income, then why does LTD companies have a right to them? Or do they? Thanx.


#2

Can you provide a link to that?

They do if they word the plan to say they do.
It may be that they don’t in government employee plans.


#3

https://www.canada.ca/en/employment-social-development/programs/ei/ei-list/reports/digest/chapter-5/table-of-contents.html

Disability Pensions: 5.13.14


#4

Hi Cheryl

I don’t know anything about your particular Federal Government plan, so I can’t really comment on your specific question about your plan.

I would like to make a few comments about LTD group plans, deduction of CPP-D and, at the end of this note, the specific Gov’t of Canada page you reference above.

LTD Group Plans

Insurance companies work closely with your employer, union/members to design your long term disability plan. People often say “I have Manulife,” or “I have Sunlife.” Unless you are in a very small group of less than 50 employees, every group long term disability plan is different, so it is very dangerous to rely on information from your buddy.

Actuaries, who are brilliant mathematicians and statisticians, work with all of the stakeholders to look at the members of your “group” and the features of the long term disability plan your union/employees and employer wish to implement. They look at the industry, experience (how frequent do these types of employees go off on LTD and for how long), level of benefit (60%, 66%, 75%), offsets (e.g. whether CPP-D is deducted or not), waiver of premium (e.g. are life insurance, LTD premiums, health & dental insurance premium waived during LTD). They also look at whether the employee will pay the premium, or whether the employer will pay the premium. They look at short and long term investment returns. These are only a few of the factors in a very complicated and risky area of the insurance business. All off this is carefully assessed, and a rate per $1,000 of monthly coverage is set and various coverage limits are set. The monthly premium covers expenses (i.e. administration, claims/benefits) and profit for the insurance company. The insurance company’s profit margin is quite slim, so they need to get the rate correct . The experience (i.e. what happened in the last year or two in the group) and rates are reviewed periodically, and new rates are set for LTD for the upcoming benefit years. The offset of CPP-D benefits from LTD benefits is a fundamental part of setting that premium and almost all group plans are designed to include the right of the insurance company to offset, or deduct, your CPP-D. Your employer and union, if applicable, are aware of this design. I believe well over 90% of LTD claimants who have been on LTD claim for over 5 years receive CPP-D – it is that fundamental to the feasibility of existing LTD plans.

In case you are wondering… I don’t work for a disability insurer and probably have similar feelings about them as many of you do. I do, however, know quite a bit about finance and insurance.

Government of Canada Site

I reviewed the section you are referring to and it refers to Employment Insurance (EI). This entire section on EI on the Government of Canada website probably isn’t relevant to your disability claims, although it does cover all the bases for completeness (probably written by lawyers - sorry David!).

In order to collect Employment Insurance you need to be able, ready and willing to work, or, you are too sick to work and have enough “earnings” within the qualifying period to be able to collect EI sickness benefits. These conditions don’t really apply to a person on CPP-D and on the public service disability plan who will be “medically retired” soon. There are individuals who have posted on this site who do not have short term disability, and/or have been denied or are waiting for a decision on Long Term Disability benefits where EI sickness benefits could be relevant (and these EI benefits would be taxable).

It is very frustrating when we look at “offsets” by insurance companies (i.e. the deductions they take from our gross benefit amount like our CPP-D payment). I have searched the internet like you have, but have learned we can’t “mix and match” the rules and definitions we find in different places. Definitions of “earned” income will vary from disability plan to disability plan and from benefit to benefit and from program to program, etc…

One thing for certain, whether something is taxable or not, is defined by Canada’s Income Tax Act and administered by the Canada Revenue Agency. The tax rates and provincial level rules do vary somewhat across the country.

Sorry about the long note. I hope you find something helpful.

Joanne


#5

Solid advice! I am trying to prepare a friend that just received CPP-D not to spend the back pay that is being sent to her for her children too fast as Great West typically deducts any benefits paid to family on your behalf under the all source maximum. ( Typically the 85% all source maximum)

Unfortunately she will not call her Union to review the offset wording and says Service Canada told her that her Insurer is not entitled. She insists that I am wrong and that Service Canada told her that all Insurers are not allowed any portion of the CPP-D paid to her on behalf of her children.

So Service Canada even can and sometimes do give the wrong advice. A lawyer or a review of the contract are whom and what I would trust.

So the answers always are in the Master Contract. If it is ambiguous then you may have an argument.


#6

Awesome reply Joanne.


#7

Yes each plan is different. Sunlife does not deduct the children’s portion. Why would they? What a horrible plan if they do. Service Canada could print the cheques in the children’s names to get around that. It should be done that way because it is then not taxable to the parents. Each kid can make up to the basic amount per year without being taxed ($11,474 in 2016).


#8

Thanx Joanne, yes I do not have a problem with offsets if there is no impact on overall income. In some cases like if you are earning a Forces or RCMP Pension (from a previous career) which contains a bridge benefit until you are 65 or until you receive CPPD, then this bridge benefit is lost so overall income is reduced. In my case by over $800/m. Additionally, due to any retroactivity (say 12 months), it means paying back $800 x 12 months to the Forces Pension. The plans should read to the LTD companies that offsets minus bridge benefit are the only monies available to them.


#9

It is actually Sun Life that won the right to deduct child CPP-D offsets in 2008. But you are right–in most cases Sun Life dropped that from all policies.

It still is an offset in some. It is in our Great West policy–but no issue for us as we don’t have a child young enough to get.


#10

Yes I recall reading that somewhere in a court case and the plaintiff lost; however, the Sun Life contract must have been renegotiated at some point after since I cannot see them doing this out of the kindness of their heart. If we speak up sometimes we are heard! :slight_smile:


#11

That was one insensitive judge who allowed child benefits to be deducted from LTD payments.


#12

Wow…Joanne you knocked this one out of the park. Other members in here should have no doubts that you know what you are talking about.

You are touching on some of the core issues I try to explain — disability insurance is like buying a car. You can get a BMW or an old 1998 Chevette…The insurers will sell any type of plan, so the blame for bad insurance policy or offsets etc, should be directed to the employer or union who chose to buy that plan. Its true that employees are often the victims in this situation, but really the blame needs to focus on the employers and not always the insurance company.

Understanding that insurance companies base decisions on algorithms and complex risk models is essential to understanding how to negotiate with them in lawsuits as well. That is a story for another day…


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 reliabile 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.


#13

Tell that story …it would be helpful!


#14

Ha Ha…that is one thing I don’t discuss on public forums! However it is one of the tests I use to figure out if a lawyer “really” knows what he or she is doing with disability insurance claim litigation. In many ways insurance companies are very predictable and their decision-making process is easy to understand, so that is a big advantage when negotiating with them.

But Allyoops you are such an awesome member of this Forum, I will give you one nugget…For example, a philosopher-lawyer from New Jersey (of all places) taught me years ago the benefits of applying “chaos theory” to negotiations with insurance companies to gain advantage. This works once you understand that insurance companies crave predictability, and quite literally cannot function without predictability.

Unpredictable people or companies are more difficult to deal with. This is why litigation in ASO or self-insured situations is always more challenging because we are dealing with regular old companies, rather than insurance companies, so it is harder to deal with them because they are less predictable.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

– Sun Zu, the Art of War