Do you have Long-Term Disability benefits (LTD) as part of your employee benefits plan design? If so, it’s important for you to be aware of how your LTD coordinates with the government programs such as EI Sickness benefits. Did you know that the Canadian Government increased EI Sickness Benefit duration to 27 weeks last year? This change left employers wondering if they need to increase the wait period for Long-Term Disability insurance (LTD) to match EI. Let’s examine how the LTD benefit works, along with the potential pros and cons of adjusting your employee benefits plan.
A Refresher on What Changed
The EI Sickness Benefit used to cover 15 weeks, but last year the government extended it to 26 weeks for all eligible Canadians. This benefit provides coverage for up to 55% of an individual’s salary up to a maximum of $668 per week, for up to 26 weeks (plus a 1 week waiting period). This brings the maximum EI benefit duration to 27 weeks. The money received from EI is taxable to the individual.
How Employee Benefits Plans Are Impacted
Most employee benefits plans have LTD benefits with a wait period (also called the “elimination period”) that is typically around 17 weeks. With the previous model of the EI Sickness Benefit, the timing worked well – employees could receive the EI benefit for 16 weeks and then jump over to LTD coverage in their group benefit plan. However, with the EI being extended to 27 weeks, the timing of when an employee is on EI vs. LTD becomes a bit more complicated.
What Happens if You Extend Your LTD Waiting Period…
There is a potential cost savings to extending the LTD wait period within your employee benefits plan (somewhere in the range of 2-7% depending on your insurance carrier) to align with the EI Sickness Benefit. This is essentially a cost reduction in that employees would not make a claim until later in their period of time away from work.
From an administrative perspective, the transition from EI to LTD is a bit simpler for the employee because the two benefits would not overlap. This prevents the possibility of the employee receiving both EI and LTD benefits at the same time, which could result in a financial penalty for overpayment (in the event of overpayment of EI, the employee would have to repay some of the EI Benefit to the government).
…Compared To Maintaining Your Current LTD Waiting Period
From the financial perspective, there is an advantage to getting on LTD sooner rather than later. Here’s why: LTD benefits typically pay more than EI. In most cases, an employee would receive 2/3 of their salary through LTD, compared to only 55% through EI. Moreover, LTD is often a non-taxable benefit (provided employees pay the premiums), while the EI Sickness benefits are taxable.
A shorter waiting period for LTD also encourages early intervention from the insurer, which can help the employee get back to work sooner. Disability coverage through an insurance provider is designed to provide support to get well. This is not only a positive for the individual on their path to recovery – it can also result in a substantial reduction in claim duration and faster return to work.
At the end of the day, there are certainly potential savings to extending your LTD wait period, but it’s always important to weigh the pros and cons. If you’d like to revisit your employee benefits plan and look at whether this makes sense for your organization, get in touch with us to explore your options.