What’s the impact on disability plans?

by | Mar 14, 2023 | Take 5 Articles

Three months have passed since the federal government expanded the coverage period for its Employment Insurance (EI) plan to 26 weeks from 15 weeks. How are plan sponsors responding?

The quick answer: it depends. Take 5 spoke with three advisors in three provinces, all member firms of Benefits Alliance, to get the scoop.

But first!

Before we share our findings, please share your thoughts. Benefits Alliance is surveying plan sponsors to get a better idea of what you think—and plan to do—about the change in EI coverage.

Please take a few moments and click here to complete this anonymous survey—you could win some coffee and treats for yourself and your team!  We will share the results in a future issue of Take 5.

Thank you. And now back to what our advisors have to say…

If you have an LTD plan

Plan sponsors with long-term disability (LTD) plans and no short-term disability (STD) plans are sitting tight. They’re maintaining their usual start date for LTD at 16 or 17 weeks, rather than delaying it to kick in after the new EI coverage period of 26 weeks.

“They see the value of employees not remaining for the extra duration on EI because they know their LTD is a better plan,” says Shirley Reiter, managing director at Elev8 Wealth Advisors Inc. in Regina, Saskatchewan.

“Any reduction in the LTD rate by delaying the start of coverage does not outweigh the benefits of the LTD plan,” she adds.

Financially for plan members, the typical LTD plan is far superior to EI: whereas EI pays 55 percent of earnings up to a maximum of $638 a week, and those payments are taxed, LTD typically pays up to 67 percent of earnings, weekly maximums are higher and payments are not taxable.

Equally important, for both plan members and plan sponsors, is the LTD plan’s case management support for recovery. If a plan sponsor opts to delay LTD coverage until EI runs out, “the employee ends up essentially alone at home with their condition, without support unless you’ve hired a disability case manager,” says Allan Sabat, a partner of The Consulting House based in Toronto.

“Twenty-six weeks without support for rehabilitation is not appropriate for successful recovery,” agrees Martin Papillon, president and CEO of AGA Benefits Solutions in Westmount, Québec. 

As well, over the course of those six months, the employee will likely have little or no contact with work. “Once you lose that connection it makes it harder to go back. Plan sponsors run a much higher risk of longer-duration claims for LTD,” says Sabat.

If you have an STD plan

Most plan sponsors with STD plans are in wait-and-see mode. That’s because word has yet to come out on whether the extended EI coverage affects eligibility requirements for the EI Premium Reduction program.

To qualify for EI premium reductions, currently plan sponsors must provide at least 15 weeks of STD benefits. Now that EI coverage has increased from 15 to 26 weeks, will the minimum coverage period for STD benefits also increase to 26 weeks?

On December 23, the EI Premium Reduction program’s website was updated to state “the basic requirements to be considered for a premium reduction remain unchanged for the time being.” There has been no word since.

“A lot of clients are on standby until the government announces any changes to the EI Reduction Program,” summarizes Papillon.

However, not all are waiting. Some have gone ahead with the option to replace their STD with a Supplemental Unemployment Benefit (SUB) plan available from the federal government. EI is the first payer and then the SUB plan tops up the EI payments. “One client has recently gone this route, topping up the EI to 67 percent of actual salary,” says Papillon.

Sabat agrees this could be a worthwhile option for some plan sponsors. However, both Papillon and Sabat strongly recommend that some of the savings be invested in rehabilitation support to reduce the risk of increased LTD claims.

Plan sponsors can hire a third-party disability case management firm or insure the SUB plan with the carrier that had provided the STD plan. Papillon’s client opted for the latter, which “ensured access to proper rehabilitation support as well as the continuation of claims management,” says Papillon.

If you do not have a disability plan

Plan sponsors without STD or LTD plans can help raise awareness of the extended period of coverage for EI among their employees.

They can also reconsider implementing a disability plan, suggest all three advisors. While it may not make sense for high-turnover or seasonal workforces, it is always worthwhile for office staff.

This is especially true for LTD. “It’s the most important benefit because it replaces an employee’s income when they are unable to work,” says Sabat.

“For health and dental, most employees can afford to pay for most claims. There are government and pharmaceutical programs to help with high-cost drugs. But when it comes to disability, once EI runs out the only option may be government aid through a disability support program, which can be tough to get and usually not nearly enough,” he explains. 

“If an LTD plan is not in place, the employee may have nowhere to turn for help to pay their bills,” confirms Reiter.