B.C. proposes all long term disability plans be insured
The British Columbia Ministry of Finance has undertaken a review of the province’s Financial Institutions Act and Credit Union Incorporation Act to consider the regulatory framework governing the financial sector. A “Preliminary Recommendations” document posted by the Ministry in March 2018 includes a recommendation to “require employee long-term disability (LTD) plans to be insured, with exemptions for certain employers with low risk of insolvency,” subject to further consultation.
The Preliminary Recommendations document does not include detailed proposals for the funding requirements or exemptions. The proposals would potentially affect all employers with provincially regulated employees in British Columbia who currently offer self-funded LTD arrangements. Any changes with regard to this issue are likely some time away.
Similar legislation has been introduced in the past few years by the Ontario and federal governments, and other jurisdictions and provinces may be contemplating similar legislation. These developments were triggered by Nortel and other insolvency cases that resulted in losses for employees in unfunded LTD plans.
Morneau Shepell has made a submission to the B.C. Ministry of Finance regarding these proposals. Morneau Shepell’s submission encourages the Ministry of Finance to consider introducing additional requirements for plan sponsors who choose to self-insure LTD plans, rather than requiring all LTD plans be insured with a third-party carrier.
Plan sponsors may self-insure LTD for a variety of reasons including cost, an inability to obtain insurance due to undesirable risk, and/or for greater control over plan design and claims management. If a requirement for LTD plans to be insured were to be introduced, some plan sponsors might withdraw coverage or terminate the LTD benefit altogether.
Given the importance of this benefit to disabled individuals, a key concern is the ability of selfinsured LTD plans to pay financial obligations relating to LTD claims. Morneau Shepell’s submission suggests that self-insured plan sponsors be required or incentivized to pre-fund LTD liabilities rather than being forced to insure LTD liabilities in all cases.
The Morneau Shepell submission also includes recommendations regarding ways to address LTD affordability, benefit-plan design, communication and transition issues. We note that the Canadian Institute of Actuaries has issued a public position statement regarding self-insured LTD plans.
While this is a very complex issue, our view is that the best way to satisfy the needs of various stakeholders and preserve LTD plans as a viable option for a wide range of employers is to give plan sponsors options to ensure the proper funding of LTD benefits. Morneau Shepell’s submission underlines the importance of properly managed LTD plans for both plan sponsors and employers. As well, since other jurisdictions may be contemplating similar legislation regarding self-insured LTD benefits, British Columbia may be in a position to coordinate the application of new requirements with other jurisdictions to ensure a consistent approach. This will be particularly relevant for plan sponsors offering LTD plans to employees in more than one province.
We will continue to monitor these proposals. Even though changes are not imminent, plan sponsors should continue to monitor and review their LTD arrangements, particularly if they are self-insured.