Summary:
If received, CPP disability benefits are deductible as other income replacement assistance in calculating the IRB payable. But it is important to understand the interplay with other benefits, and other components of CPP disability benefits that shouldn’t be considered.
Background:
This discussion must start with qualifying for the Canada Pension Plan (CPP) disability benefits. An insured may qualify to receive CPP disability benefits if they:
- are under 65 years of age;
- meet the CPP contribution requirements; and,
- have a severe and prolonged disability.
That said, the insured must be approved by a Service Canada medical adjudicator, which takes approximately four months, and the decision is based on a number of requirements. This just means there is no certainty when or if benefits will be received.
For this blog post, however, let’s assume the insured will receive, or is already receiving CPP disability benefits.
How does the SABS treat CPP Disability benefits?
The current Statutory Accident Benefits Schedule (SABS) include CPP disability pension benefits as payments for loss of income (s.3(7)(d)(i)). This is consistent with the prior SABS, which also treated CPP disability benefits as payments for loss of income (s.2(9)1), although only from January 1, 2002 (s.2(10)).
For more specific information about payments for loss of income, we refer you to this blog post.
Because CPP disability benefits are considered payments for loss of income, they are treated as other income replacement assistance (OIRA) pursuant to s.4(1). Without going into great detail regarding OIRA (for that we refer you to the OIRA specific blog), CPP disability benefits are deducted as follows:
Step 1 – Determine the Weekly Base Amount (s.7(2))
Step 2 – Deduct the total of all OIRA (s.7(1) “A”)
Step 3 – Apply the policy limit (s.7(1) “B”)
Step 4 – Deduct post-accident income (s.7(3))
For information purposes, the weekly base amount is 70% of the pre-accident income plus 70% of any post-accident losses from self-employment.
What if the insured is also receiving LTD benefits?
It is not uncommon that individuals will have Long Term Disability benefits (LTD) available, in addition to CPP disability benefits. There is often interplay between the various OIRA sources, so it is important you have details of the policies and benefits actually being received.
For example, if an insured starts to receive CPP disability benefits, any LTD the insured has been receiving will likely be reduced, including a retroactive adjustment. This means you do not just deduct the CPP disability benefits in addition to the LTD from the weekly base amount. This is where the LTD policy would need to be fully reviewed.
What if CPP disability benefits were being received prior to the accident?
Temporary disability benefits received as a result of a prior incident are considered collateral benefits, and deductible from the IRB payable pursuant to s. 47 (O. Reg 34/10) and s. 60 (O. Reg. 403/96). CPP disability benefits, however, are not considered to be temporary benefits. While this does not mean they are permanent, they are, generally, long-term.
In Schekene & Cooperators (OIC A95-000314), it was determined that because CPP disability benefits are not temporary, they would not be deductible. On the basis CPP disability benefits are also not considered employment income pursuant to s.4(1) of the current legislation, CPP disability benefits being received prior to the current accident are not considered in calculating an IRB payable.
How do you deal with a large retroactive payment?
Under the previous legislation, an insured was required to pay back any overpayment of IRBs due to collateral benefits, including CPP disability benefits, once notified by the insurer that there was an issue. However, the insurer was only eligible to recover an overpayment for a period of 12 months from the time the insured was notified of the overpayment, as found in Pries and Economical Insurance (FSCO Appeal P12-00036). This is distinct from the limitation when an error was made in the calculation, which is discussed in our blog post: What constitutes 12-months for overpayment recovery in Section 47(3)?
In Pries and Economical, the insured received CPP disability benefits retroactive for 16 months. The insurer did not notify the insured of the overpayment until the insurer received notice of the insured receiving CPP disability benefits. Therefore, the insurer was only able to recover 12 months of overpayment, not the entire retroactive payment, although they could adjust the amount payable on a go-forward basis.
There are limits as to what an individual will receive in terms of retroactive CPP disability benefits, as it is often affected by when the insured applies and is subsequently approved. The arbitrator in Pries and Economical suggested the insurer could have advised the insured that if CPP disability benefits were received they would be seeking reimbursement. This would have been considered notice and, subsequently, extended the period over which the insurer could recover IRBs.
The Pries decision related to the prior legislation, and specifically s. 47(3). In the new legislation, we look to section 52(3) for guidance. Despite a change in wording, it appears the approach outlined in Pries and Economical would stand, although to date, there are no decisions to support or oppose this interpretation.
What does this all mean for you?
If an insured is receiving or potential eligible to receive CPP disability benefits, there are a number of things you need to consider:
- For adjusters, giving notice: As found in Pries and Economical Insurance, the impact on the insurer if they have not notified an insured of potential overpayment within 12 months of IRBs being received can be substantial if the disability benefits are paid retroactively for a significant period of time.
- Determine the impact on other income replacement assistance that may be available or being received. This usually requires a copy of any policies under which the other benefits are being paid.
Is there a child portion to the benefit? Be sure to read our blog on how to handle that.
As always, we are available to answer any further questions you might have.