Did you know that, at the end of 2022, the Canadian government improved the sickness benefits under the Employment Insurance (EI) system? This is great news for low income workers without disability coverage, but this decision raises a number of issues concerning the disability benefits of your group insurance plan. Let’s take a closer look…
From 15 to 26 Weeks of Sickness Benefits
To deliver financial support to Canadians when they are sick or injured, and to protect their employment should they experience a prolonged recovery, the government has extended the duration of EI sickness benefits from 15 to 26 weeks starting December 18, 2022. If their application is approved by EI, the absent employees will receive 55% of their weekly EI insurable income up to a maximum of $650 per week. This income is taxable.
Should You Align With This New Rule?
Historically, group insurance plans have been aligned with the EI benefit system. Thus, the short-term disability benefits usually cover the first 16 weeks of sickness (1-week waiting period + 15 weeks of benefits), while long-term disability generally begins the 17th week.
Should your plan replicate the new EI rules? For now, there is no legal obligation to adopt the new provisions. However, you could decide to amend your plan based on the new rules and your circumstances. Let’s review some potential scenarios.
1. Your plan offers long-term disability only
If you offer only long-term disability (LTD) coverage, some options can be considered:
- You leave your plan unchanged. Employees on sickness leave will be able to receive 26 weeks of EI benefits, plus long-term disability benefits starting after 16 weeks, based on the terms of your plan. In this case, the two plans will overlap from week 17 to week 26. Coordination of benefits will likely apply at that time, so that employees do not receive benefits exceeding the amount to which they are eligible.
- You amend your plan in line with EI changes. In this case, employees will receive EI benefits equal to 55% of their insurable earnings during 26 weeks, after which they will be entitled to long-term disability benefits based on the terms of your plan. This situation may be less profitable for employees, especially if they collect more than $650/week under the private plan. Think twice before making such a change, particularly in these times of labour scarcity.
- You decide to add short-term disability to your private plan. You could indeed add short-term disability benefits to your plan for all employees. Thus, your group insurance plan would cover the entire period of disability. This option has the advantage of protecting the financial security of your key employees.
2. Your plan offers both short- and long-term disability
Does your plan already cover short-term and long-term disability (STD and LTD)? The enhancement made by the government will have little impact on your plan, if not for potential overlapping.
- You provide Supplemental Unemployement Benefits (SUB). Some group insurance plans pay the difference between EI benefits and the private disability coverage during the first 15 weeks of benefits. If this is your case, you have two options:
- You leave your plan unchanged. Employees on disability will receive 26 weeks of EI benefits. They will also collect the adjustment under your disability plan during the first 15 weeks of benefits. However, at that point, long-term disability coverage will kick in while EI benefits are continuing. Therefore, the two plans will overlap, and the employee will receive an amount exceeding the maximum provided for in the group plan. As case-law is still uncertain in this matter, we suggest you have a talk with your advisor before making a decision.
- You amend your plan in line with EI changes. This way, employees will receives 26 weeks of EI benefits plus the SUB from your plan. Long-term disability will only kick in on week 27. This option entails no financial disadvantage for employees and prevents plan overlapping.
There are many types of short- and long-term disability plans. Your specific situation may not be illustrated in this article. In any event, it is preferable to contact your advisor for more information.
Talk to your advisor!
This is not the first time the Canadian government amends the rules governing EI sickness or injury benefits. But this time, we are dealing with a major change that upends our habits and requires much thought to ensure we make the right decision in the current environment.
Therefore, we encourage you to contact your AGA advisor to work through the issue and weigh carefully the impact of each option. You can never be too knowledgeable!
*Please note that this webinar will also be offered in French on March 16, 2023.
Simon Pagé has gained more than 10 years of consulting experience in meeting employers’ needs, developing his ability to guide and advise employers on defined contribution pension plans, investment and group insurance. His consulting style is characterized by his efficiency, leadership and integrity, and his ability to communicate clearly on complex issues.
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