Insured LTD Could See Coverage Withdrawn

British Columbia wants employee long-term disability (LTD) plans to be insured, with exemptions for certain employers with low risk of insolvency, says a Morneau Shepell ‘News & Views.’ The preliminary recommendation for the review of the province’s ‘Financial Institutions Act and Credit Union Incorporation Act’ is, however, subject to further consultation. The proposal would potentially
affect all employers with provincially regulated employees in British Columbia who currently offer self-funded LTD arrangements. 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. In its submission to the ministry, it encourages consideration of 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 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.