Self Insured Company Disability Plans

in Disability Insurance, Nortel

More Insurance that Doesn’t Quite Insure

Please note this post is more of a rant than anything else, please treat most of this as my opinion only

So the plight of the 400+ Nortel employees who have been living on disability insurance, and are about to be cut off from their benefits (in fact they may already be cut off, couldn’t really find a straight answer there), has come to light in the media again (Nortel officially disappeared last week, I believe with the last vestiges transferring to another firm).

How can this be, you ask? Nortel and other large companies typically self insure these kind of plans, which means, even though it looks like you have your insurance with a large insurance company (say like Sun Life or Manulife), your policy is held by your employer and is paid out by them (should you make a claim). To the large company it is much cheaper to have the large insurance company simply administer the Insurance Policies, and have the money come from the large company directly (rather than simply paying premiums to the insurance company and have them profit from the programs).

So what is the problem? The obvious issue with Nortel, is that the company effectively does not exist any more, and thus anyone who is owed money through this kind of disability policy is now only an unsecured creditor, and is likely to get very little (if any) more money. The fact that this debt can be dodged by the firm by simply declaring bankruptcy is smelly (in my opinion).

So what can be done? For the folks at Nortel, not much more, they have hammered out a deal to get whatever moneys they can, but as of the cut off date, they will be without income, leaving them few options to live on. For those that have disability insurance with large firms that are currently self-insuring, they should be contacting their MP’s right away to have put in place some kind of protection system for this kind of insurance policy.

There are two pieces of legislation on the books about this topic:

  • Bill S-216 An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement to protect beneficiaries of long term disability benefits plans (authored by Senator Art Eggleton)
  • C-476 An Act to amend the Bankruptcy and Insolvency Act and other Acts (unfunded Pension Plan Liabilities) (author Wayne Marston (Hamilton-East-Stoney Creek))

That people should talk to their MP about.

Pension reform is needed as well, but these “policies” being held on the companies books as debt liabilities and not like a pension (which is held by an Arms length company, that is funded by the Insuror), puts 1.1 Million people at risk currently (according to the Canadian Life and Health Insurance Association (from the CBC post Disabilty Insurance at risk for 1.1 Million)).

If you are in this kind of disability insurance program, you may be at risk and it would be in your best interest to follow up on this issue.

What really upsets me, is I paid for this insurance when I worked at Nortel, and it was a very expensive premium that was paid for peace of mind, yet the money effectively went into the companies coffers, instead of a safe place in case I needed it?

The worst part of this whole story, is I know people directly effected by this cut off, and they are the ones who need help. We shall see how this shakes out, but if anyone knows more about this, please feel free to comment.

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