Self Insured Company Disability Plans

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 a while ago, 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.


Pensions and Disabled Children


The government announced a clarification in their last budget outlining how it would be possible for the estate of a deceased parent to be able to transfer the contents of their RRSP to their disabled child’s RDSP, tax-free. This strikes me as an eminently sensible idea, because it helps families with disabled children save for the day when Mum and Dad aren’t around any more, and can give the parents a little more peace of mind about the future of their disabled child.

Given this is now the case I then read a very interesting change to the pension system offered to employees at my Alma Mater, the University of Waterloo, which outlines a New cash-out rule in pension plan. What the University was doing was stopping employees from being able to withdraw their funds if they go for early retirement (but in fact it is a severance, not a retirement), they must then leave the funds in the pension plan. Interesting idea, anybody wishing to comment on that please go ahead.

The more interesting point was the exception that they added:

….However, this option will continued to be available after January 1, 2014 to members who retire between ages 55 and 65 and at the time of retirement have a child who is eligible for the impairment credit under the Income Tax Act. …

So if you have a disabled child, and wish to take out the commuted part of your pension moneys and plan on putting it into a LIRA or RRSP with the idea of then being able to take that money and leave it to your disabled child (tax-free), this exception remains.

A very interesting idea, I am open to anyone who wishes to comment yea or nay¬†about this specific idea or about the Government’s changes to the ability of parents to pass money tax-free to their disabled children.

I am also curious to see whether this kind of idea for private pension plans may come into play more, or even more interestingly an ability to transfer some part of a pension from a deceased parent to a disabled child, the same way it is done for the spouse of a deceased Pension member. Don’t think that is likely, but it would be an interesting scenario to see, in my opinion.

A Disabled child Haiku

Much worrying now
Will there be enough for them?
When I am not there?


Random Thoughts: Remembering Is Important

For the Remembrance Day week, there was much to reflect on. We live in a great Country (Canada) and are lucky for those who have fought for us and those in our Armed Forces today. Thank You.

I was also excited to see that the Ottawa Public Library has updated their “Stone Knives and Bearskins” interface and are now testing a brand new interface which I like a great deal (and you can find me on their as bigcajunman as well). Try it out and tell the folks what you think of it.

From the Financial Blogosphere

Given the N.C.F.B.A. met this week, I always feel a level of rejuvenation in my blog, and also a level of confusion, given some of the topics that are discussed by some of the members are well over my head financially. I listen and attempt to learn as much as I can, and then go and read about the topics more (so for me it’s like going to a seminar on high level finance ideas).

  • Michael James wrote about Veterans’ Pensions and just how little we pay permanently disabled soldiers and members of the military (shockingly low, but might be tax free).
  • Speaking of disabilities the Canadian Capitalist wrote about The Sad Story of Nortel LTD Beneficiaries which is another scandalous issue. These folks are going to lose their benefits (or already have lost them), because of how Nortel ran their program. Read the posting, and then ask yourself how your company does Long Term Disability benefits.
  • Soon to be Television Personality Preet at WhereDoesAllMyMoneyGo put up a useful video on What is a Mutual Fund for those wanting to learn more about how that investment vehicle works. Preet will hopefully soon be seen on the W Network on a weekly basis, stay tuned.
  • Larry MacDonald (who promises to write a follow up one day of his successful book Nortel: Telecomm Empire) writes a useful posting on the Quotable Guide to Passive Investing where he gives you some quips from some very good books about passive investing.
  • Gail Vaz-Oxlade tells you 8 Reasons Why You Don’t Save right on target as usual (wish she wasn’t sometimes).
  • Promod at Riscario Insider write about Three Reasons Why Financial Literacy Eludes Us again, wish he wasn’t right.

Have a great weekend all, remember it’s time to put your Snow Tires on!


Plan for Emergencies

What are the real financial emergencies in my life? How prepared am I ?

  • If I got laid off tomorrow ( I did get laid off eventually ). Do I have a big enough emergency fund to tide myself over until I can get employed again?
    • Not enough is my suspicion, but I am also hoping for a severance package, which is a dangerous game to play, because what happens if my company simply evaporates and has no money left to pay severance? This has happened to friends in the high tech industry.
  • If I am in an accident or have a medical episode that incapacitates me, is my family taken care of financially?
    • I have disability insurance (short and long term) so I think I am in not too bad shape there, but I think it might put my family in a tight bind if I had a permanently incapacitating medical episode (e.g. stroke).
  • What if my wife suddenly was incapacitated what would happen then?
    • I would then have to get help at home for my wife and for my young son. That may not be a huge hardship given I do have benefits at work, however, how much is covered, and getting help with my son is a direct cost I would have to pay for.
  • If my wife or I pass on what happens?
    • We both have a fair amount of life insurance, however, if we both passed on, what would happen to my children? They will have money, but who will take care of them? My will is not up to date, and I think in dire need of re-visitation.
  • Am I prepared, if one of my children was incapacitated due to accident or illness?
    • I think so, but then again, let’s hope I don’t have to find out.
PolicyAdvisor - The Brand New Way to Compare and Buy Life Insurance

Do You Have a Plan ?

How is your emergency plans both financially and for your family? Now is the time to start that plan, not after the Emergency transpires.


Illness Follow Up and Telephony

So last week I mentioned that Stats Canada was talking about the “Big C”, in Cancer Now that I have Your Attention but now a relative new comer at Riscario Insider has made a very good post about Critical Illness: The Basics outlining what Canadians are doing about catastrophic illnesses, a good read.

A topic more near and dear to my heart (and wallet) is Stats Canada‘s statement about Telecommunications Statistics. Operating profit in the Wireless side of the telecom world is up 67% in Canada (year over year) from last year at this time, which is a good thing to see.

Growth in this industry is a good thing, since it shows there is market space still to be exploited (good for BCE, NT, Telus, and other Wireless associated companies). The other side of the coin, in the wired world (home phones and such) is not as good, with their profits dropping by 27%. An interesting statistic is:

There were 55.1 mobile subscribers per 100 inhabitants at the end of 2006, almost identical to the 55.3 traditional wireline access lines per 100 inhabitants.

So the penetration of the wireless phone in Canada is the same as for regular phones? That’s pretty important, of course in Europe there are even higher penetration numbers. How much more network build out do the Canadian Wireless operators need to set up?

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