Long-Term Disability Benefits Insurance Consultation
On behalf of our members, MEBCO welcomes the opportunity to provide input in respect of the Ontario government's proposal that all Long Term Disability (LTD) Benefits be provided on an insured basis.
MEBCO was established in 1992 to represent the interests of Canadian multi-employer pension and benefit plans (MEPs). We inform provincial and federal governments regarding proposed or existing legislation and policies affecting these plans. MEBCO is a federal no-share capital corporation, operating on a not-for-profit basis.
MEBCO is representative of all persons and disciplines involved in MEPs, including union, independent, professional and employer trustees, professional third party administrators, non profit or "in-house" plan administrators, professionals including actuaries, benefit consultants, lawyers and chartered accountants. MEBCO is administered by a Board of Directors consisting of representatives from each of the above groups. The Board of Directors serve MEBCO on a volunteer basis, and are responsible for identifying issues that impact multi-employer plans, developing a strategy to address those issues, and then carrying out this strategy.
While we appreciate that the government's initiative is meant to assure the security of LTD benefits payable to employees, we believe that this assurance is available through other methods than insurance. Insurance is a viable option for some plans. However, many of MEBCO's members are able to provide LTD benefits on a self-funded basis. Self-funded means that the LTD benefit is protected by the assets of the underlying trust fund.
Trust funds are administered by boards of trustees. Trustees manage trusts as fiduciaries which means that the trustees' actions are carried out solely in the best interests of plan beneficiaries. Trustees are responsible for understanding and developing policies and procedures to mitigate the plan's risks, including longevity risk, contribution risk, operational risk and investment risk.
Managing a LTD benefit in a fiduciary capacity requires that the trustees establish adequate procedures for the payment of benefits in accordance with the plan's rules. Trustees may retain professional advisory services for LTD claims adjudication and payment. Further, fiduciary responsibility requires that trustees establish and maintain adequate reserves for benefits payable to disabled members. Plans that provide benefits on a self-funded basis normally retain an actuary for the purpose of calculating reserves. These plans may, or may not, engage the services of an insurer for some of these services.
The Ontario government's proposal that all LTD benefits be provided on an insured basis will disrupt already established, well managed, self-funded plans. Mandatory insurance arrangements result in higher costs for plans that are successfully self-funding these benefits, introducing mandatory insurance detracts from the authority of trustees and will result in lower benefits to plan members because MEPs have fixed contributions. A reduction in health care or other benefits (for example lower disability benefits, reduced medical coverage including prescription drugs) is inconsistent with protection of Ontario's population, particularly through means that can be delivered by the private sector. Mandatory insurance of LTD benefits will also have a disruptive effect on the operations of health and welfare plans and may create unemployment as jobs that are currently carried out by firms located in Ontario are transferred to insurers that may outsource the roles outside Ontario.
Many MEPs are large, covering tens of thousands of potential beneficiaries. We have concerns about the potential desire and ability of the insurance industry to be able to replicate existing coverage in an economical manner. Further, MEPs provide coverage to members in industries that can have significantly different employment arrangements than exist with single employers. MEPs represented by MEBCO are funded by many employers, sometimes hundreds of employers. Funding by several employers mitigates the funding risk present in a single employer plan.
We have concerns about whether legislated insurance coverage could be adequately structured to address these unique needs (e.g., rehabilitation arrangements, return to work requirements, retraining, etc.).
We propose that multi-employer LTD plans be exempt from legislated insurance contracts if the plan:
- Actuarially determines reserves annually
- Annually determines the contribution requirements to fund the benefits
- Audits the fund annually
- Communicates in plain language that benefits are not insured and may be reduced.
MEBCO has depth of knowledge in this area since many of our members are multi employer health and welfare plans that have successfully, efficiently for many decades. We would be pleased to provide more information as you continue your deliberations on this matter.
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