In the context of an aging population and rising living costs, Canada’s work culture is changing. Across industries, more and more people are now working beyond the traditional retirement age of 65, which means employers are having to rethink the design of their group plans, including long-term disability insurance, to adapt to this new reality.
In this article, Massimo Nini, Senior Vice President, Consulting, Underwriting and Actuarial Services at AGA, sits down with Joe Nunes, Executive Chairman of Actuarial Solutions Inc.—and co-author of the recently published paper The Evolution of Employer-Sponsored Long-Term Disability Plans—to explore how disability insurance is evolving to meet changing employee needs and expectations.
Massimo Nini (MN): Joe, do you think plan members appreciate the value of long-term disability (LTD) benefits?
Joe Nunes (JN): I think generally speaking, employees don’t think much about LTD insurance unless they’re in the unfortunate situation of needing to apply for the benefit. This is probably true for most types of insurance like life, home and auto insurance. Sadly, many will choose to decline coverage to save money assuming that they’ll never need to make a claim. People have trouble distinguishing between events that have a low probability and events that can’t happen!
MN: With the changing needs of an aging workforce, should employers be rethinking their plans to extend benefits beyond age 65? Is this a trend you’re already seeing in Canada?
JN: Yes and no. The answer depends on the workforce. Employers that are seeing an increasing number of workers stay past age 65 should be thinking about what impact disability coverage will have on the financial circumstances of workers over 65—and what responsibility the company has to help these workers obtain income protection. On the other hand, very few schoolteachers work past age 65 for example, in which case extended disability coverage after age 65 probably isn’t a big issue.
MN: In the recent paper you co-authored, you explore the validity of ending LTD coverage at age 65. Can you share the key takeaways?
JN: There are three key takeaways. First, with the end of mandatory retirement, some workers are staying past age 65, and while it is still legal to terminate disability insurance at age 65, it may not be the best answer for workers. Second, extending LTD coverage past age 65 comes with a cost, and employers and employees need to think about the cost-benefit of extending coverage and how those costs are shared. Finally, in the context of collective bargaining, employers should be proactive in putting this issue on the table and not wait for a grievance to come up arguing against the status quo.
MN: What are some of the reasons not to extend coverage beyond 65?
JN: As I mentioned, some workforces have few, if any, workers staying past age 65 and so there’s no reason to make changes in a plan that sees coverage terminate at age 65. Not only that, but some employees working past 65 are doing it for enjoyment and don’t need income protection as they’d be prepared to retire if they couldn’t work.
MN: And for employers looking to extend LTD coverage, what are some potential approaches?
JN: There are a number of design changes that can be considered to protect older workers. The design I like best would be to have income protection last for a minimum of 24 months for any worker that becomes disabled after age 63, and to continue coverage past age 65 to, say, age 70. There’s no cost impact to workers under age 63 while those over 63 will have higher premiums—but also valuable protection.
MN: Any final words of advice?
JN: Income protection for disabled workers over 65 is an emerging issue that unions are paying increasing attention to. Whether an employer has a union or non-union workforce, it would be wise to get ahead of the issue by examining employee needs in this area.
When it comes to LTD coverage, as with all group benefits, there is no one-size-fits-all solution. Every workplace is different, which means it’s up to each employer to (re)evaluate their group plans to meet the needs of the existing and emerging workforce.
The insurance market’s appetite for longer-term LTD coverage continues to evolve and carriers are not always willing to accommodate LTD plan designs that extend benefits beyond age 65. It is critical to include your insurance advisor in this discussion as they will have a sense of your workforce demographics and an awareness of what insurance companies are currently offering. These two components need to be married together to find a design that works for employers, employees and insurers alike.
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In the context of an aging population and rising living costs, Canada’s work culture is changing. Across industries, more and more people are now working beyond the traditional retirement age of 65, which means employers are having to rethink the design of their group plans, including long-term disability insurance, to adapt to this new reality.
In this article, Massimo Nini, Senior Vice President, Consulting, Underwriting and Actuarial Services at AGA, sits down with Joe Nunes, Executive Chairman of Actuarial Solutions Inc.—and co-author of the recently published paper The Evolution of Employer-Sponsored Long-Term Disability Plans—to explore how disability insurance is evolving to meet changing employee needs and expectations.
Massimo Nini (MN): Joe, do you think plan members appreciate the value of long-term disability (LTD) benefits?
Joe Nunes (JN): I think generally speaking, employees don’t think much about LTD insurance unless they’re in the unfortunate situation of needing to apply for the benefit. This is probably true for most types of insurance like life, home and auto insurance. Sadly, many will choose to decline coverage to save money assuming that they’ll never need to make a claim. People have trouble distinguishing between events that have a low probability and events that can’t happen!
MN: With the changing needs of an aging workforce, should employers be rethinking their plans to extend benefits beyond age 65? Is this a trend you’re already seeing in Canada?
JN: Yes and no. The answer depends on the workforce. Employers that are seeing an increasing number of workers stay past age 65 should be thinking about what impact disability coverage will have on the financial circumstances of workers over 65—and what responsibility the company has to help these workers obtain income protection. On the other hand, very few schoolteachers work past age 65 for example, in which case extended disability coverage after age 65 probably isn’t a big issue.
MN: In the recent paper you co-authored, you explore the validity of ending LTD coverage at age 65. Can you share the key takeaways?
JN: There are three key takeaways. First, with the end of mandatory retirement, some workers are staying past age 65, and while it is still legal to terminate disability insurance at age 65, it may not be the best answer for workers. Second, extending LTD coverage past age 65 comes with a cost, and employers and employees need to think about the cost-benefit of extending coverage and how those costs are shared. Finally, in the context of collective bargaining, employers should be proactive in putting this issue on the table and not wait for a grievance to come up arguing against the status quo.
MN: What are some of the reasons not to extend coverage beyond 65?
JN: As I mentioned, some workforces have few, if any, workers staying past age 65 and so there’s no reason to make changes in a plan that sees coverage terminate at age 65. Not only that, but some employees working past 65 are doing it for enjoyment and don’t need income protection as they’d be prepared to retire if they couldn’t work.
MN: And for employers looking to extend LTD coverage, what are some potential approaches?
JN: There are a number of design changes that can be considered to protect older workers. The design I like best would be to have income protection last for a minimum of 24 months for any worker that becomes disabled after age 63, and to continue coverage past age 65 to, say, age 70. There’s no cost impact to workers under age 63 while those over 63 will have higher premiums—but also valuable protection.
MN: Any final words of advice?
JN: Income protection for disabled workers over 65 is an emerging issue that unions are paying increasing attention to. Whether an employer has a union or non-union workforce, it would be wise to get ahead of the issue by examining employee needs in this area.
When it comes to LTD coverage, as with all group benefits, there is no one-size-fits-all solution. Every workplace is different, which means it’s up to each employer to (re)evaluate their group plans to meet the needs of the existing and emerging workforce.
The insurance market’s appetite for longer-term LTD coverage continues to evolve and carriers are not always willing to accommodate LTD plan designs that extend benefits beyond age 65. It is critical to include your insurance advisor in this discussion as they will have a sense of your workforce demographics and an awareness of what insurance companies are currently offering. These two components need to be married together to find a design that works for employers, employees and insurers alike.