If you file a claim and receive approval for long term disability (LTD) benefits, it may affect your pension in some cases. Whether LTD benefits affect your pension or not depends on several factors, including the wording in your disability policy.
If you have a group disability plan through your employer, a union, or another occupational group, contact the administrator of that plan to learn more about how it may or may not work with your pension plan. Many companies select disability plans approved by their pension plans, and there are no impacts when this occurs.
Your Plan May Work with Your Pension to Continue to Contribute
Pension plans generally have certain long-term disability plans that are designed to ensure a worker receiving LTD benefits does not have to worry about their pension. These are sometimes called “approved” plans. If your LTD plan is approved by your pension plan, you may be able to continue to accumulate pensionable earnings just as you would if you were working your job every day.
An “approved” disability plan may calculate your pension payout based on the average salary you earned before you stopped working once you file for retirement benefits. This may include any cost of living increases that occurred after you stopped working and began to draw disability.
In Some Cases, Your Pension May Not Increase
In some cases, your pension may not continue to grow while you draw long term disability benefits. This generally occurs if your disability insurance policy is not pension approved. If your time away from work is considered a leave of absence under your LTD plan, you may not continue to accumulate pensionable earnings and contributory service.
This means your pension may remain the same in value as it was when you took time away from work because of your disability. This may be true even if you cannot return to work for years or until you reach retirement age.
Reaching a Settlement Agreement May Also Halt Pension Growth
There are two ways that a settlement agreement may come into play related to your long-term disability benefits:
You Accept a Lump-Sum Payment
For some people, there are advantages to negotiating a lump-sum payment from their long-term disability insurance carrier instead of continuing to draw benefits each month until their condition improves, or they reach retirement age.
You File a Lawsuit and Reach a Decision After a Denial
If your LTD insurance carrier denies your application for benefits, you generally have two options to challenge this outcome. You may be able to file an internal appeal or file a lawsuit to try to force them to pay you. Internal appeals may be helpful in some very specific situations, but most people may need to go to court to secure a payout.
Even when workers file a lawsuit against their insurance carrier, successful cases often end in a settlement agreement. The worker and their insurer may negotiate a fair lump-sum settlement to cover all past and future benefits.
There may be some instances when the disability insurance carrier covers your past disability benefits and agrees to approve you for LTD benefits going forward. However, this is not the most common outcome in these cases.
Accepting a Lump-Sum Payment Stops Your Pensionable Earnings
No matter why your case ends with a settlement agreement and a lump-sum payment, it is important that you understand how this may affect your pension. When you accept a lump-sum payment from an insurance carrier that provides your employer’s group disability insurance, you likely will no longer receive regular income from the insurer.
As a result, you may no longer have pensionable or contributory earnings and thus your pension cannot grow in value.
Talk to an Ontario Disability Lawyer About Your Benefits Today
While it is important to understand the impact a settlement may have on your pension, this is not a good reason to forgo long term disability benefits if your medical condition prevents you from working. A Toronto disability lawyer from Preszler Injury Lawyers may be able to help you understand your rights and act on your behalf.
You may have up to two years to challenge an LTD benefits denial under the Limitations Act of 2002, S.O. 2002, Chapter 24. Filing an internal appeal may not extend this time limit. Act quickly to talk to a lawyer serving Toronto and the surrounding area about your options today. Your initial consultation is free. We usually receive our fees for the legal services we provide only if we recover a settlement on your behalf.
Call Preszler Injury Lawyers today at (416) 364-2000 to learn more.