Federally regulated employers should be aware of new Canada Labour Code (CLC) provisions requiring long term disability programs to be insured with an insurance company licensed under the laws of a province.
Effective July 1, 2014, all prospective LTD benefits offered to employees covered by the CLC must be insured. Transitional rules provide that the insurance requirements operate on a prospective basis only. As a result, employers will not be required to purchase insurance in respect of LTD benefits presently being paid or for which an application for benefits has already been submitted.
Currently there is little regulation of uninsured LTD plans and no requirement for employers to prefund for expected claims. The insurance industry, on the other hand, is highly regulated. Once the CLC changes come into force, affected employers will no longer have the option of self-insuring LTD benefits.
The CLC amendments provide for the exemption of certain LTD Plans in prescribed circumstances, however, regulations outlining the basis for exemption have yet to be issued. The expectation is that limited exemptions will be extended to certain health and welfare trusts which prefund expected LTD claims using insurance industry standards.
Beginning July of next year, employers can be required to furnish proof to inspectors that their LTD plans are insured in accordance with the new CLC requirements. To ensure compliance with those new requirements, as well as other requirements in Part III of the CLC, the maximum fine for most Part III violations will rise to $250K from the current $5K.
As a result of these amendments we recommend that all federally regulated employers offering uninsured (or self-insured) LTD benefits take preliminary steps toward insuring their LTD plans as soon as possible. Some plans may qualify for an exemption under the regulations. However, given the public policy concerns involved, we anticipate the number of exempt plans is likely to be quite small.