DATE: May 2, 1997
TO: Directors of Personnel
Chiefs of Compensation
Heads of Bargaining Agents Outside employers with Their Own pay Facilities
SUBJECT: Disability Insurance Plan (DI Plan)/Long-term Disability(LTD) Portion of the Public Service Management Insurance Plan (PSMIP) - Treatment of Public
Service Superannuation Benefits (PSSA)
I. Introduction
The purpose of this notice is to provide information concerning changes to the manner in which various benefits payable under the Public Service Superannuation Act
(PSSA) will be offset from disability benefits payable under the Disability Insurance (DI) Plan and the Long-term Disability (LTD) portion of the Public Service Management
Insurance (PSMIP). The changes were recently recommended by both the Board of Management for the DI Plan and the Board of Trustees for the PSMIP.
All changes are effective April 30, 1997 and will apply to long-term disability claimants whose employment terminates after that date.
For information on pension transfer values, please refer to Treasury Board Secretariat Circular 97-1, dated February 27, 1997, and Superannuation Manual Administration
Bulletin 1997-005 published by Public Works and Government Services Canada (PWGSC) on April 30, 1997.
II. Background
Recent amendments to the PSSA changed the vesting requirements under the legislation from 5 years to 2 years and permit employees who leave the Public Service to choose
to receive their earned pension benefits in the form of a pension transfer value rather than as a future monthly benefit.
PSSA benefits are deducted from disability benefits payable under both the DI Plan and the LTD portion of the PSMIP. In light of the PSSA amendments, the Board of
Management of the DI Plan and the Board of Trustees of the PSMIP recently recommended the following approaches to the treatment of PSSA benefits under the disability
plans.
III. Policy
1. Treatment of Returns of Contributions Based on Less than Two Years of Service
Effective April 30, 1997, only returns of contributions based on 2 years of service or less will not be offset from long-term disability benefits under the plans. In
the past, returns of contributions based on 5 or less years of service were excluded from the offset provisions of the plans.
2. Treatment of Other PSSA Benefits (Immediate Annuity, Annual Allowance, Return of Contributions Based on 2 or More Years of Service, Cash Termination
Allowances, and Pension Transfer Values)
The treatment of these benefits is standardized under both the DI and the LTD disability plans and depends on whether or not the disability claimant has applied for a
PSSA disability benefit and whether or not a PSSA disability benefit is approved.
Claimants who cease to be employed fall into three categories:
1. Those whose application for disability retirement under the PSSA is approved;
2. Those who application for disability retirement under the PSSA is not approved; and
3. Those who choose not to apply for disability retirement under the PSSA.
Category 1 - Claimants whose Application for Disability Retirement under the PSSA Is Approved
The current provisions of the disability plans will continue to apply. Currently, the immediate annuity on account of disability is offset from DI/LTD benefits
immediately and a lump sum benefit payable on account of disability (return of contributions or cash termination allowance) is offset in monthly amounts equal to the
immediate annuity until a total amount equal to the lump sum benefit has been deducted from the DI/LTD benefit.
Category 2 - Claimants whose Application for Disability Retirement under the PSSA Is NOT Approved
Employees in this category have a range of pension options. Depending on the option chosen, the benefit will be offset from DI/LTD benefits as follows.
Immediate pension benefits (annual allowances and immediate annuities) will, as at present, be offset immediately from DI/LTD benefits.
Deferred annuities payable at age 60 would, as at present, be offset at age 60.
The actuarial transfer value, in the case of claimants who have been turned down for a PSSA disability benefit, will be offset at age 60 by the monthly
pension amount that the individual would have received at that time by way of a deferred annuity. However, the offset will cease once the total amount of the actuarial
transfer value has been deducted from the DI/LTD benefit.
Returns of contributions based on more than two years service, will be offset in the same manner as an actuarial transfer value.
Category 3 - Claimants who Choose Not to Apply for Disability Retirement under the PSSA
Where a claimant who ceases to be employed chooses not to apply for disability retirement under the PSSA, either because of an entitlement to an unreduced
pension benefit, or because the individual chooses a deferred annuity, a return of contributions, or the pension transfer value, the monthly DI/LTD benefit will be
offset immediately by the monthly amount of the immediate annuity to which the individual would be entitled, if an application for a PSSA disability retirement were made
and approved
However, if the claimant proves to the Insurer that an application for a disability retirement had been made but was not approved, the pension benefit
chosen, (immediate annuity, annual allowance, return of contributions, deferred annuity, or pension transfer value,) will be offset in the manner specified in Category 2
above.
IV. Counselling of Employees who Are Ceasing to be Employed
It is extremely important that terminating employees who are receiving DI/LTD benefits are thoroughly counselled as to the effects of their PSSA choices on their
disability benefits.
Where possible, employees must be made aware well in advance of termination of the manner in which their PSSA benefits will be offset from their DI/LTD
benefits. Employees could be provided with the chart contained in Appendix A. However, terminating employees should also be made aware, preferably in writing, that in
virtually all circumstances, it is assumed that they could be entitled to an immediate annuity on account of disability under the PSSA and that this amount will be offset
from their DI/LTD benefits. It is only if the employee proves that his or her application for disability retirement under the PSSA was declined that the benefit paid will
be offset as described in Category 2 above.
It is also important that employees who wish to undergo an assessment for PSSA disability retirement do so in advance of termination so that their options and
the effects of those options on their DI/LTD benefits will be clear at the time of termination.
Employees should also be informed concerning the fact that receipt of an immediate pension benefit will permit them to retain coverage under the Public Service
Health Care Plan. An option for an immediate pension benefit could result in future pension benefits for eligible survivors.
V. Further Information
Necessary amendments to the relevant policies will be made as quickly as possible to reflect the above. The text of the DI booklet which is published as Appendix D of
the policy on Disability Insurance Plan will be amended to reflect this approach as well. Revised PSMIP booklets will be available shortly and will include the above
information.
Similarly, the Insurance Administration Manual issued by Public Works and Government Service Canada will be amended to include the above information.
The contracts of insurance with Sun Life of Canada and National Life of Canada will be amended as quickly as possible with the effective date being the coming into
force of the revised Regulations to the PSSA.
VI. Inquiries
Policy inquires concerning the above should be directed to:
PSMIP LTD:
Bev Bell - (613) 952-3262
Inquiries on individual circumstances should be directed to the Client Inquiry Services, Superannuation Directorate, Public Works Government Services Canada, Shediac,
N.B. - Telephone (506) 533-5800.
Appendix A
Treatment of Benefits payable under the Public Service Superannuation Act (PSSA) as Offsets under the Disability Insurance (DI) Plan and the Long-term
Disability(LTD) Portion of the Public Service Management Insurance Plan (PSMIP)
Circumstance PSSA Option Offset from DI/LTD
Plans
I. Termination (1) Return of (1) No offset.
with Less than 2 Contributions
years Service
II. PSSA (1) Immediate Annuity (1) Offset immediately
Disability or by full amount
Retirement (2) Lump Sum Payment (2) Offset immediately
Approved by amount equal to
immediate annuity until
full amount of lump sum
has been offset
III. PSSA (1) Deferred Annuity at (1) Offset at age 60
Disability Age 60 (2) Offset when payable
Retirement (2) Annual Allowance (3)&(4 ) Monthly offset
Applied for but (3) Actuarial Transfer at age 60 by amount
Not Approved Value equal to deferred
(4) Return of annuity but capped when
Contributions total of actuarial
transfer value or lump
sum has been offset
IV. Application (1) Deferred Annuity at (1)(2)(3) & (4) Offset
for PSSA Age 60 immediately by amount
Disability (2) Annual Allowance of equivalent immediate
Retirement not (3) Actuarial Transfer annuity unless claimant
Made Value proves that an
(4) Return of application for a
Contributions disability retirement
had been declined.
Capped when total of
actuarial transfer
value or return of
contributions has been
offset.
Where such proof is
provided, offsets as in
II above.
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