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ARCHIVED - Disability Insurance (DI) Plan - Effect of Retroactive Salary Increases on DI Benefits and the Rehabilitation Program
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DATE: March 15, 2001
TO: Compensation Managers
Heads of Personnel
Heads of Personnel of Participating Separate Employers
Heads of Bargaining Agents
SUBJECT: Disability Insurance (DI) Plan - Effect of Retroactive Salary Increases on DI Benefits and the Rehabilitation Program
The purpose of this notice is to describe the effect retroactive salary increases have on Disability Insurance (DI) benefits and the Rehabilitation Program.
Specifically, employees participating in the Rehabilitation Program should be made aware of the potential effects a retroactive salary increase has on their DI benefits.
To that end, the attached document has been developed to assist Compensation Specialists in counselling affected employees. This document can be provided as reference material to employees who are or will be participating in a Rehabilitation Program.
Sun Life Assurance Company of Canada, the insurer of the DI Plan, will be sending out to Rehabilitation Program participants a summary of the effect of salary increases on DI benefits. A copy is attached for your information. It refers participants to their Compensation Specialists for a more complete explanation of the effect a retroactive salary increase may have on their DI benefits.
Long Term Disability Insurance Benefits
The Long-Term Disability (LTD) portion of the Public Service Management Insurance Plan (PSMIP) has a Rehabilitation Program similar to that under the DI plan. However, the maximum benefit that an LTD Rehabilitation Program participant can receive is calculated in a slightly different way. The maximum benefit under the LTD plan is 100% of the participant's salary on the last day of the elimination period, but updated to reflect the current rate for that position. Overpayments do not normally arise in these situations. In view of this, National Life has not been asked to provide LTD Rehabilitation Program participants with a copy of the attached summary.
Compensation Managers may call Kathy Jordan at (613) 952-3264 or Suzanne Gilbert at (613) 952-3265 if there are any questions.
Disability Insurance (DI) Plan
Effect of Retroactive Salary Increases
On DI Benefits and Rehabilitation Earnings
How are my Disability Insurance (DI) benefits calculated?
Your DI benefits are calculated on the basis of your "Insured Salary". This is the annual rate of pay for your job classification and level on the day immediately before your DI benefits became effective, and may include some allowances (e.g. bilingual bonus). Your DI benefit ensures that you will receive, in total, 70 % of your Insured Salary which will be paid from the DI plan alone, or in combination with other income, such as Canada/Quebec Pension Plan (C/QPP) benefits, etc.
| Example: | Monthly Insured salary = $30,000/year ¸ 12 =$2,500 |
| Monthly DI benefit = $2,500/year x 70% = $1,750/month |
What is a Rehabilitation Program and how does it work?
Under the DI plan, a Rehabilitation Program has been designed to help ease you back to work after being on DI or temporarily allow other employment opportunities when, due to a medical condition, an employee cannot perform all of the duties of his or her own position. In this Program, you may return to work on a reduced number of hours each week to eventually return back to your normal hours of work. For example, an employee may work 2 days a week for a number of months, and gradually increase the number of days worked until normal working hours are resumed.
Under the DI plan, a Rehabilitation Program must be approved in writing by Sun Life, the insurer of the DI Plan, and must be supported by medical evidence provided by your treating physician.
If you return to work on the Rehabilitation Program, you will be paid for the number of hours you work based on the classification and level of the job you are doing. This income, plus paid statutory holidays, vacation, sick leave, extra-duty compensation including compensatory leave granted, allowances paid (e.g. bilingual bonus) are considered to be your Rehabilitation Earnings.
How do my Rehabilitation Earnings affect my DI benefits?
Under the Rehabilitation Program, you can receive up to 100% of your Insured Salary, even though Sun Life will provide you with benefits up to 70% of your insured salary. In other words, you will receive your Rehabilitation Earnings from your Department over and above your DI benefit.
Your Department will report your gross Rehabilitation Earnings to Sun Life on a monthly basis and the insurer will compare your gross Rehabilitation Earnings to your Monthly Insured Salary. Your Rehabilitation Earnings will not affect your monthly DI benefit unless your total income exceeds 100% of your Insured Salary, at which time, Sun Life will reduce your DI benefits to ensure that your total monthly income does not exceed 100% of your Insured Salary. When an employee participates in a Rehabilitation Program, the monthly DI benefit payable is calculated as follows:
Insured Salary (A) minus Rehabilitation Earnings (B) = DI benefit payable (C), 70% or less of insured salary.
| EXAMPLE: | In this example, the Insured Salary (A) is $2,500/month ($30,000 ¸ 12). | ||
| The maximum DI benefit that could be paid is $1,750/month ($2,500 x 70%).
|
| Rehabilitation Earnings |
Effect on DI benefits |
|
|---|---|---|
| Month 1 | $500/month
while working 1 day/week |
$2,500(A) minus $500(B) = $2000/month(C): DI benefit paid at 70% ($1,750) and remains the same as before the Rehabilitation Program was started. |
| Month 2 | $1000/month
while working 2 days/week |
$2,500(A) minus $1000(B) = $1,500/month(C): DI benefit reduced by $250 so that the total income represents 100% of the insured salary. |
In the first month, the DI benefit of $1,750, plus Rehabilitation Earnings of $500, equals $2,250 or 90% of the Insured Earnings. In month 2, Rehabilitation earnings increased to $1000, so the DI benefit was reduced to ensure that the combined monthly income did not exceed the Insured Salary of $2,500 per month.
Please note that the Rehabilitation Earnings were calculated by dividing the monthly income by 4 to obtain a weekly amount, which was then divided by 5 to arrive at a daily income. These calculations are simplified for the purpose of these examples only, and are not intended for any other use.
What happens if my salary increases retroactively?
If a retroactive salary increase for your position, for example due to a re-negotiated collective agreement, is effective prior to the date your DI benefits became effective, both your Insured Salary and your DI benefit will be re-calculated accordingly.
| Example: | Increased Monthly Insured salary = $32,000/year ¸ 12 =$2,666 |
| Monthly DI benefit = $2,666/year x 70% = $1,866/month |
DI benefits started July 1st at $1,750/month, based on an Insured Salary of $30,000. A collective agreement signed December 15th increases that salary to $32,000 retroactive to March 1st of that same year, which is prior to the date the employee started to receive benefits.
| Date of Salary Increase | Effect on Insured Salary | Effect on DI Benefit |
|---|---|---|
| Original salary was $30,000
Increases to $32,000 retroactive to March 1st |
Original monthly insured salary was $2,500
Increases to $2,666/month retroactive to July 1st. |
Original monthly DI benefit was $1,750
Increases to $1,866/month retroactive to July 1st. |
In this example, the DI benefits will be increased by $116 per month retroactive to July 1st.
It is important to know that if the salary increase were effective on or after the day your DI benefits became effective, in this example on or after July 1st, neither the Insured Salary nor the DI benefit would change.
Will a retroactive salary increase affect my Rehabilitation Earnings?
A retroactive salary increase may affect your Rehabilitation Earnings, which are paid based on the salary for the classification and level of the job you are performing while on the Rehabilitation Program. Your Department will report to Sun Life any additional Rehabilitation Earnings paid to you retroactively.
EXAMPLE: DI benefits started July 1st and employee returns to work August 1st, 2 days/week. Rehabilitation Earnings equal $1000/month, based on a salary of $30,000. A collective agreement is signed December 15th increasing the salary of the claimant's position while on the Rehabilitation Program to $32,000 retroactive to March 1st of that same year.
|
Effective Date of Salary Increase |
Effect on Rehabilitation Earnings for 2 days/week |
Retroactive Rehabilitation Earnings owing to Employee |
|---|---|---|
| March 1st (Insured salary initially was $2,500/month, increases to $2,666/month). | Initially paid at $1000/month. Increases to $1,066/month retroactive to August 1st. | $1,066-$1000=$66/month retroactively from August 1st owed by Department. |
Will a retroactive increase in Rehabilitation Earnings create a DI overpayment?
If your Rehabilitation Earnings increase retroactively, Sun Life may have to reduce your DI benefit retroactively so that your total monthly income does not exceed 100% of your Insured Salary during the retroactive period. However, since the Insured Salary almost always increases as a result of a retroactive salary increase, overpayments of DI benefits rarely occur.
Example: insured salary does increase
The following example shows the effect on DI benefits and Rehabilitation Earnings when Insured Salary is increased retroactively. In the example, DI benefits start July 1st; Insured Salary increases retroactively on March 1st to $32,000 and Rehabilitation Earnings starts August 1st. Remember, under a Rehabilitation Program, you can earn up to 100% of your Insured Salary.
| Effect on Insured Salary | Effect on Rehabilitation Earnings | Effect on DI Benefit |
|---|---|---|
Initially was $2,500/month effective July 1st. Increases to $2,666/month retroactive to July 1st |
Initially paid $1000/month effective August 1st (start of Rehabilitation Program). Increase to $1,066 retroactive to August 1st. Initially paid $1000/month x 4.5 months (August 1st to December 15th)= $4,500. Should have been paid $1,066/month x 4.5 months = $4,797 Department owes the Employee $297. |
Initially paid $1,500/month effective August 1st, when Rehabilitation Earnings started. Increase to $1,600 retroactive to August 1st. Initially paid $1,500/month x 4.5 months (August 1st to December 15th) = $6,750. Should have been paid $1600 x 4.5 months = $7,200 Employee underpaid by $450. |
Example: insured salary does not increase
A retroactive increase to Rehabilitation Earnings with no corresponding increase to Insured Salary will create a DI overpayment. If the Insured Salary in the previous example had remained at $2,500 because the effective date of the salary increase was, for example, August 1st and not March 1st, which is after the date DI benefits started (July 1st), an overpayment would be created.
|
Effect on Insured Salary |
Effect on Rehabilitation Earnings |
Effect on DI Benefit |
|---|---|---|
No change-remains at $2,500/month |
Originally paid at $1000/month. Increases to $1,066/month retroactive to August 1st. Originally paid at $1000 x 4.5 months (August to December 15th)= $4,500. Should have paid $1,066 x 4.5 months =$4,797. Department owes the Employee an additional $297. |
Initially paid $1,500/month Decreases to $1,434/month retroactive to August 1st. DI benefit originally paid = $1,500 x 4.5 months (August to December 15th)= $6,750. Should have paid $1,434 x 4.5 months = $6,453 total. Employee has been overpaid $297 and needs to reimburse Sun Life. |
This is a result of increased Rehabilitation Earnings payable for employment after the date the new salary increase became effective. As shown above, the DI benefit would be retroactively reduced by $66 per month (from $1500 to $1434) to take into account the increased Rehabilitation Earnings. As a result, DI benefits would be overpaid from August 1st to December 15th by $297 ($66 x 4.5 months). Overpaid amounts must be recovered by Sun Life. In this example, the retroactive Rehabilitation Earnings paid by the Employer will create the DI overpayment.
Specific questions relating to your Rehabilitation Earnings and DI benefits should be addressed to your Compensation Specialist.
Disability Insurance (DI) Plan
Important Reminder to Rehabilitation Program Participants
- Under a Rehabilitation Program, your total income from all sources cannot be more than 100% of your Insured Salary. This includes the income received from your Department for your period of Rehabilitation employment, your DI benefit and other income sources deducted from your DI benefit.
- As a Rehabilitation Program participant, you will receive income from your employing Department, based on the number of hours per week you have worked.
- In addition, you will receive Disability Insurance (DI) benefits up to a maximum of 70% of your Insured Salary.
- Your Insured Salary is your annual rate of pay on the day before your DI benefits became payable.
- If you receive a retroactive salary increase for the period you participated in a Rehabilitation program, an overpayment in your DI benefit may result. Sun Life Assurance Company of Canada will request repayment of any overpaid benefits.
- For a complete explanation of the effect of a retroactive salary increase on your DI benefits, please contact your Compensation Specialist.