LTD Buyout – Take It or Leave It? (Professional Relations Services)

From time to time, an ETFO member on long-term disability will be approached by the insurance company with an offer of a one-time lump sum payment in settlement of her or his ongoing claim for monthly LTD benefits.  This  may seem like an enticing offer, and you may want to leap at the chance, but before you do there are some issues to consider. Some  members  may  decide  in  favour  of  a lump sum settlement because it;

• brings finality and closure
• ends  periodic reviews of the claim by the insurer
• eliminates any risk of termination of the claim
• eliminates the risk that the insurer will decide you are well enough to return to work or participate in a rehabilitation program despite what your doctors say
• eliminates the possibility of having to attend an independent medical evaluation arranged by the insurer
• eliminates the risk that the insurer will take issue with your treatment decisions and question whether you are receiving regular and customary care.

Whether a lump sum settlement is in your best interests will depend on your own personal circumstances, including  your  financial  needs and opportunities as a whole. Your personal health status is the most important consideration in making this decision. You should  consult  your  doctors  and/or  specialists  to ensure that you have as good a sense of  your medical prognosis as possible before considering an offer from the insurer.

A lump sum amount generally provides for some  payment  into  the  future.  If  there  is  a chance that  you  will  recover to  the  point  of being  able  to  return  to  gainful  employment, there is a possibility that the  settlement might exceed or at least approximate what you might otherwise receive in monthly benefits. However, if all medical information suggests that returning to gainful employment is unlikely any time before the end of the claim, then taking a lump sum settlement today means you are giving up benefits that you would otherwise receive.

You also need to take into account the impact on your pension. Under the rules of the Ontario Teachers’ Pension Plan, a teacher cannot receive pension and  LTD benefits for  the  same time period. Similarly, under the terms of most LTD policies, monthly benefits are reduced by any pension benefits received. A lump sum  settlement removes the possibility of overlap of the two claims and may open up your options for applying  for  pension  benefits  (retirement  or disability). Pension benefits received after the lump sum is negotiated  would not reduce or otherwise alter the settlement offer. However, it is important that your pension contributions be brought up to date before you retire.

Members have decided against accepting lump sum settlement offers for many reasons:

• A lump sum is not the full value of the claim. It is a compromise figure, less than what you would cumulatively collect if you remained on monthly benefits until the termination date.
• The amount offered may not be enough, so it may be too high a price to pay to get out from the scrutiny of the insurer.
• If you are not receiving monthly LTD benefits or if the lump sum does not include a provision for future LTD benefits, the OTPP will not consider you an active member, and you will not receive additional credit or service in the plan. Depending on your personal circumstances, this could mean a smaller pension on retirement than you would have received if you had continued to receive  monthly LTD payments. If you continue to be on authorized leave from the school board, then you may be able to purchase additional service with the pension plan, but this depends on your own prior history with the pension plan.
• Many school boards continue the employment of teachers who are on approved leaves, including those receiving LTD benefits. The advantages include ongoing access to other benefit plans (for example, extended health care) and ongoing status with the pension plan board as a teacher on an authorized leave. However, when you accept a lump sum settlement your LTD claim ends and the school board may move to terminate your employment, which in turn could end your access to these other benefit plans. You should investigate this further with your local union representatives.

ETFO  recommends  that  you  consult  with  your  own accountant or financial advisor about whether accepting a lump sum settlement is in your best interests financially. But ultimately the decision of  whether to  accept the insurer’s offer of a lump sum settlement is your own. Be sure your decision is an informed one.