Matt Link

In the age of diversity, equity and inclusion (DEI), is it a good idea to end long-term disability benefits at age 65 in employer group insurance plans? Yes, but there are alternative solutions for those over 65, proposes a position paper published on October 16, 2024 by the Canadian Institute of Actuaries (CIA).

The authors of the CIA statement, Joseph Nunes, Actuary and Executive Chairman of Actuarial Solutions Inc., and Mathias Link, Partner at Fasken Martineau DuMoulin LLP, studied how age limits in long-term disability insurance affect equity and parity in the workplace.

The age used to determine when long-term disability coverage and benefits must cease has recently led to a number of complaints before a human rights tribunal, reports the CIA statement. According to the paper, these grievances allege that distinguishing on the basis of age is unlawful discrimination.

Discrimination based on age has no place in our society - Joseph Nunes

The authors also question age discrimination. "Discrimination based on age has no place in our society, especially within the Canadian workplace," stated Nunes in a press release.

The CIA paper’s authors suggest, however, that group disability insurance would become unaffordable without limiting the age at which benefits end. They argue that several courts have recognized over the years that age differentiation is appropriate to prevent employer-sponsored group plans from becoming prohibitively expensive.

Alternative solutions  

The paper does, however, propose alternative solutions to accommodate an aging workforce seeking income protection after age 65. Entitled The Evolution of Employer-Sponsored Long-Term Disability Plans, the statement proposes three alternatives:

  • Continuation of coverage and benefits to age 67  
     Extending the age limit from 65 to 67 would have a very modest impact on the cost of long-term disability insurance coverage, argue the statement's authors. According to their estimates, the cost will increase by about 2% for a 40-year-old. For a 60-year-old, however, coverage will cost 25% more.
  • Reduced benefits at older ages 
    This would reduce the annual growth in the cost of long-term disability coverage. Reducing coverage with age ensures that the expected cost does not increase as quickly or at all compared to the coverage offered to workers aged 64, the statement says.
  • Continuation of benefits for a minimum of 24 months  
    The plan maintains the age limit for disability benefits: the insured will receive them until age 65 or for 24 months, whichever comes last. The statement mentions that workers under age 63 will see no impact on the cost of insurance. On the other hand, it will increase significantly for workers over 63.
Catering to all  

Joe Nunes

Nunes stated that “unique age-based considerations” must be taken into account when offering long-term disability coverage. “Employers and employees need to understand the risk of disability and the cost trade-offs in the design and pricing of income protection and reach a program design that best meets the needs of the entire group of workers. There is no one-size-fits-all solution,” he added. 

The authors of the CIA paper agree that age should be used to differentiate eligibility and the benefit period. “However, it is not necessary that the same age be used for both the age at which eligibility for insurance coverage ceases and the age at which benefits payments cease. Further, neither of these ages must necessarily be age 65,” they add.

Longevity and social norms 

The target age of 65 for long-term disability insurance was established in the 1960s when it was considered a reasonable target age for retirement. Increasing longevity and changing social norms over the past 50 years have, the paper’s authors contend, created a divide between workers: some retire well before 65 and others later. Nearly 90% of workers are expected to choose to receive benefits at age 65 or earlier, and about 10% will defer their benefits after age 65, they point out, citing the 31st Actuarial Report on the Canada Pension Plan (CPP), published on December 14, 2022.

The authors of the CIA statement report the findings of observers who expect a trend towards later retirement ages, for reasons such as good health, meaningful work and insufficient retirement savings. “Should such a trend occur for a significant number of workers, as time passes, the age 65 cut-off for benefits might fall short of the expected working lifetime of greater numbers of workers,” they conclude.

Some workers over 65 may be able to bridge this gap by purchasing an individual insurance policy, but most will self-insure the risk. This means they will “assume that they won’t become disabled, or if they do become disabled, that they will choose retirement at that time,” states the paper.