how does receiving long-term disability affect a pension?

most pension plans provide a “contribution option” — some plans call this a “disability waiver” — for you to contribute to your pension while on disability.

by nainesh kotak

published jan 25, 2024

last updated jun 20, 2024

2 minute read

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2 minute read

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it’s also important to note that a pension plan may also offer disability pension benefits which are separate from the long-term disability benefits. getty images

when applying for long-term disability (ltd) benefits there are many decisions that will require consideration. many worry if they will indeed qualify and also receive enough money to make ends meet. however, one very important consequence overlooked during this process is the effect of ltd on a retirement pension. filing a successful ltd claim may indeed affect your pension plan. the effect it may have on your pension depends on a variety of factors, the most typical being the wording in your disability policy.

many people have a group disability plan through their employer. usually, contributions are made to a pension plan by both an employee and an employer. however, when an employee is on ltd, some employers will suspend making their contributions. this means your pension “nest egg” remains at the same amount or value as when you left work because of your disability.

what is the best option to not affect your pension plan?

most pension plans provide a “contribution option” — some plans call this a “disability waiver” — for you to contribute to your pension while on disability. you can apply for a waiver of your contribution for the time you are disabled. by doing this, you can rest assure that your pension still continues to grow. generally, the deemed contributory earnings equal the annual rate of contributory earnings you were receiving prior to your disability leave. the earlier you apply for the waiver, the earlier your contributions will start.

once you qualify for the disability waiver, the benefit continues until: you are no longer totally disabled; you return to work; or you begin receiving an early retirement pension.

according to the statistics canada canadian survey on disability 2017, of the 6.2 million canadians with a disability, 2.3 million were in the age group of 45-64 years, which are prime working years for many people.

some employees are comfortable to work with their employer to decide whether or not to continue contributing to their pension plan during disability. others decide to consult a lawyer to help guide them in making that decision, especially to help with all the forms that must be filled out.

it’s also important to note that a pension plan may also offer disability pension benefits which are separate from the ltd benefits. if you are approved for both, the ltd benefits will be decreased or wiped out, as the disability pension would be an offset.

if you are applying for long-term disability, or even if you are already receiving ltd payments, it’s in your best interest to know how it will affect your pension plan. a lawyer who specializes in disability cases will be able to go over your pension plan clause by clause and help you understand what your plan prescribes and what options you have regarding your pension.

nainesh kotak, is the founder of kotak personal injury law, a firm focusing on protecting their client’s rights to justice and obtaining the compensation their clients deserve. he also serves as the chair of the long-term disability section of the ontario trial lawyers’ association.