When the Canada pension plan (CPP) was enacted, the government was concerned that the introduction of the new plan not be disadvantageous to its employees, or members of the Canadian Forces (CF) or the Royal Canadian Mounted Police (RCMP). To the greatest possible extent, the introduction of the CPP was to be transparent to employees and members. When employees of the public service, and members of the CF and the RCMP became participants in the CPP, both the contributions and the benefits were integrated into each of their federal pension plans. The net effect was to provide the same retirement income for the same contributions.
On the benefits side, the integration was achieved by incorporating in each of the superannuation acts a clause defining a procedure whereby an individual's benefits under his/her basic pension are reduced by a formula which approximates the benefit that is paid by the CPP for the pensionable time under the individual's basic pension.
Thus, it is the pension plan itself, the Canadian Forces Superannuation Act (CFSA) for members of the CF, which authorizes a reduction of the pension benefits under given circumstances. The CFSA contains in section 15(2) a provision for the pension benefit to be reduced by a formula related to the CPP benefit formula. A deduction must be made from the annuity paid under the CFSA when the contributor reaches the age of 65 years (the age at which CPP benefits were payable, originally), and when the contributor becomes entitled to a disability pension under the CPP or a similar provision of a provincial pension plan.
The decision to integrate the CPP to the various federal superannuation acts was not limited to federal pension plans. At that time, many pension plans providing coverage to private sector employees were also adjusted to integrate the benefits from the CPP with the benefits of their own private plan.
The overall effect of this integration of the CFSA and CPP benefits is that an annuitant's retirement income is more evenly distributed than it would have been had the benefits not been integrated. If the plans were not integrated, the pre-age 65 benefits would be lower to provide for a levelled benefit for life, rather than being able to reduce it at age 65 to take into consideration the income that comes from the CPP. The number of CFSA annuitants in the age group 65 years and over, affected by a reduction in CFSA benefits related to the receipt of a CPP benefit at age 65, is approximately 30,000.
The same principle applies to long-term disability plans. Typically, long-term disability benefits are integrated with other sources of disability income such as workers' compension, CPP, and other employer, government, and sometimes individual, disability plans. The objective of integrating disability income from various sources is to establish the disability income received from all sources to a reasonable percentage of pre-disability earnings. The inclusion of an integration of benefits provision reduces the costs of the disability plan to the employer. As a CPP disability benefit is often available (depending on the precise definitions of disability in the specific plan and the CPP), it is normal for the specific disability benefit of other plans to be reduced by any benefit derived from the CPP.
It is usual for plan provisions to include a clause whereby the specific plan provisions are reduced in some fashion when a CPP benefit is also being paid. In recognition of this practice as being a reasonable course, there is no provision in law to stop such wording from being written into the specific plans. Such legislation would make the design of adequate disability insurance plans much more difficult, as they would have to balance the individual's financial needs over an extended time period with income from either one or two sources, depending on age or degree of disability.
With regard to the numbers of Canadians affected by the possibility of double offsets in the event of becoming disabled while in receipt of both a pension and employment income, the department does not have data available to be able to provide such
statistics. However, the type of circumstances, for which there could be a double offset, would be rare, and the number of individuals in that circumstance would be expected to be low.
Finally, the department is not aware of any legal challenges to these practices. Besides an amendment to the different federal superannuation acts to remove the CPP reduction provision, the department is not aware of any other legislation which would require changes to eliminate this plan design practice from other pension and disability plans.
Question No. 101-