January 1 to December 31, 2012

In accordance with the NJC By-Laws, the undersigned submit this annual report regarding the performance and the administration of the Disability Insurance Plan during the period of January 1 to December 31, 2012.

Chairperson

Paul Burkholder

Employer Side Members

Claude Houde, Department of Foreign Affairs, Trade and Development
William Leffler, Treasury Board Secretariat
Brian Pagan, Finance Canada
Carrie Roussin, Public Works and Government Services Canada

Bargaining Agent Side Members

Sandra Guttmann, Association of Justice Counsel
James Infantino, Public Service Alliance of Canada
André Lortie, Professional Institute of the Public Service of Canada
Tony Tilley, Public Service Alliance of Canada

_______________________________________________

The Disability Insurance Plan Board of Management (the "Board") is pleased to provide this report on the administration of the Public Service Disability Insurance Plan (the "DI Plan"), its financial performance and the activities of the Board for the period of January 1 to December 31, 2012.

Plan Overview

The DI Plan provides income replacement for Plan members during periods of long-term disability for up to 70% of insured earnings. Employees who meet the criteria of total disability to perform the duties of their regular employment become eligible for long-term DI benefits at the expiration of the longer of paid sick leave or the 13 week elimination period for the DI Plan. Employees receive income replacement payments as well as disability case management and rehabilitation services from the plan insurer, Sun Life Financial. These payments are offset by payments that employees may be eligible for from other disability benefit programs.

The DI Plan is a group insurance policy underwritten and administered by Sun Life Assurance Company since the plan's inception in November 1970.

Report

As of the end of 2012 the DI Plan had $1.765B in claims reserves, 232,900 Plan members (down from 240,400 in 2011), 11,820 members on benefits (up slightly from 11,705 in 2011) to which the plan paid out $298.6M (compared to $282.6M in 2011).

The overall 2012 financial experience for the Plan at year end was positive with an in year surplus of $21.9M. At December 31, 2012, the balances in the Claims Fluctuation Reserve and the Surplus Account were $75.6M and $48.6M respectively for a total Plan Surplus of $124.2M. This compares to a $102.3M total Plan Surplus at December 31, 2011. The Claims Fluctuation Reserve (CFR), a fund that is used to cover deficits, was fully funded at $75.6M or at the maximum of 25% of annual premiums.

The disability incidence rate stayed at the same level in 2012 as in 2011 at 13.7 approved claims per 1,000 Plan members. However, the termination rate increased from 2.3 terminated claims per 10 claims in payments in 2011 to 2.6 terminated claims in 2012. These two factors combined together have contributed to improve the Plan experience and total surplus in 2012.

In last year's annual report, the Board noted that at the end of 2011 the plan was in a reasonable but cautious financial position with a total Plan surplus of $102M of which $76.6M was the CFR. In the first 8 months of 2012, there was a cumulative in-year deficit of $11.4M, bringing the overall Plan surplus to down to $90.1M at the end of August 2012.

Given this developing negative trend, the Board, in its role to oversee the sound financial management of the Plan and to ensure a sound financial footing for the Plan, undertook its annual rate analysis and review of the premium rates based on the standard annual actuarial analysis of Sun Life. After much discussion and deliberation at special Board meetings in September and October 2012, taking into consideration the Plan's experience over a period of the last 3 years and trending in 2012, looking at the factors of revenue flows, claims incurred, claims incidence rates, expenses and reserves, the Board reached a recommendation to increase the premium rate by 20%.

This recommendation was accepted and to be implemented effective February 1, 2013. This is the first premium increase since 2003. In its report on the premium increase, the Board noted that this increase would strike a balance amongst the needs to ensure a continuation of a sound and stable financial experience of the Plan, the impact of a rate increase and the trending increase in the incidence rate of claims.

Unlike the first 8 months of the year, in the last four months of 2012, the Plan had a positive experience, and surpluses, helping to put the Plan in a stronger financial position starting in 2013.

The Board of Management continues to note that the fundamentals of the current DI Plan policy document have been in place for a number of years, having been implemented in its current form in 1997 with minor revisions made in 2006. The Board maintains its view that attention needs to be paid by the various stakeholders to the effectiveness of the Plan in today's context. This should be undertaken in consideration of the broader system of disability management within the federal public service.

The Board believes that the momentum initiated with the Disability Management Initiative (subsequently shifted to a Workplace Wellness and Productivity Strategy), which had been initiated by Treasury Board Secretariat, with departmental and bargaining agent input, needs to continue in order to lead to meaningful reform and modernization of public service disability management practices, so as to potentially reduce the incidence and duration of disability in the public service.

Moving forward with a comprehensive and integrated approach to address issues of employee well-being, early support intervention, return to work and accommodation has the potential to bring benefits to the various stakeholders and Plan members at the same time. The Board remains positive that the stakeholders will continue to invest in efforts to improve the disability management process and system.

In addition to its accountability to oversee the financial results of the Plan, the Board actively engages the Plan Insurer, and with its helpful support, to look at issues and opportunities to improve the effectiveness of the administration of the Plan.

Discussions with Sun Life on enhancing its Health Management Consultants (HMC) referral interventions in disability claims cases resulted in the launching in February 2012 of a one-year pilot HMC initiative. This initiative is looking into a good sampling of on-going cases, including some involving mental health conditions, and may indicate if targeted HMC involvement can assist in facilitating and supporting the return to work for employees on disability. This initiative is additional to the on-going regular HMC involvement in the claims process. The Board looks forward to reviewing the results of this initiative.

In April 2012, Sun Life undertook a survey of Plan claimant experience, focusing on areas such as the support claimants receive, the various processes involved, communications and interactions with case specialists. The results were shared with the Board in November with overall very positive results. For example, 73% of responding claimants rated their overall disability claim experience with Sun Life as 8 or more out of 10. The survey also identified some opportunities for improvement, for example, in the application process and understanding information requirements. This survey will serve as a base-line for subsequent annual surveys and will assist in improving service to DI claimants.

The Board also reconstituted a policy sub-committee of Board members from the bargaining agent and employer sides to look at administrative and operational issues requiring clarification for Plan members and the Plan administrator. In this regard, the sub-committee was quite productive in developing clarifications on issues such as the existing Plan terms for the treatment of seasonal employees, interpretations of "own occupation" and "any occupation", and certain aspects of the current pre-existing illness provisions. The Board also approved the strategy and content for the employer to clarify for Plan members and Human Resources specialists the time-frame requirements to submit notice and proof of loss.

Over the latter part of the year, through its policy sub-committee, the Board has made considerable progress in reviewing its Terms of Reference to refresh its governance roles and responsibilities. The plan is to recommend a revised Terms of Reference to the National Joint Council Executive in 2013.

Board Membership 

The Board met six (6) times during the period covered by this report, devoting much of its time to hearing appeal cases and overseeing the administration and financial experience of the DI Plan.

Paul Burkholder completed his first year as Chairperson of the Board. Over the course of the year there were a number of Board Member changes. Debbie Cooper was replaced by Sandra Guttmann of the Association of Justice Counsel as a bargaining agent representative and Bill Rajala of Treasury Board Secretariat was replaced by Claude Houde from the Department of Foreign Affairs, Trade and Development.  

The members of the Board at the end of the 2012 reporting period were:

Financial and Administrative Oversight

The Board held its annual meeting in September 2012 with the Plan insurer to review financial information and to receive updates on the status of the Plan.

Summary of Financial Results 

Year

Number of Claims Notified

Premium
($ Million)

Interest
($ Million)

Paid Claims
($ Million)

Total Plan Costs*
($ Million)

Total Plan Surplus at Dec. 31**
($ Million)

2010

3,874

301.43

95.07

256.00

417.79

245.94

2011

3,790

301.41

91.36

282.60

466.37

102.34

2012

4,003

302.47

90.47

298.60

371.10

124.19

* Total plan costs are calculated as paid claims, expenses and premium taxes, as well as the change in the claims reserves held at the beginning of the year as compared to the end of the year.

** Total plan surplus is equal to the claims fluctuation reserve (CFR) plus the surplus account as of December 31 of each year.

Claims Experience and Surplus Status

The annual report prepared by the Plan insurer includes a broad overview of Plan data, which was also reviewed by the Board. As of year-end 2012, there were 4,003 notified claims, an increase of 213 or 5.6% and 3,193 claims approved, a decrease of 90 or 2.7%.

Claims Statistics

 

2010

2011

2012 

Number of declined claims during the year

688

426

835

Number of terminated claims during the year

2,437

2,661

3,040

Number of claims notified during the year

3,874

3,790

4,003

Number of claims approved during the year

3,088

3,283

3,193

Total number of approved claims at year-end

11,100

11,705

11,820

Total number of pending claims at year-end

233

279

304

Mental health conditions remained the most frequent causes of new disability claims approved in 2012. This is also the experience across other Canadian disability plans.

The distribution of causes of disability for all claims approved in 2012 is shown in the chart below. While, as noted above, the most frequent cause of new approved claims were mental health conditions (47.6% of the total), this was a slight decrease over 2011 at 48% (the actual number of approved claims for this cause of disability declined from 1,577 to 1,519). Looking at this issue from a purely statistical perspective, the percent of new approved claims with causations of mental health conditions has remained fairly stable over the last decade, ranging from 44.7% in 2002 to 47.6% in 2012.

A slight increase was also noticed from last year in the number of neoplastic (cancer) approved claims .

Distribution of Causes of Disability for Approval Year 2012

Cause of Disability

Per Cent

Accidents

  6.8

Arthritis-Rheumatism

  6.7

Cardiovascular

  3.8

Gastro

  2.8

Mental Health Conditions (47.6%):

 
  • Acute stress reaction

  1.9

  • Adjustment disorder (grief, separation, etc.)

  4.5

  • Bipolar affective disorder

  2.2

  • Depressive episode / depression

23.6

  • Generalized anxiety

  4.0

  • Recurrent depressive disorder / depression

  5.9

  • Other mental health conditions

  5.5

Neoplastics (Cancer)

12.5

Neurological

  5.0

Spine / Sacro-Iliac

  6.9

Other

  7.9

Appeal Cases

The Board's terms of reference include the duty to examine appeals against claims decisions by the Plan insurer, making recommendations to the Plan insurer and in certain circumstances providing advice to the employer on practices related to DI management in departments and agencies.

The Board reviewed a total of 13 appeal cases in 2012 and this is generally consistent with the appeals volume in recent years. The Board disagreed with Sun Life's decision to deny benefits in four (4) of those cases and found no reason to disagree with Sun Life in nine (9) cases. It is again interesting to note that 38% of the appeal files (5 of the 13) involved cases with mental health conditions.

The Board also notes that, in reviewing appeals, it continues to be apparent that there are areas where the various stakeholders (the employer, departments, bargaining agents and the plan administrator) can better support the successful return to work of employees on disability.

Financial Reporting

The Board has reviewed the monthly and annual reports received from Sun Life and it has found that the new format continues to serve its needs and purposes.

Plan Governance

As mentioned earlier in this report, the Board of Management has recognized the need to refresh its Terms of Reference with a view to ensuring it has the appropriate mandate to provide effective governance and oversight of the DI Plan. Work will continue on this matter with a plan to bring it to a conclusion in 2013.

Training

The Board of Management regularly participates in conferences and learning sessions held by the International Foundation of Employee Benefit Plans (IFEBP) as a means to develop board member expertise and to stay current with trends in the disability field. Two (2) members participated in the Canadian Public Sector Pensions and Benefits Conference and three (3) members attended the 45th Annual Canadian Employee Benefits Conference. The Board also initiated with Sun Life an orientation session to be held with Sun Life in 2013 on the claims process to better assist new and existing Board members in understanding how the Plan Insurer process claims. Investment in Board member development will continue as an on-going priority.

Workplan For 2013

In the coming year, the Board plans to address the following key areas through a variety of activities:

  1. Monitor and advise TBS on DI Plan finances, operational issues and its oversight responsibilities;
  2. Monitor disability management and insurance benefits issues in the public service to advise TBS and other stakeholders;
  3. Provide feedback, based on appeal case reviews, to TBS and other stakeholders on opportunities for improvement in enabling employees to return to work following absences due to disability;
  4. Table a refreshed Terms of Reference for the Board with the NJC Executive committee
  5. Review the Health Management Consultant services pilot initiative undertaken by Sun Life and offer advice and guidance;
  6. Develop a compendium of interpretations and clarifications on Plan administration;
  7. Provide advice based on its resident expertise in support of initiatives to improve the overall disability management system.

Conclusion

The Board would like to thank Dr. Raymond Aubin for providing expert medical advice during appeal reviews at the Board.

Finally, the Board would also like to express its appreciation to Sun Life for its dedication and flexibility in working with the Board. A number of constructive initiatives were undertaken over the year in the interests of supporting and communicating to Plan members. The Board continued to work closely with Sun Life in gaining a better understanding of the financial status of the Plan.