The review focused on three questions that are central to the ongoing debate:

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1 200 Front Street West 200, rue Front Ouest Toronto ON M5V 3J1 Toronto ON M5V 3J1 Dear Stakeholder: In response to concerns expressed by the worker/survivor community, the WSIB has conducted a comprehensive policy review to determine what constitutes fair compensation when workers receive benefits for the same work-related injury/disease from both the Workplace Safety and Insurance Board (WSIB) and the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP). The review focused on three questions that are central to the ongoing debate: A. What are the legal requirements for offsetting CPP benefits from WSIB benefits? B. Do WSIB methods for calculating the CPP offset result in fair compensation? C. Do the WSIB s administrative processes regarding CPP offsets result in fair compensation and produce equitable results for all workers/survivors receiving both WSIB and CPP benefits? Feedback I attach for your consideration the Executive Summary and Discussion Paper. If you have concerns about the recommendations, it is important that you specifically outline other options or approaches that you feel would still address the legal, actuarial, and compensation principles underlying these issues. It would also be very helpful to us if you could include a rationale for your proposal explaining how your recommendation(s) is consistent with the legislation while balancing the interest of both workers and employers. I welcome your comments on all aspects of the review but would like to draw your attention to several key areas (the complete list of recommendations begins on page 56). Question #1: Do you agree with the criteria of fair compensation? (page 29) The language of the Act requires that the WSIB offset the CPP benefit from the WSIB benefits (page 27). The WSIB does, however, retain some discretion as to exactly how CPP benefits should be offset. In this respect, the evaluation of each option was not based solely on whether the approach produces higher or lower WSIB benefits. Instead, the review focused on whether the options met the criteria of fair compensation as outlined on page 29. /2

2 -2- Question #2: Do you agree that the WSIB should offset 100% of CPP benefits received for the same injury/illness? (page 31) It has been suggested that the current WSIB practice of offsetting 100% of CPP payments results in workers inappropriately contributing to the funding of the WSIB system. As workers and employers each contribute 50% to the CPP fund, an argument can be made that CPP benefits should only be deducted to the extent that such payments are not funded by workers (i.e. maximum 50% deduction). It is recommended that the WSIB retain the practice of offsetting 100% of CPP benefits because to deduct anything less would result in workers having post-injury earnings in excess of preinjury earnings (see chart on page 32). This approach does not violate s. 155 of the legislation pertaining to the funding of the compensation system, has been upheld by the Workplace Safety and Insurance Appeals Tribunal on numerous occasions, and complies with the criteria that defines fair compensation. Question #3: Do you support the recommended changes to the formula for offsetting CPP disability benefits when the worker has deemed earnings? (page 35) If not, what other options would you recommend that still meet the criteria for fair compensation? Currently, the WSIB adds CPP benefits to the worker s deemed earnings when estimating the post-injury earnings. This approach results in compensation that does not approximate pre-injury earnings as it is based on a post-injury estimate that is unattainable because the two sources of earnings are mutually exclusive. CPP benefits are not payable if the worker is employed. However, the FEL or LOE benefits are calculated as if the worker is capable of earning the deemed wages and receiving CPP benefits. It is recommended that CPP benefits be treated like all other sources of post-injury earnings (i.e. add the amount of the CPP that exceeds the deemed earnings to calculate post-injury earnings). In this way, the FEL and LOE benefits would be based on an achievable projection of post-injury earnings. This would allow the WSIB to provide compensation that more closely approximates pre-injury earnings, complies with all legal requirements to offset CPP payments, and is not in conflict with any actuarial principles. Question #4: Do you agree that the WSIB should not offset CPP survivors benefits paid to dependents from WSIB survivors benefits paid to the spouse? (page 41) Currently, CPP survivors benefits paid separately to children and the spouse are both offset from WSIB survivors benefits paid solely to the surviving spouse. While dependent children are direct recipients of CPP survivors benefits, they are not the direct recipients of WSIB survivors benefits unless there is no surviving spouse. Consequently, the WSIB should exercise the discretionary power granted by the Act to discontinue offsetting CPP survivors benefits paid to dependent children. The WSIB would remain in compliance with the Act by still offsetting CPP spousal survivors benefits from WSIB spousal survivors benefits but would also adhere to sound actuarial principles and only include like benefits and the same payee..../3

3 -3- As you conduct your review, it is important to note that the sample calculations in the CPP Policy Review have been provided for illustration purposes only and may vary slightly from system generated calculations I invite you to review the package and provide your comments in writing by October 15, 2002 to: Consultation on the CPP Policy Review c/o Slavica Todorovic Director, Benefits Policy Branch 18 th Floor 200 Front Street West Toronto, Ontario M5V 3J1 rose-abate-dragonetti@wsib.on.ca Fax We look forward to receiving your comments. Yours sincerely, Slavica Todorovic Director Benefits Policy Branch /attachment

4 CPP Policy Review: Executive Summary April 2002

5 INTRODUCTION A fundamental principle underlying the Ontario workers compensation system is that injured workers should be restored to their pre-injury 1 position to the greatest extent possible. However, there is much debate about how this can be accomplished in a balanced and fair way that avoids both over and under compensation. The issue of what constitutes fair compensation is particularly problematic when workers receive benefits for a work-related injury/disease from two or more sources, such as the Workplace Safety and Insurance Board (WSIB) and the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) 2. The relationship between CPP and the WSIB has been reviewed by the WSIB numerous times over the last 10 years but still remains a topic that is of great concern to both the worker and employer communities. The following summary is intended to highlight the main recommendations that are being put forward as a result of the WSIB s comprehensive CPP policy review. A detailed outline of all the issues, recommendations, and background analysis can be found in the attached discussion paper. A. LEGAL REQUIREMENTS (see pages 25-28) There are essentially 2 options, stacking or offsetting, for addressing a situation where a worker receives payments of both CPP benefits and WSIB benefits for the same injury. Stacking of benefits occurs when a worker or survivor receives benefits from two or more sources without any adjustment to reflect the existence of other benefits. There is said to be offset between the various types of benefits when one benefit is reduced to take into account the receipt of a benefit from another source. The WSIB maintains that some type of offset is legally required by the Workplace Safety and Insurance Act (the Act) but that these provisions allow for a certain degree of discretion in determining the actual offset formula. Future Economic Loss Benefits (FEL): s.43(7) as continued under s.102 of the Act For the purposes of subsection (3), in determining the amount that a worker is likely to be able to earn in suitable and available employment, the Board shall have regard to, b) any disability payment the worker may receive for the injury under the Canada Pension Plan or the Quebec Pension Plan. Loss of Earnings Benefits (LOE): s.43(5) The calculation of the amount of the payments is subject to the following rules:.the amount described by clause(2)(b) must reflect any disability payments paid to the worker under the Canada Pension Plan or the Quebec Pension Plan in respect of the injury 1 The term injury includes occupational disease and fatalities. 2 The WSIB treats CPP benefits and QPP benefits similarly. 1

6 Survivors: s.48(23) In calculating the compensation payable by way of periodic payment under this section, the Board shall have regard to any payments of survivors benefits for death caused by injury that are received under the Canada Pension Plan or the Quebec Pension Plan in respect of the injured worker. Permanent Disability (PD) Supplements: s.147(11) In calculating the amount of a supplement under this section, the Board shall have regard to the effect of inflation on the worker s pre-injury earning rate and to any payments the worker receives under the Canada Pension Plan or the Quebec pension Plan with respect to a disability arising from the injury. As these legislative provisions allow the WSIB to exercise some discretion around how to offset CPP benefits, the WSIB has undertaken to review current calculation formulas and administrative practices to determine the following: Do WSIB methods for calculating the CPP offset result in fair compensation? Do the WSIB s administrative processes regarding CPP offsets result in fair compensation and produce equitable results for all workers receiving both WSIB and CPP benefits? FRAMEWORK OF REVIEW (see pages 29-30) The evaluation of the WSIB s approach to CPP offsets should not be based solely on whether each calculation formula or administrative practice produces higher or lower WSIB benefits. The review should consider the following criteria to determine if fair compensation is being provided. Fair Compensation Criteria a. The compensation (combination of CPP and WSIB benefits) approximates pre-injury earnings to the greatest extent possible. (i.e. It would be considered over-compensation if the combination of CPP and WSIB benefits received for the same injury exceeds the worker s pre-injury earnings.) b. The compensation is calculated in a manner that complies with all legal requirements. (i.e. CPP benefits must be offset when calculating WSIB benefits and the total compensation should not exceed 85% of pre-injury net earnings for accidents on or after January 1, 1998.) c. The compensation is calculated based on sound actuarial principles, such as the following: i. appropriate taxation principles (calculation of gross/net amounts) ii. inclusion of like benefits (same injury, same payee) iii. equitable impact at all earnings levels. 2

7 After reviewing the offset calculation formulas and the administrative practices currently in place, it became apparent that the criteria for fair compensation are not always being met. The following is a summary of the changes that are being recommended to ensure that fair compensation is provided to all WSIB recipients. B. CALCULATION METHODS FOR OFFSETTING CPP BENEFITS 1. Percentage of Offsets (see pages 31-34) There is ongoing debate as to what percentage of CPP benefits should be offset to ensure that fair compensation is provided and that the workers compensation system is appropriately funded. Some worker representatives have suggested that the current WSIB practice of offsetting 100% of CPP payments results in workers inappropriately contributing to the funding of the WSIB system. Such contributions are contrary in spirit to the historical bargain creating workers compensation in Ontario which made employers entirely responsible for funding the costs of workers compensation. Workers are required to contribute to CPP but any CPP disability or survivors benefits they receive are then used to reduce their own WSIB payments and therefore overall WSIB costs. As workers and employers each contribute 50% to the CPP fund, it has been suggested that CPP benefits should only be deducted to the extent that such payments are not funded by workers (i.e. maximum 50% deduction). It is important to recognize that CPP benefits are part of an income support program rather than a form of private insurance purchased by the worker. The underlying goal of both the WSIB and CPP benefit systems is to restore the worker to pre-injury earnings, not to pay out a set amount previously agreed to as in the case of an insurance policy. The WSIB also maintains that offsetting 100% CPP does not violate s.155 of the Workplace Safety and Insurance Act pertaining to the funding of the compensation system which indicates it is an offence for employers to require workers to contribute to reducing employer WSIB costs. These statutory provisions are specifically directed at employers and not at the WSIB, and therefore cannot be relied upon in support of arguments that 100% CPP offset results in workers inappropriately contributing to the funding of the workers compensation system. Offsetting 100% of CPP benefits ensures that the combination of CPP benefits plus WSIB benefits approximates pre-injury earnings but avoids overcompensation. Offsetting less than 100% represents partial stacking of CPP and WSIB benefits and would result in workers having post-injury earnings in excess of pre-injury earnings. One could argue that this result, in itself, would be out of keeping with the underlying goal of the compensation system which is to restore the worker to their pre-injury position. 3

8 100% of CPP benefits payable due to the work-related injury should be offset from WSIB benefits. 2. FEL & LOE Benefits: Deemed Earnings & CPP Benefits (see pages 35-39) Concerns have been expressed that workers in receipt of future economic loss (FEL) or loss of earnings (LOE) benefits are being under-compensated due to the WSIB s current approach to offsetting CPP benefits when a worker is deemed to be employable but has not returned to work. In such cases, the WSIB identifies deemed earnings that the worker is able to earn (or will be able to earn after re-training) in a suitable employment or business (SEB) identified specifically for each worker. The WSIB then adds the CPP benefits to the deemed earnings to produce an estimate of the worker s post-injury earnings upon which the FEL and LOE benefits are calculated. Adding CPP benefits to the deemed earnings produces an estimate of post-injury earnings that is unattainable because the two sources of earnings are mutually exclusive. While CPP is not payable if the worker is employed, the FEL/LOE benefits are calculated as if the worker is capable of earning the deemed wages and receiving CPP benefits. This practice results in the overestimation of post-injury earnings. As FEL and LOE benefits are based on the difference between pre- and post-injury earnings, overestimation of postinjury earnings results in reduced FEL and LOE benefits. This approach is not followed with other sources of post-injury earnings. For example, when a worker has actual earnings from a type of employment that is different than his/her identified SEB, only the portion that exceeds the deemed earnings is added as post-injury earnings. If the WSIB were to treat CPP benefits like all other sources of post-injury earnings, the FEL and LOE benefits would be based on an achievable projection of post-injury earnings. This would allow the WSIB to provide compensation that more closely approximates pre-injury earnings, complies with all legal requirements to offset CPP payments, and is not in conflict with any actuarial principles. The WSIB should treat CPP disability benefits the same as post-injury employment earnings when calculating the total post-injury earnings. Only the gross amount of the CPP disability benefit that exceeds the gross deemed earnings should be added as gross post-injury earnings. 4

9 3. FEL Policy Versus Practice (see page 40) Currently FEL policies outline the legal requirement to treat CPP benefits as post-injury earnings but do not provide clarification as to whether the net or gross CPP disability amount is to be added to the worker s post-injury net average earnings (NAE). The WSIB should revise policy to reflect the current practice of adding the gross CPP disability benefit amount to the worker s gross post-injury earnings, and using the combined total to calculate the post-injury net average earnings. Formal adoption of this approach would be in line with the goal of fair compensation as there would be no conflict with any legal requirements, and sound actuarial principles would be followed in that only like amounts would be considered in efforts to approximate pre-injury earnings. The WSIB should continue to add the CPP gross disability benefit amount to the worker s gross post-injury earnings, and use the combined total to calculate the postinjury net average earnings. 4. CPP Survivors Benefits Paid to Children (see page 41) The current formula for calculating the CPP benefit offset when there is a surviving spouse as well as dependent children has been called into question as it incorporates benefits payable to different parties and inappropriately reduces the WSIB survivors benefits. Specifically, CPP survivors benefits paid separately to children and the spouse are both deducted from WSIB survivors benefits paid solely to the surviving spouse. While dependent children are direct recipients of CPP survivors benefits, they are not the direct recipients of WSIB survivors benefits. Dependents under the age of 19 have no separate or direct entitlement to WSIB survivors benefits paid to the spouse. Dependent children only have direct entitlement when they turn 19 or there is no surviving spouse. The WSIB spousal pension is influenced by the number of dependents but is not paid on behalf of or to those dependents as they can t make a separate claim for benefits if they feel the spouse is not using the funds in their best interest. Consequently, the WSIB should exercise the discretionary power granted by the Act to discontinue offsetting CPP survivors benefits paid to dependent children. This would match the approach taken for CPP disability benefits paid to dependent children, which have never been offset from WSIB benefits paid to workers. The WSIB would remain in compliance with the Act by still offsetting CPP spousal survivors benefits from WSIB spousal survivors benefits but would also adhere to sound actuarial principles and only include like benefits and the same payee. 5

10 The WSIB should only offset CPP survivors benefits paid to the surviving spouse from WSIB survivors benefits paid to the surviving spouse. 5. Variable Calculation Methods Among Benefit Types (see pages 42-43) Questions have been asked as to why there are different formulas for calculating CPP offsets depending on the type of WSIB benefit, as these differences result in significant variations in the amount of compensation payable. The key differences are between the survivors formula which deducts CPP from the worker s gross pre-injury earnings versus the FEL/LOE formula which treats CPP as gross post-injury earnings. The current approach to calculating the CPP offset for survivors is regressive and does not fall within sound actuarial principles as it has less of an effect on workers at the higher earnings levels than workers at lower levels. In contrast, the FEL/LOE formula produces consistent results across all earnings levels. WSIB survivors benefits are a percentage of the worker s pre-injury earnings. The survivor method of deducting CPP disability payments from the worker s gross preinjury earnings was originally based on s.36(13) of the pre-bill 162 Act. Under this formula, the effect of deducting CPP payments from the gross pre-injury earnings decreases until at some high-earnings levels the effect is nil. The survivor receives the same compensation, whether or not the CPP payment is deducted, when the worker s pre-injury average earnings are above the WSIB maximum by an amount equal to or greater than the CPP payment. In 1990, these specific legislative directions were replaced with general provisions under which the WSIB has the discretion to determine the exact components of the offset formula. In contrast, the FEL/LOE formula treats CPP as gross post-injury earnings and has a consistent impact throughout all earnings levels. By adopting the FEL/LOE formula for calculating all CPP offsets, the WSIB would help ensure fair compensation is provided within all benefit types. The selection of this formula would comply with FEL/LOE legislative requirements while there are no legislative provisions that would prevent making changes to the current regressive survivors calculation method. The WSIB should consider CPP benefits as gross post-injury earnings when calculating all WSIB benefits. 6

11 6. FEL Supplements (see page 44) The current method for calculating FEL supplements results in WSIB payments that exceed pre-injury earnings considerably since the CPP disability benefits are not offset from the FEL supplement. Under this method, workers with or without CPP disability benefits receive the same total amount of FEL benefits and FEL supplement payments. Workers in receipt of a CPP disability benefit, a FEL benefit, and a FEL supplement, therefore, exceed their pre-injury earnings. Given that there are only a very small number of workers receiving CPP disability and FEL supplements (57 as of January 1, 2002) and the fact that this situation can only be addressed through legislative change, no further action is being recommended at this time. The WSIB should take no further action at this time. C. ADMINISTRATIVE PROCESS 1. Retroactively Offsetting CPP Benefits (see pages 46-47) CPP legislation allows an individual to apply for disability or survivor benefits and be considered for the retroactive payment of such benefits for a maximum of twelve months prior to the application date. Concerns have been expressed that by not offsetting all retroactive CPP payments, workers/survivors could receive full CPP and WSIB benefits for the same time period and ultimately receive post-injury earnings in excess of their pre-injury earnings. The CPP application process would not be problematic if the WSIB offset all CPP benefits retroactively. Currently, policy only provides for CPP survivors benefits to be offset retroactively while CPP disability benefits are only factored into the calculation of WSIB benefits from the date the worker is notified that the CPP application has been accepted. This is due to the fact that prior to 1998, the WSIB could not retroactively offset CPP disability benefits because the legislation dictated that FEL benefits could only be reviewed at set periods. As a result, a worker could receive both full FEL benefits and one year of retroactive CPP disability benefits which would result in total compensation exceeding pre-injury earnings for that year. Retroactive adjustments became a possibility in 1998 when Bill 99 provided for variable FEL review periods. LOE benefits can also be reviewed as required until the final review at 72 months after the date of the worker s injury. 7

12 By revising policy to provide for retroactive offsets of CPP disability benefits, as is done in the case of survivor benefits, the combination of CPP disability benefits and WSIB benefits would more closely approximate pre-injury earnings. This change would ensure the WSIB provides fair and correct compensation to all injured workers and their survivors. WSIB policy should provide for the retroactive offset of CPP disability benefits from FEL and LOE benefits. 2. Reporting Receipt of CPP Benefits (see pages 48-50) The Act requires workers/survivors to report any material change in circumstances within 10 days of the change. Workers/survivors who wilfully fail to inform the WSIB of such a material change within 10 days of the change are guilty of an offence. If workers or survivors are convicted of an offence, the court may also order them to repay the WSIB any money received because of this offence. For CPP recipients, this means they must advise the WSIB when they begin receiving CPP disability/survivors benefits. Data collected regarding reporting patterns suggests that not all workers/survivors report the receipt of CPP benefits to the WSIB for a variety of reasons. The workers/survivors who report the receipt of CPP benefits have their benefits offset while those who do not report the receipt of CPP benefits receive CPP and WSIB benefits simultaneously. This creates an inequity between WSIB recipients as well as enabling a worker/survivor to potentially receive income in excess of pre-injury earnings. Manitoba, Prince Edward Island, New Brunswick, and Nova Scotia have already entered into information sharing agreements with Human Resources Development Canada (HRDC) CPP Benefit Program through which details are shared about mutual clients. A similar information sharing agreement between the WSIB and HRDC would be beneficial to the co-ordination of benefits and would allow for accurate reporting of the amount of the CPP benefit as well as identifying more claims where CPP benefits should be offset. This exchange of information would help ensure that fair and equitable compensation is provided to all WSIB recipients receiving a CPP benefit. The WSIB should pursue entering into an information sharing agreement with HRDC. 8

13 3. Incorporating CPP Benefit Changes (see pages 51-53) Currently, the WSIB adjusts benefits when the amount of the CPP benefit changes due to conversion to retirement benefits, or termination due to recovery. However, the WSIB does not have any regard to changes in CPP benefits due to annual indexation. As a result, compensation is not based on the amount of CPP benefits actually being received by the worker/survivor. Neither the Act nor current policy preclude adjustment of the CPP offset from survivors benefits or from PD supplements at any time, or from FEL or LOE benefits prior to the final reviews. However, the Act prohibits the adjustment of FEL and LOE benefits once the final review periods are passed. Based on the rules of statutory interpretation, there is no latitude in the current provisions of the Act to allow any adjustment of FEL and LOE benefits once the final review period has passed barring fraudulent activity prior to the final review. Therefore, while recognizing the limitations of the current legislation, the WSIB could adopt an approach that allows for an adjustment in the amount of the CPP offset to reflect annual indexation prior to the final FEL/LOE benefit reviews. While the percentage of indexation itself is small, compounding this amount over many years and in many claims would result in steadily increasing over-compensation to workers. By offsetting actual CPP payments, the WSIB would avoid the over-compensation that results when workers receive higher CPP payments than are offset from WSIB benefits. It is important to note that making adjustments for annual CPP indexation would be administratively cumbersome under the current system. Therefore, it is recommended that the WSIB not move in this direction until there is an information sharing agreement with HRDC which would include an information system to support the terms of the agreement. 4. Co-ordination CPP Benefit Offsets in Multiple Claims (see pages 54-55) A worker may be entitled to a CPP disability pension for more than one condition and may also have more than one WSIB claim. As there is no WSIB policy which provides direction for apportionment of the CPP benefits in such situations, there is potential for a CPP disability benefit to be deducted simultaneously in more than one WSIB claim which can impact the provision of fair compensation. / WSIB should take steps to improve the co-ordination of CPP offsets when workers have more than one WSIB claim to ensure that a fair and appropriate level of compensation is provided. Administrative changes should be considered to ensure that all of a worker s 9

14 claims can be easily identified, and policy should be developed to outline how CPP offsets are to be calculated when a worker has multiple claims. D. RECOMMENDED FORMULA A formula has been identified that would allow adjustments to be made for annual adjustments and retroactive offsets, and would incorporate all the recommended calculation changes. This formula is a modification of the current LOE formula but it has been adjusted so that it provides an achievable estimate of post-injury earnings which is essential if we are to ensure that compensation approximates pre-injury earnings to the greatest extent possible. Formula 85% x (pre-injury (NAE) [(Gross deemed earnings + portion of actual gross post-injury earnings that exceeds deemed earnings) tax deductions]) Actual post-injury earnings include: employment earnings, CPP disability benefits or CPP survivors spousal benefits for the work-related injury. 10