Benefits for older workers less costly than employers think

Flexible options and LTD can protect employers from liability
By Gord Argue and Jerry Loterman
|Canadian HR Reporter|Last Updated: 11/01/2006

Retiring early — even at all — may soon be a thing of the past. Mandatory retirement has been abolished in many parts of the country, most recently in Ontario and Newfoundland and Labrador. Also, many employees won’t be able to afford to retire early, especially if they are part of a defined contribution plan and their investment hasn’t performed well.

Providing benefits for older workers is a concern both employers and employees share. Senior workers may think they will enjoy the same coverage as younger employees, while organizations may automatically assume having an older workforce will drive up benefit costs. Both parties may be surprised.

Flex protects employers:

Some provincial legislation allows for differences in benefit programs based on age, gender and marital status, in certain situations. This allows employers to tailor coverage and benefit levels to an employee’s age.

However, a drastic change in coverage before and after age 65 might be treated as a breach of the employment contract. Caution and a lot of advance notice will be needed if employers decide to go this route.

Instead, employers might consider flexible benefit plans, as they allow employees to choose benefits and coverage levels most suitable for them, often at a more controlled cost to the employer.

Health, drug insurance:

Adding coverage for employees beyond age 65 will increase costs, and that cost will continue to increase as the employee ages. Provincial drug coverage plans, such as the Ontario Drug Benefit Program (ODB), provide drug coverage for those age 65 and over, thus reducing employers’ costs. However, Ontario has announced its intention to become the second payer for “working seniors with private insurance plans.” That means those who work beyond age 65 will not be entitled to ODB coverage as long as they have private drug coverage.

Dental coverage:

The peak age for dental claims is between 40 and 55. Thus, continuing dental insurance coverage past age 65 is not as expensive as some other types of insurance.

Group life insurance:

Employers that extend group life insurance benefits to those beyond age 65 will face significant cost increases if the same benefit levels are continued. For this reason, many plans that continue benefits beyond age 65 do so subject to reductions in benefits.

LTD and WCB:

Virtually all Canadian long-term disability (LTD) plans terminate coverage at age 65. This coincides with the availability of Canada Pension Plan benefits and benefits under most pension plans. The cost of continuing LTD coverage past age 65 is significant, although many plans in the United States continue coverage to age 70, particularly if a disability is incurred after age 60.

LTD coverage beyond age 65 may be especially desirable from the employer’s point of view, since workers’ compensation coverage in both Ontario and Newfoundland and Labrador ceases at age 65, even if an employee keeps working. That raises a host of questions for employers if an over-65 employee is injured at work.

Will legislation that prevents workers covered by workers’ compensation from suing their employers for workplace injuries still apply to workers over age 65 if they no longer receive workers’ compensation coverage? Will employers be subject to lawsuits for the cost of their medical treatment and lost wages?

Continuing LTD coverage may help offset at least some of an employer’s potential liabilities for workplace injuries to its 65-plus workers.

Gord Argue is a principal in Hewitt Associates’ Vancouver office. He can be reached at Jerry Loterman is senior retirement consultant with Hewitt in Toronto. He can be reached at

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