SOCIAL SECURITY TRIBUNAL – PROFITING FROM PROCESSING DELAYS

Prelude

Those readers who are interested in tracking the ongoing saga of the Social Security Tribunal will want to check the urls set out below – one is an article from CTV News and the other a Canadian Press article published in the Brandon Sun.

Main Point

What this post is mainly about, however, is the fact recently brought to my attention that there is a financial incentive for the government and the CPP in delaying the processing of SST appeals.

The incentive arises from the fact that when the SST grants an appeal, the award is retroactive to the original date of eligibility but DOES NOT INCLUDE INTEREST on the retroactive payment. (Who knew?)

Let’s talk about the Canada Pension Plan (CPP) component of the SST’s caseload. These are principally appeals from the CPP’s rejections of applications for disability benefits under the plan.

28 Million Dollar Profit

I am told that the CPP appeals which the Tribunal is now hearing (this month) will have typically originated in the rejection of applications for benefits originally filed in February 2011.  Thus, it is currently taking nearly four years to move from the date of the first application, through the rejection, the appeal application, to the completion of the appeal process.

Moreover, with the SST’s legacy backlog of CPP appeals standing at about 7,000, and with the yearly caseload increase from new appeals now at approximately 3,000 per year, and with news reports (see below) indicating that the tribunal is processing about 2,000 appeals per year,  the outlook is for a steady increase in the overall processing time per case.

While, as indicated above, the average delay is bound to increase as the Tribunal works its way through its backlogs, I will assume for present purposes that the processing time will average four years for each of the appeals in the legacy backlog.

(BLENCOE, ANYONE?  My colleague and I pause here to wonder aloud: when do delays in the processing of applications and appeals respecting social security benefits reach the point of calling – shouting? – for a Blencoe* abuse-of-process challenge?) 

I am also advised that CPP award entitlements begin, effectively, 11 months before the date of the original application (technically 14 months, with the EI covering 15 weeks of that).  Thus, each successful appeal will have a lump-sum retroactive payment covering, on average, about five years of entitlement.

I am advised that the average CPP payment is about $900.00 per month.  The retroactive payments will, therefore, average $50,000.

The average return on investment projected for the Canada Pension Plan varies depending on which of the variable factors one chooses, but lets say it will average about 5%.

At 5%, compounded yearly, on an investment of $900 per month for 60 months the amount the CPP will have accumulated in investment returns from not having paid the successful appellant’s benefits when they originally accrued is, according to my count, about $60,000. Accordingly, in each successful CPP appeal in the SST’s current legacy backlog, the CPP may be seen to profit from the delayed payments by about $10,000.

Therefore, if the processing time for the current legacy backlog of 7,000 CPP appeals could be held at an average of four years (not that it seems likely) – and recognizing that only about 40% of those appeals will be successful – the legacy backlog represents a “gift” to the Canada Pension Plan Investment Fund from Canada’s disabled of about 28 million dollars.

And Another 12 Million per Year

And if the average processing time of fours years was also to hold for the incoming caseload of about 3,000 per year (again, given present production levels, not at all likely) that would be a gift to the CPP of a further 12 million dollars per year.

Now, I do realize that calculations of this nature are a mug’s game – too many assumptions,  too many unknowns, moving targets, me doing what needs to be done by an actuary, and so on.  But from this analysis two fundamental points do solidly emerge.

One is that from a financial perspective it is in the interest of the CPP and, therefore, of the government to keep the processing times as long as possible (presumably within the limits that prove to be politically acceptable).

The other is this:  WHY ARE DISABLED CANADIANS NOT PAID INTEREST ON DELAYED BENEFITS ? 

(The same question presumably pertains to the retroactive payments to the successful EI and OAS appellants.)

The post-judgment interest rate on Ontario Superior Court judgments is currently 3%; and the Ontario Workplace Safety and Insurance Board pays that rate on its retroactive payments.  Why should the CPP do less?  Or, perhaps better, why should the CPP not include in the retroactive lump sum the actual amount it earned while the payment was delayed and invested in the meantime?

Acknowledgement

The author is indebted to Donald J. Porter of Port Colbourne, Ontario, for the issue insights and the data.

News Updates:

http://www.ctvnews.ca/canada/social-security-tribunal-saves-money-but-hears-fewer-appeals-1.2018831

http://www.brandonsun.com/national/breaking-news/former-member-raises-caseload-expertise-concerns-with-social-security-tribunal-277118241.html?thx=y

*Blencoe, 2000 SCC 44.

RE

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