Chapter Eight – Group Disability Goal is to replace lost income due to sickness or accidents 1 out of 10 employees is disabled before 65 years More likely to be disabled for > 90 days than die Impact is more severe due to ongoing costs Employers less likely to provide coverage

Types of Plans Short term benefits (usually < 6 months) Long-term Must coordinate to avoid lapses in coverage and with social security

Sick Leave Plans (Salary continuation) Uninsured by definition Eligibility: full-time, short (1-3 months) probationary period, tax credited to specific classes Benefits: 100% of salary, but may be reduced – certain numbers of day each year; carryover varies between firms; coordinated with social insurance benefits; proof of disability required if lasts more than one week

Insured Disability Income Plans Similar to group term insurance plans Short term plans may cover all employees or wider range of employees; could be just for union employees Long-terms plans often limited to salaried staff as they are less likely to have adequate benefits under social security; there are also fewer claims than hourly employees

Insured Disability Income Plans Probationary periods Short term plans = 0 to 90 days Long term plans = 91 days to one year Short-term disability is the total and continuous inability to perform any and every duty of regular occupation

Insured Disability Income Plans Long-term disability has several variations (a) Some are same as short term definition (b) Some are restrictive and require inability to engage in any and every occupation for which employee is qualified or can get qualified for through education, training, and experience Most plans use (a) for 24 or 36 months and (b) thereafter Some plans have an earnings test; benefits paid if disability results in specified drop in earnings, such as 50% or more

Benefits Short-term plans – common provisions For non-occupational disabilities Benefits equal to flat amount or percentage of salary (50-100%) Waiting period of 1-7 days for sickness, 0 for accidents Benefit duration of 13-26 weeks Coordinated with social insurance if occupational disabilities covered

Benefits Long-term plans – common provisions For both occupational and non-occupational disabilities Benefits are 30-70% of earnings Monthly maximum of $1,000 - $5,000 Waiting period of 30 days to one year, 6 months common Benefits duration 2 years to life Benefits duration often decreases for disabilities after age 60 or 62 (as you would be about to retire anyway) Coordinated with social insurance

Supplemental Benefits Supplemental benefits (employees can purchase benefits above those provided Can carve out benefits for executives and provide them with a more liberal plan Provide additional benefits to executives under individual policies rather than group policy

Other Contract Provisions Claims – must notify insurer within 20-30 days Proof of loss must be filed within 90 days of start of disability Periodic verification required for ongoing disabilities Payment of benefits occurs after proof of loss, generally direct to employee

Rehabilitation Becoming more common to control costs Works best with early intervention In long-term contracts generally Allows trial work period without complete reduction in benefits to see if it will work out May include benefits for therapy and training

Termination Conversion privilege rarely provided Benefits continue for disabled employees who are receiving benefits when master contract is terminated Some plans have a COLA, based on CPI Some plans make contributions to pension plans Some plans continue benefits to survivors of disabled employees, usually 2 years or less

Federal Taxation Employer contributions are tax deductible Employee contributions are NOT tax deductible Employer contributions are not creating taxable income to employees State tax varies and may be more favorable to employees

Federal Taxation Fully-contributory plans – no tax Partially-contributory plans benefits allocated to employee and employer contributions and are taxed accordingly Noncontributory plans Included in income But, employee may be eligible for tax credit