I’ve had so many questions about how to integrate existing group disability plans with PFML that I thought I’d do a couple of posts about it. This one will cover employer paid short term disability (STD) plans.
Background
The Massachusetts Paid Family and Medical Leave law will begin claims payments in 2021 with the following schedule:
- January 1, 2021: Covered employees can take personal medical leaves, leaves for bonding with a new child, or leaves to care for family members who are active service members.
- July 1, 2021: Covered employees can take a paid leave to care for a covered family member with a serious illness.
Here are two important definitions:
Family Member: spouse/domestic partner, parent, grandparent, parent-in-law, child or grandchild (biological, adopted, foster, legal ward etc.), or sibling.
Serious Health Condition: An illness, injury, impairment, or physical or mental condition that involves inpatient care in a hospital, hospice, or residential care facility or continuing treatment by a health care provider.
The maximum duration for various types of leave are these:
12 weeks
- Family leave
20 weeks
- Medical leave for the employee
26 weeks
- Family leave to care for a family member who is a covered service member
The maximum combined PFML duration is 26 weeks in a rolling 52-week period that begins on the Sunday just prior to the day the leave began.
The elimination period or waiting period before PFML begins is 7 days.
The scheduled benefit for PFML is as follows:
- 80% of the first 50% of the average weekly wage base + 50% of the amount over 50% of the average weekly wage base up to an overall maximum benefit of $850
Takeaways From the Background Information Above
- The formula is much more complicated than the typical group STD or LTD plan.
- There is a LOT more events covered by PFML than STD, which only covers the disability of the covered individual.
- The formula and maximum benefit caps the covered income at roughly $66,000 assuming the average weekly wage base is $1,431.66
- As such, anyone that earns more than $66,000 will not be fully covered by the PFML plan.
- The maximum benefit of 26 weeks in a rolling 52-week time period means that it’s possible that an employee could exhaust his/her PFML on a family member and have none left to cover their own serious health condition.
What Should I Do With My STD Plan?
If you have an employer paid STD plan, you have a three options:
- Keep it without making any changes.
- Modify it to better dovetail with PFML.
- Cancel it completely.
I’ll discuss these in a slightly different order.
Cancel it Completely
As noted in takeaways #4 and #5 above, there are some really compelling reasons to consider keeping group STD in some form for your employees:
- The maximum benefit is not high enough to cover all employees in most companies.
- Covered individuals could use up their entire 26 week allotment of PFML for a family member and then have no coverage at all for themselves if they subsequently get sick.
As mentioned in my last post, the other thing to consider is the cost for STD plans will drop dramatically as of January 1, 2021 because the insurance companies will have much less liability. PFML will be an offset for group STD plans. I don’t know what the new rates will be, but they have to be a lot lower.
Cancelling the STD plan is certainly an option, but for the reasons above, I’d suggest exploring the possibility of keeping some sort of STD plan in place if income protection for your employees is still important to you.
Keep it Without Making Any Changes
Making no changes is certainly an option as well. I’m sure there will be employers that consider the information above, look at the new STD rates, and decide they might as well keep things status quo for now. As long as the math makes sense with the new rates, this could be a reasonable thing to do, but a plan modification might make more sense.
Companies with employees in many different states are a good example of employers that might consider not changing anything. There are other states that have, or are developing PFML laws, but not all of them. As such, a multi-state employer might want to leave the STD plan alone for now.
Modify the Plan to Dovetail with PFML
In my humble opinion, some sort of plan modification seems to make the most sense, particularly if most or all of your employees are in Massachusetts. There are probably a dozen or more ways that plans could be modified, but here are a couple of easy ones:
- Change the eligibility on your STD plan to cover only those employees earning more than $66,000. This will reduce the number of people covered and allow you to maintain a more comprehensive income protection plan for those that would otherwise be “maxed out” by the PFML maximum.
- Change the elimination period and maximum duration to match the PFML coverage. The elimination period would be 7 days for accidents or sicknesses, and the maximum duration would be 20 weeks, matching the maximum allowed for PFML for an individual’s own serious health condition. Several disability insurance company reps have told me that they will have the flexibility to design plans in this manner.
The advantages of Option 2 above are these:
- All of your employees continue to be covered, with the STD essentially serving as a backup for those who exhaust their PFML for a family member or a supplement for your higher paid employees.
- I suspect the pricing will be quite attractive.
If you’ve stuck with me this long, thank you for reading. If you’d like to discuss this in more detail, give us a call at (866) 724-0008. We’re also doing a 30 minute webinar on this topic on March 25 at 8:30 and 12:30. Just click the link below if you’d like to RSVP.
