A large percentage of our clients provide group long term disability (LTD) plans for their employees.  While it’s often overlooked as a major part of the benefits package by healthy employees, it becomes really important when somebody can’t come to work because of a sickness or injury.

I frequently ask employers this question:  “Is your LTD plan enough?”  In other words, does your LTD plan provide enough income replacement for your employees?

For some employees, LTD is just fine.  Receiving 50% to 66.7% of their pay can be plenty, particularly if there is another significant income in the household.  But the more conversations I have with employees, the more I hear that LTD isn’t enough.  Here are some reasons:

  • People tend to live to their means.  In other words, if  family is used to living on $60,000/year in income, it’s going to be difficult if that income is reduced at all, and LTD plans usually only cover 50% or 60%.
  • Employer paid LTD plans create taxable benefits, further compounding the lost income issue noted above.  This becomes even more of a problem for your upper management team, who likely pay taxes at higher rates than your rank and file employees.
  • LTD plans have maximum benefits that constrain the income replacement for your higher paid workers.  If your plan design is 60% of salary up to $10,000/month, anyone earning more than $200,000 is capped by that monthly maximum, creating a type of “reverse discrimination” in your plan for your highest paid employees.
  • Most LTD plans only cover base salary.  While some cover bonuses and commissions, many don’t.  You have some latitude with how you define the covered earnings in contracts, but there are limits on the ability to customize.  Commissions, bonuses, housing allowances, business expense allowances, car allowances, travel expenses, and other types of compensation aren’t always covered.
  • LTD plans are often not portable.  This isn’t important to every employer, but it can be important to employees that you are trying to attract to your company.

There are several solutions to this problem, but one of the best is to consider adding a supplemental individual long term disability plan.  These plans can be employer paid or employee paid, and they can solve many of the problems noted above.  A previous post provides a case study about a claimant on one of our supplemental plans:  https://www.millbrookbenefits.com/a-combination-group-individual-disability-claim-case-study/

If you’d like to discuss ways to improve your disability plan, give us a call at (866) 724-0008 or click the link below.


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