1. Group Short and Long Term Disability Insurance
Today we are going to discuss two of the most common methods for an employer to provide disability insurance on their employees Group short and long-term disability. We are going to focus on the need, but also look at variations available that might help you help your new and existing clients.

2. Course Objectives
To provide an understanding of group disability insurance and the disability market with particular emphasis on . . .
Sick-Leave
Short-Term Disability Plans
Long-Term Disability Plans
Voluntary/Worksite Plan
Here is what we will focus on today.

3. Top seven chronic conditions causing work limitations
This list demonstrates the top disabilities causing work absences. This list has changed dramatically over the last decade, with mental illness showing the most dramatic growth.
Society of HR Mgt, WorkplaceVisions; World Jea;tj Prgamozatopm 2001

4. Distribution of Coverage
Employer pays all
64%
63.7%
ER and EE
Currently, across all sizes of employer groups, the percentages look like this.
15%
16.4%
Employee pays all
21.3%
19.5%
JHA Disability Fact Book 2003/2004 Edition

5. The Current Market Position
In a survey of business with 1-99 employees, 52% of the firms offered LTD and 48% offered STD
Larger groups (500+) are more likely to offer disability benefits vs smaller employers (<100 ees)
LTD: 90% vs 77%
STD: 84% vs 62%
Manufacturing firms are more likely to offer STD (70% vs 55%) then LTD (61% vs 71%) then non-manufacturing firms
A huge market in the smaller size groups, 2-9 and exists. Also, note that if a company is to provide one or the other, most will provide some form of short-term disability.
JHA Disability Fact Book, 2003/2004 Edition

6. Self-Funded or Sick-Pay Plans
Typically self-funded by the employer
Often tied to tenure
Usually capped at a certain number of work-days, ie., 10 days
Almost always ‘total only’
Needs to meet employers needs and coordinate with other plans
Most employers have some form of sick-pay program. These are especially prevalent in the blue and gray-collar marketplace. Most plans have limits on the accumulation and are self-administered by the employer.

7. Short-Term Disability (STD) Plans
Common Plan Design Parameters
Benefit: 60% or 662/3 % to $500
0/7/13 or 0/7/26
Non-occupation
Family integration
Common plan designs

8. Long-Term Disability (LTD) Plans
Common Plan Design Parameters
Benefit: 60% to $6,000
90 or 180 day elimination period
2 year own occupation
Zero day residual with partial
Family integration
2 year mental and nervous
Again, common plan designs. You will see higher maximum caps, especially in physician and attorney groups. Additionally, larger employers will often have higher maximums. A common rider is to have a longer “own occupation” definition on a class basis, usually confined to white-collar and/or professionals.

9. Own/Any Occupation
Own occupation typically 2,3,5 years or own occ to age 65
Unable to perform all the material duties of own occupation on a full-time basis for selected # of years
Any occupation begins after own occupation period ends
Unable to perform the duties of own or any other occupation for which person is fitted by training, education, experience, age and physical and mental capacity
“Own Occupation” provides more protection for the protected class then an “any occupation” definition. Typically found in white collar and executive groups or on a ‘carve out’ basis, this definition provides the highly skilled employee the ability to protect his or her occupation, but will offset if and when they work on a partial basis or in another occupation. Often the “own occ” is perceived to lessen the pressure to take the first job opportunity available and attempt to return to their prior occupation.

10. Insurable Income Options
Basic Monthly Earnings
With or without commissions and/or bonuses
12 or 24 month average
W-2 Earnings
S-Corporation Earnings
Partnership Earnings
Teacher’s Earnings
The issue of ‘earned income’ and ‘covered income’ are very important, especially in the group contract. Anyone with variable compensation, such as bonus or commissions, needs to know if that income is covered and how the calculation is performed. Additionally, the form of income and the form of business entity can effect the taxable status of the benefit.

11. Other Income Benefits Workers’ Compensation Social Security
Other Compulsory Group Disability
Government Retirement Disability
Employer’s Retirement Disability
Unemployment

12. Common Income Offsets Social Security Primary only Primary and family
Social Security is probably the most commonly thought of offset for group long-term disability. The two available definitions are ‘primary’ and ‘primary and family’ offsets. This is how they work.

13. Primary Only
LTD Benefit $4,600

14. Primary and Family
LTD Benefit $4,250

15. Income Not Typically Offset
401k plans and 403B plans
VA benefits
Profit sharing not funded by employer
Thrift plans
IRAs
Tax sheltered annuities
SOPs – stock ownership plans
Retirement benefits
No-fault auto insurance
While Social Security or earned income while on partial or residual claim can offset the benefits payable, the following list will seldom reduce the benefits payable from group contracts.

16. Worksite Payroll Group Simplified Issue Individual Optional Riders
Guarantee Issue
Participation requirements
Over the last decade, voluntary and payroll products, sold on a voluntary basis in the workplace have exploded. Both products have advantages. The real point of the slide is to ensure you are looking at each of your employer groups and are aware that various options to supplement the employer plans exist. The need for the employee is great and ever increasing. Voluntary plans are likely to continue to grow due to the higher medical premiums and pressure on employers to limit the growth in the benefits costs.

17. Payroll Typically include individual, payroll deducted products
Usually ‘simplified’ issue with limited medical underwriting
Portable
Often with limited plan design, ie., benefit duration
Often sold on an ‘indemnity basis’ versus as a percentage of one’s income ($500 per month)

18. Group Voluntary Typically a group chassis, with age-brackets
Premium is calculated by taking the rate (either age-bracket or composite) times the employee’s covered monthly income
60 % of covered earnings
Typically Guarantee Issue during the ‘open enrollment’ and requiring Evidence if a late enrollee
Usually require some minimum participation level
Limited portability

19. Core-Buy Up Increasingly popular option
Employer purchases a base plan and allows the employee to ‘buy-up’ on a voluntary, payroll deduction mode
‘Buy-ups’ can include benefit duration, benefit amount, elimination period
Can help stabilize the employees cost and allows the employee to purchase on a group basis with price breaks and guarantee issue

20. Core-Buy Up Sales Example
Benefit Plan Design Core Plan CorePLUS
Monthly Earnings $5,000 $5,000
After-tax income $3,500 $3,500
Benefit Plan 50% to $5k 60% to $6k
Gross benefit $2,500 $3,000
Taxable benefit $2,500 $1,500 ($3kx.65)
Benefit not taxed $0 $1,050
Taxes (fed+state) 30% 30%
Total Tax $720(2,500 x .30) $585(1,950 x .30)
Net (after-tax) benefit $1,750(2, ) $2,415(3, )
This example demonstrates the positive effect of the buy-up option to the employee and the marked increase in spendable dollars to the employee.

21. Core-Buy Up Options
Benefit Duration – The employer purchases a plan with benefits payable for 2 years or 5 years and the employee purchases protection to age 65
Benefit Amount – The employer provides a limited benefit amount, ie., $1500/month and the employee purchases a higher maximum, ie., $5000/month using after-tax dollars thus creating a federal income-tax free benefit for the higher amount
Elimination Period – Purchasing a lesser elimination period versus the employer provided plan, ie, buy down the e.p. from 180 days to 90 days
Options available to the employees in a Buy-up plan include the following and can allow the employee a great deal of personal choice while allowing the employer to provide a base plan which will provide for all the employees. Personal choice can be perceived as a positive, but provide some rate relief from ever increasing costs associated with employer provided benefits.

22. Final Thoughts
Group disability insurance is more necessary now then ever
Most employees are living close to financial hardship and do not have the personal savings to withstand a work absence
More options for providing disability plans to your employers and their employees exist then just a few years ago
Your employer groups are looking for advice and counsel on plan design

23. Questions?