Recently, I was on a call with a prospective client company’s human resource department along with representatives from a national employee benefits firm. The purpose of the call was a ‘finalist presentation’ for a voluntary Guaranteed Standard Issue (GSI) program for the executive class of employees. I provided the framework for an interesting ‘ask’ from the firm’s human resource department.
The company, like many firms, struggles to get the necessary participation in their voluntary programs, specifically, their group long-term disability (GLTD) program. Our GSI program is often designed to supplement a firm’s group long-term disability program, whether provided by the firm or offered on a voluntary, employee-paid LTD basis. Our voluntary GSI individual disability offer was designed for the executives with income above the LTD threshold. Also, executives often have income that is not eligible for inclusion in the calculation of the LTD benefit, (i.e., bonuses). However, even in the executive class, there were employees who were not taking the voluntary GLTD.
How to Explain Why Employees Should Consider Participating in the Group LTD plan
The human resource representatives wondered, “Could we help them explain to their employees the reasons they should reconsider participating in the group LTD?” And, additionally for the executive class, the reasons each executive should review their personal need for the supplemental GSI offer?
What human resources needed, and we agreed to develop, was a benefits orientation program the firm could provide to all employees (both the executive class and all others) that highlighted the advantages of the voluntary GLTD plan offered by the employer:
- Simple administration,
- Guaranteed issue on a standard basis,
- Group rates,
- Payroll deducted by the employer, and
- Tax-free benefit (for premiums paid by the employees using ‘after-tax’ dollars).
In addition, it’s important that employees understand what compensation is and isn’t included in the definition of base earnings. A GLTD contract has a percentage of compensation (often 60%) used in the calculation of the monthly benefit payable upon disability, and a GLTD ‘cap.’ This is the maximum amount that is payable under the GLTD policy.
For those with higher compensation, and/or other variable compensation, they will typically be ‘under-insured,’ thus they have a potential need for a supplemental individual disability policy. This can be done with an individual disability policy (often at a multi-life discount) or, with the employer’s support, through a GSI program. Either way, highly compensated employees can cover the ‘gap’ between what is provided by the LTD plan and what they are eligible to purchase with the supplemental individual policy. This can increase the employees’ income replacement ratio significantly. Additionally, since the group plan is seldom ‘portable,’ the individual disability plan is likely the only thing they can keep if they leave the firm for any reason.
Example of a Benefits Orientation Program for LTD and Guaranteed Standard Issue
- The employer provides a voluntary GLTD plan with a definition that covers ‘base earnings only’ and provides 60 percent of base earnings to a cap of $6,000/month.
- We show the calculation for the employee that has the voluntary GLTD and then, when they have purchased coverage, both the voluntary GLTD and the offered individual disability coverage.
- Note: Since the employee is paying the premium using after-tax dollars, the benefit will be free of federal income tax.
Monthly LTD Benefit
|% of Earnings replaced with LTD||% of Income with Bonus replaced with LTD||Voluntary Monthly IDI Benefit Available||Income replaced with LTD and IDI||% of Gross Earnings replaced with LTD and IDI|
Depending upon the employer and the benefits they offer, the employee should contact their human resource department to gain a greater understanding of their current program and other options that might exist.
Helping an employer communicate to employees the underlying insurance programs offered and/or provided by the employer helps the company maintain the most appealing pricing. It also provides the employees with additional education and an understanding of often poorly understood benefit(s). Poor participation rates in a voluntary benefits program can potentially persuade the employer and/or their human resource staff that employees do not perceive the benefits as valuable, and potentially not worth both the overt and hidden costs.