When selecting their benefits during fall's open enrollment season, employees generally pay attention to the available health plans, probably consider the life insurance options and typically decide how much to contribute to their retirement plan in the coming year. But fewer are likely to take the time to consider the disability benefits being offered, typically as a voluntary benefit option paid for in whole or in part by employees themselves.
"Disability benefits aren't on most employees' radar," said Julie Stich, CEBS, associate vice president of content at the International Foundation of Employee Benefit Plans (IFEBP) in Brookfield, Wis. "Employees assume they will never have to use disability benefits, but the reality is that 1 in 4 20-year-olds will become disabled before reaching retirement age," she said, citing Social Security Administration data.
A recent IFEBP report, Employee Benefits Survey 2016, found that disability benefits remain a consistent part of employers' benefits packages, whether employees are aware of it or not. While educating employees about the value of coverage that provides continuing income in the event of a disability is important, employers also can use open enrollment as an opportunity to review their disability benefits and to compare them to what other employers are offering.
The survey findings are based on a stratified random sampling conducted earlier this year, with respondents made up of 577 HR and benefits professionals and plan administrators from organizations ranging in size from fewer than 50 employees to more than 10,000, across 20 industries.
"Employers offer disability benefits to help employees through unforeseen illnesses or accidents that would prevent an employee from working. By ensuring that employees continue to receive a paycheck, employers can help employees to focus fully on their recovery," Stich said.
To help their employees through short-term circumstances, more than 3 in 4 employers surveyed (78 percent) offer short-term disability (STD) benefits to their employees. The survey showed that:
- STD benefits are typically offered for 26 weeks (56 percent of responding employers), followed by shorter durations of 13 weeks (16 percent) and less than 13 weeks (15 percent).
- Two in 5 organizations (39 percent) require no service periods, making workers immediately eligible for STD upon hire.
- Employers use a variety of methods to calculate the amount of STD income their employees receive. They most typically calculate the benefit on a fixed percentage of earnings (56 percent), followed by a fixed dollar amount (27 percent).
For illnesses or accidents that remove an employee from the workforce for an extended period of time, 5 in 8 employers surveyed (63 percent) offer long-term disability (LTD) benefits to their employees. The survey found that:
- Similar to STD benefits, 36 percent of employers require no service period, making employees immediately eligible for the benefit. Other employers require service periods of one month or less (20 percent), six months (13 percent) or three months (12 percent).
- When calculating LTD benefits, organizations most commonly use a fixed-percentage-of-earnings formula (83 percent). The majority of employers offer a benefit that equals 60 percent of earnings (65 percent), followed by a range of 61 percent to 69 percent of earnings (14 percent).
- The majority of employers (75 percent) offer LTD benefits to employees on disability leave until the age of 65 or retirement.
"While employees understand the importance of planning for retirement and signing up for insurance to protect their families, most employees have not planned for a circumstance where they would need to replace their income should they become disabled and are unable to work," said Jackie Breslin, director of human capital services for TriNet, a provider of business services in San Francisco. "Many times, employees have not thought about how important long-term benefits are until they have a family member, friend or co-worker that is going through a medical challenge and is therefore faced with a financial challenge."
But there are difficulties in communicating the benefit's value, she noted. "The topic can be unpleasant and uncomfortable to discuss, since it deals with the realities of illness or injury. Depending on an employee's age, they may think that LTD is only for an older worker and that is simply not true. Employers need to be able to communicate why LTD is important to their workplace and for all the employees, no matter what stage of their career they are in."
Health Care Benefits and Disability Leave
For employees on disability leave, 66 percent of employers continue to provide health care benefits, the IFEBP survey showed, and:
- One-quarter of these employers (25 percent) provide health care benefits for the entire duration of the disability.
- 24 percent provide health care benefits for 12 months.
- 23 percent provide health care benefits for six months.
- 12 percent provide health care benefits for three months.
Other benefits continued during disability leave include life insurance benefits (53 percent), pension plan accrual (22 percent), employer contributions to a defined contribution retirement plan (15 percent) and vacation benefits accrual (14 percent).
As they advise employees to consider the value of disability benefits, employers should see that the coverage they are making available is at least on par with their industry peers, Stich advised. "Although no one wants to use disability, employees will be grateful for these benefits if they need them."
Related SHRM Resources:
Guide to Benefits Open Enrollment Season, SHRM Online Benefits, September 2016 Managing Disability Benefits
, SHRM Toolkits, September 2015