Disability Benefits: An Overlooked Piece of the Employee Benefits Package

When weighing the employee benefits package of a new job, candidates definitely consider the health care benefits, probably read over the retirement plan and will no doubt investigate the number of vacation days—But few new hires take time to consider the disability benefits offered.

Disability benefits aren’t on most employees’ radar. Most assume they will never have to use disability benefits, but the reality is that one in four 20-year olds will become disabled before reaching retirement age.

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The Foundation report, Employee Benefits Survey, found that disability benefits remain a steady inclusion in employer benefit packages, whether employees are aware of the benefit or not.

Employers offer disability benefits to help employees through unforeseen illnesses or accidents that would prevent an employee from working. The benefit allows employees to continue to receive a paycheck, while focusing fully on their recovery.

[Related: Ancillary Benefit Plans, March 14-15, 2018, Las Vegas, Nevada]

Short-Term Disability (STD) Benefits Offered by 78% of Employers

To help their employees through short-term circumstances, more than three in four employers surveyed offer short-term disability benefits to their employees.

  • STD benefits are typically offered for 26 weeks (56% of responding employers), followed by shorter durations of 13 weeks (16%) and less than 13 weeks (15%).
  • Two in five organizations (39%) require no service periods, making workers immediately eligible for short-term disability upon hire.
  • Employers use a variety of methods to calculate the amount of short-term disability income their employees receive. They most typically calculate the benefit on a fixed percentage of earnings (56%), followed by a fixed dollar amount (27%).

[Related: Overview of Disability Plans E-Learning Course]

Long-Term Disability (LTD) Benefits Offered by 63% of Employers

For illnesses or accidents that remove an employee from the workforce for an extended period of time, five in eight employers surveyed offer long-term disability benefits to their employees. The benefit is more common among corporations (89%) than among public employers (77%) or multiemployer plans (21%).

  • Similar to STD benefits, 36% of employers require no service period, making employees immediately eligible for the benefit. Other employers require service periods of one month or less (20%), three months (12%), or six months (13%).
  • When calculating LTD benefits, organizations most commonly utilize a fixed percentage of earnings formula (83%). The majority of employers offer a benefit that equals 60% of earnings (65%), followed by a range of 61-69% of earnings (14%).
  • The majority of employers, 75%, offer LTD benefits to a disabled employee until the age of 65 or retirement.

Health Care Benefits Often Continue During Disability Leave

For employees on disability leave, 66% of employers continue to provide health care benefits. A quarter of these employers (25%) provide health care benefits for the entire duration of the disability, 24% for 12 months, 23% for six months and 12% for three months.

Other benefits continued during disability leave include: life insurance benefits (53%), pension plan accrual (22%), employer contributions to a defined contribution retirement plan (15%) and vacation benefits accrual (14%).

Don’t let your disability benefits continue on as the ugly duckling of employee benefits—ignored by employees for the flashier, more immediate benefits and perks. If your organization offers short- or long-term disability, educate your employees on the benefit. It’s a great way to illustrate the value of your overall benefits package, and it can build loyalty and peace of mind among your workforce.

The full report, Employee Benefits Survey 2016, is available at www.ifebp.org/benefitsurvey2016.

Brenda Hofmann
Brenda Hofmann
Senior Communications Associate at the International Foundation

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