The Long and Short of Disability Benefits

Justin Held, CEBSJanuary 3, 2019January 7, 2019

Workers typically do not anticipate missing extended time from work due to an accident or unexpected illness. However, this is a real possibility. Currently, one in four 20-year-olds will become disabled before reaching retirement age. As part of their benefits strategies, organizations are providing a safety net for workers by offering short- and long-term disability benefits. In the International Foundation’s Employee Benefits Survey 2018, respondents communicated specifics of their short- and long-term disability benefits, including service periods for eligibility, elimination, waiting periods for accidents and illnesses, calculation formulas, durations and funding arrangements.

If a worker goes on disability leave, which benefits are impacted? Organizations commonly continue to offer health care benefits (66.7%), life insurance (60.7%), pension plan accruals (25.3%), employer contributions to DC retirement plans (17.3%) and vacation benefits accrual (15.0%). Those that offer health care as part of their disability benefits most often do so for the entire period of the disability (28.4%), followed by six months (24.3%) of coverage.

Short-Term Disability Benefits

Short-term disability (STD) benefits are offered by 78.2% of responding organizations (It should be noted that organizations responding that they do not offer STD benefits were asked if these benefits were state-mandated. Overall, 31.3% of those that do not offer STD benefits are in states where temporary STD benefits are mandated.)
About one in three (32.3%) responding organizations require no service period for eligibility, while 27.4% require a service period of a month or less.
Those that offer STD benefits were asked whether there were differences in the elimination and waiting periods for illnesses and accidents. More than seven in ten (71.6%) stated that elimination and waiting periods do not differ for each disability classification. The remaining 28.4% make the elimination period different for accidents and illnesses.
The most common elimination/waiting period for STD benefits is seven days (44.1%), followed by 14 days (12.6%).
When it comes to calculating STD benefits, about three in five (58.1%) responding organizations use a fixed percentage of earnings. Most often, the fixed percentage is 60% (46.3%) or 100% (14.3%) of earnings.
More than 25% of responding organizations use a fixed dollar amount for their STD benefit calculation.
The most common duration of offered STD benefits is 26 weeks (54.3%), followed by 13 weeks (21.1%).
Most often, organizations completely self-fund (53.7%) their STD benefits (i.e., no stop-loss insurance). More than one in three (38.0%) responding organizations fully insure their STD benefits, while 8.3% self-fund with stop-loss coverage.

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Long-Term Disability Benefits

Long-term disability (LTD) benefits are offered by more than two in three responding organizations (67.1%), a benefit more commonly offered by corporations and public employers than multiemployer plans.
More than three in ten (30.1%) responding organizations require no service period of eligibility, while 25.1% require a service period of one month or less.
The most common elimination/waiting period for LTD benefits is six months (48.8%), followed by three months (31.5%)
The overwhelming majority of respondents calculate their long-term disability benefits as a fixed percentage of earnings (82.2%), most often 60% (70.7%).
About four in five (78.3%) responding organizations that offer LTD benefits do so until the age of 65 or retirement.
More than four in five (83.5%) of organizations offering LTD benefits fully insure them.