Developing a Policy for Pay Continuation when Disability Occurs: Short Term Disabilities Presented by: Laurie Milligan

1. Developing a Policy for Pay Continuation when Disability Occurs: Short Term Disabilities Presented by: Laurie Milligan

2. Disability: the Basics • Income replacement coverage when an employee becomes injured or sick and cannot work • Benefits are typically paid at a certain percentage of income for a set period of time • Programs are designed to cover “short-term” disabilities (STD) or “long-term” permanent disabilities (LTD) • Plans can be paid directly by the employer or through an insurance policy

3. Why Offer Disability Coverage • Provide income protection; health insurance covers medical costs but does not replace lost income • Individual savings for employees can be drained by a disability • Providing a solid benefits package has a positive impact on employee attitudes and performance

4. Disability Industry Statistics • American Council of Life Insurers states one-third of Americans between ages of 35-65 will become disabled more than 90 days • Short-term Disability (STD)– duration of less than one year • Incidence rate is 45-65 claims/1,000 lives • Average duration is between 50-75 days/event • Long-term Disability (LTD) – permanent and total disability • Incidence rate is 3-7.5 claims/1,000 lives • Average duration is between 24-36 months/event

5. What types of programs do employers offer for short-term disabilities? Sick Leave • Typical design is 100% of pay for x number of days per year; carryover accumulation • Often results in income gaps before LTD begins • Employer must make determination of disability, approve duration of benefit payments • Employer costs are unpredictable

6. What types of programs do employers offer for short-term disabilities? Salary Continuation • Similar to sick leave; 100% of pay, but coverage continues until LTD begins • No incentive for disabled employees to return to work • Employer must make determination of disability, approve duration of benefit payments • Employer costs are unpredictable and can be expensive

7. What types of programs do employers offer for short-term disabilities? Self-Insured Short-Term Disability (STD) • Typically, plan design would provide for less than 100% of pay coverage; income replacement can vary based on years of service • Duration of benefits typically equal to LTD elimination period • Employer can hire an insurance company to administer claims • Employer must make determination of disability, approve duration of benefit payments • Employer costs are unpredictable

8. What types of programs do employers offer for short-term disabilities? Fully-Insured Short-Term Disability (STD) • Benefit plan design provides for 50% to 66-2/3% income replacement • Duration of benefits typically equal to LTD elimination period • Insurance company handles claims decisions and administers all claims • Insurance premium costs are predictable; fixed monthly premiums

9. Plan Design Features • Employee classifications for coverage • Definition of “disability” • Elimination period • Duration of benefit payments • Benefit % payment • Maximum benefits

10. Qualified Salary Continuation or Short Term Disability Plans should: • Be in writing; who is covered, benefit amount, duration of benefits • Provide employees with legally enforceable rights • Be established with the intent of being a permanent plan • Give employees reasonable notification of the plan’s benefits • Be maintained for the exclusive benefit of employees and dependents

11. Considerations in Developing a Policy • Determine appropriate length of time for employee to remain as “active” status & continuation of insurance coverages: • Medical – COBRA, Medicare • Life Insurance – Waiver of premium • Disability – Social Security awards

12. Considerations in Developing a Policy • Choose type of program • Define eligibility & plan design features • Determine the Bank’s financial risk • Put program in writing