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Old 03-18-2009, 04:11 PM   #1
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Possible End to Long Term Disability Checks

I've got a situation here which probably is going to be more common as companies merge. The company I am on Long Term Disability from and am on their LTD plan (a taxable benefit) might be bought by another company. My question for those on this board that might know is since the "Benefit" of LTD is not required by law, but is more or less, a gift offered to employees as an option in their benefit package, how often than not is the buying company willing to continue the LTD coverage? And if that LTD coverage is continued with the company that buys out my old company, is it up to them to decide if they want to acknowledge the existing agreement (i.e. benefits until age 65) or whether they might put me in a pool of their existing LTD coverage, in which the rules might be different (i.e. coverage for only 24 months).

Since I am not the holder of the Master Policy, but the company I went on disaiblity is, are they obligated by law to make that policy available to me in order to understand the full implications of how the plan can terminate or be extended due to a buyout?

In addition, like other insurance policies, there could be a conversion clause that allows me to pay premiums, rather than the 'company'. However, since this is a company paid benefit, their logo is on their checks sent to me, and not paid out by an insurance company, does it make sense to even pursue conversion?

I'm probably going to wait until the "deal" is done to contact HR in regards to this. Who knows, the "deal" might not even go through. But it is an interesting set of questions that I'd still like answers to because it could eventually happen - if not this month.

In terms of contacting the company that processes my LTD claim, I could also do that. But what has always been interesting is that my LTD benefit checks have always had my former company's logo on it with "Long Term Disability" stamped on the stop. This means to me that an "insurance" company is not paying out the "money" but my former company is. Is this not the case? And if it is the case, then would there be no conversion option because it is private insurance paid for by my former employer, with the money coming from their budget?

Thanks in advance for reading and responding...
- Justin

 
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Old 03-18-2009, 07:54 PM   #2
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Re: Possible End to Long Term Disability Checks

Hello Justin....Welcome to the boards. Many here have a wide variety of experiences, and can offer lots of help and support.

I will try to help as best I can. I am also on LTD disability from a Fortune 5 company, as well as Social Security Disability, so I've been through both processes. Before I comment fully, I'd like to get a bit more information.

- When you were working for the company and went on LTD, did you contribute to the benefit via deductions in your pay check?
- If so, was it pre tax or post tax dollars?
- How long have you been on LTD?
- Have they asked your or required you to file for Social Security disability?

Regards,

Ex

 
Old 03-18-2009, 08:18 PM   #3
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Re: Possible End to Long Term Disability Checks

Ex, thanks for your response to my post.

Without giving much details that can identify me, I've been on LTD for 10+ years (Do you need the exact year for changes in law?). The premiums (if you can call the couple bucks I paid 'premiums') were deducted from my pay before tax . . . therefore the LTD benefit has been a taxable benefit each year. I get a W-2 and the benefit is treated as "wages". I've always found it strange that sometimes the company checked off the box "retirement plan" or "pension" when LTD is neither.

Just for clarification, my LTD benefit has been 70% of salary. Receiving LTD was not dependent upon obtaining SSDI. But, Once I received SSDI, the company provided funds to make 70% of salary using SSDI benefit as part of that 70%. Originally, each were of equal benefit amounts. Of that 70%, 50% was from SSDI and 50% from LTD. But LTD does not have cost of living adjustments, therefore today LTD pays the same amount as it did 10+ years ago but with the cost of living adjustments, SSDI is now about 57% of income and LTD 43%. Also realize that because LTD is a taxable benefit, they withhold 25% of that taxable benefit - making SSDI more like 64% of income and LTD 36% . . . until I file taxes and get a refund.

I have been on SSDI for just as long and have Medicare Part A&B.

My main concern is the transfer of LTD to a new company. Since a phone call I placed to my State's Department of Insurance says that LTD is a "benefit" which is not a guarantee . . . the new company does not have to continue it. Do companies in general honor the LTD coverage of those from the company being bought out, bringing those LTD liabilities as acceptance of a merger?

Last edited by JusticeInCA; 03-18-2009 at 08:44 PM.

 
Old 03-18-2009, 10:09 PM   #4
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Re: Possible End to Long Term Disability Checks

Sounds as if yours is nearly identical to mine....I get 70% as well (I could have elected for a lower payout with less premiums, but I signed up for the max when I was hired 15 years prior). Except that I paid for my premiums with after tax dollars from my pay check, therefore, my amt is not taxed. As you probably know, that is an IRS rule, not an insurance rule. After I was approved for LTD, the insurance company required me to apply for SSD and any amt I was awarded is deducted from my LTD.....It was a "contingency" of the plan to lessen their exposure / payout.

Here's what I think, but I'm no certified expert. We both paid for this insurance policy via deductions via our paycheck. Regardless of how you paid, pretax or post tax, the point is that your paid insurance premiums. The LTD benefit that you receive is not through your company, but through the insurance company that your company set up to offer the insurance benefit as part of your benefits package. I'm sure your company paid a small part of the premium, and you paid the balance....Just like health insurance, copays and etc...They pay part and you pay part. You probably also had the option of getting life insurance as well as life insurance on your spouse and children...Same type of deal. May or may not have been the same insurance company.

Therefore, I am of the strong opinion that the insurance company is legally obligated to provide the benefit because you took out a policy with them and paid the premium. The fact that your company is being merged, sold, or whatever is irrelevant....There aren't any premiums being paid anymore...Just the payout, or the "claim."

However, if you were a current employee, and you had signed up for LTD and were paying monthly or biweekly via your paycheck, and then the company merged, was sold, or whatever, the new company is under no obligation to continue that benefit....It has a new benefits package it offers to employees based on whatever they want to offer....Vacation, 401k, and all sorts of benefits may change.

But, your ship has already sailed and your policy is now a "claim." This would be no different than an life insurance policy for example...You pay premiums via your pay check and if you die, then it becomes a claim. No more premiums are collected. They can't take back their money because the company is sold.

As far as the checks you collected at one time with your companies name on them....Mine was the same thing....What happens there is that your company, under the insurance agreement with the carrier, pays the first year or so of claim (or whatever they agree to when the sign up together) and then it turns into permanent LTD. Therefore, the checks come off your company's acct in the short run. After some time period, your case then gets permanently turned over to the insurance carrier as a permanent LTD claim, and the checks come from them....They are responsible for the bulk of the claim since they wrote (and held) the policy. I would bet a lot of money that a very, very small number of claims actually make it to this point, for a variety of reasons.

For the first year or so, your STD and then LTD claims, checks and etc. were probably handled via your company, or a division of your company...Or the insurance company was a processor (for a fee) to take care of it all...But monies came out of your company's acct. There is a blurring of the lines so to speak, if that makes sense.

Currently, my monthly checks have the insurance company's name in the upper left corner (instead of my company). At one time, I received checks very similar to what you described.

The only way your LTD would end is if either (1) You went back to work somewhere and your social showed up on a W2 and word got back to your company or (2) An update sheet / file (sent out by the insurance company) to your Doc, is signed by him as saying you are no longer disabled and can return to work. My carrier sends me a one page form once a year for my Doc to fill out....He basically checks a few boxes, signs it, and off it goes (until the next year).

Hope all this makes sense.

Regards,

Ex

 
Old 03-18-2009, 11:29 PM   #5
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Re: Possible End to Long Term Disability Checks

Ex,
Yes sounds very similar to my experience. Except for the fact that the checks have never had the name of the insurance company on the checks. They all have had the company logo . . . as if the check is from the company but mailed from the absence management company. This happened during Short-term disability and now on Long-term.

If an insurance carrier were to have been providing the benefit, wouldn't the W-2 reflect their name, rather than the W-2 coming directly from the company itself? Where does your W-2 come from? And that's my concern. If the benefit is directly related to the company I worked for because that's where the W-2 comes from, then does that mean it's a company paid benefit without an insurance carrier handling claims. What I appear to have is company that processes the checks and verifies my disability.

You're saying that there is an insurance carrier involved....But I've never been informed of the name of that insurance carrier, nor have I received a letter each year verifying continuation of coverage. In fact, I don't even have a copy of the policy - just the original company handbook coverage details. All I do is send in the verification of continuation of disability each year and the checks are mailed each month with an attached detail summary of the benefits paid minus SSDI.

The stub with the check that details my monthly benefit on the top reads:
"Name of Company" Long-Term Disability Plan "Plan Number"

If said company no longer exists because of a merger, they wouldn't be able to issue checks with the Company logo. Then the question is whose responsibility is it to process the checks - the processing company or acquiring company - and who would issue the W-2?

 
Old 03-19-2009, 10:21 PM   #6
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Re: Possible End to Long Term Disability Checks

You receive a W2 because it's a taxable benefit. I don't receive one because it's tax free. It get no statement at year end...Just monthly checks.

As to your companies name on the check, is it possible that they are self insured? Is this a large, medium or small company?

I still think there is an insurance policy involved because you paid monthly premiums via deductions from your check. I seriously doubt they can take it from you.

If you want, PM me and we can talk in more detail.

Regards,

Ex

 
Old 03-19-2009, 11:06 PM   #7
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Re: Possible End to Long Term Disability Checks

It definitely sounds like the employer self insures the STD & LTD benefits. This means they either have an employee (generally a nurse) that approves the disability benefits or they have a contract with a third party insurance company who administers the benefits, sends the approval letter or weekly claim report detailed by employee and claim amount to the HR department. The disability benefit is then processed via payroll. LTD claims are fairly low which is why bigger companies prefer to self insure it vs. paying a larger premium each month. Companies will review the claims data vs. the premiums paid. If the claims paid is much lower than the total premium, they will opt to pay an administrative fee to an insurance carrier and the employer will fund the claims. It would be seamless to the employee. Documentation would generally come from the employer unless they negotiated in the contract with the disability carrier that they process claims and send the necessary paperwork to the claimant.

Rarely, does a "merge" happen that those who are out on claim aren't grandfathered in. IF an employer changes carriers due to cost, the prior LTD carrier generally will assume the ongoing claim, not the new carrier. That situation happened with me. Company's don't drop those who are out on disability just like when the medical insurance carrier gets changed, the pre-ex clause doesn't apply nor do they drop someone who has ongoing medical claims. It is too much of a legal risk to do so.

Ex, I can't figure out why you don't get a 1099 at the end of the year for your LTD unless it is because of the social security offset. When I was drawing LTD, I got a 1099 each year and had to pay taxes on it. Some companies do give the option to have taxes taken out of the LTD benefit though.

Last edited by hugg724; 03-19-2009 at 11:07 PM.

 
Old 03-19-2009, 11:25 PM   #8
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Re: Possible End to Long Term Disability Checks

The Company is a Fortune 500 Company. And yes I did pay small 'premiums' but I don't know if a premium payment was a requirement by law in order for the company, if self insured, to act as such, in order for me to select a level of coverage during open enrollment.

IF they are self insured, that's why the state Insurance Commission says that they have no juristiction because it's not an "insurance company". Private benefit plans are not regulated through the Insurance Commission.

Another thought crossed my mind if my company is self insured. What if the LTD is a ponzi scheme. If the LTD plan is not regulated, then there might not be any 'pot' of money for benefits to be paid out....kind of like Social Security. They might just borrow money here and there to cover those that are on the plan. Or, they might fund the plan, just by those that have contributed premiums and if there is a "loss" re-pay the plan the difference.

Since I don't have a copy of the plan, I don't know what the end game is. All I was trying to do here was find out if anyone else has had a similar experience with a similar type plan. There could be a clause that stipulates upon the demise or sale of the company, the plan ceases and any excess funds remaining in the plan distributed to parties in equal amounts. Or, it could say that the plan would be funded for "x" number of months or years at which time the plan would cease. Or, it could say just about anything.

All I know right now is that my employee handbook says the benefits continue until age 65. But, the insurance commission suggests that a benefit is not a guarantee, and therefore, the purchasing company that takes over has no legal requirement to continue the plan. This is the legal question that I have. If my plan is cancelled some folks believe they can not do that and therefore I would have a complaint, whereas others believe the benefit is not a right and therefore I would have no legal complaint.

 
Old 03-19-2009, 11:43 PM   #9
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Re: Possible End to Long Term Disability Checks

Justice, I also worked for a Fortune 500 company. Self Insured plans aren't state regulated. Self funded plans are created under federal law and come under the authority of the federal government. This is where ERISA would come into play. The Department of Labor would be responsible for your complaint. I also worked for a TPA (third party administrator) several years ago. All I worked with and even sold, were self funded plans to companies.

If you are disabled under the own occ provision to age 65, the purchasing company does have a legal obligation to continue your claim IF the employer paid any portion of your premium (which I think they did). I have worked with MANY acquisitions from the HR perspective as a consultant over the years. The purchasing company is provided full disclosure of all ongoing claim data and will continue those claims even if they fully insure the benefits vs. self funded. Those claims are disclosed to the new insurance carrier if this applies. Had your LTD benefits been fully insured and paid to you from the insurance company, that insurance company would have had to assume your claim but because it is self funded, the new purchasing company will be responsible for it. Funds are set aside in the purchasing agreement for any claims that are to be incurred.

Last edited by hugg724; 03-19-2009 at 11:46 PM.

 
Old 03-19-2009, 11:54 PM   #10
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Re: Possible End to Long Term Disability Checks

Quote:
Originally Posted by hugg724 View Post
If the claims paid is much lower than the total premium, they will opt to pay an administrative fee to an insurance carrier and the employer will fund the claims.

Rarely, does a "merge" happen that those who are out on claim aren't grandfathered in.
----------------------

hugg . . .
This is kind of what has been a question to me concerning LTD since the beginning. If memory serves correctly, my "premium" per pay period was something like $4. Let's say IF the plan paid the 70% of salary, the plan was to pay $2000 a month. That's a lot of money in comparison to the actual premium I paid into the system as a "premium". And since one had to opt in to get the LTD option, there might not have a been a lot of folks selecting that option.

Let's say for argument sake that I was employee # 8000 - meaning I was the 8000th employee hired. If everyone paid that $4 a month, then the plan would have $32,000 a month in premiums paid. Since I was a low level manager, that $2,000 doesn't eat much into that $32,000 premium paids for the LTD. But if more people went on LTD . . . which did . . . it would only take 16 people at my low salary to wipe out all premiums paid if everyone in company contributed.

That's why I could not quite understand the funding of the plan . . . Kind of sounds like a scheme . . . the fund has to be funded somehow. You're saying that often LTD claims are Grandfathered in . . . but the question is am I following the rules of the old LTD plan, or do I then get reviewed by standards of the new LTD plan.

Something tells me that the cause for my disability that was acceptable to a former employer can not be changed to fit the guidelines of a new plan.

Can the new company fund the old LTD plan under the old company name and therefore the rules that granted the disability in the first place still apply? Or, does being grandfathered mean that I could be accepted into the new company's LTD plan - but are required to meet the disability standards of the new plan, which under a medical review, could end up denying my claim. Nice little law suit.

I assume since many of the Fortune 500 companies want to be politically correct and don't want bad publicity, that Grandfathering in LTD recipients seems like a good PR move. Just the consequences of me accepting those possible Grandfathering provisions have me thanking God for what I have received so far and if it continues fine . . . if not, I'm prepared emotionally and have other support networks to get me through to the future.

 
Old 03-20-2009, 12:02 AM   #11
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Re: Possible End to Long Term Disability Checks

Quote:
Originally Posted by hugg724 View Post
Justice, I also worked for a Fortune 500 company. Self Insured plans aren't state regulated. Self funded plans are created under federal law and come under the authority of the federal government. This is where ERISA would come into play. The Department of Labor would be responsible for your complaint. I also worked for a TPA (third party administrator) several years ago. All I worked with and even sold, were self funded plans to companies.

If you are disabled under the own occ provision to age 65, the purchasing company does have a legal obligation to continue your claim IF the employer paid any portion of your premium (which I think they did). I have worked with MANY acquisitions from the HR perspective as a consultant over the years. The purchasing company is provided full disclosure of all ongoing claim data and will continue those claims even if they fully insure the benefits vs. self funded. Those claims are disclosed to the new insurance carrier if this applies. Had your LTD benefits been fully insured and paid to you from the insurance company, that insurance company would have had to assume your claim but because it is self funded, the new purchasing company will be responsible for it. Funds are set aside in the purchasing agreement for any claims that are to be incurred.
----------

I'll have to keep this in mental filing cabinet for future reference. Thank you.

So, I suppose my $4 premium was just my portion of premiums, but I don't know to what extent the company paid into the plan. the premiums still seem kind of low . . .but then again, in California, those that attend Cal State pay something like 20% of the actual costs and the state picks up the rest . . . so maybe the company offered the employee a small premium as an added incentive to join the plan.

 
Old 03-20-2009, 12:11 AM   #12
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Re: Possible End to Long Term Disability Checks

LTD premiums are based on payroll. Example: the cost to the company for fully insured is 9 cents per $1,000 of total payroll. 500 employees @ $40,000 annual salary = 20,000,000 total payroll . 9 cents per 1,000 of payroll (2,000,000) = $180,000 a month in fully insured premium.

If a company chooses to self fund it, there is a per employee administrative fee. Lets say the administrator charges $5 per employee to administer it. 500 employees x $5 = $2,500 a month. The difference is substantial. Even if the company has $100,000 a month in LTD claims plus $2,500 administrative fees, they are saving over $75,000 a month to self fund it. The administrator will provide an annual actuarial assumption of claims to the employer. The employer sets up a designated fund for the LTD claims and deposits that $100,000 a month into this fund monthly. Claims are paid from this fund. It is regulated by the government. They must file annual reports.

When you are grandfathered in, it is based on the old plan. You have been deemed permanently disabled to age 65. They cannot come in and subject you to the new plan and possible denial. If they did, you would have a very strong lawsuit.

 
Old 03-20-2009, 03:01 PM   #13
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Re: Possible End to Long Term Disability Checks

Is the 'annual report' something that is available to the participants of the plan? I assume you're not talking about the financials a company reports to the SEC. . .that this is a statement of financials just in regards to the LTD plan.

 
Old 03-20-2009, 07:37 PM   #14
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Re: Possible End to Long Term Disability Checks

Quote:
Originally Posted by hugg724 View Post
Ex, I can't figure out why you don't get a 1099 at the end of the year for your LTD unless it is because of the social security offset. When I was drawing LTD, I got a 1099 each year and had to pay taxes on it. Some companies do give the option to have taxes taken out of the LTD benefit though.
I get a summary of benefits from SS which I have to pay taxes on, but nothing from my LTD carrier....I was told in the beginning that I never would because it's tax free....I paid with post tax dollars.

The SS payment actually works against me, because the amount I receive is deducted from my LTD benefit, and I have to pay taxes on the SS. Had I not been awarded SSD, then the entire amt would be tax free. What a racket.

Regards,

Ex

 
Old 03-20-2009, 07:47 PM   #15
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Re: Possible End to Long Term Disability Checks

Quote:
Originally Posted by hugg724 View Post

Self funded plans are created under federal law and come under the authority of the federal government. This is where ERISA would come into play. The Department of Labor would be responsible for your complaint. I also worked for a TPA (third party administrator) several years ago. All I worked with and even sold, were self funded plans to companies.
Absolutely....Self funded plans are usually done by companies with deep pockets who understand the LT financial implications. They will team up with an insurance company to handle


Quote:
If you are disabled under the own occ provision to age 65, the purchasing company does have a legal obligation to continue your claim IF the employer paid any portion of your premium (which I think they did).
Yes...And you keep missing the fact that you paid premiums, regardless of how small you may feel they were. Hugg has given you some excellent examples of the financial implications of why they fund the plan and the overall expense ratio.


Quote:
I have worked with MANY acquisitions from the HR perspective as a consultant over the years. The purchasing company is provided full disclosure of all ongoing claim data and will continue those claims even if they fully insure the benefits vs. self funded. Those claims are disclosed to the new insurance carrier if this applies. Had your LTD benefits been fully insured and paid to you from the insurance company, that insurance company would have had to assume your claim but because it is self funded, the new purchasing company will be responsible for it.
Yes....This debt obligation all comes out in the due diligence of the financials...The new company will have to accept the debt (i.e. claims). A company can't decide mid stream to stop paying your claim due to an acquisition.

Best of luck.

Ex

 
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