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03 May. 2013 | Comments (0)

In my last blog, Disability: An Important Issue With Regard to Long Term Retirement Security, I highlighted some of the important findings of a recent ERISA Advisory Council report, which uncovered gaps in disability coverage and barriers to offering continued accrual of pension contributions during disability. I am delighted that the Council addressed this topic, because it is important and the issues raised are not well understood by many people. In this blog, I will continue to share some of my personal views regarding the report’s findings.

As an actuary working with employee benefit plans, and with a concern about risk, I always assumed that it would be recognized that disability is a major risk to employees and their families. The organizations I worked with generally offered LTD coverage to employees, some type of disability protection provision in a defined benefit plan, and, of course, life insurance benefits, which included a waiver of premium provisions. Several years ago, I discovered that there is generally no equivalent to a waiver of premium provision connected to a DC plan. This very much concerned me, and I started to look into the topic of retirement security and disability. As I focused more on this, I was very unhappy to learn that the regulatory environment is not friendly to providing these benefits. I applaud the ERISA Advisory Council for studying the issue and discussing these barriers.

I also point out that this project led me to learn more about the topic – some of which was a further concern. I was very surprised by the low percentage of the workforce who have LTD.  I was also surprised to hear about the challenges relating to the link between work and disability, the problems that some people who can only work on a limited basis encountered, the confusion faced by employees with regard to coverage, and some of the claim problems reported by plaintiffs’ attorneys.

One of the things that I also learned are that there are a number of experts on different aspects of disability (as it related to employment and disability) who were also not aware of other aspects of this issue. I encourage people interested in this topic to read the Advisory Council report, and to focus further on how to improve disability protection in the era of individual responsibility. The Council report brings together a range of different issues and should be thought provoking for people interested in the financial security system and employment.

Another resource to learn about the challenges related to disability and retirement, and about how an innovative employer addressed them, is an article by Jack Towarnicky, “Will Disability Also Harm my Retirement Security?” found in the Society of Actuaries Pension Section News, May 2011. This article offers advice on how one organization chose to solve this issue, including the following features:

  • Auto-enrolling new hires into after-tax LTD coverage, so that an affirmative decision would be needed to opt out. After auto-enrollment, 78% of new hires were covered compared to 51% before auto-enrollment.

  • Offering coverage on both a pre-tax and after-tax contribution basis, with benefits from the after-tax plan being tax free.

  • Adding a new accumulation benefit to the LTD plan to replace what would have been saved for retirement.

  • Allowing disabled employees to continue accruing service to make them eligible for retiree medical.

  • Defining compensation for LTD to include variable pay.

It should be noted that some insurance companies offer individual insurance policy riders designed to make up for savings not contributed in DC plans when the individual is disabled.

I believe that the issues raised in these documents will encourage employee benefit plan sponsors to review the way their benefits treat disability, as well as their employee communications and administration. Some of the items to be considered in the review include:

  • Retirement security and disability;
  • Auto-enrollment of contributory LTD benefits;
  • Structure of LTD benefits, including pre-tax vs. after-tax benefits, definition of disability, and types of offsets used;
  • For voluntary benefits, review of participation and possible ideas to increase participation; and
  • Plan administration


View our complete listing of Compensation & Benefits blogs.

  • About the Author: Anna M. Rappaport

    Anna M. Rappaport

    Anna Rappaport is an internationally recognized expert on the impact of change on retirement systems and workforce issues. Following a 28-year career with Mercer Human Resource Consulting, Rappaport h…

    Full Bio | More from Anna M. Rappaport


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