Long- & Short-Term Disability Plans: Demand & Offerings on the Increase | CBIZ, Inc.
While the costs to offer short-term and long-term disability plans continue to rise, it’s increasingly apparent that employees will need to use those benefits at some point in their lives. In fact, one in four Americans with a career will miss up to three months of work due to illness, injury or pregnancy, according to the Council on Disability Awareness. So it’s smart for companies to safeguard their greatest asset – their employees – by offering this type of income protection.
According to our 2020 Employee Benefits Benchmark Report (the report), most companies understand the importance of offering these benefits; 71% offer long-term disability insurance, 61% offer short-term disability insurance beyond state-required programs, 43% offer supplemental long-term disability insurance and 45% offer supplemental short-term disability insurance. Recent guidance from the Department of Labor (DOL) says employers covered under the Employee Retirement Income Security Act (ERISA) can automatically enroll their employees in group disability insurance plans, making it easier than ever to ensure your workforce is covered.
In general, short-term disability plans provide employees with a portion of their pay during their leave. More than 65% of companies in the report said the benefits they offer equate to 60% of the employee’s pay, while just 1.4% offer a flat amount. Some cap the benefits at a maximum dollar amount; 30.1% of companies pay $1,000 to $1,499 a week, while $27.3% pay $1,500 to $2,499 per week.
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Just five states — California, Hawaii, New Jersey, New York and Rhode Island — require employers to join their state-sponsored disability income plans. Employers in other states offer short-term disability plans voluntarily.
When those benefits run out, typically around three months, long-term disability benefits kick in. A vast majority, 69.7%, offer two years of own-occupation benefits should an employee be unable to work. Companies are more likely (66.6%) to offer benefits to permanently disabled individuals until their Social Security Normal Retirement Age.
Neither short-term nor long-term disability plans require an employer to hold the employee’s position or offer their job back. However, it’s prudent to check your state’s leave laws, as well as consult the Family and Medical Leave Act (FMLA) and the Americans with Disabilities Act (ADA) before creating internal policies around job replacement.
Are you curious as to what your competition is doing in other benefits areas, such as prescription management, dental, vision and life insurance? Find out here.
As costs continue to rise for companies providing short-term and long-term disability plans, so too will the employee demand for such programs. Experts agree employers will likely start passing these costs onto employees as companies begin offering more voluntary benefits. But offering comprehensive leave plans beyond what is required by law may be key to attracting and retaining top talent. By managing more robust leave programs, your company will set a tone that it values employee wellbeing and is committed to a nurturing workplace and culture.
Here’s a look at how employers are structuring their short-term and long-term disability programs, according to results from the 2020 Employee Benefits Benchmark Report:
- Nearly 30% of companies offer contributory short-term disability plans. About 60% offer non-contributory plans and 10% offer voluntary.
- Companies are more likely to offer their employees a maximum of 9 to 13 weeks of benefits (55.2% of respondents) or 22 to 26 weeks of benefits (41.6% of respondents).
- Many companies (45.5%) offer residual short-term disability benefits and 39.5% offer total disability benefits.
- Employers are more likely to provide benefits after an employee has been absent for eight days, with 40.4% of respondents using that benchmark.
- The benchmarks for long-term disability plans are quite similar to short-term disability plans, according to the findings. Nearly 69% offer non-contributory plans, 24.4% offer contributory plans and 7% offer voluntary plans.
- More than 82% said they offer 60% of an employee’s pay, with just 0.7% of companies offering more at 70% pay.
- Companies are more likely to provide up to two years of benefits (69.7% of respondents) versus 22% that provide benefits for the full duration of the employee’s disability.