When it Comes to Your Long-Term Disability Plan, Read it and Read it Again
When Alison first was diagnosed with Multiple Sclerosis in her early thirties, she knew that eventually she would face total and permanent disability. She didn’t let that prevent her from living life to the fullest. In fact, the threat of being disabled someday propelled her to thoroughly enjoy the activities she loved the most. And, she had a steady and fairly secure job as an administrative assistant with a local manufacturing company.
Unfortunately, the day finally came. At just 43 years old, Alison’s condition became progressively more debilitating, and she was forced to leave her job forever, a job she had held several years prior to her diagnosis. However, Alison did have a Long- Term Disability (ERISA/Employer-Sponsored) plan in place, and was consoled by the fact that at least she would be able to pay her bills while she tried to get better. In fact, when she first applied for benefits, she thought she would receive the plan’s maximum monthly sum of $4,000. Then she read it more closely. Her plan stipulated that the monthly payments would be “the lesser of: 60% of Basic Monthly Earnings, or the Maximum Monthly Benefit of $4,000.” After all, that is what she saw in the documents given to her by her employer. Alison earned $45,000 a year, including her annual bonus and her overtime pay. All together, her annual monthly earnings were $3,750, that’s $250 less than the Maximum Monthly Benefit” of $4,000.
That meant that Alison’s disability plan carrier would pay her 60% of her $3,750 gross earnings, bringing her monthly benefit to $2,250. That is $1,500 less than Alison was accustomed to making each month. In other words, Alison’s rent money was being cut out of her paycheck. That can be devastating when you don’t expect it, especially for someone already dealing with a serious illness.
But Alison crunched some numbers, made some major adjustments, and figured out how to manage on $1,500 less per month. When she read her disability plan again, she realized that Gross Monthly Earnings did not include her annual holiday bonus or her overtime which added up to approximately an additional $3,000 a year. Alison’s actual gross monthly earnings, minus her bonus and overtime, were $3,500. That meant that Alison would instead receive a monthly disability benefit of $2,100. This benefit was $150 less than the amount she had struggled to live on.
It may be hard to believe, but what happened to Alison is quite common. We find that too many of our clients simply do not read and/or understand their Long-Term Disability (ERISA/Employer-Sponsored) plans. Insurance documents, in general, are dry, repetitive, seemingly contradictory, and somewhat confusing. No one enjoys sifting through all the fine print, but that is exactly what everyone should do – on a regular basis.
It’s all about being prepared. For example, if Alison had known and understood that her Long-Term Disability (ERISA/Employer-Sponsored) plan would not pay out the maximum benefit, perhaps she could have saved a bit more or consumed a bit less to make up some of the difference.
Don’t be caught by surprise. Regularly read your Long-Term Disability plan. Be aware of any changes including increases or decreases in monthly benefits. If appropriate, you might consider purchasing an additional policy, separate from the one your employer provides, possibly from a different company.
Finally, for clarification or advice, consult an attorney knowledgeable in disability insurance.
Some Relief for FERS and Military Retirees
On February 27, 2009, lawmakers once again introduced a bill that would allow retired federal employees and military personnel to pay for their health insurance with pre-tax earnings. Much like the rest of the country, federal employees have seen more than 50% increases in their premiums in the last eight years.
It also would allow active-duty military personnel to apply a pre-tax rebate to the supplemental insurance premiums to cover what Tricare does not.
Paying for their monthly health insurance premiums with pre-tax income will mean retirees will be taxed at a lower rate, reflecting an estimated savings of over $800 a year.
This bill, reintroduced by Reps. Chris Van Hollen (D-Md), Frank Wolf (R-Va) and Gerry Connolly (D-Va) is meant to ease an increasing burden on retired federal employees and military members and their families.
According to estimates from the Urban Institute, each time unemployment rises by merely one percentage point, approximately 2.4 million Americans lose their health insurance coverage. In 2007, one in 10 Americans (this includes one in five adults below retirement age as well as children) had no health insurance. Since the recession began, an estimated four million more Americans have lost their health insurance, and as layoffs continue as many as 14,000 people a day could be losing their coverage.
According to the most recent estimates, there are 47 million Americans currently without health insurance.
Legislative Update: Bill to Improve Vocational Rehab for Disabled Veterans
Source: website of Senator Daniel K. Akaka, (Democrat, Hawaii)
Washington, D.C. – On March 3, 2009, Senator Daniel K. Akaka (D-HI), Chairman of the Veterans’ Affairs Committee, introduced the Veterans Rehabilitation and Training Improvements Act of 2009.
“Veterans disabled in our current wars are transitioning from military service into a challenging economy that is contracting at historic rates. This bill will give these new veterans more of the help they need by increasing program flexibility and boosting the living stipend for disabled veterans undergoing rehabilitation. These men and women have paid the cost of war, and now we must do more to assist them as they transition back into civilian life,” said Senator Akaka.
The bill would:
Allow the VA Vocational Rehabilitation program more flexibility in paying for rehabilitation-related expenses incurred by recovering veterans who successfully complete programs;
Boost the living stipend for veterans undergoing rehabilitation which will narrow the difference between the vocational rehab stipend and the 21st Century GI Bill; and,
Remove the annual cap on the number of veterans who may enroll in VA’s Independent Living Program, which assists severely disabled veterans in achieving greater independence in their daily lives.
History Triva: Who is this great American?
He was born in Baltimore, MD, July 2, 1908.
He led the 20th Century Civil Rights Movement.
He worked to eradicate Jim Crow.
He ended segregation through the U.S. courts.
He promoted Affirmative Action.
He expanded Civil Liberties for all Americans.