Disability Insurance Options for a Diverse Workforce

The American workforce is growing more diverse all the time — in terms of income, race, gender, marital status, household size. While this dynamic environment is probably good for the U.S. economy on the whole, it presents a challenge for the employee benefits adviser.

While a traditional 60% Long Term Disability (LTD) plan with a 90-day benefit waiting period, or elimination period, and a maximum benefit between $5,000 and $10,000 still provides adequate income replacement for most employees, it doesn't work for everyone. Let's look at some of the strengths and weaknesses of some non traditional options available for designing disability insurance plans for groups with diverse workforces.

Voluntary Plans

For a number of years, voluntary disability coverage has been the industry's answer to two problems: providing coverage to diverse workforces and shifting costs from employer to employee.

Strengths:

• Low to no cost to the employer
• Allows employees to elect or forego coverage

Weaknesses:

• Must make sale to all employees; typically must meet minimum participation requirements
• Requires payroll deductions and other time-consuming administration
• Costs (premiums and claim incidence) are typically higher than noncontributory coverage
• Employer must support annual enrollment process

Supplemental Disability Plans

In this type of plan, highly paid employees are usually provided richer benefits than other employees. For example, corporate officers might get an individual policy sold on a Guaranteed Standard Issue (GSI) basis to supplement the group plan, while all other employees are only covered by the group disability plan.

Strengths:

• Can help recruitment and retention of highly skilled workers by providing them richer, portable benefits
• No enrollment process required
• Minimal administration

Weaknesses:

• Costs are typically higher than providing a single plan for everyone
• Employees are not offered a choice, just put in the plan assigned to their job class

Employer-paid, Employee-choice Plans

A third option is a 100% employer-paid plan that allows employees to choose one of two disability plans. For example, an employer could offer employees the option of a standalone LTD plan with a high benefit or a combined STD/LTD plan with a lower overall benefit.

Strengths:

• Allows employees to choose benefits that suit their financial and personal situation
• Cost is the same to the employer, regardless of plans selected by employees
• Only one sale to make (to the employer)
• No minimum participation requirements to meet
• Minimal administration (no payroll deductions)

Weaknesses:

• Employer must support annual enrollment process
• Not a good fit for groups participating in PERS/STRS and some state-mandated disability plans