Last month, we kicked off a three-part blog series in honor of National Disability Awareness Month (NDEAM). Even though it’s now November and NDEAM is over, employees continue to have disabilities and health conditions that employers must consider as part of their overall absence, disability, and accommodations programs. In part I, we discussed managing leave of absence requests. In this second part, we will focus on employer disability plans.
Short-Term and Long-Term Disability
Employee disability benefit plans are part of the employer’s absence and health plan strategy. From a stay-at-work and return-to-work perspective, they also should be a component of the employer’s Disability Equity Inclusion and Accessibility (DEIA) strategy.
Traditional employee benefits include short-term and long-term disability benefits. Short-term disability plans are intended to replace income for a shorter period than long-term disability plans. Generally, disability plans are income replacement and do not offer leave or job protection/reinstatement. Often disability benefits run concurrent with federal, state, or local leaves and/or an employer’s leave policy. As you review your disability plans, a focus on the following provisions helps with effective, compliant management:
- The Employee Retirement Income Security Act of 1974 (ERISA): ERISA is a federal law designed to protect employee benefit plan participants and their beneficiaries. ERISA plan sponsors are required to provide certain information to participants. They have fiduciary duties and need to act in the best interest of plan participants. ERISA establishes enforcement provisions when a plan sponsor fails to do so. From an employer’s perspective, one of the main benefits of ERISA is the ability to be in federal court if a dispute arises and receiving a deferential standard of review. If ERISA applies, the employer has compliance (reporting, documentation, and communication) obligations. The employer’s plan also will need to follow the ERISA claims and appeals procedures in making determinations of benefits and providing individual rights if it denies a claim. If ERISA does not apply, the employer may want to be “ERISA-like” and mimic provisions such as ERISA’s claims and appeals requirements.
For ERISA to apply, an employer must establish a plan. An employee welfare benefit plan can include a disability plan if it is “established or maintained” by an employer intending to provide benefits to its employees through the purchase of insurance or otherwise. ERISA can apply to arrangements where the employees pay their own premiums. This may happen where the employer negotiates a rate structure or premium discount in securing group benefits.
The analysis of whether ERISA applies to a disability plan is not that easy. ERISA contains a “safe harbor” rule, where a group insurance program is not an ERISA plan if all four of the following criteria are met:
- The employer does not contribute to the plan.
- Participation is voluntary.
- The employer’s role is limited to collecting premiums and remitting them to the insurer.
- The employer receives no profit from the plan.
Finally, a payroll practice also is exempt from ERISA. The key factors to the payroll practice exemption includes who is getting paid and what is the source of such payments. A payroll practice occurs when payments:
- Are part of the employee’s normal compensation;
- Come from the employer’s general assets; and
- Are intended for periods of time where the employee is physically or mentally unable to perform his or her duties or is absent due to medical reasons.
- Disability Definition: A plan may choose to follow the Americans with Disabilities Act (ADA) definition of a disability or a variation of it. Other plans take more of a medical definition of a disability versus a legal one. Some plans may decide to follow a less stringent definition, similar to the definition of “serious health condition” under FMLA. As part of your return-to-work and stay-at-work strategies, your plan may include levels of disability, such as partial disability. Long-term disability plans often have disability definitions regarding “own occupation” and “any occupation.” When reviewing the disability definition, it is equally important to review the plan exclusions outlining conditions or activities where the plan will not pay benefits.
- Medically Managed: Disability management involves several factors starting with defining what type of medical evidence the plan will accept to make a benefit determination. A medically managed plan generally will require objective medical evidence. Objective medical evidence typically includes diagnostic tests and procedures that establish evidence of the underlying disease or condition. Results are quantifiable. Common examples include imaging tests, laboratory findings, pathological findings, electroencephalogram (EEG), electrocardiogram (ECG or EKG), etc. These tests (and many others) produce objective findings related to physical, cognitive, psychiatric, and neurological disorders. However, there may be some diseases or conditions that lack objective findings where the plan must rely on additional detailed medical records and documentation from the treating physician.
Medically managed plans also rely on guidelines to help them determine standard or industry recovery times for injuries and illnesses. As part of the process, the plan will collect medical evidence and compare it with these guidelines, based on the type of nature of work the employee performs. Such guidelines allow for complications to extend durations and benefits. The plan will require periodic medical updates to continue to approve the claim. As a final consideration, medically managed plans will use clinicians and physicians (and/or roundtables) to review complicated claims.
- Benefit Schedule or Period: The plan should include the length of time the employee or claimant may receive benefits under the terms of the plan. A typical benefit period for short-term disability is 26 weeks – although it could be up to a year – whereas a long-term disability plan’s benefit period may range from two years to retirement age (or recovery if sooner). The plan’s benefit schedule should define the amount of benefit received, whether there is a waiting period for benefits to begin, and what offsets may apply. Other provisions may include whether the benefit is taxable, if there’s a cost-of-living adjustment or adjustment for salary increases, and whether the plan includes partial/reduced benefits.
- State Disability Insurance Programs: Some U.S. states and territories require employers to provide disability benefits for employees. These U.S. states and territories include California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico. A failure to comply with these state laws may result in fines and penalties. Other states have paid family and medical leave (PFML) programs that include income replacement for the employee’s medical conditions. For more information on PFML programs, check out our recent blog post.
What Employers Should Do
After reviewing their leave of absence materials, employers should start reviewing their disability plans, processes, and practices for compliance with applicable law and its overall objectives. Similar to leave of absence programs, NDEAM provides employers a great opportunity to connect program design across their DEIA, health plan and absence management initiatives.
What ReedGroup Is Doing
If you’re looking for assistance managing leave of absence, disability benefits, or accommodations or to ensure compliance across your organization, ReedGroup has solutions for you. Review our offerings here.
Information provided on this blog is intended for general educational use. It is not intended to provide legal advice. ReedGroup does not provide legal services. Consult an attorney for legal advice on this or any other topic