The 80% Step-Up
Upgrade Your Group LTD
Employers should consider updating their long-term disability program to provide 75%-80% replacement of total compensation, to better help employees avoid financial devastation during a disability.
Studies show that the American worker has been financially struggling for a long time. It is no secret. Even a “full paycheck” - 100% of base and bonus - is no longer enough to pay the bills.
Many Employers’ Group Long-Term Disability (LTD) Insurance plans only protect up to 60% of base salary. Replacing 60% of base salary was the “standard plan design”, once upon a time. Since the American worker cannot meet financial obligations with 100% of total compensation – protecting only 60% of base salary is no longer adequate.
Why not simply enhance the Group LTD plan? An employer could explore a Group LTD solution. However, Employers will find that despite the best efforts, a Group LTD plan that replaces 75% or 80% of total compensation does not exist.
In addition, addressing other shortfalls inherent to Group LTD plans, such as including total compensation, offering a higher benefit maximum to better protect highly compensated employees, and offering a tax-free benefit creates a high-risk LTD plan profile that would be extremely expensive. Group LTD carriers are conservative with offering these plan enhancements, especially when bundled. Never mind a plan design with 75% or 80% replacement of total compensation.
Many Fortune 500 companies have revised their long-term disability programs to include supplemental long-term disability insurance plans. These Supplemental plans can help protect up to 80% of base and bonus income when layered on top of Group LTD. Supplemental plans cannot protect 100% of income. Doing so would invite significant anti-selection according to the actuaries. But 80% is permissible and provides better protection than the “standard plan”.
Supplemental plans leverage non-can rates (fixed, state-filed rates) that cannot change for any reason, with group-like premiums. And since Supplemental claims experience has no negative impact on Group LTD claims experience or pricing, Supplemental plans in a sense serve as Group LTD’s version of “stop loss.”
Navis Benefits Group, LLC, specializes in Supplemental Long-Term Disability Insurance plans. Ask how Navis Benefits Group can help design, market, install, and administer a tailored Supplemental LTD plan.
