As companies are reducing hours and wages the human resources professional may need to review the impact towards the employee benefit program. If your company has reduced the salaries of the employees and they are working the same hours then you will want to check your life and disability offerings.
At the point of adjudication of the claim, which would be the claim date, the life and disability carrier will ask for the salary earned the day before the claim date. If your employee’s life insurance benefit is a 1, 2, 3, 4 or 5 times the salary you may want to put a temporary revision in place to your contract if your company has reduced salaries.
Many companies are continuing to pay the premium based on the salary and if the salary goes down it is important to ensure the benefits are not going down as well, unless this is your intention. Some carriers will adjudicate the claim based on the premium; however it is important to ask the question, because you may be paying the higher rate and the benefit may reduce.
According to Louis Gallucci from The Hartford, these are a few questions you may want to ask your carrier representative:
- If a claim was to occur during this reduction of salary period of time, would we be able to calculate the salary off an average of six months of income rather than the salary at the point of the claim?
- If you believe the reduction of salary period of time will go beyond a six month period of time, then you may want to amend your plan document.
- If your employee’s hours have been reduced lower than the thirty hours, or number of hours to qualify for your employee benefit plans, you may ask to amend your contract to the current number of hours worked to qualify.
- Another alternative would be to inform your carrier your salary has reduced and you do not want the benefit to reduce. You can determine if you need to add 5% or 10% to the amount of benefit. So instead, if 1 x salary was $45,000 and has been reduced to $40,000, then you will add an 11% or 11.5% increase to the benefit to be paid out. This would be a change to a 2.1% or 2.2% depending on your needs. This way your employee’s loved ones will not receive less than the employer desires.
As far as the disability products, it is possible to amend your Summary Plan Document (SPD) adding the provision to 70% all source. In order to make up for the decrease in salary, the company can ask for this contract change. The carrier will not offset from other sources of income, including CASDI, until the employee has 70% of their income. Contact your carrier for your plan details.