2018 is upon us, and the state of California Employee Development Department State Disability Insurance program (commonly referred to as SDI) has increased the disability maximum benefits and income replacement percentage. Now that SDI is more comprehensive, have you reviewed your group Short and Long Term Disability (STD and LTD) insurance program, so that you or your employees are still receiving value for the premiums being paid to your private disability carriers?
So, what has changed with SDI? SDI has increased the maximum weekly benefit amount from $1,173 to $1,216 (for all eligible claimants) and also increased the income replacement percentage from 55% to 60% or 70% (depending on an employee’s income prior to the disability). If your highest quarterly earnings are between $929 and $5,229.98, your weekly benefit amount is approximately 70% of your earnings. If your highest quarterly earnings are more than $5,229.98, your weekly benefit amount is approximately 60% of your earnings. According to the Employee Development Department, 18.3 million California employees pay a mandatory contribution to the SDI program for Disability Insurance and Paid Family Leave coverage. It is important to understand how a private employer or employee paid Short and or Long-Term disability plans could be affected by this.
Most private group LTD plans include a 60% income replacement, $6,000 maximum monthly benefit (or $1,386 weekly benefit), 90-day elimination period (amount of time an individual must be disabled before eligible to receive benefits) and offset with SDI benefits. So, as an employer, if you are paying thousands of dollars in disability insurance premiums for employees to only receive $170 a week ($1,386 (Private STD Benefits)- $1,216 (SDI)) are you really getting your money’s worth? This example is a maximum benefit example, so in reality most claimants earning moderate incomes would be receiving the industry standard minimum private STD benefit of $10 per week up to the best-case scenario of $170 per week.
With SDI paying $1,216 weekly up to 52 weeks, an individual could max out SDI benefits up to $63,232. At 60% of an individual’s annual income, $63,232 would be adequate income protection for an individual making $105,386 or less annually.
Since SDI has a 52-week duration and now pays 60% or 70% of income up to $1,216 weekly, it might be time to examine lengthening the group LTD elimination period to 365 days so that employers can reduce disability premiums (lengthening elimination periods lowers LTD rates). In situations where employees are earning $105,385 annually, it might even make sense to remove employer paid STD all together. However, even for claimants earning minimum financial disability benefits, disability carriers provide exceptional rehabilitation, vocational services, transitional planning, occupational exploration, and return to work services. Every business has unique needs and employees may be impacted differently by the changes, so please reach out to me or your Montage representative for a free consultation on your current disability offering to analyze what makes sense for your organization.
In situations where employers want to provide maximum employee income protection, Montage Insurance Solutions can evaluate private disability carrier options that include: Voluntary STD plans that pay in addition to SDI, increasing group disability income replacement percentages up to 70%, and increasing maximum benefits amounts so that the highly compensated employees are receiving adequate income protection. In addition, there are Group Individual Disability options where the highly compensated can get Guarantee Issue (no medical questions) individual polices on a group basis.
As I learned from a previous and most charismatic mentor, (Marc Warrington, SVP of Sun Life Financial) “LTD doesn’t stand for Long Term Disability, it stands for Last Topic Discussed.” As brokers and consultants, it is our job to correct this market misconception and make employees’ paycheck insurance (AKA disability insurance) a priority. An employee’s ability to earn an income is their greatest asset so it is critical to evaluate if employees and employers are still receiving value through their private disability coverage.