The Employee Retirement Security Income Act (ERISA) is the overarching federal law regulating virtually all employee benefit plans. Congress enacted ERISA in response to various employer actions that severely injured employee benefit plans. The law imposed various mandates on employer-sponsored benefit plans and made those involved with operating the plans statutory fiduciaries to the plan participants.
ERISA, implemented by the Department of Labor (DOL), has jurisdiction over retirement plans of various sorts, employer-provided health care, and most other plans through which employers provide benefits to employees, including various types of disability coverage. In exercising its jurisdiction, ERISA imposed minimum standards on retirement, health, and other welfare benefit plans, including life insurance, disability insurance, and apprenticeship programs.
Enacted in 1974, ERISA had a major impact on employee benefits. For example, ERISA does not require that employers have pension plans of any sort, but it does require that access and benefits be equitable if an employer has a plan.
Benefits must vest promptly and never in more than six years. ERISA requires that employers give employees minimum information about plan features and set minimum standards for employee participation in the plans for health care. ERISA also makes fiduciaries of those who administer the plans.
Disability Insurance Benefits
Disability insurance of any kind provides the insured with benefits of regular payments replacing income lost due to short or long-term disability. It is insurance where either the employer or the individual employee pays premiums through a payroll deduction or a direct policy purchase. There are various types of disability insurance, which may be employer-provided, individually purchased, or offered by a branch of government.
In general, ERISA has authority over any plan, fund, or program that offers health, sickness, accident, or disability benefits to employees. However, ERISA excludes most short-term disability plans from this coverage.
A short-term disability insurance plan does not come under ERISA if:
- Only current employees are covered, and they continue to be covered while absent from work for the short-term disability.
- The payments do not exceed the employee’s normal compensation.
- Payment comes out of the employer’s general assets, not insurance or a separately funded program.
- Payments only apply when the employee is physically or mentally unable to perform work-related duties or otherwise absent for medical reasons. Examples include psychiatric treatment, parental leave, or medical treatments or exams.
If a plan omits one or more of these, it is subject to ERISA. We discuss the various kinds of disability insurance below.
Becoming disabled is not uncommon. A 35-year-old American has a 50 percent chance of suffering a 90-day or longer disability before turning 65. About three out of ten Americans aged 35 to 65 will suffer at least a 90-day disability during their work life. Similarly, about one in seven of that same group can expect to experience a five-year or longer disability. Despite these facts, many more Americans have life insurance than have disability insurance, leading to nearly half of all mortgage foreclosures resulting from the homeowner’s disability.
Long-Term Disability Insurance
Long-term disability insurance makes monthly benefit payments if you become unable to work due to injury or illness. The plan includes a benefit period that can make payments from as little as two years and as long as until your retirement age. The monthly benefit amount can be as high as 60 percent of your gross monthly income. Premiums for the policy are usually between one and three percent of your salary.
The two basic types of long-term disability insurance are:
- Any-occupation Disability Insurance—Any-occupation disability only pays benefits if your disability makes it impossible for you to work at any job that you’re reasonably suited for. This extent of disability is hard to prove, and it’s harder to receive benefits because “any job” is a pretty big category. However, it is generally rather cheaper for the same reason.
- Own-Occupation Disability Insurance—Own-occupation disability pays benefits if you cannot work at your regular occupation, even if you can do work other than your own occupation. Own-occupation disability offers three variations:
- True Own-Occupation—if you can’t perform the duties of your own occupation due to injury or illness, you get benefits even if you work at a different job. You do not have to be completely unable to work.
- Transitional Own-Occupation—if you can’t work at your own occupation due to injury or illness and get a new job paying less than you made at your own occupation, you will receive benefit payments sufficient to make up the difference.
- Own-Occupation, Not Engaged—if you can’t perform the duties of your own occupation due to injury or illness and haven’t yet found a new job, you get benefits to cover the gap. Those benefit payments will stop once you start a new job in any field.
Short-Term Disability Insurance
Just like long-term disability, short-term disability insurance replaces up to 60 percent of your pre-tax income if you can work due to injury or illness. The benefits, however, will last no more than one year. Employers usually offer short-term disability and, in some states, they must offer them. A few states even offer their own plans.
Because the average disability lasts for about three years, short-term disability is insufficient to protect the insured. It does not replace long-term disability insurance. Instead, they usually have much shorter waiting periods for benefits to begin, so they supplement a long-term policy. Unfortunately, short-term policies are generally as expensive as long-term policies, making them less cost-effective.
Qualifying for short-term disability payments requires meeting the definition of disability in your policy.
However, the insurance will cover situations like:
- Major surgery and your recovery period
- Mental health issues and leave
- Recover after an accident, injury, or major illness
On occasion, it is possible to make arrangements to return to work early or on an accommodated work schedule.
The benefits for all to permitting this include:
- The employee makes a gradual transition back to work, continuing to recover while getting back into the routine of work
- The employer is more likely to retain an employee who returns sooner and gradually than one who takes a long leave but comes back full-time.
- The insurer will pay less in benefits due to an earlier return to work and reduced benefits.
Short-term disability insurance is usually available from your employer. You may purchase it separately, but individually purchased plans are usually far more expensive than employer-provided plans.
Mortgage Disability Insurance
Mortgage disability insurance, also called mortgage payment protection insurance, is long-term disability insurance that will pay your mortgage payments if you can’t work due to an illness or injury. It’s a good alternative if you don’t qualify for regular long-term disability coverage and don’t want to default on your mortgage.
Mortgage disability insurance can be purchased from your mortgage lender, an insurance agency, or a broker and doesn’t require the typical underwriting process or medical exam that other long-term disability insurance policies do. Because your employer does not supply it, ERISA does not cover it.
Supplement Disability Insurance
Supplemental disability insurance closes the benefits gap between your employer’s disability plans and the full amount of money you need to cover your expenses if you cannot work. It is purchased individually directly from an insurance company or agency. As with mortgage disability insurance, since your employer does not pay for it, it is not subject to ERISA.
Social Security Disability Insurance
Social Security Disability Insurance (SSDI) is a federal program administered by the Social Security Administration. SSDI provides some monthly payments to some disabled American workers and their families. The application process is long and arduous, and the denial rate is high, especially on the first application. Even if you obtain benefits, the average payout is only $1,000 per month. As a federally operated program, SSDI is not subject to ERISA.
State Disability Insurance Plans
Five states offer state-sponsored disability plans: California, Hawaii, New Jersey, New York, and Rhode Island. The details vary from state to state. These plans are generally mandatory and only grant benefits to the totally disabled.
You will receive Louisiana Workers Compensation Permanent Total Disability benefits if a judge determines that you permanently cannot work. If approved by the Louisiana Office of Workers Compensation, you will receive weekly benefits or a lump-sum payment.
In your applications for benefits, you must present evidence from your treating physician and a Vocational Rehabilitation Expert to persuade a court that you should receive benefits. Some catastrophic injuries will create a presumption of disability.
Workers Comp in Louisiana also offers Temporary Total Disability and Supplemental Earnings Benefits. It is easier to get these than to qualify for Permanent Total Disability.
Total Disability Benefits
Different programs have slightly different definitions of total disability. On average, however, total disability means that you are no longer working at any work for the rest of your life due to injury or illness. Once you are permanently totally disabled, you may receive certain other benefits. These include penalty-free IRA withdrawals and discharge of your student loan. Some disabled persons in Louisiana may also receive health care benefits, hunting and fishing licenses, free passes to state parks, and a property tax exemption.
Most insurance companies will presume certain injuries or illnesses to cause total disability.
These usually include:
- Loss of sight in both eyes
- Loss of hearing in both ears
- Loss of the ability to speak
- Loss of the use of both hands or both feet
- Loss of the use of one foot and one hand
Under these conditions, you won’t have to meet the usual requirements for disability and will begin to receive benefits immediately. In most cases, the benefits will continue even if you do return to work.
Residual Disability Benefits
A residual disability benefit is the payout of partial disability benefits. They help the insured get back to work even if they cannot yet complete all their job responsibilities.
The benefit payments are calculated on the amount of your income you’ve lost due to your disability. Most policies require losing at least 20 percent of your income to qualify for residual disability. You may lose your benefits if you begin earning a certain percentage of your pre-disability income. Some policies require that you qualify as totally disabled before any benefits begin.
Qualifying for Residual Disability
Calculating Residual Disability
Some policies restrict the amount of income the insured can receive and continue to collect. To determine your payments on a residual disability policy, begin by determining the amount of the income loss suffered. Then apply that percentage to the normal disability benefit on the policy.
Using, as an example, 50 percent of the benefit and a benefit of $1,500, the residual benefit would be $750 ($1,500 times .50). Under this scenario, the worker is physically on the job part-time and is earning 50 percent of the previous amount.
Work With a Disability Attorney Today!
If you or a loved one has become disabled, work with an experienced disability attorney to obtain the disability benefits you need. When your physical and emotional states are at their lowest, do not fight this battle alone. Contact a skilled disability attorney today for an initial consultation and evaluation of your case, and start the process of getting your rightful benefits today.
Following graduation from Loyola Law School in New Orleans in 1990, Price McNamara served as a Federal Judicial Law Clerk to the Honorable John M Shaw, Chief Judge, United States District Court Western District of Louisiana.
Mr. McNamara founded the Law Offices of J. Price McNamara, and began putting his past experience to work for the injured and disabled clients he now represents against the insurance companies in personal injury and long term disability and other insurance disputes in both federal and state courts