How Does Employer Long-Term Disability Work?

If your disability insurance is through your employer, it may fall under a federal law called the Employee Retirement Income Security Act (ERISA). This law has strict rules for how you need to apply for benefits or file an appeal. It also affects your chances of approval. 

What is long-term disability through an employer?

Long-term disability benefits through your employer are typically offered to you through your employer-provided benefits package. If you choose to take part in the employer-provided long-term disability plan, you will be insured for benefits if you are no longer available to perform the material duties of your occupation. If you become disabled, you should contact your Human Resources Department at your employer and request an application for benefits.

Your employer has a fiduciary duty to help you if you need to file an application. Your employer will be required to complete part of the application where they will report to the insurance carrier your last day of work, your wages, and whether you are insured under the group disability plan.

After you file your application, the long-term disability insurance carrier will assess whether you are unable to perform the material and substantial duties of your regular occupation. It is important that you obtain an opinion from your doctors indicating your limitations. A statement that you are unable to work is not a powerful assessment. Rather, your doctor should provide an assessment as to your ability to function; particularly, whether you have limitations with sitting, standing, walking, and lifting. If your claim is based upon a mental health disability, you should obtain an opinion from your doctor or therapist regarding your ability to concentrate, focus, and interact with coworkers, supervisors, and the public.

If the long-term disability insurance company denies your application, you will have the opportunity to file an administrative appeal. The denial letter will supply the deadline that you have to file an administrative appeal. The deadline is usually 180 days (about 6 months); however, it could be less than that. This deadline is extremely important. If you miss the deadline, you will not have the opportunity to file a lawsuit against your long-term disability insurance company.

Pond Lehocky Giordano strongly suggests that you obtain an attorney to aid you with your appeal. Your attorney will use the 180 days to build your case. They should obtain any outstanding medical records, updated medical records, and opinions from your doctors regarding your ability to function. Our firm represents people who have filed appeals on their own and, almost universally, their file is without the medical documentation needed to prove their claim.

If your claim is denied after the administrative appeal, you will have the right to file a lawsuit to obtain a review of the long-term disability insurance company’s denial. However, you will not typically have the opportunity to submit any new evidence when you file your lawsuit, so it is imperative that you submit as much medical information as possible during your administrative appeal.

How long is long-term disability through an employer?

The group long-term disability policy through your employer will name the maximum duration of your long-term disability benefits. Most policies provide that the insurance company will pay for disability benefits until age 65. However, this statement is misleading.

Most employer-provided long-term disability policies provide for a dual definition of disability. For the first two years, the insurance company will pay your disability benefits if you are unable to perform the material duties of your regular occupation. After two years, the insurance company will only pay you long-term disability benefits if you are unable to perform the material duties of any other occupation. Some insurance policies may provide that you will have to earn 60-80% of your pre-disability indexed earnings for your benefits to end after their own occupation definition of disability ends.

Further, most long-term disability benefits offered through your employer will have a two-year limitation for any disability that is caused by mental health conditions such as depression, anxiety, and PTSD. This limitation may be overcome if you are hospitalized for mental health or if you have bipolar disorder, schizophrenia, and other severe psychological disorders.

If your long-term disability insurance company decides that you are no longer disabled, you should immediately contact an attorney to help you with filing an appeal. The insurance company will usually rely upon the opinions of a nurse or doctor who never met you to decide whether you should continue to receive long-term disability benefits through your employer’s policy. It is important for you to build the administrative record with all your medical records and the opinions of your treating physicians to defeat the insurance company’s attempt to deny your claim for long-term disability benefits.

Is employer-paid long-term disability taxable?

Long-term disability benefits through your employer may be taxable. Whether your long-term disability benefits are taxable is based upon how the premiums for the benefits were paid.

If your employer paid the premiums for your long-term disability benefits, the benefits are taxable. If you paid the premiums with after-tax income, the long-term disability benefits are not taxable.

You can look at your paystub for this answer. If federal income tax is taken out of your paycheck first and then you pay the premiums for your long-term disability benefits, then the benefits should not be taxable. If your premiums were paid with pre-taxed income, meaning the premiums were paid before any federal income tax was paid, then your long-term disability benefits are taxable.