STD Question

diane

We have STD coverage beginning on the first day of an accident
or 7th day of illness. It's a self-insured plan with coverage lasting
up 90 days and pays 60% of the employee's base salary. Our policy doesn't
say much more than this. I assume that we should take taxes from the 60%
as well as continue the employee's deductions for medical, dental, LTD
coverage etc. Does that sound right? Is there anything else I'm leaving
out? Thanks!

Don D

Sounds like you're in a heap of trouble. This is a self insured STD with no third party administrator, no broker/advisor who wrote the policy, no policy provisions other than what you've listed and no handbook or resource manual for the policy? I wouldn't assume the payments are taxable since they aren't wages or that you need to continue the coverages you list. The policy may waive them or describe some other method of payment. If the secondary carrier for the long term has no interface with this short term policy and if nobody in the office at the company has any history with administering this policy and it's as poorly defined as you indicate, you either need to quickly discontinue it or define it. Insurance administration can't be 'shot from the hip'.

Lori B

The taxation issues depend on how the premium is being paid. We currently have a fully insured STD plan that is completely voluntary. (ie, if ee wants it, they pay 100% of the premium.) The ee pays the premium after tax, which means the benefits are the paid without tax. If the ee had paid the premium pretax, then the benefits would be taxed. Essentially, the govt wants their piece either going in or coming out. It seems to make more sense to me to pay taxes on the small premium than pay taxes on the much larger benefit piece. Please realize that this tax treatment is based on the specific fact that our ees are paying the premium 100%. Taxation issues differ when the employer pays part or all of the premium.

I would check with the bean counters for taxation issues in your case. Brokers are nice but not always that knowledgeable when it comes to things like taxation of benefits. Don't rely on them exclusively for guidance.

Contrary to others, I think a self insured STD plan makes a lot more financial sense than fully insured. However, having said that, you really need the services of a top notch TPA to administer it for you. A good TPA could also help with the plan design to minimize tax consequences.

Good luck.