Employer Perspectives On Disability Benefits

Transcription

1 Employer Perspectives On Disability Benefits A research study presented by The American College and MassMutual at the Benefits Selling Expo, April 7, 2011 Presenters: Lisa Karam, Tracy Shaw - MassMutual DI7118

2 Employer Perspectives On Disability Benefits Benchmarking Research on disability benefits Plan design Eligibility Maximums Buy-up coverage Supplemental coverage And Beyond Study results gleaned directly from plan managers Gaps and shortfalls Satisfaction Plan shopping Research conducted by Boston Research Group, a strategic market research and consulting firm specializing in the financial services and employee benefits industries. 2

3 Research Methodology A phone-based data collection methodology was used to meet the study objectives. The sample frame for the study consisted of the 3,000 largest firms in the United States based on sales revenue. o The sample list was purchased from Dun & Bradstreet and was augmented using the 401K Exchange and Hoovers.com databases to append contact information. A 16-minute computer assisted telephone interview (CATI) was conducted with the person who is most familiar with the firm s group long-term disability (GLTD) plan. o Interviews were conducted between July 26th and September 24th, o Interviews were completed with a Benefits or Human Resources director or manager. To correct for the size stratification, data were weighted to accurately reflect the number of firms represented by each size segment. Sample Size Validity The universe of companies for this study is the top 3,000 companies in the US, as measured by sales revenue. Because of the importance of this study, we drew a large sample, 316 observations. Sampling standards often identify a "large" sample as greater than 5% of the universe from which it is drawn. In this study, the sample was over 10% of the universe, yielding a maximum sampling error of approximately +/- 5.2 percentage points at a 95% confidence level. Interpreting Sub-sample Results When data are informative, we provide results by sales revenue sub-samples, including Top 500, 500-1,000, etc. The sample size necessarily declines within those sub-samples and the sampling error rises. The reader is advised to review results within sub-samples as directional Firm Size Number of Completed Interviews Sales Revenue Range* Median Sales Revenue* Median Number of Employees Top $4.6-$71.4 billion $11.3 billion 29, to 1, $1.95-$4.5 billion $2.7 billion 6,700 1,001 to 2, $760.0 million-$1.9 billion $1.2 billion 3, 800 2,001 to 3, $432.5-$753.9 million $562 million 2, *Based on sample information 3

4 Agenda Research Methodology Study Implications: Benefit Managers Study Implications: Benefit Brokers Study Implications: Benefit Users (Consumers) Overview and Summary of Key Findings About the Study Partners 4

5 Study Implications Benefit Managers 5

6 Benefit Managers Value Group Long Term Disability (GLTD) Employer s Perspective: Importance of GLTD Program to Benefit Offering Extremely Very Somewhat Not Very Not At All Extremely/ Very Important 16% 55% 26% 3% <1% 71% Top % 56% 21% 2% <1% 501 to 1,000 15% 54% 23% 8% 1,001 to 2,000 17% 57% 25% 1% 2,001 to 3,000 13% 52% 32% 2% 1% Q4.1: From the employer s perspective, how important is your group long-term disability program in your company s benefit offering? Would you say it is... 6

7 Most Plans Cover Only Base Salary At 60% % of Employees Base Salary Covered by Base GLTD Plan 50% or Less 51% to 60% 61% to 69% 70% to 100% Other Mean 15% 67% 13% 4% <1% 60% Top % 57% 17% 2% 501 to 1,000 17% 69% 6% 8% 1,001 to 2,000 11% 71% 16% 2% 2,001 to 3,000 13% 68% 13% 6% Q1.6a: What is the percentage of employees' base salary that is covered by your base long-term disability plan? 7

8 Maximum Benefit Amount $10,000+ At 61% Of Companies Larger companies tend to provide a higher maximum benefit amount. Maximum Monthly Benefit Amount for Base Plan < $5K $5K to < $10K $10K to < $15K $15K to < $20K $20K + 12% 27% 33% 16% 12% Top 500 7% 16% 23% 22% 32% 501 to 1,000 4% 22% 40% 22% 12% 1,001 to 2,000 11% 32% 32% 18% 7% 2,001 to 3,000 20% 31% 35% 8% 6% Q1.7a: What is the maximum benefit amount per month of your base group long-term disability plan? 8

9 Typical Waiting Period Is 180 Days The largest companies tend to have a longer waiting period compared to smaller firms. Waiting/Elimination Period 60 days or less 61 to 90 days 91 to 180 days days Median 7% 32% 55% 7% 180 Top 500 8% 16% 64% 12% 501 to 1,000 8% 15% 69% 8% 1,001 to 2,000 9% 41% 49% 2% 2,001 to 3,000 5% 39% 49% 8% Q1.5a: How long do employees need to wait once they become disabled before they can start receiving benefits under your group long-term disability plan? This may be referred to as the waiting or elimination period. 9

10 Typical Benefit Period Is To Age 65 Benefit Period 2 years or less More than 2 years To age 65 SSNRA Other 7% 4% 62% 14% 13% Top 500 4% 3% 67% 8% 18% 501 to 1,000 8% 6% 60% 13% 13% 1,001 to 2,000 10% 5% 55% 17% 14% 2,001 to 3,000 6% 4% 66% 13% 10% Q1.4: With your base plan, once an employee goes on long-term disability, for how many years do they receive benefits? This may be referred to as the benefit period. 10

11 Dual Definition Common In More Than Half Of Companies Smaller companies are less likely to have a dual definition of disability compared to larger companies. Definition changes at 24 months for nearly three-quarters of companies. Definition of Disability Own Occupation Any Occupation Dual Definition (Own/Any Occ) 24% 14% 63% Top % 10% 80% 501 to 1,000 15% 13% 72% 1,001 to 2,000 37% 11% 52% 2,001 to 3,000 21% 20% 59% Q1.10: Thinking about your base plan, which of the following is closest to the definition of disability in your group long-term disability plan? 11

12 Study Implications Benefit Brokers 12

13 Most Companies Comfortable With Plan Limits Is Maximum Benefit Amount Adequate? Yes No 90% 10% Why Maximum Benefit Amount NOT Adequate? Top % 7% It doesn t cover or adequately cover highly compensated employees 48% 501 to 1,000 88% 12% It doesn t provide enough to live on for most employees 30% Benefits are taxable, so employees get even less than the benefit amount 7% 1,001 to 2,000 90% 10% Other reasons (plan limitations, plan is changing, etc) 20% 2,001 to 3,000 89% 11% Q1.8: Do you believe the maximum benefit amount is adequate? Q1.9: Why don't you believe the maximum benefit amount is adequate? 13

14 Likely Because Limit Is Sufficient For Most Employees Larger companies tend to have a lower percentage of employees who earn more than the base plan limit. % of Employees Earning More Than Covered Limit of Base Plan None 1% to < 10% 10% to < 20% 20% to < 30% 30% to < 50% 50% + Mean 11% 46% 19% 8% 8% 9% 15% Top % 47% 21% 2% 2% 2% 4% 501 to 1,000 9% 35% 26% 9% 11% 11% 1,001 to 2,000 8% 49% 12% 12% 7% 12% 2,001 to 3,000 10% 46% 21% 7% 9% 7% Q2.2a: What percentage of employees earn more than the covered limit of your group long-term disability base plan? 14

15 Low Concern That Base Plans Under-Protect High Earners Concerned That GLTD Base Plan Does Not Fully Cover Employees With Income In Excess of Base Plan Limits Base: Companies that Offer Buy-Up Coverage Yes No 12% 88% Why Are You NOT Concerned GLTD Doesn t Fully Cover Highly Compensated Employees? Top 500* (n=19) 100% Number of employees affected is very small 26% 501 to 1,000* (n=15) 20% 80% Employees can buy up /purchase additional insurance23% Has never been an issue or a concern/not a priority 13% Benefit is standard for industry/competitive 10% 1,001 to 2,000* (n=23) 13% 87% Coverage is adequate for most employees 8% We have a separate plan that covers high earners 7% Other reasons 13% 2,001 to 3,000* (n=20) Q2.10: Q2.11: 15% 85% Is it a concern that your base long-term disability program doesn t fully cover employees who have income in excess of the group base plan limits? Why are you not concerned that your base long-term disability program doesn t fully cover employees who have income in excess of the group base plan limits? * Caution: Base size is less than

16 Variable Comp At Risk Is Variable Compensation Covered By Base Plan? Yes No 27% 73% Top % 73% 501 to 1,000 22% 78% 1,001 to 2,000 31% 69% 2,001 to 3,000 24% 76% Q2.1aa: Still thinking about your base plan, is variable compensation, such as bonuses or commissions, included in the income protected by your base long-term disability plan? 16

17 Half Of Companies Aren t Advised Of Executive Shortfalls Benefits Provider Has Discussed The Fact That Base Plan Doesn t Fully Cover Executives Base: Offer Buy-Up Coverage Yes No 53% 47% 22% say they have plans to talk to their benefits provider about Base Plan not covering executives Q2.12: Has your benefits provider discussed with you that your base long-term disability program doesn t fully cover employees who have income in excess of the group base plan limits? Q2.13: Do you currently have plans to talk to your benefits provider about your concerns? * Caution: Base size is less than

18 25% Offer Employees Buy-Up Coverage Within Group Plan The largest companies are somewhat more likely to offer buy-up coverage compared to smaller firms. Do You Offer Buy-Up Coverage Available Through GLTD Program? Yes, To All Employees Yes, To Select Employees Not Offered 19% 5% 75% Top % 3% 70% 501 to 1,000 27% 2% 71% 1,001 to 2,000 16% 8% 77% 2,001 to 3,000 16% 6% 78% Q2.3: Do you offer buy-up coverage that is available through the group long-term disability program to all employees, some employees or to none of your employees? This does not include any supplemental individual long-term disability plans that you may offer. 18

19 Maximum Monthly Benefit Is $15,000+ With Base And Buy-Up At 44% Of Companies Maximum Monthly Benefit For Base Plan + Buy-Up Base: Offer Buy-Up Coverage < $5K $5K to < $10K $10K to < $15K $15K to < $20K $20K + $15,000+ 9% 22% 25% 25% 19% 44% Top % 19% 27% 16% 31% 1,001 to 3,000 10% 25% 23% 32% 10% Q2.6a: What is the maximum benefit amount per month of your combined base and buy-up coverage? 19

20 Of The 25% Of Companies Offering Buy-Up, Lower Plan Limits = Higher Buy-up And Vice Versa Mean Maximum Monthly Benefit For Base Plan + Buy-Up Base: Offer Buy-Up Coverage Base Monthly Benefit Amount (Mean) Imputed Buy-Up Amount (Mean) % offer buy-up coverage $10,800 $2,200 $13,000 25% Base Plan Maximum Monthly Benefit Amount <$5K* (n=17) $5K to <$10K* (n=15) $2,800 $6,700 $4,200 $7,000 $2,300 $9,000 $10K to <$15K* (n=21) $10,200 $2,600 $12,800 $15K to <$20K* (n=14) $15,100 $900 $16,000 $20K+* (n=12) $24,000 $1,300 $25,300 Q1.7a: What is the maximum benefit amount per month of your base group long-term disability plan? Q2.6a: What is the maximum benefit amount per month of your combined base and buy-up coverage? * Caution: Base size is less than

21 15% Of Companies Offer Individual Coverage And 1 In 5 Have Recently Implemented The Offer Offer Supplemental Individual Disability Income Insurance Yes No 15% 85% Top % 87% 501 to 1,000 14% 86% 1,001 to 2,000 17% 83% 2,001 to 3,000 13% 87% When Was Supplemental Plan Implemented? Base: Offer Supplemental Disability Income Insurance < 3 Years Ago 3 to < 5 Years Ago 5 to < 10 Years Ago 10 + Years Ago 20% 18% 23% 39% Q3.1: Do you offer an individual disability income program to supplement the group plan? This is different than any buy-up coverage that you offer with your group plan. Q3.3a: In what year was the supplemental disability income program implemented? 21

22 Reasons Why Individual Coverage Not Offered Concern over costs and the administrative burden were also important reasons. Just 6% unaware that programs are available Reasons for NOT Offering Supplemental Disability Income Insurance Base: Do Not Offer Supplemental Disability Income Insurance Top to 1,000 1,001 to 2,000 2,001 to 3,000 Employees can purchase it on their own 76% 75% 85% 76% 73% Company is concerned about costs of plan 44% 37% 46% 37% 52% Administrative burden too great 37% 24% 42% 33% 44% Concern with enrollment activity 23% 19% 27% 21% 26% Unaware that programs are available 6% 5% 2% 7% 7% Q3.2: Which of the following are reasons why your company doesn t offer an individual disability income program to supplement the group plan? 22

23 Frequency Of GLTD Program Reviews Frequency of Evaluating GLTD Program Annually Biannually Every 3 Years Only When Needed Other 56% 11% 21% 9% 3% Top % 3% 27% 11% 1% 501 to 1,000 56% 12% 24% 6% 2% 1,001 to 2,000 55% 13% 25% 5% 3% 2,001 to 3,000 57% 12% 15% 15% 1% Q4.4: How often is your group long-term disability program evaluated by your benefits consultant or provider? Is it 23

24 Some Companies Are Considering GLTD Plan Changes The smallest companies are the least likely to consider making changes in the future. Considering Changes To GLTD Program Yes No 25% 75% Top % 74% 501 to 1,000 33% 67% 1,001 to 2,000 29% 71% 2,001 to 3,000 17% 83% 24 Q4.5: Are you considering making changes to your program in the future?

25 Primary Reasons For Considering Changes A few volunteered that changes would be due to poor customer service from current provider. Reasons for Future Changes Base: Considering Changes To Disability Program Top 500* (n=15-16) 501 to 1,000* (n=15-16) 1,001 to 2,000 2,001 to 3,000* (n=17) Changes to benefit offerings 74% 59% 81% 73% 76% Cost efficiencies 61% 25% 62% 67% 76% Changes to supplemental programs 53% 50% 53% 47% 65% Taxation issues 21% 22% 38% 13% 18% Self insuring the plan 5% 0% 7% 7% 6% Other Reasons 43% 58% 19% 47% 47% To be competitive/to continually enhance/improve the program: 16% Cost increase: 5% Merger/acquisition: 4% Poor customer service from current provider: 2% All other mentions: 15% Q4.5a: Which of the following are your reasons for making changes in the future? * Caution: Base size is less than

26 Study Implications Benefit Users (Consumers) 26

27 Benefit Managers Feel Group LTD Is Less Valued By Employees Employees Perspective: Importance of GLTD Program to Benefit Offering Extremely Very Somewhat Not Very Not At All Extremely/ Very Important 14% 37% 41% 7% 1% 51% Top % 45% 34% 5% 2% 501 to 1,000 17% 40% 33% 10% 1,001 to 2,000 14% 35% 41% 10% 2,001 to 3,000 12% 35% 48% 4% 1% Q4.2: From your employees perspective, how important is this benefit? Would you say it is... 27

28 GLTD Premiums Mostly Paid For By Employers Employee Contribution % to Base Plan Premium Zero 1% to < 100% 100% Other 68% 10% 22% <1% Top % 12% 25% 501 to 1,000 74% 4% 20% 2% 1,001 to 2,000 63% 10% 27% 2,001 to 3,000 72% 13% 15% Q1.2a: What percent of the premiums for the base long-term disability plan are paid for by the employee? 28

29 Variable Comp At Risk Is Variable Compensation Covered By Base Plan? Yes No 27% 73% Top % 73% 501 to 1,000 22% 78% 1,001 to 2,000 31% 69% 2,001 to 3,000 24% 76% Q2.1aa: Still thinking about your base plan, is variable compensation, such as bonuses or commissions, included in the income protected by your base long-term disability plan? 29

30 Study Implications: Overview Benefit Managers Benefit Brokers Benefit Users Most base plans provide for most employees Thoughtful plan designs Most base plans do not protect high earners Opportunity for plan design discussions Executive shortfalls Theory versus practice Base plans offer basic protection Most times, benefits are taxable Disability coverage may be undervalued Lack of product understanding Don t see it, feel it or touch it Unaware of income gap 30

31 Key Findings: Plan Summary Base Plan Buy-Up Coverage Supplemental Coverage 60% of employees base salary covered by base plan 27% of base plans include variable compensation 68% of employees pay $0 for plan 61% of plans have $10,000 and more for max benefit amount 61% of plans have a waiting /elimination period of 90 days 62% have benefit period to age 65 63% have dual definition of disability Plan limits are generally acceptable and cover most employees 15% (mean) of employees earn more than base plan limit 36% of companies make additional coverage available Nearly 25% do so with buyup coverage within base plan Maximum monthly benefit is $15,000 or greater with combined base and buy-up coverage for 44% of companies* Lower base plans often mean higher buy-up offerings* 15% offer individual coverage Top reason not offered is employees can purchase on their own 51% (mean) of employees are eligible for supplemental coverage** 43% (mean) of eligible EEs have purchased supplemental coverage** 30% of companies have special class for high earners Based on those who offer buy-up coverage. **Based on those who offer supplemental coverage. 31

32 Summary: Beyond Benchmarking 85% of companies are completely or very satisfied with products and service provided 47% of benefit managers surveyed said providers have not advised them of executive shortfalls in coverage 56% of plans are reviewed annually 52% of small companies have shopped their plan within the past year 35% of large companies have shopped their plan within the past year 25% of companies are considering changes to the GLTD plan 32

33 About The Study Partners The American College The American College is a non-profit educational institution with the highest level of academic accreditation dedicated to leadership in innovative training and development for financial services professionals. The College is distinguished by resources of the highest quality, innovation in program delivery and design, and results that create sustainable advantages for our customers. Serving as a valued business partner to banks, brokerage firms, insurance companies and others for over 83 years, The American College has assembled a faculty of the foremost thought leaders in the industry to help companies and their employees succeed. MassMutual Founded in 1851, MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyholders. The company has a long history of financial strength and strong performance, and although dividends are not guaranteed, MassMutual has paid dividends to eligible participating policyholders every year since the 1860s. With whole life insurance as its foundation, MassMutual provides products to help meet the financial needs of clients, such as life insurance, disability income insurance, long term care insurance, retirement/401(k) plan services, and annuities. In addition, the company s strong and growing network of financial professionals helps clients make good financial decisions for the long-term. Boston Research Group Boston Research Group (BRG) is a strategic market research and consulting firm that specializes in the financial services and employee benefits industries. BRG conducts projects that deal with both strategic and tactical marketing issues, including loyalty and satisfaction, market segmentation, brand assessment, product development, sales processes, and distribution strategies. BRG s work focuses on applying market research information, collected and analyzed using qualitative and quantitative data collection techniques and methodologies, to provide solutions for marketing-related challenges. 33

34 The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individual disability income insurance polices are issued by MassMutual Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives. 34 CRN