You own a highly successful software company with 30 employees...

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1 You own a highly successful software company with 30 employees... John is a key manager for your company. He oversees the sales department and has been instrumental in the rapid growth of your business. He is unexpectedly hospitalized and his recovery will be for several months. John has been a loyal employee and a real asset to your company, so you decided to continue to pay John s salary so his family won t suffer. Your sales department and your company income will suffer without leadership so you worry about whether to find a temporary replacement for John. But it just doesn t make sense to pay two salaries for one job. What if John s recovery is longer than expected? You worry about how long you ll be able to continue to pay him. And now your tax accountant has just informed you the salary you have been paying John is not a valid tax-deductible business expense. How did this happen? You didn t establish a Qualified Sick Pay Plan for your company. A business owner could ignore the issue until an employee becomes disabled. However, at that point it, is too late to get the tax advantages allowed under a Qualified Sick Pay Plan. The plan needs to be established before a disability strikes, so establishing a Qualified Sick Pay Plan is smart business. What does a formal Qualified Sick Pay Plan do for the business owner? It outlines: a. class or classes of employees to be covered under the plan; and b. the amount of benefit payments to be made; and c. the period over which payments are payable For Producers Only 1

2 DISABILITY INCOME INSURANCE FOR SMALL BUSINESS QUALIFIED SICK PAY PLAN PRODUCER GUIDE For Producers Only

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4 The plan needs to be established before a disability strikes... Creating this formal plan will a. assure favorable tax treatment of employer contributions b. give the business owner control over who receives benefits, the level of benefits and cost to the business A business owner can decide to self-fund this Plan or to utilize a disability income policy to provide the benefits. Even if it were practical to self-fund the disability risk, most businesses do not have time to adequately build a fund. And if the fund is not for 100% of the risk, there is a good chance it will be underfunded. Disability income insurance is the optimal funding choice. Funding with MassMutual disability income insurance allows the employer to effectively transfer the financial risk to the Massachusetts Mutual Life Insurance Company and remove the key employee from the payroll, in whole or in part, during a period of disability will replace a potentially uncontrollable and costly drain on the business with a small, fixed expense provides payment of benefits to the disabled key employee directly from Massachusetts Mutual Life Insurance Company can help the employer fill a moral obligation to key employees while improving employee morale can strengthen the company s credit position as it reflects good business management has benefits which are clearly defined in the contract offers flexible funding arrangements to meet specific employer needs can be at a discounted premium with 3 or more participants 2 For Producers Only

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7 Prospecting Getting Started Now that you know how MassMutual can provide the solution to funding a Qualified Sick Pay Plan, you can effectively sell and establish this program. When looking for prospects for the Qualified Sick Pay Plan, your advantage is that almost every business is a candidate. To be most effective, focus on those businesses that fit into the MassMutual target market such as small businesses and professional practices. In larger organizations, this opportunity may present itself as an executive carve-out for highly compensated employees who are not adequately protected by the plan provided. What are our target businesses? Accountants, Architects, Attorneys, Engineers, Banks and the Computer Industry are just a few. Some sources for leads 1. Review your existing client files some of them may fit the profile and need a Qualified Sick Pay Plan. Why not schedule a visit with them to review their current plan for dealing with employee absences due to injury or illness? 2. Chamber of Commerce successful businesses have aligned themselves with local chapters. This is helpful if you want to focus on a specific industry. 3. Who do you do business with yourself? You have already developed a business relationship with them so why not offer them this valuable program? 4. Lists some lists can be bought and can provide you with a lot of names through organizations (such as Dun & Bradstreet You will still need to screen them. However, you can go to the local library and obtain information about local businesses in the reference section. Although a little more work, it s free! For Producers Only 3

8 The key to working the numbers is persistence. Don t be discouraged... Approaching Prospects Not all prospects will give you an appointment. However, you can increase the percentage that will by following four steps: 1. Be persistent 2. Choose an approach method 3. Know your pre-approach and approach goals 4. Know what to say during your approach 1. Be Persistent No matter how carefully you ve prepared, you won t get an appointment with each business owner you contact. Some will say yes and some will say no. Your challenge is to approach enough prospects so you can generate enough appointments that will, in turn, close enough new accounts. The key to working the numbers is persistence. Don t be discouraged when you hit a dead end and don t be turned off when you can t get through to the right person. It is important to keep at it. Some tips Set aside a regular time for making approaches. The best times for contacting business owners are early morning between 8:00 AM and 9:30 AM, just before lunch, or late in the day between 4:45 and 5:30 PM. Follow through on promises made if you promised to make a followup call or send out material, do it. Decide on your approach before you make contact. And know what you are going to say. Don t get discouraged when people say no. No could mean not today so keep the names you have in a database and continue to follow up with these small businesses with periodic mailings. When they need some financial service, they will remember your name. 4 For Producers Only

9 2. Choose An Approach Method Send a pre-approach letter with a lead brochure, followed by either a phone call or a visit to the company. See Appendix A for a sample pre-approach letter. A SAMPLE APPROACH Here are some ideas on a telephone script customize it to fit your personal style. MM Rep: Hi. My name is XXXX calling from Massachusetts Mutual Life Insurance Company. Is Mike Jones in? (If you get an administrative assistant who asks who you are and what you are calling about try I have been corresponding with Mike on a financial matter and am calling to follow up on material I recently sent him. Is he in? ). Business Owner: Hello. MM Rep: Hi. My name is XXX calling from Massachusetts Mutual Life Insurance Company. I understand that you are extremely busy, so I would like to speak with you briefly. Is this a convenient time? If NO, MM Rep: When would be a good time to call? Would Monday at 2 PM be convenient? If YES, MM Rep: The purpose of my call is to follow up on some material I sent to you last week on our funding of a Qualified Sick Pay Plan for your business. Did you receive the information? If NO or YES, MM Rep: The mailing was material designed to provide you with information on how to protect your business from the impact of a long-term disability of an employee. I can offer you a program that will be invaluable to you and your business, that will take only a few minutes of your time to explain. Do you have 30 minutes next Tuesday or Wednesday morning? If still no, MM Rep: I promise to make this an informational meeting with no high-pressure sales tactics. Is Tuesday convenient? For Producers Only 5

10 Your goal regardless of method is to get the appointment with the business owner. THE FACE-TO-FACE APPROACH You may be more comfortable going directly to the business and speaking with the business owner. This is meant to secure a future time for a more detailed discussion, but be prepared for the possibility that the business owner will have the time to discuss salary continuation right then and there. So have a formal presentation ready and available. 3. Know Your Pre-Approach and Approach Goals Your goal regardless of method is to get the appointment with the business owner. Use the face-to-face interview to explain the program. Defer requests for more details or information to the appointment. It s important that you deal effectively with the decision-maker for the company, so keep in mind these additional points: a. identify the person who makes the benefit decisions for the company b. determine the best way to communicate with the decision-maker c. if the business owner refers you to someone else in the company, work with that person d. interest the decision-maker in your ability to bring business solutions You want to use the same track for all three approaches highlight the problem, offer to discuss the solution, and promise to keep it short. The objective is to get the interview not sell the program. Although we are presenting individual disability income insurance protection in a Qualified Sick Pay Plan program, don t be closed to other opportunities that may be presented. This is an underserved market and there may be many opportunities. 6 For Producers Only

11 4. Know What to Say During The Approach Every prospect is different, but you can follow some general guidelines when you plan your approach. A good approach should include the following: introduce yourself and your company - My name is XXX and I work for Massachusetts Mutual Life Insurance Company. I specialize in disability benefit plans for business owners. Ask permission make sure it is a convenient time for the decisionmaker. State the purpose of the call quickly and concisely state the reason for your contact. I am calling to ask for a 15-minute meeting to a policy that will fund a salary continuation plan for your company and why it s important to your business. Request an appointment Would Friday at 8:30 be convenient or would Tuesday at 2:00 be better? Respond to questions and deal with objections and or concerns be prepared to deal with resistance and respond to objections. Don t be defensive or argumentative. Don t get into the details of your service or the program remember your goal is not to make the presentation but to get an appointment. Confirm the next steps if successful, confirm the time and place for the appointment. If not successful, offer an alternative such as a call at a later time or a mailing. Express appreciation always thank the person for their time and attention. Follow up letters with a phone call within a week of mailing. Be sure to call when the letter says you will. Know exactly what you are going to say before you pick up the phone. Know your schedule before you pick up the phone. Use a pleasant tone of voice, confident but never aggressive. Deliver your message concisely and efficiently, never pushy. Make a sincere effort to answer questions while maintaining control of the conversation. Be open to other opportunities if the employer already has a Qualified Sick Plan in place, suggest an individual disability income insurance supplemental buy-up program. If the decision-maker is not available, ask for a time when you can call back and reach that person. Be open to other opportunities if the employer already has a Qualified Sick Plan in place, suggest an individual disability income insurance supplemental buy-up program. For Producers Only 7

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15 The Interview Step One Establishing the Need Your goal is to assist the business in establishing a MassMutual funded Qualified Sick Pay Plan. Begin by obtaining information about the business. The best way to accomplish this is to ask the business owner about his or her business how it started, how it works, what the business plans are. This is an important time to learn about the business. The business owner will tell you how revenues are generated, who the key employees are, whether or not there is a sales force, and the value statement of the business owner. It is important to actively listen during this time period. After you understand the business a little bit better, ask What is your wage continuation plan? The business owner will have one of several answers, such as I don t have one or I ll treat that on a case-by-case basis or I would pay some people but I wouldn t pay others. Unless the business owner already has a Qualified Sick Pay Plan in place, there are three main issues to bring to his or her attention. The problem that faces the business owner is threefold: 1. without an established Qualified Sick Pay Plan, wages paid to a disabled employee are not considered a business expense and therefore are not tax-deductible 2. without an established Qualified Sick Pay Plan, the employer may set a legal/moral precedent by paying the salary of one employee while disabled 3. without an established Qualified Sick Pay Plan, the employer has to reserve funding to pay the disabled employee as a business liability from the company s balance sheet Many small business owners are unaware of the risk they may not even know they have a problem. It s your job to not only make them aware of it but to also provide the solution to the risk. Establishing a Qualified Sick Pay Plan will provide financial protection in case of a disability, provide tax breaks and reduce business risk. So your first step is to determine if a Qualified Sick Pay Plan exists doing so will give direction on your overall approach. For Producers Only 9

16 If the decision is not to provide any coverage, it s important the business owner understand the need to establish company policy before a disability occurs by communicating that decision to the employees. If a Qualified Sick Pay Plan already exists You may have already determined this while setting up your interview, but if not, your next step is to determine what type of funding is used to support the Qualified Sick Pay Plan. Is it selffunded? Talk about the benefits of transferring that risk to MassMutual it allows the firm to predetermine the cost of its salary continuation plan low, fixed cost per benefit dollar, establishes the benefits and duration, and provides tax advantages to the company. Does a group carrier fund it? Review their existing group summary plan. Suggesting the company purchase supplemental individual buy-up policies may be most appropriate for this company. If a Qualified Sick Pay Plan does not exist The business owner has, in essence, two options he or she can choose not to provide any coverage at all or can choose to establish a Qualified Sick Pay Plan that outlines what the company will provide to some or all employees. If the decision is not to provide any coverage, it s important the business owner understand the need to establish company policy before a disability occurs by communicating that decision to the employees. However, if the business owner opts to establish a Qualified Sick Pay Plan, the next decision is about funding the plan. The business owner again has two options to self-fund or to fund through an insurer. This is where you can talk about the advantages of funding the plan through MassMutual. Step Two Providing the Solution It is important that the employer understand the requirements and recommendations in advance of placing a multi-life case. MassMutual doesn t create the Plan the employer does. What MassMutual provides is the disability income insurance that funds the plan. It s the funding that transfers the risk and administration to MassMutual. 10 For Producers Only

17 Once you have established the need for MassMutual to fund the employer s sick pay plan, do some fact-finding about the company. Use the Qualified Sick Pay Plan Blueprint Specs form to obtain information about the employees to be covered. This is the time to discuss the coverage design with the employer what the benefit amounts will be, how long a waiting period, benefit period, etc. In addition, explain the application process and establish the application timeline. Now you are ready to develop an implementation plan for this business. Step Three Implementing the Qualified Sick Pay Plan Complete the application and underwriting process for the employees covered under this plan. Offer the employer a MassMutual Solution Package. This package will contain: 1. a sample company resolution 2. a sample Qualified Sick Pay Plan 3. a sample Employee Notification letter 4. Multi-Life Design Presentation outlining the coverage and costs per covered employee. Deliver the Solution Package along with the issued policies. This package includes samples of a Corporate Resolution, a Qualified Sick Pay Plan and employee notification letter. The employer will need to create the actual documents specific to his or her business with the assistance of legal counsel. For Producers Only 11

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21 Implementing the Plan Here are the steps for the employer to complete the implementation of the Qualified Sick Pay Plan. Step One Corporate Resolution The company should create a carefully worded resolution by the board of directors that will officially document the existence of the plan and the intention of the employer. The resolution should include: a. class or classes of employees to be covered under the plan; and b. the amount of benefit payments to be made; and c. the period over which payments are payable. IRS regulations permit distinguishing between classes of employees and between employees within a class to provide qualified sick pay benefits. Some examples of employee classifications: Officers Executives Senior Officers Administrators Non-titled Employees Technical/Professionals Full-time Employees Salespersons Titled Employees Supervisors Managers Junior Officers This list is by no means exclusive. Other employee classifications or combinations of classifications are possible and should be determined with the help of the employer s counsel. Whatever classification is chosen, legal counsel should make sure that the class is clearly defined in the Plan to indicate precisely who is eligible to participate. Typical language defining an occupational class might be: Any person who is or becomes a full-time employee of the Corporation will be eligible to participate in the benefits provided by the Plan unless that person is currently covered for disability under a collective bargaining agreement. Full-time means that an employee customarily works at least nine months in each year and at least 30 hours in each week. See insert for a sample Corporate Resolution NOTE: Plans that cover other than management or other highly compensated key employees may be subject to additional reporting and disclosure requirements under the Employee Retirement Income Security Act of For Producers Only 13

22 Step Two the Qualified Sick Pay Plan The employer should consult with legal counsel... Once the board of directors has adopted the resolution, a Qualified Sick Pay Plan can be created outlining the specifics of the plan. This would include identifying MassMutual as the provider of the disability income policies that would fund the plan and administer any claims. The employer should consult with legal counsel to ensure that the Qualified Sick Pay Plan, in its final form, conforms with the Age Discrimination in Employment Act (ADEA) as well as recent decisions by the US Supreme Court that compel an employer to provide equal benefits for similarly situated employees without regard to sex. These decisions state, generally, that an employer cannot require similarly situated employees to make unequal contributions for or provide unequal plan benefits on the basis of sex. A copy of the Corporate Resolution, Qualified Sick Pay Plan, and any related documents should be distributed by the company s attorney to the Employer, the Attorney s files and the MassMutual agent. See insert for a sample Qualified Sick Pay Plan Step Three Notifying the Employees Next, the covered employees need to be notified along with a copy of the disability income policy. This notification can include a Letter outlining the Qualified Sick Pay Plan. This completes the notification process and establishes the specifics of the Plan. See insert for a sample Employee Letter Notification You Have Successfully Established a Qualified Sick Pay Plan for This Company! 14 For Producers Only

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25 Tax Guide to Qualified Sick Pay Plans The following is provided as a guide to how the Internal Revenue Codes and other laws affect Qualified Sick Pay Plans. Massachusetts Mutual Life Insurance Company and its agents do not provide legal advice or services. Clients should consult with their own counsel for legal services. Through the Employee Retirement Security Act of 1974, the U.S. Department of Labor requires that sick pay plans be "established and maintained pursuant to a written instrument." A sample plan document is included in this kit. Another ERISA requirement is that a summary plan description be distributed to all plan participants. A sample Key Employee Notification letter is included in this kit. Finally, we have included a sample resolution of the board of directors for instances where one is required. Note that these samples are provided for informational purposes only. They are not nor are they intended to be suited to all possible circumstances. It is important that the final plan documents meet the needs of the business. Also keep in mind that under an insurance-funded plan, the participation of some or all prospective participants may depend on the underwriting process. So plan documents shouldn t be finalized until the appropriate individual underwriting decisions have been made. Qualified Sick Pay Plan Requirements Federal Age Discrimination in Employment Act. Established to prevent discrimination against workers over age 40, ADEA prohibits employers with 20 or more employees from setting age limits for participation in benefit plans. With an insured sick pay plan, an employer might have a problem with ADEA if an employee is over age 40 and doesn t meet MassMutual s underwriting requirements. If this happens, the employer may want to consider other alternatives to a sick pay plan. It is essential that the legal counsel drafting the Qualified Sick Pay Plan conform to ADEA requirements. For Producers Only 15

26 It is essential that the legal counsel drafting the Qualified Sick Pay Plan conform to ADEA requirements. Various State Fair Employment/ Human Rights Laws. In many cases, state laws extend the requirements of Federal laws to even smaller firms. In drafting plans, legal counsel must pay attention to these laws as well as federal acts. Federal American With Disabilities Act. This act is meant to protect those Americans who have disabilities. However, it is important to note that this act will not prohibit nor further restrict employers from establishing any employee benefit plan, including a qualified sick pay plan, as long as that plan complies with applicable state laws. Employee Retirement Security Act of All employee welfare plans including qualified sick pay plans are subject to ERISA plan document requirements, reporting and disclosure rules, and fiduciary standards. For starters, all plans must be established and maintained according to a "written instrument" or plan document. Benefit Treatment in Qualified Sick Pay Plans Internal Revenue Code, Section 105. This IRC section describes "an accident or health plans" as amounts received under an accident or health plan for employees. Because they continue the salaries of employees forced out of work by accident or illness, sick-pay plans are included in this definition. According to the above-mentioned section, benefits received under an employer-provided sick pay plan are taxable. If employees pay part of the premium themselves (an arrangement known as a "splitdollar" plan), only the portion of the benefits provided by the employer are subject to federal income tax. Internal Revenue Code, Section 22. An employee who is retired on permanent and total disability may qualify for a limited tax credit depending on filing status and income level. 16 For Producers Only

27 Premium Treatment in a Qualified Sick Pay Plan Internal Revenue Code, Section 106. When a sick pay plan is backed by disability income insurance, premium payments made by the employer are considered contributions to an accident or health plan. So those payments aren t included in an insured employee s gross income. Internal Revenue Code, Section 162. An employer can deduct disability income insurance premiums paid to support a sick pay plan as an ordinary and necessary business expense. For Producers Only 17

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31 Appendix A Employer Pre-approach Letter Dear <NAME> Have you thought about how the disability of an employee will affect your business? The impact can be much greater than the loss of the employee s talent and productivity it can impact your bottom line. With a one-in-three chance of someone between the ages of 25 and 50 suffering a long-term disability sometime before retirement 1, the question is not if an employee becomes disabled, but when. Massachusetts Mutual Life Insurance Company has a solution that not only protects your business assets but also provides excellent coverage to your key employees. It s a Qualified Sick Pay Plan funded by one of Massachusetts Mutual Life Insurance Company s disability income insurance policies. Establishing a Sick Pay Plan funded by MassMutual provides protection for your business should one of your employees become disabled by paying benefits directly to the disabled employee, providing a tax break for your business, and reducing your business financial risk. But to take advantage of the business protection offered by a Qualified Sick Pay Plan, the Plan needs to be established prior to an employee becoming disabled. What is your wage continuation plan for disabled employees? How can you be prepared? I would like to show you how other businesses have protected their bottom line and how I can help you do the same. Please take a few minutes to review the enclosed brochure. I will call you in a few days to set up an appointment. Sincerely, <Agent Name> Commissioner s Disability Table A For Producers Only 19

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33 Appendix B MassMutual Qualified Sick Pay Plan Blueprint Specs Company Name: Participant Class # Class Name: Waiting Period: Benefit Period: Riders: Employee Census Name DOB M/F Smoker State Monthly Annual Salary Existing Y/N Benefit Coverage Ind Group Date Prepared: For Producers Only 21

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35 As the second-largest seller of individual disability income insurance, 1 MassMutual supports people during the financial and emotional stress of a disability as the result of an accident or illness and helps them transition back to the work environment. A marketing designation for Massachusetts Mutual Life Insurance Company (MassMutual), MassMutual Financial Group comprised of member companies with over $220 billion in assets under management as of June 2001 is a global, growth-oriented, diversified financial services organization providing life insurance, annuities, disability income insurance, long-term care insurance, retirement planning products, trust services, money management and other financial products and services. Massachusetts Mutual Life Insurance Company consistently receives superior ratings by the most respected independent services in the business. 1 Source: According to companies reporting 2000 results in LIMRA International s annual Individual (noncancelable) Disability Income Issue Survey (in terms of number of policies and premium) Financial Strength Ratings (2000) Standard & Poor s Corp., AAA (Extremely Strong) A.M. Best Company, A++ (Superior) Moody s Investors Service Inc., Aa1 (Excellent) Fitch AAA (Exceptionally Strong) DI Compliance tracking #:

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