Compensation Protection Are your employees really Employer Perspectives

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Compensation Protection: Are your employees really Employer Perspectives on Disability covered? Benefits Presented by:

Compensation Protection: Are your employees really Employer Perspectives on Disability covered? Benefits Presented by: Brian Grodin, Fifth Avenue Financial CRN 201408 -163654

Compensation best practices Do your employees live in half a house? Do they drive

Compensation best practices Do your employees live in half a house? Do they drive half a car? So why help them protect only half a paycheck? You can help them protect more of their income 2

What we’ll discuss Today’s environment Income protection: disability & the income gap Employer perspectives

What we’ll discuss Today’s environment Income protection: disability & the income gap Employer perspectives on disability income Next Steps 3

Today’s environment 4

Today’s environment 4

Today’s Environment Competition for top talent continues, even in difficult economic times. Benefits are

Today’s Environment Competition for top talent continues, even in difficult economic times. Benefits are one of the most important factors when considering a new job 1. Income protection is important, and often overlooked. Group Long Term Disability (GLTD) has limitations for highly compensated employees. 1 “Navigating the Employee Benefits Marketplace. ” LIMRA, 2011. 5

Income protection: disability & the income gap 6

Income protection: disability & the income gap 6

Income Protection: Disability Happens § What are some causes of disability? § Arthritis, herniated

Income Protection: Disability Happens § What are some causes of disability? § Arthritis, herniated disc, back pain, hypertension, heart attack, depression, diabetes, obesity, asthma, fractures, sprains and strains § What are the chances of having a disability? § Higher than you probably think. § Just over 1 in 4 of today's 20 year-olds will become disabled before they retire. 1 § Are people prepared when it happens? § Probably not. § Many Americans don't have disability insurance. 65% of working Americans say they could not cover normal living expenses even 1. Social Security Administration, Fact Sheet May 15, 2012. for a year if their employment income was lost; 38% could not pay 7 2. Council for Disability Awareness, Annual LTD Claims Review (2011). 2 their bills for more than 3 months.

Income Protection: GLTD = A Good Start Group Long Term Disability (GLTD) is a

Income Protection: GLTD = A Good Start Group Long Term Disability (GLTD) is a good start § Generally provides basic protection § Typically replaces 60 percent of an employee’s base salary However, § Often doesn’t include variable compensation (i. e. , bonus, commissions) § Maximum monthly benefit is capped § High earners may be above or outside group plan limits § Benefits are subject to income tax when premiums are employer paid § Coverage usually is not portable 8

Income protection: Reducing the Gap $50, 000 Bonus Employee becomes disabled with GLTD plan

Income protection: Reducing the Gap $50, 000 Bonus Employee becomes disabled with GLTD plan that replace 60% of base salary only GAP $100, 000 Salary $112, 500 Net income Gross Annual Income Net Annual Income $45, 000 Net GLTD Benefit Annual Disability Benefits Above chart assumes a 25% tax rate and a Group LTD plan paid for by the employer that provides 60% to $10, 000 per month. 9

Income Protection: Sample shortfall & gap illustrated Hypothetical LTD Plan Max Sample Case –

Income Protection: Sample shortfall & gap illustrated Hypothetical LTD Plan Max Sample Case – Assumes a 60% to $10, 000/month Group LTD Plan 10

Employer perspectives on disability income benefits 11

Employer perspectives on disability income benefits 11

Employer Perspectives Mass. Mutual & The American College The 2010 Employer Perspectives on Disability

Employer Perspectives Mass. Mutual & The American College The 2010 Employer Perspectives on Disability Benefits study, commissioned by Mass. Mutual and The American College and conducted by the Boston Research Group, obtained information directly from benefit managers who are most familiar with their group disability insurance plans. Key findings: § 71% of benefit managers say their group long term disability plan plays an important role in their company’s benefit offering. § Only 27% of base plans cover variable compensation, such as bonus and commissions. § 25% of employers offer “Buy-up” coverage within Group * The study, conducted by the Boston Research Group, sought information directly from benefit managers who are most familiar with their Plan. group disability insurance plan from a pool of 3, 000 of the largest companies in the United States as measured by sales revenue. A total of 316 interviews were completed, representing a statistically reliable response rate. 12

Employer Perspectives: Research Methodology § A phone-based data collection methodology was used to meet

Employer Perspectives: 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 401 K 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 longterm disability (GLTD) plan. o Interviews were conducted between July 26 th and September 24 th, 2010. 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 13 the US, as measured by sales revenue. Because of the importance of this

Employer Perspectives: Research Methodology Largest “Smallest” Firm Size Number of Completed Interviews Median Sales

Employer Perspectives: Research Methodology Largest “Smallest” Firm Size Number of Completed Interviews Median Sales Revenue* Median Number of Employees Top 500 60 $11. 3 billion 29, 000 501 to 1, 000 52 $2. 7 billion 6, 700 1, 001 to 2, 000 103 $1. 2 billion 3, 800 2, 001 to 3, 000 101 $562 million 2, 300 Total 316 *Based on sample information

Employer Perspectives: Qualitative Responses It’s hard for people to live on 60% of their

Employer Perspectives: Qualitative Responses It’s hard for people to live on 60% of their salary ~ Senior Director of Human Resources at a transportation company We care about our employees so we will look at supplemental programs and how they will positively impact employees. ~ Executive Director, Human Resources We have people that just wouldn’t benefit by that amount. They’d be left short. ~ Benefits Manager at a major furniture company 15

Employer Perspectives: Key Findings Benefit managers value the group long term disability (GLTD) plan,

Employer Perspectives: Key Findings Benefit managers value the group long term disability (GLTD) plan, but don't feel their employees value it as highly. § 71% of companies said GLTD was extremely or very important in their overall benefit offering § 51% felt it was less valued by their employees Many employees look to their employer for benefits education. Employees may need a better understanding of the value of their income and the importance of disability income insurance. 16

Employer Perspectives: Key Findings Most companies pay for GLTD § 68% of companies pay

Employer Perspectives: Key Findings Most companies pay for GLTD § 68% of companies pay the GLTD premium This employer-paid benefit means the benefit is taxable to the employee, so many employees would receive a benefit that amounts to only half their salary if they were disabled. 17

Employer Perspectives: Key Findings Maximum monthly benefit amount is $10, 000 or more at

Employer Perspectives: Key Findings Maximum monthly benefit amount is $10, 000 or more at most companies § 61% of companies reported $10, 000 or higher Looking at this another way, 39% of companies have a maximum benefit of less than $10, 000 per month, creating a wider income gap for highly compensated employees. Along with the taxable benefit, this benefit max is another limitation employees may be unaware of and employers can help address. 18

Employer Perspectives: Key Findings Most companies cover 60% of base salary only § 67%

Employer Perspectives: Key Findings Most companies cover 60% of base salary only § 67% of companies reported 60% of employees’ base salary was covered in the group plan 40% of most employees’ incomes are unprotected in the base plan, which is an opportunity for brokers to help employers reduce their employee’s income gap* with individual disability income insurance. * Individual disability income insurance does not coordinate with your group long term disability coverage. Claim decisions are rendered independent of each other. 19

Employer Perspectives: Key Findings Most companies are comfortable with plan limits - probably because

Employer Perspectives: Key Findings Most companies are comfortable with plan limits - probably because only 15% of employees earn more than the limit. § 90% or companies felt the maximum benefit amount was adequate § Of those who did not believe the benefit was adequate, half said it did not adequately cover high earners Employees who earn more than the plan max may be executives or high earners. Brokers can start discussions with benefit managers about a carve-out plan to better protect employees whose benefits would be limited by the plan max. 20

Employer Perspectives: Key Findings Most companies don’t protect variable compensation in their base plan

Employer Perspectives: Key Findings Most companies don’t protect variable compensation in their base plan 1 § 27% of companies include variable compensation, such as bonuses and commissions, in the GLTD plan Use of variable pay is on the rise*. Those who earn incentive pay have income that is not considered in the benefit calculation at the time a claim is made. They have an income gap and may not know it. With IDI, the benefit amount is established when the policy is purchased. 1. Source: The Hay Group, July 2010 21

Employer Perspectives: Key Findings Few companies offer options for employees to obtain more coverage

Employer Perspectives: Key Findings Few companies offer options for employees to obtain more coverage § 36% of companies offer employees opportunities to buy more coverage § 25% offer buy-up coverage within group plan § 15% offer supplemental individual disability income insurance This finding reveals the opportunity to offer employees more protection by making supplemental individual disability insurance available to them. 22

Employer Perspectives: Key Findings Large majority of companies are not concerned that base plans

Employer Perspectives: Key Findings Large majority of companies are not concerned that base plans may not adequately protect high earners § 88% said they were not concerned the plan did not fully cover employees who earn beyond the • Number of employees affected is veryplan small limit Why aren’t the companies concerned? • • • Employees can “buy up”/purchase additional insurance Has never been an issue or a concern/not a priority Benefit is standard for industry/competitive Coverage is adequate for most employees We have a separate plan that covers high earners While the number of employees affected may be small, those employees can be among the company’s most valuable employees. Added coverage can be a retention tool because few companies offer group buyup or individual insurance options. 23

Employer Perspectives: Key Findings 1 in 5 companies recently introduced supplemental individual DI, and

Employer Perspectives: Key Findings 1 in 5 companies recently introduced supplemental individual DI, and many introduced it more than 10 years ago § 20% introduced IDI less than three years ago § 39% introduced IDI ten or more years ago Competition for top talent continues, even in difficult economic times. Income protection is one area that is often overlooked by both companies and employees and can be a win-win for both when it is included in your benefits offering. 24

Employer Perspectives: Key Findings Most companies satisfied, but half review their plans each year

Employer Perspectives: Key Findings Most companies satisfied, but half review their plans each year and one-quarter are planning changes § 85% of companies said they were satisfied with the products and services from their benefits provider § 56% of companies review their GLTD plan annually § 25% of companies are considering changes to group. Even plan though most clients are satisfied, knowing that half of companies are going to review their plan and one-quarter are planning changes helps plan providers shape conversations – especially considering income limits, taxable benefits, and bonus protection. This information can help brokers ask their clients the right questions during annual reviews. 25

Next steps 26

Next steps 26

Next steps: Enhance your suite of supplemental offerings Supplemental disability income insurance Competitio n

Next steps: Enhance your suite of supplemental offerings Supplemental disability income insurance Competitio n Helps differentiate your company to attract & retain quality employees. Benefits Includes bonus & commission income; Portable coverage; Fixed premiums; Tax free benefits, depending on how you design the insurance offering. Income protection Offering the product gives employees an opportunity to consider whether their existing coverage is adequate to meet their needs. Supplemen Helps protect key employees whose benefits are limited by ts existing the GLTD maximum. Ability to offer voluntary or employer. GLTD* paid coverage. * Supplemental individual disability income insurance does not coordinate with group long term disability coverage. Claim decisions are rendered independent of each other. 27

Next steps: Additional resources For more information • Halfapaycheck. com • Use this site

Next steps: Additional resources For more information • Halfapaycheck. com • Use this site to explore options for individual disability income insurance for benefit managers, business owners and individuals. • Take the Disability Benefits Benchmarking Survey. Your answers will be benchmarked against the responses of companies who participated in The American College and Mass. Mutual’s "Employer Perspectives on Disability Benefits" study conducted by the Boston Research Group. Then, download the results and share with your benefits broker. • Council for Disability Awareness (CDA) www. disabilitycanhappen. org 28 • The CDA is a non-profit organization committed to informing

Important Points to Remember § Today’s environment Competition & Benefits § Income Protection Reducing

Important Points to Remember § Today’s environment Competition & Benefits § Income Protection Reducing the gap § Employer perspectives How do you stack up? § Next steps Taking action 29

Thank You!! Questions & Answers DRAFT 30

Thank You!! Questions & Answers DRAFT 30

About The Study Partners The American College is a non-profit educational institution with the

About The Study Partners 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. Mass. Mutual Founded in 1851, Mass. Mutual 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, Mass. Mutual has paid dividends to eligible participating policyholders every year since the 1860 s. With whole life insurance as its foundation, Mass. Mutual 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 (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 analyzed using qualitative and quantitative data collection techniques and methodologies, to provide solutions for marketing-related challenges. 31

The information provided is not written or intended as specific tax or legal advice

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. Mass. Mutual, 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 Massachusetts Mutual Life Insurance Company (Mass. Mutual) Springfield, MA 01111 -0001. Policies have exclusions and limitations. © 2012 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www. massmutual. com. Mass. Mutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (Mass. Mutual) 32 and its affiliated companies and sales representatives. CRN 201408 -163654