Employees participating in 401(k) plans believe that they will need an average of $1.7 million to retire, according to a 2019 Charles Schwab study. For many people, reaching that goal and retiring on time requires decades of contributions with no, or few, withdrawals.
However, Americans’ retirement savings are increasingly threatened by disabilities that temporarily keep employees out of work. Unfortunately, many put their retirement dreams at risk by turning to hardship withdrawals from retirement plans when unplanned disabilities occur and medical expenses pile up.
Employers can help protect employees’ income and retirement savings by offering a robust disability insurance plan insured or administered by an insurance carrier. These programs replace lost income experienced by an employee when they are unable to work as a result of disability. These valuable products help reduce the likelihood that employees will need to tap their retirement savings if they can’t work.
Companies seeking to get the most out of their benefits spend and optimize workforce productivity may consider implementation of integrated medical and disability programs. These plans can help proactively engage employees in disease management programs to prevent disability. In those cases where disability is inevitable, they can help support an employee with the education and support they need to get as healthy as possible, and potentially get them back to work so they can continue to earn an income and continue contributing to their retirement plans.
The truth about disability
Disability claims come in various severities and forms, and some of them are so common that people may not even think of them as disabilities. With about 3.8 million births taking place each year in the U.S. according to the CDC, many working mothers require additional time off from work to recover and care for their newborns. In fact, pregnancies are one of the leading causes of short-term disability claims in the U.S.
Musculoskeletal disorders are another leading cause of both short and long-term disability claims. Some of the most common forms of musculoskeletal disorder include back and neck pain, osteoarthritis and rheumatoid arthritis. All of these can limit employee mobility and make it difficult to focus on work, making time away from work to heal imperative. For employees with chronic conditions, disability insurance carriers can often work with employers to identify workplace modifications that may aid in getting an employee back to work and productive – in fact, disability insurance carriers will sometimes assist in paying for adaptive equipment.
Another common disability that affects about 40 million people in the U.S. every year is anxiety disorder. Work and life can stress employees, so helping them seek treatment with a solid disability offering can make a world of a difference. Group disability insurance carriers typically include member assistance programs that can be used, free of charge, by employees and their families. Not only does treatment help employees or family members with anxiety disorders in their personal lives, it also helps them to feel comfortable and in control at work, helping them to be as productive as possible.
Disability’s financial and emotional tolls
Without disability insurance, expenses related to short or long-term disabilities can have a compounding effect on employees’ finances.
It starts with lost income. Many employees – especially those paid hourly – will lose part or all of their income if they are not working. They depend on that income to pay mortgages or rent, utility bills, as well as groceries and other living expenses. In many cases, employees will not be able to adjust their living expenses to adapt to that reduced income.
In addition to their routine expenses, employees undergoing treatment for a short or long-term disability incur medical expenses. For example, factoring costs during the pregnancy, along with postpartum care, having a baby can cost as much as $30,000. Treatment for musculoskeletal, digestive, and mental health disorders can also cost thousands of dollars.
These medical bills can create debt, which can lead employees to withdraw money from their retirement savings and jeopardize their retirement goals and financial futures. This issue is becoming more common and in January 2020, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law.
Under the SECURE Act, employees can withdraw up to $5,000 from their 401(k) plans to cover expenses related to new children. There are similar offerings for some 401(k), 403(b) and 457(b) plans that allow for early distributions for medical hardships in the event that employees are in desperate need of funds. While it’s good that employees’ hardships are being alleviated, it should not come at the expense of their retirement when they will rely on their savings.
Of course, disabilities often take an emotional toll, too. Most employer-provided disability insurance plans offer programs to help patients cope with these challenges, usually at no additional cost. For example, the COVID-19 pandemic is stressful for almost everyone involved, but the telehealth counseling services, as well as financial and legal services that are provided by disability insurance plans can alleviate employees’ anxiety and stress. Additionally, some plans provide protection and assistance in the event of identity theft, which unfortunately is on the rise. These services extend beyond the current COVID-19 pandemic and can help patients during any emotionally challenging times they encounter.
How benefit choices can help employees retire
Employers who chose integrated health and disability plans can help ensure their employees with disabilities get back to work safely and quickly, helping them keep their retirement savings intact. When an employee with integrated health and disability coverage has a condition that may lead to a disability, the integrated plan can give them proactive support to help improve their condition. If the employee does experience a disabling illness, the integrated plan can also help them recover and return to work as quickly and safely as possible.
With an integrated plan, disability claims managers work collaboratively with health plan condition care managers to ensure that employees with disability claims get all the services they are eligible for, such as health plan programs that educate employees in ways they can manage their chronic condition. When employees get the help they need, at the time they need it, it can help them improve the health condition that leads to their disability claim. With improved health, employees can safely return to work as soon as possible, which means they’ll be back to earning their regular income and also back to contributing to their 401(k) or other retirement plan.
An integrated health and disability plan can also ensure that employees get their disability benefit without delay. Employees whose disability benefit payments are delayed while waiting on medical records to be submitted to their disability insurer often stress about paying their regular living expenses, along with increased medical expenses due to their disabling condition. With an integrated plan, a seamless claim process means employees get their benefit sooner to help meet their expenses.
Employees often underestimate the likelihood that they will experience any kind of disability throughout their career, and employers often underestimate or second guess the severity of employees’ disabilities. All parties involved would benefit from a reality check and exploring disability benefits can provide just that. After all, COVID-19 has provided the entire world with a reality check, so there may be no better time than now.
