Disability and Workers Comp Considerations in Plans
Unfortunately, there may be a time when you will have to deal with a situation in which an employee becomes disabled. The plan document will define the criteria to be used in determining whether the employee’s condition meets the disability definition for plan purposes. If an employee is determined to meet the plan’s definition of disability, the plan may require specific distribution or vesting rules be applied.
It is also important to review the plan document to determine how to calculate and report the disabled employee’s compensation and hours worked for the plan year in which the disability occurs for purposes of determining vesting service and eligibility for contribution allocations. Below, we have addressed a few questions that may arise when gathering census information for a disabled employee.
Q Last year, an employee was injured on the job and he has been receiving Workers’ Compensation since that time. Should I include the Workers’ Compensation payments in his plan compensation reported for the year? How do I determine his hours worked for the year?
A Workers Compensation payments are made by the state and therefore you will not include any Workers’ Compensation as plan compensation. The only hours that will be reported are the hours he actually worked prior to the injury. You will not need to credit the employee with any number of hours for the period during which he did not perform work duties and is being paid under Workers Compensation.
Q We have an employee who is currently on short-term disability and the Employer is responsible for the payments. What do we need to report for him? What if the insurance company is responsible for the payments?
A If the Employer is making the payments, you will report those payments as compensation in the annual totals. You will also credit the employee with hours worked (up to 501 hours) for the period during which he is entitled to payment on account of the disability. If the payments are from the insurance company (and the Employer pays the premium for the insurance), you will report the employee’s hours (up to 501 hours), but you will not report the disability payments as plan compensation. If the Employee pays the premium with after-tax dollars, the benefits are not taxable and you will not report any payments or hours worked.
Q What about an employee on long-term disability?
A The answer is the same as short-term disability.
Q I’m unsure of how to count the hours for an employee who was on maternity leave. One participant took 8 weeks leave, then came back after her leave and worked over 700 hours before she terminated her employment. How do I count her hours?
A If the employee was on paid leave of absence, you will count her pay and credit her with hours that she would have otherwise worked for that period of payment for plan purposes, in addition to the hours/compensation she earned after coming back to work. If she was on unpaid leave of absence, then you will not report any hours or compensation for her for the period of leave, EXCEPT that solely for purposes of determining if she incurred a “break in service” you will credit her with the hours that she would have otherwise been credited, up to 501 hours. In this case, since the employee worked 700 hours after her leave ended, she will not need to be credit with any hours for her period of leave, because she already earned enough hours to avoid having a “break in service”.
The information above is intended to serve as a basic guideline on how to handle various situations that might arise. As always, if you have specific questions regarding the plan’s definition of “disability” or how to report hours or compensation for a participant on leave, please refer to your plan’s document. There are certain Department of Labor Regulations that also apply so you may want to consult with your ERISA attorney or call your Account Executive at RMS for further assistance.