Employer’s Right to Offset Costs vs. Retirement Proceeds
Employers and employees have to consider that there are also costs of mandatory benefits to be paid, aside from the supplemental benefits that come along with the compensation package. Examples of the latter include (1) pension plans, (2) annuity plans, (3) 401k plans, and in some cases (5) short-term disability benefits. The matter of paying the costs of continuing these benefits often falls on the shoulders of the employer. In making sure that the employee has other financial fall-backs in case the employer-sponsored LTD coverage ceases, the employer is likewise performing his moral obligation to the disabled employee.
The matter of other supplemental benefits like pension funds, annuity funds, and 401K retirement funds may be continued by the employer while the employee is on LTD leave. In the event that the employee retires or resigns or his contract becomes frustrated, employers are allowed to offset the costs of the supplemental benefits they shouldered on behalf of the employee against the proceeds of the retirement and other disability benefits.
The right to offset the costs of supplemental benefits is supported under a common-law rule called the “Collateral Source Rule," which is governed by the principle that the employee could not have enjoyed the proceeds of such benefits if not for the foresight and contributions of the employer, who is not a wrongdoer in this kind of circumstance. In addition, the US Equal Employment Opportunity Commission’s Compliance Manual provides guidelines regarding conditions in offsetting the employer’s costs against proceeds of retirement benefits.
Just the same, these should all be clearly stated in the company’s policies for long-term disability leave.
Accrual of Leave Credits during LTD Leaves
Another important item to address are the vacation and sick-leave credits. There has to be a clearly stated provision if the company will allow accruals or not during LTD leaves. One way to address this issue is to institute a separate policy for leave accruals, particularly for vacation leave. Most employees prefer to allow its accumulation instead of using it, in consideration for the cash conversion entitlement.
Putting a cap on the accumulation of leave credits will make employees utilize these leave benefits, perhaps as a way of achieving better health conditions. Exhausting the accumulated unused leave credits before allowing another round of accruals to continue will resolve the issue of leave credit accruals for employees on long-term disability leave. In the long run, the purpose for which vacation benefits were conceptualized could address health problems at the soonest. This, therefore, could lessen if not prevent the development of health conditions that require long term disability leaves.