May 1, 2019

What If Your Pastor Could No Longer Work?

By Beth Knight-Pinneo, Alliance Benefits

If your pastor experienced a serious disability and became unable to work, does he have a financial safety net? What about the impact to your church as you make decisions about helping your pastor and his family?

In the US, about one in seven people ages 35-65 may become disabled for five years or longer. The Council for Disability Awareness states that one in three working Americans do not have adequate disability insurance. In fact, some experts believe most Americans are financially better prepared to die than to have a disability. During your working years, the chances of a disability may be three to five times higher than the likelihood of dying during those years. *

Insurance for Your Pastor’s Paycheck:

Long-term Disability Coverage is a safety net in the event your pastor is unable to work due to a serious illness or injury. You can think of LTD coverage as insurance for your pastor’s paycheck.

Does your pastor’s health plan include Long Term Disability coverage?

Alliance Benefits offers two versions of the health plan package: Premium and Standard.

  • If your pastor is enrolled in the Premium package, Long Term Disability coverage is included (along with medical, prescription, dental, vision, and life insurance). Most of our participants have chosen the Premium plan.
  • If your pastor is enrolled in the Standard package, Long Term Disability coverage is not included (only medical, prescription, and life insurance.) You can switch to the Premium coverage at Open Enrollment.

Benefits Strategy Tip:

Did you know that it may be to your employees’ advantage if the employee pays the $10 per month premium for Long Term Disability coverage, rather than the employer paying it? Many of our churches pay 100% of the health plan package for employees. This is a wonderful benefit, but it may be a good idea to ask employees to pay the $10 per month LTD premium.

If an employee files a Long-Term Disability claim, your church will be asked whether the premium was employee-paid or employer-paid. Here’s the difference to the employee:

  • If the LTD premium was employee-paid, the LTD benefit will not be taxable income.
  • If the LTD premium was employer-paid, disability benefits will be taxable.

Payroll Processing Tips:

For employee-paid portions of benefit costs, some items can be withheld pre-tax, to benefit the employee by reducing taxable income, while other items must be withheld after tax.

  • If your church charges the LTD premium to the employee, be sure to withhold $10 per month from the employee’s pay so you can document that it was employee-paid. This must be withheld after tax. LTD premium is not eligible for a pre-tax deduction.
  • By contrast, if your church charges part of the health plan premium to your employees, the employee-paid portion can be withheld as a pre-tax deduction.
  • If your employees contribute additional HSA amounts withheld from the employee’s pay, those should be withheld as a pre-tax deduction.
  • If your employees have signed up for the additional Voluntary Life Insurance, employee-paid insurance premiums must be withheld after tax.

When to Report a Disability:

Employers or employees: if you feel that a disability is becoming evident, please contact Alliance Benefits as soon as you know there is a problem. It’s fine if the church continues paying the employee after they stop working, but you must contact Alliance Benefits if the person stops physically working. Sometimes employers inadvertently jeopardize benefits by waiting too long to notify Alliance Benefits.

  • If your employee is no longer able to consistently work 20 hours or more, they’re not able to continue benefits as an active employee, but it may be possible to move them to Coverage Extension so their medical benefits can continue for a season.
  • This can be done at employer expense if desired.
  • Ending employment does not jeopardize an LTD claim as long as the person was covered during the time the disability began.

We can help you review each situation and make you aware of applicable rules.

Good to know – here’s a quick refresher on basic LTD information:

  • You must satisfy a 90-day waiting period (when you stop working) before benefits will begin.
  • During this 90-day period, churches can pay sick pay (be sure to document on pay stub that it is sick pay).
  • If your claim is approved, payment will be up to 60% of your pre-disability salary (including housing allowance).
  • The benefit of up to 60% will be reduced by certain types of deductible income, including Social Security Disability Income. Other types of income, such as a spouse’s salary, are not going to affect your LTD benefit.
  • If the church wants to pay a pastor after he stops working, one strategy is to complete any extended pay or love offerings by the end of the 90 day waiting period. After this, payments from the church will be deductible income and would reduce the LTD benefit.
  • If you have a disability claim during your first 12 months on LTD coverage, it can be denied if it was due to a pre-existing condition. After 12 months on LTD coverage, that’s not an issue.

It can take weeks to file a claim, so contact Alliance Benefits early to review benefits and discuss the claims process. Every situation is a little different, so it’s helpful to call and discuss specifics!

Sources for quoted statistics:

* https://blog.disabilitycanhappen.org/how-many-americans-have-disability-coverage/

* https://www.affordableinsuranceprotection.com/disability_facts

 

Beth joined Alliance Benefits in January 2001. In her role as Benefits Consultant, she focuses on building relationships with churches and districts, and assisting with Health Plan and 403(b) questions. She is assigned to serve the churches and districts in the Western and Southern US, and the multi-cultural districts.


Posted in: Health Plan Tools