An increasing number of churches have taken the step of protecting employees and their families by providing a group long term disability (LTD) program for their staff. The FCMM LTD plan has been specifically designed with features for the local church that often are not included in “off-the-shelf” plans. (See features of FCMM LTD.)
The coverage can help a church staff member through a difficult time if he/she becomes disabled and unable to work at his/her job. There is, however, an additional step that can be taken in advance to cover a potential gap. Here’s the explanation:
- The Group LTD plan begins to provide a benefit of 60% of the employee’s lost income/salary after a 90-day elimination period.
- In that first 90 days of being disabled, the employee is required to show a loss of his/her income in order for the 90 day time-clock to begin counting.
- If the church/employer continues to pay the employee’s regular salary then the “loss of income” requirement is not met and the claim will be denied until the requirement is met.
- The solution is to have a formal Salary Continuation Plan (SCP) in place prior to the occurrence of a disability. Funds provided under the SCP during the 90-day elimination period to an employee who is disabled are considered “benefit” rather than “salary” and therefore do not interfere with timely qualifying.
- The Salary Continuation Plan is funded by the employer by establishing, in the SCP document, (1) what percentage of the salary the church will pay out, (2) for what length of time, and (3) to whom the plan applies (e.g. all full-time employees, or all benefit-eligible employees). The church may choose any percentage of income to cover. 60-70% is most common, with the length set to match some or all of the LTD plan’s 90-day elimination period. Many employers also grant a number of “sick-time” days each year; they often require that employees use all or a portion of their accrued sick time before the SCP begins to pay a benefit. (Incorporating this requirement allows the employee to receive 100% of pay for those days.)
Here are the requirements for a Salary Continuation Plan to meet IRS Regulations:
- The details of the plan must be described in writing.
- The plan must be in effect prior to the onset of a disability in order for it to be applicable.
- The plan details must be communicated in writing to all employees who are eligible for the plan.
- The church board must approve the plan via a board resolution.
- A copy of the plan and board resolution must be placed on file with FCMM. These records will be necessary for verification at the time of a claim.
Kim Thompson is the CEO and owner of Thompson Insurance Agency, which partners with FCMM to provide Long Term Disability Insurance to EFCA pastors and church staff.