Loading...
Agenda 09/29/2009 Item #16E 2 Agenda Item No. 16E2 I September 29, 2009 Page 1 of 2 EXECUTIVE SUMMARY Recommendation to implement a change to the Long Term Disability Insurance program to avoid the taxation of disability proceeds. OBJECTIVE: To make Long Term Disability insurance proceeds tax free to those employees who become disabled under the Long Term Disability insurance program. CONSIDERATIONS: As part of the group benefits plan, the County provides a 40% Long Term Disability benefit to its employees at no cost. The program is fully insured through Sun Life. If an employee becomes disabled and receives disability proceeds from the program, the proceeds are taxable to the employee because it is an employer paid benefit. The County also offers a 26 2/3% buy-up option during open enrollment for those employees who wish to increase the total benefit to 66 2/3%. Since the premium is paid by the employee with after-tax dollars, the proceeds on the-~W_ 2/3% benefit are not taxable if a disability occurs. Therefore, if an employee becomes disabled and has purchased the buy-up option, 40% of the proceeds are taxable and 26 2/3% are not taxable. For example, an employee earning $50,000 per year who becomes totally disabled will experience a benefit reduction of 6% or $2,165 on total disability proceeds of $33,330 per year. The odds of an individual, age 45 becoming disabled prior to age 65 are 1 in 5. Employees who qualify for L TD benefits have met a 180 day waiting period and are generally quite ill or seriously injured. Thus, the issue of disability income payments; the taxation of proceeds on the 40% benefit; and the negative effect on net income is critical if a disabled employee is to meet their ongoing financial obligations. Given this situation, staff is recommending that the premium on the 40% benefit and the associated tax (on the premium) be included as income to the employee; that the appropriate federal taxes be paid by the employee on the premium; and that a payroll deduction be taken to pay the premium to Sun Life. Such an arrangement will result in no change in net income to the employee each pay period, however; should the employee become disabled under the L TD program, they will receive the entire 66 2/3% proceeds tax-free. Staff recommends that only those employees who elect the 26 2/3% buy up option be eligible for the program. The proposed change would take effect on January 1, 2010. FISCAL IMPACT: As of July, there were 2,110 employees in the L TD program. Of those, 1,078 or 51 % purchased the buy-up option. The estimated annual cost to make the recommended change is $51.89 per employee per year. The estimated total annual cost is $55,994 per year among all participating agencies. Funds are available within Fund 517, Group Health and Life to fund the program in FY 2010. GROWTH MANAGEMENT IMPACT: There is no growth management impact associated with this item. LEGAL CONSIDERATIONS: This item has been reviewed by the County Attorney's Office, requires simple majority vote, and is legally sufficient for Board action. - CMG RECOMMENDATION: That the Board of Commissioners approves the changes as outlined in the Executive Summary to make disability proceeds non-taxable to those employees who elect the buy up option under the Long Term Disability Insurance Program. PREPARED BY: Jeff Walker, CPCU, ARM, Director Risk Management Page 1 01 1 Agenda Item No. 16E2 September 29, 2009 Page 2 of 2 COLLIER COUNTY BOARD OF COUNTY COMMISSIONERS Item Number: 16E2 Item Summary: Recommendation to implement a change to the Long Term Disability Insurance program to avoid the taxation of disability proceeds. Meeting Date: 9/29/2009 9:00:00 AM Prepared By Jeffrey A. Walker, CPCU, ARM Risk Management Director Date Administrative Services Risk Management 8/26/2009 2:20:40 PM Approved By -- Jeffrey A. Walker, CPCU, ARM Risk Management Director Date Administrative Services Risk Management 8/26/2009 2: 20 PM Approved By Colleen Greene Assistant County Attorner Date County Attorney County Attorney Office 8/27/200910:03 AM Approved By Jeff Klatzkow County Attorney Date County Attorney County Attorney Office 8/28/20093:35 PM Approved By Len Golden Price Administrative Services Administrator Date Administrative Services Administrative Services Admin. 8/31/20094:20 PM Approved By OMB Coordinator OMS Coordinator Date County Manager's Office Office of Management & Budget 9/1/20098:29 AM Approved By Laura Davisson Management & Budget Analyst Date County Manager's Office Office of Management & Budget 9/1/20099:05 AM Approved By Leo E. Ochs, Jr. Deputy County Manager Date Board of County County Manager's Office Commissioners 9/18/20095:12 PM file://C:\Agendatest\export\135-September 29,2009\16. CONSENT AGENDA\16E. ADM!... 9/23/2009