The OIC and the ESD have come to an agreement on benefits coordination for PFML. Here are the details.
Back in January of 2019, I blogged about my questions regarding how Washington State’s Paid Family & Medical Leave (PFML) would coordinate with other sources of income. Fortunately, the Employment Security Department (ESD) has just advised that they will allow disability insurance plans to offset benefits a person receives from PFML. The Office of the Insurance Commissioner (OIC) has been battling with the ESD for months – ESD wanted to allow “stacking” of benefits, which is not how disability benefits typically coordinate.
First, let me start off with defining the two types of benefits coordination provisions. When an individual qualifies for more than one salary replacement program, the benefits could be stacked (ESD was recommending) or offset (OIC was recommending). These provisions are often included within insured STD and LTD contracts.
The reason the negotiations between the ESD and OIC were so contentious is because the ESD wanted to allow stacking of benefits without a pre-set maximum for all benefits combined. Typically, there is a cap on all benefits, at least one where all benefits combined cannot exceed 100%. If the benefits were allowed to stack in this way, an employee could have received more on disability than through working.
The OIC also convinced the ESD to allow the insurance carriers to offset any amounts employees received under PFML, not the other way around. Insurance carriers have been offsetting benefits for years – Social Security, PTO, etc. To task ESD with offsetting their paid benefits by amounts a person receives through an insurance carrier would have been quite burdensome on the ESD.
The Bottom Line
Disability carriers should be adding offset wording into their STD (and possibly their LTD) contracts prior to January 1st, when PFML will become available to qualified Washington workers. With this change, we should see rates dip slightly on those plans (either as an amendment effective 1/1/2020 or as of the client’s next renewal on or after 1/1/2020). You will need to pay special attention to how the carrier is offsetting. Most will allow the employee to receive both disability insurance proceeds as well as PFML, up to a maximum of 100% of pre-disability earnings; however, there always seems to be the errant carrier who does things differently – for example, they could allow payment of both to a maximum of 80% of pre-disability earnings, or they could offset the full amount received under PFML. As always, the devil will be in the details.
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I love numbers. I'm a math geek. I read benefits industry articles and periodicals for relaxation (but, honestly, I'm still a fun gal). I also like to share what I've learned and you'll find it all here.