Something New To Talk About In Group DI

The Uncle Sam rule is one of the primary dilemmas of group disability. For employers to gain the best rates on group disability, they have to purchase a 100% employer-paid plan. Plans with voluntary enrollment have a higher degree of adverse selection and thus are priced higher. But 100% employer-paid plans, while being less expensive, mean that employees are going to have to pay the tax on the benefit. True, the individual buy-up concept is very effective for highly paid employees; however, it is not the best solution for every company or employee.

Now, however, thanks to the Internal Revenue Service, there is now a solution for your 100% employer-pay clients.

In June 2004, the IRS released Revenue Ruling 2004-55. This allows employees to make an irrevocable annual election to pay the tax on the employer-paid premium in order to qualify for a tax-free benefit. This election must be made prior to the new plan year or can be made by a new employee at time of enrollment into the plan.

For all the fans that prefer selling buy-up disability insurance, dont worry. Portability, long-term cost and other factors still make the buy-up idea a great one for many companies.

But for the average Joe who simply wants the security of an inexpensive and guaranteed disability benefit, the IRS ruling has the answer. Knowing exactly what benefit you have coming and not worrying about taxation is very good for peace of mind. That is definitely something new to talk about.

is vice president-voluntary group and executive benefits for Cottingham & Butler in Dubuque, Iowa, and founder and president of the Disability Income Advisor and Consumer Association. His e-mail address is [email protected].

Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.