Requiring use of short-term disability pay

[Guest JJDawson]

Hello,

We are a Massachusetts company. Can we require employees to use short-term disability for medical leaves? We have a clearly defined STD policy, governed by ERISA. We have had several employees refuse to apply for it, opting to use vacation time instead, and then end up applying for STD after several weeks. This has created overpayment problems which are difficult to rectify. I know we can require the use of FMLA time; do we have the same option with disability pay?

[KIP KRAUS]

I believe that most STD plans do not offset disability payments by vacation pay. Therefore if an employee wants to waist vacation on a disability I don’t see the issue. I also believe that the employee could apply for STD payments and get them paid concurrent with vacation pay. They don’t need to wait.

What does your STD policy say about this offset issue?

[GBurns]

I always thought that there was a difference between STD, sick days, vacation, PTO etc and that the choice of which one when was up to the employee. I also do not remember seeing a definition of STD (Short Term Disability) that included enough of sickness so as to be a substitute for sick days.

I would love to hear what your STD covers and what it says about this "offset".

[Guest JJDawson]

Hi,

Our plan covers 60% of pay after-tax through an employee-paid trust, so the disability amount is very close to one's net paycheck. Therefore there is no supplement with vacation pay. It does have a 5 day unpaid waiting period during which the employee can apply 5 days of sick or vacation time.

[Guest MonicaS]

I have a related question. How do STD payments relate to the definition of compensation for 401(k) plans? I have a client who did not report STD payments for a handful of participants for 2006 or 2007. Their plan document has a standard definition of compensation encompassed by 3401(a) with no exclusions. I am wondering what, if any, retroactive consequences this may have on their 2006 and 2007 ADP testing. Luckily their contribution was comprised solely of match and they did not allow participants to defer on these STD payments. Any insights on this issue would be appreciated.