How Does Long Term Disability Differ From Social Security?

If you are unable to work due to disability and are fortunate to have long term disability insurance through your employer, you may not realize the importance of also applying for Social Security disability insurance.  Or your LTD benefits may have been denied despite your ongoing receipt of SSDI benefits, prompting you to wonder how is that possible?  This article will explore some of the similarities and key differences between SSDI and LTD benefits and discuss why it is usually in your interest to apply for both. (DeBofsky Law does not handle Social Security disability claim appeals.)

Is SSDI the Same as LTD?

No.  Social Security Disability Insurance (or “SSDI”) is government-sponsored disability insurance payable to individuals who have worked enough years and paid premiums (in the form of FICA taxes) to qualify for coverage. LTD insurance, in contrast, is offered by employers (and, sometimes, professional associations) and provides coverage immediately upon enrollment or after a brief waiting period (though disabilities due to pre-existing conditions are often excluded for the first year).  Unlike Social Security disability benefits, which are paid from a government trust, LTD benefits are typically funded by an insurance policy, though large employers and multi-employer plans may choose to fund the benefits from their general assets or from a trust.  Social Security disability benefits are governed by the Social Security Act, whereas most long term disability benefits (with the exception of governmental and church plans) are subject to the federal ERISA statute and state insurance laws.

What Qualifies as a “Disability” for SSDI and LTD?

To be deemed disabled under the Social Security Act, you must be unable to engage in “substantial gainful activity” (SGA) (defined as earning no more than $1,310 per month in 2021) by reason of a medically determinable physical or mental impairment that is expected to result in death or last for a continuous period of 12 months or more.  If your disability is very severe, you may qualify for disability regardless of your age or past work experience if you are found to meet or equal one of the conditions in the Social Security Listing of Impairments.  Otherwise, you must prove you are unable to work in any occupation and earn SGA, though if you are over age 50 the Social Security Medical Vocational Guidelines direct a finding of disability if your past relevant work experience is skilled or semi-skilled, and you lack transferable skills to a less physically demanding occupation.  Once your SSDI application is approved, the Social Security Administration may periodically review your eligibility for benefits but cannot terminate those benefits absent medical improvement.

For LTD benefits, the definition of “disability” differs from plan to plan, but usually requires proof of an illness or injury that prevents you from performing one or more of the material duties of your occupation and, after a period of time (usually two years), any occupation (though some plans provide “own occupation” coverage until retirement age).  “Occupation” is usually defined according to a national, objective standard, meaning you may be denied LTD benefits if your past work was heavy-duty as performed but light-duty in the national economy and you retain the ability to perform light work.  The “any occupation” standard that typically takes effect after two years is analogous to the Social Security definition of disability, but there are some important differences.  For instance, the LTD plan may define “disability” as the inability to perform other occupations and earn 60% of one’s indexed pre-disability earnings, whereas the Social Security Administration does not consider pre-disability income in making its disability determinations.

Another important difference between SSDI and LTD benefits is that most LTD plans limit benefits for mental/nervous conditions to two years, whereas the Social Security Act has no such limitation.  Likewise, many LTD plans limit benefits for so-called “subjective” illnesses, including fibromyalgia and chronic fatigue syndrome.  Again, there is no such limitation under the Social Security Act.  Thus, it is possible to be approved for both SSDI and LTD benefits but for your LTD benefits to later be terminated if your disability is subject to a limited-duration plan provision.

Courts have held that, unlike the Social Security Administration, an LTD plan need not prove that a claimant’s medical condition has improved prior to terminating his or her benefits, though the prior payment of benefits is a “factor” to be considered in deciding whether the denial of benefits was reasonable. See Leger v. Tribune Co. Long Term Disability Ben. Plan, 557 F.3d 823, 832 (7th Cir. 2009).

Which Pays More: SSDI or LTD?

Long term disability insurance generally provides a larger monthly benefit than Social Security disability insurance.  The SSDI benefit amount is determined according to a complex weighted formula based on your average indexed lifetime earnings.  While the amount of that benefit varies from person to person based on their individual circumstances, it is unusual to receive more than 50% of one’s pre-disability income in Social Security disability benefits.  LTD insurance, in contrast, typically provides 50-70% income replacement, depending on the terms of the LTD plan and the amount of coverage selected.

What Are the Waiting Periods for SSDI and LTD Benefits?

There is a five-calendar-month waiting period for SSDI benefits.  So, if you cease working on January 15, your SSDI benefits would commence on June 1.  For LTD benefits, the waiting period is usually 3 to 6 months from the date of disability.  

Importantly, it can take up to two years or more to receive a favorable Social Security determination due to the sizable backlog of cases.  Long term disability plans, in contrast, are required to decide an initial disability claim in 45 days, though they can (and often do) request up to two 30-day extensions, for a total of no more than 105 days. See 29 C.F.R. § 2560.503-1(f)(3).  Thus, while the waiting period for SSDI and LTD benefits is comparable, LTD benefits (if approved) will usually be received sooner than SSDI benefits.

When Do SSDI and LTD Benefits End?

SSDI benefits transition into Social Security retirement benefits at your Social Security Normal Retirement Age (SSNRA), which is age 67 for most people.  Most LTD plans provide benefits until age 65 or SSNRA, depending on the plan terms.  If your disability arises when you are age 60 or older, your LTD plan may provide an additional year or two of benefits past retirement age, again depending on the plan terms.

Will My SSDI Benefits Reduce My LTD Benefits?

Nearly all LTD plans contain a “coordination of benefits” provision that reduces your monthly benefit by any amounts you receive from the Social Security Administration – including not just the benefits you receive but also any dependent benefits your children receive because of your disability.  The goal of these “coordination of benefits” provisions is to reduce the cost of LTD coverage for both employers and employees, and also to prevent claimants from a windfall. Indeed, most LTD plans require that claimants apply for Social Security disability benefits and exhaust appeals through the hearing or Appeals Council stage.  If you fail to apply, the plan may reduce your LTD benefits by the estimated SSDI amount.  

If you apply and are approved, any amounts your Social Security lawyer receives would not count toward the offset.  Likewise, LTD plans cannot offset your Social Security cost of living adjustments (COLAs), only the original award amount.

Sometimes an award of SSDI benefits can produce a total offset such that the LTD benefit is reduced to the policy minimum.  In those instances, it’s helpful to think of the LTD benefits as an advance on the Social Security disability benefits.  Remember that it can take months, if not years, to receive a favorable Social Security determination.  LTD benefits, thus, provide a valuable bridge so that you can meet your basic needs while you wait for your Social Security award.

If I’m Awarded SSDI, Do I Have to Repay My LTD Benefits?

The answer to this question is: it’s complicated.  LTD plans cannot legally assert a lien over Social Security disability benefits because of 42 U.S.C. § 407, which prohibits garnishment of Social Security disability benefits by anyone but the Internal Revenue Service.  To circumvent that law, LTD plans must instead characterize their lien as a lien over the LTD benefits that have been overpaid by virtue of the SSDI award.  The problem with that approach is most LTD recipients spend their monthly checks on non-traceable assets such as food, clothing and shelter.  Under ERISA, LTD plans are subject to the equitable defense of dissipation of assets.  See Montanile v. Bd. of Trustees of Nat. Elevator Indus. Health Benefit Plan, 577 U.S. 136, 146 (2016).  Thus, if an LTD plan were to sue a plan participant under ERISA to recover the LTD benefits that were overpaid by virtue of his or her SSDI award, the most it could recover would be the lowest intermediate balance in the participant’s commingled bank account, and the traceable proceeds (if any) of the LTD benefits that remain in the participant’s possession.

Thus, if you are assessed an overpayment by your LTD plan by virtue of your SSDI award, and your LTD plan is subject to the federal ERISA statute, you cannot legally be forced to turn over your SSDI benefits; nor can your LTD plan attach a judgment to your house or general assets.  Instead, the most the plan can recover is the LTD benefits that remain in your possession, and their traceable proceeds.  The plan may, however, withhold your LTD benefits until it recovers the equivalent of the SSDI overpayment.  The plan may also send your overpayment case into collections, which could negatively impact your credit score.  Some plans may even state that no further benefits are payable if you fail to repay a Social Security or other overpayment.  If faced with an overpayment claim that you are unable to pay, it’s best to obtain a copy of the plan document and discuss it with an experienced benefits lawyer.

How Are LTD and SSDI Benefits Taxed?

SSDI benefits are taxable as income to you. LTD benefits may or may not be taxable, depending on whether the premiums were paid by you or your employer.  Generally, if your employer paid 100% of your premiums on your behalf on a pre-tax basis, the LTD benefits are taxable.  On the other hand, if you paid some or all of the LTD premiums on an after-tax basis, the benefits are untaxed or only partially taxable, depending on the amount of premiums you paid. If your LTD benefits are not taxable, and you are awarded SSDI benefits, the effect could be a reduction in your overall income.  

Why Should I Apply for SSDI Benefits?

If SSDI benefits reduce your LTD benefits dollar-for-dollar and are taxable (whereas your LTD benefits may not be), you may be wondering what incentive, if any, you have to apply for SSDI benefits (aside from the fact that your LTD plan likely requires it).  There are advantages to receiving SSDI benefits that go beyond the monthly payments themselves:

• Retirement: If you are awarded SSDI benefits, your Social Security earnings history will be frozen as of the date of your disability for the purposes of calculating your Social Security retirement benefit.
• Medicare: SSDI recipients become eligible for Medicare 29 months after the onset of disability (or even sooner, if you suffer from amyotrophic lateral sclerosis (ALS) or end stage renal disease).
• Diversification: If your LTD benefits are denied or terminated, the impact to your monthly income will be less if you are also receiving SSDI. 
• Conflict of Interest: If your LTD plan administrator terminates your LTD benefits despite your receipt of SSDI benefits, it can give the appearance of a conflict of interest and/or “procedural unreasonableness” to a reviewing court.  See Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 115, 118 (2008).

Can I Work While Receiving SSDI and LTD Benefits?

If you return to work briefly while your SSDI application is pending, you may nonetheless be approved for benefits if the Social Security Administration deems the return to work to be “unsuccessful” or “sympathetic employment” (such as performing work for a relative).  Once your SSDI application is approved, you can return to work and continue to receive benefits for a period of time under the Social Security Administration’s “Ticket to Work Program.”  If you become disabled again, you can apply for expedited reinstatement of your SSDI benefits.  It is important to notify the Social Security Administration before returning to work to avoid an overpayment or, worse, allegations of fraud and criminal prosecution.  

Most LTD plans similarly encourage claimants to return to work on a full-time or part-time basis and offer incentives to encourage them to do so, including vocational rehabilitation services and enhanced monthly benefits for a time.  If you return to work but your earnings are less than what you earned prior to becoming disabled, you may be eligible for a partial disability benefit to supplement your earnings.  If you return to work for your employer on a full-time basis but become disabled again less than six months later, you may be eligible for reinstatement of your LTD benefits without having to satisfy a new elimination period if your LTD plan contains a “recurrent disability” provision.  However, if you return to work for a different employer, you may be ineligible for reinstatement of your LTD benefits.  It’s important to closely study the LTD plan document prior to any return to work to determine your rights.

Conclusion

Long term disability benefits work in concert with Social Security disability benefits to provide income replacement in the event you become disabled and unable to work.  Because the process of applying for and receiving SSDI is lengthy and complex, you may not realize the importance of applying, but the sooner you do so, the better.  Even if you do not think you will qualify for SSDI, or do not anticipate remaining out for work for very long, your LTD plan will likely require that you apply, and, if your application is approved, the benefits are significant, as discussed above.  If you have questions about receiving SSDI benefits at the same time as LTD benefits, contact the experienced lawyers at DeBofsky Law for a consultation.

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[1]  Disabled adult children may also be eligible to receive SSDI benefits on their parent’s account if the parent is disabled, deceased, or retired.

[2]  Social Security Disability Insurance (SSDI) should not be confused with Supplemental Security Income (SSI), which is a need-based program that provides a fixed monthly benefit ($794 in 2021) to disabled adults and children, regardless of their work history, provided their assets are below a certain threshold.

[3]  Disabled adult child benefits (see footnote 1, supra) are not subject to offset.  Schultz v. Aviall, Inc. Long Term Disability Plan, 670 F.3d 834, 841 (7th Cir. 2012).