Can You Receive Pension Benefits While on Long-Term Disability?
Individuals who are receiving long-term disability (LTD) benefits may wonder if they can receive pension benefits through their employer. In many situations, it is possible to receive both types of benefits. However, it is always important to thoroughly read your insurance policy as your insurer may offset pension benefits from your LTD benefits.
Long-term disability benefits can protect a percentage of your pre-disability earnings when you are unable to work for an extended period due to a medical condition. Pension benefits, on the other hand, can provide you with peace of mind when you retire. This article will explain both and how they can work together.
How Do LTD Offsets Work?
First, it is important to understand how LTD offsets work. There are several types of offsets that a long-term disability insurance company may apply to your benefits. The most common is an SSDI offset. To illustrate how offsets work, let’s look at this example:
If you receive a $3,000 per month benefit through your LTD policy and are then approved for a $2,000 per month benefit through SSDI, this does not mean you will receive $5,000 in total. Instead, your long-term disability insurer will offset this SSDI amount and pay you $1,000 per month.
Can a Person Receive Both Pension and Disability Benefits?
Yes, you can typically receive both pension and long-term disability benefits. However, you should read your LTD insurance policy to ascertain whether the pension benefits you collect can be offset by your insurer.
Unfortunately, your long-term disability insurance policy likely includes pension benefits as an offset. Therefore, the benefits you receive through your pension may reduce the LTD benefits you receive each month. It is important to note that some policies may frame all offsets as benefits you are receiving or are eligible to receive.
“Depending on the terms of your policy,” says Leah Small, a managing attorney at CCK Law, the offset “could be a full dollar for dollar offset…that the insurance company simply subtracts your full pension benefit from your LTD benefit.”
She adds, “Alternatively, sometimes the offset is limited only to pension benefits you’re receiving from the employer who sponsored the long-term disability plan that you are receiving benefits under. That means that if you’re receiving pension benefits from a prior employer who is unrelated to your current long-term disability plan, those pension benefits may not be offset.”
Nonetheless, it is important to read your policy carefully. While most insurance policies do not contain language requiring you to apply for pension benefits, it is always best to be sure of the terms set forth by your insurer so that you do not commit a mistake that could cost you your benefits entirely.
What About 401(k) Accounts?
There are two primary types of pension plans: “defined benefit” and “defined contribution.” Traditional pension plans are defined benefit plans, which means that the person’s employer guarantees a certain amount of monthly benefits, often based on salary and years of service.
A defined contribution plan means that the employee makes set contributions to their benefit plan that their employer can then match. A 401(k) account is a defined contribution plan, though the term “pension” typically refers to the defined benefit plan.
Nonetheless, some claimants may wonder if utilizing the funds in their 401(k) account can affect their long-term disability benefits. Some individuals may decide to withdraw funds from their 401(k) account to help support them when they are waiting for their LTD claim to be approved, to bridge the waiting period before benefits begin in lieu of short-term disability benefits, or to rely on when their LTD benefits have been denied or terminated.
Yet, in some cases, withdrawing 401(k) funds can trigger an offset from your insurer. As with traditional pension plans, depending on the terms of your LTD policy, the funds withdrawn from a 401(k) account may be used to offset and thereby reduce your long-term disability benefits.
Call CCK Law Today
Obtaining long-term disability benefits is challenging, especially if you are not familiar with the laws that govern your claim, such as ERISA. If you have a pension plan and are unsure whether it will be an offset to your LTD benefits, then contacting an experienced attorney may beneficial. CCK Law has been helping claimants for over 25 years receive the disability benefits they need and may be able to help you, too.
Call CCK Law today at (800) 544-9144 for a free case evaluation with a member of our team. We will analyze your case and determine if we can assist you.
