Benefits Basics – When an Employee Becomes Disabled: A Resource Guide for HR & Benefits Professionals

When an employee becomes disabled, a variety of questions arise regarding that employee’s entitlement to compensation and benefits. As a member of your company’s human resources or employee benefits department, employees and their families will often look to you to help them understand the impact of disability on the employee’s benefits and compensation during what is often a stressful time for them. This guide provides a high-level reference resource, in a plan-by-plan format, on how to approach each type of compensation or benefit arrangement when an employee becomes disabled and offers up some practical tips on employee benefits issues that may come up as you manage your company’s compensation and benefit administration for a disabled employee.

The information given in this guide is general in nature and is not intended to address every benefit or tax issue that may come up when dealing with a disabled employee or other nuances that may arise when considering the disabled employee or the specifics of your company’s benefit plans. In addition, any tax or other rules described in this guide are current as of the date of this guide, and do not infer that the rules described are the only rules (tax or otherwise) that may apply and are subject to change. As a result, we always recommend that you engage your in-house or external legal counsel or other tax or employee benefits advisors when working through compensation and benefits issues related to employee disability.

This guide is part of Foley’s Employee Benefits & Executive Compensation Practice “Benefits Basics” resource series—please see our resource guide for important benefits considerations when an employee dies.

An Overview of the Meaning of Disability

Before we dive into discussing issues for administering your company’s compensation and benefit plans, one critical thing to be aware of is that not all disabilities are defined equally. For example, the Employee Retirement Income Security Act of 1974 (ERISA) does not apply a single definition of disability to be used for all ERISA plans. Depending on the particular plan, policy or program at issue, you might find that there are multiple definitions of disability in your documents. Here’s an overview:

Wow! As you can see, there are several definitions of disability, all of which vary in one way or another. What this means is that if someone is disabled, you will have to review the definition of disability in each and every plan or individual agreement to determine whether the employee qualifies for all, or just some of, the disability provisions of that plan or agreement.

A best practice is to consider harmonizing definitions across plans and agreements as much as possible (except where a legally required definition just will not allow that). This will streamline administration significantly.

Finally, to the extent you are able, consider defining disability in a way so that you, the employer, can rely on a third party’s determination of disability so that you will not actually have to make the determination yourself, which can be very tricky. For example, if you can define disability by reference to whether someone is entitled to long-term disability insurance benefits or has received a SSA determination of disability, then you need only rely on that third party’s determination and do not have to undertake your own review of an employee’s medical and occupational records.

A Quick Note on ERISA vs. NON-ERISA Plans

Determining whether a benefit plan is covered by ERISA can be complicated. While your company’s most common broad-based retirement and welfare benefit plans, such as 401(k) plans, pension plans, and medical, dental, vision or other welfare benefits, will most likely be governed by ERISA, there are many nuances in the rules that exempt certain benefit plans depending on how the plan is structured. This issue commonly comes up with certain disability or severance benefits or policies. Bonus programs, deferred compensation plans or other voluntary benefits or payroll practices (discussed in more detail under “Short-Term Disability” below) are usually not subject to the ERISA preemption rules. However, due to the complexity of these rules, if you are unsure whether a benefit program is an ERISA or non-ERISA plan, consult with your benefit plan advisors when deciding whether to allow beneficiary designations.

Practical Steps to Take When an Employee Becomes Disabled

Who You Should Involve

Most employee disabilities begin with an employee requesting a leave of absence. In that case, you simply follow your normal leave of absence process, whether that involves working with internal HR or directing the employee to a third-party leave vendor. If, however, the employee is incapacitated and you receive the initial call about an employee’s disability from a family member, it is imperative that you promptly contact the following individuals within your organization: the head of HR for the employee’s business unit (who should, in turn, contact the employee’s manager) and all relevant members of the employee benefits team. From there, you should follow the same leave of absence procedures that you would follow in a non-emergency situation, except that the family member may be acting on the employee’s behalf in completing paperwork and providing any needed information to apply for a leave of absence and any available short-term disability benefits, and to communicate payment arrangements for any health and other benefits that continue during the leave period.

If the employee’s disability is expected to be more than temporary and your retirement plans permit disability distributions or disability commencement, then you may need to provide disability information to your plan’s recordkeeper so that the employee can be permitted to commence benefits under the plan.

The Information You Need

An employee’s disability will often begin with a request for leave of absence due to injury, illness, or a medical condition. In those instances, you should follow your company’s normal leave of absence policy, whether that is an internal process or run by a third party that administers leave and/or STD benefits. This will typically involve the employee completing an application and, where needed, providing documentation supporting the application, such as medical records and a letter from the employee’s physician. If the employee’s disability begins with more of an emergency situation, such as an accident or sudden illness, then you may need to work with an employee’s family member to process a leave or STD benefits request and gather needed information.

You or your leave vendor will also need to communicate the impact of the leave on employee benefits. As discussed in more detail below, you must offer the employee the opportunity to continue group health plan benefits such as medical, dental, vision, and medical flexible spending account benefits during a Family Medical Leave Act (FMLA)-covered leave. For other types of leave and types of benefits, benefits continuation will depend on the terms of the applicable policy or plan document. If you offer the employee the opportunity to cancel all or some of their benefit elections during leave, then you will need to collect those elections from the employee, through election forms or an online system. If the leave will be paid, then benefit deductions can typically continue from the leave pay. If the leave will be unpaid (e.g., no STD or other leave pay) and the employee desires to continue medical and other benefits during leave, then you will also need to provide the employee with information on how to pay for those benefits should the employee choose to continue them. If you follow a direct pay approach (as opposed to, for example, a pay when you return to work approach), then you or your vendor will need to verify the address or email address for billing statements and obtain ACH information where electronic payment is offered or required, and provide that information to payroll.

You will also need to figure out which benefit plans or programs the employee was enrolled in or otherwise had an accrued benefit under, and whether the employee had any individual agreements in effect with the company (such as equity awards, employment agreements, employee loans, etc.) and make sure you have copies of all of those documents. This information may come from internal HR records or from third-party benefit plan administrators or vendors. You will also want to determine whether any of these plans require you to make a determination of disability or whether that determination is made by a third party.

As discussed in more detail below, if the employee’s disability continues beyond a STD period (generally, six months maximum depending on the terms of your STD program), then you may be receiving a disability determination from a long-term disability insurer or the Social Security Administration and to follow company policy in terminating the employee’s employment at the appropriate time.

A Quick Note About HIPAA

We often hear from clients who are concerned about HIPAA during the leave of absence process, either because they are concerned that they are not allowed to collect or store the information needed to process and approve a leave or STD benefits request or because the employee or employee’s family members are pointing to a HIPAA concern with providing the requested information. HIPAA does not apply to leave or STD benefits programs, nor does it apply when an employee is providing medical information to you, whether directly or via an authorization for a health care provider to send you the employee’s medical information. However, and regardless of whether HIPAA applies, you should always limit access to an employee’s medical information to only members of HR or benefits who must have access to such information to process a leave or STD application and always securely store such information. If you are using a third-party vendor to process leave or STD benefits, then you should ensure that your contract with that vendor obligates them to protect the employee’s information.

Cash and Equity Arrangements

Overview

When an employee becomes disabled, a variety of different compensation programs have to be considered. First, it is important that you survey all of the cash and equity compensation that is or may be due with respect to the disabled employee. For example:

• Is the employee covered by an annual or long-term cash bonus plan?
• Is the employee in a commission program?
• Does the employee have an employment agreement in effect?
• Does the disabled employee have equity awards, such as stock options or restricted stock units?

Second, after identifying all of the agreements, policies, and arrangements under which cash or equity compensation may be due, determine whether there are any special provisions applicable to a disabled employee, paying close attention to whether the rights arise due solely because the person has become disabled, or only upon a termination of employment due to that disability.

Typical Provisions (including One Gotcha):

Entitlement to Bonuses and Equity Awards. For cash bonus programs, you’ll need to review the terms of the documents to determine what happens on a disability. Bonus plans often will either payout automatically at target upon a disability (or termination due to disability) or may provide for payout to occur at the end of the performance period based on the level of achievement of actual performance, and either on a pro-rated basis or in full.

For all types of equity awards, the governing plan document or the award agreements will specify what happens to the awards upon the employee’s disability. Similar to cash bonus plans, equity awards will either vest automatically upon a disability (or termination due to disability) or on a pro-rated basis. For equity awards subject to performance goals, the award may provide that performance is deemed met at the target level, or may provide for payout to occur at the end of the performance period based on the level of achievement of actual performance, and either on a pro-rated basis or in full. Finally, for stock options, it’s very typical for an employee to get an extended period to exercise their options following a termination due to disability.

If the disabled employee has an “incentive stock option” (also referred to as an ISO), which is a type of option that may provide beneficial tax treatment to the employee, for a normal termination of employment, an employee must exercise an ISO within three months after termination as one requirement to obtaining favorable tax treatment. For a termination due to disability, however, the Internal Revenue Code extends this time period to one year following the termination. (What are the other requirements to obtain favorable tax treatment? – The employee has to hold the stock acquired upon exercise of the ISO for one year from the date of exercise and two years from the grant date. This holding period requirement does not change for disabled employees.)

Sometimes, an employment agreement might also describe what happens to bonuses or equity awards upon a disability, or termination due to disability, so those should be reviewed as well.

There is one “gotcha” that often comes up in these types of arrangements. Whenever a pro-rated bonus or award is at issue, the pro-ration often runs through termination of employment due to disability, and not through the commencement date of the disability leave. This often surprises employers, especially those employers that don’t have a robust process in place under the American with Disabilities Act (the ADA) to engage in an interactive process to determine when a termination of employment is appropriate.[1] We find that such employers often leave disabled employees as “employees” for a very long period of time. So, when it comes to pro-rating a bonus or award, the employee gets the benefit of a very-long pro-ration period, often with the result that they end up getting the entire award because their termination does not occur at all during the bonus or equity award vesting or performance period. When this comes to light, we have found that most employers like the idea of pro-rating through the end of the employee’s STD leave, which normally runs for no more than six months. This rule doesn’t “punish” an employee who needs to take a short-term leave but also does not create a windfall for employees who have a more serious disability and end up never being able to come back to work. There is a downside to this type of pro-ration provision – many employers do not have systems in place to automatically measure when STD ends. So, whatever pro-ration rules you adopt, it is important to consider whether your HRIS is set up to handle the rules you implement or if some manual review and implementation process will be necessary.

Entitlement to Severance. Often, an executive’s employment agreement will provide for severance pay if termination of employment is due to disability. Pay careful attention to these types of provisions, because occasionally they will require a certain process to be completed for the company to be able to terminate the executive’s employment, e.g., the full board of directors needs to make the determination of disability, or the disability has to be based on the conclusion of an outside physician. And if your agreements have these provisions, check whether your long-term disability insurance policy has any type of offset for these payments so you can warn the terminating executive about the impact the severance pay will have on their LTD benefits.

Benefit Plans

Qualified Retirement Plans

401(k) and Other Types of Defined Contribution Plans. 401(k) plans are the most common employer-provided retirement benefit offered to employees. While not required, 401(k) plans often permit an employee to take a distribution of some or all of his or her vested account balance upon a disability. We recommend including these types of provisions in plans sponsored by employers who, as mentioned above, tend to never take action to terminate the employment of a disabled employee. By allowing the disability withdrawal, the employee is able to access their account balance when they need it, even if the employer has not terminated their employment.

Other issues to consider in 401(k) plans are:

• What types of disability compensation may an employee defer? For example, if the plan defines compensation as all W-2 compensation of the employee, that works fine as long as disability compensation is being paid from the employer’s payroll. But when the compensation is being paid by a third-party, such as an STD administrator or an LTD insurance carrier, how will that work in practice? In such a case, either the plan’s definition needs to be revised to clarify that it is only compensation paid directly by the employer, or the employer and the third-party will need to discuss the coordination and sharing of compensation information to figure out how an employee remains able to defer STD or LTD payments into the 401(k) plan.
• Does your plan provide for full vesting upon a termination due to disability? While this is not legally required, we find that it is almost always the case.
• If your plan requires an employee to be employed on the last day of the plan year or to have completed 1,000 hours of service as a requirement to receive an employer contribution for the year, is there an exception to those rules for a disabled employee? Typically, that would be the case, but it is not legally required.  

Pension Plans. While pension plans are getting scarcer as each year goes by, many employers still maintain them, even though the benefits under them have almost all been frozen at this point.

If a disabled employee who is terminated from employment participates in a pension plan, the first issue to consider is whether the employee is vested in their plan benefit, and if not, whether the plan provides for full vesting in that circumstance. Similar to 401(k) plans, we find that pension plans will often fully vest a participant who terminates employment due to a disability. Even if the plan does not provide for full vesting in this circumstance, check the plan’s terms to see when vesting service stops being counted. Occasionally, a pension plan might provide for favorable service-crediting rules during disability leaves.

The second issue to consider is whether the plan provides for a disability retirement benefit. This is not legally required so many plans do not have a disability retirement provision. A disability retirement typically allows a terminated employee to commence their pension benefits right away upon a termination of employment, even if the employee has not yet reached early or normal retirement age, when benefits would normally be able to commence. A disability retirement might also provide for some sort of enhanced benefit, such as a full pension with no reduction for starting early. If a disabled employee may be eligible for a disability retirement, you should let them know so they can apply for the benefit if they wish.

ERISA Claims and Appeals Regulations. ERISA has specific claims and appeals regulations for disability plans that impose a host of requirements for plan administrators. Importantly, these regulations also apply to retirement plans where some sort of disability provision exists, and the plan states that the administrator must make its own determination of disability, rather than relying on a third-party, such as the SSA or an LTD insurance carrier. To avoid these requirements, which many plan administrators find to be onerous, you should consider amending your retirement plans to eliminate any concept of a plan administrator-determined disability, keeping the following issues in mind:

• For all qualified plans, the new definition of disability cannot affect the vesting rules in a manner adverse to participants. In other words, if the plan provides for vesting upon a termination due to disability, the new disability definition cannot be stricter than the prior one.
• For 401(k) and other defined contribution plans, the new amendment cannot result in the cut-back of a protected benefit, right or feature. For example, if the plan permits a withdrawal upon a disability, the new disability definition should not be stricter than the prior one so that the individual’s right to the withdrawal is not impaired.
• For defined benefit pension plans, a disability retirement benefit is typically not considered a part of the accrued benefit, which means that you are permitted to amend a defined benefit pension plan to eliminate disability retirement altogether if you wanted. Because of that, you are also free to change the criteria to be eligible for a disability retirement, such as by redefining disability to require an SSA determination.

Of course, for all of the above, if the plan covers union employees, you’ll also need to consider whether these changes require bargaining with the union.

Welfare Plans

Short-Term Disability. Most short-term disability plans are payroll practices, in which the employer simply continues paying all or a portion of the employee’s salary or hourly wage rate while the employee is on a disability leave, typically lasting from 90 days to six months. Of course, ensuring that an employee (or a family member who is assisting in their care) understands their rights to STD plan benefits is one of the critical things you need to ensure happens.

You should consider how state laws will impact the design and operation of the STD program. For example, a Wisconsin law permits an employee who takes an unpaid maternity or paternity leave to “substitute” paid leave otherwise available to them for other reasons for such unpaid leave. In other words, the employee can use their STD paid leave to provide for salary continuation payments during their maternity or paternity leave, even if the person is not otherwise considered disabled. See Wis. Stat. 103.10(5)(b). In addition, many states and even local governments have mandatory paid disability leave. If you have employees in those locations, you’ll need to consider how to coordinate these mandatory leave provisions with your STD program. For example, if you are paying into a state disability fund in New York, then you may wish to exclude New York employees from your STD program to the extent the law allows.

It is important to note that payroll-practice STD programs are not subject to ERISA, meaning they don’t enjoy some of the protections that ERISA provides, such as requiring an employee to exhaust the plan’s claims and appeals procedures prior to bringing a lawsuit, and limiting damages to the plan’s benefits and, in some cases, the employee’s attorneys’ fees. On the flip side, fully-insured STD plans are subject to ERISA and so get the benefits that ERISA provides, as well as the obligations, such as the requirement to issue a summary plan description.

Long-Term Disability. LTD programs are typically fully-insured, which means that the employer’s sole obligation is to ensure that the employee, if covered by the program, knows how to apply for insurance, and to provide whatever information the LTD insurance carrier requests to make its determination of disability and to determine the amount of the benefits owed under the terms of the policy.

The “gotcha” with this type of program is when employers, in the guise of being helpful, either do not permit the participant to apply for benefits, or actively discourage such application. An employer should never do this, even when they feel very certain that the insurance carrier will deny the application. ERISA gives employees who are covered by an insurance policy the right to apply for benefits. While it is okay for an employer to set the employee’s expectations, an employer should never preclude a plan participant from applying for benefits under any ERISA plan.

The tax treatment of long-term disability benefits depends on how the premiums for the coverage were taxed to the employee:

• To the extent the employee paid his or her insurance premiums for LTD coverage with after-tax dollars, or the employer’s contribution towards those premiums were included as compensation income on the employee’s Form W-2 and taxed accordingly, then the LTD benefits are non-taxable.
• To the extent the employee paid his or her insurance premiums for LTD coverage with pre-tax dollars, or the employer’s contribution towards those premiums were not included as compensation income to the employee, then the LTD benefits are taxable.

Opinions vary about which approach is best. Some employers like the first approach so that the benefits, which are typically often a reduced percentage of compensation, such as 60%, are not further reduced for taxes. Others like the second approach which saves all employees current tax dollars and may be the most valuable to the group as a whole given that very few employees will actually utilize the LTD benefits. And some employers who don’t want to make that judgment call allow their employees to choose the tax treatment of their premiums.

Group Health Plans. You should check the terms of the plan (or summary plan description) to determine what happens to an employee’s eligibility for coverage when the employee takes a disability leave. Some plans will continue coverage, at the active employee rates, during the period of STD leave, but that is not legally required. If the disability leave is also a leave covered by the federal Family Medical Leave Act (FMLA), however, then the employee must be allowed to continue participating in the plan during that FMLA leave on the same terms as active employees (e.g., at active employee rates). If the employee does not return to employment following the FMLA leave, the plan may terminate participation at that time, although COBRA (which is discussed in the next paragraph) would then be offered.[2] 

If you are subject to federal COBRA rules (generally, employers with at least 20 employees are subject to federal COBRA), and if the employee loses coverage due to the disability leave, which is a “reduction in hours” in COBRA parlance, then you generally must notify the COBRA administrator of the employee’s loss of coverage within 30 days from the date of the loss of coverage. The COBRA administrator then has 14 days to send out the COBRA election packet to the participant and his or her enrolled dependents. If you administer COBRA internally, then you have a total of 44 days to send out the COBRA election packet. Note that an employee who is on an FMLA leave can never have a COBRA event until after the expiration of the leave, and COBRA must be offered following the expiration of the leave even if the employee chose not to continue coverage during some or all of the FMLA leave period.

Remember that COBRA continuation coverage can last for up to 18 months when the loss of coverage is due to a reduction in hours (such as the taking of a disability leave) or a termination of employment. However, that 18 months can be extended for up to a total of 29 months if:

• The SSA makes a determination that the employee’s disability began at any point up until the first 60 days of the COBRA continuation coverage.
• The employee (or a family member) provides the COBRA administrator with a copy of that SSA determination no later than the end of the first 18 months of COBRA coverage. In addition, the SSA determination must be provided within 60 days after the later of (i) the date of issuance of the SSA determination letter and (ii) the date on which the qualifying event occurs or, if later, the date coverage would have otherwise been lost due to such event. These time frames assume the employee has been provided proper notice of his or her right to extend COBRA coverage due to an SSA disability; if not, the period to provide notice of the SSA determination extends until 60 days after the employee becomes aware of this right.

The premiums for COBRA coverage are permitted to be 102% of the full premium amount (both the employer and employee portions) for the first 18 months of coverage. If the disability extension applies, then following the end of the first 18 months of COBRA, the premium can be increased to 150% of the full premium amount.

If you are a small employer not subject to the federal COBRA rules, there still may be similar requirements under a state “mini COBRA” law of which you should be aware. You should not assume that the insurance carrier will administer your insurance policy’s mini COBRA provisions; often, insurance policies impose certain administrative obligations on the employer, such as notice obligations.

Flexible Spending Accounts (FSAs). Most health FSA and dependent care FSAs will provide that participation ends when the employee is no longer receiving compensation, although health FSAs must permit the employee to continue participation during an FMLA leave.

For the health FSA, COBRA coverage must be offered when the employee ceases to be eligible due to either a reduction in hours (such as due to taking a disability leave) or termination of employment. Most health FSAs qualify for a limited COBRA obligation that permits an employer to only offer COBRA coverage to the participant when the participant’s account is underspent (generally, more money has been contributed as of the date of the COBRA qualifying event than has been reimbursed) and only for the remainder of the plan year.

For dependent care FSAs, a typical question is whether childcare expenses incurred while the employee is on disability leave are eligible for reimbursement from the FSA. Because the dependent care FSA is intended to pay for eligible dependent care expenses to allow the employee to work, day care expenses incurred while the employee is not working cannot be reimbursed from the account. Therefore, the employee cannot be reimbursed for daycare expenses incurred while on a leave of absence. This is frustrating for both employers and employees because an employee who is unable to work due to a disability is often also unable to care for their children at home.

Nonqualified Deferred Compensation Plans

Like pension plans and 401(k) plans, the first issue to consider is whether the individual was vested in their plan benefit or account at the time of disability, and if not, whether the plan provides for full vesting upon either a disability or upon a termination due to disability. If any portion of the account balance or benefit is unvested, it should be forfeited in accordance with the terms of the plan.

Assuming there is a vested balance, you should check to see whether the plan provides for a distribution upon a disability. A disability is a permissible payment event under Internal Revenue Code Section 409A, which governs most types of nonqualified deferred compensation plans. Alternatively, the plan may provide for a payment to begin (or commence) upon a separation from service. A separation from service generally means the date when the employee’s level of service decreases to less than 20% of his or her prior level of services over the preceding 36 months. But, there is a special rule in Section 409A that says an employee on a sick leave does not experience a separation from service for the first six months of the leave (or such longer period of employment for which the employee has the right to return to employment by law or contract), provided the employee is reasonably expected to return to work before the end of such period. When the individual is disabled within the meaning of Section 409A (see the section “Overview of the Meaning of Disability” above), however, then the plan may provide that the separation from service is delayed until the end of 29 months of leave, even if the employee is not expected to return to work. Many nonqualified deferred compensation plans utilize this 29-month leave rule, but employers are often ill-equipped to track it from an HRIS perspective.

If employee deferrals are being made to the plan, you should also check whether the plan permits the employee to cease making deferrals upon commencement of the disability. This is one of the limited exceptions to the normal rule in Section 409A that provides that deferral elections must be irrevocable for the entire plan year.

Other Issues to Consider

Form 8-K Requirement. Generally, the termination of a CEO, CFO, COO, chief accounting officer or any named executive officer of a publicly traded company triggers the need to file a current report on Form 8-K with the Securities and Exchange Commission (SEC). This requirement is triggered when one of the listed officers’ employment is terminated as a result of disability. However, it can be more difficult to determine whether disclosure is required in the case of disability or illness that limits or incapacitates an officer but does not result in immediate termination of employment. The SEC Staff has not provided specific guidance for this situation, saying only that a “termination” includes situations where the officer “has had his or her duties and responsibilities removed such that he or she no longer functions in the position of that officer.” As a result, any disability that results in the removal or reduction of an officer’s duties should lead to an evaluation of whether the officer is continuing to function in his or her officer role and of the materiality of the change to the Company’s investors.

Section 16 Reporting. The disability of an executive or the termination of the executive’s employment due to disability generally will trigger a Form 4 filing only to the extent the event triggers a forfeiture of an equity award, accelerated vesting or settlement of a unit-based award (e.g., restricted stock units or performance share units) or a tax withholding obligation that is covered by withholding or selling shares. In addition, any transaction with respect to the company’s stock that is initiated after the executive’s disability but while the executive’s employment continues (such as, for example, the exercise of an option by the executive’s guardian) would be reportable in the same manner as a transaction initiated by the executive. Any transaction that is initiated after the executive’s employment is terminated due to disability, by contrast, would not be reportable unless it were “matchable” against an earlier opposite-way transaction (i.e., a sale if the transaction is a purchase, or a purchase if the transaction is a sale) that had occurred while the executive was still employed and within six months of the second transaction. In addition, if the disabled executive (or his or her guardian) initiated a transaction prior to the executive’s termination of employment that had not yet been reported on a Form 4 or Form 5 (for example, if the disabled executive sold stock the day before his or her termination of employment or gifted stock earlier in the year), then there is an obligation to report on a timely basis such transactions that occurred prior to the executive’s termination of employment. The disabled executive’s reports can be signed and filed with the SEC by the executive’s guardian. Regardless of who signs and executes the report, the disabled executive should be named as the reporting person in Box 1 of the report, and the person executing the report on the disabled executive’s behalf should sign the report in their own name, indicating the capacity in which they are signing.

Powers of Attorney

When a disabled employee is unable to care for their personal or financial affairs the employee may designate another person (called the “agent”) through the use of a Power of Attorney (a POA). The agent is permitted to take action on the employee’s behalf to the extent permitted by the terms of the POA. If you receive a POA, it is important to check state law to determine whether (a) the POA is valid, and (b) the POA permits the action that the agent wishes to take. For example, some state laws may prohibit an agent from changing a beneficiary designation unless the POA explicitly gives the agent that right. If you determine that a POA is valid, then you are permitted to take direction from the agent with respect to compensation and benefit plan matters that are within the scope of the authority granted by the POA.

[1] The requirements of the American with Disabilities Act are beyond the scope of this article.

[2] The rules on benefit elections and payment options during an FMLA leave are complex, and when digging into these rules (which are beyond the scope of this article), many employers find that their approach is not fully compliant with those rules.