FCUs are Permitted to Offer Own Short-Term Disability, but Additional Risks may Apply

ALEXANDRIA, Va.-US Federal Credit Union of Minnesota was given the green light to offer a self-funded, short-term disability plan to cover employees during the wait period for the long-term disability policy to kick in. In doing so, though, NCUA Associate General Counsel Sheila Albin cautioned in a recent NCUA legal opinion letter that it could lead to increased absenteeism and claims against the short-term, as well as long-term, policies. The credit union's plan is to provide a short-term disability plan to cover employees for 60% of their regular salary from day six through day 90, when the long-term policy that the credit union contracted out should take effect. "Our view is an FCU's continuation of partial pay for a disabled employee during the 90-day waiting period associated with a third-party long-term disability insurance policy is reasonable," Albin wrote. "We do not consider the self-funding of your short-term disability plan to be impermissible self-insurance as the short-term disability coverage is only for employee pay and the period and amounts of coverage are limited." However, she did suggest the credit union consult with its examiner regarding safety and soundness issues associated with specifics of the plan. Albin also cautioned that historical experience might not be a good guide in determining potential liability to the institution. She warned that the salary continuation may provide incentive to file for the disability and lead to an increase in absenteeism. Further, she said, an increase in short-term claims could lead to an increase in long-term disability claims. Additionally, Albin suggested consulting the long-term disability provider for its opinion of the short-term plan.