When employers think about core benefits, Long-Term Disability (LTD) is often a foundational part of the offering, and for good reason. It provides critical income protection and financial stability when employees need it most. But for higher compensated employees, that protection may not go as far as intended.
A Strong Foundation with Built-In Limitations
Group LTD is designed to replace a percentage of income, typically around 60%. However, two common plan design features can create meaningful gaps for top earners:
- Monthly benefit caps that limit total payouts regardless of salary
- Exclusion of bonus, commission, or incentive income from covered earnings
According to the Council for Disability Awareness, most long-term disability plans replace only a portion of base salary—and often exclude variable compensation entirely. For higher earners, that can result in significantly lower income replacement than expected.
The Hidden Risk for “High-Impact” Employees
From an employer’s perspective, this isn’t just an individual concern, it’s a workforce strategy issue.
Your most senior leaders and top performers often have:
- Higher fixed financial obligations
- Greater reliance on variable compensation
- A disproportionate impact on business continuity
At the same time, the likelihood of a disability event is not insignificant. The Social Security Administration estimates that more than 1 in 4 of today’s 20-year-olds will experience a disability before reaching retirement age.
If a disability occurs, insufficient income protection can lead to financial strain, distraction, or even premature return-to-work decisions, which can affect both the employee and the organization.
Closing the Gap with Executive LTD
This is where a more tailored solution can make a meaningful difference.
Executive Long-Term Disability (Executive LTD) plans are designed to sit alongside traditional Group LTD coverage, helping to:
- Supplement income above standard plan caps
- Incorporate bonus and incentive compensation into coverage calculations
- Provide a more accurate level of income replacement for key employees
A More Complete Approach to Income Protection
Group LTD remains a valuable and essential benefit—but it shouldn’t be viewed as one-size-fits-all.
Employers who take the next step to evaluate coverage adequacy—especially for higher earners—are better positioned to:
- Protect their leadership and critical roles
- Enhance the overall competitiveness of their benefits package
- Reinforce a commitment to financial wellbeing across all levels of the organization.
Key Takeaway
Group LTD is a strong starting point—but for higher compensated employees, it may leave important gaps. Disability Insurance Awareness Month is an ideal time to assess whether your current plan design fully supports your workforce—and whether solutions like Executive LTD can help ensure your most valuable employees are truly protected.
Sources
Social Security Administration — Disability statistics: https://www.ssa.gov/benefits/disability/
Council for Disability Awareness — Disability insurance basics: https://disabilitycanhappen.org
Investment advisory services offered through Global Retirement Partners, LLC, dba M3 Financial, an SEC registered investment advisor.
