Question regarding specific employment status (inactive or terminated)

[PsyDreamin]

My question relates to a transition from employer covered sponsored short-term disability (12 weeks) to third party long-term disability (premiums paid by my employer).

At the end of the 12 weeks my employer will change my classification to "inactive" rather than "terminated". After 6 months they will change my classification to "terminated".

Normally this wouldn't seem problematic or concerning however if my long-term disability claim is slow or requires appeal I will need a resource to cover expenses, COBRA, etc.

Although not the best choice, but my only, I planned on using a portion of my 401K funds to help weather the storm and fill the gap between short and long term claims.

Problem is that my 401k plan won't allow access/disbursement of funds unless I am no longer employed with the company (terminated or quit) or "IRS disabled". Listed as "inactive" doesn't count and although I clearly qualify as disabled regarding my current profession I am not disabled when considered under the any profession rule. This leaves the potential for an extended period of time with no financial resources.

I discussed this with the HR Rep and was told that they would be willing to accommodate a request for termination at the end of the 12 weeks of FMLA/short-term disability and that the administrative change from "active" to "terminated" would allow access to 401K funds but would in no way impact my long-term disability claim.

Although the 12 weeks of FMLA/short-term disability has not yet expired I already started the long-term disability claim process at the recommendation of my doctor.

I will desperately need access to the 401K funds but at the same time don't want to cause any problems with my ability to proceed with the long-term claim.

Any thoughts about this? Seem reasonable?

[MSW1963]

Here is a link to IRS.gov, Schedule R (Form 1040A or 1040).

http://www.irs.gov/pub/irs-pdf/i1040sr.pdf

This is quoted from the pdf document at the irs.gov site:

What Is Permanent and Total
Disability?

A person is permanently and totally disabled if both
1 and 2 below apply.

1. He or she cannot engage in any substantial
gainful activity because of a physical or mental condition.

2. A qualified physician determines that the condition
has lasted or can be expected to last continuously
for at least a year or can lead to death.

'Qualifed' retirement plans rely on IRS definations, it's what makes them qualify for tax emempt contributions during employment, and defines what transactions are qualified for exemption from the 10% penalty for distributions before age 59 1/2.

I asume your 'inactive' employment status is a mechanism for the convenience of the company/insurer and techenicaly has little baring if you otherwise meet the above IRS defination of Permanent and Total Disability.

Clear as mud, right? I know.

Best of luck and take care.

[PsyDreamin]

Thanks for the reply, MSW1963

The thing here is that I currently do not meet the criteria for Permanent and Total Disability concerning the IRS or my long term disability policy.

I do meet the criteria for the first level of disability (unable to perform my current job) under my employer provided (they pay the premiums) long term disability policy.

Whether advisable or not I will need access to at least a portion of my 401k funds to survive the anticipated gap between the short term disability coverage and the long term.

The problem is that in order to access the funds, since I am not IRS disabled, my employee status must be listed as "terminated". My employer stated that the policy is to move an employee from "active" to "inactive" in cases of a switch from short to long term disability.

They would, at my request, make an exception and change the classification from "inactive" to "terminated". This, they have told me (in writing) would in no way impact the long term disability claim or eligibility for COBRA continuation.

My question really is more focused on the validity of that last claim or assertion: that a request to reclassify from "inactive" to "terminated" at the conclusion of FMLA and concurrent paid short term disability will not result in negative implications regarding the long term disability claim or eligibility for COBRA.

Any thoughts, suggestions, experiences about that?

Probably should just bite the bullet and telephone an attorney at this point

[MSW1963]

The date your disability is established must pre-date your date of termination in order to qualify for employment based disability coverage, and other 'employment' related benefits.

For example purposses only, let's assume there's a prolonged illness during employment. Also assume that a definate dx is not established during employment. Also assume because of illness, you have poor job performance reviews, excessive absence, etc., and your employment is terminated on April 1. As of April 1 you are a former employee and are not entitled to 'employee' benefits as of that date.

Assume all the above facts are the same, but on March 31st, during an office visit your doc determined that you are unable to continue working and are disabled. Under this scenario, because the disability on March 31 pre-dated your termination of employment on April 1, you would be eligible for employment based benefits unrelated to the 'former employee' status. If your claim for benefits is filed on April
5th or on April 15th, they can't be denied based on 'former employee' status dated April 1 when disability is declared on March 31st.

On a side note, why don't you qualify for Permanent and Total Disability?

MDs, particularly MS neuro's don't usually make that kind of stipulation in a MS disability determination, because no none can determine with any accuracy if you will recover sufficiently to return to work. By doing so, a doc is making you ineligible for those LTD benefits if you don't recover from the current exacerbation?, sx's, etc.

On the other hand, if your were to be eligible for LTD, you have no restriction on returning to work when you do recover. Plus you avoid the exact dilemma you are now facing.

[PsyDreamin]

Indeed the date of disability would easily predate the date of "termination" since 12 weeks of FMLA/short-term disability would have passed by then.

So "inactive"/"terminated" is essentially as I suspected, then, and not a potential issue or problem regarding benefits but instead in all probability just an internal designation for accounting.

I do not qualify for Permanent and Total Disability since it would not be accurate to claim that I could not engage in any substantial gainful activity because of a physical or mental condition.

What can be said, and medically substantiated, is that due to mostly cognitive and fatigue related issues it has become impossible for me to perform my current job which involves many projects at once, insane multi-tasking, critical analysis of both concrete and conceptual situations, quantification and qualification of events, procedures, and circumstances, and on and on and on.

I am/was an internal and external compliance/forensic auditor at a fairly senior level having been at this for about 13 years. Recent neuro-psych evals have indicated significant memory and processing deficits. This at least explains why I was getting so confused at work and lost within my own workload.

So although I am unable to continue in my current profession I find it difficult to honestly claim that I would be unable at some point to do some manner of meaningful work - - at least the way things are right now. Who can speak for the future, right?

Thanks, MSW1963, for the information, suggestions, and insight. You helped to clarify some issues and gave me a few other things to think about.

[MSW1963]

Without the Permanent and Total Disability designation, your ability to access the 401k benefits sounds like it's in jeopardy, in addition to jeopordizing your LTD claim once STD payments are exhausted.

It's kind of all or nothing when it comes to eligibility for LTD and eligibility for a qualified 401k distribution, for both the qualified 401k distribution and LTD benefits you will need the Permanent and Total Disability designation.

Most employee disability plans were designed to eliminate gaps in income when the disability exceeds the duration for recovery under the STD policy. There's a new disability determination for LTD. The insurance companies usually coordinate the 'transition' from STD to LTD, particularly if medical records do not include 'expected date of medical discharge' or some similar indication of anticipated recovery for the particular illness or injury.

Recovery from a broken arm is a self limiting recovery and associated disability period of maybe 6 to 10 weeks, or 6 months if a surgical complication is involved. All of which can be predicted with some degree of medical accuracy.

MS on the other hand, does not have any level of medical certainty or self limiting period for recovery.

Very best of luck to you and take care.

[PsyDreamin]

I wouldn't need the Permanent and Total Disability designation for either the LTD policy (at least for the first two years of it) or access to 401K funds (not penalty and tax free however).

The long term disability coverage that I have defines disability as follows:

Disability or Disabled means You are prevented from performing one or more of the Essential Duties of:

1) Your Occupation during the Elimination Period; and
2) Your Occupation following the Elimination Period, and as a result Your Current Monthly Earnings are less than
80% of Your Indexed Pre-disability Earnings.

Based on a discussion with an HR rep from my company it is my understanding that the "Your Occupation" stipulation becomes something closer to an "Any Occupation" after 2 years of receiving LTD benefits.

The 401K is somewhat of a different story. Agreed that the only way to access these funds relatively penalty-free would be to receive the Permanent and Total Disability designation according to the IRS. This is not something for which I will qualify. I am relatively certain of that.

Although there would be penalties for early withdrawal and steep tax implications the funds could be disbursed, according to the documentation I received from the fund manager, if the reason for requested distribution was "Termination of Employment".

So as long as the internal/accounting difference between "inactive" and "terminated" designations won't impact my abilities to pursue a LTD claim with the insurance or obtain COBRA continuation then I will rest just a bit easier - for now anyway.

[MSW1963]

Thanks for the clarification on Permanently and Totally disabled and your first 2yrs on LTd. Sounds like very good news. You're in a good position in terms of your occupation in a senior level position. Probably few worries in that regard.

Best of luck to you and take good care.

[PsyDreamin]

I certainly hope that I am standing on solid ground and in theory it seems so.

But we all know that so many times things aren't as they seem and that there are almost always differences between theory and practice when it comes to policy and law.

Thanks again, MSW1963, and take care as well.