The Horrible Impact That a Workers’ Compensation Claim Settlement and Separation Agreement Can Have on Your Long-Term Disability Claim - Plus, What You Should Do if Your Employer Demands That You Sign a Severance Agreement

Welcome to Season 4, Episode 32 of Winning Isn't Easy.  In this episode, we'll dive into the complicated topic of " The Horrible Impact That a Workers’ Compensation Claim Settlement and Separation Agreement Can Have on Your Long-Term Disability Claim - Plus, What You Should Do if Your Employer Demands That You Sign a Severance Agreement." 

Host Nancy L. Cavey, a seasoned attorney with extensive experience in disability claims, discusses the horrible impact that Workers' Compensation claim settlements, and / or separation agreements, can have on a Long-Term Disability claim. Did you know that disability benefits are often subject to offsets, directly related to other settlements or funds accrued from claims? If not, any disability policyholder or prospective disability applicant needs to be aware that benefits can be offset by receipt of other claims, including Workers' Compensation. In today's episode, Nancy L Cavey will walk through some of these situations, and further discuss separation / severance agreements that may also impact disability claims.

In this episode, we'll cover the following topics:

1 -  Do You Have a Financial Incentive to Sign a Severance Agreement or Release if You Are Eligible for or Are Getting ERISA Disability Benefits?

2 - What You Must Know about the Quirky Terms of Employment, Separation Agreements, and Elimination Periods in an ERISA Disability Insurance Claim

3 - How an Employment Severance Agreement Can Destroy Your Disability Claim if You Are Not Careful

4 - Negotiating a Separation Agreement with Your Employer without Jeopardizing Your Long-Term Disability Claim

5 - Why Your Employer Might Not Be Willing to Negotiating a Separation Agreement with You to Protect Your Long Term Disability Benefits

Whether you're a claimant, or simply seeking valuable insights into the disability claims landscape, this episode provides essential guidance to help you succeed in your journey. Don't miss it.


Resources Mentioned In This Episode:

LINK TO ROBBED OF YOUR PEACE OF MIND: https://caveylaw.com/get-free-reports/get-disability-book/

LINK TO THE DISABILITY INSURANCE CLAIM SURVIVAL GUIDE FOR PROFESSIONALS: https://caveylaw.com/get-free-reports/disability-insurance-claim-survival-guide-professionals/

FREE CONSULT LINK: https://caveylaw.com/contact-us/


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Transcript

Nancy Cavey [00:00:15]:
 Hey, I'm Nancy Cavie, national risk and individual disability attorney. Welcome to winning isn't easy before we get started, I have to give you a legal disclaimer. This podcast is not legal advice. The Florida Bar association says, I've got to say this, so I've said it. But I will tell you, nothing will ever prevent me from giving you an easy to understand overview of the disability insurance world, the games that disability carriers play, and what you need to know to get the disability benefits you deserve. So off we go. If you have a long term disability claim, you also may have other claims or settlement agreements that can impact your case. Today I'm going to cover how workers compensation settlements, separation agreements, and severance agreements can interact with your long term disability claim.
 
 Nancy Cavey [00:01:08]:
 And I'm going to talk specifically about five things. One, do you have financial incentive to sign a severance agreement or a release if you're eligible for or getting arrested disability benefits two, what you must know about the quirky terms of employment, separation agreements, and elimination periods in a disability insurance claim. Three, how an employment severance agreement can destroy your disability claim if you're not careful negotiating a separation agreement with your employer without jeopardizing your long term disability claim. And five, why your employer might not be willing to negotiate a separate agreement with you to protect your long term disability benefits. We've got a lot to cover, but before we do that, let's take a quick break. Welcome back to winning isn't easy. Do you have a financial incentive to sign a severance agreement or release if you are eligible for or getting a risk of disability benefits? Now, I'm not a divorce attorney, but I've seen a lot of my friends get divorced, and they're never easy. And a divorce can include, if you will, a termination of your employment, particularly when you have an arrested disability claim or even a workers compensation claim.
 
 Nancy Cavey [00:02:40]:
 Everybody wants to go their separate ways, so there's a divorce, if you will. Now, this divorce, or even a termination can make or break your risk of disability benefits because once you're terminated, your group disability coverage ends. And that can make claiming you are disabled after the termination or after you've signed a release pretty darn hard. What is a severance agreement, or many times a severance agreement and release in front of you, hoping that they've offered you enough money to make you go away and terminate your employment? Your employer will present you with this nice severance agreement and release, but buried in those documents is a general release of all group employee benefit claims that includes short and long term disability benefits. It can include group health benefits. It can include pension benefits. If you sign that severance agreement and release as is, you may have destroyed your potential for your risk of benefits, including a shortened long term disability claim. Worse yet, the value of any potential shorter long term disability benefits can generally far exceed the value of what's offered in the severance agreement.
 
 Nancy Cavey [00:03:54]:
 There is, however, commonly a twist in the ERISA group long term disability policy or plan that says, okay, we got you to sign it. We're going to give you a severance agreement. But guess what? We get to offset or reduce your long term disability benefits by the amount of your severance pay or salary or continuation that you were paid. So in that instance, the practical result is that the long term disability offset for the severance agreement can impact and reduce the value of your long term disability benefits. So they're getting, you're sort of getting screwed coming and going, if you will. That's a legal term. So how can you and your employer create a financial incentive to avoid these offsets? Well, the way that that can be done depends in large measure on what the disability policy or plan says about offsets and how they define the term. Other income.
 
 Nancy Cavey [00:04:52]:
 Every policy or plan is unique, so you've got to have to get out yours and read it and read those specific provisions. What you'll find is that offset provisions often define other income to include severance pay, earned income, deferred income, disability pay, or even PTo. As a result, you want the severance agreement to clearly state that the severance payment does not represent any of these forms of other income and you won't know what they are unless you've got the policy of the plan. They should be outlined specifically in the agreement and have your employer explicitly state that the severance pay is not intended to cause an offset. Under the plan, you call the severance pay anything that smacks of being offsettable income, you are in trouble. So otherwise, the practical result here is that you have no financial incentive to sign that severance agreement. So if the employer is dangling that severance agreement in front of you, you need to say, oh, hold up, I want a copy of my short and long term disability policy or plan so that you can determine what the offset provisions are. Is what's being offered considered offsetable income? If so, then you need to engage in negotiations with your employer if in fact, you have a long term disability claim.
 
 Nancy Cavey [00:06:17]:
 At that point, your long term disability carrier can help you. In my experience, if the, if it's, the release is asking you to give up anything else like your group health benefits or pension issues, then it's time to broaden your consultants, if you will. There are times when I will bring in my pension consulting attorney and have them look at the pension plan and actually look at the severance package to make sure that there isn't any adverse consequence, and my client will retain the pension attorney for the purposes of rendering that opinion. In the context of group health, you may be losing your group health benefits or the right to convert it from a group to individual coverage. And so you need to know what's gonna happen with that insurance coverage and you need to understand what's the impact of that on your group health insurance. Do you have a spouse, for example, that you can get coverage through, or do you have to go out into the market to get the health coverage? It might be that the cost of that premium is something that you wanna add in, if you will, to that severance agreement. So you are not losing your valuable rights to your short and long term disability benefits, your group health, and have an adverse impact on your pension. You can see that really can impact whether or not that severance agreement is a fair offer and whether it's in your best interest.
 
 Nancy Cavey [00:07:42]:
 Got it? Let's take a break.
 
 Speaker B [00:07:44]:
 When robbed of your peace of mind by your disability insurance carrier, you owe it to yourself to get a copy of robbed of your peace of mind, which provides you with everything you need to know about the long term disability claims process. Request your free copy of the Book@kvlaw.com today.
 
 Nancy Cavey [00:08:30]:
 Welcome back to winning isn't easy. What you need to know about the quirky terms of employment, separation agreements and elimination periods in an ERISA disability insurance claim. Now I'll tell you, ERISA is complicated enough, but when you throw in an operation agreement, that can really mess things up. What do I mean? Well, many arrested disability insurance policies or plans require that the policyholder or plan beneficiary satisfy an elimination period before benefits are paid and you have to be disabled for a period of time to qualify. In other words, if you aren't disabled for the right amount of time, you don't satisfy the elimination period, so no benefits are payable. Unfortunately, what I see in employers termination agreements is that they ask the policyholder or plan beneficiary, the employee, to sign a separation agreement. And what's in that separation agreement can destroy the ability to file the claim and to win that claim. So what's the deadliest clause in that separation agreement? It's one in which you give up the right to any vested benefits arising under an ERISA policy or plan.
 
 Nancy Cavey [00:09:43]:
 But what happens if you are a policyholder or plan beneficiary and you haven't yet satisfied the elimination period? Let me give you an example, because this can be a little complicated. Let's say that you last worked in February of 2023 and your policy has a 180 day elimination period. The date of the proposed employment termination is less than 180 days after you've last worked. Now, you're disabled under the terms of the policy, but you haven't applied for long term disability benefits. When the employer dangles that separation agreement in front of you for your signature, what should you do? Well, the first thing you should do is to tell the employer that you want to have that separation agreement reviewed and that you're not going to be pressured into signing the agreement immediately if they're pressuring you, that tells you that there's something in there that is going to ultimately screw you to the benefit of your employer. Now next, you should be consulting with an experienced, arrested disability attorney for assistance in immediately filing an application for your shorter long term disability benefits. And thirdly, the employee, you and the ERISA disability attorney should draft a clear, carve out provision in any release that provides for eligibility for ERISA disability benefits, including those claimed or unclaimed, vested or unvested, as of the date of the separation agreement. In other words, you don't want to give it up.
 
 Nancy Cavey [00:11:10]:
 And I don't like the word vested because there might be a fight as to whether or not the benefit period had in fact vested and whether or not you remain disabled during the elimination period. Now, if the employer is going to object to changes in the separation agreement, it might then be time to bring in another attorney, an employment attorney who will consult with the employer and their attorney so they can hash out the language in consultation. Of course, with the ErISA disability attorney. There are many times in this instance that I will bring in my own employment attorney that's, you know, hired by my client, and that employment attorney and I are working in concert to try to get an agreement with the employer to amend the provision of a separation agreement. Why? Because a disability carrier is going to look at that separation agreement and see whether or not you've given up your right to ERISA benefits. And it's really easy, an easy win for an ERISA disability carrier or plan to deny a claim on the basis that you gave up your rights to file a claim by the terms of the separation agreement. So can you potentially appeal if that happens well, the answer is yes. There has to send you a detailed reason for the denial or termination of benefits and potentially you should consider filing an appeal.
 
 Nancy Cavey [00:12:32]:
 But I will tell you, in the situation where we're dealing with the elimination period, the ship has already sailed because you can't go back and cure the elimination trade issue, you either are disabled or not disabled. Either you have coverage or you don't have coverage. So I really think that it's a smart move to consult with an ERISA attorney and a potentially an employment attorney before you are signing any kind of release or termination of employment because it just have an adverse impact on your claim. Got it? Let's take a break. Welcome back to winning isn't easy how an employment severance agreement can destroy your disability claim if you're not careful. Now, I have talked about this in an earlier segment, but I want to hammer some more points. Terminating an employment relationship with your employer, I know can be an emotional roller coaster, and you need to bring your best game when it comes to negotiating a severance agreement. One of the most common terms in the severance agreement or release is for you to agree that you are giving up any rights to bring any type of employment benefit claim, including short long term disability benefits.
 
 Nancy Cavey [00:14:29]:
 You're giving up your rights to group health benefits and pension benefits. What happens is if you sign that kind of an agreement and then you turn around after your employment's been terminated and you spent the money and try to file a claim for shorter long term benefits, the judge is most likely going to say, too bad, so sad, dismiss your claim. But there are two other consequences I think that you need to be considering in negotiating a severance package that you may not understand, and certainly your employer, who's dangling that severance agreement in front of you, is not telling you about. So what are the two unintended consequences? Well, the first is money, and they're dangling this money in front of you. And yet you haven't compared the value of your long term disability benefits versus the amount of the severance pay. And in my view, at the end of the day, it's all about money, right? Many long term disability benefits potentially pay to age 65 if you're disabled, and the value of your long term disability benefits can be greater than what they're dangling in front of you in terms of the severance agreement. So you've got to be figuring out the math. What is potentially your long term disability benefits worth? And in calculating that, you have to consider several things.
 
 Nancy Cavey [00:15:52]:
 A limited benefit can be reduced by the receipt of Social Security disability benefits of for you and your minor dependents. And many times there is an offset provision in the disability policy or plan that offsets monies you're getting in the severance agreement. And the long term disability policy or plan may also offset things like PTO or vacation time. So at the end of the day, you need to understand, money wise, how much are your long term disability benefits. Subtract from that any deductions such as Social Security, subtract any offsets for the payment of the severance agreement and then you have a net of your long term disability benefits. What is that number compared to the amount of the severance agreement? Now, something else that people don't consider is the taxability of both the limited benefits and the taxability of a severance agreement. If you sign a severance agreement that gives up your long term disability benefits, of course you've lost your long term disability benefits. But in your particular case, those limited benefits may in fact be taxable.
 
 Nancy Cavey [00:17:12]:
 So if you calculate, here's my gross, limited benefits, here's the offset for Social Security benefits, here's the net, and here's what's taxable. So here's my net, that's one calculation. The second calculation is to say, okay, here's my long term disability benefits, I'm going to offset the Social Security benefits. I'm going to offset the severance agreement because it's offsettable. And here are the taxes. So what's my net over here on the long term disability? If I get a severance agreement, is it taxable? And if so, how much is the tax? So what am I going to net? So you need to understand numbers. What is the severance package? What's your net number going to be? On the other hand, what are your long term disability benefits going to be? What's the offset? So you have a net, the offset is for Social Security, the offset is for the severance agreement. What's the taxability? And then you're going to just compare both of those numbers.
 
 Nancy Cavey [00:18:28]:
 Now, the other unintended consequence, as I have mentioned, is that you may be giving up your right to group insurance benefits, and the practical result is that you're going to have to go out into the insurance market to get insurance. How much is that going to cost for equivalent coverage? And then on other hand, is if you were to cover it, how much is that going to cost to maintain the coverage? What are the costs of those? And can that impact how you negotiate the amount of the severance agreement or even ultimately decide if that's right for you. So that's the next question. What is right for you? Each situation is unique, and it depends on the terms of the policy of the plan, the likelihood of success in your long term disability claim, and your employer's willingness to negotiate the terms of the separation agreement. If you're presented with that separation agreement and you have a long term disability claim, it is time for you to stop. You don't even pick up that pen. You tell them that you want to have a lawyer to review it. If they say, well, we got to sign it today, you say, too bad, so sad, because you're not going to be signing something that gives up the benefits and do so under pressure because you can't ultimately say, I made a mistake or I was pressured to do something.
 
 Nancy Cavey [00:19:58]:
 The judge is going to look at that release in your signature and say, too bad, so sad. So you need advice potentially from an ERISA disability attorney, potentially from an employment attorney. You need to be consulting with a group health insurance agent so you get some numbers and understand bottom line, what's in this for you? Got it? Let's take a break.
 
 Speaker B [00:20:23]:
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 Nancy Cavey [00:21:22]:
 Welcome back to winning isn't easy. Negotiating a separation agreement with your employer without jeopardizing your long term disability claim. Again, employers like to dangle separation agreements in front of people, but having such a short term view of an employment release in exchange for a lump sum of money can come back and really bite you and make your situation, your financial situation, much worse. If they're dangling that agreement in front of you. You want to read it closely because more often than not, very deep in the agreement is a clause that says you're giving up your vested rights, your ERISA rights, that includes pension benefits, life insurance benefits, group health insurance benefits, and your disability benefits. Now, do you really want to give up all those benefits in exchange for a lump sum of money? As I have discussed in earlier segments of this episode, there can be lots of unintended consequences. And one of the unintended consequences that I didn't talk about was the loss of a life insurance policy. If you are disabled.
 
 Nancy Cavey [00:22:33]:
 And you are, you know, want to protect your family in the event of your death and you're giving up your rights to your life insurance policy, you got to realize you're probably not insurable. So one of the things that you are going to want to be talking about is letting them, letting you convert your group life insurance policy to an individual life insurance policy and find out how much that's going to cost, because ultimately, as I said, you're uninsurable. The other unintended consequence, of course, is that the value of your benefits are greater than the amount of benefits being offered in the severance agreement and the fact that the severance agreement monies can be used by the disability carrier plan to reduce the amount of your long term disability benefits. So there are money traps, there are group health traps, there are life insurance traps, and there also can be pension traps. Well, what do I mean by pension traps? Sometimes people also have pensions that are triggered by a disability claim. And again, you have to go get your pension plan and potentially consult with a pension lawyer or an ERISA disability lawyer, because if part of the release says you're also giving up your rights to pension benefits, that's a problem. And if the pension benefits can also be triggered by a disability, in other words, you don't have to wait to get your pension based on longevity of service and you're giving up your pension disability claim, then you're walking away from, again, money that you need right now that is potentially collectible. So there are all sorts of ancillary benefits that are associated with an employment separation agreement that can be impacted.
 
 Nancy Cavey [00:24:32]:
 And simply having this big pile, or maybe not such a big pile of money in front of you can be tempting. So what can you do to protect yourself? If you decide to go forward with the monetary terms of the severance agreement, it's crucial that you negotiate the terms of the agreement with your employer. So you get a copy of your disability policy or plan and read it cover to cover to understand what's offsettable. You get a copy of your pension agreement to see whether or not there is a pension disability provision and you understand what the proof is and what the impact is for you accepting this severance agreement. You do the same thing with your life insurance. You need to understand if you can convert that to from group to individual same thing with your health insurance. You need to understand, can you convert it to an individual policy? How much is it going to cost? How much is it going to cost you in the open market to get coverage? And obviously you need to have all of this in front of you before you start negotiating and making a counter proposal. You know, if this severance pay, salary, continuation, earning time can be considered an offset and benefits, you want to negotiate with them.
 
 Nancy Cavey [00:25:57]:
 A provision that says this money that's being paid the severance money does not constitute any of these offsettable incomes. You also most of these releases will say you're giving up your right to ERiSA benefits. You want your employer to remove the clause for all ERISA benefits that is like non negotiable. You want your employer to remove the language that says you're giving up any vested benefits because there can be a dispute about after the fact, what's vested, what was invested, and you don't want to get into that. You want the negotiations ultimately to negotiate a release that says vested and unvested benefits remain. You also want an affirmation clause about the nature of other benefits. You want them to represent that in fact, certain benefits are going to be paid in a certain period of time in a certain amount and they don't have any adverse impact on your ERISA benefits. If your employer refuses to negotiate, I think that tells you what it is you need to know, and hopefully you are not so desperate that you give up your important and valuable rights to these types of benefits in exchange for a lump sum of money that is just going to temporarily get you out of your financial problems but make them ultimately worse.
 
 Nancy Cavey [00:27:21]:
 Got it? Let's take a break. Welcome back to winning isn't easy. Why would your employer not be willing to negotiate a separation agreement with you? Depressibility benefits I've talked in earlier segments in great length about valuable benefits that you can be giving up in exchange for a lump sum of money. And I've talked about how you want to negotiate the terms of the separation agreement. But I'll tell you, there are times when employers say no. Sometimes it's like hell no. If that happens, I tell my clients to walk away. Because your financial needs are more important on a long term basis than your immediate needs.
 
 Nancy Cavey [00:28:42]:
 So why would your employer refuse to negotiate? Well, sometimes it's pure ignorance. They don't know that by the terms of the release that's been drafted by someone else, or maybe even by their own legal department, that you are releasing all of your vested benefits, including your rights to pension, life insurance, health insurance and disability insurance. They haven't paid any of the group disability premium and, you know, they just don't understand that and they may even understand it under COBRA law. They have to offer you conversion privileges. Now I will tell you that's one excuse. That's ignorance. The other is greed. There is a subset of employers who actually self fund disability benefits.
 
 Nancy Cavey [00:29:27]:
 That means that they pay your disability benefits out of their own pocket if you meet the disability requirements. So the self insured employer doesn't want to pay you severance pay and pay you your disability benefits. They think that's double dipping. And negotiating with such an employer can be hard. And again, you should be consulting with an experienced or risked disability attorney to understand what it is you're giving up in exchange for what it is they want out of you the likelihood of success in your long term disability claim, the value of your long term disability claim after offsets versus the value of that pension benefits, the taxability of both of those benefits, the impact that this has on your group health insurance coverage, the impact it has on your life insurance coverage, and your ability to get group health or individual health or individual life insurance benefits. You can see that this is not a clean area and carriers are hoping that you have bitten the bullet that you've signed this release, you've signed the separation agreement, and now they can either deny your claim or significantly reduce your benefits. It's a form of gotcha, we got you screwed both ways. I hope you've enjoyed this week's episode of winning isn't easy.
 
 Nancy Cavey [00:30:43]:
 Please consider liking this page, leaving a review or sharing it with your friends and family. Subscribe to this podcast. This way you'll be notified every time a new episode comes out. Please tune in to our next insightful episode of winning isn't easy thanks.