Banks Should Review Executive Deferred Compensation Arrangements for Disability Benefits

Jeff Storch | 03.28.18

Many banks sponsor Salary Continuation Agreements (SCAs), Supplemental Employee Retirement Plans (SERPs) and other deferred compensation arrangements for their executives. If these arrangements have a payment triggered by disability, they may be subject to new Department of Labor (DOL) rules for claims relating to disability, which are effective April 1, 2018.

The new rules for disability claims are substantially more complex than the rules for general claims under deferred compensation plans or arrangements. The DOL’s position is that the nature of the benefit determines which procedural standards apply; i.e., any plan or arrangement providing a benefit triggered by disability may be subject to the special rules for disability claims, regardless of whether the primary benefit is a disability benefit. 

However, the DOL also has indicated that if the disability determination is not made by the plan but by a third party (e.g., the Social Security Administration or under the employer’s long term disability plan), then the plan need not apply the special disability claim rules but instead can rely on the third party’s disability determination. Therefore, sponsors of deferred compensation arrangements may want to provide that any determination of disability be made by Social Security Administration or under the sponsor’s long term disability plan. 

Regardless of how a bank chooses to proceed, in light of the new requirements, the bank should review its definitions of disability and disability claims procedures in any arrangement providing benefits to executives upon a disability. 

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• Employment/HR