The Foreign Service Journal, March 2013

THE FOREIGN SERVICE JOURNAL | MARCH 2013 39 through college, and built up retirement savings may be better able to self-insure. Protection from this kind of financial risk is best provided by disability income insurance, also known as income replace- ment insurance. The good news is that all Foreign Service employees automatically have some employer-sponsored DI coverage in the form of the Foreign Service Disability Retire- ment Pension. However, this pension replaces only a small part of an employee’s salary. After working with a number of Foreign Service clients, I have come to realize that many of them mistakenly believe they have more DI coverage than is actually the case. As a result, they unwittingly carry more financial risk than is advis- able. While I want to stress the importance of supplemental dis- ability income insurance for filling the gap between support from a Foreign Service Disability Retirement Pension and the individual or family’s living expenses, it should be noted that there is a notable lack of options available to members of the Foreign Service, for the very reason that they work overseas. Insurance: The Right Mix While gathering data to prepare a financial plan for Foreign Service clients, I routinely review their earnings and leave statements. In so doing, I’m often struck by the number of insurance premiums deducted from employees’ salaries. A typical E&L statement will have deductions for Social Security; Medicare; basic life insurance; Federal Employees Group Life Insurance; and a group health plan, dental plan, vision plan, long-term care insurance and an immediate benefits plan; among others. What is not usually on that list of deductions is supple- mental disability coverage. Yet the permanent disability of a breadwinner can be more financially damaging to the family than his or her death. Most U.S.-based employees, whether in the public or pri- vate sector, have either purchased enough life insurance cov- erage to offset the loss of the employee’s income in the event of premature death, or have access to such coverage. But fewer than one-third of those employees carry sufficient long-term disability insurance. This gap in coverage is due both to a lack of understanding of the real risk of suffering a physical disability, and the mis- taken belief that employees are already covered through their employer, by Social Security or a by combination of the two. It is also taking an unnecessary risk, since DI is quite afford- able for most people—though adequate DI coverage does not appear to be currently available to Foreign Service employees, as I explain further below. Many in the Foreign Service are generally aware of the need for long-term care insurance, partly because it has been in the news so much in recent years. As the name suggests, LTCI pays for specialized care provided during an employee’s recupera- tion from an illness or injury, but does not replace income lost during that period. In addition, there is an assumption that the employee will eventually return to work. When that is not possible, many Foreign Service employ- ees assume they have adequate employer-provided disability income protection that will automatically kick in once they are unable to work. But that is not the case. If a federal employee becomes disabled and cannot con- tinue to work, he or she only has the following employer-pro- vided resources to draw on: accrued sick leave, accrued vaca- tion time, borrowed or donated sick leave, and the 12 weeks of unpaid sick leave mandated by the Family and Medical Leave Act. Once these resources are exhausted, the employee would normally be terminated if unable to return to work. (The State Department’s Office of Employee Relations does everything it can to assist such individuals, but obviously cannot keep them on the payroll indefinitely.) When Disability Becomes Permanent At that point, the disabled employee must depend on his or her Foreign Service Disability Retirement Pension (and Social Security, if eligible). And this is where massive confusion arises. Many employees assume that their disability retirement pension will approximate their pre-retirement salary, but this is not usually the case. The Foreign Service Pension System rules regarding disabil- ity retirement state that for individuals who are under 62, but not yet eligible for regular retirement (i.e., at least 50 years old, with at least 20 years of federal service), the FSPS disability The coverage available to Foreign Service employees is very limited, precisely because they work overseas.