University of Michigan Long-Term Disability - One Week Left!

Alex Potter, CFP®

1 day ago

7 min read

Most University of Michigan employees signed up for long-term disability (LTD) as a new hire, watched a small deduction come out of each paycheck, and never thought about it again. This fall is the year to look.

LTD is not just income replacement. With maximum coverage, Expanded LTD also keeps the university's retirement contributions flowing while you cannot work. Few benefits matter more, and few are understood less.

October 2026: Why This Year Is Different

Open Enrollment runs Monday, Oct. 12 through 5 p.m. Friday, Oct. 23, 2026. Normally, LTD is not part of Open Enrollment. Adding or increasing coverage outside your new-hire window requires a Statement of Good Health and claims administrator approval.

This year only, the university is waiving that. Active, benefits-eligible employees can enroll in maximum Expanded LTD coverage, or move from capped to maximum, with no health statement. U-M says there is no guarantee this will be offered again.

Two other changes take effect Jan. 1, 2027:

• The premium drops 27%, from $7.14 to $5.20 per $1,000 of monthly base salary.

• The university-paid salary limit rises from $77,000 to $80,800.

Easier to get and cheaper. If you earn more than $80,800, keep reading.

Two Plans, Not One

U-M runs two LTD plans. Most people are in one, not both.

Basic LTD is automatic and free, but limited. Active AFSCME members are enrolled after four continuous years of service. The benefit is capped at $1,200 per month. A small group of grandfathered employees hired before Sept. 1, 1981 (Trades: Aug. 1, 1986) remain on it and can also move to Expanded LTD this year without a health statement.

Expanded LTD is the plan for faculty (except Supplemental), staff, and several union groups. It replaces up to 65% of your pre-disability base salary, continues your health coverage, and keeps retirement contributions going.

Not sure which you have? Check Wolverine Access or call SSC HR Customer Care at 734-615-2000.

How Expanded LTD Works

The definition of disability is strict: unable to do your job or any job you are reasonably suited for by education, training, or experience, with the disability expected to last at least 12 continuous months. This is for the life-altering event, not a broken wrist.

The sequence:

1. You use your paid time first. LTD begins only after sick time (including extended sick time), vacation, and PTO are exhausted. Banked sick time is your first line of defense.

2. A waiting period may apply. With less than two years of service, benefits begin six months after your last day of work.

3. Benefits pay up to 65% of covered pre-disability base salary, offset by other disability income such as Social Security.

Maximum vs. Capped: The Decision That Matters

There are two levels of Expanded LTD coverage.

• Maximum coverage protects your full base salary, up to $424,615.

• Capped coverage protects salary only up to the university-paid limit: $77,000 in 2026, $80,800 in 2027.

At your two-year service anniversary, U-M automatically enrolls you in capped coverage at no cost. Unless you applied for maximum coverage within 30 days of that anniversary, capped is what you have. It is the default, and defaults stick. Most people I meet with do not remember making a choice, because they never did.

Above the cap, the difference is 65% of what you earn versus 65% of a number the university picked.

The Retirement Piece

If you are enrolled in the Basic Retirement Savings Plan and go on Expanded LTD with maximum coverage, the university continues retirement contributions of up to 15% of your full pre-disability base salary for as long as you are on claim, subject to IRS limits.

A 47-year-old researcher earning $135,000 who becomes totally disabled and stays out 15 years would still have roughly $20,250 per year going into a retirement account.

Under capped coverage, the contribution is calculated on the capped salary: for 2026, 15% of $77,000, or $11,550 per year.

The 65% income replacement is the visible benefit. The retirement contribution running in the background is the one that compounds for a decade or more.

Health Insurance Continues

On approved Expanded LTD, the university pays to continue your U-M health plan with prescription coverage for you and dependents enrolled on your last day of pay, plus Dental Option 1 and employee life insurance. Vision, Dental Options 2 and 3, legal, dependent life, and FSAs continue if you pay the premium.

Losing your paycheck and your health insurance in the same month is how families end up in a hole. The plan is built to prevent that.

Benefits last until age 65 if the disability begins before 62, with shorter durations if it begins later. Most people either return to work or transition into retirement.

What It Costs

Expanded LTD is paid through after-tax payroll deductions. With two or more years of service, the university pays for coverage on salary up to the limit ($80,800 in 2027). You pay only for coverage on salary above that.

At the 2027 rate of $5.20 per $1,000 of monthly base salary:

• $8,500 monthly salary ($102,000 per year): about $9.19 per month

• $10,000 monthly salary ($120,000 per year): about $16.99 per month

• $12,500 monthly salary ($150,000 per year): about $29.99 per month

With less than two years of service, you pay the full cost. A $5,000 monthly salary runs $26 per month.

One caveat: the Wolverine Access estimate uses the $5.20 rate but the old $77,000 limit, so your actual 2027 premium may be slightly lower.

A Quick Tax Note

Because the university pays the premium on the capped portion and you pay the rest after-tax, benefits come back as a mix. U-M reports them on a W-2, and the taxable share depends on who paid the premiums in the three years before your claim. In general, the university-paid portion is taxable and the portion you paid is not. Michigan follows the federal treatment.

I am a CFP®, not a CPA. Loop in your tax professional for your situation.

A Realistic Scenario

Priya is a 52-year-old associate professor earning $148,000. She enrolled in Expanded LTD as a new hire and never revisited it, so she is on capped coverage.

A diagnosis sidelines her. Once her paid time runs out, LTD begins. Her income replacement is calculated on $77,000, not $148,000.

That is about $50,050 per year instead of about $96,200. The $46,000 gap comes out of her family's cash flow for as long as she is out.

Her retirement contribution is also calculated on $77,000: $11,550 per year instead of $22,200.

What would maximum coverage have cost her? At 2027 rates, about $29 per month.

Would maximum have cost more? Yes. Is it a rounding error next to the gap? Also yes.

What to Do Before Oct. 23

• Confirm which LTD plan you are in (Basic or Expanded) in Wolverine Access.

• Check whether you have maximum or capped coverage. If your base salary is above $80,800 and you are on capped, you are leaving coverage on the table.

• Run the cost of maximum coverage at your salary. For most people it is less than a streaming subscription.

• Confirm you are enrolled in the Basic Retirement Savings Plan. That is what unlocks the retirement contribution during disability.

• Ask the hard question: if you could not work for two years starting next month, does your current election protect your family the way you want?

To make the change in Wolverine Access: open the Open Enrollment tile. If your salary is above $77,000, select "LTD University Contribution" under the Long-Term Disability University Contribution tile. Then under the Long-Term Disability tile select "EXPLTD Salary Cov'd up to MAX," save, and finalize. Keep the confirmation statement.

Closing

Nobody likes thinking about disability. But this is one of the few benefits where a small election made in October can protect decades of retirement savings you have not earned yet. This year it is cheaper and easier to get, and U-M says it may not offer this window again.

If you want a second set of eyes on your election, or want to see how it fits with your 403(b) SRA and 457(b), please feel free to reach out.

Best,

Alex Potter, CFP®

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LTD Fact

Just over 1 in 4 of today's 20-year olds will beccome disabled before reaching the age of 67. (source:https://thecdia.org/disability-statistics/)

Disclaimer: I am a CERTIFIED FINANCIAL PLANNER™ (CFP®). I am not a CPA or a tax attorney. For tax-specific questions, please consult a qualified tax professional. I am not an estate planning attorney. For questions about how disability benefits interact with your estate plan, please consult a licensed attorney. This post is general educational content based on publicly available information from hr.umich.edu and is not personalized advice. Plan features, rates, and thresholds can change. Always confirm current details on the official University of Michigan Human Resources site.

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Foundation Wealth Management are not affiliated. Financial Professionals may only conduct business with residents of the states of jurisdictions in which they are properly registered, licensed or exempt from registration and not all of the securities, products and services mentioned are available in every state or jurisdiction.