“Indexing” in ERISA Plans has always been a source of confusion especially when it is confused with Cost of Living Allowance (COLA) provisions. In fact, “indexing” is only used on two occasions in Group ERISA Plans. 1) “Indexing” pre-disability earnings, and 2) indexing salaries and wages to calculate “gainful” during an any occupation investigation or partial earnings.
First, let’s define what “indexing” is. Indexing is the determination of an “inflation” factor that takes into account the loss of “purchasing power” over a period of time. I’m sure some of you may remember that a Popsicle from the Good Humor man used to be a nickel. Today, the same Popsicle is at least a $1. In 1974 I bought a brand new Pinto wagon for $3,300 and it seemed quite expensive to me at the time. Thank goodness they don’t make Pintos anymore, but today an equivalent car would be at least $20,000.
The American dollar used to be worth 100 cents, but its purchasing power, or, ability to buy things, has eroded over time. Today, given our current rate of inflation, it is likely it takes at least 4 times the value of a dollar (or, more) to buy the same things you used to buy only 4 years ago for $1. Therefore, it takes $4.00 to buy today what you used to pay a $1.00 for.
When it comes to disability claims indexing can be very important. Four years ago, it would not have made much difference to your claim because we didn’t have enormous inflation and the value of a dollar had not eroded, or lost purchasing power. But, today, indexing could have a value to you.
I wrote an excellent article explaining how to index and it is posted on this blog. Just enter “Indexing” in the Search box and you should be able to find it.
As a Consultant, I am in constant search of file documentation that proves the insurance company calculated and “indexed” pre-disability wages, or earnings for someone working part-time. In most instances I can’t find it because it is never done. Once you locate my prior article you can appreciate that claims handlers won’t know how to do it, and don’t do it.
In any event, please pull up my prior article from this blog and review “indexing” to refresh your mind what I’m talking about. A properly “indexed” pre-disability earnings figure, or partial earnings could mean money to you.
