If an employee is receiving short term disability benefits under a self-funded STD plan and the employee is terminated due to a staff reduction, is there any legal obligation to pay out the remainder of benefits available under STD as long as the employee remains disabled? Or does the obligation to pay Short Term Disability end with the termination of employment?

I believe that in the states that mandate STD benefits you would be required to continue to pay STD benefits. I know that in New York you would have to continue to pay.

Typically in a fully insured STD product I have experienced that STD benefits would continue even if a person was terminated from employment while disabled.

In a self-insured STD plan where benefits are not mandated by the state you should have this covered in a plan document. It makes no sense from an employee relations viewpoint to cut off STD benefits when you terminate an employee who is on STD.

If you had an insured LTD plan and this person continued to be disabled through the benefit waiting period (say 6 months) he/she could typically be entitled to LTD benefits even though he/she was terminated from employment.

You might want to look at the qualifications under FMLA, if the employee qualifies. It is possible that you cannot lay them off until they are able to return, so you would be paying them out anyway.

Under Sec 825.216 regarding FMLA
"An employee has no greater right to reinstatement or to other benefits and conditions of employment than if the employee had been continuously employed during the FMLA leave period"

Since the employee would have been terminated due to a RIF if he were not on disability/FMLA, FMLA does not afford him additional protection in this instance.

Just be careful that you can demonstrate that he was indeed terminated because of reduction in staff.

Entitlement to disability benefits typically commences at the time the disability is triggered. Under a fully insured plan, even if a master contract is terminated, the underlying insurance company is obligated to continue paying benefits until the end of the benefit period. I agree with the "be careful" advice entirely, and would not take this action myself.