If after-tax LTD disability benefit is tax-free, how can employer assess tax on offsets like the CA VDI?

I am approved for LTD. According to the cafeteria plan I signed up for, the disability insurance (LTD) benefit should be 60% of my annual salary. Since the employee deductions for the insurance were paid by me with after- tax dollars, the benefit should be tax-free (that is, non-taxable). However, now my employer is offsetting a CA VDI short-term disability benefit against it to the tune of 55% of annual salary for the next year and fully taxing (federal, state, and Social Security) that benefit. I also had to apply for Social Security disability. If I am approved for that, the benefit will be taxed. So my 60% ';non-taxable'; benefit is shrinking to about 40%. This seems very wrong to me. Any advice? Thank you.