It’s nothing new that Americans are working and living longer. But with 401(k)s, IRAs, Roth IRAs and the old money-under-the-mattress plan, what could possibly be added to secure Americans’ financial security? Pension Advisory Group thinks it has the answer — a new group long-term disability insurance product.
“When a person becomes disabled, their defined contribution becomes disabled,” says Paul Hinson, president of Pension Advisory Group. “So with that in mind, we sat down to build a plan.”
The product, called the Retirement Income Assurance Policy, is purchased by an employer for all employees who participate in the 401(k), 403(b) or 457 qualified retirement plans. In the event that an employee becomes disabled, Pension Advisory Group holds the money that accrues in the RIAP in trust. Hinson says it’s intended to “mirror their 401(k)” that was rendered defunct as a result of their injury. As such, the RIAP money is paid out when the employee reaches retirement.
With about one in four adults expected to experience a long-term disability during their lifetime, Barry Lundquist, president of the Council for Disability Awareness, thinks this is a no-brainer, especially for younger generations. “If you’re an older person today this is important but it’s not going to put that much into their retirement fund if something happens, but if you’re say 30 [years old], it would be a significant nest egg,” Lundquist says.
There is no cost to the individual for this product and Hinson says the price for the employer has been reduced substantially. One company, for example, purchased RIAP for its employees at 1.5% of the organization’s total operating budget. “This is the most inexpensive thing you can add to your portfolio of benefits to retain existing employees and gain new ones,” Hinson says. “This differentiates itself.”
Lundquist agrees and says that while a lot of companies have looked at creating this sort of program, it was Pension Advisory Group that made it happen. There are several other companies that add disability income to 401(k)s or 403(b)s, Corporate Compensation Plans in Connecticut is one, but Hinson says that none of his competitors hold the retirement money in trust like Pension — the others pay lump-sums. The Corporate Compensation Plan website confirms this, “Your company can amend your key employees’ employment contracts (or create new ones) to provide them with up to $5,000,000 in lump- sum tax-free cash payments when their careers are ended because of an injury or illness.”
Hinson says his product removes the “moral hazard” by not paying out in a lump-sum. He adds that the company is “actively seeking” brokers who sell retirement plans for the product.
