A 401(k) is only as good as the amount of money a participant puts into it on a regular basis.
But when a severe illness or a major accident strikes, employees and their families not only have to reexamine their finances to cover their medical bills, they also frequently give up on the forward motion of their 401(k)s – endangering their retirement plans even more severely.
A new disability insurance plan offered by Corporate Compensation Plans, Inc. seeks to bridge those two issues – DI coverage and continuance of 401(k) coverage – by providing the ability to continue deferrals to a 401(k) through the covered employee's illness, accidents or strokes.
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When employees become disabled, they'll receive a tax-free lump-sum payment equivalent to the value of their entire retirement plan contributions, up to age 65.
A 45-year-old employee who had been putting aside $20,000 a year into retirement savings could, under the plan, qualify to receive a lump-sum payment of $400,000 in tax-free cash a year after his or her disability, which could then be reinvested to help provide for retirement benefits at retirement age.
The CCP plan can also continue contributions to non-qualified DC plans, with lump-sum payments of up to $3 million.
The plan's coverage can be acquired in addition to employees' in-force DI coverage and will not be offset or reduced by payments from that insurance.
"The success of all DC plans is a matter of luck," said CCP president Philip Davis, in a release. "The lucky employees stay healthy and their contributions continue, and the unlucky employees become disabled and their contributions stop. Our plan eliminates this huge risk to employees' retirement security."
CCP's 401kSecure Plan is offered as an option by employers including IBM.
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