Given that workers face the not-so-unlikely prospect of having a disability ruin their income potential – and run their retirement plans off the rails – some innovative solutions are required to help deal with that gap.
Pension Advisory Group, Inc. and Pro Financial Services have announced the debut of the Retirement Income Assurance Policy (RIAP), a new group long term disability insurance product. PAG is the Master General Agent for the RIAP program, while PFS is the Managing General Underwriter with full binding authority on behalf of Lloyd's of London.
The RIAP program addresses situations where employees become disabled before their normal retirement age and are no longer able to participate in their company's retirement plan.
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Under the RIAP program, group LTD insurance is purchased by an employer to protect their employees who participate in the company's 401(k), 403(b) or 457 qualified retirement plans from the potentially devastating effect that a disability could have on their future retirement income.
According to the Council for Disability Awareness, a non-profit group dedicated to helping the American workforce become aware of the likelihood of disability and its financial consequences, more than 4 million Americans between the ages of 21 and 65 are expected to suffer a disabling injury or illness in 2012 alone.
That compares with more than 36 million Americans classified as disabled by the U.S. Census Bureau, about 12 percent of the total population. Of those workers who were disabled, more than 50 percent were between the ages of 18 and 64.
Based on the CDA Personal Disability Quotient calculator, a typical 35-year old female, nonsmoker, with normal height/weight, who works mostly in an office setting with some outdoor physical responsibilities, and who leads a healthy lifestyle, has a 24 percent chance of becoming disabled for three months or longer during her working career.
There's a 38 percent chance that the disability will last five years or longer, with the average disability for someone like her lasting 82 months.
"The time has come for American companies with defined contribution retirement plans to implement RIAP for the benefit of their covered workforce," said Paul D. Hinson, president of Pension Advisory Group, in a release.
"In life insurance, waiver of premium is a well-established benefit. A similar 'waiver of contributions' benefit is needed in qualified retirement programs to ensure that elective deferrals by plan participants, and contributions by their employer, will continue as planned if the participant should become disabled."
Dan Burns, president of Pro Financial Services, said the RIAP coverage is significantly different than other existing DI products aimed at protecting retirement plan contributions.
"The RIAP program is guaranteed issue, with no individual underwriting for insurability," he said. "Premiums are paid by the employer and should be tax deductible to the employer as a business expense. Because the product is written on a group insurance basis, the cost is significantly less than for a comparable individual contract. Benefits are based on actual contributions, indexed to the Qualified Plan limits, with benefits deferred until Normal Retirement Age."
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