IRS Announcement Regarding 2010 Contribution Limits Benefits Millions of Americans
NEW YORK, November 13, 2009 — A recent announcement by the Internal Revenue Service (IRS) that contribution limits to 401(k) and other retirement plans will not be lowered due to a drop in the consumer cost of living index is good news for a special program offered by The Guardian Life Insurance Company of America (Guardian).
Retirement Protection Plus (RPP) remains one of the few individual disability income insurance programs that will cover up to 100% of retirement contributions made to a qualifying defined contribution plan in the event that they are suspended or stopped permanently by a career-threatening disability.
Because 401(k) contribution limits are indexed to inflation, some defined contribution plan sponsors had feared that current deflationary conditions would mean that the amount employees could contribute in 2010 would be forced to drop—at precisely the time when employees should be rebuilding their retirement savings with gusto after last year’s fall in the capital markets.
“The IRS announcement on October 15 that retirement plan limits will not be affected is welcome news for the millions of Americans who participate in 401(k) plans and other retirement savings programs,” said Laura E. Hahn, Director of Product and Segment Strategy at Berkshire Life Insurance Company of America (Berkshire), the Guardian company that issues disability insurance coverage as part of the RPP program.
“However, employees could still be at risk if they are not protecting their ability to save for retirement—specifically if they’re unable to work for a period of time due to an accident or illness and their retirement contributions stop,” she added.
In defined contribution plans like 401(k) and 403(b) plans, the employee, the employer or both contribute to the employee's individual retirement account under the plan, sometimes at a set rate, such as 5% of earnings annually. These contributions generally are invested on the employee's behalf.
“But, such plans are largely dependent on a person’s ability to earn a paycheck,” Hahn noted. “Not only do individual contributions cease in the event of total disability; the employer match stops as well.”
That’s where the RPP program comes in.
While traditional individual disability income insurance helps cover personal living expenses when a policyholder is too sick or injured to work, coverage under the RPP program goes one step beyond income replacement by helping to replace retirement plan contributions—both an individual’s and any made by his or her employer—that are lost due to total disability. If a policyholder becomes totally disabled under the terms of the policy and is not gainfully employed, monthly policy benefits are placed into a trust set up specifically for this purpose.
Thanks to the IRS’s decision to allow the overall limit for defined contribution plan deferrals from all sources (employer and employee combined) to remain at $49,000 annually for those under age 50 and at $54,500 for those 50 and older, Berkshire can maintain its previous limits for the amount of coverage it may issue under the RPP program: Monthly policy benefits may be as much as $4,090 for applicants under age 50 and as much as $4,550 for older applicants.
“With compounding interest, the financial impact of lost contributions resulting from a disability can be devastating to a retirement plan’s value,” Berkshire’s Hahn said. “Even if the disability isn’t permanent, the savings gap may require the employee to stay in the workforce longer to make up for the shortfall or, even worse, to retire without an adequate nest egg. Having RPP in place can help prevent those negative outcomes.”
A mutual insurer founded nearly 150 years ago, The Guardian Life Insurance Company of America (Guardian) and its subsidiaries are committed to protecting individuals, business owners and their employees with life, long term care insurance, disability income, group medical and dental insurance products, and offer 401(k), annuities and other financial products. Guardian operates one of the largest dental networks in the United States, and protects more than six million employees and their families at 120,000 companies. The company has more than 5,400 employees in the United States and a network of over 3,000 financial representatives in more than 80 agencies nationwide.
For more information about Guardian, please visit: www.GuardianLife.com.
Berkshire Life Insurance Company of America, Pittsfield, Mass. (Berkshire), is a wholly owned stock subsidiary of The Guardian Life Insurance Company of America, New York, N.Y. Its key missions are to grow Guardian’s disability income and long-term care lines of business and to research and develop new insurance products.
More information about Berkshire can be obtained at www.BerkshireLife.com/.
SOURCE:The Guardian Life Insurance Company of America
Web site: http://www.guardianlife.com/