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January 10, 2005
Guardian Expands DI Program to Protect Retirement Plan Contributions
NEW YORK, N.Y., January 10, 2005 — The Guardian Life Insurance Company of America (Guardian) has announced a number of enhancements to a special program that offers disability income (DI) insurance protection specifically to help protect retirement plan contributions.
The Retirement Protection Plus (RPP) program —introduced to the DI marketplace two years ago by Berkshire Life Insurance Company of America (Berkshire), a wholly owned stock subsidiary of Guardian —remains one of the few programs that will cover up to 100% of retirement contributions made to a qualifying defined contribution plan in the event that they were suspended or stopped permanently by a career-threatening disability.
Now, with the Internal Revenue Service allowing retirement contributions of up to $42,000 annually for those under age 50 and up to $46,000 for those 50 and older, Berkshire is increasing the limits for the amount of DI coverage it may issue under the RPP program. As of today, monthly policy benefits may be as much as $3,500 for applicants under age 50 and as much as $3,830 for older applicants.
And applicants may boost their DI coverage under the RPP program even further by applying for Berkshire's popular Future Increase Option (FIO) rider, now available at higher limits. Previously, the total of an individual's monthly benefit and FIO amount could not exceed the IRS's annual defined contribution limit; today, as long as an applicant is seeking coverage of 100% of his or her current contributions, the FIO amount may be up to 2 times the base coverage applied for, and total coverage (base plus FIO amount) can be as high as $5,000 under the RPP program.
"The enhanced FIO rules are a tremendous boon to the serious retirement saver," said Matthew Gottfried, ASA, Director of Individual Disability Income at Berkshire. "Whenever the federal government increases retirement contribution limits in the future, clients can easily apply for an increase in coverage without medical evidence of insurability."
Why is RPP important?
While traditional individual DI insurance helps cover personal living expenses during a disability, 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.
"When you run the numbers on a case-by-case basis, the financial impact of those lost contributions is truly eye-opening," observed Gottfried.
For example, a 45-year-old making annual $10,000 contributions to a defined contribution plan would accumulate $494,229 (assuming an annual investment return of 8% compounded) by age 65 just on his or her contributions alone, let alone an employer's. If the same 45-year-old were only able to make five $10,000 contributions before becoming disabled at age 50, he or she would have $293,243 less as a result of having to stop making individual contributions. And, the employer's contributions could also stop.
Even if the disability weren't permanent, the 45-year-old could still experience a dramatic loss in retirement plan value. A two-year disability could mean that his or her plan could have $61,094 less in individual contributions by age 65; a five-year disability could result in a $136,788 shortfall.
"Most Americans know that they can't just depend on Social Security to fund a secure retirement. Accordingly, they're flocking to defined contribution plans in ever-growing numbers," said Berkshire's Gottfried.
"But those plans are largely dependent on a person's ability to earn a paycheck. Not only do individual contributions cease in the event of total disability; the employer match stops as well.
"The cruel irony of such a situation is that severe disabilities don't necessarily mean a shorter life span," Gottfried concluded. "Medical science can keep people alive until normal retirement age, but it can't fund a retirement plan."
How does it work?
If a policyholder becomes totally disabled under the terms of the policy, he or she receives monthly policy benefits (up to $3,830, as stated above, with the ability to increase coverage up to $5,000 with FIO rider).
These policy benefits go directly into a trust set up specifically for this purpose. As trustee, the Guardian Trust Company, FSB, invests the monies received at the policyholder's discretion, according to his or her investment objectives, until age 65. A broad range of investment options is available, including tax-deferred annuities, giving
the insured individual the benefit of tax-deferred growth. There is no trust administration fee under the RPP program.
In the event the disabled individual dies prior to age 65, the trust assets are distributed to his or her estate. If, on the other hand, the person recovers prior to age 65, he or she may continue the trust as is or instruct the trust to purchase a Single Premium Annuity—in which case the trust would be the owner of the annuity and the client would be the beneficiary.
Like Berkshire, Guardian Trust Company, FSB, is a wholly owned subsidiary of Guardian. It is a federally chartered savings bank and is a Registered Investment Advisor.
About Guardian
Founded in 1860, The Guardian Life Insurance Company of America, New York, NY (Guardian) is the fourth largest mutual life insurance company in the United States. As of December 31, 2004, Guardian and its subsidiaries had $39.5 billion in assets. With more than 5,000 employees and 2,900 financial representatives, as well as over 80 agencies nationwide, Guardian and its subsidiaries protect individuals, businesses and their employees with life, disability, health and dental insurance products, and offer 401(k), financial products and trust services. More information about Guardian can be obtained at: www.guardianlife.com.
Disability income products underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY. Products not available in all states. Product provisions and features vary from state to state.
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