Firms Expand Disability Insurance Programs to 401(k)s

Article excerpt

Dr. Frank Valentine wishes he'd had the chance to use a new kind of insurance that makes contributions to retirement plans if a person becomes disabled.

On Nov. 14, 1991, Valentine, then a pediatric dentist, sat at a red light waiting to enter the Lincoln Tunnel to Manhattan. He looked in his rear-view mirror in time to see a large moving van barreling toward his Mercedes.

Valentine, now 55, has since had back and wrist surgery and spent years in physical therapy. He no longer practices the profession that netted him about $300,000 a year, but instead advises other dentists and doctors about the need for disability coverage. He earns a third or less of what he once did, supplemented by a regular disability policy. But, he said, he can no longer afford to set aside thousands of dollars each year, as he used to do, for retirement. Corporate Compensation Plans of Danbury, Conn., is offering a solution to this problem. In 1992, it developed retirement-plan insurance for executive benefit plans. This year, it expanded the program, tailoring it to the qualified 401(k)s that cover millions of Americans. So far, three employers -- a commercial bank with 40,000 employees, an insurer with 10,000 and a retailer with 8,000 -- have signed up for the 401(k) insurance and will start the program early next year, said Steven Zeiger, a company spokesman. The coverage is bought by a company rather than by individual employees. Specifically authorized under IRS rules, the insurance costs about 1.5 percent of the contributions to be covered each year, Zeiger said, although the amounts vary by industry and worker demographics. Companies must also adapt their record-keeping systems for these payments, which go directly into workers' accounts. David Wray, president of the Profit Sharing/401(k) Council of America, says the new plan is difficult to evaluate but that it is "certainly worth considering." Companies may see such insurance as a way to recruit new employees, Wray said, though he added that employers should first match their workers' 401(k) contributions. Philip Davis, president of Corporate Compensation Plans, says the spread of 401(k)s shows a broad need for his product. …