ERISA Advisory Council Roundup: Disability Benefits in DC Plans

Witnesses pushed for defined contribution plans to incorporate qualified disability benefits June 12 at an ERISA Advisory Council meeting on the interaction between disability and security in retirement.

Long-term disability leave can have a devastating impact on affected individuals' retirement savings, and qualified disability benefits in defined contribution plans can bridge that gap, they said.

 “Prolonged disability can be economically devastating to an employee's retirement savings. Long-term disability benefits typically will replace the employee's current income but generally do not make up for the employee's lost retirement savings as a result of a prolonged disability,” said Richard C. Shea, a senior partner at Covington & Burling in Washington.

Shea further outlined two ways in which a defined contribution plan, such as a Section 401(k) plan, may accomplish qualified disability benefits: actual replacement contributions and insured replacement benefits.

The qualified disability benefit “is really a critical benefit that hasn't gotten much attention,” said Louis T. Mazawey, a principal at Groom Law Group in Washington.