Protecting Defined Contribution Plan Retirement Savings During Disability

By and on November 8, 2016

As employers have moved away from traditional defined benefit plans toward defined contribution plans as the primary retirement savings vehicle for their employees, much has been written about the risks of shifting the retirement savings burden from the employer to the employee. One widely-recognized consequence of this shift in retirement savings methods is that many employees are not contributing enough of their income, or earning high enough returns on their investments, to provide sufficient funds to meet their retirement needs through defined contribution plans. Many plan sponsors have responded to this concern by adding features to their defined contribution plans, such as automatic enrollment, automatic annual increases of employee deferral percentages and increased matching contributions, in order to encourage employees to save more for retirement.

Another consequence of this shift to defined contribution plans that has received less attention is that employees who suffer long-term disability are left without the retirement safety net that often has been provided under defined benefit plans. Employees typically lose the ability to continue making contributions to a defined contribution plan upon becoming disabled and often rely on their retirement savings under a defined contribution plan to meet their current income needs. While the Internal Revenue Code (the Code) and the regulations thereunder provide a framework for incorporating long-term disability benefits into defined contribution plans, these benefits have yet to become widely adopted by plan sponsors, perhaps partially due to inconsistent guidance from the Internal Revenue Service (the IRS) and uncertainly on the part of plan sponsors regarding how such benefits can be implemented in practice. However, as employers continue to limit, and in some cases terminate, defined benefit plans, it will become more pressing to turn these theoretical frameworks into workable solutions to provide an important benefit for disabled employees.

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Brian Tiemann
Brian J. Tiemann counsels public and private companies on a broad range of employee benefit matters, including matters related to pension plans, 401(k) plans and executive and incentive compensation. He advises plan fiduciaries with respect to their fiduciary duties, investment policies and alternative investments. He also advises multinational clients on global employee benefits matters, particularly with respect to global incentive compensation plans. Brian has extensive experience negotiating investment management agreements and service provider agreements. Read Brian Tiemann's full bio.


Maggie McTigue 
Maggie McTigue focuses her practice on employee benefits matters relating to pension and 401(k) plans, executive compensation, and health and welfare benefit plans. She regularly assists clients with employee benefit plan filings and notices required by the Department of Labor and the Internal Revenue Service. Maggie also has experience regarding plan investment issues under the Employee Retirement Income Security Act of 1974 (ERISA). Read Maggie McTigue's full bio.

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