Method and system for providing insurance protection against loss of retirement accumulations in a tax favored defined contribution plan in the event of a participant's disability

Abstract

A system and method for providing insurance protection against loss of contributions to tax favored defined contribution plans should an active employee/participant become disabled. The invention manages the administration of a disability insurance policy held inside the plan that continues contributions to the plan during a period of disability, where the coverage amount for each participant is determined by the level of contributions made by, or for, each participant.

1 . A method for using a computer processing system to calculate benefit and cost amounts under a disability insurance policy so as to provide substitute continuing payments to a retirement plan into which contribution payments are normally made on behalf of a participant of the plan, during a period of non-payment due to a long-term disability of the plan participant, said disability insurance being included as a feature of the plan and held as an asset of the plan's trust, and said insurance premiums being paid with assets of the trust, the method comprising: 
 a. inputting into said computer system information relating to said participant's pre-disability contribution amount;    b. based on said information, calculating with the computer system a premium amount for the insurance policy and a disability benefit amount under the insurance policy, said disability benefit amount being substantially equal to the pre-disability contribution amount; and    c. paying said disability benefit into the retirement plan's trust as an investment return of the trust,    wherein the retirement plan is subject to non-discrimination requirements with regard to eligibility for the insurance, and eligibility for the insurance is matched to eligibility for the plan, or to participation in the plan, or both, for the plan year prior to the policy year for which the insurance is effective.    
     
     
         2 . The method of  claim 1 , wherein the retirement plan is a tax qualified defined contribution 401(a) plan, thereby subjecting said insurance policy to the terms of said defined contribution plan, including rules and regulations of the Internal Revenue Service (IRS) and the Department of Labor (DOL) to which the defined contribution plan itself is subject.  
     
     
         3 . The method of  claim 1 , wherein the retirement plan is a member selected from the group consisting of a 401(k) plan, a 403(b) plan, a 457 plan, a defined benefit pension plan, and a money purchase pension plan.  
     
     
         4 . The method of  claim 1 , wherein the trust includes an individual account allocated to each participant and the insurance premium for each said participant is paid from said participant's account.  
     
     
         5 . The method of  claim 1 , further including calculating a total annual premium for all plan participants, wherein said total annual premium is paid on an overall-plan basis from the trust as a plan expense.  
     
     
         6 . The method of  claim 5 , wherein the trust includes an individual account allocated to each participant and said total annual premium is paid from the earnings of the trust prior to the earnings being allocated to said individual participant accounts.  
     
     
         7 . A method for using a computer processing system to calculate benefit and cost amounts under a disability insurance policy so as to provide substitute continuing payments to a retirement plan into which contribution payments are normally made on behalf of a participant of the plan, during a period of non-payment due to a long-term disability of the plan participant, said disability insurance being included as a feature of the plan and held as an asset of the plan's trust, and said insurance premiums being paid with assets of the trust, the method comprising: 
 a. inputting into said computer system information relating to said participant's pre-disability contribution amount;    b. based on said information, calculating with the computer system a premium amount for the insurance policy and a disability benefit amount under the insurance policy, said disability benefit amount being substantially equal to the pre-disability contribution amount; and    c. paying said disability benefit into the retirement plan's trust as an investment return of the trust,    wherein the plan is subject to non-discrimination requirements with regard to premiums for the insurance and benefits under the insurance, and said premiums and benefits are linked to pre-disability contributions to the plan for the plan year prior to the policy year for which the insurance is effective, said pre-disability contributions having been demonstrated to meet the plan's non-discrimination requirements by definition or by testing.    
     
     
         8 . The method of  claim 7 , wherein the retirement plan is a tax qualified defined contribution 401(a) plan, thereby subjecting said insurance policy to the terms of said defined contribution plan, including rules and regulations of the Internal Revenue Service (IRS) and the Department of Labor (DOL) to which the defined contribution plan itself is subject.  
     
     
         9 . The method of  claim 7 , wherein the retirement plan is a member selected from the group consisting of a 401(k) plan, a 403(b) plan, a 457 plan, a defined benefit pension plan, and a money purchase pension plan.  
     
     
         10 . The method of  claim 7 , wherein the trust includes an individual account allocated to each participant and the insurance premium for each said participant is paid from said participant's account.  
     
     
         11 . The method of  claim 7 , further including calculating a total annual premium for all plan participants, wherein said total annual premium is paid on an overall-plan basis from the trust as a plan expense.  
     
     
         12 . The method of  claim 11 , wherein the trust includes an individual account allocated to each participant and said total annual premium is paid from the earnings of the trust prior to the earnings being allocated to said individual participant accounts.  
     
     
         13 . The method of  claim 7 , wherein said premiums and benefits are linked to contributions to the plan that, in accordance with the IRC and its attendant rules and regulations, are based on a non-discriminatory formula.  
     
     
         14 . The method of  claim 7 , wherein said premiums and benefits are linked to contributions to the plan that are equal to a fixed percentage of compensation for all participants in the plan.  
     
     
         15 . A machine-readable medium for use in a machine having a central processing unit (CPU), the medium containing program instructions executable by the CPU to cause the machine to perform a method of determining benefit and cost amounts under a disability insurance policy so as to provide substitute continuing payments to a retirement plan into which contribution payments are normally made on behalf of a participant of the plan, during a period of non-payment due to a long-term disability of the plan participant, the method comprising: 
 a. receiving information relating to said participant's pre-disability contribution amount; and    b. calculating, based on said information and in accordance with the insurance policy and plan provisions, a premium amount for the insurance policy and a disability benefit amount under the insurance policy, said disability benefit amount being substantially equal to the pre-disability contribution amount,    wherein the disability insurance is included as a feature of the plan and held as an asset of the plan's trust, the insurance premiums are to be paid with assets of the trust, and the disability benefits are to be paid into the trust.    
     
     
         16 . The machine-readable medium according to  claim 15 , wherein said method further comprises accounting premiums paid for, and benefits paid under, said insurance policy.  
     
     
         17 . The machine-readable medium according to  claim 16 , wherein said accounting of premiums includes calculating a total annual premium for all plan participants and allocating the total premium as a plan expense.  
     
     
         18 . The machine-readable medium according to  claim 15 , wherein said method further comprises determining said plan participant's potential eligibility to be a member of a group insured under said insurance policy.  
     
     
         19 . The machine-readable medium according to  claim 18 , wherein, in accordance with the provisions of the Internal Revenue Code (IRC) and its attendant rules and regulations, the plan is subject to non-discrimination requirements, and wherein said method further comprises determining compliance with said requirements.  
     
     
         20 . The machine-readable medium according to  claim 15 , wherein the retirement plan is a tax qualified defined contribution 401(a) plan.  
     
     
         21 . The machine-readable medium according to  claim 20 , wherein the insurance policy is subject to the terms of the defined contribution plan, including rules and regulations of the Internal Revenue Service (IRS) and the Department of Labor (DOL) to which the defined contribution plan itself is subject.  
     
     
         22 . The machine-readable medium according to  claim 15 , wherein the retirement plan is a member selected from the group consisting of a 401(k) plan, a 403(b) plan, a 457 plan, a defined benefit pension plan, and a money purchase pension plan.  
     
     
         23 . The machine-readable medium according to  claim 22 , wherein the insurance policy is subject to the terms of the retirement plan, including rules and regulations of the Internal Revenue Service (IRS) and the Department of Labor (DOL) to which the retirement plan itself is subject.  
     
     
         24 . A machine-readable medium used in a machine having a central processing unit (CPU), the medium containing program instructions executable by the CPU to cause the machine to perform a method of determining benefit and cost amounts under a disability insurance policy so as to provide substitute continuing payments to a retirement plan into which contribution payments are normally made on behalf of a participant of the plan, during a period of non-payment due to a long-term disability of the plan participant, wherein the disability insurance is included as a feature of the plan and held as an asset of the plan's trust, the insurance premiums are paid with assets of the trust and the disability benefits are paid into the trust, and the plan is subject to non-discrimination requirements with regard to eligibility for the insurance, the method comprising: 
 a. receiving information relating to said participant's pre-disability contribution amount;    b. determining said participant's eligibility for the insurance by matching eligibility for the insurance to eligibility for the plan, matching eligibility for the insurance to participation in the plan, or both, for the plan year prior to the policy year for which the insurance is effective; and    c. calculating, based on said information and in accordance with the insurance policy and plan provisions, a premium amount for the insurance policy and a disability benefit amount under the insurance policy, said disability benefit amount being substantially equal to the pre-disability contribution amount.    
     
     
         25 . The machine-readable medium according to  claim 24 , wherein said method further comprises accounting premiums paid for, and benefits paid under, said insurance policy.  
     
     
         26 . The machine-readable medium according to  claim 25 , wherein said accounting of premiums includes calculating a total annual premium for all plan participants and allocating the total premium as a plan expense.  
     
     
         27 . The machine-readable medium according to  claim 24 , wherein the retirement plan is a member selected from the group consisting of a 401(k) plan, a 403(b) plan, a 457 plan, a defined benefit pension plan, and a money purchase pension plan.  
     
     
         28 . A machine-readable medium used in a machine having a central processing unit (CPU), the medium containing program instructions executable by the CPU to cause the machine to perform a method of determining benefit and cost amounts under a disability insurance policy so as to provide substitute continuing payments to a retirement plan into which contribution payments are normally made on behalf of a participant of the plan, during a period of non-payment due to a long-term disability of the plan participant, wherein the disability insurance is included as a feature of the plan and held as an asset of the plan's trust, the insurance premiums are paid with assets of the trust and the disability benefits are paid into the trust, and the plan is subject to non-discrimination requirements with regard to premiums for the insurance and benefits under the insurance, the method comprising: 
 a. receiving information relating to said participant's pre-disability contribution amount;    b. calculating, based on said information and in accordance with the insurance policy and plan provisions, a premium amount for the insurance policy and a disability benefit amount under the insurance policy, said disability benefit amount being substantially equal to the pre-disability contribution amount; and    c. linking said premium and benefit amounts to pre-disability contributions to the plan for the plan year prior to the policy year for which the insurance is effective, said pre-disability contributions having been demonstrated to meet the plan's non-discrimination requirements by definition or by testing.    
     
     
         29 . The machine-readable medium according to  claim 28 , wherein said method further comprises accounting premiums paid for, and benefits paid under, said insurance policy.  
     
     
         30 . The machine-readable medium according to  claim 29 , wherein said accounting of premiums includes calculating a total annual premium for all plan participants and allocating the total premium as a plan expense.  
     
     
         31 . The machine-readable medium according to  claim 28 , wherein the retirement plan is a member selected from the group consisting of a 401(k) plan, a 403(b) plan, a 457 plan, a defined benefit pension plan, and a money purchase pension plan.  
     
     
         32 . A computer processing system having instructions for effecting substitute continuing payments into a trust of a retirement plan, into which contribution payments are normally made on behalf of a participant of the plan, during a period of non-payment due to a long-term disability of the plan participant, said system comprising: 
 a. a disability system having a disability database that stores data relating to an insurance policy, wherein: 
 (i) the insurance policy is a feature of said retirement plan;  
 (ii) the insurance policy is held as an asset of the plan's trust;  
 (iii) premiums for the insurance policy are paid with assets of the trust; and  
 (iv) benefit payments under the insurance policy are paid into the trust;  
   b. a record-keeping system having a record-keeping database that stores data relating to one or more sources of money that are deposited into the plan's trust and one or more funds into which trust assets are invested;    c. means for transmitting data from the record-keeping system to the disability system;    d. means for calculating, based on said data transmitted to the disability system, said premiums in an amount so that the benefit payments are substantially equal to the pre-disability contribution payments; and    e. means for accounting premiums paid for, and benefits paid under, said insurance policy.    
     
     
         33 . The system of  claim 32 , further comprising means for determining said participant's potential eligibility to be a member of a group insured under said insurance policy.  
     
     
         34 . The system of  claim 32 , wherein, in accordance with the provisions of the Internal Revenue Code and its attendant rules and regulations, the plan is subject to non-discrimination requirements, and wherein the system further comprises means for determining compliance with said requirements.  
     
     
         35 . The system of  claim 32 , wherein the retirement plan is a tax qualified defined contribution 401(a) plan.  
     
     
         36 . The system of  claim 35 , wherein the insurance policy is subject to the terms of the defined contribution plan, including rules and regulations of the Internal Revenue Service (IRS) and the Department of Labor (DOL) to which the defined contribution plan itself is subject.  
     
     
         37 . The system of  claim 32 , wherein the retirement plan is a member selected from the group consisting of a 401(k) plan, a 403(b) plan, a 457 plan, a defined benefit pension plan, and a money purchase pension plan.  
     
     
         38 . The system of  claim 37 , wherein the insurance policy is subject to the terms of the retirement plan, including rules and regulations of the Internal Revenue Service (IRS) and the Department of Labor (DOL) to which the retirement plan itself is subject.  
     
     
         39 . The system of  claim 32 , wherein the trust includes an individual account allocated to each participant, the record-keeping database stores said source and fund data in accordance with each participant's account, and the insurance premium for each said participant is paid from said participant's account.  
     
     
         40 . The system of  claim 32 , wherein said premiums and benefits are linked to contributions to the plan that, in accordance with the IRC and its attendant rules and regulations, are based on a non-discriminatory formula.