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Disability Funding of Pension Contributions

By Lawrence L. Bell
June 02, 2014

Although pension plans are thought of primarily as a source of cash income for the elderly, they typically serve other functions as well. For example, they usually contain early retirement features and often provide pensions to workers who lose their jobs because of disability. The high proportion of pension plans with disability retirement features is dramatized in data from the Bureau of Labor Statistics' annual survey of the incidence and characteristics of employee benefit plans in medium and large establishments. Of the 1,002 private pension plans found in the 1980 survey, 86% had disability retirement. None of these programs had provisions to make up employee contributions and employer matches where the employee becomes disabled during their employment years. See, “Employee Benefits in Industry, 1980,” Bulletin 2107 (Bureau of Labor Statistics, 1981).

There is a 12.9% probability of an employee dying during his or her working years. There is a 25% chance of an employee becoming disabled. If you were going to place a wager in Las Vegas, wouldn't you think more people would be behind the 1:4 likelihood than the 1:7.7?

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