This document discusses fiduciary considerations for retirement plans offering guaranteed minimum withdrawal benefits (GMWBs). It provides an overview of typical GMWB features, including how they guarantee minimum withdrawals for life from retirement accounts. It also outlines the fiduciary process for evaluating and selecting GMWBs, focusing on three key areas: assessing product features, evaluating portability, and ensuring the financial viability of the insurance company providing the benefits. Fiduciaries must engage in a prudent process to determine whether offering a GMWB is appropriate for their plan and to select the best product and carrier based on factors like costs, benefits, and the long-term ability of the insurer to pay guaranteed amounts.
This M Intelligence piece will explore the product mechanics and design considerations of Whole Life (WL) insurance. There are two general categories of WL...
Indexed universal life insurance (IUL) policies allow policyholders to earn returns linked to market indexes, such as the S&P 500, while providing a guaranteed minimum return. IUL policies credit interest to the cash value based on the greater of the guaranteed minimum rate or a formula related to market index performance. IUL policies offer flexibility to modify premiums or death benefits over time in response to changing needs. IUL policies can be used for family protection, business planning, accumulation needs, and charitable gifts.
factors considered when estimating the rate of returnAleck Makandwa
The major components that venture investors consider when estimating the required rate of return are:
1) The risk-free interest rate, which is the baseline rate without any risk.
2) The risk premium, which is additional return expected above the risk-free rate to compensate for investment risk.
3) Liquidity premium, maturity premium, inflation premium, and default premium, which compensate investors for additional specific risks like lack of liquidity, inflation, or default.
Common loan restrictions for new ventures include requirements to maintain accurate financial records, limits on total debt levels, restrictions on dividends or payments to owners, reporting/disclosure obligations, and restrictions on selling fixed assets. These protections help banks assess
Preferred stock is a type of equity security that has characteristics of both debt and equity. It has a higher claim on assets and earnings than common stock, but is subordinate to bonds and other debt. Key features include: a fixed dividend that must be paid out before common dividends; no voting rights unless dividends are in arrears; and seniority over common stock in liquidation. Preferred stock comes in different classes with varying rights, and provides tax advantages for corporations.
Universal life insurance separates a policy into mortality, expense, and cash value components. This allows flexibility to modify premiums or death benefits in response to changing needs. Premiums deduct monthly charges for mortality and expenses from the cash value balance, which earns interest. Universal life comes in two types - type I pays a fixed death benefit while type II pays the face value plus cash value. Universal life is useful for needs that may change over time like family protection, business planning, or accumulation goals.
Preferred stocks blend characteristics of stocks and bonds. They provide higher yields than common stocks through fixed dividend payments, and have higher claims on company assets than common shares. Preferred stocks offer greater assurances of receiving dividend payments than common stocks. Companies issue preferred shares as a relatively cheap way to raise capital, for balance sheet management purposes, and to maintain flexibility in dividend payments. Preferred stocks historically have offered higher yields than other asset classes like bonds and money market accounts, providing potential portfolio diversification benefits due to their low correlations with other assets.
This document discusses the distribution of surplus in life insurance. It defines surplus as the amount remaining after deducting policy reserves and expenses from premiums and investment income. Surplus comes from lower than expected mortality rates, higher investment returns, and lapsed policies. Surplus can be distributed through increased benefits, contribution/dividend methods, or revalorization. Increased benefits add bonuses to existing coverage amounts. Contribution ties bonuses to each policy's surplus contribution. Revalorization expresses surplus as a percentage increase to reserves and premiums. Insurers consider policyholder expectations, equity, solvency, and legal provisions when distributing surplus.
This M Intelligence piece will explore the product mechanics and design considerations of Whole Life (WL) insurance. There are two general categories of WL...
Indexed universal life insurance (IUL) policies allow policyholders to earn returns linked to market indexes, such as the S&P 500, while providing a guaranteed minimum return. IUL policies credit interest to the cash value based on the greater of the guaranteed minimum rate or a formula related to market index performance. IUL policies offer flexibility to modify premiums or death benefits over time in response to changing needs. IUL policies can be used for family protection, business planning, accumulation needs, and charitable gifts.
factors considered when estimating the rate of returnAleck Makandwa
The major components that venture investors consider when estimating the required rate of return are:
1) The risk-free interest rate, which is the baseline rate without any risk.
2) The risk premium, which is additional return expected above the risk-free rate to compensate for investment risk.
3) Liquidity premium, maturity premium, inflation premium, and default premium, which compensate investors for additional specific risks like lack of liquidity, inflation, or default.
Common loan restrictions for new ventures include requirements to maintain accurate financial records, limits on total debt levels, restrictions on dividends or payments to owners, reporting/disclosure obligations, and restrictions on selling fixed assets. These protections help banks assess
Preferred stock is a type of equity security that has characteristics of both debt and equity. It has a higher claim on assets and earnings than common stock, but is subordinate to bonds and other debt. Key features include: a fixed dividend that must be paid out before common dividends; no voting rights unless dividends are in arrears; and seniority over common stock in liquidation. Preferred stock comes in different classes with varying rights, and provides tax advantages for corporations.
Universal life insurance separates a policy into mortality, expense, and cash value components. This allows flexibility to modify premiums or death benefits in response to changing needs. Premiums deduct monthly charges for mortality and expenses from the cash value balance, which earns interest. Universal life comes in two types - type I pays a fixed death benefit while type II pays the face value plus cash value. Universal life is useful for needs that may change over time like family protection, business planning, or accumulation goals.
Preferred stocks blend characteristics of stocks and bonds. They provide higher yields than common stocks through fixed dividend payments, and have higher claims on company assets than common shares. Preferred stocks offer greater assurances of receiving dividend payments than common stocks. Companies issue preferred shares as a relatively cheap way to raise capital, for balance sheet management purposes, and to maintain flexibility in dividend payments. Preferred stocks historically have offered higher yields than other asset classes like bonds and money market accounts, providing potential portfolio diversification benefits due to their low correlations with other assets.
This document discusses the distribution of surplus in life insurance. It defines surplus as the amount remaining after deducting policy reserves and expenses from premiums and investment income. Surplus comes from lower than expected mortality rates, higher investment returns, and lapsed policies. Surplus can be distributed through increased benefits, contribution/dividend methods, or revalorization. Increased benefits add bonuses to existing coverage amounts. Contribution ties bonuses to each policy's surplus contribution. Revalorization expresses surplus as a percentage increase to reserves and premiums. Insurers consider policyholder expectations, equity, solvency, and legal provisions when distributing surplus.
This document discusses different types of stock and features of preferred stock. It defines common stock and preferred stock, with common stock representing ownership and voting rights, while preferred stock has fixed dividend payments but no voting rights. Key features of preferred stock include cumulative dividends where unpaid dividends must be paid before common dividends; participating features which allow preferred holders to receive additional dividends if common dividends increase; and call provisions, sinking funds, and conversion options for retirement or conversion of preferred stock. The document provides an overview of stock, dividends, and characteristics of different stock types.
This document provides an overview of common stock and differences between debt and equity financing. It discusses key differences such as creditors having legal right to repayment while investors only have expectation, equityholders having last claim on assets in bankruptcy. Common stockholders are residual owners who receive dividends and capital gains. Preemptive rights protect common stockholders from dilution from new share issuances. Voting rights, dividends and international stock issues are also summarized.
IDFC Overnight Fund_Key information memorandumIDFCJUBI
The document provides a key information memorandum for the IDFC Overnight Fund, an open-ended debt scheme investing in overnight securities. The fund seeks to generate short term optimal returns in line with overnight rates and high liquidity by predominantly investing in money market and debt instruments with a maturity of 1 day. It aims to offer an investment avenue for short term savings. The fund carries risks associated with investing in debt markets like market risk, liquidity risk and credit risk which it manages through strategies like increasing allocation to money market securities in rising interest rate scenarios.
Factors affecting life and health insurance in bangladeshMRH Neelove
This document discusses factors affecting life and health insurance products. It provides definitions of life insurance as a contract where the insurer pays a sum of money upon the insured's death in exchange for premiums. Health insurance is defined as a contract where the insurer pays some or all of a person's healthcare costs in exchange for premiums. The objectives are to get an overview of the life and health insurance sector in Bangladesh, understand customer perceptions, and identify factors influencing products. The methodology includes primary and secondary data collection and quantitative and qualitative analysis of a sample of 25 individuals. Key factors analyzed include demographics, income, premium amounts, healthcare access, claims settlement, and ethical operations.
What is the difference between common stock and preferred stock? And Financia...Awais Sandhu
What is the difference between common stock and preferred stock?
Financial statement
M. Awais Sandhu
University of agriculture Fsd
MBA 3.5y
03007271202
Corporations often have two types of stocks: common and preferred. There are both advantages and disadvantages to each. Let’s say you have $10,000 to invest in a corporation that issues both common and preferred stock. Your main goal is to maximize the amount of dividends received. Which of the types of stock would you invest in? Explain your answer.
The document discusses preparing for retirement with a variable annuity product called the Northwestern Mutual Select Variable Annuity. It outlines key features like tax-deferred growth, guaranteed death benefits, and options for guaranteed retirement income. Concerns around running out of money, health costs, and inflation in retirement are addressed through the annuity's features and investment options.
Bba 2204 fin mgt week 7 stock valuationStephen Ong
This document provides an overview of stock valuation and the process of issuing common stock. It discusses the differences between debt and equity financing, features of common and preferred stock, and the roles of venture capital and investment bankers in taking a company public. The learning goals cover stock valuation models, approaches to valuation such as free cash flow and multiples, and how financial decisions impact risk and firm value.
IDFC Regular Savings Fund_Key information memorandumIDFCJUBI
- The IDFC Regular Savings Fund is an open-ended hybrid scheme that invests predominantly in debt instruments.
- The primary objective is to generate regular returns through investment predominantly in debt instruments. The secondary objective is to generate long-term capital appreciation by investing a portion in equity securities.
- It aims to provide regular income and capital appreciation over medium to long term through investment predominantly in debt and money market instruments with balance exposure to equity.
This document provides an overview of takaful (Islamic insurance) including:
- Basic concepts such as tabarru (donation), takaful funds, and prohibition of gharar, maisir, and riba.
- Core factors like being an alternative to conventional insurance and being based on sharia principles.
- Parties involved like the insurer, policyholder, beneficiary, and shareholder.
- Different takaful models including mudarabah, wakalah, mixed, and waqf.
- Differences between takaful and conventional insurance.
Terminally ill individuals facing high medical costs and reduced income have some options to reduce financial concerns from their life insurance policies. These include borrowing against the cash value, surrendering the policy for its current value, borrowing from third parties, or accessing accelerated death benefits that pay out a portion of the policy while still alive and tax-free. Another option is a viatical settlement where the policy is sold to an investor for a percentage of its face value, providing cash to the policy owner during their lifetime. Several factors determine the percentage payout offered in a viatical settlement.
Credit risk is the possibility that a borrower will fail to repay a loan according to the agreed terms. It arises when a bank lends money to customers or other banks. The probability of loss from credit risk is high if the likelihood of default is high. There are several types of credit risk, including default risk, concentration risk, and country risk. Banks assess credit risk through qualitative factors like loan documentation and quantitative factors like non-performing loans. Credit risk is managed through techniques such as risk-based pricing, collateral, and credit monitoring.
Financial Guarantee 1[1] Music [Recovered] 5 01 09BPANGEL13
The document proposes a financial guarantee program for commercial and mixed-use real estate mortgages in Pennsylvania. It would provide down payment guarantees through surety bonds or policies, allowing borrowers to obtain full financing from lenders rather than pay a large down payment themselves. The program would benefit borrowers by avoiding draining their cash, lenders by enabling full loans with minimal added risk, insurers through premiums, and the state via increased real estate transactions stimulating the economy.
Chapter 07 Valuation & Characteristics Of StocksAlamgir Alwani
The document discusses common stock and its valuation. It covers topics such as how common stockholders own shares in a corporation but have limited control. The expected returns on common stock come from dividends and price appreciation if the shares are sold. Various models for valuing common stock are presented, including the constant growth model and two-stage growth model, which take into account expected dividend growth rates. Limitations of the models are noted given the uncertainty in predicting future cash flows from stocks.
The document discusses the benefits of establishing a group captive insurance program. It notes that previously the industry faced high pricing from insurers who did not recognize their focus on safety. By sharing loss information and forming a group captive, members saw premium rate reductions, more investment in safety programs, lower losses over time, and underwriting profits returned to the group. This led to expanded coverage options and a high member retention rate, providing a long-term, market-driven insurance solution for the industry.
Group members for the insurance discussion include Rinku Patel, Shubhangi Rathod, and Garima Mishra. Life insurance in India is a $250 billion market growing at 32-34% annually. Common types of life insurance policies discussed include children's plans, term insurance, and endowment plans. Children's plans help secure a child's future needs such as education. Term plans offer only death benefits while endowment plans provide savings and maturity benefits in addition to death coverage. Popular companies offering these plans in India include LIC, HDFC Life, and ICICI Prudential.
This document discusses various methods for valuing common stock, including the zero-growth, constant-growth, and variable-growth models. It provides examples of calculating stock value using each method. The zero-growth model assumes dividends will remain constant in perpetuity. The constant-growth model assumes dividends will grow at a constant rate less than the required return. The variable-growth model allows dividend growth rates to change over time. The document also covers features of common and preferred stock, the process of companies going public, and the role of investment bankers in initial public offerings.
This all-over body workout consists of 30 jumping jacks, 10 squats, 10 glute kickbacks, 5 kneeling push-ups, a 30 second plank, 20 vertical leg crunches, 5 tricep dips, and 30 butt kickers. The routine is to be repeated twice and includes a mix of cardio and strength exercises to work the entire body and promote overall fitness.
The document discusses providing effective feedback to learners. It emphasizes that feedback should be constructive and explain why an answer is good or bad, rather than just saying the answer is right or wrong. Learners should be given hints to guide them in the right direction and allow them to realize mistakes on their own. The feedback aims to improve learning without directly pointing out errors.
The document discusses emerging trends in learning strategies, architectures, and delivery methods. It notes a shift towards more immediate knowledge resources, on-the-job learning, mobile learning, and relationships/coaching, while formal e-learning and assessment are decreasing. Both organizational knowledge management and personal knowledge management will be important to manage this changing mix of learning approaches. The document advocates putting the right learning elements in place to encourage competence and engagement through a variety of high- and low-fidelity methods.
The document discusses two potential areas of 401(k) plan litigation: excessive payments to service providers and high expense ratios of mutual funds. If plan sponsors fail to properly evaluate service provider payments and fund expenses, it could lead to litigation. Additionally, if a case reaches the Supreme Court regarding fiduciary responsibility to monitor fund expenses, it could increase scrutiny of plan sponsors' practices. While revenue sharing to pay for plan costs is allowed, amounts must be reasonable and fund expenses appropriate relative to plan size. Overall the article advises plan sponsors to focus on these issues to manage litigation risks.
This document discusses different types of stock and features of preferred stock. It defines common stock and preferred stock, with common stock representing ownership and voting rights, while preferred stock has fixed dividend payments but no voting rights. Key features of preferred stock include cumulative dividends where unpaid dividends must be paid before common dividends; participating features which allow preferred holders to receive additional dividends if common dividends increase; and call provisions, sinking funds, and conversion options for retirement or conversion of preferred stock. The document provides an overview of stock, dividends, and characteristics of different stock types.
This document provides an overview of common stock and differences between debt and equity financing. It discusses key differences such as creditors having legal right to repayment while investors only have expectation, equityholders having last claim on assets in bankruptcy. Common stockholders are residual owners who receive dividends and capital gains. Preemptive rights protect common stockholders from dilution from new share issuances. Voting rights, dividends and international stock issues are also summarized.
IDFC Overnight Fund_Key information memorandumIDFCJUBI
The document provides a key information memorandum for the IDFC Overnight Fund, an open-ended debt scheme investing in overnight securities. The fund seeks to generate short term optimal returns in line with overnight rates and high liquidity by predominantly investing in money market and debt instruments with a maturity of 1 day. It aims to offer an investment avenue for short term savings. The fund carries risks associated with investing in debt markets like market risk, liquidity risk and credit risk which it manages through strategies like increasing allocation to money market securities in rising interest rate scenarios.
Factors affecting life and health insurance in bangladeshMRH Neelove
This document discusses factors affecting life and health insurance products. It provides definitions of life insurance as a contract where the insurer pays a sum of money upon the insured's death in exchange for premiums. Health insurance is defined as a contract where the insurer pays some or all of a person's healthcare costs in exchange for premiums. The objectives are to get an overview of the life and health insurance sector in Bangladesh, understand customer perceptions, and identify factors influencing products. The methodology includes primary and secondary data collection and quantitative and qualitative analysis of a sample of 25 individuals. Key factors analyzed include demographics, income, premium amounts, healthcare access, claims settlement, and ethical operations.
What is the difference between common stock and preferred stock? And Financia...Awais Sandhu
What is the difference between common stock and preferred stock?
Financial statement
M. Awais Sandhu
University of agriculture Fsd
MBA 3.5y
03007271202
Corporations often have two types of stocks: common and preferred. There are both advantages and disadvantages to each. Let’s say you have $10,000 to invest in a corporation that issues both common and preferred stock. Your main goal is to maximize the amount of dividends received. Which of the types of stock would you invest in? Explain your answer.
The document discusses preparing for retirement with a variable annuity product called the Northwestern Mutual Select Variable Annuity. It outlines key features like tax-deferred growth, guaranteed death benefits, and options for guaranteed retirement income. Concerns around running out of money, health costs, and inflation in retirement are addressed through the annuity's features and investment options.
Bba 2204 fin mgt week 7 stock valuationStephen Ong
This document provides an overview of stock valuation and the process of issuing common stock. It discusses the differences between debt and equity financing, features of common and preferred stock, and the roles of venture capital and investment bankers in taking a company public. The learning goals cover stock valuation models, approaches to valuation such as free cash flow and multiples, and how financial decisions impact risk and firm value.
IDFC Regular Savings Fund_Key information memorandumIDFCJUBI
- The IDFC Regular Savings Fund is an open-ended hybrid scheme that invests predominantly in debt instruments.
- The primary objective is to generate regular returns through investment predominantly in debt instruments. The secondary objective is to generate long-term capital appreciation by investing a portion in equity securities.
- It aims to provide regular income and capital appreciation over medium to long term through investment predominantly in debt and money market instruments with balance exposure to equity.
This document provides an overview of takaful (Islamic insurance) including:
- Basic concepts such as tabarru (donation), takaful funds, and prohibition of gharar, maisir, and riba.
- Core factors like being an alternative to conventional insurance and being based on sharia principles.
- Parties involved like the insurer, policyholder, beneficiary, and shareholder.
- Different takaful models including mudarabah, wakalah, mixed, and waqf.
- Differences between takaful and conventional insurance.
Terminally ill individuals facing high medical costs and reduced income have some options to reduce financial concerns from their life insurance policies. These include borrowing against the cash value, surrendering the policy for its current value, borrowing from third parties, or accessing accelerated death benefits that pay out a portion of the policy while still alive and tax-free. Another option is a viatical settlement where the policy is sold to an investor for a percentage of its face value, providing cash to the policy owner during their lifetime. Several factors determine the percentage payout offered in a viatical settlement.
Credit risk is the possibility that a borrower will fail to repay a loan according to the agreed terms. It arises when a bank lends money to customers or other banks. The probability of loss from credit risk is high if the likelihood of default is high. There are several types of credit risk, including default risk, concentration risk, and country risk. Banks assess credit risk through qualitative factors like loan documentation and quantitative factors like non-performing loans. Credit risk is managed through techniques such as risk-based pricing, collateral, and credit monitoring.
Financial Guarantee 1[1] Music [Recovered] 5 01 09BPANGEL13
The document proposes a financial guarantee program for commercial and mixed-use real estate mortgages in Pennsylvania. It would provide down payment guarantees through surety bonds or policies, allowing borrowers to obtain full financing from lenders rather than pay a large down payment themselves. The program would benefit borrowers by avoiding draining their cash, lenders by enabling full loans with minimal added risk, insurers through premiums, and the state via increased real estate transactions stimulating the economy.
Chapter 07 Valuation & Characteristics Of StocksAlamgir Alwani
The document discusses common stock and its valuation. It covers topics such as how common stockholders own shares in a corporation but have limited control. The expected returns on common stock come from dividends and price appreciation if the shares are sold. Various models for valuing common stock are presented, including the constant growth model and two-stage growth model, which take into account expected dividend growth rates. Limitations of the models are noted given the uncertainty in predicting future cash flows from stocks.
The document discusses the benefits of establishing a group captive insurance program. It notes that previously the industry faced high pricing from insurers who did not recognize their focus on safety. By sharing loss information and forming a group captive, members saw premium rate reductions, more investment in safety programs, lower losses over time, and underwriting profits returned to the group. This led to expanded coverage options and a high member retention rate, providing a long-term, market-driven insurance solution for the industry.
Group members for the insurance discussion include Rinku Patel, Shubhangi Rathod, and Garima Mishra. Life insurance in India is a $250 billion market growing at 32-34% annually. Common types of life insurance policies discussed include children's plans, term insurance, and endowment plans. Children's plans help secure a child's future needs such as education. Term plans offer only death benefits while endowment plans provide savings and maturity benefits in addition to death coverage. Popular companies offering these plans in India include LIC, HDFC Life, and ICICI Prudential.
This document discusses various methods for valuing common stock, including the zero-growth, constant-growth, and variable-growth models. It provides examples of calculating stock value using each method. The zero-growth model assumes dividends will remain constant in perpetuity. The constant-growth model assumes dividends will grow at a constant rate less than the required return. The variable-growth model allows dividend growth rates to change over time. The document also covers features of common and preferred stock, the process of companies going public, and the role of investment bankers in initial public offerings.
This all-over body workout consists of 30 jumping jacks, 10 squats, 10 glute kickbacks, 5 kneeling push-ups, a 30 second plank, 20 vertical leg crunches, 5 tricep dips, and 30 butt kickers. The routine is to be repeated twice and includes a mix of cardio and strength exercises to work the entire body and promote overall fitness.
The document discusses providing effective feedback to learners. It emphasizes that feedback should be constructive and explain why an answer is good or bad, rather than just saying the answer is right or wrong. Learners should be given hints to guide them in the right direction and allow them to realize mistakes on their own. The feedback aims to improve learning without directly pointing out errors.
The document discusses emerging trends in learning strategies, architectures, and delivery methods. It notes a shift towards more immediate knowledge resources, on-the-job learning, mobile learning, and relationships/coaching, while formal e-learning and assessment are decreasing. Both organizational knowledge management and personal knowledge management will be important to manage this changing mix of learning approaches. The document advocates putting the right learning elements in place to encourage competence and engagement through a variety of high- and low-fidelity methods.
The document discusses two potential areas of 401(k) plan litigation: excessive payments to service providers and high expense ratios of mutual funds. If plan sponsors fail to properly evaluate service provider payments and fund expenses, it could lead to litigation. Additionally, if a case reaches the Supreme Court regarding fiduciary responsibility to monitor fund expenses, it could increase scrutiny of plan sponsors' practices. While revenue sharing to pay for plan costs is allowed, amounts must be reasonable and fund expenses appropriate relative to plan size. Overall the article advises plan sponsors to focus on these issues to manage litigation risks.
Erectile Dysfunction Symptoms And TreatmentManas Das
This presentation describes Symptoms And Treatment of Erectile Dysfunction which is a very common diseases in men.Erectile Dysfunction can be cure easily if proper treatment will be taken.To identify Erectile Dysfunction some symptoms are there which can help you.
Erectile dysfunction is caused by problems with blood flow to the penis, nerve signals in the body, hormone levels, or psychological issues. During arousal, signals from the brain cause blood vessels in the penis to widen and let in more blood, making the penis hard. The veins are then compressed to maintain the erection. Common causes of erectile dysfunction include diseases like diabetes or damage to the nerves, blood vessels, muscles, or tissues of the penis. A doctor can diagnose erectile dysfunction through a medical history, physical exam, and tests. Treatments may include oral medications, counseling, injections, devices, or surgery.
Kotak e-Invest - a comprehensive Unit Linked Life Insurance Plan that can be customized as per your goals and requirements. Click here to know more about it.
LifeHealthPro - Heres why cash value life insurance is a superior productJose Ariel Taveras
The document discusses the advantages of cash value life insurance over term life insurance and other financial assets. It outlines three main categories of advantages for cash value life insurance: 1) Tax advantages, such as tax-free growth of cash value and tax-free death benefits; 2) Financial advantages, as life insurance is designed using actuarial models to provide guarantees and potential increases in death benefits; and 3) Legal advantages, like state legal protections and guarantees of insurers. The document promotes cash value life insurance as a superior financial product compared to alternatives due to these inherent advantages.
The document discusses secondary markets for structured cash flows, such as pensions, which allow individuals to sell future income streams for a lump sum payment. It provides details on Future Income Payments, LLC, a company that facilitates these transactions, including their process for underwriting sellers, mitigating risks through reserve accounts, and replacing cash flows if needed. Examples of purchase prices, terms, and monthly payments are given to illustrate potential returns from structured cash flows compared to other fixed income options like annuities.
This document provides information about life insurance policies in India. It discusses different types of life insurance policies like term insurance, whole life insurance, endowment policies, money back plans, children's policies, annuity plans, and unit linked insurance plans. It also answers frequently asked questions about life insurance policies, including how premiums, surrender values, and claims are calculated for conventional and unit linked policies. The document aims to educate policyholders about various aspects of life insurance.
The document summarizes a unit-linked pension plan called BSLI Empower Pension Plan offered by Birla Sun Life Insurance. The key details are:
1. It allows customers to save for retirement through regular premium payments over 5-30 years. Premiums are invested in funds to build a retirement corpus.
2. At retirement (vesting date), the customer can use the corpus to purchase a lifelong pension stream or make withdrawals within tax-free limits.
3. The plan provides guaranteed additions to the fund value from the 6th policy year onwards. It also guarantees a minimum vesting benefit based on premiums paid and years to vesting.
4. Death and surrender benefits are also
ULIP - Buy High Return ULIP Policy Online in India | HDFC LifeLisaDavid26
This document summarizes a unit-linked insurance plan from HDFC Life. Key highlights include:
- The plan offers three options - Invest Plus, Premium Waiver, and Golden Years Benefit.
- Premiums can be paid regularly or as a lump sum. Fund value grows based on investment performance.
- Death benefit is highest of sum assured, fund value, or total premiums paid. Premium waiver option waives future premiums on proposer's death.
- Plan has lock-in period of 5 years during which partial withdrawals and policy discontinuance rules apply.
ULIP - Buy High Return ULIP Policy Online in India | HDFC LifeLisaDavid26
Click2Wealth is a high return ULIP plan by HDFC Life which offers premium waiver benefit, tax benefits and whole life coverage with golden years benefit option. Buy Now!
An endowment policy is basically a life insurance policy which, apart from covering the life of the insured, helps the policyholder to save regularly over a certain time, so that he/she gets a lump sum amount on the policy maturity in case he/she lasts the policy term.
A life insurance endowment policy pays the complete sum assured to the beneficiaries if the insured expires during the policy term or to the policyholder on the maturity of the policy if he/she survives the term. Hence, it fulfills the dual necessity for savings and life cover under a common plan.
Unit Linked Insurance Policies (ULIPs) are life insurance policies that provide both risk coverage and investment. Most ULIPs offer a range of investment funds to suit different risk profiles and time horizons. Returns are not guaranteed as the investment risk is borne by the policyholder. Charges include premium allocation charges, mortality charges, fund management fees, and surrender charges. The document provides answers to frequently asked questions about ULIPs, such as what is a unit fund, benefits payable, consequences of discontinuing premiums, and fund performance reporting.
This document discusses annuities as safe money products that can help preserve wealth and provide financial growth and secure retirement. It provides information on different types of annuities including fixed annuities, which offer guaranteed minimum interest rates and tax advantages, and variable annuities, which carry investment risk. The document outlines benefits such as tax deferral, death benefits, and guarantees as well as factors to consider like fees, liquidity, and maturity dates when evaluating annuities.
Advanced Markets Insight: Nonqualified Deferred Compensation—Demystifying the...M Financial Group
A nonqualified plan can help an employer accomplish its objective of recruiting, retaining, and rewarding key employees through income tax-deferred compensation. A phantom stock plan is a popular and effective nonqualified deferred compensation plan used by employers to share value with selected key employees without relinquishing business control and decision-making powers. As a result, the employee has the ability to share in the success of the company without capital investment or shareholder liability.
Planning for the old age when the ability to earn diminishes while the expenses to live a dignified and healthy life start rising is of utmost importance.
This document provides an overview of immediate fixed income annuities as a way to guarantee an income for life after retirement. It discusses factors to consider such as life expectancy, how long savings may last in retirement, income annuity payout options, taxation of annuity income, and things to evaluate when purchasing a fixed income annuity like fees and the financial strength of the insurance company.
Wealthsurance growth insurance plan sp policy document_0Tej vardhan
This document defines terms related to the IDBI Federal Wealthsurance Growth Insurance Plan SP. It defines terms like allocation of units, child policy, date of discontinuance, discontinuance, discontinuance policy fund, free-look period, fund value, insured person, lock-in period, maturity date, operation of the investment account, policy document, policy, policy owner, policy month/year, premium paying frequency, premium payment term, proceeds of the discontinued policy, redeeming units, schedule, sum assured, sum at risk, the company, and you. It also summarizes the policy benefits including maturity benefit, partial withdrawals, death benefit, premiums, and available investment funds.
This document provides information about immediate fixed income annuities as a way to guarantee income for life after retirement. It discusses factors like life expectancy, the risks of outliving savings, and how annuities provide guaranteed lifetime income through payout options like life only or joint-survivor. The document also covers taxation implications and factors to consider when evaluating different annuity products and insurance companies.
The document discusses the valuation of pension liabilities and proposes an alternative accrual rate method. It argues that:
1) Current market-consistent discount rate methods can introduce large errors in liability valuations compared to the implicit accrual rates in contribution and benefit promises.
2) Pension liabilities should be valued based on accumulated contributions plus accrued interest, similar to insolvency procedures, rather than discounted projected benefits.
3) This accrual rate method provides a more objective, accurate and time-consistent valuation that better reflects the original commitments made.
Indexed universal life insurance policies from Aviva combine the features of traditional universal life insurance with the potential to earn interest based on the performance of a stock market index. The policies provide life insurance protection, potential for cash value growth, and flexibility. Premium payments are initially placed in a basic interest strategy and then may be allocated to indexed strategies where interest is credited based on the movement of a stock market index, subject to participation rates and caps. This limits downside risk while allowing upside potential.
Description of key fixed index annuity benefits, including annual point to point, guaranteed living withdrawal benefits, tax deferral, lifetime income, portfolio optimization, principal protection, social security, fixed annuity, inflation protection, retirement plans, liquidity.
Regular reviews of life insurance policies are recommended to ensure they continue meeting clients' needs and goals as circumstances change. Common issues found include policies with lower-than-expected returns, smokers still classified as such after quitting, and large outstanding policy loans. A policy evaluation process examines current needs and policies, identifies issues, and recommends potential solutions like policy improvements or alternative options.
Similar to Feb 2012 Fiduciary Considerations For Insured Retirement Income[1] (20)
ERISA Retirement Service Providers November 2012fredreish
This newsletter provides information for service providers to ERISA-governed retirement plans. It focuses on recent legal issues impacting these service providers. Now that service providers have disclosed their services, status, and compensation to plan sponsors, as required under 408(b)(2), plan sponsors must review and evaluate these disclosures. However, many sponsors lack the expertise to properly do this. As a result, service providers will need to help their sponsor clients with this process. Additionally, the Department of Labor recently issued guidance on disclosure requirements for investments made through brokerage windows but then retreated from this position due to criticism. While the guidance was revised, the issue is not fully resolved and plans/providers should consider why the DOL pursued
August 2012 Just Out Of Reish Plan Sponsorfredreish
1) Past 401(k) litigation has involved company stock cases where large losses occurred and revenue sharing cases where excessive fees were paid from mutual funds.
2) Future litigation risks include unfair allocation of plan expenses among participants and fiduciaries failing to properly evaluate and make prudent decisions about revenue sharing amounts.
3) Litigation risks increase when money is moving between parties without clear disclosure and oversight by fiduciaries.
The document discusses how the definition of a successful 401(k) plan is evolving from measuring features and participation rates to measuring whether the plan will generate adequate lifetime retirement income for participants. It recommends that plans provide gap analysis to help participants determine if they are on track to have sufficient retirement savings. It also suggests plans offer investments and services like annuities that can help participants convert their savings into reliable retirement income to last 30 years or more. The new measure of a plan's success will be whether it produces benefits participants can live on rather than just the size of their account balances.
The document discusses using qualified default investment alternatives (QDIAs) to improve 401(k) participant investment returns. When plans switch providers, moving participants' investments into a QDIA rather than directly mapping them can provide fiduciary protections for sponsors and better outcomes for participants. Data from one large recordkeeper showed that around 80% of assets remained in QDIAs 18 months after conversion, indicating QDIAs can successfully improve long-term investing for most participants in a protected manner.
The aging of the American workforce will have significant implications for employers and employees. People are living longer, with some estimates that over 600,000 Americans will be over 100 years old by 2050. There is now a 31% chance that at least one spouse in a married couple will live past 95 if they retire at 65. This means employees may need to plan for 30 years of retirement. However, retiring at 65 is very expensive to fund for most people. As a result, 70 or 72 is becoming the new standard retirement age. This aging trend presents challenges for employers to support longer working and retirement periods.
ERISA For Retirement Service Providers[1]fredreish
The newsletter provides information for ERISA retirement plan service providers on recent legal issues. Upcoming, Fred Reish and Bradford Campbell will discuss developments in Washington D.C. regarding mandated participant disclosures and lawsuits about indirect payments to service providers. The articles discuss issues like whether service providers need to offset indirect compensation against direct compensation due to new disclosure rules, and specific guidance from the DOL on disclosing asset allocation models and handling "float" income.
DBR July 2012 Erisa Service Provider Disclosuresfredreish
The document discusses the steps that plan sponsors must take to comply with ERISA Service Provider Disclosure requirements. Plan sponsors must identify all covered service providers, determine what information should have been disclosed, and evaluate any disclosures received to ensure they are complete and the arrangements are reasonable. If disclosures are incomplete, plan sponsors must request missing information and potentially terminate arrangements if information is not provided. The evaluation of arrangements and compensation must consider all sources of compensation and whether conflicts of interest could harm participants.
DBR May 2012 The Final408(B)(2)Regulation[1]fredreish
The final 408(b)(2) regulation requires detailed disclosures from investment managers providing covered services to ERISA retirement plans. Covered services include investment management services directly to ERISA plans, services to Plan Asset Vehicles, and services by registered investment advisors. The disclosures must provide information on services, direct and indirect compensation, fiduciary status, and registration status. Failure to comply could result in excise taxes, refunding compensation plus interest, and penalties. The regulation also requires additional investment information disclosures for investments designated as participant-directed investment alternatives in 401(k) plans. Responsible plan fiduciaries must terminate contracts if required information is not provided regarding future services after a 90 day period.
Feb 2012 Fiduciary Considerations For Insured Retirement Income[1]
1. Article
Fiduciary Considerations for Insured
Retirement Income Products: Focus
on Guaranteed Withdrawal Benefits
By Fred Reish and Bruce Ashton
In light of the shift in the last several decades from defined benefit pension plans to
defined contribution plans – particularly employee-funded, participant-directed 401(k)
plans – there is increasing concern about whether employees will be able to live on their
401(k) savings in retirement. That is, will they have enough money when they retire? And
will they withdraw it in a way that won’t exhaust their funds before they die? This paper
discusses important fiduciary considerations for evaluating insured retirement income
products. It focuses on a new generation of insurance products designed to address
these concerns…guaranteed minimum withdrawal benefit features, or GMWBs, but the
principles apply to any products with insured guarantees, including deferred annuities
and guaranteed minimum income products.
Research has shown that, if retired participants withdraw more that 4 percent or 5
percent, inflation adjusted, of their account balance per year, there is a significant
possibility that many will run out of money during retirement.1 Based on this – and the
lack of widespread acceptance of traditional annuity products – the 401(k) community
and the investment and insurance industries have been working to develop other
“solutions” – guaranteed withdrawal programs – that will ensure retired participants that
their money will last for their lifetimes.
The new GMWB products consist of an investment option – typically, a balanced fund
(e.g., a lifestyle fund) or a target date fund – together with a guaranteed minimum
withdrawal benefit. A GMWB guarantees a specified level of benefits for life if a covered
participant exhausts his retirement savings. The participant retains control over the
principal, i.e., his account balance in the plan or IRA (so long as it is invested in one
of several approved funds, e.g., target date or balanced funds). A participant pays
a premium to the insurance company from his account; and, so long as he takes
distributions out of his account in accordance with a set schedule (usually, for a retiree
at age 65, 5 percent of his “benefit base” – defined below – each year2), the insurance
company agrees to pay the participant a guaranteed benefit in retirement if his account is
1
William P. Bengen, Determining Withdrawal Rates Using Historical Data Journal of Financial Planning, October
1994, pp. 14-24.
2
For participants who begin taking distributions at an older age, the percentage of the benefit base they may
withdraw will be higher.
Employee Benefits & Executive Compensation Practice Group www.drinkerbiddle.com
2. Fiduciary Considerations for Insured Retirement Income Products
depleted during his lifetime. If the funds do not run out, at death the remaining value of
the investments can be left to the participant’s beneficiary.
The primary purpose of a GMWB feature is to provide participants with a minimum
guaranteed income for their lives (or jointly with the life of the spouse), regardless of
fluctuations in the market value of their accounts, and regardless of how long they live,
provided they observe the feature’s requirements.
The decision to offer an investment with a GMWB feature in a 401(k) plan is a fiduciary
one. Not all GMWBs are the same. For this reason, before offering GMWBs, fiduciaries
should engage in a prudent process to assess whether to offer such a feature and if so,
which one to offer.
This paper discusses the legal standards governing a fiduciary’s decision to offer a
GMWB, particularly in choosing the insurance carrier that offers the feature. It provides
fiduciaries with a starting point for that process. Before discussing these issues, we
describe the typical characteristics of the GMWBs currently available in the marketplace.
Typical Features of a GMWB
The following are the typical elements of the GMWB feature:
>> The feature is generally tied to specified investment options offered by the
401(k) plan, generally a target date fund or a balanced investment portfolio,
such as a conservative, moderate or growth lifestyle fund. These portfolio-type
investments are used because they enable the insurance company to evaluate
and manage the risks they are insuring. In addition, the participants will be
investing in a manner contemplated under ERISA’s fiduciary rules, for example,
consistent with generally accepted investment principles, such as modern
portfolio theory.
The benefit base is the participant’s highest account balance, which can be increased
by employee and employer contributions and investment earnings. (The benefit base
is typically reset on a participant’s anniversary or birthday. However, the benefit base
is never reduced so long as the GMWB requirements are followed.) Further, it is not
reduced by distributions to the participant in retirement so long as he does not, for
example, take more than a specified percentage of the benefit base each year (at age 65,
it is usually 5 percent, if predicated on the participant’s life, or 4½ percent in the case of
a joint and survivor guarantee with a spouse). Thus, the base amount can go up, but not
down, except for excess retirement distributions, loans and transfers to other investment
options.3
>> The participant is charged an annual fee – or premium – for this feature, which
typically ranges from 50 basis points per year (0.50 percent) to 100 basis points
(1.00 percent) and is in addition to the management fees for the investment.
(The differences in the fees are typically related to the terms and conditions
of the guarantees, that is, the higher premiums usually equate to some
improvement in terms or coverage.)
3
For ease of discussion, we assume that the participant using GMWB has invested 100 percent of his plan account
balance in the specified investment, though this is not required. Unless otherwise stated, we also assume that
the participant retires and the distributions are post-retirement. We also use “account” to refer to both a partici-
pant’s 401(k) account and a retiree’s rollover IRA.
Employee Benefits & Executive Compensation Practice Group www.drinkerbiddle.com 2
3. Fiduciary Considerations for Insured Retirement Income Products
>> In exchange for the premium, the insurance company agrees to pay the
participant a benefit equal to a set percentage (e.g., 5 percent) of the benefit
base (or “high water mark”) if the funds in the participant’s account are
exhausted during retirement. If the participant’s account is never depleted,
the insurance company is not called on to pay the guaranteed amount. And,
if the participant dies before the account is exhausted, his remaining account
balance goes to his beneficiary. However, the GMWB does not guarantee that the
participant’s account value will not be depleted; instead, it guarantees payments
for life if the account balance is depleted.
>> The payment of the premium continues for the duration of the guarantee, that
is, until and unless the account is exhausted and, therefore, until the guaranteed
payments commence.
>> Beginning at retirement, a participant who elected GMWB coverage may withdraw
from his account (which must continue to hold one of the specified eligible
investment options) more than the set distribution amount (e.g., more than
the 5 percent per year for a participant who retires at 65), up to and including
the entire balance in the investment. However, withdrawals in excess of the set
amounts will reduce the benefit base and thus the guaranteed amount and result
in reduced guaranteed payments by the insurance company. (Note that there
is, in most products, an exception if the withdrawals are due to the minimum
required distribution rules).
Evaluating GMWBs
General Fiduciary Standards
Whether to offer GMWBs or similar products to retirement plan participants is a fiduciary
decision. As with any investment or product to be offered to plan participants, 401(k)
plan sponsors (or the fiduciaries responsible for administering the plan) must engage in
a prudent decision-making process. Should the plan offer a GMWB? If so, which one? And
which carrier should be selected and how should it be evaluated? After making the initial
decision, and as time goes by, the fiduciaries must periodically re valuate (or monitor)
e
the decision to make sure it continues to be valid.
These decisions are governed by the fiduciary standards of ERISA, including the prudent
man rule, which requires that fiduciaries engage in a prudent process to make decisions.
In addition, a fiduciary must discharge his duties solely in the interest of the participants
and for the exclusive purpose of providing benefits.4 These are referred to as the duty of
loyalty and the exclusive purpose requirement.
The fiduciary duties and steps discussed in this Paper with respect to the selection of a
GMWB are the same standards that apply to any fiduciary decisions, such as the selection
of service providers or investments. Though the selection of a GMWB may involve slightly
different issues, the process that fiduciary should use, the steps they should take and the
ultimate decision they make are not subject to any higher standards than those to which
fiduciaries are already held.
4
ERISA §404(a).
Employee Benefits & Executive Compensation Practice Group www.drinkerbiddle.com 3
4. Fiduciary Considerations for Insured Retirement Income Products
In carrying out these duties, fiduciaries must act carefully, skillfully and diligently, in the
way a knowledgeable person (about these types of products, i.e., GMWBs and these types
of providers, i.e., insurance companies) would act in operating a similar enterprise (i.e., a
participant-funded and participant-directed retirement plan), taking into account changing
circumstances as they evolve.5 The focus of this “prudent man” or “knowledgeable
person” standard is on conduct rather than results – what process did the fiduciary follow
in making decisions?
The Department of Labor (DOL) has described a number of steps in this “prudent
process”:
(1) fiduciaries must determine what information they know or should know is
relevant to the decision;
(2) they must obtain the information needed to make the decision through data
gathering;
(3) they must evaluate the information; and
(4) they must make a decision based on the information that has been gathered and
analyzed.6
A proper investigation of the issues is the first part of the duty, and results in the
fiduciaries being informed.7 This in turn makes possible the second part of the duty,
which is to make a prudent decision that has a reasonable connection to the relevant
information discovered through the investigation.8 Stated slightly differently, the output
of the prudent process is the making of an “informed and reasoned” decision.
By stating that a fiduciary must act prudently “under the circumstances then prevailing,”
ERISA requires a fiduciary to initially consider current conditions (but not to have a crystal
ball about the future) and then to revisit his decision periodically, as circumstances
change, to ensure that it continues to be a prudent decision. This latter obligation is
referred to as the duty to monitor, which must be carried out using the same process as
the initial decision.
Considerations for Evaluation GMWBs
What are the relevant considerations in deciding whether to offer a GMWB and, if so,
which one? Among the relevant factors are:
>> The current financial strength of the insurance company offering the feature;
that is, at the time the decision to offer the GMWB is made, is there a reasonable
basis to believe that the insurance company will be financially able to make all
future guaranteed payments if it is required to do so?9
>> The premium cost of the GMWB and the fees and expenses of the underlying
investment option to which the feature is attached;10
5
ERISA §404(a)(1)(B).
6
ERISA Regulation §2550.404a-1.
7
See, generally, Riley v. Murdock, 890 F.Supp. 444, 458 (E.D.N.C. 1995).
8
Fink v. National Savings and Trust Company, 772 F.2d 951, 962 (DC Cir 1984).
9
See, e.g., ERISA Regulation §2550.404a-4(b)(4).
10
Id. at subsection (b)(3).
Employee Benefits & Executive Compensation Practice Group www.drinkerbiddle.com 4
5. Fiduciary Considerations for Insured Retirement Income Products
>> The features of the product generally;
>> The portability of the feature – that is, portability by a participant to a different
401(k) plan if he changes jobs, the ability to continue the feature if the
>> participant’s benefit is rolled over to an IRA, and the continued availability of the
feature if the plan sponsor changes providers; and
>> The education provided by the insurance company so that participants can
understand and decide whether it is appropriate for them – particularly with
respect to the impact of withdrawals that exceed the guaranteed minimum.
A discussion of each of these considerations is beyond the scope of this Paper, but we
focus on three of them: (1) product features; (2) portability of the feature; and (3) the
financial viability of the insurance company that provides the feature.
In the Preamble to its regulation on the selection of qualified default investment
alternatives (QDIA), the DOL stated that in selecting a particular QDIA, fiduciaries must
“engage in an objective, thorough, and analytical process that involves consideration of
the quality of competing providers and investment products, as appropriate.”11 While this
relates specifically to the selection of a QDIA, the point being made can easily be applied
to the selection of a GMWB product and its provider.
1. Evaluating Product Features: The fiduciary process for selecting a GMWB
investment is substantially the same as the process a fiduciary should use
in selecting investment options offered under a plan generally. That is, after
evaluating the needs of the participants in the plan and determining that it
is appropriate to offer an investment option that includes a GMWB feature,
the fiduciary should engage in a prudent process to compare the competing
products in the marketplace; giving consideration to such issues as the
performance of the underlying investments; the age or service requirements
for the guarantee to go into effect, if any; the way in which the benefit base is
determined; the cost of the feature compared to the benefits it provides; the
materials made available by the provider to educate the participants about the
product; and the like.
The fiduciaries must also consider the cost, such as fees and commissions, of
the contract in relation to the benefits and administrative services to be provided.
The prudence requirements do not require that fiduciaries select the “cheapest”
provider. However, each provider’s costs should be considered relative to the
features, benefits and services that will be provided.
2. Portability. There are several issues regarding the “portability” of a GMWB that
fiduciaries should consider:
(i) Is the GMWB transferable if the employer switches providers?
(ii) Is the GMWB transferable to another plan or IRA, and at what cost?
11
Preamble to DOL Regulation Section 2550.404c-5, 72 Fed Reg 60452 (October 24, 2007), at 6046060461.
Employee Benefits & Executive Compensation Practice Group www.drinkerbiddle.com 5
6. Fiduciary Considerations for Insured Retirement Income Products
For the first question, a fiduciary should assess whether the feature (and
the premiums paid by participants) is lost if the fiduciary decides to change
providers.
In other words, the fiduciary should consider whether the feature is transferable
and the impact on participants if it is not. If it is transferable, then the fiduciary
should evaluate any costs that apply above and beyond the premiums already
paid.
As to the second question, fiduciaries should consider the portability of
the feature from one plan to another, that is, whether the GMWB feature is
transferable if an electing participant leaves and seeks to transfer his account
balance to his new employer’s plan or to roll over his account balance to an IRA.
Some providers allow the participant to retain the GMWB feature upon rollover to
an IRA maintained with that same insurance company.
As a general statement, the loss of a benefit or feature upon transfer to
another provider is not a per se violation of ERISA’s fiduciary responsibilities.
For example, a fiduciary may properly decide that such a transfer benefits the
participant population as a whole, even though some participants may lose a
plan feature.
3. Selecting the Carrier. The primary value of the GMWB is the insurance company’s
promise that the participant will continue to receive income for life following
his retirement, even if his account balance is depleted. In selecting a GMWB
provider, prudent fiduciaries must appropriately consider information sufficient
to assess the ability of the insurance company to make future payments if it is
required to do so. Under ERISA, this assessment is made based on information
available at the time of the decision; a fiduciary is not required to have a crystal
ball to ensure that the insurance company will be able to make the payments
many years into the future. However, the decision must be monitored along the
way, and provisions related to portability and contract termination need to be
considered in this context.
There is no direct guidance on how this decision should be made, though the
DOL addressed a similar fiduciary issue in 2008.12 Specifically, the DOL created
a safe harbor for satisfying the prudence requirement when plan fiduciaries
select an annuity provider for benefit distributions from defined contribution
plans, including participant-directed 401(k) plans. Though the regulation does
not provide an explicit safe harbor for selecting GMWB providers, since the
GMWB feature is different from a traditional annuity, the regulation nevertheless
provides guidance as to the steps that fiduciaries should take to prudently select
a GMWB provider, that is, an insurance company. As described below, the safe
harbor regulation sets out five requirements that the fiduciaries must satisfy.
The fiduciaries must engage “in an objective, thorough and analytical search for the
purpose of identifying and selecting providers.”13 As noted earlier, this is the same
standard that applies to any fiduciary decision. Even without using the safe harbor as
12
ERISA Regulation § 2550.404a-4.
13
ERISA Regulation § 2550.404a-4(b)(1).
Employee Benefits & Executive Compensation Practice Group www.drinkerbiddle.com 6
7. Fiduciary Considerations for Insured Retirement Income Products
guidance, as an initial step it makes sense for the fiduciaries to gather information
regarding GMWBs and competing providers. While GMWBs are relatively new, there
are multiple providers offering similar products.14 Gathering information about the
competing providers gives fiduciaries a starting point to consider their options. This
will help fiduciaries compare the pricing, features, financial stability, administrative
capabilities, and overall benefit of the competing providers and products.
The fiduciaries must consider information to assess the ability of the provider to make
future payments under the contract.15 In the proposed regulation on the annuity
selection safe harbor, the DOL laid out a number of factors that fiduciaries should
consider;16 and while some of this detail was not included in the final regulation17, the
factors are instructive to fiduciaries attempting to evaluate providers of GMWBs. The
items identified by the DOL were the following18:
>> The insurance company’s level of experience and financial expertise in providing
guaranties of the type being selected;
>> The insurance company’s level of capital, surplus and reserves available to make
payments under the GMWB;
>> The insurance company’s ratings by insurance rating services (reference to
ratings by appropriate rating agencies is retained in the final regulation19);
>> The structure of the contract; and
>> The availability and extent of additional protection through state guaranty
associates.
The fiduciaries must conclude, at the time they are making the decision that the
information that is reviewed is supportive of a conclusion that the insurance company
is financially able to make future payments under the contract and that the cost of
the contract is reasonable in relation to the benefits and services to be provided under
the contract.20 (Keep in mind that the initial payments, and in many cases all of the
payments, are made from the participant’s investments. The guarantee is only for those
participants whose investments are ultimately depleted, and then only for the guaranteed
amounts, e.g., 5 percent per year of the benefit base.) The fiduciaries may reach their
conclusion when the provider is selected – based on information available at that time
– though they will still need to periodically review (or monitor) the appropriateness of
the conclusion as facts and circumstances change.21 Arguably, the analysis should be
whether there is any information the fiduciaries know or should know that would suggest
the GMWB provider will not be able to make payments in the future.
If necessary, the fiduciaries could consult with an appropriate expert. The DOL makes
it clear that engaging an expert is not required.22 Rather, the fiduciaries must decide
14
Information regarding different types of insured retirement income products can be found on the IRIC website at
www.iricouncil.org.
15
ERISA Regulation § 2550.404a-4(b)(2).
16
Proposed Regulation §2550.404a-4, 72 Fed Reg. 52021 (September 12, 2007).
17
See Preamble to ERISA Regulation §2550.404a-4, 73 Fed. Reg. at 58448.
18
Proposed Regulation §2550.404a-4(c)(2)(iii), (iv), (v), (vi) and (vii), 27 Fed. Reg. at 52024-5.
19
73 Fed Reg. 58448 (Preamble to ERISA Regulation § 2550.404a-4).
20
ERISA Regulation § 2550.404a-4(b)(4).
21
ERISA Regulation § 2550.404a-4(c).
22
ERISA Regulation § 2550.404a-4(b)(5).
Employee Benefits & Executive Compensation Practice Group www.drinkerbiddle.com 7
8. Fiduciary Considerations for Insured Retirement Income Products
whether and to what extent they need assistance in considering and evaluating the GMWB
providers. While seeking advice from a consultant should help demonstrate prudence
when selecting a GMWB provider, it is not a complete absolution of fiduciary duties. The
fiduciaries must still review and consider the expert’s recommendations.
The prudence standard sets a high bar, but it does not require fiduciaries to predict
the future.23 Rather, the law requires that fiduciaries engage in a careful and thoughtful
process to consider the relevant information and make an informed decision based on
that information. Though the safe harbor selection process for annuities does not apply
to GMWBs, if fiduciaries follow an equivalent process in selecting a GMWB provider, they
should have a high degree of confidence they have satisfied their fiduciary duties.
Conclusion
Guaranteed retirement income solutions provide potentially valuable benefits for 401(k)
plan participants, and GMWBs are an innovative response to concerns about traditional
annuity-type approaches. By guaranteeing a benefit base, GMWBs provide protection
against investment losses and a safety net of a guaranteed distribution in case the
participant’s own retirement funds are depleted. Nevertheless, as with any investment or
product offered to plan participants, fiduciaries must be careful to engage in a prudent,
thoughtful process of gathering relevant information, assessing that information and
making an informed, reasoned decision both about whether to offer GMWBs to their
participants and about which of the GMWB products on the market to offer.
23
See Bunch v. W.R. Grace & Co., 555 F.3d 1, 7 (1st Cir. 2009).
Fiduciary Considerations for Insured Retirement Income Products: Focus on Guaranteed
Withdrawal Benefits was originally published with the IRIC in Feb. 2011.
Employee Benefits & Executive Compensation Practice Group www.drinkerbiddle.com 8