See Theresa Ghillarducci (TG), the market doesn't need you. I last referred to TG on 23 December 2008, link: http://skepticaltexascpa.blogspot.com/2008/12/ben-franklin-3.html. please note. Guarantees? Locked in gains? Whatever these things will be, they will look a lot like equity-indexed annuities, my 2 January 2009 post: http://skepticaltexascpa.blogspot.com/2009/01/with-little-help-from-my-friends-2.html.
Friday, May 22, 2009
Saving Sergeant 401(K)
"If ever there were a product whose time has come, this would seem to be it: a guarantee that you won't lose the money you've amassed in your 401(k) as you near retirement, no matter what happens with the market. And you can convert that money into a stream of paychecks that will last your entire life. ... For one thing, insurers can't promise too much, or they risk damaging their own financial health. ... And that highlights a big irony. Last year's market slide showed that there's a great need for guaranteed 401(k) products. But it also showed the vulnerability of the insurers who craft these offerings. And it raised questions about how well insurers understand the risk of dealing with complex financial instruments--such as the ones used to guarantee investments. ... Before the market's slide, 'we would talk to plan sponsors, and the conversation was around when and why' to launch these guarantees, [Vivek Agrawal, a McKinsey partner, said]. Today, 'the case for guarantees is clear, but the big question now is, 'Whose guarantee can I count on?' ... Interest in these plans is growing. ... Manulife Financial Corp.'s ... plan promises to protect the amount participants invest--the 'benefit base'--in eight designated stock-and-bond funds. Once a year, on the participant's anniversary date, if the market value of the fund investment with the guarantee is higher than the benefit base, the benefit base is increased to equal the market value, locking in the gains. ... Workers can start withdrawing 5% of the base annually as early as ago 59 1/2, provided they had the guarantee in place for at least five years. The plan charges 0.35% of the account value annually, on top of investment-management fees of 1.01% to 1.3%. ... Before [Manulife] offers it to its existing 401(k) base of 43,000 plans, [Edward Eng of Manulife] says, 'we want to ensure the underlying business assumptions are borne out through real-life experience.' ... The guarantees use financial derivatives to bet against stock-market indexes. The idea is that when the market falls, the hedges gain in market value--and thus protect participants' assets.", my emphasis, Leslie Scism at the WSJ, 4 May 2009.