Variable annuity in 401k


C

chris-mead

Our company offers a Variable Annuity 401k through Citistreet
Goldtrack Express and the more I look into it the more concerned I am
as an investment vehicle. A few of my concerns include:
1. A variable annuity seems to be poor 401k investment vehicle
especially in light of the fact that the 401k should be the first
place that an employee places their investment dollars. What would be
the benefit in wrapping a variable annuity in a 401k?
2. Citistreet provides limited information about fund options at best.
Many of the fund options don't seem to correlate to actual traded
funds???
3. Requests for specific information about fund options and fund
expenses have not been fulfilled causing me to be more suspicious and,
more determined to find out more about where my invested dollar in
going.
4. Fee's, fee's, fee's: Citistreet charges a whopping 1.30% "Mortality
and Expense Risk Charge" on top of all variable annuity fund's
management and fund expenses. Then there is the back-end sales load
"surrender charge" up to 5% but this concerns me less as it is a 401K
and funds invested shouldn't be withdrawn.

Any insight or input is greatly appreciated.
 
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G

Gene E. Utterback, EA

Our company offers a Variable Annuity 401k through Citistreet
Goldtrack Express and the more I look into it the more concerned I am
as an investment vehicle. A few of my concerns include:
1. A variable annuity seems to be poor 401k investment vehicle
especially in light of the fact that the 401k should be the first
place that an employee places their investment dollars. What would be
the benefit in wrapping a variable annuity in a 401k?
2. Citistreet provides limited information about fund options at best.
Many of the fund options don't seem to correlate to actual traded
funds???
3. Requests for specific information about fund options and fund
expenses have not been fulfilled causing me to be more suspicious and,
more determined to find out more about where my invested dollar in
going.
4. Fee's, fee's, fee's: Citistreet charges a whopping 1.30% "Mortality
and Expense Risk Charge" on top of all variable annuity fund's
management and fund expenses. Then there is the back-end sales load
"surrender charge" up to 5% but this concerns me less as it is a 401K
and funds invested shouldn't be withdrawn.

Any insight or input is greatly appreciated.
VAs, like every investment option, aren't for everybody. One of the
benefits available in an annuity is the ability to effectively insure the
annuity against certain foreseeable circumstances, this isn't available in
straight mutual funds. There are several annuities that provide a death
benefit equal to your contributions, adjusted for withdrawals, regardless of
the contract's actual value. So if you've put $100K in that particular
annuity and then happen to die when the market is down substantially, your
beneficiary will get back at least the $100K (and sometimes more) even
though the contract value may be substantially less.

Some annuities offer the ability to lock in returns at high water marks
periodically over the life of the contract for either death or annuity
purposes. Again, assume you put in $100K and the market "rollercoasters"
for few years, causing your account to hit a high mark of $300K last year
but now your contract value is $150K - $50K more than you put in, but $150K
less than the highest point. If you die, your beneficiary could get the
$300K - and maybe more depending on the contract. And if you live and
wanted to retire there are contracts that will guarantee you that you can
withdraw at least the $300K, though they will limit the rate at which you
can withdraw it. Or you could take the $150K and run if you wanted to.

I'm not aware of a mutual fund that offers either of these options. Of
course, these options aren't free, there are charges and fees associated
with them and they vary from company to company, contract to contract
depending on which riders you want.

I can't (won't) address Citistreet in this forum, I'm simply not familiar
with their product. However, they should be able to give you all the
information you could ever want on their fees and investment options. Keep
in mind that annuity contracts don't really hold mutual funds, instead they
have subaccounts. This may seem like a matter of vocabulary words, and it
may be, but from a disclosure perspective there is a difference. Many
annuity companies use subaccounts that virtually mirror established mutual
funds. Though for practical reasons every annuity company I'm familiar with
limits the subaccounts available within that company and most annuity
companies offer Lifestyle Portfolios that equate to "fund of fund" holdings.

Good luck,
Gene E. Utterback, EA
 
H

HW \Skip\ Weldon

I can't (won't) address Citistreet in this forum, I'm simply not familiar
with their product. However, they should be able to give you all the
information you could ever want on their fees and investment options. Keep
in mind that annuity contracts don't really hold mutual funds, instead they
have subaccounts. This may seem like a matter of vocabulary words, and it
may be, but from a disclosure perspective there is a difference. Many
annuity companies use subaccounts that virtually mirror established mutual
funds.
CitiStreet is one of the largest managers of tax-deferred accounts -
in fact I've seen a statement somewhere that they are THE largest
(though I have no stats.) They are Custodian for our State's 401k and
457 Deferred Comp plan - the largest in our State. And they do a good
job. Their people are well-trained and professional, and they offer
participants both toll-free access and internet access to their
accounts.

I haven't seen their annuity offering, but as Gene says, annuity
accounts are not mutual funds - however they are similar. If you
would give us a few account names, we might be able to help further.

And they certainly will give you prospectus type info - charges,
penalties, etc. Just do a google search on CitiStreet funds, dig up a
toll-free number, and call them.

-HW "Skip" Weldon
Columbia, SC
 
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B

Brent D. Gardner, ChFC

Our company offers a Variable Annuity 401k through Citistreet
Goldtrack Express and the more I look into it the more concerned I am
as an investment vehicle. A few of my concerns include:
1. A variable annuity seems to be poor 401k investment vehicle
especially in light of the fact that the 401k should be the first
place that an employee places their investment dollars. What would be
the benefit in wrapping a variable annuity in a 401k?
2. Citistreet provides limited information about fund options at best.
Many of the fund options don't seem to correlate to actual traded
funds???
3. Requests for specific information about fund options and fund
expenses have not been fulfilled causing me to be more suspicious and,
more determined to find out more about where my invested dollar in
going.
4. Fee's, fee's, fee's: Citistreet charges a whopping 1.30% "Mortality
and Expense Risk Charge" on top of all variable annuity fund's
management and fund expenses. Then there is the back-end sales load
"surrender charge" up to 5% but this concerns me less as it is a 401K
and funds invested shouldn't be withdrawn.
The majority of qualified plans are funded with annuities, in this case,
most likely a Group Variable Annuity (GVA). They generally aren't the same
thing as a single life product available retail.

Advantages that insurance company contracts offer, individual or group, that
one can't get elsewhere:

1. Fixed Accounts
2. Death Benefits
3. Living Benefits
4. Lifetime Income (Annuitization)

Generally, a GVA does not have the same level of M&E expense as an
individual contract, because of the law of large numbers and reduced risk.
If your qualified plan is using individual contracts, that is not the norm.
Also, a Contingent Deferred Sales Charge (CDSC) is generally imposed ONLY
when the ENTIRE GVA is surrendered. Plan participants that roll out are not
subject to a CDSC.

Their are only two obvious reasons to use individual contracts to fund a
qualified plan:

1. Anticipated plan contributions are lower than the minimum for a start up
with a GVA (often $25,000, but sometimes more), or
2. Owners/Executives value the unique benefits of a particular individual
contract and selected it instead of a GVA.

How many eligible employee participants are there in your group?

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.
 

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