GEs IVA Solves For End Game Need

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GE Financial, Richmond, Va., is marketing an income annuity that was structured from the buyers point of view–and, in particular, the viewpoint of Matthew Sharpe.

The senior vice president of GEs retirement services group, Sharpe says his retirement planning needs became the spark he needed to push for the new annuity. Now, GE is betting other people in Sharpes situation will appreciate the result.

The “result,” in this case, is the GE Retirement Answer, a deferred variable annuity that automatically converts to a lifetime income VA. The lifetime IVA guarantees a minimum monthly income but also offers the opportunity for higher payouts, if the subaccount performance is strong.

Owners must meet certain conditions to get the income floor with upside potential, Sharpe notes. If they dont, the income benefit will fluctuate, as do more traditional IVA payouts.

But if they do, they know the guaranteed minimum income payments shown at policy issue will be there no matter what the market does. Their payments may go up, he says, but they cant drop below the guaranteed minimum.

Thats important, he says, because GE research shows most consumers dont know the total amount of money they will need in retirement, but they do know how much monthly income they will probably need. So thats where their planning starts.

The new VA “solves for the defined benefit part of their problem,” he says, “and it offers upside potential, too.”

It also solves for a problem Sharpe himself has been confronting. This has to do with retirement planning in an environment that favors multi-employer career paths.

As he puts it, “Ive only been at GE three years, so Im not yet vested in GEs defined benefit pension plan.” And, due to current employment trends, he says, no one today knows whether they will be at a company long enough to be vested. Thats a problem, he adds, because he would like to have a defined benefit plan, too.

As leader of the GE team developing the new VA, he says he put that frustration to work. “My wish was to be able to buy the GE plan on my own,” he recalls. “I wanted the guarantees and any excess returns generated by GE for the plans.”

When the team looked at research, he continues, it found many consumers feel the same way. That prompted the team to design the GE Retirement Answer along those lines.

Heres how it works: Underwritten by GE Life & Annuity, the policy lets consumers select an “income date.” This date must be at least 10 years away from time of policy inception, and it cant be changed after issue.

Next, the client works with the financial professional to decide how much to pay into the plan each month during the accumulation phase of the contract. Minimum is $100 a month. (Lump sum pre-payments are also allowed as are combinations of lump sum and monthly payments.) The client may also elect a period certain plan (of up to 50 years) and certain riders.

Once the monthly contribution and options are selected, the client learns what the guaranteed minimum income payment will be.

“Weve got this product to run as close as we could get it to a traditional pension fund,” comments Sharpe.

Example: John and Mary, both age 40, could purchase a nonqualified plan with a 25-year accumulation period, so that income begins when they turn 65. If they decide to pay $713.95 a month (or a $117,784.42 lump sum pre-payment), they will learn that their guaranteed minimum income, starting at age 65, will be $2,000 a month for the greater of joint life or 30 years.

[Note: John and Marys initial income payment may actually be higher, GE says, because the initial amount reflects performance of the total account value, life expectancy, gender, income payout method selected, and an assumed interest rate.]

The clients scheduled premium payments are invested in only one fund, the GE Investments Total Return fund, Sharpe points out. “This is an actively managed fund,” he says. “It is managed in a fashion similar to that used for a pension fund, because the policy is designed for retirement income purposes.”

The fund manager is GE Asset Management.

Frank Gencarelli, president of GEs Retirement Services Group, says once owners start taking income, the initial payout runs for 12 months. “Its reset each year thereafter at a new level for the next 12 months,” he says.

If performance ever falls below whats needed to pay the guaranteed minimum income, he says, “we still pay the minimum amount–but then well recover the difference in future years,” when performance is better. GE does not use reinsurance to back the guarantee, he notes.

Distribution is through “virtually all our channels,” says Gencarelli, noting the product has been approved in a large majority of states. It pays both front and back-end commissions.

Clients receive quarterly reports on their contributions, guaranteed benefits, etc. “We try to make this information transparent to the consumer,” Gencarelli says.

In addition, 90 days before the income date, “we will notify the client of what the actual income will be for the first 12 months.” Owners can withdraw all or part of the funds at that time with no surrender change, he points out. (Note: They can also make withdrawals before then, but these are subject to charges and they may void the income guarantee if not repaid.)

Other features: Issue ages are up to age 70. Options include riders that pay the monthly premiums in event of disability or involuntary unemployment and that pay a death benefit. Policy fees include an annualized asset-based charge of 150 basis points and a portfolio management expense charge, currently 54 basis points, deducted daily from the subaccount.

“This is an end game focused product,” concludes Sharpe. “You tell us what you want and when, and then well tell you how.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 5, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.