Income Protection for 401(k) Plans

Text Size: A A A

Among the casualties of the recent economic crisis are the large numbers of employees, on the verge of retiring, who suddenly find their savings dramatically depleted and their dreams of a secure retirement dissolving. Even if these employees had saved for the future and diversified their retirement plan investments–i.e., even if they had “done the right thing” for their future–they may still need to defer retirement, work part-time, or dramatically alter their living and spending habits.

We in the financial services industry owe employees something better: we owe them a chance to protect their retirement income. Specifically, insurance companies–like AXA Equitable–can partner with plan sponsors to offer employees the opportunity to receive guaranteed income in retirement, a choice they can make before they are at retirement’s threshold.

Like the insurance that plan sponsors make available to participants to protect their other critical assets, (e.g. life insurance, health insurance, disability insurance or even home and car insurance) the idea behind “in-plan guarantees”, is to provide protection specifically for 401(k) plan assets in the form of a steady income stream in retirement.

What are the benefits of an in-plan guarantee?

There are various ways to structure an in-plan guarantee. AXA Equitable’s proposed approach is to partner with a sponsor to develop a customized strategy that meets the unique objectives of the sponsor’s retirement program. Key benefits of this customized offering would include:

Retirement income predictability that begins years before retirement
A guaranteed minimum level of income for life
Upside income potential through equity-based investments
Upon participant’s death, availability of any remaining account value as a lump-sum for the beneficiary

Why are sponsors considering in-plan guarantees?

To reframe the defined contribution plan as a retirement income vehicle
To support the sponsor’s commitment to employee retirement income protection
To reinforce successful retirement spending habits
To help mitigate the unintended influence of the retirement plan on workforce management
To help attract and retain talent through an enhanced benefit offering

The proposed "in-plan guarantee" concept would include an annuity. Annuities are long-term financial products designed for retirement purposes. In essence, annuities are contractual agreements in which payment(s) are made to an insurance company, which agrees to pay out an income or a lump sum amount at a later date. There are contract limitations and fees and charges associated with annuities, which can include, but are not limited to, mortality and expense risk charges, sales and withdrawal charges, administrative fees, and charges for optional benefits.

Amounts in equity-based investments are subject to fluctuation in value and market risk, including loss of principal.

Guarantees would be based on the claims-paying ability of AXA Equitable Life Insurance Company.

Annuity products are issued by AXA Equitable Life Insurance Company (NY,NY) and securities are offered through affiliate AXA Advisors, LLC (member SIPC).

GE-45945 (6/09)

Contact Us