Anyone who owns a "guaranteed account" through their retirement plan.
What Is a Guaranteed Account?
A guaranteed account is a popular investment offering that is made available through 401(k) retirement plans and public plans like the 403(b) and 457 plans. A "guaranteed account" may also be referred to as a "fixed account," "guaranteed benefits account," "guaranteed investment account (GIA)," or "guaranteed investment contracts (GIC)." With a "guaranteed account," investors pay money in exchange for a guaranteed return on an investment.
Who Sells These Products?
Principal Financial Group, The Hartford, AXA, John Hancock, Voya, New York Life Insurance Company, MetLife, Mass Mutual and Nationwide, among others.
What's Going On?
Attorneys have reason to believe that some companies are charging excessive, secret fees in connection with these 401(k) "guaranteed accounts" that can destroy the value of an individual's retirement investment.
Allegations have surfaced that some investment companies may be charging secret, excessive fees in connection with these accounts, which, in turn, may be destroying the value of the individual’s retirement investment.
What Is a Guaranteed Account?
A “guaranteed accounts” is a type of financial product that insurance companies sell to retirement plans and other investors. A “guaranteed account” is a type of annuity contract in which investors pay money in exchange for a guaranteed return on an investment. It’s possible that this product may be included in your retirement plan – whether it’s a 401(k) through your employer or a public plan like a 403(b) or 457 plan.
These investments may also be referred to as:
Guaranteed benefits accounts
Guaranteed investment contracts (GIC)
Guaranteed investment accounts (GIA)
What’s the Problem with These Investments?
It is believed that some “guaranteed accounts” or “GICs” contain unfair provisions that help the insurance company and hurt the retirement plan investor. For instance, the product may enable the insurance company to set its own compensation. This occurs where the GIC permits the insurance company to set and change the amount of the interest rate – the guaranteed return – that is established for the benefit of the retirement plan. In such cases, the insurance company keeps for itself the “spread” between what the investment earns and what the insurance company decides to pay the plans. The “spread” that the insurance company keeps for itself is on top of the service fees the insurance company charges the plan.
In some cases, the GICs provide for a guaranteed return in an unspecified amount (such as not less than 0%). This leads to the possibility that the retirement plans can actually lose money on the investment, where the insurance company pays 0% and, in addition, pays itself service fees. The danger of this occurring is heightened in those cases in which the GIC provides that over time, if certain conditions are met, the insurance company may change the interest rate credited to the plans.
In addition, some GICs allow the insurance company to pay out less than the full value of the plan account in the event the GIC terminates. This can occur as a result of a “market value adjustment” or payment to the plans at an amount equal to the book value of the investment.