Choosing a lifetime income provider

This process may help keep you within fiduciary guidelines when choosing an in-plan guaranteed lifetime income provider. 

Adding in-plan guarantee options

To address retiree financial risks, some plan sponsors are offering in-plan lifetime income solutions as part of their defined contribution investment lineup. There are many options, but one that incorporates a guarantee of lifetime income, participation in investment gains while providing downside protection, and withdrawal flexibility is an annuity with a guaranteed withdrawal benefit (GWB).

Three steps for choosing a provider

Plan fiduciaries must engage in a “prudent process” to select the GWB and to choose the insurance company that is providing the guarantee. While a plan’s decision-makers (the fiduciaries, and perhaps a plan committee) may not be familiar with evaluating insurance companies, they can take comfort in knowing that the fiduciary responsibility isn’t to select the “best” insurance company, but instead it’s to engage in a prudent process. The steps in that process are defined as follows:

  • Determine and gather the information relevant to making an informed decision
  • Evaluate that information
  • Make a reasoned decision based on the information

Since most fiduciaries are less experienced at selecting insurance companies, independent firm Drinker Biddle identified the issues and factors to consider and the sources for obtaining the information. You can ask each potential lifetime income provider for this information, and you may want to work with a consultant who can help review it.

Download Drinker Biddle’s white paper: Fiduciary Process in Evaluating In-plan Guarantees to find out more. The following chart is an excerpt from the paper. 

    

Items to be reviewed Where or how to obtain information Benchmark/parameters for what is considered prudent by fiduciaries

Financial strength of company

Fortune 500 ranking: Life & health insurance companies

Life & health insurance companies are either listed as a "stock" or a "mutual" insurance company. The information is available on Fortune.

Rankings of insurance companies are based on annual total revenue, which is defined as premium and annuity income, investment income, and capital gains or losses but excludes deposits. A history of strong and increasing revenue growth is a good indication of financial health.
A ranking should be in the top 10 for life & health insurance companies in the Fortune 500.
The 10th largest U.S.-based life & health insurance company had annual revenues of approximately $12.4 billion in 2016. This annual revenue can be used as a baseline when assessing the size of an internationally owned insurer.

Evaluating by rating agencies

Ratings from each of the rating agencies to determine the consistency (or lack of consistency) among the rating agencies.

Insurance company annual report/website; or

Individual rating agencies

www.ambest.com

www.fitchratings.com

www.moodys.com

www.standardandpoors.com
 

Acceptable ratings for financially strong companies are considered:

A.M. Best: A- or higher

Fitch Ratings: A- or higher

Moody’s: A3 or higher

Standard & Poor’s: A- or higher
 

Help make retirement income last

An in-plan option for guaranteed retirement income may help participants secure income for life. Find out how Lincoln Secured Retirement IncomeSM solutions can provide participants with lifetime income. Call our sales desk at 855-533-2170 or read more at LincolnFinancial.com/SRI.

Lincoln Secured Retirement IncomeSM solutions are offered as a group variable annuity. Amounts contributed to the annuity contract are invested in the LVIP Global Moderate Allocation Managed Risk Fund, a fund of funds with a balanced allocation. The guarantee is provided by a contract between the client/plan sponsor and Lincoln National Life Insurance Company that provides a plan participant with a guaranteed annual retirement income.

Lincoln Financial Group® affiliates, their distributors, and their respective employees, representatives, and/or insurance agents do not provide tax, accounting, or legal advice. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein.

A group variable annuity is a long-term investment product designed particularly for retirement purposes. Group annuities contain both investment and insurance components and have fees and expenses, including administrative and advisory fees. The annuity’s value fluctuates with the market value of the underlying investment option, and all assets accumulate tax-deferred. Withdrawals may carry tax consequences, including possible tax penalties.

The LVIP Global Moderate Allocation Managed Risk Fund is not guaranteed or insured by Lincoln or any other insurance company or entity, and shareholders may experience losses. The protection strategy used by this fund is separate and distinct from any annuity or insurance contract rider or features.

Investors are advised to consider carefully the investment objectives, risks, and charges and expenses of the group variable annuity and its underlying investment option before investing. The applicable variable annuity prospectus contains this and other important information about the variable annuity and its underlying investment option. Please call 888-868-2583 for a prospectus. Read it carefully before investing or sending money. Products and features are subject to state availability.

Lincoln Secured Retirement IncomeSM group variable annuity contracts (contract form AN-701 and state variations) are issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker-dealer. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so.

All contract guarantees, including those for guaranteed income or annuity payout rates, are subject to the claims-paying ability of the issuing insurance company. They are not backed by the broker-dealer or insurance agency from which this annuity is purchased or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer. There is no additional tax-deferral benefit for an annuity contract purchased in an IRA or other tax-qualified plan.

Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Affiliates are separately responsible for their own financial and contractual obligations.

This material is provided by The Lincoln National Life Insurance Company, Fort Wayne, IN, and, in New York, Lincoln Life & Annuity Company of New York, Syracuse, NY, and their applicable affiliates (collectively referred to as “Lincoln”). This material is intended for general use with the public. Lincoln does not provide investment advice, and this material is not intended to provide investment advice. Lincoln has financial interests that are served by the sale of Lincoln programs, products and services.