Products December 14, 2006

Prudential DC Feature Guarantees Lifetime Paycheck

Prudential Retirement has introduced IncomeFlex, a defined contribution plan feature that provides participants with the guarantee of lifetime income.
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According to a Prudential press release, with IncomeFlex, participants can elect to transfer all or a portion of their DC plan assets into one of five investment funds, ranging from conservative to aggressive. Each fund has a “market value’ that fluctuates with performance as the participant builds an “income base’ that provides the foundation for a guaranteed lifetime paycheck. Prudential IncomeFlex funds are separate accounts available under group variable annuity contracts issued by Prudential Retirement Insurance and Annuity Company (PRIAC).

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The feature offers a guaranteed yearly paycheck for life, even if the participant’s account balance becomes depleted.Beginning at age 50 – and continuing to the time a lifetime paycheck amount is locked in (up to age 70) – participants are guaranteed their income base will grow at an annualized minimum of 5%, the release said. Starting at age 65, participants can withdraw paychecks equal to 5% of their IncomeFlex income base, or they may elect to withdraw paychecks at age 55 equal to 4% of the income base for life. If strong market performance causes the participant’s account balance to exceed the income base, the future lifetime paycheck could increase. Participants can also opt to have their income continue for their spouse.

Participants can take advantage of yearly performance gains calculated on their birthday. The basis for the guaranteed retirement paycheck would be the highest of three possible values: the 5% guaranteed growth value based on net contributions; the highest birthday value; or the market value of the participant’s account. Participants can move out of the IncomeFlex fund at any time without withdrawal fees, the company explained.

Additionally, participants can withdraw more or less than their guaranteed amount during retirement; however, withdrawals in excess of the guaranteed amount will reduce future guaranteed withdrawal amounts. They can pass along any remaining market value in their account to their beneficiaries.

For more information, visit www.prudential.com.

Compliance December 14, 2006

Deere Workers Hit Fidelity with Excessive 401(k) Fee Suit

Four Deere&Co. workers have sued Fidelity Investments over charges it levies unreasonable fees to manage the Deere 401(k) plan.
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The suit against the Boston-based investment company charges that it assessed plan participants expenses that “were, or are, unreasonable and/or not incurred solely for the benefit of plan participants,” according to a Reuters news report. Fidelity is trustee and recordkeeper for the Deere plan.

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The plaintiffs argue that administrative fees and expenses can depress plan returns and “even seemingly small reductions in a participant’s return in one year may substantially impair his or her accumulated savings at retirement.”

According to Reuters, the suit also charges that Deere and Fidelity were involved in a revenue sharing arrangement under which Fidelity shared with the customer some of the fees. The Deere employees said they were not told about the setup.

The plaintiffs have asked a federal judge in the US District Court for the Western District of Wisconsin to certify the suit as a class action so it can also represent thousands of other participants in the farm equipment maker’s 401(k) plan.

Spokesman Vin Loporchio of Fidelity told Reuters: “We disagree with many of the factual and legal assertions in the complaint and we intend to defend against the suit vigorously.”

This suit comes about two months after a series of lawsuits were filed against large plan sponsors alleging a variety of breaches of fiduciary duties and prohibited transactions relating to fees paid by 401(k) plans; the lawsuits say such breaches occurred because the plans and participants were subjected to excessive fees and expenses (See Fee for All).

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