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10 ideas for reshaping VAs.

(1) Provide caregiver benefits. Principal already offers a "caregiver income benefit" on the fixed annuity in its Principal Income IRA, says Drew A. Denning, second vice president-retirement income management at Principal, Des Moines, Iowa. This feature increases the monthly payout if caregiving triggers are met. The benefit is not yet in Principal VAs, but he says it's an area to explore because "life events are real issues; people need the liquidity to pay for them."

(2) Offer lifestyle funds. Using these, whether for income or withdrawal benefits, is on the rise, says James R. McInnis, president-annuity distribution, ING, West Chester, Pa., office. The insurer offers such funds in conjunction with asset allocation. The Hartford Financial Services Group Inc., says its new Target Retirement Funds are based on a specific, target retirement date. (The company also offers a Lifetime Income Builder option with its VAs.)

(3) Tweak asset allocation. When income planning clients choose the GMWB for life option, most VAs require the client to invest in one of four or five asset allocation models. Now, Phoenix is expanding its model options to nine. (The four new models use a fund of funds approach, investing only in exchange traded funds.) VA owners who want Phoenix's GMWB rider must choose one of those options, says Timothy Pads, vice president and actuary-annuity product development at Phoenix. But now they have more choice.

(4) Reduce investment restrictions tied to the GMWB. ING says owners can choose their own investment options, as long as 20% of the money is invested in the designated fixed allocation fund. Meanwhile, both AIG/SunAmerica and Nationwide have decided not to restrict a GMWB client's investments with an allocation requirement. "It's too risky" to lock in a customer's investment options with restrictions, explains AIG's Robert Scheinerman, senior vice president-marketing, Los Angeles. This can limit exposure to equities, he says. Besides, "baby boomers are all about choice and investment flexibility." With no restrictions, the advisor is free to work with the client on investment selection in view of the overall portfolio.

(5) Allow conversions. 401(k) plan sponsors could add a VA option to their plans that ties asset allocation to a GMAB (guaranteed minimum accumulation benefit) with rollups, says Denning. This GMAB would be in place during the working years. Then, five years before a participant retires, a conversion feature could kick in, turning the GMAB into a GMWB for the retirement phase of life. "That would be like a lifetime fund with a guaranteed floor," he says, noting that Principal is "aggressively researching this."

(6) Permit quarterly lock-in on GMWB account value. ING's new LifePay living benefit lets the annuity owner lock in increases in the account value once every quarter before withdrawals begin; then, after income starts, the owner can "reset" the guaranteed income amount annually.

(7) Offer auto step-ups. AIG/SunAmerica and John Hancock, Boston, say their GMWB step-ups (lock-ins of market gains) occur automatically. Some step-ups require owners to take action to elect the stepped up value, notes AIG's Scheinerman, "but we are uncomfortable with the possibility that you could miss the step-up if you failed to call."

(8) Redesign advisor compensation. For VA annuitization and variable immediate annuities to develop, producers will need to receive trailer compensation on the money under management, maintains Scott M. Schumacher, associate vice president-product management, Nationwide Financial, Columbus, Ohio. "It's got to come," he says. Maybe there will be some sort of commuted value on the trailers, he suggests, so brokers could receive, say, 2% upfront and then 25 basis point trailers. "We need to find ways to pay the advisor for the income planning," agrees Denning of Principal. But trailers, if based on account value, will keep going down as the client continues to draw down assets, he points out. So, the new designs may allow the agent to take the compensation either up-front or over time (in which case it will be in declining amounts), he says.

(9) Push education. Advisor and client education is essential to furthering the use of VAs for income planning, say virtually all VA executives. Some firms are making this a priority. For instance, AXA Equitable requires advisors to pass a 90-miniute certification course before they can sell its Retirement Income for Life product, says Robert Goldenberg, vice president-annuity marketing and product development, New York City. "If the product is upgraded, they will have to be recertifled, too," he says.

The company also has developed a nonprofit website-www.variableannuityfacts.org-to provide public education on VAs, including the income aspects. Meanwhile, Phoenix is offering its advisors a presentation on its living benefits suite. It discusses the features, where they fit, case studies and so on, says Paris.

(10) Factor in health care costs. The use of nursing home riders and increased liquidity are tied together, says Greg B. Salsbury, executive vice president, Jackson National Life Distributors, Denver. They reflect the growing concern about funding health care costs in retirement. Subaccounts that allow for health care indices might therefore be of interest to advisors.
VA INCOME STRATEGIES

WHEN DOES THE CLIENT
WANT TO DRAW INCOME?

When   Some Options To Consider

NOW     * VA with a Guaranteed Minimum
          Withdrawal Benefit

        * Annuitize the VA

        * Purchase an income annuity, variable
          or fixed

LATER   * Purchase a deferred VA, stand alone or
          as an option in a group annuity

        * Purchase a deferred VA with a
          Guaranteed Minimum Accumulation
          Benefit

        * Purchase a deferred VA with a
          Guaranteed Minimum Income Benefit
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Title Annotation:Variable annuities
Publication:National Underwriter Life & Health
Geographic Code:1USA
Date:Apr 3, 2006
Words:908
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