AXA Equitable Life Insurance Company recently introduced the Structured Investment Option (SIO) for its EQUI-VEST series of variable deferred annuities available to employer-sponsored retirement plans.
The SIO offers plan participants the growth potential of the equity markets tied to the S&P 500 up to a cap, with downside protection against market losses. AXA Equitable is the first company in the industry to offer this type of investment option in a variable annuity product used to fund 403(b) and 457(b) retirement savings plans.
“The greatest source of individual retirement income for many Americans will likely come from their employers’ retirement benefit plans,” said Mark Scalercio, senior vice president and head of AXA Equitable’s Employer Sponsored division. “We’re very pleased to be the first company to offer plan participants equity growth potential and a certain amount of protection in a variable annuity investment option.”
Plan participants can invest in one or more investment segments with the SIO. Each segment provides a rate of return tied to the performance of the S&P 500 Price Return Index. If the Index goes up over the course of a segment’s investment period, a participant’s value in that segment will earn the same rate of return as the Index, up to a specified maximum rate of return called the Performance Cap Rate. The Performance Cap Rate is the maximum rate of return for the segment once it is established. AXA Equitable sets the Performance Cap Rate on the segment start date. If the Index goes down during a segment’s investment period, a segment buffer absorbs the first 10 percent of participant losses for a segment held till maturity. The buffer eliminates for the participant the negative impact of market volatility up to the first 10 percent of loss in Index value.
A major benefit of the SIO is flexibility. Participants can invest in segments through payroll contributions; transfers of amounts they have in other EQUI-VEST investment options; and rollovers and direct transfer contributions to their EQUI-VEST accounts. Participants can also choose to allocate 100 percent of their account value to the SIO.
“Our research last year found that 6 in 10 consumers polled believe equities were necessary to achieve retirement goals, but fewer than 2 in 10 felt confident in their ability to successfully invest in equities,” Scalercio said. “The SIO’s segment buffer and cap help plan participants mitigate this concern by safeguarding a portion of their investments in their EQUI-VEST account in down markets.”
Using the SIO, participants decide how much to allocate to an investment segment. Each segment has a $1,000 minimum investment requirement. Amounts designated for a segment are initially placed in a Segment Holding Account until a segment is established. Each segment has a specific start date and maturity date.
Amounts in a Segment Holding Account are transferred into a segment on the segment start date. AXA Equitable establishes a new segment each month. The Performance Cap Rates change from segment to segment, but are set on the segment start date and stay the same until the segment maturity date. Participants can choose a Performance Cap Threshold that a segment must meet or exceed before their funds are transferred into that segment. AXA Equitable provides online tools so participants can monitor the Performance Cap Rates. Generally, a segment matures at the end of a one-year period. A segment’s rate of return is applied on its segment maturity date. Once a segment matures, participants have the flexibility to re-allocate the maturity value of the segment to a new segment or transfer their gains to other investment options available within EQUI-VEST, depending on their needs and objectives.
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