You receive the same protection against market downturns and the same 5% of your account balance as long as you live, with the caveat that you be enrolled in the product at least five years before you collect income, and that during that period you pay 35 basis points, or 0.35% of your plan assets each year. (For $100,000, 35 basis points is $350.)
Many 401(k) plan participants will likely consider guaranteed income a good tradeoff, says Ron Bartlett, a financial advisor with Bartlett Financial in Lexington, S.C., which handles trades through broker/dealer LPL Financial.
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“If we could go back to last November and put all participants’ money into a strategy guaranteeing them 5% for the rest of their lives, I’d say 95% would want to do it right now,” says Bartlett. “This one employer I had in today was really excited [about the Prudential plan] and not so excited when I told him about it last summer.”
Now, he says, “Employees are wringing their hands over the loss of principal in their accounts,” and many may have to delay retirement due to the continued stock market declines.
“Okay, so there’s a little fee," he says of these guaranteed features. "You give up some percent of upside growth in return for peace of mind."
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