Market Volatility – Information about Prudential’s Guaranteed Long Term Account
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Q. What kind of protection do I have if something happens to Prudential, or my employer? Could I get my money out?
A. In general, the money in a Qualified Retirement plan is segregated from the finances of the Plan’s recordkeeper (in this case, Prudential Retirement Insurance and Annuity Company – PRIAC) or the Plan Sponsor (ie, employer). Therefore, if something happens to either Prudential or the Plan Sponsor the participant’s account is safe from liquidation and/or debt collection.
If PRIAC’s financial condition is judged critical, applicable state law provides for the supervision and, if necessary, liquidation of the life insurance company by the insurance commissioner.
In general, policy claims (such as your account) represent one of the first significant categories of claims, ahead of general creditor and stockholder claims.
Q. Is Prudential FDIC insured? If so, for how much? If not, is Prudential insured in some other way? If so, for how much?
A. Prudential Retirement Insurance and Annuity Company (PRIAC) is the recordkeeper for your retirement plan and is not FDIC-insured.
Your Defined Benefit plan is protected by the PBGC. The PBGC, or Pension Benefit Guarantee Guaranty Corporation, is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to continue the maintenance of defined benefit pension plans after the sponsoring organization has terminated. Subject to other statutory limitations, the PBGC insurance program pays pension benefits up to the maximum guaranteed benefit set by law to participants who retire at age 65. The benefits payable to insured retirees who start their benefits at ages other than 65, or who elect survivor coverage, are adjusted to be equivalent in value.
Your Defined Contribution plan is not protected by the PBGC, but the assets that make up our defined contribution plan are subject to certain protections offered under state insurance laws.
Q. What would happen to money in my stable value (GLTA) investment option if Prudential were to go bankrupt?
A. There are various statutory safeguards that protect our customers. In fact, the best guarantee is the strong financial condition of our company.
In addition:
o The scope of state regulation is broad, extending to areas such as required levels of capital and surplus, the calculation of policy reserves, investments, sales practices, market conduct, product design and company operations. State regulators have imposed on life insurers very stringent capital requirements and close scrutiny of their liquidity management.
o Life insurance companies are also subject to rigorous audits by the state authorities to gain firsthand knowledge on their financial condition. These audits are performed "on-site," and independent accounting firms are retained to assist the state examiners.
As you can see, there are a number of important safeguards afforded to retirement plans by state statute and regulations. However, these should be regarded simply as that - safeguards.
Q. What makes the stable value product (GLTA) safer than other investments, and how is the money in the GLTA protected from bank failures?
A. Participants in these products do not experience the direct market value volatility in their account balances that is experienced by most holders of equity and bond mutual funds.
The GLTA participant account values are backed by a guarantee from Prudential Retirement Insurance and Annuity Company (PRIAC). PRIAC is a wholly-owned subsidiary of The Prudential Insurance Company of America, a Prudential Financial company.
PRIAC maintains large and well diversified portfolios to back-up its obligations as well as large surplus of cash to meet our obligations to customers. If the investments held directly by the portfolio are insufficient to meet our obligation to you, then PRIAC is obligated to use its surplus to do so. Other investments such as equity and bond mutual funds do not have this guarantee.
Q. What is a Separate Account?
A. A separate account is an account held by an insurance company not in its general account. A separate account allows an investor to choose an investment category according to his individual risk tolerance, and desire for performance. An account may be a generic conservative or aggressive investment allocation, or a specific mutual fund-type account.
For retirement plan purposes, it means that participant investments in assets within the separate account may only be used to satisfy the contractual liabilities of a particular separate account. Thus, general account customers (as well as other creditors) have no claim on the assets of a separate account.
Specifically:
o For our PRIAC clients: Our separate accounts for qualified plans are established in accordance with Section 38a-459 of the Connecticut Statutes. The law provides that amounts allocated to insurance company separate accounts "shall not be chargeable with liabilities arising out of any other business the company may conduct."
In contrast, the general account supports our Guaranteed Long Term Account (GLTA). With this product, PRIAC declares a rate of interest in advance, and contributions and credited interest are guaranteed by Prudential Retirement Insurance and Annuity Company, backed by all of the company's general assets.
