New Update: Rising Oil Costs are Affecting Retirement Plans. Will you be impacted?
Fixed vs. Variable Annuities For Aflac Employees
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With crude oil volatility near 80% and prices spanning $50 to $120 per barrel over the past six months, energy cost uncertainty influences economic conditions across industries. Energy price swings affect insurer investment portfolios and the broader economic conditions that drive policy demand and claims patterns. Aflac employees benefit from financial strategies that anticipate energy-driven economic shifts, building portfolios resilient enough to weather the inflation and market volatility that oil price swings create. A financial advisor can help you build strategies that maintain progress toward retirement goals through periods of energy-driven economic turbulence.
Fixed Annuities provide certain guarantees
One option some of our Aflac clients have had questions about is fixed annuities. When you purchase a fixed annuity, the issuer guarantees that you will earn a minimum interest rate during the accumulation phase and that your premium payments will be returned to you. If you annuitize the contract (i.e., take a lifetime or other distribution payout option), the issuer guarantees the periodic benefit amount you will receive during the distribution phase. (Guarantees are subject to the claims-paying ability of the issuing insurance company.) The interest rates earned during the accumulation phase will reflect current fixed income rates, changing periodically. During the distribution phase, the payment is based on the prevailing interest rates at the start of the distribution phase, and then remains constant. This fixed payment may lose purchasing power over time due to inflation. Consequently, many investors are hesitant to lock in a fixed annuity payout rate.
Variable Annuities provide growth opportunities instead of guarantees
The next option we'd like to go over with our Aflac clients is variable annuities. When you purchase a variable annuity, the annuity issuer offers you a choice of investment options in what are known as subaccounts. The issuer may offer many different types of asset classes such as stock, bond, and money market funds. The issuer of a variable annuity does not guarantee or project any rate of return on the underlying investment portfolio. Instead, the return on your annuity investment depends entirely on the performance of the investments that you select. Your return may be greater than or less than that of a fixed annuity. However, it's important that our Aflac clients note that if you die before you begin receiving annuity distributions, your heirs will receive at least as much as the total of your premium payments, regardless of the annuity value.
If you elect to annuitize and receive periodic distributions from your variable annuity, you can choose to receive either a fixed payout (like with a fixed annuity as previously discussed), a variable payout, or a combination of the two. If you select a variable payout, then the amount of each payment will depend on the performance of your investment portfolio. If the portfolio increases in value, then your payments will increase as well. Most annuity issuers offer a third option that allows you to lock in a minimum fixed payment every month, with the possibility of an additional variable payment based on the performance of your investment portfolio. By allowing your principal to remain in investment accounts during the distribution phase, you have the continued opportunity to benefit from rates of return that are higher than what would have been received with a fixed annuity. But it's important for our clients from Aflac to remember, you also run the risk that your payout could be lower if your investment choices do not perform well.
Which is better?
First, we recommend that our Aflac clients make sure that an annuity is appropriate for them. Annuities are long-term savings vehicles used primarily for retirement. There are many advantages to annuities, but there are drawbacks, too. These include a 10 percent tax penalty on earnings distributed before age 59½, and the fact that all earnings are taxed at ordinary rather than capital gains rates. If an annuity is right for you, then the choice between fixed and variable annuities will depend on your situation and preferences.
Usually, choosing between the two comes down to your risk tolerance and the amount of control you want over investment decisions. With a fixed annuity, there is little risk. You know what you're going to get out of the annuity. However, the growth potential of a fixed annuity is limited. A variable annuity, on the other hand, has a much greater potential for growth (although with this growth potential, there is a greater potential for loss). You also have the opportunity to make investment decisions that will impact the growth of your annuity. How much risk you can comfortably accept, and your ability to manage your investment will help you choose between a fixed and a variable annuity.
Note: We'd like our Aflac clients to note that annuity withdrawals and distributions prior to age 59½ may be subject to a 10% federal tax penalty unless an exception applies.
Before finalizing any estate plan, it is worth examining how Aflac's employer-sponsored benefits fit into the broader picture. It is important to note that Aflac maintains a defined benefit pension plan that has been frozen to new benefit accruals -- meaning the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents - this means the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents. Aflac also offers retiree healthcare benefits to eligible employees, which can provide meaningful coverage for those who retire before reaching Medicare eligibility at age 65. Because the specifics of your pension benefit, retiree healthcare eligibility, and any matching contributions depend on your individual employment history and plan documents, We encourage you to review your Summary Plan Description (SPD) or speak with Aflac's HR or benefits team for the most current details.
Note: It's also important that our clients from Aflac note that variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk, including the possibility of loss of principal. Variable annuities contain fees and charges including, but not limited to, mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees, and charges for optional benefits and riders.
Note: Â Variable annuities are sold by prospectus. Aflac employees should consider the investment objectives, risk, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity, or from your financial professional. We recommend Aflac employees read the prospectus carefully before investing if they plan on doing so.
What type of retirement savings plan does Aflac offer to its employees?
Aflac offers a 401(k) retirement savings plan to its employees.
Does Aflac match employee contributions to the 401(k) plan?
Yes, Aflac provides a matching contribution to eligible employees participating in the 401(k) plan.
How can employees at Aflac enroll in the 401(k) plan?
Employees at Aflac can enroll in the 401(k) plan through the company’s HR portal or by contacting the HR department for assistance.
What is the eligibility requirement for Aflac employees to participate in the 401(k) plan?
Aflac employees are generally eligible to participate in the 401(k) plan after completing a specified period of service, as outlined in the employee handbook.
Can Aflac employees take loans against their 401(k) savings?
Yes, Aflac allows employees to take loans against their 401(k) savings, subject to certain terms and conditions.
What investment options are available in Aflac's 401(k) plan?
Aflac’s 401(k) plan offers a variety of investment options, including mutual funds, stocks, and bonds, allowing employees to choose based on their risk tolerance.
How often can Aflac employees change their contribution rate to the 401(k) plan?
Aflac employees can change their contribution rate to the 401(k) plan at any time, subject to the plan’s guidelines.
What is the vesting schedule for Aflac's 401(k) matching contributions?
Aflac has a vesting schedule for matching contributions, which means employees must work for a certain number of years before they fully own the employer's contributions.
Are there any fees associated with Aflac's 401(k) plan?
Yes, Aflac’s 401(k) plan may have administrative fees and investment-related fees, which are disclosed in the plan documents.
Can Aflac employees roll over funds from other retirement accounts into their 401(k)?
Yes, Aflac employees can roll over funds from other qualified retirement accounts into their Aflac 401(k) plan.
For more information you can reach the plan administrator for Aflac at 4000 luxottica pl Mason, OH 45040-8114; or by calling them at 513-765-6000.
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