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Explosion Of Units

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In 1970 a PERS launched a variable annuity. Up until that time it offered only a fixed annuity guaranteeing 4% per year.

The number of variable units one accumulates is subject to an "explosion factor" of 4% per year in order to keep pace with the 4% fixed interest option.

Upon retirement one may exchange variable units for fixed dollars.

The result is, at the outset, a measureably larger fixed annuity income than what would otherwise be generated if the participant remained in the variable account. Based on past performance of the variable account, the fixed annuity would yield more income for about the first 8 years of retirement. The fixed annuity uses an AIR of 7% and currently credits the participant's account at the rate of 8.25% per year.

Is the above standard practice? Please elaborate.

Best wishes,

Joel L. Frank :)

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