GICs

[Guest lerieleech]

This is really an investment question, and I did post it under Investment Issues. I thought I would put it here too, in case anyone here does have experience with this stuff:

This may seem simple, but this is not my area of expertise:

Say that in a one-person DB plan, all the assets are in a GIC. For simplicity's sake, let's say it is worth $400,000 including a surrender charge of $20,000. The plan terminates, and the owner's 415 limit is higher than $400,000. Say also that his PVAB before any amendments is $350,000, so we don't have any issues about cutbacks, waivers, etc.

Scenario 1: The owner elects a rollover to his IRA, and the GIC is retitled in the name of his IRA.

Scenario 2: The owner cashes out the GIC while it is still in the DB plan, and then rolls the proceeds into his own IRA.

Scenario 3: While the GIC is in the DB plan, the owner makes a partial withdrawal, say of $100,000, and then rolls everything, cash and remaining part of the GIC, into his IRA. The remaining part of the GIC is retitled in the name of the IRA.

Putting aside for a moment whether any of these scenarios makes more sense that the others, all I want to know is what is the resulting value of the IRA (assume it is new) in each case. (I believe I know the answeres to the first two; not sure about 3.) Or does it depend on the insurance co and the contract?

[mwyatt]

Be interested in this answer, although I bet the correct response after perusing too many contracts to figure out the dreaded "market value adjustment" is an end result around the old adage of heads I win, tails you lose.

Actually saw one contract that had been written in such a way that if the underlying rate in the contract was less than market rates of return, that the client got hit (you're talking a short-term investment, and they're paying you less than what is prevalent in the market place, why should you be piled on for poor results; in the freakonomics mode of thinking, one would expect that if you were credited with higher rates than are actually prevailing, you should take a hit for the subsidy).

Yet another reason to think about insurance products, then move your head from side to side before picking up a pen.

Answer 1 - I'd venture $400k, as the contract didn't terminate (unless the contract is written in such a manner that they nail you for reregistering - stranger things have happened).

Answer 2 - $380k.

Answer 3 - depends on the contract and what the impact is from the $100k withdrawal. Did the $100k go to the trust and then the IRA, or directly to the participant. Again, look to the terms and length of the contract.

[Guest lerieleech]

Thanks.

#1 and #2 were what I expected.

In #3, I'm hypothesizing the $100,000 goes to the trust and then the IRA.