Group Annuity Contracts

[BTG]

We have multiple plan sponsor clients that are looking to transfer funds from group annuity contracts to other investments. Wondering if anyone out there has had success in doing so. It seems that most of these GACs are drafted in such a way that it is virtually impossible to withdraw funds once they have been invested. Is anyone aware of any litigation in which a plan sponsor has challenged a GAC as an unconscionable adhesion contract or a similar theory in order to get their money out? Any thoughts are appreciated.

[movedon]

Most group annuities I have seen used to fund qualified plans have a single surrender period that begins when the contract is signed or the first deposit is made, not a new surrender period for each contribution. In those cases, no, I've never seen a problem. What sort of problem are you running into?

[mbozek]

We have multiple plan sponsor clients that are looking to transfer funds from group annuity contracts to other investments. Wondering if anyone out there has had success in doing so. It seems that most of these GACs are drafted in such a way that it is virtually impossible to withdraw funds once they have been invested. Is anyone aware of any litigation in which a plan sponsor has challenged a GAC as an unconscionable adhesion contract or a similar theory in order to get their money out? Any thoughts are appreciated.

How is this unconcionsable instead of a business decision by the plan sponsor that looks bad in hindsight? The surrender charges were in the contract when it was issued and no one forced the plan sponsor to sign the contract. GACs have surrender charges that expire after x number of years. The client could switch to a new type of funding vehicle for contributions made after x date and then transfer the funds in the GAC after the surrender charges expire. Or the plan sponsor can transfer the GAC funds immediately to the new funding vehicle and reimburse the participants' accounts for the surrender charges.