separate accounts separate accounts
SEPARATE ACCOUNTS Understanding the Investment Options in Your Retirement Plan
101
The Basics of a Separate Account Q. How do my retirement plan investments work? A. Your retirement plan’s investments come in the form of a “group annuity” offered by Transamerica Retirement Services1. A group annuity is an insurance contract that serves as an investment vehicle for qualified retirement plans. These plans include 401(k), profit-sharing, and other types of company-sponsored retirement plans. The group annuity contract includes investment options structured as “separate accounts.” Q. What is a separate account? A. A separate account is an investment portfolio that allows you to pool your resources with other investors to invest in individual securities (e.g. stocks and bonds) or mutual funds shares. The assets of each separate account are segregated (or separate) from all the other assets of the insurance company. Q. How does a separate account work? A. When you allocate money to a separate account investment option in your retirement plan, you are purchasing “units” of that separate account for your plan account. The separate account purchases and owns individual stocks, bonds or “shares” or may invest in another underlying fund to make up your investment. Therefore the units of the separate account function and perform in the same way shares would in a mutual fund. Consequently, the unit value of a separate account fluctuates (up or down) in accordance with the fluctuation of the value of its underlying investments. Q. Is a separate account the same as a mutual fund? A. No. Both separate accounts and mutual funds pool the resources of multiple investors to invest in individual securities, but there can be a difference in how the two investments are regulated. Mutual funds are regulated by the federal Securities Exchange Commission (SEC). Those separate accounts that are offered through group annuity contracts (which are issued only to certain retirement plans) are exempt from SEC regulation and are regulated by state insurance departments instead2.
1
Q. What types of separate accounts are in my company’s plan? A. Your plan may include two different types of separate accounts. The first type purchases select individual securities – stocks and/or bonds – directly. Either Transamerica – or other qualified professionals whom Transamerica has selected – actively manage these separate account portfolios. The second type of separate account invests in underlying funds for which they are typically named. For example, the “TI ABC Fund” invests in shares of the “ABC Fund” or “TR XYZ Fund” invests in shares of the “XYZ Fund.” Transamerica chooses only underlying funds that are managed with a consistent style and have the potential for solid returns for individual investors like you. Refer to your Fund Fact Sheets3 (available online at www.TA-Retirement.com) or contact your Plan Administrator for more information regarding your plan’s separate accounts.
Tracking the Performance of a Separate Account Q. How is the value of a separate account determined? A. When discussing the value of a separate account, we refer to its unit value, i.e. price per unit. That unit value is calculated by dividing the total value of the assets of the separate account by the number of units in the separate account. For example, let’s say that the “Transamerica XYZ Fund” separate account’s portfolio looks like this: “Transamerica XYZ Fund” 20 shares of IBM stock at $10 per share 40 shares of Xerox stock at $10 per share 40 shares of AT&T stock at $10 per share Total: 100 shares of stock at $10 per share = $1,000 Therefore, $1,000 is the total value of the assets of the separate account. Then, let’s say that there is a total of 50 units of this separate account issued, the unit value would be calculated in this way: [Asset value ($1000)] ÷ [The separate account’s total units (50)] = The unit value ($20) Therefore the unit value is $20. With separate accounts that invest exclusively in mutual funds, the total value of the assets of the separate account is based on the net asset value (NAV), or price per share of the underlying mutual fund. The mutual fund calculates its NAV by dividing the mutual fund’s assets by the number of shares issued by the mutual fund.
2
For example, let’s say that there are 100 units of the “TI ABC Fund” separate account. The TI ABC Fund separate account owns 50 shares of the ABC mutual fund, and the shares of the ABC Mutual Fund have an NAV of $20 per share. The separate account’s unit value is determined by first establishing the total value of the separate account’s assets: 50 shares of ABC mutual fund at an NAV of $20 per share = $1,000 Therefore the total value of the assets of this separate account is $1,000. Using the total market value of the assets, the separate account’s unit value is calculated as follows: [Total value of assets of the separate account ($1,000)] ÷ [The separate account’s total units (100)] = The unit value ($10) Therefore the unit value is $10. (Both the separate account’s unit values and the mutual fund’s NAV per share are determined at the end of each business day in which the market is open.) Q. Is the separate account’s unit value the same as its underlying mutual fund’s NAV? A. No. The NAV refers to the value of the individual shares in the underlying mutual fund. The unit value refers to the value of the individual units of the separate account. (See the previous Q & A “How is the value of a separate account determined?”). While the separate account’s unit value is affected by the underlying mutual fund’s NAV, its unit value will most likely differ from the underlying mutual fund’s NAV because of the following factors: 1. Initial value assignment When a separate account is established, an arbitrary initial unit value is assigned to that separate account (for example, $10.00). This initial unit value may have no direct relationship to the net asset value of the underlying mutual fund at that time. 2. Dividends and Capital Gains When a mutual fund pays out dividends or capital gains, the mutual fund’s net asset value (NAV) is reduced by approximately the amount of the dividends or capital gains paid. However, the unit value of the separate account which invests in this underlying mutual fund is not affected. Here’s why: the dividends or capital gains are paid to the separate account and the cash from the dividends and capital gains is used by the separate account to purchase additional shares of the mutual fund. (Thus, the total value of the assets in the separate account, as well as the number of units of the separate account, remain the same before and after the mutual fund dividend is paid out.) Effectively, the mutual fund’s NAV is decreased for the payment of dividends, but the separate account unit value is not because the separate account reinvests the dividends it receives from the mutual fund. 3. Charges The separate account unit values may reflect other charges, such as any applicable Investment Management and Administrative charges, as set forth in the group annuity contract. The charges vary by separate account. Please see the Fund Fact Sheets for specific details of the charges for each separate account. (For a further explanation of the types of charges you may incur, see the Q&A “Are there fees associated with participation in my retirement plan?” on the following page.)
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Q. Why can’t I find a separate account’s performance in the business section of the newspaper? A. The separate accounts offered as investments in your retirement plan are available only to employersponsored retirement plan investors. Because the separate accounts are not available as publicly traded funds, the performance and unit values are not published in the newspaper and they are exempt from registration with the SEC. This also means that instead of receiving prospectuses you receive insurance contract documents that describe the investments in your plan. Refer to your Fund Fact Sheets3 (available online at www.TA-Retirement.com) or contact your Plan Administrator for more information regarding your plan’s separate accounts.
Fees Q. Are there fees associated with participation in my retirement plan? A. Any investment in which you participate — be it a separate account within a retirement plan, mutual fund, or individual security — will include certain expenses. Those expenses are necessary to provide for the administration, investment management and sales and marketing of that investment. There are certain expenses charged to cover the day-to-day administration and professional investment management of the separate accounts or underlying funds. These fees reduce the value of your investments, see the fund fact sheet for details on these charges. In addition, contract asset charges also apply to the group annuity. These charges are monthly fees calculated as of the 15th day of each month and withdrawn on the next business day. The rates vary, but generally decrease as the plan assets invested in the group annuity contract increase. They are fees designed to cover the sales, marketing and administration expenses of the group annuity contract.
Still have questions? If you’d like more information about the separate account funds in your retirement plan, please contact your Plan Administrator.
1 Transamerica Retirement Services offers the following retirement plan products: In the state of New York, insurance products are underwritten by Transamerica Financial Life Insurance Company (TFLIC), Purchase, New York using Group Annuity Contract Form No. TA-AP-2001-CONT. Only available in New York. In all other states, insurance products are underwritten by Transamerica Life Insurance and Annuity Company (TALIAC), Charlotte, North Carolina and administered by Transamerica Retirement Services using Group Annuity Contract Form No. TGP-439-194 or CNT-TALIAC 05-02. Policy Form and number may vary and may not be available in all states. Not available in New York. In New York Transamerica Retirement Services refers to TFLIC and in all other states refers to TALIAC. 2While the separate accounts offered by your plan are regulated solely by state insurance departments, there are some separate accounts, those which are publicly available (e.g., through variable annuities), that are subject to regulation by both state insurance departments and the SEC. 3The information contained in the Fund Fact Sheets is date-sensitive and updated quarterly. You should obtain updated information from your Plan Administrator to ensure you have the most current information.
4
Glossary
401(k) - A section of the Internal Revenue Code which allows companies to set up a retirement plan with a cash or deferred election or “CODA” allowing employees to elect to defer a portion of their compensation and have it contributed on a tax-deferred basis to their retirement plan– meaning, you don’t pay taxes on these monies and their investment earnings until they are paid to you from the plan. Contract Asset Charges - Monthly fees charged under a group annuity contract to cover the sales, marketing and administrative expenses of the contract. Dividend - Distribution of earnings to shareholder, prorated by class of security and paid in the form of cash, stock, scrip, or rarely, company products or property. Group Annuity Contracts - Investment contracts issued to retirement savings plans by insurance companies. Separate accounts are offered under the Group Annuity to provide various investment options. Mutual Fund - Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, futures, currencies, or money market securities. These funds offer investors the advantages of diversification and professional management. Net Asset Value (NAV) - In mutual funds, the market value of a fund share, synonymous with bid price. This value is net of applicable administrative fees. Profit-Sharing Plan - A retirement plan established and maintained by an employer to provide for the participation in profits by its employees. The employer may decide each year whether or not to contribute to the plan whether or not it has any profits for the year. Prospectus - A thorough, written description of a security, including mutual funds, as well as the legal selling document. It describes the fund’s history and investment objective. It also provides information on the background of the fund’s managers, a financial statement and an explanation of fees required in the sale or management of the fund or security. Securities - Instrument that signifies an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), or rights to ownership (share of a mutual fund). Separate Account - Segregated (usually pooled) investment portfolios established by an insurance company. They are regulated by individual state insurance boards and exempt from regulation by the Securities and Exchange Commission if they are available only to investment funds from retirement plans that are qualified under Section 401 of the U.S. Internal Revenue Code and certain other governmental plans. Share - Unit of ownership in a mutual fund. Unit - Unit of ownership of a separate account.
5 TRS 1708-1203
101
The Basics of a Separate Account Q. How do my retirement plan investments work? A. Your retirement plan’s investments come in the form of a “group annuity” offered by Transamerica Retirement Services1. A group annuity is an insurance contract that serves as an investment vehicle for qualified retirement plans. These plans include 401(k), profit-sharing, and other types of company-sponsored retirement plans. The group annuity contract includes investment options structured as “separate accounts.” Q. What is a separate account? A. A separate account is an investment portfolio that allows you to pool your resources with other investors to invest in individual securities (e.g. stocks and bonds) or mutual funds shares. The assets of each separate account are segregated (or separate) from all the other assets of the insurance company. Q. How does a separate account work? A. When you allocate money to a separate account investment option in your retirement plan, you are purchasing “units” of that separate account for your plan account. The separate account purchases and owns individual stocks, bonds or “shares” or may invest in another underlying fund to make up your investment. Therefore the units of the separate account function and perform in the same way shares would in a mutual fund. Consequently, the unit value of a separate account fluctuates (up or down) in accordance with the fluctuation of the value of its underlying investments. Q. Is a separate account the same as a mutual fund? A. No. Both separate accounts and mutual funds pool the resources of multiple investors to invest in individual securities, but there can be a difference in how the two investments are regulated. Mutual funds are regulated by the federal Securities Exchange Commission (SEC). Those separate accounts that are offered through group annuity contracts (which are issued only to certain retirement plans) are exempt from SEC regulation and are regulated by state insurance departments instead2.
1
Q. What types of separate accounts are in my company’s plan? A. Your plan may include two different types of separate accounts. The first type purchases select individual securities – stocks and/or bonds – directly. Either Transamerica – or other qualified professionals whom Transamerica has selected – actively manage these separate account portfolios. The second type of separate account invests in underlying funds for which they are typically named. For example, the “TI ABC Fund” invests in shares of the “ABC Fund” or “TR XYZ Fund” invests in shares of the “XYZ Fund.” Transamerica chooses only underlying funds that are managed with a consistent style and have the potential for solid returns for individual investors like you. Refer to your Fund Fact Sheets3 (available online at www.TA-Retirement.com) or contact your Plan Administrator for more information regarding your plan’s separate accounts.
Tracking the Performance of a Separate Account Q. How is the value of a separate account determined? A. When discussing the value of a separate account, we refer to its unit value, i.e. price per unit. That unit value is calculated by dividing the total value of the assets of the separate account by the number of units in the separate account. For example, let’s say that the “Transamerica XYZ Fund” separate account’s portfolio looks like this: “Transamerica XYZ Fund” 20 shares of IBM stock at $10 per share 40 shares of Xerox stock at $10 per share 40 shares of AT&T stock at $10 per share Total: 100 shares of stock at $10 per share = $1,000 Therefore, $1,000 is the total value of the assets of the separate account. Then, let’s say that there is a total of 50 units of this separate account issued, the unit value would be calculated in this way: [Asset value ($1000)] ÷ [The separate account’s total units (50)] = The unit value ($20) Therefore the unit value is $20. With separate accounts that invest exclusively in mutual funds, the total value of the assets of the separate account is based on the net asset value (NAV), or price per share of the underlying mutual fund. The mutual fund calculates its NAV by dividing the mutual fund’s assets by the number of shares issued by the mutual fund.
2
For example, let’s say that there are 100 units of the “TI ABC Fund” separate account. The TI ABC Fund separate account owns 50 shares of the ABC mutual fund, and the shares of the ABC Mutual Fund have an NAV of $20 per share. The separate account’s unit value is determined by first establishing the total value of the separate account’s assets: 50 shares of ABC mutual fund at an NAV of $20 per share = $1,000 Therefore the total value of the assets of this separate account is $1,000. Using the total market value of the assets, the separate account’s unit value is calculated as follows: [Total value of assets of the separate account ($1,000)] ÷ [The separate account’s total units (100)] = The unit value ($10) Therefore the unit value is $10. (Both the separate account’s unit values and the mutual fund’s NAV per share are determined at the end of each business day in which the market is open.) Q. Is the separate account’s unit value the same as its underlying mutual fund’s NAV? A. No. The NAV refers to the value of the individual shares in the underlying mutual fund. The unit value refers to the value of the individual units of the separate account. (See the previous Q & A “How is the value of a separate account determined?”). While the separate account’s unit value is affected by the underlying mutual fund’s NAV, its unit value will most likely differ from the underlying mutual fund’s NAV because of the following factors: 1. Initial value assignment When a separate account is established, an arbitrary initial unit value is assigned to that separate account (for example, $10.00). This initial unit value may have no direct relationship to the net asset value of the underlying mutual fund at that time. 2. Dividends and Capital Gains When a mutual fund pays out dividends or capital gains, the mutual fund’s net asset value (NAV) is reduced by approximately the amount of the dividends or capital gains paid. However, the unit value of the separate account which invests in this underlying mutual fund is not affected. Here’s why: the dividends or capital gains are paid to the separate account and the cash from the dividends and capital gains is used by the separate account to purchase additional shares of the mutual fund. (Thus, the total value of the assets in the separate account, as well as the number of units of the separate account, remain the same before and after the mutual fund dividend is paid out.) Effectively, the mutual fund’s NAV is decreased for the payment of dividends, but the separate account unit value is not because the separate account reinvests the dividends it receives from the mutual fund. 3. Charges The separate account unit values may reflect other charges, such as any applicable Investment Management and Administrative charges, as set forth in the group annuity contract. The charges vary by separate account. Please see the Fund Fact Sheets for specific details of the charges for each separate account. (For a further explanation of the types of charges you may incur, see the Q&A “Are there fees associated with participation in my retirement plan?” on the following page.)
3
Q. Why can’t I find a separate account’s performance in the business section of the newspaper? A. The separate accounts offered as investments in your retirement plan are available only to employersponsored retirement plan investors. Because the separate accounts are not available as publicly traded funds, the performance and unit values are not published in the newspaper and they are exempt from registration with the SEC. This also means that instead of receiving prospectuses you receive insurance contract documents that describe the investments in your plan. Refer to your Fund Fact Sheets3 (available online at www.TA-Retirement.com) or contact your Plan Administrator for more information regarding your plan’s separate accounts.
Fees Q. Are there fees associated with participation in my retirement plan? A. Any investment in which you participate — be it a separate account within a retirement plan, mutual fund, or individual security — will include certain expenses. Those expenses are necessary to provide for the administration, investment management and sales and marketing of that investment. There are certain expenses charged to cover the day-to-day administration and professional investment management of the separate accounts or underlying funds. These fees reduce the value of your investments, see the fund fact sheet for details on these charges. In addition, contract asset charges also apply to the group annuity. These charges are monthly fees calculated as of the 15th day of each month and withdrawn on the next business day. The rates vary, but generally decrease as the plan assets invested in the group annuity contract increase. They are fees designed to cover the sales, marketing and administration expenses of the group annuity contract.
Still have questions? If you’d like more information about the separate account funds in your retirement plan, please contact your Plan Administrator.
1 Transamerica Retirement Services offers the following retirement plan products: In the state of New York, insurance products are underwritten by Transamerica Financial Life Insurance Company (TFLIC), Purchase, New York using Group Annuity Contract Form No. TA-AP-2001-CONT. Only available in New York. In all other states, insurance products are underwritten by Transamerica Life Insurance and Annuity Company (TALIAC), Charlotte, North Carolina and administered by Transamerica Retirement Services using Group Annuity Contract Form No. TGP-439-194 or CNT-TALIAC 05-02. Policy Form and number may vary and may not be available in all states. Not available in New York. In New York Transamerica Retirement Services refers to TFLIC and in all other states refers to TALIAC. 2While the separate accounts offered by your plan are regulated solely by state insurance departments, there are some separate accounts, those which are publicly available (e.g., through variable annuities), that are subject to regulation by both state insurance departments and the SEC. 3The information contained in the Fund Fact Sheets is date-sensitive and updated quarterly. You should obtain updated information from your Plan Administrator to ensure you have the most current information.
4
Glossary
401(k) - A section of the Internal Revenue Code which allows companies to set up a retirement plan with a cash or deferred election or “CODA” allowing employees to elect to defer a portion of their compensation and have it contributed on a tax-deferred basis to their retirement plan– meaning, you don’t pay taxes on these monies and their investment earnings until they are paid to you from the plan. Contract Asset Charges - Monthly fees charged under a group annuity contract to cover the sales, marketing and administrative expenses of the contract. Dividend - Distribution of earnings to shareholder, prorated by class of security and paid in the form of cash, stock, scrip, or rarely, company products or property. Group Annuity Contracts - Investment contracts issued to retirement savings plans by insurance companies. Separate accounts are offered under the Group Annuity to provide various investment options. Mutual Fund - Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, futures, currencies, or money market securities. These funds offer investors the advantages of diversification and professional management. Net Asset Value (NAV) - In mutual funds, the market value of a fund share, synonymous with bid price. This value is net of applicable administrative fees. Profit-Sharing Plan - A retirement plan established and maintained by an employer to provide for the participation in profits by its employees. The employer may decide each year whether or not to contribute to the plan whether or not it has any profits for the year. Prospectus - A thorough, written description of a security, including mutual funds, as well as the legal selling document. It describes the fund’s history and investment objective. It also provides information on the background of the fund’s managers, a financial statement and an explanation of fees required in the sale or management of the fund or security. Securities - Instrument that signifies an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), or rights to ownership (share of a mutual fund). Separate Account - Segregated (usually pooled) investment portfolios established by an insurance company. They are regulated by individual state insurance boards and exempt from regulation by the Securities and Exchange Commission if they are available only to investment funds from retirement plans that are qualified under Section 401 of the U.S. Internal Revenue Code and certain other governmental plans. Share - Unit of ownership in a mutual fund. Unit - Unit of ownership of a separate account.
5 TRS 1708-1203
