In the announcement, the company said it began a comprehensive review of the product’s fund options including such factors as fund performance, fund expenses, asset class coverage and fund management structure over two years ago. The company determined that fund expenses would be significantly reduced and the fund selection and monitoring process would be more efficient if a majority of the public funds were substituted with subadvised funds.
“It was imperative that we achieve our principal objectives – reducing fund expenses and enhancing fund responsiveness for plan sponsors and plan participants – without any disruption of service to our clients at any point in the process,” said Bruce Abrams, President and CEO of VALIC and the VALIC Retirement Services Company, in the announcement.
The fund substitutions resulted in the elimination of a number of funds as well as the cloning of many of the public funds by creating replacement funds with similar investment objectives and policies as the public funds. VALIC acts as the adviser for the cloned funds and the same investment managers for the public funds act as the subadvisers for the cloned funds. With the cloned funds, plan participants can invest in very similar funds, with the same investment managers as the public funds, at a reduced fund expense level.
Besides reducing fund expenses, the subadvised fund structure allows VALIC, working with its outside board of directors for the funds, to quickly and efficiently make changes to the funds if performance or regulatory issues arise with the investment management companies in the future.
The transfer involved over $4.5 billion in assets and almost one million fund exchanges and was completed over Memorial Day weekend without any blackout period for participants.
In May AIG VALIClaunched a living-benefits option for its Variable Annuity Life Insurance Company’s Portfolio Director Fixed and Variable Annuity contract (See AIG VALIC Introduces Living-Benefits Annuity Option ).