Citicorp Testing Unusual Variable Guaranteed To Return at Least 4.25%

Citicorp is offering investors a variable annuity with a guaranteed rate of return as part of a new program designed to help consumers plan for retirement.

The CitiVariable Annuity Plus is being offered as part of a six-month California pilot of the CitiFreedom retirement program.

The annuity guarantees a return of at least 4.25% and requires customers to invest at least $150 a month for 10 years.

Experts said the product, which is underwritten by Citicorp Life Insurance Co., is different because variable annuities do not usually offer a guaranteed return. But some wondered about hidden fees or requirements that locked a portion of investor assets into fixed annuities.

"There has been lots of interest in finding ways to assure the conservative investor that the downside of the variable annuity is not that great," said Kenneth Kehrer of Kenneth Kehrer & Associates, Princeton, N.J. "This feature provides a good floor."

Jean Sullivan, a consultant for Cerulli Associates of Boston, said, "It sounds very unusual." But she wondered how the rest of the product is structured for fees.

Citicorp said that to ensure the 4.25% return investors must pay 99 basis points a year more for CitiVariable than for Citi's basic variable annuity.

The annuity is an integral part of the CitiFreedom program for retirement, which is aimed at investors 35 to 55. CitiFreedom is being tested at six bank locations in the San Francisco Bay Area.

With the program, Citicorp, like a host of other financial institutions, is aiming downmarket, at small investors. In particular, it is trying to capture baby boomers during their prime investment years.

"Everyone is competing for this emerging 'boomer' market," Mr. Kehrer said. "It has been the case that people start seriously saving when they are 55."

Citicorp is "trying to attract this group that is beginning to save," he added, to have them "during the peak saving years."

Michael McClain, director of investment services for Citicorp's western region, said California was chosen for the rollout of the retirement pilot because its demographics are good and the bank's branch network is well developed there.

"The market is so great in California," Mr. McClain said. "The economy is very strong, and employment is very high."

The retirement service is free to customers and is being advertised on television and in newspapers and magazines, Mr. McClain said.

He said the bank would decide later whether to roll out the program and the annuity nationally.

The bank describes CitiFreedom as a three-step service. Each customer meets with one of 63 investment counselors in the Bay Area. The counselor uses proprietary software to analyze the customer's current investment strategy, then devises one to make up any shortfall between savings and retirement needs.

"We help them think through the process of how much money they will need in retirement," Mr. McClain said. "Typically, investors need 75% to 80% of what they've had as income when they are retired."

Conceptually, Citicorp's retirement service is no different from plans offered by Charles Schwab, MetLife, Banc One Corp., First Union Corp., and NationsBank Corp., said Kent H. Novell, practice leader for Spectrem Group Inc. in Hartford, Conn.

"There has been interest on the part of all service providers and investment manufacturers in the small-plan market," he said. "The small- plan market represents a greater opportunity for new growth."

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