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Subject:  Re: Questions about 403(b)7 Date:  4/21/1998  1:45 PM
Author:  CodyZen Number:  2964 of 88077


<<Do you really think annuities are lousy when compared head to head with a mutual fund within an

I have a variable annuity through my 403(b) plan which invests in stocks much like a fund. I'd be
interested in hearing what you think the disadvantages are compared to a mutual fund in an IRA.>>

< The annuity adds an extra layer of mortality and administrative expenses. Take the same fund by
itself, and all you have to affect the return is the expense incurred by the fund. Put that fund inside an
annuity, and now you have the others as well. In direct competition within an IRA, the fund standing
alone will beat the fund inside the annuity every time.


I find the discussion about variable annuities in a 403(b) plan to be a little confusing. I'm not certain that the "varible annuity" that an individual can buy through an insurance company is the same as what is offered in at least my 403(b). My company puts our 403(b) in a plan with TIAA-CREF. They define an annuity as: "An annuity is a 'sum of money payable yearly or at other regular intervals.' Annuities are generally used to accumulate funds for retirement or other long-range goals and/or to receive periodic income payments for life or for a set period of time." In this case there is no provision for mortality. They further define Variable Annuity as "An annuity, the value of which fluctuates based on the market performance of an underlying securities portfolio. Unlike Fixed Annuities, there is no guarantee of principal or rate of return."

Again there is no provision for mortality. I also thought I read somewhere that a 403(b) must be invested in a variable annuity, but I don't recall where and am probably wrong.

TIAA-CREF also benchmarks against typical market indexes. I won't claim stellar performance, but they are close to market averages for mutual funds. Year to date for their major fund is 15.6%+ And their administrative expenses seem pretty low about .3 to .4 percent for most funds.

Also, while they are set up to pay out in an annuity stream, I also have the option to roll the entire amount over into an IRA or another 403(b) if I leave the company or when I retire. I'm not convinced that this is as bad a deal as other comments imply. I also don't know if this is typical for a 403(b) plan, although they are one of the largest providers in the country.

And TIAA-CREF confuses it further because they do sell life insurance.

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