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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75812  
Subject: Re: Scott Burns on Variable Annuities Date: 3/3/2000 12:52 PM
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intercst, you pointed out:

<< I'm not sure where you see the taxable event on changing fund families. Burns is writing about a 403(b) plan. You can change investments within the 403(b) without paying taxes on the transaction. >>

You're CORRECT! Somewhere during the writing of my response I lost that perspective with regard to an annuity within any type of qualified plan. THANK YOU for pointing that out.:-)

I still feel that it's ridiculous for someone like Mr. Burns to exaggerate the difference in expenses and compare the new lowered expense average of a single fund family with the OLD "typical" annuity when variable annuity's expenses are also in the process of being lowered. Mr. Burns doing such a thing is spreading misinformation that really takes away from the good point he is making about having annuities in something like a 403(b).

Let me make it perfectly clear here that it is my position that one should not use an annuity in a 403(b) plan or within any other tax deferred plan. My objection to Mr. Burns article is NOT about this issue - but about his exaggerations.

When you say "I retired 5 years ago in part because I avoided these schemes", I should point out that this kind of thing is NOT a "scheme". While it may be someone's feeling that it's a "scheme" or "criminal" that there is such an emphasis on annuities in 403(b) plans, there were very specific reasons with the idea to actually protect participants in 403(b) plans.

If one will go back in history, rather than just looking at how things are and the environment we have today, one will find that ONLY annuities were allowed in a 403(b) plan. It's only in more recent years that mutual funds are now allowed. There used to be extreme concerns about suitability of investments and wanting to protect people who were in effect managing their own retirement program. One of the reasons that made annuities attractive to the regulators was in fact that very surrender period that we so abhor now. They, the regulators, wanted to discourage people from getting out of long term commitments and encourage them to stay in for the long term. Actively managing their retirement assets was not something that was felt was prudent for the normal 403(b) investor.

In recent years, many more people are now more investment savvy. But, the bureaucracy of schools systems is slow to change. Also, many if not most school systems are still fearful of being held liable for keeping their participants informed regarding investments. School systems and other non-profit organizations tend to look at annuities as a safer risk management and maybe even a less costly approach for THEM in providing a 403(b) plan.

I'm not trying to defend the use of annuities in things like 403(b) plans. I'm only trying to point out some of the history and the environment in which these things are being done - that it's not about there being any kind of "scheme" or "criminal" posture being involved. It's just more complex than most of us understand it to be.



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