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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 74759  
Subject: Re: Lawyers Sue Variable Annuity Companies Date: 11/10/1999 12:58 PM
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Regarding this article by By DEBORAH LOHSE and BRIDGET O'BRIAN Staff Reporters of THE WALL STREET JOURNAL, a few things caught my eye.

"With more than $600 billion of the nation's $1.2 trillion in annuity assets sitting in IRAs and 403(b), 401(k) and 457 tax-qualified retirement programs as of Dec. 31, that translates into an additional potential cost to investors of hundreds of millions of dollars annually.

Until verily recently, the laws WOULDN'T allow such tax-qualified retirement programs to have anything else but annuities. Even today, after the changes in the laws, many of the administrators (mainly the self-administrators of the organizations, like school district administrators) still have not changed their programs policies accordingly and in effect forcing participants to use annuities. One of the reasons for this is as they've quoted Hartford, "says the insurance expenses help pay for services such as record-keeping and one-on-one education for certain smaller retirement plans" which has been an important issues to many self administered retirement programs.

Now one might wonder about the other half of the annuities that are not in qualified plans??? There's no mention that a large majority are held by Seniors who tend to take very conservative position and therefore use FIXED annuities which have no expense charges/costs. Could it be that the authors simply don't have enough facts or maybe are really as interested in presenting an accurate picture so much as a story that is slanted to a particular view and makes for better sales of a publication????

It's interesting that the authors quote 1.44% average expense ratio from Lipper Inc. and leave it to guess work as to what the average is for annuities (about 65 basis points higher according to the same source, by the way) . . . only to say that the annuity has additional expenses. Of course, they're only talking about variable annuities, since fixed annuities don't have any.

Then, the authors go on to say that the commission rate for annuities can be as high as 8.25%. Duh . . .well people, the SAME is true for mutual funds. . ..yet no mention of THAT. Hmmmmm? I wonder why not. They also don't point out that unlike mutual funds, the "commission" is NOT taken out of the amount invested. If one puts in $10,000 into an annuity, it's fully invested, but with a mutual fund, the amount invested is the $10,000 less the load (the commission). So . . . why isn't this being mentioned in this article? Lack of knowledge/research? Or deliberate due to some slant on a point of view?

I am not a supporter of annuities in tax qualified plans and don't find much use for tax deferred annuities except in rare occasions. I am also not a supporter of such articles that are written in such a slanted manner. I guess that's because I like balanced articles so that I can weigh things objectively and make good decisions on my own (which is the Foolish Way, right?).



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