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Bill writes <<Unfortunately its not unusual. Your husband's 401k is with an insurance company, MetLife, Aetna, Cigna, Principal Financial, etc, etc.
There is NO advantage whatsover to having a 401k in an annuity.>>

At the participant level - there are no advantages
At the plan level (employer) - there are many given that this is the means by which the insurance companies market their products through the insurance agents.

Bill writes << Annuties by themselves offer tax deferred growth, but so do 401k plans. You are getting a duplication of benefits. For this you are paying abnormally high fees because annuities tack on mortality expenses and extra administrative fees.>>

Wrong, Mutual Fund companies dominate the large employer market and have gained significant market share during the past 20 years, However, insurance companies serve the small and mid-size employer market in greater numbers than Mutual Fund companies.

The fees charged in aggregate are the driver. Looking at one cost element is simplistic - at best.


Bill writes << The double whammy is there isn't much you can do about it. Once your employer signed on for this the Plan will be exposed to surrender charges if they try to switch providers within a 7 year time span. This is the usual sliding scale for surrender charges, the earlier you bail out the more you pay.>>

Yes to an extent but still wrong, the initial decission is the employers - and he/she determines the criteria used to build the approprate vendor criteria metrix. Surrender charges are not present in all group annuity contracts - and are absent in most of the contracts referrenced above.

The referrence to a 7 year period is not correct - surrender charges are at a minimum company specific and a gennerally plan specific.

If present, surrender charges may not be applicable at the participant level - and would only apply upon plan termination not participant termination / withdrawl

Bill writes << In addition to the higher fees, you can't track your investments in the newspaper or on internet sites like the Fool or Morningstar. You see insurance companies don't offer the mutual funds, they pool the money and then invest in other outside mutual funds that your employer could have gone to directly.>>

Somewhat correct, Ins. Co do use seperate accounts to pool assets. These SA's do make investment in retail mutual funds, ( MFS, Vangard, Fidelity, et. al.) The underlining investment can be evaluated by usind Morningstar and tracking it on line - However, the participant level return will not gennerally match the published NAV - Bill forgot about "Wrap fees".

The Ins. Co approach provides small employer access to funds and price points unavailable on a direct basis. Not to mention a "Multi - Fund Family" investment strategy. i.e. not all fund families provide the best fund for each asset class


Bill writes << If someone reading this knows of any advantage of having a 401k with an insurance company, please post a response. The best bet for a 401k is to go direct to a fund family, the next best is a bank that waives loads and only collects 12b-1 fees.>>

The employer is purchasing an employee benefit - not just an investment. Insurance companies are the second most dominant player in the delivery of qualified plan - and the dominant player in the small plan market - small employers may not have access to the better fund families products on a price faverable basis.

With respect to sales loads, Bill is way off - many ins. co. products include "load funds" and these funds are provided net of sales charges. Mid-size employers may even receive a credit for 12b-1 fees.

Lastly, Banks have lost market share during the past 20 years and this trend continues to this day.
I hope this helps explain it. Even though there really is no justifiable explanation in my view.

Insurance company products are not the best product for all accounts - however there are employers and employees who benefit greatly from these products - One should have a clear handle on their facts before the give advise -

The SEC - requires that you "know your client" - and thus we shall

Don
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