Reactions to my article…the nasty surprises behind 401(k) group annuities

By MBA, CFP® - Chief Executive Officer, Vernon C. Sumnicht on September 26, 2014

A few years ago, I posted in reaction to some of the comments that came in on my (September 17, 2014) article for Employee Benefits Views (the blog site for Employee Benefits News).

Below is a rendition of what I quickly wrote in reaction to the (14) comments on my article >
The nasty surprises behind 401(k) group annuities:

There have been many complaints and personal attacks (comments here on this blog article) related to my statement that “group annuities can have fees of 3.5% – 5%.”  

I don’t see anyone denying the fact that, “The fee structure is largely hidden. Because group annuities are technically an insurance product, they are not required to disclose fees in the same manner that other investments must. This makes it more difficult for 401(k) plans and their corporate sponsors (employers), to determine the real cost to plan participants inside these group annuities.”

Or, what about the claim that, “ERISA offers specified protection: Since an insurance company is providing services only to the annuity and not to the individual investor, it is not considered a covered service provider (absent some unusual circumstances) under the Department of Labor’s ruling on Section 408(b)(2). As it is not an ERISA fiduciary in this role, it is not generally subject to the requirement of plan fiduciaries.” 

If you can’t deny these facts, then the fees of group annuities are essentially unregulated, undisclosed or at best not playing by the same rules of fee disclosure required of registered securities in 401(k) plans. Why should I, as a plan sponsor (fiduciary) with personal liability under ERISA and subject to the Department of Labor’s ruling on Section 408(b)(2) use a group annuity for my 401(k) plan?

A lot of short emotional quips and personal attacks do very little to bring any confidence in group annuities. At least without facts and logical argument, these comments aren’t very convincing.

What do you think about this Motley Fool Article? Read–>> It isn’t very complimentary to annuities either.

I’d like to hear what you think!

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