The Treasury Department will soon be releasing guidance on "providing and encouraging lifetime income options" to 401(k) participants by encouraging the use of annuities, according to Mark Iwry, deputy assistant treasury secretary for retirement and health policy. Said Iwry: "We are trying to put pensions back in the pension system," according to the Bureau of National Affairs.
Really? Or more likely, rather than requiring employers to make 401(k) plans as generous as pensions, the Obama Administration appears to be duping older workers into thinking they are ready -- despite the fact that they have only saved one-tenth of what they need -- and simply need a product that will stretch their puny nest egg over a lifetime. To make matters worse, it is exposing workers to annuities, the biggest financial rip-off on the planet.
Why are annuities toxic? As an annuity owner you're not only paying a fortune for an investment product that can't fill an empty nest egg but you'll likely be charged huge penalties if you move your money out of one and if you die there's a good chance the insurance company is the beneficiary, not your spouse. The losers are the surviving spouses who will no longer be able to access the annuity to pay expenses, despite the fact that that's the point of buying one in the first place.
What's astounding is that the Treasury Department is going ahead with this annuity scam despite the fact that as a result of being bribed by Wall Street, many members of Congress may prevent Assistant Secretary of Labor Phyllis Borzi from requiring anyone advising 401(k) participants to act as a fiduciary, or in the best interests of their customers.
How did this come to pass? Amazingly, all of the comments Treasury received on its proposal were favorable because they must have come from the insurance industry or the agents that generate commissions from selling their products.
Apparently Treasury didn't invite any of the 1.5 million teachers at the nation's public schools to provide input. A lawsuit filed in 2007 contended that the National Education Association, one of the largest teachers unions, breached its duty to its members by accepting millions of dollars in payments from two financial firms who recommended annuities, according to the New York Times. Lawyers for the plaintiffs estimate that fees paid might exceed $2 million a year.
Nor did Treasury appear to contact Dan Otter, a teacher who runs 403bwise, a website aimed at educating teachers about the fees on these products, who told the Times, "There is an army of agents trolling school districts across the country selling high-fee variable annuities." Teachers typically pay 2% a year in fees on annuities compared to about 1.25% when it comes to regular mutual funds and even less for index funds.
Nor did it appear to reach out to Rep. Rob Andrews, who was so disgusted that employees at many small companies are stuck with annuities that he sought legislation that would give them access to low-cost mutual funds offered by the Thrift Plan, which covers many government workers.
But perhaps the most unconscionable aspect of this annuity fraud is the man behind it, former Wall Street tycoon Robert Rubin, who dreamed up the Retirement Security Project at the Brookings Institution, where Iwry used to work. As former Treasury Secretary under Clinton from 1995 to 1999, Rubin opposed regulating derivatives and backed the 1999 law that deregulated Wall Street, Gramm-Leach-Bliley, just as he was departing to take up a job heading up Citigroup, which benefited from the new law by permitting banks to sell insurance. 1999 was also the year that Citigroup (then Citicorp) launched its "Live Richly" advertising campaign, encouraging homeowners to drain the equity from their homes, causing home equity loans to skyrocket to $1 trillion at a point when home values were at record low levels, according to the New York Times. Rubin's legacy? While he's currently living richly, having raked in more than $126 million in cash and stock during his eight years at Citigroup, the rest of us are facing pension poverty and shriveling home equity.
If you agree that we need to reverse the financial disservice industry's bloodless coup of Capitol Hill along with reversing our retirement shortfall, please take the following steps: Contact the White House and convey your disapproval of the annuity scam or merely send a link to this blog at this website. And please join fellow blogger, MSNBC's Dylan Ratigan's commendable effort to keep money out of politics, which is the reason why too many politicians are not only opposing the fiduciary rule but any reform that makes big business behave itself. Go to his Get Money Out website and sign the petition to get money out of politics.
http://rpseawright.wordpress.com/2011/10/28/whites-wrongs/
Everyone agrees that saving for retirement is crucial. More can and should be done to help workers save more for retirement. But there’s another side to retirement security that few people talk about or understand: how to manage those savings for a lifetime. That is where the annuity can help. In the past, workers relied on defined benefit plans, commonly referred to as pensions, to provide them a steady income in retirement.
Today, very few workers have access to these kinds of plans. Instead, many save for retirement on their own and are responsible for making that money last as long as they do. It’s a daunting task to say the least.
Annuitizing some savings to provide a guaranteed stream of lifetime income allows individuals to cover anticipated monthly expenses in retirement. With this steady and secure base of income, retirees could use the remainder of their savings to invest for growth without fear of losing everything.
Would an annuity OPTION be right for everyone? Probably not (that’s why it would be optional). But for those who are concerned about their savings lasting as long as they do, an annuity distribution option might make sense.
And one last point: Despite the author’s assertions, annuities can and do offer the option to have payments continue to a surviving spouse.
Annuities are a form of insurance - you are insuring a lifetime pension. The 1.5 million teachers that White writes about are educators of others and educated themselves - they should understand this fundamental point. On average, insurance must always pay out less overall than the cost of the insurance product. Therefore, it is a conceptual certainty that annuities “can’t fill an empty nest egg†- no sensible person could imagine otherwise. If you elect to have an annuity to provide the income to the longest lived spouse; then the monthly payouts will be smaller because the payout period will be longer - this is the trade-off that annuity purchasers must make. If one annuity provides the incremental living costs for one spouse; then it might make perfect sense to have no survivor benefit. Obviously, you must pay a penalty to move your money out of an annuity. Annuity payouts are based on interest rates prevailing when the annuity was created - if there was no penalty, annuitants would continually cash out their annuities whenever interest rates increased to get bigger payouts from the same investment.
Because it enriches the Obama Administration's true constituency... the 1%.
A good retirement plan includes a balance of investments, and no one should put all their money in one place. Annuities aren't good for all situations, but are good for some.
Why would I buy a product with a 3% annual fee, if I had another choice. Everyone is fixated on the "income for life" property of an annuity.
Let's also not be confused here about what a 6% annuity is - it's just your money earning about 1-2% and the other 4% coming out of the principal.
If you or your advisor can't find something that will pay an almost risk-free investment greater than 2%, then maybe you should get a new advisor.
As an example a Laddered I-bond portfolio can do that and it is "inflation adjusted."
They are not going to work with the President and he can not make them !