Annuity FYI Blog

A press release from Florida’s Chief Financial Officer Alex Sink details new legislation the state has passed to protect residents from annuities fraud. Specifically, it bans the practice known as “twisting”, where an unscrupulous agent combines several annuities into one with a different holiday. The agent recieves an extra commission from another company, while the investor’s retirement nest egg is put in danger. In Florida, this practice is now a third degree felony.

Senior citizens also recieve other new protections under these laws. They now have a “free look” period of 60 days, duringwhich they can cancel the annuity purchase with no penalty, and agents are required to provide them with a cover sheet that informs them of that fact. The Department of Financial Services is prevented from giving another license to someone who as had theirs revoked due to solicitation of a senior citizen; in addition, it is authorized to require that an agent pay monentary restitution to someone they have defrauded.

The Safeguard Our Seniors (SOS) task force is taking a stand against agents that sell innapropriate annuity products to seniors; e.g. selling an individual in their 80s a deferred annuity that may not pay out during his or her lifetime, when immediate annuities that begin payments right away would probably be more suitable.

On CNNMoney, Penelope Wang suggests that buying immediate annuities with your 401(k) money may be a good bet after you retire. Employers often pay out 401(k) accounts in a lump sum for convenience purposes, but many people struggle to make that money last throughout their retirement. Penelope says that there is even evidence that retirees may be happier when they recieve regular pension-like payments! She claims that they aren’t as popular as you would expect due to the complexity of the annuity market.

Some people are calling for the temporary conversion of 401(k) accounts into annuities, which can be continued permanently if the individual desires. While that doesn’t seem to be on the horizon yet, you can still do it yourself and take all or part of your 401(k) and invest it in an annuity. However, they may have higher costs and lower growth rates than other investments, making them less than ideal for many younger investors far away from retirement. If you’re soon to be or already retired, though, a 401(k) rollover annuity could be for you.

In the National Underwriter, Arthur D. Postal writes that the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) have jumped into the fray regarding Rule 151A. The rule was enacted by the Security and Exchange Commission (SEC) last December; it seeks to regulate equity indexed annuities as securities. The two regulatory groups have sued in the U.S. Court of Appeals to block the rule from taking effect in early 2011.

A coalition of insurers that sell equity indexed annuities has already filed a lawsuit, which will likely be combined with this new suit. Although that industry coalition wants a decision as soon as possible and has filed for expedited review, Arthur says that this development will probably delay the court’s decision.

Insurers are allowed to continue selling equity-indexed annuity products under current state regulations until January 12, 2011.

MarketWatch reports that Moody’s has lowered its ratings for Hartford Financial. The annuity provider’s life insurance business was downgraded to A1. This means Hartford no longer is high-credit-quality. Future downgrades could be forthcoming, since Moody’s also has a negative outlook for Hartford. A Hartford representative blames the credit crunch for making it harder to hedge against future losses in variable annuities.

On The Huffington Post, Dan Solin writes that immediate annuities are a less publicized yet suitable investment for retirees or those about to retire. He cites evidence that people who invest in an immediate annuity as part of their retirement portfolio are less likely to outlive their savings, a big concern for baby boomers.

Several companies offer immediate annuities, including:

• Vanguard
• Fidelity
• Charles Schwab
• TIAA-CREF