Advisers to 401(k) plans recently have revisited the wisdom of offering annuities, in light of last years severe market downturn. But group annuities are being criticized for subjecting investors to lockup periods of five years or longer and a variety of additional fees.
Group annuity contracts are often more complex than plan sponsors realize, riddled with hidden charges and lock-up periods, Forbes reports, in an article titled, Retirement Plans From Hell. The trouble is, the insurance companies that sold them to sponsors did so by motivating salespeople to be highly aggressive via generous commissions. Marketing materials touted low-cost to employers, but left out all of the charges their workers would be subjected to.
Today, an estimated 18,000 sponsors have $185 billion worth of 401(k) assets in group annuities or other insurance contracts.
Insurance companies cater to the smaller, less sophisticated part of the market, said Robert Prall, managing partner of 401(k) consultancy
When it comes to fee abuse in retirement plans, you can put group annuities at the top of the list, agreed Seattle, Wash., financial planner Daniel Maul. One of the most expensive group annuities is a contract from
It is because of the surrender charges that insurers are able to pay salespeople such high commissions, said Parker Payson, a principal with