From time to time, I receive press releases and other email notifications from Jane White, president and founder of Retirement Solutions LLC. I’m not quite sure how I got on this list, but according to their site, Retirement Solutions is an “advocacy and educational organization dedicated to the retirement adequacy of 401(k) participants” and “produces ‘It’s Your Money’ 401(k) information sheets that help participants make wise decisions about saving and investing.” White also writes a semi-monthly column on retirement issues for an employee benefits trade publication.
White is feisty. She enjoys stirring things up – which is a great asset for anybody working in an educational and advocacy role, especially one about which they are passionate. And she has plenty of sound advice that centers around sound financial strategies and smart planning decisions.
However, a recent press release made me pause. (Actually, it made me want to repeatedly hit my head against my desk. But “pause” sounds nicer and less painful.)
Titled “Obama’s Automatic IRA, Annuity Schemes Would be a Disaster,” the press release first explains why exactly the direct-deposit IRA solution isn’t the best. But then, I stumbled upon this gem:
“For another, even if Americans had accumulated enough, annuities are the worst possible solution for managing a lifetime income stream, given the irresponsible behavior of the salespeople in the industry.”
Oh, really? Well, that sounds like a good reason to condemn an entire market. White goes on to cite the 2006 FINRA investor alert that warned of annuity sales agents who were conducting workplace seminars for the purpose of convincing employees to retire early, cash our 401(k) accounts, and buy variable annuities. She also mentions the John and Patricia Seibel Act, signed into law by Gov. Charlie Crist in 2008, increasing penalties on annuity agents who engaged in deceptive practices.
So annuities are bad – not just bad but “the worst possible solution for managing a lifetime income stream” – because there are people who abuse their authority?
I guess, then, that used cars are the worst possible solution for buying an affordable vehicle because of the deceptive and borderline unethical practices of the occasional used car dealer.
And working full time is the worst possible solution for a regular income because a number of employers have sexually harassed their employees, or provided them with unsafe working conditions, or been less than fair when terminating their employment.
I would like to state here, for the record, that Tylenol is the worst possible solution for pain relief thanks to the company’s failure to start offering tamper-proof containers until after the 1982 Chicago Tylenol murders, in which seven people died from ingesting capsules that had been laced with cyanide by a still-unknown person.
Because it’s a totally sound argument to condemn an entire brand or type of product or good or service based on the action of unscrupulous individuals.
And what about 401(k) plans? Make no mistake – I am a huge proponent of the 401(k) as a retirement savings vehicle. I have one myself. Contribute 7 percent of my salary to it each pay period (not quite as much as I like, but something nonetheless).
It seems 401(k) administrators suffer their share of litigations for mishandled policies. Like the 2008 U.S. Supreme Court decision that allowed an employee to sue the administrator for an alleged $150,000 lost when he said the administrator twice failed to follow his request to move his money to safer investments.
And the recent lawsuit against the Spokane, WA-based Sterling Financial Corp., which is being sued by a former employee who says the bank’s 401(k) plan administrators “imprudently invested as much as 20 percent of plan assets in company stock that has plunged in value.”
Does this make them the worst possible solution to retirement savings?
This all plays into the negative conception of annuities perpetuated by the media. In fact, as you’ll see in the April edition of the Agent’s Sales Journal, 10 percent of producers say their biggest challenge with selling annuities is that clients are skeptical due to recent negative media coverage.
When media-savvy, outspoken advocates such as White perpetuate a marketplace myth – that all annuities are bad because some people mishandle them – it only serves to set back industry efforts to mend old ways and regulate outliers. Rather than condemning an entire industry, let’s work on connecting qualified consumers with solid advisors, and strengthening regulations that prevent people from being bilked.
The fact is that annuities are not a good solution for some people. But for others, in the right hands, and with an experienced advisor, they can be great.
Kind of like my 1999 Honda Civic, bought used in 2002 from a reputable used car dealer. It’s still kicking.
Christina Pellett is the editor of the Agent's Sales Journal.