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Retirement Plans From Hell
Insurance News Net, June 30th, 2009
Early this
year the woman overseeing the 401(k) plan for a rural Oregon company
gathered her 25 colleagues together to hold an election. At stake:
whether to continue paying AIG an annual 1.25% of assets to manage
their 401(k) plan as part of an insurance contract, or switch to mutual funds costing a third less. No surprise that the proposal to convert passed easily.
Then the nasty surprises started popping up. As she sought to unwind
the plan, the administrator discovered that AIG had been tacking on a
variety of fees all along. One nicked employees for 2% annually when
they borrowed money from their own 401(k)s--work the new plan was
willing to do for a flat $50 a year.
To top it off, AIG said
that many of the employees would have to wait five years to get back
their entire nest eggs, with no choice but to keep paying the fees. AIG
says such lockups are disclosed in its plan contracts and are shorter
than the ones many other insurers impose.
The company's
frustrated administrator, who agreed to talk only anonymously, says
she's still baffled by the complex annuity contract. "We still don't
have a good handle on what they're charging us," she says.
Like the Oregon outfit, lots of mostly small companies are finding out the hard way that the 401(k) plans they bought from insurance
companies, usually set up as "group annuities," came with a variety of
hard-to-find charges and lockups. Or, more aptly, the plans they were sold by
people motivated by lavish commissions. Many hyped the product as a
low- or no-cost proposition for employers while glossing over the fees
charged to employees. A successful ruse it is. All told, insurers have
lured 18,000 companies into parking $185 billion of 401(k) assets
inside group annuities and similar insurance contracts, according to an analysis by Larkspur Data Resources of plans with under $250 million in assets.
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