F&G Life Policy Wins ‘Worst TSA’
By Bob Moeller, CFP,
WEAC's Member Benefits Manager
February 2001
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The Really Rotten TSA Contest is over and the winner is……..
Readers will recall that I repeated a contest first held decades ago
to try to find the worst Tax-Sheltered Annuity. You know what? There are
still plenty of rotten products out there. If you haven’t looked
at your policy, you should. Or, send me a copy of your latest statement
and I will review it for you.
The worst products are generally fixed annuities. In a fixed annuity,
you give the company your money and they pay a straight interest rate.
You have no choices. Usually these have a fair “new money” rate,
which is the rate they pay on your contributions for one year. Then, your
investments become “old money,” and earn a much, much lower
rate. Of course, the company usually doesn’t tell you what the old
money rate is. Finally, the company will extract high penalties if you
have the audacity to withdraw or transfer your funds elsewhere.
There were two really bad products that made it difficult to pick the
worst one.
- The $500 winner has a product with F&G Life Insurance of Kansas
City. She started in 1993. So far she has put in $54,800. In theory,
the account is worth $64,700, but if she withdraws or transfers it,
even after seven years, she gets an 11% penalty, resulting in a net
value of about $57,600. The company puts a new money rate of 6% on the
statement, but all of her money that is more than one year old earns
only 4%, which I can state only because an F&G representative let
it slip when we were talking. Is there anything good about this policy?
Not that I could find. What should the member do? Stop contributing
immediately. Do some research and find a better product. Almost anything
would be better, but research is necessary. This winner receives $500,
and, I guess, our congratulations.
- The $300 winner is close behind with General American Life of St.
Louis. The new money rate is a good 6.75%. However, the old money rate
that was represented to me as 5.50% by the company, turned out to be
less than 4.50% when I used the statement values to figure it out. A
withdrawal or transfer will cost a 12.7% penalty after seven-plus years.
What should our $300 winner do? Stop contributing immediately, do some
research, and buy a better plan.
- Finally, our third place winner receives $100. LISTEN UP all retired
members out there, this retired member has one of the old Washington
National fixed annuity products. I felt so sorry for this entrant that
I called her and advised her immediately what to do. She needs retirement
income and is invested in a product paying only 4.0%. At least there
is no withdrawal charge any more. What should she do? Immediately transfer
to a better product, paying a higher percentage rate with no new withdrawal
charges, etc., or roll it into an IRA.
I want to make a special mention of some products that were truly awful,
but could not be judged winners because one of the rules was that the
participant had to be actively participating. These are held or were held
by members, but they are not now contributing or taking an annuity.
One Jackson National Life Insurance of Lansing, Michigan, product submitted
was awful. The current interest rate is less than 3% and, after 12 years,
there is still a 13.4% withdrawal penalty.
A submitted USG Annuity & Life of Des Moines product was a terrible
policy. This was a single premium transfer policy with a current interest
rate of 4% and an 8% surrender penalty.
Great American Life of Cincinnati, Ohio, wrote a bad policy for one of
our members that credited a good interest rate to the “annuity”
value, but a poor 4.75% interest rate to the surrender value. As of September
2000 the difference between the surrender value and the annuity value
was $13,400, or an 18% penalty. The policy had been in effect for 14 years!
Again, the main reason companies pay you a better rate on the “annuity”
value is that it practically forces you to buy an annuity from them, and
they make even more money.
Next month, I will review the variable, or flexible, entrants I received.
If you want me to review your product, send a copy of a recent statement
to me, Bob Moeller, at WEAC, P.O. Box 8003, Madison WI 53708.
Posted February 2001