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February 20, 2013 at 10:22 AM
Winston Churchill, known for his many memorable quotes, once said, “If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes (John Maynard Keynes), in which case you get three opinions.” The world’s economists are printing money faster than Lindsey Lohan’s probation violations and are under the spell of Keynesian economics, which encourages government intervention in monetary and fiscal policy. A similar debate continues about whether or not an annuity belongs in a qualified plan. This remains an age-old argument.
The justification, along with a plethora of other growing suitability questions, is on every FINRA exam for broker-dealers and many life carriers for non-registered representatives. John P. Huggard, J.D., CFP, is known for his groundbreaking work about whether variable annuities belong in qualified plans. Huggard also wrote the book “Fifty Reasons Why Variable Annuities are Better Long-Term Investments than Mutual Funds.” Most of Huggard’s work has been vindicated, and, with permission, he agrees that most applies to indexed annuities as well — especially since fixed indexed annuities are a viable alternative to bonds and bond funds and, after two major bear markets and a Great Recession, especially as a qualified plan option.
Huggard views on indexed annuities as an alternative in qualified plans have recently been supported, especially with the record growth in income riders. Here are three reasons why:
1. The argument that regulators make is only valid when one believes the only benefit of an indexed annuity is when life insurance is included in a qualified plan. The costs of an indexed annuity have already been factored into the net cost of an indexed annuity and are disclosed when an income rider is included in the rollover of money from a qualified plan. So, there is no cost for the duplication of benefits.
Southwest Airlines, one of the few airlines to make money for its 401(k) participants in company stock the last 30 years, recently included an indexed annuity as a plan option because a traditional 401(k) plan investment cannot guarantee a family against loss or provide a lifetime income like a traditional plan. That’s why more and more safe money specialists and 401(k) rollover specialists are including indexed annuities in qualified plans.
2. A FINRA notice to members offers full disclosure updated by 408(b)-2, which requires that a death benefit be offered, that annuitization is available and that the annuity has fixed or guaranteed contract fees. A fixed indexed annuity provides all these benefits and more. The life insurance industry’s superior record on solvency versus pension plans is indisputable in good times and in bad. Many indexed annuities offer, subject to insurer solvency, a GMWB (guaranteed minimum withdrawal benefit), many more annuitization options, and enhanced death benefits.
