Recently, many companies have begun to offer variable annuities as subaccounts
in their company retirement plans. Variable annuities are contracts between
a purchaser and an insurance company.
According to a July 2, 2010 article by Mel Lindauer on Forbes.com, this
inclusion is problematic for two main reasons. First, many of the variable
annuities placed inside retirement accounts are high-cost non-qualified
variable annuities carrying substantial fees including surrender costs.
Second, if the retirement account is already tax-deferred (as is the case
with most), a variable annuity will not provide the investor with any
additional tax benefits.
"If you are investing in a variable annuity through a tax-advantaged
retirement plan (such as a 401(k) plan or IRA), you will get no additional
tax advantage from the variable annuity," warns the SEC on its website.
Insurance industry representatives claim the benefits of variable annuities
(including: periodic payments for life, death benefits, and tax-deferred
income and investment gains) go above and beyond the benefits associated
mutual fund accounts. However, only a very small percentage of variable annuities
are ever "annuitized."
Financial professionals selling variable annuities are obligated to advise
investors of the suitability of the investment vehicle for the investors'
particular investment goals. Selling an
unsuitable product or failing to disclose all of the information about the product
could render the brokerage firm or sales agent liable for damages.