Dear Editor,
Group Stinks, an article written by Scott Woolley in Forbes July 13, 2009 issue has proclaimed all group annuity contracts are dogs. In this time of specialization, it is great to see a writer take on the roll of an ERISA attorney, contract lawyer, investment manager, plan advisor, and consumer rights advocate.
Are there abuses in the small 401(k) market? Small being defined as plans with less than 100 employees and $5 million in assets. Absolutely. Do they take place in plans with assets of $10 million to $250 million? Rarely. Based on Larkspur Data Resources, Mr. Woolley would suggest we have 18,000 dumb companies investing $185 billion of plan assets in dog annuities. His claim is that all of these products are sold by unscrupulous brokers who are motivated only by lavish commissions.
And Scott, please send me the name of the supervising Texas CPA firm so I can avoid their sophisticated analytical capabilities to not understand or ask the right questions before signing a group contract, or any other business contract. No matter how much oversight provided by the SEC and the State Department of Insurance, you cannot protect companies from making potentially poor business decisions.
I am not defending the high cost and abusive group contracts sold by some companies. It is the tone and unconstructive generalization about the GACs that prompts me to post this blog.
In the future I would suggest you interview brokers and advisors who will provide unbiased advice and explain the value of a GAC. You have received very biased advice from competitors selling against the products. Not sure if they have any more honorable intentions than brokers selling GACs that provide poor value.
Finally, the advice to employees is sound. Identify what the true costs are to participate by asking your employer to do a thorough review of the expenses and fund performance. As a fiduciary, this should be done every year. Use the DOL Fee Disclosure form and have the broker and insurance company complete the form. Also, have the broker put in writing they are not receiving any other form of compensation other than what is disclosed on the form. This should be signed by an officer of the brokerage firm.
The 401(k) plans with outrageous fees do negatively impact future account balances. Having a naive writer author financial articles with limited business acumen and not seeking independent sound opinions/advice could be equally damaging.
One final comment, “Do not complain to your Benefits Department.” A company with fewer than 100 employees typically does not have a Benefits Department. There are plenty of complaining employees. How about offering to form a committee to thoroughly review all aspects of the company 401(k) plan, if there is not one already in place? This will lead to better results for the employer and for plan participants.
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