Press Room
Press Responses

September 4, 2001

Letters to the Editor
Los Angeles Times
202 West 1st Street
Los Angeles, CA 90012

To the Editor:

We are writing in response to the article entitled "Boom Fades for Variable Annuities" by Liz Pulliam Weston, which was published in the August 19, 2001, edition of the Los Angeles Times. We are concerned that the article provides an unbalanced analysis and could, therefore, potentially mislead your readers about variable annuities-an important financial product that millions of Americans have included in their portfolios to provide for a secure retirement.

Variable Annuities in a Volatile Market
The article notes that the sales of variable annuities have been adversely affected by the recent decline in the stock market. The sales of all equity products, of course, have been affected by the recent volatile stock market. However, your readers also deserve to know that variable annuities offer a number of features that make them particularly attractive during declining and volatile markets. For one, most variable annuities offer a wide range of investment portfolios, from stock funds to more conservative investments such as bond funds, balanced funds and money market funds. Because money can be transferred between investment portfolios in a variable annuity tax-free, investors can transfer money from one portfolio to another within the annuity to respond to changing market conditions without worrying about the tax implications. This is not the case with taxable investments.

In addition, the insurance benefits offered by variable annuities can provide valuable protection in a bear market. For example, beneficiary protection, in the form of a guaranteed death benefit, gives investors the confidence to stay invested in the stock market-where the highest returns have historically been-since they know that if they die when the market is down, their family will receive at least the amount invested. The ability to annuitize is another insurance benefit that may be especially valuable during a bear market since investors have the assurance that, even if their other investments are down, they can elect to receive income payments guaranteed to last for the rest of their lives, no matter how long that is. Investors can tailor a payout strategy that meets their preferred level of risk, choosing between fixed income payments, variable income payments, or a combination of the two.

Variable Annuities Can Be Entirely Appropriate Investments for Qualified Plans
The article is also critical of using variable annuities to fund qualified plans, arguing that investors pay extra fees for tax-deferral that is already provided by the plan itself. This is simply not the case. First, variable annuities enjoy tax deferral as a matter of law. Investors do not pay for tax deferral in a variable annuity. The fees imposed by variable annuities go to pay for the insurance benefits the contract provides, not tax deferral. Variable annuities offer a wide range of benefits not offered by other investments, including the death benefit and the right to elect lifetime income payments. In fact, National Association of Securities Dealers (NASD) guidelines recognize the benefits provided by variable annuities that can make sales within tax-deferred retirement plans entirely appropriate. The suitability of a variable annuity for any customer is a factual determination that must be made for each sale.

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NAVA shares with Liz Pulliam Weston a common goal of educating the public about retirement planning. Why use a variable annuity to save for retirement? Because only variable annuities offer a unique combination of benefits that most retirement-focused Americans want and need: lifetime income payments, family protection, guaranteed fees, and investment options and strategies that help protect against the eroding effects of inflation.

Sincerely,

Mark J. Mackey
President and CEO
National Assn. for Variable Annuities (NAVA)
Reston, VA