Press Room
Press Responses

May 10, 1999

Ms. Meg Greenfield
Editor
The Washington Post
1150 15th Street, NW
Washington, DC 20071

Dear Ms. Greenfield:

I am writing with respect to an article titled, "Selling Annuities Under False Pretenses," by Jane Bryant Quinn that appeared in the May 2, 1999 edition of The Washington Post. The article disparages the use of variable annuities in qualified plans, asking, "why would you put an investment that's already tax deferred (the annuity) into a tax-deferred retirement account?"

The short answer is that only variable annuities offer a unique combination of benefits that most retirement-focused Americans want and need: lifetime income payments, beneficiary protection in the form of a death benefit, guaranteed insurance fees, and investment options and strategies that help protect against the eroding effects of inflation. The cost of these benefits is a small price to pay for the protection that is provided.

The article acknowledges the insurance benefits annuities provide, but dismisses them as having little value. We strongly disagree.

Beneficiary Protection
Variable annuities provide valuable protection for retirement savings through a death benefit that many investors regard as vitally important. Contrary to what the article says, the standard death benefit provided by variable annuities guarantees that if the policyholder dies while still saving for retirement, his or her heirs will get back at least the amount of money that was invested. (Expenses are not, as the article asserts, deducted from this death benefit.) Many variable annuities go even further and offer "stepped up" benefits that lock in investment gains every few years or even every year.

No one can predict if they will die when the market is up or down. Even though the stock market has historically been an excellent investment for long-term growth, it is important to remember that, at any given point in time, the market can be down. The guaranteed death benefit gives policyholders the confidence to invest in the stock market, which is important in order to keep pace with inflation, since they know that their family will be protected against financial loss in the event of an untimely death.

The article complains, however, that not many people benefit from this protection. This statement reveals a fundamental lack of understanding of the nature of insurance. When an individual purchases an insurance contract-be it life insurance, homeowners insurance or whatever-what he or she is really buying is protection against economic loss. However, that loss does not have to be realized for the protection to have value. No reasonable person would say that an individual who purchased a homeowners policy made a poor decision simply because his or her house never caught fire. Hindsight is always 20/20. But, unfortunately people don't have the benefit of it when making important life decisions.

Lifetime Income
The article also takes issue with the ability to convert savings in an annuity into income for life because savings outside an annuity can be similarly converted. This overlooks the fact that annuity purchase rates contained in deferred annuities are guaranteed for the life of the contract. As a result, by purchasing an annuity today, the policyholder may elect a lifetime income payout option when he or she retires at today's purchase rates. The duration of this guarantee varies with the time that elapses between the purchase and the annuitization of the contract. For example, if an individual purchases a variable annuity at age 40 and annuitizes at age 70, then the guarantee will have lasted for 30 years (plus the period of the annuity income stream).

Given the significant changes that can occur over time with respect to the economy, longevity, and the insurance company's costs of doing business, the guaranteed purchase rates are a valuable benefit provided by variable annuities. If life spans increase during the accumulation period, the guaranteed purchase rates may produce larger monthly payments than would the current or "immediate" annuity rates when the policyholder annuitizes. On the other hand, if the rates being offered to individuals who purchase immediate annuities are more favorable than the guaranteed purchase rates, the policyholder can annuitize using immediate annuity rates. In effect, the policyholder is in a win/win situation.

As a parting shot, the article refers to those offering annuities to qualified plans as "unscrupulous sellers." Perhaps Ms. Quinn is unaware that variable annuities were specifically designed for the qualified market and have been recognized by Congress in specific sections of the Internal Revenue Code to be a legitimate funding vehicle for qualified plans. Their use in this market is both long-standing and widespread. Millions of Americans have chosen to invest their qualified plan savings in variable annuities. We believe these Americans recognize the benefits variable annuities bring to their retirement plans, and have chosen wisely. In light of these facts, to refer to such sellers as "unscrupulous" is, we believe, inaccurate and misleading.

Sincerely,

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