Unsettling?

[joel]

The following comes from Contingencies Magazine. See: A Free Market For Life Insurance, P. 17 March-April 2002, @ www.contingencies.org:

“No one should want another person to have a financial (pecuniary) interest in his or her death. Adhering to the principle of insurable interest is one method of achieving that goal, but it's not the only one. (And the industry sometimes violates the principle. For example, a company that offers a life only immediate annuity has a financial interest in the early death of the annuitant").

Question: Are DB pension plans, that compel life only annuities, also guilty of this violation?

Peace and Hope,

Joel L. Frank

[mwyatt]

I think that further in the Viatical article (next article, pages 22-25) the author discounts the "Murder Inc." motivation WRT annuities, in that the only financial benefit is the cessation of periodic payments. By contrast, with a viaticated insurance policy, the purchaser has the motivation of ceasing payment of insurance premiums as well as the collection of the face amount of the insurance policy. Plus the relatively unregulated (and unsavory) nature of persons involved in the viadication industry...

However, if you see your plan sponsors offering "Adventure Marathon" trips to the Middle East for recent retirees, you may be on to something....

By nature of an annuity, one side always has some sort of potential gain due to early demise of the annuitant. However, would I suspect an insurance company or a plan sponsor of knocking off their retirees? No, but I probably would be nervous with a life insurance policy sold to an unknown individual. See the next article after S&B for further details..

[joel]

I read both articles. It seems to me that annuitization is in the best interests of the guarantor otherwise they would not be in the business.

[david rigby]

To be more generic, there is risk involved on both sides. This is the nature of any type of insurance arrangement. In the case of an annuity, the insurance company (or the pension plan itself) is bearing a "longevity" risk. Some benefit recipients will live shorter than average, some longer (duh). But some recipients will live much longer than average. An insurance company must establish reserves for this risk.

The individual bears a risk of dying too soon. That is the prime reason some pensions, whether paid by an insurance company or by a traditional defined benefit plan, contain a minimum, for example a guarantee of at least 120 payments.

But, as discussed in other threads, the purpose of a pension is to provide funds to the living, not to the dead, so it does follow that payments, for the most part, are conditional upon survival.

[joel]

Pax,

It just seems to me that if the company allows for just one mode of settlement (annuitization) such settlement is clearly in ITS financial or pecuniary interests, not those of the annuitant's. Even an annuitant dying at age 100 leaves the insurance company/DB plan CLEARLY AHEAD when you factor in the leveraging of the Reserve funds from retirement to death which could be forty years (duh).

[mbozek]

Aren't annuities known as the roach motel of the insurance industry-- the money comes in but is only paid out as the insurance company decides to pay it. Why else are the big financial cos purchasing insurers who sell annuites (AIG bought American General)-- its a risk free way to leverage reserves and make a guaranteed profit over an extended term. That is the reason most employees are better off taking a lump sum and investing the money on a risk free basis--at their death the remaining funds go to their spouse/heirs- not to the insurnace co. I have never heard of an insurance co losing money on selling annuities. (Well there was one many years ago) Mutual benefit life/ exec life became insolvent because poor investments resulted in a loss of liquidity. I don't see how an ins co can lose money on an annuity when they are assuming an interest rate of 5-6% on annuity payouts.

[david rigby]

Hold on. We've gone thru this before.

Yes the individual bears a risk of "dying too soon", but there is another risk of "living too long". If the individual chooses to hold and invest all his own retirement assets, then she/he runs the risk of outliving those assets. The promise of both the insurance company and the defined benefit pension plan is that no recipient can outlive the annuity. Although it may not be best for every person, there is value in that promise.

This is not good or bad. It is just how these arrangements work. There are risks and tradeoffs in all areas of life.

[mbozek]

Pax: Why is annuity the only protection against living too long. Why can't an individual use his IRA as a private annuity because of the following advantages: Taxfree accumulation of interest, no discount in benefits for an insurance co mortality table, a safe rate of return of about 7.5-8% with investment grade corporate bonds and preferred stocks and bulit in inflation protectiion by being able to ladder the investment portfolio with different maturity dates. The minimum distribution mortality table allows indefinite payout and the option to change the mortality table to the spouse/child on a tax free basis.

I guess I just dont see the advantage of purchasing an annuity product with commission /load charges and an assumed interest rate of 5.5% plus a mortality table as a better deal for the employee. You can get 5.5% on risk free T bonds.

The risk with a DB pension benefit is that it does not provide inflation protection. At 3% inflation, a $1000 monthly pension benefit at 55 will be worth about $500 at age 80. This is also a risk of living too long.

[david rigby]

I am not advocating purchase of annuities. Yes they can be expensive, but they also have advantages because of the backing of the insurance company.

My advocacy here is not for or against IRAs or insurance companies. Rather, a single IRA cannot contain the guarantees inherent in a contract with an insurance company. Therefore, it would be prudent to ask. In other words, use the market place to go shopping, but don't forget the admonition to "compare apples to apples."

[joel]

The regs should require an annuity holder to sign off on the following statement before one is allowed to convert his/her accumulation to an immediate annuity:

"In return for XYZ insurance company's promise to pay a fixed monthly income of $3750 to Joe Doe for the remainder of his life, Joe Doe agrees to transfer his title to $500,000 to XYZ insurance company." Do you feel such a disclosure would increase or decrease immediate annuity sales and settlements?

[joel]

Additionally, DB pensions that compel life annuitization is the same thing as a life insurance company offering only an immediate annuity to the owner of a matured endowment policy. With the latter it would be a violation of law. Why is it permitted with the former?

[mbozek]

Joel: Is a new requirment under 204(h)? If not it should be. Seriously I think the notice should include the interest rate and mortality tables used (with setback) and the load and other charges. In reality some states (NY) require that insurance companies give some disclosure and provide a 30 day free look to purchasers. The problem I have is with the archaic requirement that benefits from mp plans must be paid in the form of an annuity-- It is such a burden for employers who have to get quotes and prepare materials for no takers.

[david rigby]

The DB pension plan, at least outside of governmental organizations, is usually 100% provided by the employer. It amazes me that some participants forget who is paying for it and think the plan should be designed by the employees. If the employer wants to design a plan feature that improves plan administration and employee understanding, why should employees object?

Because we went thru this same discussion a couple of years ago, I'm out of this discussion!

[joel]

Pax,

C'mon, you KNOW that an employer only funded benefit whether it is vacation time, health insurance, sick leave or a DB pension is reflected in reduced salaries. Why are you leaving us?

[mwyatt]

Not to throw gas on the fire, but after the last couple of years of how you say "interesting" market returns (how would you like to be the plan sponsor handing out PS statements showing an 86% loss for the year - for real - hope that the receptionist's husband isn't an NRA member), I thought that most people would be looking a little more fondly on the old defined benefit plan. Mr. Frank, your perspective seems to be rooted in the mentality found prior to the collapse of the NASDAQ in spring of 2000. That old guaranteed base pension, coupled with savings or a 401k plan, looks pretty good right now. Being in the small plan domain, there are many clients out there who thought that they had the Midas touch. Too bad that they are going to have to wait about 10 years for things to come back to normal.

The REAL point of the articles in Contingencies (the first of which was written by two authors with a very vested interest in what they espouse) is that the viatication of insurance policies in an unregulated market has some pretty thought provoking consequences. You are dealing with the secondary market sale of insurance policies to unknown folks who have a VERY vested interest in your early demise. If your point is that insurance companies and defined benefit plans want to knock off their annuitants, please direct your Newsreader to ALT.CONSPIRACY.THEORIES. Now if you want to contemplate the unfortunate but real situation outlined in the second article of second/third/fourth parties purchasing insurance policies, please get back to your original point. Of course insurance companies, plans, etc. have to have a deal make sense economically in the end. Do you want to deal with companies that are going to blow themselves up (want to buy some Pets.com stock anyone?).

[mbozek]

MWyatt: While mkt returns for the last two years have been dismal it is merely a leveling of the above average returns of the 95-00 years. There are ways to protect investments, eg. asset allocation among classes and sectors to reduce volitality, investing in conservative income producing investments such as preferred stock and corp bonds and for the very conservative t- bonds. I dont think investors in viaticals undertand the investment risks, e.g., the insureds live longer than expected cutting the invesment returns to CD rates as well as the unregulated nature of the industry---there is no way to tell if the broker or intermediary is selling a genuine product or whether it is a scam. Investors in viaticals are do it yourselfers who will get burned. They would be better off putting their money into a S & P 500 fund with 17 bp cost. As far as db plans are concerned, without inflation protection the retiree has no protection against living too long and must rely on equity investments. There are fewer and fewer employers who can afford both a db and 401(k) plans. Most ers can only support a 401(k) and stock option program.

Speaking of blowing themselves up do u remember mutual benefit life- it was the 18th largest ins co until it blew itself and its annuitants ( mostly 403(B) plans ) up with bad real estate investments but nobody knew it was coming because mutual benefit was not publicly held.

[joel]

Dear mwyatt:

Its tragic that diversification is not practiced as much as it is preached!! Additionally, a two year decline of stock prices is countered by two great years. So now let's focus on what really counts with DC plan investing---the long term! How do you feel the vast majority of DC plan participants have made out over a lifetime of investing? My position follows:

Peace,

Joel L. Frank

=============================================

Joel L. Frank

Registered User

Registered: Oct 2001

Location:

Posts: 39

Guest Article

Government Employees' Pensions: It's All About Empowerment... But For Whom?

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by Joel L. Frank

In the 1960s and '70s, the nation's public institutions of higher education began to acknowledge just how hurtful the traditional defined benefit ("DB") type of pension plan was to their mobile employees. They addressed this portability problem by establishing defined contribution ("DC") pension plans as an option to DB plans.

Case Study in New York

In 1964 the New York State Legislature established an Optional Retirement Program ("ORP") for public employees at the public institutions of higher education. In order to be cost neutral, the employer is required to contribute the same amount to the employee's individual investment account maintained by the DC ORP as would have been contributed on the employee's behalf to the DB pension plan of the Teachers' Retirement System. (This also applied to the employee benefit package for health, disability and life insurance coverage.) The employee is not required to contribute. The employer contributes 12% of the first $16,500 of salary, plus 15% of the salary above $16,500.

Let's assume that an employee who began his or her ORP participation in 1964 has been paid at the same level as a New York City public school teacher during each of the past 36 years. The individual's 2000 account balance would be $1.3 million if all of the contributions were invested in the Guaranteed Interest Fund, $1.7 million if all the contributions were invested in a mix of equities and bonds (the asset allocation employed by the Trustees of the eight DB plans of New York), or $2 million if all of the contributions were invested in the equities fund.

It's True That Each Type of Plan Has Its Advantages

The main advantage of a DB plan is that it assures retiring members with equal periods of service at a given employer a consistent ratio of retirement income to final average salary. And this ratio (though not the amount of retirement income) is predictable if it can be assumed that the employee will stay with a given employer until retirement.

A major advantage of a DC plan is that it adds a consistent and visible percentage of salary to each member's total compensation at the time the compensation is earned. If one person's salary is more than another's, the deferred compensation is greater by the same percentage, not warped out of proportion by age or length of service. This pattern of funding, unlike a DB plan that defers most of the employer's contribution to the final years of long service, helps keep the pension plan a neutral factor when the person is deciding about joining or leaving an employer (also when the employer is making the decision). In an era when increasing numbers of the public workforce are no longer remaining with one governmental agency (federal, state or local) for an entire career, it seems reasonable for each employer along the way to contribute a fair share toward a person's retirement income, and for the individual to have the same ultimate income whether staying with one level of government or moving among the three.

The DC plan also has budgeting advantages for the governmental unit. Pension costs are a constant percentage of salary each year. And the employer's pension obligation for each person is fully and permanently funded at the time the obligation is incurred, not left as an open liability tied to whatever salary levels the future brings.

Employees Should Have a Choice

Recognizing that a DC plan can be designed to provide retirement income at least equal to that of a DB plan, one might ask why haven't the public employee unions fought for their member's right to choose either approach. The answer lies in the word empowerment. The unions want to maintain their influence and control over the employee's life from the moment one first enters the public service until termination, retirement or death, whichever comes first! After all, who receives praise when a state legislature approves enhancements to the DB plan or a COLA for retirees? The unions, of course.

The employee's right to choose the type of plan, DB or DC, which the employee believes would be best for him or herself and their respective families represents a threat to union influence and control. For example, an ORP participant who has the $1.3 million balance is excluded from participating in a COLA program and happily welcomes the exclusion. And why not?! The $1.3 million represents the present value of a lifetime fixed-dollar pension of $138,000 starting at age 65. (Think of this balance as the retiree's Pension Reserve Fund established by the DB plan.) How many public employees in this nation are about to retire, after 36 years of service with one employer, on a pension of half that amount or $69,000, let alone $138,000? And remember, investing the same contribution that the employer would have contributed to the DB plan if the employee chose, in 1964, to remain with the DB Teachers' Retirement System, generated $1.3 million.

Every state should do the right thing, as Florida has just done, and establish an ORP for all of its employees. Current as well as future employees will have the right to choose either the Florida Retirement System's DB plan or the new Florida Retirement System's DC plan, known as the Florida Retirement System Public Employees Optional Retirement Program (FRS PEORP). Current members of the traditional DB plan will be allowed to transfer the present value of their accrued DB pension to their individually owned and directed investment account maintained by the PEORP. This is the largest pension conversion of its kind in the nation's history. The sun, indeed, shines in the Sunshine State.

Just think about the number of employees at the nation's public institutions of higher education who opted out of DB plans in the 1960s-'70s. Close your eyes…just look at their contented faces. The word empowered is clearly visible. The nation's public employees, like their colleagues at the public institutions of higher education, should have the statutory right to accumulate wealth, if they so choose, through their employment-based pension plan. Annuitization of pension wealth should be voluntary not compulsory. After all, the state capitols and city halls do not issue stock options.

Joel L. Frank

PO Box 148

Marlboro, New Jersey 07746-0148

(732) 536-9472

rollover@optonline.net

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[mwyatt]

Dear Mr. Frank:

Not trying to go after you or mbozek; the problem is that the general euphoria of 95-00 led many folks who should have known better to stray from the virtues of diversification (much to their chagrin). Believe it or not, two of my worst performers were financial advisors themselves. I've done a few independent studies of some clients' performance over the last ten years (we're not involved at all in investments, only provide actuarial services) and have found a number who have taken a complete "round trip" from 1994 (i.e., value of investments now is about even with cumulative contributions less withdrawals).

Although this is going a little off-topic, I get the feeling that it is going to take quite some time for things to get back to normal in our markets. Right now you see Enron being held as the scapegoat for the collective sins of many companies over the last few years with regards to "book cooking". Do I think that we are headed for a depression? No, but equity valuations are still incredibly high on a historic basis. Some suggested reading (don't agree with it all, but worth thinking about):

Peter Shiller - Irrational Exuberance

John Kenneth Galbraith - The Great Crash

and from an old professor of mine,

Charles P. Kindleberger - Manias, Panics and Crashes.

Hope all of our clients have learned a few lessons going forward with their investment strategies. And remember (from a personal favorite, Huff's "How to Lie with Statistics"), if you're down 50%, that means you have to go up 100% to get back to where you were.

And for mbozek, I agree wholeheartedly with your comments on investing in viaticated contracts (really wasn't even thinking about that end of it). Looks to me like this investment is on the same level of the multitude of LPs issued in the 1980's. Another generation of dentists will lose their shirts on yet another kinky investment.

[joel]

Hi mwyatt,

Do you recognize the "unsettling" amount as revealed in my "empowerment" article? It is $600,000 if we assume the DB plan also invested in the guaranteed interest account because they need only dedicate $700,000 to fund the DB pension, freeing up the balance of $600,000 to balance the state or corporate budget. So rather than being in the participant's IRA with the potential to generate income/wealth for as yet to be born beneficiaries it remains with the employer, to do as it sees fit. NOW HOW'S THAT FOR LEVERAGE?

Peace,

Joel

[mwyatt]

I re-read your article and appreciate your point that investing the contributions may be a better deal. A couple of points to consider, however:

1) Don't sneeze at the power of a COLA. For rough and ready lump sum comparisons, take your interest rate (say 5.5% - current 30-Year T Bill rate) and only a 2% COLA. How do you value? Your effective i% is 1.055/1.02 - 1, or 3.43%. Now reprice your lump sum.

2) Have to consider behavioral patterns at retirement for many folks. Most retirees go towards fixed income instruments due to (not unfounded) fear of dilution of principal. Look at current CD rates. These folks living off of savings/IRAs in money market and short term bonds have serious income shortfalls right now.

3) As an aside (and not trying to add another hot topic), I'm assuming that your governmental employees are not contributing to Social Security. Ever look at the actual formula which computes your SS benefit? Calculate your Average Indexed Monthly Wage, then take 90% of lesser of AIMW and First Bend Point (say $500), then 32% up to Second Bend Point (say $2500) and 15% thereafter. I'm assuming that your governmental formulas are little less "progressive" than this design. 20 years ago this wouldn't be such a big point. When I did my taxes last month, found SS taxes between myself and employer (which I in effect pay for but don't have to declare as taxes) were well in 5 figures. When you factor the extra oomph from not having to pay SS taxes, this tends to mitigate the contribution requirement for governmental employees.

4) You had $1.3 million representing a $138,000 annual life annuity at age 65. Think this is a little high on the annuity side (plus remember where your hypothetical person would be placing this money - certainly not all in equities). Run the numbers using current mortality tables and interest rates.

Good debate so far. Let's see if Dave puts in this in the Newsletter;) .

[joel]

Hi mwyatt,

Your closing comments makes my heart feel good! I join you in your request for placing this thread in the Newsletter.

Please note that my hypo assumes full (no offset) of SS as is the case for public employees in NY state/city. The fixed annuity of $138,000 would be guaranteed by the NYCTRS based on their current annuity income rates. The 8 NYstate/city DB pension plans provided, up until a year ago, only adhoc colas. Now the cola is permanent and does not kick until the 6th year of retirement and provides no more that a .5 benefit with a cap of 3%. So if the COL rises 2% the pensioner gets no more than a 1% adjustment. If it rises 6% a 3% adjustment is forthcoming and if it rises 10% the adjustment remains at 3% because of the cap.

I don't believe there is a DB plan, public or private, that grants 100% cola increases. Proof that the unions favor current dues paying members at the expense of their retired, but no longer dues paying members. But let's leave that hot topic for another thread.

Peace,

Joel L. Frank

[joel]

mwyatt emailed me with his/her latest reply. I am of the opinion that it should be posted. Here it is.

=============================================

> If you get a guaranteed income of $138,000 from what you say is $1,300,000

lump sum you have a bonus situation. Please go out to the private sector to

see what the rest of us are dealing with... Not even looking from an

actuarial standpoint, if you are a recent retiree facing 2% MM yields, your

$1.3m will kick off about 26,000 the first year. So you are about $112,000

into your principal right off the bat. How long do you think that this is

sustainable? Even with a 5-7% yield, you are talking about some serious

principal robbing from the get go. Give it a rest please, most of us would

be happy dealing with a guaranteed payment for the rest of our lives. If

your REALLY want to get bent out of shape, start looking at the actual

funding of governmental plans. We were working on a plan in the 80s that

was seriously underfunded, and the only reaction by the Union was to ratchet

up the pension amount AND lower the retirement age. Face it, the only folks

who really deserve s!

> ympathy aren't the participants, but rather the poor taxpayers who are

supporting (unknowingly) schemes that in the private sector would have the

DOL riding on the Four Hourses of Apocalypse!

[joel]

Here is my emailed reply to mwyatt.

=========================================

.02 X $138,000...give me a break!!

Remember, if this hypo remained with the TRS for the career of service he would be entitled to a DB pension of $70,000 annually. This requires a Reserve of about $700,000.00. So why not annuitize $700,000 and place the balance of $600,000, for the short term, in a GNMA fund that generates about 6%. Total income: $70,000 + 36,000 = $106,000.00 (no risk)! And the $600,000 can always be allocated to equities at the appropriate time.

Peace,

Joel L. Frank

[joel]

Mwyatt:

Please don't get the impression that I have come to favor annuitiztion over the last 48 hours. I think my contributions to this thread reveal my opinion of annuitization. The point of my last post was to show how stunned I was that an actuary---who just got through telling us about the virtues of a lifetime income guarantee via annuitization--- could not do better than .02 X $1.3 million.

Personally, I would advise a risk free investment in a GNMA fund for the entire amount. .06 X $1.3 million = $78,000. This is achieved with very low exposure to downside risk due to a rise in interest rates. Note: this investment yields 11.4% more than the $70,000 lifetime DB pension that the hypo would be receiving if he opted to remain in 1964 with the TRS.

Peace,

Joel

[joel]

As evidenced by their posts the actuaries, I believe, don't fully appreciate the fact that a potential DC balance and the potential retirement income therefrom has absolutely no correlation to the FAS as is the case with a DB plan.

Additionally, with reference to my article, it must be emphasized that the Final Average Salary ($70,000) is the same regardless of which retirement approach was adopted back in 1964. So the DB particpant is thrilled to accept a DB that is equal to his FAS. Afterall how many teachers retire at 100.0% of pay for life.

As far as the DC participant is concerned his goal should be to just match the $70,000 at least in the current climate. He maintained a $70,000 lifestyle during his last year or so of employment so he should welcome the opportunity to continue that lifestyle for at least the first couple of years of retirement.

The primary goal of every DB plan sponsor is to payout pensions from earnings and to invade principal as little and as infrequently as possible. (Even after the market decline of the last 2 years there are many DB plans that still sport a surplus, admittedly a shrinking one.) Why shouldn't the employee have the same opportunity over 50-60 years of work and retirement. My hypo reveals this has been achieved in a grand way over the past 4 decades for those who were willing to accept the same prudent man investment risk that the EMPLOYER was more than willing to assume in the establishment/funding of a DB plan.

Peace,

Joel L. Frank

[mwyatt]

Dear Mr. Frank:

I understand that you have a serious beef with defined benefit plans and annuity contracts. We all have our differing points of opinion, yours from looking at what your contributions could have gotten in the open market rather than funding your government pension, mine from looking at defined benefit plans and real knowledge of supposedly sophisticated investors' actual results (not what they brag about on the 19th hole). Let us agree to disagree...

I can't say that I am particularly happy that you chose to post a private e-mail response to you on the bulletin board.

[joel]

Topic Review (Newest First)

mwyatt Dear Mr. Frank:

I understand that you have a serious beef with defined benefit plans and annuity contracts. We all have our differing points of opinion, yours from looking at what your contributions could have gotten in the open market rather than funding your government pension, mine from looking at defined benefit plans and real knowledge of supposedly sophisticated investors' actual results (not what they brag about on the 19th hole). Let us agree to disagree...

I can't say that I am particularly happy that you chose to post a private e-mail response to you on the bulletin board. ==============================================

Dear mwyatt:

I could not disagree with you more!

You are (apparently were) a willing contributor to this thread. In the middle of this public dialogue you decided that one particular thought of yours, for reasons known only to yourself, should not be posted but rather emailed to me personally, where obviously the other contributors/viewers would not have the opportunity to read your remarks. Personlly, I find such tactics insulting; to say the least.

Question: Why did you want to communicate this particular response to me personally rather than posting it for all to see?

Moreover, your expectation that I would respect the confidentiality of this particular post of yours, communicated to me in the form of a "private email", is an affront to the integrity of these message boards.

Peace,

Joel L. Frank

[mwyatt]

Mr. Frank:

This is a bulletin board frequented primarily by pension actuaries and those involved in the valuation and analysis of DB plans of all types, private and public, from "one-man" to huge MNC plans. I know that you worked long and hard on your analysis of the "unfairness" of governmental plans, and would rather have seen contributions deposited in a DC plan over the years; that is your right. In fact, if you move to the private sector that is predominately what most folks are facing right now with the move to 401k plans as the sole source of retirement savings. Of course, in addition to deferring salary, you would also have the joy of shoveling 15.3% of your income (half after-tax) into Social Security with an uncertain prediction that benefits will be there in the future/and an extremely low benefit in comparison to payments in. I know it is dramatically lower than the 80% of FAS shown in your example.

I also think that you are underestimating the funding in your annuity examples, by confusing group funding (i.e., in a DB plan) from individual funding (an IRA). The key point you should ponder is that a large plan can of course make assumptions of 8% etc. with mortality to determine the amount required to sustain a given annuity. Your recently retired teacher in your example with the 1.3m, however, is on his/her own. There are no chances with these funds (if they decrease dramatically through adverse market performance, incorrect asset allocation, etc., that money is gone). The behavioural patterns of an individual IRA holder trying to preserve principal while maximizing income are not to be ignored; the large plan/insurance company can average these factors out over many lives, active and retired.

Ponder what recent "unsophisticated" retirees with lump sums solely providing their retirement are facing right now. Short term rates are extremely low due to Fed actions. However, chasing higher yield with longer maturity dates runs HUGE risks of adverse market adjustments this summer as rates come back up. Is the equity market poised for a rebound or is this a "dead cat bounce?" I know that I would be more than a little nervous committing to anything right now in their position, knowing that any mistakes could seriously jeopardize my retirement. The "sleep at night" benefit of a defined benefit plan isn't to be discounted.

If you wish to learn something from these boards, please be a little more flexible. We all can stand to learn from others' experiences. If you would like, please provide your data from your paper to me; an outside opinion might be helpful.

Why don't we wind this discussion up? I think that we have seriously drifted from the original premise of the sale of insurance policies via viatication...

[joel]

mwyatt: My original post states:

The following comes from Contingencies Magazine. See: A Free Market For Life Insurance, P. 17 March-April 2002, @ www.contingencies.org:

“No one should want another person to have a financial (pecuniary) interest in his or her death. Adhering to the principle of insurable interest is one method of achieving that goal, but it's not the only one. (And the industry sometimes violates the principle. For example, a company that offers a life only immediate annuity has a financial interest in the early death of the annuitant").

Question: Are DB pension plans, that compel life only annuities, also guilty of this violation?

=============================================

You assert : "I think that we have seriously drifted from the original premise of the sale of insurance policies via viatication..." I disagree...a clear reading of the thread reveals that we have, indeed, remained focussed on my original question which is: Are DB pension plans, that compel life only annuities also guilty of profitting by the demise of their annuitants."

It is my contention that a an employer should provide a choice of plans, DB or DC as the primary employment based retirement plan. (see: www.myfrs.com). When ONLY the DB approach is offered, with life annuitization as the sole payout scheme, then the employer's hands are NOT clean and it is, indeed, guilty of profitting upon the demise of the annuitant.

If demanding a choice of plans equates into being inflexible then I plead guilty.

Peace,

Joel L. Frank

[mwyatt]

Short answer: No, DB plans are not guilty of what S&B were implying. End of story... and let's end this thread. You obviously don't want to even address my last points or listen to what anyone else on this board has to say. Be happy you have any plan; these aren't god given rights (remember, the cheapest option is for you to be offered NO plan... then you can really have the pleasure of a self-funded DC plan).

[joel]

mwyatt,

There are (so far) 4 contributors to this thread. You and Pax took one viewpoint while mbozek and me took the opposite view. Pax bailed out early. Now we're down to 3 people with you being a minority of one. You now say to me: "You obviously don't want to even address my last points or listen to what anyone else on this board has to say". Besides Pax, who else on this thread am I not "listening" to?

Mwyatt, I have listened to you. With all due respect, you are confusing "listening" with blind acceptance of your party line position.

Peace,

Joel L. Frank

[mbozek]

Joel: I came across an ad for something called the tax deductible annuity in a publication sent to financial planners. According to the ad it is annuity contract that allows an individual to exchange an asset for guaranteed lifetime income for one or two persons. The exchange creates an immediate income tax deduction, lowers estate tax exposure and provides tax favored income. It can be used to "filter" a minimum required distribution so as to receive a current year income tax deduction for one third of the distribution. You heard of this???

[joel]

mbozek,

No, I have not heard of this product.

[mbozek]

It appears to be some form of "exchange" of an IRA account for an annuity product for which there is a charitable deduction.