The Pitfalls of Using Group Annuities as a Wrapper for 401k Plans

A very good article in Forbes magazine discusses the many downsides of using group annuity contracts as a wrapper for 401k plans.

This is not to be confused with 401k or defined contribution plans that offer  an annuity option within their plans or an annuity option outside of the plans to participants who are retiring or leaving the company. 

In fact, most of the group annuity wrappers provide no ability to annuitize.

The practice is especially common among 401k plans offered by smaller employers.

There are tax benefits for the insurance companies providing the products, but very few benefits for the plan participants.

Companies offering such products include Axa Equitable, John Hancock and Lincoln Financial.  Some companies such as New York Life refuse to offer group annuity products.

Very high fees and surrender charges are among the negatives that accompany this approach to offering a 401k plan.

Source: Forbes

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