From: J.Jordan Schlick [mailto:jordanschlick@yahoo.com] 

Sent: Thursday, February 11, 2010 10:26 AM 

To: EBSA, E-ORI - EBSA 

Subject: Inclusion of Annuities in IRA/IRA Rollover

Dear Department of Labor, 

I am opposed to the inclusion of annuities as part of any 401-k as a roll-over option for 

employees. 

Annuities do offer some "insurance" to consumers via the monthly payments they offer 

retirees. But not having access to their funds, these payments function as an allowance to 

consumers, thereby preventing them from spending through their retirement savings. 

However, I think the negatives VASTLY outweigh the positives. Let me enumerate 

some of them below: 

1) The sales fee for annuities offered by insurers typically run between 7% and 11%. 

Think about that. Each annunity sale on a $100,000 rollover produces a commission for 

the salesperson of $7000 to $11000. That leaves the investor with, at best, $93,000 (or 

maybe just $89,000 if they unknowingly picked a high commission product) invested in 

the annuity. 

2) The "commission" clearly makes this a "product" rather than an investment, don't you 

think? Similar to purchasing a car or house - something with a large, built-in, difficultto-determine transaction fee that is unclear to the purchaser. Is that what you are 

REALLY intending? 

3) By buying an annuity ("the product"), the buyer is completely dependent upon the 

insurance company who sells the annuity to STAY solvent. As we have recently seen, 

that may not be a lock. Yes, I know, each state sets up reserves to cover the annuitants in 

its state, theoretically ensuring there will always be assets to offset the insurers' annuity 

liability (although recovery of assets is not the same as "life time annuity payments"). 

But as I recall, many states relaxed those reserve levels recently to ensure that more 

insurance companies had the capital to stay in business. How fast will those reserves be 

rebuilt? Will they be rebuilt? In short, assuming that insurance companies are "too big to 

fail" might not be a wise assumption to make. 

4) Next, if the growing field of behavioral economics teaches us anything, it is that 

"offering" a solution and having individuals avail themselves of it are two different 

matters. Instead of offering annuities, why not simply increase the incentive to those 

facing a roll over (of a 401-k) to actually do so (as opposed to spending it)? 

5) Finally, without adequate explanation of what the purchaser of an annuity is 
foregoing, I believe those seeking to leave an asset to their heirs will be shocked when 

they discover (belatedly) that the annuity is lost to the insurance company upon the 

annuitant's death. If grandma is gravely ill at 62, her children will receive nothing from 

her annuity upon her death at 65. While this may not be an issue for the healthy, 

educated population that no longer smokes or consumes fried foods, is it entirely fair to 

the less educated who have significantly shorter life expectancies? What a great way to 

keep the poor that way for longer. I just see it now in insurance company boardrooms - 

"We sold billions of annuities to people of color who tend to be less well educated. 

Statistics show they will have shorter life expectancies, so we'll pay out less and our 

profits will soar! Give the CEO another huge bonus!!" 

Last, let me offer full disclosure. I work for a registered investment advisor who does 

NOT sell annuities. If I feel that a client understands why they want one and the tradeoffs involved, I steer them to open one with Fidelity, Vanguard or TIAA-CREF, each of 

whom offers no commission annuity products. 

Sincerely, 

J. Jordan Schlick