From: Daniel Ford [mailto:temporal@insightbb.com] 

Sent: Saturday, March 06, 2010 10:16 AM 

To: EBSA, E-ORI - EBSA 

Subject: Re: Lifetime Income RFI. 

U.S. Department of Labor, 

Office of Regulations and Interpretations,

Employee Benefits Security Administration, N-5655 

200 Constitution Ave. NW

Washington, DC 20210

Re: Lifetime Income RFI. 

Dear Sirs or Madam:

I respectfully write in response to your request for information regarding the 

advisability of annuities over more traditional pensions or 401k programs. In 

general, there is a place for annuities in diverse retirement portfolios, but the 

danger in annuities is that many folks presume "annuity" automatically equates 

to "safe" and that's not the case. The following are the key points:

1. Annuities are no better than their underlying investments. For example, 

what is the safety of an annuity that invests in sub-prime mortgages? 

2. Annuities are no "safer" than the soundness of the company or governments 

that offers them. In the current economic crisis, many "safe" insurance 

companies have folded while many state and municipal governments are 

technically bankrupt. 

3. Insurance for annuities protects against isolated, not systemic failures. The 

woes of AIG and the FDIC are prime examples of the flawed assumption that 

insurance or counter-party protections is always adequate. 

4. Annuities are vulnerable to inflation risk. The problem with all "risk free" 

investment vehicles, i.e. low yielding, is that investors can actually lose their 

principle to inflation. For example, the current yield on T-Bills is about .5 

percent, while the historical inflation rate is 3%. The inflation risk increases if, 

as many predict, the U.S. returns to an era of high inflation.

5. Annuities are hard to compare "apples to apples." The value and 

performance of mutual funds is easily tracked while there's ample public data to 

compare fees. There are few ways for the average investor to compare 

annuities to annuities.
6. Rating systems are unreliable. The recent failure of "highly rated" companies 

has economic exposed underlying problems with ratings systems (Moody's, S&P, 

etc.) Not only have conflicting interests been alleged, but if ratings agencies 

themselves don't understand certain products or risk assumptions, then the 

durability of their ratings suffers as a result. 

7. Government annuities should be held to the same standards as private 

annuities. In both areas of conflict of interest as well as proving solvency, any 

government annuities must be held to the same standards. The problem is 

private companies must compete on their merits, but government plans can 

enjoy an unfair legislative advantage. The other important point is that 

governments must be held to the same financial standards, i.e. any government 

that's running massive deficits ( "losses" ) can't be viewed as "safe" nor solvent 

just because it's a government.

8. Public annuities should not be used as "back door" taxes or as political tools. 

 It has been proposed in some quarters that traditional 401k's be converted to 

public pensions or annuities. Not only is this a "back-door" tax, but as we've 

seen with Social Security and the imminent failure of dozens of municipal and 

state pensions, the "government stamp" does not equate to soundness. In fact, 

"public" pensions and annuities actually add a new layer of political risk as 

legislators face competing interests and retirement contributions are invariably 

viewed as spendable income. There is also the problem of politics interfering in 

investment decisions (if the funds are invested rather than replaced with 

I.O.U's.) Every constituency or special interest has their own view as what is a 

politically acceptable investment is.

Thank you for your consideration in this matter.

Sincerely,

Daniel Ford

Burlington Kentucky