annuity rider charges?
November 16, 2017 11:08 AM   Subscribe

Would someone mind breaking this into down into to understandable terms, please? My friend has asked her district appointed agent who advised her to move her savings from a 403b to a Voya account several times and yet she still have no idea why these rider fees are more than the interest accrued, or even what they are (and why are they in parenthesis)? She is retiring soon from a district position. She and I would like to know exactly what is going on here. (Details below) Thanks in advance!

Beginning accumulation value 42,400.00
Interest/credits 396.18
Rider charges (416.15)

rate of return 7.02%

Beginning cash surrender value 35,037.16
Ending cash surrender value 35,350.00

Rate of return is a measure of performance over the most recent contract year. This calculation accounts for any credits and deductions during this time period, including applicable premium bonus, charges, and market value adjustment. The Rate of Return may not be equivalent to the average of the percentages credited to each strategy.
posted by ConnieL to Work & Money (10 answers total)
Can she keep the money where it is?
Why Voya?
They are in parentheses to indicate that they are a charge.
Is there an unvested amount? If the value is 42,400, why is the cash value 35, 360?\\

I would find a fee-paid financial planner who can answer questions.
posted by theora55 at 11:41 AM on November 16, 2017 [1 favorite]

Agree that she should consult her own chosen advisor, independent of the annuity company and of the employer.

In general, since retirement funds are already a tax-favored vehicle, there is usually no good reason to move them to an annuity, which is another tax-favored vehicle. It's like trying to fit a Chevy inside a Buick. You only need one car.

These recommendations are often made so that the salesman can rack up a commission, sometimes an ongoing series of commissions.
posted by megatherium at 11:54 AM on November 16, 2017 [2 favorites]

If she has a 403b, she's likely belongs to a union. If so, check with the union before paying for advice. (This assumes she's already asked these specific questions to the agent and has not gotten an understandable answer. If she hasn't, she should do that first.)
posted by Mr.Know-it-some at 12:08 PM on November 16, 2017 [1 favorite]

Also agree that she should get a professional opinion, or spend a significant amount of time educating herself on her options.

Disclaimer: I'm speaking without full details on your friend's plan, but this is how it sounds to me.

Your friend has an annuity that has been purchased within a tax-advantaged account. The beginning accumulation value is basically the value of the annuity at the beginning of some period - probably the beginning of the year.

The interest/credits is the value that the account has gained - annuities generally have a predetermined method by which they gain value, which can be linked to the stock market, or can be a fixed percentage. Basically, this is how much the annuity has risen in value in the past year.

Anything in parenthesis, in financial speak, is negative. So the 416.15 is the negative value (ie cost) that has been attributed to the annuity due to rider charges. A rider is an extra feature that's added to an annuity. It can literally be anything, but most of the time it would be something that says that if the person holding the annuity dies within ten years, a certain amount is paid to an heir, or that the annuity will have a certain percentage growth every year, or provide benefits to a surviving spouse if your friend passes away first. Some extra feature has been added on to the annuity, and the 416.15 is the cost of that something extra.

The rate of return is probably not calculated for this year, but for all the years since she's held the annuity. It reflects the adjusted average gains of the account's value year over year since it was opened.

The cash surrender value is just the amount she could get right now if she cancelled the annuity, net of all penalties.

None of this helps with the decision of whether to roll it over to Voya or to any other provider. We'd need to know more about costs and return and when things were purchased to give any kind of insight into the decision, and as above, it may be worth hiring a planner to help with the actual decision-making.
posted by exutima at 12:13 PM on November 16, 2017 [2 favorites]

Scratch what I said about rate of return, per the end note you included. It's not entirely clear to me how they calculate that, but my guess is that it means that the current accumulation value (the total value of the annuity) is equal to 42,500 times a prorated 7.02% interest rate, and that takes into account the interest/credits amount of 396.18 and the rider charges of 416.15. But it's not totally obvious from the information you have here.
posted by exutima at 12:28 PM on November 16, 2017 [1 favorite]

Why Voya, in particular? Does she have choices?
posted by small_ruminant at 12:59 PM on November 16, 2017

Am I wrong in thinking that she's already moved her money? If so, then there should be a final/to-date accumulation value there. I don't see how you get a 7.02% rate of return here, but maybe it would be easier to understand with that number.

Not to victim-blame, but, please, everyone else, take the lesson. DO NOT MOVE MONEY YOU DEPEND ON TO A PRODUCT YOU DON'T UNDERSTAND. FOR GOD'S SAKE.
posted by praemunire at 7:19 PM on November 16, 2017

She is in a union (CSEA), and this advisor did a presentation at the college where she works. He told her he was paid by the district to advise staff there. After meeting with him at work, he said the 403b could be volatile because of the political climate and that a tax sheltered annuity would be safer for a long term. So the 403b amount was moved to this Voya account because the interest rate was so much better (according to this advisor).

Not she nor I know much about financial matters, so hard to "understand products" because of the financial terminology (which is probably purposely vague, imo).

btw the union where we work hired this fellow to do an on campus workshop on retirement.

sooo, what does "cash surrender value" mean? and what would make it less than the "beginning accumulation value"?

thanks for your help, there are a lot of folks that don't know the terminology, and so don't know if we are making good decisions or not.
posted by ConnieL at 4:07 PM on November 18, 2017

I'm only moderately knowledgeable, so I'm hoping that I'm missing something and am wrong, but this sounds quite bad.

"...volatile because of the political climate..." No, no, no: For the vast majority of investors, long-term investment decisions should depend minimally if at all on the political climate.

" sheltered annuity would be safer for a long term..." Annuities are generally a bad idea for everyone except the person selling them. There are exceptions, but if you don't understand why the exception applies to you, you're probably not the exception.

This page from the California Teachers Association explains: "Whether due to inertia, pressure from agents selling them or lack of information, many educators continue to choose variable annuities for their 403(b) plans. Unfortunately, for most 403(b) retirement plan participants, variable annuities may not represent the best investment value." ("May not represent the best investment value" is shorthand for "is a ripoff.")

Given this, I think it would be worth it to have an outside adviser review this, not only to help her, but to help the union as a whole determine if they are really getting good advice. Since this is a broad issue, you might get some pro bono help from an accounting professor at a local university. If not, I think it's worth getting a fee-only financial advisor to review it. Perhaps she could split the expense with colleagues in the same boat. You can start here. I'm sorry, and good luck.
posted by Mr.Know-it-some at 12:50 PM on November 20, 2017

sooo, what does "cash surrender value" mean? and what would make it less than the "beginning accumulation value"?

So answer this part, with insurance products there is often a fee that reduces over time. If you have $10,000 in your account but your surrender value is $9,000, that basically means there is a $1,000 fee for taking your money out (only it's not called a fee.)

It usually goes down over a set number of years (The surrender period), For some reason I've seen a lot of 7 year surrender periods though I don't know if that's just coincidence or if it's standard.

I also can't remember if each dollar starts up a new surrender period, for instance, if she contributes another $1000, will THAT $1000 have a surrender period of, say, 7 years, even if the rest of the contributions are already a couple years in?

As an aside, I have found that the people who make the choices about who to let present financial advice to their employees/union members are as likely or more likely not to be good at their due diligence. They're as susceptible to a snow job as anyone else.
posted by small_ruminant at 2:50 PM on November 21, 2017

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