MetLife and AXA Wins, Variable Annuity Purchasers Lose
Axa Equitable Life Insurance Co. and MetLife, Inc. have enacted limits to the amount that some customers can add to their variable annuities.
A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. Many investors, particularly those still working and saving for retirement, elect to continue to contribute to the variable annuity.
In a January 3, 2012, letter, Axa notified clients that it will stop accepting additional contributions to its Accumulator Elite rollover individual retirement account variable annuity contract as of February 17, 2012. The limitations are applicable to investors who bought their Accumulator variable annuity prior to June 2009. Any payments received after February 17, 2012 will be returned to clients, according to the letter.
MetLife, meanwhile, filed with the Securities and Exchange Commission in December to limit client additions to variable annuities with the Guaranteed Minimum Income Benefit Max, which offered a 6% benefit increase and withdrawal percentage, and its updated version, the GMIB Max II, which offered a 5.5% benefit. Both products are no longer for sale.
The rationale for Axa and Metlife’s decision to prohibit customers from continuing to contribute to their variable annuities is clear: Axa and Metlife do not want to satisfy the obligations they freely and willingly accepted when interest rates were more favorable to their customers. As a result, customers who purchased these investment products are placed in the unfortunate position of having to decide whether to cease making contributions to their retirement savings or to purchase new variable annuity contracts with high costs and fees. In other words, heads the insurance company wins, tails the investor loses.
Investors should be aware of this shifting policy, as well as other disadvantages of purchasing variable annuities, which include:
- 10% IRS Penalty — Income withdrawals before the age of 59.5 are charged a 10% tax penalty by the IRS.
- Not Considered a Capital Gain — Growth is tax-deferred, but eventually income is taxed as ordinary income tax rates, not capital gains.
- Potential Loss of Capital — Unlike fixed-rate instruments, variable annuities can depreciate in value.
- Withdrawal Charges — The insurance company usually imposes a penalty if withdrawals exceed the yearly allotment.
- Management Fee — The entire account incurs a 1-3% management fee every year, like a mutual fund.
- Annual Contract Fee — A $25-35 annual charge paid to the insurance company to cover administrative expenses.
The law offices of Napoli Bern Ripka Shkolnik, LLP are available to represent investors who purchased variable annuities and suffered losses. Napoli Bern Ripka Shkolnik, LLP attorneys have successfully represented hundreds of investors in claims against their brokers and broker-dealers for claims, including suitability, misrepresentation and/or omissions, churning, negligence, breach of contract, breach of fiduciary duty, and other violations of the law. If you are the victim of fraud, or any of these investment securities violations and seeking a securities attorney to represent you, call Napoli Bern Ripka Shkolnik, LLP today at (212) 267-3700 for a free consultation.
