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Please check my numbers - Group Annuity

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  • #16
    My take-away: It's not the worst deal in the world, but it's also not the best. It strips away decision rights and alternative uses of the money (and perhaps better uses). It will also have negative effects on hiring. And I would explicitly point out to the group that those closer to retirement are inherently biased to vote "yes" based on their rosy returns while the majority of people will get worse after-tax returns. (If I were a older partner with 4 years to go, I don't think I'd be able to find an investment that beats this on an after-tax basis.)
    Your spreadsheet was helpful, thank you. I agree that those who are retiring sooner get the best ROI, the flip side to this is that it creates disincentive for longevity with the company.

    Bring up the liability issue with choosing a sub-performing plan for the group. Probably even more liable if it is mandatory.
    Anymore details about the potential liability for forcing this underperforming investment on the group?

    Thank all of you for your comments so far!

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    • #17
      Calling on spiritrider regarding liability and fiduciary responsibilities. Not quite sure this plan is covered under ERISA, so not sure what the obligations are here.

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      • #18
        Originally posted by FloridamanMD View Post

        Your spreadsheet was helpful, thank you. I agree that those who are retiring sooner get the best ROI, the flip side to this is that it creates disincentive for longevity with the company.



        Anymore details about the potential liability for forcing this underperforming investment on the group?

        Thank all of you for your comments so far!

        This is some good information, but it is quite complex to process (I believe the answer is here somewhere):

        https://www.soa.org/globalassets/ass...ss1-hadley.pdf

        This would be an ERISA attorney question. Once you get into these types of arrangements you definitely need to consult an ERISA attorney, any posts/replies on a group like this don't quality as due diligence, that's for sure. Definitely need to get something on paper with a written opinion as details and specifics matter.
        Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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        • #19
          Originally posted by Tim View Post
          “I agree, but I don't have a board seat and we all have to work together. The case is clear, and I am trying to make it respectfully and in a fact based manner.”

          Do you think insurance is sold on numbers on a spreadsheet? It is sold on emotion, only.

          Downpayment
          Fixed payment stream going in.
          Fixed payment stream going out.
          Sweetener is some “free money” possible to the partnership.

          This is not a battle of spreadsheets.

          • It is a terrible investment
          • It is product to be sold, not bought
          • It would/should be a crime to make anyone but it, much less anyone you know
          • Not only do you personally not want to participate, the partnership should completely disassociate from this program.

          That message needs to come through loud and clear. Wrapping an annuity with a life insurance product is a bad investment.

          Very few physicians have a need for an annuity.
          Term life and an investment plan is much superior.

          Fact: A group plan will add zero benefit for term life or a taxable account. This plan is a loser.
          Leave your graph. Don’t say a frigging word.

          Object strongly and emotionally. That is how to counter an emotional sales pitch. Win the emotional war.

          If you fight an emotional battle on a point by point basis, each objection will be answered and the salesman will proceed to attempt to close the sale. That is a salesman’s job.
          This is the reply from one of the actuaries I'm working with (and this echoes the post by Tim):

          "However, if there is one thing I know about insurance, it’s that the person who stands to benefit most is the salesman selling the insurance. The insurance company comes next, and the policy holders come last. My general rule of thumb is that insurance is great if you understand why it’s worth it to you to protect against the loss being insured.

          For example, people buy life insurance in case they die and their dependents will need the money, people buy homeowner’s insurance because they wouldn’t be able to afford to rebuild their house if something happened to it, etc.

          Buy-sell agreements are great if the person who will be running the business after someone else dies can’t afford to buy the business from the former owner’s beneficiary. But in this case, I don’t understand what this doctor group is worried about. If one of the doctors dies, does that really put the company in jeopardy? Would they really not be able to afford to buy back his portion of the company?

          Since the answers to both questions appear to be no, why would they purchase this insurance? From the information provided, it seems like some of the partners think this will make the doctors more money than if they don’t purchase this. If that was the case, the insurance company wouldn’t be in business. Insurance is purely a service of mitigating risk. If you can’t identify the risk you are looking to get rid of, don’t buy the insurance. At least that’s my opinion on the topic. "
          Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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          • #20
            Originally posted by FloridamanMD View Post

            Your spreadsheet was helpful, thank you. I agree that those who are retiring sooner get the best ROI, the flip side to this is that it creates disincentive for longevity with the company.

            Anymore details about the potential liability for forcing this underperforming investment on the group?

            Thank all of you for your comments so far!
            I really suggest you and your group seek professional advice. Do not try to self diagnose and analyze a sales pitch. This almost sounds like an impulse buy at the grocery store check out. This is exactly how poor decisions are made.
            I for one would be really curious how the sales rep even got the lead. Someone gave an intro.
            Why don’t you have multiple bids rather than just one proposal on the table? The process itself is suspect. Pay attention to Kon, he works on a segment. Too expensive? The value is getting an independent fiduciary guidance for benefits options. There is no way this is a suitable investment for every physician in the group. Good luck presenting to the board that they are inept, don’t call them negligent. That would be for the attorneys in case of the liability issues. No way to steer the boat.
            Not sugar coating this but this is how sweetheart contracts come about. It smells, has an odor. Something is not right. Find it. It needs to be fixed in the best interest of the group. It may have been inadvertent, still needs to be fixed. Reminds me of conflicts of interest policies.

            Comment


            • #21
              Originally posted by litovskyassetmanagement View Post


              This is some good information, but it is quite complex to process (I believe the answer is here somewhere):

              https://www.soa.org/globalassets/******************...ss1-hadley.pdf

              This would be an ERISA attorney question. Once you get into these types of arrangements you definitely need to consult an ERISA attorney, any posts/replies on a group like this don't quality as due diligence, that's for sure. Definitely need to get something on paper with a written opinion as details and specifics matter.
              I think the biggest liability is going to be doctors realizing that they don't want to participate in this and want to opt out once they realize that this might not be quite as good as they thought.There are docs every day that post on WCI saying how they want to get out of various insurance products once they realize that there are better options out there and that they were sold a bill of goods that is a lot different from what the sales pitch was describing. Another thing to consider is that very, very few people actually choose to annuitize their insurance products. Since this is a very complex product, it has to be 100% clear to everyone involved, and this has to be analyzed in an unbiased fashion, and compared to other alternatives. If the plan sponsor forces doctors into this, there would be liability due to this as plan sponsor still has fiduciary responsibility for making sure that this is the best product for them. Any product that you are forced into by definition is not a product that is offered with the best interest of all participants. So products like this have to be recommended and/or reviewed by a fiduciary, not by a broker, if the plan sponsor wants to limit their fiduciary liability, as it is 100% plan sponsor responsibility and liability to evaluate this product, even if it is sold to HCEs only. So at the very least, outside fiduciary review is warranted (including by an ERISA attorney).
              Last edited by litovskyassetmanagement; 02-02-2021, 02:07 PM.
              Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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              • #22
                The meeting is tonight, just wanted to say thank you for all of your help and comments. I am better prepared than I would have been without everyone's feedback.
                Wish me luck!

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                • #23
                  Originally posted by FloridamanMD View Post
                  The meeting is tonight, just wanted to say thank you for all of your help and comments. I am better prepared than I would have been without everyone's feedback.
                  Wish me luck!
                  One thing to tell the group that a broker-sold (and potentially subpar) product will subject the entire group to significant fiduciary liability, not to mention that it is nearly impossible to get out of this if/when the group would want to do so without losing a lot of money. And that alternatives have to be explored (that already exist that are voluntary and can benefit everyone). I think it shouldn't be difficult to delay any decision on this enough to allow for more analysis/study. You are all in this together, no need to put a gun to everyone's head to get everyone to agree. On the contrary, any eventual solution should be voluntary with minimal impact on each of the partners in case they don't want to participate. I doubt that there is a benefit to the group to do this vs. everyone buying their own individual policies, otherwise more groups would have done this, and this is the first time I see this in play.
                  Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

                  Comment


                  • #24
                    Update: The Annuity was tabled from the past partner's meeting. Though it isn't officially dead, the chairman, who had supported it, said it wasn't coming back.

                    Thank you all for your help!

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