Investors have received many warnings about variable annuities over the years, including in Retirement Watch. There’s another recent example of why to approach these contracts with caution.
The Hartford is exercising its right to change the investment offerings in its variable annuities. Instead of offering 60 funds, holders will have to choose from 11 funds. All the funds will be run by the Hartford, with BlackRock advising on several of them. Most of the funds also will be robo or quantitative funds. Several policyholders and some of the investment firms that are being replaced are suing. This article has details, though you might need a subscription. Here’s an article from 2013 that shows this isn’t the first time the Hartford is done this to its variable annuity owners.
“This looks like a ‘bait-and-switch’ by Hartford Life: They sold contracts to investors promising actively managed funds” with leading stock pickers, wrote contract holders Andrea and Steven Calhoun in a December 29 letter to the SEC asking for a hearing.
Variable annuities are a tax-advantaged way to invest in many types of stock and bond funds and often are sold with guarantees of lifetime income that kick in if owners’ fund accounts are depleted. Many of the Hartford guarantees predate the 2008-09 financial crisis and are more generous than any now available on the market, financial advisers say.
The financial crisis dramatized how risky the lifetime-income guarantees can be to insurers, and led Hartford to take federal aid, since repaid. Hartford quit new sales in 2012 but continues to hold $42 billion of variable annuities on its books.