Pruco Var X 401k?

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Axle's picture
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Joined: 2008-04-08

Tell me if this sounds inappropriate.
 
I have a client who worked for the same company for 42 years and just retired in March of '08.  In April of '06, a Prudential agent stopped by and put all 17 employees into a variable annuity with a 10 yr surrender.  I checked free erisa and found out he made a whopping $140,000 on a toal plan of 2.3 mil.  After talking with Prudential, it doesn't seem like they will allow my client to roll her 401k out of this Variable X contract and into her Self-Directed IRA without eating an 8% penalty.  A lot of these employees are near retirement age and I can't imagine they are going to be happy to know they got put into a 10 yr contract.  Has anyone expierenced something similar to this and were you successful in getting any of the surrender waived?

jwcopper's picture
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Joined: 2008-05-13

There are several VA based 401k solutions, I don't necessarily like them.  But I have never heard of one that has a traditional surrender period for a group 401k.  Something does not sound right, maybe the plan was cancelled and this was what the employer told them to do, rollover their plan and talk to 'this guy.'  At $2M Prudential would have had to authorize the entire contract and I just don't see that getting approval on a 401k.  Something is missing in what you have been told.

Axle's picture
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Joined: 2008-04-08

Jw,
I like your logic and yes the old 401(k)'s were rolled into this new plan but consider that her latest statement states that its a "Group Plan" and that the form 5500 on Free Erisa shows a $140,000 comm on this and I have to throw that idea out the window.  If the plan was terminated, they wouldn't have filed a 5500 would they?

jwcopper's picture
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Joined: 2008-05-13

My best recommendation would be to sit with your client, call the customer service # on their statement, and ask them to explain to you and the client what they have and how they got it?  Something just does not sound right to me, but I certainly don't know all 401k solutions being sold.  If you find out something like that is allowed I am certainly waisting my time providing 401k's where all I get is 25 bps.

Akkula's picture
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Joined: 2008-02-17

Here is what I think happened. 
1.  The plan decided that they wanted to terminate their 401k plan (most likely held with prudential).
2.  When prudential heard they were going to terminate their group plan, they sent out one of their agents to try to retain the assets by setting them up with individual annuity contracts.  The 17 people were probably signed up all together because they didn't know what their options were and it was easier just to go with the prudential guy for their rollover. 
3.  The information you saw online must have been for their group policy before they were moved to an individual policy.  Individual policy charges are not posted anywhere online, from my knowledge.
 
Another alternative could be that they have a 403b plan setup if they are a non-profit.  In those cases individual salesmen usually come out to pitch VAs to participants since they are considered individual contracts.  403b plans have tons of crappy annuities that are pitched to teachers and non profits.
 
Provide more information please.

Axle's picture
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Joined: 2008-04-08

Ok here's an update. 
 
The client and I called Pruco back office and were told they could not release any info about her part of the contract because the annuity is owned by the company and so only the agent that sold the contract and the company trustee have access.  They said that she could not ask any specific questions until her trustee submitted in writing that it was ok or we could call the agent servicing the contract.  We called the agent.  He would not discuss specifics because he claimed we could not prove my client was actually present with me even though we were on speaker phone and hung up.  I told my client to get paperwork for distribution from the trustee with the "pruco permission slip" also signed by him so we know what we're eating on the surrender. 
 
This was indeed a rollover from the old company 401k into this new contract Prudential set up and yes my client did sign the papers.  I know that if she decideds to roll out, she'll get slammed with an 8.5% surrender but one caviat I did not know before is this was a bonus annuity at I believe 5% at purchase. This is very little however considering that annual fees are 2.7% and the contract is down 13% since purchase in beginning of '06.
 
I am absolutely kicking myself for not presenting to these guys a couple years ago... although I doubt I could have matched the kickback the Pruco agent gave the company's trustee ;)

jwcopper's picture
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Joined: 2008-05-13

That sounds crazy, thanks for the update.  I still just don't understand how any of what you are explaining happened, not saying it didn't but I have never heard of anything like what you are talking about, and a bonus annuity to boot!  Wow!

Akkula's picture
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Joined: 2008-02-17

I asked an HVAC guy that was at my house fixing my AC if his company sponsored a company retirement plan.  He said that they didn't but once they had a guy from NW Mutual/Prudential type company come and talk to them about how they could use a VA to save for retirement.  To me it sounded like one of those classic VA issues FINRA is warning advisors about.

troll's picture
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Joined: 2004-11-29

Axle wrote:Ok here's an update. 
 
The client and I called Pruco back office and were told they could not release any info about her part of the contract because the annuity is owned by the company and so only the agent that sold the contract and the company trustee have access.  They said that she could not ask any specific questions until her trustee submitted in writing that it was ok or we could call the agent servicing the contract.  We called the agent.  He would not discuss specifics because he claimed we could not prove my client was actually present with me even though we were on speaker phone and hung up.  I told my client to get paperwork for distribution from the trustee with the "pruco permission slip" also signed by him so we know what we're eating on the surrender. 
 
This was indeed a rollover from the old company 401k into this new contract Prudential set up and yes my client did sign the papers.  I know that if she decideds to roll out, she'll get slammed with an 8.5% surrender but one caviat I did not know before is this was a bonus annuity at I believe 5% at purchase. This is very little however considering that annual fees are 2.7% and the contract is down 13% since purchase in beginning of '06.
 
I am absolutely kicking myself for not presenting to these guys a couple years ago... although I doubt I could have matched the kickback the Pruco agent gave the company's trustee ;)Was the kickback documented on free erisa? Sounds like sour grapes to me.

troll's picture
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Joined: 2004-11-29

Axle wrote:Tell me if this sounds inappropriate.
 
I have a client who worked for the same company for 42 years and just retired in March of '08.  In April of '06, a Prudential agent stopped by and put all 17 employees into a variable annuity with a 10 yr surrender.  I checked free erisa and found out he made a whopping $140,000 on a toal plan of 2.3 mil.  After talking with Prudential, it doesn't seem like they will allow my client to roll her 401k out of this Variable X contract and into her Self-Directed IRA without eating an 8% penalty.  A lot of these employees are near retirement age and I can't imagine they are going to be happy to know they got put into a 10 yr contract.  Has anyone expierenced something similar to this and were you successful in getting any of the surrender waived?If I were you, I would track down that agent and beg him to teach me how to do business.

Bodysurf's picture
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Joined: 2008-08-02

There's a lot about this that makes no sense whatsoever.  An initial sales commission for VA wouldn't show up on Free Erisa, because it's paid by the insurance company to the agent--NOT by the company to the agent.  I hate these cookie-cutter type solutions that annuity salesmen tend to specialize in.  But too much of your story isn't logical.  The annuity holders will just have to wait until the market improves, and for the surrender charges to lapse, before they can do much else.  What's more, that's exactly what you should recommend to them.  No sense in locking in guaranteed losses by surrendering and moving the annuity to another one.

troll's picture
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Joined: 2004-11-29

Bodysurf wrote:There's a lot about this that makes no sense whatsoever.  An initial sales commission for VA wouldn't show up on Free Erisa, because it's paid by the insurance company to the agent--NOT by the company to the agent.  I hate these cookie-cutter type solutions that annuity salesmen tend to specialize in.  But too much of your story isn't logical.  The annuity holders will just have to wait until the market improves, and for the surrender charges to lapse, before they can do much else.  What's more, that's exactly what you should recommend to them.  No sense in locking in guaranteed losses by surrendering and moving the annuity to another one.
Imagine that....a dishonest annuity critic.

Axle's picture
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Joined: 2008-04-08

Bodysurf,
You are correct, the commission on freeerisa does not show up for the agent. I made the mistake of assuming  "premiums paid to carrier" was the total commission charge.  It wasn't and I was wrong.  I still think this guy made a boatload on the contract and probably will for awhile longer.  I apologize for the confusion.

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