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MKohlhaas

Fleeing The Dreaded Axa Variable Annuity

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I've had the great fortune of happening upon 403bwise, and after reading a lot here, I've decided to come forward and seek the wisdom of these forums

My mother is a teacher at a public high school in California. She is now 60 years old. About 8 years ago, she signed a contract with Axa for their Equi-vest 403b variable deferred annuity. It very recently came to our attention that this was bad decision. I am sure most of the readers here know of Axa's exorbitant fees, dense contract, and many of the other issues that often come with variable annuities (thanks to these forums I now am one of those in the know too!). Anyway, my first question is: how much should she expect to pay in charges and fees if we decide to surrender this contract and rollover the money into a much more favorable account? If I've understood the contract correctly, there will be no withdrawal charge given that she is older than 59 and a half and had the contract at least 5 years. Are there other potential charges or issues we may not be aware of?

My second question is: what option would be recommendable for a rollover? Here is a link to the list of her options: https://www.403bcompare.com/Employee/MyEmployer/EmployerDetail.aspx?eid=107682. Some of her options are Calstrs Pension2, Vanguard, and T. Rowe Price. We are leaning toward Calstrs Pension2 given that they have "Easy Choice" portfolios, which seem inexpensive and simple.

 

Thank you for your time and any help you can provide. :)

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Hi

 

I am going to try and answer this but someone familiar with California might be a better choice . we will see who chimes in.

 

I would read the AXA contract to see if your mom is clear of her surrender charge. Seeing that she is 60 and in the contract over eight years she might be good to go. If she is not clear of surrender charges you might see if the contract stipulates how much she can withdraw without penalty a year. Something tells me shes good to go but check the contract.

 

In terms of choices I would get her in a target index fund with Vanguard which matches up with her age of projected retirement. You really can't go wrong with a Vanguard target fund because its low cost and self managed. She won't have to self manage it and won't need an advisor. I don't know how financially savvy your mom is but for most people target funds are a great way to go especially when they are low cost .

 

I hope i have helped some.

 

Tony

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I really appreciate the response and your suggestions.

I would read the AXA contract to see if your mom is clear of her surrender charge. Seeing that she is 60 and in the contract over eight years she might be good to go. If she is not clear of surrender charges you might see if the contract stipulates how much she can withdraw without penalty a year. Something tells me shes good to go but check the contract.


I've been doing all I can to read over this thing as carefully as possible (especially the "Termination of This Contract" section). By what I can tell, there will not be a withdrawal charge because she is at least 59 and 1/2 and has had the contract for at least 5 years. In their language, it appears that the Cash Value will be equal to the Annuity Account Value (which is a good thing for us). My concerns are that they state, "If this Contract is terminated, surrendered or exchanged prior to your Retirement Date, any applicable tax charges we have paid me be deducted." Also, they state that they can defer payments from the "Guaranteed Interest Division" for up to six months (this is the portion that is supposed to provide stability to the account by guaranteeing an interest rate). Perhaps somebody who has gone through all this can comment on either of these (or other) issues?

In terms of choices I would get her in a target index fund with Vanguard which matches up with her age of projected retirement. You really can't go wrong with a Vanguard target fund because its low cost and self managed. She won't have to self manage it and won't need an advisor. I don't know how financially savvy your mom is but for most people target funds are a great way to go especially when they are low cost .


Thank you very much for the suggestion! That is similar to what we were looking at through the Calstrs Pension2 option. I hadn't realized that Vanguard offered a similar fund. Vanguard's fee is 0.14% plus $15 vs. Calstrs 0.41%! We may have to reconsider Calstrs... I think what she did like about Calstrs was there there would be a fixed equity account at 3.5% interest. I'll have to discuss this with her. Thank you again, Tony!

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I've been doing all I can to read over this thing as carefully as possible (especially the "Termination of This Contract" section).

 

I hear you. I guess if it was easy to read and understand no one would sign it. The flaws of the contract would then be glaring. Better to hide what you don't want investors to notice in a dense contract.

 

Maybe its best to call AXA headquarters and have them decifer all the stipulations for you.

 

Keep us posted

 

Tony

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I hear you. Maybe its best to call AXA headquarters and have them decifer all the stipulations for you.

I may just end up doing that tomorrow, but we can't help but want to avoid dealing with them now if possible. Perhaps some additional useful information will reveal itself on this thread.

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Fist off, welcome and thanks for helping your mom! Thanks to Tony for jumping in here. A couple of things to consider...

  1. If this is the product she is in https://www.403bcompare.com/Employee/Products/VariableAnnuity/Fees.aspx?pid=4149AXA assess rolling surrender changes. This means each new contribution is locked into a 6-year surrender charge jail. Her age may prevent her from having to pay these exit fees but I am not sure. If there is a penalty you could explore only transferring the money that has been in account longer than 6 years. You could then transfer money each year that is no longer subject to this charge. Either way, the first step is to cease contributions ASAP. Direct all new contributions to your new choice (Vanguard or CalSTRS Pension 2).
  2. I would consider calling the company (Vanguard or CalSTRS Pension 2) you want to move her money to first. Since they are the ones receiving the money, the will be more motivated than AXA to help you.

I've passed your question on to a couple of advisors and hopefully they will post some thoughts on this.

 

- Dan

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Mkohlhaas,

 

I would definitely take Tony's advice about calling AXA to make sure she qualifies for a surrender charge free withdrawal. With that said, www.403bcompare.com seems to support what you said about the withdrawal being free of surrender, https://www.403bcompare.com/Employee/Products/VariableAnnuity/Fees.aspx?pid=4149.

 

Tony and Dan outlined some great options, I'll expand slightly.

 

Since your mother is over 59 1/2 she has the option to roll her money to an IRA if she desires, it doesn't have to stay in the 403(b). If you roll to an IRA, I'd concur with Tony and Dan - Vanguard is a great option. Depending on her risk profile though, you may want to consider something other than the Target Date options. I love Vanguard, but consider the target dates to be aggressive in or near retirement. If your mother wants and can handle the risk, then great, otherwise I'd consider a different portfolio or set of funds at Vanguard.

 

She also has the option to keep the money in a 403(b) and if she is still contributing this might keep things simple. CalSTRS Pension2 is a great option as is the Vanguard 403(b)7. The CalSTRS P2 Easy Choice portfolios are slightly more expensive than Vanguard target dates due to the fees to run the program, but those fees also support salaried representatives in the field that can assist with paperwork and getting things in the right place (as well as fiduciaries who run the program). The fixed account at the Pension2 program can't be beat, so if that's important...you should consider P2. You should know that if you choose Easy Choice, the entire account must be invested in that portfolio (you can't make your own allocation decisions). Whether Vanguard is cheaper depends on how much money you have and how many funds you want to own, Pension2 uses Institutional share classes of Vanguard which are cheaper than the share class Vanguard uses in their 403(b), but P2 charges an additional .25% to pay for program costs.

 

Either way, you can't go wrong, but if your mother tends toward the more conservative end of the risk spectrum, Pension2 is likely your best option.

 

Full disclosure - I do consulting work for Pension2 and created the Easy Choice portfolios, so decide for yourself my bias. Again, both companies are great, it really depends on what you are looking for. Lowest possible fees with an 800# to call - Vanguard. Low fees with personal help and a great fixed account - Pension2.

 

- Scott

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Ditto on the advice given by Scott, but I would stay away from those Easy Choice portfolios in Pension2 - I heard the guys who created them were drunk at the time.

 

Maybe that's where the beer of choice comes from on the podcast :)

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Dan ,Scott, Dave

 

 

Thanks for helping Mikohlhass. Sometimes in my wanting to help I worry that my advice might be off. Good that the pros stepped in to help . These annuity contracts are much more complex than they need to be and so unfair to the investor.

 

Tony

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So I really truly want to thank all who have given their thoughts and advice here. It truly is really helpful and meaningful to have this kind of guidance. At this point she seems to be leaning toward the Pension2 option given that she is a bit more conservative and likes the idea of their being a fixed interest account (in the case of the Pension2 this would be the Voya Fixed Plus III). The good thing is that she has her pension through Calstrs, so it's not as if all of her retirement funds have been wasting away at the hands of Axa.

Ditto on the advice given by Scott, but I would stay away from those Easy Choice portfolios in Pension2 - I heard the guys who created them were drunk at the time.

Maybe that's where the beer of choice comes from on the podcast :)


I happened to listen to the annuity podcast myself, which is part of what motivated us to get rid of what we have with Axa. Even if the creators of those Easy Choice portfolios were drunk at the time, they sure as hell produced something a lot better than what Axa has to offer. ;)

 

So it looks like the course of action is to call Axa and figure out what would have to be paid to surrender the contract. I'll update everybody on the process as things continue along. Thank you again, all!

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