Jump to content
Sign in to follow this  
Dan Otter

How Valuable Is The M&e?

Recommended Posts

Guest Sierra

FT: Why the sarcasm? I have repeatedly tried to help you understand the ME fee and how it relates to fixed annuities. Your latest post simply reveals a total lack of understanding. It ignores each and every one of the points/examples I have offered up. I believe at this point you are simply being argumentative because you and I have locked horns about your NYSUT involvement in the 403(b) business which is totally irrelevant to the ME impact on fixed annuities. To prove me wrong I challenge you to direct the question to ING, your annuity provider. Please get back to us with their answer.

Share this post


Link to post
Share on other sites
Quick update: I called TIAA-CREF's 800 number, and asked the woman who answered specifically about the M&E fee on the CREF variable accounts. The information they gave me corresponded precisely to the information that is on the prospectuses on their website, and she pointed out (quite correctly) that they were among the lowest M&E fees in the industry.

 

I then asked them if there was an M&E fee on their fixed annuities. I was on hold for about 3-4 minutes, then the woman got back on the line and said that there was no M&E fee on the fixed annuities at TIAA-CREF. I said, "No M&E fee whatsoever?" She responded, "That's right, none."

 

I trust that I have been of assistance in helping you understand this complex issue. :-)

 

I'll go you one better, Joel: I contacted your beloved TIAA-CREF, and I have already posted their response here.

 

Any questions?

Share this post


Link to post
Share on other sites

 

Joel, just to clarify: if you were right about the fixed annuities, I'd be happy to post it here. To the extent that I feel any personal animus towards you, it's because I don't feel you were truthful in our previous discussions. But if you were right about this issue, I'd happily say so here. It's just that, so far, I haven't found anyone who agrees with you, including the experts that others have cited, and now TIAA-CREF.

Share this post


Link to post
Share on other sites
Guest Sierra

It is interesting that you went to the no-load provider T/C for "service" rather than your own "full service" provider ING. That says volumes about your opinion of the service you get by calling ING's 800#.

 

That aside: The T/C rep gave you the wrong answer! Did you ask him/her if the ME charge was "incorporated" into the declared interest rate? Did you ask him/her if the ME fee was "incorporated" into the annuity income rates? You need to speak to an actuary just like I and TR have done. Both actuaries and the people at Motley Fool have agreed with me when I say the ME fee is factored into the declared interest rate during the accumulation phase and factored into the annuity income rates during the distribution phase.

Again, a FA is a debtor/creditor relationship. It is not an investment because it does not fluctuate in value ie a bank CD. These debtors (insurers and banks) are not required to disclosed their costs of doing business to there policyholders and depositors respectively. But rest assured you are paying for a ME fee to the same extent as you are paying for the insurer's rent. Again all the fees I repeat all of the fees associated with the FA contract are not disclosed. The ME fee is just one of those fees. But to say they are not charging you for the mortality and expense risk they assume because it is not disclosed to you is like saying that they are not charging you for the rent they must pay because it is not disclosed to you.

Share this post


Link to post
Share on other sites
It is interesting that you went to the no-load provider T/C for "service" rather than your own "full service" provider ING. That says volumes about your opinion of the service you get by calling ING's 800#.

 

 

 

Joel, you and I (and everyone else familiar with you) knows that if I had called ING and said that they agreed with me, you simply would have impugned their integrity. So I saved myself a few exchanges with you and went right to TIAA-CREF. Imagine my shock now to hear you impugn THEIR integrity.

 

TR called an actuary at Genworth, a company who issues fixed annuities, and HE said that there is no M&E on a fixed annuity.

 

I called TIAA-CREF, one of the largest issuers of fixed annuities to teachers (if not THE largest), and THEY said there is no M&E on a fixed annuity.

 

That's good enough for me.

 

By the way, if your TIAA-CREF, whose service you're so proud of saying is as good as any full-service provider, were really giving out wrong information, wouldn't THAT speak volumes about your constant assertions that they are so good? At this point, you should really admit that you're wrong about at least ONE of two things: the quality of service at TIAA-CREF, or the existence of the M&E fee in a fixed annuity.

 

Please feel free to take your last s. I've done my research, I've concluded there is no M&E for a fixed annuity, and I'm done running around the maypole with you.

 

 

 

 

Share this post


Link to post
Share on other sites

All,

 

This is just a stupid arguement, please just drop it. Both sides are right and I've already stated such (as if I am the final arbiter.....). There is no explicit M & E fee on fixed annuities, meaning there is no "charge" that comes out of the account to pay for it, however there is an M & E fee that is incorporated implicitly. Basically the interest rate is lower in order to pay for the M & E. By the way, if there were no M & E on a fixed annuity than there could be no commissions paid as the commissions would be categorized as an expense.

 

So please just stop it - both sides. You are both right in your own way of thinking. There is no M & E explicitly, but there is an M & E implicitly (there has to be, even if it is called by another name).

 

Are we finished here?

 

ScottyD

Share this post


Link to post
Share on other sites
Guest Sierra
All,

 

This is just a stupid arguement, please just drop it. Both sides are right and I've already stated such (as if I am the final arbiter.....). There is no explicit M & E fee on fixed annuities, meaning there is no "charge" that comes out of the account to pay for it, however there is an M & E fee that is incorporated implicitly. Basically the interest rate is lower in order to pay for the M & E. By the way, if there were no M & E on a fixed annuity than there could be no commissions paid as the commissions would be categorized as an expense.

 

So please just stop it - both sides. You are both right in your own way of thinking. There is no M & E explicitly, but there is an M & E implicitly (there has to be, even if it is called by another name).

 

Are we finished here?

 

ScottyD

Scott: Is this not what I have been saying all along? At this late point in the discussion FT says: "I've concluded there is no M&E for a fixed annuity"

Share this post


Link to post
Share on other sites
Guest Sierra

FT says: "TR called an actuary at Genworth, a company who issues fixed annuities, and HE said that there is no M&E on a fixed annuity."

 

FT, The Genworth actuary did not say that. According to TR the Genworth actuary said: "Fixed annuities (non-variable) do not have M&E's or mortality expenses applied against the contracts." YOU ARE WRONG TO INTERPRET THIS TO MEAN "THERE IS NO M&E ON A FIXED ANNUITY". Again, "not applied against the contracts" means it is factored into the formula used to arrive at a declared interest rate that is credited to the account. This is the same response I got from my local actuary that I called. And you will get the same response if you call an actuary of your own choosing. BTW I got the same response you did when I called ING as well as TIAA and spoke to one of the phone reps. If we called a dozen insurers we will get 12 of the same misleading responses from a general rep. Try getting thru to the actuarial department of any insurer or a local actuary from the phone book and you will get him/her to agree with the Genworth actuary and the actuary I spoke to and you will then come to the conclusion that, like ScottyD asserts, the ME fee is not disclosed because it is an implicit fee as well as TR when he said to me: "I will agree with you on this. It is a cost in the product"

Share this post


Link to post
Share on other sites

 

Joel, you may quote all the out-of-context snippets that you'd like in an attempt to convey universal agreement here. That doesn't make it so. Long AFTER TR wrote "It is a cost in the product," he responded to my assertion that there didn't appear to be an M&E fee on fixed annuities by writing, "FT, You are correct but Joel wants to call it an M&E. I say let him have his way. It's OK." Doesn't really sound like he agrees with you. You want to quote Scottyd as agreeing with you, though what he really wrote was that he saw both sides of this argument as equally valid (and, I believe, equally stupid). And chadposner, also a financial planner, has never wavered from his opinion that there is no M&E fee on fixed annuities, either. And ING and TIAA-CREF both have reps that have confirmed that there is no M&E fee on fixed annuities.

 

All of which is a roundabout way of saying, I'm perfectly content to agree to disagree. But please don't summarize this whole thing with the illusion that you've proved a point somehow. Too many people in the room continue to disagree with you.

Share this post


Link to post
Share on other sites
Guest Sierra

FT: Like I said you are indeed being argumentative with me.

 

I would like everyone to take a True/False test.

 

Is the following statement True or False?

"THE FIXED ANNUITY HOLDER PAYS FOR M&E AS AN IMPLICIT CHARGE". Joel answers TRUE, Scott answers TRUE and FT answers FALSE. TR and Chad, would you please give us your "final" answer.

Share this post


Link to post
Share on other sites
FT: Like I said you are indeed being argumentative with me.

 

I would like everyone to take a True/False test.

 

Is the following statement True or False?

"THE FIXED ANNUITY HOLDER PAYS FOR M&E AS AN IMPLICIT CHARGE". Joel answers TRUE, Scott answers TRUE and FT answers FALSE. TR and Chad, would you please give us your "final" answer.

 

Joel, I'm arguing with you because I don't agree with what you're saying. I think that's allowed.

 

M&E = Mortality & Expense. Chadposner has stated that there is no Mortality charge, and with companies such as TIAA-CREF, Vanguard, et al, there is clearly no Expense charge. Full-service companies may have a fee on their accounts to compensate their agents, but that would be an implicit "E" charge, not necessarily an "M&E" fee.

 

By the way, you can add two more answers to your list: ING says "FALSE." TIAA-CREF says "FALSE."

Share this post


Link to post
Share on other sites
Guest TR1982

FT and Sierra,

 

This is my answer: there are implicit costs built into any product as we agreed earlier. It might be any kind of cost. However, (this is where I agree with FT) there is no implicit mortality cost as you suggest. The M in a VA pays for the risk that an account holder would die before annuitization and the account balance would be less than what was invested. The insurance company is required to pony up and pay whatever the guarantee is. That is a risk that exists prior to any annuity payout.

 

In a fixed annuity that risk does not exist. The contract holder could never have a balance that is less than what was invested: therefore, there is no mortality risk and no mortality expense. Mortality risk in the payout phase is assumed in the annuity payout rate which is determined at the time of annuitization. If the contract holder does not annuitize, then he is not nor will he, be paying a direct or implied mortality expense. If he does annuitize, then that mortality risk expense is implicitly carried in the annuity payout rate of the insurance company. That is why annuity payout rates change every year.

 

Are we clear?

Share this post


Link to post
Share on other sites
Guest Sierra

Are we clear? Only partially!

 

TR, you are 100.0 percent correct when you assert that: "If he does annuitize, then that mortality risk expense is implicitly carried in the annuity payout rate of the insurance company"

 

But TR, you are 100.0 percent wrong when you assert that during the accumulation phase there is no implicit ME fee because the account value upon death will always be greater than the total premiums. The ME fee is ALSO implicitly charged during the accumulation period in order to guarantee the policyholder FUTURE annuity income rates.

 

So just like you say "that mortality risk expense is implicitly carried in the annuity payout rate", it is ALSO "implicitly carried" in the declared interest rates during the accumulation period. Look at any fixed annuity contract and you will see various tables that guarantee FUTURE annuity income rates. The cost of guaranteeing these rates of income decades before they kick in is covered by charging the policyholder a ME fee during the accumulation phase.

 

If there was no implict ME fee during the accumulation phase then how could we call this product a fixed annuity during the accumulation phase. What would qualify it as a 403(b) investment? Without the me fee it is a savings account which does not qualify as a 403b investment.

Share this post


Link to post
Share on other sites

TR, FT, Sierra,

 

There is an implicit M in fixed accounts, after all the only reason a Fixed annuity enjoys tax-deferral benefits is because of its insurance components. Now the insurance may only be the account value. But the M pays for the guaranteed payments that are guaranteed in the contract. Life expectancies change and and insurance company is locked into the contract it writes and thus has some risk, which is embodied in an implicit M.

 

ScottyD

Share this post


Link to post
Share on other sites
Guest Sierra
TR, FT, Sierra,

 

There is an implicit M in fixed accounts, after all the only reason a Fixed annuity enjoys tax-deferral benefits is because of its insurance components. Now the insurance may only be the account value. But the M pays for the guaranteed payments that are guaranteed in the contract. Life expectancies change and and insurance company is locked into the contract it writes and thus has some risk, which is embodied in an implicit M.

 

ScottyD

Scott,

 

You need not address me insofar as I have been saying the same thing ever since Dan posted the topic.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

×
×
  • Create New...