TUCSON (CN) - An AIG subsidiary sold schoolteachers, hospital and nonprofit employees millions of dollars in redundant, useless deferred annuity plans to snare healthy commissions for the sales force, a class action claims in Federal Court.
Lead plaintiffs John and Brenda Hall, California schoolteachers, say the Variable Annuity Life Insurance Company trained 1,500 agents to recommend deferred annuities for 403(b) retirement plans "without disclosing that the deferred annuity product is redundant and unnecessary, and regardless of whether the customer has an insurance need that is met by the product."
The Halls say VALIC's agents present themselves as "retirement experts" but actually prey on workers by selling a redundant tax deferral and failing to tell them that an identical benefit is already provided by the retirement plan.
"Defendants never disclose in the sales process that the purported tax-deferral 'benefit' is available to all qualified plan investors, regardless of whether they fund their qualified plan with a deferred annuity or other investments," the complaint states.
"By the time they realize that they are paying for a redundant product, the only way they can extract themselves from the arrangement is to pay the large surrender fee. The compounded effect of these annuity fees over the course of a few decades - not counting any surrender fees - can consume as much as one-third of a retirement investor's account, as compared to straight investments such as mutual funds."
The class wants VALIC and its agents enjoined from selling "deferred annuities for use in qualified plans without full and fair disclosure of that the tax-deferred earnings accrual feature is provided by the tax qualified retirement plan," disgorgement, and other damages.
They are represented by Robert Carey with Hagens Berman in Phoenix.
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