Might something actually stop the deceptive sales of tax-deferred annuities? I'm speaking of selling them as investments for IRAs and other tax-deferred retirement accounts.

Nearly 55 percent of the sales of variable annuities were to retirement plans in 1997 (the latest data available), according to the Life Insurance Marketing Research Association in Windsor, Conn.

But that's not where annuities belong, says Stephen Butler, president of Pension Dynamics, a pension consulting firm in Lafayette, Calif.

When you buy an annuity for a retirement plan, you're paying for tax deferral that you don't need. But a salesperson may persuade you otherwise.

Mis-sold annuities are now the focus of class-action lawsuits against four insurance companies (annuities are an insurance product). The plaintiffs claim deception and fraud. They say they would not have put annuities into their retirement accounts, if they'd known the truth.

The lawsuits are targeting both the annuities found in many employer retirement plans and the annuities you might buy for your IRA, from a stockbroker, financial planner or insurance salesperson.

Some annuities don't share the sins that are under attack. The teachers' CREF retirement account, for example, provides annuities at minimal cost (around 0.34 percent annually). Marketing materials from Charles Schwab, Fidelity, Vanguard and others push annuities only for money that's outside your retirement account.

But those are exceptions to the way most annuities are sold.

Here's what's going on: IRAs, Keoghs, 401(k)s and other retirement accounts are tax deferred. Your money accumulates tax-free. The tax deferral covers any investment that you buy for your account: stocks, bonds, mutual funds, certificates of deposit, whatever.

A variable annuity is also tax deferred. It contains several "subaccounts" which are similar to mutual funds. You can choose which fund you want to invest your money in.

But why would you put an investment that's already tax deferred (the annuity) into a tax-deferred retirement account? The double deferral gives you no extra benefit.

If you want to invest your retirement account in mutual funds, it's cheaper to buy them directly rather than through an annuity, Butler says. You'll pay less in sales commissions and fees.

Now we're down to the nub of why salespeople urge you to buy an annuity for your IRA, and why they peddle annuities to small companies needing retirement plans. These sales earn them more money than if they suggested straight mutual funds.

Sales commissions on variable annuities average about 6 percent, according to Cerulli Associates in Boston. Some pay as high as 13.5 percent. By contrast, you might pay in the 4 percent range for mutual funds bought from a stockbroker or planner, and zero for no-load mutual funds you choose yourself.

You don't see the commission. It's buried in the so-called "mortality and expense" (M & E;) fee that annuities charge to cover their overhead and profit, plus a tiny life-insurance cost.

M & Es; average 1.26 percent a year, according to Morningstar in Chicago. For money management, you're charged an additional 0.84 percent, for 2.1 percent overall. That compares with an average of 1.43 percent for comparable, non-annuity funds (and as little as 0.2 percent for indexed mutual funds you buy yourself).

In short, most variable annuities are an expensive way of buying mutual funds. The expense might be worth it, if you're investing money outside a retirement account and want the tax deferral. But it's a waste when you're investing retirement money that's already tax deferred.

Some insurance companies assert that annuities offer two other advantages. First, if you die, your heirs generally get at least your initial investment back, minus expenses. But so few people ever make this claim that the industry has no statistics on it.

Second, the savings in an annuity can be converted into an income for life. But so can the savings outside an annuity. You don't have to have the annuity in your retirement plan.

Scrupulous sellers of tax-deferred annuities don't offer them for retirement plans. Can unscrupulous sellers do it and get away scot free? These lawsuits may decide.

Breaks for baby boomers?

Whatever the issue, the baby boomers rule. You can chart the country's main social concerns by the boomers' age.

Today, the first boomers are looking retirement in the eye and know they should put more money away. But instead of doing it on their own, they want to be rewarded with extra tax deductions. Congress is awash in proposals to help.

The chief bill in the House is sponsored by Rob Portman, R-Ohio, and Ben Cardin, D-Md. In the Senate, one of the leading bills comes from William Roth, R-Del. I've culled the highlights from each bill. One or the other of them would:

? Raise the limits on how much tax-deductible money you can contribute to an employee retirement plan.

? Allow extra, pre-retirement employee plans. Workers 50 and older could add $5,000 or $7,500 a year, on top of their usual contributions.

? Create new retirement plans. For example, there might be a new type of simple plan for small businesses, to which only employees contribute. (Today, employers have to contribute, too.)

? Create Roth 401(k) plans (for private-sector employees) and Roth 403(b)s (for schools and nonprofits). You'd get no tax deduction for your contributions, but your gains would accumulate tax free.

? Raise the maximum, tax-deductible IRA contribution to $5,000 a year, from $2,000 today.

If these bills passed, who would the winners be? Higher income people should definitely come out ahead. They have the extra income to contribute to retirement plans.

People with moderate incomes might not be able to afford to put more money away. Some 21 percent of workers don't contribute to their employee 401(k) plans at all, according to the consulting firm, Hewitt Associates.

Portman, however, argues that middle-income people will indeed be helped, thanks to the way most employee plans work. By law, higher-income people cannot contribute the maximum to their 401(k)s (or similar plans) unless a certain percentage of middle- and lower-income workers contribute, too.

So the bosses have an incentive to encourage the rank and file to save. Typically, they do it by matching the money their workers contribute to the retirement plan.

One skeptic is the Treasury's assistant secretary for tax policy, Donald Lubick.

Under the changes proposed, he says, some bosses could raise their contributions to their retirement plans without giving the workers more. Or they might leave their contributions unchanged and reduce what they put in for the rank and file.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.

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