Indexed Annuities are a Safety Trap

The card that landed in mailboxes throughout central Illinois in early 2008 promoted “the most informative retirement workshop you’ve ever attended.”

Pinnacle Investment Advisers, which had four offices in the area, was offering discussions of Medicaid planning, IRAs, and tax-efficient income over lunch or dinner. Bios of Pinnacle owners

Susan and Tom Cooper mention their grandchildren, his Vietnam service, and her Bible study group.

A group of seniors soon assembled at the river-front Embassy Suites in East Peoria to enjoy their free meal. There and in follow-up meetings, Susan and Tom, now 67 and 69, delivered a message that went something like this: Scared of stocks? They could help. Worried about out living your money? They had a plan for that too.

In fact, there was a product that offered the best of both worlds: returns that rise when stocks do yet are guaranteed to never be negative. And they were selling it.

Retired librarian Ruth Cline attended one of the Coopers’ seminars and liked what she heard. In 2008, when she was 71, she bought what they were recommending: an indexed deferred annuity. Often referred to simply as an index annuity, it pays interest that’s linked to the performance of a given investment index.

In fact, this was the second time Cline had bought one. The Coopers had sold her another six years before — and then advised her to move out of it and into the new version. The switch slammed Cline with an early-withdrawal penalty of 16% of her $98,000 account balance, according to court papers filed by the State of Illinois.

Illinois’s securities division is now pursuing a case against Pinnacle, alleging that it moved Cline and 14 other people into new index annuities they didn’t need, costing the clients $208,000 in surrender fees and earning the firm $126,000 in commissions.