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Source:	Record (Hackensack, NJ)
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Apr. 8--Fair Lawn retiree Lawrence Sifflard was wondering last fall if his $200,000 annuity from American International Group Inc., which received government bailout money, was safe. So he called the state agency that guarantees annuity accounts and learned its coverage limit for any account is $100,000.

If AIG Annuity Insurance Co., the subsidiary that sold him the retirement savings account, goes broke, he could lose $100,000, or half of his savings. He was surprised the limit was that low. "If they go belly up, I may have problems," he said.

"Insurance limits on IRAs and bank accounts were raised to $250,000, so why not annuities?" asked Sifflard, who does not want to cash out his annuity because he would have to pay a penalty to AIG.

So he told his assemblywoman, Joan M. Voss, a Democrat from Fort Lee, that he thought the limit should be raised. She agreed. Voss has introduced a bill that would increase the coverage on deferred annuities to $250,000.

An annuity is a contract under which an investor gives money to an insurance company and receives guaranteed income or a lump sum payment at a later date when the fund matures. A deferred annuity is one that has not yet matured.

The annuity measure, which has been tied up in a committee and faces many hurdles, "would make senior citizens feel more secure in these difficult times," Voss said. A state Senate version is being drafted, she said.

According to the online annuities broker Immediate Annuities.com, New Jersey is one of 45 states with $100,000 guaranty limits on deferred annuities. New Jersey covers up to $500,000 for those with mature annuities -- more than any state except Washington, which also covers up to $500,000.

"Everybody I talked to said raising the limit [for deferred annuities] makes sense," said Sifflard, a former contract administrator for an aerospace firm. "This would protect the people in the state, especially now with all the insurance companies having problems."


AIG has accepted government loans and assistance totaling $182 billion to stay afloat. Other insurers under pressure from market turmoil include Newark-based Prudential Financial Inc., which lost more than $1 billion last year and saw its credit and financial strength ratings cut last month by Standard & Poor's, a step that also happened to other life insurers.

All of the insurers licensed to sell annuities in the state would be responsible for policyholders' losses up to the statutory limit if one them becomes insolvent and can no longer make good on guaranteed benefits. So the proposal to raise the limit in New Jersey could face resistance from insurers.

"We haven't taken a position on it yet," said Lisa Bennett, a Prudential spokeswoman. When asked about the safety and soundness of Prudential's annuity products, Bennett said "we maintain appropriate reserves, capital and risk-control procedures to help protect our clients' assets."

AIG insists its policies are safe. In a letter to customers posted on the company's Web site, Chairman and Chief Executive Officer Edward Liddy said the company "remains strong and well capitalized" and that "your policies are safe." AIG spokesman Joe Norton said last week that the company supports the New Jersey bill that would raise the limit.

Many retirees and those approaching retirement age are drawn to annuities now because the typical yields are "3 or 4 percent," said Karl Graf, a financial adviser in Wayne. That's higher than many certificates of deposit or money market accounts, he said.

Graf cautions his clients that annuity underwriter guarantees "are only as good as the company that's backing" them, and it doesn't help that insurers' safety and soundness ratings from ratings agencies inspire less confidence, since they failed to foresee the financial crisis.

"The usefulness of ratings of insurance companies and bonds for me has been diminished," he said.

E-mail: newman@northjersey.com