CPI-U adjustment too small on AIG SPIA

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Leesbro63
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Re: CPI-U adjustment too small on AIG SPIA

Post by Leesbro63 »

Stinky wrote: Wed Mar 27, 2024 10:11 am
nisiprius wrote: Wed Mar 27, 2024 9:13 am Third payment of the year. Overpayment has still not been corrected. Boo.

It's starting to get to the point where I ought to contact them, because the annoyance of trying to do that may be less than the annoyance of letting it run on uncorrected.

We need a general discussion of "institutional continuity risk!"
Given that you’ve now gotten three payments that are too high, the chance that the payments for the remainder of 2024 will also be too high is near 100% (in my opinion). That is, absent some outside intervention from either a policyholder or an “internal audit” of these policies.

Near the end of 2024, someone at AIG should “pick up the file” and set the payments for 2025. But given institutional inertia, I think there’s a good chance that nobody will pick up the file. Based on what you and other have posted, I think that there’s a better than even chance that you’ll get another payment increase of 8.2% in 2025, unless there’s some outside intervention.

It’s up to you (and other folks who have the same product) whether they contact the company and try to wake them from their slumber.

Personally, I’d suggest just letting this sleeping dog lie, and not contact the company. If you take that course, I’d set aside the too-high payments on the chance that AIG will claw them back (if they ever find their mistake). But, especially if AIG finds their mistake in late 2024, I doubt they will try to claw back the overpayments.
I agree with this. As the agent for my elderly mother who has one of these policies, I'm not gonna waste my time trying to save AIG from itself. If and when they claw the money back by some method, I'll accept and understand that. But I'm not going to start jumping thru hoops here.
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nisiprius
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

I don't think financial errors can safely be ignored. So I called them today, with, of course, no meaningful results. But I do have one piece of information to share. The 800 number on the 1099-R appears to be wrong. The number THEY referred me to appears to be wrong. The number that finally reached someone who could verify that they know about the existence of my annuities was the one that appeared on my 2023 annual "fair market value" letter:

1-800-242-6771.

And if nothing else, I think it was worth verifying that I was able to reach my financial institutions and that they acknowledged the existence of my accounts. Frankly, it was alarming to dial the 800 number on my 1099-R form and get told that they had no record of my account. Nor does https://www.corebridgefinancial.com .
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Leesbro63
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Re: CPI-U adjustment too small on AIG SPIA

Post by Leesbro63 »

nisiprius wrote: Wed Mar 27, 2024 1:01 pm I don't think financial errors can safely be ignored. So I called them today, with, of course, no meaningful results. But I do have one piece of information to share. The 800 number on the 1099-R appears to be wrong. The number THEY referred me to appears to be wrong. The number that finally reached someone who could verify that they know about the existence of my annuities was the one that appeared on my 2023 annual "fair market value" letter:

1-800-242-6771.

And if nothing else, I think it was worth verifying that I was able to reach my financial institutions and that they acknowledged the existence of my accounts. Frankly, it was alarming to dial the 800 number on my 1099-R form and get told that they had no record of my account. Nor does https://www.corebridgefinancial.com .
I'll save this number. Thanks. And I'll leave it to you to continue to get them to claim their own money! :wink:


EDIT: I checked my records and that is the same number that I had from early 2022 when they errored in their own favor and it was in my interest to jump through hoops to contact them.
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

Leesbro63 wrote: Wed Mar 27, 2024 4:07 pm
nisiprius wrote: Wed Mar 27, 2024 1:01 pm I don't think financial errors can safely be ignored. So I called them today, with, of course, no meaningful results. But I do have one piece of information to share. The 800 number on the 1099-R appears to be wrong. The number THEY referred me to appears to be wrong. The number that finally reached someone who could verify that they know about the existence of my annuities was the one that appeared on my 2023 annual "fair market value" letter:

1-800-242-6771.

And if nothing else, I think it was worth verifying that I was able to reach my financial institutions and that they acknowledged the existence of my accounts. Frankly, it was alarming to dial the 800 number on my 1099-R form and get told that they had no record of my account. Nor does https://www.corebridgefinancial.com .
I'll save this number. Thanks. And I'll leave it to you to continue to get them to claim their own money! :wink:


EDIT: I checked my records and that is the same number that I had from early 2022 when they errored in their own favor and it was in my interest to jump through hoops to contact them.
Yes, I might have simply repeated the phonathon I went through in 2022. Somehow I mis-remembered and thought the right number was the one shown on the 1099-R. I should have searched this thread.
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

Leesbro63 wrote: Wed Mar 27, 2024 4:07 pm
nisiprius wrote: Wed Mar 27, 2024 1:01 pm ...The number that finally reached someone who could verify that they know about the existence of my annuities was the one that appeared on my 2023 annual "fair market value" letter:

1-800-242-6771.
I'll save this number. Thanks. And I'll leave it to you to continue to get them to claim their own money! :wink:


EDIT: I checked my records and that is the same number that I had from early 2022 when they errored in their own favor and it was in my interest to jump through hoops to contact them.
Yes, I might have simply repeated the phonathon I went through in 2022. Somehow I mis-remembered and thought the right number was the one shown on the 1099-R. I should have searched this thread.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
silvergga
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Re: CPI-U adjustment too small on AIG SPIA

Post by silvergga »

Interesting thread. For those who has this product, and if a similar product is available today, would you get it? Or would you advice someone else (assuming not as savvy as you who can notice the issue without eg coming across a forum thread) to get it?
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

I absolutely would get a SPIA again, because I think they are excellent tools for the case where your portfolio size is in the grey area with respect to your expenses. That is, if the portfolio is 20-30X the annual expenses it must meet, an SPIA is worth considering. Obviously if it's 50X annual expenses you don't need one. An SPIA involves tradeoffs, which can be the subject of a long discussion.

If an SPIA, then would I get an inflation-adjusted SPIA if it were still available? Absolutely. I think the loss of this product deprives retirement savers of a very useful tool. You can get SPIA's that incorporated a specified percentage increase every year, e.g. 3% every year, but I think true CPI adjustment is better.

Of course, AIG, now discreetly called "American General's" glitches are disturbing.

So was AIG's near-collapse in 2008. The insurance company that wrote the annuity was one of the sound assets held by the collapsing holding company, but still. When buying any insurance product, it is a very good idea to familiarize yourself with the role and the limitations of the protection you get from your state guaranty association. You have to do this yourself because insurers will not tell you about it.
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Leesbro63
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Re: CPI-U adjustment too small on AIG SPIA

Post by Leesbro63 »

silvergga wrote: Wed Mar 27, 2024 7:53 pm Interesting thread. For those who has this product, and if a similar product is available today, would you get it? Or would you advice someone else (assuming not as savvy as you who can notice the issue without eg coming across a forum thread) to get it?
The short answer is "yes, definitely". The longer answer is "depending on how it's priced compared to a non-inflation adjusted annuity". Nisiprius well stated the concerns about the "near miss" in 2008...actually it was worse than a near miss but an actual failure that got bailed out. And as he said, it's unnerving that they don't seem to even be organized enough to make sure to not pay annuitants too much. But yeah, an inflation adjusted annuity is an investment product that can be good for many investors if it ever becomes available again.
bugleheadd
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Re: CPI-U adjustment too small on AIG SPIA

Post by bugleheadd »

Hasnt AIG sold off their Life & Retirement business in recent years?
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

Leesbro63 wrote: Thu Mar 28, 2024 6:09 am...Nisiprius well stated the concerns about the "near miss" in 2008...actually it was worse than a near miss but an actual failure that got bailed out...
No, I don't think so. AIG, the holding company, had worse than a near miss but got bailed out. It wasn't their life insurance subsidiaries that were shaky. It was some other part, the part that was issuing "credit default swaps."

"AIG Life Insurance Company", as it was then called, was one of the sound assets AIG held. Its financial strength rating briefly dropped to A- but never fell out of the A's, and is currently rated A (A. M. Best), A+ (Fitch), A2 (Moody's), A+ (S&P). It is likely that the reason it dropped to A- was because of a regulators' decision that seemed to give AIG more latitude to raid its subsidiaries--use them as loan collateral, IIRC.

But no, my spouse was NOT happy when the big AIG headlines hit.

They had originally been called "American General Life Insurance," changed their name to "AIG Life Insurance," and discreetly changed their name back to "American General" when the letters "AIG" became stinky.
bugleheadd wrote: Thu Mar 28, 2024 6:28 am Hasnt AIG sold off their Life & Retirement business in recent years?
There has been more than one change of letterhead and address. They are currently part of Corebridge Financial, which is the company whose website and front-line reps can't find my policy when I give them my name, last four digits of SSN, and policy number. And don't know what to do with a policy number that begins with the letters VG instead of being all digits.

The policy number begins VG3000#### suggesting that there are a couple of a thousand of these policies, but I don't know if they are all inflation-indexed.

For years, Vanguard's website afforded a way to buy SPIAs from AIG Life Insurance Company. When you called the number to talk to someone, you were talking to someone at Vanguard. You could buy the policy using funds directly from the Vanguard settlement account. Some of the form-letter ("Congratulations on your purchase") correspondence had both logos. Once the purchase was made, you had an AIG policy (with a VG- contract number) and Vanguard was no longer in the picture.

Around 2007 AIG was embroiled in an accounting scandal and there were some forum discussions criticizing Vanguard for partnering with a dubious firm. After the blowup, Vanguard revamped their SPIA offerings, creating a partnership with Heuler Income Solutions. From the Vanguard website, after a little tapdance that transferred you to Heuler's website, you could view competitive quotations from about half-a-dozen firms. I thought it looked good. Never actually used it.

Around 2019 or 2020 Vanguard abruptly dropped all of its annuity offerings. The Heuler connection was discontinued. Much more seriously, existing Vanguard variable annuities were handed over to Transamerica, and a number of forum members have posted saying the experience was glitchy and that they are unhappy with Transamerica.
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Re: CPI-U adjustment too small on AIG SPIA

Post by silvergga »

Leesbro63 wrote: Thu Mar 28, 2024 6:09 am
silvergga wrote: Wed Mar 27, 2024 7:53 pm Interesting thread. For those who has this product, and if a similar product is available today, would you get it? Or would you advice someone else (assuming not as savvy as you who can notice the issue without eg coming across a forum thread) to get it?
The short answer is "yes, definitely". The longer answer is "depending on how it's priced compared to a non-inflation adjusted annuity". Nisiprius well stated the concerns about the "near miss" in 2008...actually it was worse than a near miss but an actual failure that got bailed out. And as he said, it's unnerving that they don't seem to even be organized enough to make sure to not pay annuitants too much. But yeah, an inflation adjusted annuity is an investment product that can be good for many investors if it ever becomes available again.
Good points. In addition to a non-inflation adjusted annuity, can also compare against a TIPs bond ladder. Depending on the starting age, a TIPs bond ladder covering 30 years might not be much different from an inflation adjusted annuity covering the lifetime of a person.

Question - I understand some in the thread called and the payment got fixed. Any lurkers in the thread who didn't call, but got a fixed payment at some point without chasing AIG down? Wondering if AIG eventually fixed it on its own, despite taking a while.
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Re: CPI-U adjustment too small on AIG SPIA

Post by Leesbro63 »

silvergga wrote: Thu Mar 28, 2024 12:44 pm
Leesbro63 wrote: Thu Mar 28, 2024 6:09 am
silvergga wrote: Wed Mar 27, 2024 7:53 pm Interesting thread. For those who has this product, and if a similar product is available today, would you get it? Or would you advice someone else (assuming not as savvy as you who can notice the issue without eg coming across a forum thread) to get it?
The short answer is "yes, definitely". The longer answer is "depending on how it's priced compared to a non-inflation adjusted annuity". Nisiprius well stated the concerns about the "near miss" in 2008...actually it was worse than a near miss but an actual failure that got bailed out. And as he said, it's unnerving that they don't seem to even be organized enough to make sure to not pay annuitants too much. But yeah, an inflation adjusted annuity is an investment product that can be good for many investors if it ever becomes available again.
Good points. In addition to a non-inflation adjusted annuity, can also compare against a TIPs bond ladder. Depending on the starting age, a TIPs bond ladder covering 30 years might not be much different from an inflation adjusted annuity covering the lifetime of a person.

Question - I understand some in the thread called and the payment got fixed. Any lurkers in the thread who didn't call, but got a fixed payment at some point without chasing AIG down? Wondering if AIG eventually fixed it on its own, despite taking a while.
That's not exactly correct. There was an issue two years ago that the inflation adjustment was too low. Some of us called and finally got it adjusted up with backpay. This time the payment is too large. It appears that Nisiprius has called but not had the issue resolved yet. I'm not gonna hunt them down to fix an error against them. I'm sure they'll figure it out in time and we'll accept some sort of claw back if they insist.
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Re: CPI-U adjustment too small on AIG SPIA

Post by beanie »

Well now this is weird. Sorry I missed the earlier posts, but am now catching up. I have one of these annuities and was part of the 2022 miscalculation mess. But my annuity this year was correctly increased by 3.7%, and I also had no problems with the 1099. There have been a number of posts speculating about how and why AIG is making these errors, but if some of these annuities are messed up this year and some are fine, then the problem seems to be worse than ever.
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

beanie wrote: Thu Mar 28, 2024 3:33 pm Well now this is weird. Sorry I missed the earlier posts, but am now catching up. I have one of these annuities and was part of the 2022 miscalculation mess. But my annuity this year was correctly increased by 3.7%, and I also had no problems with the 1099. There have been a number of posts speculating about how and why AIG is making these errors, but if some of these annuities are messed up this year and some are fine, then the problem seems to be worse than ever.
Oh, that is disturbing. What a mess.
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Re: CPI-U adjustment too small on AIG SPIA

Post by silvergga »

Leesbro63 wrote: Thu Mar 28, 2024 2:36 pm
silvergga wrote: Thu Mar 28, 2024 12:44 pm
Leesbro63 wrote: Thu Mar 28, 2024 6:09 am
silvergga wrote: Wed Mar 27, 2024 7:53 pm Interesting thread. For those who has this product, and if a similar product is available today, would you get it? Or would you advice someone else (assuming not as savvy as you who can notice the issue without eg coming across a forum thread) to get it?
The short answer is "yes, definitely". The longer answer is "depending on how it's priced compared to a non-inflation adjusted annuity". Nisiprius well stated the concerns about the "near miss" in 2008...actually it was worse than a near miss but an actual failure that got bailed out. And as he said, it's unnerving that they don't seem to even be organized enough to make sure to not pay annuitants too much. But yeah, an inflation adjusted annuity is an investment product that can be good for many investors if it ever becomes available again.
Good points. In addition to a non-inflation adjusted annuity, can also compare against a TIPs bond ladder. Depending on the starting age, a TIPs bond ladder covering 30 years might not be much different from an inflation adjusted annuity covering the lifetime of a person.

Question - I understand some in the thread called and the payment got fixed. Any lurkers in the thread who didn't call, but got a fixed payment at some point without chasing AIG down? Wondering if AIG eventually fixed it on its own, despite taking a while.
That's not exactly correct. There was an issue two years ago that the inflation adjustment was too low. Some of us called and finally got it adjusted up with backpay. This time the payment is too large. It appears that Nisiprius has called but not had the issue resolved yet. I'm not gonna hunt them down to fix an error against them. I'm sure they'll figure it out in time and we'll accept some sort of claw back if they insist.
For the too low inflation adjustment from 2 years ago, do you know of anyone who got it adjusted without calling AIG?
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Re: CPI-U adjustment too small on AIG SPIA

Post by Leesbro63 »

silvergga wrote: Thu Mar 28, 2024 4:06 pm For the too low inflation adjustment from 2 years ago, do you know of anyone who got it adjusted without calling AIG?
I only know the few of us, with this product, who have posted on this thread. So the answer is no. But I suspect all such policyholders were made whole after AIG found out about this. Although I guess it's possible that AIG only fixed the problem for those who contacted them.
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Re: CPI-U adjustment too small on AIG SPIA

Post by Stinky »

Leesbro63 wrote: Thu Mar 28, 2024 4:19 pm
silvergga wrote: Thu Mar 28, 2024 4:06 pm For the too low inflation adjustment from 2 years ago, do you know of anyone who got it adjusted without calling AIG?
I only know the few of us, with this product, who have posted on this thread. So the answer is no. But I suspect all such policyholders were made whole after AIG found out about this. Although I guess it's possible that AIG only fixed the problem for those who contacted them.
I know that my former employer would have fixed all of the policies, both those who called and those who didn’t, if it had made an underpayment error like AIG made two years ago. (The Legal Department would have had a collective freak out if we didn’t fix all policies.)

Hopefully AIG would have done the same thing as my former employer.

Now, someone upthread mentioned that they got the correct inflation adjustment for 1/1/24, while several others didn’t. I have no pat explanation for that one……..
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Leesbro63
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Re: CPI-U adjustment too small on AIG SPIA

Post by Leesbro63 »

Stinky wrote: Thu Mar 28, 2024 4:28 pm
Leesbro63 wrote: Thu Mar 28, 2024 4:19 pm
silvergga wrote: Thu Mar 28, 2024 4:06 pm For the too low inflation adjustment from 2 years ago, do you know of anyone who got it adjusted without calling AIG?
I only know the few of us, with this product, who have posted on this thread. So the answer is no. But I suspect all such policyholders were made whole after AIG found out about this. Although I guess it's possible that AIG only fixed the problem for those who contacted them.
I know that my former employer would have fixed all of the policies, both those who called and those who didn’t, if it had made an underpayment error like AIG made two years ago. (The Legal Department would have had a collective freak out if we didn’t fix all policies.)

Hopefully AIG would have done the same thing as my former employer.

Now, someone upthread mentioned that they got the correct inflation adjustment for 1/1/24, while several others didn’t. I have no pat explanation for that one……..
But at least in this case, those of us who got wrong amounts got them in our favor.
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Re: CPI-U adjustment too small on AIG SPIA

Post by beanie »

Leesbro63 wrote: Thu Mar 28, 2024 4:19 pm
silvergga wrote: Thu Mar 28, 2024 4:06 pm For the too low inflation adjustment from 2 years ago, do you know of anyone who got it adjusted without calling AIG?
I only know the few of us, with this product, who have posted on this thread. So the answer is no. But I suspect all such policyholders were made whole after AIG found out about this. Although I guess it's possible that AIG only fixed the problem for those who contacted them.
Mine was fixed without me calling. Got a letter in April 2022.
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Re: CPI-U adjustment too small on AIG SPIA

Post by Leesbro63 »

beanie wrote: Thu Mar 28, 2024 5:53 pm
Leesbro63 wrote: Thu Mar 28, 2024 4:19 pm
silvergga wrote: Thu Mar 28, 2024 4:06 pm For the too low inflation adjustment from 2 years ago, do you know of anyone who got it adjusted without calling AIG?
I only know the few of us, with this product, who have posted on this thread. So the answer is no. But I suspect all such policyholders were made whole after AIG found out about this. Although I guess it's possible that AIG only fixed the problem for those who contacted them.
Mine was fixed without me calling. Got a letter in April 2022.
That’s a good datapoint to know.
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Re: CPI-U adjustment too small on AIG SPIA

Post by beanie »

Leesbro63 wrote: Thu Mar 28, 2024 6:00 pm
beanie wrote: Thu Mar 28, 2024 5:53 pm
Leesbro63 wrote: Thu Mar 28, 2024 4:19 pm
silvergga wrote: Thu Mar 28, 2024 4:06 pm For the too low inflation adjustment from 2 years ago, do you know of anyone who got it adjusted without calling AIG?
I only know the few of us, with this product, who have posted on this thread. So the answer is no. But I suspect all such policyholders were made whole after AIG found out about this. Although I guess it's possible that AIG only fixed the problem for those who contacted them.
Mine was fixed without me calling. Got a letter in April 2022.
That’s a good datapoint to know.
Oops! My apologies for my failing memory. I got a little further down into my records and found two letters, the one in April 2022 that says they found the error, and an earlier one in January 2022 that says they were sending me a check as a result of my inquiry. The April letter just reads like a form letter being sent out to all affected policyholders.

Also found in my files and maybe of interest: in 2014 AIG paid me too much for four months, and sent a letter in April of that year saying they would not be trying to collect the overpayment. I don’t know if they’ll follow the same policy now, and my annuity is pretty small, but it might argue for procrastination by those who have been overpaid this year.

Isn’t it unbelievable that they have had difficulties applying the correct inflation adjustment for at least ten years now and still can’t get it right?
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Re: CPI-U adjustment too small on AIG SPIA

Post by Leesbro63 »

beanie wrote: Thu Mar 28, 2024 6:56 pm
Leesbro63 wrote: Thu Mar 28, 2024 6:00 pm
beanie wrote: Thu Mar 28, 2024 5:53 pm
Leesbro63 wrote: Thu Mar 28, 2024 4:19 pm
silvergga wrote: Thu Mar 28, 2024 4:06 pm For the too low inflation adjustment from 2 years ago, do you know of anyone who got it adjusted without calling AIG?
I only know the few of us, with this product, who have posted on this thread. So the answer is no. But I suspect all such policyholders were made whole after AIG found out about this. Although I guess it's possible that AIG only fixed the problem for those who contacted them.
Mine was fixed without me calling. Got a letter in April 2022.
That’s a good datapoint to know.
Oops! My apologies for my failing memory. I got a little further down into my records and found two letters, the one in April 2022 that says they found the error, and an earlier one in January 2022 that says they were sending me a check as a result of my inquiry. The April letter just reads like a form letter being sent out to all affected policyholders.

Also found in my files and maybe of interest: in 2014 AIG paid me too much for four months, and sent a letter in April of that year saying they would not be trying to collect the overpayment. I don’t know if they’ll follow the same policy now, and my annuity is pretty small, but it might argue for procrastination by those who have been overpaid this year.

Isn’t it unbelievable that they have had difficulties applying the correct inflation adjustment for at least ten years now and still can’t get it right?
Agreed on all points. Who owns AIG?

I honestly have no problem if they take back their money by reducing future checks FOR A FEW MONTHS. If, however, the overpayment goes on and on, many/most will get hurt as it will feel like a benefit cut, even though it is not.
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Re: CPI-U adjustment too small on AIG SPIA

Post by GAAP »

A product that is no longer offered, and requires additional steps (i.e., look up CPI-U), combined with multiple business changes sounds like a recipe for disaster. The people currently involved are probably familiar with fixed annual adjustments, not so much with CPI-U adjustments.

Of the number of people who bought these, how many outside of BH actually check the calculations? Of those, how many are likely to complain about overpayments? My guess is that AIG will hear about and hopefully fix underpayments much more quickly.
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

Leesbro63 wrote: Fri Mar 29, 2024 4:43 am ...Agreed on all points. Who owns AIG?..
The source of the problem is surely "lack of institutional continuity." Even the name AIG isn't "continuous," the company changed its name (back to its original name), American General Insurance Company because of AIG's bad reputation. I haven't followed the corporate details, but they have changed "their address" several times in the last ten years. They are currently owned by Corebridge Financial, whoever they are. I'm not sure for how long.

Judging by all the zeroes in my account number, I and other guess that the number of these SPIAs issued was in the low four figures, but I don't know if that's just for the CPI-indexed ones or whether the CPI-indexed ones are just a percentage of that.

We all have our guesses about what's going on. Doubtless this policy is managed out of some tiny office that Corebridge hardly knows they own. Doubtless the CPI adjustment was never automated and every time the company changes hands or moves, someone gets annoyed and quits and forgets to tell anyone about the annual chore.

Insurance companies have long been in the business of making 30-plus-year-long promises and commitments. The digital transition has obviously shortened the longevity and reliability of long-term recordkeeping, and I believe the average duration of corporations before they are merged, acquired, spun off, etc. is shorter than it used to. I do have serious questions about whether modern corporations are able to maintain records long enough to keep/i] thirty-year promises.
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Re: CPI-U adjustment too small on AIG SPIA

Post by Leesbro63 »

nisiprius wrote: Sat Mar 30, 2024 9:19 am
Leesbro63 wrote: Fri Mar 29, 2024 4:43 am ...Agreed on all points. Who owns AIG?..
The source of the problem is surely "lack of institutional continuity." Even the name AIG isn't "continuous," the company changed its name (back to its original name), American General Insurance Company because of AIG's bad reputation. I haven't followed the corporate details, but they have changed "their address" several times in the last ten years. They are currently owned by Corebridge Financial, whoever they are. I'm not sure for how long.

Judging by all the zeroes in my account number, I and other guess that the number of these SPIAs issued was in the low four figures, but I don't know if that's just for the CPI-indexed ones or whether the CPI-indexed ones are just a percentage of that.

We all have our guesses about what's going on. Doubtless this policy is managed out of some tiny office that Corebridge hardly knows they own. Doubtless the CPI adjustment was never automated and every time the company changes hands or moves, someone gets annoyed and quits and forgets to tell anyone about the annual chore.

Insurance companies have long been in the business of making 30-plus-year-long promises and commitments. The digital transition has obviously shortened the longevity and reliability of long-term recordkeeping, and I believe the average duration of corporations before they are merged, acquired, spun off, etc. is shorter than it used to. I do have serious questions about whether modern corporations are able to maintain records long enough to keep/i] thirty-year promises.


Well, at least the default mode (unless big inflation re-rears it's ugly head) is a bigger than required kicker, versus a less than required kicker.
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

It looks like the default mode is "same adjustment as last year." Yeah, much better than "same amount as last year."
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Re: CPI-U adjustment too small on AIG SPIA

Post by tetractys »

nisiprius wrote: Sat Mar 30, 2024 11:46 amIt looks like the default mode is "same adjustment as last year." Yeah, much better than "same amount as last year."
Just curious, what is the COLA formula for this SPIA and, does it employ COLA banking?
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

tetractys wrote: Sat Mar 30, 2024 11:58 am
nisiprius wrote: Sat Mar 30, 2024 11:46 amIt looks like the default mode is "same adjustment as last year." Yeah, much better than "same amount as last year."
Just curious, what is the COLA formula for this SPIA and, does it employ COLA banking?
I don't know what "COLA banking" is.

The formula is very simple, it is the cumulative CPI-U for one year. It is measured from end of September to end of September, which is the same period used for Social Security COLAs. (However, the annuity uses CPI-U while Social Security uses CPI-W).

That percentage increase is applied to the monthly payout starting with the payment for January, which is actually paid a day or two before January 1st.

I know that's right because when we were struggling with this before, and seeing that the contract itself was slightly vague, I calculated it and determined that the end-of-September measurement exactly matched what they were doing... most years.

If "COLA banking" means some kind of smoothing, AFAIK they haven't been doing it.

In the past, one year when they overpaid they just let everyone keep the (small) windfall. They didn't try to claw it back by billing, and IF I RECALL CORRECTLY and I'm too lazy go dig into the numbers again, they gave the full CPI adjustment the next year--i.e. they didn't try to leech it back through underpayments the next year.

In the year they underpaid, they were perfectly punctilious about making up the shortfall. They adjusted the monthly payments upward to the right amount, and paid back the shortfall with separate, isolated payments.

There's no hint at all of this being chiseling, it's just several surely-accidental screwups, and in both directions. Alarmingly sloppy.
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Re: CPI-U adjustment too small on AIG SPIA

Post by tetractys »

nisiprius wrote: Sat Mar 30, 2024 2:14 pmI don't know what "COLA banking" is.

If "COLA banking" means some kind of smoothing, AFAIK they haven't been doing it.
Yes it’s a kind of smoothing. i.e. The COLA will have a maximum percentage increase. When inflation is higher than the COLA maximum the percentage difference will be added to a COLA bank. Then any future year when inflation is less than the maximum, COLA can be pulled from the banked percentage until it’s back to 0.

Probably it’s good your SPIA doesn’t have it. Although is might be insurance against failure for some plans.
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Re: CPI-U adjustment too small on AIG SPIA

Post by beanie »

nisiprius wrote: Sat Mar 30, 2024 9:19 am ...The source of the problem is surely "lack of institutional continuity." Even the name AIG isn't "continuous," the company changed its name (back to its original name), American General Insurance Company because of AIG's bad reputation. I haven't followed the corporate details, but they have changed "their address" several times in the last ten years. They are currently owned by Corebridge Financial, whoever they are. I'm not sure for how long. ...
In 2021, AIG underwent a reorganization, with Corebridge assuming AIG's life and retirement business and substantially all of its investment management operations. In September 2022, AIG, the holding company, sold off Corebridge common stock to the public. Following the IPO, AIG owned 77.7% of the common stock of Corebridge. But AIG has continued to sell off its interest in Corebridge and, as of December 31, 2023, AIG held just 52.2%, and recently stated "we currently intend to sell down our remaining ownership interest in Corebridge over time."

So American General Life Insurance Company, the issuer of my SPIA, is now a subsidiary of Corebridge Financial, Inc. The good news is that Fitch and S&P continue to give American General and Corebridge a rating of A+. Whether that would change if AIG's ownership of Corebridge falls below 50%, I can't say.
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Re: CPI-U adjustment too small on AIG SPIA

Post by Wrench »

beanie wrote: Mon Apr 01, 2024 4:02 pm
nisiprius wrote: Sat Mar 30, 2024 9:19 am ...The source of the problem is surely "lack of institutional continuity." Even the name AIG isn't "continuous," the company changed its name (back to its original name), American General Insurance Company because of AIG's bad reputation. I haven't followed the corporate details, but they have changed "their address" several times in the last ten years. They are currently owned by Corebridge Financial, whoever they are. I'm not sure for how long. ...
In 2021, AIG underwent a reorganization, with Corebridge assuming AIG's life and retirement business and substantially all of its investment management operations. In September 2022, AIG, the holding company, sold off Corebridge common stock to the public. Following the IPO, AIG owned 77.7% of the common stock of Corebridge. But AIG has continued to sell off its interest in Corebridge and, as of December 31, 2023, AIG held just 52.2%, and recently stated "we currently intend to sell down our remaining ownership interest in Corebridge over time."

So American General Life Insurance Company, the issuer of my SPIA, is now a subsidiary of Corebridge Financial, Inc. The good news is that Fitch and S&P continue to give American General and Corebridge a rating of A+. Whether that would change if AIG's ownership of Corebridge falls below 50%, I can't say.
And herein lies a risk with SPIAs that is rarely discussed, at least on BHs. Is the underlying company going to maintain it's financial standing to be able to pay its obligations over 30, 40 or 50 years during which there are multiple management changes and may even involve substantial changes in ownership? There are back-stops I know in state guarantor organizations so that perhaps lessens the risk somewhat. Reading this thread makes me glad that my SPIA provides a relatively small fraction of my retirement income stream. If it went away, we would be hurt, but not sufficiently so we would need to eat dog food to survive. :happy

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Re: CPI-U adjustment too small on AIG SPIA

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Wrench wrote: Mon Apr 01, 2024 4:37 pm And herein lies a risk with SPIAs that is rarely discussed, at least on BHs. Is the underlying company going to maintain it's financial standing to be able to pay its obligations over 30, 40 or 50 years during which there are multiple management changes and may even involve substantial changes in ownership? There are back-stops I know in state guarantor organizations so that perhaps lessens the risk somewhat. Reading this thread makes me glad that my SPIA provides a relatively small fraction of my retirement income stream. If it went away, we would be hurt, but not sufficiently so we would need to eat dog food to survive. :happy

Wrench
I was in the insurance business for my entire career, and I saw dozens of sales, reorganizations, mergers, management changes, etc in life insurance companies. Most of the time, the surviving company was as strong or even stronger than before the change, but there were definitely exceptions.

Given the possible “corporate churn” over the 20-30 year life of a SPIA, I’d advise someone to purchase only from the very large mutual companies. Those companies are highly unlikely to undergo changes that will weaken policyholder protections. And by the nature of their large books of whole life insurance, which allow almost infinite changes to the dividend scale, they will survive any conceivable financial catastrophe.

My favorite SPIA carriers would be four large and extremely strong companies that are often hated on Bogleheads. New York Life, Northwestern Mutual, Mass Mutual, and Guardian Life.

Guaranty funds also provide protection. But if my SPIA premium was higher than guaranty fund limits, I’d stick with the big four mutuals.
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

Stinky wrote: Mon Apr 01, 2024 5:57 pm ...My favorite SPIA carriers would be four large and extremely strong companies that are often hated on Bogleheads. New York Life, Northwestern Mutual, Mass Mutual, and Guardian Life...
No argument here, and I don't think Bogleheads "hate" the biggies any more than we "hate" the small fry. It's academic now because nobody is writing them, but at the time I was shopping for SPIAs I don't believe any of those four was writing CPI-linked SPIAs. AIG was, The Principal was, and I believe there was a third--Lincoln Financial, maybe? At the time I felt that as long as any rated-in-the-A's name-brand insurer was offering CPI-linked SPIAs, that was what I wanted.

Naturally, the glitches we are experiencing now have me wondering if I was wise. But they are almost certainly not the result of anything shaky or fishy about the insurer, just an indication that they didn't sell very many of them and aren't paying due attention to them. And the bottom line is that the payments continue to show up every month on time, and, thanks to the CPI adjustment, are quite a big larger than they were when we bought them.
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Re: CPI-U adjustment too small on AIG SPIA

Post by Stinky »

nisiprius wrote: Mon Apr 01, 2024 8:26 pm
Stinky wrote: Mon Apr 01, 2024 5:57 pm ...My favorite SPIA carriers would be four large and extremely strong companies that are often hated on Bogleheads. New York Life, Northwestern Mutual, Mass Mutual, and Guardian Life...
No argument here, and I don't think Bogleheads "hate" the biggies any more than we "hate" the small fry. It's academic now because nobody is writing them, but at the time I was shopping for SPIAs I don't believe any of those four was writing CPI-linked SPIAs. AIG was, The Principal was, and I believe there was a third--Lincoln Financial, maybe? At the time I felt that as long as any rated-in-the-A's name-brand insurer was offering CPI-linked SPIAs, that was what I wanted.
I can’t fault your choice of insurance companies.

I only mentioned those four mutual companies because they all write large amounts of whole life, which makes them (especially NWM) the target of a lot of negative comments on the Forum.

But that’s not to say that they’re not good companies for annuities. In fact, I believe that NYL and MM are among the leading writers of fixed annuities.

They’re also all pretty conservative companies. So I’m not surprised they didn’t write CPI linked SPIAs.
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Re: CPI-U adjustment too small on AIG SPIA

Post by beanie »

Stinky wrote: Mon Apr 01, 2024 9:31 pm
nisiprius wrote: Mon Apr 01, 2024 8:26 pm
Stinky wrote: Mon Apr 01, 2024 5:57 pm ...My favorite SPIA carriers would be four large and extremely strong companies that are often hated on Bogleheads. New York Life, Northwestern Mutual, Mass Mutual, and Guardian Life...
No argument here, and I don't think Bogleheads "hate" the biggies any more than we "hate" the small fry. It's academic now because nobody is writing them, but at the time I was shopping for SPIAs I don't believe any of those four was writing CPI-linked SPIAs. AIG was, The Principal was, and I believe there was a third--Lincoln Financial, maybe? At the time I felt that as long as any rated-in-the-A's name-brand insurer was offering CPI-linked SPIAs, that was what I wanted.
I can’t fault your choice of insurance companies.

I only mentioned those four mutual companies because they all write large amounts of whole life, which makes them (especially NWM) the target of a lot of negative comments on the Forum.

But that’s not to say that they’re not good companies for annuities. In fact, I believe that NYL and MM are among the leading writers of fixed annuities.

They’re also all pretty conservative companies. So I’m not surprised they didn’t write CPI linked SPIAs.
I just don’t get what’s so difficult - or, as you imply, risky - for an insurance company to write CPI linked SPIAs. Why can’t an insurance company back their actuarial assumptions with TIPs the same way they use nominal bonds for flat SPIAs?
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Re: CPI-U adjustment too small on AIG SPIA

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beanie wrote: Tue Apr 02, 2024 9:48 am I just don’t get what’s so difficult - or, as you imply, risky - for an insurance company to write CPI linked SPIAs. Why can’t an insurance company back their actuarial assumptions with TIPs the same way they use nominal bonds for flat SPIAs?
While insurance companies invest relatively small parts of their assets in credit-risk-free Treasuries, most assets are those with some credit risk like corporate securities, commercial mortgages, etc. The insurers believe that default risk on those securities is outweighed by the pick up in yield compared to Treasuries.

TIPS are also credit-risk-free. And I don’t know if the yield on TIPS (beyond the annual inflation adjustment) is high enough to produce an inflation adjusted annuity whose terms would be attractive to purchasers.
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Re: CPI-U adjustment too small on AIG SPIA

Post by nisiprius »

One theory, not sure who mentioned it but it was someone who knew more than I did, is that the problem with CPI-linked annuities has been lack of interest. So it has always been a tiny sliver of the business. And the theory was that for that tiny sliver they just shrugged and absorbed the risk. They might have started backing them with TIPS if the the business had picked up.

It annoys the heck out of me that one corner of the "annuity paradox" is lack of interest in CPI-linked SPIAs. Apparently people just don't intuit the effects of inflation, and are shocked to find that a CPI-linked SPIA costs a lot more because it's likely to pay out a lot more. I'm not sure how many people buy 3%-compound-increasing products.
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Re: CPI-U adjustment too small on AIG SPIA

Post by exodusNH »

beanie wrote: Tue Apr 02, 2024 9:48 am I just don’t get what’s so difficult - or, as you imply, risky - for an insurance company to write CPI linked SPIAs. Why can’t an insurance company back their actuarial assumptions with TIPs the same way they use nominal bonds for flat SPIAs?
It's not necessarily risky. It's that inflation is unpredictable. In order to have a profitable product, the early year payouts have to be relatively low. A 3% fixed COLA reduces the monthly payment by 25%. An inflation-adjusted one would have even lower initial payments.

Humans are bad at understanding compound math.

US TIPS have only been around since 1997. Part of the reason they were issued was to allow the US Government to get a read on market sentiment about inflation.

The Canadian government recently discontinued offering inflation-linked bonds.
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Re: CPI-U adjustment too small on AIG SPIA

Post by Wrench »

StillGoing in this post:
viewtopic.php?p=7474321#p7474321
indicates that only ~15% of annuities in the UK have any inflation adjustment and some of those may be fixed adjustments. With a reduction in payout from 7.3% to 4.8 % for an RPI (UK version of CPI-U) linked annuity for a single 65 year old one can perhaps see why. Since most people don't feel comfortable buying an annuity in the first place (the "annuity puzzle") it is no surprise then that even fewer want an inflation adjusted one where initial payouts are much, much lower. If hardly anyone wants to buy a product, its hard to make any money selling it so why bother?

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