Products December 15, 2014

DCIIA Offers Clarification of Longevity Annuity Rules

The DCIIA has released a FAQ document about new regulations for qualifying longevity annuity contracts in retirement plans.
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In its newly released document, “Qualifying Longevity Annuity Contracts: Answers to Frequently Asked Questions (FAQs),” the Defined Contribution Institutional Investment Association (DCIIA) provides insight into recently announced regulations that make longevity annuities accessible to the defined contribution (DC) and individual retirement account (IRA) markets.

Prior to the issuance of regulations announced by the Internal Revenue Service (IRS) in July, longevity annuities were, as a practical matter, not accessible to DC and IRA investors due to Internal Revenue Code rules that require distributions from a DC or IRA account to begin by age 70½, which is prior to the age longevity annuities are designed to begin income payments, the DCIIA notes. With the new regulations, qualifying longevity annuity contracts (QLACs) are exempt from required minimum distribution (RMD) rules within prescribed parameters.

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The FAQs resource seeks to provide clarification of common questions that plan sponsors and their advisers may have regarding these new regulations. Among others, the document answers such questions as:

  • What is a “qualifying longevity annuity contract” (QLAC) as referred to in the regulations?
  • When are the regulations effective? Do they apply to existing annuity contracts?
  • What defined contribution plan types are allowed to offer a QLAC?
  • Do contract holders have to wait until age 85 before payments from the QLAC can begin?
  • What happens if a contract holder accidentally exceeds this limit? Will the dollar limit increase over time and, if so, how?
  • Are there any reporting requirements for a plan sponsor or plan provider with regard to the QLAC?
  • These final regulations address QLACs, but do they have any impact on other annuities offered in-plan or in other retirement accounts, such as fixed annuities or variable annuities with “guaranteed minimum withdrawal benefit” (GMWB) riders?
  • Do these regulations apply to defined benefit plans?

The document is available here.

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