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Darla Mercado, Investment News

Treasury allows longevity annuities in retirement plans

July 1, 2014 - 12:33pm

U.S. Treasury Department

The U.S. Treasury Department in Washington D.C.


The U.S. Treasury Department on Tuesday announced a final rule that will facilitate retirement plan participants' access to deferred-income annuities.

“Americans are increasingly recognizing that it's hard for an individual who doesn't know his or her future life span to deal with, to manage the risk of running out of assets while they're in retirement,” J. Mark Iwry, senior adviser to the secretary of the Treasury and deputy assistant secretary for retirement and health policy, said Tuesday morning at the Insured Retirement Institute's annual Government, Legislative and Regulatory Conference in Washington.

Deferred-income annuities — also known as longevity insurance — permit purchasers to buy a contract and take income at some point in the future, for example, age 80. Though the Treasury Department and the Labor Department have acknowledged that workers could benefit from using deferred-income annuities to ensure they have enough money later in life, there were still a number of hurdles to overcome.

The biggest hurdle: Since these income streams can begin at advanced ages, they run counter to the required minimum distribution rules that require savers to take money from their qualified retirement plans at age 70.

The Treasury's so-called qualifying longevity annuity contracts final rule, effective immediately, would exclude the annuity's value from the account balance that's used to determine the RMD. This way, the client doesn't need to receive annuity payments prematurely in order to meet those mandatory RMDs.

Savers in a 401(k) or IRA can use up to 25% of their account balance or $125,000 — whichever is less — to buy a qualifying longevity annuity. That dollar limit will be adjusted for cost-of-living increases.

Buyers of the qualifying longevity annuity are permitted to use a “return of premium” death benefit, according to the Treasury. Further, the final rules permit buyers who exceed the 25% or $125,000 in premium payments to correct that excess amount without disqualifying the annuity purchase.

And the final rules facilitate the issuance of these contracts by permitting purchasers to include a statement that the contract is indeed a qualifying longevity annuity in an insurance certificate, rider or endorsement, according to the Treasury.

Darla Mercado writes for Investment News, a sister publication of Business Insurance.

 



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