Reporting on Treasury Department’s July 1st Rule Regarding Longevity Annuities and NAFA’s Efforts
July 2, 2014 by NAFA
On July 1, 2014 the Department of Treasury published its final rule (Read Rule and Release Here) on longevity annuity contracts. The rule would modify minimum distribution rules to allow 401(k) or similar plans, or IRA participants to use up to 25 percent of their account balance or $125,000 (whichever is less) to purchase qualifying longevity annuity contracts (QLAC’s). While we are pleased that the rule promotes the use of traditional fixed annuities, we are disappointed that fixed indexed annuities are specifically excluded.
NAFA met with Treasury twice and filed comments on the proposed rule over a year ago. In response to a request from Bill Evans, Attorney Advisor, Office of Benefits Tax Council at the Department of Treasury, NAFA recently sent additional materials in order to answer questions about FIA minimum interest and income guarantees and demonstrating that they are the same as traditional fixed annuities. Unfortunately, Treasury still felt that FIAs do not meet the underlying policy goals. In their final rule they provided the following commentary: “Because variable annuities and indexed contracts provide a substantially unpredictable level of income to the employee, these contracts are inconsistent with the purpose of this regulation. This is true even if there is a minimum guaranteed income under those contracts.” NAFA disagrees with this viewpoint. Fortunately, the final rule allows for the Commissioner to provide exemptions.
NAFA intends to submit documentation that the “unpredictability” of the non-guaranteed interest earnings in an FIA is no different than it is in a set rate fixed annuity. Using Treasury’s logic, only DIAs would meet their definition and that would effectively cut out any other fixed annuity. Also, it ignores the core guarantee of all fixed annuities – predictable payments you cannot outlive. The fact that the guaranteed payments can be (and in most cases will be) higher when interest above the minimum is earned in both a set and indexed rate annuity is an added benefit that should be available to all who wish to purchase a qualified longevity annuity. NAFA will not let up on its efforts to convince Treasury that fixed annuities with predictable income do exist regardless of the interest crediting method. Consumer demand for FIA’s is growing and the likelihood that FAs with income riders will enter the market. We must allow customers a choice in the type of annuity they choose for their qualified longevity annuity.
See NAFA’s submission to Treasury here
See press release from Treasury here
