June 1, 2012
For additional information:
Deanna Johnson

Council suggests improvements to proposed rules expanding access to longevity annuities

WASHINGTON, DC — Today, the American Benefits Council provided recommendations to the U.S. Department of Treasury and the Internal Revenue Service (IRS) on proposed regulations on longevity annuity contracts.

Jay Haines, an employee benefits lawyer in the Legal Department of FMR LLC (the parent company of Fidelity Investments), testifying on behalf of the Council, called the annuity guidance package “a promising start” to its new focus on the distribution phase of retirement planning.

The Council’s testimony, based on written comments submitted to IRS on May 3, aims to make the regulatory proposal more workable, accessible and attractive for plan sponsors and participants by identifying three specific recommendations that would address certain practical considerations:

Create a correction program: Plan sponsors need a correction program ­— similar to the Employee Plans Compliance Resolution System (EPCRS) — through which inadvertent errors can be quickly and easily fixed without any loss of benefits. Such a program should also enable participants to avoid disqualifying the entire annuity contract from QLAC status under appropriate circumstances.

Facilitate the purchase of Qualified Longevity Annuity Contracts (QLACs) outside of a plan without leakage: Under the proposed regulations, the 25 percent limit applies separately to employer-sponsored retirement plans and IRAs. The Council believes it is likely that more plans will facilitate the purchase of a QLAC through IRA rollovers than directly through the plan itself. The Council urges Treasury and the Service to apply the 25 percent limit to the plan balance so long as it is a direct rollover used to purchase the QLAC individual retirement annuity. Clarifying this point will give plans more flexibility to assist participants in purchasing QLACs without having to contract with a single provider.

Accommodate changing QLAC options within plans over time: Once this guidance is finalized, some employers may begin to offer QLACs in their plans. Over time, employers will also naturally decide to change QLAC providers as markets, products and circumstances change. Final regulations should clarify that such changes would not constitute an impermissible forfeiture under Code Section 411 or a violation of the anti-cutback rules of Code Section 411(d)(6). Additionally, we recommend that the proposal be enhanced to include guidance that would allow the participant to keep the QLAC that he or she had purchased prior to its becoming unavailable under the plan.

“The Council supports efforts to help Americans save sufficiently for retirement and to manage those assets effectively in retirement. In short, we want to do what’s best for participants,” Haines said. “We ask that [Treasury and IRS] not lose sight of the need to ensure that the final rules be as simple and flexible as they can be under the circumstances and consistent with the [Internal Revenue] Code’s objectives.”

The Council’s testimony is available here. For more information, or to arrange an interview with Council staff on retirement policy, please contact Deanna Johnson at 202-289-6700.

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.