In Lifetime Income, ERISA’s statute of limitations may serve to provide the basis for a workable standard when dealing with the long term financial risk posed to fiduciary by insurer insolvency following the purchase of an annuity.
Continue Reading Lifetime Income: Using the Statute Of Limitations to Minimize Insurer Insolvency Risk
Chuck Thulin, a fine ERISA attorney from Seattle, WA, chaired the DOL practitioner panel at the latest (and very successful) annual meeting of the 5 regional TE/GE Councils, in Baltimore. When I commented that we’d “been there, done that” when discussing some obscure rule, he told me of reading of the Russian language version of
It is going on 8 years now since since the IRS fundamentally changed the 403(b) world with the issuance of regs which were designed to make 403(b) plans more like 401(k) plans, and to formally impose more employer accountability on the operations of those plans. Though those regs brought very valuable change in many ways,
There is a serious, and important, debate occurring whether, and to what extent, should there be MEP reform following the DOL’s restrictive advisory opinion on the matter in 2012. There appears to be bi-partisan support for the changes proposed in Senator Hatch’s SAFE Act, which makes wholesale changes to the current MEP rules, and will
Buried deep within “The Cooperative and Small Employer Charity Pension Flexibility Act of 2014 (CSEC Act),” enacted on April 7, 2014 is a new MEP Form 5500 reporting requirement. It is one which, frankly, most of us missed. It came to light as the DOL issued its Interim Final Rule (to be published November 10
One of the biggest challenges facing the task of wider implementation of retirement security through use of DC lifetime income has been the question of relevance. Quite frankly, plan sponsors and their advisors really have not seen the whole idea of lifetime income as relevant to their own plans and practices. It really hasn’t been
Guaranteed lifetime income from a DC plan requires a contract with a life insurance company. Period. Even if the program is provided by a mutual fund company, a bank, or any other non-governmental entity, insurance companies are the only businesses which can issue to DC plans a contract guaranteeing lifetime income.
Choosing the right insurer
Lifetime Income for 401(k) plans has been been getting a lot of press, driven in large part by efforts by the DOL and Treasury to find ways to promote retirement security.
The IRS took a substantial step in making these DC lifetime income efforts become a reality with its publication of the final regulations establishing the “Qualified Plan Longevity Annuity Contract,” or “QLAC “. In order to even publish this regulation, however, the IRS had to “clear the underbrush” and resolve an number of technical issues relating to the manner in which defined contribution plans could even provide lifetime income.
Treasury and IRS staff did just this, and quite practically. The final regs even addressed some key market concerns, removing a couple of roadblocks which would have made the QLACs difficult to provide. So, for example, the QLAC can have a return of premium feature; can pay certain gains (which is important for certain, popular, annuity products); removed potentially duplicative disclosure requirements; and permits insurance companies to use off the shelf annuity products without amending them (if the contract otherwise meets the QLAC annuity requirements) until 2016. Staff also kept the QLAC simple (for example, no variable annuity contracts will qualify), thus keeping it very affordable.
Even though the establishment of the QLAC provides a good planning tool, for sure, and it does provide a modest tax benefit, that is not the real story here. The true impact of the QLAC reg, and what makes it so very important, is that it establishes the foundation under tax law by which DC plans can simply annuitize.
So, before you dive into the close details of the QLAC (and we will do that, as will many others, I’m sure, over the coming months), lets first turn to the tax rules that actually make lifetime income work in a defined contribution plan. You will need to understand what it takes to put an annuity into a plan, as well as what it takes to distribute an annuity from the plan. I invite you to read the preamble to the originally proposed QLAC reg, as well as Rev Rul 2012-03. Between these two pieces of guidance, you find some very basic instructions on how DC annuitzation-even beyond QLACs- will work. Here’s a brief list of key elements:
Continue Reading New QLACs Establish Foundation for DC Annuitization
I have tried to publish this as my “Annual Mother’s Day” posting. It puts a very personal twist to the things we do, and hopefully puts a larger and hopeful light on many of the mundane tasks that make up much of our business:
ERISA wonks such as ourselves tend to get lost in the
The Wharton School Pension Research Council’s new Working Paper on” Borrowing from the Future 401k Plan Loans and Loan Defaults” finally validated what some of us knew to be true for quite awhile. Using actual participant and plan data from a very large database (not just a statistical sampling), the study found that 90%