Revenue Ruling 2012-3; the preamble to the QLAC Regs; IRS Notice 2014-66; and the Oct. 23, 2014 DOL Information Letter to Treasury are just a few of the critical building blocks which have enabled an exciting new generation of lifetime income products which we are now seeing in the market. The three 2019 SECURE ACT
A title like this one was bound to happen; and I was tempted to publish it on April Fool’s Day-except that its really not a joke.
Where it comes from is the simple fact that any DC Lifetime Income Program (ok, why not, lets use the acronym “DCLIP” while we’re at it) that guarantees lifetime
202(b) actually does not make any statutory change to any of the Code’s or ERISA rules governing the distribution of a plan’s assets pursuant to divorce or separation orders. Instead, it instructs Treasury to amend its QLAC rules, which are obscurely found under Required Minimum Distribution applicable to dc plans which purchase annuities (Reg 1.401(a)(9)-6). The regs must be changed to reflect that if a QLAC is issued as a joint and survivor annuity (which it is required to be unless spousal consent is obtained, under plans to which such rules apply), and a divorce subsequently occurs prior to the date the annuity payments actually begin, the DRO “will not affect the permissibility of the joint and survivor annuity benefits” as long as that order meets certain requirements.
Continue Reading Secure 2.0’s New QDRO Rules: The Mainstreaming of the QLAC?
There are substantial efforts underway throughout the retirement market, attempting to wrap minds around the various aspects of providing lifetime income from DC plans. This incudes efforts to design new programs and how to explain them to sponsors, fiduciaries and advisers who must make the ultimate selection election between competing choices.This will not only involve getting familiar with a whole new vocabulary, but ultimately there needs to be at least a working knowledge of the different types of annuities which may be in play in any of these designs.
Continue Reading Building a Lifetime Income Product
You may’ve noticed that the SECURE Act introduced yet another new twist to the 403(b) world: the Qualified Plan Distribution Annuity Contract (“QPDAC”-you may want to look at my prior blog related to these lifetime income acronyms). Its not that Congress was singly out 403(b) plans, as 401(a) and 457(b) plansnow also have the ability to distribute QPDAC. But, as in all other things 403(b)s, there are a number of unique twists to the rules which exist solely in the 403(b) world.
Continue Reading The 403(b) “Qualified Plan Distribution Annuity Contract” Under SECURE Section 109
The recent uptick in publications from the private sector focusing on lifetime income is now a welcome surprise, complete with studies showing that participants are now wanting elements of guaranteed income ad part of their retirement arrangements. But lifetime income can be a daunting concept for the non-actuarial/non-insurance professional whose practice is focused on defined contribution arrangements. Where does one even start in trying to figure this out, and whether or not to include it your clients DC plans or IRAs?
Continue Reading The Qualified Longevity Annuity Contract (the “QLAC”) Rules Form Foundation for Understanding of How 401(k) and IRA-Based Lifetime Income Works
How do you audit a 403(b) in-kind distribution? There is no financial transaction, no cash changes hands, there is no change in investments. It really is only a nominal change in the records of the insurer. Yet, somehow, GAAP requires that the “transaction” be verified. There is no answer, yet, to this question, which means the industries (that is, auditors, insurers, and lawyers) will be pressed for finding a standardized approach for bringing audit certainty to this process. It even becomes a bigger issue than 403(b)s: QLACs and other distributed annuity contracts are all able to be distributed as “in-kind” distributions from 401(a) plans as well, and there is no acceptable “recordkeeping” method to audit.
Continue Reading Auditing Distributed 403(b) (and 401(a)) Contracts
Even with all of the interest in the Fiduciary Rule, the DOL is still paying attention to lifetime income-so much so that the Qualified Longevity Annuity Contract (the “QLAC”, established by the IRS) was granted broad relief under the Rule. This relief is so favorable that one of the claims being brought in the 5
The DOL just published its first serious guidance on supporting lifetime income with the publication of FAB 2015-2, guidance which is very necessary for the success of the Qualified Longevity Annuity Contracts, as well as DC lifetime income income. The FAB is an initial, but substantial, step in addressing one of the most pressing of the ERISA issues related to providing lifetime income from defined contribution plans.
Continue Reading DOL Provides Key ERISA Guidance on QLAC/DC Lifetime Income
With regard to the DOL’s fiduciary proposed regulations, There is much to like in the new rules; some troubling things; and, perhaps, a mistake or two which will be all flushed out in the coming months. There are a couple of technical points which are worthwhile sharing because they represent what we can expect of the “unexpected” as we work through the changes’ impact. These include the impact on lifetime income , and the application of the PT rules on the purchase of annuities-including QLACs.
Continue Reading DOL’s Proposed Fiduciary Rules May Unexpectedly Open Lifetime Income Door, If…….