Recently, the Treasury Department issued final regulations governing qualified longevity annuity contracts (QLACs) that are likely to cause sparks to fly in the annuity industry in the coming years. While many of the final QLAC provisions mirror those found in the proposed regulations that were issued more than two years ago, the final regulations have made the Treasury’s commitment to expanding access to this valuable type of longevity insurance clearer than ever. Clients looking to minimize their required distributions from qualified plans while simultaneously securing retirement income late in life have been waiting since early 2012 for these rules, but the expansive final regulations are likely to appeal to a much wider client group who will need to pay attention to the details, both now and in the coming months.
QLACs: Then and Now
Future possibilities for the QLAC
Both the proposed and final regulations exclude variable annuities, indexed annuities, and similar types of annuities that are closely tied to the performance of the equity markets from the definition of a QLAC. The rationale behind this rule is that the purpose behind the QLAC is to guarantee secure retirement income far into the future, and the income provided by variable and indexed annuities is arguably substantially more unpredictable than traditional fixed annuities.
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