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ACLI Opinions On Longevity Annuity Regulations

The American Council of Life Insurers’ Jim Szostek testified before the U.S. Department of the Treasury and the IRS regarding longevity annuities.  He said that the ACLI is thrilled with the government’s changes to annuities in order to make them easier for Americans to purchase.  Annuities are the only retirement vehicle that can ensure you will not outlive your savings.  The ACLI applauds the government for helping make it easier for Americans to use some of their retirement savings to buy an annuity, but they have a few suggestions that would further help the insurance and annuity industry.

They’d like to see the requirement for using specific language in the annuity contract taken away.  The ACLI says that the requirement to include the statement saying that the annuity is intended to be a QLAC, qualified longevity annuity contract, is more than enough and more language requirements would just confuse things on the state level.  Under the current government provision, only fixed annuity contracts are valid for a QLAC.  The ACLI would like variable annuities, indexed annuities and similar products to be considered as well.  They say that annuity payments can still be fixed, even though the annuity contract is under different terms.

Next, the ACLI is asking for some clarification in the accounting method used for the 25% purchase limitation.  Investors can’t use more than 25% of their IRA or 401k for a longevity annuity, but the government wants to use the balance at the date of purchase to determine this 25% allowance.  The ACLI says that this would require completely different recordkeeping by the plan administrator and the annuity issuer and they ask that the measurement include other options, such as the account balance as of the last quarterly statement.  Once an excess premium is made, a contract is disqualified as a QLAC and the entire contract is excluded.  The ACLI recommends that only the portion in excess of the original QLAC be excluded, so that the original annuity amount still qualifies for QLAC benefits.

In order to ease some of the administration burdens associated with the way contract values are determined, the ACLI believes that the premiums paid for a QLAC should be used as the account balance, rather than the actuarial present value.  They worry that using the second will hinder the use of QLAC’s because it can be complicated.  The ACLI would also like the option for QLAC’s to be a death benefit annuity.  Nearly everyone purchasing annuities now is opting to add death benefits to their contracts, so allowing for this option with QLAC’s would make them more attractive.  All of this information and even more details can be found in the ACLI’s News Release on their website.

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