June is Annuity Awareness Month.
It’s also National Fresh Fruit and Vegetable Month.
Not surprisingly, a recent National Institute of Health Study found that eating an average of five servings of fruits and vegetables a day is linked to a reduced risk of death from heart and respiratory diseases. And while we’re on the subject of living longer, here’s another fact: more and more Americans are living longer – and, for many, building a financially secure retirement is a big challenge.
There is one key to financial security that guarantees you won’t outlive your savings: an annuity. In fact, it’s the only financial product available in the market that guarantees income for life.
For those concerned about outliving their retirement savings, a Qualified Longevity Annuity Contract or QLAC may be worth exploring. QLACs are a form of deferred annuity that begins to provide guaranteed income later in life, on or before age 85. QLACs are relatively new. In 2014, the U.S. Treasury Department issued new rules allowing QLACs to satisfy a retiree’s annual required minimum distribution from their retirement accounts.
The 2014 rules limit QLAC purchases to the lesser of (1) $145,000 or (2) 25% of the individual’s qualified plan or IRA account balance. For retirees with savings in 401(k) plans, these limitations frustrate the purchase of a QLAC. Here’s why:
Most 401(k) plans do not offer annuity options. Thus, 401(k) plan participants must roll over to an IRA to purchase a QLAC. Here’s the rub – if a retiree wants to use $25,000 of their plan balance for a QLAC, they would need to roll over $100,000 from their employer plan to an IRA to comply with the 25% limitation. That makes no sense.
Luckily, members in Congress recognize the need to fix the QLAC rules. In late March, the U.S. House of Representatives passed the Securing a Strong Retirement Act of 2022 (SSRA) sponsored by Ways and Means Committee Chairman Richard Neal and Ranking Member Kevin Brady by a vote of 414 to 5. This bill builds on the SECURE Act of 2019. Among its many important provisions, it would repeal Treasury’s 25% limit. This will help simplify the rules, making it easier for retirees to achieve retirement security.
Not everyone likes fruits and vegetables. But nobody has a beef with retirement security. It’s now in the Senate’s hands. It should pass comprehensive retirement legislation without delay.
Howard Bard is Senior Vice President and Deputy General Counsel with the American Council of Life Insurers (ACLI). Howard reports directly to the General Counsel with responsibility for supporting the legal needs of the organization. He also helps guide ACLI policy on regulation and legislation affecting the retirement security business of its members.
