WASHINGTON, D.C. — A top Department of Treasury official told industry officials this morning that the Obama administration is working on regulation tweaks to encourage greater investment in annuities.
Speaking during the IRI Government, Legal and Regulatory Conference 2016, J. Mark Iwry, deputy assistant secretary for retirement and health policy, mentioned several areas the Treasury Department is trying to find a middle ground.
For example, the department is trying to modify the 25 percent limit on Qualified Longevity Annuity Contract purchases from Individual Retirement Accounts. The QLAC rule was announced two years ago during the IRI conference and allows retirees to delay Required Minimum Distributions from 70 1/2 to as late as 85.
IRAs are where most QLACs are purchased from, Iwry explained, and the 25 percent rule means someone wanting to buy a $50,000 QLAC needs to roll $200,000 from their retirement plan.
“We are not interested in the risk of further leakage from accounts,” Iwry said. “We don’t want people to have to move money from qualified plans to IRAs if they don’t have to.”
The Internal Revenue Service needs to use automated systems to regulate QLAC investments, Iwry said in explaining the reason for the 25 percent rule. The IRS doesn’t have the manpower to check each transaction individually.
Another issue is what happens in a divorce where a QLAC was issued as a joint-and-survivor annuity — can you still honor the joint annuity to a divorced spouse?
“Until recently, we hadn’t realized that this was a question,” Iwry said. “We are looking at how we can clarify that” to allow the former spouse to continue as a beneficiary.
Otherwise, Treasury is looking at ways to encourage distributions from qualified plans as a combination of withdrawals and an annuity, Iwry explained. Too often, new retirees are only given a choice between lump sum, which most take, and rolling all the money into an annuity.
Treasury wants to encourage more investment in annuities, he said.
“There’s a great deal of enthusiasm for encouraging investment in lifetime income,” added Seth Harris, former acting secretary of the Department of Labor. “Folks inside the Labor Department … have been eager to try and make progress on lifetime income.”
The Obama administration might not be able to finish current work on lifetime income initiatives, Harris said, such as auto-enrollment in retirement plans. But the issue is very bipartisan, he added, so things could happen in the next administration as well.
A big issue is establishing Safe Harbor for selection of annuity provider in plans.
The DOL doesn’t feel all annuities are created equal, Harris said. “The more complex the product is the more nervous the Labor Department is.”
The potential is strong to find a middle ground on the Safe Harbor issue and promote greater use of annuities, both Iwry and Harris agreed.
“We stand ready at Treasury to support the Labor Department in any way we can to help forge a solution and we have in fact been discussing with folks at Labor in an ongoing basis some alternatives,” Iwry said.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at firstname.lastname@example.org.
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