FINRA told consumers that the SECURE Act made it safer for employers to include annuities in their retirement plans and that annuities will be portable if they need to move their employer.
The information was in one of 10 points the agency released to the public on how the Setting Every Community Up for Retirement Enhancement Act affects their retirement money. The first point is the raising of the required minimum distribution age from 70½ to 72.
The second point focuses on annuities, saying that employers have a safe harbor in selecting annuity companies, as long as the provider falls within certain parameters.
“Before the new law, employers may have been hesitant to include annuities in their sponsored plans because of potential liability in selecting the insurance companies offering the annuities,” according to the notice.
FINRA listed three requirements that the provider must have met in the preceding years:
- Being licensed by the state insurance commissioner to offer guaranteed retirement income contracts.
- Filing audited financial statements as required by state law.
- Maintaining financial reserves that satisfy state statutory requirements in all states where the annuity provider does business.
The notice explains annuities in general terms as a contract binding the company to make periodic payments immediately or later, along with describing the different types.
“Some annuity contracts provide a way to save for retirement,” according to the notice. “Others can turn your savings into a stream of retirement income. Still others do both.”
It also has a few veiled warnings: “Annuities come with a variety of fees and expenses, such as surrender charges, mortality and expense risk charges and administrative fees. Annuities also can have high commissions.”
FINRA added that SECURE requires disclosures from the plan provider to show how retirement funds might be different in a “lifetime income stream product like an annuity.”
Plan providers would need to tell participants a document showing what lifetime income stream could be generated from a lump sum in the participant’s account.
“This means you would see an estimate of the monthly amount you could receive with a single or joint life annuity, based on your current account balance,” according to the notice. “The law provides immunity for the employer related to the income projections.”
That requirement would go into effect once the Department of Labor set other requirements, FINRA said.
The other eight points are:
10-year draw-down limit on inherited IRAs for non-spousal beneficiaries
“The SECURE Act now requires that non-spousal beneficiaries such as a son or daughter draw down the assets in an inherited IRA within a decade of inheritance, subject to a few exceptions.”
Removal of age limits for contributions to traditional IRAs
“Previously, an individual was only able to contribute to a traditional IRA up to the age of 70½. Under the new law, this age limit goes away.”
Long-term part-time worker access to employer-sponsored retirement plans
Starting in 2021, the new law will make employer-sponsored retirement plans available to long-term part-time workers. … The SECURE Act lowers this threshold for eligibility to either one full year with 1,000 hours worked or three consecutive years of at least 500 hours (roughly 9.5 hours a week over 52 weeks).”
Increase in the maximum contribution rate for participants in auto-enrollment 401(k) plans from 10 percent to 15 percent
“The new law raises the 10 percent maximum on the contribution rate that employers can set for employees participating in auto-enrollment 401(k) plans, which are also called “qualified automatic contribution arrangement” (QACA) retirement plans.”
Qualified distributions from retirement plans for birth or adoption
“The SECURE Act provides savers with an option to take an early distribution without penalty from a retirement account when they welcome a new child into their lives.”
Qualified distributions from 529 plans for student loan debt
“The SECURE Act expands the definition of a tax-free or qualified distribution from a 529 savings plan to include repayment of up to $10,000 in qualified student loans and expenses for certain apprenticeship programs.”
Steven A. Morelli is editor-in-chief for AdvisorNews. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at email@example.com.
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