Treasury Issues Final Rules To Expand Deferred Annuities

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Final rules that revise requirements for minimum distributions from retirement plans and help to expand access to deferred annuities were issued July 1 by the Treasury Department ( T.D. 9673 ).

The rules, which allow for deferred annuities under qualifying longevity annuity contracts, modify the minimum distribution requirements to allow for the purchase of deferred annuities that start at an advanced age, such as 80 or 85. The change makes it easier for retirees to consider using lifetime income options, the department said in a July 1 news release.

“Instead of having to devote all of their account balance to annuities, retirees who wish to follow a combination strategy that uses a portion of their savings to purchase guaranteed income for life while retaining other savings in more liquid or flexible investments will be able to do so,” the Treasury news release said.

The rules apply to plans covered by tax code Section 401(a), as well as Section 403(b) plans, individual retirement annuities and individual retirement accounts under Section 408 and eligible governmental plans under Section 457(b).

Under the final rules, the maximum allowed investment that individuals may use to buy qualifying longevity annuity contracts to comply with the minimum distribution requirements at age 7012 is 25 percent of the account balance, or $125,000, whichever is less, the Treasury said.

The $125,000 limit was increased from $100,000 in the proposed rules. Future increases in increments of $10,000 are to be linked to inflation. The proposal called for increments of $25,000.

Longevity annuities or individual retirement accounts also would return to a retiree's account premiums paid but not received as annuity payments if a retiree buying an annuity dies before or after the age that an annuity starts, the final rules said.

Additionally, the final rules broaden how those selling annuities may comply with the requirement to tell employees that a contract is intended to be a qualifying longevity annuity contract.

The rules, which took effect July 2, were published in the Federal Register (RIN 1545-BK23). The rules were similar to those proposed in 2012 but were expanded in several areas in response to public comments.