Longevity Annuity Contracts, 37633-37643 [2014-15524]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 79, Number 127 (Wednesday, July 2, 2014)]
[Rules and Regulations]
[Pages 37633-37643]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15524]



[[Page 37633]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9673]
RIN 1545-BK23


 Longevity Annuity Contracts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the use 
of longevity annuity contracts in tax-qualified defined contribution 
plans under section 401(a) of the Internal Revenue Code (Code), section 
403(b) plans, individual retirement annuities and accounts (IRAs) under 
section 408, and eligible governmental plans under section 457(b). 
These regulations will provide the public with guidance necessary to 
comply with the required minimum distribution rules under section 
401(a)(9) applicable to an IRA or a plan that holds a longevity annuity 
contract. The regulations will affect individuals for whom a longevity 
annuity contract is purchased under these plans and IRAs (and their 
beneficiaries), sponsors and administrators of these plans, trustees 
and custodians of these plans and IRAs, and insurance companies that 
issue longevity annuity contracts under these plans and IRAs.

DATES: Effective date: These regulations are effective on July 2, 2014.
    Applicability date: These regulations apply to contracts purchased 
on or after July 2, 2014.

FOR FURTHER INFORMATION CONTACT: Jamie Dvoretzky at (202) 317-6799 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these regulations has 
been reviewed and approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) 
under control number 1545-2234. The collection of information in these 
final regulations is in A-17(a)(6) of Sec.  1.401(a)(9)-6 (disclosure 
that a contract is intended to be a qualifying longevity annuity 
contract (QLAC), defined in A-17 of that section) and Sec.  1.6047-2 
(an annual statement must be provided to QLAC owners and their 
surviving spouses containing information required to be furnished to 
the IRS). The information in A-17(a)(6) of Sec.  1.401(a)(9)-6 is 
required in order to notify employees \1\ and beneficiaries, plan 
sponsors, and the IRS that the regulations apply to a contract. The 
information in the annual statement in Sec.  1.6047-2(c) is required in 
order to apply the dollar and percentage limitations in A-17(b) of 
Sec.  1.401(a)(9)-6 and A-12(b) of Sec.  1.408-8 and to comply with 
other requirements of the required minimum distribution rules.
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    \1\ An ``employee'' includes the owner of an IRA, where 
applicable.
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    Estimated total average annual recordkeeping burden: 28,529 hours.
    Estimated average annual burden per response: 8 minutes.
    Estimated number of responses: 213,966.
    Estimated number of recordkeepers: 150.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number assigned by the Office of 
Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by section 6103.

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under sections 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), 
408A(c)(5), and 6047(d) of the Code.
    Section 401(a)(9) prescribes required minimum distribution rules 
for a qualified trust under section 401(a). In general, under these 
rules, distribution of each employee's entire interest must begin by 
the required beginning date. The required beginning date generally is 
April 1 of the calendar year following the later of (1) the calendar 
year in which the employee attains age 70\1/2\ or (2) the calendar year 
in which the employee retires. However, the ability to delay 
distribution until the calendar year in which an employee retires does 
not apply in the case of a 5-percent owner or an IRA owner.
    If the entire interest of the employee is not distributed by the 
required beginning date, section 401(a)(9)(A) provides that the entire 
interest of the employee must be distributed, beginning not later than 
the required beginning date, in accordance with regulations, over the 
life of the employee or lives of the employee and a designated 
beneficiary (or over a period not extending beyond the life expectancy 
of the employee or the life expectancy of the employee and a designated 
beneficiary). Section 401(a)(9)(B) prescribes required minimum 
distribution rules that apply after the death of the employee. Section 
401(a)(9)(G) provides that any distribution required to satisfy the 
incidental death benefit requirement of section 401(a) is treated as a 
required minimum distribution.
    Section 403(b) plans, IRAs described in section 408, and eligible 
deferred compensation plans under section 457(b) also are subject to 
the required minimum distribution rules of section 401(a)(9) pursuant 
to sections 403(b)(10), 408(a)(6) and (b)(3), and 457(d)(2), 
respectively, and to the regulations under those sections. However, 
pursuant to section 408A(c)(5), the minimum distribution and minimum 
distribution incidental benefit (MDIB) requirements do not apply to 
Roth IRAs during the life of the employee.
    Section 6047(d) states that the Secretary shall by forms or 
regulations require the employer maintaining, or the plan administrator 
of, a plan from which designated distributions (as defined in section 
3405(e)(1)) may be made, and any person issuing any contract under 
which designated distributions may be made, to make returns and reports 
regarding the plan or contract to the Secretary, to the participants 
and beneficiaries of the plan or contract, and to such other persons as 
the Secretary may by regulations prescribe. This section also provides 
that the Secretary may, by forms or regulations, prescribe the manner 
and time for filing these reports.
    Section 1.401(a)(9)-6 of the Income Tax Regulations sets forth the 
minimum distribution rules that apply to a defined benefit plan and to 
annuity contracts under a defined contribution plan. Under A-12 of 
Sec.  1.401(a)(9)-6, if an annuity contract held under a defined 
contribution plan has not yet been annuitized, the interest of an 
employee or beneficiary under that contract is treated as an individual 
account for purposes of section 401(a)(9). Thus, the value of that 
contract is included in the account balance used to determine required 
minimum distributions from the employee's individual account.
    If an annuity contract has been annuitized, the periodic annuity 
payments must be nonincreasing, subject to certain exceptions that are 
set forth in A-14 of Sec.  1.401(a)(9)-6. In addition, annuity payments 
must satisfy the MDIB requirement of section 401(a)(9)(G). Under A-2(b) 
of

[[Page 37634]]

Sec.  1.401(a)(9)-6, if an employee's sole beneficiary, as of the 
annuity starting date, is his or her spouse and the distributions 
satisfy section 401(a)(9) without regard to the MDIB requirement, the 
distributions to the employee are deemed to satisfy the MDIB 
requirement. However, if distributions are in the form of a joint and 
survivor annuity for an employee and a non-spouse beneficiary, the MDIB 
requirement is not satisfied unless the periodic annuity payment 
payable to the survivor does not exceed an applicable percentage of the 
amount that is payable to the employee, with the applicable percentage 
determined using the table in A-2(c) of Sec.  1.401(a)(9)-6.
    The regulations under sections 403(b)(10), 408(a)(6), 408(b)(3), 
408A(c)(5), and 457(d)(2) prescribe how the required minimum 
distribution rules apply to other types of retirement plans and 
accounts. Section 1.403(b)-6(e)(2) provides, with certain exceptions, 
that the section 401(a)(9) required minimum distribution rules are 
applied to section 403(b) contracts in accordance with the provisions 
in Sec.  1.408-8. As provided in A-1 of Sec.  1.408-8, with certain 
modifications, an IRA is subject to the rules of Sec. Sec.  
1.401(a)(9)-1 through 1.401(a)(9)-9. One such modification is set forth 
in A-9 of Sec.  1.408-8, which prescribes a rule under which an IRA 
generally does not fail to satisfy section 401(a)(9) merely because the 
required minimum distribution with respect to the IRA is distributed 
instead from another IRA.
    On February 2, 2010, the Department of Labor, the IRS, and the 
Department of the Treasury issued a Request for Information Regarding 
Lifetime Income Options for Participants and Beneficiaries in 
Retirement Plans in the Federal Register (75 FR 5253). That Request for 
Information included questions relating to how the required minimum 
distribution rules affect defined contribution plan sponsors' and 
participants' interest in the offering and use of lifetime income 
products. In particular, the Request for Information asked whether 
there were changes to the rules that could or should be considered to 
encourage arrangements under which participants can purchase deferred 
annuities that begin at an advanced age (sometimes referred to as 
longevity annuities or longevity insurance). A number of commenters 
identified the required minimum distribution rules as an impediment to 
the utilization of these types of annuities. The Treasury Department 
and the IRS concluded that there are substantial advantages to 
modifying the minimum distribution rules in order to facilitate a 
participant's purchase of a deferred annuity that is scheduled to 
commence at an advanced age, such as 80 or 85.
    On February 3, 2012, proposed amendments to the regulations (REG-
115809-11) under sections 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), 
408A(c)(5), and 6047(d) of the Code were published in the Federal 
Register (77 FR 5443). The amendments to the regulations relating to 
the required minimum distribution rules were proposed in order to 
facilitate the purchase of deferred annuities that begin at an advanced 
age.
    A public hearing was held on June 1, 2012. Written comments 
responding to the notice of proposed rulemaking were also received. 
After consideration of all the comments, the proposed regulations are 
adopted, as amended by this Treasury Decision. The most significant 
revisions are discussed in the Summary of Comments and Explanation of 
Revisions.

Summary of Comments and Explanation of Revisions

    These final regulations modify the required minimum distribution 
rules in order to facilitate the purchase of deferred annuities that 
begin at an advanced age. These regulations apply to contracts that 
satisfy certain requirements, including the requirement that 
distributions commence not later than age 85. Prior to annuitization, 
the value of these contracts, referred to as ``qualifying longevity 
annuity contracts'' (QLACs), is excluded from the account balance used 
to determine required minimum distributions.

I. Definition of QLAC

A. Limitations on Premiums

    The proposed regulations provided that in order to constitute a 
QLAC, the amount of the premiums paid for the contract under the plan 
on a given date could not exceed the lesser of $100,000 or 25 percent 
of the employee's account balance on the date of payment. If, on or 
before the date of a premium payment, an employee had paid premiums for 
the same contract or for any other contract that was intended to be a 
QLAC and that was purchased for the employee under the plan or under 
any other retirement plan, annuity, or account, the dollar limit would 
be reduced by the amount of those other premium payments. Similarly, 
if, on or before the date of a premium payment, an employee had paid 
premiums for the same contract or for any other contract that was 
intended to be a QLAC and that was purchased for the employee under the 
plan, the amount of those other premium payments will be taken into 
account in determining compliance with the percentage limit.
    A number of commenters requested that the $100,000 limit or the 25-
percent limit (or both) be increased to allow individuals to obtain 
more longevity risk protection. Other commenters supported retention of 
the limits at their proposed levels.
    The Treasury Department and the IRS continue to believe that a 
dollar limit and a percentage limit are necessary in order to constrain 
undue deferral of distribution of an employee's interest. Moreover, as 
noted in the preamble to the proposed regulations, a premium of 
$100,000 could purchase an annuity that provides significant income 
beginning at age 85. For example, if at age 70 an employee used 
$100,000 of his or her account balance to purchase an annuity that will 
commence at age 85, the annuity could provide an annual income that is 
estimated to range between $26,000 and $42,000 (depending on the 
actuarial assumptions used by the issuer and the form of the annuity 
elected by the employee).\2\ In addition, providing special treatment 
to QLACs purchased with no more than 25 percent of the account balance 
is consistent with section 401(a)(9)(A) because, for a typical employee 
who will need to draw down the entire account balance during the period 
prior to commencement of the annuity, the overall pattern of payments 
from the account balance and the QLAC would not provide more deferral 
than would otherwise normally be available for lifetime payments under 
the section 401(a)(9)(A) rules.
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    \2\ These illustrations assume a three-percent interest rate, no 
pre-annuity-starting-date death benefit, use of the Annuity 2000 
Mortality Table for males and females, no indexation of the annuity 
stream for inflation, and no load for expenses. (If the annuity were 
provided under an employer plan, unisex mortality assumptions would 
be required.)
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    After consideration of all of the comments, the Treasury Department 
and the IRS have concluded that the dollar limit on premiums under the 
proposed regulations can be increased to $125,000 without leading to an 
unacceptable level of deferral of distribution. Accordingly, the final 
regulations increase the $100,000 premium limit to $125,000. The final 
regulations continue to provide that no more than 25 percent of the 
account balance may be used to pay premiums.
    To simplify the application of the percentage limit, the final 
regulations clarify that the limit is applied with respect to an 
employee's account balance under a qualified plan as of the last 
valuation date preceding the date of

[[Page 37635]]

a premium payment, increased for contributions allocated to the account 
(and decreased for distributions made from the account) after the 
valuation date but before the date the premium is paid. In addition, 
the final regulations clarify that although the value of a QLAC is 
excluded from the account balance used to determine required minimum 
distributions, the value of a QLAC is included in the account balance 
for purposes of applying the 25-percent limit.
    The proposed regulations provided that if a premium for a contract 
causes the total premiums to exceed either the dollar or percentage 
limitation, the contract would fail to be a QLAC beginning on the date 
on which the excess premium was paid. A number of commenters requested 
that this rule be modified, stating that disqualifying an entire 
contract would be a harsh result, particularly in the case of an 
inadvertent error. They suggested that the regulations instead provide 
that if a premium for a longevity annuity contract exceeds the dollar 
or percentage limits, the QLAC will be disqualified (and hence included 
in the account balance used to calculate required minimum 
distributions) only to the extent of the excess premiums. Others 
suggested that there be a correction program that would allow employees 
to correct excess premiums.
    In response to these comments, the final regulations provide that 
if an annuity contract fails to be a QLAC solely because premiums for 
the contract exceed the premium limits, then the contract will not fail 
to be a QLAC if the excess premium is returned to the non-QLAC portion 
of the employee's account by the end of the calendar year following the 
calendar year in which the excess premium was paid. The excess premium 
may be returned to the non-QLAC portion of the employee's account 
either in cash or in the form of an annuity contract that is not 
intended to be a QLAC. If the excess premium (including the fair market 
value of an annuity contract that is not intended to be a QLAC, if 
applicable) is returned to the non-QLAC portion of the employee's 
account after the last valuation date for the calendar year in which 
the excess premium was originally paid, then the employee's account 
balance as of that valuation date must be increased to reflect the 
excess premium. Any such return of excess premium will not be treated 
as a violation of the rule that a QLAC must not provide a commutation 
benefit.
    In response to other comments, the final regulations clarify that 
if a contract at any time fails to be a QLAC for reasons other than 
exceeding the premium limitations, the contract will not be treated as 
a QLAC, or a contract that is intended to be a QLAC, beginning on the 
date of the first premium payment for that contract.
    The proposed regulations provided that for calendar years beginning 
on or after the calendar year in which the regulations are effective, 
the dollar limitation would be adjusted at the same time and in the 
same manner as under section 415(d), except that (1) the base period 
would be the calendar year quarter beginning six months before the 
effective date of the regulations, and (2) any increase that is not a 
multiple of $25,000 would be rounded to the next lowest multiple of 
$25,000. In response to comments requesting that the dollar limit be 
adjusted in smaller increments than $25,000, the final regulations 
provide that any increase that is not a multiple of $10,000 will be 
rounded to the next lowest multiple of $10,000.

B. Maximum Age At Commencement

    Like the proposed regulations, the final regulations provide that 
in order to constitute a QLAC, the contract must provide that 
distributions under the contract commence not later than a specified 
annuity starting date set forth in the contract. Under the final 
regulations, the specified annuity starting date must be no later than 
the first day of the month next following the employee's attainment of 
age 85. A QLAC could allow an employee to elect an earlier annuity 
starting date than the specified annuity starting date, but is not 
required to provide an option to commence distributions before the 
specified annuity starting date.
    The final regulations continue to provide that the maximum age may 
be adjusted to reflect changes in mortality. The Treasury Department 
and the IRS anticipate that such changes will not occur more frequently 
than the adjustment of the $125,000 limit described in subheading I.A. 
``Limitations on premiums.'' The adjusted age (if any) and the 
adjustment to the $125,000 limit will be prescribed by the Commissioner 
in revenue rulings, notices, or other guidance published in the 
Internal Revenue Bulletin.

C. Benefits Payable After Death of the Employee

    The proposed regulations would have provided that under a QLAC the 
only benefit permitted to be paid after the employee's death is a life 
annuity, payable to a designated beneficiary, that meets certain 
requirements. Thus, for example, a contract that provides a 
distribution form with a period certain or a return of premiums in the 
case of an employee's death would not be a QLAC.
    A number of commenters requested that QLACs be permitted to include 
a return of premium (ROP) feature that guarantees that if the annuitant 
dies before receiving payments at least equal to the total premiums 
paid under the contract, then an additional payment is made to ensure 
that the total payments received are at least equal to the total 
premiums paid under the contract. They noted that an ROP feature would 
make QLACs more attractive by addressing the concerns of those who 
would be unwilling to take the risk that payments under the contract 
will not be at least equal to the premiums. Several commenters stated 
that although the cost of providing an ROP feature results in lower 
annuity payments, the effect would be relatively small and employees 
would still be more likely to choose an annuity with this feature than 
without it.
    In response to these comments, the final regulations provide that a 
QLAC may offer an ROP feature that is payable before and after the 
employee's annuity starting date. Accordingly, a QLAC may provide for a 
single-sum death benefit paid to a beneficiary in an amount equal to 
the excess of the premium payments made with respect to the QLAC over 
the payments made to the employee under the QLAC. If a QLAC is 
providing a life annuity to a surviving spouse (or will provide a life 
annuity to a surviving spouse), it may also provide a similar ROP 
benefit after the death of both the employee and the spouse.
    The final regulations provide that an ROP payment must be paid no 
later than the end of the calendar year following the calendar year in 
which the employee dies, or in which the surviving spouse dies, 
whichever is applicable. If the employee's death is after the required 
beginning date, then the ROP payment is treated as a required minimum 
distribution for the year in which it is paid and is not eligible for 
rollover. If the surviving spouse's death is after the required 
beginning date for the surviving spouse, then the ROP payment similarly 
is treated as a required minimum distribution for the year in which it 
is paid and is not eligible for rollover.
    As under the proposed regulations, the final regulations provide 
that if the sole beneficiary of an employee under the contract is the 
employee's surviving spouse, the only benefit permitted to be paid 
after the employee's death (other than an ROP) is a life annuity 
payable to the surviving spouse that does not exceed 100 percent of the 
annuity

[[Page 37636]]

payment payable to the employee. The final regulations also include a 
special exception that would allow a plan to comply with any applicable 
requirement to provide a qualified preretirement survivor annuity.\3\ 
If the surviving spouse is one of multiple designated beneficiaries, 
the special rules for a surviving spouse are permitted to be applied as 
if there were separate contracts for each of the separate 
beneficiaries, but only if certain conditions are satisfied, including 
a separate account requirement.\4\
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    \3\ A qualified preretirement survivor annuity is defined in 
section 417(c)(2) as an annuity for the life of the surviving 
spouse, the actuarial equivalent of which is not less than 50 
percent of the portion of the account balance of the participant (as 
of the date of death) to which the participant had a nonforfeitable 
right (within the meaning of section 411(a) of the Code). Section 
205(e)(2) of the Employee Retirement Income Security Act of 1974, 
Public Law 93-406, as amended (ERISA), includes a parallel 
definition. See Rev. Rul. 2012-3, 2012-8 IRB 383 (2012) for rules 
relating to qualified preretirement survivor annuities.
    \4\ See A-2(a) and A-3 of Sec.  1.401(a)(9)-8.
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    If the employee's surviving spouse is not the sole beneficiary 
under the contract, the only benefit permitted to be paid after the 
employee's death (other than an ROP) is a life annuity payable to a 
designated beneficiary. In order to satisfy the MDIB requirements of 
section 401(a)(9)(G), the life annuity is not permitted to exceed an 
applicable percentage of the annuity payment payable to the employee. 
The applicable percentage is determined under one of two alternative 
tables, and the determination of which table applies depends on the 
different types of death benefits that are payable to the designated 
beneficiary. However, if the contract provides for an ROP, the 
applicable percentage is zero.
    Under the first alternative table, the applicable percentage is the 
percentage described in the existing table in A-2(c) of Sec.  
1.401(a)(9)-6. This table is available only if, under the contract, no 
death benefits are payable to such a beneficiary if the employee dies 
before the specified annuity starting date. Furthermore, in order to 
address the possibility that an employee with a shortened life 
expectancy could accelerate the annuity starting date in order to 
circumvent this rule, this table is available only if, under the 
contract, no benefits are payable in any case in which the employee 
selects an annuity starting date that is earlier than the specified 
annuity starting date under the contract and dies less than 90 days 
after making that election, even if the employee's death occurs after 
his or her selected annuity starting date.
    Under the second alternative table, the applicable percentage is 
the percentage described in a new table set forth in the final 
regulations. The table is available for use when the contract provides 
a pre-annuity-starting-date death benefit to the non-spouse designated 
beneficiary. The table takes into account that a significant portion of 
the premium is used to provide death benefits to a designated 
beneficiary if death occurs during the deferral period between age 
70\1/2\ and age 85. In order to limit the portion of the premium that 
is used to provide death benefits to a designated beneficiary, the 
proposed regulations provided that use of the table is limited to 
contracts under which any non-spouse designated beneficiary must be 
irrevocably selected as of the required beginning date. In response to 
comments, the final regulations modify this rule to allow the non-
spouse beneficiary to be selected at a later date in certain 
circumstances, and to clarify that there is no violation of the 
irrevocability requirement that applies with respect to a non-spouse 
beneficiary if an employee substitutes his or her spouse as the 
beneficiary.

D. Other QLAC Requirements

    Under the proposed regulations, a QLAC would not include a variable 
contract under section 817 (variable annuity), an equity-indexed 
contract, or a similar contract. A number of commenters requested that 
variable annuities and annuities that base returns on an equity index 
be included in the definition of a QLAC. One commenter noted that a 
narrow definition may limit the demand for QLACs. Others noted that 
annuities that provide for equity exposure are better able to address 
the long-term risk of inflation than fixed annuities. The Treasury 
Department and the IRS believe that because the purpose of a QLAC is to 
provide an employee with a predictable stream of lifetime income a 
contract should be eligible for QLAC treatment only if the income under 
the contract is primarily derived from contractual guarantees. Because 
variable annuities and indexed contracts \5\ provide a substantially 
unpredictable level of income to the employee, these contracts are 
inconsistent with the purpose of this regulation. This is true even if 
there is a minimum guaranteed income under those contracts. In 
addition, having a limited set of easy-to-understand QLAC options 
available for purchase enhances the ability of employees to compare the 
products of multiple providers. Moreover, exposure to equity-based 
returns is available through control over the remaining portion of the 
account balance. Therefore, the final regulations provide that a QLAC 
does not include a variable contract under section 817, an indexed 
contract, or a similar contract. However, the final regulations also 
provide that the Commissioner may provide an exception to this rule in 
revenue rulings, notices, or other guidance published in the Internal 
Revenue Bulletin.
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    \5\ Commenters indicated that an indexed contract and an equity-
indexed contract are alternative names for the same type of annuity.
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    In response to comments, the final regulations clarify that a 
participating annuity contract is not treated as a contract that is 
similar to a variable contract or an indexed contract merely because it 
provides for the payment of dividends described in A-14(c)(3) of Sec.  
1.401(a)(9)-6. Similarly, a contract that provides for a cost-of-living 
adjustment described in A-14(b) of Sec.  1.401(a)(9)-6 is not treated 
as a contract that is similar to a contract that is a variable contract 
or an indexed contract.
    The proposed regulations also provided that in order to be a QLAC, 
a contract is not permitted to make available any commutation benefit, 
cash surrender value, or other similar feature. Although some 
commenters requested flexibility to offer contracts with these types of 
features, the final regulations retain this rule because the 
availability of such a feature would significantly reduce the benefit 
of mortality pooling under the contracts.
    The proposed regulations provided that a contract is not a QLAC 
unless it states, when issued, that it is intended to be a QLAC. This 
rule would ensure that the issuer, employee, plan sponsor, and IRS know 
that the rules applicable to QLACs apply to a contract. Numerous 
commenters objected to this requirement, primarily because any changes 
to a contract form would require issuers to resubmit that form (even if 
it already satisfies the other QLAC requirements) to state insurance 
regulators for approval. Some commenters suggested that in order to 
alleviate the burden, issuers should be allowed to satisfy this 
requirement by including a statement in an insurance certificate or 
rider rather than in the contract itself. Several commenters suggested 
that the requirement to include this statement in the contract should 
be removed altogether because it duplicates the proposed disclosure 
requirement.
    As under the proposed regulations, the final regulations provide 
that when the contract is issued an employee must be notified that the 
contract is intended

[[Page 37637]]

to be a QLAC. However, in response to comments, the final regulations 
provide that this requirement will be satisfied if this language is 
included in the contract, or in a rider or endorsement with respect to 
the contract. The final regulations also provide that this requirement 
will be satisfied if a certificate is issued under a group annuity 
contract and the certificate, when issued, states that the employee's 
interest under the group annuity contract is intended to be a QLAC. In 
addition, the final regulations include a transition rule under which 
an annuity contract issued before January 1, 2016, will not fail to be 
a QLAC merely because the contract does not satisfy this requirement, 
provided that when the contract is issued the employee is notified that 
the contract (or a certificate under a group annuity contract) is 
intended to be a QLAC, and the contract is amended (or a rider, 
endorsement, or amendment to the certificate is issued) no later than 
December 31, 2016 to state that the contract is intended to be a QLAC.
    The final regulations continue to provide that distributions under 
a QLAC must satisfy the generally applicable section 401(a)(9) 
requirements relating to annuities set forth in Sec.  1.401(a)(9)-6, 
other than the requirement that annuity payments commence on or before 
the employee's required beginning date. Thus, for example, the 
limitation on increasing payments described in A-1(a) of Sec.  
1.401(a)(9)-6 applies to the contract.

II. IRAs

    The final regulations retain the premium limitations for IRAs 
provided under the proposed regulations. The final regulations provide 
that, in order to constitute a QLAC, the amount of the premiums paid 
for the contract under an IRA on a given date may not exceed $125,000. 
If, on or before the date of a premium payment, an IRA owner has paid 
premiums for the same contract or for any other contract that is 
intended to be a QLAC under the IRA or under any other IRA, plan, or 
annuity, the $125,000 limit is reduced by the amount of those other 
premium payments.
    The final regulations also provide that, in order to constitute a 
QLAC the amount of the premiums paid for the contract under an IRA on a 
given date generally may not exceed 25 percent of the individual's IRA 
account balance. Consistent with the rule under which a required 
minimum distribution from an IRA could be satisfied by a distribution 
from another IRA (applied separately to traditional IRAs and Roth 
IRAs), the final regulations allow a QLAC that could be purchased under 
an IRA within these limitations to be purchased instead under another 
IRA. Specifically, the amount of the premiums paid for the contract 
under an IRA may not exceed an amount equal to 25 percent of the sum of 
the account balances (as of December 31 of the calendar year before the 
calendar year in which a premium is paid) of the IRAs (other than Roth 
IRAs) that an individual holds as the IRA owner. If, on or before the 
date of a premium payment, an individual has paid other premiums for 
the same contract or for any other contract that is intended to be a 
QLAC and that is held or purchased for the individual under his or her 
IRAs, the premium payment cannot exceed the amount determined to be 25 
percent of the individual's IRA account balances, reduced by the amount 
of those other premiums.
    Like the proposed regulations, the final regulations provide that 
for purposes of both the dollar and percentage limitations, unless the 
trustee, custodian, or issuer of an IRA has actual knowledge to the 
contrary, the trustee, custodian, or issuer may rely on the IRA owner's 
representations of the amount of the premiums (other than the premiums 
paid under the IRA) and, for purposes of applying the percentage 
limitation, the amount of the individual's IRA account balances (other 
than the account balance under the IRA).
    In light of the fact that Roth IRAs are not subject to the required 
minimum distribution rules prior to the death of the owner, the 
proposed regulations provided that an annuity purchased under a Roth 
IRA would not be treated as a QLAC. In addition, the dollar and 
percentage limitations on premiums that apply to a QLAC would not take 
into account premiums paid for a contract that is purchased or held 
under a Roth IRA, even if the contract satisfies the requirements to be 
a QLAC. If a QLAC is purchased or held under a plan, annuity, contract, 
or traditional IRA that is later rolled over or converted to a Roth 
IRA, the QLAC would cease to be a QLAC (and would cease to be treated 
as intended to be a QLAC) after the date of the rollover or conversion. 
In that case, the premiums would then be disregarded in applying the 
dollar and percentage limitations to premiums paid for other contracts 
after the date of the rollover or conversion.\6\ The final regulations 
retain the proposed rules on Roth IRAs.
---------------------------------------------------------------------------

    \6\ See A-14 of Sec.  1.408A-4 for a description of the amount 
includible in gross income when part or all of a traditional IRA 
that is an individual retirement annuity described in section 408(b) 
is converted to a Roth IRA, or when a traditional IRA that is an 
individual retirement account described in section 408(a) holds an 
annuity contract as an account asset and the traditional IRA is 
converted to a Roth IRA. Those rules would also apply when a 
contract is rolled over from a plan into a Roth IRA.
---------------------------------------------------------------------------

III. Section 403(b) Plans

    As under the proposed regulations, the final regulations apply the 
tax-qualified plan rules, instead of the IRA rules, to the purchase of 
a QLAC under a section 403(b) plan. For example, the 25-percent 
limitation on premiums is separately determined for each section 403(b) 
plan in which an employee participates. The final regulations also 
provide that the tax-qualified plan rules relating to reliance on 
representations, rather than the IRA rules, apply to the purchase of a 
QLAC under a section 403(b) plan.
    The final regulations also provide that, if the sole beneficiary of 
an employee under a contract is the employee's surviving spouse and the 
employee dies before the annuity starting date under the contract, a 
life annuity that is payable to the surviving spouse after the 
employee's death is permitted to exceed the annuity that would have 
been payable to the employee to the extent necessary to satisfy the 
requirement to provide a qualified preretirement survivor annuity (as 
discussed for qualified plans under subheading I.C. ``Benefits payable 
after death of the employee''). A section 403(b) plan may be subject to 
this requirement under ERISA, whereas IRAs are not subject to this 
requirement. See A-3(d) of Sec.  1.401(a)-20 and Sec.  1.403(b)-5(e).

IV. Section 457(b) Plans

    Section 1.457-6(d) provides that an eligible section 457(b) plan 
must meet the requirements of section 401(a)(9) and the regulations 
under section 401(a)(9). Thus, these regulations relating to the 
purchase of a QLAC under a tax-qualified defined contribution plan 
automatically apply to an eligible section 457(b) plan. However, the 
rule relating to QLACs is limited to eligible governmental plans under 
section 457(b). This is because section 457(b)(6) requires that an 
eligible section 457(b) plan that is not an eligible governmental plan 
be unfunded, and the purchase of an annuity contract under such a plan 
would be inconsistent with the requirement that such a plan be 
unfunded.

V. Defined Benefit Plans

    A number of commenters favored allowing defined benefit plans to 
offer a

[[Page 37638]]

QLAC. For example, several commenters stated that not permitting a QLAC 
to be offered under a defined benefit plan will encourage employees to 
roll over lump-sum distributions from defined benefit plans to defined 
contribution plans or IRAs, where they can buy a QLAC. They argued that 
it would be preferable for the annuities to be provided directly from a 
defined benefit plan.
    Defined benefit plans generally are required to offer annuities, 
which provide longevity protection. Because longevity protection is 
already available in these plans, the final regulations do not apply to 
defined benefit plans. However, the Treasury Department and the IRS 
request comments regarding the desirability of making a form of benefit 
that replicates the QLAC structure available in defined benefit plans. 
In particular the Treasury Department and the IRS request comments 
regarding the advantages to an employee of being able to elect a QLAC 
structure under a defined benefit plan, instead of electing a lump sum 
distribution from a defined benefit plan and rolling it over to a 
defined contribution plan or to an IRA in order to purchase a QLAC.

VI. Initial Disclosure and Annual Reporting Requirements

    Under the proposed regulations, in addition to requiring the 
contract to state that it is intended to be a QLAC, the issuer of a 
QLAC would have been required to issue a disclosure containing certain 
information about the QLAC at the time of purchase. To avoid 
duplicating state law disclosure requirements, this initial disclosure 
would not have been required to include information that the issuer 
already provided to the employee in order to satisfy any applicable 
state disclosure law.
    The final regulations do not require an initial disclosure to be 
issued to the employee in light of the existing disclosure practices 
that take into account disclosure requirements under state law and 
under Title I of ERISA.\7\ If the Treasury Department and the IRS 
determine that employees are not receiving sufficient information 
before a QLAC is purchased, this issue may be reexamined.
---------------------------------------------------------------------------

    \7\ See, for example, the Annuity Model Disclosure Regulation 
issued by the National Association of Insurance Commissioners and 
the disclosure for annuity contracts that are designated investment 
alternatives under 29 CFR 2550.404a-5(i)(2).
---------------------------------------------------------------------------

    As under the proposed regulations, the final regulations prescribe 
annual reporting requirements under section 6047(d) which require any 
person issuing any contract that is intended to be a QLAC to file 
annual calendar-year reports with the IRS and to provide a statement to 
the employee regarding the status of the contract. This reporting is 
necessary to inform both plan administrators and employees that the 
contract is intended to be a QLAC, so that the dollar and percentage 
limitations applicable to QLACs can be applied, and to assist the IRS 
with the administration of the QLAC exception to the required minimum 
distribution rules. The report will be required to identify that the 
contract is intended to be a QLAC and to include, at a minimum, the 
following items of information:
     The name, address, and identifying number of the issuer of 
the contract, along with information on how to contact the issuer for 
more information about the contract;
     The name, address, and identifying number of the 
individual in whose name the contract has been purchased;
     If the contract was purchased under a plan, the name of 
the plan, the plan number, and the Employer Identification Number (EIN) 
of the plan sponsor;
     If payments have not yet commenced, the annuity starting 
date on which the annuity is scheduled to commence, the amount of the 
periodic annuity payable on that date, and whether that date may be 
accelerated;
     For the calendar year, the amount of each premium paid for 
the contract and the date of the premium payment;
     The total amount of all premiums paid for the contract 
through the end of the calendar year; and
     The fair market value of the QLAC as of the close of the 
calendar year.
    The annual reporting requirement will be similar to the annual 
requirement to provide a Form 5498, ``IRA Contribution Information,'' 
in the case of an IRA.\8\ The Commissioner will prescribe a form and 
instructions for this purpose, which will contain the filing deadline 
and other information.
---------------------------------------------------------------------------

    \8\ For an IRA, the fair market value of the account on December 
31 must be provided to the IRA owner generally by January 31 of the 
following year, and to the IRS by a later date. Trustees, 
custodians, and issuers are responsible for ensuring that the fair 
market value of all IRA assets (including those not traded on an 
established securities market or with otherwise readily determinable 
value) is determined annually. This includes the fair market value 
of a contract that is intended to be a QLAC.
---------------------------------------------------------------------------

    Each issuer required to file the report with respect to a contract 
will also be required to provide to the employee a statement containing 
the information that is required to be furnished in the report. This 
requirement may be satisfied by providing the employee with a copy of 
the required form, or by providing the employee with the information in 
another document that contains the following language: ``This 
information is being furnished to the Internal Revenue Service.'' The 
statement is required to be furnished to the employee on or before 
January 31 following the calendar year for which the report is 
required.
    An issuer that is subject to these annual reporting requirements 
must comply with the requirements for each calendar year beginning with 
the year in which premiums are first paid and ending with the earlier 
of the year in which the employee attains age 85 (as adjusted in 
calendar years beginning after 2014) or dies. However, if the employee 
dies and the sole beneficiary under the contract is the employee's 
spouse (so that the spouse's annuity might not commence until the 
employee would have commenced benefits under the contract had the 
employee survived), the annual reporting requirement continues until 
the year in which the distributions to the spouse commence, or if 
earlier, the year in which the spouse dies. During this period, the 
annual statement must be provided to the surviving spouse.

Effective/Applicability Dates

    These regulations apply to contracts purchased on or after July 2, 
2014. One commenter requested that the regulations allow for annuities 
purchased before the regulations become final to convert to a QLAC in 
order to avoid surrender charges for contract reissuances, and prevent 
the absence of disclosure forms from delaying the benefit of these 
rules. If on or after July 2, 2014, an existing contract is exchanged 
for a contract that satisfies the requirements to be a QLAC, the new 
contract will be treated as purchased on the date of the exchange and 
therefore may qualify as a QLAC. In such a case the fair market value 
of the contract that is exchanged for a QLAC is treated as a premium 
that counts toward the QLAC limit.

Availability of IRS Documents

    For copies of recently issued revenue procedures, revenue rulings, 
notices and other guidance published in the Internal Revenue Bulletin, 
please visit the IRS Web site at https://www.irs.gov or contact the 
Superintendent of Documents, U.S. Government Printing Office, 
Washington, DC 20402.

Special Analyses

    It has been determined that these final regulations are not a 
significant regulatory action as defined in Executive Order 12866, as

[[Page 37639]]

supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It also has been determined that section 
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply to these regulations. It is hereby certified that the 
collection of information in these regulations will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based upon the fact that the collection of 
information in these final regulations is in A-17(a)(6) of Sec.  
1.401(a)(9)-6 (disclosure that a contract is intended to be a QLAC) and 
Sec.  1.6047-2 (an annual report must be filed with the IRS and a 
statement must be provided to QLAC owners and their surviving spouses). 
An insubstantial number of entities of any size will be impacted by the 
regulations, and the entities that will be impacted will be insurance 
companies, very few of which are small entities. In addition, IRS and 
Treasury expect that any burden on small entities will be minimal. 
Based on these facts, a regulatory flexibility analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
Pursuant to section 7805(f) of the Code, the notice of the proposed 
rulemaking preceding these regulations was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

Drafting Information

    The principal authors of these regulations are Cathy Pastor and 
Jamie Dvoretzky, Office of Division Counsel/Associate Chief Counsel 
(Tax Exempt and Government Entities). However, other personnel from the 
IRS and the Treasury Department participated in the development of 
these regulations.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.6047-2 is also issued under 26 U.S.C. 6047(d).


0
Par. 2. Section 1.401(a)(9)-5 is amended by:
0
1. Revising paragraph A-3(a).
0
2. Redesignating paragraph A-3(d) as paragraph A-3(e) and revising it.
0
3. Adding new paragraph A-3(d).
    The revisions and addition read as follows:


Sec.  1.401(a)(9)-5  Required minimum distributions from defined 
contribution plans.

* * * * *
    A-3. (a) In the case of an individual account, the benefit used in 
determining the required minimum distribution for a distribution 
calendar year is the account balance as of the last valuation date in 
the calendar year immediately preceding that distribution calendar year 
(valuation calendar year) adjusted in accordance with paragraphs (b), 
(c), and (d) of this A-3.
* * * * *
    (d) The account balance does not include the value of any 
qualifying longevity annuity contract (QLAC), defined in A-17 of Sec.  
1.401(a)(9)-6, that is held under the plan. This paragraph (d) applies 
only to contracts purchased on or after July 2, 2014.
    (e) If an amount is distributed from a plan and rolled over to 
another plan (receiving plan), A-2 of Sec.  1.401(a)(9)-7 provides 
additional rules for determining the benefit and required minimum 
distribution under the receiving plan. If an amount is transferred from 
one plan (transferor plan) to another plan (transferee plan) in a 
transfer to which section 414(l) applies, A-3 and A-4 of Sec.  
1.401(a)(9)-7 provide additional rules for determining the amount of 
the required minimum distribution and the benefit under both the 
transferor and transferee plans.
* * * * *

0
Par. 3. Section 1.401(a)(9)-6 is amended by revising the last sentence 
in paragraph A-12(a) and adding paragraph Q&A-17 to read as follows:


Sec.  1.401(a)(9)-6  Required minimum distributions for defined benefit 
plans and annuity contracts.

* * * * *
    A-12. (a) * * * See A-1(e) of Sec.  1.401(a)(9)-5 for rules 
relating to the satisfaction of section 401(a)(9) in the year that 
annuity payments commence, A-3(d) of Sec.  1.401(a)(9)-5 for rules 
relating to qualifying longevity annuity contracts (QLACs), defined in 
A-17 of this section, and A-2(a)(3) of Sec.  1.401(a)(9)-8 for rules 
relating to the purchase of an annuity contract with a portion of an 
employee's account balance.
* * * * *
    Q-17. What is a qualifying longevity annuity contract?
    A-17. (a) Definition of qualifying longevity annuity contract. A 
qualifying longevity annuity contract (QLAC) is an annuity contract 
that is purchased from an insurance company for an employee and that, 
in accordance with the rules of application of paragraph (d) of this A-
17, satisfies each of the following requirements--
    (1) Premiums for the contract satisfy the requirements of paragraph 
(b) of this A-17;
    (2) The contract provides that distributions under the contract 
must commence not later than a specified annuity starting date that is 
no later than the first day of the month next following the 85th 
anniversary of the employee's birth;
    (3) The contract provides that, after distributions under the 
contract commence, those distributions must satisfy the requirements of 
this section (other than the requirement in A-1(c) of this section that 
annuity payments commence on or before the required beginning date);
    (4) The contract does not make available any commutation benefit, 
cash surrender right, or other similar feature;
    (5) No benefits are provided under the contract after the death of 
the employee other than the benefits described in paragraph (c) of this 
A-17;
    (6) When the contract is issued, the contract (or a rider or 
endorsement with respect to that contract) states that the contract is 
intended to be a QLAC; and
    (7) The contract is not a variable contract under section 817, an 
indexed contract, or a similar contract, except to the extent provided 
by the Commissioner in revenue rulings, notices, or other guidance 
published in the Internal Revenue Bulletin and made available by the 
Superintendent of Documents, U.S. Government Printing Office, 
Washington, DC 20402 and on the IRS Web site at https://www.irs.gov.
    (b) Limitations on premiums--(1) In general. The premiums paid with 
respect to the contract on a date satisfy the requirements of this 
paragraph (b) if they do not exceed the lesser of the dollar limitation 
in paragraph (b)(2) of this A-17 or the percentage limitation in 
paragraph (b)(3) of this A-17.
    (2) Dollar limitation. The dollar limitation is an amount equal to 
the excess of--
    (i) $125,000 (as adjusted under paragraph (d)(2) of this A-17), 
over
    (ii) The sum of--

[[Page 37640]]

    (A) The premiums paid before that date with respect to the 
contract, and
    (B) The premiums paid on or before that date with respect to any 
other contract that is intended to be a QLAC and that is purchased for 
the employee under the plan, or any other plan, annuity, or account 
described in section 401(a), 403(a), 403(b), or 408 or eligible 
governmental plan under section 457(b).
    (3) Percentage limitation. The percentage limitation is an amount 
equal to the excess of--
    (i) 25 percent of the employee's account balance under the plan 
(including the value of any QLAC held under the plan for the employee) 
as of that date, determined in accordance with paragraph (d)(1)(iii) of 
this A-17, over
    (ii) The sum of--
    (A) The premiums paid before that date with respect to the 
contract, and
    (B) The premiums paid on or before that date with respect to any 
other contract that is intended to be a QLAC and that is held or was 
purchased for the employee under the plan.
    (c) Payments after death of the employee--(1) Surviving spouse is 
sole beneficiary--(i) Death on or after annuity starting date. If the 
employee dies on or after the annuity starting date for the contract 
and the employee's surviving spouse is the sole beneficiary under the 
contract then, except as provided in paragraph (c)(4) of this A-17, the 
only benefit permitted to be paid after the employee's death is a life 
annuity payable to the surviving spouse where the periodic annuity 
payment is not in excess of 100 percent of the periodic annuity payment 
that is payable to the employee.
    (ii) Death before annuity starting date--(A) Amount of annuity. If 
the employee dies before the annuity starting date and the employee's 
surviving spouse is the sole beneficiary under the contract then, 
except as provided in paragraph (c)(4) of this A-17, the only benefit 
permitted to be paid after the employee's death is a life annuity 
payable to the surviving spouse where the periodic annuity payment is 
not in excess of 100 percent of the periodic annuity payment that would 
have been payable to the employee as of the date that benefits to the 
surviving spouse commence. However, the annuity is permitted to exceed 
100 percent of the periodic annuity payment that would have been 
payable to the employee to the extent necessary to satisfy the 
requirement to provide a qualified preretirement survivor annuity (as 
defined under section 417(c)(2) or ERISA section 205(e)(2)) pursuant to 
section 401(a)(11)(A)(ii) or ERISA section 205(a)(2).
    (B) Commencement date for annuity. Any life annuity payable to the 
surviving spouse under paragraph (c)(1)(ii)(A) of this A-17 must 
commence no later than the date on which the annuity payable to the 
employee would have commenced under the contract if the employee had 
not died.
    (2) Surviving spouse is not sole beneficiary--(i) Death on or after 
annuity starting date. If the employee dies on or after the annuity 
starting date for the contract and the employee's surviving spouse is 
not the sole beneficiary under the contract then, except as provided in 
paragraph (c)(4) of this A-17, the only benefit permitted to be paid 
after the employee's death is a life annuity payable to the designated 
beneficiary where the periodic annuity payment is not in excess of the 
applicable percentage (determined under paragraph (c)(2)(iii) of this 
A-17) of the periodic annuity payment that is payable to the employee.
    (ii) Death before annuity starting date--(A) Amount of annuity. If 
the employee dies before the annuity starting date and the employee's 
surviving spouse is not the sole beneficiary under the contract then, 
except as provided in paragraph (c)(4) of this A-17, the only benefit 
permitted to be paid after the employee's death is a life annuity 
payable to the designated beneficiary where the periodic annuity 
payment is not in excess of the applicable percentage (determined under 
paragraph (c)(2)(iii) of this A-17) of the periodic annuity payment 
that would have been payable to the employee as of the date that 
benefits to the designated beneficiary commence under this paragraph 
(c)(2)(ii).
    (B) Commencement date for annuity. In any case in which the 
employee dies before the annuity starting date, any life annuity 
payable to a designated beneficiary under this paragraph (c)(2)(ii) 
must commence by the last day of the calendar year immediately 
following the calendar year of the employee's death.
    (iii) Applicable percentage--(A) Contracts without pre-annuity 
starting date death benefits. If, as described in paragraph (c)(2)(iv) 
of this A-17, the contract does not provide for a pre-annuity starting 
date non-spousal death benefit, the applicable percentage is the 
percentage described in the table in A-2(c) of this section.
    (B) Contracts with set beneficiary designation. If the contract 
provides for a set non-spousal beneficiary designation as described in 
paragraph (c)(2)(v) (and is not a contract described in paragraph 
(c)(2)(iv)) of this A-17, the applicable percentage is the percentage 
described in the table set forth in paragraph (c)(2)(iii)(D) of this A-
17. A contract is still considered to provide for a set beneficiary 
designation even if the surviving spouse becomes the sole beneficiary 
before the annuity starting date. In such a case, the requirements of 
paragraph (c)(1) of this A-17 apply and not the requirements of this 
paragraph (c)(2).
    (C) Contracts providing for return of premium. If the contract 
provides for a return of premium as described in paragraph (c)(4) of 
this A-17, the applicable percentage is 0.
    (D) Applicable percentage table. The applicable percentage is based 
on the adjusted employee/beneficiary age difference, determined in the 
same manner as in A-2(c) of this section.

------------------------------------------------------------------------
                                                              Applicable
        Adjusted employee/beneficiary age difference          percentage
------------------------------------------------------------------------
2 years or less............................................          100
3..........................................................           88
4..........................................................           78
5..........................................................           70
6..........................................................           63
7..........................................................           57
8..........................................................           52
9..........................................................           48
10.........................................................           44
11.........................................................           41
12.........................................................           38
13.........................................................           36
14.........................................................           34
15.........................................................           32
16.........................................................           30
17.........................................................           28
18.........................................................           27
19.........................................................           26
20.........................................................           25
21.........................................................           24
22.........................................................           23
23.........................................................           22
24.........................................................           21
25 and greater.............................................           20
------------------------------------------------------------------------

    (iv) No pre-annuity starting date non-spousal death benefit. A 
contract is described in this paragraph (c)(2)(iv) if the contract 
provides that no benefit is permitted to be paid to a beneficiary other 
than the employee's surviving spouse after the employee's death--
    (A) In any case in which the employee dies before the annuity 
starting date under the contract; and
    (B) In any case in which the employee selects an annuity starting 
date that is earlier than the specified annuity starting date under the 
contract and the employee dies less than 90 days after making that 
election.
    (v) Contracts permitting set non-spousal beneficiary designation. A 
contract is described in this paragraph (c)(2)(v) if the contract 
provides that if

[[Page 37641]]

the beneficiary under the contract is not the employee's surviving 
spouse, benefits are payable to the beneficiary only if the beneficiary 
was irrevocably designated on or before the later of the date of 
purchase or the employee's required beginning date.
    (3) Calculation of early annuity payments. For purposes of 
paragraphs (c)(1)(ii) and (c)(2)(ii) of this A-17, to the extent the 
contract does not provide an option for the employee to select an 
annuity starting date that is earlier than the date on which the 
annuity payable to the employee would have commenced under the contract 
if the employee had not died, the contract must provide a way to 
determine the periodic annuity payment that would have been payable if 
the employee were to have an option to accelerate the payments and the 
payments had commenced to the employee immediately prior to the date 
that benefit payments to the surviving spouse or designated beneficiary 
commence.
    (4) Return of premiums--(i) In general. In lieu of a life annuity 
payable to a designated beneficiary under paragraph (c)(1) or (2) of 
this A-17, a QLAC is permitted to provide for a benefit paid to a 
beneficiary after the death of the employee in an amount equal to the 
excess of--
    (A) The premium payments made with respect to the QLAC over
    (B) The payments already made under the QLAC.
    (ii) Payments after death of surviving spouse. If a QLAC is 
providing a life annuity to a surviving spouse (or will provide a life 
annuity to a surviving spouse) under paragraph (c)(1) of this A-17, it 
is also permitted to provide for a benefit paid to a beneficiary after 
the death of both the employee and the spouse in an amount equal to the 
excess of--
    (A) The premium payments made with respect to the QLAC over
    (B) The payments already made under the QLAC.
    (iii) Other rules--(A) Timing of return of premium payment 
following death of employee. A return of premium payment under this 
paragraph (c)(4) must be paid no later than the end of the calendar 
year following the calendar year in which the employee dies. If the 
employee's death is after the required beginning date, the return of 
premium payment is treated as a required minimum distribution for the 
year in which it is paid and is not eligible for rollover.
    (B) Timing of return of premium payment following death of 
surviving spouse receiving life annuity. If the return of premium 
payment is paid after the death of a surviving spouse who is receiving 
a life annuity (or after the death of a surviving spouse who has not 
yet commenced receiving a life annuity after the death of the 
employee), the return of premium payment under this paragraph (c)(4) 
must be made no later than the end of the calendar year following the 
calendar year in which the surviving spouse dies. If the surviving 
spouse's death is after the required beginning date for the surviving 
spouse, then the return of premium payment is treated as a required 
minimum distribution for the year in which it is paid and is not 
eligible for rollover.
    (5) Multiple beneficiaries. If an employee has more than one 
designated beneficiary under a QLAC, the rules in A-2(a) of Sec.  
1.401(a)(9)-8 apply for purposes of paragraphs (c)(1) and (c)(2) of 
this A-17.
    (d) Rules of application--(1) Rules relating to premiums--(i) 
Reliance on representations. For purposes of the limitation on premiums 
described in paragraphs (b)(2) and (3) of this A-17, unless the plan 
administrator has actual knowledge to the contrary, the plan 
administrator may rely on an employee's representation (made in writing 
or such other form as may be prescribed by the Commissioner) of the 
amount of the premiums described in paragraphs (b)(2)(ii)(B) and 
(b)(3)(ii)(B) of this A-17, but only with respect to premiums that are 
not paid under a plan, annuity, or contract that is maintained by the 
employer or an entity that is treated as a single employer with the 
employer under section 414(b), (c), (m), or (o).
    (ii) Consequences of excess premiums--(A) General Rule. If an 
annuity contract fails to be a QLAC solely because a premium for the 
contract exceeds the limits under paragraph (b) of this A-17, then the 
contract is not a QLAC beginning on the date that premium payment is 
made unless the excess premium is returned to the non-QLAC portion of 
the employee's account in accordance with paragraph (d)(1)(ii)(B) of 
this A-17. If the contract fails to be a QLAC, then the value of the 
contract may not be disregarded under A-3(d) of Sec.  1.401(a)(9)-5 as 
of the date on which the contract ceases to be a QLAC.
    (B) Correction in year following year of excess. If the excess 
premium is returned (either in cash or in the form of a contract that 
is not intended to be a QLAC) to the non-QLAC portion of the employee's 
account by the end of the calendar year following the calendar year in 
which the excess premium was originally paid, then the contract will 
not be treated as exceeding the limits under paragraph (b) of this A-17 
at any time, and the value of the contract will not be included in the 
employee's account balance under A-3(d) of Sec.  1.401(a)(9)-5. If the 
excess premium (including the fair market value of an annuity contract 
that is not intended to be a QLAC, if applicable) is returned to the 
non-QLAC portion of the employee's account after the last valuation 
date for the calendar year in which the excess premium was originally 
paid, then the employee's account balance for that calendar year must 
be increased to reflect that excess premium in the same manner as an 
employee's account balance is increased under section 1.401(a)(9)-7, A-
2 to reflect a rollover received after the last valuation date.
    (C) Return of excess premium not a commutation benefit. If the 
excess premium is returned to the non-QLAC portion of the employee's 
account as described in paragraph (d)(1)(ii)(B) of this A-17, it will 
not be treated as a violation of the requirement in paragraph (a)(4) of 
this A-17 that the contract not provide a commutation benefit.
    (iii) Application of 25-percent limit. For purposes of the 25-
percent limit under paragraph (b)(3) of this A-17, an employee's 
account balance on the date on which premiums for a contract are paid 
is the account balance as of the last valuation date preceding the date 
of the premium payment, adjusted as follows. The account balance is 
increased for contributions allocated to the account during the period 
that begins after the valuation date and ends before the date the 
premium is paid and decreased for distributions made from the account 
during that period.
    (2) Dollar and age limitations subject to adjustments--(i) Dollar 
limitation. In the case of calendar years beginning on or after January 
1, 2015, the $125,000 amount under paragraph (b)(2)(i) of this A-17 
will be adjusted at the same time and in the same manner as the limits 
are adjusted under section 415(d), except that the base period shall be 
the calendar quarter beginning July 1, 2013, and any increase under 
this paragraph (d)(2)(i) that is not a multiple of $10,000 will be 
rounded to the next lowest multiple of $10,000.
    (ii) Age limitation. The maximum age set forth in paragraph (a)(2) 
of this A-17 may be adjusted to reflect changes in mortality, with any 
such adjusted age to be prescribed by the Commissioner in revenue 
rulings, notices, or other guidance published in the Internal Revenue 
Bulletin and made available by the Superintendent of Documents, U.S. 
Government Printing Office,

[[Page 37642]]

Washington, DC 20402 and on the IRS Web site at https://www.irs.gov.
    (iii) Prospective application of adjustments. If a contract fails 
to be a QLAC because it does not satisfy the dollar limitation in 
paragraph (b)(2) of this A-17 or the age limitation in paragraph (a)(2) 
of this A-17, any subsequent adjustment that is made pursuant to 
paragraph (d)(2)(i) or paragraph (d)(2)(ii) of this A-17 will not cause 
the contract to become a QLAC.
    (3) Determination of whether contract is intended to be a QLAC--(i) 
 Structural deficiency. If a contract fails to be a QLAC at any time 
for a reason other than an excess premium described in paragraph 
(d)(1)(ii) of this A-17, then as of the date of purchase the contract 
will not be treated as a QLAC (for purposes of A-3(d) of Sec.  
1.401(a)(9)-5) or as a contract that is intended to be a QLAC (for 
purposes of paragraph (b) of this A-17) as of the date of purchase.
    (ii) Roth IRAs. A contract that is purchased under a Roth IRA is 
not treated as a contract that is intended to be a QLAC for purposes of 
applying the dollar and percentage limitation rules in paragraphs 
(b)(2)(ii)(B) and (b)(3)(ii)(B) of this A-17. See A-14(d) of Sec.  
1.408A-6. If a QLAC is purchased or held under a plan, annuity, 
account, or traditional IRA, and that contract is later rolled over or 
converted to a Roth IRA, the contract is not treated as a contract that 
is intended to be a QLAC after the date of the rollover or conversion. 
Thus, premiums paid with respect to the contract will not be taken into 
account under paragraph (b)(2)(ii)(B) or paragraph (b)(3)(ii)(B) of 
this A-17 after the date of the rollover or conversion.
    (4) Certain contracts not treated as similar contracts--(i) 
Participating annuity contract. An annuity contract is not treated as a 
contract described in paragraph (a)(7) of this A-17 merely because it 
provides for the payment of dividends described in A-14(c)(3) of Sec.  
1.401(a)(9)-6.
    (ii) Contracts with cost-of-living adjustments. An annuity contract 
is not treated as a contract described in paragraph (a)(7) of this A-17 
merely because it provides for a cost-of-living adjustment as described 
in A-14(b) of Sec.  1.401(a)(9)-6.
    (5) Group annuity contract certificates. The requirement under 
paragraph (a)(6) of this A-17 that the contract state that it is 
intended to be a QLAC when issued is satisfied if a certificate is 
issued under a group annuity contract and the certificate, when issued, 
states that the employee's interest under the group annuity contract is 
intended to be a QLAC.
    (e) Effective/applicability date--(1) General applicability date. 
This A-17 and Sec.  1.403(b)-6(e)(9) apply to contracts purchased on or 
after July 2, 2014 If on or after July 2, 2014 an existing contract is 
exchanged for a contract that satisfies the requirements of this A-17, 
the new contract will be treated as purchased on the date of the 
exchange and the fair market value of the contract that is exchanged 
for a QLAC will be treated as a premium paid with respect to the QLAC.
    (2) Delayed applicability date for requirement that contract state 
that it is intended to be QLAC. An annuity contract purchased before 
January 1, 2016, will not fail to be a QLAC merely because the contract 
does not satisfy the requirement of paragraph (a)(6) of this A-17, 
provided that--
    (i) When the contract (or a certificate under a group annuity 
contract) is issued, the employee is notified that the annuity contract 
is intended to be a QLAC; and
    (ii) The contract is amended (or a rider, endorsement or amendment 
to the certificate is issued) no later than December 31, 2016, to state 
that the annuity contract is intended to be a QLAC.

0
Par. 4. Section 1.403(b)-6 is amended by adding paragraph (e)(9) to 
read as follows:


Sec.  1.403(b)-6  Timing of distributions and benefits.

* * * * *
    (e) * * *
    (9) Special rule for qualifying longevity annuity contracts. The 
rules in A-17(b) of Sec.  1.401(a)(9)-6 (relating to limitations on 
premiums for a qualifying longevity annuity contract (QLAC), defined in 
A-17 of Sec.  1.401(a)(9)-6) and A-17(d)(1) of Sec.  1.401(a)(9)-6 
(relating to reliance on representations with respect to a QLAC) apply 
to the purchase of a QLAC under a section 403(b) plan (rather than the 
rules in A-12(b) and (c) of Sec.  1.408-8).
* * * * *

0
Par. 5. In Sec.  1.408-8, Q&A-12 is added to read as follows:


Sec.  1.408-8  Distribution requirements for individual retirement 
plans.

* * * * *
    Q-12. How does the special rule in A-3(d) of Sec.  1.401(a)(9)-5 
for a qualifying longevity annuity contract (QLAC) apply to an IRA?
    A-12. (a) General rule. The special rule in A-3(d) of Sec.  
1.401(a)(9)-5 for a QLAC, defined in A-17 of Sec.  1.401(a)(9)-6, 
applies to an IRA, subject to the exceptions set forth in this A-12. 
See A-14(d) of Sec.  1.408A-6 for special rules relating to Roth IRAs.
    (b) Limitations on premiums--(1) In general. In lieu of the 
limitations described in A-17(b) of Sec.  1.401(a)(9)-6, the premiums 
paid with respect to the contract on a date are not permitted to exceed 
the lesser of the dollar limitation in paragraph (b)(2) of this A-12 or 
the percentage limitation in paragraph (b)(3) of this A-12.
    (2) Dollar limitation. The dollar limitation is an amount equal to 
the excess of--
    (i) $125,000 (as adjusted under A-17(d)(2) of Sec.  1.401(a)(9)-6), 
over
    (ii) The sum of--
    (A) The premiums paid before that date with respect to the 
contract, and
    (B) The premiums paid on or before that date with respect to any 
other contract that is intended to be a QLAC and that is purchased for 
the IRA owner under the IRA, or any other plan, annuity, or account 
described in section 401(a), 403(a), 403(b), or 408 or eligible 
governmental plan under section 457(b).
    (3) Percentage limitation. The percentage limitation is an amount 
equal to the excess of--
    (i) 25 percent of the total account balances of the IRAs (other 
than Roth IRAs) that an individual holds as the IRA owner (including 
the value of any QLAC held under those IRAs) as of December 31 of the 
calendar year immediately preceding the calendar year in which a 
premium is paid, over
    (ii) The sum of--
    (A) The premiums paid before that date with respect to the 
contract, and
    (B) The premiums paid on or before that date with respect to any 
other contract that is intended to be a QLAC and that is held or was 
purchased for the individual under those IRAs.
    (c) Reliance on representations. For purposes of the limitations 
described in paragraphs (b)(2) and (3) of this A-12, unless the 
trustee, custodian, or issuer of an IRA has actual knowledge to the 
contrary, the trustee, custodian, or issuer may rely on the IRA owner's 
representation (made in writing or such other form as may be prescribed 
by the Commissioner) of--
    (1) The amount of the premiums described in paragraphs 
(b)(2)(ii)(B) and (b)(3)(ii)(B) of this A-12 that are not paid under 
the IRA, and
    (2) The amount of the account balances described in paragraph 
(b)(3)(i) of this A-12 (other than the account balance under the IRA).
    (d) Permitted delay in setting beneficiary designation. In case of 
a contract that is rolled over from a plan to an IRA before the 
required beginning date under the plan, the contract will

[[Page 37643]]

not violate the rule in A-17(c)(2)(v) of Sec.  1.401(a)(9)-6 that a 
non-spouse beneficiary must be irrevocably selected on or before the 
later of the date of purchase or the required beginning date under the 
IRA, provided that the contract requires a beneficiary to be 
irrevocably selected by the end of the year following the year of the 
rollover.
    (e) Roth IRAs. A contract that is purchased under a Roth IRA is not 
treated as a contract that is intended to be a QLAC for purposes of 
applying the dollar and percentage limitation rules in paragraphs 
(b)(2)(ii)(B) and (b)(3)(ii)(B) of this A-12. See A-14(d) of Sec.  
1.408A-6. If a QLAC is purchased or held under a plan, annuity, 
account, or traditional IRA, and that contract is later rolled over or 
converted to a Roth IRA, the contract is not treated as a contract that 
is intended to be a QLAC after the date of the rollover or conversion. 
Thus, premiums paid with respect to the contract will not be taken into 
account under paragraph (b)(2)(ii)(B) or paragraph (b)(3)(ii)(B) of 
this A-12 after the date of the rollover or conversion.
    (f) Effective/applicability date. This A-12 applies to contracts 
purchased on or after July 2, 2014.

0
Par. 6. Section 1.408A-6 is amended by adding paragraph A-14(d) to read 
as follows:


Sec.  1.408A-6  Distributions.

* * * * *
    A-14. * * *
    (d) The special rules in A-3 of Sec.  1.401(a)(9)-5 and A-12 of 
Sec.  1.408-8 for a qualifying longevity annuity contract (QLAC), 
defined in A-17 of Sec.  1.401(a)(9)-6, do not apply to a Roth IRA.
* * * * *

0
Par. 7. Section 1.6047-2 is added to read as follows:


Sec.  1.6047-2  Information relating to qualifying longevity annuity 
contracts.

    (a) Requirement and form of report--(1) In general. Any person 
issuing any contract that is intended to be a qualifying longevity 
annuity contract (QLAC), defined in A-17 of Sec.  1.401(a)(9)-6, shall 
make the report required by this section. This requirement applies only 
to contracts purchased or held under any plan, annuity, or account 
described in section 401(a), 403(a), 403(b), or 408 (other than a Roth 
IRA) or eligible governmental plan under section 457(b).
    (2) Annual report. The issuer shall make annual calendar-year 
reports on the applicable form prescribed by the Commissioner for this 
purpose concerning the status of the contract. The report shall 
identify that the contract is intended to be a QLAC and shall contain 
the following information--
    (i) The name, address, and identifying number of the issuer of the 
contract, along with information on how to contact the issuer for more 
information about the contract;
    (ii) The name, address, and identifying number of the individual in 
whose name the contract has been purchased;
    (iii) If the contract was purchased under a plan, the name of the 
plan, the plan number, and the Employer Identification Number (EIN) of 
the plan sponsor;
    (iv) If payments have not yet commenced, the annuity starting date 
on which the annuity is scheduled to commence, the amount of the 
periodic annuity payable on that date, and whether that date may be 
accelerated;
    (v) For the calendar year, the amount of each premium paid for the 
contract and the date of the premium payment;
    (vi) The total amount of all premiums paid for the contract through 
the end of the calendar year;
    (vii) The fair market value of the QLAC as of the close of the 
calendar year; and
    (viii) Such other information as the Commissioner may require.
    (b) Manner and time for filing--(1) Timing. The report required by 
paragraph (a)(2) of this section shall be filed in accordance with the 
forms and instructions prescribed by the Commissioner. Such a report 
must be filed for each calendar year beginning with the year in which 
premiums for a contract are first paid and ending with the earlier of 
the year in which the individual in whose name the contract has been 
purchased attains age 85 (as adjusted pursuant to A-17(d)(2)(ii) of 
Sec.  1.401(a)(9)-6) or dies.
    (2) Surviving spouse. If the individual dies and the sole 
beneficiary under the contract is the individual's spouse (in which 
case the spouse's annuity would not be required to commence until the 
individual would have commenced benefits under the contract had the 
individual survived), the report must continue to be filed for each 
calendar year until the calendar year in which the distributions to the 
spouse commence or in which the spouse dies, if earlier.
    (c) Issuer statements. Each issuer required to file the annual 
report required by paragraph (a)(2) of this section shall furnish to 
the individual in whose name the contract has been purchased a 
statement containing the information required to be included in the 
report, except that such statement shall be furnished to a surviving 
spouse to the extent that the report is required to be filed under 
paragraph (b)(2) of this section. A copy of the required form may be 
used to satisfy the statement requirement of this paragraph (c). If a 
copy of the required form is not used to satisfy the statement 
requirement of this paragraph (c), the statement shall contain the 
following language: ``This information is being furnished to the 
Internal Revenue Service.'' The statement required by this paragraph 
(c) shall be furnished on or before January 31 following the calendar 
year for which the report required by paragraph (a)(2) of this section 
is required.
    (d) Penalty for failure to file report. Section 6652(e) prescribes 
a penalty for failure to file the report required by paragraph (a)(2) 
of this section.
    (e) Effective/applicability date. This section applies to contracts 
purchased on or after July 2, 2014.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 8. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 9. In Sec.  602.101, paragraph (b) is amended by adding the 
following entries in numerical order to the table to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                                 * * * *
1.401(a)(9)-6...........................................       1545-2234
 
                                 * * * *
1.6047-2................................................       1545-2234
------------------------------------------------------------------------


John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: June 27, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-15524 Filed 7-1-14; 8:45 am]
BILLING CODE 4830-01-P