Reg-115809-11

(c) Effective/applicability date. This
section applies to sales of taxable medical
devices on and after January 1, 2013.
Par. 4. Section 48.4221–1 is amended
by adding paragraph (a)(2)(vii) to read as
follows:
§48.4221–1 Tax-free sales; general rule.
(a) * * *
(2) * * *
(vii) The exemptions under section
4221(a)(3) through (a)(6) do not apply to
the tax imposed by section 4191 (medical
device tax).
*****
Par. 5. Section 48.4221–2 is amended
by adding headings to paragraphs (b)(1)
and (b)(2) and adding paragraph (b)(3).
The additions read as follows:
(b) * * *
(1) In general. * * *
(2) Material in the manufacture or production of another article. * * *
(3) Kits—(i) The process of producing
or assembling a kit that is a taxable medical device (as defined in §48.4191–2) constitutes further manufacture. Under such
circumstances, the taxable and nontaxable
articles used in the production or assembly of the kit lose their identity as separate articles once they are incorporated
into the kit because the kit is a new taxable article. Accordingly, the provisions
of §48.4216(a)–1(e) do not apply upon the
sale of a kit that is a taxable medical device, and the entire sale price of the kit is
subject to tax under section 4191.
(ii) For purposes of this section, the
term kit means a set of two or more articles
that is enclosed in a single package, such as
a bag, tray, or box, for the convenience of
a medical or health care professional or the
end user. A kit may contain a combination
of one or more taxable medical devices and
other articles.
(iii) The following example illustrates
the rule of this paragraph (b)(3).
Example. X is a manufacturer of scalpels. X is
registered with the IRS as a manufacturer of taxable
medical devices in accordance with §48.4222(a)–1.
Y is a distributor of taxable medical devices. Y is
registered with the IRS as a manufacturer of taxable
medical devices and as a buyer of taxable medical
devices for use in further manufacture in accordance
with §48.4222(a)–1. Y purchases scalpels from X for
inclusion in surgical kits that Y produces. Both the
scalpels and the kits are “taxable medical devices”
as defined in §48.4191–2. Accordingly, X may sell
the scalpels to Y tax free, provided Y furnishes its

March 26, 2012

registration number to X and certifies in writing that
the scalpels will be used in further manufacture.

(iv) This paragraph (b)(3) applies to
sales of taxable medical devices on and after January 1, 2013.
*****
Par. 6. Section 48.6416(b)(2)–2 is
amended by adding paragraph (a)(4) to
read as follows:
§48.6416(b)(2)–2 Exportations, uses,
sales and resales included.
(a) * * *
(4) Beginning on January 1, 2013, sections 6416(b)(2)(B), (C), (D), and (E) do
not apply to any tax paid under section
4191 (medical device tax).
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on February 3,
2012, 11:15 a.m., and published in the issue of the Federal
Register for February 7, 2012, 77 F.R. 6028)

Notice of Proposed
Rulemaking and Notice of
Public Hearing
Longevity Annuity Contracts
REG–115809–11
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to the purchase of longevity annuity contracts under
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 section 457 plans.
These regulations will provide the public with guidance necessary to comply
with the required minimum distribution
rules under section 401(a)(9). The regulations will affect individuals for whom
a longevity annuity contract is purchased

598

under these plans and IRAs (and their beneficiaries), sponsors and administrators
of these plans, trustees and custodians of
these IRAs, and insurance companies that
issue longevity annuity contracts under
these plans and IRAs. This document also
provides a notice of a public hearing on
these proposed regulations.
DATES: Written or electronic comments
must be received by May 3, 2012. Outlines of topics to be discussed at the public
hearing scheduled for June 1, 2012 must
be received by May 11, 2012.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–115809–11), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington D.C. 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–115809–11),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W.,
Washington, D.C., or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS
REG–115809–11). The public hearing
will be held in the IRS Auditorium,
Internal Revenue Building,
1111
Constitution Avenue, N.W., Washington,
D.C.
FOR
FURTHER
INFORMATION
CONTACT: Concerning the regulations,
Jamie Dvoretzky at (202) 622–6060;
concerning submission of comments,
the hearing, and/or being placed on the
building access list to attend the hearing,
Oluwafunmilayo (Funmi) Taylor) at (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in this notice of proposed rulemaking has
been submitted to the Office of Management and Budget for review in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). The collection of
information in these proposed regulations
is in §1.401(a)(9)–6, A–17(a)(6) (disclosure that a contract is intended to be a
qualifying longevity annuity contract) and
§1.6047–2 (an initial report must be prepared and an initial disclosure statement

2012–13 I.R.B.

must be furnished to qualifying longevity
annuity contract owners, and an annual
statement must be provided to qualifying
longevity annuity contract owners and
their surviving spouses containing information required to be furnished to the
IRS). The information in §1.401(a)(9)–6,
A–17(a)(6), is required in order to notify
participants and beneficiaries, plan sponsors, and the IRS that the proposed regulations apply to a contract. The information
in the annual statement in §1.6047–2 is
required in order to apply the dollar and
percentage limitations in §1.401(a)(9)–6,
A–17(b) and §1.408–8, Q&A–12(b) and
to comply with other requirements of the
proposed regulations, and the information
in the initial report and disclosure statement in §1.6047–2 is required in order for
individuals to understand the features and
limitations of a qualifying longevity annuity contract. The information would be
used by plans and individuals to comply
with the required minimum distribution
rules.
Comments on the collection of information should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503,
with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:M:S; Washington,
DC 20224. Comments on the collection of information should be received by
April 3, 2012. Comments are specifically
requested concerning:
Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be enhanced;
How the burden of complying with the
proposed collections of information may
be minimized, including through the application of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of service to provide information.

2012–13 I.R.B.

Estimated total average annual recordkeeping burden: 35,661 hours.
Estimated average annual burden per
response: 10 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 it 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 26 U.S.C. 6103.
Background
This document contains proposed
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 participant’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 participant attains age 701/2 or (2) the calendar year in
which the participant retires. However, the
ability to delay distribution until the calendar year in which a participant retires does
not apply in the case of a 5-percent owner
or an IRA owner.
If the entire interest of the participant is
not distributed by the required beginning
date, section 401(a)(9)(A) provides that
the entire interest of the participant must be
distributed, beginning not later than the required beginning date, in accordance with
regulations, over the life of the participant or lives of the participant and a designated beneficiary (or over a period not
extending beyond the life expectancy of
the participant or the life expectancy of the
participant and a designated beneficiary).
Section 401(a)(9)(B) prescribes required
minimum distribution rules that apply af-

599

ter the death of the participant. 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 408(a)(6) and (b)(3),
403(b)(10), and 457(d)(2), respectively,
and 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 participant.
Section 408(i) provides that the trustee
of an individual retirement account and the
issuer of an endowment contract or an individual retirement annuity must make reports regarding such account, contract, or
annuity to the Secretary and to the individuals for whom the account, contract,
or annuity is maintained with respect to
such matters as the Secretary may require.
Pursuant to this provision, the IRS prescribes Form 5498 (IRA Contribution Information), which requires annual reporting with respect to an IRA, including a
statement of the fair market value of the
IRA as of the prior December 31. Section
6047(d) states that the Secretary shall by
forms or regulations require that 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, 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. These sections also
provide that the Secretary may, by forms
or regulations, prescribe the manner and
time for filing these reports. Section 6693
prescribes monetary penalties for failure
to comply with section 408(i), and sections 6652 and 6704 prescribe monetary
penalties for failure to comply with section
6047(d).
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 un-

March 26, 2012

der a defined contribution plan. Under
§1.401(a)(9)–6, A–12, if an annuity contract held under a defined contribution
plan has not yet been annuitized, the interest of a participant 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
participant’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 §1.401(a)(9)–6,
A–14. In addition, annuity payments must
satisfy the MDIB requirement of section 401(a)(9)(G). Under §1.401(a)(9)–6,
A–2(b), if a participant’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 participant are deemed to satisfy the
MDIB requirement. However, if distributions are in the form of a joint and survivor
annuity for a participant 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 participant,
with the applicable percentage to be determined using the table in §1.401(a)(9)–6,
A–2(c).
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)(1)
provides that a section 403(b) contract
must meet the requirements of section
401(a)(9). 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 §1.408–8. Section 1.408–8,
Q&A–1, provides, with certain modifications, that an IRA is subject to the rules of
§§1.401(a)(9)–1 through 1.401(a)(9)–9.
One such modification is set forth in
§1.408–8, Q&A–9, 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

March 26, 2012

from another IRA. Section 1.408A–6,
Q&A–14(a), provides that no minimum
distributions are required to be made from
a Roth IRA during the life of the participant. Section 1.408A–6, Q&A–15,
provides that a participant who is required
to receive minimum distributions from his
or her traditional IRA cannot choose to
take the amount of the required minimum
distributions from a Roth IRA. Section
1.457–6(d) provides that a section 457(b)
eligible plan must meet the requirements
of section 401(a)(9) and the regulations
under that section.
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. 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 commentators identified
the required minimum distribution rules as
an impediment to the utilization of these
types of annuities. One such impediment
that they noted is the requirement that,
prior to annuitization, the value of the
annuity be included in the account balance that is used to determine required
minimum distributions. This requirement
raises the risk that, if the remainder of the
account has been depleted, the participant
would have to commence distributions
from the annuity earlier than anticipated
in order to satisfy the required minimum
distribution rules. Some commentators
stated that if the deferred annuity permits
a participant to accelerate the commencement of benefits, then, in order to take that
contingency into account, the premium
would be higher for a given level of annuity income regardless of whether the
participant actually commences benefits at
an earlier date. Some commentators also
noted that longevity annuities often do

600

not provide a commutation benefit, cash
surrender value, or other similar feature.
The Treasury Department and the IRS
have concluded that there are substantial
advantages to modifying the required 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 age 80 or 85
— using a portion of his or her account.
Under the proposed amendments to these
rules, prior to annuitization, the participant would be permitted to exclude the
value of a longevity annuity contract that
meets certain requirements from the account balance used to determine required
minimum distributions. Thus, a participant would never need to commence distributions from the annuity contract before
the advanced age in order to satisfy the required minimum distribution rules and, accordingly, the contract could be designed
with a fixed annuity starting date at the advanced age (and would not need to provide
an option to accelerate commencement of
the annuity).
Purchasing longevity annuity contracts
could help participants hedge the risk of
drawing down their benefits too quickly
and thereby outliving their retirement
savings. This risk is of particular import
because of the substantial, and unpredictable, possibility of living beyond one’s
life expectancy. Purchasing a longevity
annuity contract would also help avoid
the opposite concern that participants may
live beneath their means in order to avoid
outliving their retirement savings. If the
longevity annuity provides a predictable
stream of adequate income commencing
at a fixed date in the future, the participant would still face the task of managing
retirement income over that fixed period
until the annuity commences, but that task
generally is far less challenging than managing retirement income over an uncertain
period.
The Treasury Department and the IRS
have concluded that any special treatment
under the required minimum distribution
rules to facilitate the purchase of such a
longevity annuity contract should be limited to a portion of a participant’s account
balance, such as 25 percent. A percentage
limit is necessary in order to be consistent
with section 401(a)(9)(A), which requires
the entire interest of each participant to
be distributed, beginning by the required

2012–13 I.R.B.

beginning date, in accordance with regulations, over the life or life expectancy
of the participant (or the participant and
a designated beneficiary). The pattern of
required minimum payments implemented
in the existing regulations under section
401(a)(9) limits the extent to which tax-favored retirement savings can be used for
purposes other than retirement income
(such as transmitting accumulated wealth
to a participant’s heirs). Limiting the special treatment for a longevity annuity to
those contracts purchased with no more
than 25 percent of the account balance
is consistent with the intent of section
401(a)(9)(A) because, for a typical participant who will need to draw down the
entire account balance during the period
prior to commencement of the annuity,
the overall pattern of payments would not
provide more deferral than would otherwise normally be available for lifetime
payments under the section 401(a)(9)(A)
rules.
However, because a participant is required to receive only required minimum
distributions during the period before the
annuity begins (and would not under these
proposed regulations be required to draw
down the entire remaining balance on an
accelerated basis), the Treasury Department and the IRS have concluded that, in
addition to the percentage limitation, the
amount used to purchase an annuity for
which the minimum distribution requirements would be eased should be subject to
a dollar limitation, such as $100,000. This
dollar limitation would be applied in order
to constrain the extent to which the combination of payments from the account balance (determined by excluding the value
of the annuity before the annuity commences) and later payments from the annuity contract might result in an overall pattern of payouts from the plan that permits
undue deferral of distribution of the participant’s entire interest.
Such a limit would still allow significant income to be provided beginning at
age 85. For example, if at age 70 a participant 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
1

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 participant, such as
whether the form elected is a straight life
annuity or a joint and survivor annuity).
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,1
no indexation for inflation, and no load for
expenses.
These amounts would be higher if the
interest rate used by the issuer to determine
the annuity amount were higher. For example, the $42,000 amount would be increased to approximately $50,000 if the
annuity were purchased assuming a fourpercent interest rate, rather than a threepercent rate.
In addition, a participant who purchases
a contract before age 70 could obtain the
same income with a lower premium or
could obtain larger income with the same
premium. For example, even assuming
a three-percent interest rate, the $42,000
amount would be approximately $51,000
if the annuity were purchased at age 65
rather than age 70. Furthermore, a participant who purchases increments of annuities over his or her career could hedge the
risk of interest-rate fluctuation by purchasing these increments in different interest
rate environments and effectively averaging annuity purchase rates over time.
To facilitate compliance with the dollar and percentage limitations and other
requirements that longevity annuity contracts must satisfy in order to qualify for
the special treatment, certain disclosure
and reporting requirements would apply
for the issuers of these contracts. Because
longevity annuities would not begin until contract owners reach an advanced age,
annual statements would also serve as an
important reminder to those owners (and
persons assisting them with their financial
affairs) of their right to receive the annuities.
Explanation of Provisions
These proposed regulations would
modify the required minimum distribution
rules in order to facilitate the purchase

of deferred annuities that begin at an advanced age. The proposed regulations
would 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), would be excluded from the account balance used to determine required
minimum distributions.
I. Definition of QLAC
A. Limitations on premiums
The proposed regulations provide that,
in order to constitute a QLAC, the amount
of the premiums paid for the contract under the plan on a given date may not exceed the lesser of a dollar or a percentage
limitation. The proposed regulations prescribe rules for applying these limitations
to participants who purchase multiple contracts or make multiple premium payments
for the same contract.
Under the dollar limitation, the amount
of the premiums paid for a contract under the plan may not exceed $100,000. If,
on or before the date of a premium payment, an employee has paid premiums for
the same contract or for any other contract
that is intended to be a QLAC and that
is purchased for the employee under the
plan or under any other plan, annuity or
account, the $100,000 limit is reduced by
the amount of those other premium payments.2
Under the percentage limitation, the
amount of the premiums paid for a contract
under the plan may not exceed an amount
equal to 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 has paid 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 employee under
the plan, the maximum amount under the
25-percent limit is reduced by the amount
of those other payments.
For purposes of determining whether
premiums for a contract exceed the dollar
or percentage limitation, unless the plan
administrator has actual knowledge to the

If the annuity is provided under an employer plan, unisex mortality assumptions would be required.

2

As discussed under the heading “II. IRAs,” a contract that is purchased or held under a Roth IRA is not treated as a contract that is intended to be a QLAC (even if it otherwise meets the
requirements to be a QLAC).

2012–13 I.R.B.

601

March 26, 2012

contrary, the plan administrator would
generally be permitted to rely on an employee’s representation of the amount of
premiums paid on or before that date under any other contract that is intended to
be a QLAC and that is purchased for an
employee under any other plan, annuity,
or account. However, this reliance is not
available with respect to a plan, annuity, or
account that is maintained by an employer
(or an entity that is treated as a single
employer with the employer under section 414(b), (c), (m), or (o)) with respect
to purchases for an employee under any
other plan, annuity, or account maintained
by that employer.
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 as of the date
on which the excess premiums were paid.
Thus, beginning on that date, the value of
the contract would no longer be excluded
from the account balance used to determine required minimum distributions.
For calendar years beginning on or
after January 1, 2014, 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 July 1, 2012, and (2) any increase
that is not a multiple of $25,000 would
be rounded to the next lowest multiple
of $25,000. If a contract failed to be a
QLAC immediately before an adjustment
because the premiums exceeded the dollar
limitation, an adjustment of the dollar
limitation would not cause the contract to
become a QLAC.
B. Maximum age at commencement
The proposed 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. The specified annuity starting date must be no later than the first day
of the month coincident with or next following the employee’s attainment of age
85. This age reflects the approximate life

expectancy of an employee at retirement,
and was recommended in a number of the
comments received in response to the Request for Information. Any contract for
which premiums are paid after the latest
permissible specified annuity starting date
would not be a QLAC, because such a
contract could not require distributions to
commence by that date.
The proposed regulations would permit
a QLAC to allow a participant to elect an
earlier annuity starting date than the specified annuity starting date. For example, if
the specified annuity starting date under a
contract were the date on which a participant attains age 85, the contract would not
fail to be a QLAC solely because it allows
the participant to commence distributions
at an earlier date. On the other hand, these
rules would not require a QLAC to provide an option to commence distributions
before the specified annuity starting date,
so that a QLAC could provide that distributions must commence only at the specified annuity starting date. For a given premium, such a contract could provide a substantially higher periodic annuity payment
beginning on the specified annuity starting date than a contract with an acceleration option. Similarly, premiums could be
lower for a given level of periodic annuity payment, leaving a larger portion of the
remaining account balance for the participant to use for living expenses before the
specified annuity starting date.
The proposed regulations provide that
the maximum age may also be adjusted
to reflect changes in mortality. The adjusted age (if any) would be prescribed
by the Commissioner in revenue rulings, notices, or other guidance published
in the Internal Revenue Bulletin (see
§601.601(d)(2)(ii)(b)). The Treasury Department and the IRS anticipate that such
changes will not occur more frequently
than the adjustment of the $100,000 limit
described in subheading I.A. “Limitations
on premiums.” If a contract failed to be a
QLAC immediately before an adjustment
because it failed to provide that distributions must commence by the requisite age,

an adjustment of the age would not cause
the contract to become a QLAC.
C. Benefits payable after death of the
employee
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 refund of premiums in the case of an
employee’s death would not be a QLAC.
These types of payments are inconsistent
with the purpose of providing lifetime income to employees and their beneficiaries,
as described in the Background section of
this preamble. A contract that provides a
given lifetime periodic annuity payment to
an employee would be less expensive if it
provided for a life annuity payable to a designated beneficiary upon the employee’s
death rather than additional features such
as an optional single-sum death benefit.
After paying a lower premium for such a
life annuity, the employee would be able to
retain a larger portion of his or her account,
maximizing the employee’s lifetime benefits, while also leaving larger death benefits for a beneficiary, from the remaining
amount of the account.
The proposed 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 is a life annuity payable to the surviving spouse that
does not exceed 100 percent of the annuity payment payable to the employee. The
proposed regulations include a special exception that would allow a plan to comply
with any applicable requirement to provide
a qualified preretirement survivor annuity3
(which would have an effect only if the employee has a substantially older spouse).
If the employee’s surviving spouse is
not the sole beneficiary under the contract,4 the only benefit permitted to be paid
after the employee’s death 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

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 (88 Stat. 829 (1974)), as amended (ERISA), includes a parallel definition. See Rev. Rul. 2012–3 for
rules relating to qualified preretirement survivor annuities.
4 If the surviving spouse is one of the designated beneficiaries, this rule is applied as if the contract were a separate contract for the surviving beneficiary, but only if certain conditions are
satisfied, including a separate account requirement. See §1.401(a)(9)–8, A–2(a) and A–3.

March 26, 2012

602

2012–13 I.R.B.

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.
Under the first alternative, the applicable percentage is the percentage described
in the existing table in §1.401(a)(9)–6,
A–2(c). Because the existing applicable
percentage table does not take into account
the potential for a death benefit to be paid
to the non-spouse designated beneficiary
during the period between the required
beginning date and the annuity starting
date, 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 avoid 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 the employee 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, the applicable percentage is the percentage described in a new table set forth in the proposed regulations. The table is available
for use when the contract provides a preannuity-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 701/2 and age 85. In order
to limit the portion of the premium that is
used to provide death benefits to a designated beneficiary, 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. Accordingly, the applicable percentages in the table are based on the expected
longevity for the designated beneficiary,
determined as of the employee’s required
beginning date.

2012–13 I.R.B.

The Treasury Department and the IRS
considered whether to prescribe a special
rule under which a QLAC could provide
for a pre-annuity-starting-date death benefit to a non-spouse designated beneficiary
and also allow the designated beneficiary
to be changed at any time before the annuity starting date. However, in order
to satisfy the MDIB requirements in such
a case, the applicable percentages would
need to be much smaller than the percentages set forth in the special table. This is
because a larger portion of the cost of the
contract would be allocable to death benefits if, after the required beginning date
and before the annuity starting date, the
participant were able to replace a designated beneficiary who has died (or to replace a designated beneficiary who has a
short life expectancy with one who has a
longer life expectancy). Comments are requested on whether the proposed regulations should be modified to permit alternative death benefits that would be subject to
such lower applicable percentages.
If the employee dies before the specified annuity starting date under the contract, the date by which benefits must commence to the designated beneficiary depends on whether the beneficiary is the
employee’s surviving spouse. If the sole
beneficiary under the contract is the employee’s surviving spouse, the life annuity is not required to commence until the
employee’s specified annuity starting date
under the contract (in lieu of the otherwise
applicable rule that would require distributions to commence by the later of the end
of the calendar year following the calendar year in which the employee died or the
end of the calendar year in which the employee would have attained age 701/2). If
the employee’s sole beneficiary under the
contract is not the surviving spouse, the life
annuity payable to the designated beneficiary must commence by the last day of
the calendar year immediately following
the calendar year of the employee’s death.
The proposed regulations include a rule
for applying the limitations on amounts
payable to a surviving spouse or a designated beneficiary in the event the employee dies before the annuity starting
date. Under this rule, if the contract does
not allow an 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

603

contract if the employee had not died, the
contract must nonetheless provide a way to
determine the periodic annuity payments
that would have been payable if payments
to the employee had commenced immediately prior to the date on which benefit
payments to the designated beneficiary
commence.
D. Other QLAC requirements
Under the proposed regulations, a
QLAC would not include a variable contract under section 817, equity-indexed
contract, or similar contract, because
the purpose of a QLAC is to provide a
participant with a predictable stream of
lifetime income. In addition, exposure to
equity-based returns is available through
control over the remaining portion of the
account balance so that a participant can
achieve adequate diversification.
The proposed regulations also provide
that, in order to be a QLAC, the contract is
not permitted to make available any commutation benefit, cash surrender value, or
other similar feature. As in the case of
the limitations on benefits payable after
death, these limitations would allow an
annuity contract to maximize the annuity
payments that are made while a participant
or beneficiary is alive. In addition, having
a limited set of options available to purchasers would make these contracts more
readily understandable and enhance purchasers’ ability to compare products across
providers. Ease of comparison will be particularly important to the extent that contracts provided under plans are priced on a
unisex basis, while contracts offered under
IRAs generally take gender into account in
establishing premiums.
The proposed regulations provide that
a contract is not a QLAC unless it states,
when issued, that it is intended to be a
“qualifying longevity annuity contract” or
a “QLAC.” This rule would ensure that the
issuer, participant, plan sponsor, and IRS
know that the rules applicable to QLACs
apply to this contract.
The proposed regulations provide that
distributions under a QLAC must satisfy
the generally applicable section 401(a)(9)
requirements relating to annuities at
§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

March 26, 2012

limitation on increasing payments under
§1.401(a)(9)–6, A–1(a), applies to the
contract.
II. IRAs
The proposed 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 $100,000. If, on or before the date
of a premium payment, a participant has
paid premiums for the same contract or for
any other contract that is intended to be a
QLAC and that is purchased for the participant under the IRA or under any other
IRA, plan, or annuity, the $100,000 limit is
reduced by the amount of those other premium payments.
The proposed 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
a participant’s IRA account balances.
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 proposed regulations would 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.
The proposed regulations provide that,
for purposes of both the dollar and percentage limitations, unless the trustee, custo-

dian, 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 account balances (other than the
account balance under the IRA).
Under the proposed regulations, an annuity purchased under a Roth IRA would
not be treated as a QLAC. This is because
a Roth IRA (unlike a designated Roth
account under a plan, as described in section 402A) is not subject to the section
401(a)(9)(A) requirement that the individual’s benefits commence and be paid
over the lives or life expectancy of the
individual and a designated beneficiary
(but, after the death of the individual, benefits must be paid under the same section
401(a)(9)(B) rules that apply to traditional IRAs). Because the rules of section
401(a)(9)(A) do not apply to a Roth IRA
owner, a longevity annuity contract purchased using a portion of the individual’s
Roth IRA would not need to provide the
right to accelerate payments in order to
ensure compliance with those rules. Thus,
there is no need to permit the value of a
longevity annuity contract to be excluded
from the account balance that is used to
determine required minimum distributions
during the life of a Roth IRA owner. Accordingly, the proposed regulations would
not apply the rules regarding QLACs to
Roth IRAs.
The proposed regulations would not
preclude the use of assets in a Roth IRA
to purchase a longevity annuity contract,
nor would such a contract be subject to
the same restrictions as a QLAC. For
example, a longevity annuity contract purchased using assets of a Roth IRA could
have an annuity starting date that is later
than age 85 and offer features, such as a
cash surrender right, that are not permitted
under a QLAC. Although such a contract
could not be excluded from the account
balance used to determine required minimum distributions, this exclusion is not
necessary because the required minimum
distribution rules do not apply during the
life of a Roth IRA owner.

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.5
Comments are requested on whether the
regulations should be modified to apply
the QLAC rules to a Roth IRA or to reduce
the availability of the section 401(a)(9) relief for purchases of QLACs by the amount
of assets that the individual holds in a
Roth IRA. Comments are also requested as
to whether any special rules should apply
where a QLAC is purchased using assets
of a Roth IRA, such as special disclosure
in order to minimize any potential confusion.
III. Section 403(b) plans
The proposed regulations apply the taxqualified 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 would
be separately determined for each section
403(b) plan in which an employee participates. The proposed 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 proposed regulations 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 sur-

5 Section 1.408A–4, Q&A–14, describes 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.

March 26, 2012

604

2012–13 I.R.B.

vivor 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 generally not subject to this requirement. See §1.401(a)–20, Q&A–3(d), and
§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 proposed regulations relating to the
purchase of a QLAC under a tax-qualified
defined contribution plan would automatically apply to an eligible section 457(b)
plan. However, the rule relating to QLACs
is limited to eligible governmental section
457(b) plans. Because section 457(b)(6)
requires that an eligible section 457(b)
plan that is not a governmental plan be unfunded, the purchase of an annuity contract
under such a plan would be inconsistent
with this requirement.

•

•

•

•

The amount (or estimated amount) of
the periodic annuity payment that is
payable after the annuity starting date
as a single life annuity (including, if an
estimated amount, the assumed interest
rate or rates used in making this determination), and a statement that there is
no commutation benefit or right to surrender the contract in order to receive
its cash value;
A statement of any death benefit
payable under the contract, including any differences between benefits
payable if the employee dies before
the annuity starting date and benefits
payable if the employee dies on or
after the annuity starting date;
A description of the administrative
procedures associated with an employee’s elections under the contract,
including deadlines, how to obtain
forms, and where to file forms, and the
identity and contact information of a
person from whom the employee may
obtain additional information about
the contract; and
Such other information that the Commissioner may require.

6047(d) which would require any person
issuing any contract that states that it is intended to be a QLAC to file annual calendar-year reports and provide a statement to
the individual in whose name the contract
has been purchased regarding the status of
the contract. The Commissioner will prescribe an applicable form and instructions
for this purpose, which will contain the filing deadline and other information.
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:

•

•
•
•

V. Defined benefit plans
Although defined benefit plans are subject to the minimum required distribution
rules, they offer annuities which provide
longevity protection. Because this protection is therefore already available, these
proposed regulations would not apply to
defined benefit plans.6
VI. Disclosure and annual reporting
requirements
Under the proposed regulations, the issuer of a QLAC would be required to create a report containing the following information about the QLAC:

•
•

6

A plain-language description of the
dollar and percentage limitations on
premiums;
The annuity starting date under the
contract, and, if applicable, a description of the employee’s ability to elect
to commence payments before the annuity starting date;

This report is not required to be filed
with the Internal Revenue Service. Each
issuer required to create a report would
be required to furnish to the individual
in whose name the contract has been
purchased a statement containing the information in the report. This statement
must be furnished prior to or at the time
of purchase. In addition, in order to
avoid duplicating state law disclosure requirements, the statement would not be
required to include information that the
issuer has already provided to the employee in order to satisfy any applicable
state disclosure law. Comments are requested on whether the information listed
is appropriate, and whether (and, if so, the
extent to which) this list would duplicate
disclosure requirements under existing
state law. Comments are also requested
on whether there is other information that
should be included in the disclosure, such
as the special tax attributes of a QLAC.
The proposed regulations prescribe annual reporting requirements under section

•

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; and
The amount of each premium paid for
the contract, along with the date of payment.7

Each issuer required to file the report
with respect to a contract would also be
required to provide to the individual in
whose name the contract has been purchased a statement containing the information that is required to be furnished in the
report. This requirement may be satisfied
by providing the individual with a copy of
the required form, or in another form that
contains the following language: “This information is being furnished to the Internal Revenue Service.” The statement is required to be furnished to the individual 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

See also Rev. Rul. 2012–4 (relating to rollovers to defined benefit plans).

7

For IRAs, the fair market value of the account on December 31 must be provided to the IRA owners by January 31 of the following year. Trustees, custodians, and issuers are responsible for
ensuring that all IRA assets (including those not traded on an established securities market or with otherwise readily determinable value) are valued annually at their fair market value. This
includes the value of a contract that is intended to be a QLAC.

2012–13 I.R.B.

605

March 26, 2012

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 individual for whom
the contract has been purchased attains age
85 (as adjusted in calendar years beginning on or after January 1, 2014) or dies.
However, if the individual dies and the sole
beneficiary under the contract is the individual’s spouse (so that the spouse’s annuity might not commence until the individual would have attained age 85), the annual reporting requirement continues until
the year in which the distributions to the
spouse commence.
Proposed Effective Date
The proposed regulations regarding
disclosure and reporting will be effective
upon publication in the Federal Register
of the Treasury decision adopting these
rules as final regulations. Otherwise, these
regulations are proposed to be effective
for contracts purchased on or after the date
of publication of the Treasury decision
adopting these rules as final regulations in
the Federal Register and for determining
required minimum distributions for distribution calendar years beginning on or
after January 1, 2013. Until regulations
finalizing these proposed regulations are
issued, taxpayers may not rely on the rules
set forth in these proposed regulations (and
the existing rules under section 401(a)(9)
continue to apply).
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. 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 proposed regulations
will not have a significant economic impact on a substantial number of small entities. This certification is based upon the
fact that an insubstantial number of entities
of any size will be impacted by the regulation. In addition, IRS and Treasury expect
that any burden on small entities will be
minimal because required disclosures are
expected to take 10 minutes to prepare. In
addition, the entities that will be impacted

March 26, 2012

will be insurance companies, very few of
which are small entities. Therefore, 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, this notice of proposed rulemaking has been submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments (a
signed original and eight (8) copies) or
electronic comments that are submitted
timely to the IRS. Comments are requested
on benefits payable to a non-spouse beneficiary (under the subheading “C. Benefits
payable after death of the employee”),
Roth IRAs (under the heading “II. IRAs”),
and disclosure (under the heading “VI.
Disclosure and annual reporting requirements”). Comments are also requested
on whether an insurance product that
provides guaranteed lifetime withdrawal
benefits could constitute a QLAC, taking
into account the rules precluding the use
of a variable annuity and a commutation of
benefits and the rules relating to the provision of benefits to a designated beneficiary
after an employee’s death (under which
benefits can be paid only in the form of a
life annuity). The IRS and the Treasury
Department further request comments on
all aspects of the proposed rules.
All comments will be available
for public inspection and copying at
www.regulations.gov or upon request.
A public hearing has been scheduled
for June 1, 2012, beginning at 1 p.m.
in the Auditorium, Internal Revenue
Service, 1111 Constitution Avenue,
N.W., Washington, D.C. Due to building
security procedures, visitors must enter
at the Constitution Avenue entrance.
In addition, all visitors must present
photo identification to enter the building.
Because of access restrictions, visitors
will not be admitted beyond the immediate
entrance area more than 30 minutes before
the hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see
the FOR FURTHER INFORMATION
CONTACT section of this preamble.

606

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments by
May 3, 2012, and an outline of topics to be
discussed and the amount of time to be devoted to each topic (a signed original and
eight (8) copies) by May 11, 2012. A period of 10 minutes will be allotted to each
person for making comments. An agenda
showing the scheduling of the speakers
will be prepared after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at
the hearing.
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.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
Part 1—INCOME TAXES
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). * * *
Par. 2. Section 1.401(a)(9)–5 is
amended by:
1. Revising paragraph A–3(a).
2. Redesignating paragraph A–3(d) as
new paragraph A–3(e) and revising newly
designated paragraph A–3(e).
3. Adding new paragraph A–3(d).
The revisions and addition read as follows:
§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

2012–13 I.R.B.

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 described in A–17 of
§1.401(a)(9)–6 that is held under the plan.
This paragraph (d) only applies for purposes of determining required minimum
distributions for distribution calendar
years beginning on or after January 1,
2013.
(e) If an amount is distributed from a
plan and rolled over to another plan (receiving plan), A–2 of §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 §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.
*****
Par. 3. Section 1.401(a)(9)–6 is
amended by revising the last sentence in
A–12(a) and adding Q&A–17 to read as
follows:
§1.401(a)(9)–6 Required minimum
distributions for defined benefit plans and
annuity contracts.
*****
A–12.
(a) * * * See A–1(e) of
§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 §1.401(a)(9)–5 for rules relating to qualifying longevity annuity
contracts described in A–17 of this section, and A–2(a)(3) of §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?

2012–13 I.R.B.

A–17. (a) Definition of qualifying
longevity annuity contract. A qualifying
longevity annuity contract (QLAC) is an
annuity contract (that is not a variable
contract under section 817, equity-indexed
contract, or similar contract) that is purchased from an insurance company for
an employee and that 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 coincident with or next following the employee’s attainment of age 85;
(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 life annuities payable to a
designated beneficiary that are described
in paragraph (c) of this A–17; and
(6) The contract, when issued, states
that it is intended to be a QLAC.
(b) Limitations on premium—(1) In
general. The premiums paid for the contract on a date 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) $100,000, over
(ii) The sum of—
(A) The premiums paid before that date
under the contract, and
(B) The premiums paid on or before that
date under 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 section 457(b) plan.
(3) Percentage limitation. The percentage limitation is an amount equal to the excess of—

607

(i) 25 percent of the employee’s account
balance under the plan determined on that
date, over
(ii) The sum of—
(A) The premiums paid before that date
under the contract, and
(B) The premiums paid on or before
that date under 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) In general. Except as provided
in paragraph (c)(1)(ii)(B) of this A–17, 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 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 (or, in the case of the employee’s
death before the employee’s annuity starting date, the periodic annuity payment that
would have been payable to the employee
as of the date that benefits to the surviving spouse commence under paragraph
(c)(1)(ii)(A) of this A–17).
(ii) Death before employee’s annuity
starting date. If the employee dies before
the employee’s annuity starting date and
the employee’s surviving spouse is the sole
beneficiary under the contract—
(A) The life annuity, if any, payable
to the surviving spouse under paragraph
(c)(1)(i) of this A–17 must commence not
later than the date on which the annuity
payable to the employee would have commenced under the contract if the employee
had not died; and
(B) The amount of the periodic annuity
payment payable to the surviving spouse
is permitted to exceed 100 percent of the
periodic annuity payment that is 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) of the Internal Revenue Code (Code) or section
205(e)(2) of the Employee Retirement Income Security Act of 1974, Public Law
93–406 (88 Stat. 829 (1974)), as amended
(ERISA)) pursuant to sections 401(a)(11)
and 417 of the Code or section 205(a)(2)
of ERISA.

March 26, 2012

(2) Surviving spouse is not sole designated beneficiary—(i) In general. 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 is a life annuity payable
to a designated beneficiary where the periodic annuity payment is not in excess
of the applicable percentage (determined
under paragraph (c)(2)(iv) of this A–17)
of the periodic annuity payment that is
payable to the employee (or, in the case
of the employee’s death before the employee’s annuity starting date, the applicable percentage 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)(i)). In addition, no benefit is permitted to be paid after
the employee’s death unless the contract
satisfies the requirements of either paragraph (c)(2)(ii) or paragraph (c)(2)(iii) of
this A–17. Moreover, except as provided

in paragraph (c)(1)(ii)(A) of this A–17, in
any case in which the employee dies before
the employee’s annuity starting date, any
life annuity payable to a designated beneficiary must commence by the last day of
the calendar year immediately following
the calendar year of the employee’s death.
(ii) No pre-annuity starting date death
benefit. The contract satisfies the requirements of this paragraph (c)(2)(ii) 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 selected 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.

(iii) Pre-annuity starting date death
benefit. The contract satisfies the requirements of this paragraph (c)(2)(iii) if the
contract provides that in any case in which
the beneficiary under the contract is not
the employee’s surviving spouse, benefits
are payable to the beneficiary only if the
beneficiary was irrevocably selected on or
before the employee’s required beginning
date.
(iv) Applicable percentage. If the contract is described in paragraph (c)(2)(ii) of
this A–17, the applicable percentage is the
percentage described in the table in paragraph A–2(c) of this section. If the contract is described in paragraph (c)(2)(iii)
(and not in (c)(2)(ii)) of this A–17, the applicable percentage is the percentage described in the table set forth in this paragraph (c)(2)(iv). The applicable percentage is based on the adjusted employee/beneficiary age difference, determined in the
same manner as in paragraph A–2(c) of
this section.

Adjusted employee/beneficiary age difference

Applicable percentage

2 years or less
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25 and greater

100%
88%
78%
70%
63%
57%
52%
48%
44%
41%
38%
36%
34%
32%
30%
28%
27%
26%
25%
24%
23%
22%
21%
20%

(3) Calculation of early annuity payments.
For purposes of paragraphs
(c)(1)(i) and (c)(2)(i) 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

March 26, 2012

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

608

benefit payments to the surviving spouse
or designated beneficiary commence.
(d) Rules of application—(1) Reliance
on representations. For purposes of the
limitation on premiums described in paragraphs (b)(2) and (b)(3) of this A–17,
unless the plan administrator has actual
knowledge to the contrary, the plan admin-

2012–13 I.R.B.

istrator 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).
(2) Consequences of excess premiums.
If a contract fails to be a QLAC solely because a premium for the contract exceeds
the limits under paragraph (b) of this A–17
on the date of the payment of that premium, the contract is not a QLAC beginning on that date. In such a case, none
of the value of the contract may be disregarded under §1.401(a)(9)–5, Q&A–3(d),
as of the date on which the contract ceases
to be a QLAC.
(3) Dollar and age limitations subject
to adjustments—(i) Dollar limitation. In
the case of calendar years beginning on
or after January 1, 2014, the $100,000
amount under paragraph (b)(2)(i) of this
A–17 will be adjusted at the same time
and in the same manner as under section
415(d), except that the base period shall
be the calendar quarter beginning July 1,
2012, and any increase under this paragraph (d)(3)(i) that is not a multiple of
$25,000 shall be rounded to the next lowest multiple of $25,000.
(ii) Age limitation. The maximum age
set forth in paragraph (a)(2) of this A–17
may also 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
(see §601.601(d)(2)(ii)(b) of this chapter).
(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)(3)(i) or
paragraph (d)(3)(ii) of this A–17 will not
cause the contract to become a QLAC.
(4) Multiple beneficiaries. If an employee has more than one designated
beneficiary under a QLAC, the rules in
§1.401(a)(9)–8, A–2(a), apply for pur-

2012–13 I.R.B.

poses of paragraphs (c)(1)(i) and (c)(2)(i)
of this A–17.
(5) 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 §1.408A–6, A–14(d). 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 for 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.
(e) Effective/applicability date. This
Q&A–17 applies to contracts purchased on
or after the date of publication of the Treasury decision adopting these rules as final
regulations in the Federal Register and
for determining required minimum distributions for distribution calendar years beginning on or after January 1, 2013.
Par. 4. Section 1.403(b)–6 is amended
by adding paragraph (e)(9) to read as follows:
§1.403(b)–6 Timing of distributions and
benefits.
*****
(e) * * *
(9) Special rule for qualifying
longevity annuity contracts. The rules
in §1.401(a)(9)–6, A–17(b) (relating to
limitations on premiums for a qualifying
longevity annuity contract (QLAC), and
§1.401(a)(9)–6, A–17(d)(1) (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 §1.408–8, A–12(b) and
(c)).
*****
Par. 5. Section 1.408–8, Q&A–12, is
added to read as follows:
§1.408–8 Distribution requirements for
individual retirement plans.
*****
Q–12. How does the special rule in
§1.401(a)(9)–5, A–3(d), for a qualifying

609

longevity annuity contract (QLAC), defined in §1.401(a)(9)–6, A–17, apply to an
IRA?
A–12. (a) General rule. The special
rule in §1.401(a)(9)–5, A–3, for a QLAC,
defined in §1.401(a)(9)–6, A–17, applies to an IRA, subject to the exceptions
set forth in this A–12. See §1.408A–6,
A–14(d) for special rules relating to Roth
IRAs.
(b) Limitations on premium—(1) In
general. In lieu of the limitations described in §1.401(a)(9)–6, A–17(b), the
premiums paid for 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) $100,000, over
(ii) The sum of—
(A) The premiums paid before that date
under the contract, and
(B) The premiums paid on or before that
date under 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 section 457(b) plan.
(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
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
under the contract, and
(B) The premiums paid on or before
that date under 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 (b)(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
the amount of the premiums described in

March 26, 2012

paragraphs (b)(2)(ii)(B) and (b)(3)(ii)(B)
of this A–12 that are not paid under the
IRA, and 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) 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 §1.408A–6, A–14(d). 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 for 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.
(e) Effective/applicability date. This
Q&A–12 applies to contracts purchased on
or after the date of publication of the Treasury decision adopting these rules as final
regulations in the Federal Register and
for determining required minimum distributions for distribution calendar years beginning on or after January 1, 2013.
Par. 6. Section 1.408A–6 is amended
by adding paragraph A–14(d) to read as
follows:
§1.408A–6 Distributions.
*****
A–14. * * *
(d) The special rules in §1.401(a)(9)–5,
A–3, and §1.408–8, Q&A–12, for a
QLAC, defined in §1.401(a)(9)–6, A–17,
do not apply to a Roth IRA.
*****
Par. 7. Section 1.6047–2 is added to
read as follows:
§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 states that it is intended
to be a qualifying longevity annuity contract (QLAC), defined in §1.401(a)(9)–6,
Q&A–17, shall make reports required by
this section. This requirement applies only

March 26, 2012

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
section 457(b) plan.
(2) Initial disclosure. The issuer shall
be required to prepare a report identifying that the contract is intended to be a
QLAC and containing the following information—
(i) A plain-language description of the
dollar and percentage limitations on premiums;
(ii) The annuity starting date under the
contract, and, if applicable, a description
of the individual’s ability to elect to commence payments before the annuity starting date;
(iii) The amount (or estimated amount)
of the periodic annuity payment that is
payable after the annuity starting date as
a single life annuity (including, if an estimated amount, the assumed interest rate or
rates used in making this determination),
and a statement that there is no commutation benefit or right to surrender the contract in order to receive its cash value;
(iv) A statement of any death benefit
payable under the contract, including any
differences between benefits payable if the
individual dies before the annuity starting
date and benefits payable if the individual
dies on or after the annuity starting date;
(v) A description of the administrative
procedures associated with an individual’s
elections under the contract, including
deadlines, how to obtain forms, and where
to file forms, and the identity and contact
information of a person from whom the
individual may obtain additional information about the contract; and
(vi) Such other information as the Commissioner may require.
(3) 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;

610

(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) The amount of each premium paid
for the contract, along with the date of the
premium payment; and
(vi) Such other information as the Commissioner may require.
(b) Manner and time for filing—(1) Initial disclosure. The report required by
paragraph (a)(2) of this section shall not be
filed with the Internal Revenue Service.
(2) Annual report—(i) Timing. The report required by paragraph (a)(3) 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 §1.401(a)(9)–6, A–17(d)(3)(ii)) or dies.
(ii) 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 attained age 85), 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. (1) Initial disclosure. Each issuer required to make a 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 in the
report. The statement shall be furnished at
the time of purchase. The statement is not
required to include information that the issuer has already provided to the individual in order to comply with any applicable
state disclosure law.
(2) Annual report. Each issuer required
to file the report required by paragraph

2012–13 I.R.B.

(a)(3) of this section shall furnish to the
individual in whose name the contract has
been purchased a statement containing the
information required to be furnished 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)(ii) of this section.
A copy of the required form may be used
to satisfy the statement requirement of this
paragraph (c)(2). If a copy of the required form is not used to satisfy the statement requirement of this paragraph (c)(2),
the statement shall contain the following
language: “This information is being furnished to the Internal Revenue Service.”
The statement required by this paragraph
(c)(2) shall be furnished on or before January 31 following the calendar year for
which the report required by paragraph
(a)(3) of this section is required.
(d) Effective/applicability date. This
section applies on or after the date of publication of the Treasury decision adopting
these rules as final regulations in the Federal Register.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on February 2,
2012, 8:45 a.m., and published in the issue of the Federal
Register for February 3, 2012, 77 F.R. 5443)

Information Reporting
by Passport Applicants;
Withdrawal
Announcement 2012–11
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notice of proposed rulemaking; notice of proposed rulemaking.
SUMMARY: This document contains proposed regulations that provide information
reporting rules for certain passport applicants. These regulations do not provide
information reporting rules for individuals
applying to become permanent residents
(green card holders). This document also
withdraws the notice of proposed rulemaking (57 FR 61373) published in the Federal Register on December 24, 1992.

2012–13 I.R.B.

DATES: Comments and requests for
a public hearing must be received by
April 25, 2012.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–208274–86), room
5205, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–208274–86),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW,
Washington, DC, or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS
REG–208274–86).
FOR
FURTHER
INFORMATION
CONTACT: Concerning the proposed regulations, Lynn Dayan or Quyen Huynh
at (202) 622–3880; concerning submissions of comments and requests for public
hearing, Oluwafunmilayo Taylor, (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of
Management and Budget for review in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) and,
pending receipt and evaluation of public
comments approved by the Office of Management and Budget under control number
1545–1359. Comments on the collections
of information should be sent to the Office of Management and Budget, Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503,
with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:M:S, Washington, DC
20224. Comments on the collection of information should be received by March 26,
2012.
Comments are specifically requested
concerning:
Whether the proposed collection of information is necessary for the proper performance of the duties of the Internal Revenue Service, including whether the information will have practical utility;

611

The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be enhanced;
How the burden of complying with the
proposed collection of information may be
minimized, including through the application of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of service to provide information.
The
collection
of
information
in these proposed regulation is in
§ 301.6039E–1(b). The information is
required to be provided by individuals
who apply for a United States passport
or a renewal of a United States passport.
The information provided by passport applicants will be used by the IRS for tax
compliance purposes.
Estimated total annual reporting burden: 1,213,354 hours.
Estimated average annual burden hours
per respondent: four to ten minutes.
Estimated number of respondents:
12,133,537.
Estimated annual frequency of responses: one.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it 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 26 U.S.C. 6103.
Background
This document contains proposed
amendments to 26 CFR part 301 under section 6039E of the Internal Revenue Code.
Section 6039E provides rules concerning
information reporting by U.S. passport
and permanent resident applicants, and
requires specified federal agencies to provide certain information to the IRS.
On December 24, 1992, the Treasury Department and the IRS published a notice of proposed rulemaking

March 26, 2012