Td 9673

Federal Register / Vol. 79, No. 127 / Wednesday, July 2, 2014 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9673]
RIN 1545–BK23

Longevity Annuity Contracts
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:

This document contains final
regulations relating to the use of
longevity annuity contracts in taxqualified 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:

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SUMMARY:

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 § 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 § 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 § 1.401(a)(9)–6 is

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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 § 1.6047–2(c) is required in
order to apply the dollar and percentage
limitations in A–17(b) of § 1.401(a)(9)–6
and A–12(b) of § 1.408–8 and to comply
with other requirements of the required
minimum distribution rules.
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 701⁄2 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
1 An ‘‘employee’’ includes the owner of an IRA,
where applicable.

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37633

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 § 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 § 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

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§ 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 § 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
§ 1.408–8. As provided in A–1 of
§ 1.408–8, with certain modifications,
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 A–
9 of § 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

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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

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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.
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
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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Federal Register / Vol. 79, No. 127 / Wednesday, July 2, 2014 / Rules and Regulations
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 25percent 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

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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

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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

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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
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 § 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.
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 § 1.401(a)(9)–8.

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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 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, 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-tounderstand QLAC options available for
purchase enhances the ability of
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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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.
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
§ 1.401(a)(9)–6. Similarly, a contract that
provides for a cost-of-living adjustment
described in A–14(b) of § 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

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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 § 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 § 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

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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
A–14 of § 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

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6 See

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37637

regulations retain the proposed rules on
Roth IRAs.
III. Section 403(b) Plans
As under the proposed regulations,
the final 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 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 § 1.401(a)–20 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 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
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.

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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.
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
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).

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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.
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
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.

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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 http://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

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Federal Register / Vol. 79, No. 127 / Wednesday, July 2, 2014 / Rules and Regulations
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
§ 1.401(a)(9)–6 (disclosure that a
contract is intended to be a QLAC) and
§ 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

Par. 2. Section 1.401(a)(9)–5 is
amended by:
■ 1. Revising paragraph A–3(a).
■ 2. Redesignating paragraph A–3(d) as
paragraph A–3(e) and revising it.
■ 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 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 § 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 § 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
paragraph A–12(a) and adding
paragraph Q&A–17 to read as follows:

Reporting and recordkeeping
requirements.

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

Amendments to the Regulations

*

Accordingly, 26 CFR parts 1 and 602
are amended as follows:
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Section 1.6047–2 is also issued under 26
U.S.C. 6047(d).

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 * * *

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*
*
*
*
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 (QLACs), defined 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

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37639

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 http://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—

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(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

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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 preannuity 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

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(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.
Adjusted employee/beneficiary
age difference
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 ..........................

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

(iv) No pre-annuity starting date nonspousal 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 nonspousal beneficiary designation. A
contract is described in this paragraph
(c)(2)(v) if the contract provides that if

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Federal Register / Vol. 79, No. 127 / Wednesday, July 2, 2014 / Rules and Regulations
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

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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 § 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
§ 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

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37641

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
§ 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,

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Washington, DC 20402 and on the IRS
Web site at http://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 § 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 § 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
§ 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
§ 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.

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(e) Effective/applicability date—(1)
General applicability date. This A–17
and § 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.
■ Par. 4. Section 1.403(b)–6 is amended
by adding paragraph (e)(9) to read as
follows:
§ 1.403(b)–6
benefits.

Timing of distributions and

*

*
*
*
*
(e) * * *
(9) Special rule for qualifying
longevity annuity contracts. The rules in
A–17(b) of § 1.401(a)(9)–6 (relating to
limitations on premiums for a qualifying
longevity annuity contract (QLAC),
defined in A–17 of § 1.401(a)(9)–6) and
A–17(d)(1) of § 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 § 1.408–8).
*
*
*
*
*
■ Par. 5. In § 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
A–3(d) of § 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 § 1.401(a)(9)–5 for a
QLAC, defined in A–17 of § 1.401(a)(9)–
6, applies to an IRA, subject to the
exceptions set forth in this A–12. See

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A–14(d) of § 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 § 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 § 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

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not violate the rule in A–17(c)(2)(v) of
§ 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 § 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.
■ 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 A–3 of
§ 1.401(a)(9)–5 and A–12 of § 1.408–8
for a qualifying longevity annuity
contract (QLAC), defined in A–17 of
§ 1.401(a)(9)–6, do not apply to a Roth
IRA.
*
*
*
*
*
■ Par. 7. Section 1.6047–2 is added to
read as follows:

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§ 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
§ 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

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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
§ 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

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

■

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

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

■

§ 602.101

*

OMB Control numbers.

*
*
(b) * * *

*

*

CFR part or section where
identified and described

Current OMB
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

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