32. Qualified Longevity Annuity Contracts

Statement of Requirement: IRC § 401(a)(9); Reg. §§ 1.401(a)(9)-5(b)(4), Q&A-3(d), 1 .401(a)(9)–6(q) , Q&A–17

Sample Plan Language:

For purposes of computing minimum required distributions that must be made to a participant or beneficiary in each distribution calendar year in order to satisfy section 401(a)(9) of the Code, a participant’s account balance does not include the value of any qualifying longevity annuity contract (QLAC). A QLAC is an annuity contract, purchased from an insurance company on or after July 2, 2014, for the benefit of an employee under the plan, stating its intent to be a QLAC and otherwise meeting all of the requirements of section 1.401(a)(9)-6 of the Regulations.

The amount of the premiums paid for the QLAC under the plan will not exceed the lesser of:

(c) An amount equal to the excess of $125,000 ($200,000 for contracts purchased on or after December 29, 2022) (as adjusted by the Commissioner) over the sum of:

(1) the premiums paid before that date with respect to the contract, and

(2) 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); or

(d) For contracts purchased or received in an exchange before December 29, 2022, a An amount equal to the excess of:

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(1) 25 percent of the employee’s account balance (as of the last valuation date preceding the date of the premium payment) for contracts purchased or received in an exchange before December 29, 2022, u nder the plan (including the value of any QLAC held under the plan for the employee) as of the contract date, over

(2) the sum of premiums paid before that date with respect to the contract and 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.

(Note to reviewer: For contracts purchased or received in an exchange on or after December 29, 2022, the 25% limit has been eliminated by Section 202 of the SECURE 2.0 Act of 2022. Therefore, plan terms for years after this date should reflect the percentage limitation in Sample Plan Language (b) above, unless limited to contracts purchase or received in an exchange before December 29, 2022. In addition, the SECURE 2.0 Act of 2022 increased the dollar limitation to $200,000, subject to future inflation adjustments.)

Distributions under the QLAC portion of the participant’s account will commence not later than the first day of the month next following the participant’s 85 ^th birthday. After distributions commence, those distributions will must satisfy all applicable minimum distribution requirements from that point forward (other than the requirement that annuity payments commence on or before the Required Beginning Date.)

If an annuity contract fails to be a QLAC solely because a premium for the contract exceeds the above limits, the excess premium will be 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.

(Note to reviewer: The regulations pertaining to QLACs 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 the regulations, 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.

The regulations provide that to be a QLAC, an annuity contract must meet the following conditions:

8) Premiums for the contract satisfy the requirements of paragraph (b) of Reg. § 1.401(a)(9)-6, Q&A 17;

9) The contract provides that distributions under the contract must commence no later than a specified annuity starting date that is no later than the first

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day of the month next after the employee’s 85 ^th birthday;

10) The contract provides that, after distributions under the contract commence, those distributions must satisfy the requirements of Reg. § 1.401(a)(9)-6 (other than the requirement that annuity payments commence on or before the required beginning date);

11) The contract does not make available any commutation benefit, cash surrender right, or other similar feature;

12) No benefits are provided under the contract after the death of the employee other than the benefits described in paragraph (c) of Reg. § 1.401(a)(9)-6, Q&A 17;

13) 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

14) 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.

(Note to reviewer: In the case of a QLAC which was purchased, or received in an exchange, on or after July 2, 2014, with joint and survivor annuity benefits for the individual and the individual’s spouse which were permissible under the regulations at the time the contract was originally purchased, a divorce occurring after the original purchase and before the annuity payments commence under the contract will not affect the permissibility of the joint and survivor annuity benefits or other benefits under the contract, or require any adjustment to the amount or duration of benefits payable under the contract, provided that any qualified domestic relations order (within the meaning of Code § 414(p)):

5) Provides that the former spouse is entitled to the survivor benefits under the contract.

6) Provides that the former spouse is treated as a surviving spouse for purposes of the contract.

7) Does not modify the treatment of the former spouse as the beneficiary under the contract who is entitled to the survivor benefits; or

8) Does not modify the treatment of the former spouse as the measuring life for the survivor benefits under the contract.

Sample Adoption Agreement Language:

(Note to reviewer: The following election is optional. If checked, it applies to contracts purchased or received in an exchange on or after July 2, 2014.)

____ An employee may rescind the purchase of the contract within a period not

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exceeding ____ (not to exceed 90) days from the date of purchase.