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House Panel Marks Up 'Secure Act 2.0' Bill on Annuities, RMDs

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What You Need to Know

  • Section 201 could help insurers add benefits to annuities held inside IRAs.
  • Section 202 might make annuities that protect holders against extreme longevity more attractive.
  • Section 203 would clear an obstacle to modernizing variable annuity fund menus.

The House Ways and Means Committee is discussing and revising a retirement bill that includes three major annuity provisions.

The committee will mark up H.R. 2954, the “Securing a Strong Retirement Act of 2021″ bill, or Secure Act 2.0, at a meeting that starts at 11 a.m. today. Live video of the markup, and a video recording, will be available here.

H.R. 2954 is a new version of a bill that was introduced in October 2020.

Ways and Means Chairman Richard Neal, D. Mass., and Rep. Kevin Brady, R-Texas, introduced introduced H.R. 2954 Monday.

The main annuity sections in H.R. 2954 are in “Title II — Preservation of Income.”

Section 201 would change an actuarial test included in the minimum distribution regulations.

The existing rules are supposed to keep taxpayers from reducing their current tax bills too much, by deferring too much income.

Today, bill drafters say, the rules limit the ability of insurers to add popular features, such as return of premium death benefits, to income annuities held inside 401(k) plans, IRAs and other retirement savings arrangements.

Section 202 would change the rules governing qualifying longevity annuity contracts, or QLACs. A QLAC is a kind of deferred income annuity that’s designed to start paying benefits toward the end of an individual’s life expectancy, to protect a long-lived retiree against running out of income for a very low price.

Today, to reconcile the QLAC structure with IRA and 401(k) plan required minimum distribution (RMD) rules, consumers are limited to putting 25% of their “qualified account balance,” or tax-advantaged retirement savings, in a QLAC.

Section 202 would eliminate the 25% limit and make it easier for spouses to share QLACs.

Section 203 would change rules, written before exchange-traded funds (ETFs) existed, that make it difficult for insurers to put ETFs on the menus of annuities held outside of IRAs, 401(k) plans and other retirement savings arrangements.

Reactions

The H.R. 2954 effort has strong support from industry groups such as the Insured Retirement Institute and the National Association for Fixed Annuities (NAFA).

NAFA CEO Chuck DiVencenzo said in a statement about H.R. 2954 that Americans need help with overcoming the effects of the COVID-19 on retirement preparedness.

“The suite of provisions in this package will foster a rising tide for savers,” DiVencenzo said. “NAFA is particularly pleased that longevity risk management is addressed among the proposed reforms by increasing the required minimum distribution (RMD) age to 75 and by expanding savings opportunities in qualified longevity annuity contracts (QLACs). We look forward to working in a bipartisan effort to help pass this legislation.”

IRI CEO Wayne Chopus wrote an op-ed supporting the bill for Morning Consult, a newsletter. Like DiVencenzo, Chopus emphasized the need to strengthen retirement security.

“We know the problem, and we have a bipartisan solution,” Chopus wrote. “Congress should now make a bold leap forward and pass the Securing a Stronger Retirement Act to relieve the anxiety of millions of Americans who want to live the dream of a financially secure and dignified retirement.”

Rep. Richard Neal (Photo: Stefani Reynolds/Bloomberg)