What You Need to Know
- Section 201 would remove required minimum distribution barriers for lifetime annuities.
- Section 202 would keep RMD rules from blocking income annuities with benefit start dates after age 72.
- A third provision would help variable annuities put ETFs on variable annuity investment option menus.
H.R. 2954 — a bill that includes major lifetime income annuity rule changes — raced through the House of Representatives on Tuesday.
House members approved the Securing a Strong Retirement Act, also known as the Secure Act 2.0, by a 414-5 vote.
Supporters have described the bill as a sequel to the Setting Every Community Up for Retirement Enhancement Act, which became law in 2020.
One well-known provision could increase the age for required minimum distributions from individual retirement accounts and defined contribution plan accounts to 75, from 72.
Other provisions could promote automatic enrollment in 401(k) plans and help employers put matching contributions in retirement plans when workers make student loan payments.
The Annuity Provisions
The Secure Act 2.0 annuity provisions are in a section of the bill that relates to preservation of income.
Section 201 would change the current required minimum distribution rules for lifetime annuities held in IRAs and defined contribution plan accounts. The changes would help issuers add features such as guaranteed annual benefits increases.
Section 202 would update the rules for “qualifying longevity annuity contracts,” or QLACs.
QLACs are deferred income annuities that begin paying benefits at a predetermined future date.
Economists and other theorists say deferred income annuities may be the most efficient way for people to protect themselves against the risk that they could run out of retirement resources because they live much longer than expected.
A client worried about the possibility of living to age 125 could, for example, buy a deferred income annuity set to begin paying benefits at age 95.
The federal government created the QLAC program in an effort to help retirement savers put deferred income annuities inside IRAs.
One challenge is that some tax experts believe the RMD rules conflict with setting QLACs to begin paying benefits after the RMD age, which is now 72.
Section 202 would clear away obstacles to having QLAC benefit streams start after the RMD age.