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Life Health > Annuities > Fixed Annuities

Bill That Could Boost Lifetime Annuity Use Sails Through House

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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.

Another provision would help insurers offer QLACs designed to provide retirement income for couples.

Section 203 of H.R. 2954 would eliminate regulatory conflicts that now keep insurers from adding ordinary exchange-traded funds to variable annuity fund menus.

Reactions

Life insurance and financial services groups are celebrating the bipartisan House vote in favor of H.R. 2954, at a time when disagreements between Republicans and Democrats are blocking passage of other high-profile bills.

Susan Neely, president of the American Council of Life Insurers, said implementing Secure Act 2.0 would build on the changes made by the Secure Act.

The bill “could help even more people achieve a financially secure retirement by reducing barriers to long-term saving and workplace retirement plans, along with increasing lifetime income options for all Americans,” Neely said.

Lawrence Holzberg, president of the National Association of Insurance and Financial Advisors, urged the Senate to move ahead with work on its own version of the Secure Act 2.0 bill.

The House version “makes positive strides towards helping a greater number of Americans prepare for retirement,” Holzberg said. “The provisions making it easier for plans to offer lifetime income options, such as annuity products, will provide retirement savers, and the planning professionals they work with, greater flexibility to create plans to meet specific planning goals.”

NAIFA members will talk to their senators about the Secure Act 2.0 bill when they come to Washington for NAIFA’s Congressional Congress on May 24, Holzberg said.

Marc Cadin, CEO of Finseca, said he’s optimistic that H.R. 2954 will be signed into law this year.

“The No. 1 question our members hear from many of the clients they serve is, ‘Am I prepared for retirement?’” Cadin said. “Today, Congress took a key step forward in offering additional tools for more Americans to be prepared.”

Wayne Chopus, president of the Insured Retirement Institute, said supporting passage of the Secure Act 2.0 bill has been one of IRI’s primary public policy objectives.

“The bipartisan legislation will deliver measurable benefits to America’s workers and retirees who have anxiety over whether they will have sufficient retirement income that lasts throughout their golden years,” Chopus said.

Chopus said he thinks a version of the bill will reach President Joe Biden’s desk this year.

(Image: U.S. House)