[Federal Register Volume 77, Number 23 (Friday, February 3, 2012)]
[Proposed Rules]
[Pages 5443-5454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-2340]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-115809-11]
RIN 1545-BK23


Longevity Annuity Contracts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
purchase of longevity annuity contracts under tax-qualified 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 section 
457 plans. These regulations will provide the public with guidance 
necessary to comply with the required minimum distribution rules under 
section 401(a)(9). 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 IRAs, and insurance companies that 
issue longevity annuity contracts under these plans and IRAs. This 
document also provides a notice of a public hearing on these proposed 
regulations.

DATES: Written or electronic comments must be received by May 3, 2012. 
Outlines of topics to be discussed at the public hearing scheduled for 
June 1, 2012 must be received by May 11, 2012.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (Reg-115809-11), room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (Reg-
115809-11), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov (IRS REG-115809-11). 
The public hearing will be held in the IRS Auditorium, Internal Revenue 
Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Jamie 
Dvoretzky at (202) 622-6060; concerning submission of comments, the 
hearing, and/or being placed on the building access list to attend the 
hearing, Oluwafunmilayo (Funmi) Taylor) at (202) 622-7180 (not toll-
free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). The collection of information in these proposed 
regulations is in Sec.  1.401(a)(9)-6, A-17(a)(6) (disclosure that a 
contract is intended to be a qualifying longevity annuity contract) and 
Sec.  1.6047-2 (an initial report must be prepared and an initial 
disclosure statement must be furnished to qualifying longevity annuity 
contract owners, and an annual statement must be provided to qualifying 
longevity annuity contract owners and their surviving spouses 
containing information required to be furnished to the IRS). The 
information in Sec.  1.401(a)(9)-6, A-17(a)(6), is required in order to 
notify participants and beneficiaries, plan sponsors, and the IRS that 
the proposed regulations apply to a contract. The information in the 
annual statement in Sec.  1.6047-2 is required in order to apply the 
dollar and percentage limitations in Sec.  1.401(a)(9)-6, A-17(b) and 
Sec.  1.408-8, Q&A-12(b) and to comply with other requirements of the 
proposed regulations, and the information in the initial report and 
disclosure statement in Sec.  1.6047-2 is required in order for 
individuals to understand the features and limitations of a qualifying 
longevity annuity contract. The information would be used by plans and 
individuals to comply with the required minimum distribution rules.
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Attn: Desk Officer for the Department 
of the Treasury, Office of Information and Regulatory Affairs, 
Washington, DC 20503, with copies to the Internal Revenue Service, 
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP; Washington, DC

[[Page 5444]]

20224. Comments on the collection of information should be received by 
April 3, 2012. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    Estimated total average annual recordkeeping burden: 35,661 hours.
    Estimated average annual burden per response: 10 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 it 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 26 U.S.C. 6103.

Background

    This document contains proposed 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 participant'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 participant attains age 70\1/2\ or (2) the calendar 
year in which the participant retires. However, the ability to delay 
distribution until the calendar year in which a participant retires 
does not apply in the case of a 5-percent owner or an IRA owner.
    If the entire interest of the participant is not distributed by the 
required beginning date, section 401(a)(9)(A) provides that the entire 
interest of the participant must be distributed, beginning not later 
than the required beginning date, in accordance with regulations, over 
the life of the participant or lives of the participant and a 
designated beneficiary (or over a period not extending beyond the life 
expectancy of the participant or the life expectancy of the participant 
and a designated beneficiary). Section 401(a)(9)(B) prescribes required 
minimum distribution rules that apply after the death of the 
participant. 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 408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2), 
respectively, and 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 participant.
    Section 408(i) provides that the trustee of an individual 
retirement account and the issuer of an endowment contract or an 
individual retirement annuity must make reports regarding such account, 
contract, or annuity to the Secretary and to the individuals for whom 
the account, contract, or annuity is maintained with respect to such 
matters as the Secretary may require. Pursuant to this provision, the 
IRS prescribes Form 5498 (IRA Contribution Information), which requires 
annual reporting with respect to an IRA, including a statement of the 
fair market value of the IRA as of the prior December 31. Section 
6047(d) states that the Secretary shall by forms or regulations require 
that 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, 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. These sections also provide that the Secretary 
may, by forms or regulations, prescribe the manner and time for filing 
these reports. Section 6693 prescribes monetary penalties for failure 
to comply with section 408(i), and sections 6652 and 6704 prescribe 
monetary penalties for failure to comply with section 6047(d).
    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 Sec.  
1.401(a)(9)-6, A-12, if an annuity contract held under a defined 
contribution plan has not yet been annuitized, the interest of a 
participant 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 participant'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 Sec.  1.401(a)(9)-6, A-14. In addition, annuity payments 
must satisfy the MDIB requirement of section 401(a)(9)(G). Under Sec.  
1.401(a)(9)-6, A-2(b), if a participant'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 participant are deemed to satisfy the MDIB 
requirement. However, if distributions are in the form of a joint and 
survivor annuity for a participant 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 participant, with the applicable 
percentage to be determined using the table in Sec.  1.401(a)(9)-6, A-
2(c).
    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)(1) provides that a section 403(b) 
contract must meet the requirements of section 401(a)(9). 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 Sec.  1.408-8. 
Section 1.408-8, Q&A-1, provides, with certain modifications, that an 
IRA is subject to the rules of Sec. Sec.  1.401(a)(9)-1 through 
1.401(a)(9)-9. One such modification is set forth in

[[Page 5445]]

Sec.  1.408-8, Q&A-9, 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. Section 1.408A-6, Q&A-14(a), provides that no 
minimum distributions are required to be made from a Roth IRA during 
the life of the participant. Section 1.408A-6, Q&A-15, provides that a 
participant who is required to receive minimum distributions from his 
or her traditional IRA cannot choose to take the amount of the required 
minimum distributions from a Roth IRA. Section 1.457-6(d) provides that 
a section 457(b) eligible plan must meet the requirements of section 
401(a)(9) and the regulations under that section.
    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. 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 commentators identified the required minimum 
distribution rules as an impediment to the utilization of these types 
of annuities. One such impediment that they noted is the requirement 
that, prior to annuitization, the value of the annuity be included in 
the account balance that is used to determine required minimum 
distributions. This requirement raises the risk that, if the remainder 
of the account has been depleted, the participant would have to 
commence distributions from the annuity earlier than anticipated in 
order to satisfy the required minimum distribution rules. Some 
commentators stated that if the deferred annuity permits a participant 
to accelerate the commencement of benefits, then, in order to take that 
contingency into account, the premium would be higher for a given level 
of annuity income regardless of whether the participant actually 
commences benefits at an earlier date. Some commentators also noted 
that longevity annuities often do not provide a commutation benefit, 
cash surrender value, or other similar feature.
    The Treasury Department and the IRS have concluded that there are 
substantial advantages to modifying the required minimum distribution 
rules in order to facilitate a participant's purchase of a deferred 
annuity that is scheduled to commence at an advanced age--such as age 
80 or 85--using a portion of his or her account. Under the proposed 
amendments to these rules, prior to annuitization, the participant 
would be permitted to exclude the value of a longevity annuity contract 
that meets certain requirements from the account balance used to 
determine required minimum distributions. Thus, a participant would 
never need to commence distributions from the annuity contract before 
the advanced age in order to satisfy the required minimum distribution 
rules and, accordingly, the contract could be designed with a fixed 
annuity starting date at the advanced age (and would not need to 
provide an option to accelerate commencement of the annuity).
    Purchasing longevity annuity contracts could help participants 
hedge the risk of drawing down their benefits too quickly and thereby 
outliving their retirement savings. This risk is of particular import 
because of the substantial, and unpredictable, possibility of living 
beyond one's life expectancy. Purchasing a longevity annuity contract 
would also help avoid the opposite concern that participants may live 
beneath their means in order to avoid outliving their retirement 
savings. If the longevity annuity provides a predictable stream of 
adequate income commencing at a fixed date in the future, the 
participant would still face the task of managing retirement income 
over that fixed period until the annuity commences, but that task 
generally is far less challenging than managing retirement income over 
an uncertain period.
    The Treasury Department and the IRS have concluded that any special 
treatment under the required minimum distribution rules to facilitate 
the purchase of such a longevity annuity contract should be limited to 
a portion of a participant's account balance, such as 25 percent. A 
percentage limit is necessary in order to be consistent with section 
401(a)(9)(A), which requires the entire interest of each participant to 
be distributed, beginning by the required beginning date, in accordance 
with regulations, over the life or life expectancy of the participant 
(or the participant and a designated beneficiary). The pattern of 
required minimum payments implemented in the existing regulations under 
section 401(a)(9) limits the extent to which tax-favored retirement 
savings can be used for purposes other than retirement income (such as 
transmitting accumulated wealth to a participant's heirs). Limiting the 
special treatment for a longevity annuity to those contracts purchased 
with no more than 25 percent of the account balance is consistent with 
the intent of section 401(a)(9)(A) because, for a typical participant 
who will need to draw down the entire account balance during the period 
prior to commencement of the annuity, the overall pattern of payments 
would not provide more deferral than would otherwise normally be 
available for lifetime payments under the section 401(a)(9)(A) rules.
    However, because a participant is required to receive only required 
minimum distributions during the period before the annuity begins (and 
would not under these proposed regulations be required to draw down the 
entire remaining balance on an accelerated basis), the Treasury 
Department and the IRS have concluded that, in addition to the 
percentage limitation, the amount used to purchase an annuity for which 
the minimum distribution requirements would be eased should be subject 
to a dollar limitation, such as $100,000. This dollar limitation would 
be applied in order to constrain the extent to which the combination of 
payments from the account balance (determined by excluding the value of 
the annuity before the annuity commences) and later payments from the 
annuity contract might result in an overall pattern of payouts from the 
plan that permits undue deferral of distribution of the participant's 
entire interest.
    Such a limit would still allow significant income to be provided 
beginning at age 85. For example, if at age 70 a participant 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 participant, such as whether the form elected is a 
straight life annuity or a joint and survivor annuity). 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

[[Page 5446]]

females,\1\ no indexation for inflation, and no load for expenses.
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    \1\ If the annuity is provided under an employer plan, unisex 
mortality assumptions would be required.
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    These amounts would be higher if the interest rate used by the 
issuer to determine the annuity amount were higher. For example, the 
$42,000 amount would be increased to approximately $50,000 if the 
annuity were purchased assuming a four-percent interest rate, rather 
than a three-percent rate.
    In addition, a participant who purchases a contract before age 70 
could obtain the same income with a lower premium or could obtain 
larger income with the same premium. For example, even assuming a 
three-percent interest rate, the $42,000 amount would be approximately 
$51,000 if the annuity were purchased at age 65 rather than age 70. 
Furthermore, a participant who purchases increments of annuities over 
his or her career could hedge the risk of interest-rate fluctuation by 
purchasing these increments in different interest rate environments and 
effectively averaging annuity purchase rates over time.
    To facilitate compliance with the dollar and percentage limitations 
and other requirements that longevity annuity contracts must satisfy in 
order to qualify for the special treatment, certain disclosure and 
reporting requirements would apply for the issuers of these contracts. 
Because longevity annuities would not begin until contract owners reach 
an advanced age, annual statements would also serve as an important 
reminder to those owners (and persons assisting them with their 
financial affairs) of their right to receive the annuities.

Explanation of Provisions

    These proposed regulations would modify the required minimum 
distribution rules in order to facilitate the purchase of deferred 
annuities that begin at an advanced age. The proposed regulations would 
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), would be excluded 
from the account balance used to determine required minimum 
distributions.

I. Definition of QLAC

A. Limitations on Premiums
    The proposed regulations provide that, in order to constitute a 
QLAC, the amount of the premiums paid for the contract under the plan 
on a given date may not exceed the lesser of a dollar or a percentage 
limitation. The proposed regulations prescribe rules for applying these 
limitations to participants who purchase multiple contracts or make 
multiple premium payments for the same contract.
    Under the dollar limitation, the amount of the premiums paid for a 
contract under the plan may not exceed $100,000. If, on or before the 
date of a premium payment, an employee has paid premiums for the same 
contract or for any other contract that is intended to be a QLAC and 
that is purchased for the employee under the plan or under any other 
plan, annuity or account, the $100,000 limit is reduced by the amount 
of those other premium payments.\2\
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    \2\ As discussed under the heading ``II. IRAs,'' a contract that 
is purchased or held under a Roth IRA is not treated as a contract 
that is intended to be a QLAC (even if it otherwise meets the 
requirements to be a QLAC).
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    Under the percentage limitation, the amount of the premiums paid 
for a contract under the plan may not exceed an amount equal to 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 has paid 
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 employee 
under the plan, the maximum amount under the 25-percent limit is 
reduced by the amount of those other payments.
    For purposes of determining whether premiums for a contract exceed 
the dollar or percentage limitation, unless the plan administrator has 
actual knowledge to the contrary, the plan administrator would 
generally be permitted to rely on an employee's representation of the 
amount of premiums paid on or before that date under any other contract 
that is intended to be a QLAC and that is purchased for an employee 
under any other plan, annuity, or account. However, this reliance is 
not available with respect to a plan, annuity, or account that is 
maintained by an employer (or an entity that is treated as a single 
employer with the employer under section 414(b), (c), (m), or (o)) with 
respect to purchases for an employee under any other plan, annuity, or 
account maintained by that employer.
    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 as of the date on which the excess premiums were paid. Thus, 
beginning on that date, the value of the contract would no longer be 
excluded from the account balance used to determine required minimum 
distributions.
    For calendar years beginning on or after January 1, 2014, 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 July 1, 2012, and (2) any 
increase that is not a multiple of $25,000 would be rounded to the next 
lowest multiple of $25,000. If a contract failed to be a QLAC 
immediately before an adjustment because the premiums exceeded the 
dollar limitation, an adjustment of the dollar limitation would not 
cause the contract to become a QLAC.
B. Maximum Age at Commencement
    The proposed 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. The specified annuity starting date must be no later than 
the first day of the month coincident with or next following the 
employee's attainment of age 85. This age reflects the approximate life 
expectancy of an employee at retirement, and was recommended in a 
number of the comments received in response to the Request for 
Information. Any contract for which premiums are paid after the latest 
permissible specified annuity starting date would not be a QLAC, 
because such a contract could not require distributions to commence by 
that date.
    The proposed regulations would permit a QLAC to allow a participant 
to elect an earlier annuity starting date than the specified annuity 
starting date. For example, if the specified annuity starting date 
under a contract were the date on which a participant attains age 85, 
the contract would not fail to be a QLAC solely because it allows the 
participant to commence distributions at an earlier date. On the other 
hand, these rules would not require a QLAC to provide an option to 
commence distributions before the specified annuity starting date, so 
that a QLAC could provide that distributions must commence only at the 
specified annuity starting date. For a given premium, such a contract 
could provide a substantially higher periodic annuity payment beginning 
on the specified annuity starting date than a contract with an 
acceleration option. Similarly, premiums could be lower for a given 
level of periodic annuity payment, leaving a larger portion of the 
remaining

[[Page 5447]]

account balance for the participant to use for living expenses before 
the specified annuity starting date.
    The proposed regulations provide that the maximum age may also be 
adjusted to reflect changes in mortality. The adjusted age (if any) 
would be prescribed by the Commissioner in revenue rulings, notices, or 
other guidance published in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2)(ii)(b)). The Treasury Department and the IRS anticipate 
that such changes will not occur more frequently than the adjustment of 
the $100,000 limit described in subheading I.A. ``Limitations on 
premiums.'' If a contract failed to be a QLAC immediately before an 
adjustment because it failed to provide that distributions must 
commence by the requisite age, an adjustment of the age would not cause 
the contract to become a QLAC.
C. Benefits Payable After Death of the Employee
    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 or a 
refund of premiums in the case of an employee's death would not be a 
QLAC. These types of payments are inconsistent with the purpose of 
providing lifetime income to employees and their beneficiaries, as 
described in the Background section of this preamble. A contract that 
provides a given lifetime periodic annuity payment to an employee would 
be less expensive if it provided for a life annuity payable to a 
designated beneficiary upon the employee's death rather than additional 
features such as an optional single-sum death benefit. After paying a 
lower premium for such a life annuity, the employee would be able to 
retain a larger portion of his or her account, maximizing the 
employee's lifetime benefits, while also leaving larger death benefits 
for a beneficiary, from the remaining amount of the account.
    The proposed 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 is a life 
annuity payable to the surviving spouse that does not exceed 100 
percent of the annuity payment payable to the employee. The proposed 
regulations include a special exception that would allow a plan to 
comply with any applicable requirement to provide a qualified 
preretirement survivor annuity \3\ (which would have an effect only if 
the employee has a substantially older spouse).
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    \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 
(88 Stat. 829 (1974)), as amended (ERISA), includes a parallel 
definition. See Rev. Rul. 2012-3 for rules relating to qualified 
preretirement survivor annuities.
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    If the employee's surviving spouse is not the sole beneficiary 
under the contract,\4\ the only benefit permitted to be paid after the 
employee's death 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.
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    \4\ If the surviving spouse is one of the designated 
beneficiaries, this rule is applied as if the contract were a 
separate contract for the surviving beneficiary, but only if certain 
conditions are satisfied, including a separate account requirement. 
See Sec.  1.401(a)(9)-8, A-2(a) and A-3.
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    Under the first alternative, the applicable percentage is the 
percentage described in the existing table in Sec.  1.401(a)(9)-6, A-
2(c). Because the existing applicable percentage table does not take 
into account the potential for a death benefit to be paid to the non-
spouse designated beneficiary during the period between the required 
beginning date and the annuity starting date, 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 avoid 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 the employee 
dies less than 90 days after making that election, even if the 
employee's death occurs after his or her selected annuity starting 
date.
    Under the second alternative, the applicable percentage is the 
percentage described in a new table set forth in the proposed 
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 
70\1/2\ and age 85. In order to limit the portion of the premium that 
is used to provide death benefits to a designated beneficiary, 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. Accordingly, the applicable percentages in the table are based on 
the expected longevity for the designated beneficiary, determined as of 
the employee's required beginning date.
    The Treasury Department and the IRS considered whether to prescribe 
a special rule under which a QLAC could provide for a pre-annuity-
starting-date death benefit to a non-spouse designated beneficiary and 
also allow the designated beneficiary to be changed at any time before 
the annuity starting date. However, in order to satisfy the MDIB 
requirements in such a case, the applicable percentages would need to 
be much smaller than the percentages set forth in the special table. 
This is because a larger portion of the cost of the contract would be 
allocable to death benefits if, after the required beginning date and 
before the annuity starting date, the participant were able to replace 
a designated beneficiary who has died (or to replace a designated 
beneficiary who has a short life expectancy with one who has a longer 
life expectancy). Comments are requested on whether the proposed 
regulations should be modified to permit alternative death benefits 
that would be subject to such lower applicable percentages.
    If the employee dies before the specified annuity starting date 
under the contract, the date by which benefits must commence to the 
designated beneficiary depends on whether the beneficiary is the 
employee's surviving spouse. If the sole beneficiary under the contract 
is the employee's surviving spouse, the life annuity is not required to 
commence until the employee's specified annuity starting date under the 
contract (in lieu of the otherwise applicable rule that would require 
distributions to commence by the later of the end of the calendar year 
following the calendar year in which the employee died or the end of 
the calendar year in which the employee would have attained age 70\1/
2\). If the

[[Page 5448]]

employee's sole beneficiary under the contract is not the surviving 
spouse, the life annuity payable to the designated beneficiary must 
commence by the last day of the calendar year immediately following the 
calendar year of the employee's death.
    The proposed regulations include a rule for applying the 
limitations on amounts payable to a surviving spouse or a designated 
beneficiary in the event the employee dies before the annuity starting 
date. Under this rule, if the contract does not allow an 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 nonetheless 
provide a way to determine the periodic annuity payments that would 
have been payable if payments to the employee had commenced immediately 
prior to the date on which benefit payments to the designated 
beneficiary commence.
D. Other QLAC Requirements
    Under the proposed regulations, a QLAC would not include a variable 
contract under section 817, equity-indexed contract, or similar 
contract, because the purpose of a QLAC is to provide a participant 
with a predictable stream of lifetime income. In addition, exposure to 
equity-based returns is available through control over the remaining 
portion of the account balance so that a participant can achieve 
adequate diversification.
    The proposed regulations also provide that, in order to be a QLAC, 
the contract is not permitted to make available any commutation 
benefit, cash surrender value, or other similar feature. As in the case 
of the limitations on benefits payable after death, these limitations 
would allow an annuity contract to maximize the annuity payments that 
are made while a participant or beneficiary is alive. In addition, 
having a limited set of options available to purchasers would make 
these contracts more readily understandable and enhance purchasers' 
ability to compare products across providers. Ease of comparison will 
be particularly important to the extent that contracts provided under 
plans are priced on a unisex basis, while contracts offered under IRAs 
generally take gender into account in establishing premiums.
    The proposed regulations provide that a contract is not a QLAC 
unless it states, when issued, that it is intended to be a ``qualifying 
longevity annuity contract'' or a ``QLAC.'' This rule would ensure that 
the issuer, participant, plan sponsor, and IRS know that the rules 
applicable to QLACs apply to this contract.
    The proposed regulations provide that distributions under a QLAC 
must satisfy the generally applicable section 401(a)(9) requirements 
relating to annuities at Sec.  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 under Sec.  1.401(a)(9)-6, A-1(a), applies to the 
contract.

II. IRAs

    The proposed 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 $100,000. If, on or before the date of a 
premium payment, a participant has paid premiums for the same contract 
or for any other contract that is intended to be a QLAC and that is 
purchased for the participant under the IRA or under any other IRA, 
plan, or annuity, the $100,000 limit is reduced by the amount of those 
other premium payments.
    The proposed 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 a participant's IRA 
account balances. 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 proposed regulations would allow a QLAC that 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.
    The proposed 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 account balances (other than the account balance under 
the IRA).
    Under the proposed regulations, an annuity purchased under a Roth 
IRA would not be treated as a QLAC. This is because a Roth IRA (unlike 
a designated Roth account under a plan, as described in section 402(A) 
is not subject to the section 401(a)(9)(A) requirement that the 
individual's benefits commence and be paid over the lives or life 
expectancy of the individual and a designated beneficiary (but, after 
the death of the individual, benefits must be paid under the same 
section 401(a)(9)(B) rules that apply to traditional IRAs). Because the 
rules of section 401(a)(9)(A) do not apply to a Roth IRA owner, a 
longevity annuity contract purchased using a portion of the 
individual's Roth IRA would not need to provide the right to accelerate 
payments in order to ensure compliance with those rules. Thus, there is 
no need to permit the value of a longevity annuity contract to be 
excluded from the account balance that is used to determine required 
minimum distributions during the life of a Roth IRA owner. Accordingly, 
the proposed regulations would not apply the rules regarding QLACs to 
Roth IRAs.
    The proposed regulations would not preclude the use of assets in a 
Roth IRA to purchase a longevity annuity contract, nor would such a 
contract be subject to the same restrictions as a QLAC. For example, a 
longevity annuity contract purchased using assets of a Roth IRA could 
have an annuity starting date that is later than age 85 and offer 
features, such as a cash surrender right, that are not permitted under 
a QLAC. Although such a contract could not be excluded from the account 
balance used to determine required minimum distributions, this 
exclusion is not necessary because the required minimum distribution 
rules do not apply during the life of a Roth IRA owner.
    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

[[Page 5449]]

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.\5\
---------------------------------------------------------------------------

    \5\ Section 1.408A-4, Q&A-14, describes 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 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.
---------------------------------------------------------------------------

    Comments are requested on whether the regulations should be 
modified to apply the QLAC rules to a Roth IRA or to reduce the 
availability of the section 401(a)(9) relief for purchases of QLACs by 
the amount of assets that the individual holds in a Roth IRA. Comments 
are also requested as to whether any special rules should apply where a 
QLAC is purchased using assets of a Roth IRA, such as special 
disclosure in order to minimize any potential confusion.

III. Section 403(b) Plans

    The proposed regulations apply the tax-qualified 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 would 
be separately determined for each section 403(b) plan in which an 
employee participates. The proposed 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 proposed regulations 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 generally not subject to 
this requirement. See Sec.  1.401(a)-20, Q&A-3(d), and Sec.  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 proposed regulations relating to 
the purchase of a QLAC under a tax-qualified defined contribution plan 
would automatically apply to an eligible section 457(b) plan. However, 
the rule relating to QLACs is limited to eligible governmental section 
457(b) plans. Because section 457(b)(6) requires that an eligible 
section 457(b) plan that is not a governmental plan be unfunded, the 
purchase of an annuity contract under such a plan would be inconsistent 
with this requirement.

V. Defined Benefit Plans

    Although defined benefit plans are subject to the minimum required 
distribution rules, they offer annuities which provide longevity 
protection. Because this protection is therefore already available, 
these proposed regulations would not apply to defined benefit plans.\6\
---------------------------------------------------------------------------

    \6\ See also Rev. Rul. 2012-4 (relating to rollovers to defined 
benefit plans).
---------------------------------------------------------------------------

VI. Disclosure and Annual Reporting Requirements

    Under the proposed regulations, the issuer of a QLAC would be 
required to create a report containing the following information about 
the QLAC:
     A plain-language description of the dollar and percentage 
limitations on premiums;
     The annuity starting date under the contract, and, if 
applicable, a description of the employee's ability to elect to 
commence payments before the annuity starting date;
     The amount (or estimated amount) of the periodic annuity 
payment that is payable after the annuity starting date as a single 
life annuity (including, if an estimated amount, the assumed interest 
rate or rates used in making this determination), and a statement that 
there is no commutation benefit or right to surrender the contract in 
order to receive its cash value;
     A statement of any death benefit payable under the 
contract, including any differences between benefits payable if the 
employee dies before the annuity starting date and benefits payable if 
the employee dies on or after the annuity starting date;
     A description of the administrative procedures associated 
with an employee's elections under the contract, including deadlines, 
how to obtain forms, and where to file forms, and the identity and 
contact information of a person from whom the employee may obtain 
additional information about the contract; and
     Such other information that the Commissioner may require.
    This report is not required to be filed with the Internal Revenue 
Service. Each issuer required to create a report would be required to 
furnish to the individual in whose name the contract has been purchased 
a statement containing the information in the report. This statement 
must be furnished prior to or at the time of purchase. In addition, in 
order to avoid duplicating state law disclosure requirements, the 
statement would not be required to include information that the issuer 
has already provided to the employee in order to satisfy any applicable 
state disclosure law. Comments are requested on whether the information 
listed is appropriate, and whether (and, if so, the extent to which) 
this list would duplicate disclosure requirements under existing state 
law. Comments are also requested on whether there is other information 
that should be included in the disclosure, such as the special tax 
attributes of a QLAC.
    The proposed regulations prescribe annual reporting requirements 
under section 6047(d) which would require any person issuing any 
contract that states that it is intended to be a QLAC to file annual 
calendar-year reports and provide a statement to the individual in 
whose name the contract has been purchased regarding the status of the 
contract. The Commissioner will prescribe an applicable form and 
instructions for this purpose, which will contain the filing deadline 
and other information.
    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; and

[[Page 5450]]

     The amount of each premium paid for the contract, along 
with the date of payment.\7\
---------------------------------------------------------------------------

    \7\ For IRAs, the fair market value of the account on December 
31 must be provided to the IRA owners by January 31 of the following 
year. Trustees, custodians, and issuers are responsible for ensuring 
that all IRA assets (including those not traded on an established 
securities market or with otherwise readily determinable value) are 
valued annually at their fair market value. This includes the value 
of a contract that is intended to be a QLAC.
---------------------------------------------------------------------------

    Each issuer required to file the report with respect to a contract 
would also be required to provide to the individual in whose name the 
contract has been purchased a statement containing the information that 
is required to be furnished in the report. This requirement may be 
satisfied by providing the individual with a copy of the required form, 
or in another form that contains the following language: ``This 
information is being furnished to the Internal Revenue Service.'' The 
statement is required to be furnished to the individual 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 individual for whom the contract has been 
purchased attains age 85 (as adjusted in calendar years beginning on or 
after January 1, 2014) or dies. However, if the individual dies and the 
sole beneficiary under the contract is the individual's spouse (so that 
the spouse's annuity might not commence until the individual would have 
attained age 85), the annual reporting requirement continues until the 
year in which the distributions to the spouse commence.

Proposed Effective Date

    The proposed regulations regarding disclosure and reporting will be 
effective upon publication in the Federal Register of the Treasury 
decision adopting these rules as final regulations. Otherwise, these 
regulations are proposed to be effective for contracts purchased on or 
after the date of publication of the Treasury decision adopting these 
rules as final regulations in the Federal Register and for determining 
required minimum distributions for distribution calendar years 
beginning on or after January 1, 2013. Until regulations finalizing 
these proposed regulations are issued, taxpayers may not rely on the 
rules set forth in these proposed regulations (and the existing rules 
under section 401(a)(9) continue to apply).

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. 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 proposed 
regulations will not have a significant economic impact on a 
substantial number of small entities. This certification is based upon 
the fact that an insubstantial number of entities of any size will be 
impacted by the regulation. In addition, IRS and Treasury expect that 
any burden on small entities will be minimal because required 
disclosures are expected to take 10 minutes to prepare. In addition, 
the entities that will be impacted will be insurance companies, very 
few of which are small entities. Therefore, 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, this notice of 
proposed rulemaking has been submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. Comments are requested on benefits payable to a non-spouse 
beneficiary (under the subheading ``C. Benefits payable after death of 
the employee''), Roth IRAs (under the heading ``II. IRAs''), and 
disclosure (under the heading ``VI. Disclosure and annual reporting 
requirements''). Comments are also requested on whether an insurance 
product that provides guaranteed lifetime withdrawal benefits could 
constitute a QLAC, taking into account the rules precluding the use of 
a variable annuity and a commutation of benefits and the rules relating 
to the provision of benefits to a designated beneficiary after an 
employee's death (under which benefits can be paid only in the form of 
a life annuity). The IRS and the Treasury Department further request 
comments on all aspects of the proposed rules.
    All comments will be available for public inspection and copying at 
www.regulations.gov or upon request. A public hearing has been 
scheduled for June 1, 2012, beginning at 1 p.m. in the Auditorium, 
Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC. 
Due to building security procedures, visitors must enter at the 
Constitution Avenue entrance. In addition, all visitors must present 
photo identification to enter the building. Because of access 
restrictions, visitors will not be admitted beyond the immediate 
entrance area more than 30 minutes before the hearing starts. For 
information about having your name placed on the building access list 
to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section 
of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written or 
electronic comments by May 3, 2012, and an outline of topics to be 
discussed and the amount of time to be devoted to each topic (a signed 
original and eight (8) copies) by May 11, 2012. A period of 10 minutes 
will be allotted to each person for making comments. An agenda showing 
the scheduling of the speakers will be prepared after the deadline for 
receiving outlines has passed. Copies of the agenda will be available 
free of charge at the hearing.

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 in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

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 * * *
    Section 1.6047-2 is also issued under 26 U.S.C. 6047(d). * * *

    Par. 2. Section 1.401(a)(9)-5 is amended by:
    1. Revising paragraph A-3(a).

[[Page 5451]]

    2. Redesignating paragraph A-3(d) as new paragraph A-3(e) and 
revising newly designated paragraph A-3(e).
    3. Adding new paragraph A-3(d).
    The revisions and addition read as follows:


Sec.  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 described in A-17 of Sec.  
1.401(a)(9)-6 that is held under the plan. This paragraph (d) only 
applies for purposes of determining required minimum distributions for 
distribution calendar years beginning on or after January 1, 2013.
    (e) If an amount is distributed from a plan and rolled over to 
another plan (receiving plan), A-2 of Sec.  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 Sec.  
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 A-12(a) and adding Q&A-17 to read as follows:


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

* * * * *
    A-12. (a) * * * See A-1(e) of Sec.  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 Sec.  1.401(a)(9)-5 for rules 
relating to qualifying longevity annuity contracts described in A-17 of 
this section, and A-2(a)(3) of Sec.  1.401(a)(9)-8 for rules relating 
to the purchase of an annuity contract with a 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 not a variable contract under section 817, equity-indexed 
contract, or similar contract) that is purchased from an insurance 
company for an employee and that 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 coincident with or next 
following the employee's attainment of age 85;
    (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 life annuities payable to a designated 
beneficiary that are described in paragraph (c) of this A-17; and
    (6) The contract, when issued, states that it is intended to be a 
QLAC.
    (b) Limitations on premium--(1) In general. The premiums paid for 
the contract on a date 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) $100,000, over
    (ii) The sum of--
    (A) The premiums paid before that date under the contract, and
    (B) The premiums paid on or before that date under 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 section 457(b) plan.
    (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 
determined on that date, over
    (ii) The sum of--
    (A) The premiums paid before that date under the contract, and
    (B) The premiums paid on or before that date under 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) In general. Except as provided in paragraph 
(c)(1)(ii)(B) of this A-17, 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 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 (or, in the case of the employee's death before 
the employee's annuity starting date, the periodic annuity payment that 
would have been payable to the employee as of the date that benefits to 
the surviving spouse commence under paragraph (c)(1)(ii)(A) of this A-
17).
    (ii) Death before employee's annuity starting date. If the employee 
dies before the employee's annuity starting date and the employee's 
surviving spouse is the sole beneficiary under the contract--
    (A) The life annuity, if any, payable to the surviving spouse under 
paragraph (c)(1)(i) of this A-17 must commence not later than the date 
on which the annuity payable to the employee would have commenced under 
the contract if the employee had not died; and
    (B) The amount of the periodic annuity payment payable to the 
surviving spouse is permitted to exceed 100 percent of the periodic 
annuity payment that is 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) of the Internal 
Revenue Code (Code) or section 205(e)(2) of the Employee Retirement 
Income Security Act of 1974, Public Law 93-406 (88 Stat. 829 (1974)), 
as amended (ERISA)) pursuant to sections 401(a)(11) and 417 of the Code 
or section 205(a)(2) of ERISA.
    (2) Surviving spouse is not sole designated beneficiary--(i) In 
general. 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 is a life annuity payable to a designated beneficiary 
where the periodic annuity payment is not in excess of the applicable 
percentage (determined under paragraph (c)(2)(iv) of this A-17)

[[Page 5452]]

of the periodic annuity payment that is payable to the employee (or, in 
the case of the employee's death before the employee's annuity starting 
date, the applicable percentage 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)(i)). In 
addition, no benefit is permitted to be paid after the employee's death 
unless the contract satisfies the requirements of either paragraph 
(c)(2)(ii) or paragraph (c)(2)(iii) of this A-17. Moreover, except as 
provided in paragraph (c)(1)(ii)(A) of this A-17, in any case in which 
the employee dies before the employee's annuity starting date, any life 
annuity payable to a designated beneficiary must commence by the last 
day of the calendar year immediately following the calendar year of the 
employee's death.
    (ii) No pre-annuity starting date death benefit. The contract 
satisfies the requirements of this paragraph (c)(2)(ii) 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 selected 
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.
    (iii) Pre-annuity starting date death benefit. The contract 
satisfies the requirements of this paragraph (c)(2)(iii) if the 
contract provides that in any case in which the beneficiary under the 
contract is not the employee's surviving spouse, benefits are payable 
to the beneficiary only if the beneficiary was irrevocably selected on 
or before the employee's required beginning date.
    (iv) Applicable percentage. If the contract is described in 
paragraph (c)(2)(ii) of this A-17, the applicable percentage is the 
percentage described in the table in paragraph A-2(c) of this section. 
If the contract is described in paragraph (c)(2)(iii) (and not in 
(c)(2)(ii)) of this A-17, the applicable percentage is the percentage 
described in the table set forth in this paragraph (c)(2)(iv). The 
applicable percentage is based on the adjusted employee/beneficiary age 
difference, determined in the same manner as in paragraph A-2(c) of 
this section.

------------------------------------------------------------------------
                                                              Applicable
       Adjusted employee/ beneficiary age  difference         percentage
------------------------------------------------------------------------
2 years or less............................................          100
3..........................................................           88
4..........................................................           78
5..........................................................           70
6..........................................................           63
7..........................................................           57
8..........................................................           52
9..........................................................           48
10.........................................................           44
11.........................................................           41
12.........................................................           38
13.........................................................           36
14.........................................................           34
15.........................................................           32
16.........................................................           30
17.........................................................           28
18.........................................................           27
19.........................................................           26
20.........................................................           25
21.........................................................           24
22.........................................................           23
23.........................................................           22
24.........................................................           21
25 and greater.............................................           20
------------------------------------------------------------------------

     (3) Calculation of early annuity payments. For purposes of 
paragraphs (c)(1)(i) and (c)(2)(i) 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.
    (d) Rules of application--(1) Reliance on representations. For 
purposes of the limitation on premiums described in paragraphs (b)(2) 
and (b)(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).
    (2) Consequences of excess premiums. If a contract fails to be a 
QLAC solely because a premium for the contract exceeds the limits under 
paragraph (b) of this A-17 on the date of the payment of that premium, 
the contract is not a QLAC beginning on that date. In such a case, none 
of the value of the contract may be disregarded under Sec.  
1.401(a)(9)-5, Q&A-3(d), as of the date on which the contract ceases to 
be a QLAC.
    (3) Dollar and age limitations subject to adjustments--(i) Dollar 
limitation. In the case of calendar years beginning on or after January 
1, 2014, the $100,000 amount under paragraph (b)(2)(i) of this A-17 
will be adjusted at the same time and in the same manner as under 
section 415(d), except that the base period shall be the calendar 
quarter beginning July 1, 2012, and any increase under this paragraph 
(d)(3)(i) that is not a multiple of $25,000 shall be rounded to the 
next lowest multiple of $25,000.
    (ii) Age limitation. The maximum age set forth in paragraph (a)(2) 
of this A-17 may also 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 (see Sec.  601.601(d)(2)(ii)(b) of this chapter).
    (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)(3)(i) or paragraph (d)(3)(ii) of this A-17 will not cause 
the contract to become a QLAC.
    (4) Multiple beneficiaries. If an employee has more than one 
designated beneficiary under a QLAC, the rules in Sec.  1.401(a)(9)-8, 
A-2(a), apply for purposes of paragraphs (c)(1)(i) and (c)(2)(i) of 
this A-17.
    (5) 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 Sec.  1.408A-6, A-
14(d). 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 for 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.
    (e) Effective/applicability date. This Q&A-17 applies to contracts 
purchased on or after the date of publication of the Treasury decision 
adopting these rules

[[Page 5453]]

as final regulations in the Federal Register and for determining 
required minimum distributions for distribution calendar years 
beginning on or after January 1, 2013.
    Par. 4. Section 1.403(b)-6 is amended by adding paragraph (e)(9) to 
read as follows:


Sec.  1.403(b)-6  Timing of distributions and benefits.

* * * * *
    (e) * * *
    (9) Special rule for qualifying longevity annuity contracts. The 
rules in Sec.  1.401(a)(9)-6, A-17(b) (relating to limitations on 
premiums for a qualifying longevity annuity contract (QLAC), and Sec.  
1.401(a)(9)-6, A-17(d)(1) (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 Sec.  1.408-8, A-12(b) and (c)).
* * * * *
    Par. 5. Section 1.408-8, Q&A-12, is added to read as follows:


Sec.  1.408-8  Distribution requirements for individual retirement 
plans.

* * * * *
    Q-12. How does the special rule in Sec.  1.401(a)(9)-5, A-3(d), for 
a qualifying longevity annuity contract (QLAC), defined in Sec.  
1.401(a)(9)-6, A-17, apply to an IRA?
    A-12. (a) General rule. The special rule in Sec.  1.401(a)(9)-5, A-
3, for a QLAC, defined in Sec.  1.401(a)(9)-6, A-17, applies to an IRA, 
subject to the exceptions set forth in this A-12. See Sec.  1.408A-6, 
A-14(d) for special rules relating to Roth IRAs.
    (b) Limitations on premium--(1) In general. In lieu of the 
limitations described in Sec.  1.401(a)(9)-6, A-17(b), the premiums 
paid for 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) $100,000, over
    (ii) The sum of--
    (A) The premiums paid before that date under the contract, and
    (B) The premiums paid on or before that date under 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 section 457(b) plan.
    (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 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 under the contract, and
    (B) The premiums paid on or before that date under 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 (b)(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 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 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) 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 Sec.  1.408A-6, A-
14(d). 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 for 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.
    (e) Effective/applicability date. This Q&A-12 applies to contracts 
purchased on or after the date of publication of the Treasury decision 
adopting these rules as final regulations in the Federal Register and 
for determining required minimum distributions for distribution 
calendar years beginning on or after January 1, 2013.
    Par. 6. Section 1.408A-6 is amended by adding paragraph A-14(d) to 
read as follows:


Sec.  1.408A-6  Distributions.

* * * * *
    A-14. * * *
    (d) The special rules in Sec.  1.401(a)(9)-5, A-3, and Sec.  1.408-
8, Q&A-12, for a QLAC, defined in Sec.  1.401(a)(9)-6, A-17, do not 
apply to a Roth IRA.
* * * * *
    Par. 7. Section 1.6047-2 is added to read as follows:


Sec.  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 states that it is intended to be a qualifying 
longevity annuity contract (QLAC), defined in Sec.  1.401(a)(9)-6, Q&A-
17, shall make reports 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 section 457(b) plan.
    (2) Initial disclosure. The issuer shall be required to prepare a 
report identifying that the contract is intended to be a QLAC and 
containing the following information--
    (i) A plain-language description of the dollar and percentage 
limitations on premiums;
    (ii) The annuity starting date under the contract, and, if 
applicable, a description of the individual's ability to elect to 
commence payments before the annuity starting date;
    (iii) The amount (or estimated amount) of the periodic annuity 
payment that is payable after the annuity starting date as a single 
life annuity (including, if an estimated amount, the assumed interest 
rate or rates used in making this determination), and a statement that 
there is no commutation benefit or right to surrender the contract in 
order to receive its cash value;
    (iv) A statement of any death benefit payable under the contract, 
including any differences between benefits payable if the individual 
dies before the annuity starting date and benefits payable if the 
individual dies on or after the annuity starting date;
    (v) A description of the administrative procedures associated with 
an individual's elections under the contract, including deadlines, how 
to obtain forms, and where to file forms, and the identity and contact 
information of a person from whom the individual may obtain additional 
information about the contract; and
    (vi) Such other information as the Commissioner may require.
    (3) 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

[[Page 5454]]

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) The amount of each premium paid for the contract, along with 
the date of the premium payment; and
    (vi) Such other information as the Commissioner may require.
    (b) Manner and time for filing--(1) Initial disclosure. The report 
required by paragraph (a)(2) of this section shall not be filed with 
the Internal Revenue Service.
    (2) Annual report--(i) Timing. The report required by paragraph 
(a)(3) 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 Sec.  1.401(a)(9)-6, A-
17(d)(3)(ii)) or dies.
    (ii) 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 attained age 85), 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. (1) Initial disclosure. Each issuer required 
to make a 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 in the report. The statement 
shall be furnished at the time of purchase. The statement is not 
required to include information that the issuer has already provided to 
the individual in order to comply with any applicable state disclosure 
law.
    (2) Annual report. Each issuer required to file the report required 
by paragraph (a)(3) of this section shall furnish to the individual in 
whose name the contract has been purchased a statement containing the 
information required to be furnished in the report, except that such 
statement shall be furnished to a surviving spouse to the extent that 
the report is required to be filed under paragraph (b)(2)(ii) of this 
section. A copy of the required form may be used to satisfy the 
statement requirement of this paragraph (c)(2). If a copy of the 
required form is not used to satisfy the statement requirement of this 
paragraph (c)(2), the statement shall contain the following language: 
``This information is being furnished to the Internal Revenue 
Service.'' The statement required by this paragraph (c)(2) shall be 
furnished on or before January 31 following the calendar year for which 
the report required by paragraph (a)(3) of this section is required.
    (d) Effective/applicability date. This section applies on or after 
the date of publication of the Treasury decision adopting these rules 
as final regulations in the Federal Register.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2012-2340 Filed 2-2-12; 8:45 am]
BILLING CODE 4830-01-P