Life Bureau Filing Guidance Note
Guidance Date: June 24, 2015
Guidance for Filing Qualified Longevity Annuity Contracts (QLAC)
This filing guidance is applicable to any policy form intended to qualify as a QLAC as authorized by 26 CFR Parts 1 and 602 as amended (“QLAC regulation”). The QLAC regulation permits the contract owner to defer the latest required minimum distribution start date from age 70½ to age 85. The QLAC regulation also prescribes certain product design and contribution limitations for contracts intended to qualify as a QLAC.
In addition to this QLAC Guidance, insurers should also review the Department’s Guidance for Guaranteed Paid-up Deferred Annuities. Although some sections of that guidance were drafted to address guaranteed paid-up deferred annuities in the context of Insurance Law §4223, other sections provide useful guidance for all paid-up deferred annuities. For example, the guidance discusses disclosure of restrictions and limitations on cash surrenders, withdrawals or death benefits prior to the commencement of income payments, which the Department believes is imperative for all paid-up deferred annuities.
- The QLAC regulation was effective July 2, 2014.
- A contract purchased after July 2, 2014 but before January 1, 2016 will not fail to be a QLAC merely because it does not state it is a QLAC, provided:
- The employee is notified at issue it is intended to be a QLAC.
- A contract amendment, rider or endorsement (collectively “rider”) is issued no later than December 31, 2016 that states the contract is intended to be a QLAC.
- Pursuant to the QLAC regulation, it would appear that a contract purchased prior to July 2, 2014 may not become a QLAC merely by rider. The purchase or roll over into a new contract is required. Accordingly, the Department cannot approve riders for use on in force contracts issued prior to July 2, 2014.
Submission of QLAC Policy Forms
- The Circular Letter No. 6 (2004) approval procedure is not available for QLAC policy forms unless the Department has given prior permission.
- A QLAC policy form submission should include a certification from tax counsel that the form(s) are in compliance with the QLAC regulation.
- The SERFF Filing Description or submission letter should:
a) Identify the market in which the form(s) will be issued. Please note, pursuant to the QLAC regulation, it would appear that a QLAC may be purchased in connection with plans under IRC sections 401(a), 403(a), 403(b), 408, governmental 457(b) or an IRA. A QLAC may not be purchased in connection with a Roth IRA, non-governmental 457(b) or a defined benefit plan. Although the QLAC regulation permits a QLAC to be purchased in connection with a governmental 457(b) plan, the use of a QLAC with a governmental 457 plan in New York appears to be precluded by the New York State Deferred Compensation Board Rules and Regulations (NYCRR 9003.7).
b) If the submission is a QLAC rider please include a list, by form number, date of approval and Department file number, of all approved forms with which the rider will be used. Please note, it appears a variable annuity, index annuity, or similar type of product may not be a QLAC. It also appears a QLAC may not contain a commutation benefit, cash surrender benefit, or other similar feature. Please include a statement in the submission that the forms to which the QLAC rider will be attached are not a type of product prohibited and/or do not contain any prohibited features.
The QLAC contract or rider needs to set forth all requirements and restrictions, as applicable, imposed by the QLAC regulation. At a minimum, the following information, where applicable, must be provided in the rider or contract.
- Intention to Qualify as a QLAC
The form must clearly state that it is intended to qualify as a Qualified Longevity Annuity Contract (QLAC).
- Distribution Provisions
Distribution provisions applicable to the contract need to be set forth in the contract or rider. The form must clearly state that income payments must begin no later than the first day of the month next following the owner’s attainment of age 85. If the form allows the contract holder to elect to change the income start date or annuity option, the form should fully explain how such a change will impact the income payments.
- Premium Limitation
The premium limitations prescribed by the QLAC regulation must be set forth in the form.
- Death Benefit
If the QLAC includes a death benefit such benefit should be fully described in the form. The death benefit may not exceed the limitations prescribed by the QLAC regulation.
For questions about this guidance, please contact Andrew V. DeMarco, Senior Insurance Attorney, Life Bureau, at (518) 486-5258 or by email to Andrew DeMarco.