July 1, 2014
- IRS Finalizes Rules Governing Longevity Annuity Contracts
- Council Joins Consumer-Purchaser Alliance in Call for Further Improvement in Health Care Quality Measurement
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IRS Finalizes Rules Governing Longevity Annuity Contracts
The Internal Revenue Service (IRS) finalized the first part of its “lifetime income” regulatory initiative on July 1 with the release of final rules on longevity annuity contracts. These final regulations will be effective as of July 2.
The final regulations allow for the purchase of a qualifying longevity annuity contract (QLAC, a deeply deferred annuity that meets certain requirements) in a qualified defined contribution retirement plan or IRA if premium payments for the QLAC do not exceed the lesser of $125,000 or 25 percent of the of the individual’s benefit (determined as of the most recent valuation date). The regulations provide an exception to the minimum distribution rules for assets in QLACs
The original proposed regulations, released with some fanfare as part of a comprehensive guidance packagerelating to lifetime income in February 2012, were intended to encourage employer plan sponsorship of longevity insurance by providing guidance necessary to comply with the required minimum required distribution rules for qualified plans and IRAs under Internal Revenue Code (IRC) Section 401(a)(9). Without an exception to the minimum distribution rules for QLACs, the value of the QLAC would be included in the calculation of minimum distributions from the plan or IRA. This could be a problem since many longevity annuity contracts do not start making payments until age 80 or 85 and minimum distributions are generally required to start when the individual reaches age 70½.
The Council previously submitted a comment letter on the proposed regulations and testified at an IRS hearing, urging the IRS “to provide clarification and additional guidance on the need for a corrections program, additional discussion of potential forfeiture or cutback issues and clarification on how QLACs interact with IRAs and the qualified joint and survivor annuity (QJSA) rules.
The final regulations partially address these issues by (1) allowing corrections of excess premium payments (in excess of the limits) by distributing the excess by the end of the calendar year following the calendar year in which the excess premiums were paid, and (2) providing an exception to the general rules for certain qualified pre-retirement survivor annuities (part of the QJSA rules). However, several issues discussed in our letter were not addressed in the final rules such as treatment of potential forfeiture or cutback issues that could arise when a plan sponsor changes QLAC providers. The final regulations also did not address timing of the QJSA spousal consent requirement or a correction program for excess premiums discovered after the repayment period or other issues with the QLAC.
The final regulations also include several new provisions that may make QLACs more attractive to plan sponsors and their employees, such as allowing return-of-premium provisions, which allow repayments to a beneficiary equal to the amount of premium payments minus all of the benefit payments following the death of the participant (or the participant and beneficiary, if a joint and survivor annuity was selected). The final rule also eliminates the need for an initial disclosure (except for a statement that it is intended to be a QLAC), allowing the initial disclosure to be governed by state law or ERISA.
Council Joins Consumer-Purchaser Alliance in Call for Further Improvement in Health Care Quality Measurement
The Council was one of 26 organizations to sign on to a June 30 letter from the Consumer-Purchaser Alliance to the Centers for Medicare and Medicaid Services (CMS), calling for continued improvement in health care quality metrics.
The Council supports the Consumer-Purchaser Alliance, a coalition of leading consumer, employer and labor groups working together to promote the use of performance measurement in health care to inform consumer choice, value-based purchasing, and payment.
The June 30 letter was written in response to a May 15 proposal to revise the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals. The letter commends CMS’ leadership in its ongoing implementation of hospital programs that seek to increase transparency and promote a market that rewards value over volume. In particular, the Council and the Alliance appreciated the proposal’s emphasis on:
- Increasingly defining better, safer and more affordable care based on improved patient outcomes.
- Advancing electronic reporting systems to drive performance improvement.
- Increasing accountability for improved maternity care.
The letter notes, however, that “despite continued positive momentum, significant measure gaps remain in areas critical to consumers and purchasers. We urge CMS to devote resources to measure development that can fill the most critical gaps, particularly in areas of care where patient-reported data provide insight on experience of care, outcomes and functional status.”
The letter specifically recommends that CMS, the Office of the National Coordinator for Health Information Technology (ONC) and other federal partners leverage the Patient Reported Outcomes Measurement Information System to create patient-reported outcome measures that support patient, family and caregiver engagement.
The Council supports improvements in the quality and affordability of health care by using performance information to inform employer and consumer choice, payment and provider care. Because the Medicare program has such a strong influence on the entire health care system, it is important for employers to continue to have a stake in the way these programs are being implemented. For more information, contact Katy Spangler, senior vice president, health policy, at (202) 289-6700.
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