IRS Issues Guidance About Annuities in Retirement Plans

The Internal Revenue Service (IRS)  issued two pieces of guidance to clarify how certain rules apply when a retirement plan offers an annuity to participants.

Revenue Ruling 2012-3 describes how the qualified joint and survivor annuity (QJSA) and the qualified preretirement survivor annuity (QPSA) rules, described in §§ 401(a)(11) and 417 of the Internal Revenue Code, apply when a deferred annuity contract is purchased under a profit-sharing plan.
Revenue Ruling 2012-4 describes whether a qualified defined benefit pension plan that accepts a direct rollover of an eligible rollover distribution from a qualified defined contribution plan maintained by the same employer satisfies §§ 411 and 415 of the Internal Revenue Code in a case in which the defined benefit plan provides an annuity resulting from the direct rollover.  

Both rulings will appear in IRB 2012-8 dated February 21, 2012. 

The IRS announced a guidance package which builds on comments received in response to the Treasury and Labor Department’s joint request for information on the desirability and availability of lifetime income alternatives in retirement plans. The guidance is designed to make it easier for retirees to choose to receive their benefits as a stream of income in regular payments for as long as they live (see “U.S. Treasury Proposal to Reduce Regulatory Burdens for Retirees“).