Roberta Rafaloff, vice president, institutional income annuities, MetLife’s institutional retirement group, tells PLANADVISER there are other products that meet the definition of a qualified longevity annuity contract (QLAC), “but we believe we’re the first insurer to offer a group product for the institutional market. Other products have been for retail investors, but we will have a relationship with plan sponsors.”
Rafaloff explains that the QLAC is not an investment option. “We like to distinguish annuities from investments; they are insurance,” she says—so the QLAC will be included as a distribution option from the plan. When a participant reaches retirement, she will have the option to put part of her assets into the QLAC. Those assets will leave the plan and go to the insurance company to be invested in a general account until payments begin.
The Treasury Department issued final rules in July 2014 allowing retirement savers to use the lesser of 25% of their account balances or $125,000 to purchase a QLAC, which will not be included in the calculation of required minimum distributions (RMDs) that are required to begin after savers reach age 70 ½. Payments from QLACs can be deferred until age 85, at the latest.
“We believe products like QLACs address a very specific need that should be met,” Rafaloff says. “Excluding that portion of a participants balance from the RMD calculation will [decrease the RMD, allowing] more money to remain in the DC plan with potential to grow.”
Rafaloff adds that QLACs provide flexibility for participants in designing retirement income strategies. “DC plan participants can, for example, have both immediate income through systematic withdrawals for a portion of their balance, and guaranteed income for the rest of their lives once the QLAC begins payment.” She notes that by deferring QLAC payments to a later age, participants can maximize payment amounts. “They can be sure to have a guaranteed income stream when other assets may run out.”
Payment options for the MetLife Retirement Income Insurance QLAC include both Lifelong Income for One, which guarantees the participant will receive fixed payments for as long as he or she lives, and Lifelong Income for Two, which guarantees that the participant and his or her spouse will receive fixed payments for as long as at least one of them lives. The MetLife Retirement Income Insurance QLAC also offers an optional inflation protection feature, which increases a participant’s income payments each year. In an effort to protect a participant’s payments from an increased cost of living, he or she can choose to have them increase by 1%, 2% or 3% each year.