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New Lifetime Income Guidance Issued by Treasury and IRS

On February 2, 2012, the Department of Treasury (Treasury) and the Internal Revenue Service (IRS) issued a package of administrative guidance intended to reduce the barriers to lifetime income for retirees, encourage innovation, and expand choices to plan participants. This is the first of what is hoped will be a stream of guidance from both the Treasury and the Department of Labor (DOL) in response to their joint initiative to facilitate access to, and use of, arrangements designed to provide a lifetime stream of income after retirement within employer-sponsored retirement plans and individual retirement arrangements (IRAs).

The agencies embarked on this initiative in February 2010 when they issued a joint request for information (RFI) on lifetime income options for participants and beneficiaries in retirement plans. The Aon Hewitt report below provides an overview of the lifetime income guidance issued by the agencies and discusses the following specific provisions found in the new guidance:

  • Proposed regulations modifying the required minimum distribution rules to facilitate the inclusion of longevity annuity contracts in defined contribution plans;
  • A Revenue Ruling defining how and when the QJSA, QPSA, and spousal consent rules apply to deferred annuities;
  • Proposed regulations making it easier for defined benefit plans to offer partial annuity distribution options; and
  • A Revenue Ruling clarifying how employers can allow participants to use 401(k) money to buy a defined benefit annuity.

New Lifetime Income Guidance Issued by Treasury and IRS