MetLife announced the launch of the MetLife Retirement Income Insurance qualifying longevity annuity contract (QLAC). This deferred income annuity is designed specifically for the institutional market and is available for qualified defined contribution (DC) retirement plans.
“Like all deferred income annuities, our new Retirement Income Insurance QLAC is designed to provide income for the latter part of retirement and creates a guaranteed income stream when other retirement income sources are most likely to run short,” Roberta Rafaloff, vice president of institutional income annuities in MetLife’s institutional retirement group, said in a ststaement. “As the leading provider of institutional income annuities and first company to introduce longevity insurance into the marketplace in 2004, MetLife has been focused on solutions to address longevity risk for a long time. By incorporating this new option as part of their plan, sponsors can help participants ensure more successful retirement outcomes.”
Plan participants can benefit from allocating a portion of their DC plan balance to the MetLife Retirement Income Insurance QLAC. The portion of the DC plan balance used to purchase the QLAC is excluded from the funds used to determine the required minimum distribution (RMD) participants are required to take beginning after age 70 ½, so participants can defer their income payments to a later age, with the first income payment beginning at average life expectancy, at or before age 85. The maximum amount that can be used for a QLAC is the lesser of 25% of the participant’s account balance or $125K.
“Historically, deferred income annuities have not been a viable option for DC plan participants, since they could not defer their income start date beyond age 70 ½ without incurring a significant tax penalty due to U.S. Treasury regulations,” Rafaloff notes. “In July 2014, the U.S. Treasury issued final regulations on QLACs that changed this. By excluding the amount used to guarantee income at a later age, 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.”
“The final regulations have a significant impact on participants and help them mitigate the greatest risk they face in retirement: outliving their assets,” Rafaloff concluded. “By lowering the required annual distribution participants are required to take early in retirement, more money can remain in the participant’s DC plan with the potential to grow. And, in addition to that, by deferring payments to a later age, the participant can maximize the income amount that is possible when the QLAC’s guaranteed income payments begin.”
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.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
