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Annuity Insurers Press Treasury for Changes in RMD Calculations

MAR. 27, 2020

Annuity Insurers Press Treasury for Changes in RMD Calculations

DATED MAR. 27, 2020
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Committee of Annuity Insurers
  • Code Sections
  • Subject Area/Tax Topics
  • Industry Groups
    Insurance
  • Jurisdictions
  • Tax Analysts Document Number
    2020-12535
  • Tax Analysts Electronic Citation
    2020 TNTF 65-25

March 27, 2020

Carol Weiser
Benefits Tax Counsel
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Re: Proposed RMD Regulations Updating Life Expectancy and Distribution Period Tables

Dear Ms. Weiser:

We are writing on behalf of the Committee of Annuity Insurers (the “Committee”)1 regarding the pending notice of proposed rulemaking (“NPRM”) that would update the life expectancy tables under the section 401(a)(9) regulations (the “RMD mortality tables).2 The Committee continues to support the changes to the proposed regulations that we discussed in our testimony at the January 23rd hearing and in our January 7th comment letter, a copy of which is attached. The purpose of this letter is to respond to certain points that the government panelists made during the hearing and to reiterate our request that the effective date of final regulations be delayed until 2022.

1. Basing the Update on the 2012 IAR Table

We continue to believe that the RMD mortality tables should be based on the 2012 Individual Annuity Reserving Table and its corresponding mortality improvement projection factors through the date of the update (the “2012 IAR Table”).3 This would result in longer life expectancies than the table used to generate the update reflected in the NPRM, and thus would better fulfill the President's goals in directing the Treasury Department to make the update.

In that regard, two of the President's stated goals in issuing the Executive Order that led to the NPRM are to allow plan participants and IRA owners to “keep more money in 401(k)s and Individual Retirement Accounts for longer” and to “spread retirement savings over a longer period of time.”4 Contrary to these goals, the proposed update reflects life expectancies that actually decrease or remain unchanged for individuals at ages 92 through 103. Individuals in this age range would be required to take larger RMDs and liquidate their retirement savings faster than under current law. This would frustrate the President's goals rather than achieving them. Basing the update on the 2012 IAR Table would eliminate this problem and generally result in longer life expectancy assumptions for RMD purposes than the proposed rule, thus better fulfilling the President's directive.

When we made this point during our oral testimony, one of the government panelists suggested that the statutory rule in section 401(a)(9) prohibits the Treasury Department and the Service from using a reserving table, like the 2012 IAR Table, to determine life expectancies for RMD purposes. We respectfully disagree. The statute does not mandate the use of a particular table or otherwise dictate how life expectancies should be determined. It merely refers to life or life expectancy. How life expectancy is determined is a matter of discretion for the Treasury Department and the Service.

In that regard, the 2012 IAR Table is generally used by the life insurance industry for reserving purposes. Given this primary purpose, the table reflects a degree of conservatism when predicting life expectancies, compared to other Society of Actuaries tables. This does not mean that the table overstates life expectancies, nor would the use of the table result in any type of regulatory or tax arbitrage. It is a real, valid, and widely-used table for determining life expectancies that is based on sound actuarial principles. The fact that it reflects longer life expectancies than other tables makes it more appropriate, not less appropriate, to use for RMD purposes, especially in light of the Executive Order and the President's goals of allowing retirees to “keep more money in 401(k)s and Individual Retirement Accounts for longer” and to “spread retirement savings over a longer period of time.” We urge you to take the President's goals into account and base the update on the 2012 IAR Table.

These goals have taken on a greater importance in light of the coronavirus pandemic. As a result of the dramatic downturn in the markets, retirees have suffered significant losses of their retirement savings, and they will not be able to recover those losses any time soon in the current environment of persistently low interest rates. Retirees need additional tools to be able to make their retirement savings last. Allowing retirees to compute RMDs based on the life expectancies reflected in the 2012 IAR table would help accomplish that goal.

2. Addressing the MITT

Our oral testimony and written comments also urged the Treasury Department and Service to modify the “minimum income threshold test” or “MITT” that applies to commercial annuities under the RMD regulations.5 Specifically, we asked that final regulations (1) permit the use of the updated Uniform Lifetime Table when applying the MITT to single life and joint life annuities, and (2) apply the same 5% cap on annual payment increases under commercial annuities that applies to defined benefit plans. During the hearing, one of the government panelists suggested that such changes are beyond the NPRM's scope. We respectfully disagree.

President Trump issued the Executive Order in part because “nearly half of all Americans are concerned they will not have enough money to live on during retirement.”6 The Executive Order's statement of policy also expressly identifies “[o]utdated distribution mandates” as a problem to be addressed.7 In that regard, life annuities are perhaps the best way to ensure that individuals do not outlive their retirement savings, and the MITT is an outdated distribution mandate that prevents their use. This is a problem that fits squarely within the concerns and goals of the Executive Order. Moreover, our proposed fix is to allow the use of a particular life expectancy table in applying the MITT. This brings our solution further within the Executive Order's scope, which mandated a review of the very life expectancy tables in question. In short, addressing the MITT problem in this regulation project would facilitate greater use of life annuities. This would help to address the concerns that led to the President issuing the Executive Order in the first place, concerns that have only increased since that time.

3. Delaying the Effective Date until 2022

The NPRM provides that the updated RMD mortality tables generally apply for distribution calendar years beginning on or after January 1, 2021. The SECURE Act made significant changes to many rules that apply to IRAs and qualified plans, including the RMD rules.8 Most of those changes became effective only 12 days after enactment, on January 1, 2020. IRA issuers have been devoting considerable time, effort, and resources to implement the new law as soon as possible, and those efforts will continue for a significant time. This substantially diminishes resources that will be needed to implement the final mortality table regulations. Resources have been further diminished by the recent and ongoing COVID-19 pandemic. In these circumstances, the Committee continues to believe that the effective date of the final regulations should be delayed until distribution calendar years beginning after December 31, 2021.

* * * * *

We appreciate the opportunity to provide this input on behalf of the Committee of Annuity Insurers. If you have any questions, please do not hesitate to contact the Committee's counsel, Mark Griffin (megriffin@davis-harman.com) or Bryan Keene (bwkeene@davis-harman.com). Both can be reached at 202-347-2230.

Sincerely,

Mark E. Griffin
Bryan W. Keene

Committee of Annuity Insurers
Washington, DC

Attachments

cc:
Harlan Weller
Victoria A. Judson

AIG Life & Retirement, Los Angeles, CA
Allianz Life Insurance Company, Minneapolis, MN
Allstate Financial, Northbrook, IL
Ameriprise Financial, Minneapolis, MN
Athene USA, Des Moines, IA
AXA Equitable Life Insurance Company, New York, NY
Brighthouse Financial, Inc., Charlotte, NC
Fidelity Investments Life Insurance Company, Boston, MA
Genworth Financial, Richmond, VA
Global Atlantic Financial Group, Southborough, MA
Great American Life Insurance Co., Cincinnati, OH
Guardian Insurance & Annuity Co., Inc., New York, NY
Jackson National Life Insurance Company, Lansing, MI
John Hancock Life Insurance Company, Boston, MA
Lincoln Financial Group, Fort Wayne, IN
Massachusetts Mutual Life Insurance Company, Springfield, MA
Metropolitan Life Insurance Company, New York, NY
National Life Group®, Montpelier, VT
Nationwide Life Insurance Companies, Columbus, OH
New York Life Insurance Company, New York, NY
Northwestern Mutual Life Insurance Company, Milwaukee, WI
Ohio National Financial Services, Cincinnati, OH
Pacific Life Insurance Company, Newport Beach, CA
Protective Life Insurance Company, Birmingham, AL
Prudential Insurance Company of America, Newark, NJ
Sammons Financial Group, Chicago, IL
Security Benefit Life Insurance Company, Topeka, KS
Symetra Financial, Bellevue, WA
Talcott Resolution, Windsor, CT
TIAA, New York, NY
The Transamerica companies, Cedar Rapids, IA
USAA Life Insurance Company, San Antonio, TX

The Committee of Annuity Insurers was formed in 1981 to participate in the development of federal policies with respect to annuities. The member companies of the Committee represent more than 80% of the annuity business in the United States.

FOOTNOTES

1 The Committee is a coalition of life insurance companies formed in 1981 to participate in the development of federal policy with respect to annuities. The Committee's 32 member companies represent more than 80% of the annuity business in the United States and are among the largest issuers of annuity contracts in connection with employer-sponsored retirement plans and IRAs. A list of the member companies is attached.

2 Unless otherwise indicated, “section” means a section of the Internal Revenue Code of 1986, as amended.

3 See https://www.soa.org/resources/experience-studies/2011/2012-ind-annuity-reserving-rpt/.

4 Fact Sheets: President Donald J. Trump is Strengthening Retirement Security for American Workers (Aug. 31, 2018) (“Fact Sheet”) (available at https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-strengthening-retirement-security-american-workers/). The NPRM was issued in response to Executive Order 13847, Strengthening Retirement Security in America, 83 Fed. Reg. 45,321 (Sept. 6, 2018) (the “Executive Order”).

5 See Treas. Reg. section 1.401(a)(9)-6, Q&A-14(a) and (c).

6 Fact Sheet, supra note 4.

7 83 Fed. Reg. at 45,321.

8 The SECURE Act is Division O of the Further Consolidated Appropriations Act, 2020, P.L. 116-94.

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Institutional Authors
    Committee of Annuity Insurers
  • Code Sections
  • Subject Area/Tax Topics
  • Industry Groups
    Insurance
  • Jurisdictions
  • Tax Analysts Document Number
    2020-12535
  • Tax Analysts Electronic Citation
    2020 TNTF 65-25
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