By Linda Koco
Thrivent Financial is one of the early providers of the new qualifying longevity annuity contract (QLAC) products allowed under Department of the Treasury regulations published last year.
The fraternal organization rolled out its QLAC two months ago and already has had some sales, according to Wendy McCullough, vice president-solution design and development.
QLACs are fixed-rate deferred income annuities (DIAs) that the Department of the Treasury allows to be sold in tandem with certain types of employer-sponsored retirement plans and individual retirement accounts (IRAs). The regulations allow individuals to allocate either 25 percent of total qualifying assets or $125,000, whichever is less, into a QLAC. This purchase will reduce the required minimum distributions (RMDs) the person must pay starting at age 70½, with a consequent modest reduction in RMD-related income taxes. The QLAC holder must begin taking distributions no later than age 85.
They’re deferring to ages 84 and 85
So far, Thrivent is selling most of its QLACs to people seeking to defer the start of income to ages 84 and 85, McCullough told AnnuityNews.
Even though this reflects only two months of sales, she said it’s an “exciting” development. “It shows our reps understood the unique value of the QLAC.”
The value is in using qualified money to establish a lifetime income stream that starts later in life. In such contracts, the longer the deferral period (before income starts), the greater the income stream will be on a given amount of money.
A lot of Thrivent’s fraternal members have qualified money in IRAs, McCullough noted. They must start taking their RMDs at age 70½ , but not all members need their RMDs for current expenses. Now, with a QLAC, they can divert a portion of their qualified funds for use later in retirement, without having to annuitize, she said.
Until QLACs became available, she said, “the only way for them to get longevity protection was with an immediate annuity,” essentially annuitizing the money. But with the QLAC, they have another choice.
“It makes a ton of sense to delay some of the qualified dollars to use in the later retirement years,” she said. Not only does it ensure a lifetime income stream but it can also enable the policyholder to spend other dollars to meet specific goals, such as travel plans, “because they know they have the longevity protection.”
But it is “critical,” she added, that the fraternal member is comfortable with setting aside some qualified money for that purpose. Thrivent is responding to that issue by doing a suitability review in the field and also internally, at the company.
The fraternal wants to ensure that policyholders understand that “the QLAC will give them increased income potential if they are willing to give up some liquidity,” the executive said.
McCullough doesn’t believe that many QLACs will be sold in a situation where the policyholder elects a short deferral periods, such as three years. “It’s possible, and it could be the right thing in a particular client’s case, but it would be the exception rather than the norm,” she said.
She sees the primary market being middle-income Americans with a lot of qualified dollars, sufficient to generate RMDs that are beyond the person’s spending needs.
Thrivent’s QLAC development
Thrivent entered the QLAC market on the heels of its DIA, the Thrivent Future Reserve Deferred Income Annuity, which the fraternal rolled out a few weeks before the Treasury Department issued its regulations on QLACs.
“We had decided to enter the DIA market because of the success that other our mutual company counterparts were having with these products,” McCullough recalled. “We didn’t know that the QLAC regulations were coming out in July, but when they did, we decided to endorse our DIA so that it meets the QLAC requirements and then get it approved.”
The DIA already had many design elements that made endorsement possible, she pointed out. Other carriers might have to create a separate product to sell in the QLAC market, however.
The QLAC is now approved for sale in all states except New York, as is the Thrivent DIA. The QLAC is available only with a traditional IRA.
“We don’t work in the group qualified plan market,” McCullough explained. That’s because the carrier is a fraternal and so only sells individual products. However, when a client does a rollover of, say, a 401(k) into a Thrivent IRA, the member can purchase a QLAC through that IRA, she pointed out.
Issue ages are 42 to 82. Deferral period options range from three to 30 years. The only income option available is life income with a cash refund, and it cannot be changed after purchase.
Distribution is through the fraternal’s career agents. Before selling the product, reps are required to take training not only of the DIA but also separate training the QLAC. “We want them to understand the QLAC and the dollars that people will set aside with the product and...also why some of our members would benefit from having a QLAC,” McCullough said.
AnnuityNews Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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