the power of qualifying longevity annuity contracts (qlacs) in...qlac gfi rates as of 11/4/15 for a...

The Power of Qualifying Longevity Annuity Contracts (QLACs) in Retirement

SMRU 1673666 (Exp. 11/18/2017)

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ANNUITIES Are Not FDIC/NCUA

Insured Are Not a Deposit

May Lose Value

Have No Bank Guarantee

Are Not Insured by Any Government Agency

Agenda

Risks for Retirees

Income Annuities

What is a QLAC?

Who might benefit from QLACs?

FAQs

Appendix

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Baby Boomers

Retiring Baby Boomers:

Have more assets, more complex needs, and longer retirements than any generation in human history.

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Boomers’ retirement will be different

Boomers need retirement solutions for:

Today, tomorrow, and forever.

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What many people face…

The “Baby Boomer Generation” faces an incredibly expensive retirement:

• Fewer pensions

• Higher healthcare costs

• Longer lives

• More “basic expenses”

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1 Source: National Institute on Retirement Security – 2013 Opinion Research Report

Additional sources of guaranteed income can help1

83% have an overall favorable view of pensions

82% say all workers should have a pension

80% believe the disappearance of pensions have made it harder to achieve the American Dream

Concerns about retirement security are common1

85% are concerned about current economic conditions affecting the ability to achieve a secure

retirement

87% believe the Great Recession exposed the risks of the nation’s retirement system

Today’s Baby Boomers face a new challenge.

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Boomers may need to rely more on their personal assets in retirement

Boomers will be the first generation to retire with a lower level of defined benefit plans in place.

Source: Towers Watson, 2013

89%

48%

32%

27%19%

9%7%

1985 2002 2005 2007 2009 2011 2013

Fortune 100 Firms Offering a Tradit ional Defined Benefit Plan

14%

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Health care costs are rising

Source: US Department of Labor, Bureau of Labor Statistics (www.bls.gov), March 17, 2015. Medical care represents change in prices of all

medical care purchased for consumption by urban households. The Consumer Price Index represents changes in prices of all goods and services

purchased for consumption by urban households.

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Longer life expectancy means retirement assets need to last longer too

Source: 2012 IAR Mortality Table

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Source: Consumer Retirement Income Planning Study, conducted by MainStay Investments and Harris Interactive, May 2010. Percentages represent the portion of survey participants that

consider a particular category a “basic need”.”

Boomers Redefine Basic Needs, Aim to Spend More

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How much will you need?

Hypothetical example for illustrative purposes only

A simple calculation can help you determine how much income you’ll need:

Your Required Retirement

Income

Your Social Security/ Pension

Income Your Income Gap

$4,000/month $2,500/month -$1,500/month – =

Visit www.ssa.gov to estimate your Social Security income

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“I need retirement income now.”

1 Issued by New York Life Insurance and Annuity Company, a wholly owned subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010. Product and optional features available in jurisdictions where approved. Guarantees backed by the claims-paying ability of the issuer.

2 Minimum premium payments may vary by state or payment option.

3 Some restrictions may apply. Withdrawals may be subject to taxes and penalties.

New York Life Guaranteed Lifetime Income Annuity II (GLI)1

• Single premium immediate annuity

• Minimum initial premium: $5,0002

• Lifetime Payment Options

• Lifetime income options (single or joint) that may include legacy protection

• Optional Features to Meet Your Needs3

• Optional features to allow for payments to increase in the future and can provide for inflation protection

• Cash Withdrawal Features3

• Available to provide flexibility and access to funds if needed.

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• Flexible premium deferred income annuity

• Minimum initial premium: $5,000

• Lump sum or flexible premiums*

• Flexible income start date

• Two to 40-year deferral period2

• Ability to accelerate or defer income payments3

• Lifetime Payment Options

• Lifetime income options for single or joint lives.

• Optional Features to Meet Your Needs2

• Optional features to allow for payments to increase in the future and can provide for inflation protection

New York Life Guaranteed Future Income Annuity II (GFI)1

1 Guarantees are subject to contract terms, exclusions and limitations, and the claims paying ability of the issuer, New York Life Insurance and Annuity Corporation, (NYLIAC), a Delaware Corporation, a wholly-owned subsidiary of New York Life Insurance Company. This contract is irrevocable, has no cash surrender value and no withdrawals are permitted prior to the income start date. Income payments are guaranteed at least as long as the annuitant is living, provided the annuitant is alive on the designated income start date. Certain payout options will not provide a death benefit either prior to, or after, the designated income start date. This material must be accompanied or preceded by a product fact sheet. Please remember to provide a copy to your clients so they have complete information prior to making any decision to purchase this product.

2 Some restrictions may apply. 3 Can accelerate to any date 13 months after the latest premium payment or defer income start date to 5 years from the original start date. May be exercised once. Restrictions apply. Not

available in CT or on Life Only policies. * Future income amounts are based on rates in effect when each premium is received. Minimum initial premium $5,000 and Minimum subsequent premiums $100.

“I will need retirement income soon.”

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The Income-Generating Power of Income Annuity Payout Rates

Payout rates are not interest rates. Income payments are comprised of:

1. Return of Premium

Each payment includes the return of a portion of the original premium made by the policy owner.

2. Interest There is a portion of each

payment that comes from interest earned from the insurance company’s investment of premiums.

3. Mortality Credit Each payment includes

income that is directly linked to the current age of the annuitant. This income comes from the mortality credit pool.

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How can QLACs help in retirement?

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What is a QLAC?

• On July 1, 2014, the Treasury Department released final regulations on the treatment of Qualifying Longevity Annuity Contracts (QLACs) under the required minimum distribution (RMD) rules.

• Final regulations provide an exception to the RMD rules for a portion of someone’s qualified assets if those assets are used to purchase a Deferred Income Annuity (DIA) with income starting no later than the first day of the month after turning age 85.

• Only DIAs that meet certain requirements can qualify as QLACs.

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What are the advantages?

• The value of QLACs are excluded from the account balance used to determine RMDs

• Clients decide when they want guaranteed lifetime income to begin, up until age 85

• With the advent of QLACs, clients can enjoy some of the flexibility with qualified assets that, in the past, were only available on nonqualified assets

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• limit premiums to the lesser of $125,000 or 25% of qualified account balances; for IRA's, premium limits based on aggregate IRA account balances as of 12/31 of the prior year.

• specify an annuity starting date (ASD) that occurs no later than the first day of the month next following the attainment of age 85

• provide no cash surrender value, commutation benefit, or other similar feature

• Provide fixed payout (not variable or equity-indexed)

• Limit payout options to Life Only and Life with Cash Refund; both Single Life and Joint Life permitted (for Joint Life, NYL requires that joint annuitants must be spouses)

What are the criteria? In order to be a QLAC under the final regulations, a QLAC contract is required to:

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Have you ever said this about your qualified money?

I don’t want to pay the taxes on it

now!

I don’t need it!

I don’t want it!

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Who might benefit from QLACs? Middle income with

enough Social Security and pension to cover

basic expenses

Concerned about medical expenses later

in life

People who are already taking

RMDs but would prefer to stop

Affluent, who do not need RMDs and are free to be more

aggressive with their non-QLAC

funds

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Gain more financial flexibility with a QLAC Income flexibility You may not want or need to take income from qualified assets starting at age 70½ as Required Minimum Distribution (RMD) rules mandate. A QLAC provides the flexibility to start taking income later, so you can better plan for their income needs over time.

Tax planning flexibility Distributions from a qualified plan or IRA are taxed as ordinary income. A QLAC provides the flexibility to better plan for taxes by allowing a later start date for required distributions. This enables you to better decide the more optimal time to take income from a taxation perspective.

Legacy planning flexibility QLACs can efficiently address longevity income needs by deferring income up to age 85. Also, should you die before the income start date, those assets remain intact for beneficiaries without any possibility of reduction through account withdrawals due to RMDs. This flexibility to hold onto some qualified assets longer enables you to better plan for their heirs. The information contained herein is general in nature and is provided solely for educational and informational purposes. New York Life does not provide legal, accounting or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting and tax advisors.

QLACs are subject to important restrictions and limitations, which you should discuss with your tax advisor. Neither New York Life, nor its agents or employees, provide tax or legal advice.

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QLAC Example Jonathan is 65. He doesn’t need his retirement income until at least age 70½. He has Social Security and a pension and does not need or want income from his qualified money. He rolls over $125,000 from his IRA into a New York Life GFI and designates it as a QLAC. Let’s look at what a GFI QLAC allows him to receive in annual income at age 85, if he is single or if he is married.

45,788

71,110

33,385 40,944

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Annual Income at age 85

Single Life with Cash Refund

Single Life Only

Joint Life with Cash Refund

Joint Life Only

QLAC GFI rates as of 11/4/15 for a 65 year old male with Life with Cash Refund Payout option and Life Only Payout option. Joint Life with Cash Refund Payout option and Joint Life Only Payout option are based on a 65 year old male owner with a 65 year old female joint annuitant who is a spouse.

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QLAC FAQs* Q. What qualified assets can be used to purchase a QLAC?

A. 401(k), 403(b), governmental 457(b), traditional IRA’s, SEP and SIMPLE IRA’s are eligible. Roth and Inherited IRA’s are not eligible.

Q. Can qualified assets that remain in a 401(k) plan be counted towards the 25% QLAC IRA contribution limit?

A. No. The percentage limit applies to each defined contribution plan separately and to IRA’s on an aggregated basis, while the dollar limit applies across all plans and IRA’s collectively. Note that 401(k) assets can be directly rolled into a QLAC IRA up to the applicable limit. A QLAC IRA does not have to be funded solely from IRA assets.

Q. Can funds in an IRA that has begun distributions due to existing RMD rules (e.g. owner is over age 70½) be used to purchase a QLAC?

A. Yes. However, the owner should consult with his/her tax advisor to determine if a distribution must be made in order to satisfy RMD requirements for the calendar year of the purchase of the QLAC.

*These FAQ's are based solely on New York Life’s current interpretation of the final QLAC regulations and are subject to change.

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QLAC FAQs* Q. Can a beneficiary rollover any QLAC death benefit proceeds?

A. If the owner’s death occurs before the owner’s required beginning date (RBD), the proceeds should be eligible for rollover. If the owner’s death occurs after the RBD, then the death benefit payment is treated as an RMD and not eligible for rollover. Similarly, if the surviving spouse’s death is after the RBD for the surviving spouse, then the death benefit payment is treated as an RMD and not eligible for rollover.

Q. Does the QLAC issuer have any obligation regarding tracking of QLAC limits or is it entirely the responsibility of the QLAC owner?

A. For purposes of both the dollar and percentage limitations, unless the issuer has actual knowledge to the contrary, the issuer may rely on the owner’s representations of the amount of the premiums (other than the premiums paid under the IRA) and, for purposes of applying the percentage limitation, the amount of the individual’s IRA account balances (other than the account balance under the IRA).

*These FAQ's are based solely on New York Life’s current interpretation of the final QLAC regulations and are subject to change.

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Additional Information The information contained herein is general in nature and is provided solely for educational and informational purposes. New York Life does not provide legal, accounting or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting and tax advisors.

When considering rolling over the proceeds of your retirement plan to another qualified option, such as an income annuity funded with a qualified account, please note that you have the option, among others, of leaving the funds in your existing plan or transferring them into a new employer’s plan. You should consult with the Human Resources department of the applicable employer to learn about the options available to you and any applicable fees and expenses. Tax consequences may apply if you were to withdraw the funds. Please consult with a tax or legal advisor. Neither, New York Life, its subsidiaries, nor its agents can provide tax or legal advice, please consult with your advisor before taking any action. You should also know that depending on the state where you reside, assets held in a retirement plan may enjoy greater protection from creditors than in an income annuity. Services, as well as fees, expenses and liquidity options available under an income annuity may be different from your retirement plan services, fees and expenses. Also, your plan most likely has investment options that are not available in an income annuity.

Beginning 1/1/15, you can make only one indirect (i.e., 60 day) IRA rollover in any 12-month period, regardless of the number or types of IRA's you own (see IRS Announcement 2014-32); however, you may continue to make an unlimited number of trustee-to-trustee transfers (transfers directly between IRA's) as well as unlimited rollovers from traditional IRA's to Roth IRA's (“conversions”). Please consult your tax advisor prior to effecting a rollover.

The New York Life Guaranteed Future Income Annuity II is issued by the New York Life Insurance and Annuity Corporation (NYLIAC), a Delaware Corporation, a wholly owned subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010. Products available in jurisdictions where approved. All guarantees are subject to contract terms, exclusions, and limitations, and the claims-paying ability of NYLIAC (a Delaware Corporation). The policy form number for the New York Life Guaranteed Future Income Annuity II is ICC11-P101 (it may be 211-P101 and state variations may apply). The policy form number for the New York Life Guaranteed Lifetime Income Annuity is ICC11-P103 (it may be 211-P103 and state variations may apply).

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Appendix

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This is the maximum QLAC contribution limit.1 Remember, total QLAC contribution limit for all years is $125,000. The sum of any premiums previously paid to any contract intended to be a QLAC (held under any IRA or any type of qualified plan).

$125,000

x .25

– $0

= $31,250

$125,000

– $0

= $125,000

How much can you put in a QLAC?

1 Subject to increases for inflation in future years 2 The IRS requires that QLAC Issuers file annual calendar-year reports and provide a statement to the QLAC owner on the status

of the contract, called Form 1098-Q. The QLAC IRA Fair Market Value (FMV) will be shown on this form.

Step 1

Subtract your total QLAC premiums from $125,000.

Step 2

Multiply your IRA balances as of 12/31 of the prior year by 25% and subtract prior IRA QLAC premiums.

Step 3

The lesser of the results from Steps 1 and 2 is the maximum amount you can contribute to QLAC IRA's in the current year. Remember, you can purchase a QLAC using other qualified assets , but only the IRA balances as of 12/31 of the previous year are considered for the QLAC contribution limit.

Total account balances of your IRA's (other than Roth IRA's and Inherited IRA's) as of 12/31 of the prior year, including the fair market value of any QLAC held under those IRA's as per IRS Form 1098-Q.2

The sum of any prior premiums previously paid to any contract intended to be a QLAC and held under any IRA (do not include prior premiums paid to a QLAC held under a qualified plan).

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• Age 63, owned a single IRA with a balance of $250,000 on 12/31/14.

• Has a 401(k) with a current value of $100,000 but wants to use only IRA money to fund his first QLAC.

How much can Brad put in a QLAC in 2015?

QLAC Example: Limit based on IRA balance

$250,000

x .25

– $0

= $62,500

$125,000

– $0

= $125,000

Step 1

Subtract Brad’s total QLAC premiums from $125,000.

Step 2

Multiply Brad’s IRA balances as of 12/31 of the prior year by 25% and subtract prior IRA QLAC premiums.

Step 3

The lesser of the results from Steps 1 and 2 is the maximum amount Brad can contribute to QLAC IRA's in the current year: $62,500.

Remember, Brad can choose to use some of his 401(k) balance to buy the QLAC.

The sum of any premiums previously paid to any contract intended to be a QLAC (held under any IRA or any type of qualified plan). Brad has no prior QLAC premiums.

Total account balances of your IRA's (other than Roth IRA's and Inherited IRA's) as of 12/31 of the prior year, including the fair market value of any QLAC held under those IRA's as per IRS Form 1098-Q.1


1 The IRS requires that QLAC Issuers file annual calendar-year reports and provide a statement to the QLAC owner on the status of the contract, called Form 1098-Q. The QLAC IRA Fair Market Value (FMV) will be shown on this form.

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• Brad, the following year. In 2015, he bought the QLAC IRA for $62,500, leaving an IRA balance of $187,500. Before end of 2015, he rolled over his 401(k) balance of $100,000 into his IRA.

• On 12/31/15, his total IRA balance stood at $300,000 (includes the rollover).

• Also, his QLAC IRA had a reported Fair Market Value on Form 1098-Q of $65,500.

How much can Brad put in a QLAC in 2016?

QLAC Example: IRA’s, Fair Market Value

$365,500

x .25

– $62,500

= $28,875

$125,000

– $62,500

= $62,500

Step 1

Subtract Brad’s total QLAC premiums from $125,000.

Step 2

Multiply Brad’s IRA balances as of 12/31 of the prior year by 25% and subtract prior IRA QLAC premiums.

Step 3

The lesser of the results from Steps 1 and 2 is the maximum amount Brad can contribute to QLAC IRA's in the current year: $28,875.

The sum of any premiums previously paid to any contract intended to be a QLAC (held under any IRA or any type of qualified plan). Brad previously paid QLAC premiums of $62,500.

Total account balances of your IRA’s (other than Roth IRA’s and Inherited IRA’s) as of 12/31 of the prior year, including the fair market value of any QLAC held under those IRA’s as per IRS Form 1098-Q1: $300,000+65,500.



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• Age 66, is entering retirement

• On 12/31/2014, he did not have any IRA assets.

• He has a 401(k) with a value of $100,000.

How much can Andrew put in a QLAC in 2015?

QLAC Example: No IRA Assets

• Andrew can put $0 in a QLAC in the current year.

• If Andrew wants to contribute to a QLAC IRA, he must first rollover the 401(k) to a non-QLAC IRA to establish a year-end IRA balance.

• In the year following the rollover, Andrew can contribute to a QLAC IRA up to the 25% limit based on the prior year-end IRA balance.

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How much can John put in a QLAC in 2015?

QLAC Example: Using Other Qualified Assets

$500,000

x .25

– $0

= $125,000

$125,000

– $0

= $125,000

Step 1

Subtract John’s total QLAC premiums from $125,000.

Step 2

Multiply John’s IRA balances as of 12/31 of the prior year by 25% and subtract prior IRA QLAC premiums.

Step 3

The lesser of the results from Steps 1 and 2 is the maximum amount John can contribute to QLAC IRA's in the current year: $125,000.

The key point here is John can use his 401(k) money to fund a QLAC but the QLAC limits are based on his IRA balance as of 12/31 of the prior year.

The sum of any premiums previously paid to any contract intended to be a QLAC (held under any IRA or any type of qualified plan). In this case, John had $0 in QLAC premiums.

Total account balances of your IRA’s (other than Roth IRA’s and Inherited IRA’s) as of 12/31 of the prior year, including the fair market value of any QLAC held under those IRA’s as per IRS Form 1098-Q1 : $500,000 The sum of any prior premiums previously paid to any contract intended to be a QLAC and held under any IRA (do not include prior premiums paid to a QLAC held under a qualified plan): $0


• Age 65, is currently working and plans to for the next few years. He has a Traditional IRA with a balance of $500,000 on 12/31/14.

• He has a pension in place but wants to plan for an increase in guaranteed income post age 70½.

• He’s interested in a QLAC GFI and wants to use his 401(k) balance as a funding source. He had no previous QLAC premiums.

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How much can Tessa put in a QLAC in 2015?

QLAC Example: SEP and Simple IRA’s

$700,000

x .25

– $0

= $175,000

$125,000

– $0

= $125,000

Step 1

Subtract Tessa’s total QLAC premiums from $125,000.

Step 2

Multiply Tessa’s IRA balances as of 12/31 of the prior year by 25% and subtract prior IRA QLAC premiums.

Step 3

The lesser of the results from Steps 1 and 2 is the maximum amount Tessa can contribute to QLAC IRA’s in the current year: $125,000.

The key point here is Tessa can use SEP IRA’s and Simple IRA’s to fund a QLAC but the QLAC premiums are limited to $125,000.

The sum of any premiums previously paid to any contract intended to be a QLAC (held under any IRA or any type of qualified plan). In this case, Tessa had $0 in QLAC premiums.

Total account balances of your IRA’s (other than Roth IRA’s and Inherited IRA’s) as of 12/31 of the prior year, including the fair market value of any QLAC held under those IRA’s as per IRS Form 1098-Q1 : $700,000 The sum of any prior premiums previously paid to any contract intended to be a QLAC and held under any IRA (do not include prior premiums paid to a QLAC held under a qualified plan): $0


• Tessa, age 65 is a small business owner concerned with longevity risk as many of her family members lived to their 90s. She does not have a Traditional IRA in place but is interested in a QLAC.

• She has a SEP IRA with a 12/31/14 balance of $700,000 and wants to use it to fund a QLAC GFI.

• She is very conservative and wants to create lifetime income that starts at age 80. She can take a portion of her SEP IRA balance to fund a QLAC, and exclude the value of her QLAC from RMDs until income payments start.

• .

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the power of qualifying longevity annuity contracts (qlacs) in...qlac gfi rates as of 11/4/15 for a...

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