The "accumulation period" lasts from contract issue until the
Annuity Starting Date (ASD), during which the "accumulation units" of the separate accounts chosen will vary in value (and the contract value, which is the sum of those units), as well.
* A QLAC may offer a return of premium (ROP) feature that is payable before and after the
annuity starting date prior to age 85.
A QLAC may also provide a life annuity to a spouse who is the sole beneficiary of a participant who dies before his or her
annuity starting date. The spousal annuity payments must commence on or before the date that would have been the participant's
annuity starting date.
While clients have the option of choosing an
annuity starting date that begins relatively quickly or far into the future with DIAs, these products often will allow the client to change the
annuity starting date that he or she originally chooses.
How is the owner taxed prior to the
annuity starting date?
It is anticipated that an employee would use the bulk of his plan account, along with Social Security and any other resources, as retirement income until the delayed
annuity starting date.
Specifically, Judge Jackson referred to the provision of the Employee Retirement Income Security Act (ERISA) that states, in pertinent part, that "a plan may provide that a qualified joint and survivor annuity...will not be provided unless the participant and spouse have been married throughout the one-year period ending on the earlier of (A) the participant's
annuity starting date, or (B) the date of the participant's death." Judge Jackson noted that the use of the word "may" makes the statute "permissive rather than mandatory." ERISA, therefore, does not require that the plan follow this particular statute, and both the plan and the plan administrator's interpretation are sound.
According to the IRS, a trust that owned an annuity contract which was to be distributed, prior to its
annuity starting date, to the trust's beneficiary, a natural person, was considered to hold the annuity contract as an agent for a natural person.
The method used to determine the exclusion ratio depends upon the
annuity starting date. Distributions are generally subject to mandatory withholding of 20 percent unless the employee elects a direct rollover.
However, if the
annuity starting date is after December 31, 1986, this exclusion ratio applies to payments received until the investment in the contract is fully recovered.
The method used for recovery of the cost basis depends on the participant's
annuity starting date.
"
annuity starting date"-the date on which benefit payments
