IRS Rules Again on Annuity Issues in Defined Contribution Plans


In PLR 201048044 (September 9, 2010), the Internal Revenue Service again addressed the application of certain tax rules relating to distributions from defined contribution retirement plans in the form of an annuity.


The ruling considered a proposed target date fund with a guaranteed lifetime withdrawal benefit (GLWB) to be offered as a §401(k) investment option. As described in the ruling, the proposed fund offers the following features:

As a participant approaches retirement age, his or her investments in the fund are automatically transitioned into group flexible premium variable deferred annuity contracts with a GLWB feature provided by multiple insurance companies. A GLWB generally provides a participant with a minimum guaranteed annual payment stream for life, regardless of his or her account balance; The annuity contract value continues to be invested in a target date strategy. Because of the GLWB feature, the participant’s mix of equity-to-fixed-income instruments does not decrease as the participant reaches retirement. Instead, the participant’s investment under the target date strategy retains significant exposure to equity; and Beginning at age 62 and after the participant terminates employment, the participant may elect to receive the GLWB.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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