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FOR IMMEDIATE RELEASE

CONTACT:
Pecanne Jennings
Chief Marketing Officer
703.516.9300
pjennings@aspa.org

PROPOSAL ON LIFETIME PAYOUTS FROM NONQUALIFIED ANNUITIES THREATEN AMERICAN WORKERS’ QUALIFIED RETIREMENT PLANS

July 20, 2004 - (Arlington, Va. )- The American Society of Pension Actuaries, ASPPA, announced today that it opposes a proposal Congress is considering which would exclude qualified retirement plans from a tax break on lifetime annuity payouts. The Retirement Security for Life Act (H.R. 4849) would allow a taxpayer to exclude annually from taxable income up to 50% of the taxable portion of a lifetime payment from nonqualified annuities. Nonqualified annuities are investments purchased by individuals outside of a traditional employer-sponsored retirement plan. The proposal would permit up to $20,000 per year in tax-free income from nonqualified annuities, giving such annuities a significant economic advantage over qualified retirement plans.

According to ASPPA Executive Director, Brian H. Graff, Esq., "We are very concerned the proposal will have a negative impact on small business retirement plan coverage, unless it is modified to cover annuities from qualified retirement plans as well. It is challenging enough to convince small business owners to adopt qualified retirement plans for themselves and their workers with all the ERISA requirements involved. A special tax incentive for only nonqualified annuities will make it even more challenging, given that many small business owners could actually fare better with the new tax-favored nonqualified annuity."

A real-life rather typical example clearly demonstrates how the current proposal would favor nonqualified annuities. Assume a small business with two owners age 50 and 13 employees. In order for both of the owners to save the maximum annual amount allowed in their qualified retirement plan each owner contributes $41,000 on his own behalf. They contribute another $34,751 on behalf of their 13 employees in order to satisfy the qualified retirement plan nondiscrimination rules. Annual plan administration costs total $2,000 for a total retirement plan cost of $118,751.

Now, compare the yields available to these owners if they use that amount to each purchase an individual nonqualified deferred annuity rather than establishing and contributing to a qualified retirement plan. Assuming an 8% annual rate of return, 40% combined tax rate, and a normal retirement age of 65, the owners will earn an after-tax lifetime annuity monthly payment of $7,834 if the contribution is invested in a nonqualified annuity. The after-tax monthly yield for a lifetime payment from contributions to a qualified plan totals only $6,296. Multiply the $1,538 differential by 12 months per year and you see that choosing a qualified retirement plan would reduce each retirement benefit by $18,456 per year, or $276,840 over 15 years, assuming the owner lives till age 80.

In many cases, small business owners would not be able to pass up the clear economic advantage inherent in an individual annuity that qualifies for the proposed exclusion from taxable income. Consequently, fewer workers in America’s small businesses would benefit from employer-sponsored retirement plans.

According to Bruce L. Ashton, Esq., ASPPA President, "From a retirement policy perspective, it is important that we encourage annuitization by all working Americans. That is why ASPPA strongly believes this proposal should be expanded to cover annuities from employer-sponsored defined contribution plans. We look forward to working with Congress on this important issue."

ASPPA is a national organization of retirement plan professionals dedicated to the preservation and enhancement of the private pension system in the United States. ASPPA offers education and professional credentials for 401(k) administrators (QKA), actuaries (MSPA, FSPA), pension consultants (CPC), pension administrators (QPA), and other benefits professionals (APM). ASPPA’s more than 5,400 members provide consulting and administrative support to over half of the private retirement plans in the country.

For more information about ASPPA, visit www.aspa.org.