Q. Is a longevity annuity an option at any age? What exactly makes an annuity a longevity annuity? And will longevity annuities be provided for inside the 401(k) platform, or are they an option outside the 401(k)?
A. There is no age restriction under the final regulation, though the actual annuity contract could restrict the age at time of purchase. Realistically, though, one would need to have a significant accumulation in their retirement plan account balance in order to purchase an annuity benefit of any significance (especially with the restriction that no more than 25% of a participant's account balance may be used to purchase the benefit). Thus, employees who are younger generally would not purchase the benefit.
What exactly makes an annuity a longevity annuity? A longevity annuity is any annuity designed to provide a benefit commencing at an advanced age in the future. What is unique about the latest regulations is that they will permit an individual to purchase an annuity that would commence payments at an age later than 70 1/2 (but no later than 85), yet be able to retire before that age and not need to take a required minimum distribution if there are over age 70 1/2. So this is a method of deferring the receipt of taxable income for those who wish to preserve, rather than spend, retirement plan assets. And, like other annuities, it is another method of protecting retirement assets at later ages from adverse market events.
As for whether longevity annuities will be provided for inside the 401(k) platform or outside the 401k — they are inside the 401(k). Participants have always been able to take their 401(k) distribution and purchase an annuity outside of the 401(k), and that won't change.