As we mentioned during our November post-election advocacy update, 2013 is going to be a very busy and interesting year for Fixed Annuities and your membership and involvement are essential to our success.  

The Congressional Budget Office (CBO) has scored annuities as one of many potential go-to products to consider for new tax opportunities.  In the case of annuities, the CBO projected the potential for an additional revenue to the government of $30 billion. 

Across the Hill, as we had originally suspected, we can now also confirm that the Department of Labor (DOL) are in fact planning to re-propose their Fiduciary rule.  NAFA is actively engaged in monitoring and communicating our position on these topics - and you will note our newest document on the tax-treatment of annuities in this Alert.  

Preserve Tax Deferral Benefits for Annuities

NAFA

In today's challenging economic times a growing number of Americans rely on annuities to help provide security for their retirement. Indeed there are more than 35 million annuity contracts in force representing over $2.4 trillion in annuities. The annuity market is comprised of largely middle-class people with the average annuity being $60,000. In 2010, life insurance companies paid $65 billion in annuity benefit payments providing crucial retirement security to contract holders. 

Annuities are insurance contracts between consumers and insurance companies. There are different types of annuities including fixed annuities, which credit interest based on a fixed interest rate, indexed annuities, which credit interest based on the performance of an external market index, and variable annuities, which credit gains and losses based on the value of a separate account. Annuities can be set-up as immediate annuities, which begin making income payments within a year of purchase, or as deferred annuities, which will make income payments beginning at a future date selected by the owner. In addition to nonqualified annuities, annuities may also be issued as IRA's and under other qualified retirement plans. Annuities are an essential part of a sound financial plan for millions of Americans because they provide financial security for families and individuals during volatile economic periods, and they can be a vital risk management tool to protect retirees against the possibility of outliving their financial resources. Annuities allow wealth accumulation, protection and income distribution options to meet consumers' financial objectives. They are unique among financial products in that they are the only product in the financial marketplace that can provide American retirees with a guaranteed lifetime income stream. 

Under current tax law, the inside earnings build-up in an annuity are taxed at distribution as ordinary income. Additionally, for higher income earners the Dodd Frank Act increased taxes on distribution by 3.8%. Earnings withdrawn before age 50 ½ are subject to a 10% penalty unless an exception applies. Therefore, earnings on an annuity are tax deferred, not tax free. 

Read the Full Document Here

Department of Labor to Offer New Version of Fiduciary Rule in 'Several Months'  

From AdvisorOne, by Melanie Waddell
December 7, 2012 

The Department of Labor plans to repropose its controversial rule to amend the definition of fiduciary under ERISA "in several months," Phyllis Borzi, assistant secretary for the DOL's Employee Benefits Security Administration, told AdvisorOne on Friday. 

Speaking briefly with AdvisorOne before she spoke at the Women's Institute for a Secure Retirement's annual women's retirement symposium in Washington, Borzi said to expect a reproposal of the fiduciary rule early next year. 

"We're not finished" with the rule, Borzi told WISER attendees. "When people see the reproposal, reasonable people with open minds will say [DOL] listened, that [DOL] addressed the legitimate issues that were raised in the long comment process." Added Borzi: "The reproposal will be better, clearer, more targeted and more reasonably balanced." 

However, advisors are still concerned about what the reproposal will look like, as a recent poll by the Financial Services Institute found. The FSI poll found that advisors are becoming "increasingly opposed" to the DOL reproposing its rule-91% opposed in the Nov. 28 poll, which is up from 89% in August and 72% in February.

Read the Full Article Here