Department of Labor – June 2017 Annuity Update Department of Labor – June 2017

Important Changes Several years ago, the Department of Labor (DOL) proposed significant changes to how advisors who provide investment advice within pension and retirement plans are defined.  These changes became known as the Fiduciary Rule which elevated the types of transactions, where the standard of advice is now held to that of a fiduciary.   A fiduciary standard puts the requirement well above the standard of the product being suitable, in that it cannot just be suitable, but it needs to be in the sole best interest of the participants.  

June 9, 2017 The portion of the rule is scheduled to go into effect June 9, 2017. The IRS has referenced an excise tax on violations of the fiduciary rule.  Under this tax, advisors who make barred transactions, would be hit with a 15% excise tax on the amount of the transaction.  Additionally, this tax could go up to 100% of the amount of the transaction if not remedied within a set time period.

New HealthMarkets Guidelines With this in mind, effective June 9, 2017, HealthMarkets will cease all sales of fixed interest and index annuities that are funded with qualified money (any variety of retirement plan or roll-over from any kind of retirement plan 401(k), SEP, IRA, Roth IRA, etc), pending changes to the current regulations.  In addition, sales of annuities with funds that were withdrawn from a qualified account and subsequently deposited into a non-qualified annuity are also prohibited. 

Qualified Accounts So what are qualified accounts? These are funds that have been qualified by the IRA with certain tax benefits. They are funded with “pre-tax” dollars. There are two main types: Defined Benefit Plans: Pension plans that are funded by companies on behalf of their employees. These plans provide for a defined retirement benefit at a given time in the future. Defined Contribution Plans: These plans are funded by the individual. The contributions are regulated by the IRS but the final benefit is unknown.

Defined Contribution Plans Defined contribution plans come in many different forms: They would include: 401(k) accounts Traditional IRA Accounts ROTH IRA Accounts SEP (Simplified Employee Pension) Accounts TSA, 403(b), 457 and SIMPLE plans There is usually a deduction or tax credit for contributions and penalties associated with access prior to retirement.

Non-Qualified Accounts Non-qualified accounts are always funded with after- tax dollars: Certificates of Deposit Savings Accounts Money Market Funds Life Insurance This is our savings money for a rainy day.

HealthMarkets Sales To restate: After June 9, 2017, HealthMarkets agents will no longer be allowed to sell annuities funded with qualified money. This includes: Rollovers or direct transfers from an existing pension plan, 401(k), IRA, TSA or similar plan into an annuity. Establishment of new qualified annuities with ongoing contributions used to fund such plans. A 1035 Exchange of an existing IRA Annuity into a new annuity account. Any annuity sale that is associated with a qualified account.

Distributions from Qualified Accounts Agents are also not allowed to sell an annuity that is funded with the after-tax distribution from a qualified account. Required Minimum Distributions Monthly income from pension plans Accounts that have been closed where distributions have been made and taxes have been paid. Inherited IRA Accounts

Good News Agents are still able to sell non-qualified annuities. Premiums must come from a non-qualified source: Non-qualified CD Personal savings Life insurance death benefits The sale of a business or personal property. A 1035 Exchange from an existing non-qualified annuity Agents must continue to follow all appropriate certification and appointment processes with HealthMarkets and our carrier partners.

Summary We will continue to pay close attention to how this develops and will choose a course of action that will best serve all of our collective interests. If you have any questions please contact a member of the Life Sales Support Team.