- What is a QLAC?
A QLAC refers to an annuity product known as a Qualified Longevity Annuity Contract. It’s a type of deferred income annuity that pays a lifetime income starting on a future date, in return for one lump-sum payment of pretax assets. Because payments begin later in life, a QLAC is designed to help prevent you from outliving your savings. The QLAC offered through UC is a component of the UC Pathway funds and is called Deferred Lifetime Income.
The income start date for Deferred Lifetime Income is 78, which is later than the age at which individuals are required to begin taking required minimum distributions from qualified retirement plans and traditional IRAs. (You can contact the insurer directly to change the payment start age; additional restrictions may apply.)
- Why did UC choose to offer a deferred income annuity?
UC chose to offer a deferred income annuity because regular income becomes more meaningful with age. Delaying the start of payments until a later age—when it matters most—may provide higher lifetime income than if you started receiving income immediately.
- Do I have to buy Deferred Lifetime Income?
No. Choosing to purchase Deferred Lifetime Income is a highly personal decision that is entirely up to you. You’re encouraged to meet with a UC-dedicated Fidelity Workplace Financial Consultant or your own financial advisor before making your decision.
- What if I previously purchased a QLAC outside of UC?
Contact your financial advisor. The IRS limits the amount of money you can contribute to a QLAC, so check all other personal retirement accounts—including any with previous employers—to ensure you don’t exceed the IRS limits due to other annuity purchases. You could be subject to penalties if you exceed maximum purchase limits.
- How do I pay for Deferred Lifetime Income?
You pay with money from your 403(b), 457(b), or DC plan balance that is invested in either the UC Pathway 2020 Fund or the UC Pathway Income Fund, two of the target-date investments available in the UC RSP. This payment is called the premium.
- Why can I only purchase Deferred Lifetime Income using my assets invested in either the UC Pathway 2020 Fund or the UC Pathway Income Fund, as opposed to other funds in the plan?
The UC Pathway Funds are designed to automate and simplify your retirement investing journey. Deferred Lifetime Income is a feature of the UC Pathway Funds that is intended to further streamline your spending years in retirement. The option to purchase Deferred Lifetime Income has been limited to these two funds because the UC Pathway 2020 Fund and the UC Pathway Income Fund are intended for those who are nearing or in retirement, and best align with the ages at which you are eligible to purchase Deferred Lifetime Income. A UC-dedicated Fidelity Workplace Financial Consultant can help you transfer assets into these UC Pathway Funds. Call 1-800-558-9182 or schedule a meeting.
- What happens after I purchase Deferred Lifetime Income?
The portion of your UC RSP balance used to purchase Deferred Lifetime Income will be deducted from the UC RSP plan you selected to use (e.g., 403(b), 457(b), or DC plan) and sent to the insurance provider. The rest of your savings can be invested in any UC RSP investment option of your choice and will be available to you to withdraw. You’ll be able to view both your UC RSP balance and your Deferred Lifetime Income on the NetBenefits® website.
You’ll receive a welcome packet from the insurance provider that issues your Deferred Lifetime Income annuity. The packet will include a certificate verifying your purchase of Deferred Lifetime Income, any terms and conditions, and other details such as direct deposit enrollment instructions. Because Deferred Lifetime Income is held outside of your UC RSP plans, any information or communication about Deferred Lifetime Income will come directly from the insurance provider. Contact the insurance provider directly if you have any questions about your Deferred Lifetime Income annuity or if you'd like to request a full refund of your purchase.
- What if I change my mind after purchasing Deferred Lifetime Income?
You will have 90 days from the effective date of your annuity contract to cancel and receive a full refund of your premium – also known as a “free-look” period. The contract effective date is the date that the insurance company receives your premium, which occurs at the end of the election window in late September.
To initiate the cancellation of your Deferred Lifetime Income purchase, contact the insurance company after receiving your insurance certificate.
Your full premium will be returned and invested in the UC Pathway Income Fund at the closing price on the date the funds are received by Fidelity from the insurer. While the full premium amount will be returned depending on market conditions, you may have more or less shares than you did prior to your purchase.
- Can I purchase Deferred Lifetime Income if I retire before age 62?
You are eligible to purchase Deferred Lifetime Income as long as you have a total vested pretax balance of at least $10,000 between the UC 403(b), 457(b), and DC plans and are between the ages of 62 and 69 on December 31 of the purchase year, regardless of when you left or retired from UC. Note that when you retire or leave UC and you do not withdraw, transfer, or rollover your accounts to another custodian, you will have access to your full retirement savings if you need to withdraw them before age 62. However, unless an exception applies, the IRS assesses penalties on withdrawals made prior to age 59.5.
- If I purchase Deferred Lifetime Income, can I still leave some of my retirement savings to my family?
In many cases, yes. It depends on how much you spend and how long you live. Depending on how much Deferred Lifetime Income you purchase, you may have assets remaining in the UC RSP plan. Any assets leftover will remain available for you to withdraw. You can leave this portion of your retirement savings to your beneficiary(ies) the same as you would with your other retirement savings.
Depending on your circumstances, your Deferred Lifetime Income may also be left to your beneficiary(ies). For instance, each Deferred Lifetime Income payment option (single life, 50% Joint & Survivor, and 75% Joint & Survivor deferred income annuity) allows you to select a beneficiary(ies) who will receive any outstanding premium that has not yet been received by you and/or your spouse upon your death(s). (See “What happens if I die?” for more details.)
- What if I change employers before or after I purchase Deferred Lifetime Income?
Your UC employment status does not affect your eligibility to make a purchase.
If you’re between the ages of 62 and 69 on December 31 of the purchase year, with a total pretax UC RSP balance of at least $10,000, you will still be eligible to purchase Deferred Lifetime Income. If your balance is below this amount, you will not be eligible to purchase Deferred Lifetime Income.
When you purchase Deferred Lifetime Income, the annuity certificate is held by you, outside of the UC RSP plans. That means, if you change employers after purchasing Deferred Lifetime Income, you take your Deferred Lifetime Income with you. Keep the insurance provider updated with any changes in your contact information.
- What happens if I die?
When you die, any money you used to purchase Deferred Lifetime Income (the premium) that has not been paid out to you will go to a spouse or beneficiary(ies). Here’s how it works:
OPTION 1: SINGLE LIFE DEFERRED LIFETIME INCOME
- If you die before age 78, before payments begin: The amount you paid to purchase Deferred Lifetime Income (the premium) will be returned to your beneficiary(ies).
- If you die after payments begin but before you have received the amount you paid to purchase Deferred Lifetime Income (the premium): The difference between the amount you paid (the premium) and the amount you already received in monthly payments will be returned to your beneficiary(ies).
- If you die after you have received the amount you paid to purchase Deferred Lifetime Income (the premium): Your beneficiary(ies) will not receive any payment.
- If you die before age 78, when payments begin: The insurer will make monthly payments to your spouse in the amount of 50% or 75% (depending on the option selected) of the monthly income you would have received. Payments will start when you would have turned 78 and will continue for the remainder of your spouse’s life.
- If both you and your spouse die before you turn 78: The amount you paid to purchase Deferred Lifetime Income (the premium) will be returned to your beneficiary(ies) (persons other than your spouse).
- If you die after age 78, after payments begin: Your spouse will continue to receive 50% or 75% (depending on the option selected) of the monthly income you would have received for the remainder of their life.
- If both you and your spouse die before you have received the amount you paid to purchase Deferred Lifetime Income (the premium): The difference between the amount you paid (the premium) and the amount you and your spouse already received in monthly payments will be returned to your beneficiary(ies).
- If you and your spouse die after you have received the amount you paid to purchase Deferred Lifetime Income (the premium): Your beneficiary(ies) will not receive any payment.
Will Deferred Lifetime Income affect my minimum required distributions?
Deferred Lifetime Income is a deferred income annuity, known as a QLAC, that allows you to defer paying taxes on your income. The amount you use to purchase the QLAC is excluded from the minimum required distribution calculation so you will not have to pay taxes on those assets until you start receiving your monthly income payments at age 78. As a reminder, QLAC purchases are subject to a specific limit set by the IRS. Please consult a qualified tax advisor.
Should I purchase Deferred Lifetime Income at age 62 or wait until age 69?
You may make a one-time QLAC purchase in any year that you are eligible. While QLAC income is highly dependent on the level of interest rates, the earlier you purchase the QLAC, the more income it can potentially provide you due to a longer deferral period. However, everyone’s needs and circumstances are different so you should consult with your financial advisor or use the Fidelity Planning and Guidance tool on the on the NetBenefits® website to help you with your retirement planning.
- How is Deferred Lifetime Income different from my UC pension?
The UC pension, also known as the UC Retirement Plan (UCRP), provides a monthly income benefit to eligible members upon retirement. The payment is based on UCRP service credit, eligible pay, and age at retirement.
Deferred Lifetime Income is not related to UCRP. It is an annuity that you purchase using your funds in the UC RSP that starts paying benefits when you turn age 78. The payment amount is based on how much you purchase now.
Are there any upfront fees or commissions incorporated into the Deferred Lifetime Income purchase price?
While these kinds of extra fees are common in the retail marketplace, UC has negotiated rates that exclude upfront fees and commissions. Please read the insurance company materials for any additional fees that may apply.
- Is there an option to provide lifetime income to my domestic partner?
No, the Joint & Survivor option is only available to legally married spouses. You may name your domestic partner to be your beneficiary.
If your spouse changes after purchasing a Joint & Survivor option, you may or may not be able to change your spousal designation. Please contact the selected insurer to determine if there are specific circumstances in which they permit spousal designation changes.
What happens if the insurance company becomes insolvent?
The insurance companies vetted for this program are among the highest rated, well capitalized insurers in the industry. In the rare case of insurer insolvency, each state, along with the District of Columbia and Puerto Rico, has a life and health insurance guaranty association to protect its residents, which usually offers resident policy holders a baseline of $250,000 or more in benefit protection for annuities.
Can I purchase some Deferred Lifetime Income this year and more next year?
You can only purchase the QLAC one time through the UC RSP program. As a reminder, QLAC purchases are subject to a specific limit set by the IRS. Please consult a qualified tax advisor.
Will I be taxed on the purchase of Deferred Lifetime Income?
The amount used to purchase the QLAC is not taxed at the time of purchase and is excluded from the minimum required distribution calculation. However, you will be responsible for paying taxes on the monthly income payments you start receiving at age 78. As a reminder, QLAC purchases are subject to a specific limit set by the IRS. Please consult a qualified tax advisor.