Income Rider on Annuity

[CassandraS]

Is it permissible to hold an annuity in a defined benefit plan, if the annuity has an income rider ?

[Andy the Actuary]

I saw the movie Easy Rider and had a Red Ryder BB rifle as a child. I also know about Ryder who rents trucks.

But what is an "income rider?"

[CassandraS]

Haha. I had to look it up too- and even after reading a few articles, I am still unsure of what it means. The following is the simplest definition I was able to find. " It is an optional benefit that can be attached to an annuity for an additional annual fee, and will provide a lifetime income stream that you can turn on in the future.Some Income Riders grow at a contractually guaranteed rate that will compound during the deferral years for future lifetime income. Other Income Riders lock in market gains that can be used for future lifetime income." Source

A client is being told that the regs do not allow such a product to be held in an annuity. Of course, the person who made that statement does not have a cite.

[Andy the Actuary]

This is non-plussing stuff ! Sounds like the kind of rider that would be attached to a life insurance rather than annuity contract. Uncle and sorry I couldn't help.

[Bird]

Well, I think the actual definition is "It is an optional feature that increases commissions..."

The ones I am familiar with, and I get the vague sense that is what is being described here, are for variable annuities, and guarantee an income based on a guaranteed interest rate, no matter what happens to the underlying value in the contract. So it would seem that if they are buying an annuity, they are using it as any other asset in a trust.

Anyway, I wouldn't think it could be included in a DB funding vehicle. You'd effectively be using plan assets (it's an internal expense) to provide some benefit that is other than that called for in the document.

[CassandraS]

Thank you both.