Lincoln Starts to Clear Another Barrier to Annuity Advisory Fee Payments
December 23, 2019 by Allison Bell
Lincoln Financial is making an annuity payment feature change that could boost the power of the new Internal Revenue Service affection for fee-based annuities.
The Radnor, Pennsylvania-based company says it plans to let the holders of many of its annuities use to assets to pay annual advisory fees equal to up to 1.25% of the contract assets, without the payments reducing the value of living benefit riders or death benefit riders.
Lincoln is adding the fee payment feature to variable annuity contracts that are not classified as indexed variable annuity contracts.
The company has to get approvals from broker-dealer firms and state insurance regulators before it can offer the new advisory fee withdrawal treatment.
The shift may help clients use fee-based variable annuities in arrangements that depend heavily on annuity holder access to a predictable flow of living benefit rider benefits.
In the past, the IRS held that annuity holders who used annuity assets to pay advisory fees should pay taxes on the withdrawals. In August, the IRS began sending out a series of private letter rulings concerning fee-based annuities. The IRS told the recipients that they could let annuity holders use contract assets to pay advisory fees equal to up to 1.5% of the contract assets without paying taxes on the cash flowing to the advisors.
The new annuity advisory fee payment approach is separate from the IRS private letter rulings, Lincoln says.