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When can an AP not be a QJSA 100% beneficiary?


Guest curiousgeo

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Guest curiousgeo

If a defined benefit plan does not specifically prohibit an AP from being a QJSA 100% beneficiary, and a QDRO directs a participant to select the QJSA form of benefit with the AP as the 100% survivor beneficiary, for what reason(s) might a plan administrator claim the AP cannot be such a beneficiary (to the extent of the 100% survivor benefit)?

Assume for the above that:

-- the plan's standard QJSA is 50%,

-- it also offers a 100% QJSA survivor option,

-- the unmarried participant has retired and

-- is ready to commence benefit recept, and

-- the survivor benefit is fully subsidized by the plan.

Any/all conjecture welcome, please.

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I would think that the question would come down to whether preservation of spousal status by the QDRO would be enough to defeat the usual 401(a)(9) limitations on non-spousal survivor benefits. Don't know the answer to that.

Of course, if the AP is not more than 10 years younger than the participant (more if the benefits are to start before the participant's age 70) then there would be no issue, would there?

Always check with your actuary first!

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A QDRO can provide that the AP is to be treated as a spouse for purposes of the QJSA beneft. That means that the AP is entitled to the plan's standard form (usually joint and 50%) unless the AP consents to a different form. The AP can consent to a joint and 100%.

The court, in an order that is a QDRO, can order the participant to elect a joint & 100%, but that is not for the plan to enforce.

In the order described, the participant shoud elect a joint and 100% annuity if the participant does not want trouble with the court. The AP can decide whether or not to consent to the joint and 100% annuity in lieu of the regular QJSA form.

The order may be imperfect in its award of the QJSA benefit to the AP, but that is going to be a matter of interpretation for the plan adminstrator. I think the plan adminstrator should be accommodating and apply its superior understanding of the QDRO rules to give effect to the clear intent of the order.

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Guest curiousgeo

Thank you both:

To My 2 cents: The AP is a few weeks older than the participant, who is in his late 50's, so there is no age issue that I can think of.

To QDROphile: The plan administrator already qualified a DRO that attempted to achieve that result (posted about it here), however, the administrator decided that the AP's QJSA would be 50%, rather than the 100% ordered in the QDRO, and cited 1055(d)(2)(B) for that interpretation.

The parties' take on it is that 1055(d)(2)(B) applies to QOSAs, not QJSAs, and so the administrator is mistaken. Therefore, the parties are modifying their QDRO in order to achieve their original intention, and your suggestion is exactly what they have in mind. It's helpful to know that you also think that may be a good approach.

Grateful for any more thoughts on it.

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...the administrator decided that the AP's QJSA would be 50%, rather than the 100% ordered in the QDRO, and cited 1055(d)(2)(B) for that interpretation.

The administrator is changing the QDRO?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Guest curiousgeo

David, thanks for your input too. It does seem to the parties (AP and participant) that the administrator has decided what the AP survivor benefit will be (50%) in clear contravention of the language of the QDRO (100%). The administrator, when questioned, gave as the reason for their interpretation the application of 1055(d)(2)(B). My earlier post on the subject gave more details, but perhaps I was too wordy as no one answered it.

In what way could 1055(d)(2)(B) possibly apply to a 100% QJSA?

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What does the plan say? In general, are participants permitted to elect any joint option they want (consistent with the 401(a)(9) rules) or are some or all of those options limited to spouses as joint annuitant? I have seen plans that only allows the election of joint forms when the joint annuitant is the participant's spouse.

If there is a difference in age of less than a year in combination with an early commencement date, the IRS regs on minimum distributions under 401(a)(9) would not get in the way of electing a 100% joint form.

Does the plan have a 100% joint option? If not, the QDRO cannot require the plan to pay the benefit in that form.

I do wonder if the administrator, in quoting 1055(d)(2)(B) (which deals exclusively with the definition of the QOSA), is just terribly, terribly confused.

Always check with your actuary first!

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Guest curiousgeo

What does the plan say?

...

I do wonder if the administrator, in quoting 1055(d)(2)(B) (which deals exclusively with the definition of the QOSA), is just terribly, terribly confused.

My 2 cents: Yes, the plan allows participants to select the 100% QJSA, and unless the participant is married, does not limit the survivor benefit to spouses.. The SPD language conforms to the plan, and states:

"You can elect a 50%, 75% or 100% joint and survivor annuity.

If you elect a 50% joint and survivor annuity, your joint annuitant

will receive 50% of the monthly benefit you were receiving before

your death."

The QDRO tracks the statutory language about treating th AP as the surviving spouse, so there is no issue there either.

I believe your take on the administrator being "terribly, terribly confused" is actually spot on, and the really annoying part is that it was the administrator's counsel who said this when questioned as to why the strange interpretation of the clear language of the DRO they themselves qualified.

So the only recourse at this point seems to be for the parties to amend their QDRO and approach it as QDROphile suggested, unless there are other options that someone here might suggest. I'm open to all suggestions.

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Guest curiousgeo

...

The court, in an order that is a QDRO, can order the participant to elect a joint & 100%, but that is not for the plan to enforce.

... The AP can decide whether or not to consent to the joint and 100% annuity in lieu of the regular QJSA form.

QDROphile: a question:

1) If the DRO making such a beneficiary order is qualified, why is it not for the plan to enforce by limiting the participant's beneficiary designation options to conform with the court order? A plan administrator and recordkeeper can easily limit any changes a participant might make after the court-ordered beneficiary is determined, especially as the AP is an AP for a portion of the standard retirement benefit in addition to the survivor annuity. Or can't they? Perhaps I'm missing something?

The participant is cooperative either way for now, but the AP is cautious and would hedge her bets, and who could blame her. The challenge is to find the method with the fewest variables to which the PA/recordkeeper is also amenable, one who in this case seems vexingly out of step with both the plan and the statutory scheme, especially given the PA/recordkeeper's size and experience, and the longevity of the plan. While one can always take the matter to court and shove the law at them by force, one does want to avoid that if possible.

Any further comments and criticisms are most welcome.

---

* edited to fix typo

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