Missed QPSA payments

[hollywood]

We have a plan that has not been able to locate the surviving spouse of a deceased TV participant for a number of years.  The TV participant would have turned 65 in 2015 (when QPSA payments would have started) and we are wanting to begin distribution of the QPSA for the spouse soon.  The plan does not allow for retroactive payments.  Would the QPSA benefit due to the spouse be actuarially increased to 2017 based on the participant lifetime or the spousal lifetime?  I cannot find any literature that handles this issue.  Has anyone come across this?  thank you 

[My 2 cents]

Based on my understanding, payment of survivor benefits to the surviving spouse of a deceased participant is not subject to the rules for retroactive annuity start dates.  They come into play with respect to commencing payments to the participant, to ensure that the spouse is not shortchanged on the QJSA requirements. 

If the surviving spouse's benefit was supposed to start as of a particular date but you were unable to locate him or her, the plan probably ought to indicate that a delay in the commencement of the QPSA benefit would result in an actuarial increase.  Alternatively, you might allow the benefit to start on a retroactive basis.  It ought to be one or the other.

Of course, you should have been diligently searching for the surviving spouse before the QPSA was supposed to start being paid. Why can you find the spouse now but couldn't before?

[hollywood]

Thanks.  Our question comes down to whether the actuarial increase should be based on the spouse's lifetime or the participant's lifetime.  We just cannot find anything to clarify in regulations etc. and the plan document is silent.

[david rigby]

The purpose of any actuarial increase is to "make up" for the missed payments.  Therefore, it should be based on the demographic data of the recipient. 

[hollywood]

thanks - that makes sense!

[Calavera]

Be sure QPSA should have been started at participant's age 65 and not at participant's ERA that could be earlier than 65 such as 55 for example. See how the amount and the time of payment of QPSA are described in your plan document. Surviving spouse may be entitled to the value of the early retirement subsidy. In that case she will get actuarial increases from ERA.

[StaceyHelton]

On 9/18/2017 at 2:52 PM, david rigby said:

The purpose of any actuarial increase is to "make up" for the missed payments.  Therefore, it should be based on the demographic data of the recipient. 

That's different.  Every plan I have ever worked on would calculate the increase to the participant's full benefit, then calculate the J&S reduction accordingly.  I have never seen a plan increase a QPSA benefit based on the surviving spouse's life expectancy.

[david rigby]

2 hours ago, StaceyHelton said:

That's different.  Every plan I have ever worked on would calculate the increase to the participant's full benefit, then calculate the J&S reduction accordingly.  I have never seen a plan increase a QPSA benefit based on the surviving spouse's life expectancy.

As I think about it more, I can see this as a valid method, for simplicity.  I probably would not recommend this method, but it might be acceptable.

BTW, I've seen more than one document that requires surviving spouse benefits commence at the earliest possible date, with retroactive payments when the spouse shows up late. Perhaps the original poster wants to review the document for something similar?

[My 2 cents]

Most of the plans I have seen specify that the spouse would start to collect at the participant's earliest retirement date, and provide further that if the spouse chooses to delay commencement, then the amount that would have been payable to the spouse is actuarially increased based on the spouse's demographics, not those of the deceased participant.  Example:  Spouse is entitled to $500 per month death benefit when the participant would have been 55 (say the spouse was then 52).  If the spouse chooses to defer receipt for 10 years, then you have to pay the spouse $500 increased by an actuarial equivalence factor for deferral from 52 to 62.  How could you possibly do it otherwise?

[StaceyHelton]

On 10/5/2017 at 3:30 PM, My 2 cents said:

Most of the plans I have seen specify that the spouse would start to collect at the participant's earliest retirement date, and provide further that if the spouse chooses to delay commencement, then the amount that would have been payable to the spouse is actuarially increased based on the spouse's demographics, not those of the deceased participant.  Example:  Spouse is entitled to $500 per month death benefit when the participant would have been 55 (say the spouse was then 52).  If the spouse chooses to defer receipt for 10 years, then you have to pay the spouse $500 increased by an actuarial equivalence factor for deferral from 52 to 62.  How could you possibly do it otherwise?

Most of the plans that I have worked on provide that the QPSA benefit is calculated as if the participant retired with a 50%J&S benefit immediately prior to the date of death, and the beneficiary receives that 50%.  So you calculate the benefit the participant would have been entitled to on that date, and then apply the appropriate J&S reduction factor, then the beneficiary is entitled to the calculated beneficiary amount.

[My 2 cents]

56 minutes ago, StaceyHelton said:

Most of the plans that I have worked on provide that the QPSA benefit is calculated as if the participant retired with a 50%J&S benefit immediately prior to the date of death, and the beneficiary receives that 50%.  So you calculate the benefit the participant would have been entitled to on that date, and then apply the appropriate J&S reduction factor, then the beneficiary is entitled to the calculated beneficiary amount.

It is my understanding that the continuation percentage for the QPSA must be at least the continuation percentage for the QJSA.  I have seen more than a few plans that use a 100% continuation percentage for the QJSA.  In those plans, the QPSA should be based on a presumed election of a 100% joint and survivor option.

[StaceyHelton]

36 minutes ago, My 2 cents said:

It is my understanding that the continuation percentage for the QPSA must be at least the continuation percentage for the QJSA.  I have seen more than a few plans that use a 100% continuation percentage for the QJSA.  In those plans, the QPSA should be based on a presumed election of a 100% joint and survivor option.

Agreed, I should have worded it to show whatever the plan's QPSA was.  When I was at PBGC, one plan had a married normal form of a 65% pop-up.  For their QPSA benefit, we'd calculate that benefit, and the surviving spouse would get 65% of what the participant would have received.

I haven't actually worked on any plans with a QPSA of 100%; the majority have had the standard 50% of the participant's benefit.  And very few of them required the surviving spouse to start at the earliest date available, most allowed the spouse to defer until the participant's NRD (or even RBD in some cases).

[My 2 cents]

The plans I have seen call for the payments to start at the participant's earliest retirement date, but many would permit the spouse to defer commencement to a later date (with a suitable actuarial increase based on the spouse's age from the earliest payment date to the actual commencement date).