EGTRRA cash out rules

[Guest Katharine Jungkind]

EGTRRA provides that a plan may provide that the present value of a participant's nonforfeitable accrued benefit may be determined for distributions after 2001 without regard to the portion attributable to rollover contributions. The new model good-faith amendments seem to indicate that this provision may not be available for plans which are subject to the QJSA rules--"The following optional sample amendment may be adopted by plans that provide for involuntary cash-outs, other than plans that are subject to the qualified joint and survivor annuity requirements of §§401(a)(11) and 417 of the Code." Does this mean that a profit sharing plan which includes the survivor annuity requirements cannot adopt an amendment providing for the exclusion of rollover contributions in these calculations?

[Bob R]

It depends on how the profit sharing plan is worded. If the normal form of distribution is a QJSA, then the new cash out rule doesn't apply. But, if the plan only requires a QJSA if a participant elects an annuity form of payment, then the new rule can be used. The point is that EGTRRA doesn't permit you to exclude rollovers in determining whether the interest in the plan is over $5,000 for purposes of the QJSA rules. A technical correction to the law will probably be needed to change that. So, you need to look at the plan -- if it states that a distribution will be in the form of QPSA unless an alternative is elected, then the new rule doesn't apply. But, if it says that a participant can elect a lump sum (without spousal consent) or an annuity, and that it's only if an annuity is elected when the QJSA rules apply (e.g., the need to get spousal consent), then the new rule could be used.