Do the QJSA requirements apply to a participant's Other Investments Ac

[Guest Darrell]

Do the QJSA requirements apply to a participant's Other Investments Account in a mppp ESOP? I realize that Code section 401(a)(11)© provides an exception to the QJSA requirements for the portion of the P's accrued benefit to which the requirements of sec. 409(h) apply, but it has alway been my understanding that this does not except the portion of a mppp ESOP that is not invested in employer securities. I am restating an ESOP for GUST using the Corbel doc., and Corbel insists that the QJSA rules do not apply to any portion of a mppp ESOP. I don't think that is true, but if it is, can I now eliminate the annuity option from the plan?

[QDROphile]

Why doesn't 409(h) apply?

[Guest Darrell]

IRS Announcement 95-33 states that "IRC Section 401(a)(11)© provides an exception to the QJSA and QPSA requirements for the portion of a participant's accrued benefit in an ESOP that consists of employer securities not readily tradeable on an established market." Use of the words "the portion of" suggests to me that only the portion of the participant's account invested in employer securities is excepted from the QJSA requirements.

[david rigby]

I thought the emphasis was on "not readily tradeable on an established market".

[RLL]

Darrell ---

Corbel is correct about the ESOP exception to the QJSA requirement.

Why was the annuity option ever included in the ESOP? It appears that IRC section 411(d)(6)© would allow it to be eliminated.

If that's what IRS Announcement 95-33 says, it is an incorrect interpretation of IRC section 401(a)(11)©. Remember that the IRS still does not have a good understanding of all the IRC's ESOP provisions.

Section 401(a)(11)© clearly states that the QJSA exception for ESOPs is available to the extent that section 409(h) applies to the accrued benefit, and section 409(h) clearly applies to the entire accrued benefit under an ESOP. An "other investments account" under an ESOP (whether or not the ESOP includes a money purchase plan) is subject to the applicable requirements of section 409(h) by reason of the last sentence of section 4975(e)(7). The only exception would be if the "ESOP" included a non-ESOP portion which is not subject to the ESOP requirements.

It is clear that section 409(h) does not require distributions in employer stock....it merely requires that participants be given elections to receive distributions of their entire ESOP accrued benefits in employer stock, unless the "ownership restriction" or S corporation exceptions of section 409(h)(2) apply.

I'm somewhat surprised to hear that a lawyer would use a Corbel document for an ESOP.

[lkpittman]

Darrell:

Did you ever get a definitive answer to your question? We're also now restating a combo MPPP ESOP and pondering the question of eliminating the QJSA--or even converting the MPPP portion to a PSP to get out of the QJSA requirements. Input would be appreciated.

Thanks.:confused:

[Guest Darrell]

Based on my research and my conversations with the IRS, I agree with RLL's analysis. The last sentence of Code section 4975(e)(7) suggests that the entire esop is subject to Section

409(h), which makes the entire esop exempt from the QJSA rules. Good luck.

[RLL]

Hi Darrell ---

It's nice to know that the IRS agrees with me....even though I frequently disagree with the IRS.

For purposes of this ESOP Message Board, it's safe to assume that the IRS is correct when it agrees with me. If the IRS does not agree with me, my position is more likely to be the correct one.

[Kirk Maldonado]

Having known and worked with RLL for many years, I think his assessment of the situation is generally accurate.