Removal of QJSA in restatement

[Guest Sehrl]

Can QJSA be removed from a Profit Sharing plan during the restatement process. I believe optional forms of benefit, including QJSA can now be removed from a PS plan, but 90 day participant notice is required. Since the restatement is effective Jan 1, 2002 it seems like we have missed our window of opportunity. If that is correct, we would then have to amend the plan after the restatement in order to remove QJSA. Is this correct? We would obviously prefer to handle the change right in the restatement.

[QDROphile]

Put it in the restatement, but with an appropriate future effective date.

[Guest Sehrl]

That sounds like the way to do it, but the effective date of the restatement is January 1, 2002. I believe for calendar year plans, that has to be the effective date. (Not sure?) If that is correct, how would I flag one option in the adoption agreement (removal of QJSA) with a later effective date? Can that be done or would you restate the entire document as of a later date in 2002?

[QDROphile]

The future effective date applies only to the provision that eliminates the distribution options. How it shows up depends on the style of your document. Do you have a section for the various effective dates since 1996? If so, this is another special effective date. Or you can go to the soon-to-be obsolete provisions themselves and add a sentence that says the the provision becomes ineffective after xxx date. Nevermind if you are using a prototype. You get what you pay for.

[david rigby]

Just to be careful, is someone suggesting the GUST restatement date could be effective January 1, 2002? Does not make sense to me. Is it a problem?

[M R Bernardin]

QDROphile, there are ways to do this in a prototype. I do it all the time.

[Bob R]

The IRS doesn't care what the effective date of the GUST restatement is as long as all of the GUST required provisions are retroactively effective. (This is mentioned in one of the FAQs on the IRS web site at: www.irs.gov/ep.)

Also, some plans have the elimination of the QJSA built into the document. The language provides that if this an amendment eliminating QJSA's, then the amendment will generally be effective as of the later of the stated effective date or 90 days after the notice is given to participants.

One final point. When eliminating QJSAs, be careful with the impact on the death benefit. Some plans provide a QPRSA equal to the minimum 50% so that the participant can designate any other beneficiary for the remaining 50% w/out spousal consent. By eliminating the QJSA, 100% must go to the spouse unless the spouse consents. So, the participant would need to get a new beneficiary designation form if the death benefit in excess of the minimum QPRSA was designated to go to someone other than the spouse and the participant still wants that beneficiary to receive a death benefit.

[Guest Boilerburm]

Is there sample language as to what the 90 day notice removing the QJSA is supposed to look like?

[Guest Sehrl]

I believe the notice is just a new SPD or a SMM that no longer lists the QJSA as a distribution option.

[Guest slt]

Careful! Didn't EGTRRA eliminate the need to provide the notice? I thought the notice was tied to an old regulation that predated the EGTRRA change. You should look into this first.

[Guest MES]

You must give notice and/or there must be a delayed effective date in order to remove j & s (i.e., the amendment can't be effective until the earlier of the 90th day after plan participants are notified or the first day of the second plan year in which the amendment is adopted). The final regulations address this.

[Guest Sehrl]

Slt, I don't believe EGTRRA states that the notice requirement is no longer valid. Guidance has to be issued by Dec 31, 2003 on the removal of protected benefits based on EGTRRA provisions. I believe only then will the new provisions be effective.

[Guest ksuhre]

I think the safer thing to do at this point is give the 90 day notice, but oddly, there doesn't seem to have been any discussion or analysis of this point that I could find. The new statutory provision gives pretty broad regulatory authority to Treasury to limit the exemption, and there doesn't seem to be any indication in the legislative history or otherwise that Congress necessarily wanted to get rid of the 90 day notice rule. It's kind of a bizarre situation because the regs came out after the legislation was drafted, but before the legislation was actually enacted, but the regs are consistent with the new legislation. If you're filing for a determ on Form 5300, item 12a asks whether you've eliminated any optional forms (including QJSA) and an explanation is required. Has anyone out there had any response from the IRS on how they would handle a case where the option was eliminated without the 90 day notice? Technically, I think if you eliminate an optional form relying on the new legislation and take the position notice is not required, your determination letter would not cover that change. In any event, it's not a big deal to give the notice.

BTW, I'm assuming prior posters are not suggesting you could remove QJSA from a profit sharing plan that is the transferree of a pension plan that was subject to QJSA.