Eliminating benefit options.

[Guest Kathleen Fouquet]

I believe EGTRRA permits certain payment options to be eliminated from plans that aren't required to have those options. But is that only true when plans are merging? I have a long standing profit sharing plan that has a joint and survivor option because somebody chose it in error several years ago. The ER's been stuck with it ever since. Can the ER elect to eliminate that payment option now? There's no merger or anything else going on -- he just wants to get rid of that option since it was never required in the first place.

[Archimage]

No, they cannot get rid of it. That is a protected benefit. The ER is stuck with it for current monies in the plan.

[BFree]

Huh?

http://www.benefitslink.com/articles/pridd...ddy000928.shtml

[Archimage]

I stand corrected. Thanks for the link and setting me straight.

[Guest Kathleen Fouquet]

Thanks Bfree. It looks like the ER can finally get rid of the QJ&S option.

[Erik Read]

Can everyone say - THANK YOU!

It's been a long time coming.

Great discussion and information.

Thanks all!

[Guest ptpnthr]

This is not so cut and dried. If a participant has previously elected the annuity, that participant's QJSA cannot be eliminated, even in a DC plan that is not a MPP Plan. This is because EGTRRA did not change the QJSA rules and if the participant elected the annuity, the QJSA rules apply. Even the link above says that. Here, the participant elected the annuity "in error." I'm not sure what effect that has. You may want to check with your legal counsel to see if that allows you to eliminate the QJSA for that participant. Of course, for those participants who have not elected the annuity, you can eliminate the QJSA as long as you meet the other rules (e.g., not a transferee plan of a DB benefit, death benefit goes to spouse, etc.).

[Mike Preston]

The way I read the OP was that somebody filling out an adoption agreement elected to be covered by the QJSA rules and that election was "in error."

[Sully]

I read the article that was posted and the following section confused me:

QJSA Requirements Remain the Same

The final rules do not affect qualified joint and survivor annuity (QJSA) requirements under

sections 401(a)(11) and 417. For example, a profit-sharing plan that offered a life annuity

would also be required to offer a joint and survivor annuity. Money purchase plans must

continue to offer joint and survivor annuities.

Can somebody enlighten me as to why it says a PSP that offered a life annuity would also be required to offer a joint and survivor annuity. I thought we were able to eliminate the different payment options.

Thank you.

[Guest ptpnthr]

You cannot eliminate the QJSA if under the IRC's rules the plan is required to offer the QJSA. For example, a DB plan and a MPP plan are required to offer QJSA's and that is why you can't eliminate it for those plans. For a PSP, you are required to offer the QJSA to a participant unless (1) the participant's benefit is payable in full to the surviving spouse on the participant's death, (2) the participant does not elect a life annuity, and (3) the plan is not a transferee plan with respect to that participant of a plan for which the QJSA is required. The determination of whether a QJSA is required for a PSP is made on a participant by participant basis. If the plan is required to offer the QJSA to the participant because the plan doesn't meet these rules, then you can't eliminate the QJSA for that participant.

[E as in ERISA]

On a PSP: You can't eliminate the QJSA requirement directly; you can only eliminate it by eliminating the option that causes the QJSA rules to apply. If the life annuity option is eliminated from the PSP, then there will be no QJSA requirement. But if the life annuity option remains in the plan, the QJSA requirement will also remain.

[Guest ptpnthr]

Interesting point, but are you sure you can eliminate a mandated QJSA merely by eliminating the life annuity that the participant elected? I have not researched this, so maybe the IRS has some guidance?

[katieinny]

Now I'm confused. I thought once a participant selected a life annuity as his form of payment, it could NOT be eliminated for that participant. The option to select a life annuity (single or J&S) could be eliminated in a PS plan going forward (assuming the requirements listed above are met), but not for anyone who had already made that payment election.

[E as in ERISA]

I agree. You can only eliminate going forward -- not for those who have already elected.

[Guest ptpnthr]

Maybe you can eliminate the life annuity option without eliminating the QJSA? The result would be that unless the plan gets a proper waiver from the participant who previously elected the life annuity, the particpant and the spouse would have the QJSA. If the plan does get a proper waiver of the QJSA, the participant would not be able to elect the life annuity because that would no longer an available form of benefit under the plan. Again, I haven't seen any guidance on this and haven't looked into it.

[katieinny]

When a sponsor of a PS plan decides to remove the annuity option from his plan, he would most likely remove all options that involve annuities (single life and joint life) at the same time. Why remove one without the other?

Your comments indicate that a participant has already made a life annuity election. Therefore, that participant will receive his benefits in the form of a life annuity, even though on a going forward basis, other participants will not have an annuity option of any kind.

For that one participant who already made the election, there is no waiver. He takes the benefit as elected. If payments had not already started, there might be some wiggle room if he's changed his mind.

[Guest ptpnthr]

You are right that once payments have commenced there is no going back. I'm talking about an election to receive the life annuity prior to the time payments commence.

Also, it would be the QJSA that the participant waives, not the life annuity.

As for removing the life annuity but keeping the QJSA, a sponsor would do so because it wants to get rid of all annuities, but is required to keep the QJSA if a participant has already elected the life annuity. We know the QJSA must be kept. The question is can the sponsor get rid of the life annuity? This is more hypothetical than real. My original point is you can't eliminate the QJSA for a participant who has elected a life annuity.

[katieinny]

I think we're beating a dead horse, but as long as we're this far into it, what's a little more.

This is what I think you're asking --- An ER amends the plan to eliminate all annuity options as of 3/1/03. On some date before 3/1 an EE elects one of the annuity options. Let's say he chose the single life option. But before the distributions actually begin, the EE realizes the error of his ways and says to the ER, I should have chosen the J&S option. Does the ER have to honor the EEs request to switch options?

Here's what I think. If the EE changes his mind prior to 3/1, I would say that the ER should permit the switch (again -- as long as payments have not already begun.) Prior to 3/1 the J&S option is still available.

If the EE comes to the ER after 3/1, but still before payments have started, I believe that the ER has the right to say that the J&S option was eliminated and is no longer available. I think to do otherwise would establish a precedent that would effectively negate the ER's amendment to remove the annuity options.