Merged PSP/MPP and Spousal Consent

[Guest CRC02]

PSP permits participants to take an in-service distribution. The plans requires that the distribution be a distribution of the Participant's entire account balance. MPP is merged into the PSP, and an account is created for MPP money (which is subject to the J&S rules).

A Participant (who was a MPP participant and has a MPP account in the PSP) wishes to take an in-service distribution, but his spouse refuses to consent. As the Plan requires that the Participant's entire account balance be distributed when the Participant takes an in-service distribution, can the Plan require spousal consent for the entire account for the sake of administrative convenience? Or because the PSP money is not subject to the J&S rules, must the plan permit a distribution of that portion of the account regardless of whether consent is obtained? Any thoughts?

[KJohnson]

I think the first point is that the Plan better not be allowing in-service distribuitons of MPP account balances AT ALL unless the participant is past the Plan's normal retirement age.

As to consent requirement, you could draft a plan not to have spousal consent for any distribuitons of non-MPP money but that would depend on how your document is drafted.

What does the Plan say?

[Guest CRC02]

I am revising the Plan to incorporate these provisions, so it will say what I want it to say.

Does anyone have an idea as to whether you can subject PSP money in a distinct and separate account from MPP money to J&S rules for administrative convenience?

[QDROphile]

Applying the J&S requirements to all accounts is a common approach to rationalizing the requirements that would otherwise apply only to the MPP accounts.

[Mike Preston]

I think I'd rather see a document change than rationalization.

[QDROphile]

CRC02 is revising the document. The question was could it be written that way. There are multiple definitions of "rationalizing." As a lawyer you are most involved with one of them ;-).

[cathyw]

I don't think that you can add spousal consent requirements to a profit sharing account that never had J&S. The regulations under 411(d)(6) indicate that election rights are a key element in defining optional forms of benefits; different election rights mean different optional forms of benefits. Therefore, if you add spousal consent as a requirement for distribution, that is a separate and different optional form of benefit. And if you no longer allow lump sum distributions without spousal consent, you have eliminated an optional form of benefit. And, as we know, you cannot eliminate an optional form of benefit (at least as to benefits already accrued), unless the IRS specifically allows the elimination.

I think with the current popularity of merging MP and PS plans, the IRS should issue guidance on whether extending J&S to PS accounts will have a specific exemption from the cut back rules.

[KJohnson]

CATHYW

I RAISED THIS QUESITON WITH WICKERSHAM A FEW YEARS BACK. HE INDICATED THAT HE DID NOT THINK THAT THE SERVICE WOULD TAKE THE POSITION THAT ADDING SPOUSAL CONSENT TO PS MONEYS WOULD RAISE A 411(d)(6) ISSUE.

HOWEVER, I THINK YOU ARE RIGHT THAT THERE IS AN ISSUE.

OF COURSE THIS WOULD BE THE HEIGHT OF IRONIES SINCE 411(D)(6) WAS BROUGHT IN BY REA. THUS THE VERY LEGISLATION THAT WAS INTENDED TO STRENGTHEN SPOUSAL RIGHTS WOULD MEAN THAT YOU COULD NOT REQUIRE SPOUSAL CONSENT TO A DISTRIBUITON.

[Mike Preston]

Wick reiterated this at the ASPA Summer Academy a couple of months back.

[RTK]

An interesting perspective is that the basic plan change is the addition of another form of benefit - a single life annuity - for the PSP account. The spousal consent is added only because the Code and ERISA requires it if the life annuity is designated as normal form.

Also, I am not sure what an "election right" is under IRS regs. The participant still retains right to elect lump sum distribution, it just that the election is not effective without spousal consent.

That said, I am not sure any of this really helps, other than as potential arguments for when the requirement for spousal consent challenged. The challenge of course would come from a participant with a really big PSP account balance and an unhappy marriage, remembering of course, that the participant has the right to sue under ERISA.

[KJohnson]

Looking over the 2002 ASPA Q&A's and they repeated that adding the QJSA provisions to the profit sharing moneys does not present a problem.

p 25. Is it a “411(d)(6) cutback” to amend a profit sharing plan that did not provide for annuities to add annuities?

No.

i.e. Does the addition of a requirement for spousal consent for a lump sum distribution on pre-existing account balances violate 411(d)(6)?

No.

This could occur where a PS plan and a MP plan are merged and the sponsor wishes to subject all balances to J&S for simplicity.

We understand and we do not see that as a problem.

[Belgarath]

FWIW - why not amend the plan in the other direction? In other words, instead of making the entire balance subject to J&S and spousal consent, why not create a "prior pension account" or whatever wording you want to use - make this account subject to J&S, spousal consent, etc? Then you can still have the profit sharing account money available for in-service withdrawals. Maybe I'm missing the point of what you really wish to accomplish, but this seems relatively simple, yet retains the flexibility for in-service without the spousal consent hoopla.