Elimination of QJSA

[Guest Lex]

Can anyone provide further clarification of the rules relating to the timing of the elimination?

Example, Plan is amended on 11/1/02 to eliminate. The notice/SPD is distributed the same day. My understanding is that the elimiantion is effective 90 days later.

However, if a participant wants to take an in-service withdrawal today, can he do so without spousal consent as he has not reached an annuity start date?

[Guest Jose Rosario]

The plan should be simultaneously amended to remove the spousal consent requirement, effective the same day as the elimination of the J&S (in this example 2/1/03). Until then, spousal consent will be required for in-service withdrawals, loans, and distributions subject to the J&S.

[Guest Pete Joachim]

Jose, I agree that it makes sense and is practical to eliminate the spousal consent requirement at the same time you eliminate the QJSA.

However, someone just told me that they didn't think the law allowed you to eliminate the spousal consent requirement, only the option.??

In quickly looking at the 9/00 regs, an option may be eliminated as long as the remaining LS form is "otherwise identical" to each of the repalced option forms of benefit. 1 of the 3 requirements to be "otherwise identical" is that the LS be "subject to the same conditions for payment as applied to the other forms of benefit payment". Could this mean spousal consent must remain for lump sum payment when you eliminate a QJSA?

pete

[Guest Remysis]

There is a way to get rid of the spousal consent requirement immediately, but it requires essentially a two-step amendment. QJSA gives rise to a spousal consent requirement for all withdrawals and distributions only if it is the automatic or "normal" form of distribution. At least in a profit sharing plan, if it is an just an optional form, spousal consent is not necessary for all distributions (only where the part actually elects an annuity of some form). Switching QJSA from normal to optional form is not subject to 411(d)(6) protected benefit rules so doesn't require 90 notice. So . . . amend to make QJSA optional form for 90 days, with total elimination of QJSA after 90 days. However, if you have already amended and SPD is out the door not describing the normal/optional form switch, you're probably out of luck.

[Guest Lex]

Without J&S there is nothing for a spouse to consent to. Spousal consent is not the spouse consenting to a distribution; rather it is the spouse consenting to a distribution in a form other than an annuity.

Therefore, eliminating QJSA effectively eliminates spousal consent.

The question here goes to the effective date of the notice of the elimination. Allow me to re-word the question: is the QJSA still in effect during the 90 day notice period if the participant has not reached a annuity start date? As the participant in the example is actively employed, he would not have an annuity start date. As such, would the QJSA be eliminated for him effective with the amendment? If so, it stands to reason that spousal consent would be eliminated also at the same time. Otherwise, spousal consent would seem to remain until the 90 days are complete/

[Guest Remysis]

Lex - That is an interesting analysis regarding the annuity starting date. I think the regs use of that term is unfortunate, since it really has been stripped of meaning in most DC plans. For example, in any number of PLRs dealing with how to apply sec. 72, the IRS has essentially concluded for DC plans with certain terms that payment couldn't be done in the form of an annuity so there couldn't be an annuity starting date. More practically, the person who is not terminated today, might be later within the 90 day period, meaning that the elimination of the QJSA doesn't (didn't?) apply. Sort of odd to have this "springing" QJSA right giving spouse annuity rights that didn't apply while he was still employed. Doesn't seem to work. This could be made moot, however, if you take the two step approach as described in my other post.

Pete - On your point about identical conditions applying to the form of distribution, the reg actually speaks in terms of not being identical if it imposes additional conditions that didn't apply before. Not the same thing as requiring that all the same conditions apply.

[Guest PMiller]

Do you have a format for the notice that is used with the elimination of QJSA? If so, would you share it?

[Guest Jose Rosario]

We don't have a set format, we simply issue the notice in the form of an smm.

The following excerpt is from the final regs issued 9/6/00:

"Under this provision, a plan amendment that eliminates or restricts the ability of a participant to receive a particular optional form of benefit cannot apply to any distribution that has an annuity starting date earlier than the 90th day /1/ after the date the participant receiving the distribution has been furnished a summary that reflects the amendment and that satisfies the requirements of the Labor Department regulations at 29 CFR 2520.104b-3 relating to a summary of material modifications for pension plans (or, if earlier, the first day of the second plan year following the plan year in which the amendment is adopted).

/1/ This 90-day requirement is parallel to the 90-day election period applicable to any plan that is subject to the joint and survivor annuity requirements of section 417."

[Kirk Maldonado]

Jose:

Why don't you rely on the provisions in EGTRRA permitting the elimination of different forms of benefits rather than the regulations? The EGTRRA provisions are much simpler.

[Guest Jose Rosario]

Thanks for the suggestion, Kirk. I am not familiar, though, with the EGTRRA provisions you're referring to. Please provide a cite. I just took a moment to look over EGTRRA, and I read a provision relating to relaxing the anti-cutback rules for transfers between plans (e.g. mergers, etc.) but those do not appear to provide the comprehensive relief from the anti-cutback rules provided in the Regs.

[david rigby]

http://thomas.loc.gov/cgi-bin/query/z?c107...7:H.R.1836.ENR:

I think the cite is Act section 645.

[Guest Jose Rosario]

Thanks, Pax. EGTRAA Sec. 645 discusses eliminating optional forms of benefits in direct transfers between "transferor" and "transferee" plan situations; do you propose that this Section also permits eliminating optional forms of benefits under other circumstances?

[david rigby]

I think you got the first part only. Section 645(a)(1) amends IRC411(d)(6) by adding subsections D (dealing with transfers) and E (dealing with elimination of optional forms of benefit). Section 645(a)(2) amends ERISA.

Note that the added subsection E starts with "Except to the extent provided in regulations..."

[Guest Jose Rosario]

Thanks for the clarification, Pax.