QPSA - Single Sum Payment

[RTK]

IRS reg 1.417(e)-1(b) states that a qualified joint and survivor annuity is an annuity that commences immediately. The same reg proceeds to state that thus, for example, you cannot offer a separated participant a choice between an immediate single sum payment at separation and a J&S that commences at normal retirement age (rather than immediately). (Of course, some here debate whether this portion of the reg is invalid ala BBS Associates.)

A qualified preretirement survivor annuity is defined by IRS reg 1.401(a)-20, Q&A 18 as an immediate annuity for the life of the surviving spouse. However, unlike for the QJSA, there is no "thus, for example," a plan cannot offer the spouse a choice between an immediate single sum and a deferred annuity.

Does this mean that following a participant's death, the spouse eligible for a QPSA can be provided with a choice between an immediate single sum or a deferred QPSA? Or not?

This has come up under a db plan where the plan sponsor want to offer a non-QPSA death benefit payable in single sum immediately upon the death of a vested participant.

However, the plan sponsor does not want to pay a spouse both a QPSA and the non-QPSA death benefit. This means that the QPSA would have to be reduced by the value of the non-QPSA death benefit, which is awkward and likely a single sum distribution of part of the QPSA in any case. Thus, the desired alternative is to provide the spouse with a choice between an immediate single sum distribution or a deferred QPSA. The single sum distribution would be the higher of the non-QPSA death benefit or the present value of the QPSA.

[david rigby]

A pre-retirement death benefit might not be payable immediately. It might be deferred to the participant's first eligible retirement date, so there can be a deferred benefit. The plan can offer a lump sum alternative to such surviving spouse.