Total Benefit Value and QJSA

[Guest ethompson]

I am looking for the precise rule and authority for the requirement that the total benefit paid to a nonspouse beneficiary under a QJSA is not less than 50% of the total benefit being paid (or is it projected to be paid) to the participant.

[david rigby]

Uhh, what?

[Guest ethompson]

DB Plan provision reads:

"A Plan participant may elect to receive a 50% joint and survivor benefit. if the participant makes such election, he shall receive a reduced monthly benefit for his lifetime, 50% of such amount thereafter being payable to the participant's beneficiary for the balance of such beneficiary's lifetime .... However, if the beneficiary is someone other than the participant's spouse, the election herein provided for may not result in less than 50% of the total benefit being paid to the plan participant."

It is this last portion that I am interested in knowing the source of. And also, if a similar requirement applies to other annuity forms (i.e. 100%, 75% joint and survivor annuity)

Any clearer?

[Everett Moreland]

That sentence is an inartful statement of what is called the minimum distribution incidental benefit requirement in IRC Section 401(a)(9)(G) and Treasury Regulation Section 1.401-1(b)(1)(i). For defined benefit plans, the details of this requirement are stated in Treasury Regulation 1.401(a)(9)-6 Q&A-2, in today's Federal Register. This requirement applies to all forms (e.g., 50%, 75%, 100%). If you will read that regulation you will find the requirements are much different than you might expect from the sentence you asked about. My guess is the plan will be administered according to that regulation and not according to that inartful sentence.

[AndyH]

"Inartful" is being very kind and diplomatic. I like that. Some might substitute inept or incoherent or worse.

[david rigby]

I agree with Everett and Andy.

However, there is also the issue of following the terms of the plan document. I wonder if there is any precedent that the Plan Administrator can/should find for guidance w/r/t interpretation.

[MGB]

The "problem" with the language is that it is missing an actuarial phrase: "present value". To be an incidental benefit, it must not be worth (in present value terms) more than the retirement benefit. That is where the 50% comes in. If it is more than 50%, then it is worth more than the retirement benefit (which is the rest of the 100%).

By leaving out the "present value" phrase, this sentence is nonsense and not related to law, or at least the IRS's interpretation of what incidental is.

However, having said that, there is legislative history that tried to explain that incidental was in terms of "expected payments", rather than present value, but the language in the plan isn't exactly the same as this description, either. The following is from the conference report to TEFRA: “As under present law, the required distributions must be made in such a manner that more than 50 percent of the total benefits for the employee are payable to the employee over the employee’s life expectancy (or the joint life expectancy of the employee and the employee’s spouse).” I presume this is where your plan's language might have originated from.

It is also not clear in the last phrase of the plan's language "total benefit being paid to the participant", that this must refer to the entire benefit, including the survivor portion.