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QPSA requirement defeated by disclaimer?


Guest beppie_stark

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Guest beppie_stark

Our plan has a qualified preretirement spousal annuity default and option. Many young widows and widowers prefer a lump-sum payment.

When their minor children are the contingent beneficiaries, couldn't the surviving spouse defeat the QPSA requirement by disclaiming his or her own benefit and accepting a lump-sum payment as the guardian of the minor children?

Couldn't find a better forum for my question. Since you are dealing with spousal rights and benefits here, I thought someone might have run across this before.

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If I understand the plan design implied, you are stating that a surviving spouse cannot get a lump sum (except perhaps under $5000), but another beneficiary could (if there is no spouse). Is this a correct description? Do we need to point out the "awkwardness" (to use a polite term) of that plan design?

BTW, is this a DB plan?

The many qualified attorneys who frequent these Boards may point out that even if a plan pays a lump sum to a minor beneficiary, it will be paid for that beneficiary, not merely to the guardian. (Don't forget the difference between a guardian of a minor and a guardian of the minor's estate/money.)

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Guest beppie_stark

The plan is a former MPP that carries a QJSA taint. The participant made an affirmative election of a spousal annuity for his primary beneficiary (wife). Their daughter is his contingent beneficiary. The default benefit for a non-spousal beneficiary is a lump-sum.

I am aware that benefits for a minor must be paid to the custodian of the child's assets for benefit of the child.

As I said we have many young widows who prefer a lump-sum but are stuck with an annuity.

I am really interested in the workings of a disclaimer. I've never had a beneficiary disclaim for any reason...but I have had many complain.

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Did the prior MPP also permit a lump sum to the surviving spouse?

If the sponsor wants to permit a lump sum to the spouse, why not amend the plan to add that option?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Most practiioners take the point of view that a spouse can waive the QPSA under Treas. Reg. 1.401(a)-20, Q&A 31(b)(3) which provides that "After the participant's death, a beneficiary may change the optional form of survivor benefit as permitted by the plan." Of course it has to be provided in the Plan.

In many (most) QJSA/QPSA plans that have this provision, people do not elect the survivor benefit form of distribuiton prior to the death of the participant. Thus while the QPSA maybe the default, the spouse can change it if the approrpriate language is used in the Plan. Where I sometimes see conceptual problems is where a form of benefit is actually chosen before death and the spouse signs a piece of paper saying that his or her consent to the form of benefit is "irrevocable". Then, it seems a little bit contradictory to say that someone can change an irrevocable election.

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Guest beppie_stark

The plan does permit a lump-sum as an optional spousal benefit. However, the plan administrator has always required that a spousal beneficiary receive an annuity unless the spouse waives the annuity and the participant selects another form of benefit during the participant's lifetime.

Are you saying other plans with QJSA/QPSA requirements permit a waiver after the death of the participant?

Our employees all believe in their own immortality and think that taking a form home and having their spouse add a notarized signature to a waiver is more hassle than it's worth.

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I know there have been plans approved with this language. The ERISA Outline book which is quoted on these Boards frequently also takes the position that the regulation quoted above can allow a spouse's election out of the QPSA after death (assuming the plan contains thiese provisions). Other commentators are a little less sure, yo might want to take a look a this link:

http://benefitslink.com/modperl/qa.cgi?db=...ibutions&id=260

A disclaimer may work as well. See GCM 39858

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Let's put it in more dramatic terms. It is either stupid or arrogant to design or administer a plan to have the participant choose the form of death benefit except in connection with the benefit that is payble to the participant.

I suspect the administrator is misinterpreting the plan.

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There is nothing to prevent a plan from being amended to allow the spouse to elect a lump sum instead of the J & S annuity after the death of the ee since the spouse is the only party in interest after the death of the employee. see Reg. 1.401(a)-11©(5). The J & S is only required to be the normal form of benefit, not the only form of benefit for the spouse. This election is a lot simplier than having the spouse execute a disclaimer. ( See IRC 2518 for requirements)

mjb

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  • 1 month later...
Guest Grabitquick

Just today I drafted an amendment to a money purchase plan that would allow a surviving spouse to opt out of a QPSA and elect another form (including lump-sum), pursuant to the reg that mbozek cited. We have several other plans in our office that are subject to the J&S rules with a similar provision. This seems a much easier solution to the problem, rather than require an election by the participant and spouse prior to the participant's death, or a disclaimer by the spouse afterwards. To echo QDROphile, however, I have heard the question raised about still allowing the participant to trump everything by affirmatively electing prior to death that only the QPSA can be paid, ostensibly to prevent the surviving spouse from squandering the lump-sum with (for example) a new significant other after the participant's death. I would not encourage such a provision since it seems awfully intrusive, but I wonder if anyone else has heard of this?

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