Joint and Survivor Annuity

[Blinky the 3-eyed Fish]

Let's say a plan's normal form of benefit is a joint and 100% survivor annuity and that the plan offers a lump sum option actuarially equivalent to such. I have never seen document language the addresses the timing of when the spouse is determined other than at the annuity starting date, so it would seem possible for someone to manipulate the value of their lump sum benefit by marrying someone extremely young. Of course the flip side is their spouse could die, leaving them with a reduced benefit.

Has anyone had a plan that defined when the spouse is determined other than at the annuity starting date? Any thoughts? Anyone think this is a pointless observation?

[david rigby]

No.

Yes.

No.

[Belgarath]

Calvin Coolidge would have been proud of that response!

I'm impressed that you could even dream up this scenario. (Seriously, I'm not being sarcastic when I say that) I'm always jealous of people with creative minds. Certainly could be a neat marketing ploy - "The December/April Marriage Ultimate Defined Benefit Plan."

Now, there are other benefits that I see besides the lump sum. If I were 65 with a 20 year old wife, I'd think it was a pretty good plan. I believe this would be considered an "ancillary benefit" but I'm not sure about the implications of

401(a)(4) testing. Would you have to provide a young spouse to enough of the rank and file employees to pass testing? Think of the boost in morale, and productivity (and maybe even reproductivity.)

[Blinky the 3-eyed Fish]

Well for the record I had an actual event that triggered this question. A husband and wife work for the company owned by the mother. The husband cheats on the wife with a younger employee and divorces the wife and marries the employee. The marriage takes place after termination to my knowledge. The plan is underfunded to boot and near termination. The husband gets an extra $100k by marriage.

I had to tell the wife why his benefit increased as we had done projections of distributable amounts beforehand. She was not happy to say the least.

I was hoping for a loophole somehow in the definition of spouse, but alas to no avail.

[Guest Pensions in Paradise]

My memory is fading and I don't have time to research this, but I seem to recall that a plan could require a participant to be married for at least one year before the J&S rules kicked in.

[Guest ritchie]

Perhaps the second marriage is of the same sex variety and is recognized only in Massachusetts and other great places and not out in places that burly cage fighters lurk?

Just a slap in the dark.

BTW, I've seen such plans that adjust the QJSA level based upon the age of the spouse. Presumably that is not what you have.

[Blinky the 3-eyed Fish]

Yeah, that wasn't chosen though in my case and it's been over a year to boot. Of course if it's worth marrying someone to get an increased lump sum, chances are the benefit is worth over $5k and they could just refuse receipt until the one-year period is up.

To my curly-haired little friend, no I don't.

[AndyH]

Is it clear that the subsidy must be included in the lump sum?

[Blinky the 3-eyed Fish]

Yes, plus the LS is higher under 417(e) and that must be actuarially equivalent to the normal form.

[Belgarath]

Hmmm - can the attorney for the ex-wife somehow take into account the higher lump-sum when negotiating the terms of the divorce and the QDRO? Not that this makes any difference as far as your question is concerned, I don't think.

But if was working for the ex wife's mother rather than his own mother, she'd probably feel a lot happier if some of this excess was going to her daughter...

[rcline46]

Don't forget that the LS value can not be greater that the value of a max benefit at 5.5%

[Blinky the 3-eyed Fish]

Not even close.

[Guest Wolves1962]

Not even close.

Isn't the ex wife able to take half of her husbands money ? If they live in IL she gets half of everythign that had while married.

[Blinky the 3-eyed Fish]

Water under the bridge, they were divorced and that settled years ago.