75% QOSA

[Miner88]

A defined benefit plan purchased an annuity contract several years ago for some of its deferred vested liabilities. The annuity contract offers a 50% and 100% annuity. Per PPA, the plan has been amended to provide for the 75% qualified optional survivor annuity. What happens with the annuity contract? Is the insurance company required to offer a 75% annuity also? Any thoughts would be appreciated!

[Belgarath]

Assuming anyone actually elects that option, the plan would presumably purchase another such contract from either the same or another insurance company. The insurance company probably can't be forced to offer an option not contained in the existing annuity contract, although they might agree to do so extracontractually, or possibly they will be filing with the states for approval to add this option to existing annuities - or something like that.

[Andy the Actuary]

A defined benefit plan purchased an annuity contract several years ago for some of its deferred vested liabilities. The annuity contract offers a 50% and 100% annuity. Per PPA, the plan has been amended to provide for the 75% qualified optional survivor annuity. What happens with the annuity contract? Is the insurance company required to offer a 75% annuity also? Any thoughts would be appreciated!

Presuming these contracts are irrevocable commitments, the question would be would the IRS disqualify the purchaser's plan if the insurance company did not modify its contract? The logical answer would be what you bought is what you get and that should be acceptable. I know from recent experience (where an active plan sold off some liabilities for terminated vesteds) that if the annuities provided for a lump sum option at 65, they would specify the basis at time of purchase. The fact that PPA has been introduced won't change this. This is an uneasy area because my "Show-Me-State" mentality is always searching for words to back up a position. In such case, I've never found any.

[david rigby]

Depends on who owns the contract. If the plan, then it is just a plan investment, and the plan still has liability to the participant. If this is an irrevocable commitment, such that the assets and liabilities are no longer in the plan, how could the plan have any responsibility?