EPCRS Planning Opportunity

[J Simmons]

The failure is to obtain spousal consent before payouts under a plan subject to QJSA rules. The owner/EE has about $1.4m in plan (after withdrawing a couple of hundred thousand dollars without the benefit of spousal consent). Spouse is cooperative.

However, under Rev Proc 2008-50, section 6.04(2)©, it is provided that if spousal consent to the prior distribution is not obtained, the plan may offer the spouse a choice between a QJSA survivor benefit computed on the benefits as though there had been no withdrawals or "a single-sum payment equal to the actuarial present value of that survivor annuity benefit (calculated using the applicable interest rate and mortality table under § 417(e)(3)). Any such single-sum payment is treated in the same manner as a distribution under § 402©(9) for purposes of rolling over the payment to an IRA or other eligible retirement plan."

Given that there is only $1m of creditor protection for IRAs, this 'correction' alternative could seemingly be used to rollover some of the $1.4m at issue into an IRA for the spouse and the remainder could be rolled over into an IRA for the employee. If for whatever reason a liability cropped up, more retirement benefits of this couple would be protected using this correction alternative than the spouse giving consent to the prior distributions. (This might also make easier estate tax avoidance in planning their estates.)

Agree? Disagree? See any flies in the ointment?

[Guest Sieve]

I don't think you need to go through those gymnastics for protection: my understanding is that the $1 million protection limitation of the new bankruptcy law does not apply to rollovers into an IRA from qualified plans--i.e., IRA protection of qualified plan rollovers is unlimited (just as if it remained in the qualified plan).