QOSA Contracts for Terminated Plans

[Guest MAO]

We have a plan that was terminated at the end of 2007, and a number of annuity contracts were purchased at that time for the distribution of plan benefits. The annuity starting dates of these contracts have not yet passed and benefit payments have not begun. Accordingly, are these contracts subject to the new QOSA requirements of I.R.C. 417 (75% J&S optional form), which are applicable to distributions from a plan that is subject to I.R.C. 401(a)(11) with annuity starting dates in plan years beginning after December 31, 2007? Is the plan (although long since terminated) responsible for amending the contracts to offer the QOSA option?

[david rigby]

The effective date of PPA06 sec. 1104 is "plan years beginning after December 31, 2007."

If the plan terminated before a 2008 plan year, then this provision does not apply. Just my opinion; do you think otherwise?

[Guest MAO]

That was certainly my first thought in reviewing the new requirement. However, Notice 2008-30, Q&A-2, states:

"Q-2: Must annuity contracts purchased and distributed to a participant or spouse by a plan subject to the survivor annuity requirements of sections 401(a)(11) and 417 satisfy the requirements of those sections?

A-2: Yes. Rights and benefits under section 401(a)(11) or 417 may not be eliminated or reduced because the plan uses annuity contracts to provide benefits merely because (a) such a contract is held by a participant or spouse instead of a plan trustee, or (b) such contracts are distributed upon plan termination. Thus, the requirements of sections 401(a)(11) and 417 apply to payments under the annuity contracts, not to the distributions of the contracts."

This seems to indicate that the annuity contracts themselves are subject to the QOSA requirements. Do you agree?

[david rigby]

Good cite.

However, if the plan is never subject to the applicable section of PPA06, then the statute (and the corresponding IRS guidance) does not apply.