Avoid QJSA requirements

[LIBERTYKID]

Can an ERISA 403(b) plan avoid the qualified joint and suvivor annuity requirements by offering a lump sum and requiring spouseal consent on any change of beneficiary just like a 401(k) plan?

[jpod]

This is an age-old question of whether a 403(b) plan, as a defined contribution plan, is a "profit sharing plan" exempt from J&S if no annuity option is offered, or a "pension plan" subject to J&S. Smart money is to operate on the assumption that J&S applies.

[mbozek]

This is an age-old question of whether a 403(b) plan, as a defined contribution plan, is a "profit sharing plan" exempt from J&S if no annuity option is offered, or a "pension plan" subject to J&S. Smart money is to operate on the assumption that J&S applies.

What if the plan is funded only with mutual funds and the employer only makes discretionary contributions at the end of each year as authorized by a board resolution?

What is the defintion of a money purchase plan under ERISA that requires a J & S annuity as the normal form of benefit?

[Peter Gulia]

Some practitioners feel comfortable assuming that an individual-account plan is not a money-purchase plan (as mentioned in ERISA 301(a)(8)) if all plan documents (including all SPDs) consistently and affirmatively state that the plan is not a money-purchase plan, and the plan sponsor and all employers have not written or said anything that suggests a set obligation for a contribution beyond participant contributions.

[jpod]

mbozek: you are asking questions which neither IRS nor DOL nor, to my knowledge, any court, has answered

FGC: I am aware that some practioners feel comfortable with that position, but I never understood why/how. Some rely on the rule in 401(a) added in 1986 that says, basically, a plan is a psp if it says it's a psp. I never understood that logic, because if Congress wanted to make that rule available in the 403b context it could have done so. In my view, J&S is the rule, and the exemption for psps is the exception, and exceptions should be construed narrowly.

Frankly, I am surprised that after all these years, there has not been a published opinion in a case where an employee took his or her 403b money, blew it away, then died, and after which the surviving spouse filed a claim. I'm not sure the protection offered to fiduciaries in certain contexts involving J&S under Title I would apply in this instance. Perhaps it is because the vast majority of 403bs are exempt from ERISA, either because the employer is a gov't entity, a church or church-related entity, or the employer does not make contributions.

[Peter Gulia]

As jpod suggests, arguments could be made for and against many possible constructions or interpretations.

If a plan's documents do provide the QJSA/QPSA regime (without any "profit-sharing" variation), there is nothing for the plan's administrator to decide; it simply follows the documents.

If a plan's documents don't provide the QJSA/QPSA regime but the plan's administrator is concerned that it might have a duty under ERISA 404(a)(1)(D) not to follow the documents because ERISA 205 might require the QJSA/QPSA provisions, an administrator might consider further prudence steps. Among these, an administrator might seek its lawyer's advice about whether it may or must follow the plan's documents, or instead must ignore an ostensible provision (or absence of a provision) to the extent that it is inconsistent with ERISA 205.

If a plan's sponsor is considering whether to create or amend a plan to provide an absence of the QJSA provision, it might want its lawyer's advice about whether the plan's administrator should follow or ignore such a written plan.

Although some plan sponsors and some plan fiduciaries are reluctant to incur even a modest expense for a lawyer's advice, the fact that a group of experienced practitioners are uncertain about what is or isn't required suggests that careful attention to the questions of law could be worthwhile.