Qualified Optional Survivor Annuity and P/S Plans

[Guest MexDomer]

I was wondering whether a profit sharing plan, which was converted from a money purchase pension plan back in 2004, is required to offer a Qualified Optional Survivor Annuity (QOSA). I wasn't sure if that was the case since plans that are subject to 401(a)(11) are required to offer a QOSA per Section 417(a)(1). Technically, I would think the QOSA would apply to this plan. Since the plan was converted from a DB plan, Section 401(a)(11)(B)(iii)(III) would seem to apply.

Essentially, this section reads that 401(a)(11) applies a DC plan if the plan (or a participant's benefit is transferred from such plan) is a direct or indirect transfer of a DB plan or DC plan subject to Code Section 412. In my situation, the DB plan was amended to become a P/S plan, but monies were not separately accounted and the DB distribution rules (i.e., no distribution until separation from service, disability, or retirement, AND QJSA normal form of distribution) were retained going forward.

Any thoughts on this? I'm reviewing a restatement of a Plan for Cycle D submission and the restatement does not make any mention of a QOSA. Shouldn't that have been included in the Plan?

Thank you to anyone who responds.

[J Simmons]

The DB (or money purchase pension benefits) accrued and QJSA rights attached to them, and continue to apply to those benefits, despite the conversion of the plan to a PSP. QJSA continues to apply, so QOSA now applies as well.

As for whether QOSA should have been included in a Cycle D plan, I do not know.

[Belgarath]

"Since the plan was converted from a DB plan, Section 401(a)(11)(B)(iii)(III) would seem to apply."

Did you mean to say this? Or did you mean a Money Purchase plan was converted to a PS?

If the former, then you may have bigger problems. Under ERISA 4041(e), you would have had to terminate the DB plan. Now, if it was properly terminated, and there weren't excess assets used to establish a qualified relacement plan, then any employee rollovers to the DC plan would have been elective, and would no longer be subject to the QOSA

[Guest MexDomer]

"Since the plan was converted from a DB plan, Section 401(a)(11)(B)(iii)(III) would seem to apply."

Did you mean to say this? Or did you mean a Money Purchase plan was converted to a PS?

If the former, then you may have bigger problems. Under ERISA 4041(e), you would have had to terminate the DB plan. Now, if it was properly terminated, and there weren't excess assets used to establish a qualified relacement plan, then any employee rollovers to the DC plan would have been elective, and would no longer be subject to the QOSA

Thank you for the response. I apologize for the misstatement and am not sure why I called the plan a DB plan. What I meant to say was the Plan was formerly a money purchase pension plan and was converted to a Profit Sharing Plan back in 2004. There was no plan termination as far as I understand. From what I gather, all monies remained in the plan and within the same trust fund; the plan document was converted but the MPP restrictions were applied to all monies under the plan (i.e., no bifurcation between pre-conversion and post conversion monies).

My thinking was that a QOSA should be offered at least with respect to those monies that accumulated under the Plan while it was a MPP. Section 401(a)(11) seems to suggest as much. However, if my understanding is correct that no bifurcation occured (in the sense that monies and earnings thereon were not separately tracked as pre and post conversion), then I believe the QOSA should be offered w/ respect to all monies under the Plan.