QPSA- Form other than 50%

[Guest jfreeborn]

Participant is dying of cancer and fills out application for DB pension. He selects the 100% QJSA option with an annuity start date three months out. He dies at age 64 (after earliest retirement age under the plan) but before the annuity start date. The surviving spouse believes she is entitled to the participant's selection, while the Plan says she is entitled to a 50% QPSA. IRS Reg. 1.401(a)-20, Q&A 18, seems to say that the surviving spouse is correct.

Here is the text of the relevant Q&A from the Treas. Reg.

"Q-18: What is a qualified pre-retirement survivor annuity in a defined benefit plan?

A-18: A QPSA is an immediate annuity for the life of the surviving spouse of a participant. Each payment under a QPSA under a defined benefit plan is not to be less than the payment that would have been made to the survivor under the QJSA payable under the plan if (a) in the case of a participant who dies after attaining the earliest retirement age under the plan, the participant had retired with a QJSA on the day before the participant's death, and (b) in the case of a participant who dies on or before the participant's earliest retirement age under the plan, the participant had separated from service at the earlier of the actual time of separation or death, survived until the earliest retirement age, retired at that time with a QJSA, and died on the day thereafter. If the participant elects before the annuity starting date a form of joint and survivor annuity that satisfies the requirements for a QJSA and dies before the annuity starting date, the elected form is treated as the QJSA and the QPSA must be based on such form.

Is the surviving spouse correct, and do we potentially have a plan qualification problem here?

[John Feldt ERPA CPC QPA]

Does the plan document have any specific language that addresses this? I've seen a few that favor the written election as long as it was within the 180-day election period that ends on the annuity starting date, even though the death occurred before the actual annuity starting date.

[Andy the Actuary]

Just to make certain: Does the Plan state that the automatic payment form (i.e., the QJSA) is the J&100% or the J&50% and the J&100% was simply an optional form elected?

If the J&100% is the QJSA, then the plan conflicts with the regs. The next question would be does the Plan have a D-Letter? If so, guessing no disqualification on the plan language. In any event, get an ERISA attorney involved.

If the J&100% is truly an optional election, then no problem with the Plan but there may be a communication issue. What regarding death was told to the participant/spouse when the election was made? In this situation, something must have been written, in particular, since death was imminent. In any event, get an ERISA attorney involved.

[AndyH]

... the Plan says she is entitled to a 50% QPSA

Can you be more specific about what exactly the plan does say? What type of document is it?

[david rigby]

Similar prior discussion:

http://benefitslink.com/boards/index.php?showtopic=45337

[AndyH]

And I thought WDIK was our archivist. Maybe he's on vacation.

[Guest Matthew Gouaux]

I've encountered a number of fact patterns similar to this one (i.e., participants dying just before or after various dates - date of application, date of election, elected annuity starting date, etc.) and each case requires a careful review of the plan document to determine whether the participant's death should be treated as treated as pre-retirement or post-retirement. You should review not only the QPSA and death benefit provisions, but also the application and election procedures and other requirements participants must satisfy to qualify for retirement benefits. If the answer isn't clear, or if you think you might have a plan qualification problem, seek the advice of the plan's ERISA counsel.

[Guest jfreeborn]

Just to make certain: Does the Plan state that the automatic payment form (i.e., the QJSA) is the J&100% or the J&50% and the J&100% was simply an optional form elected?

If the J&100% is the QJSA, then the plan conflicts with the regs. The next question would be does the Plan have a D-Letter? If so, guessing no disqualification on the plan language. In any event, get an ERISA attorney involved.

If the J&100% is truly an optional election, then no problem with the Plan but there may be a communication issue. What regarding death was told to the participant/spouse when the election was made? In this situation, something must have been written, in particular, since death was imminent. In any event, get an ERISA attorney involved.

The plan document doesn't address this specific situation--participant dies post-application, but before annuity start date. the plan doc has a typical 50% QPSA payable to surviving spouse if participant dies in service with a vested benefit.

[Andy the Actuary]

Just to make certain: Does the Plan state that the automatic payment form (i.e., the QJSA) is the J&100% or the J&50% and the J&100% was simply an optional form elected?

If the J&100% is the QJSA, then the plan conflicts with the regs. The next question would be does the Plan have a D-Letter? If so, guessing no disqualification on the plan language. In any event, get an ERISA attorney involved.

If the J&100% is truly an optional election, then no problem with the Plan but there may be a communication issue. What regarding death was told to the participant/spouse when the election was made? In this situation, something must have been written, in particular, since death was imminent. In any event, get an ERISA attorney involved.

The plan document doesn't address this specific situation--participant dies post-application, but before annuity start date. the plan doc has a typical 50% QPSA payable to surviving spouse if participant dies in service with a vested benefit.

Are you saying the plan does not specify the QJSA payment form???

[AndyH]

The plan document doesn't address this specific situation--participant dies post-application, but before annuity start date. the plan doc has a typical 50% QPSA payable to surviving spouse if participant dies in service with a vested benefit.

What then is the problem? If the election is to a form that satisfies the QJSA requirement, and the cite you reference says it must be honored (which is the right thing to do anyways IMHO), and the plan does not conflict, what is the problem?