Joint and Survivor/Spousal Consent

[Guest Lucie]

If the plan had a QJSA as the normal form of benefit simply because the plan was drafted in that manner (in other words the plan otherwise meets the QJSA exception for defined contribution plans (see IRC 401(a)(11)), then changing the QJSA to simply an optional form of benefit should be okay.

There is no guidance in terms of regulations blessing this change but the issue has come up multiple times at the ABA Joint Committee on Employee Benefits (most recently at the May 1999 meeting). (I don't have their website handy but you should be able to find it and access the Q&As from that meeting.)

If changed to an optional form of benefit, the spousal consent requirement then becomes effective once the participant actually elects an annuity. See Treas. Reg. 1.401(a)-20 Q&A 3 and 4 and, with respect to loans, see Treas. Reg. 1.401(a)-20 Q&A 24.

Note, the plan's outside counsel may be more conservative about the issue of changing from "normal" to "optional." If there is hesitation, the change could be disclosed as an intended change on the IRS submission to be effective once the plan received a favorable letter from the IRS.

[Guest Frank Jackson]

We receive many plans that have a normal form of benefit that requires spousal consent. We convert them to our prototype document that has a lump sum option as the normal form of benefit. Can the spousal waiver be eliminated for accrued benefits? This is especially helpful for loans etc. Please note that we are still protecting the optional form of benefit we are just changing the normal form. Any regulations or interpretation would help.

[KJohnson]

I think you are stuck with having the J&S be the normal form of benefit at least for benefits accrued up until that date.

I would assume that the Plans were previously subject to 401(a)(11) because they only had a "default" of a 50% QPSA rather than paying 100% of a benefit to the surviving spouse. Because prior benefits were subject to 401(a)(11) I think you are stuck with the QJSA being the regular form of benefit for anything that has accrued. I know this is the case for transferee plans. Look at 1.401(a)-20 Q&A 5.

[KJohnson]

I don't disagree with Lucie, I just wonder why a Plan would ever have the QJSA as the normal form of benefit unless it did not meet the 401(a)(11) "safe harbor"

Typically, non-412 plans are drafted with QJSA language so that participants can name anyone they want for 50% of their benefit without spousal consent. Obviously, these plans do not comply with the 401(a)(11) safe harbor.

If the plan did not qualifiy for the 401(a)(11) safe harbor I still don't think that you can change the "normal" form of benefit for accrued amounts.

[Guest Lucie]

In my experience I found many plans that had the QJSA as the normal form when the plan otherwise qualified for the 401(a)(11) defined contribution exception. Why - most typically because they were insurance company prototype plans.

I definitely agree that if the plan doesn't otherwise qualify for the exception, then no change may be made from "normal" to "optional."