To ensure a stream of income to surviving spouses VS Earliest Retirement age

[Guest angelf]

Ok almost everyone is familiar with The Retirement Equity Act of 1984. Its intent as stated in writing was, "to ensure a stream of income to surviving spouses of plan participants who die before reaching retirement age". Plug it into a search engine, you will get a lot of hits back. But REA included the Earliest Retirement Age provision, which was later added to ERISA. So a survivng spouse has to wait until the participant would have reached the plans earliest retirement age. Legal? Absolutely! Inequitable? Absolutely! Heck even the US Senate agreed that a survivng spouse of a plan particpant should not have to wait until the deceased participant would have reached retirement age. Yes I know REA established protections that were not in place before. So my question to all of you out there is, Has this Earliest Retirement Age provision ever been defeated?

[ETA Consulting LLC]

Not sure, but isn't that rule to suggest the benefits must at least begin by that time; as opposed to saying benefits may not begin until that time? I'm asking.

[Guest angelf]

Not sure, but isn't that rule to suggest the benefits must at least begin by that time; as opposed to saying benefits may not begin until that time? I'm asking.

Yes the plan may set an earlier retirement age than 55 years of age and allow a particpant to begin their pension benefit at that time. Thats my point. The law was intended to provide benefit upon the death of the plan participant, not down the road when the retirement age is reached. Please input, "To ensure a stream of income to surviving spouses" into Lexis Nexis or even Google. Its clearly states what the law was iintended to do.

[ETA Consulting LLC]

My question is are you sure the:

1) Law precludes distribution "PRIOR TO" early retirement age,

OR

2) States that in worst case the distribution "MUST BEGIN BY" early retirement age.

Again, I'm asking. But, it appears the law may "allow for immediate distribution" but "does not allow for distribution to be delayed beyond the earliest retirement age".

[Guest angelf]

My question is are you sure the:

1) Law precludes distribution "PRIOR TO" early retirement age,

OR

2) States that in worst case the distribution "MUST BEGIN BY" early retirement age.

Again, I'm asking. But, it appears the law may "allow for immediate distribution" but "does not allow for distribution to be delayed beyond the earliest retirement age".

The law allows plans to set earliest retirement date and it also states distribution must begin by early retirement date. Please research the intent of the legislature regarding REA. My point is that REA was supposed to allow a survivng spouse to receive a stream of income, upon the death of the participant. Allowing a plan to distribute the pension benefit based on the The Earliest Retirement Age provision allows plans not to pay a benefit upon the death of the participant. A spouse should receive a death benefit distribution upon the death of the participant, not upon attaining a date set by the plan.

[Guest angelf]

My question is are you sure the:

1) Law precludes distribution "PRIOR TO" early retirement age,

OR

2) States that in worst case the distribution "MUST BEGIN BY" early retirement age.

Again, I'm asking. But, it appears the law may "allow for immediate distribution" but "does not allow for distribution to be delayed beyond the earliest retirement age".

The law allows plans to set earliest retirement date and it also states distribution must begin by early retirement date. Please research the intent of the legislature regarding REA. My point is that REA was supposed to allow a survivng spouse to receive a stream of income, upon the death of the participant. Allowing a plan to distribute the pension benefit based on the The Earliest Retirement Age provision allows plans not to pay a benefit upon the death of the participant. A spouse should receive a death benefit distribution upon the death of the participant, not upon attaining a date set by the plan.

http://law.justia.com/cases/federal/appell...807/505/311463/

We also find significant the legislative history to the 1984 ERISA amendments. The Senate Finance Committee described the pre-amendment version of Sec. 1055(b) as not requiring a pension plan to make the survivor annuity option available "until the later of the time an employee attains the earliest retirement age under the plan or is within ten years of normal retirement age." S.Rep. No. 575, 98th Cong., 2d Sess. 12, reprinted in 1984 U.S.Code Cong. & Ad.News 2547, 2557 (emphasis added). Thus, it appears that the Committee likewise believed that entitlement to survivor benefits under Sec. 1055(b) depended on whether an "employee" reached the applicable trigger date, rather than on when a "participant" who was already receiving benefits attained the trigger date. However, according to the Committee, that rule resulted in "inequitable treatment of participants in pension plans who die before reaching the normal retirement age under the employer's plan." Id. at 2558. The 1984 amendments sought to correct this inequity by providing for "automatic survivor benefits to the spouses of vested participants." Id.2 We believe that the Committee's characterization of the pre-amendment version of Sec. 1055 and the decision to rectify the inequities created by its provisions lend support to our conclusion that in the present situation the Retirement Plan was not required to grant survivor benefits to appellant.

[david rigby]

Has this Earliest Retirement Age provision ever been defeated?

What does this question mean?

More generically, what is the point of this discussion thread?

[Guest angelf]

Has this Earliest Retirement Age provision ever been defeated?

What does this question mean?

More generically, what is the point of this discussion thread?

Has there ever been a legal challenge to the Earliest Retirement Age provision of ERISA?

[GMK]

[The] intent [of REA 1984] as stated in writing was, "to ensure a stream of income to surviving spouses of plan participants who die before reaching retirement age".

according to post #1.

So, the question appears to be whether a retirement plan should have the right to delay the start of a surviving spouse's stream of income until some date later than the date of death of the participant.

REA says that the start of the stream of income cannot be delayed until the participant would have reached normal retirement age but must start no less than 10 years earlier than NRA, leaving to the retirement plans the option to start it even earlier.

I read angelf as saying that retirement plans should be required to allow the surviving spouse immediate access to the income stream upon the death of the participant, and angelf says that this was the original intent (though not the one stated in writing in the law).

On the one hand, this is a law for retirement plans, where the benefits are meant to be retirement benefits. Is it reasonable to delay the start of such benefits until a defined "retirement" age is reached?

On the other hand, poverty hits a lot of surviving spouses and their children. So, who is harmed by allowing the surviving spouse immediate access to the benefit?

And on the third hand, if the law required plans to allow the surviving spouse immediate access, would that be excessive government intrusion or government doing the right thing?

Interesting.

[masteff]

http://law.justia.com/cases/federal/appell...807/505/311463/

You should read the footnote to the case you cited, "Section 1055 was amended in 1984 by Sec. 103(a) of the Equity Retirement Act of 1984, Pub.L. No. 98-397, 98 Stat. 1429. However, both parties agree that the present case is governed by the pre-amendment version", as it effects the context of what you quoted.

Apparently the issue of this thread is the "qualified preretirement survivor annuity" in Title 29 Section 1055.

ETK is correct. It doesn't say "not until" but does say "not later than".

29 1055(e)(1)(B)

(B) under the plan, the earliest period for which the

surviving spouse may receive a payment under such annuity is not

later than the month in which the participant would have

attained the earliest retirement age under the plan.

Congress has had the better part of 27 years to change the law if it really wasn't following their intent.

[mbozek]

My question is are you sure the:

1) Law precludes distribution "PRIOR TO" early retirement age,

OR

2) States that in worst case the distribution "MUST BEGIN BY" early retirement age.

Again, I'm asking. But, it appears the law may "allow for immediate distribution" but "does not allow for distribution to be delayed beyond the earliest retirement age".

The law allows plans to set earliest retirement date and it also states distribution must begin by early retirement date. Please research the intent of the legislature regarding REA. My point is that REA was supposed to allow a survivng spouse to receive a stream of income, upon the death of the participant. Allowing a plan to distribute the pension benefit based on the The Earliest Retirement Age provision allows plans not to pay a benefit upon the death of the participant. A spouse should receive a death benefit distribution upon the death of the participant, not upon attaining a date set by the plan.

IRC 417©(1)(B) expressly provides that the earliest date that a spouse may receive the QPSA benefit is the not later than the month in which the participant would have earliest retirement age under the plan. Under the rules of construction for interpreting laws federal courts only review the legislative history of a statute if there is an ambiguity as to meaning in the law itself. Where the law is unambiguous as to its application the courts do not review committee reports or legislative history and apply the statute as written. Also under Supreme court precedent, the application/limitation of a tax law to a particular group of taxpayers is considered to be a political question to be determined by the legislative branch which the federal courts decline to review.

My question is why are you raising this issue on a matter where the meaning of the law is clear?

[SoCalActuary]

My question is why are you raising this issue on a matter where the meaning of the law is clear?

Learn better research or reading skill? Just askin'

[Guest angelf]

My question is why are you raising this issue on a matter where the meaning of the law is clear?

Learn better research or reading skill? Just askin'

GMK gets my point exactly. If an earliest retirement age requirement was deemed to be inequitable under the ERISA prior to REA, then why is a plan then allowed to impose the same inequitable provision? The QPSA provision of REA changed the onus of an earliest retirement age provision from the law itself to a plan provision. How can requiring that a survivng spouse must wait x number of years after the death of their spouse to collect a pension benefit be considered equitable? please read REA P.L. 98-397 and its explanation of the law Pre and Post Rea.

Even the IRS does not have it right. Q–18: What is a qualified preretirement survivor annuity (QPSA) in a defined benefit plan?

A–18: A QPSA is an immediate annuity for the life of the surviving spouse of a participant. What is immediate about making a surving spouse wait until earliest retirement age

[mbozek]

My question is why are you raising this issue on a matter where the meaning of the law is clear?

Learn better research or reading skill? Just askin'

GMK gets my point exactly. If an earliest retirement age requirement was deemed to be inequitable under the ERISA prior to REA, then why is a plan then allowed to impose the same inequitable provision? The QPSA provision of REA changed the onus of an earliest retirement age provision from the law itself to a plan provision. How can requiring that a survivng spouse must wait x number of years after the death of their spouse to collect a pension benefit be considered equitable? please read REA P.L. 98-397 and its explanation of the law Pre and Post Rea.

Even the IRS does not have it right. Q–18: What is a qualified preretirement survivor annuity (QPSA) in a defined benefit plan?

A–18: A QPSA is an immediate annuity for the life of the surviving spouse of a participant. What is immediate about making a surving spouse wait until earliest retirement age

Immediate payment is not required upon death of the participant because Q/A-19 specificially provides that the QPSA can be forfeited if the spouse does not survive until the date prescribed under the plan for commencement of the QPSA (i.e., earliest retirement age.) In the case of a plan that provides for distributions that commence upon separation from service Q/A-17(b)(2) defines the earliest retirement age as the earliest age that a participant could separate and receive a distribution.

Also the Senate Finance Committee for REA contains the following statement: "Under the bill [REA] the plan is not to prohibit the commencement of the qualified preretirement annuity to the surviving spouse later than the month in which the participant would have reached the earliest retirement age under the plan." The SFC statement is consistent with IRC 417©(1)(B) and the IRS regs. The reference to the Senate Finance committee report that you have cited is taken from the Hiesler case and is not a statement which appears in the legislative history of REA but is non precedential comment taken from a federal court opinion which cannot be used to construe the QPSA provision in REA which is correctly described in both the Senate Finance Committee report and IRS regs.

[masteff]

"The legislation also helps assure that when a vested employee dies before retirement, the employee's surviving spouse will benefit from the pension credits the employee has earned, and it restricts considerably the latitude now allowed pension plans to impose additional conditions on survivors' benefits. Survivors' benefits will be paid automatically in more instances than now." http://www.reagan.utexas.edu/archives/spee...1984/82384b.htm

Also see the 4th page of this document: http://www.ssa.gov/policy/docs/ssb/v48n5/v48n5p38.pdf

[FormsRstillmylife]

My favorite part of this antiquated law is that if I add a death benefit for a nonspouse, the annuity must start by December 31 of the year following the year of death. Meanwhile, since 401(a)(9) lets a spouse delay until the participant would attain age 70 1/2, there is nothing in 401(a)(9) to overcome the earliest retirement age rule of REA. There are documents out there that never address this conflicting time of payment; they just add a nonspouse death benefit clause and leave the REA earliest retirement age language standing for the spouse.

[Guest angelf]

"The legislation also helps assure that when a vested employee dies before retirement, the employee's surviving spouse will benefit from the pension credits the employee has earned, and it restricts considerably the latitude now allowed pension plans to impose additional conditions on survivors' benefits. Survivors' benefits will be paid automatically in more instances than now." http://www.reagan.utexas.edu/archives/spee...1984/82384b.htm

Also see the 4th page of this document: http://www.ssa.gov/policy/docs/ssb/v48n5/v48n5p38.pdf

I am attaching the legislative history of REA P.L. 98-397, obtained from the congressional record.REA_History.pdf

[Mike Preston]

Angelf, there may be a rationale found in the QDRO rules. One of the hard and fast rules that QDRO's must adhere to is that they may not force a plan to pay a benefit to a spouse that would not otherwise be payable to a participant. There are many administrative functions that revolve around annuity distributions and if your plan has decided that it will purchase annuities for participants who are at early retirement age or above then no QDRO can force a plan to provide an annuity to an ex-spouse before the participant would have been eligible to receive benefits.

I would be surprised if the law allowed a widow anything better, as a requirement.

Plans are allowed to be more generous, though.

[Guest angelf]

Angelf, there may be a rationale found in the QDRO rules. One of the hard and fast rules that QDRO's must adhere to is that they may not force a plan to pay a benefit to a spouse that would not otherwise be payable to a participant. There are many administrative functions that revolve around annuity distributions and if your plan has decided that it will purchase annuities for participants who are at early retirement age or above then no QDRO can force a plan to provide an annuity to an ex-spouse before the participant would have been eligible to receive benefits.

I would be surprised if the law allowed a widow anything better, as a requirement.

Plans are allowed to be more generous, though.

Hi Mike, I understand that QDRO rules are tight. Please read the legislative history of The Retirement Equity Act. Prior to REA, ERISA required that a plan particpant reach earliest retirement age. After REA the plan was allowed to set an earliest retirement age requirement. The legislative history of REA in the PDF I attached states that The Senate Finance committee found that earliest retirement age provision to be inequitable. An earliest age requirement is inequitable no matter who requires it because it provide no income to a surviving spouse, hence no stream of income. Am I alone in thinking it unfair or inequitable for a plan to tell a widow she has to wait 10 or 20 years to get a pension benefit if her husband died at an early age? In theory a husband who starts a job at age 18 could work 20 years and then die at age 38, the wife would then have to wait 17 years for a partial pension or 27 years for a full pension. Would you want your wife to have to go through that?

[Mike Preston]

I understand your anger, but I'm not sure that I have the same level of concern that you do.

First of all, just because the legislative history declares that it is inequitable to force widows/widowers to wait does not mean that the folks who drafted the law decided to alleviate the inequity statutorily. In this case, they left it to the plans and stated there would no longer be a legal mandate to delay until earliest retirement age.

I think taking what they said and elevating it to a statutory mandate is a stretch.

There is another argument for leaving it to the plans. In most plans, the benefit is adjusted for early commencement. By starting a benefit 28 years before it would otherwise be scheduled to begin, you reduce it substantially. For example, a $500/month benefit accrued at age 37 but payable without reduction at age 65, might only be $117/month if it were to commence at 37. [94GAR 5%].

Hence, the government left it to plans to decide when it was practical to commence benefits, based on benefit levels promised by the plan.

I don't know about you, but $500/month at age 65 might mean something to somebody, while $117/month might not.

[ETA Consulting LLC]

I was thinking more along the lines of the plan being established for the purpose of retirement income. To say a beneficiary "must" be entitled to payment immediately after the participant's death, regardless of the amount, would appear to be along the lines of life insurance. Not that it cannot or should not exist in retirement plans, but merely stating that the primary purpose of the plan is still retirement. Obviously, there's nothing to preclude that 28 year old from purchasing life insurance.

Just a thought.

[masteff]

As per the "Reasons for Change" on the 2nd page in the pdf that angelf provided above for the legislative history, Congress did NOT find the earliest retirement date to be inequitable, rather the inequity was that some spouses received no spouse benefit at all without having given prior consent.

[Guest angelf]

I appreciate the input from everyone, but please take the time to verify the information that I am quoting. I am not stating opinions, I am stating facts as they have been published. Such as the ones I am posting below

Mandated Benefits 2011 Compliance Guide

If the participant is vested but dies before becoming eligible for early retirement, the benefit is based on the assumption that the participant left service on the date of death, survived to the earliest retirement age, retired with JSA at that age, and then immedaitely died. The spouses benefit is then payable from the assumed date of retirement.

Boggs v Boggs

The statutory object of the qualified joint and survivor annuity provisions, along with the rest of § 1055, is to ensure a stream of income to surviving spouses. Section 1055 mandates a survivor's annuity not only where a participant dies after the annuity starting date but also guarantees one if the participant dies before then. See §§ 1055(a)(2), (e). These provisions, enacted as part of the Retirement Equity Act of 1984 (REA), Pub. L. 98-397, 98 Stat. 1426, enlarged ERISA's protection of surviving spouses in significant respects. Before REA, ERISA only required that pension plans, if they provided for the payment of benefits in the form of an annuity, offer a qualified joint and survivor annuity as an option entirely within a participant's discretion. 29 U. S. C. §§ 1055(a), (e) (1982 ed.). REA modified ERISA to permit participants to designate a beneficiary for the survivor's annuity, other than the nonparticipant spouse, only when the spouse agrees. § 1055©(2). Congress' concern for surviving spouses is also evident from the expansive coverage of § 1055, as amended by REA. Section 1055's requirements, as a general matter, apply to all "individual account plans" and "defined benefit plans." § 1055(b)(1). The terms are defined, for § 1055 purposes, so that all pension plans fall within those two categories. See § 1002(35). While some individual account plans escape § 1055's surviving spouse annuity requirements under certain conditions, Congress still protects the interests of the surviving spouse by requiring those plans to pay the spouse the nonforfeitable accrued benefits, reduced by certain security interests, in a lump-sum payment. § 1055(b)(1)©.

[Mike Preston]

Sorry, but nothing you have posted is inconsistent with the plan's ability to defer distribution until the participant's early retirement age. You are, essentially, making things up that are not written in the regs, the law, the explanations or any court case.

[Guest angelf]

Sorry, but nothing you have posted is inconsistent with the plan's ability to defer distribution until the participant's early retirement age. You are, essentially, making things up that are not written in the regs, the law, the explanations or any court case.

To ensure a stream of income to surviving spouses is made up?

[Belgarath]

"Am I alone in thinking it unfair or inequitable for a plan to tell a widow she has to wait 10 or 20 years to get a pension benefit if her husband died at an early age? In theory a husband who starts a job at age 18 could work 20 years and then die at age 38, the wife would then have to wait 17 years for a partial pension or 27 years for a full pension. Would you want your wife to have to go through that? "

First, since a plan can force the participant to wait until retirement age to collect a benefit, how is this "inequitable" to the surviving spouse? Of course I would prefer my spouse to be able to start collecting benefits presently (albeit drastically reduced, as pointed out earlier by Mike), but then I'd prefer the same treatment for myself, too. And if I terminate employment at age 40, I can't start collecting a benefit.

Beyond what's "equitable" or "fair" depending upon your viewpoint - what's your deal here? Are you an attorney representing a surviving spouse who wants to currently collect a survivor benefit, and has been denied? You seem to have an agenda of some sort - which is fine. I'm dubious that you'll obtain the kind of answer on these boards that you are apparently looking for. Nevertheless, certainly an interesting question and discussion thread.

[GMK]

but then I'd prefer the same treatment for myself, too [as the participant].

For what it's worth, I think this answers the 'Is it equitable?' question. Generally, spousal beneficiaries get the options the participant would have had.

And as I read the posts, I came to ETK's conclusion (post #21) that one could look at it with the point of view that a retirement/pension plan is established to provide a stream of income at retirement to the participant or beneficiary, not a life insurance benefit.

[mbozek]

Sorry, but nothing you have posted is inconsistent with the plan's ability to defer distribution until the participant's early retirement age. You are, essentially, making things up that are not written in the regs, the law, the explanations or any court case.

To ensure a stream of income to surviving spouses is made up?

While the purpose of the REA change you refer to is to provide for a retirement benefit to surviving spouses, the legislative history, the statute and the IRS Regs all provide that the commencement of the benefit can be delayed until the earliest date that the participant could have retired which is consistent with the intent of ERISA/REA that spousal annuities are to be paid as a form of retirement benefit, not as a death benefit on account of premature death of a participant before the earliest date that retirement benefits may commence.

[K2retire]

Every plan I've worked on (admittedly all of them very small) has permitted a participant or a beneficiary to take their benefit at termination of employment, regardless of age. Why would that not be an option in this case?

[mbozek]

Every plan I've worked on (admittedly all of them very small) has permitted a participant or a beneficiary to take their benefit at termination of employment, regardless of age. Why would that not be an option in this case?

It is if the plan permits lump sums to spouses, although the amount will be heavily discounted for age at death. I think the OP wants the plan to pay a pre retirement survivor annuity benefit beginning in the year of death.

[Mike Preston]

Let me add a clarification to mbozek's comment. *IF* the plan allows for lump sums at termination of employment, *THEN* the plan must also allow for immediate commencement of a retirement annuity at termination of employment. (1.401(a)-20, off the top of my head)

I have never seen a plan of any size allow for lump sums at termination of employment but *NOT* allow for a lump sum on death. I suppose it is possible that a plan could be approved by the IRS with that specific design, although I have my doubts.

In any event, once a spouse is entitled to a lump sum, it is my understanding that the spouse must be given the option to commence an annuity immediately, in lieu of receiving the lump sum, just like the participant must be given the option in similar circumstances at termination of employment.

[Guest angelf]

Every plan I've worked on (admittedly all of them very small) has permitted a participant or a beneficiary to take their benefit at termination of employment, regardless of age. Why would that not be an option in this case?

Erisa was changed when the Retirement Equity Act was passed. Among many other changes Rea allowed plans to set an earliest retirement age requirement. Prior to the change ERISA itself had an earliest retirement age requirement. This was deemed to be inequitable, thus the Qualified Preretirement Survivor Annuity was born. As a result a plan may require that the surviving spouse of a deceased plan participant wait until Earliest retirement Age. Hence no immediate Death Benefit for the spouse

[Guest angelf]

Let me add a clarification to mbozek's comment. *IF* the plan allows for lump sums at termination of employment, *THEN* the plan must also allow for immediate commencement of a retirement annuity at termination of employment. (1.401(a)-20, off the top of my head)

I have never seen a plan of any size allow for lump sums at termination of employment but *NOT* allow for a lump sum on death. I suppose it is possible that a plan could be approved by the IRS with that specific design, although I have my doubts.

In any event, once a spouse is entitled to a lump sum, it is my understanding that the spouse must be given the option to commence an annuity immediately, in lieu of receiving the lump sum, just like the participant must be given the option in similar circumstances at termination of employment.

So Mike what does the Immediate part in 1.401(a)-20 Q&A 18 mean?

Q–18: What is a qualified preretirement survivor annuity (QPSA) 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.

Or is it this?

Mandated Benefits 2011 Compliance Guide

Qualified Preretirement Survivor Annuity

If the participant is vested but dies before becoming eligible for early retirement, the benefit is based on the assumption that the participant left service on the date of death, survived to the earliest retirement age, retired with JSA at that age, and then immedaitely died. The spouses benefit is then payable from the assumed date of retirement.

[Mike Preston]

Well, it doesn't mean what you think it means, that's what. I will go so far as to say that it is an unfortunate choice of words. But the explanation that follows the first sentence is clear. The spouse gets no less than what the participant would have gotten, but is certainly not entitled to more. If the benefit under the plan would not commence until the participant would have reached the earliest retirement age under the plan, then the same holds true for the spouse.

There are many places in regulations that I have railed against in the past. There is a portion of that regulation that demands the QJSA be the most valuable benefit. Yet, many plans for many years did not increase the QJSA if the plan provided a lump sum that was essentially subsidized by 417(e). I said that wasn't allowed, many times, on this site and others. Finally, the IRS came out with a "clarification" that said when they said that QJSA must be the most valuable, they meant "most valuable except for 417(e)".

You are dealing with the same kind of thing. "Immediate" in this sense means immediately when the participant would have reached the earliest retirement age, rather than deferred until normal retirement in all cases. And as I've already said, the choice of words was at the least, unfortunate.

It isn't the first time nor the last that the regulations have or had words and phrases that are not precise enough to clearly communicate the actual intent.

[masteff]

Furthermore, angelf, you are deliberately trying to cite out of context of the full regulations. While Q&A-18 defines the type of annuity to be paid. Q&A-22 defines when it is paid.

"Q–22: When must distributions to a surviving spouse under a QPSA commence?

A–22: (a) In the case of a defined benefit plan, the plan must permit the surviving spouse to direct the commencement of payments under QPSA no later than the month in which the participant would have attained the earliest retirement age. However, a plan may permit the commencement of payments at an earlier date." {emphasis added}

As to Q&A-18, the term "immediate annuity" is a specific type of annuity. It is standard jargon in our industry. You cannot construe the word "immediate" separately from the word "annuity".

My last word on the subject is:

If Congress felt its intent in REA was not being followed, they've had 27 years to fix it. Write them letters if you're so concerned about it.

[Mike Preston]

It is sometimes unclear in the regulations whether the IRS is using classic definitions or making up new ones. As masteff has correctly indicated, the term "immediate annuity" has a technical meaning which the IRS may have been referring to. An "immediate annuity" is contrasted against an "annuity due" in this context.

And the definitions of those two terms are difficult logically, because they actually mean the opposite of what a non-actuary usually thinks they mean.

Here are a few definitions from the Pacific Life website:

annuity due. A series of periodic payments for which the payment occurs at the beginning of each payment period. Also known as annuity in advance. Contrast with ordinary annuity.

annuity immediate. See ordinary annuity.

ordinary annuity. A series of periodic payments for which the payment occurs at the end of each payment period. Also known as annuity immediate and annuity in arrears. Contrast with annuity due.

So, angelf, it is entirely possible that the IRS was attempting to say that the form of annuity must be paid with the first payment at the end of the period as opposed to the first payment being made at the beginning of the period. The period in question would always commence at the participant's earliest retirement age. This would essentially give plans a full month to commence a monthly annuity to a beneficiary whose spouse died at or after the earliest retirement age.

[Guest angelf]

Ok I have one final point to raise before I close this topic. To all thank you for the excellent information even it was a bit off topic or if it differed from my point of view. Has there ever been a been a situation where the surving spouse began receiving the interest of the deferred benefit? Date of death ends plan participation, but what about the interest that continues to accrue on the benefit. There seems to be no guidance on this.

[SoCalActuary]

Ok I have one final point to raise before I close this topic. To all thank you for the excellent information even it was a bit off topic or if it differed from my point of view. Has there ever been a been a situation where the surving spouse began receiving the interest of the deferred benefit? Date of death ends plan participation, but what about the interest that continues to accrue on the benefit. There seems to be no guidance on this.

Remember that the benefit as an annuity is usually adjusted for "actuarial equivalence", which is another way of saying that interest adjustments are built into the values. If you take a benefit sooner, it gains less interest than a benefit taken closer to retirement age. This rule also applies to lump sum payments. A lump sum payable now is smaller than one taken at a later date. With that knowledge and a compound interest calculator, you start thinking like an actuary.

[Guest angelf]

Ok I have one final point to raise before I close this topic. To all thank you for the excellent information even it was a bit off topic or if it differed from my point of view. Has there ever been a been a situation where the surving spouse began receiving the interest of the deferred benefit? Date of death ends plan participation, but what about the interest that continues to accrue on the benefit. There seems to be no guidance on this.

Remember that the benefit as an annuity is usually adjusted for "actuarial equivalence", which is another way of saying that interest adjustments are built into the values. If you take a benefit sooner, it gains less interest than a benefit taken closer to retirement age. This rule also applies to lump sum payments. A lump sum payable now is smaller than one taken at a later date. With that knowledge and a compound interest calculator, you start thinking like an actuary.

Hi SoCal lump sum is not the issue here. Interest on a death benefit that the plan makes a surviving spouse wait for is.

[Mike Preston]

You need to read SoCal's response again.