Non-spousal beneficiaries

[rcline46]

Benefit is 100% of pay, high 3 pay is well under $100,000. Normal form of benefit is Joint and 100% survivor (not life annuity or some such thing).

Question 1 - may the plan pay the value of the J & 100 s benefit since the value of the benefit is way under the value of a life annuity at $195,000/annual at 5.5%?

Question 2 (more difficult) - If the spouse were to waive their right to the J & 100 S in favor of the children, so that the benefit payable would be J & 100 S equally amoung the children, do any adjustments have to be made to the benefit?

For question 2 - some numbers to help - Benefit is $60,000/yr. Instead of a J & 100 S for $60,000 with spouse, we would do a J & 100 S of $20,000 with each of three children (totaling $60,000). Does the $60,000 (or $20,000 each) have to be adjusted, and if so what adjustment is to be made?

The plan does allow non-qualified joint and survivor benefits, so that is not a problem.

Thanks all in advance.

[david rigby]

1. Doesn't 415 define the maximum annuity as the lesser of (a) and (b)? So that, the maximum lump sum is based on that lesser amount?

2. Depends on plan definition(s). Doesn't IRC define J&S with reference to a spouse? If the plan pays a J&S to a non-spouse, will that cause 415 limit problems? Your example of 60/20/20/20 is NOT equivalent to a 100% J&S with the spouse.

[Hojo]

Also, the 415 Comp limit is based on a life annuity and has to be adjusted for form of payment.....way too many issues here.

[rcline46]

HOJO, There is an exception to the 415 comp limit in that a Qualified J and 100 S if defined as the Normal Form in the document can be 100% of comp and is not the Actuarial Equivalent of a 100% Life Annuity.

david rigby - That is my concern - the lesser of (a) and (b), which seems to force going through the lump sum value of a life annuity (which is what we have always done in the past). At the very least I would like to work from the value of the J & S benefit and adjust from the spouse's age to the childrens' ages. Stated differently, I would like to take the exception to the rule and start there.

Does my client have any hope at all?