50% J&S with 20-year certain and life

[LarryDavid]

I have a plan that used to offer this form of payment, and the participant died after receiving 15 years of payments. Let's say he was receiving $100 per month, I was under the impression that the surviving spouse would receive the full $100 per month for the next 5 years, and then the amount would be reduced to $50 per month after 20 years of payments have been made. A colleague is telling me, however, that the reduction happens immediately upon death, and that the 20-year guarantee only guarantees that a minimum of 20 years of payments will be made pursuant to the terms of the JNS, not that the participant-portion of the annuity is guaranteed for 20 years.

Anyone have any experience with this form of benefit? I cannot find anything in the regs that provides clarification. I also do not have a copy of the old plan document that describes the form of payment (the form no longer is offered under the current plan).

Thanks,

LD

[jpod]

Can't you tell based on how the reduction from single life was calculated?

[Doghouse]

I seem to be having problems hyperlinking, but the site http://www.annuityadvantage.com/immediate.htm has a good description of the permutations. The problem is, I don't know if anyone can answer your question, since it really depends on what was elected at the time. I assume that in addition to the other documents that you don't have, you don't have the actual election form either?

[david rigby]

I think either definition in the original post is possible.

Likely, no one can definitively answer your question without the actual plan language (or maybe the SPD). If neither is available (and you should not assume the answer is NO without some realistic investigation), the next step might be to ask if there is any precedent. If that fails, you may default to the ERISA principal of deciding ambiguous questions in favor of the participant.

[My 2 cents]

Sorry to say, but you will need to see the fine-tuned details as spelled out in the plan document.

It has been my experience that the approach taken in the vast majority of plans offering a joint form (invariably not a true joint and survivor form, in that if the joint annuitant dies before the retiree, the amount payable to the retiree is not reduced) with a certain period is to only apply the reduction after the end of the certain period. I have, however, seen plans calling for the monthly benefits to be reduced during the certain period if the participant dies first before the end of the certain period. Such plans have specified that if both the participant and the joint annuitant die before the end of the certain period, the certain payments would equal those being paid immediately before the second death. The conversion factors are not easy to develop!

As a second point, it is probably required that the applicable life expectancy be at least 20 years. If the applicable life expectancy is less than 20 years, you can't offer a joint and 20 years certain option at all.

[LarryDavid]

Thanks all! Your responses have helped me determine that, at a minimum, both approaches are technically allowed and it is therefore a matter of how the plan document defined the optional form. I will do a little more digging with the client to see if I can get a hold of the original plan document and/or the original paperwork used to calculate the conversion factors.

Thanks again, much appreciated.

[jpod]

But if the plan document leaves room for interpretation, wouldn't the original calculation aid in that interpretation? I'm no actuary, but I would think the amount payable during the joint lives would be less if the 20 year certain applies to the front end than it would if it applied to the back end.