QPSA question

[roy819]

I have a newbie question. For the purpose of this question, I am assuming that the only death benefit being provided in a DB plan is the required QPSA (let's say it is equal to the plans QJSA of 50% J&S) and the QPSA is fully subsidized. No other death benefit in the plan.

Per treasury reg 1.401(a)-20 Q&A 37, a plan is NOT required to provide the written QPSA explanation if a) the QPSA is fully subsidized and b) it "does not allow a participant to waive such QPSA or to select a non spouse beneficiary". 

I think most plans in this situation would make the QPSA mandatory (not allow a waiver) and would therefore not need to provide the QPSA explanation.

However, is a plan in this situation (again, where the QPSA is the only death benefit in the plan and it is fully subsidized) permitted to allow the participant (with spousal consent) to waive the QPSA in favor of a non spouse beneficiary?

In other words - can a DB plan be designed where the only death benefit provided in the plan is a fully subsidized QPSA to married participants - but it allows the participant (with spousal consent) to waive the QPSA in order to make the QPSA payable to a non spouse beneficiary?

Notice 97-10 provides sample language for a spouse's waiver of the QPSA, and the example in Appendix B, Question 2, Option B seems to indicate that yes - the spouse can give up all (or part) of the QPSA benefit and it will be payable "to another person" "often called a beneficiary". Appendix B, Question 4, Option C provides a scenario where the spouse can sign a "general consent agreement" and the sample language says "If you sign this agreement, your spouse can choose the beneficiary who will receive the QPSA..."

However the DB Answer Book states the following:

Q 21:98, Can a participant name a person other than his or her spouse as the QPSA beneficiary? No. The QPSA is payable only to a surviving spouse (or former spouse under a QDRO) (see chapter 23). Example. With her husband's consent, Celia named her daughter as the QPSA beneficiary. After Celia died, the plan refused to pay a survivor's benefit to her daughter, saying the plan provided QPSAs only for surviving spouses. The court upheld the plan administrator's determination. [Butler v. Encyclopedia Brittanica Inc, 18 Employee Benefits Cas. (BNA) 2589 (7th Cir. 1994)]

Now, perhaps this question is assuming that the plan requires the QPSA to be mandatory and does not allow the participant to waive the QPSA in favor of a non spouse beneficiary (again, going back to 1.401(a)-20 Q&A 37). If that's the case then yes, I would agree that a participant cannot name a person other than his or his spouse as the QPSA beneficiary, as the plan does not allow such waiver.

But again, it seems that a plan is permitted to allow a participant to name a person other than his or her spouse as the QPSA beneficiary. Thoughts?

[CuseFan]

Yes, the plan is permitted to allow the participant to waive the QPSA and name a different beneficiary with spousal consent. Here is Relius VS language from a plan whose only death benefit is the QPSA.

(a)   Qualified Pre‑Retirement Survivor Annuity (QPSA). Unless otherwise elected as provided below, a Vested Participant who dies before the Annuity Starting Date and who has a surviving spouse shall have the death benefit paid to the surviving spouse in the form of a Pre‑Retirement Survivor Annuity. The Participant's spouse may direct that payment of the Pre‑Retirement Survivor Annuity commence within a reasonable period after the Participant's death (but not later than the month in which the Participant would have attained the Earliest Retirement Age under the Plan if the Participant dies on or before the Earliest Retirement Age). If the spouse does not so direct, payment of such benefit will commence at the time the Participant would have attained the later of Normal Retirement Age or age 62. However, the spouse may elect a later commencement date, subject to the rules specified in Section 5.9.

 (b)   Election to waive QPSA. Any election to waive the Pre‑Retirement Survivor Annuity before the Participant's death must be made by the Participant in writing (or in such other form as permitted by the Internal Revenue Service) during the election period and shall require the spouse's irrevocable consent in the same manner provided for in Section 5.7(a)(2). Further, the spouse's consent must acknowledge the specific nonspouse Beneficiary. Notwithstanding the foregoing, the nonspouse Beneficiary need not be acknowledged, provided the consent of the spouse acknowledges that the spouse has the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elects to relinquish such right.

[roy819]

Thanks for the reply & confirmation. 1.401(a)-20 Q&A 37 states that a plan is NOT required to provide the QPSA written explanation if it "does not allow a participant to waive such QPSA or to select a non spouse beneficiary". Since the Relius VS does allow a participant to waive the QPSA, then it appears a plan sponsor using this document (where the QPSA is the only death benefit) would still be required to provide the written explanation. I presume that the plan would need to be modified to remove such ability to waive the QPSA if the plan sponsor did not want to provide the QPSA notices.

Thanks again.