Terminating Plan - One participant cannot obtain spousal consent

[pixiebear]

We are terminating a PBGC covered plan and the distribution deadline is approaching. One participant cannot obtain spousal consent for the lump sum distribution because his wife refuses to sign the consent form so we will have to purchase an annuity. I've never needed to purchase an annuity for 1 person. The companies that we work with on annuity purchases have limits and he has a very small benefit. Any ideas?

[Effen]

There are brokers who can help - I will PM you.  You can also go direct to the carriers.  Did you try Midland and/or Mutual of Omaha?  They will usually quote.  I will send you a few options via PM for brokers who might be able to help.

[david rigby]

Thirty+ years ago, I was terminating a plan and had a similar situation, and the EE was only about age 40.  The LS was small, only about $4K.  Insurance companies did not want to sell a deferred annuity that small (or at all).  Thus, the only alternative was an immediate J&S annuity, with a corresponding small monthly amount.  We described this to the participant, something like, "you can get $4,000 now or you can get a 50%J&S of $16 per month" (don't do the math, it's just an example).  Upon hearing the alternatives, the participant (and spouse) decided to elect the Lump Sum.  The original questioner might get similar "simplification" by sharing some numbers with the participant.

[Peter Gulia]

Consider:

Alfonso Gomar alfonso.gomar@dietrichannuity.com (610) 279-9455

https://www.dietrichannuity.com/contact-us/

https://www.dietrichannuity.com/group-annuity-products/pension-plan-terminations/

[fmsinc]

Try MetLife.  They set up annuities for TSP plan participants. See attached.TSP Annuities MetLife.pdf

The language on the PBGC website states: "A rollover of an amount exceeding a plan's de minimis cash-out level is subject to spousal consent regardless of whether the participant wants the lump sum to be rolled over into another plan or IRA or paid directly by check or direct deposit." 

One would expect that the purchase of an annuity would also require spousal consent.  See 29 CFR 4022.8(c)(3) at  - https://www.law.cornell.edu/cfr/text/29/4022.8

What happens if the Participant in your case cannot get his wife to consent?   

He can always file for divorce and transfer her share via a QDRO  

David

[Effen]

spousal consent is not required for an annuity purchase.  

[fmsinc]

EFFEN:  Can you cite me the law or CFR regs that provides that "spousal consent is not required for an annuity purchase".

Thanks.  

 

[Bri]

The QJSA is what he'd get without any signature.  If the guy wanted a single life annuity the spouse would still have to sign away her position.

[david rigby]

4 hours ago, fmsinc said:

EFFEN:  Can you cite me the law or CFR regs that provides that "spousal consent is not required for an annuity purchase".

If we add "J&S" in front of "annuity", is there any doubt about this answer?  We assume the plan document, like every document I've even seen, will allow the satisfaction of the benefit promise via purchase of such an annuity.

[fmsinc]

A little research shows at the survivor annuity in a J&S annuity does not have to be spouse of the first annuitant.  [Or does that not apply to PBGC terminations?]   Everyone seems to agree that for PBGC termination purposes a J&S annuity is not a "distribution" for spousal consent purposes.  If that is case, what protection is provided to the spouse in pixiebear's fact pattern if the annuitant chooses, for example, his sister and not his wife as the 2nd annuitant?   

The PBGC Q&A page states: "A rollover of an amount exceeding a plan's de minimis cash-out level is subject to spousal consent regardless of whether the participant wants the lump sum to be rolled over into another plan or IRA or paid directly by check or direct deposit."  It does not mention J&S annuity payouts. 

29 CFR Subpart 4041 -  https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XL/subchapter-E/part-4041/subpart-B?toc=1

29 CFR Subpart 4041, Section 4041.21(b)(2) -  https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XL/subchapter-E/part-4041/subpart-B/section-4041.21

states that: 

"(2) Alternative treatment of majority owner's benefit.  A majority owner may elect to forgo receipt of his or her plan benefits to the extent necessary to enable the plan to satisfy all other plan benefits in accordance with § 4041.28. Any such alternative treatment of the majority owner's plan benefits is valid only if—

(i) The majority owner's election is in writing;

(ii) In any case in which the plan would require the spouse of the majority owner to consent to distribution of the majority owner's receipt of his or her plan benefits in a form other than a qualified joint and survivor annuity, the spouse consents in writing to the election;

(iii) The majority owner makes the election and the spouse consents during the time period beginning with the date of issuance of the first notice of intent to terminate and ending with the date of the last distribution;

(iv) Neither the majority owner's election nor the spouse's consent is inconsistent with a qualified domestic relations order (as defined in section 206(d)(3) of ERISA); and"  (Emphasis supplied.)

Is the Participant in pixiebear's scenario the "majority owner"?  If not, it looks like spousal consent may not be required at all. 

But I would not risk being sued for legal malpractice, or for breach of fiduciary duty if I was the Plan Administrator, without finding all of the applicable Code provisions and regulations. 

The road to hell is paved with assumptions and crossed fingers. 

David

 

 

[Effen]

19 hours ago, fmsinc said:

A little research shows at the survivor annuity in a J&S annuity does not have to be spouse of the first annuitant.

Maybe, but that isn't what we are talking about.  The only way for that statement to happen, if for the existing spouse to sign off. 

As David, and Bri, and I stated, the OP was asking about purchasing an annuity during the plan termination process. When the plan is purchasing an annuity under this situation, or in a derisking move that doesn't involve a plan termination, the annuity purchased must provide all the same rights and features of the plan document.  Therefore, the annuity purchase is not a distribution to the participant.  The participant is not involved in the purchase.

If the LS was a permanent feature of the plan, the annuity purchase would still need to provide that option in the future, as well as any other optional form of payment in the plan document.  Once the participant reached an age they were eligible to receive the benefit, the spousal consent rules would still apply in order for them to receive the benefit from the ins. company.   

If the participant can get spousal consent at a future date, or if they no longer has a spouse, then they can take a lump sum later.  If he still has a spouse, and they don't consent to a non-spousal option, his only option would be the QJSA/QOSA options in the plan.

If you need a site, read REA from 1984.

Not responding to the rest of your comments as you are hanging a picture in the wrong gallery.  

[fmsinc]

Effen:  You said that, "When the plan is purchasing an annuity under this situation, or in a derisking move that doesn't involve a plan termination, [DSG: But it does in this case.] the annuity purchased must provide all the same rights and features of the plan document.  Therefore, the annuity purchase is not a distribution to the participant.  The participant is not involved in the purchase."

It is my understanding that "derisking" is what happens when the Plan pays out an immediate lump sum to avoid the potential cost of a future annuity payout that may exceed the amount of the lump sum and thereby reduce the risk of a larger payout.  Those risks include the longevity risk, investment risk, and interest rate risk.  See https://actuary.org/pension-risk-transfer/

What you are suggesting is that a transfer of the Plan's annuity payout risk to an insurance carrier is a form of derisking.   I can see the logic of that. But we seem to be concluding that lump sum payout is at least a form of derisking but that the plan is not terminating ,which it certainly is, and that due to some law or regulation as yet undiscovered the spouse must consent to the lump sum but not the derisking act of buying an annuity.  Since I know for certain that lump sum payments are most often less than the actuarially determined present value of a future stream of income (most often by the selection of out of date mortality tables).  And wouldn't it make a difference if the Participant has or has not reached earliest or normal retirement age or is or is not in pay status?      

I don't claim to be an expert in this area.  That's why I look for enlightenment and illumination from you fine folks. I vividly recall my first day in statistics 101 at college where the professor told us about the statistician (or actuary) who, when offered to buy a watch that lost one second a day and a watch that didn't run at all, opted for the latter because statistically the watch that didn't run at all was accurate twice a day and the watch that lost one second a day was only accurate once every 17 years.  Then there was the story of the statistician who refused to parachute from a burning airplane since statistically flying is safer than parachuting.   And of court the statistician believes that if you put your left foot in boiling water and your right foot in ice water, on the average you are comfortable.

David