Can you eliminate QJSA under the new 411(d)(6) regs, even if QJSA is y

[Guest Beth N]

If a profit sharing plan chose to have QJSA as normal form of distribution and also allowed a lump sum, do the new 411(d)(6) regs allow the plan to eliminate the QJSA and offer only lump sum? Put another way, do the regs allow you only to eliminate "optional" forms of distribution, such that if your QJSA is the "normal" form, you have to keep it even though the plan would otherwise not be required?

[Bob R]

I think the regs do allow you to eliminate the J&S provisions, even though the J&S is currently the normal form of distribution. However, I have heard some people express concern about the elimination of the spouse's rights under the plan. Whether that will be problem may never be know -- until someone litigates it. All it takes is a sympathetic plaintiff. Participant withdraws all funds from the plan without spousal consent and spends it all. Then participant dies and widow or widower is in court because all of their savings have been spent. Who knows?

[Bob R]

While surfing this site -- see the thread cited below about a spouse not consenting to a rollover (it's in this 401(k) section):

http://benefitslink.com/boards/index.php?showtopic=9004

Just change the facts. Plan is amended to eliminate J&S. Participant takes the money and rolls over to IRA and spends money. Then gets divorced. Ex-spouse is not too happy. In this case $350,000 is potentially at stake. Is it ripe for a lawsuit?? While I think the spouse is out of luck, my opinion doesn't count. But, I'd argue that the qualified plan rules permit the amendment. And, Congress is aware that in non J&S plans, a spouse has no right to distributions made while participant is alive. That's why there was proposed legislation several years ago to require spousal consent for all plans.

[Guest FAQ]

Has anyone come across authority for allowing the elimination of a QJSA form of benefit that is the "normal" form of benefit for a defined contribution plan?

The regulations mention eliminating an "optional" form of benefit. Reg. 1.411(d)-4 Q/A-2(e).

We are trying to simplify a DC plan that has insurance company roots, with QJSA as the "normal" form of distribution (no pension or money purchase plan assets are in the plan).

I see the question has been raised before, but I wanted to raise the issue again. Thanks.

[RTK]

look at 1.411(d)-4, Q&A-2(e), particularly ex 3

[Guest Beth N]

See also question 23 of the JCEB Q&A's submitted to the IRS in 2001. (Sorry I don't have a website link - I think you can get it from www.abanet.org/jceb though.)

[Guest FAQ]

I don't see an Example 3 under reg. section 1.411(d)-4 Q/A-2(e).

However, the Q&A is at:

http://www.abanet.org/jceb/2001/qa01irs.html

Thanks for the tip!

[RTK]

sorry, that is actually ex 1 of the examples at 1.411(d)-4 Q&A-2(e)(3)

[Brian Gallagher]

i would say you can eliminate it as long as a lump sum distribution is the new normal form of benefit. also, you must notify participants at least 90 days before the removal of the qjsa benefit.

[Kirk Maldonado]

I think that people need to look at the change made by EGTRRA, rather than on focusing on the regulations.

[RTK]

I should have remembered that you gotta read the law. Have you seen any discussion on any differences between the statutory and regulatory provisions (for plan transfers and elimination of form of distribution)? The basics seem to be the same.

[Lynn Campbell]

Brian, what rule requires 90 day notice if we delete the QJSA rules? Would this be a Material Modification or what form would the notice take? Thank you.

[RTK]

Lynn, the 90-day notice requirement is in 1.411(d)-4, Q&A-2(e)(1)(ii) and is used in part to determine the participants to whom the amendment applies.

[Kirk Maldonado]

RTK:

I don't recall seeing a 90 day notice requirement in EGTRRA.

[RTK]

It is not in EGTRRA. Nonetheless, the impact of EGTRRA on the existing IRS regulations is not clear to me. The EGTRRA committee report is not much help. Althought the report notes the existence of the existing IRS regulations, it does not provide any guidance on Congress' intent with respect to the ongoing validity or invalidity of those regulations. Nor is the intent of the reference in the EGTRRA provisions to "Except to the extent provided in regulations" clear to me or explained in the committee report. Presumably this refers to regulations the IRS is directed to issue. I suppose it comes down to a good faith reasonable interpretation of EGTRRA, or anticipating what the IRS may require in additional regulations. In my case, I think I will continue to provide advance notice of the elimination of a form of distribution until I see some guidance on the issue.

[Archimage]

I am attaching a CIGNA newsletter that might be of some help.

[Kirk Maldonado]

RTK:

I strongly suggest that you read section 645 of EGTRRA, which provides in relevant part:

‘‘(E) ELIMINATION OF FORM OF DISTRIBUTION.

—Except to the extent provided in regulations,

a defined contribution plan shall not be

treated as failing to meet the requirements of this

section merely because of the elimination of a

form of distribution previously available thereunder.

This subparagraph shall not apply to the

elimination of a form of distribution with respect

to any participant unless—

‘‘(i) a single sum payment is available

to such participant at the same time or

times as the form of distribution being

eliminated, and

‘‘(ii) such single sum payment is based

on the same or greater portion of the participant’s

account as the form of distribution

being eliminated.’’.