JSA with Child as Beneficiary

Pension plans typically offer JSA options (50% through 100%) that name the spouse as beneficiary and which satisfy the QJSA rules. However can the pension plan offer a JSA option for a non-spouse beneficiary such as a child? Of course spousal consent would be required but I never saw a plan offer a JSA option for a non-spouse beneficiary, such as a child? Any issues or concerns here?

You can have J&S options for non-spousal beneficiaries, but there are restrictions and adjustments based on the age differences.  

A good place to start would be Treasury Regulation section 1.401 (a)(9)-6)

Ananda, is your client considering limiting such a joint-and-survivor annuity to one that is the actuarial equivalent of the plan-provided annuity for the participant’s life alone?

21 hours ago, Ananda said:

However can the pension plan offer a JSA option for a non-spouse beneficiary such as a child?

Yes. The plan document should specifically say whether this is or is not permitted. If it is, as Effen alluded, there may be restrictions on the survivor percentage due to the minimum incidental death benefit rules of 401(a)(9).  

Also advisable to avoid confusing terminology.  Whenever I've seen this option, it has been labeled something like "contingent annuitant option", to distinguish from the ERISA-defined "joint and survivor annuity".

Yes this will be the actuarial equivalent of the the plan provided participant life annuity

Agree with above comments. Start by seeing if plan language permits non-spouse J&S beneficiary (with spouse's consent if there is one). Most traditional plans do.

A J&S with 50% to the contingent beneficiary will satisfy the restrictions -- i.e., the "incidental benefit" requirements -- regardless of how much younger the non-spouse beneficiary is.

For 100% continuance, non-spouse beneficiary may not be more than N years younger than participant, where N = 10 + number of years, if any, that the participant is younger than age 70 at commencement. So if participant is 65 then non-spouse beneficiary must be at least age 50 -- in other words, no more than 15 (= 10 + 5) years younger.

For continuance %s between 50 and 100 you apply this same rule but replace the 10 by a larger value -- see table in the regs.

Believe that for this rule you measure age at individual's birthday during year of commencement.

The longevity of the beneficiary is usually the greatest concern.  This will create a very low-value benefit amount, and usually will place the Plan in a position whereby the annual administrative carrying cost becomes excessive vs the benefit amount being paid.  See actuarial & administrative per participant fees, PBGC premiums, amortized AFTAP shortfall, and the annual inherent expected asset return.

Typically, a 10 - 20 year contingent benefit will be much more valuable to the beneficiary than the survivorship benefit, especially if the participant is in poor health or there is a significant age disparity.  I've only had one such annuitant with a terminal diagnosis, who was seeking to take care of a child with a disability, but when the Plan terminated a couple years later and the child's trustee elected a lump sum, it was a pittance compared to what would have been left in the guarantee period.

The IRS website does have a page on this matter: 

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-qualified-joint-and-survivor-annuity

and see https://www.law.cornell.edu/cfr/text/26/1.401(a)-20  - Q.31.

I have my doubts that a QDRO could provide for a QJSA for anyone other than a former spouse.   Aside from the language of 29 U.S.C § 1055, I feel comfortable in suggesting that most state statutes only afford the court jurisdiction to transfer pension and retirement benefits from one party to the other in connection with the entry of an absolute divorce or an annulment.  So if you are dealing with a divorce situation and a QDRO, you need to take a look at the state statute.  See Advisory Opinion No. 1999-13A , the IRS Division of Fiduciary Interpretation Office of Regulations and Interpretations was asked:

        "You have asked for an advisory opinion as to whether, and if so when, a plan administrator may investigate or question a domestic relations order submitted for review to determine whether it is a valid “domestic relations order” under State law for purposes of section 206(d)(3)(B) of ERISA."  

The response was as follows:

        "When a pension plan receives an order requiring that all or a part of the benefits payable with respect to a participant be paid to an alternate payee, the plan administrator must determine that the judgment, decree or order is a “domestic relations order” within the meaning of section 206(d)(3)(B)(ii) of ERISA — i.e., that it relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of the participant and that it is made pursuant to State domestic relations law by a State authority with jurisdiction over such matters. Additionally, the plan administrator must determine that the order is qualified under the requirements of section 206(d)(3) of ERISA. It is the view of the Department that the plan administrator is not required by section 206(d)(3) or any other provision of Title I to review the correctness of a determination by a competent State authority pursuant to State domestic relations law that the parties are entitled to a judgment of divorce. See Advisory Opinion 92-17A (Aug. 21, 1992). Nevertheless, a plan administrator who has received a document purporting to be a domestic relations order must carry out his or her responsibilities under section 206(d)(3) in a manner consistent with the general fiduciary duties in part 4 of title I of ERISA."

        "For example, if the plan administrator has received evidence calling into question the validity of an order relating to marital property rights under State domestic relations law, the plan administrator is not free to ignore that information. Information indicating that an order was fraudulently obtained calls into question whether the order was issued pursuant to State domestic relations law, and therefore whether the order is a “domestic relations order” under section 206(d)(3)(C). When made aware of such evidence, the administrator must take reasonable steps to determine its credibility. If the administrator determines that the evidence is credible, the administrator must decide how best to resolve the question of the validity of the order without inappropriately spending plan assets or inappropriately involving the plan in the State domestic relations proceeding. The appropriate course of action will depend on the actual facts and circumstances of the particular case and may vary depending on the fiduciary’s exercise of discretion. However, in these circumstances, we note that appropriate action could include relaying the evidence of invalidity to the State court or agency that issued the order and informing the court or agency that its resolution of the matter may affect the administrator’s determination of whether the order is a QDRO under ERISA.5(5) The plan administrator’s ultimate treatment of the order could then be guided by the State court or agency’s response as to the validity of the order under State law. If, however, the administrator is unable to obtain a response from the court or agency within a reasonable time, the administrator may not independently determine that the order is not valid under State law and therefore is not a “domestic relations order” under section 206(d)(3)(C), but should rather proceed with the determination of whether the order is a QDRO." 

DSG

On 4/5/2022 at 2:43 PM, Ananda said:

Pension plans typically offer JSA options (50% through 100%) that name the spouse as beneficiary and which satisfy the QJSA rules. However can the pension plan offer a JSA option for a non-spouse beneficiary such as a child? Of course spousal consent would be required but I never saw a plan offer a JSA option for a non-spouse beneficiary, such as a child? Any issues or concerns here?

In my experience, it's not all that rare for plans, e.g. with blue collar participants, especially if don't offer lump sum. Employees want to be able to protect their kids and significant others with death benefits in various situations. At least for kids, probably a better solution is life annuity with term certain option.

On 4/6/2022 at 4:05 PM, fmsinc said:

I have my doubts that a QDRO could provide for a QJSA for anyone other than a former spouse.   

It seems to me that if the plan offers non-spousal J&S annuities, at least, QDROs for that plan could also.

On 4/6/2022 at 5:05 PM, fmsinc said:

doubts that a QDRO could provide for a QJSA for anyone other than a former spouse

Correct. As far as I understand it, this is not permitted. In my nearly 40 years (boy I'm old, when did that happen?) I have never seen a QDRO that allows A/P to elect a J&S and all that I have seen specifically prohibit it. The reason is the plan ends up paying a benefit based on 3 lives - participant, A/P and an A/P beneficiary, and I have yet to see a plan that pays a joint & survivor & survivor's survivor benefit.