“We are restating this plan document and the plan sponsor wants to eliminate the Qualified Joint and Survivor Annuity (QJSA) form of benefit. The current investments are custodial funds, by the way. Is there a problem when the normal form of benefit is lump sum cash when there are plan assets in annuity contracts?”
David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
There may indeed be a problem with eliminating the QJSA, as alluded to in our prior Ask the Experts column. First of all, we will assume that the 403(b) plan in question is subject to the Employee Retirement Income Security Act (ERISA), since plans that are not subject to ERISA are also not subject to the QJSA requirements of the Code, and thus your question would be moot.
Many 403(b) plans are indeed subject to the QJSA requirements. For example, all 403(b) plans structured as a money purchase plan are subject to the QJSA requirements. It is possible that other 403(b) plan types (profit-sharing, matching, elective deferral only) could be structured to avoid the QJSA requirement, but only if the following four conditions are satisfied:
1) The plan does not offer annuity contracts whose structure makes it impossible to avoid the QJSA requirements;
2) The participant’s death benefit is entirely payable to the participant’s spouse (unless the spouse consents to an alternate beneficiary designation);
3) The plan does not offer an option payable over only the participant’s lifetime (e.g., a life annuity), or the participant does not elect such an option (i.e., the requirement of spousal consent to the participant’s waiver of the QJSA is not required); and
4) Benefits have not been transferred into the plan on behalf of the participant that are subject to the QPSA/QJSA requirements.
Requirement 1) is often the stumbling block for 403(b) plans. Even if all active investments are 403(b)(7) custodial accounts, as you state in your example, the mere fact that 403(b)(1) contracts exist within the plan may mean that you cannot eliminate the QJSA. The terms of the contract may require a QJSA (and QPSA). To be certain, the plan sponsor should consult with an attorney well-versed in such matters.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.
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