(b)lines Ask the Experts – The Difference Between QPSAs and QJSAs

What is the difference between a QPSA and QJSA?”
By PS

Michael A. Webb, vice president, Cammack Retirement Group, answers:     

Excellent question, since these two types of annuity benefits, which are found in some types of retirement plans (including many Employee Retirement Income Security Act (ERISA) 403(b) plans) are often confused with one another despite the fact that they are two completely different types of benefits.

The QPSA or Qualified Preretirement Survivor Annuity, is a preretirement death benefit for a married plan participant, payable in the form of the immediate annuity for the life of the surviving spouse of the participant that is purchased with no less than 50% (and no more than 100%) of the participant’s account balance at the time of the his or her death. The precise percentage is stated in the plan document, but typically it is 50% of the account balance.

The QJSA or Qualified Joint and Survivor Annuity is a retirement (as opposed to death) benefit payable in the form of an annuity for the life of the participant, and, if the participant is married, a survivor annuity for the life of the spouse payable upon the death of the participant. Like the QPSA, the survivor annuity percentage is specified by the plan, and again it must be at least 50% (but no more than 100%) of the annuity benefit that was payable when the participant was alive. Like the QPSA, this percentage is typically 50%. It should also be noted that, if a plan requires a QPSA, a Qualified Optional Survivor Annuity (QOSA) must also be made available to participants. If the survivor annuity percentage is less than 75%, the QOSA must provide a 75% survivor benefit. If the QPSA provides a survivor benefit of 75% or more, the QOSA must provide a 50% benefit.

In plans which require the QPSA and QJSA, the participant may waive the benefit. This waiver currently occurs in most cases, since annuities are currently not a popular form of benefit payment (though their popularity if increasing). However, in order for the participant to waive the benefit in favor of, say a lump-sum or partial withdrawals, the participant’s spouse must consent to the alternate form of benefit.

If a retirement plan offers a QPSA, it must give a participant a QPSA notice during the period beginning when he or she is age 32 and ending with the close of the plan year before the participant is age 35, or within one year from when an employee becomes a plan participant if he or she is hired after age 35. In addition, in general, a participant cannot waive the QPSA prior to the first day of the plan year in which the participant’s 35th birthday occurs. A plan may allow the participant to waive the QPSA prior to that date, but the waiver would then be revoked on the first day of the plan year in which the participant turns age 35, requiring a brand new waiver to be completed at that time, assuming that the participant still wishes to waive the QPSA. In the Experts’ experience, this age-35 rule is often the source of confusion and administrative error.             

Not all plans are required to offer a QPSA and QJSA. Plans that are not subject to ERISA, such as non-electing church or governmental 403(b) plans, are not required to offer the QPSA or QJSA. In addition, 401(k) profit-sharing or stock bonus plans are not subject to the QPSA/QJSA requirement if:

  • The participant’s death benefit is entirely payable to the participant’s spouse (unless the spouse consents to an alternate beneficiary designation);
  • The plan does not offer a life annuity or other similar lifetime income option, or the participant does not elect such an option; and
  • Benefits have not been transferred into the plan on behalf of the participant that are subject to the QPSA/QJSA requirements.

Since, as explained above, the spousal consent and other requirements (e.g. notice) related to the QPSA and QJSA are somewhat burdensome, many plans that are not required to offer a QPSA/QJSA indeed elect not to do so. For many ERISA 403(b) plans, however, offering the QPSA/QJSA is not an option, since many 403(b) plans offer annuity investments and their structure makes it impossible to avoid the QPSA/QJSA requirements.

Thank you for your question!

 

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.

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