Life and Death Planning for Retirement Benefits

Chapter 3: Marital Matters

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some 403(b) plans; ¶ 3.4.02 ); plans that are subject to a modified version of the REA requirements (some profit-sharing plans and some 403(b) plans; ¶ 3.4.03 ); and plans that are totally exempt from REA’s requirements (IRAs, Roth IRAs, and some 403(b) plans; ¶ 3.4.04 ). With respect to covered plans, the Supreme Court has held that REA preempts state spousal rights laws such as community property; Boggs v. Boggs, 570 U.S. 833 (1997). 3.4.02 Plans subject to full-scale REA requirements If a plan is fully subject to REA, then, generally (for exceptions see ¶ 3.4.05 ), ANY benefits distributed by that plan to a married employee MUST be distributed in the form of a “qualified joint and survivor annuity” (QJSA), unless the employee has waived that form of benefit and the employee’s spouse consents to the waiver. If a married employee covered by such a plan dies before retirement, then the plan MUST pay his surviving spouse a “qualified pre-retirement survivor annuity” (QPSA) unless she has waived the right to receive the QPSA. The spousal consent or waiver must meet certain requirements. ¶ 3.4.06 . The plan must offer additional joint annuity options after 2007 as a result of PPA ’06; see § 417(a) . Plan loans may require a spousal consent; see ¶ 2.1.07 . A QJSA is an annuity (1) for the life of the participant with a survivor annuity for the life of his spouse which is not less than 50 percent of (and is not greater than 100 percent of) the amount of the annuity which is payable during the joint lives of the participant and spouse, and (2) which is the actuarial equivalent of a single annuity for the life of the participant. The definition of a QPSA is even more elaborate. Basically, it is supposed to be the annuity the spouse would have received under the QJSA had the employee lived to retirement, retired with a QJSA, then died. In the case of a defined contribution plan ( ¶ 8.3.05 ), the value of the QPSA is defined as an annuity equal in value to 50 percent of the employee’s account balance. § 417(c)(2) . All pension plans are subject to the QJSA/QPSA requirements described in this ¶ 3.4.02 . Defined benefit plans ( ¶ 8.3.04 ) and Money Purchase plans ( ¶ 8.3.10 ) are in this category. § 401(a)(11)(B) . Other types of qualified retirement plans (QRPs), namely, profit-sharing and stock bonus plans, may or may not be subject to these rules, depending on whether they fit into the “exemption” (which is not really an exemption, just a modified version of the requirements) described at ¶ 3.4.03 . 3.4.03 REA requirements for “exempt” profit-sharing plans Certain QRPs are exempt from the QJSA/QPSA requirements of REA described at ¶ 3.4.02 . Although this type of plan could be any type of QRP other than a “pension” plan, i.e., it could be a profit-sharing or stock bonus plan, these plans are called here “exempt profit-sharing plans.” However, these plans are not “exempt” from REA, because (as a condition of being exempt from the QJSA/QPSA requirements) they still have to provide a spousal death benefit. A qualified retirement plan that is not a pension plan is generally not subject to the QJSA/QPSA requirements described at ¶ 3.4.02 . The exceptions would be, if the plan offers retirement benefits in the form of annuities, or was merged with a pension plan, or if it has a benefit formula that is integrated with a pension plan, then the plan is subject to the pension plan rules. See Reg. § 1.401(a)-20 , A-4, A-5.