Life and Death Planning for Retirement Benefits

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174 Life and Death Planning for Retirement Benefits
Most significantly for estate planning, in order to be “exempt” from the QJSA/QPSA
requirements, a profit-sharing plan must provide “that the participant’s nonforfeitable accrued
benefit is payable in full, upon the participant’s death, to the participant’s surviving spouse (unless
the participant elects, with spousal consent that satisfies the requirements of section 417(a)(2), that
such benefit be provided instead to a designated beneficiary).” Thus, the only way a profit-sharing
plan can be “exempt” from the QJSA/QPSA requirements is by paying 100 percent of the
participant’s account to the participant’s spouse at the participant’s death unless the spouse
consents to waive this right.
Even though it must offer certain spousal benefits under REA, an exempt profit-sharing
plan is still critically different from a pension plan. Under an exempt profit-sharing plan, the
employee can withdraw ALL his benefits from the plan whenever the plan permits him to do so
(typically, upon separation from service, although some profit-sharing plans permit in-service
distributions) WITHOUT the consent of his spouse. He can then roll the benefits over to an IRA
and continue to enjoy tax deferral without any further obligations to his spouse under federal law
.
The trade-off is that, if the employee dies BEFORE having withdrawn the benefits from
the plan, 100 percent of his benefits (including proceeds of any life insurance policy held in the
plan) must be paid to the surviving spouse, unless she has consented to waive this right. Reg.
A-12(b).
3.4.04 IRAs, Roth IRAs, and 403(b) plans
IRAs and Roth IRAs are not subject to REA; neither ERISA § 205 nor IRC
applies to IRAs or Roth IRAs (with the possible exception of SEP-IRAs and SIMPLEs, a subject
beyond the scope of this book).
Finally, we come to the special case of 403(b) plans. Although 403(b) plans are subject to
some of the same requirements as qualified plans (see ,
is not one of the 401(a) provisions “imported” into which would make it at first appear
that 403(b) plans are not subject to REA. However, even though the tax Code REA provisions
don’t apply, some 403(b) plans are subject to ERISA—which has its own set of QJSA/QPSA
requirements. Therefore, “to the extent that section 205 [of ERISA] covers section 403(b) contracts
and custodial accounts they are treated as section 401(a) plans” for purposes of the QJSA/QPSA
requirements. Reg A-3(d). Therefore, some 403(b) plans are subject to REA and
some are not.
The 403(b) plans NOT covered by ERISA (and therefore not subject to REA) are those
funded exclusively by means of elective employee deferrals (salary reduction agreements). 403(b)
plans funded in whole or in part by employer contributions are subject to ERISA and therefore
also to the REA requirements. DOL Reg. § 2510.3-2(f).
403(b) plans that are subject to ERISA and offer annuity benefits to the participant will be
subject to REA’s full QJSA/QPSA requirements, just like a pension plan . A 403(b) plan
that is subject to ERISA but that does not offer annuity benefits (i.e., a plan funded exclusively
with mutual fund custodial accounts pursuant to can use the alternative compliance
procedure available to “exempt” profit-sharing plans .
3.4.05 Various REA exceptions and miscellaneous points