4.72.9  Qualified Joint and Survivor Annuity Requirements

Manual Transmittal

February 26, 2015

Purpose

(1) This transmits revised IRM 4.72.9, Employee Plans Technical Guidelines, Qualified Joint and Survivor Annuity Requirements.

Material Changes

(1) IRM 4.72.9.1, Overview, is revised to reflect final regulations issued with respect to the changes made by the Small Business Job Protection Act of 1996, P.L. 104-188 (SBJPA) and the Taxpayer Relief Act of 1997, P.L. 105-34 (TRA of 1997), as well as proposed and final regulations issued with respect to the disclosure of relative values of optional forms of benefits.

(2) IRM 4.72.9.1.1, Legislative History, is updated to include current law changes.

(3) IRM 4.72.9.2, Plans Covered by Survivor Annuity Requirements, is updated to include qualified optional survivor annuity (QOSA) requirements.

(4) IRM 4.72.9.2.1, IRC 401(a)(11)(B)(iii), is expanded.

(5) IRM 4.72.9.2.3, Examination Steps, is updated for QOSA requirements.

(6) IRM 4.72.9.3.3, Exceptions to Participant Consent Rules, is updated to clarify the exception to the participant consent requirement.

(7) IRM 4.72.9.3.5.1, Exceptions to Spousal Consent Rules, is updated to correct the reference to the Treasury regulation.

(8) IRM 4.72.9.4, Notice and Election Requirements, is updated.

(9) IRM 4.72.9.4.1, QJSA and QPSA Notice, renamed QJSA, QOSA and QPSA Notice and is updated.

(10) IRM 4.72.9.4.2, Written Explanation of QJSA and QPSA, is renamed Written Explanation of QJSA, QOSA and QPSA and updated.

(11) IRM 4.72.9.4.3, Notice of Optional Forms of Benefit, is updated.

(12) IRM 4.72.9.4.4, Applicable Period for QPSA Notice, is updated.

(13) IRM 4.72.9.4.5, Period for QJSA Notice, is revised to provide for a participant's election for a retroactive annuity starting date.

(14) IRM 4.72.9.4.5.1, Exceptions to General Period for QJSA Notice, is expanded.

(15) IRM 4.72.9.4.8, Examination Steps, is updated for Pension Protection Act of 2006 180 days rule.

(16) IRM 4.72.9.5.1, Annuity Starting Date, is updated to include additional reference material.

(17) IRM 4.72.9.5.2, Immediately Distributable, is deleted.

(18) IRM 4.72.9.5.3, QJSA, IRM 4.72.9.5.4, QPSA and IRM 4.72.9.5.5, Spouse are renumbered.

(19) Editorial changes are made throughout.

Effect on Other Documents

This supersedes IRM 4.72.9, Employee Plans Technical Guidelines, Qualified Joint and Survivor Annuity Requirements, dated April 1, 2006.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(02-26-2015)

Robert S. Choi
Director, Employee Plans
Tax Exempt and Government Entities

4.72.9.1  (02-26-2015)
Overview

  1. Guidance is provided on examining plans subject to the joint and survivor annuity requirements.

  2. These guidelines reflect final regulations issued with respect to the changes made by the Small Business Job Protection Act of 1996, P.L. 104-188 (SBJPA), the Taxpayer Relief Act of 1997, P.L. 105-34 (TRA of 1997) and the Pension Protection Act of 2006, P.L. 109-280 (PPA 2006). The guidelines also reflect final Treasury regulations issued with respect to the disclosure of the relative values of optional forms of benefits found in Treas. Reg. 417(a)(3)-1. Additionally, these guidelines cover Rev. Rul. 2013-17; 2013-38 IRB 201 and Notice 2014-19; 2014-17 IRB 979, which provide guidance regarding the application of the decision in United States v. Windsor, 570 U.S., 133 S. Ct. 2675 (2013). The Windsor case held that section 3 of the Defense of Marriage Act (DOMA), P.L. 104-199, which had barred Federal recognition of same-sex marriages, was unconstitutional.

4.72.9.1.1  (02-26-2015)
Legislative History

  1. The Retirement Equity Act of 1984 (REA) amended the Employee Retirement Income Security Act of 1974 (ERISA) to introduce mandatory spousal rights in pension plans so the choice of the form of benefit received from a pension plan was no longer solely the participant’s choice. The legislative history of REA reflects that Congress viewed the marriage relationship as a partnership, and the retirement benefit resulting from that partnership as derived from the contributions of both partners. Prior to REA’s enactment, the spouse of a plan participant had very few rights to share in that participant’s pension benefit.

  2. REA greatly augmented the non-employee spouse’s interests by creating the right to choose a survivorship annuity as the form in which benefits are distributed from the plan.

    1. If the participant survives until retirement age, REA generally requires that the participant’s annuity be a qualified joint and survivor annuity (QJSA), under which payments continue for the lives of both the employee and the non-employee spouse.

    2. If the participant dies before retirement and is vested, REA makes the non-employee spouse a plan beneficiary, with an interest called a qualified preretirement survivor annuity (QPSA) which survives the participant’s death.

    3. These automatic forms of benefit may be waived by the participant, provided the non-employee spouse properly consents to the waiver.

  3. REA added IRC 417 and amended IRC 401(a), effective for the first plan year beginning in 1985. Technical and other corrections were made to REA by the Tax Reform Act of 1986 (TRA’86). Subsequent legislation made changes to the QJSA/QPSA requirements, and regulations and other guidance were promulgated from time to time with respect to the QJSA/QPSA requirements.

  4. Section 1004 of PPA 2006 amended IRC 417 to require a plan that is subject to the QJSA requirement of IRC 401(a)(11) to offer participants a specified optional form of benefit as an alternative to the QJSA. In particular, a plan that is subject to IRC 401(a)(11) must provide to a participant who waives the QJSA an opportunity to elect a qualified optional survivor annuity (QOSA) during the applicable election period, and must provide a written explanation to participants of the terms and conditions of the QOSA. Section 1004 of PPA 2006, as reflected in IRC 417(g), defines a QOSA as an annuity for the life of a participant with a survivor annuity for the life of the participant’s spouse that is equal to a specified applicable percentage of the amount of the annuity that is payable during the joint lives of the participant and the spouse, and that is the actuarial equivalent of a single life annuity for the life of the participant. A QOSA also includes a distribution option in a form having the effect of such an annuity. See Notice 2008-30; 2008-12 IRB 638.

4.72.9.2  (02-26-2015)
Plans Covered by Survivor Annuity Requirements

  1. The QJSA/QOSA/QPSA requirements apply to all defined benefit plans and any defined contribution plan to which IRC 412 applies (which includes money purchase plans but excludes profit-sharing plans). See IRC 401(a)(11).

  2. These requirements also apply to certain plans subject to Title I of ERISA.

    1. The requirements apply to some IRC 403(b) annuity arrangements but not to Individual Retirement Arrangements (IRAs) or Simplified Employee Pensions (SEPs). See Treas. Reg. 1.401(a)-20, Q&A 3(d).

    2. The requirements also apply to other defined contribution plans (i.e., profit-sharing and stock bonus plans) unless those plans satisfy the conditions delineated in IRC 401(a)(11)(B)(iii).

4.72.9.2.1  (02-26-2015)
IRC 401(a)(11)(B)(iii)

  1. IRC 401(a)(11)(B)(iii) provides that the QJSA/QPSA requirements apply to any participant under any defined contribution plan, even if the plan is not subject to the funding standards of IRC 412, unless the plan:

    1. Provides that the participant’s spouse must be entitled to the full non-forfeitable account balance upon the participant’s death.

    2. Does not offer a life annuity, or the participant does not elect a life annuity.

    3. With respect to a participant is not a transferee plan that is subject to the survivor annuity requirements, or there is an acceptable separate accounting between transferred benefits and any other benefits under the plan.

      Note:

      For purposes of the two conditions in b and c above, the QJSA and QPSA rules may apply to some participants and not others.

  2. Defined contribution plans will not be treated as meeting the first condition above unless two additional conditions are satisfied. See Treas. Reg. 1.401(a)-20, Q&A 3(b).

    1. The benefit must be made available to the surviving spouse within a reasonable time. If the benefit is made available within the 90-day period following the date of death, this is deemed a reasonable period. A time period greater than 90 days will be deemed unreasonable if it is less favorable to the surviving spouse than any period that is applicable to other distributions under the plan.

    2. The benefit payable to the surviving spouse must be adjusted for gains or losses that occur after the participant’s death but prior to distribution in accordance with the plan’s rules governing the adjustment of account balances for other distributions from the plan.

4.72.9.2.2  (04-01-2006)
Transferee Plans

  1. Although the QJSA and QPSA requirements generally do not apply to defined contribution plans that are not subject to IRC 412, these requirements will apply if the defined contribution plan is a transferee plan. See Treas. Reg. 1.401(a)-20, Q&A 5. The transferee plan rules apply with respect to specific participants, not necessarily the whole plan, although the plan’s language must provide QJSA/QPSA provisions for such participants.

    1. A defined contribution plan is a transferee plan with respect to any participant if it holds a participant’s benefit that was directly or indirectly transferred to it after January 1, 1985, by a defined benefit plan, is a defined contribution plan subject to IRC 412 or a defined contribution plan that is subject to the survivor annuity rules of IRC 401(a)(11) and IRC 417 with respect to that participant. If a plan not subject to such rules is involved in a transaction such as a merger or spinoff that has the effect of a transfer of benefits subject to the survivor annuity rules, then such benefits will be subject to such rules.

    2. A rollover contribution (including a direct rollover) is not a direct or indirect transfer that would cause the survivor annuity requirements to apply.

  2. Offset plans are transferee plans. If a participant in a defined benefit plan has her/his benefit offset by her/his account balance in a plan not otherwise subject to the survivor annuity requirements, such as a profit-sharing or stock bonus plan, the profit-sharing or stock bonus plan is subject to the survivor annuity rules with respect to that participant. See Treas. Reg. 1.401(a)-20, Q&A 5.

  3. The survivor annuity requirements apply to all accrued benefits held for a participant for whom the plan is a transferee plan unless there is an acceptable method of accounting that tracks the transferred benefits with respect to all other benefits under the plan. See Treas. Reg. 1.401(a)-20, Q&A 5(b).

    1. To be an acceptable method of accounting all gains, losses, withdrawals, contributions, forfeitures and other charges and credits must be allocated on a reasonable and consistent basis between the accrued benefits subject to the survivor annuity rules and other benefits.

4.72.9.2.3  (04-01-2006)
Examination Steps

  1. The agent should first determine whether the plan is subject to IRC 412.

  2. If the plan is subject to IRC 412, the agent should determine whether such plan provides for QJSAs and QPSAs. In addition, the plan must provide that if a participant elects a waiver of the QJSA or QPSA, the participant may elect a QOSA. If the required survivor annuity language is not found, the plan is subject to disqualification. Appropriate steps should be taken to ensure that the plan is amended to include the required language.

  3. If IRC 412 does not apply to the plan, determine whether the plan provides for the full non-forfeitable account balance of any deceased participant to be paid to the participant’s spouse or that it will be paid to another beneficiary only with spousal consent.

  4. If a plan that is not subject to IRC 412 has become a transferee plan, determine whether there is an acceptable separate accounting for transferred assets. If there is not an acceptable separate method of accounting, determine whether the plan has made all benefits subject to the survivor annuity requirements.

  5. If a plan that is not subject to IRC 412 offers payment of benefits in the form of a life annuity, and a participant elects a life annuity, determine whether the annuity is a QJSA and whether its election meets the spousal consent requirements.

4.72.9.3  (02-26-2015)
Consent Requirements

  1. A plan is prohibited from distributing any portion of a participant’s accrued benefit once the benefit is immediately distributable (i.e., prior to the later of the participant attaining normal retirement age or age 62), unless the participant (and where applicable, the spouse) consents. See IRC 411(a)(11), IRC 417(e)(1), Treas. Reg. 1.411(a)-11(c)(4) and Treas. Reg. 1.417(e)-1(b).

  2. A participant’s consent is necessary when payments are immediately distributable, but when payments are no longer immediately distributable, consent to payment of benefits in the form of a QJSA is not needed. See Treas. Reg. 1.411(a)-11(c)(4) and Treas. Reg. 1.417(e)-1(b).

4.72.9.3.1  (04-01-2006)
Participant Consent Rules

  1. IRC 411(a)(11) requires a participant’s consent before a plan makes most forms of distributions to the participant. Thus, for a plan subject only to IRC 411(a)(11) (and not IRC 417), no spousal consent is required for a form of distribution to the participant. Thus, for profit-sharing and stock bonus plans not subject to IRC 417, the only spousal consent required is if the participant wants the non-forfeitable account balance to go to someone other than the spouse.

  2. A participant’s consent is valid if, the participant receives a description of the material features of the optional forms of benefit available under the plan. The participant must also be informed of her/his right, if any, to defer receipt of the distribution.

4.72.9.3.2  (02-26-2015)
Significant Detriment

  1. A participant’s consent to a distribution is not valid if a significant detriment is imposed under the plan on the participant for not consenting to a distribution. See Treas. Reg. 1.411(a)-11(c)(2). A significant detriment is created where a participant electing to defer receipt of a distribution is treated less favorably than other plan participants.

  2. The determination of what is a significant detriment to the participant is a facts and circumstances determination.

    1. One factor to consider would be whether the employer has a valid business reason for the disparate treatment between former participants and active participants.

    2. For example, an employer may decide to allow plan loans only for active participants because of the difficulty of insuring repayments of loans by former participants once payroll deductions cannot be used.

  3. An example of disparate treatment that results in a significant detriment for participants:

    Example:

    A defined contribution provides that a participant who has not terminated employment can choose the manner in which her/his account is invested among a broad range of investment alternatives with materially different risk and return characteristics. However, the plan provides that upon termination of employment the participant may no longer choose among the investment alternatives and the participant's account is automatically invested in the money market fund until it is distributed to the participant. Under these facts and circumstances there is a significant detriment imposed by the plan on a participant that does not consent to a distribution. See Rev. Rul. 96-47; 1996-40 IRB 6.

4.72.9.3.3  (02-26-2015)
Exceptions to Participant Consent Rules

  1. There are several exceptions to the participant consent requirements while the benefit is immediately distributable.

    1. For distributions made on or after October 17, 2000, a participant is not required to consent if the present value of her/his non-forfeitable accrued benefit, including both employer and employee contributions, on the date of the distribution is equal to or less than $5,000. See Treas. Reg. 1.411(a)-11(c)(3).

      Note:

      TRA of 1997 increased the cash out limit from $3,500 to $5,000. Also, prior to the issuance of the temporary and proposed regulations on December 21, 1998, the regulations had provided that if the present value determined at the time of a distribution to the participant exceeded $3,500, then the present value of any subsequent distribution would be deemed to exceed $3,500 (commonly referred to as the "look back rule" ). Final regulations issued on July 19, 2000, eliminated the look back rule. Transition rules for distributions not subject to IRC 417 are as follows: (1) for distributions prior to March 22, 1999, the look back rule applies, (2) for distributions on or after March 22, 1999 but before October 17, 2000, the look back rule is eliminated, except for distributions under an optional form where at least one scheduled periodic payment remains payable and the present value of the non-forfeitable accrued benefit at the time of the first distribution under that form exceeded the current cash out limit, (3) for distributions on or after October 17, 2000 the look back rule is eliminated. See IRM 4.72.9.3.5.1, Exceptions to Spousal Consent Rules.

    2. Terminating profit-sharing and stock bonus plans that do not offer annuity options and that are not subject to the IRC 417 requirements may distribute a participant’s accrued benefit without the participant’s consent if the employer and its controlled group maintain no other defined contribution plan other than an ESOP. See Treas. Reg. 1.411(a)-11(e)(1).

    3. It is not necessary for an employer to receive a participant’s consent to make a distribution of ESOP dividends. See Treas. Reg. 1.411(a)-11(e)(2).

    4. Under Treas. Reg. 1.411(a)-11(c)(7), a minimum distribution as required by IRC 401(a)(9) may be made without a participant’s consent.

4.72.9.3.4  (04-01-2006)
Spousal and Participant Consent Coordination

  1. IRC 417 requires spousal consent in addition to participant consent for plans subject to IRC 412, or profit-sharing plans with QJSAs.

    1. Spousal consent is required for any distribution prior to the date the distribution is immediately distributable (i.e., the later of age 62 or the normal retirement age).

    2. After that date, the plan may make distributions in the form of a QJSA without participant or spousal consent, but spousal consent is required for any other form of benefit. See Treas. Reg. 1.411(a)-11(c)(4) and Treas. Reg. 1.417(e)-1(b).

4.72.9.3.5  (04-01-2006)
Spousal Consent Rules

  1. REA added the requirement of spousal consent before a participant may take a distribution so that the non-employee spouse would have some control over the form of benefit chosen by the participant and would at the very least be aware that retirement benefits existed.

    1. Spousal consent is not necessary for distributions made in the form of a QJSA. See Treas. Reg. 1.401(a)-20, Q&A 17.

    2. Spousal consent is required by law at all times for payment of benefits in a form other than a QJSA, even when payments are no longer immediately distributable.

4.72.9.3.5.1  (02-26-2015)
Exceptions to Spousal Consent Rules

  1. Exceptions to the above spousal consent rule are found in Treas. Reg. 1.417(e)-1(b)(2) and Treas. Reg. 1.401(a)-20, Q&A 27, and are as follows:

    1. For distributions made on or after October 17, 2000, a spouse’s consent is not required if the present value of the participant’s non-forfeitable accrued benefit, including both employer and employee contributions, on the date of the distribution is equal to or less than $5,000.

      Note:

      See the Note in IRM 4.72.9.3.3, Exceptions to Participant Consent Rules, for background information on the changes made to the cash out rules by TRA of 1997 and the Treasury regulations. Transition rules for distributions subject to IRC 417 are as follows: (1) for distributions prior to October 17, 2000, the look back rule applies and (2) for distributions on or after October 17, 2000, the look back rule is eliminated, but after the annuity starting date, consent is required for the immediate distribution of the present value of the accrued benefit being distributed in any form, including a QJSA and QPSA, regardless of the amount of such present value. See Treas. Reg. 1.417(e)-1(b)(2) (i).

    2. If it is established to the plan administrators’ satisfaction that there is no spouse or the spouse cannot be located.

    3. If the participant has been abandoned (and the participant has a court order to this effect), or where the participant is legally separated.

    4. In the case of an incompetent spouse the legal guardian can provide consent, even if the legal guardian is the participant.

    5. Under Treas. Reg. 1.401(a)(9)-8 Q&A 4, minimum distributions, as required by IRC 401(a)(9), must be made, even though the employee, or spouse where applicable, fail to consent to the distribution.

4.72.9.3.5.1.1  (04-01-2006)
Antenuptial Agreements

  1. An antenuptial agreement or any type of agreement entered into prior to the marriage does not satisfy the consent requirements. This is true even if the agreements are executed within the applicable election period. See Treas. Reg. 1.401(a)-20, Q&A 28.

  2. The effect of antenuptial agreements on the right to waive pension benefits was considered in several cases including, Hurwitz v. Sher, 982 F.2d 778 (2d Cir. 1992), cert. denied, 508 U.S. 912 (1993), and Nellis v. Boeing Co., No. 911011, 15 E.B.C. 1651 (D.Kan. 5/8/1992).

    1. In both cases the courts found that the antenuptial agreements were not effective waivers of the spouse’s rights to receive the deceased participant’s benefit.

    2. The courts noted that the agreements were not signed by the participant’s spouse, but by the participant’s fiancee. Also, the agreements were not in compliance with REA since they did not specify the non-spouse beneficiary who would receive the benefit.

4.72.9.3.6  (04-01-2006)
Unmarried Participant Rule

  1. Treas. Reg. 1.401(a)-20, Q&A 25 provides that plans subject to the survivor annuity requirements must meet those requirements with respect to all participants, including those who are not married. A QJSA for a participant who is not married is a life annuity.

  2. An unmarried participant must be provided with a written explanation of the forms of benefit and a single life annuity unless another form of benefit is elected by the participant.

  3. An unmarried participant is deemed to have waived the QPSA requirements. However, should the participant later marry, the deemed waiver is voided.

4.72.9.3.7  (02-26-2015)
Examination Steps

  1. For distributions after October 17, 2000 determine whether there were any single sum distributions of more than $5,000 without participant and, where required, spousal consent. Determine whether there has been an immediate distribution of any amount to a participant after the annuity starting date without getting spousal consent. (For distributions prior to October 17, 2000 see the transition rules in the Notes IRM 4.72.9.3.3 and IRM 4.72.9.3.5.1.)

  2. Determine whether participants electing to defer receipt of a distribution have the same options available to other participants. If not, determine whether the unavailability of some options results in a significant detriment to the participants deferring receipt of distributions.

  3. Determine, by looking at the consent forms of the participant and spouse, that any distribution made while the benefit is immediately distributable has the consent of the participant or the surviving spouse and is in the form of a QJSA or QPSA.

  4. Determine, by looking at the plan’s forms, whether the plan has obtained adequate written consent from a participant’s spouse when a distribution from the plan is not in the form of a QJSA or QPSA. Check also to see whether the consent document is correct, in conformance with the plan document, and whether the distribution form is of a type permitted by the plan.

  5. In the case of deceased participants, check whether such payments have actually been made to the participant’s spouse or, with the spouse’s consent, to the participant’s designated beneficiary.

  6. For single sum distributions, determine whether the participant and spouse were given the choice of a QJSA and that they waived it.

  7. Determine whether distributions to unmarried participants were paid in the form of a life annuity, unless an appropriate election of another form of benefit was made by the participants.

    Note:

    If any of the above rules are violated, there is a disqualifying defect with respect to the plan.

4.72.9.4  (02-26-2015)
Notice and Election Requirements

  1. IRC 417(a)(3) requires that each plan provide every participant with written explanations of the QJSA, QOSA and QPSA requirements. These rules are intended to ensure participants and their spouses are made aware of their retirement benefit options, and the consequences of any elections they make concerning these options. This information is to be made available at a time when the consequences of the elections will be of immediate, rather than remote, concern to the participant and spouse, and at a time when they should best be able to make sound decisions concerning their retirement benefits. To achieve these goals IRC 417(a)(3) requires that the participant and spouse receive two notices concerning retirement benefits before benefits commence under the plan.

4.72.9.4.1  (02-26-2015)
QJSA, QOSA and QPSA Notice

  1. The QJSA, QOSA and QPSA notices, which must be provided to the participant, inform the participant and spouse of:

    1. The right to receive a QJSA and QOSA and/or a QPSA or other optional forms of benefits.

    2. The option of selecting alternate beneficiaries.

    3. The spousal consent requirements. See Treas. Reg. 1.401(a)-20, Q&A 36 and Treas. Reg. 1.417(a)(3)-1.

      Note:

      Sample language for spousal consent to a participant’s waiver of a QJSA or QPSA is provided in Notice 97-10; 1997-2 IRB 41.

4.72.9.4.2  (02-26-2015)
Written Explanation of QJSA, QOSA and QPSA

  1. The employer must provide each participant with a written explanation of the QJSA and QOSA which specifies the following:

    1. Terms and conditions of the QJSA and of the QOSA

    2. Participant’s right to make, and the effect of, an election to waive the QJSA

    3. Rights of the participant’s spouse

    4. Right of the participant to make, and the effect of, revoking an election

      See IRC 417(a)(3)(A).

    Note:

    For plans subject only to IRC 411(a)(11) requirements (and not subject to IRC 417), Treasury regulations were issued pursuant to TRA’97 (effective January 1, 2001) to reflect new technologies so that notices and consents for participants could be transmitted through electronic media. See Treas. Reg. 1.411(a)-11(f).

  2. Comparable information must also be provided for the QPSA. See IRC 417(a)(3)(B).

  3. The general rule is that the explanation of the QPSA, QJSA and QOSA must be provided before benefits commence under the plan.

    1. Notice of a QPSA and QOSA must be provided within the "applicable period." See IRM 4.72.9.4.4, Applicable Period for QPSA Notice.

    2. Generally, a plan must provide participants with the written explanation of the QJSA and of the QOSA no less than 30 days and no more than 180 days before the annuity starting date. See IRM 4.72.9.4.5, Period for QJSA Notice.

  4. In general, the opportunity to elect among the various plan options must be provided, in the case of the QJSA and QOSA, within the 180 day period that ends on the annuity starting date, and in the case of the QPSA, beginning on the first day of the plan year in which the participant attains age 35.

4.72.9.4.3  (02-26-2015)
Notice of Optional Forms of Benefit

  1. A QJSA explanation must provide information with respect to each of the optional forms of benefit presently available to the participant. The information provided in the QJSA explanation regarding optional forms of benefit must satisfy either Treas. Reg. 1.417(a)(3)-1(c) or Treas. Reg. 1.417(a)(3)-1(d).

4.72.9.4.4  (02-26-2015)
Applicable Period for QPSA Notice

  1. The "applicable period" for providing the QPSA explanation is defined in Treas. Reg. 1.401(a)-20, Q&A 35, as the later of:

    1. The period which begins with the first day of the plan year in which the participant attains age 32 and ends with the last day of the plan year before the plan year in which the participant has her/his 35th birthday.

    2. A reasonable period ending after the individual becomes a participant.

    3. A reasonable period ending after the QPSA is no longer fully subsidized (if applicable).

    4. A reasonable period after IRC 401(a)(11) first applies to the participant.

  2. A period will be deemed reasonable if the notice is provided by the end of a two-year period beginning one year prior to and ending one year after any of the following:

    1. A reasonable period ending after the individual becomes a participant.

    2. A reasonable period ending after the QPSA is no longer fully subsidized (if applicable).

    3. A reasonable period after IRC 401(a)(11) first applies to the participant.

    Note:

    IRC 401(a)(11) generally does not apply to a defined contribution plan that does not provide for a life annuity form of distribution and that makes the spouse the beneficiary upon the participant’s death. However, IRC 401(a)(11) will be considered as "first applying" to such a plan when a benefit is transferred from a plan not subject to IRC 401(a)(11) to a plan which is subject to IRC 401(a)(11), or at the time an election is made under such a defined contribution plan to receive an annuity. Rev. Rul. 2012-3; 2012-8 IRB 383, provides guidance on when such an election occurs.

  3. If a participant separates from service with the employer before age 35, the first notice must be provided within a two year period beginning one year before the separation from service and ending one year after the separation. If a participant who has separated from service returns to employment, the employee is treated, for purposes of this notice, as if the employee is a brand new employee, and another applicable period must be determined.

4.72.9.4.5  (02-26-2015)
Period for QJSA Notice

  1. A plan must provide an explanation of a QJSA to a participant within a reasonable time prior to the annuity starting date. See IRC 417(a)(3).

  2. The general rule is that the plan must provide participants with a written explanation of the QJSA no less than 30 days and no more than 180 days before the annuity starting date.

  3. Generally, the annuity starting date is after the date that the explanation of the QJSA is provided to the participant. However, SBJPA added IRC 417(a)(7) which allows a plan to provide a QJSA explanation after the annuity starting date (i.e., a retroactive annuity starting date).

  4. Effective for plan years beginning after December 31, 1996, if a defined benefit plan provides and a participant elects, the QJSA explanation may be provided on or after the annuity starting date provided the required election period ends no earlier than 30 days after the explanation is provided. If a participant elects a retroactive annuity starting date, future periodic payments will be the same as the periodic payment that would have been paid had payments actually commenced on the retroactive annuity starting date. In addition, the participant must receive a make-up payment to reflect any missed payments (plus interest). See Treas. Reg. 1.417(e)-1(b)(3).

    Exception:

    There is a special spousal consent rule if a spouse would receive less of a survivor annuity as a result of the participant’s election of a retroactive annuity starting date. See Treas. Reg. 1.417(e)-1(b)(3)(v)(A).

4.72.9.4.5.1  (02-26-2015)
Exceptions to General Period for QJSA Notice

  1. In Treasury regulations dated December 18, 1998, an exception was made to the requirement that notice must be provided to participants no less than 30 days prior to the annuity starting date. The exception recognized that there may be situations where the general notice period is not required in order to avoid a delay in the commencement of distributions to participants. The regulations now generally allow distributions to commence, with spousal consent if required, in less than 30 days after the participant receives notice of distribution rights if the participant affirmatively elects to have the distribution commence. See Treas. Reg. 1.411(a)-11(c)(2)(iii) and Treas. Reg. 1.417(e)-1(b)(3)(ii).

  2. Effective September 22, 1995, a plan may permit a participant to elect (with spousal consent) a distribution even if the annuity starting date is less than 30 days after the participant received the written explanation if the:

    1. Participant is told he or she has the right to at least 30 days to consider whether to waive the QJSA and consent to a form of distribution other than a QJSA.

    2. Participant is permitted to revoke a distribution election before the annuity starting date or, if later, within the seven-day period after the explanation is provided.

    3. The annuity starting date is after the date the explanation was provided.

      Exception:

      See IRM 4.72.9.4.5, Period for QJSA Notice.

    4. Distribution begins more than seven days after the explanation was provided. See IRC 417(a)(7) and Treas. Reg. 1.417(e)-1(b)(3)(ii)(D).

    Example:

    Employee E, a married participant in a defined benefit plan who has terminated employment, is provided with the explanation of the QJSA on November 28. Employee E elects (with spousal consent) on December 2 to waive the QJSA, and further chooses not to elect a QOSA, and receives an immediate distribution in the form of a single life annuity. The plan may permit Employee E to receive payments with an annuity starting date of December 1, provided that the first payment is made no earlier than December 6 and the participant does not revoke the election before that date. Note that the plan can make the remaining monthly payments on the first day of each month thereafter in accordance with the regular payment schedule.

  3. Effective for plan years beginning after December 31, 2006, sections 1102(a)(1)(B) and 1102(a)(3) of PPA 2006 changed the earliest date for providing a QJSA notice from 90 days to 180 days before the annuity starting date (except in the case of a retroactive annuity starting date). See Treas. Reg. 1.417(e)-1(b)(3).

4.72.9.4.6  (04-01-2006)
Election Rules

  1. Plan participants have the right to make a revocable election to waive a QJSA or a QPSA. See IRC 417(a)(1).

  2. IRC 417(a)(2) provides, in general, that any waiver will not be effective unless the:

    1. Participant’s spouse consents in writing to the election.

    2. Election designates a beneficiary which may not be changed without spousal consent (unless the spouse expressly permits designations by the participant without any further spousal consent).

    3. Election designates a form of benefit which may not be changed without spousal consent (unless the spouse expressly permits designations by the participant without any further spousal consent).

    4. Spouse’s consent acknowledges the effect of the election.

    5. Spouse’s consent is witnessed by a plan representative or notary public.

    Note:

    Sample language for spousal consent to a participant’s waiver of a QJSA or QPSA is provided in Notice 97-10; 1997-2 IRB 41.

  3. In general, the election to waive the QJSA must be made within the 180-day period ending on the annuity starting date. See IRC 417(a)(6)(A) and IRM 4.72.9.4.5.1, Exceptions to General Period for QJSA Notice.

  4. The same types of requirements are applicable with respect to a QPSA, except that once the spouse consents to the participant’s election not to receive the QPSA, the participant can change the form of the benefit without again getting the spouse’s consent. Also, the participant’s election period for waiving the QPSA is considerably longer.

    1. The QPSA election period is defined at IRC 417(a)(6)(B) and Treas. Reg. 1.401(a)-20, Q&A 33 as the period beginning on the first day of the plan year in which the participant reaches age 35 and ending on the date of death.

    2. If a participant terminates service before reaching age 35, the election period begins on the date of separation from service.

    3. If a plan allows a participant to waive the QPSA prior to age 35, the QPSA will be reinstated automatically as of the first day of the plan year in which the participant attains age 35. If the participant does not obtain the spouse’s consent and waives the QPSA after this date, the spouse will receive a QPSA upon the participant’s death. Following the death of the participant the spouse can waive the QPSA and receive an immediate annuity.

4.72.9.4.7  (04-01-2006)
Fully Subsidized Benefits

  1. A plan need not meet the notice requirements if it fully subsidizes the QJSA, does not permit an election to waive the QJSA and does not permit a married participant to select a beneficiary other than her/his spouse. See IRC 417(a)(5) and Treas. Reg. 1.401(a)-20, Q&A 37.

    1. A plan may fully subsidize the QJSA, QPSA or both.

    2. If the plan provides for either a fully subsidized QJSA or QPSA, but not both, the notice, election and consent requirements will still be applicable for the plan benefit which is not fully subsidized.

  2. A fully subsidized QJSA is one in which there is no increase in cost to, or decrease in the actual amount received by, the participant resulting from the participant’s failure to elect another form of benefit. A QJSA can never be considered fully subsidized if a lump sum distribution is one of the available optional payment methods under a plan, since a greater dollar amount may be paid out in the event of the early death of the participant and spouse. See Treas. Reg. 1.401(a)-20, Q&A 38.

  3. A fully subsidized QPSA is one in which the amount of the participant’s benefit is not reduced because the participant elects the QPSA coverage and there is no charge to the participant under the plan for the coverage. The regulations provide that a QPSA will always be fully subsidized in a defined contribution plan since these plans cannot provide for a reduction in the participant’s benefits.

4.72.9.4.8  (02-26-2015)
Examination Steps

  1. Determine whether a plan otherwise subject to IRC 417(a) is exempt from these requirements because it provides a fully subsidized QJSA and QPSA as described in IRC 417(a)(5) and its regulations.

  2. Review the explanation of the QJSA and QOSA given to participants to determine whether the explanation was prepared in nontechnical language while still providing participants with enough facts to make an informed decision on the form of benefit selected.

  3. Determine whether the plan provided this explanation no more than 180 days from the annuity starting date and no less than 30 days prior to the annuity starting date. If the plan provided the explanation after the annuity starting dates determine whether the required election period ended earlier than 30 days after the explanation was provided. Also, if the explanation was provided during a period that was less than 30 days before the annuity starting date determine whether the distribution took place more than seven days after the explanation was provided and whether the other requirements in Treas. Reg. 1.417(e)-1(b)(3)(ii) were satisfied.

  4. Determine whether the participant and spouse elected in writing to waive the QJSA not more than 180 days before the annuity starting date if a benefit is paid in a form other than a QJSA. Does the plan provide an adequate written waiver or have the participant and spouse made an adequate written election to waive the QJSA? If the explanation was provided more than 180 days prior to distribution determine whether the participant was provided with a summary explanation, and provided with an opportunity to receive a full notice, within 180 days prior to the distribution.

  5. Determine whether the spousal consent requirements, outlined above, were satisfied when a married participant was paid a benefit in a form other than a QJSA.

  6. Determine whether a QPSA is being or will be paid to the surviving spouse (unless following the death of the participant the spouse waived the QPSA) or that an effective election waiving the QPSA was timely executed by the participant and consented to by the spouse when a participant dies prior to her/his annuity starting date.

4.72.9.5  (02-26-2015)
Definitions

  1. IRM 4.72.9.5 defines certain terms relating to QJSAs, QOSAs and QPSAs.

4.72.9.5.1  (02-26-2015)
Annuity Starting Date

  1. Treas. Reg. 1.401(a)-20, Q&A 10 defines annuity starting date as the first day of the first period for which an amount is payable under a qualified plan as an annuity, or in any other form. However, Notice 93-26; 1993-18 IRB 11, permits a plan administrator to treat the date of distribution as the annuity starting date in the case of distributions that are not in the form of an annuity and that are also not subject to the survivor annuity requirements.

  2. The annuity starting date is important initially because it distinguishes the period of time when the QPSA coverage ends and the QJSA coverage begins.

    1. Before the annuity starting date, the spouse is protected by the QPSA coverage.

    2. Once the annuity starting date is reached, the spouse is protected under the QJSA requirements.

  3. The annuity starting date is also used to determine the notice and election periods for the QJSA and the QOSA.

    1. A participant and spouse must be provided with notice of the right to select among optional forms of benefits, in lieu of the QJSA and QOSA, during a period which is no less than 30 and no more than 180 days prior to the annuity starting date.

    2. If the participant decides not to receive the QJSA or QOSA, an election by the participant (with appropriate spousal consent) must be made within a 180-day period ending on the annuity starting date.

    Note:

    See IRM 4.72.9.4.5, Period for QJSA Notice, for a discussion of situations involving a retroactive annuity starting date.

4.72.9.5.2  (02-26-2015)
QJSA

  1. A QJSA is an annuity for the life of the participant with a survivor annuity for the spouse. The survivor annuity cannot be less than 50 percent nor more than 100 percent of the annuity which is payable during the joint lives of the participant and spouse and must be the actuarial equivalent of a single annuity for the life of the participant. See IRC 417(b).

  2. A joint and survivor annuity is not a QJSA unless the plan permits the participant to start receiving a distribution in the form of a QJSA immediately after the participant has attained the earliest retirement age under the plan. See Treas. Reg. 1.401(a)-20, Q&A’s 16 and 17.

    1. The QJSA for married participants must be at least as valuable as any other form of optional benefit payable under the plan at the time of election. If a plan has more than one joint and survivor annuity that would satisfy the QJSA requirements, the more valuable joint and survivor annuity must be the QJSA.

    2. A plan may also have multiple joint and survivor annuity optional forms of benefit that are actuarially equivalent. In such a case the plan must designate which one is the QJSA and therefore the automatic form of payment.

    3. A plan may allow a participant to elect out of the QJSA to an actuarially equivalent joint and survivor annuity that meets the QJSA requirements without spousal consent. However, a participant does need spousal consent to elect a joint and survivor annuity which is not actuarially equivalent to the automatic QJSA.

4.72.9.5.3  (02-26-2015)
QPSA

  1. In a defined contribution plan, a QPSA is defined as an annuity that can be purchased with not less than 50 percent of the participant’s non-forfeitable account balance on the date of the participant’s death. If only 50 percent of the participant’s account balance is used to purchase an annuity, the remaining portion of the account balance can be paid to other beneficiaries of the participant without the consent of the spouse. See IRC 417(c).

  2. In a defined benefit plan, a QPSA is defined as a survivor annuity for the life of the surviving spouse. It is determined, in the case of a participant who dies:

    1. After attaining the earliest retirement age under the plan, as if the participant had retired with a QJSA on the day before the participant’s death.

    2. On or before the participant’s earliest retirement age under the plan, as if the participant had separated from service on the date of death, survived until the earliest retirement age, retired at that time with a QJSA and died the day after.

  3. The survivor portion of the QJSA is the QPSA in a defined benefit plan because the QPSA cannot be less than the survivor portion of the QJSA.

4.72.9.5.4  (02-26-2015)
Spouse

  1. If a participant is married on the date of death, payments of the survivor annuity must continue even if the spouse remarries. Additionally, if a participant dies after the annuity starting date, the spouse the participant was married to on the annuity starting date is still entitled to the survivor annuity unless this is changed by a Qualified Domestic Relations Order (QDRO). If a participant divorces a spouse prior to the annuity starting date, any elections made while the participant was married to the former spouse remain valid, unless otherwise provided in a QDRO, or unless the participant changes them or is remarried. See Treas. Reg. 1.401(a)-20 Q&A 25.

  2. An optional one-year hold out rule provides, in general, that a plan is not required to treat a participant as married unless the participant and the participant’s spouse have been married throughout the one-year period ending on the earlier of the participant’s annuity starting date or the date of the participant’s death. See IRC 401(a)(11)(D) and IRC 417(d).

    1. In Enlow v. Fire Protection Systems, Inc., 803 S.W.2d 148 (Mo. App. 1991), the Missouri Court of Appeals found that a plan which did not specifically provide for the one-year rule could not deny the spouse’s right to the survivor benefit even though the participant and spouse had not been married for one year at the time the participant died.

    2. Treas. Reg. 1.401(a)-20, Q&A 25 explains how the one-year rule should work. The employer must treat a participant who is married at her/his annuity starting date as having been married for one year prior to the annuity starting date and provide the appropriate notice, election and consent information. If an election was made by the participant and spouse to receive a QJSA and the marriage subsequently ends, within a 12 month period following the date of the marriage, by either divorce or the participant’s death, the plan may treat the affected participants as having not been married on the annuity starting date. In such a case, the plan may provide that the spouse loses any right to a survivor benefit. No retroactive correction of the amount paid to the participant is required under these circumstances.

  3. In Rev. Rul. 2013-17; 2013-38 IRB 201 the Service, in light of the U.S. Supreme Court’s decision in United States v. Windsor, 570 U.S., 133 S. Ct. 2675 (2013), held:

    1. For Federal tax purposes, the term "spouse," "husband and wife," "husband" and "wife" include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term "marriage " includes such a marriage between individuals of the same sex.

    2. For Federal tax purposes, the Service adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of the same-sex marriages.

    3. For Federal tax purposes, the term "spouse," "husband and wife," " husband" and "wife" do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term "marriage" does not include such formal relationships.

  4. Rev. Rul. 2013-17 provides that the above holdings will be applied prospectively as of September 16, 2013. The ruling also provides that taxpayers may rely on the holdings retroactively with respect to any employee benefit plan or arrangement (or any benefit provided thereunder) for limited purposes with respect to certain employer-provided health coverage and fringe benefits that are specified in the ruling. Notice 2014-19; 2014-17 IRB 979 Q&A-2, further provides that qualified retirement plan operations must reflect the outcome of Windsor as of June 26, 2013. However, a retirement plan will not be treated as failing to meet the requirements of IRC 401(a) merely because the plan, prior to September 16, 2013, recognized the same-sex spouse of a participant only if the participant was domiciled in a state that recognized same-sex marriages. Notice 2014-19, Q&A-5, also states that if a qualified retirement plan’s terms are inconsistent with the outcome of Windsor, or the guidance in Rev. Rul. 2013-17 or Notice 2014-19, then an amendment to the plan that reflects the outcome of Windsor, and the guidance in Rev. Rul. 2013-17 and Notice 2014-19 is required. Under Notice 2014-19, Q&A-8, the deadline to adopt such an amendment is the later of: (i) the otherwise applicable deadline under section 5.05 of Rev. Proc. 2007-44; 2007-28 IRB 54, or its successor; or (ii) December 31, 2014. However, Notice 2014-19, Q&A-8, says that in the case of a governmental plan, such an amendment need not be adopted before the close of the first regular legislative session of the legislative body with the authority to amend the plan that ends after December 31, 2014.


More Internal Revenue Manual