4.72.9 Qualified Joint and Survivor Annuity Requirements

Manual Transmittal

September 24, 2018

Purpose

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

Material Changes

(1) Updated and retitled IRM 4.72.9.1, Overview, to Program Scope and Objectives

(2) Added IRM 4.72.9.1.1, Background

(3) Added IRM 4.72.9.1.2, Authority

(4) Added IRM 4.72.9.1.3, Responsibilities

(5) Added IRM 4.72.9.1.4, Definitions and Acronyms

(6) Revised IRM 4.72.9.4, Notice and Election Requirements, to make it clear that these provisions only apply to plans subject to IRC 417.

(7) Revised IRM 4.72.9.4.6, Election Rules to add 4.72.9.5.6(4)(d) to provide the rules applicable to plans not subject to IRC 401(a)(11) on account of IRC 401(a)(11)(B)(iii).

(8) Revised IRM 4.72.9.5.1, Annuity Starting Date to include the definition of annuity starting date found in IRC 417(f)(2).

(9) Revised and renamed IRM 4.72.9.5.3 to QOSA which contains the provisions of a Qualified Optional Survivor Annuity.

(10) Renumbered prior IRM 4.72.5.3, QPSA, and IRM 4.72.9.5.4, Spouse to 4.72.5.4 and 4.72.5.5 respectively

Effect on Other Documents

This supersedes IRM 4.72.9, Employee Plans Technical Guidelines, Qualified Joint and Survivor Annuity Requirements, dated February 26, 2015.

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(09-24-2018)

Catherine L. Jones
Acting Director, Employee Plans
Tax Exempt and Government Entities

Program Scope and Overview

  1. Purpose: This IRM helps Employee Plans (EP) specialists to examine defined benefit (DB) plans subject to the joint and survivor annuity and preretirement survivor annuity requirements of Internal Revenue Code IRC 401(a)(11).

    1. Audience: Employee Plans examiners and other specialists

    2. Policy Owner: Director, Employee Plans

    3. Program Owner: Employee Plans

    4. Program Goal: To ensure continued compliance and qualification of DB plans subject to the joint and survivor annuity and preretirement survivor annuity requirements of IRC 401(a)(11).

Background

  1. This IRM provides guidance on defined benefit plans that are subject to the joint and survivor annuity and preretirement annuity requirements of IRC 401(a)(11).

  2. The joint and survivor annuity and preretirement annuity rules under IRC 401(a)(11) are referenced in four Code sections:

    1. IRC 401(a)(11) requires that the accrued benefit paid to a vested participant must be paid either as a qualified joint and survivor annuity or a qualified preretirement survivor annuity. IRC 417(b) defines qualified joint and survivor annuity (QJSA). IRC 417(c) defines qualified preretirement survivor annuity (QPSA).

    2. IRC 417(a) lists rules that allow a participant to waive the QJSA or QPSA

    3. IRC 417(d) states that survivor annuities don’t have to be provided if the participant and spouse have been married less than one year.

    4. IRC 417(e) provides rules under which a plan, otherwise required to comply with IRC 401(a)(11), to instead pay a lump sum to a terminated participant without his or her consent (and without spousal consent as well).

  3. For a DB plan to qualify under section 401(a), and except as noted under section 417, it must specify that it will pay a vested participant who:

    1. Doesn’t die before the annuity starting date, his accrued benefit in the form of a QJSA.

    2. Dies before the annuity starting date and who has a surviving spouse, in the form of a QPSA.

  4. These guidelines reflect final regulations issued for:

    1. Small Business Job Protection Act of 1996, P.L. 104-188 (SBJPA)

    2. Taxpayer Relief Act of 1997, P.L. 105-34 (TRA of 1997)

    3. Pension Protection Act of 2006, P.L. 109-280 (PPA 2006)

    4. 26 CFR 417(a)(3)-1 disclosure of the relative values of optional forms of benefit

    5. Rev. Rul. 2013-17 and Notice 2014-19 - guidance on applying the decision in United States v. Windsor, 570 U.S. 744, 133 S. Ct. 2675 (2013) which 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.

  5. Legislative History: 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.

    1. REA’s legislative history shows 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.

    2. Before REA, the spouse of a plan participant had very few rights to share in that participant’s pension benefit.

  6. REA greatly increased the non-employee spouse’s interests by creating the right to choose a survivorship annuity form of plan distribution.

    1. If the participant survives until retirement age, REA generally requires that the participant’s annuity be a QJSA, under which payments continue for the lives of both the employee and his/her spouse.

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

    3. The participant may waive these automatic forms of benefit if the spouse properly consents to the waiver.

  7. REA added IRC 417 and amended IRC 401(a), effective for the first plan year beginning in 1985. The Tax Reform Act of 1986 (TRA’86) made technical and other corrections to REA. Subsequent legislation made changes to the QJSA/QPSA requirements, and regulations and other guidance were issued on QJSA/QPSA requirements.

  8. PPA 2006 Section 1004 amended IRC 417 to require a plan that is subject to the IRC 401(a)(11) QJSA requirement to offer participants a specified optional form of benefit as an alternative to the QJSA. In particular, a plan 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.

    1. 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.

    2. 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.

Authority

  1. A trust is qualified if it meets the requirements of IRC 401(a) in form and operation.

  2. A trust of a defined benefit plan is generally not a qualified trust under IRC 401(a) if the plan of which such trust doesn’t meet the requirements of IRC 401(a)(11).

  3. The Employee Plans (EP) examination program objective is regulatory, emphasizing continued qualification of employee benefit plans. EP examines plans to determine whether or not they meet the applicable qualification requirements in operation. Policy Statement 4-119, formerly P-7-20 at IRM 1.2.13.1.36.

Responsibilities

  1. The Director, EP supervises and is responsible for the activities of:

    1. EP Rulings and Agreements

    2. EP Examination functions

    3. EP Program Management Staff

  2. The Director, EP Examination, supervises and is responsible for the activities of:

    1. EP Examinations

    2. EP Examinations, Area Managers

  3. The Area Managers, EP Examinations, supervise and are responsible for the group managers and employees in EP Examinations.

  4. EP Examination’s authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201. EP Examination is the division designated to determine if a retirement plan, in operation, is qualified under IRC 401, and the underlying regulations, and thus, exempt from tax under IRC 501.

  5. Employee Plans examiners and other specialists examine a defined benefit plan to determine if it meets the qualification requirements of IRC 401(a) and 501(a). See IRM 4.71.1.3 and IRM 4.71.1.4.

    1. Filed all required tax and information returns. See IRM 4.71.1.1.4.

    2. Reported information and excise tax liabilities correctly. See IRM 4.71.1.1.4.

Acronyms and Terms

  1. The table lists commonly used acronyms and/or terms and their definitions

    Acronym/Term Definition
    Annuity Starting Date The date distributions begin, see IRM 4.72.9.5
    DB Defined benefit plan
    ERISA Employee Retirement Income Security Act of 1974
    Fully Subsidized Benefit A benefit that is equal in value to the participants full accrued benefit payable at the participant’s normal retirement age under the plan that would otherwise be less than this amount due to the form of the benefit or an annuity starting date that is before the normal retirement age under the plan
    IRC Internal Revenue Code of 1986 as amended
    PPA 2006 Pension Protection Act of 2006
    REA Retirement Equity Act of 1984
    TRA 1997 Tax Reform Act of 1997
    QJSA Qualified joint and survivor annuity, see IRM 4.72.9.5.2
    QOSA Qualified optional survivor annuity, see IRM 4.72.9.5.3
    QPSA Qualified preretirement survivor annuity, see IRM 4.72.9.5.4

Plans Covered by Survivor Annuity Requirements

  1. The QJSA/QOSA/QPSA requirements apply to all DB plans and any defined contribution plan to which IRC 412 applies (such as 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, such as:

    1. Some IRC 403(b) annuity arrangements but not to Individual Retirement Arrangements (IRAs) or Simplified Employee Pensions (SEPs). See 26 CFR 1.401(a)-20, Q&A 3(d).

    2. Other defined contribution plans (such as profit-sharing and stock bonus plans) unless those plans satisfy the conditions in IRC 401(a)(11)(B)(iii).

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, or if there is no surviving spouse or the surviving spouse properly waives the benefit under 417(a)(2), to a designated beneficiary.

    2. The participant doesn’t elect a life annuity and

    3. With respect to this 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 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 aren’t treated as meeting the condition in a) above unless the benefit: (See 26 CFR 1.401(a)-20, Q&A 3(b)).

    1. Is made available to the surviving spouse within a reasonable time. Ninety days after the date of death is deemed a reasonable period. Greater than 90 days is deemed unreasonable if it is less favorable to the surviving spouse than any period that applies to other plan distributions.

    2. Payable to the surviving spouse is adjusted for gains or losses that occur after the participant’s death but before distribution per the plan’s rules governing the adjustment of account balances for other plan distributions.

Transferee Plans

  1. Although the QJSA and QPSA requirements generally don’t apply to DC plans that are not subject to IRC 412, they do apply if the DC plan is a transferee plan. See 26 CFR 1.401(a)-20, Q&A 5. The transferee plan rules apply for specific participants, not necessarily the whole plan, although the plan’s language must provide QJSA/QPSA provisions for all participants.

  2. A DC plan is a transferee plan for any participant if it:

    1. Holds a participant’s benefit that was directly or indirectly transferred to it after January 1, 1985, by a DB plan.

    2. Is a DC plan subject to IRC 412.

    3. Is a DC plan that is subject to the survivor annuity rules of IRC 401(a)(11) and IRC 417 for that participant.

    Note:

    If a plan not subject to QJSA/QPSA rules is involved in a transaction such as a merger or spin-off that has the effect of transferring benefits subject to the survivor annuity rules, then those benefits are subject to such rules. A rollover contribution (including a direct rollover) is not a direct or indirect transfer that would cause the survivor annuity requirements to apply.

  3. Offset plans are transferee plans. If a DB participant 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 for that participant. See 26 CFR 1.401(a)-20, Q&A 5.

  4. 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 for all other benefits under the plan. See 26 CFR 1.401(a)-20, Q&A 5(b).

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

Examination Steps

  1. First determine whether the plan is subject to IRC 412.

  2. If the plan is subject to IRC 412, determine whether the plan provides QJSAs and QPSAs.

    1. If so, ensure the plan provides that if a participant elects a waiver of the QJSA or QPSA, the participant may elect a QOSA.

    2. Ask the plan sponsor to amend the plan to include the required language. If beyond the IRC 401(b) period, the plan is subject to disqualification.

  3. If IRC 412 doesn’t apply to the plan, determine whether the plan pays the full non-forfeitable account balance of any deceased participant to the participant’s spouse or 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 it has an acceptable separate accounting for transferred assets. If not, 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:

    1. The annuity is a QJSA.

    2. Its election meets the spousal consent requirements.

Consent Requirements

  1. A participant’s consent (and where applicable, the spouse) is necessary when payments are immediately distributable. A benefit is immediately distributable if paid before the later of the participant reaching:

    1. normal retirement age

    2. age 62

    Note:

    See IRC 411(a)(11), IRC 417(e)(1), 26 CFR 1.411(a)-11(c)(4) and 26 CFR 1.417(e)-1(b).

  2. When payments are no longer immediately distributable, the plan doesn’t need a participant’s consent to a QJSA payment of benefits. See 26 CFR 1.411(a)-11(c)(4) and 26 CFR 1.417(e)-1(b).

Participant Consent Rules

  1. Plans must get a participant’s consent before making most forms of distributions (IRC 411(a)(11)). Plans subject only to IRC 411(a)(11) (and not IRC 417) don’t have to get spousal consent for a form of distribution to the participant. Thus, for profit-sharing and stock bonus plans not subject to IRC 417, the only time 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:

    1. Receives a description of the material features of the optional forms of benefit available under the plan.

    2. Is informed of her/his right, if any, to defer receipt of the distribution.

Significant Detriment

  1. A participant’s consent to a distribution is not valid if the plan imposes a significant detriment on the participant for not consenting to a distribution. See 26 CFR 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. Determining what is a significant detriment to the participant is based on facts and circumstances. One factor to consider would be whether the employer has a valid business reason for the disparate treatment between former participants and active participants.

    Example:

    For example, an employer may decide to allow plan loans only for active participants because of the difficulty of ensuring 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 DC plan permits a participant who has not terminated employment to choose the way her/his account is invested among a broad range of investment alternatives with materially different risk and return characteristics. However, the plan states that upon his/her 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. Under these facts and circumstances the plan imposes a significant detriment on a participant who doesn’t consent to a distribution. See Rev. Rul. 96-47; 1996-40 IRB 6.

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 26 CFR 1.411(a)-11(c)(3).

      Reminder:

      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 don’t offer annuities and aren’t subject to the IRC 417 requirements may distribute a participant’s accrued benefit without the his/her consent if the employer and its controlled group don’t maintain any other DC plans other than an ESOP. See 26 CFR 1.411(a)-11(e)(1).

    3. Employers don’t have to get participant’s consent to make an ESOP dividend distribution. See 26 CFR 1.411(a)-11(e)(2).

    4. Minimum distributions under IRC 401(a)(9) may be made without a participant’s consent. See 26 CFR 1.411(a)-11(c)(7).

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 before 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 26 CFR 1.411(a)-11(c)(4) and 26 CFR 1.417(e)-1(b).

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 the participant chooses 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 26 CFR 1.401(a)-20, Q&A 17.

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

Exceptions to Spousal Consent Rules
  1. See exceptions to the spousal consent rule in CFR 1.417(e)-1(b)(2) and CFR 1.401(a)-20, Q&A 27, 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 ≤ $5,000.

    2. If the plan administrators are satisfied that there is no spouse or the spouse can’t 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. For an incompetent spouse, the legal guardian can provide consent, even if the legal guardian is the participant.

    5. The plan must make minimum distributions, per IRC 401(a)(9) even though the employee, or spouse where applicable, fail to consent to the distribution. 26 CFR 1.401(a)(9)-8, Q&A 4.

Antenuptial Agreements
  1. An antenuptial agreement or any type of agreement entered into before the marriage doesn’t satisfy the consent requirements. This is true even if these marital agreements are executed within the applicable election period. See 26 CFR 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). In both cases the courts found that the antenuptial agreements weren’t:

    1. Effective waivers of the spouse’s rights to receive the deceased participant’s benefit.

    2. 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.

Unmarried Participant Rule

  1. 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. 26 CFR 1.401(a)-20, Q&A 25.

  2. An unmarried participant must be provided a written explanation of the forms of benefit and a single life annuity unless he/she elects another form of benefit.

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

Examination Steps

  1. 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.

  2. Determine whether participants who elect 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 participant and spouse consent forms, that any distribution made while the benefit is immediately distributable (see IRM 4.72.9.3 (1)) 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 spousal consent when a distribution is not a QJSA or QPSA. Check also to see whether the consent document is correct and matches the plan document requirements, and whether the distribution form is of a type the plan permits.

  5. For deceased participants, check whether these 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 the participant made an appropriate election of another form of benefit.

    Note:

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

Notice and Election Requirements

  1. Plans subject to IRC 417 must provide every participant written explanations of the QJSA, QOSA and QPSA requirements ( IRC 417(a)(3)).

    1. These rules are intended to ensure participants and their spouses are aware of their retirement benefit options, and the consequences of any elections they make about them.

    2. The plan must provide the information when the participant and spouse are immediately concerned (rather than remotely) of the consequences of their choice and when they should best be able to make sound decisions about their retirement benefits.

    3. To achieve these goals IRC 417(a)(3) requires that the participant and spouse receive two benefit notices before benefits begin under the plan.

QJSA, QOSA and QPSA Notice

  1. The QJSA, QOSA and QPSA notices, which the plan must provide 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 26 CFR 1.401(a)-20, Q&A 36 and 26 CFR 1.417(a)(3)-1.

      Note:

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

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

    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. Participant’s spouse’s rights

    4. Participant’s right to make, and the effect of, revoking an election

    Note:

    For plans subject only to IRC 411(a)(11) requirements (and not subject to IRC 417), effective January 1, 2001, plans can provide notices and consents electronically (TRA ‘97 Treasury regulations - 26 CFR 1.411(a)-11(f).

  2. The employer must provide the same information in IRM 4.72.9.4.2 (1) 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 plan benefits begin. The plan must provide participants a:

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

    2. Written explanation of the QJSA and of the QOSA 30 - 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.

Notice of Optional Forms of Benefit

  1. A QJSA explanation must provide information for each optional forms of benefit available to the participant. The information provided in the QJSA explanation on optional forms of benefit must satisfy either 26 CFR 1.417(a)(3)-1(c) or 26 CFR 1.417(a)(3)-1(d).

Applicable Period for QPSA Notice

  1. The "applicable period" for providing the QPSA explanation is per 26 CFR 1.401(a)-20, Q&A 35, the later of:

    1. The period beginning the first day of the plan year in which the participant attains age 32 and ending 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 one year before and 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 DC plan that doesn’t offer annuities and makes the spouse the beneficiary upon the participant’s death. However, you must consider IRC 401(a)(11) as "first applying" to this type of plan when a benefit is transferred from a plan not subject to IRC 401(a)(11) to a plan which is, or at the time a participant elects under that DC plan to receive an annuity. Rev. Rul. 2012-3; 2012-8 IRB 383, has guidance on when this election occurs.

  3. If a participant separates from service with the employer before age 35, the plan must provide the first notice within two years beginning one year before he/she separates from service and ending one year after he/she separated. If the same participant returns to employment, the plan must treat this employee, for this notice, as a brand new employee, and determine another applicable period.

Period for QJSA Notice

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

  2. The general rule is that the plan must provide participants a written explanation of the QJSA 30 - 180 days before the annuity starting date.

  3. Generally, the annuity starting date is after the date that the plan provides the QJSA explanation to the participant. However, SBJPA added IRC 417(a)(7) which allows a plan to provide a QJSA explanation after the annuity starting date (such as for a retroactive annuity starting date).

  4. If a DB plan provides and a participant elects, the plan may give the QJSA explanation on or after the annuity starting date as long as the required election period ends after 30 days after the notice date. 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. Also, the participant must receive a make-up payment for any missed payments (plus interest). See 26 CFR 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 26 CFR 1.417(e)-1(b)(3)(v)(A).

Exceptions to General Period for QJSA Notice
  1. There’s an exception that allows plans to provide notice sooner than 30 days before the annuity starting date. The exception recognized that there may be situations where the general notice period is not required to avoid a delaying benefit commencement. 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 26 CFR 1.411(a)-11(c)(2)(iii)and 26 CFR 1.417(e)-1(b)(3)(ii).

  2. Plans 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/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 seven days after receiving the explanation.

    3. The annuity starting date is after the date the plan gave the explanation.

      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 26 CFR 1.417(e)-1(b)(3)(ii)(D).

    Example:

    Terminated Employee E, a married participant in a DB plan, is given the explanation of the QJSA on November 28. Employee E elects (with spousal consent) on December 2 to waive the QJSA, chose 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, if it pays the first payment on or after December 6 (to meet the requirement of more than seven days in IRM 4.72.9.4.5.1 (2)(d) above) and Employee E doesn’t revoke the election before then. Note that the plan can make the remaining monthly payments on the first day of each month thereafter per 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 26 CFR 1.417(e)-1(b)(3).

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 isn’t 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:

    See Notice 97-10 for sample language for spousal consent to a participant’s waiver of a QJSA or QPSA.

  3. In general, participants must waive the QJSA within 180 days 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 apply 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 the first day of the plan year the participant reaches age 35 to the date of death (IRC 417(a)(6)(B) and 26 CFR 1.401(a)-20, Q&A 33).

    2. If a participant terminates service before he/she is 35, the election period begins on the date he separates from service.

    3. If a plan allows a participant to waive the QPSA prior to age 35, the QPSA will be reinstated automatically the first day of the plan year in which the participant is 35. If the participant doesn’t 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. For plans not subject to section 401(a)(11) on account of 411(a)(11)(B)(iii), a plan participant may waive the spousal benefit at any time. See 26 CFR 1.401(a)-20, Q&A 33(a).

Fully Subsidized Benefits

  1. A plan doesn’t have to meet the notice requirements if it:

    1. Fully subsidizes the QJSA.

    2. Doesn’t allow participants to waive the QJSA.

    3. Doesn’t permit a married participant to select a beneficiary other than her/his spouse. See IRC 417(a)(5) and 26 CFR 1.401(a)-20, Q&A 37.

  2. A plan may fully subsidize the QJSA, QPSA or both. If the plan fully subsidizes a QJSA or QPSA, but not both, the notice, election and consent requirements still apply for the plan benefit which is not fully subsidized.

  3. A fully subsidized QJSA is one in which there is no increase in cost to, or decrease in the actual amount the participant receives if the participant doesn’t choose another form of benefit. A QJSA can never be considered fully subsidized if a plan offers a lump sum distribution because the plan may pay a greater dollar amount on the participant/spouse’s early death. See 26 CFR 1.401(a)-20, Q&A 38.

  4. A fully subsidized QPSA is one in which the participant’s benefit isn’t reduced when he elects the QPSA and he isn’t charged for the coverage. The regulations note that a QPSA will always be fully subsidized in a DC plan since these plans can’t reduce the participant’s benefits.

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 QJSA and QOSA explanations that the plan gives to participants to determine whether the explanation is in plain language and gives participants enough facts to make an informed decision on the form of benefit to select.

  3. Determine whether the plan gave this explanation between 30-180 days from the annuity starting date. If the plan gave the explanation after the annuity starting dates, determine whether the required election period ended before 30 days after they gave the explanation. Also, if the plan gave the explanation sooner than 30 days before the annuity starting date, determine whether the plan distributed the benefit more than seven days after giving the explanation and whether the plan satisfied the other requirements in 26 CFR 1.417(e)-1(b)(3)(ii).

  4. Determine whether the participant and spouse elected in writing to waive the QJSA no 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 plan gave the explanation more than 180 days before it distributed the benefit, determine whether the plan gave the participant a summary explanation, and an opportunity to receive a full notice, within 180 days before the distribution.

  5. Determine whether the spousal consent requirements, described in the above sections, 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 participant’s death the spouse waived the QPSA) or the participant executed an effective election waiving the QPSA with spousal consent when the participant dies before her/his annuity starting date.

Definitions

  1. This IRM subsection 4.72.9.5 defines certain terms that relate to QJSAs, QOSAs and QPSAs.

Annuity Starting Date

  1. The annuity starting date is defined in the regulations and Code as:

    1. 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 (26 CFR 1.401(a)-20, Q&A 10).

    2. The first day of the first period for which an amount is payable as an annuity, or for a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the participant to that benefit See IRC 417.

  2. However, plan administrators may treat the distribution date as the annuity starting date for non-annuity distributions that are also not subject to the survivor annuity requirements. Notice 93-26; 1993-18 IRB 11.

  3. The annuity starting date is important initially because it distinguishes the 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 participant reaches the annuity starting date, the spouse is protected under the QJSA requirements.

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

    1. The plan must give the participant and spouse the notice of their right to select another benefit form, in lieu of the QJSA and QOSA, 30 -180 days before the annuity starting date.

    2. If the participant decides not to receive the QJSA or QOSA, he/she must elect another benefit form (with appropriate spousal consent) within 180 days ending on the annuity starting date.

    Note:

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

QJSA

  1. A QJSA is an annuity for the life of the participant with a survivor annuity for the spouse. The survivor annuity must be 50 -100 percent of the annuity payable during the participant and spouse’s joint lives and must be the actuarial equivalent of a single annuity for the participant’s life. See IRC 417(b).

  2. A joint and survivor annuity is not a QJSA unless the plan permits the participant to start receiving a QJSA distribution immediately after he is at the plan’s earliest retirement age. See 26 CFR 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 the participant/spouse elect. If a plan has more than one joint and survivor annuity that 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. If so, 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.

QOSA

  1. A QOSA is:

    • an annuity for the life of the participant,

    • with a survivor annuity for the life of the spouse equal to the "applicable percentage" of the annuity,

    • payable during the joint lives of the participant and the spouse and

    • the actuarial equivalent of a single annuity for the life of the participant.

      Note:

      A QOSA also includes any annuity in a form that has the effect of an annuity described above. See IRC 417(g)

  2. Applicable Percentage:

    1. If the QJSA survivor annuity percentage is < 75 percent, the applicable percentage is 75 percent.

    2. If the QJSA survivor annuity percentage is ≥ 75 percent, the applicable percentage is 50 percent.

QPSA

  1. In a DC plan, a QPSA is an annuity that can be purchased with at least 50 percent of the participant’s non-forfeitable account balance on the date of his/her death. If only 50 percent of the participant’s account balance is used to purchase an annuity, the plan may pay the remaining account balance to other participant beneficiaries without spousal consent. See IRC 417(c).

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

    1. After the plan’s earliest retirement age, 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 DB plan because the QPSA can’t be less than the survivor portion of the QJSA.

Spouse

  1. If a participant is married on his date of death, survivor annuity payments must continue even if the spouse remarries. Also, if a participant dies after the annuity starting date, the participant’s spouse 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 before the annuity starting date, any elections they made while married remain valid, unless a QDRO states otherwise, or unless the participant changes them or is remarried. See 26 CFR 1.401(a)-20, Q&A 25.

  2. An optional one-year hold out rule generally permits a plan to treat a participant as married only if the participant and the participant’s spouse have been married throughout the one-year period ending on the earlier of: i) the participant’s annuity starting date or ii) the date the participant died. 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. 26 CFR 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 his/her annuity starting date as having been married for one year before the annuity starting date and provide the appropriate notice, election and consent information.

    3. If the participant and spouse elected a QJSA and the marriage ends within 12 months, by either divorce or the participant’s death, the plan may treat the participant as not married on the annuity starting date. In this case, the plan may provide that the spouse loses any right to a survivor benefit. The plan doesn’t have to retroactively correct the amount paid to the participant under these circumstances.

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

    1. 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. The IRS 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. 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 notes that:

    1. The holdings in IRM 4.72.9.5.5 (3) are applied as of September 16, 2013.

    2. Taxpayers may rely on the holdings retroactively for any employee benefit plan or arrangement (or any benefits offered in them) for limited purposes for certain employer-provided health coverage and fringe benefits specified in the ruling.

  5. Notice 2014-19; 2014-17 IRB 979 Q&A 2, notes that:

    1. Qualified retirement plans must apply Windsor in operation as of June 26, 2013. However, a retirement plan satisfies IRC 401(a) if, before September 16, 2013, it recognized the same-sex spouse of a participant only if the participant was domiciled in a state that recognized same-sex marriages.

    2. If a qualified retirement plan’s terms don’t comply with Windsor, or the guidance in Rev. Rul. 2013-17 or Notice 2014-19, then the plan sponsor must amend the plan to comply with them.

    3. Under Q&A 8, the deadline to adopt this amendment is the later of: (i) the otherwise applicable deadline under Rev. Proc. 2007-44; 2007-28 IRB 54, section 5.05 or its successor; or (ii) December 31, 2014. However, Notice 2014-19, Q&A 8, says that governmental plans can adopt these amendments by 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.