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Employee Plans Compliance Unit (EPCU) - Completed Projects - Projects with Summary Reports – Qualified Joint and Survivor Annuities (QJSA) Project

Overview

The Employee Plans Compliance Unit (EPCU) designed the Qualified Joint and Survivor Annuities (QJSA) Project (Project) to determine if money purchase pension plans comply with the spousal consent requirements when making distributions in a form other than a qualified joint and survivor annuity (QJSA).

Beginning in April 2014, we sent contact letters to plans sponsors whose Form 5500-SF filings showed:

  • pension feature code 2C - money purchase plan (other than target benefit plan), and
  • distributions during the plan year.

The contact letter and List of Required Information attachment contained introductory materials about the compliance check, identifying information regarding the plan sponsor, a brief explanation of the reason for the compliance check and questions for the sponsor to answer.

We wanted to learn whether the sampled plan sponsors:

  • distributed benefits to married participants in the form of a QJSA, and
  • obtained spousal consent before distributing benefits to married participants in a form other than a QJSA, such as a single lump sum.

If plan sponsors made distributions to married participants without obtaining spousal consent, then plan sponsors may not be complying with their plan qualification requirements.

Results

The questions focused on:

  • which provision of the plan provided the required QJSA language,
  • what was the QJSA survivor annuity percent,
  • whether spousal consent was obtained for non-QJSA distributions and loans,
  • the method used to obtain spousal consent, and
  • whether a plan representative or notary public witnessed the spousal consent.

The responses showed that mostly all of the sponsors in the sample were compliant with the QJSA notice and consent requirements. However, the EPCU did find a few plan sponsors that did not:

  • secure spousal consent to the waiver of the QJSA, and/or
  • have a plan representative or notary public witness the consent

Errors

Some sponsors did not know that:

  • direct rollovers need to comply with the QJSA requirements, and
  • required minimum distributions (RMDs) are not subject to the QJSA notice and consent requirements.

Background

A QJSA is an annuity that provides a life annuity to the participant and a survivor annuity for the spouse’s life following the participant’s death. The survivor annuity must be no greater than 100% and no less than 50% of the annuity paid during the participant’s life. The QJSA rules are an important requirement that protects the interests of participant spouses.

Many types of retirement plans are required to distribute benefits to participants in the form of a QJSA. A plan sponsor must provide a QJSA to all participants under a defined benefit plan, money purchase plan or target benefit plan. A profit sharing or stock bonus plan is not required to provide a QJSA if it satisfies certain requirements.

If the QJSA rule applies to a participant, a QJSA is mandatory unless the participant elects a different form of payment available under the plan. An election by a married participant to take a different form of payment, even if it’s only for a portion of the participant’s benefit, is not effective unless the participant’s spouse also consents to the election. If the lump sum value of the participant’s benefit is $5,000 or less, the plan sponsor can pay the participant’s benefit in a lump sum instead of a QJSA without obtaining the participant’s election or the spouse’s consent.

A common plan mistake submitted for correction under the voluntary correction program (VCP) of the Employee Plans Compliance Resolution System (EPCRS) is the distribution to a participant of a benefit in a form other than the required QJSA (for example, a single lump sum), without securing proper consent from the spouse. This often happens when the sponsors’ human resources accounting system incorrectly classifies a participant as not married.

The Employee Plans Team Audit (EPTA) program continues to find that sponsors fail to secure spousal consent in accordance with the QJSA distribution requirements, including on loans. The failure to provide proper spousal consent is an operational qualification mistake that would cause the plan to lose its tax-qualified status.

Normally, the correction method under VCP for a failure to obtain spousal consent requires the plan sponsor to notify the affected participant and spouse (to whom the participant was married at the time of the distribution) so that the spouse can provide spousal consent to the distribution actually made. If spousal consent to the prior distribution was not obtained, the spouse is entitled to a benefit under the plan equal to the portion of the QJSA that would have been payable to the spouse upon the death of the participant had a QJSA been provided to the participant under the plan at his or her retirement. If the spouse makes a claim, the plan must provide such spousal benefit.