Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Answer Book ( Appendix C ). This book does not cover state law spousal rights such as community property.

Introduction to the Retirement Equity Act of 1984

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

REA requirements for “exempt” profit-sharing plans

An “exempt” profit-sharing plan of the type discussed in this section could become subject to the QJSA/QPSA requirements if it offers participants, as an investment option, the type of deferred variable annuity contract that contains a lifetime income guarantee option. For discussion of how the QJSA/QPSA requirements apply to such a contract, see PLR 2010-48044 (12/3/2010).