Distributing Qualified Joint and Survivor Annuities
A qualified and joint survivor annuity (QJSA) recognizes that both people in a marriage are dependent on the retirement benefit provided by a participant’s plan. By extending the single life annuity payout for a participant to the participant’s spouse, it ensures that the surviving spouse continues to receive a benefit if the participant dies before them.
Generally, qualified retirement plans allow benefit plan participants to receive their benefits in the form of a lump sum payment, annuity, or some combination thereof. However, qualified defined benefit plans, such as traditional pension plans (and money purchase pensions and target benefit plans), are required to provide married participants a QJSA as a default benefit payout to both the participant and the spouse, unless both parties have agreed otherwise.
Life and survivor annuities
There are generally two types of annuities: life and survivor.
- A life annuity is a series of recurring payments, traditionally monthly, for the remaining life of the participant.
- A survivor annuity is a series of payments over life that is paid to the participant’s surviving spouse, or former spouse who is entitled to a benefit under a qualified domestic relations order (QDRO), following the participant’s death.
A QJSA requires the plan participant to elect a survivor, which will preserve benefits under the plan for the surviving spouse upon the participant’s death, generally at a reduced benefit amount. The amount of the survivor benefit will be a percentage from 50 percent to 100 percent of the participant’s benefit, depending on the plan and potentially the options agreed to by the participant and spouse. Some plans will allow for participants to choose the surviving spouse benefit with the annuity payouts adjusted according to the plan’s payout percentage.
QJSAs required for most benefit plans
A QJSA is required to be provided as the only benefit payout option for married participants, unless both the participant and spouse agree to another form of benefit option, in which case the participant’s and spouse’s consent is required to be in writing and submitted to the plan within 90 days of when annuity payment will begin.
Additionally, the spouses consent must either be notarized or witnessed by a plan representative. The plan sponsor may also pay the participant a lump sum, instead of a QJSA, without obtaining the participant’s or spouse’s consent, if the value of the participant’s benefit is $5,000 or less.
The IRS requires a notice be given to participants for many different participant events (e.g., when employment starts, when eligible to elect benefits, etc.). The QJSA notice must be in writing and include the terms and conditions of the QJSA, the option to waive the QJSA, and the participant’s and spouse’s rights under a waiver. This notice should be provided within 90 days of benefit commencement.
How we can help
CLA’s employee benefit plan professionals are well-versed in employee benefit plans. We work with your organization to identify how you can maintain compliance to help give your participants peace of mind.