In December 2003, the IRS issued final regulations regarding the requirements for a plan’s explanation to participants of the qualified joint and survivor annuity (QJSA) and of the qualified pre-retirement survivor annuity (QPSA) (for an explanation, click here). The regulations detail requirements for distribution forms to list "relative values" of the various optional forms of benefit offered under a plan. The regulations originally applied to QJSA explanations for distributions with annuity starting dates on or after October 1, 2004, and to QPSA explanations provided on or after July 1, 2004.
Postponement of the effective date of the regulations
In IRS Announcement 2004-58, the Department of the Treasury and IRS postponed the deadline for most QJSA explanations. For these explanations, the regulations apply to distributions with annuity starting dates on or after February 1, 2006. The extension does not apply to QPSA explanations.
The postponement of the regulations with respect to QJSA explanations will apply to all defined contribution plans and to most defined benefit plans. The postponement does not apply to QJSA explanations for defined benefit plans where the plan permits distributions that are subject to IRC §417(e)(3) (e.g., lump-sum distributions) and the present value of such distributions are less than the value of the QJSA. This may occur, for example, in a defined benefit plan that provides for a subsidized early retirement benefit but does not provide for the subsidized benefit if a lump-sum distribution is made.
Clarification of QJSA as most valuable benefit
As practitioners attempted to comply with the relative value regulations, it became apparent that there might be a conflict in the application of certain other qualification requirements for defined benefit plans. Regulation 1.401(a)-20, Q&A-16, provides that, in the case of a married participant, the QJSA must be at least as valuable as any other optional form of benefit payable under the plan at the same time. IRC §417(e)(3) provides that specified mortality and interest rate assumptions (i.e., the GATT assumptions) apply in determining the minimum present value of certain optional forms of benefit, such as lump-sum distributions. Some practitioners are concerned that, solely as a result of the use of the GATT assumptions, the value of a lump-sum distribution may actually be more valuable than the QJSA.
The Treasury and the Service intend to issue regulations, effective retroactively, clarifying the interaction between the QJSA requirements and the requirements of IRC § 417(e)(3) to use specified actuarial assumptions. The regulations are expected to provide that a plan will not fail to satisfy the requirements of § 417 merely because the application of § 417(e)(3) causes an optional form of benefit to be more valuable than the QJSA.
Impact on SunGard Corbel Defined Contribution Forms
While the regulations primarily affect defined benefit plans (especially those that offer subsidized optional forms of benefits), they also impact Defined Contribution plans that permit distributions in the form of a QJSA.
We have determined that it would be prudent to make some minor changes to the Defined Contribution plan forms provided with the SunGard Corbel documents and in the Pension Library. Specifically, we have added language clarifying that a participant, upon request, has a right to a detailed calculation of the amounts payable under the optional forms of distributions. The forms may be obtained by clicking here. These modifications will be included in the Relius® Document system as part of the next language update and in the upcoming supplement to the ERISA Forms volume of the Pension Library.
We will post to the Web site revised Defined Benefit Plan forms once we have determined the best way to comply with the regulations. |
