The Pension Protection Act Blog

Today, among several items released by the IRS, is guidance on QOSAs. QOSAs are Qualified Optional Survivor Annuities. Section 1004 of the Pension Protection Act amended Code section 417 to require that plans subject to Code section 401(a)(11) must offer participants a specific optional form of benefit as an alternative to a Qualified Joint & Survivor Annuity. Specifically, for a participant who waives a QJSA, the plan must provide the participant the opportunity to elect a QOSA. The plan must also provide a written explanation to the participant of the terms and conditions of the QOSA.

In Notice 2008-30, the IRS defines a QOSA as:

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. A QOSA also includes a distribution option in a form having the effect of such an annuity.

Plans affected by this requirement are defined benefit plans, and defined contribution plans which are subject to the funding standards of Code section 412 or that do not satisfy the requirements to be exempt from Code section 401(a)(11).

Effective for distributions from a plan that is subject to Code section 401(a)(11) with annuity starting dates in plan years beginning after December 31, 2007, Notice 2008-30 clarifies that the amendment saving provision contained in Section 1107 of PPA does not provide relief from the requirements of Code section 411(d)(6) for a plan which operates and amends according to Section 1107 of PPA. Section 1107 of PPA provides that a plan may operate as if the amendment were in effect during the period from the effective date of the changes made by PPA until the date of the actual amendment. Section 1107 of PPA permits a plan sponsor to delay adopting a plan amendment until the last day of the first plan year beginning on or after January 1, 2009. Notice 2008-30 states that:

an amendment that implements a QOSA is not eligible for any relief, pursuant to Code section 1107 of PPA ‘06, from the requirements of Code section 411(d)(6). Thus, for example, a plan amendment that implements a QOSA may eliminate a distribution form or reduce or eliminate a subsidy with respect to a distribution form only to the extent such reduction or elimination is permitted under section 1.411(d)-3.

Q&A 15 of Notice 2008-30 applies a special rule for participants who elect a distribution with a retroactive annuity starting date pursuant to Treas. Reg. 1.417(e)-1(b)(3)(iv) which is before the effective date of Section 1004 of PPA. For such a participant, the date of the first actual payment of benefits based on the retroactive annuity starting date is substituted for the annuity starting date for purposes of applying the rules of this paragraph.

Notice 2008-30 also provides guidance on the level of spouse survivor annuity which must be provided under a QOSA, that spousal consent is not required for the participant to elect to receive a distribution in the form of a QOSA as long as the QOSA is actuarially equivalent to the plan’s QJSA, and that the plan is not required to offer participants a QOSA as an alternative to a Qualified Preretirement Survivor Annuity (QPSA). The plan is not required to provide a QOSA which is actuarially equivalent to the plan’s QJSA as long as the QOSA is at least actuarially equivalent to the plan’s form of benefit that is a single life annuity for the life of the participant payable at the same time as the QOSA.

Notice 2008-30 also provides guidance on PPA section 824 relating to rollovers from eligible retirement plans to Roth IRAs, and PPA section 302 relating to interest rate assumptions for lump sum distributions.

Technorati Tags: Pension Protection Act, PPA, Roth IRA, rollover, QOSA, Qualified Optional Survivor Annuity, QJSA, QPSA, IRS, ERISA

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