This Practice Aid is limited to Qualified Defined Benefit
Plans. Discussed herein are some fundamentals of Survivor
Annuities. Other Practice Aids will cover additional aspects
of survivor benefits. Recall that Survivor Benefits are
the most litigated issue regarding Qualified Domestic Relations
Orders.
The experienced practitioner knows there are two distinct
types of survivor annuity benefits that must be negotiated/drafted.
-
Qualified Pre- retirement Survivor Annuity (QPSA), which
deals with the death of the Titled Spouse prior to his/her
retirement.
-
Joint and Survivor Annuity, which deals with the death
of the Titled Spouse subsequent to his/her retirement.
We emphasize that the assignment of either or both of the
above forms of survivor benefit to an Alternate Payee must
be clear and specific. The Retirement Equity Act stated: “to
the extent provided… a former spouse will be treated
as a surviving spouse”…
If the plain language of your agreement or decree does
not provide a foundation for such award to an Alternate
Payee then there is no basis for insertion of such award
to an Alternate Payee and a Plan Administrator will deny
this valuable benefit to an Alternate Payee.
HELP:
Distinguishing between a QPSA and a Joint & Survivor
Annuity.
The key to differentiating between the two forms of annuity
is the term” Annuity Starting Date”.
Annuity Starting Date: is the first day of the first period
for which an amount is received as an annuity or: the Annuity
Starting Date denotes the time at which retirement benefits
become payable to the Titled Spouse as a result of his
or her retirement.
If death occurs prior to the Titled Spouse’s Annuity
Starting Date then the form of survivor benefit payable
is the QPSA.
If death occurs subsequent to the Titled Spouse’s
Annuity Starting Date then the form of survivor benefit
payable is the Joint & Survivor Annuity.
It is helpful to recognize that the QPSA is defined as:
an annuity--
(1) for the life of the participant with a survivor annuity for the life
of the spouse which is not less than 50 percent of the amount of the annuity
which is payable during the joint lives of the participant and the spouse,
Joint & Survivor Annuities traditionally provide for
a survivor benefit between 50% and 100% of the actual benefit
paid to the participant.
ALERT:
Contact Troyan, Inc. to learn
how reduce the percentage of an Alternate Payee’s
survivor award to less than 50%.
Defined as follows:
an annuity--
(1) for the life of the participant with a survivor annuity for the life
of the 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 the spouse, and
(2) which is the actuarial equivalent of a single annuity for the life
of the participant.
The most widely used form of Joint & Survivor Annuity
is the Joint & 50% Survivor Annuity, which is defined
as follows (recall the above alert to the attorney representing
the Titled Spouse; adroit drafting can significantly reduce
this percentage):
an annuity--
(1) for the life of the participant with a survivor annuity for the life
of the spouse which is not less than 50 percent of the amount of the annuity
which is payable during the joint lives of the participant and the spouse,
and
(2) which is the actuarial equivalent of a single annuity for the life
of the participant.
The experienced practitioner recognizes that the survivor
provisions of a Domestic Relations Order must conform to
the language of the Allocation of Benefits provision of
a Domestic Relations Order (for a Defined Benefit Plan),
since the Allocation of Benefits section discusses the
duration of payments to an Alternate Payee.
Query: Is it necessary to award an Alternate Payee QPSA
benefits if the Domestic Relations Order provides that
the Alternate Payee has been assigned a benefit that is
to be treated as his/her “sole and separate” property?
That is: such annuity stream to an Alternate Payee is not
to be affected by the death of the Titled Spouse prior
to his or her retirement.
Answer: It Depends. Depends on What? It depends on how
a Plan Administrator interprets the scope of a “Separate
Interest” QDRO (See Practice Aid: Shared Payment/Separate
Interest Analysis).
There is no uniformity in Plan Administrator interpretation
of separate interest language. Prior to providing language
or a draft Order to retaining counsel, Troyan, Inc. either
references its data base of interrogates the Plan Administrator
to determine its treatment of the QPSA component of a “separate
interest” Order. The practitioner’s exposure
is the fact that a significant minority of Plan Administrator’s
do not deem the separate interest award to the Alternate
Payee to be operative until the Titled Spouse’s retirement.
As a result of this minority interpretation, should the
Titled Spouse die prior to retirement (Annuity Starting
Date) the Alternate Payee has no interest in the plan.
To avoid loss of entitlement by an Alternate Payee, as
a result of this harsh interpretation Troyan, Inc. suggests
that QPSA language be inserted into your Agreement. This
insertion into the Agreement provides the attorney representing
an Alternate Payee the opportunity to insert QPSA language
into the draft Order if it is determined that the subject
plan’s interpretation of separate interest language
mandates such insertion.
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