One such solution is called a qualified joint and

Info icon This preview shows pages 23–25. Sign up to view the full content.

One such solution is called a qualified joint and survivor annuity (QJSA) . The QJSA is an insurance overlay to a qualified plan that only applies to married participants. It is available in defined benefit plans, cash balance plans, and money purchase plans. QJSAs are also available in profit sharing and 401(k) plans if the employer offers an annuity option in those plans. If a participant selects the QJSA option and the employer does not subsidize this benefit, then the participant’s payment stream in retirement will be reduced to compensate for the longer-term benefit of a QJSA. Without a QJSA, a participant might receive $1,000 per month. With a QJSA in place, they might receive only $750 per month, but their surviving spouse will get between 50% and 100% of this reduced benefit should the spouse outlive the participant. The higher the percentage of spousal replacement, the lower the monthly payment for the participant during their lifetime. This reduction pays for the "insurance policy" that gives the surviving spouse a residual benefit. If a married participant elects to waive the QJSA option and simply receive the higher monthly payments offered by a non-QJSA payment stream, then both the participant and their spouse must sign a written waiver. Similar in concept to the QJSA is the qualified pre-retirement survivor annuity (QPSA) . The QPSA is basically the same thing as a QJSA with one important distinction. The QJSA is a payment stream to both the participant and surviving spouse in which the participant retired, selected the option, and then died sometime during retirement. The QPSA applies to participants who die in the pre-retirement phase (before they reach the point of retiring). The participant did not live long enough to retire and receive benefits him/herself, so the surviving spouse will now receive benefits that match the benefits that they would have received under a QJSA arrangement (no less than 50% of what the now deceased participant would otherwise have received). It is common to provide the QPSA to spouses who have been married for at least 1 year, although this 1- year threshold can easily be waived by the employer. There is no mandatory payout for unmarried participants who die before they begin to receive benefits. Some companies are good citizens and provide a lump sum payment to the deceased employee’s estate, but they are not required to do so. The law requires that QJSA and QPSA be made available to participants, but there is no requirement that the company pays for the additional benefit. Often, the employee bears the cost through a reduced payment during the participant's lifetime. If the plan sponsor does pay for this benefit (very rare) it would not be appropriate for the company to pay for the benefit of HCEs and not pay for the benefit of NHCEs.
Image of page 23

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Remember that if someone has their own balance in a defined contribution plan (like a PSRP, a 401(k), or a SIMPLE plan) and die in the pre-retirement phase, then their balance is part of their estate. For
Image of page 24
Image of page 25
This is the end of the preview. Sign up to access the rest of the document.
  • Spring '14
  • VOSS,JAMESA
  • Cash balance plan, HCES

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern