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Domestic Relations Orders: Survivor Benefits

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.

1.Qualified Pre- retirement Survivor Annuity (QPSA), which deals with the death of the Titled Spouse prior to his/her retirement.
2.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.