3887 / When is a profit-sharing plan not subject to QJSA and QPSA requirements?

As noted in Q 3881, unless a profit sharing plan document is written to provide an annuity as the normal form of benefit, or if the plan contains pension assets that were merged into the profit sharing plan, QJSA and QPSA annuity rules do not apply. Another requirement, however, mandates that at least 50 percent of the benefit be paid to a surviving spouse. Under waiver rules similar to those discussed in Q 3890, a spouse may agree to waive these rights and have the benefit paid to another beneficiary.

In 2012, the IRS issued Revenue Ruling 2012-3, which describes how the QJSA and QPSA rules apply when a deferred annuity contract is purchased under a profit-sharing plan.¹ Qualified joint and survivor annuity (QJSA) and qualified preretirement survivor annuity (QPSA) rules generally impose a series of spousal consent, notice, and election requirements upon certain lifetime income options. While the rules regarding whether a defined contribution plan is subject to QJSA and QPSA requirements are relatively clear, it has been much more difficult to determine when these requirements would apply to a plan that contains a deferred annuity contract.

Revenue Ruling 2012-3 outlines the QJSA and QPSA requirements in situations involving defined contribution plans that contain deferred annuity contracts.

If a defined contribution plan contains a deferred annuity contract, QJSA requirements are not triggered until the plan participant irrevocably elects to receive the retirement funds in the form of an annuity. As a result, even in a situation where a life annuity may be the default payment under a deferred annuity, if the participant has the option to choose another investment option or receive a lump-sum payment, the plan will not be subject to the QJSA and QPSA requirements until the annuity actually starts making payments (or until the participant can no longer change his or her investment options). Further, if the participant does not affirmatively elect a life annuity during the 180 days before the annuity starting date, he or she is not considered to have elected the life annuity until the starting date.

QPSA requirements will not be triggered if the annuity contract gives the plan participant’s surviving spouse a nonwaivable right to the QPSA benefit. If it is not certain that the surviving spouse will receive the benefit, then the QPSA requirements apply.