What is a Qualified Joint and Survivor Annuity (QJSA)?
A qualified joint and survivor annuity (QJSA) ensures a lifetime payment not only to the annuitant but also extends its benefits to a spouse, child, or dependent from a qualified plan. These rules apply to a variety of plans including money-purchase pension plans, defined benefit plans, and target benefit plans. They can also extend to profit-sharing and 401(k) and 403(b) plans if elected under the plan.
Key Takeaways
- Lifetime Payments: A qualified joint and survivor annuity guarantees lifetime payments to spouses, children, or dependents.
- Survivor Benefits: It typically necessitates at least a 50% survivor annuity.
- Health Considerations: If the participant’s health is poor, a QJSA might not be the optimal investment.
Understanding a Qualified Joint and Survivor Annuity (QJSA)
The QJSA plan documentation typically outlines the specific annuity payout percentage. Nonetheless, the general mandate is that the survivor annuity must range from at least 50% up to 100% of the annuity given to the participant. For unmarried participants, the annuity is managed under the incidental benefit rule or adheres to minimum distribution requirements.
According to the IRS, a QJSA must be the exclusive form of benefit for all married participants under qualified plans such as defined benefit plans, money purchase plans, or target benefit plans unless an alternative form is explicitly consented to in writing by both the participant and their spouse.
Features and Considerations of a Qualified Joint and Survivor Annuity
Qualified joint and survivor annuities deliver critical benefits for married participants:
- Regular Payments: Retirement payments are provided at regular intervals throughout the participant’s retirement, generally on a monthly basis.
- Survivor Benefits: Post death, the annuity ensures that a surviving spouse receives a monthly benefit of at least 50% of the initial benefit payment.
Just like other annuities, QJSA offers a lifetime benefits stream for the main participant and their spouse through consistent, monthly payments. Hence, these should be an integral part of financial, retirement income, and expense strategies. Unlike most investments, QJSA is not vulnerable to reduced payments due to weak stock market performance. Once distributed, QJSA payments are immutable and cannot be modified later.
However, distributions beyond the usual monthly payment are prohibited. If the participant faces severe health issues, a QJSA (similar to general annuity products) might not be a prudent investment vehicle given the assets required to fund it. It’s also noteworthy that payment values might diminish in purchasing power over time unless provisions for cost-of-living adjustments are included.
Real-Life Example: Qualified Joint and Survivor Annuity
Consider an individual’s employer-sponsored 401(k) plan offering a QJSA. They will receive a monthly sum of $1,500 upon retiring at age 65. After their death, the surviving spouse is entitled to a $1,000 monthly benefit until their demise. While the plan allows for a lump-sum distribution, this requires express written consent from the spouse, duly notarized or affirmed by a plan representative.
An interesting exception is where the plan might proceed with lump-sum payment of benefits below $5,000 without gaining prior approvals. In instances of divorce, the individual might need to recognize their former spouse as the current spouse per a Qualified Domestic Relations Order (QDRO), or following the divorce terms. In circumstances where a divorced participant wishes to amend the beneficiary for survivor benefits, they must liaise with the plan administrator.
Related Terms: money-purchase pension plans, defined benefit plans, target benefits, profit-sharing plans, lump-sum distribution, qualified domestic relations order (QDRO).
References
- Internal Revenue Service. “Retirement Topics - Qualified Joint and Survivor Annuity”.
- Cornell Law School. “26 CFR § 1.401(a)-20 - Requirements of Qualified Joint and Survivor Annuity and Qualified Preretirement Survivor Annuity”.
- Internal Revenue Service. “Types of Retirement Plan Benefits”.
- U.S. Department Of Labor. “QDROs-The Division of Retirement Benefits Through Qualified Domestic Relations Orders”, Page 3-10.
