Ask the Experts June 20, 2017

(b)lines Ask the Experts – Getting Rid of QJSA Form of Benefit When Restating the Plan

“We have a client (plan sponsor) whose 403(b) plan still has some plan assets in annuity contracts.
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“We are restating this plan document and the plan sponsor wants to eliminate the Qualified Joint and Survivor Annuity (QJSA) form of benefit. The current investments are custodial funds, by the way. Is there a problem when the normal form of benefit is lump sum cash when there are plan assets in annuity contracts?”  

David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer: 

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There may indeed be a problem with eliminating the QJSA, as alluded to in our prior Ask the Experts column. First of all, we will assume that the 403(b) plan in question is subject to the Employee Retirement Income Security Act (ERISA), since plans that are not subject to ERISA are also not subject to the QJSA requirements of the Code, and thus your question would be moot.

Many 403(b) plans are indeed subject to the QJSA requirements. For example, all 403(b) plans structured as a money purchase plan are subject to the QJSA requirements. It is possible that other 403(b) plan types (profit-sharing, matching, elective deferral only) could be structured to avoid the QJSA requirement, but only if the following four conditions are satisfied:

1)         The plan does not offer annuity contracts whose structure makes it impossible to avoid the QJSA requirements;

2)         The participant’s death benefit is entirely payable to the participant’s spouse (unless the spouse consents to an alternate beneficiary designation);

3)         The plan does not offer an option payable over only the participant’s lifetime (e.g., a life annuity), or the participant does not elect such an option (i.e., the requirement of spousal consent to the participant’s waiver of the QJSA is not required); and

4)         Benefits have not been transferred into the plan on behalf of the participant that are subject to the QPSA/QJSA requirements.

Requirement 1) is often the stumbling block for 403(b) plans. Even if all active investments are 403(b)(7) custodial accounts, as you state in your example, the mere fact that 403(b)(1) contracts exist within the plan may mean that you cannot eliminate the QJSA. The terms of the contract may require a QJSA (and QPSA). To be certain, the plan sponsor should consult with an attorney well-versed in such matters.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.
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Data and Research June 19, 2017

Millennials Select Financial Security as Top Priority

A survey finds Millennials are more concerned with financial security over their smartphones, vacation time or cars. 
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Being born and raised in the 1980s and 90s—when technological advances commenced—would inherently turn Millennials into tech addicts, engrossed in the habitual use of smartphones and social media. Right?

Not so, according to a study by Voya Financial’s Annuities and Individual Life business, which revealed Millennials are more concerned about their financial security rather than the latest Facebook update. In fact, 56% of Millennials surveyed said they would opt to save their financial security over smartphones, cars or vacations. Even more surprising, Baby Boomers were found to be more attached to their smartphones than Millennials, with 50% selecting financial security over phones, cars and vacation time. Furthermore, 20% of Boomers chose to keep their smartphone over financial security, while 15% of Millennials and 14% of Gen Xers selected their gadgets as well.

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While the majority (53%) of Americans prioritize financial security, on average, 45% of Americans preferred the latest phones, vehicles or retreats over their financial security, according to the survey. Individually, 16% of Americans would keep their smartphones instead; while 15% would stick with vacations; and 14% would favor their cars over financial safety.

“We understand no one wants to sacrifice modern conveniences like our smartphones and cars to plan for retirement. Fortunately, this is where closely working with a financial professional can help every generation create a holistic plan that works for their lifestyle today, while also preparing them for tomorrow,” says Carolyn Johnson, CEO of Annuities and Individual Life at Voya Financial. “A financial professional can suggest solutions to help all Americans see financial security could be within their reach.”

Gen Xers, who are slowly nearing retirement, were the least likely to abandon vacations for financial security, with 20% selecting time off over savings. Boomers came in second, with 14% selecting vacation time, and Millennials at 13%.

The survey included gender differences as well, and found men are more attached to technology than women, with 21% less willing to hand over their smartphones, even if that meant losing financial security. Only 12% of women, on the other hand, would rather utilize their tech devices, and 51% were less disposed to yield financial security than men (56%).

“We all value the things that make our lives easier, more productive and give us joy — like spending vacation time with family and friends,” says Johnson. “And while the goal of achieving financial security may feel daunting or perhaps even unreachable, Americans recognize its importance. The good news is — with some planning and guidance from the right resource — protecting our families, our income and our financial future is something we can all achieve.”

More information about survey findings can be found here.

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