What is a Qualified Joint and Survivor Annuity (QJSA)?
A qualified joint and survivor annuity (QJSA) provides lifetime payments from a qualified plan to an annuitant and a spouse, child, or dependent. QJSA rules apply to money-purchase pension plans, defined benefit plans, and targeted benefits. They can also apply to profit-sharing and 401(k) and 403(b) plans, but only if they are selected under the plan.
- A qualified joint and survivor annuity provides lifetime payments to spouses, children or dependents.
- QJSA generally requires at least 50% survivor annuity.
- If the participant is in poor health, QJSA may not be a good investment.
Understanding a Qualified Joint and Survivor Annuity (QJSA)
The plan document of a qualified QJSA plan usually provides an annuity payout percentage, but the general requirement is that the survivor annuity must be at least 50% and no more than 100% of the annuity paid to the participant. If the participant is unmarried, the annuity is paid under the Contingency Benefit Rule or following minimum distribution requirements.
According to the Internal Revenue Service (IRS), “A qualified plan such as a defined benefit plan, money purchase plan or target benefit plan must provide a QJSA as the sole form of benefit to all married participants as long as the participant and spouse Consent in writing to, if applicable, any other form of benefit payment.” For more information about QJSA rules, the IRS provides an information page. The rules governing QJSA can be found in Title 26, Chapter I, Sub-Chapter A, Section 1.401(a)-20 on the Federal Register.
Qualified Joint and Survivor Annuities: Features and Considerations
Eligible joint and survivor annuities for married participants have the following characteristics.
- Retirement payments are made on retirement (primarily monthly) at regular intervals.
- After death, the plan will make monthly payments to a surviving spouse of at least 50% of the basic benefit payout.
Like many annuities, QJSA provides lifetime benefits to the primary partner and spouse through monthly payments. As such, they should be included in any financial planning and retirement income and expense scenarios. Such a product is not subject to diminishing payouts due to poor stock market performance. QJSA distributions, once launched, are not variable.
Also, distributions in addition to the regular monthly payment are not allowed. If the participant is in poor health, a QJSA (like an annuity) may not be a good investment of the assets needed to fund such an investment vehicle. Payments can lose purchasing power over time unless adjusted for increases in cost of living.
Qualified Joint and Survivor Annuity Examples
An individual’s employer-sponsored 401(k) plan offers a QJSA that provides monthly $1,500 retirement income at age 65. It also provides a $1,000 monthly retirement benefit for a spouse when that person dies. That benefit is paid until the death of the surviving spouse. The individual may choose to receive a lump-sum distribution of benefits, but only with the written consent of his or her spouse, witnessed by a notary public or plan representative.
One exception is that a plan may pay a participant a lump-sum distribution without first obtaining their (and their spouse’s) permission if that amount is $5,000 or less. If a participant is divorced they may be required to treat their former spouse as part of a qualified domestic relations order or as the current spouse in accordance with the terms of the divorce. If a divorced participant wishes to change his or her beneficiary of survivor benefits, he or she must contact the plan administrator.