In the qualified plan industry, there is no shortage of acronyms beginning with the letter Q, such as QAB, QACA, QDIA, QDRO, QJSA, QMAC, QNEC, QPSA, QSLOB, and QTA.  But what is a QOSA? E-mail Alert 2008-6, Rev. 04/25/08

Effective for plan years starting on January 1, 2008 and thereafter, the Pension Protection Act of 2006 has amended the joint and survivor annuity rules to require that a plan subject to such annuity requirements also offer a qualified optional survivor annuity (QOSA) to participants. The plan must also provide participants with a written explanation of the terms and conditions of the QOSA.

 

Generally, a plan that is subject to the qualified joint and survivor annuity requirements must now provide participants with additional options relating to the percentage of the spouse’s survivor annuity.

 

Under these new provisions, if the plan normally provides a survivor annuity for the life of the participant’s spouse that is greater than or equal to 75% of the amount of the annuity that is payable during the joint lives of the participant and the participant’s spouse, the QOSA rules require that the participant have the option to elect a survivor annuity of 50%.  Similarly, if the normal amount of the survivor annuity is 50%, the participant must have the option of choosing a 75% annuity. 

 

The QOSA must be at least actuarially equivalent to the plan’s form of benefit that is a single life annuity for the life of the participant payable at the same time as the QOSA. It is important to note that the QOSA does not have to be actuarially equivalent to the plan’s QJSA.

In general, the QOSA requirement applies to distributions with annuity starting dates in plan years beginning after December 31, 2007 (there is a special rule for collectively bargained plans). As this is a PPA provision, plans need to operate under the provision, but do not have to be amended until 2009.

 

In many cases employers operating under the McKay Hochman prototype plans have been allowed to choose alternative annuities ranging from 50 to 100%.  If a plan with a normal 50% survivor annuity already offers the 75% and 100% option, then the plan will not have to be amended for the QOSA rules, because it already satisfies them.