403(b) Outlook: 75% Joint and Survivor Annuity Option

April 17, 2008

403b Outlook Archive 403(b) Outlook Archive

What is the rule? The Pension Protection Act of 2006 (PPA) requires that all ERISA covered retirement plans that offer annuities must offer a new form of annuity called a "qualified optional survivor annuity" for plan years beginning in 2008. If the qualified joint and survivor annuity ("QJSA") under the plan pays the surviving spouse an annuity of less than 75 percent of the annuity paid to the participant and spouse when both were alive, then the qualified optional survivor annuity must be a 75 percent joint and survivor annuity. This option provides lifetime annuity income to the surviving spouse equal to 75 percent of the amount that both were receiving.

What has changed? Prior to PPA, plans did not need to provide a qualified optional survivor annuity. Under TIAA-CREF contracts, the QJSA is a joint and survivor annuity equal to at least 50 percent of what both the participant and spouse would receive when both are alive. In order to comply with the new qualified optional survivor annuity requirements, TIAA-CREF began offering a 75 percent joint and survivor annuity option under its retirement annuities in the first quarter of 2008. The 75 percent joint and survivor annuity pays 100 percent as long as the participant lives and, upon the participant’s death, the annuity is reduced to 75 percent for the life of the annuity partner. This option supplements the wide array of retirement income options we currently provide, including the full, half and two-thirds options.

The effective date was Jan. 1, 2008. However, you have until the end of the 2009 plan year to amend your plan to include this option. We are working with a nationally recognized firm to assist institutions in preparing plan documents that comply with the new 403(b) regulations. You also need to notify employees of this option within 210 days after the end of the plan year in which the new option is adopted. For calendar-year plans the date is July 29, 2009. This can be done with a summary of material modification (SMM). Or you can update your summary plan description (SPD) and distribute a new SPD to all affected participants.

What happens if you fail to comply? Your plan may be disqualified if you do not offer the 75 percent joint and survivor annuity option.

Read more about TIAA-CREF payout options.

Next week’s issue: Contributions After Terminating Employment

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