A qualified pre-retirement survivor annuity (QPSA) is a type of death benefit paid to your surviving spouse if you’re vested in your retirement plan and die before retirement. Often disbursed as a series of monthly payments, the qualified pre-retirement survivor annuity compensates the surviving spouse for the loss of retirement benefits that the deceased would have received.
Learn more about a qualified pre-retirement survivor annuity, how it works, and the requirements for receiving the benefit.
Qualified Pre-Retirement Survivor Annuity (QPSA) Definition and Examples
The qualified pre-retirement survivor annuity provides life-long survivor benefits to your spouse if you’re vested, but die before you start receiving retirement benefits.
Let’s say a spouse works at a company that lets them receive retirement benefits by contributing to a defined benefit plan. This defined benefit plan distributes QPSAs. If she is vested in a plan and dies before retirement age or before the defined benefit plan starts paying out retirement benefits, the QPSA is paid to her spouse as compensation for the loss of retirement benefits she would have received.
How a Qualified Pre-Retirement Survivor Annuity Works
The Employee Retirement Income Security Act of 1974 (ERISA) mandates the distribution of QPSAs to surviving spouses of employees who are vested but die before the employee receives retirement benefits. This benefit distribution takes the form of a life annuity and guarantees monthly payments to the surviving spouse. The amount of each monthly payment is determined by your account balance and your spouse’s age when you die. If you elect a non-spouse beneficiary for pre-retirement survivor benefits, your spouse must provide written consent.
The amount of a QPSA benefit is calculated based on your earliest retirement age if you die before that age, or at death if you die after hitting the retirement age. The defined benefit plan must make proper actuarial adjustments to reflect a payment later or earlier than your earliest retirement age.
Each QPSA payment to your surviving spouse under a defined benefit plan can’t be less than the amount you’d receive in retirement benefits if you were alive, provided you meet certain requirements.
Your surviving spouse will only receive your retirement benefits if you participate in a qualified benefits plan, which includes a defined benefit plan or a defined contribution plan.
With a defined benefit plan, QPSA distributions to your surviving spouse should start no later than the month in which you would have attained the earliest retirement age. However, the distribution of payments could start at an earlier date.
In a defined contribution plan, your surviving spouse can direct the distribution of benefits within a reasonable time after your death.
The QPSA notice from your defined contribution plan must contain:
- A general description of the QPSA that includes the terms and conditions
- Your spouse’s rights regarding a QPSA waiver
- Your right to waive the QPSA
- An explanation of the financial implications of a QPSA waiver
- Any alternative death benefits available to you
Divorce or legal separation may end your spouse’s right to a QPSA. Even so, your spouse may still obtain a special court order known as a qualified domestic relations order (QDRO) to protect and maintain their rights to the benefits.
Retirement plans that offer a QPSA must inform you about this provision when you’re between 32 and 35 years old, or within one year of becoming a plan participant if you’re hired after 35 years.
Requirements for a Qualified Pre-Retirement Survivor Annuity
The qualified pre-retirement survivor annuity requirement applies to all death-benefit plans and any defined contribution plan to which Internal Revenue Code (IRC) 412 applies, including money purchase plans. This death benefit can be paid to a surviving spouse, former spouse, dependent, or child who is treated as a surviving spouse under a qualified domestic relations order (QDRO).
QPSA benefits will be paid out to the beneficiaries you elect under these conditions:
- You were an employee who participated in a retirement plan and was entitled to the plan’s benefits.
- You die before retirement.
- You were married to the surviving spouse for at least one year before your death. Your former spouse may also receive benefits under a QDRO.
Your surviving spouse will only receive your retirement benefits if you’re in a qualified benefits plan such as:
- Defined benefit plan: Also referred to as a “traditional pension plan,” a defined benefit plan promises the participant a specific monthly benefit at retirement.
- Money purchase plan: A money purchase plan is a type of defined contribution plan that requires you or your employer (or both) contribute to your individual account under the plan, which may be at a specified percentage. Your benefit is based on your total contributions to the account and the losses or gains accrued by the account at the time of retirement.
Some defined contribution plans, such as 401(k)s, may not provide QPSA benefits since they don’t promise any specific amount of benefits at retirement. Also, your spouse may not be eligible to receive a QPSA if the qualified plan you’re enrolled in requires a full death-benefit payout, you don’t choose a life annuity option, and was transferred from a plan that wasn't subject to QPSA.
- A qualified pre-retirement survivor annuity provides monthly payments to the surviving spouse of a deceased employee.
- The benefit a surviving spouse can receive is adjusted to account for any gains or losses occurring after the participant’s death.
- A retirement plan that offers a QPSA must provide the participant with a notice of this provision.
- A QPSA is only available through a qualified plan.