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A qualified pre-retirement survivor annuity (QPSA) is a lifetime annuity that is required as part of certain types of pension plans. It provides regular — typically monthly — income to the spouse of a plan participant who dies before retirement. A QPSA replaces the income the plan would have paid to the participant had he or she survived.

The features of qualified pre-retirement survivor annuities and the rules related to them are many and varied. Yet they are easily explained by grouping them into three categories:
  • The QPSA’s intended purpose
  • ERISA rules governing QPSAs
  • Planning steps couples should consider

Intended Purpose of the QPSA

Qualified pre-retirement survivor annuities are mandated by the Employee Retirement Income Security Act of 1974, commonly referred to as ERISA. The law was created to protect the retirement savings of workers.

This protection comes in the form of annuitized payments that guarantee lifetime income to a retired employee and his or her spouse. The QPSA component of this protection is something akin to life insurance.

If a participant in a pension plan dies before retirement, a QPSA provides a death benefit to his or her spouse. But there are a couple of differences between the death benefit provided by a QPSA and that provided by life insurance.

Life insurance typically pays a lump-sum distribution to the policy’s beneficiary. The beneficiary of a QPSA doesn’t receive a payout up front. Instead, a QPSA pays the surviving spouse an income for the remainder of his or her life. And that payout will be the actuarial equivalent of a single life annuity for the life of the participant.

Another difference between a life insurance death benefit and a QPSA is how the proceeds are taxed. A life insurance benefit is non-taxable. The income from a QPSA is taxed as ordinary income. The reason for this tax treatment is that a QPSA is funded with money held in a qualified retirement plan, which contains pre-tax dollars.

Types of Plans

Qualified pre-retirement survivor annuities are components of some, but not all, types of retirement plans. Retirement plans that must provide a QPSA include defined benefit plans, money purchase plans, and target benefit plans.

Some qualified plans, however, may be exempt from requiring QPSAs. These include:
  1. Defined contribution plans, such as a 401(k)
  2. Plans that provide a lump-sum distribution death benefit
  3. Plans that do not offer a life annuity retirement benefit
  4. Plans transferred from another employer that did not require a survivor annuity

Defined contribution plans such as 401(k)s are exempt because they do not provide a defined benefit. A 401(k) plan defines the amount of money the participant and the employer contribute to the plan. A defined benefit plan specifies how much the plan participant will receive from the employer at retirement. Since the benefit is defined, ERISA requires that the income benefit be guaranteed.

Plans that offer an insurance-like death benefit to a participant’s spouse are not required to provide QPSAs because the surviving spouse receives full payment from the outset.

Plans that do not offer a life annuity retirement benefit are not required to provide a QPSA to a participant’s spouse because there is no income guarantee built into the plan that must be replaced if the participant dies.

A QPSA is not required if a participant transfers money from another qualified plan that was not required to provide a survivor annuity. Only plans that provide a retirement benefit in the form of a lifetime annuity are required to provide a QPSA.

Any defined benefit plan, money purchase plan, or target benefit plan can elect to issue a lump-sum payment instead of a QPSA without the prior consent of either the participant or the surviving spouse in cases where the one-time distribution totals $5,000 or less.

Qualifying for the Benefit

In order for a surviving spouse to receive a QPSA, the participant must have been fully vested in the retirement plan. The death benefit is intended to replace retirement income. If the participant was not yet eligible for that income, then there is no requirement to replace it.

The participant must have still been employed when he or she died in order for the surviving spouse to receive income payments. If the participant was retired and already drawing income from a plan in the form of a life annuity intended to continue throughout the surviving spouse’s lifetime, this benefit does not need to be replaced. In this case, a QPSA is unnecessary.

The surviving spouse and the participant must have been legally married at the participant’s time of death in order for the surviving spouse to receive a QPSA. A plan can provide that a couple must be married for at least one year in order for the surviving spouse to be eligible for benefits.

Unmarried Participants

ERISA mandates two forms of benefit distribution from qualified defined benefit plans. For married couples, the default is for the participant to receive retirement benefits in the form of a qualified joint and survivor annuity with the qualified pre-retirement survivor annuity as a death benefit. For unmarried participants the default form is a single life annuity.

Unmarried participants are deemed to have waived the QPSA requirements. Importantly, if an unmarried participant later marries, then that waiver is deemed null and void.

Additional Planning Considerations

Because a participant’s spouse is the default beneficiary, the written consent of both the participant and his or her spouse is required to reassign beneficiary benefits.

Couples working beyond full retirement age and seeking to maximize Social Security benefits post-retirement may find it advantageous to appoint other beneficiaries of their QPSA. This is especially the case for those who have saved enough to finance a long retirement and wish to leave a legacy to heirs.

Plan participants in this position may also consider using plan assets to acquire a qualified longevity annuity contract, or QLAC. This would allow them to delay annuity payments many years into the future, when other taxable income may likewise allow them to optimize their Social Security benefits.

Another important planning consideration arises when couples divorce. A former spouse may be recognized by plan administrators as the participant’s beneficiary, even in cases where the participant remarries.

While ERISA mandates qualified plans to provide QPSAs, it does not restrict them from offering other benefit payment options. Some plans do allow participants to opt for a single lump-sum distribution at retirement. This creates many planning opportunities to maximize income by minimizing taxes.

ERISA provides post-retirement income protection for participants of various types of qualified retirement plans. QPSAs are an important component of this. Providing retirees with life annuities can help them finance consumption goals during retirement. It’s a testament to the investment and financial planning value of annuities in general.

Yet, investors who plan wisely can use QPSAs as part of an overall strategy to help them maximize their Social Security benefits and optimize their estate planning objectives as well.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: August 3, 2020

11 Cited Research Articles

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  1. Bell, D. & Graham, A. (1984, April). Surviving spouse's benefits in private pension plans. Retrieved from https://www.bls.gov/mlr/1984/04/art3full.pdf
  2. Carl, J. (2018, November 14). Case of the Week: DC Plans and QJSA/QOSA/QPSA Requirements. Retrieved from https://www.napa-net.org/news-info/daily-news/case-week-dc-plans-and-qjsaqosaqpsa-requirements
  3. Cornell Law Legal Information Institute. (n.d.). 29 U.S. Code § 1055. Requirement of joint and survivor annuity and preretirement survivor annuity. Retrieved from https://www.law.cornell.edu/uscode/text/29/1055
  4. IRS. (n.d.). Choosing a Retirement Plan: Money Purchase Plan. Retrieved from https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-money-purchase-plan
  5. IRS. (n.d.). Fixing Common Plan Mistakes - Failure to Obtain Spousal Consent. Retrieved from https://www.irs.gov/retirement-plans/plan-sponsor/fixing-common-plan-mistakes-failure-to-obtain-spousal-consent
  6. IRS. (n.d.). Retirement Topics - QDRO - Qualified Domestic Relations Order. Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-qdro-qualified-domestic-relations-order
  7. Schreiber, S.P. (2016, September 9). Defined benefit plan participants can receive lump sum and annuity under new rules. Retrieved from https://www.journalofaccountancy.com/news/2016/sep/defined-benefit-plan-split-distributions-201615151.html
  8. SHRM. (n.d.). Designing and Administering Defined Benefit Retirement Plans. Retrieved from https://www.shrm.org/resourcesandtools/tools-and-samples/toolkits/pages/definedbenefitretirementplans.aspx
  9. Society of Actuaries. (2016, February). Target Benefit Plans Issue Brief #1 Exploring the Simplest Design. Retrieved from https://www.soa.org/globalassets/assets/Files/Research/research-2016-tbp-exploring-simplest-design.pdf
  10. U.S. Department of Labor. (n.d.). ERISA. Retrieved from https://www.dol.gov/general/topic/health-plans/erisa
  11. U.S. Department of Labor. (n.d.). Types of Retirement Plans. Retrieved from https://www.dol.gov/general/topic/retirement/typesofplans