Does an ERISA - covered 403(b)(7) plan (custodial account) need to provide QPSA and QJSA benefits, or is is treated like an individual account plan that need only provide that the account is payable to the spouse unless waived?

Yes. You might find it helpful to take a look at ERISA Secs. 205(a)(1) and (2) and 205(b).

A non-ERISA plan, however, can omit both a QJSA and QPSA if the plan provides that, absent a qualified election, the benefit that remains after a participant's death belongs to his/her surviving spouse.

There's an excellent article about this subject by Mervin M. Wilf: "When Do the REA Spousal Survivor Rules Apply to 403(b) Contracts?"

The J & S annuity is required in a custodial account if 1) the employer is a NP organization subject to ERISA, 2) contributions are made from the employer's own funds and 3) the plan requires that the employer make annual contributions, e.g., the contributions are fixed by the plan. If the employer contributions are discretionary, i.e., made pursuant to an annual appropriation of funds, the plan does not have to offer the J & S annuity. Note: An NP employer can elect to make a 403(b) plan subject to ERISA even if there are no employer contributions, or only discretionary payment are made.

Thanks. This plan has no employer contributions, but is electing to be an ERISA plan because there is a matching contribution being put in a 401(k) plan for employee contributions to the 403(b). This is, of course, another thorny issue, but applying an abundance of caution, the NP employer decided to go with an ERISA plan...so the consensus is that no QJSA/QPSA is required, which is where we were heading.

Just Me,

I'm a huge fan of the arrangement to pair a QP with a 403(b) plan and contribute the employer match, if any, to the QP. Now that I've said that, however, I'll be the first to agree that the whole matter is thorny. I've yet to find any guidance whatsoever about the mechanics of the ACP test, even the QP demographics could differ from those of the 403(b) plan.