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Double-Check the Rules on Spousal Consent for 401(k) Distributions

Some 401(k) plans require spousal consent whenever a participant takes a distribution. Others do not require spousal consent for distributions or loans. Rather, it is required only if a participant wants to designate a primary beneficiary other than their spouse.

Such variations in plan design may leave an employer’s human resources staff uncertain about when they should require a participant to obtain spousal consent for a distribution. The answer, of course, lies within the wording of your plan document. Nonetheless, here is a summary of the basic rules and the way many 401(k) plans avoid spousal consents.

QJSAs & QPSAs
Generally, qualified retirement plans such as 401(k)s are required to provide distributions to participants in the form of a qualified joint and survivor annuity (QJSA) and a minimum pre-retirement death benefit known as a qualified pre-retirement survivor annuity (QPSA).

These assure surviving spouses a minimum benefit that can be waived only with the spouse’s consent. A 401(k) plan, however, can avoid QJSAs and QPSAs so long as:

  • The plan requires that vested benefits be paid in full to the participant’s surviving spouse after the participant dies, unless the spouse has consented to a different beneficiary or there is no surviving spouse
  • Participants do not elect payment in any form of life annuity
  • Participants’ benefits exclude amounts transferred from a plan that was subject to the survivor annuity requirements

Thus, if a plan does not offer participants any life annuity distribution option and is not the recipient of funds from a plan that was subject to the survivor annuity requirements, it does not have to obtain spousal consent before making distributions to participants.

Transfers & Loans
Plans that have received transfers from plans that were subject to the survivor annuity requirements can prevent those requirements from applying to other benefits under the plan by separately accounting for the transferred assets and their income.

For purposes of the survivor annuity rules, plan loans are treated like distributions to the participant. So, if a plan does not need to obtain spousal consent for other distributions to a participant, consent is unnecessary for plan loans.

Deferred Annuity Contracts
Certain deferred annuity contracts that include lifetime income options can be used as investments in a plan without triggering the spousal consent requirements. However, they must allow participants to move funds freely in and out of the contract until the annuity’s deferred starting date.

If the contract is accounted for separately, the spousal consent rules will not apply to the contract until the deferred starting date of an annuity distribution. This allows earlier distributions and loans to occur without spousal consent.

Read the Fine Print
As you can see, many details go into whether a spouse must consent to a distribution or loan from an employer-sponsored 401(k) plan. Read the fine print of your plan document and make sure your staff or third-party administrator is aware of the rules. Our firm can answer any questions you might have about the tax or financial impact of employee benefits.

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