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How does "legal separation" status affect retirement plans?

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#1 John A

John A

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Posted 06 July 2000 - 12:03 PM

Does a document have to contain language about "legally separated" spouses for a participant to avoid the spousal consent requirements? Does a court order in effect for the "legally separated" status have to contain language about the retirement plan for a participant to avoid the spousal consent requirements?

IRS Reg 1.401(a)(20) Q&A 27 reads as follows:

1.401(a)-20 Requirements of qualified joint and survivor annuity and qualified preretirement survivor annuity.

Q-27: Are there circumstances when spousal consent to a participant's election to waive the QJSA or the QPSA is not required?
Yes. If it is established to the satisfaction of a plan representative that there is no spouse or that the spouse cannot be located, spousal consent to waive the QJSA or the QPSA is not required. If the spouse is legally incompetnent to give consent, the spouse's legal guardian, even if the guardian is the participant, may give consent. Also, if the participant is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise. Similar rules apply to a plan subject to the requirements of section 401(a)(11)(B)(iii)(I).
I'm trying to interpret whether "a court order to such effect" means 1) a court order to the effect that the spouses are legally separated, or 2) a court order to the effect that the spouses are legally separated and the spousal consent will not be required in the plan.

My interpretation would be that the language does not need to be in the plan document, and there must be a court order that the spouses are legally separated. What is your interpretation?

Thank you.

#2 PJK


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Posted 06 July 2000 - 04:16 PM

The dash 20 regulations provide guidance for the limited purpose of meeting the notice and consent requirements set forth in Code Section 401(a)(11) and 417. The answer to Question 27 merely says that in specified circumstances the consent of a married participant's spouse is not required to meet these requirements. In the case of "legal separation," the the exception applies only if a court (which is going to be a state domestic relations or family court) issued an order to that effect.

Theoretically, a plan may contain supervening language, i.e. provisions that exceed the minimal compliance burden imposed by Code Sections 401(a)(11) and 417. For example, the plan might impose a more stringent spousal consent requirement (i.e. one that doesn't recognize a legal separation exception). Dash-20 regs provide no relief from the general qualification requirement that the plan must be operated in accordance with its terms. See Reg. Sec. 1.401-1(a)(3)(iii).

Even if the plan doesn't contain a more stringent spousal consent standard, it is not uncommon for the parties to enter into a stipulated QDRO that establishes the spouse's right to consent to the participant's waiver of the QPSA/QJSA during and after the pendency of the judgment for marital dissolution. Q&A-27 of the dash 20 regs does not bar the spouse's enforcement of such a QDRO against the plan.