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I would be practical about it. if she is losing her job anyway just go so you don't have a hassle in getting the money out and so forth. Why lose one's job early maybe give them grounds to fight unemployment benefits so forth? Some times it really is best to "pick your battles" as they say. And this just doesn't sound like a battle worth fighting.

If the plan is nongovernmental the whole $30,000 must be included on the W-2, and is taxed, if the $10,000 pension contribution is stated in the plan to be an employee contribution. This is true even though the employee never actually receives it and indeed has no way to receive it.

There is one problem with that. The IRS has not made that statement at a conference. I previously challenged anyone who thinks they have to provide detail as to when and what was said by the IRS representative, but no one responded. I've seen several claims that it was said at by the IRS at the 2011 ASPPA annual conference. I was there and the IRS representatives said no such thing. I have the recording to prove it. If you do a search you should find my old post where I transcribed what the IRS actually said. Ilene Ferenczy made a brief comment that could be interpreted along those lines if you wanted to, but she is not with the IRS. Other ASPPA speakers have made that claim, but none of them are IRS officials. From other discussions with a frequent ASPPA speaker, the IRS may very well have said something along those lines in private meetings with ASPPA. But that is not what ASPPA is claiming. They are claiming the IRS has been saying that consistently at all conferences. If the IRS really said that repeatedly, it should be very simple for someone to provide a recording or transcript where the IRS actually said it. As several of us have pointed out in discussions here, a total prohibition of amendments mid-year to a safe harbor plan is absurd. Likewise, I think another claim that if it is in the safe harbor notice, it can't be changed mid-year is absurd. It has been pointed out that, among other things, they were saying that a Trustee change, plan sponsor name change, address or phone number change could not be made to the document mid-year. Now that the IRS has informally added some new situations where they are willing to say specific amendments can be done (2012 ASPPA annual conference) a couple of ASPPA speakers proclaimed that of course, when they said absolutely no mid-year amendments to SH plans, they didn't really mean you couldn't change things like Trustees or addresses and to think otherwise was being ridiculous. That ASPPA letter also says there is a lack of formal guidance. That is nonsense. There is very specific guidance in the regulations. ASPPA wants a list of all of the amendments that are allowed. What the regulations have is a list of all of the amendments that are prohibited. Except for listed exceptions, you can not amend any provision that satisfies a rule in that section of the regulations. All you have to do is go through 1.401(k)-3 and 1.401(m)-3 to see what rules apply to plan provisions and you have a list of provisions that the regs say can not be amended mid-year. Why in the world would anyone ask the IRS to make a list of every amendment that can be made? I would say what I really think about ASPPA's letter, but I was raised better than that. I'll get off the soapbox now.

In addition to David Rigby's good suggestions, consider that a prudent administrator should consider all information reasonably available to it. If the retirement plan's administrator is the employer, and the same employer also administers (or properly has access to the records of) the employer's health plan, a prudent administrator might check the health plan's records to see whether the participant had written anything that named a spouse. If so, the retirement plan's administrator might confirm (not relying on the participant's or claimant's statements) the end of a spouse relationship concerning each person previously named. It's always difficult to prove the absence of a person or relationship. That includes a marriage because there is no unified set of records for the starts and stops of marriage. In situations that involve a small-enough account balance and low risk, I've seen a plan's administrator tell the claimant to get a probate court's order that specifically decides the absence of other possible claimants. This is only some indirect evidence, and not legal protection. If the plan's administrator prefers protection, one might (after prudently exhausting other steps) do a Federal court interpleader, with actual service on all those the administrator imagines might have some claim (including persons that could become personal representative of the participant's estate) and substituted service on those who are unknown or not located. Consider that the plan's expenses for the interpleader might be paid from the plan's assets and, in appropriate facts and circumstances, might be allocated to the account of the participant who made the interpleader necessary or appropriate.