Cite for spousal consent NOT being required for distributions or loans

[John A]

My understanding is that spousal consent for a distribution or loan is NOT required in a profit sharing (or 401(k) plan) that provides only for lump sum and installment payment forms, makes the spouse the 100% beneficiary of the death benefit, does not have transfer money from a J&S plan, and is not used to offset a DB plan. Is that correct? Did I miss any other requirement to avoid spousal consent? Is there any problem with a plan adopting a policy of requiring spousal consent if it truly is not required by the terms of the plan?

Can anyone provide a cite showing that spousal consent is not required in the situation listed above?

[RCK]

Treasury Reg 1.401(a)-20, Q&A 3.

RCK

[John A]

RCK, thank you but I don't think the cite you give gets to the conclusion. The cite does get you to what plans are not subject to QJSA and QPSA, but I think spousal consent is a separate (though related) issue. The cite you give does mention that spousal consent IS required for a change to a non-spouse beneficiary (for a plan to meet the requirements to not have the QJSA and QPSA apply). So the questions in my post still stand. Is there a cite that specifically says consent of the spouse is not required in a plan that meets the requirements described in the cite you give?

[mbozek]

The general rule of 401a11/417 is that payment from a qualified plan canot be made in a form other than a qualified J & S without the wrtten consent of the spouse unless the plan is a DC plan not subject to the funding standards that does not provide for an annuity as the normal form and provides that the death benefit will be paid to a person other the spouse only with the spouses written consent. Reg. 1.401(a)-20 Q/A-1. Q/A -3 states both the general requirement for spousal consent iif a benefit form other than a QJSA is elected as well as the requirements for PS plans for which spousal consent is not required. A plan that meets the the exceptions of (1)-(3) of A-3 can pay the benefit to the participant in a lump sum w/out spousal consent.

[John A]

mbozek, I agree with you, but I need stronger language to convince a client. So far, the cites you give would establish that the plan does not need to get the spousal consent to waive the QJSA form of payment. However, the cites do not specifically say that spousal consent is not required to receive a distribution, only that spousal consent is not required to waive the QJSA form of payment.

The client has an adviser telling them that if they do not require spousal consent, the plan could lose its tax-qualified status and the plan would be open to law suits from spouses. At the advice of some TPA at some time, the plan always required spousal consent in the past.

So I am trying to figure out what I can point to that will state in crystal clear language that spousal consent would not be required for distributions and loans for this plan.

Any further cite ideas?

[mbozek]

There isnt any better language since the regs are the only IRS authority for this rule. Suggest you review the legislative history of REA in 1984 (Senate report is a good place to look). I have had several clients who made the same mistake but they never questioned the exception.

[John A]

mbozek - please look at 1.401(a)-20 Q&A 33(a), last sentence - do you think that gets me the argument I need?

[Mike Preston]

At the risk of suggesting that which has probably already been done, have you read the document? That usually specifies where spousal consent is required. Sometimes the drafters require such consent where otherwise it might not be rquired under the regs.

[mbozek]

John: Last sentance of Q/A-33(a) is as good as it gets -spousal consent is not required for a distribution to participant in PS plan .

[John A]

Thanks, Mike. No matter how many years of experience I get, I will never be offended by someone asking if I've read the document. But in this case, yes, I had read both the prior and the current adoption agreement and prototypes, and I did not find anything that required spousal consent (which I think would be an unusual provision for any prototype - though possibly more common for an individually designed document).

[Mike Preston]

Unfortunately I've seen it in a few prototypes. But the cite by mbozek seems awfully good to me, if you have no contradiction within the four corners of the document.

[Guest MarkG]

I believe Reg 1.401(a)-20, Q&A24(a)(1) may be helpful. Regarding plan loans, it specifically states that "No spousal consent is necessary if, at the time the loan is secured, no consent would be required for a distribution under section 417(a)(2)(B)." It goes on to say that "Spousal consent is not required if the plan or the participant is not subject ot section 401(a)(11) at the time the accrued benefit is used as security, or if the total accrued benefit subject to the security is not in excess of the cash-out limit in effect under 1,411(a)-11T©(3)(ii)." I hope this plugs the gap.