No spousal consent in PS/401(k) Plans...

[AlbanyConsultant]

I had a broker ask me this question, and I had no idea what the answer is. I'm not having any luck finding anyone who knows for sure, so here I am.

We know that profit sharing and 401(k) ("non-pension") plans don't need spousal consent for distributions (and the same goes for pension plans where the distribution is <$5,000) if the document so provides. But why those kinds only? Why does a participant with a $6,000 money purchase plan balance need to have her spouse sign a consent form, but not a participant with the same balance in a profit sharing plan?

Any help? Thanks for the illumination...

[movedon]

Check out 401(a)(11).

[Guest mjb]

Because a MP plan is regarded as a pension plan like a DB plan and the normal form of the benefit in a pension plan is a joint and 50% survivor annuity. Spousal consent is required to elect other forms of benefits. Why do think no one sells MP plans anymore.

[Belgarath]

I'd also recommend that you not be too quick to assume that profit sharing plans/401(k) plans are automatically exempt from the QJSA requirements. There are several requirements that must be satisfied before the exemption applies, and many plans and/or individual participants don't qualify for the exemption, depending upon specific plan language and circumstances. Particularly watch out for situations - and there are a LOT of them - where a pension plan amended and restated to a PS plan. there were a ton of these post-EGTRRA, and the prior pension money is subject to QJSA.

[E as in ERISA]

Are you asking this philosophically? (I.e., why do we maintain this somewhat arcane rule that gives the spouse a little bit of an interest in the participant's plan -- a rule that was probably created years ago when the husband went to work for an employer for thirty years and the employer provided the husband and non-working spouse a retirement benefit for both their lives?) Or are you asking this legally? (I.e., what code section requires a QJSA form of benefit with spousal consent?)

[AlbanyConsultant]

Are you asking this philosophically? (I.e., why do we maintain this somewhat arcane rule that gives the spouse a little bit of an interest in the participant's plan -- a rule that was probably created years ago when the husband went to work for an employer for thirty years and the employer provided the husband and non-working spouse a retirement benefit for both their lives?) Or are you asking this legally? (I.e., what code section requires a QJSA form of benefit with spousal consent?)

Philosophically, E. That's what I was trying to ask. Profit sharing contributions are from the employer, too, so why not hold them to the same standard? No, wait, I don't want more spousal consent plans...

Point taken, Belgarath, but it's certainly the rare case nowadays where a new PS/401(k) isn't written to neet the QJ&SA exemption. And I've got plenty of profit sharing plans where I'm still carrying the "old money purchase" balance as a separate source still subject to QJ&SA; in fact, that is sort of what lead to the question in the first place.

So, not to sound like a typical 5-year-old, but, "Why?"

[Belgarath]

Because, the law requires it. As Lippy referenced, see 401(a)(11), and I believe (from an admittedly failing memory) ERISA 205. Additionally, there are regulations under 1.401(a)-20, and probably other applicable references that I haven't looked at recently or that don't come to mind immediately.

So the rule is, QJSA applies unless you fit one of the valid exemptions.

[wsp]

Because, the law requires it. As Lippy referenced, see 401(a)(11), and I believe (from an admittedly failing memory) ERISA 205. Additionally, there are regulations under 1.401(a)-20, and probably other applicable references that I haven't looked at recently or that don't come to mind immediately.

So the rule is, QJSA applies unless you fit one of the valid exemptions.

And here I thought you were going to say "Because I said so. Now don't sass me or you're liable to get a smack upside the head!"

[Guest mjb]

Because over 30 years ago some staff persons who drafted ERISA thought that as a matter of public policy pensions should provide a benefit to the surviving spouse who would outlive the worker in order to reduce the risk of poverty from having to live only on SS benefits. Most of the employees in the 1970's participated in retirement type plans, since 401k had not been invented.

[SMB]

Plus, as anyone who has been in this business knows (often, all too painfully!), "logic" and "the law" are not necessarily compatible concepts!