spousal consent on a loan

[thepensionmaven]

Is spousal consent required for a participant to take a loan on his company's 401(K) plan?

[Belgarath]

Not generally required by law, but the plan may require it.

[Guest Lawrenceg]

As a spouse has an interest in the accrued benefit of a participant, the plan does not satisfy the survivor annuity requirement unless the plan provides that, at the time the participant's accrued benefit is used as security for a loan, spousal consent to such use is obtained. Consent is required even if the accrued benefit is not the primary security for the loan.

No spousal consent is necessary if, at the time the loan is secured, no consent would be required for a distribution under $5,000. Spousal consent is not required if the total accrued benefit subject to the security is not in excess of the cash-out limit ($5,000) in effect under §1.411(a)–11©(3)(ii).

The spousal consent must be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured. The consent must be in writing, must acknowledge the effect of the loan and must be witnessed by a plan representative or a notary public.

Participant consent is deemed obtained at the time the participant agrees to use his accrued benefit as security for a loan for purposes of satisfying the requirements for participant consent under sections 401(a)(11), 411(a)(11) and 417.

Change in status.

If spousal consent is obtained or is not required at the time the benefits are used as security, spousal consent is not required at the time of any setoff of the loan against the accrued benefit resulting from a default, even if the participant is married to a different spouse at the time of the setoff. Similarly, in the case of a participant who secured a loan while unmarried, no consent is required at the time of a setoff of the loan against the accrued benefit even if the participant is married at the time of the setoff.

Renegotiation.

For purposes of obtaining any required spousal consent, any renegotiation, renewal, or refinancing that revises a loan shall be treated as a new loan made on the date of the renegotiation, refinancing, renewal, or other revision.

Internal Revenue Code 1.401(a) -20 Q & A 24

[Belgarath]

Lawrence - your reply is worded such that I'm not certain if you are stating that spousal consent is required (other than for cash out distributions) or not. For a plan not subject to QJSA (and as this is a 401(k) plan, generally not subject to QJSA) then spousal consent is not required. My emphasis below. But maybe that is what you are saying.

Q–24: What are the rules under sections 401(a)(11) and 417 applicable to plan loans?

A–24: (a) Consent rules. (1) A plan does not satisfy the survivor annuity requirements of sections 401(a)(11) and 417 unless the plan provides that, at the time the participant's accrued benefit is used as security for a loan, spousal consent to such use is obtained. Consent is required even if the accrued benefit is not the primary security for the loan. 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). Spousal consent is not required if the plan or the participant is not subject to 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)–11©(3)(ii). The spousal consent must be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured. The consent is subject to the requirements of section 417(a)(2). Therefore, the consent must be in writing, must acknowledge the effect of the loan and must be witnessed by a plan representative or a notary public.