Beneficiary Designations

[Randy Watson]

Section 401(a) reuqires spousal consent when a participant wants to name a beneficiary other than the participant's spouse where the plan's only form of distribution is a lump sum. I'm not sure that makes much sense when no consent is required to receive a distribution. I doubt there is a way around this requirement, but I'd like to hear any suggestions.

[Guest andmik]

Section 401(a) reuqires spousal consent when a participant wants to name a beneficiary other than the participant's spouse where the plan's only form of distribution is a lump sum. I'm not sure that makes much sense when no consent is required to receive a distribution. I doubt there is a way around this requirement, but I'd like to hear any suggestions.

Randy,

I believe the purpose of the spousal consent is to avoid the participant leaving the assets to someone other than the spouse without knowledge/consent by the spouse.

I am not sure I see the connection with the distribution aspect in your facts. I presume it is the participant taking the distribution without consent. The assets are not the beneficiary's until the death of the participant, and therefore no beneficiary has any right to the assets until participant has died, therefore should not be required to consent to the distribution by the participant.

[Randy Watson]

Maybe it's just me that can't grasp the reasoning behind this or maybe I could have been clearer in identifying the issue. Let me try again.

The plan does not require spousal consent for a distribution since the plan makes distributions in the form of a lump sum. However, a participant would need the spouse's conent to name a beneficiary other than the spouse. It doesn't make sense to me why a consent is needed to name a non-spousal beneficiary. Tell me if I'm wrong, but couldn't the participant receive a distribution, roll that amount to an IRA that names someone other than his spouse as the beneficiary and do all of that without the spouse's consent?

[J2D2]

Ours is not to reason why . . .

[Guest andmik]

Ours is not to reason why . . .

Randy, I agree about rolling to an IRA, but as you know the IRA is not a qualified plan. Even more interestingly is that a QJSA plan only needs to get spousal consent on the bene form if trying to leave more than 50% of account balances to others.

Ultimately though why is the spousal consent such a bad thing to require on the beneficiary designation form?

[Randy Watson]

I personally don't think spousal consent is a bad concept. With that said, I'm guessing that there are a few hundred thousand qualified plan participants who would disagree with me.

[Guest andmik]

I personally don't think spousal consent is a bad concept. With that said, I'm guessing that there are a few hundred thousand qualified plan participants who would disagree with me.

Randy, Can't argue with you there, but those are the same participants that think they should be able to take an in-service withdrawal for any reason ant anytime of their entire vested account balance and not have to have a hardship reason or be 59 1/2, and the rules are not that friendly in that area either.

In the end, I think that most reasonable people understand the premise that if they want to leave their spouse out in the cold at least within the qualified plan world they should have to get consent from him to do so.

[J Simmons]

I concur with Randy.

In a non-QJSA profit sharing plan, if the employee dies before he quits, retires or may take an in-service distribution, spouse takes all as death benefits (except to the extent spouse consented to someone else being named the death beneficiary).

If employee quits, retires or may take an in-service distribution, employee can remove all from profit sharing plan and place into an IRA and name whomever as the death beneficiary, leaving the spouse out in the cold.

Hard to imagine how that makes any sense, from a public policy perspective.

[wsp]

In all reality is there anything to keep someone from simply noting their marital status as single and doing the same thing in a qualified plan? If someone is going to be manipulate the system to avoid making their spouse the beneficiary I would think it wouldn't be a stretch for them to deliberately not notify HR of his correct marital status or his spouse of his retirement plan balance/options.

Certainly the rules mandate it, but can't apply the rules correctly if all the facts are not known.

[Randy Watson]

"Manipulate" is such a negative word. My suggestion with the IRA appears to be perfectly fine from a qualified plan perspective. Participants in community proerty states might encounter some issues, but it's still within the rules. In my opinion, the difference between that and the participant making misrepresentations is more than a stretch....that is crossing the line. But you are right that they could do it and in a large plan might be able to get away with it.

[PLAN MAN]

I think you are looking for an answer in the wrong place. There are certain requirements in the Code that must be met in order for a profit sharing/401(k) plan to not be subject to the QJSA rules. One of those requirements is the plan must require the participant's spouse be the 100% primary beneficiary of the participant's account unless the spouse consents to the naming of another beneficiary.

Congress was very concerned that nonworking spouses would be left without any benefits if the participant died before retirement. So it is either QJSA or 100% primary beneficiary for the spouse. I hope this helps.

[Randy Watson]

Thanks, Plan Man. We know the rules and the reasoning behind requiring spousal consent to name a non-spousal beneficiary. My question is about the fact that you don't need spousal consent for the actual distribution. If what you say is true and Congress was "very concerned" about the interests of non-working spouses why does this gaping hole exist?

[namealreadyinuse]

It makes sense to me. The money is the participant's during life and she could take it as salary (401(k)), defer it, and take a distribution if she wants. There is no spousal consent for loans, hardships, dists, election changes, etc. When she dies, it should go to her husband unless the husband has consented to it going somewhere else.

That seems logical to me.

[Randy Watson]

The participant is free take a distribution without spousal consent. He can then go to the track and spend it all or roll it to an IRA and name his girlfriend as the beneficiary. But, if it stays in the plan it must go to the spouse. Not very logical to me.

[masteff]

Thanks, Plan Man. We know the rules and the reasoning behind requiring spousal consent to name a non-spousal beneficiary. My question is about the fact that you don't need spousal consent for the actual distribution. If what you say is true and Congress was "very concerned" about the interests of non-working spouses why does this gaping hole exist?

It's not much of an answer but I'd bet someone said "we'll go back and fix that other spot later". Only they never did. Also, legislation that's written at different times, ends up with different results.... like the multiple other discrepancies between IRAs and 401(k)s.

[oriecat]

Interesting discussion... our plan requires spousal consent for loans (I'm not sure about other inservice distributions...) so I thought that's just how it was. I guess it was a plan decision.

[Guest mjb]

Isnt the distinction in spousal benefits rooted in the concern by ERISA's drafters that retirement type plans (DB/MP) which paid benefits as an annuity were the predominent type of plan in 1974 and therefore should provide for a spousal annuity to prevent the surviving spouse from being left destitute after the employee dies and the only equivalent under employer PS type plans that only provided a lump sum instead of a life time benefit was to provide for the pre retirement spousal death benefit. In 1974 IRAs were not considered to be an employer provided benefit and therefore were not considered to provide significant benefits which would require spousal rights.

[Bob R]

Randy,

You're correct - it doesn't make much sense. The spouse is protected in the event of death, but there's nothing preventing the participant from spending everything while alive.

Over the years there has been proposed legislation to make the QJSA rules applicable to all plans, not just MP and DB plans. However, that legislation has not gone anywhere. So, we're stuck with the rules today that don't really protect spouses while a participant is living - unless they get divorced and then the QDRO is available.

[Guest mjb]

The reason the QJSA legislation doesnt go anywhere is that it would impose administrative burdens on PS plans to find an annuity carrier for J & S benefits and costs which would be passed on the plan participants whgo did not elect an annuity. Most PS balances are too small to qualify for bids from ins co issuing annuities and would impose costs on plan participants who elect these options. In addition, plan participants would opt out of annuities which will eliminate any revenue for the carriers.

[Bob R]

The same is probably true with those MP plans that are still in existence. And, we know that in small DB plans that offer a lump-sum, very few elect annuities. So, while I agree it's a waste of resources, perhaps the better solution is just to require spousal consent for any distribution to a participant (and get rid of the J&S requirements for all plans).