The Case of the Estranged Spousette

[Andy the Actuary]

A small company has shut down and has distributed benefits to the terminated employees prior to amending the Plan to terminate. All benefits have been distributed in a lump sum (surprise!). However, one participant is estranged from his wife and the wife refuses to sign the J&S waiver no matter how much talking. The participant is under NRA.

The lump sum is about $35K. The broker (and this is someone who understands DB plans) is having difficulty getting a highly- rated insurer to write a contract on this small case, in particular because the contract would have to offer the anytime lump sum option. Since neither the participant nor spouse are missing, the PBGC won't assume the liability.

My solution is simply to purchase an immediate J&S annuity assuming the participant will so elect.

Any alternatives?

[david rigby]

I agree with your solution to have the plan purchase an immediate J&S. (Unlikely an insurance company would want to sell a deferred annuity.) The process of completing the plan termination should not be held hostage to one participant/spouse inability or unwillingness to respond.

I did this several years ago in a similar situation. BTW, it should be whatever the plan defines as the QJSA, no options. But send a letter to the EE advising of this action, giving 30 days additional response time.

[rcline46]

Also check the exceptions to needing spousal consent. There is one for 'legally' separated couples.

[Andy the Actuary]

Also check the exceptions to needing spousal consent. There is one for 'legally' separated couples.

Wonderful. Thank you.

andy t.a.

[david rigby]

Yes, such exception does exist in the regs (along with something about "abandonment").

IMHO, the exception is irrelevant unless the plan provisions include it.

[Guest Sieve]

And that exception does not aply to an uncooperative spouse. The whole point is that if the spouse is uncooperative, then the result is j&s.

[rcline46]

An estranged, un-cooperative spouse does not mean 'legally separated' under the regs. I agree on this. However, the couple could be legally separated and someone who thinks a spouse must always sign would be missing a possible exception. The TPA needs more information.

[John Feldt ERPA CPC QPA]

Okay, so what's the difference between 'legally' separated and just plain separated? What constitutes legal separation?

If you are not 'legally' separated, are you acting illegally?

I can think of an example, like North Carolina, where I believe you cannot actually divorce until you've had legal separation for 12 months, but is that what this means?

[Andy the Actuary]

An estranged, un-cooperative spouse does not mean 'legally separated' under the regs. I agree on this. However, the couple could be legally separated and someone who thinks a spouse must always sign would be missing a possible exception. The TPA needs more information.

My propeller-head reading of IRS Reg. 401(a)-20 A-27 indicated that "legally separated" meant there was a court order in place to that effect. Further, foregoing spousal consent was permitted only if there was not a QDRO that called for spousal consent.

[david rigby]

If memory serves (and occasionally it does), the reg refers to legally separated and a court order. Those could be the same thing, but not so in all states.

For example, NC does require a husband/wife to live apart for at least 12 months before divorce. There is no requirement for court order, or any written documentation, to initiate this "living apart". This is exactly why the Reg. includes the requirement of a court order: to provide the written documentation, in addition to meeting the state's definition (formal or otherwise) of "legally separated".

[Guest Sieve]

And in some states (such as MI, I beleive) there is no such thing as legal separation, i.e. a court cannot sanction or give legal effect to a separation.

[AndyH]

And that exception does not aply to an uncooperative spouse. The whole point is that if the spouse is uncooperative, then the result is j&s.

Not necessarily.

If memory serves (and occasionally it does), the reg refers to legally separated and a court order. Those could be the same thing, but not so in all states.

Right.

I stumbled upon this when a very famous entertainer-client wanted an in-service lump sum but could not possibly get the wife to sign off. I said no dice (through client's attorney). He talked to some other lawyers and came back with a cite that allowed payment based upon a legal separation court order, even though it was filed in a foreign country (he was a non-US citizen). And we checked it out and agreed it was ok. And, yes, the document did accept such a waiver.

Apparently these are not unusual issues for the super famous and their lawyer entourages.

[Andy the Actuary]

It is now day 8 (actually many more days than that) in the Plan-Sponsor-Held-Hostage situation.

Participant is acting as his own attorney. At this juncture, there is no divorce, no legal separation, no QDRO, and no cooperation of estranged spousette to sign off. Worse, because the Plan provides for an option to defer payment of the lump sum and the lump sum is small (35K), the broker is having difficulty finding a highly rated insurance company who will issue the contract. The client ceased operating over a month ago.

At this juncture, it appears we have two practical options: (1) get the participant to elect an immediate J&100% annuity or (2) arrange a pow-wow with the client representative, participant and estranged spousette to ensure they understand the situation.

If both (1) and (2) fail, then there appears to be no course but to wait for a pleasant event!!

Any thoughts on how to dispose of this?

[J Simmons]

Andy the Actuary,

What prompted you to add your red post disclaimer:

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action. You should obtain appropriate tax, legal, or other professional advice.

Should we all be adding the disclaimer?

[John Feldt ERPA CPC QPA]

Find another broker who will find an annuity company that will do that type of annuity (expect a high cost and prepare the client who pays you also, for that cost)?

[david rigby]

Perhaps I misunderstand the facts. It seems to me that, if you are purchasing an annuity, then you no longer care about EE and/or spouse signoff (although perhaps the insurance company cares); the only course of action is to purchase a QJSA. Perhaps you could give the EE a choice of other J&S options in the plan, but I'm not sure that is necessary.

The other possible action is to "threaten" to do this, as a trigger to get the EE/spouse to signoff on the lump sum.

BTW, I assume the plan is purchasing the annuity for $x per month, no matter what it costs, rather than taking the $35K and purchasing whatever annuity it will buy.

[Andy the Actuary]

Andy the Actuary,

What prompted you to add your red post disclaimer:

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action. You should obtain appropriate tax, legal, or other professional advice.

Should we all be adding the disclaimer?

I have had the uneasy feeling that there are non-professional posters not only seeking advice but giving the impression they will run with it. The probabilities are small that the fans in my house could start smelling but why not with (at this point) no effort, take measures to mitigate this risk? What does it hurt?

In any event, feel free to adopt my signature verbatim or with wordsmithing to your posts. I believe others may be following with my CYA posture.

[Andy the Actuary]

Perhaps I misunderstand the facts. It seems to me that, if you are purchasing an annuity, then you no longer care about EE and/or spouse signoff (although perhaps the insurance company cares); the only course of action is to purchase a QJSA. Perhaps you could give the EE a choice of other J&S options in the plan, but I'm not sure that is necessary.

The other possible action is to "threaten" to do this, as a trigger to get the EE/spouse to signoff on the lump sum.

BTW, I assume the plan is purchasing the annuity for $x per month, no matter what it costs, rather than taking the $35K and purchasing whatever annuity it will buy.

You are correct. It is a DB plan and the pension rather than lump sum is guaranteed. So, we have to buy an annuitiy to provide for the pension and options.

It is doubtful the participant would sign off on an immediate J&S pension. If we could eliminate the deferred J&S option (potential 411(d)(6) problem), that would solve much. The last thing the Plan Sponsor wants/needs to do is to become embroiled in this mess.

I would simply see the Plan Sponsor getting the parties together and laying out how this all works. We can say here's the lump sum and one alternative is for them to agree (in whatever manner they trust) to remove the pension plan from their divorce proceedings. I.e., the spousette would sign off on the lump sum and would work out payment with the husband. The other is for them to employ an attorney and get a QDRO approved by a court.

[J Simmons]

Andy the Actuary,

What prompted you to add your red post disclaimer:

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action. You should obtain appropriate tax, legal, or other professional advice.

Should we all be adding the disclaimer?

I have had the uneasy feeling that there are non-professional posters not only seeking advice but giving the impression they will run with it. The probabilities are small that the fans in my house could start smelling but why not with (at this point) no effort, take measures to mitigate this risk? What does it hurt?

In any event, feel free to adopt my signature verbatim or with wordsmithing to your posts. I believe others may be following with my CYA posture.

Thanks, ATA. I did!

[Blinky the 3-eyed Fish]

In any event, feel free to adopt my signature verbatim or with wordsmithing to your posts. I believe others may be following with my CYA posture.

I did too. Good thing. Now I can sleep at night. Oh wait, fish don't sleep. Uh..., I will resume swimming in water laced with my fish dung.

[tymesup]

Er, do you do that other thing that W. C. Fields said you folks do in water?

Not that there's anything wrong with that.