Spousal Consent

[Nassau]

A participant in the ABC Company is looking to term her account. Her balance is over 5000 so she is required to have spousal consent signed and notarized. She claims that this is going to be a issue because she is a abusive marriage and has legal court documents that reflect this information. If she can provide court documents, would she be able to get a exemption from having to have spousal consent signed and notarized?

Please provide your thoughts and the Code and/or Regs that provide exemptions from spousal consent?

[jpod]

What is the reason for requiring spousal consent? If the answer is because this is an erisa-plan, the solution (if any) may be different than if the answer was, merely, because the plan says so, or because someone automatically assumed it was required.

[Peter Gulia]

Nassau, your starting point might be to consider carefully which person is your client, and perhaps more importantly, who is not your client.

For example, if your client is the plan administrator’s recordkeeper, it might have nothing to consider until an instruction is submitted to it. Or if your client is the plan’s administrator, it might have nothing to consider until it has received a claim to approve or deny. (Your description of the hypothetical facts suggests that the participant is not your client.)

If a need develops, read carefully all of the plan’s documents. That the participant’s account balance is more than $5,000 does not, by itself, require a qualified election. An individual-account (defined-contribution) plan might provide a 100% death benefit to a surviving spouse, and following this might not require a qualified election for a retirement distribution if the participant cannot or does not elect that it be paid as a life annuity. See ERISA § 205(b)(1)©.

If an ERISA-governed plan (as applied to the participant’s claim) ordinarily requires a spouse’s consent to complete the participant’s qualified election, only three possibilities would excuse the spouse’s consent: (1) there is no spouse, (2) the spouse cannot be located, or (3) the spouse’s consent cannot be obtained “because of such other circumstances as the Secretary of the Treasury may be regulations prescribe.” ERISA § 205©(2)(B). (That third category might apply only if the rule is not contrary to the United States Constitution and otherwise is valid law.)

Concerning whether there is a spouse, at least one court found that even a finding of fact that the spouse had abandoned the participant would be irrelevant. In re Lefkowitz, 767 F. Supp. 501, 507-508 footnotes 11-12 (S.D.N.Y. 1991), aff’d sub nom. Lefkowitz v. Arcadia Trading Co. Ltd. Defined Benefit Pension Plan, 969 F.2d 600, 16 Employee Benefits Cas. (BNA) 2516, Pens. Plan Guide (CCH) ¶ 23880Z (2d Cir. 1993).

On the idea that a participant’s spouse “cannot be located”, at least one court decision suggests that an administrator, to meet its fiduciary duties, must not simply accept the participant’s statement, but instead must do something independently to evaluate whether the spouse can be located. Lester v. Reagan Equipment Co. Profit Sharing Plan, 1992 WL 211611, 1992 U.S. Dist. LEXIS 12872 (E.D. La. Aug. 19, 1992).

If the third class of possible excuse from requiring the spouse’s consent might apply, a possible excuse might be as follows:

Q-27: Are there circumstances when spousal consent to a participant’s election to waive the QJSA or the QPSA is not required?

A-27: Yes. .... Also, if the participant is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise. 26 C.F.R. § 1.401(a)-20 Q&A 27.

A lawyer who advises a plan fiduciary might consider advising her client that – while it might be proper to furnish information that the participant needs to understand the plan’s provisions – it is unwise for the fiduciary to attempt to advise the participant. Along with several other reasons, an act, even one that is obviously sound and in the participant’s interests under the terms and related law of the employee-benefit plan, could disadvantage other rights and interests of the participant.

The above suggestions are no more than a few incomplete ideas about how a lawyer might prepare to consider her client’s questions; and this is not advice to anyone.