Loan Spousal Consent-Meaning of accrued benefit

[Guest KurtF]

Clarification of §1.401(a)-20 Q24

Scenario: Plan requires spousal consent for loans. Participant balance is $2,000 deferrals, $4,000 Match. Total Account Balance is $6,000. Match is 40% vested therefore vested account balance is $3,600. Loan has been requested for $1,800.

Is spousal consent REQUIRED because the the total account balance is $6,000. Or is spousal consent NOT REQUIRED because the the total vested account balance is $3,600.

Sidebar: So does "total accrued benefit" mean total balance in account or total vested balance.

§1.401(a)-20. Requirements of qualified joint and survivor annuity and qualified preretirement survivor annuity

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)-11T©(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.

[masteff]

Had to check my CCH Master Pension Guide for the correct cite...

Per 411(a)(7), for a DC the accrued benefit is the balance of the employee's account.

411(a) generally discusses accrued benefit and vesting. From the usage, the nonvested portion of the account is part of the accrued benefit. (And my CCH guide says the same.)

[Guest KurtF]

So the answer would be Yes, spousal consent REQUIRED because the the total account balance is $6,000.

[Guest Sieve]

Spousal consent for a distribution is only required if the "nonforfeitable accrued benefit" exceeds $5,000. (See IRC Sections 417(e)(2)(A) & 411(a)(11)(A), and Treas. Reg. Section 1.417(e)-1(b)(2)(i), and the language from the Q&A you quoted: "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) . . . or if the total accrued benefit subject to the security [i.e., $3,600 here] is not in excess of the cash-out limit . . .") Of course, no spousal consent is required at all if the plan is not subject to the QJ&S rules, unless the plan requires it.

So, if this is a straight-up 401(k) plan, I'd say the answer to your question is probably NO, consent is not required--subject, of course, to what the plan document says, in which case the document will tell you what size account balance or nonforfeitable account balance is subject to spousal consent.