Spousal Consent Requirements

[Stash026]

I've gotten two different responses to this from two people I trust.  In a 401(k)/Profit Sharing Plan, if a participant's account balance is less than $5,000 is spousal consent to a distribution (due to termination) required?

[My 2 cents]

Qualified ERISA defined benefit plan or defined contribution, unless specified otherwise in the plan document, spousal consent is unnecessary if the value of the total benefit is under $5,000.  The law and regulations do not require spousal consent if the benefit is worth less than $5,000, so it is only if the plan specifically requires it that spousal consent is needed.

[K2]

Neither the participant nor the spouse need to consent.

 

[Mike Preston]

Make sure to check the cash-out threshold in the document.

[My 2 cents]

Some documents require participant consent if the benefit (or account) is worth more than $1,000 (i.e., plans where the plan administrator does not want to set up a default IRA provider), but in those instances, it is perfectly acceptable for the plan to not allow any payment method other than a lump sum if worth less than $5,000 and to not require spousal consent if worth less than $5,000.  That is, if the benefit is worth between $1,000 and $5,000, the plan might not force an immediate cashout, but at whatever point the benefits are to be paid, there is no requirement (unless imposed voluntarily by the plan) to allow any form of payment other than a lump sum  and there is no requirement (unless imposed voluntarily by the plan) to obtain spousal consent.  Further, in an underfunded defined benefit plan, lump sums under $5,000 (even if voluntary) may be paid without regard to IRC Section 436 restrictions, even if the plan has no involuntary cashout provisions.