Terminating Plan - One participant cannot obtain spousal consent

[pixiebear]

We are terminating a PBGC covered plan and the distribution deadline is approaching. One participant cannot obtain spousal consent for the lump sum distribution because his wife refuses to sign the consent form so we will have to purchase an annuity. I've never needed to purchase an annuity for 1 person. The companies that we work with on annuity purchases have limits and he has a very small benefit. Any ideas?

[Effen]

There are brokers who can help - I will PM you.  You can also go direct to the carriers.  Did you try Midland and/or Mutual of Omaha?  They will usually quote.  I will send you a few options via PM for brokers who might be able to help.

[david rigby]

Thirty+ years ago, I was terminating a plan and had a similar situation, and the EE was only about age 40.  The LS was small, only about $4K.  Insurance companies did not want to sell a deferred annuity that small (or at all).  Thus, the only alternative was an immediate J&S annuity, with a corresponding small monthly amount.  We described this to the participant, something like, "you can get $4,000 now or you can get a 50%J&S of $16 per month" (don't do the math, it's just an example).  Upon hearing the alternatives, the participant (and spouse) decided to elect the Lump Sum.  The original questioner might get similar "simplification" by sharing some numbers with the participant.

[Peter Gulia]

Consider:

Alfonso Gomar alfonso.gomar@dietrichannuity.com (610) 279-9455

https://www.dietrichannuity.com/contact-us/

https://www.dietrichannuity.com/group-annuity-products/pension-plan-terminations/

[fmsinc]

Try MetLife.  They set up annuities for TSP plan participants. See attached.TSP Annuities MetLife.pdf

The language on the PBGC website states: "A rollover of an amount exceeding a plan's de minimis cash-out level is subject to spousal consent regardless of whether the participant wants the lump sum to be rolled over into another plan or IRA or paid directly by check or direct deposit." 

One would expect that the purchase of an annuity would also require spousal consent.  See 29 CFR 4022.8(c)(3) at  - https://www.law.cornell.edu/cfr/text/29/4022.8

What happens if the Participant in your case cannot get his wife to consent?   

He can always file for divorce and transfer her share via a QDRO  

David

[Effen]

spousal consent is not required for an annuity purchase.  

[fmsinc]

EFFEN:  Can you cite me the law or CFR regs that provides that "spousal consent is not required for an annuity purchase".

Thanks.  

 

[Bri]

The QJSA is what he'd get without any signature.  If the guy wanted a single life annuity the spouse would still have to sign away her position.

[david rigby]

4 hours ago, fmsinc said:

EFFEN:  Can you cite me the law or CFR regs that provides that "spousal consent is not required for an annuity purchase".

If we add "J&S" in front of "annuity", is there any doubt about this answer?  We assume the plan document, like every document I've even seen, will allow the satisfaction of the benefit promise via purchase of such an annuity.

[fmsinc]

A little research shows at the survivor annuity in a J&S annuity does not have to be spouse of the first annuitant.  [Or does that not apply to PBGC terminations?]   Everyone seems to agree that for PBGC termination purposes a J&S annuity is not a "distribution" for spousal consent purposes.  If that is case, what protection is provided to the spouse in pixiebear's fact pattern if the annuitant chooses, for example, his sister and not his wife as the 2nd annuitant?   

The PBGC Q&A page states: "A rollover of an amount exceeding a plan's de minimis cash-out level is subject to spousal consent regardless of whether the participant wants the lump sum to be rolled over into another plan or IRA or paid directly by check or direct deposit."  It does not mention J&S annuity payouts. 

29 CFR Subpart 4041 -  https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XL/subchapter-E/part-4041/subpart-B?toc=1

29 CFR Subpart 4041, Section 4041.21(b)(2) -  https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XL/subchapter-E/part-4041/subpart-B/section-4041.21

states that: 

"(2) Alternative treatment of majority owner's benefit.  A majority owner may elect to forgo receipt of his or her plan benefits to the extent necessary to enable the plan to satisfy all other plan benefits in accordance with § 4041.28. Any such alternative treatment of the majority owner's plan benefits is valid only if—

(i) The majority owner's election is in writing;

(ii) In any case in which the plan would require the spouse of the majority owner to consent to distribution of the majority owner's receipt of his or her plan benefits in a form other than a qualified joint and survivor annuity, the spouse consents in writing to the election;

(iii) The majority owner makes the election and the spouse consents during the time period beginning with the date of issuance of the first notice of intent to terminate and ending with the date of the last distribution;

(iv) Neither the majority owner's election nor the spouse's consent is inconsistent with a qualified domestic relations order (as defined in section 206(d)(3) of ERISA); and"  (Emphasis supplied.)

Is the Participant in pixiebear's scenario the "majority owner"?  If not, it looks like spousal consent may not be required at all. 

But I would not risk being sued for legal malpractice, or for breach of fiduciary duty if I was the Plan Administrator, without finding all of the applicable Code provisions and regulations. 

The road to hell is paved with assumptions and crossed fingers. 

David

 

 

[Effen]

19 hours ago, fmsinc said:

A little research shows at the survivor annuity in a J&S annuity does not have to be spouse of the first annuitant.

Maybe, but that isn't what we are talking about.  The only way for that statement to happen, if for the existing spouse to sign off. 

As David, and Bri, and I stated, the OP was asking about purchasing an annuity during the plan termination process. When the plan is purchasing an annuity under this situation, or in a derisking move that doesn't involve a plan termination, the annuity purchased must provide all the same rights and features of the plan document.  Therefore, the annuity purchase is not a distribution to the participant.  The participant is not involved in the purchase.

If the LS was a permanent feature of the plan, the annuity purchase would still need to provide that option in the future, as well as any other optional form of payment in the plan document.  Once the participant reached an age they were eligible to receive the benefit, the spousal consent rules would still apply in order for them to receive the benefit from the ins. company.   

If the participant can get spousal consent at a future date, or if they no longer has a spouse, then they can take a lump sum later.  If he still has a spouse, and they don't consent to a non-spousal option, his only option would be the QJSA/QOSA options in the plan.

If you need a site, read REA from 1984.

Not responding to the rest of your comments as you are hanging a picture in the wrong gallery.  

[fmsinc]

Effen:  You said that, "When the plan is purchasing an annuity under this situation, or in a derisking move that doesn't involve a plan termination, [DSG: But it does in this case.] the annuity purchased must provide all the same rights and features of the plan document.  Therefore, the annuity purchase is not a distribution to the participant.  The participant is not involved in the purchase."

It is my understanding that "derisking" is what happens when the Plan pays out an immediate lump sum to avoid the potential cost of a future annuity payout that may exceed the amount of the lump sum and thereby reduce the risk of a larger payout.  Those risks include the longevity risk, investment risk, and interest rate risk.  See https://actuary.org/pension-risk-transfer/

What you are suggesting is that a transfer of the Plan's annuity payout risk to an insurance carrier is a form of derisking.   I can see the logic of that. But we seem to be concluding that lump sum payout is at least a form of derisking but that the plan is not terminating ,which it certainly is, and that due to some law or regulation as yet undiscovered the spouse must consent to the lump sum but not the derisking act of buying an annuity.  Since I know for certain that lump sum payments are most often less than the actuarially determined present value of a future stream of income (most often by the selection of out of date mortality tables).  And wouldn't it make a difference if the Participant has or has not reached earliest or normal retirement age or is or is not in pay status?      

I don't claim to be an expert in this area.  That's why I look for enlightenment and illumination from you fine folks. I vividly recall my first day in statistics 101 at college where the professor told us about the statistician (or actuary) who, when offered to buy a watch that lost one second a day or a watch that didn't run at all, opted for the latter because statistically the watch that didn't run at all was accurate twice a day and the watch that lost one second a day was only accurate once every 17 years.  Then there was the story of the statistician who refused to parachute from a burning airplane since statistically flying is safer than parachuting.   And, of course, the statistician believes that if you put your left foot in boiling water and your right foot in ice water, on the average you are comfortable.

David  

 

      

[Effen]

When actuaries speak of "derisking", we are talking about shifting risk from the plan sponsor to someone else.  Yes, a lump sum window is a form of derisking where the risk is shifted to the participant.  Annuity purchases are also a form of derisking because the risk is shifted from the plan sponsor to the insurance company.  

The economics of derisking are part of the analysis.  Most large plans derisk when interest rates are higher because the value of the liability is lower, and they can often derisk without any financial impact on their accounting.  Plans that are paying maximum PBGC premiums derisk to save PBGC premiums.  When you are paying $750+/person in PBGC premiums, the administrative cost associated with a lump sum window or annuity purchase is usually less than the savings in year 1 with the reduced participant count.  IOW, there are many reasons for plans to derisk. 

On 9/14/2026 at 5:33 PM, fmsinc said:

Since I know for certain that lump sum payments are most often less than the actuarially determined present value of a future stream of income (most often by the selection of out of date mortality tables).  And wouldn't it make a difference if the Participant has or has not reached earliest or normal retirement age or is or is not in pay status?   

I would argue that statement is not true.  The lump sum is exactly the present value of a future stream of income.  That is how it is determined.  417(e) provides the minimum lump sum permitted based on current unisex mortality and relatively current interest rates.  You could argue is it under-paying females and over-paying males, but Congress doesn't let plans sex distinct mortality for lump sum.  (You can for annuity purchases.) 

If interest rates are equal, than I agree the annuity purchase is generally higher than the lump sum, but that is related to expense loads changed by the carrier for future administration.  If a plan is using 417(e) rates, those rates must be updated at least annually, but they can be updated more frequently.  Annuity purchases are based on rates in effect at the time of purchase.  Therefore, there is often a disconnect that causes lump sums to be more / less favorable than annuities depending on interest rates at the time of purchase.

[fmsinc]

On 9/15/2026 at 6:04 PM, Effen said:

The lump sum is exactly the present value of a future stream of income.  That is how it is determined.  417(e) provides the minimum lump sum permitted based on current unisex mortality and relatively current interest rates

was Effen's response to my comment that, "Since I know for certain that lump sum payments are most often less than the actuarially determined present value of a future stream of income (most often by the selection of out of date mortality tables).

I live in a world where divorcing couples are dividing pension and retirement benefits and often need to know the present value of retirement and survivor annuity benefits.  I refer my client to a well regarded actuary even though I always disagree with his conclusions.  The source of my angst is that so much of the information he uses to make such a valuation is speculative. 

In my humble opinion, the following is a list of important factors interspersed with the assumptions what he wants to make.  

    (i) the gender, age and life expectancy of the Participant;  [Male and female tables are okay, but not unisex data]

    (ii) the gender, age and life expectancy of the Alternate Payee; [Male and female tables are okay, but not unisex data]

    (iii) whether the mortality tables used to compute life expectancies are reliable if one or both parties has a medical history of, e.g., 3 heart attacks or cancer;  [My first pension PV case in 1984 involved a 56 years old client with a history of 3 heart attacks.  His soon to be ex-wife wanted a lump sum payout rather than an if, as and when payout at the time of his retirement.  Her actuary valued my client's pension at $650,000.  In response to my cross examination he admitted that the mortality tables he was using were designed for the "generic man" and did not in fact apply to my client.  My law partner at the time was a Maryland State Senator who sponsored a bill that changed the Maryland Code to provide that "if, as and when" is the default form of payout, not a "lump sum" except in limited circumstances.  That is now the law of Maryland.]  

   (iv)  the age of the Participant when he/she elects to retire;  

    (v)  the amount of the Participant’s retirement benefits from which the amount of survivor annuity benefits is computed [See comments below re: actuarial equivalence per 29 U.S.C. §§ 1055(d)(1)(B) and (d)(2)(A)(ii)]; 

    (vi)  the Federal and state marginal income tax rates applicable to the future payment of retirement and survivor annuity benefits to the Alternate Payee; 

    (vii) the COLA rates applicable to the retirement annuity benefit from and after divorce to the date the Participant retires and thereafter  applicable to the survivor annuity until the Alternate Payee’s death; 

    (viii) the applicable discount rate required to compute the present value of the future stream of retirement and survivor annuity benefits - PBGC ERISA 1044 Yield Curves or the GATT rate -  monthly average of the 30-year Treasury yield rate.   

    (ix) the number of busses passing the Participant’s house every day what might run him over before his time render meaningless all of these calculations; and

    (x) the willingness of the Judge to conclude that the number of  speculative "facts" make it impossible to come up with a reliable present value. 

But there is more.  It is disconcerting to see so many cases where actuaries employed by Plan Administrators will not hesitate to use out of date mortality tables and discount rates to manipulate actuarial equivalence in a way that favors the plan.  See attached articles.  The attached Kellogg Complaint  explains it better than I can.   

So you will understand that I am not able to accept your assertion that, "The lump sum is exactly the present value of a future stream of income" when the truth is that actuaries have made it appear so.

Actuarial Equivalence-Daniel Aronowitz-5-14-24.pdfMercer Update May 4, 2026.pdfKellogg-Complaint_092023.pdfLegal Update _ Sixth Circuit, Missouri District Court Differ as to Whether ERISA Requires Updated Mortality Tables _ Husch Blackwell.pdfActuarial Equivalence - Trucker Huss April 30 -2026.pdf

 

David  

[Effen]

I agree that different assumptions will produce different answers, but to say "lump sum payments are most often less than the actuarially determined present value of a future stream of income", is just wrong.  The lump sum IS the present value of the future payment, but they are based on a specific set of assumptions, including mortality expectations.  Changing the assumptions produces a different answer, but that doesn't make one answer wrong and the other one right.  It's just math.   

I think we are done here.  Thank you for the comments.  

[fmsinc]

One more question directed to Effen. 

Assume that my divorce client, the husband, has $200,000 in his 401(K) Plan account.  In order to avoid giving his wife an immediate lump sum payment of $100,000 he decides to purchase a QLAC (perhaps expecting that she will predecease him).  Pursuant to Federal law his wife must me named as an Alternate Payee of a 50%QJSA. 

For purposes of this example we have to assume that a QDRO will not supersede a QLAC already in place.  We don't know for sure. And we must also assume  that the former spouse must be given notice to and must consent to the purchase of the QDAC.  We don't know that for sure.   

You are asked to determine the present value of that QJSA (but you cannot look at the 401(k) statement that sets forth the present value as of the date of that statement - $200,000).  Will the actuarial assumptions result in a PV of $200,000?   

David