QLACs and QDROs

[fmsinc]

It is now September 18, 2026.  

26 CFR §1.401(a)(9)-6(q)(3)(vii)(C)  - https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-6

states: 

“(vii) Treatment of former spouses —

(A) In general.  The payment of survivor benefits to the employee's former spouse under an annuity contract will not cause the contract to fail to satisfy the requirements of this paragraph (q)(3) merely because the divorce between the employee and that former spouse occurred after the contract is purchased, provided that a qualified domestic relations order described in section 414(p) (or, to the extent provided in paragraph (q)(3)(vii)(B) of this section, a divorce or separation instrument) satisfying the requirements of paragraph (q)(3)(vii)(C) of this section has been issued in connection with the divorce.

(B) [Reserved]

(C) Applicable requirements.  This paragraph (q)(3)(vii)(C) is satisfied if the qualified domestic relations order (or divorce or separation instrument) issued in connection with the divorce—

(1) Provides that the former spouse is entitled to the survivor benefits under the contract;

(2) Provides that the former spouse is treated as a surviving spouse for purposes of the contract;

(3) Does not modify the treatment of the former spouse as the beneficiary under the contract who is entitled to the survivor benefits; or

(4) Does not modify the treatment of the former spouse as the measuring life for the survivor benefits under the contract.”

My issues are the same. 

Facts:  John and Mary are married.  Mary is guilty of adultery and John is planning to file for divorce.  He wants to convert his 401(k) Plan to a QLAC.  He concludes that a QLAC distribution that allows him to delay his RMDs is a better option than having the Court award Mary an immediate lump sum following the entry of the Judgment of Divorce.  John is concerned that if Mary gets a lump sum and dies after she has married her paramour, her share of John's 401(k) will pass to her paramour.    

John walks into the Plan Administrator's office and asks, "Do I need to give notice to Mary and/or have her consent my contemplated purchase of a QLAC?"  The answer should be "no" since the QLAC will be in the form of a 50% QJSA where spousal consent is not required.  Correct me if I am mistaken. 

If the Plan Administrator's answer is that spousal consent is not required, the second question (from my Benefitslink blog) is whether at the time of a future divorce a state Court can enter a  QDRO that will supersede and thereby void the election of the QLAC and award Mary an immediate lump sum?  

What is John retires and rolls his 401(k) into an IRA.  Are the answers above the same for IRA accounts? 

I hope you can help.  This is the real world for my clients. 

Thanks, 

David 

[Peter Gulia]

DSG, לְשָׁנָה טוֹבָה תִּכָּתֵב וְתֵחָתֵם.

I’ll reply only to your query about whether a QLAC purchase under an employment-based retirement plan requires a participant’s qualified election with the participant’s spouse’s consent.

From context, I guess your query is about an individual-account (defined-contribution) retirement plan that is ERISA-governed; provides participant-directed investment; is subject to ERISA § 205 [29 U.S.C. § 1055] and ERISA § 206(d)(3) [29 U.S.C. § 1056(d)(3)]; states survivor-annuity, qualified-election, and spouse’s-consent provisions no less than ERISA § 205 commands (and to meet Internal Revenue Code § 417’s tax-qualifying conditions); and states at least ERISA § 206(d)(3)-required provisions to follow a qualified domestic relations order (QDRO).

If an individual-account retirement plan allows a participant to direct investment in a QLAC:

The portion a participant directs to be invested in a QLAC is subject to the plan’s survivor-annuity provisions (ERISA § 205 and Internal Revenue Code § 417) when the annuity becomes irrevocable.

(By contrast, if the annuity contract provides a right to surrender the contract for a cash-surrender value and reinvest the amount under the retirement plan’s other investment alternatives with that account balance subject to the plan’s nonannuity ERISA § 205 100% death-benefit protection for a surviving spouse, a plan need not require a participant’s qualified election with the participant’s spouse’s consent until the deferred annuity becomes irrevocable.)

Unless needed survivor-annuity benefits are subsidized or otherwise sufficiently provided, a QLAC does not meet a plan’s ERISA § 205 survivor-annuity provisions—even if the deferred annuity would, but for its annuity starting date, be otherwise a qualified joint and survivor annuity. Consider how that’s so if the participant’s death before the QLAC’s annuity starting date could result in the participant’s spouse not getting survivor-annuity protection for the period before the QLAC’s advanced-age annuity starting date.

Thus, a participant’s direction to invest in such a QLAC requires the participant’s ERISA § 205 qualified election with the participant’s spouse’s consent.

See, IRS, Application of survivor annuity requirements to deferred annuity contracts under a defined contribution plan, Rev. Rul. 2012–3, 2012-8 I.R.B. 383 (Feb. 21, 2012) (law, analysis, and holding for assumed facts situation 3), available at https://www.irs.gov/pub/irs-irbs/irb12-08.pdf.

Under Reorganization Plan No. 4 of 1978, the Treasury department, including its Internal Revenue Service, has interpretive authority for ERISA § 205. Reorganization Plan No. 4 of 1978 (Aug. 10, 1978), reprinted in 43 Fed. Reg. 47713 (Oct. 17, 1978), 92 Stat. 3790 (1978), Pub. L. No. 98-532 (Oct. 19, 1984) (ratifying the reorganization plan), 98 Stat. 2705 (1984), as amended Tax Reform Act of 1986, Pub. L. No. 99–514, § 2 (Oct. 22, 1986), Pension Protection Act of 2006, 100 Stat. 2095; Pub. L. No. 109–280, title I, § 108(c), formerly § 107(c) (Aug. 17, 2006), 120 Stat. 820, renumbered § 108(c), Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, Pub. L. No. 111–192, title II, § 202(a) (June 25, 2010), 124 Stat. 1297, 5 U.S.C. app., 29 U.S.C. § 1001 (executive documents under editorial notes), available at https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/executive-orders/4, at § 101.

A retirement plan and annuity contract could be designed to protect a spouse’s ERISA § 205 rights such that a participant’s direction to invest in a QLAC would not require a qualified election with the participant’s spouse’s consent. But those provisions might defeat a purpose your hypothetical describes.

If a QLAC annuity purchase is not completely irrevocable because the contract allows a cash surrender or other undo feature, consider whether a qualified domestic relation order can command that the participant’s right be exercised, putting an amount in a nonannuity account balance available for a QDRO division.

If so, a QDRO distribution to a participant’s spouse or former spouse might be provided as soon as the participant’s ERISA § 206(d)(3)(E)(i) earliest retirement age (no later than the participant’s age 50, even if the participant then could not get a distribution. Or, a plan might allow a QDRO distribution without waiting for an earliest retirement age. See I.R.C. (26 U.S.C.) §§ 401(a)(13)(C) (flush language), 414(p)(9); 26 C.F.R. § 1.401(a)-13(g)(3), § 1.403(b)-10(c); H.R. Conf. Comm. Rep. on Pub. L. No. 99-514 (Tax Reform Act of 1986), 99th Cong., 2d Sess. II-858 (1986); IRS Ltr. Rul. 88-37-013 (issued June 7, 1988).

Remember the BenefitsLink neighbors’ RTFD admonition to Read The Fabulous Documents. That includes not only documents governing the plan but also the annuity contract.

This is not advice to anyone.

[fmsinc]

Thanks for the good wishes.  I have atoned for my sin and have a clean slate going forward. 

Thanks also for the time you spent responding to my questions.  My concern about ERISA qualified defined contribution Plans that are morphing into defined benefit plans thanks to SECURE has been generated by dealing with TSP distribution options.  See attached TSP booklet "Distributions" at pages 3, 4, and 5 and page 10 were it says:

"Spouses’ Rights
The Federal Employees’ Retirement System Act of 1986, which created the TSP, provides certain rights to spouses of participants. These rules do not apply to beneficiary participants. If you are a married FERS, CSRS, or uniformed services participant (even if you are separated from your spouse), you are subject to certain spouses’ rights requirements, as explained below.
•
"If you are a married FERS or uniformed services participant with a total TSP account balance of more than $3,500, your spouse is entitled by law to a prescribed survivor annuity. This is a joint life annuity with a 50% survivor benefit, level payments, and no cash refund feature. If you choose any other annuity or any other distribution option, your spouse must provide signed (electronic or paper) consent for the distribution to be processed. This is also true if you request a change in the amount or frequency of installments since this could affect the amount available for an annuity."

And see the attached memo re: TSP annuities now offered by MetLife, where it says: "Annuity purchases are irrevocable; changes cannot be made once an annuity is purchased."

And see https://www.annuity.org/annuities/types/tsp-annuity/

The Alternate Payees I work with want immediate lump sum payouts from defined contribution plans either via a tax free rollover to an IRA or other eligible retirement account, or a taxable distribution, but no 10% penalty regardless of their age.  Their ex-spouse Participants are happy  to slow that process by stretching out the payments and hoping to save money on the back end. 

My bottom line questions are: 

1.  whether the spouse of a  Participant in an ERISA qualified defined contribution Plan is entitled to notice and/or must consent to an election that the Participant may make: (i) for an QLAC pursuant to SECURE that provides a 50% QJSA [thereby allowing the Participant  to make his ex-wife wait for her payout in installments rather than an immediate lump sum]; and (ii) for any other form of annuitized payout similar to those offered by TSP similar to a 50% QJSA. 

2. whether there is any way that a court can enter a QDRO that will supersede an election made by a Participant prior to the divorce.  Judges don't understand or respect Federal preemption.  They ignore me when I tell them that no matter what the parties may have set forth in their Marital Settlement Agreement and no matter what the Judge may have set forth in the Judgment of Divorce or in a QDRO, the Plan is not going to do anything that would violate ERISA, REA, PPA, IRC, DoL Regs or its Plan Documents and will tell the Judge what to put in his/her hat. 

I gather from your comments that some annuitized plans might restrict payments to an Alternate Payee via the "age 50 rule".  I am dealing with one now - the Steamfitters Local Union No. 602 Retirement Savings Plan, a union plan, that rejected my draft QDRO providing for an immediate lump sum payout and stated:

"An Alternate Payee may receive a benefit only when permitted under the terms of the Plan of Benefits and applicable law. The Plan of Benefits permits an Alternate Payee to receive her benefit, upon written application, when the participant becomes eligible to receive benefits or attains, or would have attained, age 50." 

I had a case a few years ago where Deloitte required adherence to the age 50 rule to a separate interest defined benefit plan. And other accounting and legal firm seem to like the age 50 rule applied to Keogh Plans.  

I gather from your comments that the finality baked in the TSP/MetLife annuities might have not exist in ERISA Plan where flexible options unique to such a Plan would require spousal consent.  

A further problem is that nobody is going to pay me for my time in reading and trying to understand the Plan Documents and the annuity contract (without benefit of your expertise) in order to prepare a proper QDRO.  My experience with in-house Plan Administrators and TPAs and Recordkeepers is that they don't know what provisions are in the Plan Documents or even in the SPD, nor do their attorneys.  

I have another motive, a Google Groups listserv with about 1450 members, mostly family lawyers, that I created in 2011 and still moderate.  I spend a great deal of time trying to save my colleague from malpractice.   It is my understanding the the SECURE acts were enacted without any consideration of the allocation of retirement benefits between divorcing spouses.   

I am reminded of Gelschus v. Hogen and Honeywell International Inc., 47 F.4th 679, 685 (8th Cir. 2022)  the facts were as follows: 
https://scholar.google.com/scholar_case?case=17943187857086039477&q=Gelschus+v.+Hogen&hl=en&as_sdt=4,21,85,87,92,97,113,128,148,150,155,160,256,257,273,274,284,285,319,320,336,337,347,348,382&as_ylo=2017&as_yhi=2025

Sally A. Hogen made contributions to a 401(k) plan during her employment at Honeywell International Inc. She originally designated her husband, Clifford C. Hogen, as the sole beneficiary in the event of her death. Sally and Clifford divorced in 2002. In the marital termination agreement (MTA), they agreed that "[Sally] will be awarded, free and clear of any claim on the part of [Clifford], all of the parties' right, title, and interest in and to the [her] Honeywell 401(k) Savings and Ownership Plan."

In 2008, Sally submitted a change-of-beneficiary form to Honeywell. She, however, did not comply with a Plan requirement. She allocated "33-1/3%" of the 401(k) benefits to each of her siblings. The instructions said, "The Allocation % must be by whole percentages." Because she did not use whole percentages, Honeywell did not change her designation. Honeywell called Sally and left a message notifying her of the rejection. Honeywell also sent eleven annual statements showing Clifford as the sole beneficiary. She took no further action.

Sally died in 2019, with nearly $600,000 in her 401(k) plan. Honeywell paid the benefits to Clifford. Robert F. Gelschus, as personal representative of Sally's estate, sued Honeywell for breach of fiduciary duty, and Clifford for breach of contract, unjust enrichment, conversion, and civil theft. Clifford kept the money.  TSP Distributions.pdfTSP Annuities MetLife.pdf  

From one of the greatest movies ever made: