Spousal consent for Beneficiary Designation

[preErisa]

I have a 401k participant who named her son as beneficiary She is married and did not provide a spousal sign-off. She tells me her spouse is not the biological father of her son and as she is not on good terms with her spouse, she does not want to try to get him to sign off. The biological father is deceased. Attorney time?

[KIP KRAUS]

I’m not an attorney but I don’t think it makes any difference whether or not the son is the biological son of the participant’s spouse. In my opinion a legal spouse must sign off on a beneficiary designation.

[david rigby]

A spouse is a spouse is a spouse. "...not on good terms..." is not a good reason to avoid the proper signoff.

Note that the relevant IRS reg. states that "legally separated" may be considered the same as unmarried. Such a separation involves a judge, not just two people deciding to call themselves "separated." However, it may be that the plan language must also include such phrasing. Not sure. See Q&A-27 of 1.401(a)-20,

[RCK]

I agree with the other two respondents--this is an easy one. "Not on good terms", "not living together", "have no idea where the scumbag is" are all insufficient excuses.

The spouse has to sign off to validate any designation of someone else as beneficiary.

[Guest]

If I may, check your plan document.

It was my understanding that you need spousal consent only in a plan that offers a joint & survivor benefits.

Not normally a form of benefit included in a 401(k) plan.

[KIP KRAUS]

Wrong b2kates. I think you may be confusing loan sign-off with beneficiary sign-off.

[Guest Mr. X]

In fact, for a plan to be exempt from the J&S requirements, the spouse must be designated as beneficiary (or waive that right appropriately).

[Appleby]

Ok.

Here are the facts. If a participant is married, the spouse must be the sole primary designated beneficiary of the participants plan assets, unless there is spousal consent to designate someone else. This applies to ALL qualified plans.

With regards to the joint and survivor rules, this applies to distributions and loans, not to beneficiary designations.

Any plan can be subjected to the JSA ( joint and survivor annuity rules). Usually, pension plans, such as money purchase pension and defined benefit plans are mandated to subjected to these rules, which means that usually, spousal consent is required to take distributions.

For profit sharing plans, including 401(k) profit sharing plans, the plan is subjects to the survivor annuity rules ONLY if the employer so elected when the plan was adopted. If the employer elected these rules, then spousal consent is required for distributions and loans.

[KJohnson]

APPLEBY JUST FOR CLARIFICATION ON YOUR FIRST COMMENT:

IF A PLAN IS NOT SUBJECT TO 401(a)(11)THEN SPOUSE MUST BE 100% BENEFICIARY ABSENT CONSENT BY THE SPOUSE TO ANOTHER BENEFICIARY.

HOWEVER, IF PLAN IS SUBJECT TO 401(a)(11), THEN THE CODE AND ERISA ONLY MANDATE THAT THE SPOUSE BE A BENEFICIARY OF 50% OF THE ACCOUNT BALANCE. (OF COURSE THE SPOUSE'S 50% IS ALSO SUBJECT TO DESIGNATION OF ANOTHER BENEFICIARY WITH THE SPOUSE'S CONSENT.)

SO IF FOR SOME REASON THE PLAN DOES CONTAIN J&S PROVISIONS SHE COULD NAME HER SON AS A 50% BENEFICIARY WITHOUT CONSENT.

[Wessex]

I agree with KJohnson, except that the 50% is a minimum. Some profit-sharing or 401(k) plans that are subject to the joint and survivor annuity rules do provide that 100% of a participant's benefit is payable as the surviving spouse benefit. For such a plan, spousal consent wwould be needed to designate a non-spouse beneficiary for any portion of a participant's account.

[KJohnson]

I think you are misconstruing the reg. What Q&A 3 (and the statute) state is that unless you provide that the spouse is a 100% beneficiary in a DC plan, then you must comply with the 401(a)(11) and the QPSA/QJSA requirements.

However, look at Q&A 32 and 33 where it talks about waiving the "spousal benefit" for plans not subject to 401(a)(11) but speaks of waiving the "QPSA" for plans subject to 401(a)(11). Then look at Q&A 20 where a QPSA can be as little as 50% of the account balance.

Thus under a non-401(a)(11) plan you need spousal consent if you seek to name a beneficiary for any portion of the "spousal benefit" (i.e. the entire account balance). However under a 401(a)(11) plan you only need sposal consent if you seek to name a beneficiary for a portion of the QPSA (i.e. as little as 50% of the account balance). You can name anyone you want as a beneficiary without consent to the portion of the account not subject to the QPSA.

Also, thanks Wessex for clarifying my clarification.

[Guest AFRICA6796]

PreErisa,

I am with Appleby- and I can also see how the regs can be misinterpreted

but obviously this is not helping your situation. As they say, you get what you pay for. While these answers may prove to be very helpful, you can't mess arount with qualified plan issues. I strongly suggest that you check with the plan administrator,or anyone else who can be held legally responsible for the information they provide.

[KJohnson]

Just glancing at the QJSA/QPSA examination guidelines and they state the following:Sub-Section 952: QPSA

In a defined contribution plan, a QPSA is defined as an annuity that can be purchased with not less than 50% of the participant's nonforfeitable account balance on the date of the participant's death. If only 50% of the participant's account balance is used to purchase an annuity, the remaining portion of the account balance can be paid to other beneficiaries of the participant without the consent of the spouse. See IRC 417©.

[Guest PeterGulia]

Let's return to what might be the original question. What (if anything) should a plan administrator do in response to its receipt of an attempted beneficiary designation that it believes is either wholly or partly ineffective?

When a fiduciary knows that its ward lacks information that he or she needs to know to protect his or her interests, the fiduciary might have a duty to communicate the necessary information. While some lawyers would say it was enough that the plan administrator had delivered the summary plan description, others would suggest that a plan administrator faced with a participant's apparent ignorance should at least point out the particular page of the SPD that explains the relevant rule. Some would suggest a short letter to explain that the beneficiary designation will be ineffective.

If the participant does not obtain her spouse's consent, nevertheless the plan administrator should accept the writing the participant submits. First, a plan administrator should not decline to process a writing a participant submits, even if the writing will be ineffective. Further, it's possible that the external law or the plan will change before the participant's death or other relevant time such that the writing (without spouse's consent) will be a valid beneficiary designation. Of course, when the writing is recorded the plan administrator should confirm to the participant that the writing will be ineffective (wholly or partly) under the plan as currently in effect.

Does anyone have further thoughts about the steps a prudent fiduciary might take?