Is Spousal Consent Required for All Distributions From A DC Plan?

If a participant wants to take a distribution (either in-service or termination), is it an IRS requirement to get spousal consent or is it at the Plan's discretion?

I wouldn't say "Plan's discretion" - that implies a case-by-case decision - but it depends on how the plan is written, yes.

Just now, Bird said:

I wouldn't say "Plan's discretion" - that implies a case-by-case decision - but it depends on how the plan is written, yes.

That's what I meant.  It's a Plan Document thing that the Plan can opt to remove

If the Plan is subject to the QJSA rules, Spousal Consent is required. If the Plan is not subject to the QJSA rules, Spousal Consent is not required.

Yes, and be careful if there is "prior pension" money in the plan. For example, if this plan has been around a while, and was originally a Money Purchase plan that was amended and restated to a Profit Sharing plan, you could have one bucket of money subject to QJSA, and the rest not subject to QJSA. Still a fair number of those out there, although the recordkeeping/accounting is sometimes poor or nonexistent.

7 minutes ago, Belgarath said:

Yes, and be careful if there is "prior pension" money in the plan. For example, if this plan has been around a while, and was originally a Money Purchase plan that was amended and restated to a Profit Sharing plan, you could have one bucket of money subject to QJSA, and the rest not subject to QJSA. Still a fair number of those out there, although the recordkeeping/accounting is sometimes poor or nonexistent.

That's definitely not an issue here.  So since it's a straight Profit Sharing Plan, technically it's not subject to QJSA and therefore it's not necessary.

Is there a reason why they would want to maintain requiring spousal consent?  Some members are pushing for the Trustees to remove that requirement.

Some plans prefer to have the QJSA rules apply for beneficiary reasons. If the plan does not have the QJSA rules, the spouse must be the 100% beneficiary unless they provide notarized consent for someone else to be the beneficiary. If the QJSA rules, you can designate someone else for 50% of the benefit. This comes into play when say the owner has kids from a prior marriage that he wants to be beneficiaries.

4 hours ago, metsfan026 said:

Is there a reason why they would want to maintain requiring spousal consent?  Some members are pushing for the Trustees to remove that requirement.

Aha!.  This implies the plan now has spousal consent language. Don't simply ignore it, or amend it away, without checking with your ERISA attorney.

Also watch for 411d6.

Ha, and also watch out for TPAs whose forms insist on a spot for spousal consent to be notarized even when the plan doesn't require it!

On 8/5/2022 at 1:25 PM, metsfan026 said:

That's definitely not an issue here.  So since it's a straight Profit Sharing Plan, technically it's not subject to QJSA and therefore it's not necessary.

Is there a reason why they would want to maintain requiring spousal consent?  Some members are pushing for the Trustees to remove that requirement.

I'd like to give you the benefit of the doubt and assume you are using shortcuts in your language. To be precise, it is the presence of annuity options that triggers the QJSA. So it's not like you can just remove the spousal consent (and leave annuity options). 

Back in the day (1980s!), my mentor had the attitude that you just included any/all options; no reason to limit a participant. Then, the rules changed so if you had any annuity options, the QJSA was the default, which required spousal consent to waive and take a lump sum. Fortunately the IRS allowed us to remove those options without it being a cutback, and we did that for most of our plans.

On 8/5/2022 at 10:25 AM, metsfan026 said:

Is there a reason why they would want to maintain requiring spousal consent?  Some members are pushing for the Trustees to remove that requirement.

Beyond a plan having an annuity form of benefit triggering the necessity of a QJSA, there are the more fundamental legal reasons of ownership interests and potential support obligations, so I would urge the trustees to think carefully about that before amending the plan to remove spousal consent requirements.

In community property states, as well as in many common law states, money earned from employment during marriage is marital property, and that includes deferred compensation. A marital community stands in the shoes of a co-owner of deferred compensation, not in the shoes of a creditor -- a major distinction that should guide the trustees' thinking.

Additionally there are spousal and/or dependent support interests that are often addressed in family law litigation and paid via 401k loans, QDROs, and distributions, which, without consent requirements, are destroyed, and always to the detriment of those most in need of the protection afforded by consent requirements.

The only reason I can think of to do away with a spousal consent requirement is a conscious, extrajudicial decision to undermine family law, in a way that is abhorrent to public policy.

2 hours ago, blguest said:

The only reason I can think of to do away with a spousal consent requirement is a conscious, extrajudicial decision to undermine family law, in a way that is abhorrent to public policy.

This is thinking strictly from the 1950's believing you're protecting the stay at home wife. What about the wife that has a decent job but an abusive home life. She wants to leave, but the only money she really has is in her 401(k). But the spousal consent requirement for any distribution or loan guarantees she can never access the funds to save herself because the husband would never agree.

Perhaps consent requirements going away aren't "always to the detriment of those most in need..."

Bill, of the 327 QDROs I wrote last year alone, 93% of them were property divisions equalizing the parties' financial positions with respect to retirement monies. Of those, better than 22% affected an abused spouse, and of those abused spouses, all but 2 of them were women. Among those 327, in only 2 cases were women's retirement savings greater than their spouses, and the court ruling to equalize their financial positions did not create a windfall for an abuser.

Support QDROs I wrote for that period were limited in scope and duration, and all were written providing support to women who earned less than their spouses, or children who would have gone without basics but for the support orders that were possible only because the affected plans had spousal consent requirements, and turned away participants who would see their own children hungry and homeless. The measure of "undeserving spouses" (abusive or willfully unemployed with no children at home) affected favorably by QDROs I've written is vanishingly small in my experience (less than 4 in thousands), and I've been at this for 25 years. So, might it happen? Sure. Does it happen much? No.

In a perfect world, women and men would earn the same pay for the same work, and both would be represented equally in careers having comparable retirement benefits. That is not the world we live in.

I cannot even count the number of times a litigant (mostly men, but not all) cashed out their 401ks in the month or two preceding marital separation in order to dodge the application of marital property law, and I've then had to tell divorce counsel no QDRO is possible because of it. The disenfranchised spouse then loses everything because a plan had no rule requiring spousal consent, leaving state family courts unable to apportion marital assets, or provide support for children.

Defined contribution plans fall under ERISA, and they also fall under the Federal TSP section of the US Code, and they fall under the laws of every State, County and Municipal Plan. The answer to the question posed just may vary with the underlying statutory basis of the plan.  More details would have been helpful.

For example, re: TSP plans, see https://www.tsp.gov/planning-for-life-events/marriage-and-spouses-rights/

It is my understanding that if a plan is subject to the REA, spousal consent will be required for in-service cash distributions, hardship withdrawals, and plan loans.  Spousal consent will not be required, however, when a participant requests these same types of distributions from a plan designed with the REA safe harbor feature.  I don't pretend to know how that works in practice. 

Before you take any action you need to consider whether or not you want to become involved in a Federal case.  I don't think the answer to  your question will be found on this blog. 

A wise attorney for the Alternate Payee will send the Plan Administrator a Notice of Adverse Claim/Interest at the earliest possible time and encourage the Plan to take no action that would result in their being potentially liable for double payments and legal fees.  

DSG

9 hours ago, fmsinc said:

Before you take any action you need to consider whether or not you want to become involved in a Federal case.  I don't think the answer to  your question will be found on this blog.

If anyone is aware of any problems arising from removing annuity options, please post. We all come at this from different angles, but as a TPA, I want to keep things as simple as possible in a complicated field, and don't want to have to explain to someone why spousal consent is needed just because a plan is written a certain way when it didn't have to be, and when the IRS has given us a specific exception to the cutback provisions allowing us to remove annuity options (and indirectly remove spousal consent requirements). 

For many ERISA-governed individual-account (defined-contribution) retirement plans, it’s at least possible, and often typical, to design a plan so a participant’s claim for a distribution or a loan usually does not require a spouse’s consent.

Some observers question whether Congress should have set public policy that way.

Some advisers might invite a retirement plan’s sponsor to consider whether one’s plan should require a spouse’s consent for some kinds of claims and directions even if neither ERISA § 205 nor an Internal Revenue Code tax-qualification condition calls for the plan’s provision.

Reasons for doing so could include a plan sponsor’s desire to protect a participant’s spouse or child from the participant’s decision.

Or some plan sponsors might do so to lower the plan administrator’s risks of being dragged into litigation. Even if a complaint fails to state a claim against the plan’s administrator (including when the plaintiff has no standing, or the court has no jurisdiction), getting rid of litigation bears distraction, time, and expense.

Yet, some question how much a retirement plan ought to do in protecting spouses from one another. Or in protecting a child from one’s parent.

Also, some plan sponsors prefer to avoid a provision that could, for a distribution or loan before the participant’s death, slow down or make nonroutine a computer’s processing of the claims.

These and other choices about whether a plan provides survivor annuities or other plan-provided spouse’s-consent constraints, perhaps including some beyond ERISA § 205, are choices for a plan’s sponsor to consider.

How much an adviser explains to its client turns on the scope of their relationship.

Bird, a mainstream choice is for a plan’s sponsor is to get rid of (at least) survivor annuities (if not all annuities); provide a surviving spouse the whole of a participant’s account, absent a qualified election with the spouse’s consent; and otherwise not restrain a participant’s claims and directions. But, for some reasons mentioned in this discussion or in other BenefitsLink discussions (including those in which Larry Starr explains why his clients’ plans provide a qualified preretirement survivor annuity and tolerate the regimes that go with it), that mainstream choice might not be right for every plan.

Peter's reference to Larry Starr can be summarized at this comment.  Larry makes a good point, and every consultant should be aware.