Spousal Consent for 401(k) Loans and Distributions: When Is It Needed?
Question: We’ve heard that some retirement plans seem require spousal consent whenever a participant takes a distribution. But our 401(k) doesn’t seem to require spousal consent when a participant takes a distribution or a loan. We only require consent if a participant wants to designate a primary beneficiary other than the participant’s spouse. When are 401(k) plans required to obtain spousal consent for distributions to participants?
Answer: Spousal consent is required if a married participant designates a non-spouse primary beneficiary and may be necessary if a 401(k) plan offers one or more annuity forms of distribution. Here’s a summary of these rules and the way many 401(k) plans avoid spousal consents.
In general, tax-qualified retirement plans are required to provide distributions to participants in the form of a qualified joint and survivor annuity (QJSA), and a minimum pre-retirement death benefit known as a qualified pre-retirement survivor annuity (QPSA). These forms assure surviving spouses a minimum benefit that can only be waived with the spouse’s consent. A 401(k) plan, however, avoids these survivor annuity requirements (the QJSA and QPSA) so long as:
- The plan requires that vested benefits be paid in full to the participant’s surviving spouse after the participant dies (unless the spouse has consented to a different beneficiary or there is no surviving spouse);
- Participants do not elect payment in any form of life annuity; and
- Participants’ benefits don’t include amounts transferred from a plan that was subject to the tax code’s survivor annuity requirements.
Your plan appears to satisfy the first requirement. Thus, if your plan doesn’t offer participants any life annuity distribution option and isn’t the recipient of funds from a plan that was subject to the survivor annuity requirements, your plan doesn’t have to obtain spousal consent before making distributions to plan participants.
Plans that have received transfers from plans that were subject to the survivor annuity requirements can prevent those requirements from applying to other benefits under the plan by separately accounting for the transferred assets (and their income).
For purposes of the survivor annuity rules, plan loans are treated like distributions to the participant. So, if a plan doesn’t need to obtain spousal consent for other distributions to a participant, consent isn’t needed for plan loans either.
Certain deferred annuity contracts that include lifetime income options can be used as investments in a plan without triggering the spousal consent requirements if they allow participants to move funds freely in and out of the contract until the annuity’s deferred starting date. If the contract is accounted for separately, the spousal consent rules won’t apply to the contract until the deferred starting date of an annuity distribution. (This allows earlier distributions and loans to occur without spousal consents.)