401(k) Plans, Distributions and Spousal Consent

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.  

A recent call with a financial advisor from Minnesota is representative of a common inquiry related to distributions, spousal consent and 401(k) plans. The advisor asked: “Do 401(k) plans require the spouse of a plan participant to consent to a plan distribution?”  

Highlights of Discussion 

• The short answer is, “maybe.”  It depends on whether the 401(k) plan is subject to the annuity distribution requirements under the Retirement Equity Act of 1984 (REA) or is considered a “REA safe-harbor” plan. 

• REA, in part, provided spousal protections with respect to defined contribution (DC) plan distribution options, and defaulted most plan disbursements for married couples to qualified joint and survivor annuities (QJSAs) and qualified preretirement survivor annuities (QPSAs), unless the participant and spouse executed certain waivers. 

• 401(k) plans that are subject to the REA annuity mandates require plan administrators to obtain written spousal consent to distribute plan benefits in a form other than an annuity [Treasury Regulation (Treas. Reg.) 1.401(a)-20, Q&A 17]. REA added the requirement to have spousal consent to take a distribution so that the nonemployee spouse would have some control over the form of benefit the participant chooses and would be, at the very least, aware that retirement benefits existed.  

• REA safe-harbor plans, in contrast, are DC plans that are drafted to be exempt from the REA annuity requirements. The plan document will state whether it is a REA safe-harbor plan. Many, but not all, 401(k) plans are REA safe-harbor plans. Plan administrators are not required to obtain spousal consent for a distribution if the 401(k) plan is a REA safe harbor plan. 

Conclusion

Some 401(k) plans are subject to REA and, therefore, require distributions to be in the form of an annuity unless the plan administrator obtains proper participant and spousal waivers. Some plans are REA safe-harbor and do not require the plan administrator to obtain spousal consent for a distribution. The terms of the plan document will specify what type of plan it is.