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When Does a Nonemployee Spouse Have a Right to the Employee's Retirement Accumulation?
In the first part of this article (The Matrimonial Strategist, December 2009), I outlined the statutory spousal protection provisions that apply to employee pension and profit-sharing plans governed by ERISA. For defined benefit pension plans and money purchase defined contribution plans, the participant's spouse has the right to: 1) a survivor benefit if the participant dies before retirement (the QPSA); and 2) a survivor annuity in the required default benefit at retirement (the QJSA). These benefits may be “waived” by the participant, that is, the participant may elect a different type of benefit (for example, distribution in a lump sum) or to designate a different beneficiary, but only with the written consent of his or her spouse that conforms to certain statutory requirements. Profit-sharing plans, including 401(k) plans, are not subject to the spousal protection rules, provided the spouse has the right to the death benefit under these plans, nor are rollover IRAs governed by these rules. Benefit distributions from these plans are typically made solely to the participant who may then do whatever s/he wants with the distributed funds. While these rules are intended to protect the wives or husbands of workers, they may have unexpected effects when the worker's marital status changes.
Who Is Entitled to Spousal Protections
The spouse entitled to spousal protections is one who had been married to the participant for 12 months preceding the participant's death before retirement or before the “annuity starting date,” which in most cases is the same as the participant's retirement date. When the participant is divorced and remarried, as we have seen, these rules can cause serious problems, and those problems may not surface until the participant dies. The participant can elect a benefit option other than the QJSA or QPSA, with the consent of his or her spouse, at the time, only during the “applicable election period.” IRC ' 417(a)(1)(A)(i); 29 USC ' 1055(c)(1)(A)(i). For the QJSA the “applicable election period” is the 180-day period ending on the annuity starting date. Are elections made within this time period irrevocable? Divorce and remarriage among the elderly has become more common, so attention needs to be paid to this requirement. When the benefit is paid as an annuity, the plan will determine the amount of annuity payments based on the age of the participant, of, if the annuity is a joint and survivor annuity, the ages of both the participant and the participant's spouse. Any change in the identity of the beneficiary of survivor interest will obviously affect the value of the benefit. For this reason, once the annuity starting date has passed and the participant's benefit is in pay status, the benefit can no longer be changed.
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