Under ERISA, “spousal consent” is needed when participant in a defined benefit (“DB”) or a defined contribution (“DC”) plan wants to make an election that would adversely affect the married participant’s rights. For example, a Participant will often need a spouse’s consent to waive an annuity form of payment and instead receive a lump-sum payment. To give “consent” the non-participant spouse must execute a waiver that satisfies IRS rules and regulations, which includes:
- An acknowledgment of the effect of the change in election, and
- Notarized by a licensed notary or witnessed by a plan representative.
Importantly, plans can insist on a notarized signature and do not have to offer plan representative witnesses. The IRS imposes these requirements to protect the financial security of a participant’s surviving spouse by ensuring they fully understand the ramifications of their decision.
A DB plan will generally offer three different types of annuities to married participants. The first is a qualified joint and survivor annuity (“QJSA”). This annuity provides a monthly payment to the participant for his or her life, and then a corresponding monthly survivor benefit following death. Under the IRS code, the surviving spouse’s annuity payments cannot be less than 50% of what the participant was receiving prior to death. Plans can also offer survivor annuities that pay 75% or 100% of the participant’s prior benefit to the surviving spouse.
Next, a DB plan will offer a qualified pre-retirement joint and survivor annuity (“QPSA”), which is a survivor annuity that is paid to a surviving spouse when a vested participants dies prior to retirement. If the participant dies prior to reaching the plan’s early retirement age, the plan will treat the situation as if the participant survived to early retirement age and elected a benefit the following day. The survivor annuity is then based off this early retirement option. If the participant died after reaching early retirement age, but before retirement or normal retirement age, the plan will use his or her age at the date of death to calculate the QPSA.
Finally, plans can offer a qualified optional survivor annuity (“QOSA”) in addition to the default QJSA. The QOSA is a survivor annuity that is the actuarial equivalent of a single life annuity for the participant and must pay at least 50% or 75% of the annuity to the surviving spouse. The QOSA was introduced by the Pension Protection Act of 2006 and intended to give married participants greater flexibility when making retirement elections.
In addition to annuity elections, spousal consent also comes into play during beneficiary elections. The IRS code provides that the spouse of a married participant is the default beneficiary as of the date of marriage and any prior written designations. This is mainly a DC plan issue and normally arises after a participant divorces and remarries. For example, if a participant divorces, names his children as beneficiaries, and then subsequently remarries, spousal consent would be needed to designate a different beneficiary.
Finally, spousal consent is also required before a plan loan can be approved and processed. The consent must be obtained no earlier than the beginning of a 90-day period, with such a period ending on the date that the loan is secured. However, spousal consent is not required during a loan setoff set-off loan following default on a plan loan. On the other hand, any renegotiations, extension, renewal, or other revision of a loan shall be treated as a new loan, requiring spousal support.
Ultimately, it is the participant’s responsibility to ensure that spousal consent is obtained. However, having a fund office staff that is aware of these rules will help participants make proper elections.