Spousal Consent
| Publication year | 1986 |
| Pages | 1634 |
| Citation | Vol. 15 No. 9 Pg. 1634 |
1986, September, Pg. 1634. Spousal Consent
The Retirement Equity Act ("REA") added new complications for an estate planner. REA became law on August 23, 1984,(fn1) and was designed to protect the interests of a nonemployee spouse in the employee spouse's retirement plan. REA requires spousal consent before benefits from a retirement plan subject to REA (a "Plan") can be paid to a testamentary trustee or anyone other than the spouse.
To remain qualified, a Plan has to be amended to comply with REA. Spousal consent rules apply to all Plans effective as of January 1, 1985.(fn2) However, if a participant in a Plan had at least one hour of service or paid leave on or after August 23, 1984, the spousal consent rules also apply to that participant as of that date.(fn3)
If a Plan has been amended to comply with REA, Plan provisions will supersede any beneficiary designation if such designation does not comply with the spousal consent rules as of the effective date. If a Plan has not been amended to comply with REA, it will be disqualified unless spousal consent rules are added retroactive to the effective date. Thus, a Plan administrator who makes distributions which conflict with spousal consent rules risks Plan disqualification and a suit for breach of fiduciary duty. Plan disqualification has adverse tax consequences on both the employer and the employee. Contributions are not tax deductible, earnings are taxable and Plan distributions are subject to ordinary income tax with no rollovers nor ten-year forward averaging available.
Spousal consent is a writing by which a spouse consents to a participant (1) waiving a benefit under a Plan or (2) naming a beneficiary other than the spouse to receive benefits from the Plan. The writing must acknowledge the effect of the consent, must be signed by the spouse, and the spouse's signature must be witnessed by a Plan representative or a notary public.
In order to waive a benefit under a Plan or name a beneficiary other than a spouse without obtaining spousal consent, the employee must establish "to the satisfaction of a Plan representative" that consent may not be obtained "because there is no spouse, because the spouse cannot be located or because of such other circumstances as the Secretary may by regulations prescribe."(fn4)
An estate planner often advises the client on beneficiary designations. From a practical standpoint, if an estate planner has determined that the spouse should not be a beneficiary of Plan proceeds, the client should request the appropriate spousal consent forms from the administrator of the Plan. Most likely, an estate planner's forms will not be acceptable to the administrator and may not even deal with the kinds of elections the Plan permits. While it is true that REA sets forth certain rules which must be followed for Plan qualification, a Plan can be drafted with different rules and still be qualified.
Sometimes an estate planner advises the client on the form of retirement payout, specifically on whether the payout should be taken as a lump sum distribution, qualified joint and survivor annuity, a single life annuity with or without a period certain option or in equal installment payments over a period certain. A waiver of a qualified joint and survivor annuity will require spousal consent on appropriate Plan forms.
If an estate planner determines spousal consent is necessary, he or she should review the income and estate tax consequences of the various forms of retirement payout with the client and spouse so that the consenting spouse understands the effect of the consent. Only a writing which acknowledges the effect of the consent is an effective spousal consent.
A Plan which is either a defined benefit pension plan or a money purchase plan (but not a stock ownership plan) must provide...
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