Many retirement plans require plan participants to obtain spousal consent prior to several events, including change of beneficiary, distributions and loans. Typically, the plans that most frequently require spousal consent for these changes are defined benefit plans, commonly known as pension plans. Defined contribution plans, such as IRAs or 401ks, may also require consent.
Change of beneficiary
By law, your spouse is the designated beneficiary of a retirement account. For a beneficiary change to occur, your spouse must forfeit his or her right to be the designated beneficiary. This is a requirement of all plans – defined benefit and contribution alike.
Distributions and loans
The rules surrounding spousal consent for major distributions and loans are less clear. For defined contribution plans, required consent is decided in the creation of the plan document. In this instance, the plan document can determine if spousal consent is required for loans and/or distributions above a certain threshold, if any.
For defined benefit plans, consent is always a requirement. This is because, by law, defined benefit plans are required to make the designated form of benefit payment to a survivor annuity. To change this to a lump sum payment, spousal consent is required. It is also required to be obtained when any amount of money exceeding a fully vested balance of $5,000 is removed from the participant’s account or taken out as a loan.
The consequences for failing to obtain spousal consent, when required, can be substantial and result in one (or all) of the following:
- Forfeiture of the Plan’s tax-qualified status
- Requirement to obtain spousal consent subsequent to the unauthorized change of beneficiary or transaction
- Repayment to the spouse of the portion of the qualified joint and survivor annuity (QJSA) that would have been payable to the spouse upon death of the participant, had a QJSA been provided to the participant at his/her retirement.
While obtaining spousal consent may seem tedious, it’s definitely worth paying attention to.