Spouses of plan participants in ERISA-covered plans have specific rights to the participant’s account under federal ERISA legislation. There are two categories of ERISA financial protection for spouses. Spouses of IRA owners often do not have the same privileges. The first sort of protection is available with all ERISA plans. Unless the participant selects another beneficiary and the spouse offers written approval, those plans must automatically recognize a married participant’s spouse as his beneficiary. In community property states, spouses also have this protection for IRAs created during the marriage. A byproduct of this regulation is the need for a surviving spouse of a married member who dies before retirement to receive compensation in the form of a lifelong annuity without a spousal agreement. However, this annuity obligation doesn’t apply to 401(k) plans that do not provide an annuity as an alternative payment type. Example 1: Monica has a 401(k) plan that doesn’t have an annuity payment option. She has listed her brother Nick as her 401(k) beneficiary, but her husband David has never agreed to that designation. Monica dies while participating in the plan and is still married to David. The plan must pay the death benefit to David rather than Nicholas. However, the benefit to David doesn’t have to be paid in the form of a lifetime annuity. As a result, he has the option of receiving a lump-sum settlement. The second sort of spousal protection mandates some plans to pay a married participant’s benefit in a particular type of annuity unless the member chooses another form of payment and the spouse gives consent. The necessary annuity pays a monthly payment throughout the member’s lifetime and, if the person is outlived, a monthly benefit over the spouse’s remaining lifespan. The spouse’s benefit must equal at least half of the participant’s benefit. Except for most ERISA-covered 401(k) plans, this regulation applies to all ERISA-covered plans. It applies if such plans provide an annuity as an optional payment type and the participant chooses the annuity. Example 2: Mike participates in an ERISA-covered pension plan. When he retires, he is married to Lucy. He wishes for an annuity from the plan that would pay him solely throughout his lifetime, with no spousal benefit after he dies. This form of an annuity can be paid to Mike only if Lucy agrees. If she refuses, he can still get an annuity for the rest of his life. If Lucy survives him, she must receive an annuity payment equal to at least half of Mike’s salary for her lifetime. As a result of that spousal benefit, Mike’s lifetime payout will be lower than it would have been if there had been no spousal benefit.
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Carl Wyllie is an advisor focused in areas of Medicare, retirement, estate planning, and crisis planning. Carl works with individuals of all ages in planning for their retirement. He is uniquely effective in building working relationships between their families and elder care law attorneys to assist them in avoiding a healthcare crisis. Carl is particularly sensitive to helping provide the means for his clients to maintain their independence and dignity when a change in their health occurs due to the natural aging process.
