The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most retirement plans to provide protection for the participants in those plans. The Retirement Equity Act of 1984 (REA) amended ERISA and, among other changes, introduced mandatory spousal rights for pension plans so that the selection of the form of benefit received from a pension plan was no longer solely the participant’s choice. In effect, Congress viewed the marital relationship as a partnership, and the retirement benefit resulting from that partnership as gained from the contributions of both partners. Before REA, the spouse of a plan participant had very few rights to share in a participant’s pension benefit.

REA requires that, if the married participant survives until retirement age, then the default form of payment paid from an ERISA plan must be a Qualified Joint and Survivor Annuity (QJSA), under which payments continue for the lives of both the employee and their spouse. If the participant dies before retirement and is due a plan benefit, REA makes the spouse a plan beneficiary and a Qualified Preretirement Survivor Annuity (QPSA) will be paid. The participant may waive these automatic forms of benefit if the spouse consents; before REA the participant could waive the QJSA and QPSA without the spouse’s consent.

Who is considered a spouse under ERISA?

Federal law recognizes individuals as spouses if their marriage is acknowledged under state law, including same-sex marriages. However, according to Revenue Ruling 2013-17, the term ”marriage” does not include registered domestic partnerships, civil unions, or other similar formal relationships that may be recognized under state law but are not officially designated as marriages.

A plan can choose to adopt a rule that delays recognizing a spouse until the couple has been married for at least a year. This means the plan doesn't have to consider a participant as married unless they've been married for more than one year.

If the plan uses this rule, the employer must treat a participant who is married on their annuity starting date as if they've been married for one year and provide the necessary notices and consent forms. However, if the participant and spouse choose to receive a Qualified Joint and Survivor Annuity (QJSA) and their marriage ends within 12 months due to divorce or death, the plan can treat them as if they were not married on the annuity starting date. In this case, the spouse loses any right to survivor benefits, and there is no need to adjust the amount already paid to the participant.

What is a Qualified Joint and Survivor Annuity (QJSA)?

A QJSA is an annuity that is paid for the life of the participant and a continuing annuity for the life of the spouse, if the participant predeceases. The amount paid to the survivor cannot be less than 50% nor more than 100% of the annuity paid to the participant and must provide the same financial value as a single life annuity that lasts for the participant's lifetime.

A plan can offer multiple options for joint and survivor annuities that are of equal value. In this situation, the plan must specify which one is the Qualified Joint and Survivor Annuity (QJSA) and thus the default payment option.

A plan might let a participant choose a different joint and survivor annuity, not less than 50%, that has the same or greater value as the default option (QJSA) without needing their spouse's approval. However, if the participant wants to choose an option that doesn't have the same value as the default QJSA, they will need their spouse's consent.

What is a Qualified Optional Survivor Annuity (QOSA)?

Starting January 1, 2008, the Pension Protection Act of 2006 (PPA) requires retirement plans to offer additional spousal annuity options besides the default QJSA. If a participant decides not to choose the default QJSA, the plan must provide an alternative called a Qualified Optional Survivor Annuity (QOSA).

The QOSA pays benefits for the lifetimes of both the participant and their spouse and has to be of equal value to a single life annuity for the participant. If the default QJSA pays less than 75% to the surviving spouse, the QOSA must pay 75%. If the QJSA pays 75% or more, the QOSA must pay 50% to the surviving spouse.

What is a Qualified Preretirement Survivor Annuity (QPSA)?

A QPSA is a form of a death benefit paid as a life annuity to the surviving spouse of a participant who was vested in a plan benefit, died before retirement, and was married.

For a participant who dies after their earliest retirement age, it is determined as if the participant had retired with a QJSA the day before they died.

For a participant who dies on or before their earliest retirement age, the QPSA is determined as if the participant had separated from service on the date of death, survived to their earliest retirement age, elected a QJSA, and died the next day.

A qualified plan must provide a QPSA to all married participants unless the participant and spouse consent in writing to waive the QPSA.

When is spousal consent needed in retirement plans?

Although a retirement plan is designed to protect spousal benefits, a spouse can choose to give up these rights. A waiver is necessary if the participant wants a different type of payment rather than the QJSA or wants to name someone other than the spouse as the beneficiary.

The waiver must be in writing, must specify the new beneficiary or type of benefit, and cannot be changed without the spouse's consent. The spouse's consent must be witnessed by a notary or a plan representative.

For example, if the plan allows for a lump sum payment and the participant prefers this over an annuity, the spouse must agree in writing to give up their right to the spousal benefit.

Note that, if the total value of the participant’s benefit is $7,000 or less, then the plan can pay out a lump sum instead of a QJSA without needing the participant’s or the spouse’s consent. This must be a specified feature in the plan document. Not all plans have this small cashout feature and some have lower thresholds.

Other important points to know:

• If the spouse is unable to make decisions (incompetent), a legal guardian can give consent on their behalf.
• If the spouse cannot be found, consent is not required.
• Consent is also not needed if the participant is legally abandoned or separated from the spouse.
• If the participant gets divorced and then remarries, the new spouse is not bound by the former spouse’s consent on the remaining benefit if there is a Qualified Domestic Relations Order from the previous marriage.
• If the participant and spouse agreed to waive the QJSA in favor of another type of benefit, the participant can switch back to a QJSA without needing the spouse’s consent again.

What are the notice requirements?

The IRS requires that participants and their spouses are well informed about their benefit options and the consequences of their decisions. This information should be provided when it is most relevant and when participants can make the best decisions.

Employers must give each participant a written explanation of the QJSA, including:

• The terms and conditions of the QJSA
• The right to waive the QJSA and the effects of doing so
• The spouse’s right to not consent to waive the QJSA
• The participant’s right to revoke a waiver

The QJSA notice must be given before benefits start, typically within the 180 days before the annuity start date.

Similar information must be provided for the QOSA and the QPSA.

A QPSA notice must be given during the period between the participant’s 32nd birthday and the end of the plan year before the participant turns 35 or within one year when an employee becomes a plan participant if hired after age 35. If the plan allows a participant to waive the QPSA before age 35, it will automatically be reinstated on the first day of the plan year when the participant turns 35. If the participant doesn't get the spouse’s consent to waive the QPSA after the participant turns 35 the spouse will receive the QPSA if the participant dies.

The annuity start date must be after the QJSA explanation is provided. However, the plan can allow a retroactive annuity start date if the explanation is given after the start date.

Can sponsors charge for the QPSA?

Providing a death benefit to a spouse, the QPSA, is mandatory, but it costs the retirement plan money. To cover some of these costs, some plan sponsors reduce benefits or apply a charge. If there is a charge, married participants must be given the option to waive the death benefit with their spouse's consent.

Once a participant is given the chance to waive the QPSA or receives a written explanation of it, then the plan can charge them for the cost of the QPSA. This charge must reasonably reflect the actual cost of providing the QPSA.

The timing of when the charge starts can vary by plan. Typically, charges are applied for years covered after a participant leaves their job and are not usually applied for years of coverage after the participant's normal retirement date. The charge would not be applied during periods when the participant is unmarried.

Some plans also exempt participants from the QPSA charge if they meet certain criteria, such as being eligible for early retirement at the time of termination or meeting specific age and service conditions.

Plans not subject to ERISA

Certain types of retirement plans, under the Internal Revenue Code (IRC) 403(b), don't have to follow ERISA rules. These 403(b) plans don't have specific protections for a spouse if the participant dies, so they don't need to comply with QJSA, QOSA, or QPSA requirements. Examples of such 403(b) plans include those for:

• Government entities like schools, public hospitals, and local governments
• Churches
• Tribal organizations

However, some 403(b) plans do follow ERISA rules, or they may choose to include some or all of the spousal protections voluntarily. Additionally, there could be state laws that apply. It's crucial to know the exact type of plan to understand the specific rules and protections that apply in your situation.

Wrap-up

Marital status can affect the benefits received from retirement plans. This includes whether the participant qualifies for survivor benefits, the type of retirement benefit they will receive, and automatic naming of a spouse as the beneficiary. If a participant would like a different form of payment or a different beneficiary, their spouse must agree to give up their rights to these benefits. Some plans only allow spouse beneficiaries. It's crucial to understand both participant and spouse rights when you're getting ready to retire as well as the features of the retirement plan.