Ian Berger
IRA Analyst

One important difference between IRAs and company retirement plans is spousal protection. Except for community property states, spouses of IRA owners do not have any rights to the account. By contrast, many workplace plans must provide spouses at least some financial protection.

In the world of company plans, spouses have potentially two types of protection, depending on the type of plan.

Spousal Consent to Plan Distributions. The first type of protection requires certain plans to pay a married participant’s benefit as a specific type of annuity – unless the participant elects another form of payment and the spouse consents. The required annuity type is called a “qualified joint and survivor annuity” (QJSA). A QJSA pays a monthly benefit over the participant’s lifetime and, if the spouse outlives the participant, pays the spouse a monthly benefit over the spouse’s remaining lifetime. This rule applies to all plans covered by ERISA, with one important exception. It does not apply to ERISA-covered 401(k) and 403(b) plans – unless the plan offers an annuity as an optional form of payment and the participant elects the annuity. Since most 401(k) plans offer only a lump sum form of payment, most 401(k) plans are exempt from the QJSA requirement. However, the QJSA rules always apply to ERISA-covered defined benefit pension plans.

Example 1: Jerry participates in is an ERISA-covered pension plan. Jerry is married when he retires, and he wants to elect an annuity that pays him a benefit over his lifetime only (with no spousal benefit after he dies). The plan can pay Jerry that type of annuity only if his wife consents. If his wife doesn’t consent, the plan must pay him a QJSA.

Spouse as Beneficiary. The second type of protection requires certain company plans to automatically treat a married participant’s spouse as his beneficiary – unless the participant designates another beneficiary and the spouse consents. This rule applies to all ERISA plans – ERISA-covered 401(k) and 403(b) plans do not get a free pass.

An offshoot of this rule is the requirement that, without spousal consent, death benefits for beneficiaries of married participants who die before retirement must be paid in the form of a “qualified pre-retirement survivor annuity.” A QPSA pays a monthly benefit to a spousal beneficiary over the beneficiary’s lifetime. The QPSA rule does not apply to 401(k) or 403(b) plans that do not offer an annuity as an optional payment form. But, again, even those 401(k) or 403(b) plans must require a married participant’s spouse to be the beneficiary – unless the spouse consents to another beneficiary.

Example 2: Elaine participates in a 401(k) plan that does not offer an annuity as a payment option. Elaine has designated her brother Keith as her 401(k) plan beneficiary, but her husband David did not consent to that designation. While participating in the plan and still married to David, Elaine dies. The plan must pay the death benefit to husband David. However, the death benefit does not have to be in the form of a QPSA.