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Surviving Spouse Questions

Readers get answers about spousal waivers of "ERISA" rights, and the options available to a widow who is younger than 59 1/2.

Natalie Choate, 07/12/2013

Question: I understand that the "Employee Retirement and Income Security Act of 1974" (ERISA), as amended by the "Retirement Equity Act of 1984" (REA), gives an employee's spouse certain rights with respect to the employee's benefits in the employer's retirement plans. Specifically these laws give the spouse the right to a "Qualified Preretirement Survivor Annuity" (QPSA) and "Qualified Joint & Survivor Annuity" (QJSA). I've also read that the spouse can waive these rights provided various requirements are met. What has me confused is that I've read that the spousal waiver is only valid if signed within 90 days prior to the commencement of benefits. This rule would appear to make the spousal waiver voidable at will any time after the 90 days. My impression is that spousal waivers and consents are signed without any attention being paid to this 90-day rule.

Answer: It's extremely unlikely these requirements are being ignored, but the rules are so confusing it's easy to get a mistaken impression.

First of all, the 90-day rule only applies to the QJSA. It means that if the employee wants to take a distribution from his plan upon retirement, in other words while he is still alive, he must take his benefits in the form of a joint and survivor annuity with his spouse--unless she consents to let him take some other form of benefit (such as a lump sum distribution). That spousal consent (i.e., waiver of the QJSA) must be dated no later than 90 days prior to the commencement of benefits.

I don't think this requirement is ignored. The plan administrator has a major responsibility to make sure these consents and waivers are completed properly on a timely basis. But note: The QJSA rule does not apply to most 401(k) plans or other profit-sharing plans. It generally applies only to "pension plans." So if you see benefits being paid out without any spousal consent being obtained, you're probably looking at a 401(k) plan.

In contrast, the spousal right to a preretirement death benefit (such as a QPSA) applies across the board to all types of qualified retirement plans (though not to IRAs). So with a 401(k) plan, if the employee wants to name a death beneficiary other than his spouse, he must obtain a spousal consent. The good news is that there is no 90-day rule for this. The spousal waiver can be executed by the spouse pretty much any time after they are married. If it is signed after the employee reaches age 35, it is valid indefinitely. It obviously would not make sense to require a 90-day window for waiving death benefits; you can't require the forms to be signed within 90 days prior to his death because you don't know when the employee is going to die.

So, for estate planning purposes, if an active employee wants to name a beneficiary other than his spouse, and the spouse consents to this, the estate plan can be put in place and will be carried out at the time of the employee's death, regardless of how much time has elapsed since the spouse consented to the plan. But the employee's retirement is another story entirely--the employee must choose a joint and survivor annuity benefit (QJSA) unless the spouse consents to some other form of distribution, and this consent cannot be obtained more than 90 days in advance.

Question: Widow (age 56) is holding an IRA she inherited as beneficiary of her deceased husband. She would like to transfer some of this into her own IRA (spousal rollover), but wants to keep about half the account still in the inherited IRA format until she reaches age 59 1/2. Can she make this type of partial rollover, while retaining the inherited IRA format for the rest? She wants to continue to be able to access the inherited IRA funds for any cash she needs without paying the 10% penalty.

Answer: Yes she can roll over part of the inherited benefits into her own IRA, while keeping the rest of the money inside the "inherited IRA." She can continue to access the inherited IRA funds penalty-free. This is a popular strategy.

Natalie Choate practices law in Boston with Nutter McClennen & Fish LLP, specializing in estate planning for retirement benefits. Her book, Life and Death Planning for Retirement Benefits, is a leading resource for professionals in this field.

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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