Interactions between the Employee Retirement Income Security Act and the federal Retirement Equity Act have a huge impact on your clients’ individual retirement accounts and other retirement planning arrangements. Here’s a look at some of the details.
With respect to ERISA-qualified plans (which do not include IRAs as to these provisions) spouses have certain rights that cannot be taken away without their advance written consent. Congress enacted these spousal rights in REA.
The rights consist of a (1) qualified preretirement survivor annuity (“QPSA”), where the participant dies prior to separation from service to the employer, and (2) qualified joint and survivor annuity (“QJSA”), where the participant dies after separating from service and beginning to receive benefits under the plan.
In essence, without the advance written consent of the non-participant spouse, any payment to the participant during lifetime must be made in the form of a QJSA, and payments prior to the participant’s retirement have to be in the form of a QPSA.
(Related: Making IRAs Last Two Lifetimes)
The QPSA is required to be funded with only one-half of the participant’s account balance, leaving the remaining one-half free for the participant to give away as he or she may wish, without the need for consent. A plan may, but is not required, to provide that the QPSA or QJSA, whichever is applicable, does not apply if the spouses have been married for less than one year at the participant’s death. If the plan does not contain this restriction, then the length of the marriage is irrelevant; even one day of marriage will be sufficient to vest the non-participant spouse.
Once it has begun, a QJSA will continue for the spouse to whom the participant was married on the date that the benefit payments began, even if the two subsequently divorce, unless a qualified domestic relations order (“QDRO”) otherwise provides.