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Lucy McBath (Photo: McBath)

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Lawmakers Want to Block Spouses From Emptying 401(k)s

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What You Need to Know

  • Federal law already requires consent from the spouse when a married pension plan participant cashes out.
  • No such federal requirement applies to married defined contribution plan participants.
  • Two lawmakers hope to change that.

Two House members want to make it harder for one angry, or irresponsible, spouse from wiping out a couple’s retirement plan assets.

The lawmakers, Reps. Lucy McBath, D-Ga., and Lauren Underwood, D-Ill., are seeking co-sponsors for a draft bill that could require a married 401(k) plan participant to get permission from the other spouse before taking lump sums of cash out of a 401(k) plan.

McBath talked about the bill last week, during a hearing organized by the House Health, Employment, Labor and Pensions Subcommittee.

McBath said the draft bill would require a married participant’s permission to withdraw assets in the form of a lump sum of cash, or to roll assets into an arrangement beyond the reach of the other spouse.

A married participant would not have to get consent from the spouse to receive plan benefits in the form of a joint and survivor spousal annuity, or to roll the assets into another employer-sponsored retirement plan or individual retirement arrangement that provided protection for the spouse, McBath said.

Amy Matsui, director of income security at the National Women’s Law Center, said federal legislation is necessary because of the gap between the current rules for defined benefit pension plans and defined contribution retirement plans.

Because the rules governing married 401(k) plan participants are so weak, “the participant could withdraw his retirement savings and make a risky investment or an extravagant purchase or a gift that the other spouse did not consent to,” Matsui said. “Or he could squander the funds gambling … Practitioners have reported instances where participants’ spouses have drained their retirement savings accounts to prevent the other spouse from receiving a share during divorce proceedings.”

A married plan participant could also roll 401(k) plan assets into an IRA and name a child, a sibling or a girlfriend as the beneficiary, because federal law does not required a married IRA holder to name the spouse as the beneficiary, Matsui said.

In theory, the other spouse could get the assets back through divorce proceedings, but, in the real world, if the funds are spent, there may be no practical way to get the assets back, Matsui said.

“Spouses may be deprived of the retirement savings when they need them the most,” Matsui said. “They may not even find out that the retirement savings they were counting are gone until their spouse dies.”

Rep. Lucy McBath (Photo: McBath)


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