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Qualified Retirement Plans (QRPs), which include 401(k), 403(b) and many other employer-based plans, are governed by federal law under ERISA. One of the tenets of ERISA is that there are certain rights for the spouse of the employee-participant in the plan. One of those rights is that the spouse must consent to any distribution from that plan that is in the form of anything other than a Qualified Joint and Survivor Annuity (QJSA).
Depending upon your circumstances, this might not be the way you would like for things to work out. For example, if you’re planning to get married and you want to ensure that your future spouse doesn’t control distributions from your retirement plan, you could rollover your QRP to an IRA before your marriage – because an IRA isn’t covered by ERISA like the QRP is. A prenuptial agreement could be used to limit a spouse’s rights to an IRA, but it cannot usurp the ERISA rules.
If you’re already married and you have a reason to consider this option, hopefully it’s not because there are storm-clouds on the horizon for your marriage. If this is the case, you will likely have some difficulty in enacting this rollover. The problem, as mentioned before, is that the spousal rights provision requires that your spouse signs off on any distribution other than the QJSA.
If you’re going through a divorce, it’s possible that you’d need to have your ex-spouse sign off on a distribution from your QRP if the QRP isn’t part of the assets to be split. If the QRP isn’t being split for the divorce, you’ll want to make sure that you have a statement in the decree that ensures that the QRP is positively identified as belonging solely to you. Otherwise, your ex could make a claim against a portion of your QRP later, under ERISA.
Bear in mind that the spousal distribution rights from the QRP also apply to death benefits from the plan, in addition to lifetime benefits.
One other thing to keep in mind is that your own state’s law may provide rights to your IRA to your spouse anyhow. If that is the case, the rollover to the IRA would not have the effect you expected.
Sterling Raskie, MSFS, CFP®, ChFC®
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