By Ian Berger, JD
IRA Analyst
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One important way that IRAs differ from company retirement plans is with respect to spousal financial rights. Most married IRA owners do not need spousal consent before designating a beneficiary other than the spouse. By contrast, most married plan participants do need to get their spouse to agree to a non-spouse beneficiary. And married participants in some types of plans also need spousal consent before taking a lump sum distribution from the plan.

The retirement plan spousal protection rules are part of ERISA. But ERISA doesn’t cover IRAs. So, spouses of IRA owners usually don’t enjoy any rights to the account. That is not the case in community (or marital) property states. In those states, the spouse must consent if the owner of an IRA (entered into during marriage) wants to designate someone else as beneficiary.

There are two types of ERISA financial protection for spouses. The first applies to all ERISA plans and is similar to the spousal consent requirement for IRAs in community property states: A married participant’s spouse is automatically the beneficiary unless the participant designates another beneficiary and the spouse consents.

Example 1: Anna participates in an ERISA 401(k) plan  She has designated her brother Jim as her 401(k) plan beneficiary, but her husband Kai will not consent to that designation. While participating in the plan and still married to Kai, Anna dies. The plan must pay the death benefit to husband Kai despite Anna’s beneficiary designation.

The second ERISA safeguard gives spouses even more protection. A married participant’s benefit must be paid in the form of a special type of annuity – unless the participant elects another form of payment and the spouse consents. This special annuity (called 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.

The QJSA requirement applies to all plans covered by ERISA – except for plans that don’t offer annuities as a payment form. Most 401(k) plans only offer a lump sum form of payment, so they are exempt. However, the rule does apply to most ERISA 403(b) and defined benefit pension plans.

Example 2: Jason in an ERISA-covered pension plan and is married to Jenna. He wants to receive an annuity from the plan that will pay him over his lifetime only, with no spousal benefit after he dies. The plan can pay Jason this type of annuity only if Jenna consents. If she doesn’t consent, he must receive the QJSA. Because of the spousal protection, Jason’s annuity payments under the QJSA would be smaller than if he had received an annuity over his lifetime only.