Making the Other Half Whole

Posted by Saaib Uppal, CPA

Wedding PhotoWhen entering into a relationship such as marriage, there are immediate changes in one’s life. One of those is, of course, the requirement to consent. Those activities or decisions you pursued in the past while single are no longer exclusively in your hands. A second vote has been added (and depending on the spouse – perhaps a couple of votes!) into each process before it becomes final. Perhaps as a genuine public policy (or maybe to avoid the wrath of angry spouses) the IRS has required spousal consent for some distributions that a participant takes out of an employer-sponsored retirement plan account with a Qualified Joint & Survivor Annuity (QJSA) form of distribution. Generally, this includes defined benefit pension plans and defined contribution plans that have balances that were merged into the plan from an old money purchase pension plan. Some plans that offer annuity products as an investment option also require spousal consent for distributions.

But what if you take a distribution without receiving the required consent? Well, the IRS in Revenue Procedure 2013-12 has provided a couple of options to correct the failure and to “make the other half whole.”

  1. The first is a simple “get out of jail free” card in which the spouse gives his or her consent retroactively for the distribution.
  2. The second is slightly more complicated. A spouse is provided a benefit that is equal “to the portion of the qualified joint and survivor annuity that would have been payable to the spouse upon the death of the participant had a qualified joint and survivor annuity been provided to the participant under the plan at the annuity starting date for the prior distribution.”
  3. Alternatively, the spouse making the claim may elect to receive a single-sum payment equal to the actuarial present value of that survivor annuity benefit described in option #2. Note that if the plan is subject to a restriction on single-sum payments, the plan sponsor must make a contribution to the plan to ensure the plan’s adjusted funding target attainment is not compromised.

It goes without saying (or does it?) that the spouse referred to above is the spouse at the time of the distribution. A participant whose retirement benefit is subject to the QJSA rules must obtain consent for a lump-sum payment, or making their other half whole may end up costing much more than flowers and chocolate.

Photo by josefnovak33 (License)

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