Employee died 2 months after being married
We have a client whose son recently died just two months after being married. Their son listed his mother as the primary beneficiary of his 401k. They all live in California. The son did not update or change his 401k beneficiary information with the company after he was married.
The son’s employer distributed his 401k to his new wife (not to the mother). The company told the mother that the wife is entitled to the 401k BECAUSE he did not update his beneficiary form after he was married. The beneficiary form has a place for the spouse to sign if the spouse wants to waive her right to his 401k. She did not sign this hence she became the primary beneficiary ahead of the mother. The company also said their position had something to do with community property law.
Does that sound right? If this is correct, is it fair to say that anyone who has not updated their beneficiary form after they marry basically guarantees their spouse will inherit their 401k regardless of who they have listed on their beneficiary form?
Is this a California issue or is this true nationwide?
If the wife died (after the husband) prior to the 401k distribution, would the mother become the primary beneficiary or would the wife’s estate been entitled to the 401k?
Permalink Submitted by Alan Spross on Thu, 2008-02-28 01:45
It’s not a CA or community property issue, it’s federal law.
Wife’s estate would be entitled if she passed after her husband. But if she had passed prior to her husband, then the mother listed on the form would be “reinstated” as beneficiary.
In this case, the employer is correct, other than their explanation of the reason for this provision.
Permalink Submitted by Bruce Steiner on Thu, 2008-02-28 14:12
But see Section 417(d)(1).
Permalink Submitted by Bill Beeler on Fri, 2008-02-29 20:31
[quote=”[email protected]“]But see Section 417(d)(1).[/quote]
I could not find section 417(d)(1) on the IRS site. Perhaps someone could tell me how to find it.
Permalink Submitted by Bill Beeler on Fri, 2008-02-29 20:38
I looked at a SEI Investments IRA application and noticed this wording. Note: this section must be completed if either the trust or the residence of the IRA holder is located in a community or marital property state…….
It looks like there may be a connection to a cummunity porperty state??? ❓ ❓
I looked at a Fidelity IRA application and there is no mention of Spousal Consent.
I did not realize the spousal consent applied to non 401k accounts. Could someone tell me if there is a global rule regarding spousal consent? When does it apply, to what kind of account?
Why does one custodian have the language and another does not??
Thanks
Permalink Submitted by Denise Appleby on Fri, 2008-02-29 21:57
Bill,
You mentioned 401(k) in the beginning. Is it an IRA?
The response will differ.
Click [url=http://www.law.cornell.edu/uscode/search/display.html?terms=417&url=/usc… for 417(d)(1)[/url]
Permalink Submitted by Denise Appleby on Fri, 2008-02-29 22:12
[quote=”billb”]
I did not realize the spousal consent applied to non 401k accounts. Could someone tell me if there is a global rule regarding spousal consent? When does it apply, to what kind of account?
Why does one custodian have the language and another does not??
Thanks[/quote]
[b]Spousal consent(global rule)[/b]
For IRAs and non-ERISA 403(b) accounts, spousal consent is generally require if the participant resides in a [url=http://www.retirementdictionary.com/marital-property-state.htm%5Dcommunity or marital property state.[/url]
Some custodians make it optional, with a strong recommendation that it be obtained. Some make exceptions if it is clear that the IRA is not community/marital property. In most ( if not all ) cases, it is noted as a requirement on the [url=http://www.retirementdictionary.com/Beneficiary-Designation-Form.htm%5Dben… designation form[/url].
For [url=http://www.retirementdictionary.com/Qualified-Retirement-Plan.htm%5Dqualified plans[/url] an ERISA 403(b) accounts, spousal consent is generally required regardless of State of residence. This is federal law, as opposed to IRAs which are based on State law.
If this is a qualified plan, the [url=http://www.retirementdictionary.com/summaryplandescription.htm%5Dsummary plan description (SPD)[/url] should be consulted to determine the rules that apply to the plan. Some plans do not treat a participant as a ‘married’ for plan purposes, if the participant does less than one-year after being married. A good place to start is the SPD.
…checking on the one-year rule to see how it affects beneficiary designations. I know it affects 417 for purposes of payout options…
Permalink Submitted by Denise Appleby on Fri, 2008-02-29 23:19
Following up…
Tres Reg §1.401(a)-20 addresses requirements for [url=http://www.retirementdictionary.com/Qualified-Joint-Survivor-Annuity.htm… QPSA. However, Q& A-26 provides that
[quote]A plan may provide that a spouse who has not been married to a participant throughout the one-year period ending on the earlier of (a) the participant’s annuity starting date or (b) the date of the participant’s death is not treated as a surviving spouse and is not required to receive the participant’s account balance.[/quote]
So it all redirects to the SPD. It appears that if the plan provides that the spouse is not treated as ‘surviving spouse’ for plan purposes, then the beneficiary designation form rules and the mother is the beneficiary.