3890 / When may survivor benefits required under a qualified plan be waived?

A qualified plan that is subject to the automatic survivor benefit rules generally must provide that participants may elect (or revoke an election) to waive the qualified joint and survivor annuity (“QJSA”) or the qualified preretirement survivor annuity (“QPSA”) forms of benefit ( Q 3882) at any time during the applicable election period.¹ The participant may elect the qualified optional survivor annuity (“QOSA”) at any time during the applicable election period.²

The plan also must provide that such an election will not be effective unless (1) the spouse of the participant, if any, consents in writing to the election, (2) the election designates a beneficiary or a form of benefits that may not be changed without spousal consent (unless the consent expressly permits future designations by the participant without further spousal consent), and (3) the consent acknowledges the effect of the election and is witnessed by a plan representative or notary public.³ See Q 3886, which explains the use of the term spouse to apply to same sex couples.

An election made without the consent of the spouse is effective only if it is established to the satisfaction of a plan representative that there is no spouse, that the spouse cannot be located, or that certain other specified circumstances prevent securing such consent.⁴ Caution should be exercised when following any of these exceptions as a missing spouse who suddenly resurfaces may be entitled to benefits that already have been fully paid to another beneficiary. Any consent by the spouse of a participant, or proof that consent cannot be obtained from the spouse, is effective only with respect to that spouse and not to any subsequent spouse except in the case of plan benefits securing a loan ( Q 3882).⁵

A spousal waiver that had not been properly witnessed or notarized was struck down despite the wife’s acknowledgement that she had signed the form because the waiver did not meet the requirements clearly set forth in the IRC and ERISA.⁶

In an earlier district court ruling, the lack of a written, notarized spousal consent did not render the designation of a non-spouse beneficiary completely ineffective; the designation remained effective to the extent the benefits exceeded what was required to be paid to the spouse.⁷ In another case, the Seventh Circuit held that where the husband was also the plan representative, his wife’s consent was valid even though he did not witness it on behalf of the plan, because he knew the person who signed it was his wife.⁸

Prior consent to waive a benefit is not invalid simply because the benefit increased after the consent was given.⁹

A prenuptial agreement or similar contract entered into prior to marriage is not, by itself, effective to waive a widow’s surviving spouse benefits,¹⁰ based on parallel provisions found in ERISA Section 205(c) and IRC Section 417(a).¹¹ For a valid waiver to occur, ERISA requires a notarized waiver containing specific language by a spouse who actually is entitled, by marriage, to the statutory benefits being waived. In addition, the spouse executing the waiver must designate an alternative beneficiary.¹²

Planning Pointer: If the parties intend that the surviving spouse’s right to benefits be waived after the marriage, the agreement should provide that the waiver be executed in conformance with the waiver requirements after the marriage.

The Court of Appeals for the Eighth Circuit held that neither a prenuptial agreement with a participant’s second wife, nor a separation agreement in which his first wife had “relinquished any right, title or interest in and to any … pension plans,” constituted a valid waiver; thus, the court divided the benefit equally between them on his death.¹³

The Court of Appeals for the Fourth Circuit found that a valid waiver was executed where the separation agreement specified the plan in which the interest was waived, even though the ex-spouse was still named as beneficiary.¹⁴

A plan is not required to permit a waiver of the QJSA or QPSA form of benefit if it fully subsidizes the cost of such benefit and does not permit a participant to waive the benefit or designate another beneficiary. A plan fully subsidizes the cost of a benefit if the failure to waive the benefit would not result in a decrease of any plan benefits to the waiving participant and would not result in increased contributions from that participant.¹⁵

Applicable Election Period

With respect to the QJSA form of benefit, the applicable election period is the 180-day period ending on the annuity starting date (the 90-day period, in the case of plan years beginning before 2007).¹⁶ The plan generally may not commence the distribution of any portion of a participant’s accrued benefit to which these requirements apply unless the applicable consent requirements are satisfied.¹⁷

A plan must provide participants with written notice of the QJSA requirement no less than
30 days and no more than 180 days (90 days for plan years prior to 2007) before the annuity starting date.¹⁸ If a participant, after receiving the written explanation of the QJSA, affirmatively elects a form of distribution with spousal consent, the plan will not fail to satisfy the requirements of IRC Section 417(a) merely because the annuity starting date is less than 30 days after the written explanation was provided to the participant, provided four requirements are met:

(1)  the plan administrator must provide information to the participant clearly indicating that the participant has a right to at least 30 days to consider whether to waive the QJSA and consent to another form of distribution;

(2)  the participant must be permitted to revoke an affirmative distribution election at least until the annuity starting date, or, if later, at any time prior to the expiration of the seven day period that begins the day the explanation of the QJSA is provided to the participant;

(3)  the annuity starting date must be after the date the explanation of the QJSA is provided, except as provided in IRC Section 417(a)(7) ( Q 3882); and

(4)  distribution in accordance with the affirmative election must not begin before the expiration of the seven-day period that begins the day the explanation of the QJSA is provided to the participant.¹⁹

With respect to the QPSA form of benefit, the applicable election period begins on the first day of the plan year in which the participant attains age 35 and ends on the date of his or her death. Where a participant has separated from service with the employer, the election period with respect to previously accrued benefits may begin no later than the date of separation.²⁰

The applicable election period may not end before the 30th day after the plan provides the explanation required under IRC Section 417(a)(3).²¹ Under that rule, a plan generally must, within certain specified periods, provide each participant (vested and non-vested, married or unmarried) with a written explanation of the automatic survivor annuity forms of benefit and of the participant’s (and his or her spouse’s) rights with respect to waiving the benefits
( Q 3882).