Category Archives: Distributions

20 Questions on Terminations, Partial Terminations and Severance from Employment

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How much do you know about terminations, partial terminations and severance from employment? Here is your chance to find out! Test your knowledge of IRS guidance on terminations, partial terminations and severance from employment by playing 20 Questions on Terminations, Partial Terminations and Severance from Employment.

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IRS Updates FAQ on Hardship Distributions

checklist
The IRS has posted a new FAQ on hardship distributions. It includes a handy list of items which plan administrators should follow when processing a hardship distribution. It starts with this reminder:

A plan may only make a hardship distribution:

  • If permitted by the plan;
  • Because of an immediate and heavy financial need of the employee and, in certain cases, of the employee’s spouse, dependent or beneficiary; and
  • In an amount necessary to meet the financial need.

It then provides a step-by-step guide of 9 things a plan administrator should do when processing a hardship distribution.

1. Review the terms of the plan, including:

  • whether the plan allows hardship distributions;
  • the procedures the employee must follow to request a hardship distribution;
  • the plan’s definition of a hardship; and
  • any limits on the amount and type of funds that can be distributed for a hardship from an employee’s accounts.

2. Obtain a statement or verification of the employee’s hardship as required by the plan’s terms.

3. Determine that the exact nature of the employee’s hardship qualifies for a distribution under the plan’s definition of a hardship.

4. Document, as may be required by the plan, that the employee has exhausted any loans or distributions, other than hardship distributions, that are available from the plan or any other plan of the employer in which the employee participates.

5. If the plan’s terms state that a hardship distribution is not considered necessary if the employee has other resources available, such as spousal and minor children’s assets, document the employee’s lack of other resources.

6. Check that the amount of the hardship distribution does not exceed the amount necessary to satisfy the employee’s financial need. However, amounts necessary to pay any taxes or penalties because of the hardship distribution may be included.

7. Ensure that the amount of the hardship distribution does not exceed any limits under the plan and consists only of eligible amounts. For example, a plan could limit hardship distributions to a specific dollar amount and require that they be made only from salary reduction contributions.

8. If the plan’s terms require that the employee is suspended from contributing to the plan and all other employer plans for at least 6 months after receiving a hardship distribution, inform the employee and enforce this provision.

9. If a plan does not properly make hardship distributions, it may be able to correct this mistake through the Employee Plans Compliance Resolution System (EPCRS).

Rapid Fire Required Minimum Distribution Guidance for 2008 and 2009

Late in 2008, when the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) was signed into law, one of the provisions it contained was a waiver of Required Minimum Distributions (RMDs) for 2009 (not for 2008) for retirement plans which hold each participant’s benefits in an individual account, such as 401(k) plans, 403(b) plans, and certain 457(b) plans. WRERA also waives RMD distributions for IRAs. In rapid fire, the IRS has provided this guidance:

Notice 2009-9, which clarifies that most participants and beneficiaries who are required to take minimum distributions from these types of accounts are not required to withdraw any amount in 2009. RMDs are not waived for 2008, even for individuals who were eligible and chose to delay taking their 2008 RMD until April 1, 2009, such as those retired employees and IRA owners who turned 70.5 in 2008. These individuals must still take their full 2008 RMD by April 1, 2009, but they may postpone taking their 2009 RMD until April 1, 2010.

A Special Edition of Retirement News for Employers, which summarizes the information contained in Notice 2009-9. It also explains that if a beneficiary is receiving distributions over a 5-year period, they can now waive the distribution for 2009. This means that they will effectively be taking distributions over a 6-year period rather than a 5-year period. While Notice 2009-9 provides that Box 11 of Form 5498 (IRA Contribution Information) should not be checked for 2008, this special edition of Retirement News for Employers recognizes that there may not be sufficient time for financial institutions to change their programming to comply with this requirement. For this reason, the IRS states that it will not consider a 2008 Form 5498 issued incorrectly solely because it contains a check in Box 11 as long as the financial institution notifies the recipient by March 31, 2009, that no RMD is required for 2009.

Notice 2009-9 also modified Notice 2002-27 without explanation. This special edition of Retirement News for Employers explains that RMD information required under Notice 2007-27 does not need to be sent to IRA owners for 2009. If a financial institution sends a separate RMD statement to an IRA owner, either initially or in respones to the owner’s request for the financial institution to calculate the RMD for 2009, the financial institution may show the RMD for 2009 as zero. Alternatively, the financial institution may send the IRA owner a statement showing the RMD that would have been required but for the waiver of RMDs for 2009, along with an explanation of the waiver for 2009 RMDs.

The date to adopt an amendment to reflect this RMD waiver for 2009 is on or before the last day of the first plan year beginning on or after January 1, 2011 as provided for in Section 201(c)(2)(B) of WRERA. For governmental plans, the date to adopt an amendment is on or before the last day of the first plan year beginning on or after January 1, 2012.

[tag]pension protection act, ppa, IRS, required minimum distributions, RMD, WRERA, Notice 2009-9, ERISA[/tag]

Required Minimum Distribution Relief for 2009 Clarified

The Dept. of Treasury has informed Congress that the IRS has determined that any further change to the required minimum distribution rules should not be undertaken. This surprising news was contained in a letter sent by the Assistant Secetary for Legislative Affairs Kevin Fromer to Congressman George Miller, Chairman of the Committee on Labor and Education on December 17, 2008. (hat tip to BenefitsLink.com)

This is noteworthy because a debate has been raging for a number of years that the required beginning date for required minimum distributions should be the April 1st of the calendar year following the later of the calendar year in which the employee attains age 75 or the calendar year in which the employee retires. Increasing the RMD age to 75 would add 4.5 years to the current rule contained in Code section 401(a)(9)(C)(i), which states that the required beginning date is the April 1st of the calendar year following the later of the calendar year in which the employee attains age 70.5 or the calendar year in which the employee retires.

One of the concepts behind the RMD rules was that retirement accounts should provide funds for retirement, not a way to transfer wealth to beneficiaries after death. The idea was that by forcing participants to start taking distributions by the April 1st of the calendar year following the later of the calendar year in which the employee attains age 70.5 or the calendar year in which the employee retires, money would flow out of retirement accounts and back into circulation during a participant’s lifetime.

What this concept missed was that age 70.5 is just not as old as it used to be, and that in a down economy, no participant should be forced to take distributions out of their account if doing so means selling at a loss. With recovery from the recent economic downturn expected to take several years, it seemed that changing the current RMD age from 70.5 to 75 would finally have some traction. Maybe the stock market will fully recover in the 12 months. Or maybe there will be another emergency bill headed through Congress next year with another new subparagraph 401(a)(9)(H) granting another one year extension.

The other news is that the letter clarifies the timing of the change to the required minimum distribution rules made by the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA ’08). The letter states:

    “Thus, all individuals who are subject to required minimum distributions for 2008 should take their distribution under the existing rules and, as a result of relief provided by Congress, they will be entitled to a complete waiver of the requirement to take any distributions for 2009.”

The change to Code section 401(a)(9) made by WRERA ’08 added new subsection H, which states:

    “(H) Temporary Waiver of Minimum Required Distribution –

      (i) In General. The requirements of this paragraph shall not apply for calendar year 2009 to –

        (I) a defined contribution plan which is described in this subsection or in section 403(a) or 403(b),
        (II) a defined contribution plan which is an eligible deferred compensation plan described in section 457(b) but only if such plan is maintained by an employer described in section 457(e)(1)(A), or
        (III) an individual retirement plan.

      (ii) Special Rules Regarding Waiver Period. For purposes of this paragraph –

        (I) the required beginning date with respect to any individual shall be determined without regard to this subparagraph for purposes of applying this paragraph for calendar years after 2009, and
        (II) if clause (ii) of subparagraph (B) applies, the 5-year period described in such clause shall be determined without regard to calendar year 2009.

The effective date for this change applies to calendar years beginning after December 31, 2008.

[tag]pension protection act, ppa, IRS, RMD, required minimum distribution, 401(a)(9), WRERA, ERISA[/tag]

IRS Debunks Another 401(k) Urban Myth in New Guidance on Rollovers as Business Startups

ROBS, or Rollovers as Business Startups, have been bouncing around the employee plans arena for a couple of years. I first hear an IRS official mention ROBS during the 2006 Cincinnati Benefit Conference as part of the presentation on tax avoidance transactions. This week, the IRS finally released a Memorandum of Understanding, or MOU, addressing ROBS.

In a nutshell, ROBS are plans designed to permit an individual to buy a business, such as a fast food franchise, using their retirement account from a previous employer without taking a distribution from their retirement account so they do not pay tax on the distribution. The individual sets up a corporation, that corporation adopts a qualified plan, the individual rolls their retirement account from a previous employer into the new qualified plan (hence the “Rollover”), and the qualified plan does some one-time-only stock transactions which result in the corporation owning a business, normally a fast food franchise or a frozen yogurt shop (this is the “Business Startup” part).

The MOU on ROBS provides some interesting discussion on some of the theories and concepts which are the underpinnings of employee plans, such as prohibited transactions, the permanency requirement, benefits, rights, and features, exclusive benefit, and promoter fees. One urban myth of qualified plans that this MOU may finally put to rest is the myth of the “inactive CODA”. CODAs, or cash or deferred arrangements, are commonly known as the elective deferrals in 401(k) plans. The Myth of the Inactive CODA is invoked to explain why a 401(k) has an unusually low number of participants actually chosing to make elective deferrals into the plan. When asked why so few employees are availing themselves of the 401(k) plans, the plan sponsor will provide say that the plan’s CODA provision is “inactive”.

In unequivocal terms, the IRS states:

    There being no such thing as an “inactive” CODA, examiners should consider whether all the procedures for allowing employees to participate in the CODA were followed, whether new employees just chose not to defer, or whether employees were not even offered salary reduction elections. If it is established that employees were not permitted to make elective deferrals, the plan would violate IRC section 401(k)(2)(D) in that it did not permit eligible employees to elect salary deferral contributions.”

[tag]pension protection act, ppa, memorandum of understanding, IRS, ROBS, rollovers, business startups, CODA, ERISA[/tag]

9th Circuit Decides QJSA Tug of War in Favor of Spouse at Time of Retirement

    “This case requires us to once again navigate the complex statutory scheme set out in the Employee Retirement Income Security Act of 1974….”

        - Judge Clifton, 9th Circuit Court of Appeals

    Yesterday, the 9th Circuit Court of Appeals decided whether or not a participant in a plan with a Qualified Joint and Survivor Annuity (QJSA) may change the surviving spouse beneficiary after the participant has retired and the annuity has become payable. In Caruso v. Caruso, No. 06-15938 (CA9 Sept. 17, 2008), the Court held that the “QJSA surviving spouse benefits irrevocably vest in the participant’s spouse at the time of the annuity start date – in this case the participant’s retirement – and may not be reassigned to a subsequent spouse.”

    How the 9th Circuit reached this holding provides a cautionary tale for both spouses and plan administrators. In 1992, Mr. Caruso retired and began collecting pension benefits from two different pension plans – one sponsored by Hilton and one sponsored by IATSE. At the time of the annuity starting date, Mr. Caruso was married to his 8th wife, Janis Caruso. In 1994, Mr. Caruso and 8th wife decide to divorce, and before the entry of the formal divorce decreee, Mr. Caruso ask to remove 8th wife as his named survivor beneficiary. Both plan administrators refused to remove her as beneficiary since the designation became irrevocable at the time of his retirement and annuity starting date.

    In 1997, their divorce became final. Mr. Caruso was awarded his interests in both pensions as his sole and separate property, and 8th wife was awarded her interests in her pensions as her soel and separate property. Additionally, Mr. Caruso was ordered to pay 8th wife $1,500 as an equalization payment because his pensions had greater value than her pensions.

    Mr. Caruso then married his 9th wife, Judy Caruso, in 1997 and petitioned the domestic relations court for QDROs which would change his beneficiary designation from 8th wife to 9th wife. In 1999, Mr. Caruso died. The day after he died, the domestic relations court ordered the plan administrators to change the beneficiary from 8th wife to 9th wife.

    8th wife then begins a long journey through both state and federal courts seeking to overturn this order, including a trip through the Nevada Supreme Court and a petition to the U.S. Supreme Court seeking certiorari, which the U.S. Supreme Court denied. In 2004, the domestic relations court issued two Qualified Domestic Relations Orders (QDROs), directing each plan to pay survivor benefits to 9th wife or pay the benefits into a constructive trust.

    Normally, the case would have been expected to end at this point because 8th wife had exhausted all judicial avenues by pursuing her cause through both state and federal courts, and exhausted all of her appeals. Unfortunately for 9th wife, 8th wife files one final action in federal court, seeking to “enjoi any act or practice which violates any provision [of ERISA] or the terms of the plan”, and the plan trustees for the IATSE pension plan file a cross-claim against 8th wife. The 9th Circuit determines that the 8th wife may have exhausted all of her legal avenues, but the trustees for the IATSE plan have not exhausted their legal avenues because it was not a party to the prior suits and not in privity with the 8th wife. By filing the cross-claim, the trustees of the IATSE plan breathed new life into 8th wife’s journey through the legal system to obtain benefits payable under both plans.

    The 9th Circuit then found that because Mr. Caruso’s retirement created a vested interest in the surviving spouse’s benefits, a domestic relations order issued after Mr. Caruso’s retirement could not alter or assign the 8th wife’s interest to the 9th wife, and that the Nevada domestic relations court’s attempt to transfer those benefits from 8th wife to 9th wife was prohibited.

Working Retirement and Justice Scalia

Justice Scalia, on 60 Minutes this last Sunday, mentioned that his original plan when he was appointed to the Supreme Court had been to retire from the Court at age 65 because justices can retire from the Court at age 65 at 100% of annual compensation. Instead, he decided to stay on the Court and has continued to work past age 65. His comments reminded me of Section 905 of the Pension Protection Act.

Section 905 is about distributions during working retirement. It is one of my favorite parts of the Pension Protection Act because it was part of Congress re-conceptualizing what retirement age and retirement date should mean to a participant who does not want penalized for continuing to work past normal retirement age. Section 905(b) added Code section 401(a)(36), which states:

    (36) Distributions During Working Retirement. A trust forming part of a pension plan shall not be treated as failing to constitute a qualified trust under this section solely because the plan provides that a distribution may be made from such trust to an employee who has attained age 62 and who is not separated from employment at the time of such distribution.

Section 905 applies to distributions in plan years beginning after December 31, 2006.

On May 22, 2007, the IRS released Final Regulations on Distributions from a Pension Plan Upon Attainment of Normal Retirement Age. Within these 4 short pages of regulations, the IRS added Treas. Reg. 1.401(a)-1(b)(3), which states:

    (3) Benefit distribution prior to retirement. For purposes of paragraph (b)(1)(i) of this section, retirement does not include a mere reduction in the number of hours that an employee works. Accordingly, benefits may not be distributed prior to normal retirement age solely due to a reduction in the number of hours than an employee works.

Paragraph (b)(1)(i), otherwise known as Treas. Reg. 1.401(a)-1(b)(1)(i), states:

    (i) In order for a pension plan to be a qualified plan under section 401(a), the plan must be established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to its employees over a period of years, usually for life, after retirement or attainment of normal retirement age (subject to paragraph (b)(2) of this section). A plan does not fail to satisfy this paragraph (b)(1)(i) merely because the plan provides, in accordance with section 401(a)(36), that a distribution may be made from the plan to an employee who has attained age 62 and who is not separated from employment at the time of such distribution.

The IRS then released Notice 2007-69 to provide guidance these final regulations.

[tags]Pension Protection Act, ppa, scalia, 401(a)(36), 1.401-1(b)(1), Notice 2007-69, working retirement, phased retirement, ERISA[/tags]

Rollovers to NonSpouse Beneficiaries Are Back With Passage of H.R. 3361 But For 2009 Instead of 2008

A little over a year ago, I started this blog to keep track of my notes about the Pension Protection Act. One of my first posts was about rollovers to nonspouse beneficiaries. One year and 126,210 visitors later, rollovers to nonspouse beneficiaries remain a hot topic.

Last week, the House of Representatives finally passed H.R. 3361, the Pension Protection Technical Corrections Act of 2008 (PPTCA). Since the Senate passed their version of the PPTCA, S. 1974, late last year, the Senate should make quick work of reconciling the differences between their bill and H.R. 3361, and have a version of PPTCA ready for the President to sign as early as mid-April.

For rollovers to nonspouse beneficiaries, the passage of H.R. 3361 has significant impact because of the IRS’ position on rollovers to nonspouse beneficiaries. In the 2007 List of Interim and Discretionary Amendments, the IRS included this statement:

    § 402(c)(11) [Discretionary]: PPA ’06 § 829(a)(1) added § 402(c)(11) to allow nonspouse beneficiaries to roll over distributions from a qualified plan to an individual retirement plan. Nonspouse beneficiary rollovers are an optional plan provision for 2007. See, Notice 2007-7. Pursuant to an impending technical correction, nonspouse beneficiary rollovers will be required for plan years beginning on or after January 1, 2008. See, section 9(e) of S. 1974, the Pension Protection Technical Corrections Act of 2007, as introduced in the Senate on August 2, 2007 and section 9(e) of H.R. 3361, the Pension Protection Technical Corrections Act of 2007, as introduced in the House of Representatives on August 3, 2007.

The version of PPTCA that this paragraph of the 2007 List of Interim and Discretionary Amendments referenced was the Introduced version in the House. Section 9(e) of that version of H.R. 3361 stated:

    (e) Amendments Related to Section 829-
      (1) Section 402(c)(11) of the 1986 Code is amended–
        (A) by inserting `described in paragraph (8)(B)(iii)’ after `eligible retirement plan’ in subparagraph (A), and
        (B) by striking `trust’ before `designated beneficiary’ in subparagraph (B).
      (2)(A) Section 401(a)(31)(D) of the 1986 Code is amended by adding at the end the following new sentence: `Such term shall include any distribution which is treated as an eligible rollover distribution by reason of section 402(c)(11), 403(a)(4)(B), 403(b)(8)(B), or 457(e)(16)(B).’
      (B) The amendment made by subparagraph (A) shall apply with respect to plan years beginning after December 31, 2007.

In the Engrossed version of PPTCA, which passed the House last week, the applicability date changed from December 31, 2007, to December 31, 2008. Section 9(f) of H.R. 3361 now states:

    (f) AMENDMENTS RELATED TO SECTION 829.—
      (1) Section 402(c)(11) of the 1986 Code is amended—

        (A) by inserting ‘‘described in paragraph (8)(B)(iii)’’ after ‘‘eligible retirement plan’’ in subparagraph (A), and

        (B) by striking ‘‘trust’’ before ‘‘designated beneficiary’’ in subparagraph (B).

      (2)(A) Section 402(f)(2)(A) of the 1986 Code is amended by adding at the end the following new sentence: ‘‘Such term shall include any distribution to a designated beneficiary which would be treated as an eligible rollover distribution by reason of subsection (c)(11), or section 403(a)(4)(B), 403(b)(8)(B), or 457(e)(16)(B), if the requirements of subsection (c)(11) were satisfied.’’

        (B) Clause (i) of section 402(c)(11)(A) of the 1986 Code is amended by striking ‘‘for purposes of this subsection’’.

        (C) The amendments made by this paragraph shall apply with respect to plan years beginning after December 31, 2008.

Reconciling Section 9(f) of H.R. 3361 with Section 9(e) of the Engrossed version of S. 1974 should go smoothly, as Section 9(e) of S. 1974 states:

    (e) AMENDMENTS RELATED TO SECTION 829.—
      (1) Section 402(c)(11) of the 1986 Code is amended—
        (A) by inserting ‘‘described in paragraph (8)(B)(iii)’’ after ‘‘eligible retirement plan’’ in subparagraph (A), and
        (B) by striking ‘‘trust’’ before ‘‘designated beneficiary’’ in subparagraph (B).
      (2)(A) Section 402(f)(2)(A) of the 1986 Code is amended by adding at the end the following new sentence: ‘‘Such term shall include any distribution which is treated as an eligible rollover distribution by reason of section 403(a)(4)(B), 403(b)(8)(B), or 457(e)(16)(B).’’
        (B) Clause (i) of section 402(c)(11) of the 1986 Code is amended by striking ‘‘for purposes of this subsection’’.
        (C) The amendments made by this paragraph shall apply with respect to plan years beginning after December 31, 2008.

[tags]Pension Protection Act, PPA, IRS, HR 3361, S 1974, Pension Protection Technical Corrections Act, rollovers, nonspouse beneficiaries, ERISA[/tags]

IRS Provides Guidance on Qualified Optional Survivor Annuities (QOSAs)

Today, among several items released by the IRS, is guidance on QOSAs. QOSAs are Qualified Optional Survivor Annuities. Section 1004 of the Pension Protection Act amended Code section 417 to require that plans subject to Code section 401(a)(11) must offer participants a specific optional form of benefit as an alternative to a Qualified Joint & Survivor Annuity. Specifically, for a participant who waives a QJSA, the plan must provide the participant the opportunity to elect a QOSA. The plan must also provide a written explanation to the participant of the terms and conditions of the QOSA.

In Notice 2008-30, the IRS defines a QOSA as:

    as an annuity for the life of a participant with a survivor annuity for the life of the participant’s spouse that is equal to a specified applicable percentage of the amount of the annuity that is payable during the joint lives of the participant and the spouse, and that is the actuarial equivalent of a single life annuity for the life of the participant. A QOSA also includes a distribution option in a form having the effect of such an annuity.

Plans affected by this requirement are defined benefit plans, and defined contribution plans which are subject to the funding standards of Code section 412 or that do not satisfy the requirements to be exempt from Code section 401(a)(11).

Effective for distributions from a plan that is subject to Code section 401(a)(11) with annuity starting dates in plan years beginning after December 31, 2007, Notice 2008-30 clarifies that the amendment saving provision contained in Section 1107 of PPA does not provide relief from the requirements of Code section 411(d)(6) for a plan which operates and amends according to Section 1107 of PPA. Section 1107 of PPA provides that a plan may operate as if the amendment were in effect during the period from the effective date of the changes made by PPA until the date of the actual amendment. Section 1107 of PPA permits a plan sponsor to delay adopting a plan amendment until the last day of the first plan year beginning on or after January 1, 2009. Notice 2008-30 states that:

    an amendment that implements a QOSA is not eligible for any relief, pursuant to Code section 1107 of PPA ’06, from the requirements of Code section 411(d)(6). Thus, for example, a plan amendment that implements a QOSA may eliminate a distribution form or reduce or eliminate a subsidy with respect to a distribution form only to the extent such reduction or elimination is permitted under section 1.411(d)-3.

Q&A 15 of Notice 2008-30 applies a special rule for participants who elect a distribution with a retroactive annuity starting date pursuant to Treas. Reg. 1.417(e)-1(b)(3)(iv) which is before the effective date of Section 1004 of PPA. For such a participant, the date of the first actual payment of benefits based on the retroactive annuity starting date is substituted for the annuity starting date for purposes of applying the rules of this paragraph.

Notice 2008-30 also provides guidance on the level of spouse survivor annuity which must be provided under a QOSA, that spousal consent is not required for the participant to elect to receive a distribution in the form of a QOSA as long as the QOSA is actuarially equivalent to the plan’s QJSA, and that the plan is not required to offer participants a QOSA as an alternative to a Qualified Preretirement Survivor Annuity (QPSA). The plan is not required to provide a QOSA which is actuarially equivalent to the plan’s QJSA as long as the QOSA is at least actuarially equivalent to the plan’s form of benefit that is a single life annuity for the life of the participant payable at the same time as the QOSA.

Notice 2008-30 also provides guidance on PPA section 824 relating to rollovers from eligible retirement plans to Roth IRAs, and PPA section 302 relating to interest rate assumptions for lump sum distributions.

[tags]Pension Protection Act, PPA, Roth IRA, rollover, QOSA, Qualified Optional Survivor Annuity, QJSA, QPSA, IRS, ERISA[/tags]

Prenuptial Agreement Not Effective for Waiving Benefits Where Participant Dies Before Filing for Divorce


When a participant dies before filing for legal separation or divorce from their spouse, who is entitled to the participant’s benefits under the plan? The Sixth Circuit Court of Appeals recently addressed this situation in Greenebaum Doll v. Sandler, Nos. 06-6494, 06-6496 (6th Cir. Dec. 3, 2007).

In Greenebaum, the participant died three days after informally separating from his wife. At the time of death, neither the participant nor his spouse had filed for legal separation or divorce. The plan designated the participant’s surviving spouse as the default beneficiary and permitted a participant to designate a beneficiary other than the spouse if the spouse consented in writing to a specific beneficiary; the spouse’s written consent was witnessed by a member of the plan’s retirement committee or acknowledged before a Notary Public; and the spouse’s written consent had to acknowledge the effect of such consent. The plan also provided that no change in beneficiaries was effective until the plan’s retirement committee received a new designation of beneficiary. When the participant died, the plan’s retirement committee had received no designation of beneficiary from the participant, so the surviving spouse was the default beneficiary under the plan’s language.

Before the participant and spouse were married, they executed a prenuptial agreement which “waive[d] and release[d] any claim, demand or interest in any pension, profit-sharing, Keogh or other retirement benefit plan qualified under ERISAS and the Internal Revenue Code of the other party and agree[d] to execute any documentation to verify and confirm this fact with the administrator of such plan.”

After the participant died, the spouse and the participant’s children from a previous marriage asserted conflicting claims for the benefits held by the plan. The children filed a cross-claim against the spouse, asserting that she breached the prenuptial agreement by claiming an interest in the participant’s retirement assets and by failing to execute any instrument or document necessary to waive her interest in the participant’s benefits.

The Sixth Circuit upheld the district court’s decision awarding the participant’s benefits under the retirement plan to the spouse. The Sixth Circuit reasoned that a prenuptial agreement by itself does not satisfy ERISA’s spousal consent requirement, and the language in this prenuptial agreement specifically did not satisfy ERISA’s spousal consent requirement. Therefore, the spouse was entitled to the participant’s retirement assets as the default beneficiary under the terms of the plan. Even though the participant and spouse signed a prenuptial agreement calling for the spouse to waive any claim to the retirement benefits if they divorced, the prenuptial agreement did not preclude the spouse from receiving the retirement benefits if the participant died first.

[tags]Pension Protection Act, ppa, beneficiary, spouse, prenuptial agreement, Sixth Circuit, Greenebaum Doll, spousal consent, ERISA[/tags]