Pension Protection Act Blog

Some days, every question can be answered by applying the examples contained within the Treasury regulations. Today, the question involved a participant in a terminating defined benefit plan who has been married for six months and wants to take a lump sum distribution without notifying his wife, much less obtaining her consent. The language in the plan document defines spouse as:

The person to whom a Participant is legally married throughout the one year period ending on the earlier of the Annuity Starting Date or the date of the Participant’s death.

The easy answer is to read this definition, and declare that the participant is permitted to behave as if he is not married because he has not been married for one year.

The Treasury regulations provide a different answer. Q&A 25 from Treas. Reg. 1.401(a)-20 Q&A 25(b)(2) states:

(2) One-year rule. (i) A plan is not required to treat a participant as married unless the participant and the participant’s spouse have been married 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. Nevertheless, for purposes of the preceding sentence, a participant and the participant’s spouse must be treated as married throughout the one-year period ending on the participant’s annuity staring date even though they are married to each other for less than one year before the annuity starting date if they remain married to each other for at least one year. See section 417(d)(2). If a plan adopts the one-year rule provided in section 417(d), the plan must treat the participant and spouse who are married on the annuity starting date as married and must provide benefits which are to commence on the annuity starting date in the form of a QJSA unless the participant (with spousal consent) elects another form of benefit. The plan is not required to provide the participant with a new or retroactive election or the spouse with a new consent when the one-year period is satisfied. If the participant and the spouse do not remain married for at least one year, the plan may treat the participant as having not been married on the annuity starting date. In such event, the plan may provide that the spouse loses any survivor benefit right; further, no retroactive correction of the amount paid the participant is required.

(ii) Example. Plan X provides that participants who are married on the annuity stating date for less than one year are treated as unmarried participants. Plan X provides benefits in the form of a QJSA or an optional single sum distribution. Participant A was married 6 months prior to the annuity starting date. Plan X must treat A as married and must commence payments to A in the form of a QJSA unless another form of benefit is elected by A with spousal consent. If a QJSA is paid and A is divorced from his spouse S, within the first year of the marriage, S will no longer have any survivor rights under the annuity (unless a QDRO provides otherwise). If A continues to be married to S, and A dies within the one-year period, Plan X may treat A as unmarried and forfeit the QJSA benefit payable to S.

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