Thinking About Getting Re-Married? You Might Want To Roll Over What’s In Your 401(k)

Nearly all 401(k) plans are governed by the Employment Retirement Act of 1979 (“ERISA”). ERISA regulates pension, health & welfare, and other employee benefits including 401(k) programs.

Under ERISA, if owner of an ERISA-governed 401(k) plan dies, their surviving spouse is automatically entitled to 401(k) benefits at the time death, regardless of who has been named beneficiary. Under § 1055 of ERISA, if the owner of a retirement account is married when he or she dies, his or her spouse is automatically entitled to receive at least fifty percent (50%) of the money, regardless of what the beneficiary designation says. The Supreme Court has explained that § 1055 reflects Congress’s intent to “ensure a stream of income to surviving spouses.”

This right of the surviving spouse is triggered regardless of when the assets were accrued or how long the pair has been married. There is an exception to the general rule. Plans are permitted to include a 1-year marriage rule whereby a surviving spouse must have been married to the plan participant for at least 1 year before they may claim a right to 401(k) assets, but, not all plans have adopted this exception.

In order to “disinherit” a spouse from the assets in an ERISA-governed 401(k) plan, one would need to obtain a waiver wherein the spouse relinquishes his/ her claim to the assets as well as file the required paperwork with your employer demonstrating the intended beneficiaries. Importantly, a prenuptial agreement cannot take the place of a waiver as the law says the spouse (not fiancé) must sign. This can be troublesome because such waiver can only be done after a pair is married and the spouse already has acquired the right to any assets. Importantly, such waiver must be notarized.

IRAs, unlike 401(k) plans, are not governed by ERISA, so they do not include the same protections for spouses. This is true even if a 401(k) is rolled into an IRA.

If you are wishing to have someone else benefit from your 401(k) plan (e.g., children) it would be prudent to roll over your 401(k) into an IRA account where you can name them the beneficiary. If not, your 401(k) is at risk to diversion to a surviving spouse.