Gaps remain in 401(k) plans’ benefit protections for spouses, says trade group
Employer-sponsored retirement plans provide important protections for spouses, such as in the event of divorce or the participant’s death, however, gaps remain in spousal protections still, according to the American Academy of Actuaries (AAA).
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Lawmakers in the House and Senate have re-introduced legislation that would create protections for spouses who have a 401(k) plan. The Women’s Retirement Protection Act (WPRA) of 2025, which was reintroduced in Congress in April, would require the consent of both partners in order to take out a 401(k) loan or distribution, and is under consideration. However, under current law, one spouse can withdraw 401(k) funds without the other’s knowledge.
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While Congress is working toward spousal solutions, the AAA has published a new issue brief outlining options that public policymakers, as well as plan sponsors, could consider to address various obstacles and gaps in spousal benefits protections offered within retirement plans.
“Spousal benefits are intended to provide vital financial assurances in situations like a divorce or the death of a spouse, but there’s definite potential to make them more accessible and easier to exercise,” said Connie Rydberg, a co-author of the issue brief, Improving Spousal Retirement Plan Protections — Gaps and Policy Proposals and vice chairperson of the Academy’s Retirement Plan and Design Evaluation Committee which developed it.
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“Challenges and gaps in spousal benefit protections vary by plan type but range from the transparency and consent requirements regarding the disposition of retirement assets, to different coverage and administrative hurdles.”
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The issue brief offers an objective, nonpartisan perspective on a range of options that could be considered when addressing the challenges within the spousal benefit framework, drawing on the actuarial profession’s knowledge and experience in the retirement space.
Spousal benefits in retirement plans operate under a framework of federal and state laws, including the foundational federal Employee Retirement Income Security Act (ERISA), with spousal protection approaches differing among defined contribution (DC), defined benefit (DB), and individual retirement account (IRA) plans.
Some changes that AAA recommends for policymakers, as well as plan sponsors, include:
- Improve spousal protections in DC plans and IRAs (including rollover IRAs) by, for example, requiring spousal consent for any distribution/loan/rollover from a DC plan to an IRA. A rollover of funds from a DB or a DC plan into an IRA may further erode spousal protections. These gaps in spousal protection could be addressed by strengthening the requirements for spousal consent when assets are moved or distributed from DC plans and IRAs. Several legislators and public interest groups have published proposals to accomplish this goal.
- Improve spousal rights to retirement plan information. This is particularly important for spouses seeking access to retirement plan benefits during a divorce, claims the AAA. ERISA requires extensive retirement program disclosures to be provided on a routine and regular basis to plan participants, as well as beneficiaries who are receiving benefits, such as Summary Plan Descriptions and Benefit Statements. Access to plan documents must also be provided to plan participants at any time upon written request. However, spouses of participants under DB or DC plans, who are not yet beneficiaries in pay status, generally have no legal rights to these disclosure materials.
- Improve access to Qualified Domestic Relations Orders (QDROs), such as by providing increased guidance and simplified tools (e.g., model QDROs). In a divorce, a spouse can gain access to a portion of a participant’s employer-sponsored retirement benefit with a QDRO, but the process is complex. Model QDRO language and communication of administrative procedures could improve the process.
- Explore ways to protect spouses from fraud and coercion when consenting to forms of payment that do not provide spousal protections. Some legislators and public interest groups have expressed concern about fraud, coercion, and the potential impact of spousal abuse, and have urged the IRS to return to the requirement that spousal consent must be made in person. However, in-person consent can just as easily be influenced by pressure from the participant and would thus be an imperfect solution to the problem of spousal consent under duress. Policymakers may want to review and consider other options.
- Encourage state and local government retirement plans to provide spousal death benefits currently required under ERISA, which provides significant legal protections for spouses in DB plans. However, since ERISA’s implementation, DC plans have become a primary source of retirement security for married couples, but these protections have not been extended to DC plans under the law.
- Expand spousal benefit protections to legally recognized partners of unmarried participants. The number of people living as unmarried partners has more than doubled over the last 25 years. Employer-sponsored retirement plans are not obligated to extend spousal benefit protections to unmarried partners. However, some retirement plans provide survivor benefit rights to domestic partners whose relationships satisfy certain criteria (e.g., length of the relationship, intention of permanence, joint responsibility for the partnership’s financial obligations).