Unlike defined benefit pension plans, defined contribution 401k plans lack protections to prevent one spouse from independently undermining a couple’s retirement resources.
That’s a problem Senate Health, Education, Labor, and Pensions (HELP) Committee Chair, Senator Patty Murray (D-WA), and Ranking Member, Senator Richard Burr (R-NC), want to address.
Today, Sens. Murray and Burr sent a letter to the Government Accountability Office (GAO) calling on the agency to examine the need for stronger spousal protections in defined contribution retirement plans.
“People plan their futures around their retirement accounts, so it is important that no one have these critical resources undermined by their spouse’s decisions without their knowledge or consent,” wrote the Senators. “Unlike traditional defined benefit retirement plans and the Federal government’s Thrift Savings Plan that have spousal protections, private employer-sponsored defined contribution retirement plans—which have become the most common retirement savings vehicle—currently provide no similar safeguards. Under current law, one spouse could take a withdrawal from their account without the other spouse’s knowledge or consent. This could have a devastating effect on the unknowing spouse and family members, especially if they are less familiar with the household’s finances.”
While some 401k plans may require married employees to get spousal consent for certain transactions such as taking a 401k loan, such protections are not mandatory. Understanding industry trends toward protection for spouses will better inform any future Congressional spousal protection legislation concerning defined contribution plans like 401ks.
Last July, Murray and Congresswoman Lauren Underwood (D-IL), reintroduced the Women’s Retirement Protection Act of 2021 (WRPA), legislation to address the retirement gap and bolster women’s financial security. That bill contained a provision to strengthen consumer protections to safeguard retirement savings by expanding existing spousal protections for DB plans to DC plans to prevent one spouse from making decisions that might undermine a couple’s retirement resources without the other’s knowledge and consent.
6 questions for GAO
Murray and Burr’s letter asks GAO to address the following questions:
- How often are withdrawals made from defined contribution retirement accounts involving married couples?
- In what circumstances is a married participant able to withdraw money from a defined contribution plan without spousal consent? What is known about the effect on their spouse? What are the perspectives of plan participants and spouses on distributions where spousal consent is not required?
- How could the spousal protections for defined benefit plans and the Federal government’s Thrift Savings Plan be applied to the defined contribution plan regime?
- How could the administrative burdens on plan sponsors and recordkeepers in connection with defined contribution spousal protections be eased?
- What impact would remote witnessing of written consent agreements to withdrawals or change of beneficiary have on the consent of the spouse?
- Under what circumstances would obtaining spousal consent prior to a defined contribution plan withdrawal or change of beneficiary be inappropriate?
HELP Committee hearing Tuesday
The Senators’ letter to GAO comes ahead of a HELP Committee hearing next week, which will take a broader look at how to strengthen retirement and enhance savings for Americans. The hearing, titled, “Rise and Shine: Improving Retirement and Enhancing Savings,” is scheduled for 10 a.m. EDT on Tuesday, March 29.
It will include testimony from Ida Rademacher, Vice President, Aspen Institute & Executive Director, Financial Security Program; Petros Koumantaros, Managing Director and CEO, Spectrum Pension Consultants, Co-Founder and Chairperson, GROUPIRA, and financial consultant, intellicents; Doug Chittenden, Head of Client Relationships, TIAA; and Cindy Hounsell, President and Founder, Women’s Institute for a Secure Retirement (WISER).
SEE ALSO:
• Dems Reintroduce Bill to Protect Women’s Retirement Security
• 401k Leakage and Auto Portability Featured at Senate Committee Hearing