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Oh, the joys of federal ERISA law! Let’s dive deep, shall we?

First and foremost, for those caught up in the world of ERISA-covered plans (pension plans and 401(k) type plans, including 403(B), 457, 412(i), and other employer-sponsored retirement plans), here’s a shocker: it actually prioritizes your spouse! Yep, if you’re part of such a plan, it automatically slaps the ‘beneficiary’ label onto your spouse. That is, of course, unless you’re bold enough to name someone else. But, twist alert! If you live in a community property state and established an IRA during your marriage, the same rule applies. Hooray for uniformity, right? This article discusses ERISA law and spousal rights.

To break it down with a real-life scenario: Let’s say Meredith, the 401(k) plan participant, decides to leave her 401(k) to her brother Ned. Quite the twist, considering her husband Daniel is out of the loop. Sadly, the universe throws a wrench in her plan, and she departs from this mortal coil while still hitched. So, despite her wishes, good ol’ Daniel gets the treasure trove. Ned? Sorry, no golden goose for you. But don’t worry; Daniel doesn’t get locked into a lifetime annuity. He can grab the money and go.

But wait! There’s a sequel to this riveting tale of spousal rights. Some plans dare to demand that a married participant’s benefit is poured into a specific type of annuity. This little arrangement gives you a monthly payment during your lifetime. If your spouse outlasts you? They get at least half of what you received. But let’s sprinkle some clarity here: most ERISA-wrapped 401(k) plans dodge this rule unless annuities feature as a tantalizing optional treat.

For your viewing pleasure, here’s a sequel example: Meet Mike. Mike has a pension plan and dreams of an annuity flowing just to him with no afterthought for his wife, Molly. But here’s the kicker: unless Molly gives a nod of approval, Mike’s retirement fantasy comes with strings attached. If Molly outlives him, she gets at least 50% of his annuity. That means Mike’s payout shrinks if it includes this spousal benefit. Moral of the story? Always read the fine print, especially when marriage and money mix!

If you have a 401(k) or pension plan and are nearing retirement, we highly suggest you meet with your financial advisor to go through the fine details of what your plan offers and/or requires.  If you don’t have an advisor, consider scheduling a Discovery Meeting with Almega Wealth Management.