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Can a Married Employee Name a 401(k) Beneficiary Other than a Spouse?

Business Finances / Contractors and Employees / Legal Agreements / Sticky Situations / Unexpected Business Risks

It can be very difficult for you, as an employer to manage a 401(k) retirement plan for your employees properly. Federal law is replete with mandates, including when employee funds must be remitted and statements made available to employees. One area you may not have considered is how to handle a married employee’s 401(k).

Federal law establishes protections for married couples known as “survivor’s rights.” Generally speaking, survivor’s rights do not allow one spouse to exclude the other spouse from receiving a portion of his or her company 401(k) account. Survivor’s rights specifically require written spousal consent to waive any 401(k) interest.

Thee rules vary depending upon whether the married employee is still working. When a married employee dies while still working for the employer, the general rule is that his or her spouse receives the entire account balance. The only time this does not happen is when the spouse has waived, in writing, the right to receive the account proceeds.

When a married employee retires, he or she must take retirement payouts in a way that continues to pay his or her spouse for life. The only way an alternative payout can be chosen is if the spouse executes a written waiver.

This spousal protection even overrides beneficiaries that an employee may name for the account. Additionally, by law, not even prenuptial and postnuptial agreements can change the requirements.

There is one major exception to this rule, and it does not directly impact you, as an employer. If a married employee rolls over a 401(k) balance to an individual retirement account, the retirement assets lose the survivor’s rights protection and can be distributed in any way the employee chooses.

Administering a retirement plan can be tricky, but you don’t have to go it alone. As your Creative Business Lawyer®, we can guide and support you each step of the way.


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