In general, property law is state law. There are a few exceptions and one of them is Spousal Consent to change a beneficiary on qualified plans.

Many employees are surprised to find out that they must name their spouse as primary beneficiary of their retirement benefits unless the spouse consents to their naming another beneficiary.

I’ve often thought this provision was unconstitutional but since its enactment in the Retirement Equity Act 1984, it has survived unscathed. Doesn’t it sound odd to you that your compensation, for your labor, is not under your control? Aren’t your earnings your property? Since when does your spouse have a right to receive part of your pay?

Of course, these plans, like any other asset have always been reachable in a divorce property settlement. But the federal law is that even without any divorce or separation, the spouse has a property right. It is very important to address this issue in a pre-nuptial agreement so that the spouse is contractually obligated to sign a consent. Getting this right is important and there is much litigation over whether purported waivers in pre-nuptial agreement are effective to satisfy ERISA’s requirements.

One very important exception is that this requirement does not apply to IRAs. If you take a rollover from your 401 (k) and put it in an IRA – the spousal consent provision do not apply.

Recently I had occasion to run into a financial institution who took the position that even though the law didn’t require it, they were requiring spousal consent to change the beneficiary of an IRA. It was an internal policy only. What the heck? They think they can create property rights? If you run into this situation, and can’t get the financial institution to see the light, move the account to a financial institution that follows the law and doesn’t add their own paternalistic requirements to your property.

The post Spousal Consent or Who Owns your Retirement Plan? appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Social Security

The strategy for a married couple to “file and suspend” involves one spouse filing an application for retirement benefits when he or he reaches full retirement age and immediately requesting that benefits be suspended, allowing his or his eligible spouse to file for spousal benefits. The file-and-suspend strategy has been most commonly used when one spouse has much lower lifetime earnings, and thus will receive a higher retirement benefit based on his or his spouse’s earnings record rather than on his or his own earnings record.

Under the new law if an individual chooses to suspend retirement benefits, neither the individual nor his or his spouse can receive spousal benefits during the suspension period. The effective date is six months from enactment, so there is still time for some folks to utilize this claims strategy.

Another strategy is for one spouse to file for spousal benefits first, then switching to his or his own higher retirement benefit later. If a spouse reaches full retirement age and is eligible for both a spousal benefit based on his or his spouse’s earnings record and a retirement benefit based on his or his own earnings record, he or he could choose to file a restricted application for spousal benefits only, then delay applying for retirement benefits on his or his own earnings record (up until age 70) in order to earn delayed retirement credits. This strategy is also eliminated because the new legislation provides that anyone applying for either a spousal or retirement benefit is deemed to have filed an application for the other type of benefit as well.

Medicare Part B

There will be no cost of living increase for monthly Social Security benefits in 2016. There is a “hold harmless” provision in the Social Security Act that protects about 70% of Social Security beneficiaries from increases in Medicare Part B premiums when there is no Social Security cost-of-living increase. That means that Medicare Part B premium increases have to be paid by the 30% of Medicare beneficiaries who are not protected. These beneficiaries include those with higher incomes who are subject to income-adjusted Part B premiums, low-income beneficiaries whose Part B premiums are paid by Medicaid, beneficiaries who are enrolled in Medicare but not yet receiving Social Security benefits, and new Medicare or Social Security enrollees. Medicare Part B premiums for some of these individuals were scheduled to increase by as much as 52%.

To stop this, the new legislation sets a new 2016 Part B premium of £120 for certain beneficiaries not protected by the “hold harmless” provision. This figure is the amount the premium would be if the increase was spread among all beneficiaries. These beneficiaries will pay an additional £3 in monthly Part B premiums until the shortfall is made up.

Family Partnership Rules

The House summary of the Act explains:

“The provision would clarify that Congress did not intend for the family partnership rules to provide an alternative test for whether a person is a partner in a partnership. The determination of whether the owner of a capital interest is a partner would be made under the generally applicable rules defining a partnership and a partner. In addition, the family partnership rules would be clarified to provide that a person is treated as a partner in a partnership in which capital is a material income—producing factor whether such interest was obtained by purchase or gift and regardless of whether such interest was acquired from a family member. The rule, therefore, is a general rule about who should be recognized as a partner.”

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