Written Consent Now Required on Many Decisions About Survivor Benefits : New IRS Rules Offer Spouses More Pension Protection

For better and for worse, married couples are usually partners when it comes to family property. But that often doesn’t apply to one of the partnership’s chief assets: pension benefits, particularly when the household’s main wage earner dies.

Under new federal regulations, however, surviving spouses--typically women--should have few surprises about the sort of coverage they can bank on from their mate’s pension plan. In July, the Internal Revenue Service released new rules that for the first time require workers to obtain their spouses’ written consent to a variety of fundamental pension decisions.

The rules already have sparked controversy, however. Some pension consultants are asking whether the IRS has gone too far in its interpretation of a 1984 law designed to ease pension inequities affecting women. One regulation, for example, requires a spouse’s signature merely for a worker to begin receiving early retirement benefits.

“This will drag employers and administrators into what otherwise would be a domestic quarrel,” warned Allen Steinberg, an attorney with Hewitt Associates, national consultants on employee benefits.

What is not disputed is that older women tend to be poorer than older men, a situation worsened by their relative lack of pension coverage. Women tend to live several years longer than men, yet only 20.4% of women over 65 received pension benefits in 1983, compared to 42.6% of men over 65, according to the Census Bureau. In 1981, the median income for women over 65 was $4,757. For men, it was $8,173.

Faced with such statistics, Congress approved the Retirement Equity Act of 1984. On July 19, the IRS issued temporary regulations, which will remain in effect indefinitely, requiring workers and their spouses to agree formally on major pension decisions.

While some employers already require a spouse’s approval in certain instances, the new IRS rules will encompass a broad range of pension decisions. For example, the spouse’s signature, in addition to the employee’s, is now needed when the employee:

- Wishes to begin receiving early retirement benefits.

- Seeks to waive a type of pension known as a joint survivor annuity, which continues paying benefits to a surviving spouse. Employees sometimes opt for a single life annuity, which pays no benefits after the employee dies, because it tends to pay more per month than a plan that covers the surviving spouse.

- Seeks to waive benefits that protect the surviving spouse in cases where the worker dies before reaching retirement age. Such added protection may reduce the size of pension payments.

- Wishes to receive pension benefits in a lump sum greater than $3,500, rather than in routine installments.

Emily S. Andrews, research director at the Employee Benefit Research Center in Washington, explained the philosophy behind the law: “Marriage now is considered an economic partnership, and both partners--who made decisions on how to structure their work lives--should be part of the decision-making process involving pensions. Pensions are an asset just like a house is an asset.”

Often Disappointed

Although the vast majority of older women fail to qualify for pensions based on their work records, many expect benefits based on their husband’s employment. But the surviving spouses often have been disappointed, for a variety of reasons.

For example, pension plans typically haven’t paid a benefit to the surviving spouse in cases where their employed mate died before reaching retirement age. The new law requires pension plans to offer such a benefit and a spouse’s signature to turn it down. Another problem many discover belatedly is that their spouse chose a pension plan that stopped benefits upon death, a surprise that will be less likely in the future in light of the signature requirement.

“The bottom line is to try to increase the number of women who receive pension benefits in their old age,” said Alice Quinlan, public policy director of the Older Women’s League, one of various women’s groups that advocated the legislation.

Andrews said there is no firm evidence on the number of women whose husbands, without their knowledge, chose pensions without survivor’s benefits, but she estimated that 1 million women might fit this category.

Beverly Orth, staff counsel of the Mercer-Meidenger consulting firm in Los Angeles, maintained, however, that “it’s going to be costly and annoying to meet these requirements, but it will have very small impact in new protection for spouses.”

The principal dispute centers on the requirement for a spouse’s signature if a worker wishes to receive early retirement benefits. Some say that this provision may make life difficult for pension administrators, as well as for those workers who are seriously at odds with their spouses.

“A number of our clients say, ‘You can’t be right. Give us a copy of the regulations,’ ” said Orth.

Said Steinberg: “It’s a questionable interpretation of the law and it’s a royal pain. Yes, it’s controversial.”

An IRS attorney acknowledged that the lack of a spouse’s signature could prevent somebody from receiving their early retirement benefits but maintained that the provision does not stop anybody from retiring.

“You can retire whenever you want to,” he said.

Under the law, employees whose mates cannot be found will be released from the requirement. But other sorts of problems still may crop up and some of those may cause problems for women.

Example Cited

Steinberg cited the recent example of the problem confronting a woman worker at a Chicago-area food manufacturer. The woman sought a pension that would stop paying benefits upon her death, because she expected to outlast her seriously disabled husband. But such a pension plan now requires her spouse’s signature, and he was mentally incompetent to provide it. The woman is seeking a court-appointed guardian for her husband, and the guardian must agree in order for her to get the higher-paying pension plan.

Proponents of the new law contend that the new protections will outweigh the problems and that recurring problems can be dealt with by refining the IRS rules.

Said Quinlan: “It may open up a few complications (for employed women), but in terms of the numbers involved, the vast majority of injured parties are widows.”