IRS Reverses Itself on Early Retirement Rule
The Internal Revenue Service touched off a controversy this summer when it ruled that workers needed their spouses’ permission to get early retirement benefits. Now, after some second thoughts, the IRS has decided that its ruling took the notion of marital togetherness a tad too far.
In an unusual about-face, the IRS announced last week that workers need not obtain the written consent of their spouses in order to receive early retirement pension benefits under many pension plans. The spouse’s signature will still be required, however, in those cases where the worker’s early retirement pension is set up to stop benefits upon the worker’s death.
Beyond Intent of Law
The stricken requirement was originally included in a series of rules issued by the IRS in July under a new law designed to give spouses greater pension protection. But the early retirement provision was criticized by some who claimed that it went beyond the law’s intent and who warned that it would draw pension administrators into domestic squabbles.
“I think the reaction was astonishment,” said Tony Malizia, a consulting actuary with Buck Consultants in San Francisco, of the initial ruling. “This went beyond what anybody could have imagined.”
Participants in many pension plans still will need their spouse’s consent for key pension decisions, under other IRS rules announced in July.
These include whether to receive a pension in the form of a single payment greater than $3,500 and whether to arrange for a pension that ends upon the retired worker’s death, even when early retirement is not involved.
Many companies face a Nov. 1 deadline for complying with these rules. It isn’t clear how many have changed their plans to include the now abandoned provision. But those that have may choose to keep it.
May Choose to Keep It
“We have lots of clients that have already made the change,” said John Hoos, an attorney with the Hewitt Associates consulting firm in Lincolnshire, Ill. “Now they’re faced with the decision of taking it back out.”
Buck’s Malizia said that reaction to the recent IRS decision included both relief and annoyance: “Why did they do such a stupid thing in the first place?” he asked.
The IRS acknowledged Friday that the initial rule was withdrawn under broad criticism but attributed the criticism to the fact that many failed to distinguish between the act of retiring early and the receiving of benefits.
“We had no intention of saying that you need your wife’s signature in order to stay around the house,” IRS spokesman Steven Pyrek maintained. “We were saying you need your spouse’s approval in order to receive the benefits.”
