Democratic bill would require spousal consent for 401(k) distributions

Legislation would extend spousal protections used in pensions to defined-contribution plans.

Spousal consent would be required to start most distributions from 401(k) plans, under two companion bills sponsored by Democrats in Congress.

The legislation aims to make defined-contribution plans more similar to traditional pensions in that regard. Unlike defined-benefit plans, DC plans aren’t legally required to make account holders get sign-off from a spouse when initiating payouts other than required minimum distributions or those made in the form of one of a few types of annuities, such as qualified joint and survivor annuities.

Those bills, sponsored by Rep. Lauren Underwood, D-Ill., and Sen. Tammy Baldwin, D-Wis., were introduced in late July. The provisions in the legislation are not new, having been included last year as part of a wider bill titled “Protecting America’s Retirement Security Act of 2022.”

The issue around protections for spouses in DC plans was highlighted this year in AARP’s policy book for the current session.

“Such protection for spouses is unavailable in individual retirement accounts and rare in DC plans. Thus, employees can withdraw and use 401(k) and IRA assets without spousal consent,” that group wrote. “This is a serious shortcoming. However, when designating who should be the beneficiary in the case of death, DC participants cannot specify a beneficiary other than the spouse.”

Although employer-sponsored DC plans like 401(k)s can include provisions requiring spousal consent, they do not have to, and many do not.

The full text of the two recent bills was not yet available on Congress’ site. Underwood’s office did not respond by press time for a copy of the proposed bill, which has been referred to committee.

The spousal consent provisions included in the version of the legislation introduced last year specify that if a plan doesn’t include certain types of annuities or lifetime payment options, an account owner could still take a distribution without written spousal consent if half of the amount goes into a retirement account owned by the spouse.

According to GovTrack, a site that monitors and assesses the likelihood of bills progressing, the 401(k) spousal consent legislation stands just a 1% chance of getting out of committee and has no chance of being enacted.