Spousal Rights in Individual Accounts: Improving Women’s Retirement Security
Amy Matsui
Senior Council,
National Women’s Law Center
Presented at “When Women Gain, So Does the World,” IWPR’s Eighth International Women’s
Policy Research Conference, June 2005
Abstract
There has been much debate about the feasibility of importing spousal rights from
defined benefit retirement structures like Social Security and the traditional pension system to
other retirement savings vehicles, but the most effective way to provide appropriate spousal
rights is to require spousal consent to distributions. Policy makers need to understand the extent
to which retirement savings accounts fail to adequately protect spousal rights and the risks that
this creates for women’s retirement security. This paper will describe spousal rights in existing
retirement accounts and the importance of spousal rights in retirement income systems and
savings vehicles. It will provide an overview of proposals to structure spousal rights in
retirement accounts and analyze the implications of these proposals. Finally, the paper will
identify areas for future research.
1
Because women are less likely than men to have earned sufficient retirement savings in their
own right as workers, they are more likely than men to rely on their spouses’ retirement income.
Social Security provides a benefit for surviving spouses, and the Retirement Equity Act of 1984
requires spousal consent when married workers seek to receive their traditional, defined benefit
pension payments as a lifetime annuity for themselves, rather than as a smaller lifetime annuity
with a survivor annuity for their spouses. These spousal protections have increased the economic
wellbeing of many older women.
Despite the success of these spousal protections in improving women’s retirement security,
recent developments are diminishing spousal rights in retirement income and retirement savings
vehicles. Traditional defined benefit pensions are disappearing, being replaced by defined
contribution plans such as 401ks that offer few spousal rights. Assets are being rolled over from
defined contribution plans to Individual Retirement Accounts, which provide no federally
guaranteed spousal rights, as workers change jobs or retire. In addition, various policy proposals
could reduce spousal protections—and women’s retirement income—even further. Proposals to
substitute individual private savings accounts for some or all of Social Security’s benefits could
lead to cuts in traditional benefits and the spousal benefits based upon them, and many such
proposals fail to provide spousal rights for the private account component. Moreover, proposals
for new Retirement Savings Accounts and Lifetime Savings Accounts would lack spousal
protections. Increasing amounts of marital assets could be funneled into such accounts in the
future, so that addressing spousal rights issues will become more important.
There has been much debate about the feasibility of importing spousal rights from defined
benefit retirement structures like Social Security and the defined benefit pension system to other
retirement savings vehicles, existing and proposed, but the most effective way to provide
appropriate spousal rights is to require spousal consent to distributions from these accounts.
Policy makers need to understand the extent to which retirement savings accounts fail to consider
spousal rights as currently structured, and the risks that this creates for women’s retirement
security. This paper will describe spousal rights in existing retirement accounts under current
law, the importance of spousal rights in retirement income systems and savings vehicles, provide
an overview of existing proposals to structure spousal rights in retirement accounts, and analyze
the implications of these different proposals. Finally, the paper will identify some areas for
future research.
I. Women’s Unique Reliance on Their Spouses’ Retirement Savings
Women are less likely than men to have earned sufficient retirement savings in their own right as
workers. Women earn less than men, and tend to spend more time out of the workforce (often to
fulfill caregiving responsibilities). In addition, women have shorter job tenure than men and are
more likely than men to be part-time workers. All of these factors lead to a shortfall in
retirement income for each “leg” of the three-legged stool of retirement security (Social Security,
employer-provided pension income, and private savings reserved for retirement).
Because women are less likely to accumulate enough retirement savings as workers to provide
for a secure retirement for themselves, they are more likely than men to rely on their spouses’
retirement income. In fact, married women are almost three times more likely than men to
2
depend on their spouses’ pensions,1 and 98% of Americans who receive spousal Social Security
benefits are women.2
The two forms of retirement savings that provide guaranteed lifetime income also provide
spousal benefits under current law. Social Security provides spousal benefits, equal to
approximately 50% of the worker’s benefit for a spouse, 100% for a surviving spouse, which is
paid to the extent that it exceeds the amount of the benefit that the spouse earned in her (or his)
own right. Social Security also provides benefits for divorced and surviving divorced spouses if
the couple was married for at least ten years and the divorced spouse (if under age 60, or age 50
if disabled) is not remarried. Social Security benefits for spouses do not reduce the worker’s
benefit. Traditional employer-sponsored pension benefits, defined benefit pensions, also provide
protections for spouses. The Retirement Equity Act of 1984 (REA) requires married workers to
receive their defined benefit pensions as a reduced lifetime annuity with a survivor annuity for
their spouses, rather than as a lifetime annuity for themselves alone, unless the spouse waives
that right. Divorced spouses may also receive retirement and/or survivor benefits from a
worker’s traditional pension plan pursuant to a divorce. These spousal protections have increased
the economic wellbeing of many older women.3
However, as will be discussed below, 401k-type accounts provide much more limited spousal
rights. Moreover, Individual Retirement Accounts (IRAs) and two savings vehicles proposed in
the President’s FY 2005 and 2006 Budgets, Retirement Savings Accounts and Lifetime Saving
Accounts; fail to provide any spousal rights at all.4 Proposals for privatizing Social Security
present additional spousal rights issues.
II. Spousal Rights in Retirement Accounts
This section will discuss spousal rights in retirement accounts existing under current law (401ks
and IRAs) and proposed (LSAs, RSAs, and Social Security private accounts), at key junctures
where spousal rights become pertinent: while a married couple is working, at divorce, at death,
1
According to NWLC calculations based on the 1998 Health and Retirement Study, 87% of married women as
opposed to 31% of married men relied on their partner’s pension income.
2
NWLC calculations based on 2003 Social Security Administration Statistical Supplement.
3
Between 1984, when the REA was enacted, and 1994, the number of married men who provided a survivor annuity
for their spouses from their defined benefit pensions increased eighteen percent. U.S. DEPARTMENT OF LABOR,
PENSION AND WELFARE BENEFITS ADMINISTRATION, RETIREMENT BENEFITS OF AMERICAN WORKERS: NEW
FINDINGS FROM THE SEPTEMBER 1994 CURRENT POPULATION SURVEY at Table D10 (1995), available at
http://www.dol.gov/pwba/programs/opr/redbook/d_2.htm. About 7.5 million women over age 65 receive Social
Security benefits as widows, and half of them do not qualify for any other benefit. Proposals To Achieve Sustainable
Solvency, With and Without Personal Accounts, Hearing Before the Senate Committee on Finance, 109th Cong.
(2005) (statement of Joan Entmacher, Vice President, National Women’s Law Center), available at
http://finance.senate.gov/sitepages/hearing042605.htm.
4
Both accounts are modeled on Roth IRAs, IRAs for which contributions are subject to tax, but all distributions
received after the participant reaches a certain age are not taxed. Under the President’s FY 2005 proposed budget,
distributions could be made from LSAs for any purpose and regardless of the age of the account owner. Account
owners could contribute $5000 per year, regardless of the owner’s income level. RSA owners also could contribute
$5000 per year with no income limitation, but distributions would have to be made after age 58 and 1/2 in order to
be exempt from income tax and an additional tax penalty. BUDGET OF THE UNITED STATES GOVERNMENT,
ANALYTICAL PERSPECTIVES, FISCAL YEAR 2006 at 281-82 (2005).
3
and at retirement.5 Possible ways to increase spousal protections in these accounts will then be
enumerated.
In theory, the approaches used to determine spousal rights in other retirement plans could serve
as models for privatized Social Security accounts. However, when those accounts are supposed
to compensate for cuts in guaranteed Social Security benefits, rather than just supplement them,
the policy issues are different. In addition, administrative issues would be more complex with a
universal system of private accounts in Social Security. These additional considerations will be
noted, but not discussed in detail, where relevant.
A. Working and Married
Even if both spouses have 401ks or IRAs, there is no guarantee that the contributions to each
account will be equal. For example, if both spouses have 401ks but one spouse earns less, the
couple may not be able to contribute to both 401k accounts equally; or if a spouse has left the
workforce to care for children, the couple may not be able to make contributions to a spousal
IRA at the same time as the employed spouse’s 401k.
In addition, a worker can deplete a 401k account balance by taking hardship withdrawals or
loans (generally, up to 50% of the account balance), without spousal consent. Moreover,
because 401ks do not require spousal consent to distributions, when a worker leaves a job, he or
she can spend the account balance, although a tax penalty will be imposed. Alternatively, the
worker can roll his or her 401k account balance into an individually owned IRA.6 The individual
can then designate the beneficiary of his or her choice, not necessarily the spouse, and (as will be
discussed in Part II.D below) when the individual retires, he or she alone controls how the funds
are withdrawn and spent.
At least one proposal for Social Security private accounts has tried to avoid spousal consent
issues by splitting private account contributions equally between the accounts of two spouses.7
This method, if applied either to private accounts or the other accounts at issue here, would
recognize marriage as an economic partnership, enable each spouse to independently manage his
or her own account, and protect divorced spouses regardless of the duration of the marriage or
current marital status. However, a contribution-splitting approach -- in the context of a
privatization plan – could mean lower benefits for divorced spouses, who currently get benefits
based on the worker’s entire work record. It would also require the account administrator to
track marital status over the course of workers’ lives, and resolve complex and disputed issues of
marital status (e.g., common-law marriage, abandonment) more frequently – all of which could
be extremely complicated on a nationwide basis.
Alternatively, spousal consent could be required for loans, hardship withdrawals, and pre-
retirement distributions from 401k plans.
5
This section is indebted to Chapter 6 of the National Academy of Social Insurance’s January 2005 Study Panel
Report, Uncharted Waters: Paying Benefits from Individual Accounts in Federal Retirement Policy.
6
In contrast, the Thrift Savings Plan, a 401k-type plan for federal employees, requires spousal consent for a
distribution other than joint and 50% survivor payments.
7
See Individual Social Security Investment Program Act of 2005, H.R. 530, 109th Cong. (2005).
4
B. Divorce
Although 401k accounts and IRAs are considered marital property for the purposes of divorce,
they are not divided automatically at divorce. Many divorcing spouses do not have lawyers, are
unaware of the accounts or their rights, and do not receive an equitable share of these accounts.
Moreover, the lack of spousal protections in 401k accounts and IRAs discussed above creates the
potential for these accounts to be depleted before they are divided. Finally, if a spouse is more
concerned with keeping the home or with safety or custody issues, she may bargain away the
value of her marital share of a 401k account or IRA rather than preserve those funds for her own
retirement. If private Social Security accounts were subject to division at divorce, other complex
questions arise, including whether a divorced spouse would be able to access the account funds
before retirement.
There are various ways to address spousal rights in divorce,8 including:
• Automatic 50-50 split of the portion of the account accumulated during the marriage;
• Default 50-50 split of the portion of the account accumulated during the marriage, with
the ability to allocate these funds differently pursuant to agreement;
• If contributions were divided at the time they were made, as discussed in Part A above,
then no further allocation of account funds;
• If contributions were divided at the time they were made, no further allocation of account
funds as the default but with the ability to reallocate account funds if necessary to avoid
an inequitable settlement.
In the context of Social Security private accounts, these approaches would require new
administrative systems to track contributions and marital status.
C. Death
If a worker who owns a 401k account dies while funds remain in the 401k plan, the spouse is
entitled to receive the balance unless he or she has consented to the employee’s designation of
another beneficiary. However, if the worker left the job that offered the 401k or retired, and
transferred the account funds to an IRA or other individual account, his or her spouse would
have no rights over those funds. If an IRA owner dies, whether before or after retiring, the
account balance goes to the designated beneficiary of the account owner’s individual choosing.
The proposed LSAs and RSAs would follow IRA rules.
There are several options for providing spousal protections at death.9 Congress could:
8
For proposed private Social Security accounts, there is a threshold question about whether the accounts would be
divided in state divorce proceedings, as 401Ks and IRAs are (or are not), or whether a uniform treatment should be
required under federal law.
9
For 401k accounts, see, for example, Comprehensive Women’s Pension Protection Act, S. 230, 105th Cong.
(1997). For Social Security private accounts proposals, see, for example, ACSS Individual Account Plan (1996)
(widowed spouse must inherit); Reps. Kolbe and Stenholm’s Bipartisan Retirement Security Act of 2004 (account
holder names any heir). President Bush has not set out all the details of his private accounts plan, but has said that
accounts could be left to anyone. Even if the remaining assets went to the surviving spouse under a privatization
plan, they might not make up for cuts in Social Security survivor benefits.
5
• Require that the account balance be awarded to the spouse;
• Require that account funds accumulated during the marriage go to the spouse, which
would require additional accounting of the sources of funds; or
• Require that the account balance be awarded to the spouse, unless the spouse consented
to the designation of another beneficiary.
D. Retirement
When the owner of a 401k account retires with funds in the plan, he or she can decide when and
how to withdraw the funds without consulting his or her spouse. Once those funds are
withdrawn, he or she can unilaterally buy a small business, invest the whole sum in the stock
market, or buy a boat. Similarly, no spousal protections apply when an IRA owner retires. The
same would be true for RSAs (the account owner of an LSA could withdraw and spend account
funds at any point).
The various proposals for providing spousal rights to distributions at retirement, which have
different implications for privatization plans in which the private accounts are intended to
replace Social Security’s guaranteed lifetime benefits, include:
• Requiring workers to take their benefits as a life annuity (this assures that there will be
income until the worker’s death);
• Requiring workers to take their benefits as of a joint and survivor annuity (this assures
that a surviving spouse will get some benefit from the assets in the account) in the
absence of spousal consent;
• Allocating the account funds between the spouses to reflect their marital share;
• Requiring the account owner to obtain spousal consent to transfer the account balance
into another account.
II. Questions for Future Research
1. What are the legal and practical implications of requiring retirement accounts to
offer annuities as an optional form of distribution?
2. How are retirement accounts currently being divided at divorce (research
challenges include the fact that courthouse records may not include accurate
information about each spouse’s retirement accounts and the large number of pro
se divorces)?
3. How do women whose retirement assets are in 401k accounts and IRAs manage
their assets, to address the fact that women tend to have few assets but live longer
than men?
III. Conclusion
Policymakers must recognize the extent to which women are placed at risk by the lack of spousal
protections in current retirement accounts and examine ways to increase protections in existing
and new forms of retirement savings.
6
References
ACSS Individual Account Plan (1996).
Bipartisan Retirement Security Act, H.R. 3281, 108th Cong. (2004).
BUDGET OF THE UNITED STATES GOVERNMENT, ANALYTICAL PERSPECTIVES, FISCAL YEAR 2006
at 281-82 (2005).
Comprehensive Women’s Pension Protection Act, S. 230, 105th Cong. (1997).
Individual Social Security Investment Program Act of 2005, H.R. 530, 109th Cong. (2005).
A More Secure Retirement for Workers: Proposals for ERISA Reform: Hearing Before the
Subcommittee on Employer-Employee Relations, House Committee on Education and the
Workforce, 106th Cong. (2000) (written statement of Teresa Ghilarducci), available at
http://edworkforce.house.gov/hearings/106th/eer/erisa21500/ghilarducci.htm.
Proposals To Achieve Sustainable Solvency, With and Without Personal Accounts, Hearing
Before the Senate Committee on Finance, 109th Cong. (2005) (statement of Joan Entmacher,
Vice President, National Women’s Law Center), available at
http://finance.senate.gov/sitepages/hearing042605.htm.
Statement of Dr. Laurie Young, Executive Director, OWL, White House Conference on Aging
2005, available at
http://www.whcoa.gov/about/policy/meetings/summary/Laurie_Young_OWL.pdf.
U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States:
2004, Current Population Reports, Consumer Income, P60-229, Table 1: Money Income and
Earnings Summary Measures by Selected Characteristics: 2003 and 2004, at 5 (Aug. 2005),
available at http://www.census.gov/prod/2005pubs/p60-229.pdf (last visited Mar. 31, 2006).
U.S. DEPARTMENT OF LABOR, PENSION AND WELFARE BENEFITS ADMINISTRATION, RETIREMENT
BENEFITS OF AMERICAN WORKERS: NEW FINDINGS FROM THE SEPTEMBER 1994 CURRENT
POPULATION SURVEY at Table D2 (1995), available at
http://www.dol.gov/pwba/programs/opr/redbook/d_2.htm.
U.S. DEPARTMENT OF LABOR, PENSION AND WELFARE BENEFITS ADMINISTRATION, RETIREMENT
BENEFITS OF AMERICAN WORKERS: NEW FINDINGS FROM THE SEPTEMBER 1994 CURRENT
POPULATION SURVEY at Table D10 (1995), available at
http://www.dol.gov/pwba/programs/opr/redbook/d_2.htm.
7