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The Retirement Equity Act of 1984 (REA) made significant changes to the provisions in the Employee Retirement Income Security Act (ERISA). Most of the changes were easily understood and implemented. However, the changes to the survivor benefits and related spousal consent rules presented new hurdles to retirement plan sponsors.
The thought behind the survivor benefit changes was that, without regulatory oversight and intervention, participants would act in their own best interests without considering their spouses. The REA clarified that each person in a marriage has a right to benefit from the other's pension in the form of either a qualified joint and survivor annuity (QJSA) or a qualified preretirement survivor annuity (QPSA). Two decades later, these changes and the reasons behind them remain a mystery to many employers and employees.
Behind the REA
When a retirement plan participant reaches retirement age, there are several ways he or she can take the retirement income: single-life annuity, joint-survivor annuity, or a life and term-certain annuity. Before the REA, the plan participant's spouse had no voice in which option was selected. In fact, spouses had few rights to share in participants' retiree benefits at all.
Pre-REA, retirees often would choose a single-life annuity, as it is normally the form of payment that yields the highest payable benefit. However, with the single-life annuity, payment stops when the retiree dies. This often meant a drastic reduction in the money provided to the retiree's survivors, and many elderly spouses were left in poverty. In other cases, spouses were not even aware that retirees were retirement plan participants. Such secrecy complicated the chore of settling an estate. Often, if spouses were aware of the retirement plan, they were not familiar with their rights to survivor benefits. Along with this confusion, uncertainty existed over whether ERISA preempted state divorce laws. Some states did not allow courts to divide retirement benefits between divorcing spouses.
Recognizing that spouses often were in the dark regarding their spouse's retirement benefits and, consequently, their own futures, Democrat Geraldine Ferraro in 1984 implemented the recommendation of the Business and Professional Women Foundation into proposed legislation to correct these issues and others in the House. Congress passed this important legislation and, later that year, President Ronald Reagan signed it...