Surviving Spouse not Entitled to IRA Benefits

October 12, 2006 (PLANSPONSOR.com) - The US District Court for the District of Arizona has ruled that the surviving spouse of man who rolled over a portion of his 401(k) balance to an individual retirement account (IRA) is not entitled to receive the IRA's funds.

According to the opinion, the Employee Retirement Income Security Act’s (ERISA) surviving spouse protection does not apply to IRAs, even if a portion of those funds originated from the deceased spouse’s employer-sponsored 401(k) plan.

According to the opinion, Katherine Chandler argued that because the funds originated from an ERISA-governed retirement plan, the funds are now imbued with ERISA surviving spouse protections. Additionally, Chandler argued the Internal Revenue Code (IRC) gave spousal protection to IRAs.The district court rejected these arguments, and pointed out that the IRC protection applies to employer contributions made to an IRA on an employee’s behalf, not to rollover contributions from an employer-sponsored plan. “If Congress had intended to include rollover contributions under the purview of ERISA, it could have done so expressly,” District Judge Frederick Martone wrote in his opinion.

On the issue of ERISA surviving spouse protections, the court noted that Chandler and Siemens employee Wayne Wilson did not marry until six years after he discontinued his participation in the plan, and a plan may limit the surviving spouse protection to spouses who have been married at least one year. Therefore, the court noted, “the surviving spouse protection afforded by ERISA did not attach to the Siemens pension funds and Chandler acquired no surviving spouse rights pursuant to ERISA.”

Wilson rolled the money from his 401(k) account into a Smith Barney IRA when he left his job in 1994. He married  Chandler in 2000. In June 2002, Wilson opened another IRA with Charles Schwab & Co., and funded the new IRA with about half of the funds from the Smith Barney IRA, naming his four children from a previous marriage as the beneficiaries. He died in 2005, and Chandler entered into a legal battle with the children for the IRAs funds.

The case is Charles Schwab & Co. v. Chandler, D. Arizona, October 5, 2006.

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