By: Joseph Goldy, CFP®
Representative Lauren Underwood from Illinois and Senator Tammy Baldwin of Wisconsin have reintroduced the Women's Retirement Protection Act of 2023. This critical legislation protects women's retirement savings after a divorce.
Previous versions of the bill had been introduced in 2019 and 2021 but didn't gain much traction. However, one provision of the 2021 bill did make it into SECURE Act 2.0, which allowed part-time workers to participate in an employer's retirement plan after two years rather than three.
The 2023 version of the bill has several new provisions outlined below.
Protection of 401(k) Assets
Currently, there is no protection for a spouse going through a divorce to stop the other spouse from withdrawing assets from a 401(k) or profit-sharing plan. There is protection for a spouse to remain a beneficiary of a participant's plan, and the spouse cannot be removed without their written consent. However, this does not stop the participant's spouse from emptying the account. The legislation would change this, requiring permission from the non-participating spouse.
These rules contrast with a defined benefit plan or money purchase plan where there are specific protections for spouses of plan participants. For example, if the participant dies, the surviving spouse must be protected with a Qualified Pre-retirement Survivor Annuity. If the participant spouse dies after retirement, the surviving spouse is entitled to a Qualified Joint and Survivor Annuity equal to 50% of the original benefit amount. These provisions of a defined benefit plan cannot be changed without spousal consent.
Help Financial Literacy
The bill would fund community-based groups to help provide financial tools for working or retirement-age women. This provision aims to bolster the financial literacy of working women and those nearing retirement. I am happy to see this provision in the bill as the number one question I get from clients who have divorced or lost their spouse or partner is how do I begin educating myself to make the best decisions for myself and my family?
Support for Low-Income Women and Domestic Abuse Survivors
According to the American Academy of Matrimonial Lawyers, since retirement accounts and pensions are often one of the most significant assets in a divorce, they are the second leading cause of contention. Unfortunately, the legal process to divide a retirement account can be costly and is a separate fee from the divorce agreement.
Many low-income women wind up leaving money on the table due to the expense and complexity of obtaining a Qualified Domestic Relations Order (QDRO), the legal instrument that provides for the separation of retirement benefits after a divorce or legal separation. The legislation provides grants to help low-income and domestic abuse survivors obtain these Qualified Domestic Relations Orders.
The Women's Retirement Protection Act makes a lot of sense and has some significant provisions to protect some of the most vulnerable women going through a divorce. Let's hope three times is a charm, and this version of the bill can get passed this year.
Joseph Goldy, CFP®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.