Many plan distributions and loans, including special coronavirus-related distributions (CRDs), may not be obtained by married participants without spousal consent. Nothing in the Coronavirus Aid, Relief and Economic Security (CARES) Act or other emergency legislation modified the permanent IRS consent rules, which require that the consent be given in the “physical presence” of a notary public or plan representative. However, individuals affected by COVID-19 because of lockdowns, quarantines and illness, or who are vulnerable and need to limit social contact, have found it impossible to satisfy the physical presence requirement.
As a result, some participants have been unable to obtain their desired distributions and loans. To help those participants, the IRS has now issued a notice easing the usual requirements for spousal consent for all of 2020.
When Is Spousal Consent Required?
Married participants in qualified plans and 403(b) plans in which a qualified joint and survivor annuity (QJSA) is the normal form of benefit must obtain their spouse’s written consent to elect another form of benefit, such as a lump sum, or to obtain a loan. In addition, married participants in defined contribution (DC) plans in which annuities are one of the available payment options need spousal consent to affirmatively elect an annuity form other than the QJSA. Many defined contribution plans also require spousal consent in order for a married participant to name a beneficiary other than the participant’s spouse, such as a child or a sibling.
Scope of the Temporary Relief
Although it is not at all common for plans to require that other participant elections, such as an election by an unmarried participant, be notarized or made before a plan representative, the relief would cover any participant elections. Like other recent IRS relief, there is no requirement to actually show a coronavirus-related hardship in order to use the relief. Further, the relief applies to all actions requiring spousal or participant consent, and it is not limited to consents needed to obtain special CARES Act distributions and loans.
What Are the Temporary Rules?
Plan administrators may require either that the spousal consent be notarized or that it be given to a plan representative as under the current rules.
Notarization. If notarization is chosen, the temporary rules permit notarization using an electronic system with remote live audio-visual technology if the procedure also complies with applicable state law—usually, this will be the law of the state in which the spouse giving the consent resides. An audio-only connection is not sufficient. Plan sponsors and administrators need to be aware that only about half of the states, including Florida, Maryland and Ohio, permanently permit remote notarization. Other states, such as New York and Pennsylvania, have permitted remote notarization on a temporary basis, but all 50 states do not currently permit remote notarization. Legislation has been introduced in the Senate to make remote authorization legal throughout the country, but its odds of becoming law are uncertain at this time.
Consent Before a Plan Representative. This has not been the prevalent procedure, but, given that all states do not permit remote notarization, it may be the only practical option in some states. In order to use this consent option, the system must allow for direct interaction between the signer and the plan representative and:
- The signer must show a valid photo ID during the live audio-visual conference;
- The signer must fax or email a legible copy of the signed consent to the representative on the day that the consent was signed;
- The plan representative must acknowledge compliance with the IRS rules (Notice 2020-42); and
- The plan representative must return the acknowledgment and the signed document to the signer using a method, such as email, that the IRS permits to be used to distribute participant notices.
Are the New Rules Required?
The relief is not characterized by the IRS as mandatory, but participants might challenge a plan’s failure to use the new relief since it satisfies applicable IRS requirements. Plan sponsors might want to consider imposing additional security requirements of their own—other than physical presence—to address concerns that the temporary relief may increase the likelihood of cyberfraud.
If a plan sponsor chooses to permit consent to be given to a plan representative in 2020, there is no requirement that this option be continued in 2021 and beyond. Since the relief is retroactive to January 1, it automatically protects sponsors and administrators who were using these procedures before the temporary guidance was issued.
Action Steps for Plan Sponsors and Administrators
Plan sponsors should coordinate with their administrators and recordkeepers to determine how to implement the new procedures and whether they require changes to the systems currently in place. If remote consents that do not satisfy the temporary requirements now in place were accepted on an ad hoc basis earlier in 2020, consideration should be given to obtaining new consents that satisfy all of the IRS’ temporary requirements.
It is possible that the IRS may extend the temporary relief or issue proposed or temporary regulations that would permanently ease the spousal consent requirements. A law permitting remote notarization on a national basis could also gain traction and be passed by Congress. Plan sponsors and administrators should be on the lookout for further legislative and regulatory developments affecting procedures for obtaining spousal consent.
Carol Buckmann is a co-founding partner of Cohen & Buckmann P.C. As a highly regarded employee benefits and ERISA [Employee Retirement Income Security Act] attorney, Buckmann deals with the foremost issues in ERISA, including pension plan compliance, fiduciary responsibilities and investment fund formation.
She has 40 years of practice in this area of the law and a depth of experience on complex pension law and fiduciary problems. She regularly shares her thoughts on new developments in the benefits industry on Insights, Cohen & Buckmann’s blog, and writes and speaks on ERISA topics. Buckmann has been recognized by Martindale-Hubbell as an AV Pre-eminent Rated Lawyer, was selected for inclusion in the Best Lawyers in America and was named one of the Super Lawyers in Employee Benefits.This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.
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