By Ian Berger, JD
In the wake of the coronavirus pandemic, the IRS has temporarily relaxed the rule that spousal consent to certain retirement plan distributions and loans must be witnessed personally by a notary public or a plan representative. In Notice 2020-42, issued June 3, 2020, the IRS says that remote witnessing can be used for 2020 spousal waivers.
This issue arises most frequently when a married participant in a private-sector defined benefit plan or money purchase pension plan elects a lump sum distribution (including a coronavirus-related distribution under the CARES Act) or a plan loan. The plan is not allowed to pay the lump sum or make the loan unless the participant’s spouse gives written consent. [This spousal consent rule does not apply to most 401(k) or 403(b) plans or any governmental or church-sponsored plans.] IRS rules require that spousal consent must be witnessed in the physical presence of a notary public or a plan representative.
Written spousal consent is also required when a married participant in any private-sector plan [including a 401(k) or 403(b) plan] chooses a beneficiary other than the spouse. Here again, a notary or a plan representative must personally witness the spouse’s consent.
Because of the social distancing and stay-at-home practices required during the coronavirus crisis, satisfying this physical presence requirement has been challenging. In light of this, the IRS has waived this requirement for any spousal consents made in 2020. The new rules are different depending on whether the consent is witnessed by a notary or by a plan representative.
Elections witnessed by a notary public can be made remotely through live audio-visual technology (such as a Zoom conference call), as long as the system complies with state notary requirements.
As an alternative to witnessing by a notary, many plans allow a plan representative to witness spousal waivers. During 2020, those elections can also be made remotely through live audio-visual technology, as long as the following requirements are satisfied:
· The spouse must show a valid photo ID to the representative during the conference call;
· The conference must allow for live interaction between the spouse and the plan representative;
· The spouse must fax or email a copy of the signed document to the representative on the same day it is signed; and
· After receiving the document, the representative must return the signed document back to the spouse with an acknowledgement that it was witnessed remotely.
These new rules should help resolve what had been a thorny plan administrative issue brought about by the public health crisis.