Physical Presence Requirement for Spousal Consent
Spousal consent is required for several situations that arise under a tax-qualified retirement plan, mainly to make sure that both spouses are in agreement regarding important plan participant decisions that affect the couple’s retirement nest egg. For instance, a married participant must obtain spousal consent before waiving any benefits that may be provided in the form of a qualified joint and survivor annuity (“QJSA”) from a pension plan, a money purchase pension plan or from a defined contribution plan that offers a QJSA as the normal form of payment. Spousal consent also is required to take a loan or a CARES Act coronavirus-related distribution from a defined contribution plan that offers the QJSA. Finally, spousal consent is required for a married participant to name someone other than his or her spouse as the participant’s primary beneficiary for a qualified plan.
Spousal consent for these purposes is required to be “witnessed in the physical presence of a plan representative or a notary public.” Treas. Reg. § 1.401(a)-21(d)(6). With social distancing and working from home in response to the coronavirus pandemic (“COVID-19”), however, it can be difficult (and nearly impossible in some cases) to comply with the physical presence requirement in the regulations. In Notice 2020-42 the Internal Revenue Service (“IRS”) provides temporary relief during the period beginning on January 1, 2020 and ending on December 31, 2020 (“Relief Period”) from the spousal consent physical presence requirement for participant elections required to be witnessed by a plan representative or a notary public, including spousal consent.
Relief From Physical Presence Requirement
During the Relief Period, the IRS has provided temporary relief from the physical presence requirement as follows:
Witness by a Notary Public
In the case of witnessing before a notary public, the temporary relief permits the physical presence requirement to be satisfied virtually under an electronic system that uses remote or online notarization and meets the following requirements:
- If executed via live audio-video technology that otherwise satisfies the requirements of participant elections under Treasury Regulations § 1.401(a)-21(d)(6); and
- Is consistent with state law requirements that apply to the notary public.
There are a number of states that already allow some version of virtual notarizations, including Texas. In light of COVID-19, several other states that are in the process of passing laws to permit virtual or online notarization.
Witness by a Plan Representative
In the case of a participant election witnessed by a plan representative, the temporary relief permits the physical presence requirement in Treasury Regulation § 1.401(a)-21(d)(6) to be virtually satisfied under an electronic system that uses live audio-video technology and meets the following requirements:
- The individual signing the participant election must present a valid photo ID to the plan representative during the live audio-video conference;
- The live audio-video conference must allow for direct interaction between the individual and the plan representative (pre-recorded video of the person signing is not sufficient);
- The individual must transmit by fax or electronic means a legible copy of the signed document directly to the plan representative on the same date it was signed; and
- After receiving the signed document, the plan representative must (i) acknowledge that he or she witnessed the signature in accordance with the requirements of Notice 2020-42 and (ii) transmit the signed document, including the acknowledgement, back to the individual under a system that satisfies the applicable notice requirements under the Treasury regulations.
Plan Amendment Required to Rely on the Relief?
As a general matter, spousal consent requirements are required to be written into the plan document. If a plan sponsor or administrator elects to rely on the temporary relief in Notice 2020-42 to allow for virtual spousal consents, the plan sponsor or administrator should review its plan document provisions addressing spousal consent requirements and determine whether a plan amendment is needed to avoid a potential operational violation.
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