May a plan restrict who is an acceptable witness for a spouse’s consent?

As BenefitsLink yesterday informed us, this morning’s Federal Register publishes the Treasury department’s proposed rule that would permanently allow remote witnessing of a spouse’s consent, whether to a distribution not a survivor annuity or naming a beneficiary not the spouse.

Some plans’ sponsor/administrators and those who advise them might use this as an occasion to reconsider what a plan allows for a spouse’s consent.

ERISA § 205(c)(2)(A)(iii) permits recognizing a spouse’s consent “witnessed by a plan representative or a notary public[.]”

But does anything require allowing both those means?

May a plan provide that only a consent witnessed by a notary public allows something that requires the spouse’s consent?

And further, may a plan provide that only a consent witnessed by a notary public who is neither an employee nor a nonemployee contractor of the plan’s sponsor/administrator is recognized?

Interesting question. If you look at IRS publication 6391, the model plan document language the IRS is looking for has both notary and plan representative in it, so they may give you a hard time if you omit either one. https://www.irs.gov/pub/irs-pdf/p6391.pdf

Not sure why anyone would want the spousal consent rule for a plan to be more restrictive than permitted. Is it that you are worried that if the plan sponsor's employee (either as plan representative or a notary) screws up in witnessing the acknowledgement that the employer could be liable for the error of their employee? 

I don't think you can restrict the notaries the plan accepts to those who don't work for the plan sponsor, unless it is due to some concern about a particular notary's commission being expired or something like that. For example, what if an employee lives in a remote "company town" and goes to several notaries to get consent and you keep rejecting them from the only notaries the employee has reasonable access to? At some point you will be preventing them from electing the benefits they are legally entitled to. 

Here are a couple articles about issues that can arise for someone who notarizes on the job (and some state laws in this regard - which were in effect when the article was written):  

https://www.nationalnotary.org/notary-bulletin/blog/2014/08/notarizing-on-the-job-boss

https://www.nationalnotary.org/notary-bulletin/blog/2013/04/what-you-need-to-know-about-e-o

If you don't want employees notarizing stuff on the job (and not just related to the plan), you may be able to make that your company policy (as long as it is not illegal to do so under state law), but I don't think you can tell them that they can't notarize off the job - outside the scope of their employment. 

It is arguable that a plan could require notarized spousal consent (without allowing a plan representative to witness spousal consents) since I don't know of any requirement that says a plan MUST provide a plan representative for witnessing spousal consents (or that you have to make the plan representative available at the participant's beck and call), but it would seem impractical, and perhaps impermissibly restrictive, to require consent to be witnessed by a plan representative and not a notary. For example, let's say that the plan representative is located on one coast and the participant is located on the other coast. Would it be fair to require the participant to fly a spouse cross-country to obtain their spousal consent?  This may not be so bad if remote witnessing by a plan representative is permanently allowed, but what if the plan representative fails to make himself or herself reasonably available for this purpose, and this results in participants losing their ability to access their benefits? Or, what if the employee is technologically challenged or doesn't have access to a computer that offers the necessary remote witnessing software the plan representative uses?

Could that cause some optional forms of benefit to be not effectively available under the benefits, rights and features rules?  I think it could. 

Peter, I have always assumed you could require notarization and eliminate the option for plan administrator. Most of the plans that I have drafted (all of which received favorable DLs, of course) provided for notarization only. Never had a problem.

I don't see why you couldn't restrict further as long as there was no substantial restriction on the ability to get a distribution. Obviously, that issue only arises only with notarization, because the PA is free to determine who can represent it for purposes of witnessing signatures.

You don’t need both. And I’d require a notary because the key is protecting the plan, especially for spousal consent. The last thing you want is someone challenging a beneficiary designation claiming coercion, etc. Not this eliminates that situation, but the notary is bound by state law so a plan would have more reliance on the notarized document than one that is just signed by the PA. Is there more risk if someone at the employer notarizes it? Maybe. But state notarization laws could still provide protection for an innocent plan. And most, if not all, notaries are required to be bonded. 

4 hours ago, G8Rs said:

You don’t need both. And I’d require a notary because the key is protecting the plan, especially for spousal consent.

Agree. There's also the problem of having the appropriate person (e.g., the plan committee) designate the individuals who can represent the plan administrator for signature witnessing, and keep the list updated. Could work for some plan sponsors, but not for most, I think.

bito’money, Luke Bailey, and G8Rs, thank you for your helpful observations.

I’m aware an IRS-preapproved document typically allows what ERISA § 205 allows. Some lawyers consider that restricting which witnesses and notarial acts are recognized might be within “administrative provisions” one may edit without losing reliance on the IRS’s opinion letter.

Luke Bailey, thank you for sharing your experience that the IRS has not questioned plan provisions that restrict witnessing to a notary.

bito’money, yes, a plan’s sponsor worries that allowing a “plan representative” to witness a consent leaves the employer that serves as the plan’s administrator vulnerable to an assertion that it is responsible for a failure in its representative’s witnessing, or at least for not prudently training and supervising its representative.

Likewise, even with a State-licensed notary, there are arguments for making the notary’s employer responsible for the notary’s failure. The ways a notary’s employer might be liable are heightened when the employer has some interest in what would or would not be done following the presence or absence of a notary’s certificate.

And even if an employer is not responsible for what a notary did or failed to do, a notary’s bad conduct can lead to litigation, which can require meaningful expenses.

For one example: Butler v. Encyclopedia Brittanica, Inc., 41 F.3d 285, 287, 18 Empl. Benefits Cas. (BL) 2589, 2591, Pension Plan Guide (CCH) ¶ 23903B (7th Cir. 1994) (“The notary, Louise Joslyn [an employee of Britannica], stated that she does not know Anthony Cotini [the participant’s surviving spouse] and had no recollection as to whether he had personally appeared before her to sign the [spouse’s consent] documents [and did not recall meeting Cotini]. Joslyn stated that her general practice is to see the person actually sign a document before she will notarize it. However, she stated that she sometimes notarized documents without the signing party being present, particularly when an employee asked her to notarize a document that the employee claimed was signed by the employee’s spouse.”). Reading the trial and appeals courts’ published opinions, one imagines the employer/administrator spent more than a little money on Mayer, Brown & Platt’s work for an interpleader and several briefings and arguments.

A plan’s administrator seeks more than to win at a trial, summary-judgment, or even motion-to-dismiss stage; rather, an administrator wants a claim never to be asserted. (Even winning a dismissal by explaining how a complaint fails to state a claim costs $$.) Facing no claim is likelier if there is no fact a plaintiff could allege (at least not without the attorney facing sanctions) to support an assertion about why the administrator is responsible for an alleged failure of the spouse’s consent.

G8Rs, I too think that looking to a State-licensed notary gets an administrator more protection than likely would be had when allowing a plan representative to witness a spouse’s consent.

But that a notary maintains a bond State law requires rarely helps. Those bond amounts are absurdly low. (Last time I looked, it was $1,000 for Pennsylvania, $10,000 for Texas, $15,000 for California.) Few notaries have enough errors-and-omissions insurance to restore a substantial retirement plan account.

bito’money, I do not suggest an employer restrain its employee’s acts as a notary, certainly not off-hours and preferably not even during work hours.

Rather, the restraint is about which notary’s certificate a plan’s administrator recognizes as sufficient for the administrator to accept a participant’s beneficiary designation. ERISA § 205’s purposes calling for someone to witness a spouse’s making of a written consent suggest the need for the witness’s independence. That’s why a plan’s sponsor/administrator might prefer a notary who lacks a personal loyalty, whether to the employer/administrator or to the consent-seeking participant, that could interfere, or even be argued to have interfered, with the notary’s judgment in acting honestly, impartially, and according to law.

bito’money and Luke Bailey, I’ll give some thought to situations in which so few notaries are practically available that this might improperly or unfairly burden a participant’s opportunity to name a beneficiary other than one’s spouse.