Remote notarization

I'm aware that the IRS recently allowed remote notarizations and witnessing by plan representatives. I'm also aware that witnessing is required for spousal consent of non-QJSA distributions and loans from plans subject to the QJSA rules. What's confusing to me is that the IRS Notice refers to the relief being available to "participant elections, including spousal consent." Are any participant elections subject to the witnessing rule?

Thanks for your help.

2 hours ago, Ian said:

I'm aware that the IRS recently allowed remote notarizations and witnessing by plan representatives. I'm also aware that witnessing is required for spousal consent of non-QJSA distributions and loans from plans subject to the QJSA rules. What's confusing to me is that the IRS Notice refers to the relief being available to "participant elections, including spousal consent." Are any participant elections subject to the witnessing rule?

Thanks for your help.

The only required notarization (or plan admin witnessing) is for spousal consent. BTW, I am a notary in MA and will not be doing any remote notarizations. The MA rules to do so are much too onerous (like mandatory maintenance of the video of the session for TEN years).

Appreciate the response. Any idea why the IRS keeps referring to "participant elections, including spousal consent" in Notice 2020-42?

I believe that a plan CAN, if the sponsor so chooses, require a notarization for other items - a regular withdrawal, for example, that doesn't require a spousal consent. I speculate that such provisions might become more common in an attempt to reduce fraud.

6 hours ago, Belgarath said:

I believe that a plan CAN, if the sponsor so chooses, require a notarization for other items - a regular withdrawal, for example, that doesn't require a spousal consent. I speculate that such provisions might become more common in an attempt to reduce fraud.

Wow, that's an interesting thought...

50 minutes ago, austin3515 said:

Wow, that's an interesting thought...

It is interesting; I wonder if it can be charged that requiring a notarization on non-required item could be considered interference with the participant's ERISA rights?  Never considered asking for such, but I can see that there could be some use to that, particularly in large companies.  

"I wonder if it can be charged that requiring a notarization on non-required item could be considered interference with the participant's ERISA rights?"

Hi Larry - I thought of that aspect as well, but I think it is a real stretch. Maybe one of the ERISA lawyers will chime in, but I think a Fidicuary could make a pretty strong argument that such a policy is prudent in fulfilling one's fiduciary obligations under ERISA in these days of rampant identity theft.

53 minutes ago, Belgarath said:

Hi Larry - I thought of that aspect as well, but I think it is a real stretch. Maybe one of the ERISA lawyers will chime in, but I think a Fidicuary could make a pretty strong argument that such a policy is prudent in fulfilling one's fiduciary obligations under ERISA in these days of rampant identity theft.

I'll bet the plans most likely to add such a feature are plans that had money stolen through identity theft.  Just a hunch.

And probably right! I remember when we first bought our house, it had a mother-in-law apartment attached, and we decided to rent it to a tenant (about 30 years ago, and we got out of THAT business after one year) our attorney told us that the best leases are written by landlords who have gotten shafted. The burned hand teaches best!

1 hour ago, Belgarath said:

"I wonder if it can be charged that requiring a notarization on non-required item could be considered interference with the participant's ERISA rights?"

Hi Larry - I thought of that aspect as well, but I think it is a real stretch. Maybe one of the ERISA lawyers will chime in, but I think a Fidicuary could make a pretty strong argument that such a policy is prudent in fulfilling one's fiduciary obligations under ERISA in these days of rampant identity theft.

Agree; I started thinking that way too but decided "no."  If you're asking for something that is definitely not required, such as spousal consent for a loan in a non-annuity plan, then I'd say that is definitely a problem.

Plans mandate things all the time that are not required.  I have seen plans require spousal consent when not necessary for example (I don't mean a profit sharing plan including annuity options, I mean just an arbitrary requirement for spousal consent).  

Fiduciaries have personal liability for protecting plan assets.  It would be improper in my opinion for someone to say how far a fiduciary should go in fulfilling that role (and thus protecting his or her own home, quite literally), barring something really quite extraordinary.  So a notarization is relatively inexpensive and widely available. i.e., if it's not your home on the line, then you don't have too much right to 2nd guess.

In contrast, saying that a distribution will not be approved unless a participant presents him or herself in person at the corporate headquarters with 3 forms of ID is almost certainly going too far (even though it's probably a great way to get "close to absolute" certainty of one's identity).

The worst part is telling the participant, no, you don't legally NEED a notary, but my bosses won't allow your withdrawal to be processed without it.  But hey, that's better than, ""Your spouse didn't actually need to sign this, since the spousal consent rule didn't actually apply."

10 minutes ago, Bri said:

""Your spouse didn't actually need to sign this, since the spousal consent rule didn't actually apply."

Well, if the document says the spouse must sign, then it is by definition a requirement.  No different then the document says you can;t get paid out until after the end of the plan year.  It's arbitrary and pointless and stupid and it makes participants hoppin' mad.  But because the docment says it, it is so. 

A couple thoughts on this....

When QJSA applies, spousal consent is needed for a form of payment other than qualified joint and survivor annuity, since part of that annuity is for the benefit of the spouse.  When a plan is not subject to QJSA, spousal consent is not required since there is no survivor annuity benefit to waive.  If the plan still requires spousal consent, what exactly is the spouse consenting to if he/she does not have a benefit to waive?  

What about the participant's right to a distribution?  Can the plan prevent the participant from getting a distribution by requiring someone without a direct claim on the benefit to consent to it?

Requiring a notary or plan admin to witness execution of the paperwork is a separate issue.  This is to make sure that the person requesting the distribution is actually the participant, to prevent fraud.  I don't see any issues there, even if it is inconvenient.  

3 minutes ago, RatherBeGolfing said:

What about the participant's right to a distribution?  Can the plan prevent the participant from getting a distribution by requiring someone without a direct claim on the benefit to consent to it?

For the record a) this was an attorney drafted plan that required spousal consent for all transactions, even though it was not a J&S plan; b) they had an IRS determination letter (FWIW, I know it doesn't mean everything is ok, but worth noting nonetheless); and c) when we restated onto our document I told them to get rid of it for the sheer fact that it was a pain and unnecessary.

I'm certainly not endorsing a policy like that.  I was only making the point that plans can and do have weird and arbitrary and unnecessary requirements.  But if they are in the plan, then by definition they are required.

14 minutes ago, austin3515 said:

  But if they are in the plan, then by definition they are required.

 ...insofar as such documents are consistent with ERISA

2 hours ago, austin3515 said:

For the record a) this was an attorney drafted plan that required spousal consent for all transactions, even though it was not a J&S plan; b) they had an IRS determination letter (FWIW, I know it doesn't mean everything is ok, but worth noting nonetheless); and c) when we restated onto our document I told them to get rid of it for the sheer fact that it was a pain and unnecessary.

I'm certainly not endorsing a policy like that.  I was only making the point that plans can and do have weird and arbitrary and unnecessary requirements.  But if they are in the plan, then by definition they are required.

If the employer was the a lawyer it was probably a good thing, because any participant could have said "that's not required and I'm not going to get it" with regard to spouse consent and then go to DOL and claim ERISA  rights interference.

I can see I've struck a nerve here.  But since that wasn't the issue at hand, I still maintain that requiring a notary is not at all the same thing as keeping someone sepaarated from their money.  Quite the opposite actually, it is ensuring that a participant's money will be their waiting for THEM and not some identity thief in northern Africa.

3 hours ago, RatherBeGolfing said:

What about the participant's right to a distribution?  Can the plan prevent the participant from getting a distribution by requiring someone without a direct claim on the benefit to consent to it?

So RatherBeGolfing, you are positing that if a 401(k) plan document with only a lump sum distribution said that spousal consent was required for a distribution or loan, that might violate ERISA? Now that you mention it, I can see the argument, and I can even see someone arguing that it violates IRC sec. 401(a)(13)'s prohibition on alienation. It surprises me that there is no guidance on it, at least that I know of. Maybe someone knows of some and will chime in. I'm pretty sure there are plans out there that do require spousal consent even though not required by the Code or ERISA and they have received DL's. My guess is that it is within the employer's authority as settlor of the trust/plan to determine to include such a provision, e.g. in theory a 401(k) plan could make a terminated employee wait until normal retirement age to receive a distribution, and that would be OK (although of course no one does that).

About one of the two different topics now in this discussion:

Many investment funds impose identity-control conditions on an investor’s right to her redemption.  For example, many funds require a bank’s or broker-dealer’s signature guarantee for a redemption more than a specified amount, often $100,000.  (Getting such a guarantee is more demanding than getting a notary’s certificate because the guarantor has its money at stake on the assurance.)  SEC-registered mutual funds have done this for decades.  I’m unaware of any challenge about whether such a signature-guarantee condition interferes with a redemption right, which the Investment Company Act of 1940 regulates.  (I assume the condition, or at least the issuer’s power to impose it, had been disclosed).

While an identity control of this kind might not yet be customary for individual-account retirement plans, perhaps some sponsors and administrators will consider it.

2 hours ago, Luke Bailey said:

I'm pretty sure there are plans out there that do require spousal consent even though not required by the Code or ERISA and they have received DL's.

Im sure there are, I have at least heard people talk about them, but what are they consenting to?  In a plan where QJSA applies, you consent to a distribution other than the QJSA (where the survivor annuity benefits you directly rather than benefitting the particupant).  In a non  QJSA plan, what are you consenting to/waiving? 

The one I had just said no distributions period without spousal consent.  You know, trying to prevent the dirt bag spouse from running out on the stay-at-home-with-the-kids-spouse, drains the 401k and blows the money in Vegas. Tale as old as time basically. Gee I wonder where plan sponsors got the idea to make that a requirement?  Hmm...  Oh I know, probably from the existing laws that make that a requirement for pension plan distributions.  Yeah that's a strong possibility.   

Oh I know you're going to say.  It's not the same thing at all.  The spouse is waiving their right to a QJSA!  Oh please.  Has anyone actually seen someone take an annuity out of a 401k plan? Ever?  I've been at this for near 20 years and never seen it once.  The reality is that the spouse needs to approve the spouse taking their money as a lump-sum. Even a loan!  That's just reality.  So really, the argument that in a non-J&S plan suddenly the very same requirement with the very same purpose is now an outrage and will probably result in a gynormous lawsuit and a DOL investigation to boot is a bit hard to imagine.

3 hours ago, austin3515 said:

Oh I know you're going to say.  It's not the same thing at all.  The spouse is waiving their right to a QJSA!  Oh please.  Has anyone actually seen someone take an annuity out of a 401k plan? Ever?  I've been at this for near 20 years and never seen it once.  

Ok, same here, but what does that have to do with anything?  QJSAs were primarily put in place because many families were single income with one spouse taking care of home and children.  Mandating the survivor part was a way to protect the non working spouse by creating a right top a benefit that had to be waived.  Obviously, that doesnt exist in a non-QJSA plan....

3 hours ago, austin3515 said:

The reality is that the spouse needs to approve the spouse taking their money as a lump-sum. Even a loan!  That's just reality. 

Legal reality?

3 hours ago, austin3515 said:

You know, trying to prevent the dirt bag spouse from running out on the stay-at-home-with-the-kids-spouse, drains the 401k and blows the money in Vegas. Tale as old as time basically. Gee I wonder where plan sponsors got the idea to make that a requirement?

I get your point, but where does the legal authority to prevent Mr. or Mrs Dirtbag from blowing the money in vegas come from?  Since more and more young people are NOT getting married, what about couples with kids, been together for 20 years, just not married?  Same dire need of protection right?  Same legal right to a benefit (none) in the non-QJSA plan.

We all work with legal requirements right?  The same thing that has us saying "sorry, the document is the document" would also apply to things like when someone can take a distribution.

There are tons of stuff I would love to do to prevent people from making really stupid mistakes (like no participant directed plans....), but that doesn't mean I can just unilaterally do it.

2 hours ago, RatherBeGolfing said:

There are tons of stuff I would love to do to prevent people from making really stupid mistakes (like no participant directed plans....), but that doesn't mean I can just unilaterally do it.

It's ironic isn't that you choose the right to direct investments as an example of something you would love to prevent?  The Employer does in fact have the "unilateral" right to deny them that opportunity. And they do it to prevent the participants from making stupid decisions. That's actually another good example of an arbitrary policy within the plan sponsors domain where they get to decide what is and is not in their document.

I guess this is kind of silly anyway because if I see a plan with no money purchase money that includes the j&s requirements, I do whatever I can to get rid of it.  I don;t want anyone to think I am a proponent of such a provision.  My point is only that the plan sponsor has wide latitude to design a plan as it sees fit.  Unless it violates some law, then they can do it.  Hence if their policy is to require a notarization on all forms, then that is also their prerogative. 

By the way, if someone is lost, and we track them down using a skip-tracing service, we won't give them the time of day unless they get a notarized form saying they are who they say they are.

4 hours ago, austin3515 said:

It's ironic isn't that you choose the right to direct investments as an example of something you would love to prevent?  The Employer does in fact have the "unilateral" right to deny them that opportunity. And they do it to prevent the participants from making stupid decisions. That's actually another good example of an arbitrary policy within the plan sponsors domain where they get to decide what is and is not in their document.

I guess this is kind of silly anyway because if I see a plan with no money purchase money that includes the j&s requirements, I do whatever I can to get rid of it.  I don;t want anyone to think I am a proponent of such a provision.  My point is only that the plan sponsor has wide latitude to design a plan as it sees fit.  Unless it violates some law, then they can do it.  Hence if their policy is to require a notarization on all forms, then that is also their prerogative. 

By the way, if someone is lost, and we track them down using a skip-tracing service, we won't give them the time of day unless they get a notarized form saying they are who they say they are.

 

Just to point out: we have a perverted rule for non-J&S plans. That rule is the one that REQUIRES that the spouse be the beneficiary of 100% of the account. Thus, if you leave out J&S, you are automatically DISINHERITING the children of a prior marriage.  I guarantee you that when you explain to the owner who is remarried with children from the prior marriage, he/she is usually livid when I point out that their prior plan advisor has mandated that his children are disinherited from any retirement plan money in the event of his/her death, and always without discussing it with the client.  The solution (and if enacted, then I would be happy to eliminate J&S) is to STILL allow for 50% of the death benefit to be directed to other beneficiaries and to only require that 50% of the account go to the spouse. For many of my business owners, this is a real and significant problem, but the spousal consent for the lump sum distribution has never been a problem in over 35 years of doing this, and we will manage through this COVID problem of getting notary signatures.  Just FWIW.

On ‎6‎/‎12‎/‎2020 at 3:59 PM, RatherBeGolfing said:

Im sure there are, I have at least heard people talk about them, but what are they consenting to?  In a plan where QJSA applies, you consent to a distribution other than the QJSA (where the survivor annuity benefits you directly rather than benefitting the particupant).  In a non  QJSA plan, what are you consenting to/waiving? 

RBG, you make a good point, but I think most of them say or can be interpreted as saying that spousal consent is required for any distribution before the 401(a)(14) date (latest of age 65/NRA, 10th anniversary of participation, or termination of employment).

I completely agree with austin3515 on the policy argument. Sure, there are lots of inconsistencies in policy, and requiring spousal consent where not required by law is not going to help or be necessary in many cases, but if someone can't get their spouse's consent for a loan or distribution, they probably should not get it.

On 6/15/2020 at 12:57 PM, Luke Bailey said:

RBG, you make a good point, but I think most of them say or can be interpreted as saying that spousal consent is required for any distribution before the 401(a)(14) date (latest of age 65/NRA, 10th anniversary of participation, or termination of employment).

I completely agree with austin3515 on the policy argument. Sure, there are lots of inconsistencies in policy, and requiring spousal consent where not required by law is not going to help or be necessary in many cases, but if someone can't get their spouse's consent for a loan or distribution, they probably should not get it.

Ive been out of commission due to a virus (appears to not be Covid though :)), but I wanted to circle back and just wrap up from my perspective.

I don't disagree with the policy argument(s), offering protections to both a possible spouse and plan sponsor.  My concern is pretty simple, what is the legal basis for denying a distribution to a participant who is otherwise entitled to a distribution.   The only reasoning I have seen before is that spouse has an interest because he/she is the 100% beneficiary absent a waiver, but I don't think that is enough.  A sponsor could always elect to be subject to QJSA rules, which shouldn't be an undue burden since no one elects an annuity anyway...

This is basically the same issue I have with plans that have vague or overly broad QDRO procedures, which can deprive a participant of distribution at the mere mention of a divorce, rather than the receipt of a DRO as required by statute.  

1 hour ago, RatherBeGolfing said:

Ive been out of commission due to a virus (appears to not be Covid though :)), but I wanted to circle back and just wrap up from my perspective.

I don't disagree with the policy argument(s), offering protections to both a possible spouse and plan sponsor.  My concern is pretty simple, what is the legal basis for denying a distribution to a participant who is otherwise entitled to a distribution.   The only reasoning I have seen before is that spouse has an interest because he/she is the 100% beneficiary absent a waiver, but I don't think that is enough.  A sponsor could always elect to be subject to QJSA rules, which shouldn't be an undue burden since no one elects an annuity anyway...

This is basically the same issue I have with plans that have vague or overly broad QDRO procedures, which can deprive a participant of distribution at the mere mention of a divorce, rather than the receipt of a DRO as required by statute.  

Good to know you are well, RBG.

It is hard to know where to draw the line, but I do think you can do it if you have it in your plan document for anyone who has not yet attained 401(a)(14) date. The policy issues are complicated. I guess while you may have a working spouse who takes a lump sum or loan for an irresponsible purpose, you could also have one who is in an abusive marriage and needs money to get out. Anyway, for now it is what it is and very few employers will want to do anything more than what law requires, which is no spousal consent for DC distributions and loans, unless plan contains QJSA as default.