Spousal Consent for a 401k Distribution
A woman who claimed that a plan distribution form indicating her consent to her late husband's distribution election was never properly notarized and therefore invalid has the agreement of a federal judge
The husband had elected a split distribution: one half in a lump sum and one half in an annuity without survivor benefits. The husband passed away after having received the lump sum distribution and two annuity payments. The wife then sued over the waiver's validity.
ERISA requires that the distribution waiver form be witnessed by a plan representative or a notary. In this case the notary had stamped the document without the wife present The US District Court threw out the waiver form signed by the woman, finding it had not been properly witnessed by a plan representative or a notary as required by ERISA.
The form did not include a standard declaration that the wife had executed the form in front of the notary. The plan administrator argued that the requirement of a witness was a mere technicality that should not invalidate the wife's signature, but the court disagreed.
While acknowledging that outside of ERISA courts have found flaws in notarizations to be insufficient to defeat the validity of a document, the court noted that those cases "did not involve the ERISA strict requirements leading to the loss of benefits by a surviving spouse."
Spousal Consent for a Loan
As a spouse has an interest in the accrued benefit of a participant, the 401k plan does not satisfy the survivor annuity requirement unless the 401k plan provides that, at the time the participant's accrued benefit is used as security for a loan, spousal consent to such use is obtained. Consent is required even if the accrued benefit is not the primary security for the loan.
No spousal consent is necessary if, at the time the loan is secured, no consent would be required for a distribution under $5,000. Spousal consent is not required if the total accrued benefit subject to the security is not in excess of the cash-out limit ($5,000) in effect under ?1.411(a)-411(c)(3)(ii).
The spousal consent must be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured. The consent must be in writing, must acknowledge the effect of the loan and must be witnessed by a plan representative or a notary public.
Participant consent is deemed obtained at the time the participant agrees to use his accrued benefit as security for a401k loan for purposes of satisfying the requirements for participant consent under sections 401(a)(11), 411(a)(11) and 417.
Change in status.
If spousal consent is obtained or is not required at the time the benefits are used as security, spousal consent is not required at the time of any setoff of the loan against the accrued benefit resulting from a default, even if the participant is married to a different spouse at the time of the setoff. Similarly, in the case of a participant who secured a 401k loan while unmarried, no consent is required at the time of a setoff of the 401k loan against the accrued benefit even if the participant is married at the time of the setoff.
For purposes of obtaining any required spousal consent, any renegotiation, renewal, or refinancing that revises a 401k loan shall be treated as a new loan made on the date of the renegotiation, refinancing, renewal, or other revision.
Internal Revenue Code 1.401(a)-20 Q & A 24