Business groups want to make it easier for pension holders facing pandemic-induced financial problems to take large lump sum withdrawals.
The problem is that pension holders are required to obtain notarized witness consent from spouses legally entitled to a portion of any distributions, a task complicated by stay-at-home orders.
Retirement professionals are recommending temporarily easing up on the spousal protections by allowing consent via teleconference, for example, during the length of the coronavirus crisis.
“We believe the spousal protections are very important and they should be enforced, but in a way that does not jeopardize anyone’s health,” Chantel Sheaks, the U.S. Chamber of Commerce’s executive director for retirement policy told Bloomberg Law.
Potential workarounds include rewriting plan procedures to inform participants seeking distributions that a notarized/witnessed signature will be required “after the company returns to regular working conditions” or social distancing policies are jettisoned, Sheaks said.
Existing spousal consent rules preserve a surviving spouse’s right to collect a lifetime benefit worth at least 50% of the original participant’s payment as part of a qualified joint and survivor annuity (QJSA).
A signed consent form witnessed by a notary public or plan representative is required before beneficiaries can waive that pre-defined benefit for another amount, reassign it to another payee, or make other changes.
The goal is to prevent account holders from forcing spouses to sign away their lifetime benefits under duress. Positive identification checks prevent account holders from bringing someone else to a notary’s office and having them fraudulently sign away a spouse’s guaranteed benefit.
Retirement professionals at the American Benefits Council, Spark Institute, and U.S. Chamber of Commerce who are finding those safeguards problematic now that leaving home is so difficult have proposed bending the rules to varying degrees.
Alternatives floated by the trade organizations range from allowing consent via teleconference to pre-authorizing a distribution and later verifying consent once face-to-face interactions are no longer a health hazard.
Pension plans are not privy to the emergency withdrawals allowed by the new stimulus law or hardship distributions accessible to defined contribution plans such as 401(k) accounts.
Sign of the Times
Michael Hadley, a partner at Davis & Harman LLP who advises Spark, said it is “difficult, dangerous, or simply impossible right now” to satisfy the “physical presence” requirement governing spousal consent transactions. His group has asked the IRS to weigh in on allowing spousal consent via phone call or video conference.
Spark also proposed easing rules about producing a valid ID to alleviate the burden on “individuals who are under quarantine and do not have scanning capabilities.”
“To be clear, we are not seeking to avoid the requirement to obtain spousal consent where the law requires it,” Hadley told Bloomberg Law.
Finding the right balance is a challenge since easing the protections entirely could lead to a different set of problems. Women under duress may wind up sacrificing their retirement security, members of the Pension Rights Center warned.
“We hear from a lot of spouses who regret waiving the lifetime benefit,” PRC legal program director Emily Spreiser said.
PRC executive director Karen Ferguson said her organization recognizes the “need to do something during this very limited period of time” to compensate for limited meeting opportunities, but stressed that “realistic protections” must be part of any short-term relief.
The safeguards PRC proposed include:
- Repealing any spousal consent tweaks as soon as businesses reopen or the quarantine period ends, maxed out at six months;
- Limiting lump-sum distributions to a single payment of no more than 10% of the projected payout. Additional distributions would be blocked until businesses reopened and/or traditional spousal consent procedures resumed;
- Any coronavirus-related spousal consent teleconferences or phone calls should be recorded and archived by the plan administrator; and,
- Plan administrators should send a copy of the 10% distribution agreement for the participant’s spouse to sign and return (electronically or by mail) following the phone call/teleconference just to be sure.
Spreiser said curbs such as the 10% distribution cap are designed to save retirees from jeopardizing their financial futures.
Even if the quarantine period extends for several months, Spreiser said regulators could revisit withdrawal policies as needed.
“We can always loosen the restrictions later,” she said. “But we can never undo the damage.”
To contact the reporter on this story:
To contact the editor on this story: