401k Better or Worse- You Need Your Spouse’s Consent
See if you make either of these mistakes when taking money out of your 401k plan
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
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