IRS temporarily authorize electronic remote witnessing of retirement plan consent

For a number of years retirement plans have permitted participants to take a variety of plan- related actions through electronic media. For example, participants can routinely give investment directions, apply for plan loans, and even request distributions electronically. The ability to do so is a convenience to plan participants and makes it much more efficient for plan administrators to operate their plans. The ability to manage plans activities electronically has become even more important as the coronavirus pandemic has encouraged employers to facilitate working remotely and to discourage individuals from handling routine matters person to person. 

One of the requirements that plan participants have not, to date, been able to do electronically was to provide spousal consent. Spousal consent is required for a number of plan participant actions, such as designating a beneficiary other than the participant’s spouse, requesting a distribution from certain plans in a form other than a joint and survivor annuity benefit, or in some plans requesting a loan. Existing regulations under the applicable Internal Revenue Code provision require spousal consent to be executed in the actual physical presence of a notary public or a plan representative. Each state has its own rules on whether and how a notary can electronically witness a signature remotely. However, the “physical presence” requirement applicable to spousal consent for retirement plan purposes has rendered remote electronic notary or plan administrator witnessing unallowable.

The IRS has recognized the difficulties faced by participants and plan administrators trying to operate retirement plans in the midst of the upheaval of the coronavirus pandemic, and particularly the social distancing recommendations and requirements. To that end, the IRS issued Notice 2020-42 which temporarily deems the physically present witnessing requirement to be satisfied if the applicable requirements below are met. This authorization is effective for the period beginning on January 1, 2020, and ending on December 31, 2020.

Witnessed by a notary public

The Notice provides that the “physical presence” requirement in the applicable Treasury Regulations for witness by a notary public is deemed satisfied if the execution of the spousal consent is witnessed by a notary public in an audio-visual conference methodology that satisfies the state law rules for electronic notarization applicable to the notary public. Thus, a plan administrator will still need to know which states permit remote electronic witnessing by notaries public. Nonetheless, in states where it is permitted this should be relatively straightforward. The notary public should know the correct methodology for an electronic notarization in the notary’s state and be able to provide the plan administrator with verification that the notary has complied with applicable state law.

Witnessed by a plan representative

For plans that allow a plan representative to witness the spouse’s signature, the Notice provides that the “physical presence” requirement is deemed satisfied if the plan representative witnesses the spouse executing the spousal consent in a live-audio conference and all of the following are satisfied:

• The individual who is signing the document giving his or her consent must present a valid photo ID during the live audio-visual conference. Transmitting a photo ID before or after the audio-visual conference is not sufficient.
• The audio-visual conference method must allow the plan representative to directly interact with the individual signing the document. A pre-recorded video of the signing is not sufficient.
• The individual must transmit a legible copy of the signed document directly to the plan representative by fax or other electronic means on the day the document is signed.
• After the plan representative receives the signed copy, the plan representative must acknowledge that the signature was witnessed in compliance with the Notice and transmit the signed document together with the acknowledgment back to the individual through an electronic medium that the individual has an effective ability to access, or in paper form if requested by the individual.

These IRS-approved approaches provide temporary relief from the physical presence requirements and enable plans to continue to operate in these challenging times.Whether a plan should permit witnessing only by a notary public or allow the more involved plan representative witnessing method depends on a combination of the applicable state requirements for remote electronic notarization and administrative ease. However, the plan administrator should check the plan document before offering the plan representative witnessing method to participants. Some plan documents are drafted to only permit a notary public to serve as a witness. In those cases, it would be necessary to amend the plan to allow a plan representative to witness a spouse’s signature.

The coronavirus pandemic has presented plan sponsors, plan administrators, and plan participants with a number of challenges. We have discussed many of the issues and solutions in prior articles. This new Notice is a common-sense approach to safely administer the in-person physical presence requirements for witnesses in compliance with the technical requirements of the law.