IRS will allow retirement plan participants to sign elections remotely
Temporary relief applies only to elections signed in 2020
TAX ALERT |
Notice 2020-42 (the Notice) provides temporary administrative relief to help certain retirement plan participants or beneficiaries who need to make participant elections by allowing flexibility for remote signatures. This temporary change relates to the existing requirement that a plan representative or a notary public must physically witness the signatures of the individual making the election and, when applicable, a spouse’s consent to the election.
In order to assist in the efficient and safe processing of plan distributions and loans (whether or not COVID-19 related), the Notice provides temporary relief from the physical presence requirement for notarization or witnessing by a plan representative. The Notice only applies for the 2020 calendar year.
In the case of a participant or spousal election witnessed by a notary public, the physical presence requirement in Reg. section 1.401(a)-21(d)(6) is deemed satisfied for an electronic system that uses remote notarization if executed via live audio-video technology. That remote system must otherwise satisfy the requirements of participant elections under Reg. section 1.401(a)-21(d)(6) and be consistent with state law requirements that apply to the notary public.
Plan representative requirements
In the case of a participant or spousal election witnessed by a plan representative, the IRS will deem the plan as satisfying the physical presence requirement in Reg. section 1.401(a)-21(d)(6) if the electronic system using live audio-video technology satisfies the following requirements:
- The individual signing the participant election must present a valid photo ID to the plan representative during the live audio-video conference, and may not merely transmit a copy of the photo ID prior to or after the witnessing;
- The live audio-video conference must allow for direct interaction between the individual and the plan representative (for example, a pre-recorded video of the person signing is not sufficient);
- The individual must transmit by fax or electronic means a legible copy of the signed document directly to the plan representative on the same date it was signed; and
- After receiving the signed document, the plan representative must acknowledge that he or she has witnessed the signature in accordance with the requirements of the notice and the representative must transmit the signed document, including the acknowledgement, back to the individual under a system that satisfies the applicable notice requirements under Reg. section 1.401(a)-21(c).
If the plan sponsor is putting in a new electronic means to facilitate these remote signatures, any electronic system that a plan sponsor wishes to implement must be one that meets the following requirements:
- Participants must have an effective ability to access the system.
- The electronic system the plan sponsor uses must have reasonable safeguards to prevent anyone but the participant and their spouse from making the election.
- The electronic participant election system must provide the persons making the elections with a reasonable opportunity to review, confirm, modify or rescind the terms of the election before the election becomes effective.
- The plan must send to the individual making the election a confirmation of the effect of the election under the terms of the plan within a reasonable time. The plan may send that confirmation either through a written paper document or by electronic medium.
The IRS issued this Notice in response to the need for certain plan participants to access their retirement plan benefits because of COVID-19 related reasons such as being diagnosed with the illness, being quarantined, layoffs, etc. However, in 2020, plan sponsors may use this approach for any distribution—COVID-19 related or not.