IRS Issues Temporary Relief Allowing Remote Spousal Consents Under Retirement Plans

The Internal Revenue Service (IRS) has issued temporary relief with respect to the requirement that certain retirement plan participant elections must be witnessed in the physical presence of a plan representative or notary public. Notice 2020-42 relieves plan sponsors from enforcing physical presence requirements for the 2020 calendar year in light of the social distancing measures implemented due to the ongoing COVID-19 pandemic. This will help plan administrators with a vexing problem, but may not be a good fit for every plan.

By way of background, Treasury Regulation Section 1.401(a)-21(d)(6) requires that certain retirement plan elections be witnessed in the physical presence of a plan representative or notary public. Most frequently, this physical presence requirement applies to spousal consent to waive qualified joint and survivor annuity (QJSA) requirements, to designate non-spouses as plan beneficiaries, and to approve plan loans (for plans that require spousal consent for loans).

Although current regulations allow for the use of electronic notarization where permitted by state law, remote electronic notarizations are still prohibited, (i.e., physical presence before a notary public is still required, even if documents are signed electronically). Plan administrators trying to process retirement, withdrawal, and loan elections have found this to be a problem since stay-at-home orders have made it difficult for participants and spouses to visit a notary or find a plan representative in a physical office.

Relief From Physical Presence Requirement

To make it easier for retirement plan participants to apply for distributions and loans during the COVID-19 pandemic, including coronavirus-related distributions and loans (which are discussed in further detail in a prior advisory), Notice 2020-42 provides relief retroactive to January 1, 2020, and through December 31, 2020, from physical presence requirements for participant elections under the following circumstances: 

1. When witnessed by a notary public of a state that permits remote electronic notarization if executed via live audio-video technology and in compliance with state law (as of the date of this writing, 24 states¹ and the District of Columbia have implemented remote electronic notarization, some on a temporary basis during the COVID-19 pandemic);


2. When witnessed by a plan representative using live audio-video technology if the following requirements are satisfied:
   
   a. The individual signing presents a valid photo ID to the plan representative during the live audio-video conference (merely transmitting a copy of the photo ID prior to or after the witnessing is inadequate);
   
   b. The live audio-video conference allows for direct interaction between the individual signing and the plan representative (for example, a pre-recorded video of the person signing the document is not sufficient);
   
   c. A legible copy of the signed document is transmitted to the plan representative by fax or electronic means on the same date it is signed; and
   
   d. After receiving the signed document, the plan representative acknowledges that the signature has been witnessed in accordance with the requirements of Notice 2020-42 and transmits the signed document, including the acknowledgment, back to the individual using an electronic system that satisfies the requirements of Section 1.401(a)-21(c) (which sets forth other applicable notice requirements).

The relief provided under Notice 2020-42 is in line with the Federal Retirement Thrift Investment Board’s waiver of the notarization requirement for a spouse’s signature on withdrawal election forms for the Thrift Savings Plan (TSP)—which covers certain federal government employees—issued earlier this year, although Notice 2020-42 does not waive the witness requirement altogether. However, it should be noted that the TSP is not necessarily subject to the same rules as private-sector retirement plans subject to the Employee Retirement Income Security Act of 1974.

Impact on Retirement Plan Administrators

Notice 2020-42 provides welcome relief in the year of social distancing for many retirement plan administrators, particularly those located in states that permit remote notarization. The retroactive relief will be particularly welcome for plans that previously relied on those state laws.

Other plan administrators, including those located in states that do not permit remote notarization or who outsource spousal consent to third-party administrators that are not equipped for remote notarization, will still face obstacles. They will have to arrange to make plan representative witnesses available remotely (if the requirements described above are not too onerous) to take advantage of this relief.

The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.

DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.

FOOTNOTE

1   Of note, currently, Washington, New York, and Alaska permit remote notarization, while California and Oregon do not.