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06.11.20

IRS temporary relief from in-person witness requirement for retirement plan elections

BY , Yelena F. Gray

On June 3, the IRS released Notice 2020-42, which provides retirement plan administrators and participants temporary relief from the requirement that certain plan elections be made in the physical presence of a notary public or a plan representative. The relief is available for elections made in the 2020 calendar year. The IRS guidance is particularly helpful in a period in which social distancing makes it difficult for individuals to be in the close physical presence of others.

The requirements for the temporary relief are described below, but before that, a bit of background. Several elections made by participants require that the participants sign the elections. Many of those signed elections do not need to be witnessed by a notary public or plan representative. However, certain plan elections, such as those that require spousal consent, must be witnessed by a notary public or plan representative. IRS regulations already allow electronic participant signatures as long as certain requirements are met, and those electronic signatures can be witnessed by a notary public or plan representative. For an election to be properly witnessed (whether or not the election is being made on paper or electronically), the participant must be in the physical presence of a notary public or plan representative. 

Because this physical presence requirement is difficult to administer in the current COVID-19 environment, IRS Notice 2020-42 provides relief from the physical presence requirement. In the case of a notary public, the physical presence requirement will be deemed satisfied if the election is witnessed remotely by a notary public through live audio-visual (AV) technology that satisfies existing requirements for electronic plan elections and is consistent with state law requirements applicable to notaries public. Not all states permit remote notarization and requirements vary by state. State laws are also changing with the ongoing pandemic situation. Plan sponsors who wish to use remote notarization need to learn about the relevant state’s requirements. Sponsors may find it easier to use the IRS relief for plan representatives who witness individuals’ signatures. In the case of an election witnessed by a plan representative, the physical presence is deemed satisfied if live AV technology is used and the following requirements are met:

  • The person making the election presents a valid photo ID to the plan representative during the live AV meeting (providing a copy of the ID before or after the meeting is not sufficient);
  • The live AV conference must allow for direct interaction between the person making the election and the plan representative;
  • Either through facsimile or other electronic means, the electing participant must send a legible copy of the signed document to the plan representative on the same day that it was signed; and
  • Once the signed election is received by the plan representative, the plan representative must send an acknowledgement that the election was witnessed in accordance with IRS Notice 2020-42 and transmit back to the person making the election the signed document through a system satisfying the “effective access” requirements of IRS electronic election regulations.

Given that the CARES Act has expanded participant access to retirement funds, through either distributions or loans, it is likely that participant elections have and will increase in the near future. Plan administrators should consider modifying their election procedures to accommodate remote participant elections (when a notary public or plan representative witness is required), and should check with their third-party administrators to ensure they have the ability to comply with IRS Notice 2020-42.

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Author

Damian A. Myers

Counsel

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Author

Yelena F. Gray

Partner

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