Seyfarth Synopsis: In response to immediate requests from participants for tax-favored coronavirus-related distributions (“CV Distributions”) and loans, as described in more detail in our prior post, and participants who want to begin pension benefits, the IRS has issued Notice 2020-42, which provides temporary relief from the physical presence requirement for any participant election that needs to be witnessed by a notary public or a plan representative. The Notice gives plans and participants greater flexibility for participant elections, including spousal consents, that must be signed in person and witnessed by a notary or plan representative in order to be valid.
Many plans prohibit distributions in any form other than a qualified joint and survivor annuity without spousal consent provided in the presence of a notary or plan representative. The COVID-19 pandemic and related social-distancing measures have prompted the majority of states to relax their rules on notarizations by allowing them to be conducted remotely, meaning that the notary public and the signer may be in different locations at the time of signature. Despite this change on a state level, most plan administrators have been reluctant to accept remote notarizations for plan elections, including spousal consents required to waive qualified joint and survivor annuities or to obtain participant loans, because a “physical presence” requirement remained in the IRS guidance. Treasury Regulations require that the signature of the individual making the participant election be witnessed in the physical presence of a plan representative or a notary public.
IRS Notice 2020-42 provides temporary relief from this physical presence requirement in two situations.
First, physical presence is not required for any participant election witnessed by a notary public in a state that permits remote notarization. The election or consent must be executed via live audio-video technology (e.g., through Zoom or other video/web conferencing platforms) and otherwise be consistent with state law requirements that apply to the notary public.
Second, the Notice permits remote witnessing by plan representatives using live audio-video technology if the following requirements are satisfied:
- The individual signing the election must present a valid photo ID to the plan representative during the live audio-video conference;
- The live audio-video conference must allow for direct interaction between the individual and the plan representative;
- The individual must send by fax or other electronic means (e.g., a PDF via email) a legible copy of the signed document directly to the plan representative on the same date it was signed;
- After receiving the signed document, the plan representative must acknowledge that they witnessed the signing of the document by either signing the document himself, or executing a separate acknowledgment; and
- The plan representative must send the signed document (including the acknowledgement) back to the individual whose signature was witnessed, using a system that the individual can access, such as a PDF via email.
As mentioned above, this relief is temporary, and applies retroactively to January 1, 2020 and extends through the end of 2020.
The Notice is welcome news for participants, as it provides them with an alternative to having to find a notary or plan representative willing to meet in person during the COVID-19 pandemic. Some plan administrators have already begun to accept remote notarizations from social-distancing participants, particularly those who have been impacted by COVID-19 and have requested immediate access to plan benefits through a CV Distribution or loan.
For plan administrators that want to provide this relief, there are, however, hoops to jump through to establish a process that complies with the remote requirements. For example, plan administers must determine what secure platform to use to conduct remote audio-video meetings with participants and their spouses, find the appropriate plan representative to conduct the remote conferences and establish a procedure for confirming that an acknowledgement will be received by the signer. In addition, for plans that have not used plan representatives to witness signatures before, forms will need to be revised to reflect this new procedure.