IRS Extends Relief From Physical Presence Requirement for Certain Electronic Signatures

The IRS has extended its temporary relief from the requirement that certain signatures be witnessed “in the physical presence” of a plan representative or notary public. The original relief, which appeared in Notice 2020-42 (see our Checkpoint article), was provided primarily to facilitate coronavirus-related distributions and plan loan relief enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (see our Checkpoint article). However, the original relief was not limited to CARES Act distributions and loans. It also established alternative procedures that could be used during 2020 for any signature that, under the regulations, had to be witnessed in the physical presence of a plan representative or notary, including spousal consents required under Code § 417.

Notice 2021-03 extends the original relief through June 30, 2021. The conditions for relief under the extension are identical to those in Notice 2020-42. If a signature is witnessed by a notary public, the physical presence requirement is deemed satisfied if the electronic system for remote notarization uses live audio-video technology and is consistent with state-law requirements for a notary public. If the signature is witnessed by a plan representative, the physical presence requirement will be satisfied only if the electronic system uses live audio-video technology and the four requirements established by the original notice (live presentation of photo ID, direct interaction, same-day transmission, and return with representative’s acknowledgment) are met. The IRS has requested comments regarding whether the relief should be made permanent and, if so, what additional safeguards might be needed. Signatures witnessed in the physical presence of a notary or plan representative remain acceptable while the relief is in effect.

EBIA Comment: Like the original relief, this extension will not affect most 401(k) plan distributions or loans because 401(k) plans typically require spousal consent only if a participant wants to name a non-spouse primary beneficiary. The extension will be more significant to plans (including some 401(k) plans) that offer annuity forms of distribution and are therefore subject to the spousal annuity rules. The extension may apply to some non-COVID-19 disaster-related loans and distributions authorized by the Consolidated Appropriations Act, 2021 (see our Checkpoint article), but it will not apply to the enhanced loans and coronavirus-related distributions authorized by the CARES Act, as those were available only through December 31, 2020. (While it is possible the new Congress will extend parts of the CARES Act, that possibility does not appear to have played any part in the IRS’s decision to extend this temporary relief.) For more information, see EBIA’s 401(k) Plans manual at Sections XIII.G (“Spousal Consent to Distribution May Be Required”), XXVIII.H.3 (“Spousal Consents and Other Participant Elections That Must Be Witnessed”), and XXVIII.I (“Electronic Administration Chart”).

Contributing Editors: EBIA Staff.