IRS Provides Temporary Relief From Physical Presence Requirement for Certain Electronic Signatures

Under the IRS’s regulations regarding electronic consents and elections, if a signature must be witnessed by a plan representative or notary public, it must be witnessed “in the physical presence” of the representative or notary unless IRS guidance has provided an alternative procedure (see our Checkpoint article). (While the regulations refer only to “participant elections,” that term includes any Code-required consent, election, or similar communication made by or from a participant, beneficiary, alternate payee, or other specified individual.) In Notice 2020-42, the IRS has established temporary alternative procedures that may be used to satisfy the physical presence requirement at any time during 2020. The new procedures are intended to facilitate coronavirus-related distributions and plan loan relief enacted by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (see our Checkpoint article), but they apply to any signature that, under the regulations, would otherwise have to be witnessed in the physical presence of a plan representative or notary, including spousal consents required under Code § 417. The notice does not affect the other requirements for electronic consents and elections, which still apply.

If a signature is witnessed by a notary public, the physical presence requirement is deemed satisfied under Notice 2020-42 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 following requirements are met:

• Photo ID. The signer must present a valid photo ID to the representative during the live audio-video conference.
• Direct Interaction. The live audio-video conference must allow direct interaction between the signer and the plan representative.
• Transmission of Signed Copy. The signer must transmit (by fax or electronic means) a legible copy of the signed document to the plan representative on the day it is signed.
• Acknowledgement. The plan representative must acknowledge that the signature has been witnessed in accordance with the requirements of the notice, and transmit the signed document and the acknowledgement back to the signer using a system that the signer is effectively able to access, with the option to receive a paper copy at no charge upon request.

EBIA Comment: Many 401(k) plans offering CARES Act distributions are not constrained by the physical presence requirement because they do not offer annuities and, consequently, need not document spousal consent for in-service distributions or plan loans. But the physical presence requirement did pose a substantial obstacle for other plans due to legally mandated social distancing during the COVID-19 emergency. This notice solves the problem for many of those plans, especially those that allow signatures to be witnessed by a plan representative. Plans that require notarization, however, will also need to consider applicable state law. According to the National Association of Secretaries of State, 47 states authorize some form of remote e-notarization. As state laws and emergency relief vary (and evolve), plan administrators will need to make sure that any plan-related remote notarizations meet both federal and state-law requirements. For more information, see EBIA’s 401(k) Plans manual at Sections XIII.G (“Spousal Consent to Distribution May Be Required”), XXVIII.H (“Electronic Delivery of Code-Required Notices, Consents, and Disclosures”), and XXVIII.I (“Electronic Administration Chart”).

Contribution Editors: EBIA Staff.