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Retirement

Temporary Relief from Physical Rule for Retirement Plan Participant Elections

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The IRS has provided participants, beneficiaries, and administrators of qualified retirement plans and other tax-favored retirement arrangements with temporary relief from the physical presence requirement for any participant election: (A) witnessed by a notary public in a state that permits remote notarization; or (B) witnessed by a plan representative using certain safeguards.

Background.

Section 2202(a) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) permits certain individuals to receive up to $100,000 for a coronavirus-related distribution from an eligible retirement plan. A coronavirus-related distribution is defined as any distribution from an eligible retirement plan to a qualified individual made during calendar year 2020. Such a distribution is not subject to the 10% additional tax under Code Sec. 72(t) to the extent it meets the requirements of a coronavirus-related distribution.

Section 2202(b)(1) of the CARES Act provides that for any loan from a qualified employer plan to a qualified individual made during the 180-day period beginning on March 27, 2020, the $50,000 aggregate loan limit in Code Sec. 72(p)(2)(A)(i) is increased to $100,000. In addition, the rule in  Code Sec. 72(p)(2)(A)(ii) limiting the aggregate amount of the loans to one-half of the present value of the vested accrued benefit of the employee is increased to 100% of the employee’s vested accrued benefit under the plan.

Reg §1.401(a)-21 sets forth standards for the use of an electronic medium to provide applicable notices to recipients or to make participant elections with respect to a retirement plan, an employee benefit arrangement, or an individual retirement plan.

Reg §1.401(a)-21(d)(6)(i) provides that, in the case of a participant election that is required to be witnessed by a plan representative or a notary public, the signature of the individual making the participant election must be witnessed in the physical presence of a plan representative or a notary public (“physical presence requirement”).

Reg §1.401(a)-21(e)(6) defines a participant election as any consent, election, request, agreement, or similar communication made by or from a participant, beneficiary, alternate payee, or an individual entitled to benefits under a retirement plan, employee benefit arrangement, or individual retirement plan.

Temporary relief.

For calendar year 2020, the IRS has provided temporary relief from the physical presence requirement in Reg §1.401(a)-21(d)(6) for any participant election: (A) witnessed by a notary public in a state that permits remote notarization, or (B) witnessed by a plan representative using certain safeguards.

According to the Notice, this relief accommodates local shutdowns and social distancing practices and is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, permitted by the CARES Act.

Temporary relief from the physical presence requirement for participant election witnessed by a notary public.  In the case of a participant election witnessed by a notary public during calendar year 2020, the physical presence requirement is deemed satisfied for remote notarization executed via live audio-video technology that otherwise satisfies the requirements of participant elections under Reg §1.401(a)-21(d)(6) and is consistent with state law requirements that apply to the notary public.

Temporary relief from the physical presence requirement for participant election witnessed by a plan representative. In the case of a participant election witnessed by a plan representative during calendar year 2020, the physical presence requirement is deemed satisfied if the live audio-video technology being used by the plan representative to witness the participant signing the election satisfies the following requirements:

(1) The individual signing the participant election must present a valid photo ID to the plan representative during the live audio-video conference and may not merely transmit a copy of the photo ID prior to or after the witnessing;

(2) The live audio-video conference must allow for direct interaction between the individual and the plan representative (for example, a prerecorded video of the person signing is insufficient);

(3) The individual must transmit by fax or electronic means a legible copy of the signed document directly to the plan representative on the same date it was signed; and

(4) After receiving the signed document, the plan representative must acknowledge that the signature has been witnessed by the plan representative in accordance with the requirements of this Notice and transmit the signed document, including the acknowledgement, back to the individual under a system that satisfies the applicable notice requirements under Reg §1.401(a)-21(c). (That is, the participant must have the effective ability to access the electronic medium used to deliver the signed document back to him, and the participant must be advised that he may request and receive, at no charge, a copy of the document on paper.)

To continue your research on the requirements for using an electronic medium to receive benefit plan participant elections, see FTC 2d/FIN ¶S-3419.4United States Tax Reporter ¶4014.30.

 

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