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On May 13, 2022, IRS issued Notice 2022-27, further extending Covid-related temporary relief from the requirement that a spousal consent to a plan distribution be witnessed in the “physical presence” of a notary or plan representative.
In what follows, we briefly review the Notice, what the temporary rules are, and the possibility that they might be made permanent.
Background
Under applicable IRS regulations, participants may make elections electronically if certain conditions are met. Generally, those conditions are that (1) the individual has effective access to the relevant electronic system, (2) the system is designed to prevent a person other than the appropriate individual from making the election, (3) the system provides opportunity to review, confirm, modify, or rescind the election before it’s effective, and (4) the electing individual receives confirmation within a reasonable time.
Where a participant election, such as a spousal consent to a plan distribution or loan, must 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.” (Emphasis added.)
In 2020, as a result of social distancing guidelines introduced in response to the Covid crisis, IRS published Notice 2020-42, providing temporary relief from the physical presence requirement, for 2020, both for “remote electronic notarizations” and for consents witnessed by plan representatives.
That relief was extended to June 30, 2022, by Notice 2021-40 and is now further extended, to December 31, 2022, by Notice 2022-27.
Terms of relief
Remote electronic notarization: The Notices provide that, in the case of a remote electronic notarization, the physical presence requirement can be satisfied if it is “executed via live audio-video technology that otherwise satisfies the requirements of participant elections under [applicable regulations] and is consistent with state law requirements that apply to the notary public.”
Witnessed by a plan representative: In the case of an election witnessed by a plan representative, the physical presence requirement can be satisfied if the plan uses an electronic system using live audio-video technology and:
The signing individual presents a valid photo ID during the live audio-video conference.
The live audio-video conference allows for direct interaction between the individual and the plan representative.
The individual transmits by fax or electronically “a legible copy of the signed document directly to the plan representative on the same date it was signed.”
The plan representative acknowledges witnessing the signature and sends the signed document/acknowledgment back to the individual in accordance with applicable IRS electronic communications regulations.
These rules will be especially useful in states that do not permit remote notarization.
Will the temporary rules be made permanent?
IRS, in Notice 2022-27, states that “in light of recent easing of public health precautions relating to the COVID-19 pandemic, a further extension of temporary relief from the physical presence requirement beyond the end of 2022 is not expected to be necessary.”
IRS has received comments from “stakeholders” both for and against making this temporary relief permanent. In that regard, in this Notice, IRS states:
The Treasury Department and the IRS are currently reviewing the stakeholder comments to determine whether to retain the physical presence requirement without modification or to propose to modify the requirement. If the Treasury Department and the IRS decide to propose to modify the physical presence requirement, they will do so only through the regulatory process, which will include the opportunity for further comment.
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We note that the issue of IRS’s physical presence requirement for spousal consent to certain distributions will become more acute if proposals in Congress to make those rules generally applicable to defined contribution plans garner sufficient support to become law.
We will continue to follow this issue.
This is a publication of O3 Plan Advisory Services. If you have any comments, or have questions about regulatory developments, please contact your relationship manager or Mike Barry at mbarry@octoberthree.com. The information, analyses and opinions set out herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. Nothing herein constitutes or should be construed as a legal opinion or advice. You should consult your own attorney, accountant, financial or tax advisor or other planner or consultant with regard to your own situation or that of any entity which you represent or advise. Information set out or referred to above has been obtained from sources believed to be reliable. However, neither O3 Plan Advisory Services nor any of its affiliates has verified the accuracy or completeness of any such information. All information is provided “as is” and O3 Plan Advisory Services and its affiliates expressly disclaim all express and implied warranties regarding the information. Neither O3 Plan Advisory Services nor any of its affiliates shall have any liability for any use of the information set out or referred to herein.