IRS proposes regulation making electronic spousal consent rules permanent
On May 13, 2022, IRS issued Notice 2022-27, extending Covid-related temporary relief from the requirement that a spousal consent to certain plan loans or distributions be witnessed in the “physical presence” of a notary or plan representative through December 31, 2022. On December 30, 2022, IRS published a proposed amendment to current spousal consent regulations that would make that temporary relief (with certain modifications) permanent. Sponsors/plan administrators may rely on the proposed rules until final regulations are effective.
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.
Under current rules, 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, both for (1) State authorized “remote electronic notarizations” and (2) consents witnessed by plan representatives. That relief was extended to December 31, 2022, by Notice 2022-27.
The proposal
The proposal would amend current regulations to incorporate the terms of the temporary relief, with certain modifications. Summarizing the proposal:
Remote electronic notarization: In the case of a remote electronic notarization, the physical presence requirement can be satisfied “if the signature of the person signing the consent is witnessed by the notary public using live audio-video technology, the requirements [for electronic consents, discussed above] are satisfied, and the remote witnessing 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 electronically “a legible copy of the signed document directly to the plan representative on the same date that the document is 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.
The audio-video spousal consent conference is recorded and that recording is retained in accordance with applicable rules under the Internal Revenue Code.
These rules will be especially useful in States that do not permit remote notarization.
In-person spousal consent must be allowed: Plans using remote/electronic notarization “must also accept consents witnessed in the physical presence of a notary public.”
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As noted at the top, until final rules are made applicable, sponsors/plan administrators may rely on the proposed rules. We will continue to follow this issue.