Work-Life Referral Program

IRS Addresses Physical Presence Requirement For Retirement Plan Signatures

Under IRS regulations regarding electronic consents and elections, if a signature must be witnessed by a retirement plan representative or notary public, it must be witnessed ‘in the physical presence’ of the representative or notary unless guidance has provided an alternative procedure. In Notice 2020-42, the agency recently established temporary alternative procedures that allow signatures witnessed via remote technology to satisfy the physical presence requirement at any time during 2020.

The new procedures are intended to facilitate COVID-19-related distributions and plan loan relief enacted by the Coronavirus Aid, Relief and Economic Security (CARES) Act. However, they apply to any signature that, under regulations, would otherwise have to be witnessed in the physical presence of a plan representative or notary — including spousal consents required under Internal Revenue Code Section 417. The notice does not affect other requirements for electronic consents and elections, which still apply.

Technological Specifications

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 complies with state law. 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 plan representative.

Transmission of signed copy: The signer must transmit (by fax or other 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. He or she also needs to transmit the signed document and 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.

Importance Of State Law

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 types of retirement plans because of legally mandated social distancing during the COVID-19 crisis. This notice solves the problem for many such plans — especially those that allow signatures to be witnessed by plan representatives.

Plans that require notarization, however, also will 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 ensure that any plan-related remote notarizations meet requirements under both federal and state law. Contact us for more information.

Related Articles

Talk with the pros

Our CPAs and advisors are a great resource if you’re ready to learn even more.