IRS Notice 2021-03 Provides Temporary Relief From the Physical Presence Requirement for Spousal Consents Through June 2021 | Practical Law

IRS Notice 2021-03 Provides Temporary Relief From the Physical Presence Requirement for Spousal Consents Through June 2021 | Practical Law

In response to the COVID-19 pandemic, the Internal Revenue Service (IRS) has issued Notice 2021-03, which extends the temporary relief provided in Notice 2020-42 from the physical presence requirement for obtaining spousal consents under qualified retirement plans. Retirement plan elections that must be witnessed by a notary or plan representative during the first six months of 2021 may be witnessed remotely using live audio-video technology, if certain requirements are met.

IRS Notice 2021-03 Provides Temporary Relief From the Physical Presence Requirement for Spousal Consents Through June 2021

by Practical Law Employee Benefits & Executive Compensation
Published on 28 Dec 2020 • USA (National/Federal)
In response to the COVID-19 pandemic, the Internal Revenue Service (IRS) has issued Notice 2021-03, which extends the temporary relief provided in Notice 2020-42 from the physical presence requirement for obtaining spousal consents under qualified retirement plans. Retirement plan elections that must be witnessed by a notary or plan representative during the first six months of 2021 may be witnessed remotely using live audio-video technology, if certain requirements are met.
On December 23, 2020, due to the ongoing public health emergency caused by COVID-19, the IRS issued Notice 2021-03, which extends the temporary relief provided in Notice 2020-42 from the physical presence requirement under Treasury Regulation Section 1.401(a)-21(d)(6) for elections made by retirement plan participants that are required to be witnessed by a notary public or a plan representative (26 C.F.R. § 1.401(a)-21(d)(6)). Under Notice 2021-03, from January 1, 2021, through June 30, 2021, participant elections that are required to be witnessed may be witnessed remotely by a notary public or plan representative using live audio-video technology, if certain requirements are met. The IRS invites public comments relating to the temporary relief from the physical presence requirement.

Requirements for Participant Elections

Treasury Regulation Section 1.401(a)-21(d) provides several requirements for retirement plan participant elections, including accessibility, authentication, review, and confirmation requirements (26 C.F.R. § 1.401(a)-21(d)(2)-(5)).

Physical Presence Requirement

Certain participant elections are also required to be witnessed by a plan representative or a notary public. For example, Internal Revenue Code Section 417 requires spousal consent to a waiver of a qualified joint and survivor annuity (QJSA), and it also requires that the spousal consent be witnessed by a plan representative or a notary public (26 U.S.C. § 417; see Standard Document, Qualified Joint and Survivor Annuity (QJSA) Notice: Spouse's Right to Consent to the Waiver of the QJSA).
Normally, the signature of the individual making such an election must be witnessed in the physical presence of a plan representative or a notary public (26 C.F.R. § 1.401(a)-21(d)(6)(i)).
Furthermore, an electronic notarization may acknowledge a signature (in accordance with Section 101(g) of the Electronic Signatures in Global and National Commerce (E-SIGN) Act, Pub. L. 106-229 (2000) and applicable state law) if the signature of the individual is witnessed in the physical presence of a notary public (26 C.F.R. § 1.401(a)-21(d)(6)(ii)).
However, the Treasury Regulations also provide that the IRS may allow an electronic system to satisfy the physical presence requirement in Section 1.401(a)-21(d)(6)(i), but only if the procedures for the electronic system have the same safeguards for participant elections that are provided through the physical presence requirement (26 C.F.R. § 1.401(a)-21(d)(6)(iii)).

Notice 2020-42

In June 2020, in response to the ongoing public health emergency caused by COVID-19, the IRS issued Notice 2020-42, which provided temporary relief from the physical presence requirement in Treasury Regulation Section 1.401(a)-21(d)(6) for any participant election witnessed by a:
  • Notary public of a state that permits remote electronic notarizations (which are conducted remotely over the internet using digital tools and live audio-video technologies), if executed via live audio-video technology that otherwise satisfies the requirements of participant elections under Treasury Regulation Section 1.401(a)-21(d)(6) and is consistent with applicable state law requirements.
  • Plan representative via live audio-video technology, if the following requirements are met:
    • 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 before or after the witnessing;
    • the live audio-video conference must allow for direct interaction between the individual and the plan representative (a pre-recorded video of the person signing is not sufficient);
    • the individual must transmit by fax or other electronic means a legible copy of the signed document directly to the plan representative on the same date it was signed; and
    • after receiving the signed document, the plan representative must acknowledge that the signature has been witnessed by the plan representative according to the requirements of this notice and send the signed document and the acknowledgement back to the individual under a system that satisfies the applicable notice requirements under Treasury Regulation Section 1.401(a)-21(c) (26 C.F.R. § 1.401(a)-21(c)).
(See Legal Update, IRS Notice 2020-42 Provides Temporary Relief From the Physical Presence Requirement for Spousal Consents in 2020.)
The relief from the physical presence requirement provided by Notice 2020-42 applies to the period from January 1, 2020, through December 31, 2020.

Notice 2021-03 Extends Relief Under Notice 2020-42

Notice 2021-03 extends, for the period from January 1, 2021, through June 30, 2021, the temporary relief provided in Notice 2020-42 from the physical presence requirement in Treasury Regulation Section 1.401(a)-21(d)(6), if the requirements of Notice 2020-42 are satisfied.
The IRS believes that allowing these remote electronic procedures for plan elections is an appropriate emergency protective measure during this declared emergency period and is consistent with the social distancing requirements implemented by the states. However, Notice 2021-03 explains that during the relief period, a participant is still able to have a participant election witnessed in the physical presence of a notary and have that election accepted by a plan under Treasury Regulation Section 1.401(a)-21(d)(6)(i).
Notice 2021-03 also includes a comment request. The IRS requests comments on:
  • Whether relief from the physical presence requirement should be made permanent.
  • What procedural safeguards are necessary to reduce the risk of fraud, spousal coercion, or other abuse in the absence of a physical presence requirement (if relief from the physical presence requirement is made permanent).

Practical Implications

Since issuing Notice 2020-42, the IRS has received requests to extend the relief provided in that Notice or to make it permanent. Notice 2021-03 extends that relief for retirement plan sponsors, administrators, and participants in light of the COVID-19 pandemic and ongoing social distancing requirements. If a retirement plan participant elects distributions or loans from the plan, including those allowed by the CARES Act, the spousal consent requirements can be satisfied using remote electronic means, if the requirements of the Notice are met, which will allow participants and administrators to maintain social distancing.
For additional information on the issues facing retirement plans resulting from COVID-19, see Article, Retirement Plan Issues for Plan Sponsors to Consider for COVID-19.