Tuesday, June 16, 2020

IRS permits remote notarization of participant elections

The economic and societal lockdowns that have been imposed in an attempt to slow the spread of the coronavirus have presented unique challenges, including some that may not have been contemplated when the lockdowns were instituted.

Congress was quick to pass the CARES Act, which gave retirement plan participants greater access to their plan balances through expanded loan and hardship distribution provisions. However, a stumbling block quickly became apparent when plan provisions required spousal consent for some distributions or loans.

Spousal consent waivers for plans subject to qualified joint and survivor annuity provisions of Section 417 of the Internal Revenue Code generally must be witnessed in the physical presence of a plan representative or a notary public. Similarly, the same spousal consent and witnessing requirements apply to designate a non-spouse beneficiary for a 401(k) or ERISA-covered 403(b) plan. Physical presence can be difficult to achieve in light of stay-at-home orders and temporary business closures.

On June 3, the Internal Revenue Service issued Notice 2020-42, which provides some relief to the physical presence requirements for documents signed by a notary. The rules apply to those states that allow for remote electronic notarization. Many states, including New York, have passed legislation or issued executive orders to permit such actions. In New York, Executive Order 202.7 allows for electronic notarization using audio-video technology provided that the following conditions are met:

  • The person seeking the notary’s services, if not personally known to the notary, must present a valid photo ID to the notary during the videoconference, not merely transmit it prior to or after.
  • The videoconference must allow for direct interaction between the person and the notary.
  • The person must affirmatively represent that he or she is physically situated in New York state.
  • The person must transmit by fax or electronic means a legible copy of the signed document directly to the notary on the same date it was signed. The notary may notarize the transmitted copy of the document and transmit the same back to the person.
  • The notary may repeat the notarization of the original signed document as of the date of execution, provided the notary receives such original signed document together with the electronically notarized copy within 30 days after the date of execution.
The rules outlined above would also apply in the case of a plan representative witnessing a participant election.

It is important to note that IRS Notice 2020-42 provides relief for the physical presence requirement by a notary public for the 2020 calendar year for those states that allow for remote electronic notarization. Remote electronic notarization in New York was approved via Executive Order 202.7, which was signed on March 7. The governor has issued subsequent executive orders that extend the original expiration date and will likely extend the expiration date further so long as work-in-place restrictions remain in effect. A bill has been introduced in the State Senate that would permanently authorize electronic and remote notarization.

If you have any questions or would like to begin talking to a retirement plan advisor, please get in touch by email or by calling (800) 388-1963.

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