By Pension and Benefits Editorial Staff
The IRS has released guidance that provides temporary administrative relief to help certain retirement plan participants or beneficiaries who need to make participant elections by allowing flexibility for remote signatures. Specifically, the guidance provides participants, beneficiaries, and administrators of qualified retirement plans and other tax-favored retirement arrangements with temporary relief from the physical presence requirement in IRS Reg. §1.401(a)-21(d)(6) for any participant election, including a spousal consent required under Code Sec. 417 that is: (1) witnessed by a notary public in a state that permits remote notarization, or (2) witnessed by a plan representative using certain safeguards. The guidance accommodates local shutdowns and social distancing practices, and is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, as permitted by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136).
Background. Section 2202(a) of the CARES Act permits certain individuals to receive up to $100,000 for a coronavirus-related distribution from an eligible retirement plan. A coronavirus-related distribution is defined as any distribution from an eligible retirement plan to a qualified individual made on or after January 1, 2020, and before December 31, 2020. Section 2202(b)(1) of the CARES Act provides that in the case of any loan from a qualified employer plan to a qualified individual made during the 180-day period beginning on the date of enactment of the CARES Act, the $50,000 aggregate loan limit in Code Sec. 72(p)(2)(A)(i) is increased to $100,000.
IRS Reg. §1.401(a)-21 sets forth standards for the use of an electronic medium to provide applicable notices to recipients or to make participant elections with respect to a retirement plan, an employee benefit arrangement, or an individual retirement plan. IRS Reg. §1.401(a)-21(e)(6) defines a participant election as any consent, election, request, agreement, or similar communication made by or from a participant, beneficiary, alternate payee, or an individual entitled to benefits under a retirement plan, employee benefit arrangement, or individual retirement plan. IRS Reg §1.401(a)-21(d) sets forth the following conditions for participant elections:
- The individual must be effectively able to access the electronic medium used to make the participant election;
- The electronic system must be reasonably designed to preclude any person other than the appropriate individual from making the participant election;
- The electronic system must provide the individual making the election with a reasonable opportunity to review, confirm, modify, or rescind the terms of the election before it becomes effective; and
- The individual making the election, within a reasonable time, must receive confirmation of the election through either a written paper document or an electronic medium under a system that satisfies the applicable notice requirements under Reg. §1.401(a)-21.
Conditions for participant elections. Under the guidance, in the case of a participant election witnessed by a notary public, for the period from January 1, 2020, through December 31, 2020, the individual may use an electronic system facilitating remote notarization if executed via live audio-video technology that otherwise satisfies the requirements of participant elections and that is consistent with state law requirements that apply to the notary public. For the same period, in the case of a participant election witnessed by a plan representative, the individual may use an electronic system using live audio-video technology if the following requirements are satisfied:
- 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 prior to or after the witnessing;
- The live audio-video conference must allow for direct interaction between the individual and the plan representative (for example, a pre-recorded video of the person signing is not sufficient);
- The individual must transmit by fax or 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 in accordance with the requirements of this notice and transmit the signed document, including the acknowledgement, back to the individual under a system that satisfies the applicable notice requirements under IRS Reg. §1.401(a)-21(c).
Applicability. While this temporary relief is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, as permitted by section 2202 of the CARES Act, the relief also applies to any participant election that requires the signature of an individual to be witnessed in the physical presence of a plan representative or notary.
Source: IRS News Release IR-2020-110 and IRS Notice 2020-42.
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