This afternoon, the Treasury Department issued Notice 2020-42, ending the uncertainty surrounding spousal consents to retirement plan distributions and loans in the socially distanced COVID-19 world.
As plan administrators know, when spousal consent is required for a plan distribution or loan, the law requires that the consent be witnessed by a notary public or plan representative. Although the applicable Treasury Regulations allow the actual notarization or acknowledgment of the witnessing to be signed electronically consistent with ESIGN, the Regulations still require that the notary or plan representative witness the spouse’s signature in the physical presence of the signer.
In light of the stay-at-home and social distancing orders that have swept the country during the COVID-19 outbreak, this physical presence requirement has been a huge roadblock to plan administration of loans and distributions because many participants and their spouses simply did not have physical access to a notary or plan representative or were concerned about interacting with people outside their homes. Many states have relaxed their notarization rules and allowed for remote electronic notarization, but this was of limited utility for retirement plan purposes because of the federal physical presence requirement for spousal consents.
That all changed this morning with IRS Notice 2020-42, which finally provides temporary relief from the physical presence requirement for calendar year 2020 (retroactive to January 1).
Specifically, the physical presence of a notary or witness for spousal consent is not required during this period if certain rules are satisfied. In the case of the notary, this will apply to any consent witnessed by a notary of a state that permits remote electronic notarization. The execution by the notary would have to be through a live audio-video conference meeting the state’s requirements for remote notarization, as well as the normal regulatory requirements for electronic signature.
Where remote notarization is not available or inconvenient, the use of a plan representative to witness spousal consent is a helpful alternative (assuming the plan permits it or is amended to do so). To satisfy Notice 2020-24, this method must incorporate a live audio-video conference that meets the following requirements (which, unsurprisingly, are not dissimilar to many states’ remote notarization rules):
- The spouse must present valid photo ID during the conference (not before or after);
- The conference must allow for direct interaction between the spouse and the plan representative (meaning, for example, that the representative cannot watch a pre-recorded video of the person signing);
- On the day the document is signed, the spouse must send a legible copy of the signed document electronically or by fax directly to the plan representative;
- After receiving the signed document, the plan representative must acknowledge that the signature has been witnessed by the plan representative in accordance with these requirements; and
- The plan representative must send the signed document and acknowledgement back to the spouse under a system that satisfies certain regulatory requirements for electronic notice (i.e., the recipient has to have the effective ability to access the electronic medium used, the recipient must be told of the right to request a paper copy at no charge and such a paper copy must be provided on request).
This is welcome relief for many retirement plan administrators who were unsure how to act in the face of a requirement that became entirely impractical due to circumstances that no one could have foreseen. Those administrators that adopted alternative procedures in advance of this guidance should consider comparing their procedures to those set forth in Notice 2020-24 and determining whether any prospective or retrospective action is appropriate.
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