Temporary Relief Regarding Spousal Consent under Qualified Retirement Plans

Employee Benefits Alert

Firm Alert

Author(s)

In response to the COVID-19 pandemic, the Internal Revenue Service (IRS) has issued a notice providing temporary relief from the physical presence requirement for participant elections required to be witnessed by a plan representative or a notary public. Notice 2020-42 provides relief for participant elections made from January 1, 2020, through December 31, 2020. The relief is not limited to special provisions under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Background

Internal Revenue Code (Code) Section 417 requires spousal consent to a waiver of a qualified joint and survivor annuity in a defined benefit plan. Code Section 417 further requires that the spousal consent be witnessed by a plan representative or a notary public. Under Code Section 401(a)(11), spousal consent is also generally required in a defined contribution plan if a participant wants to designate a beneficiary other than the participant’s spouse.

The Treasury regulations provide that, in the case of a participant election that is required to be witnessed by a plan representative or a notary public, the signature of the individual making the participant election must be witnessed in the physical presence of a plan representative or a notary public. The regulations do permit electronic notarization of participant elections. However, the physical presence requirement in the regulations precludes the use of remote notarizations.

Temporary Relief

Recognizing the difficulty of meeting the physical presence requirement during the COVID-19 pandemic, the IRS has provided the following temporary relief:

  • Temporary relief from the physical presence requirement for any participant election witnessed by a notary public of a state that permits remote electronic notarization, and
  • Temporary relief from the physical presence requirement for any participant election witnessed by a plan representative.

In the case of a participant election witnessed by a notary public, the physical presence requirement is deemed satisfied for an electronic system that uses remote notarization if executed via live audio-video technology that otherwise satisfies the requirements for participant elections under the Treasury regulations and is consistent with state law requirements that apply to the notary public. However, in the case of a participant election witnessed by a plan representative, the following additional requirements apply:

  • 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 § 1.401(a)-21(c).

The temporary relief is helpful to retirement plan administrators and participants who are electing benefits. However, plan administrators may be reluctant to follow the additional procedures for elections witnessed by a plan representative. They may be less reluctant to utilize remote notarization, which generally places the compliance obligation on the notary. Plan administrators that utilize the relief will need to make sure that their processes are consistent with the temporary relief.

If you have any questions about the guidance, please contact one of the attorneys in the Employee Benefits and Executive Compensation Practice Group at Bradley.