On June 24, 2021, the IRS issued Notice 2021-40 to further extend the temporary relief from the physical presence requirement for participant elections that was originally provided by Notice 2020-42 and extended by Notice 2021-3. Notice 2021-40 also requests comments on whether permanent guidance modifying the physical presence requirement should be issued.

Action Required

For individuals submitting comments, comments should include a reference to Notice 2021-40 and be submitted by September 30, 2021, using one of the following methods:

• Electronically (strongly encouraged) via the Federal eRulemaking Portal at www.regulations.gov (type IRS-2021-40 in the search field on the regulations.gov homepage to find this notice and submit comments).
• Via mail to Internal Revenue Service, Attn: CC:PA:LPD:PR (Notice 2021-40), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington DC 20044.

Background

IRS regulations provide that in cases where a participant election is required to be witnessed by a plan representative or a notary public (such as spousal consent to a waiver of a qualified joint and survivor annuity, or requests for plan loans or distributions), the signature of the individual making an electronic participant election must be witnessed in the physical presence of a plan representative or a notary public. Per regulation section 1.401(a)-21(d) (6)(iii), the Commissioner can permit use of procedures under an electronic system deemed to satisfy the physical presence requirement so long as it provides the same safeguards for participant elections as are provided through the physical presence requirement.

In response to the public health emergency caused by the Coronavirus (COVID-19) pandemic and the related social distancing rules, Notice 2020-42 provided temporary relief for the period January 1, 2020, through December 31, 2020, from the physical presence requirement for any participant election witnessed by a notary public of a state that permits remote electronic notarization or by a plan representative. This temporary relief was extended by Notice 2021-3 through June 30, 2021.

Notice 2021-40

• Extension of Temporary Relief

Notice 2021-40 provides a 12-month extension through June 30, 2022, of the temporary relief from the physical presence requirement. Briefly, under this relief:

• • Relief from the Physical Presence Requirement for Participant Election Witnessed by a Notary Public: 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 electronic participant elections and is consistent with state law requirements that apply to the notary public.

• • Relief from the Physical Presence Requirement for Participant Election Witnessed by a Plan Representative: In the case of a participant election witnessed by a plan representative, the physical presence requirement is deemed satisfied if the individual signing the participant election presents a valid photo ID to the plan representative during a live audio-video conference that allows for direct real-time interaction between the individual and the plan representative, and the individual transmits a legible copy of the signed document directly to the plan representative on the same date it was signed.

(For more details about the temporary relief, please refer to our previous alert, IRS Provides Temporary Relief From Physical Presence Requirement For Participant Elections.)

• Request for Comments

The Treasury Department and the IRS request comments on whether these temporary modifications to the physical presence requirement should become permanent. Specifically, comments are requested regarding:

(1) How the temporary removal of the physical presence requirement for participant elections required to be witnessed by a plan representative or a notary public has affected costs and burdens for all parties (for example, participants, spouses, and plans) and whether there are costs and burdens associated with the physical presence requirement that support modifying the requirement on a permanent basis;

(2) Whether there is evidence that the temporary removal of the physical presence requirement has resulted in fraud, spousal coercion, or other abuse, and how, if the physical presence requirement is permanently modified, increased fraud, spousal coercion, or other abuse may be likely to result from that modification;

(3) How participant elections are being witnessed, or are expected to be witnessed, as the COVID-19 pandemic abates (for example, whether the availability of in-person notarization has returned, or is expected to return, to pre-COVID-19 pandemic levels);

(4) If guidance permanently modifying the physical presence requirement is issued, what procedures should be established to provide the same safeguards for participant elections as are provided through the physical presence requirement; and

(5) If guidance permanently modifying the physical presence requirement is issued, whether the guidance should establish procedures for witnessing by plan representatives that are different from procedures for witnessing by notaries.

CHEIRON OBSERVATION: The IRS has already received some comments requesting permanent relief from the physical presence requirement.  Stakeholders that care strongly about this administrative requirement should take advantage of the opportunity to provide comments.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.