The IRS has released proposed regulations that would make permanent the ability to remotely witness certain retirement plan and benefit elections using electronic technology. This includes those involving spousal consent that currently requires that signatures be witnessed “in the presence of” a plan representative or notary public.
The short story is that existing temporary relief has been extended, and rules outlining the specific requirements for electronic witnessing are defined in detail. The proposed rules generally fall in line with practices that were adopted during the COVID emergency period. However, employers should note the specificity of requirements outlined in the proposed regulations. The details are outlined below.
In the early days of the COVID pandemic, relief was granted for the in-person signature rule in response to social distancing requirements. The initial relief was granted for 2020, and the IRS has extended the relief three times, most recently through December 31, 2022.
Most of the discussion in the preamble to the regulations focuses on issues regarding remote notarization of spousal consent, which is a requirement that applies to retirement plans. That said, the guidance also applies to notices and elections made under other employee benefit arrangements, such as health insurance, cafeteria plans, and HSAs. All such elections would fall under the umbrella of these newly proposed regulations.
Signatures Witnessed by a Plan Representative
Under the newly proposed regulations, the physical presence requirement is deemed satisfied for signatures that are witnessed remotely by a plan representative if the following criteria are met:
- The electronic system must use live audio-video technology
- The transaction must meet the following five additional requirements:
- Live presentation of photo ID
- Direct interaction
- Same-day transmission
- Return with the representative’s acknowledgment
- Recording and retention of the audio-video conference in accordance with applicable plan document retention rules.
Signatures Witnessed by a Notary Public
The physical presence requirement is deemed satisfied for signatures witnessed by a notary public if the following criteria are met:
- The electronic system for remote notarization uses live audio-video technology
- The process is consistent with state-law requirements for a notary public.
The recording/retention requirement is the only difference from the conditions set forth in the relief previously granted in IRS notices regarding remote spousal consents. Spousal consent witnessed by a notary public remotely must use live audio-video technology and comply with applicable state-law requirements. Plans that accept spousal consents witnessed remotely by a notary public must also accept spousal consents witnessed in the physical presence of a notary public. Although the regulations are proposed to apply six months after final regulations are published, taxpayers may rely on them in the interim.
Special Rules for Participant Elections
The regulations also set forth special rules relating to the use of electronic media to make participant elections. The application of these rules is comprehensive as described below.
- Rules apply to: any consent, election, request, agreement, or similar communication
- Made by or from: a participant, beneficiary, alternate payee, or an individual
- Who is entitled to benefits under: a retirement plan, employee benefits arrangement, or individual retirement plan
The regulations specify four criteria for the valid use of an electronic medium for elections:
- Effective Access: The person must be effectively able to access the electronic medium used to make the participant election.
- Authentication: The electronic system used in making a participant election must be reasonably designed to preclude any person other than the participant from making the participant election.
- Opportunity to Review: The electronic system must provide the person making the participant election with a reasonable opportunity to review, confirm, modify, or rescind the terms of the election before it becomes effective.
- Confirmation of Action: The person making the participant election must receive, within a reasonable time, confirmation of the effect of the election through either a written paper document or an electronic medium.
These criteria do not generally fall outside of the standards for most electronic election and process systems that employers and employees are familiar with today. Nonetheless, the specificity of the criteria should be noted, and employers should confirm that each element is met.
Importantly, employers whose population includes employees with lower technical literacy should heed the warning that simply providing a singular, electronic solution may run afoul of the first criterion.
Spousal consent rules in retirement plans are considered among the diciest for plan participants, and regulators see them as the most important to protect. The rules require that a participant’s spouse consent to the participant’s election to take certain plan distributions or loans and that such consent be witnessed by a plan representative or a notary public.
The proposed regulations explicitly include spousal consent under the general rules for remote witnessing. However, in an effort to provide additional safeguards for spouses, the regulations clarify that the Confirmation of Action requirement must be sent to both the participant AND the spouse. Lastly, the spouse must be given a reasonable period of time to review and confirm the spousal consent and to determine whether the spousal consent should be modified or rescinded.
IRS Proposed Regulations: Use of an Electronic Medium to Make Participant Elections and Spousal Consents, Prop. Treas. Reg. Sec. 1.401(a)-21, 87 Fed. Reg. 80501
Published: Dec. 30, 2022