May 23, 2022
There are many major life events which call for celebration. The birth of a new baby, a wedding announcement, or the opportunity to purchase a new home. For some, even the news of divorce may be welcome. However, these are often accompanied by the need for additional money to manage the resulting expenses. It is common to look to a retirement plan loan to provide the needed funding in the short term. Events like these usually mean participants will need to make changes to plan elections, and some require a witness.
Before COVID-19, changes to participant elections needed to be done in person with a notary or plan representative. Since March 2020, plan sponsors have had the option of permitting participants to make changes of election remotely. That relief was set to expire on June 30, 2022. However, the IRS recently announced new extended temporary relief for physical presence requirements to December 31, 2022 – and there seems to be talk of making it permanent. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Relief from the physical presence requirement was waived between January 1, 2020, and December 31, 2020, under Notice 2020-42. When that Notice was published in June 2020, other temporary provisions, like penalty-free access to retirement plan funds, increased the likelihood of mid-year participant elections that would require a witness. Without a remote option, it would have been “difficult or impossible for participants to receive plan distributions or plan loans, including coronavirus-related distributions or plan loans for eligible participants, for which spousal consent is required.”
Subsequent temporary relief has been in place ever since through Notice 2021-03 (January 1 – June 30, 2021) and Notice 2021-40 (July 1, 2021 – June 30, 2022). Both Notices upheld requirements for remote participation elections, and the latter did point out that even though remote elections are permitted, plan participants could still complete the process in person.
Notice 2021-40 also included requests for comment. The agency wanted to know:
Notice 2022-27 extends the temporary relief for the period July 1 – December 31, 2022.
To remain eligible for physical presence requirements, plan sponsors can continue to offer remote participant elections using live video recording technology. The ability for both parties to interact in real-time is required. The individual must present a valid photo ID during the meeting and must also digitally send a legible copy of the signed document the same day it’s signed. From that point, the plan representative would acknowledge the signature(s) and return the document.
Electronic notarizations are also still permitted under the conditions that the notary public provides live electronic digital tools consistent with Treasury and state requirements.
There have been questions if the IRS and Treasury Department would make the temporary electronic process permanent. Several commenters have requested it. The U.S. Chamber of Commerce noted that permanently lifting the physical presence requirement would make it easier for plan representatives and participants in rural areas, those who cannot take time off work to visit a notary, or those who face physical limitations, to make plan changes.
But concerns around fraud, spousal coercion, or other abuse would need to be addressed first and its unclear what position the IRS and Treasury will take.
The challenging piece of temporary relief for physical presence requirements has been that plan sponsors are left in limbo whether to make process and procedural changes permanent. The latest Notice indicates that there won’t be any more extensions. Perhaps by next year there could be clearer direction on permanent changes to the participant elections process.
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The relief extension is welcome news for those who still face challenges related to physical presence when changing elections. Despite this, plan sponsors will need to pay careful attention at year end to determine whether the temporary relief will be made permanent. If you have questions about the information outlined above or need assistance with your benefit plan audit, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.