IRS relaxes rules for obtaining spousal consent for 2020

Where distribution elections are made on paper forms, the physical presence requirement is ingrained in the process—the notary can’t notarize or the plan representative can’t witness the spouse’s signature without the spouse being physically present to sign the consent. Where distribution elections are made using electronic means, the regulations have permitted the notary or plan representatives to use their electronic signature (using eSign), but specifically retained the requirement that the spouse be physically present.

This physical presence requirement has been particularly troublesome during the COVID-19 pandemic. To combat the virus, people (including those aged 60 and over, who have been identified as a high-risk group) have been instructed to stay home as much as possible, social distance, and, in some cases, to quarantine. Many of us in the retirement benefits industry have been pushing the IRS to issue some guidance on how physical presence requirements can be met during this pandemic.

In response, the IRS has issued Notice 2020-42. For calendar year 2020 only, this notice permits remote notarization and remote plan representative witnessing, provided the conditions described below are met. 

This is welcome news for both plan sponsors and participants who have been struggling over the past few months with processes and procedures for obtaining spousal consent during the pandemic. However, the retroactive effective date of the notice calls into question the validity of spousal consent already obtained remotely under practices and procedures set up during the pandemic. We suggest that plan fiduciaries review all forms of previous remote consent received in 2020 against the notice’s requirements, then determine whether such consent is valid.

Remote notarization differs from eSign, as it’s conducted through a live audio-video method (such as Zoom or Skype) in which the notary can see and speak to the person signing, as well as see documentation (such as a license) verifying the identity of the person signing.

In response to the COVID-19 pandemic, most (but not all) states have already established processes and procedures for remote notarization. 

Regarding retirements plans, the notice permits spousal consent to be notarized remotely provided all of the following are met:

• The technology used meets the general requirements for electronic participant elections (effective ability to access, authenticate, opportunity to review, and confirm).
• The notarization complies with state rules for remote notarization.
• The notary signature meets applicable eSign rules.  

For plan sponsors with participants who reside in states where spousal consent can't be obtained remotely, the plan sponsor may want to consider permitting spousal consent to be witnessed by a plan representative during the pandemic period. Doing so may require a plan amendment and/or changes to distribution forms and processing procedures.  

In order for a plan representative to remotely witness a spouse’s consent, new procedures must be created and followed to ensure all the following requirements are satisfied:

• The spousal consent must be witnessed over live audio-video conferencing.
• The spouse must show a valid form of ID during the live audio-video conference. A copy of a valid form of ID is not permitted.
• The spouse must sign the consent during the live audio-video conference with the plan representative.
• The spouse must then fax (or deliver through other electronic means) a legible copy of the signed form to the plan representative on the same date the form is signed.

After receiving the signed form, the plan representative must acknowledge having witnessed the spouse’s signature in accordance with the requirements of the notice. The representative must then send the document (including witness acknowledgment) back to the spouse under a system that the spouse has the effective availability to access, along with notification that a paper copy may be obtained free of charge. Presumably, emailing back to the spouse at an email address provided by the spouse would be fine, provided the body of the email states that a paper copy can be obtained free of charge and that the spousal consent has been witnessed in accordance with the notice.

Notice 2020-42 is the latest in a series of laws, rules, and regulations introduced to help plan participants and sponsors navigate the administrative and financial challenges of the ongoing pandemic. For insight on other related legislation and changes, please visit our COVID-19 resources page.