To respond to the need for social distancing while permitting taxpayers to take distributions from their retirement plans permitted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the IRS is temporarily permitting remote signatures from plan participants and beneficiaries and spouses. Section 2202(a) of the CARES Act permits certain individuals to take up to $100,000 as a coronavirus-related distribution from an eligible retirement plan without paying the 10% additional tax under Sec. 72(t) for an early withdrawal. A coronavirus-related distribution is defined as any distribution from an eligible retirement plan to a qualified individual made on or after Jan. 1, 2020, and before Dec. 31, 2020. A qualified individual is someone who is diagnosed with COVID-19, or whose spouse or dependent is diagnosed with COVID-19, or who suffers financially due to various COVID-19 work-related issues, defined in the CARES Act.
The change in signature requirements relates to the rule in Regs. Sec. 1.401(a)-21 that signatures of an individual making the election be witnessed in the physical presence of a plan representative or notary public (the physical presence requirement). The physical presence requirement also applies to spousal consents.
Notice 2020-42 provides participants, beneficiaries, and administrators of qualified retirement plans and other tax-favored retirement arrangements with temporary relief from the physical presence requirement for any participant election (1) witnessed by a notary public in a state that permits remote notarization, or (2) witnessed by a plan representative using certain safeguards. The guidance is intended to make it easier for qualified individuals to receive payments of coronavirus-related distributions and plan loans in light of local shutdowns and social-distancing practices that make it difficult to find a notary or to reach a plan representative.
For a participant election witnessed by a notary public, for the period from Jan. 1, 2020, through Dec. 31, 2020, the individual may use an electronic system that facilitates remote notarization if executed using live audio-video technology that otherwise satisfies the requirements of participant elections and that is consistent with state law requirements that apply to the notary public (not all states permit remote notarization).
For the same period, for a participant election that must be witnessed by a plan representative, the individual may use an electronic system using live audio-video technology if the following requirements are met:
- 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 prerecorded 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 acknowledgment, back to the individual under a system that satisfies the applicable notice requirements of Regs. Sec. 1.401(a)-21(c).