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ARA Calls for Permanent Relief for Remote Witnessing Procedures

The American Retirement Association (ARA) has called on the IRS to make its temporary relief from the physical presence requirement for spousal consents permanent. 

In a Sept. 30 letter, the ARA and 15 other organizations tell the IRS that they “appreciate the relief and extensions the Service previously announced due to the pandemic. We believe, however, that permanent relief is warranted, even as the pandemic abates. We believe further that it should be made available without the need for a formal rulemaking process.”

The IRS originally announced the relief in Notice 2020-42. The IRS issued Notice 2020-42 in response to the pandemic and related social distancing precautions, and provided temporary relief through Dec. 31, 2020, from the physical presence requirement for any participant election witnessed by: (1) a notary public in a state that permits remote electronic notarization; or (2) a plan representative, if certain requirements were satisfied. The IRS extended this relief through June 30, 2021 in Notice 2021-03, and on June 24 announced in Notice 2021-40 that it is extending temporary relief from the physical presence requirement for participant elections that must be witnessed by a plan representative or a notary public for a year. 

The ARA and the other signatories note in the letter that “remote witnessing has worked well during the pandemic and has allowed retirement plan participants to access their benefits, without unnecessarily jeopardizing their health by physically meeting with a notary public or plan representative.” But that’s not all: they add that it “has proven to be more secure and more convenient than physical witnessing.”

Security

The ARA and other signatories argue that remote witnessing actually enhances the security of spousal consents, because unlike simple witness accomplished through physical presence, remote witnessing “provides real-time third-party identity verification by visually comparing a person’s face with a valid photo ID indicating that the person is who they claim to be.” Further, they note, remote witnessing can be recorded and can create an electronic audit trail. In addition, they argue, when a plan uses a remote online notarization service, plan sponsors can employ means of fraud prevention that cannot be part of physical witnessing; for example, the multi-factor authentication remote online notarization services generally use.

They observe in the letter that in Notice 2021-40, the IRS asked for comments regarding whether there is evidence that fraud, spousal coercion, or other abuse resulted from removing the physical presence requirement, and the likelihood of such infractions if it makes the removal permanent. The signatories point out that remote notarizations have been used tens of thousands of times since the IRS granted the relief, but “we are not aware of any confirmed instances or patterned attempts at fraud related to these remote online notarizations” and that they “can confirm that they see no evidence of increased fraud or abuse, or increased risk of fraud or abuse.”

Convenience 

The ARA and other signatories tell the IRS that remote witnessing “is undoubtedly a less burdensome and more convenient alternative to physical witnessing for those participants who are comfortable using face-to-face online video communications tools.” They add that the companies that have made it available “have consistently found that their customers appreciate the additional convenience” and also have found it to be a quick and secure alternative. Remote witnessing, they write, is another step forward in delivering a convenient and seamless user experience by harnessing electronic technologies. “The Service should support those innovations that improve the efficiency and experience of delivering benefits with appropriate safeguards,” they suggest. 

In fact, they argue, remote witnessing has merit beyond making it possible to better meet the circumstances occasioned by a pandemic: for instance, they point out, it is useful when plan participants:

  • request distributions following natural disasters or medical emergencies, when they may find it difficult to physically travel;
  • have physical limitations; and 
  • live in more remote areas.

Further Expansion

The Sept. 30 letter notes that some plans and service providers have been reluctant to fully integrate remote witnessing into their systems because the relief is temporary. But making it permanent, argue the ARA and other organizations, would overcome that sentiment and allow such plans and providers to build permanent and integrated systems. And that, they suggest, would benefit participants as well. “This type of permanent integration would only help to improve the participant experience by making it more convenient and seamless,” they argue.

Changing Times

The pandemic has made it clear that the nature of work is changing, say the ARA and its fellow signatories, and they anticipate that working from home or in another location that is not near a plan representative will increase. This, they say, “is consistent with a continuing trend in electronic administration and recordkeeping of retirement plans.” Further, they observe, the IRS itself has been part of this remote work trend without harming the fulfillment of its mission. 

Congressional Direction

Making the relief permanent would better meet congressional direction, they posit. Updating the rules, they say, would fulfill what Congress said more than 20 years ago that “a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form.”

Commissioner Support for Remote Witnessing

Commenters and observations are not alone in supporting remote witnessing—IRS Commissioner Charles Rettig does as well. The signatories point out that in March 18, 2021 testimony before the House Ways and Means Committee, Rettig “expressed his strong support for the permanent extension of the Service’s remote witnessing rules” and that he “said that he was a ‘huge advocate’ for making these rules permanent” and “expressed his belief that remote online notarization is a service that taxpayers ‘deserve.’”

State Notarial Standards

As of Sept. 30, 2021, the ARA and other organizations write, 38 states have enacted permanent remote online notarization rules and additional states are actively considering similar measures. They argue that to the extent that a state’s notarial rules allow for remote online notarizations, the IRS should recognize those standards as satisfying any notarial standards the Internal Revenue Code or any regulations thereunder require. “We are not asking the Service to require any state to adopt particular standards. We only ask that the Service acknowledge these state-level standards and permit the use of remote online notarization in any case in which a notarization would be recognized as valid under applicable state law,” they say.

A Note of Caution

The ARA and its fellow signatories caution the IRS that in the process of making the relief permanent, they should not make virtual witnessing mandatory. They write that “because some participants might not be comfortable using remote witnessing technologies, we do not think that a plan administrator should be able to require that a spouse’s consent be witnessed electronically. Instead, as is the case under the Service’s temporary relief, remote witnessing should merely be one option available to plans and participants.”

Further Action?

The ARA and the other signatories say that the procedures under Notice 2020-42 “clearly safeguard participant elections that are performed remotely” and “there is no need to establish additional procedures.” They also express agreement with the language in Notice 2021-40 regarding opportunities for public comment if a modification to Treas. Reg. §1.401(a)-(21)(d)(6) is deemed necessary; however, they write that they “do not, however, believe that such a process is required to provide the permanent relief that we are requesting.”

The Bottom Line 

“Based on the authority provided to the Commissioner through Treas. Reg. §1.401(a)- 21(d)(6)(iii), the Service should announce a permanent extension of its remote witnessing rules by publishing such guidance in the Internal Revenue Bulletin,” the organizations write. And, they say, the IRS should not permit the current relief to expire even if it believes that additional requirements may be appropriate for remote witnessing.