IRS Relaxes Rules for Witnessing Certain Retirement Plan Elections, and a Reminder Regarding the Patient-Centered Outcomes Research Institute Fee

June 19, 2020

By: Aaron M. Pierce

Temporary Relief from Physical Presence Requirements for Spousal Consent

Under the Internal Revenue Code (Code), certain elections under retirement plans require the consent of a participant’s spouse. For example, if a married participant wants to designate someone other than their spouse as the beneficiary under a retirement plan, the participant’s spouse generally must consent to that designation. In addition, some retirement plans, such as defined benefit pension plans and money purchase pension plans, provide that distributions to a married participant must be made in the form of a joint and survivor annuity, with the spouse as the survivor annuitant, unless the spouse consents to a different form of payment. When spousal consent is required, the Code mandates that the spouse’s signature be witnessed by either a notary public or a plan representative. Under the applicable rules, the witness (either a notary public or plan representative, as specified by the plan document) must be in the physical presence of the spouse at the time the spouse signs the document.

These requirements are designed to provide protection for spouses, by preventing a plan participant from making retirement plan decisions that might disadvantage a spouse without the spouse’s informed, written and witnessed consent. While many plans utilize electronic systems to facilitate participant elections, the IRS’ current regulations regarding the use of electronic systems for retirement plan elections still require that spousal consent be witnessed by a notary public or plan representative in the physical presence of the spouse. Obviously, this requirement poses particular challenges in light of the social distancing measures necessitated by the COVID-19 pandemic. In some circumstances, requiring an individual sign to documents in the physical presence of a notary public or plan representative might make it difficult, if not impossible, for a participant to receive a distribution or plan loan requiring spousal consent, or to make a beneficiary designation change requiring spousal consent.

In response to these concerns, the IRS has issued Notice 2020-42 to provide temporary relief from the physical presence requirements. This relief is applicable only during the period from Jan. 1, 2020, through Dec. 31, 2020. During the relief period, the physical presence requirement for any election witnessed by a notary public will be deemed to be satisfied if the electronic system uses remote notarization via live audio-video technology and is consistent with state law requirements that apply to the notary public. Therefore, if a state’s notary public rules permit remote notarization and the spouse’s signature is witnessed by the notary public through a live audio-video technology (e.g., Zoom or Facetime), then the physical presence requirement will be deemed satisfied.

For an election witnessed by a plan representative, the physical presence requirement is deemed satisfied if the electronic system utilizes live audio-video technology and satisfies the following requirements:

  • The individual signing the election or consent presents a valid photo ID to the plan representative during the live audio-video conference, and does not merely transmit a copy of the photo ID prior to or after the witnessing;
  • The live audio-video conferencing allows for direct interaction between the individual and the plan representative (for example, a pre-recorded video of the person signing is not sufficient);
  • The individual transmits by fax or electronic means a legible copy of the signed document directly to the witnessing plan representative on the same date it was signed; and
  • After receiving the signed document, the plan representative acknowledges that the signature has been witnessed by the plan representative and transmits the signed document, including the acknowledgment, back to the individual under a system that satisfies the applicable notice requirements under the IRS electronic election and notice rules. 

This relief provides plan administrators, participants and spouses with much needed flexibility in effectuating retirement plan distributions, loans and beneficiary designations in situations in which the signing individual cannot be in the physical presence of a notary public or plan representative. 

Reminder Regarding Patient-Centered Incomes Research Institute Fee

For many group health plans, July 31, 2020, is the deadline for filing and paying the Patient-Centered Outcomes Research Institute (PCORI) fee. This may come as a surprise to some plan sponsors, as the PCORI fee, which originally was enacted as part of the Affordable Care Act, was set to expire for plan years after Oct. 1, 2019. However, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 enacted last December extended the PCORI fee for an additional 10 years. For insured group health plans, the insurer is responsible for the filing and payment of the PCORI fee. However, employers sponsoring self-funded group health plans usually are responsible for filing and paying the fee on behalf of the plan.

Under current guidance, the due date for Form 720 (the form used to report and pay the PCORI fee) is July 31, 2020, for plan years ending between Oct. 1, 2019, and Dec. 31, 2019. The IRS has not signaled if it is considering an extension of this deadline. So, as things currently stand, employers sponsoring self-funded group health plans should take steps to ensure the PCORI fee is paid by July 31, 2020. The IRS recently issued guidance setting the applicable fee for plan years ending between Oct. 1, 2019, and Sept. 30, 2020, at $2.54 per covered life.

If you have any questions about this information memo, please contact Aaron Pierce, any attorney in our Employee Benefits and Executive Compensation practice or the attorney at the firm with whom you are regularly in contact.