The Internal Revenue Service is temporarily allowing taxpayers who participate in certain retirement plans—or their beneficiaries—to make participant elections electronically.

Normally, signatures of the individual making the election have to be witnessed in the physical presence of a plan representative or notary public. This requirement extends to those making a spousal consent, in order to satisfy “the physical presence requirement.”

The IRS says it has issued guidance that allows remote signature in cases where security procedures are in place:

“Notice 2020-42 (PDF) 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,” an IRS statement reads.

The new guidance accommodates local shutdowns and social distancing practices and is intended to facilitate payments of COVID-19-related distributions, as well as plan loans to qualified participants, when permitted by the CARES Act.

What is the new IRS guidance for electronic participant elections from retirement plans?

The IRS guidance says in the case of a participant election witnessed by a notary public during calendar year 2020, the taxpayer can use an electronic system to make the remote notarization if it is carried out via live audio-video technology that satisfies requirements of participant elections and is consistent with state law pertaining to notary publics.

Cases involving participant elections witnessed by a plan representative are also given the green light for electronic signing, provided the system uses the same live audio-video technology. But the IRS says there are other requirements to be met as well in this second case:   

1. The individual must be effectively able to access the electronic medium used to make the participant election;
2. The electronic system must be reasonably designed to preclude any person other than the appropriate individual from making the participant election;
3. The electronic system must provide the individual making the election with a reasonable opportunity to review, confirm, modify, or rescind the terms of the election before it becomes effective; and
4. The individual making the election, within a reasonable time, must receive confirmation of the election through either a written paper document or an electronic medium under a system that satisfies the applicable notice requirements.

For additional information, check out the web page on tax relief for those affected by the COVID-19 pandemic on IRS.gov.

Source: IR-2020-110