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IRS Extends Temporary Relief from the Physical Presence Requirement

The IRS on June 24 announced that it is extending for a year temporary relief from the physical presence requirement for participant elections that must be witnessed by a plan representative or a notary public. The relief comes in Notice 2021-40 and is in response to the continuing COVID-19 pandemic. 

Notice 2020-40 provides a 12-month extension, through June 30, 2022, of the temporary relief provided in Notice 2021-3, 2021-2 IRB 316, from the physical presence requirement in Treas. Reg. §1.401(a)-21(d)(6). It also requests specific comments by Sept. 30, 2021 regarding the physical presence requirement. This extension of relief is provided to respond to the continuing COVID-19 pandemic and to permit consideration of stakeholder comments provided pursuant to this notice and Notice 2021-3.

Where this Came From

In response to the pandemic and related social distancing precautions, in Notice 2020-42 the IRS 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 then extended this relief through June 30, 2021 through Notice 2021-3.

In Notice 2021-3, the IRS noted that during the temporary relief period a participant still has the option of having a participant election witnessed in the physical presence of a notary public and have that participant election be accepted by a plan in accordance with Treas. Reg. §1.401(a)-21(d)(6)(i). The IRS also solicited comments on whether relief from the physical presence requirement should be made permanent and, if it were, what procedural safeguards would be necessary in order to reduce the risk of fraud, spousal coercion or other abuse in the absence of a physical presence requirement. And the IRS said that any permanent modification of the physical presence requirement would be made through the regulatory process.

The Extension

Notice 2021-40 extends from July 1, 2021 through June 30, 2022 the temporary relief provided in Notice 2021-3, including extension of all the requirements to qualify for that relief. During that period, a plan may qualify for relief from the physical presence requirement for any participant election witnessed by a notary public or a plan representative using an electronic system that satisfies the applicable requirements specified in section III.A and B of Notice 2021-3.

Comments Requested 

The Treasury Department and the IRS are requesting comments on whether they should issue permanent guidance modifying the physical presence requirement. 

Specifically, they seek comments regarding: 

  • how the temporary removal of the physical presence requirement for participant elections required to be witnessed by a plan representative or a notary public has affected costs and burdens for all parties (for example, participants, spouses, and plans) and whether there are costs and burdens associated with the physical presence requirement that support modifying the requirement permanently; 
  • whether there is evidence that the temporary removal of the physical presence requirement has resulted in: (1) fraud, spousal coercion or other abuse; and (2) how, if the physical presence requirement is permanently modified, increased fraud, spousal coercion or other abuse may be likely to result from that modification; and 
  • how participant elections are being witnessed, or are expected to be witnessed, as the pandemic abates (for example, whether the availability of in-person notarization has returned, or is expected to return, to pre-COVID19 pandemic levels).

The Treasury and IRS also seek comments on procedures if guidance permanently modifying the physical presence requirement is issued. Specifically: 

  • what procedures should be established to provide the same safeguards for participant elections as are provided through the physical presence requirement; and 
  • whether the guidance should establish procedures for witnessing by plan representatives that are different from procedures for witnessing by notaries.

Submitting Comments 

The Treasury and IRS strongly encourage interested parties to submit public comments electronically. Comments may be submitted electronically via the Federal eRulemaking Portal at http://www.regulations.gov (type IRS-2021-40 in the search field on the regulations.gov homepage to find this notice and submit comments). 

Comments also may be mailed to: Internal Revenue Service, Attn: CC:PA:LPD:PR (Notice 2021-40), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington DC 20044.