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Benefits Council Sees Strong Upside of Remote Witnessing Procedures

SEP. 29, 2021

Benefits Council Sees Strong Upside of Remote Witnessing Procedures

DATED SEP. 29, 2021
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September 29, 2021

Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2021-40)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

RE: Notice 2021-40, Permanent Relief for Use of Remote Notarization and Audio-Video Conference Procedures

Dear Sir or Madam:

On behalf of the American Benefits Council (“the Council”), we are submitting this letter in response to Internal Revenue Service (IRS) Notice 2021-40, which requests comments on whether permanent guidance modifying the physical presence requirement in Treas. Reg. §1.401(a)-21(d)(6) should be issued. The Council strongly supports making the temporary relief from the physical presence requirement permanent. We thank the U.S. Treasury Department and the IRS for the opportunity to submit comments on this matter.

The Internal Revenue Code (“Code”) requires retirement plan participants to obtain spousal consent for certain distributions and beneficiary elections, which must be witnessed by a notary or plan representative. Treasury regulations provide that a participant election which is required to be witnessed by a notary or plan representative must be witnessed in the physical presence of the notary or plan representative.1 Notice 2021-40 extended through June 30, 2022, relief from the physical presence requirement in light of the ongoing COVID-19 pandemic. The Council and its members appreciate this additional relief, which was initially granted by Notice 2020-42 and then extended by Notice 2021-3. In this most recent Notice, Treasury and the IRS requested comments on whether permanent guidance modifying the physical presence requirement should be issued.

The Council supports making permanent the relief from the physical presence requirement. Remote witnessing is convenient for all parties and is just as secure as, if not more secure than, physical witnessing. The Council believes that Treasury and the IRS should take steps to make the relief permanent in a manner that recognizes the expanding reach of state notarization rules. Lastly, the Council believes that permanent relief would not require regulatory amendments but rather could be implemented via an announcement or guidance published in the Internal Revenue Bulletin.

The Council is a Washington D.C.-based employee benefits public policy organization. The Council advocates for employers dedicated to the achievement of best-in-class solutions that protect and encourage the health and financial well-being of their workers, retirees and families. Council members include over 220 of the world's largest corporations and collectively either directly sponsor or support sponsors of health and retirement benefits for virtually all Americans covered by employer-provided plans.

REMOTE WITNESSING REDUCES BURDENS ON ALL PARTIES AND OFFERS A SECURE PROCESS

Notice 2021-40 requests comments specifically addressing how the temporary removal of the physical presence requirement has affected costs and burdens for all parties; whether there is evidence that the temporary removal of the physical presence requirement has resulted in fraud, spousal coercion, or other abuse; and if guidance permanently modifying the physical presence requirement is issued, what procedures should be established to provide the same safeguards for participant elections as are provided through the physical presence requirement. Remote witnessing has proven successful during the ongoing pandemic by providing retirement plan participants with access to their benefits while offering an alternative to physical meetings with a notary or plan representative. The benefits of remote witnessing also extend far beyond the context of a pandemic. The temporary relief from the physical presence requirement has reduced burdens on plan participants, plan sponsors, notaries and plan representatives by making the process more convenient. Furthermore, remote witnessing has offered additional security measures that are not available through physical witnessing.

Reduced Burdens

Remote witnessing has reduced burdens by providing a more convenient alternative to in-person witnessing for plan participants who are comfortable using online video communications tools. The Council's members have found throughout the pandemic that their employees and retirees appreciate this convenience. Companies have also touted the efficient nature of remote witnessing — according to one company that has adopted remote notarization for spousal consents, the average remote notary session can be completed in less than eight minutes. One Council member recently remarked that the remote notarization process has been running “quite smoothly.” In addition, remote witnessing has not disrupted plan operations. One Council member recently commented that it is seeing very little impact on its plan operations with respect to the relief from the physical presence requirement.

Making remote witnessing a permanent option would provide a convenient alternative to satisfying participant election requirements for individuals who prefer to use online video communication tools. Witnessing from a remote location also allows notaries or plan representatives to provide services to more participants in an efficient manner by eliminating travel time to a physical location. At the same time, making remote witnessing permanent would have no effect on individuals who are not comfortable using online video communication tools, such as some elderly retirees and who wish to make participant elections in the physical presence of a notary or a plan representative. For example, we would support a rule under which a plan cannot require remote notarization or witnessing for spousal consent.

Increased Security

Remote witnessing is a secure process and certain features of remote witnessing make it even more protective of spouses than witnessing in the physical presence of a notary or plan representative. Like in-person notarization, remote notarization allows the notary to verify in real-time an individual's identity by visually comparing a person's face with a valid photo ID. But remote notarization also goes beyond simple visual verification: in the case of plans that use a remote online notarization service, plan sponsors and their service providers can incorporate dynamic knowledge-based authentication methods to further verify an individual's identity. This type of authentication is not as easily implemented in the context of a physical witnessing. Remote witnessing also gives the parties the ability to record the process, thereby creating a record of the process available for plan representatives (or the IRS or a court) to review, if necessary. This simply does not exist in the case of most in-person witnessing.

The current relief from the physical presence requirement imposes appropriate safeguards on the remote witnessing process. In the case of a participant election witnessed by a notary, the process must be executed via live audio-video technology and must be consistent with state law requirements that apply to the notary. In the case of a witnessing conducted by a plan representative, there are additional safeguards in place: the individual signing the participant election must present a valid photo ID during the live audio-video conference; the live audio-video conference must allow for direct interaction between the individual and the plan representative; 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 the temporary relief and transmit the signed document back to the individual.2 Given these safety measures and the secure nature of remote witnessing, additional procedures need not be established to ensure remote witnessing provides the same level of security as physical witnessing.

The Council is aware of no evidence that the temporary removal of the physical presence requirement has resulted in fraud. The Council's members who are plan service providers have reported thousands of remote notarizations, without a single incidence of fraud. Council members also believe that, given the success of remote notarization throughout the pandemic, they do not anticipate a risk of fraud in the future. In fact, remote notarization's additional security features make fraud less likely to occur when compared to a physical notarization. Protections for spouses giving consent to participant elections are strengthened, not eroded, by the additional safeguards provided by remote notarization.

The Council was pleased to hear during a March 18, 2021, hearing of the U.S. House of Representatives Ways and Means Committee that Commissioner of Internal Revenue Charles Rettig is himself a “huge advocate” for remote notarization, which he called a service that taxpayers “deserve.” The Council shares that belief. Making remote witnessing permanent would not only allow plan participants to manage their retirement benefits in a convenient and safe manner, but would also ensure preparedness for future situations outside of the context of a pandemic. As many everyday tasks become increasingly electronic, remote witnessing should be a permanent option.

TREASURY AND THE IRS SHOULD RESPECT STATE NOTARIZATION STANDARDS

Should Treasury and the IRS make permanent the temporary relief from the physical presence requirement, the Council supports recognizing the states' own remote notarization rules (to the extent a state has enacted such rules) as satisfying any notarial standards required by the Code and regulations. An ever-growing number of states have enacted permanent remote notarization rules and still others are actively considering such rules or have enacted emergency short-term measures in light of the pandemic. As of late August 2021, a total of 36 states have enacted a form of permanent remote online notarization.3

Public notaries are regulated by the states. States have a long history of governing notarial standards and have considered notarization issues in great depth, as evidenced by the enactment or consideration of remote notarization rules in the majority of states. Where a state has carefully evaluated and implemented its own remote notarization rules, Treasury and the IRS should deem those rules sufficient to adequately protect that state's citizens. To disrupt this robust state-specific system by preempting state rules would only serve to create unnecessary disorder and undermine the benefits of remote notarization. Therefore, the Council asks that Treasury and the IRS, in making its temporary relief permanent, permit the use of remote notarization in any case in which a notarization would be recognized as valid under applicable state law.

THE USE OF AUDIO-VIDEO CONFERENCE FOR PLAN REPRESENTATIVES IS BENEFICIAL AND SECURE

As noted above, IRS guidance has established two methods for witnessing spousal consent using audio-visual technology. In addition to recognizing a remote notary pursuant to state law, Notice 2020-42 recognizes remote witnessing by plan representatives. Our members have reported using this latter method and found it very useful. In fact, the Council's members are routinely using similar technologies to conduct a variety of business transactions. Many of the Council's members have human resources departments that are currently working remotely and many may continue to work remotely even after the pandemic is over. The fact is: the nature of work is changing.

Notice 2021-40 asks “if guidance permanently modifying the physical presence requirement is issued, whether the guidance should establish procedures for witnessing by plan representatives that are different from procedures for witnessing by notaries.” We do not believe that procedures adding to the procedures already described in Notice 2020-42 are necessary. The process the IRS laid out in Notice 2020-42 is functionally equivalent to a participant and spouse appearing in person before a plan representative. In fact, similar to remote notarization, the process actually includes safeguards that do not apply to physical presence witnessing: the process in Notice 2020-42 requires presentation of the spousal witnesses' ID, generates a fax or e-mail copy going from the spouse and participant to the plan representative and a separate record of the plan representative's acknowledgement is transmitted back to the participant and spouse.

PERMANENT RELIEF WOULD NOT REQUIRE REGULATORY AMENDMENTS

The process for making the IRS's remote witnessing relief permanent does not require a regulatory amendment. Notice 2021-40 states that “the Treasury Department and the IRS will determine whether to propose modifications to the physical presence requirement . . . as part of the regulatory process that will include the opportunity for further comment” or whether to issue an announcement that the physical presence requirement will be retained without modification. Treas. Reg. §1.401(a)-21(d)(6)(iii) provides that the IRS may “provide that the use of procedures under an electronic system is deemed to satisfy the physical presence requirement” in “guidance published in the Internal Revenue Bulletin,” as long as “those procedures with respect to the electronic system provide the same safeguards for participant elections as are provided through the physical presence requirement.” As discussed above, the Council believes that remote witnessing provides the same, if not more, protections for participant elections as physical witnessing. The Council therefore requests that Treasury and the IRS announce a permanent extension of the remote witnessing rules in the Internal Revenue Bulletin.

* * * * *

Thank you for your consideration of our request to make the temporary relief from the physical presence requirement permanent.

Sincerely,

Lynn Dudley
Senior Vice President, Global Retirement & Compensation Policy
American Benefits Council
Washington, DC

FOOTNOTES

1See Treas. Reg. § 1.401(a)-21(d)(6)(i).

2See Notice 2021-3.

3See Margo H.K. Tank et al., Coronavirus: Federal and state governments work quickly to enable remote online notarization to meet global crisis, DLA Piper (Aug. 25, 2021), https://www.dlapiper.com/en/us/insights/publications/2020/03/coronavirus-federal-and-state-governments-work-quickly-to-enable-remote-online-notarization/.

END FOOTNOTES

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