Groups Ask IRS Again to Permanently Allow Remote Witnessing

September 30, 2021

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

Re: Permanent Relief for Remote Witnessing Procedures

In response to the request for comments included in Notice 2021-40, the undersigned organizations write to reiterate our request for the Internal Revenue Service (“Service”) to make permanent its temporary relief from the physical presence requirement for spousal consents, as originally announced in Notice 2020-42 and extended by Notice 2021-03 and Notice 2021-40. The undersigned organizations 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.

Permanent Relief Is Warranted Based on Additional Security and Convenience

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. These personal and public health benefits, however, have not been the only benefits of using remote witnessing. Specifically, remote witnessing has proven, under the Service's temporary relief, to be more secure and more convenient than physical witnessing.

Security. Remote witnessing creates a more secure environment for spousal consents than physical witnessing. Just like physical witnessing, 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. However, unlike most physical witnessing, remote witnessing can also easily be recorded and create an electronic audit trail. Additionally, in the case of plans that use a remote online notarization service, plan sponsors can utilize additional levels of fraud prevention that cannot be incorporated into a physical witnessing process. For example, remote online notarization services generally use multi-factor authentication through two forms of identity proofing, including knowledge-based authentication and credential analysis. This provides additional protection for spouses for whom the plan may not have an existing relationship. Under these circumstances, not only is remote witnessing as secure as physical witnessing, it is more secure because of these additional layers of protection.

Notice 2021-40 requests comments on “whether there is evidence that the temporary removal of the physical presence requirement has resulted in fraud, spousal coercion, or other abuse, and how, if the physical presence requirement is permanently modified, increased fraud, spousal coercion, or other abuse may be likely to result from that modification.” We now have over a year of experience with remote witnessing. Since the Service first announced its temporary relief from the physical presence requirement, retirement plan service providers have relied on remote online notarizations tens of thousands of times. Notwithstanding this significant volume, we are not aware of any confirmed instances or patterned attempts at fraud related to these remote online notarizations.

We understand that certain groups have asserted to the Service that relief from the physical presence requirement will result in an increase in fraud or abuse. Such commenters should provide concrete evidence, rather than unsupported speculations or anecdotal reporting, that such fraud or abuse has increased and that the physical presence requirement would have prevented it. The undersigned's members have actual experience with tens of thousands of spousal consents conducted via remote witnessing since the beginning of the pandemic. They can confirm that they see no evidence of increased fraud or abuse, or increased risk of fraud or abuse.

Convenience. Notice 2021-40 requests comments on how the temporary removal of the physical presence requirement has affected the burdens associated with the physical presence requirement. 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. Companies that have made remote witnessing available during the pandemic have consistently found that their customers appreciate the additional convenience. Moreover, companies incorporating remote witnessing have found that it offers a quick and secure alternative to conventional physical witnessing. According to one company who has adopted remote online notarization for spousal consents, the average remote notary session takes less than eight minutes from start to finish.

As plan administration has increasingly harnessed electronic technologies, retirement plan sponsors and their service providers have been able to deliver a convenient and seamless user experience. Remote witnessing is another step forward in that regard. This does not mean that electing benefits or changing beneficiaries is or should be a “one-click” process. The spousal consent process ensures deliberation and remote witnessing still has built-in safeguards similar to physical witnessing. The Service should support those innovations that improve the efficiency and experience of delivering benefits with appropriate safeguards.

Notice 2021-40 requests comments on the use of remote witnessing as the pandemic recedes. The undersigned organizations believe that, as the pandemic abates and the public health benefits of remote witnessing subside, the increased convenience of remote witnessing is still beneficial in many contexts. For example, when plan participants request distributions following natural disasters or medical emergencies, remote witnessing offers a secure and convenient option for these participants who may find it difficult to physically travel. Remote witnessing also is beneficial to both participants and/or spouses who may have physical limitations and those living in more remote areas.

Because the Service's current relief is only temporary, some plans and service providers have been reluctant to fully integrate remote witnessing into their systems. Permanent relief would allow these plans and providers to build permanent and integrated systems that meet their plan sponsor and participant expectations — i.e., through a fully electronic and virtual environment, without the need for physical witnessing. This type of permanent integration would only help to improve the participant experience by making it more convenient and seamless.

Changing Nature of Work. The pandemic has made clear that the nature of work is changing, and increasingly employees will work from home or in another location that is not near a plan representative. This is consistent with a continuing trend in electronic administration and recordkeeping of retirement plans. The Service itself went remote during the pandemic, and it was able to fulfill its mission without the need to be in person. Updating the rules for witnessing spousal consent to reflect the changing nature of employment — with appropriate safeguards — fulfills Congress' direction 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.”¹

Commissioner Support for Remote Witnessing. Not only have retirement plan sponsors and service providers recognized the additional security and convenience created by remote witnessing procedures, these benefits have also been acknowledged and supported by the current Commissioner of Internal Revenue. During a March 18, 2021 House Ways and Means Committee hearing, the Commissioner of Internal Revenue, Charles Rettig, expressed his strong support for the permanent extension of the Service's remote witnessing rules. Specifically, when asked about the use of remote online notarization during the pandemic, Commissioner Rettig 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.”² Commissioner Rettig also stated that he was not aware of any issues that would cause the Service to not make its relief permanent.

Additional Protections

Notice 2021-40 asks for comments regarding “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.” For the reasons cited above, the procedures described in Notice 2020-42 clearly safeguard participant elections that are performed remotely. There is no need to establish additional procedures. Nevertheless, 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.

The Service Should Honor State Notarial Standards

The undersigned organizations believe that the Service should make its remote witnessing rules permanently available in alignment with state notarial standards. That is, to the extent that a state's notarial rules allow for remote online notarizations, the Service should recognize those standards as satisfying any notarial standards required by the Internal Revenue Code or any regulations thereunder.

As of this writing, 38 states have enacted permanent remote online notarization rules and additional states are actively considering similar measures. The pandemic has accelerated the nationwide trend to recognize and affirm the appropriateness and effectiveness of remote online notarizations. 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.

Permanent Relief Does Not Require Regulatory Amendments

Notice 2021-40 states that, following a review of the public comments on this issue, the Service “will determine whether to propose modifications to the physical presence requirement in § 1.401(a)-(21)(d)(6) as part of the regulatory process that will include the opportunity for further comment, or instead to issue an announcement that the physical presence requirement currently in § 1.401(a)-(21)(d)(6) will be retained without modification.” The undersigned organizations agree that any amendment to the relevant regulations will require a notice and comment rulemaking, with an opportunity for future public comment. We do not, however, believe that such a process is required to provide the permanent relief that we are requesting.

The applicable Treasury regulations expressly authorize the Service to make available permanent relief from the physical presence requirement, without notice and comment rulemaking, if the Commissioner publishes guidance in the Internal Revenue Bulletin describing procedures that are deemed to satisfy the physical presence requirement, provided that those procedures provide the “same safeguards for participant elections as are provided through the physical presence requirement.” Treas. Reg. § 1.401(a)-21(d)(6)(iii). As discussed above, not only does the Service's temporary relief for remote witnessing provide the same safeguards as physical witnessing, but because of the availability of electronic recording, electronic audit trails, and additional authentication methods, remote witnessing offers procedures that are more protective than conventional physical witnessing.

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. We presume that the Service believed that it could initially announce its temporary relief in reliance on this noted authority. In reliance on that same authority, it should announce a permanent extension of its temporary relief. If the Service believes that, as part of a regulatory amendment, additional requirements may be appropriate for remote witnessing, we believe it would be appropriate to consider those additional conditions as part of a notice and comment rulemaking. In the meantime, however, the Service should not permit its current relief to expire.

* * * * *

Thank you for your consideration. Please do not hesitate to contact any of the undersigned organizations if you have any questions.

Sincerely,

American Bankers Association
American Benefits Council
American Council of Life Insurers
American Financial Services Association
American Retirement Association
Committee of Annuity Insurers
The ERISA Industry Committee
Financial Services Institute
Finseca
Insured Retirement Institute
Investment Company Institute
National Association of Insurance and Financial Advisors
Retirement Industry Trust Association
Securities Industry and Financial Markets Association
The SPARK Institute
U.S. Chamber of Commerce

Enclosure
April 19, 2021 Letter Requesting Permanent Relief
October 1, 2020 Letter Requesting Permanent Relief

cc:
Sunita Lough, Commissioner of Tax Exempt and Governmental Entities
Carol Weiser, Benefits Tax Counsel
Rachel Levy, Associate Chief Counsel
Pamela Kinard, Office of the Associate Chief Counsel