May 26, 2022

401(K) CURRENT EVENT: IRS EXTENDS RELIEF FROM “PHYSICAL PRESENCE REQUIREMENT”

On May 13, 2022, the IRS released Notice 2022-27, granting a six-month extension to the temporary relief from the “physical presence requirement” for tax-qualified retirement plans, including 401(k) plans, that was previously announced in June 2021 (see our blog post. The Notice extends the relief – originally scheduled to expire on June 30, 2022 – by an additional six months, through December 31, 2022.

Why the extension? The continuing COVID-19 pandemic.

Brief Overview: Distributions, Elections, and Consents.

  • Participants in retirement plans, including 401(k) plans, generally must consent to distributions for their own, or their spouses’, plan accounts; or to elections of specific forms of benefits. (See our article)
  • For example, a 401(k) plan generally cannot force a participant to take a distribution of his or her account balance, and a spouse generally must consent to a participant’s designation of a beneficiary other than such spouse.

“Physical Presence Requirement.”

  • Under the Internal Revenue Code and related regulations, the signature of the individual making the election or consent referred to above must be witnessed in the physical presence of either a plan representative or notary public (the “physical presence requirement”).
  • This default rule applies in all cases, absent an exception or grant of specific relief.

IRS Grants Temporary Relief from the “Physical Presence Requirement.”

  • Recognizing that the global COVID-19 pandemic might impose hardships on the ability of plan participants, spouses, and other beneficiaries to be physically present with a plan administrator or notary public, the IRS issued several notices that collectively ease the “physical presence requirement,” temporarily replacing it with modern methods based on electronic and live audio-video technology.
  • These previous IRS notices, and a discussion of the methods to be used, and the rules and conditions applicable to these methods, are more fully discussed in our blog post.

New Extended Relief Date.

  • Notice 2022-27 extends the relief by an additional six months.
  • Therefore, instead of June 30, 2022, relief is now extended through December 31, 2022, subject to the same rules and conditions as appeared in the previous guidance.

OBSERVATION:

  • Notice 2022-27 indicates that the IRS is currently reviewing user comments to determine whether to retain the “physical presence requirement” as it currently exists (i.e., prior to the temporary relief), or to modify the requirement.
  • It seems reasonable to speculate that the requirement could be either replaced altogether, or retained but augmented by electronic, live audio-video technological methods similar to those permitted in the temporary relief.

DISCLAIMER: This article is intended only as a brief overall of the latest IRS guidance granting a six-month extension to previous relief from the “physical presence requirement.” It is not intended to address the details of 401(k) plan distributions, rules regarding elections and consents, the “physical presence requirement” generally, or previous IRS extensions of the relief.

The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice. As always, for specific questions concerning your 401(k) retirement plan, or for help in operating your plan during the current COVID-19 crisis, please consult your own ERISA attorney or professional advisor.

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