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November 1, 2006

More Guidance Relating to Electronic Notices and Elections

The IRS and Treasury Department have issued final regulations governing the use of electronic media for providing benefit notices and making elections and consents.  These regulations make some modifications to the proposed regulations (see Benefit Beat, July 29, 2005 edition). 

The final regulations apply to both pension and welfare benefit plans, such as:

  • Qualified retirement plans
  • Annuities
  • Simplified employee pension (SEP) plans
  • SIMPLE retirement plans
  • 457 plans
  • Accident and health plans
  • Cafeteria plans
  • Educational assistance programs
  • Qualified transportation fringe programs
  • Archer MSAs
  • Health savings accounts

These regulations do not apply to notices and other documents such as summary plan descriptions, summary annual reports, COBRA notices, notices of benefit suspension, among others governed by the Department of Labor or the Pension Benefit Guaranty Corporation.  The DOL and PBGC, respectively, regulate the electronic distribution of these notices.

These rules apply to notices and elections made after January 1, 2007, however, earlier compliance is permitted.

In summary, an electronic notice must be provided to participants in one of two ways: 

  1. The E-SIGN method.  This method follows the existing federal E-SIGN (Electronic Signatures in Global and National Commerce Act) rules for electronic disclosure requirements. Those requirements include:
  • Advanced consent to receive information electronically.
  • Information about hardware or software requirements to access and retain electronic records.
  • Explanation of the right to withdraw consent to receive electronic information.
  • Explanation of the procedures for obtaining paper copies, including costs.
  1. Alternate method.  The recipient must be able to receive a paper copy at no charge, and the recipient must be able to access the electronic system. 

Special rules apply to electronic elections; they are:

  • The electronic system must be reasonably secure. 
  • The individual must be able to review, modify and rescind any elections made, and must receive a confirmation of the election.

Spousal waivers must still be notarized, or witnessed by a plan representative.  The regulations are written broadly enough to allow electronic authentication, if appropriate methods for such are developed in the future. 

Examples of documents to which these rules apply include:

  • Loan documents
  • Participant elections to qualified plans, such as safe harbor 401(k)
  • Rollover notice
  • Notice of participant rights
  • Notice of immediate distribution
  • Explanations of qualified joint and survivor and qualified preretirement survivor annuities.
  • Qualified transportation benefit program elections

 

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

 

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