Use of Electronic Media in Retirement Plan Administration

The IRS recently finalized regulations that plan sponsors and administrators must follow when using electronic media to transmit the notices and consents required when making pension plan distributions. Specifically, the final regulations issued on February 8, 2000 (the "Final Regulations") set standards for the transmission of certain notices and consents through electronic media and modify the timing requirements for providing certain distribution-related notices. The Final Regulations make clear that e-mail, internet or intranet websites, automated telephone response systems and telephone customer service representatives can, under appropriate circumstances, be acceptable methods of transmitting retirement plan information in lieu of written, paper documentation. Plan sponsors who choose to use electronic media for these procedures will be able to minimize - but not eliminate - the voluminous paper generated in plan administration. These regulations will become effective January 1, 2001 for plan years beginning on or after January 1, 2001.

Final Regulations

The Final Regulations provide broad, flexible standards for the transmission of certain notices and consents required for distribution through various electronic media. Specifically, the Final Regulations permit electronic delivery and/or transmission of the following required notices and consents:

Notice Requirements

The required notices must be provided either on a written paper document or through an electronic medium reasonably accessible to the participant. If a plan sponsor chooses to use an electronic medium, notice would have to be provided under a system reasonably designed to provide the notice in a form no less understandable to the participant than if given in a written paper document. At the time the notice or consent is given, the participant must be advised of the right to obtain a written copy of the required notice without charge.

Consent Requirements

As with the notice requirements, the consent must be provided either on a written paper document or through an electronic medium reasonably accessible to the participant. However, the consent by the participant must be given under a system that satisfies the following requirements:

Flexibility in Timing Requirements

The Final Regulations also permit a plan to provide the IRC Sections 402(f) and 411(a)(11) required notices more than 90 days before the distribution, if the plan provides a summary of the notices within 90 days prior to the distribution.

Acceptable Forms of Electronic Media

The Final Regulations do not provide an exclusive or exhaustive list of forms of electronic media that would satisfy the notice requirement. However, examples contained in the Final Regulations indicate that, given the proper circumstances, the following forms of electronic media communication could satisfy the notice requirement: e-mail, website (internet or intranet), automated telephone system, and customer service representative. In each case, the participant must at all times be able to request a written copy of the required notice.

Electronic Media Not To Be Used for Spousal Consent

By statutory requirements, spousal consent must be witnessed either by a notary public or plan representative. This requirement apparently requires that the spousal consent must be given in the physical presence of the notary public or plan representative. Based on this statutory requirement, electronic media should not be used when accepting spousal consents.

Plan Loans and ERISA Section 204(h) Notices

The Preamble to the Final Regulations indicates that additional guidance is expected on the applicability of electronic media to plan loans under IRC Section 72(p), although it is unclear what the focus of the new guidance will be. In addition, plan loans may be subject to certain state laws. Also, the Preamble makes clear that there is no guidance anticipated at this time regarding the use of electronic media for conveying ERISA Section 204(h) notices. Thus, traditional paper communication should continue to be used for such notices.

IRS Notice 99-1 and IRS Announcement 99-6

In 1999, the IRS and Treasury issued Notice 99-1 and Announcement 99-6 concerning the use of electronic media in retirement plans. These were issued following proposed regulations on the use of electronic media in retirement plans issued on December 18, 1998. Whereas these proposed regulations and, ultimately, the Final Regulations focused on specific notice and consent requirements, IRS Notice 99-1 and IRS Announcement 99-6 were more general approvals of the use of electronic media in retirement plan administration. Notice 99-1 confirmed that the "paperless" administration of participant enrollments, contribution elections, investment elections, beneficiary designations (other than designations requiring spousal consent), direct rollover elections and certain other plan transactions would not cause a qualified plan to fail to satisfy the requirements of IRC Section 401(a) or the requirements for a qualified cash or deferred arrangement under IRC Section 401(k). Similarly, Announcement 99-6 authorizes the electronic transmission of Form W-4P (Withholding Certificate for Pension or Annuity Payments).