Employee benefit elections made through electronic media
Issue:

John, a new employee, recently enrolled in his company’s 401(k) plan on the benefits website. Can John’s employer accept an e-mailed notice of his elected payroll deductions, or is a signed document required?

Answer:    

Under federal law, employers may accept benefit elections electronically, if certain requirements are met. IRS regulations, which have been updated to reflect the Electronic Signatures in Global and National Commerce Act (E-SIGN), detail those requirements.

For participant elections, the following rules apply:

Effective ability to access. Individuals who are eligible to make an election must be able to effectively access the electronic system. If an individual cannot effectively access the electronic medium, the participant election will not be treated as made available to that individual.

Authentication. The electronic system used in delivering a participant election must be reasonably designed to preclude any person other than the appropriate individual from making the election. According to the regulations, whether this condition is satisfied is based on facts and circumstances, including whether the participant election has the potential for a conflict of interest between the individuals involved in the election.

Opportunity to review. The electronic system must provide the individual making the participant election with a reasonable opportunity to review, confirm, modify or rescind the terms of the election before the election becomes effective.

Confirmation of action. Within a reasonable period of time, the person making the participant election must receive a confirmation of the effect of the election under the terms of the plan, through either a written paper document or electronically.

Participant elections required to be witnessed. In the case of a participant election that is required to be witnessed by a plan representative or a notary public (such as a spousal consent under Code Sec. 417), the signature of the individual making the election must be witnessed in the physical presence of a plan representative or a notary public. An electronic notarization acknowledging a signature (in accordance with Sec. 101(g) of E-SIGN and state law applicable to notary publics) will not be denied legal effect if the signature of the individual is witnessed in the physical presence of a notary public.

Cite: IRS Reg. §1.401(a)-21; 71 FR 61877, October 20, 2006.
[ Return to top of document ]