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CCH® PENSION AND BENEFITS — 10/31/06

IRS final regs provide standards for electronic employee plan notices, elections and consents

The IRS has issued final regulations providing standards for electronic systems used by retirement plans, employee benefit arrangements, and individual retirement plans to provide notices to recipients, or for participants to make elections or consents. The regulations modify and add to pre-existing regulations and guidance on this topic. The final regulations are effective October 20, 2006 and generally apply to applicable notices provided, and participant elections made, on or after January 1, 2007.

The new rules apply to qualified retirement plans under Code Sec. 401(a), Code Sec. 403(a) and Code Sec. 403(b); simplified employee pension (SEP) plans under Code Sec. 408(k); SIMPLE plans under Code Sec. 408(p); and eligible governmental plans under Code Sec. 457(b). The rules further apply to individual retirement plans, including Roth IRAs under Code Sec. 408A and deemed IRA under Code Sec. 408(q), as well as to employee benefit arrangements.

Notices, elections and consents which are required to be in writing are permitted to use electronic means to satisfy the "writing" requirement. These include Code Sec. 402(f) notices describing rollover rights, Code Sec. 411(a)(11) notices describing participants' benefit commencement rights, spousal consents under Code Sec.417(a)(2), and Code Sec. 204(h) notices to participants of significant reductions in rates of future benefit accrual.

Two methods for providing notices

These regulations provide two methods by which plans are permitted to provide applicable notices electronically. Under the consumer consent method, the recipient must first consent to electronic delivery of notices, after first receiving a disclosure outlining the scope of the consent, and his right to withdraw the consent.

Under the alternative method of notice, at the time the notice is provided, the recipient must be advised that he may request and receive the notice in writing on paper at no charge. In addition, the recipient must be "effectively able" to access the electronic medium used to provide the notice.

Methods for making participant consents or elections

The regulations for electronic consents and elections require that the electronic system permit participants to have effective access while precluding others from making participant elections; that the system provide participants with a reasonable opportunity to review, confirm, modify, or rescind the terms of the election before it becomes effective; and that the system provide participants with a written or electronic confirmation of the election made. Under the regulations, plans are not required to offer participants a paper alternative to electronic elections unless a participant is not "effectively able" to access the electronic method of making elections.

The rules also extend the use of electronic methods for Qualified Joint and Survivor Annuity (QJSA) notices and elections. The regulations authorize the use of an electronic acknowledgment or notarization to comply with the Code Sec. 417 requirement that any spousal consent to a waiver of a QJSA be witnessed by a plan representative or a notary public. Since such an election has the potential for a conflict of interest, spousal PINs are not permitted in lieu of the physical presence requirement for electronic notarization of spousal consents. Under the regulations, the IRS may later provide procedures for an electronic system to satisfy the physical presence requirement.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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