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					                                                             Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations                                         61877

                                           Executive Order 12988                                     Dated: October 10, 2006.                            control number 1545–1780, in
                                                                                                   Joseph T. Rannazzisi,                                 conjunction with the Treasury Decision
                                             This final rule meets the applicable                  Deputy Assistant Administrator, Office of             (TD 9052), relating to Notice of
                                           standards set forth in sections 3(a) and                Diversion Control.                                    Significant Reduction in the Rate of
                                           3(b)(2) of Executive Order 12988 Civil                  [FR Doc. E6–17522 Filed 10–19–06; 8:45 am]            Future Benefit Accrual, published on
                                           Justice Reform.                                         BILLING CODE 4410–09–P                                April 9, 2003 in the Federal Register (68
                                           Executive Order 13132                                                                                         FR 17277). Responses to these
                                                                                                                                                         collections of information are
                                             This final rule does not preempt or                   DEPARTMENT OF THE TREASURY                            mandatory.
                                           modify any provision of state law; nor                                                                          An agency may not conduct or
                                           does it impose enforcement                              Internal Revenue Service                              sponsor, and a person is not required to
                                           responsibilities on any state; nor does it                                                                    respond to, a collection of information
                                           diminish the power of any state to                      26 CFR Parts 1, 35, and 54                            unless it displays a valid control
                                           enforce its own law. Accordingly, this                                                                        number assigned by the Office of
                                                                                                   [TD 9294]                                             Management and Budget.
                                           rulemaking does not have federalism
                                           implications warranting the application                 RIN 1545–BD68                                           Books or records relating to these
                                           of Executive Order 13132.                                                                                     collections of information must be
                                                                                                   Use of Electronic Media for Providing                 retained as long as their contents may
                                           Unfunded Mandates Reform Act of 1995                    Employee Benefit Notices and Making                   become material in the administration
                                                                                                   Employee Benefit Elections and                        of any internal revenue law. Generally,
                                             This final rule will not result in the                Consents                                              tax returns and tax return information
                                           expenditure by State, local or tribal                                                                         are confidential, as required by 26
                                           governments, in the aggregate, or by the                AGENCY:  Internal Revenue Service (IRS),              U.S.C. 6103.
                                           private sector, of $115,000,000 or more                 Treasury.
                                           in any one year, and will not                           ACTION: Final regulation.                             Background
                                           significantly or uniquely affect small                                                                           This document contains amendments
                                           governments. Therefore, no actions were                 SUMMARY:    This document contains final              to 26 CFR parts 1, 35, and 54 under
                                           deemed necessary under the provisions                   regulations setting forth standards for               section 401 of the Internal Revenue
                                           of the Unfunded Mandates Reform Act                     electronic systems that make use of an                Code (Code) and other sections of the
                                           of 1995.                                                electronic medium to provide a notice                 Code relating to retirement plans,
                                                                                                   to a recipient, or to make a participant              employee benefit arrangements, and
                                           Small Business Regulatory Enforcement                   election or consent, with respect to a                individual retirement plans. This
                                           Fairness Act of 1996                                    retirement plan, an employee benefit                  Treasury Decision adds § 1.401(a)–21 to
                                                                                                   arrangement, or an individual                         the Treasury regulations, which sets
                                              This final rule is not a major rule as               retirement plan. These regulations
                                           defined by § 804 of the Small Business                                                                        forth standards for the use of an
                                                                                                   reflect the provisions of the Electronic              electronic medium to provide
                                           Regulatory Enforcement Fairness Act of                  Signatures in Global and National                     applicable notices to recipients, or to
                                           1996. This rule will not result in an                   Commerce Act (E–SIGN). These final                    make participant elections, with respect
                                           annual effect on the economy of                         regulations generally affect sponsors of,             to a retirement plan, an employee
                                           $100,000,000 or more, a major increase                  and individuals entitled to benefits                  benefit arrangement, or an individual
                                           in costs or prices, or significant adverse              under, certain retirement plans,                      retirement plan. These final regulations
                                           effects on competition, employment,                     employee benefit arrangements, and                    reflect the applicable provisions of the
                                           investment, productivity, innovation, or                individual retirement plans.                          Electronic Signatures in Global and
                                           on the ability of United States-based                   DATES: Effective date: These regulations              National Commerce Act, Public Law
                                           companies to compete with foreign-                      are effective on October 20, 2006.                    106–229 (114 Stat. 464 (2000)) (E-SIGN)
                                           based companies in domestic and                            Applicability date: These regulations              as it relates to the electronic delivery of
                                           export markets.                                         generally apply to applicable notices                 notices.
                                                                                                   provided, and participant elections                      The Code and regulations thereunder,
                                           PART 1308—SCHEDULES OF                                  made, on or after January 1, 2007. See                and the parallel provisions of the
                                           CONTROLLED SUBSTANCES                                   § 1.401(a)–21(g).                                     Employee Retirement Income Security
                                                                                                   FOR FURTHER INFORMATION CONTACT:                      Act of 1974 (ERISA), include a number
                                           I Pursuant to the authority vested in the               Pamela R. Kinard at (202) 622–6060 (not               of rules that require certain notices,
                                           Attorney General by section 1903 of the                 a toll-free number).                                  elections, or consents to be written or in
                                           Anabolic Steroid Control Act of 1990,                   SUPPLEMENTARY INFORMATION:                            writing. Examples of notices, elections,
                                           delegated to the Administrator of the                                                                         or consents required to be written or in
                                           Drug Enforcement Administration                         Paperwork Reduction Act                               writing include a section 402(f) notice
                                           pursuant to 21 U.S.C. 871(a) and 28 CFR                   The collections of information                      (describing rollover rights), a section
                                           0.100, and redelegated to the Deputy                    referenced in these final regulations                 411(a)(11) notice (describing a
                                           Assistant Administrator of the DEA                      were previously reviewed and approved                 participant’s benefit commencement
                                           Office of Diversion Control pursuant to                 by the Office of Management and                       rights), a spousal consent under section
                                           28 CFR part 0, Appendix to Subpart R,                   Budget in accordance with the                         417(a)(2), and a section 204(h) notice
                                           Section 7(g), the Deputy Assistant                      Paperwork Reduction Act of 1995 (44                   (notice to participants of significant
                                           Administrator hereby adopts as a final                  U.S.C. 3507(d)) under control number                  reduction in rate of future benefit
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                                           rule, without change, the interim rule                  1545–1632, in conjunction with the                    accrual). For a more in-depth
                                           which was published at 71 FR 10835, on                  Treasury Decision (TD 8873), relating to              description of retirement plan notices,
                                           March 3, 2006 amending the list                         New Technologies in Retirement Plans,                 elections, or consents that are required
                                           described in 21 CFR 1308.34.                            published on February 8, 2000 in the                  to be written or in writing, see the
                                                                                                   Federal Register (65 FR 6001), and                    background section to the preamble of


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                                           61878              Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations

                                           the 2005 proposed regulations (70 FR                    disclosures. The disclosures must                     burden on electronic commerce and will
                                           40675).                                                 include, among other items, the                       not increase the material risk of harm to
                                                                                                   hardware or software requirements for                 consumers.
                                           E–SIGN                                                                                                          In accordance with section
                                                                                                   access to, and retention of, the
                                              E–SIGN, signed into law on June 30,                  electronic records, the consumer’s right              104(b)(2)(C) of E–SIGN, the Treasury
                                           2000, generally provides that electronic                to withdraw his or her consent to                     Department and IRS find that there is
                                           records and signatures are given the                    receive the information electronically                substantial justification for these final
                                           same legal effect as their paper                        (and the consequences that follow the                 regulations, that, for the reasons
                                           counterparts. Section 101(a) of E–SIGN                  withdrawal of consent), the procedures                explained below, the requirements
                                           provides that, with respect to a                        for requesting a paper copy of the                    imposed on the use of electronic media
                                           transaction in or affecting interstate or               electronic record, and the cost, if any, of           under these regulations are substantially
                                           foreign commerce, notwithstanding any                   obtaining a paper copy. Section                       equivalent to those imposed on non-
                                           statute, regulation, or rule of law, a                  101(c)(6) of E–SIGN generally provides                electronic records, that the requirements
                                           signature, contract, or other record may                that, for purposes of the consumer                    will not impose unreasonable costs on
                                           not be denied legal effect, validity, or                consent rules of section 101(c), an oral              the acceptance and use of electronic
                                           enforceability solely because it is in                  communication or a recording of an oral               records, and that these regulations do
                                           electronic form and a contract relating                 communication does not qualify as an                  not require (or accord greater legal
                                           to such transaction may not be denied                   electronic record.                                    status or effect to) the use of any specific
                                           legal effect, validity, or enforceability                  Section 101(e) of E–SIGN provides                  technology.
                                           solely because an electronic signature or               rules relating to the electronic retention
                                           electronic record was used in its                                                                             Prior Guidance Relating to Electronic
                                                                                                   of contracts and other records that are
                                           formation.1                                                                                                   Communications
                                                                                                   required to be written or in writing.
                                              Section 101(b) of E–SIGN provides                    Section 101(e) of E–SIGN provides that                   The Treasury Department and IRS
                                           that E–SIGN does not limit, alter, or                   if a statute, regulation, or other rule of            have issued several items of guidance
                                           otherwise affect any requirement                        law requires that a contract or other                 relating to the use of electronic media
                                           imposed by a statute, regulation, or rule               record relating to a transaction in or                with respect to retirement plans and
                                           of law relating to a person’s rights or                 affecting interstate or foreign commerce              individual retirement plans.3 Section
                                           obligations under any statute,                          be in writing, the legal effect, validity,            1510 of the Taxpayer Relief Act of 1997,
                                           regulation, or rule of law except with                  or enforceability of an electronic record             Public Law 105–34 (111 Stat. 788, 1068)
                                           respect to a requirement that contracts                 of the contract or other record may be                (TRA ’97), provides for the Secretary of
                                           or other records be written, signed, or in              denied if the contract or other record is             Treasury to issue guidance designed to
                                           non-electronic form, and also provides                  not in a form that is capable of being                interpret the notice, election, consent,
                                           that E–SIGN generally does not require                  retained and accurately reproduced for                disclosure, and timing requirements
                                           any person to agree to use or accept                    later reference by all parties or persons             (include related recordkeeping
                                           electronic signatures or records.                       who are entitled to retain the contract or            requirements) under the Code and
                                              Section 101(c) of E–SIGN sets forth                  other record.                                         ERISA relating to retirement plans as
                                           special protections that apply when a                      Section 104(b)(1) of E–SIGN generally              applied to the use of new technologies
                                           statute, regulation, or other rule of law               provides that a Federal regulatory or                 by plan sponsors and administrators.
                                           requires that information relating to a                 State regulatory agency that is                       Section 1510 of TRA ’97 further
                                           transaction be provided or made                         responsible for rulemaking under any                  provides that the guidance should
                                           available to a consumer 2 in writing.                   other statute has interpretative authority            maintain the protection of the rights of
                                           Under section 101(c) of E–SIGN, before                  to issue guidance interpreting section                participants and beneficiaries.
                                           the required information can be                         101 of E–SIGN with respect to that other                 Final regulations (TD 8873) relating to
                                           provided or made available                              statute. However, as a limitation on that             the use of electronic media for
                                           electronically, a consumer must first                   authority, section 104(b)(2) of E–SIGN                transmissions of participant notices and
                                           affirmatively consent to receive the                    prohibits the issuance of any guidance                consents under sections 402(f),
                                           information electronically and the                      that is not consistent with section 101               411(a)(11), and 3405(e)(10)(B) were
                                           consent must be made in a manner that                   or that adds to the requirements of that              published in the Federal Register (65
                                           reasonably demonstrates the consumer’s                  section. Section 104(b)(2) of E–SIGN                  FR 6001) on February 8, 2000 (the 2000
                                           ability to access the information in                    also requires that any agency issuing                 regulations). The 2000 regulations set
                                           electronic form (or, if the consent is not              guidance interpreting E–SIGN find that
                                           provided in such a manner,                              there is a substantial justification for the             3 The Treasury Department and IRS have also

                                           confirmation of the consent must be                     guidance and that the methods selected                issued guidance regardingthe use of electronic
                                                                                                   to carry out the purpose of the guidance              media with respect to tax reporting and other tax
                                           made electronically in a manner that                                                                          requirements with respect to employee benefit
                                           reasonably demonstrates the consumer’s                  are substantially equivalent to the                   plans. For example, Announcement 99–6 (1999–1
                                           ability to access the information in                    requirements imposed on records that                  C.B. 352) authorizes payers of pensions, annuities,
                                           electronic form). Prior to consent, the                 are not electronic, do not impose                     and other employee benefits to establish a system
                                                                                                   unreasonable costs on the acceptance                  for payees to submit electronically Forms W–4P,
                                           consumer must receive certain specified                                                                       Withholding Certificate for Pension or Annuity
                                                                                                   and use of electronic records, and do                 Payments, W–4S, Request for Federal Income Tax
                                              1 The rules of section 101 of E–SIGN do not apply    not require or accord greater legal status            Withholding from Sick Pay, and W–4V, Voluntary
                                           to certainconsumer notices. These include               to a specific technology.                             Withholding Request, if certain requirements,
                                           consumer notices that are necessary for the                Section 104(d)(1) of E–SIGN                        including signature and recordkeeping
                                           protection of a consumer’s health, safety, or shelter                                                         requirements, are satisfied. In addition, Notice
                                           (e.g., cancellation of health benefits or life          authorizes a Federal regulatory agency                2004–10 (2004–1 C.B. 433) authorizes the electronic
                                                                                                   to exempt, without condition, a
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                                           insurance and foreclosure on a credit agreement                                                               delivery of certain forms relating to the reporting of
                                           secured by an individual’s primary residence). See      specified category or type of record from             contributions and distributions of pensions,
                                           section 103(b)(2)(B) and (C) of E–SIGN.                 the consumer consent requirements in                  simplified employee pensions, traditional IRAs,
                                              2 Section 106(1) of E–SIGN generally defines a                                                             Roth IRAs, qualified tuition programs, Coverdell
                                           consumer as anindividual who obtains products or
                                                                                                   section 101(c). The exemption may be                  education savings accounts, and Archer Medical
                                           services used primarily for personal, family, or        issued only if the exemption is                       Savings Accounts. See also §§ 31.6051–1(j) and
                                           household purposes.                                     necessary to eliminate a substantial                  1.6039–1(f).



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                                                             Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations                                        61879

                                           forth standards for the electronic                      1, Q&A–5. Q&A–7 of Notice 2000–3                      Corporation (PBGC) have also issued
                                           transmission of certain notices and                     (2000–1 C.B. 413) provides that, until                regulations relating to the use of
                                           consents that are required in connection                the issuance of further guidance, a plan              electronic media to furnish notices,
                                           with distributions from retirement                      is permitted to use electronic media to               reports, statements, disclosures, and
                                           plans.                                                  provide notices required under sections               other documents to participants,
                                              Those regulations provide that a plan                401(k)(12) and 401(m)(11) (relating to                beneficiaries, and other individuals
                                           may provide a notice required under                     safe harbors for section 401(k) and                   under titles I and IV of ERISA. See 29
                                           section 402(f), 411(a)(11), or                          section 401(m) plans) if the employee                 CFR 2520.104b–1 and 29 CFR 4000.14.
                                           3405(e)(10)(B) either on a written paper                receives the notice through an electronic                On July 14, 2005, a notice of proposed
                                           document or through an electronic                       medium that is reasonably accessible,                 rulemaking (REG–138362–04) under
                                           medium that is reasonably accessible to                 the system is designed to provide the                 section 401 of the Code was published
                                           the participant. In addition, the 2000                  notice in a manner no less                            in the Federal Register (70 FR 40675)
                                           regulations provide that any electronic                 understandable to the employee than a                 (the 2005 proposed regulations). On
                                           system must be reasonably designed to                   written paper document, and, at the                   November 2, 2005, the IRS held a public
                                           provide the notice in a manner no less                  time the notice is provided, the                      hearing on the proposed regulations.
                                           understandable to the participant than a                employee is advised that the employee                 Written comments responding to the
                                           written paper document. Furthermore,                    may request and receive the notice on                 notice of proposed rulemaking were also
                                           the participant must be advised of the                  a written paper document at no charge.                received. Although commentators raised
                                           right to request and receive a paper copy               Similarly, § 1.72(p)–1, Q&A–3(b),                     issues with respect to certain provisions
                                           of the written paper document at no                     requires a loan from a plan to a                      in the 2005 proposed regulations, the
                                           charge, and, upon request, the                          participant to be set forth in a written              comments were generally positive. After
                                           document must be provided to the                        paper document, in an electronic                      consideration of all the comments, the
                                           participant without charge.                             medium that satisfies standards that are              2005 proposed regulations are adopted,
                                              The 2000 regulations also permit an                  the same as the standards in the 2000                 as amended by this Treasury Decision.
                                           electronic system to satisfy the                        regulations, or in such other form as                 The significant revisions are discussed
                                           requirement of section 411(a)(11) that a                may be approved by the Commissioner.                  below.
                                           participant provide written consent to a                In addition, Notice 99–1 (1999–1 C.B.
                                           distribution if certain requirements are                                                                      Explanation of Provisions
                                                                                                   269) provides guidance relating to
                                           satisfied. First, the electronic medium                 qualified retirement plans permitting                 I. Overview
                                           must be reasonably accessible to the                    the use of electronic media for plan
                                           participant. Second, the electronic                                                                           A. In General
                                                                                                   participants or beneficiaries conducting
                                           system must be reasonably designed to                   account transactions for which there is                  This Treasury Decision adds
                                           preclude anyone other than the                          no specific writing requirement, such as              § 1.401(a)–21 and modifies a number of
                                           participant from giving the consent.                    plan enrollments, direct rollover                     existing regulations (including the 2000
                                           Third, the system must provide the                      elections, beneficiary designations,                  regulations and other regulations
                                           participant with a reasonable                           investment change allocations, elective               described above). These regulations set
                                           opportunity to review and to confirm,                   and after-tax contribution designations,              forth the standards by which a
                                           modify, or rescind the terms of the                     and general plan or specific account                  retirement plan, an employee benefit
                                           consent before it becomes effective.                    inquiries.                                            arrangement, or an individual
                                           Fourth, the system must provide the                        In 2003, final regulations (TD 9052)               retirement plan is permitted to use an
                                           participant, within a reasonable time                   under section 4980F were published in                 electronic medium to provide
                                           after the consent is given, a                           the Federal Register (68 FR 17277).                   applicable notices or for individuals in
                                           confirmation of the terms (including the                Under Q&A–13 of § 54.4980F–1, for a                   such a plan to make participant
                                           form) of the distribution through either                plan to provide a section 204(h) notice               elections.
                                           a written paper document or in an                       electronically, the section 204(h) notice                For any requirement under the Code
                                           electronic format that satisfies the                    must actually be received by the                      or regulations that an employee benefit
                                           requirements for providing applicable                   applicable individual or the plan                     notice or election be in writing or in
                                           notices. Thus, the participant must be                  administrator must take appropriate and               written form, the standards set forth in
                                           advised of the right to request and to                  necessary measures reasonably                         these regulations are generally the
                                           receive a confirmation copy of the                      calculated to ensure that the method for              exclusive rules for providing such
                                           consent on a written paper document                     providing the section 204(h) notice                   communication through the use of an
                                           without charge. The 2000 regulations                    results in actual receipt. Further, the               electronic medium. Thus, for example,
                                           did not permit the use of electronic                    plan administrator must provide the                   a retirement plan providing a section
                                           media for any notice or election                        applicable individual with a clear and                402(f) notice through the use of an
                                           required under section 417 with respect                 conspicuous statement that the                        electronic medium must satisfy the
                                           to a waiver of a qualified joint and                    individual has a right to receive a paper             rules set forth in these regulations.
                                           survivor annuity (QJSA).                                version of the section 204(h) notice                     For any employee benefit notice or
                                              The Treasury Department and IRS                      without the imposition of fees and, if                election that is not required to be in
                                           have issued other guidance applying the                 the individual requests a paper copy of               writing or in written form, the standards
                                           standards set forth in the 2000                         the section 204(h) notice, the paper                  set forth in these regulations function as
                                           regulations to other retirement plan                    copy must be provided without charge.                 a safe harbor. Thus, a retirement plan,
                                           notices and elections. For example,                     The regulations under section 4980F                   an employee benefit arrangement, or
                                           § 1.7476–2(c)(2) provides that a notice to              also provide a safe harbor method for                 individual retirement plan is permitted
                                           an interested party is deemed to be                     delivering a section 204(h) notice                    to satisfy either these regulations or any
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                                           provided in a manner that satisfies the                 electronically, which is substantially the            other applicable guidance issued by the
                                           delivery requirements of § 1.7476–                      same as the consumer consent rules of                 IRS. For example, with respect to
                                           2(c)(1) if the notice is delivered using an             E–SIGN.                                               creating an electronic system to accept
                                           electronic medium under a system that                      The Department of Labor (DOL) and                  electronic transmissions of beneficiary
                                           satisfies the requirements of § 1.402(f)–               the Pension Benefit Guaranty                          designations, a retirement plan is


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                                           61880              Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations

                                           permitted to use the rules under these                  DOL or the PBGC has similar                            provide a section 411(a)(11) notice
                                           regulations or continue to follow the                   interpretative authority.                              through the use of a pre-recorded
                                           standards set forth in Notice 99–1,                       In addition, the rules in these                      message on an automated phone system.
                                           which is not affected by E–SIGN.                        regulations apply only with respect to                 Second, the regulations require that the
                                                                                                   notices and elections relating to an                   electronic system be reasonably
                                           B. Application of Standards                             individual’s rights under a retirement                 designed to alert the recipient, at the
                                              Like the 2005 proposed regulations,                  plan, an employee benefit arrangement,                 time the applicable notice is provided,
                                           these regulations apply to any notice,                  or an individual retirement plan. Thus,                to the significance of the information in
                                           election, or similar communication                      these regulations do not apply with
                                                                                                                                                          the notice (including the identification
                                           provided to or made by a participant or                 respect to other requirements under the
                                                                                                                                                          of the subject matter of the notice), and
                                           beneficiary in the following retirement                 Code, such as requirements relating to
                                                                                                   tax reporting, tax records, or                         provide any instructions needed to
                                           plans: A section 401(a) plan; a section                                                                        access the notice, in a manner that is as
                                           403(a) plan; a section 403(b) plan; a                   substantiation of expenses.5
                                                                                                                                                          readily understandable and accessible
                                           simplified employee pension (SEP)                       C. Requirements for Using Electronic                   as an applicable notice provided using
                                           under section 408(k); a simple                          Media To Provide Notices and Make                      a written paper document. These
                                           retirement plan under section 408(p);                   Elections
                                           and an eligible governmental plan under                                                                        requirements are necessary in order for
                                           section 457(b). In response to a                           These final regulations generally                   the notice to fulfill their intended
                                                                                                   retain from the 2005 proposed                          purpose, are substantially equivalent to
                                           comment, these regulations also provide
                                                                                                   regulations the requirement that any                   the requirements imposed on
                                           that they apply to any notice, election,
                                                                                                   communication that is provided using                   nonelectronic notices, and do not
                                           or similar communication provided to
                                                                                                   an electronic medium satisfy all the                   impose unreasonable costs on the
                                           or made by an individual entitled to
                                                                                                   otherwise applicable requirements                      acceptance or use of electronic records.
                                           benefits in an individual retirement
                                                                                                   (including the applicable timing and                   Moreover, they do not require or accord
                                           plan, including a Roth IRA under
                                                                                                   content rules) relating to that                        greater legal status to a particular
                                           section 408A or a deemed IRA under
                                                                                                   communication. Thus, for example, a
                                           section 408(q).                                                                                                technology since each technology must
                                                                                                   section 204(h) notice provided using an
                                              In addition, these final regulations                                                                        satisfy the same standards with respect
                                                                                                   electronic medium must be delivered on
                                           apply to any notice, election, or similar               or before the time period required under               to each notice. Third, the final
                                           communication provided to or made by                    Q&A–9 of § 54.4980F–1, must satisfy the                regulations clarify that, pursuant to
                                           a participant or beneficiary under the                  content requirements set forth in Q&A–                 section 101(e) of E–SIGN, if an
                                           following employee benefit                              11 of § 54.4980F–1, and must satisfy the               electronic record of an applicable notice
                                           arrangements: an accident or health                     delivery requirements under these                      or a participant election is not
                                           plan or arrangement under sections                      regulations.                                           maintained in a form that is capable of
                                           104(a)(3) or 105; a cafeteria plan under                   These regulations provide that an                   being retained and accurately
                                           section 125; an educational assistance                  electronic system used to provide a                    reproduced for later reference, then the
                                           program under section 127; a qualified                  notice or to make an election must                     legal effect, validity, or enforceability of
                                           transportation fringe program under                     satisfy certain requirements. First, with              such electronic record may be denied.
                                           section 132; an Archer MSA under                        respect to the content of an applicable
                                           section 220; and a health savings                       notice, the electronic system must be                  II. Use of an Electronic Medium To
                                           account under section 223.                              reasonably designed to provide the                     Provide an Applicable Notice
                                              These regulations do not apply to any                information to a recipient in a manner                 A. Two Methods for Providing
                                           notice, election, consent, disclosure, or               no less understandable to the recipient                Applicable Notices
                                           obligation required under the provisions                than if provided on a written paper
                                           of title I or IV of ERISA over which the                document. For example, a plan                            These regulations provide two
                                           DOL or the PBGC has interpretative and                  delivering a lengthy section 402(f)                    methods by which a retirement plan,
                                           enforcement authority.4 For example,                    notice would not satisfy this                          employee benefit arrangement, or an
                                           the rules in 29 CFR 2520.104b–1 of the                  requirement if the plan chose to provide               individual retirement plan is permitted
                                           Labor Regulations apply with respect to                 the notice through a pre-recorded                      to provide an applicable notice to a
                                           an employee benefit plan furnishing                     message on an automated phone                          recipient through the use of an
                                           disclosure documents, such as a                         system.6 However, a plan with few                      electronic medium. Under the first
                                           summary plan description or a summary                   distribution options is permitted to                   method, an applicable notice is
                                           annual report. These regulations also do                                                                       permitted to be provided to a recipient
                                                                                                     5 Code section 6001 provides rules relating to the
                                           not apply to Code section 411(a)(3)(B)                                                                         using an electronic medium after the
                                                                                                   maintenance of records, statements, and special
                                           (relating to suspension of benefits),                   returns. The IRS has issued guidance on electronic     recipient consents to the electronic
                                           Code section 4980B(f)(6) (relating to an                recordkeeping under section 6001. This guidance        delivery of the notice (the consumer
                                           individual’s COBRA rights), or any                      applies to retirement plans, employee benefits
                                                                                                                                                          consent method). The rules under the
                                           other Code provision over which the                     plans, and individual retirement plans. Rev. Proc.
                                                                                                   98–25 (1998–1 C.B. 689) sets forth standards for a     consumer consent method reflect the
                                                                                                   taxpayer maintaining records on an Automated Data      consumer consent requirements at
                                             4 See generally Reorganization Plan No. 4 of 1978     Processing system. Under section 3.01 of Rev. Proc.
                                           (43 FR 47713). Pursuant to section 101(a) of the        98–25, those standards apply to employee plans.
                                                                                                                                                          section 101(c) in E–SIGN. The Treasury
                                           Reorganization Plan No. 4 of 1978, 29 U.S.C.            Rev. Proc. 97–22 (1997–1 C.B. 652) provides            Department and IRS continue to believe
                                           1001nt, the Secretary of the Treasury has authority     guidance to taxpayers using an electronic storage      that an individual entitled to benefits
                                           to issue regulations under parts 2 and 3 of subtitle    system to maintain books and records required          under a retirement plan, an employee
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                                           B of title I of ERISA with certain exceptions. Under    under section 6001. Under section 3.02 of Rev.
                                           section 104 of the Reorganization Plan No. 4, the       Proc. 97–22, those requirements apply to employee      benefit arrangement, or an individual
                                           Secretary of Labor retains enforcement authority        plans. See also footnote 3 above.                      retirement plan is generally a consumer,
                                           with respects to parts 2 and 3 of subtitle B of title     6 Note that a section 204(h) notice cannot be
                                                                                                                                                          within the meaning of section 106(1) of
                                           1 of ERISA, but, in exercising that authority, is       provided using oralcommunication or a recording
                                           bound by the regulations issued by the Secretary of     of an oral communication. See § 54.4980F–1, A–
                                                                                                                                                          E–SIGN, when receiving a notice that
                                           Treasury.                                               13(c)(1).                                              could affect the individual’s benefits or


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                                                             Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations                                                 61881

                                           other rights.7 The second method (the                   of oral communications when providing                 applicable notice in writing on paper at
                                           alternative method) provides rules that                 applicable notices under the consumer                 no charge. In addition, any recipient of
                                           are intended generally to replicate the                 consent rules. Other commentators                     the notice must be ‘‘effectively able’’ to
                                           requirements in the 2000 regulations                    recommended that the regulations be                   access the electronic medium used to
                                           that apply to notices required under                    revised to provide that, under the                    provide the notice. This is a change in
                                           sections 402(f), 411(a)(11), and 3405,                  consumer consent method, if a                         wording from the 2000 regulations,
                                           and thereby allow plans to continue to                  participant does not have the effective               which required that the electronic
                                           provide these notices electronically                    ability to access the electronic medium               medium be ‘‘reasonably accessible’’ to
                                           using electronic systems that satisfy the               used to provide an applicable notice or               the recipient. As explained in the
                                           standards in the 2000 regulations.                      if the participant does not consent to                preamble to the 2005 proposed
                                                                                                   receive the notice through the use of an              regulations, this change is not intended
                                           B. Consumer Consent Method for
                                                                                                   electronic medium, such participant                   to reflect a substantive change in the
                                           Providing Applicable Notices
                                                                                                   would have the right to a free paper                  rules, but rather to avoid confusion with
                                              Under the consumer consent method,                   copy of the notice.                                   Department of Labor Regulations
                                           before an applicable notice is provided                    The consumer consent method under                  interpreting the words reasonably
                                           to a recipient using an electronic                      these regulations interprets the rules of             accessible as used in section 101(i)(2)(D)
                                           medium, the participant must consent                    section 101(c) of E–SIGN, and section                 of ERISA, as added by section 306 of the
                                           to receive the communication                            104(b)(2) of E–SIGN restricts an agency’s             Sarbanes-Oxley Act of 2002, Public Law
                                           electronically. The consent generally                   ability to interpret E–SIGN in any                    107–204 (116 Stat. 745).9
                                           must be made in a manner that                           manner that is inconsistent with section                One commentator requested that the
                                           reasonably demonstrates that the                        101 of E–SIGN or that adds to the                     regulations provide a rule under which
                                           participant can access the notice in the                requirements of that section.                         an e-mail sent to the last known e-mail
                                           electronic form that will be used to                    Accordingly, the rules under the                      address would be deemed to have been
                                           provide the notice. Alternatively, the                  consumer consent method of these final                successfully delivered. These
                                           consent may be made using a written                     regulations are retained without                      regulations do not include such a rule.
                                           paper document, but only if the                         substantive change. However, many of
                                           participant confirms the consent in a                   the issues raised by the commentators                 III. Use of an Electronic Medium To
                                           manner that reasonably demonstrates                     are ameliorated by the availability of the            Make a Participant Election
                                           that the participant can access the                     alternative method for providing                      A. In General
                                           notice in the electronic form to be                     applicable notices, as discussed below                  These regulations also set forth the
                                           provided. Prior to consenting, the                      in Alternative Method for Providing                   requirements that apply if a consent or
                                           participant must receive a disclosure                   Applicable Notices.                                   election is made by a person using an
                                           statement that outlines the scope of the
                                                                                                   C. Alternative Method for Providing                   electronic system. The participant
                                           consent, the participant’s right to
                                           withdraw his or her consent to receive                  Applicable Notices                                    election rules, which are also based on
                                           the communication electronically                           These regulations exempt applicable                the standards in the 2000 regulations,
                                           (including any conditions,                              notices from the consumer consent                     generally retain the requirements that
                                           consequences, or fees in the event of the               requirements of E–SIGN and provide an                 (1) The participant be effectively able to
                                           withdrawal), and the right to receive the               alternative method of complying with                  access the electronic medium in order to
                                           communication using paper and any                       the requirement that an applicable                    make the participant election, (2) the
                                           fees imposed for receiving paper. The                   notice be in writing or in written form               electronic system be reasonably
                                           disclosure must also specify the                        if certain conditions are satisfied. This             designed to preclude any person other
                                           hardware and software requirements for                  alternative method of compliance,                     than the appropriate individual from
                                           accessing the electronic media and the                  which is based on the 2000 regulations                making a participant election, (3) the
                                           procedures for updating information to                  previously issued under section 1510 of               electronic system provide the
                                           contact the participant electronically. In              TRA ’97, satisfies the requirements of                participant making a participant
                                           the event the hardware or software                      section 104(d)(1) of E–SIGN, including                election with a reasonable opportunity
                                           requirements change, new consent must                   the requirement that any exemption                    to review, confirm, modify, or rescind
                                           be obtained from the participant,                       from the consumer consent                             the terms of the election before it
                                           generally following the rules of section                requirements not increase the material                becomes effective, and (4) the
                                           101(c) of E–SIGN. In addition, under the                risk of harm to consumers.                            individual making a participant
                                           consumer consent method, the                               This exemption is based on the                     election, within a reasonable time
                                           applicable notice cannot be provided                    judgment that, if the consumer consent
                                                                                                                                                            9 Section 101(i) of ERISA sets forth a requirement
                                           through the use of oral communication                   method were the only method available
                                                                                                                                                         for a planadministrator to notify plan participants
                                           or a recording of an oral                               to satisfy the requirements for providing             and beneficiaries of a blackout period with respect
                                           communication.8                                         an applicable notice through the use of               to an individual account plan. Section 101(i)(2)(D)
                                              Commentators requested several                       an electronic medium, it would impose                 provides that the required blackout notice ‘‘shall be
                                           modifications to the rules under the                    a substantial burden on electronic                    in writing, except that such notice may be in
                                                                                                                                                         electronic or other form to the extent that such form
                                           consumer consent method in these                        commerce with respect to retirement                   is reasonably accessible to the recipient.’’ Section
                                           regulations, including requiring plans to               plans, employee benefit arrangements,                 2520.101–3(b)(3) of the Labor Regulations
                                           give recipients the opportunity to                      and individual retirement plans, and                  interpreting this requirement provides for this
                                           review their consumer consent elections                 that the requirements and safeguards in               notice to be in writing and furnished in any manner
                                           every five years and permitting plans to                                                                      consistent with the requirements of section
                                                                                                   the 2000 regulations provide a less                   2520.104b–1 of the Labor Regulations, including the
                                           use oral communications or recordings                   burdensome method without increasing
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                                                                                                                                                         provisions in that section relating to the use of
                                                                                                   the material risk of harm to recipients.              electronic media. Those regulations also deem a
                                             7 See also 12 CFR 202.16, 205.17, 213.6, and                                                                notice requirement to be satisfied if certain
                                                                                                      Under the alternative method, at the
                                           2226.36, treatingelectronic disclosures in                                                                    measures are taken. Section 1.401(a)–21 of these
                                           connection with certain credit transactions as          time the applicable notice is provided,               final regulations only provides rules for satisfying,
                                           consumer information for purposes of E–SIGN.            the recipient must be advised that he or              through the use of electronic media, a requirement
                                             8 See section 101(c)(6) of E–SIGN.                    she may request and receive the                       that a notice or election be in writing.



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                                           61882             Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations

                                           period, receive a confirmation of the                   regulations authorize the use of an                   system used in making participant
                                           election through either a written paper                 electronic acknowledgment or                          elections is reasonably designed to
                                           document or an electronic medium                        notarization if the standards of section              preclude any person other than the
                                           under a system that satisfies the                       101(g) of E–SIGN and State law                        appropriate individual from making a
                                           applicable notice requirements of either                applicable to notary publics are                      participant election is based on facts
                                           the consumer consent delivery method                    satisfied. These regulations retain the               and circumstances, and that a relevant
                                           or the alternative delivery method.                     requirement from the 2005 proposed                    factor is whether the participant
                                           Section 101(c) of E–SIGN does not apply                 regulations that the signature of a                   election has the potential for a conflict
                                           to participant elections.                               spouse be witnessed in the physical                   of interest between the individuals
                                              These regulations require that a                     presence of the plan representative or                involved in the election. See Example 3
                                           participant be effectively able to access               notary public. Several comments were                  in § 1.401(a)–21(f) of these regulations
                                           the electronic medium under an                          received on the participant election                  for an illustration of the participant
                                           electronic system used to make a                        rules, particularly as they relate to                 election rules when a spousal consent is
                                           participant election, but, like the 2000                spousal consents. The comments                        required. These regulations also clarify
                                           regulations, do not require that a plan                 generally fall into two categories: (1)               that if an applicable notice or
                                           also permit the election to be made by                  Commentators who favored retaining                    participant election is recorded
                                           paper as an alternative to using an                     the pen-and-ink signature and physical                electronically, the electronic record
                                           electronic system that is available to the              presence requirements for spousal                     must be in a form that is capable of
                                           participant. However, these regulations                 consents; and (2) commentators who                    being reproduced for later reference (see
                                           do not apply with respect to a                          favored extending the use of electronic               discussion of the general rules under the
                                           participant who is not effectively able to              media to spousal consents, and                        heading Requirements for Using
                                           access the electronic medium or media                   eliminating the physical presence                     Electronic Media to Provide Notices and
                                           in order to make a participant election.                requirement.                                          Make Elections).
                                           Accordingly, the plan must offer each                      Commentators in the first category                    The requirement that the signature of
                                           such participant the right to make an                   raised issues with rules in the 2005                  a spouse to be witnessed in the physical
                                           election in another medium that is                      proposed regulations relating to the                  presence of a plan representative or
                                           accessible to the participant (such as a                authentication requirement and the                    notary public coordinates with the
                                           paper election). A plan that fails to offer             requirement that a spousal consent of a               authentication requirement because the
                                           paper or an electronic medium that a                    waiver of a QJSA be witnessed in the                  physical presence requirement increases
                                           participant is effectively able to access               physical presence of a notary public or               the likelihood that the electronic system
                                           will fail to comply with the participant                a plan representative. In general, these              is reasonably designed to preclude any
                                           election requirements and would likely                  commentators recommended that the                     person other than the appropriate
                                           violate other qualification requirements,               regulations be revised to provide                     individual from making the election. In
                                           such as the requirements that a plan to                 additional safeguards for spousal                     contrast, an electronic system that
                                           operate in accordance with its terms (by                consents because, unlike other                        permits the use of a spousal PIN to sign
                                           actually making available all                           participant elections, a spousal consent              a spousal consent electronically creates
                                           distribution options provided by the                    could involve a conflict of interest                  greater risk that the spousal consent
                                           plan) and the requirements of                           between the parties involved in the                   may be fraudulently signed. Because of
                                           § 1.401(a)(4)–4 under which benefits,                   election. With respect to the                         the potential risk that two spouses could
                                           rights, and features (including the right               authentication requirement, these                     share information regarding PINs, the
                                           to early distribution) must be made                     commentators argued that the                          Treasury Department and IRS believe
                                           available in a nondiscriminatory                        authentication requirement would be                   that any electronic system that relies
                                           manner.                                                 vague and not require an evidentiary                  solely on separate PINs would not
                                                                                                   record. According to the commentators,                provide the same level of safeguards as
                                           B. Use of Electronic Media for QJSA
                                                                                                   requiring a pen-and-ink signature and                 provided by the physical presence
                                           Notices and Elections
                                                                                                   maintaining the physical presence                     requirement and would not be
                                              The participant election rules in these              requirement would provide necessary                   reasonably designed to preclude any
                                           regulations extend the use of electronic                additional safeguards for spousal                     person other than the appropriate
                                           media to the notice and election rules                  consents by creating an evidentiary                   individual from making the election.
                                           applicable to plans that are subject to                 record for later disputes regarding the               Accordingly these regulations do not
                                           the QJSA requirements of section 417.                   validity of the consent and reducing the              adopt the suggestion that spousal PINs
                                           Accordingly, a plan subject to the QJSA                 likelihood of fraud.                                  be permitted in lieu of the physical
                                           requirements is permitted to provide the                   Commentators who favored extending                 presence requirement, and instead
                                           notice required by section 417 to a                     the use of electronic media for all                   retain from the 2005 proposed
                                           participant through the use of electronic               participant elections, including spousal              regulations the physical presence
                                           media as long as the plan complies with                 consents, generally recommended that                  requirement for electronic notarization
                                           either of the two methods described                     the final regulations eliminate the                   of spousal consents. The Treasury
                                           above for providing electronic notices.                 physical presence requirement for                     Department and IRS believe that
                                           Similarly, a participant’s consent to a                 spousal consents. These commentators                  permitting electronic notarization of
                                           distribution is permitted to be provided                argued that protections are already                   spousal consents under the participant
                                           through the use of electronic media if                  available to protect a spouse making a                election rules, in conjunction with the
                                           the plan complies with the standards                    participant election using electronic                 physical presence requirement, reflects
                                           described below, subject to obtaining a                 media. For example, a retirement plan                 the appropriate interpretation of section
                                           valid spousal consent.                                  could require a separate PIN for the                  417 and properly balances minimizing
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                                              Section 417 requires any spousal                     spouse to which the participant would                 the burden of plan administration with
                                           consent to a waiver of a QJSA to be                     not have access.                                      protecting the rights of spouses.
                                           witnessed by a plan representative or a                    In light of these comments, these                     Technology is constantly evolving
                                           notary public. In accordance with                       regulations clarify that the                          and, at some point in the future,
                                           section 101(g) of E–SIGN, these                         determination of whether an electronic                technology could exist that would


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                                                             Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations                                             61883

                                           provide the same safeguards as the                      notice or election was not in writing or              Electronic Signatures in Global and
                                           physical presence requirement.                          written form.                                         National Commerce Act, Public Law
                                           Therefore, in light of the comments                                                                           106–229 (114 Stat. 464). * * *
                                                                                                   Special Analyses
                                           received, these regulations add a
                                                                                                      It has been determined that this                   I Par. 2. Section 1.72(p)–1, Q&A–3, is
                                           delegation to the Commissioner. Under
                                           this delegation, the Commissioner may                   Treasury Decision is not a significant                amended by revising the text of
                                           provide that the use of procedures                      regulatory action as defined in                       paragraph (b) to read as follows:
                                           under an electronic system with respect                 Executive Order 12866. Therefore a                    § 1.72(p)–1    Loans treated as distributions.
                                           to an electronic medium is deemed to                    regulatory assessment is not required. It
                                                                                                                                                         *     *     *     *     *
                                           satisfy the physical presence                           has also been determined that the
                                                                                                                                                           A–3. * * *
                                           requirement, but only if those                          provisions of 5 U.S.C. 553(b) and (d) do                (b) * * * A loan does not satisfy the
                                           procedures with respect to the                          not apply to this Treasury Decision. It               requirements of this paragraph unless
                                           electronic system provide the same                      is hereby certified that the collection of            the loan is evidenced by a legally
                                           safeguards for participant elections as                 information in these regulations will not             enforceable agreement (which may
                                           provided through the physical presence                  have a significant impact on a                        include more than one document) and
                                           requirement.                                            substantial number of small entities.                 the terms of the agreement demonstrate
                                                                                                   This certification is based on the fact               compliance with the requirements of
                                           C. Conforming Amendments to Other                       that these regulations only provide
                                           Rules in Law                                                                                                  section 72(p)(2) and this section. Thus,
                                                                                                   guidance on how to satisfy existing                   the agreement must specify the amount
                                             These regulations modify a number of                  collection of information requirements                and date of the loan and the repayment
                                           existing regulations (including the 2000                through the use of electronic media.                  schedule. The agreement does not have
                                           regulations) that have previously                       Accordingly, a Regulatory Flexibility                 to be signed if the agreement is
                                           provided rules relating to the use of new               Analysis is not required. Pursuant to                 enforceable under applicable law
                                           technologies in providing applicable                    section 7805(f) of the Code, the NPRM                 without being signed. The agreement
                                           notices or making participant elections                 preceding this regulation was submitted               must be set forth either—
                                           that are required to be in writing or in                to the Chief Counsel for Advocacy of the                (1) In a written paper document; or
                                           written form. These modifications,                      Small Business Administration for                       (2) In a document that is delivered
                                           which merely add the consumer consent                   comment on its impact on small                        through an electronic medium under an
                                           requirements of E–SIGN, are not                         business.                                             electronic system that satisfies the
                                           expected to affect adversely the existing               Drafting Information                                  requirements of § 1.401(a)–21 of this
                                           administrative practices of plan                                                                              chapter.
                                           sponsors designed to comply with the                      The principal author of these
                                                                                                   regulations is Pamela R. Kinard of the                *     *     *     *     *
                                           2000 regulations.
                                                                                                   Office of Division Counsel/Associate                  I Par. 3. Section 1.132–9(b), Q&A–12, is
                                             In addition, these regulations apply to
                                                                                                   Chief Counsel (Tax Exempt and                         amended by adding a sentence to the
                                           categories of applicable notices that
                                                                                                   Government Entities), Internal Revenue                end of the text in paragraph (b) to read
                                           were not previously addressed in the
                                                                                                   Service. However, personnel from other                as follows:
                                           2000 regulations or subsequent
                                           regulations. As such, these regulations                 offices of the Internal Revenue Service
                                                                                                                                                         § 1.132–9     Qualified transportation fringes.
                                           apply whenever there is a requirement                   and Treasury Department participated
                                                                                                   in their development.                                 *     *     *    *     *
                                           than an applicable notice under one of                                                                          A–12. * * *
                                           the covered sections be provided in                     List of Subjects                                        (b) * * * See § 1.401(a)–21 of this
                                           written form or in writing, without                                                                           chapter for rules permitting the use of
                                           regard to whether that other                            26 CFR Part 1
                                                                                                                                                         electronic media to make participant
                                           requirement specifically cross-                           Income taxes, Reporting and                         elections with respect to employee
                                           references these regulations. Thus, safe                recordkeeping requirements.                           benefit arrangements.
                                           harbor notices under sections
                                                                                                   26 CFR Part 35                                        *     *     *    *     *
                                           401(k)(12)(D) and 401(m)(11), which are
                                                                                                                                                         I Par. 4. Section 1.401(a)–21 is added to
                                           required to be in writing, can be                         Employment taxes, Income taxes,
                                                                                                                                                         read as follows:
                                           provided electronically if the                          Reporting and recordkeeping
                                           requirements of section 1.401(a)–21 of                  requirements.                                         § 1.401(a)–21 Rules relating to the use of
                                           this chapter are satisfied.                             26 CFR Part 54
                                                                                                                                                         an electronic medium to provide applicable
                                                                                                                                                         notices and to make participant elections.
                                           Effective Date                                            Excise taxes, Pensions, Reporting and                 (a) Introduction—(1) In general—(i)
                                              The rules provided in § 1.401(a)–21                  recordkeeping requirements.                           Permission to use an electronic medium.
                                           apply to applicable notices provided,                   Adoption of Amendments to the                         This section provides rules relating to
                                           and to participant elections made, on or                Regulations                                           the use of an electronic medium to
                                           after January 1, 2007. However, a                                                                             provide applicable notices and to make
                                           retirement plan, an employee benefit                    I Accordingly, 26 CFR parts 1, 35, and                participant elections as defined in
                                           arrangement, or an individual                           54 are amended as follows:                            paragraph (e)(1) and (6) of this section
                                           retirement plan that provides an                                                                              with respect to retirement plans,
                                           applicable notice or makes a participant                PART 1—INCOME TAXES                                   employee benefit arrangements, and
                                           election that complies with the                         I Paragraph 1. The authority citation                 individual retirement plans described in
                                           requirements set forth in these                                                                               paragraph (a)(2) of this section. The
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                                                                                                   for part 1 is amended by adding an entry
                                           regulations on or after October 1, 2000,                in numerical order to read as follows:                rules in this section reflect the
                                           and before January 1, 2007, will not be                                                                       provisions of the Electronic Signatures
                                           treated as failing to provide an                            Authority: 26 U.S.C. 7805 * * *                   in Global and National Commerce Act,
                                           applicable notice or to make a                            Section 1.401(a)–21 also issued under               Public Law 106–229 (114 Stat. 464
                                           participant election merely because the                 26 U.S.C. 401 and section 104 of the                  (2000) (E–SIGN)).


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                                           61884             Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations

                                              (ii) Notices and elections required to               also apply to any applicable notice or                is capable of being retained and
                                           be in writing or in written form—(A) In                 any participant election relating to the              accurately reproduced for later
                                           general. The rules of this section must                 following employee benefit                            reference, then the legal effect, validity,
                                           be satisfied in order to use an electronic              arrangements: An accident and health                  or enforceability of such electronic
                                           medium to provide an applicable notice                  plan or arrangement under sections                    record may be denied.
                                           or to make a participant election if the                104(a)(3) and 105; a cafeteria plan under                (4) General requirements related to
                                           notice or election is required to be in                 section 125; an educational assistance                applicable notices and participant
                                           writing or in written form under the                    program under section 127; a qualified                elections. The rules of this section
                                           Internal Revenue Code, Department of                    transportation fringe program under                   supplement the general requirements
                                           Treasury regulations, or other guidance                 section 132; an Archer MSA under                      related to each applicable notice and
                                           issued by the Commissioner.                             section 220; or a health savings account              participant election. Thus, in addition
                                              (B) Rules relating to applicable                     under section 223.                                    to satisfying the rules for timing and
                                           notices. An applicable notice that is                      (iii) Notices, elections, or consents              content, the rules in this section must be
                                           provided using an electronic medium is                  under individual retirement plans. The                satisfied.
                                           treated as being provided in writing or                 rules of this section also apply to any                  (5) Requirements related to the design
                                           in written form if and only if the                      applicable notice or any participant                  of an electronic system used to deliver
                                           requirements of paragraph (a)(5) of this                election relating to individual                       applicable notices and to make
                                           section are satisfied and either the                    retirement plans, including a Roth IRA                participant elections—(i) The electronic
                                           consumer consent requirements of                        under section 408A; or a deemed IRA                   system must take into account the
                                           paragraph (b) of this section or the                    under a qualified employer plan                       content of a notice. With respect to the
                                           requirements for exemption from the                     described in section 408(q).                          content of an applicable notice, the
                                           consumer consent requirements under                        (3) Limitation on application of                   electronic system must be reasonably
                                           paragraph (c) of this section are                       rules—(i) In general. The rules of this               designed to provide the information in
                                           satisfied. For example, in order to                     section do not apply to any notice,                   the notice to a recipient in a manner
                                           provide a section 402(f) notice                         election, consent, disclosure, or                     that is no less understandable to the
                                           electronically, a qualified plan must                   obligation required under the provisions              recipient than a written paper
                                           satisfy either the consumer consent                     of title I or IV of the Employee                      document.
                                           requirements of paragraph (b) of this                   Retirement Income Security Act of 1974,                  (ii) Identification of the significance of
                                           section or the requirements for                         as amended (ERISA), over which the                    information in the notice. The electronic
                                           exemption under paragraph (c) of this                   Department of Labor or the Pension                    system must be designed to alert the
                                           section. If a plan fails to satisfy either of           Benefit Guaranty Corporation has                      recipient, at the time an applicable
                                           these requirements, the plan must                       interpretative and enforcement                        notice is provided, to the significance of
                                           provide the section 402(f) notice using                 authority. For example, the rules in 29               the information in the notice (including
                                           a written paper document in order to                    CFR 2520.104b–1 of the Department of                  identification of the subject matter of
                                           satisfy the requirements of section                     Labor Regulations apply with respect to               the notice), and provide any
                                           402(f).                                                 an employee benefit plan providing                    instructions needed to access the notice,
                                              (C) Rules relating to participant                    disclosure documents, such as a                       in a manner that is readily
                                           elections. A participant election that is               summary plan description or a summary                 understandable.
                                           made using an electronic medium is                      annual report. The rules in this section                 (b) Consumer consent requirements—
                                           treated as being provided in writing or                 also do not apply to Internal Revenue                 (1) Requirements. With respect to an
                                           in written form if and only if the                      Code section 411(a)(3)(B) (relating to                applicable notice, the consumer consent
                                           requirements of paragraphs (a)(5) and                   suspension of benefits), Internal                     requirements of this paragraph (b) are
                                           (d) of this section are satisfied.                      Revenue Code section 4980B(f)(6)                      satisfied if—
                                              (iii) Safe harbor method for                         (relating to an individual’s COBRA                       (i) The requirements in paragraphs
                                           applicable notices and participant                      rights), or any other Internal Revenue                (b)(2) through (4) of this section are
                                           elections that are not required to be in                Code provision over which Department                  satisfied; and
                                           writing or written form. For an                         of Labor or the Pension Benefit                          (ii) In accordance with section
                                           applicable notice or a participant                      Guaranty Corporation has similar                      101(c)(6) of E–SIGN, the applicable
                                           election that is not required to be in                  interpretative authority.                             notice is not provided through the use
                                           writing or in written form, the rules of                   (ii) Recordkeeping and other                       of oral communication or a recording of
                                           this section provide a safe harbor                      requirements. The rules in this section               an oral communication.
                                           method for using an electronic medium                   only apply with respect to applicable                    (2) Consent—(i) In general. The
                                           to provide the applicable notice or to                  notices and participant elections                     recipient must affirmatively consent to
                                           make the participant election.                          relating to an individual’s rights under              the delivery of the applicable notice
                                              (2) Application of rules—(i) Notices,                a retirement plan, an employee benefit                using an electronic medium. This
                                           elections, or consents under retirement                 arrangement, or an individual                         consent must be either—
                                           plans. The rules of this section apply to               retirement plan. Thus, the rules in this                 (A) Made electronically in a manner
                                           any applicable notice or any participant                section do not alter the otherwise                    that reasonably demonstrates that the
                                           election relating to the following                      applicable requirements under the                     recipient can access the applicable
                                           retirement plans: A qualified retirement                Internal Revenue Code, such as the                    notice in the electronic medium in the
                                           plan under section 401(a) or 403(a); a                  requirements relating to tax reporting,               form that will be used to provide the
                                           section 403(b) plan; a simplified                       tax records, or substantiation of                     notice; or
                                           employee pension (SEP) under section                    expenses. See section 6001 for rules                     (B) Made using a written paper
                                           408(k); a simple retirement plan under                  relating to the maintenance of records,               document (or using another form not
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                                           section 408(p); or an eligible                          statements, and special returns. See also             described in paragraph (b)(2)(i)(A) of
                                           governmental plan under section 457(b).                 section 101(e) of E–SIGN, which                       this section), but only if the recipient
                                              (ii) Notices, elections, or consents                 provides that if an electronic record of              confirms the consent electronically in a
                                           under other employee benefit                            an applicable notice or a participant                 manner that reasonably demonstrates
                                           arrangements. The rules of this section                 election is not maintained in a form that             that the recipient can access the


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                                                             Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations                                          61885

                                           applicable notice in the electronic                        (4) Post-consent change in hardware                purposes of the rules under section
                                           medium in the form that will be used to                 or software requirements. If, after a                 401(a)(4).
                                           provide the notice.                                     recipient provides consent to receive                    (3) Authentication. The electronic
                                              (ii) Withdrawal of consumer consent.                 electronic delivery, there is a change in             system used in making participant
                                           The consent to receive electronic                       the hardware or software requirements                 elections is reasonably designed to
                                           delivery requirement of this paragraph                  needed to access or retain the applicable             preclude any person other than the
                                           (b)(2) is not satisfied if the recipient                notice and such change creates a                      appropriate individual from making the
                                           withdraws his or her consent before the                 material risk that the recipient will not             election. Whether this condition is
                                           applicable notice is delivered.                         be able to access or retain the applicable            satisfied is based on facts and
                                              (3) Required disclosure statement.                   notice in electronic format—                          circumstances, including whether the
                                           The recipient, prior to consenting under                   (i) The recipient must receive a                   participant election has the potential for
                                           paragraph (b)(2)(i) of this section, must               statement of—                                         a conflict of interest between the
                                           be provided with a clear and                               (A) The revised hardware or software               individuals involved in the election. See
                                           conspicuous statement containing the                    requirements for access to and retention              Examples 3, 4, and 5 of paragraph (f) of
                                           disclosures described in paragraphs                     of the applicable notice; and                         this section for illustrations of electronic
                                           (b)(3)(i) through (v) of this section:                     (B) The right to withdraw consent to               systems that satisfy the authentication
                                              (i) Right to receive paper document—                 receive electronic delivery without the               requirement of this paragraph (d)(3).
                                           (A) In general. The statement informs                   imposition of any fees for the                           (4) Opportunity to review. The
                                           the recipient of any right to have the                  withdrawal and without the imposition                 electronic system used in making
                                           applicable notice be provided using a                   of any condition or consequence that                  participant elections provides the
                                           written paper document or other                         was not previously disclosed in                       person making the participant election
                                           nonelectronic form.                                     paragraph (b)(3) of this section; and                 with a reasonable opportunity to review,
                                                                                                      (ii) The recipient must reaffirm                   confirm, modify, or rescind the terms of
                                              (B) Post-consent request for paper
                                                                                                   consent to receive electronic delivery in             the election before the election becomes
                                           copy. The statement informs the
                                                                                                   accordance with the requirements of                   effective.
                                           recipient how, after having provided                                                                             (5) Confirmation of action. The person
                                                                                                   paragraph (b)(2) of this section.
                                           consent to receive the applicable notice                   (c) Exemption from consumer consent                making the participant election receives,
                                           electronically, the recipient may, upon                 requirements—(1) In general. This                     within a reasonable time, a confirmation
                                           request, obtain a paper copy of the                     paragraph (c) is satisfied if the                     of the effect of the election under the
                                           applicable notice and whether any fee                   conditions in paragraphs (c)(2) and (3)               terms of the plan or arrangement
                                           will be charged for such copy.                          of this section are satisfied. This                   through either a written paper
                                              (ii) Right to withdraw consumer                      paragraph (c) constitutes an exemption                document or an electronic medium
                                           consent. The statement informs the                      from the consumer consent                             under a system that satisfies the
                                           recipient of the right to withdraw                      requirements of section 101(c) of E–                  requirements of either paragraph (b) or
                                           consent to receive electronic delivery of               SIGN pursuant to the authority granted                (c) of this section (as if the confirmation
                                           an applicable notice on a prospective                   in section 104(d)(1) of E–SIGN.                       were an applicable notice).
                                           basis at any time and explains the                         (2) Effective ability to access. For                  (6) Participant elections, including
                                           procedures for withdrawing that                         purposes of this paragraph (c), the                   spousal consents, that are required to be
                                           consent and any conditions,                             electronic medium used to provide an                  witnessed by a plan representative or a
                                           consequences, or fees in the event of the               applicable notice must be a medium                    notary public—(i) In general. In the case
                                           withdrawal.                                             that the recipient has the effective                  of a participant election which is
                                              (iii) Scope of the consumer consent.                 ability to access.                                    required to be witnessed by a plan
                                           The statement informs the recipient                        (3) Free paper copy of applicable                  representative or a notary public (such
                                           whether the consent to receive                          notice. At the time the applicable notice             as a spousal consent under section 417),
                                           electronic delivery of an applicable                    is provided, the recipient must be                    the signature of the individual making
                                           notice applies only to the particular                   advised that he or she may request and                the participant election is witnessed in
                                           transaction that gave rise to the                       receive the applicable notice in writing              the physical presence of a plan
                                           applicable notice or to other identified                on paper at no charge, and, upon                      representative or a notary public.
                                           transactions that may be provided or                    request, that applicable notice must be                  (ii) Electronic notarization permitted.
                                           made available during the course of the                 provided to the recipient at no charge.               If the requirements of paragraph (d)(6)(i)
                                           parties’ relationship. For example, the                    (d) Special rules for participant                  of this section are satisfied, an
                                           statement may provide that a recipient’s                elections—(1) In general. This paragraph              electronic notarization acknowledging a
                                           consent to receive electronic delivery                  (d) is satisfied if the conditions                    signature (in accordance with section
                                           will apply to all future applicable                     described in the following paragraphs                 101(g) of E–SIGN and State law
                                           notices of the recipient relating to the                (d)(2) through (6) are satisfied:                     applicable to notary publics) will not be
                                           employee benefit arrangement until the                     (2) Effective ability to access. The               denied legal effect if the signature of the
                                           recipient is no longer a participant in                 electronic medium under an electronic                 individual is witnessed in the physical
                                           the employee benefit arrangement (or                    system used to make a participant                     presence of a notary public.
                                           withdraws the consent).                                 election must be a medium that the                       (iii) Delegation to Commissioner. In
                                              (iv) Description of the contact                      person who is eligible to make the                    guidance published in the Internal
                                           procedures. The statement describes the                 election is effectively able to access. If            Revenue Bulletin, the Commissioner
                                           procedures to update information                        the appropriate individual is not                     may provide that the use of procedures
                                           needed to contact the recipient                         effectively able to access the electronic             under an electronic system is deemed to
                                           electronically.                                         medium for making the participant                     satisfy the physical presence
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                                              (v) Hardware or software                             election, the participant election will               requirement under paragraph (d)(6)(i) of
                                           requirements. The statement describes                   not be treated as made available to that              this section, but only if those
                                           the hardware and software requirements                  individual. Thus, for example, the                    procedures with respect to the
                                           needed to access and retain the                         participant election will not be treated              electronic system provide the same
                                           applicable notice.                                      as made available to that individual for              safeguards for participant elections as


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                                           61886             Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations

                                           are provided through the physical                       from Plan A on Plan A’s Web site, and, at the         entered on the form and gives Participant K
                                           presence requirement. See                               time of the request for distribution, a               an opportunity to review or modify the
                                           § 601.601(d)(2)(ii)(b) of this chapter.                 disclosure statement appears on the                   distribution request form before the
                                              (e) Definitions. The definitions in this             computer screen that explains that                    transaction is completed. Within a reasonable
                                                                                                   Participant H can consent to receive the              period of time after Participant K consents to
                                           paragraph (e) apply for purposes of this                section 402(f) notice electronically. The             the distribution, the plan administrator, by e-
                                           section.                                                disclosure statement provides information             mail, sends confirmation of the terms
                                              (1) Applicable notice. The term                      relating to the consent, including how to             (including the form) of the distribution to
                                           applicable notice includes any notice,                  receive a paper copy of the notice, how to            Participant K and advises Participant K that,
                                           report, statement, or other document                    withdraw consent, the hardware and                    upon request, the confirmation may be
                                           required to be provided to a recipient                  software requirements, and the procedures             provided to Participant K on a written paper
                                           under a retirement plan, employee                       for accessing the section 402(f) notice, which        document at no charge. Plan B retains an
                                           benefit arrangement, or individual                      is in a file format from a specific spreadsheet       electronic copy of the consent to the
                                           retirement plan as described in                         program. After reviewing the disclosure               distribution in a form that is capable of being
                                                                                                   statement, which satisfies the requirements           retained and accurately reproduced for later
                                           paragraph (a)(2) of this section.                       of paragraph (b)(3) of this section, Participant      reference by Participant K.
                                              (2) Electronic. The term electronic                  H consents to receive the section 402(f)                 (ii) Conclusion. In this Example 2, Plan B’s
                                           means technology having electrical,                     notice via e-mail by selecting the consent            delivery of the section 411(a)(11) notice and
                                           digital, magnetic, wireless, optical,                   button at the end of the disclosure statement.        the electronic system used to make
                                           electromagnetic, voice-recording                        As a part of the consent procedure, an e-mail         Participant K’s consent to a distribution
                                           systems, or similar capabilities.                       is sent to Participant H’s e-mail address in          satisfy the requirements of paragraphs (a), (c),
                                              (3) Electronic medium. The term                      order to demonstrate that Participant H can           and (d) of this section.
                                           electronic medium means an electronic                   access the spreadsheet program. In the e-                Example 3. (i) Facts involving the
                                           method of communication (e.g., Web                      mail, Participant H is prompted to answer a           transmission of a spousal consent via
                                           site, electronic mail, telephonic system,               question from the spreadsheet program,                electronic notarization. Plan C, a qualified
                                                                                                   which is in an attachment to the e-mail. Once         money purchase pension plan, permits a
                                           magnetic disk, and CD–ROM).                             Participant H correctly answers the question,         married participant to request a plan loan
                                              (4) Electronic record. The term                      the section 402(f) notice is then delivered to        through the Plan C’s Internet Web site with
                                           electronic record means an applicable                   Participant H via e-mail.                             the notarized consent of the spouse. Under
                                           notice or a participant election that is                   (ii) Conclusion. In this Example 1, Plan A’s       Plan C’s system for requesting a plan loan, a
                                           created, generated, sent, communicated,                 delivery of the section 402(f) notice to              participant must enter his or her account
                                           received, or stored by electronic media.                Participant H satisfies the requirements of           number, personal identification number
                                              (5) Electronic system. The term                      paragraph (b) of this section.                        (PIN), and his or her e-mail address. The
                                           electronic system means a system                           Example 2. (i) Facts—(A) Facts involving           information entered by the participant must
                                           designed for creating, generating,                      using the alternative method to deliver a             match the information in Plan C’s records in
                                           sending, receiving, storing, retrieving,                section 411(a)(11) notice via e-mail. Plan B,         order for the transaction to proceed.
                                                                                                   a qualified plan, permits participants to             Participant M, a married participant, is
                                           displaying, or processing information
                                                                                                   request benefit distributions from the plan on        effectively able to access the Web site
                                           that makes use of any electronic                        Plan B’s Internet Web site. Under Plan B’s            available to apply for a plan loan. In order
                                           medium.                                                 system for such transactions, a participant           to apply for a loan, Plan C requires a
                                              (6) Participant election. The term                   must enter his or her account number and              participant to enter the participant’s account
                                           participant election includes any                       personal identification number (PIN), and his         number and PIN in order to preclude any
                                           consent, election, request, agreement, or               or her e-mail address to which the notice is          person other than the participant from
                                           similar communication made by or from                   to be sent. The participant’s PIN and account         making the election. Participant M completes
                                           a participant, beneficiary, alternate                   number must match the information in Plan             the loan application on Plan C’s Web site.
                                           payee, or an individual entitled to                     B’s records in order for the transaction to           Within a reasonable period of time after
                                           benefits under a retirement plan,                       proceed. After Participant K, a single                submitting the plan loan application, the
                                                                                                   employee, requests a distribution from Plan           plan administrator, by e-mail, sends
                                           employee benefit arrangement, or
                                                                                                   B on Plan B’s Internet Web site, the plan             Participant M the loan application, including
                                           individual retirement plan as described                 administrator provides Participant K with a           all attachments setting forth the terms of the
                                           in paragraph (a)(2) of this section.                    section 411(a)(11) notice in an attachment to         loan agreement and all other required
                                              (7) Recipient. The term recipient                    an e-mail. Plan B sends the e-mail with a             information. In the e-mail, Plan C also
                                           means a plan participant, beneficiary,                  request for a computer generated notification         notifies Participant M that, upon request, the
                                           employee, alternate payee, or any other                 that the message was received and opened.             loan application may be provided to
                                           person to whom an applicable notice is                  The e-mail instructs Participant K to read the        Participant M on a written paper document
                                           to be provided.                                         attachment for important information                  at no charge. Plan C then instructs
                                              (f) Examples. The following examples                 regarding the request for a distribution. In          Participant M that, in order for the loan
                                           illustrate the rules of this section.                   addition, the e-mail also states that                 application to proceed, Participant M must
                                           Examples 1, 2, 3, and 6 assume that the                 Participant K may request the section                 submit to the plan administrator a notarized
                                                                                                   411(a)(11) notice on a written paper                  spousal consent form. Participant M and M’s
                                           requirements of paragraph (a)(4) and (5)                document and that, if Participant K requests          spouse go to a notary public and the notary
                                           of this section are satisfied.                          the notice on a written paper document, it            witnesses Participant M’s spouse signing the
                                             Example 1. (i) Facts involving using the              will be provided at no charge. Plan B receives        spousal consent for the loan agreement on an
                                           consumer consent requirements to deliver a              notification indicating that the e-mail was           electronic signature capture pad with
                                           section 402(f) notice via e-mail. Plan A, a             received and opened by Participant K.                 adequate security. After witnessing M’s
                                           qualified plan, permits participants to                    (B) Facts involving making a participant’s         spouse signing the spousal consent, the
                                           request benefit distributions from the plan on          consent to a distribution. In order to consent        notary public sends an e-mail with an
                                           Plan A’s Internet Web site. Under Plan A’s              to a distribution, Plan B requires a                  electronic acknowledgement that is attached
                                           system for such transactions, a participant             participant to enter the participant’s account        to or logically associated with the signature
                                           must enter his or her account number,                   number and PIN in order to preclude any               of M’s spouse to the plan administrator. The
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                                           personal identification number (PIN), and his           person other than the participant from                electronic acknowledgement is in accordance
                                           or her e-mail address to which the notice is            making the election. After the authentication         with section 101(g) of E–SIGN and the
                                           to be sent. The participant’s PIN and account           process, Participant K completes a                    relevant State law applicable to notary
                                           number must match the information in Plan               distribution request form on the Web site.            publics. After the plan receives the e-mail,
                                           A’s records in order for the transaction to             After completing the request form, the Web            Plan C sends an e-mail to Participant M,
                                           proceed. Participant H requests a distribution          site provides a summary of the information            giving M a reasonable period to review and



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                                                             Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations                                             61887

                                           confirm the completed loan application and              the consent to the distribution in a form that        automated telephone systems described in
                                           to determine whether the loan application               is capable of being retained and accurately           Example 4 and Example 5 of this paragraph
                                           should be modified or rescinded. In addition,           reproduced for later reference by Participant         (f).
                                           the e-mail to Participant M also provides that          N.
                                           M may request the completed loan                           (ii) Conclusion. In this Example 4, because
                                                                                                                                                            (g) Effective date. The rules provided
                                           application on a written paper document and             Plan D has relatively few and simple                  in this section apply to applicable
                                           that, if M requests the written paper                   distribution options, the provision of the            notices provided, and to participant
                                           document, it will be provided at no charge.             section 411(a)(11) notice through the                 elections made, on or after January 1,
                                           Plan C retains an electronic copy of the loan           automated telephone system is no less                 2007. However, a retirement plan, an
                                           agreement, including the spousal consent, in            understandable to the participant than a              employee benefit arrangement, or an
                                           a form that is capable of being retained and            written paper notice for purposes of                  individual retirement plan that provides
                                           accurately reproduced for later reference by            paragraph (a)(5)(i) of this section. In addition,     an applicable notice or makes a
                                           all parties.                                            the automated telephone procedures of Plan
                                              (ii) Conclusion. In this Example 3, the              D satisfy the applicable requirements of
                                                                                                                                                         participant election that complies with
                                           transmission of the plan loan agreement                 paragraphs (a), (c), and (d) of this section.         the requirements set forth in these
                                           satisfies the requirements of paragraphs (a),              Example 5. (i) Facts. Same facts as                regulations on or after October 1, 2000,
                                           (c), and (d) of this section. By requiring that         Example 4 of this paragraph (f), except that,         and before January 1, 2007, will not be
                                           the spouse sign the spousal consent on an               pursuant to Plan D’s system for processing            treated as failing to provide an
                                           electronic signature capture pad in the                 such transactions, a participant who so               applicable notice or to make a
                                           physical presence of a notary public, the               requests is transferred to a customer service         participant election merely because the
                                           electronic system satisfies the requirement             representative whose conversation with the            notice or election was not in writing or
                                           that the system be reasonably designed to               participant is recorded. The customer service
                                                                                                                                                         written form.
                                           preclude any person other than the                      representative provides the section 411(a)(11)
                                           appropriate individual from making the                  notice from a prepared text and processes the         I Par. 5. Section 1.401(k)–3 is amended
                                           election. Thus, the electronic notarization of          participant’s distribution in accordance with         by adding a sentence to the end of the
                                           spousal consent satisfies the requirements of           the predetermined instructions from the plan          text of paragraph (d)(1) to read as
                                           paragraphs (a) and (d) of this section.                 administrator.                                        follows:
                                              Example 4. (i) Facts—(A) Facts involving                (ii) Conclusion. As in Example 4 of this
                                           using the alternative method of compliance              paragraph (f), because Plan D has relatively          § 1.401(k)–3      Safe harbor requirements.
                                           to deliver a section 411(a)(11) notice via an           few and simple distribution options, the              *     *     *    *     *
                                           automated telephone system. A qualified                 provision of the section 411(a)(11) notice              (d) * * *
                                           profit-sharing plan (Plan D) permits                    through the automated telephone system is               (1) * * * See § 1.401(a)–21 of this
                                           participants to request distributions through           no less understandable to the participant             chapter for rules permitting the use of
                                           an automated telephone system. Under Plan               than a written paper notice for purposes of
                                           D’s system for such transactions, a                     paragraph (a)(4) of this section. Further, in
                                                                                                                                                         electronic media to provide applicable
                                           participant must enter his or her account               this Example 5, the customer service                  notices to recipients with respect to
                                           number and personal identification number               telephone procedures of Plan D satisfy the            retirement plans.
                                           (PIN); this information must match the                  requirements of paragraphs (a), (c), and (d) of       *     *     *    *     *
                                           information in Plan D’s records in order for            this section.                                         I Par. 6. Section 1.402(f)–1 is amended
                                           the transaction to proceed. Plan D provides                Example 6. (i) Facts. Plan E, a qualified          by:
                                           only the following distribution options:                plan, permits participants to request
                                                                                                                                                         I (1) Revising A–5.
                                           single-sum payment; and annual installments             distributions by e-mail on the employer’s e-
                                                                                                                                                         I (2) Removing Q&A–6.
                                           over 5, 10, or 20 years. Participant N, a single        mail system. Under this system, a participant
                                           participant, requests a distribution from Plan          must enter his or her account number,                   The revision reads as follows:
                                           D by following the applicable instructions on           personal identification number (PIN), and e-          § 1.402(f)–1 Required explanation of
                                           the automated telephone system. After                   mail address. This information must match             eligible rollover distributions; questions
                                           Participant N has requested the distribution,           that in Plan E’s records in order for the             and answers.
                                           the automated telephone system recites the              transaction to proceed. If a participant
                                           section 411(a)(11) notice over the phone. The           requests a distribution by e-mail, the plan           *      *    *    *      *
                                           automated telephone system also advises                 administrator provides the participant with a            A–5. Yes. See § 1.401(a)–21 of this
                                           Participant N that, upon request, the notice            section 411(a)(11) notice by e-mail. The plan         chapter for rules permitting the use of
                                           may be provided on a written paper                      administrator also advises the participant by         electronic media to provide applicable
                                           document and that, if Participant N so                  e-mail that he or she may request the section         notices to recipients with respect to
                                           requests, the notice will be provided on a              411(a)(11) notice on a written paper                  retirement plans.
                                           written paper document at no charge.                    document and that, if the participant requests
                                                                                                                                                         I Par. 7. Section 1.411(a)–11 is
                                              (B) Facts involving making a participant’s           the notice on a written paper document, it
                                           consent to a distribution via an automated              will be provided at no charge. Participant Q          amended by:
                                           telephone system. In order to consent to a              requests a distribution and receives the              I (1) Revising the text of paragraphs
                                           distribution, Plan D requires a participant to          section 411(a)(11) notice from the plan               (f)(1) and (2).
                                           enter the participant’s account number and              administrator by reply e-mail. However,               I (2) Removing paragraph (g).
                                           PIN in order to preclude any person other               before Participant Q elects a distribution, Q            The revisions read as follows.
                                           than the participant from making the                    terminates employment. Following
                                           election. Participant N requests a distribution         termination of employment, Participant Q no           § 1.411(a)–11 Restriction and valuation of
                                           by entering information on the automated                longer has access to the employer’s e-mail            distributions.
                                           telephone system. After completing the                  system.                                               *      *     *      *     *
                                           request, the automated telephone system                    (ii) Conclusion. In this Example 6, Plan E            (f) * * *
                                           provides a oral summary of the information              does not satisfy the participant election                (1) * * * The notice of a participant’s
                                           entered and gives Participant N an                      requirements under paragraph (d) of this              rights described in paragraph (c)(2) of
                                           opportunity to review or modify the                     section because Participant Q is not                  this section or the summary of that
                                           distribution request before the transaction is          effectively able to access the electronic
                                                                                                                                                         notice described in paragraph
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                                           completed. Plan D’s automated telephone                 medium used to make the participant
                                           system confirms the distribution request to             election. Plan E must provide Participant Q           (c)(2)(iii)(B)(2) of this section must be
                                           Participant N and advises Participant N that,           with the opportunity to make the participant          provided on a written paper document.
                                           upon request, a confirmation may be                     election through a written paper document or          However, see § 1.401(a)–21 of this
                                           provided on a written paper document at no              another system that Participant Q is                  chapter for rules permitting the use of
                                           charge. Plan D retains an electronic copy of            effectively able to access, such as the               electronic media to provide applicable


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                                           61888               Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations

                                           notices to recipients with respect to                     payee on a written paper document.                    DEPARTMENT OF THE TREASURY
                                           retirement plans.                                         However, see § 1.401(a)–21 of this
                                             (2) * * * The consent described in                      chapter for rules permitting the use of               Internal Revenue Service
                                           paragraphs (c)(2) and (3) of this section                 electronic media to provide applicable
                                           must be given on a written paper                          notices to recipients with respect to                 26 CFR Part 1
                                           document. However, see § 1.401(a)–21                      retirement plans and individual
                                           of this chapter for rules permitting the                  retirement plans.                                     [TD 9287]
                                           use of electronic media to make
                                           participant elections with respect to                     PART 54—PENSION EXCISE TAXES                          RIN–1545–BD00
                                           retirement plans.
                                           I Par. 8. Section 1.417(a)(3)–1 is                        I Par. 12. The authority citation for part            Attained Age of the Insured Under
                                           amended by adding a sentence to the                       54 continues to read, in part, as follows:            Section 7702; Correction
                                           end of the text of paragraph (a)(3) to
                                                                                                         Authority: 26 U.S.C. 7805 * * *
                                           read as follows:                                                                                                AGENCY: Internal Revenue Service (IRS),
                                           § 1.417(a)(3)–1 Required explanation of                   I  Par. 13. Section 54.4980F–1, Q&A–13,               Treasury.
                                           qualified joint and survivor annuity and                  is amended as follows:                                ACTION:   Correction to final regulations.
                                           qualified preretirement survivor annuity.                    (1) Revising paragraph A–13 (c)(1)(ii)
                                             (a) * * *                                               and (iii).                                            SUMMARY: This document corrects the
                                             (3) * * * But see § 1.401(a)–21 of this                                                                       final regulation (TD 9287) that was
                                                                                                        (2) Revising the introductory text to
                                           chapter for rules permitting the use of                                                                         published in the Federal Register on
                                                                                                     paragraph A–13 (c)(2).
                                           electronic media to provide applicable                                                                          Wednesday, September 13, 2006 (71 FR
                                           notices to recipients with respect to                        (3) Removing paragraph A–13 (c)(3).
                                                                                                                                                           53967), explaining how to determine the
                                           retirement plans.                                            The revisions read as follows:                     attained age of an insured for purposes
                                           *     *     *    *     *                                                                                        of testing whether a contract qualifies as
                                                                                                     § 54.4980F–1 Notice requirements for
                                           I Par. 9. Section 1.7476–2 is amended                                                                           a life insurance contract for Federal
                                                                                                     certain pension plan amendments
                                           by revising paragraph (c)(2) to read as                   significantly reducing the rate of future             income tax purposes.
                                           follows:                                                  benefit accrual.
                                                                                                                                                           DATES:  Effective Date: This correction is
                                           § 1.7476–2       Notice to interested parties.            *       *     *     *     *                           effective September 13, 2006.
                                           *      *      *    *      *                                  A–13. * * *                                        FOR FURTHER INFORMATION CONTACT:    Ann
                                              (c) * * *                                                 (c) * * *                                          H. Logan, (202) 622–3970 (not a toll-free
                                              (2) If the notice to interested parties
                                           is delivered using an electronic medium                      (1) * * *                                          number).
                                           under an electronic system that satisfies                    (ii) The section 204(h) notice is                  SUPPLEMENTARY INFORMATION:
                                           the applicable notice requirements of                     delivered using an electronic medium
                                           § 1.401(a)–21 of this chapter, the notice                                                                       Background
                                                                                                     (other than an oral communication or a
                                           is deemed to be provided in a manner                      recording of an oral communication)                     The final regulation (TD 9287) that is
                                           that satisfies the requirements of                        under an electronic system that satisfies             the subject of this correction is under
                                           paragraph (c)(1) of this section.                         the applicable notice requirements of                 section 7702 of the Internal Revenue
                                           *      *      *    *      *                               § 1.401(a)–21.                                        Code.
                                           PART 35—EMPLOYMENT TAX AND                                   (iii) Special effective date. For plan
                                                                                                                                                           Need for Correction
                                           COLLECTION OF INCOME TAX AT                               years beginning prior to January 1, 2007,
                                           SOURCE REGULATIONS UNDER THE                              Q&A–13 of this section, as it appeared                  As published, TD 9287 contains an
                                           TAX EQUITY AND FISCAL                                     in the April 1, 2006 edition of 26 CFR                error that may prove to be misleading
                                           RESPONSIBILITY ACT OF 1982                                part 1, applies.                                      and is in need of clarification.
                                                                                                        (2) * * * The following examples                   Correction of Publication
                                           I Par. 10. The authority citation for part                illustrate the requirement in paragraph
                                           35 continues to read, in part, as follows:                (c)(1)(i) of this Q&A–13. In these                    I Accordingly, the publication of the
                                               Authority: 26 U.S.C. 7805 * * *                       examples, it is assumed that the notice               final regulation (TD 9287) that was the
                                                                                                     satisfies the requirements in paragraphs              subject of FR. Doc. E6–15117, is
                                           I Par. 11. Section 35.3405–1 is
                                           amended by:                                               (c)(1)(ii) of this section. The examples              corrected as follows:
                                           I (1) Revising d–35, A.
                                                                                                     are as follows:
                                                                                                                                                           I On page 53967, column 3, in the
                                           I (2) Removing d–36, Q&A.                                 *       *     *     *     *                           heading, the RIN number ‘‘RIN 1545–
                                             The revision reads as follows:                                                                                BE53’’ is corrected to read ‘‘RIN 1545–
                                                                                                     Mark E. Matthews,
                                           § 35.3405–1 Questions and answers                         Deputy Commissioner for Services and
                                                                                                                                                           BD00’’.
                                           relating to withholding on pensions,                      Enforcement.                                          Guy R. Traynor,
                                           annuities, and certain other deferred                       Approved: October 10, 2006.
                                           income.                                                                                                         Federal Register Liaison, Legal Processing
                                                                                                     Eric Solomon,                                         Division, Associate Chief Counsel (Procedure
                                           *     *    *    *     *                                                                                         and Administration).
                                             d–35. * * *                                             Acting Deputy Assistant Secretary of the
mstockstill on PROD1PC61 with RULES




                                                                                                     Treasury (Tax Policy).                                [FR Doc. E6–17572 Filed 10–19–06; 8:45 am]
                                             A. A payor may provide the notice
                                           required under section 3405 (including                    [FR Doc. E6–17528 Filed 10–19–06; 8:45 am]            BILLING CODE 4830–01–P

                                           the abbreviated notice described in d–27                  BILLING CODE 4830–01–P
                                           of § 35.3405–1T and the annual notice
                                           described in d–31 of § 35.3405–1T) to a


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Description: Employee Consents document sample