Td 9294

Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations
Executive Order 12988
This final rule meets the applicable
standards set forth in sections 3(a) and
3(b)(2) of Executive Order 12988 Civil
Justice Reform.

Dated: October 10, 2006.
Joseph T. Rannazzisi,
Deputy Assistant Administrator, Office of
Diversion Control.
[FR Doc. E6–17522 Filed 10–19–06; 8:45 am]
BILLING CODE 4410–09–P

Executive Order 13132
This final rule does not preempt or
modify any provision of state law; nor
does it impose enforcement
responsibilities on any state; nor does it
diminish the power of any state to
enforce its own law. Accordingly, this
rulemaking does not have federalism
implications warranting the application
of Executive Order 13132.
Unfunded Mandates Reform Act of 1995
This final rule will not result in the
expenditure by State, local or tribal
governments, in the aggregate, or by the
private sector, of $115,000,000 or more
in any one year, and will not
significantly or uniquely affect small
governments. Therefore, no actions were
deemed necessary under the provisions
of the Unfunded Mandates Reform Act
of 1995.
Small Business Regulatory Enforcement
Fairness Act of 1996
This final rule is not a major rule as
defined by § 804 of the Small Business
Regulatory Enforcement Fairness Act of
1996. This rule will not result in an
annual effect on the economy of
$100,000,000 or more, a major increase
in costs or prices, or significant adverse
effects on competition, employment,
investment, productivity, innovation, or
on the ability of United States-based
companies to compete with foreignbased companies in domestic and
export markets.
PART 1308—SCHEDULES OF
CONTROLLED SUBSTANCES
Pursuant to the authority vested in the
Attorney General by section 1903 of the
Anabolic Steroid Control Act of 1990,
delegated to the Administrator of the
Drug Enforcement Administration
pursuant to 21 U.S.C. 871(a) and 28 CFR
0.100, and redelegated to the Deputy
Assistant Administrator of the DEA
Office of Diversion Control pursuant to
28 CFR part 0, Appendix to Subpart R,
Section 7(g), the Deputy Assistant
Administrator hereby adopts as a final
rule, without change, the interim rule
which was published at 71 FR 10835, on
March 3, 2006 amending the list
described in 21 CFR 1308.34.

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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 35, and 54
[TD 9294]
RIN 1545–BD68

Use of Electronic Media for Providing
Employee Benefit Notices and Making
Employee Benefit Elections and
Consents
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulation.
AGENCY:

This document contains final
regulations setting forth standards for
electronic systems that make use of an
electronic medium to provide a notice
to a recipient, or to make a participant
election or consent, with respect to a
retirement plan, an employee benefit
arrangement, or an individual
retirement plan. These regulations
reflect the provisions of the Electronic
Signatures in Global and National
Commerce Act (E–SIGN). These final
regulations generally affect sponsors of,
and individuals entitled to benefits
under, certain retirement plans,
employee benefit arrangements, and
individual retirement plans.
DATES: Effective date: These regulations
are effective on October 20, 2006.
Applicability date: These regulations
generally apply to applicable notices
provided, and participant elections
made, on or after January 1, 2007. See
§ 1.401(a)–21(g).
FOR FURTHER INFORMATION CONTACT:
Pamela R. Kinard at (202) 622–6060 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
SUMMARY:

Paperwork Reduction Act
The collections of information
referenced in these final regulations
were previously reviewed and approved
by the Office of Management and
Budget in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) under control number
1545–1632, in conjunction with the
Treasury Decision (TD 8873), relating to
New Technologies in Retirement Plans,
published on February 8, 2000 in the
Federal Register (65 FR 6001), and

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control number 1545–1780, in
conjunction with the Treasury Decision
(TD 9052), relating to Notice of
Significant Reduction in the Rate of
Future Benefit Accrual, published on
April 9, 2003 in the Federal Register (68
FR 17277). Responses to these
collections of information are
mandatory.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to these
collections of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
This document contains amendments
to 26 CFR parts 1, 35, and 54 under
section 401 of the Internal Revenue
Code (Code) and other sections of the
Code relating to retirement plans,
employee benefit arrangements, and
individual retirement plans. This
Treasury Decision adds § 1.401(a)–21 to
the Treasury regulations, which sets
forth standards for the use of an
electronic medium to provide
applicable notices to recipients, or to
make participant elections, with respect
to a retirement plan, an employee
benefit arrangement, or an individual
retirement plan. These final regulations
reflect the applicable provisions of the
Electronic Signatures in Global and
National Commerce Act, Public Law
106–229 (114 Stat. 464 (2000)) (E-SIGN)
as it relates to the electronic delivery of
notices.
The Code and regulations thereunder,
and the parallel provisions of the
Employee Retirement Income Security
Act of 1974 (ERISA), include a number
of rules that require certain notices,
elections, or consents to be written or in
writing. Examples of notices, elections,
or consents required to be written or in
writing include a section 402(f) notice
(describing rollover rights), a section
411(a)(11) notice (describing a
participant’s benefit commencement
rights), a spousal consent under section
417(a)(2), and a section 204(h) notice
(notice to participants of significant
reduction in rate of future benefit
accrual). For a more in-depth
description of retirement plan notices,
elections, or consents that are required
to be written or in writing, see the
background section to the preamble of

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the 2005 proposed regulations (70 FR
40675).

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E–SIGN
E–SIGN, signed into law on June 30,
2000, generally provides that electronic
records and signatures are given the
same legal effect as their paper
counterparts. Section 101(a) of E–SIGN
provides that, with respect to a
transaction in or affecting interstate or
foreign commerce, notwithstanding any
statute, regulation, or rule of law, a
signature, contract, or other record may
not be denied legal effect, validity, or
enforceability solely because it is in
electronic form and a contract relating
to such transaction may not be denied
legal effect, validity, or enforceability
solely because an electronic signature or
electronic record was used in its
formation.1
Section 101(b) of E–SIGN provides
that E–SIGN does not limit, alter, or
otherwise affect any requirement
imposed by a statute, regulation, or rule
of law relating to a person’s rights or
obligations under any statute,
regulation, or rule of law except with
respect to a requirement that contracts
or other records be written, signed, or in
non-electronic form, and also provides
that E–SIGN generally does not require
any person to agree to use or accept
electronic signatures or records.
Section 101(c) of E–SIGN sets forth
special protections that apply when a
statute, regulation, or other rule of law
requires that information relating to a
transaction be provided or made
available to a consumer 2 in writing.
Under section 101(c) of E–SIGN, before
the required information can be
provided or made available
electronically, a consumer must first
affirmatively consent to receive the
information electronically and the
consent must be made in a manner that
reasonably demonstrates the consumer’s
ability to access the information in
electronic form (or, if the consent is not
provided in such a manner,
confirmation of the consent must be
made electronically in a manner that
reasonably demonstrates the consumer’s
ability to access the information in
electronic form). Prior to consent, the
consumer must receive certain specified
1 The rules of section 101 of E–SIGN do not apply
to certainconsumer notices. These include
consumer notices that are necessary for the
protection of a consumer’s health, safety, or shelter
(e.g., cancellation of health benefits or life
insurance and foreclosure on a credit agreement
secured by an individual’s primary residence). See
section 103(b)(2)(B) and (C) of E–SIGN.
2 Section 106(1) of E–SIGN generally defines a
consumer as anindividual who obtains products or
services used primarily for personal, family, or
household purposes.

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disclosures. The disclosures must
include, among other items, the
hardware or software requirements for
access to, and retention of, the
electronic records, the consumer’s right
to withdraw his or her consent to
receive the information electronically
(and the consequences that follow the
withdrawal of consent), the procedures
for requesting a paper copy of the
electronic record, and the cost, if any, of
obtaining a paper copy. Section
101(c)(6) of E–SIGN generally provides
that, for purposes of the consumer
consent rules of section 101(c), an oral
communication or a recording of an oral
communication does not qualify as an
electronic record.
Section 101(e) of E–SIGN provides
rules relating to the electronic retention
of contracts and other records that are
required to be written or in writing.
Section 101(e) of E–SIGN provides that
if a statute, regulation, or other rule of
law requires that a contract or other
record relating to a transaction in or
affecting interstate or foreign commerce
be in writing, the legal effect, validity,
or enforceability of an electronic record
of the contract or other record may be
denied if the contract or other record is
not in a form that is capable of being
retained and accurately reproduced for
later reference by all parties or persons
who are entitled to retain the contract or
other record.
Section 104(b)(1) of E–SIGN generally
provides that a Federal regulatory or
State regulatory agency that is
responsible for rulemaking under any
other statute has interpretative authority
to issue guidance interpreting section
101 of E–SIGN with respect to that other
statute. However, as a limitation on that
authority, section 104(b)(2) of E–SIGN
prohibits the issuance of any guidance
that is not consistent with section 101
or that adds to the requirements of that
section. Section 104(b)(2) of E–SIGN
also requires that any agency issuing
guidance interpreting E–SIGN find that
there is a substantial justification for the
guidance and that the methods selected
to carry out the purpose of the guidance
are substantially equivalent to the
requirements imposed on records that
are not electronic, do not impose
unreasonable costs on the acceptance
and use of electronic records, and do
not require or accord greater legal status
to a specific technology.
Section 104(d)(1) of E–SIGN
authorizes a Federal regulatory agency
to exempt, without condition, a
specified category or type of record from
the consumer consent requirements in
section 101(c). The exemption may be
issued only if the exemption is
necessary to eliminate a substantial

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burden on electronic commerce and will
not increase the material risk of harm to
consumers.
In accordance with section
104(b)(2)(C) of E–SIGN, the Treasury
Department and IRS find that there is
substantial justification for these final
regulations, that, for the reasons
explained below, the requirements
imposed on the use of electronic media
under these regulations are substantially
equivalent to those imposed on nonelectronic records, that the requirements
will not impose unreasonable costs on
the acceptance and use of electronic
records, and that these regulations do
not require (or accord greater legal
status or effect to) the use of any specific
technology.
Prior Guidance Relating to Electronic
Communications
The Treasury Department and IRS
have issued several items of guidance
relating to the use of electronic media
with respect to retirement plans and
individual retirement plans.3 Section
1510 of the Taxpayer Relief Act of 1997,
Public Law 105–34 (111 Stat. 788, 1068)
(TRA ’97), provides for the Secretary of
Treasury to issue guidance designed to
interpret the notice, election, consent,
disclosure, and timing requirements
(include related recordkeeping
requirements) under the Code and
ERISA relating to retirement plans as
applied to the use of new technologies
by plan sponsors and administrators.
Section 1510 of TRA ’97 further
provides that the guidance should
maintain the protection of the rights of
participants and beneficiaries.
Final regulations (TD 8873) relating to
the use of electronic media for
transmissions of participant notices and
consents under sections 402(f),
411(a)(11), and 3405(e)(10)(B) were
published in the Federal Register (65
FR 6001) on February 8, 2000 (the 2000
regulations). The 2000 regulations set
3 The Treasury Department and IRS have also
issued guidance regardingthe use of electronic
media with respect to tax reporting and other tax
requirements with respect to employee benefit
plans. For example, Announcement 99–6 (1999–1
C.B. 352) authorizes payers of pensions, annuities,
and other employee benefits to establish a system
for payees to submit electronically Forms W–4P,
Withholding Certificate for Pension or Annuity
Payments, W–4S, Request for Federal Income Tax
Withholding from Sick Pay, and W–4V, Voluntary
Withholding Request, if certain requirements,
including signature and recordkeeping
requirements, are satisfied. In addition, Notice
2004–10 (2004–1 C.B. 433) authorizes the electronic
delivery of certain forms relating to the reporting of
contributions and distributions of pensions,
simplified employee pensions, traditional IRAs,
Roth IRAs, qualified tuition programs, Coverdell
education savings accounts, and Archer Medical
Savings Accounts. See also §§ 31.6051–1(j) and
1.6039–1(f).

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Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations
forth standards for the electronic
transmission of certain notices and
consents that are required in connection
with distributions from retirement
plans.
Those regulations provide that a plan
may provide a notice required under
section 402(f), 411(a)(11), or
3405(e)(10)(B) either on a written paper
document or through an electronic
medium that is reasonably accessible to
the participant. In addition, the 2000
regulations provide that any electronic
system must be reasonably designed to
provide the notice in a manner no less
understandable to the participant than a
written paper document. Furthermore,
the participant must be advised of the
right to request and receive a paper copy
of the written paper document at no
charge, and, upon request, the
document must be provided to the
participant without charge.
The 2000 regulations also permit an
electronic system to satisfy the
requirement of section 411(a)(11) that a
participant provide written consent to a
distribution if certain requirements are
satisfied. First, the electronic medium
must be reasonably accessible to the
participant. Second, the electronic
system must be reasonably designed to
preclude anyone other than the
participant from giving the consent.
Third, the system must provide the
participant with a reasonable
opportunity to review and to confirm,
modify, or rescind the terms of the
consent before it becomes effective.
Fourth, the system must provide the
participant, within a reasonable time
after the consent is given, a
confirmation of the terms (including the
form) of the distribution through either
a written paper document or in an
electronic format that satisfies the
requirements for providing applicable
notices. Thus, the participant must be
advised of the right to request and to
receive a confirmation copy of the
consent on a written paper document
without charge. The 2000 regulations
did not permit the use of electronic
media for any notice or election
required under section 417 with respect
to a waiver of a qualified joint and
survivor annuity (QJSA).
The Treasury Department and IRS
have issued other guidance applying the
standards set forth in the 2000
regulations to other retirement plan
notices and elections. For example,
§ 1.7476–2(c)(2) provides that a notice to
an interested party is deemed to be
provided in a manner that satisfies the
delivery requirements of § 1.7476–
2(c)(1) if the notice is delivered using an
electronic medium under a system that
satisfies the requirements of § 1.402(f)–

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1, Q&A–5. Q&A–7 of Notice 2000–3
(2000–1 C.B. 413) provides that, until
the issuance of further guidance, a plan
is permitted to use electronic media to
provide notices required under sections
401(k)(12) and 401(m)(11) (relating to
safe harbors for section 401(k) and
section 401(m) plans) if the employee
receives the notice through an electronic
medium that is reasonably accessible,
the system is designed to provide the
notice in a manner no less
understandable to the employee than a
written paper document, and, at the
time the notice is provided, the
employee is advised that the employee
may request and receive the notice on
a written paper document at no charge.
Similarly, § 1.72(p)–1, Q&A–3(b),
requires a loan from a plan to a
participant to be set forth in a written
paper document, in an electronic
medium that satisfies standards that are
the same as the standards in the 2000
regulations, or in such other form as
may be approved by the Commissioner.
In addition, Notice 99–1 (1999–1 C.B.
269) provides guidance relating to
qualified retirement plans permitting
the use of electronic media for plan
participants or beneficiaries conducting
account transactions for which there is
no specific writing requirement, such as
plan enrollments, direct rollover
elections, beneficiary designations,
investment change allocations, elective
and after-tax contribution designations,
and general plan or specific account
inquiries.
In 2003, final regulations (TD 9052)
under section 4980F were published in
the Federal Register (68 FR 17277).
Under Q&A–13 of § 54.4980F–1, for a
plan to provide a section 204(h) notice
electronically, the section 204(h) notice
must actually be received by the
applicable individual or the plan
administrator must take appropriate and
necessary measures reasonably
calculated to ensure that the method for
providing the section 204(h) notice
results in actual receipt. Further, the
plan administrator must provide the
applicable individual with a clear and
conspicuous statement that the
individual has a right to receive a paper
version of the section 204(h) notice
without the imposition of fees and, if
the individual requests a paper copy of
the section 204(h) notice, the paper
copy must be provided without charge.
The regulations under section 4980F
also provide a safe harbor method for
delivering a section 204(h) notice
electronically, which is substantially the
same as the consumer consent rules of
E–SIGN.
The Department of Labor (DOL) and
the Pension Benefit Guaranty

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61879

Corporation (PBGC) have also issued
regulations relating to the use of
electronic media to furnish notices,
reports, statements, disclosures, and
other documents to participants,
beneficiaries, and other individuals
under titles I and IV of ERISA. See 29
CFR 2520.104b–1 and 29 CFR 4000.14.
On July 14, 2005, a notice of proposed
rulemaking (REG–138362–04) under
section 401 of the Code was published
in the Federal Register (70 FR 40675)
(the 2005 proposed regulations). On
November 2, 2005, the IRS held a public
hearing on the proposed regulations.
Written comments responding to the
notice of proposed rulemaking were also
received. Although commentators raised
issues with respect to certain provisions
in the 2005 proposed regulations, the
comments were generally positive. After
consideration of all the comments, the
2005 proposed regulations are adopted,
as amended by this Treasury Decision.
The significant revisions are discussed
below.
Explanation of Provisions
I. Overview
A. In General
This Treasury Decision adds
§ 1.401(a)–21 and modifies a number of
existing regulations (including the 2000
regulations and other regulations
described above). These regulations set
forth the standards by which a
retirement plan, an employee benefit
arrangement, or an individual
retirement plan is permitted to use an
electronic medium to provide
applicable notices or for individuals in
such a plan to make participant
elections.
For any requirement under the Code
or regulations that an employee benefit
notice or election be in writing or in
written form, the standards set forth in
these regulations are generally the
exclusive rules for providing such
communication through the use of an
electronic medium. Thus, for example,
a retirement plan providing a section
402(f) notice through the use of an
electronic medium must satisfy the
rules set forth in these regulations.
For any employee benefit notice or
election that is not required to be in
writing or in written form, the standards
set forth in these regulations function as
a safe harbor. Thus, a retirement plan,
an employee benefit arrangement, or
individual retirement plan is permitted
to satisfy either these regulations or any
other applicable guidance issued by the
IRS. For example, with respect to
creating an electronic system to accept
electronic transmissions of beneficiary
designations, a retirement plan is

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permitted to use the rules under these
regulations or continue to follow the
standards set forth in Notice 99–1,
which is not affected by E–SIGN.
B. Application of Standards

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Like the 2005 proposed regulations,
these regulations apply to any notice,
election, or similar communication
provided to or made by a participant or
beneficiary in the following retirement
plans: A section 401(a) plan; a section
403(a) plan; a section 403(b) plan; a
simplified employee pension (SEP)
under section 408(k); a simple
retirement plan under section 408(p);
and an eligible governmental plan under
section 457(b). In response to a
comment, these regulations also provide
that they apply to any notice, election,
or similar communication provided to
or made by an individual entitled to
benefits in an individual retirement
plan, including a Roth IRA under
section 408A or a deemed IRA under
section 408(q).
In addition, these final regulations
apply to any notice, election, or similar
communication provided to or made by
a participant or beneficiary under the
following employee benefit
arrangements: an accident or health
plan or arrangement under sections
104(a)(3) or 105; a cafeteria plan under
section 125; an educational assistance
program under section 127; a qualified
transportation fringe program under
section 132; an Archer MSA under
section 220; and a health savings
account under section 223.
These regulations do not apply to any
notice, election, consent, disclosure, or
obligation required under the provisions
of title I or IV of ERISA over which the
DOL or the PBGC has interpretative and
enforcement authority.4 For example,
the rules in 29 CFR 2520.104b–1 of the
Labor Regulations apply with respect to
an employee benefit plan furnishing
disclosure documents, such as a
summary plan description or a summary
annual report. These regulations also do
not apply to Code section 411(a)(3)(B)
(relating to suspension of benefits),
Code section 4980B(f)(6) (relating to an
individual’s COBRA rights), or any
other Code provision over which the
4 See generally Reorganization Plan No. 4 of 1978
(43 FR 47713). Pursuant to section 101(a) of the
Reorganization Plan No. 4 of 1978, 29 U.S.C.
1001nt, the Secretary of the Treasury has authority
to issue regulations under parts 2 and 3 of subtitle
B of title I of ERISA with certain exceptions. Under
section 104 of the Reorganization Plan No. 4, the
Secretary of Labor retains enforcement authority
with respects to parts 2 and 3 of subtitle B of title
1 of ERISA, but, in exercising that authority, is
bound by the regulations issued by the Secretary of
Treasury.

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DOL or the PBGC has similar
interpretative authority.
In addition, the rules in these
regulations apply only with respect to
notices and elections relating to an
individual’s rights under a retirement
plan, an employee benefit arrangement,
or an individual retirement plan. Thus,
these regulations do not apply with
respect to other requirements under the
Code, such as requirements relating to
tax reporting, tax records, or
substantiation of expenses.5
C. Requirements for Using Electronic
Media To Provide Notices and Make
Elections
These final regulations generally
retain from the 2005 proposed
regulations the requirement that any
communication that is provided using
an electronic medium satisfy all the
otherwise applicable requirements
(including the applicable timing and
content rules) relating to that
communication. Thus, for example, a
section 204(h) notice provided using an
electronic medium must be delivered on
or before the time period required under
Q&A–9 of § 54.4980F–1, must satisfy the
content requirements set forth in Q&A–
11 of § 54.4980F–1, and must satisfy the
delivery requirements under these
regulations.
These regulations provide that an
electronic system used to provide a
notice or to make an election must
satisfy certain requirements. First, with
respect to the content of an applicable
notice, the electronic system must be
reasonably designed to provide the
information to a recipient in a manner
no less understandable to the recipient
than if provided on a written paper
document. For example, a plan
delivering a lengthy section 402(f)
notice would not satisfy this
requirement if the plan chose to provide
the notice through a pre-recorded
message on an automated phone
system.6 However, a plan with few
distribution options is permitted to
5 Code section 6001 provides rules relating to the
maintenance of records, statements, and special
returns. The IRS has issued guidance on electronic
recordkeeping under section 6001. This guidance
applies to retirement plans, employee benefits
plans, and individual retirement plans. Rev. Proc.
98–25 (1998–1 C.B. 689) sets forth standards for a
taxpayer maintaining records on an Automated Data
Processing system. Under section 3.01 of Rev. Proc.
98–25, those standards apply to employee plans.
Rev. Proc. 97–22 (1997–1 C.B. 652) provides
guidance to taxpayers using an electronic storage
system to maintain books and records required
under section 6001. Under section 3.02 of Rev.
Proc. 97–22, those requirements apply to employee
plans. See also footnote 3 above.
6 Note that a section 204(h) notice cannot be
provided using oralcommunication or a recording
of an oral communication. See § 54.4980F–1, A–
13(c)(1).

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provide a section 411(a)(11) notice
through the use of a pre-recorded
message on an automated phone system.
Second, the regulations require that the
electronic system be reasonably
designed to alert the recipient, at the
time the applicable notice is provided,
to the significance of the information in
the notice (including the identification
of the subject matter of the notice), and
provide any instructions needed to
access the notice, in a manner that is as
readily understandable and accessible
as an applicable notice provided using
a written paper document. These
requirements are necessary in order for
the notice to fulfill their intended
purpose, are substantially equivalent to
the requirements imposed on
nonelectronic notices, and do not
impose unreasonable costs on the
acceptance or use of electronic records.
Moreover, they do not require or accord
greater legal status to a particular
technology since each technology must
satisfy the same standards with respect
to each notice. Third, the final
regulations clarify that, pursuant to
section 101(e) of E–SIGN, if an
electronic record of an applicable notice
or a participant election is not
maintained in a form that is capable of
being retained and accurately
reproduced for later reference, then the
legal effect, validity, or enforceability of
such electronic record may be denied.
II. Use of an Electronic Medium To
Provide an Applicable Notice
A. Two Methods for Providing
Applicable Notices
These regulations provide two
methods by which a retirement plan,
employee benefit arrangement, or an
individual retirement plan is permitted
to provide an applicable notice to a
recipient through the use of an
electronic medium. Under the first
method, an applicable notice is
permitted to be provided to a recipient
using an electronic medium after the
recipient consents to the electronic
delivery of the notice (the consumer
consent method). The rules under the
consumer consent method reflect the
consumer consent requirements at
section 101(c) in E–SIGN. The Treasury
Department and IRS continue to believe
that an individual entitled to benefits
under a retirement plan, an employee
benefit arrangement, or an individual
retirement plan is generally a consumer,
within the meaning of section 106(1) of
E–SIGN, when receiving a notice that
could affect the individual’s benefits or

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other rights.7 The second method (the
alternative method) provides rules that
are intended generally to replicate the
requirements in the 2000 regulations
that apply to notices required under
sections 402(f), 411(a)(11), and 3405,
and thereby allow plans to continue to
provide these notices electronically
using electronic systems that satisfy the
standards in the 2000 regulations.
B. Consumer Consent Method for
Providing Applicable Notices
Under the consumer consent method,
before an applicable notice is provided
to a recipient using an electronic
medium, the participant must consent
to receive the communication
electronically. The consent generally
must be made in a manner that
reasonably demonstrates that the
participant can access the notice in the
electronic form that will be used to
provide the notice. Alternatively, the
consent may be made using a written
paper document, but only if the
participant confirms the consent in a
manner that reasonably demonstrates
that the participant can access the
notice in the electronic form to be
provided. Prior to consenting, the
participant must receive a disclosure
statement that outlines the scope of the
consent, the participant’s right to
withdraw his or her consent to receive
the communication electronically
(including any conditions,
consequences, or fees in the event of the
withdrawal), and the right to receive the
communication using paper and any
fees imposed for receiving paper. The
disclosure must also specify the
hardware and software requirements for
accessing the electronic media and the
procedures for updating information to
contact the participant electronically. In
the event the hardware or software
requirements change, new consent must
be obtained from the participant,
generally following the rules of section
101(c) of E–SIGN. In addition, under the
consumer consent method, the
applicable notice cannot be provided
through the use of oral communication
or a recording of an oral
communication.8
Commentators requested several
modifications to the rules under the
consumer consent method in these
regulations, including requiring plans to
give recipients the opportunity to
review their consumer consent elections
every five years and permitting plans to
use oral communications or recordings
7 See also 12 CFR 202.16, 205.17, 213.6, and
2226.36, treatingelectronic disclosures in
connection with certain credit transactions as
consumer information for purposes of E–SIGN.
8 See section 101(c)(6) of E–SIGN.

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of oral communications when providing
applicable notices under the consumer
consent rules. Other commentators
recommended that the regulations be
revised to provide that, under the
consumer consent method, if a
participant does not have the effective
ability to access the electronic medium
used to provide an applicable notice or
if the participant does not consent to
receive the notice through the use of an
electronic medium, such participant
would have the right to a free paper
copy of the notice.
The consumer consent method under
these regulations interprets the rules of
section 101(c) of E–SIGN, and section
104(b)(2) of E–SIGN restricts an agency’s
ability to interpret E–SIGN in any
manner that is inconsistent with section
101 of E–SIGN or that adds to the
requirements of that section.
Accordingly, the rules under the
consumer consent method of these final
regulations are retained without
substantive change. However, many of
the issues raised by the commentators
are ameliorated by the availability of the
alternative method for providing
applicable notices, as discussed below
in Alternative Method for Providing
Applicable Notices.
C. Alternative Method for Providing
Applicable Notices
These regulations exempt applicable
notices from the consumer consent
requirements of E–SIGN and provide an
alternative method of complying with
the requirement that an applicable
notice be in writing or in written form
if certain conditions are satisfied. This
alternative method of compliance,
which is based on the 2000 regulations
previously issued under section 1510 of
TRA ’97, satisfies the requirements of
section 104(d)(1) of E–SIGN, including
the requirement that any exemption
from the consumer consent
requirements not increase the material
risk of harm to consumers.
This exemption is based on the
judgment that, if the consumer consent
method were the only method available
to satisfy the requirements for providing
an applicable notice through the use of
an electronic medium, it would impose
a substantial burden on electronic
commerce with respect to retirement
plans, employee benefit arrangements,
and individual retirement plans, and
that the requirements and safeguards in
the 2000 regulations provide a less
burdensome method without increasing
the material risk of harm to recipients.
Under the alternative method, at the
time the applicable notice is provided,
the recipient must be advised that he or
she may request and receive the

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61881

applicable notice in writing on paper at
no charge. In addition, any recipient of
the notice must be ‘‘effectively able’’ to
access the electronic medium used to
provide the notice. This is a change in
wording from the 2000 regulations,
which required that the electronic
medium be ‘‘reasonably accessible’’ to
the recipient. As explained in the
preamble to the 2005 proposed
regulations, this change is not intended
to reflect a substantive change in the
rules, but rather to avoid confusion with
Department of Labor Regulations
interpreting the words reasonably
accessible as used in section 101(i)(2)(D)
of ERISA, as added by section 306 of the
Sarbanes-Oxley Act of 2002, Public Law
107–204 (116 Stat. 745).9
One commentator requested that the
regulations provide a rule under which
an e-mail sent to the last known e-mail
address would be deemed to have been
successfully delivered. These
regulations do not include such a rule.
III. Use of an Electronic Medium To
Make a Participant Election
A. In General
These regulations also set forth the
requirements that apply if a consent or
election is made by a person using an
electronic system. The participant
election rules, which are also based on
the standards in the 2000 regulations,
generally retain the requirements that
(1) The participant be effectively able to
access the electronic medium in order to
make the participant election, (2) the
electronic system be reasonably
designed to preclude any person other
than the appropriate individual from
making a participant election, (3) the
electronic system provide the
participant making a participant
election with a reasonable opportunity
to review, confirm, modify, or rescind
the terms of the election before it
becomes effective, and (4) the
individual making a participant
election, within a reasonable time
9 Section 101(i) of ERISA sets forth a requirement
for a planadministrator to notify plan participants
and beneficiaries of a blackout period with respect
to an individual account plan. Section 101(i)(2)(D)
provides that the required blackout notice ‘‘shall be
in writing, except that such notice may be in
electronic or other form to the extent that such form
is reasonably accessible to the recipient.’’ Section
2520.101–3(b)(3) of the Labor Regulations
interpreting this requirement provides for this
notice to be in writing and furnished in any manner
consistent with the requirements of section
2520.104b–1 of the Labor Regulations, including the
provisions in that section relating to the use of
electronic media. Those regulations also deem a
notice requirement to be satisfied if certain
measures are taken. Section 1.401(a)–21 of these
final regulations only provides rules for satisfying,
through the use of electronic media, a requirement
that a notice or election be in writing.

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period, receive a confirmation of the
election through either a written paper
document or an electronic medium
under a system that satisfies the
applicable notice requirements of either
the consumer consent delivery method
or the alternative delivery method.
Section 101(c) of E–SIGN does not apply
to participant elections.
These regulations require that a
participant be effectively able to access
the electronic medium under an
electronic system used to make a
participant election, but, like the 2000
regulations, do not require that a plan
also permit the election to be made by
paper as an alternative to using an
electronic system that is available to the
participant. However, these regulations
do not apply with respect to a
participant who is not effectively able to
access the electronic medium or media
in order to make a participant election.
Accordingly, the plan must offer each
such participant the right to make an
election in another medium that is
accessible to the participant (such as a
paper election). A plan that fails to offer
paper or an electronic medium that a
participant is effectively able to access
will fail to comply with the participant
election requirements and would likely
violate other qualification requirements,
such as the requirements that a plan to
operate in accordance with its terms (by
actually making available all
distribution options provided by the
plan) and the requirements of
§ 1.401(a)(4)–4 under which benefits,
rights, and features (including the right
to early distribution) must be made
available in a nondiscriminatory
manner.
B. Use of Electronic Media for QJSA
Notices and Elections
The participant election rules in these
regulations extend the use of electronic
media to the notice and election rules
applicable to plans that are subject to
the QJSA requirements of section 417.
Accordingly, a plan subject to the QJSA
requirements is permitted to provide the
notice required by section 417 to a
participant through the use of electronic
media as long as the plan complies with
either of the two methods described
above for providing electronic notices.
Similarly, a participant’s consent to a
distribution is permitted to be provided
through the use of electronic media if
the plan complies with the standards
described below, subject to obtaining a
valid spousal consent.
Section 417 requires any spousal
consent to a waiver of a QJSA to be
witnessed by a plan representative or a
notary public. In accordance with
section 101(g) of E–SIGN, these

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regulations authorize the use of an
electronic acknowledgment or
notarization if the standards of section
101(g) of E–SIGN and State law
applicable to notary publics are
satisfied. These regulations retain the
requirement from the 2005 proposed
regulations that the signature of a
spouse be witnessed in the physical
presence of the plan representative or
notary public. Several comments were
received on the participant election
rules, particularly as they relate to
spousal consents. The comments
generally fall into two categories: (1)
Commentators who favored retaining
the pen-and-ink signature and physical
presence requirements for spousal
consents; and (2) commentators who
favored extending the use of electronic
media to spousal consents, and
eliminating the physical presence
requirement.
Commentators in the first category
raised issues with rules in the 2005
proposed regulations relating to the
authentication requirement and the
requirement that a spousal consent of a
waiver of a QJSA be witnessed in the
physical presence of a notary public or
a plan representative. In general, these
commentators recommended that the
regulations be revised to provide
additional safeguards for spousal
consents because, unlike other
participant elections, a spousal consent
could involve a conflict of interest
between the parties involved in the
election. With respect to the
authentication requirement, these
commentators argued that the
authentication requirement would be
vague and not require an evidentiary
record. According to the commentators,
requiring a pen-and-ink signature and
maintaining the physical presence
requirement would provide necessary
additional safeguards for spousal
consents by creating an evidentiary
record for later disputes regarding the
validity of the consent and reducing the
likelihood of fraud.
Commentators who favored extending
the use of electronic media for all
participant elections, including spousal
consents, generally recommended that
the final regulations eliminate the
physical presence requirement for
spousal consents. These commentators
argued that protections are already
available to protect a spouse making a
participant election using electronic
media. For example, a retirement plan
could require a separate PIN for the
spouse to which the participant would
not have access.
In light of these comments, these
regulations clarify that the
determination of whether an electronic

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system used in making participant
elections is reasonably designed to
preclude any person other than the
appropriate individual from making a
participant election is based on facts
and circumstances, and that a relevant
factor is whether the participant
election has the potential for a conflict
of interest between the individuals
involved in the election. See Example 3
in § 1.401(a)–21(f) of these regulations
for an illustration of the participant
election rules when a spousal consent is
required. These regulations also clarify
that if an applicable notice or
participant election is recorded
electronically, the electronic record
must be in a form that is capable of
being reproduced for later reference (see
discussion of the general rules under the
heading Requirements for Using
Electronic Media to Provide Notices and
Make Elections).
The requirement that the signature of
a spouse to be witnessed in the physical
presence of a plan representative or
notary public coordinates with the
authentication requirement because the
physical presence requirement increases
the likelihood that the electronic system
is reasonably designed to preclude any
person other than the appropriate
individual from making the election. In
contrast, an electronic system that
permits the use of a spousal PIN to sign
a spousal consent electronically creates
greater risk that the spousal consent
may be fraudulently signed. Because of
the potential risk that two spouses could
share information regarding PINs, the
Treasury Department and IRS believe
that any electronic system that relies
solely on separate PINs would not
provide the same level of safeguards as
provided by the physical presence
requirement and would not be
reasonably designed to preclude any
person other than the appropriate
individual from making the election.
Accordingly these regulations do not
adopt the suggestion that spousal PINs
be permitted in lieu of the physical
presence requirement, and instead
retain from the 2005 proposed
regulations the physical presence
requirement for electronic notarization
of spousal consents. The Treasury
Department and IRS believe that
permitting electronic notarization of
spousal consents under the participant
election rules, in conjunction with the
physical presence requirement, reflects
the appropriate interpretation of section
417 and properly balances minimizing
the burden of plan administration with
protecting the rights of spouses.
Technology is constantly evolving
and, at some point in the future,
technology could exist that would

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provide the same safeguards as the
physical presence requirement.
Therefore, in light of the comments
received, these regulations add a
delegation to the Commissioner. Under
this delegation, the Commissioner may
provide that the use of procedures
under an electronic system with respect
to an electronic medium is deemed to
satisfy the physical presence
requirement, but only if those
procedures with respect to the
electronic system provide the same
safeguards for participant elections as
provided through the physical presence
requirement.
C. Conforming Amendments to Other
Rules in Law
These regulations modify a number of
existing regulations (including the 2000
regulations) that have previously
provided rules relating to the use of new
technologies in providing applicable
notices or making participant elections
that are required to be in writing or in
written form. These modifications,
which merely add the consumer consent
requirements of E–SIGN, are not
expected to affect adversely the existing
administrative practices of plan
sponsors designed to comply with the
2000 regulations.
In addition, these regulations apply to
categories of applicable notices that
were not previously addressed in the
2000 regulations or subsequent
regulations. As such, these regulations
apply whenever there is a requirement
than an applicable notice under one of
the covered sections be provided in
written form or in writing, without
regard to whether that other
requirement specifically crossreferences these regulations. Thus, safe
harbor notices under sections
401(k)(12)(D) and 401(m)(11), which are
required to be in writing, can be
provided electronically if the
requirements of section 1.401(a)–21 of
this chapter are satisfied.

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Effective Date
The rules provided in § 1.401(a)–21
apply to applicable notices provided,
and to participant elections made, on or
after January 1, 2007. However, a
retirement plan, an employee benefit
arrangement, or an individual
retirement plan that provides an
applicable notice or makes a participant
election that complies with the
requirements set forth in these
regulations on or after October 1, 2000,
and before January 1, 2007, will not be
treated as failing to provide an
applicable notice or to make a
participant election merely because the

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notice or election was not in writing or
written form.
Special Analyses
It has been determined that this
Treasury Decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore a
regulatory assessment is not required. It
has also been determined that the
provisions of 5 U.S.C. 553(b) and (d) do
not apply to this Treasury Decision. It
is hereby certified that the collection of
information in these regulations will not
have a significant impact on a
substantial number of small entities.
This certification is based on the fact
that these regulations only provide
guidance on how to satisfy existing
collection of information requirements
through the use of electronic media.
Accordingly, a Regulatory Flexibility
Analysis is not required. Pursuant to
section 7805(f) of the Code, the NPRM
preceding this regulation was submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for
comment on its impact on small
business.
Drafting Information
The principal author of these
regulations is Pamela R. Kinard of the
Office of Division Counsel/Associate
Chief Counsel (Tax Exempt and
Government Entities), Internal Revenue
Service. However, personnel from other
offices of the Internal Revenue Service
and Treasury Department participated
in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 35
Employment taxes, Income taxes,
Reporting and recordkeeping
requirements.
26 CFR Part 54
Excise taxes, Pensions, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 35, and
54 are amended as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
in numerical order to read as follows:

■

Authority: 26 U.S.C. 7805 * * *

Section 1.401(a)–21 also issued under
26 U.S.C. 401 and section 104 of the

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61883

Electronic Signatures in Global and
National Commerce Act, Public Law
106–229 (114 Stat. 464). * * *
■ Par. 2. Section 1.72(p)–1, Q&A–3, is
amended by revising the text of
paragraph (b) to read as follows:

§ 1.72(p)–1

Loans treated as distributions.

*

*
*
*
*
A–3. * * *
(b) * * * A loan does not satisfy the
requirements of this paragraph unless
the loan is evidenced by a legally
enforceable agreement (which may
include more than one document) and
the terms of the agreement demonstrate
compliance with the requirements of
section 72(p)(2) and this section. Thus,
the agreement must specify the amount
and date of the loan and the repayment
schedule. The agreement does not have
to be signed if the agreement is
enforceable under applicable law
without being signed. The agreement
must be set forth either—
(1) In a written paper document; or
(2) In a document that is delivered
through an electronic medium under an
electronic system that satisfies the
requirements of § 1.401(a)–21 of this
chapter.
*
*
*
*
*
■ Par. 3. Section 1.132–9(b), Q&A–12, is
amended by adding a sentence to the
end of the text in paragraph (b) to read
as follows:
§ 1.132–9

Qualified transportation fringes.

*

*
*
*
*
A–12. * * *
(b) * * * See § 1.401(a)–21 of this
chapter for rules permitting the use of
electronic media to make participant
elections with respect to employee
benefit arrangements.
*
*
*
*
*
■ Par. 4. Section 1.401(a)–21 is added to
read as follows:
§ 1.401(a)–21 Rules relating to the use of
an electronic medium to provide applicable
notices and to make participant elections.

(a) Introduction—(1) In general—(i)
Permission to use an electronic medium.
This section provides rules relating to
the use of an electronic medium to
provide applicable notices and to make
participant elections as defined in
paragraph (e)(1) and (6) of this section
with respect to retirement plans,
employee benefit arrangements, and
individual retirement plans described in
paragraph (a)(2) of this section. The
rules in this section reflect the
provisions of the Electronic Signatures
in Global and National Commerce Act,
Public Law 106–229 (114 Stat. 464
(2000) (E–SIGN)).

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

(ii) Notices and elections required to
be in writing or in written form—(A) In
general. The rules of this section must
be satisfied in order to use an electronic
medium to provide an applicable notice
or to make a participant election if the
notice or election is required to be in
writing or in written form under the
Internal Revenue Code, Department of
Treasury regulations, or other guidance
issued by the Commissioner.
(B) Rules relating to applicable
notices. An applicable notice that is
provided using an electronic medium is
treated as being provided in writing or
in written form if and only if the
requirements of paragraph (a)(5) of this
section are satisfied and either the
consumer consent requirements of
paragraph (b) of this section or the
requirements for exemption from the
consumer consent requirements under
paragraph (c) of this section are
satisfied. For example, in order to
provide a section 402(f) notice
electronically, a qualified plan must
satisfy either the consumer consent
requirements of paragraph (b) of this
section or the requirements for
exemption under paragraph (c) of this
section. If a plan fails to satisfy either of
these requirements, the plan must
provide the section 402(f) notice using
a written paper document in order to
satisfy the requirements of section
402(f).
(C) Rules relating to participant
elections. A participant election that is
made using an electronic medium is
treated as being provided in writing or
in written form if and only if the
requirements of paragraphs (a)(5) and
(d) of this section are satisfied.
(iii) Safe harbor method for
applicable notices and participant
elections that are not required to be in
writing or written form. For an
applicable notice or a participant
election that is not required to be in
writing or in written form, the rules of
this section provide a safe harbor
method for using an electronic medium
to provide the applicable notice or to
make the participant election.
(2) Application of rules—(i) Notices,
elections, or consents under retirement
plans. The rules of this section apply to
any applicable notice or any participant
election relating to the following
retirement plans: A qualified retirement
plan under section 401(a) or 403(a); a
section 403(b) plan; a simplified
employee pension (SEP) under section
408(k); a simple retirement plan under
section 408(p); or an eligible
governmental plan under section 457(b).
(ii) Notices, elections, or consents
under other employee benefit
arrangements. The rules of this section

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also apply to any applicable notice or
any participant election relating to the
following employee benefit
arrangements: An accident and health
plan or arrangement under sections
104(a)(3) and 105; a cafeteria plan under
section 125; an educational assistance
program under section 127; a qualified
transportation fringe program under
section 132; an Archer MSA under
section 220; or a health savings account
under section 223.
(iii) Notices, elections, or consents
under individual retirement plans. The
rules of this section also apply to any
applicable notice or any participant
election relating to individual
retirement plans, including a Roth IRA
under section 408A; or a deemed IRA
under a qualified employer plan
described in section 408(q).
(3) Limitation on application of
rules—(i) In general. The rules of this
section do not apply to any notice,
election, consent, disclosure, or
obligation required under the provisions
of title I or IV of the Employee
Retirement Income Security Act of 1974,
as amended (ERISA), over which the
Department of Labor or the Pension
Benefit Guaranty Corporation has
interpretative and enforcement
authority. For example, the rules in 29
CFR 2520.104b–1 of the Department of
Labor Regulations apply with respect to
an employee benefit plan providing
disclosure documents, such as a
summary plan description or a summary
annual report. The rules in this section
also do not apply to Internal Revenue
Code section 411(a)(3)(B) (relating to
suspension of benefits), Internal
Revenue Code section 4980B(f)(6)
(relating to an individual’s COBRA
rights), or any other Internal Revenue
Code provision over which Department
of Labor or the Pension Benefit
Guaranty Corporation has similar
interpretative authority.
(ii) Recordkeeping and other
requirements. The rules in this section
only apply with respect to applicable
notices and participant elections
relating to an individual’s rights under
a retirement plan, an employee benefit
arrangement, or an individual
retirement plan. Thus, the rules in this
section do not alter the otherwise
applicable requirements under the
Internal Revenue Code, such as the
requirements relating to tax reporting,
tax records, or substantiation of
expenses. See section 6001 for rules
relating to the maintenance of records,
statements, and special returns. See also
section 101(e) of E–SIGN, which
provides that if an electronic record of
an applicable notice or a participant
election is not maintained in a form that

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is capable of being retained and
accurately reproduced for later
reference, then the legal effect, validity,
or enforceability of such electronic
record may be denied.
(4) General requirements related to
applicable notices and participant
elections. The rules of this section
supplement the general requirements
related to each applicable notice and
participant election. Thus, in addition
to satisfying the rules for timing and
content, the rules in this section must be
satisfied.
(5) Requirements related to the design
of an electronic system used to deliver
applicable notices and to make
participant elections—(i) The electronic
system must take into account the
content of a notice. With respect to the
content of an applicable notice, the
electronic system must be reasonably
designed to provide the information in
the notice to a recipient in a manner
that is no less understandable to the
recipient than a written paper
document.
(ii) Identification of the significance of
information in the notice. The electronic
system must be designed to alert the
recipient, at the time an applicable
notice is provided, to the significance of
the information in the notice (including
identification of the subject matter of
the notice), and provide any
instructions needed to access the notice,
in a manner that is readily
understandable.
(b) Consumer consent requirements—
(1) Requirements. With respect to an
applicable notice, the consumer consent
requirements of this paragraph (b) are
satisfied if—
(i) The requirements in paragraphs
(b)(2) through (4) of this section are
satisfied; and
(ii) In accordance with section
101(c)(6) of E–SIGN, the applicable
notice is not provided through the use
of oral communication or a recording of
an oral communication.
(2) Consent—(i) In general. The
recipient must affirmatively consent to
the delivery of the applicable notice
using an electronic medium. This
consent must be either—
(A) Made electronically in a manner
that reasonably demonstrates that the
recipient can access the applicable
notice in the electronic medium in the
form that will be used to provide the
notice; or
(B) Made using a written paper
document (or using another form not
described in paragraph (b)(2)(i)(A) of
this section), but only if the recipient
confirms the consent electronically in a
manner that reasonably demonstrates
that the recipient can access the

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Federal Register / Vol. 71, No. 203 / Friday, October 20, 2006 / Rules and Regulations
applicable notice in the electronic
medium in the form that will be used to
provide the notice.
(ii) Withdrawal of consumer consent.
The consent to receive electronic
delivery requirement of this paragraph
(b)(2) is not satisfied if the recipient
withdraws his or her consent before the
applicable notice is delivered.
(3) Required disclosure statement.
The recipient, prior to consenting under
paragraph (b)(2)(i) of this section, must
be provided with a clear and
conspicuous statement containing the
disclosures described in paragraphs
(b)(3)(i) through (v) of this section:
(i) Right to receive paper document—
(A) In general. The statement informs
the recipient of any right to have the
applicable notice be provided using a
written paper document or other
nonelectronic form.
(B) Post-consent request for paper
copy. The statement informs the
recipient how, after having provided
consent to receive the applicable notice
electronically, the recipient may, upon
request, obtain a paper copy of the
applicable notice and whether any fee
will be charged for such copy.
(ii) Right to withdraw consumer
consent. The statement informs the
recipient of the right to withdraw
consent to receive electronic delivery of
an applicable notice on a prospective
basis at any time and explains the
procedures for withdrawing that
consent and any conditions,
consequences, or fees in the event of the
withdrawal.
(iii) Scope of the consumer consent.
The statement informs the recipient
whether the consent to receive
electronic delivery of an applicable
notice applies only to the particular
transaction that gave rise to the
applicable notice or to other identified
transactions that may be provided or
made available during the course of the
parties’ relationship. For example, the
statement may provide that a recipient’s
consent to receive electronic delivery
will apply to all future applicable
notices of the recipient relating to the
employee benefit arrangement until the
recipient is no longer a participant in
the employee benefit arrangement (or
withdraws the consent).
(iv) Description of the contact
procedures. The statement describes the
procedures to update information
needed to contact the recipient
electronically.
(v) Hardware or software
requirements. The statement describes
the hardware and software requirements
needed to access and retain the
applicable notice.

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(4) Post-consent change in hardware
or software requirements. If, after a
recipient provides consent to receive
electronic delivery, there is a change in
the hardware or software requirements
needed to access or retain the applicable
notice and such change creates a
material risk that the recipient will not
be able to access or retain the applicable
notice in electronic format—
(i) The recipient must receive a
statement of—
(A) The revised hardware or software
requirements for access to and retention
of the applicable notice; and
(B) The right to withdraw consent to
receive electronic delivery without the
imposition of any fees for the
withdrawal and without the imposition
of any condition or consequence that
was not previously disclosed in
paragraph (b)(3) of this section; and
(ii) The recipient must reaffirm
consent to receive electronic delivery in
accordance with the requirements of
paragraph (b)(2) of this section.
(c) Exemption from consumer consent
requirements—(1) In general. This
paragraph (c) is satisfied if the
conditions in paragraphs (c)(2) and (3)
of this section are satisfied. This
paragraph (c) constitutes an exemption
from the consumer consent
requirements of section 101(c) of E–
SIGN pursuant to the authority granted
in section 104(d)(1) of E–SIGN.
(2) Effective ability to access. For
purposes of this paragraph (c), the
electronic medium used to provide an
applicable notice must be a medium
that the recipient has the effective
ability to access.
(3) Free paper copy of applicable
notice. At the time the applicable notice
is provided, the recipient must be
advised that he or she may request and
receive the applicable notice in writing
on paper at no charge, and, upon
request, that applicable notice must be
provided to the recipient at no charge.
(d) Special rules for participant
elections—(1) In general. This paragraph
(d) is satisfied if the conditions
described in the following paragraphs
(d)(2) through (6) are satisfied:
(2) Effective ability to access. The
electronic medium under an electronic
system used to make a participant
election must be a medium that the
person who is eligible to make the
election is effectively able to access. If
the appropriate individual is not
effectively able to access the electronic
medium for making the participant
election, the participant election will
not be treated as made available to that
individual. Thus, for example, the
participant election will not be treated
as made available to that individual for

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61885

purposes of the rules under section
401(a)(4).
(3) Authentication. The electronic
system used in making participant
elections is reasonably designed to
preclude any person other than the
appropriate individual from making the
election. Whether this condition is
satisfied is based on facts and
circumstances, including whether the
participant election has the potential for
a conflict of interest between the
individuals involved in the election. See
Examples 3, 4, and 5 of paragraph (f) of
this section for illustrations of electronic
systems that satisfy the authentication
requirement of this paragraph (d)(3).
(4) Opportunity to review. The
electronic system used in making
participant elections provides the
person making the participant election
with a reasonable opportunity to review,
confirm, modify, or rescind the terms of
the election before the election becomes
effective.
(5) Confirmation of action. The person
making the participant election receives,
within a reasonable time, a confirmation
of the effect of the election under the
terms of the plan or arrangement
through either a written paper
document or an electronic medium
under a system that satisfies the
requirements of either paragraph (b) or
(c) of this section (as if the confirmation
were an applicable notice).
(6) Participant elections, including
spousal consents, that are required to be
witnessed by a plan representative or a
notary public—(i) In general. In the case
of a participant election which is
required to be witnessed by a plan
representative or a notary public (such
as a spousal consent under section 417),
the signature of the individual making
the participant election is witnessed in
the physical presence of a plan
representative or a notary public.
(ii) Electronic notarization permitted.
If the requirements of paragraph (d)(6)(i)
of this section are satisfied, an
electronic notarization acknowledging a
signature (in accordance with section
101(g) of E–SIGN and State law
applicable to notary publics) will not be
denied legal effect if the signature of the
individual is witnessed in the physical
presence of a notary public.
(iii) Delegation to Commissioner. In
guidance published in the Internal
Revenue Bulletin, the Commissioner
may provide that the use of procedures
under an electronic system is deemed to
satisfy the physical presence
requirement under paragraph (d)(6)(i) of
this section, but only if those
procedures with respect to the
electronic system provide the same
safeguards for participant elections as

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are provided through the physical
presence requirement. See
§ 601.601(d)(2)(ii)(b) of this chapter.
(e) Definitions. The definitions in this
paragraph (e) apply for purposes of this
section.
(1) Applicable notice. The term
applicable notice includes any notice,
report, statement, or other document
required to be provided to a recipient
under a retirement plan, employee
benefit arrangement, or individual
retirement plan as described in
paragraph (a)(2) of this section.
(2) Electronic. The term electronic
means technology having electrical,
digital, magnetic, wireless, optical,
electromagnetic, voice-recording
systems, or similar capabilities.
(3) Electronic medium. The term
electronic medium means an electronic
method of communication (e.g., Web
site, electronic mail, telephonic system,
magnetic disk, and CD–ROM).
(4) Electronic record. The term
electronic record means an applicable
notice or a participant election that is
created, generated, sent, communicated,
received, or stored by electronic media.
(5) Electronic system. The term
electronic system means a system
designed for creating, generating,
sending, receiving, storing, retrieving,
displaying, or processing information
that makes use of any electronic
medium.
(6) Participant election. The term
participant election includes any
consent, election, request, agreement, or
similar communication made by or from
a participant, beneficiary, alternate
payee, or an individual entitled to
benefits under a retirement plan,
employee benefit arrangement, or
individual retirement plan as described
in paragraph (a)(2) of this section.
(7) Recipient. The term recipient
means a plan participant, beneficiary,
employee, alternate payee, or any other
person to whom an applicable notice is
to be provided.
(f) Examples. The following examples
illustrate the rules of this section.
Examples 1, 2, 3, and 6 assume that the
requirements of paragraph (a)(4) and (5)
of this section are satisfied.
Example 1. (i) Facts involving using the
consumer consent requirements to deliver a
section 402(f) notice via e-mail. Plan A, a
qualified plan, permits participants to
request benefit distributions from the plan on
Plan A’s Internet Web site. Under Plan A’s
system for such transactions, a participant
must enter his or her account number,
personal identification number (PIN), and his
or her e-mail address to which the notice is
to be sent. The participant’s PIN and account
number must match the information in Plan
A’s records in order for the transaction to
proceed. Participant H requests a distribution

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from Plan A on Plan A’s Web site, and, at the
time of the request for distribution, a
disclosure statement appears on the
computer screen that explains that
Participant H can consent to receive the
section 402(f) notice electronically. The
disclosure statement provides information
relating to the consent, including how to
receive a paper copy of the notice, how to
withdraw consent, the hardware and
software requirements, and the procedures
for accessing the section 402(f) notice, which
is in a file format from a specific spreadsheet
program. After reviewing the disclosure
statement, which satisfies the requirements
of paragraph (b)(3) of this section, Participant
H consents to receive the section 402(f)
notice via e-mail by selecting the consent
button at the end of the disclosure statement.
As a part of the consent procedure, an e-mail
is sent to Participant H’s e-mail address in
order to demonstrate that Participant H can
access the spreadsheet program. In the email, Participant H is prompted to answer a
question from the spreadsheet program,
which is in an attachment to the e-mail. Once
Participant H correctly answers the question,
the section 402(f) notice is then delivered to
Participant H via e-mail.
(ii) Conclusion. In this Example 1, Plan A’s
delivery of the section 402(f) notice to
Participant H satisfies the requirements of
paragraph (b) of this section.
Example 2. (i) Facts—(A) Facts involving
using the alternative method to deliver a
section 411(a)(11) notice via e-mail. Plan B,
a qualified plan, permits participants to
request benefit distributions from the plan on
Plan B’s Internet Web site. Under Plan B’s
system for such transactions, a participant
must enter his or her account number and
personal identification number (PIN), and his
or her e-mail address to which the notice is
to be sent. The participant’s PIN and account
number must match the information in Plan
B’s records in order for the transaction to
proceed. After Participant K, a single
employee, requests a distribution from Plan
B on Plan B’s Internet Web site, the plan
administrator provides Participant K with a
section 411(a)(11) notice in an attachment to
an e-mail. Plan B sends the e-mail with a
request for a computer generated notification
that the message was received and opened.
The e-mail instructs Participant K to read the
attachment for important information
regarding the request for a distribution. In
addition, the e-mail also states that
Participant K may request the section
411(a)(11) notice on a written paper
document and that, if Participant K requests
the notice on a written paper document, it
will be provided at no charge. Plan B receives
notification indicating that the e-mail was
received and opened by Participant K.
(B) Facts involving making a participant’s
consent to a distribution. In order to consent
to a distribution, Plan B requires a
participant to enter the participant’s account
number and PIN in order to preclude any
person other than the participant from
making the election. After the authentication
process, Participant K completes a
distribution request form on the Web site.
After completing the request form, the Web
site provides a summary of the information

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entered on the form and gives Participant K
an opportunity to review or modify the
distribution request form before the
transaction is completed. Within a reasonable
period of time after Participant K consents to
the distribution, the plan administrator, by email, sends confirmation of the terms
(including the form) of the distribution to
Participant K and advises Participant K that,
upon request, the confirmation may be
provided to Participant K on a written paper
document at no charge. Plan B retains an
electronic copy of the consent to the
distribution in a form that is capable of being
retained and accurately reproduced for later
reference by Participant K.
(ii) Conclusion. In this Example 2, Plan B’s
delivery of the section 411(a)(11) notice and
the electronic system used to make
Participant K’s consent to a distribution
satisfy the requirements of paragraphs (a), (c),
and (d) of this section.
Example 3. (i) Facts involving the
transmission of a spousal consent via
electronic notarization. Plan C, a qualified
money purchase pension plan, permits a
married participant to request a plan loan
through the Plan C’s Internet Web site with
the notarized consent of the spouse. Under
Plan C’s system for requesting a plan loan, a
participant must enter his or her account
number, personal identification number
(PIN), and his or her e-mail address. The
information entered by the participant must
match the information in Plan C’s records in
order for the transaction to proceed.
Participant M, a married participant, is
effectively able to access the Web site
available to apply for a plan loan. In order
to apply for a loan, Plan C requires a
participant to enter the participant’s account
number and PIN in order to preclude any
person other than the participant from
making the election. Participant M completes
the loan application on Plan C’s Web site.
Within a reasonable period of time after
submitting the plan loan application, the
plan administrator, by e-mail, sends
Participant M the loan application, including
all attachments setting forth the terms of the
loan agreement and all other required
information. In the e-mail, Plan C also
notifies Participant M that, upon request, the
loan application may be provided to
Participant M on a written paper document
at no charge. Plan C then instructs
Participant M that, in order for the loan
application to proceed, Participant M must
submit to the plan administrator a notarized
spousal consent form. Participant M and M’s
spouse go to a notary public and the notary
witnesses Participant M’s spouse signing the
spousal consent for the loan agreement on an
electronic signature capture pad with
adequate security. After witnessing M’s
spouse signing the spousal consent, the
notary public sends an e-mail with an
electronic acknowledgement that is attached
to or logically associated with the signature
of M’s spouse to the plan administrator. The
electronic acknowledgement is in accordance
with section 101(g) of E–SIGN and the
relevant State law applicable to notary
publics. After the plan receives the e-mail,
Plan C sends an e-mail to Participant M,
giving M a reasonable period to review and

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confirm the completed loan application and
to determine whether the loan application
should be modified or rescinded. In addition,
the e-mail to Participant M also provides that
M may request the completed loan
application on a written paper document and
that, if M requests the written paper
document, it will be provided at no charge.
Plan C retains an electronic copy of the loan
agreement, including the spousal consent, in
a form that is capable of being retained and
accurately reproduced for later reference by
all parties.
(ii) Conclusion. In this Example 3, the
transmission of the plan loan agreement
satisfies the requirements of paragraphs (a),
(c), and (d) of this section. By requiring that
the spouse sign the spousal consent on an
electronic signature capture pad in the
physical presence of a notary public, the
electronic system satisfies the requirement
that the system be reasonably designed to
preclude any person other than the
appropriate individual from making the
election. Thus, the electronic notarization of
spousal consent satisfies the requirements of
paragraphs (a) and (d) of this section.
Example 4. (i) Facts—(A) Facts involving
using the alternative method of compliance
to deliver a section 411(a)(11) notice via an
automated telephone system. A qualified
profit-sharing plan (Plan D) permits
participants to request distributions through
an automated telephone system. Under Plan
D’s system for such transactions, a
participant must enter his or her account
number and personal identification number
(PIN); this information must match the
information in Plan D’s records in order for
the transaction to proceed. Plan D provides
only the following distribution options:
single-sum payment; and annual installments
over 5, 10, or 20 years. Participant N, a single
participant, requests a distribution from Plan
D by following the applicable instructions on
the automated telephone system. After
Participant N has requested the distribution,
the automated telephone system recites the
section 411(a)(11) notice over the phone. The
automated telephone system also advises
Participant N that, upon request, the notice
may be provided on a written paper
document and that, if Participant N so
requests, the notice will be provided on a
written paper document at no charge.
(B) Facts involving making a participant’s
consent to a distribution via an automated
telephone system. In order to consent to a
distribution, Plan D requires a participant to
enter the participant’s account number and
PIN in order to preclude any person other
than the participant from making the
election. Participant N requests a distribution
by entering information on the automated
telephone system. After completing the
request, the automated telephone system
provides a oral summary of the information
entered and gives Participant N an
opportunity to review or modify the
distribution request before the transaction is
completed. Plan D’s automated telephone
system confirms the distribution request to
Participant N and advises Participant N that,
upon request, a confirmation may be
provided on a written paper document at no
charge. Plan D retains an electronic copy of

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the consent to the distribution in a form that
is capable of being retained and accurately
reproduced for later reference by Participant
N.
(ii) Conclusion. In this Example 4, because
Plan D has relatively few and simple
distribution options, the provision of the
section 411(a)(11) notice through the
automated telephone system is no less
understandable to the participant than a
written paper notice for purposes of
paragraph (a)(5)(i) of this section. In addition,
the automated telephone procedures of Plan
D satisfy the applicable requirements of
paragraphs (a), (c), and (d) of this section.
Example 5. (i) Facts. Same facts as
Example 4 of this paragraph (f), except that,
pursuant to Plan D’s system for processing
such transactions, a participant who so
requests is transferred to a customer service
representative whose conversation with the
participant is recorded. The customer service
representative provides the section 411(a)(11)
notice from a prepared text and processes the
participant’s distribution in accordance with
the predetermined instructions from the plan
administrator.
(ii) Conclusion. As in Example 4 of this
paragraph (f), because Plan D has relatively
few and simple distribution options, the
provision of the section 411(a)(11) notice
through the automated telephone system is
no less understandable to the participant
than a written paper notice for purposes of
paragraph (a)(4) of this section. Further, in
this Example 5, the customer service
telephone procedures of Plan D satisfy the
requirements of paragraphs (a), (c), and (d) of
this section.
Example 6. (i) Facts. Plan E, a qualified
plan, permits participants to request
distributions by e-mail on the employer’s email system. Under this system, a participant
must enter his or her account number,
personal identification number (PIN), and email address. This information must match
that in Plan E’s records in order for the
transaction to proceed. If a participant
requests a distribution by e-mail, the plan
administrator provides the participant with a
section 411(a)(11) notice by e-mail. The plan
administrator also advises the participant by
e-mail that he or she may request the section
411(a)(11) notice on a written paper
document and that, if the participant requests
the notice on a written paper document, it
will be provided at no charge. Participant Q
requests a distribution and receives the
section 411(a)(11) notice from the plan
administrator by reply e-mail. However,
before Participant Q elects a distribution, Q
terminates employment. Following
termination of employment, Participant Q no
longer has access to the employer’s e-mail
system.
(ii) Conclusion. In this Example 6, Plan E
does not satisfy the participant election
requirements under paragraph (d) of this
section because Participant Q is not
effectively able to access the electronic
medium used to make the participant
election. Plan E must provide Participant Q
with the opportunity to make the participant
election through a written paper document or
another system that Participant Q is
effectively able to access, such as the

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61887

automated telephone systems described in
Example 4 and Example 5 of this paragraph
(f).

(g) Effective date. The rules provided
in this section apply to applicable
notices provided, and to participant
elections made, on or after January 1,
2007. However, a retirement plan, an
employee benefit arrangement, or an
individual retirement plan that provides
an applicable notice or makes a
participant election that complies with
the requirements set forth in these
regulations on or after October 1, 2000,
and before January 1, 2007, will not be
treated as failing to provide an
applicable notice or to make a
participant election merely because the
notice or election was not in writing or
written form.
■ Par. 5. Section 1.401(k)–3 is amended
by adding a sentence to the end of the
text of paragraph (d)(1) to read as
follows:
§ 1.401(k)–3

Safe harbor requirements.

*

*
*
*
*
(d) * * *
(1) * * * See § 1.401(a)–21 of this
chapter for rules permitting the use of
electronic media to provide applicable
notices to recipients with respect to
retirement plans.
*
*
*
*
*
■ Par. 6. Section 1.402(f)–1 is amended
by:
■ (1) Revising A–5.
■ (2) Removing Q&A–6.
The revision reads as follows:
§ 1.402(f)–1 Required explanation of
eligible rollover distributions; questions
and answers.

*

*
*
*
*
A–5. Yes. See § 1.401(a)–21 of this
chapter for rules permitting the use of
electronic media to provide applicable
notices to recipients with respect to
retirement plans.
■ Par. 7. Section 1.411(a)–11 is
amended by:
■ (1) Revising the text of paragraphs
(f)(1) and (2).
■ (2) Removing paragraph (g).
The revisions read as follows.
§ 1.411(a)–11 Restriction and valuation of
distributions.

*

*
*
*
*
(f) * * *
(1) * * * The notice of a participant’s
rights described in paragraph (c)(2) of
this section or the summary of that
notice described in paragraph
(c)(2)(iii)(B)(2) of this section must be
provided on a written paper document.
However, see § 1.401(a)–21 of this
chapter for rules permitting the use of
electronic media to provide applicable

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

notices to recipients with respect to
retirement plans.
(2) * * * The consent described in
paragraphs (c)(2) and (3) of this section
must be given on a written paper
document. However, see § 1.401(a)–21
of this chapter for rules permitting the
use of electronic media to make
participant elections with respect to
retirement plans.
■ Par. 8. Section 1.417(a)(3)–1 is
amended by adding a sentence to the
end of the text of paragraph (a)(3) to
read as follows:

payee on a written paper document.
However, see § 1.401(a)–21 of this
chapter for rules permitting the use of
electronic media to provide applicable
notices to recipients with respect to
retirement plans and individual
retirement plans.

§ 1.417(a)(3)–1 Required explanation of
qualified joint and survivor annuity and
qualified preretirement survivor annuity.

■

Par. 10. The authority citation for part
35 continues to read, in part, as follows:

■

Authority: 26 U.S.C. 7805 * * *

Par. 11. Section 35.3405–1 is
amended by:
■ (1) Revising d–35, A.
■ (2) Removing d–36, Q&A.
The revision reads as follows:
■

§ 35.3405–1 Questions and answers
relating to withholding on pensions,
annuities, and certain other deferred
income.

*

mstockstill on PROD1PC61 with RULES

Attained Age of the Insured Under
Section 7702; Correction

Authority: 26 U.S.C. 7805 * * *

Par. 13. Section 54.4980F–1, Q&A–13,
is amended as follows:
(1) Revising paragraph A–13 (c)(1)(ii)
and (iii).
(2) Revising the introductory text to
paragraph A–13 (c)(2).
(3) Removing paragraph A–13 (c)(3).
The revisions read as follows:

*

PART 35—EMPLOYMENT TAX AND
COLLECTION OF INCOME TAX AT
SOURCE REGULATIONS UNDER THE
TAX EQUITY AND FISCAL
RESPONSIBILITY ACT OF 1982

*
*
*
*
d–35. * * *
A. A payor may provide the notice
required under section 3405 (including
the abbreviated notice described in d–27
of § 35.3405–1T and the annual notice
described in d–31 of § 35.3405–1T) to a

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[TD 9287]

Par. 12. The authority citation for part
54 continues to read, in part, as follows:

■

§ 1.7476–2

*
*
*
*
(c) * * *
(2) If the notice to interested parties
is delivered using an electronic medium
under an electronic system that satisfies
the applicable notice requirements of
§ 1.401(a)–21 of this chapter, the notice
is deemed to be provided in a manner
that satisfies the requirements of
paragraph (c)(1) of this section.
*
*
*
*
*

26 CFR Part 1

RIN–1545–BD00

§ 54.4980F–1 Notice requirements for
certain pension plan amendments
significantly reducing the rate of future
benefit accrual.

*

Internal Revenue Service

PART 54—PENSION EXCISE TAXES

(a) * * *
(3) * * * But see § 1.401(a)–21 of this
chapter for rules permitting the use of
electronic media to provide applicable
notices to recipients with respect to
retirement plans.
*
*
*
*
*
■ Par. 9. Section 1.7476–2 is amended
by revising paragraph (c)(2) to read as
follows:
Notice to interested parties.

DEPARTMENT OF THE TREASURY

*
*
*
*
A–13. * * *
(c) * * *
(1) * * *
(ii) The section 204(h) notice is
delivered using an electronic medium
(other than an oral communication or a
recording of an oral communication)
under an electronic system that satisfies
the applicable notice requirements of
§ 1.401(a)–21.
(iii) Special effective date. For plan
years beginning prior to January 1, 2007,
Q&A–13 of this section, as it appeared
in the April 1, 2006 edition of 26 CFR
part 1, applies.
(2) * * * The following examples
illustrate the requirement in paragraph
(c)(1)(i) of this Q&A–13. In these
examples, it is assumed that the notice
satisfies the requirements in paragraphs
(c)(1)(ii) of this section. The examples
are as follows:
*
*
*
*
*
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: October 10, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the
Treasury (Tax Policy).
[FR Doc. E6–17528 Filed 10–19–06; 8:45 am]

Internal Revenue Service (IRS),
Treasury.

AGENCY:
ACTION:

Correction to final regulations.

SUMMARY: This document corrects the
final regulation (TD 9287) that was
published in the Federal Register on
Wednesday, September 13, 2006 (71 FR
53967), explaining how to determine the
attained age of an insured for purposes
of testing whether a contract qualifies as
a life insurance contract for Federal
income tax purposes.

Effective Date: This correction is
effective September 13, 2006.

DATES:

Ann
H. Logan, (202) 622–3970 (not a toll-free
number).

FOR FURTHER INFORMATION CONTACT:

SUPPLEMENTARY INFORMATION:

Background
The final regulation (TD 9287) that is
the subject of this correction is under
section 7702 of the Internal Revenue
Code.
Need for Correction
As published, TD 9287 contains an
error that may prove to be misleading
and is in need of clarification.
Correction of Publication
Accordingly, the publication of the
final regulation (TD 9287) that was the
subject of FR. Doc. E6–15117, is
corrected as follows:
■ On page 53967, column 3, in the
heading, the RIN number ‘‘RIN 1545–
BE53’’ is corrected to read ‘‘RIN 1545–
BD00’’.
■

Guy R. Traynor,
Federal Register Liaison, Legal Processing
Division, Associate Chief Counsel (Procedure
and Administration).
[FR Doc. E6–17572 Filed 10–19–06; 8:45 am]
BILLING CODE 4830–01–P

BILLING CODE 4830–01–P

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