IRS Issues Final Rules on Electronic Notices, Elections and Consents

Our communications increasingly take electronic form. Recognizing this reality, IRS recently published final regulations on the use of electronic media for providing employee benefit notices and making employee benefit elections and consents.

Examples of electronic media include web sites, email, and CD-ROMs. These rules apply mostly to 401(k) plans, pension plans, individual retirement accounts (IRAs), and other retirement plans. However, they also apply to elections under a section 125 cafeteria plan, a Section 132 transportation plan, and a Section 223 health savings account. In summary, these rules apply to notices, elections and consents over which IRS has jurisdiction. Thus, these rules do not apply to COBRA and HIPAA notices, Summary Plan Descriptions (SPDs), summary annual reports, or form 5500s. These are under the jurisdiction of the Department of Labor.

Major provisions in the regulations (which did not materially change from the proposed 2005 version) include:

• Electronic signatures are legally acceptable as long as the records are in a form that is capable of being obtained and accurately reproduced for later reference.
• Electronic elections must meet four requirements:
• The participant must able to effectively access the electronic medium (and offer an alternative [i.e., paper] if it in inaccessible to any participant);
• The system must preclude any other person from making the election;
• The system must provide a reasonable opportunity to review, confirm, modify, or rescind the election before it becomes effective; and
• The system must provide an electronic or written confirmation within a reasonable time.
• Electronic notices must provide the information in a manner that is no less understandable or accessible than a written paper document. Two methods exist for providing notices:
• The Consumer Consent Method . The recipient consents to receiving electronic notices. The employer must meet certain requirements so that it is an informed consent. Notices under this method cannot be made orally.
• The Alternative Method . If obtaining consent from each individual is too burdensome, employers can send electronic notices if the notices advise recipients that a paper copy is available at no charge and if the recipients are effectively able to access the electronic medium.
• Additional provisions address spousal and other consents that are required for retirement plans.

For a copy of these regulations, please go to the October 20 Federal Register and look under Internal Revenue Service: www.access.gpo.gov/su_docs/fedreg/a061020c.html.

These regulations are a safe harbor for electronic benefits transactions. Infinisource offers employers an excellent electronic benefits enrollment, eligibility and communications service: HR Benefitsolved. This product utilizes a state-of-the-art web platform known as E-Manager TM, which fully complies with these regulations. Employers can even utilize this service to consolidate all benefit billing. For more information, please contact our Sales Team at 800-779-6384.

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