The ERISA consultants at the Learning Center Resource Desk, which is available through Columbia Threadneedle Investments, regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Pennsylvania is representative of a common inquiry on IRS rules on plan notices. The advisor asked:
“What are the IRS’ rules for electronic delivery of plan participant notices?”
Highlights of Discussion
- Many participant notices required by the IRS can be given electronically if the notice meets certain conditions. See Treasury Regulation Section (Treas. Reg. §) 401(a)-21 relating to the use of an electronic medium to provide applicable notices and to make participant elections.
- First, the electronic system must be reasonably designed so that the notice is conveyed in a manner that is no less understandable than if it were given in hard-copy format.
- Second, 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.
- Third, the electronic notice must meet either the “consumer consent requirements” or meet the “exemptions” from them.
- The consumer consent requirements include the following.
- The applicable notice is not provided through the use of oral communication or a recording of an oral communication.
- The recipient must consent, either electronically or in written format, to have the notice delivered electronically.
- Prior to consenting to the receipt of a notice electronically, the recipient must be given disclosure statements that indicate (1) the participant has the right to receive paper documents; (2) he or she may withdraw his or her consent; (3) what the scope of the consent is (e.g., consent applies to all forms and notices, or only certain ones); (4) contact procedures; and (5) the hardware and software requirements.
- If, after consenting to receive the notices electronically, the plan administrator changes the hardware or software needed to access the notice, and such change creates the risk of the recipient not being able to access it, then the plan administrator must give the participant certain notices.
- The plan administrator meets the exemption from the consumer consent requirements (above) if the following are true.
- The electronic medium used to send the notice is a type of media that the recipient can effectively access.
- When the electronic notice is sent, it must advise the recipient 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.
Conclusion
Many plan sponsors enjoy the ease of providing notices to plan participants electronically. Ensuring compliance with the conditions of this method of delivery is important and should be discussed with plan service providers.
The Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC (RLC), a third-party industry consultant that is not affiliated with Columbia Threadneedle. Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Columbia Threadneedle does not provide tax or legal advice. Consumers consult with their tax advisor or attorney regarding their specific situation.
Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Columbia Threadneedle.
Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies.
©2016 Columbia Management Investment Advisers, LLC. Used with permission.
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