        DEPARTMENT OF THE TREASURY
        Internal Revenue Service
        26 CFR Parts 1, 35, and 54
        [REG-138362-04]
        RIN 1545-BD68
        Use of Electronic Technologies for Providing Employee Benefit Notices and Transmitting Employee Benefit Elections and Consents

          AGENCY:
          Internal Revenue Service (IRS), Treasury.

          ACTION:
          Notice of proposed rulemaking and notice of public hearing.

          SUMMARY:
          This document contains proposed regulations that would provide guidance on the use of electronic media to provide certain notices to recipients or to transmit participant and beneficiary elections or consents with respect to employee benefit arrangements. In general, these proposed regulations would affect sponsors of, and participants and beneficiaries in, certain employee benefit arrangements. This document also provides a notice of public hearing on these proposed regulations.

          DATES:
          Written or electronic comments must be received by October 12, 2005. Requests to speak (with outlines of oral comments to be discussed) at the public hearing scheduled for November 2, 2005, must be received by October 12, 2005.

          ADDRESSES:

          Send submissions to: CC:PA:LPD:PR (REG-138362-04), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington DC 20044. Submissions may be hand delivered Monday through Friday, between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-138362-04), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC. Alternatively, taxpayers may submit comments electronically via the IRS Internet site at http://www.irs.gov/regs or via the Federal eRulemaking Portal at http://www.regulations.gov (IRS-REG-138362-04). The public hearing will be held in the Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.

          FOR FURTHER INFORMATION CONTACT:
          Concerning the proposed regulations, Pamela R. Kinard at (202) 622-6060; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Richard Hurst, (202) 622-7180 (not toll-free numbers).

        SUPPLEMENTARY INFORMATION:
        Paperwork Reduction Act

        The collections of information referenced in this notice of proposed rulemaking 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 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). No substantive changes to these collections of information are being proposed.
        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 a collection 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 proposed amendments to the regulations under section 401 of the Internal Revenue Code (Code) and to other sections of the Code relating to employee benefit arrangements. These proposed amendments, when finalized, will set forth rules regarding the use of electronic media to provide notices to plan participants and beneficiaries or to transmit elections or consents relating to employee benefit arrangements. These regulations also reflect the provisions of the Electronic Signatures in Global and National Commerce Act, Public Law 106-229 (114 Stat. 464 (2000)) (E-SIGN).
        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 retirement plan notices, elections, or consents to be written or in writing.1
           Examples of these rules include the following:

            1 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.

        • Under sections 401(k)(12)(D) and 401(m)(11), a written notice is required to be given to each employee eligible to participate in a cash or deferred arrangement under section 401(k) in order for the plan to be permitted to use a safe harbor in lieu of the actual deferral percentage test or actual contribution percentage test to ensure that the plan satisfies certain nondiscrimination requirements.
        • Under section 402(f), a plan is required to provide a distributee, within a reasonable period of time before an eligible rollover distribution is made, a written explanation of the distributee's rollover rights and the tax and other potential consequences of the distribution or rollover.
        • Under section 411(a)(11) (and the parallel provision in section 203(e) of ERISA) and § 1.411(a)-11(f)(2), a participant cannot be cashed out of a plan before the later of normal retirement age or age 62 without the participant's written consent if the value of the participant's nonforfeitable accrued benefit exceeds $5,000.
        • Under section 417 (and the parallel provision in section 205 of ERISA) and the regulations thereunder, a plan must provide to each participant a written explanation of the terms and conditions of a qualified joint and survivor annuity, the participant's right to make an election to waive the qualified joint and survivor annuity, the right to revoke such an election, and the rights of the participant's spouse. Under section 417(a)(2), an election to waive a qualified joint and survivor annuity can generally go into effect only if the participant's spouse consents to the election in writing and that consent is witnessed by either a plan representative or a notary public.
        • Under section 3405(e)(10)(B) and § 34.3405-1, A-d-35, a payor is required to provide written notice to a payee regarding the payee's right to elect not to have Federal income tax withheld from a periodic payment (as defined in section 3405(e)(2)).
        • Under section 4980F (and the parallel provision in section 204(h) of ERISA) and § 54.4980F-1, A-13, a plan must provide written notice (section 204(h) notice) of an amendment to an applicable pension plan that either provides for a significant reduction in the rate of future benefit accrual or that eliminates or significantly reduces an early retirement benefit or retirement-type subsidy.

        Section 1510 of the Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 788, 1068) (TRA '97), provides for the Secretary of the 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. Pursuant to the mandate of section 1510 of TRA '97, final regulations (TD 8873) relating to the use of electronic media for transmissions of 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). These regulations are discussed in this preamble under the heading Prior Guidance Related to New Technologies.
        E-SIGN, signed into law on June 30, 2000, generally provides that electronic documents and signatures are given the same legal effect as their paper counterparts. Section 101(a) of E-SIGN provides that, notwithstanding any statute, regulation, or rule of law relating to a transaction in or affecting interstate or foreign commerce, a signature, contract, or other record may not be denied legal effect, validity, or enforceability solely because it is in electronic form.
        Section 101(b)(1) 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 be written, signed, or in non-electronic form. Section 101(b)(2) provides that E-SIGN does not require any person to agree to use or accept electronic signatures or records, other than a governmental agency with respect to a record other than a contract to which it is a party.
        Section 101(c) of E-SIGN sets forth special protections for consumers that apply when a statute, regulation, or other rule of law requires that consumer information relating to a transaction be provided or made available in writing.2
           Under those protections, before information can be transmitted electronically, a consumer must first affirmatively consent to receiving 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, that confirmation of the consent 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 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 106(1) of E-SIGN generally defines a consumer as an individual who obtains products or services used primarily for personal, family, or household purposes.

            2 The rules of section 101 of E-SIGN do not apply to certain consumer 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.

        Section 104(b)(1) of E-SIGN generally provides that a Federal or state agency that is responsible for rulemaking under a 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 regulation 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 the regulations find that the rules selected to carry out the purpose of the relevant statute are substantially equivalent to the requirements imposed on records that are not electronic, do not impose unreasonable cost on the acceptance and use of electronic records, and do not require or give 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 consent requirements in section 101(c). The exemption may be issued only if the exemption is necessary to eliminate a substantial burden on electronic commerce and will not increase the material risk of harm to consumers.
        Subsequent to the enactment of E-SIGN, Congress amended section 204(h) of ERISA and enacted a corresponding provision in section 4980F of the Code. Under ERISA section 204(h)(7) and Code section 4980F(g), the Secretary of the Treasury may, by regulations, allow any section 204(h) notice to be provided by using new technologies.
        Prior Guidance Relating to New Technologies
        Following the enactment of section 1510 of TRA ’97, the Treasury Department and IRS issued several items of guidance relating to the use of electronic media with respect to employee benefit arrangements. 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 certain 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.3

            3 The Treasury Department and IRS have also issued guidance regarding the 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 (2004-6 I.R.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).

        The 2000 regulations relating to the use of electronic media for transmissions of notices and consents required to be in writing under sections 402(f), 411(a)(11), and 3405(e)(10)(B) set forth standards for the electronic transmission of certain notices and consents required in connection with distributions from retirement plans. These 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. The system must be reasonably designed to provide the notice in a manner no less understandable to the participant than a written paper document. In addition, 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 permit an electronic system to satisfy the requirement 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.
        Subsequent to the issuance of the 2000 regulations, the Treasury Department and IRS have applied the standards set forth in those regulations in other situations. For example, § 1.7476-2(c)(2) provides that a notice to an interested party 4
           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)-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) 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, regulations at § 1.72(p)-1, Q&A-3(b), require 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.

            4 Under section 7476, in order to receive a determination letter on the qualified status of a retirement plan, the applicant must provide evidence that individuals who qualify as interested parties received notification of the determination letter application.

        In 2003, final regulations (TD 9052) under section 4980F were published in the Federal Register (68 FR 17277). Q&A-13 of § 54.4980F-1 provides the rules for the manner of delivering a section 204(h) notice. For a plan to deliver electronically a section 204(h) notice, the following requirements must be satisfied. First, 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. Second, 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.

        In addition, the regulations under section 4980F provide a safe harbor method for delivering a section 204(h) notice electronically. Under the safe harbor, which is substantially the same as the consumer consent rules of E-SIGN, consent must be made electronically in a manner that reasonably demonstrates the individual's ability to access the information in electronic form. The applicable individual must also provide an address for the delivery of the electronic section 204(h) notice and the plan administrator must provide the applicable individual with certain disclosures regarding the section 204(h) notice, including the right to withdraw consent.

        The Department of Labor (DOL) and the Pension Benefit Guaranty 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.
        Explanation of Provisions
        Overview
        The proposed regulations would coordinate the existing notice and election rules under the Code and regulations relating to certain employee benefit arrangements with the requirements of E-SIGN and set forth the exclusive rules relating to the use of electronic media to satisfy any requirement under the Code that a communication to or from a participant, with respect to the participant's rights under the employee benefit arrangement be in writing or in written form. The standards set forth in the proposed regulations would also function as a safe harbor when an electronic medium is used for any communication that is not required to be in writing or in written form.
        The proposed regulations would apply to any notice, election, or similar communication provided to or made by a participant or beneficiary under a qualified plan, an annuity contract described in section 403(a) or 403(b), 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). Thus, for example, the proposed regulations would apply to a section 402(f) notice, a section 411(a)(11) notice, and a section 204(h) notice.
        In addition, the proposed regulations would apply to any notice, election, or similar communication provided to or made by a participant or beneficiary under an accident and health plan or an arrangement under section 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 Medical Savings Account under section 220, or a health savings account under section 223.
        However, the proposed regulations would not apply to any notice, election, consent, or disclosure required under the provisions of title I or IV of ERISA over which the DOL or the PBGC has interpretative and regulatory authority. For example, the rules in § 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. The proposed regulations would also 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 DOL and the PBGC have similar interpretative authority. In addition, the rules in these proposed regulations apply only with respect to notices and elections relating to a participant's rights under an employee benefit arrangement; thus they do not apply with respect to other requirements under the Code, such as requirements relating to tax reporting, tax records,5
           or substantiation of expenses.

            5 See section 6001 of the Code and the regulations thereunder, and Rev. Proc. 98-25 (1998-1 C.B. 689) (setting forth the basic requirements that the IRS treats as essential for satisfying the recordkeeping requirements of section 6001 in cases where a taxpayer's records are maintained in electronic form).

        Requirements for the Use of Electronic Media
        These proposed regulations would require 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. In addition, these regulations would require that the content of the notice and the medium through which it is delivered 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
           The regulations would also require that, at the time the applicable notice is provided, the electronic transmission alert the recipient to the significance of the transmittal (including the identification of the subject matter of the notice), and provide any instructions needed to access the notice, in a manner that is readily understandable and accessible.

            6 Note that a section 204(h) notice cannot be provided using oral communication or a recording of an oral communication. See § 54.4980F-1, A-13(c)(1).

        The view of the Treasury Department and IRS is that a participant under an employee benefit arrangement is generally a consumer within the meaning of section 106(1) of E-SIGN when receiving a notice in order to make a decision about the participant's benefits or other rights under an employee benefit arrangement.7
           Accordingly, § 1.401(a)-21(b) of these proposed regulations would provide rules, reflecting the consumer consent requirements of section 101(c) of E-SIGN, under which an employee benefit arrangement may provide an applicable notice through an electronic medium. However, the Treasury Department and IRS also believe that, if an employee benefit arrangement could provide these notices only by complying with the rules in § 1.401(a)-21(b) of these proposed regulations, it would impose a substantial burden on electronic commerce. Furthermore, there is an alternative that is less burdensome and that would not increase the material risk of harm to plan participants. Accordingly, § 1.401(a)-21(c) of these proposed regulations provides an alternative means of providing notices electronically.

            7 See also 12 CFR 202.16, 205.17, 213.6, and 2226.36, treating electronic disclosures in connection with certain credit transactions as consumer information for purposes of E-SIGN.

        Section 1.401(a)-21(b) of these proposed regulations would generally require that before a plan may provide an applicable notice 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 or through some other nonelectronic means, 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. 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.

        Section 1.401(a)-21(c) of these proposed regulations provides alternate conditions for providing notices electronically. The proposed regulations would exempt applicable notices from the consumer consent requirements of E-SIGN and would provide an alternative method of complying with the requirement that a participant notice be in writing or in written form if the plan complies with those conditions. This alternative method of compliance is based on the 2000 regulations previously issued under section 1510 of TRA '97 (which provides that any guidance issued should maintain the protection of the rights of participants and beneficiaries). This alternative method of compliance 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.

        The alternative method of compliance 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 the rules in those 2000 regulations. As under the 2000 regulations, the proposed regulations would retain the requirement that, at the time the applicable notice is provided, the participant must be advised that he or she may request and must receive the applicable notice in writing on paper at no charge. However, the requirement that the electronic medium be reasonably accessible under the 2000 regulations would be changed to require that the recipient of the notice be effectively able to access the electronic medium. This is not intended to reflect a substantive change in the rules, but rather to avoid confusion with 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).8

            8 Section 101(i) of ERISA sets forth a requirement for a plan administrator 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 proposed regulations only provides rules for satisfying, through the use of electronic media, a requirement that a notice or election be in writing.

        Proposed § 1.401(a)-21(d) would set forth the requirements that apply if a consent, election, request, agreement, or similar communication is made by or from a participant, beneficiary, or alternate payee using an electronic medium. (For simplicity, the proposed regulations refer to all of these types of actions as participant elections.) The rules in proposed § 1.401(a)-21(d), which are also based on the standards in the 2000 regulations, would require that (1) the participant be effectively able to access the electronic system in order to transmit the participant election, (2) the electronic system be reasonably designed to preclude any person other than the participant from making the participant election (for example, through the use of a personal identification number (PIN)), (3) the electronic system provide the participant making the participant election with a reasonable opportunity to review, confirm, modify, or rescind the terms of the election before it becomes effective, and (4) the participant making the participant election, within a reasonable time 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 proposed § 1.401(a)-21(b) or (c).
        These regulations require that a participant be effectively able to access the electronic system that the plan provides for participant elections, but, like the 2000 regulations, do not require that a plan also permit the election to be transmitted by paper as an alternative to using the electronic system available to the participant. If a plan were to require participant elections to be provided electronically, such as requiring that any consent to a distribution under section 411(a)(11) be transmitted electronically through a particular medium (without an option to make the election on paper), then these regulations would not apply with respect to a participant who is not effectively able to access to the electronic medium. In addition, such a participant would be effectively unable to provide consent and would generally not be paid until the later of age 62 or normal retirement age. Moreover, no form of distribution would be available to the former employee and such a plan may have difficulties demonstrating compliance with the qualification requirements. For example, the plan may not be able to demonstrate that it satisfies the requirements of § 1.401(a)(4)-4 under which benefits, rights, and features, such as a right to early distribution, must be made available in a nondiscriminatory manner.9

            9 Similar problems would arise under section 411(d)(6), assuming the plan previously permitted election of early distribution to be made on paper.

        Unlike the 2000 regulations, the rules in these proposed regulations would extend the use of electronic media to the notice and election rules applicable to plans subject to the QJSA requirements of section 417. Section 417 requires the consent of a spouse to be witnessed by a plan representative or a notary public. In accordance with section 101(g) of E-SIGN, the proposed regulations would permit the use of an electronic acknowledgment or notarization of a signature (if the standards of section 101(g) of E-SIGN and State law applicable to notary publics are satisfied). However, the proposed regulations would require that the signature of the individual be witnessed in the physical presence of the plan representative or notary public, regardless of whether the signature is provided on paper or through an electronic medium.

        As discussed above, these proposed regulations, which are consistent with section 101 of E-SIGN and do not add to the requirements of that section, are issued to set forth rules that coordinate section 101 of E-SIGN with the sections of the Code relating to employee benefit arrangements. In accordance with section 104(b)(2)(C) of E-SIGN, the Treasury Department and IRS find that there is substantial justification for these proposed regulations, that the requirements imposed on the use of electronic media under these regulations are substantially equivalent to those imposed on non-electronic 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.
        Conforming Amendments to Other Rules in Law
        The proposed regulations would modify a number of existing regulations (including the 2000 regulations and the other regulations described above) that have previously provided rules relating to the use of new technology in providing applicable notices 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 adversely affect existing administrative practices of plan sponsors designed to comply with the 2000 regulations.
        As noted above, these proposed regulations would apply to categories of applicable notices that were not previously addressed in the 2000 regulations and subsequent regulations. As such, these regulations apply whenever there is a requirement that 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 cross-references 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 § 1.401(a)-21 of this chapter are satisfied.
        Proposed Effective Date

        These regulations are proposed to apply prospectively. Thus, these rules will apply no earlier than the date of the publication of the Treasury decision adopting these rules as final regulations in the Federal Register. These regulations cannot be relied upon prior to their issuance as final regulations.
        Special Analyses
        It has been determined that this notice of proposed rulemaking 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 section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not propose any new collection of information, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. These regulations only provide guidance on how to satisfy existing collection of information requirements through the use of electronic media. Pursuant to section 7805(f) of the Code, these proposed regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
        Comments and Public Hearing
        Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The Treasury Department and IRS specifically request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying.

        The proposed regulations have reserved the issue of whether there should be any exceptions to the rule generally requiring the physical presence of the spouse for a notarization of the spouse's consent. Comments are requested on whether the reservation should be: (i) Deleted in favor of a broad prohibition that has no exception; (ii) filled in based on a general standard under which electronic notarization of an electronic signature (without the spouse's presence) would be permitted if the technology provides the same protections and assurance as the requirement that a person's signature be executed in the presence of a notary (e.g., that the spouse is actually the person signing); or (iii) filled in with a grant of discretion to the Commissioner to determine in the future, after advance notice and an opportunity for comment, that a particular form of electronic notarization of an electronic signature (without the spouse's presence) provides the same protections and assurance as the requirement that a person's signature be executed in the presence of a notary.

        A public hearing has been scheduled for November 2, 2005, beginning at 10 a.m. in the Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Due to building security procedures, visitors must enter at the main entrance, located at 1111 Constitution Avenue, NW. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT portion of this preamble.
        The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments must submit written or electronic comments and an outline of the topics to be discussed and time to be devoted to each topic (a signed original and eight (8) copies) by October 12, 2005. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving comments has passed. Copies of the agenda will be available free of charge at the hearing.
        Drafting Information
        The principal author of these proposed regulations is Pamela R. Kinard, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), Internal Revenue Service. However, personnel from other offices of the IRS 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.

        Proposed Amendments to the Regulations
        Accordingly, 26 CFR parts 1, 35, and 54 are proposed to be 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(b)(1) and (2) of the 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 an electronic medium under a system that satisfies the participant election requirements of § 1.401(a)-21(d) of this chapter.

              Par. 3. Section 1.401(a)-21 is added to read as follows:

            § 1.401(a)-21
            Rules relating to the use of electronic media to provide applicable notices and to transmit participant elections.
            (a) Introduction—(1) In general—(i) Permission to use electronic media. This section provides rules relating to the use of electronic media to provide applicable notices and to transmit participant elections as defined in paragraphs (e)(1) and (2) of this section with respect to certain employee benefit arrangements referenced in 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)).
            (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 electronic media to provide an applicable notice or to transmit a participant election if the notice or election is required under the Internal Revenue Code or Department of Treasury regulations to be in writing or in written form.
            (B) Rules relating to applicable notices. An applicable notice that is provided using electronic media is treated as being provided in writing or in written form if and only if the consumer consent requirements of paragraph (b) of this section are satisfied 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 transmitted using electronic media is treated as being provided in writing or in written form if and only if the requirements of paragraph (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 electronic media to provide the applicable notice or to transmit 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 a qualified retirement plan under section 401(a) or 403(a). In addition, the rules of this section apply to any applicable notice and any participant election relating to an annuity contract under section 403(b), 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).
            (ii) Notices, elections, or consents under other employee benefit arrangements. The rules of this section also apply to any applicable notice or any participant election relating to accident and health plans or arrangements under sections 104(a)(3) and 105, cafeteria plans under section 125, qualified education assistance programs under section 127, qualified transportation fringe programs under section 132, Archer medical savings accounts under section 220, and health savings accounts under section 223.
            (3) Limitation on application of rules—(i) In general. The rules of this section do not apply to any notice, election, consent, or disclosure 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 regulatory authority. For example, the rules in 29 CFR 2520.104b-1 of the 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) Other requirements under the Internal Revenue Code. Because the rules in this section only apply with respect to applicable notices and participant elections relating to a participant's rights under an employee benefit arrangement; thus they do not apply with respect to other requirements under the Internal Revenue Code, such as requirements relating to tax reporting, tax records, or substantiation of expenses.
            (4) Additional requirements related to applicable notices and participant elections. The rules of this section supplement the general requirements related to each applicable notice and to each participant election. Thus, in addition to satisfying the rules for delivery under this section, the timing, content, and other general requirements (including recordkeeping requirements in guidance issued by the Commissioner under section 6001) relating to the applicable notice or participant election must be satisfied. With respect to the content of the notice, the system of delivery must be reasonably designed to provide the applicable notice to a recipient in a manner no less understandable to the recipient than a written paper document. In addition, at the time the applicable notice is provided, the electronic transmission must alert the recipient to the significance of the transmittal (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 and accessible.
            (b) Consumer consent requirements—(1) Requirements. The consumer consent requirements of this paragraph (b) are satisfied if the requirements in paragraphs (b)(2) through (5) of this section are satisfied.
            (2) Consent—(i) In general. The recipient must affirmatively consent to the delivery of the applicable notice using electronic media. 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 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 applicable notice in the electronic 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.
            (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.
            (ii) The recipient must reaffirm consent to receive electronic delivery in accordance with the requirements of paragraph (b)(2) of this section.
            (5) Prohibition on oral communications. For purposes of this paragraph (b), neither an oral communication nor a recording of an oral communication is an electronic record.
            (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 paragraphs (d)(2) through (6) of this section are satisfied.
            (2) Effective ability to access. The electronic medium under a system used to make a participant election must be a medium that the individual who is eligible to make the election is effectively able to access. If the 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. For example, the participant election will not be treated as made available for purposes of the rules under section 401(a)(4).
            (3) Authentication. The electronic system used in delivering a participant election is reasonably designed to preclude any person other than the appropriate individual from making the election. For example, a system can require that an account number and a personal identification number (PIN) be entered into the system before a participant election can be transmitted.
            (4) Opportunity to review. The electronic system provides the individual 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, within a reasonable time, receives a confirmation of the effect of the election under the terms of the plan 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) Except as provided in paragraph (d)(6)(ii) of this section, 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), 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 so long as the signature of the individual is witnessed in the physical presence of the plan representative or notary public.
            (ii) [Reserved].
            (e) Definitions. The following definitions apply to 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 an arrangement described in paragraph (a)(2) of this section.
            (2) Participant election. The term participant election includes any consent, election, request, agreement, or similar communication made by or from a participant, beneficiary, or alternate payee to which this section applies under an arrangement described in paragraph (a)(2) of this section.

            (3) 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.
            (4) Electronic. The term electronic means technology having electrical, digital, magnetic, wireless, optical, electromagnetic, voice-recording systems, or similar capabilities.
            (5) Electronic media. The term electronic media means an electronic method of communication (e.g., web sites, electronic mail, telephonic systems, magnetic disks, and CD-ROMs).
            (6) Electronic record. The term electronic record means an applicable notice created, generated, sent, communicated, received, or stored by electronic means.
            (f) Examples. The following examples illustrate the rules of this section. In all of these examples, with the exception of Example 4 and Example 5, assume that the requirements of paragraph (a)(4) of this section are satisfied. The examples read as follows:

              Example 1.
              (i) Facts. Plan A, a qualified plan, permits participants to request benefit distributions from the plan on Plan A's Intranet web site. Under Plan A's system for such transactions, a participant must enter his or her account number and personal identification number (PIN), and this information must match the information in Plan A's records in order for the transaction to proceed. If a participant requests a distribution from Plan A on Plan A's web site, then, at the time of the request for distribution, a disclosure statement appears on the computer screen that explains that the participant can consent to receive the section 402(f) notice electronically. In the disclosure statement, Plan A provides information relating to the consent, including how to receive a paper copy of the notice, how to withdraw the 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, the participant 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, the participant must demonstrate that the participant can access the spreadsheet program by answering a question from the spreadsheet program, which is in an attachment to an e-mail. Once the participant correctly answers the question, the section 402(f) notice is then delivered to the participant via e-mail.
              (ii) Conclusion. In this Example 1, Plan A's delivery of the section 402(f) notice satisfies the requirements of paragraph (b) of this section.

              Example 2.
              (i) Facts. Plan B, a qualified plan, permits participants to request benefit distributions from the plan by e-mail. Under Plan B's system for such transactions, a participant must enter his or her account number and personal identification number (PIN) and this information must match the information in Plan B's records in order for the transaction to proceed. If a participant requests a distribution from Plan B by e-mail, the plan administrator provides the participant 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 the participant to read the attachment for important information regarding the request for a distribution. In addition, the e-mail also provides that the participant 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. Plan B receives notification indicating that the e-mail was received and opened by the participant. The participant is effectively able to access the e-mail system used to make a participant election and consents to the distribution by e-mail. Within a reasonable period of time after the participant's consent to the distribution by e-mail, the plan administrator, by e-mail, sends confirmation of the terms (including the form) of the distribution to the participant and advises the participant that the participant may request the confirmation on a written paper document that will be provided at no charge.
              (ii) Conclusion. In this Example 2, Plan B's delivery of the section 411(a)(11) notice and the transmission of a participant's consent to a distribution satisfy the requirements of paragraphs (c) and (d) of this section.

              Example 3.
              (i) Facts. Plan C, a qualified pension plan, permits participants to request plan loans through the Plan C's web site on the internet with the notarized consent of the spouse in accordance with applicable State law. Under Plan C'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. The information entered by the participant must match the information in Plan C's records in order for the transaction to proceed. A participant may request a loan from Plan C by following the applicable instructions on Plan C's web site. Participant M, a married participant, is effectively able to access the web site available to apply for a loan and completes the forms on the web site for obtaining the loan. The forms include attachments setting forth the terms of the loan agreement and all other required information. Participant M is then instructed to 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. 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 the participant, giving the participant a reasonable period to review and confirm the loan application or to determine whether the application should be modified or rescinded. In addition, the e-mail to the participant also provides that the participant may request the plan loan application on a written paper document and that, if the participant requests the written paper document, it will be provided at no charge.
              (ii) Conclusion. In this Example 3, the transmissions of the loan agreement and the spousal consent satisfy the requirements of paragraph (d) of this section.

              Example 4.
              (i) Facts. 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 that 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. A participant may request a distribution from Plan D by following the applicable instructions on the automated telephone system. After the participant has requested a distribution, the automated telephone system recites the section 411(a)(11) notice to the participant. The automated telephone system also advises the participant that he or she may request the 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. The participants are effectively able to access the automated telephone system used to make a participant election. The automated telephone system requires a participant to review and confirm the terms (including the form) of the distribution before the transaction is completed. After the participant has given consent, the automated telephone system confirms the distribution to the participant and advises the participant that he or she may request the confirmation on a written paper document that will be provided at no charge.
              (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)(4) of this section. In addition, the automated telephone procedures of Plan D satisfy the requirements of paragraphs (c) and (d) of this section.

                Example 5. (i) Facts.

              Same facts as Example 4, 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. Like in 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)(4) of this section. Further, in this Example 5, the customer service telephone procedures of Plan D satisfy the requirements of paragraphs (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 e-mail system. Under this system, a participant must enter his or her account number and personal identification number (PIN). 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 N requests a distribution and receives the section 411(a)(11) notice from the plan administrator by reply e-mail. However, before Participant N elects a distribution, N terminates employment. Following termination of employment, Participant N 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 N is not effectively able to access the electronic medium used to make the participant election. Plan E must provide Participant N with the opportunity to transmit the participant election through another system that Participant N is effectively able to access, such as the automated telephone systems described in Example 4 and Example 5 of this paragraph (f).

              Par. 4. 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 employee benefit arrangements.

              Par. 5. 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 notices to recipients with respect to employee benefit arrangements.
            (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(d) of this chapter for rules permitting the use of electronic media to transmit participant elections with respect to employee benefit arrangements.

              Par. 6. Section 1.417(a)(3)-1 is amended by revising the text of paragraph (a)(3) to read as follows:

            § 1.417(a)(3)-1
            Required explanation of qualified joint and survivor annuity and qualified preretirement survivor annuity.
            (a) * * *
            (3) * * * A section 417(a)(3) explanation must be a written explanation. First class mail to the last known address of the participant is an acceptable delivery method for a section 417(a)(3) explanation. Likewise, hand delivery is acceptable. However, posting of the explanation is not considered provision of the section 417(a)(3) explanation. 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 employee benefit arrangements.

              Par. 7. Section 1.7476-2 is amended by revising paragraph (c)(2) to read as follows:

            § 1.7476-2
            Notice to interested parties.

            (c) * * *
            (2) If the notice to interested parties is delivered using an electronic medium under a 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.

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

            Par. 8. The authority citation for part 35 continues to read, in part, as follows:

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

            Par. 9. 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.

            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 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 employee benefit arrangements.

          PART 54—PENSION EXCISE TAXES

            Par. 10. The authority citation for part 54 continues to read, in part, as follows:

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

            Par. 11. Section 54.4980F-1, Q&A-13, is amended as follows:
          (1) Revising paragraph A-13 (c)(1)(ii).
          (2) Removing paragraph A-13 (c)(1)(iii) and (c)(3).
          The revision reads as follows:

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

            A-13. * * *
            (c) * * *
            (1) * * *
            (ii) The section 204(h) notice is delivered using an electronic medium under a system that satisfies the applicable notice requirements of § 1.401(a)-21.

            Mark E. Mathews,
            Deputy Commissioner for Services and Enforcement.

      [FR Doc. 05-13911 Filed 7-13-05; 8:45 am]
      BILLING CODE 4830-01-P


        ENVIRONMENTAL PROTECTION AGENCY
        40 CFR Parts 85, 86, 1036, 1037, 1065, 1066, and 1068
        DEPARTMENT OF TRANSPORTATION
        National Highway Traffic Safety Administration
        49 CFR Parts 523, 534, and 535
        [EPA-HQ-OAR-2014-0827; NHTSA-2014-0132; FRL-9942-94-OAR]
        RIN 2060-AS16; RIN 2127-AL52
        Greenhouse Gas Emissions and Fuel Efficiency Standards for Medium- and Heavy-Duty Engines and Vehicles—Phase 2—Notice of Data Availability

          AGENCIES:
          Environmental Protection Agency (EPA) and Department of Transportation (DOT) National Highway Traffic Safety Administration (NHTSA).

          ACTION:
          Notice of data availability.

          SUMMARY:
          This Notice provides an opportunity to comment on new information being made available by the EPA and by NHTSA, on behalf of DOT, related to the proposed Phase 2 Heavy-Duty National Program proposed July 13, 2015, to reduce greenhouse gas emissions and fuel consumption for new on-road heavy-duty vehicles and engines. The new information, including memoranda and data, have been placed in the public dockets. Data relating to the potential stringency of the proposed standards includes: Powertrain data; additional aerodynamic test data; supplemental test data relating to drive cycles (and frequency thereof) for vocational vehicles; and cycle average mapping data. The agencies are soliciting additional comment on certain revised test reports, and a revised version of the Greenhouse Gas Emission Model (GEM) used both in developing certain of the proposed standards and in demonstrating compliance with those standards. Additionally, EPA is soliciting further comment on memoranda relating to standard applicability and implementation. These memoranda address potential requirements for selective enforcement audits and confirmatory testing related to greenhouse gas emissions, and applicability of emission standards and certification responsibilities for trailers, glider vehicles, and glider kits. Finally, EPA is soliciting additional comments on issues discussed in a late comment related to light-duty motor vehicles used for racing.

          DATES:
          Comments must be received on or before April 1, 2016.

          ADDRESSES:
          Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2014-0827 (for EPA's docket) and NHTSA-2014-0132 (for NHTSA's docket), by one of the following methods:
          • Online: www.regulations.gov: Follow the on-line instructions for submitting comments.
          • Email: a-and-r-docket@epa.gov.

          • Mail:

            EPA: Air and Radiation Docket and Information Center, Environmental Protection Agency, Mailcode: 28221T, 1200 Pennsylvania Ave. NW., Washington, DC 20460.

            NHTSA: Docket Management Facility, M-30, U.S. Department of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590.
          • Hand Delivery:

            EPA: EPA Docket Center, EPA WJC West Building, Room 3334, 1301 Constitution Ave. NW., Washington, DC 20460. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information.

            NHTSA: West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 4 p.m. Eastern Time, Monday through Friday, except Federal Holidays.

            Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-2014-0827 and/or NHTSA-2014-0132, as follows:

            EPA: Direct your comments to Docket ID No EPA-HQ-OAR-2014-0827. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at www.regulations.gov, including any personal information provided, unless the comment includes information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through www.regulations.gov or email. The www.regulations.gov Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an email comment directly to EPA without going through www.regulations.gov your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information about EPA's public docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.

            NHTSA: Your comments must be written and in English. To ensure that your comments are correctly filed in the Docket, please include the Docket number NHTSA-2014-0132 in your comments. Your comments must not be more than 15 pages long.1
             NHTSA established this limit to encourage you to write your primary comments in a concise fashion. However, you may attach necessary additional documents to your comments, and there is no limit on the length of the attachments. If you are submitting comments electronically as a PDF (Adobe) file, we ask that the documents submitted be scanned using the Optical Character Recognition (OCR) process, thus allowing the agencies to search and copy certain portions of your submissions.2

             Please note that pursuant to the Data Quality Act, in order for the substantive data to be relied upon and used by the agency, it must meet the information quality standards set forth in the OMB and Department of Transportation (DOT) Data Quality Act guidelines. Accordingly, we encourage you to consult the guidelines in preparing your comments. OMB's guidelines may be accessed at http://www.whitehouse.gov/omb/fedreg/reproducible.html. DOT's guidelines may be accessed at http://www.dot.gov/dataquality.htm.

              1 See 49 CFR 553.21.

              2 Optical character recognition (OCR) is the process of converting an image of text, such as a scanned paper document or electronic fax file, into computer-editable text.

            Docket: All documents in the docket are listed on the www.regulations.gov Web site. Although listed in the index, some information is not publicly available, e.g., confidential business information or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically through www.regulations.gov or in hard copy at the following locations:

              EPA: Air and Radiation Docket and Information Center, EPA/DC, EPA WJC West Building, 1301 Constitution Ave. NW., Room 3334, Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the Air Docket is (202) 566-1742.

              NHTSA: Docket Management Facility, M-30, U.S. Department of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590. The telephone number for the docket management facility is (202) 366-9324. The docket management facility is open between 9 a.m. and 5 p.m. Eastern Time, Monday through Friday, except Federal Holidays.

          FOR FURTHER INFORMATION CONTACT:

            EPA: Tad Wysor, Office of Transportation and Air Quality, Assessment and Standards Division (ASD), Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 48105; telephone number: (734) 214-4332; email address: wysor.tad@epa.gov.

            NHTSA: Ryan Hagen, Office of Chief Counsel, National Highway Traffic Safety Administration, 1200 New Jersey Avenue SE., Washington, DC 20590. Telephone: (202) 366-2992; ryan.hagen@dot.gov.

        SUPPLEMENTARY INFORMATION:
        A. Does this action apply to me?
        This action relates to a previously promulgated Proposed Rule that would potentially affect companies that manufacture, sell, or import into the United States new heavy-duty engines and new Class 2b through 8 trucks, including combination tractors, all types of buses, vocational vehicles including municipal, commercial, recreational vehicles, and commercial trailers as well as 3/4-ton and 1-ton pickup trucks and vans. The heavy-duty category incorporates all motor vehicles with a gross vehicle weight rating of 8,500 pounds or greater, and the engines that power them, except for medium-duty passenger vehicles already covered by the greenhouse gas standards and corporate average fuel economy standards issued for light-duty model year 2017-2025 vehicles. Proposed categories and entities that might be affected include the following:

            Category
            NAICS Code a

            Examples of potentially affected entities

            Industry
            336110336111
              336112
              333618

            Motor Vehicle Manufacturers, Engine Manufacturers, Engine Parts Manufacturers, Truck Manufacturers, Truck Trailer Manufacturers, Automotive Parts and Accessories Dealers.

            336120

            336212

            441310

            Industry
            541514811112
              811198

            Commercial Importers of Vehicles and Vehicle Components.

            Industry
            336111
            Alternative Fuel Vehicle Converters.

            336112

            422720

            454312

            541514

            541690

            811198

            Note:

            a North American Industry Classification System (NAICS).

        This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely covered by these rules. This table lists the types of entities that the agencies are aware may be regulated by this action. Other types of entities not listed in the table could also be regulated. To determine whether your activities are regulated by this action, you should carefully examine the applicability criteria in the referenced regulations. You may direct questions regarding the applicability of this action to the persons listed in the preceding FOR FURTHER INFORMATION CONTACT section.
        B. Public Participation
        EPA and NHTSA request comment on the information identified in this Notice. We are not requesting comment on other aspects of this joint proposed rule. This section describes how you can participate in this process.
        (1) How do I prepare and submit comments?
        There are many issues common to EPA's and NHTSA's proposals. For the convenience of all parties, comments submitted to the EPA docket will be considered comments submitted to the NHTSA docket, and vice versa. Therefore, a commenter only needs to submit comments to either of the agency dockets (or choose to submit a comment to both). Comments that are submitted for consideration by one agency should be identified as such, and comments that are submitted for consideration by both agencies should be identified as such. Absent such identification, each agency will exercise its best judgment to determine whether a comment is submitted on its proposal.
        (2) Tips for Preparing Your Comments
        When submitting comments, please remember to:

        • Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number)
        • Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes
        • Describe any assumptions and provide any technical information and/or data that you used
        • If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced
        • Provide specific examples to illustrate your concerns, and suggest alternatives
        • Explain your views as clearly as possible, avoiding the use of profanity or personal threats

        • Make sure to submit your comments by the comment period deadline identified in the DATES section above
        (3) How can I be sure that my comments were received?

          NHTSA: If you submit your comments by mail and wish Docket Management to notify you upon its receipt of your comments, enclose a self-addressed, stamped postcard in the envelope containing your comments. Upon receiving your comments, Docket Management will return the postcard by mail.
        (4) How do I submit confidential business information?

        Any confidential business information (CBI) submitted to one of the agencies will also be available to the other agency. However, as with all public comments, any CBI information only needs to be submitted to either one of the agencies' dockets and it will be available to the other. Following are specific instructions for submitting CBI to either agency. If you have any questions about CBI or the procedures for claiming CBI, please consult the persons identified in the FOR FURTHER INFORMATION CONTACT section.

          EPA: Do not submit CBI to EPA through www.regulations.gov or email. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. Information not marked as CBI will be included in the public docket without prior notice. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

          NHTSA: If you wish to submit any information under a claim of confidentiality, you should submit three copies of your complete submission, including the information you claim to be confidential business information, to the Chief Counsel, NHTSA, at the address given above under FOR FURTHER INFORMATION CONTACT. When you send a comment containing confidential business information, you should include a cover letter setting forth the information specified in our confidential business information regulation.3

            3 See 49 CFR part 512.

        In addition, you should submit a copy from which you have deleted the claimed confidential business information to the Docket by one of the methods set forth above.
        (5) How can I read the comments submitted by other people?

        You may read the materials placed in the docket for this document (e.g., the comments submitted in response to this document by other interested persons) at any time by going to http://www.regulations.gov. Follow the online instructions for accessing the dockets. You may also read the materials at the EPA Docket Center or NHTSA Docket Management Facility by going to the street addresses given above under ADDRESSES.
        C. Background
        As part of the Climate Action Plan announced in June 2013,4

           the President directed the EPA and NHTSA to set the next round of standards to reduce greenhouse gas (GHG) emissions and improve fuel efficiency for medium- and heavy-duty vehicles and engines. More than 70 percent of the oil used in the United States and 28 percent of GHG emissions come from the transportation sector, and since 2009 EPA and NHTSA have worked with industry and the State of California to develop ambitious, flexible standards for both the fuel economy and GHG emissions of light-duty vehicles and the fuel efficiency and GHG emissions of heavy-duty vehicles and engines.5 6
           Throughout every stage of development for these programs, EPA and NHTSA (collectively, the agencies, or “we”) have worked in close partnership not only with each other, but with the vehicle and engine manufacturing industries, environmental community leaders, and the State of California, among other entities, to create a single, effective set of national standards.

            4 The White House, The President's Climate Action Plan (June, 2013). http://www.whitehouse.gov/share/climate-action-plan.

            5 The White House, Improving the Fuel Efficiency of American Trucks—Bolstering Energy Security, Cutting Carbon Pollution, Saving Money and Supporting Manufacturing Innovation (Feb. 2014), 2.

            6 U.S. Environmental Protection Agency. 2014. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012. EPA 430-R-14-003. Mobile sources emitted 28 percent of all U.S. GHG emissions in 2012. Available at http://www.epa.gov/climatechange/Downloads/ghgemissions/US-GHG-Inventory-2014-Main-Text.pdf

        The agencies' proposed Phase 2 standards (80 FR 40138, July 13, 2015) would phase in through model year 2027, and were intended to result in an ambitious, yet achievable program that would allow manufacturers to meet standards through a mix of different technologies at reasonable cost. The proposed Phase 2 program would build on and advance the model years 2014-2018 Phase 1 program in a number of important ways including: Basing standards not only on currently available technologies but also on utilization of technologies now under development or not yet widely deployed while providing significant lead time to assure adequate time to develop, test, and phase in these controls; developing standards for trailers; further encouraging innovation and providing flexibility; including vehicles produced by small business manufacturers; incorporating enhanced test procedures that (among other things) allow individual drivetrain and powertrain performance to be reflected in the vehicle certification process; and using an expanded and improved compliance simulation model.
        This notice alerts the public to new information placed in the agencies' public dockets, and solicits comment on that information. The information takes the form of raw data, revised test reports, and memoranda that in some instances indicate potential implications of the data for purposes of standard stringency and implementation. In addition to information placed into the docket by the agencies, EPA also solicits comments on issues discussed in a late public comment that addresses proposed regulations related to light-duty motor vehicles used for racing. The agencies will accept comments on these materials through April 1, 2016. The agencies will not address new comments extraneous to these materials in the final rulemaking or its associated documents.
        D. Newly Docketed Materials on Which the Agencies Are Seeking Public Comment

            EPADocket No.

            NHTSA Docket No.
            Title
            Description

            EPA-HQ-OAR-2014-0827-1626
            NHTSA-2014-0132-0181
            Greenhouse Gas Emissions Model (GEM) P2v2.1
            A new release of the GEM simulation tool contains revisions that include fixing bugs identified by commenters; enhancements to accommodate cycle averaged fuel maps, transmission efficiency test results, and axle efficiency test results; refinements to the transmission shifting strategies; revised vocational vehicle drive cycle weightings; and a revised road grade profile. Details regarding the revisions are included in the summary file in the docket entry.

            EPA-HQ-OAR-2014-0827-1620
            NHTSA-2014-0132-0182
            Default Gasoline Engine Fuel Map for Use in GEM
            EPA sponsored testing of a heavy-duty gasoline engine at Southwest Research Institute. Those results were used to develop a new default fuel map that could be used to develop the final spark-ignited vocational vehicle standards.

            EPA-HQ-OAR-2014-0827-1622
            NHTSA-2014-0132-0183
            Oak Ridge National Laboratory Powertrain Data
            EPA sponsored additional testing on heavy-duty powertrains at Oak Ridge National Laboratory. Cycle results are presented from two powertrain configurations.

            EPA-HQ-OAR-2014-0827-1619
            NHTSA-2014-0132-0184
            Southwest Research Institute Program Update on Cycle Average Mapping Data
            EPA sponsored additional testing on two heavy-duty engines each with two different horsepower ratings. Information includes the cycle average testing results and findings are included.

            EPA-HQ-OAR-2014-0827-1623
            NHTSA-2014-0132-0185
            Final Southwest Research Institute Report to NHTSA: Commercial Medium- and Heavy-Duty Truck Fuel Efficiency Technology Study—Report #2
            A pre-peer review draft version of this report was released in June of 2015. Independent peer review and public release of the draft report identified errors in the analysis in the draft report that were corrected in this final version.

            EPA-HQ-OAR-2014-0827-1624
            NHTSA-2014-0132-0186
            Supplemental Aerodynamic Data from EPA Testing
            EPA conducted additional aerodynamic testing using the coastdown, constant speed, wind tunnel, and computational fluid dynamics test procedures since the NPRM was issued. This docket entry includes the raw data from each of these test programs.

            EPA-HQ-OAR-2014-0827-1621
            NHTSA-2014-0132-0187
            Vocational Vehicle Drive Cycle Data: Draft Report produced by the National Renewable Energy Laboratory entitled “The Development of Vocational Vehicle Drive Cycles and Segmentation”
            The National Renewable Energy Laboratory (NREL) collaborated with EPA and conducted a vocational vehicle segmentation evaluation based on NREL's Fleet DNA database. This analysis is intended to inform the final vocational vehicle drive cycle weightings.

            EPA-HQ-OAR-2014-0827-1625
            NHTSA-2014-0132-0188
            Additional Discussion of Selective Enforcement Audit and Confirmatory Testing for Aerodynamic Parameters
            Commenters raised concerns about the proposed audit testing and the need for consideration of compliance margins for the audit's results. The memorandum provides additional discussion of how EPA's audits could be conducted, and key principles related to these requirements.

            EPA-HQ-OAR-2014-0827-1627
            NHTSA-2014-0132-0189
            Legal Memorandum Discussing Issues Pertaining to Trailers, Glider Vehicles, and Glider Kits under the Clean Air Act

            Draft legal memorandum discussing issues relating to authority under the Clean Air Act to promulgate emission standards for trailers and glider vehicles, certification responsibilities of manufacturers of trailers and glider kits, and potential CO2 emission standards for different model year glider vehicles.

            EPA-HQ-OAR-2014-0827-1469-A1
            Not Applicable; this is in relation to an EPA-specific section of the NPRM
            Public Comment from the Specialty Equipment Market Association
            This comment addresses how a proposed amendment related to the Clean Air Act's prohibition of tampering of emission controls would impact light-duty vehicles used for racing and raises questions about whether adequate notice was given for this proposed amendment.

        Issued under authority of 49 U.S.C. 32901, 32905, and 32906; delegation of authority at 49 CFR 1.95.

          Dated: February 24, 2016.
          Raymond R. Posten,
          Associate Administrator for Rulemaking, National Highway Traffic Safety Administration.
          Dated: February 24, 2016.
          Christopher Grundler,
          Director, Office of Transportation and Air Quality, Environmental Protection Agency.

      [FR Doc. 2016-04613 Filed 3-1-16; 8:45 am]
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