Final Regulations Issued: Guidance on Electronic Media in Connection W

[Dave Baker]

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission. Copyright 2000 TRI Pension Services, all rights reserved. Post a reply to this thread if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net!

Final Regulations Issued: Guidance on Electronic Media in Connection With Participant Loans

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Effective date. The regulations are effective for loans made on or after January 1, 2002. See Q&A-22(B) [click]. (The 1998 proposed regulations clarified that the effective date would be no earlier than the January 1 which is at least 6 months following the publication of final regulations.) The plan year of the plan is irrelevant. In other words, all plans become subject to the regulations as of January 1, 2002, even if that date occurs in the middle of a plan year. This effective date does not mean that plans may ignore IRC §72(p) before January 1, 2002. The statutory effective date of §72(p) was for loans made after August 13, 1982 (although the quarterly amortization rule and some changes to the principal residence loans did not apply until after 1986). Between the applicable statutory date of any provision of §72(p) and the regulatory effective date, plan administrators must apply a reasonable, good faith standard of compliance. Compliance with the proposed regulations, or any provisions of these final regulations, before the regulatory effective date would be treated as satisfying the good faith compliance standard. The final regulations follow the proposed regulations very closely, so a detailed analysis is not provided in this summary. Here are some highlights.

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Guidance on electronic media. The regulations require that the loan be evidenced by an enforceable agreement that sets forth: the amount of the loan, the date of the loan, and the repayment schedule. See Q&A-3(B) [click]. The enforceable agreement may be in the form of a written paper document or in an electronic medium. The principles set forth in Treas. Reg. §1.411(a)-11(f)(2), regarding the use of electronic media to obtain participant consent to a distribution, are applied here as well. The electronic medium must:

1. be reasonably accessible to the participant,
2. be reasonably designed to preclude any individual other than the participant from requesting a loan,
3. provide a reasonable opportunity for the participant to confirm, modify or rescind the terms of the loan before the loan is made, [and]
4. provide confirmation of the loan within a reasonable time after the loan is made.

Confirmation may be provided in a paper document or electronically. If the confirmation is provided electronically, it must be designed in a manner that is no less understandable than a written paper document, and the participant must be advised that he or she may request a written paper document at no charge. An agreement does not have to be signed by the participant, so long as under applicable law, the agreement is legally enforceable without a signature. The purpose of this clarification in the final regulations is to enable plans to process loans electronically without a signature, if such procedure does not compromise the enforceability of the loan agreement. The IRS had taken this position in an informal ruling issued on June 26, 1997, which was reprinted in CCH Pension Plan Guide, ¶17,396L.