Distribution elections over the phone?

Greetings, all. 

Recordkeeper for employer-sponsored retirement plans here.  I'm spinning my wheels, so I thought I'd consult the wisdom of the crowd. Here's my question:   Would it be feasible under ERISA/the Code for service provider to design a process to allow qualified plan participants to elect distributions over the phone without completing a form of any kind?  In other words, call center reps would orally guide participants through the election process, complete the online payment distribution form on behalf of the participant while they're on the call, and enter their choices in to our system. Totally verbal.   It's the call center rep that's completing/submitting the election, and the participant is doing everything over the phone.

Assume, for the sake of argument, that (1) we could authenticate the caller (2) the call would be on a recorded line and would be scripted, (3) the plan document doesn't say anything specifically requiring a written election, and (4) we would have a separate process to obtain spousal consents or other documents that required a notarized signature.

Personally, I don't expect this would be allowed.  I can think of about a half dozen reasons why this is a bad idea, (miscommunications, risk of offering "investment advice," etc.)  However, the business folks are convinced that "other companies do this" and that somehow it would easier/more efficient than just helping the participants go to the website and complete the online form on their own.  So if someone could tell me to find a definitive reason to shut this down it, I'd greatly appreciate it.

I have researched it and I cannot find much DOL/IRS guidance about it -- nothing forbidding it but nothing to suggest they would allow it either. The best guidance I can find seems to be 26 CFR 1.401(a)-21 - Rules relating to the use of an electronic medium to provide applicable notices and to make participant elections.  Maybe there's an argument that the call itself would be an "electronic medium" for making elections?  FWIW, it appears that the E-Sign act says that consumers could conceivably use an oral or voice signature to sign a document.

Has anyone had any experience with service providers allowing something like this?  'Please' and 'Thank You' for any insights you care to share! 

I'll be interested to hear how the resolution to this suggestion might parallel the typical advisor office's voicemail message saying that trades left on voicemail can not be acted upon.

The key would be how comfortable is the recordkeeper’s counsel that the:

identity control,

address control,

tightly scripting and supervising the call-center workers,

record-making,

distributee confirmations,

plan administrator’s actual or implied approvals,

records retention,

fraud safeguards,

other controls, and

internal audit

are strong enough to meet ERISA and Internal Revenue Code requirements, the service agreement’s obligations and conditions, and remove any discretion the recordkeeper does not want.

With careful attention to technology, software, and detailed procedures, it’s possible to design and maintain a regime; but it’s work!

In my experience, it works only when the recordkeeper’s counsel (whether inside, outside, or a combined effort) has deep experience with a recordkeeper’s operations, and the recordkeeper’s executives do not resist the needed protocols.

I do not believe that a distribution process could be done entirely over the phone, because IRC sec. 402(f) explicitly requires a written notice of the participant's rollover rights.

Assuming that the participant can be adequately supplied with the written notice, the rest of the election could feasibly be done over the phone. Earlier this year, the IRS released a draft of Pub. 15-A for 2023. The draft publication includes a script for accepting telephonic submission of Form W-4R. While Form W-4R is not a complete distribution election, it is an integral part of a distribution election, and I do not think the IRS would have provided scripts for accepting W-4R over the phone unless they expect distribution elections to be done over the phone.

Some plans furnish participants a § 402(f) notice in the summary plan description or with every quarter-year’s account statement (or both).

A rule allows speaking an oral summary of a § 402(f) notice, referring to the previously furnished notice, and offering to furnish again the whole notice.

See 26 C.F.R. § 1.402(f)-1, Q&A-2, Q&A-5 example 3 https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.402(f)-1.

My description above about what might be possible assumes that many steps might require furnishing writings (often in paper form, if electronic delivery was not assented to) and waiting a reasonable and prudent time before proceeding with the requested distribution.

Yes, absolutely do this if you want to be in the headlines for the next big cybersecurity breach lawsuit.

Thank you all so much for your extremely helpful responses.