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Uncertainty Surrounds Use of E-Signatures


WASHINGTON, D.C. - It has been over nine months since E-SIGN, the Electronic Signatures in Global and National Commerce Act, was signed into law, but there remains some uncertainty with regard to how the act governs certain aspects of electronic delivery of retirement products and services, according to industry executives.

In general, E-SIGN creates a great deal of opportunity for retirement plan service providers, according to Pamela Everhart, associate general counsel at Fidelity Investments of Boston. Everhart spoke here late last month at a retirement plans conference sponsored by the Investment Company Institute of Washington, D.C. Being able to deliver documents electronically to customers increases customers' access to information and reduces companies' operating costs. IRA custodial agreements, disclosure statements, annual reports and prospectuses can all be delivered online once consumers have given consent to receive documents electronically, said Robert Wittie, a partner at Kirkpatrick & Lockhart of Pittsburgh, who also spoke at the ICI conference.

While those kinds of capabilities make business easier for retirement plan providers, certain ambiguities in the wording of the act result in varying interpretations of its jurisdiction, said Wittie.

The act applies to all records relating to "transactions" in interstate or foreign commerce, and it defines those transactions as "actions ... relating to the conduct of business, consumer or commercial affairs," according to Wittie. Purely governmental affairs are excluded.

The consumer consent provision is one of the main areas in which parties disagree on interpretation of the rules, according to Wittie. One of the unclear aspects is whether qualified plan participants act as consumers under the act and, consequently whether consent from them is required for electronic delivery.

"The consumer consent provision is really important for us to understand," said Everhart. "On the IRA side, we're dealing with the consumer because we're actually dealing with an individual. However, on the qualified plan side, it's not as clear. I would take a more flexible perspective and say that since we're dealing with the plan sponsor and not an individual, the plan sponsor is the consumer there. In that context, you don't have to get consent from the participants."

However, that interpretation is not shared by everyone. The applicability of the consent provision may vary from case to case, said Wittie.

"In that case, you have to look at who is the notice provided to," said Alan Tawshunsky, assistant chief counsel with the Internal Revenue Service, who also spoke at the conference. "Even if you're dealing with the plan sponsor, if certain notices are addressed to participants, you might need their consent to send it to them electronically."

Other uncertainties exist because of discrepancies between E-SIGN and previous legislation, according to Everhart. For example, IRS guidance prior to E-SIGN was more lenient in terms of gaining consent, according to Everhart.

"There will be cases where the IRS will be fine with the consent, but you may not be complying with E-SIGN and that can complicate matters," said Everhart. "It becomes very difficult when the rules aren't very clear." The ambiguity is treacherous for companies because it increases the risk of failing to meet one's fiduciary responsibility, she said.

There are also problems because the act enables states to prohibit the use of electronic delivery in special cases but does not give the same powers to federal agencies, said Wittie.

"This is a very interesting issue," said Wittie. "There is a place in E-SIGN where Congress specifically warns states that, to the extent that they are going to be adopting rules that can supercede E-SIGN to one degree or another, they cannot use [that provision] ... to circumvent the purpose of the statute, which, obviously, is to promote the use of electronic records. Congress wasn't thinking about federal requirements, I guess, because they didn't say anything one way or another [about them] which causes a lot of problems ..."

These are fairly clear cases of where ambiguity under E-Sign with regard to retirement plans exists, but there are other problems that have not even come up yet, said Wittie.

Everhart enumerated the areas that are clear and those which are not, including the issues discussed above. However, Tawshunksy of the IRS said the IRS itself had not agreed on final interpretations of even some of those issues she described as settled.

"Actually, a lot of those [issues, the IRS] has not yet come to a conclusion on," said Tawshunsky. "Some of those things may or may not be o.k."