CUNA Comment Letter

Testimony at the IRS Hearing on Electronic W-2 Forms

July 25, 2001

COMMENTS ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION AND NAVY FEDERAL CREDIT UNION TO THE INTERNAL REVENUE SERVICE ON ELECTRONIC DELIVERY OF PAYEE STATEMENTS

My name is Bill Briscoe. I am Associate Vice President for Regulatory Compliance at Navy Federal Credit Union. My comments are on behalf of the Credit Union National Association and Navy Federal Credit Union. The Credit Union National Association, or CUNA, is the nation’s largest trade organization for state and federal credit unions. CUNA represents over 91 percent of the 10,600 state and federal credit unions in this country.

CUNA and Navy Federal commend the IRS for its initiative to increase the use of electronic payee statements. In general, we believe the intent of IRS to allow payors the option of providing payee statements electronically should assist credit unions by minimizing paperwork and lowering operating costs. Credit unions could then pass along these savings to their members. The Supplementary Information to the temporary regulations, state: "[t]he objective of the temporary regulations is to facilitate the voluntary electronic furnishing of these statements." However, the regulations in their current form hinder rather than promote this intended outcome with respect to the electronic transmission of payee statements between employers and employees.

Navy Federal is the world’s largest natural person credit union. We have nearly 4,000 employees in more than 100 locations around the world. About 70 percent of our employees work in our headquarters facility in Vienna, Virginia. Every employee has access to a personal computer and an individual e-mail identity. All except a handful of groundskeepers, maintenance, and other service personnel have individually assigned personal computers. And, even these employees have access to PCs in their immediate work areas. Additionally, extra PCs are available for any employee to use in headquarters common areas near the employee cafeteria and also in the Human Resources area.

As you can see, Navy Federal along with many other employers provide employees computer-based, networked workstations to perform their duties. We routinely provide many employment-related administrative functions electronically. These include job applications, employment documents, time and attendance records, leave requests and approvals, work schedules, job assignments, performance evaluations, employee business card orders, and many, many more. Corporate-wide policies, directives, manuals, and work instructions that employees must use on a daily basis must be accessed via electronic communications systems. Virtually every employee at Navy Federal routinely accesses electronic records and receives electronic communications in the day-to-day performance of their jobs. Even the most sensitive and important internal communications are routinely transacted electronically by Navy Federal and other organizations.

In my opening remarks I commented that the current form of the IRS regulations would hinder rather than promote the use of electronic payee statements. Imagine the consequences on Navy Federal’s work environment if employee notification and consent would be a requirement for all workplace communications. Businesses such as Navy Federal simply could not operate if they were subjected to consumer "notice and consent" requirements for all electronic employer-employee communications in the workplace.

On May 22, 2001, in response to an electronic message from staff, Navy Federal’s President, Brian McDonnell, agreed with the staff recommendation not to implement electronic forms W-2 and earnings statements at this time because of the costs associated with the consent requirements of IRS’s temporary rule. The cost of maintaining two systems—an electronic one for consenters, and a traditional one for non-consenters—and a database to track the consent and notice status of each employee is prohibitive compared with continuing our traditional system of using U.S. Postal Service delivery options for all employees. I believe any regulatory requirement that perpetuates reliance on the Postal Service in today’s high tech communications environment merits a high degree of scrutiny.

Navy Federal is keenly aware of the importance of consumer protections that were prescribed by Congress to govern the conduct of financial institutions. We and many other credit unions often exceed basic consumer protection requirements and inform, educate, and assist members to select and choose the appropriate financial products and services to best suit their individual needs. We do not believe, however, that Congress intended to extend the consumer notice and consent requirements of Section 101(c) of the E-SIGN Act to employer-employee electronic communications in the workplace.

CUNA and Navy Federal believe the "notice and consent" provisions of the E-SIGN Act apply only to consumer transactions and not to employer-employee communications in the workplace. Section 106(1) of the E-SIGN states, "[t]he term ‘consumer’ means an individual who obtains, through a transaction, products or services which are used primarily for personal, family, or household purposes...." Clearly this is not descriptive of employer-employee communications in the workplace. Further, we note, there is no language in the Supplemental Information that indicates the agency believes itself to be under a legal obligation to have these electronic payee regulations comply with the E-SIGN Act. The Supplemental Information describes the regulations as "consistent with" or "similar to" provisions of the E-SIGN Act rather than "in accordance with" or "as directed by."

Even if IRS determined that employer-employee communications are covered by the term "consumer," we believe that Section 104(d)(1) of the Act authorizes and implicitly requires IRS to provide an exemption to the "notice and consent" provisions for employer-employee communications in the workplace on the basis that "such exemption is necessary to eliminate a substantial burden on electronic commerce...." Credit unions cannot efficiently provide payee statements to their employees electronically if they are subjected to the E-SIGN Act’s consumer "notice and consent" requirements.

We believe, that in the absence of a statutory requirement to subject employer-employee communications to consumer "notice and consent" provisions, such a requirement is unnecessary, impractical, and contrary to government’s responsibility to ‘eliminate burdens on electronic commerce.’

Now, I would like to shift gears and make one additional point on the temporary and proposed regulations. Because of the cost of maintaining statements on electronic media for long periods of time, we suggest an optional shorter period for electronic access with the proviso that statements would be provided upon request until October 15.

This concludes my remarks. I appreciate your attention and the opportunity to appear before you. Thank you very much.