If this e-mail bounces back, we are not required to send them their statement in paper format?
Unless your contract or state law requires you to deal with bounced email notifications, then you can ignore them. To the extent it's appropriate and sensible, I'd follow the same procedure (if any) you have for returned U.S. Mail.
This ill-advised requirement existed ONLY in the now-repealed "E-Regs" issued by the Fed in 2001.