[Federal Register: March 10, 2005 (Volume 70, Number 46)]
[Proposed Rules]
[Page 12045-12073]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10mr05-35]
[[Page 12045]]
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Part II
Department of Labor
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Employee Benefits Security Administration
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29 CFR Parts 2520, 2550, et al.
Termination of Abandoned Individual Account Plans and Proposed Class
Exemption for Services Provided in Connection With the Termination of
Abandoned Individual Account Plans; Proposed Rule and Notice
[[Page 12046]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2520, 2550, and 2578
RIN 1210-AA97
Termination of Abandoned Individual Account Plans
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Proposed Regulations.
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SUMMARY: This document contains three proposed regulations under the
Employee Retirement Income Security Act of 1974 (ERISA or the Act)
that, upon adoption, would facilitate the termination of, and
distribution of benefits from, individual account pension plans that
have been abandoned by their sponsoring employers. The first proposed
rule would establish a regulatory framework pursuant to which financial
institutions and other entities holding the assets of an abandoned
individual account plan can terminate the plan and distribute benefits
to the plan's participants and beneficiaries, with limited liability.
The second proposed rule provides a fiduciary safe harbor for use in
connection with making rollover distributions from terminated plans on
behalf of participants and beneficiaries who fail to make an election
regarding a form of benefit distribution.
Appendices to these rules contain model notices for use in
connection therewith. The third proposed rule would establish a
simplified method for filing a terminal report for abandoned individual
account plans. These proposed regulations, if adopted, would affect
fiduciaries, plan service providers, and participants and beneficiaries
of individual account pension plans.
DATES: Written comments on the proposed regulations should be received
by the Department of Labor on or before May 9, 2005.
ADDRESSES: Comments should be addressed to the Office of Regulations
and Interpretations, Employee Benefits Security Administration, Room N-
5669, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210, Attn: Abandoned Plan Regulation. Comments also
may be submitted electronically to e-ORI@dol.gov. All comments received
will be available for public inspection at the Public Disclosure Room,
N-1513, Employee Benefits Security Administration, 200 Constitution
Avenue NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Jeffrey J. Turner or Stephanie L.
Ward, Office of Regulations and Interpretations, Employee Benefits
Security Administration, (202) 693-8500. This is not a toll-free
number.
SUPPLEMENTARY INFORMATION:
A. Background
Thousands of individual account plans have, for a variety of
reasons, been abandoned by their sponsors. Financial institutions
holding the assets of these abandoned plans often do not have the
authority or incentive to perform the responsibilities otherwise
required of the plan administrator with respect to such plans. At the
same time, participants and beneficiaries are frequently unable to
access their plan benefits. As a result, the assets of many of these
plans are diminished by ongoing administrative costs, rather than being
paid to the plan's participants and beneficiaries.
Over the past few years, the Department of Labor's Employee
Benefits Security Administration (EBSA) has seen an increase in the
number of requests for assistance from participants who are unable to
obtain access to the money in their individual account plans. According
to these participants, even though a bank or other service provider of
the plan may be holding their money, neither the bank nor the
participants are able to locate anyone with authority under the plan to
authorize benefit distributions.
In some cases, plan abandonment occurs when the sponsoring employer
ceases to exist by virtue of a formal bankruptcy proceeding. In other
cases, abandonment occurs because the plan sponsor has been
incarcerated, died, or simply fled the country. Whatever the causes of
abandonment, participants in these so-called ``orphan plan'' or
``abandoned plan'' situations are effectively denied access to their
benefits and are otherwise unable to exercise their rights guaranteed
under ERISA. At the same time, benefits in such plans are at risk of
being significantly diminished by ongoing administrative expenses,
rather than being distributed to participants and beneficiaries.
EBSA responded to those participants' requests for assistance with
a series of enforcement initiatives, including the National Enforcement
Project on Orphan Plans (NEPOP), which began in 1999. NEPOP focuses
primarily on identifying abandoned plans, locating their fiduciaries,
if possible, and requiring those fiduciaries to manage and terminate
(including making benefit distributions to participants and
beneficiaries) the plans in accordance with ERISA. When no fiduciary
can be found, the Department often requests a federal court to appoint
an independent fiduciary to manage, terminate, and distribute the
assets of the plan. EBSA had opened 1,354 civil cases involving orphan
plans as of September 30, 2004. In the over 800 orphan plan cases
closed with results through September 30, 2004, there were
approximately 50,000 participants affected and $250 million in assets
involved. As of September 30, 2004, there were 372 active cases
involving orphan plans.
During 2002, the ERISA Advisory Council created the Working Group
on Orphan Plans to study the causes and extent of the orphan plan
problem. On November 8, 2002, after public hearings and testimony, the
Advisory Council issued a report, entitled Report of the Working Group
on Orphan Plans,\1\ concluding that the problems posed by abandoned
plans are very serious and substantial for plan participants,
administrators, and the government. In particular, the Report states
that ``[p]lan participants may suffer economic hardship as a result of
their inability to obtain a distribution from an orphan plan; plan
service providers may be besieged with requests for distributions,
although unauthorized to act; and the government may be forced to
handle the termination of hundreds or thousands of plans that have been
abandoned.'' Although the Advisory Council's Report estimated that
abandoned plans currently represent only about two percent of all
defined contribution plans and less than one percent of total plan
assets for such plans, the Report also indicated that the orphan plan
problem may grow in difficult economic times.
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\1\ A copy of the Report can be found at http://www.dol.gov/ebsa/publications/AC_110802_report.html
.
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Taking into account the problem of abandoned plans and the
Department's efforts to date, the Advisory Council generally
recommended measures (whether regulatory, legislative, or both) to
encourage service providers to voluntarily terminate abandoned plans
and distribute assets to participants and beneficiaries. Specific
recommendations of the Advisory Council included new regulations
setting forth criteria for determining when a plan is abandoned,
procedures for terminating abandoned plans and distributing assets, and
rules defining who may terminate and wind up such plans.
The Department carefully considered the recommendations of the
Advisory Council, as well as the comments of the
[[Page 12047]]
various parties testifying at the public hearing, in developing the
proposed regulations contained in this document, which are being
promulgated by the Department pursuant to its authority in sections
403(d)(1), 404(a), and 505 of ERISA.
B. Overview of Proposed Abandoned Plan Regulation--29 CFR 2578.1
Generally, this proposed regulation, upon adoption, would establish
standards and procedures under title I of ERISA that will facilitate
the voluntary, safe and efficient termination of abandoned plans,
increasing the likelihood that participants and beneficiaries receive
the greatest retirement benefit under the circumstances. Specifically,
the proposed regulation establishes standards for determining when a
plan may be considered abandoned and deemed terminated, procedures for
winding up the affairs of the plan and distributing benefits to
participants and beneficiaries, and guidance on who may initiate and
carry out the winding-up process.
1. Qualified Termination Administrator
All determinations of plan abandonment, as well as related
activities necessary to the termination and winding up of an abandoned
individual account plan, under this regulation, may be performed only
by a ``qualified termination administrator'' or ``QTA.'' In this
regard, paragraph (g) of the proposal provides that a person or entity
can qualify as a termination administrator only if it, first, is
eligible to serve as a trustee or issuer of an individual retirement
plan that is within the meaning of section 7701(a)(37) of the Internal
Revenue Code (Code) \2\ and, second, if it holds assets of the plan on
whose behalf it will serve as the QTA. While the Department believes
that a person undertaking to terminate and wind up an abandoned
individual account plan should, for purposes of the relief provided by
the regulation, be subject to Federal standards and oversight, the
Department invites public comment on whether, and how, the definition
of a ``qualified termination administrator'' might be expanded to
include other parties.\3\ Comments on this subject should address
financial, operational, regulatory, and other safeguards on which
``QTA'' status might be conditioned to protect the interest of the
plan's participants and beneficiaries.
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\2\ Section 7701(a)(37) defines the term individual retirement
plan to mean an individual retirement account described in section
408(a) of the Code and an individual retirement annuity described in
section 408(b) of the Code.
\3\ The subject regulation is not intended to limit, in any way,
the ability of other parties who may be acting pursuant to court
appointment, court order, or otherwise acting on behalf of the
sponsor of the plan, to terminate and wind up the affairs of a
pension plan, without regard to whether the plan is considered
abandoned under this regulation. The proposed definition of
``qualified termination administrator'' does not include such
parties because they are empowered to take steps to terminate and
wind up the affairs of a plan without regard to any authority that
might be conferred by the regulation.
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2. Finding of Plan Abandonment
Paragraph (b) of proposed Sec. 2578.1 defines when a plan is
abandoned for purposes of the regulation. In this regard, paragraph (b)
provides that a QTA may find an individual account plan to be abandoned
when there have been no contributions to (or distributions from) a plan
for a continuous 12-month period, or where facts and circumstances
known to the QTA (such as a plan sponsor's liquidation under title 11
of the United States Code, or communications from plan participants and
beneficiaries regarding the plan sponsor, benefit distributions, or
other plan information) suggest that the plan is or may become
abandoned. See Sec. 2578.1(b)(1)(i). The latter standard is intended
to permit immediate findings of abandonment where known facts and
circumstances clearly obviate the need for 12 consecutive months of
plan inactivity. The testimony of various service providers (such as
banks, insurance companies, and mutual funds) makes it clear that they
frequently acquire knowledge of abandonment, even though contributions
or distributions may have occurred within the past 12 months. For
example, in some cases, employees of defunct businesses appear
personally or call the bank requesting distributions. Under these
circumstances, requiring a 12-month wait before taking some action
appears to be of little or no benefit to the plan participants, and
possibly even harmful to their interests.
A second condition to a finding of abandonment is that the QTA
must, following reasonable efforts to locate or communicate with the
known plan sponsor, determine that the plan sponsor no longer exists,
cannot be located, or is unable to maintain the plan. See Sec.
2578.1(b)(1)(ii). For this purpose, the proposal describes specific
steps that would constitute ``reasonable efforts'' by a QTA to locate
or communicate with the plan sponsor. See Sec. 2578.1(b)(3) and
(4).\4\ Among other things, a reasonable effort would include
furnishing notice to the plan sponsor of the QTA's intent to terminate
the sponsor's individual account plan and distribute benefits to the
plan's participants and beneficiaries. The proposal describes other
information that must be contained in the notice to the plan sponsor.
To facilitate compliance with this notification requirement, the
Department has developed a model notice to plan sponsors for use by
QTAs. This model notice, the use of which would be voluntary on the
part of the QTA, is contained in Appendix A to the proposed rule.
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\4\ The steps described in paragraphs (b)(3) and (4) of the
proposed regulation are not intended to be the exclusive method by
which a QTA can satisfy the standard of reasonableness in paragraph
(b)(1) of the regulation. These steps represent merely what the
Department considers to be an appropriate level of effort to locate
or communicate with the plan sponsor, given the unique circumstances
surrounding abandoned plans, the other requirements and safeguards
in the regulation relating to findings of abandonment, and the cost
associated with other generally available methods of locating
missing plan sponsors. The Department, nevertheless, invites public
comment on whether, and how, these steps might be augmented to
further reduce the possibility that a QTA might err in concluding
that a plan has been abandoned, when in fact the plan sponsor can be
located.
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With respect to the phrase ``unable to maintain the plan'' in
paragraph (b)(1)(ii), the testimony given to the Advisory Council's
Working Group suggests that imprisonment is perhaps the most common
reason why a plan sponsor might be considered unable to maintain its
plan. This phrase, however, should not be understood to be so limited
in nature. Rather, the Department intends for this phrase to encompass
physical, mental, legal, financial, or other impediments that, in the
judgment of the QTA, prevent the sponsor from making contributions to
and administrating the plan in accordance with the documents and
instruments governing the plan.
3. Deemed Terminations
Following a QTA's finding that a plan has been abandoned, the plan
will be deemed to be terminated under the proposal on the ninetieth
(90th) day following the date on which the QTA provides notice of its
determination of plan abandonment and its election to serve as a QTA to
the U.S. Department of Labor. See Sec. 2578.1(c). The furnishing of
notice to the Department, in conjunction with the 90-day delay in the
deemed termination of the plan, is intended to afford the Department an
opportunity to review the circumstances of the proposed plan
termination and, if appropriate, object to the termination. If the
Department objects to a termination, the plan will not be deemed
terminated
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until such time as the Department informs the QTA that the Department's
concerns have been addressed. See Sec. 2578.1(c)(2)(i).
The proposal would also permit (but does not require) the
Department, in its sole discretion, to waive some or all of the 90-day
waiting period described above. This might happen, for example, in the
case of plans with few participants and few assets or if the facts
relating to the abandonment are not very complicated, and if it is
reasonably apparent to the Department that the proposed termination
would be unlikely to put the participants' interests at risk. If the
Department were to waive some or all of the 90-day period in a
particular case, the plan involved would be deemed terminated when the
Department furnished notification of the waiver to the QTA. See Sec.
25781(c)(2)(ii).
Paragraph (c)(3) of Sec. 2578.1 provides that the above referenced
notice to the Department must be signed and dated by the QTA and
include certain information about the QTA and the abandoned plan.
Information about the QTA includes the name, EIN, address and phone
number of the QTA, a description of the steps it took to locate or
communicate with the known plan sponsor, a statement that it elects to
terminate and wind up the plan, and an itemized estimate of any
expenses the QTA expects to pay (including to itself) as part of the
process contemplated by the proposed regulation. The notice must also
identify whether the QTA or its affiliate is, or within the past 24
months has been, the subject of an investigation, examination, or
enforcement action by specified federal authorities. Information about
the plan includes the name of the plan, an estimate of the number of
participants in the plan, an estimate of total assets of the plan held
by the QTA, identification of known service providers of the plan, and
the last known address of the plan sponsor. The Department believes
that the required information will be sufficient to allow the
Department to assess whether it should object to a proposed
termination.
To facilitate compliance with this notification requirement, the
Department has developed a model notice for use by QTAs in notifying
the Department of plan abandonment. This model notice, the use of which
would be voluntary on the part of QTAs, is contained in Appendix B to
the proposed rule.
The Department is considering whether this notification, as well as
the notification required by Sec. 2578.1(d)(2)(viii) of the proposed
regulation, should be required to be submitted to the Department
electronically. The Department, therefore, specifically invites comment
on whether, and to what extent, the Department should either mandate or
provide for the electronic submission of these notices and what, if
any, cost or cost savings might result to plans because of either such
a requirement or such an opportunity to submit electronically.
4. Winding Up the Affairs of the Plan
A number of witnesses appearing before the Advisory Council's
Working Group on Orphan Plans indicated that they would be more likely
to participate in a formal process for terminating abandoned plans if
the Department established specific guidelines on how to wind up such
plans. Paragraph (d) of Sec. 2578.1 is intended to provide that
guidance. Paragraph (d)(1) of the proposed regulation prescribes the
general authority of the QTA to take steps that are necessary or
appropriate to wind up the affairs of the plan and distribute benefits
to the plan's participants and beneficiaries.
Paragraph (d)(2) of Sec. 2578.1 sets forth specific steps that a
QTA must take and, with respect to most such steps, specifies the
standards applicable to carrying out the particular activity (e.g.,
gathering plan records, engaging service providers, paying reasonable
expenses, etc.). The prescribed standards are intended to both clarify
and limit the responsibilities and liability of QTAs in connection with
the termination and winding up of an abandoned plan.
Paragraph (d)(2)(i) of the proposal deals with locating and
updating plan records. Several witnesses appearing before the Advisory
Council's Working Group identified incomplete or inaccurate plan
records as a possible impediment to winding up the affairs of abandoned
plans. In responding to this testimony, the Advisory Council's Report
recommended that the Department provide guidance on the extent to which
the records of abandoned plans must be updated before benefits may be
distributed. Paragraph (d)(2)(i)(A) of the proposal provides that the
QTA shall undertake reasonable and diligent efforts to locate and
update plan records necessary to determine benefits payable under the
plan. In recognition of the fact that there will be circumstances where
locating, recreating or updating plan records, may, even when possible,
be so costly that the plan's participants and beneficiaries will be
better off with benefits being determined on less than complete or
accurate records, the proposal, at paragraph (d)(2)(i)(B), provides
that the QTA shall not have failed to act reasonably and diligently
merely because it determines in good faith that updating the records is
either impossible or involves significant cost to the plan in relation
to the total assets of the plan.
Paragraph (d)(2)(ii) of the proposal provides that the QTA must use
reasonable care in calculating the benefits payable based on the plan
records assembled. This provision, in conjunction with paragraph
(d)(2)(i), is intended to ensure accuracy for the greatest number of
distributions, while making it clear that the Department does not
expect a QTA to assemble perfect records in every case.
Testimony before the Advisory Council's Working Group indicated a
need to address whether and under what circumstances plan assets could
be utilized to compensate service providers as part of the termination
and winding up process. Paragraphs (d)(2)(iii) and (iv) of the proposal
are intended to address the issues relating to the engagement of
service providers and the payment of expenses in connection with the
termination and winding up of an abandoned plan.
Paragraph (d)(2)(iii) of the proposal provides the QTA with the
authority to engage, on behalf of the plan, such service providers as
are necessary for the QTA to wind up the affairs of the plan and
distribute benefits to the plan's participants and beneficiaries.
Paragraph (d)(2)(iv)(A) makes clear that reasonable expenses incurred
in connection with the termination and winding up of the plan may be
paid from plan assets.
Paragraph (d)(2)(iv)(B) provides guidance concerning when expenses
incurred in connection with the termination and winding up of an
abandoned plan will be considered ``reasonable.'' In this regard, the
Department notes that the guidance provided by that paragraph applies
solely for purposes of determining the reasonableness of expenses
incurred in connection with the exercise of a QTA's authority under
this regulation to terminate and wind up an abandoned plan.
Specifically, paragraph (d)(2)(iv)(B) provides that an expense shall be
considered reasonable if: the expense is for services necessary to wind
up the affairs of the plan and distribute benefits to the plan's
participants and beneficiaries; such expense is consistent with
industry rates for the provided services, based on the experience of
the QTA; such expense is not in excess of rates charged by the QTA (or
affiliate) to other customers for comparable services, if
[[Page 12049]]
the QTA (or affiliate) provides comparable services to other customers;
and the payment of the expense would not constitute a prohibited
transaction or is otherwise exempt by virtue of an individual or class
exemption from ERISA's prohibited transaction rules.
The reference to ``industry rates'' and ``based on the experience
of the QTA'' in paragraph (d)(2)(iv)(B)(2)(i) is intended to enable
QTAs, who possess knowledge about the services needed for a plan
termination and industry rates for such or similar services, but who do
not perform these services for plans, to engage or retain service
providers without going through a potentially time-consuming and costly
bidding process. By permitting QTA's to rely on their own industry
expertise, we believe QTAs can minimize plan termination costs and,
thereby, maximize the benefits payable to a plan's participants and
beneficiaries.
The rule in paragraph (d)(2)(iv)(B)(2)(ii) is intended to augment
the protections provided under the industry rates standard discussed
above. Under this rule, if a QTA performs termination and winding up
services for customers other than abandoned plans under this
regulation, the fees it charges the other customers for such services
shall serve as limits for fees for comparable services needed by the
abandoned plans.
The Department anticipates that QTAs may wish to be compensated for
services they or an affiliate render in connection with the termination
and winding up of an abandoned plan. In the absence of an exemption,
however, a QTA's decision to compensate itself from plan assets for
such services would constitute a prohibited transaction under section
406 of ERISA, thereby making such payment unreasonable under this
regulation. See Sec. 2578.1(d)(2)(iv)(B)(3). To address this problem,
the Department is publishing in the Notice section of today's Federal
Register a proposed class exemption pursuant to which QTAs or their
affiliates can be reimbursed or compensated for services performed
pursuant to this regulation, following its adoption.
In addition to locating and updating plan records, calculating
benefits and engaging service providers, the QTA shall, as one of its
duties in winding up the affairs of a plan, notify each of the plan's
participants and beneficiaries concerning the termination of their
plan. In general, paragraph (d)(2)(v)(A) provides that the notice
furnished to participants and beneficiaries include: a statement that
the plan has been terminated; a statement of the participant's or
beneficiary's account balance and a description of the distribution
options available under the plan; a request for the participant or
beneficiary to make an election with respect to the form of
distribution; a statement explaining that in the event the participant
or beneficiary fails to make an election his or her account balance
will be rolled over into an individual retirement plan (i.e.,
individual retirement account or annuity) or other account (in the case
of a non-spousal beneficiary) and invested in an investment product
that is designed to preserve principal and provide a reasonable rate of
return and liquidity; and the name, address, and telephone number of a
person to contact with questions or for additional information.\5\
Nothing in the regulation would preclude a QTA from also including its
e-mail address in this notice.
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\5\ A QTA is not required under this regulation to select an
individual retirement plan provider (or other account provider in
cases of non-spousal beneficiaries) as of the date it furnishes to
participants and beneficiaries the notice described in paragraph
(d)(2)(v) of the proposal. The Department, however, believes that
efficient QTAs routinely will know who, even at that early juncture,
eventually will be the individual retirement plan (or other account)
provider, particularly in those cases where the QTA has selected, or
intends to select, itself (or an affiliate) to be the individual
retirement plan (or other account) provider. Accordingly, in
situations in which a QTA, at the time the notice in paragraph
(d)(2)(v) is furnished, has selected or knows who it will select to
provide individual retirement plan services (or other account
services in the case of non-spousal beneficiaries), such notice also
must include an identification of the individual retirement plan (or
other account) provider and, if known, a statement of the fees, if
any, that will be paid from the participant or beneficiary's
individual retirement plan (or other account in the case of non-
spousal beneficiaries), such as establishment or maintenance fees.
See Sec. 2578.1(d)(2)(v)(A)(5)(ii)&(iii); Sec. 2550.404a-
3(e)(v)&(vi).
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Appendix C to this section contains a model notice to participants
and beneficiaries. The model allows for inclusion of plan-specific
information, including a description of the process for electing a form
of distribution. While the Department intends that use of an
appropriately completed model notice would be considered compliance
with the content requirements of paragraph (d)(2)(v)(A) of the proposed
regulation, the Department does not intend to require its use and
anticipates a variety of other notices could satisfy the requirements
of the regulation.
This notice shall be furnished to the last known address of
participants and beneficiaries in accordance with the requirements of
29 CFR 2520.104b-1(b)(1). See Sec. 2578.1(d)(2)(v)(B)(1). If the
notice is returned undelivered to the QTA, however, the QTA, consistent
with the duties of a fiduciary under section 404(a)(1) of ERISA, shall
take steps to locate and notify the missing participant or beneficiary
before distributing benefits. See Sec. 2578.1(d)(2)(v)(B)(2). A QTA
may ensure compliance with this standard by following previous
fiduciary guidance issued by the Department in the context of missing
participants. See EBSA Field Assistance Bulletin No. 2004-02 (Sept. 30,
2004).
Paragraph (d)(2)(vi) of the proposal addresses distributions of
benefits to participants and beneficiaries. The general rule under that
paragraph is that a QTA is required to distribute benefits in
accordance with elections of participants or beneficiaries. See Sec.
2578.1(d)(2)(vi)(A). In the absence of a timely election by a
participant or beneficiary, however, the individual's benefits must be
directly rolled over to an individual retirement plan (or other account
in the case of a non-spousal beneficiary) in accordance with proposed
29 CFR 2550.404a-3. See Sec. 2578.1(d)(2)(vi)(B).
The last step in the winding-up process is for the QTA to notify
the Department that all benefits have been distributed in accordance
with the regulation. Paragraph (d)(2)(viii) of the proposal sets forth
the content requirements of this notification, which is referred to in
the regulation as the final notice. Among other things, the final
notice is required to include: A statement that the plan has been
terminated and all assets held by the QTA have been distributed to the
plan's participants and beneficiaries on the basis of the best
available information; a statement that the special terminal report
meeting the requirements of proposed 29 CFR 2520.103-13 is attached to
the final notice; a statement that plan expenses were paid out of plan
assets by the QTA in accordance with applicable federal law; and, in
cases where the QTA paid itself 20 percent or more than it had
estimated it would be paying itself, a statement acknowledging and
explaining the overrun.
Appendix D to this section contains a model final notice. The model
allows for inclusion of plan-specific information. While the Department
intends that use of an appropriately completed model notice would be
considered compliance with the content requirements of paragraph
(d)(2)(viii) of the proposed regulation, the Department does not intend
to require its use and anticipates a variety of other notices could
satisfy the requirements of the proposed regulation.
[[Page 12050]]
5. Plan Amendments
Paragraph (d)(3) of section 2578.1 provides that the terms of the
plan shall, for purposes of title I of ERISA, be deemed amended to the
extent necessary to allow the QTA to wind up the plan in accordance
with this regulation. The purpose of this provision is to enable QTAs
to avoid the potentially significant costs attendant to amending the
plan to permit what is otherwise permissible under this regulation. For
example, a QTA may, without regard to plan terms, engage or replace
service providers and pay expenses attendant to winding up and
terminating the plan from plan assets.
6. Limited Liability of Qualified Termination Administrator
In a further effort to limit the liability of a QTA, paragraph (e)
of the proposed regulation provides that, if a QTA carries out its
responsibilities with regard to winding up the affairs of the plan in
accordance with paragraph (d)(2) of the regulation, the QTA is deemed
to satisfy any responsibilities it may have under section 404(a) of
ERISA with respect to such activity, except for selecting and
monitoring service providers. In addition, with respect to its
selection and monitoring duties, if the QTA selects and monitors
service providers consistent with the prudence requirements in part 4
of ERISA, the QTA will not be held liable for the acts or omissions of
the service providers with respect to which the QTA does not have
knowledge.
7. Internal Revenue Service
The Advisory Council's Working Group on Orphan Plans recommended
that the Department coordinate with the Internal Revenue Service (IRS)
in the development of this proposed regulation in order to prevent
participants and beneficiaries of abandoned plans, insofar as possible
under the Code, from losing the favorable tax treatment otherwise
accorded distributions from qualified plans. The Department, therefore,
has conferred with representatives of the IRS regarding the
qualification requirements under the Code as applied to plans that
would be terminated pursuant to this proposed regulation. The IRS has
advised the Department that it will not challenge the qualified status
of any plan terminated under this regulation or take any adverse action
against, or seek to assess or impose any penalty on, the QTA, the plan,
or any participant or beneficiary of the plan as a result of such
termination, including the distribution of the plan's assets, provided
that the QTA satisfies three conditions. First, the QTA, based on plan
records located and updated in accordance with paragraph (d)(2)(i) of
the proposed regulation, reasonably determines whether, and to what
extent, the survivor annuity requirements of sections 401(a)(11) and
417 of the Code apply to any benefit payable under the plan.\6\ Second,
each participant and beneficiary has a nonforfeitable right to his or
her accrued benefits as of the date of deemed termination under
paragraph (c)(1) of the proposed regulation, subject to income,
expenses, gains, and losses between that date and the date of
distribution. Third, participants and beneficiaries must receive
notification of their rights under section 402(f) of the Code. This
notification should be included in, or attached to, the notice
described in paragraph (d)(2)(v) of the proposed regulation.
Notwithstanding the foregoing, the IRS reserves the right to pursue
appropriate remedies under the Code against any party who is
responsible for the plan, such as the plan sponsor, plan administrator,
or owner of the business, even in its capacity as a participant or
beneficiary under the plan.
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\6\ These Code sections, and regulations thereunder, set forth
qualified joint and survivor and qualified preretirement survivor
annuity requirements and related notice, election and consent rules.
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C. Overview of Proposed Safe Harbor for Rollovers From Terminated
Individual Account Plans--29 CFR 2550.404a-3
Under proposed Sec. 2578.1, as discussed above, if a participant
or beneficiary fails to elect a form of benefit distribution, the QTA
is required to distribute that person's benefits in the form of a
direct rollover into an individual retirement plan (or other account in
the case of a rollover on behalf of a non-spousal beneficiary). See
Sec. 2578.1(d)(2)(vi)(B). In a different context, the Department
previously took the position that the selection of IRA providers and
investments for purposes of a default rollover pursuant to a plan
provision is a fiduciary act.\7\ The Department, therefore, is
concerned that this position, in the absence of guidance regarding
ERISA's fiduciary standards in the context of directly rolling over
benefits under proposed Sec. 2578.1, could make potential QTAs
apprehensive about assuming the status of a QTA, solely for fear of
fiduciary liability in connection with such rollovers.
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\7\ See Rev. Rul. 2000-36, n. 1, where the Department stated
that the selection of an IRA trustee, custodian or issuer and IRA
investment for purposes of a default rollover pursuant to a plan
provision would constitute a fiduciary act under ERISA; see also
EBSA Field Assistance Bulletin 2004-02 (Sept. 30, 2004).
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Accordingly, the Department is proposing a fiduciary safe harbor,
at 29 CFR 2550.404a-3, for QTAs that roll over distributions pursuant
to proposed Sec. 2578.1(d)(2)(vi)(B). This fiduciary safe harbor was
modeled on the fiduciary safe harbor recently adopted by the Department
for the automatic rollover of mandatory distributions described in
section 401(a)(31)(B) of the Code.\8\ If the conditions of the safe
harbor are met, a QTA would be deemed to have satisfied the
requirements of section 404(a) of the Act with respect to both the
selection of an individual retirement plan provider (or other account
provider in the context of a rollover on behalf of a non-spousal
beneficiary) and the investment of the distributed funds.
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\8\ See 69 FR 58018 (Sept. 28, 2004).
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The safe harbor has three conditions, set forth in paragraph (d) of
the proposed regulation. First, each distribution must be rolled over
into an individual retirement plan, as defined in section 7701(a)(37)
of the Code or, in the case of a distribution on behalf of a non-
spousal distributee,\9\ to an account (other than an individual
retirement plan) maintained by an entity that is eligible to serve as a
trustee or issuer of an individual retirement plan. Second, in
connection with each such distribution, the QTA and the individual
retirement plan provider (or other account provider in the context of a
rollover on behalf of a non-spousal beneficiary) must enter into a
written agreement that provides that: Rolled-over funds must be
invested in an investment product designed to preserve principal and
provide a reasonable rate of return, whether or not such return is
guaranteed, consistent with liquidity; the investment product selected
for the rolled-over funds shall seek to maintain a stable dollar value
equal to the amount invested in the product by the individual
retirement plan (or other account in the context of a rollover on
behalf of a non-spousal beneficiary); fees and expenses attendant to
the individual retirement plan (or other account in the context of a
rollover on behalf of a non-spousal beneficiary), including investments
of such plan, do not exceed certain limits; and, the participant or
beneficiary on whose behalf the QTA makes a direct rollover shall have
the right to enforce the terms of the contractual agreement
establishing the individual retirement plan (or other account in the
context of a rollover on behalf of a non-spousal beneficiary), with
regard to his or her
[[Page 12051]]
rolled-over funds, against the individual retirement plan or other
account provider. Third, if the QTA designates itself as the transferee
of rollover proceeds, such designation must be exempt from the
restrictions imposed by section 406 of ERISA pursuant to section 408(a)
of ERISA.\10\
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\9\ See 26 CFR 1.402(c)-2, Q&A--12.
\10\ Section 406 of the Act prohibits certain transactions
involving plans and parties in interest with respect to those plans.
Pursuant to section 408(a) of ERISA, the Department may grant an
exemption from the restrictions imposed by section 406 of ERISA upon
finding that such exemption is administratively feasible, in the
interests of the plan and its participants and beneficiaries and
protective of the rights of participants and beneficiaries. The
Department is publishing a proposed class exemption in today's
Federal Register that is intended to deal with prohibited
transactions resulting from a QTA's selection of itself as the
provider of an individual retirement plan (or other account provider
in the context of a rollover on behalf of a non-spousal beneficiary)
and/or issuer of an investment held by such plan.
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The Department, in developing this safe harbor for QTAs of
abandoned plans, observed strong similarities between QTAs of abandoned
plans and fiduciaries of terminated defined contribution plans
generally. In particular, in either situation, the QTA or fiduciary
will find that the winding-up process may be severely complicated or
even postponed indefinitely if participants or beneficiaries fail to
affirmatively elect a form of distribution. In such cases, the
responsible decision maker is faced with a choice of either halting the
winding-up process or finishing it in the absence of an affirmative
direction from a participant or beneficiary regarding the distribution
of his or her benefits.
The Department, therefore, has concluded that the sound
administration of ERISA is furthered by not limiting the applicability
of Sec. 2550.404a-3 to QTAs. Rather, the Department is proposing to
make available safe harbor relief to fiduciaries in connection with
rollover distributions from any terminated defined contribution plan,
without regard to whether the particular plan is considered abandoned
pursuant to proposed section 2578.1, whenever the participant or
beneficiary on whose behalf the rollover is being made fails to
affirmatively elect a form of distribution.
Of course, as with abandoned plans, the safe harbor is not
available unless plan fiduciaries satisfy certain notification
requirements before making a rollover distribution. See Sec.
2550.404a-3(e).\11\ To facilitate compliance with this notice
requirement, the Department has developed a model notice for use by
fiduciaries to notify participants and beneficiaries of their
distribution options and to request that each such participant or
beneficiary elect a form of distribution. This model notice, the use of
which would be voluntary, is contained in the appendix to this proposed
regulation.
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\11\ The Department notes that the notice requirement in
paragraph (e) of the proposed safe harbor does not relieve a plan
administrator of its obligation to notify participants or
beneficiaries of their rights under section 402(f) of the Code.
Section 402(f) notification should be included in, or attached to,
the notice described in paragraph (e) of this proposed safe harbor.
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Finally, the Department, after consulting with the IRS, has decided
to limit the applicability of the fiduciary safe harbor to rollovers
from tax qualified plans. Specifically, with respect to rollover
distributions from plans that are not abandoned plans under section
2578.1, such plans must be in compliance with the requirements of
section 401(a) of the Code at the time of each rollover distribution.
See Sec. 2550.404a-3(a)(2)(ii). In the context of a rollover
distribution from an abandoned plan, the safe harbor is available if
such plan is intended to be maintained as a tax-qualified plan in
accordance with the requirements of section 401(a) of the Code, even if
such plan is not operationally qualified at the time of a rollover
distribution pursuant to section 2578.1. See Sec. 2550.404a-
3(a)(2)(i). The Department invites comments on whether the safe harbor
should be made available to fiduciaries for rollovers from arrangements
described in section 403 of the Code, where such arrangements are
covered by title I of ERISA.
D. Overview of Proposed Reporting Regulation--29 CFR 2520.103-13
Several witnesses before the Advisory Council's Working Group on
Orphan Plans testified that, in order to be successful, a program for
terminating and winding up abandoned plans must include relief from the
annual reporting requirements in section 103 of ERISA. In this regard
the Advisory Council recommended the creation of special reporting
rules for abandoned plans, placing emphasis on relief from the
requirement to engage an independent qualified public accountant. The
Council also recommended that the Department make clear the extent to
which the QTA, rather than the plan administrator (within the meaning
of section 3(16) of ERISA), would be responsible for missing or
deficient annual reports for plan years preceding the year in which the
plan is deemed terminated.
The Department is proposing to add to part 2520 of the Code of
Federal Regulations a new section 2520.103-13 to provide annual
reporting relief relating to abandoned plan filings by QTAs. This
proposed regulation addresses the content, timing, and method of filing
rules for the reporting requirement imposed on qualified termination
administrators pursuant to proposed 29 CFR 2578.1(d)(2)(vii). In
addition to basic identifying information of the plan and QTA, the
report would, as proposed, be required to specify the plan's total
assets as of a particular date, termination expenses paid by the plan,
and the total amount of distributions, along with other relevant
information. This report would be required to be filed within 2 months
after the month in which all of the plan's affairs have been completed
(except for the requirements in 29 CFR 2578.1(d)(2)(vii) and (viii)).
This report would be required to be filed on the Form 5500 in
accordance with the special instructions for abandoned plans terminated
pursuant to 29 CFR 2578.1. The filing of this report with the
Department would be accomplished when a report meeting the requirements
of proposed section 2520.103-13 is furnished to the Department as an
attachment to the notice described in section 2578.1(d)(2)(viii).
Paragraph (e) of proposed 2520.103-13 is intended to address
concerns regarding the responsibilities of QTAs under part 1 of title I
of ERISA. This paragraph clarifies that a QTA is not subject to the
generally applicable reporting requirements in part 1 of title I of
ERISA, and that the filing of a report in accordance with this section
does not relieve the plan's administrator (within the meaning of
section 3(16) of ERISA) of any obligation it has under ERISA.
Similarly, any failure by the QTA to meet the requirements of 29 CFR
2520.103-13 does not for that reason make the QTA subject to the
requirements of part 1 of title I of ERISA, although it would prevent
compliance with section 2578.1.
E. Effective Date
The Department is considering making these three proposed
regulations, i.e., sections 2578.1, 2550.404a-3, and 2520.103-13,
effective 60 days after the date of publication of final rules in the
Federal Register. The Department invites comments on whether the final
regulations should be made effective on an earlier or later date.
[[Page 12052]]
F. Regulatory Impact Analysis
Summary
This regulatory initiative consists of three proposed regulations.
One proposal, entitled Rules and Regulations for Abandoned Plans,
establishes procedures and standards for the termination of, and
distribution of benefits from, an abandoned pension plan. The second
proposal, entitled Safe Harbor for Rollovers From Terminated Individual
Account Plans, provides relief from ERISA's fiduciary responsibility
rules in connection with a rollover distribution on behalf of a missing
or unresponsive plan participant. The last proposal, entitled Special
Terminal Report for Abandoned Plans, provides annual reporting relief
for terminated abandoned plans.
Rules and Regulations for Abandoned Plans (29 CFR 2578.1)
The standards and procedures set forth in this proposed regulation
are intended to facilitate the voluntary, safe, and efficient
termination of individual account plans that have been abandoned and to
increase the likelihood that participants and beneficiaries will
receive the greatest retirement benefit practicable under the
circumstances. Participants and beneficiaries that had previously been
denied access to their benefits because there was no authority willing
or able to assume responsibility for the abandoned plan will be able to
direct the QTA concerning the distribution of their account balances as
permitted under the terms of the plan and federal regulations.
Without this regulation, plans that have been abandoned by a plan
sponsor might eventually be terminated through government enforcement
or other legal action. However, information gathered by the Advisory
Council's Working Group suggests that more often the assets of
abandoned plans continue to be diminished by ongoing administrative
expenses at the same time that participants and beneficiaries are
denied access to their benefits. The Department assumes for purposes of
its analysis of the impact of these proposed rules that most plans that
would currently meet the criteria for a finding of abandonment would
remain abandoned without the establishment of a regulatory framework
and specific standards and procedures such as those described in this
proposed regulation. It is also assumed that an accumulated number of
plans meeting the criteria for abandonment would be terminated and
wound up pursuant to these rules, and that a smaller number of plans
would become abandoned and terminated in future years.
Although certain costs will be incurred and paid from plan assets
in the course of the termination and winding up of abandoned plans
pursuant to this regulation, the qualitative and quantitative benefits
of the regulation are expected to be both numerous and substantial. The
most significant qualitative benefit of the regulation will arise from
the facilitation of the voluntary termination of abandoned plans. It is
assumed, for purposes of cost estimates presented here, that all fees
and expenses for terminating an abandoned plan, to the extent that they
are reasonable, will be charged to the plan.
Absent the proposed regulation, the persons or other entities
holding assets of abandoned plans would not in most cases have the
authority or incentive to see that such plans are terminated and that
benefits are distributed to participants and beneficiaries. The
specificity of the proposed standards and procedures, along with
provisions that limit the liability of the QTA in certain
circumstances, will support the rights of participants and
beneficiaries by establishing the authority and incentive for a QTA to
wind up the affairs of an abandoned plan. The requirements pertaining
to the timing and content of notices to the Department and to the
participants and beneficiaries, as well as guidance that addresses the
obligations of the QTA with respect to the condition of plan records,
selection and monitoring of service providers, payment of fees and
expenses, and requirements for plan amendments and continued tax
qualification, will serve to protect the benefits of affected
participants and beneficiaries in the course of the termination and
winding up of abandoned plans.
The termination of plans that would otherwise remain abandoned also
has quantitative economic implications. The termination of these plans
in accordance with the regulation would serve to maximize the benefits
ultimately payable to participants and beneficiaries in two important
ways. First, termination would preclude the ongoing payment of
administrative expenses that diminish assets but only minimally
contribute to the management of the plan. In addition, the specific
standards and procedures of the proposed regulation would limit the
costs that would otherwise be associated with plan termination. Each of
these in turn would moderate the extent to which individual account
balances of the abandoned plan would be drawn upon for plan
administration.
Costs will be incurred and paid from plan assets to wind up the
affairs of abandoned plans. However, these costs are meaningful only in
the context of the savings of administrative expenses that would
otherwise have continued to be paid indefinitely absent the
termination. An assessment of the net effect of the termination cost
and administrative savings is complicated by the fact that the cost is
incurred once, while the savings would occur repeatedly in future years
of what would otherwise be continuing abandonment.
In analyzing the costs and potential savings, and relying on
available data and certain assumptions described in detail later in
this discussion, the Department compared the aggregate projected
termination costs of an estimated number of potentially abandoned plans
with the present value of future ongoing administrative costs for those
plans. This comparison shows that while the termination costs exceed
administrative savings in the year of termination, by the end of the
next year and thereafter, the termination has prevented the payment of
a significantly greater aggregate expense, resulting in a substantial
preservation of retirement benefits.
In the absence of direct measures for the number of abandoned
plans, the Department, based on Form 5500 data and certain assumptions,
estimates that there are approximately 4,000 abandoned plans at
present.\12\ Assuming 4,000 abandoned plans, and based on Form 5500
data and certain assumptions concerning ordinary plan termination
expenses and typical annual administrative expenses, the Department
estimates that the aggregate termination cost for those abandoned plans
amounts to $8.4 million, while one year of ongoing administrative costs
would amount to $7.7 million. However, by the end of the next following
year, termination will have had the effect of saving $6.6 million. In
other words, the net benefit in administrative cost savings for
facilitating termination of abandoned plans would be $6.6 million for
plans that would have remained abandoned for two years. If these plans
remained abandoned for five years, it is estimated that the net benefit
of facilitating termination would exceed $27 million.
[[Page 12053]]
These net benefits represent plan assets preserved for retirement
benefits.
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\12\ Testimony before the Advisory Council suggests that the
number of abandoned plans might be nearer to 2%. If this witness's
experience is representative, approximately 11,700 plans could be
considered abandoned plans.
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These estimates are, however, based on what is known about average
ordinary administrative expenses and the way those expenses compare
with plan termination costs. The Department has crafted the proposed
regulation with the intention of increasing efficiency and
significantly reducing the administrative cost of terminating abandoned
plans through specificity as to procedures, timing, obligations
pertaining to records, selection and monitoring of service providers,
payment of fees and expenses, plan amendments, tax qualification
issues, and reporting. The Department has also proposed models for
required notices in an effort to increase efficiency and reduce the
cost of termination. The cost for completing and mailing notices for
currently abandoned plans is estimated at $652,300; additional annual
costs for plans that become abandoned in the future are $87,340. These
costs are explained more fully in the section of the preamble related
to the Paperwork Reduction Act.
Because the circumstances of abandoned plans are thought to vary
considerably, the estimates of savings in termination costs that might
arise from efficiency gains are subject to some uncertainty. However,
each 10% reduction in the cost of termination is estimated to produce
savings in excess of $800,000. Assuming that the specific provisions of
the proposed regulation would increase efficiency and reduce costs by
at least 20%, about $1.7 million in termination costs would be saved,
further preserving retirement benefits for participants and
beneficiaries of currently abandoned plans. In this circumstance, the
benefits of these terminations exceed their administrative costs by
about $900,000 in the year of termination. Similar effects will be seen
for the somewhat smaller number of plans that become abandoned from
year to year.
It is estimated that the net benefit of the proposed regulation
might vary considerably relative to actual efficiency gains and the
duration of plan abandonment. For plans potentially abandoned at this
time, this net benefit is expected to range from at least $900,000, to
$6.6 million if abandonment continued for a year beyond the year of
termination, to $27 million if abandonment continued for four years
beyond the year of termination. In future years, termination of an
additional 1,650 plans annually is expected to result in a net benefit
ranging from about $400,000, to $2.7 million at the year beyond the
year of termination, to $14.5 million at the fourth year beyond the
year of termination. A more detailed discussion of the data,
assumptions, and methodology underlying this analysis will be found
below.
Safe Harbor for Rollovers From Terminated Individual Account Plans (29
CFR 2550.404a-3)
In addition to plans that are terminated by a QTA because of
abandonment, other individual account plans may terminate as a result
of a plan sponsor's voluntary decision to discontinue the plan. Similar
to a QTA's experience with abandoned plans, a plan administrator or
service provider responsible for distributing assets from individual
accounts may find that certain participants and beneficiaries fail to
elect a form of distribution because they are either missing or
unresponsive. In order to select an institution and an investment for
rolling over account balances of missing or unresponsive participants
or beneficiaries, fiduciaries would benefit from a safe harbor that
will limit their liability under section 404(a) of ERISA. Accordingly,
fiduciaries that comply with the requirements of this proposed
regulation will be deemed to have complied with section 404(a) of ERISA
in connection with a rollover from a terminated plan, including an
abandoned plan, into an individual retirement plan or other account.
Costs related to establishing individual retirement plans and other
accounts and selecting institutions and investments for rolled over
accounts, have been accounted for in the Department's regulation on
Fiduciary Responsibility Under the Employee Retirement Income Security
Act of 1974 Automatic Rollover Safe Harbor (69 FR 58018). The cost for
the proposed regulation is attributable only to the Notice to
Participants that must be provided to affected participants and
beneficiaries informing them about the termination and the need to make
an election concerning the distribution of their benefits. The cost for
the Notice to Participants in currently abandoned plans is estimated at
$207,800. Annual costs for notifying the 56,500 participants in
terminating plans, including abandoned plans, estimated to be missing
or unresponsive on an ongoing basis are $149,500.
Qualitative benefits will accrue to fiduciaries that rollover
accounts under this proposed regulation through greater certainty and
reduced exposure to risk, and to former participants through regulatory
standards concerning: individual retirement plan or other account
providers; investment products, including preservation of principal,
rates of return, and liquidity; fees and expenses; and, disclosure.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13)
The proposed regulation simplifies the content, timing, and method
for final reporting by a QTA to the Department. No cost has been
attributed to this proposed regulation, nor has the benefit been
estimated.
Executive Order 12866 Statement
Under Executive Order 12866, the Department must determine whether
a regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f) of the Executive
Order, a ``significant regulatory action'' is an action that is likely
to result in a rule (1) having an annual effect on the economy of $100
million or more, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order. OMB has
determined that this action is significant under section 3(f)(4)
because it raises novel legal or policy issues arising from the
President's priorities. Accordingly, the Department has undertaken an
analysis of the costs and benefits of the proposed regulations. OMB has
reviewed this regulatory action.
Costs
Rules and Regulations for Abandoned Plans (29 CFR 2578.1)
Under the proposed regulation, individual account plans that are
found to be abandoned will incur certain costs and fees in connection
with the termination and winding up of the plan. These expenses
include, among others, the costs associated with determining whether
the plan is, in fact, abandoned, as well as notifying participants and
the government of the abandonment. There may also be expenses
associated with
[[Page 12054]]
updating records, distributing benefits, and reporting.
The total expense will arise from the number of plans abandoned.
However, the actual number of abandoned plans is not known. To estimate
for purposes of this analysis the number of plans that might be
abandoned, the Department examined the contribution and distribution
activity of individual account pension plans as reported on Form 5500
filings. This information would not by itself indicate whether any plan
was abandoned; nor do Form 5500 filings indicate that a plan is
abandoned. It is assumed, however, that a QTA would normally have
access to more information about a specific plan than can be extracted
from Form 5500 data. Nonetheless, Form 5500 data was considered the
only source of information for approximating a number of plans that
could be considered abandoned based on contribution and distribution
activity.
To arrive at its estimate, the Department reviewed the number of
plans that filed a Form 5500 in 1999 indicating that no contributions
had been received by the plan and no distributions had been made to
participants or beneficiaries. Reports by these same filers were
compared for each year from 2000 to 2002 in order to determine whether
there had been contributions to or distributions from those plans. The
Department considered plans to be potentially abandoned for the purpose
of this analysis if neither form of activity was present throughout
this period. The Department has used this methodology for its estimate
of the number of potentially abandoned plans because preliminary
analyses of Form 5500 data for plans without contributions and
distributions in only a 12-consecutive-month period showed that a
portion of those plans resumed activity or terminated in subsequent
years. This methodology is merely thought to produce a reasonable
estimate that allows for observed variations in plan financial activity
from year to year; it does not bear on the actual requirements of a QTA
with respect to a finding of abandonment set out in the proposed rules.
This approach yielded an estimate of about 4,000 plans that may be
currently abandoned. Because witnesses before the Working Group
indicated that most plans were small plans with 20 or fewer
participants, it is estimated that the 4,000 plans include 78,500
participants. Other analysis of Form 5500 data suggests that, going
forward, an estimated 1,650 plans, with 33,000 participants, and an
estimated $868 million in assets, may be abandoned annually. These
estimates do not include any abandoned plans that did not file in 1999
or later.
Using the Form 5500 to estimate the number of plans that may have
been abandoned results in a fair degree of uncertainty. The fact that a
plan has filed an annual report indicates that certain obligations are
being met with regard to administration of the plan and that there may
be other circumstances that would explain a lack of financial activity.
For example, a lack of contributions or distributions from a profit
sharing plan may not necessarily indicate that the plan has been
abandoned. Testimony by service providers before the Working Group and
information gathered under NEPOP indicate, however, that continued
administrative activity does not mean that a plan is not abandoned. It
is also possible that additional efforts by a QTA in connection with a
potential finding of abandonment would reveal that any given plan did
not meet the standard for a finding of abandonment. The number of plans
actually abandoned, and therefore the number of participants in those
plans, may be lower. While each of these factors introduces uncertainty
into the estimates, without the advantage of additional information
available to a QTA that makes a timely inquiry into the activities of a
potentially abandoned plan, the Department believes it is reasonable to
rely on the 4,000 plans that showed no activity with regard to
contributions or distributions over a four-year period, and the 1,650
plans expected to be abandoned on an annual basis going forward, for
reasonable approximations of the number of abandoned plans that might
be terminated pursuant to these rules.
The Department has estimated the net impact of the proposed
regulation by comparing the ongoing administrative costs for
maintaining an abandoned plan with the cost for terminating such a
plan. The Department has assumed that termination costs will be
significantly affected by the degree to which plan administration was
maintained following abandonment. There is expected to be an inverse
relationship between ongoing administrative costs and termination costs
of abandoned plans, such that a well-maintained plan would be less
costly to terminate, and a less-well-maintained plan would be
relatively more costly to terminate. Where service providers to the
plan have continued to fulfill their contractual obligations, and
participants in these more well-maintained plans can be located, the
costs for terminating such plans are assumed to be at the lower end of
a range. At the higher end of the range are abandoned plans that have
not been administered consistent with ERISA's standards, such as where
reporting and recordkeeping activities have been discontinued.
Based on available information regarding plans in general, the
ongoing administrative costs for abandoned plans are estimated to range
from approximately $900 to $3,000 per plan annually, or $3.5 million to
$11.8 million annually for 4,000 currently abandoned plans. Testimony
before the Working Group indicated that terminating an abandoned plan
can add ten percent to the ordinary expenses related to plan
administration. As such, termination costs are expected to range from
$1,000 to $3,300 per plan, or $3.9 million to $13 million for all
potentially abandoned plans. Weighting the number of abandoned plans
equally between those that have been more and less actively
administered produces an aggregate annual administrative cost for 4,000
abandoned plans of approximately $7.7 million; the one-time cost to
terminate these same plans would be $8.4 million based on these
assumptions. Similarly, the annual administrative costs for the 1,650
plans estimated to be abandoned annually is estimated at $3.2 million;
while the one-time termination cost would be $3.5 million. The actual
proportions of more and less actively administered plans may be
different from those assumed.
Although this aspect of the analysis suggests that termination is
more costly than ongoing administration, the future savings of ongoing
expenses that result from termination will continue through the entire
period that the plan would otherwise have remained abandoned. Because
costs and savings occur in different years, a single-year comparison of
expenses does not adequately account for the net impact of termination
under these proposed regulations, as is addressed in the discussion of
benefits that follows.
The Department expects that one-time termination costs may in fact
be less than one year's ongoing administrative expense as a result of
its efforts in these proposed regulations to increase efficiency
through establishment of specific standards and procedures, and through
clarifying and limiting the responsibilities and liabilities of the
QTA. The aggregate termination cost savings that would arise from this
greater efficiency is subject to uncertainty. However, each 10%
reduction in the cost of termination is assumed to produce savings in
excess of $800,000. Assuming that the provisions
[[Page 12055]]
of these proposed regulations would increase efficiency and reduce
costs by at least 20%, $1.7 million in termination costs would be
saved, and total one-time termination costs would amount to $6.7
million. Savings of about $700,000 would arise from greater efficiency
in terminating plans abandoned in future years, reducing ongoing
estimated termination costs from $3.5 million to $2.8 million.
Finally, the Department has estimated the cost for a QTA to
complete the notices required to be furnished to the Department, plan
sponsor, and participants at $652,300 for currently abandoned plans.
Future costs for notices for the 1,650 plans estimated to be abandoned
on an annual basis are $87,340. These costs are explained in more
detail in the Paperwork Reduction Act section of the preamble.
Safe Harbor for Rollovers From Terminated Individual Account Plans (29
CFR 2550.404a-3)
The safe harbor in section 2550.404a-3 requires the furnishing of a
notification to participants and beneficiaries informing them of the
termination and the options available for the distribution of assets in
an account. The number of notices to be sent and the cost for these
notices is based on the number of missing or non-responsive individuals
whose account balances are likely to be rolled over by a fiduciary.
Based on data about terminating plans that are not abandoned plans
from the year 2000 Form 5500 Annual Report, the Department estimates
that, annually, there are 2.3 million participants and beneficiaries in
terminating plans. Although the number that will fail to make an
election concerning distribution of the assets in their account
balances is not known, other information about participants and
beneficiaries in defined benefit plans has led the Department to assume
that the number is approximately 1%, or 23,500 annually. As such, in
order to take advantage of the safe harbor under section 404(a), plan
administrators will be required to furnish 23,500 Notices to
Participants. The cost for these notices, at 2 minutes per notice and
$.38 each for mailing, is $62,170.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13)
There are no costs attributable to the changes in annual reporting
for abandoned plans in the proposed regulation. Simplified reporting
represents a benefit to abandoned plans, as explained below.
Benefits
Rules and Regulations for Abandoned Plans (29 CFR 2578.1)
The proposed regulation would have qualitative and quantitative
benefits. The standards and procedures set forth here are intended to
facilitate the voluntary, safe, and efficient termination of individual
account pension plans that have been abandoned, and to increase the
likelihood that participants and beneficiaries will receive the
greatest retirement benefit practicable under the circumstances.
The most significant qualitative benefit of the regulation will
arise from the facilitation of the voluntary termination of abandoned
plans. Absent the proposed standards and procedures, along with
provisions that limit the liability of the QTA in certain
circumstances, the persons or other entities holding assets of
abandoned plans would not in most cases have the authority or incentive
to see that such plans are terminated in accordance with applicable
requirements, and that benefits are distributed to participants and
beneficiaries.
The termination of abandoned plans upon adoption of the regulation
would allow participants and beneficiaries that have been unable to
access their benefits to elect, according to procedures established by
the QTA, a form of distribution for the balance in their individual
accounts. The requirements addressing the obligations of the QTA with
regard to winding up the affairs of an abandoned plan will serve to
protect the benefits of affected participants and beneficiaries in the
course of the termination and winding up process. Benefits ultimately
payable to participants and beneficiaries are maximized in two
important ways. First, termination would preclude the ongoing payment
of administrative expenses that diminish assets but only minimally
contribute to the management of the plan. In addition, the specific
standards and procedures of the proposed regulation would limit the
costs that would otherwise be associated with plan termination. Each of
these in turn would moderate the extent to which benefits were drawn
upon for plan administration.
Costs to be paid from plan assets to wind up the affairs of
abandoned plans are meaningful only in the context of the savings of
administrative expenses that would otherwise have continued to be paid
absent the termination. A comparison of the termination cost with
administrative savings is complicated by the fact that the cost is
incurred once, while the savings would be incurred repeatedly
throughout the years the plan would have been abandoned. To address
this timing difference, the Department has estimated the present value
of future ongoing administrative expenses using a 3% discount rate over
a period from one year after the year of termination to five years
after termination. The actual duration of abandonment cannot be
determined with certainty; however, a period from one to five years is
thought to offer a reasonable illustration of potential administrative
cost savings that could arise in future years from the termination of
abandoned plans.
The comparison of estimated termination costs of $8.4 million with
the present value of future administrative costs discounted over the
range of durations noted above shows that while the termination costs
exceed the $7.7 million savings in the year of termination, the present
value of administrative expenses to be paid in the year following
termination exceeds the estimated termination cost by $6.6 million,
resulting in a substantial preservation of retirement benefits. The
present value of administrative expenses estimated to be paid over the
five years following termination exceeds the termination cost by $27
million. Similarly, the cost of termination of the 1,650 plans assumed
to be abandoned each year would be slightly greater than ongoing costs
in the year of termination, but termination would have had the effect
of saving over $2.8 million by the end of the next year, and $11.6
million if the plans remained abandoned for five years. These net
benefits would also represent plan assets preserved for retirement
benefits.
As noted earlier, the estimates of savings in termination costs
that might arise from efficiency gains are subject to some uncertainty.
However, each 10% reduction in the cost of termination of existing
plans that are potentially abandoned is assumed to produce savings in
excess of $800,000. Assuming that the specific provisions of the
proposed regulation would increase efficiency and reduce costs by at
least 20%, an additional $1.7 million in termination costs would be
saved, further preserving retirement benefits for participants and
beneficiaries of currently abandoned plans. In this circumstance, the
benefits of these terminations exceed their costs by about $900,000 in
the year of termination. Efficiency gains for the 1,650 plans that
become abandoned from year to year are expected to amount to $710,000,
such that the benefits of termination of these
[[Page 12056]]
abandoned plans exceed their termination costs by about $400,000.
Safe Harbor for Rollovers From Terminated Individual Account Plans (29
CFR 2550.404a-3)
By providing a safe harbor for plan fiduciaries that roll over
individual account balances, the Department has increased certainty
concerning compliance with ERISA section 404(a) for fiduciaries that
designate institutions and investment products for rolled over accounts
and has expanded the opportunity for retirement savings for plan
participants. The benefits of greater certainty to fiduciaries under
the safe harbor, and of savings protection for participants, cannot be
specifically quantified. The proposed regulation will provide
qualitative benefits to fiduciaries by affording them greater assurance
of compliance and reduced exposure to risk; the substantive conditions
of the safe harbor will likewise benefit former participants by
directing their retirement savings to individual retirement plan and
other account providers, regulated financial institutions, and
investment products that minimize risk and offer preservation of
principal and liquidity. The Department welcomes comments on the data,
assumptions, and estimates presented in this analysis.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13)
The proposed regulation provides simplified annual reporting to the
Department for QTAs that wind up the affairs of an abandoned plan. The
time-savings resulting from abbreviated reporting requirements will
reduce administrative costs to abandoned plans and increase benefits to
participants and beneficiaries.
Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
will be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.
Currently, the Department is soliciting comments concerning the
information collection request (ICR) included in the Proposed
Regulations on Termination of Abandoned Individual Account Plans (29
CFR 2578.1), the Safe Harbor for Rollovers From Terminated Individual
Account Plans (29 CFR 2550.404a-3), and the Proposed Class Exemption
for Services Provided in Connection with the Termination of Abandoned
Individual Account Plans. A copy of the ICR may be obtained by
contacting the person listed in the PRA Addressee section below.
The Department has submitted a copy of the proposed information
collection to OMB in accordance with 44 U.S.C. 3507(d) for review of
its information collections. The Department and OMB are particularly
interested in comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, DC 20503; Attention: Desk Officer for the
Employee Benefits Security Administration. Although comments may be
submitted through May 9, 2005 OMB requests that comments be received
within 30 days of publication of the Notice of Proposed Rulemaking to
ensure their consideration.
PRA Addressee: Address requests for copies of the ICR to Gerald B.
Lindrew, Office of Policy and Research, U.S. Department of Labor,
Employee Benefits Security Administration, 200 Constitution Avenue,
NW., Room N-5647, Washington, DC 20210. Telephone: (202) 693-8410; Fax:
(202) 219-5333. These are not toll-free numbers.
The burden estimates for this ICR are derived from notice
requirements in two proposed regulations and a recordkeeping
requirement in a proposed class exemption as follows: the Regulations
for Abandoned Plans (29 CFR 2578.1); the Safe Harbor for Rollovers From
Terminated Individual Account Plans (29 CFR 2550.404a-3) (together,
``terminating plans''); and, the Proposed Class Exemption for Services
Provided in Connection with the Termination of Abandoned Individual
Account Plans. A Notice to Participants is required under two of the
proposed regulations. The burden for all other notices is attributable
only to the Regulations for Abandoned Plans. No burden has been
estimated for the third proposed regulation, Special Terminal Report
for Abandoned Plans (29 CFR 2520.103-13), because the proposal
simplifies ERISA annual reporting requirements for abandoned plans. All
burdens under the two proposed regulations are considered cost burdens
because a terminating plan will most likely use a service provider or a
QTA to inform participants, plan sponsors, and the Department about the
termination. The burden under the proposed exemption is an hour burden.
Terminating Plans
Terminating plans that roll over the account balances of
participants and beneficiaries that are either missing or unresponsive,
must, in order to take advantage of the safe harbor under 29 CFR
2550.404a-3 of ERISA, send to participants and beneficiaries a notice
that includes information about their right to elect a form of
distribution for their benefits.
Notice to Participants (29 CFR 2578.1(d)(2)(v) and (29 CFR 2550.404a-
3(e))
Fiduciaries that terminate plans are required to notify
participants and beneficiaries about such terminations and the need to
elect a form of distribution for the assets in their accounts. The
Department has provided two models for this notice, only one of which
will require completion, depending on whether the plan is an abandoned
plan. At 2 minutes per notice, the cost to complete 78,500 notices for
currently abandoned plans is $177,933. Mailing costs, at $.38 per
notice, are $29,830.
Ongoing costs for completing and mailing 33,000 notices to
participants and beneficiaries in 1,650 plans estimated to be abandoned
annually in the future, as well as to 23,500 missing or unresponsive
participants and beneficiaries in terminated plans that are not
abandoned plans, are estimated at $149,500 for a total of 56,500
Notices to Participants.
[[Page 12057]]
Rules and Regulations for Abandoned Plans (29 CFR 2578.1)
The information collection provisions of these rules are intended:
To ensure that, in the case of an abandoned plan, a plan sponsor has
been determined to be unavailable to fulfill its responsibilities to
the plan before further action is taken by a QTA; to facilitate federal
oversight of the actions taken by a QTA in winding up the affairs of an
abandoned plan; to ensure that participants and beneficiaries are
apprised of actions that might affect their rights and benefits under
the plan; and to provide for a final notice and reporting regarding the
resolution of the affairs of the plan. The Department has included
model notices that may be used to satisfy these notice requirements,
and has provided for reporting in the format of the Form 5500, for
purposes of minimizing compliance burden.
As described in detail earlier, the Department assumes that there
are currently 4,000 abandoned plans with 78,500 participants, and that
in each future year, 1,650 plans with a total of 33,000 participants
will become abandoned.
Most tasks involved in normal plan administration, such as
calculating or distributing benefits, recordkeeping, and reporting are
not accounted for as burden in this proposed regulation because they
are either part of the usual business practices of plans, or have
already been accounted for in ICRs for other statutory and regulatory
provisions under Title I of ERISA.
The proposed regulation requires that a QTA notify, at different
times and under different circumstances: the plan sponsor, or, if
unable to do so, service providers that might know the whereabouts of
the plan sponsor; the Department; and, participants and beneficiaries
of the plan. Because the termination and winding up of an abandoned
plan will be performed by a QTA or other service providers that will
develop and distribute the required notices and report, the burden for
this collection of information is considered a cost burden. Hourly
costs are estimated at $68 per hour for a QTA. Supplies and postage
costs include: regular mail, $.38; certified mail, $2.68; certified
mail, return receipt requested, $4.43. The costs for the notices that
make up the ICR in the proposed regulations, for both the 4,000
currently abandoned plans and the 1,650 plans estimated to be abandoned
annually in the future, are analyzed below.
Notice of Intent to Terminate (paragraph (b)(5)). The Department
has provided a model notice of intent to terminate, which is sent by a
QTA to the sponsor of a plan that the QTA suspects is abandoned. The
QTA will add to the model, identifying information about the plan
sponsor and the QTA. The notice is estimated to require 2 minutes of a
QTA's time per letter for a cost of $9,067 for the 4,000 currently
abandoned plans. Mailing costs for the 4,000 currently abandoned plans
amount to $4.43 for each notice or a total of $17,720. Prospective
annual costs for QTA time and mailings for 1,650 plans are estimated to
be $11,050.
Notice to Plan Sponsor Sent to Current Address (paragraph (b)(4)).
If the Notice of Intent to Terminate was not acknowledged as received
by the plan sponsor (or its agent) at the address known to the QTA, the
QTA must contact known service providers to the plan in an attempt to
obtain a current address for the plan sponsor. If any service provider
responds to the QTA with a current address for the plan sponsor, the
QTA must re-send the Notice of Intent to Terminate to the new address
provided by the service provider(s). Because there is no relevant data
for estimating the number of notices that may be required to be sent to
additional addresses, the Department has assumed that all plans will be
required to send one such notice. Mailing costs for the 4,000 currently
abandoned plans are $4.43 for each notice, or $17,720. Prospective
annual mailing costs for 1,650 plans are $7,310.
Notice to the Department (paragraph (c)(3)). Once a QTA has found
that a plan has been abandoned, it notifies the Department of the
abandonment and its intention to serve as a QTA. A model notice has
been provided that is to be completed by the QTA. A QTA will require an
estimated 75 minutes to complete the model form at a cost of $350,720.
Mailing is expected to be by certified mail, at $2.68 each, or $10,720
for 4,000 plans. Ongoing annual costs for preparation and mailing for
1,650 plans are estimated at $144,672.
Final Notice (paragraph (d)(2)(viii)). Upon payment of all plan
expenses and distribution of assets, the QTA is required to notify the
Office of Enforcement, EBSA, that all benefits have been distributed in
accordance with the regulation. If fees and expenses paid by the QTA
(or its affiliate) exceed by 20 percent the QTA's initial estimate of
costs, the amount of increased fees and expenses, along with an
explanation for the increase, are to be included in the Final Notice.
QTAs will require an estimated ten minutes to complete the notice at a
cost of $45,300 for 4,000 plans. Mailing, including the cost of the
Terminal Report that will be filed with the Final Notice, is estimated
at $1.00 for a cost of $4,000. Estimated annual costs for future
abandoned plans are $20,350 for 1,650 plans.
Safe Harbor for Rollovers From Terminated Individual Account Plans (29
CFR 2550.404a-3)
Written Agreement (paragraph (d)(2)). A fiduciary that rolls over
assets from an individual account plan into an individual retirement
plan or other account must enter into a written agreement with the
individual retirement plan or other account provider. The agreement
must include provisions related to investment products, rates of
return, and fees and expenses among other requirements. The Department
understands that it is customary business practice for agreements
related to the establishment of individual retirement plans or other
accounts to be set forth in writing and that no new burden is created
by this requirement.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13)
The rules and regulations described in section 2520.103-13 of the
proposed regulation would establish a simplified method for filing a
Terminal Report for abandoned individual account plans. The Terminal
Report is required to be sent to EBSA along with the Final Notice. No
cost is estimated for completing the special Terminal Report because it
is assumed that this report will be less burdensome than the annual
report that would otherwise be required to be filed by a plan.
Proposed Exemption
Under the proposed regulation on Termination of Abandoned
Individual Account Plans, a QTA that terminates an abandoned plan would
be permitted to distribute participant or beneficiary account balances
by rolling them over into an individual retirement plan or other
account. The proposed exemption, also published in today's Federal
Register, among other provisions, provides relief from the restrictions
of section 406(a)(1))(A) through (D), 406(b)(1) and (b)(2) of ERISA and
from the taxes imposed by section 4975(a) and (b) of the Code, by
reason of section 4975(c)(1)(A) through (E) of the Code, for QTAs of
plans that have been abandoned to select and pay themselves or an
affiliate for services to the plans. In addition, for participants or
beneficiaries that are missing or nonresponsive, a QTA would be
permitted to: Designate itself or an affiliate as provider of an
individual
[[Page 12058]]
retirement plan or other account for the rolled over balance; select a
proprietary investment product as the initial investment; and, pay
itself or the affiliate fees in connection with the rollover. In order
to ensure that the records necessary to determine whether the
conditions of the proposed exemption have been met and are available
for examination by participants, the IRS, and the Department, the
Department has included a condition in the proposed exemption requiring
a QTA to maintain such records for a period of six years.
Banks, insurance companies, and other financial institutions that
provide services to abandoned plans and their participants and
beneficiaries will act in accordance with customary business practices,
which would include maintaining the records required under the terms of
the proposed class exemption. Accordingly, the recordkeeping burden
attributable to the proposed exemption will be handled by the QTA and
is expected to be small. Assuming that all QTAs will take advantage of
the proposed exemption, and that each abandoned plan will have a
separate QTA, the start up hour burden attributable to recordkeeping
for QTAs of currently abandoned plans, at one hour for each QTA, is
4,000 hours; the on-going hour burden for QTAs of plans that may be
abandoned in the future is 1,650 hours annually.
Type of Review: New collection.
Agency: Employee Benefits Security Administration, Department of
Labor.
Title: Notices for Terminated Individual Account Plans.
OMB Number: 1210-0NEW.
Affected public: Individuals or households; business or other for-
profit; not-for-profit institutions.
Respondents: 10,123.
Responses: 157,590.
Frequency of Response: On occasion.
Estimated Total Burden Hours: 5,650.
Total Annualized Capital/Startup Costs: $652,300.
Total Burden Cost (Operating and Maintenance): $333,000.
Total Annualized Costs: $985,300.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency determines that a proposed rule is not
likely to have a significant economic impact on a substantial number of
small entities, section 603 of the RFA requires that the agency present
an initial regulatory flexibility analysis at the time of the
publication of the notice of proposed rulemaking describing the impact
of the rule on small entities and seeking public comment on such
impact. Small entities include small businesses, organizations and
governmental jurisdictions.
For purposes of analysis under the RFA, EBSA proposes to continue
to consider a small entity to be an employee benefit plan with fewer
than 100 participants. The basis of this definition is found in section
104(a)(2) of ERISA that permits the Secretary of Labor to prescribe
simplified annual reports for pension plans that cover fewer than 100
participants. Under section 104(a)(3), the Secretary may also provide
for exemptions or simplified annual reporting and disclosure for
welfare benefit plans. Pursuant to the authority of section 104(a)(3),
the Department has previously issued at 29 CFR 2520.104-20, 2520.104-
21, 2520.104-41, 2520.104-46 and 2520.104b-10 certain simplified
reporting provisions and limited exemptions from reporting and
disclosure requirements for small plans, including unfunded or insured
welfare plans, covering fewer than 100 participants and which satisfy
certain other requirements.
Further, while some large employers may have small plans, in
general small employers maintain most small plans. Thus, EBSA believes
that assessing the impact of these proposed rules on small plans is an
appropriate substitute for evaluating the effect on small entities. The
definition of small entity considered appropriate for this purpose
differs, however, from a definition of small business which is based on
size standards promulgated by the Small Business Administration (SBA)
(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et
seq.). EBSA therefore requests comments on the appropriateness of the
size standard used in evaluating the impact of these proposed rules on
small entities.
EBSA has preliminarily determined that these proposed rules may
have a significant beneficial economic impact on a substantial number
of small entities. In an effort to provide a sound basis for this
conclusion, EBSA has prepared the following initial regulatory
flexibility analysis. Efficiency gains are assumed to arise from the
Department's efforts to provide specific standards and procedures, and
to address questions concerning what are reasonable efforts to satisfy
these standards. The model notices provided as part of the proposed
regulations are also intended to minimize compliance burdens.
To the Department's knowledge, there are no federal regulations
that might duplicate, overlap, or conflict with the provisions of the
proposed regulations.
Rules and Regulations for Abandoned Plans (29 CFR 2578.1)
As explained earlier in the preamble, in drafting the proposed
regulation, the Department relied on recommendations in a 2002 report
to the ERISA Advisory Council by the Working Group on Orphan Plans.
Witnesses before the Working Group testified that regulatory action
should be undertaken that would allow for the termination of abandoned
plans and the distribution of assets to participants and beneficiaries.
The conditions set forth in this proposed regulation are intended to
facilitate voluntary, safe, and efficient terminations of abandoned
plans, and to increase the likelihood of participants and beneficiaries
receiving the greatest retirement benefit practicable under the
circumstances. The proposed rules would meet the objectives of
providing the authority and incentive for termination by offering
greater certainty to QTAs concerning their compliance with the
requirements of ERISA section 404(a), to the extent applicable, and of
preserving future retirement assets for plan participants. Streamlined
procedures for terminating and winding up an abandoned plan will reduce
some of the cost that would otherwise have been incurred to terminate
abandoned plans.
The proposed rules would impact participants and beneficiaries,
abandoned individual account plans, entities that provide a variety of
services to plans, and financial institutions and entities acting as
QTAs that undertake the termination of individual account plans that
have been abandoned.
As described earlier in the preamble, the Department determined
that there are 4,000 currently abandoned plans, with 78,500
participants. Another 1,650 plans, with 33,000 participants, are
expected to be abandoned annually in subsequent years. All plans are
assumed to be small plans with approximately 20 participants. Currently
small abandoned plans represent less than 1% of all small plans; the
1,650 small plans expected to be abandoned annually hereafter represent
less than \1/2\ of 1% of all small plans. The 5,650 small plans
potentially affected may still be considered a substantial number,
however.
Because essentially all abandoned plans are assumed to be small
plans, the more detailed discussion earlier in the
[[Page 12059]]
preamble on the costs and benefits of the proposed regulation is
applicable to this analysis of costs and benefits under the RFA. In
summary, the net benefits of terminating the 4,000 plans currently
assumed to be abandoned range from $900,000 for efficiency gains, to
$6.6 million in administrative cost savings if the plans had remained
abandoned for one year following the year of termination, or $27
million if the plans had remained abandoned for five years following
termination. The estimated beneficial impact on small plans therefore
ranges from $225 per plan to $1,650 per plan, or $6,750 per plan over
five years. The per-plan net benefits are very similar for the 1,650
plans assumed to be abandoned in future years.
Safe Harbor for Rollovers From Terminated Individual Account Plans (29
CFR 2550.404a-3)
The proposed regulation provides safe harbor protection under
section 404(a) of ERISA for fiduciaries that terminate small plans and
roll over balances into individual retirement plans or other accounts
for participants and beneficiaries that failed to elect a form of
distribution for their benefits. Fiduciaries will benefit from
increased confidence that they have fulfilled their fiduciary
obligations under ERISA, and plan participants will benefit from
increased retirement savings. In particular, the two model Notices to
Participants provided by the Department will contribute to lower
administrative costs for small plans that terminate. Based on an
estimated 78,500 participants in currently abandoned plans, the initial
cost to small plans is estimated at $207,800. The annual cost to
ongoing terminating plans is considerably less in future years when
current small abandoned plans will have been terminated, an estimated
95,820.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13)
The proposed regulation provides simplified annual reporting to the
Department for QTAs that wind up the affairs of small abandoned plans.
The resulting time-savings will reduce administrative costs thereby
increasing benefits to participants and beneficiaries. No cost has been
attributed to this proposed regulation.
Congressional Review Act
The notice of proposed rulemaking being issued here is subject to
the provisions of the Congressional Review Act provisions of the Small
Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et
seq.) and, if finalized, will be transmitted to the Congress and the
Comptroller General for review.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, the proposed rules do not
include any federal mandate that may result in expenditures by state,
local, or tribal governments in the aggregate of more than $100
million, or increased expenditures by the private sector of more than
$100 million.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires the adherence to specific
criteria by federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. The proposed rules would not have
federalism implications because it has no substantial direct effect on
the States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Section 514 of ERISA provides, with
certain exceptions specifically enumerated, that the provisions of
Titles I and IV of ERISA supersede any and all laws of the States as
they relate to any employee benefit plan covered under ERISA. The
requirements implemented in the proposed rules do not alter the
fundamental provisions of the statute with respect to employee benefit
plans, and as such would have no implications for the States or the
relationship or distribution of power between the national government
and the States.
List of Subjects
29 CFR Part 2578
Employee benefit plans, Pensions, Retirement.
29 CFR Part 2520
Accounting, Employee benefit plans, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 2550
Employee benefit plans, Employee Retirement Income Security Act,
Employee stock ownership plans, Exemptions, Fiduciaries, Investments,
Investments foreign, Party in interest, Pensions, Pension and Welfare
Benefit Programs Office, Prohibited transactions, Real estate,
Securities, Surety bonds, Trusts and Trustees.
For the reasons set forth in the preamble, the Department of Labor
proposes to amend 29 CFR chapter XXV as follows:
SUBCHAPTER G--ADMINISTRATION AND ENFORCEMENT UNDER THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974
1. Add part 2578 to subchapter G to read as follows:
PART 2578--RULES AND REGULATIONS FOR ABANDONED PLANS
Sec.
Sec. 2578.1 Termination of abandoned individual account plans.
Appendix A to Sec. 2578.1 Notice of Intent to Terminate Plan
Appendix B to Sec. 2578.1 Notification of Plan Abandonment and
Intent to Serve as Qualified Termination Administrator
Appendix C to Sec. 2578.1 Notice of Plan Termination
Appendix D to Sec. 2578.1 Final Notice
Authority: 29 U.S.C. 1135; 1104(a); 1103(d)(1).
Sec. 2578.1 Termination of abandoned individual account plans.
(a) General. The purpose of this part is to establish standards for
the termination and winding up of an individual account plan (as
defined in section 3(34) of the Employee Retirement Income Security Act
of 1974 (ERISA or the Act)) with respect to which a qualified
termination administrator (as defined in paragraph (g) of this section)
has determined there is no responsible plan sponsor or plan
administrator within the meaning of section 3(16)(B) and (A) of the
Act, respectively, to perform such acts.
(b) Finding of abandonment. (1) A qualified termination
administrator may find an individual account plan to be abandoned when:
(i) Either:
(A) No contributions to, or distributions from, the plan have been
made for a period of at least 12 consecutive months immediately
preceding the date on which the determination is being made; or
(B) Other facts and circumstances (such as a filing by or against
the plan sponsor for liquidation under title 11 of the United States
Code, or communications from participants and beneficiaries regarding
distributions) known to the qualified termination administrator suggest
that the plan is or may become abandoned by the plan sponsor; and
[[Page 12060]]
(ii) Following reasonable efforts to locate or communicate with the
plan sponsor, the qualified termination administrator determines that
the plan sponsor:
(A) No longer exists;
(B) Cannot be located; or
(C) Is unable to maintain the plan.
(2) Notwithstanding paragraph (b)(1) of this section, a qualified
termination administrator may not find a plan to be abandoned if, at
anytime before the plan is deemed terminated pursuant to paragraph (c)
of this section, the qualified termination administrator receives an
objection from the plan sponsor regarding the finding of abandonment
and proposed termination.
(3) A qualified termination administrator shall, for purposes of
paragraph (b)(1)(ii) of this section, be deemed to have made a
reasonable effort to locate or communicate with the plan sponsor if the
qualified termination administrator sends to the last known address of
the plan sponsor, and in the case of a plan sponsor that is a
corporation, to the address of the person designated as the
corporation's agent for service of legal process, by a method of
delivery requiring acknowledgement of receipt, the notice described in
paragraph (b)(5) of this section.
(4) If receipt of the notice described in paragraph (b)(5) of this
section is not acknowledged pursuant to paragraph (b)(3) of this
section, the qualified termination administrator shall be deemed to
have made a reasonable effort to locate or communicate with the plan
sponsor if the qualified termination administrator contacts known
service providers (other than itself) of the plan and requests the
current address of the plan sponsor from such service providers and, if
such information is provided, the qualified termination administrator
sends to each such address, by a method of delivery requiring
acknowledgement of receipt, the notice described in paragraph (b)(5) of
this section.
(5) The notice referred to in paragraph (b)(3) of this section
shall contain the following information:
(i) The name and address of the qualified termination
administrator;
(ii) The name of the plan;
(iii) The account number or other identifying information relating
to the plan;
(iv) A statement that the plan may be terminated and benefits
distributed pursuant to 29 CFR 2578.1 if the plan sponsor fails to
contact the qualified termination administrator within 30 days;
(v) The name, address, and telephone number of the person, office,
or department that the plan sponsor must contact regarding the plan;
(vi) A statement that if the plan is terminated pursuant to 29 CFR
2578.1, notice of such termination will be furnished to the U.S.
Department of Labor's Employee Benefits Security Administration; and
(vii) The following statement: ``The U.S. Department of Labor
requires that you be informed that, as a fiduciary or plan
administrator or both, you may be personally liable for costs, civil
penalties, excise taxes, etc. as a result of your acts or omissions
with respect to this plan. The termination of this plan will not
relieve you of your liability for any such costs, penalties, taxes,
etc.''
(c) Deemed termination. (1) Except as provided in paragraph (c)(2)
of this section, if a qualified termination administrator finds,
pursuant to paragraph (b)(1) of this section, that an individual
account plan has been abandoned, the plan shall be deemed to be
terminated on the ninetieth (90th) day following the date on which a
notice of plan abandonment, as described in paragraph (c)(3) of this
section, is furnished to the U.S. Department of Labor.
(2) If, prior to the ninetieth (90th) day following the date on
which notice, in accordance with paragraph (c)(3) of this section, is
furnished to the U.S. Department of Labor, the Department notifies the
qualified termination administrator that it--
(i) Objects to the termination of the plan, the plan shall not be
deemed terminated under paragraph (c)(1) of this section until the
qualified termination administrator is notified that the Department has
withdrawn its objection;
(ii) Waives the 90-day period described in paragraph (c)(1), the
plan shall be deemed terminated upon the qualified termination
administrator's receipt of such notification.
(3) Following a qualified termination administrator's finding,
pursuant to paragraph (b)(1) of this section, that an individual
account plan has been abandoned, the qualified termination
administrator shall furnish to the U.S. Department of Labor a notice of
plan abandonment that is signed and dated by the qualified termination
administrator and that includes the following information:
(i) Qualified termination administrator information. (A) The name,
EIN, address, and telephone number of the person electing to be the
qualified termination administrator, including the address, e-mail
address, and telephone number of the person signing the notice (or
other contact person, if different from the person signing the notice);
(B) A statement that the person (identified in paragraph
(c)(3)(i)(A) of this section) is a qualified termination administrator
within the meaning of paragraph (g) of this section and elects to
terminate and wind up the plan (identified in paragraph (c)(3)(ii)(A)
of this section) in accordance with the provisions of this section; and
(C) An identification whether the person electing to be the
qualified termination administrator or its affiliate is, or within the
past 24 months has been, the subject of an investigation, examination,
or enforcement action by the Department, Internal Revenue Service, or
Securities and Exchange Commission concerning such entity's conduct as
a fiduciary or party in interest with respect to any plan covered by
the Act;
(ii) Plan information. (A) The name, address, telephone number,
account number, EIN, and plan number of the plan with respect to which
the person is electing to serve as the qualified termination
administrator;
(B) The name and last known address and telephone number of the
plan sponsor;
(C) The estimated number of participants in the plan;
(iii) Findings. A statement that the person electing to be the
qualified termination administrator finds that the plan (identified in
paragraph (c)(3)(ii) (A) of this section) is abandoned pursuant to
paragraph (b) of this section. This statement shall include an
explanation of the basis for such a finding, specifically referring to
the provisions in paragraph (b)(1) of this section, and a description
of the specific steps (set forth in paragraphs (b)(3) and (b)(4) of
this section) taken to locate or communicate with the known plan
sponsor;
(iv) Plan asset information. (A) The estimated value of the plan's
assets held by the person electing to be the qualified termination
administrator;
(B) The length of time plan assets have been held by the person
electing to be the qualified termination administrator, if such period
of time is less than 12 months; and
(C) An identification of any assets with respect to which there is
no readily ascertainable fair market value, as well as information, if
any, concerning the value of such assets;
(v) Service provider information. (A) The name, address, and
telephone number of known service providers
[[Page 12061]]
(e.g., record keeper, accountant, lawyer, other asset custodian(s)) to
the plan; and
(B) An identification of any services considered necessary to wind
up the plan in accordance with this section, the name of the service
provider(s) that is expected to provide such services, and an itemized
estimate of expenses attendant thereto expected to be paid out of plan
assets by the qualified termination administrator; and
(vi) A statement that the information being provided in the notice
is true and complete based on the knowledge of the person electing to
be the qualified termination administrator, and that the information is
being provided by the qualified termination administrator under penalty
of perjury.
(4) For purposes of calculating the 90-day period referred to in
paragraph (c)(1) of this section, the notice described in paragraph
(c)(3) of this section shall be considered furnished to the Department:
(i) Upon mailing, if accomplished by United States Postal Service
certified mail or Express mail;
(ii) Upon receipt by the delivery service, if accomplished using a
``designated private delivery service'' within the meaning of 26 U.S.C.
75029 (f); or
(iii) In the case of any other method of furnishing, upon receipt
by the Department.
(d) Winding up the affairs of the plan. (1) In any case where an
individual account plan is deemed to be terminated pursuant to
paragraph (c) of this section, the qualified termination administrator
shall take steps as may be necessary or appropriate to wind up the
affairs of the plan and distribute benefits to the plan's participants
and beneficiaries.
(2) For purposes of paragraph (d)(1) of this section, the qualified
termination administrator shall:
(i) Plan records. (A) Undertake reasonable and diligent efforts to
locate and update plan records necessary to determine the benefits
payable under the terms of the plan to each participant and
beneficiary.
(B) For purposes of paragraph (d)(2)(i)(A) of this section, a
qualified termination administrator shall not have failed to make
reasonable and diligent efforts to update plan records merely because
the administrator determines in good faith that updating the records is
either impossible or involves significant cost to the plan in relation
to the total assets of the plan.
(ii) Calculate benefits. Use reasonable care in calculating the
benefits payable to each participant or beneficiary based on plan
records described in paragraph (d)(2)(i) of this section.
(iii) Engage service providers. Engage, on behalf of the plan, such
service providers as are necessary for the qualified termination
administrator to wind up the affairs of the plan and distribute
benefits to the plan's participants and beneficiaries in accordance
with paragraph (d)(1) of this section.
(iv) Pay reasonable expenses. (A) Pay, from plan assets, the
reasonable expenses of carrying out the qualified termination
administrator's authority and responsibility under this section.
(B) Expenses of plan administration shall be considered reasonable
solely for purposes of paragraph (d)(2)(iv)(A) of this section if:
(1) Such expenses are for services necessary to wind up the affairs
of the plan and distribute benefits to the plan's participants and
beneficiaries,
(2) Such expenses: (i) Are consistent with industry rates for such
or similar services, based on the experience of the qualified
termination administrator, and
(ii) are not in excess of rates charged by the qualified
termination administrator (or affiliate) for same or similar services
provided to customers that are not plans terminated pursuant to this
section, if the qualified termination administrator (or affiliate)
provides same or similar services to such other customers, and
(3) The payment of such expenses would not constitute a prohibited
transaction under the Act or is exempted from such prohibited
transaction provisions pursuant to section 408(a) of the Act.
(v) Notify participants. (A) Furnish to each participant or
beneficiary of the plan a notice containing the following:
(1) The name of the plan;
(2) A statement that the plan has been determined to be abandoned
by the plan sponsor and, therefore, has been terminated pursuant to
regulations issued by the U.S. Department of Labor;
(3)(i) A statement of the account balance and the date on which it
was calculated by the qualified termination administrator, and
(ii) The following statement: ``The actual amount of your
distribution may be more or less than the amount stated in this letter
depending on investment gains or losses and the administrative cost of
terminating your plan and distributing your benefits.'';
(4) A description of the distribution options available under the
plan and a request that the participant or beneficiary elect a form of
distribution and inform the qualified termination administrator (or
designee) of that election;
(5)(i) A statement explaining that, if a participant or beneficiary
fails to make an election within 30 days from receipt of the notice,
the qualified termination administrator (or designee) will roll over
the account balance of the participant or beneficiary directly to an
individual retirement plan (i.e., individual retirement account or
annuity) or other account (in the case of distributions described in
Sec. 2550.404a-3(d)(1)(ii) of this chapter) and the account balance
will be invested in an investment product designed to preserve
principal and provide a reasonable rate of return and liquidity;
(ii) A statement of the fees, if any, that will be paid from the
participant or beneficiary's individual retirement plan, if such
information is known at the time of the furnishing of this notice; and
(iii) The name, address and phone number of the individual
retirement plan provider, if such information is known at the time of
the furnishing of this notice; and
(6) The name, address, and telephone number of the qualified
termination administrator and, if different, the name, address and
phone number of a contact person (or entity) for additional information
concerning the termination and distribution of benefits under this
section.
(B)(1) For purposes of paragraph (d)(2)(v)(A) of this section, a
notice shall be furnished to each participant or beneficiary in
accordance with the requirements of Sec. 2520.104b-1(b)(1) of this
chapter to the last known address of the participant or beneficiary;
and
(2) In the case of a notice that is returned to the plan as
undeliverable, the qualified termination administrator shall,
consistent with the duties of a fiduciary under section 404(a)(1) of
ERISA, take steps to locate and provide notice to the participant or
beneficiary prior to making a distribution pursuant to paragraph
(d)(2)(vi) of this section. If, after such steps, the qualified
termination administrator is unsuccessful in locating and furnishing
notice to a participant or beneficiary, the participant or beneficiary
shall be deemed to have been furnished the notice and to have failed to
make an election within the 30-day period described in paragraph
(d)(2)(vi) of this section.
(vi) Distribute benefits. (A) Distribute benefits in accordance
with the form of distribution elected by each participant or
beneficiary.
(B) If the participant or beneficiary fails to make an election
within 30 days from receipt of the notice described in paragraph
(d)(2)(v) of this section, distribute benefits in the form of a direct
[[Page 12062]]
rollover in accordance with Sec. 2550.404a-3 of this chapter.
(C) For purposes of distributions pursuant to paragraph
(d)(2)(vi)(B) of this section, the qualified termination administrator
may designate itself (or an affiliate) as the transferee of such
proceeds, and invest such proceeds in a product in which it (or an
affiliate) has an interest, only if such designation and investment is
exempted from the prohibited transaction provisions under the Act
pursuant to section 408(a) of Act.
(vii) Special Terminal Report for Abandoned Plans. File the Special
Terminal Report for Abandoned Plans in accordance with Sec. 2520.103-
13 of this chapter.
(viii) Final Notice. No later than two months after the end of the
month in which the qualified termination administrator satisfies the
requirements in paragraph (d)(2)(i) through (d)(2)(vi) of this section,
furnish to the Office of Enforcement, Employee Benefits Security
Administration, U.S. Department of Labor, 200 Constitution Ave., NW.,
Washington, DC 20210, a notice, signed and dated by the qualified
termination administrator, containing the following information:
(A) The name, EIN, address, e-mail address, and telephone number of
the qualified termination administrator, including the address and
telephone number of the person signing the notice (or other contact
person, if different from the person signing the notice);
(B) The name, account number, EIN, and plan number of the plan with
respect to which the person served as the qualified termination
administrator;
(C) A statement that the plan has been terminated and all assets
held by the qualified termination administrator have been distributed
to the plan's participants and beneficiaries on the basis of the best
available information;
(D) A statement that the Special Terminal Report for Abandoned
Plans meeting the requirements of Sec. 2520.103-13 of this chapter is
attached to this notice;
(E) A statement that plan expenses were paid out of plan assets by
the qualified termination administrator in accordance with the
requirements of paragraph (d)(2)(iv) of this section;
(F) If fees and expenses paid to the qualified termination
administrator (or its affiliate) exceed by 20 percent or more the
estimate required by paragraph (c)(3)(v)(B) of this section, a
statement that actual fees and expenses exceeded estimated fees and
expenses and the reasons for such additional costs; and
(G) A statement that the information being provided in the notice
is true and complete based on the knowledge of the qualified
termination administrator, and that the information is being provided
by the qualified termination administrator under penalty of perjury.
(3) The terms of the plan shall, for purposes of title I of ERISA,
be deemed amended to the extent necessary to allow the qualified
termination administrator to wind up the plan in accordance with this
section.
(e) Limited liability of qualified termination administrator. (1)
Except as otherwise provided in paragraph (e)(2) of this section, to
the extent that the responsibilities enumerated in paragraph (d)(2) of
this section involve the exercise of discretionary authority or control
that would make the qualified termination administrator a fiduciary
within the meaning of section 3(21) of the Act, the qualified
termination administrator shall be deemed to satisfy its
responsibilities under section 404(a) of the Act to the extent the
qualified termination administrator complies with the requirements of
paragraph (d)(2) of this section.
(2) A qualified termination administrator shall be responsible for
the selection and monitoring of any service provider (other than
monitoring an individual retirement plan provider selected pursuant to
paragraph (d)(2)(vi)(B) of this section) determined by the qualified
termination administrator to be necessary to the winding up of the
affairs of the plan, as well as ensuring the reasonableness of the
compensation paid for such services. To the extent that a qualified
termination administrator, in accordance with the requirements of
section 404(a)(1) of the Act, selects and monitors a service provider,
and does not otherwise enable the service provider to commit fiduciary
breaches, the qualified termination administrator shall not be liable
for the acts or omissions of the service provider with respect to which
the qualified termination administrator does not have knowledge.
(f) Continued liability of plan sponsor. Nothing in this section
shall serve to relieve or limit the liability of any person other than
the qualified termination administrator due to a violation of ERISA.
(g) Qualified termination administrator. A termination
administrator is qualified under this section only if:
(1) It is eligible to serve as a trustee or issuer of an individual
retirement plan, within the meaning of section 7701(a)(37) of the
Internal Revenue Code, and
(2) It holds assets of the plan that is considered abandoned
pursuant to paragraph (b) of this section.
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SUBCHAPTER C--REPORTING AND DISCLOSURE UNDER THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974
PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE
2. The authority citation for part 2520 continues to read as
follows:
Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134 and
1135; and Secretary of Labor's Order 1-2003, 68 FR 5374 (Feb. 3,
2003). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183,
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-3,
2520.104b-1 and 2520.104b-3 also issued under 29 U.S.C. 1003,1181-
1183, 1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.104b-1
and 2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788.
Section 2520.101-4 also issued under sec. 103 of Pub. L. 108-218.
3. Add Sec. 2520.103-13 to read as follows:
Sec. 2520.103-13 Special terminal report for abandoned plans.
(a) General. The terminal report required to be filed by the
qualified termination administrator pursuant to Sec. 2578.1(d)(2)(vii)
of this chapter shall consist of the items set forth in paragraph (b)
of this section. Such report shall be filed in accordance with the
method of filing set forth in paragraph (c) of this section and at the
time set forth in paragraph (d) of this section.
(b) Contents. The terminal report described in paragraph (a) of
this section shall contain:
(1) Identification information concerning the qualified termination
administrator and the plan being terminated.
(2) The total assets of the plan as of the date the plan was deemed
terminated under Sec. 2578.1(c) of this chapter, prior to any
reduction for termination expenses and distributions to participants
and beneficiaries.
(3) The total termination expenses paid by the plan and a separate
schedule identifying each service provider and amount received,
itemized by expense.
(4) The total distributions made pursuant to Sec. 2578.1(d)(2)(vi)
of this chapter and a statement regarding whether any such
distributions were transfers under Sec. 2578.1(d)(2)(vi)(B) of this
chapter.
(c) Method of filing. The terminal report described in paragraph
(a) shall be filed:
(1) On the most recent Form 5500 available as of the date the
qualified termination administrator satisfies the requirements in Sec.
2578.1(d)(2)(i) through Sec. 2578.1(d)(2)(vi) of this chapter;
(2) In accordance with the Form's instructions pertaining to
terminal reports of qualified termination administrators; and
(3) As an attachment to the notice described in Sec.
2578.1(d)(2)(viii) of this chapter.
(d) When to file. The qualified termination administrator shall
file the terminal report described in paragraph (a) within two months
after the end of the month in which the qualified termination
administrator satisfies the requirements in Sec. 2578.1(d)(2)(i)
through Sec. 2578.1(d)(2)(vi) of this chapter.
(e) Limitation. (1) Except as provided in this section, no report
shall be required to be filed by the qualified termination
administrator under part 1 of title I of ERISA for a plan being
terminated pursuant to Sec. 2578.1 of this chapter.
(2) Filing of a report under this section by the qualified
termination administrator shall not relieve any other person from any
obligation under part 1 of title I of ERISA.
SUBCHAPTER F--FIDUCIARY RESPONSIBILITY UNDER THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974
PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY
4. The authority citation for part 2550 is revised to read as
follows:
Authority: 29 U.S.C. 1135; and Secretary of Labor's Order No. 1-
2003, 68 FR 5374 (Feb. 3, 2003). Sec. 2550.401b-1 also issued under
sec. 102, Reorganization Plan No. 4 of 1978, 43 FR 47713 (Oct. 17,
1978), 3 CFR, 1978 Comp. 332, effective Dec. 31, 1978, 44 FR 1065
(Jan. 3, 1978), 3 CFR, 1978 Comp. 332. Sec. 2550.401c-1 also issued
under 29 U.S.C. 1101. Sec. 2550.404c-1 also issued under 29 U.S.C.
1104. Sec. 2550.407c-3 also issued under 29 U.S.C. 1107. Sec.
2550.404a-2 also issued under 26 U.S.C. 401 note (sec. 657, Pub. L.
107-16, 115 Stat. 38). Sec. 2550.408b-1 also issued under 29 U.S.C.
1108(b) (1) and sec. 102, Reorganization Plan No. 4 of 1978, 3 CFR,
1978 Comp. p. 332, effective Dec. 31, 1978, 44 FR 1065 (Jan. 3,
1978), and 3 CFR, 1978 Comp. 332. Sec. 2550.412-1 also issued under
29 U.S.C. 1112.
5. Add Sec. 2550.404a-3 and its appendix to read as follows:
Sec. 2550.404a-3 Safe Harbor for Rollovers From Terminated Individual
Account Plans.
(a) General. (1) This section provides a safe harbor under which a
fiduciary (including a qualified termination administrator, within the
meaning of Sec. 2578.1(g) of this chapter) of a terminated individual
account plan, as described in paragraph (a)(2) of this section, will be
deemed to have satisfied its duties under section 404(a) of the
Employee Retirement Income Security Act of 1974, as amended (the Act)),
29 U.S.C. 1001 et seq., in connection with a rollover of a
distribution, described in paragraph (b) of this section, to an
individual retirement plan or other account.
(2) This section shall apply to an individual account plan only
if--
(i) In the case of an individual account plan that is an abandoned
plan within the meaning of Sec. 2578.1 of this chapter, such plan was
intended to be
[[Page 12071]]
maintained as a tax-qualified plan in accordance with the requirements
of section 401(a) of the Internal Revenue Code of 1986 (Code); or
(ii) In the case of any other individual account plan, such plan is
maintained in accordance with the requirements of section 401(a) of the
Code at the time of the distribution.
(3) The standards set forth in this section apply solely for
purposes of determining whether a fiduciary meets the requirements of
this safe harbor. Such standards are not intended to be the exclusive
means by which a fiduciary might satisfy his or her responsibilities
under the Act with respect to making rollovers described in this
section.
(b) Distributions. This section shall apply to the rollover of a
distribution from a terminated individual account plan to an individual
retirement plan or other account if, in connection with such
distribution:
(1) The participant or beneficiary, on whose behalf the rollover
will be made, was furnished notice in accordance with paragraph (e) of
this section or, in the case of an abandoned plan, Sec.
2578.1(d)(2)(v) of this chapter, and
(2) The participant or beneficiary failed to elect a form of
distribution within 30 days of the furnishing of the notice described
paragraph (b)(1) of this section.
(c) Safe harbor. A fiduciary that meets the conditions of paragraph
(d) of this section shall, with respect to a distribution described in
paragraph (b) of this section, be deemed to have satisfied its duties
under section 404(a) of the Act with respect to both the selection of
an individual retirement plan provider or other account provider and
the investment of funds in connection with a rollover distribution
described in this section.
(d) Conditions. A fiduciary shall qualify for the safe harbor
described in paragraph (c) of this section if:
(1)(i) Except as provided in paragraph (d)(1)(ii) of this section,
the distribution is to an individual retirement plan within the meaning
of section 7701(a)(37) of the Code;
(ii) In the case of a distribution on behalf of a distributee other
than a participant or spouse, within the meaning of section 402(c) of
the Code, such distribution is to an account (other than an individual
retirement plan) with an institution eligible to establish and maintain
individual retirement plans within the meaning of section 7701(a)(37)
of the Code.
(2) The fiduciary enters into a written agreement with the
individual retirement plan or other account provider that provides:
(i) The rolled-over funds shall be invested in an investment
product designed to preserve principal and provide a reasonable rate of
return, whether or not such return is guaranteed, consistent with
liquidity;
(ii) For purposes of paragraph (d)(2)(i) of this section, the
investment product selected for the rolled-over funds shall seek to
maintain, over the term of the investment, the dollar value that is
equal to the amount invested in the product by the individual
retirement plan or other account;
(iii) The investment product selected for the rolled-over funds
shall be offered by a state or federally regulated financial
institution, which shall be: A bank or savings association, the
deposits of which are insured by the Federal Deposit Insurance
Corporation; a credit union, the member accounts of which are insured
within the meaning of section 101(7) of the Federal Credit Union Act;
an insurance company, the products of which are protected by state
guaranty associations; or an investment company registered under the
Investment Company Act of 1940;
(iv) All fees and expenses attendant to an individual retirement
plan or other account, including investments of such plan, (e.g.,
establishment charges, maintenance fees, investment expenses,
termination costs and surrender charges) shall not exceed the fees and
expenses charged by the individual retirement plan or other account
provider for comparable individual retirement plans or other accounts
established for reasons other than the receipt of a rollover
distribution under this section; and
(v) The participant or beneficiary on whose behalf the fiduciary
makes a direct rollover shall have the right to enforce the terms of
the contractual agreement establishing the individual retirement plan
or other account, with regard to his or her rolled-over account
balance, against the individual retirement plan or other account
provider.
(3) Both the fiduciary's selection of an individual retirement
plan or other account and the investment of funds would not result in a
prohibited transaction under section 406 of the Act, unless such
actions are exempted from the prohibited transaction provisions by a
prohibited transaction exemption issued pursuant to section 408(a) of
the Act.
(e) Notice to participants and beneficiaries. (1) Content. Each
participant or beneficiary of the plan shall be furnished a notice
containing the following:
(i) The name of the plan;
(ii) A statement of the account balance, the date on which the
amount was calculated, and, if relevant, an indication that the amount
to be distributed may be more or less than the amount stated in the
notice, depending on investment gains or losses and the administrative
cost of terminating the plan and distributing benefits;
(iii) A description of the distribution options available under
the plan and a request that the participant or beneficiary elect a form
of distribution and inform the plan administrator (or other fiduciary)
identified in paragraph (e)(1)(vii) of this section of that election;
(iv) A statement explaining that, if a participant or beneficiary
fails to make an election within 30 days from receipt of the notice,
the plan will directly roll over the account balance of the participant
or beneficiary to an individual retirement plan (i.e., individual
retirement account or annuity) or other account (in the case of
distributions described in paragraph (d)(1)(ii)) and the account
balance will be invested in an investment product designed to preserve
principal and provide a reasonable rate of return and liquidity;
(v) A statement explaining what fees, if any, will be paid from
the participant or beneficiary's individual retirement plan or other
account, if such information is known at the time of the furnishing of
this notice;
(vi) The name, address and phone number of the individual
retirement plan or other account provider, if such information is known
at the time of the furnishing of this notice; and
(vii) The name, address, and telephone number of the plan
administrator (or other fiduciary) from whom a participant or
beneficiary may obtain additional information concerning the
termination.
(2) Manner of furnishing notice. (i) For purposes of paragraph
(e)(1) of this section, a notice shall be furnished to each participant
or beneficiary in accordance with the requirements of Sec. 2520.104b-
1(b)(1) of this chapter to the last known address of the participant or
beneficiary; and
(ii) In the case of a notice that is returned to the plan as
undeliverable, the plan fiduciary shall, consistent with its duties
under section 404(a)(1) of ERISA, take steps to locate the participant
or beneficiary and provide notice prior to making the rollover
distribution. If, after such steps, the fiduciary is unsuccessful in
locating and furnishing notice to a participant or
[[Page 12072]]
beneficiary, the participant or beneficiary shall be deemed to have
been furnished the notice and to have failed to make an election within
30 days for purposes of paragraph (b)(2) of this section.
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Signed at Washington, DC, this 2nd day of March, 2005.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. 05-4464 Filed 3-9-05; 8:45 am]
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