Proposed Amendment to Prohibited Transaction Exemption 2006-06
(PTE 2006-06) for Services Provided in Connection With the Termination
of Abandoned Individual Account Plans
[02/15/2007]
Volume 72, Number 31, Page 7461-7464
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
ZRIN 1210-ZA12
[Application Number D-11404]
Proposed Amendment to Prohibited Transaction Exemption 2006-06
(PTE 2006-06) for Services Provided in Connection With the Termination
of Abandoned Individual Account Plans
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of Proposed Amendment to PTE 2006-06.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed amendment to PTE
2006-06, a prohibited transaction class exemption issued under the
Employee Retirement Income Security Act of 1974 (ERISA). Among other
things, PTE 2006-06 permits a ``qualified termination administrator''
(QTA) of an individual account plan that has been abandoned by its
sponsoring employer to select itself to provide services to the plan in
connection with the plan's termination, and to pay itself fees for
those services. This amendment is being proposed in connection with the
Department's amendment of regulations relating to the Termination of
Abandoned Individual Account Plans at 29 CFR 2578.1, and the Safe
Harbor for Distributions from Terminated Individual Account Plans at 29
CFR 2550.404a-3, which are being published simultaneously in this issue
of the Federal Register. The Department's proposed amendment to PTE
2006-06 reflects changes, enacted as part of the Pension Protection Act
of 2006, Pub. L. No. 109-280, to the Internal Revenue Code and would
require, as a condition of relief under the class exemption, that
benefits for a missing, designated nonspouse beneficiary be directly
rolled over into an inherited individual retirement plan that fully
complies with Code requirements. If adopted, the proposed amendment
would affect plans, participants and beneficiaries of such
[[Page 7462]]
plans and certain persons engaging in such transactions.
DATES: Written comments and requests for a public hearing on the
proposed amendment should be received by the Department on or before
April 2, 2007.
ADDRESSES: Comments (preferably, at least three copies) should be
addressed to the Office of Exemption Determinations, Employee Benefits
Security Administration, Room N-5700, U.S. Department of Labor, 200
Constitution Avenue, NW., Washington, DC 20210, Attention: PTE 2006-06
Amendment. Commenters are encouraged to submit responses electronically
by e-mail to e-OED@dol.gov, or by using the Federal eRulemaking portal
at http://www.regulations.gov. All responses will be available to the public
at the Public Disclosure Room, Room N-1513, Employee Benefits Security
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, and online at http://www.regulations.gov and
http://www.dol.gov/ebsa.
FOR FURTHER INFORMATION CONTACT: Brian Buyniski, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, (202) 693-8545 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed amendment to PTE 2006-06 (71 FR
20856, April 21, 2006). PTE 2006-06, which was granted in connection
with the Department's final regulation at 29 CFR 2578.1, relating to
the Termination of Abandoned Individual Account Plans, the Department's
final regulation at 29 CFR 2550.404a-3, relating to the Safe Harbor for
Distributions from Terminated Individual Account Plans, and the
Department's final regulation at 29 CFR 2520.103-13, relating to the
Terminal Report for Abandoned Individual Account Plans, provides an
exemption from the restrictions of section 406(a)(1)(A) through (D),
section 406(b)(1) and (b)(2) of the Employee Retirement Income Security
Act of 1974 (ERISA or the Act) and from the taxes imposed by section
4975(a) and (b) of the Internal Revenue Code of 1986 (the Code), by
reason of section 4975(c)(1)(A) through (E) of the Code.
The Department is proposing the amendment on its own motion
pursuant to section 408(a) of ERISA and section 4975(c)(2) of the Code,
and in accordance with the procedures set forth in 29 CFR Part 2570,
Subpart B (55 FR 32836, 32847, August 10, 1990).\1\ The Department
seeks to amend the class exemption to reflect amendments to the Code
that were adopted by enactment of the Pension Protection Act of 2006.
Among other things, section 829 of the Pension Protection Act amended
Code section 402(c) to permit the direct rollover of a deceased plan
participant's benefit from an eligible retirement plan to an individual
retirement plan established for the designated nonspouse beneficiary of
such participant. In this connection, the Department is amending the
regulatory safe harbor to require that a deceased participant's
benefits be directly rolled over to an inherited individual retirement
plan established to receive a distribution on behalf of a missing,
designated nonspouse beneficiary. Similarly, the Department has
determined to propose an amendment to PTE 2006-06 to ensure conformity
with the amended Abandoned Plan Regulations.\2\
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\1\ Section 102 of the Reorganization Plan No. 4 of 1978 (5
U.S.C. App. 1 [1996]) generally transferred the authority of the
Secretary of the Treasury to issue administrative exemptions under
section 4975 of the Code to the Secretary of Labor.
\2\ See in this issue of the Federal Register Amendments to Safe
Harbor for Distributions from Terminated Individual Account Plans
and Termination of Abandoned Individual Account Plans to Require
Inherited Individual Retirement Plans for Missing Nonspouse
Beneficiaries.
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The Department interprets the term ``account'' (other than an
individual retirement plan) in section I(b)(1)(ii) and the term ``other
account'' in section I(b)(3) and (4) of PTE 2006-06 to include an
``inherited individual retirement plan'' as used in the amended
regulatory safe harbor in the context of a distribution to a nonspouse
beneficiary that does not qualify for small account treatment under the
regulatory safe harbor. Consequently, the current exemption provides
relief to a QTA that selects itself as the provider of an inherited
individual retirement plan under the safe harbor. Nevertheless, to make
clear that the exemption covers such a selection, the Department has
published a proposed amendment to PTE 2006-06, and this issue of the
Federal Register specifically addresses this matter.
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. The
Department has determined that this action is not economically
significant within the meaning of section 3(f)(1) of the Executive
Order. However, the Office of Management and Budget (OMB) has
determined that the action is significant within the meaning of section
3(f)(4) of the Executive Order, and the Department accordingly provides
the following assessment of its potential costs and benefits.
These proposed amendments to PTE 2006-06 are being published
concurrently with the issuance of an interim final rule that amends
regulations pertaining to distributions from terminated plans to take
advantage of recent changes to the Code. As explained earlier in the
preamble, when finalized, the proposed amendments will make explicit
the availability to a QTA of conditional exemptive relief to designate
itself or an affiliate as the provider of an inherited individual
retirement plan for a nonspouse beneficiary who has not returned a
distribution election. Allowing QTAs to use their own or affiliated
investment products to receive the distributions on behalf of nonspouse
beneficiaries who have failed to make investment decisions facilitates
the orderly termination and winding-up of a plan's affairs. Further,
QTAs are not required to make use of proprietary or affiliated
inherited individual retirement plans for the benefit of nonspouse
beneficiaries. The Department continues to believe that the fee
limitations, which are a condition of the exemption and applicable to
distributions on behalf of nonspouse beneficiaries as well as other
distributions, will encourage QTAs to make appropriate decisions
regarding whether to use proprietary or affiliated products based on
whether doing so will be in the best interests of participants and
beneficiaries.
[[Page 7463]]
In the Department's view, the proposed amendments would assist in
effectuating the purposes underlying the regulations to which the
exemption relates. Accordingly, the Department has taken these
amendments into account in its assessment of the economic benefits and
costs of the interim final rule amending the regulations pertaining to
distributions from terminated plans, which is included in the preamble
to the interim final rule published elsewhere in this issue of the
Federal Register.
Paperwork Reduction Act
The information collections included in PTE 2006-06 are currently
approved, together with information collections included in the safe
harbor and termination of abandoned plans regulations, by the Office of
Management and Budget (OMB) under OMB control number 1210-0127. This
approval is currently scheduled to expire on April 30, 2008. The
specific burden for the exemption includes a recordkeeping requirement
for a QTA that terminates an abandoned plan and chooses to distribute
the account balances of nonresponsive participants and beneficiaries
into proprietary or affiliated individual retirement plans. These
proposed amendments do not make any changes to the information
collections of the exemption. Accordingly, the Department has not made
a submission for OMB approval in connection with the proposed
amendments.
Background
PTE 2006-06 is comprised of five sections. Section I describes the
transactions that are covered by the exemption. Section II contains
conditions for the provision of termination services and the receipt of
fees. Section III contains the conditions for distributions. Section IV
contains the general recordkeeping provisions imposed on the QTA, and
section V contains definitions.
Section I(b) of the exemption provides relief from the restrictions
of sections 406(a)(1)(A) through (D), 406(b)(1) and 406(b)(2) of the
Act and 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 a QTA to
use its authority in connection with the termination of an abandoned
individual account plan to designate itself or an affiliate as provider
of an individual retirement plan or other account to receive the
account balance of a participant or beneficiary that does not provide
direction as to the disposition of such assets.
Under PTE 2006-06, the other accounts currently permitted by the
exemption include an account, other than an individual retirement
account, as described in paragraph (d)(1)(ii) of the Safe Harbor
Regulation, for a distribution made to a distributee other than a
participant or spouse, and, for distributions of $1,000 or less, an
interest-bearing, federally insured bank or savings association
account, as described in section (d)(1)(iii) of the Safe Harbor
Regulation. This provision of PTE 2006-06 is the subject of the
proposed amendment contained in this notice.
Section I(b) of the class exemption further permits the QTA to make
the initial investment of the distributed proceeds in a proprietary
investment product, receive fees in connection with the establishment
or maintenance of the individual retirement plan or other account, and
receive investment fees as a result of the investment of the individual
retirement plan or other account's assets in a proprietary investment
product in which the QTA or an affiliate has an interest.
Discussion of the Proposed Amendment
Section 829 of the Pension Protection Act amended section 402(c) of
the Code to permit the direct rollover of a deceased participant's
benefit from an eligible retirement plan to an individual retirement
plan established on behalf of a designated nonspouse beneficiary.\3\
These rollover distributions would not trigger immediate tax
consequences and mandatory tax withholding for the nonspouse
beneficiary.
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\3\ Section 829 of the Pension Protection Act requires that the
individual retirement plan established on behalf of a nonspouse
beneficiary must be treated as an inherited individual retirement
plan within the meaning of Code Sec. 408(d)(3)(C) and must be
subject to the applicable mandatory distribution requirement of Code
Sec. 401(a)(9)(B).
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In light of the Pension Protection Act's favorable changes to the
Code allowing a rollover distribution on behalf of a nonspouse
beneficiary into an inherited individual retirement plan with the
resulting deferral of income tax consequences, the Department is
amending the class exemption to require that a deceased participant's
benefit be directly rolled over to an inherited individual retirement
plan established to receive the distribution on behalf of a missing,
designated nonspouse beneficiary.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of ERISA and section 4975(c)(2) of the Code does
not relieve a fiduciary, or other party in interest or disqualified
person with respect to a plan, from certain other provisions of ERISA
and the Code, including any prohibited transaction provisions to which
the exemption does not apply and the general fiduciary responsibility
provisions of section 404 of ERISA which require, among other things,
that a fiduciary act prudently and discharge his or her duties
respecting the plan solely in the interests of the participants and
beneficiaries of the plan. Additionally, the fact that a transaction is
the subject of an exemption does not affect the requirement of section
401(a) of the Code that the plan must operate for the exclusive benefit
of the employees of the employer maintaining the plan and their
beneficiaries;
(2) This exemption does not extend to transactions prohibited under
section 406(b)(3) of the Act or section 4975(c)(1)(F) of the Code;
(3) Before an exemption may be granted under section 408(a) of
ERISA and section 4975(c)(2) of the Code, the Department must find that
the exemption is administratively feasible, in the interests of the
plan and of its participants and beneficiaries, and protective of the
rights of participants and beneficiaries of the plan;
(4) If granted, the proposed amendment is applicable to a
particular transaction only if the transaction satisfies the conditions
specified in the exemption; and
(5) The proposed amendment, if granted, will be supplemental to,
and not in derogation of, any other provisions of ERISA and the Code,
including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction.
Written Comments and Hearing Request
The Department invites all interested persons to submit written
comments or requests for a public hearing on the proposed amendment to
the address and within the time period set forth above. Commenters can
also submit responses electronically by e-mail to e-OED@dol.gov. All
comments received will be made a part of the record. Comments and
requests for a hearing should state the reasons for the writer's
interest in the proposed exemption. Comments received will be available
for
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public inspection at the above address and on the http://www.regulations.gov
web portal.
Proposed Amendment
Under section 408(a) of the Act and section 4975(c)(2) of the Code
and in accordance with the procedures set forth in 29 CFR 2570, Subpart
B (55 FR 32836, 32847, August 10, 1990), the Department proposes to
amend PTE 2006-06 as set forth below:
Exemption * * *
I. Covered Transactions * * *
(b) * * *
(1) Designate itself or an affiliate as: (i) Provider of an
individual retirement plan; (ii) provider, in the case of a
distribution on behalf of a designated beneficiary (as defined by
section 401(a)(9)(E) of the Code) who is not the surviving spouse of
the deceased participant, of an inherited individual retirement plan
(within the meaning of section 402(c)(11) of the Code) established to
receive the distribution on behalf of the nonspouse beneficiary under
the circumstances described in section (d)(1)(ii) of the Safe Harbor
Regulation for Terminated Plans (29 CFR section 2550.404a-3) (Safe
Harbor Regulation); or (iii) provider of an interest bearing, federally
insured bank or savings association account maintained in the name of
the participant or beneficiary, in the case of a distribution described
in section (d)(1)(iii) of the Safe Harbor Regulation, for the
distribution of the account balance of the participant or beneficiary
of the abandoned individual account plan who does not provide direction
as to the disposition of such assets;
V. Definitions * * *
(b) The term ``individual retirement plan'' means an individual
retirement plan described in section 7701(a)(37) of the Code. For
purposes of section III of this exemption, the term ``individual
retirement plan'' shall also include an inherited individual retirement
plan (within the meaning of section 402(c)(11) of the Code) established
to receive a distribution on behalf of a nonspouse beneficiary.
Notwithstanding the foregoing, the term individual retirement plan
shall not include an individual retirement plan which is an employee
benefit plan covered by Title I of ERISA.
Signed at Washington, DC, this 5th day of February 2007.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations.
[FR Doc. E7-2606 Filed 2-14-07; 8:45 am]
BILLING CODE 4150-29-P
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