[Federal Register: April 30, 2008 (Volume 73, Number 84)]
[Rules and Regulations]
[Page 23349-23350]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ap08-12]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2550
RIN 1210-AB10
Default Investment Alternatives Under Participant Directed
Individual Account Plans
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Correcting amendments.
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SUMMARY: The Department published in the Federal Register of October
24, 2007 (72 FR 60452), a final regulation providing relief from
certain fiduciary responsibilities for fiduciaries of participant-
directed individual account plans who, in the absence of directions
from a participant, invest the participant's account in a qualified
default investment alternative. The final regulation implemented recent
amendments to title I of the Employee Retirement Income Security Act of
1974 (ERISA) enacted as part of the Pension Protection Act of 2006,
Public Law 109-280. The Department has determined that two paragraphs
in the final regulation, and one statement in the SUPPLEMENTARY
INFORMATION, require correction. Accordingly, this document corrects
the final regulation by revising these paragraphs.
DATES: Effective Date: The amendments to the final regulation are
effective on April 30, 2008.
Applicability Date: The amendments to the final regulation apply on
and after December 24, 2007.
FOR FURTHER INFORMATION CONTACT: Allison Wielobob, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, (202) 693-8500. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
A. General
Section 624(a) of the Pension Protection Act of 2006 (Pension
Protection Act) added a new section 404(c)(5) to ERISA. Section
404(c)(5)(A) of ERISA provides that, for purposes of section 404(c)(1)
of ERISA, a participant in an individual account plan shall be treated
as exercising control over the assets in the account with respect to
the amount of contributions and earnings which, in the absence of an
investment election by the participant, are invested by the plan in
accordance with regulations prescribed by the Secretary of Labor. On
October 24, 2007, the Department of Labor (Department) published a
final regulation implementing the provisions of section 404(c)(5) of
ERISA. A fiduciary of a plan that complies with the final regulation
will not be liable for any loss, or by reason of any breach, that
occurs as a result of investment in a qualified default investment
alternative. The regulation describes the types of investments that
qualify as default investment alternatives under section 404(c)(5) of
ERISA.
B. Correcting Amendments
The Department has determined that one statement in the text of the
SUPPLEMENTARY INFORMATION to the final regulation and two regulatory
provisions require amendment.
1. Amendment of Supplementary Information Text
In the Supplementary Information, 72 FR at 60456, the Department
provides an explanation of paragraph (c)(5)(ii) of the final
regulation. This paragraph provides that any transfer or permissible
withdrawal from a qualified default investment alternative resulting
from a participant's or beneficiary's election to make such a transfer
or withdrawal during the 90-day period beginning on the date of the
participant's first elective contribution, or other first investment in
a qualified default investment alternative, shall not be subject to any
restrictions, fees or expenses, other than certain ongoing
administrative and investment fees. The Department explained that this
provision was intended to prevent the imposition of any restriction,
fee, or expense on a transfer or permissible withdrawal of assets,
whether assessed by the plan, the plan sponsor, or as part of an
underlying investment product or portfolio. The Department also
provided a few examples of restrictions that might inhibit a
participant's or beneficiary's decision to withdraw, sell or transfer
assets out of a qualified default investment alternative during this
90-day period. One of the cited examples was a ``round-trip''
restriction on the ability of the participant or beneficiary to
reinvest within a defined period of time. The Department has concluded
that the reference to ``round-trip'' restrictions was too broad and
should not have been included as an example of an impermissible
restriction. ``Round-trip'' restrictions, unlike fees and expenses
assessed directly upon liquidation of, or transfer from, an investment,
generally affect only a participant's ability to reinvest in the
qualified default investment alternative for a limited period of time.
This is not a restriction prohibited by paragraph (c)(5)(ii) of the
final regulation. However, to the extent that a ``round-trip''
restriction would affect a participant's or beneficiary's ability to
liquidate or transfer from a qualified default investment alternative
or restrict a participant's or beneficiary's ability to invest in any
other investment alternative available under the plan, it would be
impermissible for purposes of paragraph (c)(5)(ii) of the final
regulation.
2. Regulatory Text Amendments
The Department is also amending language in paragraph (e)(3) of the
regulation, describing persons that may manage a qualified default
investment alternative. In response to comments on
[[Page 23350]]
the proposed regulation, paragraph (e)(3) was expanded to include a
plan sponsor who is a named fiduciary of the plan. The Department
intended that this expansion would broadly accommodate employers that
manage their plan investments in-house. However, the reference to
``plan sponsor'' in paragraph (e)(3)(i)(C) has raised questions as to
whether a committee that is a named fiduciary of the plan and is
comprised primarily of employees of the plan sponsor can manage a
qualified default investment alternative when that committee, pursuant
to plan documents, is a named fiduciary. To address this uncertainty,
the Department is amending paragraph (e)(3)(i)(C) to make clear that
such a committee of the plan sponsor may manage a qualified default
investment alternative.
Finally, the Department is amending paragraph (e)(4)(v) of the
final regulation. As explained in the Supplementary Information to the
final regulation, this provision establishes a ``grandfather''-type
rule to treat stable value products and funds as qualified default
investment alternatives solely for purposes of investments made before
the effective date of the final regulation. The Department included
this provision to accommodate employers who had selected stable value
products or funds as their default investments before the regulation's
effective date and who may not be able to transfer participants' and
beneficiaries' assets out of such investments without incurring
significant expenses.
Following publication of the final regulation, the Department
determined that the description of stable value products and funds as
set forth in paragraph (e)(4)(v) may limit the availability of the
``grandfather''-type relief, contrary to the intention of the
Department. To ensure broad application of this relief to stable value
products and funds, the Department is changing paragraph (e)(4)(v) of
the final regulation to provide that stable value products or funds
must invest primarily in investment products that are backed by state
or federally regulated financial institutions. For example, these
investment products may be issued directly by such institutions.
Alternatively, the principal and accrued interest on the investment
products may be backed by contracts issued by such institutions.
The Department finds, in accordance with section 553(b) of the
Administrative Procedure Act (5 U.S.C. 553(b)), that notice and public
comment is not necessary. This document merely amends a statement in
the SUPPLEMENTARY INFORMATION to the final regulation regarding the
application of a regulatory provision and modifies two provisions to
address public uncertainty regarding their scope. For the same reason,
the Department finds good cause for making this document effective upon
publication in the Federal Register.
C. Regulatory Impact Analysis
None of the correcting amendments being adopted herein will alter
the analysis or data contained in the regulatory impact analysis of the
final regulation. See 72 FR at 60466 (October 24, 2007).
List of Subjects in 29 CFR Part 2550
Employee benefit plans, Exemptions, Fiduciaries, Investments,
Pensions, Prohibited transactions, Real estate, Securities, Surety
bonds, Trusts and trustees.
0
Accordingly, 29 CFR part 2550 is corrected by making the following
correcting amendments:
PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY
0
1. The authority citation for part 2550 continues to read as follows:
Authority: 29 U.S.C. 1135; sec. 657, Pub. L. 107-16, 115 Stat.
38; 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.
Sections 2550.404c-1 and 2550.404c-5 also issued under 29 U.S.C.
1104. Sec. 2550.407c-3 also issued under 29 U.S.C. 1107. 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.
0
2. Amend Sec. 2550.404c-5 by revising paragraphs (e)(3)(i)(C) and
(e)(4)(v)(A) to read as follows:
Sec. 2550.404c-5 Fiduciary relief for investments in qualified
default investment alternatives.
* * * * *
(e) * * *
(3) * * *
(i) * * *
(C) the plan sponsor, or a committee comprised primarily of
employees of the plan sponsor, which is a named fiduciary within the
meaning of section 402(a)(2) of the Act;
* * * * *
(4) * * *
(v) * * *
(A) Subject to paragraph (e)(4)(v)(B) of this section, an
investment product or fund designed to preserve principal; provide a
rate of return generally consistent with that earned on intermediate
investment grade bonds; and provide liquidity for withdrawals by
participants and beneficiaries, including transfers to other investment
alternatives. Such investment product or fund shall, for purposes of
this paragraph (e)(4)(v), meet the following requirements:
(1) There are no fees or surrender charges imposed in connection
with withdrawals initiated by a participant or beneficiary; and
(2) Such investment product or fund invests primarily in investment
products that are backed by State or federally regulated financial
institutions.
* * * * *
Signed at Washington, DC, this 24th day of April, 2008.
Bradford P. Campbell,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. E8-9371 Filed 4-29-08; 8:45 am]
BILLING CODE 4510-29-P
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