Amendment to Interpretive Bulletin 95-1
[09/12/2007]
Volume 72, Number 176, Page 52004-52006
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2509
RIN 1210-AB22
Amendment to Interpretive Bulletin 95-1
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Interim final rule.
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SUMMARY: This document contains an interim final rule that amends
Interpretive Bulletin 95-1 to limit the application of the Bulletin to
the selection of annuity providers for defined benefit plans. This
interim final rule implements section 625 of the Pension Protection Act
of 2006. Also appearing in today's Federal Register is a proposed
regulation, entitled ``Selection of Annuity Providers for Individual
Account Plans'', which, in the form of a safe harbor, provides guidance
concerning the fiduciary considerations attendant to the selection of
annuity providers and contracts for purposes of benefit distributions
from individual account plans. The amendment to Interpretive Bulletin
95-1, as well as the proposed safe harbor for annuity selections, will
affect plan sponsors and fiduciaries of individual account plans, and
the participants and beneficiaries covered by such plans.
DATES: This interim final rule is effective November 13, 2007. Written
comments on the interim final rule should be received by the Department
of Labor on or before November 13, 2007.
ADDRESSES: To facilitate the receipt and processing of comments, the
Department encourages interested persons to submit their comments
electronically to http://www.regulations.gov. (follow instructions for submission of comments) or e-ORI@dol.gov. Persons submitting comments
electronically are encouraged not to submit paper copies. Persons
interested in submitting comments on paper should send or deliver their
comments to: Office of Regulations and Interpretations, Employee
Benefits Security Administration, Room N-5669, U.S. Department of
Labor, 200 Constitution Avenue, NW., Washington, DC 20210. Attention:
Interpretive Bulletin 95-1. Comments received will be posted without
change, including any personal information provided, to
www.regulations.gov and http://www.dol.gov/ebsa, and also available for
public inspection at the Public Disclosure Room, Employee Benefits
Security Administration, U.S. Department of Labor, Room N-1513, 200
Constitution Avenue, NW., Washington, DC, 20210.
FOR FURTHER INFORMATION CONTACT: Janet A. Walters or Allison E.
Wielobob, Office of Regulations and Interpretations, Employee Benefits
Security Administration, U.S. Department of Labor, Washington, DC 20210
(202) 693-8510. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
A. Background
In 1995, the Department issued Interpretive Bulletin 95-1 (29 CFR
2509.95-1) (the IB), providing guidance concerning the fiduciary
standards under Part 4 of Title I of ERISA applicable to the selection
of annuity providers for purposes of pension plan benefit
distributions. In general, the IB makes clear that the selection of an
annuity provider in connection with benefit distributions is a
fiduciary act governed by the fiduciary standards of section 404(a)(1),
including the duty to act prudently and solely in the interest of the
plan's participants and beneficiaries. In this regard, the IB provides
that plan fiduciaries must take steps calculated to obtain the safest
annuity available, unless under the circumstances it would be in the
interest of the participants and beneficiaries to do otherwise. The IB
also provides that fiduciaries must conduct an objective, thorough and
analytical search for purposes of identifying providers from which to
purchase annuities and sets forth six factors that should be considered
by fiduciaries in evaluating a provider's claims paying ability and
creditworthiness.
In Advisory Opinion 2002-14A (Dec. 18, 2002) the Department
expressed the view that the general fiduciary principles set forth in
the IB with regard to the selection of annuity providers apply equally
to defined benefit and defined contribution plans. The opinion
recognized that, the selection of annuity providers by the fiduciary of
a defined contribution plan would be governed by section 404(a)(1) and,
therefore, such fiduciary, in evaluating claims paying ability and
creditworthiness of an annuity provider, should take into account the
six factors set forth in 29 CFR 2509.95-1(c).
During 2005, the ERISA Advisory Council created the Working Group
on Retirement Distributions & Options to study, in part, the nature of
the distribution options available to participants of defined
contribution plans. In November 2005, after public hearings and
testimony, the Advisory Council issued a report, entitled Report of the
Working Group on Retirement Distributions & Options,\1\ concluding that
many defined contribution plan distributions tend to be paid out in
lump sums which ``expose retirees to a wide range of risks including
the possibility of outliving assets, investment losses, and inflation
risk.'' The Advisory Council recommended that the Department revise
Interpretive Bulletin 95-1 to facilitate the availability of annuity
options in defined contribution plans.
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\1\ A copy of the Report can be found on the About EBSA page
under the heading ERISA Advisory Council at http://www.dol.gov/ebsa/publications/AC_1105A_report.html
.
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The Pension Protection Act of 2006 (the PPA) (Pub. L. 109-280, 120
Stat. 780) was enacted on August 17, 2006. Section 625 of the PPA
directs the Secretary to issue final regulations within one year of the
date of enactment, clarifying that the selection of an annuity contract
as an optional form of distribution from an individual account plan is
not subject to the safest available annuity standard under Interpretive
Bulletin 95-1 and is subject to all otherwise applicable fiduciary
standards.
Consistent with section 625 of the PPA, the Department is amending
Interpretive Bulletin 95-1 to limit its application only to defined
benefit plans. The Department is also proposing the adoption of a
regulation, published in today's Federal Register, which, in the form
of a safe harbor, provides guidance concerning the fiduciary
considerations attendant to the selection of annuity providers and
contracts for purposes of benefit distributions from individual account
plans.
B. Overview of Interim Final Rule
In order to implement the Congressional mandate of section 625 of
the PPA and to eliminate any confusion regarding the applicability of
the fiduciary standards set forth in IB 95-1 to the selection of
annuity providers for the purpose of benefit distributions from
individual account plans, the
[[Page 52005]]
Department is amending Interpretive Bulletin 95-1 to provide that
Interpretive Bulletin 95-1 is applicable only to the selection of
annuity providers for the purpose of benefit distributions from a
defined benefit pension plan.
C. Good Cause Finding That Proposed Rulemaking Unnecessary
Rulemaking under section 553 of the Administrative Procedure Act
(APA) ordinarily involves publication of a notice of proposed
rulemaking in the Federal Register and the public is given an
opportunity to comment on the proposed rule. The APA authorizes
agencies to dispense with proposed rulemaking procedures, however, if
they find both good cause that such procedures are impracticable,
unnecessary, or contrary to the public interest, and incorporate a
statement of the finding with the underlying reasons in the interim
final rule issued.
In this case, the Department finds that it is unnecessary to
undertake proposed rulemaking with regard to the amendment of
Interpretive Bulletin 95-1. The Department believes such rulemaking is
unnecessary because section 625 of the Pension Protection Act of 2006
specifically directs the Secretary to issue final regulations within
one year clarifying that the selection of an annuity contract as an
optional form of distribution from an individual account plan is not
subject to the safest available annuity standard under the Interpretive
Bulletin 95-1. The amendment to Interpretive Bulletin 95-1 contained in
this document does nothing more than limit, consistent with the
statutory directive, the application of the Bulletin to defined benefit
plans, thereby establishing that the ``safest available'' standard does
not apply to individual account plans. To avoid any confusion on the
part of the regulated community, the amendment includes a reference to
separate guidance for the selection of annuity providers for individual
account plans.
For the foregoing reason, the Department finds that proposed
rulemaking procedures are unnecessary and is publishing the rule as an
interim final rule. Nevertheless, the Department is affording
interested persons the opportunity to comment on the amendment. Because
the Department exercised very limited discretion in implementing the
directive contained in section 625 of the Pension Protection Act of
2006, the Department is limiting the comment period to 60 days.
D. Request for Comments
The Department invites comments from interested persons. To
facilitate the receipt and processing of comments, EBSA encourages
interested persons to submit their comments electronically to
http://www.regulations.gov. (follow instructions for the submission of comments) or e-ORI@dol.gov. Persons submitting comments electronically
are encouraged not to submit paper copies. Persons interested in
submitting comments on paper should send or deliver their comments to:
Office of Regulations and Interpretations, Employee Benefits Security
Administration, Room N-5669, U.S. Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210. Attention: Interpretive Bulletin 95-
1. All comments will be available to the public, without charge, online
at www.regulations.gov and http://www.dol.gov/ebsa, and at the Public
Disclosure Room, Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210 from 8 a.m. to 4:30 p.m. (Monday-Friday).
E. Effective Date
This interim final rule is effective 60 days after the date of
publication in the Federal Register.
F. Regulatory Impact Analysis
Executive Order 12866 Statement
Under Executive Order 12866 (58 FR 51735), the Department must
determine whether a regulatory action is ``significant'' and therefore
subject to review by the Office of Management and Budget (OMB). Section
3(f) of the Executive Order defines a ``significant regulatory action''
as 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. For purposes of Executive Order
12866, the Department has determined that it is appropriate to review
the amendment contained in this document, which merely serves to make
clear that the standards set forth in Interpretive Bulletin 95-1 no
longer apply to individual account plans, in conjunction with the
review of the proposed rule, also appearing in today's Federal
Register, that establishes, in the form of safe harbor, standards for
the selection of annuity providers and contracts by fiduciaries of
individual account plans. As reflected in that analysis, the Department
believes that these regulatory actions are not economically significant
within the meaning of section 3(f)(1) of the Executive Order. The
actions, however, have been determined to be significant within the
meaning of section 3(f)(4) of the Executive Order, and the Department
accordingly provides an assessment of the potential costs and benefits.
See notice of proposed rulemaking appearing in today's Federal Register
entitled Selection of Annuity Providers for Individual Account Plans.
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 that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency certifies that a proposed rule will not 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. Because
this rule is being issued as an interim final rule, the RFA does not
apply and the Department is not required to either certify that the
rule will not have a significant impact on a substantial number of
small businesses or conduct an initial regulatory flexibility analysis.
Nevertheless, the Department has considered the likely impact of the
interim rule on small entities in connection with its assessment under
Executive Order 12866, described above, and believes this rule will not
have a significant impact on a substantial number of small entities.
See notice of proposed rulemaking appearing in today's Federal Register
entitled Selection of Annuity Providers for Individual Account Plans.
[[Page 52006]]
Paperwork Reduction Act
This rulemaking is not subject to the requirements of the Paperwork
Reduction Act of 1995 (44 U.S.C. 301 et seq.) because it does not
contain ``collection of information'' requirements as defined in 44
U.S.C. 3502(3). Accordingly, this interim final rule is not being
submitted to the OMB for review under the Paperwork Reduction Act.
Congressional Review Act
The interim final rule 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 will be transmitted to Congress and the Comptroller General
for review. The interim final rule is not a ``major rule'' as that term
is defined in 5 U.S.C. 804, because it does not result in (1) an annual
effect on the economy of $100 million or more; (2) a major increase in
costs or prices for consumers, individual industries, or Federal,
State, or local government agencies, or geographic regions; or (3)
significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), the interim final rule does not include any Federal mandate
that may result in expenditures by State, local, or tribal governments,
or impose an annual burden exceeding $100 million on the private
sector.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires Federal agencies to adhere to
specific criteria 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. This interim final rule does 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 interim rule 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 in 29 CFR Part 2509
Employee benefit plans, Pensions.
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For the reasons set forth in the preamble, the Department amends
Chapter XXV of Title 29 of the Code of Federal Regulations as follows:
PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974
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1. The authority citation for part 2509 is revised to read as follows:
Authority: 29 U.S.C. 1135. Secretary of Labor's Order 1-2003, 68
FR 5374 (Feb. 3, 2003). Sections 2509.75-10 and 2509.75-2 issued
under 29 U.S.C. 1052, 1053, 1054. Sec. 2509.75-5 also issued under
29 U.S.C. 1002. Sec. 2509.95-1 also issued under sec. 625, Pub. L.
109-280, 120 Stat. 780.
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2. Section 2509.95-1 is amended by revising the section heading and
paragraph (a) to read as follows:
Sec. 2509.95-1 Interpretive bulletin relating to the fiduciary
standards under ERISA when selecting an annuity provider for a defined
benefit pension plan.
(a) Scope. This Interpretive Bulletin provides guidance concerning
certain fiduciary standards under part 4 of title I of the Employee
Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1104-1114,
applicable to the selection of an annuity provider for the purpose of
benefit distributions from a defined benefit pension plan (hereafter
``pension plan'') when the pension plan intends to transfer liability
for benefits to an annuity provider. For guidance applicable to the
selection of an annuity provider for benefit distributions from an
individual account plan see 29 CFR 2550.404a-4.
* * * * *
Signed at Washington, DC, this 31st day of August, 2007.
Bradford P. Campbell,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. E7-17744 Filed 9-11-07; 8:45 am]
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