(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 distribution described in
paragraph (b) of this section.
(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 maintained as a tax-qualified plan in accordance with
the requirements of section 401(a), 403(a), or 403(b) 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),
403(a), or 403 (b) 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 distributions described in this
section.
(b) Distributions. This section shall apply to a distribution from
a terminated individual account plan if, in connection with such
distribution:
(1) The participant or beneficiary, on whose behalf the
distribution 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)(vi) 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 the distribution of
benefits, selection of a transferee entity described in paragraph
(d)(1)(i) through (iii) of this section, and the investment of funds in
connection with the distribution.
(d) Conditions. A fiduciary shall qualify for the safe harbor
described in paragraph (c) of this section if:
(1) The distribution described in paragraph (b) of this section is
made'
(i) 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, 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; or
(iii) In the case of a distribution by a qualified termination
administrator with respect to which the amount to be
[[Page 20851]]
distributed is $1000 or less and that amount is less than the minimum
amount required to be invested in an individual retirement plan product
offered by the qualified termination administrator to the public at the
time of the distribution, to:
(A) An interest-bearing federally insured bank or savings
association account in the name of the participant or beneficiary,
(B) The unclaimed property fund of the State in which the
participant's or beneficiary's last known address is located, or
(C) An individual retirement plan within the meaning of section
7701(a)(37) of the Code (or to an account described in paragraph
(d)(1)(ii) of this section in the case of a distribution on behalf of a
distributee other than a participant or spouse) offered by a financial
institution other than the qualified termination administrator to the
public at the time of the distribution.
(2) Except with respect to distributions to State unclaimed
property funds (described in paragraph (d)(1)(iii)(B) of this section),
the fiduciary enters into a written agreement with the transferee
entity which provides:
(i) The distributed 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 (except that distributions under paragraph (d)(1)(iii)(A) of
this section to a bank or savings account are not required to be
invested in such a product);
(ii) For purposes of paragraph (d)(2)(i) of this section, the
investment product shall--
(A) 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, and
(B) 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;
(iii) All fees and expenses attendant to the transferee plan or
account, including investments of such plan or account, (e.g.,
establishment charges, maintenance fees, investment expenses,
termination costs and surrender charges) shall not exceed the fees and
expenses charged by the provider of the plan or account for comparable
plans or accounts established for reasons other than the receipt of a
distribution under this section; and
(iv) The participant or beneficiary on whose behalf the fiduciary
makes a distribution shall have the right to enforce the terms of the
contractual agreement establishing the plan or account, with regard to
his or her transferred account balance, against the plan or account
provider.
(3) Both the fiduciary's selection of a transferee plan or 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
written in a manner calculated to be understood by the average plan
participant and 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 distribute 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 distribution. If,
after such steps, the fiduciary 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 30 days for purposes of
paragraph (b)(2) of this section.
(f) Model notice. The appendix to this section contains a model
notice that may be used to discharge the notification requirements
under this section. Use of the model notice is not mandatory. However,
use of an appropriately completed model notice will be deemed to
satisfy the requirements of paragraph (e)(1) of this section.
BILLING CODE 4150-29-P
