EBSA
Proposed Rules
Amendments to the Abandoned Plan Regulations
[ 12/12/2012]
[ PDF]
Federal Register, Volume 77 Issue 239 (Wednesday, December 12, 2012)
[Federal Register Volume 77, Number 239 (Wednesday, December 12, 2012)]
[Proposed Rules]
[Pages 74063-74097]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29500]
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 /
Proposed Rules
[[Page 74063]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2520, 2550, and 2578
RIN 1210-AB47
Amendments to the Abandoned Plan Regulations
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Proposed regulations.
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SUMMARY: This document contains proposed amendments to three
regulations previously published under the Employee Retirement Income
Security Act of 1974 that facilitate the termination of, and
distribution of benefits from, individual account pension plans that
have been abandoned by their sponsoring employers. The principal
amendments propose to permit bankruptcy trustees to use the
Department's Abandoned Plan Program to terminate and wind up the plans
of sponsors in liquidation under chapter 7 of the U.S. Bankruptcy Code.
In addition, other technical amendments are proposed to improve the
operation of the regulations. If adopted, the amendments would affect
employee benefit plans, primarily small defined contribution plans,
participants and beneficiaries, service providers, and individuals
appointed to serve as trustees under chapter 7 of the U.S. Bankruptcy
Code.
DATES: Written comments should be received by the Department of Labor
on or before February 11, 2013.
ADDRESSES: Written comments may be submitted to the addresses specified
below. All comments will be made available to the public. Warning: Do
not include any personally identifiable information (such as name,
address, or other contact information) or confidential business
information that you do not want publicly disclosed. All comments may
be posted on the Internet and can be retrieved by most Internet search
engines. Comments may be submitted anonymously. Comments may be
submitted to the Department of Labor, by one of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: e-ORI@dol.gov. Include RIN 1210-AB47 in the subject
line of the message.
Mail: Office of Regulations and Interpretations, Employee
Benefits Security Administration, Room N-5655, U.S. Department of
Labor, 200 Constitution Avenue NW., Washington, DC 20210, Attention:
Abandoned Plans.
All submissions received must include the agency name and
Regulation Identifier Number (RIN) for this rulemaking (RIN 1210-AB47).
Comments received will be made available to the public, posted without
change to http://www.regulations.gov and http://www.dol.gov/ebsa, and
made 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: Stephanie Ward Cibinic or Melissa R.
Dennis, Office of Regulations and Interpretations, Employee Benefits
Security Administration, (202) 693-8500. This is not a toll-free
number.
SUPPLEMENTARY INFORMATION:
A. Executive Summary
Pursuant to Executive Order 13563, this section of the preamble
contains an executive summary of the rulemaking and related prohibited
transaction class exemption (published elsewhere in the notice section
of today's Federal Register) in order to promote public understanding
and to ensure an open exchange of information and perspectives.
Sections B through G of this preamble, below, contain a more detailed
description of the regulatory provisions and need for the rulemaking as
well as its costs and benefits.
1. Purpose of Regulatory Action
In 2006, the Department of Labor (the Department) issued
regulations establishing a program to facilitate the termination of and
distribution of benefits from individual account plans that have been
abandoned by their sponsors. In conjunction with the regulations, the
Department also issued a class exemption that permits certain
transactions associated with these types of terminations and
distributions. The regulations and the class exemption (hereinafter
referred to collectively as the Abandoned Plan Program or Abandoned
Plan Regulations, unless otherwise indicated) currently are not
available to plans whose sponsors are in liquidation under chapter 7 of
the U.S. Bankruptcy Code (hereinafter referred to as chapter 7 plans).
Since the establishment of the Abandoned Plan Program, on-going
challenges associated with terminating and winding up chapter 7 plans
have persuaded the Department that the Abandoned Plan Program should be
expanded. This proposed rulemaking, along with the proposed amendments
to the related class exemption, would help abate these challenges by
making the Abandoned Plan Program available to bankruptcy trustees who,
under the U.S. Bankruptcy Code, may have responsibility for
administering such plans. The Secretary of Labor would make these
amendments under her authority at section 505 of ERISA to prescribe
such regulations as she finds necessary or appropriate to carry out the
statute's provisions. The Secretary also has the authority to issue
exemptions from ERISA's prohibited transaction rules in accordance with
section 408(a) of ERISA and section 4975(c)(2) of the Internal Revenue
Code and pursuant to the exemption procedures established in 29 CFR
part 2570, subpart B.
2. Summary of Major Provisions
The major provisions of this rulemaking include the proposed
amendments contained in paragraph (j) of proposed 29 CFR 2578.1.
Pursuant to these proposed amendments, chapter 7 plans would be
considered abandoned upon the Bankruptcy Court's entry of an order for
relief with respect to the plan sponsor's bankruptcy proceeding. The
bankruptcy trustee or a designee would be eligible to terminate and
wind up such plans under procedures similar to those provided under the
Department's current Abandoned Plan Regulations. If the bankruptcy
trustee winds up the plan under the Abandoned Plan Program, the
trustee's expenses would have to be consistent with industry rates for
similar services ordinarily charged by qualified termination
administrators that are not bankruptcy trustees. The proposed amendment
to the class exemption would permit bankruptcy trustees, as with
qualified termination administrators under the current Abandoned Plan
Regulations, to pay themselves from the assets of the plan (a
prohibited transaction) for terminating and winding up a chapter 7 plan
under an industry rates standard.
3. Summary of Costs and Benefits
The Department estimates that the costs attributable to amending
the Abandoned Plan Program to cover chapter 7 plans will be $64,000
annually. The Department believes the benefits of expanding the program
will significantly outweigh the costs. Expanding the program will
encourage the orderly and efficient termination of chapter 7 plans and
distribution of account balances, thereby enhancing the retirement
income security of participants and beneficiaries in these plans.
Absent the standards and procedures set forth in the amendments, some
bankruptcy trustees may lack the
[[Page 74064]]
necessary guidance to properly update plan records, calculate account
balances, select and monitor service providers, distribute benefits,
pay fees/expenses, and otherwise efficiently terminate and wind up
chapter 7 plans. In addition, significant cost savings would result
from the amendments because chapter 7 plans no longer would incur
costly audit fees required to file the Form 5500 Annual Return/Report.
The Department's full cost/benefit analysis is set forth below in
Section G of this preamble, entitled ``Regulatory Impact Analysis.''
B. Background
On April 21, 2006, the Department of Labor (the Department) issued
three regulations (the Abandoned Plan Regulations) that collectively
facilitate the orderly, efficient termination of, and distribution of
benefits from, individual account pension plans that have been
abandoned by their sponsoring employers.\1\ The first of these
regulations, codified at 29 CFR 2578.1, establishes standards for
determining when individual account plans may be considered
``abandoned'' and procedures by which financial institutions (so-called
``qualified termination administrators'' or ``QTAs'') holding the
assets of such plans may terminate the plans and distribute benefits to
participants and beneficiaries, with limited liability under title I of
the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.
1002 et seq. The second regulation, codified at 29 CFR 2550.404a-3,
provides a fiduciary safe harbor for qualified termination
administrators to make distributions on behalf of participants and
beneficiaries who fail to elect a form of benefit distribution (these
participants and beneficiaries are sometimes referred to as missing
participants or beneficiaries). The third regulation, codified at 29
CFR 2520.103-13, establishes a simplified method for filing a terminal
report for abandoned individual account plans. Also on April 21, 2006,
the Department granted a prohibited transaction exemption, PTE 2006-06,
which facilitates the goal of the Abandoned Plan Regulations by
permitting a qualified termination administrator, who meets the
conditions in the exemption, to, among other things, select itself or
an affiliate to carry out the termination and winding up activities
specified in the Abandoned Plan Regulations, and to pay itself or an
affiliate fees for those services.\2\
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\1\ 71 FR 20820. See also 73 FR 58459 for subsequent amendments
with regard to distributions on behalf of a missing non-spouse
beneficiary.
\2\ 71 FR 20855.
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For the reasons set forth in the 2006 preamble, the Abandoned Plan
Regulations strictly limit who may be a qualified termination
administrator.\3\ Specifically, in order to be a qualified termination
administrator, an entity, first, must be 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 (Code) and, second,
must hold assets of the plan on whose behalf it will serve as the
qualified termination administrator.\4\ As a result of these
conditions, bankruptcy trustees ordinarily do not qualify as qualified
termination administrators under the Abandoned Plan Regulations. This
fact was acknowledged when the Department published the Abandoned Plan
Regulations in 2006.\5\
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\3\ See 71 FR 20821 (``given the authority and control over
plans vested in QTAs under the regulation, QTAs must be subject to
standards and oversight that will reduce the risk of losses to the
plans' participants and beneficiaries'').
\4\ Section 7701(a)(37) of the Code describes an ``individual
retirement plan'' as 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. Section 408(a) of the Code
describes the term ``individual retirement account'' as meaning a
trust created or organized in the United States for the exclusive
benefit of an individual or his beneficiaries, if certain
requirements are met. Section 408(b) of the Code describes the term
``individual retirement annuity'' as meaning an annuity contract, or
an endowment contract, which meets certain requirements.
\5\ For example, in responding to commenters who argued in favor
of conferring qualified termination administrator status on
bankruptcy trustees in liquidation cases when the debtor also is the
plan administrator, the Department, in the preamble to the Abandoned
Plan Regulations, stated its view at that time that such individuals
are empowered by virtue of their appointment to take the steps
necessary to terminate and wind up the affairs of a plan and,
therefore, do not need the authority conferred by the Abandoned Plan
Regulations. See 71 FR 20821.
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However, for several reasons, the Department is revisiting its
earlier decision to preclude bankruptcy trustees from serving as
qualified termination administrators. Pursuant to 11 U.S.C. 704(a)(11),
enacted as part of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, Public Law 109-8, 119 Stat. 23, when an entity
that sponsors an individual account plan is liquidated under chapter 7
of title 11 of the United States Code, the court administering the
liquidation proceeding (and/or U.S. Trustee) will appoint a bankruptcy
trustee to, among other things, continue to perform the obligations
that would otherwise be required of the bankrupt entity with respect to
the plan. Therefore, the bankruptcy trustee often is responsible for
administering the plan, which may include taking the steps necessary to
terminate the plan, wind up the affairs of the plan, and distribute
plan benefits.\6\ While the U.S. Bankruptcy Code imposes these
obligations on bankruptcy trustees, it does not provide guidance or
standards for carrying out such activities.
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\6\ A bankruptcy trustee who undertakes these plan
responsibilities is a fiduciary within the meaning of section 3(21)
of ERISA.
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The Department believes that when the sponsor of an individual
account plan is in liquidation in a chapter 7 bankruptcy case, the plan
should be terminated and wound up in an orderly and efficient manner.
However, in bankruptcy cases, as with abandoned plans generally,
usually the sponsor is not in a position to carry out this function.
Although the trustee of the sponsor's bankruptcy estate has the
requisite legal authority, the Department has observed that such
trustees may be unaware of their responsibilities and often are
unfamiliar with ERISA, or how properly to terminate and wind up a plan.
The frequent result is delay in distributing benefits to participants
and beneficiaries and excessive cost to the plan.
In the Department's view, a bankruptcy trustee responsible for
administering a chapter 7 debtor's employee benefit plan is a fiduciary
with respect to the plan for purposes of ERISA. Thus, when taking steps
to wind up the affairs of the plan, the trustee must act consistently
with ERISA's fiduciary standards. The Department is proposing these
regulations (which are in the form of amendments to the Abandoned Plan
Regulations), and the accompanying prohibited transaction exemption
amendment, in order to provide a process for the bankruptcy trustee to
terminate the plan, distribute benefits to participants and
beneficiaries, and pay necessary expenses, including to itself, in a
manner that helps the bankruptcy trustee meet its fiduciary
obligations.
C. Overview of Proposed Rulemaking
In general, this rulemaking proposes to extend the basic framework
of the Abandoned Plan Regulations to plans (i.e., chapter 7 plans)
whose sponsors are undergoing liquidation under chapter 7 of title 11
of the United States Code.\7\ The provisions of the existing
[[Page 74065]]
Abandoned Plan Regulations would apply to chapter 7 plans in much the
same way they apply now to abandoned plans, except to the extent that
they are modified by this proposal to reflect fundamental differences
between abandoned plans and chapter 7 plans. In this regard, the most
significant amendments to the existing Abandoned Plan Regulations are
contained in proposed paragraph (j) of 29 CFR 2578.1. Other less
significant or conforming amendments are needed to other parts of Sec.
2578.1 and to the other two regulations (Sec. 2550.404a-3 and Sec.
2520.103-13) constituting the Abandoned Plan Regulations. Section D of
this preamble describes the major proposed changes (the so-called
chapter 7 amendments) to the Abandoned Plan Regulations. This
rulemaking, however, also proposes to make certain technical changes to
the Abandoned Plan Regulations that are unrelated to chapter 7 plans.
These amendments are discussed in section E of this preamble. Section F
of this preamble discusses the results of the Department's consultation
on this proposal with the Internal Revenue Service. Section G contains
a detailed Regulatory Impact Analysis. For purposes of readability, the
proposed rulemaking republishes the Abandoned Plan Regulations in their
entirety, as revised, rather than the specific amendments only.
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\7\ The proposed extension is limited to plans whose sponsors
entered liquidation under chapter 7 of title 11 of the United States
Code on the theory that such plans are effectively being abandoned
by the sponsor as a result of the liquidation. Nonetheless, the
Department requests comment on whether there are other similar
situations that could or should be covered by the Abandoned Plan
Regulations. For example, should the Regulations cover plans whose
sponsors are undergoing liquidation under a chapter 11 plan of
liquidation? Should the Regulations cover situations when a plan's
sponsor enters receivership pursuant to applicable state or federal
law (e.g., FDIC receivership)? If the Regulations should be extended
to situations beyond the situations covered by the proposed
extension, please specifically identify the situation, why the
situation should be covered, the costs and benefits of covering the
situation, and, if applicable, any state or federal law relevant to
the situation.
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D. Special Rules for Chapter 7 Plans
1. Discussion of Major Changes to 29 CFR 2578.1--Termination of
Abandoned Individual Account Plans
(a) In General
Proposed paragraph (j) of Sec. 2578.1 contains the special rules
for chapter 7 plans. This paragraph contains four subparagraphs.
Subparagraph (1) sets forth rules for when such plans may be considered
abandoned and who may serve as qualified termination administrators.
These rules are in lieu of the general rules in paragraphs (b) and (g)
of Sec. 2578.1, which do not apply to chapter 7 plans. Subparagraph
(2) sets forth the content requirements for the notice of plan
abandonment that qualified termination administrators of chapter 7
plans must send to the Department. These content requirements are in
lieu of the content requirements in paragraph (c)(3) of Sec. 2578.1,
which apply to abandoned plans in general. Subparagraph (3) sets forth
special rules for winding up chapter 7 plans. These special rules are
in lieu of some, but not all, of the winding up procedures in paragraph
(d) of Sec. 2578.1. Subparagraph (4) contains a rule of accountability
that is applicable to bankruptcy trustees. The requirements of each of
these subparagraphs are described in detail below.
(b) Timing of Abandonment
Proposed paragraph (j)(1)(i) is a timing rule. It provides that a
chapter 7 plan shall be considered abandoned upon the entry of an order
for relief. No other findings must be made. The bankruptcy trustee then
may establish itself or an eligible designee as the qualified
termination administrator. Whether to establish itself or an eligible
designee as the qualified termination administrator is optional on the
part of the bankruptcy trustee. Abandonment status, on the other hand,
is not optional; it is achieved by operation of law upon the entry of
an order for relief. Proposed paragraph (j)(1)(i) contains a limitation
on this status. If at any time before the plan is deemed terminated
(plans generally will be deemed to be terminated on the ninetieth
(90th) day following the date of the letter from EBSA acknowledging
receipt of the notice of plan abandonment), the plan sponsor's chapter
7 proceeding is dismissed or converted to a proceeding under chapter 11
of title 11 of the United States Code, the plan shall not be considered
abandoned pursuant to paragraph (j)(1).\8\ The Department believes that
a plan should not be considered abandoned merely because its sponsor is
in reorganization.\9\
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\8\ On the other hand, a plan would not cease to be considered
abandoned under proposed paragraph (j)(1) if the sponsor's chapter 7
proceeding is converted to a proceeding under chapter 11 after the
plan is deemed terminated. In such circumstances, the qualified
termination administrator would be expected to continue winding up
the affairs of the plan in accordance with the Abandoned Plan
Regulations.
\9\ But see note 7.
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(c) Who May Serve as a Qualified Termination Administrator
Proposed paragraph (j)(1)(ii) makes it clear that bankruptcy
trustees may serve as qualified termination administrators even if they
do not satisfy the rule in paragraph (g) of Sec. 2578.1 that allows
only large financial institutions and other asset custodians described
in section 7701(a)(37) of the Code to be qualified termination
administrators. Except as provided in paragraph (j), a bankruptcy
trustee serving as qualified termination administrator would follow the
same termination and winding-up procedures in the Abandoned Plan
Regulations as would any other qualified termination administrator. The
proposal also allows a bankruptcy trustee the option of designating
someone else to serve as the qualified termination administrator. In
this regard, however, the proposal strictly limits who the bankruptcy
trustee may designate. Proposed paragraph (j)(1)(ii) provides that an
``eligible designee'' is any person or entity designated by the
bankruptcy trustee that is eligible to serve as a trustee or issuer of
an individual retirement plan, within the meaning of section
7701(a)(37) of the Code, and that holds assets of the chapter 7 plan.
Thus, an eligible designee could be the plan's asset custodian at the
time of abandonment or another entity chosen later by the bankruptcy
trustee.\10\ The bankruptcy trustee would be responsible for the
selection and monitoring of any eligible designee in accordance with
section 404(a)(1) of ERISA.
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\10\ Any eligible designee should be selected and holding the
assets of the chapter 7 plan by the time of the furnishing of the
notice of plan abandonment to the Department under paragraph (j)(2)
of the proposed amendments.
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(d) Notice of Abandonment
Proposed paragraph (j)(2) provides that, in accordance with the
deemed termination provisions in paragraph (c)(1) and (c)(2) of Sec.
2578.1, the qualified termination administrator must furnish to the
Department a notice of plan abandonment that meets the content
requirements in paragraph (j)(2). This notice essentially is the same
as the notice of plan abandonment described in paragraph (c)(3) of
Sec. 2578.1 except for modifications that take into account
information specific to chapter 7 plans and bankruptcy trustees. A
proposed model ``Notification of Plan Abandonment and Intent to Serve
as Qualified Termination Administrator'' reflecting the content
requirements of proposed paragraph (j)(2) is being added for chapter 7
plans as Appendix C. Therefore, Appendices C and D have been re-
proposed as Appendix D and Appendix E respectively. Paragraph (j)(2)(i)
provides that the notice must include the name and contact information
of the bankruptcy trustee and, if applicable, the name and contact
information of the eligible designee acting as the qualified
termination
[[Page 74066]]
administrator pursuant to proposed paragraph (j)(1). Paragraph
(j)(2)(ii) requires information about the chapter 7 plan that the
qualified termination administrator is winding up. Paragraph
(j)(2)(iii) requires a statement that the plan is considered to be
abandoned due to an entry of an order for relief under chapter 7 of the
U.S. Bankruptcy Code, and a copy of the notice or order entered in the
case reflecting the bankruptcy trustee's appointment to administer the
plan sponsor's chapter 7 case. Paragraph (j)(2)(iv)(A) and (B) require
the estimated value of the plan's assets as of the entry of an order
for relief; the name, employer identification number (EIN), and contact
information for the entity holding the plan's assets; and the length of
time plan assets have been held by such entity, if held for less than
12 months. Paragraph (j)(2)(iv)(C) and (D) require 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, and an identification of known delinquent contributions.
Paragraph (j)(2)(v) requires the name and contact information of known
service providers to the plan. It also requires an identification of
any services considered necessary to wind up the plan, the name of the
service provider(s) that is expected to provide such services, and an
itemized estimate of expenses for winding up services expected to be
paid out of plan assets by the qualified termination administrator.
Paragraph (j)(2)(vi) requires a statement indicating that the
information 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.
(e) Winding-Up Procedures
(i) In General
Paragraph (d) of Sec. 2578.1 sets forth specific steps that a
qualified termination administrator must take to wind up an abandoned
plan and, with respect to most such steps, the standards applicable to
carrying out the particular activity. Under the proposal, paragraph (d)
applies to chapter 7 plans except as modified by the provisions in
proposed paragraph (j)(3).
(ii) Delinquent Contributions
Proposed paragraph (j)(3)(i) contains a conditional requirement to
collect delinquent contributions. Specifically, this paragraph provides
that the qualified termination administrator of a chapter 7 plan shall,
consistent with the duties of a fiduciary under section 404(a)(1) of
ERISA, take reasonable and good faith steps to collect known delinquent
contributions on behalf of the plan, taking into account the value of
the plan assets involved, the likelihood of a successful recovery, and
the expenses expected to be incurred in connection with collection. If
the bankruptcy trustee designates an eligible designee as defined in
proposed paragraph (j)(1)(ii), the bankruptcy trustee shall at the time
of such designation notify the eligible designee of any known
delinquent contributions. This collection requirement includes both
participant contributions withheld from employee paychecks, but not
forwarded by the debtor to the plan, as well as delinquent employer
contributions owed by the debtor. This collection requirement applies
to any qualified termination administrator to a chapter 7 plan whether
it is a bankruptcy trustee or an eligible designee.\11\
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\11\ Under this provision, an eligible designee's duty to
collect delinquent contributions is limited expressly to those
delinquent contributions it knows about based on the information
provided by the bankruptcy trustee at the time of the designation.
Thus, an eligible designee would have no duty to collect delinquent
contributions if the bankruptcy trustee failed to disclose them to
the eligible designee. Nothing in this section imposes an obligation
on the eligible designee to conduct an inquiry or review to
determine whether there are delinquent contributions with respect to
the plan. See Sec. 2578.1(e)(2).
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The Department's present belief is that bankruptcy trustees, by
virtue of their knowledge and control of the debtor's estate and of the
debtor's ERISA plan, are in the best position both to know of the
liquidating sponsor's delinquent contribution debts to the plan and to
collect these delinquencies (or to notify the eligible designee so that
it can collect them). However, the Department is interested in knowing
whether, and under what circumstances, the qualified termination
administrator's duty to collect would unavoidably conflict with any
duties the bankruptcy trustee may have under the U.S. Bankruptcy Code
as the representative of the debtor's estate. Please be specific about
when, if ever, such conflicts might arise, whether and why such
conflicts are disabling, and the specific provisions of the U.S.
Bankruptcy Code that impose the conflicting obligations.
(iii) Reporting Fiduciary Breaches
Proposed paragraph (j)(3)(ii) contains a requirement to report
activity to the Department that may be evidence of fiduciary breaches
by prior plan fiduciaries. Specifically, the qualified termination
administrator of a chapter 7 plan (whether a bankruptcy trustee or
eligible designee) must report known delinquent contributions (employer
and employee) owed to the plan, and any activity that the qualified
termination administrator believes may be evidence of other fiduciary
breaches by a prior plan fiduciary that involve plan assets. Thus, for
example, evidence of embezzlement by a prior plan fiduciary would be
required to be reported. The proposal limits the reporting requirement
to evidence of any fiduciary breaches that ``involve plan assets'' by a
prior plan fiduciary. This limitation is intended to prevent a
reporting requirement when no plan assets are involved. The Department
intends to use this information to pursue and remedy fiduciary breaches
where appropriate. Beyond this reporting requirement, a qualified
termination administrator to a chapter 7 plan ordinarily will have no
further obligations under the Abandoned Plan Regulations with respect
to such prior breaches, except with respect to collecting delinquent
contributions owed to the plan.\12\
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\12\ As discussed above, proposed paragraph (j)(3)(i) imposes on
a qualified termination administrator to a chapter 7 plan a
conditional duty to collect delinquent contributions.
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Information concerning fiduciary breaches must be reported in
conjunction with the filing of the notice of plan abandonment
(paragraph (j)(2)) or the final notice (paragraph (d)(2)(ix)). If the
qualified termination administrator uses the model notices, such
information may be included in the sections designated for other
information. If the bankruptcy trustee designates an eligible designee,
the bankruptcy trustee must provide the eligible designee with records
under the control of the bankruptcy trustee to enable the eligible
designee to carry out its responsibility to report information about
fiduciary breaches. In the case of an eligible designee, if after the
eligible designee completes the winding up of the plan, the bankruptcy
trustee, in administering the debtor's estate, discovers additional
information not already reported in the notification required in
paragraphs (j)(2) or (d)(2)(ix) that it believes may be evidence of
fiduciary breaches that involve plan assets by a prior plan fiduciary,
the bankruptcy trustee must report such activity to EBSA in a time and
manner specified in instructions developed by EBSA's Office of
Enforcement. This supplemental reporting requirement is needed to
address circumstances when
[[Page 74067]]
the bankruptcy trustee discovers information concerning fiduciary
breaches after the eligible designee has completed the termination and
winding up process.
(iv) Notification and Distribution Requirements
The notification and distribution requirements applicable to
chapter 7 plans under the proposal essentially are the same as the
notification and distribution requirements applicable to non-chapter 7
plans under the existing Abandoned Plan Regulations, except as follows.
First, proposed paragraph (j)(3)(iii) adds a requirement that
participants must be informed that plan termination has occurred as a
result of liquidation under the U.S. Bankruptcy Code. Second, proposed
paragraph (j)(3)(iv) adds a requirement that the Department must
receive certain information about the identity of the bankruptcy
trustee and, if applicable, the eligible designee.
Third, proposed paragraph (j)(3)(v) does not grant a bankruptcy
trustee the ability to designate itself or an affiliate as the
transferee of distribution proceeds. The Abandoned Plan Regulations
provide that qualified termination administrators must distribute
benefits in accordance with the form of distribution elected by the
participant or beneficiary, and when the participant or beneficiary
fails to make an election, the qualified termination administrator has
the ability to designate itself or an affiliate as the transferee of
the distribution proceeds. (See paragraph (d)(2)(vii)(C) of Sec.
2578.1.) Typically this would occur where the qualified termination
administrator has its own proprietary investment vehicle, such as an
individual retirement plan within the meaning of section 7701(a)(37) of
the Code. The proposal does not extend this option to bankruptcy
trustees based on the Department's understanding that bankruptcy
trustees do not maintain proprietary investment vehicles within the
meaning of section 7701(a)(37) of the Code.
(v) Payment of Reasonable Fees
Proposed paragraph (j)(3)(vi) addresses fees that a bankruptcy
trustee may pay to itself, or others, from the plan's assets in
connection with following the termination and winding-up procedures in
the proposed amendments. Subparagraph (A) of paragraph (j)(3)(vi)
contains the applicable standard in cases where the bankruptcy trustee
is the qualified termination administrator. Subparagraph (B) of
paragraph (j)(3)(vi) contains the applicable standard in cases when the
bankruptcy trustee appoints an eligible designee to serve as the
qualified termination administrator.\13\ The different standards in
these subparagraphs are needed for two reasons: first, expense rates
normally charged by bankruptcy trustees for administering estates of
chapter 7 debtors may not be appropriate for purposes of carrying out
the duties and responsibilities under the proposed amendments with
respect to ERISA plans, and second, bankruptcy trustees are not likely
to have significant experience in terminating and winding up the
affairs of such plans. Finally, subparagraph (C) of paragraph
(j)(3)(vi) regulates payments to the bankruptcy trustee by the eligible
designee.
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\13\ Proposed paragraph (j)(3)(vi)(B) merely confirms that an
eligible designee may use the more generally applicable safe harbor
at paragraph (d)(2)(v) of Sec. 2578.1 without the special
modifications contained in proposed paragraph (j)(3)(v)(A) for
bankruptcy trustees.
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Pursuant to proposed paragraph (j)(3)(vi)(A), the qualified
termination administrator (i.e., when the bankruptcy trustee is the
QTA) is permitted to pay, from plan assets, no more than the reasonable
expenses of carrying out his or her authority and responsibility under
the proposed amendments. Expenses of plan administration shall be
considered reasonable if they are for services necessary to wind up the
affairs of the plan and distribute benefits (see Sec.
2578.1(d)(2)(v)(B)(1)), if they are consistent with industry rates for
the same or similar services ordinarily charged by qualified
termination administrators who are not bankruptcy trustees (see
proposed paragraph (j)(3)(vi)(A)), and if their payment would not
constitute a prohibited transaction (see Sec. 2578.1(d)(2)(v)(B)(3)).
This standard is intended to make clear that bankruptcy trustees should
look to the rates ordinarily charged by qualified termination
administrators who are not bankruptcy trustees, e.g., banks and other
asset custodians. Samples of these rates are available to the public in
filings made to the Department.\14\ These filings may be a helpful
source of information for bankruptcy trustees.
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\14\ Under Sec. 2520.103-13, qualified termination
administrators must file the Special Terminal Report for Abandoned
Plans (STRAP). STRAPs contain total termination expenses paid by a
plan and a separate schedule identifying each service provider and
the amount received by that service provider, itemized by expense.
STRAPs currently are available on the Department's Web site (see
http://askebsa.dol.gov/AbandonedPlanSearch/UI/QTASearchResults.aspx).
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The standard in proposed paragraph (j)(3)(vi)(A) (i.e., that
expenses must be consistent with industry rates for the same or similar
services ordinarily charged by qualified termination administrators who
are not bankruptcy trustees) is intended to provide clarity and
flexibility with respect to decisions regarding fee and expense
payments by bankruptcy trustees who elect to be qualified termination
administrators. In determining these fees and expenses, bankruptcy
trustees still will have to make an inquiry into, and objectively
determine, whether any particular fee or expenditure is reasonable
using the standard in proposed paragraph (j)(3)(vi)(A). In this regard,
the Department specifically requests comments on whether proposed
paragraph (j)(3)(vi)(A) provides sufficient clarity as to the type and
amount of fees and expenses that may be paid from plan assets in
connection with terminating and winding up a plan under this proposal.
For example, will bankruptcy trustees have difficulty determining
industry rates for termination and winding up services despite the
public filings mentioned above? Are these filings searchable in a
helpful way to bankruptcy trustees? If proposed paragraph (j)(3)(vi)(A)
does not provide sufficient clarity, please explain why not and
identify any alternatives that should be considered by the Department.
Proposed paragraph (j)(3)(vi)(C) provides that an eligible designee
may pay from plan assets to a bankruptcy trustee the reasonable
expenses that the bankruptcy trustee incurs in selecting and monitoring
the eligible designee. This provision follows from the requirement in
proposed paragraph (j)(1)(ii) that the bankruptcy trustee is
responsible for the selection and monitoring of the eligible designee.
Whether an expense is ``reasonable'' ordinarily depends on the facts
and circumstances surrounding the particular expense. However, the
Department notes that the rates charged to the plan by the bankruptcy
trustee for selecting and monitoring the eligible designee are to be
judged in relation to the rates charged by a plan fiduciary for similar
services, rather than the generally higher fees charged by bankruptcy
trustees for legal services provided to the bankruptcy estate. In any
event, pursuant to proposed paragraph (j)(3)(vi)(C), the eligible
designee would apply the rules in paragraph (d)(2)(v) of Sec. 2578.1
in determining whether the payment to the bankruptcy trustee for
monitoring services is reasonable. While the Department believes that
it would be appropriate for bankruptcy trustees to expect remuneration
for providing monitoring services, the Department
[[Page 74068]]
intends to review closely such remuneration to ensure that arrangements
under the proposed amendments are not contrary to the interests of
participants and beneficiaries.
(f) Rule of Accountability
Proposed paragraph (j)(4) contains a rule of accountability. The
rule provides that a bankruptcy trustee acting as qualified termination
administrator, or an eligible designee, shall not, through waiver or
otherwise, seek a release from liability under ERISA, or assert a
defense of derived judicial immunity (or similar defense) in any action
brought against the bankruptcy trustee or eligible designee arising out
of its conduct under the proposed amendments. The Department is aware
that bankruptcy trustees sometimes request from the bankruptcy court
comfort orders seeking relief from ERISA fiduciary liability in their
roles as administrators to plans. However, bankruptcy trustees who wind
up chapter 7 plans under the Abandoned Plan Regulations benefit from
the limited exposure to ERISA liability provided by the regulations.
(See paragraph (e) of Sec. 2578.1.) The Department believes the
regulatory framework, as constructed, serves to minimize to the
greatest extent possible the liability and exposure of qualified
termination administrators who carry out their responsibilities in
accordance with the provisions of the Abandoned Plan Regulations.\15\
As a condition to receiving the benefit of the limited liability
provided by the Abandoned Plan Regulations, a bankruptcy trustee would
not be permitted to seek a release from liability under ERISA.
Paragraph (j)(4) does not prevent a bankruptcy trustee from asking a
court to resolve an actual dispute involving a plan or to obtain an
order required under the U.S. Bankruptcy Code. However, it does bar a
trustee from seeking a ruling from a court for approval of its actions,
where a trustee has the power to act without judicial approval. For
example, a bankruptcy trustee may not seek court approval of the amount
to pay a professional from assets of the plan, but must exercise his or
her own judgment. In addition, a bankruptcy trustee may not claim it is
not subject to suit for breach of fiduciary duty as to the amount of a
payment from an ERISA plan because it previously obtained a court order
approving the amount of the payment.
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\15\ 71 FR 20806.
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2. Discussion of Changes to 29 CFR 2550.404a-3--Safe Harbor for
Distributions From Terminated Individual Account Plans
The Abandoned Plan Regulations, in relevant part, provide that,
with respect to missing and nonresponsive participants or
beneficiaries,\16\ qualified termination administrators shall
distribute benefits in the form of direct rollovers to individual
retirement plans within the meaning of section 7701(a)(37) of the Code.
(See Sec. 2578.1(d)(2)(vii)(B).) However, the Abandoned Plan
Regulations also contain a special rule for small account balances of
$1,000 or less.\17\ Under the special rule, a qualified termination
administrator may make distributions to certain bank accounts
(interest-bearing federally insured bank or savings association
accounts) or to State unclaimed property funds. (See 29 CFR 2550.404a-
3(d)(1)(iii).) The proposal would add paragraph (d)(iv) to Sec.
2550.404a-3 to make clear that the special rule also is available in
the case of chapter 7 plans.
---------------------------------------------------------------------------
\16\ In this context, a missing or nonresponsive participant or
beneficiary is a participant or beneficiary who fails to elect a
form of distribution within 30 days from the date the notice of plan
termination is furnished by the qualified termination administrator.
\17\ The justification for the special rule is set forth in the
preamble to the Abandoned Plan Regulations. See 71 FR 20828. The
conditions related to the special rule are set forth at 29 CFR
2550.404a-3(d)(1)(iii).
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3. Discussion of Changes to 29 CFR 2520.103-13--Special Terminal Report
for Abandoned Plans
The Abandoned Plan Regulations provide for simplified reporting to
the Department for qualified termination administrators that wind up
the affairs of abandoned plans. (See 29 CFR 2520.103-13.) The time
savings resulting from this abbreviated reporting requirement reduces
administrative costs for abandoned plans and preserves account
balances, resulting in increased benefits to participants and
beneficiaries. The proposed amendments would revise these simplified
reporting requirements to make clear that they are available to chapter
7 plans. Specifically, the proposal would revise paragraph (b)(1) of
Sec. 2520.103-13 to include identification information about the
bankruptcy trustee as well as the qualified termination administrator,
if the qualified termination administrator is not the bankruptcy
trustee.
E. Technical Amendments Unrelated to Chapter 7 Plans
The Abandoned Plan Regulations require qualified termination
administrators to state whether they, or any affiliate, are, or in the
past 24 months were, the subject of an investigation, examination, or
enforcement action by the Department, the Internal Revenue Service, or
the Securities and Exchange Commission concerning their conduct as a
fiduciary or party in interest with respect to any ERISA covered plan.
(See Sec. 2578.1(c)(3)(i)(C).) This statement must be included in the
notice of plan abandonment furnished to the Department before a plan
can be terminated and wound up under the Abandoned Plan Regulations.
Although such information does not alone bar a person from serving as a
qualified termination administrator, the statement serves as a flagging
mechanism to help the Department identify potential arrangements that
are not in the best interests of plan participants and beneficiaries.
However, the Department is proposing to eliminate this requirement for
the following reasons. First, the Department generally can determine
from its own records whether a person is, or in the past 24 months was,
the subject of an investigation concerning his conduct as a fiduciary
or party in interest with respect to any ERISA covered plan. Second, by
definition, qualified termination administrators tend to be large
financial institutions with many affiliations and, therefore, it may be
costly for them to prepare an accurate statement. Third, the
requirement appears to deter some qualified persons from serving as
qualified termination administrators. In this regard, some individuals
have expressed a reluctance to affirm in a notice to the federal
government that they or an affiliate are or were under an
investigation, examination, or enforcement action by the Department,
the Internal Revenue Service, or the Securities and Exchange Commission
concerning their conduct as a fiduciary or party in interest with
respect to any ERISA covered plan. Because the Department believes that
this requirement now is unnecessary and may even discourage the use of
the Abandoned Plan Program, it is proposing to remove the requirement
from the Abandoned Plan Regulations.
In conjunction with the proposed removal of the investigation
statement in Sec. 2578.1(c)(3)(i)(C) referenced above, the Department
intends to remove a part of the definition of the term ``affiliate'' in
Sec. 2578.1(h). In the Abandoned Plan
[[Page 74069]]
Regulations, the term ``affiliate'' for general purposes of Sec.
2578.1 means any person directly or indirectly controlling, controlled
by, or under common control with, the person, or any officer, director,
partner or employee of the person. (See Sec. 2578.1(h)(1).) However,
for the specific purpose of the requirement for qualified termination
administrators to state whether they, or any affiliate are, or in the
past 24 months were, the subject of an investigation, examination, or
enforcement action by the Department, the Internal Revenue Service, or
the Securities and Exchange Commission concerning the their conduct as
a fiduciary or party in interest with respect to any ERISA covered
plan, the Abandoned Plan Regulations contain a narrower definition in
Sec. 2578.1(h)(2). Given the proposal to eliminate this statement
regarding investigations, the Department also is proposing to eliminate
the narrower definition of ``affiliate.'' The generally applicable
definition of the term ``affiliate'' would remain in effect. (See
modifications in the proposal to paragraph (h) of Sec. 2578.1.)
The Abandoned Plan Regulations generally require the qualified
termination administrator to distribute a missing or nonresponsive
participant's account balance to an individual retirement plan in the
participant's name. (See Sec. 2578.1(d)(2)(vii).) An exception exists
for account balances of $1,000 or less, which may be transferred to an
interest-bearing, federally-insured bank or savings association account
or to the unclaimed property fund of a State, if certain conditions are
satisfied. (See Sec. 2550.404a-3(d)(1)(iii).) Sometimes a qualified
termination administrator will know that a missing participant whose
account balance is greater than $1,000 is deceased and that there is no
named beneficiary, or that the named beneficiary also is deceased. In
such circumstances, the Abandoned Plan Regulations require the
qualified termination administrator to transfer the participant's
account balance to an individual retirement plan even if it is unlikely
that anyone will ever claim these benefits. The Department has been
advised that, in some cases, providers of individual retirement plans
will not accept such distributions. The Department is concerned that
obstacles like this prevent abandoned plans from being completely
terminated and could prevent qualified entities from serving as
qualified termination administrators, leaving participants in abandoned
plans with no ability to access their retirement benefits. This
proposal, therefore, conditionally would permit qualified termination
administrators to transfer the account balances of decedents to an
appropriate bank account or a state's unclaimed property fund,
regardless of the size of the account balance. Such a transfer would be
permitted only if the qualified termination administrator reasonably
and in good faith finds that the participant and, if applicable, the
named beneficiary, are deceased, and includes in the Final Notice to
EBSA the identity of the deceased participant and/or beneficiary and
the basis for the finding. (See proposed paragraph (d)(1)(v) of Sec.
2550.404a-3.) The Department is soliciting public comments specifically
on whether the proposed conditions sufficiently safeguard the rights of
participants and beneficiaries. For example, should a qualified
termination administrator be prohibited from these transfers if it has
actual knowledge that a descendent of the deceased has a claim?
The final step in winding up an abandoned plan under the Abandoned
Plan Regulations is filing the Special Terminal Report for Abandoned
Plans (STRAP) under Sec. 2520.103-13. As stated in the preamble to the
Abandoned Plan Regulations, the purpose of this provision is to provide
annual reporting relief relating to abandoned plan filings by qualified
termination administrators.\18\ The contents of the STRAP include, for
example, total assets of the plan as of the deemed termination date,
termination expenses paid by the plan, and the total amount of
distributions. To file the STRAP, a qualified termination administrator
must use the Form 5500 and either the Schedule I or a ``Schedule QTA.''
Instructions for filing the STRAP are not included in the instructions
to the Form 5500 Annual Return/Report of Employee Benefit Plan.
Specific instructions for completing and filing the STRAP are on EBSA's
Web site at http://www.dol.gov/ebsa/publications/APterminalreport.html.
This proposal would amend paragraph (c)(2) of Sec. 2520.103-13 to
clarify and update the specific location of these instructions.
---------------------------------------------------------------------------
\18\ 71 FR 20830.
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F. Internal Revenue Service
As it did in connection with the existing Abandoned Plan
Regulations, the Department conferred with representatives of the
Internal Revenue Service regarding the qualification requirements under
the Code as applied to plans that are terminated pursuant to 29 CFR
2578.1, as modified by the proposed amendments contained in this
document. The Internal Revenue Service advised that it would not
challenge the qualified status of any plan terminated under Sec.
2578.1 or take any adverse action against, or seek to assess or impose
any penalty on, the qualified termination administrator, the plan, or
any participant or beneficiary of the plan (including the qualified
status of any chapter 7 plan terminated under these proposed
amendments) as a result of such termination, including the distribution
of the plan's assets, provided that the qualified termination
administrator satisfies three conditions. First, the qualified
termination administrator, based on plan records located and updated in
accordance with Sec. 2578.1(d)(2)(i), 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 and takes reasonable steps to comply with those requirements (if
applicable). Second, each participant and beneficiary has a
nonforfeitable right to his or her accrued benefits as of the date of
deemed termination under Sec. 2578.1(c)(1), 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 Sec. 2578.1(d)(2)(vi). Notwithstanding the foregoing, as
indicated in the preamble to the final Abandoned Plan Regulations (71
FR 20827), the Internal Revenue Service 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.\19\
---------------------------------------------------------------------------
\19\ See 71 FR 20827 (further discussion of the Department's
response to commenters on the three IRS conditions).
---------------------------------------------------------------------------
The Internal Revenue Service also advised the Department that
chapter 7 bankruptcy trustees using the Abandoned Plan Program would
not be expected to use the Employee Plans Compliance Resolution System
(EPCRS) as a condition to this relief.
G. Regulatory Impact Analysis
1. Background and Need for Regulatory Action
As stated earlier in this preamble, this document contains proposed
amendments to three previously published Abandoned Plan Regulations
that facilitate the termination of, and distribution of benefits from,
individual account pension plans that have been abandoned by their
sponsoring
[[Page 74070]]
employers. The amendments primarily propose to: (1) Permit bankruptcy
trustees to use the Department's Abandoned Plan Regulations to
terminate and wind up the plans of sponsors in liquidation under
chapter 7 of the U.S. Bankruptcy Code; (2) eliminate the requirement
that qualified termination administrators state in a notice to the
Department whether they, or any affiliate are, or in the past 24 months
were, the subject of an investigation, examination, or enforcement
action by the Department, the Internal Revenue Service, or the
Securities and Exchange Commission concerning their conduct as a
fiduciary or party in interest with respect to any ERISA covered plan;
and (3) conditionally permit qualified termination administrators to
transfer the account balances of decedents to an appropriate bank
account or a state's unclaimed property fund regardless of the size of
the account balance. The need for these regulatory changes is explained
in detail above in the ``Background'' section and in the overview
sections, C through F, of this preamble.
2. Executive Order 12866 and 13563 Statement
Executive Orders 13563 and 12866 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing and streamlining rules, and
of promoting flexibility. It also requires federal agencies to develop
a plan under which the agencies will periodically review their existing
significant regulations to make the agencies' regulatory programs more
effective or less burdensome in achieving their regulatory objectives.
The Department has identified the amendments to the Abandoned Plan
Regulations as a retrospective regulatory review project consistent
with the principals of Executive Order 13563. The Department believes
that the proposed changes to the Abandoned Plan Regulations would
improve the overall efficiency of the Abandoned Plan Program, increase
its usage, and substantially reduce burdens and costs on bankruptcy
trustees terminating the plans of sponsors in chapter 7 liquidation,
the plans of bankrupt sponsors, and the participants in these plans.
Under Executive Order 12866, ``significant'' regulatory actions are
subject to the requirements of the executive order and 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. It has
been determined that this proposed rule is not a ``significant
regulatory action'' under section 3(f) of the executive order.
Accordingly, OMB has not reviewed this regulatory action or the
Department's assessment of its costs and benefits, which is presented
below.
3. Number of Affected Entities
As stated above, the proposed amendments to the Abandoned Plan
Regulations would extend the framework of the regulations to chapter 7
plans. In order to estimate the number of entities affected by the
Abandoned Plan Regulations as amended by the proposal, the Department
must determine the number of abandoned plans that would be eligible to
be terminated and wound up under the Abandoned Plan Program. At the
inception of the Abandoned Plan Program in 2006, the Department based
its estimate of the number of eligible plans upon Form 5500 data.
Because the Department has over five years of experience with the
Abandoned Plan Program, it now can base its estimate on data from
EBSA's Office of Enforcement. These data show that in fiscal year 2007,
the Department received 70 applications from potential qualified
termination administrators to wind up abandoned plans. The number of
applications increased to 331 in fiscal year 2010. Based on the
foregoing, the Department estimates that approximately 330 plans
covering 1,980 participants (330 plans x 6 participants per plan) would
be terminated and wound up under the Abandoned Plan Program each year
if the program remains unchanged.
The Department believes that there will be a 50 percent increase in
the number of applications to the Abandoned Plan Program if plans of
sponsors entering liquidation are permitted to be terminated and wound
up under the Abandoned Plan Program. This would increase the total
number of applications to 495 plans (330 plans x 1.5), and the number
of affected participants to 2,970 (495 plans x 6 participants per
plan), assuming that chapter 7 plans have roughly the same number of
participants as other eligible plans. The Department welcomes comments
regarding these estimates.
4. Costs
The Department estimates that the cost associated with extending
the Abandoned Plan Program to chapter 7 plans would total approximately
$64,000. These costs only would be imposed on the estimated 165 chapter
7 plans that chose to participate in the program. The Department also
has updated its costs and benefits estimate for the entire Abandoned
Plan Program to reflect its experience with the program since its
inception in 2006. The Department estimates that the 330 abandoned
plans participating in the Abandoned Plan Program would incur the
following costs: $127,000 in annual costs attributable to abandoned
plans' qualified termination administrator filings and notices; $4.48
million attributable to fiduciaries of the approximately 39,000
terminating plans (other than abandoned and chapter 7 plans) continuing
to use the Safe Harbor for Distributions from Terminated Individual
Account Plans (29 CFR 2550.404a-3), of which $3.52 million is
equivalent hour burden cost attributable to in-house clerical staff and
benefit managers' time; and $961,000 in mailing cost to distribute the
required notices to approximately 3.1 million participants. Overall,
the Department estimates that the costs of the regulations and class
exemption, as amended by the proposal, would total approximately $4.67
million ($3.52 million in annual equivalent costs and $1.15 million in
annual cost burden) but, as stated above, only $64,000 of such costs
relate to the proposed amendments. These costs are quantified and
discussed in more detail in the Paperwork Reduction Act section, below.
5. Benefits
The proposed amendments provide critical guidance that will
encourage the orderly and efficient termination of
[[Page 74071]]
chapter 7 plans and distribution of account balances, thereby
increasing the retirement income security of participants and
beneficiaries in such plans. Absent the standards and procedures set
forth in the Abandoned Plan Regulations, some bankruptcy trustees may
lack the necessary guidance to properly terminate chapter 7 plans and
distribute benefits to participants and beneficiaries. Specifically,
the Abandoned Plan Regulations clarify the bankruptcy trustee's
obligations as qualified termination administrator with respect to
updating plan records, calculating account balances, selecting and
monitoring service providers, distributing benefits, and paying fees
and expenses.
The Department believes that providing this guidance and allowing
bankruptcy trustees to serve or designate others to serve as qualified
termination administrators will lead to administrative cost savings for
trustees that choose to participate in the Abandoned Plan Program. The
Department has not quantified these benefits because it does not have
sufficient information regarding the characteristics of chapter 7
plans.\20\ The Department expects that bankruptcy trustees will decide
to participate in the Abandoned Plan Program based on their individual
assessment of whether it would be more cost effective to terminate a
plan inside or outside of the program.
---------------------------------------------------------------------------
\20\ The Department invites public comments regarding the
characteristics of chapter 7 plans that may participate in the
Abandoned Plan Program.
---------------------------------------------------------------------------
One of the most significant cost savings that would result from the
proposed amendments is that chapter 7 plans no longer would incur
costly audit fees that otherwise would diminish plan assets, because
bankruptcy trustees will file one streamlined termination report at the
end of the winding up process in lieu of the Form 5500 Annual Return/
Report.
Other benefits associated with bankruptcy trustees' participation
in the Abandoned Plan Program are that the proposed rule would require
that a qualified termination administrator of a chapter 7 plan (whether
a bankruptcy trustee or eligible designee): (1) Take reasonable and
good faith steps to collect known delinquent contributions on behalf of
the plan, taking into account the value of plan assets involved, the
likelihood of a successful recovery, and the expenses expected to be
incurred in connection with the collection of contributions, and (2)
report to the Department known delinquent contributions (employer and
employee) owed to the plan, and any activity that the qualified
termination administrator believes may be evidence of other fiduciary
breaches by a prior plan fiduciary that involve plan assets.
With respect to abandoned plans other than chapter 7 plans, the
orderly termination of plans will produce quantitative benefits by
maximizing account balances payable to participants and beneficiaries
because prompt, efficient termination of abandoned plans would
eliminate future administrative expenses that would otherwise diminish
the plan's assets. In addition, the regulations' specific standards and
procedures for terminating abandoned plans will reduce termination
costs. Both of these quantitative benefits will reduce the extent to
which plan assets are drawn upon to pay plan expenses.
The Department estimates the benefits for such plans by comparing
the ongoing administrative costs of maintaining an abandoned plan with
the cost of terminating such a plan under the Abandoned Plan
Regulations. The magnitude of the costs for a qualified termination
administrator to wind up the affairs of an abandoned plan under the
Abandoned Plan Regulations is meaningful only when compared to the
savings of future administrative expenses that would result from the
plan's termination. A comparison of termination costs with
administrative savings is complicated by the fact that termination
costs will be incurred only once, while the savings in eliminated
administrative costs will accrue throughout the years during which the
plan would have continued to exist in its abandoned state. In order to
assess the balance of costs and benefits, the Department has estimated
the present value of future ongoing administrative expenses using a
five percent discount rate over a period of three years after
termination. The actual duration of abandonment cannot be determined
with certainty; however, the Department believes that a period of one
to five years provides a reasonable basis to illustrate the potential
administrative cost savings that could arise in future years from the
termination of abandoned plans.
In order to determine the average costs for winding up abandoned
plans under the Abandoned Plan Regulations, the Department examined the
Special Terminal Reports for Abandoned Plans STRAPs filed by qualified
termination administrators participating in the Abandoned Plan Program
since its inception in 2006. These STRAPs indicate that average
termination costs were $700 and that 60 percent of the plans incurred
termination costs of less than $200. As stated above, the Department
estimates that 330 plans would terminate under the Abandoned Plan
Program if it remained unchanged, therefore, termination costs would
total approximately $231,000 (330 plans x $700 termination costs per
plan).
In order to assess the benefits of the proposed amendments, the
Department also must estimate the ongoing administrative expenses that
would have been incurred by abandoned plans if such plans were not
terminated under the Abandoned Plan Program. Since the inception of the
Abandoned Plan Program in 2006, the average asset level of plans
terminating under the program is $54,000. Data from a recent Investment
Company Institute report prepared by Deloitte LLP indicate that 401(k)
plans with under $1 million in assets pay approximately 1.41 percent of
total net assets in annual administrative fees. Given that over 99
percent of the plans had under $1 million in assets at the time of
termination, 1.41 percent would be a reasonable estimate to use to
determine administrative expenses that would have been incurred by
abandoned plans. Assuming plans that are terminated and wound up under
the Abandoned Plan Program pay fees at roughly the same rate as other
small plans, the Department estimates that average ongoing
administrative expenses would be approximately $760 per year ($54,000 x
.0141).
Based on the foregoing, the present value of administrative
expenses that otherwise would have been paid over the three years
following termination exceeds the termination cost by approximately
$1,470 ($2,170 of ongoing administrative expenses discounted at five
percent over three years minus $700 up front termination costs =
$1,470) generating expected savings for plan participants and
beneficiaries of approximately $490,000 ($1,470 x 330 plans). In
subsequent years, the savings resulting from eliminating ongoing
administrative expenses that would have been incurred if abandoned
plans were not terminated under the proposed amendments would further
add to that differential.
Benefits Associated with Amendment to Safe Harbor for Distributions
from Terminated Individual Account Plans (29 CFR 2550.404a-3): This
section provides a safe harbor under which plan fiduciaries (including
qualified termination administrators) of terminated individual account
plans can directly transfer a missing or nonresponsive participant's
account balance directly to appropriate
[[Page 74072]]
investment vehicles in the participant's name. An exception exists for
account balances of $1,000 or less, which may be transferred to an
interest-bearing, federally-insured bank or savings association account
or to the unclaimed property fund of a state, if certain conditions are
satisfied. As stated above in this preamble, Sec. 2550.404a-3 is being
amended to conditionally permit qualified termination administrators to
transfer the account balances of decedents to an appropriate bank
account or a state's unclaimed property fund, regardless of the size of
the account balance. The proposed amendments would remove an obstacle
to greater usage of the Abandoned Plan Program by eliminating the need
to establish costly individual retirement plans for the account
balances of known deceased participants that are over $1,000 when it is
unlikely that anyone will claim the funds in such plans.
Benefits Associated with Amendment to Eliminate Statement of Past
or Present Investigations: As stated above in this preamble, Sec.
2578.1 is being amended to remove the under investigation statement in
the notice of plan abandonment from the qualified termination
administrator to the Department (see Sec. 2578.1(c)(3)(i)(C)). The
Department believes that, at present, this statement is unnecessary and
may even discourage use of the Abandoned Plan Program. The statement is
unnecessary because EBSA's Office of Enforcement is able to run
searches with only de minimis cost to determine whether potential
qualified termination administrators are under investigation by the
Department. By encouraging more potential qualified termination
administrators to wind up abandoned plans in accordance with the
Abandoned Plan Regulations, the Department believes abandoned plan
terminations will occur more efficiently, and more participants and
beneficiaries of abandoned plans will gain access to their benefits.
6. 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) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested
data can 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 rule on
the amendments to the Abandoned Plan Regulations. A copy of the ICR may
be obtained by contacting the PRA addressee shown below. The Department
has submitted a copy of the proposed rule to OMB in accordance with 44
U.S.C. 3507(d) for review of its information collections. The
Department and OMB are interested particularly in comments that:
Evaluate whether the 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. OMB requests that comments
be received within 30 days of publication of the proposed rule to
ensure their consideration.
PRA Addressee: Address requests for copies of the ICR to G.
Christopher Cosby, Office of Policy and Research, U.S. Department of
Labor, Employee Benefits Security Administration, 200 Constitution
Avenue NW., Room N-5718, Washington, DC 20210. Telephone (202) 693-
8410; Fax: (202) 219-5333. These are not toll-free numbers. ICRs
submitted to OMB also are available at http://www.RegInfo.gov.
The Department has assumed that most of the tasks that will be
undertaken by qualified termination administrators in connection with
abandoned plan terminations are the same as those required in normal
plan administration, such as calculating or distributing benefits, and
therefore are not accounted for as burden in this analysis 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 Abandoned Plan Regulations require a qualified termination
administrator to send up to five notices in the process of terminating
and winding up an abandoned plan. Before winding up an abandoned plan,
the qualified termination administrator (other than the qualified
termination administrator of a chapter 7 plan) must make reasonable
efforts to locate or communicate with the plan sponsor, such as by
sending a notice to the last known address of the plan sponsor
notifying the sponsor of the intent to terminate and wind up the plan
and allowing the sponsor an opportunity to respond. Following the
qualified termination administrator's finding of abandonment, or when
there is an entry of an order for relief for a chapter 7 plan, the
qualified termination administrator must send notice to the Department
of its eligibility to serve as qualified termination administrator to
wind up the abandoned plan and provide other specified plan
information. The qualified termination administrator then sends a
notice to the participants and beneficiaries in the plan, written in a
manner calculated to by understood by the average plan participant,
that their plan is being terminated, what is their account balance and
the date on which it was calculated by the qualified termination
administrator, 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 of such election, what will happen to their account if
the participant or beneficiary fails to make a distribution election
within 30 days of receipt of the notice, and other information
regarding their rights under the plan's termination. Upon terminating
and distributing the assets of the plan, the qualified termination
administrator must send a final notice to the Department stating that
the plan has been terminated. The qualified termination administrator
attaches to the final notice a STRAP. The Department has estimated the
burden as a cost burden to the plan because the qualified termination
administrator uses plan assets to pay for these notices and other costs
of winding up the plan. These notices are information collection
requests (ICRs) subject to the PRA. The hour and cost burden associated
with these ICRs are
[[Page 74073]]
summarized in the following table discussed below.
Cost Burden of Rule
----------------------------------------------------------------------------------------------------------------
Abandoned
Bankrupt plans plans--non Terminating
Chapter 7 (new Chapter 7 (in plans (in Total
to this RIA) previous RIA) previous RIA)
----------------------------------------------------------------------------------------------------------------
Notice to Plan Sponsor.......................... $0 $5,500 $0 $5,500
Notice to DOL................................... 8,700 17,300 0 26,000
Bankrupt Plans (Court Order).................... 3,200 0 0 3,200
Notice to Participants.......................... 3,600 7,200 0 10,700
Final Notice.................................... 3,300 6,700 0 10,000
Bankrupt Plans (Fiduciary Breach)............... 600 0 0 600
Form 5500 Terminal Report....................... 35,600 71,200 0 106,800
Safe Harbor..................................... 0 0 4,480,000 4,480,000
Class Exemption Familiarization................. 9,400 18,700 0 28,100
---------------------------------------------------------------
Total....................................... 64,000 127,000 4,480,000 4,670,000
----------------------------------------------------------------------------------------------------------------
Notice to Plan Sponsor: This notice requirement only applies to
plans that are not chapter 7 plans. The Department estimates that for
each of these estimated 330 plans, a qualified termination
administrator may utilize 10 minutes of clerical staff time at an
hourly labor rate of $28.21 to fill in the needed information on the
plan sponsor notice, and five minutes of a financial professional's
time at an hourly labor rate of $66.36 to review and sign the
notice.\21\ This results in approximately 83 hours of clerical staff
time with an associated cost burden of $1,600 (55 hours x $28.21 per
hour) and 27.5 hours of a financial professional's time with an
associated cost burden of $1,800 (27.5 hours x $66.36 per hour).\22\
---------------------------------------------------------------------------
\21\ The Department estimates 2012 hourly labor rates to include
wages, other benefits, and overhead based on data from the National
Occupational Employment Survey (June 2011, Bureau of Labor
Statistics) and the Employment Cost Index (September 2011, Bureau of
Labor Statistics); the 2010 estimated labor rates are then inflated
to 2012 labor rates.
\22\ Any discrepancies in calculations in this section and the
table above result from rounding. Estimates are rounded to the
nearest $10, $100, $1,000, or $10,000. Hour estimates also are
rounded in the text.
---------------------------------------------------------------------------
The rule requires plan sponsor notices to be sent by a method
requiring acknowledgement of receipt. Therefore, mailing costs include
$6.35 for postage and email receipt of delivery. The mailing costs
include paper and print costs of five cents per page for the one page
notice. Therefore, the materials and mailing costs are estimated to be
$2,100 for the 330 notices. As indicated in the chart above, there are
$5,500 in total costs associated with this requirement ($1,600
clerical, $1,800 financial professional and $2,100 in mailing costs)
all imposed on plans filing under the Abandoned Plan Program.
Notice of plan abandonment to the Department: The Department
estimates that for each of the estimated 495 plans, a qualified
termination administrator may utilize 30 minutes of a clerical worker's
time at an hourly rate of $28.21 to fill in the needed information on
the notice. It also is assumed that 30 minutes of a financial
professional's time with an hourly rate of $66.36 will be required to
prepare required plan information, and to review and sign the forms.
This results in about 248 hours (495 plans x .5 hours) of clerical
staff time with an associated cost burden of $7,000 (495 plans x .5
hours x $28.21 per hour), and 248 hours (495 plans x .5 hours) of a
financial professional's time with an associated cost burden of $16,400
(495 plans x .5 hours x $66.36 per hour).
The Department assumes that approximately 80 percent of these
initial notices to the Department will be sent by mail and that the
rest will be submitted electronically (495 plans x .8 fraction by mail
= 396 plans send notice by mail). Therefore, mailing costs include
$6.35 for postage and email receipt of delivery. The mailing costs
include paper and print cost of five cents per page. The model notice
is three pages. Therefore, the materials and mailing cost are estimated
to be $2,600 (396 plans x ($6.35 + 3 pages x $.05 per page)) for the
396 notices that will be mailed. The total costs of this component are
therefore $26,000 \23\ ($8,700 of which are new costs attributable to
the chapter 7 plans, which are \1/3\ of the affected plans, and $17,300
of which are cost attributable to \2/3\ of the affected plans that are
not chapter 7 plans).
---------------------------------------------------------------------------
\23\ $26,000 = $7,000 for clerical cost time + $16,400 for
financial professional time + $2,600 for mailing.
---------------------------------------------------------------------------
Notice of bankruptcy trustee's appointment--Chapter 7 Plans: For
the estimated 165 chapter 7 plans, an additional cost would be incurred
for the qualified termination administrator to attach a copy of the
notice on the case docket or order for relief reflecting the bankruptcy
trustee's appointment to administer the plan sponsor's chapter 7
liquidation case as well as identification information regarding the
bankruptcy trustee. The Department estimates that it will take 15
minutes of a financial professional's time to prepare the statement and
collect required documents and five minutes of clerical time to make
required copies. This is expected to impose an additional hour burden
of approximately 41 hours (165 plans x .25) on the financial
professionals and a cost burden of $2,700 (41 hours x $66.36 per hour)
on the financial professionals. For the clerical professionals, the
hour burden is estimated at 14 hours (165 plans x .0833 hours) and
associated cost burden is $400 (14 hours x $28.21 per hour).
Material requirements are expected to be 10 pages, costing $66 in
total ($0.50 per affected plan x .80 fraction of plans that submit
initial notices by paper x 165 plans). The proposed rule requires the
notice or order entered in the case reflecting the bankruptcy trustee's
appointment to be included with the initial notice. Thus, the total
cost of this filing requirement is $3,200 ($2,700 + $400 + $66), all of
which is for the 165 Chapter 7 plans.
Notice to Participants and Beneficiaries: The ERISA Advisory
Council in the Report of the Working Group on Orphan Plans had
indicated most abandoned plans are small plans with 25 or fewer
participants and
[[Page 74074]]
beneficiaries. Thus, initially the Department conservatively estimated
that there were 20 participants per plan impacted by the Abandoned Plan
Regulations. However, after the inception of the Abandoned Plan
Program, updated filings data provided by the Office of Enforcement
show that in no year were there on average more than six participants
per filing plan. The Department estimates that, using this updated
information, approximately 330 plans will apply each year if the
Abandoned Plan Regulations remain unchanged. This covers a maximum of
1,980 participants (330 plans x 6 participants per plan). With
bankruptcy trustees being permitted to wind up the plans of sponsors in
chapter 7 liquidation under the Abandoned Plan Regulations, the
Department estimates that there will be a 50 percent increase in
applications, bringing the total number of filings up to 495 (330 plans
x 1.5). Assuming that chapter 7 plans have roughly the same number of
participants as abandoned plans, the total number of participants
affected would be 2,970 (495 plans x 6 participants per plan).
The Department estimates that for each of the estimated 495
terminating plans, a QTA may utilize 5 minutes of a financial
professional's time to review the notices. Clerical staff will spend on
average 30 minutes preparing and mailing the notices (5 minutes per
participant x 6 participants). This results in approximately 248 hours
(495 plans x 6 participants per plan x .0833 hours per participant) of
clerical staff time with an associated cost burden of $7,000 (248 hours
x $28.21 per hour) and 41 hours (495 plans x .0833 hours per plan) of a
financial professional's time with an associated cost burden of
approximately $2,700 (41 hours x $66.36 per hour).
The model notice to participants is two pages. Therefore, the
mailing and material costs are estimated to be 55 cents per mailing (2
x $.05 + $0.45). Of the 2,970 participants (495 plans x 6 participants
per plan), 38 percent are expected to receive their notices
electronically. The Department estimates that 1,840 participants will
receive the notice by mail, creating a mailing cost burden of $1,000.
In total, the cost burden from the notice to the participants and
beneficiaries requirement is approximately $10,700.\24\ Because \1/3\
of the affected plans are chapter 7 plans, $3,600 of the burden is
expected to be for the chapter 7 plans and $7,100 for the \2/3\ of
affected plans that are abandoned.
---------------------------------------------------------------------------
\24\ $7,000 in clerical costs + $2,700 in financial professional
costs + $1,000 in mailing costs.
---------------------------------------------------------------------------
Final Notice: The Department estimates that for each of the
estimated 495 terminating plans, a qualified termination administrator
will utilize 10 minutes of a financial professional's time to review
the forms. Clerical staff will spend, on average, 10 minutes per notice
preparing and mailing the notices. This results in about 83 hours (495
plans x .167 hours) of clerical staff time with an associated cost
burden of $2,300 (83 hours x $28.21 per hour) and 83 hours of a
financial professional's time (495 plans x .167 hours) with an
associated cost burden of $5,500 (83 hours x $66.36 per hour).
The Department assumes that, as a usual and customary business
practice, the final notice to the Department will be sent by a method
requiring acknowledgement of receipt. The model final notice is two
pages. Therefore, the material costs are estimated to be $.10 per plan
and postage of $6.35 per plan. For the 70 percent of plans that are
expected to submit their applications by mail, total mailing costs are
estimated to be $2,200 for the 495 notices (($6.35 per plan for mailing
+$.10 for materials) x 495 plans x .70 fraction of plans submitting by
mail). Thus, there is approximately $10,000 in total costs for the
final notice. Of that total, approximately $3,300 is dedicated to the
\1/3\ of affected plans that are chapter 7 plans and $6,700 is
attributable to the 330 qualified termination administrator filings for
the \2/3\ of plans that are abandoned.
Reporting Requirement for Prior Plan Fiduciary Breaches: As
discussed earlier in this preamble, the proposed amendments would
require qualified termination administrators to chapter 7 plans
(whether they are bankruptcy trustees or eligible designees) to report
to the Department known delinquent contributions (employer and
employee) owed to the plan, and any activity that the qualified
termination administrator believes may be evidence of other fiduciary
breaches by a prior plan fiduciary that involve plan assets. This
information must be reported in conjunction with the filing of the
final notice or notice of plan abandonment. If a bankruptcy trustee
designates an eligible designee as defined in paragraph (j)(1)(ii) of
the proposal, the bankruptcy trustee shall provide the eligible
designee with records under the control of the bankruptcy trustee to
enable the eligible designee to carry out its responsibilities. If,
after the eligible designee completes the winding up of the plan, the
bankruptcy trustee, in administering the debtor's estate, discovers
additional information that it believes may be evidence of fiduciary
breaches by a prior plan fiduciary that involve plan assets, the
bankruptcy trustee shall report such activity to the Department.
While the Department has no basis for estimating the percentage of
arrangements where the qualified termination administrator must report
known delinquent contributions or a past fiduciary breach, the
Department assumes for purposes of this analysis that a report will be
required in 10 percent of the applications from chapter 7 plans. Thus,
given that there are an estimated 165 chapter 7 plans utilizing the
exemption, the Department estimates that 17 plans will need to prepare
and send this notice. The Department anticipates that one-half hour of
a financial professional's time will be required to prepare the notice
and five minutes of clerical time will be required to send the notice.
The Department therefore estimates that the burden for plans to send
the notice to EBSA's Office of Enforcement will be approximately 10
hours (17 plans x (.5 financial professional hours per plan + .0833
clerical hours per plan)) with a cost of $600 for trustees (17 plans x
.5 financial professional hours x $66.36/hour + 17 plans x .0833
clerical hours x $28.21/hour) to send the notice. The Department
anticipates that most of these notices will be filed with the final
notice; therefore, this analysis includes no additional mailing cost.
Each notice is expected to cost $0.10 (2 x $0.05). The Department
estimates that 70 percent of the plans are expected to submit the final
filing by mail, resulting in an additional material cost burden of
$1.19 (17 x .7 fraction submitting by mail x $.10). Thus, this new
requirement amounts to a cost burden of approximately $600, which is
exclusively imposed on chapter 7 plans.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13):
The Department estimates that it will take small plans 3.25 hours to
file the STRAP in accordance with the instructions on the Department's
web site. It is assumed that a financial accounting professional will
perform this task resulting in an hour burden of 1,600 hours and a cost
burden of $66.36 per hour resulting in a cost burden of $106,800 (3.25
hours x $66.36 per hour x 495 plans). For STRAPs submitted
electronically, no burden is estimated for paper or mailing costs. For
the assumed 70 percent of plans that submit their STRAPs by mail, the
additional costs will be approximately $100 (495 plans x 6 pages per
terminal report x $.05/page x .70 fraction of plans that
[[Page 74075]]
submit final notices by mail). Thus, the total cost associated with the
report is approximately $106,800 ($106,700 in financial accounting
costs and $100 in material costs). Of this total, $35,600 is
attributable to the \1/3\ of plans that are chapter 7 plans and $71,200
is attributable to the \1/3\ of plans that are abandoned. Only the
chapter 7 plan costs represent new costs.
Safe Harbor for Distributions from Terminated Individual Account
Plans (29 CFR 2550.404a-3): The PRA analysis also includes the burden
associated with the notice to participants as required under ``The Safe
Harbor for Distributions from Terminated Individual Account Plans.'' To
meet the safe harbor, fiduciaries of terminating plans (other than
abandoned plans) must furnish a notice to participants and
beneficiaries informing them of the plan's termination and the options
available for distribution of their account balances. The Department
estimates that 3.1 million participants and beneficiaries will receive
notices from approximately 39,000 plan sponsors.\25\ The Department
estimates that clerical professionals will spend, on average, two
minutes per notice preparing and distributing the notices. The benefits
manager will spend approximately 10 minutes preparing the notice. This
results in an equivalent cost burden of $3.5 million calculated as
follows: $2.92 million per year (3.1 million participants x .033 hours
per participant x $28.21 per hour) in clerical time, and $607,000
(39,000 plans x .167 hours per plan x $93.31 per hour) in benefit
manager costs. In addition, the Department assumes that each
participant will receive a one page notice by first class mail
resulting in a cost burden of $961,000 (3.1 million notices x ($0.45
for postage + ($0.05 per page x 1 page) x 0.62). Thus, with the updated
numbers, total cost burden for terminating plans is $4.48 million. This
total includes $3.49 million in equivalent costs from plan clerical
time ($2.92 million) and plan benefit manager time ($607,000). There is
also $961,000 in cost attributable to mailing the notices. These costs
are not attributable to the proposed amendments allowing chapter 7
trustees to participate in the Abandoned Plan Program. They reflect the
Department's revised estimates of the entire Abandoned Plans Program
and take into account the most recent Form 5500 data.
---------------------------------------------------------------------------
\25\ These estimates for the number of participants and sponsors
are based on 2008 Form 5500 Data filings.
---------------------------------------------------------------------------
Abandoned Plan Class Exemption, PTE 2006-06: PTE 2006-06 permits a
qualified termination administrator of an individual account plan that
has been abandoned by its sponsoring employer to select itself or an
affiliate to provide services to the plan in connection with the
termination of the plan, and to pay itself or an affiliate fees for
these services, provided that such fees are consistent with the
conditions of the exemption. The exemption also permits a qualified
termination administrator to: designate itself or an affiliate as a
provider of an individual retirement plan or other account; select a
proprietary investment product as the initial investment for the
rollover distribution of benefits for a participant or beneficiary who
fails to make an election regarding the disposition of such benefits;
and pay itself or its affiliate in connection with the rollover.
Currently, PTE 2006-06 and the accompanying Abandoned Plan
Regulations do not cover plans of sponsors involved in chapter 7
bankruptcy proceedings. In this regard, bankruptcy trustees do not meet
the definition of qualified termination administrator as set forth in
the existing Abandoned Plan Regulations and the class exemption. The
proposed amendments expand the definition of qualified termination
administrator to include bankruptcy trustees and certain persons
designated by them to act as qualified termination administrators in
terminating and winding up the affairs of abandoned plans. The
Department believes that the proposed amendments to the Abandoned Plan
Regulations and PTE 2006-06 will incentivize many bankruptcy trustees
to carryout plan terminations consistent with ERISA, which will
ultimately benefit participants and beneficiaries of such plans by
ensuring abandoned plans are terminated in an orderly and cost-
effective manner.
Compliance with the proposed amendments to the Abandoned Plan
Regulations is a condition of the proposed amendment to the class
exemption; therefore the costs and benefits that would be associated
with complying with the proposed amendment to the class exemption have
been described and quantified in connection with the economic impact of
the proposed regulatory amendments. In its current and proposed
amendment form, PTE 2006-06 requires, among other things, that fees and
expenses paid to the qualified termination administrator and an
affiliate in connection with the termination of an abandoned plan are
consistent with industry rates for such or similar services, and are
not in excess of rates ordinarily charged by the qualified termination
administrator (or affiliate) for the same or similar services provided
to customers that are not plans terminated pursuant to the Abandoned
Plan Regulations, if the qualified termination administrator (or
affiliate) provides the same or similar services to such other
customers. The class exemption, in its current and proposed amendment
form, also requires that qualified termination administrators ensure
that the records necessary to determine whether the conditions of the
exemption have been met are maintained for a period of six years, so
that they may be available for inspection by any account holder of an
individual retirement plan or other account established pursuant to
this exemption, or any duly authorized representative of such account
holder, the Internal Revenue Service, and the Department. Banks,
insurance companies, and other financial institutions that provide
services to abandoned plans and their participants and beneficiaries
are required to act in accordance with customary business practices,
which would include maintaining the records required under the terms of
the class exemption, both in its current and proposed amendment form.
Accordingly, the recordkeeping burden attributable to the proposed
amendment will be handled by the qualified termination administrator
and is expected to be small. However, there is an additional cost to
directing this process. The Department assumes that a supervisor must
devote time to each case in order to study the details of the
individual plan, determine whether there have been any violations, and
ensure that these details are properly incorporated into the notices.
Assuming that all qualified termination administrators will take
advantage of the proposed exemption, the hour burden attributable to
supervisory duties for qualified termination administrators of
abandoned plans (including familiarization costs for new qualified
termination administrators) is expected to be one half hour for each
qualified termination administrator, or 248 hours. Assuming a financial
manager's wage rate of $113.39 per hour, this supervisory cost is
expected to total $28,100 ($113.39 x 248). Approximately $9,400 of this
cost (\1/3\ of the costs since 165 of the 495 estimated affected plans
are chapter 7 plans) is expected to be attributable to financial
manager costs dealing with chapter 7 plans and the remaining $18,700 of
costs are attributable to financial
[[Page 74076]]
managers dealing with the \2/3\ of abandoned plans.
Also, in certain limited circumstances, both the current exemption
and proposed amendment to PTE 2006-06 require qualified termination
administrators to provide the Department with a statement under penalty
of perjury that services were performed and a copy of the executed
contract between the qualified termination administrator and a plan
fiduciary or plan sponsor. The Department does not include burden for
these requirements as the burden is small, and the statement and
contract can be included with other notices sent to the Department.
Type of Review: Proposed Revision of Existing Collection.
Agency: Employee Benefits Security Administration, Department of
Labor.
Title: Notices for Terminated Abandoned Individual Account Plans.
OMB Number: 1210-0127
Affected public: Individuals or households; business or other for-
profit; not-for-profit institutions.
Respondents: 39,495.
Responses: 3,103,960.
Frequency of Response: One time.
Estimated Total Burden Hours: 109,833.
Equivalent Costs of Hour Burden: $3,520,000.
Cost Burden: $ 1,150,000.
7. 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. To the Department's knowledge, there are no
federal regulations that might duplicate, overlap, or conflict with the
provisions of the proposed amendments to the Abandoned Plan
Regulations.
As explained earlier in the preamble, currently, the Abandoned Plan
Program does not extend to plans sponsored by employers undergoing
liquidation under chapter 7 of title 11 of the United States Code. Over
the years, the Department has observed that, on numerous occasions,
bankruptcy trustees have not terminated abandoned plans in an orderly
and efficient manner. In many instances, such trustees are unaware of
their fiduciary obligations under ERISA with respect to terminating
plans of debtors and processes through which to wind up such plans.
The Department believes that the participants and beneficiaries
would benefit from removing existing impediments that prevent chapter 7
bankruptcy trustees from terminating and winding up abandoned plans.
Therefore, the Department is proposing to amend the Abandoned Plan
Regulations (the three regulations and the related class exemption) to
enable bankruptcy trustees to terminate abandoned plans in a manner
consistent with ERISA and current regulations. The amendments would
provide bankruptcy trustees with the option to serve as qualified
termination administrators or to designate as a qualified termination
administrator any person or entity that is eligible to serve as a
trustee or issuer of an individual retirement plan and that holds
assets of the chapter 7 plan. The Department believes that these
amendments will help to preserve the assets of such abandoned plans,
thereby maximizing benefits ultimately payable to participants and
beneficiaries.
As described earlier in the preamble, the Department estimates that
330 abandoned plans (other than chapter 7 plans) would file under the
Abandoned Plan Program. Essentially all abandoned plans are assumed to
be small plans. Therefore, the more detailed discussion earlier in the
preamble on the costs and benefits of the proposed amendments is
applicable to this analysis of costs and benefits under the RFA. In
summary, the net benefits of terminating an estimated 330 abandoned
plans per year under the proposed amendments is $490,000. Thus, the
estimated beneficial impact per plan is approximately $1,500 ($490,000/
330 plans) before accounting for fees in individual retirement accounts
to which participants and beneficiaries could rollover their
distributed account balances. This net benefit analysis is an update of
the 2006 estimate, with new information submitted to the Department's
Office of Enforcement informing the analysis.
8. Congressional Review Act
This proposed amendment is subject to 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.
9. 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 rule does not
include any Federal mandate that will result in expenditures by state,
local, or tribal governments in the aggregate of more than $100
million, adjusted for inflation, or increase expenditures by
[[Page 74077]]
the private sector of more than $100 million, adjusted for inflation.
10. 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. This proposed 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 proposed 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
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.
29 CFR Part 2578
Employee benefit plans, Pensions, Retirement.
For the reasons set forth in the preamble, the Department of Labor
proposes to amend 29 CFR chapter XXV as follows:
PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE
1. The authority citation for part 2520 is revised to read as
follows:
Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134 and
1135; and Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9,
2012). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183,
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Sec. 2520.101-4 also
issued under 29 U.S.C. 1021(f). Sec. 2520.101-6 also issued under 29
U.S.C. 1021(k) and Pub. L. 109-280, Sec. 502(a)(3), 120 Stat. 780,
940 (2006). 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.
2. Revise 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)(viii) 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 bankruptcy trustee
and, if applicable, any eligible designee acting as the qualified
termination administrator pursuant to Sec. 2578.1(j)(1)(ii), 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)(vii) of this chapter and a statement regarding whether any
such distributions were transfers under Sec. 2578.1(d)(2)(vii)(B) of
this chapter.
(5) The identification, fair market value and method of valuation
of any assets with respect to which there is no readily ascertainable
fair market value.
(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)(vii) of this chapter; and
(2) In accordance with the instructions on EBSA's Web site (http://www.dol.gov/ebsa/publications/APterminalreport.html) pertaining to
terminal reports of qualified termination administrators.
(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)(vii) 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.
PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY
3. The authority citation for part 2550 is revised to read as
follows:
Authority: 29 U.S.C. 1135, sec. 102, Reorganization Plan No. 4
of 1978, 5 U.S.C. App. 1 and Secretary of Labor's Order No. 1-2011,
77 FR 1088 (Jan. 9, 2012). Sec. 2550.401c-1 also issued under 29
U.S.C. 1101. Sec. 2550.404a-2 also issued under sec. 657, Pub. L.
107-16, 115 Stat. 38. Sections 2550.404c-1 and 2550.404c-5 also
issued under 29 U.S.C. 1104. Sec. 2550.408b-1 also issued under 29
U.S.C. 1108(b)(1). Sec. 2550.408b-19 also issued under sec. 611,
Pub. L. 109-280, 120 Stat. 780, 972. Sec. 2550.412-1 also issued
under 29 U.S.C. 1112.
4. Revise Sec. 2550.404a-3 to read as follows:
Sec. 2550.404a-3 Safe harbor for distributions 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) or (j)(1)(ii) 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
[[Page 74078]]
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
in 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 to any of the following transferee entities--
(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 designated
beneficiary (as defined by section 401(a)(9)(E) of the Code) who is not
the surviving spouse of the deceased participant, to 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; or
(iii) In the case of a distribution by a qualified termination
administrator (other than a bankruptcy trustee described in Sec.
2578.1(j)(1)(ii)) with respect to which the amount to be distributed is
$1,000 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 (described in paragraph (d)(1)(i)
or (d)(1)(ii) of this section) offered by a financial institution other
than the qualified termination administrator to the public at the time
of the distribution.
(iv) In the case of a distribution by a bankruptcy trustee as
described in Sec. 2578.1(j)(1)(ii) with respect to which the amount to
be distributed is $1,000 or less and the bankruptcy trustee, after
reasonable and good faith efforts, is unable to locate an individual
retirement plan provider who will accept the distribution, to either
distribution option described in paragraph (d)(1)(iii)(A) or (B) of
this section.
(v) Notwithstanding paragraphs (d)(1)(iii) and (iv) of this
section, the $1,000 threshold may be disregarded in any particular case
if the qualified termination administrator reasonably and in good faith
finds that the participant and, if applicable, the named beneficiary
are deceased; and if the qualified termination administrator also
includes in the notice described in Sec. 2578.1(d)(2)(ix)(G) (the
Final Notice) the identity of the deceased participant and beneficiary
and the basis behind the finding.
(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 (described in paragraph (d)(1)(i) or
(d)(1)(ii) of this section), 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
(described in paragraph (d)(1)(i) or (d)(1)(ii) of this section) or
account (described in paragraph (d)(1)(iii)(A) of this section),
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
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 (described in paragraph
(d)(1)(i) or (d)(1)(ii) of this section) or account (described in
paragraph (d)(1)(iii)(A) of this section), 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 (described
in paragraph (d)(1)(i) or (d)(1)(ii) of this section) or account
(described in paragraph (d)(1)(iii)(A) of this section) and the
investment of funds would not result in a prohibited transaction under
section 406 of the Act, or if so prohibited such actions are exempted
from the prohibited transaction provisions by a prohibited transaction
exemption issued pursuant to section 408(a) of the Act.
[[Page 74079]]
(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 described in paragraph (d)(1)(i) or
(d)(1)(ii) of this section) 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 (described in
paragraph (d)(1)(i) or (d)(1)(ii) of this section), 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 (described in paragraph (d)(1)(i) or (d)(1)(ii) of this
section) 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 4510-29-P
[[Page 74080]]
[GRAPHIC] [TIFF OMITTED] TP12DE12.000
BILLING CODE 4510-29-C
[[Page 74081]]
PART 2578--RULES AND REGULATIONS FOR ABANDONED PLANS
5. The authority citation for part 2578.1 continues to read as
follows:
Authority: 29 U.S.C. 1135; 1104(a); 1103(d)(1).
6. Revise Sec. 2578.1 to read as follows:
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 (1) a qualified
termination administrator 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, or (2) an order
for relief under chapter 7 of title 11 of the United States Code has
been entered with respect to the plan sponsor.
(b) Finding of abandonment. (1) A qualified termination
administrator (as defined in paragraph (g) of this section) 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 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
(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
any time 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;
(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.''; and
(viii) A statement that the plan sponsor may contact the U.S.
Department of Labor for more information about the federal law
governing the termination and winding-up process for abandoned plans
and the telephone number of the appropriate Employee Benefits Security
Administration contact person.
(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, or if a plan is considered abandoned
due to the entry of an order for relief under chapter 7 of title 11 of
the United States Code (pursuant to paragraph (j)(1)(i) of this
section), the plan shall be deemed to be terminated on the ninetieth
(90th) day following the date of the letter from EBSA acknowledging
receipt of the notice of plan abandonment, described in paragraph
(c)(3) or (j)(2) of this section.
(2) If, prior to the end of the 90-day period described in
paragraph (c)(1) of this section, 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; or
(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) 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, email
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
[[Page 74082]]
this section) in accordance with the provisions of this section;
(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; and
(C) The estimated number of participants and beneficiaries with
accounts 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, 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,
and a statement that no objection has been received from the 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;
(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; and
(D) An identification of known delinquent contributions pursuant to
paragraph (d)(2)(iii) of this section;
(v) Service provider information. (A) The name, address, and
telephone number of known service providers (e.g., record keeper,
accountant, lawyer, other asset custodian(s)) to the plan; and
(B) An identification of any services considered necessary to carry
out the qualified termination administrator's authority and
responsibility under 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) Perjury statement. 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.
(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, except as
provided pursuant to paragraph (j)(3) of this section (relating to
chapter 7 plans), the qualified termination administrator shall:
(i) Update 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. A qualified
termination administrator shall not have failed to use reasonable care
in calculating benefits payable solely because the qualified
termination administrator--
(A) Treats as forfeited an account balance that, taking into
account estimated forfeitures and other assets allocable to the
account, is less than the estimated share of plan expenses allocable to
that account, and reallocates that account balance to defray plan
expenses or to other plan accounts in accordance with (d)(2)(ii)(B) of
this section;
(B) Allocates expenses and unallocated assets in accordance with
the plan documents, or, if the plan document is not available, is
ambiguous, or if compliance with the plan is unfeasible,
(1) Allocates unallocated assets (including forfeitures and assets
in a suspense account) to participant accounts on a per capita basis
(allocated equally to all accounts); and
(2) Allocates expenses on a pro rata basis (proportionately in the
ratio that each individual account balance bears to the total of all
individual account balances) or on a per capita basis (allocated
equally to all accounts).
(iii) Report delinquent contributions. (A) Notify the Department of
any known contributions (either employer or employee) owed to the plan
in conjunction with the filing of the notification required in
paragraph (c)(3), (j)(2), or (d)(2)(ix) of this section.
(B) Except as provided in paragraph (j)(3)(i) of this section,
nothing in paragraph (d)(2)(iii)(A) of this section or any other
provision of the Act shall be construed to impose an obligation on the
qualified termination administrator to collect delinquent contributions
on behalf of the plan, provided that the qualified termination
administrator satisfies the requirements of paragraph (d)(2)(iii)(A) of
this section.
(iv) 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.
(v) 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)(v)(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 ordinarily 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.
(vi) Notify participants. (A) Furnish to each participant or
beneficiary of the plan a notice written in a manner calculated to be
understood by the average plan participant and containing the
following:
(1) The name of the plan;
[[Page 74083]]
(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 participant's or beneficiary's 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) 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 distribute
the account balance of the participant or beneficiary directly:
(i) To an individual retirement plan (i.e., individual retirement
account or annuity),
(ii) To an inherited individual retirement plan described in Sec.
2550.404a-3(d)(1)(ii) of this chapter (in the case of a distribution on
behalf of a distributee other than a participant or spouse),
(iii) In any case where the amount to be distributed meets the
conditions in Sec. 2550.404a-3(d)(1)(iii) or (iv), to an interest-
bearing federally insured bank account, the unclaimed property fund of
the State of the last known address of the participant or beneficiary,
or an individual retirement plan (described in Sec. 2550.404a-
3(d)(1)(i) or (d)(1)(ii) of this chapter) or
(iv) To an annuity provider in any case where the qualified
termination administrator determines that the survivor annuity
requirements in sections 401(a)(11) and 417 of the Internal Revenue
Code (or section 205 of ERISA) prevent a distribution under paragraph
(d)(2)(vii)(B)(1) of this section;
(6) In the case of a distribution to an individual retirement plan
(described in Sec. 2550.404a-3(d)(1)(i) or (d)(1)(ii) of this chapter)
a statement explaining that the account balance will be invested in an
investment product designed to preserve principal and provide a
reasonable rate of return and liquidity;
(7) A statement of the fees, if any, that will be paid from the
participant or beneficiary's individual retirement plan (described in
Sec. 2550.404a-3(d)(1)(i) or (d)(1)(ii) of this chapter) or other
account (described in Sec. 2550.404a-3(d)(1)(iii)(A) of this chapter),
if such information is known at the time of the furnishing of this
notice;
(8) The name, address and phone number of the provider of the
individual retirement plan (described in Sec. 2550.404a-3(d)(1)(i) or
(d)(1)(ii) of this chapter), qualified survivor annuity, or other
account (described in Sec. 2550.404a-3(d)(1)(iii)(A) of this chapter),
if such information is known at the time of the furnishing of this
notice; and
(9) 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)(vi)(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 qualified
termination administrator 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)(vii) 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)(vii) of this section.
(vii) Distribute benefits. (A) Distribute benefits in accordance
with the form of distribution elected by each participant or
beneficiary with spousal consent, if required.
(B) If the participant or beneficiary fails to make an election
within 30 days from the date the notice described in paragraph
(d)(2)(vi) of this section is furnished, distribute benefits--
(1) In accordance with Sec. 2550.404a-3 of this chapter; or
(2) If a qualified termination administrator determines that the
survivor annuity requirements in sections 401(a)(11) and 417 of the
Internal Revenue Code (or section 205 of ERISA) prevent a distribution
under paragraph (d)(2)(vii)(B)(1) of this section, in any manner
reasonably determined to achieve compliance with those requirements.
(C) For purposes of distributions pursuant to paragraph
(d)(2)(vii)(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 the Act.
(viii) Special Terminal Report for Abandoned Plans. File the
Special Terminal Report for Abandoned Plans in accordance with Sec.
2520.103-13 of this chapter.
(ix) 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)(vii) of this
section, furnish to the Office of Enforcement, Employee Benefits
Security Administration, U.S. Department of Labor, 200 Constitution
Avenue NW., Washington, DC 20210, a notice, signed and dated by the
qualified termination administrator, containing the following
information:
(A) The name, EIN, address, email 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 the
plan's assets have been distributed to the plan's participants and
beneficiaries on the basis of the best available information;
(D) 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)(v) or (j)(3)(v) of this section;
(E) If fees and expenses paid by the plan exceed by 20 percent or
more the estimate required by paragraph (c)(3)(v)(B) or (j)(2)(v)(B) of
this section, a statement that actual fees and expenses exceeded
estimated fees and expenses and the reasons for such additional costs;
(F) An identification of known delinquent contributions pursuant to
paragraph (d)(2)(iii) of this section (if not already reported under
paragraph
[[Page 74084]]
(c)(3)(iv)(D) or (j)(2)(iv)(D) of this section);
(G) For each distribution in accordance with Sec. 2550.404a-
3(d)(1)(v) (relating to distributions on behalf of deceased
participants and beneficiaries), an identification of the deceased
participant and, if applicable, the deceased named beneficiary, and the
basis behind the finding required by Sec. 2550.404a-3(d)(1)(v); and
(H) 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. (1)(i) Except as otherwise provided in
paragraph (e)(1)(ii) and (iii) of this section, to the extent that the
activities enumerated in paragraphs (d)(2) and (j)(3) 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 with respect to such activities, provided
that the qualified termination administrator complies with the
requirements of paragraph (d)(2) and (j)(3) of this section as
applicable.
(ii) A qualified termination administrator shall be responsible for
the selection and monitoring of any service provider (other than
monitoring a provider selected pursuant to paragraph (d)(2)(vii)(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.
If a qualified termination administrator selects and monitors a service
provider in accordance with the requirements of section 404(a)(1) of
the Act, 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.
(iii) For purposes of a distribution pursuant to paragraph
(d)(2)(vii)(B)(2) of this section, a qualified termination
administrator shall be responsible for the selection of an annuity
provider in accordance with section 404 of the Act.
(2) Nothing herein shall be construed to impose an obligation on
the qualified termination administrator to conduct an inquiry or review
to determine whether or what breaches of fiduciary responsibility may
have occurred with respect to a plan prior to becoming the qualified
termination administrator for such plan.
(3) If assets of an abandoned plan are held by a person other than
the qualified termination administrator, such person shall not be
treated as in violation of section 404(a) of the Act solely on the
basis that the person cooperated with and followed the directions of
the qualified termination administrator in carrying out its
responsibilities under this section with respect to such plan, provided
that, in advance of any transfer or disposition of any assets at the
direction of the qualified termination administrator, such person
confirms with the Department of Labor that the person representing to
be the qualified termination administrator with respect to the plan is
the qualified termination administrator recognized by the Department of
Labor.
(f) Continued liability. 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 found abandoned pursuant to
paragraph (b) of this section.
(h) Affiliate. (1) The term affiliate means any person directly or
indirectly controlling, controlled by, or under common control with,
the person; or any officer, director, partner or employee of the
person.
(2) For purposes of paragraph (h)(1) of this section, the term
control means the power to exercise a controlling influence over the
management or policies of a person other than an individual.
(i) Model notices. Appendices to this section contain model notices
that are intended to assist qualified termination administrators in
discharging the notification requirements under this section. Their use
is not mandatory. However, the use of appropriately completed model
notices will be deemed to satisfy the requirements of paragraphs
(b)(5), (c)(3), (d)(2)(vi), (d)(2)(ix), and (j)(2) of this section.
(j) Special rules for chapter 7 plans. (1) Notwithstanding
paragraphs (b) and (g) of this section (relating to findings of
abandonment and defining the term ``qualified termination
administrator,'' respectively), if the sponsor of an individual account
plan is in liquidation under chapter 7 of title 11 of the United States
Code:
(i) The plan (``chapter 7 plan'') shall for purposes of this
section be considered abandoned upon the entry of an order for relief.
However, the plan shall cease to be considered abandoned pursuant to
this paragraph (j)(1) if at any time before the plan is deemed
terminated pursuant to paragraph (c) of this section, the plan
sponsor's chapter 7 liquidation proceeding is dismissed or converted to
a proceeding under chapter 11 of title 11 of the United States Code.
(ii) The bankruptcy trustee, or an eligible designee, may be the
qualified termination administrator. An ``eligible designee'' is any
person or entity designated by the bankruptcy trustee that 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 that holds assets of the chapter 7 plan. The bankruptcy trustee
shall be responsible for the selection and monitoring of any eligible
designee in accordance with section 404(a)(1) of the Act.
(2) Notice of Plan Abandonment. In accordance with paragraph (c) of
this section, the qualified termination administrator under this
paragraph (j) 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. The name,
address (including email address), and telephone number of the
bankruptcy trustee and, if applicable, the name, EIN, address
(including email address), and telephone number of any eligible
designee acting as the qualified termination administrator pursuant to
paragraph (j)(1)(ii) of this section;
(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 serving as the qualified termination administrator,
(B) The name and last known address and telephone number of the
plan sponsor, and
(C) The estimated number of participants and beneficiaries with
accounts in the plan;
[[Page 74085]]
(iii) Chapter 7 information. A statement that, pursuant to
paragraph (j)(1) of this section, the plan is considered to be
abandoned due to an entry of an order for relief under chapter 7 of the
U.S. Bankruptcy Code, and a copy of the notice or order entered in the
case reflecting the bankruptcy trustee's appointment to administer the
plan sponsor's case;
(iv) Plan asset information. (A) The estimated value of the plan's
assets as of the date of the entry of an order for relief,
(B) The name, EIN, address (including email address) and telephone
number of the entity that is holding these assets, and the length of
time plan assets have been held by such entity, if the period of time
is less than 12 months,
(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, and
(D) An identification of known delinquent contributions pursuant to
paragraph (d)(2)(iii) of this section;
(v) Service provider information. (A) The name, address, and
telephone number of known service providers (e.g., record keeper,
accountant, lawyer, other asset custodian(s)) to the plan, and
(B) An identification of any services considered necessary to carry
out the qualified termination administrator's authority and
responsibility under 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) Perjury statement. 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.
(3) Winding up the affairs of the plan. The qualified termination
administrator shall comply with paragraph (d) of this section except as
follows:
(i) Delinquent contributions. The qualified termination
administrator of a plan described in paragraph (j)(1)(i) of this
section shall, consistent with the duties of a fiduciary under section
404(a)(1) of ERISA, take reasonable and good faith steps to collect
known delinquent contributions on behalf of the plan, taking into
account the value of the plan assets involved, the likelihood of a
successful recovery, and the expenses expected to be incurred in
connection with collection. If the bankruptcy trustee designates an
eligible designee as defined in paragraph (j)(1)(ii) of this section,
the bankruptcy trustee shall at the time of such designation notify the
eligible designee of any known delinquent contributions.
(ii) Report fiduciary breaches. The qualified termination
administrator of a plan described in paragraph (j)(1)(i) of this
section shall report known delinquent contributions (employer and
employee) owed to the plan, and any activity that the qualified
termination administrator believes may be evidence of other fiduciary
breaches that involve plan assets by a prior plan fiduciary. This
information must be reported to the Employee Benefits Security
Administration in conjunction with the filing of the notification
required in paragraph (j)(2) or (d)(2)(ix) of this section. If a
bankruptcy trustee designates an eligible designee as defined in
paragraph (j)(1)(ii) of this section, the bankruptcy trustee shall
provide the eligible designee with records under the control of the
bankruptcy trustee to enable the eligible designee to carry out its
responsibilities under paragraph (j)(3)(ii) of this section. If, after
the eligible designee completes the winding up of the plan, the
bankruptcy trustee, in administering the debtor's estate, discovers
additional information not already reported in the notification
required in paragraphs (j)(2) or (d)(2)(ix) of this section that it
believes may be evidence of fiduciary breaches that involve plan assets
by a prior plan fiduciary, the bankruptcy trustee shall report such
activity to the Employee Benefits Security Administration in a time and
manner specified in instructions developed by the Office of
Enforcement, Employee Benefits Security Administration, U.S. Department
of Labor.
(iii) Participant notification. In lieu of the statement required
by paragraph (d)(2)(vi)(A)(2) of this section, the notice shall include
a statement that the plan sponsor is in liquidation under chapter 7 of
title 11 of the United States Code and, therefore, the plan has been
terminated by the bankruptcy trustee (or its eligible designee).
(iv) Final notice. In lieu of the content requirements in paragraph
(d)(2)(ix)(A) of this section (relating to the qualified termination
administrator), the final notice shall include, the name, address
(including email address), and telephone number of the bankruptcy
trustee and, if applicable, the name, EIN, address (including email
address), and telephone number of the eligible designee.
(v) Distributions. Paragraph (d)(2)(vii)(C) of this section
(relating to the ability of a qualified termination administrator to
designate itself as the transferee of distribution proceeds in
accordance with Sec. 2550.404a-3) is not applicable in the case of a
qualified termination administrator that is the plan sponsor's
bankruptcy trustee.
(vi) Pay reasonable expenses. (A) If the bankruptcy trustee is the
qualified termination administrator, in lieu of the requirements in
paragraph (d)(2)(v)(B)(2) of this section, expenses shall be consistent
with industry rates for such or similar services ordinarily charged by
qualified termination administrators defined in paragraph (g) of this
section.
(B) If the bankruptcy trustee designates an eligible designee, as
defined in paragraph (j)(1)(ii) of this section, to serve as the
qualified termination administrator, the requirements in paragraph
(d)(2)(v) of this section (as opposed to the requirements in paragraph
(j)(3)(vi)(A) of this section) apply to expenses that the eligible
designee pays to itself or others.
(C) The eligible designee may pay, from plan assets, the bankruptcy
trustee for reasonable expenses incurred in selecting and monitoring
the eligible designee.
(4) The bankruptcy trustee or eligible designee shall not, through
waiver or otherwise, seek a release from liability under ERISA, or
assert a defense of derived judicial immunity (or similar defense) in
any action brought against the bankruptcy trustee or eligible designee
arising out of its conduct under this regulation.
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Signed at Washington, DC, this 3rd day of December, 2012.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. 2012-29500 Filed 12-11-12; 8:45 am]
BILLING CODE 4510-29-C
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