EBSA
Notices
Notice of Proposed Amendment to Prohibited Transaction Exemption 2006-06 (PTE 2006-06) for Services Provided in Connection With the Abandoned Plan Regulations; Notice and Proposed Rule
[ 12/12/2012]
[ PDF]
Federal Register, Volume 77 Issue 239 (Wednesday, December 12, 2012)
[Federal Register Volume 77, Number 239 (Wednesday, December 12, 2012)]
[Notices]
[Pages 74055-74062]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29556]
[[Page 74055]]
Vol. 77
Wednesday,
No. 239
December 12, 2012
Part II
Department of Labor
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Employee Benefits Security Administration
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29 CFR Parts 2520, 2550, and 2578
Notice of Proposed Amendment to Prohibited Transaction Exemption 2006-
06 (PTE 2006-06) for Services Provided in Connection With the
Termination of Abandoned Individual Account Plans; Amendments to the
Abandoned Plan Regulations; Notice and Proposed Rule
Federal Register / Vol. 77 , No. 239 / Wednesday, December 12, 2012 /
Notices
[[Page 74056]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application Number D-11657]
ZRIN EBSA-2012-0015
Notice of Proposed Amendment to Prohibited Transaction Exemption
2006-06 (PTE 2006-06) for Services Provided in Connection With the
Termination of Abandoned Individual Account Plans
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of Proposed Amendment to PTE 2006-06.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed amendment to PTE
2006-06, a prohibited transaction class exemption issued under the
Employee Retirement Income Security Act of 1974 (ERISA). Among other
things, PTE 2006-06 permits a ``qualified termination administrator''
(QTA) of an individual account plan that has been abandoned by its
sponsoring employer to select itself to provide services to the plan in
connection with the plan's termination, and to pay itself fees for
those services.
DATES: Written comments and requests for a public hearing must be
received by the Department on or before February 11, 2013.
ADDRESSES: All written comments and requests for a public hearing
concerning the proposed amendment should be sent to the Office of
Exemption Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington DC 20210, Attention: PTE 2006-06 Amendment. Interested
persons are also invited to submit comments and hearing requests to
EBSA via email to: moffitt.betty@dol.gov or by fax to 202-219-0204 by
the end of the scheduled comment period. The comments received will be
available for public inspection in the Public Disclosure Room of the
Employee Benefits Security Administration, U.S. Department of Labor,
Room N-1513, 200 Constitution Avenue NW., Washington, DC 20210.
Comments and hearing requests will also be available online at
www.regulations.gov and www.dol.gov/ebsa, at no charge.
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.
FOR FURTHER INFORMATION CONTACT: Chris Motta, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, (202) 693-8540 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed amendment to PTE 2006-06. This
amendment to PTE 2006-06 is being proposed in connection with the
Department's proposed amendment of regulations relating to the
Termination of Abandoned Individual Account Plans at 29 CFR 2578.1 (the
QTA Regulation), the Safe Harbor for Distributions from Terminated
Individual Account Plans at 29 CFR 2550.404a-3 (the Safe Harbor
Regulation), and the Special Terminal Report for Abandoned Plans at 29
CFR 2520.103-13 (collectively, the Abandoned Plan Regulations). The
proposed amendments to the Abandoned Plan Regulations are being
published simultaneously in this issue of the Federal Register. PTE
2006-06 provides an exemption from the restrictions of section
406(a)(1)(A) through (D), section 406(b)(1) and (b)(2) of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and from the
taxes imposed by section 4975(a) and (b) of the Internal Revenue Code
of 1986 (the Code), by reason of section 4975(c)(1)(A) through (E) of
the Code.
If adopted, this proposed amendment to PTE 2006-06 would affect
plans, participants and beneficiaries of such plans, and certain
persons engaging in the transactions covered by the class exemption.
The Department is proposing the amendment on its own motion
pursuant to section 408(a) of ERISA and section 4975(c)(2) of the Code,
and in accordance with the procedures set forth in 29 CFR Part 2570,
Subpart B (55 FR 32836, 32847, August 10, 1990).\1\
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\1\ Section 102 of the Reorganization Plan No. 4 of 1978 (5
U.S.C. app. at 214 (2000) generally transferred the authority of the
Secretary of the Treasury to issue administrative exemptions under
section 4975 of the Code to the Secretary of Labor.
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Executive Order 12866
Under Executive Order 12866 (58 FR 51735), ``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 that this
proposed amendment is not ``significant'' under section 3(f) of the
executive order. Accordingly, OMB has not reviewed the proposed
amendment.
PTE 2006-06 permits a QTA 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
those services, provided that such fees are consistent with the
conditions of the proposed exemption. The exemption also permits a QTA
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.
The proposed amendment to PTE 2006-06 would expand the definition
of QTA to include Bankruptcy Trustees (described below) and certain
persons designated by such trustees to act as QTAs. The Department is
proposing the amendment because it has determined that, in certain
instances, it may be appropriate for a Bankruptcy Trustee to provide
termination services to a plan. Currently, PTE 2006-06 and the
accompanying QTA regulations do not cover plans of sponsors involved in
chapter 7 bankruptcy proceedings, because such plans are not considered
to be abandoned due to the fact that the Bankruptcy Trustee assumes the
role of the plan administrator under the Bankruptcy Code. Moreover,
Bankruptcy Trustees cannot serve as
[[Page 74057]]
QTAs under the current regulation and PTE 2006-06 because they are
unable to meet the QTA definition.
Accordingly, as addressed more fully elsewhere in this preamble,
the Department is proposing to expand the definition of QTA to include
Bankruptcy Trustees and certain persons designated by them to act as
QTAs in terminating and winding up the affairs of abandoned plans. As
noted above, this proposed amendment to the class exemption is being
published concurrently with proposed amendments to the Abandoned Plan
Regulations. Because compliance with the QTA Regulation is required
under the proposed amendment, 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 amendment to the QTA Regulation.
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 the Department expects ultimately would benefit
participants and beneficiaries of such plans by ensuring abandoned
plans are terminated in an orderly and cost-effective manner.
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
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
will 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.
The proposed amendment to PTE 2006-06 would only be used by QTAs
that also take advantage of the proposed amendment to the QTA
Regulation, which is published elsewhere in this issue of the Federal
Register. The Department has combined the hour and cost burdens
associated with the proposed amendment to the class exemption with the
hour and cost burden associated with the amended proposed regulation,
under one Information Collection Request (ICR) that will be filed with
OMB. By combining the two ICRs, the Department believes that the
regulated community will gain a better understanding of the overall
burden impact of terminating abandoned plans pursuant to the proposed
amendments. The specific burden for the proposed amendment to the class
exemption includes a recordkeeping requirement for a Bankruptcy Trustee
that terminates an abandoned plan and chooses to roll over the account
balances of missing or nonresponsive participants into individual
retirement plans offered by it or an affiliate. The hour and cost
burden for the ICR are described more fully in the preamble to the
proposed amendment to the regulation under the Paperwork Reduction Act
section.
I. Background
On April 21, 2006, the Department issued the Abandoned Plan
Regulations.\2\ These Regulations facilitate the orderly, efficient
termination of abandoned individual account plans by a QTA (described
below) in order to give participants and beneficiaries of those plans
access to the amounts held in their individual accounts, which are
frequently unavailable to them because of the abandonment.\3\
Specifically, the Termination of Abandoned Individual Account Plans
regulation establishes standards for financial institutions holding the
assets of an abandoned individual account plan to terminate the plan
and distribute benefits to the plan's participants and beneficiaries,
with limited liability. The Safe Harbor for Distributions from
Terminated Individual Account Plans regulation provides a fiduciary
safe harbor for making distributions from terminated individual account
plans on behalf of participants and beneficiaries who fail to make an
election regarding the form of benefit distribution after the
furnishing of notice. The Special Terminal Report for Abandoned Plans
regulation establishes a simplified method for filing a terminal report
for abandoned individual account plans.
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\2\ See the Termination of Abandoned Individual Account Plans at
29 CFR 2578.1 (77 FR 20820 at 20838); the Safe Harbor for
Distributions from Terminated Individual Account Plans at 29 CFR
2550.404a-3 (77 FR 20820 at 20850); and Special Terminal Report for
Abandoned Plans at 29 CFR 2520.103-13 (77 FR 20820 at 20853).
\3\ 77 FR 20820 at id.
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On that same date, the Department granted PTE 2006-06.\4\ This
class exemption facilitates the goal of the Abandoned Plan Regulations
by permitting a QTA, under the conditions of the exemption, to, among
other things, select itself or an affiliate to provide services to the
plan, to pay itself or an affiliate fees for those services, and to pay
itself fees for services provided prior to the plan's deemed
termination, in connection with terminating the abandoned plan.
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\4\ 71 FR 20856 (Apr. 21, 2006) as amended infra.
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On October 7, 2008, the Department issued final rules amending the
QTA Regulation and the Safe Harbor Regulation.\5\ These amendments were
made in response to changes to the Internal Revenue Code of 1986 (the
Code) enacted as part of the Pension Protection Act of 2006. On that
same date, and for the same purpose, PTE 2006-06 was also amended.\6\
In this regard, as amended, the class exemption requires that benefits
for a missing, designated nonspouse beneficiary be directly rolled over
into an inherited individual retirement plan that fully complies with
Code requirements.
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\5\ See 73 FR 58459 at 58462 and 58465.
\6\ See 73 FR 58629 (October 7, 2008).
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As noted above, proposed amendments to the Abandoned Plan
Regulations are being published simultaneously in this issue of the
Federal Register. If adopted, these amendments, among other things,
would permit a Bankruptcy Trustee to qualify as a QTA under the
Abandoned Plan Regulations or to appoint an ``eligible designee'' to
act as a QTA under the Abandoned Plan Regulations. Thereafter, the
Bankruptcy Trustee or the ``eligible designee'' may provide certain
services, pursuant to the requirements set forth in the Abandoned Plan
Regulations, in connection with the termination of one or more
individual account plans sponsored by the entity that is the subject of
the proceeding.
II. Description of the Class Exemption
PTE 2006-06 is comprised of five sections. Section I describes the
transactions covered by the exemption. These transactions are divided
into two categories. The first category of transactions (hereinafter,
Covered Termination Transactions) involve the use by a QTA (described
below) of its authority in connection with the termination of an
abandoned individual account plan pursuant to the QTA Regulation,\7\
to: Select itself or an affiliate to provide services to the plan;
receive fees for the services performed as a QTA; and pay itself fees
for services provided to the plan prior to the
[[Page 74058]]
deemed termination of the plan. The second category of transactions
(hereinafter, Covered Distribution Transactions) involves the use by a
QTA of its authority in connection with the termination of an abandoned
individual account plan pursuant to the QTA Regulation to: (1)
Designate itself or an affiliate as: (i) Provider of an individual
retirement plan; (ii) provider, in the case of a distribution on behalf
of a designated beneficiary (as defined by section 401(a)(9)(E) of the
Code) who is not the surviving spouse of the deceased participant, of
an inherited individual retirement plan (within the meaning of section
402(c)(11) of the Code) established to receive the distribution on
behalf of the nonspouse beneficiary under the circumstances described
in section (d)(1)(ii) of the Safe Harbor Regulation; or (iii) provider
of an interest-bearing, federally insured bank or savings association
account maintained in the name of the participant or beneficiary, in
the case of a distribution described in section (d)(1)(iii) of the Safe
Harbor Regulation, for the distribution of the account balance of the
participant or beneficiary of the abandoned individual account plan who
does not provide direction as to the disposition of such assets; (2)
make the initial investment of the account balance of the participant
or beneficiary in the QTA's or its affiliate's proprietary investment
product; (3) receive fees in connection with the establishment or
maintenance of the individual retirement plan or other account; and (4)
pay itself or an affiliate investment fees as a result of the
investment of the individual retirement plan or other account assets in
the QTA's or its affiliate's proprietary investment product.
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\7\ Section I(a) of PTE 2006-06 incorrectly cites the QTA
Regulation as Reg. Sec. 2550.404a-3. Section I(a) of this proposed
amendment properly cites the QTA Regulation as Reg. Sec. 2578.1.
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Section II contains conditions applicable to the Covered
Termination Transactions. These conditions include the requirement that
the fees and expenses paid to the QTA, and its affiliate, for services
associated with the termination of a plan and the distribution of its
benefits (hereinafter, Termination Services) \8\ be consistent with
industry rates for such or similar services, based on the experience of
the QTA.\9\ Section II provides further that the fees and expenses paid
to the QTA, and its affiliate, may not exceed the rates ordinarily
charged by the QTA (or affiliate) for the same or similar services
provided to customers that are not plans terminated pursuant to the QTA
regulation, if the QTA (or affiliate) provides the same or similar
services to such other customers. Among the remaining conditions set
forth in section II is the requirement that, with respect to a
Termination Transaction, the requirements of the QTA Regulation are
met.
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\8\ The Department notes that the ``distribution'' services
referenced in section II of PTE 2006-06 are distinguishable from the
Distribution Transactions described in section I(b) of the class
exemption. In this regard, the Distribution Transactions involve the
investment of Plan assets in the QTA's proprietary investment
vehicles. Section II ``distribution'' services relate to the
transfer of Plan assets to Plan participants and/or investment
vehicles that are unrelated to the QTA.
\9\ See section II(b)(1) of PTE 2006-06.
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Section III of PTE 2006-06 contains conditions applicable to the
Covered Distribution Transactions. These conditions include the
requirement that, with respect to a Covered Distribution Transaction,
the conditions of the QTA Regulation are met. Section III additionally
requires that, in connection with the notice to participants and
beneficiaries requirement described in the QTA Regulation, a statement
is provided explaining that: (1) If the participant or beneficiary
fails to make an election within the 30-day period referenced in the
QTA Regulation, the QTA will directly distribute the account balance to
an individual retirement plan or other account offered by the QTA or
its affiliate; and (2) the proceeds of the distribution may be invested
in the QTA's (or affiliate's) own proprietary investment product, which
is designed to preserve principal and provide a reasonable rate of
return and liquidity. This section of the class exemption requires
further that the terms of the individual retirement plan or other
account, including the fees and expenses for establishing and
maintaining the individual retirement plan or other account, may be no
less favorable than those available to comparable individual retirement
plans or other accounts established for reasons other than the receipt
of a distribution described in the QTA Regulation. Among the remaining
conditions set forth in section III is the requirement that the rate of
return or the investment performance of the individual retirement plan
or other account may be no less favorable than the rate of return or
investment performance of an identical investment(s) that could have
been made at the same time by comparable individual retirement plans or
other accounts established for reasons other than the receipt of a
distribution described in the QTA Regulation.
Section IV contains the recordkeeping requirements for the QTA, and
section V defines certain terms that appear in the class exemption. In
this last regard, section V(a) currently provides that a termination
administrator is ``qualified'' for purposes of the Abandoned Plan
Regulations and the class exemption if: (1) The QTA is eligible to
serve as a trustee or issuer of an individual retirement plan or other
account, within the meaning of section 7701(a)(37) of the Code,\10\ and
(2) the QTA holds plan assets of the plan considered abandoned.
Accordingly, relief under the existing class exemption extends only to
entities with experience providing services to plans that are subject
to ERISA.
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\10\ Section 7701(a)(37) of the Internal Revenue Code describes
an ``individual retirement plan'' as an individual retirement
account described in section 408(a) of the Code, and an individual
retirement account 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.
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III. Description of the Proposed Amendment to the Class Exemption
When an entity that sponsors an individual account plan is
liquidated under chapter 7 of title 11 of the United States Code, a
person appointed as a bankruptcy trustee (a Bankruptcy Trustee) will,
among other things, perform the obligations that otherwise would have
been required of the bankrupt entity. Once appointed, the Bankruptcy
Trustee is responsible for administering the plan, which may include
taking the steps necessary to terminate the plan and wind up the
affairs of the plan. A Bankruptcy Trustee who undertakes these plan
responsibilities is a fiduciary with respect to the plan,\11\ and
therefore subject to section 404 of ERISA.\12\ As noted in the preamble
to PTE 2006-06, as proposed, a violation of section 406(a) and/or (b)
of the Act may occur if the QTA determines to pay itself or an
affiliate for services rendered to the plan from the assets of an
abandoned
[[Page 74059]]
plan.\13\ Also, additional violations may occur if the QTA designates
itself or an affiliate as the provider of an individual retirement plan
or other account established for the benefit of participants and
beneficiaries who do not make an election as to the form of
distribution.
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\11\ In this regard, section 3(21)(A)(i) of ERISA provides that
a person is a ``fiduciary'' with respect to a plan to the extent he
exercises any discretionary authority or discretionary control
respecting management of such plan or exercises any authority or
control respecting management or disposition of its assets. In
addition, section 3(21)(A)(iii) of ERISA provides that a person is a
``fiduciary'' with respect to a plan to the extent he has any
discretionary authority or discretionary responsibility in the
administration of such plan.
\12\ Section 404 of ERISA requires, among other things, that a
fiduciary shall discharge his duties with respect to a plan solely
in the interest of the participants and beneficiaries and with the
care, skill prudence, and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and
familiarity with such matters would use in the conduct of an
enterprise of a like character and with like aims.
\13\ In this regard, section 406(a)(1) of the Act prohibits, in
part, a fiduciary of a plan from causing the plan to engage in a
transaction that constitutes a direct or an indirect sale, exchange
or leasing of any property between the plan and a party in interest;
lending of money or other extension of credit between the plan and a
party in interest; furnishing of goods, services, or facilities
between the plan and a party in interest; and a transfer to, or use
by or for the benefit of, a party in interest of any assets of the
plan. Section 406(b)(1) and (b)(2) of the Act prohibits a fiduciary
with respect to a plan from dealing with the assets of the plan in
his own interest or for his own account; and from acting in his
individual or in any other capacity in any transaction involving the
plan on behalf of a party (or representing a party) whose interests
are adverse to the interests of the plan or the interests of its
participants or beneficiaries.
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As described below, a Bankruptcy Trustee may determine that it is
capable of prudently and expeditiously winding down the operations of
an individual account plan. However, the relief currently provided by
PTE 2006-06 generally does not extend to the provision of Termination
Services by a Bankruptcy Trustee to a plan. In this regard, it is the
understanding of the Department that Bankruptcy Trustees seldom hold
custody of plan assets of the bankrupt plan sponsor. Thus, Bankruptcy
Trustees are generally unable to meet the definition of QTA, as set
forth in section V(a) of the existing class exemption.
In addition, the provision of Termination Services by a Bankruptcy
Trustee to a Plan is often outside the scope of relief intended by the
Department for the existing class exemption.\14\ In this regard, the
class exemption currently limits relief to entities that are eligible
to serve as trustees or issuers of individual retirement plans and thus
have experience providing services to individual account plans subject
to ERISA.\15\ As noted above, the existing class exemption requires,
among other things, that the fees and expenses paid to a QTA, and its
affiliate, for Termination Services are consistent with industry rates,
based on the experience of the QTA. This condition may have little or
no relevance to Bankruptcy Trustees that have minimal or no experience
providing services to ERISA-covered individual account plans.
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\14\ It is also the understanding of the Department that
Bankruptcy Trustees do not maintain proprietary investment vehicles,
and thus do not, in the general course of their business activities,
offer services associated with the Distribution Transactions.
Accordingly, this proposed amendment does not extend relief for a
Bankruptcy Trustee/QTA that designates itself or an affiliate to
offer such services.
\15\ In the preamble to the QTA Regulation, the Department
further noted that in developing its criteria for QTAs, the
Department limited QTA status to trustees or issuers of an
individual account plan within the meaning of section 7701(a)(37) of
the Code, because the standards applicable to such trustees and
issuers are well understood by the regulated community and the
Department is unaware of any problems attributable to weaknesses in
the existing Code and regulatory standards for such persons. See 77
FR 20820 at 20821.
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Nevertheless, the Department recognizes that when the sponsor of an
individual account plan is in liquidation pursuant to a Chapter 7
bankruptcy proceeding, participants in the plan benefit to the extent
the plan's operations are wound down properly and in an expeditious
manner. The Department is proposing this amendment based on its belief
that extending relief under the class exemption to Bankruptcy Trustees
will enable these Trustees to carry out plan terminations consistent
with ERISA and the Department's expectations.
Accordingly, the Department is proposing to expand the definition
of QTA to include Bankruptcy Trustees and certain persons designated by
such trustees to act as QTAs. Specifically, this new category of QTA
is: (1) A person appointed as a bankruptcy trustee pursuant to a
liquidation proceeding under chapter 7 of title 11 of the United States
Code, or (2) an ``eligible designee'' of such bankruptcy trustee (as
described below). Given that a Bankruptcy Trustee may have little or no
experience providing services to employee benefit plans, the Department
is proposing to modify section II(b)(1) of the class exemption. The
modification, which applies only to Bankruptcy Trustee/QTAs and not
``eligible designees'' or other QTAs, eliminates the ``experience of
the QTA'' component of the condition. In this regard, section II(b)(1)
of this proposed amendment limits the total amount of compensation that
may be paid to a Bankruptcy Trustee/QTA (or any affiliate) for
Termination Services to an amount that is consistent with industry
rates for such or similar services.\16\
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\16\ This proposed amendment does not affect the obligations
under the class exemption of a QTA that is not a Bankruptcy Trustee.
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The Department notes that compliance with section II(b)(1) of this
proposed amendment imposes an obligation on a Bankruptcy Trustee/QTA,
prior to performing any Termination Service on behalf of a Plan, to
investigate and determine that the fees and expenses proposed to be
paid to such Bankruptcy Trustee/QTA are consistent with the amount the
Plan would have to pay to an experienced service provider for the same
or similar Termination Services. The Department believes that
information currently available on the Department's Web site, as
described in further detail below, will assist Bankruptcy Trustee/QTAs
set fees for Termination Services in the manner required by section
II(b)(1) of the proposed exemption. The Department recognizes that a
Bankruptcy Trustee, once appointed to administer the termination of a
Plan, may seek to appoint the Plan's custodian to provide Termination
Services and/or Distribution Services to such Plan.\17\ The Department
believes that the provision of Termination Services and/or Distribution
Services by a plan custodian who has been retained in this manner to
act as QTA would be consistent with the intended scope of the existing
class exemption. Accordingly, the Department is proposing to expand the
definition of QTA to include an ``eligible designee'' of a Bankruptcy
Trustee. The proposed amendment defines an ``eligible designee'' to
mean any entity appointed by a Bankruptcy Trustee/QTA, who: is eligible
to serve as a trustee or issuer of an individual retirement plan; and
holds assets of the plan(s) sponsored by the entity that is the subject
of the chapter 7 liquidation proceeding. Given that ``eligible
designees'' are plan custodians with experience providing services to
employee benefit plans subject to ERISA, the Department believes that
``eligible designees'' should be treated in the same manner as QTAs
that are not Bankruptcy Trustee/QTAs. In this regard, the proposed
amendment permits ``eligible designees'' to engage in all transactions
covered by the exemption (i.e., Covered Termination Transactions and/or
Covered Distribution Transactions) subject to the same conditions
applicable to QTAs other than
[[Page 74060]]
Bankruptcy Trustee/QTAs. Accordingly, the fees and expenses paid to an
``eligible designee''/QTA pursuant to section II(b)(1) of PTE 2006-06
must be, among other things, based on the experience of such QTA.
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\17\ The Department notes that the Act's general standards of
fiduciary conduct would apply to this arrangement. In this regard,
section 404 of the Act requires, among other things, that Bankruptcy
Trustee/QTA discharge his or her duties in a prudent manner.
Accordingly, a Bankruptcy Trustee/QTA who appoints an ``eligible
designee'' would thereafter be responsible for monitoring the
services provided by the ``eligible designee.'' The Department
cautions that such monitoring, and the fee associated therewith,
must be consistent with, and reflective of, the Plan's interest in
having its operations wound down in an expeditious and cost
effective manner. In this regard, the rates charged to the Plan by
the Bankruptcy Trustee/QTA for monitoring the ``eligible designee''
must reflect 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.
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The Department reemphasizes to all entities seeking to take
advantage of PTE 2006-06 that relief under that class exemption is
conditioned upon, among other things, fulfilling the requirements set
forth in the QTA Regulation. Accordingly, following a QTA's
determination that an individual account plan has been abandoned,\18\
the QTA must furnish the Department with a notice that includes, among
other things, an identification of any services considered necessary to
wind up the plan in accordance with 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.\19\ The
Department cautions that, while all such notices are reviewed by the
Department, any such notice furnished by a Bankruptcy Trustee/QTA will
be subject to additional scrutiny by the Department to ensure that
plans pay no more than reasonable compensation for Termination
Services.\20\ At the beginning of the termination process, the
Department conducts a review of the estimated expenses for
reasonableness. In this regard, the Department will: Compare the QTA's
estimated expenses to those of other QTAs; and consider also the facts
and circumstances of the Plan in question. The Department notes that
Plans are deemed terminated only after the Department establishes that
the fees are reasonable.
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\18\ The Proposed Amendment to the QTA Regulation provides that
if an individual account plan's sponsor is in liquidation under
chapter 7 of title 11 of the United States Code, the plan may be
considered abandoned upon the entry of an order for relief, and the
bankruptcy trustee, or an eligible designee, shall be the qualified
termination administrator. See Paragraph (j)(1) of the Proposed
Amendment to the QTA Regulation.
\19\ See paragraph (c)(3)(iii) of the QTA Regulation.
\20\ Paragraph (d)(2)(v) of the QTA Regulation provides, among
other things, that expenses of plan administration shall be
considered reasonable to the extent such expenses are consistent
with industry rates for such or similar services.
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In addition, the Department notes that compliance with the QTA
Regulation requires that each QTA file a ``Special Terminal Report for
Abandoned Plans (STRAP)'' with the Department, and such Report must set
forth, among other things, the total termination expenses paid by the
plan and a separate schedule identifying each service provider and
amount received, itemized by expense.\21\ Completed STRAPs are
available on the Department's Web site: http://askebsa.dol.gov/AbandonedPlanSearch/UI/QTASearchResults.aspx. The Department expects
that the information contained in these completed STRAPs, including the
itemized fees set forth therein, will assist Bankruptcy Trustee/QTAs
set fees for Termination Services in the manner required by section
II(b)(1) of the proposed exemption. For further assistance regarding
QTA participation in the abandoned plan program, Bankruptcy Trustee/
QTAs may contact the EBSA office for the region where the abandoned
plan is located.
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\21\ See DOL Reg. Sec. 2520.103-13(b)(3).
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General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of ERISA and section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or disqualified
person with respect to a plan from certain other provisions of ERISA
and the Code, including any prohibited transaction provisions to which
the exemption does not apply and the general fiduciary responsibility
provisions of section 404 of ERISA which require, among other things,
that a fiduciary discharge his or her duties respecting the plan solely
in the interests of the participants and beneficiaries of the plan and
in a prudent fashion in accordance with section 404(a)(1)(B) of the
Act.
(2) If granted, this proposed amendment does not extend to
transactions prohibited under section 406(b)(3) of the Act or section
4975(c)(1)(F) of the Code;
(3) Before an amendment may be granted under section 408(a) of
ERISA and 4975(c)(2) of the Code, the Department must find that the
amendment is administratively feasible, in the interests of the plan
and of its participants and beneficiaries, and protective of the rights
of participants and beneficiaries of the plan;
(4) If granted, the amendment is applicable to a particular
transaction only if the transaction satisfies the conditions specified
in the exemption; and
(5) If granted, the amendment is supplemental to, and not in
derogation of, any other provisions of ERISA and the Code, including
statutory or administrative exemptions and transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction.
Proposed Amendment
Under section 408(a) of the Act and section 4975(c)(2) of the Code
and in accordance with the procedures set forth in 29 CFR part 2570,
subpart B (55 FR 32836, 32847, August 10, 1990), the Department
proposes to amend PTE 2006-06, effective as of the date the adopted
amendment is published in the Federal Register. The entire exemption,
as proposed to be amended, is set forth below:
I. Covered Transactions
(a) The restrictions of sections 406(a)(1)(A) through (D),
406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by section
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply to a QTA (as defined in paragraph
(a)(1) or (a)(2) of section V) using its authority in connection with
the termination of an abandoned individual account plan pursuant to the
Department's regulation at 2578.1, relating to the Termination of
Abandoned Individual Account Plans (the QTA Regulation) to:
(1) Select itself or an affiliate to provide services to the plan;
(2) Receive fees for the services performed as a QTA; and
(3) Pay itself fees for services provided to the plan prior to the
deemed termination of the plan, provided that the conditions set forth
in sections II and IV of this exemption are satisfied.
(b) The restrictions of sections 406(a)(1)(A) through (D),
406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by section
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply to a QTA (as defined in paragraph
(a)(1) or (a)(2)(ii) of section V) using its authority in connection
with the termination of an abandoned individual account plan pursuant
to the QTA Regulation to:
(1) Designate itself or an affiliate as: (i) Provider of an
individual retirement plan; (ii) provider, in the case of a
distribution on behalf of a designated beneficiary (as defined by
section 401(a)(9)(E) of the Code) who is not the surviving spouse of
the deceased participant, of an inherited individual retirement plan
(within the meaning of section 402(c)(11) of the Code) established to
receive the distribution on behalf of the nonspouse beneficiary under
the circumstances described in
[[Page 74061]]
section (d)(1)(ii) of the Safe Harbor Regulation for Terminated Plans
(29 CFR section 2550.404a-3) (the Safe Harbor Regulation); or (iii)
provider of an interest bearing, federally insured bank or savings
association account maintained in the name of the participant or
beneficiary, in the case of a distribution described in section
(d)(1)(iii) of the Safe Harbor Regulation, for the distribution of the
account balance of the participant or beneficiary of the abandoned
individual account plan who does not provide direction as to the
disposition of such assets;
(2) Make the initial investment of the account balance of the
participant or beneficiary in the QTA's or its affiliate's proprietary
investment product;
(3) Receive fees in connection with the establishment or
maintenance of the individual retirement plan or other account; and
(4) Pay itself or an affiliate investment fees as a result of the
investment of the individual retirement plan or other account assets in
the QTA's or its affiliate's proprietary investment product, provided
that the conditions set forth in sections III and IV of this exemption
are satisfied.
II. Conditions for Provision of Termination Services and Receipt of
Fees in Connection Therewith
(a) The requirements of the QTA Regulation are met. The QTA
provides, in a timely manner, any other reasonably available
information requested by the Department regarding the proposed
termination.
(b) Fees and expenses paid to the QTA, and its affiliate, in
connection with the termination of the plan and the distribution of
benefits:
(1) Are consistent with industry rates for such or similar
services, based on the experience of the QTA, and
(2) Are not in excess of rates ordinarily charged by the QTA (or
affiliate) for the same or similar services provided to customers that
are not plans terminated pursuant to the QTA regulation, if the QTA (or
affiliate) provides the same or similar services to such other
customers. Notwithstanding the foregoing, solely with respect to a QTA
described in section V(a)(2)(i) of this proposed class exemption, the
requirement set forth in (b)(1) of this paragraph shall be deemed met
to the extent that the fees and expenses paid to such QTA are: (i) For
services necessary to wind-up the affairs of the plan and distribute
benefits to the plan's participants and beneficiaries; and (ii)
consistent with industry rates for such or similar services ordinarily
charged by QTAs described in section V(a)(1)(i);
(c) In the case of a transaction described in section I(a)(3):
(1) Such services: (i) Were performed in good faith pursuant to the
terms of a written agreement executed prior to the service provider
becoming a QTA; or (ii) were performed pursuant to the QTA Regulation;
and
(2) The QTA, in the initial notification of plan abandonment
described in section (c)(3) of the QTA Regulation: (i) Represents under
penalty of perjury that such services were actually performed; and (ii)
in the case of section II(c)(1)(i) above, provides the Department with
a copy of the executed contract between the QTA and a plan fiduciary or
the plan sponsor that authorized such services.
III. Conditions for Distributions
(a) The conditions of the QTA Regulation are met.
(b) In connection with the notice to participants and beneficiaries
described in the QTA Regulation, a statement is provided explaining
that:
(1) If the participant or beneficiary fails to make an election
within the 30-day period referenced in the QTA Regulation, the QTA will
directly distribute the account balance to an individual retirement
plan or other account offered by the QTA or its affiliate;
(2) The proceeds of the distribution may be invested in the QTA's
(or affiliate's) own proprietary investment product, which is designed
to preserve principal and provide a reasonable rate of return and
liquidity.
(c) The individual retirement plan or other account is established
and maintained for the exclusive benefit of the individual retirement
plan account holder or other account holder, his or her spouse, or
their beneficiaries.
(d) The terms of the individual retirement plan or other account,
including the fees and expenses for establishing and maintaining the
individual retirement plan or other account, are no less favorable than
those available to comparable individual retirement plans or other
accounts established for reasons other than the receipt of a
distribution described in the QTA Regulation.
(e) Except in the case of a QTA providing a bank or savings account
pursuant to section I(b)(1)(iii) of the exemption, the distribution
proceeds are invested in an Eligible Investment Product(s), as defined
in section V(c) of this class exemption.
(f) The rate of return or the investment performance of the
individual retirement plan or other account is no less favorable than
the rate of return or investment performance of an identical
investment(s) that could have been made at the same time by comparable
individual retirement plans or other accounts established for reasons
other than the receipt of a distribution described in the QTA
Regulation.
(g) The individual retirement plan or other account does not pay a
sales commission in connection with the acquisition of an Eligible
Investment Product.
(h) The individual retirement plan account holder or other account
holder must be able, within a reasonable period of time after his or
her request and without penalty to the principal amount of the
investment, to transfer his or her account balance to a different
investment offered by the QTA or its affiliate, or to a different
financial institution not related to the QTA or its affiliate.
(i)(1) Fees and expenses attendant to the individual retirement
plan or other account, including the investment of the assets of such
plan or account, (e.g., establishment charges, maintenance fees,
investment expenses, termination costs, and surrender charges) shall
not exceed the fees and expenses charged by the QTA for comparable
individual retirement plans or other accounts established for reasons
other than the receipt of a distribution made pursuant to the QTA
Regulation;
(2) Fees and expenses attendant to the individual retirement plan
or other account, with the exception of establishment charges, may be
charged only against the income earned by the individual retirement
plan or other account; and
(3) Fees and expenses attendant to the individual retirement plan
or other account are not in excess of reasonable compensation within
the meaning of section 4975(d) (2) of the Code.
IV. Recordkeeping
(a) The QTA maintains or causes to be maintained, for a period of
six (6) years from the date the QTA provides notice to the Department
of its determination of plan abandonment and its election to serve as
the QTA described in the QTA Regulation, the records necessary to
enable the persons described in paragraph (b) of this section to
determine whether the applicable conditions of this exemption have been
met. Such records must be readily available to assure accessibility by
the persons identified in paragraph (b) of this section.
(b) Notwithstanding any provisions of section 504(a)(2) and (b) of
the Act, the records referred to in paragraph (a) of this section are
unconditionally
[[Page 74062]]
available at their customary location for examination during normal
business hours by--
(1) Any duly authorized employee or representative of the
Department of Labor or the Internal Revenue Service; and
(2) 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.
(c) A prohibited transaction will not be considered to have
occurred if due to circumstances beyond the control of the QTA, the
records necessary to enable the persons described in paragraph (b) to
determine whether the conditions of the exemption have been met are
lost or destroyed, and no party in interest other than the QTA shall be
subject to the civil penalty that may be assessed under section 502(i)
of the Act or to the taxes imposed by sections 4975(a) and (b) of the
Code if the records are not maintained or are not available for
examination as required by paragraph (b).
(3) None of the persons described in paragraph (b)(2) of this
section shall be authorized to examine the trade secrets of the QTA or
its affiliates or commercial or financial information that is
privileged or confidential.
V. Definitions
(a) A termination administrator is ``qualified'' for purposes of
the QTA Regulation and this proposed amendment if the requirements set
forth in either subparagraph (1) or (2) below are met:
(1)(i) The QTA is eligible to serve as a trustee or issuer of an
individual retirement plan or other account, within the meaning of
section 7701(a)(37) of the Code, and (ii) The QTA holds plan assets of
the plan that is considered abandoned; or
(2)(i) The QTA is a bankruptcy trustee in a liquidation proceeding
under chapter 7 of title 11 of the United States Code with
responsibility under 11 U.S.C 704(a)(11) to administer one or more
individual account plans sponsored by the entity that is the subject of
the proceeding, or (ii) The QTA is an ``eligible designee,'' as defined
in section V(h) below, of such bankruptcy trustee.
(b) The term ``individual retirement plan'' means an individual
retirement plan described in section 7701(a)(37) of the Code. For
purposes of section III of this exemption, the term ``individual
retirement plan'' shall also include an inherited individual retirement
plan (within the meaning of section 402(c)(11) of the Code) established
to receive a distribution on behalf of a nonspouse beneficiary.
Notwithstanding the foregoing, the term individual retirement plan
shall not include an individual retirement plan which is an employee
benefit plan covered by Title I of ERISA.
(c) The term ``Eligible Investment Product'' means an investment
product designed to preserve principal and provide a reasonable rate of
return, whether or not such return is guaranteed, consistent with
liquidity. For this purpose, the product must be offered by a Regulated
Financial Institution as defined in paragraph (d) of this section and
shall seek to maintain, over the term of the investment, the dollar
value that is equal to the amount invested in the product by the
individual retirement plan or other account. Such term includes money
market funds maintained by registered investment companies, and
interest-bearing savings accounts and certificates of deposit of a bank
or similar financial institution. In addition, the term includes
``stable value products'' issued by a financial institution that are
fully benefit-responsive to the individual retirement plan account
holder or other account holder, i.e., that provide a liquidity
guarantee by a financially responsible third party of principal and
previously accrued interest for liquidations or transfers initiated by
the individual retirement plan account holder or other account holder
exercising his or her right to withdraw or transfer funds under the
terms of an arrangement that does not include substantial restrictions
to the account holder access to the individual retirement plan or other
account's assets.
(d) The term ``Regulated Financial Institution'' means an entity
that: (i) Is subject to state or federal regulation, and (ii) is 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.
(e) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly controlling, controlled by,
or under common control with, the person; or
(2) Any officer, director, partner or employee of the person.
(f) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(g) The term ``individual account plan'' means an individual
account plan as that term is defined in section 3(34) of the Act.
(h) The term ``eligible designee'' means any person or entity
designated by a QTA described in section V(a)(2)(i) 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 a plan described in section V(a)(2)(i).
Signed at Washington, DC, September, 2012.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2012-29556 Filed 12-11-12; 8:45 am]
BILLING CODE 4510-29-P
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