Termination of Abandoned Individual Account Plans, 12046-12073 [05-4464]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 70, Number 46 (Thursday, March 10, 2005)]
[Proposed Rules]
[Pages 12046-12073]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-4464]



[[Page 12045]]

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Part II





Department of Labor





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Employee Benefits Security Administration



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29 CFR Parts 2520, 2550, et al.



Termination of Abandoned Individual Account Plans and Proposed Class 
Exemption for Services Provided in Connection With the Termination of 
Abandoned Individual Account Plans; Proposed Rule and Notice

Federal Register / Vol. 70, No. 46 / Thursday, March 10, 2005 / 
Proposed Rules

[[Page 12046]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Parts 2520, 2550, and 2578

RIN 1210-AA97


Termination of Abandoned Individual Account Plans

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Proposed Regulations.

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SUMMARY: This document contains three proposed regulations under the 
Employee Retirement Income Security Act of 1974 (ERISA or the Act) 
that, upon adoption, would facilitate the termination of, and 
distribution of benefits from, individual account pension plans that 
have been abandoned by their sponsoring employers. The first proposed 
rule would establish a regulatory framework pursuant to which financial 
institutions and other entities holding the assets of an abandoned 
individual account plan can terminate the plan and distribute benefits 
to the plan's participants and beneficiaries, with limited liability. 
The second proposed rule provides a fiduciary safe harbor for use in 
connection with making rollover distributions from terminated plans on 
behalf of participants and beneficiaries who fail to make an election 
regarding a form of benefit distribution.
    Appendices to these rules contain model notices for use in 
connection therewith. The third proposed rule would establish a 
simplified method for filing a terminal report for abandoned individual 
account plans. These proposed regulations, if adopted, would affect 
fiduciaries, plan service providers, and participants and beneficiaries 
of individual account pension plans.

DATES: Written comments on the proposed regulations should be received 
by the Department of Labor on or before May 9, 2005.

ADDRESSES: Comments should be addressed to the Office of Regulations 
and Interpretations, Employee Benefits Security Administration, Room N-
5669, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210, Attn: Abandoned Plan Regulation. Comments also 
may be submitted electronically to e-ORI@dol.gov. All comments received 
will be 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: Jeffrey J. Turner or Stephanie L. 
Ward, Office of Regulations and Interpretations, Employee Benefits 
Security Administration, (202) 693-8500. This is not a toll-free 
number.

SUPPLEMENTARY INFORMATION:

A. Background

    Thousands of individual account plans have, for a variety of 
reasons, been abandoned by their sponsors. Financial institutions 
holding the assets of these abandoned plans often do not have the 
authority or incentive to perform the responsibilities otherwise 
required of the plan administrator with respect to such plans. At the 
same time, participants and beneficiaries are frequently unable to 
access their plan benefits. As a result, the assets of many of these 
plans are diminished by ongoing administrative costs, rather than being 
paid to the plan's participants and beneficiaries.
    Over the past few years, the Department of Labor's Employee 
Benefits Security Administration (EBSA) has seen an increase in the 
number of requests for assistance from participants who are unable to 
obtain access to the money in their individual account plans. According 
to these participants, even though a bank or other service provider of 
the plan may be holding their money, neither the bank nor the 
participants are able to locate anyone with authority under the plan to 
authorize benefit distributions.
    In some cases, plan abandonment occurs when the sponsoring employer 
ceases to exist by virtue of a formal bankruptcy proceeding. In other 
cases, abandonment occurs because the plan sponsor has been 
incarcerated, died, or simply fled the country. Whatever the causes of 
abandonment, participants in these so-called ``orphan plan'' or 
``abandoned plan'' situations are effectively denied access to their 
benefits and are otherwise unable to exercise their rights guaranteed 
under ERISA. At the same time, benefits in such plans are at risk of 
being significantly diminished by ongoing administrative expenses, 
rather than being distributed to participants and beneficiaries.
    EBSA responded to those participants' requests for assistance with 
a series of enforcement initiatives, including the National Enforcement 
Project on Orphan Plans (NEPOP), which began in 1999. NEPOP focuses 
primarily on identifying abandoned plans, locating their fiduciaries, 
if possible, and requiring those fiduciaries to manage and terminate 
(including making benefit distributions to participants and 
beneficiaries) the plans in accordance with ERISA. When no fiduciary 
can be found, the Department often requests a federal court to appoint 
an independent fiduciary to manage, terminate, and distribute the 
assets of the plan. EBSA had opened 1,354 civil cases involving orphan 
plans as of September 30, 2004. In the over 800 orphan plan cases 
closed with results through September 30, 2004, there were 
approximately 50,000 participants affected and $250 million in assets 
involved. As of September 30, 2004, there were 372 active cases 
involving orphan plans.
    During 2002, the ERISA Advisory Council created the Working Group 
on Orphan Plans to study the causes and extent of the orphan plan 
problem. On November 8, 2002, after public hearings and testimony, the 
Advisory Council issued a report, entitled Report of the Working Group 
on Orphan Plans,\1\ concluding that the problems posed by abandoned 
plans are very serious and substantial for plan participants, 
administrators, and the government. In particular, the Report states 
that ``[p]lan participants may suffer economic hardship as a result of 
their inability to obtain a distribution from an orphan plan; plan 
service providers may be besieged with requests for distributions, 
although unauthorized to act; and the government may be forced to 
handle the termination of hundreds or thousands of plans that have been 
abandoned.'' Although the Advisory Council's Report estimated that 
abandoned plans currently represent only about two percent of all 
defined contribution plans and less than one percent of total plan 
assets for such plans, the Report also indicated that the orphan plan 
problem may grow in difficult economic times.
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    \1\ A copy of the Report can be found at https://www.dol.gov/
ebsa/publications/AC_110802_report.html.
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    Taking into account the problem of abandoned plans and the 
Department's efforts to date, the Advisory Council generally 
recommended measures (whether regulatory, legislative, or both) to 
encourage service providers to voluntarily terminate abandoned plans 
and distribute assets to participants and beneficiaries. Specific 
recommendations of the Advisory Council included new regulations 
setting forth criteria for determining when a plan is abandoned, 
procedures for terminating abandoned plans and distributing assets, and 
rules defining who may terminate and wind up such plans.
    The Department carefully considered the recommendations of the 
Advisory Council, as well as the comments of the

[[Page 12047]]

various parties testifying at the public hearing, in developing the 
proposed regulations contained in this document, which are being 
promulgated by the Department pursuant to its authority in sections 
403(d)(1), 404(a), and 505 of ERISA.

B. Overview of Proposed Abandoned Plan Regulation--29 CFR 2578.1

    Generally, this proposed regulation, upon adoption, would establish 
standards and procedures under title I of ERISA that will facilitate 
the voluntary, safe and efficient termination of abandoned plans, 
increasing the likelihood that participants and beneficiaries receive 
the greatest retirement benefit under the circumstances. Specifically, 
the proposed regulation establishes standards for determining when a 
plan may be considered abandoned and deemed terminated, procedures for 
winding up the affairs of the plan and distributing benefits to 
participants and beneficiaries, and guidance on who may initiate and 
carry out the winding-up process.

1. Qualified Termination Administrator

    All determinations of plan abandonment, as well as related 
activities necessary to the termination and winding up of an abandoned 
individual account plan, under this regulation, may be performed only 
by a ``qualified termination administrator'' or ``QTA.'' In this 
regard, paragraph (g) of the proposal provides that a person or entity 
can qualify as a termination administrator only if it, first, is 
eligible to serve as a trustee or issuer of an individual retirement 
plan that is within the meaning of section 7701(a)(37) of the Internal 
Revenue Code (Code) \2\ and, second, if it holds assets of the plan on 
whose behalf it will serve as the QTA. While the Department believes 
that a person undertaking to terminate and wind up an abandoned 
individual account plan should, for purposes of the relief provided by 
the regulation, be subject to Federal standards and oversight, the 
Department invites public comment on whether, and how, the definition 
of a ``qualified termination administrator'' might be expanded to 
include other parties.\3\ Comments on this subject should address 
financial, operational, regulatory, and other safeguards on which 
``QTA'' status might be conditioned to protect the interest of the 
plan's participants and beneficiaries.
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    \2\ Section 7701(a)(37) defines the term individual retirement 
plan to mean 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.
    \3\ The subject regulation is not intended to limit, in any way, 
the ability of other parties who may be acting pursuant to court 
appointment, court order, or otherwise acting on behalf of the 
sponsor of the plan, to terminate and wind up the affairs of a 
pension plan, without regard to whether the plan is considered 
abandoned under this regulation. The proposed definition of 
``qualified termination administrator'' does not include such 
parties because they are empowered to take steps to terminate and 
wind up the affairs of a plan without regard to any authority that 
might be conferred by the regulation.
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2. Finding of Plan Abandonment

    Paragraph (b) of proposed Sec.  2578.1 defines when a plan is 
abandoned for purposes of the regulation. In this regard, paragraph (b) 
provides that a QTA may find an individual account plan to be abandoned 
when there have been no contributions to (or distributions from) a plan 
for a continuous 12-month period, or where facts and circumstances 
known to the QTA (such as a plan sponsor's liquidation under title 11 
of the United States Code, or communications from plan participants and 
beneficiaries regarding the plan sponsor, benefit distributions, or 
other plan information) suggest that the plan is or may become 
abandoned. See Sec.  2578.1(b)(1)(i). The latter standard is intended 
to permit immediate findings of abandonment where known facts and 
circumstances clearly obviate the need for 12 consecutive months of 
plan inactivity. The testimony of various service providers (such as 
banks, insurance companies, and mutual funds) makes it clear that they 
frequently acquire knowledge of abandonment, even though contributions 
or distributions may have occurred within the past 12 months. For 
example, in some cases, employees of defunct businesses appear 
personally or call the bank requesting distributions. Under these 
circumstances, requiring a 12-month wait before taking some action 
appears to be of little or no benefit to the plan participants, and 
possibly even harmful to their interests.
    A second condition to a finding of abandonment is that the QTA 
must, following reasonable efforts to locate or communicate with the 
known plan sponsor, determine that the plan sponsor no longer exists, 
cannot be located, or is unable to maintain the plan. See Sec.  
2578.1(b)(1)(ii). For this purpose, the proposal describes specific 
steps that would constitute ``reasonable efforts'' by a QTA to locate 
or communicate with the plan sponsor. See Sec.  2578.1(b)(3) and 
(4).\4\ Among other things, a reasonable effort would include 
furnishing notice to the plan sponsor of the QTA's intent to terminate 
the sponsor's individual account plan and distribute benefits to the 
plan's participants and beneficiaries. The proposal describes other 
information that must be contained in the notice to the plan sponsor. 
To facilitate compliance with this notification requirement, the 
Department has developed a model notice to plan sponsors for use by 
QTAs. This model notice, the use of which would be voluntary on the 
part of the QTA, is contained in Appendix A to the proposed rule.
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    \4\ The steps described in paragraphs (b)(3) and (4) of the 
proposed regulation are not intended to be the exclusive method by 
which a QTA can satisfy the standard of reasonableness in paragraph 
(b)(1) of the regulation. These steps represent merely what the 
Department considers to be an appropriate level of effort to locate 
or communicate with the plan sponsor, given the unique circumstances 
surrounding abandoned plans, the other requirements and safeguards 
in the regulation relating to findings of abandonment, and the cost 
associated with other generally available methods of locating 
missing plan sponsors. The Department, nevertheless, invites public 
comment on whether, and how, these steps might be augmented to 
further reduce the possibility that a QTA might err in concluding 
that a plan has been abandoned, when in fact the plan sponsor can be 
located.
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    With respect to the phrase ``unable to maintain the plan'' in 
paragraph (b)(1)(ii), the testimony given to the Advisory Council's 
Working Group suggests that imprisonment is perhaps the most common 
reason why a plan sponsor might be considered unable to maintain its 
plan. This phrase, however, should not be understood to be so limited 
in nature. Rather, the Department intends for this phrase to encompass 
physical, mental, legal, financial, or other impediments that, in the 
judgment of the QTA, prevent the sponsor from making contributions to 
and administrating the plan in accordance with the documents and 
instruments governing the plan.

3. Deemed Terminations

    Following a QTA's finding that a plan has been abandoned, the plan 
will be deemed to be terminated under the proposal on the ninetieth 
(90th) day following the date on which the QTA provides notice of its 
determination of plan abandonment and its election to serve as a QTA to 
the U.S. Department of Labor. See Sec.  2578.1(c). The furnishing of 
notice to the Department, in conjunction with the 90-day delay in the 
deemed termination of the plan, is intended to afford the Department an 
opportunity to review the circumstances of the proposed plan 
termination and, if appropriate, object to the termination. If the 
Department objects to a termination, the plan will not be deemed 
terminated

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until such time as the Department informs the QTA that the Department's 
concerns have been addressed. See Sec.  2578.1(c)(2)(i).
    The proposal would also permit (but does not require) the 
Department, in its sole discretion, to waive some or all of the 90-day 
waiting period described above. This might happen, for example, in the 
case of plans with few participants and few assets or if the facts 
relating to the abandonment are not very complicated, and if it is 
reasonably apparent to the Department that the proposed termination 
would be unlikely to put the participants' interests at risk. If the 
Department were to waive some or all of the 90-day period in a 
particular case, the plan involved would be deemed terminated when the 
Department furnished notification of the waiver to the QTA. See Sec.  
25781(c)(2)(ii).
    Paragraph (c)(3) of Sec.  2578.1 provides that the above referenced 
notice to the Department must be signed and dated by the QTA and 
include certain information about the QTA and the abandoned plan. 
Information about the QTA includes the name, EIN, address and phone 
number of the QTA, a description of the steps it took to locate or 
communicate with the known plan sponsor, a statement that it elects to 
terminate and wind up the plan, and an itemized estimate of any 
expenses the QTA expects to pay (including to itself) as part of the 
process contemplated by the proposed regulation. The notice must also 
identify whether the QTA or its affiliate is, or within the past 24 
months has been, the subject of an investigation, examination, or 
enforcement action by specified federal authorities. Information about 
the plan includes the name of the plan, an estimate of the number of 
participants in the plan, an estimate of total assets of the plan held 
by the QTA, identification of known service providers of the plan, and 
the last known address of the plan sponsor. The Department believes 
that the required information will be sufficient to allow the 
Department to assess whether it should object to a proposed 
termination.
    To facilitate compliance with this notification requirement, the 
Department has developed a model notice for use by QTAs in notifying 
the Department of plan abandonment. This model notice, the use of which 
would be voluntary on the part of QTAs, is contained in Appendix B to 
the proposed rule.
    The Department is considering whether this notification, as well as 
the notification required by Sec.  2578.1(d)(2)(viii) of the proposed 
regulation, should be required to be submitted to the Department 
electronically. The Department, therefore, specifically invites comment 
on whether, and to what extent, the Department should either mandate or 
provide for the electronic submission of these notices and what, if 
any, cost or cost savings might result to plans because of either such 
a requirement or such an opportunity to submit electronically.

4. Winding Up the Affairs of the Plan

    A number of witnesses appearing before the Advisory Council's 
Working Group on Orphan Plans indicated that they would be more likely 
to participate in a formal process for terminating abandoned plans if 
the Department established specific guidelines on how to wind up such 
plans. Paragraph (d) of Sec.  2578.1 is intended to provide that 
guidance. Paragraph (d)(1) of the proposed regulation prescribes the 
general authority of the QTA to take steps that are necessary or 
appropriate to wind up the affairs of the plan and distribute benefits 
to the plan's participants and beneficiaries.
    Paragraph (d)(2) of Sec.  2578.1 sets forth specific steps that a 
QTA must take and, with respect to most such steps, specifies the 
standards applicable to carrying out the particular activity (e.g., 
gathering plan records, engaging service providers, paying reasonable 
expenses, etc.). The prescribed standards are intended to both clarify 
and limit the responsibilities and liability of QTAs in connection with 
the termination and winding up of an abandoned plan.
    Paragraph (d)(2)(i) of the proposal deals with locating and 
updating plan records. Several witnesses appearing before the Advisory 
Council's Working Group identified incomplete or inaccurate plan 
records as a possible impediment to winding up the affairs of abandoned 
plans. In responding to this testimony, the Advisory Council's Report 
recommended that the Department provide guidance on the extent to which 
the records of abandoned plans must be updated before benefits may be 
distributed. Paragraph (d)(2)(i)(A) of the proposal provides that the 
QTA shall undertake reasonable and diligent efforts to locate and 
update plan records necessary to determine benefits payable under the 
plan. In recognition of the fact that there will be circumstances where 
locating, recreating or updating plan records, may, even when possible, 
be so costly that the plan's participants and beneficiaries will be 
better off with benefits being determined on less than complete or 
accurate records, the proposal, at paragraph (d)(2)(i)(B), provides 
that the QTA shall not have failed to act reasonably and diligently 
merely because it 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.
    Paragraph (d)(2)(ii) of the proposal provides that the QTA must use 
reasonable care in calculating the benefits payable based on the plan 
records assembled. This provision, in conjunction with paragraph 
(d)(2)(i), is intended to ensure accuracy for the greatest number of 
distributions, while making it clear that the Department does not 
expect a QTA to assemble perfect records in every case.
    Testimony before the Advisory Council's Working Group indicated a 
need to address whether and under what circumstances plan assets could 
be utilized to compensate service providers as part of the termination 
and winding up process. Paragraphs (d)(2)(iii) and (iv) of the proposal 
are intended to address the issues relating to the engagement of 
service providers and the payment of expenses in connection with the 
termination and winding up of an abandoned plan.
    Paragraph (d)(2)(iii) of the proposal provides the QTA with the 
authority to engage, on behalf of the plan, such service providers as 
are necessary for the QTA to wind up the affairs of the plan and 
distribute benefits to the plan's participants and beneficiaries. 
Paragraph (d)(2)(iv)(A) makes clear that reasonable expenses incurred 
in connection with the termination and winding up of the plan may be 
paid from plan assets.
    Paragraph (d)(2)(iv)(B) provides guidance concerning when expenses 
incurred in connection with the termination and winding up of an 
abandoned plan will be considered ``reasonable.'' In this regard, the 
Department notes that the guidance provided by that paragraph applies 
solely for purposes of determining the reasonableness of expenses 
incurred in connection with the exercise of a QTA's authority under 
this regulation to terminate and wind up an abandoned plan. 
Specifically, paragraph (d)(2)(iv)(B) provides that an expense shall be 
considered reasonable if: the expense is for services necessary to wind 
up the affairs of the plan and distribute benefits to the plan's 
participants and beneficiaries; such expense is consistent with 
industry rates for the provided services, based on the experience of 
the QTA; such expense is not in excess of rates charged by the QTA (or 
affiliate) to other customers for comparable services, if

[[Page 12049]]

the QTA (or affiliate) provides comparable services to other customers; 
and the payment of the expense would not constitute a prohibited 
transaction or is otherwise exempt by virtue of an individual or class 
exemption from ERISA's prohibited transaction rules.
    The reference to ``industry rates'' and ``based on the experience 
of the QTA'' in paragraph (d)(2)(iv)(B)(2)(i) is intended to enable 
QTAs, who possess knowledge about the services needed for a plan 
termination and industry rates for such or similar services, but who do 
not perform these services for plans, to engage or retain service 
providers without going through a potentially time-consuming and costly 
bidding process. By permitting QTA's to rely on their own industry 
expertise, we believe QTAs can minimize plan termination costs and, 
thereby, maximize the benefits payable to a plan's participants and 
beneficiaries.
    The rule in paragraph (d)(2)(iv)(B)(2)(ii) is intended to augment 
the protections provided under the industry rates standard discussed 
above. Under this rule, if a QTA performs termination and winding up 
services for customers other than abandoned plans under this 
regulation, the fees it charges the other customers for such services 
shall serve as limits for fees for comparable services needed by the 
abandoned plans.
    The Department anticipates that QTAs may wish to be compensated for 
services they or an affiliate render in connection with the termination 
and winding up of an abandoned plan. In the absence of an exemption, 
however, a QTA's decision to compensate itself from plan assets for 
such services would constitute a prohibited transaction under section 
406 of ERISA, thereby making such payment unreasonable under this 
regulation. See Sec.  2578.1(d)(2)(iv)(B)(3). To address this problem, 
the Department is publishing in the Notice section of today's Federal 
Register a proposed class exemption pursuant to which QTAs or their 
affiliates can be reimbursed or compensated for services performed 
pursuant to this regulation, following its adoption.
    In addition to locating and updating plan records, calculating 
benefits and engaging service providers, the QTA shall, as one of its 
duties in winding up the affairs of a plan, notify each of the plan's 
participants and beneficiaries concerning the termination of their 
plan. In general, paragraph (d)(2)(v)(A) provides that the notice 
furnished to participants and beneficiaries include: a statement that 
the plan has been terminated; a statement of the participant's or 
beneficiary's account balance and a description of the distribution 
options available under the plan; a request for the participant or 
beneficiary to make an election with respect to the form of 
distribution; a statement explaining that in the event the participant 
or beneficiary fails to make an election his or her account balance 
will be rolled over into an individual retirement plan (i.e., 
individual retirement account or annuity) or other account (in the case 
of a non-spousal beneficiary) and invested in an investment product 
that is designed to preserve principal and provide a reasonable rate of 
return and liquidity; and the name, address, and telephone number of a 
person to contact with questions or for additional information.\5\ 
Nothing in the regulation would preclude a QTA from also including its 
e-mail address in this notice.
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    \5\ A QTA is not required under this regulation to select an 
individual retirement plan provider (or other account provider in 
cases of non-spousal beneficiaries) as of the date it furnishes to 
participants and beneficiaries the notice described in paragraph 
(d)(2)(v) of the proposal. The Department, however, believes that 
efficient QTAs routinely will know who, even at that early juncture, 
eventually will be the individual retirement plan (or other account) 
provider, particularly in those cases where the QTA has selected, or 
intends to select, itself (or an affiliate) to be the individual 
retirement plan (or other account) provider. Accordingly, in 
situations in which a QTA, at the time the notice in paragraph 
(d)(2)(v) is furnished, has selected or knows who it will select to 
provide individual retirement plan services (or other account 
services in the case of non-spousal beneficiaries), such notice also 
must include an identification of the individual retirement plan (or 
other account) provider and, if known, a statement of the fees, if 
any, that will be paid from the participant or beneficiary's 
individual retirement plan (or other account in the case of non-
spousal beneficiaries), such as establishment or maintenance fees. 
See Sec.  2578.1(d)(2)(v)(A)(5)(ii)&(iii); Sec.  2550.404a-
3(e)(v)&(vi).
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    Appendix C to this section contains a model notice to participants 
and beneficiaries. The model allows for inclusion of plan-specific 
information, including a description of the process for electing a form 
of distribution. While the Department intends that use of an 
appropriately completed model notice would be considered compliance 
with the content requirements of paragraph (d)(2)(v)(A) of the proposed 
regulation, the Department does not intend to require its use and 
anticipates a variety of other notices could satisfy the requirements 
of the regulation.
    This notice shall be furnished to the last known address of 
participants and beneficiaries in accordance with the requirements of 
29 CFR 2520.104b-1(b)(1). See Sec.  2578.1(d)(2)(v)(B)(1). If the 
notice is returned undelivered to the QTA, however, the QTA, consistent 
with the duties of a fiduciary under section 404(a)(1) of ERISA, shall 
take steps to locate and notify the missing participant or beneficiary 
before distributing benefits. See Sec.  2578.1(d)(2)(v)(B)(2). A QTA 
may ensure compliance with this standard by following previous 
fiduciary guidance issued by the Department in the context of missing 
participants. See EBSA Field Assistance Bulletin No. 2004-02 (Sept. 30, 
2004).
    Paragraph (d)(2)(vi) of the proposal addresses distributions of 
benefits to participants and beneficiaries. The general rule under that 
paragraph is that a QTA is required to distribute benefits in 
accordance with elections of participants or beneficiaries. See Sec.  
2578.1(d)(2)(vi)(A). In the absence of a timely election by a 
participant or beneficiary, however, the individual's benefits must be 
directly rolled over to an individual retirement plan (or other account 
in the case of a non-spousal beneficiary) in accordance with proposed 
29 CFR 2550.404a-3. See Sec.  2578.1(d)(2)(vi)(B).
    The last step in the winding-up process is for the QTA to notify 
the Department that all benefits have been distributed in accordance 
with the regulation. Paragraph (d)(2)(viii) of the proposal sets forth 
the content requirements of this notification, which is referred to in 
the regulation as the final notice. Among other things, the final 
notice is required to include: A statement that the plan has been 
terminated and all assets held by the QTA have been distributed to the 
plan's participants and beneficiaries on the basis of the best 
available information; a statement that the special terminal report 
meeting the requirements of proposed 29 CFR 2520.103-13 is attached to 
the final notice; a statement that plan expenses were paid out of plan 
assets by the QTA in accordance with applicable federal law; and, in 
cases where the QTA paid itself 20 percent or more than it had 
estimated it would be paying itself, a statement acknowledging and 
explaining the overrun.
    Appendix D to this section contains a model final notice. The model 
allows for inclusion of plan-specific information. While the Department 
intends that use of an appropriately completed model notice would be 
considered compliance with the content requirements of paragraph 
(d)(2)(viii) of the proposed regulation, the Department does not intend 
to require its use and anticipates a variety of other notices could 
satisfy the requirements of the proposed regulation.

[[Page 12050]]

5. Plan Amendments

    Paragraph (d)(3) of section 2578.1 provides that the terms of the 
plan shall, for purposes of title I of ERISA, be deemed amended to the 
extent necessary to allow the QTA to wind up the plan in accordance 
with this regulation. The purpose of this provision is to enable QTAs 
to avoid the potentially significant costs attendant to amending the 
plan to permit what is otherwise permissible under this regulation. For 
example, a QTA may, without regard to plan terms, engage or replace 
service providers and pay expenses attendant to winding up and 
terminating the plan from plan assets.

6. Limited Liability of Qualified Termination Administrator

    In a further effort to limit the liability of a QTA, paragraph (e) 
of the proposed regulation provides that, if a QTA carries out its 
responsibilities with regard to winding up the affairs of the plan in 
accordance with paragraph (d)(2) of the regulation, the QTA is deemed 
to satisfy any responsibilities it may have under section 404(a) of 
ERISA with respect to such activity, except for selecting and 
monitoring service providers. In addition, with respect to its 
selection and monitoring duties, if the QTA selects and monitors 
service providers consistent with the prudence requirements in part 4 
of ERISA, the QTA will not be held liable for the acts or omissions of 
the service providers with respect to which the QTA does not have 
knowledge.

7. Internal Revenue Service

    The Advisory Council's Working Group on Orphan Plans recommended 
that the Department coordinate with the Internal Revenue Service (IRS) 
in the development of this proposed regulation in order to prevent 
participants and beneficiaries of abandoned plans, insofar as possible 
under the Code, from losing the favorable tax treatment otherwise 
accorded distributions from qualified plans. The Department, therefore, 
has conferred with representatives of the IRS regarding the 
qualification requirements under the Code as applied to plans that 
would be terminated pursuant to this proposed regulation. The IRS has 
advised the Department that it will not challenge the qualified status 
of any plan terminated under this regulation or take any adverse action 
against, or seek to assess or impose any penalty on, the QTA, the plan, 
or any participant or beneficiary of the plan as a result of such 
termination, including the distribution of the plan's assets, provided 
that the QTA satisfies three conditions. First, the QTA, based on plan 
records located and updated in accordance with paragraph (d)(2)(i) of 
the proposed regulation, 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.\6\ Second, 
each participant and beneficiary has a nonforfeitable right to his or 
her accrued benefits as of the date of deemed termination under 
paragraph (c)(1) of the proposed regulation, 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 paragraph (d)(2)(v) of the proposed regulation. 
Notwithstanding the foregoing, the IRS 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.
---------------------------------------------------------------------------

    \6\ These Code sections, and regulations thereunder, set forth 
qualified joint and survivor and qualified preretirement survivor 
annuity requirements and related notice, election and consent rules.
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C. Overview of Proposed Safe Harbor for Rollovers From Terminated 
Individual Account Plans--29 CFR 2550.404a-3

    Under proposed Sec.  2578.1, as discussed above, if a participant 
or beneficiary fails to elect a form of benefit distribution, the QTA 
is required to distribute that person's benefits in the form of a 
direct rollover into an individual retirement plan (or other account in 
the case of a rollover on behalf of a non-spousal beneficiary). See 
Sec.  2578.1(d)(2)(vi)(B). In a different context, the Department 
previously took the position that the selection of IRA providers and 
investments for purposes of a default rollover pursuant to a plan 
provision is a fiduciary act.\7\ The Department, therefore, is 
concerned that this position, in the absence of guidance regarding 
ERISA's fiduciary standards in the context of directly rolling over 
benefits under proposed Sec.  2578.1, could make potential QTAs 
apprehensive about assuming the status of a QTA, solely for fear of 
fiduciary liability in connection with such rollovers.
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    \7\ See Rev. Rul. 2000-36, n. 1, where the Department stated 
that the selection of an IRA trustee, custodian or issuer and IRA 
investment for purposes of a default rollover pursuant to a plan 
provision would constitute a fiduciary act under ERISA; see also 
EBSA Field Assistance Bulletin 2004-02 (Sept. 30, 2004).
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    Accordingly, the Department is proposing a fiduciary safe harbor, 
at 29 CFR 2550.404a-3, for QTAs that roll over distributions pursuant 
to proposed Sec.  2578.1(d)(2)(vi)(B). This fiduciary safe harbor was 
modeled on the fiduciary safe harbor recently adopted by the Department 
for the automatic rollover of mandatory distributions described in 
section 401(a)(31)(B) of the Code.\8\ If the conditions of the safe 
harbor are met, a QTA would be deemed to have satisfied the 
requirements of section 404(a) of the Act with respect to both the 
selection of an individual retirement plan provider (or other account 
provider in the context of a rollover on behalf of a non-spousal 
beneficiary) and the investment of the distributed funds.
---------------------------------------------------------------------------

    \8\ See 69 FR 58018 (Sept. 28, 2004).
---------------------------------------------------------------------------

    The safe harbor has three conditions, set forth in paragraph (d) of 
the proposed regulation. First, each distribution must be rolled over 
into an individual retirement plan, as defined in section 7701(a)(37) 
of the Code or, in the case of a distribution on behalf of a non-
spousal distributee,\9\ to an account (other than an individual 
retirement plan) maintained by an entity that is eligible to serve as a 
trustee or issuer of an individual retirement plan. Second, in 
connection with each such distribution, the QTA and the individual 
retirement plan provider (or other account provider in the context of a 
rollover on behalf of a non-spousal beneficiary) must enter into a 
written agreement that provides that: Rolled-over funds must 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; the investment product selected 
for the rolled-over funds shall seek to maintain a stable dollar value 
equal to the amount invested in the product by the individual 
retirement plan (or other account in the context of a rollover on 
behalf of a non-spousal beneficiary); fees and expenses attendant to 
the individual retirement plan (or other account in the context of a 
rollover on behalf of a non-spousal beneficiary), including investments 
of such plan, do not exceed certain limits; and, the participant or 
beneficiary on whose behalf the QTA makes a direct rollover shall have 
the right to enforce the terms of the contractual agreement 
establishing the individual retirement plan (or other account in the 
context of a rollover on behalf of a non-spousal beneficiary), with 
regard to his or her

[[Page 12051]]

rolled-over funds, against the individual retirement plan or other 
account provider. Third, if the QTA designates itself as the transferee 
of rollover proceeds, such designation must be exempt from the 
restrictions imposed by section 406 of ERISA pursuant to section 408(a) 
of ERISA.\10\
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    \9\ See 26 CFR 1.402(c)-2, Q&A--12.
    \10\ Section 406 of the Act prohibits certain transactions 
involving plans and parties in interest with respect to those plans. 
Pursuant to section 408(a) of ERISA, the Department may grant an 
exemption from the restrictions imposed by section 406 of ERISA upon 
finding that such exemption is administratively feasible, in the 
interests of the plan and its participants and beneficiaries and 
protective of the rights of participants and beneficiaries. The 
Department is publishing a proposed class exemption in today's 
Federal Register that is intended to deal with prohibited 
transactions resulting from a QTA's selection of itself as the 
provider of an individual retirement plan (or other account provider 
in the context of a rollover on behalf of a non-spousal beneficiary) 
and/or issuer of an investment held by such plan.
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    The Department, in developing this safe harbor for QTAs of 
abandoned plans, observed strong similarities between QTAs of abandoned 
plans and fiduciaries of terminated defined contribution plans 
generally. In particular, in either situation, the QTA or fiduciary 
will find that the winding-up process may be severely complicated or 
even postponed indefinitely if participants or beneficiaries fail to 
affirmatively elect a form of distribution. In such cases, the 
responsible decision maker is faced with a choice of either halting the 
winding-up process or finishing it in the absence of an affirmative 
direction from a participant or beneficiary regarding the distribution 
of his or her benefits.
    The Department, therefore, has concluded that the sound 
administration of ERISA is furthered by not limiting the applicability 
of Sec.  2550.404a-3 to QTAs. Rather, the Department is proposing to 
make available safe harbor relief to fiduciaries in connection with 
rollover distributions from any terminated defined contribution plan, 
without regard to whether the particular plan is considered abandoned 
pursuant to proposed section 2578.1, whenever the participant or 
beneficiary on whose behalf the rollover is being made fails to 
affirmatively elect a form of distribution.
    Of course, as with abandoned plans, the safe harbor is not 
available unless plan fiduciaries satisfy certain notification 
requirements before making a rollover distribution. See Sec.  
2550.404a-3(e).\11\ To facilitate compliance with this notice 
requirement, the Department has developed a model notice for use by 
fiduciaries to notify participants and beneficiaries of their 
distribution options and to request that each such participant or 
beneficiary elect a form of distribution. This model notice, the use of 
which would be voluntary, is contained in the appendix to this proposed 
regulation.
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    \11\ The Department notes that the notice requirement in 
paragraph (e) of the proposed safe harbor does not relieve a plan 
administrator of its obligation to notify participants or 
beneficiaries of their rights under section 402(f) of the Code. 
Section 402(f) notification should be included in, or attached to, 
the notice described in paragraph (e) of this proposed safe harbor.
---------------------------------------------------------------------------

    Finally, the Department, after consulting with the IRS, has decided 
to limit the applicability of the fiduciary safe harbor to rollovers 
from tax qualified plans. Specifically, with respect to rollover 
distributions from plans that are not abandoned plans under section 
2578.1, such plans must be in compliance with the requirements of 
section 401(a) of the Code at the time of each rollover distribution. 
See Sec.  2550.404a-3(a)(2)(ii). In the context of a rollover 
distribution from an abandoned plan, the safe harbor is available if 
such plan is intended to be maintained as a tax-qualified plan in 
accordance with the requirements of section 401(a) of the Code, even if 
such plan is not operationally qualified at the time of a rollover 
distribution pursuant to section 2578.1. See Sec.  2550.404a-
3(a)(2)(i). The Department invites comments on whether the safe harbor 
should be made available to fiduciaries for rollovers from arrangements 
described in section 403 of the Code, where such arrangements are 
covered by title I of ERISA.

D. Overview of Proposed Reporting Regulation--29 CFR 2520.103-13

    Several witnesses before the Advisory Council's Working Group on 
Orphan Plans testified that, in order to be successful, a program for 
terminating and winding up abandoned plans must include relief from the 
annual reporting requirements in section 103 of ERISA. In this regard 
the Advisory Council recommended the creation of special reporting 
rules for abandoned plans, placing emphasis on relief from the 
requirement to engage an independent qualified public accountant. The 
Council also recommended that the Department make clear the extent to 
which the QTA, rather than the plan administrator (within the meaning 
of section 3(16) of ERISA), would be responsible for missing or 
deficient annual reports for plan years preceding the year in which the 
plan is deemed terminated.
    The Department is proposing to add to part 2520 of the Code of 
Federal Regulations a new section 2520.103-13 to provide annual 
reporting relief relating to abandoned plan filings by QTAs. This 
proposed regulation addresses the content, timing, and method of filing 
rules for the reporting requirement imposed on qualified termination 
administrators pursuant to proposed 29 CFR 2578.1(d)(2)(vii). In 
addition to basic identifying information of the plan and QTA, the 
report would, as proposed, be required to specify the plan's total 
assets as of a particular date, termination expenses paid by the plan, 
and the total amount of distributions, along with other relevant 
information. This report would be required to be filed within 2 months 
after the month in which all of the plan's affairs have been completed 
(except for the requirements in 29 CFR 2578.1(d)(2)(vii) and (viii)). 
This report would be required to be filed on the Form 5500 in 
accordance with the special instructions for abandoned plans terminated 
pursuant to 29 CFR 2578.1. The filing of this report with the 
Department would be accomplished when a report meeting the requirements 
of proposed section 2520.103-13 is furnished to the Department as an 
attachment to the notice described in section 2578.1(d)(2)(viii).
    Paragraph (e) of proposed 2520.103-13 is intended to address 
concerns regarding the responsibilities of QTAs under part 1 of title I 
of ERISA. This paragraph clarifies that a QTA is not subject to the 
generally applicable reporting requirements in part 1 of title I of 
ERISA, and that the filing of a report in accordance with this section 
does not relieve the plan's administrator (within the meaning of 
section 3(16) of ERISA) of any obligation it has under ERISA. 
Similarly, any failure by the QTA to meet the requirements of 29 CFR 
2520.103-13 does not for that reason make the QTA subject to the 
requirements of part 1 of title I of ERISA, although it would prevent 
compliance with section 2578.1.

E. Effective Date

    The Department is considering making these three proposed 
regulations, i.e., sections 2578.1, 2550.404a-3, and 2520.103-13, 
effective 60 days after the date of publication of final rules in the 
Federal Register. The Department invites comments on whether the final 
regulations should be made effective on an earlier or later date.

[[Page 12052]]

F. Regulatory Impact Analysis

Summary

    This regulatory initiative consists of three proposed regulations. 
One proposal, entitled Rules and Regulations for Abandoned Plans, 
establishes procedures and standards for the termination of, and 
distribution of benefits from, an abandoned pension plan. The second 
proposal, entitled Safe Harbor for Rollovers From Terminated Individual 
Account Plans, provides relief from ERISA's fiduciary responsibility 
rules in connection with a rollover distribution on behalf of a missing 
or unresponsive plan participant. The last proposal, entitled Special 
Terminal Report for Abandoned Plans, provides annual reporting relief 
for terminated abandoned plans.

Rules and Regulations for Abandoned Plans (29 CFR 2578.1)

    The standards and procedures set forth in this proposed regulation 
are intended to facilitate the voluntary, safe, and efficient 
termination of individual account plans that have been abandoned and to 
increase the likelihood that participants and beneficiaries will 
receive the greatest retirement benefit practicable under the 
circumstances. Participants and beneficiaries that had previously been 
denied access to their benefits because there was no authority willing 
or able to assume responsibility for the abandoned plan will be able to 
direct the QTA concerning the distribution of their account balances as 
permitted under the terms of the plan and federal regulations.
    Without this regulation, plans that have been abandoned by a plan 
sponsor might eventually be terminated through government enforcement 
or other legal action. However, information gathered by the Advisory 
Council's Working Group suggests that more often the assets of 
abandoned plans continue to be diminished by ongoing administrative 
expenses at the same time that participants and beneficiaries are 
denied access to their benefits. The Department assumes for purposes of 
its analysis of the impact of these proposed rules that most plans that 
would currently meet the criteria for a finding of abandonment would 
remain abandoned without the establishment of a regulatory framework 
and specific standards and procedures such as those described in this 
proposed regulation. It is also assumed that an accumulated number of 
plans meeting the criteria for abandonment would be terminated and 
wound up pursuant to these rules, and that a smaller number of plans 
would become abandoned and terminated in future years.
    Although certain costs will be incurred and paid from plan assets 
in the course of the termination and winding up of abandoned plans 
pursuant to this regulation, the qualitative and quantitative benefits 
of the regulation are expected to be both numerous and substantial. The 
most significant qualitative benefit of the regulation will arise from 
the facilitation of the voluntary termination of abandoned plans. It is 
assumed, for purposes of cost estimates presented here, that all fees 
and expenses for terminating an abandoned plan, to the extent that they 
are reasonable, will be charged to the plan.
    Absent the proposed regulation, the persons or other entities 
holding assets of abandoned plans would not in most cases have the 
authority or incentive to see that such plans are terminated and that 
benefits are distributed to participants and beneficiaries. The 
specificity of the proposed standards and procedures, along with 
provisions that limit the liability of the QTA in certain 
circumstances, will support the rights of participants and 
beneficiaries by establishing the authority and incentive for a QTA to 
wind up the affairs of an abandoned plan. The requirements pertaining 
to the timing and content of notices to the Department and to the 
participants and beneficiaries, as well as guidance that addresses the 
obligations of the QTA with respect to the condition of plan records, 
selection and monitoring of service providers, payment of fees and 
expenses, and requirements for plan amendments and continued tax 
qualification, will serve to protect the benefits of affected 
participants and beneficiaries in the course of the termination and 
winding up of abandoned plans.
    The termination of plans that would otherwise remain abandoned also 
has quantitative economic implications. The termination of these plans 
in accordance with the regulation would serve to maximize the benefits 
ultimately payable to participants and beneficiaries in two important 
ways. First, termination would preclude the ongoing payment of 
administrative expenses that diminish assets but only minimally 
contribute to the management of the plan. In addition, the specific 
standards and procedures of the proposed regulation would limit the 
costs that would otherwise be associated with plan termination. Each of 
these in turn would moderate the extent to which individual account 
balances of the abandoned plan would be drawn upon for plan 
administration.
    Costs will be incurred and paid from plan assets to wind up the 
affairs of abandoned plans. However, these costs are meaningful only in 
the context of the savings of administrative expenses that would 
otherwise have continued to be paid indefinitely absent the 
termination. An assessment of the net effect of the termination cost 
and administrative savings is complicated by the fact that the cost is 
incurred once, while the savings would occur repeatedly in future years 
of what would otherwise be continuing abandonment.
    In analyzing the costs and potential savings, and relying on 
available data and certain assumptions described in detail later in 
this discussion, the Department compared the aggregate projected 
termination costs of an estimated number of potentially abandoned plans 
with the present value of future ongoing administrative costs for those 
plans. This comparison shows that while the termination costs exceed 
administrative savings in the year of termination, by the end of the 
next year and thereafter, the termination has prevented the payment of 
a significantly greater aggregate expense, resulting in a substantial 
preservation of retirement benefits.
    In the absence of direct measures for the number of abandoned 
plans, the Department, based on Form 5500 data and certain assumptions, 
estimates that there are approximately 4,000 abandoned plans at 
present.\12\ Assuming 4,000 abandoned plans, and based on Form 5500 
data and certain assumptions concerning ordinary plan termination 
expenses and typical annual administrative expenses, the Department 
estimates that the aggregate termination cost for those abandoned plans 
amounts to $8.4 million, while one year of ongoing administrative costs 
would amount to $7.7 million. However, by the end of the next following 
year, termination will have had the effect of saving $6.6 million. In 
other words, the net benefit in administrative cost savings for 
facilitating termination of abandoned plans would be $6.6 million for 
plans that would have remained abandoned for two years. If these plans 
remained abandoned for five years, it is estimated that the net benefit 
of facilitating termination would exceed $27 million.

[[Page 12053]]

These net benefits represent plan assets preserved for retirement 
benefits.
---------------------------------------------------------------------------

    \12\ Testimony before the Advisory Council suggests that the 
number of abandoned plans might be nearer to 2%. If this witness's 
experience is representative, approximately 11,700 plans could be 
considered abandoned plans.
---------------------------------------------------------------------------

    These estimates are, however, based on what is known about average 
ordinary administrative expenses and the way those expenses compare 
with plan termination costs. The Department has crafted the proposed 
regulation with the intention of increasing efficiency and 
significantly reducing the administrative cost of terminating abandoned 
plans through specificity as to procedures, timing, obligations 
pertaining to records, selection and monitoring of service providers, 
payment of fees and expenses, plan amendments, tax qualification 
issues, and reporting. The Department has also proposed models for 
required notices in an effort to increase efficiency and reduce the 
cost of termination. The cost for completing and mailing notices for 
currently abandoned plans is estimated at $652,300; additional annual 
costs for plans that become abandoned in the future are $87,340. These 
costs are explained more fully in the section of the preamble related 
to the Paperwork Reduction Act.
    Because the circumstances of abandoned plans are thought to vary 
considerably, the estimates of savings in termination costs that might 
arise from efficiency gains are subject to some uncertainty. However, 
each 10% reduction in the cost of termination is estimated to produce 
savings in excess of $800,000. Assuming that the specific provisions of 
the proposed regulation would increase efficiency and reduce costs by 
at least 20%, about $1.7 million in termination costs would be saved, 
further preserving retirement benefits for participants and 
beneficiaries of currently abandoned plans. In this circumstance, the 
benefits of these terminations exceed their administrative costs by 
about $900,000 in the year of termination. Similar effects will be seen 
for the somewhat smaller number of plans that become abandoned from 
year to year.
    It is estimated that the net benefit of the proposed regulation 
might vary considerably relative to actual efficiency gains and the 
duration of plan abandonment. For plans potentially abandoned at this 
time, this net benefit is expected to range from at least $900,000, to 
$6.6 million if abandonment continued for a year beyond the year of 
termination, to $27 million if abandonment continued for four years 
beyond the year of termination. In future years, termination of an 
additional 1,650 plans annually is expected to result in a net benefit 
ranging from about $400,000, to $2.7 million at the year beyond the 
year of termination, to $14.5 million at the fourth year beyond the 
year of termination. A more detailed discussion of the data, 
assumptions, and methodology underlying this analysis will be found 
below.

Safe Harbor for Rollovers From Terminated Individual Account Plans (29 
CFR 2550.404a-3)

    In addition to plans that are terminated by a QTA because of 
abandonment, other individual account plans may terminate as a result 
of a plan sponsor's voluntary decision to discontinue the plan. Similar 
to a QTA's experience with abandoned plans, a plan administrator or 
service provider responsible for distributing assets from individual 
accounts may find that certain participants and beneficiaries fail to 
elect a form of distribution because they are either missing or 
unresponsive. In order to select an institution and an investment for 
rolling over account balances of missing or unresponsive participants 
or beneficiaries, fiduciaries would benefit from a safe harbor that 
will limit their liability under section 404(a) of ERISA. Accordingly, 
fiduciaries that comply with the requirements of this proposed 
regulation will be deemed to have complied with section 404(a) of ERISA 
in connection with a rollover from a terminated plan, including an 
abandoned plan, into an individual retirement plan or other account.
    Costs related to establishing individual retirement plans and other 
accounts and selecting institutions and investments for rolled over 
accounts, have been accounted for in the Department's regulation on 
Fiduciary Responsibility Under the Employee Retirement Income Security 
Act of 1974 Automatic Rollover Safe Harbor (69 FR 58018). The cost for 
the proposed regulation is attributable only to the Notice to 
Participants that must be provided to affected participants and 
beneficiaries informing them about the termination and the need to make 
an election concerning the distribution of their benefits. The cost for 
the Notice to Participants in currently abandoned plans is estimated at 
$207,800. Annual costs for notifying the 56,500 participants in 
terminating plans, including abandoned plans, estimated to be missing 
or unresponsive on an ongoing basis are $149,500.
    Qualitative benefits will accrue to fiduciaries that rollover 
accounts under this proposed regulation through greater certainty and 
reduced exposure to risk, and to former participants through regulatory 
standards concerning: individual retirement plan or other account 
providers; investment products, including preservation of principal, 
rates of return, and liquidity; fees and expenses; and, disclosure.

Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13)

    The proposed regulation simplifies the content, timing, and method 
for final reporting by a QTA to the Department. No cost has been 
attributed to this proposed regulation, nor has the benefit been 
estimated.

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f) of the Executive 
Order, a ``significant regulatory action'' is 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. OMB has 
determined that this action is significant under section 3(f)(4) 
because it raises novel legal or policy issues arising from the 
President's priorities. Accordingly, the Department has undertaken an 
analysis of the costs and benefits of the proposed regulations. OMB has 
reviewed this regulatory action.
Costs

Rules and Regulations for Abandoned Plans (29 CFR 2578.1)

    Under the proposed regulation, individual account plans that are 
found to be abandoned will incur certain costs and fees in connection 
with the termination and winding up of the plan. These expenses 
include, among others, the costs associated with determining whether 
the plan is, in fact, abandoned, as well as notifying participants and 
the government of the abandonment. There may also be expenses 
associated with

[[Page 12054]]

updating records, distributing benefits, and reporting.
    The total expense will arise from the number of plans abandoned. 
However, the actual number of abandoned plans is not known. To estimate 
for purposes of this analysis the number of plans that might be 
abandoned, the Department examined the contribution and distribution 
activity of individual account pension plans as reported on Form 5500 
filings. This information would not by itself indicate whether any plan 
was abandoned; nor do Form 5500 filings indicate that a plan is 
abandoned. It is assumed, however, that a QTA would normally have 
access to more information about a specific plan than can be extracted 
from Form 5500 data. Nonetheless, Form 5500 data was considered the 
only source of information for approximating a number of plans that 
could be considered abandoned based on contribution and distribution 
activity.
    To arrive at its estimate, the Department reviewed the number of 
plans that filed a Form 5500 in 1999 indicating that no contributions 
had been received by the plan and no distributions had been made to 
participants or beneficiaries. Reports by these same filers were 
compared for each year from 2000 to 2002 in order to determine whether 
there had been contribu