Termination of Abandoned Individual Account Plans, 20820-20854 [06-3814]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 71, Number 77 (Friday, April 21, 2006)]
[Rules and Regulations]
[Pages 20820-20854]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-3814]



[[Page 20819]]

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Part IV





Department of Labor





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Employee Benefits Security Administration



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29 CFR Parts 2520, 2550, and 2578



Termination of Abandoned Individual Account Plans; Final Rule

Federal Register / Vol. 71, No. 77 / Friday, April 21, 2006 / Rules 
and Regulations

[[Page 20820]]


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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.

ACTION: Final regulations.

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SUMMARY: This document contains three final regulations under the 
Employee Retirement Income Security Act of 1974 (ERISA or the Act) that 
facilitate the termination of, and distribution of benefits from, 
individual account pension plans that have been abandoned by their 
sponsoring employers. The first regulation establishes a procedure 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 
second regulation provides a fiduciary safe harbor for making 
distributions from terminated plans on behalf of participants and 
beneficiaries who fail to make an election regarding a form of benefit 
distribution. The third regulation establishes a simplified method for 
filing a terminal report for abandoned individual account plans. 
Appendices to these rules contain model notices for use in connection 
therewith. These regulations will affect fiduciaries, plan service 
providers, and participants and beneficiaries of individual account 
pension plans.

DATES: All three regulations are effective May 22, 2006.

FOR FURTHER INFORMATION CONTACT: Stephanie L. Ward or Melissa R. 
Spurgeon, 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 (the Department or 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 bankruptcy proceeding. In other cases, 
abandonment occurs because the plan sponsor has been incarcerated, 
died, or 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 over 1,500 civil cases involving 
defined contribution orphan plans as of September 30, 2005. In the over 
1,000 orphan plan cases closed with results through that date, there 
were approximately 50,000 participants affected and $255 million in 
assets involved. As of September 30, 2005, there were approximately 400 
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 on the About EBSA page 
under the heading ERISA Advisory Council at https://www.dol.gov/ebsa.
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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 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.
    On March 10, 2005, the Department published in the Federal Register 
(70 FR 12046) a notice of proposed rulemaking 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 Department invited interested persons to 
submit written comments. The Department received 16 written comments 
representing plan sponsors, independent fiduciaries, and plan service 
providers including financial institutions and plan recordkeepers. 
These letters are available under Public Comments on the Laws & 
Regulations page at https://www.dol.gov/ebsa.
    In addition to the notice of proposed rulemaking, the Department 
published for public comment a related class exemption addressing 
various

[[Page 20821]]

transactions related to the regulations. The final class exemption 
appears elsewhere in the notice section of today's Federal Register.
    Set forth below is an overview of the three regulations and the 
public comments received in response to the proposals.

B. Abandoned Plan Regulation (29 CFR 2578.1)

    In general, Sec.  2578.1 sets forth a regulatory framework under 
which an individual account plan will be considered abandoned and 
terminated and pursuant to which a qualified termination administrator 
can take steps to wind up the affairs of the plan and distribute 
benefits to the plan's participants and beneficiaries.

1. Qualified Termination Administrator

    Like the proposal, the final regulation authorizes a ``qualified 
termination administrator'' (QTA) to determine that an individual 
account plan is abandoned and to carry out related activities necessary 
to the termination and winding up of the plan's affairs. The conditions 
for being a QTA are set forth in paragraph (g) of Sec.  2578.1. That 
section, as proposed, established two conditions for QTA status. First, 
the QTA must be eligible to serve as a trustee or issuer of an 
individual retirement plan within the meaning of section 7701(a)(37) of 
the Internal Revenue Code (Code) and, second, the QTA must be holding 
assets of the plan on whose behalf it will serve as the QTA.\2\
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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.
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    A number of the commenters on the proposed regulation suggested 
that the Department expand the types of persons that could serve as a 
QTA under the regulation. In this regard, several of the commenters 
recommended expanding the proposed QTA definition to include 
recordkeepers, third-party contract administrators, accountants, and 
other service providers of plans, indicating that in many, if not most, 
instances, recordkeepers, third-party contract administrators and other 
service providers will be in a better position than financial 
institutions to determine that a plan has been abandoned and reconcile 
the information necessary to a plan's termination because of their 
ready access to plan documents and records.
    Although the Department recognizes the critical role that 
recordkeepers, third-party contract administrators and other service 
providers to plans can and will play in the process of winding up the 
affairs of an abandoned plan, the Department nonetheless believes that, 
given the authority and control over plans vested in QTAs under the 
regulation, QTAs must be subject to standards and oversight that will 
reduce the risk of losses to the plans' participants and beneficiaries. 
In developing its criteria for QTAs, the Department limited QTA status 
to trustees or issuers of an individual retirement 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. Accordingly, the Department believed that 
the Code and regulatory standards could be adopted for purposes of this 
regulation without imposing unnecessary costs and burdens on either 
plans or potential QTAs. The Department notes that, while commenters 
did propose varying procedures and criteria for defining QTA status, 
there was no consensus among the commenters as to what regulatory 
standards might be applicable to such persons. For these reasons, the 
Department is adopting the definition of ``qualified termination 
administrator'' without change from the proposal.
    As noted above, the Department anticipates that recordkeepers and 
other providers of services to abandoned plans will play an important 
role in winding up the affairs of the plan and that QTAs will, to the 
extent necessary to discharge their responsibilities under the 
regulation, utilize existing service providers as a means of maximizing 
efficiencies in the termination process and keeping administrative 
costs attendant to plan termination as low as possible. Paragraph 
(d)(2)(iv) of the final regulation makes clear that a QTA may engage, 
on behalf of the plan, such service providers as are necessary for the 
QTA to carry out its responsibilities.
    One commenter, noting the possibility that an abandoned plan might 
have assets invested with more than one financial institution, asked 
whether each such institution could be a QTA of that plan with respect 
to the assets held by that institution. The Department intends that 
there will be only one QTA for an abandoned plan and to the extent that 
one or more institutions is determined to hold assets of an abandoned 
plan subsequent to the approval of a QTA, such institutions will be 
expected to cooperate with the QTA in winding up the plan. To 
facilitate this process, the Department has added a new paragraph to 
the limited liability section of the regulation, paragraph (e)(3), that 
limits the liability of a party holding plan assets when transferring 
or disposing of a plan's assets at the direction of the QTA. Paragraph 
(e)(3) is discussed in greater detail under subsection 6 of this 
preamble, entitled ``Limited Liability.''
    Two commenters argued in favor of conferring QTA status on court 
appointed bankruptcy trustees in liquidation cases where the debtor 
also is the plan administrator. The Department did not adopt this 
suggestion. Such individuals are empowered by virtue of their court 
appointment to take the steps necessary to terminate and wind up the 
affairs of a plan and, therefore, do not need the authority conferred 
by the regulation. The final regulation does not 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.
    One commenter raised the issue of whether an affiliate of an 
otherwise eligible financial institution could itself be a QTA. As 
noted above, paragraph (g) of the final regulation provides that, in 
order to be a QTA, an entity must both (1) be eligible to serve as a 
trustee or issuer of an individual retirement plan under section 
7701(a)(37) of the Code, and (2) hold assets of the abandoned plan. 
Accordingly, by definition, an entity that does not satisfy these two 
conditions could not itself be a QTA even if it is affiliated with a 
financial institution that does satisfy the conditions. Of course, a 
QTA may engage any of its affiliates to provide administrative services 
necessary to the termination and winding-up process, provided that all 
of the requirements of the regulation and prohibited transaction class 
exemption are satisfied.

2. Finding of Plan Abandonment

    As in the proposal, the final regulation describes the 
circumstances under which a QTA may find an individual account plan to 
be abandoned. Such circumstances are when there have been no 
contributions to (or distributions from) a plan for a consecutive 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

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plan participants and beneficiaries regarding the plan sponsor, benefit 
distributions, or other plan information) suggest that the plan is or 
may become abandoned. Inasmuch as there were no negative comments on 
this provision as proposed, it was adopted without modification. See 
Sec.  2578.1(b)(1)(i).
    With respect to the facts and circumstances clause, one commenter 
suggested adding language to expressly cover situations in which the 
plan sponsor has been dissolved without a successor under applicable 
State law. Although the Department agrees that the dissolution of the 
sponsor may cause the plan to become abandoned, the Department believes 
it is unnecessary to add this particular example to the regulation. The 
examples listed in the regulation are not exclusive. Rather, the 
Department anticipates that a variety of circumstances, regardless of 
whether they are listed as examples in the regulation, might justify a 
finding of immediate abandonment.\3\ For example, the Department 
expects that effects of natural disasters, such as Hurricane Katrina, 
might in some cases warrant that a QTA not have to wait for 12 
consecutive months of plan inactivity before taking action, even though 
a natural disaster is not a listed example.
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    \3\ As noted in the preamble of the proposed regulation, the 
facts and circumstances standard is intended to permit immediate 
findings of abandonment where facts and circumstances clearly 
obviate the need for 12 consecutive months of plan inactivity. See 
70 FR 12047.
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    As a second condition to a finding of abandonment, the proposal 
provided 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. Because there were no negative comments on this provision, it 
was adopted without modification. See Sec.  2578.1(b)(1)(ii).
    With respect to the proposal's requirement of reasonable efforts to 
locate the missing plan sponsor, one commenter objected to the 
provision requiring the QTA to communicate with the sponsor's corporate 
agent for service of legal process. The commenter argued that this is 
an unnecessary and unhelpful provision and suggested eliminating it. 
The Department notes that the provision of the regulation referenced by 
the commenter is not a mandate, but rather part of a safe harbor under 
which the QTA will be deemed to have made a reasonable effort to locate 
or communicate with the plan sponsor if the corporate agent receives 
notification. Accordingly, if a QTA determines that contacting the 
agent for service of legal process is unnecessary or unhelpful, it is 
not required to do so. No changes were made to paragraph (b) in 
response to this comment.
    One commenter requested that the Department confirm that the 
regulation would apply to a situation where a plan becomes abandoned 
after the plan sponsor decides to terminate the plan, but before the 
sponsor actually completes the termination and winding-up process. 
While the regulation would cover this situation, the Department notes 
that a sponsor's decision to terminate a plan would not relieve a QTA 
from following the entire process established by the regulation, 
including the requirements in paragraph (c) of the final regulation 
relating to deemed termination.
    Under the proposal, a QTA was precluded from finding a plan to be 
abandoned if at any time before the plan is deemed terminated under the 
regulation the QTA receives an objection, whether oral or written, from 
the plan sponsor regarding the QTA's finding and the proposed 
termination. One commenter suggested the final regulation should 
mandate that such objections be put in writing and include 
representations regarding the sponsor's ability and willingness to 
administer the plan in accordance with plan documents. While the 
Department has not modified the final regulation in response to this 
comment, the Department notes that, given the facts that would give 
rise to a QTA's determination that the plan at issue may have been 
abandoned, the QTA may wish to inform the Department of the situation 
involving the plan and the sponsor's objection to the plan's 
termination.

3. Deemed Termination

    The final regulation provides that following a QTA's finding that a 
plan is abandoned, the plan will be deemed to be terminated on the 
ninetieth (90th) day following the date of the letter from EBSA's 
Office of Enforcement acknowledging receipt of the notice of plan 
abandonment. 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 
within the 90-day period, the plan is not deemed terminated until such 
time as the Department informs the QTA that the Department's concerns 
have been addressed. See Sec.  2578.1(c).
    The proposal provided that the 90-day period starts when the notice 
is furnished to the Department. For this purpose, paragraph (c)(4) of 
the proposal provided that a notice would be considered furnished to 
the Department on receipt, unless sent by certified mail, in which case 
the notice would be considered furnished when mailed. Given the 
significance of the 90-day period to potential QTAs, plans, 
participants, and the Department, the Department has revised the 
regulation to ensure actual receipt by the agency and to eliminate any 
ambiguity concerning the running of the 90-day period. In this regard, 
the regulation now provides, in paragraph (c)(1), that, subject to the 
waiver exception in paragraph (c)(2), a plan shall be deemed to be 
terminated on the ninetieth (90th) day following the date of the letter 
from EBSA's Office of Enforcement acknowledging receipt of the notice 
of plan abandonment described in paragraph (c)(3) of the regulation. A 
conforming change has been made to paragraph (c)(2) and proposed 
paragraph (c)(4) has been eliminated from the final regulation.
    As with the proposal, the Department, in its sole discretion, may 
waive some or all of the 90-day waiting period. Such a waiver might 
occur, 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 readily apparent to the Department that the 
proposed termination would be unlikely to put the participants' 
interests at risk. If the Department waives some or all of the 90-day 
period, the plan would be deemed terminated when the Department 
furnishes notification of the waiver to the QTA. See Sec.  
2578.1(c)(2)(ii). This provision was adopted without change.
    The proposal provided that the notification to the Department must 
be signed and dated by the QTA and include certain information about 
the QTA and the abandoned plan. Except as provided below, the 
notification requirements of the proposal were adopted without 
modification. See Sec.  2578.1(c)(3).
    Under the proposal, the notification to the Department was required 
to include certain information about the QTA, including whether the 
person electing to be the QTA (or any affiliate of the person) is, or 
within the past 24 months has been, the subject of an investigation, 
examination, or enforcement action by the Department, Internal Revenue 
Service, or Securities and Exchange Commission concerning such entity's 
conduct as a fiduciary or party in interest with respect to any plan

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covered by the Act. One commenter suggested that the term affiliate 
needs to be defined in the final regulation. Another commenter urged 
deletion of this disclosure requirement on the basis that such 
disclosure is difficult, costly, and possibly not relevant to the 
termination and winding-up process contemplated under the regulation, 
particularly with respect to affiliates of the QTA. This commenter 
noted that QTAs are likely to be among the largest and most affiliated 
companies in the marketplace, thereby making it very difficult, if not 
impossible, for a QTA to determine whether any of its affiliates are, 
or within the past 24 months have been, the subject of an 
investigation, examination, or enforcement action by the Department or 
other specified federal agencies.
    In response to these comments, the Department is adding a 
definition of ``affiliate'' that is intended to provide certainty to 
the identification process. As set forth in paragraph (h), the term 
affiliate under the regulation generally means any person directly or 
indirectly controlling, controlled by, or under common control with, 
the person; or any officer, director, partner or employee of the 
person. See Sec.  2578.1(h)(1). However, for purposes of the 
notification requirement in paragraph (c)(3)(i)(C), the regulation 
adopts a narrower definition, focusing on those affiliates that a QTA 
should have no difficulty identifying--those affiliates that are a 50 
percent or more owner of a QTA or any affiliate (within the meaning of 
paragraph (h)(1)) that provides services to the plan. See Sec.  
2578.1(h)(2).
    The content requirements for this notification also are amended to 
include a statement by the QTA that it has received no objection to the 
plan termination from the plan sponsor. This change merely clarifies 
the intent of the requirement that a QTA has made a reasonable effort 
to contact the plan sponsor. See Sec.  2578.1(c)(3)(iii).
    The final regulation, like the proposal, includes, at Appendix B, a 
model notice that may be used by a QTA to satisfy the notice 
requirement of Sec.  2578.1(c)(3).\4\ Except for some minor changes, 
the model notice is essentially the same as the model notice that 
accompanied the proposed regulation. One substantive change to the 
notice involves the inclusion of an item in Part I--Plan Information 
entitled ``Other'' (item 4). This item was added to the model notice to 
enable a QTA to report delinquent contributions that the QTA may have 
identified in the course of providing services to the plan or in 
connection with becoming a QTA under the regulation. As discussed in 
subsections 4 and 6 of this preamble entitled ``Winding up the Affairs 
of the Plan'' and ``Limited Liability,'' respectively, if the QTA knows 
about delinquent contributions, the QTA must disclose them to the 
Department.
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    \4\ The Department has provided model notices to facilitate 
compliance with the requirements in paragraphs (b)(5), (c)(3), 
(d)(2)(vi), and (d)(2)(ix) of the final regulation. These models are 
contained in Appendices A through D of this rulemaking. While the 
Department intends that use of an appropriately completed model 
notice would constitute compliance with the content requirements of 
the previously mentioned paragraphs, the Department is not requiring 
the use of any of the models and anticipates that a variety of other 
notices could satisfy the notice requirements of the regulation.
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    In the preamble to the proposed regulation, the Department invited 
comment on whether notices to be submitted to the Department (i.e., the 
notifications required by paragraphs (c)(3) and (d)(2)(ix) of Sec.  
2578.1) should be required to be submitted electronically. No 
commenters supported mandated electronic notification, but some 
commenters indicated they might choose to submit such notifications by 
e-mail depending on the circumstances of the particular case. Although 
the Department is not requiring notifications under this regulation to 
be submitted electronically, the Department encourages QTAs to utilize 
electronic media (especially e-mail) in providing information to the 
Department. In this regard, the Department will establish a special 
Abandoned Plan section on its website (https://www.dol.gov/ebsa) for 
information concerning the abandoned plan program and the electronic 
submission of information under the program.

4. Winding Up the Affairs of the Plan

    The proposal set forth specific steps that a QTA must take to wind 
up an abandoned plan and, with respect to most such steps, the 
standards applicable to carrying out the particular activity.\5\ In 
particular, paragraph (d)(2)(i)(A) of the proposal provided that the 
QTA shall undertake reasonable and diligent efforts to locate and 
update plan records necessary to determine benefits payable under the 
plan. Paragraph (d)(2)(ii) of the proposal provided that the QTA must 
use reasonable care in calculating the benefits payable based on the 
plan records assembled. Paragraph (d)(2)(iii) of the proposal provided 
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) provided that reasonable 
expenses incurred in connection with the termination and winding up of 
the plan may be paid from plan assets. Paragraph (d)(2)(v) of the 
proposal provided that the QTA must furnish to each participant or 
beneficiary a notification of termination, apprising the individual of 
his or her account balance and requesting that such individual elect a 
form of distribution. Paragraph (d)(2)(vi) of the proposal addressed 
distributions of benefits to participants and beneficiaries.
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    \5\ In the preamble to the proposal, the Department explained 
that these 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. See 70 FR 
12048.
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(a) Calculating Benefits
    The proposal provided that the QTA must use reasonable care in 
calculating benefits payable based on the plan records assembled. Two 
commenters raised issues concerning the calculation of benefits and the 
likelihood of missing or incomplete plan and other employment records 
in the abandoned plan context. One commenter noted that defined 
contribution plans often use allocation formulas based on employee 
compensation levels but that a QTA is unlikely to have access to 
employment records showing such levels. Another commenter noted that 
many defined contribution plans provide for a reversion of unallocated 
assets to the plan sponsor at termination, which generally would be 
unfeasible given that the plan sponsor is usually missing in the 
abandoned plan context.
    In an effort to provide QTAs with more certainty with respect to 
satisfying their obligations in making benefit determinations under the 
regulation, the final regulation includes a new provision addressing 
the allocation of expenses and unallocated assets. See Sec.  2578.1 
(d)(2)(ii)(B). In instances where a plan document is unavailable, 
ambiguous, or if compliance with the terms of the plan document is not 
feasible, the regulation provides that, for purposes of allocations in 
connection with calculating benefits payable under this regulation, the 
QTA shall be deemed to have used reasonable care when allocating 
expenses to the individual accounts of participants and beneficiaries 
if such expenses are allocated either on a pro rata basis 
(proportionately in the ratio that each individual account balance 
bears to the total of all individual account balances) or on a per 
capita basis (allocated

[[Page 20824]]

equally to all accounts). See Sec.  2578.1(d)(2)(ii)(B)(2).
    In the case of unallocated assets (including forfeitures and assets 
in a suspense account), a QTA, under the new provision, will be deemed 
to have used reasonable care if such assets are allocated on a per 
capita basis (allocated equally to all accounts). See Sec.  
2578.1(d)(2)(ii)(B)(1). A more restrictive approach to allocations of 
unallocated assets was adopted due to concerns that allocating such 
assets on a pro rata basis (proportionately in the ratio that each 
individual account balance bears to the total of all individual account 
balances) would tend to result in discrimination in favor of highly 
compensated employees that is not permitted under the Code.\6\
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    \6\ See section 401(a)(4) of the Code.
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    A number of commenters requested guidance on the handling of an 
individual account with respect to which the amount in the account is 
less than the anticipated administrative cost of processing and 
distributing that account in accordance with the regulation. These 
commenters noted that payment of administrative expenses from plan 
assets frequently extinguishes very small accounts. It was explained 
that expenses unable to be paid out of a specific individual account 
are then charged back to the plan as a whole, thereby reducing the 
account balances of other plan participants or beneficiaries. In order 
to reduce overall administrative costs, these commenters generally 
recommended that any account balance worth less than its share of 
anticipated expenses be treated as forfeited and reallocated to the 
remaining accounts.
    In response to these comments, the final regulation provides that a 
QTA shall not have failed to use reasonable care in calculating 
benefits payable solely because the QTA treats as forfeited an account 
balance that, taking into account that account's share of estimated 
forfeitures and other unallocated assets, is less than the estimated 
share of plan expenses allocable to that account. See Sec.  
2578.1(d)(ii)(A). This provision also requires the QTA to use forfeited 
account balances to defray plan expenses or to allocate them to other 
plan participant or beneficiary accounts on a per capita basis. This 
provision is intended to minimize accrual of unnecessary administrative 
expenses at the plan level in connection with individual accounts that 
have little, if any, likelihood of ever being distributed due to their 
size.
(b) Delinquent Contributions
    In response to questions raised about a QTA's obligations with 
respect to collecting delinquent employer and employee contributions on 
behalf of the plan, the Department has included in the final regulation 
a new paragraph (d)(2)(iii). Paragraph (d)(2)(iii)(A) of the final 
regulation provides that a QTA must notify the Department of known 
delinquent contributions owed to the plan. This information must be 
included in either the notice of plan abandonment (Sec.  2578.1(c)(3)) 
or the final notice (Sec.  2578.1(d)(2)(ix)). Paragraph (d)(2)(iii)(B) 
of the final regulation provides that the QTA is not required to 
collect delinquent contributions on behalf of the plan. The final 
regulation includes minor conforming amendments to the content 
requirements of the notice of plan abandonment and the final notice to 
reflect the new requirement to report delinquent contributions. See 
Sec. Sec.  2578.1(c)(3)(iv)(D) and (d)(2)(ix)(F). In addition, the 
model notice of plan abandonment (Appendix B) and the model final 
notice (Appendix D) were changed by adding a new box, entitled 
``Other,'' in which the QTA may identify such delinquencies, thereby 
entitling the QTA to the special relief provided under the regulation. 
Further discussion of this issue can be found in subsection 6 of this 
preamble, entitled ``Limited Liability.''
(c) Reasonable Expenses
    As noted above, the proposal provided that reasonable expenses 
incurred in connection with the termination and winding up of a plan 
may be paid from plan assets. In this regard, paragraph (d)(2)(iv)(B) 
of the proposal provided that an expense shall be considered reasonable 
if it is not in excess of rates charged by the QTA (or affiliate) to 
other customers (i.e., customers that are not plans terminated under 
this regulation) for comparable services, if the QTA (or affiliate) 
provides comparable services to other customers. One commenter 
questioned whether this comparability standard would require QTAs to 
perform services for abandoned plans at the discounted rates generally 
afforded only to favored customers, based on existing business 
relationships, volume of business, or developing business 
opportunities. The Department recognizes that many QTAs, in the normal 
course of their business, may provide discounts to favored customers, 
based on a variety of factors. The comparability standard of the 
regulation is not intended to ensure that abandoned plans are 
necessarily provided the lowest or discount rate, but rather that in 
winding up the affairs of a plan, the plan (and therefore the plan's 
participants and beneficiaries) are not charged more than the QTA would 
charge similarly situated customers. If, for example, a QTA provides 
all or a significant portion of its customers a discount on the cost of 
services, the Department would expect that such discounts would be 
available to abandoned plans for whom the QTA provides the same or 
similar services. In an effort to further clarify this issue, the word 
``ordinarily'' has been added to the final regulation, with the 
limitation now reading, in relevant part, that such expenses ``are not 
in excess of rates ordinarily charged by the qualified termination 
administrator (or affiliate) for same or similar services. * * *'' See 
Sec.  2578.1(d)(2)(v)(B)(2)(ii).
(d) Notifying Participants
    The proposal provided that a QTA shall, as one of its duties in 
winding up the affairs of a plan, furnish to each participant or 
beneficiary a notice concerning the termination of his or her plan. The 
content requirements of this notice were adopted largely as proposed. 
See Sec.  2578.1(d)(2)(vi). Minor modifications were made to reflect 
other changes to the regulation, such as the inclusion of additional 
distribution options in the case of missing or non-responsive 
participants or beneficiaries. See Sec.  2578.1(d)(2)(vi)(A)(5)-(8).
    This notice of plan termination must include, among other things, 
the individual's account balance and date on which the balance was 
calculated. The reason for mandating this information in the notice is 
to inform participants of the immediacy of their distribution and help 
them choose an appropriate distribution option in light of the amount 
of their benefits. The proposal did not mandate a specific calculation 
date, but given the purpose and timing of the notice, the calculation 
date ordinarily should be on or about the date the notice is sent to 
the participant or beneficiary. One commenter inquired whether a QTA 
could omit the account balance and calculation date from notices if 
participants and beneficiaries could access their daily account 
balances via telephonic or web-based systems. This commenter indicated 
that its current notification system is able to produce this 
information only at predetermined intervals (e.g., monthly, quarterly, 
semiannually, or annually). Modifying existing notification systems, 
according to the commenter, would increase costs attendant to 
terminating and winding up plans under the regulation.

[[Page 20825]]

    The Department believes it is important to keep administrative 
costs of winding up an abandoned plan as low as possible, thereby 
preserving assets for distribution to participants and beneficiaries. 
Accordingly, a telephonic or web-based system that makes daily account 
balances readily accessible to participants and beneficiaries complies 
with the content requirements set forth in paragraph 
(d)(2)(vi)(A)(3)(i) of the final regulation if, in lieu of specific 
account information, the required notification includes the following: 
(1) A description of the method for accessing the system and account 
information, such as relevant telephone numbers, passwords, and access 
codes; (2) a statement indicating that participants and beneficiaries 
have a right to request a paper version of their specific account 
information; and (3) a description of the procedures for obtaining such 
a paper statement from the QTA.
    Like the proposal, the final regulation mandates that the notice of 
plan termination must include a description of the plan's distribution 
options and the procedure for a participant or beneficiary to make an 
election. One commenter indicated that it currently sends to 
participants in tax-qualified plans, upon a distributable event, a 
booklet containing, among other things, a description of the 
distribution options available under the plan. As described by the 
commenter, the booklet is intended to meet the notice requirements 
under section 402(f) of the Code, outlining the participant or 
beneficiary's distribution options and explaining the tax consequences 
associated with each such option. The commenter asked if a QTA could 
exclude from the termination notice information on distribution options 
if such information was furnished simultaneously to participants and 
beneficiaries as part of the disclosure required under section 402(f) 
of the Code. Recognizing that furnishing duplicative information to 
participants and beneficiaries about their distribution options may be 
both confusing and costly, it is the view of the Department that the 
requirement of paragraph (d)(2)(vi)(A)(4) of the final regulation does 
not preclude the furnishing of information concerning the distribution 
options of participants and beneficiaries in a separate document that 
complies with section 402(f) of Code and is included in the same 
mailing as the termination notice.
(e) Distributions
    In general, QTAs must distribute benefits in accordance with the 
form of benefit elected by the participant or beneficiary. See Sec.  
2578.1(d)(2)(vii)(A). Because spousal consent is sometimes required for 
a distribution, this section has been modified to add the clause ``with 
spousal consent, if required.''
    Commenters noted that, if participants and beneficiaries fail to 
make a timely election concerning the form of benefit distribution, and 
the plan is subject to the survivor annuity requirements in sections 
401(a)(11) and 417 of the Code, a QTA might not be able to comply with 
the distribution requirements of Sec.  2550.404a-3 (Safe Harbor for 
Distributions from Terminated Individual Account Plans) as required by 
the proposal. In recognition of this problem, the final regulation has 
been amended to provide that, if a QTA determines that the survivor 
annuity requirements of the Code prevent a distribution in accordance 
with Sec.  2550.404a-3, the QTA shall distribute benefits ``in any 
manner reasonably determined to achieve compliance with those 
requirements.'' See Sec.  2578.1(d)(2)(vii)(B)(2). In those cases where 
a QTA is required to select an annuity provider, it is expected that 
the selection process will be carried out in accordance with the 
fiduciary standards under section 404 of ERISA. See Sec.  
2578.1(e)(1)(iii).
    Further discussion relating to annuity purchases pursuant to 
paragraph (d)(2)(vii)(B)(2) is contained in subsection 6 of this 
preamble, entitled ``Limited Liability,'' and subsection 7, entitled 
``Internal Revenue Service.'' Also, it should be noted that an 
additional change was made to 29 CFR 2550.404a-3 for distributions on 
behalf of missing or non-responsive participants in situations where 
the present value of the benefits does not exceed $1,000. See 29 CFR 
2550.404a-3(d)(1)(iii) and the preamble discussion related to that 
final regulation for an explanation of this change.
    In the context of plan distributions, several commenters requested 
guidance concerning a QTA's duties with respect to assets for which 
there is no readily ascertainable fair market value (e.g., limited 
partnership/joint venture interests, employer securities, participant 
loans, defaulted mortgages and bonds, and employer real property). 
Recognizing that there is no one course of action that would be 
appropriate to all types of assets that QTAs might confront in the 
course of winding up the affairs of abandoned plans, QTAs, as with plan 
fiduciaries generally, will be required to evaluate the options and 
costs and make a determination as to what course of action is in the 
best interest of participants and beneficiaries. The actions of a QTA 
in liquidating hard to value plan assets are not covered by the safe 
harbor in paragraph (e) of the final regulation. The Department notes 
that significant holdings of hard to value or illiquid assets by a plan 
may indicate that the plan is not suitable for termination under this 
regulation. Rather, it might be more appropriate for the plan 
termination to occur under the Department's National Enforcement 
Project on Orphan Plans (NEPOP).\7\ Information about NEPOP may be 
obtained through the Abandoned Plan section of EBSA's website (https://
www.dol.gov/ebsa).
---------------------------------------------------------------------------

    \7\ See infra Background section of this document.
---------------------------------------------------------------------------

    Because the Department is interested in receiving information about 
hard to value and illiquid assets held by abandoned plans, the 
Department has added a new provision to the Special Terminal Report for 
Abandoned Plans to enable the Department to collect data on this topic. 
See Sec.  2520.103-13(b)(5). Under this provision, a QTA is required to 
identify and report the fair market value and method of valuation of 
any assets with respect to which there is no readily ascertainable fair 
market value.
(f) Final Notice
    The last step in the winding-up process is for the QTA to notify 
EBSA's Office of Enforcement that all benefits have been distributed in 
accordance with the regulation. Paragraph (d)(2)(viii) of the proposal 
set forth the content requirements of this notification. These 
requirements have been adopted largely as proposed. See Sec.  
2578.1(d)(2)(ix). Unlike the proposal, however, the final regulation 
does not require the final notice to include a statement that a special 
terminal report meeting the requirements of Sec.  2520.103-13 is 
attached to the final notice. This change was made to preserve maximum 
flexibility with respect to the filing requirements of the special 
terminal report. As explained below in the preamble to Sec.  2520.103-
13, initially all terminal reports will be filed as attachments to 
final notices. Ultimately, though, such attachments will be unnecessary 
as the Department anticipates an electronic system for filing terminal 
reports.

5. Plan Amendments

    Paragraph (d)(3) of the proposal provided 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

[[Page 20826]]

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. Because there were no negative 
comments on this provision, it was adopted without modification. See 
Sec.  2578.1(d)(3). One commenter raised several questions regarding 
the need to amend an abandoned plan for purposes of maintaining that 
plan's qualified status under the Code. This issue is addressed in 
subsection 7 of this preamble, entitled ``Internal Revenue Service,'' 
relating to the IRS' treatment of plans terminated under this 
regulation.

6. Limited Liability

    Paragraph (e) of the final regulation, like the proposal, 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 will be 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, 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. See Sec.  2578.1(e)(1).
    With regard to the liability of a QTA, commenters argued that: (1) 
The winding-up provisions under the regulation should not be considered 
fiduciary acts; (2) the QTA should be protected from lawsuits by plan 
sponsors and participants and beneficiaries; and (3) the Department 
should adopt a substantial compliance approach to assessing compliance 
with the regulation. The Department believes that it has constructed a 
regulatory framework that serves to minimize to the greatest extent 
possible the liability and exposure of QTAs who carry out their 
responsibilities in accordance with the provisions of the regulation. 
In this regard, the Department does not believe it can take the 
position that acts involving the exercise of discretion are not 
fiduciary acts. Nonetheless, the Department has, in many instances, 
attempted to define the type of activity that would be viewed as 
satisfying the fiduciary requirements under ERISA in the context of 
abandoned plans. See Sec.  2578.1(e)(1) (referring to the activities in 
paragraph (d)(2) of the regulation). Further, the Department believes 
that compliance with the requirements of the regulation will provide a 
meaningful defense for the actions of a QTA in the event the QTA is 
sued by the plan sponsor or a plan participant or beneficiary.
    Two commenters questioned the obligations of a QTA with respect to 
the retention of service providers that had been engaged to provide 
services to the plan by the plan sponsor (or another plan fiduciary) 
prior to the plan's abandonment. It is the view of the Department that 
a QTA does not have a duty to second guess the prudence of an earlier 
determination by the plan sponsor (or fiduciary) to engage a service 
provider for, or on behalf of, the plan. However, the QTA does have an 
obligation to monitor those who provide services to the plan, 
consistent with the requirements of section 404(a), without regard to 
whether the service provider was selected by the plan sponsor (or other 
fiduciary of the plan) or by the QTA. Like the proposal, the final 
regulation provides, however, that, to the extent that a QTA discharges 
its duties to select and monitor service providers in a manner 
consistent with section 404(a), the QTA will not be liable for the acts 
or omissions of the service provider with respect to which the QTA does 
not have actual knowledge. See Sec.  2578.1(e)(1)(ii).
    As with the selection and monitoring of service providers, it is 
the view of the Department that the selection of annuity providers is 
of such significance to plan participants and beneficiaries that the 
selection process should be governed by the fiduciary standards of 
section 404(a) of ERISA. For this reason, the limited liability 
provisions of Sec.  2578.1(e)(1)(i) do not extend to a QTA's selection 
of an annuity provider in those instances where a QTA determines that 
the survivor annuity requirements of the Code prevent a distribution in 
accordance with Sec.  2550.404a-3. See Sec.  2578.1(e)(1)(iii).
    Several commenters inquired whether a QTA would have a fiduciary 
duty under ERISA to identify and correct fiduciary breaches that were 
committed before the person became a QTA (i.e., before the date of the 
plan's deemed termination). Most of these inquiries concerned 
delinquencies in forwarding participant contributions to the plan. The 
commenters noted that correcting such violations could add 
significantly to the cost of terminating an abandoned plan.
    In an effort to clarify the responsibilities of a QTA with regard 
to such circumstances, the Department has added two new provisions to 
the final regulation. The first provision makes it clear that a QTA is 
not required to conduct an inquiry or review to determine whether or 
what breaches of fiduciary responsibility may have occurred with 
respect to a plan prior to becoming the QTA for such plan. See Sec.  
2578.1(e)(2).\8\ The second provision makes it clear that a QTA is not 
obligated to collect delinquent contributions on behalf of the plan. 
See Sec.  2578.1(d)(2)(iii). As discussed earlier, however, a QTA is 
required to report known delinquent contributions to the Department.\9\ 
In addition, if an entity, in the course of becoming a QTA or winding-
up a plan, happens to discover other breaches of fiduciary 
responsibility that occurred with respect to the plan before that 
entity became the QTA, the Department encourages the QTA to identify 
such breaches as part of the notification process under the final 
regulation, either in the notification of plan abandonment (Sec.  
2578.1(c)(3)) or the final notice (Sec.  2578.1(d)(2)(ix)). If the QTA 
uses the model notice in Appendix B or D, such identifications may be 
included in the section designated for other information.
---------------------------------------------------------------------------

    \8\ In this regard, section 409(b) of ERISA is clear that no 
fiduciary is liable for a breach of fiduciary duty committed before 
he or she became a fiduciary or after he or she ceased to be a 
fiduciary.
    \9\ The requirement to report delinquent contributions is 
discussed in more detail above in subsection 4 of this preamble, 
entitled ``Winding up the Affairs of the Plan.''
---------------------------------------------------------------------------

    Another issue raised by commenters relates to circumstances when 
the assets of an abandoned plan are held by more than one institution. 
In such circumstances, the Department intends that there will be only 
one QTA and that other parties holding plan assets cooperate with the 
QTA in winding up the affairs of the plan and distributing assets to 
the plan's participants and beneficiaries in accordance with this 
regulation. The Department recognizes that persons holding such assets 
may have concerns about their potential liability under ERISA in 
following a QTA's direction. The Department, therefore, has added a new 
paragraph (Sec.  2578.1(e)(3)) to make clear that a person holding 
assets of an abandoned plan will not be considered to violate section 
404(a) of ERISA to the extent that person cooperates with and follows 
the direction of the QTA, as the QTA carries out its responsibilities 
under the regulation. The regulation conditions relief on the person 
holding plan assets confirming that the person representing to be the 
QTA of an abandoned plan is the QTA recognized by the Department

[[Page 20827]]

of Labor. Confirmation of a person's QTA status with respect to a given 
plan can be obtained by contacting the Employee Benefits Security 
Administration's Abandoned Plan Coordinator or by checking the 
Abandoned Plan section of EBSA's Web site (https://www.dol.gov/ebsa). 
The Department anticipates that it will dedicate a section of its Web 
site to matters pertaining to abandoned plans, including a list of 
plans deemed terminated under the regulation and an identification of 
the entity electing to be the QTA for each such plan.

7. Internal Revenue Service

    In developing the proposed regulation, the Department conferred 
with representatives of the IRS regarding the qualification 
requirements under the Code as applied to plans that are terminated 
pursuant to the regulation. As indicated in the preamble of the 
proposed regulation, the Department has been advised by the IRS that it 
will not challenge the qualified status of any plan terminated under 
the 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 and takes reasonable 
steps to comply with those requirements (if applicable). Second, each 
participant and beneficiary has a nonforfeitable right to his or her 
accrued benefits as of the date of deemed termination under 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, as 
indicated in the preamble to the proposed regulation, 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.
    The Department received several comments regarding the position of 
the IRS, as stated above, particularly with respect to the three 
conditions. Many of the commenters stated a need for clarification of 
the conditions with respect to specific issues likely to arise in 
connection with distributions on behalf of missing or non-responsive 
participants or beneficiaries. Other commenters requested that the 
Department continue to consult with the IRS throughout the rulemaking 
process in order to provide the best possible final regulation under 
the circumstances. These commenters suggested that the overall success 
of a final regulation would depend, in part, on a clear statement from 
the IRS regarding the qualification requirements under the Code as 
applied to plans that would be terminated pursuant to the final 
regulation. All relevant comment letters were transmitted to the IRS 
for its consideration along with the three final regulations being 
published in this notice. The IRS has advised that its view, as 
expressed above, has not changed. Set forth below is a discussion of 
the specific issues raised by the commenters and, where appropriate, 
the IRS response.
(a) Survivor Annuity Requirements
    With respect to the first IRS condition, one commenter requested 
clarification on how a QTA would be able to effect a distribution on 
behalf of a missing or non-responsive participant in those 
circumstances when the benefit payable is subject to the Code's 
survivor annuity requirements.\10\ After consulting with the IRS, the 
Department modified the proposal by adding a provision that enables a 
QTA to purchase a qualified joint and survivor annuity or a qualified 
preretirement survivor annuity on behalf of the missing participant or 
beneficiary rather than rolling over the account balance into an 
individual retirement plan. The final regulation, in relevant part, 
provides that if a QTA determines that the survivor annuity 
requirements in sections 401(a)(11) and 417 of the Code prevent a 
direct rollover in accordance with Sec.  2550.404a-3, the QTA shall 
distribute benefits in any manner reasonably determined to achieve 
compliance with the survivor annuity requirements of the Code. See 
Sec.  2578.1(d)(2)(vii)(B)(2). The IRS has indicated that it may 
request comments in its Employee Plans Compliance Resolution Program 
(EPCRS) concerning whether additional correction methods in the context 
of an abandoned plan are needed in light of the ability to satisfy 
those requirements by purchase of a commercial annuity contract.
---------------------------------------------------------------------------

    \10\ See sections 401(a)(11) and 417 of the Code.
---------------------------------------------------------------------------

(b) Vesting
    With respect to the second IRS condition, one commenter asked for 
guidance from the IRS regarding compliance with the partial termination 
requirements of section 411(d)(3) of the Code. The IRS has advised as 
follows. The partial termination provisions apply in this context only 
if there is a forfeiture account (not a Code 415 suspense account) with 
plan assets as of the date of deemed termination under paragraph (c)(1) 
of the final regulation. In such a circumstance, the Code generally 
requires an evaluation, based on plan records located and updated in 
accordance with paragraph (d)(2)(i) of the final regulation, of whether 
a partial termination occurred at any point during the plan year 
preceding the year in which the plan is terminated. If the QTA 
determines there was a partial termination, the benefits of affected 
participants, if any, would have to be fully vested in accordance with 
section 411 of the Code. However, no such evaluation, vesting, and 
distribution would be necessary if the QTA reasonably determines that 
the cost of carrying out those acts would exceed the value of the 
benefits that would otherwise vest under the partial termination 
provisions.
(c) Code Section 402(f) Notice
    With respect to the third IRS condition (regarding the written 
explanation requirement imposed by Code section 402(f)), the view of 
the IRS is that the section 402(f) notice should be included in, or 
attached to, the participant notification of termination described in 
paragraph (d)(2)(v) of the proposed regulation. Paragraph (d)(2)(vi)(B) 
of the proposed regulation required that a participant be given at 
least 30 days from the furnishing of the notification described in 
paragraph (d)(2)(v) of the proposal to elect a form of distribution, 
after which the QTA is required to distribute the participant's 
benefits in accordance with the regulation. One commenter suggested 
that the timing requirements for when a plan administrator must furnish 
the Code section 402(f) notice might not always be consistent with the 
``at least 30 days'' requirement in paragraph (d)(2)(vi)(B) of the 
proposed regulation. After consulting with the IRS, the Department has 
decided to adopt paragraph (d)(2)(vi)(B) of the proposed

[[Page 20828]]

regulation without modification.\11\ The IRS advised that, in its view, 
the third condition relating to notification of rights under section 
402(f) of the Code is not satisfied unless the QTA furnishes the Code 
section 402(f) notice, or an eligible summary thereof, within a 60-day 
window that is no less than 30 days and no more than 90 days before the 
date of a distribution. See 26 CFR 1.402(f)-1, A-2. In the view of the 
Department, when a QTA provides a combined notification within the 
period for providing the notice under Code section 402(f), the QTA will 
not be transgressing the 30-day requirement in paragraph (d)(2)(vii)(B) 
of the final regulation.
---------------------------------------------------------------------------

    \11\ Due to reordering of provisions in paragraph (d)(2) of the 
proposal, the language formerly in paragraph (d)(2)(vi)(B) of the 
proposal appears in paragraph (d)(2)(vii)(B) of the final 
regulation. See Sec.  2578.1(d)(2)(vii)(B).
---------------------------------------------------------------------------

(d) Restrictions on Certain Mandatory Distributions
    One commenter asked for clarification regarding compliance with the 
Code's consent requirements in cases where the present value of a 
missing or non-responsive participant's vested accrued benefit exceeds 
$5,000.\12\ In this regard, the proposal provided that a QTA must roll 
over the account balance of any missing or non-responsive participant 
into an individual retirement plan in accordance with proposed Sec.  
2550.404a-3 without regard to whether the vested account balance 
exceeds $5,000. The Department has been advised that the position of 
the IRS is that, if a plan is terminated (as provided in Sec.  2578.1) 
and the three conditions described above are satisfied, a QTA may 
distribute a missing or non-responsive participant or beneficiary's 
vested accrued benefit without that participant's consent and without 
regard to the present