Amendments to the Abandoned Plan Regulations, 74063-74097 [2012-29500]
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Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Parts 2520, 2550, and 2578
RIN 1210–AB47
Amendments to the Abandoned Plan
Regulations
Employee Benefits Security
Administration, Labor.
ACTION: Proposed regulations.
AGENCY:
This document contains
proposed amendments to three
regulations previously published under
the Employee Retirement Income
Security Act of 1974 that facilitate the
termination of, and distribution of
benefits from, individual account
pension plans that have been
abandoned by their sponsoring
employers. The principal amendments
propose to permit bankruptcy trustees to
use the Department’s Abandoned Plan
Program to terminate and wind up the
plans of sponsors in liquidation under
chapter 7 of the U.S. Bankruptcy Code.
In addition, other technical
amendments are proposed to improve
the operation of the regulations. If
adopted, the amendments would affect
employee benefit plans, primarily small
defined contribution plans, participants
and beneficiaries, service providers, and
individuals appointed to serve as
trustees under chapter 7 of the U.S.
Bankruptcy Code.
DATES: Written comments should be
received by the Department of Labor on
or before February 11, 2013.
ADDRESSES: Written comments may be
submitted to the addresses specified
below. All comments will be made
available to the public. Warning: Do not
include any personally identifiable
information (such as name, address, or
other contact information) or
confidential business information that
you do not want publicly disclosed. All
comments may be posted on the Internet
and can be retrieved by most Internet
search engines. Comments may be
submitted anonymously. Comments
may be submitted to the Department of
Labor, by one of the following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: e-ORI@dol.gov. Include RIN
1210–AB47 in the subject line of the
message.
• Mail: Office of Regulations and
Interpretations, Employee Benefits
Security Administration, Room N–5655,
U.S. Department of Labor, 200
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SUMMARY:
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Constitution Avenue NW., Washington,
DC 20210, Attention: Abandoned Plans.
All submissions received must
include the agency name and Regulation
Identifier Number (RIN) for this
rulemaking (RIN 1210–AB47).
Comments received will be made
available to the public, posted without
change to https://www.regulations.gov
and https://www.dol.gov/ebsa, and made
available for public inspection at the
Public Disclosure Room, N–1513,
Employee Benefits Security
Administration, 200 Constitution
Avenue NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT:
Stephanie Ward Cibinic or Melissa R.
Dennis, Office of Regulations and
Interpretations, Employee Benefits
Security Administration, (202) 693–
8500. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
A. Executive Summary
Pursuant to Executive Order 13563,
this section of the preamble contains an
executive summary of the rulemaking
and related prohibited transaction class
exemption (published elsewhere in the
notice section of today’s Federal
Register) in order to promote public
understanding and to ensure an open
exchange of information and
perspectives. Sections B through G of
this preamble, below, contain a more
detailed description of the regulatory
provisions and need for the rulemaking
as well as its costs and benefits.
1. Purpose of Regulatory Action
In 2006, the Department of Labor (the
Department) issued regulations
establishing a program to facilitate the
termination of and distribution of
benefits from individual account plans
that have been abandoned by their
sponsors. In conjunction with the
regulations, the Department also issued
a class exemption that permits certain
transactions associated with these types
of terminations and distributions. The
regulations and the class exemption
(hereinafter referred to collectively as
the Abandoned Plan Program or
Abandoned Plan Regulations, unless
otherwise indicated) currently are not
available to plans whose sponsors are in
liquidation under chapter 7 of the U.S.
Bankruptcy Code (hereinafter referred to
as chapter 7 plans). Since the
establishment of the Abandoned Plan
Program, on-going challenges associated
with terminating and winding up
chapter 7 plans have persuaded the
Department that the Abandoned Plan
Program should be expanded. This
proposed rulemaking, along with the
proposed amendments to the related
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class exemption, would help abate these
challenges by making the Abandoned
Plan Program available to bankruptcy
trustees who, under the U.S. Bankruptcy
Code, may have responsibility for
administering such plans. The Secretary
of Labor would make these amendments
under her authority at section 505 of
ERISA to prescribe such regulations as
she finds necessary or appropriate to
carry out the statute’s provisions. The
Secretary also has the authority to issue
exemptions from ERISA’s prohibited
transaction rules in accordance with
section 408(a) of ERISA and section
4975(c)(2) of the Internal Revenue Code
and pursuant to the exemption
procedures established in 29 CFR part
2570, subpart B.
2. Summary of Major Provisions
The major provisions of this
rulemaking include the proposed
amendments contained in paragraph (j)
of proposed 29 CFR 2578.1. Pursuant to
these proposed amendments, chapter 7
plans would be considered abandoned
upon the Bankruptcy Court’s entry of an
order for relief with respect to the plan
sponsor’s bankruptcy proceeding. The
bankruptcy trustee or a designee would
be eligible to terminate and wind up
such plans under procedures similar to
those provided under the Department’s
current Abandoned Plan Regulations. If
the bankruptcy trustee winds up the
plan under the Abandoned Plan
Program, the trustee’s expenses would
have to be consistent with industry rates
for similar services ordinarily charged
by qualified termination administrators
that are not bankruptcy trustees. The
proposed amendment to the class
exemption would permit bankruptcy
trustees, as with qualified termination
administrators under the current
Abandoned Plan Regulations, to pay
themselves from the assets of the plan
(a prohibited transaction) for
terminating and winding up a chapter 7
plan under an industry rates standard.
3. Summary of Costs and Benefits
The Department estimates that the
costs attributable to amending the
Abandoned Plan Program to cover
chapter 7 plans will be $64,000
annually. The Department believes the
benefits of expanding the program will
significantly outweigh the costs.
Expanding the program will encourage
the orderly and efficient termination of
chapter 7 plans and distribution of
account balances, thereby enhancing the
retirement income security of
participants and beneficiaries in these
plans. Absent the standards and
procedures set forth in the amendments,
some bankruptcy trustees may lack the
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Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
necessary guidance to properly update
plan records, calculate account
balances, select and monitor service
providers, distribute benefits, pay fees/
expenses, and otherwise efficiently
terminate and wind up chapter 7 plans.
In addition, significant cost savings
would result from the amendments
because chapter 7 plans no longer
would incur costly audit fees required
to file the Form 5500 Annual Return/
Report. The Department’s full cost/
benefit analysis is set forth below in
Section G of this preamble, entitled
‘‘Regulatory Impact Analysis.’’
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B. Background
On April 21, 2006, the Department of
Labor (the Department) issued three
regulations (the Abandoned Plan
Regulations) that collectively facilitate
the orderly, efficient termination of, and
distribution of benefits from, individual
account pension plans that have been
abandoned by their sponsoring
employers.1 The first of these
regulations, codified at 29 CFR 2578.1,
establishes standards for determining
when individual account plans may be
considered ‘‘abandoned’’ and
procedures by which financial
institutions (so-called ‘‘qualified
termination administrators’’ or ‘‘QTAs’’)
holding the assets of such plans may
terminate the plans and distribute
benefits to participants and
beneficiaries, with limited liability
under title I of the Employee Retirement
Income Security Act of 1974 (ERISA), 29
U.S.C. 1002 et seq. The second
regulation, codified at 29 CFR
2550.404a–3, provides a fiduciary safe
harbor for qualified termination
administrators to make distributions on
behalf of participants and beneficiaries
who fail to elect a form of benefit
distribution (these participants and
beneficiaries are sometimes referred to
as missing participants or beneficiaries).
The third regulation, codified at 29 CFR
2520.103–13, establishes a simplified
method for filing a terminal report for
abandoned individual account plans.
Also on April 21, 2006, the Department
granted a prohibited transaction
exemption, PTE 2006–06, which
facilitates the goal of the Abandoned
Plan Regulations by permitting a
qualified termination administrator,
who meets the conditions in the
exemption, to, among other things,
select itself or an affiliate to carry out
the termination and winding up
activities specified in the Abandoned
1 71 FR 20820. See also 73 FR 58459 for
subsequent amendments with regard to
distributions on behalf of a missing non-spouse
beneficiary.
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Plan Regulations, and to pay itself or an
affiliate fees for those services.2
For the reasons set forth in the 2006
preamble, the Abandoned Plan
Regulations strictly limit who may be a
qualified termination administrator.3
Specifically, in order to be a qualified
termination administrator, an entity,
first, must be eligible to serve as a
trustee or issuer of an individual
retirement plan within the meaning of
section 7701(a)(37) of the Internal
Revenue Code (Code) and, second, must
hold assets of the plan on whose behalf
it will serve as the qualified termination
administrator.4 As a result of these
conditions, bankruptcy trustees
ordinarily do not qualify as qualified
termination administrators under the
Abandoned Plan Regulations. This fact
was acknowledged when the
Department published the Abandoned
Plan Regulations in 2006.5
However, for several reasons, the
Department is revisiting its earlier
decision to preclude bankruptcy
trustees from serving as qualified
termination administrators. Pursuant to
11 U.S.C. 704(a)(11), enacted as part of
the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005,
Public Law 109–8, 119 Stat. 23, when an
entity that sponsors an individual
account plan is liquidated under
chapter 7 of title 11 of the United States
Code, the court administering the
liquidation proceeding (and/or U.S.
Trustee) will appoint a bankruptcy
trustee to, among other things, continue
to perform the obligations that would
otherwise be required of the bankrupt
entity with respect to the plan.
2 71
FR 20855.
71 FR 20821 (‘‘given the authority and
control over plans vested in QTAs under the
regulation, QTAs must be subject to standards and
oversight that will reduce the risk of losses to the
plans’ participants and beneficiaries’’).
4 Section 7701(a)(37) of the Code describes an
‘‘individual retirement plan’’ as an individual
retirement account described in section 408(a) of
the Code, and an individual retirement annuity
described in section 408(b) of the Code. Section
408(a) of the Code describes the term ‘‘individual
retirement account’’ as meaning a trust created or
organized in the United States for the exclusive
benefit of an individual or his beneficiaries, if
certain requirements are met. Section 408(b) of the
Code describes the term ‘‘individual retirement
annuity’’ as meaning an annuity contract, or an
endowment contract, which meets certain
requirements.
5 For example, in responding to commenters who
argued in favor of conferring qualified termination
administrator status on bankruptcy trustees in
liquidation cases when the debtor also is the plan
administrator, the Department, in the preamble to
the Abandoned Plan Regulations, stated its view at
that time that such individuals are empowered by
virtue of their appointment to take the steps
necessary to terminate and wind up the affairs of
a plan and, therefore, do not need the authority
conferred by the Abandoned Plan Regulations. See
71 FR 20821.
3 See
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Therefore, the bankruptcy trustee often
is responsible for administering the
plan, which may include taking the
steps necessary to terminate the plan,
wind up the affairs of the plan, and
distribute plan benefits.6 While the U.S.
Bankruptcy Code imposes these
obligations on bankruptcy trustees, it
does not provide guidance or standards
for carrying out such activities.
The Department believes that when
the sponsor of an individual account
plan is in liquidation in a chapter 7
bankruptcy case, the plan should be
terminated and wound up in an orderly
and efficient manner. However, in
bankruptcy cases, as with abandoned
plans generally, usually the sponsor is
not in a position to carry out this
function. Although the trustee of the
sponsor’s bankruptcy estate has the
requisite legal authority, the Department
has observed that such trustees may be
unaware of their responsibilities and
often are unfamiliar with ERISA, or how
properly to terminate and wind up a
plan. The frequent result is delay in
distributing benefits to participants and
beneficiaries and excessive cost to the
plan.
In the Department’s view, a
bankruptcy trustee responsible for
administering a chapter 7 debtor’s
employee benefit plan is a fiduciary
with respect to the plan for purposes of
ERISA. Thus, when taking steps to wind
up the affairs of the plan, the trustee
must act consistently with ERISA’s
fiduciary standards. The Department is
proposing these regulations (which are
in the form of amendments to the
Abandoned Plan Regulations), and the
accompanying prohibited transaction
exemption amendment, in order to
provide a process for the bankruptcy
trustee to terminate the plan, distribute
benefits to participants and
beneficiaries, and pay necessary
expenses, including to itself, in a
manner that helps the bankruptcy
trustee meet its fiduciary obligations.
C. Overview of Proposed Rulemaking
In general, this rulemaking proposes
to extend the basic framework of the
Abandoned Plan Regulations to plans
(i.e., chapter 7 plans) whose sponsors
are undergoing liquidation under
chapter 7 of title 11 of the United States
Code.7 The provisions of the existing
6 A bankruptcy trustee who undertakes these plan
responsibilities is a fiduciary within the meaning of
section 3(21) of ERISA.
7 The proposed extension is limited to plans
whose sponsors entered liquidation under chapter
7 of title 11 of the United States Code on the theory
that such plans are effectively being abandoned by
the sponsor as a result of the liquidation.
Nonetheless, the Department requests comment on
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Abandoned Plan Regulations would
apply to chapter 7 plans in much the
same way they apply now to abandoned
plans, except to the extent that they are
modified by this proposal to reflect
fundamental differences between
abandoned plans and chapter 7 plans. In
this regard, the most significant
amendments to the existing Abandoned
Plan Regulations are contained in
proposed paragraph (j) of 29 CFR
2578.1. Other less significant or
conforming amendments are needed to
other parts of § 2578.1 and to the other
two regulations (§ 2550.404a–3 and
§ 2520.103–13) constituting the
Abandoned Plan Regulations. Section D
of this preamble describes the major
proposed changes (the so-called chapter
7 amendments) to the Abandoned Plan
Regulations. This rulemaking, however,
also proposes to make certain technical
changes to the Abandoned Plan
Regulations that are unrelated to chapter
7 plans. These amendments are
discussed in section E of this preamble.
Section F of this preamble discusses the
results of the Department’s consultation
on this proposal with the Internal
Revenue Service. Section G contains a
detailed Regulatory Impact Analysis.
For purposes of readability, the
proposed rulemaking republishes the
Abandoned Plan Regulations in their
entirety, as revised, rather than the
specific amendments only.
D. Special Rules for Chapter 7 Plans
1. Discussion of Major Changes to 29
CFR 2578.1—Termination of
Abandoned Individual Account Plans
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(a) In General
Proposed paragraph (j) of § 2578.1
contains the special rules for chapter 7
plans. This paragraph contains four
subparagraphs. Subparagraph (1) sets
forth rules for when such plans may be
considered abandoned and who may
serve as qualified termination
administrators. These rules are in lieu of
the general rules in paragraphs (b) and
(g) of § 2578.1, which do not apply to
chapter 7 plans. Subparagraph (2) sets
forth the content requirements for the
notice of plan abandonment that
whether there are other similar situations that could
or should be covered by the Abandoned Plan
Regulations. For example, should the Regulations
cover plans whose sponsors are undergoing
liquidation under a chapter 11 plan of liquidation?
Should the Regulations cover situations when a
plan’s sponsor enters receivership pursuant to
applicable state or federal law (e.g., FDIC
receivership)? If the Regulations should be
extended to situations beyond the situations
covered by the proposed extension, please
specifically identify the situation, why the situation
should be covered, the costs and benefits of
covering the situation, and, if applicable, any state
or federal law relevant to the situation.
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qualified termination administrators of
chapter 7 plans must send to the
Department. These content
requirements are in lieu of the content
requirements in paragraph (c)(3) of
§ 2578.1, which apply to abandoned
plans in general. Subparagraph (3) sets
forth special rules for winding up
chapter 7 plans. These special rules are
in lieu of some, but not all, of the
winding up procedures in paragraph (d)
of § 2578.1. Subparagraph (4) contains a
rule of accountability that is applicable
to bankruptcy trustees. The
requirements of each of these
subparagraphs are described in detail
below.
(b) Timing of Abandonment
Proposed paragraph (j)(1)(i) is a
timing rule. It provides that a chapter 7
plan shall be considered abandoned
upon the entry of an order for relief. No
other findings must be made. The
bankruptcy trustee then may establish
itself or an eligible designee as the
qualified termination administrator.
Whether to establish itself or an eligible
designee as the qualified termination
administrator is optional on the part of
the bankruptcy trustee. Abandonment
status, on the other hand, is not
optional; it is achieved by operation of
law upon the entry of an order for relief.
Proposed paragraph (j)(1)(i) contains a
limitation on this status. If at any time
before the plan is deemed terminated
(plans generally will be deemed to be
terminated on the ninetieth (90th) day
following the date of the letter from
EBSA acknowledging receipt of the
notice of plan abandonment), the plan
sponsor’s chapter 7 proceeding is
dismissed or converted to a proceeding
under chapter 11 of title 11 of the
United States Code, the plan shall not
be considered abandoned pursuant to
paragraph (j)(1).8 The Department
believes that a plan should not be
considered abandoned merely because
its sponsor is in reorganization.9
(c) Who May Serve as a Qualified
Termination Administrator
Proposed paragraph (j)(1)(ii) makes it
clear that bankruptcy trustees may serve
as qualified termination administrators
even if they do not satisfy the rule in
paragraph (g) of § 2578.1 that allows
only large financial institutions and
8 On the other hand, a plan would not cease to
be considered abandoned under proposed
paragraph (j)(1) if the sponsor’s chapter 7
proceeding is converted to a proceeding under
chapter 11 after the plan is deemed terminated. In
such circumstances, the qualified termination
administrator would be expected to continue
winding up the affairs of the plan in accordance
with the Abandoned Plan Regulations.
9 But see note 7.
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other asset custodians described in
section 7701(a)(37) of the Code to be
qualified termination administrators.
Except as provided in paragraph (j), a
bankruptcy trustee serving as qualified
termination administrator would follow
the same termination and winding-up
procedures in the Abandoned Plan
Regulations as would any other
qualified termination administrator. The
proposal also allows a bankruptcy
trustee the option of designating
someone else to serve as the qualified
termination administrator. In this
regard, however, the proposal strictly
limits who the bankruptcy trustee may
designate. Proposed paragraph (j)(1)(ii)
provides that an ‘‘eligible designee’’ is
any person or entity designated by the
bankruptcy trustee that is eligible to
serve as a trustee or issuer of an
individual retirement plan, within the
meaning of section 7701(a)(37) of the
Code, and that holds assets of the
chapter 7 plan. Thus, an eligible
designee could be the plan’s asset
custodian at the time of abandonment or
another entity chosen later by the
bankruptcy trustee.10 The bankruptcy
trustee would be responsible for the
selection and monitoring of any eligible
designee in accordance with section
404(a)(1) of ERISA.
(d) Notice of Abandonment
Proposed paragraph (j)(2) provides
that, in accordance with the deemed
termination provisions in paragraph
(c)(1) and (c)(2) of § 2578.1, the qualified
termination administrator must furnish
to the Department a notice of plan
abandonment that meets the content
requirements in paragraph (j)(2). This
notice essentially is the same as the
notice of plan abandonment described
in paragraph (c)(3) of § 2578.1 except for
modifications that take into account
information specific to chapter 7 plans
and bankruptcy trustees. A proposed
model ‘‘Notification of Plan
Abandonment and Intent to Serve as
Qualified Termination Administrator’’
reflecting the content requirements of
proposed paragraph (j)(2) is being added
for chapter 7 plans as Appendix C.
Therefore, Appendices C and D have
been re-proposed as Appendix D and
Appendix E respectively. Paragraph
(j)(2)(i) provides that the notice must
include the name and contact
information of the bankruptcy trustee
and, if applicable, the name and contact
information of the eligible designee
acting as the qualified termination
10 Any eligible designee should be selected and
holding the assets of the chapter 7 plan by the time
of the furnishing of the notice of plan abandonment
to the Department under paragraph (j)(2) of the
proposed amendments.
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administrator pursuant to proposed
paragraph (j)(1). Paragraph (j)(2)(ii)
requires information about the chapter 7
plan that the qualified termination
administrator is winding up. Paragraph
(j)(2)(iii) requires a statement that the
plan is considered to be abandoned due
to an entry of an order for relief under
chapter 7 of the U.S. Bankruptcy Code,
and a copy of the notice or order entered
in the case reflecting the bankruptcy
trustee’s appointment to administer the
plan sponsor’s chapter 7 case. Paragraph
(j)(2)(iv)(A) and (B) require the
estimated value of the plan’s assets as of
the entry of an order for relief; the name,
employer identification number (EIN),
and contact information for the entity
holding the plan’s assets; and the length
of time plan assets have been held by
such entity, if held for less than 12
months. Paragraph (j)(2)(iv)(C) and (D)
require identification of any assets with
respect to which there is no readily
ascertainable fair market value, as well
as information, if any, concerning the
value of such assets, and an
identification of known delinquent
contributions. Paragraph (j)(2)(v)
requires the name and contact
information of known service providers
to the plan. It also requires an
identification of any services considered
necessary to wind up the plan, the name
of the service provider(s) that is
expected to provide such services, and
an itemized estimate of expenses for
winding up services expected to be paid
out of plan assets by the qualified
termination administrator. Paragraph
(j)(2)(vi) requires a statement indicating
that the information provided in the
notice is true and complete based on the
knowledge of the person electing to be
the qualified termination administrator,
and that the information is being
provided by the qualified termination
administrator under penalty of perjury.
(e) Winding-Up Procedures
(i) In General
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Paragraph (d) of § 2578.1 sets forth
specific steps that a qualified
termination administrator must take to
wind up an abandoned plan and, with
respect to most such steps, the
standards applicable to carrying out the
particular activity. Under the proposal,
paragraph (d) applies to chapter 7 plans
except as modified by the provisions in
proposed paragraph (j)(3).
(ii) Delinquent Contributions
Proposed paragraph (j)(3)(i) contains a
conditional requirement to collect
delinquent contributions. Specifically,
this paragraph provides that the
qualified termination administrator of a
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chapter 7 plan shall, consistent with the
duties of a fiduciary under section
404(a)(1) of ERISA, take reasonable and
good faith steps to collect known
delinquent contributions on behalf of
the plan, taking into account the value
of the plan assets involved, the
likelihood of a successful recovery, and
the expenses expected to be incurred in
connection with collection. If the
bankruptcy trustee designates an
eligible designee as defined in proposed
paragraph (j)(1)(ii), the bankruptcy
trustee shall at the time of such
designation notify the eligible designee
of any known delinquent contributions.
This collection requirement includes
both participant contributions withheld
from employee paychecks, but not
forwarded by the debtor to the plan, as
well as delinquent employer
contributions owed by the debtor. This
collection requirement applies to any
qualified termination administrator to a
chapter 7 plan whether it is a
bankruptcy trustee or an eligible
designee.11
The Department’s present belief is
that bankruptcy trustees, by virtue of
their knowledge and control of the
debtor’s estate and of the debtor’s ERISA
plan, are in the best position both to
know of the liquidating sponsor’s
delinquent contribution debts to the
plan and to collect these delinquencies
(or to notify the eligible designee so that
it can collect them). However, the
Department is interested in knowing
whether, and under what
circumstances, the qualified termination
administrator’s duty to collect would
unavoidably conflict with any duties the
bankruptcy trustee may have under the
U.S. Bankruptcy Code as the
representative of the debtor’s estate.
Please be specific about when, if ever,
such conflicts might arise, whether and
why such conflicts are disabling, and
the specific provisions of the U.S.
Bankruptcy Code that impose the
conflicting obligations.
(iii) Reporting Fiduciary Breaches
Proposed paragraph (j)(3)(ii) contains
a requirement to report activity to the
Department that may be evidence of
fiduciary breaches by prior plan
11 Under this provision, an eligible designee’s
duty to collect delinquent contributions is limited
expressly to those delinquent contributions it
knows about based on the information provided by
the bankruptcy trustee at the time of the
designation. Thus, an eligible designee would have
no duty to collect delinquent contributions if the
bankruptcy trustee failed to disclose them to the
eligible designee. Nothing in this section imposes
an obligation on the eligible designee to conduct an
inquiry or review to determine whether there are
delinquent contributions with respect to the plan.
See § 2578.1(e)(2).
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fiduciaries. Specifically, the qualified
termination administrator of a chapter 7
plan (whether a bankruptcy trustee or
eligible designee) must report known
delinquent contributions (employer and
employee) owed to the plan, and any
activity that the qualified termination
administrator believes may be evidence
of other fiduciary breaches by a prior
plan fiduciary that involve plan assets.
Thus, for example, evidence of
embezzlement by a prior plan fiduciary
would be required to be reported. The
proposal limits the reporting
requirement to evidence of any
fiduciary breaches that ‘‘involve plan
assets’’ by a prior plan fiduciary. This
limitation is intended to prevent a
reporting requirement when no plan
assets are involved. The Department
intends to use this information to
pursue and remedy fiduciary breaches
where appropriate. Beyond this
reporting requirement, a qualified
termination administrator to a chapter 7
plan ordinarily will have no further
obligations under the Abandoned Plan
Regulations with respect to such prior
breaches, except with respect to
collecting delinquent contributions
owed to the plan.12
Information concerning fiduciary
breaches must be reported in
conjunction with the filing of the notice
of plan abandonment (paragraph (j)(2))
or the final notice (paragraph (d)(2)(ix)).
If the qualified termination
administrator uses the model notices,
such information may be included in
the sections designated for other
information. If the bankruptcy trustee
designates an eligible designee, the
bankruptcy trustee must provide the
eligible designee with records under the
control of the bankruptcy trustee to
enable the eligible designee to carry out
its responsibility to report information
about fiduciary breaches. In the case of
an eligible designee, if after the eligible
designee completes the winding up of
the plan, the bankruptcy trustee, in
administering the debtor’s estate,
discovers additional information not
already reported in the notification
required in paragraphs (j)(2) or (d)(2)(ix)
that it believes may be evidence of
fiduciary breaches that involve plan
assets by a prior plan fiduciary, the
bankruptcy trustee must report such
activity to EBSA in a time and manner
specified in instructions developed by
EBSA’s Office of Enforcement. This
supplemental reporting requirement is
needed to address circumstances when
12 As discussed above, proposed paragraph
(j)(3)(i) imposes on a qualified termination
administrator to a chapter 7 plan a conditional duty
to collect delinquent contributions.
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(iv) Notification and Distribution
Requirements
The notification and distribution
requirements applicable to chapter 7
plans under the proposal essentially are
the same as the notification and
distribution requirements applicable to
non-chapter 7 plans under the existing
Abandoned Plan Regulations, except as
follows. First, proposed paragraph
(j)(3)(iii) adds a requirement that
participants must be informed that plan
termination has occurred as a result of
liquidation under the U.S. Bankruptcy
Code. Second, proposed paragraph
(j)(3)(iv) adds a requirement that the
Department must receive certain
information about the identity of the
bankruptcy trustee and, if applicable,
the eligible designee.
Third, proposed paragraph (j)(3)(v)
does not grant a bankruptcy trustee the
ability to designate itself or an affiliate
as the transferee of distribution
proceeds. The Abandoned Plan
Regulations provide that qualified
termination administrators must
distribute benefits in accordance with
the form of distribution elected by the
participant or beneficiary, and when the
participant or beneficiary fails to make
an election, the qualified termination
administrator has the ability to
designate itself or an affiliate as the
transferee of the distribution proceeds.
(See paragraph (d)(2)(vii)(C) of § 2578.1.)
Typically this would occur where the
qualified termination administrator has
its own proprietary investment vehicle,
such as an individual retirement plan
within the meaning of section
7701(a)(37) of the Code. The proposal
does not extend this option to
bankruptcy trustees based on the
Department’s understanding that
bankruptcy trustees do not maintain
proprietary investment vehicles within
the meaning of section 7701(a)(37) of
the Code.
contains the applicable standard in
cases when the bankruptcy trustee
appoints an eligible designee to serve as
the qualified termination
administrator.13 The different standards
in these subparagraphs are needed for
two reasons: first, expense rates
normally charged by bankruptcy
trustees for administering estates of
chapter 7 debtors may not be
appropriate for purposes of carrying out
the duties and responsibilities under the
proposed amendments with respect to
ERISA plans, and second, bankruptcy
trustees are not likely to have significant
experience in terminating and winding
up the affairs of such plans. Finally,
subparagraph (C) of paragraph (j)(3)(vi)
regulates payments to the bankruptcy
trustee by the eligible designee.
Pursuant to proposed paragraph
(j)(3)(vi)(A), the qualified termination
administrator (i.e., when the bankruptcy
trustee is the QTA) is permitted to pay,
from plan assets, no more than the
reasonable expenses of carrying out his
or her authority and responsibility
under the proposed amendments.
Expenses of plan administration shall be
considered reasonable if they are for
services necessary to wind up the affairs
of the plan and distribute benefits (see
§ 2578.1(d)(2)(v)(B)(1)), if they are
consistent with industry rates for the
same or similar services ordinarily
charged by qualified termination
administrators who are not bankruptcy
trustees (see proposed paragraph
(j)(3)(vi)(A)), and if their payment would
not constitute a prohibited transaction
(see § 2578.1(d)(2)(v)(B)(3)). This
standard is intended to make clear that
bankruptcy trustees should look to the
rates ordinarily charged by qualified
termination administrators who are not
bankruptcy trustees, e.g., banks and
other asset custodians. Samples of these
rates are available to the public in
filings made to the Department.14 These
filings may be a helpful source of
information for bankruptcy trustees.
The standard in proposed paragraph
(j)(3)(vi)(A) (i.e., that expenses must be
consistent with industry rates for the
same or similar services ordinarily
(v) Payment of Reasonable Fees
Proposed paragraph (j)(3)(vi)
addresses fees that a bankruptcy trustee
may pay to itself, or others, from the
plan’s assets in connection with
following the termination and windingup procedures in the proposed
amendments. Subparagraph (A) of
paragraph (j)(3)(vi) contains the
applicable standard in cases where the
bankruptcy trustee is the qualified
termination administrator.
Subparagraph (B) of paragraph (j)(3)(vi)
13 Proposed paragraph (j)(3)(vi)(B) merely
confirms that an eligible designee may use the more
generally applicable safe harbor at paragraph
(d)(2)(v) of § 2578.1 without the special
modifications contained in proposed paragraph
(j)(3)(v)(A) for bankruptcy trustees.
14 Under § 2520.103–13, qualified termination
administrators must file the Special Terminal
Report for Abandoned Plans (STRAP). STRAPs
contain total termination expenses paid by a plan
and a separate schedule identifying each service
provider and the amount received by that service
provider, itemized by expense. STRAPs currently
are available on the Department’s Web site (see
https://askebsa.dol.gov/AbandonedPlanSearch/UI/
QTASearchResults.aspx).
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the bankruptcy trustee discovers
information concerning fiduciary
breaches after the eligible designee has
completed the termination and winding
up process.
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charged by qualified termination
administrators who are not bankruptcy
trustees) is intended to provide clarity
and flexibility with respect to decisions
regarding fee and expense payments by
bankruptcy trustees who elect to be
qualified termination administrators. In
determining these fees and expenses,
bankruptcy trustees still will have to
make an inquiry into, and objectively
determine, whether any particular fee or
expenditure is reasonable using the
standard in proposed paragraph
(j)(3)(vi)(A). In this regard, the
Department specifically requests
comments on whether proposed
paragraph (j)(3)(vi)(A) provides
sufficient clarity as to the type and
amount of fees and expenses that may
be paid from plan assets in connection
with terminating and winding up a plan
under this proposal. For example, will
bankruptcy trustees have difficulty
determining industry rates for
termination and winding up services
despite the public filings mentioned
above? Are these filings searchable in a
helpful way to bankruptcy trustees? If
proposed paragraph (j)(3)(vi)(A) does
not provide sufficient clarity, please
explain why not and identify any
alternatives that should be considered
by the Department.
Proposed paragraph (j)(3)(vi)(C)
provides that an eligible designee may
pay from plan assets to a bankruptcy
trustee the reasonable expenses that the
bankruptcy trustee incurs in selecting
and monitoring the eligible designee.
This provision follows from the
requirement in proposed paragraph
(j)(1)(ii) that the bankruptcy trustee is
responsible for the selection and
monitoring of the eligible designee.
Whether an expense is ‘‘reasonable’’
ordinarily depends on the facts and
circumstances surrounding the
particular expense. However, the
Department notes that the rates charged
to the plan by the bankruptcy trustee for
selecting and monitoring the eligible
designee are to be judged in relation to
the rates charged by a plan fiduciary for
similar services, rather than the
generally higher fees charged by
bankruptcy trustees for legal services
provided to the bankruptcy estate. In
any event, pursuant to proposed
paragraph (j)(3)(vi)(C), the eligible
designee would apply the rules in
paragraph (d)(2)(v) of § 2578.1 in
determining whether the payment to the
bankruptcy trustee for monitoring
services is reasonable. While the
Department believes that it would be
appropriate for bankruptcy trustees to
expect remuneration for providing
monitoring services, the Department
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2. Discussion of Changes to 29 CFR
2550.404a–3—Safe Harbor for
Distributions From Terminated
Individual Account Plans
intends to review closely such
remuneration to ensure that
arrangements under the proposed
amendments are not contrary to the
interests of participants and
beneficiaries.
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(f) Rule of Accountability
Proposed paragraph (j)(4) contains a
rule of accountability. The rule provides
that a bankruptcy trustee acting as
qualified termination administrator, or
an eligible designee, shall not, through
waiver or otherwise, seek a release from
liability under ERISA, or assert a
defense of derived judicial immunity (or
similar defense) in any action brought
against the bankruptcy trustee or
eligible designee arising out of its
conduct under the proposed
amendments. The Department is aware
that bankruptcy trustees sometimes
request from the bankruptcy court
comfort orders seeking relief from
ERISA fiduciary liability in their roles
as administrators to plans. However,
bankruptcy trustees who wind up
chapter 7 plans under the Abandoned
Plan Regulations benefit from the
limited exposure to ERISA liability
provided by the regulations. (See
paragraph (e) of § 2578.1.) The
Department believes the regulatory
framework, as constructed, serves to
minimize to the greatest extent possible
the liability and exposure of qualified
termination administrators who carry
out their responsibilities in accordance
with the provisions of the Abandoned
Plan Regulations.15 As a condition to
receiving the benefit of the limited
liability provided by the Abandoned
Plan Regulations, a bankruptcy trustee
would not be permitted to seek a release
from liability under ERISA. Paragraph
(j)(4) does not prevent a bankruptcy
trustee from asking a court to resolve an
actual dispute involving a plan or to
obtain an order required under the U.S.
Bankruptcy Code. However, it does bar
a trustee from seeking a ruling from a
court for approval of its actions, where
a trustee has the power to act without
judicial approval. For example, a
bankruptcy trustee may not seek court
approval of the amount to pay a
professional from assets of the plan, but
must exercise his or her own judgment.
In addition, a bankruptcy trustee may
not claim it is not subject to suit for
breach of fiduciary duty as to the
amount of a payment from an ERISA
plan because it previously obtained a
court order approving the amount of the
payment.
15 71
FR 20806.
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The Abandoned Plan Regulations, in
relevant part, provide that, with respect
to missing and nonresponsive
participants or beneficiaries,16 qualified
termination administrators shall
distribute benefits in the form of direct
rollovers to individual retirement plans
within the meaning of section
7701(a)(37) of the Code. (See
§ 2578.1(d)(2)(vii)(B).) However, the
Abandoned Plan Regulations also
contain a special rule for small account
balances of $1,000 or less.17 Under the
special rule, a qualified termination
administrator may make distributions to
certain bank accounts (interest-bearing
federally insured bank or savings
association accounts) or to State
unclaimed property funds. (See 29 CFR
2550.404a–3(d)(1)(iii).) The proposal
would add paragraph (d)(iv) to
§ 2550.404a–3 to make clear that the
special rule also is available in the case
of chapter 7 plans.
3. Discussion of Changes to 29 CFR
2520.103–13—Special Terminal Report
for Abandoned Plans
The Abandoned Plan Regulations
provide for simplified reporting to the
Department for qualified termination
administrators that wind up the affairs
of abandoned plans. (See 29 CFR
2520.103–13.) The time savings
resulting from this abbreviated reporting
requirement reduces administrative
costs for abandoned plans and preserves
account balances, resulting in increased
benefits to participants and
beneficiaries. The proposed
amendments would revise these
simplified reporting requirements to
make clear that they are available to
chapter 7 plans. Specifically, the
proposal would revise paragraph (b)(1)
of § 2520.103–13 to include
identification information about the
bankruptcy trustee as well as the
qualified termination administrator, if
the qualified termination administrator
is not the bankruptcy trustee.
16 In this context, a missing or nonresponsive
participant or beneficiary is a participant or
beneficiary who fails to elect a form of distribution
within 30 days from the date the notice of plan
termination is furnished by the qualified
termination administrator.
17 The justification for the special rule is set forth
in the preamble to the Abandoned Plan Regulations.
See 71 FR 20828. The conditions related to the
special rule are set forth at 29 CFR 2550.404a–
3(d)(1)(iii).
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E. Technical Amendments Unrelated to
Chapter 7 Plans
The Abandoned Plan Regulations
require qualified termination
administrators to state whether they, or
any affiliate, are, or in the past 24
months were, the subject of an
investigation, examination, or
enforcement action by the Department,
the Internal Revenue Service, or the
Securities and Exchange Commission
concerning their conduct as a fiduciary
or party in interest with respect to any
ERISA covered plan. (See
§ 2578.1(c)(3)(i)(C).) This statement
must be included in the notice of plan
abandonment furnished to the
Department before a plan can be
terminated and wound up under the
Abandoned Plan Regulations. Although
such information does not alone bar a
person from serving as a qualified
termination administrator, the statement
serves as a flagging mechanism to help
the Department identify potential
arrangements that are not in the best
interests of plan participants and
beneficiaries. However, the Department
is proposing to eliminate this
requirement for the following reasons.
First, the Department generally can
determine from its own records whether
a person is, or in the past 24 months
was, the subject of an investigation
concerning his conduct as a fiduciary or
party in interest with respect to any
ERISA covered plan. Second, by
definition, qualified termination
administrators tend to be large financial
institutions with many affiliations and,
therefore, it may be costly for them to
prepare an accurate statement. Third,
the requirement appears to deter some
qualified persons from serving as
qualified termination administrators. In
this regard, some individuals have
expressed a reluctance to affirm in a
notice to the federal government that
they or an affiliate are or were under an
investigation, examination, or
enforcement action by the Department,
the Internal Revenue Service, or the
Securities and Exchange Commission
concerning their conduct as a fiduciary
or party in interest with respect to any
ERISA covered plan. Because the
Department believes that this
requirement now is unnecessary and
may even discourage the use of the
Abandoned Plan Program, it is
proposing to remove the requirement
from the Abandoned Plan Regulations.
In conjunction with the proposed
removal of the investigation statement
in § 2578.1(c)(3)(i)(C) referenced above,
the Department intends to remove a part
of the definition of the term ‘‘affiliate’’
in § 2578.1(h). In the Abandoned Plan
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Regulations, the term ‘‘affiliate’’ for
general purposes of § 2578.1 means any
person directly or indirectly controlling,
controlled by, or under common control
with, the person, or any officer, director,
partner or employee of the person. (See
§ 2578.1(h)(1).) However, for the specific
purpose of the requirement for qualified
termination administrators to state
whether they, or any affiliate are, or in
the past 24 months were, the subject of
an investigation, examination, or
enforcement action by the Department,
the Internal Revenue Service, or the
Securities and Exchange Commission
concerning the their conduct as a
fiduciary or party in interest with
respect to any ERISA covered plan, the
Abandoned Plan Regulations contain a
narrower definition in § 2578.1(h)(2).
Given the proposal to eliminate this
statement regarding investigations, the
Department also is proposing to
eliminate the narrower definition of
‘‘affiliate.’’ The generally applicable
definition of the term ‘‘affiliate’’ would
remain in effect. (See modifications in
the proposal to paragraph (h) of
§ 2578.1.)
The Abandoned Plan Regulations
generally require the qualified
termination administrator to distribute a
missing or nonresponsive participant’s
account balance to an individual
retirement plan in the participant’s
name. (See § 2578.1(d)(2)(vii).) An
exception exists for account balances of
$1,000 or less, which may be transferred
to an interest-bearing, federally-insured
bank or savings association account or
to the unclaimed property fund of a
State, if certain conditions are satisfied.
(See § 2550.404a–3(d)(1)(iii).)
Sometimes a qualified termination
administrator will know that a missing
participant whose account balance is
greater than $1,000 is deceased and that
there is no named beneficiary, or that
the named beneficiary also is deceased.
In such circumstances, the Abandoned
Plan Regulations require the qualified
termination administrator to transfer the
participant’s account balance to an
individual retirement plan even if it is
unlikely that anyone will ever claim
these benefits. The Department has been
advised that, in some cases, providers of
individual retirement plans will not
accept such distributions. The
Department is concerned that obstacles
like this prevent abandoned plans from
being completely terminated and could
prevent qualified entities from serving
as qualified termination administrators,
leaving participants in abandoned plans
with no ability to access their retirement
benefits. This proposal, therefore,
conditionally would permit qualified
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termination administrators to transfer
the account balances of decedents to an
appropriate bank account or a state’s
unclaimed property fund, regardless of
the size of the account balance. Such a
transfer would be permitted only if the
qualified termination administrator
reasonably and in good faith finds that
the participant and, if applicable, the
named beneficiary, are deceased, and
includes in the Final Notice to EBSA the
identity of the deceased participant and/
or beneficiary and the basis for the
finding. (See proposed paragraph
(d)(1)(v) of § 2550.404a–3.) The
Department is soliciting public
comments specifically on whether the
proposed conditions sufficiently
safeguard the rights of participants and
beneficiaries. For example, should a
qualified termination administrator be
prohibited from these transfers if it has
actual knowledge that a descendent of
the deceased has a claim?
The final step in winding up an
abandoned plan under the Abandoned
Plan Regulations is filing the Special
Terminal Report for Abandoned Plans
(STRAP) under § 2520.103–13. As stated
in the preamble to the Abandoned Plan
Regulations, the purpose of this
provision is to provide annual reporting
relief relating to abandoned plan filings
by qualified termination
administrators.18 The contents of the
STRAP include, for example, total assets
of the plan as of the deemed termination
date, termination expenses paid by the
plan, and the total amount of
distributions. To file the STRAP, a
qualified termination administrator
must use the Form 5500 and either the
Schedule I or a ‘‘Schedule QTA.’’
Instructions for filing the STRAP are not
included in the instructions to the Form
5500 Annual Return/Report of
Employee Benefit Plan. Specific
instructions for completing and filing
the STRAP are on EBSA’s Web site at
https://www.dol.gov/ebsa/publications/
APterminalreport.html. This proposal
would amend paragraph (c)(2) of
§ 2520.103–13 to clarify and update the
specific location of these instructions.
challenge the qualified status of any
plan terminated under § 2578.1 or take
any adverse action against, or seek to
assess or impose any penalty on, the
qualified termination administrator, the
plan, or any participant or beneficiary of
the plan (including the qualified status
of any chapter 7 plan terminated under
these proposed amendments) as a result
of such termination, including the
distribution of the plan’s assets,
provided that the qualified termination
administrator satisfies three conditions.
First, the qualified termination
administrator, based on plan records
located and updated in accordance with
§ 2578.1(d)(2)(i), reasonably determines
whether, and to what extent, the
survivor annuity requirements of
sections 401(a)(11) and 417 of the Code
apply to any benefit payable under the
plan and takes reasonable steps to
comply with those requirements (if
applicable). Second, each participant
and beneficiary has a nonforfeitable
right to his or her accrued benefits as of
the date of deemed termination under
§ 2578.1(c)(1), subject to income,
expenses, gains, and losses between that
date and the date of distribution. Third,
participants and beneficiaries must
receive notification of their rights under
section 402(f) of the Code. This
notification should be included in, or
attached to, the notice described in
§ 2578.1(d)(2)(vi). Notwithstanding the
foregoing, as indicated in the preamble
to the final Abandoned Plan Regulations
(71 FR 20827), the Internal Revenue
Service reserves the right to pursue
appropriate remedies under the Code
against any party who is responsible for
the plan, such as the plan sponsor, plan
administrator, or owner of the business,
even in its capacity as a participant or
beneficiary under the plan.19
The Internal Revenue Service also
advised the Department that chapter 7
bankruptcy trustees using the
Abandoned Plan Program would not be
expected to use the Employee Plans
Compliance Resolution System (EPCRS)
as a condition to this relief.
F. Internal Revenue Service
As it did in connection with the
existing Abandoned Plan Regulations,
the Department conferred with
representatives of the Internal Revenue
Service regarding the qualification
requirements under the Code as applied
to plans that are terminated pursuant to
29 CFR 2578.1, as modified by the
proposed amendments contained in this
document. The Internal Revenue
Service advised that it would not
1. Background and Need for Regulatory
Action
As stated earlier in this preamble, this
document contains proposed
amendments to three previously
published Abandoned Plan Regulations
that facilitate the termination of, and
distribution of benefits from, individual
account pension plans that have been
abandoned by their sponsoring
18 71
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G. Regulatory Impact Analysis
19 See 71 FR 20827 (further discussion of the
Department’s response to commenters on the three
IRS conditions).
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employers. The amendments primarily
propose to: (1) Permit bankruptcy
trustees to use the Department’s
Abandoned Plan Regulations to
terminate and wind up the plans of
sponsors in liquidation under chapter 7
of the U.S. Bankruptcy Code; (2)
eliminate the requirement that qualified
termination administrators state in a
notice to the Department whether they,
or any affiliate are, or in the past 24
months were, the subject of an
investigation, examination, or
enforcement action by the Department,
the Internal Revenue Service, or the
Securities and Exchange Commission
concerning their conduct as a fiduciary
or party in interest with respect to any
ERISA covered plan; and (3)
conditionally permit qualified
termination administrators to transfer
the account balances of decedents to an
appropriate bank account or a state’s
unclaimed property fund regardless of
the size of the account balance. The
need for these regulatory changes is
explained in detail above in the
‘‘Background’’ section and in the
overview sections, C through F, of this
preamble.
emcdonald on DSK67QTVN1PROD with
2. Executive Order 12866 and 13563
Statement
Executive Orders 13563 and 12866
direct agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). Executive Order 13563
emphasizes the importance of
quantifying both costs and benefits, of
reducing costs, of harmonizing and
streamlining rules, and of promoting
flexibility. It also requires federal
agencies to develop a plan under which
the agencies will periodically review
their existing significant regulations to
make the agencies’ regulatory programs
more effective or less burdensome in
achieving their regulatory objectives.
The Department has identified the
amendments to the Abandoned Plan
Regulations as a retrospective regulatory
review project consistent with the
principals of Executive Order 13563.
The Department believes that the
proposed changes to the Abandoned
Plan Regulations would improve the
overall efficiency of the Abandoned
Plan Program, increase its usage, and
substantially reduce burdens and costs
on bankruptcy trustees terminating the
plans of sponsors in chapter 7
liquidation, the plans of bankrupt
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sponsors, and the participants in these
plans.
Under Executive Order 12866,
‘‘significant’’ regulatory actions are
subject to the requirements of the
executive order and review by the Office
of Management and Budget (OMB).
Section 3(f) of the executive order
defines a ‘‘significant regulatory action’’
as an action that is likely to result in a
rule (1) having an annual effect on the
economy of $100 million or more, or
adversely and materially affecting a
sector of the economy, productivity,
competition, jobs, the environment,
public health or safety, or State, local or
tribal governments or communities (also
referred to as ‘‘economically
significant’’); (2) creating serious
inconsistency or otherwise interfering
with an action taken or planned by
another agency; (3) materially altering
the budgetary impacts of entitlement
grants, user fees, or loan programs or the
rights and obligations of recipients
thereof; or (4) raising novel legal or
policy issues arising out of legal
mandates, the President’s priorities, or
the principles set forth in the Executive
Order. It has been determined that this
proposed rule is not a ‘‘significant
regulatory action’’ under section 3(f) of
the executive order. Accordingly, OMB
has not reviewed this regulatory action
or the Department’s assessment of its
costs and benefits, which is presented
below.
3. Number of Affected Entities
As stated above, the proposed
amendments to the Abandoned Plan
Regulations would extend the
framework of the regulations to chapter
7 plans. In order to estimate the number
of entities affected by the Abandoned
Plan Regulations as amended by the
proposal, the Department must
determine the number of abandoned
plans that would be eligible to be
terminated and wound up under the
Abandoned Plan Program. At the
inception of the Abandoned Plan
Program in 2006, the Department based
its estimate of the number of eligible
plans upon Form 5500 data. Because the
Department has over five years of
experience with the Abandoned Plan
Program, it now can base its estimate on
data from EBSA’s Office of Enforcement.
These data show that in fiscal year 2007,
the Department received 70 applications
from potential qualified termination
administrators to wind up abandoned
plans. The number of applications
increased to 331 in fiscal year 2010.
Based on the foregoing, the Department
estimates that approximately 330 plans
covering 1,980 participants (330 plans ×
6 participants per plan) would be
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terminated and wound up under the
Abandoned Plan Program each year if
the program remains unchanged.
The Department believes that there
will be a 50 percent increase in the
number of applications to the
Abandoned Plan Program if plans of
sponsors entering liquidation are
permitted to be terminated and wound
up under the Abandoned Plan Program.
This would increase the total number of
applications to 495 plans (330 plans ×
1.5), and the number of affected
participants to 2,970 (495 plans × 6
participants per plan), assuming that
chapter 7 plans have roughly the same
number of participants as other eligible
plans. The Department welcomes
comments regarding these estimates.
4. Costs
The Department estimates that the
cost associated with extending the
Abandoned Plan Program to chapter 7
plans would total approximately
$64,000. These costs only would be
imposed on the estimated 165 chapter 7
plans that chose to participate in the
program. The Department also has
updated its costs and benefits estimate
for the entire Abandoned Plan Program
to reflect its experience with the
program since its inception in 2006. The
Department estimates that the 330
abandoned plans participating in the
Abandoned Plan Program would incur
the following costs: $127,000 in annual
costs attributable to abandoned plans’
qualified termination administrator
filings and notices; $4.48 million
attributable to fiduciaries of the
approximately 39,000 terminating plans
(other than abandoned and chapter 7
plans) continuing to use the Safe Harbor
for Distributions from Terminated
Individual Account Plans (29 CFR
2550.404a–3), of which $3.52 million is
equivalent hour burden cost attributable
to in-house clerical staff and benefit
managers’ time; and $961,000 in mailing
cost to distribute the required notices to
approximately 3.1 million participants.
Overall, the Department estimates that
the costs of the regulations and class
exemption, as amended by the proposal,
would total approximately $4.67 million
($3.52 million in annual equivalent
costs and $1.15 million in annual cost
burden) but, as stated above, only
$64,000 of such costs relate to the
proposed amendments. These costs are
quantified and discussed in more detail
in the Paperwork Reduction Act section,
below.
5. Benefits
The proposed amendments provide
critical guidance that will encourage the
orderly and efficient termination of
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chapter 7 plans and distribution of
account balances, thereby increasing the
retirement income security of
participants and beneficiaries in such
plans. Absent the standards and
procedures set forth in the Abandoned
Plan Regulations, some bankruptcy
trustees may lack the necessary
guidance to properly terminate chapter
7 plans and distribute benefits to
participants and beneficiaries.
Specifically, the Abandoned Plan
Regulations clarify the bankruptcy
trustee’s obligations as qualified
termination administrator with respect
to updating plan records, calculating
account balances, selecting and
monitoring service providers,
distributing benefits, and paying fees
and expenses.
The Department believes that
providing this guidance and allowing
bankruptcy trustees to serve or
designate others to serve as qualified
termination administrators will lead to
administrative cost savings for trustees
that choose to participate in the
Abandoned Plan Program. The
Department has not quantified these
benefits because it does not have
sufficient information regarding the
characteristics of chapter 7 plans.20 The
Department expects that bankruptcy
trustees will decide to participate in the
Abandoned Plan Program based on their
individual assessment of whether it
would be more cost effective to
terminate a plan inside or outside of the
program.
One of the most significant cost
savings that would result from the
proposed amendments is that chapter 7
plans no longer would incur costly
audit fees that otherwise would
diminish plan assets, because
bankruptcy trustees will file one
streamlined termination report at the
end of the winding up process in lieu
of the Form 5500 Annual Return/Report.
Other benefits associated with
bankruptcy trustees’ participation in the
Abandoned Plan Program are that the
proposed rule would require that a
qualified termination administrator of a
chapter 7 plan (whether a bankruptcy
trustee or eligible designee): (1) Take
reasonable and good faith steps to
collect known delinquent contributions
on behalf of the plan, taking into
account the value of plan assets
involved, the likelihood of a successful
recovery, and the expenses expected to
be incurred in connection with the
collection of contributions, and (2)
report to the Department known
20 The Department invites public comments
regarding the characteristics of chapter 7 plans that
may participate in the Abandoned Plan Program.
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Jkt 229001
delinquent contributions (employer and
employee) owed to the plan, and any
activity that the qualified termination
administrator believes may be evidence
of other fiduciary breaches by a prior
plan fiduciary that involve plan assets.
With respect to abandoned plans
other than chapter 7 plans, the orderly
termination of plans will produce
quantitative benefits by maximizing
account balances payable to participants
and beneficiaries because prompt,
efficient termination of abandoned
plans would eliminate future
administrative expenses that would
otherwise diminish the plan’s assets. In
addition, the regulations’ specific
standards and procedures for
terminating abandoned plans will
reduce termination costs. Both of these
quantitative benefits will reduce the
extent to which plan assets are drawn
upon to pay plan expenses.
The Department estimates the benefits
for such plans by comparing the
ongoing administrative costs of
maintaining an abandoned plan with
the cost of terminating such a plan
under the Abandoned Plan Regulations.
The magnitude of the costs for a
qualified termination administrator to
wind up the affairs of an abandoned
plan under the Abandoned Plan
Regulations is meaningful only when
compared to the savings of future
administrative expenses that would
result from the plan’s termination. A
comparison of termination costs with
administrative savings is complicated
by the fact that termination costs will be
incurred only once, while the savings in
eliminated administrative costs will
accrue throughout the years during
which the plan would have continued
to exist in its abandoned state. In order
to assess the balance of costs and
benefits, the Department has estimated
the present value of future ongoing
administrative expenses using a five
percent discount rate over a period of
three years after termination. The actual
duration of abandonment cannot be
determined with certainty; however, the
Department believes that a period of one
to five years provides a reasonable basis
to illustrate the potential administrative
cost savings that could arise in future
years from the termination of
abandoned plans.
In order to determine the average
costs for winding up abandoned plans
under the Abandoned Plan Regulations,
the Department examined the Special
Terminal Reports for Abandoned Plans
STRAPs filed by qualified termination
administrators participating in the
Abandoned Plan Program since its
inception in 2006. These STRAPs
indicate that average termination costs
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74071
were $700 and that 60 percent of the
plans incurred termination costs of less
than $200. As stated above, the
Department estimates that 330 plans
would terminate under the Abandoned
Plan Program if it remained unchanged,
therefore, termination costs would total
approximately $231,000 (330 plans ×
$700 termination costs per plan).
In order to assess the benefits of the
proposed amendments, the Department
also must estimate the ongoing
administrative expenses that would
have been incurred by abandoned plans
if such plans were not terminated under
the Abandoned Plan Program. Since the
inception of the Abandoned Plan
Program in 2006, the average asset level
of plans terminating under the program
is $54,000. Data from a recent
Investment Company Institute report
prepared by Deloitte LLP indicate that
401(k) plans with under $1 million in
assets pay approximately 1.41 percent of
total net assets in annual administrative
fees. Given that over 99 percent of the
plans had under $1 million in assets at
the time of termination, 1.41 percent
would be a reasonable estimate to use to
determine administrative expenses that
would have been incurred by
abandoned plans. Assuming plans that
are terminated and wound up under the
Abandoned Plan Program pay fees at
roughly the same rate as other small
plans, the Department estimates that
average ongoing administrative
expenses would be approximately $760
per year ($54,000 × .0141).
Based on the foregoing, the present
value of administrative expenses that
otherwise would have been paid over
the three years following termination
exceeds the termination cost by
approximately $1,470 ($2,170 of
ongoing administrative expenses
discounted at five percent over three
years minus $700 up front termination
costs = $1,470) generating expected
savings for plan participants and
beneficiaries of approximately $490,000
($1,470 × 330 plans). In subsequent
years, the savings resulting from
eliminating ongoing administrative
expenses that would have been incurred
if abandoned plans were not terminated
under the proposed amendments would
further add to that differential.
Benefits Associated with Amendment
to Safe Harbor for Distributions from
Terminated Individual Account Plans
(29 CFR 2550.404a–3): This section
provides a safe harbor under which plan
fiduciaries (including qualified
termination administrators) of
terminated individual account plans can
directly transfer a missing or
nonresponsive participant’s account
balance directly to appropriate
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investment vehicles in the participant’s
name. An exception exists for account
balances of $1,000 or less, which may be
transferred to an interest-bearing,
federally-insured bank or savings
association account or to the unclaimed
property fund of a state, if certain
conditions are satisfied. As stated above
in this preamble, § 2550.404a–3 is being
amended to conditionally permit
qualified termination administrators to
transfer the account balances of
decedents to an appropriate bank
account or a state’s unclaimed property
fund, regardless of the size of the
account balance. The proposed
amendments would remove an obstacle
to greater usage of the Abandoned Plan
Program by eliminating the need to
establish costly individual retirement
plans for the account balances of known
deceased participants that are over
$1,000 when it is unlikely that anyone
will claim the funds in such plans.
Benefits Associated with Amendment
to Eliminate Statement of Past or
Present Investigations: As stated above
in this preamble, § 2578.1 is being
amended to remove the under
investigation statement in the notice of
plan abandonment from the qualified
termination administrator to the
Department (see § 2578.1(c)(3)(i)(C)).
The Department believes that, at
present, this statement is unnecessary
and may even discourage use of the
Abandoned Plan Program. The
statement is unnecessary because
EBSA’s Office of Enforcement is able to
run searches with only de minimis cost
to determine whether potential qualified
termination administrators are under
investigation by the Department. By
encouraging more potential qualified
termination administrators to wind up
abandoned plans in accordance with the
Abandoned Plan Regulations, the
Department believes abandoned plan
terminations will occur more efficiently,
and more participants and beneficiaries
of abandoned plans will gain access to
their benefits.
6. Paperwork Reduction Act
As part of its continuing effort to
reduce paperwork and respondent
burden, the Department of Labor
conducts a preclearance consultation
program to provide the general public
and federal agencies with an
opportunity to comment on proposed
and continuing collections of
information in accordance with the
Paperwork Reduction Act of 1995 (PRA)
(44 U.S.C. 3506(c)(2)(A)). This helps to
ensure that requested data can be
provided in the desired format,
reporting burden (time and financial
resources) is minimized, collection
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instruments are clearly understood, and
the impact of collection requirements on
respondents can be properly assessed.
Currently, the Department is soliciting
comments concerning the information
collection request (ICR) included in the
proposed rule on the amendments to the
Abandoned Plan Regulations. A copy of
the ICR may be obtained by contacting
the PRA addressee shown below. The
Department has submitted a copy of the
proposed rule to OMB in accordance
with 44 U.S.C. 3507(d) for review of its
information collections. The
Department and OMB are interested
particularly in comments that:
• Evaluate whether the collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
• Evaluate the accuracy of the
agency’s estimate of the burden of the
collection of information, including the
validity of the methodology and
assumptions used;
• Enhance the quality, utility, and
clarity of the information to be
collected; and
• Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology,
e.g., permitting electronic submission of
responses.
Comments should be sent to the
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10235, New Executive
Office Building, Washington, DC 20503;
Attention: Desk Officer for the
Employee Benefits Security
Administration. OMB requests that
comments be received within 30 days of
publication of the proposed rule to
ensure their consideration.
PRA Addressee: Address requests for
copies of the ICR to G. Christopher
Cosby, Office of Policy and Research,
U.S. Department of Labor, Employee
Benefits Security Administration, 200
Constitution Avenue NW., Room N–
5718, Washington, DC 20210.
Telephone (202) 693–8410; Fax: (202)
219–5333. These are not toll-free
numbers. ICRs submitted to OMB also
are available at https://www.RegInfo.gov.
The Department has assumed that
most of the tasks that will be undertaken
by qualified termination administrators
in connection with abandoned plan
terminations are the same as those
required in normal plan administration,
such as calculating or distributing
benefits, and therefore are not
accounted for as burden in this analysis
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Fmt 4701
Sfmt 4702
because they are either part of the usual
business practices of plans or have
already been accounted for in ICRs for
other statutory and regulatory
provisions under title I of ERISA.
The Abandoned Plan Regulations
require a qualified termination
administrator to send up to five notices
in the process of terminating and
winding up an abandoned plan. Before
winding up an abandoned plan, the
qualified termination administrator
(other than the qualified termination
administrator of a chapter 7 plan) must
make reasonable efforts to locate or
communicate with the plan sponsor,
such as by sending a notice to the last
known address of the plan sponsor
notifying the sponsor of the intent to
terminate and wind up the plan and
allowing the sponsor an opportunity to
respond. Following the qualified
termination administrator’s finding of
abandonment, or when there is an entry
of an order for relief for a chapter 7
plan, the qualified termination
administrator must send notice to the
Department of its eligibility to serve as
qualified termination administrator to
wind up the abandoned plan and
provide other specified plan
information. The qualified termination
administrator then sends a notice to the
participants and beneficiaries in the
plan, written in a manner calculated to
by understood by the average plan
participant, that their plan is being
terminated, what is their account
balance and the date on which it was
calculated by the qualified termination
administrator, a description of the
distribution options available under the
plan and a request that the participant
or beneficiary elect a form of
distribution and inform the qualified
termination administrator of such
election, what will happen to their
account if the participant or beneficiary
fails to make a distribution election
within 30 days of receipt of the notice,
and other information regarding their
rights under the plan’s termination.
Upon terminating and distributing the
assets of the plan, the qualified
termination administrator must send a
final notice to the Department stating
that the plan has been terminated. The
qualified termination administrator
attaches to the final notice a STRAP.
The Department has estimated the
burden as a cost burden to the plan
because the qualified termination
administrator uses plan assets to pay for
these notices and other costs of winding
up the plan. These notices are
information collection requests (ICRs)
subject to the PRA. The hour and cost
burden associated with these ICRs are
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74073
summarized in the following table
discussed below.
COST BURDEN OF RULE
Bankrupt plans
Chapter 7
(new to this
RIA)
Abandoned
plans—non
Chapter 7 (in
previous RIA)
Notice to Plan Sponsor ....................................................................................
Notice to DOL ..................................................................................................
Bankrupt Plans (Court Order) ..........................................................................
Notice to Participants .......................................................................................
Final Notice ......................................................................................................
Bankrupt Plans (Fiduciary Breach) ..................................................................
Form 5500 Terminal Report ............................................................................
Safe Harbor .....................................................................................................
Class Exemption Familiarization ......................................................................
$0
8,700
3,200
3,600
3,300
600
35,600
0
9,400
$5,500
17,300
0
7,200
6,700
0
71,200
0
18,700
$0
0
0
0
0
0
0
4,480,000
0
$5,500
26,000
3,200
10,700
10,000
600
106,800
4,480,000
28,100
Total ..........................................................................................................
64,000
127,000
4,480,000
4,670,000
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Notice to Plan Sponsor: This notice
requirement only applies to plans that
are not chapter 7 plans. The Department
estimates that for each of these
estimated 330 plans, a qualified
termination administrator may utilize
10 minutes of clerical staff time at an
hourly labor rate of $28.21 to fill in the
needed information on the plan sponsor
notice, and five minutes of a financial
professional’s time at an hourly labor
rate of $66.36 to review and sign the
notice.21 This results in approximately
83 hours of clerical staff time with an
associated cost burden of $1,600 (55
hours x $28.21 per hour) and 27.5 hours
of a financial professional’s time with
an associated cost burden of $1,800
(27.5 hours × $66.36 per hour).22
The rule requires plan sponsor notices
to be sent by a method requiring
acknowledgement of receipt. Therefore,
mailing costs include $6.35 for postage
and email receipt of delivery. The
mailing costs include paper and print
costs of five cents per page for the one
page notice. Therefore, the materials
and mailing costs are estimated to be
$2,100 for the 330 notices. As indicated
in the chart above, there are $5,500 in
total costs associated with this
requirement ($1,600 clerical, $1,800
financial professional and $2,100 in
mailing costs) all imposed on plans
filing under the Abandoned Plan
Program.
21 The Department estimates 2012 hourly labor
rates to include wages, other benefits, and overhead
based on data from the National Occupational
Employment Survey (June 2011, Bureau of Labor
Statistics) and the Employment Cost Index
(September 2011, Bureau of Labor Statistics); the
2010 estimated labor rates are then inflated to 2012
labor rates.
22 Any discrepancies in calculations in this
section and the table above result from rounding.
Estimates are rounded to the nearest $10, $100,
$1,000, or $10,000. Hour estimates also are rounded
in the text.
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Jkt 229001
Notice of plan abandonment to the
Department: The Department estimates
that for each of the estimated 495 plans,
a qualified termination administrator
may utilize 30 minutes of a clerical
worker’s time at an hourly rate of $28.21
to fill in the needed information on the
notice. It also is assumed that 30
minutes of a financial professional’s
time with an hourly rate of $66.36 will
be required to prepare required plan
information, and to review and sign the
forms. This results in about 248 hours
(495 plans × .5 hours) of clerical staff
time with an associated cost burden of
$7,000 (495 plans × .5 hours × $28.21
per hour), and 248 hours (495 plans ×
.5 hours) of a financial professional’s
time with an associated cost burden of
$16,400 (495 plans × .5 hours × $66.36
per hour).
The Department assumes that
approximately 80 percent of these initial
notices to the Department will be sent
by mail and that the rest will be
submitted electronically (495 plans × .8
fraction by mail = 396 plans send notice
by mail). Therefore, mailing costs
include $6.35 for postage and email
receipt of delivery. The mailing costs
include paper and print cost of five
cents per page. The model notice is
three pages. Therefore, the materials and
mailing cost are estimated to be $2,600
(396 plans × ($6.35 + 3 pages × $.05 per
page)) for the 396 notices that will be
mailed. The total costs of this
component are therefore $26,000 23
($8,700 of which are new costs
attributable to the chapter 7 plans,
which are 1⁄3 of the affected plans, and
$17,300 of which are cost attributable to
23 $26,000 = $7,000 for clerical cost time +
$16,400 for financial professional time + $2,600 for
mailing.
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Terminating
plans (in previous RIA)
Total
2⁄3 of the affected plans that are not
chapter 7 plans).
Notice of bankruptcy trustee’s
appointment—Chapter 7 Plans: For the
estimated 165 chapter 7 plans, an
additional cost would be incurred for
the qualified termination administrator
to attach a copy of the notice on the case
docket or order for relief reflecting the
bankruptcy trustee’s appointment to
administer the plan sponsor’s chapter 7
liquidation case as well as identification
information regarding the bankruptcy
trustee. The Department estimates that it
will take 15 minutes of a financial
professional’s time to prepare the
statement and collect required
documents and five minutes of clerical
time to make required copies. This is
expected to impose an additional hour
burden of approximately 41 hours (165
plans × .25) on the financial
professionals and a cost burden of
$2,700 (41 hours × $66.36 per hour) on
the financial professionals. For the
clerical professionals, the hour burden
is estimated at 14 hours (165 plans ×
.0833 hours) and associated cost burden
is $400 (14 hours × $28.21 per hour).
Material requirements are expected to
be 10 pages, costing $66 in total ($0.50
per affected plan × .80 fraction of plans
that submit initial notices by paper ×
165 plans). The proposed rule requires
the notice or order entered in the case
reflecting the bankruptcy trustee’s
appointment to be included with the
initial notice. Thus, the total cost of this
filing requirement is $3,200 ($2,700 +
$400 + $66), all of which is for the 165
Chapter 7 plans.
Notice to Participants and
Beneficiaries: The ERISA Advisory
Council in the Report of the Working
Group on Orphan Plans had indicated
most abandoned plans are small plans
with 25 or fewer participants and
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beneficiaries. Thus, initially the
Department conservatively estimated
that there were 20 participants per plan
impacted by the Abandoned Plan
Regulations. However, after the
inception of the Abandoned Plan
Program, updated filings data provided
by the Office of Enforcement show that
in no year were there on average more
than six participants per filing plan. The
Department estimates that, using this
updated information, approximately 330
plans will apply each year if the
Abandoned Plan Regulations remain
unchanged. This covers a maximum of
1,980 participants (330 plans × 6
participants per plan). With bankruptcy
trustees being permitted to wind up the
plans of sponsors in chapter 7
liquidation under the Abandoned Plan
Regulations, the Department estimates
that there will be a 50 percent increase
in applications, bringing the total
number of filings up to 495 (330 plans
× 1.5). Assuming that chapter 7 plans
have roughly the same number of
participants as abandoned plans, the
total number of participants affected
would be 2,970 (495 plans × 6
participants per plan).
The Department estimates that for
each of the estimated 495 terminating
plans, a QTA may utilize 5 minutes of
a financial professional’s time to review
the notices. Clerical staff will spend on
average 30 minutes preparing and
mailing the notices (5 minutes per
participant × 6 participants). This
results in approximately 248 hours (495
plans × 6 participants per plan × .0833
hours per participant) of clerical staff
time with an associated cost burden of
$7,000 (248 hours × $28.21 per hour)
and 41 hours (495 plans × .0833 hours
per plan) of a financial professional’s
time with an associated cost burden of
approximately $2,700 (41 hours ×
$66.36 per hour).
The model notice to participants is
two pages. Therefore, the mailing and
material costs are estimated to be 55
cents per mailing (2 × $.05 + $0.45). Of
the 2,970 participants (495 plans × 6
participants per plan), 38 percent are
expected to receive their notices
electronically. The Department
estimates that 1,840 participants will
receive the notice by mail, creating a
mailing cost burden of $1,000. In total,
the cost burden from the notice to the
participants and beneficiaries
requirement is approximately $10,700.24
Because 1⁄3 of the affected plans are
chapter 7 plans, $3,600 of the burden is
expected to be for the chapter 7 plans
24 $7,000 in clerical costs + $2,700 in financial
professional costs + $1,000 in mailing costs.
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Jkt 229001
and $7,100 for the 2⁄3 of affected plans
that are abandoned.
Final Notice: The Department
estimates that for each of the estimated
495 terminating plans, a qualified
termination administrator will utilize 10
minutes of a financial professional’s
time to review the forms. Clerical staff
will spend, on average, 10 minutes per
notice preparing and mailing the
notices. This results in about 83 hours
(495 plans × .167 hours) of clerical staff
time with an associated cost burden of
$2,300 (83 hours × $28.21 per hour) and
83 hours of a financial professional’s
time (495 plans × .167 hours) with an
associated cost burden of $5,500 (83
hours × $66.36 per hour).
The Department assumes that, as a
usual and customary business practice,
the final notice to the Department will
be sent by a method requiring
acknowledgement of receipt. The model
final notice is two pages. Therefore, the
material costs are estimated to be $.10
per plan and postage of $6.35 per plan.
For the 70 percent of plans that are
expected to submit their applications by
mail, total mailing costs are estimated to
be $2,200 for the 495 notices (($6.35 per
plan for mailing +$.10 for materials) ×
495 plans × .70 fraction of plans
submitting by mail). Thus, there is
approximately $10,000 in total costs for
the final notice. Of that total,
approximately $3,300 is dedicated to
the 1⁄3 of affected plans that are chapter
7 plans and $6,700 is attributable to the
330 qualified termination administrator
filings for the 2⁄3 of plans that are
abandoned.
Reporting Requirement for Prior Plan
Fiduciary Breaches: As discussed earlier
in this preamble, the proposed
amendments would require qualified
termination administrators to chapter 7
plans (whether they are bankruptcy
trustees or eligible designees) to report
to the Department known delinquent
contributions (employer and employee)
owed to the plan, and any activity that
the qualified termination administrator
believes may be evidence of other
fiduciary breaches by a prior plan
fiduciary that involve plan assets. This
information must be reported in
conjunction with the filing of the final
notice or notice of plan abandonment. If
a bankruptcy trustee designates an
eligible designee as defined in
paragraph (j)(1)(ii) of the proposal, the
bankruptcy trustee shall provide the
eligible designee with records under the
control of the bankruptcy trustee to
enable the eligible designee to carry out
its responsibilities. If, after the eligible
designee completes the winding up of
the plan, the bankruptcy trustee, in
administering the debtor’s estate,
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Frm 00012
Fmt 4701
Sfmt 4702
discovers additional information that it
believes may be evidence of fiduciary
breaches by a prior plan fiduciary that
involve plan assets, the bankruptcy
trustee shall report such activity to the
Department.
While the Department has no basis for
estimating the percentage of
arrangements where the qualified
termination administrator must report
known delinquent contributions or a
past fiduciary breach, the Department
assumes for purposes of this analysis
that a report will be required in 10
percent of the applications from chapter
7 plans. Thus, given that there are an
estimated 165 chapter 7 plans utilizing
the exemption, the Department
estimates that 17 plans will need to
prepare and send this notice. The
Department anticipates that one-half
hour of a financial professional’s time
will be required to prepare the notice
and five minutes of clerical time will be
required to send the notice. The
Department therefore estimates that the
burden for plans to send the notice to
EBSA’s Office of Enforcement will be
approximately 10 hours (17 plans × (.5
financial professional hours per plan +
.0833 clerical hours per plan)) with a
cost of $600 for trustees (17 plans × .5
financial professional hours × $66.36/
hour + 17 plans × .0833 clerical hours
× $28.21/hour) to send the notice. The
Department anticipates that most of
these notices will be filed with the final
notice; therefore, this analysis includes
no additional mailing cost. Each notice
is expected to cost $0.10 (2 × $0.05). The
Department estimates that 70 percent of
the plans are expected to submit the
final filing by mail, resulting in an
additional material cost burden of $1.19
(17 × .7 fraction submitting by mail ×
$.10). Thus, this new requirement
amounts to a cost burden of
approximately $600, which is
exclusively imposed on chapter 7 plans.
Special Terminal Report for
Abandoned Plans (29 CFR 2520.103–
13): The Department estimates that it
will take small plans 3.25 hours to file
the STRAP in accordance with the
instructions on the Department’s web
site. It is assumed that a financial
accounting professional will perform
this task resulting in an hour burden of
1,600 hours and a cost burden of $66.36
per hour resulting in a cost burden of
$106,800 (3.25 hours × $66.36 per hour
× 495 plans). For STRAPs submitted
electronically, no burden is estimated
for paper or mailing costs. For the
assumed 70 percent of plans that submit
their STRAPs by mail, the additional
costs will be approximately $100 (495
plans × 6 pages per terminal report ×
$.05/page × .70 fraction of plans that
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submit final notices by mail). Thus, the
total cost associated with the report is
approximately $106,800 ($106,700 in
financial accounting costs and $100 in
material costs). Of this total, $35,600 is
attributable to the 1⁄3 of plans that are
chapter 7 plans and $71,200 is
attributable to the 1⁄3 of plans that are
abandoned. Only the chapter 7 plan
costs represent new costs.
Safe Harbor for Distributions from
Terminated Individual Account Plans
(29 CFR 2550.404a–3): The PRA
analysis also includes the burden
associated with the notice to
participants as required under ‘‘The
Safe Harbor for Distributions from
Terminated Individual Account Plans.’’
To meet the safe harbor, fiduciaries of
terminating plans (other than
abandoned plans) must furnish a notice
to participants and beneficiaries
informing them of the plan’s
termination and the options available
for distribution of their account
balances. The Department estimates that
3.1 million participants and
beneficiaries will receive notices from
approximately 39,000 plan sponsors.25
The Department estimates that clerical
professionals will spend, on average,
two minutes per notice preparing and
distributing the notices. The benefits
manager will spend approximately 10
minutes preparing the notice. This
results in an equivalent cost burden of
$3.5 million calculated as follows: $2.92
million per year (3.1 million
participants × .033 hours per participant
× $28.21 per hour) in clerical time, and
$607,000 (39,000 plans × .167 hours per
plan × $93.31 per hour) in benefit
manager costs. In addition, the
Department assumes that each
participant will receive a one page
notice by first class mail resulting in a
cost burden of $961,000 (3.1 million
notices × ($0.45 for postage + ($0.05 per
page × 1 page) × 0.62). Thus, with the
updated numbers, total cost burden for
terminating plans is $4.48 million. This
total includes $3.49 million in
equivalent costs from plan clerical time
($2.92 million) and plan benefit
manager time ($607,000). There is also
$961,000 in cost attributable to mailing
the notices. These costs are not
attributable to the proposed
amendments allowing chapter 7 trustees
to participate in the Abandoned Plan
Program. They reflect the Department’s
revised estimates of the entire
Abandoned Plans Program and take into
account the most recent Form 5500 data.
25 These estimates for the number of participants
and sponsors are based on 2008 Form 5500 Data
filings.
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Abandoned Plan Class Exemption,
PTE 2006–06: PTE 2006–06 permits a
qualified termination administrator of
an individual account plan that has
been abandoned by its sponsoring
employer to select itself or an affiliate to
provide services to the plan in
connection with the termination of the
plan, and to pay itself or an affiliate fees
for these services, provided that such
fees are consistent with the conditions
of the exemption. The exemption also
permits a qualified termination
administrator to: designate itself or an
affiliate as a provider of an individual
retirement plan or other account; select
a proprietary investment product as the
initial investment for the rollover
distribution of benefits for a participant
or beneficiary who fails to make an
election regarding the disposition of
such benefits; and pay itself or its
affiliate in connection with the rollover.
Currently, PTE 2006–06 and the
accompanying Abandoned Plan
Regulations do not cover plans of
sponsors involved in chapter 7
bankruptcy proceedings. In this regard,
bankruptcy trustees do not meet the
definition of qualified termination
administrator as set forth in the existing
Abandoned Plan Regulations and the
class exemption. The proposed
amendments expand the definition of
qualified termination administrator to
include bankruptcy trustees and certain
persons designated by them to act as
qualified termination administrators in
terminating and winding up the affairs
of abandoned plans. The Department
believes that the proposed amendments
to the Abandoned Plan Regulations and
PTE 2006–06 will incentivize many
bankruptcy trustees to carryout plan
terminations consistent with ERISA,
which will ultimately benefit
participants and beneficiaries of such
plans by ensuring abandoned plans are
terminated in an orderly and costeffective manner.
Compliance with the proposed
amendments to the Abandoned Plan
Regulations is a condition of the
proposed amendment to the class
exemption; therefore the costs and
benefits that would be associated with
complying with the proposed
amendment to the class exemption have
been described and quantified in
connection with the economic impact of
the proposed regulatory amendments. In
its current and proposed amendment
form, PTE 2006–06 requires, among
other things, that fees and expenses paid
to the qualified termination
administrator and an affiliate in
connection with the termination of an
abandoned plan are consistent with
industry rates for such or similar
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74075
services, and are not in excess of rates
ordinarily charged by the qualified
termination administrator (or affiliate)
for the same or similar services
provided to customers that are not plans
terminated pursuant to the Abandoned
Plan Regulations, if the qualified
termination administrator (or affiliate)
provides the same or similar services to
such other customers. The class
exemption, in its current and proposed
amendment form, also requires that
qualified termination administrators
ensure that the records necessary to
determine whether the conditions of the
exemption have been met are
maintained for a period of six years, so
that they may be available for inspection
by any account holder of an individual
retirement plan or other account
established pursuant to this exemption,
or any duly authorized representative of
such account holder, the Internal
Revenue Service, and the Department.
Banks, insurance companies, and other
financial institutions that provide
services to abandoned plans and their
participants and beneficiaries are
required to act in accordance with
customary business practices, which
would include maintaining the records
required under the terms of the class
exemption, both in its current and
proposed amendment form.
Accordingly, the recordkeeping burden
attributable to the proposed amendment
will be handled by the qualified
termination administrator and is
expected to be small. However, there is
an additional cost to directing this
process. The Department assumes that a
supervisor must devote time to each
case in order to study the details of the
individual plan, determine whether
there have been any violations, and
ensure that these details are properly
incorporated into the notices. Assuming
that all qualified termination
administrators will take advantage of
the proposed exemption, the hour
burden attributable to supervisory
duties for qualified termination
administrators of abandoned plans
(including familiarization costs for new
qualified termination administrators) is
expected to be one half hour for each
qualified termination administrator, or
248 hours. Assuming a financial
manager’s wage rate of $113.39 per
hour, this supervisory cost is expected
to total $28,100 ($113.39 × 248).
Approximately $9,400 of this cost (1⁄3 of
the costs since 165 of the 495 estimated
affected plans are chapter 7 plans) is
expected to be attributable to financial
manager costs dealing with chapter 7
plans and the remaining $18,700 of
costs are attributable to financial
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managers dealing with the 2⁄3 of
abandoned plans.
Also, in certain limited
circumstances, both the current
exemption and proposed amendment to
PTE 2006–06 require qualified
termination administrators to provide
the Department with a statement under
penalty of perjury that services were
performed and a copy of the executed
contract between the qualified
termination administrator and a plan
fiduciary or plan sponsor. The
Department does not include burden for
these requirements as the burden is
small, and the statement and contract
can be included with other notices sent
to the Department.
Type of Review: Proposed Revision of
Existing Collection.
Agency: Employee Benefits Security
Administration, Department of Labor.
Title: Notices for Terminated
Abandoned Individual Account Plans.
OMB Number: 1210–0127
Affected public: Individuals or
households; business or other for-profit;
not-for-profit institutions.
Respondents: 39,495.
Responses: 3,103,960.
Frequency of Response: One time.
Estimated Total Burden Hours:
109,833.
Equivalent Costs of Hour Burden:
$3,520,000.
Cost Burden: $ 1,150,000.
7. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to
Federal rules that are subject to the
notice and comment requirements of
section 553(b) of the Administrative
Procedure Act (5 U.S.C. 551 et seq.) and
which are likely to have a significant
economic impact on a substantial
number of small entities. Unless an
agency determines that a proposed rule
is not likely to have a significant
economic impact on a substantial
number of small entities, section 603 of
the RFA requires that the agency present
an initial regulatory flexibility analysis
at the time of the publication of the
notice of proposed rulemaking
describing the impact of the rule on
small entities and seeking public
comment on such impact. Small entities
include small businesses, organizations
and governmental jurisdictions.
For purposes of analysis under the
RFA, EBSA proposes to continue to
consider a small entity to be an
employee benefit plan with fewer than
100 participants. The basis of this
definition is found in section 104(a)(2)
of ERISA that permits the Secretary of
Labor to prescribe simplified annual
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reports for pension plans that cover
fewer than 100 participants. Under
section 104(a)(3), the Secretary may also
provide for exemptions or simplified
annual reporting and disclosure for
welfare benefit plans. Pursuant to the
authority of section 104(a)(3), the
Department has previously issued at 29
CFR 2520.104–20, 2520.104–21,
2520.104–41, 2520.104–46 and
2520.104b–10 certain simplified
reporting provisions and limited
exemptions from reporting and
disclosure requirements for small plans,
including unfunded or insured welfare
plans, covering fewer than 100
participants and which satisfy certain
other requirements.
Further, while some large employers
may have small plans, in general small
employers maintain most small plans.
Thus, EBSA believes that assessing the
impact of these proposed rules on small
plans is an appropriate substitute for
evaluating the effect on small entities.
The definition of small entity
considered appropriate for this purpose
differs, however, from a definition of
small business which is based on size
standards promulgated by the Small
Business Administration (SBA) (13 CFR
121.201) pursuant to the Small Business
Act (15 U.S.C. 631 et seq.). EBSA
therefore requests comments on the
appropriateness of the size standard
used in evaluating the impact of these
proposed rules on small entities.
EBSA has preliminarily determined
that these proposed rules may have a
significant beneficial economic impact
on a substantial number of small
entities. In an effort to provide a sound
basis for this conclusion, EBSA has
prepared the following initial regulatory
flexibility analysis. To the Department’s
knowledge, there are no federal
regulations that might duplicate,
overlap, or conflict with the provisions
of the proposed amendments to the
Abandoned Plan Regulations.
As explained earlier in the preamble,
currently, the Abandoned Plan Program
does not extend to plans sponsored by
employers undergoing liquidation under
chapter 7 of title 11 of the United States
Code. Over the years, the Department
has observed that, on numerous
occasions, bankruptcy trustees have not
terminated abandoned plans in an
orderly and efficient manner. In many
instances, such trustees are unaware of
their fiduciary obligations under ERISA
with respect to terminating plans of
debtors and processes through which to
wind up such plans.
The Department believes that the
participants and beneficiaries would
benefit from removing existing
impediments that prevent chapter 7
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bankruptcy trustees from terminating
and winding up abandoned plans.
Therefore, the Department is proposing
to amend the Abandoned Plan
Regulations (the three regulations and
the related class exemption) to enable
bankruptcy trustees to terminate
abandoned plans in a manner consistent
with ERISA and current regulations.
The amendments would provide
bankruptcy trustees with the option to
serve as qualified termination
administrators or to designate as a
qualified termination administrator any
person or entity that is eligible to serve
as a trustee or issuer of an individual
retirement plan and that holds assets of
the chapter 7 plan. The Department
believes that these amendments will
help to preserve the assets of such
abandoned plans, thereby maximizing
benefits ultimately payable to
participants and beneficiaries.
As described earlier in the preamble,
the Department estimates that 330
abandoned plans (other than chapter 7
plans) would file under the Abandoned
Plan Program. Essentially all abandoned
plans are assumed to be small plans.
Therefore, the more detailed discussion
earlier in the preamble on the costs and
benefits of the proposed amendments is
applicable to this analysis of costs and
benefits under the RFA. In summary,
the net benefits of terminating an
estimated 330 abandoned plans per year
under the proposed amendments is
$490,000. Thus, the estimated beneficial
impact per plan is approximately $1,500
($490,000/330 plans) before accounting
for fees in individual retirement
accounts to which participants and
beneficiaries could rollover their
distributed account balances. This net
benefit analysis is an update of the 2006
estimate, with new information
submitted to the Department’s Office of
Enforcement informing the analysis.
8. Congressional Review Act
This proposed amendment is subject
to the Congressional Review Act
provisions of the Small Business
Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and, if
finalized, will be transmitted to the
Congress and the Comptroller General
for review.
9. Unfunded Mandates Reform Act
For purposes of the Unfunded
Mandates Reform Act of 1995 (Pub. L.
104–4), as well as Executive Order
12875, the proposed rule does not
include any Federal mandate that will
result in expenditures by state, local, or
tribal governments in the aggregate of
more than $100 million, adjusted for
inflation, or increase expenditures by
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the private sector of more than $100
million, adjusted for inflation.
PART 2520—RULES AND
REGULATIONS FOR REPORTING AND
DISCLOSURE
10. Federalism Statement
Executive Order 13132 (August 4,
1999) outlines fundamental principles
of federalism and requires the
adherence to specific criteria by Federal
agencies in the process of their
formulation and implementation of
policies that have substantial direct
effects on the States, the relationship
between the national government and
the States, or on the distribution of
power and responsibilities among the
various levels of government. This
proposed rule does not have federalism
implications because it has no
substantial direct effect on the States, on
the relationship between the national
government and the States, or on the
distribution of power and
responsibilities among the various
levels of government. Section 514 of
ERISA provides, with certain exceptions
specifically enumerated, that the
provisions of Titles I and IV of ERISA
supersede any and all laws of the States
as they relate to any employee benefit
plan covered under ERISA. The
requirements implemented in the
proposed rule do not alter the
fundamental provisions of the statute
with respect to employee benefit plans,
and as such would have no implications
for the States or the relationship or
distribution of power between the
national government and the States.
List of Subjects
29 CFR Part 2520
Accounting, Employee benefit plans,
Pensions, Reporting and recordkeeping
requirements.
29 CFR Part 2550
Employee benefit plans, Employee
Retirement Income Security Act,
Employee stock ownership plans,
Exemptions, Fiduciaries, Investments,
Investments foreign, Party in interest,
Pensions, Pension and Welfare Benefit
Programs Office, Prohibited
transactions, Real estate, Securities,
Surety bonds, Trusts and Trustees.
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29 CFR Part 2578
Employee benefit plans, Pensions,
Retirement.
For the reasons set forth in the
preamble, the Department of Labor
proposes to amend 29 CFR chapter XXV
as follows:
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1. The authority citation for part 2520
is revised to read as follows:
Authority: 29 U.S.C. 1021–1025, 1027,
1029–31, 1059, 1134 and 1135; and Secretary
of Labor’s Order 1–2011, 77 FR 1088 (Jan. 9,
2012). Sec. 2520.101–2 also issued under 29
U.S.C. 1132, 1181–1183, 1181 note, 1185,
1185a–b, 1191, and 1191a–c. Sec. 2520.101–
4 also issued under 29 U.S.C. 1021(f). Sec.
2520.101–6 also issued under 29 U.S.C.
1021(k) and Pub. L. 109–280, § 502(a)(3), 120
Stat. 780, 940 (2006). Secs. 2520.102–3,
2520.104b–1 and 2520.104b–3 also issued
under 29 U.S.C. 1003, 1181–1183, 1181 note,
1185, 1185a–b, 1191, and 1191a–c. Secs.
2520.104b–1 and 2520.107 also issued under
26 U.S.C. 401 note, 111 Stat. 788.
2. Revise § 2520.103–13 to read as
follows:
§ 2520.103–13 Special terminal report for
abandoned plans.
(a) General. The terminal report
required to be filed by the qualified
termination administrator pursuant to
§ 2578.1(d)(2)(viii) of this chapter shall
consist of the items set forth in
paragraph (b) of this section. Such
report shall be filed in accordance with
the method of filing set forth in
paragraph (c) of this section and at the
time set forth in paragraph (d) of this
section.
(b) Contents. The terminal report
described in paragraph (a) of this
section shall contain:
(1) Identification information
concerning the bankruptcy trustee and,
if applicable, any eligible designee
acting as the qualified termination
administrator pursuant to
§ 2578.1(j)(1)(ii), and the plan being
terminated.
(2) The total assets of the plan as of
the date the plan was deemed
terminated under § 2578.1(c) of this
chapter, prior to any reduction for
termination expenses and distributions
to participants and beneficiaries.
(3) The total termination expenses
paid by the plan and a separate
schedule identifying each service
provider and amount received, itemized
by expense.
(4) The total distributions made
pursuant to § 2578.1(d)(2)(vii) of this
chapter and a statement regarding
whether any such distributions were
transfers under § 2578.1(d)(2)(vii)(B) of
this chapter.
(5) The identification, fair market
value and method of valuation of any
assets with respect to which there is no
readily ascertainable fair market value.
(c) Method of filing. The terminal
report described in paragraph (a) shall
be filed:
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74077
(1) On the most recent Form 5500
available as of the date the qualified
termination administrator satisfies the
requirements in § 2578.1(d)(2)(i)
through § 2578.1(d)(2)(vii) of this
chapter; and
(2) In accordance with the
instructions on EBSA’s Web site
(https://www.dol.gov/ebsa/publications/
APterminalreport.html) pertaining to
terminal reports of qualified termination
administrators.
(d) When to file. The qualified
termination administrator shall file the
terminal report described in paragraph
(a) within two months after the end of
the month in which the qualified
termination administrator satisfies the
requirements in § 2578.1(d)(2)(i)
through § 2578.1(d)(2)(vii) of this
chapter.
(e) Limitation. (1) Except as provided
in this section, no report shall be
required to be filed by the qualified
termination administrator under part 1
of title I of ERISA for a plan being
terminated pursuant to § 2578.1 of this
chapter.
(2) Filing of a report under this
section by the qualified termination
administrator shall not relieve any other
person from any obligation under part 1
of title I of ERISA.
PART 2550—RULES AND
REGULATIONS FOR FIDUCIARY
RESPONSIBILITY
3. The authority citation for part 2550
is revised to read as follows:
Authority: 29 U.S.C. 1135, sec. 102,
Reorganization Plan No. 4 of 1978, 5 U.S.C.
App. 1 and Secretary of Labor’s Order No. 1–
2011, 77 FR 1088 (Jan. 9, 2012). Sec.
2550.401c–1 also issued under 29 U.S.C.
1101. Sec. 2550.404a–2 also issued under
sec. 657, Pub. L. 107–16, 115 Stat. 38.
Sections 2550.404c–1 and 2550.404c–5 also
issued under 29 U.S.C. 1104. Sec. 2550.408b–
1 also issued under 29 U.S.C. 1108(b)(1). Sec.
2550.408b–19 also issued under sec. 611,
Pub. L. 109–280, 120 Stat. 780, 972. Sec.
2550.412–1 also issued under 29 U.S.C. 1112.
4. Revise § 2550.404a–3 to read as
follows:
§ 2550.404a–3 Safe harbor for
distributions from terminated individual
account plans.
(a) General. (1) This section provides
a safe harbor under which a fiduciary
(including a qualified termination
administrator, within the meaning of
§ 2578.1(g) or (j)(1)(ii) of this chapter) of
a terminated individual account plan, as
described in paragraph (a)(2) of this
section, will be deemed to have satisfied
its duties under section 404(a) of the
Employee Retirement Income Security
Act of 1974, as amended (the Act)), 29
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U.S.C. 1001 et seq., in connection with
a distribution described in paragraph (b)
of this section.
(2) This section shall apply to an
individual account plan only if—
(i) In the case of an individual
account plan that is an abandoned plan
within the meaning of § 2578.1 of this
chapter, such plan was intended to be
maintained as a tax-qualified plan in
accordance with the requirements of
section 401(a), 403(a), or 403(b) of the
Internal Revenue Code of 1986 (Code);
or
(ii) In the case of any other individual
account plan, such plan is maintained
in accordance with the requirements of
section 401(a), 403(a), or 403(b) of the
Code at the time of the distribution.
(3) The standards set forth in this
section apply solely for purposes of
determining whether a fiduciary meets
the requirements of this safe harbor.
Such standards are not intended to be
the exclusive means by which a
fiduciary might satisfy his or her
responsibilities under the Act with
respect to making distributions
described in this section.
(b) Distributions. This section shall
apply to a distribution from a
terminated individual account plan if,
in connection with such distribution:
(1) The participant or beneficiary, on
whose behalf the distribution will be
made, was furnished notice in
accordance with paragraph (e) of this
section or, in the case of an abandoned
plan, § 2578.1(d)(2)(vi) of this chapter,
and
(2) The participant or beneficiary
failed to elect a form of distribution
within 30 days of the furnishing of the
notice described in paragraph (b)(1) of
this section.
(c) Safe harbor. A fiduciary that meets
the conditions of paragraph (d) of this
section shall, with respect to a
distribution described in paragraph (b)
of this section, be deemed to have
satisfied its duties under section 404(a)
of the Act with respect to the
distribution of benefits, selection of a
transferee entity described in paragraph
(d)(1)(i) through (iii) of this section, and
the investment of funds in connection
with the distribution.
(d) Conditions. A fiduciary shall
qualify for the safe harbor described in
paragraph (c) of this section if:
(1) The distribution described in
paragraph (b) of this section is made to
any of the following transferee entities—
(i) To an individual retirement plan
within the meaning of section
7701(a)(37) of the Code;
(ii) In the case of a distribution on
behalf of a designated beneficiary (as
defined by section 401(a)(9)(E) of the
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Code) who is not the surviving spouse
of the deceased participant, to an
inherited individual retirement plan
(within the meaning of section
402(c)(11) of the Code) established to
receive the distribution on behalf of the
nonspouse beneficiary; or
(iii) In the case of a distribution by a
qualified termination administrator
(other than a bankruptcy trustee
described in § 2578.1(j)(1)(ii)) with
respect to which the amount to be
distributed is $1,000 or less and that
amount is less than the minimum
amount required to be invested in an
individual retirement plan product
offered by the qualified termination
administrator to the public at the time
of the distribution, to:
(A) An interest-bearing federally
insured bank or savings association
account in the name of the participant
or beneficiary,
(B) The unclaimed property fund of
the State in which the participant’s or
beneficiary’s last known address is
located, or
(C) An individual retirement plan
(described in paragraph (d)(1)(i) or
(d)(1)(ii) of this section) offered by a
financial institution other than the
qualified termination administrator to
the public at the time of the
distribution.
(iv) In the case of a distribution by a
bankruptcy trustee as described in
§ 2578.1(j)(1)(ii) with respect to which
the amount to be distributed is $1,000
or less and the bankruptcy trustee, after
reasonable and good faith efforts, is
unable to locate an individual
retirement plan provider who will
accept the distribution, to either
distribution option described in
paragraph (d)(1)(iii)(A) or (B) of this
section.
(v) Notwithstanding paragraphs
(d)(1)(iii) and (iv) of this section, the
$1,000 threshold may be disregarded in
any particular case if the qualified
termination administrator reasonably
and in good faith finds that the
participant and, if applicable, the
named beneficiary are deceased; and if
the qualified termination administrator
also includes in the notice described in
§ 2578.1(d)(2)(ix)(G) (the Final Notice)
the identity of the deceased participant
and beneficiary and the basis behind the
finding.
(2) Except with respect to
distributions to State unclaimed
property funds (described in paragraph
(d)(1)(iii)(B) of this section), the
fiduciary enters into a written
agreement with the transferee entity
which provides:
(i) The distributed funds shall be
invested in an investment product
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designed to preserve principal and
provide a reasonable rate of return,
whether or not such return is
guaranteed, consistent with liquidity
(except that distributions under
paragraph (d)(1)(iii)(A) of this section to
a bank or savings account are not
required to be invested in such a
product);
(ii) For purposes of paragraph (d)(2)(i)
of this section, the investment product
shall—
(A) Seek to maintain, over the term of
the investment, the dollar value that is
equal to the amount invested in the
product by the individual retirement
plan (described in paragraph (d)(1)(i) or
(d)(1)(ii) of this section), and
(B) Be offered by a State or federally
regulated financial institution, which
shall be: a bank or savings association,
the deposits of which are insured by the
Federal Deposit Insurance Corporation;
a credit union, the member accounts of
which are insured within the meaning
of section 101(7) of the Federal Credit
Union Act; an insurance company, the
products of which are protected by State
guaranty associations; or an investment
company registered under the
Investment Company Act of 1940;
(iii) All fees and expenses attendant to
the transferee plan (described in
paragraph (d)(1)(i) or (d)(1)(ii) of this
section) or account (described in
paragraph (d)(1)(iii)(A) of this section),
including investments of such plan,
(e.g., establishment charges,
maintenance fees, investment expenses,
termination costs and surrender
charges), shall not exceed the fees and
expenses charged by the provider of the
plan or account for comparable plans or
accounts established for reasons other
than the receipt of a distribution under
this section; and
(iv) The participant or beneficiary on
whose behalf the fiduciary makes a
distribution shall have the right to
enforce the terms of the contractual
agreement establishing the plan
(described in paragraph (d)(1)(i) or
(d)(1)(ii) of this section) or account
(described in paragraph (d)(1)(iii)(A) of
this section), with regard to his or her
transferred account balance, against the
plan or account provider.
(3) Both the fiduciary’s selection of a
transferee plan (described in paragraph
(d)(1)(i) or (d)(1)(ii) of this section) or
account (described in paragraph
(d)(1)(iii)(A) of this section) and the
investment of funds would not result in
a prohibited transaction under section
406 of the Act, or if so prohibited such
actions are exempted from the
prohibited transaction provisions by a
prohibited transaction exemption issued
pursuant to section 408(a) of the Act.
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(e) Notice to participants and
beneficiaries. (1) Content. Each
participant or beneficiary of the plan
shall be furnished a notice written in a
manner calculated to be understood by
the average plan participant and
containing the following:
(i) The name of the plan;
(ii) A statement of the account
balance, the date on which the amount
was calculated, and, if relevant, an
indication that the amount to be
distributed may be more or less than the
amount stated in the notice, depending
on investment gains or losses and the
administrative cost of terminating the
plan and distributing benefits;
(iii) A description of the distribution
options available under the plan and a
request that the participant or
beneficiary elect a form of distribution
and inform the plan administrator (or
other fiduciary) identified in paragraph
(e)(1)(vii) of this section of that election;
(iv) A statement explaining that, if a
participant or beneficiary fails to make
an election within 30 days from receipt
of the notice, the plan will distribute the
account balance of the participant or
beneficiary to an individual retirement
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plan (i.e., individual retirement account
or annuity described in paragraph
(d)(1)(i) or (d)(1)(ii) of this section) and
the account balance will be invested in
an investment product designed to
preserve principal and provide a
reasonable rate of return and liquidity;
(v) A statement explaining what fees,
if any, will be paid from the participant
or beneficiary’s individual retirement
plan (described in paragraph (d)(1)(i) or
(d)(1)(ii) of this section), if such
information is known at the time of the
furnishing of this notice;
(vi) The name, address and phone
number of the individual retirement
plan (described in paragraph (d)(1)(i) or
(d)(1)(ii) of this section) provider, if
such information is known at the time
of the furnishing of this notice; and
(vii) The name, address, and
telephone number of the plan
administrator (or other fiduciary) from
whom a participant or beneficiary may
obtain additional information
concerning the termination.
(2) Manner of furnishing notice. (i)
For purposes of paragraph (e)(1) of this
section, a notice shall be furnished to
each participant or beneficiary in
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74079
accordance with the requirements of
§ 2520.104b–1(b)(1) of this chapter to
the last known address of the
participant or beneficiary; and
(ii) In the case of a notice that is
returned to the plan as undeliverable,
the plan fiduciary shall, consistent with
its duties under section 404(a)(1) of
ERISA, take steps to locate the
participant or beneficiary and provide
notice prior to making the distribution.
If, after such steps, the fiduciary is
unsuccessful in locating and furnishing
notice to a participant or beneficiary,
the participant or beneficiary shall be
deemed to have been furnished the
notice and to have failed to make an
election within 30 days for purposes of
paragraph (b)(2) of this section.
(f) Model notice. The appendix to this
section contains a model notice that
may be used to discharge the
notification requirements under this
section. Use of the model notice is not
mandatory. However, use of an
appropriately completed model notice
will be deemed to satisfy the
requirements of paragraph (e)(1) of this
section.
BILLING CODE 4510–29–P
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APPENDIX TO § 2550A04a-3
NOTICE OF PLAN TERMINATION
[Date of notice]
[Name and last known address o..fplan participant or beneficiary]
Re: [Name ofplan]
Dear [Name ofplan participant or beneficiary]:
This notice is to inform you that [name of the plan] (the Plan) has been terminated and we are in
the process of winding it up.
We have determined that you have an interest in the Plan, either as a plan participant or
beneficiary. Your account balance in the Plan on [date] is/was [account balance]. We will be
distributing this money as permitted under the terms of the Plan and federal regulations. {If
applicable, insert the following sentence: The actual amount of your distribution may be more or
less than the amount stated in this notice depending on investment gains or losses and the
administrative cost of terminating your plan and distributing your benefits.}
Your distribution options under the Plan are {add a description of the Plan's distribution
options}. It is very important that you elect one of these forms of distribution and inform us of
your election. The process for informing us of this election is {enter a description of the Plan's
election process}.
If you do not make an election within 30 days from your receipt of this notice, your account
balance will be transferred directly to an individual retirement plan (inherited individual
retirement plan in the case of a nonspouse beneficiary). {If the name of the provider of the
individual retirement plan is known, include the following sentence: The name of the provider of
the individual retirement plan is [name, address and phone number of the individual retirement
plan provider].} Pursuant to federal law, your money in the individual retirement plan would
then be invested in an investment product designed to preserve principal and provide a
reasonable rate of return and liquidity. {Iffee information is known, include the following
sentence: Should your money be transferred into an individual retirement plan, [name of the
financial institution] charges the following fees for its services: {add a statement offees, if any,
that will be paid from the participant or beneficiary's individual retirement plan}. }
For more information about the termination, your account balance, or distribution options, please
contact [name, address, and telephone number of the plan administrator or other appropriate
contact person].
BILLING CODE 4510–29–C
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Sincerely,
[Name o..fplan administrator or appropriate designee]
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
PART 2578—RULES AND
REGULATIONS FOR ABANDONED
PLANS
5. The authority citation for part
2578.1 continues to read as follows:
Authority: 29 U.S.C. 1135; 1104(a);
1103(d)(1).
6. Revise § 2578.1 to read as follows:
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§ 2578.1 Termination of abandoned
individual account plans.
(a) General. The purpose of this part
is to establish standards for the
termination and winding up of an
individual account plan (as defined in
section 3(34) of the Employee
Retirement Income Security Act of 1974
(ERISA or the Act)) with respect to
which (1) a qualified termination
administrator has determined there is
no responsible plan sponsor or plan
administrator within the meaning of
section 3(16)(B) and (A) of the Act,
respectively, to perform such acts, or (2)
an order for relief under chapter 7 of
title 11 of the United States Code has
been entered with respect to the plan
sponsor.
(b) Finding of abandonment. (1) A
qualified termination administrator (as
defined in paragraph (g) of this section)
may find an individual account plan to
be abandoned when:
(i) Either: (A) No contributions to, or
distributions from, the plan have been
made for a period of at least 12
consecutive months immediately
preceding the date on which the
determination is being made; or
(B) Other facts and circumstances
(such as communications from
participants and beneficiaries regarding
distributions) known to the qualified
termination administrator suggest that
the plan is or may become abandoned
by the plan sponsor; and
(ii) Following reasonable efforts to
locate or communicate with the plan
sponsor, the qualified termination
administrator determines that the plan
sponsor:
(A) No longer exists;
(B) Cannot be located; or
(C) Is unable to maintain the plan.
(2) Notwithstanding paragraph (b)(1)
of this section, a qualified termination
administrator may not find a plan to be
abandoned if, at any time before the
plan is deemed terminated pursuant to
paragraph (c) of this section, the
qualified termination administrator
receives an objection from the plan
sponsor regarding the finding of
abandonment and proposed
termination.
(3) A qualified termination
administrator shall, for purposes of
paragraph (b)(1)(ii) of this section, be
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deemed to have made a reasonable effort
to locate or communicate with the plan
sponsor if the qualified termination
administrator sends to the last known
address of the plan sponsor, and, in the
case of a plan sponsor that is a
corporation, to the address of the person
designated as the corporation’s agent for
service of legal process, by a method of
delivery requiring acknowledgement of
receipt, the notice described in
paragraph (b)(5) of this section.
(4) If receipt of the notice described in
paragraph (b)(5) of this section is not
acknowledged pursuant to paragraph
(b)(3) of this section, the qualified
termination administrator shall be
deemed to have made a reasonable effort
to locate or communicate with the plan
sponsor if the qualified termination
administrator contacts known service
providers (other than itself) of the plan
and requests the current address of the
plan sponsor from such service
providers and, if such information is
provided, the qualified termination
administrator sends to each such
address, by a method of delivery
requiring acknowledgement of receipt,
the notice described in paragraph (b)(5)
of this section.
(5) The notice referred to in paragraph
(b)(3) of this section shall contain the
following information:
(i) The name and address of the
qualified termination administrator;
(ii) The name of the plan;
(iii) The account number or other
identifying information relating to the
plan;
(iv) A statement that the plan may be
terminated and benefits distributed
pursuant to 29 CFR 2578.1 if the plan
sponsor fails to contact the qualified
termination administrator within 30
days;
(v) The name, address, and telephone
number of the person, office, or
department that the plan sponsor must
contact regarding the plan;
(vi) A statement that if the plan is
terminated pursuant to 29 CFR 2578.1,
notice of such termination will be
furnished to the U.S. Department of
Labor’s Employee Benefits Security
Administration;
(vii) The following statement: ‘‘The
U.S. Department of Labor requires that
you be informed that, as a fiduciary or
plan administrator or both, you may be
personally liable for costs, civil
penalties, excise taxes, etc. as a result of
your acts or omissions with respect to
this plan. The termination of this plan
will not relieve you of your liability for
any such costs, penalties, taxes, etc.’’;
and
(viii) A statement that the plan
sponsor may contact the U.S.
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74081
Department of Labor for more
information about the federal law
governing the termination and windingup process for abandoned plans and the
telephone number of the appropriate
Employee Benefits Security
Administration contact person.
(c) Deemed termination. (1) Except as
provided in paragraph (c)(2) of this
section, if a qualified termination
administrator finds (pursuant to
paragraph (b)(1) of this section) that an
individual account plan has been
abandoned, or if a plan is considered
abandoned due to the entry of an order
for relief under chapter 7 of title 11 of
the United States Code (pursuant to
paragraph (j)(1)(i) of this section), the
plan shall be deemed to be terminated
on the ninetieth (90th) day following the
date of the letter from EBSA
acknowledging receipt of the notice of
plan abandonment, described in
paragraph (c)(3) or (j)(2) of this section.
(2) If, prior to the end of the 90-day
period described in paragraph (c)(1) of
this section, the Department notifies the
qualified termination administrator that
it—
(i) Objects to the termination of the
plan, the plan shall not be deemed
terminated under paragraph (c)(1) of
this section until the qualified
termination administrator is notified
that the Department has withdrawn its
objection; or
(ii) Waives the 90-day period
described in paragraph (c)(1), the plan
shall be deemed terminated upon the
qualified termination administrator’s
receipt of such notification.
(3) Following a qualified termination
administrator’s finding, pursuant to
paragraph (b)(1) this section, that an
individual account plan has been
abandoned, the qualified termination
administrator shall furnish to the U.S.
Department of Labor a notice of plan
abandonment that is signed and dated
by the qualified termination
administrator and that includes the
following information:
(i) Qualified termination
administrator information. (A) The
name, EIN, address, and telephone
number of the person electing to be the
qualified termination administrator,
including the address, email address,
and telephone number of the person
signing the notice (or other contact
person, if different from the person
signing the notice);
(B) A statement that the person
(identified in paragraph (c)(3)(i)(A) of
this section) is a qualified termination
administrator within the meaning of
paragraph (g) of this section and elects
to terminate and wind up the plan
(identified in paragraph (c)(3)(ii)(A) of
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this section) in accordance with the
provisions of this section;
(ii) Plan information. (A) The name,
address, telephone number, account
number, EIN, and plan number of the
plan with respect to which the person
is electing to serve as the qualified
termination administrator;
(B) The name and last known address
and telephone number of the plan
sponsor; and
(C) The estimated number of
participants and beneficiaries with
accounts in the plan;
(iii) Findings. A statement that the
person electing to be the qualified
termination administrator finds that the
plan (identified in paragraph
(c)(3)(ii)(A) of this section) is abandoned
pursuant to paragraph (b) of this section.
This statement shall include an
explanation of the basis for such a
finding, specifically referring to the
provisions in paragraph (b)(1) of this
section, a description of the specific
steps (set forth in paragraphs (b)(3) and
(b)(4) of this section) taken to locate or
communicate with the known plan
sponsor, and a statement that no
objection has been received from the
plan sponsor;
(iv) Plan asset information. (A) The
estimated value of the plan’s assets held
by the person electing to be the
qualified termination administrator;
(B) The length of time plan assets
have been held by the person electing to
be the qualified termination
administrator, if such period of time is
less than 12 months;
(C) An identification of any assets
with respect to which there is no readily
ascertainable fair market value, as well
as information, if any, concerning the
value of such assets; and
(D) An identification of known
delinquent contributions pursuant to
paragraph (d)(2)(iii) of this section;
(v) Service provider information. (A)
The name, address, and telephone
number of known service providers
(e.g., record keeper, accountant, lawyer,
other asset custodian(s)) to the plan; and
(B) An identification of any services
considered necessary to carry out the
qualified termination administrator’s
authority and responsibility under this
section, the name of the service
provider(s) that is expected to provide
such services, and an itemized estimate
of expenses attendant thereto expected
to be paid out of plan assets by the
qualified termination administrator; and
(vi) Perjury statement. A statement
that the information being provided in
the notice is true and complete based on
the knowledge of the person electing to
be the qualified termination
administrator, and that the information
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is being provided by the qualified
termination administrator under penalty
of perjury.
(d) Winding up the affairs of the plan.
(1) In any case where an individual
account plan is deemed to be terminated
pursuant to paragraph (c) of this section,
the qualified termination administrator
shall take steps as may be necessary or
appropriate to wind up the affairs of the
plan and distribute benefits to the plan’s
participants and beneficiaries.
(2) For purposes of paragraph (d)(1) of
this section, except as provided
pursuant to paragraph (j)(3) of this
section (relating to chapter 7 plans), the
qualified termination administrator
shall:
(i) Update plan records. (A)
Undertake reasonable and diligent
efforts to locate and update plan records
necessary to determine the benefits
payable under the terms of the plan to
each participant and beneficiary.
(B) For purposes of paragraph
(d)(2)(i)(A) of this section, a qualified
termination administrator shall not have
failed to make reasonable and diligent
efforts to update plan records merely
because the administrator determines in
good faith that updating the records is
either impossible or involves significant
cost to the plan in relation to the total
assets of the plan.
(ii) Calculate benefits. Use reasonable
care in calculating the benefits payable
to each participant or beneficiary based
on plan records described in paragraph
(d)(2)(i) of this section. A qualified
termination administrator shall not have
failed to use reasonable care in
calculating benefits payable solely
because the qualified termination
administrator—
(A) Treats as forfeited an account
balance that, taking into account
estimated forfeitures and other assets
allocable to the account, is less than the
estimated share of plan expenses
allocable to that account, and reallocates
that account balance to defray plan
expenses or to other plan accounts in
accordance with (d)(2)(ii)(B) of this
section;
(B) Allocates expenses and
unallocated assets in accordance with
the plan documents, or, if the plan
document is not available, is
ambiguous, or if compliance with the
plan is unfeasible,
(1) Allocates unallocated assets
(including forfeitures and assets in a
suspense account) to participant
accounts on a per capita basis (allocated
equally to all accounts); and
(2) Allocates expenses on a pro rata
basis (proportionately in the ratio that
each individual account balance bears
to the total of all individual account
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balances) or on a per capita basis
(allocated equally to all accounts).
(iii) Report delinquent contributions.
(A) Notify the Department of any known
contributions (either employer or
employee) owed to the plan in
conjunction with the filing of the
notification required in paragraph (c)(3),
(j)(2), or (d)(2)(ix) of this section.
(B) Except as provided in paragraph
(j)(3)(i) of this section, nothing in
paragraph (d)(2)(iii)(A) of this section or
any other provision of the Act shall be
construed to impose an obligation on
the qualified termination administrator
to collect delinquent contributions on
behalf of the plan, provided that the
qualified termination administrator
satisfies the requirements of paragraph
(d)(2)(iii)(A) of this section.
(iv) Engage service providers. Engage,
on behalf of the plan, such service
providers as are necessary for the
qualified termination administrator to
wind up the affairs of the plan and
distribute benefits to the plan’s
participants and beneficiaries in
accordance with paragraph (d)(1) of this
section.
(v) Pay reasonable expenses. (A) Pay,
from plan assets, the reasonable
expenses of carrying out the qualified
termination administrator’s authority
and responsibility under this section.
(B) Expenses of plan administration
shall be considered reasonable solely for
purposes of paragraph (d)(2)(v)(A) of
this section if:
(1) Such expenses are for services
necessary to wind up the affairs of the
plan and distribute benefits to the plan’s
participants and beneficiaries,
(2) Such expenses: (i) Are consistent
with industry rates for such or similar
services, based on the experience of the
qualified termination administrator; and
(ii) Are not in excess of rates
ordinarily charged by the qualified
termination administrator (or affiliate)
for same or similar services provided to
customers that are not plans terminated
pursuant to this section, if the qualified
termination administrator (or affiliate)
provides same or similar services to
such other customers, and
(3) The payment of such expenses
would not constitute a prohibited
transaction under the Act or is
exempted from such prohibited
transaction provisions pursuant to
section 408(a) of the Act.
(vi) Notify participants. (A) Furnish to
each participant or beneficiary of the
plan a notice written in a manner
calculated to be understood by the
average plan participant and containing
the following:
(1) The name of the plan;
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(2) A statement that the plan has been
determined to be abandoned by the plan
sponsor and, therefore, has been
terminated pursuant to regulations
issued by the U.S. Department of Labor;
(3)(i) A statement of the participant’s
or beneficiary’s account balance and the
date on which it was calculated by the
qualified termination administrator, and
(ii) The following statement: ‘‘The
actual amount of your distribution may
be more or less than the amount stated
in this letter depending on investment
gains or losses and the administrative
cost of terminating your plan and
distributing your benefits.’’;
(4) A description of the distribution
options available under the plan and a
request that the participant or
beneficiary elect a form of distribution
and inform the qualified termination
administrator (or designee) of that
election;
(5) A statement explaining that, if a
participant or beneficiary fails to make
an election within 30 days from receipt
of the notice, the qualified termination
administrator (or designee) will
distribute the account balance of the
participant or beneficiary directly:
(i) To an individual retirement plan
(i.e., individual retirement account or
annuity),
(ii) To an inherited individual
retirement plan described in
§ 2550.404a–3(d)(1)(ii) of this chapter
(in the case of a distribution on behalf
of a distributee other than a participant
or spouse),
(iii) In any case where the amount to
be distributed meets the conditions in
§ 2550.404a–3(d)(1)(iii) or (iv), to an
interest-bearing federally insured bank
account, the unclaimed property fund of
the State of the last known address of
the participant or beneficiary, or an
individual retirement plan (described in
§ 2550.404a–3(d)(1)(i) or (d)(1)(ii) of this
chapter) or
(iv) To an annuity provider in any
case where the qualified termination
administrator determines that the
survivor annuity requirements in
sections 401(a)(11) and 417 of the
Internal Revenue Code (or section 205 of
ERISA) prevent a distribution under
paragraph (d)(2)(vii)(B)(1) of this
section;
(6) In the case of a distribution to an
individual retirement plan (described in
§ 2550.404a–3(d)(1)(i) or (d)(1)(ii) of this
chapter) a statement explaining that the
account balance will be invested in an
investment product designed to
preserve principal and provide a
reasonable rate of return and liquidity;
(7) A statement of the fees, if any, that
will be paid from the participant or
beneficiary’s individual retirement plan
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(described in § 2550.404a–3(d)(1)(i) or
(d)(1)(ii) of this chapter) or other
account (described in § 2550.404a–
3(d)(1)(iii)(A) of this chapter), if such
information is known at the time of the
furnishing of this notice;
(8) The name, address and phone
number of the provider of the individual
retirement plan (described in
§ 2550.404a–3(d)(1)(i) or (d)(1)(ii) of this
chapter), qualified survivor annuity, or
other account (described in
§ 2550.404a–3(d)(1)(iii)(A) of this
chapter), if such information is known
at the time of the furnishing of this
notice; and
(9) The name, address, and telephone
number of the qualified termination
administrator and, if different, the
name, address and phone number of a
contact person (or entity) for additional
information concerning the termination
and distribution of benefits under this
section.
(B)(1) For purposes of paragraph
(d)(2)(vi)(A) of this section, a notice
shall be furnished to each participant or
beneficiary in accordance with the
requirements of § 2520.104b–1(b)(1) of
this chapter to the last known address
of the participant or beneficiary; and
(2) In the case of a notice that is
returned to the qualified termination
administrator as undeliverable, the
qualified termination administrator
shall, consistent with the duties of a
fiduciary under section 404(a)(1) of
ERISA, take steps to locate and provide
notice to the participant or beneficiary
prior to making a distribution pursuant
to paragraph (d)(2)(vii) of this section. If,
after such steps, the qualified
termination administrator is
unsuccessful in locating and furnishing
notice to a participant or beneficiary,
the participant or beneficiary shall be
deemed to have been furnished the
notice and to have failed to make an
election within the 30-day period
described in paragraph (d)(2)(vii) of this
section.
(vii) Distribute benefits. (A) Distribute
benefits in accordance with the form of
distribution elected by each participant
or beneficiary with spousal consent, if
required.
(B) If the participant or beneficiary
fails to make an election within 30 days
from the date the notice described in
paragraph (d)(2)(vi) of this section is
furnished, distribute benefits—
(1) In accordance with § 2550.404a–3
of this chapter; or
(2) If a qualified termination
administrator determines that the
survivor annuity requirements in
sections 401(a)(11) and 417 of the
Internal Revenue Code (or section 205 of
ERISA) prevent a distribution under
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paragraph (d)(2)(vii)(B)(1) of this
section, in any manner reasonably
determined to achieve compliance with
those requirements.
(C) For purposes of distributions
pursuant to paragraph (d)(2)(vii)(B) of
this section, the qualified termination
administrator may designate itself (or an
affiliate) as the transferee of such
proceeds, and invest such proceeds in a
product in which it (or an affiliate) has
an interest, only if such designation and
investment is exempted from the
prohibited transaction provisions under
the Act pursuant to section 408(a) of the
Act.
(viii) Special Terminal Report for
Abandoned Plans. File the Special
Terminal Report for Abandoned Plans
in accordance with § 2520.103–13 of
this chapter.
(ix) Final Notice. No later than two
months after the end of the month in
which the qualified termination
administrator satisfies the requirements
in paragraph (d)(2)(i) through (d)(2)(vii)
of this section, furnish to the Office of
Enforcement, Employee Benefits
Security Administration, U.S.
Department of Labor, 200 Constitution
Avenue NW., Washington, DC 20210, a
notice, signed and dated by the
qualified termination administrator,
containing the following information:
(A) The name, EIN, address, email
address, and telephone number of the
qualified termination administrator,
including the address and telephone
number of the person signing the notice
(or other contact person, if different
from the person signing the notice);
(B) The name, account number, EIN,
and plan number of the plan with
respect to which the person served as
the qualified termination administrator;
(C) A statement that the plan has been
terminated and all the plan’s assets have
been distributed to the plan’s
participants and beneficiaries on the
basis of the best available information;
(D) A statement that plan expenses
were paid out of plan assets by the
qualified termination administrator in
accordance with the requirements of
paragraph (d)(2)(v) or (j)(3)(v) of this
section;
(E) If fees and expenses paid by the
plan exceed by 20 percent or more the
estimate required by paragraph
(c)(3)(v)(B) or (j)(2)(v)(B) of this section,
a statement that actual fees and
expenses exceeded estimated fees and
expenses and the reasons for such
additional costs;
(F) An identification of known
delinquent contributions pursuant to
paragraph (d)(2)(iii) of this section (if
not already reported under paragraph
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(c)(3)(iv)(D) or (j)(2)(iv)(D) of this
section);
(G) For each distribution in
accordance with § 2550.404a–3(d)(1)(v)
(relating to distributions on behalf of
deceased participants and beneficiaries),
an identification of the deceased
participant and, if applicable, the
deceased named beneficiary, and the
basis behind the finding required by
§ 2550.404a–3(d)(1)(v); and
(H) A statement that the information
being provided in the notice is true and
complete based on the knowledge of the
qualified termination administrator, and
that the information is being provided
by the qualified termination
administrator under penalty of perjury.
(3) The terms of the plan shall, for
purposes of title I of ERISA, be deemed
amended to the extent necessary to
allow the qualified termination
administrator to wind up the plan in
accordance with this section.
(e) Limited liability. (1)(i) Except as
otherwise provided in paragraph
(e)(1)(ii) and (iii) of this section, to the
extent that the activities enumerated in
paragraphs (d)(2) and (j)(3) of this
section involve the exercise of
discretionary authority or control that
would make the qualified termination
administrator a fiduciary within the
meaning of section 3(21) of the Act, the
qualified termination administrator
shall be deemed to satisfy its
responsibilities under section 404(a) of
the Act with respect to such activities,
provided that the qualified termination
administrator complies with the
requirements of paragraph (d)(2) and
(j)(3) of this section as applicable.
(ii) A qualified termination
administrator shall be responsible for
the selection and monitoring of any
service provider (other than monitoring
a provider selected pursuant to
paragraph (d)(2)(vii)(B) of this section)
determined by the qualified termination
administrator to be necessary to the
winding up of the affairs of the plan, as
well as ensuring the reasonableness of
the compensation paid for such
services. If a qualified termination
administrator selects and monitors a
service provider in accordance with the
requirements of section 404(a)(1) of the
Act, the qualified termination
administrator shall not be liable for the
acts or omissions of the service provider
with respect to which the qualified
termination administrator does not have
knowledge.
(iii) For purposes of a distribution
pursuant to paragraph (d)(2)(vii)(B)(2) of
this section, a qualified termination
administrator shall be responsible for
the selection of an annuity provider in
accordance with section 404 of the Act.
VerDate Mar<15>2010
15:37 Dec 11, 2012
Jkt 229001
(2) Nothing herein shall be construed
to impose an obligation on the qualified
termination administrator to conduct an
inquiry or review to determine whether
or what breaches of fiduciary
responsibility may have occurred with
respect to a plan prior to becoming the
qualified termination administrator for
such plan.
(3) If assets of an abandoned plan are
held by a person other than the
qualified termination administrator,
such person shall not be treated as in
violation of section 404(a) of the Act
solely on the basis that the person
cooperated with and followed the
directions of the qualified termination
administrator in carrying out its
responsibilities under this section with
respect to such plan, provided that, in
advance of any transfer or disposition of
any assets at the direction of the
qualified termination administrator,
such person confirms with the
Department of Labor that the person
representing to be the qualified
termination administrator with respect
to the plan is the qualified termination
administrator recognized by the
Department of Labor.
(f) Continued liability. Nothing in this
section shall serve to relieve or limit the
liability of any person other than the
qualified termination administrator due
to a violation of ERISA.
(g) Qualified termination
administrator. A termination
administrator is qualified under this
section only if:
(1) It is eligible to serve as a trustee
or issuer of an individual retirement
plan, within the meaning of section
7701(a)(37) of the Internal Revenue
Code, and
(2) It holds assets of the plan that is
found abandoned pursuant to paragraph
(b) of this section.
(h) Affiliate. (1) The term affiliate
means any person directly or indirectly
controlling, controlled by, or under
common control with, the person; or
any officer, director, partner or
employee of the person.
(2) For purposes of paragraph (h)(1) of
this section, the term control means the
power to exercise a controlling
influence over the management or
policies of a person other than an
individual.
(i) Model notices. Appendices to this
section contain model notices that are
intended to assist qualified termination
administrators in discharging the
notification requirements under this
section. Their use is not mandatory.
However, the use of appropriately
completed model notices will be
deemed to satisfy the requirements of
PO 00000
Frm 00022
Fmt 4701
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paragraphs (b)(5), (c)(3), (d)(2)(vi),
(d)(2)(ix), and (j)(2) of this section.
(j) Special rules for chapter 7 plans.
(1) Notwithstanding paragraphs (b) and
(g) of this section (relating to findings of
abandonment and defining the term
‘‘qualified termination administrator,’’
respectively), if the sponsor of an
individual account plan is in
liquidation under chapter 7 of title 11 of
the United States Code:
(i) The plan (‘‘chapter 7 plan’’) shall
for purposes of this section be
considered abandoned upon the entry of
an order for relief. However, the plan
shall cease to be considered abandoned
pursuant to this paragraph (j)(1) if at any
time before the plan is deemed
terminated pursuant to paragraph (c) of
this section, the plan sponsor’s chapter
7 liquidation proceeding is dismissed or
converted to a proceeding under chapter
11 of title 11 of the United States Code.
(ii) The bankruptcy trustee, or an
eligible designee, may be the qualified
termination administrator. An ‘‘eligible
designee’’ is any person or entity
designated by the bankruptcy trustee
that is eligible to serve as a trustee or
issuer of an individual retirement plan,
within the meaning of section
7701(a)(37) of the Internal Revenue
Code, and that holds assets of the
chapter 7 plan. The bankruptcy trustee
shall be responsible for the selection
and monitoring of any eligible designee
in accordance with section 404(a)(1) of
the Act.
(2) Notice of Plan Abandonment. In
accordance with paragraph (c) of this
section, the qualified termination
administrator under this paragraph (j)
shall furnish to the U.S. Department of
Labor a notice of plan abandonment that
is signed and dated by the qualified
termination administrator and that
includes the following information:
(i) Qualified termination
administrator information. The name,
address (including email address), and
telephone number of the bankruptcy
trustee and, if applicable, the name,
EIN, address (including email address),
and telephone number of any eligible
designee acting as the qualified
termination administrator pursuant to
paragraph (j)(1)(ii) of this section;
(ii) Plan information. (A) The name,
address, telephone number, account
number, EIN, and plan number of the
plan with respect to which the person
is serving as the qualified termination
administrator,
(B) The name and last known address
and telephone number of the plan
sponsor, and
(C) The estimated number of
participants and beneficiaries with
accounts in the plan;
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Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
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(iii) Chapter 7 information. A
statement that, pursuant to paragraph
(j)(1) of this section, the plan is
considered to be abandoned due to an
entry of an order for relief under chapter
7 of the U.S. Bankruptcy Code, and a
copy of the notice or order entered in
the case reflecting the bankruptcy
trustee’s appointment to administer the
plan sponsor’s case;
(iv) Plan asset information. (A) The
estimated value of the plan’s assets as of
the date of the entry of an order for
relief,
(B) The name, EIN, address (including
email address) and telephone number of
the entity that is holding these assets,
and the length of time plan assets have
been held by such entity, if the period
of time is less than 12 months,
(C) An identification of any assets
with respect to which there is no readily
ascertainable fair market value, as well
as information, if any, concerning the
value of such assets, and
(D) An identification of known
delinquent contributions pursuant to
paragraph (d)(2)(iii) of this section;
(v) Service provider information. (A)
The name, address, and telephone
number of known service providers
(e.g., record keeper, accountant, lawyer,
other asset custodian(s)) to the plan, and
(B) An identification of any services
considered necessary to carry out the
qualified termination administrator’s
authority and responsibility under this
section, the name of the service
provider(s) that is expected to provide
such services, and an itemized estimate
of expenses attendant thereto expected
to be paid out of plan assets by the
qualified termination administrator; and
(vi) Perjury statement. A statement
that the information being provided in
the notice is true and complete based on
the knowledge of the person electing to
be the qualified termination
administrator, and that the information
is being provided by the qualified
termination administrator under penalty
of perjury.
(3) Winding up the affairs of the plan.
The qualified termination administrator
shall comply with paragraph (d) of this
section except as follows:
(i) Delinquent contributions. The
qualified termination administrator of a
plan described in paragraph (j)(1)(i) of
this section shall, consistent with the
duties of a fiduciary under section
VerDate Mar<15>2010
15:37 Dec 11, 2012
Jkt 229001
404(a)(1) of ERISA, take reasonable and
good faith steps to collect known
delinquent contributions on behalf of
the plan, taking into account the value
of the plan assets involved, the
likelihood of a successful recovery, and
the expenses expected to be incurred in
connection with collection. If the
bankruptcy trustee designates an
eligible designee as defined in
paragraph (j)(1)(ii) of this section, the
bankruptcy trustee shall at the time of
such designation notify the eligible
designee of any known delinquent
contributions.
(ii) Report fiduciary breaches. The
qualified termination administrator of a
plan described in paragraph (j)(1)(i) of
this section shall report known
delinquent contributions (employer and
employee) owed to the plan, and any
activity that the qualified termination
administrator believes may be evidence
of other fiduciary breaches that involve
plan assets by a prior plan fiduciary.
This information must be reported to
the Employee Benefits Security
Administration in conjunction with the
filing of the notification required in
paragraph (j)(2) or (d)(2)(ix) of this
section. If a bankruptcy trustee
designates an eligible designee as
defined in paragraph (j)(1)(ii) of this
section, the bankruptcy trustee shall
provide the eligible designee with
records under the control of the
bankruptcy trustee to enable the eligible
designee to carry out its responsibilities
under paragraph (j)(3)(ii) of this section.
If, after the eligible designee completes
the winding up of the plan, the
bankruptcy trustee, in administering the
debtor’s estate, discovers additional
information not already reported in the
notification required in paragraphs (j)(2)
or (d)(2)(ix) of this section that it
believes may be evidence of fiduciary
breaches that involve plan assets by a
prior plan fiduciary, the bankruptcy
trustee shall report such activity to the
Employee Benefits Security
Administration in a time and manner
specified in instructions developed by
the Office of Enforcement, Employee
Benefits Security Administration, U.S.
Department of Labor.
(iii) Participant notification. In lieu of
the statement required by paragraph
(d)(2)(vi)(A)(2) of this section, the notice
shall include a statement that the plan
sponsor is in liquidation under chapter
PO 00000
Frm 00023
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74085
7 of title 11 of the United States Code
and, therefore, the plan has been
terminated by the bankruptcy trustee (or
its eligible designee).
(iv) Final notice. In lieu of the content
requirements in paragraph (d)(2)(ix)(A)
of this section (relating to the qualified
termination administrator), the final
notice shall include, the name, address
(including email address), and
telephone number of the bankruptcy
trustee and, if applicable, the name,
EIN, address (including email address),
and telephone number of the eligible
designee.
(v) Distributions. Paragraph
(d)(2)(vii)(C) of this section (relating to
the ability of a qualified termination
administrator to designate itself as the
transferee of distribution proceeds in
accordance with § 2550.404a–3) is not
applicable in the case of a qualified
termination administrator that is the
plan sponsor’s bankruptcy trustee.
(vi) Pay reasonable expenses. (A) If
the bankruptcy trustee is the qualified
termination administrator, in lieu of the
requirements in paragraph
(d)(2)(v)(B)(2) of this section, expenses
shall be consistent with industry rates
for such or similar services ordinarily
charged by qualified termination
administrators defined in paragraph (g)
of this section.
(B) If the bankruptcy trustee
designates an eligible designee, as
defined in paragraph (j)(1)(ii) of this
section, to serve as the qualified
termination administrator, the
requirements in paragraph (d)(2)(v) of
this section (as opposed to the
requirements in paragraph (j)(3)(vi)(A)
of this section) apply to expenses that
the eligible designee pays to itself or
others.
(C) The eligible designee may pay,
from plan assets, the bankruptcy trustee
for reasonable expenses incurred in
selecting and monitoring the eligible
designee.
(4) The bankruptcy trustee or eligible
designee shall not, through waiver or
otherwise, seek a release from liability
under ERISA, or assert a defense of
derived judicial immunity (or similar
defense) in any action brought against
the bankruptcy trustee or eligible
designee arising out of its conduct
under this regulation.
BILLING CODE 4510–29–P
E:\FR\FM\12DEP2.SGM
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74086
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
APPENDIX A TO § 2578.1
NOTICE OF INTENT TO TERMINATE PLAN
[Date of notice]
[Name ofplan sponsor]
[Last known address ofplan sponsor]
Re: [Name ofplan and account number or other identifYing information]
Dear [Name ofplan sponsor]:
We are writing to advise you of our concern about the status of the subject plan. Our intention is
to terminate the plan and distribute benefits in accordance with federal law if you do not contact
us within 30 days of your receipt of this notice. See 29 CFR 2578.1.
Our basis for taking this action is that our records reflect that there have been no contributions to,
or distributions from, the plan within the past 12 months. (If the basis for sending this notice is
under § 29 CFR 2578.1(b)(1)(i)(B), complete and include the sentence below rather than the
sentence above.} Our basis for taking this action is (provide a description of the facts and
circumstances indicating plan abandonment).
We are sending this notice to you because our records show that you are the sponsor of the
subject plan. The U.S. Department of Labor requires that you be informed that, as a fiduciary or
plan administrator or both, you may be personally liable for all costs, civil penalties, excise
taxes, etc. as a result of your acts or omissions with respect to this plan. The termination of this
plan by us will not relieve you of your liability for any such costs, penalties, taxes, etc. Federal
law also requires us to notify the U.S. Department of Labor, Employee Benefits Security
Administration, of the termination of any abandoned plan. For information about the federal law
governing the termination of abandoned plans, you may contact the U.S. Department of Labor at
1.866.444.EBSA (3272).
Please contact [name, address, and telephone number of the person, office, or department that
the sponsor must contact regarding the plan] within 30 days in order to prevent this action.
Sincerely,
VerDate Mar<15>2010
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emcdonald on DSK67QTVN1PROD with
[Name and address of qual(fied termination administrator or appropriate designee]
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
74087
APPENDIX B To § 2578.1
PLANS FOUND ABANDONED PURSUANT TO 29 CFR 2578.1 (b)
NOTIFICATION OF PLAN ABANDONMENT AND INTENT TO SERVE AS
QUALIFIED TERMINATION ADMINISTRATOR
[Date of notice]
Abandoned Plan Coordinator, Office of Enforcement
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Ave., NW, Suite 600
Washington, DC, 20210
Re:
Plan Identification
[Plan name and plan number]
[EINJ
[Plan account number]
[Address]
[Telephone number]
Qualified Termination Administrator
[Name]
[Address]
[E-mail address]
[Telephone number]
[EINJ
Abandoned Plan Coordinator:
Pursuant to 29 CFR 2578.1 (b), we have determined that the subject plan is or may become
abandoned by its sponsor. We are eligible to serve as a Qualified Termination Administrator for
purposes of terminating and winding up the plan in accordance with 29 CFR 2578.1, and hereby
elect to do so.
We find that {check the appropriate box below and provide additional information as
necessary} :
CJ
There have been no contributions to, or distributions from, the plan for a period of at least
12 consecutive months immediately preceding the date of this letter. Our records indicate
that the date of the last contribution or distribution was {enter appropriate date}.
CJ
VerDate Mar<15>2010
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emcdonald on DSK67QTVN1PROD with
The following facts and circumstances suggest that the plan is or may become abandoned
by the plan sponsor {add description below}:
74088
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
We have also determined that the plan sponsor {check appropriate box below}:
CJ
CJ
CJ
No longer exists
Cannot be located
Is unable to maintain the plan
We have taken the following steps to locate or communicate with the known plan sponsor and
have received no objection {provide an explanation below}:
Part I - Plan Information
1. Estimated number of individuals (participants and beneficiaries) with accounts
under the plan:
[number]
2. Plan assets held by Qualified Termination Administrator:
[value]
A.
Estimated value of assets:
B.
Months we have held plan assets, ifless than 12:
[number]
C.
Hard to value assets {select 'yes" or "no" to identify any assets with no
readily ascertainable fair market value, and include for those identified
assets the best known estimate of their value}:
Yes
No
(a)
Partnership/joint venture interests
[value]
Employer real property
I
[value]
(b)
(c)
Real estate (other than (b))
:J
[value]
[value]
Employer securities
(d)
(e)
Participant loans
J
[value]
(f)
Loans (other than (e))
[value]
I
(g)
Tangible personal property
[value]
~,
,_
J
3. Name and last known address and telephone number of plan sponsor:
4. Other:
VerDate Mar<15>2010
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emcdonald on DSK67QTVN1PROD with
Part II - Known Service Providers of the Plan
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
Name
Address
74089
Telephone
1. ____________________________________________________________
2. __________________________________________________________
3.- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Part III - Services and Related Expenses to be Paid
Service Provider
Services
Estimated Cost
1. ____________________________________________________________
2. __________________________________________________________
3.-----------------------------------------------------------Part IV
Contact Person {enter information only if differentfrom signatory}:
[Name]
[Address]
[E-mail address]
[Telephone number]
Under penalties of perjury, I declare that I have examined this notice and to the best of my
knowledge and belief, it is true, correct and complete.
VerDate Mar<15>2010
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emcdonald on DSK67QTVN1PROD with
[Signature]
[Title ofperson signing on behalf the Qualified Termination Administrator]
[Address, e-mail address, and telephone number]
74090
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
APPENDIX C To § 2578.1
PLANS FOUND ABANDONED PURSUANT TO 29 CFR 2578.10)
NOTIFICATION OF PLAN ABANDONMENT AND INTENT TO SERVE AS
QUALIFIED TERMINATION ADMINISTRATOR
[Date o.fnotice]
Abandoned Plan Coordinator, Office of Enforcement
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Ave., NW, Suite 600
Washington, DC, 20210
Re:
Plan Identification
[Plan name and plan number]
[EIN]
[Plan account number]
[Address]
[Telephone number]
Qualified Termination Administrator
[Name]
[Address]
[E-mail address]
[Telephone number]
[EIN]
{If applicable, include and complete the following pursuant to 29 CFR 2578.1 (j) (2) (i) unless the
same as Qualified Termination Administrator information above}:
Bankruptcy Trustee
[Name]
[Address]
[E-mail address]
[Telephone number]
Abandoned Plan Coordinator:
{Insert as applicable: [I have been appointed to administer the plan sponsor's case under chapter
7 of the U.S. Bankruptcy Code, and attached is a copy ofthe notice or order entered in the case
reflecting my appointment. As the bankruptcy trustee administering this case, I am eligible to
serve as Qualified Termination Administrator for purposes of terminating and winding up the
plan in accordance with 29 CFR 2578.1, and hereby elect to do so.]
or
[A bankruptcy trustee has been appointed to administer the plan sponsor's case under chapter 7
of the U.S. Bankruptcy Code, and attached is a copy of the notice or order entered in the case
VerDate Mar<15>2010
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12DEP2
EP12DE12.005
emcdonald on DSK67QTVN1PROD with
Pursuant to 29 CFR 2578.10)(1), the subject plan is considered abandoned because the sponsor
of the plan is in liquidation pursuant to a chapter 7 bankruptcy proceeding.
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
74091
reflecting the trustee's appointment. We have been designated by the bankruptcy trustee and are
eligible to serve as Qualified Termination Administrator for purposes of terminating and winding
up the plan in accordance with 29 CFR 2578.1, and hereby elect to do so.]}
Part I - Plan Information
1. Estimated number of individuals (participants and beneficiaries) with accounts
[number]
under the plan:
2. Name, EIN, address and email address of the entity holding plan assets (if the entity is
not the QTA):
A.
B.
C.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Estimated value of plan assets as ofthe date of the entry of an order for
relief under chapter 7 of the U.S. Bankruptcy Code:
[value]
Months entity has held plan assets, ifless than 12:
[number]
Hard to value assets {select 'yes" or "no" to identifY any assets with no
readily ascertainable fair market value, and include for those identified
assets the best known estimate of their value},'
Yes
No
Partnership/joint venture interests
[value]
Employer real property
~
[value]
Real estate (other than (b))
[value]
Employer securities
I
[value]
Participant loans
[value]
Loans (other than (e))
[value]
Tangible personal property
[value]
3. Name and last known address and telephone number of plan sponsor:
4. Other:
Part II - Known Service Providers of the Plan
Name
Address
Telephone
2. __________________________________________________________
3.
VerDate Mar<15>2010
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1.____________________________________________________________
74092
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
Part III
Services and Related Expenses to be Paid
Services
Service Provider
Estimated Cost
1. __________________________________________________________
2. -----------------------------------------------------------3. ____________________________________________________________
Part IV - Contact Person {enter information only ifdifJerent from signatory}:
[Name]
[Address]
[E-mail address]
[Telephone number]
Under penalties of perjury, I declare that I have examined this notice and to the best of my
knowledge and belief, it is true, correct and complete.
VerDate Mar<15>2010
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[Signature]
[Title ofperson signing on behalf the Qualified Termination Administrator]
[Address, e-mail address, and telephone number]
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
74093
APPENDIX D TO § 2578.1
NOTICE OF PLAN TERMINATION
[Date of notice]
[Name and last known address o.fplan participant or ben~ficiary]
Re: [Name o.fplan]
Dear [Name o.fplan participant or beneficiary]:
{Insert as applicable [We are] or [I am]} writing to inform you that the [name ofplan] (Plan) has
been terminated pursuant to regulations issued by the U.S. Department of Labor. The Plan was
terminated because it was abandoned by [name o.f the plan sponsor]. {For plans abandoned
pursuant to 29 CFR 2578.10)(1), replace the sentence immediately preceding with the sentence
immediately following}: The Plan was terminated because [name of the plan sponsor] is in
bankruptcy and the business is shutting down.
We have determined that you have an interest in the Plan, either as a plan participant or
beneficiary. Your account balance on [date] is/was [account balance]. We will be distributing
this money as permitted under the terms of the Plan and federal regulations. The actual amount
of your distribution may be more or less than the amount stated in this letter depending on
investment gains or losses and the administrative cost of terminating the Plan and distributing
your benefits.
Your distribution options under the Plan are {add a description o.f the Plan's distribution
options}. It is very important that you elect one of these forms of distribution and inform us of
your election. The process for informing us of this election is {enter a description of the election
process established by the qualified termination administrator}.
{Select the next paragraph from options 1 through 3, as appropriate.}
{Option 1: ff this notice is for a participant or beneficiary, complete and include the following
paragraph provided the account balance does not meet the conditions o.f§2550.404a-3(d)(1)(iii)
or (iv).}
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emcdonald on DSK67QTVN1PROD with
If you do not make an election within 30 days from your receipt of this notice, your account
balance will be transferred directly to an individual retirement plan (inherited individual
retirement plan in the case of a nonspouse beneficiary) maintained by {insert the name, address,
and phone number of the provider (f known, otherwise insert the following language [a bank or
insurance company or other similar financial institution]). Pursuant to federal law, your money
in the individual retirement plan would then be invested in an investment product designed to
preserve principal and provide a reasonable rate of return and liquidity. Uffee information is
known, include the following sentence: Should your money be transferred into an individual
retirement plan, [name of the financial institution] charges the following fees for its services:
74094
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
{add a statement offees,
retirement plan}. }
if any,
that will be paidfrom the participant or beneficiary's individual
{Option 2: J.f this notice is for a participant or beneficiary whose account balance meets the
conditions of§2550.404a-3(d)(1)(iii) or (iv), complete and include thefollowingparagraph.}
If you do not make an election within 30 days from your receipt of this notice, and your account
balance is $1,000 or less, federal law permits us to transfer your balance to an interest-bearing
federally insured bank account, to the unclaimed property fund of the State of your last known
address, or to an individual retirement plan (inherited individual retirement plan in the case of a
nonspouse beneficiary). Pursuant to federal law, your money, if transferred to an individual
retirement plan would then be invested in an investment product designed to preserve principal
and provide a reasonable rate of return and liquidity. {If known, include the name, address, and
telephone number of the financial institution or State fund into which the individual's account
balance will be transferred or deposited. J.f the individual's account balance is to be transferred
to a financial institution and fee information is known, include the following sentence: Should
your money be transferred into a plan or account, [name of the financial institution] charges the
following fees for its services: {add a statement of fees, if any, that will be paid from the
individual's account}. }
{Option 3: J.f this notice is for a participant or participant's spouse whose distribution is subject
to the survivor annuity requirements in sections 401 (a)(ll) and 417 of the Internal Revenue
Code (or section 205 ofERISA), complete and include the following paragraph.}
If you do not make an election within 30 days from your receipt of this notice, your account
balance will be distributed in the form of a qualified joint and survivor annuity or qualified
preretirement annuity as required by the Internal Revenue Code. {J.f the name of the annuity
provider is known, include the following sentence: The name of the annuity provider is [name,
address and phone number of the provider]. }
For more information about the termination, your account balance, or distribution options, please
contact [name, address, and telephone number of the qualified termination administrator and, if'
different, the name, address, and telephone number of the appropriate contact person].
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Sincerely,
[Name of qualified termination administrator or appropriate designee]
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
74095
APPENDIX E To § 2578.1
FINAL NOTICE
[Date of notice]
Abandoned Plan Coordinator, Office of Enforcement
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Ave., NW, Suite 600
Washington, DC, 20210
Re:
Qualified Termination Administrator
[Name]
[Address and e-mail address]
[Telephone number]
Plan Identification
[Plan name and plan number]
[Plan account number]
[EIN]
[EIN]
U.rapplicable, complete and include thefollowingpursuant to 29 CFR 2578.10)(3)(iv)
unless the same as Qual~fied Termination Administrator information above}:
Bankruptcy Trustee
[Name]
[Address]
[E-mail address]
[Telephone number]
Abandoned Plan Coordinator:
General Information
The termination and winding-up process of the subject plan has been completed pursuant
to 29 CFR 2578.1. Benefits were distributed to participants and beneficiaries on the basis
of the best available information pursuant to 29 CFR 2578.1 (d)(2)(i). Plan expenses were
paid out of plan assets pursuant to 29 CFR 2578. 1(d)(2)(v) or 29 CFR 2578.1G)(3)(vi).
{Include and complete the next section, entitled "Contact Person, " only
person is different from the signatory of this notice. }
if the contact
Contact Person
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[Name]
[Address and e-mail address]
[Telephone number]
74096
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
{Include and complete the next section, entitled "Expenses Paid" only if fees and
expenses paid by the plan exceeded by 20 percent or more the estimate required by 29
CFR 2578.1 (c)(3)(v)(B) or 29 CFR 2578.1 O)(2)(v)(B).}
Expenses Paid
The actual fees and/or expenses paid in connection with winding up the Plan exceeded by
{insert either: [20 percent or more] or [enter the actual percentage]} the estimate
required by 29 CFR 2578.1(c)(3)(v)(B) or 29 CFR 2578.1G)(2)(v)(B). The reason or
reasons for such additional costs are {provide an explanation of the additional costs}.
Other
Under penalties of perjury, I declare that I have examined this notice and to the best of
my knowledge and belief, it is true, correct and complete.
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[Signature]
[Title ofperson signing on behalf the Qualified Termination Administrator]
[Address, e-mail address, and telephone number]
Attachment
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Proposed Rules
Signed at Washington, DC, this 3rd day of
December, 2012.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits
Security Administration, Department of
Labor.
[FR Doc. 2012–29500 Filed 12–11–12; 8:45 am]
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BILLING CODE 4510–29–C
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74097
Agencies
[Federal Register Volume 77, Number 239 (Wednesday, December 12, 2012)]
[Proposed Rules]
[Pages 74063-74097]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29500]
Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 /
Proposed Rules
[[Page 74063]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2520, 2550, and 2578
RIN 1210-AB47
Amendments to the Abandoned Plan Regulations
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Proposed regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed amendments to three
regulations previously published under the Employee Retirement Income
Security Act of 1974 that facilitate the termination of, and
distribution of benefits from, individual account pension plans that
have been abandoned by their sponsoring employers. The principal
amendments propose to permit bankruptcy trustees to use the
Department's Abandoned Plan Program to terminate and wind up the plans
of sponsors in liquidation under chapter 7 of the U.S. Bankruptcy Code.
In addition, other technical amendments are proposed to improve the
operation of the regulations. If adopted, the amendments would affect
employee benefit plans, primarily small defined contribution plans,
participants and beneficiaries, service providers, and individuals
appointed to serve as trustees under chapter 7 of the U.S. Bankruptcy
Code.
DATES: Written comments should be received by the Department of Labor
on or before February 11, 2013.
ADDRESSES: Written comments may be submitted to the addresses specified
below. All comments will be made available to the public. Warning: Do
not include any personally identifiable information (such as name,
address, or other contact information) or confidential business
information that you do not want publicly disclosed. All comments may
be posted on the Internet and can be retrieved by most Internet search
engines. Comments may be submitted anonymously. Comments may be
submitted to the Department of Labor, by one of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: e-ORI@dol.gov. Include RIN 1210-AB47 in the subject
line of the message.
Mail: Office of Regulations and Interpretations, Employee
Benefits Security Administration, Room N-5655, U.S. Department of
Labor, 200 Constitution Avenue NW., Washington, DC 20210, Attention:
Abandoned Plans.
All submissions received must include the agency name and
Regulation Identifier Number (RIN) for this rulemaking (RIN 1210-AB47).
Comments received will be made available to the public, posted without
change to https://www.regulations.gov and https://www.dol.gov/ebsa, and
made available for public inspection at the Public Disclosure Room, N-
1513, Employee Benefits Security Administration, 200 Constitution
Avenue NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Stephanie Ward Cibinic or Melissa R.
Dennis, Office of Regulations and Interpretations, Employee Benefits
Security Administration, (202) 693-8500. This is not a toll-free
number.
SUPPLEMENTARY INFORMATION:
A. Executive Summary
Pursuant to Executive Order 13563, this section of the preamble
contains an executive summary of the rulemaking and related prohibited
transaction class exemption (published elsewhere in the notice section
of today's Federal Register) in order to promote public understanding
and to ensure an open exchange of information and perspectives.
Sections B through G of this preamble, below, contain a more detailed
description of the regulatory provisions and need for the rulemaking as
well as its costs and benefits.
1. Purpose of Regulatory Action
In 2006, the Department of Labor (the Department) issued
regulations establishing a program to facilitate the termination of and
distribution of benefits from individual account plans that have been
abandoned by their sponsors. In conjunction with the regulations, the
Department also issued a class exemption that permits certain
transactions associated with these types of terminations and
distributions. The regulations and the class exemption (hereinafter
referred to collectively as the Abandoned Plan Program or Abandoned
Plan Regulations, unless otherwise indicated) currently are not
available to plans whose sponsors are in liquidation under chapter 7 of
the U.S. Bankruptcy Code (hereinafter referred to as chapter 7 plans).
Since the establishment of the Abandoned Plan Program, on-going
challenges associated with terminating and winding up chapter 7 plans
have persuaded the Department that the Abandoned Plan Program should be
expanded. This proposed rulemaking, along with the proposed amendments
to the related class exemption, would help abate these challenges by
making the Abandoned Plan Program available to bankruptcy trustees who,
under the U.S. Bankruptcy Code, may have responsibility for
administering such plans. The Secretary of Labor would make these
amendments under her authority at section 505 of ERISA to prescribe
such regulations as she finds necessary or appropriate to carry out the
statute's provisions. The Secretary also has the authority to issue
exemptions from ERISA's prohibited transaction rules in accordance with
section 408(a) of ERISA and section 4975(c)(2) of the Internal Revenue
Code and pursuant to the exemption procedures established in 29 CFR
part 2570, subpart B.
2. Summary of Major Provisions
The major provisions of this rulemaking include the proposed
amendments contained in paragraph (j) of proposed 29 CFR 2578.1.
Pursuant to these proposed amendments, chapter 7 plans would be
considered abandoned upon the Bankruptcy Court's entry of an order for
relief with respect to the plan sponsor's bankruptcy proceeding. The
bankruptcy trustee or a designee would be eligible to terminate and
wind up such plans under procedures similar to those provided under the
Department's current Abandoned Plan Regulations. If the bankruptcy
trustee winds up the plan under the Abandoned Plan Program, the
trustee's expenses would have to be consistent with industry rates for
similar services ordinarily charged by qualified termination
administrators that are not bankruptcy trustees. The proposed amendment
to the class exemption would permit bankruptcy trustees, as with
qualified termination administrators under the current Abandoned Plan
Regulations, to pay themselves from the assets of the plan (a
prohibited transaction) for terminating and winding up a chapter 7 plan
under an industry rates standard.
3. Summary of Costs and Benefits
The Department estimates that the costs attributable to amending
the Abandoned Plan Program to cover chapter 7 plans will be $64,000
annually. The Department believes the benefits of expanding the program
will significantly outweigh the costs. Expanding the program will
encourage the orderly and efficient termination of chapter 7 plans and
distribution of account balances, thereby enhancing the retirement
income security of participants and beneficiaries in these plans.
Absent the standards and procedures set forth in the amendments, some
bankruptcy trustees may lack the
[[Page 74064]]
necessary guidance to properly update plan records, calculate account
balances, select and monitor service providers, distribute benefits,
pay fees/expenses, and otherwise efficiently terminate and wind up
chapter 7 plans. In addition, significant cost savings would result
from the amendments because chapter 7 plans no longer would incur
costly audit fees required to file the Form 5500 Annual Return/Report.
The Department's full cost/benefit analysis is set forth below in
Section G of this preamble, entitled ``Regulatory Impact Analysis.''
B. Background
On April 21, 2006, the Department of Labor (the Department) issued
three regulations (the Abandoned Plan Regulations) that collectively
facilitate the orderly, efficient termination of, and distribution of
benefits from, individual account pension plans that have been
abandoned by their sponsoring employers.\1\ The first of these
regulations, codified at 29 CFR 2578.1, establishes standards for
determining when individual account plans may be considered
``abandoned'' and procedures by which financial institutions (so-called
``qualified termination administrators'' or ``QTAs'') holding the
assets of such plans may terminate the plans and distribute benefits to
participants and beneficiaries, with limited liability under title I of
the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.
1002 et seq. The second regulation, codified at 29 CFR 2550.404a-3,
provides a fiduciary safe harbor for qualified termination
administrators to make distributions on behalf of participants and
beneficiaries who fail to elect a form of benefit distribution (these
participants and beneficiaries are sometimes referred to as missing
participants or beneficiaries). The third regulation, codified at 29
CFR 2520.103-13, establishes a simplified method for filing a terminal
report for abandoned individual account plans. Also on April 21, 2006,
the Department granted a prohibited transaction exemption, PTE 2006-06,
which facilitates the goal of the Abandoned Plan Regulations by
permitting a qualified termination administrator, who meets the
conditions in the exemption, to, among other things, select itself or
an affiliate to carry out the termination and winding up activities
specified in the Abandoned Plan Regulations, and to pay itself or an
affiliate fees for those services.\2\
---------------------------------------------------------------------------
\1\ 71 FR 20820. See also 73 FR 58459 for subsequent amendments
with regard to distributions on behalf of a missing non-spouse
beneficiary.
\2\ 71 FR 20855.
---------------------------------------------------------------------------
For the reasons set forth in the 2006 preamble, the Abandoned Plan
Regulations strictly limit who may be a qualified termination
administrator.\3\ Specifically, in order to be a qualified termination
administrator, an entity, first, must be eligible to serve as a trustee
or issuer of an individual retirement plan within the meaning of
section 7701(a)(37) of the Internal Revenue Code (Code) and, second,
must hold assets of the plan on whose behalf it will serve as the
qualified termination administrator.\4\ As a result of these
conditions, bankruptcy trustees ordinarily do not qualify as qualified
termination administrators under the Abandoned Plan Regulations. This
fact was acknowledged when the Department published the Abandoned Plan
Regulations in 2006.\5\
---------------------------------------------------------------------------
\3\ See 71 FR 20821 (``given the authority and control over
plans vested in QTAs under the regulation, QTAs must be subject to
standards and oversight that will reduce the risk of losses to the
plans' participants and beneficiaries'').
\4\ Section 7701(a)(37) of the Code describes an ``individual
retirement plan'' as an individual retirement account described in
section 408(a) of the Code, and an individual retirement annuity
described in section 408(b) of the Code. Section 408(a) of the Code
describes the term ``individual retirement account'' as meaning a
trust created or organized in the United States for the exclusive
benefit of an individual or his beneficiaries, if certain
requirements are met. Section 408(b) of the Code describes the term
``individual retirement annuity'' as meaning an annuity contract, or
an endowment contract, which meets certain requirements.
\5\ For example, in responding to commenters who argued in favor
of conferring qualified termination administrator status on
bankruptcy trustees in liquidation cases when the debtor also is the
plan administrator, the Department, in the preamble to the Abandoned
Plan Regulations, stated its view at that time that such individuals
are empowered by virtue of their appointment to take the steps
necessary to terminate and wind up the affairs of a plan and,
therefore, do not need the authority conferred by the Abandoned Plan
Regulations. See 71 FR 20821.
---------------------------------------------------------------------------
However, for several reasons, the Department is revisiting its
earlier decision to preclude bankruptcy trustees from serving as
qualified termination administrators. Pursuant to 11 U.S.C. 704(a)(11),
enacted as part of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, Public Law 109-8, 119 Stat. 23, when an entity
that sponsors an individual account plan is liquidated under chapter 7
of title 11 of the United States Code, the court administering the
liquidation proceeding (and/or U.S. Trustee) will appoint a bankruptcy
trustee to, among other things, continue to perform the obligations
that would otherwise be required of the bankrupt entity with respect to
the plan. Therefore, the bankruptcy trustee often is responsible for
administering the plan, which may include taking the steps necessary to
terminate the plan, wind up the affairs of the plan, and distribute
plan benefits.\6\ While the U.S. Bankruptcy Code imposes these
obligations on bankruptcy trustees, it does not provide guidance or
standards for carrying out such activities.
---------------------------------------------------------------------------
\6\ A bankruptcy trustee who undertakes these plan
responsibilities is a fiduciary within the meaning of section 3(21)
of ERISA.
---------------------------------------------------------------------------
The Department believes that when the sponsor of an individual
account plan is in liquidation in a chapter 7 bankruptcy case, the plan
should be terminated and wound up in an orderly and efficient manner.
However, in bankruptcy cases, as with abandoned plans generally,
usually the sponsor is not in a position to carry out this function.
Although the trustee of the sponsor's bankruptcy estate has the
requisite legal authority, the Department has observed that such
trustees may be unaware of their responsibilities and often are
unfamiliar with ERISA, or how properly to terminate and wind up a plan.
The frequent result is delay in distributing benefits to participants
and beneficiaries and excessive cost to the plan.
In the Department's view, a bankruptcy trustee responsible for
administering a chapter 7 debtor's employee benefit plan is a fiduciary
with respect to the plan for purposes of ERISA. Thus, when taking steps
to wind up the affairs of the plan, the trustee must act consistently
with ERISA's fiduciary standards. The Department is proposing these
regulations (which are in the form of amendments to the Abandoned Plan
Regulations), and the accompanying prohibited transaction exemption
amendment, in order to provide a process for the bankruptcy trustee to
terminate the plan, distribute benefits to participants and
beneficiaries, and pay necessary expenses, including to itself, in a
manner that helps the bankruptcy trustee meet its fiduciary
obligations.
C. Overview of Proposed Rulemaking
In general, this rulemaking proposes to extend the basic framework
of the Abandoned Plan Regulations to plans (i.e., chapter 7 plans)
whose sponsors are undergoing liquidation under chapter 7 of title 11
of the United States Code.\7\ The provisions of the existing
[[Page 74065]]
Abandoned Plan Regulations would apply to chapter 7 plans in much the
same way they apply now to abandoned plans, except to the extent that
they are modified by this proposal to reflect fundamental differences
between abandoned plans and chapter 7 plans. In this regard, the most
significant amendments to the existing Abandoned Plan Regulations are
contained in proposed paragraph (j) of 29 CFR 2578.1. Other less
significant or conforming amendments are needed to other parts of Sec.
2578.1 and to the other two regulations (Sec. 2550.404a-3 and Sec.
2520.103-13) constituting the Abandoned Plan Regulations. Section D of
this preamble describes the major proposed changes (the so-called
chapter 7 amendments) to the Abandoned Plan Regulations. This
rulemaking, however, also proposes to make certain technical changes to
the Abandoned Plan Regulations that are unrelated to chapter 7 plans.
These amendments are discussed in section E of this preamble. Section F
of this preamble discusses the results of the Department's consultation
on this proposal with the Internal Revenue Service. Section G contains
a detailed Regulatory Impact Analysis. For purposes of readability, the
proposed rulemaking republishes the Abandoned Plan Regulations in their
entirety, as revised, rather than the specific amendments only.
---------------------------------------------------------------------------
\7\ The proposed extension is limited to plans whose sponsors
entered liquidation under chapter 7 of title 11 of the United States
Code on the theory that such plans are effectively being abandoned
by the sponsor as a result of the liquidation. Nonetheless, the
Department requests comment on whether there are other similar
situations that could or should be covered by the Abandoned Plan
Regulations. For example, should the Regulations cover plans whose
sponsors are undergoing liquidation under a chapter 11 plan of
liquidation? Should the Regulations cover situations when a plan's
sponsor enters receivership pursuant to applicable state or federal
law (e.g., FDIC receivership)? If the Regulations should be extended
to situations beyond the situations covered by the proposed
extension, please specifically identify the situation, why the
situation should be covered, the costs and benefits of covering the
situation, and, if applicable, any state or federal law relevant to
the situation.
---------------------------------------------------------------------------
D. Special Rules for Chapter 7 Plans
1. Discussion of Major Changes to 29 CFR 2578.1--Termination of
Abandoned Individual Account Plans
(a) In General
Proposed paragraph (j) of Sec. 2578.1 contains the special rules
for chapter 7 plans. This paragraph contains four subparagraphs.
Subparagraph (1) sets forth rules for when such plans may be considered
abandoned and who may serve as qualified termination administrators.
These rules are in lieu of the general rules in paragraphs (b) and (g)
of Sec. 2578.1, which do not apply to chapter 7 plans. Subparagraph
(2) sets forth the content requirements for the notice of plan
abandonment that qualified termination administrators of chapter 7
plans must send to the Department. These content requirements are in
lieu of the content requirements in paragraph (c)(3) of Sec. 2578.1,
which apply to abandoned plans in general. Subparagraph (3) sets forth
special rules for winding up chapter 7 plans. These special rules are
in lieu of some, but not all, of the winding up procedures in paragraph
(d) of Sec. 2578.1. Subparagraph (4) contains a rule of accountability
that is applicable to bankruptcy trustees. The requirements of each of
these subparagraphs are described in detail below.
(b) Timing of Abandonment
Proposed paragraph (j)(1)(i) is a timing rule. It provides that a
chapter 7 plan shall be considered abandoned upon the entry of an order
for relief. No other findings must be made. The bankruptcy trustee then
may establish itself or an eligible designee as the qualified
termination administrator. Whether to establish itself or an eligible
designee as the qualified termination administrator is optional on the
part of the bankruptcy trustee. Abandonment status, on the other hand,
is not optional; it is achieved by operation of law upon the entry of
an order for relief. Proposed paragraph (j)(1)(i) contains a limitation
on this status. If at any time before the plan is deemed terminated
(plans generally will be deemed to be terminated on the ninetieth
(90th) day following the date of the letter from EBSA acknowledging
receipt of the notice of plan abandonment), the plan sponsor's chapter
7 proceeding is dismissed or converted to a proceeding under chapter 11
of title 11 of the United States Code, the plan shall not be considered
abandoned pursuant to paragraph (j)(1).\8\ The Department believes that
a plan should not be considered abandoned merely because its sponsor is
in reorganization.\9\
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\8\ On the other hand, a plan would not cease to be considered
abandoned under proposed paragraph (j)(1) if the sponsor's chapter 7
proceeding is converted to a proceeding under chapter 11 after the
plan is deemed terminated. In such circumstances, the qualified
termination administrator would be expected to continue winding up
the affairs of the plan in accordance with the Abandoned Plan
Regulations.
\9\ But see note 7.
---------------------------------------------------------------------------
(c) Who May Serve as a Qualified Termination Administrator
Proposed paragraph (j)(1)(ii) makes it clear that bankruptcy
trustees may serve as qualified termination administrators even if they
do not satisfy the rule in paragraph (g) of Sec. 2578.1 that allows
only large financial institutions and other asset custodians described
in section 7701(a)(37) of the Code to be qualified termination
administrators. Except as provided in paragraph (j), a bankruptcy
trustee serving as qualified termination administrator would follow the
same termination and winding-up procedures in the Abandoned Plan
Regulations as would any other qualified termination administrator. The
proposal also allows a bankruptcy trustee the option of designating
someone else to serve as the qualified termination administrator. In
this regard, however, the proposal strictly limits who the bankruptcy
trustee may designate. Proposed paragraph (j)(1)(ii) provides that an
``eligible designee'' is any person or entity designated by the
bankruptcy trustee that is eligible to serve as a trustee or issuer of
an individual retirement plan, within the meaning of section
7701(a)(37) of the Code, and that holds assets of the chapter 7 plan.
Thus, an eligible designee could be the plan's asset custodian at the
time of abandonment or another entity chosen later by the bankruptcy
trustee.\10\ The bankruptcy trustee would be responsible for the
selection and monitoring of any eligible designee in accordance with
section 404(a)(1) of ERISA.
---------------------------------------------------------------------------
\10\ Any eligible designee should be selected and holding the
assets of the chapter 7 plan by the time of the furnishing of the
notice of plan abandonment to the Department under paragraph (j)(2)
of the proposed amendments.
---------------------------------------------------------------------------
(d) Notice of Abandonment
Proposed paragraph (j)(2) provides that, in accordance with the
deemed termination provisions in paragraph (c)(1) and (c)(2) of Sec.
2578.1, the qualified termination administrator must furnish to the
Department a notice of plan abandonment that meets the content
requirements in paragraph (j)(2). This notice essentially is the same
as the notice of plan abandonment described in paragraph (c)(3) of
Sec. 2578.1 except for modifications that take into account
information specific to chapter 7 plans and bankruptcy trustees. A
proposed model ``Notification of Plan Abandonment and Intent to Serve
as Qualified Termination Administrator'' reflecting the content
requirements of proposed paragraph (j)(2) is being added for chapter 7
plans as Appendix C. Therefore, Appendices C and D have been re-
proposed as Appendix D and Appendix E respectively. Paragraph (j)(2)(i)
provides that the notice must include the name and contact information
of the bankruptcy trustee and, if applicable, the name and contact
information of the eligible designee acting as the qualified
termination
[[Page 74066]]
administrator pursuant to proposed paragraph (j)(1). Paragraph
(j)(2)(ii) requires information about the chapter 7 plan that the
qualified termination administrator is winding up. Paragraph
(j)(2)(iii) requires a statement that the plan is considered to be
abandoned due to an entry of an order for relief under chapter 7 of the
U.S. Bankruptcy Code, and a copy of the notice or order entered in the
case reflecting the bankruptcy trustee's appointment to administer the
plan sponsor's chapter 7 case. Paragraph (j)(2)(iv)(A) and (B) require
the estimated value of the plan's assets as of the entry of an order
for relief; the name, employer identification number (EIN), and contact
information for the entity holding the plan's assets; and the length of
time plan assets have been held by such entity, if held for less than
12 months. Paragraph (j)(2)(iv)(C) and (D) require identification of
any assets with respect to which there is no readily ascertainable fair
market value, as well as information, if any, concerning the value of
such assets, and an identification of known delinquent contributions.
Paragraph (j)(2)(v) requires the name and contact information of known
service providers to the plan. It also requires an identification of
any services considered necessary to wind up the plan, the name of the
service provider(s) that is expected to provide such services, and an
itemized estimate of expenses for winding up services expected to be
paid out of plan assets by the qualified termination administrator.
Paragraph (j)(2)(vi) requires a statement indicating that the
information provided in the notice is true and complete based on the
knowledge of the person electing to be the qualified termination
administrator, and that the information is being provided by the
qualified termination administrator under penalty of perjury.
(e) Winding-Up Procedures
(i) In General
Paragraph (d) of Sec. 2578.1 sets forth specific steps that a
qualified termination administrator must take to wind up an abandoned
plan and, with respect to most such steps, the standards applicable to
carrying out the particular activity. Under the proposal, paragraph (d)
applies to chapter 7 plans except as modified by the provisions in
proposed paragraph (j)(3).
(ii) Delinquent Contributions
Proposed paragraph (j)(3)(i) contains a conditional requirement to
collect delinquent contributions. Specifically, this paragraph provides
that the qualified termination administrator of a chapter 7 plan shall,
consistent with the duties of a fiduciary under section 404(a)(1) of
ERISA, take reasonable and good faith steps to collect known delinquent
contributions on behalf of the plan, taking into account the value of
the plan assets involved, the likelihood of a successful recovery, and
the expenses expected to be incurred in connection with collection. If
the bankruptcy trustee designates an eligible designee as defined in
proposed paragraph (j)(1)(ii), the bankruptcy trustee shall at the time
of such designation notify the eligible designee of any known
delinquent contributions. This collection requirement includes both
participant contributions withheld from employee paychecks, but not
forwarded by the debtor to the plan, as well as delinquent employer
contributions owed by the debtor. This collection requirement applies
to any qualified termination administrator to a chapter 7 plan whether
it is a bankruptcy trustee or an eligible designee.\11\
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\11\ Under this provision, an eligible designee's duty to
collect delinquent contributions is limited expressly to those
delinquent contributions it knows about based on the information
provided by the bankruptcy trustee at the time of the designation.
Thus, an eligible designee would have no duty to collect delinquent
contributions if the bankruptcy trustee failed to disclose them to
the eligible designee. Nothing in this section imposes an obligation
on the eligible designee to conduct an inquiry or review to
determine whether there are delinquent contributions with respect to
the plan. See Sec. 2578.1(e)(2).
---------------------------------------------------------------------------
The Department's present belief is that bankruptcy trustees, by
virtue of their knowledge and control of the debtor's estate and of the
debtor's ERISA plan, are in the best position both to know of the
liquidating sponsor's delinquent contribution debts to the plan and to
collect these delinquencies (or to notify the eligible designee so that
it can collect them). However, the Department is interested in knowing
whether, and under what circumstances, the qualified termination
administrator's duty to collect would unavoidably conflict with any
duties the bankruptcy trustee may have under the U.S. Bankruptcy Code
as the representative of the debtor's estate. Please be specific about
when, if ever, such conflicts might arise, whether and why such
conflicts are disabling, and the specific provisions of the U.S.
Bankruptcy Code that impose the conflicting obligations.
(iii) Reporting Fiduciary Breaches
Proposed paragraph (j)(3)(ii) contains a requirement to report
activity to the Department that may be evidence of fiduciary breaches
by prior plan fiduciaries. Specifically, the qualified termination
administrator of a chapter 7 plan (whether a bankruptcy trustee or
eligible designee) must report known delinquent contributions (employer
and employee) owed to the plan, and any activity that the qualified
termination administrator believes may be evidence of other fiduciary
breaches by a prior plan fiduciary that involve plan assets. Thus, for
example, evidence of embezzlement by a prior plan fiduciary would be
required to be reported. The proposal limits the reporting requirement
to evidence of any fiduciary breaches that ``involve plan assets'' by a
prior plan fiduciary. This limitation is intended to prevent a
reporting requirement when no plan assets are involved. The Department
intends to use this information to pursue and remedy fiduciary breaches
where appropriate. Beyond this reporting requirement, a qualified
termination administrator to a chapter 7 plan ordinarily will have no
further obligations under the Abandoned Plan Regulations with respect
to such prior breaches, except with respect to collecting delinquent
contributions owed to the plan.\12\
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\12\ As discussed above, proposed paragraph (j)(3)(i) imposes on
a qualified termination administrator to a chapter 7 plan a
conditional duty to collect delinquent contributions.
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Information concerning fiduciary breaches must be reported in
conjunction with the filing of the notice of plan abandonment
(paragraph (j)(2)) or the final notice (paragraph (d)(2)(ix)). If the
qualified termination administrator uses the model notices, such
information may be included in the sections designated for other
information. If the bankruptcy trustee designates an eligible designee,
the bankruptcy trustee must provide the eligible designee with records
under the control of the bankruptcy trustee to enable the eligible
designee to carry out its responsibility to report information about
fiduciary breaches. In the case of an eligible designee, if after the
eligible designee completes the winding up of the plan, the bankruptcy
trustee, in administering the debtor's estate, discovers additional
information not already reported in the notification required in
paragraphs (j)(2) or (d)(2)(ix) that it believes may be evidence of
fiduciary breaches that involve plan assets by a prior plan fiduciary,
the bankruptcy trustee must report such activity to EBSA in a time and
manner specified in instructions developed by EBSA's Office of
Enforcement. This supplemental reporting requirement is needed to
address circumstances when
[[Page 74067]]
the bankruptcy trustee discovers information concerning fiduciary
breaches after the eligible designee has completed the termination and
winding up process.
(iv) Notification and Distribution Requirements
The notification and distribution requirements applicable to
chapter 7 plans under the proposal essentially are the same as the
notification and distribution requirements applicable to non-chapter 7
plans under the existing Abandoned Plan Regulations, except as follows.
First, proposed paragraph (j)(3)(iii) adds a requirement that
participants must be informed that plan termination has occurred as a
result of liquidation under the U.S. Bankruptcy Code. Second, proposed
paragraph (j)(3)(iv) adds a requirement that the Department must
receive certain information about the identity of the bankruptcy
trustee and, if applicable, the eligible designee.
Third, proposed paragraph (j)(3)(v) does not grant a bankruptcy
trustee the ability to designate itself or an affiliate as the
transferee of distribution proceeds. The Abandoned Plan Regulations
provide that qualified termination administrators must distribute
benefits in accordance with the form of distribution elected by the
participant or beneficiary, and when the participant or beneficiary
fails to make an election, the qualified termination administrator has
the ability to designate itself or an affiliate as the transferee of
the distribution proceeds. (See paragraph (d)(2)(vii)(C) of Sec.
2578.1.) Typically this would occur where the qualified termination
administrator has its own proprietary investment vehicle, such as an
individual retirement plan within the meaning of section 7701(a)(37) of
the Code. The proposal does not extend this option to bankruptcy
trustees based on the Department's understanding that bankruptcy
trustees do not maintain proprietary investment vehicles within the
meaning of section 7701(a)(37) of the Code.
(v) Payment of Reasonable Fees
Proposed paragraph (j)(3)(vi) addresses fees that a bankruptcy
trustee may pay to itself, or others, from the plan's assets in
connection with following the termination and winding-up procedures in
the proposed amendments. Subparagraph (A) of paragraph (j)(3)(vi)
contains the applicable standard in cases where the bankruptcy trustee
is the qualified termination administrator. Subparagraph (B) of
paragraph (j)(3)(vi) contains the applicable standard in cases when the
bankruptcy trustee appoints an eligible designee to serve as the
qualified termination administrator.\13\ The different standards in
these subparagraphs are needed for two reasons: first, expense rates
normally charged by bankruptcy trustees for administering estates of
chapter 7 debtors may not be appropriate for purposes of carrying out
the duties and responsibilities under the proposed amendments with
respect to ERISA plans, and second, bankruptcy trustees are not likely
to have significant experience in terminating and winding up the
affairs of such plans. Finally, subparagraph (C) of paragraph
(j)(3)(vi) regulates payments to the bankruptcy trustee by the eligible
designee.
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\13\ Proposed paragraph (j)(3)(vi)(B) merely confirms that an
eligible designee may use the more generally applicable safe harbor
at paragraph (d)(2)(v) of Sec. 2578.1 without the special
modifications contained in proposed paragraph (j)(3)(v)(A) for
bankruptcy trustees.
---------------------------------------------------------------------------
Pursuant to proposed paragraph (j)(3)(vi)(A), the qualified
termination administrator (i.e., when the bankruptcy trustee is the
QTA) is permitted to pay, from plan assets, no more than the reasonable
expenses of carrying out his or her authority and responsibility under
the proposed amendments. Expenses of plan administration shall be
considered reasonable if they are for services necessary to wind up the
affairs of the plan and distribute benefits (see Sec.
2578.1(d)(2)(v)(B)(1)), if they are consistent with industry rates for
the same or similar services ordinarily charged by qualified
termination administrators who are not bankruptcy trustees (see
proposed paragraph (j)(3)(vi)(A)), and if their payment would not
constitute a prohibited transaction (see Sec. 2578.1(d)(2)(v)(B)(3)).
This standard is intended to make clear that bankruptcy trustees should
look to the rates ordinarily charged by qualified termination
administrators who are not bankruptcy trustees, e.g., banks and other
asset custodians. Samples of these rates are available to the public in
filings made to the Department.\14\ These filings may be a helpful
source of information for bankruptcy trustees.
---------------------------------------------------------------------------
\14\ Under Sec. 2520.103-13, qualified termination
administrators must file the Special Terminal Report for Abandoned
Plans (STRAP). STRAPs contain total termination expenses paid by a
plan and a separate schedule identifying each service provider and
the amount received by that service provider, itemized by expense.
STRAPs currently are available on the Department's Web site (see
https://askebsa.dol.gov/AbandonedPlanSearch/UI/QTASearchResults.aspx).
---------------------------------------------------------------------------
The standard in proposed paragraph (j)(3)(vi)(A) (i.e., that
expenses must be consistent with industry rates for the same or similar
services ordinarily charged by qualified termination administrators who
are not bankruptcy trustees) is intended to provide clarity and
flexibility with respect to decisions regarding fee and expense
payments by bankruptcy trustees who elect to be qualified termination
administrators. In determining these fees and expenses, bankruptcy
trustees still will have to make an inquiry into, and objectively
determine, whether any particular fee or expenditure is reasonable
using the standard in proposed paragraph (j)(3)(vi)(A). In this regard,
the Department specifically requests comments on whether proposed
paragraph (j)(3)(vi)(A) provides sufficient clarity as to the type and
amount of fees and expenses that may be paid from plan assets in
connection with terminating and winding up a plan under this proposal.
For example, will bankruptcy trustees have difficulty determining
industry rates for termination and winding up services despite the
public filings mentioned above? Are these filings searchable in a
helpful way to bankruptcy trustees? If proposed paragraph (j)(3)(vi)(A)
does not provide sufficient clarity, please explain why not and
identify any alternatives that should be considered by the Department.
Proposed paragraph (j)(3)(vi)(C) provides that an eligible designee
may pay from plan assets to a bankruptcy trustee the reasonable
expenses that the bankruptcy trustee incurs in selecting and monitoring
the eligible designee. This provision follows from the requirement in
proposed paragraph (j)(1)(ii) that the bankruptcy trustee is
responsible for the selection and monitoring of the eligible designee.
Whether an expense is ``reasonable'' ordinarily depends on the facts
and circumstances surrounding the particular expense. However, the
Department notes that the rates charged to the plan by the bankruptcy
trustee for selecting and monitoring the eligible designee are to be
judged in relation to the rates charged by a plan fiduciary for similar
services, rather than the generally higher fees charged by bankruptcy
trustees for legal services provided to the bankruptcy estate. In any
event, pursuant to proposed paragraph (j)(3)(vi)(C), the eligible
designee would apply the rules in paragraph (d)(2)(v) of Sec. 2578.1
in determining whether the payment to the bankruptcy trustee for
monitoring services is reasonable. While the Department believes that
it would be appropriate for bankruptcy trustees to expect remuneration
for providing monitoring services, the Department
[[Page 74068]]
intends to review closely such remuneration to ensure that arrangements
under the proposed amendments are not contrary to the interests of
participants and beneficiaries.
(f) Rule of Accountability
Proposed paragraph (j)(4) contains a rule of accountability. The
rule provides that a bankruptcy trustee acting as qualified termination
administrator, or an eligible designee, shall not, through waiver or
otherwise, seek a release from liability under ERISA, or assert a
defense of derived judicial immunity (or similar defense) in any action
brought against the bankruptcy trustee or eligible designee arising out
of its conduct under the proposed amendments. The Department is aware
that bankruptcy trustees sometimes request from the bankruptcy court
comfort orders seeking relief from ERISA fiduciary liability in their
roles as administrators to plans. However, bankruptcy trustees who wind
up chapter 7 plans under the Abandoned Plan Regulations benefit from
the limited exposure to ERISA liability provided by the regulations.
(See paragraph (e) of Sec. 2578.1.) The Department believes the
regulatory framework, as constructed, serves to minimize to the
greatest extent possible the liability and exposure of qualified
termination administrators who carry out their responsibilities in
accordance with the provisions of the Abandoned Plan Regulations.\15\
As a condition to receiving the benefit of the limited liability
provided by the Abandoned Plan Regulations, a bankruptcy trustee would
not be permitted to seek a release from liability under ERISA.
Paragraph (j)(4) does not prevent a bankruptcy trustee from asking a
court to resolve an actual dispute involving a plan or to obtain an
order required under the U.S. Bankruptcy Code. However, it does bar a
trustee from seeking a ruling from a court for approval of its actions,
where a trustee has the power to act without judicial approval. For
example, a bankruptcy trustee may not seek court approval of the amount
to pay a professional from assets of the plan, but must exercise his or
her own judgment. In addition, a bankruptcy trustee may not claim it is
not subject to suit for breach of fiduciary duty as to the amount of a
payment from an ERISA plan because it previously obtained a court order
approving the amount of the payment.
---------------------------------------------------------------------------
\15\ 71 FR 20806.
---------------------------------------------------------------------------
2. Discussion of Changes to 29 CFR 2550.404a-3--Safe Harbor for
Distributions From Terminated Individual Account Plans
The Abandoned Plan Regulations, in relevant part, provide that,
with respect to missing and nonresponsive participants or
beneficiaries,\16\ qualified termination administrators shall
distribute benefits in the form of direct rollovers to individual
retirement plans within the meaning of section 7701(a)(37) of the Code.
(See Sec. 2578.1(d)(2)(vii)(B).) However, the Abandoned Plan
Regulations also contain a special rule for small account balances of
$1,000 or less.\17\ Under the special rule, a qualified termination
administrator may make distributions to certain bank accounts
(interest-bearing federally insured bank or savings association
accounts) or to State unclaimed property funds. (See 29 CFR 2550.404a-
3(d)(1)(iii).) The proposal would add paragraph (d)(iv) to Sec.
2550.404a-3 to make clear that the special rule also is available in
the case of chapter 7 plans.
---------------------------------------------------------------------------
\16\ In this context, a missing or nonresponsive participant or
beneficiary is a participant or beneficiary who fails to elect a
form of distribution within 30 days from the date the notice of plan
termination is furnished by the qualified termination administrator.
\17\ The justification for the special rule is set forth in the
preamble to the Abandoned Plan Regulations. See 71 FR 20828. The
conditions related to the special rule are set forth at 29 CFR
2550.404a-3(d)(1)(iii).
---------------------------------------------------------------------------
3. Discussion of Changes to 29 CFR 2520.103-13--Special Terminal Report
for Abandoned Plans
The Abandoned Plan Regulations provide for simplified reporting to
the Department for qualified termination administrators that wind up
the affairs of abandoned plans. (See 29 CFR 2520.103-13.) The time
savings resulting from this abbreviated reporting requirement reduces
administrative costs for abandoned plans and preserves account
balances, resulting in increased benefits to participants and
beneficiaries. The proposed amendments would revise these simplified
reporting requirements to make clear that they are available to chapter
7 plans. Specifically, the proposal would revise paragraph (b)(1) of
Sec. 2520.103-13 to include identification information about the
bankruptcy trustee as well as the qualified termination administrator,
if the qualified termination administrator is not the bankruptcy
trustee.
E. Technical Amendments Unrelated to Chapter 7 Plans
The Abandoned Plan Regulations require qualified termination
administrators to state whether they, or any affiliate, are, or in the
past 24 months were, the subject of an investigation, examination, or
enforcement action by the Department, the Internal Revenue Service, or
the Securities and Exchange Commission concerning their conduct as a
fiduciary or party in interest with respect to any ERISA covered plan.
(See Sec. 2578.1(c)(3)(i)(C).) This statement must be included in the
notice of plan abandonment furnished to the Department before a plan
can be terminated and wound up under the Abandoned Plan Regulations.
Although such information does not alone bar a person from serving as a
qualified termination administrator, the statement serves as a flagging
mechanism to help the Department identify potential arrangements that
are not in the best interests of plan participants and beneficiaries.
However, the Department is proposing to eliminate this requirement for
the following reasons. First, the Department generally can determine
from its own records whether a person is, or in the past 24 months was,
the subject of an investigation concerning his conduct as a fiduciary
or party in interest with respect to any ERISA covered plan. Second, by
definition, qualified termination administrators tend to be large
financial institutions with many affiliations and, therefore, it may be
costly for them to prepare an accurate statement. Third, the
requirement appears to deter some qualified persons from serving as
qualified termination administrators. In this regard, some individuals
have expressed a reluctance to affirm in a notice to the federal
government that they or an affiliate are or were under an
investigation, examination, or enforcement action by the Department,
the Internal Revenue Service, or the Securities and Exchange Commission
concerning their conduct as a fiduciary or party in interest with
respect to any ERISA covered plan. Because the Department believes that
this requirement now is unnecessary and may even discourage the use of
the Abandoned Plan Program, it is proposing to remove the requirement
from the Abandoned Plan Regulations.
In conjunction with the proposed removal of the investigation
statement in Sec. 2578.1(c)(3)(i)(C) referenced above, the Department
intends to remove a part of the definition of the term ``affiliate'' in
Sec. 2578.1(h). In the Abandoned Plan
[[Page 74069]]
Regulations, the term ``affiliate'' for general purposes of Sec.
2578.1 means any person directly or indirectly controlling, controlled
by, or under common control with, the person, or any officer, director,
partner or employee of the person. (See Sec. 2578.1(h)(1).) However,
for the specific purpose of the requirement for qualified termination
administrators to state whether they, or any affiliate are, or in the
past 24 months were, the subject of an investigation, examination, or
enforcement action by the Department, the Internal Revenue Service, or
the Securities and Exchange Commission concerning the their conduct as
a fiduciary or party in interest with respect to any ERISA covered
plan, the Abandoned Plan Regulations contain a narrower definition in
Sec. 2578.1(h)(2). Given the proposal to eliminate this statement
regarding investigations, the Department also is proposing to eliminate
the narrower definition of ``affiliate.'' The generally applicable
definition of the term ``affiliate'' would remain in effect. (See
modifications in the proposal to paragraph (h) of Sec. 2578.1.)
The Abandoned Plan Regulations generally require the qualified
termination administrator to distribute a missing or nonresponsive
participant's account balance to an individual retirement plan in the
participant's name. (See Sec. 2578.1(d)(2)(vii).) An exception exists
for account balances of $1,000 or less, which may be transferred to an
interest-bearing, federally-insured bank or savings association account
or to the unclaimed property fund of a State, if certain conditions are
satisfied. (See Sec. 2550.404a-3(d)(1)(iii).) Sometimes a qualified
termination administrator will know that a missing participant whose
account balance is greater than $1,000 is deceased and that there is no
named beneficiary, or that the named beneficiary also is deceased. In
such circumstances, the Abandoned Plan Regulations require the
qualified termination administrator to transfer the participant's
account balance to an individual retirement plan even if it is unlikely
that anyone will ever claim these benefits. The Department has been
advised that, in some cases, providers of individual retirement plans
will not accept such distributions. The Department is concerned that
obstacles like this prevent abandoned plans from being completely
terminated and could prevent qualified entities from serving as
qualified termination administrators, leaving participants in abandoned
plans with no ability to access their retirement benefits. This
proposal, therefore, conditionally would permit qualified termination
administrators to transfer the account balances of decedents to an
appropriate bank account or a state's unclaimed property fund,
regardless of the size of the account balance. Such a transfer would be
permitted only if the qualified termination administrator reasonably
and in good faith finds that the participant and, if applicable, the
named beneficiary, are deceased, and includes in the Final Notice to
EBSA the identity of the deceased participant and/or beneficiary and
the basis for the finding. (See proposed paragraph (d)(1)(v) of Sec.
2550.404a-3.) The Department is soliciting public comments specifically
on whether the proposed conditions sufficiently safeguard the rights of
participants and beneficiaries. For example, should a qualified
termination administrator be prohibited from these transfers if it has
actual knowledge that a descendent of the deceased has a claim?
The final step in winding up an abandoned plan under the Abandoned
Plan Regulations is filing the Special Terminal Report for Abandoned
Plans (STRAP) under Sec. 2520.103-13. As stated in the preamble to the
Abandoned Plan Regulations, the purpose of this provision is to provide
annual reporting relief relating to abandoned plan filings by qualified
termination administrators.\18\ The contents of the STRAP include, for
example, total assets of the plan as of the deemed termination date,
termination expenses paid by the plan, and the total amount of
distributions. To file the STRAP, a qualified termination administrator
must use the Form 5500 and either the Schedule I or a ``Schedule QTA.''
Instructions for filing the STRAP are not included in the instructions
to the Form 5500 Annual Return/Report of Employee Benefit Plan.
Specific instructions for completing and filing the STRAP are on EBSA's
Web site at https://www.dol.gov/ebsa/publications/APterminalreport.html.
This proposal would amend paragraph (c)(2) of Sec. 2520.103-13 to
clarify and update the specific location of these instructions.
---------------------------------------------------------------------------
\18\ 71 FR 20830.
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F. Internal Revenue Service
As it did in connection with the existing Abandoned Plan
Regulations, the Department conferred with representatives of the
Internal Revenue Service regarding the qualification requirements under
the Code as applied to plans that are terminated pursuant to 29 CFR
2578.1, as modified by the proposed amendments contained in this
document. The Internal Revenue Service advised that it would not
challenge the qualified status of any plan terminated under Sec.
2578.1 or take any adverse action against, or seek to assess or impose
any penalty on, the qualified termination administrator, the plan, or
any participant or beneficiary of the plan (including the qualified
status of any chapter 7 plan terminated under these proposed
amendments) as a result of such termination, including the distribution
of the plan's assets, provided that the qualified termination
administrator satisfies three conditions. First, the qualified
termination administrator, based on plan records located and updated in
accordance with Sec. 2578.1(d)(2)(i), reasonably determines whether,
and to what extent, the survivor annuity requirements of sections
401(a)(11) and 417 of the Code apply to any benefit payable under the
plan and takes reasonable steps to comply with those requirements (if
applicable). Second, each participant and beneficiary has a
nonforfeitable right to his or her accrued benefits as of the date of
deemed termination under Sec. 2578.1(c)(1), subject to income,
expenses, gains, and losses between that date and the date of
distribution. Third, participants and beneficiaries must receive
notification of their rights under section 402(f) of the Code. This
notification should be included in, or attached to, the notice
described in Sec. 2578.1(d)(2)(vi). Notwithstanding the foregoing, as
indicated in the preamble to the final Abandoned Plan Regulations (71
FR 20827), the Internal Revenue Service reserves the right to pursue
appropriate remedies under the Code against any party who is
responsible for the plan, such as the plan sponsor, plan administrator,
or owner of the business, even in its capacity as a participant or
beneficiary under the plan.\19\
---------------------------------------------------------------------------
\19\ See 71 FR 20827 (further discussion of the Department's
response to commenters on the three IRS conditions).
---------------------------------------------------------------------------
The Internal Revenue Service also advised the Department that
chapter 7 bankruptcy trustees using the Abandoned Plan Program would
not be expected to use the Employee Plans Compliance Resolution System
(EPCRS) as a condition to this relief.
G. Regulatory Impact Analysis
1. Background and Need for Regulatory Action
As stated earlier in this preamble, this document contains proposed
amendments to three previously published Abandoned Plan Regulations
that facilitate the termination of, and distribution of benefits from,
individual account pension plans that have been abandoned by their
sponsoring
[[Page 74070]]
employers. The amendments primarily propose to: (1) Permit bankruptcy
trustees to use the Department's Abandoned Plan Regulations to
terminate and wind up the plans of sponsors in liquidation under
chapter 7 of the U.S. Bankruptcy Code; (2) eliminate the requirement
that qualified termination administrators state in a notice to the
Department whether they, or any affiliate are, or in the past 24 months
were, the subject of an investigation, examination, or enforcement
action by the Department, the Internal Revenue Service, or the
Securities and Exchange Commission concerning their conduct as a
fiduciary or party in interest with respect to any ERISA covered plan;
and (3) conditionally permit qualified termination administrators to
transfer the account balances of decedents to an appropriate bank
account or a state's unclaimed property fund regardless of the size of
the account balance. The need for these regulatory changes is explained
in detail above in the ``Background'' section and in the overview
sections, C through F, of this preamble.
2. Executive Order 12866 and 13563 Statement
Executive Orders 13563 and 12866 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing and streamlining rules, and
of promoting flexibility. It also requires federal agencies to develop
a plan under which the agencies will periodically review their existing
significant regulations to make the agencies' regulatory programs more
effective or less burdensome in achieving their regulatory objectives.
The Department has identified the amendments to the Abandoned Plan
Regulations as a retrospective regulatory review project consistent
with the principals of Executive Order 13563. The Department believes
that the proposed changes to the Abandoned Plan Regulations would
improve the overall efficiency of the Abandoned Plan Program, increase
its usage, and substantially reduce burdens and costs on bankruptcy
trustees terminating the plans of sponsors in chapter 7 liquidation,
the plans of bankrupt sponsors, and the participants in these plans.
Under Executive Order 12866, ``significant'' regulatory actions are
subject to the requirements of the executive order and review by the
Office of Management and Budget (OMB). Section 3(f) of the executive
order defines a ``significant regulatory action'' as an action that is
likely to result in a rule (1) having an annual effect on the economy
of $100 million or more, or adversely and materially affecting a sector
of the economy, productivity, competition, jobs, the environment,
public health or safety, or State, local or tribal governments or
communities (also referred to as ``economically significant''); (2)
creating serious inconsistency or otherwise interfering with an action
taken or planned by another agency; (3) materially altering the
budgetary impacts of entitlement grants, user fees, or loan programs or
the rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order. It has
been determined that this proposed rule is not a ``significant
regulatory action'' under section 3(f) of the executive order.
Accordingly, OMB has not reviewed this regulatory action or the
Department's assessment of its costs and benefits, which is presented
below.
3. Number of Affected Entities
As stated above, the proposed amendments to the Abandoned Plan
Regulations would extend the framework of the regulations to chapter 7
plans. In order to estimate the number of entities affected by the
Abandoned Plan Regulations as amended by the proposal, the Department
must determine the number of abandoned plans that would be eligible to
be terminated and wound up under the Abandoned Plan Program. At the
inception of the Abandoned Plan Program in 2006, the Department based
its estimate of the number of eligible plans upon Form 5500 data.
Because the Department has over five years of experience with the
Abandoned Plan Program, it now can base its estimate on data from
EBSA's Office of Enforcement. These data show that in fiscal year 2007,
the Department received 70 applications from potential qualified
termination administrators to wind up abandoned plans. The number of
applications increased to 331 in fiscal year 2010. Based on the
foregoing, the Department estimates that approximately 330 plans
covering 1,980 participants (330 plans x 6 participants per plan) would
be terminated and wound up under the Abandoned Plan Program each year
if the program remains unchanged.
The Department believes that there will be a 50 percent increase in
the number of applications to the Abandoned Plan Program if plans of
sponsors entering liquidation are permitted to be terminated and wound
up under the Abandoned Plan Program. This would increase the total
number of applications to 495 plans (330 plans x 1.5), and the number
of affected participants to 2,970 (495 plans x 6 participants per
plan), assuming that chapter 7 plans have roughly the same number of
participants as other eligible plans. The Department welcomes comments
regarding these estimates.
4. Costs
The Department estimates that the cost associated with extending
the Abandoned Plan Program to chapter 7 plans would total approximately
$64,000. These costs only would be imposed on the estimated 165 chapter
7 plans that chose to participate in the program. The Department also
has updated its costs and benefits estimate for the entire Abandoned
Plan Program to reflect its experience with the program since its
inception in 2006. The Department estimates that the 330 abandoned
plans participating in the Abandoned Plan Program would incur the
following costs: $127,000 in annual costs attributable to abandoned
plans' qualified termination administrator filings and notices; $4.48
million attributable to fiduciaries of the approximately 39,000
terminating plans (other than abandoned and chapter 7 plans) continuing
to use the Safe Harbor for Distributions from Terminated Individual
Account Plans (29 CFR 2550.404a-3), of which $3.52 million is
equivalent hour burden cost attributable to in-house clerical staff and
benefit managers' time; and $961,000 in mailing cost to distribute the
required notices to approximately 3.1 million participants. Overall,
the Department estimates that the costs of the regulations and class
exemption, as amended by the proposal, would total approximately $4.67
million ($3.52 million in annual equivalent costs and $1.15 million in
annual cost burden) but, as stated above, only $64,000 of such costs
relate to the proposed amendments. These costs are quantified and
discussed in more detail in the Paperwork Reduction Act section, below.
5. Benefits
The proposed amendments provide critical guidance that will
encourage the orderly and efficient termination of
[[Page 74071]]
chapter 7 plans and distribution of account balances, thereby
increasing the retirement income security of participants and
beneficiaries in such plans. Absent the standards and procedures set
forth in the Abandoned Plan Regulations, some bankruptcy trustees may
lack the necessary guidance to properly terminate chapter 7 plans and
distribute benefits to participants and beneficiaries. Specifically,
the Abandoned Plan Regulations clarify the bankruptcy trustee's
obligations as qualified termination administrator with respect to
updating plan records, calculating account balances, selecting and
monitoring service providers, distributing benefits, and paying fees
and expenses.
The Department believes that providing this guidance and allowing
bankruptcy trustees to serve or designate others to serve as qualified
termination administrators will lead to administrative cost savings for
trustees that choose to participate in the Abandoned Plan Program. The
Department has not quantified these benefits because it does not have
sufficient information regarding the characteristics of chapter 7
plans.\20\ The Department expects that bankruptcy trustees will decide
to participate in the Abandoned Plan Program based on their individual
assessment of whether it would be more cost effective to terminate a
plan inside or outside of the program.
---------------------------------------------------------------------------
\20\ The Department invites public comments regarding the
characteristics of chapter 7 plans that may participate in the
Abandoned Plan Program.
---------------------------------------------------------------------------
One of the most significant cost savings that would result from the
proposed amendments is that chapter 7 plans no longer would incur
costly audit fees that otherwise would diminish plan assets, because
bankruptcy trustees will file one streamlined termination report at the
end of the winding up process in lieu of the Form 5500 Annual Return/
Report.
Other benefits associated with bankruptcy trustees' participation
in the Abandoned Plan Program are that the proposed rule would require
that a qualified termination administrator of a chapter 7 plan (whether
a bankruptcy trustee or eligible designee): (1) Take reasonable and
good faith steps to collect known delinquent contributions on behalf of
the plan, taking into account the value of plan assets involved, the
likelihood of a successful recovery, and the expenses expected to be
incurred in connection with the collection of contributions, and (2)
report to the Department known delinquent contributions (employer and
employee) owed to the plan, and any activity that the qualified
termination administrator believes may be evidence of other fiduciary
breaches by a prior plan fiduciary that involve plan assets.
With respect to abandoned plans other than chapter 7 plans, the
orderly termination of plans will produce quantitative benefits by
maximizing account balances payable to participants and beneficiaries
because prompt, efficient termination of abandoned plans would
eliminate future administrative expenses that would otherwise diminish
the plan's assets. In addition, the regulations' specific standards and
procedures for terminating abandoned plans will reduce termination
costs. Both of these quantitative benefits will reduce the extent to
which plan assets are drawn upon to pay plan expenses.
The Department estimates the benefits for such plans by comparing
the ongoing administrative costs of maintaining an abandoned plan with
the cost of terminating such a plan under the Abandoned Plan
Regulations. The magnitude of the costs for a qualified termination
administrator to wind up the affairs of an abandoned plan under the
Abandoned Plan Regulations is meaningful only when compared to the
savings of future administrative expenses that would result from the
plan's termination. A comparison of termination costs with
administrative savings is complicated by the fact that termination
costs will be incurred only once, while the savings in eliminated
administrative costs will accrue throughout the years during which the
plan would have continued to exist in its abandoned state. In order to
assess the balance of costs and benefits, the Department has estimated
the present value of future ongoing administrative expenses using a
five percent discount rate over a period of three years after
termination. The actual duration of abandonment cannot be determined
with certainty; however, the Department believes that a period of one
to five years provides a reasonable basis to illustrate the potential
administrative cost savings that could arise in future years from the
termination of abandoned plans.
In order to determine the average costs for winding up abandoned
plans under the Abandoned Plan Regulations, the Department examined the
Special Terminal Reports for Abandoned Plans STRAPs filed by qualified
termination administrators participating in the Abandoned Plan Program
since its inception in 2006. These STRAPs indicate that average
termination costs were $700 and that 60 percent of the plans incurred
termination costs of less than $200. As stated above, the Department
estimates that 330 plans would terminate under the Abandoned Plan
Program if it remained unchanged, therefore, termination costs would
total approximately $231,000 (330 plans x $700 termination costs per
plan).
In order to assess the benefits of the proposed amendments, the
Department also must estimate the ongoing administrative expenses that
would have been incurred by abandoned plans if such plans were not
terminated under the Abandoned Plan Program. Since the inception of the
Abandoned Plan Program in 2006, the average asset level of plans
terminating under the program is $54,000. Data from a recent Investment
Company Institute report prepared by Deloitte LLP indicate that 401(k)
plans with under $1 million in assets pay approximately 1.41 percent of
total net assets in annual administrative fees. Given that over 99
percent of the plans had under $1 million in assets at the time of
termination, 1.41 percent would be a reasonable estimate to use to
determine administrative expenses that would have been incurred by
abandoned plans. Assuming plans that are terminated and wound up under
the Abandoned Plan Program pay fees at roughly the same rate as other
small plans, the Department estimates that average ongoing
administrative expenses would be approximately $760 per year ($54,000 x
.0141).
Based on the foregoing, the present value of administrative
expenses that otherwise would have been paid over the three years
following termination exceeds the termination cost by approximately
$1,470 ($2,170 of ongoing administrative expenses discounted at five
percent over three years minus $700 up front termination costs =
$1,470) generating expected savings for plan participants and
beneficiaries of approximately $490,000 ($1,470 x 330 plans). In
subsequent years, the savings resulting from eliminating ongoing
administrative expenses that would have been incurred if abandoned
plans were not terminated under the proposed amendments would further
add to that differential.
Benefits Associated with Amendment to Safe Harbor for Distributions
from Terminated Individual Account Plans (29 CFR 2550.404a-3): This
section provides a safe harbor under which plan fiduciaries (including
qualified termination administrators) of terminated individual account
plans can directly transfer a missing or nonresponsive participant's
account balance directly to appropriate
[[Page 74072]]
investment vehicles in the participant's name. An exception exists for
account balances of $1,000 or less, which may be transferred to an
interest-bearing, federally-insured bank or savings association account
or to the unclaimed property fund of a state, if certain conditions are
satisfied. As stated above in this preamble, Sec. 2550.404a-3 is being
amended to conditionally permit qualified termination administrators to
transfer the account balances of decedents to an appropriate bank
account or a state's unclaimed property fund, regardless of the size of
the account balance. The proposed amendments would remove an obstacle
to greater usage of the Abandoned Plan Program by eliminating the need
to establish costly individual retirement plans for the account
balances of known deceased participants that are over $1,000 when it is
unlikely that anyone will claim the funds in such plans.
Benefits Associated with Amendment to Eliminate Statement of Past
or Present Investigations: As stated above in this preamble, Sec.
2578.1 is being amended to remove the under investigation statement in
the notice of plan abandonment from the qualified termination
administrator to the Department (see Sec. 2578.1(c)(3)(i)(C)). The
Department believes that, at present, this statement is unnecessary and
may even discourage use of the Abandoned Plan Program. The statement is
unnecessary because EBSA's Office of Enforcement is able to run
searches with only de minimis cost to determine whether potential
qualified termination administrators are under investigation by the
Department. By encouraging more potential qualified termination
administrators to wind up abandoned plans in accordance with the
Abandoned Plan Regulations, the Department believes abandoned plan
terminations will occur more efficiently, and more participants and
beneficiaries of abandoned plans will gain access to their benefits.
6. Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested
data can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.
Currently, the Department is soliciting comments concerning the
information collection request (ICR) included in the proposed rule on
the amendments to the Abandoned Plan Regulations. A copy of the ICR may
be obtained by contacting the PRA addressee shown below. The Department
has submitted a copy of the proposed rule to OMB in accordance with 44
U.S.C. 3507(d) for review of its information collections. The
Department and OMB are interested particularly in comments that:
Evaluate whether the collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, DC 20503; Attention: Desk Officer for the
Employee Benefits Security Administration. OMB requests that comments
be received within 30 days of publication of the proposed rule to
ensure their consideration.
PRA Addressee: Address requests for copies of the ICR to G.
Christopher Cosby, Office of Policy and Research, U.S. Department of
Labor, Employee Benefits Security Administration, 200 Constitution
Avenue NW., Room N-5718, Washington, DC 20210. Telephone (202) 693-
8410; Fax: (202) 219-5333. These are not toll-free numbers. ICRs
submitted to OMB also are available at https://www.RegInfo.gov.
The Department has assumed that most of the tasks that will be
undertaken by qualified termination administrators in connection with
abandoned plan terminations are the same as those required in normal
plan administration, such as calculating or distributing benefits, and
therefore are not accounted for as burden in this analysis because they
are either part of the usual business practices of plans or have
already been accounted for in ICRs for other statutory and regulatory
provisions under title I of ERISA.
The Abandoned Plan Regulations require a qualified termination
administrator to send up to five notices in the process of terminating
and winding up an abandoned plan. Before winding up an abandoned plan,
the qualified termination administrator (other than the qualified
termination administrator of a chapter 7 plan) must make reasonable
efforts to locate or communicate with the plan sponsor, such as by
sending a notice to the last known address of the plan sponsor
notifying the sponsor of the intent to terminate and wind up the plan
and allowing the sponsor an opportunity to respond. Following the
qualified termination administrator's finding of abandonment, or when
there is an entry of an order for relief for a chapter 7 plan, the
qualified termination administrator must send notice to the Department
of its eligibility to serve as qualified termination administrator to
wind up the abandoned plan and provide other specified plan
information. The qualified termination administrator then sends a
notice to the participants and beneficiaries in the plan, written in a
manner calculated to by understood by the average plan participant,
that their plan is being terminated, what is their account balance and
the date on which it was calculated by the qualified termination
administrator, a description of the distribution options available
under the plan and a request that the participant or beneficiary elect
a form of distribution and inform the qualified termination
administrator of such election, what will happen to their account if
the participant or beneficiary fails to make a distribution election
within 30 days of receipt of the notice, and other information
regarding their rights under the plan's termination. Upon terminating
and distributing the assets of the plan, the qualified termination
administrator must send a final notice to the Department stating that
the plan has been terminated. The qualified termination administrator
attaches to the final notice a STRAP. The Department has estimated the
burden as a cost burden to the plan because the qualified termination
administrator uses plan assets to pay for these notices and other costs
of winding up the plan. These notices are information collection
requests (ICRs) subject to the PRA. The hour and cost burden associated
with these ICRs are
[[Page 74073]]
summarized in the following table discussed below.
Cost Burden of Rule
----------------------------------------------------------------------------------------------------------------
Abandoned
Bankrupt plans plans--non Terminating
Chapter 7 (new Chapter 7 (in plans (in Total
to this RIA) previous RIA) previous RIA)
----------------------------------------------------------------------------------------------------------------
Notice to Plan Sponsor.......................... $0 $5,500 $0 $5,500
Notice to DOL................................... 8,700 17,300 0 26,000
Bankrupt Plans (Court Order).................... 3,200 0 0 3,200
Notice to Participants.......................... 3,600 7,200 0 10,700
Final Notice.................................... 3,300 6,700 0 10,000
Bankrupt Plans (Fiduciary Breach)............... 600 0 0 600
Form 5500 Terminal Report....................... 35,600 71,200 0 106,800
Safe Harbor..................................... 0 0 4,480,000 4,480,000
Class Exemption Familiarization................. 9,400 18,700 0 28,100
---------------------------------------------------------------
Total....................................... 64,000 127,000 4,480,000 4,670,000
----------------------------------------------------------------------------------------------------------------
Notice to Plan Sponsor: This notice requirement only applies to
plans that are not chapter 7 plans. The Department estimates that for
each of these estimated 330 plans, a qualified termination
administrator may utilize 10 minutes of clerical staff time at an
hourly labor rate of $28.21 to fill in the needed information on the
plan sponsor notice, and five minutes of a financial professional's
time at an hourly labor rate of $66.36 to review and sign the
notice.\21\ This results in approximately 83 hours of clerical staff
time with an associated cost burden of $1,600 (55 hours x $28.21 per
hour) and 27.5 hours of a financial professional's time with an
associated cost burden of $1,800 (27.5 hours x $66.36 per hour).\22\
---------------------------------------------------------------------------
\21\ The Department estimates 2012 hourly labor rates to include
wages, other benefits, and overhead based on data from the National
Occupational Employment Survey (June 2011, Bureau of Labor
Statistics) and the Employment Cost Index (September 2011, Bureau of
Labor Statistics); the 2010 estimated labor rates are then inflated
to 2012 labor rates.
\22\ Any discrepancies in calculations in this section and the
table above result from rounding. Estimates are rounded to the
nearest $10, $100, $1,000, or $10,000. Hour estimates also are
rounded in the text.
---------------------------------------------------------------------------
The rule requires plan sponsor notices to be sent by a method
requiring acknowledgement of receipt. Therefore, mailing costs include
$6.35 for postage and email receipt of delivery. The mailing costs
include paper and print costs of five cents per page for the one page
notice. Therefore, the materials and mailing costs are estimated to be
$2,100 for the 330 notices. As indicated in the chart above, there are
$5,500 in total costs associated with this requirement ($1,600
clerical, $1,800 financial professional and $2,100 in mailing costs)
all imposed on plans filing under the Abandoned Plan Program.
Notice of plan abandonment to the Department: The Department
estimates that for each of the estimated 495 plans, a qualified
termination administrator may utilize 30 minutes of a clerical worker's
time at an hourly rate of $28.21 to fill in the needed information on
the notice. It also is assumed that 30 minutes of a financial
professional's time with an hourly rate of $66.36 will be required to
prepare required plan information, and to review and sign the forms.
This results in about 248 hours (495 plans x .5 hours) of clerical
staff time with an associated cost burden of $7,000 (495 plans x .5
hours x $28.21 per hour), and 248 hours (495 plans x .5 hours) of a
financial professional's time with an associated cost burden of $16,400
(495 plans x .5 hours x $66.36 per hour).
The Department assumes that approximately 80 percent of these
initial notices to the Department will be sent by mail and that the
rest will be submitted electronically (495 plans x .8 fraction by mail
= 396 plans send notice by mail). Therefore, mailing costs include
$6.35 for postage and email receipt of delivery. The mailing costs
include paper and print cost of five cents per page. The model notice
is three pages. Therefore, the materials and mailing cost are estimated
to be $2,600 (396 plans x ($6.35 + 3 pages x $.05 per page)) for the
396 notices that will be mailed. The total costs of this component are
therefore $26,000 \23\ ($8,700 of which are new costs attributable to
the chapter 7 plans, which are \1/3\ of the affected plans, and $17,300
of which are cost attributable to \2/3\ of the affected plans that are
not chapter 7 plans).
---------------------------------------------------------------------------
\23\ $26,000 = $7,000 for clerical cost time + $16,400 for
financial professional time + $2,600 for mailing.
---------------------------------------------------------------------------
Notice of bankruptcy trustee's appointment--Chapter 7 Plans: For
the estimated 165 chapter 7 plans, an additional cost would be incurred
for the qualified termination administrator to attach a copy of the
notice on the case docket or order for relief reflecting the bankruptcy
trustee's appointment to administer the plan sponsor's chapter 7
liquidation case as well as identification information regarding the
bankruptcy trustee. The Department estimates that it will take 15
minutes of a financial professional's time to prepare the statement and
collect required documents and five minutes of clerical time to make
required copies. This is expected to impose an additional hour burden
of approximately 41 hours (165 plans x .25) on the financial
professionals and a cost burden of $2,700 (41 hours x $66.36 per hour)
on the financial professionals. For the clerical professionals, the
hour burden is estimated at 14 hours (165 plans x .0833 hours) and
associated cost burden is $400 (14 hours x $28.21 per hour).
Material requirements are expected to be 10 pages, costing $66 in
total ($0.50 per affected plan x .80 fraction of plans that submit
initial notices by paper x 165 plans). The proposed rule requires the
notice or order entered in the case reflecting the bankruptcy trustee's
appointment to be included with the initial notice. Thus, the total
cost of this filing requirement is $3,200 ($2,700 + $400 + $66), all of
which is for the 165 Chapter 7 plans.
Notice to Participants and Beneficiaries: The ERISA Advisory
Council in the Report of the Working Group on Orphan Plans had
indicated most abandoned plans are small plans with 25 or fewer
participants and
[[Page 74074]]
beneficiaries. Thus, initially the Department conservatively estimated
that there were 20 participants per plan impacted by the Abandoned Plan
Regulations. However, after the inception of the Abandoned Plan
Program, updated filings data provided by the Office of Enforcement
show that in no year were there on average more than six participants
per filing plan. The Department estimates that, using this updated
information, approximately 330 plans will apply each year if the
Abandoned Plan Regulations remain unchanged. This covers a maximum of
1,980 participants (330 plans x 6 participants per plan). With
bankruptcy trustees being permitted to wind up the plans of sponsors in
chapter 7 liquidation under the Abandoned Plan Regulations, the
Department estimates that there will be a 50 percent increase in
applications, bringing the total number of filings up to 495 (330 plans
x 1.5). Assuming that chapter 7 plans have roughly the same number of
participants as abandoned plans, the total number of participants
affected would be 2,970 (495 plans x 6 participants per plan).
The Department estimates that for each of the estimated 495
terminating plans, a QTA may utilize 5 minutes of a financial
professional's time to review the notices. Clerical staff will spend on
average 30 minutes preparing and mailing the notices (5 minutes per
participant x 6 participants). This results in approximately 248 hours
(495 plans x 6 participants per plan x .0833 hours per participant) of
clerical staff time with an associated cost burden of $7,000 (248 hours
x $28.21 per hour) and 41 hours (495 plans x .0833 hours per plan) of a
financial professional's time with an associated cost burden of
approximately $2,700 (41 hours x $66.36 per hour).
The model notice to participants is two pages. Therefore, the
mailing and material costs are estimated to be 55 cents per mailing (2
x $.05 + $0.45). Of the 2,970 participants (495 plans x 6 participants
per plan), 38 percent are expected to receive their notices
electronically. The Department estimates that 1,840 participants will
receive the notice by mail, creating a mailing cost burden of $1,000.
In total, the cost burden from the notice to the participants and
beneficiaries requirement is approximately $10,700.\24\ Because \1/3\
of the affected plans are chapter 7 plans, $3,600 of the burden is
expected to be for the chapter 7 plans and $7,100 for the \2/3\ of
affected plans that are abandoned.
---------------------------------------------------------------------------
\24\ $7,000 in clerical costs + $2,700 in financial professional
costs + $1,000 in mailing costs.
---------------------------------------------------------------------------
Final Notice: The Department estimates that for each of the
estimated 495 terminating plans, a qualified termination administrator
will utilize 10 minutes of a financial professional's time to review
the forms. Clerical staff will spend, on average, 10 minutes per notice
preparing and mailing the notices. This results in about 83 hours (495
plans x .167 hours) of clerical staff time with an associated cost
burden of $2,300 (83 hours x $28.21 per hour) and 83 hours of a
financial professional's time (495 plans x .167 hours) with an
associated cost burden of $5,500 (83 hours x $66.36 per hour).
The Department assumes that, as a usual and customary business
practice, the final notice to the Department will be sent by a method
requiring acknowledgement of receipt. The model final notice is two
pages. Therefore, the material costs are estimated to be $.10 per plan
and postage of $6.35 per plan. For the 70 percent of plans that are
expected to submit their applications by mail, total mailing costs are
estimated to be $2,200 for the 495 notices (($6.35 per plan for mailing
+$.10 for materials) x 495 plans x .70 fraction of plans submitting by
mail). Thus, there is approximately $10,000 in total costs for the
final notice. Of that total, approximately $3,300 is dedicated to the
\1/3\ of affected plans that are chapter 7 plans and $6,700 is
attributable to the 330 qualified termination administrator filings for
the \2/3\ of plans that are abandoned.
Reporting Requirement for Prior Plan Fiduciary Breaches: As
discussed earlier in this preamble, the proposed amendments would
require qualified termination administrators to chapter 7 plans
(whether they are bankruptcy trustees or eligible designees) to report
to the Department known delinquent contributions (employer and
employee) owed to the plan, and any activity that the qualified
termination administrator believes may be evidence of other fiduciary
breaches by a prior plan fiduciary that involve plan assets. This
information must be reported in conjunction with the filing of the
final notice or notice of plan abandonment. If a bankruptcy trustee
designates an eligible designee as defined in paragraph (j)(1)(ii) of
the proposal, the bankruptcy trustee shall provide the eligible
designee with records under the control of the bankruptcy trustee to
enable the eligible designee to carry out its responsibilities. If,
after the eligible designee completes the winding up of the plan, the
bankruptcy trustee, in administering the debtor's estate, discovers
additional information that it believes may be evidence of fiduciary
breaches by a prior plan fiduciary that involve plan assets, the
bankruptcy trustee shall report such activity to the Department.
While the Department has no basis for estimating the percentage of
arrangements where the qualified termination administrator must report
known delinquent contributions or a past fiduciary breach, the
Department assumes for purposes of this analysis that a report will be
required in 10 percent of the applications from chapter 7 plans. Thus,
given that there are an estimated 165 chapter 7 plans utilizing the
exemption, the Department estimates that 17 plans will need to prepare
and send this notice. The Department anticipates that one-half hour of
a financial professional's time will be required to prepare the notice
and five minutes of clerical time will be required to send the notice.
The Department therefore estimates that the burden for plans to send
the notice to EBSA's Office of Enforcement will be approximately 10
hours (17 plans x (.5 financial professional hours per plan + .0833
clerical hours per plan)) with a cost of $600 for trustees (17 plans x
.5 financial professional hours x $66.36/hour + 17 plans x .0833
clerical hours x $28.21/hour) to send the notice. The Department
anticipates that most of these notices will be filed with the final
notice; therefore, this analysis includes no additional mailing cost.
Each notice is expected to cost $0.10 (2 x $0.05). The Department
estimates that 70 percent of the plans are expected to submit the final
filing by mail, resulting in an additional material cost burden of
$1.19 (17 x .7 fraction submitting by mail x $.10). Thus, this new
requirement amounts to a cost burden of approximately $600, which is
exclusively imposed on chapter 7 plans.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13):
The Department estimates that it will take small plans 3.25 hours to
file the STRAP in accordance with the instructions on the Department's
web site. It is assumed that a financial accounting professional will
perform this task resulting in an hour burden of 1,600 hours and a cost
burden of $66.36 per hour resulting in a cost burden of $106,800 (3.25
hours x $66.36 per hour x 495 plans). For STRAPs submitted
electronically, no burden is estimated for paper or mailing costs. For
the assumed 70 percent of plans that submit their STRAPs by mail, the
additional costs will be approximately $100 (495 plans x 6 pages per
terminal report x $.05/page x .70 fraction of plans that
[[Page 74075]]
submit final notices by mail). Thus, the total cost associated with the
report is approximately $106,800 ($106,700 in financial accounting
costs and $100 in material costs). Of this total, $35,600 is
attributable to the \1/3\ of plans that are chapter 7 plans and $71,200
is attributable to the \1/3\ of plans that are abandoned. Only the
chapter 7 plan costs represent new costs.
Safe Harbor for Distributions from Terminated Individual Account
Plans (29 CFR 2550.404a-3): The PRA analysis also includes the burden
associated with the notice to participants as required under ``The Safe
Harbor for Distributions from Terminated Individual Account Plans.'' To
meet the safe harbor, fiduciaries of terminating plans (other than
abandoned plans) must furnish a notice to participants and
beneficiaries informing them of the plan's termination and the options
available for distribution of their account balances. The Department
estimates that 3.1 million participants and beneficiaries will receive
notices from approximately 39,000 plan sponsors.\25\ The Department
estimates that clerical professionals will spend, on average, two
minutes per notice preparing and distributing the notices. The benefits
manager will spend approximately 10 minutes preparing the notice. This
results in an equivalent cost burden of $3.5 million calculated as
follows: $2.92 million per year (3.1 million participants x .033 hours
per participant x $28.21 per hour) in clerical time, and $607,000
(39,000 plans x .167 hours per plan x $93.31 per hour) in benefit
manager costs. In addition, the Department assumes that each
participant will receive a one page notice by first class mail
resulting in a cost burden of $961,000 (3.1 million notices x ($0.45
for postage + ($0.05 per page x 1 page) x 0.62). Thus, with the updated
numbers, total cost burden for terminating plans is $4.48 million. This
total includes $3.49 million in equivalent costs from plan clerical
time ($2.92 million) and plan benefit manager time ($607,000). There is
also $961,000 in cost attributable to mailing the notices. These costs
are not attributable to the proposed amendments allowing chapter 7
trustees to participate in the Abandoned Plan Program. They reflect the
Department's revised estimates of the entire Abandoned Plans Program
and take into account the most recent Form 5500 data.
---------------------------------------------------------------------------
\25\ These estimates for the number of participants and sponsors
are based on 2008 Form 5500 Data filings.
---------------------------------------------------------------------------
Abandoned Plan Class Exemption, PTE 2006-06: PTE 2006-06 permits a
qualified termination administrator of an individual account plan that
has been abandoned by its sponsoring employer to select itself or an
affiliate to provide services to the plan in connection with the
termination of the plan, and to pay itself or an affiliate fees for
these services, provided that such fees are consistent with the
conditions of the exemption. The exemption also permits a qualified
termination administrator to: designate itself or an affiliate as a
provider of an individual retirement plan or other account; select a
proprietary investment product as the initial investment for the
rollover distribution of benefits for a participant or beneficiary who
fails to make an election regarding the disposition of such benefits;
and pay itself or its affiliate in connection with the rollover.
Currently, PTE 2006-06 and the accompanying Abandoned Plan
Regulations do not cover plans of sponsors involved in chapter 7
bankruptcy proceedings. In this regard, bankruptcy trustees do not meet
the definition of qualified termination administrator as set forth in
the existing Abandoned Plan Regulations and the class exemption. The
proposed amendments expand the definition of qualified termination
administrator to include bankruptcy trustees and certain persons
designated by them to act as qualified termination administrators in
terminating and winding up the affairs of abandoned plans. The
Department believes that the proposed amendments to the Abandoned Plan
Regulations and PTE 2006-06 will incentivize many bankruptcy trustees
to carryout plan terminations consistent with ERISA, which will
ultimately benefit participants and beneficiaries of such plans by
ensuring abandoned plans are terminated in an orderly and cost-
effective manner.
Compliance with the proposed amendments to the Abandoned Plan
Regulations is a condition of the proposed amendment to the class
exemption; therefore the costs and benefits that would be associated
with complying with the proposed amendment to the class exemption have
been described and quantified in connection with the economic impact of
the proposed regulatory amendments. In its current and proposed
amendment form, PTE 2006-06 requires, among other things, that fees and
expenses paid to the qualified termination administrator and an
affiliate in connection with the termination of an abandoned plan are
consistent with industry rates for such or similar services, and are
not in excess of rates ordinarily charged by the qualified termination
administrator (or affiliate) for the same or similar services provided
to customers that are not plans terminated pursuant to the Abandoned
Plan Regulations, if the qualified termination administrator (or
affiliate) provides the same or similar services to such other
customers. The class exemption, in its current and proposed amendment
form, also requires that qualified termination administrators ensure
that the records necessary to determine whether the conditions of the
exemption have been met are maintained for a period of six years, so
that they may be available for inspection by any account holder of an
individual retirement plan or other account established pursuant to
this exemption, or any duly authorized representative of such account
holder, the Internal Revenue Service, and the Department. Banks,
insurance companies, and other financial institutions that provide
services to abandoned plans and their participants and beneficiaries
are required to act in accordance with customary business practices,
which would include maintaining the records required under the terms of
the class exemption, both in its current and proposed amendment form.
Accordingly, the recordkeeping burden attributable to the proposed
amendment will be handled by the qualified termination administrator
and is expected to be small. However, there is an additional cost to
directing this process. The Department assumes that a supervisor must
devote time to each case in order to study the details of the
individual plan, determine whether there have been any violations, and
ensure that these details are properly incorporated into the notices.
Assuming that all qualified termination administrators will take
advantage of the proposed exemption, the hour burden attributable to
supervisory duties for qualified termination administrators of
abandoned plans (including familiarization costs for new qualified
termination administrators) is expected to be one half hour for each
qualified termination administrator, or 248 hours. Assuming a financial
manager's wage rate of $113.39 per hour, this supervisory cost is
expected to total $28,100 ($113.39 x 248). Approximately $9,400 of this
cost (\1/3\ of the costs since 165 of the 495 estimated affected plans
are chapter 7 plans) is expected to be attributable to financial
manager costs dealing with chapter 7 plans and the remaining $18,700 of
costs are attributable to financial
[[Page 74076]]
managers dealing with the \2/3\ of abandoned plans.
Also, in certain limited circumstances, both the current exemption
and proposed amendment to PTE 2006-06 require qualified termination
administrators to provide the Department with a statement under penalty
of perjury that services were performed and a copy of the executed
contract between the qualified termination administrator and a plan
fiduciary or plan sponsor. The Department does not include burden for
these requirements as the burden is small, and the statement and
contract can be included with other notices sent to the Department.
Type of Review: Proposed Revision of Existing Collection.
Agency: Employee Benefits Security Administration, Department of
Labor.
Title: Notices for Terminated Abandoned Individual Account Plans.
OMB Number: 1210-0127
Affected public: Individuals or households; business or other for-
profit; not-for-profit institutions.
Respondents: 39,495.
Responses: 3,103,960.
Frequency of Response: One time.
Estimated Total Burden Hours: 109,833.
Equivalent Costs of Hour Burden: $3,520,000.
Cost Burden: $ 1,150,000.
7. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency determines that a proposed rule is not
likely to have a significant economic impact on a substantial number of
small entities, section 603 of the RFA requires that the agency present
an initial regulatory flexibility analysis at the time of the
publication of the notice of proposed rulemaking describing the impact
of the rule on small entities and seeking public comment on such
impact. Small entities include small businesses, organizations and
governmental jurisdictions.
For purposes of analysis under the RFA, EBSA proposes to continue
to consider a small entity to be an employee benefit plan with fewer
than 100 participants. The basis of this definition is found in section
104(a)(2) of ERISA that permits the Secretary of Labor to prescribe
simplified annual reports for pension plans that cover fewer than 100
participants. Under section 104(a)(3), the Secretary may also provide
for exemptions or simplified annual reporting and disclosure for
welfare benefit plans. Pursuant to the authority of section 104(a)(3),
the Department has previously issued at 29 CFR 2520.104-20, 2520.104-
21, 2520.104-41, 2520.104-46 and 2520.104b-10 certain simplified
reporting provisions and limited exemptions from reporting and
disclosure requirements for small plans, including unfunded or insured
welfare plans, covering fewer than 100 participants and which satisfy
certain other requirements.
Further, while some large employers may have small plans, in
general small employers maintain most small plans. Thus, EBSA believes
that assessing the impact of these proposed rules on small plans is an
appropriate substitute for evaluating the effect on small entities. The
definition of small entity considered appropriate for this purpose
differs, however, from a definition of small business which is based on
size standards promulgated by the Small Business Administration (SBA)
(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et
seq.). EBSA therefore requests comments on the appropriateness of the
size standard used in evaluating the impact of these proposed rules on
small entities.
EBSA has preliminarily determined that these proposed rules may
have a significant beneficial economic impact on a substantial number
of small entities. In an effort to provide a sound basis for this
conclusion, EBSA has prepared the following initial regulatory
flexibility analysis. To the Department's knowledge, there are no
federal regulations that might duplicate, overlap, or conflict with the
provisions of the proposed amendments to the Abandoned Plan
Regulations.
As explained earlier in the preamble, currently, the Abandoned Plan
Program does not extend to plans sponsored by employers undergoing
liquidation under chapter 7 of title 11 of the United States Code. Over
the years, the Department has observed that, on numerous occasions,
bankruptcy trustees have not terminated abandoned plans in an orderly
and efficient manner. In many instances, such trustees are unaware of
their fiduciary obligations under ERISA with respect to terminating
plans of debtors and processes through which to wind up such plans.
The Department believes that the participants and beneficiaries
would benefit from removing existing impediments that prevent chapter 7
bankruptcy trustees from terminating and winding up abandoned plans.
Therefore, the Department is proposing to amend the Abandoned Plan
Regulations (the three regulations and the related class exemption) to
enable bankruptcy trustees to terminate abandoned plans in a manner
consistent with ERISA and current regulations. The amendments would
provide bankruptcy trustees with the option to serve as qualified
termination administrators or to designate as a qualified termination
administrator any person or entity that is eligible to serve as a
trustee or issuer of an individual retirement plan and that holds
assets of the chapter 7 plan. The Department believes that these
amendments will help to preserve the assets of such abandoned plans,
thereby maximizing benefits ultimately payable to participants and
beneficiaries.
As described earlier in the preamble, the Department estimates that
330 abandoned plans (other than chapter 7 plans) would file under the
Abandoned Plan Program. Essentially all abandoned plans are assumed to
be small plans. Therefore, the more detailed discussion earlier in the
preamble on the costs and benefits of the proposed amendments is
applicable to this analysis of costs and benefits under the RFA. In
summary, the net benefits of terminating an estimated 330 abandoned
plans per year under the proposed amendments is $490,000. Thus, the
estimated beneficial impact per plan is approximately $1,500 ($490,000/
330 plans) before accounting for fees in individual retirement accounts
to which participants and beneficiaries could rollover their
distributed account balances. This net benefit analysis is an update of
the 2006 estimate, with new information submitted to the Department's
Office of Enforcement informing the analysis.
8. Congressional Review Act
This proposed amendment is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and, if finalized, will be transmitted to
the Congress and the Comptroller General for review.
9. Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, the proposed rule does not
include any Federal mandate that will result in expenditures by state,
local, or tribal governments in the aggregate of more than $100
million, adjusted for inflation, or increase expenditures by
[[Page 74077]]
the private sector of more than $100 million, adjusted for inflation.
10. Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires the adherence to specific
criteria by Federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. This proposed rule does not have
federalism implications because it has no substantial direct effect on
the States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Section 514 of ERISA provides, with
certain exceptions specifically enumerated, that the provisions of
Titles I and IV of ERISA supersede any and all laws of the States as
they relate to any employee benefit plan covered under ERISA. The
requirements implemented in the proposed rule do not alter the
fundamental provisions of the statute with respect to employee benefit
plans, and as such would have no implications for the States or the
relationship or distribution of power between the national government
and the States.
List of Subjects
29 CFR Part 2520
Accounting, Employee benefit plans, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 2550
Employee benefit plans, Employee Retirement Income Security Act,
Employee stock ownership plans, Exemptions, Fiduciaries, Investments,
Investments foreign, Party in interest, Pensions, Pension and Welfare
Benefit Programs Office, Prohibited transactions, Real estate,
Securities, Surety bonds, Trusts and Trustees.
29 CFR Part 2578
Employee benefit plans, Pensions, Retirement.
For the reasons set forth in the preamble, the Department of Labor
proposes to amend 29 CFR chapter XXV as follows:
PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE
1. The authority citation for part 2520 is revised to read as
follows:
Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134 and
1135; and Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9,
2012). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183,
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Sec. 2520.101-4 also
issued under 29 U.S.C. 1021(f). Sec. 2520.101-6 also issued under 29
U.S.C. 1021(k) and Pub. L. 109-280, Sec. 502(a)(3), 120 Stat. 780,
940 (2006). Secs. 2520.102-3, 2520.104b-1 and 2520.104b-3 also
issued under 29 U.S.C. 1003, 1181-1183, 1181 note, 1185, 1185a-b,
1191, and 1191a-c. Secs. 2520.104b-1 and 2520.107 also issued under
26 U.S.C. 401 note, 111 Stat. 788.
2. Revise Sec. 2520.103-13 to read as follows:
Sec. 2520.103-13 Special terminal report for abandoned plans.
(a) General. The terminal report required to be filed by the
qualified termination administrator pursuant to Sec.
2578.1(d)(2)(viii) of this chapter shall consist of the items set forth
in paragraph (b) of this section. Such report shall be filed in
accordance with the method of filing set forth in paragraph (c) of this
section and at the time set forth in paragraph (d) of this section.
(b) Contents. The terminal report described in paragraph (a) of
this section shall contain:
(1) Identification information concerning the bankruptcy trustee
and, if applicable, any eligible designee acting as the qualified
termination administrator pursuant to Sec. 2578.1(j)(1)(ii), and the
plan being terminated.
(2) The total assets of the plan as of the date the plan was deemed
terminated under Sec. 2578.1(c) of this chapter, prior to any
reduction for termination expenses and distributions to participants
and beneficiaries.
(3) The total termination expenses paid by the plan and a separate
schedule identifying each service provider and amount received,
itemized by expense.
(4) The total distributions made pursuant to Sec.
2578.1(d)(2)(vii) of this chapter and a statement regarding whether any
such distributions were transfers under Sec. 2578.1(d)(2)(vii)(B) of
this chapter.
(5) The identification, fair market value and method of valuation
of any assets with respect to which there is no readily ascertainable
fair market value.
(c) Method of filing. The terminal report described in paragraph
(a) shall be filed:
(1) On the most recent Form 5500 available as of the date the
qualified termination administrator satisfies the requirements in Sec.
2578.1(d)(2)(i) through Sec. 2578.1(d)(2)(vii) of this chapter; and
(2) In accordance with the instructions on EBSA's Web site (https://www.dol.gov/ebsa/publications/APterminalreport.html) pertaining to
terminal reports of qualified termination administrators.
(d) When to file. The qualified termination administrator shall
file the terminal report described in paragraph (a) within two months
after the end of the month in which the qualified termination
administrator satisfies the requirements in Sec. 2578.1(d)(2)(i)
through Sec. 2578.1(d)(2)(vii) of this chapter.
(e) Limitation. (1) Except as provided in this section, no report
shall be required to be filed by the qualified termination
administrator under part 1 of title I of ERISA for a plan being
terminated pursuant to Sec. 2578.1 of this chapter.
(2) Filing of a report under this section by the qualified
termination administrator shall not relieve any other person from any
obligation under part 1 of title I of ERISA.
PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY
3. The authority citation for part 2550 is revised to read as
follows:
Authority: 29 U.S.C. 1135, sec. 102, Reorganization Plan No. 4
of 1978, 5 U.S.C. App. 1 and Secretary of Labor's Order No. 1-2011,
77 FR 1088 (Jan. 9, 2012). Sec. 2550.401c-1 also issued under 29
U.S.C. 1101. Sec. 2550.404a-2 also issued under sec. 657, Pub. L.
107-16, 115 Stat. 38. Sections 2550.404c-1 and 2550.404c-5 also
issued under 29 U.S.C. 1104. Sec. 2550.408b-1 also issued under 29
U.S.C. 1108(b)(1). Sec. 2550.408b-19 also issued under sec. 611,
Pub. L. 109-280, 120 Stat. 780, 972. Sec. 2550.412-1 also issued
under 29 U.S.C. 1112.
4. Revise Sec. 2550.404a-3 to read as follows:
Sec. 2550.404a-3 Safe harbor for distributions from terminated
individual account plans.
(a) General. (1) This section provides a safe harbor under which a
fiduciary (including a qualified termination administrator, within the
meaning of Sec. 2578.1(g) or (j)(1)(ii) of this chapter) of a
terminated individual account plan, as described in paragraph (a)(2) of
this section, will be deemed to have satisfied its duties under section
404(a) of the Employee Retirement Income Security Act of 1974, as
amended (the Act)), 29
[[Page 74078]]
U.S.C. 1001 et seq., in connection with a distribution described in
paragraph (b) of this section.
(2) This section shall apply to an individual account plan only
if--
(i) In the case of an individual account plan that is an abandoned
plan within the meaning of Sec. 2578.1 of this chapter, such plan was
intended to be maintained as a tax-qualified plan in accordance with
the requirements of section 401(a), 403(a), or 403(b) of the Internal
Revenue Code of 1986 (Code); or
(ii) In the case of any other individual account plan, such plan is
maintained in accordance with the requirements of section 401(a),
403(a), or 403(b) of the Code at the time of the distribution.
(3) The standards set forth in this section apply solely for
purposes of determining whether a fiduciary meets the requirements of
this safe harbor. Such standards are not intended to be the exclusive
means by which a fiduciary might satisfy his or her responsibilities
under the Act with respect to making distributions described in this
section.
(b) Distributions. This section shall apply to a distribution from
a terminated individual account plan if, in connection with such
distribution:
(1) The participant or beneficiary, on whose behalf the
distribution will be made, was furnished notice in accordance with
paragraph (e) of this section or, in the case of an abandoned plan,
Sec. 2578.1(d)(2)(vi) of this chapter, and
(2) The participant or beneficiary failed to elect a form of
distribution within 30 days of the furnishing of the notice described
in paragraph (b)(1) of this section.
(c) Safe harbor. A fiduciary that meets the conditions of paragraph
(d) of this section shall, with respect to a distribution described in
paragraph (b) of this section, be deemed to have satisfied its duties
under section 404(a) of the Act with respect to the distribution of
benefits, selection of a transferee entity described in paragraph
(d)(1)(i) through (iii) of this section, and the investment of funds in
connection with the distribution.
(d) Conditions. A fiduciary shall qualify for the safe harbor
described in paragraph (c) of this section if:
(1) The distribution described in paragraph (b) of this section is
made to any of the following transferee entities--
(i) To an individual retirement plan within the meaning of section
7701(a)(37) of the Code;
(ii) In the case of a distribution on behalf of a designated
beneficiary (as defined by section 401(a)(9)(E) of the Code) who is not
the surviving spouse of the deceased participant, to an inherited
individual retirement plan (within the meaning of section 402(c)(11) of
the Code) established to receive the distribution on behalf of the
nonspouse beneficiary; or
(iii) In the case of a distribution by a qualified termination
administrator (other than a bankruptcy trustee described in Sec.
2578.1(j)(1)(ii)) with respect to which the amount to be distributed is
$1,000 or less and that amount is less than the minimum amount required
to be invested in an individual retirement plan product offered by the
qualified termination administrator to the public at the time of the
distribution, to:
(A) An interest-bearing federally insured bank or savings
association account in the name of the participant or beneficiary,
(B) The unclaimed property fund of the State in which the
participant's or beneficiary's last known address is located, or
(C) An individual retirement plan (described in paragraph (d)(1)(i)
or (d)(1)(ii) of this section) offered by a financial institution other
than the qualified termination administrator to the public at the time
of the distribution.
(iv) In the case of a distribution by a bankruptcy trustee as
described in Sec. 2578.1(j)(1)(ii) with respect to which the amount to
be distributed is $1,000 or less and the bankruptcy trustee, after
reasonable and good faith efforts, is unable to locate an individual
retirement plan provider who will accept the distribution, to either
distribution option described in paragraph (d)(1)(iii)(A) or (B) of
this section.
(v) Notwithstanding paragraphs (d)(1)(iii) and (iv) of this
section, the $1,000 threshold may be disregarded in any particular case
if the qualified termination administrator reasonably and in good faith
finds that the participant and, if applicable, the named beneficiary
are deceased; and if the qualified termination administrator also
includes in the notice described in Sec. 2578.1(d)(2)(ix)(G) (the
Final Notice) the identity of the deceased participant and beneficiary
and the basis behind the finding.
(2) Except with respect to distributions to State unclaimed
property funds (described in paragraph (d)(1)(iii)(B) of this section),
the fiduciary enters into a written agreement with the transferee
entity which provides:
(i) The distributed funds shall be invested in an investment
product designed to preserve principal and provide a reasonable rate of
return, whether or not such return is guaranteed, consistent with
liquidity (except that distributions under paragraph (d)(1)(iii)(A) of
this section to a bank or savings account are not required to be
invested in such a product);
(ii) For purposes of paragraph (d)(2)(i) of this section, the
investment product shall--
(A) Seek to maintain, over the term of the investment, the dollar
value that is equal to the amount invested in the product by the
individual retirement plan (described in paragraph (d)(1)(i) or
(d)(1)(ii) of this section), and
(B) Be offered by a State or federally regulated financial
institution, which shall be: a bank or savings association, the
deposits of which are insured by the Federal Deposit Insurance
Corporation; a credit union, the member accounts of which are insured
within the meaning of section 101(7) of the Federal Credit Union Act;
an insurance company, the products of which are protected by State
guaranty associations; or an investment company registered under the
Investment Company Act of 1940;
(iii) All fees and expenses attendant to the transferee plan
(described in paragraph (d)(1)(i) or (d)(1)(ii) of this section) or
account (described in paragraph (d)(1)(iii)(A) of this section),
including investments of such plan, (e.g., establishment charges,
maintenance fees, investment expenses, termination costs and surrender
charges), shall not exceed the fees and expenses charged by the
provider of the plan or account for comparable plans or accounts
established for reasons other than the receipt of a distribution under
this section; and
(iv) The participant or beneficiary on whose behalf the fiduciary
makes a distribution shall have the right to enforce the terms of the
contractual agreement establishing the plan (described in paragraph
(d)(1)(i) or (d)(1)(ii) of this section) or account (described in
paragraph (d)(1)(iii)(A) of this section), with regard to his or her
transferred account balance, against the plan or account provider.
(3) Both the fiduciary's selection of a transferee plan (described
in paragraph (d)(1)(i) or (d)(1)(ii) of this section) or account
(described in paragraph (d)(1)(iii)(A) of this section) and the
investment of funds would not result in a prohibited transaction under
section 406 of the Act, or if so prohibited such actions are exempted
from the prohibited transaction provisions by a prohibited transaction
exemption issued pursuant to section 408(a) of the Act.
[[Page 74079]]
(e) Notice to participants and beneficiaries. (1) Content. Each
participant or beneficiary of the plan shall be furnished a notice
written in a manner calculated to be understood by the average plan
participant and containing the following:
(i) The name of the plan;
(ii) A statement of the account balance, the date on which the
amount was calculated, and, if relevant, an indication that the amount
to be distributed may be more or less than the amount stated in the
notice, depending on investment gains or losses and the administrative
cost of terminating the plan and distributing benefits;
(iii) A description of the distribution options available under the
plan and a request that the participant or beneficiary elect a form of
distribution and inform the plan administrator (or other fiduciary)
identified in paragraph (e)(1)(vii) of this section of that election;
(iv) A statement explaining that, if a participant or beneficiary
fails to make an election within 30 days from receipt of the notice,
the plan will distribute the account balance of the participant or
beneficiary to an individual retirement plan (i.e., individual
retirement account or annuity described in paragraph (d)(1)(i) or
(d)(1)(ii) of this section) and the account balance will be invested in
an investment product designed to preserve principal and provide a
reasonable rate of return and liquidity;
(v) A statement explaining what fees, if any, will be paid from the
participant or beneficiary's individual retirement plan (described in
paragraph (d)(1)(i) or (d)(1)(ii) of this section), if such information
is known at the time of the furnishing of this notice;
(vi) The name, address and phone number of the individual
retirement plan (described in paragraph (d)(1)(i) or (d)(1)(ii) of this
section) provider, if such information is known at the time of the
furnishing of this notice; and
(vii) The name, address, and telephone number of the plan
administrator (or other fiduciary) from whom a participant or
beneficiary may obtain additional information concerning the
termination.
(2) Manner of furnishing notice. (i) For purposes of paragraph
(e)(1) of this section, a notice shall be furnished to each participant
or beneficiary in accordance with the requirements of Sec. 2520.104b-
1(b)(1) of this chapter to the last known address of the participant or
beneficiary; and
(ii) In the case of a notice that is returned to the plan as
undeliverable, the plan fiduciary shall, consistent with its duties
under section 404(a)(1) of ERISA, take steps to locate the participant
or beneficiary and provide notice prior to making the distribution. If,
after such steps, the fiduciary is unsuccessful in locating and
furnishing notice to a participant or beneficiary, the participant or
beneficiary shall be deemed to have been furnished the notice and to
have failed to make an election within 30 days for purposes of
paragraph (b)(2) of this section.
(f) Model notice. The appendix to this section contains a model
notice that may be used to discharge the notification requirements
under this section. Use of the model notice is not mandatory. However,
use of an appropriately completed model notice will be deemed to
satisfy the requirements of paragraph (e)(1) of this section.
BILLING CODE 4510-29-P
[[Page 74080]]
[GRAPHIC] [TIFF OMITTED] TP12DE12.000
BILLING CODE 4510-29-C
[[Page 74081]]
PART 2578--RULES AND REGULATIONS FOR ABANDONED PLANS
5. The authority citation for part 2578.1 continues to read as
follows:
Authority: 29 U.S.C. 1135; 1104(a); 1103(d)(1).
6. Revise Sec. 2578.1 to read as follows:
Sec. 2578.1 Termination of abandoned individual account plans.
(a) General. The purpose of this part is to establish standards for
the termination and winding up of an individual account plan (as
defined in section 3(34) of the Employee Retirement Income Security Act
of 1974 (ERISA or the Act)) with respect to which (1) a qualified
termination administrator has determined there is no responsible plan
sponsor or plan administrator within the meaning of section 3(16)(B)
and (A) of the Act, respectively, to perform such acts, or (2) an order
for relief under chapter 7 of title 11 of the United States Code has
been entered with respect to the plan sponsor.
(b) Finding of abandonment. (1) A qualified termination
administrator (as defined in paragraph (g) of this section) may find an
individual account plan to be abandoned when:
(i) Either: (A) No contributions to, or distributions from, the
plan have been made for a period of at least 12 consecutive months
immediately preceding the date on which the determination is being
made; or
(B) Other facts and circumstances (such as communications from
participants and beneficiaries regarding distributions) known to the
qualified termination administrator suggest that the plan is or may
become abandoned by the plan sponsor; and
(ii) Following reasonable efforts to locate or communicate with the
plan sponsor, the qualified termination administrator determines that
the plan sponsor:
(A) No longer exists;
(B) Cannot be located; or
(C) Is unable to maintain the plan.
(2) Notwithstanding paragraph (b)(1) of this section, a qualified
termination administrator may not find a plan to be abandoned if, at
any time before the plan is deemed terminated pursuant to paragraph (c)
of this section, the qualified termination administrator receives an
objection from the plan sponsor regarding the finding of abandonment
and proposed termination.
(3) A qualified termination administrator shall, for purposes of
paragraph (b)(1)(ii) of this section, be deemed to have made a
reasonable effort to locate or communicate with the plan sponsor if the
qualified termination administrator sends to the last known address of
the plan sponsor, and, in the case of a plan sponsor that is a
corporation, to the address of the person designated as the
corporation's agent for service of legal process, by a method of
delivery requiring acknowledgement of receipt, the notice described in
paragraph (b)(5) of this section.
(4) If receipt of the notice described in paragraph (b)(5) of this
section is not acknowledged pursuant to paragraph (b)(3) of this
section, the qualified termination administrator shall be deemed to
have made a reasonable effort to locate or communicate with the plan
sponsor if the qualified termination administrator contacts known
service providers (other than itself) of the plan and requests the
current address of the plan sponsor from such service providers and, if
such information is provided, the qualified termination administrator
sends to each such address, by a method of delivery requiring
acknowledgement of receipt, the notice described in paragraph (b)(5) of
this section.
(5) The notice referred to in paragraph (b)(3) of this section
shall contain the following information:
(i) The name and address of the qualified termination
administrator;
(ii) The name of the plan;
(iii) The account number or other identifying information relating
to the plan;
(iv) A statement that the plan may be terminated and benefits
distributed pursuant to 29 CFR 2578.1 if the plan sponsor fails to
contact the qualified termination administrator within 30 days;
(v) The name, address, and telephone number of the person, office,
or department that the plan sponsor must contact regarding the plan;
(vi) A statement that if the plan is terminated pursuant to 29 CFR
2578.1, notice of such termination will be furnished to the U.S.
Department of Labor's Employee Benefits Security Administration;
(vii) The following statement: ``The U.S. Department of Labor
requires that you be informed that, as a fiduciary or plan
administrator or both, you may be personally liable for costs, civil
penalties, excise taxes, etc. as a result of your acts or omissions
with respect to this plan. The termination of this plan will not
relieve you of your liability for any such costs, penalties, taxes,
etc.''; and
(viii) A statement that the plan sponsor may contact the U.S.
Department of Labor for more information about the federal law
governing the termination and winding-up process for abandoned plans
and the telephone number of the appropriate Employee Benefits Security
Administration contact person.
(c) Deemed termination. (1) Except as provided in paragraph (c)(2)
of this section, if a qualified termination administrator finds
(pursuant to paragraph (b)(1) of this section) that an individual
account plan has been abandoned, or if a plan is considered abandoned
due to the entry of an order for relief under chapter 7 of title 11 of
the United States Code (pursuant to paragraph (j)(1)(i) of this
section), the plan shall be deemed to be terminated on the ninetieth
(90th) day following the date of the letter from EBSA acknowledging
receipt of the notice of plan abandonment, described in paragraph
(c)(3) or (j)(2) of this section.
(2) If, prior to the end of the 90-day period described in
paragraph (c)(1) of this section, the Department notifies the qualified
termination administrator that it--
(i) Objects to the termination of the plan, the plan shall not be
deemed terminated under paragraph (c)(1) of this section until the
qualified termination administrator is notified that the Department has
withdrawn its objection; or
(ii) Waives the 90-day period described in paragraph (c)(1), the
plan shall be deemed terminated upon the qualified termination
administrator's receipt of such notification.
(3) Following a qualified termination administrator's finding,
pursuant to paragraph (b)(1) this section, that an individual account
plan has been abandoned, the qualified termination administrator shall
furnish to the U.S. Department of Labor a notice of plan abandonment
that is signed and dated by the qualified termination administrator and
that includes the following information:
(i) Qualified termination administrator information. (A) The name,
EIN, address, and telephone number of the person electing to be the
qualified termination administrator, including the address, email
address, and telephone number of the person signing the notice (or
other contact person, if different from the person signing the notice);
(B) A statement that the person (identified in paragraph
(c)(3)(i)(A) of this section) is a qualified termination administrator
within the meaning of paragraph (g) of this section and elects to
terminate and wind up the plan (identified in paragraph (c)(3)(ii)(A)
of
[[Page 74082]]
this section) in accordance with the provisions of this section;
(ii) Plan information. (A) The name, address, telephone number,
account number, EIN, and plan number of the plan with respect to which
the person is electing to serve as the qualified termination
administrator;
(B) The name and last known address and telephone number of the
plan sponsor; and
(C) The estimated number of participants and beneficiaries with
accounts in the plan;
(iii) Findings. A statement that the person electing to be the
qualified termination administrator finds that the plan (identified in
paragraph (c)(3)(ii)(A) of this section) is abandoned pursuant to
paragraph (b) of this section. This statement shall include an
explanation of the basis for such a finding, specifically referring to
the provisions in paragraph (b)(1) of this section, a description of
the specific steps (set forth in paragraphs (b)(3) and (b)(4) of this
section) taken to locate or communicate with the known plan sponsor,
and a statement that no objection has been received from the plan
sponsor;
(iv) Plan asset information. (A) The estimated value of the plan's
assets held by the person electing to be the qualified termination
administrator;
(B) The length of time plan assets have been held by the person
electing to be the qualified termination administrator, if such period
of time is less than 12 months;
(C) An identification of any assets with respect to which there is
no readily ascertainable fair market value, as well as information, if
any, concerning the value of such assets; and
(D) An identification of known delinquent contributions pursuant to
paragraph (d)(2)(iii) of this section;
(v) Service provider information. (A) The name, address, and
telephone number of known service providers (e.g., record keeper,
accountant, lawyer, other asset custodian(s)) to the plan; and
(B) An identification of any services considered necessary to carry
out the qualified termination administrator's authority and
responsibility under this section, the name of the service provider(s)
that is expected to provide such services, and an itemized estimate of
expenses attendant thereto expected to be paid out of plan assets by
the qualified termination administrator; and
(vi) Perjury statement. A statement that the information being
provided in the notice is true and complete based on the knowledge of
the person electing to be the qualified termination administrator, and
that the information is being provided by the qualified termination
administrator under penalty of perjury.
(d) Winding up the affairs of the plan. (1) In any case where an
individual account plan is deemed to be terminated pursuant to
paragraph (c) of this section, the qualified termination administrator
shall take steps as may be necessary or appropriate to wind up the
affairs of the plan and distribute benefits to the plan's participants
and beneficiaries.
(2) For purposes of paragraph (d)(1) of this section, except as
provided pursuant to paragraph (j)(3) of this section (relating to
chapter 7 plans), the qualified termination administrator shall:
(i) Update plan records. (A) Undertake reasonable and diligent
efforts to locate and update plan records necessary to determine the
benefits payable under the terms of the plan to each participant and
beneficiary.
(B) For purposes of paragraph (d)(2)(i)(A) of this section, a
qualified termination administrator shall not have failed to make
reasonable and diligent efforts to update plan records merely because
the administrator determines in good faith that updating the records is
either impossible or involves significant cost to the plan in relation
to the total assets of the plan.
(ii) Calculate benefits. Use reasonable care in calculating the
benefits payable to each participant or beneficiary based on plan
records described in paragraph (d)(2)(i) of this section. A qualified
termination administrator shall not have failed to use reasonable care
in calculating benefits payable solely because the qualified
termination administrator--
(A) Treats as forfeited an account balance that, taking into
account estimated forfeitures and other assets allocable to the
account, is less than the estimated share of plan expenses allocable to
that account, and reallocates that account balance to defray plan
expenses or to other plan accounts in accordance with (d)(2)(ii)(B) of
this section;
(B) Allocates expenses and unallocated assets in accordance with
the plan documents, or, if the plan document is not available, is
ambiguous, or if compliance with the plan is unfeasible,
(1) Allocates unallocated assets (including forfeitures and assets
in a suspense account) to participant accounts on a per capita basis
(allocated equally to all accounts); and
(2) Allocates expenses on a pro rata basis (proportionately in the
ratio that each individual account balance bears to the total of all
individual account balances) or on a per capita basis (allocated
equally to all accounts).
(iii) Report delinquent contributions. (A) Notify the Department of
any known contributions (either employer or employee) owed to the plan
in conjunction with the filing of the notification required in
paragraph (c)(3), (j)(2), or (d)(2)(ix) of this section.
(B) Except as provided in paragraph (j)(3)(i) of this section,
nothing in paragraph (d)(2)(iii)(A) of this section or any other
provision of the Act shall be construed to impose an obligation on the
qualified termination administrator to collect delinquent contributions
on behalf of the plan, provided that the qualified termination
administrator satisfies the requirements of paragraph (d)(2)(iii)(A) of
this section.
(iv) Engage service providers. Engage, on behalf of the plan, such
service providers as are necessary for the qualified termination
administrator to wind up the affairs of the plan and distribute
benefits to the plan's participants and beneficiaries in accordance
with paragraph (d)(1) of this section.
(v) Pay reasonable expenses. (A) Pay, from plan assets, the
reasonable expenses of carrying out the qualified termination
administrator's authority and responsibility under this section.
(B) Expenses of plan administration shall be considered reasonable
solely for purposes of paragraph (d)(2)(v)(A) of this section if:
(1) Such expenses are for services necessary to wind up the affairs
of the plan and distribute benefits to the plan's participants and
beneficiaries,
(2) Such expenses: (i) Are consistent with industry rates for such
or similar services, based on the experience of the qualified
termination administrator; and
(ii) Are not in excess of rates ordinarily charged by the qualified
termination administrator (or affiliate) for same or similar services
provided to customers that are not plans terminated pursuant to this
section, if the qualified termination administrator (or affiliate)
provides same or similar services to such other customers, and
(3) The payment of such expenses would not constitute a prohibited
transaction under the Act or is exempted from such prohibited
transaction provisions pursuant to section 408(a) of the Act.
(vi) Notify participants. (A) Furnish to each participant or
beneficiary of the plan a notice written in a manner calculated to be
understood by the average plan participant and containing the
following:
(1) The name of the plan;
[[Page 74083]]
(2) A statement that the plan has been determined to be abandoned
by the plan sponsor and, therefore, has been terminated pursuant to
regulations issued by the U.S. Department of Labor;
(3)(i) A statement of the participant's or beneficiary's account
balance and the date on which it was calculated by the qualified
termination administrator, and
(ii) The following statement: ``The actual amount of your
distribution may be more or less than the amount stated in this letter
depending on investment gains or losses and the administrative cost of
terminating your plan and distributing your benefits.'';
(4) A description of the distribution options available under the
plan and a request that the participant or beneficiary elect a form of
distribution and inform the qualified termination administrator (or
designee) of that election;
(5) A statement explaining that, if a participant or beneficiary
fails to make an election within 30 days from receipt of the notice,
the qualified termination administrator (or designee) will distribute
the account balance of the participant or beneficiary directly:
(i) To an individual retirement plan (i.e., individual retirement
account or annuity),
(ii) To an inherited individual retirement plan described in Sec.
2550.404a-3(d)(1)(ii) of this chapter (in the case of a distribution on
behalf of a distributee other than a participant or spouse),
(iii) In any case where the amount to be distributed meets the
conditions in Sec. 2550.404a-3(d)(1)(iii) or (iv), to an interest-
bearing federally insured bank account, the unclaimed property fund of
the State of the last known address of the participant or beneficiary,
or an individual retirement plan (described in Sec. 2550.404a-
3(d)(1)(i) or (d)(1)(ii) of this chapter) or
(iv) To an annuity provider in any case where the qualified
termination administrator determines that the survivor annuity
requirements in sections 401(a)(11) and 417 of the Internal Revenue
Code (or section 205 of ERISA) prevent a distribution under paragraph
(d)(2)(vii)(B)(1) of this section;
(6) In the case of a distribution to an individual retirement plan
(described in Sec. 2550.404a-3(d)(1)(i) or (d)(1)(ii) of this chapter)
a statement explaining that the account balance will be invested in an
investment product designed to preserve principal and provide a
reasonable rate of return and liquidity;
(7) A statement of the fees, if any, that will be paid from the
participant or beneficiary's individual retirement plan (described in
Sec. 2550.404a-3(d)(1)(i) or (d)(1)(ii) of this chapter) or other
account (described in Sec. 2550.404a-3(d)(1)(iii)(A) of this chapter),
if such information is known at the time of the furnishing of this
notice;
(8) The name, address and phone number of the provider of the
individual retirement plan (described in Sec. 2550.404a-3(d)(1)(i) or
(d)(1)(ii) of this chapter), qualified survivor annuity, or other
account (described in Sec. 2550.404a-3(d)(1)(iii)(A) of this chapter),
if such information is known at the time of the furnishing of this
notice; and
(9) The name, address, and telephone number of the qualified
termination administrator and, if different, the name, address and
phone number of a contact person (or entity) for additional information
concerning the termination and distribution of benefits under this
section.
(B)(1) For purposes of paragraph (d)(2)(vi)(A) of this section, a
notice shall be furnished to each participant or beneficiary in
accordance with the requirements of Sec. 2520.104b-1(b)(1) of this
chapter to the last known address of the participant or beneficiary;
and
(2) In the case of a notice that is returned to the qualified
termination administrator as undeliverable, the qualified termination
administrator shall, consistent with the duties of a fiduciary under
section 404(a)(1) of ERISA, take steps to locate and provide notice to
the participant or beneficiary prior to making a distribution pursuant
to paragraph (d)(2)(vii) of this section. If, after such steps, the
qualified termination administrator is unsuccessful in locating and
furnishing notice to a participant or beneficiary, the participant or
beneficiary shall be deemed to have been furnished the notice and to
have failed to make an election within the 30-day period described in
paragraph (d)(2)(vii) of this section.
(vii) Distribute benefits. (A) Distribute benefits in accordance
with the form of distribution elected by each participant or
beneficiary with spousal consent, if required.
(B) If the participant or beneficiary fails to make an election
within 30 days from the date the notice described in paragraph
(d)(2)(vi) of this section is furnished, distribute benefits--
(1) In accordance with Sec. 2550.404a-3 of this chapter; or
(2) If a qualified termination administrator determines that the
survivor annuity requirements in sections 401(a)(11) and 417 of the
Internal Revenue Code (or section 205 of ERISA) prevent a distribution
under paragraph (d)(2)(vii)(B)(1) of this section, in any manner
reasonably determined to achieve compliance with those requirements.
(C) For purposes of distributions pursuant to paragraph
(d)(2)(vii)(B) of this section, the qualified termination administrator
may designate itself (or an affiliate) as the transferee of such
proceeds, and invest such proceeds in a product in which it (or an
affiliate) has an interest, only if such designation and investment is
exempted from the prohibited transaction provisions under the Act
pursuant to section 408(a) of the Act.
(viii) Special Terminal Report for Abandoned Plans. File the
Special Terminal Report for Abandoned Plans in accordance with Sec.
2520.103-13 of this chapter.
(ix) Final Notice. No later than two months after the end of the
month in which the qualified termination administrator satisfies the
requirements in paragraph (d)(2)(i) through (d)(2)(vii) of this
section, furnish to the Office of Enforcement, Employee Benefits
Security Administration, U.S. Department of Labor, 200 Constitution
Avenue NW., Washington, DC 20210, a notice, signed and dated by the
qualified termination administrator, containing the following
information:
(A) The name, EIN, address, email address, and telephone number of
the qualified termination administrator, including the address and
telephone number of the person signing the notice (or other contact
person, if different from the person signing the notice);
(B) The name, account number, EIN, and plan number of the plan with
respect to which the person served as the qualified termination
administrator;
(C) A statement that the plan has been terminated and all the
plan's assets have been distributed to the plan's participants and
beneficiaries on the basis of the best available information;
(D) A statement that plan expenses were paid out of plan assets by
the qualified termination administrator in accordance with the
requirements of paragraph (d)(2)(v) or (j)(3)(v) of this section;
(E) If fees and expenses paid by the plan exceed by 20 percent or
more the estimate required by paragraph (c)(3)(v)(B) or (j)(2)(v)(B) of
this section, a statement that actual fees and expenses exceeded
estimated fees and expenses and the reasons for such additional costs;
(F) An identification of known delinquent contributions pursuant to
paragraph (d)(2)(iii) of this section (if not already reported under
paragraph
[[Page 74084]]
(c)(3)(iv)(D) or (j)(2)(iv)(D) of this section);
(G) For each distribution in accordance with Sec. 2550.404a-
3(d)(1)(v) (relating to distributions on behalf of deceased
participants and beneficiaries), an identification of the deceased
participant and, if applicable, the deceased named beneficiary, and the
basis behind the finding required by Sec. 2550.404a-3(d)(1)(v); and
(H) A statement that the information being provided in the notice
is true and complete based on the knowledge of the qualified
termination administrator, and that the information is being provided
by the qualified termination administrator under penalty of perjury.
(3) The terms of the plan shall, for purposes of title I of ERISA,
be deemed amended to the extent necessary to allow the qualified
termination administrator to wind up the plan in accordance with this
section.
(e) Limited liability. (1)(i) Except as otherwise provided in
paragraph (e)(1)(ii) and (iii) of this section, to the extent that the
activities enumerated in paragraphs (d)(2) and (j)(3) of this section
involve the exercise of discretionary authority or control that would
make the qualified termination administrator a fiduciary within the
meaning of section 3(21) of the Act, the qualified termination
administrator shall be deemed to satisfy its responsibilities under
section 404(a) of the Act with respect to such activities, provided
that the qualified termination administrator complies with the
requirements of paragraph (d)(2) and (j)(3) of this section as
applicable.
(ii) A qualified termination administrator shall be responsible for
the selection and monitoring of any service provider (other than
monitoring a provider selected pursuant to paragraph (d)(2)(vii)(B) of
this section) determined by the qualified termination administrator to
be necessary to the winding up of the affairs of the plan, as well as
ensuring the reasonableness of the compensation paid for such services.
If a qualified termination administrator selects and monitors a service
provider in accordance with the requirements of section 404(a)(1) of
the Act, the qualified termination administrator shall not be liable
for the acts or omissions of the service provider with respect to which
the qualified termination administrator does not have knowledge.
(iii) For purposes of a distribution pursuant to paragraph
(d)(2)(vii)(B)(2) of this section, a qualified termination
administrator shall be responsible for the selection of an annuity
provider in accordance with section 404 of the Act.
(2) Nothing herein shall be construed to impose an obligation on
the qualified termination administrator to conduct an inquiry or review
to determine whether or what breaches of fiduciary responsibility may
have occurred with respect to a plan prior to becoming the qualified
termination administrator for such plan.
(3) If assets of an abandoned plan are held by a person other than
the qualified termination administrator, such person shall not be
treated as in violation of section 404(a) of the Act solely on the
basis that the person cooperated with and followed the directions of
the qualified termination administrator in carrying out its
responsibilities under this section with respect to such plan, provided
that, in advance of any transfer or disposition of any assets at the
direction of the qualified termination administrator, such person
confirms with the Department of Labor that the person representing to
be the qualified termination administrator with respect to the plan is
the qualified termination administrator recognized by the Department of
Labor.
(f) Continued liability. Nothing in this section shall serve to
relieve or limit the liability of any person other than the qualified
termination administrator due to a violation of ERISA.
(g) Qualified termination administrator. A termination
administrator is qualified under this section only if:
(1) It is eligible to serve as a trustee or issuer of an individual
retirement plan, within the meaning of section 7701(a)(37) of the
Internal Revenue Code, and
(2) It holds assets of the plan that is found abandoned pursuant to
paragraph (b) of this section.
(h) Affiliate. (1) The term affiliate means any person directly or
indirectly controlling, controlled by, or under common control with,
the person; or any officer, director, partner or employee of the
person.
(2) For purposes of paragraph (h)(1) of this section, the term
control means the power to exercise a controlling influence over the
management or policies of a person other than an individual.
(i) Model notices. Appendices to this section contain model notices
that are intended to assist qualified termination administrators in
discharging the notification requirements under this section. Their use
is not mandatory. However, the use of appropriately completed model
notices will be deemed to satisfy the requirements of paragraphs
(b)(5), (c)(3), (d)(2)(vi), (d)(2)(ix), and (j)(2) of this section.
(j) Special rules for chapter 7 plans. (1) Notwithstanding
paragraphs (b) and (g) of this section (relating to findings of
abandonment and defining the term ``qualified termination
administrator,'' respectively), if the sponsor of an individual account
plan is in liquidation under chapter 7 of title 11 of the United States
Code:
(i) The plan (``chapter 7 plan'') shall for purposes of this
section be considered abandoned upon the entry of an order for relief.
However, the plan shall cease to be considered abandoned pursuant to
this paragraph (j)(1) if at any time before the plan is deemed
terminated pursuant to paragraph (c) of this section, the plan
sponsor's chapter 7 liquidation proceeding is dismissed or converted to
a proceeding under chapter 11 of title 11 of the United States Code.
(ii) The bankruptcy trustee, or an eligible designee, may be the
qualified termination administrator. An ``eligible designee'' is any
person or entity designated by the bankruptcy trustee that is eligible
to serve as a trustee or issuer of an individual retirement plan,
within the meaning of section 7701(a)(37) of the Internal Revenue Code,
and that holds assets of the chapter 7 plan. The bankruptcy trustee
shall be responsible for the selection and monitoring of any eligible
designee in accordance with section 404(a)(1) of the Act.
(2) Notice of Plan Abandonment. In accordance with paragraph (c) of
this section, the qualified termination administrator under this
paragraph (j) shall furnish to the U.S. Department of Labor a notice of
plan abandonment that is signed and dated by the qualified termination
administrator and that includes the following information:
(i) Qualified termination administrator information. The name,
address (including email address), and telephone number of the
bankruptcy trustee and, if applicable, the name, EIN, address
(including email address), and telephone number of any eligible
designee acting as the qualified termination administrator pursuant to
paragraph (j)(1)(ii) of this section;
(ii) Plan information. (A) The name, address, telephone number,
account number, EIN, and plan number of the plan with respect to which
the person is serving as the qualified termination administrator,
(B) The name and last known address and telephone number of the
plan sponsor, and
(C) The estimated number of participants and beneficiaries with
accounts in the plan;
[[Page 74085]]
(iii) Chapter 7 information. A statement that, pursuant to
paragraph (j)(1) of this section, the plan is considered to be
abandoned due to an entry of an order for relief under chapter 7 of the
U.S. Bankruptcy Code, and a copy of the notice or order entered in the
case reflecting the bankruptcy trustee's appointment to administer the
plan sponsor's case;
(iv) Plan asset information. (A) The estimated value of the plan's
assets as of the date of the entry of an order for relief,
(B) The name, EIN, address (including email address) and telephone
number of the entity that is holding these assets, and the length of
time plan assets have been held by such entity, if the period of time
is less than 12 months,
(C) An identification of any assets with respect to which there is
no readily ascertainable fair market value, as well as information, if
any, concerning the value of such assets, and
(D) An identification of known delinquent contributions pursuant to
paragraph (d)(2)(iii) of this section;
(v) Service provider information. (A) The name, address, and
telephone number of known service providers (e.g., record keeper,
accountant, lawyer, other asset custodian(s)) to the plan, and
(B) An identification of any services considered necessary to carry
out the qualified termination administrator's authority and
responsibility under this section, the name of the service provider(s)
that is expected to provide such services, and an itemized estimate of
expenses attendant thereto expected to be paid out of plan assets by
the qualified termination administrator; and
(vi) Perjury statement. A statement that the information being
provided in the notice is true and complete based on the knowledge of
the person electing to be the qualified termination administrator, and
that the information is being provided by the qualified termination
administrator under penalty of perjury.
(3) Winding up the affairs of the plan. The qualified termination
administrator shall comply with paragraph (d) of this section except as
follows:
(i) Delinquent contributions. The qualified termination
administrator of a plan described in paragraph (j)(1)(i) of this
section shall, consistent with the duties of a fiduciary under section
404(a)(1) of ERISA, take reasonable and good faith steps to collect
known delinquent contributions on behalf of the plan, taking into
account the value of the plan assets involved, the likelihood of a
successful recovery, and the expenses expected to be incurred in
connection with collection. If the bankruptcy trustee designates an
eligible designee as defined in paragraph (j)(1)(ii) of this section,
the bankruptcy trustee shall at the time of such designation notify the
eligible designee of any known delinquent contributions.
(ii) Report fiduciary breaches. The qualified termination
administrator of a plan described in paragraph (j)(1)(i) of this
section shall report known delinquent contributions (employer and
employee) owed to the plan, and any activity that the qualified
termination administrator believes may be evidence of other fiduciary
breaches that involve plan assets by a prior plan fiduciary. This
information must be reported to the Employee Benefits Security
Administration in conjunction with the filing of the notification
required in paragraph (j)(2) or (d)(2)(ix) of this section. If a
bankruptcy trustee designates an eligible designee as defined in
paragraph (j)(1)(ii) of this section, the bankruptcy trustee shall
provide the eligible designee with records under the control of the
bankruptcy trustee to enable the eligible designee to carry out its
responsibilities under paragraph (j)(3)(ii) of this section. If, after
the eligible designee completes the winding up of the plan, the
bankruptcy trustee, in administering the debtor's estate, discovers
additional information not already reported in the notification
required in paragraphs (j)(2) or (d)(2)(ix) of this section that it
believes may be evidence of fiduciary breaches that involve plan assets
by a prior plan fiduciary, the bankruptcy trustee shall report such
activity to the Employee Benefits Security Administration in a time and
manner specified in instructions developed by the Office of
Enforcement, Employee Benefits Security Administration, U.S. Department
of Labor.
(iii) Participant notification. In lieu of the statement required
by paragraph (d)(2)(vi)(A)(2) of this section, the notice shall include
a statement that the plan sponsor is in liquidation under chapter 7 of
title 11 of the United States Code and, therefore, the plan has been
terminated by the bankruptcy trustee (or its eligible designee).
(iv) Final notice. In lieu of the content requirements in paragraph
(d)(2)(ix)(A) of this section (relating to the qualified termination
administrator), the final notice shall include, the name, address
(including email address), and telephone number of the bankruptcy
trustee and, if applicable, the name, EIN, address (including email
address), and telephone number of the eligible designee.
(v) Distributions. Paragraph (d)(2)(vii)(C) of this section
(relating to the ability of a qualified termination administrator to
designate itself as the transferee of distribution proceeds in
accordance with Sec. 2550.404a-3) is not applicable in the case of a
qualified termination administrator that is the plan sponsor's
bankruptcy trustee.
(vi) Pay reasonable expenses. (A) If the bankruptcy trustee is the
qualified termination administrator, in lieu of the requirements in
paragraph (d)(2)(v)(B)(2) of this section, expenses shall be consistent
with industry rates for such or similar services ordinarily charged by
qualified termination administrators defined in paragraph (g) of this
section.
(B) If the bankruptcy trustee designates an eligible designee, as
defined in paragraph (j)(1)(ii) of this section, to serve as the
qualified termination administrator, the requirements in paragraph
(d)(2)(v) of this section (as opposed to the requirements in paragraph
(j)(3)(vi)(A) of this section) apply to expenses that the eligible
designee pays to itself or others.
(C) The eligible designee may pay, from plan assets, the bankruptcy
trustee for reasonable expenses incurred in selecting and monitoring
the eligible designee.
(4) The bankruptcy trustee or eligible designee shall not, through
waiver or otherwise, seek a release from liability under ERISA, or
assert a defense of derived judicial immunity (or similar defense) in
any action brought against the bankruptcy trustee or eligible designee
arising out of its conduct under this regulation.
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Signed at Washington, DC, this 3rd day of December, 2012.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. 2012-29500 Filed 12-11-12; 8:45 am]
BILLING CODE 4510-29-C