Notice of Proposed Amendment to Prohibited Transaction Exemption 2006-06 (PTE 2006-06) for Services Provided in Connection With the Termination of Abandoned Individual Account Plans, 74055-74062 [2012-29556]
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Vol. 77
Wednesday,
No. 239
December 12, 2012
Part II
Department of Labor
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Employee Benefits Security Administration
29 CFR Parts 2520, 2550, and 2578
Notice of Proposed Amendment to Prohibited Transaction Exemption 2006–
06 (PTE 2006–06) for Services Provided in Connection With the
Termination of Abandoned Individual Account Plans; Amendments to the
Abandoned Plan Regulations; Notice and Proposed Rule
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Federal Register / Vol. 77, No. 239 / Wednesday, December 12, 2012 / Notices
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[Application Number D–11657]
ZRIN EBSA–2012–0015
Notice of Proposed Amendment to
Prohibited Transaction Exemption
2006–06 (PTE 2006–06) for Services
Provided in Connection With the
Termination of Abandoned Individual
Account Plans
Employee Benefits Security
Administration, U.S. Department of
Labor.
ACTION: Notice of Proposed Amendment
to PTE 2006–06.
AGENCY:
This document contains a
notice of pendency before the
Department of Labor (the Department) of
a proposed amendment to PTE 2006–06,
a prohibited transaction class exemption
issued under the Employee Retirement
Income Security Act of 1974 (ERISA).
Among other things, PTE 2006–06
permits a ‘‘qualified termination
administrator’’ (QTA) of an individual
account plan that has been abandoned
by its sponsoring employer to select
itself to provide services to the plan in
connection with the plan’s termination,
and to pay itself fees for those services.
DATES: Written comments and requests
for a public hearing must be received by
the Department on or before February
11, 2013.
ADDRESSES: All written comments and
requests for a public hearing concerning
the proposed amendment should be sent
to the Office of Exemption
Determinations, Employee Benefits
Security Administration, Room N–5700,
U.S. Department of Labor, 200
Constitution Avenue NW., Washington
DC 20210, Attention: PTE 2006–06
Amendment. Interested persons are also
invited to submit comments and hearing
requests to EBSA via email to:
moffitt.betty@dol.gov or by fax to 202–
219–0204 by the end of the scheduled
comment period. The comments
received will be available for public
inspection in the Public Disclosure
Room of the Employee Benefits Security
Administration, U.S. Department of
Labor, Room N–1513, 200 Constitution
Avenue NW., Washington, DC 20210.
Comments and hearing requests will
also be available online at
www.regulations.gov and www.dol.gov/
ebsa, at no charge.
All comments will be made available
to the public. Warning: Do not include
any personally identifiable information
(such as name, address, or other contact
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SUMMARY:
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information), or confidential business
information, that you do not want
publicly disclosed. All comments may
be posted on the Internet and can be
retrieved by most Internet search
engines.
FOR FURTHER INFORMATION CONTACT:
Chris Motta, Office of Exemption
Determinations, Employee Benefits
Security Administration, U.S.
Department of Labor, (202) 693–8540
(this is not a toll-free number).
SUPPLEMENTARY INFORMATION: Notice is
hereby given of the pendency before the
Department of a proposed amendment
to PTE 2006–06. This amendment to
PTE 2006–06 is being proposed in
connection with the Department’s
proposed amendment of regulations
relating to the Termination of
Abandoned Individual Account Plans at
29 CFR 2578.1 (the QTA Regulation),
the Safe Harbor for Distributions from
Terminated Individual Account Plans at
29 CFR 2550.404a–3 (the Safe Harbor
Regulation), and the Special Terminal
Report for Abandoned Plans at 29 CFR
2520.103–13 (collectively, the
Abandoned Plan Regulations). The
proposed amendments to the
Abandoned Plan Regulations are being
published simultaneously in this issue
of the Federal Register. PTE 2006–06
provides an exemption from the
restrictions of section 406(a)(1)(A)
through (D), section 406(b)(1) and (b)(2)
of the Employee Retirement Income
Security Act of 1974 (ERISA or the Act)
and from the taxes imposed by section
4975(a) and (b) of the Internal Revenue
Code of 1986 (the Code), by reason of
section 4975(c)(1)(A) through (E) of the
Code.
If adopted, this proposed amendment
to PTE 2006–06 would affect plans,
participants and beneficiaries of such
plans, and certain persons engaging in
the transactions covered by the class
exemption.
The Department is proposing the
amendment on its own motion pursuant
to section 408(a) of ERISA and section
4975(c)(2) of the Code, and in
accordance with the procedures set
forth in 29 CFR Part 2570, Subpart B (55
FR 32836, 32847, August 10, 1990).1
Executive Order 12866
Under Executive Order 12866 (58 FR
51735), ‘‘significant’’ regulatory actions
are subject to the requirements of the
Executive Order and review by the
Office of Management and Budget
1 Section 102 of the Reorganization Plan No. 4 of
1978 (5 U.S.C. app. at 214 (2000) generally
transferred the authority of the Secretary of the
Treasury to issue administrative exemptions under
section 4975 of the Code to the Secretary of Labor.
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(OMB). Section 3(f) of the executive
order defines a ‘‘significant regulatory
action’’ as an action that is likely to
result in a rule (1) having an annual
effect on the economy of $100 million
or more, or adversely and materially
affecting a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
State, local or tribal governments or
communities (also referred to as
‘‘economically significant’’); (2) creating
serious inconsistency or otherwise
interfering with an action taken or
planned by another agency; (3)
materially altering the budgetary
impacts of entitlement grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or (4)
raising novel legal or policy issues
arising out of legal mandates, the
President’s priorities, or the principles
set forth in the Executive Order. It has
been determined that that this proposed
amendment is not ‘‘significant’’ under
section 3(f) of the executive order.
Accordingly, OMB has not reviewed the
proposed amendment.
PTE 2006–06 permits a QTA of an
individual account plan that has been
abandoned by its sponsoring employer
to select itself or an affiliate to provide
services to the plan in connection with
the termination of the plan, and to pay
itself or an affiliate fees for those
services, provided that such fees are
consistent with the conditions of the
proposed exemption. The exemption
also permits a QTA to: Designate itself
or an affiliate as a provider of an
individual retirement plan or other
account; select a proprietary investment
product as the initial investment for the
rollover distribution of benefits for a
participant or beneficiary who fails to
make an election regarding the
disposition of such benefits; and, pay
itself or its affiliate in connection with
the rollover.
The proposed amendment to PTE
2006–06 would expand the definition of
QTA to include Bankruptcy Trustees
(described below) and certain persons
designated by such trustees to act as
QTAs. The Department is proposing the
amendment because it has determined
that, in certain instances, it may be
appropriate for a Bankruptcy Trustee to
provide termination services to a plan.
Currently, PTE 2006–06 and the
accompanying QTA regulations do not
cover plans of sponsors involved in
chapter 7 bankruptcy proceedings,
because such plans are not considered
to be abandoned due to the fact that the
Bankruptcy Trustee assumes the role of
the plan administrator under the
Bankruptcy Code. Moreover,
Bankruptcy Trustees cannot serve as
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QTAs under the current regulation and
PTE 2006–06 because they are unable to
meet the QTA definition.
Accordingly, as addressed more fully
elsewhere in this preamble, the
Department is proposing to expand the
definition of QTA to include
Bankruptcy Trustees and certain
persons designated by them to act as
QTAs in terminating and winding up
the affairs of abandoned plans. As noted
above, this proposed amendment to the
class exemption is being published
concurrently with proposed
amendments to the Abandoned Plan
Regulations. Because compliance with
the QTA Regulation is required under
the proposed amendment, the costs and
benefits that would be associated with
complying with the proposed
amendment to the class exemption have
been described and quantified in
connection with the economic impact of
the proposed amendment to the QTA
Regulation.
The Department believes that the
proposed amendments to the
Abandoned Plan Regulations and PTE
2006–06 will incentivize many
bankruptcy trustees to carryout plan
terminations consistent with ERISA,
which the Department expects
ultimately would benefit participants
and beneficiaries of such plans by
ensuring abandoned plans are
terminated in an orderly and costeffective manner.
Paperwork Reduction Act
As part of its continuing effort to
reduce paperwork and respondent
burden, the Department of Labor
conducts a preclearance consultation
program to provide the general public
and Federal agencies with an
opportunity to comment on proposed
and continuing collections of
information in accordance with the
Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps
to ensure that requested data will be
provided in the desired format,
reporting burden (time and financial
resources) is minimized, collection
instruments are clearly understood, and
the impact of collection requirements on
respondents can be properly assessed.
The proposed amendment to PTE
2006–06 would only be used by QTAs
that also take advantage of the proposed
amendment to the QTA Regulation,
which is published elsewhere in this
issue of the Federal Register. The
Department has combined the hour and
cost burdens associated with the
proposed amendment to the class
exemption with the hour and cost
burden associated with the amended
proposed regulation, under one
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Information Collection Request (ICR)
that will be filed with OMB. By
combining the two ICRs, the Department
believes that the regulated community
will gain a better understanding of the
overall burden impact of terminating
abandoned plans pursuant to the
proposed amendments. The specific
burden for the proposed amendment to
the class exemption includes a
recordkeeping requirement for a
Bankruptcy Trustee that terminates an
abandoned plan and chooses to roll over
the account balances of missing or
nonresponsive participants into
individual retirement plans offered by it
or an affiliate. The hour and cost burden
for the ICR are described more fully in
the preamble to the proposed
amendment to the regulation under the
Paperwork Reduction Act section.
I. Background
On April 21, 2006, the Department
issued the Abandoned Plan
Regulations.2 These Regulations
facilitate the orderly, efficient
termination of abandoned individual
account plans by a QTA (described
below) in order to give participants and
beneficiaries of those plans access to the
amounts held in their individual
accounts, which are frequently
unavailable to them because of the
abandonment.3 Specifically, the
Termination of Abandoned Individual
Account Plans regulation establishes
standards for financial institutions
holding the assets of an abandoned
individual account plan to terminate the
plan and distribute benefits to the plan’s
participants and beneficiaries, with
limited liability. The Safe Harbor for
Distributions from Terminated
Individual Account Plans regulation
provides a fiduciary safe harbor for
making distributions from terminated
individual account plans on behalf of
participants and beneficiaries who fail
to make an election regarding the form
of benefit distribution after the
furnishing of notice. The Special
Terminal Report for Abandoned Plans
regulation establishes a simplified
method for filing a terminal report for
abandoned individual account plans.
On that same date, the Department
granted PTE 2006–06.4 This class
exemption facilitates the goal of the
Abandoned Plan Regulations by
2 See the Termination of Abandoned Individual
Account Plans at 29 CFR 2578.1 (77 FR 20820 at
20838); the Safe Harbor for Distributions from
Terminated Individual Account Plans at 29 CFR
2550.404a-3 (77 FR 20820 at 20850); and Special
Terminal Report for Abandoned Plans at 29 CFR
2520.103–13 (77 FR 20820 at 20853).
3 77 FR 20820 at id.
4 71 FR 20856 (Apr. 21, 2006) as amended infra.
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permitting a QTA, under the conditions
of the exemption, to, among other
things, select itself or an affiliate to
provide services to the plan, to pay itself
or an affiliate fees for those services, and
to pay itself fees for services provided
prior to the plan’s deemed termination,
in connection with terminating the
abandoned plan.
On October 7, 2008, the Department
issued final rules amending the QTA
Regulation and the Safe Harbor
Regulation.5 These amendments were
made in response to changes to the
Internal Revenue Code of 1986 (the
Code) enacted as part of the Pension
Protection Act of 2006. On that same
date, and for the same purpose, PTE
2006–06 was also amended.6 In this
regard, as amended, the class exemption
requires that benefits for a missing,
designated nonspouse beneficiary be
directly rolled over into an inherited
individual retirement plan that fully
complies with Code requirements.
As noted above, proposed
amendments to the Abandoned Plan
Regulations are being published
simultaneously in this issue of the
Federal Register. If adopted, these
amendments, among other things,
would permit a Bankruptcy Trustee to
qualify as a QTA under the Abandoned
Plan Regulations or to appoint an
‘‘eligible designee’’ to act as a QTA
under the Abandoned Plan Regulations.
Thereafter, the Bankruptcy Trustee or
the ‘‘eligible designee’’ may provide
certain services, pursuant to the
requirements set forth in the Abandoned
Plan Regulations, in connection with
the termination of one or more
individual account plans sponsored by
the entity that is the subject of the
proceeding.
II. Description of the Class Exemption
PTE 2006–06 is comprised of five
sections. Section I describes the
transactions covered by the exemption.
These transactions are divided into two
categories. The first category of
transactions (hereinafter, Covered
Termination Transactions) involve the
use by a QTA (described below) of its
authority in connection with the
termination of an abandoned individual
account plan pursuant to the QTA
Regulation,7 to: Select itself or an
affiliate to provide services to the plan;
receive fees for the services performed
as a QTA; and pay itself fees for services
provided to the plan prior to the
5 See
73 FR 58459 at 58462 and 58465.
73 FR 58629 (October 7, 2008).
7 Section I(a) of PTE 2006–06 incorrectly cites the
QTA Regulation as Reg. Sec. 2550.404a–3. Section
I(a) of this proposed amendment properly cites the
QTA Regulation as Reg. Sec. 2578.1.
6 See
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deemed termination of the plan. The
second category of transactions
(hereinafter, Covered Distribution
Transactions) involves the use by a QTA
of its authority in connection with the
termination of an abandoned individual
account plan pursuant to the QTA
Regulation to: (1) Designate itself or an
affiliate as: (i) Provider of an individual
retirement plan; (ii) provider, in the case
of a distribution on behalf of a
designated beneficiary (as defined by
section 401(a)(9)(E) of the Code) who is
not the surviving spouse of the deceased
participant, of an inherited individual
retirement plan (within the meaning of
section 402(c)(11) of the Code)
established to receive the distribution
on behalf of the nonspouse beneficiary
under the circumstances described in
section (d)(1)(ii) of the Safe Harbor
Regulation; or (iii) provider of an
interest-bearing, federally insured bank
or savings association account
maintained in the name of the
participant or beneficiary, in the case of
a distribution described in section
(d)(1)(iii) of the Safe Harbor Regulation,
for the distribution of the account
balance of the participant or beneficiary
of the abandoned individual account
plan who does not provide direction as
to the disposition of such assets; (2)
make the initial investment of the
account balance of the participant or
beneficiary in the QTA’s or its affiliate’s
proprietary investment product; (3)
receive fees in connection with the
establishment or maintenance of the
individual retirement plan or other
account; and (4) pay itself or an affiliate
investment fees as a result of the
investment of the individual retirement
plan or other account assets in the
QTA’s or its affiliate’s proprietary
investment product.
Section II contains conditions
applicable to the Covered Termination
Transactions. These conditions include
the requirement that the fees and
expenses paid to the QTA, and its
affiliate, for services associated with the
termination of a plan and the
distribution of its benefits (hereinafter,
Termination Services) 8 be consistent
with industry rates for such or similar
services, based on the experience of the
QTA.9 Section II provides further that
the fees and expenses paid to the QTA,
8 The Department notes that the ‘‘distribution’’
services referenced in section II of PTE 2006–06 are
distinguishable from the Distribution Transactions
described in section I(b) of the class exemption. In
this regard, the Distribution Transactions involve
the investment of Plan assets in the QTA’s
proprietary investment vehicles. Section II
‘‘distribution’’ services relate to the transfer of Plan
assets to Plan participants and/or investment
vehicles that are unrelated to the QTA.
9 See section II(b)(1) of PTE 2006–06.
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and its affiliate, may not exceed the
rates ordinarily charged by the QTA (or
affiliate) for the same or similar services
provided to customers that are not plans
terminated pursuant to the QTA
regulation, if the QTA (or affiliate)
provides the same or similar services to
such other customers. Among the
remaining conditions set forth in section
II is the requirement that, with respect
to a Termination Transaction, the
requirements of the QTA Regulation are
met.
Section III of PTE 2006–06 contains
conditions applicable to the Covered
Distribution Transactions. These
conditions include the requirement that,
with respect to a Covered Distribution
Transaction, the conditions of the QTA
Regulation are met. Section III
additionally requires that, in connection
with the notice to participants and
beneficiaries requirement described in
the QTA Regulation, a statement is
provided explaining that: (1) If the
participant or beneficiary fails to make
an election within the 30-day period
referenced in the QTA Regulation, the
QTA will directly distribute the account
balance to an individual retirement plan
or other account offered by the QTA or
its affiliate; and (2) the proceeds of the
distribution may be invested in the
QTA’s (or affiliate’s) own proprietary
investment product, which is designed
to preserve principal and provide a
reasonable rate of return and liquidity.
This section of the class exemption
requires further that the terms of the
individual retirement plan or other
account, including the fees and
expenses for establishing and
maintaining the individual retirement
plan or other account, may be no less
favorable than those available to
comparable individual retirement plans
or other accounts established for reasons
other than the receipt of a distribution
described in the QTA Regulation.
Among the remaining conditions set
forth in section III is the requirement
that the rate of return or the investment
performance of the individual
retirement plan or other account may be
no less favorable than the rate of return
or investment performance of an
identical investment(s) that could have
been made at the same time by
comparable individual retirement plans
or other accounts established for reasons
other than the receipt of a distribution
described in the QTA Regulation.
Section IV contains the recordkeeping
requirements for the QTA, and section
V defines certain terms that appear in
the class exemption. In this last regard,
section V(a) currently provides that a
termination administrator is ‘‘qualified’’
for purposes of the Abandoned Plan
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Regulations and the class exemption if:
(1) The QTA is eligible to serve as a
trustee or issuer of an individual
retirement plan or other account, within
the meaning of section 7701(a)(37) of
the Code,10 and (2) the QTA holds plan
assets of the plan considered
abandoned. Accordingly, relief under
the existing class exemption extends
only to entities with experience
providing services to plans that are
subject to ERISA.
III. Description of the Proposed
Amendment to the Class Exemption
When an entity that sponsors an
individual account plan is liquidated
under chapter 7 of title 11 of the United
States Code, a person appointed as a
bankruptcy trustee (a Bankruptcy
Trustee) will, among other things,
perform the obligations that otherwise
would have been required of the
bankrupt entity. Once appointed, the
Bankruptcy Trustee is responsible for
administering the plan, which may
include taking the steps necessary to
terminate the plan and wind up the
affairs of the plan. A Bankruptcy
Trustee who undertakes these plan
responsibilities is a fiduciary with
respect to the plan,11 and therefore
subject to section 404 of ERISA.12 As
noted in the preamble to PTE 2006–06,
as proposed, a violation of section
406(a) and/or (b) of the Act may occur
if the QTA determines to pay itself or
an affiliate for services rendered to the
plan from the assets of an abandoned
10 Section 7701(a)(37) of the Internal Revenue
Code describes an ‘‘individual retirement plan’’ as
an individual retirement account described in
section 408(a) of the Code, and an individual
retirement account described in section 408(b) of
the Code. Section 408(a) of the Code describes the
term ‘‘individual retirement account’’ as meaning a
trust created or organized in the United States for
the exclusive benefit of an individual or his
beneficiaries, if certain requirements are met.
Section 408(b) of the Code describes the term
‘‘individual retirement annuity’’ as meaning an
annuity contract, or an endowment contract, which
meets certain requirements.
11 In this regard, section 3(21)(A)(i) of ERISA
provides that a person is a ‘‘fiduciary’’ with respect
to a plan to the extent he exercises any
discretionary authority or discretionary control
respecting management of such plan or exercises
any authority or control respecting management or
disposition of its assets. In addition, section
3(21)(A)(iii) of ERISA provides that a person is a
‘‘fiduciary’’ with respect to a plan to the extent he
has any discretionary authority or discretionary
responsibility in the administration of such plan.
12 Section 404 of ERISA requires, among other
things, that a fiduciary shall discharge his duties
with respect to a plan solely in the interest of the
participants and beneficiaries and with the care,
skill prudence, and diligence under the
circumstances then prevailing that a prudent man
acting in a like capacity and familiarity with such
matters would use in the conduct of an enterprise
of a like character and with like aims.
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plan.13 Also, additional violations may
occur if the QTA designates itself or an
affiliate as the provider of an individual
retirement plan or other account
established for the benefit of
participants and beneficiaries who do
not make an election as to the form of
distribution.
As described below, a Bankruptcy
Trustee may determine that it is capable
of prudently and expeditiously winding
down the operations of an individual
account plan. However, the relief
currently provided by PTE 2006–06
generally does not extend to the
provision of Termination Services by a
Bankruptcy Trustee to a plan. In this
regard, it is the understanding of the
Department that Bankruptcy Trustees
seldom hold custody of plan assets of
the bankrupt plan sponsor. Thus,
Bankruptcy Trustees are generally
unable to meet the definition of QTA, as
set forth in section V(a) of the existing
class exemption.
In addition, the provision of
Termination Services by a Bankruptcy
Trustee to a Plan is often outside the
scope of relief intended by the
Department for the existing class
exemption.14 In this regard, the class
exemption currently limits relief to
entities that are eligible to serve as
trustees or issuers of individual
retirement plans and thus have
experience providing services to
individual account plans subject to
ERISA.15 As noted above, the existing
13 In this regard, section 406(a)(1) of the Act
prohibits, in part, a fiduciary of a plan from causing
the plan to engage in a transaction that constitutes
a direct or an indirect sale, exchange or leasing of
any property between the plan and a party in
interest; lending of money or other extension of
credit between the plan and a party in interest;
furnishing of goods, services, or facilities between
the plan and a party in interest; and a transfer to,
or use by or for the benefit of, a party in interest
of any assets of the plan. Section 406(b)(1) and
(b)(2) of the Act prohibits a fiduciary with respect
to a plan from dealing with the assets of the plan
in his own interest or for his own account; and from
acting in his individual or in any other capacity in
any transaction involving the plan on behalf of a
party (or representing a party) whose interests are
adverse to the interests of the plan or the interests
of its participants or beneficiaries.
14 It is also the understanding of the Department
that Bankruptcy Trustees do not maintain
proprietary investment vehicles, and thus do not, in
the general course of their business activities, offer
services associated with the Distribution
Transactions. Accordingly, this proposed
amendment does not extend relief for a Bankruptcy
Trustee/QTA that designates itself or an affiliate to
offer such services.
15 In the preamble to the QTA Regulation, the
Department further noted that in developing its
criteria for QTAs, the Department limited QTA
status to trustees or issuers of an individual account
plan within the meaning of section 7701(a)(37) of
the Code, because the standards applicable to such
trustees and issuers are well understood by the
regulated community and the Department is
unaware of any problems attributable to weaknesses
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class exemption requires, among other
things, that the fees and expenses paid
to a QTA, and its affiliate, for
Termination Services are consistent
with industry rates, based on the
experience of the QTA. This condition
may have little or no relevance to
Bankruptcy Trustees that have minimal
or no experience providing services to
ERISA-covered individual account
plans.
Nevertheless, the Department
recognizes that when the sponsor of an
individual account plan is in
liquidation pursuant to a Chapter 7
bankruptcy proceeding, participants in
the plan benefit to the extent the plan’s
operations are wound down properly
and in an expeditious manner. The
Department is proposing this
amendment based on its belief that
extending relief under the class
exemption to Bankruptcy Trustees will
enable these Trustees to carry out plan
terminations consistent with ERISA and
the Department’s expectations.
Accordingly, the Department is
proposing to expand the definition of
QTA to include Bankruptcy Trustees
and certain persons designated by such
trustees to act as QTAs. Specifically,
this new category of QTA is: (1) A
person appointed as a bankruptcy
trustee pursuant to a liquidation
proceeding under chapter 7 of title 11 of
the United States Code, or (2) an
‘‘eligible designee’’ of such bankruptcy
trustee (as described below). Given that
a Bankruptcy Trustee may have little or
no experience providing services to
employee benefit plans, the Department
is proposing to modify section II(b)(1) of
the class exemption. The modification,
which applies only to Bankruptcy
Trustee/QTAs and not ‘‘eligible
designees’’ or other QTAs, eliminates
the ‘‘experience of the QTA’’ component
of the condition. In this regard, section
II(b)(1) of this proposed amendment
limits the total amount of compensation
that may be paid to a Bankruptcy
Trustee/QTA (or any affiliate) for
Termination Services to an amount that
is consistent with industry rates for
such or similar services.16
The Department notes that
compliance with section II(b)(1) of this
proposed amendment imposes an
obligation on a Bankruptcy Trustee/
QTA, prior to performing any
Termination Service on behalf of a Plan,
to investigate and determine that the
fees and expenses proposed to be paid
in the existing Code and regulatory standards for
such persons. See 77 FR 20820 at 20821.
16 This proposed amendment does not affect the
obligations under the class exemption of a QTA that
is not a Bankruptcy Trustee.
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74059
to such Bankruptcy Trustee/QTA are
consistent with the amount the Plan
would have to pay to an experienced
service provider for the same or similar
Termination Services. The Department
believes that information currently
available on the Department’s Web site,
as described in further detail below, will
assist Bankruptcy Trustee/QTAs set fees
for Termination Services in the manner
required by section II(b)(1) of the
proposed exemption. The Department
recognizes that a Bankruptcy Trustee,
once appointed to administer the
termination of a Plan, may seek to
appoint the Plan’s custodian to provide
Termination Services and/or
Distribution Services to such Plan.17
The Department believes that the
provision of Termination Services and/
or Distribution Services by a plan
custodian who has been retained in this
manner to act as QTA would be
consistent with the intended scope of
the existing class exemption.
Accordingly, the Department is
proposing to expand the definition of
QTA to include an ‘‘eligible designee’’
of a Bankruptcy Trustee. The proposed
amendment defines an ‘‘eligible
designee’’ to mean any entity appointed
by a Bankruptcy Trustee/QTA, who: is
eligible to serve as a trustee or issuer of
an individual retirement plan; and
holds assets of the plan(s) sponsored by
the entity that is the subject of the
chapter 7 liquidation proceeding. Given
that ‘‘eligible designees’’ are plan
custodians with experience providing
services to employee benefit plans
subject to ERISA, the Department
believes that ‘‘eligible designees’’
should be treated in the same manner as
QTAs that are not Bankruptcy Trustee/
QTAs. In this regard, the proposed
amendment permits ‘‘eligible
designees’’ to engage in all transactions
covered by the exemption (i.e., Covered
Termination Transactions and/or
Covered Distribution Transactions)
subject to the same conditions
applicable to QTAs other than
17 The Department notes that the Act’s general
standards of fiduciary conduct would apply to this
arrangement. In this regard, section 404 of the Act
requires, among other things, that Bankruptcy
Trustee/QTA discharge his or her duties in a
prudent manner. Accordingly, a Bankruptcy
Trustee/QTA who appoints an ‘‘eligible designee’’
would thereafter be responsible for monitoring the
services provided by the ‘‘eligible designee.’’ The
Department cautions that such monitoring, and the
fee associated therewith, must be consistent with,
and reflective of, the Plan’s interest in having its
operations wound down in an expeditious and cost
effective manner. In this regard, the rates charged
to the Plan by the Bankruptcy Trustee/QTA for
monitoring the ‘‘eligible designee’’ must reflect the
rates charged by a plan fiduciary for similar
services, rather than the generally higher fees
charged by bankruptcy trustees for legal services
provided to the bankruptcy estate.
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Bankruptcy Trustee/QTAs. Accordingly,
the fees and expenses paid to an
‘‘eligible designee’’/QTA pursuant to
section II(b)(1) of PTE 2006–06 must be,
among other things, based on the
experience of such QTA.
The Department reemphasizes to all
entities seeking to take advantage of PTE
2006–06 that relief under that class
exemption is conditioned upon, among
other things, fulfilling the requirements
set forth in the QTA Regulation.
Accordingly, following a QTA’s
determination that an individual
account plan has been abandoned,18 the
QTA must furnish the Department with
a notice that includes, among other
things, an identification of any services
considered necessary to wind up the
plan in accordance with this section, the
name of the service provider(s) that is
expected to provide such services, and
an itemized estimate of expenses
attendant thereto expected to be paid
out of plan assets by the qualified
termination administrator.19 The
Department cautions that, while all such
notices are reviewed by the Department,
any such notice furnished by a
Bankruptcy Trustee/QTA will be subject
to additional scrutiny by the
Department to ensure that plans pay no
more than reasonable compensation for
Termination Services.20 At the
beginning of the termination process,
the Department conducts a review of the
estimated expenses for reasonableness.
In this regard, the Department will:
Compare the QTA’s estimated expenses
to those of other QTAs; and consider
also the facts and circumstances of the
Plan in question. The Department notes
that Plans are deemed terminated only
after the Department establishes that the
fees are reasonable.
In addition, the Department notes that
compliance with the QTA Regulation
requires that each QTA file a ‘‘Special
Terminal Report for Abandoned Plans
(STRAP)’’ with the Department, and
such Report must set forth, among other
things, the total termination expenses
paid by the plan and a separate
schedule identifying each service
provider and amount received, itemized
18 The Proposed Amendment to the QTA
Regulation provides that if an individual account
plan’s sponsor is in liquidation under chapter 7 of
title 11 of the United States Code, the plan may be
considered abandoned upon the entry of an order
for relief, and the bankruptcy trustee, or an eligible
designee, shall be the qualified termination
administrator. See Paragraph (j)(1) of the Proposed
Amendment to the QTA Regulation.
19 See paragraph (c)(3)(iii) of the QTA Regulation.
20 Paragraph (d)(2)(v) of the QTA Regulation
provides, among other things, that expenses of plan
administration shall be considered reasonable to the
extent such expenses are consistent with industry
rates for such or similar services.
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by expense.21 Completed STRAPs are
available on the Department’s Web site:
http://askebsa.dol.gov/
AbandonedPlanSearch/UI/
QTASearchResults.aspx. The
Department expects that the information
contained in these completed STRAPs,
including the itemized fees set forth
therein, will assist Bankruptcy Trustee/
QTAs set fees for Termination Services
in the manner required by section
II(b)(1) of the proposed exemption. For
further assistance regarding QTA
participation in the abandoned plan
program, Bankruptcy Trustee/QTAs
may contact the EBSA office for the
region where the abandoned plan is
located.
General Information
The attention of interested persons is
directed to the following:
(1) The fact that a transaction is the
subject of an exemption under section
408(a) of ERISA and section 4975(c)(2)
of the Code does not relieve a fiduciary
or other party in interest or disqualified
person with respect to a plan from
certain other provisions of ERISA and
the Code, including any prohibited
transaction provisions to which the
exemption does not apply and the
general fiduciary responsibility
provisions of section 404 of ERISA
which require, among other things, that
a fiduciary discharge his or her duties
respecting the plan solely in the
interests of the participants and
beneficiaries of the plan and in a
prudent fashion in accordance with
section 404(a)(1)(B) of the Act.
(2) If granted, this proposed
amendment does not extend to
transactions prohibited under section
406(b)(3) of the Act or section
4975(c)(1)(F) of the Code;
(3) Before an amendment may be
granted under section 408(a) of ERISA
and 4975(c)(2) of the Code, the
Department must find that the
amendment is administratively feasible,
in the interests of the plan and of its
participants and beneficiaries, and
protective of the rights of participants
and beneficiaries of the plan;
(4) If granted, the amendment is
applicable to a particular transaction
only if the transaction satisfies the
conditions specified in the exemption;
and
(5) If granted, the amendment is
supplemental to, and not in derogation
of, any other provisions of ERISA and
the Code, including statutory or
administrative exemptions and
transitional rules. Furthermore, the fact
that a transaction is subject to an
21 See
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Frm 00006
Fmt 4701
Sfmt 4703
administrative or statutory exemption is
not dispositive of whether the
transaction is in fact a prohibited
transaction.
Proposed Amendment
Under section 408(a) of the Act and
section 4975(c)(2) of the Code and in
accordance with the procedures set
forth in 29 CFR part 2570, subpart B (55
FR 32836, 32847, August 10, 1990), the
Department proposes to amend PTE
2006–06, effective as of the date the
adopted amendment is published in the
Federal Register. The entire exemption,
as proposed to be amended, is set forth
below:
I. Covered Transactions
(a) The restrictions of sections
406(a)(1)(A) through (D), 406(b)(1) and
406(b)(2) of the Act, and the taxes
imposed by section 4975(a) and (b) of
the Code, by reason of section
4975(c)(1)(A) through (E) of the Code,
shall not apply to a QTA (as defined in
paragraph (a)(1) or (a)(2) of section V)
using its authority in connection with
the termination of an abandoned
individual account plan pursuant to the
Department’s regulation at 2578.1,
relating to the Termination of
Abandoned Individual Account Plans
(the QTA Regulation) to:
(1) Select itself or an affiliate to
provide services to the plan;
(2) Receive fees for the services
performed as a QTA; and
(3) Pay itself fees for services
provided to the plan prior to the
deemed termination of the plan,
provided that the conditions set forth in
sections II and IV of this exemption are
satisfied.
(b) The restrictions of sections
406(a)(1)(A) through (D), 406(b)(1) and
406(b)(2) of the Act, and the taxes
imposed by section 4975(a) and (b) of
the Code, by reason of section
4975(c)(1)(A) through (E) of the Code,
shall not apply to a QTA (as defined in
paragraph (a)(1) or (a)(2)(ii) of section V)
using its authority in connection with
the termination of an abandoned
individual account plan pursuant to the
QTA Regulation to:
(1) Designate itself or an affiliate as:
(i) Provider of an individual retirement
plan; (ii) provider, in the case of a
distribution on behalf of a designated
beneficiary (as defined by section
401(a)(9)(E) of the Code) who is not the
surviving spouse of the deceased
participant, of an inherited individual
retirement plan (within the meaning of
section 402(c)(11) of the Code)
established to receive the distribution
on behalf of the nonspouse beneficiary
under the circumstances described in
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section (d)(1)(ii) of the Safe Harbor
Regulation for Terminated Plans (29
CFR section 2550.404a–3) (the Safe
Harbor Regulation); or (iii) provider of
an interest bearing, federally insured
bank or savings association account
maintained in the name of the
participant or beneficiary, in the case of
a distribution described in section
(d)(1)(iii) of the Safe Harbor Regulation,
for the distribution of the account
balance of the participant or beneficiary
of the abandoned individual account
plan who does not provide direction as
to the disposition of such assets;
(2) Make the initial investment of the
account balance of the participant or
beneficiary in the QTA’s or its affiliate’s
proprietary investment product;
(3) Receive fees in connection with
the establishment or maintenance of the
individual retirement plan or other
account; and
(4) Pay itself or an affiliate investment
fees as a result of the investment of the
individual retirement plan or other
account assets in the QTA’s or its
affiliate’s proprietary investment
product, provided that the conditions
set forth in sections III and IV of this
exemption are satisfied.
II. Conditions for Provision of
Termination Services and Receipt of
Fees in Connection Therewith
(a) The requirements of the QTA
Regulation are met. The QTA provides,
in a timely manner, any other
reasonably available information
requested by the Department regarding
the proposed termination.
(b) Fees and expenses paid to the
QTA, and its affiliate, in connection
with the termination of the plan and the
distribution of benefits:
(1) Are consistent with industry rates
for such or similar services, based on
the experience of the QTA, and
(2) Are not in excess of rates
ordinarily charged by the QTA (or
affiliate) for the same or similar services
provided to customers that are not plans
terminated pursuant to the QTA
regulation, if the QTA (or affiliate)
provides the same or similar services to
such other customers. Notwithstanding
the foregoing, solely with respect to a
QTA described in section V(a)(2)(i) of
this proposed class exemption, the
requirement set forth in (b)(1) of this
paragraph shall be deemed met to the
extent that the fees and expenses paid
to such QTA are: (i) For services
necessary to wind-up the affairs of the
plan and distribute benefits to the plan’s
participants and beneficiaries; and (ii)
consistent with industry rates for such
or similar services ordinarily charged by
QTAs described in section V(a)(1)(i);
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(c) In the case of a transaction
described in section I(a)(3):
(1) Such services: (i) Were performed
in good faith pursuant to the terms of a
written agreement executed prior to the
service provider becoming a QTA; or (ii)
were performed pursuant to the QTA
Regulation; and
(2) The QTA, in the initial notification
of plan abandonment described in
section (c)(3) of the QTA Regulation: (i)
Represents under penalty of perjury that
such services were actually performed;
and (ii) in the case of section II(c)(1)(i)
above, provides the Department with a
copy of the executed contract between
the QTA and a plan fiduciary or the
plan sponsor that authorized such
services.
III. Conditions for Distributions
(a) The conditions of the QTA
Regulation are met.
(b) In connection with the notice to
participants and beneficiaries described
in the QTA Regulation, a statement is
provided explaining that:
(1) If the participant or beneficiary
fails to make an election within the 30day period referenced in the QTA
Regulation, the QTA will directly
distribute the account balance to an
individual retirement plan or other
account offered by the QTA or its
affiliate;
(2) The proceeds of the distribution
may be invested in the QTA’s (or
affiliate’s) own proprietary investment
product, which is designed to preserve
principal and provide a reasonable rate
of return and liquidity.
(c) The individual retirement plan or
other account is established and
maintained for the exclusive benefit of
the individual retirement plan account
holder or other account holder, his or
her spouse, or their beneficiaries.
(d) The terms of the individual
retirement plan or other account,
including the fees and expenses for
establishing and maintaining the
individual retirement plan or other
account, are no less favorable than those
available to comparable individual
retirement plans or other accounts
established for reasons other than the
receipt of a distribution described in the
QTA Regulation.
(e) Except in the case of a QTA
providing a bank or savings account
pursuant to section I(b)(1)(iii) of the
exemption, the distribution proceeds are
invested in an Eligible Investment
Product(s), as defined in section V(c) of
this class exemption.
(f) The rate of return or the investment
performance of the individual
retirement plan or other account is no
less favorable than the rate of return or
PO 00000
Frm 00007
Fmt 4701
Sfmt 4703
74061
investment performance of an identical
investment(s) that could have been
made at the same time by comparable
individual retirement plans or other
accounts established for reasons other
than the receipt of a distribution
described in the QTA Regulation.
(g) The individual retirement plan or
other account does not pay a sales
commission in connection with the
acquisition of an Eligible Investment
Product.
(h) The individual retirement plan
account holder or other account holder
must be able, within a reasonable period
of time after his or her request and
without penalty to the principal amount
of the investment, to transfer his or her
account balance to a different
investment offered by the QTA or its
affiliate, or to a different financial
institution not related to the QTA or its
affiliate.
(i)(1) Fees and expenses attendant to
the individual retirement plan or other
account, including the investment of the
assets of such plan or account, (e.g.,
establishment charges, maintenance
fees, investment expenses, termination
costs, and surrender charges) shall not
exceed the fees and expenses charged by
the QTA for comparable individual
retirement plans or other accounts
established for reasons other than the
receipt of a distribution made pursuant
to the QTA Regulation;
(2) Fees and expenses attendant to the
individual retirement plan or other
account, with the exception of
establishment charges, may be charged
only against the income earned by the
individual retirement plan or other
account; and
(3) Fees and expenses attendant to the
individual retirement plan or other
account are not in excess of reasonable
compensation within the meaning of
section 4975(d) (2) of the Code.
IV. Recordkeeping
(a) The QTA maintains or causes to be
maintained, for a period of six (6) years
from the date the QTA provides notice
to the Department of its determination
of plan abandonment and its election to
serve as the QTA described in the QTA
Regulation, the records necessary to
enable the persons described in
paragraph (b) of this section to
determine whether the applicable
conditions of this exemption have been
met. Such records must be readily
available to assure accessibility by the
persons identified in paragraph (b) of
this section.
(b) Notwithstanding any provisions of
section 504(a)(2) and (b) of the Act, the
records referred to in paragraph (a) of
this section are unconditionally
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available at their customary location for
examination during normal business
hours by—
(1) Any duly authorized employee or
representative of the Department of
Labor or the Internal Revenue Service;
and
(2) Any account holder of an
individual retirement plan or other
account established pursuant to this
exemption, or any duly authorized
representative of such account holder.
(c) A prohibited transaction will not
be considered to have occurred if due to
circumstances beyond the control of the
QTA, the records necessary to enable
the persons described in paragraph (b)
to determine whether the conditions of
the exemption have been met are lost or
destroyed, and no party in interest other
than the QTA shall be subject to the
civil penalty that may be assessed under
section 502(i) of the Act or to the taxes
imposed by sections 4975(a) and (b) of
the Code if the records are not
maintained or are not available for
examination as required by paragraph
(b).
(3) None of the persons described in
paragraph (b)(2) of this section shall be
authorized to examine the trade secrets
of the QTA or its affiliates or
commercial or financial information
that is privileged or confidential.
emcdonald on DSK67QTVN1PROD with
V. Definitions
(a) A termination administrator is
‘‘qualified’’ for purposes of the QTA
Regulation and this proposed
amendment if the requirements set forth
in either subparagraph (1) or (2) below
are met:
(1)(i) The QTA is eligible to serve as
a trustee or issuer of an individual
retirement plan or other account, within
the meaning of section 7701(a)(37) of
the Code, and (ii) The QTA holds plan
assets of the plan that is considered
abandoned; or
(2)(i) The QTA is a bankruptcy trustee
in a liquidation proceeding under
chapter 7 of title 11 of the United States
Code with responsibility under 11 U.S.C
704(a)(11) to administer one or more
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individual account plans sponsored by
the entity that is the subject of the
proceeding, or (ii) The QTA is an
‘‘eligible designee,’’ as defined in
section V(h) below, of such bankruptcy
trustee.
(b) The term ‘‘individual retirement
plan’’ means an individual retirement
plan described in section 7701(a)(37) of
the Code. For purposes of section III of
this exemption, the term ‘‘individual
retirement plan’’ shall also include an
inherited individual retirement plan
(within the meaning of section
402(c)(11) of the Code) established to
receive a distribution on behalf of a
nonspouse beneficiary. Notwithstanding
the foregoing, the term individual
retirement plan shall not include an
individual retirement plan which is an
employee benefit plan covered by Title
I of ERISA.
(c) The term ‘‘Eligible Investment
Product’’ means an investment product
designed to preserve principal and
provide a reasonable rate of return,
whether or not such return is
guaranteed, consistent with liquidity.
For this purpose, the product must be
offered by a Regulated Financial
Institution as defined in paragraph (d) of
this section and shall seek to maintain,
over the term of the investment, the
dollar value that is equal to the amount
invested in the product by the
individual retirement plan or other
account. Such term includes money
market funds maintained by registered
investment companies, and interestbearing savings accounts and certificates
of deposit of a bank or similar financial
institution. In addition, the term
includes ‘‘stable value products’’ issued
by a financial institution that are fully
benefit-responsive to the individual
retirement plan account holder or other
account holder, i.e., that provide a
liquidity guarantee by a financially
responsible third party of principal and
previously accrued interest for
liquidations or transfers initiated by the
individual retirement plan account
holder or other account holder
exercising his or her right to withdraw
PO 00000
Frm 00008
Fmt 4701
Sfmt 9990
or transfer funds under the terms of an
arrangement that does not include
substantial restrictions to the account
holder access to the individual
retirement plan or other account’s
assets.
(d) The term ‘‘Regulated Financial
Institution’’ means an entity that: (i) Is
subject to state or federal regulation, and
(ii) is a bank or savings association, the
deposits of which are insured by the
Federal Deposit Insurance Corporation;
a credit union, the member accounts of
which are insured within the meaning
of section 101(7) of the Federal Credit
Union Act; an insurance company, the
products of which are protected by state
guaranty associations; or an investment
company registered under the
Investment Company Act of 1940.
(e) An ‘‘affiliate’’ of a person includes:
(1) Any person directly or indirectly
controlling, controlled by, or under
common control with, the person; or
(2) Any officer, director, partner or
employee of the person.
(f) The term ‘‘control’’ means the
power to exercise a controlling
influence over the management or
policies of a person other than an
individual.
(g) The term ‘‘individual account
plan’’ means an individual account plan
as that term is defined in section 3(34)
of the Act.
(h) The term ‘‘eligible designee’’
means any person or entity designated
by a QTA described in section V(a)(2)(i)
that is eligible to serve as a trustee or
issuer of an individual retirement plan,
within the meaning of section
7701(a)(37) of the Internal Revenue
Code, and that holds assets of a plan
described in section V(a)(2)(i).
Signed at Washington, DC, September,
2012.
Lyssa E. Hall,
Director, Office of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2012–29556 Filed 12–11–12; 8:45 am]
BILLING CODE 4510–29–P
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[Federal Register Volume 77, Number 239 (Wednesday, December 12, 2012)]
[Notices]
[Pages 74055-74062]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29556]
[[Page 74055]]
Vol. 77
Wednesday,
No. 239
December 12, 2012
Part II
Department of Labor
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Employee Benefits Security Administration
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29 CFR Parts 2520, 2550, and 2578
Notice of Proposed Amendment to Prohibited Transaction Exemption 2006-
06 (PTE 2006-06) for Services Provided in Connection With the
Termination of Abandoned Individual Account Plans; Amendments to the
Abandoned Plan Regulations; Notice and Proposed Rule
Federal Register / Vol. 77 , No. 239 / Wednesday, December 12, 2012 /
Notices
[[Page 74056]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application Number D-11657]
ZRIN EBSA-2012-0015
Notice of Proposed Amendment to Prohibited Transaction Exemption
2006-06 (PTE 2006-06) for Services Provided in Connection With the
Termination of Abandoned Individual Account Plans
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of Proposed Amendment to PTE 2006-06.
-----------------------------------------------------------------------
SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed amendment to PTE
2006-06, a prohibited transaction class exemption issued under the
Employee Retirement Income Security Act of 1974 (ERISA). Among other
things, PTE 2006-06 permits a ``qualified termination administrator''
(QTA) of an individual account plan that has been abandoned by its
sponsoring employer to select itself to provide services to the plan in
connection with the plan's termination, and to pay itself fees for
those services.
DATES: Written comments and requests for a public hearing must be
received by the Department on or before February 11, 2013.
ADDRESSES: All written comments and requests for a public hearing
concerning the proposed amendment should be sent to the Office of
Exemption Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington DC 20210, Attention: PTE 2006-06 Amendment. Interested
persons are also invited to submit comments and hearing requests to
EBSA via email to: moffitt.betty@dol.gov or by fax to 202-219-0204 by
the end of the scheduled comment period. The comments received will be
available for public inspection in the Public Disclosure Room of the
Employee Benefits Security Administration, U.S. Department of Labor,
Room N-1513, 200 Constitution Avenue NW., Washington, DC 20210.
Comments and hearing requests will also be available online at
www.regulations.gov and www.dol.gov/ebsa, at no charge.
All comments will be made available to the public. Warning: Do not
include any personally identifiable information (such as name, address,
or other contact information), or confidential business information,
that you do not want publicly disclosed. All comments may be posted on
the Internet and can be retrieved by most Internet search engines.
FOR FURTHER INFORMATION CONTACT: Chris Motta, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, (202) 693-8540 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed amendment to PTE 2006-06. This
amendment to PTE 2006-06 is being proposed in connection with the
Department's proposed amendment of regulations relating to the
Termination of Abandoned Individual Account Plans at 29 CFR 2578.1 (the
QTA Regulation), the Safe Harbor for Distributions from Terminated
Individual Account Plans at 29 CFR 2550.404a-3 (the Safe Harbor
Regulation), and the Special Terminal Report for Abandoned Plans at 29
CFR 2520.103-13 (collectively, the Abandoned Plan Regulations). The
proposed amendments to the Abandoned Plan Regulations are being
published simultaneously in this issue of the Federal Register. PTE
2006-06 provides an exemption from the restrictions of section
406(a)(1)(A) through (D), section 406(b)(1) and (b)(2) of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and from the
taxes imposed by section 4975(a) and (b) of the Internal Revenue Code
of 1986 (the Code), by reason of section 4975(c)(1)(A) through (E) of
the Code.
If adopted, this proposed amendment to PTE 2006-06 would affect
plans, participants and beneficiaries of such plans, and certain
persons engaging in the transactions covered by the class exemption.
The Department is proposing the amendment on its own motion
pursuant to section 408(a) of ERISA and section 4975(c)(2) of the Code,
and in accordance with the procedures set forth in 29 CFR Part 2570,
Subpart B (55 FR 32836, 32847, August 10, 1990).\1\
---------------------------------------------------------------------------
\1\ Section 102 of the Reorganization Plan No. 4 of 1978 (5
U.S.C. app. at 214 (2000) generally transferred the authority of the
Secretary of the Treasury to issue administrative exemptions under
section 4975 of the Code to the Secretary of Labor.
---------------------------------------------------------------------------
Executive Order 12866
Under Executive Order 12866 (58 FR 51735), ``significant''
regulatory actions are subject to the requirements of the Executive
Order and review by the Office of Management and Budget (OMB). Section
3(f) of the executive order defines a ``significant regulatory action''
as an action that is likely to result in a rule (1) having an annual
effect on the economy of $100 million or more, or adversely and
materially affecting a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local or tribal governments or communities (also referred to as
``economically significant''); (2) creating serious inconsistency or
otherwise interfering with an action taken or planned by another
agency; (3) materially altering the budgetary impacts of entitlement
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or (4) raising novel legal or policy issues arising
out of legal mandates, the President's priorities, or the principles
set forth in the Executive Order. It has been determined that that this
proposed amendment is not ``significant'' under section 3(f) of the
executive order. Accordingly, OMB has not reviewed the proposed
amendment.
PTE 2006-06 permits a QTA of an individual account plan that has
been abandoned by its sponsoring employer to select itself or an
affiliate to provide services to the plan in connection with the
termination of the plan, and to pay itself or an affiliate fees for
those services, provided that such fees are consistent with the
conditions of the proposed exemption. The exemption also permits a QTA
to: Designate itself or an affiliate as a provider of an individual
retirement plan or other account; select a proprietary investment
product as the initial investment for the rollover distribution of
benefits for a participant or beneficiary who fails to make an election
regarding the disposition of such benefits; and, pay itself or its
affiliate in connection with the rollover.
The proposed amendment to PTE 2006-06 would expand the definition
of QTA to include Bankruptcy Trustees (described below) and certain
persons designated by such trustees to act as QTAs. The Department is
proposing the amendment because it has determined that, in certain
instances, it may be appropriate for a Bankruptcy Trustee to provide
termination services to a plan. Currently, PTE 2006-06 and the
accompanying QTA regulations do not cover plans of sponsors involved in
chapter 7 bankruptcy proceedings, because such plans are not considered
to be abandoned due to the fact that the Bankruptcy Trustee assumes the
role of the plan administrator under the Bankruptcy Code. Moreover,
Bankruptcy Trustees cannot serve as
[[Page 74057]]
QTAs under the current regulation and PTE 2006-06 because they are
unable to meet the QTA definition.
Accordingly, as addressed more fully elsewhere in this preamble,
the Department is proposing to expand the definition of QTA to include
Bankruptcy Trustees and certain persons designated by them to act as
QTAs in terminating and winding up the affairs of abandoned plans. As
noted above, this proposed amendment to the class exemption is being
published concurrently with proposed amendments to the Abandoned Plan
Regulations. Because compliance with the QTA Regulation is required
under the proposed amendment, the costs and benefits that would be
associated with complying with the proposed amendment to the class
exemption have been described and quantified in connection with the
economic impact of the proposed amendment to the QTA Regulation.
The Department believes that the proposed amendments to the
Abandoned Plan Regulations and PTE 2006-06 will incentivize many
bankruptcy trustees to carryout plan terminations consistent with
ERISA, which the Department expects ultimately would benefit
participants and beneficiaries of such plans by ensuring abandoned
plans are terminated in an orderly and cost-effective manner.
Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
will be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.
The proposed amendment to PTE 2006-06 would only be used by QTAs
that also take advantage of the proposed amendment to the QTA
Regulation, which is published elsewhere in this issue of the Federal
Register. The Department has combined the hour and cost burdens
associated with the proposed amendment to the class exemption with the
hour and cost burden associated with the amended proposed regulation,
under one Information Collection Request (ICR) that will be filed with
OMB. By combining the two ICRs, the Department believes that the
regulated community will gain a better understanding of the overall
burden impact of terminating abandoned plans pursuant to the proposed
amendments. The specific burden for the proposed amendment to the class
exemption includes a recordkeeping requirement for a Bankruptcy Trustee
that terminates an abandoned plan and chooses to roll over the account
balances of missing or nonresponsive participants into individual
retirement plans offered by it or an affiliate. The hour and cost
burden for the ICR are described more fully in the preamble to the
proposed amendment to the regulation under the Paperwork Reduction Act
section.
I. Background
On April 21, 2006, the Department issued the Abandoned Plan
Regulations.\2\ These Regulations facilitate the orderly, efficient
termination of abandoned individual account plans by a QTA (described
below) in order to give participants and beneficiaries of those plans
access to the amounts held in their individual accounts, which are
frequently unavailable to them because of the abandonment.\3\
Specifically, the Termination of Abandoned Individual Account Plans
regulation establishes standards for financial institutions holding the
assets of an abandoned individual account plan to terminate the plan
and distribute benefits to the plan's participants and beneficiaries,
with limited liability. The Safe Harbor for Distributions from
Terminated Individual Account Plans regulation provides a fiduciary
safe harbor for making distributions from terminated individual account
plans on behalf of participants and beneficiaries who fail to make an
election regarding the form of benefit distribution after the
furnishing of notice. The Special Terminal Report for Abandoned Plans
regulation establishes a simplified method for filing a terminal report
for abandoned individual account plans.
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\2\ See the Termination of Abandoned Individual Account Plans at
29 CFR 2578.1 (77 FR 20820 at 20838); the Safe Harbor for
Distributions from Terminated Individual Account Plans at 29 CFR
2550.404a-3 (77 FR 20820 at 20850); and Special Terminal Report for
Abandoned Plans at 29 CFR 2520.103-13 (77 FR 20820 at 20853).
\3\ 77 FR 20820 at id.
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On that same date, the Department granted PTE 2006-06.\4\ This
class exemption facilitates the goal of the Abandoned Plan Regulations
by permitting a QTA, under the conditions of the exemption, to, among
other things, select itself or an affiliate to provide services to the
plan, to pay itself or an affiliate fees for those services, and to pay
itself fees for services provided prior to the plan's deemed
termination, in connection with terminating the abandoned plan.
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\4\ 71 FR 20856 (Apr. 21, 2006) as amended infra.
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On October 7, 2008, the Department issued final rules amending the
QTA Regulation and the Safe Harbor Regulation.\5\ These amendments were
made in response to changes to the Internal Revenue Code of 1986 (the
Code) enacted as part of the Pension Protection Act of 2006. On that
same date, and for the same purpose, PTE 2006-06 was also amended.\6\
In this regard, as amended, the class exemption requires that benefits
for a missing, designated nonspouse beneficiary be directly rolled over
into an inherited individual retirement plan that fully complies with
Code requirements.
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\5\ See 73 FR 58459 at 58462 and 58465.
\6\ See 73 FR 58629 (October 7, 2008).
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As noted above, proposed amendments to the Abandoned Plan
Regulations are being published simultaneously in this issue of the
Federal Register. If adopted, these amendments, among other things,
would permit a Bankruptcy Trustee to qualify as a QTA under the
Abandoned Plan Regulations or to appoint an ``eligible designee'' to
act as a QTA under the Abandoned Plan Regulations. Thereafter, the
Bankruptcy Trustee or the ``eligible designee'' may provide certain
services, pursuant to the requirements set forth in the Abandoned Plan
Regulations, in connection with the termination of one or more
individual account plans sponsored by the entity that is the subject of
the proceeding.
II. Description of the Class Exemption
PTE 2006-06 is comprised of five sections. Section I describes the
transactions covered by the exemption. These transactions are divided
into two categories. The first category of transactions (hereinafter,
Covered Termination Transactions) involve the use by a QTA (described
below) of its authority in connection with the termination of an
abandoned individual account plan pursuant to the QTA Regulation,\7\
to: Select itself or an affiliate to provide services to the plan;
receive fees for the services performed as a QTA; and pay itself fees
for services provided to the plan prior to the
[[Page 74058]]
deemed termination of the plan. The second category of transactions
(hereinafter, Covered Distribution Transactions) involves the use by a
QTA of its authority in connection with the termination of an abandoned
individual account plan pursuant to the QTA Regulation to: (1)
Designate itself or an affiliate as: (i) Provider of an individual
retirement plan; (ii) provider, in the case of a distribution on behalf
of a designated beneficiary (as defined by section 401(a)(9)(E) of the
Code) who is not the surviving spouse of the deceased participant, of
an inherited individual retirement plan (within the meaning of section
402(c)(11) of the Code) established to receive the distribution on
behalf of the nonspouse beneficiary under the circumstances described
in section (d)(1)(ii) of the Safe Harbor Regulation; or (iii) provider
of an interest-bearing, federally insured bank or savings association
account maintained in the name of the participant or beneficiary, in
the case of a distribution described in section (d)(1)(iii) of the Safe
Harbor Regulation, for the distribution of the account balance of the
participant or beneficiary of the abandoned individual account plan who
does not provide direction as to the disposition of such assets; (2)
make the initial investment of the account balance of the participant
or beneficiary in the QTA's or its affiliate's proprietary investment
product; (3) receive fees in connection with the establishment or
maintenance of the individual retirement plan or other account; and (4)
pay itself or an affiliate investment fees as a result of the
investment of the individual retirement plan or other account assets in
the QTA's or its affiliate's proprietary investment product.
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\7\ Section I(a) of PTE 2006-06 incorrectly cites the QTA
Regulation as Reg. Sec. 2550.404a-3. Section I(a) of this proposed
amendment properly cites the QTA Regulation as Reg. Sec. 2578.1.
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Section II contains conditions applicable to the Covered
Termination Transactions. These conditions include the requirement that
the fees and expenses paid to the QTA, and its affiliate, for services
associated with the termination of a plan and the distribution of its
benefits (hereinafter, Termination Services) \8\ be consistent with
industry rates for such or similar services, based on the experience of
the QTA.\9\ Section II provides further that the fees and expenses paid
to the QTA, and its affiliate, may not exceed the rates ordinarily
charged by the QTA (or affiliate) for the same or similar services
provided to customers that are not plans terminated pursuant to the QTA
regulation, if the QTA (or affiliate) provides the same or similar
services to such other customers. Among the remaining conditions set
forth in section II is the requirement that, with respect to a
Termination Transaction, the requirements of the QTA Regulation are
met.
---------------------------------------------------------------------------
\8\ The Department notes that the ``distribution'' services
referenced in section II of PTE 2006-06 are distinguishable from the
Distribution Transactions described in section I(b) of the class
exemption. In this regard, the Distribution Transactions involve the
investment of Plan assets in the QTA's proprietary investment
vehicles. Section II ``distribution'' services relate to the
transfer of Plan assets to Plan participants and/or investment
vehicles that are unrelated to the QTA.
\9\ See section II(b)(1) of PTE 2006-06.
---------------------------------------------------------------------------
Section III of PTE 2006-06 contains conditions applicable to the
Covered Distribution Transactions. These conditions include the
requirement that, with respect to a Covered Distribution Transaction,
the conditions of the QTA Regulation are met. Section III additionally
requires that, in connection with the notice to participants and
beneficiaries requirement described in the QTA Regulation, a statement
is provided explaining that: (1) If the participant or beneficiary
fails to make an election within the 30-day period referenced in the
QTA Regulation, the QTA will directly distribute the account balance to
an individual retirement plan or other account offered by the QTA or
its affiliate; and (2) the proceeds of the distribution may be invested
in the QTA's (or affiliate's) own proprietary investment product, which
is designed to preserve principal and provide a reasonable rate of
return and liquidity. This section of the class exemption requires
further that the terms of the individual retirement plan or other
account, including the fees and expenses for establishing and
maintaining the individual retirement plan or other account, may be no
less favorable than those available to comparable individual retirement
plans or other accounts established for reasons other than the receipt
of a distribution described in the QTA Regulation. Among the remaining
conditions set forth in section III is the requirement that the rate of
return or the investment performance of the individual retirement plan
or other account may be no less favorable than the rate of return or
investment performance of an identical investment(s) that could have
been made at the same time by comparable individual retirement plans or
other accounts established for reasons other than the receipt of a
distribution described in the QTA Regulation.
Section IV contains the recordkeeping requirements for the QTA, and
section V defines certain terms that appear in the class exemption. In
this last regard, section V(a) currently provides that a termination
administrator is ``qualified'' for purposes of the Abandoned Plan
Regulations and the class exemption if: (1) The QTA is eligible to
serve as a trustee or issuer of an individual retirement plan or other
account, within the meaning of section 7701(a)(37) of the Code,\10\ and
(2) the QTA holds plan assets of the plan considered abandoned.
Accordingly, relief under the existing class exemption extends only to
entities with experience providing services to plans that are subject
to ERISA.
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\10\ Section 7701(a)(37) of the Internal Revenue Code describes
an ``individual retirement plan'' as an individual retirement
account described in section 408(a) of the Code, and an individual
retirement account described in section 408(b) of the Code. Section
408(a) of the Code describes the term ``individual retirement
account'' as meaning a trust created or organized in the United
States for the exclusive benefit of an individual or his
beneficiaries, if certain requirements are met. Section 408(b) of
the Code describes the term ``individual retirement annuity'' as
meaning an annuity contract, or an endowment contract, which meets
certain requirements.
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III. Description of the Proposed Amendment to the Class Exemption
When an entity that sponsors an individual account plan is
liquidated under chapter 7 of title 11 of the United States Code, a
person appointed as a bankruptcy trustee (a Bankruptcy Trustee) will,
among other things, perform the obligations that otherwise would have
been required of the bankrupt entity. Once appointed, the Bankruptcy
Trustee is responsible for administering the plan, which may include
taking the steps necessary to terminate the plan and wind up the
affairs of the plan. A Bankruptcy Trustee who undertakes these plan
responsibilities is a fiduciary with respect to the plan,\11\ and
therefore subject to section 404 of ERISA.\12\ As noted in the preamble
to PTE 2006-06, as proposed, a violation of section 406(a) and/or (b)
of the Act may occur if the QTA determines to pay itself or an
affiliate for services rendered to the plan from the assets of an
abandoned
[[Page 74059]]
plan.\13\ Also, additional violations may occur if the QTA designates
itself or an affiliate as the provider of an individual retirement plan
or other account established for the benefit of participants and
beneficiaries who do not make an election as to the form of
distribution.
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\11\ In this regard, section 3(21)(A)(i) of ERISA provides that
a person is a ``fiduciary'' with respect to a plan to the extent he
exercises any discretionary authority or discretionary control
respecting management of such plan or exercises any authority or
control respecting management or disposition of its assets. In
addition, section 3(21)(A)(iii) of ERISA provides that a person is a
``fiduciary'' with respect to a plan to the extent he has any
discretionary authority or discretionary responsibility in the
administration of such plan.
\12\ Section 404 of ERISA requires, among other things, that a
fiduciary shall discharge his duties with respect to a plan solely
in the interest of the participants and beneficiaries and with the
care, skill prudence, and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and
familiarity with such matters would use in the conduct of an
enterprise of a like character and with like aims.
\13\ In this regard, section 406(a)(1) of the Act prohibits, in
part, a fiduciary of a plan from causing the plan to engage in a
transaction that constitutes a direct or an indirect sale, exchange
or leasing of any property between the plan and a party in interest;
lending of money or other extension of credit between the plan and a
party in interest; furnishing of goods, services, or facilities
between the plan and a party in interest; and a transfer to, or use
by or for the benefit of, a party in interest of any assets of the
plan. Section 406(b)(1) and (b)(2) of the Act prohibits a fiduciary
with respect to a plan from dealing with the assets of the plan in
his own interest or for his own account; and from acting in his
individual or in any other capacity in any transaction involving the
plan on behalf of a party (or representing a party) whose interests
are adverse to the interests of the plan or the interests of its
participants or beneficiaries.
---------------------------------------------------------------------------
As described below, a Bankruptcy Trustee may determine that it is
capable of prudently and expeditiously winding down the operations of
an individual account plan. However, the relief currently provided by
PTE 2006-06 generally does not extend to the provision of Termination
Services by a Bankruptcy Trustee to a plan. In this regard, it is the
understanding of the Department that Bankruptcy Trustees seldom hold
custody of plan assets of the bankrupt plan sponsor. Thus, Bankruptcy
Trustees are generally unable to meet the definition of QTA, as set
forth in section V(a) of the existing class exemption.
In addition, the provision of Termination Services by a Bankruptcy
Trustee to a Plan is often outside the scope of relief intended by the
Department for the existing class exemption.\14\ In this regard, the
class exemption currently limits relief to entities that are eligible
to serve as trustees or issuers of individual retirement plans and thus
have experience providing services to individual account plans subject
to ERISA.\15\ As noted above, the existing class exemption requires,
among other things, that the fees and expenses paid to a QTA, and its
affiliate, for Termination Services are consistent with industry rates,
based on the experience of the QTA. This condition may have little or
no relevance to Bankruptcy Trustees that have minimal or no experience
providing services to ERISA-covered individual account plans.
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\14\ It is also the understanding of the Department that
Bankruptcy Trustees do not maintain proprietary investment vehicles,
and thus do not, in the general course of their business activities,
offer services associated with the Distribution Transactions.
Accordingly, this proposed amendment does not extend relief for a
Bankruptcy Trustee/QTA that designates itself or an affiliate to
offer such services.
\15\ In the preamble to the QTA Regulation, the Department
further noted that in developing its criteria for QTAs, the
Department limited QTA status to trustees or issuers of an
individual account plan within the meaning of section 7701(a)(37) of
the Code, because the standards applicable to such trustees and
issuers are well understood by the regulated community and the
Department is unaware of any problems attributable to weaknesses in
the existing Code and regulatory standards for such persons. See 77
FR 20820 at 20821.
---------------------------------------------------------------------------
Nevertheless, the Department recognizes that when the sponsor of an
individual account plan is in liquidation pursuant to a Chapter 7
bankruptcy proceeding, participants in the plan benefit to the extent
the plan's operations are wound down properly and in an expeditious
manner. The Department is proposing this amendment based on its belief
that extending relief under the class exemption to Bankruptcy Trustees
will enable these Trustees to carry out plan terminations consistent
with ERISA and the Department's expectations.
Accordingly, the Department is proposing to expand the definition
of QTA to include Bankruptcy Trustees and certain persons designated by
such trustees to act as QTAs. Specifically, this new category of QTA
is: (1) A person appointed as a bankruptcy trustee pursuant to a
liquidation proceeding under chapter 7 of title 11 of the United States
Code, or (2) an ``eligible designee'' of such bankruptcy trustee (as
described below). Given that a Bankruptcy Trustee may have little or no
experience providing services to employee benefit plans, the Department
is proposing to modify section II(b)(1) of the class exemption. The
modification, which applies only to Bankruptcy Trustee/QTAs and not
``eligible designees'' or other QTAs, eliminates the ``experience of
the QTA'' component of the condition. In this regard, section II(b)(1)
of this proposed amendment limits the total amount of compensation that
may be paid to a Bankruptcy Trustee/QTA (or any affiliate) for
Termination Services to an amount that is consistent with industry
rates for such or similar services.\16\
---------------------------------------------------------------------------
\16\ This proposed amendment does not affect the obligations
under the class exemption of a QTA that is not a Bankruptcy Trustee.
---------------------------------------------------------------------------
The Department notes that compliance with section II(b)(1) of this
proposed amendment imposes an obligation on a Bankruptcy Trustee/QTA,
prior to performing any Termination Service on behalf of a Plan, to
investigate and determine that the fees and expenses proposed to be
paid to such Bankruptcy Trustee/QTA are consistent with the amount the
Plan would have to pay to an experienced service provider for the same
or similar Termination Services. The Department believes that
information currently available on the Department's Web site, as
described in further detail below, will assist Bankruptcy Trustee/QTAs
set fees for Termination Services in the manner required by section
II(b)(1) of the proposed exemption. The Department recognizes that a
Bankruptcy Trustee, once appointed to administer the termination of a
Plan, may seek to appoint the Plan's custodian to provide Termination
Services and/or Distribution Services to such Plan.\17\ The Department
believes that the provision of Termination Services and/or Distribution
Services by a plan custodian who has been retained in this manner to
act as QTA would be consistent with the intended scope of the existing
class exemption. Accordingly, the Department is proposing to expand the
definition of QTA to include an ``eligible designee'' of a Bankruptcy
Trustee. The proposed amendment defines an ``eligible designee'' to
mean any entity appointed by a Bankruptcy Trustee/QTA, who: is eligible
to serve as a trustee or issuer of an individual retirement plan; and
holds assets of the plan(s) sponsored by the entity that is the subject
of the chapter 7 liquidation proceeding. Given that ``eligible
designees'' are plan custodians with experience providing services to
employee benefit plans subject to ERISA, the Department believes that
``eligible designees'' should be treated in the same manner as QTAs
that are not Bankruptcy Trustee/QTAs. In this regard, the proposed
amendment permits ``eligible designees'' to engage in all transactions
covered by the exemption (i.e., Covered Termination Transactions and/or
Covered Distribution Transactions) subject to the same conditions
applicable to QTAs other than
[[Page 74060]]
Bankruptcy Trustee/QTAs. Accordingly, the fees and expenses paid to an
``eligible designee''/QTA pursuant to section II(b)(1) of PTE 2006-06
must be, among other things, based on the experience of such QTA.
---------------------------------------------------------------------------
\17\ The Department notes that the Act's general standards of
fiduciary conduct would apply to this arrangement. In this regard,
section 404 of the Act requires, among other things, that Bankruptcy
Trustee/QTA discharge his or her duties in a prudent manner.
Accordingly, a Bankruptcy Trustee/QTA who appoints an ``eligible
designee'' would thereafter be responsible for monitoring the
services provided by the ``eligible designee.'' The Department
cautions that such monitoring, and the fee associated therewith,
must be consistent with, and reflective of, the Plan's interest in
having its operations wound down in an expeditious and cost
effective manner. In this regard, the rates charged to the Plan by
the Bankruptcy Trustee/QTA for monitoring the ``eligible designee''
must reflect the rates charged by a plan fiduciary for similar
services, rather than the generally higher fees charged by
bankruptcy trustees for legal services provided to the bankruptcy
estate.
---------------------------------------------------------------------------
The Department reemphasizes to all entities seeking to take
advantage of PTE 2006-06 that relief under that class exemption is
conditioned upon, among other things, fulfilling the requirements set
forth in the QTA Regulation. Accordingly, following a QTA's
determination that an individual account plan has been abandoned,\18\
the QTA must furnish the Department with a notice that includes, among
other things, an identification of any services considered necessary to
wind up the plan in accordance with this section, the name of the
service provider(s) that is expected to provide such services, and an
itemized estimate of expenses attendant thereto expected to be paid out
of plan assets by the qualified termination administrator.\19\ The
Department cautions that, while all such notices are reviewed by the
Department, any such notice furnished by a Bankruptcy Trustee/QTA will
be subject to additional scrutiny by the Department to ensure that
plans pay no more than reasonable compensation for Termination
Services.\20\ At the beginning of the termination process, the
Department conducts a review of the estimated expenses for
reasonableness. In this regard, the Department will: Compare the QTA's
estimated expenses to those of other QTAs; and consider also the facts
and circumstances of the Plan in question. The Department notes that
Plans are deemed terminated only after the Department establishes that
the fees are reasonable.
---------------------------------------------------------------------------
\18\ The Proposed Amendment to the QTA Regulation provides that
if an individual account plan's sponsor is in liquidation under
chapter 7 of title 11 of the United States Code, the plan may be
considered abandoned upon the entry of an order for relief, and the
bankruptcy trustee, or an eligible designee, shall be the qualified
termination administrator. See Paragraph (j)(1) of the Proposed
Amendment to the QTA Regulation.
\19\ See paragraph (c)(3)(iii) of the QTA Regulation.
\20\ Paragraph (d)(2)(v) of the QTA Regulation provides, among
other things, that expenses of plan administration shall be
considered reasonable to the extent such expenses are consistent
with industry rates for such or similar services.
---------------------------------------------------------------------------
In addition, the Department notes that compliance with the QTA
Regulation requires that each QTA file a ``Special Terminal Report for
Abandoned Plans (STRAP)'' with the Department, and such Report must set
forth, among other things, the total termination expenses paid by the
plan and a separate schedule identifying each service provider and
amount received, itemized by expense.\21\ Completed STRAPs are
available on the Department's Web site: http://askebsa.dol.gov/AbandonedPlanSearch/UI/QTASearchResults.aspx. The Department expects
that the information contained in these completed STRAPs, including the
itemized fees set forth therein, will assist Bankruptcy Trustee/QTAs
set fees for Termination Services in the manner required by section
II(b)(1) of the proposed exemption. For further assistance regarding
QTA participation in the abandoned plan program, Bankruptcy Trustee/
QTAs may contact the EBSA office for the region where the abandoned
plan is located.
---------------------------------------------------------------------------
\21\ See DOL Reg. Sec. 2520.103-13(b)(3).
---------------------------------------------------------------------------
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of ERISA and section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or disqualified
person with respect to a plan from certain other provisions of ERISA
and the Code, including any prohibited transaction provisions to which
the exemption does not apply and the general fiduciary responsibility
provisions of section 404 of ERISA which require, among other things,
that a fiduciary discharge his or her duties respecting the plan solely
in the interests of the participants and beneficiaries of the plan and
in a prudent fashion in accordance with section 404(a)(1)(B) of the
Act.
(2) If granted, this proposed amendment does not extend to
transactions prohibited under section 406(b)(3) of the Act or section
4975(c)(1)(F) of the Code;
(3) Before an amendment may be granted under section 408(a) of
ERISA and 4975(c)(2) of the Code, the Department must find that the
amendment is administratively feasible, in the interests of the plan
and of its participants and beneficiaries, and protective of the rights
of participants and beneficiaries of the plan;
(4) If granted, the amendment is applicable to a particular
transaction only if the transaction satisfies the conditions specified
in the exemption; and
(5) If granted, the amendment is supplemental to, and not in
derogation of, any other provisions of ERISA and the Code, including
statutory or administrative exemptions and transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction.
Proposed Amendment
Under section 408(a) of the Act and section 4975(c)(2) of the Code
and in accordance with the procedures set forth in 29 CFR part 2570,
subpart B (55 FR 32836, 32847, August 10, 1990), the Department
proposes to amend PTE 2006-06, effective as of the date the adopted
amendment is published in the Federal Register. The entire exemption,
as proposed to be amended, is set forth below:
I. Covered Transactions
(a) The restrictions of sections 406(a)(1)(A) through (D),
406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by section
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply to a QTA (as defined in paragraph
(a)(1) or (a)(2) of section V) using its authority in connection with
the termination of an abandoned individual account plan pursuant to the
Department's regulation at 2578.1, relating to the Termination of
Abandoned Individual Account Plans (the QTA Regulation) to:
(1) Select itself or an affiliate to provide services to the plan;
(2) Receive fees for the services performed as a QTA; and
(3) Pay itself fees for services provided to the plan prior to the
deemed termination of the plan, provided that the conditions set forth
in sections II and IV of this exemption are satisfied.
(b) The restrictions of sections 406(a)(1)(A) through (D),
406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by section
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply to a QTA (as defined in paragraph
(a)(1) or (a)(2)(ii) of section V) using its authority in connection
with the termination of an abandoned individual account plan pursuant
to the QTA Regulation to:
(1) Designate itself or an affiliate as: (i) Provider of an
individual retirement plan; (ii) provider, in the case of a
distribution on behalf of a designated beneficiary (as defined by
section 401(a)(9)(E) of the Code) who is not the surviving spouse of
the deceased participant, of an inherited individual retirement plan
(within the meaning of section 402(c)(11) of the Code) established to
receive the distribution on behalf of the nonspouse beneficiary under
the circumstances described in
[[Page 74061]]
section (d)(1)(ii) of the Safe Harbor Regulation for Terminated Plans
(29 CFR section 2550.404a-3) (the Safe Harbor Regulation); or (iii)
provider of an interest bearing, federally insured bank or savings
association account maintained in the name of the participant or
beneficiary, in the case of a distribution described in section
(d)(1)(iii) of the Safe Harbor Regulation, for the distribution of the
account balance of the participant or beneficiary of the abandoned
individual account plan who does not provide direction as to the
disposition of such assets;
(2) Make the initial investment of the account balance of the
participant or beneficiary in the QTA's or its affiliate's proprietary
investment product;
(3) Receive fees in connection with the establishment or
maintenance of the individual retirement plan or other account; and
(4) Pay itself or an affiliate investment fees as a result of the
investment of the individual retirement plan or other account assets in
the QTA's or its affiliate's proprietary investment product, provided
that the conditions set forth in sections III and IV of this exemption
are satisfied.
II. Conditions for Provision of Termination Services and Receipt of
Fees in Connection Therewith
(a) The requirements of the QTA Regulation are met. The QTA
provides, in a timely manner, any other reasonably available
information requested by the Department regarding the proposed
termination.
(b) Fees and expenses paid to the QTA, and its affiliate, in
connection with the termination of the plan and the distribution of
benefits:
(1) Are consistent with industry rates for such or similar
services, based on the experience of the QTA, and
(2) Are not in excess of rates ordinarily charged by the QTA (or
affiliate) for the same or similar services provided to customers that
are not plans terminated pursuant to the QTA regulation, if the QTA (or
affiliate) provides the same or similar services to such other
customers. Notwithstanding the foregoing, solely with respect to a QTA
described in section V(a)(2)(i) of this proposed class exemption, the
requirement set forth in (b)(1) of this paragraph shall be deemed met
to the extent that the fees and expenses paid to such QTA are: (i) For
services necessary to wind-up the affairs of the plan and distribute
benefits to the plan's participants and beneficiaries; and (ii)
consistent with industry rates for such or similar services ordinarily
charged by QTAs described in section V(a)(1)(i);
(c) In the case of a transaction described in section I(a)(3):
(1) Such services: (i) Were performed in good faith pursuant to the
terms of a written agreement executed prior to the service provider
becoming a QTA; or (ii) were performed pursuant to the QTA Regulation;
and
(2) The QTA, in the initial notification of plan abandonment
described in section (c)(3) of the QTA Regulation: (i) Represents under
penalty of perjury that such services were actually performed; and (ii)
in the case of section II(c)(1)(i) above, provides the Department with
a copy of the executed contract between the QTA and a plan fiduciary or
the plan sponsor that authorized such services.
III. Conditions for Distributions
(a) The conditions of the QTA Regulation are met.
(b) In connection with the notice to participants and beneficiaries
described in the QTA Regulation, a statement is provided explaining
that:
(1) If the participant or beneficiary fails to make an election
within the 30-day period referenced in the QTA Regulation, the QTA will
directly distribute the account balance to an individual retirement
plan or other account offered by the QTA or its affiliate;
(2) The proceeds of the distribution may be invested in the QTA's
(or affiliate's) own proprietary investment product, which is designed
to preserve principal and provide a reasonable rate of return and
liquidity.
(c) The individual retirement plan or other account is established
and maintained for the exclusive benefit of the individual retirement
plan account holder or other account holder, his or her spouse, or
their beneficiaries.
(d) The terms of the individual retirement plan or other account,
including the fees and expenses for establishing and maintaining the
individual retirement plan or other account, are no less favorable than
those available to comparable individual retirement plans or other
accounts established for reasons other than the receipt of a
distribution described in the QTA Regulation.
(e) Except in the case of a QTA providing a bank or savings account
pursuant to section I(b)(1)(iii) of the exemption, the distribution
proceeds are invested in an Eligible Investment Product(s), as defined
in section V(c) of this class exemption.
(f) The rate of return or the investment performance of the
individual retirement plan or other account is no less favorable than
the rate of return or investment performance of an identical
investment(s) that could have been made at the same time by comparable
individual retirement plans or other accounts established for reasons
other than the receipt of a distribution described in the QTA
Regulation.
(g) The individual retirement plan or other account does not pay a
sales commission in connection with the acquisition of an Eligible
Investment Product.
(h) The individual retirement plan account holder or other account
holder must be able, within a reasonable period of time after his or
her request and without penalty to the principal amount of the
investment, to transfer his or her account balance to a different
investment offered by the QTA or its affiliate, or to a different
financial institution not related to the QTA or its affiliate.
(i)(1) Fees and expenses attendant to the individual retirement
plan or other account, including the investment of the assets of such
plan or account, (e.g., establishment charges, maintenance fees,
investment expenses, termination costs, and surrender charges) shall
not exceed the fees and expenses charged by the QTA for comparable
individual retirement plans or other accounts established for reasons
other than the receipt of a distribution made pursuant to the QTA
Regulation;
(2) Fees and expenses attendant to the individual retirement plan
or other account, with the exception of establishment charges, may be
charged only against the income earned by the individual retirement
plan or other account; and
(3) Fees and expenses attendant to the individual retirement plan
or other account are not in excess of reasonable compensation within
the meaning of section 4975(d) (2) of the Code.
IV. Recordkeeping
(a) The QTA maintains or causes to be maintained, for a period of
six (6) years from the date the QTA provides notice to the Department
of its determination of plan abandonment and its election to serve as
the QTA described in the QTA Regulation, the records necessary to
enable the persons described in paragraph (b) of this section to
determine whether the applicable conditions of this exemption have been
met. Such records must be readily available to assure accessibility by
the persons identified in paragraph (b) of this section.
(b) Notwithstanding any provisions of section 504(a)(2) and (b) of
the Act, the records referred to in paragraph (a) of this section are
unconditionally
[[Page 74062]]
available at their customary location for examination during normal
business hours by--
(1) Any duly authorized employee or representative of the
Department of Labor or the Internal Revenue Service; and
(2) Any account holder of an individual retirement plan or other
account established pursuant to this exemption, or any duly authorized
representative of such account holder.
(c) A prohibited transaction will not be considered to have
occurred if due to circumstances beyond the control of the QTA, the
records necessary to enable the persons described in paragraph (b) to
determine whether the conditions of the exemption have been met are
lost or destroyed, and no party in interest other than the QTA shall be
subject to the civil penalty that may be assessed under section 502(i)
of the Act or to the taxes imposed by sections 4975(a) and (b) of the
Code if the records are not maintained or are not available for
examination as required by paragraph (b).
(3) None of the persons described in paragraph (b)(2) of this
section shall be authorized to examine the trade secrets of the QTA or
its affiliates or commercial or financial information that is
privileged or confidential.
V. Definitions
(a) A termination administrator is ``qualified'' for purposes of
the QTA Regulation and this proposed amendment if the requirements set
forth in either subparagraph (1) or (2) below are met:
(1)(i) The QTA is eligible to serve as a trustee or issuer of an
individual retirement plan or other account, within the meaning of
section 7701(a)(37) of the Code, and (ii) The QTA holds plan assets of
the plan that is considered abandoned; or
(2)(i) The QTA is a bankruptcy trustee in a liquidation proceeding
under chapter 7 of title 11 of the United States Code with
responsibility under 11 U.S.C 704(a)(11) to administer one or more
individual account plans sponsored by the entity that is the subject of
the proceeding, or (ii) The QTA is an ``eligible designee,'' as defined
in section V(h) below, of such bankruptcy trustee.
(b) The term ``individual retirement plan'' means an individual
retirement plan described in section 7701(a)(37) of the Code. For
purposes of section III of this exemption, the term ``individual
retirement plan'' shall also include an inherited individual retirement
plan (within the meaning of section 402(c)(11) of the Code) established
to receive a distribution on behalf of a nonspouse beneficiary.
Notwithstanding the foregoing, the term individual retirement plan
shall not include an individual retirement plan which is an employee
benefit plan covered by Title I of ERISA.
(c) The term ``Eligible Investment Product'' means an investment
product designed to preserve principal and provide a reasonable rate of
return, whether or not such return is guaranteed, consistent with
liquidity. For this purpose, the product must be offered by a Regulated
Financial Institution as defined in paragraph (d) of this section and
shall seek to maintain, over the term of the investment, the dollar
value that is equal to the amount invested in the product by the
individual retirement plan or other account. Such term includes money
market funds maintained by registered investment companies, and
interest-bearing savings accounts and certificates of deposit of a bank
or similar financial institution. In addition, the term includes
``stable value products'' issued by a financial institution that are
fully benefit-responsive to the individual retirement plan account
holder or other account holder, i.e., that provide a liquidity
guarantee by a financially responsible third party of principal and
previously accrued interest for liquidations or transfers initiated by
the individual retirement plan account holder or other account holder
exercising his or her right to withdraw or transfer funds under the
terms of an arrangement that does not include substantial restrictions
to the account holder access to the individual retirement plan or other
account's assets.
(d) The term ``Regulated Financial Institution'' means an entity
that: (i) Is subject to state or federal regulation, and (ii) is a bank
or savings association, the deposits of which are insured by the
Federal Deposit Insurance Corporation; a credit union, the member
accounts of which are insured within the meaning of section 101(7) of
the Federal Credit Union Act; an insurance company, the products of
which are protected by state guaranty associations; or an investment
company registered under the Investment Company Act of 1940.
(e) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly controlling, controlled by,
or under common control with, the person; or
(2) Any officer, director, partner or employee of the person.
(f) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(g) The term ``individual account plan'' means an individual
account plan as that term is defined in section 3(34) of the Act.
(h) The term ``eligible designee'' means any person or entity
designated by a QTA described in section V(a)(2)(i) that is eligible to
serve as a trustee or issuer of an individual retirement plan, within
the meaning of section 7701(a)(37) of the Internal Revenue Code, and
that holds assets of a plan described in section V(a)(2)(i).
Signed at Washington, DC, September, 2012.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2012-29556 Filed 12-11-12; 8:45 am]
BILLING CODE 4510-29-P