Notice of Exemption Involving Retirement Clearinghouse, LLC (RCH or the Applicant), Located in Charlotte, North Carolina, 37337-37349 [2019-16237]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 84, Number 147 (Wednesday, July 31, 2019)]
[Notices]
[Pages 37337-37349]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16237]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2019-02; Exemption Application No. D-
11938]


Notice of Exemption Involving Retirement Clearinghouse, LLC (RCH 
or the Applicant), Located in Charlotte, North Carolina

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Notice of five-year exemption.

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SUMMARY: This document contains a notice of a five-year exemption 
issued by the Department of Labor (the Department) from the 
restrictions of the Internal Revenue Code of 1986, as amended (the 
Code). The exemption permits RCH to receive certain fees in connection 
with the transfer under the RCH Program, of an individual's Default IRA 
or Eligible Mandatory Distribution Account assets to the individual's 
New Plan Account, without the individual's affirmative consent, 
provided the

[[Page 37338]]

conditions described below are satisfied.

DATES: This exemption will be in effect for five years from the date 
this notice is published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department, 
telephone (202) 693-8456. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: On November 7, 2018, the Department 
published a notice of proposed exemption in the Federal Register, at 83 
FR 55741, in connection with RCH's Auto-Portability Program (the RCH 
Program). The RCH Program provides individuals who are changing jobs 
with a means to transfer retirement assets from their prior employers' 
plans to their new employers' plans. To do this, the RCH Program 
features ``locate and match'' technology that coordinates between 
multiple record-keeper systems. The RCH Program identifies when an 
individual with a Default IRA (or Eligible Mandatory Distribution 
Account) has opened a New Plan Account with his or her current 
employer. The RCH Program facilitates the transfer of those Default IRA 
(or Eligible Mandatory Distribution Account) assets to the New Plan 
Account, following the individual's failure to respond to two letters 
stating that the assets will be transferred if he or she fails to 
respond within the later of: Sixty days of the first letter; or thirty 
days of the second letter.
    Relief under this exemption is solely available for the payment by 
a Default IRA of a Transfer Fee and a Communication Fee to RCH in 
connection with the transfer of $5,000 or less (with a limited 
exception, described below) from the Default IRA to a New Plan Account, 
pursuant to either a Default IRA Model Transfer or a Conduit Model 
Transfer.
    The objective of the RCH Program is to improve overall asset 
allocation, eliminate duplicative fees for small retirement saving 
accounts, and reduce leakage of retirement savings. For a more 
comprehensive discussion of the mechanics of the RCH Program, including 
required disclosures, fees and confidentiality and data protection 
obligations, please see the notice of proposed exemption, at 83 FR 
55741.
    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public 
hearing. All comments and requests for a hearing were due by December 
24, 2018. The Department received one written comment from RCH, and 13 
written comments from other interested persons, covering a broad range 
of issues, which are discussed below.\1\ After considering the entire 
record, the Department has determined to grant the exemption, subject 
to the revisions described below.
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    \1\ The Department received correspondence from one other 
person, who requested to be informed if any hearing was to be held 
in connection with the proposed exemption.
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Written Comments

    1. Two Commenters Opposed the Exemption. One of the two commenters 
opposing the exemption stated that an employee's assets should be 
rolled in or out of their retirement account at the employee's 
discretion. The commenter stated further that a transfer to a new 
employer's Plan may not be in an employee's best interest if the new 
Plan has higher fees or does not accept Roth contributions. The other 
commenter stated the exemption overstates the fee-related benefits to 
affected IRAs since most fee structures are percentage-based. The 
commenter stated further that investment options available through a 
401(k) plan tend to be more limited than those available through an IRA 
or Roth IRA.\2\
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    \2\ This commenter also stated that the rollover process is 
often particularly cumbersome and that custodians can do more to 
streamline the asset transfer processes and improve participant 
access to information.
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    Department's Response. The Department's safe harbor regulation 
permits Plan fiduciaries to direct the transfer of separated employees' 
small Plan-account balances to Default IRAs, only if protective 
conditions are met. This exemption contains additional conditions 
applicable for transfers of Default IRAs to New Plan Accounts, under 
the RCH Program. Before authorizing a Plan's participation in the RCH 
Program, a Plan fiduciary who is independent of RCH must review the 
terms of the RCH Program, and determine, consistent with its duties 
under Section 404 of ERISA, that the Plan's participation in the RCH 
Program is prudent. All fees, direct or indirect, that RCH and related 
parties (including participating record-keepers) receive in connection 
with the Program must be approved by the responsible Plan fiduciary of 
the old employer Plan. RCH has no authority to unilaterally change the 
types or amounts of these fees. In addition, all fees under the RCH 
Program must not exceed reasonable compensation, within the meaning of 
Section 408(b)(2) of ERISA. Thus, the exemption protects separated 
employees from excessive fees both through fiduciary review and 
approval, and through the overarching condition that compensation be no 
more than reasonable.
    Under the RCH Program, and the exemption requires that, affected 
individuals receive multiple accurate notices written in plain English, 
containing all relevant information, so they can decide for themselves 
which retirement-related investment vehicles are most appropriate for 
their Default IRA assets. For example, the first letter, the Mandatory 
Distribution Letter, informs individuals that their Plan accounts will 
be automatically rolled over into a default IRA unless they provide 
affirmative direction regarding their account disposition within 30-90 
days. The Mandatory Distribution Letter also explains distribution 
options, discloses all fees and features of the RCH Program, and 
includes a Code-required notice explaining various tax rules for 
eligible rollover distributions. Following an account rollover into a 
default IRA, individuals receive the Welcome Letter, which describes 
the IRA's investment options and includes a statement regarding all the 
Program's associated fees and features, including information regarding 
the possible future transfer of the IRA into a new employer's plan. The 
Welcome letter also specifically informs the individual that, unless 
they direct otherwise, the IRA may be transferred to their new 
employer's Plan after 60 days. For the duration of the IRA's existence, 
RCH or the record-keeper annually notifies the individual of the 
automatic transfer process as part of an IRA annual statement. 
Transfers under the RCH Program to a New Plan Account occur only if: 
The individual does not timely respond to the notices; or the 
individual affirmatively approves the transfer.
    RCH itself also has fiduciary responsibilities with respect to the 
RCH Program. Unless it has received the individual's express 
affirmative consent for the transfer, RCH acts as a fiduciary in 
causing the transfer of the individual's retirement account assets from 
a Default IRA (or Eligible Mandatory Distribution Account) to the 
individual's New Plan Account. Similarly, in situations where a Default 
IRA maintained by a third party record-keeper is transferred to an RCH 
Default IRA, absent the individual's affirmative consent, RCH acts as a 
fiduciary both in affecting the transfer of the individual's Default 
IRA to the RCH Default IRA and subsequently to the new employer's Plan.
    In response to the commenter's observation about asset-based fees, 
the Department notes that custodians of IRAs typically charge a range 
of fees that are not included within the asset-based

[[Page 37339]]

fees. These charges are taken directly from the IRA's assets, and may 
include monthly administration fees, transfer fees, and account closing 
fees. Whether or not the assets in a particular Default IRA would 
benefit from a transfer under the RCH Program that triggers some of 
these fees and/or eliminates others, is fact specific. Notwithstanding 
this, individuals will likely benefit from transfers of their Default 
IRAs under the RCH Program, where those IRAs are subject to fixed 
reoccurring fees that are greater than the IRAs' investment returns. 
Individuals should be able to quantify the impact a transfer under the 
RCH Program would have on their Default IRAs' assets, using the 
multiple detailed plain English notices provided by RCH or 
participating record-keepers.
    Regarding Roth IRAs, RCH represents that RCH may accept Roth 
Accounts as Default IRAs, but designated Roth IRAs are not eligible to 
participate in the transfer function of the RCH Program. Accordingly, 
the Department has added new condition (t) to Section I, which 
precludes the transfer of Roth IRA assets to New Plan Accounts under 
the RCH Program.
    2. Two Commenters supported the exemption, as written. Two 
commenters supported the exemption without changes, and stressed that 
the exemption would reduce retirement-asset leakage.
    3. Three commenters sought expansion of the exemption. Three 
commenters advocated an expansion of the exemption to permit transfers 
of ``pre-existing'' safe harbor IRAs to New Plan Accounts. ``Pre-
existing'' Default IRAs are already-established IRAs. These IRAs hold 
assets that the Plan transferred to the IRA, without a Plan Fiduciary's 
prior approval of participation in the RCH Program.
    Department's Response: The Department declines to make the 
requested revision. An essential protection of this exemption is a Plan 
fiduciary's independent evaluation of the RCH Program and determination 
that the Program is appropriate for the Plan's participants and 
beneficiaries. The decision to transfer plan assets to a Default IRA 
subject to the RCH Program is a fiduciary decision under Section 3(21) 
of ERISA, and is fully subject to the fiduciary protections of Title I 
of ERISA. Accordingly, the exemption ensures that a Plan fiduciary who 
is independent of RCH (an independent plan fiduciary), in advance of 
the Plan's participation in the Program: Reviews the material terms of 
the Program, including the reasonableness and necessity of the fees and 
services; evaluates the impact that the Plan's participation in the 
Program may have on the Plan, and on its participants and 
beneficiaries; reviews the terms of the Plan's arrangements with its 
default IRA custodians and service providers, with consideration given 
to the possibility that those default IRA assets may ultimately be 
transferred to new employer Plans (resulting in additional fees) 
through the Program; and determines that participation in the Program 
is fully consistent with the Fiduciary's obligations under ERISA, 
including its fundamental duties of prudence and loyalty under ERISA 
Sections 404(a)(1)(A) and (B).
    Because ``pre-existing'' Default IRAs lack these fiduciary 
safeguards with respect to the RCH Program, the Department finds that 
their inclusion in the Program would not be in the interest of the 
affected plans, participants and beneficiaries, and IRA owners, or 
protective of their rights.
    4. Two Commenters Expressed Concern Regarding the Proposed 
Exemption. One commenter expressed skepticism about trusting an 
aggregator to roll assets out of an IRA to a new 401k Plan, due to the 
aggregator's disincentive to give up these assets. The commenter stated 
that the exemption should impose penalties on the aggregator for 
failing to follow through with account transfers. Another commenter 
similarly sought greater liability for RCH, and recommended that the 
Department retain the annual audit and the ``no more than reasonable 
compensation'' provisions.
    Department's Response: The exemption is structured to address these 
concerns. The exemption, which retains the referenced provisions, 
requires that transfers under the RCH Program be made according to 
fixed, disclosed timeframes, and that an independent auditor test a 
representative sample of transfers to determine whether those timelines 
were met. These audit reports will be reviewed by the Department, and 
will be part of the public record. The Department notes that failure by 
RCH to comply with the terms of this exemption may result in prohibited 
transactions that give rise to excise taxes under the Code.
    5. One Commenter Seeks a Class Exemption. One commenter recommended 
that the Department convert the exemption into a class exemption that 
would be available to any entity meeting the requirements of the 
exemption.
    Department's Response: At the present time, the Department is not 
aware of any other service providers that provide the transition 
services offered by RCH and who operate their business in a manner 
similar to RCH. Therefore, the Department does not have a record upon 
which to make a valid determination regarding the feasibility of 
providing exemptive relief on a class basis.
    6. One Commenter Suggested Certain Tax Disclosures. One commenter 
stated that distribution checks sent to participants should include a 
disclosure explaining the tax consequence of cashing out of retirement 
accounts.
    Department's Comment: Prior to receiving distribution checks, 
affected individuals receive Mandatory Distribution Letters, which 
include a Code-required notice explaining various tax rules for 
eligible rollover distributions.
    7. One Commenter Proposed a Wide Range of Additional Protections. 
Another commenter proposed a variety of changes to the exemption, which 
are addressed as follows:
    A. According to the commenter, the exemption largely does not 
address how RCH will invest and oversee participant accounts before 
another account is located, and a significant number of participants 
may not join another retirement Plan for years or decades.
    Department's Response: Independent Plan fiduciaries, and not RCH, 
select and approve the investment vehicles for Default IRAs that 
receive assets directly from the Plan. An individual who does not join 
another Plan for decades will receive ``Annual Statements,'' alerting 
the individual that, among other things, he or she may direct RCH to 
transfer the account balance into another account.
    B. The commenter (and one other commenter) recommended that RCH 
assume more fiduciary responsibility. The commenter suggested that the 
Department require RCH to prudently select and monitor all funds 
invested or, alternatively, an independent Plan fiduciary could ensure 
that all participant accounts are prudently invested.
    Department's Response: As noted above, Plan fiduciaries that are 
independent of RCH must select and approve the investment vehicles that 
contain Default IRA assets (prior to the RCH Program's identification 
of a New Plan Account). Before selecting the RCH Program, the 
independent Plan fiduciary must: Review the material terms of the 
Program; understand the impact that the Plan's participation in the 
Program may have on the Plan, and on its participants and 
beneficiaries; review the terms of the Plan's arrangements with its 
default IRA custodians/service providers, with consideration given to 
the possibility that those default IRA assets may

[[Page 37340]]

ultimately be transferred to new employer Plans (and incur additional 
fees in connection therewith) through the Program. Once selected, the 
plan sponsor must periodically monitor the RCH Program, to ensure that 
the Plan's continued participation remains in the interest of, and 
protective of, the Plan and its participants and beneficiaries.
    The Department also notes that the sponsor of a plan that 
participates in the RCH Program retains its fiduciary obligations with 
respect to the plan's Eligible Mandatory Distribution Accounts, and 
that the account owner receives complete disclosure of the terms and 
fees associated with the Program and retains the ongoing authority to 
transfer funds out of the Program.
    If assets in a Mandatory Distribution Account, or other plan 
assets, are transferred to a Default IRA, the exemption requires that 
affected individuals receive multiple accurate notices written in plain 
English, containing all relevant information, so they can decide for 
themselves which retirement-related investment vehicles are most 
appropriate for their Default IRA assets. The Mandatory Distribution 
Letter explains distribution options, discloses all fees and features 
of the RCH Program, and includes a Code-required notice explaining 
various tax rules for eligible rollover distributions. Thereafter, 
individuals receive Welcome Letters, which describe the IRA's 
investment options and include statements regarding all the Program's 
associated fees and features, including information regarding the 
possible future transfer of the IRA into a new employer's plan. The 
Welcome Letters also specifically inform individuals that, unless they 
direct otherwise, the IRA may be transferred to their new employer's 
plan after 60 days. For the duration of the IRA's existence, RCH or the 
record-keeper provide an ``Annual Statement'' regarding: The Program's 
material features; all fees the account will pay under the Program; and 
all compensation, direct or indirect, of any type, received by RCH, 
related parties and participating record-keepers in connection with the 
Program. Transfers under the RCH Program to a New Plan Account occur 
only if: The individual does not timely respond to the notices; or the 
individual affirmatively approves the transfer.
    C. The commenter additionally suggested that it would be beneficial 
to participants to require participating Plans to explain the RCH 
arrangement in any Plan communication regarding the mandatory 
distribution or termination distribution.
    Department's Response: As noted above, under the exemption, RCH or 
the record-keeper must provide individuals with multiple detailed 
notices that explain all aspects of the Program, including how the 
Program works, a statement of all material Program features and a 
complete and accurate statement of all fees that are charged to 
accounts in the Program, including all compensation, direct or 
indirect, of any type received by RCH, related parties and 
participating record-keepers. The exemption also requires that that all 
fees and expenses under the Program be fully disclosed in participating 
Plan's summary plan descriptions.
    D. The commenter also recommended that the independent Plan 
fiduciary should ensure that not only is each fee necessary and as 
modest as possible, but that the totality of all fees is reasonable.
    Department's Response: As noted above, the Department agrees that 
it is critically important that an independent Plan fiduciary review 
and approve the Plan's participation in the RCH Program. The duties of 
the fiduciary include ensuring that the fees associated with the RCH 
Program are necessary and reasonable. The exemption further requires an 
Independent Auditor to determine, among other things, whether the fees 
and compensation, direct or indirect, of any type, received by RCH, 
related parties and participating record-keepers in connection with the 
Program did not exceed reasonable compensation. Finally, Section 
408(b)(2) of ERISA and Section 4975(d)(2) of the Code independently 
require that RCH, the related service providers, and record-keepers, in 
fact, receive no more than reasonable compensation for their services.
    E. The commenter also said that RCH will have some bias to retain 
accounts as long as possible to maximize its fees and suggested that 
the Plan fiduciary who is independent of RCH should be directed to 
monitor the timeliness of RCH's account matching and roll-over 
practices.
    Department's Response: The exemption is structured to address this 
concern, as described in paragraph 4 above.
    F. The commenter also recommended that RCH should be required to 
disclose its participating record-keepers in the materials it provides 
to Plans and participants.
    Department's Response: As noted above, individuals receive a number 
of letters from RCH or participating record-keepers that provide 
material information on service providers and record-keepers. The first 
letter is a Mandatory Distribution Letter, which names the service 
providers to the Default IRA that would be established should the 
individual not respond to the letter. Specifically, the Mandatory 
Distribution Letter identifies: The name of the investment provider; 
the specific investment(s) in which the IRA's assets will be invested; 
the name of the Default IRA's custodian; and each type of fee (and its 
amount) applicable to the Default IRA.
    RCH has subsequently represented, and this exemption now requires, 
in Section I(v), that RCH will maintain a list of participating record-
keepers on its website, with a link to that list in its letters to 
affected individuals.
    G. The commenter additionally suggested that RCH should be required 
to ensure that all RCH notices and materials explain in plain and clear 
language participants' right to opt out of RCH, and that RCH provide 
all such documents in paper form, unless the participant has 
specifically requested electronic communications.
    Department's Response: The exemption requires that the notices 
provided by RCH must be written in plain English, and these notices 
must be delivered by first class mail.
    H. The commenter stated that the exemption does not provide any 
procedures for participant complaints about RCH, and that the 
Department should require RCH to notify participants of their right to 
file complaints with the Department of Labor.
    Department's Response: Individuals with complaints about their Plan 
benefits may contact EBSA's Office of Outreach, Education and 
Assistance. More information may be found at https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/organization-chart#section11. Persons 
with questions about their IRAs may find helpful information from the 
IRS at: https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras. The exemption now also requires that individuals 
receiving Mandatory Distribution notices are effectively given the 
opportunity to opt-out of the RCH Program, by the use of an operational 
phone number with a clearly available opt-out choice in the main menu.
    8. Another Commenter Sought a Revision to Section I(b) of the 
Exemption. Another commenter supported the exemption, but recommended a 
revision to Section I(b), which provides, as a condition for relief, 
that ``RCH does not sell or market Plan or Plan participant-related 
data RCH accesses or obtains to third parties in connection with the 
Program, nor does RCH use the data for any purpose other

[[Page 37341]]

than administration of the Program.'' In particular, the commenter 
requested that the Department remove the phrase ``. . . nor does RCH 
use the data for any purpose other than administration of the 
Program.'' In the alternative, the commenter recommends that Section 
I(b) allow this use if the independent Plan fiduciary consents. In 
support of its recommendation, the commenter states that all 
custodians, record-keepers and other service providers to the 
retirement industry aggregate and use data for a variety of business 
related purposes, such as building IT solutions, planning for emergency 
contingencies, pricing the services of their vendors, and in response 
to government requests and often aggregate data to learn about how 
individuals save, how to best engage participants, and how participants 
are allocating investments, among other things.
    Department's Response: In response to the comment, the Department 
has revised Section I(b). The condition now permits the use of a Plan's 
data by RCH, but only for RCH's internal business operations as they 
relate to the RCH Program. The revised condition specifically provides 
that ``RCH does not sell or market Plan or Plan participant-related 
data RCH accesses or obtains to third parties in connection with the 
Program. Nor does RCH use the data for any purpose other than 
administration of the Program, without the express consent of the Plan 
fiduciary, after full disclosure by RCH of how the data will be 
used[.]''
    9. RCH Requested the Following Revisions to the Proposed Exemption:
    A. Remove the Exemption's Five-Year Term
    RCH states that the exemption establishes a mechanism to ensure 
continued satisfaction of the requirements of section 408(a) of ERISA. 
RCH notes that the exemption requires an Independent Auditor to conduct 
an annual audit of the Program. RCH states that ``the Independent 
Auditor's reports will provide the Department with information 
sufficient to determine that the ``asset transfers . . . were performed 
accurately, without undue delay, and with RCH receiving no more than 
the fees and compensation disclosed to, and approved by, the applicable 
independent Plan fiduciaries.''
    RCH states further that its success in achieving its corporate 
objectives should be irrelevant to the Department for purposes of 
determining whether the exemption meets the statutory requirements of 
``section 408(a) of ERISA.'' RCH notes that the Department maintains 
the authority to revoke or modify the exemption at any time, and that 
requiring RCH to submit an application in five years would be 
unnecessarily duplicative and result in a substantial economic and 
administrative burden to RCH.
    Department's Response: The Department has decided not to remove the 
exemption's five year term. As noted by one of the commenters (who 
recommended that the duration of the exemption be reduced to three 
years) the RCH Program is novel. At present, there is insufficient data 
for the Department to confidently determine precisely how likely the 
Program is to achieve its goals of: Reducing asset leakage; improving 
retirement savings outcomes for former Plan participants with small 
account balances; and avoiding abuse. Given the exemption's protective 
conditions, including the required annual determination by the 
independent auditor, to be reviewed by the Department, regarding 
whether the New Plan Accounts, participants and beneficiaries received 
all the assets they were due, the Department has decided that the 
exemption's five year term is appropriate. Assuming RCH later seeks an 
extension of this exemption, the Department expects to use the data 
contained in the audits as one of the bases for determining whether and 
for how long additional relief is warranted.
    B. Remove the $5,000 Limitation. RCH requests that the exemption be 
modified to limit the availability of the exemption to amounts 
described under section 401(a)(31)(B)(ii) of the Code, rather than the 
actual dollar limitation of $5,000. RCH states that, absent such a 
revision, the Program would be significantly disrupted if Congress were 
to change the limits under Code section 401(a)(31)(B)(ii). RCH states 
that requiring Plans under the Program to keep track of two limits 
could result in a substantial administrative burden that would 
contravene the Program's intention of complementing the already 
existing safe harbor provisions of the Code and regulations at 29 CFR 
2550.404a-2.
    RCH requests further that the account balance limitation under the 
exemption be applied as of the time of the transfer from an 
individual's prior employer Plan to a Default IRA. In this respect, RCH 
states that account balances with less than the Code section 
401(a)(31)(B) limitation at the time of transfer to a Default IRA may 
grow due to investment performance over time. However, RCH states that 
investment gains in Default IRAs accrue incrementally and requests that 
these accounts be eligible to participate in the Program.
    Department's Response: The Department has added new paragraph (v) 
to Section I of the exemption, which permits the transfer of more than 
$5,000 to a New Plan Account if the amounts transferred exceed $5,000 
solely because of investment gains attributable to the assets held in 
the individual's Default IRA(s) and/or Eligible Mandatory Distribution 
Account(s).
    C. Exemptive Relief for Communication Fee. In its exemption 
application, RCH described a $6 communication fee (the Communication 
Fee), which it said reimburses RCH for a portion of the cost of issuing 
the notices and forms associated with effectuating the transfer of 
assets under the Program. However, RCH did not request relief for the 
Communication Fee in its application. Now RCH states that ``because RCH 
receives the Communication Fee only after it engages in the Locate and 
Match process, sends the notices, and transfers the individual's assets 
to the New Plan Account, it may require relief for its receipt of the 
Communication Fee.''
    Department's Response: The Department has revised the exemption to 
permit RCH's receipt of the Communication Fee, provided that the fee 
does not cause RCH to receive more than reasonable compensation, within 
the meaning of Section 408(b)(2) of ERISA and Section 4975(d)(2) of the 
Code. The Communication Fee is subject to the same conditions 
applicable to RCH's receipt of a Transfer Fee. Among other things: An 
independent Plan fiduciary must approve the fee; as noted above, the 
Independent Auditor must determine, among other things, whether the 
fees and compensation, direct or indirect, of any type, received by 
RCH, including the Communication Fee, exceed reasonable compensation; 
and the fee must not cause RCH, in fact, to receive more than 
reasonable compensation. This revision notwithstanding, however, the 
Department makes no factual determination, as to the reasonableness of 
the specific amount charged by RCH. The Communication Fee, like other 
fees under this exemption, is subject to the reasonable compensation 
requirement and the auditor's review.
    D. Beneficiaries under the Program. RCH requests that the 
Department remove all references to ``beneficiaries'' participating in 
the Program throughout the proposed exemption, particularly in sections 
I(e)(2), I(1)(2), I(r), and I(s) of the operative language of the 
proposed exemption, because the inclusion would cause substantial 
hardship to RCH. RCH states that the Program is designed to assist job 
changers who participate in a

[[Page 37342]]

Plan to consolidate their Eligible Mandatory Distribution Accounts and 
Default IRA balances with their New Plan Accounts. According to RCH, by 
definition, the consolidation of beneficiary accounts falls outside the 
parameters of the Program. RCH Safe Harbor IRAs are separate retirement 
accounts from the prior employer plan.
    However, RCH notes that once RCH Safe Harbor IRAs are established, 
affected individuals have the opportunity to designate beneficiaries to 
their respective IRAs, either on-line or by filling out the IRA 
custodial account agreement. RCH represents that if the IRA account 
holder dies, and there is no named beneficiary, RCH tries to locate and 
contact the individual's next of kin through the different search 
methods at its disposal. Once located, RCH communicates with the next 
of kin to either inform him or her of their benefit, to find any other 
beneficiaries, or to obtain contact information for the deceased 
account holder's estate.
    Department's Response: The Department is not removing the 
exemption's references to ``beneficiaries.'' As RCH notes above, 
individuals with RCH Safe Harbor IRAs may designate a ``beneficiary,'' 
and the exemption's conditions continue to mandate certain protections 
for these persons. The exemption now mandates that each notice provided 
to individuals with RCH Safe Harbor IRAs must inform them that they may 
designate a ``beneficiary,'' and the notice must clearly describe the 
process by which this may be achieved. The exemption further requires 
that, consistent with RCH's representation above, if an RCH Safe Harbor 
IRA account holder dies, and there is no named beneficiary, RCH will 
try to locate and contact the individual's next of kin through the 
different search methods at its disposal. Once located, RCH will 
communicate with the next of kin to either inform him or her of their 
benefit, to find any other beneficiaries, or to obtain contact 
information for the deceased account holder's estate.
    Plan fiduciaries are directed to the GENERAL INFORMATION section of 
the exemption, which states, among things, that the general fiduciary 
responsibility provisions of section 404 of ERISA require a fiduciary 
to discharge its duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(B) of ERISA. Therefore, 
independent Plan fiduciaries must fulfill their fiduciary duties with 
respect to beneficiaries under their Plans, as well as with respect to 
Plan participants, when deciding whether to adopt and retain the RCH 
Program.
    E. Use of Participant Data. Section I(b) of the operative language 
provides that: ``RCH does not sell or market Plan or Plan participant-
related data RCH accesses or obtains to third parties in connection 
with the Program, nor does RCH use the data for any purpose other than 
administration of the Program; . . .''
    RCH requests the addition of the clause ``without the express 
consent of the Plan fiduciary'' to the end of Section I(b) of the 
proposed exemption. The Applicant adds that it does not intend to sell 
any Plan or participant data to third parties.
    Department's Response: As noted above, Section I(b) now permits RCH 
to use a Plan's data, but only for RCH's internal business operations 
as they relate to the RCH Program. In particular, Section I(b) 
provides: ``RCH does not sell or market Plan or Plan participant-
related data RCH accesses or obtains to third parties in connection 
with the Program. Nor does RCH use the data for any purpose other than 
administration of the Program, without the express consent of the Plan 
fiduciary, after full disclosure by RCH of how the data will be 
used[.]''
    F. Third Party Restrictions. Section I(d) of the proposed exemption 
provides that: ``(d) RCH does not restrict or limit the ability of 
unrelated third parties to develop, market and/or maintain a locate-
and-match process separate from RCH's process that facilitates the 
transfer of Default IRA assets or Eligible Mandatory Distribution 
Account assets;''
    RCH requests that the Department revise Section (I)(d) to clarify 
that the exemption does not restrict RCH from pursuing legal claims 
against those that may violate the law. In addition, RCH states that it 
is in general agreement with Section I(d)'s limitation, but has 
concerns regarding its breadth and potential implications. RCH states 
that it believes the purpose behind Section I(d) is to preclude RCH 
from entering into exclusivity agreements with record-keepers or Plan 
sponsors which would preclude other service providers from providing 
services similar to the Program. RCH further states that the exemption 
should not preclude RCH from pursuing available remedies under the law 
for misconduct by those persons that provide similar services, such as 
pursuing a legal claim against a third party that violates any 
intellectual property right of RCH.
    Specifically, RCH requests that Section I(d) of the proposed 
exemption be revised to accommodate this concern and reflect that ``RCH 
does not restrict or limit the ability of unrelated third parties to 
develop, market and/or maintain a locate-and-match process separate 
from RCH's process that facilitates the transfer of Default IRA assets 
or Eligible Mandatory Distribution Account assets. Notwithstanding the 
foregoing, nothing in this section limits or precludes RCH from 
pursuing legal claims available to it under the law.''
    Department's Response: The Department has decided not to revise 
this condition. RCH's proposed revision is overbroad because a contract 
claim is a type of ``legal claim.'' Section I(d) should be interpreted 
as prohibiting RCH from contractually insulating itself from 
competition, or from otherwise entering into arrangements, agreements 
or understandings with third parties, in a manner that precludes 
unrelated service providers from developing and providing services 
similar to the RCH Program. Section I(d) does not, however, limit the 
ability of RCH to pursue legal claims arising from third party 
misconduct, such as a violation of its intellectual property rights.
    G. Exculpatory Provisions. Section I(n) of the proposed exemption 
provides that: ``RCH does not include exculpatory provisions in its 
contracts disclaiming or limiting RCH's liability in the event that the 
RCH Program results in an improper transfer from a Default IRA or 
Eligible Mandatory Distribution Account.''
    RCH states that, by its terms, Section I(n) could be interpreted as 
prohibiting RCH from limiting its liability from errors caused by third 
parties, and RCH should not be precluded from disclaiming liability for 
improper transfers caused by third parties participating in the 
Program.
    Therefore, RCH requests that the Department revise Section I(n) to 
add: ``However, this provision does not prohibit disclaimers for 
liability caused by an error, misrepresentation, or misconduct of a 
party independent of RCH and its affiliates, or damages arising from 
acts outside the control of RCH.''
    Department's Response: Section I(n) was not intended to prohibit 
RCH from limiting its liability from errors caused by third parties. 
The Department has revised Section I(n) in the manner requested by RCH.
    H. Pre-Existing IRAs. RCH requests that the Department expand 
relief under the proposed exemption to cover Default IRA accounts that 
have already been established with RCH or third party record-keepers. 
RCH states that RCH and third party record-keepers

[[Page 37343]]

currently maintain a substantial number of Default IRAs that could 
benefit from the Program through consolidation with New Plan Accounts.
    RCH states that no transfer of participant funds from a Default IRA 
currently held with RCH or a third party record-keeper would occur 
without the Plan sponsor of the participant's new Plan first approving 
the Program. RCH states that the safeguards established by the 
exemption, such as the requirement that Plan sponsors approve fees 
associated with the Program, would also be present for Default IRAs 
maintained by RCH and third party record-keepers.
    Department's Response: The Department declines to make the 
requested revision. An essential protection of this exemption is a Plan 
fiduciary's independent evaluation of the RCH Program and determination 
that the Program is appropriate for the Plan's participants and 
beneficiaries. The decision to transfer plan assets to a Default IRA 
subject to the RCH Program is a fiduciary decision under Section 3(21) 
of ERISA, and is fully subject to the fiduciary protections of Title I 
of ERISA. Accordingly, the exemption ensures that a Plan fiduciary who 
is independent of RCH (an independent plan fiduciary), in advance of 
the Plan's participation in the Program: Reviews the material terms of 
the Program, including the reasonableness and necessity of the fees and 
services; evaluates the impact that the Plan's participation in the 
Program may have on the Plan, and on its participants and 
beneficiaries; reviews the terms of the Plan's arrangements with its 
default IRA custodians and service providers, with consideration given 
to the possibility that those default IRA assets may ultimately be 
transferred to new employer Plans (resulting in additional fees) 
through the Program; and determines that participation in the Program 
is fully consistent with the Fiduciary's obligations under ERISA, 
including its fundamental duties of prudence and loyalty under ERISA 
Sections 404(a)(1)(A) and (B).
    Because ``pre-existing'' Default IRAs lack these fiduciary 
safeguards with respect to the RCH Program, the Department finds that 
their inclusion in the Program would not be in the interest of the 
affected plans, participants and beneficiaries, and IRA owners, or 
protective of their rights.
    I. Conditions Related to the Independent Auditor. RCH requests that 
the annual reports required to be submitted to the Department by the 
Independent Auditor be protected from disclosure under the Freedom of 
Information Act (FOIA). RCH states that it is concerned that including 
the annual report as a part of the public record could result in the 
disclosure of confidential trade secrets and proprietary business 
information that would not be subject to the protections under FOIA. 
RCH states that, while it is comfortable with the Department receiving 
the annual report in furtherance of the Department's continued 
evaluation of the Program, the report should not be made publicly-
available, due to the significant potential that doing so would 
unnecessarily expose confidential trade secrets that are not otherwise 
available to third parties.
    Department's Response: The Department is not revising the exemption 
as requested. RCH has not identified any confidential or privileged 
information required by, or that would be contained in, the audit. The 
Department expects the audit will provide helpful information to Plan 
fiduciaries seeking to determine whether to participate in the RCH 
Program. In addition, the public availability of the audit report 
provides a mechanism for the informed review and assessment of the RCH 
program by experts and analysts other than the Department, and creates 
an additional incentive for a compliant program. In sum, the condition 
promotes compliance, assists plan fiduciaries in discharging their 
responsibilities, and makes the exemption more administrable for the 
Department by increasing effective oversight by persons other than the 
Department. The Department has added clarifying language to Section 
I(m) of the exemption, making it clear that the auditor is free to make 
recommendations to RCH to assist with RCH's compliance with the 
exemption, and these recommendations must be included in the audit 
report submitted to the Department.
    J. Lost and Missing Procedures. Section I(r) of the exemption 
provides that: ``RCH is required to ``verify the accuracy of all 
participant . . . data . . . when assets are first transferred to a 
Default IRA or Eligible Mandatory Distribution Account. RCH may engage 
its processes for identifying lost and missing participants upon the 
receipt of returned mail that is described by the U.S. Post Office as 
`undeliverable.' ''
    RCH states that it is unclear as to the meaning of the term 
``verify the accuracy'' and the Department's intention behind this 
condition. RCH states that it performs its processes for identifying 
lost and missing participants upon the receipt of returned mail 
identified as undeliverable. For example, where an individual's account 
balance is transferred to a RCH Safe Harbor IRA, RCH will send the 
Welcome Letter and other notices to the last known address of the 
individual. If the mail is returned as undeliverable to RCH, RCH 
continues to search for the individual and seeks to locate the 
individual through the RCH locate-and-match process. If RCH identifies 
a New Plan Account for the individual, RCH will begin sending the 
notices to the address associated with the New Plan Account.
    RCH requests that the Department amend Section I(r) to reflect that 
RCH will engage in its search process upon receiving returned mail 
described as undeliverable mail from the U.S. Post Office; and that RCH 
should not be required to conduct searches for individuals where there 
is no indication that the address on file with the Plan sponsor of the 
participant's prior employer is correct. RCH states that requiring RCH 
to conduct searches without considering the veracity of the underlying 
participant data would serve no meaningful purpose and cause a 
substantial administrative burden to RCH that may not be currently 
supported by its fees.
    Department's Response: Plan fiduciaries have an obligation to 
ensure the accuracy and integrity of the data they furnish to RCH. In 
an effort to more clearly describe the scope of RCH's responsibilities 
once that data is received by RCH, the Department is deleting Section 
I(r) and expanding Section I(s), as set forth in the proposed 
exemption. Previously, proposed Section I(s) required that, ``RCH takes 
all prudent actions necessary to reasonably ensure that the Plan's 
participant and beneficiary data is current and accurate, and that the 
appropriate participants and beneficiaries, in fact, receive all the 
required notices and disclosures, until the assets are transferred 
under the Program to a New Plan Account.'' Now Section I(r) states 
that, ``At all times during a Plan's participation in the RCH Program, 
from when an IRA is first established and subject to the RCH Program 
until the final transfer out of the IRA's assets from the RCH Program, 
RCH takes all prudent actions necessary to reasonably ensure that the 
Plan's participant and beneficiary data is current and accurate, and 
that the appropriate participants and beneficiaries, in fact, receive 
all the required notices and disclosures.
    The Department notes that this exemption requires that the 
independent auditor ensure that: individuals are, in fact, receiving 
all of the notices; and the assets these

[[Page 37344]]

individuals are entitled to make their way to the proper New Plan 
Accounts.
    K. Timing of Notices. Section I(f) of the proposed exemption 
states, in part, that: The notices required under the terms of the 
exemption will be sent no later than the following business day after: 
``(1) RCH receives a file from the Plan sponsor that an individual is 
eligible for mandatory distribution . . . (2) RCH receives the 
individual's assets within a Default IRA; . . . and (4) the Locate and 
Match process verifies that the individual maintains a New Plan 
Account; . . .''
    RCH requests a revision to Section I(f) to allow RCH three business 
days to send the notices (i.e., three business days after the 
triggering event for each notice).
    Department's Response: The Department concurs with RCH's request, 
and has revised the exemption accordingly.
    L. Definition of Default IRA. Section III (h) of the proposed 
exemption states that: ``the term ``Default IRA'' means ``an individual 
retirement account with assets that is described in Section 408(a) of 
the Code and established pursuant to, and satisfies the requirements 
of, Section 401(a)(31) of the Code and regulations at 29 CFR 2550.404a-
2; . . .''
    RCH requests that the exemption be revised to permit the Program to 
cover Default IRAs that are: (a) Established as a result of a plan 
termination under 29 CFR 2550.404a-3; and (b) remain under the Code 
section 401(a)(31)(B)(ii).\3\ RCH also recommends adding a definition 
of a ``Conduit IRA'' for transactions involving Conduit Model Transfers 
to avoid confusion. A ``Conduit Model Transfer'' occurs when assets are 
transferred from an Eligible Mandatory Distribution Account or Non-RCH 
Default IRA through the conduit of an RCH Default IRA.
---------------------------------------------------------------------------

    \3\ RCH notes that the definition of ``plan'' under Section 
III(d) of the proposed exemption includes individual account, 
defined contribution plans that satisfy the automatic rollover rules 
under 29 CFR 2550.404a-2 or 3. See DOL Advisory Opinion 2018-01A 
(November 5, 2018).
---------------------------------------------------------------------------

    Department's Response: The Department concurs, in part, with RCH's 
request. Section III(h) now includes Default IRAs that are established 
as a result of a Plan termination under 29 CFR 2550.404a-3. For 
clarity, the Department has revised the heading to I(g) to better 
explain what a Conduit Model Transfer is.
    M. ``Independent of Influence, Suggestion, and Assistance by RCH.''
    The exemption provides that the selection of the investment options 
by the Plan sponsor ``must be made independent of influence, suggestion 
or assistance by RCH, and RCH may not in any way, directly or 
indirectly, act in a manner that affects the amount of sub-transfer 
agency fees it receives under the Program.'' RCH states that, while it 
does not provide any investment advice to Plan fiduciaries with respect 
to the selection of the investment option utilized within the Default 
IRA, it is unclear as to the meaning of ``influence, suggestion or 
assistance,'' as such terms are without significant guidance under 
ERISA or the Code. RCH states that it is concerned that these terms 
will result in confusion on the part of the Independent Auditor when 
evaluating the Program and RCH's compliance with the terms of the 
exemption.
    RCH states that, as is customary by providers of default IRAs, RCH 
currently makes investment options available to a Plan sponsor that 
selects the RCH automatic rollover services. RCH expresses concern 
that, merely by offering such investment options, it could be argued 
that RCH has suggested or influenced the investment selection, within 
the meaning of the exemption. RCH further states that, while it does 
not provide investment advice with respect to any particular investment 
option, it may provide access to information and educate the Plan 
sponsor regarding the various investment options that RCH makes 
available. RCH states that Plan sponsors often ask questions related to 
the differences between investment options available under the Program 
before making an investment selection. In this regard, RCH states that 
it is concerned that such education could be construed as 
``assistance'' deemed improper for purposes of the exemption.
    RCH requests that the Department remove references to ``influence, 
suggestions and assistance,'' and amend Section I(c) of the proposed 
exemption to reflect that RCH may not provide ``investment advice in 
connection with the Plan sponsor's selection of the Default IRA's 
investment option under the Program and that RCH may not directly or 
indirectly, act in a manner that affects the amount of sub-transfer 
agency fees it receives under the Program.''
    Alternatively, to the extent that the Department determines to keep 
this language, RCH requests that the Department clarify that RCH's 
limitation of the number of investment options for selection by the 
Plan sponsor would not result in ``influence or suggestion'' as 
prohibited under Section I(c) of the exemption.
    Department's Response: While the Department is not wholly persuaded 
that the phrase ``independent of influence, suggestion or assistance by 
RCH'' is unclear or that it will cause confusion for the Independent 
Auditor, it believes that RCH's proposed amendment serves the intended 
purpose and has adopted it. Accordingly, Section I(c) of the exemption 
now provides that ``RCH may not provide investment advice in connection 
with the Plan sponsor's selection of investment options under the 
Program and RCH may not directly or indirectly, act in a manner that 
affects the amount of sub-transfer agency fees it receives under the 
Program.''
    N. Description of the Relief. Section I(p) of the exemption 
provides that, ``RCH does not have discretion under the RCH Program to 
affect the timing or amount of the transfer, other than to deduct the 
appropriate fees[.]'' RCH states that the deduction of fees, the amount 
and timing of which is approved by a plan fiduciary in advance, does 
not cause a person to become a fiduciary under ERISA or the Code. RCH 
requests relief for the exercise of discretion in transferring an 
account that results in the payment of a fee. Specifically, RCH 
requests that the Department remove the clause ``other than to deduct 
the appropriate fees'' from Section I(p) of the Proposal.
    Department's Comment: The Department is not revising Section I(p). 
This condition, as written, is clear and unambiguous and consistent 
with the Department's understanding of the Program. As represented by 
RCH, RCH will not have any discretion to affect the timing or amount of 
the transfers described herein.
    O. Qualified Default Investment Alternative. Section I(j) of the 
exemption provides that: ``Amounts transferred under the Program to the 
New Plan Account will be automatically invested according to the 
individual's current investment elections under the terms of the Plan 
or, if no such elections were made, under the qualified default 
investment alternative as defined under ERISA section 404(c)(5) and 
established under the terms of the Plan[.]''
    RCH states that, while many Plans maintain a default fund, not all 
default funds satisfy the requirements of ERISA section 404(c)(5) and 
regulations thereunder. Notwithstanding the foregoing, the plan 
fiduciary that selects any plan default fund is responsible for 
selecting the fund in accordance with its fiduciary responsibilities 
under ERISA. The failure of an investment option to satisfy section 
404(c)(5) of ERISA results in no loss of protection for the participant 
under ERISA because plan fiduciaries remain responsible for

[[Page 37345]]

compliance with section 404 of ERISA. Participants of Plans that 
maintain a default fund that does not conform to section 404(c)(5) of 
ERISA should not be precluded from participating in the Program and 
accessing its benefits.
    RCH requests that the Department revise Section I(j) of the 
proposed exemption to permit such Plans to participate in the Program 
and recommends that the Department revise Section I(j) to state that 
``if no such elections were made, under the qualified default 
investment alternative as defined under ERISA section 404(c)(5) or 
other default fund selected by the plan's fiduciary.''
    Department's Response: The Department concurs with the comment, and 
has revised the exemption accordingly.
    10. RCH's Other Clarifications
    RCH seeks certain clarifications to the proposed exemption that the 
Department does not view as relevant to its determination of whether to 
grant this exemption. These requested clarifications may be found as 
part of the public record for Application No. D-11938. On its own 
motion, the Department has made several minor non-substantive 
clarifying revisions to the operative language of the exemption.
    After giving full consideration to the record, the Department has 
decided to grant the exemption, as described above. The complete 
application file (Exemption Application No. D-11949) is available for 
public inspection in the Public Disclosure Room of the Employee 
Benefits Security Administration, Room N-1515, U.S. Department of 
Labor, 200 Constitution Avenue NW, Washington, DC 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on November 7, 2018, at 83 
FR 55741.

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 or section 4975(c)(2) of the Code does 
not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of 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, among other things, require a fiduciary to discharge its 
duties respecting the plan solely in the interest of the participants 
and beneficiaries of the plan and in a prudent fashion in accordance 
with section 404(a)(1)(B) of ERISA; nor does it affect the requirement 
of section 401(a) of the Code that the plan must operate for the 
exclusive benefit of the employees of the employer maintaining the plan 
and their beneficiaries;
    (2) In accordance with section 408(a) of ERISA and section 
4975(c)(2) of the Code, the Department makes the following 
determinations: The exemption is administratively feasible, the 
exemption is in the interests of affected plans and of their 
participants and beneficiaries, and the exemption is protective of the 
rights of participants and beneficiaries of such plans;
    (3) The exemption 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; and
    (4) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describe all material terms of the transaction 
which is the subject of the exemption.
    Accordingly, the following exemption is granted under the authority 
of section 408(a) of ERISA and 4975(c)(2) of the Code and in accordance 
with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 
66637, 66644, October 27, 2011):

Five Year Exemption

    The sanctions resulting from the application of Code section 4975, 
by reason of sections 4975(c)(1)(D) and (E) of the Code, shall not 
apply to the receipt of a Transfer Fee and a Communication Fee, as 
defined in Section III(i) and (p) respectively, by RCH in connection 
with the transfer of assets from an individual's Default IRA, as 
defined in Section III(h), to the individual's New Plan Account, as 
defined in Section III(a) (the Transfer), following the individual's 
failure to respond to two letters informing the individual that the 
assets will be transferred if he or she fails to contact RCH within the 
later of: Sixty days of the first letter; or thirty days of the second 
letter. Except as permitted by Section I(v), relief under this 
exemption is solely available for the payment of a Transfer Fee and a 
Communication Fee by a Default IRA to RCH in connection with the 
transfer of $5,000 or less from the Default IRA to a New Plan Account, 
pursuant to either a Default IRA Model Transfer (as defined in Section 
III(l)) or a Conduit Model Transfer (as defined in Section III(k)).

Section I. Conditions

    (a) Any and all fees and compensation, direct or indirect, 
associated with the Program, including the Transfer Fee and the 
Communication Fee, must be fully disclosed to, and approved by, in the 
applicable agreement, a Plan fiduciary that is independent of RCH (an 
independent Plan fiduciary), prior to the transfer from the Plan to the 
Default IRA. The fees and compensation (direct or indirect) RCH 
receives in connection with a Conduit Model Transfer, as defined in 
Section III(k), are limited to a Transfer Fee and a Communication Fee 
paid by a Default IRA;
    (b) RCH does not sell or market Plan or Plan participant-related 
data RCH accesses or obtains to third parties in connection with the 
Program. Nor does RCH use the data for any purpose other than 
administration of the Program, without the express consent of the Plan 
fiduciary, after full disclosure by RCH of how the data will be used;
    (c) RCH does not receive any fees or compensation, direct or 
indirect, from third parties other than an asset-based sub-transfer 
agency fee paid to RCH from an IRA investment provider; any such IRA 
investment provider must be selected by an independent Plan fiduciary. 
RCH may not provide investment advice in connection with the Plan 
sponsor's selection of investment options under the Program and RCH may 
not directly or indirectly, act in a manner that affects the amount of 
sub-transfer agency fees it receives under the Program.
    The asset-based sub-transfer agency fee must be solely for 
shareholder services related to the investment options in which IRA 
assets are invested under the Program and may not exceed reasonable 
compensation as within the meaning of Section 408(b)(2) of ERISA, 
Section 4975(d)(2) of the Code, and 29 CFR 2550.408c-2 of the 
Department's regulations. RCH will not fail to meet the terms of the 
condition solely because an independent Plan fiduciary selects and 
approves investment options in which IRA assets are invested under the 
RCH Program from a list provided by RCH;
    (d) RCH does not restrict or limit the ability of unrelated third 
parties to develop, market and/or maintain a locate-and-match process 
separate from RCH's process that facilitates the transfer of Default 
IRA assets or Eligible Mandatory Distribution Account assets;

[[Page 37346]]

    (e) The disclosures described below in paragraphs (f) and (g) must 
be:
    (1) Written in a manner calculated to be understood by the average 
intended recipient. To the extent reasonably possible, such disclosures 
must limit or eliminate technical jargon and long, complex sentences, 
and use clarifying examples and illustrations. No communication 
required by this exemption shall be made or written in a way that 
misleads, misinforms, or fails to properly inform the intended 
recipient; and
    (2) sent to the last known address of the individual after RCH 
verifies the accuracy of the participant data (including the 
participant's and any beneficiary's social security number, first name, 
last name, middle name or initial, address, city, state, zip code, date 
of birth, and phone number);
    (f) Transfers From RCH Default IRAs to New Plan Accounts. RCH will 
direct the transfer of assets from a RCH Default IRA to a New Plan 
Account only after RCH furnishes the following notifications to the 
individual in the manner required by paragraph (e) above:
    (1) Mandatory Distribution Letter. RCH must provide a ``Mandatory 
Distribution Letter'' to an individual who is eligible for mandatory 
distribution under section 401(a)(31)(B) of the Code prior to 
establishing a Default IRA for that individual. The Mandatory 
Distribution Letter is sent no later than three business days after RCH 
receives the file from the Plan sponsor indicating that the individual 
is eligible for mandatory distribution under section 401(a)(31)(B) of 
the Code, and must include:
    (A) A description of the available Plan distribution options, 
including the independent Plan fiduciary's selection of the Default 
IRA;
    (B) A notice that the individual has 30-90 days (as determined by 
the independent Plan fiduciary) to contact RCH and specify a different 
distribution option before his or her account is transferred into the 
Default IRA;
    (C) A description of how the Program works, including a description 
of all material Program features and a complete and accurate statement 
of all fees that are charged to accounts in the Program, as well as all 
compensation, direct or indirect, of any type received by RCH, related 
parties and participating record-keepers in connection with the 
Program;
    (D) An explanation of distributions eligible for rollover treatment 
as required under section 402(f) of the Code;
    (E) A statement that at any time the individual can direct RCH to 
transfer the balance into the ERISA-covered Plan of his or her current 
employer or to another account;
    (F) A statement that unless the individual specifies an alternative 
distribution option, the individual's Plan balance will be transferred 
into a Default IRA;
    (G) A notice that if the Locate and Match process, as defined in 
Section III(b), finds that the individual maintains another Plan 
account sponsored by his or her current employer, RCH will send the 
Consent Letter, described below, and seek the individual's consent to 
transfer assets from the Default IRA to the Plan of the individual's 
current employer; and
    (H) A statement that the individual may opt out of the transfer by 
calling or writing RCH, and an explanation of how such individual can 
effectively opt out.
    (2) Welcome Letter. RCH must furnish each individual a ``Welcome 
Letter'' immediately upon the transfer of assets to a Default IRA. The 
Welcome Letter is sent no later than three business days after RCH 
receives an individual's assets in a Default IRA. The Welcome Letter 
must include:
    (A) A notice that RCH opened an IRA on behalf of the individual;
    (B) All relevant information regarding the Default IRA, including: 
Applicable account fees; the name of the investment fund into which the 
individual's assets were transferred; the fund's symbol; the total 
dollar amount of assets invested; the number of fund shares; and the 
fund share price;
    (C) A trade confirmation;
    (D) RCH's contact information, including toll-free numbers for the 
service center and on-line access instructions;
    (E) A full and complete statement of all fees charged to the 
Default IRA, and all compensation, direct or indirect, of any type, 
received by RCH, related parties and participating record-keepers in 
connection with administration of the Program;
    (F) A notice that the individual may contact RCH and transfer his 
or her balance from the Default IRA to another account at any time 
before RCH locates and verifies the individual's account at the Plan 
sponsored by his or her current employer;
    (G) A statement that RCH will not transfer the Default IRA for at 
least 60 days from the date of the Welcome Letter. The notice shall 
further state that if the individual takes no action within the 60 
days, and if the Locate and Match process finds that the individual 
maintains a New Plan Account, RCH will send the Consent Letter and seek 
the individual's consent to transfer the assets of the Default IRA to 
the Plan of the individual's new employer. The notice will also state 
that if the individual fails to contact RCH within 30 days of receiving 
the Consent Letter, RCH will transfer the Default IRA balances to the 
Plan of the individual's current employer.
    (3) Annual Statements. At least annually, RCH must furnish an 
``Annual Statement'' to the individual which includes a statement of:
    (A) All fees the account will pay under the Program and a statement 
of all the Program's material features, including a complete and 
accurate statement of all compensation, direct or indirect, of any 
type, received by RCH, related parties and participating record-keepers 
in connection with the Program;
    (B) A statement that the individual may contact RCH and direct RCH 
to transfer the balance into the Plan of his or her current employer or 
another account if he or she contacts RCH before RCH locates the 
individual's account at their new employer Plan; and
    (C) A statement that if the Locate and Match process finds that the 
individual maintains another individual account plan sponsored by his 
or her current employer, RCH will send the Consent Letter and seek the 
individual's consent to transfer the assets of the Default IRA to the 
Plan sponsored by the individual's current employer. The notice will 
also state that if the individual fails to contact RCH within 30 days 
of receiving the Consent Letter, RCH will transfer the Default IRA 
balances to the Plan sponsored by the individual's current employer.
    (4) Consent Letter. For transfers of assets from a Default IRA to 
the New Plan Account, no later than three business days after 
verification through the Locate and Match Process that the individual 
has opened a New Plan Account, RCH must send the Consent Letter, which 
must include:
    (A) A notification that the individual's Default IRA has been 
matched with the individual's New Plan Account;
    (B) A request for the individual's consent to transfer the assets 
from the Default IRA to the New Plan Account. The Consent Letter will 
also state that if the individual fails to contact RCH within 30 days 
of receipt of the Consent Letter, RCH will transfer the Default IRA 
balances to the Plan sponsored by the individual's current employer.
    (C) A statement of all fees and other compensation, direct or 
indirect, of any type, associated with the Program and with the 
transfer of assets to the Plan sponsored by his or her current 
employer.

[[Page 37347]]

    (g) Conduit Model Transfers (i.e., Transfers from Eligible 
Mandatory Distribution Accounts or Non-RCH Default IRAs through the 
Conduit of RCH Default IRAs). Assets will be transferred from an 
Eligible Mandatory Distribution Account to a RCH Default IRA and then 
to a New Plan Account, or from a non-RCH Default IRA to an RCH Default 
IRA and then to a New Plan Account, only after the following 
notifications are provided to the individual in the manner required by 
paragraph (e) above: (1) A Mandatory Distribution Letter that is sent 
when it is determined under the RCH Program that an individual on whose 
behalf a non-RCH Default IRA has been established, or an Eligible 
Mandatory Distribution Account has been maintained at a prior employer, 
has opened a New Plan Account at the individual's current employer. The 
Mandatory Distribution Letter will contain the information described in 
paragraph (f), as applicable, and will note that if the individual 
fails to contact RCH within 60 days of the Consent Letter described 
below, the individual's account balance will be transferred to the Plan 
of the individual's current employer through an RCH Safe Harbor IRA 
unless the individual opts out of the transfer;
    (2) A Consent Letter is sent when the RCH Program determines that 
an individual on whose behalf a non-RCH Default IRA has been 
established, or on whose behalf an Eligible Mandatory Distribution 
Account is maintained at a prior employer, has opened a New Plan 
Account at the individual's current employer. The Consent Letter will 
fully state the fees and other compensation, direct or indirect, of any 
type, associated with the RCH Program, and will explain that if the 
individual fails to opt out of the RCH Program within 60 days of 
receiving the Consent Letter, the assets will be transferred to the New 
Plan Account.
    (3) Another Consent Letter is sent if, after 30 days following the 
first Consent Letter, the participant has not contacted RCH with 
instructions to opt in or opt out of the RCH Program. The Consent 
Letter will explain that, unless the individual opts out of the RCH 
Program within 30 days of receiving the letter, RCH will direct the 
transfer of the assets to the New Plan Account;
    (h) The Plan maintaining the New Plan Account and the Plan 
maintaining the Eligible Mandatory Distribution Account are each a 
qualified retirement Plan as described under section 401(a) of the 
Code;
    (i) The Plan maintaining the New Plan Account has authorized the 
transfer of assets from other qualified retirement accounts;
    (j) Amounts transferred under the Program to the New Plan Account 
will be automatically invested according to the individual's current 
investment elections under the terms of the Plan or, if no such 
elections were made, under the qualified default investment alternative 
as defined under ERISA section 404(c)(5) and established under the 
terms of the Plan, or other default fund selected by the independent 
Plan fiduciary;
    (k) The RCH Default IRA does not incur any fees or charges, direct 
or indirect, after the Program identifies a match with a New Plan 
Account, except for the Transfer Fee and Communication Fee;
    (l) RCH submits to an annual audit, performed by a qualified 
independent auditor, as defined in Section III(j). The auditor must 
review a representative sample of transactions and related 
undertakings, sufficient for the auditor to make the following 
determinations:
    (1) Whether the notices met the timing and content requirements of 
this exemption, and were written and delivered in a manner reasonably 
designed to ensure that affected individuals would both receive and 
understand the notices;
    (2) Whether the asset transfers were conducted in accordance with 
this exemption and the applicable written agreement, and the New Plan 
Accounts and participants and beneficiaries received all the assets 
they were due;
    (3) Whether the fees and compensation, direct or indirect, of any 
type, received by RCH, related parties and participating record-keepers 
in connection with the Program are consistent with the fees authorized 
by appropriate Plan fiduciaries; were properly disclosed to the 
affected individuals in accordance with the terms of this exemption; 
and did not exceed reasonable compensation, within the meaning of 
Section 408(b)(2) of ERISA, Section 4975(d)(2) of the Code, and 29 CFR 
2550.408c-2 of the Department's regulations;
    (4) Whether individuals receiving Mandatory Distribution notices 
were effectively given the opportunity to opt-out by the use of a phone 
number that was operational and with a clearly available opt-out choice 
in the main menu; and
    (5) Whether the conditions of this exemption have been met;
    (m) The Auditor must complete the audit within 6 months following 
the 12-month period to which the audit relates, and the Auditor must 
submit a written report to the Office of Exemption Determinations 
within 30 days of completion detailing its findings, and the report 
will be part of the public record for this exemption. The written 
report must: Describe the Auditor's methodology in performing the 
Audit; contain a detailed description of the Auditor's findings; and 
include any recommendations the Independent Auditor may make to assist 
with RCH's compliance with the terms of this exemption;
    (n) RCH does not include exculpatory provisions in its contracts 
disclaiming or limiting RCH's liability in the event that the RCH 
Program results in an improper transfer from a Default IRA or Eligible 
Mandatory Distribution Account. However, this provision does not 
prohibit disclaimers for liability caused by an error, 
misrepresentation, or misconduct of a party independent of RCH and its 
affiliates, or damages arising from acts outside the control of RCH;
    (o) RCH does not provide investment advice, as described in ERISA 
section 3(21) or Code Section 4975(e)(3) and accompanying regulations, 
with respect to the assets held in a Default IRA or Eligible Mandatory 
Distribution Account;
    (p) The Program queries on at least a monthly basis whether a 
participant with a New Plan Account in the Program has either a Default 
IRA or an Eligible Mandatory Distribution Account covered by the 
Program. If the Program identifies a match, and the affected individual 
does not respond in a timely manner to the required notifications, RCH 
will immediately direct the transfer of the assets of the Default IRA 
or Eligible Mandatory Distribution Account to the participant's New 
Plan Account following the Settlement Date, as defined in Section 
III(m). RCH does not have discretion under the RCH Program to affect 
the timing or amount of the transfer, other than to deduct the 
appropriate fees;
    (q) All fees and expenses under the Program must be fully disclosed 
in participating Plans' summary plan descriptions;
    (r) At all times during a Plan's participation in the RCH Program, 
from when an IRA is first established and subject to the RCH Program 
until the final transfer out of the IRA's assets from the RCH Program, 
RCH takes all prudent actions necessary to reasonably ensure that the 
Plan's participant and beneficiary data is current and accurate, and 
that the appropriate participants and beneficiaries, in fact, receive 
all the required notices and disclosures, until the assets are 
transferred under the Program to a New Plan Account.

[[Page 37348]]

    (s) RCH may not receive a Transfer Fee or Communication Fee in 
connection with a roll-in transaction to an ERISA-covered Plan 
sponsored or maintained by RCH;
    (t) Roth IRAs assets are not transferred to New Plan Accounts under 
the RCH Program;
    (u) RCH will maintain a list of participating record-keepers on its 
website, with a link to that list in its letters to affected 
individuals;
    (v) A transfer to an individual's New Plan Account may exceed 
$5,000, if the amounts transferred exceed $5,000 solely because of 
investment gains attributable to the assets held in the individual's 
Default IRA(s) and/or Eligible Mandatory Distribution Account(s);
    (w) Individuals receiving Mandatory Distribution notices must 
effectively be given the opportunity to opt-out by the use of an 
operational phone number with a clearly available opt-out choice in the 
main menu;
    (x) Each notice provided to individuals with RCH Safe Harbor IRAs 
must afford the opportunity to designate a ``beneficiary,'' and the 
notice must clearly describe the process by which this designation may 
be achieved;
    (y) If an RCH Safe Harbor IRA account holder dies, and there is no 
named beneficiary, RCH will try to locate and contact the individual's 
next of kin through the different search methods at its disposal. Once 
located, RCH will communicate with the next of kin to either inform him 
or her of their benefit, to find any other beneficiaries, or to obtain 
contact information for the deceased account holder's estate.

Section II. Record-Keeping Requirements

    (a) RCH maintains for 6 years the records necessary to enable the 
persons described below to determine whether the conditions of this 
exemption have been met, except that:
    (1) A prohibited transaction will not be considered to have 
occurred if, solely because of circumstances beyond the control of RCH, 
the records are lost or destroyed before the 6-year period ends; and
    (2) No party in interest other than RCH will be subject to the 
civil penalty that may be assessed under section 502(i) of the Act or 
to the taxes imposed by section 4975(a) and (b) of the Code, if the 
records are not maintained or are not available for examination as 
required below:
    (b)(1) Except as provided in Section II(b)(2) and notwithstanding 
any provisions of section 504(a)(2) of the Act, the records referred to 
in Section II(a) are unconditionally available at their customary 
location for examination during normal business hours by:
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (ii) Any individual or fiduciary of a Plan participating in the 
Program; and
    (iii) None of the persons described in Section II(b)(l)(ii) shall 
be authorized to examine trade secrets of RCH, or commercial or 
financial information which is privileged or confidential.

Section III. Definitions

    (a) The term ``New Plan Account'' means any account maintained by a 
Plan that has received contributions or experienced investment activity 
within the preceding three months and is held for the benefit of an 
individual that maintains active employment with the Plan sponsor;
    (b) The term ``Locate and Match'' means the technological process 
relied upon by RCH and participating record-keepers to identify 
multiple accounts maintained by the same individual.
    (c) The term ``Eligible Mandatory Distribution Account'' means an 
account with assets that is eligible for mandatory distribution under 
section 401(a)(31) of the Code at the individual's prior employer Plan;
    (d) The term ``Plan'' means an individual account defined 
contribution plan that satisfies the automatic rollover rules under 29 
CFR 2550.404a-2 or 3;
    (e) The term ``Program'' means the RCH Auto Portability Program as 
it is described in this exemption and as it applies to Eligible 
Mandatory Distribution Accounts and Default IRAs, as defined in this 
section;
    (f) The term, ``RCH'' means Retirement Clearinghouse LLC or any 
affiliates;
    (g) The term ``record-keeper'' means record-keepers that are 
independent of RCH and any affiliates of the record-keepers who elect 
to participate in the Program;
    (h) The term ``Default IRA'' means an individual retirement account 
that is described in Section 408(a) of the Code, and established 
pursuant to and in compliance with the requirements of Section 
401(a)(31) of the Code and regulations at 29 CFR 2550.404a-2; or an 
individual retirement account established as a result of a plan 
termination under 29 CFR 2550.404a-3;
    (i) The term ``Transfer Fee'' means the fee paid to RCH for 
processing the transfer of assets from the Default IRA or Eligible 
Mandatory Distribution Account to the Current Plan Participant Account;
    (j) The term ``Independent Auditor'' means a person or entity with 
extensive knowledge of ERISA, the Code and the types of transactions 
described in this exemption, who is capable of reviewing and analyzing 
the Program and the requirements of this exemption in a manner 
sufficient to perform the audit, and who has been retained by RCH to 
conduct the audit required by this exemption. The Independent Auditor 
may derive no more than 2 percent of its annual compensation from 
services provided directly or indirectly to RCH or any of its 
affiliates or related parties;
    (k) In a ``Conduit Model Transfer,'' RCH first transfers an 
individual's assets from either an Eligible Mandatory Distribution 
Account or a non-RCH default IRA, to an RCH default IRA, and then 
transfers the assets to a New Plan Account based upon the RCH Program's 
determination that the individual has opened a New Plan Account 
sponsored by the individual's current employer;
    (l) In an ``RCH Default IRA Model Transfer,'' an individual's 
Eligible Mandatory Distribution Account or non-RCH default IRA assets 
are transferred first to an RCH default IRA, and then the assets are 
transferred to a New Plan Account, based upon the RCH Program's 
determination that the individual has opened a New Plan Account 
sponsored by the individual's current employer;
    (m) The term ``Settlement Date'' means the settlement date set 
forth in an applicable mutual fund's prospectus. In no case will the 
Settlement Date be later than three business days after the date the 
relevant sell order is placed. RCH has no discretion regarding the 
timing of the Settlement Date;
    (n) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (o) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual;
    (p) The term ``Communication Fee'' means the $6 communication fee 
RCH receives under the Program. The Communication Fee reimburses RCH 
for a portion of the cost of issuing the notices and forms associated 
with effectuating the transfer of assets under the Program.

[[Page 37349]]

    This exemption will be in effect for five years from the date this 
notice is published in the Federal Register.

    Signed at Washington, DC.
Lyssa Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2019-16237 Filed 7-30-19; 8:45 am]
 BILLING CODE 4510-29-P