Rule2024-09030
Prohibited Transaction Exemption 2006-06 for Services Provided in Connection With the Termination of Abandoned Individual Account Plans
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 17, 2024
Effective
July 16, 2024
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document gives notice of an amendment to prohibited transaction exemption (PTE) 2006-06, a class exemption issued under the Employee Retirement Income Security Act of 1974 (ERISA). The exemption permits a "qualified termination administrator" (QTA) of an individual account pension 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 pay itself fees for the services. This amendment to PTE 2006-06 permits chapter 7 trustees who elect to be QTAs to rely on the exemption. This amendment to PTE 2006- 06 also permits "eligible designees" of such chapter 7 trustees to rely on the exemption. The amendment is issued in connection with amendments to three related regulations under ERISA, published elsewhere in this issue of the Federal Register, that provide streamlined procedures for the termination of, and distribution of benefits from, abandoned individual account pension plans. The amendment would affect employee pension benefit plans (primarily small defined contribution plans), participants and beneficiaries of such plans, service providers, and individuals appointed to serve as bankruptcy trustees under chapter 7 of the U.S. Bankruptcy Code.
Full Text
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<title>Federal Register, Volume 89 Issue 97 (Friday, May 17, 2024)</title>
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[Federal Register Volume 89, Number 97 (Friday, May 17, 2024)]
[Rules and Regulations]
[Pages 43675-43684]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-09030]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2550
[Application Number D-11657]
RIN 1210-ZA20
Prohibited Transaction Exemption 2006-06 for Services Provided in
Connection With the Termination of Abandoned Individual Account Plans
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Exemption amendment.
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SUMMARY: This document gives notice of an amendment to prohibited
transaction exemption (PTE) 2006-06, a class exemption issued under the
Employee Retirement Income Security Act of 1974 (ERISA). The exemption
permits a ``qualified termination administrator'' (QTA) of an
individual account pension 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 pay itself fees for the
services. This amendment to PTE 2006-06 permits chapter 7 trustees who
elect to be QTAs to rely on the exemption. This amendment to PTE 2006-
06 also permits ``eligible designees'' of such chapter 7 trustees to
rely on the exemption. The amendment is issued in connection with
amendments to three related regulations under ERISA, published
elsewhere in this issue of the Federal Register, that provide
streamlined procedures for the termination of, and distribution of
benefits from, abandoned individual account pension plans. The
amendment would affect employee pension benefit plans (primarily small
defined contribution plans), participants and beneficiaries of such
plans, service providers, and individuals appointed to serve as
bankruptcy trustees under chapter 7 of the U.S. Bankruptcy Code.
DATES: This amendment will be effective on July 16, 2024.
FOR FURTHER INFORMATION CONTACT: Susan Wilker, telephone (202) 693-
8540, Office of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor (this is not a toll-free
number).
SUPPLEMENTARY INFORMATION:
A. Summary Overview
On April 21, 2006, the Department of Labor issued three regulations
that established the Employee Benefits Security Administration's (EBSA)
Abandoned Plan Program to facilitate the orderly and efficient
termination of, and distribution of benefits from, individual account
pension plans that have been abandoned by their sponsoring
employers.\1\ The first regulation (the QTA Regulation) establishes
standards for determining when individual account plans may be
considered ``abandoned'' and procedures by which financial
institutions, called ``qualified termination administrators'' (QTAs)
holding the assets of such plans may terminate the plans and distribute
benefits to participants and beneficiaries, with limited liability
under Title I of the Employee Retirement Income Security Act
(ERISA).\2\ The second regulation (the Safe Harbor Regulation) provides
a fiduciary safe harbor for QTAs to make distributions on behalf of
participants and beneficiaries who fail to elect a form of benefit
distribution. These participants and beneficiaries are sometimes
referred to as ``missing participants.'' \3\ The third regulation
establishes a simplified method for filing a terminal report for
abandoned individual account plans.\4\
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\1\ 71 FR 20820. See also, 73 FR 58459 (Oct. 7, 2008) for
subsequent amendments with regard to distributions on behalf of a
missing non-spouse beneficiary.
\2\ 29 CFR 2578.1.
\3\ 29 CFR 2550.404a-3. This safe harbor also is available to
fiduciaries of terminated individual account plans that are not
abandoned.
\4\ 29 CFR 2520.103-13.
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The 2006 regulations were accompanied by a class prohibited
transaction exemption, PTE 2006-06, that facilitates the goal of the
2006 regulations by permitting a QTA who meets the exemption's
conditions to (1) select itself or an affiliate to carry out the
termination and winding up activities specified in the 2006
regulations, and (2) pay fees to itself or an affiliate for those
services. In addition, PTE 2006-06 permits QTAs to receive fees in
connection with establishing an individual retirement plan or other
account and selecting the initial investment product for missing
participants. These activities are prohibited under the following
provisions of Title I of ERISA (and parallel Code provisions) in the
absence of a prohibited transaction exemption:
<bullet> ERISA section 406(a)(1)(C), which prohibits a plan
fiduciary from causing the plan to engage in a transaction that
constitutes a direct or indirect furnishing of goods, services, or
facilities between the plan and a party in interest;
<bullet> ERISA section 406(a)(1)(D), which prohibits a fiduciary
from entering into a transaction that constitutes a direct or indirect
transfer of plan assets to a party in interest, or the use of plan
assets by or for the benefit of a party in interest;
<bullet> ERISA section 406(b)(1), which prohibits a plan fiduciary
from dealing with the assets of the plan in the fiduciary's own
interest or for the fiduciary's own account; and
<bullet> ERISA section 406(b)(2), which prohibits a plan fiduciary
from acting, 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 its participants or beneficiaries.
On December 12, 2012, the Department published proposed amendments
to the 2006 regulations and the associated PTE 2006-06.\5\ The purpose
of proposed amendments to the 2006 regulations was to advance the
interests of participants and beneficiaries by:
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\5\ 77 FR 74063; 77 FR 74056.
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(1) facilitating the orderly and efficient termination of
individual account plans whose sponsors are in liquidation under
chapter 7 of the Bankruptcy Code (``Chapter 7 ERISA Plans''); \6\
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\6\ The proposal referred to these plans as ``chapter 7 plans.''
The new term ``Chapter 7 ERISA Plans'' is used for avoidance of
confusion regarding the term chapter 7 plan used in the bankruptcy
context.
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(2) reducing administrative burden and costs imposed on Chapter 7
ERISA Plan Plans that terminate in accordance with the regulations; and
(3) providing an avenue for bankruptcy trustees to discharge their
duties under ERISA and the Bankruptcy Code with respect to Chapter 7
ERISA Plans.
The purpose of the proposed amendments to PTE 2006-06 was to
supplement the amendments to the 2006 regulations by providing the
necessary prohibited transaction relief to facilitate the termination
of Chapter 7 ERISA Plans.
The Department received seven written comment letters on the 2012
proposed amendments, several of which raised issues related to the
proposed amendment to PTE 2006-06 that are
[[Page 43676]]
available on the Department's website.\7\ The Department considered the
issues raised by the commenters in granting this amendment to PTE 2006-
06. The Department also issued interim final amendments to the 2006
regulations with a request for comment (referred to as the
``Regulations'') \8\ that appear elsewhere in this issue of the Federal
Register.
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\7\ Available at <a href="https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB47">https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB47</a>.
\8\ The Department intends that PTE 2006-06 will cover
transactions related to the interim final regulations or any
subsequent final regulations published thereafter. The Department
will consider proposing an additional amendment to PTE 2006-06 if it
makes changes to the Abandoned Plan Program that impact the relief
available under this exemption.
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In granting this amendment to PTE 2006-06, the Department has
determined that the amendment is administratively feasible, in the
interests of plans and their participants and beneficiaries, and
protective of the rights of plan participants and beneficiaries as
required by ERISA section 408(a) and Internal Revenue Code (Code)
section 4975(c)(2).\9\
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\9\ Effective December 31, 1978, section 102 of Reorganization
Plan No. 4 of 1978, 5 U.S.C. App. (2018), transferred the authority
of the Secretary of the Treasury to issue exemptions of the type
proposed to the Secretary of Labor. Therefore, this amendment is
issued solely by the Department.
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B. Fiduciary Status of Bankruptcy Trustees and Prohibited Transactions
In bankruptcy cases, as with abandoned plans generally, the sponsor
usually is not in a position to carry out the activities associated
with formally terminating the plan. Instead, the Department expected
that, in chapter 7 bankruptcy cases, the appointed bankruptcy trustee
would take the necessary steps to terminate the plan, wind up its
affairs, and distribute plan benefits. The issue of the bankruptcy
trustee's authority to terminate and wind up the plan was addressed by
the enactment of 11 U.S.C. 704(a)(11) as part of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005.\10\ Under that
provision, when an entity that sponsors an individual account plan is
liquidated under chapter 7 of the Bankruptcy Code, the appointed
bankruptcy trustee administering the liquidation proceeding is required
to continue to perform the plan administration obligations that would
otherwise be required of the bankrupt entity.\11\
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\10\ Public Law 109-8, 119 Stat. 23.
\11\ 11 U.S.C. 704(a)(11) refers to whether the debtor (or any
entity designated by the debtor) serves as the administrator (as
defined in ERISA section 3) of an employee benefit plan. ERISA
section 3(16) defines the ``administrator'' as the plan sponsor in
the absence of any designation in the plan document of another
person as administrator.
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Such obligations include taking the steps necessary to terminate
the plan, wind up the affairs of the plan, and distribute plan benefits
to participants and beneficiaries. A bankruptcy trustee who undertakes
these plan responsibilities is a fiduciary within the meaning of ERISA
section 3(21) \12\ who is obligated under ERISA section 404 to act
prudently and solely in the interests of plan participants and
beneficiaries.
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\12\ 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.
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The Department has concluded that expanding the Abandoned Plan
Program regulations to cover Chapter 7 ERISA Plans and making other
technical changes in response to the public comments would result in an
improved Abandoned Plan Program. The Department acknowledges that it
has been over 10 years since the comment period closed for the 2012
proposal. However, the purposes of the Department's regulatory action
and its rationale for the 2012 proposal continue to be relevant and
would advance the interests of participants and beneficiaries in
abandoned plans. The Department is relying on the 2012 proposal, its
consideration of comments on that proposal, and its understanding of
the challenges facing Chapter 7 ERISA Plans in granting this exemption.
Although, the procedures and requirements in the program are voluntary,
in the Department's view, a bankruptcy trustee that follows the
Regulations should generally be able to reduce its administrative
burden and costs that are associated with terminating an abandoned
plan.
C. Description of the Amendment
1. Summary of Major Changes in This Granted Exemption Amendment
This amendment to PTE 2006-06 expands the types of service
providers that are eligible to serve as QTAs to include bankruptcy
trustees and entities designated by bankruptcy trustees to terminate
and wind up the affairs of plans according to the Regulations (referred
to as ``eligible designees''). This amendment would permit these
parties to rely on PTE 2006-06 to select and pay themselves fees for
services provided in terminating and winding up the affairs of a plan.
Furthermore, for the accounts of missing participants of an abandoned
plan, the amendment will permit certain eligible designees to select
themselves or an Affiliate \13\ (and receive fees) to establish an
Individual Retirement Plan \14\ or other account and to select the
initial investment product. The prohibited transaction relief provided
by the exemption is available only if the exemption conditions are
satisfied, which are designed to protect the interests of the plans and
their participants and beneficiaries as required by ERISA section
408(a) and Code section 4975(c)(2).
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\13\ Affiliate is defined to include: (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. The terms ``controlling, controlled by, or under common
control'' means the power to exercise a controlling influence over
the management or policies of a person other than an individual. See
Sections V(e) and V(f) of this exemption amendment.
\14\ Section V(b) of this exemption defines Individual
Retirement Plan to mean: 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 non-spouse beneficiary. Notwithstanding
the foregoing, the term ``Individual Retirement Plan'' shall not
include an employee benefit plan covered by Title I of ERISA.
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2. Definition of ``Qualified Termination Administrator''
To be a QTA that is eligible for the prohibited transaction relief
under the original version of PTE 2006-06, an entity was required to
(i) be eligible to serve as a trustee or issuer of an individual
retirement plan or other account, within the meaning of Code section
7701(a)(37) and (ii) hold assets of the plan that is considered
abandoned. Bankruptcy trustees ordinarily would not be eligible for the
exemptive relief as QTAs under this definition.
As noted above, the Regulations are amended elsewhere in this issue
of the Federal Register to include bankruptcy trustees and their
eligible designees. Therefore, the final amendment likewise expands the
exemption's QTA definition to include 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, who elects to be a QTA under 29 CFR
2578.1(j)(6).\15\
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\15\ Eligible designees are defined in 29 CFR 2578.1(j)(4)(i)
and (ii).
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The Regulations expand the group of entities that can serve as a
QTA by
[[Page 43677]]
allowing the bankruptcy trustee to also appoint as an eligible designee
either a traditional asset custodian or a person, other than the
bankruptcy trustee of the plan sponsor's case, who has served within
the previous five years as a bankruptcy trustee in a case under chapter
7 of the Bankruptcy Code (referred to as the ``independent bankruptcy
trustee practitioner''). This amendment correspondingly expands the
prohibited transaction relief in PTE 2006-06 by including these
``eligible designees'' in the exemption's definition of QTA.\16\
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\16\ See Section V(a) of this exemption amendment.
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The Department also added a new clarification which indicates that
if a bankruptcy trustee designates an eligible designee, it shall not
be considered a QTA with respect to the relief provided in this
exemption. The Department is making this additional modification to the
QTA definition because the QTA Regulation considers the bankruptcy
trustee and the eligible designee to be the QTA for certain
purposes.\17\ In connection with the exemption, however, the Department
determined that once an eligible designee is appointed, the eligible
designee should be the only entity authorizing appropriate payments to
the bankruptcy trustee.
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\17\ See 29 CFR 2578.1(e)(4).
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3. The ``Designating Bankruptcy Trustee''
The amendment includes a new defined term for a ``Designating
Bankruptcy Trustee.'' \18\ A Designating Bankruptcy Trustee is a
bankruptcy trustee that designates an eligible designee instead of
serving as the QTA itself.\19\ Importantly, this amendment would allow
the Designating Bankruptcy Trustee to provide services to the plan
before designating an eligible designee. These services could include
making reasonable and diligent efforts to determine whether the plan is
owed any employee or employer contributions, notifying the eligible
designee of its findings with respect to missing or delinquent
contributions, establishing procedures to ensure the eligible designee
has reasonable access to records in possession of the bankruptcy
trustee which are needed to wind up the plan, selecting an eligible
designee, and subsequently monitoring eligible designees in accordance
with ERISA section 404(a)(1)(A) and (B). As noted in the QTA
Regulation, the duty to monitor the eligible designee is ongoing
throughout the termination and winding up process.
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\18\ See Section V(h) of this exemption amendment.
\19\ As noted above, the QTA Regulation indicates that the
bankruptcy trustee and eligible designee are both considered the QTA
for certain purposes. The Department's limitations with respect to
the bankruptcy trustee being considered the QTA for purposes of this
exemption do not modify or otherwise supersede the QTA Regulation.
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From a prohibited transaction standpoint, the Department determined
there may be uncertainty regarding an eligible designee's decision to
pay the Designating Bankruptcy Trustee with plan assets. This is due,
at least in part, to the role of the bankruptcy trustee in the QTA
Regulation. To avoid this uncertainty and facilitate the use of the
Abandoned Plan Program and PTE 2006-06 when an eligible designee is
selected, this amendment includes specific prohibited transaction
relief for this scenario that is described in the next section, below.
4. Covered Transactions and Conditions--Overview
The prohibited transaction relief provided by the amended exemption
would permit four general categories of transactions in connection with
termination services. First, it would permit the QTA to select itself
or an Affiliate to provide services to the plan. Second, it would
permit the QTA to pay fees to itself or an Affiliate for those
services. Third, it would permit the QTA to pay fees to itself for
services provided before the plan's deemed termination.\20\ Finally, it
would permit the QTA to pay fees to a Designating Bankruptcy Trustee
for services provided to the plan. Without the availability of the
prohibited transaction exemption, QTAs, their Affiliates, and
bankruptcy trustees would be unable to use plan assets as a source of
compensation for their services, even though those plan assets are
usually the only available source of payment.
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\20\ See 29 CFR 2578.1(c).
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The amended exemption would also permit certain distribution
transactions. First, an asset custodian QTA could designate itself or
an Affiliate as the provider of an Individual Retirement Plan, other
account, or a federally insured bank or savings association account for
the distribution of benefits if participants and beneficiaries do not
respond to the QTA regarding how they would like their benefits
distributed.\21\ Second, the amended exemption would permit the asset
custodian QTA to select a proprietary investment product as the initial
investment in connection with such distributions. Third, the QTA or its
Affiliate may receive fees in connection with establishing and
maintaining the Individual Retirement Plan or other account. Fourth,
the QTA may pay investment fees to itself or an Affiliate as a result
of investment in a qualifying proprietary investment product.
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\21\ As explained in more detail below with respect to Section
I(b), this prohibited transaction relief is available only to
eligible designee QTAs that are asset custodians. It is not
available for QTAs that are bankruptcy trustees. It is also not
available for eligible designees that are independent bankruptcy
trustee practitioners.
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(a) Termination Services and Payment of Fees--Generally
Section I(a) of the amended exemption provides prohibited
transaction relief for a QTA to select and pay itself fees for services
to the plan, subject to the conditions in Sections II and IV.\22\
Generally, the exemption would permit a QTA to use its authority to
select itself or an Affiliate to provide services to the plan and to
pay itself or an Affiliate fees for services performed as the QTA.
Prohibited transaction relief under Section I(a) is available to all
entities that may serve as a QTA according to the QTA Regulation.
Therefore, if the applicable conditions are satisfied, a bankruptcy
trustee could select itself to be the QTA and also pay itself for the
QTA services it provides to the plan. Similarly, if the bankruptcy
trustee appoints an eligible designee to be the QTA, the eligible
designee could pay itself for services it provides to the plan.
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\22\ Section I(a) provides prohibited transaction relief for
ERISA sections 406(a)(1)(A) through (D), 406(b)(1), and 406(b)(2)
and the taxes imposed by Code section 4975(a) and (b) by reason of
Code section 4975(c)(1)(A) through (E).
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The amended exemption also provides prohibited transaction relief
for plan-related services provided by a bankruptcy trustee before a
formal determination is made regarding who will be the QTA.\23\ If the
bankruptcy trustee becomes the QTA, the exemption would permit the
bankruptcy trustee to pay itself for the non-QTA services that were
performed before it becomes the QTA. The Department provides this
relief to ensure that necessary plan services can continue to be
performed while a decision is made regarding the selection of a QTA.
Relatedly, the amended exemption also permits the eligible designee to
pay the bankruptcy trustee for services provided
[[Page 43678]]
to the plan if the eligible designee is the QTA. This includes paying
the bankruptcy trustee for services provided to the plan before the
eligible designee provided notice to the Department of its intention to
serve as QTA \24\ or for ongoing services provided after the notice is
submitted (such as monitoring the QTA).
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\23\ As noted above and described in the QTA Regulation, these
services include making reasonable and diligent efforts to determine
whether the plan is owed any employee or employer contributions,
notifying the eligible designee of its findings with respect to
missing or delinquent contributions, establishing procedures to
ensure the eligible designee has reasonable access to records in
possession of the bankruptcy trustee which are needed to wind up the
plan, and selecting and monitoring eligible designees in accordance
with ERISA section 404(a)(1)(A) and (B).
\24\ See 29 CFR 2578.1(j)(6).
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Section II of the amended exemption includes conditions for covered
termination services and the corresponding receipt of fees. Section
II(a) provides prohibited transaction relief only if the requirements
of the QTA Regulation are satisfied. Section II(b) provides that when
the QTA, its Affiliate, and any Designating Bankruptcy Trustee are paid
fees and expenses, they must comply with the applicable provisions
regarding reasonable expenses of the QTA Regulation. Therefore, for
QTAs that are not chapter 7 bankruptcy trustees or their eligible
designees, the exemption cross references paragraph (d)(2)(v)(B)(2)(i)
and (ii) of the QTA Regulation. For chapter 7 bankruptcy trustee QTAs
and their eligible designees, the exemption cross references paragraph
(j)(7)(iv) of the QTA Regulation.\25\
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\25\ This amendment cross references these provisions instead of
restating them to avoid any potential confusion regarding the
standards and to accommodate future amendments to the QTA Regulation
that would not otherwise require an amendment to PTE 2006-06. If, in
the future, the Department makes changes to the QTA Regulation in
the cross-referenced provisions, the Department will consider
whether the statutory exemption requirements in ERISA section 408(a)
and Code section 4975(c)(2) necessitate proposing an amendment to
the exemption.
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The fee provisions in the QTA Regulation generally provide that
plan assets may be used to pay reasonable expenses of plan termination.
What is reasonable is judged in light of industry rates for ordinary
plan administration under ERISA.\26\ Consequently, these provisions do
not allow a bankruptcy trustee or eligible designee to charge attorney
hourly rates for plan administration activities of termination and
winding up the plan.
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\26\ See 29 CFR 2578.1(d)(2)(v).
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The QTA Regulation contains a limited exception to the general rule
regarding fees that would apply to services provided by the eligible
designee in connection with the duty to collect delinquent
contributions on behalf of the plan. Under the exception, the fees must
be consistent with rates ordinarily charged by firms or individuals
representing or assisting a bankruptcy trustee in performing similar
collection services on behalf of an estate in a chapter 7 proceeding.
This limited exception applies to activities such as filing proofs of
claims, tracing assets, responding to objections, motion practice, and
litigation on behalf of the plan, but it does not apply to determining
whether the plan is owed contributions. The act of determining whether
a plan is owed a contribution is a routine act of plan administration
and is therefore covered under the general rule rather than the
exception.
(b) Termination Services and Payment of Fees--Before Notice of Intent
To Serve as QTA
Additional conditions apply to transactions in which a QTA pays
itself fees for services provided to a plan before submitting notice to
the Department of its intent to act as the QTA.\27\ Section II(c)
requires any such services to be performed in good faith according to
an executed written agreement or otherwise in full compliance with the
QTA Regulation. The QTA must represent under penalty of perjury that
such services were actually performed and/or will actually be performed
(in the case of services provided after notice but before deemed
termination). This condition specifically requires a prospective
representation for such services in the notice of intent to serve as
QTA.\28\ The Department believes this will avoid uncertainty as to
services that will be performed after notice is provided to the
Department but before the deemed termination. If past services were
performed according to a contract, a copy of the executed contract that
authorized such services must be provided to the Department along with
the notice.
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\27\ See Section I(a)(3) of this exemption amendment.
\28\ See paragraph 29 CFR 2578.1(c)(3) of the QTA Regulation or
in the case of a QTA described in Section V(a)(2)(i) of this
exemption, 29 CFR 2578.1(j)(6).
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For transactions in which the eligible designee QTA pays the
Designating Bankruptcy Trustee, the exemption requires the services to
be performed by the Designating Bankruptcy Trustee in full compliance
with the QTA Regulation. Additionally, the Designating Bankruptcy
Trustee must represent under penalty of perjury that the services were
actually performed and/or will actually be performed (in the case of
services provided after notice but before deemed termination). The
Designating Bankruptcy Trustee must provide this written representation
to the QTA for the QTA to submit to the Department.
(c) Distribution Transactions
Section I(b) provides prohibited transaction relief for an asset
custodian QTA to designate itself or an Affiliate as the provider of an
Individual Retirement Plan, other account, or a federally insured bank
or savings association account for the distribution of benefits.\29\
Section I(b) is available only to eligible designees that are asset
custodians and QTAs, as defined in section V(a)(1) and V(a)(2)(ii) of
this amendment. The relief in Section I(b) is not available to QTAs
that are bankruptcy trustees or independent bankruptcy trustee
practitioners. In the 2012 proposed exemption amendment, the Department
noted that bankruptcy trustees do not maintain proprietary investment
vehicles; thus, the relief in Section I(b) was not proposed to extend
to bankruptcy trustees. The Department did not receive comments on this
issue with respect to the 2012 proposed exemption amendment, so the
Department has maintained the same scope of relief in Section I(b) of
this amendment.
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\29\ Section I(b) of the amended exemption provides relief from
the restrictions of ERISA sections 406(a)(1)(A) through (D),
406(b)(1), and 406(b)(2) and the taxes imposed by Code section
4975(a) and (b) by reason of Code section 4975(c)(1)(A) through (E).
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Generally, the prohibited transaction relief in Section I(b)
applies only if the participant or beneficiary has otherwise failed to
notify the QTA regarding how they want to take their distribution. The
relief in Section I(b) is subject to the additional conditions of
Sections III and IV. More specifically, Section I(b) permits a QTA to
use its authority in connection with the termination of an abandoned
individual account plan to designate itself or an Affiliate as the
service provider of (1) an Individual Retirement Plan, (2) an inherited
Individual Retirement Plan in the case of a distribution on behalf of a
non-spouse beneficiary as described in paragraph (d)(1)(ii) of the Safe
Harbor Regulation, or (3) an interest bearing, federally insured bank
or savings association account for a distribution described in
paragraph (d)(1)(iii) of the Safe Harbor Regulation.\30\
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\30\ See 29 CFR 2550.404a-3.
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Section I(b) also permits a QTA to engage in certain activities in
connection with establishing an Individual Retirement Plan or other
account. First, the QTA may make the initial investment of a
participant's or beneficiary's account balance in its or its
Affiliate's propriety investment product. Second, the QTA or its
Affiliate may receive fees in connection
[[Page 43679]]
with establishing and maintaining the Individual Retirement Plan or
other account. Third, the QTA may pay investment fees to itself or an
Affiliate as a result of investment in a proprietary investment product
that qualifies as an Eligible Investment Product defined in Section
V(c).
Section III provides conditions for the transactions described in
Section I(b) and was not altered by the 2012 proposed exemption
amendment. This final amendment makes minor ministerial changes to
Section III, such as the addition of headings to facilitate the ease of
use of the exemption.
Section III(a) requires compliance with the QTA Regulation, and
Section III(b) requires additional notifications to participants or
beneficiaries to accompany the notice to participants and beneficiaries
described in the QTA Regulation.\31\ Section III(c) requires each
Individual Retirement Plan or other account to be established and
maintained for the exclusive benefit of the Individual Retirement Plan
account holder or other account holder or their beneficiaries. This
requirement is consistent with Code section 408(a) and ensures that the
establishment of such plans or accounts does not conflict with the
basic purpose for which Congress afforded them special tax benefits
(i.e., to provide retirement savings for account holders and their
beneficiaries).
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\31\ See 29 CFR 2578.1(d)(2)(vi).
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Section III(d) requires the terms of the Individual Retirement Plan
or other account to be no less favorable than those available to
comparable Individual Retirement Plans or other accounts established
for reasons other than the receipt of a rollover distribution described
in the QTA Regulation. This exemption condition applies to all terms,
including the fees and expenses for establishing and maintaining the
Individual Retirement Plan or other account.
Section III(e) requires distributions to be invested in an Eligible
Investment Product as defined in section V(c) of this amendment.\32\
The definition of Eligible Investment Product was not changed as part
of this amendment.
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\32\ This is 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 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. An
Eligible Investment Product 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, it would also include ``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 their right to withdraw or transfer funds under the terms
of an arrangement that does not include substantial restrictions to
the account holder to access the Individual Retirement Plan or other
account's assets).
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Section III(f) requires the rate of return or investment
performance of plans or accounts established in connection with QTA
Regulation to be the same as other similar type of plans or accounts.
This condition was designed to work in tandem with the requirement in
Section III(d). It ensures fees are not hidden within separately
designed investment products provided only to plans or accounts
established under the QTA Regulation.
Example 1: Assume a customer opens a new Individual Retirement Plan
and invests in a one-year certificate of deposit that returns 2.0%. The
one-year certificate of deposit that returns 2.0% is also available to
an Individual Retirement Plan established at the same time in
accordance with the QTA Regulation. This is a permissible investment
option.
Example 2: Assume a customer opens a new Individual Retirement Plan
and invests in a one-year certificate of deposit that returns 2.0%. For
Individual Retirement Plans established under the QTA Regulation, all
certificates of deposit have a 5% lower return so that the one-year
certificate of deposit only returns 1.9%. This is not a permissible
investment option.
Section III(g) does not permit the Individual Retirement Plan or
other account to pay a sales commission in connection with the
acquisition of an Eligible Investment Product. Furthermore, Section
III(h) indicates that the Individual Retirement Plan account holder or
other account holder must be able to transfer their account balance to
a different investment offered by the QTA or its Affiliate within a
reasonable period of time after their request. In connection with the
request, the QTA or its Affiliate may not assess any penalty against
the principal amount of the account balance. According to those same
standards, the Individual Retirement Plan account holder or other
account holder must be able to transfer their account balance to an
Individual Retirement Plan established with a different financial
institution.
Finally, Section III(i) includes restrictions on fees and expenses
associated with the Individual Retirement Plan or other account
including with respect to investment of assets. This provision requires
equal treatment for any such charges, which includes but is not limited
to: establishment charges, maintenance fees, investment expenses,
termination costs, and surrender charges. The fees and expenses may not
exceed those charged by the QTA for comparable Individual Retirement
Plans or other accounts established for reasons other than the receipt
of a rollover distribution made pursuant to the QTA Regulation.
Relatedly, fees and expenses associated with the Individual Retirement
Plan or other account, other than establishment charges, may be charged
only against the income earned by the Individual Retirement Plan or
other account and may not be charged against principal. Finally, fees
and expenses may not exceed reasonable compensation within the meaning
of Code section 4975(d)(2).
5. Recordkeeping
Section IV of the amended exemption contains a recordkeeping
requirement that is mostly unchanged from the proposed amendment. The
Department made a minor modification in Section IV(a) by replacing the
phrase ``determination of plan abandonment and its election'' with
``intent'' so that the recordkeeping requirement clearly applies to the
new categories of QTAs (i.e., chapter 7 bankruptcy trustees and
eligible designees). Ultimately, this means that any party serving as a
QTA must maintain records to enable certain persons to determine
whether the applicable conditions of the class exemption have been
satisfied. The records must be available for examination by the
Department of the Treasury, the Department, and 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.
D. Other Ministerial Changes
The Department is also making a few ministerial changes to the
exemption that will not substantively alter the conditions or relief
provided under the exemption. Specifically, the Department has
capitalized most of the defined terms, added the word ``Section'' to
each section, modified the text of the headings slightly, added
headings in Sections II and III to facilitate ease of use of the
exemption, and made other edits to improve readability. The Department
also removed the reference to ``spouse'' in Section III(c) because the
[[Page 43680]]
exclusive benefit rule in Code section 408(a) does not separately
reference a spouse.
E. Discussion of Comments
While the Department did not receive any comments on the 2012
proposed amendment's expansion to bankruptcy trustees, it received
several comments on other aspects of the 2012 proposed amendment. One
commenter requested elimination of a condition in the exemption
limiting the amount of fees and expenses that may be charged when a QTA
recommends itself or an affiliate as a provider of an Individual
Retirement Plan or other account. The condition in Section III(i)(2)
requires fees and expenses charged to the Individual Retirement Plan or
other account may only be taken from the income earned by the
Individual Retirement Plan or other account with the exception of
establishment charges.
The Department considered a similar request to remove Section
III(i)(2) when it first granted PTE 2006-06. The Department continues
to believe that removal of this condition is not warranted because the
Regulations provide significant flexibility for small account balances
to be distributed by methods other than through a rollover to an
Individual Retirement Plan or other account sponsored by the QTA or its
affiliate. For example, participant account balances of $1,000 or less
that are below the minimum amount required for investment in the QTA's
Individual Retirement Plan investment product may be distributed to:
(i) an interest-bearing federally insured bank or savings association
account in the name of the participant or beneficiary; (ii) the
unclaimed property fund of the State in which the participant's or
beneficiary's last known address is located; or (iii) to an
unaffiliated Individual Retirement Plan if the Individual Retirement
Plan is also offered to the public at the time of the distribution. The
Department continues to believe that Section III(i)(2) is necessary to
preserve the principal balance of missing and non-responsive
participants and beneficiaries (consistent with protecting the
retirement savings for participants and their beneficiaries). Section
III(i)(2) also provides a valuable safeguard against potential
conflicts of interest associated with a QTA's selection of its own or
its affiliate's Individual Retirement Plan or account and initial
investment product.
Another commenter requested clarification that providers of
Individual Retirement Plans or investment accounts who are not
affiliated or related to a QTA and accept distribution accounts from a
QTA into their own proprietary investment products, are not subject to
the same fee and expense restrictions described in Section III(i)(2) of
the exemption. The Department responds that the scenario described by
the commenter does not appear to involve a prohibited transaction, and
parties only are required to rely on the exemption (including complying
with Section III(i)(2)) if the receipt of compensation in connection
with these transactions involves a prohibited transaction.
F. Regulatory Impact Analysis
1. Background and Need for Regulatory Action
As stated earlier in this preamble, this document contains an
amendment to PTE 2006-06 which expands the types of service providers
that are eligible to serve as QTAs to include bankruptcy trustees and
entities designated by bankruptcy trustees to terminate and wind up the
affairs of plans according to the Regulations that facilitate the
termination of, and distribution of benefits from, individual account
pension plans that have been abandoned by their sponsoring employers.
The need for the amendments is explained in detail above in this
preamble, as well as the preamble to the 2012 proposal and preamble to
the Regulations that appear elsewhere in this issue of the Federal
Register.
The Department has examined the effects of these amendments as
required by Executive Order 12866,\33\ Executive Order 13563,\34\ the
Congressional Review Act,\35\ the Paperwork Reduction Act of 1995,\36\
the Regulatory Flexibility Act,\37\ section 202 of the Unfunded
Mandates Reform Act of 1995,\38\ and Executive Order 13132.\39\
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\33\ Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993).
\34\ Improving Regulation and Regulatory Review, 76 FR 3821
(Jan. 21, 2011).
\35\ 5 U.S.C. 804(2) (1996).
\36\ 44 U.S.C. 3506(c)(2)(A) (1995).
\37\ 5 U.S.C. 601 et seq. (1980).
\38\ 2 U.S.C. 1501 et seq. (1995).
\39\ Federalism, 64 FR 43255 (Aug. 10, 1999).
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2. Executive Orders 12866 and 13563 Statement
Executive Orders 13563 and 12866 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing and streamlining rules, and
of promoting flexibility. It also requires federal agencies to develop
a plan under which the agencies will periodically review their existing
significant regulations to make the agencies' regulatory programs more
effective or less burdensome in achieving their regulatory objectives.
The Department identified the amendments to the 2006 regulations as
part of a retrospective regulatory review project consistent with the
principles of Executive Order 13563. The changes will improve the
overall efficiency of the program established under the 2006
regulations, increase its usage, and substantially reduce burdens and
costs on bankruptcy trustees (or their designees) terminating the plans
of sponsors in chapter 7 liquidation, the plans of bankrupt sponsors,
and the participants in these plans.
Under Executive Order 12866, ``significant'' regulatory actions are
subject to the requirements of the executive order and review by the
Office of Management and Budget (OMB). As amended by Executive Order
14094 \40\ entitled ``Modernizing Regulatory Review,'' 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 $200 million or more (adjusted every 3 years by the
Administrator of OIRA for changes in gross domestic product); or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, territorial, or tribal governments
or communities; (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 legal or policy issues for which centralized
review would meaningfully further the President's priorities or the
principles set forth in this Executive order, as specifically
authorized in a timely manner by the Administrator of OIRA in each
case.
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\40\ 88 FR 21879 (April 6, 2023).
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3. Affected Entities
The group of entities affected by the amendments consists of
affected abandoned plans as defined under the 2006 regulations, Chapter
7 ERISA Plans
[[Page 43681]]
newly eligible to utilize the abandoned plan rules, and the financial
firms and bankruptcy trustees who serve as QTAs.
4. Benefits
The key benefit of the amendment to PTE 2006-06 is facilitation of
the benefits provided by the Regulations, as explained in the
Regulatory Impact Analysis that accompanies the Regulations, published
elsewhere in this issue of the Federal Register. Without the
accompanying amendment to PTE 2006-06, certain of the benefits of the
Regulations may be impeded due to the existence of prohibited
transactions.
5. Costs
The cost of the amendment to PTE 2006-06 is captured in the
Regulatory Impact Analysis that accompanies the Regulations, published
elsewhere in this issue of the Federal Register. The only additional
cost associated with this amendment to PTE 2006-06 is related to a new
condition that is applicable in cases where a Designating Bankruptcy
Trustees provides services to the plan. In that situation, the
Designating Bankruptcy Trustee must represent under penalty of perjury
that such services were actually performed and/or will actually be
performed and provide the QTA with such representation for the QTA to
provide to the Department in the notice of intent to serve as qualified
termination administrator. As noted in the Paperwork Reduction Act
section of the preamble to the Regulations, the Department did not
include a cost burden for this new condition because it is expected to
be de minimis and included in other notices sent to the Department.
G. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (PRA) (44
U.S.C. 3506(c)(2)(A)), the Department solicited comments concerning the
information collection requirements (ICRs) included in the December 12,
2012, proposed amendments to the 2006 regulations at 77 FR 74063 and
the proposed amendments to the class exemption PTE 2006-06 at 77 FR
74055. At the same time, the Department also submitted the ICR to OMB
in accordance with 44 U.S.C. 3507(d).
The amendment to PTE 2006-06 would only be used by QTAs that also
take advantage of the amendments to the Regulations, published
elsewhere in this issue of the Federal Register. The Department has
combined the hour and cost burdens associated with the proposed
amendment to PTE 2006-06 with the hour and cost burden associated with
the Regulations, under existing OMB Control Number 1210-0127.
By using a single ICR, the Department believes that the regulated
community will gain a better understanding of the overall burden impact
of terminating abandoned plans pursuant to the amendments. The specific
burden for PTE 2006-06 includes the penalty of perjury statements
required to be submitted by the QTA and/or Designating Bankruptcy
Trustee and a recordkeeping requirement for QTAs. The hour and cost
burden for the ICR is described more fully in the preamble to the
Regulations under the Paperwork Reduction Act section. A copy of the
ICR for OMB Control Number 1210-0127 may be obtained by contacting the
PRA addressee listed in the following sentence or at <a href="http://www.RegInfo.gov">www.RegInfo.gov</a>.
For additional information, contact: James Butikofer, Office of
Research and Analysis, U.S. Department of Labor, Employee Benefits
Security Administration, 200 Constitution Avenue NW, Room N-5718,
Washington, DC 20210; or <a href="/cdn-cgi/l/email-protection#aecbccddcf80c1dedceecac1c280c9c1d8"><span class="__cf_email__" data-cfemail="51343322307f3e212311353e3d7f363e27">[email protected]</span></a>. The OMB will consider all
comments that they receive on or before June 17, 2024. Comments and
recommendations for the information collection should be sent within 30
days of publication of this notice to <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>. Find this particular information collection by selecting
``Currently under 30-day Review--Open for Public Comments'' or by using
the search function.
H. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) applies
to most Federal rules that are subject to the notice and comment
requirements of section 553(b) of the Administrative Procedure Act (5
U.S.C. 551 et seq.). Unless an agency certifies that such a rule will
not have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires the agency to present a final
regulatory flexibility analysis at the time of the publication of the
rulemaking describing the impact of the rule on small entities. Small
entities include small businesses, organizations, and governmental
jurisdictions. For purposes of analysis under the RFA, the Department
considers a small entity to be an employee benefit plan with fewer than
100 participants. The basis of this definition is found in section
104(a)(3) of ERISA, which permits the Secretary of Labor to prescribe
simplified annual reports for welfare benefit plans that cover fewer
than 100 participants. While some large employers may have small plans,
in general, small employers maintain most small plans. Thus, the
Department believes that assessing the impact of these final
regulations on small plans is an appropriate substitute for evaluating
the effect on small entities. The definition of small entity considered
appropriate for this purpose differs, however, from a definition of
small business that is based on size standards promulgated by the Small
Business Administration (SBA) (13 CFR 121.201) pursuant to the Small
Business Act (15 U.S.C. 631 et seq.). The Department requested comments
on the appropriateness of this size standard at the proposed rule stage
and received no adverse responses.
Due to the small number of small plans involved and relatively low
cost per plan, the Assistant Secretary of the Employee Benefit Security
Administration hereby certifies under 5 U.S.C. 605 that this amended
exemption in combination with the Regulations will not have a
significant economic impact on a substantial number of small
entities.\41\
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\41\ 2,506 abandoned plans each year divided by the roughly 6
million establishments with less than 50 participants results in
less than 0.05%.
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I. Congressional Review Act
This amendment is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and will be transmitted to the Congress and
the Comptroller General for review. The exemption is not a ``major
rule'' as that term is defined in 5 U.S.C. 804, because it is not
likely to result in (1) an annual effect on the economy of $100 million
or more; (2) a major increase in costs or prices for consumers,
individual industries, or Federal, State, or local government agencies,
or geographic regions; or (3) significant adverse effects on
competition, employment, investment, productivity, innovation, or on
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and export markets.
J. Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), the rule does not include any Federal mandate that will result
in expenditures by state, local, or tribal governments in the aggregate
of more than $100 million, adjusted for inflation, or increase
expenditures by the private sector of more than $100 million, adjusted
for inflation.
[[Page 43682]]
K. Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires the adherence to specific
criteria by Federal agencies in the process of their formulation and
implementation of policies that have substantial direct effects on the
States, the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. This rule does not have federalism
implications because it has no substantial direct effect on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. Section 514 of ERISA provides, with certain
exceptions specifically enumerated, that the provisions of Titles I and
IV of ERISA supersede any and all laws of the States as they relate to
any employee benefit plan covered under ERISA. The requirements
implemented in the rule do not alter the fundamental provisions of the
statute with respect to employee benefit plans, and as such would have
no implications for the States or the relationship or distribution of
power between the national government and the States.
L. 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 ERISA section 408(a) and Code section 4975(c)(2) 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
ERISA section 404 which require, among other things, that a fiduciary
act prudently and discharge their duties respecting the plan solely in
the interests of the participants and beneficiaries of the plan.
Additionally, the fact that a transaction is the subject of an
exemption does not affect the requirements of Code section 401(a),
including 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 ERISA section 408(a) and Code section
4975(c)(2), and based on the entire record, the Department finds that
this exemption is administratively feasible, in the interests of Plans,
their participants and beneficiaries, and IRA owners, and protective of
the rights of participants and beneficiaries of the Plan and IRA
owners;
(3) The amended exemption is applicable to a particular transaction
only if the transaction satisfies the conditions specified in the
exemption; and
(4) The amended 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.
The Department is granting the following amendment on its own
motion, pursuant to its authority under ERISA section 408(a) and Code
section 4975(c)(2) and in accordance with procedures set forth in 29
CFR part 2570, subpart B (76 FR 66637 (October 27, 2011)).\42\
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\42\ Reorganization Plan No. 4 of 1978 (5 U.S.C. App. 1 (2018))
generally transferred the authority of the Secretary of the Treasury
to grant administrative exemptions under Code section 4975 to the
Secretary of Labor. Procedures Governing the Filing and Processing
of Prohibited Transaction Exemption Applications were amended
effective April 8, 2024 (29 CFR part 2570, subpart B (89 FR 4662
(January 24, 2024)).
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Amended Exemption
Section I. Covered Transactions
(a) Provided the conditions of Section II and IV are satisfied, the
restrictions of ERISA sections 406(a)(1)(A) through (D), 406(b)(1) and
406(b)(2), and the taxes imposed by Internal Revenue Code (Code)
section 4975(a) and (b), by reason of section 4975(c)(1)(A) through
(E), shall not apply to a Qualified Termination Administrator (as
defined in paragraph (a)(1) or (a)(2) of Section V and referred to as a
QTA) using its authority in connection with the termination of an
abandoned individual account plan pursuant to the Department's
regulation at 29 CFR 2578.1, relating to the Termination of Abandoned
Individual Account Plans (the QTA Regulation) \43\ to:
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\43\ The Department intends that this exemption will cover
transactions related to the interim final regulations published in
this edition of the Federal Register as well as any subsequent final
regulations published thereafter. The Department will consider
amending this exemption if changes are made to the final regulation
that impact the relief available under this exemption.
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(1) Select itself or an affiliate to provide services to the plan;
(2) Receive fees for the services performed as a QTA;
(3) Pay itself fees for services provided to the plan before the
deemed termination of the plan; and
(4) Pay fees to the Designating Bankruptcy Trustee for services
provided to the plan; and
(b) Provided that the conditions set forth in Sections III and IV
of this exemption are satisfied, the restrictions of ERISA sections
406(a)(1)(A) through (D), 406(b)(1) and 406(b)(2), and the taxes
imposed by Code section 4975(a) and (b), by reason of Code section
4975(c)(1)(A) through (E), 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 Code
section 401(a)(9)(E)) who is not the surviving spouse of the deceased
participant, of an inherited Individual Retirement Plan (within the
meaning of Code section 402(c)(11)) established to receive the
distribution on behalf of the non-spouse beneficiary under the
circumstances described in paragraph (d)(1)(ii) of the Safe Harbor
Regulation for Terminated Plans (29 CFR 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 paragraph (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. Conditions for Provision of Covered Termination Services
and Receipt of Fees
(a) QTA Regulation. The requirements of the QTA Regulation are met.
The QTA provides, in a timely manner, any other reasonably available
information
[[Page 43683]]
requested by the Department regarding the proposed termination.
(b) Fees and expenses. Fees and expenses paid to the QTA and its
affiliate, and any Designating Bankruptcy Trustee, in connection with
the termination of the plan and the distribution of benefits comply
with paragraphs (d)(2)(v)(B)(2)(i) and (ii) of the QTA Regulation or
paragraph (j)(7)(iv) of the QTA Regulation, as applicable;
(c) Fees for services before the deemed termination of the plan. 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 before the service provider
became a QTA; or (ii) were performed pursuant to the QTA Regulation;
and
(2) The QTA, in the notice of plan abandonment and intent to serve
as qualified termination administrator described in paragraph (c)(3) of
the QTA Regulation or in the case of a QTA described in Section
V(a)(2)(i), the notice of intent to serve as qualified termination
administrator described in paragraph (j)(6) of the QTA Regulation: (i)
represents under penalty of perjury that such services were actually
performed and/or will be performed (in the case of services provided
after the notice but before deemed termination); 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.
(d) Paying the Designating Bankruptcy Trustee. In the case of a
transaction described in Section I(a)(4):
(1) Such services were performed by the Designating Bankruptcy
Trustee pursuant to the QTA Regulation; and
(2) The Designating Bankruptcy Trustee represents under penalty of
perjury that such services were actually performed and/or will actually
be performed and provides the QTA with such representation for the QTA
to provide to the Department in the notice of intent to serve as
qualified termination administrator described in paragraph (j)(6) of
the QTA Regulation.
Section III. Conditions for Covered Distribution Transactions
(a) QTA Regulation. The conditions of the QTA Regulation (29 CFR
2578.1) are met.
(b) Notice to participants and beneficiaries. 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) Exclusive benefit. 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 or
their beneficiaries.
(d) Account terms, fees, and expenses. 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) Eligible Investment Product. 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) Investment performance. 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) No sales commissions. The Individual Retirement Plan or other
account does not pay a sales commission in connection with the
acquisition of an Eligible Investment Product.
(h) Transferring account. The Individual Retirement Plan account
holder or other account holder must be able to transfer their 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, within a reasonable period of time after their request and
without penalty to the principal amount of the investment.
(i) Fees and expenses. (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 Code section 4975(d)(2).
Section 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 intent 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 ERISA section 504(a)(2) and
(b), the records referred to in paragraph (a) of this section are
unconditionally 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 ERISA section
502(i) or to the taxes
[[Page 43684]]
imposed by Code sections 4975(a) and (b), 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.
Section V. Definitions
(a) A termination administrator is qualified and considered a
``QTA'' for purposes of this exemption only if:
(1)(i) It is eligible to serve as a trustee or issuer of an
individual retirement plan, within the meaning of Code section
7701(a)(37), and (ii) it holds assets of the plan that is found
abandoned; or
(2)(i) It 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,
who elects to be a QTA under 29 CFR 2578.1(j)(6); (ii) it is an
``eligible designee,'' as defined in 29 CFR 2578.1(j)(4)(i); or (iii)
it is an ``eligible designee'' as defined in 29 CFR 2578.1(j)(4)(ii).
If a bankruptcy trustee designates an eligible designee, then it
shall not be considered a QTA with respect to the relief provided in
this exemption.
(b) The term ``Individual Retirement Plan'' means an individual
retirement plan described in Code section 7701(a) (37). 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 Code section 402(c)(11)) established to receive a
distribution on behalf of a non-spouse beneficiary. Notwithstanding the
foregoing, the term ``Individual Retirement Plan'' shall not include 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 their right to withdraw or transfer funds under the terms of
an arrangement that does not include substantial restrictions to the
account holder's 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 terms ``controlling, controlled by, or under common
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 ERISA section 3(34).
(h) The term ``Designating Bankruptcy Trustee'' means 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, that provides services to the
plan but is not the QTA because of the appointment of an eligible
designee.
Signed at Washington, DC, on April 22, 2024.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 2024-09030 Filed 5-16-24; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on May 17, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.