Notice: Employee Benefit Plans Class Exemptions: Abandoned Individual Retirement Account Plans Termination

Friday,
April 21, 2006
Part V
Department of Labor
Employee Benefits Security
Administration
Class Exemption for Services Provided in

Connection With the Termination of
Abandoned Individual Account Plans;
Notice
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20856 Federal Register / Vol. 71, No. 77 / Friday, April 21, 2006 / Notices
DEPARTMENT OF LABOR FOR FURTHER INFORMATION CONTACT: grants, user fees, or loan programs or the
Brian Buyniski, Office of Exemption rights and obligations of recipients
Employee Benefits Security Determinations, Employee Benefits thereof; or (4) raising novel legal or
Administration Security Administration, U.S. policy issues arising out of legal
[ZRIN 1210–ZA05; Prohibited Transaction Department of Labor, Washington, DC mandates, the President’s priorities, or
Exemption 2006–06; Application No. D– 20210, (202) 693–8545. This is not a toll the principles set forth in the Executive
11201] free number. Order. It has been determined that this
SUPPLEMENTARY INFORMATION: On March exemption is significant for ‘‘raising
Class Exemption for Services Provided 10, 2005, the Department published a novel policy issues’’ under section
in Connection With the Termination of notice in the Federal Register (70 FR 3(f)(4) of the Executive Order.
Abandoned Individual Account Plans 12074) of the pendency of a proposed Accordingly, the exemption has been
class exemption from the restrictions of reviewed by OMB.
AGENCY: Employee Benefits Security
sections 406(a)(1)(A) through (D), This exemption is being published
Administration, Department of Labor.
406(b)(1) and (b)(2) of the Act and from simultaneously with a group of three
ACTION: Grant of class exemption. regulatory actions (the Abandoned Plan
the taxes imposed by section 4975(a)
SUMMARY: This document contains a and (b) of the Code, by reason of section Regulations) that are also being issued
final exemption from certain prohibited 4975(c)(1)(A) through (E) of the Code. in final form. In the Department’s view,
transaction restrictions of the Employee The Department proposed the class the conditional relief provided by the
Retirement Income Security Act of 1974 exemption on its own motion pursuant exemption is necessary in order to
(ERISA or the Act) and from certain to section 408(a) of the Act and section effectuate the purposes underlying the
taxes imposed by the Internal Revenue 4975(c)(2) of the Code, and in Abandoned Plan Regulations.
Code of 1986, as amended (the Code). accordance with the procedures set Accordingly, the Department’s basic
The exemption permits a ‘‘qualified forth in 29 CFR part 2570, subpart B (55 statement regarding the economic
termination administrator’’ (QTA) of an FR 32836, August 10, 1990).1 benefits and costs of encouraging
individual account plan that has been The notice of pendency gave efficient, effective termination of
abandoned by its sponsoring employer interested persons an opportunity to abandoned plans, which is described in
to select itself or an affiliate to provide comment or request a public hearing on detail in the preamble to the Abandoned
services to the plan in connection with the proposal. Five (5) public comments Plan Regulations, published elsewhere
the termination of the plan, to pay itself were received by the Department. No in this issue of the Federal Register,
or an affiliate fees for those services, and requests for a public hearing were applies equally to this exemption. The
received. Upon consideration of the following provides more specific
to pay itself for services provided prior
comments received, the Department has analysis of the exemption and its
to the plan’s deemed termination. The
determined to grant the proposed class specific economic costs and benefits.
exemption also permits a qualified The purpose of the Abandoned Plan
termination administrator of an exemption subject to certain
modifications. These modifications and Regulations is to facilitate the orderly,
abandoned plan to: (1) Designate itself efficient termination of abandoned
or an affiliate as the provider of an the comments are discussed below.
individual account plans in order to
individual retirement plan or other Executive Order 12866 give participants and beneficiaries of
account for the distribution of a those plans access to the amounts held
participant or beneficiary who fails to Under Executive Order 12866, the
Department must determine whether a in their individual accounts, which are
make an election regarding the frequently unavailable to them because
disposition of such benefits; (2) select a regulatory action is ‘‘significant’’ and
therefore subject to the requirements of of the abandonment. The relief provided
proprietary investment product as the by the exemption facilitates this goal by
initial investment for such plan or the Executive Order and review by the
Office of Management and Budget permitting a QTA, under the conditions
account; (3) provide a federally insured of the exemption, to select itself or an
bank or savings association account for (OMB). Under section 3(f), the order
defines a ‘‘significant regulatory action’’ affiliate to provide services to the plan,
small distributions; and (4) pay itself or to pay itself or an affiliate fees for those
its affiliate fees in connection therewith. as an action that is likely to result in a
rule (1) having an annual effect on the services, and to pay itself fees for
This exemption is being granted in services provided prior to the plan’s
connection with the Department’s final economy of $100 million or more, or
adversely and materially affecting a deemed termination, in connection with
regulation at 29 CFR 2578.1, relating to terminating the abandoned plan.
the Termination of Abandoned sector of the economy, productivity,
competition, jobs, the environment, Without the availability of the
Individual Account Plans, the exemptive relief, QTAs and their
Department’s final regulation at 29 CFR public health or safety, or State, local or
tribal governments or communities (also affiliates would be unable to use plan
2550.404a–3, relating to the Safe Harbor assets as a source of compensation for
for Distributions From Terminated referred to as ‘‘economically
significant’’); (2) creating serious their services; since those plan assets
Individual Account Plans, and the are usually the only available source of
Department’s final regulation at 29 CFR inconsistency or otherwise interfering
payment, QTAs would be highly
2520.103–13, relating to the Terminal with an action taken or planned by
unlikely to undertake abandoned plan
Report for Abandoned Individual another agency; (3) materially altering
terminations.
Account Plans, which are being the budgetary impacts of entitlement The exemption also permits a QTA to
published simultaneously in this issue 1 Section 102 of Reorganization Plan No. 4 of
designate itself or an affiliate as the
of the Federal Register. The exemption 1978, 5 U.S.C. App. 1 (1996) generally transferred provider of an individual retirement
will affect individual account plans, the plan or other account for distributions
the authority of the Secretary of the Treasury to

participants and beneficiaries of such issue exemptions under section 4975(c)(2) of the of benefits for which the participant or
plans, certain plan service providers, Code to the Secretary of Labor. beneficiary has failed to make an
and the fiduciaries of such plans. For purposes of this exemption, references to
specific provisions of Title I of the Act, unless
election; select a proprietary investment
DATES: Effective Date: The class otherwise specified, refer also to the corresponding product as the initial investment for the
exemption is effective May 22, 2006. provisions of the Code. distributed benefits of a participant or
Federal Register / Vol. 71, No. 77 / Friday, April 21, 2006 / Notices 20857
beneficiary of a terminated plan who or its affiliate. Although the conditions it relates to terminating plans. The
fails to make an election regarding the restrict the fees that QTAs and their specific burden for the exemption
disposition of such benefits; provide affiliates may receive for their services, includes a recordkeeping requirement
federally insured bank or savings they protect against potential self- for a QTA that terminates an abandoned
association accounts for small dealing and depletion of account plan and chooses to distribute the
distributions of such benefits; and pay balances. In these circumstances, the fee account balances of missing or
itself or its affiliate in connection with limitations substitute for an nonresponsive participants into
such distributions. By removing the independent fiduciary’s assessment of proprietary or affiliated individual
barrier to use of proprietary or affiliated the value of using products or services retirement plans or accounts and a
investment vehicles for distributions for of the QTA or its affiliate. Further, reporting requirement for a QTA that
which the participant or beneficiary has QTAs are not required to make use of intends to pay itself for services
failed to make investment decisions, the proprietary or affiliated individual provided to a plan prior to its deemed
exemption facilitates the winding-up of retirement plans or accounts, but are termination. The reporting requirement
abandoned plan terminations. Because merely permitted by the exemption to includes submitting to the Department a
some proportion of the participants or choose voluntarily whether to do so. copy of the written agreement under
beneficiaries in virtually every The Department believes that the fee which the services were provided,
termination of an abandoned plan will limitations will encourage a QTA to together with a representation, under
fail to make decisions regarding the make decisions regarding whether to penalty of perjury, that the services for
disposition of their benefits, QTAs will use its own or an affiliate’s individual which reimbursement is sought were in
need to make distribution decisions for retirement plans or accounts and fact rendered. The hour and cost
those benefits. Allowing QTAs to use investment products based not on the burdens for the ICR are described more
their own or affiliated investment availability of a pool of assets for fully in the preamble to the Abandoned
products to receive the distributions payment of fees, but on whether it will Plan Regulations under the section on
will accelerate and simplify the orderly be in the best interests of the the Paperwork Reduction Act.
termination and winding-up of a plan’s participants and beneficiaries to do so.
Discussion of Comments Received
affairs.
The exemption imposes certain Paperwork Reduction Act The Department received five
conditions on use of proprietary or As part of its continuing effort to comment letters regarding the proposed
affiliated investments, including (1) the reduce paperwork and respondent class exemption.2 Additionally, the
condition that fees other than burden, the Department of Labor Department received a number of
establishment fees and expenses conducts a preclearance consultation comments in connection with the
attendant to an individual retirement program to provide the general public regulation relating to the Termination of
plan or account may be charged only and Federal agencies with an Abandoned Individual Account Plans
against the income earned by the opportunity to comment on proposed (the QTA Regulation) and the regulation
individual retirement plan or account and continuing collections of relating to the Safe Harbor for
and (2) the condition that no sales information in accordance with the Distributions from Terminated
commissions may be imposed in Paperwork Reduction Act of 1995 (PRA Individual Account Plans (the Safe
connection with acquiring an Eligible 95) (44 U.S.C. 3506(c)(2)(A)). This helps Harbor Regulation). Interested persons
Investment Product. The exemption also to ensure that respondents will be able should refer to these regulations,
conditions relief for payment for to provide the requested data in the published elsewhere in this issue of the
services provided prior to a plan’s desired format; that the public Federal Register, for a discussion of
deemed termination on the services’ understands the Department’s collection those comments.
being provided in good faith pursuant to instruments; that the Department The Department received several
a written agreement and the QTA’s minimizes the reporting burden it comments regarding the fees associated
providing the Department with a copy imposes, both in time and financial with the establishment of an account for
of the written agreement and a resources; and that the Department participants and beneficiaries who fail
statement under penalty of perjury that properly assesses the impact of its to provide direction as to the
such services were actually performed. collection requirements on respondents. disposition of their account balances.
In response to comments on the Because QTAs that rely on the Two commenters requested that the
proposed regulations concerning the exemption are required, as a condition Department eliminate the requirement
limitations on fees, the Department has for the relief, to comply with the in section III(i)(2) of the proposed
revised one of the Abandoned Plan requirements of the Abandoned Plan exemption that fees and expenses
Regulations (the QTA Regulation, Regulations, published elsewhere in this attendant to the individual retirement
discussed below under ‘‘Discussion of issue of the Federal Register, the plan or other account, with the
Comments Received’’) to permit QTAs Department has combined the exception of establishment charges, may
to transfer certain small accounts to paperwork burden arising from the be charged only against the income
bank or savings association accounts or exemption with the paperwork burden earned by the individual retirement
the unclaimed property fund of the attributable to the Abandoned Plan plan or other account.
relevant state, but has determined not to Regulations, including specifically the The Department recognizes that the
make further changes in the conditions QTA Regulation, the Safe Harbor for fee limitations in the class exemption
imposed on transactions under the Distributions From Terminated may serve as a disincentive to a QTA
exemption. The Department believes Individual Account Plans, and the providing an individual retirement plan
that these conditions, which shape the Terminal Report for Abandoned for distributions from abandoned
transactions for which relief will be Individual Account Plans, under one
available, are justified by the protection Information Collection Request (ICR). 2 The Department received one request for a
they provide to participants and By combining these collections of public hearing which was subsequently withdrawn
by the commenter after the Department informed
beneficiaries. information, the Department believes the commenter that the issues raised in the
The conditions appropriately limit the that the general public will gain a better comment letter would be addressed in the final
extent to which a QTA may pay itself understanding of the burden impact as exemption.
individual account plans, particularly clarified to provide that the IRA owner authority or control with respect to the
with respect to accounts with small must be able to transfer his or her disposition of a plan’s assets, and
balances.3 In such cases, the QTA account balance to a different financial therefore acting as a fiduciary, when
Regulation permits the distribution to be institution without penalty to the paying itself fees from plan assets for
made to an interest-bearing federally principal. services under circumstances where the
insured bank account in the name of the Several comments addressed the service provider knows that there is no
participant or beneficiary, to the definitions contained in section V of the plan fiduciary monitoring plan services
unclaimed property fund of the state in proposed exemption. One commenter or otherwise responsible for the
which the participant’s or beneficiary’s recommended that the definition of management of the plan, as would be
last known address is located, or to an ‘‘Eligible Investment Product’’ be the case in a plan that is determined to
individual retirement plan provided by expanded to permit investments in have been abandoned by the plan
an unrelated financial institution. In lifestyle, retirement date and other sponsor. Second, the exemption also
light of this modification to the QTA balanced fund options. The commenter permits payment for services that were
Regulation, the Department does not stated that these options are designed not provided pursuant to a written
believe that further relief is warranted. for long-term investors who choose not contract, but were rendered in
However, the Department has to actively manage their accounts. The connection with a determination of plan
determined to modify the final Department notes that, given the nature abandonment under the QTA
exemption to provide relief for a QTA of the accounts governed by this Regulation. Such services will generally
(or its affiliate) that is a provider of an exemption, investments should be take place prior to the service provider
interest-bearing, federally insured bank designed to minimize risk, preserve becoming a QTA.
or savings association account, to assets for retirement and maintain One commenter on the QTA
designate itself or its affiliate as liquidity until the IRA owner becomes Regulation requested clarification on
provider of such an account for the available to take control of his or her how a QTA would be able to effect a
distribution of the account balances of account. Accordingly, the Department distribution on behalf of a missing or
participants or beneficiaries who do not has determined not to expand the non-responsive participant in
provide direction as to the disposition definition of ‘‘Eligible Investment circumstances when the benefit payable
of such balances, and to receive fees in Product’’ as requested. is subject to the Code’s survivor annuity
connection with the establishment and Several commenters requested requirements. The Department has
maintenance of such accounts for expansion of the definition of QTA in modified the final QTA Regulation by
distributions $1,000 or less. the Regulation, as well as certain related adding a provision that provides that if
A commenter also requested that the changes to the class exemption. For a QTA determines that the survivor
Department clarify that a one-time reasons more fully set forth in the QTA annuity requirements in section
closing fee would be treated the same as Regulation, the Department has 401(a)(11) and 417 of the Code prevent
an establishment fee which, under the determined not to expand the definition a distribution in accordance with the
exemption, is not limited to the amount of QTA. In light of the determination Safe Harbor Regulation, the QTA shall
of income earned by the account. The not to modify this final definition under distribute benefits in any manner
Department continues to believe that the QTA Regulation, no changes have reasonably determined to achieve
only establishment fees may be charged been made to the class exemption. compliance with the survivor annuity
against the principal balance of the As proposed, the class exemption requirements of the Code.
account. All other fees, including permitted a QTA to select itself to Although the commenter did not
termination costs, can only be charged furnish services to the plan in its request exemptive relief for the
against the income earned. capacity as a QTA, and to pay itself for purchase of annuity contracts from the
The commenter further requested that those services. It was suggested to the QTA or an affiliate, it does not foreclose
the Department clarify whether an IRA Department that the final exemption future consideration of additional
owner’s ability to transfer his or her also should permit a QTA to pay itself exemptive relief if the requisite findings
account to a different institution must for services rendered prior to becoming under section 408(a) of the Act can be
be made without penalty to principal. a QTA. Such services may have been made. Specifically, the Department is
Section III(h) of the proposed exemption rendered in connection with a interested in information with regard to
provided that the IRA owner may, determination of plan abandonment the types of products that are currently
within a reasonable period of time after under the QTA Regulation or pursuant available in the marketplace to
his or her request and without penalty to an existing written contract annuitize benefits, and the standards
to the principal amount of the previously entered into with the plan and safeguards that the Department
investment, transfer his or her account sponsor or other independent fiduciary would include in an exemption for the
balance to a different investment offered prior to the time the service provider purchase of such annuities.
by the QTA or its affiliate. The became the plan’s QTA.
After considering the issues, the Description of the Exemption
commenter asked for clarification of
how this rule would apply if the transfer Department has expanded the class The class exemption has five sections.
was made to a different financial exemption to permit a QTA to pay itself Section I describes the transactions that
institution. In response to this comment, for services rendered before becoming a are covered by the exemption. Section II
the Department does not believe that a QTA. In this regard, the exemption contains conditions for the provision of
participant who determines to transfer applies to two scenarios involving the termination services and the receipt of
his or her account balance to a different payment of fees. First, the exemption fees. Section III contains the conditions
financial institution should be faced permits the payment for services for distributions. Section IV contains the
provided pursuant to the terms of a general recordkeeping provisions
with a penalty deducted from the

principal amount of the investment. written contract previously entered into imposed on the QTA, and section V
Thus, the final exemption has been with the plan sponsor, or other contains definitions.
independent fiduciary. This Under section I(a), relief is provided
3 See the Safe Harbor Regulation at 2550.404a–3 modification recognizes that a service from the restrictions of sections
at d(1)(iii). provider might be viewed as exercising 406(a)(1)(A) through (D), 406(b)(1) and
406(b)(2) of the Act and the taxes Department regarding the proposed period from receipt of the notice, the
imposed by section 4975(a) and (b) of termination. QTA will directly distribute the account
the Code, by reason of section Under the exemption, fees and balance of the participant or beneficiary
4975(c)(1)(A) through (E) of the Code, expenses paid to the QTA and its to an individual retirement plan or other
for a ‘‘qualified termination affiliate must be consistent with account offered by the QTA or its
administrator’’ (QTA) within the industry rates for such or similar affiliate; and (2) the account balance
meaning of section V(a) of the services, based on the experience of the may be invested in the QTA’s own
exemption to use its authority in QTA, and must not be in excess of rates proprietary investment product, which
connection with the termination of an charged by the QTA (or its affiliate) for is designed to preserve principal and
abandoned individual account plan to the same or similar services provided to provide a reasonable rate of return and
select itself or an affiliate to provide customers that are not individual liquidity.
services to the plan, to receive fees for account plans terminated pursuant to The exemption also requires that the
services provided as a QTA, and to pay the QTA Regulation, if the QTA (or its individual retirement plan or other
itself fees for services provided to the affiliate) provides the same or similar account must be established and
plan prior to the deemed termination of services to such other customers. The maintained for the exclusive benefit of
the plan. reference to ‘‘industry rates’’ and ‘‘based the individual retirement plan or other
Section I(b) of the exemption provides on the experience of the QTA’’ are account holder, his or her spouse or
relief from the restrictions of sections intended to enable a QTA who their beneficiaries.
406(a)(1)(A) through (D), 406(b)(1) and possesses knowledge about the services The terms of the individual retirement
406(b)(2) of the Act and the taxes needed for a plan termination and plan or other account, including the fees
imposed by section 4975(a) and (b) of industry rates for such or similar and expenses for establishing and
the Code, by reason of section services, to engage or retain itself, an maintaining the individual retirement
4975(c)(1)(A) through (E) of the Code, affiliate, and other service providers plan or other account, must be no less
for a QTA to use its authority in without going through a potentially favorable than those available to
timely and costly bidding process. comparable individual retirement plans
connection with the termination of an
With respect to payment to the QTA or other accounts established for reasons
abandoned individual account plan to
for services provided to the plan prior other than the receipt of a distribution
designate itself or an affiliate as
to its deemed termination, the described in the QTA Regulation.
provider of an individual retirement In addition, the exemption requires
exemption provides relief in two
plan or other account to receive the that, other than in the case of a bank or
situations. First, the exemption covers
account balance of a participant that savings account described in section
payment for services performed by a
does not provide direction as to the I(b)(1)(iii) of the exemption for
service provider pursuant to the QTA
disposition of such assets. The other distributions of less than $1,000, the
Regulation prior to the deemed
accounts authorized by the exemption distribution must be invested in an
termination of the plan and the service
include an account, other than an provider becoming a QTA. Such Eligible Investment Product, as defined
individual retirement account, as services will generally have been in section V(c) of the exemption. The
described in section (d)(1)(ii) of the Safe performed by the service provider in rate of return or the investment
Harbor Regulation, for a distribution determining that a plan has been performance received by the individual
made to a distributee other than a abandoned and in preparing the notice retirement plan or other account from
participant or spouse, and an interest- of plan abandonment as required by an investment product must be no less
bearing, federally insured bank or section (c)(3) of the QTA Regulation. than that received by comparable
savings association account for Second, the exemption covers individual retirement plans or other
distributions of less than $1,000, as payment for services provided in good accounts that are not established
described in section (d)(1)(iii) of the faith pursuant to the terms of a written pursuant to the QTA Regulation but are
Safe Harbor Regulation. agreement prior to the service provider invested in the same product. For
Section I(b) of the class exemption becoming a QTA. This includes services example, the rate of return received by
further permits the QTA to make the provided under a valid, unexpired the individual retirement plan for an
initial investment of the distributed contract, as well as the continuation of investment in a one-year certificate of
proceeds in a proprietary investment such services after the contract had deposit which is an Eligible Investment
product, receive fees in connection with expired. With respect to such services, Product cannot be less than the rate of
the establishment or maintenance of the the QTA must demonstrate to the return received by an individual
individual retirement plan or other Department, in its initial notification of retirement plan or other account
account, and receive investment fees as plan abandonment (as required in established for reasons other than the
a result of the investment of the section (c)(3) of the QTA Regulation), by receipt of a distribution that is invested
individual retirement plan or other a representation under penalty of in an identical one-year certificate of
account’s assets in a proprietary perjury, that such services were actually deposit.
investment product in which the QTA performed. The QTA also must provide The exemption does not permit the
or an affiliate has an interest. a copy of the executed contract between individual retirement plan or other
Section II of the exemption describes the QTA and the plan fiduciary or plan account to pay a sales commission in
the conditions that apply to a sponsor that authorized such services. connection with the acquisition of an
transaction described in section I(a) of Section III contains conditions for Eligible Investment Product.
the exemption. The QTA must comply transactions described in section I(b) of Under the exemption, the individual
with the requirements of the QTA the exemption. In this regard, the retirement plan or other account holder
Regulation, which is published conditions of the QTA Regulation must must be able, within a reasonable period
elsewhere in this issue of the Federal be met. In addition, the QTA must of time after his or her request and
Register. Additionally, the QTA is inform the participant or beneficiary in without penalty to the principal amount
required to provide, in a timely manner, the notice required by section (d)(2)(vi) of the investment, to transfer his or her
any other reasonably available of the QTA Regulation that: (1) Absent individual retirement plan or other
information requested by the his or her election within the 30-day account balance to a different
investment offered by the QTA or its section V(d) and must seek to maintain, Code, the Department finds that the
affiliate. Also, the individual retirement over the term of the investment, a dollar exemption is administratively feasible,
plan holder or other account holder value that is equal to the amount in the interests of plans and their
must be able, within a reasonable period invested in the product by the participants and beneficiaries and
of time after his or her request and individual retirement plan or other protective of the rights of participants
without penalty to the principal amount account. Such term includes money and beneficiaries of such plans;
of the investment, to transfer his or her market funds maintained by registered (3) The exemption is applicable to a
individual retirement plan or other investment companies and interest- transaction only if the conditions
account balance to a different financial bearing savings accounts and certificates specified in the exemption are met; and
institution not related to the QTA or its of deposit of a bank or similar financial (4) The exemption is supplemental to
affiliate. institution. In addition, the term and not in derogation of any other
Under the exemption, fees and includes stable value products issued by provisions of the Act and the Code,
expenses attendant to the individual a financial institution that are fully including statutory or administrative
retirement plan or other account, benefit-responsive to the individual exemptions and transitional rules.
including the investment of the assets of retirement plan or other account holder. Furthermore, the fact that a transaction
such plan or account, (e.g., For purposes of this class exemption, is subject to an administrative or
establishment charges, maintenance the term ‘‘benefit responsive’’ means a statutory exemption is not dispositive of
fees, investment expenses, termination stable value product that provides a whether the transaction is in fact a
costs, and surrender charges) must not liquidity guarantee by a financially prohibited transaction.
exceed the fees and expenses charged by responsible third party of principal and
the QTA for comparable individual previously accrued interest for Exemption
retirement plans or other accounts liquidations or transfers initiated by the Accordingly, the following exemption
established for reasons other than the individual retirement plan or other is granted under the authority of section
receipt of a distribution made pursuant account holder exercising his or her 408(a) of the Act and section 4975(c)(2)
to the QTA regulation. Additionally, right to withdraw or transfer funds of the Code, and in accordance with the
fees and expenses attendant to the under the terms of an arrangement that procedures set forth in 29 CFR 2570,
individual retirement plan or other does not include substantial restrictions subpart B (55 FR 32836, 32847, August
account, other than establishment to the account holder’s access to the 10, 1990).
charges, may be charged only against individual retirement plan or other
I. Covered Transactions
the income earned by the individual account assets.
retirement plan or other account. The term ‘‘Regulated Financial (a) The restrictions of sections
Finally, fees and expenses shall not Institution’’ is defined in section V(d) to 406(a)(1)(A) through (D), 406(b)(1) and
exceed reasonable compensation within mean an entity that: (i) Is subject to state 406(b)(2) of the Act, and the taxes
the meaning of section 4975(d)(2) of the or federal regulation, and (ii) is a bank imposed by section 4975(a) and (b) of
Code. or savings association, the deposits of the Code, by reason of section
Section IV of the exemption contains which are insured by the Federal 4975(c)(1)(A) through (E) of the Code,
a recordkeeping requirement. The QTA Deposit Insurance Corporation; a credit shall not apply to a QTA, (as defined in
must maintain records to enable certain union, the member accounts of which section V(a) of this class exemption),
persons to determine whether the are insured within the meaning of using its authority in connection with
applicable conditions of the class section 101(7) of the Federal Credit the termination of an abandoned
exemption have been met. The records Union Act; an insurance company, the individual account plan pursuant to the
must be made available for examination products of which are protected by state Department’s regulation at 2550.404a–3,
by the IRS, the Department, and any guaranty associations; or an investment relating to the Termination of
account holder or duly authorized company registered under the Abandoned Individual Account Plans
representative of such account holder of Investment Company Act of 1940. (the QTA Regulation) to:
an individual retirement plan or other (1) Select itself or an affiliate to
account, for at least six years from the General Information provide services to the plan;
date the QTA provides notice to the The attention of interested persons is (2) Receive fees for the services
Department of its determination of plan directed to the following: performed as a QTA; and
abandonment and its election to serve as (1) The fact that a transaction is the (3) Pay itself fees for services
the QTA. subject of an exemption under section provided to the plan prior to the
Lastly, section V of the exemption 408(a) of the Act and section 4975(c)(2) deemed termination of the plan,
contains certain definitions. The term of the Code does not relieve a fiduciary provided that the conditions set forth in
‘‘qualified termination administrator’’ is or other party in interest or disqualified sections II and IV of this exemption are
defined in section V(a) as an entity that person from certain other provisions of satisfied.
is eligible to serve as a trustee or issuer the Act and the Code, including any (b) The restrictions of sections
of an individual retirement plan within prohibited transaction provisions to 406(a)(1)(A) through (D), 406(b)(1) and
the meaning of section 7701(a)(37) of which the exemption does not apply 406(b)(2) of the Act, and the taxes
the Code and that holds the assets of the and the general fiduciary responsibility imposed by section 4975(a) and (b) of
abandoned plan. provisions of section 404 of the Act, the Code, by reason of section
The term ‘‘Eligible Investment which require, among other things, that 4975(c)(1)(A) through (E) of the Code,
Product’’ is defined in section V(c) to a fiduciary discharge his duties with shall not apply to a QTA, using its
mean an investment product designed respect to the plan solely in the interests authority in connection with the
to preserve principal and provide a of the participants and beneficiaries of termination of an abandoned individual
reasonable rate of return, whether or not the plan and in a prudent fashion in account plan pursuant to the QTA
such return is guaranteed, consistent accordance with section 404(a)(1)(B) of Regulation to:
with liquidity. In this regard, the the Act; (1) Designate itself or an affiliate as:
product must be offered by a Regulated (2) In accordance with section 408(a) (i) Provider of an individual retirement
Financial Institution as defined in of the Act and section 4975(c)(2) of the plan; (ii) provider of an account (other
than an individual retirement plan) Represents under penalty of perjury that acquisition of an Eligible Investment
under the limited circumstances such services were actually performed Product.
described in section (d)(1)(ii) of the Safe and (ii) in the case of section II(c)(1)(i) (h) The individual retirement plan
Harbor Regulation for Terminated Plans above, provides the Department with a account holder or other account holder
(2550.404a–3) (Safe Harbor Regulation); copy of the executed contract between must be able, within a reasonable period
or (iii) provider of an interest-bearing, the QTA and a plan fiduciary or the of time after his or her request and
federally insured bank or savings plan sponsor that authorized such without penalty to the principal amount
association account maintained in the services. of the investment, to transfer his or her
name of the participant or beneficiary, account balance to a different
III. Conditions for Distributions investment offered by the QTA or its
in the case of a distribution described in
section (d)(1)(iii) of the Safe Harbor (a) The conditions of the QTA affiliate, or to a different financial
Regulation, for the distribution of the Regulation are met. institution not related to the QTA or its
account balance of the participant or (b) In connection with the notice to affiliate.
beneficiary of the abandoned individual participants and beneficiaries described (i)(1) Fees and expenses attendant to
account plan who does not provide in the QTA Regulation, a statement is the individual retirement plan or other
direction as to the disposition of such provided explaining that: account, including the investment of the
assets; (1) If the participant or beneficiary assets of such plan or account, (e.g.,
(2) Make the initial investment of the fails to make an election within the 30- establishment charges, maintenance
account balance of the participant or day period referenced in the QTA fees, investment expenses, termination
beneficiary in the QTA’s or its affiliate’s Regulation, the QTA will directly costs, and surrender charges) shall not
proprietary investment product; distribute the account balance to an exceed the fees and expenses charged by
(3) Receive fees in connection with individual retirement plan or other the QTA for comparable individual
the establishment or maintenance of the account offered by the QTA or its retirement plans or other accounts
individual retirement plan or other affiliate; established for reasons other than the
account; and (2) The proceeds of the distribution receipt of a distribution made pursuant
(4) Pay itself or an affiliate investment may be invested in the QTA’s (or to the QTA Regulation;
fees as a result of the investment of the affiliate’s) own proprietary investment (2) Fees and expenses attendant to the
individual retirement plan or other product, which is designed to preserve individual retirement plan or other
account assets in the QTA’s or its principal and provide a reasonable rate account, with the exception of
affiliate’s proprietary investment of return and liquidity. establishment charges, may be charged
product, provided that the conditions (c) The individual retirement plan or only against the income earned by the
set forth in sections III and IV of this other account is established and individual retirement plan or other
exemption are satisfied. maintained for the exclusive benefit of account; and
the individual retirement plan account (3) Fees and expenses attendant to the
II. Conditions for Provision of individual retirement plan or other
Termination Services and Receipt of holder or other account holder, his or
her spouse, or their beneficiaries. account are not in excess of reasonable
Fees in Connection Therewith compensation within the meaning of
(d) The terms of the individual
(a) The requirements of the QTA section 4975(d)(2) of the Code.
retirement plan or other account,
Regulation are met. The QTA provides,
including the fees and expenses for IV. Recordkeeping
in a timely manner, any other
establishing and maintaining the (a) The QTA maintains or causes to be
reasonably available information
individual retirement plan or other maintained, for a period of six (6) years
requested by the Department regarding
account, are no less favorable than those from the date the QTA provides notice
the proposed termination.
(b) Fees and expenses paid to the available to comparable individual to the Department of its determination
QTA, and its affiliate, in connection retirement plans or other accounts of plan abandonment and its election to
with the termination of the plan and the established for reasons other than the serve as the QTA described in the QTA
distribution of benefits: receipt of a distribution described in the Regulation, the records necessary to
(1) Are consistent with industry rates QTA Regulation. enable the persons described in
for such or similar services, based on (e) Except in the case of a QTA paragraph (b) of this section to
the experience of the QTA, and providing a bank or savings account determine whether the applicable
(2) Are not in excess of rates pursuant to section I(b)(1)(iii) of the conditions of this exemption have been
ordinarily charged by the QTA (or exemption, the distribution proceeds are met. Such records must be readily
affiliate) for the same or similar services invested in an Eligible Investment available to assure accessibility by the
provided to customers that are not plans Product(s), as defined in section V(c) of persons identified in paragraph (b) of
terminated pursuant to the QTA this class exemption. this section.
regulation, if the QTA (or affiliate) (f) The rate of return or the investment (b) Notwithstanding any provisions of
provides the same or similar services to performance of the individual section 504(a)(2) and (b) of the Act, the
such other customers. retirement plan or other account is no records referred to in paragraph (a) of
(c) In the case of a transaction less favorable than the rate of return or this section are unconditionally
described in section I(a)(3): investment performance of an identical available at their customary location for
(1) Such services: (i) Were performed investment(s) that could have been examination during normal business
in good faith pursuant to the terms of a made at the same time by comparable hours by—
written agreement executed prior to the individual retirement plans or other (1) Any duly authorized employee or
service provider becoming a QTA, or (ii) accounts established for reasons other representative of the Department of
were performed pursuant to the QTA than the receipt of a distribution Labor or the Internal Revenue Service;
Regulation; and described in the QTA Regulation. and
(2) The QTA, in the initial notification (g) The individual retirement plan or (2) Any account holder of an
of plan abandonment described in other account does not pay a sales individual retirement plan or other
section (c)(3) of the QTA Regulation: (i) commission in connection with the account established pursuant to this
exemption, or any duly authorized retirement plan shall not include an retirement plan or other account’s
representative of such account holder. individual retirement plan which is an assets.
(c) A prohibited transaction will not employee benefit plan covered by Title (d) The term ‘‘Regulated Financial
be considered to have occurred if due to I of ERISA. Institution’’ means an entity that: (i) Is
circumstances beyond the control of the (c) The term ‘‘Eligible Investment subject to state or federal regulation, and
QTA, the records necessary to enable Product’’ means an investment product (ii) is a bank or savings association, the
the persons described in paragraph (b) designed to preserve principal and deposits of which are insured by the
to determine whether the conditions of provide a reasonable rate of return, Federal Deposit Insurance Corporation;
the exemption have been met are lost or whether or not such return is a credit union, the member accounts of
destroyed, and no party in interest other guaranteed, consistent with liquidity. which are insured within the meaning
than the QTA shall be subject to the For this purpose, the product must be of section 101(7) of the Federal Credit
civil penalty that may be assessed under offered by a Regulated Financial Union Act; an insurance company, the
section 502(i) of the Act or to the taxes Institution as defined in paragraph (d) of products of which are protected by state
imposed by sections 4975(a) and (b) of this section and shall seek to maintain, guaranty associations; or an investment
the Code if the records are not over the term of the investment, the company registered under the
maintained or are not available for dollar value that is equal to the amount Investment Company Act of 1940.
examination as required by paragraph invested in the product by the (e) An ‘‘affiliate’’ of a person includes:
(b). individual retirement plan or other
(3) None of the persons described in (1) Any person directly or indirectly
account. Such term includes money controlling, controlled by, or under
paragraph (b)(2) of this section shall be
market funds maintained by registered common control with, the person; or
authorized to examine the trade secrets
investment companies, and interest- (2) Any officer, director, partner or
of the QTA or its affiliates or
bearing savings accounts and certificates employee of the person.
commercial or financial information
of deposit of a bank or similar financial
that is privileged or confidential. (f) The term ‘‘control’’ means the
institution. In addition, the term
power to exercise a controlling
V. Definitions includes ‘‘stable value products’’ issued
influence over the management or
(a) A termination administrator is by a financial institution that are fully
policies of a person other than an
‘‘qualified’’ for purposes of the QTA benefit-responsive to the individual
individual.
Regulation and this exemption if: retirement plan account holder or other
account holder, i.e., that provide a (g) The term ‘‘individual account
(1) The QTA is eligible to serve as a plan’’ means an individual account plan
trustee or issuer of an individual liquidity guarantee by a financially
responsible third party of principal and as that term is defined in section 3(34)
retirement plan or other account, within of the Act.
the meaning of section 7701(a)(37) of previously accrued interest for
the Code, and liquidations or transfers initiated by the Signed at Washington, DC, this 17th day of
(2) The QTA holds plan assets of the individual retirement plan account April, 2006.
plan that is considered abandoned. holder or other account holder Ivan L. Strasfeld,
(b) The term ‘‘individual retirement exercising his or her right to withdraw Director of Exemption Determinations,
plan’’ means an individual retirement or transfer funds under the terms of an Employee Benefits Security Administration,
plan described in section 7701(a)(37) of arrangement that does not include U.S. Department of Labor.
the Code. For purposes of this substantial restrictions to the account [FR Doc. 06–3815 Filed 4–20–06; 8:45 am]
exemption, the term individual holder access to the individual BILLING CODE 4150–29–P

Notice: Employee Benefit Plans Class Exemptions: Abandoned Individual Retirement Account Plans Termination

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Notice: Employee Benefit Plans Class Exemptions: Abandoned Individual Retirement Account Plans Termination

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Class Exemption for Services Provided in

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with a penalty deducted from the

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