[Federal Register Volume 62, Number 59 (Thursday, March 27, 1997)]
[Proposed Rules]
[Pages 14760-14762]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7709]



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Part IV





Department of Labor





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Pension and Welfare Benefits Administration



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29 CFR Part 2510



Definition of Plan Assets; Participant Contributions; Proposed Rule

  Federal Register / Vol. 62, No. 59 / Thursday, March 27, 1997 / 
Proposed Rules  

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2510

RIN 1210-AA59


Proposed Rule Amending the Definition of Plan Assets; Participant 
Contributions

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Proposed rule.

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SUMMARY: This document contains a proposed rule that would amend the 
Department of Labor's final regulation published in the Federal 
Register on August 7, 1996 that defines when participant contributions 
to a pension benefit plan become plan assets for purposes of Title I of 
the Employee Retirement Income Security Act of 1974, as amended 
(ERISA). The proposed amendment would harmonize the Title I rules 
governing the definition of plan assets with the Internal Revenue Code 
(Code) rules governing the timing of deposits for Savings Incentive 
Match Plans for Employees (SIMPLE plans) that involve Individual 
Retirement Accounts (SIMPLE IRAs) and thereby simplify compliance by 
small businesses.

DATES: Written comments must be submitted on or before May 27, 1997.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposed rule to: Pension and Welfare Benefits 
Administration, Room N-5669, U.S. Department of Labor, 200 Constitution 
Ave., N.W., Washington, D.C. 20210. Attention: Proposed Participant 
Contribution Regulation Amendment.

FOR FURTHER INFORMATION CONTACT: Amy J. Scheingold, Office of 
Regulations and Interpretations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor, Washington, D.C. (202) 219-
8671; or William W. Taylor, Plan Benefits Security Division, Office of 
the Solicitor, U.S. Department of Labor, Washington, DC (202) 219-9141. 
These are not toll-free numbers.

SUPPLEMENTARY INFORMATION: On August 7, 1996, the Department of Labor 
(the Department) published a final regulation at 61 FR 41220 defining 
when certain monies that a participant pays to, or has withheld by, an 
employer for contribution to a plan are ``plan assets'' for purposes of 
Title I of the Employee Retirement Income Security Act of 1974, as 
amended (ERISA), and the related prohibited transaction provisions of 
the Internal Revenue Code (the Code).1 Section 2510.3-102(a) of 
the final regulation sets forth a general rule that provides that the 
assets of a plan include amounts that a participant or beneficiary pays 
to an employer, or amounts that a participant has withheld from his 
wages by an employer, for contribution to the plan as of the earliest 
date on which such contributions can reasonably be segregated from the 
employer's general assets. With respect to employee pension benefit 
plans covered by Title I of ERISA, section 2510.3-102(b) of the final 
regulation further provides that in no event shall the date determined 
pursuant to section 2510.3-102(a) occur later than the 15th business 
day of the month following the month in which the participant 
contribution amounts are received by the employer or in which such 
amounts would otherwise have been payable to the participant in cash.
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    \1\ The Secretary of Labor has authority to issue regulations 
relating to most of section 4975 of the Internal Revenue Code 
pursuant to section 102 of Reorganization Plan No. 4 of 1978. 5 
U.S.C. App. 165, 43 FR 47713, October 17, 1978. For the sake of 
clarity, the remainder of the preamble refers only to Title I of 
ERISA. However, these references apply to the corresponding 
provisions of section 4975 of the Code as well.
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    Except as provided in ERISA Sec. 403(b), plan assets are required 
to be held in trust by one or more trustees.2 ERISA Sec. 403(a), 
29 U.S.C. 1103(a). In addition, ERISA's fiduciary responsibility 
provisions apply to the management of plan assets. Among other things, 
these provisions make clear that the assets of a plan may not inure to 
the benefit of any employer and shall be held for the exclusive purpose 
of providing benefits to participants in the plan and their 
beneficiaries, and defraying reasonable expenses of administering the 
plan. ERISA Secs. 403-404, 29 U.S.C. 1103-1104. These provisions also 
prohibit a broad array of transactions involving plan assets. ERISA 
Secs. 406-408, 29 U.S.C. 1106-1108. Employers who fail to transmit 
promptly participant contributions, and plan fiduciaries who fail to 
collect those amounts in a timely manner, will violate the requirement 
that plan assets be held in trust; in addition, such employers and 
fiduciaries may be engaging in prohibited transactions.
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    \2\ ERISA Sec. 403(b) contains a number of exceptions to the 
trust requirement for certain types of assets, including assets 
which consist of insurance contracts, and for certain types of 
plans. In addition, the Secretary has issued a technical release, 
T.R. 92-01, which provides that, with respect to certain welfare 
plans (e.g. cafeteria plans), the Department will not assert a 
violation of the trust or certain other reporting requirements in 
any enforcement proceeding, or assess a civil penalty for certain 
reporting violations involving such plans solely because of a 
failure to hold participant contributions in trust. 57 FR 23272 
(June 2, 1992), 58 FR 45359 (Aug. 27, 1993).
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    On August 20, 1996, the Small Business Job Protection Act of 1996 
(the Act, Pub. L. 104-188) was signed into law. Section 1421 of the Act 
amended section 408(p) of the Code to provide that certain employers 
may establish Savings Incentive Match Plans for Employees (SIMPLE 
plans). Under amended section 408(p) of the Code, an eligible employer 
may establish an employee pension benefit plan by making contributions 
to each eligible employee's SIMPLE Individual Retirement Account 
(SIMPLE IRA). Section 408(p)(5)(A)(i) of the Code provides that an 
employer must make salary reduction elective contributions to each 
eligible employee's SIMPLE IRA not later than the close of the 30-day 
period following the last day of the month with respect to which the 
contributions are to be made.3 However, section 1421 of the Act 
did not amend Title I of ERISA, as it did the Code, with respect to 
when such participant contributions become assets of the plan.
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     3  The Department has taken the position that 
contributions to an employee benefit plan made at the election of 
the participant, whether made pursuant to a salary reduction 
agreement or otherwise, constitute amounts paid to or withheld by an 
employer (i.e. participant contributions) within the scope of 
Sec. 2510.3-102, without regard to the treatment of such 
contributions under the Internal Revenue Code. See 53 FR 29660 (Aug. 
8, 1988).
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The Need for the Proposed Amendment

    In order to harmonize the Title I rules governing the definition of 
plan assets with section 408(p) of the Code, as amended by the Act, the 
Department proposes to amend 29 CFR 2510.3-102 to provide that salary 
reduction elective contributions under a SIMPLE plan that involves 
SIMPLE IRAs become plan assets as of the earliest date on which such 
contributions can reasonably be segregated from the employer's general 
assets, but in no event later than the 30th day following the month in 
which such amounts would otherwise have been payable to the participant 
in cash.

The Proposed Amendment

    The proposed rule contained in this notice would preserve the 
general rule set forth in section 2510.3-102(a) governing when 
participant contributions to employee pension benefit plans become plan 
assets. However, the proposed rule would amend 29 CFR 2510.3-102(b) by 
specifying that the maximum period during which salary reduction 
elective contributions under a SIMPLE plan that involves SIMPLE IRA may 
be treated as other than plan assets is the same

[[Page 14761]]

number of days as the period within which the employer is required to 
deposit withheld contributions under a SIMPLE plan that involves SIMPLE 
IRAs under section 408(p) of the Code, as amended by the Act. For all 
other pension plans covered under Title I of ERISA, including SIMPLE 
401(k) plans that meet the requirements of section 401(k)(11) of the 
Code, the maximum period would remain 15 business days following the 
month in which participant contributions were received by the employer 
(for amounts that participants or beneficiaries pay to the employer) or 
would otherwise have been payable to the participants in cash (for 
amounts that the employer withholds from the participant's wages).

Effective Date of the Amendment

    The Department is publishing this proposed rule for notice and 
comment and will promulgate this rule in final form subsequent to such 
comment period. The Department expects to issue a final rule 30 days 
following the close of the comment period. The Department has 
determined to propose that the final rule will be effective immediately 
upon publication. Moreover, the Department wishes to note that, pending 
adoption of the final amendment proposed in this notice, the Department 
will not assert a violation in any enforcement proceeding relating to 
salary reduction elective contributions under a SIMPLE plan that 
involves SIMPLE IRAs solely because the earliest date on which 
participant contributions could reasonably be made to a plan is later 
than 15 business days following the month in which such amounts would 
otherwise have been payable to the participant in cash, but not more 
than 30 calendar days following the month in which such amounts would 
otherwise have been payable to the participant in cash.

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires each 
Federal agency to perform an initial regulatory flexibility analysis 
for all proposed rules unless the head of the agency certifies that the 
rule will not, if promulgated, have a significant impact on a 
substantial number of small entities. Small entities include small 
businesses, organizations, and governmental jurisdictions. Although the 
Department believes that the proposed rule will not have a significant 
economic effect on a substantial number of small entities, the 
Department has elected to publish the following initial regulatory 
flexibility analysis in accordance with the requirements of 5 U.S.C. 
603.

(1) Why the Action Is Being Considered

    The Department is promulgating this regulation in order to 
harmonize Title I regulations with the Code, as amended by the Act. 
This is discussed in greater detail in the Supplementary Information 
section above.

(2) Objectives of, and Legal Basis for, the Proposed Rule

    The proposed regulation harmonizes 29 CFR 2510.3-102 with section 
408(p)(5)(A)(i) of the Code, as amended by the Act. This is discussed 
in greater detail in the Supplementary Information section above.

(3) Description and Estimate of Small Entities to Which the Rule Will 
Apply

    The proposed amendment would apply only to those employers that 
make salary reduction elective contributions under a SIMPLE plan that 
involves SIMPLE IRAs. These employers may be individuals, businesses or 
other for-profit institutions, and not-for-profit institutions. 
However, only employers that have no more than 100 employees who earned 
$5000 or more in compensation during the preceding calendar year are 
eligible to make these contributions under the Code. No small 
governmental jurisdictions will be affected by this regulation because 
governmental plans are not covered by Title I of ERISA. It is estimated 
that 6,000 employers would be affected by this proposed language. 
4
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     4 This figure is based on the revenue estimates for the Act 
prepared by the Joint Committee on Taxation. These revenue estimates 
suggest that approximately 300,000 SIMPLE IRAs will be created for 
individuals who previously did not have an employer-sponsored 
retirement plan. The small employers eligible to establish such 
plans have between 1 and 100 employees; on average, the small 
employers eligible to establish such plan will have 50 employees. 
The number of SIMPLE IRAs (300,000) divided by the average number of 
employees (50) equals the estimated 6,000 employers offering this 
form of retirement account.
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(4) Description of Compliance Requirements and Classes of Small 
Entities Subject to Requirements

    The proposed rule would impose no additional reporting, 
recordkeeping or other compliance requirements. Rather, by harmonizing 
a recently issued Title I regulation with the Code, eligible small 
employers that make salary reduction elective contributions to SIMPLE 
plans that involve SIMPLE IRAs will have a longer maximum time period 
to comply with requirement that participant contributions be placed in 
trust. The proposed rule may affect classes of small entities to the 
extent that the entities choose to establish such plans and to the 
extent that the such contributions cannot be segregated from the 
entities' general assets earlier than the maximum time period.

(5) Duplicative, Overlapping, or Conflicting Federal Rules

    The Department is not aware of any relevant federal rules that 
duplicate, overlap or conflict with the proposed rule. It is the view 
of the Department that harmonizing the Title I definition of plans 
assets with respect to participant contributions with section 408(p) of 
the Code, thereby establishing a uniform set of rules for salary 
reduction contributions to SIMPLE plans that involve SIMPLE IRAs, will 
simplify plan establishment and administration.

(6) Available Alternatives

    There are no significant alternatives to the proposed rule which 
would accomplish the stated objectives of the Act yet have less of an 
impact on small entities than the proposed rule. One purpose of the Act 
is to encourage small employers to adopt retirement plans by permitting 
them to use simplified retirement plans not subject to the complex 
rules ordinarily applicable to tax-qualified plans. 5 The proposed 
rule reflects the accommodation to small entities provided by the Act.
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     5 See House Report 104-586 (filed May 20, 1996).
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Executive Order 12866

    This regulatory action is not a ``significant rule'' within the 
meaning of Executive Order 12866 (58 FR 51735, Oct. 4, 1993), because 
it is not likely to result in: (1) an annual effect on the economy of 
$100 million or more, or an adverse and material effect on a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities; (2) the creation of a serious inconsistency or 
interference with an action taken or planned by another agency; (3) a 
material alteration in the budgetary impacts of entitlement, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or (4) raising of novel legal or policy issues arising out of 
legal mandates, the President's priorities, or the principles set forth 
in Executive Order 12866.

Paperwork Reduction Act

    The rule proposed in this notice is not subject to the requirements 
of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) because 
it does not contain an ``information collection request'' as defined in 
44 U.S.C. 3502(11).

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Unfunded Mandates Reform Act

    For purposes of Title II of the Unfunded Mandates Reform Act of 
1995, 5 U.S.C. 1531-1538, as well as Executive Order 12875, this 
proposed rule does not contain any federal mandate that may result in 
increased expenditures in either federal, State, local and tribal 
governments in the aggregate, or impose an annual burden exceeding $100 
million on the private sector.

Statutory Authority

    The proposed rule would be adopted pursuant to the authority 
contained in section 505 of ERISA (Pub. L. 93-406, 88 Stat. 894; 29 
U.S.C. 1135) and section 102 of Reorganization Plan No. 4 of 1978 (43 
FR 47713, October 17, 1978), effective December 31, 1978 (44 FR 1065, 
January 3, 1979), 3 CFR 1978 Comp. 332 and under Secretary of Labor's 
Order No. 1-87, 52 FR 13139 (Apr. 21, 1987).

List of Subjects in 29 CFR Part 2510

    Employee benefit plans, Employee Retirement Income Security Act, 
Pensions, Plan assets.

    For the reasons set out in the preamble, 29 CFR part 2510 is 
proposed to be amended as follows:

PART 2510--DEFINITIONS OF TERMS USED IN SUBCHAPTERS C, D, E, F, AND 
G OF THIS CHAPTER

    1. The authority citation for part 2510 continues to read as 
follows:

    Authority: Secs. 3(2), 111(c), 505, Pub. L. 93-406, 88 Stat. 
852, 894 (29 U.S.C. 1002(2), 1031, 1135) Secretary of Labor's Order 
No. 27-74, 1-86, 1-87, and Labor-Management Services Administration 
Order No. 2-9.

    Section 2510.3-101 is also issued under sec. 102 of Reorganization 
Plan No. 4 of 1978 (43 FR 47713, October 17, 1978), effective December 
31, 1978 (44 FR 1065, January 3, 1978); 3 CFR 1978 Comp. 332, and sec. 
11018(d) of Pub. L. 99-272, 100 Stat. 82.
    Section 2510.3-102 is also issued under sec. 102 of Reorganization 
Plan No. 4 of 1978 (43 FR 47713, October 17, 1978), effective December 
31, 1978 (44 FR 1065, January 3, 1978); 3 CFR 1978 Comp. 332.
    2. Paragraph (b) of Sec. 2510.3-102, as published in the Federal 
Register on August 7, 1996 at 61 FR 41233, is proposed to be amended to 
read as follows:


Sec. 2510.3-102  Definition of ``plan assets''--participant 
contributions.

* * * * *
    (b) Maximum time period for pension benefit plans.
    (1) Except as provided in paragraph (b)(2) of this section, with 
respect to an employee pension benefit plan as defined in section 3(2) 
of ERISA, in no event shall the date determined pursuant to paragraph 
(a) of this section occur later than the 15th business day of the month 
following the month in which the participant contribution amounts are 
received by the employer (in the case of amounts that a participant or 
beneficiary pays to an employer) or the 15th business day of the month 
following the month in which such amounts would otherwise have been 
payable to the participant in cash (in the case of amounts withheld by 
an employer from a participant's wages).
    (2) With respect to a SIMPLE plan that involves SIMPLE IRAs (i.e., 
Simple Retirement Accounts, as described in section 408(p) of the 
Internal Revenue Code), in no event shall the date determined pursuant 
to paragraph (a) of this section occur later than the 30th calendar day 
following the month in which the participant contribution amounts would 
otherwise have been payable to the participant in cash.
* * * * *
    Signed at Washington, DC, this 21st day of March 1997.
Olena Berg,
Assistant Secretary for Pension and Welfare Benefits, Department of 
Labor.
[FR Doc. 97-7709 Filed 3-26-97; 8:45 am]
BILLING CODE 4510-29-P