Federal Register, Volume 64 Issue 230 (Wednesday, December 1, 1999)

[Federal Register Volume 64, Number 230 (Wednesday, December 1, 1999)]
[Proposed Rules]
[Pages 67436-67444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31110]

[[Page 67435]]

_______________________________________________________________________

Part III

Department of Labor
_______________________________________________________________________

Pension and Welfare Benefits Administration

_______________________________________________________________________

29 CFR Part 2520

Proposed Small Pension Plan Security Amendments; Proposed Rule

Federal Register / Vol. 64, No. 230 / Wednesday, December 1, 1999 /
Proposed Rules

[[Page 67436]]

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2520

RIN 1210-AA73

Proposed Small Pension Plan Security Amendments

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

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: This document contains proposed amendments to the regulations
governing the circumstances under which small pension plans are exempt
from the requirements to engage an independent qualified public
accountant and to include a report of the accountant as part of the
annual report under Title I of the Employee Retirement Income Security
Act of 1974, as amended (ERISA). Regulation 29 CFR 2520.104-46 provides
a waiver of the annual examination and report of an independent
qualified public accountant for employee benefit plans with fewer than
100 participants at the beginning of the plan year. The proposed
amendments are designed to increase the security of assets in small
pension plans by conditioning the waiver of the requirements concerning
the engagement of an accountant on enhanced disclosure of information
to participants and beneficiaries and, in certain instances, improved
bonding requirements. This regulatory action is being proposed as a way
of enhancing the security and accountability of small pension plans
because of recent cases involving embezzlement or other
misappropriations of pension assets that have focused national
attention on the potential vulnerability of small pension plans to
fraud and abuse. The proposed amendments do not affect the exemption
for small welfare plans (such as group health plans) under
Sec. 2520.104-46. Conforming amendments are made to the simplified
annual reporting requirements specified in 29 CFR 2520.104-41. If
adopted, the proposal would affect participants and beneficiaries
covered by small pension plans, sponsors and administrators of small
pension plans, and service providers holding assets of small pension
plans.

DATES: Written comments concerning the proposed regulations must be
received by January 31, 2000.

ADDRESSES: Written comments (preferably three copies) should be sent
to: Office of Regulations and Interpretations, Room N-5669, Pension and
Welfare Benefits Administration, U.S. Department of Labor, 200
Constitution Avenue, NW, Washington, DC 20210, Attention: Small Pension
Plan Security Proposal. All submissions will be open to public
inspection in the Public Disclosure Room, Pension and Welfare Benefits
Administration, Room N-5638, 200 Constitution Avenue, NW, Washington,
DC.

FOR FURTHER INFORMATION CONTACT: John Keene, Office of Regulations and
Interpretations, Pension and Welfare Benefits Administration, (202)
219-8521. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

In general, the administrator of an employee benefit plan required
to file an annual report under Title I of ERISA must include as part of
that report the opinion of an independent qualified public accountant
(IQPA). These annual reporting requirements can be satisfied by filing
the Form 5500 ``Annual Return/Report of Employee Benefit Plan.''
¹ The requirements governing the content of the opinion and
report of the IQPA are set forth in ERISA section 103(a)(3)(A) and 29
CFR 2520.103-1(b). Section 104(a)(2)(A) permits the Department of Labor
(Department) to prescribe, by regulation, simplified annual reports for
pension plans with fewer than 100 participants. Section 104(a)(3)
permits the Department to prescribe exemptions from the reporting and
disclosure requirements or simplified reporting and disclosure for
welfare plans. In accordance with the Department's authority under
sections 104(a)(2)(A) and 104(a)(3), the Department adopted, at 29 CFR
2520.104-41, simplified annual reporting requirements for pension and
welfare benefit plans with fewer than 100 participants. In addition,
the Department, at 29 CFR 2520.104-46, prescribed for small plans a
waiver from the requirement of section 103(a)(3)(A) to engage an IQPA
and to include the opinion of the accountant as part of the plan's
annual report.
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\1\ See sections 101(b)(4) and 103 of ERISA, and 29 CFR
2520.103-1.
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Since the adoption of Sec. 2520.104-46 in 1976, the amount of
assets held in small pension plans has increased dramatically and small
pension plans have become important retirement savings vehicles for an
increasing number of American workers. Recently, media coverage of a
case involving misappropriation of pension assets over several years
focused national attention on the potential vulnerability of small
pension plans to fraud and abuse. There have been other cases where
service providers, administrators or other fiduciaries have misused
retirement savings held in small pension plans and have concealed their
acts by falsifying financial and other information to plan sponsors,
trustees, and participants. Although such cases are rare and legal
remedies often can be pursued in an effort to recover lost assets, the
Department believes that, given the increasing extent to which workers
are depending on their employment-based pension plans as a primary
source of retirement income, it is appropriate to take steps to improve
the security of pension assets in small pension plans.
One approach to improving the security of assets in small pension
plans is to require all such plans to comply with the audit
requirements of section 103(a)(3)(A). As noted above, the assets of
plans with fewer than 100 participants, unlike larger plans, are not
required to be examined by an IQPA. While subjecting the assets of
small pension plans to an audit would, in the view of the Department,
provide a high degree of certainty that the assets reported on a plan's
annual report are actually available to pay benefits, the Department
recognizes that the costs attendant to such a requirement may be
significant for many plans and plan sponsors. Consistent with the
Department's goal of encouraging pension plan establishment and
maintenance, particularly in the small business community, the
Department concluded that engaging an accountant should not be the only
means by which the security of small plan pension assets can be
improved.
In assessing alternatives to a mandatory audit requirement, the
Department concluded that a three-pronged approach--focusing on (1) Who
holds the plan'' assets, (2) Enhanced disclosure to participants and
beneficiaries and (3) In limited situations, an improved bonding
requirement--could enhance the level of security and accountability for
small pension plan assets, while keeping administrative burdens and
costs to a minimum by building on current recordkeeping, disclosure and
bonding requirements and practices. Based on our experience in dealing
with thousands of inquiries every year from participants regarding
their plans, we have determined that well informed participants and
beneficiaries are often in the best position to be watchdogs over their
own pension plans and can catch problems early. We also have determined
that, based on industry estimates, the costs of enhancing fidelity bond
coverage will be nominal for most

[[Page 67437]]

plans and less than the cost of an annual audit by an IQPA.
The alternative referenced above is set forth as proposed new
conditions for obtaining a waiver from the requirements concerning the
engagement of an IQPA under Sec. 2520.104-46. A description of the
proposal follows.

B. Proposed Amendment to Sec. 2520.104-46

Currently, the conditions to obtaining a waiver from the
requirement to engage an accountant under Sec. 2520.104-46 are that a
pension plan have fewer than 100 participants at the beginning of the
plan year and the plan administrator properly file the ``Form 5500-C/R
Return/Report of Employee Benefit Plan (With fewer than 100
participants).'' As discussed below, the proposal would, upon adoption,
amend the regulation to further condition eligibility for the waiver on
additional disclosures to plan participants and beneficiaries
concerning the assets held by their plans and, in certain instances, an
increase in the amount of a plan's fidelity bond.²
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\2\ On September 3, 1997, the Department of Labor, the Internal
Revenue Service, and the Pension Benefit Guaranty Corporation
published (62 FR 46556) proposed revisions to the annual return/
report forms filed for employee benefit plans. The Agencies proposal
replaced the Form 5500, Form 5500-C and Form 5500-R with one Form
5500 to be used by both large and small plan filers beginning with
1999 plan year filings. On June 24, 1998 the Agencies published a
notice of the submission of the revised Form 5500 for OMB review (63
FR 34493). PWBA received conditional approval for the revised Form
5500 under OMB control number 1210-0110. The Department also
published on December 10, 1998 (63 FR 68370) a notice of proposed
rulemaking to conform its regulations relating to the annual
reporting and disclosure requirements of Part 1 of Title I of ERISA
to the revised forms. The proposed amendments to the small pension
plan IQPA waiver contained in this notice would modify the proposed
amendments to Sec. 2520.104-41 and Sec. 2520.104-46 published in the
December 10 notice. The Form 5500 series may need to be adjusted
following adoption of a final rule in connection with this proposal
to reflect changes to the small pension plan IQPA waiver.
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In general, the Department believes that statements of plan assets
prepared by certain regulated financial institutions (such as banks,
insurance companies, mutual funds, and securities broker-dealers), if
made available to participants and beneficiaries, provide a means by
which participants and beneficiaries can independently confirm that the
assets reported by the plan to be available to pay benefits as of the
end of the plan year were, in fact, available according to the books
and records of the institution holding the assets. Such disclosure, in
the Department's view, reduces the likelihood of losses over long
periods due to acts of fraud or dishonesty. The Department also
believes that supplemental bonding requirements also will serve to
reduce the risk of loss due to acts of fraud or dishonestly where a
substantial percentage of a plan's assets are held by entities that may
not be subject to state or federal regulatory oversight.

1. Qualifying plan assets and bond requirement

The first part of the proposal, therefore, focuses on the extent to
which a plan's assets are held by regulated financial institutions.
See: Proposed Sec. 2520.104-46(b)(1)(i)(A). The proposal uses the term
``qualifying plan assets'' in applying the conditions of the waiver.
``Qualifying plan assets'' are defined in the proposal to include any
assets held by: a bank or similar financial institution, as defined in
Sec. 2550.408b-4(c); an insurance company qualified to do business
under the laws of a state; an organization registered as a broker-
dealer under the Securities and Exchange Act of 1934; or any other
organization authorized to act as a trustee for individual retirement
accounts under section 408 of the Internal Revenue Code. The term
``qualifying plan assets'' also includes assets that the Department
believes present little risk of loss to participants and beneficiaries
as a result of acts of fraud or dishonesty `` participant loans meeting
the requirements of ERISA section 408(b)(1) and qualifying employer
securities, as defined in ERISA section 407(d)(1). See Proposed
Sec. 2520.104-46(b)(1)(ii).
The proposal provides that, with respect to each plan year for
which the waiver is claimed, at least 95% of the assets of the plan
constitute ``qualifying plan assets'' or any person who handles plan
funds or other property that do not constitute ``qualifying plan
assets'' is covered by a bond meeting the requirements of ERISA section
412, except that the amount of the bond is not less than the value of
such assets.³ The 95% test is provided in recognition of the
fact that some small plans may have assets (such as limited partnership
or real estate interests) held by parties that are not regulated
financial institutions. It is not the intent of the Department in
proposing these amendments to directly or indirectly influence how the
assets of small plans are invested through application of the audit
requirements. Accordingly, only where more than 5% of a plan's assets
do not constitute ``qualifying plan assets'' will the bonding component
of the proposal apply. As noted above, the bonding component of the
proposal would require a bond meeting the requirements of ERISA section
412 in an amount equal to 100% of the assets that do not constitute
``qualifying plan assets.'' Based on industry estimates as detailed
below, it does not appear that the costs attendant to compliance with
the proposed bonding requirement will be significant enough to affect
plan investments in assets that are not ``qualifying plan assets.''
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\3\ Section 412 of ERISA and the regulations issued thereunder,
29 C.F.R. Sec. 2580.412-1 et seq., set forth the bonding
requirements generally applicable to ERISA-covered pension and
welfare benefit plans.
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Under the proposal, the percentage of a plan's assets that
constitute ``qualifying plan assets'' and, as appropriate, the amount
of supplemental bond coverage necessary to comply with the regulation
are to be determined for each plan year for which the waiver is
claimed. Accordingly, the administrator of a plan electing the waiver
must make the required determinations as of the beginning of the plan
year. For purposes of this requirement, the required determinations are
to be made in a manner consistent with the requirements of section 412.
Inasmuch as a determination that more than 5% of a plan's assets do not
constitute ``qualifying plan assets'' may necessitate an increase in
the amount of the plan's section 412 bond, assuming the administrator
does not elect to engage an accountant, the Department concluded that
the determination of ``qualifying plan assets'' should be made on the
same basis as the required bond. In this regard, 29 CFR 2580.412-14
requires that the amount of the section 412 bond be determined by
reference to the preceding reporting year. In the case of new plans,
with respect to which there is no preceding report year, Sec. 2580.412-
15 provides procedures for making estimates for the current year.
For example, Plan A, which reports on a calendar year basis, has
total assets of $600,000 as of the end of the 1999 plan year. Plan A's
assets, as of the end of year, include: investments in various bank,
insurance company and mutual fund products of $520,000; investments in
qualifying employer securities of $40,000; participants loans, meeting
the requirements of ERISA section 408(b)(1) totaling $20,000; and a
$20,000 investment in a real estate limited partnership. Because the
only asset of the plan that does not constitute a ``qualifying plan
asset'' is the $20,000 real estate investment and that investment
represents less than 5% of the plan's total assets, no bond would be
required under the proposal as a

[[Page 67438]]

condition for the waiver for the 2000 plan year. By contrast, Plan B
also has total assets of $600,000 as of the end of the 1999 plan year,
of which $558,000 constitutes ``qualifying plan assets'' and $42,000
constitutes non-qualifying plan assets. Because 7%--more than 5%--of
Plan B's assets do not constitute ``qualifying plan assets,'' Plan B,
as a condition to electing the waiver for the 2000 plan year, must
ensure that it has a fidelity bond in an amount equal to at least
$42,000 covering persons handling non-qualifying plan assets. Inasmuch
as compliance with section 412 generally requires the amount of bonds
to be not less than 10% of the amount of all the plan's funds or other
property handled, the bond acquired for section 412 purposes may be
adequate to cover the non-qualifying plan assets without an increase
(i.e., if the amount of the bond determined to be needed for the
relevant persons for section 412 purposes is at least $42,000). As
demonstrated by the foregoing example, where a plan has more than 5% of
its assets in non-qualifying plan assets, the bond required by the
proposal is for the total amount of the non-qualifying plan assets, not
just the amount in excess of 5%.

2. Disclosure

In addition to the bonding requirement, discussed above, the
proposal further conditions the waiver of the requirement to engage an
accountant on the disclosure of certain information to participants and
beneficiaries. Specifically, Sec. 2520.104-46(b)(1)(i)(B) of the
proposal requires that the summary annual report (SAR) of a plan
electing the waiver include, in addition to the other information
required by 29 C.F.R. Sec. 2520.104b-10: (1) The name of each
institution holding ``qualifying plan assets'' and the amount of such
assets held by each institution as of the end of the plan year; (2) The
name of the surety company issuing the bond, if the plan has more than
5% of its assets in non-qualifying plan assets; (3) A notice indicating
that participants and beneficiaries may, upon request and without
charge, examine, or receive copies, of evidence of the required bond
and statements received from each institution holding qualifying assets
which describe the assets held by the institution as of the end of the
plan year; and (4) A notice stating that participants and beneficiaries
should contact the Regional Office of the U.S. Department of Labor's
Pension and Welfare Benefits Administration if they are unable to
examine or obtain copies of statements received from each institution
holding qualifying assets or evidence of the required bond, if
applicable. Proposed Sec. 2520.104-46(b)(1)(i)(C) is intended to make
clear that plan administrators must, without charge, make the required
documents available for examination and, upon request, provide copies
of those documents to participants and beneficiaries.
As indicated earlier, these requirements, in an effort to minimize
costs to plans, are intended to build on existing recordkeeping and
disclosure requirements. In this regard, the Department believes that
all plans will receive year-end statements from institutions holding
``qualifying plan assets.'' The proposal does not require the year-end
statements to be in any particular form, but the statements, at a
minimum, must identify the institution holding the assets and the
amount of assets held as of the end of the year. Such information is
typically furnished in the normal course of business and would,
nonetheless, be necessary for administrators to properly discharge
their annual reporting obligations under ERISA. Moreover, because
annual reports generally are not required to be filed earlier than the
end of the 7th month after the end of plan year and summary annual
reports are not required to be distributed until 9 months after the
close of the plan year or, if there is an approved extension of time to
file, 2 months after the close of the extension period,⁴
administrators are afforded ample time to ensure the availability of
the information necessary to satisfy the disclosure obligation on which
the waiver is conditioned.
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\4\ See 29 C.F.R. 2520.104a-5 (regulation on date of filing for
annual reports), 29 C.F.R. 2520.104a-6 (regulation on date of filing
for annual reports for plans which are part of a group insurance
arrangement) and 29 C.F.R. 2520.104b-10(c) (regulation on when to
furnish summary annual reports)
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3. Limitations

The proposal would also make clear that this section does not
affect the obligation of a plan electing a waiver of the audit
requirement to file a Form 5500 ``Annual Return/Report of Employee
Benefit Plan,'' including any schedules or statements required by the
instructions to the form. In addition, the proposal would clarify that
a plan electing to file a Form 5500 as a small plan pursuant to the
``80 to 120 rule'' in 29 CFR 2520.103-1(d) may also claim the waiver
afforded in this section in the same manner as a plan with fewer than
100 participants. Under the ``80 to 120 rule,'' if the number of
participants covered under the plan as of the beginning of the plan
year is between 80 and 120, and an annual report was filed as a small
plan filer for the prior year, the plan administrator may elect to
continue to file as a small plan filer and claim the waiver afforded by
this section even though the plan covered more than 100 participants as
of the beginning of the plan year. On the other hand, a plan with fewer
than 100 participants as of the beginning of the plan year that elects
to continue to file a Form 5500 as a large plan pursuant to the ``80 to
120 rule'' is not eligible to claim the waiver afforded to small plan
filers.

C. Conforming Changes to the Simplified Annual Reporting Regulation

Conforming amendments to the simplified annual reporting provisions
in Sec. 2520.104-41 would clarify that, although other simplified
reporting options would continue to be available, if an employee
benefit plan with fewer than 100 participants does not meet the
criteria set forth in Sec. 2520.104-46, it would be required to engage
an IQPA to conduct an examination of the financial statements of the
plan, include with the plan's annual report the financial statements,
notes and schedules prescribed in ERISA section 103(b) and 29 CFR
2520.103-1, and include within the plan's annual report a report of an
IQPA as prescribed in ERISA section 103(a)(3)(A) and 29 CFR 2520.103-
1(b)(5).

D. Effective Date

This regulation is proposed to be effective 60 days after
publication of a final rule in the Federal Register. If adopted, the
proposed amendments would be applicable to the first plan year
beginning after the effective date of the final regulations.

E. Request for Public Comments on Alternatives

During the development of this proposal, small business groups
expressed concern about the Department taking actions in this area that
would increase administrative costs for small business owners thinking
about continuing existing pension plans or offering new ones. The
Department shares these concerns. Data indicate that more than one half
of the private sector workforce does not participate in a pension plan,
and this problem is particularly serious in the small business sector.
In developing this proposal we attempted to balance the interest in
providing secure retirement savings for participants and beneficiaries
with the interest in minimizing costs and burdens on small

[[Page 67439]]

pension plans and the sponsors of those plans.
To aid in this effort as we develop a final regulation, the
Department is interested in obtaining views and comments from the
benefit plan community on whether there are alternative approaches that
would provide significant enhancements in the security of small pension
plan assets and the accountability of persons handling those assets
which would be more effective or involve less cost and burden than this
proposal. In that regard, the Department specifically invites comments
on requiring as conditions of being eligible for the audit waiver that
small pension plans (1) Obtain a fidelity bond covering persons who
handle plan funds in an amount equal to at least 80% of the value of
the plan's assets and (2) Make available to participants and
beneficiaries a schedule of the plan's assets held for investment
purposes as of the end of the plan year similar to the schedule
currently required as part of the Form 5500 annual report filed by
pension plans with 100 or more participants. Additionally, the
Department requests comments on the investment of small pension plans
assets; specifically, the proportion of assets that are ``qualifying
plan assets'' as defined in this proposal.

Executive Order 12866 Statement

Under Executive Order 12866, the Department must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f), the order defines a
``significant regulatory action'' as an action that is likely to result
in a rule: (1) Having an annual effect on the economy of $100 million
or more, or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) Creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) Materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) Raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, it has been
determined that this action is ``significant'' and subject to OMB
review under Section 3(f)(4) of the Executive Order. Consistent with
the Executive Order, the Department has undertaken to assess the costs
and benefits of this regulatory action. The Department's assessment,
and the analysis underlying that assessment, is detailed below.

Overview

In the Department's view, the benefits of the proposed additional
requirements for the IQPA waiver outweigh the costs. The enhanced
accountability and security of small pension plans resulting from
additional IQPA waiver conditions will benefit plan participants who
are counting on these pensions for retirement security. Given the more
than $300 billion in small pension plan assets, any increase in
security and accountability is valuable. The additional conditions will
also strengthen confidence in the pension system as a whole, and this
added confidence may encourage more employers to offer pension plans,
as well as additional workers to participate in pension plans that are
offered. The costs to small pension plans will not be large `` it is
estimated to be less than 1% of total annual administrative costs for
all small pension plans. Estimates from Form 5500 data indicate that
most small pension plans (as quantified below) would meet the
requirement that at least 95% of their assets be ``qualifying plan
assets.'' For the few plans not meeting this requirement, the cost of
obtaining fidelity bonds to enable them to meet the conditions required
for the waiver are low. The statements required from qualifying
financial institutions will impose no additional costs on plans because
these records are kept as part of usual and customary business
practices as the information is necessary for administrators to
properly discharge their annual reporting obligations under ERISA.
Finally, the cost of meeting disclosure requirements is small because
after an initial start up cost to modify the SAR, no additional
preparation costs are associated with SAR disclosure beyond the SAR
statutory requirements. Additionally, no preparation is associated with
distributing the statements and evidence of fidelity bonds that
participants may request under the proposal.
The total costs imposed by the additional conditions this proposal
would place on the small plan audit waiver are expected to be a one
time cost of $5.9 million, plus $9.0 million annually.⁵ This
is composed of a $5.9 million start up cost to include summary language
on the financial statements and bonds in the SAR, an $8.0 million cost
for the estimated 37,000 plans not meeting the 95% test to obtain a
bond, and a $995,000 cost to plans for providing copies of the
statements and bonds upon request.
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\5\ The cost estimates are derived from 1995 data on pension
plans (the latest available) and 1997 BLS data on occupational
wages.

Costs Imposed by Proposed Small Pension Plan Security Amendments
----------------------------------------------------------------------------------------------------------------
Provide
requested
Proposed regulatory provision SAR summary language Obtain a bond copies of
statements and
bonds
----------------------------------------------------------------------------------------------------------------
Number of plans impacted................ 605,000................... 37,000.................... 605,000
Total Cost.............................. $5.9 million.............. $8.0 million.............. $995,000
Cost per plan........................... $10....................... $220...................... $1.64
----------------------------------------------------------------------------------------------------------------

Statement of Need for Proposed Action

As noted earlier, recent cases involving embezzlement or other
misappropriations of pension assets have focused national attention on
the potential vulnerability of small pension plans to fraud and abuse.
As a result, the Department has determined that modifications to the
small plan audit waiver would enhance pension plan security. Imposing
the additional conditions on the audit waiver would

[[Page 67440]]

help reduce the risk of loss due to acts of fraud or dishonesty with
small plan assets. It would also provide participants with more
information about their pension plans, thus better enabling them to
help provide the checks and balances needed to ensure the integrity of
the pension plan.

Examination of Alternative Approaches

To improve the security of pension plan assets, and to better
provide participants and other parties to the plan the ability to
verify and monitor the existence of small pension plan assets, various
alternatives to the proposal were considered. The voluntary nature of
the private pension system requires the Department to be particularly
sensitive to costs imposed by regulations and to avoid, when possible,
any action that would negatively impact small pension plan formation or
maintenance. The Department therefore consulted industry groups and
associations regarding alternatives available to enhance pension plan
security and the burdens imposed by these various alternatives. The
proposed regulation was crafted using these suggestions, and is
intended to accomplish these goals without imposing significant costs
on pension plans.
Among the alternatives considered were on-site inspection, periodic
reporting, additional compliance penalties, additional bonding
requirements, and eliminating the existing small plan audit waiver of
examination and report of an accountant. However, all of these options
were either extremely expensive (ranging in cost from $200 million to
$4 billion paid by plans or plan sponsors) and thus conflicted with the
Department's priority of creating a regulatory environment that
encourages pension plan formation, not feasible to implement, or would
not have sufficiently enhanced small pension plan security.

Cost Analysis

The requirements contained in this proposal were developed to best
conform to the actual investment patterns of small plans, rather than
to alter these patterns. To understand the investment patterns of plans
and the typical percentage of plan assets that would meet the
``qualifying plan assets'' requirement, we used Form 5500 data to
examine how pension plans report their allocation of assets among
various investment categories. Plan asset allocation information on the
Form 5500 C/R filed by small plans is currently limited to very general
categories. Because of this lack of detailed financial information, the
Form 5500 filings of plans with more than 100 participants but less
than $2 million in assets (within two standard deviations of the mean
asset value of small plans) were used as a proxy. Data show that within
this proxy group, the proportion of investments in ``qualifying plan
assets'' to total investments does not vary with plan size except among
the largest plans (those with 2,500 or more participants), which
represent less than 1 percent of the proxy group. We obtained a
distribution of these plans based upon the proportion of each plan's
assets that are ``qualifying plan assets.'' We then applied this
distribution to the actual 1995 count of small plans to estimate a
distribution of small plans based on the proportion of assets that are
``qualifying plan assets.'' We assumed that assets reported as cash,
CD's, U.S. Government Securities, corporate debt and equity, loans,
employer securities and the value of interest in direct filing
entities, registered investment companies, and insurance company
general accounts constitute ``qualified plan assets'' as defined in
this proposal.
The chart below shows the results of the analysis of 1995 data (the
most recent year of available data) using these assumptions, and how
many plans out of the 605,000 would not meet the ``qualifying plan
assets'' test if the threshold were set at the various percentages
outlined in the table. This shows that the vast majority of the assets
of small plans are ``qualifying plan assets.'' Specifically, for all
but 6% of small pension plans, at least 95% of plan assets constitute
``qualifying plan assets.'' Similarly, for all but 3% of plans, at
least 90% of plan assets constitute ``qualifying plan assets.'' As the
threshold moves below 90%, very few additional plans are added to the
list of those having the required percentage of ``qualifying plan
assets.'' The analysis of the data indicates that the 95% threshold
represents the point at which most small plans maintain their assets in
investments which represent minimal risks to their security.
Consequently, the 95% threshold requirement is the means by which most
plans will meet the requirement for the audit waiver. The plans that
will not meet the 95% threshold are atypical of the industry standard,
impose a greater risk on plan asset security, and are sufficiently few
in number such that additional conditions for an audit waiver to
protect participants and plan assets are warranted and are also cost
effective.

Estimates of the Number and Percentage of Small Pension Plans (1-99 Participants) Not Meeting the ``Qualifying Plan Assets'' Test at Various Threshold
Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alternative Threshold Levels for Qualifying Plan Assets
------------------------------------------------------------------------------------------
100% 95% 90% 85% 80% 75% <75%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of plans.............................................. 347,148 36,595 18,590 16,218 15,036 13,924 50
Percent of plans............................................. 57% 6% 3% 3% 2% 2% .01%
--------------------------------------------------------------------------------------------------------------------------------------------------------

Imposing an audit on small pension plans that do not meet the 95%
requirement was initially considered. However, the audit cost for these
6% of small pension plans--$230 million annually--was determined to be
comparatively too great in relation to other alternatives. We
considered the alternative of adjusting bonding requirements and
calculated the cost of requiring those plans that do not meet the 95%
test to obtain fidelity bonds for the funds that are not ``qualifying
plan assets.'' Our analysis shows that bonding is a substantially less
costly alternative, lowering aggregate costs by a factor of more than
20 while similarly accomplishing the goal of enhancing small pension
plan security.
This alternative was feasible because for the 6% of plans that do
not meet the 95% test, nearly all meet the condition that at least 75%
of assets are ``qualifying plan assets.'' This means that nearly all of
the affected plans would be able, at a relatively low cost, to purchase
a fidelity bond in the amount equal to, at most, those 25% of plan
assets that are not ``qualifying plan assets.'' For the average plan
with $600,000 in assets, this leaves an upper bound of $150,000 in
assets that would need to be covered by a bond. Applying

[[Page 67441]]

an annual premium of $200 ⁶ to the 6% of plans with these
$150,000 in assets needing bonding coverage yields a cost of $7.3
million. In addition to the average bond premium of $200 per plan,
obtaining the bond is estimated to involve one-half hour of an
analyst's time at $39 per hour per small plan, for a cost of $0.7
million. Summing these costs yields $8.0 million to comply with the
additional bonding requirement.
---------------------------------------------------------------------------

\6\ The bonding premium was estimated based on information
supplied by industry representatives.
---------------------------------------------------------------------------

To address the need to enhance the ability of participants to
monitor the financial status of plans that do not receive financial
audits, the proposed regulation would require that the SAR be modified
to include summary information describing the statements and fidelity
bonds and a notice that copies are available upon request. This
requirement merely involves an initial start up cost to plans to modify
their automated SAR forms to include the language required by the
regulation. Similar to the assumptions made for the Form 5500 and SAR
regulatory analyses, 90% of plans are assumed to use service providers
for the required SAR modifications, with the remaining plans performing
the modifications in-house. The one-time cost of modifying the SAR form
is estimated to be $5.9 million--15 minutes of a professional's time at
$39 per hour for all small plans. Any preparation burden associated
with completing the SAR form is not attributable to this proposal, but
rather, to SAR requirements in general. Another burden associated with
disclosure requirements is providing copies of the statements and
bonding information to those participants and beneficiaries who request
them. The Department assumes that 5% of participants and beneficiaries
will request this information. Since the documents already have been
provided by bonding companies and financial institutions, the cost of
compliance merely involves assembling the appropriate documents and
photocopying, by a clerical worker at $15 per hour, and mailing costs
at $.37 per distribution--for an aggregate cost of about $995,000 to
plans.

Benefits Analysis

The proposed regulation is intended to accomplish two purposes: to
limit pension plan fraud and to provide all parties of small pension
plans with information to monitor their plan assets and plan
fiduciaries. The benefits of reducing fraud and improving information
disclosure are numerous. In addition to the benefits listed below, this
proposal strengthens the self-regulating aspects of ERISA. With minimum
government intervention, participants and other parties to the plan
will have an improved ability to verify and monitor plan assets. The
following bullets highlight the other potential benefits of the
proposed regulation in a qualitative, and when possible, quantitative,
way:
Confidence in the private pension system may be
strengthened and may result in increased participation among the nearly
600,000 private wage and salary workers who currently elect not to
participate in a small plan that is offered;
In 1998, more than $6 million in pension plans assets were
recovered as a result of criminal investigations. If new conditions are
imposed on the small plan audit exemption, fewer assets may be missing
from plans in the future because of the checks and balances put in
place by improved information disclosure;
The investigations and litigation associated with
recovering assets of small pension plans can be very costly to private
parties and to the Government. In 1998, nearly 6,000 civil
investigations were initiated by the Department. If new conditions are
imposed on the small plan audit exemption, losses will likely decline
and fewer investigations of small pension plans may be needed. This
will have the dual effect of lowering investigation-related costs for
small plans and permitting Federal authorities to enhance the security
of other participants by directing their efforts elsewhere; and
When workers discover that their pension plan assets are
missing or are jeopardized, worker productivity declines. Time at work
may be spent investigating what happened to plan assets, whether they
will be restored, and whether retirement will be possible without these
pension assets. If fewer instances of embezzlement occur as a result of
additional conditions being imposed on the small plan audit exemption,
this productivity loss will likely be reduced or eliminated.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to 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.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency determines that a proposed rule is not
likely to have a significant economic impact on a substantial number of
small entities, section 603 of the RFA requires that the agency present
an initial regulatory flexibility analysis at the time of the
publication of the notice of proposed rulemaking describing the impact
of the rule on small entities and seeking public comment on such
impact. Small entities include small businesses, organizations and
governmental jurisdictions.
For purposes of analysis under the RFA, PWBA proposes to continue
to consider 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)(2) of the Employee Retirement Income Security Act of 1974
(ERISA), which permits the Secretary of Labor to prescribe simplified
annual reports for pension plans which cover fewer than 100
participants. Under section 104(a)(3), the Secretary may also provide
for exemptions or simplified annual reporting and disclosure for
welfare benefit plans. Pursuant to the authority of section 104(a)(3),
the Department has previously issued at 29 C.F.R. Secs. 2520.104-20,
2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-10 certain
simplified reporting provisions and limited exemptions from reporting
and disclosure requirements for small plans, including unfunded or
insured welfare plans covering fewer than 100 participants and which
satisfy certain other requirements.
Further, while some large employers may have small plans, in
general most small plans are maintained by small employers. Thus, PWBA
believes that assessing the impact of this proposed rule 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
which 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.). PWBA therefore requests comments on the
appropriateness of the size standard used in evaluating the impact of
this proposed rule on small entities.
On this basis, however, PWBA has preliminarily determined that this
rule will not have a significant economic impact on a substantial
number of small entities. In support of this determination, and in an
effort to provide a sound basis for this conclusion, PWBA has prepared
the following regulatory flexibility analysis.

[[Page 67442]]

The amount of assets in small pension plans has grown nearly
tenfold since 1975, making small pension plans an increasingly
important retirement savings vehicle for Americans. In light of recent
cases involving embezzlement or other misappropriations of pension
assets that have focused national attention on the potential
vulnerability of small pension plans to fraud and abuse, this
regulatory action is being considered to enhance the security and
accountability of small pension plans.
The objective of the proposed rule is to verify the existence of
small pension plan assets and to provide information to all parties to
the plan in order to enhance pension plan security. The requirements
governing the proposed regulation are set forth in ERISA section
104(a)(2), in which Congress evidenced specific intent to provide small
plans with relief from burdensome and expensive reporting requirements,
and in the regulations Secs. 2520.104-41 and 2520.104-46.
The proposed regulation amends the Department's existing waiver of
examination and report of an independent qualified public accountant
for employee benefit plans with fewer than 100 participants under
ERISA. In 1995, there were about 605,000 employee pension plans with
fewer than 100 participants that met the requirements for the audit
waiver. Under the proposed regulation, an estimated 94% of these plans
will meet the additional audit waiver requirement that at least 95% of
plan assets be ``qualifying plan assets.'' This means that only about
37,000 small plans will be subject to the requirement that the plan
either purchase fidelity bonds for those assets that are not
``qualifying plan assets'' or obtain an audit. All 605,000 small
pension plans will be subject to the disclosure requirement that the
SAR contain summary information on the financial institution statements
and bonds, and that the information be provided free of charge upon
request.
This proposed rule impacts all classes of small pension plans with
fewer than 100 participants subject to Title I of ERISA. The proposal
described here is the one that accomplishes the objective of enhancing
pension plan security without imposing significant costs via additional
reporting, recordkeeping, and other compliance requirements. The 6% of
plans that do not meet the proposed criteria for an audit waiver must
either purchase a fidelity bond to cover the funds that are not
``qualifying plan assets'' or obtain an audit. We assume plans will
choose the less costly alternative--bonding. In addition to the average
bond premium of $200 per plan, obtaining the bond is estimated to
involve one-half hour of an analyst's time at $39 per hour per small
plan, for an aggregate cost of $8 million. Second, the plan
administrator would have to receive from each qualifying financial
institution a statement identifying each plan asset held. No cost is
associated with this requirement because the statements required from
qualifying financial institutions are records that these institution
dispense as part of usual and customary business practices and that
plan administrators must obtain to properly discharge their annual
reporting obligations under ERISA. Third, the plan's SAR would have to
include summary information describing the statements and fidelity
bonds and a notice that copies of the statements and bonds are
available at no charge. This requirement involves an initial start up
cost of $5.9 million--15 minutes of a professional's time at $39 for
all 605,000 small plans to modify their SAR forms to include the
language required by the regulation. Additionally, plans would be
required to provide participants and beneficiaries copies of the
statements and bonding information upon request. The Department assumes
that 5% of participants and beneficiaries will request this information
at a cost of $995,000 to plans--assembling and photocopying by a
clerical worker at $15 per hour for 7 minutes per distribution, and
mailing costs of $.37 per mailing. The aggregate annual disclosure cost
of $995,000 translates to only $1.64 per plan and is the only annual
cost imposed by this regulation on the estimated 568,000 plans meeting
the 95% test. For the 37,000 plans not meeting the 95% test, they also
face an annual cost of $8 million for bonding requirements, or an
additional $220 per plan. Additionally, all 605,000 plans face the one
time start up cost of $10 per plan.
When considering any regulatory action, it is important to consider
the impact on businesses of various sizes. Given that well over half of
all small pension plans (57%) have between 1 and 10 participants, it is
important to focus on these small plans in particular.

Estimates of the Number and Percentage of Very Small Pension Plans (1-9 Participants) Not Meeting the ``Qualifying Plan Assets'' Test at Various
Threshold Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alternative Threshold Levels for Qualifying Plan Assets
------------------------------------------------------------------------------------------
100% 95% 90% 85% 80% 75% <75%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of plans.............................................. 186,142 20,377 10,771 9,402 8,737 8,100 49
Percent of plans............................................. 54% 6% 3% 3% 3% 2% .01%
--------------------------------------------------------------------------------------------------------------------------------------------------------

As the above table shows, \7\ the percent of plans with 1-9
participants that would meet the requirement that 95% of assets be
``qualifying plan assets'' is the same as that for all small plans with
fewer than 100 participants. Therefore, the 95% threshold is reasonable
for all classes of plans within the category of those with fewer than
100 participants.
---------------------------------------------------------------------------

\7\ The data in the table was estimated in the same way as that
for pension plans with more than 100 participants (see Executive
Order 12866 Statement).
---------------------------------------------------------------------------

A discussion of alternatives to the proposed rule that the
Department considered appears above in the ``Examination of Alternative
Approaches'' section of the Executive Order 12866 Statement.
No relevant federal rules are anticipated to duplicate, overlap, or
conflict with this proposed rule.

Paperwork Reduction Act

The Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. Sec. 3506(c)(2)(A)). This helps to ensure that requested
data can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.

[[Page 67443]]

Currently, the Pension and Welfare Benefits Administration is
soliciting comments concerning the proposed revision of the information
collection request (ICR) included in this Notice of Proposed Small
Pension Plan Security Amendments. A copy of the ICR may be obtained by
contacting the office listed in the addressee section of this notice.
The Department of Labor (Department) has submitted a copy of the
proposed information collection to the Office of Management and Budget
(OMB) in accordance with 44 U.S.C. Sec. 3507(d) of PRA 95 for review of
its information collections. The Department and OMB are particularly
interested in comments which:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, D.C. 20503; Attention: Desk Officer for
the Pension and Welfare Benefits Administration. Although comments may
be submitted through January 31, 2000, OMB requests that comments be
received within 30 days of publication of the Notice of Proposed
Rulemaking to ensure their consideration.

ADDRESSEE (PRA 95): Gerald B. Lindrew, Office of Policy and Research,
U.S. Department of Labor, Pension and Welfare Benefits Administration,
200 Constitution Avenue, NW, Room N-5647, Washington, D.C. 20210.
Telephone: (202) 219-4782 (this is not a toll-free number); Fax: (202)
219-4745.
The proposed modifications to the small plan audit waiver will
increase the security and accountability of small pension plans. The
paperwork burden imposed on plans will be minimal. No paperwork burden
is associated with two of the three provisions in the regulation--the
requirement that 95% of plan assets be--qualifying plan assets'' and
the improved bonding requirement for those plans not meeting the 95%
test. Paperwork does arise from the third provision--modifying the SAR
to include summary information describing the statements and bonds and
noting that copies are available upon request. This requirement
involves a one-time start up cost to plans to modify their SAR forms to
include the language required by the regulation. Since 90% of plans are
assumed to use service providers to comply with ERISA Form 5500 and SAR
reporting requirements, it is assumed that the modifications to the SAR
form will be done by service providers for 90% of plans, and in-house
for the remaining plans. The start up cost (averaged over a three year
period) is estimated to be $1.8 million for the 90% small plans using
service providers and 15,000 hours for the remaining plans--15 minutes
per plan, at $39 per hour (professional's rate) for those plans using
service providers. Another cost associated with the SAR disclosure
requirements is providing copies of the statements and bonding
information to participants and beneficiaries who request them. The
Department assumes that 5% of participants and beneficiaries will
request this information. Since the documents already have been
provided by bonding companies and financial institutions, the cost of
compliance per distribution merely involves 5 minutes to ready the
appropriate documents for mailing and 2 minutes of photocopying by a
clerical worker, at a $15 hourly rate for plans using service
providers, and mailing costs of $.37 per mailing. The aggregate burden
is $912,000 and 5,500 hours.
Type of Review: Revision of an existing information collection.
Agency: Pension and Welfare Benefits Administration, Department of
Labor.
Title: ERISA Summary Annual Report Requirement.
OMB Number: 1210-0040.
Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
Frequency of Response: Annually.
Total Respondents: 817,000.
Total Responses: 235,000,000.
Estimated Burden Hours: 1,390,172 total (1,369,577 for existing
information collection request, and 20,595 for proposed amendments).
Estimated Annual Cost (Capital/Startup): $1,770,000 total.
Estimated Annual Costs (Operating and Maintenance): $112,287,000
total ($111,375,000 for the existing information collection request,
and $912,000 for proposed amendments).
Total Annualized Costs: $114,057,000 total ($111,375,000 for the
existing information collection request, and $2,682,000 for proposed
amendments).
Comments submitted in response to this notice will be summarized
and/or included in the request for OMB approval of the information
collection request; they will also become a matter of public record.

Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, this proposed rule does not
include any Federal mandate that may result in expenditures by State,
local or tribal governments, and does not impose an annual burden
exceeding $100 million on the private sector.

Small Business Regulatory Enforcement Fairness Act

The rule proposed in this action is subject to the provisions of
the Small Business Regulatory Enforcement Fairness Act of 1996 (5
U.S.C. 801, et seq.) (SBREFA) and is a major rule under SBREFA. The
rule, if finalized, will be transmitted to Congress and the Comptroller
General for review.

Statutory Authority

These regulations are proposed pursuant to authority contained in
section 505 of ERISA (Pub. L. 93-406, 88 Stat. 894, 29 U.S.C. 1135) and
section 104(a) of ERISA, as amended, (Pub. L. 104-191, 110 Stat. 1936,
1951, 29 U.S.C. 1024), and under Secretary of Labor's Order No. 1-87,
52 FR 13139, April 21, 1987.

List of Subjects in 29 CFR Part 2520

Accountants, Disclosure requirements, Employee benefit plans,
Employee Retirement Income Security Act, Pension plans, and Reporting
and recordkeeping requirements.
For the reasons set out in the preamble, Part 2520 of Chapter XXV
of Title 29 of the Code of Federal Regulations is proposed to be
amended as follows:

PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE

PART 2520--[AMENDED]

1. The authority for Part 2520 continues to read as follows:

Authority: Secs. 101, 102, 103, 104, 105, 109, 110, 111(b)(2),
111(c) and 505, Pub. L. 93-406, 88 Stat. 840-52 and 894 (29 U.S.C.
1021-1025, 1029-31, and 1135); Secretary of

[[Page 67444]]

Labor's Order No. 27-74, 13-76, 1-87, and Labor Management Services
Administration Order 2-6.
Sections 2520.102-3, 2520.104b-1 and 2520.104b-3 also are issued
under sec. 101(a), (c) and (g)(4) of Pub. L. 104-191, 110 Stat.
1936, 1939, 1951 and 1955, and sec. 603 of Pub. L. 104-204, 110
Stat. 2935 (29 U.S.C. 1185 and 1191c).

2. Section 2520.104-41 is amended by revising paragraph (c) as
follows:

Sec. 2520.104-41 Simplified annual reporting requirements for plans
with fewer than 100 participants.

* * * * *
(c) Contents. The administrator of an employee pension or welfare
benefit plan described in paragraph (b) of this section shall file, in
the manner prescribed in Sec. 2520.104a-5, a completed Form 5500
``Annual Return/Report of Employee Benefit Plan,'' including any
required schedules or statements prescribed by the instructions to the
form, and, unless waived by Sec. 2520.104-46, a report of an
independent qualified public accountant meeting the requirements of
Sec. 2520.103-1(b).
* * * * *
3. Section 2520.104-46 is amended by revising paragraphs (b)(1) and
(d) to read as follows:

Sec. 2520.104-46 Waiver of examination and report of an independent
qualified public accountant for employee benefit plans with fewer than
100 participants.

* * * * *
(b) Application. (1)(i) The administrator of an employee pension
benefit plan for which simplified annual reporting has been prescribed
in accordance with section 104(a)(2)(A) of the Act and Sec. 2520.104-41
is not required to comply with the annual reporting requirements
described in paragraph (c) of this section, provided that with respect
to each plan year for which the waiver is claimed--
(A) (1) At least 95 percent of the assets of the plan constitute
qualifying plan assets within the meaning of paragraph (b)(1)(ii) of
this section, or
(2) Any person who handles assets of the plan that do not
constitute qualifying plan assets is bonded in accordance with the
requirements of section 412 of the Act and the regulations issued
thereunder, except that the amount of the bond shall not be less than
the value of such assets;
(B) The summary annual report, described in Sec. 2520.104b-10,
includes, in addition to any other required information:
(1) The name of each institution holding qualifying plan assets and
the amount of such assets held by each institution as of the end of the
plan year;
(2) The name of the surety company issuing a bond for purposes of
paragraph (b)(1)(i)(A)(2);
(3) A notice indicating that participants and beneficiaries may,
upon request and without charge, examine or receive copies of evidence
of any bond required by paragraph (b)(1)(i)(A)(2) and copies of
statements received from each institution holding qualifying assets
which describe the assets held by the institution as of the end of the
plan year; and
(4) A notice stating that participants and beneficiaries should
contact the Regional Office of the U.S. Department of Labor's Pension
and Welfare Benefits Administration if they are unable to examine or
obtain copies of the statements received from each institution holding
qualifying assets or evidence of the bond, if applicable; and
(C) In response to a request from any participant or beneficiary,
the administrator, without charge to the participant or beneficiary,
makes available for examination, or upon request furnishes copies of,
evidence of any bond required by paragraph (b)(1)(i)(A)(2) and the
statement of assets from each financial institution holding qualifying
assets as of the end of the plan year.
(ii) For purposes of paragraph (b)(1), the term ``qualifying plan
assets'' means:
(A) Qualifying employer securities, as defined in section 407(d)(1)
of the Act and the regulations issued thereunder;
(B) Any loan meeting the requirements of section 408(b)(1) of the
Act and the regulations issued thereunder; and
(C) Any assets held by the following institutions:
(1) A bank or similar financial institution as defined in
Sec. 2550.408b-4(c);
(2) An insurance company qualified to do business under the laws of
a state;
(3) An organization registered as a broker-dealer under the
Securities and Exchange Act of 1934; or
(4) Any other organization authorized to act as a trustee for
individual retirement accounts under section 408 of the Internal
Revenue Code.
(iii) For purposes of paragraph (b)(1), the determination of the
percentage of all plan assets consisting of qualifying plan assets with
respect to a given plan year shall be made in the same manner as the
amount of the bond is determined pursuant to Secs. 2580.412-11,
2580.412-14, and 2580.412-15.
* * * * *
(d) Limitations. (1) The waiver described in this section does not
affect the obligation of a plan described in paragraph (b) (1) or (2)
of this section to file a Form 5500 ``Annual Return/Report of Employee
Benefit Plan,'' including any required schedules or statements
prescribed by the instructions to the form. See Sec. 2520.104-41.
(2) For purposes of this section, an employee pension benefit plan
for which simplified annual reporting has been prescribed includes an
employee pension benefit plan which elects to file a Form 5500 as a
small plan pursuant to Sec. 2520.103-1(d) with respect to the plan year
for which the waiver is claimed. See Sec. 2520.104-41.
(3) For purposes of this section, an employee welfare benefit plan
that covers fewer than 100 participants at the beginning of the plan
year includes an employee welfare benefit plan which elects to file a
Form 5500 as a small plan pursuant to Sec. 2520.103-1(d) with respect
to the plan year for which the waiver is claimed. See Sec. 2520.104-41.
(4) A plan that elects to file a Form 5500 as a large plan pursuant
to Sec. 2520.103-1(d) may not claim a waiver under this section.

Signed at Washington, D.C., this 24th day of November, 1999.
Richard M. McGahey,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S.
Department of Labor.
[FR Doc. 99-31110 Filed 11-30-99; 8:45 am]
BILLING CODE 4510-29-P