[Federal Register Volume 70, Number 46 (Thursday, March 10, 2005)]
[Notices]
[Pages 12074-12080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-4465]



  Federal Register / Vol. 70, No. 46 / Thursday, March 10, 2005 / 
Notices  

[[Page 12074]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

RIN 1210-zA05
[Application No. D-11201]


Proposed Class Exemption for Services Provided in Connection With 
the Termination of Abandoned Individual Account Plans

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Notice of proposed class exemption.

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SUMMARY: This document contains a notice of a proposed class exemption 
from certain prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and from 
certain taxes imposed by the Internal Revenue Code of 1986, as amended 
(the Code). If granted, the proposed class exemption would permit a 
``qualified termination administrator'' (QTA) of an individual account 
plan that has been abandoned by its sponsoring employer to select 
itself or an affiliate to provide services to the plan in connection 
with the termination of the plan, and to pay itself or an affiliate 
fees for those services. The proposed exemption also would permit a 
qualified termination administrator of an abandoned plan to: Designate 
itself or an affiliate as provider of an individual retirement plan or 
other account; select a proprietary investment product as the initial 
investment for the rollover distribution of benefits for a participant 
or beneficiary who fails to make an election regarding the disposition 
of such benefits; and pay itself or its affiliate fees in connection 
therewith. This exemption is being proposed in connection with the 
Department's proposed regulation to be promulgated at 29 CFR 2578, 
relating to the Termination of Abandoned Individual Account Plans, and 
2550.404a-3, relating to the Safe Harbor For Rollover Distributions 
from Terminated Individual Account Plans, which are being published 
simultaneously in this issue of the Federal Register. The proposed 
exemption, if granted, would affect individual account plans, the 
participants and beneficiaries of such plans, certain plan service 
providers, and the fiduciaries of such plans.

DATES: Written comments and requests for a public hearing on the 
proposed exemption shall be submitted to the Department on or before 
May 9, 2005.

ADDRESSES: All written comments and requests for a public hearing 
(preferably three (3) copies) concerning the proposed class exemption 
should be sent to: U.S. Department of Labor, Employee Benefits Security 
Administration, Room N-5649, 200 Constitution Avenue, NW., Washington, 
DC 20210, Attention: Plan Termination Class Exemption Proposal. 
Comments and requests for a hearing alternatively may be sent by fax to 
(202) 219-0204 or submitted electronically to [email protected] by 
the end of the comment period. All comments received will be available 
for public inspection in EBSA's Public Documents Room, N-1513, Employee 
Benefits Security Administration, U.S. Department of Labor, 200 
Constitution Ave. NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Brian Buyniski, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, Washington, DC 20210, (202) 693-8540. This is not 
a toll free number.

SUPPLEMENTARY INFORMATION: This document contains a notice that the 
Department is proposing a class exemption from the restrictions of 
sections 406(a)(1)(A) through (D), 406(b)(1) and (b)(2) of the Act and 
from the taxes imposed by section 4975 (a) and (b) of the Code, by 
reason of section 4975(c)(1)(A) through (E) of the Code. The exemption 
proposed herein is being proposed by the Department on its own motion 
pursuant to section 408(a) of the Act and section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR 2570, 
subpart B (55 FR 32836, August 10, 1990).\1\
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    \1\ Section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996) generally transferred the authority of the Secretary 
of the Treasury to issue exemptions under section 4975(c)(2) of the 
Code to the Secretary of Labor.
    For purposes of this proposed exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
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Executive Order 12866

    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.
    It has been determined that the proposed exemption is significant 
for ``raising novel policy issues'' under section 3(f)(4) of the 
Executive Order. Accordingly, the proposed exemption has been reviewed 
by OMB.
    The proposed class exemption is being published concurrently with a 
proposed regulation entitled, ``Termination of Abandoned Individual 
Account Plans.'' The proposed exemption permits a QTA of an individual 
account plan that has been abandoned by its sponsoring employer to 
select itself or an affiliate to provide services to the plan in 
connection with the termination of the plan, and to pay itself or an 
affiliate fees for those services, provided that such fees are 
consistent with the conditions of the proposed exemption. The proposed 
exemption would also permit a QTA to: Designate itself or an affiliate 
as a provider of an individual retirement plan or other account; select 
a proprietary investment product as the initial investment for the 
rollover distribution of benefits for a participant or beneficiary who 
fails to make an election regarding the disposition of such benefits; 
and, pay itself or its affiliate in connection with the rollover. The 
Department has assumed that all QTAs will take advantage of the 
proposed class exemption.
    The proposed exemption would provide conditional relief for QTAs 
that terminate and wind up the affairs of plans that have been 
abandoned by the plan sponsor. Because compliance with the proposed 
regulation is a condition of the proposed exemption, the proposed 
exemption will only be used in connection with the proposed regulation. 
In general, the costs and benefits that may be associated with 
compliance with the proposed exemption have been described and 
quantified in connection with the economic impact of the proposed 
regulation.
    Certain other costs may be incurred in connection with the 
conditions of the proposed exemption by QTAs that

[[Page 12075]]

select their own proprietary products or those of an affiliate for 
investment of individual retirement plans and other accounts. These 
costs would not otherwise be incurred by the QTA absent the conditions 
of the prohibited transaction exemption. For example, a QTA that rolls 
over an individual account from an abandoned plan into an individual 
retirement plan is not permitted, under the exemption, to charge a 
sales commission in connection with the investment product. In 
addition, the Regulated Financial Institution is limited with regard to 
certain fees and expenses that may be charged against the individual 
retirement plan or other account. Foregone commissions and fees may 
correspond to costs for some Regulated Financial Institutions.
    The Department has no basis for estimating the impact of the wide 
array of factors that could affect these particular costs, such as the 
amount of fees or expenses that might not be fully charged to the 
individual retirement plans or other accounts, the extent to which QTAs 
will use one or more proprietary products, the number of account 
balances that could be rolled over into individual retirement plans or 
other accounts, or the aggregate effect of unpaid sales commissions. 
Therefore, the Department has not estimated a cost for these provisions 
of the proposed exemption. However, QTAs are in no event required to 
make use of individual retirement plans or other accounts offered by 
the QTA or an affiliate. In any case, it is likely that a QTA will use 
its own or an affiliate's individual retirement plans or accounts and 
investment products only if it is financially beneficial to do so, for 
example, as a way to retain deposits and increase earnings.

Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor 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. 3506(c)(2)(A)). This helps to ensure that requested data 
will 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.
    The proposed exemption, if granted, will only be used by certain 
QTAs that also take advantage of the proposed regulation on Termination 
of Abandoned Individual Account Plans, if finalized, published 
elsewhere in this issue of the Federal Register. The Department has 
combined the burdens for the two proposed rules, along with the burden 
for the proposed regulation, Safe Harbor for Rollover Distributions 
From Terminated Individual Account Plans, also published today, under 
one Information Collection Request (ICR). By combining the three 
collections of information, the Department believes that the general 
public will gain a better understanding of the burden impact as it 
relates to terminating plans. The specific burden for the proposed 
exemption includes a recordkeeping requirement for a QTA that 
terminates an abandoned plan and chooses to roll over the account 
balances of missing or nonresponsive participants into individual 
retirement plans offered by the QTA or an affiliate of the QTA. The 
hour and cost burdens for the ICR are described more fully in the 
preamble to the proposed regulation, Termination of Abandoned 
Individual Account Plans under the section on The Paperwork Reduction 
Act.

Background

    Thousands of individual account plans have, for a variety of 
reasons, been abandoned by their sponsors. Financial institutions 
holding the assets of these abandoned plans often do not have the 
authority or incentive to perform the responsibilities otherwise 
required of the plan administrator with respect to such plans. At the 
same time, participants and beneficiaries are frequently unable to 
access their plan benefits. As a result, the assets of many of these 
plans are diminished by ongoing administrative costs, rather than being 
paid to the plan's participants and beneficiaries.
    Over the past few years, the Department of Labor's Employee 
Benefits Security Administration (EBSA) has seen an increase in the 
number of requests for assistance from participants who are unable to 
obtain access to the money in their individual account plans. According 
to these participants, even though a bank or other service provider of 
the plan may be holding their money, neither the bank nor the 
participants are able to locate anyone with authority under the plan to 
authorize benefit distributions.
    In some cases, plan abandonment occurs when the sponsoring employer 
ceases to exist by virtue of a formal bankruptcy proceeding. In other 
cases, abandonment occurs because the plan sponsor has been 
incarcerated, died, or simply fled the country. Whatever the causes of 
abandonment, participants in these so-called ``orphan plan'' or 
``abandoned plan'' situations are effectively denied access to their 
benefits and are otherwise unable to exercise their rights as 
guaranteed under ERISA. At the same time, benefits in such plans are at 
risk of being significantly diminished by ongoing administrative 
expenses, rather than being distributed to participants and 
beneficiaries.
    EBSA responded to these requests for assistance with a series of 
enforcement initiatives, including the National Enforcement Project on 
Orphan Plans (NEPOP), which began in 1999. NEPOP focuses primarily on 
identifying abandoned plans, locating their fiduciaries, if possible, 
and requiring those fiduciaries to manage and terminate (including 
making benefit distributions to participants and beneficiaries) the 
plans in accordance with ERISA. When no fiduciary can be found, the 
Department often requests that a Federal court appoint an independent 
fiduciary to manage, terminate, and distribute the assets of the plan.
    During 2002, the ERISA Advisory Council created the Working Group 
on Orphan Plans to study the causes and extent of the orphan plan 
problem. On November 8, 2002, after public hearings and testimony, the 
Advisory Council issued a report, entitled Report of the Working Group 
on Orphan Plans, concluding that the problems posed by abandoned plans 
are very serious and substantial for plan participants, administrators, 
and the government. In particular, the Report states that ``plan 
participants may suffer economic hardship as a result of their 
inability to obtain a distribution from an orphan plan; plan service 
providers may be besieged with requests for distributions, although 
unauthorized to act; and the government may be forced to handle the 
termination of hundreds or thousands of plans that have been 
abandoned.'' Although the Advisory Council's Report estimated that 
abandoned plans currently represent only about two percent of all 
defined contribution plans and less than one percent of total plan 
assets for such plans, the Report also indicated that the orphan plan 
problem may grow in difficult economic times.
    Taking into account the problem of abandoned plans and the 
Department's efforts to date, the Advisory Council generally 
recommended measures (whether regulatory, legislative, or both) to 
encourage service providers to voluntarily terminate abandoned plans 
and distribute assets to participants and

[[Page 12076]]

beneficiaries. Specific recommendations of the Advisory Council 
included new regulations setting forth criteria for determining when a 
plan is abandoned, procedures for terminating abandoned plans and 
distributing assets, and rules defining who may terminate and wind up 
such plans.
    Having carefully considered the recommendations of the Advisory 
Council, as well as the comments of the various parties testifying 
before the Council's Working Group on Orphan Plans, the Department is 
publishing in this issue of the Federal Register proposed regulations 
addressing these issues to be codified at 29 CFR parts 2550 and 2578 
(Termination of Abandoned Individual Account Plans). One proposed 
regulation would establish a regulatory framework pursuant to which 
financial institutions and other entities holding the assets of an 
abandoned individual account plan can take action to terminate the plan 
and distribute benefits to the plan's participants and beneficiaries, 
with limited liability. The other proposed regulation would establish a 
simplified method for filing a special terminal report for abandoned 
individual account plans. Lastly, the third regulation would provide a 
safe harbor for rollover distributions from all terminated plans, 
whether abandoned or not, on behalf of participants who fail to elect a 
specific distribution.
    The Department notes that a trustee or issuer of an individual 
retirement plan within the meaning of section 7701(a)(37) of the Code 
that qualifies under the proposed Termination of Abandoned Individual 
Account Plans regulation (hereinafter the QTA Regulation) as a 
``qualified termination administrator'' \2\ may select itself or an 
affiliate to provide termination services to the plan which will result 
in the receipt of compensation by the QTA or its affiliate. Moreover, 
if a participant or beneficiary of the abandoned plan fails to make a 
timely election as to the form of distribution of his or her benefits 
pursuant to the proposed QTA Regulation, the QTA will be required to 
distribute the participant's or beneficiary's benefits in the form of a 
direct rollover into an individual retirement plan, or to an account 
(other than an individual retirement plan in the case of a rollover on 
behalf of a non-spousal beneficiary), if the abandoned plan was 
intended to be in compliance with section 401(a) of the Code.
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    \2\ See proposed regulation 29 CFR 2578.1(g), which states that 
an eligible qualified termination administrator is qualified only if 
it holds assets of the plan that is considered abandoned and if it 
is eligible to serve as an individual retirement plan trustee or 
issuer under section 7701(a)(37) of the Code.
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    If the QTA is a financial institution or an affiliate of a 
financial institution, and is eligible to establish and maintain 
individual retirement plans, it may designate itself or its affiliate 
as the individual retirement plan provider or other account provider. 
In addition, the QTA may invest the rollover distribution in the 
individual retirement plan or other account into a proprietary 
investment product.
    In this regard, section 406(a)(1) of the Act prohibits in part, a 
fiduciary of a plan from causing the plan to engage in a transaction 
that constitutes a direct or an indirect sale, exchange or leasing of 
any property between the plan and a party in interest; lending of money 
or other extension of credit between the plan and a party in interest; 
furnishing of goods, services, or facilities between the plan and a 
party in interest; and a transfer to, or use by or for the benefit of, 
a party in interest of any assets of the plan. Section 406(b)(1) and 
(b)(2) of the Act prohibits a fiduciary with respect to a plan from 
dealing with the assets of the plan in his own interest or for his own 
account; and from acting in his individual or in any other capacity in 
any transaction involving the plan on behalf of a party (or 
representing a party) whose interests are adverse to the interests of 
the plan or the interests of its participants or beneficiaries.
    A violation of section 406(a) and/or (b) of the Act may occur if 
the QTA determines to pay itself or an affiliate for services rendered 
to the plan from the assets of an abandoned plan. Also, additional 
violations may occur if the QTA designates itself or an affiliate as 
the provider of an individual retirement plan or other account 
established for the benefit of participants and beneficiaries who do 
not make an election as to the form of distribution. Finally, a 
prohibited transaction may occur if the QTA determines to invest the 
rollover distribution in the QTA's own proprietary investment product.
    Section 408(b)(2) of the Act provides a conditional statutory 
exemption for the provision of services by a party in interest to a 
plan and the payment of reasonable compensation to the party in 
interest. However, section 408(b)(2) of the Act does not provide relief 
from the prohibitions described in section 406(b) of the Act.\3\
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    \3\ See 29 CFR section 2550.408b-2(e).
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    The Department, therefore, is proposing this class exemption which, 
if granted, would provide conditional relief for a QTA of an abandoned 
individual account plan to use its authority to select itself or an 
affiliate to provide services in connection with the termination of the 
plan, and to pay itself or an affiliate fees for the services 
performed. With respect to the participants and beneficiaries who 
failed to elect a distribution option, the proposed exemption also 
would permit a qualified termination administrator of an abandoned 
individual account plan to designate itself or an affiliate as an 
individual retirement plan provider or other account provider and to 
select the QTA's (or an affiliate's) proprietary investment product for 
rollover distributions of the benefits of a participant or beneficiary. 
Lastly, the proposal would provide relief for the QTA to pay itself or 
its affiliate fees in connection with such transactions.

Description of the Proposed Exemption

    Section I describes the transactions that are covered by the 
proposed exemption. Under section I(a), relief is provided from the 
restrictions of sections 406(a)(1)(A) through (D), 406(b)(1) and 
406(b)(2) of the Act and the taxes imposed by section 4975(a) and (b) 
of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, for a ``qualified termination administrator'' within the meaning 
of section V(a) of this proposed exemption, to use its authority in 
connection with the termination of an abandoned individual account plan 
to select itself or an affiliate to provide services to the plan and to 
pay itself or an affiliate fees for services provided as a QTA.
    Under section I(b), the proposed exemption provides relief from the 
restrictions of sections 406(a)(1)(A) through (D), 406(b)(1) and 
406(b)(2) of the Act and the taxes imposed by section 4975(a) and (b) 
of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, for a QTA, to use its authority in connection with the 
termination of an abandoned individual account plan to: (i) Designate 
itself or an affiliate as provider of an individual retirement plan or 
other account to receive the account balance of a participant that does 
not provide direction as to the disposition of such assets, (ii) make 
the initial investment of the distributed proceeds in a proprietary 
investment product, (iii) receive fees in connection with the 
establishment or maintenance of the individual retirement plan or other 
account, and (iv) receive investment fees as a result of the investment 
of the individual retirement plan or other account's assets in a 
proprietary investment product in which the QTA or an affiliate has an 
interest.

[[Page 12077]]

    The following conditions would apply to a transaction described in 
section I(a) of the proposed exemption. The QTA must comply with the 
requirements of the proposed QTA Regulation, which is published 
elsewhere in this issue of the Federal Register.
    Under the proposal, fees and expenses paid to the QTA and its 
affiliate: (i) Are consistent with industry rates for such or similar 
services, based on the experience of the QTA, and (ii) are not in 
excess of rates charged by the QTA (or its affiliate) for the same or 
similar services provided to customers that are not individual account 
plans terminated pursuant to the proposed QTA Regulation, if the QTA 
(or its affiliate) provides the same or similar services to such other 
customers. The reference to ``industry rates'' and ``based on the 
experience of the QTA'' is intended to enable a QTA, who possesses 
knowledge about the services needed for a plan termination and industry 
rates for such or similar services, to engage or retain itself, an 
affiliate, and other service providers without going through a 
potentially timely and costly bidding process. By permitting QTAs to 
rely on their own industry expertise, the Department believes QTAs can 
minimize plan termination costs and, thereby, maximize the benefits 
payable to a plan's participants and beneficiaries.
    The following conditions would apply to a transaction described in 
I(b) of the proposed exemption. The conditions of the proposed QTA 
Regulation must be met. The QTA must also inform the participant or 
beneficiary in the notice required by the proposed QTA Regulation that: 
(1) Absent his or her election within the 30-day period from receipt of 
the notice to be provided by the QTA to inform participants of their 
election options, the QTA will directly roll over the account balance 
of the participant or beneficiary to an individual retirement plan or 
other account offered by the QTA or its affiliate; and (2) the account 
balance may be invested in the QTA's own proprietary investment 
product, which is designed to preserve principal and provide a 
reasonable rate of return and liquidity.
    Under the proposal, the individual retirement plan or other account 
must be established and maintained for the exclusive benefit of the 
individual retirement plan or other account holder, his or her spouse 
or their beneficiaries.
    The terms of the individual retirement plan or other account, 
including the fees and expenses for establishing and maintaining the 
individual retirement plan or other account, must be no less favorable 
than those available to comparable individual retirement plans or other 
accounts established for reasons other than the receipt of a rollover 
distribution described in the proposed QTA Regulation.
    The proposal requires that the distribution must be invested in an 
Eligible Investment Product, as defined in section V(c) of this 
proposed exemption. The rate of return or the investment performance 
received by the individual retirement plan or other account from an 
investment product must be no less than that received by comparable 
individual retirement plans or other accounts that are not established 
pursuant to the proposed QTA Regulation but are invested in the same 
product. For example, the rate of return received by the individual 
retirement plan for an investment in a one-year certificate of deposit 
which is an Eligible Investment Product cannot be less than the rate of 
return received by an individual retirement plan or other account 
established for reasons other than the receipt of a rollover 
distribution that is invested in an identical one-year certificate of 
deposit.
    The proposal does not permit the individual retirement plan or 
other account to pay a sales commission in connection with the 
acquisition of an Eligible Investment Product.
    Under the proposed exemption, the individual retirement plan or 
other account holder must be able to, within a reasonable period of 
time after his or her request and without penalty to the principal 
amount of the investment, transfer his or her individual retirement 
plan or other account balance to a different investment offered by the 
QTA or its affiliate. Also, the individual retirement plan holder may 
transfer his or her individual retirement plan balance to an individual 
retirement plan sponsored by a different financial institution. 
Similarly, the other account holder may transfer his or her account 
balance to another account sponsored by a different financial 
institution.
    Under the proposal, fees and expenses attendant to the individual 
retirement plan or other account, including the investment of the 
assets of such plan or account, (e.g., establishment charges, 
maintenance fees, investment expenses, termination costs, and surrender 
charges) must not exceed the fees and expenses charged by the QTA for 
comparable individual retirement plans or other accounts established 
for reasons other than the receipt of a rollover distribution made 
pursuant to the proposed QTA regulation. Additionally, fees and 
expenses attendant to the individual retirement plan or other account, 
other than establishment charges, may be charged only against the 
income earned by the individual retirement plan or other account. 
Finally, fees and expenses shall not exceed reasonable compensation 
within the meaning of section 4975(d)(2) of the Code.
    Section IV of the proposed exemption contains a recordkeeping 
requirement. The QTA must maintain records to enable certain persons to 
determine whether the applicable conditions of the class exemption have 
been met. The records must be available for examination by the IRS, the 
Department, and any account holder or duly authorized representative of 
such account holder of an individual retirement plan or other account, 
for at least six years from the date the QTA provides notice to the 
Department of its determination of plan abandonment and its election to 
serve as the QTA.
    Lastly, section V of the proposed exemption contains certain 
definitions. The term ``qualified termination administrator'' is 
defined in section V(a) as an entity that is eligible to serve as a 
trustee or issuer of an individual retirement plan within the meaning 
of section 7701(a)(37) of the Code and that holds the assets of the 
abandoned plan.
    The term ``Eligible Investment Product'' is defined in section V(c) 
to mean an investment product designed to preserve principal and 
provide a reasonable rate of return, whether or not such return is 
guaranteed, consistent with liquidity. In this regard, the product must 
be offered by a Regulated Financial Institution as defined in section 
V(d) and must seek to maintain, over the term of the investment, the 
dollar value that is equal to the amount invested in the product by the 
individual retirement plan or other account. Such term includes money 
market funds maintained by registered investment companies, and 
interest-bearing savings accounts and certificates of deposit of a bank 
or similar financial institution. In addition, the term includes stable 
value products issued by a financial institution that are fully 
benefit-responsive to the individual retirement plan or other account 
holder. For purposes of this proposed class exemption, the term 
``benefit responsive'' means a stable value product that provides a 
liquidity guarantee by a financially responsible third party of 
principal and previously accrued interest for liquidations or transfers 
initiated by the individual retirement plan or other account holder 
exercising his or her right to withdraw or transfer funds under the 
terms of an

[[Page 12078]]

arrangement that does not include substantial restrictions to the 
account holder's access to the individual retirement plan or other 
account assets.
    The term ``Regulated Financial Institution'' is defined in section 
V(d) to mean an entity that: (i) Is subject to state or federal 
regulation, and (ii) is a bank or savings association, the deposits of 
which are insured by the Federal Deposit Insurance Corporation; a 
credit union, the member accounts of which are insured within the 
meaning of section 101(7) of the Federal Credit Union Act; an insurance 
company, the products of which are protected by state guaranty 
associations; or an investment company registered under the Investment 
Company Act of 1940.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and section 4975(c)(2) of the Code does 
not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and the Code, including 
any prohibited transaction provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act which require, among other things, that a fiduciary 
discharge his duties with respect to the plan solely in the interests 
of the participants and beneficiaries of the plan and in a prudent 
fashion in accordance with section 404(a)(1)(B) of the Act;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and section 4975(c)(2) of the Code, the Department must find that 
the exemption is administratively feasible, in the interests of plans 
and their participants and beneficiaries and protective of the rights 
of participants and beneficiaries of such plans;
    (3) If granted, the proposed exemption will be applicable to a 
transaction only if the conditions specified in the exemption are met; 
and
    (4) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and the Code, 
including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction.

Written Comments

    All interested persons are invited to submit written comments or 
requests for a public hearing on the proposed exemption to the address 
and within the time period set forth above. All comments will be made a 
part of the record. Comments and requests for a hearing should state 
the reasons for the writer's interest in the proposed exemption. 
Comments received will be available for public inspection with the 
referenced application at the above address.

Proposed Exemption

    The Department has under consideration the grant of the following 
class exemption under the authority of section 408(a) of the Act and 
section 4975(c)(2) of the Code and in accordance with the procedures 
set forth in 29 CFR 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).

I. Transactions

    (a) The restrictions of sections 406(a)(1)(A) through (D), 
406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by section 
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, shall not apply to a QTA, (as defined in section V (a) 
of this proposed class exemption), using its authority in connection 
with the termination of an abandoned individual account plan pursuant 
to the proposed QTA Regulation to:
    (1) Select itself or an affiliate to provide services to the plan, 
and
    (2) Receive fees for the services performed as a QTA, provided that 
the conditions set forth in sections II and IV of this proposed 
exemption are satisfied.
    (b) The restrictions of sections 406(a)(1)(A) through (D), 
406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by section 
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, shall not apply to a QTA, using its authority in 
connection with the termination of an abandoned individual account plan 
pursuant to the proposed QTA Regulation to:
    (1) Designate itself or an affiliate as provider of an individual 
retirement plan or, under the limited circumstances described in 
section (d)(1) of the Rollover Safe Harbor Regulation for Terminated 
Plans (20 CFR 2550.404a-3) as provider of an account (other than an 
individual retirement plan) for the rollover of the account balance of 
the participant or beneficiary of the abandoned individual account plan 
who does not provide direction as to the disposition of such assets;
    (2) Make the initial investment of the account balance of the 
participant or beneficiary in the QTA's or its affiliate's proprietary 
investment product;
    (3) Receive fees in connection with the establishment or 
maintenance of the individual retirement plan or other account; and
    (4) Pay itself or an affiliate investment fees as a result of the 
investment of the individual retirement plan or other account assets in 
the QTA's or its affiliate's proprietary investment product, provided 
that the conditions set forth in sections III and IV of this exemption 
are satisfied.

II. Conditions for Provision of Termination Services and Receipt of 
Fees in Connection Therewith

    (a) The requirements of the proposed QTA Regulation are met. The 
QTA provides, in a timely manner, any other reasonably available 
information requested by the Department regarding the proposed 
termination.
    (b) Fees and expenses paid to the QTA, and its affiliate, in 
connection with the termination of the plan and the distribution of 
benefits:
    (1) Are consistent with industry rates for such or similar 
services, based on the experience of the QTA, and
    (2) Are not in excess of rates charged by the QTA (or affiliate) 
for the same or similar services provided to customers that are not 
plans terminated pursuant to the proposed QTA regulation, if the QTA 
(or affiliate) provides the same or similar services to such other 
customers.

III. Conditions for Rollover Distributions

    (a) The conditions of the proposed QTA Regulation are met.
    (b) In connection with the notice to participants and beneficiaries 
described in the proposed QTA Regulation, a statement explaining that:
    (1) If the participant or beneficiary fails to make an election 
within the 30-day period referenced in the proposed QTA Regulation, the 
QTA will directly roll over the account balance to an individual 
retirement plan or other account offered by the QTA or its affiliate;
    (2) The proceeds of the distribution may be invested in the QTA's 
(or affiliate's) own proprietary investment product, which is designed 
to preserve principal and provide a reasonable rate of return and 
liquidity.
    (c) The individual retirement plan or other account is established 
and maintained for the exclusive benefit of the individual retirement 
plan account holder or other account holder, his or her spouse or their 
beneficiaries.
    (d) The terms of the individual retirement plan or other account,

[[Page 12079]]

including the fees and expenses for establishing and maintaining the 
individual retirement plan or other account, are no less favorable than 
those available to comparable individual retirement plans or other 
accounts established for reasons other than the receipt of a rollover 
distribution described in the proposed QTA Regulation.
    (e) The distribution proceeds are invested in an Eligible 
Investment Product(s), as defined in section V(c) of this proposed 
class exemption.
    (f) The rate of return or the investment performance of the 
individual retirement plan or other account is no less favorable than 
the rate of return or investment performance of an identical 
investment(s) that could have been made at the same time by comparable 
individual retirement plans or other accounts established for reasons 
other than the receipt of a rollover distribution described in the 
proposed QTA Regulation.
    (g) The individual retirement plan or other account does not pay a 
sales commission in connection with the acquisition of an Eligible 
Investment Product.
    (h) The individual retirement plan account holder or other account 
holder may, within a reasonable period of time after his or her request 
and without penalty to the principal amount of the investment, transfer 
his or her account balance to a different investment offered by the QTA 
or its affiliate. The individual retirement plan account holder may 
also transfer his or her balance to an individual retirement plan 
sponsored at a different financial institution or in the case of an 
other account holder, to an account sponsored at a different financial 
institution.
    (i)(1) Fees and expenses attendant to the individual retirement 
plan or other account, including the investment of the assets of such 
plan or account, (e.g., establishment charges, maintenance fees, 
investment expenses, termination costs, and surrender charges) shall 
not exceed the fees and expenses charged by the QTA for comparable 
individual retirement plans or other accounts established for reasons 
other than the receipt of a rollover distribution made pursuant to the 
proposed QTA Regulation;
    (2) Fees and expenses attendant to the individual retirement plan 
or other account, with the exception of establishment charges, may be 
charged only against the income earned by the individual retirement 
plan or other account; and
    (3) Fees and expenses attendant to the individual retirement plan 
or other account are not in excess of reasonable compensation within 
the meaning of section 4975(d)(2) of the Code.

IV. Recordkeeping

    (a) The QTA maintains or causes to be maintained, for a period of 
six (6) years from the date the QTA provides notice to the Department 
of its determination of plan abandonment and its election to serve as 
the QTA described in the proposed QTA Regulation, the records necessary 
to enable the persons described in paragraph (b) of this section to 
determine whether the applicable conditions of this exemption have been 
met. Such records must be readily available to assure accessibility by 
the persons identified in paragraph (b) of this section.
    (b) Notwithstanding any provisions of section 504(a)(2) and (b) of 
the Act, the records referred to in paragraph (a) of this section are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (1) Any duly authorized employee or representative of the 
Department of Labor or the Internal Revenue Service; and
    (2) Any account holder of an individual retirement plan or other 
account established pursuant to this exemption, or any duly authorized 
representative of such account holder.
    (c) A prohibited transaction will not be considered to have 
occurred if the records necessary to enable the persons described in 
paragraph (a) to determine whether the conditions of the exemption have 
been met are lost or destroyed, due to circumstances beyond the control 
of the QTA, then no prohibited transaction will be considered to have 
occurred solely on the basis of the unavailability of those records, 
and no party in interest other than the QTA shall be subject to the 
civil penalty that may be assessed under section 502(i) of the Act or 
to the taxes imposed by sections 4975(a) and (b) of the Code if the 
records are not maintained or are not available for examination as 
required by paragraph (b).
    (3) None of the persons described in paragraph (b)(2) of this 
section shall be authorized to examine the trade secrets of the QTA or 
its affiliates or commercial or financial information that is 
privileged or confidential.

V. Definitions

    (a) A termination administrator is ``qualified'' for purposes of 
the proposed QTA Regulation and this proposed exemption if:
    (1) The QTA is eligible to serve as a trustee or issuer of an 
individual retirement plan or other account, within the meaning of 
section 7701(a)(37) of the Code, and
    (2) The QTA holds plan assets of the plan that is considered 
abandoned.
    (b) The term ``individual retirement plan'' means an individual 
retirement plan described in section 7701(a)(37) of the Code. For 
purposes of this exemption, the term individual retirement plan shall 
not include an individual retirement plan which is an employee benefit 
plan covered by Title I of ERISA.
    (c) The term ``Eligible Investment Product'' means an investment 
product designed to preserve principal and provide a reasonable rate of 
return, whether or not such return is guaranteed, consistent with 
liquidity. For this purpose, the product must be offered by a Regulated 
Financial Institution as defined in paragraph (d) of this section and 
shall seek to maintain, over the term of the investment, the dollar 
value that is equal to the amount invested in the product by the 
individual retirement plan or other account. Such term includes money 
market funds maintained by registered investment companies, and 
interest-bearing savings accounts and certificates of deposit of a bank 
or similar financial institution. In addition, the term includes 
``stable value products'' issued by a financial institution that are 
fully benefit-responsive to the individual retirement plan account 
holder or other account holder, i.e., that provide a liquidity 
guarantee by a financially responsible third party of principal and 
previously accrued interest for liquidations or transfers initiated by 
the individual retirement plan account holder or other account holder 
exercising his or her right to withdraw or transfer funds under the 
terms of an arrangement that does not include substantial restrictions 
to the account holder access to the individual retirement plan or other 
account's assets.
    (d) The term ``Regulated Financial Institution'' means an entity 
that: (i) Is subject to state or federal regulation, and (ii) is a bank 
or savings association, the deposits of which are insured by the 
Federal Deposit Insurance Corporation; a credit union, the member 
accounts of which are insured within the meaning of section 101(7) of 
the Federal Credit Union Act; an insurance company, the products of 
which are protected by state guaranty associations; or an investment 
company registered under the Investment Company Act of 1940.
    (e) An ``affiliate'' of a person includes:

[[Page 12080]]

    (1) Any person directly or indirectly controlling, controlled by, 
or under common control with, the person; or
    (2) Any officer, director, partner or employee of the person.
    (f) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (g) The term ``individual account plan'' means an individual 
account plan as that term is defined in section 3(34) of the Act.

    Signed at Washington, DC, this 23rd day of February, 2005.
Ivan L. Strasfeld,
Director of Exemption, Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 05-4465 Filed 3-9-05; 8:45 am]
BILLING CODE 4510-29-P