[Federal Register Volume 71, Number 77 (Friday, April 21, 2006)]
[Notices]
[Pages 20856-20862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-3815]



[[Page 20855]]

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Part V





Department of Labor





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Employee Benefits Security Administration



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

  Federal Register / Vol. 71, No. 77 / Friday, April 21, 2006 / 
Notices  

[[Page 20856]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[ZRIN 1210-ZA05; Prohibited Transaction Exemption 2006-06; Application 
No. D-11201]


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

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Grant of class exemption.

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SUMMARY: This document contains a final 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). The 
exemption permits 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, to pay itself or 
an affiliate fees for those services, and to pay itself for services 
provided prior to the plan's deemed termination. The exemption also 
permits a qualified termination administrator of an abandoned plan to: 
(1) Designate itself or an affiliate as the provider of an individual 
retirement plan or other account for the distribution of a participant 
or beneficiary who fails to make an election regarding the disposition 
of such benefits; (2) select a proprietary investment product as the 
initial investment for such plan or account; (3) provide a federally 
insured bank or savings association account for small distributions; 
and (4) pay itself or its affiliate fees in connection therewith. This 
exemption is being granted in connection with the Department's final 
regulation at 29 CFR 2578.1, relating to the Termination of Abandoned 
Individual Account Plans, the Department's final regulation at 29 CFR 
2550.404a-3, relating to the Safe Harbor for Distributions From 
Terminated Individual Account Plans, and the Department's final 
regulation at 29 CFR 2520.103-13, relating to the Terminal Report for 
Abandoned Individual Account Plans, which are being published 
simultaneously in this issue of the Federal Register. The exemption 
will affect individual account plans, the participants and 
beneficiaries of such plans, certain plan service providers, and the 
fiduciaries of such plans.

DATES: Effective Date: The class exemption is effective May 22, 2006.

FOR FURTHER INFORMATION CONTACT: Brian Buyniski, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, Washington, DC 20210, (202) 693-8545. This is not 
a toll free number.

SUPPLEMENTARY INFORMATION: On March 10, 2005, the Department published 
a notice in the Federal Register (70 FR 12074) of the pendency of a 
proposed 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 Department proposed the 
class exemption 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 part 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 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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    The notice of pendency gave interested persons an opportunity to 
comment or request a public hearing on the proposal. Five (5) public 
comments were received by the Department. No requests for a public 
hearing were received. Upon consideration of the comments received, the 
Department has determined to grant the proposed class exemption subject 
to certain modifications. These modifications and the comments are 
discussed below.

Executive Order 12866

    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and 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 this exemption is significant for ``raising novel policy issues'' 
under section 3(f)(4) of the Executive Order. Accordingly, the 
exemption has been reviewed by OMB.
    This exemption is being published simultaneously with a group of 
three regulatory actions (the Abandoned Plan Regulations) that are also 
being issued in final form. In the Department's view, the conditional 
relief provided by the exemption is necessary in order to effectuate 
the purposes underlying the Abandoned Plan Regulations. Accordingly, 
the Department's basic statement regarding the economic benefits and 
costs of encouraging efficient, effective termination of abandoned 
plans, which is described in detail in the preamble to the Abandoned 
Plan Regulations, published elsewhere in this issue of the Federal 
Register, applies equally to this exemption. The following provides 
more specific analysis of the exemption and its specific economic costs 
and benefits.
    The purpose of the Abandoned Plan Regulations is to facilitate the 
orderly, efficient termination of abandoned individual account plans in 
order to give participants and beneficiaries of those plans access to 
the amounts held in their individual accounts, which are frequently 
unavailable to them because of the abandonment. The relief provided by 
the exemption facilitates this goal by permitting a QTA, under the 
conditions of the exemption, to select itself or an affiliate to 
provide services to the plan, to pay itself or an affiliate fees for 
those services, and to pay itself fees for services provided prior to 
the plan's deemed termination, in connection with terminating the 
abandoned plan. Without the availability of the exemptive relief, QTAs 
and their affiliates would be unable to use plan assets as a source of 
compensation for their services; since those plan assets are usually 
the only available source of payment, QTAs would be highly unlikely to 
undertake abandoned plan terminations.
    The exemption also permits a QTA to designate itself or an 
affiliate as the provider of an individual retirement plan or other 
account for distributions of benefits for which the participant or 
beneficiary has failed to make an election; select a proprietary 
investment product as the initial investment for the distributed 
benefits of a participant or

[[Page 20857]]

beneficiary of a terminated plan who fails to make an election 
regarding the disposition of such benefits; provide federally insured 
bank or savings association accounts for small distributions of such 
benefits; and pay itself or its affiliate in connection with such 
distributions. By removing the barrier to use of proprietary or 
affiliated investment vehicles for distributions for which the 
participant or beneficiary has failed to make investment decisions, the 
exemption facilitates the winding-up of abandoned plan terminations. 
Because some proportion of the participants or beneficiaries in 
virtually every termination of an abandoned plan will fail to make 
decisions regarding the disposition of their benefits, QTAs will need 
to make distribution decisions for those benefits. Allowing QTAs to use 
their own or affiliated investment products to receive the 
distributions will accelerate and simplify the orderly termination and 
winding-up of a plan's affairs.
    The exemption imposes certain conditions on use of proprietary or 
affiliated investments, including (1) the condition that fees other 
than establishment fees and expenses attendant to an individual 
retirement plan or account may be charged only against the income 
earned by the individual retirement plan or account and (2) the 
condition that no sales commissions may be imposed in connection with 
acquiring an Eligible Investment Product. The exemption also conditions 
relief for payment for services provided prior to a plan's deemed 
termination on the services' being provided in good faith pursuant to a 
written agreement and the QTA's providing the Department with a copy of 
the written agreement and a statement under penalty of perjury that 
such services were actually performed.
    In response to comments on the proposed regulations concerning the 
limitations on fees, the Department has revised one of the Abandoned 
Plan Regulations (the QTA Regulation, discussed below under 
``Discussion of Comments Received'') to permit QTAs to transfer certain 
small accounts to bank or savings association accounts or the unclaimed 
property fund of the relevant state, but has determined not to make 
further changes in the conditions imposed on transactions under the 
exemption. The Department believes that these conditions, which shape 
the transactions for which relief will be available, are justified by 
the protection they provide to participants and beneficiaries.
    The conditions appropriately limit the extent to which a QTA may 
pay itself or its affiliate. Although the conditions restrict the fees 
that QTAs and their affiliates may receive for their services, they 
protect against potential self-dealing and depletion of account 
balances. In these circumstances, the fee limitations substitute for an 
independent fiduciary's assessment of the value of using products or 
services of the QTA or its affiliate. Further, QTAs are not required to 
make use of proprietary or affiliated individual retirement plans or 
accounts, but are merely permitted by the exemption to choose 
voluntarily whether to do so. The Department believes that the fee 
limitations will encourage a QTA to make decisions regarding whether to 
use its own or an affiliate's individual retirement plans or accounts 
and investment products based not on the availability of a pool of 
assets for payment of fees, but on whether it will be in the best 
interests of the participants and beneficiaries to do so.

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 respondents 
will be able to provide the requested data in the desired format; that 
the public understands the Department's collection instruments; that 
the Department minimizes the reporting burden it imposes, both in time 
and financial resources; and that the Department properly assesses the 
impact of its collection requirements on respondents.
    Because QTAs that rely on the exemption are required, as a 
condition for the relief, to comply with the requirements of the 
Abandoned Plan Regulations, published elsewhere in this issue of the 
Federal Register, the Department has combined the paperwork burden 
arising from the exemption with the paperwork burden attributable to 
the Abandoned Plan Regulations, including specifically the QTA 
Regulation, the Safe Harbor for Distributions From Terminated 
Individual Account Plans, and the Terminal Report for Abandoned 
Individual Account Plans, under one Information Collection Request 
(ICR). By combining these 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 exemption includes a recordkeeping requirement for a QTA 
that terminates an abandoned plan and chooses to distribute the account 
balances of missing or nonresponsive participants into proprietary or 
affiliated individual retirement plans or accounts and a reporting 
requirement for a QTA that intends to pay itself for services provided 
to a plan prior to its deemed termination. The reporting requirement 
includes submitting to the Department a copy of the written agreement 
under which the services were provided, together with a representation, 
under penalty of perjury, that the services for which reimbursement is 
sought were in fact rendered. The hour and cost burdens for the ICR are 
described more fully in the preamble to the Abandoned Plan Regulations 
under the section on the Paperwork Reduction Act.

Discussion of Comments Received

    The Department received five comment letters regarding the proposed 
class exemption.\2\ Additionally, the Department received a number of 
comments in connection with the regulation relating to the Termination 
of Abandoned Individual Account Plans (the QTA Regulation) and the 
regulation relating to the Safe Harbor for Distributions from 
Terminated Individual Account Plans (the Safe Harbor Regulation). 
Interested persons should refer to these regulations, published 
elsewhere in this issue of the Federal Register, for a discussion of 
those comments.
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    \2\ The Department received one request for a public hearing 
which was subsequently withdrawn by the commenter after the 
Department informed the commenter that the issues raised in the 
comment letter would be addressed in the final exemption.
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    The Department received several comments regarding the fees 
associated with the establishment of an account for participants and 
beneficiaries who fail to provide direction as to the disposition of 
their account balances. Two commenters requested that the Department 
eliminate the requirement in section III(i)(2) of the proposed 
exemption that 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.
    The Department recognizes that the fee limitations in the class 
exemption may serve as a disincentive to a QTA providing an individual 
retirement plan for distributions from abandoned

[[Page 20858]]

individual account plans, particularly with respect to accounts with 
small balances.\3\ In such cases, the QTA Regulation permits the 
distribution to be made to an interest-bearing federally insured bank 
account in the name of the participant or beneficiary, to the unclaimed 
property fund of the state in which the participant's or beneficiary's 
last known address is located, or to an individual retirement plan 
provided by an unrelated financial institution. In light of this 
modification to the QTA Regulation, the Department does not believe 
that further relief is warranted. However, the Department has 
determined to modify the final exemption to provide relief for a QTA 
(or its affiliate) that is a provider of an interest-bearing, federally 
insured bank or savings association account, to designate itself or its 
affiliate as provider of such an account for the distribution of the 
account balances of participants or beneficiaries who do not provide 
direction as to the disposition of such balances, and to receive fees 
in connection with the establishment and maintenance of such accounts 
for distributions $1,000 or less.
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    \3\ See the Safe Harbor Regulation at 2550.404a-3 at d(1)(iii).
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    A commenter also requested that the Department clarify that a one-
time closing fee would be treated the same as an establishment fee 
which, under the exemption, is not limited to the amount of income 
earned by the account. The Department continues to believe that only 
establishment fees may be charged against the principal balance of the 
account. All other fees, including termination costs, can only be 
charged against the income earned.
    The commenter further requested that the Department clarify whether 
an IRA owner's ability to transfer his or her account to a different 
institution must be made without penalty to principal. Section III(h) 
of the proposed exemption provided that the IRA owner 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 commenter asked for clarification of how this rule would apply if 
the transfer was made to a different financial institution. In response 
to this comment, the Department does not believe that a participant who 
determines to transfer his or her account balance to a different 
financial institution should be faced with a penalty deducted from the 
principal amount of the investment. Thus, the final exemption has been 
clarified to provide that the IRA owner must be able to transfer his or 
her account balance to a different financial institution without 
penalty to the principal.
    Several comments addressed the definitions contained in section V 
of the proposed exemption. One commenter recommended that the 
definition of ``Eligible Investment Product'' be expanded to permit 
investments in lifestyle, retirement date and other balanced fund 
options. The commenter stated that these options are designed for long-
term investors who choose not to actively manage their accounts. The 
Department notes that, given the nature of the accounts governed by 
this exemption, investments should be designed to minimize risk, 
preserve assets for retirement and maintain liquidity until the IRA 
owner becomes available to take control of his or her account. 
Accordingly, the Department has determined not to expand the definition 
of ``Eligible Investment Product'' as requested.
    Several commenters requested expansion of the definition of QTA in 
the Regulation, as well as certain related changes to the class 
exemption. For reasons more fully set forth in the QTA Regulation, the 
Department has determined not to expand the definition of QTA. In light 
of the determination not to modify this final definition under the QTA 
Regulation, no changes have been made to the class exemption.
    As proposed, the class exemption permitted a QTA to select itself 
to furnish services to the plan in its capacity as a QTA, and to pay 
itself for those services. It was suggested to the Department that the 
final exemption also should permit a QTA to pay itself for services 
rendered prior to becoming a QTA. Such services may have been rendered 
in connection with a determination of plan abandonment under the QTA 
Regulation or pursuant to an existing written contract previously 
entered into with the plan sponsor or other independent fiduciary prior 
to the time the service provider became the plan's QTA.
    After considering the issues, the Department has expanded the class 
exemption to permit a QTA to pay itself for services rendered before 
becoming a QTA. In this regard, the exemption applies to two scenarios 
involving the payment of fees. First, the exemption permits the payment 
for services provided pursuant to the terms of a written contract 
previously entered into with the plan sponsor, or other independent 
fiduciary. This modification recognizes that a service provider might 
be viewed as exercising authority or control with respect to the 
disposition of a plan's assets, and therefore acting as a fiduciary, 
when paying itself fees from plan assets for services under 
circumstances where the service provider knows that there is no plan 
fiduciary monitoring plan services or otherwise responsible for the 
management of the plan, as would be the case in a plan that is 
determined to have been abandoned by the plan sponsor. Second, the 
exemption also permits payment for services that were not provided 
pursuant to a written contract, but were rendered in connection with a 
determination of plan abandonment under the QTA Regulation. Such 
services will generally take place prior to the service provider 
becoming a QTA.
    One commenter on the QTA Regulation requested clarification on how 
a QTA would be able to effect a distribution on behalf of a missing or 
non-responsive participant in circumstances when the benefit payable is 
subject to the Code's survivor annuity requirements. The Department has 
modified the final QTA Regulation by adding a provision that provides 
that if a QTA determines that the survivor annuity requirements in 
section 401(a)(11) and 417 of the Code prevent a distribution in 
accordance with the Safe Harbor Regulation, the QTA shall distribute 
benefits in any manner reasonably determined to achieve compliance with 
the survivor annuity requirements of the Code.
    Although the commenter did not request exemptive relief for the 
purchase of annuity contracts from the QTA or an affiliate, it does not 
foreclose future consideration of additional exemptive relief if the 
requisite findings under section 408(a) of the Act can be made. 
Specifically, the Department is interested in information with regard 
to the types of products that are currently available in the 
marketplace to annuitize benefits, and the standards and safeguards 
that the Department would include in an exemption for the purchase of 
such annuities.

Description of the Exemption

    The class exemption has five sections. Section I describes the 
transactions that are covered by the exemption. Section II contains 
conditions for the provision of termination services and the receipt of 
fees. Section III contains the conditions for distributions. Section IV 
contains the general recordkeeping provisions imposed on the QTA, and 
section V contains definitions.
    Under section I(a), relief is provided from the restrictions of 
sections 406(a)(1)(A) through (D), 406(b)(1) and

[[Page 20859]]

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'' (QTA) within the 
meaning of section V(a) of the 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, to 
receive fees for services provided as a QTA, and to pay itself fees for 
services provided to the plan prior to the deemed termination of the 
plan.
    Section I(b) of the 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 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. The other accounts authorized by the 
exemption include an account, other than an individual retirement 
account, as described in section (d)(1)(ii) of the Safe Harbor 
Regulation, for a distribution made to a distributee other than a 
participant or spouse, and an interest-bearing, federally insured bank 
or savings association account for distributions of less than $1,000, 
as described in section (d)(1)(iii) of the Safe Harbor Regulation.
    Section I(b) of the class exemption further permits the QTA to make 
the initial investment of the distributed proceeds in a proprietary 
investment product, receive fees in connection with the establishment 
or maintenance of the individual retirement plan or other account, and 
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.
    Section II of the exemption describes the conditions that apply to 
a transaction described in section I(a) of the exemption. The QTA must 
comply with the requirements of the QTA Regulation, which is published 
elsewhere in this issue of the Federal Register. Additionally, the QTA 
is required to provide, in a timely manner, any other reasonably 
available information requested by the Department regarding the 
proposed termination.
    Under the exemption, fees and expenses paid to the QTA and its 
affiliate must be consistent with industry rates for such or similar 
services, based on the experience of the QTA, and must not be 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 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'' are 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.
    With respect to payment to the QTA for services provided to the 
plan prior to its deemed termination, the exemption provides relief in 
two situations. First, the exemption covers payment for services 
performed by a service provider pursuant to the QTA Regulation prior to 
the deemed termination of the plan and the service provider becoming a 
QTA. Such services will generally have been performed by the service 
provider in determining that a plan has been abandoned and in preparing 
the notice of plan abandonment as required by section (c)(3) of the QTA 
Regulation.
    Second, the exemption covers payment for services provided in good 
faith pursuant to the terms of a written agreement prior to the service 
provider becoming a QTA. This includes services provided under a valid, 
unexpired contract, as well as the continuation of such services after 
the contract had expired. With respect to such services, the QTA must 
demonstrate to the Department, in its initial notification of plan 
abandonment (as required in section (c)(3) of the QTA Regulation), by a 
representation under penalty of perjury, that such services were 
actually performed. The QTA also must provide a copy of the executed 
contract between the QTA and the plan fiduciary or plan sponsor that 
authorized such services.
    Section III contains conditions for transactions described in 
section I(b) of the exemption. In this regard, the conditions of the 
QTA Regulation must be met. In addition, the QTA must inform the 
participant or beneficiary in the notice required by section (d)(2)(vi) 
of the QTA Regulation that: (1) Absent his or her election within the 
30-day period from receipt of the notice, the QTA will directly 
distribute 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.
    The exemption also requires that 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 
distribution described in the QTA Regulation.
    In addition, the exemption requires that, other than in the case of 
a bank or savings account described in section I(b)(1)(iii) of the 
exemption for distributions of less than $1,000, the distribution must 
be invested in an Eligible Investment Product, as defined in section 
V(c) of the 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 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 distribution that is invested 
in an identical one-year certificate of deposit.
    The exemption 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 exemption, the individual retirement plan or other 
account holder must be able, within a reasonable period of time after 
his or her request and without penalty to the principal amount of the 
investment, to transfer his or her individual retirement plan or other 
account balance to a different

[[Page 20860]]

investment offered by the QTA or its affiliate. Also, the individual 
retirement plan holder or other account holder must be able, within a 
reasonable period of time after his or her request and without penalty 
to the principal amount of the investment, to transfer his or her 
individual retirement plan or other account balance to a different 
financial institution not related to the QTA or its affiliate.
    Under the exemption, 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 distribution made pursuant to 
the 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 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 made 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 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, a 
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 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 
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) In accordance with section 408(a) of the Act and section 
4975(c)(2) of the Code, the Department finds 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) The exemption is applicable to a transaction only if the 
conditions specified in the exemption are met; and
    (4) The exemption is 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.

Exemption

    Accordingly, the following exemption is granted 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. Covered 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 class exemption), using its authority in connection with the 
termination of an abandoned individual account plan pursuant to the 
Department's regulation at 2550.404a-3, relating to the Termination of 
Abandoned Individual Account Plans (the QTA Regulation) to:
    (1) Select itself or an affiliate to provide services to the plan;
    (2) Receive fees for the services performed as a QTA; and
    (3) Pay itself fees for services provided to the plan prior to the 
deemed termination of the plan, provided that the conditions set forth 
in sections II and IV of this 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 QTA Regulation to:
    (1) Designate itself or an affiliate as: (i) Provider of an 
individual retirement plan; (ii) provider of an account (other

[[Page 20861]]

than an individual retirement plan) under the limited circumstances 
described in section (d)(1)(ii) of the Safe Harbor Regulation for 
Terminated Plans (2550.404a-3) (Safe Harbor Regulation); or (iii) 
provider of an interest-bearing, federally insured bank or savings 
association account maintained in the name of the participant or 
beneficiary, in the case of a distribution described in section 
(d)(1)(iii) of the Safe Harbor Regulation, for the distribution of the 
account balance of the participant or beneficiary of the abandoned 
individual account plan who does not provide direction as to the 
disposition of such assets;
    (2) Make the initial investment of the account balance of the 
participant or beneficiary in the QTA's or its affiliate's proprietary 
investment product;
    (3) Receive fees in connection with the establishment or 
maintenance of the individual retirement plan or other account; and
    (4) Pay itself or an affiliate investment fees as a result of the 
investment of the individual retirement plan or other account assets in 
the QTA's or its affiliate's proprietary investment product, 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 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 ordinarily charged by the QTA (or 
affiliate) for the same or similar services provided to customers that 
are not plans terminated pursuant to the QTA regulation, if the QTA (or 
affiliate) provides the same or similar services to such other 
customers.
    (c) In the case of a transaction described in section I(a)(3):
    (1) Such services: (i) Were performed in good faith pursuant to the 
terms of a written agreement executed prior to the service provider 
becoming a QTA, or (ii) were performed pursuant to the QTA Regulation; 
and
    (2) The QTA, in the initial notification of plan abandonment 
described in section (c)(3) of the QTA Regulation: (i) Represents under 
penalty of perjury that such services were actually performed and (ii) 
in the case of section II(c)(1)(i) above, provides the Department with 
a copy of the executed contract between the QTA and a plan fiduciary or 
the plan sponsor that authorized such services.

III. Conditions for Distributions

    (a) The conditions of the QTA Regulation are met.
    (b) In connection with the notice to participants and beneficiaries 
described in the QTA Regulation, a statement is provided explaining 
that:
    (1) If the participant or beneficiary fails to make an election 
within the 30-day period referenced in the QTA Regulation, the QTA will 
directly distribute the account balance to an individual retirement 
plan or other account offered by the QTA or its affiliate;
    (2) The proceeds of the distribution may be invested in the QTA's 
(or affiliate's) own proprietary investment product, which is designed 
to preserve principal and provide a reasonable rate of return and 
liquidity.
    (c) 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, 
including the fees and expenses for establishing and maintaining the 
individual retirement plan or other account, are no less favorable than 
those available to comparable individual retirement plans or other 
accounts established for reasons other than the receipt of a 
distribution described in the QTA Regulation.
    (e) Except in the case of a QTA providing a bank or savings account 
pursuant to section I(b)(1)(iii) of the exemption, the distribution 
proceeds are invested in an Eligible Investment Product(s), as defined 
in section V(c) of this class exemption.
    (f) The rate of return or the investment performance of the 
individual retirement plan or other account is no less favorable than 
the rate of return or investment performance of an identical 
investment(s) that could have been made at the same time by comparable 
individual retirement plans or other accounts established for reasons 
other than the receipt of a distribution described in the QTA 
Regulation.
    (g) 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 must be able, within a reasonable period of time after his or 
her request and without penalty to the principal amount of the 
investment, to transfer his or her account balance to a different 
investment offered by the QTA or its affiliate, or to a different 
financial institution not related to the QTA or its affiliate.
    (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 distribution made pursuant to the QTA 
Regulation;
    (2) Fees and expenses attendant to the individual retirement plan 
or other account, with the exception of establishment charges, may be 
charged only against the income earned by the individual retirement 
plan or other account; and
    (3) Fees and expenses attendant to the individual retirement plan 
or other account are not in excess of reasonable compensation within 
the meaning of 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 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

[[Page 20862]]

exemption, or any duly authorized representative of such account 
holder.
    (c) A prohibited transaction will not be considered to have 
occurred if due to circumstances beyond the control of the QTA, the 
records necessary to enable the persons described in paragraph (b) to 
determine whether the conditions of the exemption have been met are 
lost or destroyed, and no party in interest other than the QTA shall be 
subject to the civil penalty that may be assessed under 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 QTA Regulation and this 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:
    (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 17th day of April, 2006.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 06-3815 Filed 4-20-06; 8:45 am]
BILLING CODE 4150-29-P