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Employee Benefits Security Administration

EBSA Final Rule

Termination of Abandoned Individual Account Plans [04/21/2006]

[PDF Version]

Volume 71, Number 77, Page 20819-20854


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Part IV





Department of Labor





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Employee Benefits Security Administration



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29 CFR Parts 2520, 2550, and 2578



Termination of Abandoned Individual Account Plans; Final Rule


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Parts 2520, 2550, and 2578

RIN 1210-AA97

 
Termination of Abandoned Individual Account Plans

AGENCY: Employee Benefits Security Administration.

ACTION: Final regulations.

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SUMMARY: This document contains three final regulations under the 
Employee Retirement Income Security Act of 1974 (ERISA or the Act) that 
facilitate the termination of, and distribution of benefits from, 
individual account pension plans that have been abandoned by their 
sponsoring employers. The first regulation establishes a procedure for 
financial institutions holding the assets of an abandoned individual 
account plan to terminate the plan and distribute benefits to the 
plan's participants and beneficiaries, with limited liability. The 
second regulation provides a fiduciary safe harbor for making 
distributions from terminated plans on behalf of participants and 
beneficiaries who fail to make an election regarding a form of benefit 
distribution. The third regulation establishes a simplified method for 
filing a terminal report for abandoned individual account plans. 
Appendices to these rules contain model notices for use in connection 
therewith. These regulations will affect fiduciaries, plan service 
providers, and participants and beneficiaries of individual account 
pension plans.

DATES: All three regulations are effective May 22, 2006.

FOR FURTHER INFORMATION CONTACT: Stephanie L. Ward or Melissa R. 
Spurgeon, Office of Regulations and Interpretations, Employee Benefits 
Security Administration, (202) 693-8500. This is not a toll-free 
number.

SUPPLEMENTARY INFORMATION:

A. 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 (the Department or 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 bankruptcy proceeding. In other cases, 
abandonment occurs because the plan sponsor has been incarcerated, 
died, or 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 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 those participants' 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 a federal court to appoint 
an independent fiduciary to manage, terminate, and distribute the 
assets of the plan. EBSA had opened over 1,500 civil cases involving 
defined contribution orphan plans as of September 30, 2005. In the over 
1,000 orphan plan cases closed with results through that date, there 
were approximately 50,000 participants affected and $255 million in 
assets involved. As of September 30, 2005, there were approximately 400 
active cases involving orphan plans.
    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,\1\ 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 ``[p]lan 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.
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    \1\ A copy of the Report can be found on the About EBSA page 
under the heading ERISA Advisory Council at http://www.dol.gov/ebsa.

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    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 beneficiaries. Specific 
recommendations of the Advisory Council included new regulations 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.
    On March 10, 2005, the Department published in the Federal Register 
(70 FR 12046) a notice of proposed rulemaking that, upon adoption, 
would facilitate the termination of, and distribution of benefits from, 
individual account pension plans that have been abandoned by their 
sponsoring employers. The Department invited interested persons to 
submit written comments. The Department received 16 written comments 
representing plan sponsors, independent fiduciaries, and plan service 
providers including financial institutions and plan recordkeepers. 
These letters are available under Public Comments on the Laws & 
Regulations page at http://www.dol.gov/ebsa.

    In addition to the notice of proposed rulemaking, the Department 
published for public comment a related class exemption addressing 
various

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transactions related to the regulations. The final class exemption 
appears elsewhere in the notice section of today's Federal Register.
    Set forth below is an overview of the three regulations and the 
public comments received in response to the proposals.

B. Abandoned Plan Regulation (29 CFR 2578.1)

    In general, Sec.  2578.1 sets forth a regulatory framework under 
which an individual account plan will be considered abandoned and 
terminated and pursuant to which a qualified termination administrator 
can take steps to wind up the affairs of the plan and distribute 
benefits to the plan's participants and beneficiaries.

1. Qualified Termination Administrator

    Like the proposal, the final regulation authorizes a ``qualified 
termination administrator'' (QTA) to determine that an individual 
account plan is abandoned and to carry out related activities necessary 
to the termination and winding up of the plan's affairs. The conditions 
for being a QTA are set forth in paragraph (g) of Sec.  2578.1. That 
section, as proposed, established two conditions for QTA status. First, 
the QTA must be eligible to serve as a trustee or issuer of an 
individual retirement plan within the meaning of section 7701(a)(37) of 
the Internal Revenue Code (Code) and, second, the QTA must be holding 
assets of the plan on whose behalf it will serve as the QTA.\2\
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    \2\ Section 7701(a)(37) defines the term individual retirement 
plan to mean an individual retirement account described in section 
408(a) of the Code and an individual retirement annuity described in 
section 408(b) of the Code.
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    A number of the commenters on the proposed regulation suggested 
that the Department expand the types of persons that could serve as a 
QTA under the regulation. In this regard, several of the commenters 
recommended expanding the proposed QTA definition to include 
recordkeepers, third-party contract administrators, accountants, and 
other service providers of plans, indicating that in many, if not most, 
instances, recordkeepers, third-party contract administrators and other 
service providers will be in a better position than financial 
institutions to determine that a plan has been abandoned and reconcile 
the information necessary to a plan's termination because of their 
ready access to plan documents and records.
    Although the Department recognizes the critical role that 
recordkeepers, third-party contract administrators and other service 
providers to plans can and will play in the process of winding up the 
affairs of an abandoned plan, the Department nonetheless believes that, 
given the authority and control over plans vested in QTAs under the 
regulation, QTAs must be subject to standards and oversight that will 
reduce the risk of losses to the plans' participants and beneficiaries. 
In developing its criteria for QTAs, the Department limited QTA status 
to trustees or issuers of an individual retirement plan within the 
meaning of section 7701(a)(37) of the Code because the standards 
applicable to such trustees and issuers are well understood by the 
regulated community and the Department is unaware of any problems 
attributable to weaknesses in the existing Code and regulatory 
standards for such persons. Accordingly, the Department believed that 
the Code and regulatory standards could be adopted for purposes of this 
regulation without imposing unnecessary costs and burdens on either 
plans or potential QTAs. The Department notes that, while commenters 
did propose varying procedures and criteria for defining QTA status, 
there was no consensus among the commenters as to what regulatory 
standards might be applicable to such persons. For these reasons, the 
Department is adopting the definition of ``qualified termination 
administrator'' without change from the proposal.
    As noted above, the Department anticipates that recordkeepers and 
other providers of services to abandoned plans will play an important 
role in winding up the affairs of the plan and that QTAs will, to the 
extent necessary to discharge their responsibilities under the 
regulation, utilize existing service providers as a means of maximizing 
efficiencies in the termination process and keeping administrative 
costs attendant to plan termination as low as possible. Paragraph 
(d)(2)(iv) of the final regulation makes clear that a QTA may engage, 
on behalf of the plan, such service providers as are necessary for the 
QTA to carry out its responsibilities.
    One commenter, noting the possibility that an abandoned plan might 
have assets invested with more than one financial institution, asked 
whether each such institution could be a QTA of that plan with respect 
to the assets held by that institution. The Department intends that 
there will be only one QTA for an abandoned plan and to the extent that 
one or more institutions is determined to hold assets of an abandoned 
plan subsequent to the approval of a QTA, such institutions will be 
expected to cooperate with the QTA in winding up the plan. To 
facilitate this process, the Department has added a new paragraph to 
the limited liability section of the regulation, paragraph (e)(3), that 
limits the liability of a party holding plan assets when transferring 
or disposing of a plan's assets at the direction of the QTA. Paragraph 
(e)(3) is discussed in greater detail under subsection 6 of this 
preamble, entitled ``Limited Liability.''
    Two commenters argued in favor of conferring QTA status on court 
appointed bankruptcy trustees in liquidation cases where the debtor 
also is the plan administrator. The Department did not adopt this 
suggestion. Such individuals are empowered by virtue of their court 
appointment to take the steps necessary to terminate and wind up the 
affairs of a plan and, therefore, do not need the authority conferred 
by the regulation. The final regulation does not limit, in any way, the 
ability of other parties who may be acting pursuant to court 
appointment, court order, or otherwise acting on behalf of the sponsor 
of the plan, to terminate and wind up the affairs of a pension plan, 
without regard to whether the plan is considered abandoned under this 
regulation.
    One commenter raised the issue of whether an affiliate of an 
otherwise eligible financial institution could itself be a QTA. As 
noted above, paragraph (g) of the final regulation provides that, in 
order to be a QTA, an entity must both (1) be eligible to serve as a 
trustee or issuer of an individual retirement plan under section 
7701(a)(37) of the Code, and (2) hold assets of the abandoned plan. 
Accordingly, by definition, an entity that does not satisfy these two 
conditions could not itself be a QTA even if it is affiliated with a 
financial institution that does satisfy the conditions. Of course, a 
QTA may engage any of its affiliates to provide administrative services 
necessary to the termination and winding-up process, provided that all 
of the requirements of the regulation and prohibited transaction class 
exemption are satisfied.

2. Finding of Plan Abandonment

    As in the proposal, the final regulation describes the 
circumstances under which a QTA may find an individual account plan to 
be abandoned. Such circumstances are when there have been no 
contributions to (or distributions from) a plan for a consecutive 12-
month period, or where facts and circumstances known to the QTA (such 
as a plan sponsor's liquidation under title 11 of the United States 
Code, or communications from

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plan participants and beneficiaries regarding the plan sponsor, benefit 
distributions, or other plan information) suggest that the plan is or 
may become abandoned. Inasmuch as there were no negative comments on 
this provision as proposed, it was adopted without modification. See 
Sec.  2578.1(b)(1)(i).
    With respect to the facts and circumstances clause, one commenter 
suggested adding language to expressly cover situations in which the 
plan sponsor has been dissolved without a successor under applicable 
State law. Although the Department agrees that the dissolution of the 
sponsor may cause the plan to become abandoned, the Department believes 
it is unnecessary to add this particular example to the regulation. The 
examples listed in the regulation are not exclusive. Rather, the 
Department anticipates that a variety of circumstances, regardless of 
whether they are listed as examples in the regulation, might justify a 
finding of immediate abandonment.\3\ For example, the Department 
expects that effects of natural disasters, such as Hurricane Katrina, 
might in some cases warrant that a QTA not have to wait for 12 
consecutive months of plan inactivity before taking action, even though 
a natural disaster is not a listed example.
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    \3\ As noted in the preamble of the proposed regulation, the 
facts and circumstances standard is intended to permit immediate 
findings of abandonment where facts and circumstances clearly 
obviate the need for 12 consecutive months of plan inactivity. See 
70 FR 12047.
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    As a second condition to a finding of abandonment, the proposal 
provided that the QTA must, following reasonable efforts to locate or 
communicate with the known plan sponsor, determine that the plan 
sponsor no longer exists, cannot be located, or is unable to maintain 
the plan. Because there were no negative comments on this provision, it 
was adopted without modification. See Sec.  2578.1(b)(1)(ii).
    With respect to the proposal's requirement of reasonable efforts to 
locate the missing plan sponsor, one commenter objected to the 
provision requiring the QTA to communicate with the sponsor's corporate 
agent for service of legal process. The commenter argued that this is 
an unnecessary and unhelpful provision and suggested eliminating it. 
The Department notes that the provision of the regulation referenced by 
the commenter is not a mandate, but rather part of a safe harbor under 
which the QTA will be deemed to have made a reasonable effort to locate 
or communicate with the plan sponsor if the corporate agent receives 
notification. Accordingly, if a QTA determines that contacting the 
agent for service of legal process is unnecessary or unhelpful, it is 
not required to do so. No changes were made to paragraph (b) in 
response to this comment.
    One commenter requested that the Department confirm that the 
regulation would apply to a situation where a plan becomes abandoned 
after the plan sponsor decides to terminate the plan, but before the 
sponsor actually completes the termination and winding-up process. 
While the regulation would cover this situation, the Department notes 
that a sponsor's decision to terminate a plan would not relieve a QTA 
from following the entire process established by the regulation, 
including the requirements in paragraph (c) of the final regulation 
relating to deemed termination.
    Under the proposal, a QTA was precluded from finding a plan to be 
abandoned if at any time before the plan is deemed terminated under the 
regulation the QTA receives an objection, whether oral or written, from 
the plan sponsor regarding the QTA's finding and the proposed 
termination. One commenter suggested the final regulation should 
mandate that such objections be put in writing and include 
representations regarding the sponsor's ability and willingness to 
administer the plan in accordance with plan documents. While the 
Department has not modified the final regulation in response to this 
comment, the Department notes that, given the facts that would give 
rise to a QTA's determination that the plan at issue may have been 
abandoned, the QTA may wish to inform the Department of the situation 
involving the plan and the sponsor's objection to the plan's 
termination.

3. Deemed Termination

    The final regulation provides that following a QTA's finding that a 
plan is abandoned, the plan will be deemed to be terminated on the 
ninetieth (90th) day following the date of the letter from EBSA's 
Office of Enforcement acknowledging receipt of the notice of plan 
abandonment. The furnishing of notice to the Department, in conjunction 
with the 90-day delay in the deemed termination of the plan, is 
intended to afford the Department an opportunity to review the 
circumstances of the proposed plan termination and, if appropriate, 
object to the termination. If the Department objects to a termination 
within the 90-day period, the plan is not deemed terminated until such 
time as the Department informs the QTA that the Department's concerns 
have been addressed. See Sec.  2578.1(c).
    The proposal provided that the 90-day period starts when the notice 
is furnished to the Department. For this purpose, paragraph (c)(4) of 
the proposal provided that a notice would be considered furnished to 
the Department on receipt, unless sent by certified mail, in which case 
the notice would be considered furnished when mailed. Given the 
significance of the 90-day period to potential QTAs, plans, 
participants, and the Department, the Department has revised the 
regulation to ensure actual receipt by the agency and to eliminate any 
ambiguity concerning the running of the 90-day period. In this regard, 
the regulation now provides, in paragraph (c)(1), that, subject to the 
waiver exception in paragraph (c)(2), a plan shall be deemed to be 
terminated on the ninetieth (90th) day following the date of the letter 
from EBSA's Office of Enforcement acknowledging receipt of the notice 
of plan abandonment described in paragraph (c)(3) of the regulation. A 
conforming change has been made to paragraph (c)(2) and proposed 
paragraph (c)(4) has been eliminated from the final regulation.
    As with the proposal, the Department, in its sole discretion, may 
waive some or all of the 90-day waiting period. Such a waiver might 
occur, for example, in the case of plans with few participants and few 
assets or if the facts relating to the abandonment are not very 
complicated, and if it is readily apparent to the Department that the 
proposed termination would be unlikely to put the participants' 
interests at risk. If the Department waives some or all of the 90-day 
period, the plan would be deemed terminated when the Department 
furnishes notification of the waiver to the QTA. See Sec.  
2578.1(c)(2)(ii). This provision was adopted without change.
    The proposal provided that the notification to the Department must 
be signed and dated by the QTA and include certain information about 
the QTA and the abandoned plan. Except as provided below, the 
notification requirements of the proposal were adopted without 
modification. See Sec.  2578.1(c)(3).
    Under the proposal, the notification to the Department was required 
to include certain information about the QTA, including whether the 
person electing to be the QTA (or any affiliate of the person) is, or 
within the past 24 months has been, the subject of an investigation, 
examination, or enforcement action by the Department, Internal Revenue 
Service, or Securities and Exchange Commission concerning such entity's 
conduct as a fiduciary or party in interest with respect to any plan

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covered by the Act. One commenter suggested that the term affiliate 
needs to be defined in the final regulation. Another commenter urged 
deletion of this disclosure requirement on the basis that such 
disclosure is difficult, costly, and possibly not relevant to the 
termination and winding-up process contemplated under the regulation, 
particularly with respect to affiliates of the QTA. This commenter 
noted that QTAs are likely to be among the largest and most affiliated 
companies in the marketplace, thereby making it very difficult, if not 
impossible, for a QTA to determine whether any of its affiliates are, 
or within the past 24 months have been, the subject of an 
investigation, examination, or enforcement action by the Department or 
other specified federal agencies.
    In response to these comments, the Department is adding a 
definition of ``affiliate'' that is intended to provide certainty to 
the identification process. As set forth in paragraph (h), the term 
affiliate under the regulation generally means any person directly or 
indirectly controlling, controlled by, or under common control with, 
the person; or any officer, director, partner or employee of the 
person. See Sec.  2578.1(h)(1). However, for purposes of the 
notification requirement in paragraph (c)(3)(i)(C), the regulation 
adopts a narrower definition, focusing on those affiliates that a QTA 
should have no difficulty identifying--those affiliates that are a 50 
percent or more owner of a QTA or any affiliate (within the meaning of 
paragraph (h)(1)) that provides services to the plan. See Sec.  
2578.1(h)(2).
    The content requirements for this notification also are amended to 
include a statement by the QTA that it has received no objection to the 
plan termination from the plan sponsor. This change merely clarifies 
the intent of the requirement that a QTA has made a reasonable effort 
to contact the plan sponsor. See Sec.  2578.1(c)(3)(iii).
    The final regulation, like the proposal, includes, at Appendix B, a 
model notice that may be used by a QTA to satisfy the notice 
requirement of Sec.  2578.1(c)(3).\4\ Except for some minor changes, 
the model notice is essentially the same as the model notice that 
accompanied the proposed regulation. One substantive change to the 
notice involves the inclusion of an item in Part I--Plan Information 
entitled ``Other'' (item 4). This item was added to the model notice to 
enable a QTA to report delinquent contributions that the QTA may have 
identified in the course of providing services to the plan or in 
connection with becoming a QTA under the regulation. As discussed in 
subsections 4 and 6 of this preamble entitled ``Winding up the Affairs 
of the Plan'' and ``Limited Liability,'' respectively, if the QTA knows 
about delinquent contributions, the QTA must disclose them to the 
Department.
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    \4\ The Department has provided model notices to facilitate 
compliance with the requirements in paragraphs (b)(5), (c)(3), 
(d)(2)(vi), and (d)(2)(ix) of the final regulation. These models are 
contained in Appendices A through D of this rulemaking. While the 
Department intends that use of an appropriately completed model 
notice would constitute compliance with the content requirements of 
the previously mentioned paragraphs, the Department is not requiring 
the use of any of the models and anticipates that a variety of other 
notices could satisfy the notice requirements of the regulation.
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    In the preamble to the proposed regulation, the Department invited 
comment on whether notices to be submitted to the Department (i.e., the 
notifications required by paragraphs (c)(3) and (d)(2)(ix) of Sec.  
2578.1) should be required to be submitted electronically. No 
commenters supported mandated electronic notification, but some 
commenters indicated they might choose to submit such notifications by 
e-mail depending on the circumstances of the particular case. Although 
the Department is not requiring notifications under this regulation to 
be submitted electronically, the Department encourages QTAs to utilize 
electronic media (especially e-mail) in providing information to the 
Department. In this regard, the Department will establish a special 
Abandoned Plan section on its website (http://www.dol.gov/ebsa) for 

information concerning the abandoned plan program and the electronic 
submission of information under the program.

4. Winding Up the Affairs of the Plan

    The proposal set forth specific steps that a QTA must take to wind 
up an abandoned plan and, with respect to most such steps, the 
standards applicable to carrying out the particular activity.\5\ In 
particular, paragraph (d)(2)(i)(A) of the proposal provided that the 
QTA shall undertake reasonable and diligent efforts to locate and 
update plan records necessary to determine benefits payable under the 
plan. Paragraph (d)(2)(ii) of the proposal provided that the QTA must 
use reasonable care in calculating the benefits payable based on the 
plan records assembled. Paragraph (d)(2)(iii) of the proposal provided 
the QTA with the authority to engage, on behalf of the plan, such 
service providers as are necessary for the QTA to wind up the affairs 
of the plan and distribute benefits to the plan's participants and 
beneficiaries. Paragraph (d)(2)(iv)(A) provided that reasonable 
expenses incurred in connection with the termination and winding up of 
the plan may be paid from plan assets. Paragraph (d)(2)(v) of the 
proposal provided that the QTA must furnish to each participant or 
beneficiary a notification of termination, apprising the individual of 
his or her account balance and requesting that such individual elect a 
form of distribution. Paragraph (d)(2)(vi) of the proposal addressed 
distributions of benefits to participants and beneficiaries.
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    \5\ In the preamble to the proposal, the Department explained 
that these prescribed standards are intended to both clarify and 
limit the responsibilities and liability of QTAs in connection with 
the termination and winding up of an abandoned plan. See 70 FR 
12048.
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(a) Calculating Benefits
    The proposal provided that the QTA must use reasonable care in 
calculating benefits payable based on the plan records assembled. Two 
commenters raised issues concerning the calculation of benefits and the 
likelihood of missing or incomplete plan and other employment records 
in the abandoned plan context. One commenter noted that defined 
contribution plans often use allocation formulas based on employee 
compensation levels but that a QTA is unlikely to have access to 
employment records showing such levels. Another commenter noted that 
many defined contribution plans provide for a reversion of unallocated 
assets to the plan sponsor at termination, which generally would be 
unfeasible given that the plan sponsor is usually missing in the 
abandoned plan context.
    In an effort to provide QTAs with more certainty with respect to 
satisfying their obligations in making benefit determinations under the 
regulation, the final regulation includes a new provision addressing 
the allocation of expenses and unallocated assets. See Sec.  2578.1 
(d)(2)(ii)(B). In instances where a plan document is unavailable, 
ambiguous, or if compliance with the terms of the plan document is not 
feasible, the regulation provides that, for purposes of allocations in 
connection with calculating benefits payable under this regulation, the 
QTA shall be deemed to have used reasonable care when allocating 
expenses to the individual accounts of participants and beneficiaries 
if such expenses are allocated either on a pro rata basis 
(proportionately in the ratio that each individual account balance 
bears to the total of all individual account balances) or on a per 
capita basis (allocated

[[Page 20824]]

equally to all accounts). See Sec.  2578.1(d)(2)(ii)(B)(2).
    In the case of unallocated assets (including forfeitures and assets 
in a suspense account), a QTA, under the new provision, will be deemed 
to have used reasonable care if such assets are allocated on a per 
capita basis (allocated equally to all accounts). See Sec.  
2578.1(d)(2)(ii)(B)(1). A more restrictive approach to allocations of 
unallocated assets was adopted due to concerns that allocating such 
assets on a pro rata basis (proportionately in the ratio that each 
individual account balance bears to the total of all individual account 
balances) would tend to result in discrimination in favor of highly 
compensated employees that is not permitted under the Code.\6\
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    \6\ See section 401(a)(4) of the Code.
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    A number of commenters requested guidance on the handling of an 
individual account with respect to which the amount in the account is 
less than the anticipated administrative cost of processing and 
distributing that account in accordance with the regulation. These 
commenters noted that payment of administrative expenses from plan 
assets frequently extinguishes very small accounts. It was explained 
that expenses unable to be paid out of a specific individual account 
are then charged back to the plan as a whole, thereby reducing the 
account balances of other plan participants or beneficiaries. In order 
to reduce overall administrative costs, these commenters generally 
recommended that any account balance worth less than its share of 
anticipated expenses be treated as forfeited and reallocated to the 
remaining accounts.
    In response to these comments, the final regulation provides that a 
QTA shall not have failed to use reasonable care in calculating 
benefits payable solely because the QTA treats as forfeited an account 
balance that, taking into account that account's share of estimated 
forfeitures and other unallocated assets, is less than the estimated 
share of plan expenses allocable to that account. See Sec.  
2578.1(d)(ii)(A). This provision also requires the QTA to use forfeited 
account balances to defray plan expenses or to allocate them to other 
plan participant or beneficiary accounts on a per capita basis. This 
provision is intended to minimize accrual of unnecessary administrative 
expenses at the plan level in connection with individual accounts that 
have little, if any, likelihood of ever being distributed due to their 
size.
(b) Delinquent Contributions
    In response to questions raised about a QTA's obligations with 
respect to collecting delinquent employer and employee contributions on 
behalf of the plan, the Department has included in the final regulation 
a new paragraph (d)(2)(iii). Paragraph (d)(2)(iii)(A) of the final 
regulation provides that a QTA must notify the Department of known 
delinquent contributions owed to the plan. This information must be 
included in either the notice of plan abandonment (Sec.  2578.1(c)(3)) 
or the final notice (Sec.  2578.1(d)(2)(ix)). Paragraph (d)(2)(iii)(B) 
of the final regulation provides that the QTA is not required to 
collect delinquent contributions on behalf of the plan. The final 
regulation includes minor conforming amendments to the content 
requirements of the notice of plan abandonment and the final notice to 
reflect the new requirement to report delinquent contributions. See 
Sec. Sec.  2578.1(c)(3)(iv)(D) and (d)(2)(ix)(F). In addition, the 
model notice of plan abandonment (Appendix B) and the model final 
notice (Appendix D) were changed by adding a new box, entitled 
``Other,'' in which the QTA may identify such delinquencies, thereby 
entitling the QTA to the special relief provided under the regulation. 
Further discussion of this issue can be found in subsection 6 of this 
preamble, entitled ``Limited Liability.''
(c) Reasonable Expenses
    As noted above, the proposal provided that reasonable expenses 
incurred in connection with the termination and winding up of a plan 
may be paid from plan assets. In this regard, paragraph (d)(2)(iv)(B) 
of the proposal provided that an expense shall be considered reasonable 
if it is not in excess of rates charged by the QTA (or affiliate) to 
other customers (i.e., customers that are not plans terminated under 
this regulation) for comparable services, if the QTA (or affiliate) 
provides comparable services to other customers. One commenter 
questioned whether this comparability standard would require QTAs to 
perform services for abandoned plans at the discounted rates generally 
afforded only to favored customers, based on existing business 
relationships, volume of business, or developing business 
opportunities. The Department recognizes that many QTAs, in the normal 
course of their business, may provide discounts to favored customers, 
based on a variety of factors. The comparability standard of the 
regulation is not intended to ensure that abandoned plans are 
necessarily provided the lowest or discount rate, but rather that in 
winding up the affairs of a plan, the plan (and therefore the plan's 
participants and beneficiaries) are not charged more than the QTA would 
charge similarly situated customers. If, for example, a QTA provides 
all or a significant portion of its customers a discount on the cost of 
services, the Department would expect that such discounts would be 
available to abandoned plans for whom the QTA provides the same or 
similar services. In an effort to further clarify this issue, the word 
``ordinarily'' has been added to the final regulation, with the 
limitation now reading, in relevant part, that such expenses ``are not 
in excess of rates ordinarily charged by the qualified termination 
administrator (or affiliate) for same or similar services. * * *'' See 
Sec.  2578.1(d)(2)(v)(B)(2)(ii).
(d) Notifying Participants
    The proposal provided that a QTA shall, as one of its duties in 
winding up the affairs of a plan, furnish to each participant or 
beneficiary a notice concerning the termination of his or her plan. The 
content requirements of this notice were adopted largely as proposed. 
See Sec.  2578.1(d)(2)(vi). Minor modifications were made to reflect 
other changes to the regulation, such as the inclusion of additional 
distribution options in the case of missing or non-responsive 
participants or beneficiaries. See Sec.  2578.1(d)(2)(vi)(A)(5)-(8).
    This notice of plan termination must include, among other things, 
the individual's account balance and date on which the balance was 
calculated. The reason for mandating this information in the notice is 
to inform participants of the immediacy of their distribution and help 
them choose an appropriate distribution option in light of the amount 
of their benefits. The proposal did not mandate a specific calculation 
date, but given the purpose and timing of the notice, the calculation 
date ordinarily should be on or about the date the notice is sent to 
the participant or beneficiary. One commenter inquired whether a QTA 
could omit the account balance and calculation date from notices if 
participants and beneficiaries could access their daily account 
balances via telephonic or web-based systems. This commenter indicated 
that its current notification system is able to produce this 
information only at predetermined intervals (e.g., monthly, quarterly, 
semiannually, or annually). Modifying existing notification systems, 
according to the commenter, would increase costs attendant to 
terminating and winding up plans under the regulation.

[[Page 20825]]

    The Department believes it is important to keep administrative 
costs of winding up an abandoned plan as low as possible, thereby 
preserving assets for distribution to participants and beneficiaries. 
Accordingly, a telephonic or web-based system that makes daily account 
balances readily accessible to participants and beneficiaries complies 
with the content requirements set forth in paragraph 
(d)(2)(vi)(A)(3)(i) of the final regulation if, in lieu of specific 
account information, the required notification includes the following: 
(1) A description of the method for accessing the system and account 
information, such as relevant telephone numbers, passwords, and access 
codes; (2) a statement indicating that participants and beneficiaries 
have a right to request a paper version of their specific account 
information; and (3) a description of the procedures for obtaining such 
a paper statement from the QTA.
    Like the proposal, the final regulation mandates that the notice of 
plan termination must include a description of the plan's distribution 
options and the procedure for a participant or beneficiary to make an 
election. One commenter indicated that it currently sends to 
participants in tax-qualified plans, upon a distributable event, a 
booklet containing, among other things, a description of the 
distribution options available under the plan. As described by the 
commenter, the booklet is intended to meet the notice requirements 
under section 402(f) of the Code, outlining the participant or 
beneficiary's distribution options and explaining the tax consequences 
associated with each such option. The commenter asked if a QTA could 
exclude from the termination notice information on distribution options 
if such information was furnished simultaneously to participants and 
beneficiaries as part of the disclosure required under section 402(f) 
of the Code. Recognizing that furnishing duplicative information to 
participants and beneficiaries about their distribution options may be 
both confusing and costly, it is the view of the Department that the 
requirement of paragraph (d)(2)(vi)(A)(4) of the final regulation does 
not preclude the furnishing of information concerning the distribution 
options of participants and beneficiaries in a separate document that 
complies with section 402(f) of Code and is included in the same 
mailing as the termination notice.
(e) Distributions
    In general, QTAs must distribute benefits in accordance with the 
form of benefit elected by the participant or beneficiary. See Sec.  
2578.1(d)(2)(vii)(A). Because spousal consent is sometimes required for 
a distribution, this section has been modified to add the clause ``with 
spousal consent, if required.''
    Commenters noted that, if participants and beneficiaries fail to 
make a timely election concerning the form of benefit distribution, and 
the plan is subject to the survivor annuity requirements in sections 
401(a)(11) and 417 of the Code, a QTA might not be able to comply with 
the distribution requirements of Sec.  2550.404a-3 (Safe Harbor for 
Distributions from Terminated Individual Account Plans) as required by 
the proposal. In recognition of this problem, the final regulation has 
been amended to provide that, if a QTA determines that the survivor 
annuity requirements of the Code prevent a distribution in accordance 
with Sec.  2550.404a-3, the QTA shall distribute benefits ``in any 
manner reasonably determined to achieve compliance with those 
requirements.'' See Sec.  2578.1(d)(2)(vii)(B)(2). In those cases where 
a QTA is required to select an annuity provider, it is expected that 
the selection process will be carried out in accordance with the 
fiduciary standards under section 404 of ERISA. See Sec.  
2578.1(e)(1)(iii).
    Further discussion relating to annuity purchases pursuant to 
paragraph (d)(2)(vii)(B)(2) is contained in subsection 6 of this 
preamble, entitled ``Limited Liability,'' and subsection 7, entitled 
``Internal Revenue Service.'' Also, it should be noted that an 
additional change was made to 29 CFR 2550.404a-3 for distributions on 
behalf of missing or non-responsive participants in situations where 
the present value of the benefits does not exceed $1,000. See 29 CFR 
2550.404a-3(d)(1)(iii) and the preamble discussion related to that 
final regulation for an explanation of this change.
    In the context of plan distributions, several commenters requested 
guidance concerning a QTA's duties with respect to assets for which 
there is no readily ascertainable fair market value (e.g., limited 
partnership/joint venture interests, employer securities, participant 
loans, defaulted mortgages and bonds, and employer real property). 
Recognizing that there is no one course of action that would be 
appropriate to all types of assets that QTAs might confront in the 
course of winding up the affairs of abandoned plans, QTAs, as with plan 
fiduciaries generally, will be required to evaluate the options and 
costs and make a determination as to what course of action is in the 
best interest of participants and beneficiaries. The actions of a QTA 
in liquidating hard to value plan assets are not covered by the safe 
harbor in paragraph (e) of the final regulation. The Department notes 
that significant holdings of hard to value or illiquid assets by a plan 
may indicate that the plan is not suitable for termination under this 
regulation. Rather, it might be more appropriate for the plan 
termination to occur under the Department's National Enforcement 
Project on Orphan Plans (NEPOP).\7\ Information about NEPOP may be 
obtained through the Abandoned Plan section of EBSA's website (http://www.dol.gov/ebsa
).

---------------------------------------------------------------------------

    \7\ See infra Background section of this document.
---------------------------------------------------------------------------

    Because the Department is interested in receiving information about 
hard to value and illiquid assets held by abandoned plans, the 
Department has added a new provision to the Special Terminal Report for 
Abandoned Plans to enable the Department to collect data on this topic. 
See Sec.  2520.103-13(b)(5). Under this provision, a QTA is required to 
identify and report the fair market value and method of valuation of 
any assets with respect to which there is no readily ascertainable fair 
market value.
(f) Final Notice
    The last step in the winding-up process is for the QTA to notify 
EBSA's Office of Enforcement that all benefits have been distributed in 
accordance with the regulation. Paragraph (d)(2)(viii) of the proposal 
set forth the content requirements of this notification. These 
requirements have been adopted largely as proposed. See Sec.  
2578.1(d)(2)(ix). Unlike the proposal, however, the final regulation 
does not require the final notice to include a statement that a special 
terminal report meeting the requirements of Sec.  2520.103-13 is 
attached to the final notice. This change was made to preserve maximum 
flexibility with respect to the filing requirements of the special 
terminal report. As explained below in the preamble to Sec.  2520.103-
13, initially all terminal reports will be filed as attachments to 
final notices. Ultimately, though, such attachments will be unnecessary 
as the Department anticipates an electronic system for filing terminal 
reports.

5. Plan Amendments

    Paragraph (d)(3) of the proposal provided that the terms of the 
plan shall, for purposes of title I of ERISA, be deemed amended to the 
extent necessary to allow the QTA to wind up the plan in accordance 
with this

[[Page 20826]]

regulation. The purpose of this provision is to enable QTAs to avoid 
the potentially significant costs attendant to amending the plan to 
permit what is otherwise permissible under this regulation. For 
example, a QTA may, without regard to plan terms, engage or replace 
service providers and pay expenses attendant to winding up and 
terminating the plan from plan assets. Because there were no negative 
comments on this provision, it was adopted without modification. See 
Sec.  2578.1(d)(3). One commenter raised several questions regarding 
the need to amend an abandoned plan for purposes of maintaining that 
plan's qualified status under the Code. This issue is addressed in 
subsection 7 of this preamble, entitled ``Internal Revenue Service,'' 
relating to the IRS' treatment of plans terminated under this 
regulation.

6. Limited Liability

    Paragraph (e) of the final regulation, like the proposal, provides 
that, if a QTA carries out its responsibilities with regard to winding 
up the affairs of the plan in accordance with paragraph (d)(2) of the 
regulation, the QTA will be deemed to satisfy any responsibilities it 
may have under section 404(a) of ERISA with respect to such activity, 
except for selecting and monitoring service providers. In addition, if 
the QTA selects and monitors service providers consistent with the 
prudence requirements in part 4 of ERISA, the QTA will not be held 
liable for the acts or omissions of the service providers with respect 
to which the QTA does not have knowledge. See Sec.  2578.1(e)(1).
    With regard to the liability of a QTA, commenters argued that: (1) 
The winding-up provisions under the regulation should not be considered 
fiduciary acts; (2) the QTA should be protected from lawsuits by plan 
sponsors and participants and beneficiaries; and (3) the Department 
should adopt a substantial compliance approach to assessing compliance 
with the regulation. The Department believes that it has constructed a 
regulatory framework that serves to minimize to the greatest extent 
possible the liability and exposure of QTAs who carry out their 
responsibilities in accordance with the provisions of the regulation. 
In this regard, the Department does not believe it can take the 
position that acts involving the exercise of discretion are not 
fiduciary acts. Nonetheless, the Department has, in many instances, 
attempted to define the type of activity that would be viewed as 
satisfying the fiduciary requirements under ERISA in the context of 
abandoned plans. See Sec.  2578.1(e)(1) (referring to the activities in 
paragraph (d)(2) of the regulation). Further, the Department believes 
that compliance with the requirements of the regulation will provide a 
meaningful defense for the actions of a QTA in the event the QTA is 
sued by the plan sponsor or a plan participant or beneficiary.
    Two commenters questioned the obligations of a QTA with respect to 
the retention of service providers that had been engaged to provide 
services to the plan by the plan sponsor (or another plan fiduciary) 
prior to the plan's abandonment. It is the view of the Department that 
a QTA does not have a duty to second guess the prudence of an earlier 
determination by the plan sponsor (or fiduciary) to engage a service 
provider for, or on behalf of, the plan. However, the QTA does have an 
obligation to monitor those who provide services to the plan, 
consistent with the requirements of section 404(a), without regard to 
whether the service provider was selected by the plan sponsor (or other 
fiduciary of the plan) or by the QTA. Like the proposal, the final 
regulation provides, however, that, to the extent that a QTA discharges 
its duties to select and monitor service providers in a manner 
consistent with section 404(a), the QTA will not be liable for the acts 
or omissions of the service provider with respect to which the QTA does 
not have actual knowledge. See Sec.  2578.1(e)(1)(ii).
    As with the selection and monitoring of service providers, it is 
the view of the Department that the selection of annuity providers is 
of such significance to plan participants and beneficiaries that the 
selection process should be governed by the fiduciary standards of 
section 404(a) of ERISA. For this reason, the limited liability 
provisions of Sec.  2578.1(e)(1)(i) do not extend to a QTA's selection 
of an annuity provider in those instances where a QTA determines that 
the survivor annuity requirements of the Code prevent a distribution in 
accordance with Sec.  2550.404a-3. See Sec.  2578.1(e)(1)(iii).
    Several commenters inquired whether a QTA would have a fiduciary 
duty under ERISA to identify and correct fiduciary breaches that were 
committed before the person became a QTA (i.e., before the date of the 
plan's deemed termination). Most of these inquiries concerned 
delinquencies in forwarding participant contributions to the plan. The 
commenters noted that correcting such violations could add 
significantly to the cost of terminating an abandoned plan.
    In an effort to clarify the responsibilities of a QTA with regard 
to such circumstances, the Department has added two new provisions to 
the final regulation. The first provision makes it clear that a QTA is 
not required to conduct an inquiry or review to determine whether or 
what breaches of fiduciary responsibility may have occurred with 
respect to a plan prior to becoming the QTA for such plan. See Sec.  
2578.1(e)(2).\8\ The second provision makes it clear that a QTA is not 
obligated to collect delinquent contributions on behalf of the plan. 
See Sec.  2578.1(d)(2)(iii). As discussed earlier, however, a QTA is 
required to report known delinquent contributions to the Department.\9\ 
In addition, if an entity, in the course of becoming a QTA or winding-
up a plan, happens to discover other breaches of fiduciary 
responsibility that occurred with respect to the plan before that 
entity became the QTA, the Department encourages the QTA to identify 
such breaches as part of the notification process under the final 
regulation, either in the notification of plan abandonment (Sec.  
2578.1(c)(3)) or the final notice (Sec.  2578.1(d)(2)(ix)). If the QTA 
uses the model notice in Appendix B or D, such identifications may be 
included in the section designated for other information.
---------------------------------------------------------------------------

    \8\ In this regard, section 409(b) of ERISA is clear that no 
fiduciary is liable for a breach of fiduciary duty committed before 
he or she became a fiduciary or after he or she ceased to be a 
fiduciary.
    \9\ The requirement to report delinquent contributions is 
discussed in more detail above in subsection 4 of this preamble, 
entitled ``Winding up the Affairs of the Plan.''
---------------------------------------------------------------------------

    Another issue raised by commenters relates to circumstances when 
the assets of an abandoned plan are held by more than one institution. 
In such circumstances, the Department intends that there will be only 
one QTA and that other parties holding plan assets cooperate with the 
QTA in winding up the affairs of the plan and distributing assets to 
the plan's participants and beneficiaries in accordance with this 
regulation. The Department recognizes that persons holding such assets 
may have concerns about their potential liability under ERISA in 
following a QTA's direction. The Department, therefore, has added a new 
paragraph (Sec.  2578.1(e)(3)) to make clear that a person holding 
assets of an abandoned plan will not be considered to violate section 
404(a) of ERISA to the extent that person cooperates with and follows 
the direction of the QTA, as the QTA carries out its responsibilities 
under the regulation. The regulation conditions relief on the person 
holding plan assets confirming that the person representing to be the 
QTA of an abandoned plan is the QTA recognized by the Department

[[Page 20827]]

of Labor. Confirmation of a person's QTA status with respect to a given 
plan can be obtained by contacting the Employee Benefits Security 
Administration's Abandoned Plan Coordinator or by checking the 
Abandoned Plan section of EBSA's Web site (http://www.dol.gov/ebsa). 

The Department anticipates that it will dedicate a section of its Web 
site to matters pertaining to abandoned plans, including a list of 
plans deemed terminated under the regulation and an identification of 
the entity electing to be the QTA for each such plan.

7. Internal Revenue Service

    In developing the proposed regulation, the Department conferred 
with representatives of the IRS regarding the qualification 
requirements under the Code as applied to plans that are terminated 
pursuant to the regulation. As indicated in the preamble of the 
proposed regulation, the Department has been advised by the IRS that it 
will not challenge the qualified status of any plan terminated under 
the regulation or take any adverse action against, or seek to assess or 
impose any penalty on, the QTA, the plan, or any participant or 
beneficiary of the plan as a result of such termination, including the 
distribution of the plan's assets, provided that the QTA satisfies 
three conditions. First, the QTA, based on plan records located and 
updated in accordance with paragraph (d)(2)(i) of the proposed 
regulation, reasonably determines whether, and to what extent, the 
survivor annuity requirements of sections 401(a)(11) and 417 of the 
Code apply to any benefit payable under the plan and takes reasonable 
steps to comply with those requirements (if applicable). Second, each 
participant and beneficiary has a nonforfeitable right to his or her 
accrued benefits as of the date of deemed termination under paragraph 
(c)(1) of the proposed regulation, subject to income, expenses, gains, 
and losses between that date and the date of distribution. Third, 
participants and beneficiaries must receive notification of their 
rights under section 402(f) of the Code. This notification should be 
included in, or attached to, the notice described in paragraph 
(d)(2)(v) of the proposed regulation. Notwithstanding the foregoing, as 
indicated in the preamble to the proposed regulation, the IRS reserves 
the right to pursue appropriate remedies under the Code against any 
party who is responsible for the plan, such as the plan sponsor, plan 
administrator, or owner of the business, even in its capacity as a 
participant or beneficiary under the plan.
    The Department received several comments regarding the position of 
the IRS, as stated above, particularly with respect to the three 
conditions. Many of the commenters stated a need for clarification of 
the conditions with respect to specific issues likely to arise in 
connection with distributions on behalf of missing or non-responsive 
participants or beneficiaries. Other commenters requested that the 
Department continue to consult with the IRS throughout the rulemaking 
process in order to provide the best possible final regulation under 
the circumstances. These commenters suggested that the overall success 
of a final regulation would depend, in part, on a clear statement from 
the IRS regarding the qualification requirements under the Code as 
applied to plans that would be terminated pursuant to the final 
regulation. All relevant comment letters were transmitted to the IRS 
for its consideration along with the three final regulations being 
published in this notice. The IRS has advised that its view, as 
expressed above, has not changed. Set forth below is a discussion of 
the specific issues raised by the commenters and, where appropriate, 
the IRS response.
(a) Survivor Annuity Requirements
    With respect to the first IRS condition, one commenter requested 
clarification on how a QTA would be able to effect a distribution on 
behalf of a missing or non-responsive participant in those 
circumstances when the benefit payable is subject to the Code's 
survivor annuity requirements.\10\ After consulting with the IRS, the 
Department modified the proposal by adding a provision that enables a 
QTA to purchase a qualified joint and survivor annuity or a qualified 
preretirement survivor annuity on behalf of the missing participant or 
beneficiary rather than rolling over the account balance into an 
individual retirement plan. The final regulation, in relevant part, 
provides that if a QTA determines that the survivor annuity 
requirements in sections 401(a)(11) and 417 of the Code prevent a 
direct rollover in accordance with Sec.  2550.404a-3, the QTA shall 
distribute benefits in any manner reasonably determined to achieve 
compliance with the survivor annuity requirements of the Code. See 
Sec.  2578.1(d)(2)(vii)(B)(2). The IRS has indicated that it may 
request comments in its Employee Plans Compliance Resolution Program 
(EPCRS) concerning whether additional correction methods in the context 
of an abandoned plan are needed in light of the ability to satisfy 
those requirements by purchase of a commercial annuity contract.
---------------------------------------------------------------------------

    \10\ See sections 401(a)(11) and 417 of the Code.
---------------------------------------------------------------------------

(b) Vesting
    With respect to the second IRS condition, one commenter asked for 
guidance from the IRS regarding compliance with the partial termination 
requirements of section 411(d)(3) of the Code. The IRS has advised as 
follows. The partial termination provisions apply in this context only 
if there is a forfeiture account (not a Code 415 suspense account) with 
plan assets as of the date of deemed termination under paragraph (c)(1) 
of the final regulation. In such a circumstance, the Code generally 
requires an evaluation, based on plan records located and updated in 
accordance with paragraph (d)(2)(i) of the final regulation, of whether 
a partial termination occurred at any point during the plan year 
preceding the year in which the plan is terminated. If the QTA 
determines there was a partial termination, the benefits of affected 
participants, if any, would have to be fully vested in accordance with 
section 411 of the Code. However, no such evaluation, vesting, and 
distribution would be necessary if the QTA reasonably determines that 
the cost of carrying out those acts would exceed the value of the 
benefits that would otherwise vest under the partial termination 
provisions.
(c) Code Section 402(f) Notice
    With respect to the third IRS condition (regarding the written 
explanation requirement imposed by Code section 402(f)), the view of 
the IRS is that the section 402(f) notice should be included in, or 
attached to, the participant notification of termination described in 
paragraph (d)(2)(v) of the proposed regulation. Paragraph (d)(2)(vi)(B) 
of the proposed regulation required that a participant be given at 
least 30 days from the furnishing of the notification described in 
paragraph (d)(2)(v) of the proposal to elect a form of distribution, 
after which the QTA is required to distribute the participant's 
benefits in accordance with the regulation. One commenter suggested 
that the timing requirements for when a plan administrator must furnish 
the Code section 402(f) notice might not always be consistent with the 
``at least 30 days'' requirement in paragraph (d)(2)(vi)(B) of the 
proposed regulation. After consulting with the IRS, the Department has 
decided to adopt paragraph (d)(2)(vi)(B) of the proposed

[[Page 20828]]

regulation without modification.\11\ The IRS advised that, in its view, 
the third condition relating to notification of rights under section 
402(f) of the Code is not satisfied unless the QTA furnishes the Code 
section 402(f) notice, or an eligible summary thereof, within a 60-day 
window that is no less than 30 days and no more than 90 days before the 
date of a distribution. See 26 CFR 1.402(f)-1, A-2. In the view of the 
Department, when a QTA provides a combined notification within the 
period for providing the notice under Code section 402(f), the QTA will 
not be transgressing the 30-day requirement in paragraph (d)(2)(vii)(B) 
of the final regulation.
---------------------------------------------------------------------------

    \11\ Due to reordering of provisions in paragraph (d)(2) of the 
proposal, the language formerly in paragraph (d)(2)(vi)(B) of the 
proposal appears in paragraph (d)(2)(vii)(B) of the final 
regulation. See Sec.  2578.1(d)(2)(vii)(B).
---------------------------------------------------------------------------

(d) Restrictions on Certain Mandatory Distributions
    One commenter asked for clarification regarding compliance with the 
Code's consent requirements in cases where the present value of a 
missing or non-responsive participant's vested accrued benefit exceeds 
$5,000.\12\ In this regard, the proposal provided that a QTA must roll 
over the account balance of any missing or non-responsive participant 
into an individual retirement plan in accordance with proposed Sec.  
2550.404a-3 without regard to whether the vested account balance 
exceeds $5,000. The Department has been advised that the position of 
the IRS is that, if a plan is terminated (as provided in Sec.  2578.1) 
and the three conditions described above are satisfied, a QTA may 
distribute a missing or non-responsive participant or beneficiary's 
vested accrued benefit without that participant's consent and without 
regard to the present value of such benefits. Thus, for example, in the 
case of a profit sharing plan that is not subject to the survivor 
annuity requirements of sections 401(a)(11) and 417 of the Code, a QTA 
may make such a distribution to a missing or non-responsive participant 
or beneficiary even if the plan offers an annuity option.
---------------------------------------------------------------------------

    \12\ See Code section 411(a)(11).
---------------------------------------------------------------------------

(e) Plan Amendments/Restatements
    One commenter requested clarification on the position of the IRS as 
to whether, in addition to satisfying the three conditions discussed 
above, a QTA would be expected or required under the Code to amend an 
abandoned plan at or before termination for qualification purposes. The 
commenter specifically mentioned the general practice of amending or 
restating a tax-qualified plan to reflect legislative or other updates 
to the Code, such as adopting plan amendments for the Economic Growth 
and Tax Relief Reconciliation Act of 2001. The Department has been 
advised that the position of the IRS is that, if a plan is terminated 
(as provided in Sec.  2578.1) and the three conditions described above 
are satisfied, a QTA would not be required or expected to amend the 
plan to reflect future guidance under the Code.

C. Safe Harbor for Distributions From Terminated Individual Account 
Plans (29 CFR 2550.404a-3)

1. Scope

    On March 10, 2005, the Department published in the Federal Register 
(70 FR 12046) a proposed regulation that would add to part 2550 of the 
Code of Federal Regulations a new section 2550.404a-3. The proposal was 
intended to provide a fiduciary safe harbor for use in connection with 
making distributions from terminated individual account plans on behalf 
of participants and beneficiaries who fail to make an election 
regarding a form of benefit distribution. The need for a fiduciary safe 
harbor in this context was discussed in the preamble to that 
regulation. The public response to the proposal was generally 
favorable. Therefore, the safe harbor was adopted in final form largely 
without modification.\13\
---------------------------------------------------------------------------

    \13\ The final safe harbor regulation codifies those parts of 
Field Assistance Bulletin 2004-02 (September 30, 2004) relating to 
the distribution of assets to an individual retirement plan from 
terminating individual account plans in those instances where a 
participant or beneficiary fails to make a distribution election. 
FAB 2004-02 did not address abandoned plans.
---------------------------------------------------------------------------

2. Conditions

    Like the proposal, the final regulation provides that if the 
conditions of the safe harbor are met, a fiduciary (including a QTA in 
the case of an abandoned plan) is deemed to have satisfied the 
requirements of section 404(a) of the Act with respect to the 
distribution of benefits, selection of an individual retirement plan 
provider or other account provider, and the investment of funds in 
connection with the distribution. See Sec.  2550.404a-3(c). In this 
regard, the proposal set forth three conditions. These conditions 
related to the qualifications of individual retirement plan providers, 
permissible investment products, limits on fees and expenses, a written 
agreement requirement, participant enforcement rights, and prohibited 
transactions. Except as otherwise indicated below, the final regulation 
retains each of these conditions without modification.
(a) Rollover Distribution to an Individual Retirement Plan
    The proposal conditioned relief on, among other things, the 
rollover of distributions to an individual retirement plan, as defined 
in section 7701(a)(37) of the Code.\14\ This condition applied without 
regard to the present value of the benefit distribution. Several 
commenters objected to this condition where benefit distributions would 
be $1,000 or less. The commenters asserted that few, if any, financial 
institutions offer, or will offer, an individual retirement plan for 
initial investments of $1,000 or less. Thus, it was argued, the 
potential inability of a QTA to identify an individual retirement plan 
provider willing to receive a rollover distribution of $1,000 or less 
may prevent a QTA from completing the termination and winding-up 
process set forth in 29 CFR 2578.1. Similarly, the inability of a QTA 
to identify an individual retirement plan provider willing to receive 
such small accounts may dissuade some financial institutions from 
serving as QTAs, particularly where the institution views its QTA 
status as forcing it to accept the rollover distribution at a financial 
loss.
---------------------------------------------------------------------------

    \14\ In the case of a distribution on behalf of a non-spousal 
distributee (e.g., child of participant), the proposal required that 
the distribution must be rolled over into an account, other than an 
individual retirement plan, maintained by an entity that is eligible 
to serve as a trustee or issuer of an individual retirement plan. 
This provision was added to the proposal at the request of the IRS 
to reflect the fact that a distribution to a non-spousal beneficiary 
is not an ``eligible rollover distribution'' under the Code and 
therefore cannot be transferred into an individual retirement plan 
within the meaning of section 7701(a)(37) of the Code. See 26 CFR 
1.402(c)-2, Q&A-12. This provision has been adopted in the final 
regulation without modification. See Sec.  2550.404a-3(d)(1)(ii). 
The IRS has advised the Department that a distribution under this 
provision, as well as distributions pursuant to Sec.  2550.404a-
3(d)(1)(iii)(A) and (B), will be subject to income taxation, 
mandatory income tax withholding and a possible additional tax for 
premature distributions.
---------------------------------------------------------------------------

    In response to these comments, the final regulation includes an 
alternative to direct rollovers to individual retirement plans. Under 
this alternative, a QTA may make distributions to certain bank accounts 
or State unclaimed property funds. This alternative is available only 
in the case of a distribution by a QTA with respect to which the amount 
to be distributed is $1,000 or less and that amount is less than the 
minimum amount required to be invested in an individual retirement plan 
product offered by the QTA to the

[[Page 20829]]

public at the time of the distribution. See 2550.404a-3(d)(1)(iii).
    For example, a financial institution offers to the public an IRA 
with a minimum initial investment requirement of $200. The financial 
institution also is the QTA of an abandoned plan, with respect to which 
there are two missing or non-responsive participants. The present value 
of the benefits for one of the participants is $900 and the present 
value of the other participant's benefits is $175. After determining 
that the Code's survivor annuity rules do not apply to either 
distribution, the QTA must distribute the benefits totaling $900 
directly to an individual retirement plan within the meaning of section 
7701(a)(37) of the Code. The benefit distribution of $175 must, at the 
election of the QTA, be distributed to an interest-bearing federally 
insured bank or savings association account in the name of the 
participant, to the unclaimed property fund of the State in which the 
participant's last known address is located, or, if available, to an 
individual retirement plan offered by an institution other than the 
QTA.\15\ Any of these options will satisfy the requirements of the 
regulation and entitle the QTA to safe harbor relief.
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    \15\ A QTA is not required to solicit bids in connection with 
electing to distribute benefits to an individual retirement plan 
offered by another financial institution.
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(b) Investment Products
    Paragraph (d)(2)(i) and (ii) address the types of investments that 
are permitted under the safe harbor in the case of distributions to 
individual retirement plans (pursuant to paragraph (d)(1)(i) or 
(d)(1)(iii)(C)) or to other accounts in the case of distributions on 
behalf of non-spousal beneficiaries (pursuant to paragraph 
(d)(1)(ii)).\16\ While one commenter suggested expanding the types of 
investments that would be permitted under the regulation, the 
Department has decided not to adopt the commenter's suggestions at this 
time. Therefore, like the proposal, the final regulation provides that 
there must be a written agreement entered into by the plan fiduciary 
(including QTA) and an individual retirement plan (or other account) 
provider. This agreement must provide, with respect to investment of 
individual retirement plan (or other account) funds, that (i) the 
rolled-over funds shall be invested in an investment product designed 
to preserve principal and provide a reasonable rate of return, whether 
or not such return is guaranteed, consistent with liquidity; (ii) for 
purposes of (i), the investment product selected for the rolled-over 
funds 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); and (iii) the investment 
product selected for the rolled-over funds shall be offered by a State 
or federally regulated financial institution, which shall be: 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. The Department 
notes that although the final regulation does not reflect the 
suggestions of the commenter, the Department has not ruled out the 
possibility of eventually expanding the types of investments that would 
be permitted under the regulation. The Department, in a different 
context, is currently considering possible amendments to the section 
404(c) regulation that would serve to encourage more retirement-
appropriate investments for participants who fail to provide direction 
or opt for a managed fund with respect to which participant direction 
is not required. In the course of considering amendments to the section 
404(c) regulation, the Department will continue to evaluate the 
suggestions made by the commenter on this regulation.
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    \16\ The conditions on permissible investment products do not 
apply in the case of a distribution to an interest-bearing bank or 
savings association account (pursuant to paragraph (d)(1)(iii)(A)) 
or to a State unclaimed property fund (pursuant to paragraph 
(d)(1)(iii)(B)).
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3. Miscellaneous

    As noted above, this regulation provides a fiduciary safe harbor 
for distributions from terminated individual account plans (whether 
abandoned or not) on behalf of missing or non-responsive participants 
and beneficiaries, without regard to the value of such distributions. 
In the context of distributions from non-abandoned plans, one commenter 
requested guidance on the application of the consent requirements in 
section 411(a)(11) of the Code to a distribution of vested accrued 
benefits in excess of $5,000 where the plan offers an annuity option 
(purchased from a commercial provider), or where the sponsoring 
employer, or any entity within the same controlled group as the 
employer, maintains another defined contribution plan (other than an 
employee stock ownership plan as defined in section 4975(e)(7) of the 
Code) into which the benefits could be transferred.\17\ The Department 
transmitted this comment to the IRS as part of the development of this 
safe harbor regulation. The IRS has advised as follows for situations 
involving distributions from non-abandoned plans.\18\ Defined 
contribution plans that are not subject to the joint and survivor 
requirements and that offer immediate payment in a single sum 
distribution may be amended at or before plan termination to eliminate 
all annuity options without violating the Code's anti-cutback 
rules.\19\ Where such an amendment occurs and the plan terminates, then 
the plan fiduciary may distribute a participant's vested accrued 
benefits in accordance with this safe harbor regulation without the 
participant's consent and without regard to the present value of such 
benefits.
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    \17\ See Treas. Reg. 26 CFR 1.411(a)-11(e)(1) for rules when a 
defined contribution plan terminates and the plan does not offer an 
annuity option.
    \18\ Subsection 7 of the preamble to 29 CFR 2578.1, entitled 
``Internal Revenue Service,'' discusses the application of the 
consent requirements in section 411(a)(11) of the Code to a 
distribution of vested accrued benefits in excess of $5,000 by a QTA 
from an abandoned plan.
    \19\ See Treas. Reg. Sec.  1.411(d)-4, Q&A-2(e) for further 
information, including when a defined contribution plan is permitted 
to be amended to eliminate annuity options under the plan. However, 
the following defined contribution plans are only permitted to be 
amended to eliminate annuity options to the extent that they retain 
sufficient annuity options to comply with the survivor annuity 
requirements: (1) A defined contribution plan that is subject to the 
funding requirements under section 412 of the Code; (2) a defined 
contribution plan that is a direct or indirect transferee of a plan 
subject to the joint and survivor annuity requirements; and (3) a 
defined contribution plan that fails to provide for full payment of 
the nonforfeitable accrued benefit (i.e., account balance) to the 
surviving spouse upon the participant's death. For defined 
contribution plans that are not permitted to be amended to eliminate 
all annuity options, the IRS has indicated that it may request 
comments under the EPCRS on whether additional correction methods 
are needed under EPCRS in order for such plans that are abandoned to 
take advantage of the fiduciary safe harbor regulation.
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    The proposed fiduciary safe harbor was limited to distributions 
from plans described in section 401(a) of the Code to reflect the tax 
deferred nature of the rollover in the safe harbor.\20\ In the preamble 
of the proposal, the Department solicited comments on

[[Page 20830]]

whether the safe harbor regulation should be extended to distributions 
from plans described in section 403 of the Code.\21\ One commenter 
recommended that the proposal be changed to include such plans. After 
consulting with the IRS on this issue, the Department has agreed with 
this recommendation.\22\ Accordingly, paragraph (a)(2) of the proposal 
was modified by adding the clause ``section 401(a), 403(a), or 403(b)'' 
to make it clear that fiduciaries of such plans may use the safe 
harbor. See Sec.  2550.404a-3(a)(2).
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    \20\ Specifically, in the case of distributions from a plan that 
is not an abandoned plan, such plan would have to be in compliance 
with the requirements of section 401(a) of the Code at the time of 
each such distribution. In the case of distributions from an 
abandoned plan, the safe harbor would be available if the plan was 
intended to be tax-qualified in accordance with the requirements of 
section 401(a) of the Code, even if such plan was not operationally 
qualified at the time of a distribution from the plan. See 70 FR 
12051.
    \21\ The Department notes that the proposed abandoned plan 
regulation was not limited to plans described in section 401(a) of 
the Code. As with the proposal, the final abandoned plan regulation 
is available to any individual account plan as defined in section 
3(34) of the Act. This includes plans described in section 401(a), 
403(a), or 403(b) of the Code. See Sec.  2578.1(a).
    \22\ Plan fiduciaries would have to determine whether use of the 
safe harbor is inconsistent with rules or regulations of the IRS. In 
this regard, the Department notes that the IRS has published 
proposed regulations addressing the circumstances under which a Code 
section 403(b) plan may be terminated. See 69 FR 67075, 82.
---------------------------------------------------------------------------

    One commenter expressed concern over the application of the 
customer identification and verification (CIP) procedures of the USA 
PATRIOT Act (the Patriot Act) in connection with a rollover by a QTA on 
behalf of a missing participant. Generally, the perceived difficulties 
concern situations where a QTA is required to make a direct rollover to 
an individual retirement plan, but the participant cannot be located or 
is otherwise not communicating with the plan concerning the 
distribution of plan benefits. If the CIP provisions of the Patriot Act 
were construed to require active participant involvement at the time an 
individual retirement plan is established on his or her behalf, QTAs 
would be unable to comply with the distribution requirements under 
Sec.  2578.1 (d)(2)(vii)(B) and, consequently, would be unable utilize 
the rollover safe harbor in Sec.  2550.404a-3.
    In response to this comment, the Department notes that it has been 
advised by Treasury staff, along with staff of other Federal functional 
regulators,\23\ that they interpret the CIP requirements of section 326 
of the Patriot Act, including implementing regulations and other 
guidance thereunder, to require that banks and other financial 
institutions implement their CIP compliance program with respect to an 
account, including an individual retirement plan, established by a QTA 
in the name of a former participant (or beneficiary) of an abandoned 
plan terminated under Sec.  2578.1, only at the time the former 
participant or beneficiary first contacts such institution to assert 
ownership or exercise control over the account. CIP compliance will not 
be required at the time a QTA establishes an account and transfers the 
funds to a bank or other financial institution for purposes of a 
distribution of benefits in compliance with Sec.  2550. 404a-3.\24\
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    \23\ The term ``other Federal functional regulators'' refers to 
other agencies responsible for administration and regulations under 
the Patriot Act.
    \24\ This position is consistent with guidance published by the 
staff of the Treasury, FinCEN, and the other federal functional 
regulators regarding accounts established under section 657(c) of 
the Economic Growth and Tax Relief Reconciliation Act of 2001. See, 
e.g., OCC Bulletin 2005-16 (April 28, 2005).
---------------------------------------------------------------------------

    Like the proposed safe harbor, the final regulation includes a 
model notice of plan termination in the appendix to facilitate 
compliance with the requirement to notify participants and 
beneficiaries of their distribution options and to request that each 
such participant or beneficiary elect a form of distribution. While the 
Department intends that use of an appropriately completed model notice 
would be considered compliance with paragraph (e) of the final 
regulation, the Department does not intend to require its use and 
anticipates a variety of other notices could satisfy the requirements 
of the regulation.

D. Terminal Report for Abandoned Plans (29 CFR 2520.103-13)

    On March 10, 2005, the Department published in the Federal Register 
(70 FR 12046) a proposed regulation that would add to part 2520 of the 
Code of Federal Regulations a new section 2520.103-13. The purpose of 
this new section is to provide annual reporting relief relating to 
abandoned plan filings by QTAs. The comments regarding the proposal 
were generally favorable. Accordingly, except as otherwise described 
below, the proposal was adopted without modifications.
    Like the proposal, the final regulation addresses the content, 
timing, and method of filing rules for the reporting requirement 
imposed on qualified termination administrators pursuant to 29 CFR 
2578.1(d)(2)(viii). With respect to content requirements, in addition 
to basic identifying information of the plan and QTA, the report is 
required to specify the plan's total assets as of a particular date, 
termination expenses paid by the plan, and the total amount of 
distributions, along with other relevant information. Regarding timing, 
the report must be filed within 2 months after the month in which all 
of the plan's affairs have been completed (except for the requirements 
in Sec.  2578.1(d)(2)(viii) and (ix)).
    With respect to method of filing rules, the report must be filed on 
the latest available Form 5500 in accordance with the Form's special 
instructions for abandoned plans terminated pursuant to Sec.  2578.1. 
The instructions to the Form 5500 do not currently address plans 
terminated pursuant to Sec.  2578.1. Until such time as the Department 
revises the instructions to the Form 5500 to reflect the requirements 
of Sec.  2520.103-13, the terminal report should be completed in 
accordance with temporary instructions which will be posted on the 
Abandoned Plan section of EBSA's website and the EFAST website.
    The proposed regulation provided that the filing of a terminal 
report with the Department would be accomplished when a report meeting 
the requirements of proposed Sec.  2520.103-13 is furnished to the 
Department as an attachment to the notice described in Sec.  
2578.1(d)(2)(ix) (i.e., the final notice). This provision was 
eliminated from the final regulation in order to preserve maximum 
flexibility with respect to the filing requirements of the special 
terminal report. Initially, all terminal reports will be filed as 
attachments to final notices. Upon implementation of an electronic 
filing system for the Form 5500 Annual Return/Report, the Department 
anticipates that terminal reports filed by QTAs also will be filed 
electronically, rather than as an attachment to the final notice.
    Paragraph (e) of Sec.  2520.103-13 addresses concerns regarding the 
responsibilities of QTAs under part 1 of title I of ERISA. This 
paragraph clarifies that a QTA is not subject to the generally 
applicable reporting requirements in part 1 of title I of ERISA, and 
that the filing of a report in accordance with this section does not 
relieve the plan's administrator (within the meaning of section 3(16) 
of ERISA) of any obligation it has under ERISA. Similarly, any failure 
by the QTA to meet the requirements of 29 CFR 2520.103-13 does not for 
that reason make the QTA subject to the requirements of part 1 of title 
I of ERISA, although it would prevent compliance with Sec.  2578.1.
    One commenter recommended an extension of the deadline for filing 
the report. The commenter was concerned that 60 days would be an 
insufficient period of time to complete and file the report. As noted 
above, the proposal required the report to be filed within two months 
after the month in which all of the plan's affairs have been

[[Page 20831]]

completed. In many cases, depending on when the plan's affairs have 
been completed, the time for filing actually will be in excess of 60 
days. After careful consideration of this issue, it is the Department's 
view that the proposed time period is adequate given the simplified 
reporting requirements of the report. See Sec.  2520.103-13(d).
    A new provision was added to the report to enable the Department to 
collect data on the extent to which abandoned plans hold assets for 
which there is not a readily ascertainable fair market value, (e.g., 
limited partnership/joint venture interests, employer securities, 
participant loans, defaulted mortgages and bonds, and other employer 
real property). See Sec.  2520.103-13(b)(5). Under this provision, a 
QTA is required to identify and report the fair market value and method 
of valuation of any assets with respect to which there is no readily 
ascertainable fair market value. As noted above, in the discussion 
regarding a QTA's duties with respect to these assets in connection 
with winding up an abandoned plan, the Department also will use the 
information reported to ensure that QTAs are acting reasonably and in 
good faith with respect to such assets.

E. Regulatory Impact Analysis

Summary

    This regulatory initiative comprises three separate regulations. 
The first, entitled Termination of Abandoned Individual Account Plans 
(29 CFR 2578.1), establishes a procedure that financial institutions 
holding assets of abandoned individual account pension plans may follow 
to terminate the plan and distribute benefits to the plan's 
participants and beneficiaries, with limited liability. The first 
regulation includes, as appendices, model forms that can be used to 
provide the notices required under the regulatory termination 
procedures. The second regulation, entitled Safe Harbor for 
Distributions from Terminated Individual Account Plans (29 CFR 
2550.404a-3), provides a fiduciary safe harbor for making distributions 
from terminated plans on behalf of participants and beneficiaries who 
fail to make an election regarding a form of benefit distribution. The 
third regulation, entitled Special Terminal Report for Abandoned Plans, 
establishes a simplified method for filing a terminal report for 
abandoned individual account plans. The Department is also publishing, 
simultaneously with this regulatory initiative, a final class exemption 
for services provided in connection with the termination of abandoned 
individual account plans. As described further in the preamble to the 
exemption, published elsewhere in this issue of the Federal Register, 
the Department has taken into account the availability of conditional 
relief under the exemption, which the Department believes is essential 
to achievement of the purposes underlying these regulations, in 
assessing the economic costs and benefits of the regulations.
    These regulations address the problems caused when the employer 
sponsor of an individual account pension plan abandons the plan, 
relinquishing the responsibility to either administer the plan or to 
appoint an administrator. The assets of such plans often languish in 
financial institutions that hold the funds under a limited delegation 
of authority without the power to distribute them. The establishment of 
the standards and procedures set forth in these regulations will reduce 
the difficulties that participants and beneficiaries often face in 
seeking to gain access to the account balances attributable to them 
under an abandoned plan. By establishing an efficient method of winding 
up the plan's affairs and distributing account balances, the 
regulations will also eliminate unnecessary expenses that are charged 
to the plan assets being passively held by the financial institution 
and increase the likelihood that participants and beneficiaries will 
receive the benefits due them under abandoned plans. The following 
section summarizes the Department's economic analysis of these 
regulations. Additional sections describe the basis of the analysis and 
the Department's conclusions in more detail.
    Although abandoned plans will pay certain additional costs as a 
result of these regulations, their qualitative and quantitative 
benefits are expected to be substantial. Most significantly, they will 
produce the qualitative benefit of facilitating voluntary, timely, 
efficient termination of abandoned plans. These regulations will 
encourage appropriate financial institutions to serve as QTAs to wind 
up the affairs of abandoned plans. The regulations' requirements for 
timing and content of notices to the Department and to participants and 
beneficiaries; specification of QTA obligations with respect to the 
condition of plan records, the selection and monitoring of service 
providers, and the payment of fees and expenses; and standards for plan 
amendments all protect the benefits of affected participants and 
beneficiaries in the termination of abandoned plans.
    The orderly termination of abandoned plans will also produce 
quantitative benefits by maximizing the account balances ultimately 
payable to participants and beneficiaries. First, prompt, efficient 
termination of an abandoned plan will eliminate future administrative 
expenses charged to the plan that would otherwise diminish the plan's 
assets. Second, through the specific standards and procedures, the 
regulations will reduce the overall cost of terminating an abandoned 
plan.
    The regulations will result in abandoned plans' incurring costs to 
wind up their affairs. However, the magnitude of such costs is 
meaningful only when compared to the savings that will result from 
reliance on the regulations' procedures and termination of the plans. 
The Department's analysis, detailed below, shows that, although a 
plan's termination costs in some cases may exceed the anticipated 
administrative cost savings in the actual year of termination, the 
administrative cost savings produced by the termination will exceed the 
termination costs by the year next following termination. To the extent 
that a plan, if not terminated, would have continued to be abandoned 
for more than one year, therefore, the aggregate savings resulting from 
termination will substantially exceed the termination costs, resulting 
in a substantial preservation of plan assets and larger benefits for 
participants and beneficiaries.
    Because the specific circumstances of abandoned plans are thought 
to vary considerably, the Department's quantitative estimates of 
savings from efficiency gains are subject to some uncertainty. 
Regardless of the variations in termination costs across the spectrum 
of abandoned plans, however, if the regulations are successful in 
reducing termination costs in the aggregate by 10 percent, the 
Department estimates that they would reduce the aggregate (one-time) 
cost of terminating the currently existing abandoned plans by at least 
$800,000. If the regulations further increase efficiency in the 
termination process and therefore reduce termination costs by 20 
percent overall, about $1.7 million in aggregate termination costs will 
be saved. Under this assumption, the benefits of terminating existing 
abandoned plans under these regulations will exceed the administrative 
costs these plans would otherwise incur by about $900,000, even in the 
year of termination. For the estimated currently existing abandoned 
plans, this net benefit is expected to increase to $6.6 million, if it 
is presumed that abandonment would continue for a year beyond the year 
of

[[Page 20832]]

termination, and to $27 million, if abandonment continued instead for 
an additional four years beyond the year of termination.
    Similar effects will be seen for the somewhat smaller number of 
plans that become abandoned and are terminated in future years. In 
future years, termination of an additional 1,650 plans that become 
abandoned annually is expected to result in a net benefit ranging from 
about $400,000 to $2.7 million at the year beyond the year of 
termination or to $14.5 million at the fourth year beyond the year of 
termination. A more detailed discussion of the data, assumptions, and 
methodology underlying this analysis will be found below.

Executive Order 12866 Statement

    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) of the Executive Order, 
a ``significant regulatory action'' is 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. OMB has 
determined that this action is significant under section 3(f)(4) 
because it raises novel legal or policy issues arising from the 
President's priorities. Accordingly, the Department has undertaken an 
analysis of the costs and benefits of the regulations. OMB has reviewed 
this regulatory action.

Costs

Termination of Abandoned Individual Account Plans (29 CFR 2578.1)
    This regulation establishes the process for terminating abandoned 
plans. It will have the effect of causing abandoned plans to incur 
certain costs in connection with termination and distribution of their 
assets. These costs include, among others, the costs associated with 
determining whether the plan is abandoned; notifying participants, 
beneficiaries, and the Federal government of the abandonment; 
distributing benefits to participants and beneficiaries; and reporting 
the termination of the plan to the Federal government.
    Estimation of the total cost attributable to this regulation 
depends on the number of abandoned plans to which it will apply. To 
estimate the number of abandoned plans, the Department examined 
information on Form 5500 filings that describes the contribution and 
distribution activity of individual account pension plans. This data, 
although not conclusive as to whether a plan has been abandoned, was 
considered the only reliable source of information available for 
approximating the total number of abandoned plans.
    Using 1999 plan year data, the Department first ascertained the 
number of plans that had filed a Form 5500 indicating both no 
contributions received by the plan and no distributions made to 
participants or beneficiaries. The Department then examined Form 5500 
filings for these same plans for each subsequent year from 2000 to 2002 
to determine whether, at any time during those years, the plans had 
received contributions or made distributions. The Department considered 
a plan to be abandoned, for purposes of this analysis, if neither 
activity was reported for the plan throughout this entire period. The 
Department emphasizes that it adopted this methodology merely to 
produce a reasonable estimate of existing abandoned plans for the 
purpose of conducting this economic analysis; the Department's use of 
this methodology is not intended to reflect a view on the regulatory 
requirements for finding abandonment; nor does it indicate any view 
regarding whether a particular plan included in this survey was or is 
in fact abandoned.
    This approach yielded an estimate of approximately 4,000 plans 
currently existing in a state of abandonment. Because witnesses before 
the Working Group had indicated that most abandoned plans are small 
plans with 20 or fewer participants, the Department estimated that the 
estimated 4,000 abandoned plans would cover 78,500 participants. Other 
analysis of Form 5500 data suggested that, in the future, an estimated 
additional 1,650 plans, with an aggregate 33,000 participants, and an 
estimated $868 million in assets, may become newly abandoned annually.
    The Department notes that this use of Form 5500 data to estimate 
the number of abandoned plans results in a fair degree of uncertainty. 
For example, these estimates do not include an estimate of abandoned 
plans that did not file a Form 5500 in 1999 or a later year. Further, 
each plan counted within the 4,000-plan estimate represents a plan for 
which an annual report was actually filed, indicating that some 
administrative activities were conducted on behalf of the plan and 
suggesting that circumstances other than abandonment may explain the 
apparent lack of financial activity.\25\ Testimony by service providers 
before the Working Group and information gathered under NEPOP indicate, 
however, that a plan may be abandoned despite evidence of some 
continued administrative activity. Although the Department acknowledges 
the uncertainty of its assumptions, the methodology described above 
provides the best available basis for reaching an estimate of the 
number of abandoned plans for purposes of assessing the relative costs 
and benefits of this regulation.
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    \25\ For example, in any particular year, a profit sharing plan 
may not receive any contributions, without there being any 
imputation of abandonment.
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    The Department has estimated the net impact of the regulation by 
comparing the ongoing administrative costs of maintaining an abandoned 
plan with the cost of terminating such a plan. Assuming that 
termination costs will be significantly affected by the degree to which 
plan administration was maintained following abandonment, the 
Department expected an inverse relationship between continuing 
administration and termination costs of abandoned plans, such that a 
well-maintained plan would be less costly to terminate and a less-well-
maintained plan would be relatively more costly to terminate.
    Based on available information regarding plans in general, the 
ongoing administrative costs for abandoned plans are estimated to range 
from approximately $900 to $3,000 per plan annually, or $3.5 million to 
$11.8 million annually for 4,000 currently abandoned plans. Testimony 
before the Working Group indicated that terminating an abandoned plan 
can add ten percent to the ordinary expenses related to plan 
administration. As such, termination costs are expected to range from 
$1,000 to $3,300 per plan, or $3.9 million to $13 million for all 
currently abandoned plans.\26\ Weighting the

[[Page 20833]]

number of abandoned plans equally between those that have been more and 
less well-maintained produces an aggregate annual administrative cost 
for 4,000 abandoned plans of approximately $7.7 million; the one-time 
cost to terminate these same plans would be $8.4 million. Similarly, 
the annual administrative costs for the 1,650 additional plans 
estimated to become abandoned annually in the future is estimated at 
$3.2 million, while the one-time cost of terminating those plans would 
be $3.5 million annually.
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    \26\ One commenter on the proposed regulations suggested that 
the Department's estimate of the costs of terminating abandoned 
plans was too low, particularly for plans that had been poorly 
administered for some time after abandonment. This commenter 
suggested that termination of a neglected plan could take up to ten 
hours per participant. The Department recognizes the difficulty of 
anticipating actual termination costs for specific plans and has 
therefore developed an estimate based on a range of such costs, 
which the Department continues to consider adequate and appropriate 
for purposes of estimation.
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    Regardless of whether costs of terminating abandoned plans would 
exceed ongoing administrative costs in the year the plans are 
terminated, the future savings of eliminating continuing administrative 
expenses that result from termination will quickly exceed those 
termination expenses. The Department expects, however, that the one-
time termination costs under this regulation may actually be less than 
one year's ongoing administrative expenses for such plans because its 
specific standards and procedures will increase the efficiency of 
terminating abandoned plans. The aggregate savings that would arise 
from this greater efficiency is subject to uncertainty. However, each 
10 percent reduction in the cost of termination is assumed to produce 
savings in excess of $800,000. Assuming that this regulation reduces 
the costs of terminating abandoned plans by at least 20 percent, $1.7 
million in termination costs will be saved, and total one-time 
termination costs would amount to $6.7 million. Savings of about 
$700,000 would arise from greater efficiency in terminating plans that 
become abandoned in each future year, reducing ongoing estimated annual 
termination costs from $3.5 million to $2.8 million.
    In response to public comments on the proposals, as explained 
above, the Department has modified the two model notices (the Notice to 
the Department and the Final Notice) to provide QTAs with the 
opportunity to inform the Department of known delinquent contributions. 
Because this modification imposes only a very small additional cost 
relative to the overall range of cost estimates for the regulation, the 
Department has not increased its cost estimates for these two model 
notices. The Notice to the Department and the Final Notice are 
discussed more fully below in the section of the preamble on the 
Paperwork Reduction Act.
Safe Harbor for Distributions From Terminated Individual Account Plans 
(29 CFR 2550.404a-3)
    The safe harbor provided in section 2550.404a-3 requires a notice 
to be furnished to participants and beneficiaries informing them of the 
plan's termination and the options available for distribution of their 
account balances. The Department's estimate of the number of notices 
that will be sent and the cost for these notices is based on the number 
of missing or non-responsive individuals whose account balances are 
likely to be directly transferred by a fiduciary.
    Based on data about terminating plans that are not abandoned plans 
from the year 2000 Form 5500 Annual Report, the Department estimates 
that, annually, there are 2.3 million participants and beneficiaries in 
terminating plans. Although it is not known how many of these 
participants and beneficiaries will fail to make an election concerning 
distribution of their benefits, other information about participants 
and beneficiaries in defined benefit plans has led the Department to 
assume that approximately one percent, or 23,500, individuals will fail 
to do so annually. As such, it is estimated that plan administrators 
will be required to furnish 23,500 notices to participants in order to 
take advantage of the safe harbor under section 404(a). The cost for 
these notices, at two minutes per notice and $.38 each for mailing, is 
$62,170.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13)
    The Department has modified the proposed regulation for simplified 
reporting for abandoned plans to add a provision to collect data on 
abandoned plan assets for which there is not a readily ascertainable 
fair market value. Despite this minor modification, the Department has 
not attributable any costs to the changes in reporting for abandoned 
plans provided by this regulation. This simplified reporting is 
treated, for purposes of this analysis, as a benefit to abandoned 
plans, as explained below.

Benefits

Termination of Abandoned Individual Account Plans (29 CFR 2578.1)
    The final regulation has both qualitative and quantitative 
benefits. The standards and procedures it provides will encourage 
timely, efficient termination of abandoned plans and appropriate, 
careful distribution of account balances, thereby increasing the 
benefit security of participants and beneficiaries. The regulation's 
requirements for timing and content of notices to the Department and to 
the participants and beneficiaries; specification of QTA obligations 
with respect to the condition of plan records, selection and monitoring 
of service providers, and payment of fees and expenses; and standards 
for plan amendments protect the benefits of participants and 
beneficiaries during the termination of abandoned plans.
    The orderly termination of abandoned plans will also produce 
quantitative benefits by maximizing account balances ultimately payable 
to participants and beneficiaries. First, prompt, efficient termination 
of an abandoned plan will eliminate future administrative expenses that 
would otherwise diminish the plan's assets. Second, application of the 
regulation's specific standards and procedures will reduce costs of 
termination. Both of these effects will reduce the extent to which 
benefits held in individual accounts under abandoned plans are drawn 
upon to pay for expenses.
    The most significant qualitative benefit of the regulation will 
arise from encouraging QTAs to terminate abandoned plans. Absent the 
standards and procedures of this regulation, including its provisions 
limiting a QTA's liability in certain circumstances, the institutions 
holding assets of abandoned plans would likely lack the necessary 
authority and/or incentive to properly terminate the plans and 
distribute benefits. Termination of abandoned plans further will 
produce the benefit of making previously inaccessible plan accounts 
available to the participants and beneficiaries of abandoned plans. The 
regulation's specifications for how the QTA should wind up the affairs 
of an abandoned plan will also protect benefits in the course of that 
process.
    Benefits ultimately payable to participants and beneficiaries will 
be maximized in two important ways. First, termination will eliminate 
future administrative expenses that would diminish plan assets (and 
therefore participant account balances). Second, the regulation's 
specific standards and procedures will reduce the costs associated with 
plan termination. Each of these effects will moderate the extent to 
which benefits will be reduced due to either continued administration 
or termination.
    The magnitude of the costs incurred by a plan to wind up its 
affairs under

[[Page 20834]]

this regulation is meaningful only when compared to the savings of 
future administrative expenses that will also result from termination. 
A comparison of termination costs with administrative savings is 
complicated by the fact that the termination costs will be incurred 
only once, while the savings in eliminated administrative costs will 
accrue throughout the years during which the plan would have continued 
to exist in its abandoned state. In order to assess the balance of 
costs and benefits, the Department has estimated the present value of 
future ongoing administrative expenses using a three percent discount 
rate over a period from one year to five years after termination. The 
actual duration of abandonment cannot be determined with certainty; 
however, a period from one to five years is thought to offer a 
reasonable illustration of potential administrative cost savings that 
could arise in future years from the termination of abandoned plans.
    The comparison of estimated termination costs of $8.4 million with 
the present value of future administrative costs discounted over the 
range of durations noted above shows that, while termination costs are 
estimated to exceed the estimated $7.7 million savings of 
administrative expenses in the year of termination, the present value 
of administrative expenses that would otherwise be paid in the year 
following termination exceeds the estimated termination cost by $6.6 
million, resulting in a substantial preservation of account balances 
and therefore retirement benefits. The present value of administrative 
expenses that would otherwise be paid over the five years following 
termination exceeds the termination cost by $27 million. Similarly, the 
cost of termination of the 1,650 additional plans assumed to become 
newly abandoned each year would be slightly greater than eliminated 
administrative costs for the year of termination, but termination would 
have the effect of eliminating over $2.8 million in administrative 
expenses by the end of the next year following termination, and $11.6 
million if those plans had remained abandoned for five years. These net 
benefits would also represent account balances preserved for retirement 
benefits.
    As noted earlier, the estimates of reduction in termination costs 
that might arise from efficiency gains due to this regulation's 
specific standards and procedures are subject to some uncertainty. 
However, each 10 percent reduction in the cost of terminating abandoned 
plans under these new standards is assumed to produce savings in excess 
of $800,000. Assuming that the specific provisions of the regulation 
will increase efficiency and reduce costs by at least 20 percent, an 
additional $1.7 million in termination costs will be saved, further 
preserving retirement benefits for participants and beneficiaries of 
currently abandoned plans. With that assumption, the benefits of these 
terminations would be estimated to exceed their costs by about $900,000 
in the year of plan termination. Efficiency gains for the 1,650 plans 
that become abandoned from year to year would be expected to amount to 
$710,000 annually, such that the benefits of terminating these 
abandoned plans would exceed their termination costs by about $400,000 
each year.
Safe Harbor for Distributions From Terminated Individual Account Plans 
(29 CFR 2550.404a-3)
    By providing a safe harbor for plan fiduciaries that directly 
transfer individual account balances to appropriate investment 
vehicles, this regulation will increase retirement security and reduce 
fiduciaries' uncertainty regarding how to comply with ERISA section 
404(a). The benefits of greater retirement savings protection for 
participants and increased certainty for fiduciaries under the safe 
harbor cannot be specifically quantified.
    The regulation will provide qualitative benefits to fiduciaries by 
affording them greater assurance of compliance and reduced exposure to 
risk; the substantive conditions of the safe harbor will benefit many 
former participants by directing their retirement savings to 
appropriate retirement savings investment vehicles that minimize risk 
and offer preservation of principal and liquidity.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13)
    This regulation provides for simplified reporting to the Department 
for QTAs that wind up the affairs of an abandoned plan. The time 
savings resulting from abbreviated reporting requirements will reduce 
administrative costs for abandoned plans and preserve account balances, 
resulting in increased benefits to participants and beneficiaries.

Paperwork Reduction Act Statement

    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, that the reporting burden (time 
and financial resources) imposed on respondents is minimized, that 
collection instruments are clearly understood, and that the Department 
can properly assess the impact of its collection requirements on 
respondents.
    The Department first solicited comments concerning the information 
collection request (ICR) included in the Proposed Regulations on 
Termination of Abandoned Individual Account Plans (29 CFR 2578.1), the 
Proposed Safe Harbor for Rollovers From Terminated Individual Account 
Plans (29 CFR 2550.404a-3), and the Proposed Class Exemption for 
Services Provided in Connection with the Termination of Abandoned 
Individual Account Plans when these documents were published in the 
Federal Register on March 10, 2005 (70 FR 12046). No comments were 
received from the public about the hour and costs burdens attributed to 
the information collection request (ICR). The ICR was reviewed by OMB 
and approved on April 11, 2005, under the control number 1210-0127. 
Subsequent to this approval, the ICR was changed to include in the ICR 
the hour burden for the Department's Class Exemption for the 
Establishment, Investment and Maintenance of Certain Individual 
Retirement Plans Pursuant to a Mandatory Distribution (69 FR 57964). 
OMB approved the change to the ICR on September 19, 2005, under the 
same control number. The OMB approval will expire on April 30, 2008.
    Currently, the Department is soliciting comments concerning 
revisions in the burden estimates for the ICR resulting from the 
promulgation of these final regulations, in particular with respect to 
the Termination of Abandoned Individual Account Plans Regulation (29 
CFR 2578.1) (the Abandoned Plan Regulation) and the Class Exemption for 
Services Provided in Connection with the Termination of Abandoned 
Individual Account Plans (published simultaneously with this document) 
(the QTA Exemption). The Department has submitted the revised ICR to 
OMB in accordance with 44 U.S.C. 3507(d) for review of its information 
collections. All other paperwork burdens covered by the ICR, including 
the recordkeeping burden under the Department's Class Exemption for the 
Establishment, Investment and Maintenance of Certain

[[Page 20835]]

Individual Retirement Plans Pursuant to a Mandatory Distribution (69 FR 
57964), which are included in this ICR under the OMB approval described 
above, remain unchanged. The following discussion describes only the 
changes in the burden estimates for which the Department is now seeking 
OMB approval. A copy of the ICR may be obtained by contacting the 
person listed in the PRA addressee section below. The Department and 
OMB are particularly interested in comments that:
     Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503; Attention: Desk Officer for the 
Employee Benefits Security Administration. Although comments may be 
submitted through June 20, 2006 OMB requests that comments be received 
within 30 days of publication of the Notice of Final Rulemaking to 
ensure their consideration.
    PRA Addressee: Address requests for copies of the ICR to Susan G. 
Lahne, Office of Policy and Research, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue, 
NW., Room N-5647, Washington, DC 20210. Telephone: (202) 693-8410; Fax: 
(202) 219-5333. These are not toll-free numbers.
Abandoned Plan Regulation (29 CFR 2578.1)
    The information collection provisions of these rules are intended 
to ensure that, in the case of an abandoned plan, a plan sponsor has 
been determined to be unavailable to fulfill its responsibilities to 
the plan before further action is taken by a QTA; to facilitate federal 
oversight of the actions taken by a QTA in winding up the affairs of an 
abandoned plan; to ensure that participants and beneficiaries are 
apprised of actions that might affect their rights and benefits under 
the plan; and to provide for a final notice and reporting regarding the 
resolution of the affairs of the plan. The Department has included 
model notices that may be used to satisfy these notice requirements and 
has provided for reporting in the format of the Form 5500 for purposes 
of minimizing compliance burden.
    The Department has modified the requirements for the content of the 
notices to the Department under the final Abandoned Plan Regulation to 
require a QTA to report any delinquent contributions discovered in the 
course of terminating an abandoned plan in either the Notice to the 
Department or the Final Notice. The regulation provides that, if a QTA 
provides such information to the Department in either notice, nothing 
in the regulations will be construed to require the QTA to collect the 
delinquent contributions. Although a QTA may elect to report delinquent 
contribution information in either notice, for purposes of this 
estimation of paperwork burden, the Department has assigned the cost 
adjustment solely to the Final Notice (paragraph (d)(2)(ix)).
    The Department estimates, based on its experience in NEPOP in 
providing assistance to identify and terminate abandoned plans over the 
last two years, that QTAs will report delinquent contributions in 
approximately 14 percent of abandoned plan terminations. Therefore, the 
Department estimates that 560 respondents (14 percent of 4,000 QTAs 
terminating the existing abandoned plans) will complete the new section 
in either the Notice to the Department or the Final Notice. Similarly, 
for plans that will be abandoned in the future, the Department has 
estimated that 244 respondents (14 percent of 1,650 QTAs terminating 
plans that newly become abandoned each year) will complete the new 
section in each subsequent year. Accordingly, the Department has 
adjusted the cost burdens for these notices to account for the 
additional information collection.
    For the 560 QTAs that will require an estimated 15 minutes to 
complete the notice, the cost burden will rise to $9,492; for the 
remaining 3,440 QTAs that need only the originally estimated 10 minutes 
to complete the notice, the cost burden will be $38,872. After adding 
the costs of supplies and postage, the aggregate cost burden for this 
notice is estimated at $ 52,364. (Mailing, including the cost of the 
Terminal Report that will be filed with the Final Notice, remains the 
same, at an estimated $1.00 each, for a total cost of $4,000.) 
Estimated annual costs for future abandoned plans, derived in a similar 
fashion, are increased to $3,915 annually for QTAs reporting delinquent 
contributions and remains $16,035 annually for QTAs not reporting 
delinquent contributions, for a total, including supplies and postage, 
of $21,733 for 1,650 plans annually.
QTA Exemption
    Under the regulation on Termination of Abandoned Individual Account 
Plans, a QTA that terminates an abandoned plan is permitted, under 
certain specified conditions, to distribute account balances by 
directly transferring or depositing them into an individual retirement 
plan or account. The QTA exemption, also published in final form in 
today's Federal Register, provides relief from the restrictions of 
section 406(a)(1)(A) through (D), 406(b)(1) and (b)(2) of ERISA 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, for a QTA to 
select itself, or an affiliate, as a service provider to the plan. The 
exemption also permits QTAs, under the specified conditions, to receive 
payment from the plan for providing services in connection with plan 
termination. In addition, the exemption permits a QTA to designate 
itself, or an affiliate, as the provider of the investment vehicle to 
which distributions from a terminated abandoned plan are directly 
transferred when participants or beneficiaries fail to make an election 
as to the form of the distribution. The Department has modified the 
proposed exemption to permit QTAs to receive payment from the plan for 
services rendered before becoming a QTA, provided that the services are 
performed pursuant to a written agreement previously entered into with 
the plan sponsor and that such agreement is provided to the Department, 
together with a statement under penalty of perjury. This new 
requirement imposes a small paperwork burden on QTAs that is in 
addition to the recordkeeping requirement previously approved under 
this ICR.
    Inasmuch as banks, insurance companies, and other financial 
institutions acting as QTAs to provide services to abandoned plans will 
act in accordance with customary business practices in entering into 
this type of transaction, the Department assumes that both the added 
requirement of providing the written agreement to the

[[Page 20836]]

Department, like the previously established recordkeeping requirement, 
will be handled by the QTA and will be small. Accordingly, the 
Department believes that its prior assumption of one hour of burden for 
compliance with the paperwork requirements of the exemption continues 
to be sufficiently conservative to encompass the small additional 
burden of providing a copy of the written agreement and a statement 
under penalty of perjury. The Department has therefore not increased 
its estimate of burden with respect to the exemption.
    Type of Review: Currently approved collection.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Termination of Abandoned Individual Account Plans.
    OMB Number: 1210-0127.
    Affected public: Individuals or households; business or other for-
profit; not-for-profit institutions.
    Respondents: Existing approval: 44,123; New request: 44,123.
    Responses: Existing approval: 164,240; New request: 164,240.
    Frequency of Response: On occasion.
    Estimated Total Burden Hours: Existing approval: 7,313; New 
request: 7,313.
    Total Annualized Capital/ Start-Up Costs: Existing approval: 
$652,300; New request: $658,679.
    Total Annual Costs: Existing approval: $336,000; New request: 
$337,600.
    Total Annualized Costs: Existing approval: $988,000; New request: 
$996,279.

Regulatory Flexibility Act Statement

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and are likely to 
have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a rule will not have a 
significant economic impact on a substantial number of small entities, 
section 604 of the RFA requires that the agency present a final 
regulatory flexibility analysis at the time of the publication of the 
Notice of Final Rulemaking describing the impact of the rule on small 
entities. Small entities include small businesses, organizations and 
governmental jurisdictions.
    For purposes of analysis under the RFA, EBSA proposes to continue 
to consider a small entity to be an employee benefit plan with fewer 
than 100 participants. The basis of this definition is found in section 
104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe 
simplified annual reports for pension plans that cover fewer than 100 
participants. Under section 104(a)(3), the Secretary may also provide 
for exemptions or simplified annual reporting and disclosure for 
welfare benefit plans. Pursuant to the authority of section 104(a)(3), 
the Department has previously issued at 29 CFR 2520.104-20, 2520.104-
21, 2520.104-41, 2520.104-46 and 2520.104b-10 certain simplified 
reporting provisions and limited exemptions from reporting and 
disclosure requirements for small plans, including unfunded or insured 
welfare plans, covering fewer than 100 participants and which satisfy 
certain other requirements.
    Further, while some large employers may have small plans, in 
general small employers maintain most small plans. Thus, EBSA believes 
that assessing the impact of these rules on small plans is an 
appropriate substitute for evaluating the effect on small entities. The 
definition of small entity considered appropriate for this purpose 
differs, however, from a definition of small business which is based on 
size standards promulgated by the Small Business Administration (SBA) 
(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et 
seq.). EBSA therefore requested comments on the appropriateness of the 
size standard used in evaluating the impact of the proposed rules on 
small entities. No comments were received.
    For purposes of analyzing the economic impact of this regulation, 
the Department has assumed that all abandoned plans are small plans. As 
explained earlier in the regulatory analysis for these regulations, the 
final rules will have a significant beneficial economic impact on a 
substantial number of small entities. Efficiency gains are assumed to 
arise from the provision of specific standards and procedures for 
terminating abandoned plans and the resolution of uncertainty 
concerning what are reasonable efforts to satisfy these standards. The 
model notices provided as part of the regulations are also intended to 
minimize compliance burdens. In an effort to provide a sound basis for 
this conclusion, EBSA prepared an initial regulatory flexibility 
analysis when the proposed regulations were published. Financial 
institutions and service providers that commented on the proposed 
regulations were appreciative of the Department's efforts to establish 
guidelines to assist them in terminating abandoned plans and 
distributing benefits to participants and beneficiaries. Changes that 
have been made to the final regulations are, for the most part, 
clarifications and explanations of the proposed rules. No comments were 
received that related specifically to small plan issues and plan 
termination. Comments related to abandoned plans in general, the 
majority of which are small plans, have been discussed earlier in the 
preamble.
    The final rules will have an impact on participants and 
beneficiaries, abandoned individual account plans, entities that 
provide a variety of services to plans, and financial institutions and 
entities acting as QTAs that undertake the termination of individual 
account plans that have been abandoned.
Termination of Abandoned Individual Account Plans (29 CFR 2578.1)
    As explained earlier in the preamble, in drafting the final 
regulations, the Department relied on recommendations in a 2002 report 
to the ERISA Advisory Council by the Working Group on Orphan Plans. 
Witnesses before the Working Group recommended that regulatory action 
be undertaken to encourage the early termination of abandoned plans and 
distribution of their assets to participants and beneficiaries. The 
conditions set forth in this regulation are intended to facilitate 
voluntary, safe, and efficient terminations of abandoned plans and to 
increase the likelihood that participants and beneficiaries will 
receive the greatest retirement benefit practicable under the 
circumstances. The final rules meet the objectives of providing QTAs 
the authority and incentive they need for undertaking to terminate 
abandoned plans by offering them greater certainty on how to comply 
with the requirements of ERISA section 404(a), to the extent 
applicable. Streamlined procedures for terminating and winding up an 
abandoned plan will reduce some of the cost that would otherwise have 
been incurred to terminate abandoned plans.
    The Department estimated that there are 4,000 currently abandoned 
plans, with 78,500 participants. Another 1,650 plans, with 33,000 
participants, are expected to be abandoned annually in subsequent 
years. All plans are assumed to be small plans with approximately 20 
participants. Currently, small abandoned plans represent less than one 
percent of all small plans; the 1,650 small plans expected to be 
abandoned annually hereafter represent less than \1/2\ of one percent 
of all small plans. The 5,650 small plans potentially affected,

[[Page 20837]]

however, may still be considered a substantial number.
    Because essentially all abandoned plans are assumed to be small 
plans, the more detailed discussion earlier in the preamble of the 
costs and benefits of this regulation is directly applicable to this 
analysis of costs and benefits under the RFA. In summary, under varying 
assumptions, the net benefits of terminating the 4,000 plans currently 
assumed to be abandoned range from $900,000 for efficiency gains to 
$6.6 million in administrative cost savings, if it is assumed that the 
plans would otherwise have remained abandoned for at least one year 
following the year of termination, and to $27 million, if the plans 
would have remained abandoned for five years following termination. The 
estimated beneficial impact on small plans therefore ranges from $225 
per plan to $1,650 per plan, or $6,750 per plan over five years. The 
per-plan net benefits are very similar for the 1,650 plans assumed to 
become newly abandoned annually in future years.
    The Department has revised the final regulation to allow forfeiture 
of an account with a balance less than the estimated share of plan 
expenses allocable to that account. See Sec.  2578.1(d)(2)(ii)(A). 
Commenters requested this option, in part, as an alternative to 
requiring a QTA to undertake a costly and time-consuming search for 
account holders with small balances, which would frequently result in 
the extinguishment of those small accounts. Although not measurable, 
this change may produce additional benefit for abandoned plans due to 
the time savings, and participants may benefit from increased account 
balances as a result of the reallocations and forfeitures. There is no 
cost to small plans for this option.
Safe Harbor for Distributions From Terminated Individual Account Plans 
(29 CFR 2550.404a-3)
    The final regulation provides safe harbor protection under section 
404(a) of ERISA for fiduciaries that terminate small plans and directly 
transfer account balances into specified types of investment vehicles 
in cases in which the participant or beneficiary fails to elect a form 
of distribution. This regulation benefits fiduciaries by providing 
clarity on how to fulfill fiduciary obligations under ERISA and plan 
participants and beneficiaries by increasing retirement savings. In 
addition, the two model Notices to Participants provided by the 
Department for use in connection with the safe harbor will contribute 
to lower administrative costs for small plans that terminate. Based on 
an estimated 78,500 participants in currently abandoned plans, the 
initial cost to small plans is estimated at $207,800. The annual cost 
to ongoing terminating plans is considerably less in future years when 
current small abandoned plans will have been terminated, an estimated 
$95,820.
    The Department has revised this final regulation to permit QTAs 
that would generally, in the absence of participant direction, roll 
over individual account distributions into proprietary investment 
vehicles, to choose instead, if the QTA's minimum account requirement 
for such investments is greater than $1,000 and greater than the amount 
to be rolled over, to deposit such distributions in an interest-bearing 
federally insured bank account or in an unclaimed property fund of the 
State. See Sec.  2550.404a-3(d)(iii). This alternative and the benefits 
that will accrue to small plans are discussed more fully earlier in the 
preamble. There is no cost to small plans for this option.
Special Terminal Report for Abandoned Plans (29 CFR 2520.103-13)
    The final regulation provides simplified terminal reporting to the 
Department for QTAs that wind up the affairs of small abandoned plans. 
The resulting time-savings will reduce administrative costs, thereby 
increasing benefits to participants and beneficiaries. No cost has been 
attributed to the final regulation.

Congressional Review Act Statement

    This notice of final rulemaking is subject to the Congressional 
Review Act provisions of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (5 U.S.C. 801 et seq.) and has been transmitted to 
the Congress and the Comptroller General for review.

Unfunded Mandates Reform Act Statement

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, the final rules do not 
include any federal mandate that will result in expenditures by state, 
local, or tribal governments in the aggregate of more than $100 
million, or increased expenditures by the private sector of more than 
$100 million.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires federal agencies to adhere to 
specific criteria in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. The final rules do not have federalism 
implications because they have no substantial direct effect on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Section 514 of ERISA provides, with 
certain exceptions specifically enumerated, that the provisions of 
Titles I and IV of ERISA supersede any and all laws of the States as 
they relate to any employee benefit plan covered under ERISA. The 
requirements implemented in the final rules do not alter the 
fundamental provisions of the statute with respect to employee benefit 
plans, and as such would have no implications for the States or the 
relationship or distribution of power between the national government 
and the States.

List of Subjects

29 CFR Part 2520

    Accounting, Employee benefit plans, Pensions, Reporting and 
recordkeeping requirements.

29 CFR Part 2550

    Employee benefit plans, Employee Retirement Income Security Act, 
Employee stock ownership plans, Exemptions, Fiduciaries, Investments, 
Investments foreign, Party in interest, Pensions, Pension and Welfare 
Benefit Programs Office, Prohibited transactions, Real estate, 
Securities, Surety bonds, Trusts and Trustees.

29 CFR Part 2578

    Employee benefit plans, Pensions, Retirement.


0
For the reasons set forth in the preamble, the Department of Labor 
amends 29 CFR chapter XXV as follows:

Title 29--Labor

Subchapter G--Administration and Enforcement Under the Employee 
Retirement Income Security Act of 1974

0
1. Amend subchapter G to add the following new part:

PART 2578--RULES AND REGULATIONS FOR ABANDONED PLANS

Sec.
2578.1 Termination of abandoned individual account plans.

    Authority: 29 U.S.C. 1135; 1104(a); 1103(d)(1).

[[Page 20838]]

Sec.  2578.1  Termination of abandoned individual account plans.

    (a) General. The purpose of this part is to establish standards for 
the termination and winding up of an individual account plan (as 
defined in section 3(34) of the Employee Retirement Income Security Act 
of 1974 (ERISA or the Act)) with respect to which a qualified 
termination administrator (as defined in paragraph (g) of this section) 
has determined there is no responsible plan sponsor or plan 
administrator within the meaning of section 3(16)(B) and (A) of the 
Act, respectively, to perform such acts.
    (b) Finding of abandonment. (1) A qualified termination 
administrator may find an individual account plan to be abandoned when:
    (i) Either: (A) No contributions to, or distributions from, the 
plan have been made for a period of at least 12 consecutive months 
immediately preceding the date on which the determination is being 
made; or
    (B) Other facts and circumstances (such as a filing by or against 
the plan sponsor for liquidation under title 11 of the United States 
Code, or communications from participants and beneficiaries regarding 
distributions) known to the qualified termination administrator suggest 
that the plan is or may become abandoned by the plan sponsor; and
    (ii) Following reasonable efforts to locate or communicate with the 
plan sponsor, the qualified termination administrator determines that 
the plan sponsor:
    (A) No longer exists;
    (B) Cannot be located; or
    (C) Is unable to maintain the plan.
    (2) Notwithstanding paragraph (b)(1) of this section, a qualified 
termination administrator may not find a plan to be abandoned if, at 
any time before the plan is deemed terminated pursuant to paragraph (c) 
of this section, the qualified termination administrator receives an 
objection from the plan sponsor regarding the finding of abandonment 
and proposed termination.
    (3) A qualified termination administrator shall, for purposes of 
paragraph (b)(1)(ii) of this section, be deemed to have made a 
reasonable effort to locate or communicate with the plan sponsor if the 
qualified termination administrator sends to the last known address of 
the plan sponsor, and, in the case of a plan sponsor that is a 
corporation, to the address of the person designated as the 
corporation's agent for service of legal process, by a method of 
delivery requiring acknowledgement of receipt, the notice described in 
paragraph (b)(5) of this section.
    (4) If receipt of the notice described in paragraph (b)(5) of this 
section is not acknowledged pursuant to paragraph (b)(3) of this 
section, the qualified termination administrator shall be deemed to 
have made a reasonable effort to locate or communicate with the plan 
sponsor if the qualified termination administrator contacts known 
service providers (other than itself) of the plan and requests the 
current address of the plan sponsor from such service providers and, if 
such information is provided, the qualified termination administrator 
sends to each such address, by a method of delivery requiring 
acknowledgement of receipt, the notice described in paragraph (b)(5) of 
this section.
    (5) The notice referred to in paragraph (b)(3) of this section 
shall contain the following information:
    (i) The name and address of the qualified termination 
administrator;
    (ii) The name of the plan;
    (iii) The account number or other identifying information relating 
to the plan;
    (iv) A statement that the plan may be terminated and benefits 
distributed pursuant to 29 CFR 2578.1 if the plan sponsor fails to 
contact the qualified termination administrator within 30 days;
    (v) The name, address, and telephone number of the person, office, 
or department that the plan sponsor must contact regarding the plan;
    (vi) A statement that if the plan is terminated pursuant to 29 CFR 
2578.1, notice of such termination will be furnished to the U.S. 
Department of Labor's Employee Benefits Security Administration;
    (vii) The following statement: ``The U.S. Department of Labor 
requires that you be informed that, as a fiduciary or plan 
administrator or both, you may be personally liable for costs, civil 
penalties, excise taxes, etc. as a result of your acts or omissions 
with respect to this plan. The termination of this plan will not 
relieve you of your liability for any such costs, penalties, taxes, 
etc.''; and
    (viii) A statement that the plan sponsor may contact the U.S 
Department of Labor for more information about the federal law 
governing the termination and winding-up process for abandoned plans 
and the telephone number of the appropriate Employee Benefit Security 
Administration contact person.
    (c) Deemed termination. (1) Except as provided in paragraph (c)(2) 
of this section, if a qualified termination administrator finds, 
pursuant to paragraph (b)(1) of this section, that an individual 
account plan has been abandoned, the plan shall be deemed to be 
terminated on the ninetieth (90th) day following the date of the letter 
from EBSA's Office of Enforcement acknowledging receipt of the notice 
of plan abandonment, described in paragraph (c)(3) of this section.
    (2) If, prior to the end of the 90-day period described in 
paragraph (c)(1) of this section, the Department notifies the qualified 
termination administrator that it--
    (i) Objects to the termination of the plan, the plan shall not be 
deemed terminated under paragraph (c)(1) of this section until the 
qualified termination administrator is notified that the Department has 
withdrawn its objection; or
    (ii) Waives the 90-day period described in paragraph (c)(1), the 
plan shall be deemed terminated upon the qualified termination 
administrator's receipt of such notification.
    (3) Following a qualified termination administrator's finding, 
pursuant to paragraph (b)(1) of this section, that an individual 
account plan has been abandoned, the qualified termination 
administrator shall furnish to the U.S. Department of Labor a notice of 
plan abandonment that is signed and dated by the qualified termination 
administrator and that includes the following information:
    (i) Qualified termination administrator information. (A) The name, 
EIN, address, and telephone number of the person electing to be the 
qualified termination administrator, including the address, e-mail 
address, and telephone number of the person signing the notice (or 
other contact person, if different from the person signing the notice);
    (B) A statement that the person (identified in paragraph 
(c)(3)(i)(A) of this section) is a qualified termination administrator 
within the meaning of paragraph (g) of this section and elects to 
terminate and wind up the plan (identified in paragraph (c)(3)(ii)(A) 
of this section) in accordance with the provisions of this section; and
    (C) An identification whether the person electing to be the 
qualified termination administrator or its affiliate is, or within the 
past 24 months has been, the subject of an investigation, examination, 
or enforcement action by the Department, Internal Revenue Service, or 
Securities and Exchange Commission concerning such entity's conduct as 
a fiduciary or party in interest with respect to any plan covered by 
the Act.

[[Page 20839]]

    (ii) Plan information. (A) The name, address, telephone number, 
account number, EIN, and plan number of the plan with respect to which 
the person is electing to serve as the qualified termination 
administrator;
    (B) The name and last known address and telephone number of the 
plan sponsor; and
    (C) The estimated number of participants in the plan;
    (iii) Findings. A statement that the person electing to be the 
qualified termination administrator finds that the plan (identified in 
paragraph (c)(3)(ii)(A) of this section) is abandoned pursuant to 
paragraph (b) of this section. This statement shall include an 
explanation of the basis for such a finding, specifically referring to 
the provisions in paragraph (b)(1) of this section, a description of 
the specific steps (set forth in paragraphs (b)(3) and (b)(4) of this 
section) taken to locate or communicate with the known plan sponsor, 
and a statement that no objection has been received from the plan 
sponsor;
    (iv) Plan asset information. (A) The estimated value of the plan's 
assets held by the person electing to be the qualified termination 
administrator;
    (B) The length of time plan assets have been held by the person 
electing to be the qualified termination administrator, if such period 
of time is less than 12 months;
    (C) An identification of any assets with respect to which there is 
no readily ascertainable fair market value, as well as information, if 
any, concerning the value of such assets; and
    (D) An identification of known delinquent contributions pursuant to 
paragraph (d)(2)(iii) of this section;
    (v) Service provider information. (A) The name, address, and 
telephone number of known service providers (e.g., record keeper, 
accountant, lawyer, other asset custodian(s)) to the plan; and
    (B) An identification of any services considered necessary to wind 
up the plan in accordance with this section, the name of the service 
provider(s) that is expected to provide such services, and an itemized 
estimate of expenses attendant thereto expected to be paid out of plan 
assets by the qualified termination administrator; and
    (vi) Perjury statement. A statement that the information being 
provided in the notice is true and complete based on the knowledge of 
the person electing to be the qualified termination administrator, and 
that the information is being provided by the qualified termination 
administrator under penalty of perjury.
    (d) Winding up the affairs of the plan. (1) In any case where an 
individual account plan is deemed to be terminated pursuant to 
paragraph (c) of this section, the qualified termination administrator 
shall take steps as may be necessary or appropriate to wind up the 
affairs of the plan and distribute benefits to the plan's participants 
and beneficiaries.
    (2) For purposes of paragraph (d)(1) of this section, the qualified 
termination administrator shall:
    (i) Update plan records. (A) Undertake reasonable and diligent 
efforts to locate and update plan records necessary to determine the 
benefits payable under the terms of the plan to each participant and 
beneficiary.
    (B) For purposes of paragraph (d)(2)(i)(A) of this section, a 
qualified termination administrator shall not have failed to make 
reasonable and diligent efforts to update plan records merely because 
the administrator determines in good faith that updating the records is 
either impossible or involves significant cost to the plan in relation 
to the total assets of the plan.
    (ii) Calculate benefits. Use reasonable care in calculating the 
benefits payable to each participant or beneficiary based on plan 
records described in paragraph (d)(2)(i) of this section. A qualified 
termination administrator shall not have failed to use reasonable care 
in calculating benefits payable solely because the qualified 
termination administrator--
    (A) Treats as forfeited an account balance that, taking into 
account estimated forfeitures and other assets allocable to the 
account, is less than the estimated share of plan expenses allocable to 
that account, and reallocates that account balance to defray plan 
expenses or to other plan accounts in accordance with (d)(2)(ii)(B) of 
this section;
    (B) Allocates expenses and unallocated assets in accordance with 
the plan documents, or, if the plan document is not available, is 
ambiguous, or if compliance with the plan is unfeasible,
    (1) Allocates unallocated assets (including forfeitures and assets 
in a suspense account) to participant accounts on a per capita basis 
(allocated equally to all accounts); and
    (2) Allocates expenses on a pro rata basis (proportionately in the 
ratio that each individual account balance bears to the total of all 
individual account balances) or on a per capita basis (allocated 
equally to all accounts).
    (iii) Report delinquent contributions. (A) Notify the Department of 
any known contributions (either employer or employee) owed to the plan 
in conjunction with the filing of either the notification required in 
paragraph (c)(3) or (d)(2)(ix) of this section.
    (B) Nothing in paragraph (d)(2)(iii)(A) of this section or any 
other provision of the Act shall be construed to impose an obligation 
on the qualified termination administrator to collect delinquent 
contributions on behalf of the plan, provided that the qualified 
termination administrator satisfies the requirements of paragraph 
(d)(2)(iii)(A) of this section.
    (iv) Engage service providers. Engage, on behalf of the plan, such 
service providers as are necessary for the qualified termination 
administrator to wind up the affairs of the plan and distribute 
benefits to the plan's participants and beneficiaries in accordance 
with paragraph (d)(1) of this section.
    (v) Pay reasonable expenses. (A) Pay, from plan assets, the 
reasonable expenses of carrying out the qualified termination 
administrator's authority and responsibility under this section.
    (B) Expenses of plan administration shall be considered reasonable 
solely for purposes of paragraph (d)(2)(v)(A) of this section if:
    (1) Such expenses are for services necessary to wind up the affairs 
of the plan and distribute benefits to the plan's participants and 
beneficiaries,
    (2) Such expenses: (i) Are consistent with industry rates for such 
or similar services, based on the experience of the qualified 
termination administrator; and
    (ii) Are not in excess of rates ordinarily charged by the qualified 
termination administrator (or affiliate) for same or similar services 
provided to customers that are not plans terminated pursuant to this 
section, if the qualified termination administrator (or affiliate) 
provides same or similar services to such other customers, and
    (3) The payment of such expenses would not constitute a prohibited 
transaction under the Act or is exempted from such prohibited 
transaction provisions pursuant to section 408(a) of the Act.
    (vi) Notify participants. (A) Furnish to each participant or 
beneficiary of the plan a notice written in a manner calculated to be 
understood by the average plan participant and containing the 
following:
    (1) The name of the plan;
    (2) A statement that the plan has been determined to be abandoned 
by the plan sponsor and, therefore, has been terminated pursuant to 
regulations issued by the U.S. Department of Labor;
    (3)(i) A statement of the account balance and the date on which it 
was calculated by the qualified termination administrator, and

[[Page 20840]]

    (ii) The following statement: ``The actual amount of your 
distribution may be more or less than the amount stated in this letter 
depending on investment gains or losses and the administrative cost of 
terminating your plan and distributing your benefits.'';
    (4) A description of the distribution options available under the 
plan and a request that the participant or beneficiary elect a form of 
distribution and inform the qualified termination administrator (or 
designee) of that election;
    (5) A statement explaining that, if a participant or beneficiary 
fails to make an election within 30 days from receipt of the notice, 
the qualified termination administrator (or designee) will distribute 
the account balance of the participant or beneficiary directly:
    (i) To an individual retirement plan (i.e., individual retirement 
account or annuity),
    (ii) To an account described in Sec.  2550.404a-3(d)(1)(ii) of this 
chapter (in the case of a distribution on behalf of a distributee other 
than a participant or spouse),
    (iii) In any case where the amount to be distributed meets the 
conditions in Sec.  2550.404a-3(d)(1)(iii), to an interest-bearing 
federally insured bank account, the unclaimed property fund of the 
State of the last known address of the participant or beneficiary, or 
an individual retirement plan (or to an account described in Sec.  
2550.404a-3(d)(1)(ii) of this chapter in the case of a distribution on 
behalf of a distributee other than a participant or spouse), or
    (iv) To an annuity provider in any case where the qualified 
termination administrator determines that the survivor annuity 
requirements in sections 401(a)(11) and 417 of the Internal Revenue 
Code (or section 205 of ERISA) prevent a distribution under paragraph 
(d)(2)(vii)(B)(1) of this section;
    (6) In the case of a distribution to an individual retirement plan 
(or to an account described in Sec.  2550.404a-3(d)(1)(ii) of this 
chapter) a statement explaining that the account balance will be 
invested in an investment product designed to preserve principal and 
provide a reasonable rate of return and liquidity;
    (7) A statement of the fees, if any, that will be paid from the 
participant or beneficiary's individual retirement plan or other 
account (including accounts described in Sec.  2550.404a-3(d)(1)(ii) or 
(iii)(A) of this chapter), if such information is known at the time of 
the furnishing of this notice;
    (8) The name, address and phone number of the provider of the 
individual retirement plan, qualified survivor annuity, or other 
account (including accounts described in Sec.  2550.404a-3(d)(1)(ii) or 
(iii)(A) of this chapter), if such information is known at the time of 
the furnishing of this notice; and
    (9) The name, address, and telephone number of the qualified 
termination administrator and, if different, the name, address and 
phone number of a contact person (or entity) for additional information 
concerning the termination and distribution of benefits under this 
section.
    (B)(1) For purposes of paragraph (d)(2)(vi)(A) of this section, a 
notice shall be furnished to each participant or beneficiary in 
accordance with the requirements of Sec.  2520.104b-1(b)(1) of this 
chapter to the last known address of the participant or beneficiary; 
and
    (2) In the case of a notice that is returned to the plan as 
undeliverable, the qualified termination administrator shall, 
consistent with the duties of a fiduciary under section 404(a)(1) of 
ERISA, take steps to locate and provide notice to the participant or 
beneficiary prior to making a distribution pursuant to paragraph 
(d)(2)(vii) of this section. If, after such steps, the qualified 
termination administrator is unsuccessful in locating and furnishing 
notice to a participant or beneficiary, the participant or beneficiary 
shall be deemed to have been furnished the notice and to have failed to 
make an election within the 30-day period described in paragraph 
(d)(2)(vii) of this section.
    (vii) Distribute benefits. (A) Distribute benefits in accordance 
with the form of distribution elected by each participant or 
beneficiary with spousal consent, if required.
    (B) If the participant or beneficiary fails to make an election 
within 30 days from the date the notice described in paragraph 
(d)(2)(vi) of this section is furnished, distribute benefits--
    (1) In accordance with Sec.  2550.404a-3 of this chapter; or
    (2) If a qualified termination administrator determines that the 
survivor annuity requirements in sections 401(a)(11) and 417 of the 
Internal Revenue Code (or section 205 of ERISA) prevent a distribution 
under paragraph (d)(2)(vii)(B)(1) of this section, in any manner 
reasonably determined to achieve compliance with those requirements.
    (C) For purposes of distributions pursuant to paragraph 
(d)(2)(vii)(B) of this section, the qualified termination administrator 
may designate itself (or an affiliate) as the transferee of such 
proceeds, and invest such proceeds in a product in which it (or an 
affiliate) has an interest, only if such designation and investment is 
exempted from the prohibited transaction provisions under the Act 
pursuant to section 408(a) of the Act.
    (viii) Special Terminal Report for Abandoned Plans. File the 
Special Terminal Report for Abandoned Plans in accordance with Sec.  
2520.103-13 of this chapter.
    (ix) Final Notice. No later than two months after the end of the 
month in which the qualified termination administrator satisfies the 
requirements in paragraph (d)(2)(i) through (d)(2)(vii) of this 
section, furnish to the Office of Enforcement, Employee Benefits 
Security Administration, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Washington, DC 20210, a notice, signed and dated by the 
qualified termination administrator, containing the following 
information:
    (A) The name, EIN, address, e-mail address, and telephone number of 
the qualified termination administrator, including the address and 
telephone number of the person signing the notice (or other contact 
person, if different from the person signing the notice);
    (B) The name, account number, EIN, and plan number of the plan with 
respect to which the person served as the qualified termination 
administrator;
    (C) A statement that the plan has been terminated and all the 
plan's assets have been distributed to the plan's participants and 
beneficiaries on the basis of the best available information;
    (D) A statement that plan expenses were paid out of plan assets by 
the qualified termination administrator in accordance with the 
requirements of paragraph (d)(2)(v) of this section;
    (E) If fees and expenses paid to the qualified termination 
administrator (or its affiliate) exceed by 20 percent or more the 
estimate required by paragraph (c)(3)(v)(B) of this section, a 
statement that actual fees and expenses exceeded estimated fees and 
expenses and the reasons for such additional costs;
    (F) An identification of known delinquent contributions pursuant to 
paragraph (d)(2)(iii) of this section (if not already reported under 
paragraph (c)(3)(iv)(D)); and
    (G) A statement that the information being provided in the notice 
is true and complete based on the knowledge of the qualified 
termination administrator, and that the information is being provided 
by the qualified termination administrator under penalty of perjury.
    (3) The terms of the plan shall, for purposes of title I of ERISA, 
be deemed amended to the extent necessary to allow the qualified 
termination

[[Page 20841]]

administrator to wind up the plan in accordance with this section.
    (e) Limited liability. (1)(i) Except as otherwise provided in 
paragraph (e)(1)(ii) and (iii) of this section, to the extent that the 
activities enumerated in paragraph (d)(2) of this section involve the 
exercise of discretionary authority or control that would make the 
qualified termination administrator a fiduciary within the meaning of 
section 3(21) of the Act, the qualified termination administrator shall 
be deemed to satisfy its responsibilities under section 404(a) of the 
Act with respect to such activities, provided that the qualified 
termination administrator complies with the requirements of paragraph 
(d)(2) of this section.
    (ii) A qualified termination administrator shall be responsible for 
the selection and monitoring of any service provider (other than 
monitoring a provider selected pursuant to paragraph (d)(2)(vii)(B) of 
this section) determined by the qualified termination administrator to 
be necessary to the winding up of the affairs of the plan, as well as 
ensuring the reasonableness of the compensation paid for such services. 
If a qualified termination administrator selects and monitors a service 
provider in accordance with the requirements of section 404(a)(1) of 
the Act, the qualified termination administrator shall not be liable 
for the acts or omissions of the service provider with respect to which 
the qualified termination administrator does not have knowledge.
    (iii) For purposes of a distribution pursuant to paragraph 
(d)(2)(vii)(B)(2) of this section, a qualified termination 
administrator shall be responsible for the selection of an annuity 
provider in accordance with section 404 of the Act.
    (2) Nothing herein shall be construed to impose an obligation on 
the qualified termination administrator to conduct an inquiry or review 
to determine whether or what breaches of fiduciary responsibility may 
have occurred with respect to a plan prior to becoming the qualified 
termination administrator for such plan.
    (3) If assets of an abandoned plan are held by a person other than 
the qualified termination administrator, such person shall not be 
treated as in violation of section 404 (a) the Act solely on the basis 
that the person cooperated with and followed the directions of the 
qualified termination administrator in carrying out its 
responsibilities under this section with respect to such plan, provided 
that, in advance of any transfer or disposition of any assets at the 
direction of the qualified termination administrator, such person 
confirms with the Department of Labor that the person representing to 
be the qualified termination administrator with respect to the plan is 
the qualified termination administrator recognized by the Department of 
Labor.
    (f) Continued liability of plan sponsor. Nothing in this section 
shall serve to relieve or limit the liability of any person other than 
the qualified termination administrator due to a violation of ERISA.
    (g) Qualified termination administrator. A termination 
administrator is qualified under this section only if:
    (1) It is eligible to serve as a trustee or issuer of an individual 
retirement plan, within the meaning of section 7701(a)(37) of the 
Internal Revenue Code, and
    (2) It holds assets of the plan that is considered abandoned 
pursuant to paragraph (b) of this section.
    (h) Affiliate. (1) Except as provided in paragraph (h)(2) of this 
section, the term affiliate means any person directly or indirectly 
controlling, controlled by, or under common control with, the person; 
or any officer, director, partner or employee of the person.
    (2) For purposes of paragraph (c)(3)(i)(C) of this section, the 
term affiliate means a 50 percent or more owner of a qualified 
termination administrator, or any person described in paragraph (h)(1) 
of this section that provides services to the plan.
    (3) For purposes of paragraph (h)(1) of this section, the term 
control means the power to exercise a controlling influence over the 
management or policies of a person other than an individual.
    (i) Model notices. Appendices to this section contain model notices 
that are intended to assist qualified termination administrators in 
discharging the notification requirements under this section. Their use 
is not mandatory. However, the use of appropriately completed model 
notices will be deemed to satisfy the requirements of paragraphs 
(b)(5), (c)(3), (d)(2)(vi), and (d)(2)(ix) of this section.
BILLING CODE 4150-29-P

[[Page 20842]]

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[[Page 20843]]


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[[Page 20844]]


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[[Page 20845]]


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[[Page 20846]]


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[[Page 20847]]


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[[Page 20848]]


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[[Page 20849]]


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[[Page 20850]]


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BILLING CODE 4150-29-C

Subchapter F--Fiduciary Responsibility Under the Employee Retirement 
Income Security Act of 1974

PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY

0
2. The authority citation for part 2550 is revised to read as follows:

    Authority: 29 U.S.C. 1135; and Secretary of Labor's Order No. 1-
2003, 68 FR 5374 (Feb. 3, 2003). Sec. 2550.401b-1 also issued under 
sec. 102, Reorganization Plan No. 4 of 1978, 43 FR 47713 (Oct. 17, 
1978), 3 CFR, 1978 Comp. 332, effective Dec. 31, 1978, 44 FR 1065 
(Jan. 3, 1978), 3 CFR, 1978 Comp. 332. Sec. 2550.401c-1 also issued 
under 29 U.S.C. 1101. Sec. 2550.404c-1 also issued under 29 U.S.C. 
1104. Sec. 2550.407c-3 also issued under 29 U.S.C. 1107. Sec. 
2550.404a-2 also issued under 26 U.S.C. 401 note (sec. 657, Pub. L. 
107-16, 115 Stat. 38). Sec. 2550.408b-1 also issued under 29 U.S.C. 
1108(b) (1) and sec. 102, Reorganization Plan No. 4 of 1978, 3 CFR, 
1978 Comp. p. 332, effective Dec. 31, 1978, 44 FR 1065 (Jan. 3, 
1978), and 3 CFR, 1978 Comp. 332. Sec. 2550.412-1 also issued under 
29 U.S.C. 1112.


0
3. Add Sec.  2550.404a-3 to read as follows:


Sec.  2550.404a-3  Safe harbor for distributions from terminated 
individual account plans.

    (a) General. (1) This section provides a safe harbor under which a 
fiduciary (including a qualified termination administrator, within the 
meaning of Sec.  2578.1(g) of this chapter) of a terminated individual 
account plan, as described in paragraph (a)(2) of this section, will be 
deemed to have satisfied its duties under section 404(a) of the 
Employee Retirement Income Security Act of 1974, as amended (the Act)), 
29 U.S.C. 1001 et seq., in connection with a distribution described in 
paragraph (b) of this section.
    (2) This section shall apply to an individual account plan only 
if--
    (i) In the case of an individual account plan that is an abandoned 
plan within the meaning of Sec.  2578.1 of this chapter, such plan was 
intended to be maintained as a tax-qualified plan in accordance with 
the requirements of section 401(a), 403(a), or 403(b) of the Internal 
Revenue Code of 1986 (Code); or
    (ii) In the case of any other individual account plan, such plan is 
maintained in accordance with the requirements of section 401(a), 
403(a), or 403 (b) of the Code at the time of the distribution.
    (3) The standards set forth in this section apply solely for 
purposes of determining whether a fiduciary meets the requirements of 
this safe harbor. Such standards are not intended to be the exclusive 
means by which a fiduciary might satisfy his or her responsibilities 
under the Act with respect to making distributions described in this 
section.
    (b) Distributions. This section shall apply to a distribution from 
a terminated individual account plan if, in connection with such 
distribution:
    (1) The participant or beneficiary, on whose behalf the 
distribution will be made, was furnished notice in accordance with 
paragraph (e) of this section or, in the case of an abandoned plan, 
Sec.  2578.1(d)(2)(vi) of this chapter, and
    (2) The participant or beneficiary failed to elect a form of 
distribution within 30 days of the furnishing of the notice described 
paragraph (b)(1) of this section.
    (c) Safe harbor. A fiduciary that meets the conditions of paragraph 
(d) of this section shall, with respect to a distribution described in 
paragraph (b) of this section, be deemed to have satisfied its duties 
under section 404(a) of the Act with respect to the distribution of 
benefits, selection of a transferee entity described in paragraph 
(d)(1)(i) through (iii) of this section, and the investment of funds in 
connection with the distribution.
    (d) Conditions. A fiduciary shall qualify for the safe harbor 
described in paragraph (c) of this section if:
    (1) The distribution described in paragraph (b) of this section is 
made'
    (i) To an individual retirement plan within the meaning of section 
7701(a)(37) of the Code;
    (ii) In the case of a distribution on behalf of a distributee other 
than a participant or spouse, within the meaning of section 402(c) of 
the Code, to an account (other than an individual retirement plan) with 
an institution eligible to establish and maintain individual retirement 
plans within the meaning of section 7701(a)(37) of the Code; or
    (iii) In the case of a distribution by a qualified termination 
administrator with respect to which the amount to be

[[Page 20851]]

distributed is $1000 or less and that amount is less than the minimum 
amount required to be invested in an individual retirement plan product 
offered by the qualified termination administrator to the public at the 
time of the distribution, to:
    (A) An interest-bearing federally insured bank or savings 
association account in the name of the participant or beneficiary,
    (B) The unclaimed property fund of the State in which the 
participant's or beneficiary's last known address is located, or
    (C) An individual retirement plan within the meaning of section 
7701(a)(37) of the Code (or to an account described in paragraph 
(d)(1)(ii) of this section in the case of a distribution on behalf of a 
distributee other than a participant or spouse) offered by a financial 
institution other than the qualified termination administrator to the 
public at the time of the distribution.
    (2) Except with respect to distributions to State unclaimed 
property funds (described in paragraph (d)(1)(iii)(B) of this section), 
the fiduciary enters into a written agreement with the transferee 
entity which provides:
    (i) The distributed funds shall be invested in an investment 
product designed to preserve principal and provide a reasonable rate of 
return, whether or not such return is guaranteed, consistent with 
liquidity (except that distributions under paragraph (d)(1)(iii)(A) of 
this section to a bank or savings account are not required to be 
invested in such a product);
    (ii) For purposes of paragraph (d)(2)(i) of this section, the 
investment product shall--
    (A) 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, and
    (B) Be offered by a State or federally regulated financial 
institution, which shall be: 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;
    (iii) All fees and expenses attendant to the transferee plan or 
account, including investments 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 provider of the plan or account for comparable 
plans or accounts established for reasons other than the receipt of a 
distribution under this section; and
    (iv) The participant or beneficiary on whose behalf the fiduciary 
makes a distribution shall have the right to enforce the terms of the 
contractual agreement establishing the plan or account, with regard to 
his or her transferred account balance, against the plan or account 
provider.
    (3) Both the fiduciary's selection of a transferee plan or account 
and the investment of funds would not result in a prohibited 
transaction under section 406 of the Act, unless such actions are 
exempted from the prohibited transaction provisions by a prohibited 
transaction exemption issued pursuant to section 408(a) of the Act.
    (e) Notice to participants and beneficiaries. (1) Content. Each 
participant or beneficiary of the plan shall be furnished a notice 
written in a manner calculated to be understood by the average plan 
participant and containing the following:
    (i) The name of the plan;
    (ii) A statement of the account balance, the date on which the 
amount was calculated, and, if relevant, an indication that the amount 
to be distributed may be more or less than the amount stated in the 
notice, depending on investment gains or losses and the administrative 
cost of terminating the plan and distributing benefits;
    (iii) A description of the distribution options available under the 
plan and a request that the participant or beneficiary elect a form of 
distribution and inform the plan administrator (or other fiduciary) 
identified in paragraph (e)(1)(vii) of this section of that election;
    (iv) A statement explaining that, if a participant or beneficiary 
fails to make an election within 30 days from receipt of the notice, 
the plan will distribute the account balance of the participant or 
beneficiary to an individual retirement plan (i.e., individual 
retirement account or annuity) or other account (in the case of 
distributions described in paragraph (d)(1)(ii)) and the account 
balance will be invested in an investment product designed to preserve 
principal and provide a reasonable rate of return and liquidity;
    (v) A statement explaining what fees, if any, will be paid from the 
participant or beneficiary's individual retirement plan or other 
account, if such information is known at the time of the furnishing of 
this notice;
    (vi) The name, address and phone number of the individual 
retirement plan or other account provider, if such information is known 
at the time of the furnishing of this notice; and
    (vii) The name, address, and telephone number of the plan 
administrator (or other fiduciary) from whom a participant or 
beneficiary may obtain additional information concerning the 
termination.
    (2) Manner of furnishing notice. (i) For purposes of paragraph 
(e)(1) of this section, a notice shall be furnished to each participant 
or beneficiary in accordance with the requirements of Sec.  2520.104b-
1(b)(1) of this chapter to the last known address of the participant or 
beneficiary; and
    (ii) In the case of a notice that is returned to the plan as 
undeliverable, the plan fiduciary shall, consistent with its duties 
under section 404(a)(1) of ERISA, take steps to locate the participant 
or beneficiary and provide notice prior to making the distribution. If, 
after such steps, the fiduciary is unsuccessful in locating and 
furnishing notice to a participant or beneficiary, the participant or 
beneficiary shall be deemed to have been furnished the notice and to 
have failed to make an election within 30 days for purposes of 
paragraph (b)(2) of this section.
    (f) Model notice. The appendix to this section contains a model 
notice that may be used to discharge the notification requirements 
under this section. Use of the model notice is not mandatory. However, 
use of an appropriately completed model notice will be deemed to 
satisfy the requirements of paragraph (e)(1) of this section.
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BILLING CODE 4150-29-C

Subchapter C--Reporting and Disclosure Under the Employee Retirement 
Income Security Act of 1974

PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE

0
4. The authority citation for part 2520 continues to read as follows:

    Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134 and 
1135; and Secretary of Labor's Order 1-2003, 68 FR 5374 (Feb. 3, 
2003). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183, 
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-3, 
2520.104b-1 and 2520.104b-3 also issued under 29 U.S.C. 1003, 1181-
1183, 1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.104b-1 
and 2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788. 
Section 2520.101-4 also issued under sec. 103 of Pub. L. 108-218.


0
5. Add Sec.  2520.103-13 to read as follows:


Sec.  2520.103-13  Special terminal report for abandoned plans.

    (a) General. The terminal report required to be filed by the 
qualified termination administrator pursuant to Sec.  
2578.1(d)(2)(viii) of this chapter shall consist of the items set forth 
in paragraph (b) of this section. Such report shall be filed in 
accordance with the method of filing set forth in paragraph (c) of this 
section and at the time set forth in paragraph (d) of this section.
    (b) Contents. The terminal report described in paragraph (a) of 
this section shall contain:
    (1) Identification information concerning the qualified termination 
administrator and the plan being terminated.
    (2) The total assets of the plan as of the date the plan was deemed 
terminated under Sec.  2578.1(c) of this chapter, prior to any 
reduction for termination expenses and distributions to participants 
and beneficiaries.
    (3) The total termination expenses paid by the plan and a separate 
schedule identifying each service provider and amount received, 
itemized by expense.
    (4) The total distributions made pursuant to Sec.  
2578.1(d)(2)(vii) of this chapter and a statement regarding whether any 
such distributions were transfers under Sec.  2578.1(d)(2)(vii)(B) of 
this chapter.
    (5) The identification, fair market value and method of valuation 
of any assets with respect to which there is no readily ascertainable 
fair market value.
    (c) Method of filing. The terminal report described in paragraph 
(a) shall be filed:
    (1) On the most recent Form 5500 available as of the date the 
qualified termination administrator satisfies the requirements in Sec.  
2578.1(d)(2)(i) through Sec.  2578.1(d)(2)(vii) of this chapter; and
    (2) In accordance with the Form's instructions pertaining to 
terminal reports of qualified termination administrators.
    (d) When to file. The qualified termination administrator shall 
file the terminal report described in paragraph (a) within two months 
after the end of the month in which the qualified termination 
administrator satisfies the requirements in Sec.  2578.1(d)(2)(i) 
through Sec.  2578.1(d)(2)(vii) of this chapter.
    (e) Limitation. (1) Except as provided in this section, no report 
shall be required to be filed by the qualified termination 
administrator under part 1 of title I of ERISA for a plan being 
terminated pursuant to Sec.  2578.1 of this chapter.
    (2) Filing of a report under this section by the qualified 
termination administrator shall not relieve any other person from any 
obligation under part 1 of title I of ERISA.


[[Page 20854]]


    Signed at Washington, DC, this 17th day of April, 2006.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 06-3814 Filed 4-20-06; 8:45 am]
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