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Employee Benefits Security Administration

EBSA Federal Register Notice

Proposed Amendment to Prohibited Transaction Exemption 2006-06 (PTE 2006-06) for Services Provided in Connection With the Termination of Abandoned Individual Account Plans [02/15/2007]

[PDF Version]

Volume 72, Number 31, Page 7461-7464

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

ZRIN 1210-ZA12
[Application Number D-11404]

 
Proposed Amendment to Prohibited Transaction Exemption 2006-06 
(PTE 2006-06) for Services Provided in Connection With the Termination 
of Abandoned Individual Account Plans

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Notice of Proposed Amendment to PTE 2006-06.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed amendment to PTE 
2006-06, a prohibited transaction class exemption issued under the 
Employee Retirement Income Security Act of 1974 (ERISA). Among other 
things, PTE 2006-06 permits a ``qualified termination administrator'' 
(QTA) of an individual account plan that has been abandoned by its 
sponsoring employer to select itself to provide services to the plan in 
connection with the plan's termination, and to pay itself fees for 
those services. This amendment is being proposed in connection with the 
Department's amendment of regulations relating to the Termination of 
Abandoned Individual Account Plans at 29 CFR 2578.1, and the Safe 
Harbor for Distributions from Terminated Individual Account Plans at 29 
CFR 2550.404a-3, which are being published simultaneously in this issue 
of the Federal Register. The Department's proposed amendment to PTE 
2006-06 reflects changes, enacted as part of the Pension Protection Act 
of 2006, Pub. L. No. 109-280, to the Internal Revenue Code and would 
require, as a condition of relief under the class exemption, that 
benefits for a missing, designated nonspouse beneficiary be directly 
rolled over into an inherited individual retirement plan that fully 
complies with Code requirements. If adopted, the proposed amendment 
would affect plans, participants and beneficiaries of such

[[Page 7462]]

plans and certain persons engaging in such transactions.

DATES: Written comments and requests for a public hearing on the 
proposed amendment should be received by the Department on or before 
April 2, 2007.

ADDRESSES: Comments (preferably, at least three copies) should be 
addressed to the Office of Exemption Determinations, Employee Benefits 
Security Administration, Room N-5700, U.S. Department of Labor, 200 
Constitution Avenue, NW., Washington, DC 20210, Attention: PTE 2006-06 
Amendment. Commenters are encouraged to submit responses electronically 
by e-mail to e-OED@dol.gov, or by using the Federal eRulemaking portal 
at http://www.regulations.gov. All responses will be available to the public 

at the Public Disclosure Room, Room N-1513, Employee Benefits Security 
Administration, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210, and online at http://www.regulations.gov and 

http://www.dol.gov/ebsa.


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

SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency 
before the Department of a proposed amendment to PTE 2006-06 (71 FR 
20856, April 21, 2006). PTE 2006-06, which was granted in connection 
with the Department's final regulation at 29 CFR 2578.1, relating to 
the Termination of Abandoned Individual Account Plans, the Department's 
final regulation at 29 CFR 2550.404a-3, relating to the Safe Harbor for 
Distributions from Terminated Individual Account Plans, and the 
Department's final regulation at 29 CFR 2520.103-13, relating to the 
Terminal Report for Abandoned Individual Account Plans, provides an 
exemption from the restrictions of section 406(a)(1)(A) through (D), 
section 406(b)(1) and (b)(2) of the Employee Retirement Income Security 
Act of 1974 (ERISA or the Act) and from the taxes imposed by section 
4975(a) and (b) of the Internal Revenue Code of 1986 (the Code), by 
reason of section 4975(c)(1)(A) through (E) of the Code.
    The Department is proposing the amendment on its own motion 
pursuant to section 408(a) of ERISA and section 4975(c)(2) of the Code, 
and in accordance with the procedures set forth in 29 CFR Part 2570, 
Subpart B (55 FR 32836, 32847, August 10, 1990).\1\ The Department 
seeks to amend the class exemption to reflect amendments to the Code 
that were adopted by enactment of the Pension Protection Act of 2006. 
Among other things, section 829 of the Pension Protection Act amended 
Code section 402(c) to permit the direct rollover of a deceased plan 
participant's benefit from an eligible retirement plan to an individual 
retirement plan established for the designated nonspouse beneficiary of 
such participant. In this connection, the Department is amending the 
regulatory safe harbor to require that a deceased participant's 
benefits be directly rolled over to an inherited individual retirement 
plan established to receive a distribution on behalf of a missing, 
designated nonspouse beneficiary. Similarly, the Department has 
determined to propose an amendment to PTE 2006-06 to ensure conformity 
with the amended Abandoned Plan Regulations.\2\
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    \1\ Section 102 of the Reorganization Plan No. 4 of 1978 (5 
U.S.C. App. 1 [1996]) generally transferred the authority of the 
Secretary of the Treasury to issue administrative exemptions under 
section 4975 of the Code to the Secretary of Labor.
    \2\ See in this issue of the Federal Register Amendments to Safe 
Harbor for Distributions from Terminated Individual Account Plans 
and Termination of Abandoned Individual Account Plans to Require 
Inherited Individual Retirement Plans for Missing Nonspouse 
Beneficiaries.
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    The Department interprets the term ``account'' (other than an 
individual retirement plan) in section I(b)(1)(ii) and the term ``other 
account'' in section I(b)(3) and (4) of PTE 2006-06 to include an 
``inherited individual retirement plan'' as used in the amended 
regulatory safe harbor in the context of a distribution to a nonspouse 
beneficiary that does not qualify for small account treatment under the 
regulatory safe harbor. Consequently, the current exemption provides 
relief to a QTA that selects itself as the provider of an inherited 
individual retirement plan under the safe harbor. Nevertheless, to make 
clear that the exemption covers such a selection, the Department has 
published a proposed amendment to PTE 2006-06, and this issue of the 
Federal Register specifically addresses this matter.

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 subject to 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. The 
Department has determined that this action is not economically 
significant within the meaning of section 3(f)(1) of the Executive 
Order. However, the Office of Management and Budget (OMB) has 
determined that the action is significant within the meaning of section 
3(f)(4) of the Executive Order, and the Department accordingly provides 
the following assessment of its potential costs and benefits.
    These proposed amendments to PTE 2006-06 are being published 
concurrently with the issuance of an interim final rule that amends 
regulations pertaining to distributions from terminated plans to take 
advantage of recent changes to the Code. As explained earlier in the 
preamble, when finalized, the proposed amendments will make explicit 
the availability to a QTA of conditional exemptive relief to designate 
itself or an affiliate as the provider of an inherited individual 
retirement plan for a nonspouse beneficiary who has not returned a 
distribution election. Allowing QTAs to use their own or affiliated 
investment products to receive the distributions on behalf of nonspouse 
beneficiaries who have failed to make investment decisions facilitates 
the orderly termination and winding-up of a plan's affairs. Further, 
QTAs are not required to make use of proprietary or affiliated 
inherited individual retirement plans for the benefit of nonspouse 
beneficiaries. The Department continues to believe that the fee 
limitations, which are a condition of the exemption and applicable to 
distributions on behalf of nonspouse beneficiaries as well as other 
distributions, will encourage QTAs to make appropriate decisions 
regarding whether to use proprietary or affiliated products based on 
whether doing so will be in the best interests of participants and 
beneficiaries.

[[Page 7463]]

    In the Department's view, the proposed amendments would assist in 
effectuating the purposes underlying the regulations to which the 
exemption relates. Accordingly, the Department has taken these 
amendments into account in its assessment of the economic benefits and 
costs of the interim final rule amending the regulations pertaining to 
distributions from terminated plans, which is included in the preamble 
to the interim final rule published elsewhere in this issue of the 
Federal Register.

Paperwork Reduction Act

    The information collections included in PTE 2006-06 are currently 
approved, together with information collections included in the safe 
harbor and termination of abandoned plans regulations, by the Office of 
Management and Budget (OMB) under OMB control number 1210-0127. This 
approval is currently scheduled to expire on April 30, 2008. The 
specific burden for the exemption includes a recordkeeping requirement 
for a QTA that terminates an abandoned plan and chooses to distribute 
the account balances of nonresponsive participants and beneficiaries 
into proprietary or affiliated individual retirement plans. These 
proposed amendments do not make any changes to the information 
collections of the exemption. Accordingly, the Department has not made 
a submission for OMB approval in connection with the proposed 
amendments.

Background

    PTE 2006-06 is comprised of five sections. Section I describes the 
transactions that are covered by the exemption. Section II contains 
conditions for the provision of termination services and the receipt of 
fees. Section III contains the conditions for distributions. Section IV 
contains the general recordkeeping provisions imposed on the QTA, and 
section V contains definitions.
    Section I(b) of the exemption provides relief from the restrictions 
of sections 406(a)(1)(A) through (D), 406(b)(1) and 406(b)(2) of the 
Act and the taxes imposed by section 4975(a) and (b) of the Code, by 
reason of section 4975(c)(1)(A) through (E) of the Code, for a QTA to 
use its authority in connection with the termination of an abandoned 
individual account plan to designate itself or an affiliate as provider 
of an individual retirement plan or other account to receive the 
account balance of a participant or beneficiary that does not provide 
direction as to the disposition of such assets.
    Under PTE 2006-06, the other accounts currently permitted by the 
exemption include an account, other than an individual retirement 
account, as described in paragraph (d)(1)(ii) of the Safe Harbor 
Regulation, for a distribution made to a distributee other than a 
participant or spouse, and, for distributions of $1,000 or less, an 
interest-bearing, federally insured bank or savings association 
account, as described in section (d)(1)(iii) of the Safe Harbor 
Regulation. This provision of PTE 2006-06 is the subject of the 
proposed amendment contained in this notice.
    Section I(b) of the class exemption further permits the QTA to make 
the initial investment of the distributed proceeds in a proprietary 
investment product, receive fees in connection with the establishment 
or maintenance of the individual retirement plan or other account, and 
receive investment fees as a result of the investment of the individual 
retirement plan or other account's assets in a proprietary investment 
product in which the QTA or an affiliate has an interest.

Discussion of the Proposed Amendment

    Section 829 of the Pension Protection Act amended section 402(c) of 
the Code to permit the direct rollover of a deceased participant's 
benefit from an eligible retirement plan to an individual retirement 
plan established on behalf of a designated nonspouse beneficiary.\3\ 
These rollover distributions would not trigger immediate tax 
consequences and mandatory tax withholding for the nonspouse 
beneficiary.
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    \3\ Section 829 of the Pension Protection Act requires that the 
individual retirement plan established on behalf of a nonspouse 
beneficiary must be treated as an inherited individual retirement 
plan within the meaning of Code Sec.  408(d)(3)(C) and must be 
subject to the applicable mandatory distribution requirement of Code 
Sec.  401(a)(9)(B).
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    In light of the Pension Protection Act's favorable changes to the 
Code allowing a rollover distribution on behalf of a nonspouse 
beneficiary into an inherited individual retirement plan with the 
resulting deferral of income tax consequences, the Department is 
amending the class exemption to require that a deceased participant's 
benefit be directly rolled over to an inherited individual retirement 
plan established to receive the distribution on behalf of a missing, 
designated nonspouse beneficiary.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of ERISA and section 4975(c)(2) of the Code does 
not relieve a fiduciary, or other party in interest or disqualified 
person with respect to a plan, from certain other provisions of ERISA 
and the Code, including any prohibited transaction provisions to which 
the exemption does not apply and the general fiduciary responsibility 
provisions of section 404 of ERISA which require, among other things, 
that a fiduciary act prudently and discharge his or her duties 
respecting the plan solely in the interests of the participants and 
beneficiaries of the plan. Additionally, the fact that a transaction is 
the subject of an exemption does not affect the requirement of section 
401(a) of the Code that the plan must operate for the exclusive benefit 
of the employees of the employer maintaining the plan and their 
beneficiaries;
    (2) This exemption does not extend to transactions prohibited under 
section 406(b)(3) of the Act or section 4975(c)(1)(F) of the Code;
    (3) Before an exemption may be granted under section 408(a) of 
ERISA and section 4975(c)(2) of the Code, the Department must find that 
the exemption is administratively feasible, in the interests of the 
plan and of its participants and beneficiaries, and protective of the 
rights of participants and beneficiaries of the plan;
    (4) If granted, the proposed amendment is applicable to a 
particular transaction only if the transaction satisfies the conditions 
specified in the exemption; and
    (5) The proposed amendment, if granted, will be supplemental to, 
and not in derogation of, any other provisions of ERISA and the Code, 
including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction.

Written Comments and Hearing Request

    The Department invites all interested persons to submit written 
comments or requests for a public hearing on the proposed amendment to 
the address and within the time period set forth above. Commenters can 
also submit responses electronically by e-mail to e-OED@dol.gov. All 
comments received will be made a part of the record. Comments and 
requests for a hearing should state the reasons for the writer's 
interest in the proposed exemption. Comments received will be available 
for

[[Page 7464]]

public inspection at the above address and on the http://www.regulations.gov 

web portal.

Proposed Amendment

    Under section 408(a) of the Act and section 4975(c)(2) of the Code 
and in accordance with the procedures set forth in 29 CFR 2570, Subpart 
B (55 FR 32836, 32847, August 10, 1990), the Department proposes to 
amend PTE 2006-06 as set forth below:

Exemption * * *

I. Covered Transactions * * *

    (b) * * *
    (1) Designate itself or an affiliate as: (i) Provider of an 
individual retirement plan; (ii) provider, in the case of a 
distribution on behalf of a designated beneficiary (as defined by 
section 401(a)(9)(E) of the Code) who is not the surviving spouse of 
the deceased participant, of an inherited individual retirement plan 
(within the meaning of section 402(c)(11) of the Code) established to 
receive the distribution on behalf of the nonspouse beneficiary under 
the circumstances described in section (d)(1)(ii) of the Safe Harbor 
Regulation for Terminated Plans (29 CFR section 2550.404a-3) (Safe 
Harbor Regulation); or (iii) provider of an interest bearing, federally 
insured bank or savings association account maintained in the name of 
the participant or beneficiary, in the case of a distribution described 
in section (d)(1)(iii) of the Safe Harbor Regulation, for the 
distribution of the account balance of the participant or beneficiary 
of the abandoned individual account plan who does not provide direction 
as to the disposition of such assets;

V. Definitions * * *

    (b) The term ``individual retirement plan'' means an individual 
retirement plan described in section 7701(a)(37) of the Code. For 
purposes of section III of this exemption, the term ``individual 
retirement plan'' shall also include an inherited individual retirement 
plan (within the meaning of section 402(c)(11) of the Code) established 
to receive a distribution on behalf of a nonspouse beneficiary. 
Notwithstanding the foregoing, the term individual retirement plan 
shall not include an individual retirement plan which is an employee 
benefit plan covered by Title I of ERISA.

    Signed at Washington, DC, this 5th day of February 2007.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations.
[FR Doc. E7-2606 Filed 2-14-07; 8:45 am]

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