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Employee Benefits Security Administration

EBSA Federal Register Notice

[PDF Version]

[Federal Register: April 30, 2008 (Volume 73, Number 84)]
[Rules and Regulations]               
[Page 23349-23350]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ap08-12]                         

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

RIN 1210-AB10

 
Default Investment Alternatives Under Participant Directed 
Individual Account Plans

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Correcting amendments.

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SUMMARY: The Department published in the Federal Register of October 
24, 2007 (72 FR 60452), a final regulation providing relief from 
certain fiduciary responsibilities for fiduciaries of participant-
directed individual account plans who, in the absence of directions 
from a participant, invest the participant's account in a qualified 
default investment alternative. The final regulation implemented recent 
amendments to title I of the Employee Retirement Income Security Act of 
1974 (ERISA) enacted as part of the Pension Protection Act of 2006, 
Public Law 109-280. The Department has determined that two paragraphs 
in the final regulation, and one statement in the SUPPLEMENTARY 
INFORMATION, require correction. Accordingly, this document corrects 
the final regulation by revising these paragraphs.

DATES: Effective Date: The amendments to the final regulation are 
effective on April 30, 2008.
    Applicability Date: The amendments to the final regulation apply on 
and after December 24, 2007.

FOR FURTHER INFORMATION CONTACT: Allison Wielobob, Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration, (202) 693-8500. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. General

    Section 624(a) of the Pension Protection Act of 2006 (Pension 
Protection Act) added a new section 404(c)(5) to ERISA. Section 
404(c)(5)(A) of ERISA provides that, for purposes of section 404(c)(1) 
of ERISA, a participant in an individual account plan shall be treated 
as exercising control over the assets in the account with respect to 
the amount of contributions and earnings which, in the absence of an 
investment election by the participant, are invested by the plan in 
accordance with regulations prescribed by the Secretary of Labor. On 
October 24, 2007, the Department of Labor (Department) published a 
final regulation implementing the provisions of section 404(c)(5) of 
ERISA. A fiduciary of a plan that complies with the final regulation 
will not be liable for any loss, or by reason of any breach, that 
occurs as a result of investment in a qualified default investment 
alternative. The regulation describes the types of investments that 
qualify as default investment alternatives under section 404(c)(5) of 
ERISA.

B. Correcting Amendments

    The Department has determined that one statement in the text of the 
SUPPLEMENTARY INFORMATION to the final regulation and two regulatory 
provisions require amendment.

1. Amendment of Supplementary Information Text

    In the Supplementary Information, 72 FR at 60456, the Department 
provides an explanation of paragraph (c)(5)(ii) of the final 
regulation. This paragraph provides that any transfer or permissible 
withdrawal from a qualified default investment alternative resulting 
from a participant's or beneficiary's election to make such a transfer 
or withdrawal during the 90-day period beginning on the date of the 
participant's first elective contribution, or other first investment in 
a qualified default investment alternative, shall not be subject to any 
restrictions, fees or expenses, other than certain ongoing 
administrative and investment fees. The Department explained that this 
provision was intended to prevent the imposition of any restriction, 
fee, or expense on a transfer or permissible withdrawal of assets, 
whether assessed by the plan, the plan sponsor, or as part of an 
underlying investment product or portfolio. The Department also 
provided a few examples of restrictions that might inhibit a 
participant's or beneficiary's decision to withdraw, sell or transfer 
assets out of a qualified default investment alternative during this 
90-day period. One of the cited examples was a ``round-trip'' 
restriction on the ability of the participant or beneficiary to 
reinvest within a defined period of time. The Department has concluded 
that the reference to ``round-trip'' restrictions was too broad and 
should not have been included as an example of an impermissible 
restriction. ``Round-trip'' restrictions, unlike fees and expenses 
assessed directly upon liquidation of, or transfer from, an investment, 
generally affect only a participant's ability to reinvest in the 
qualified default investment alternative for a limited period of time. 
This is not a restriction prohibited by paragraph (c)(5)(ii) of the 
final regulation. However, to the extent that a ``round-trip'' 
restriction would affect a participant's or beneficiary's ability to 
liquidate or transfer from a qualified default investment alternative 
or restrict a participant's or beneficiary's ability to invest in any 
other investment alternative available under the plan, it would be 
impermissible for purposes of paragraph (c)(5)(ii) of the final 
regulation.

2. Regulatory Text Amendments

    The Department is also amending language in paragraph (e)(3) of the 
regulation, describing persons that may manage a qualified default 
investment alternative. In response to comments on

[[Page 23350]]

the proposed regulation, paragraph (e)(3) was expanded to include a 
plan sponsor who is a named fiduciary of the plan. The Department 
intended that this expansion would broadly accommodate employers that 
manage their plan investments in-house. However, the reference to 
``plan sponsor'' in paragraph (e)(3)(i)(C) has raised questions as to 
whether a committee that is a named fiduciary of the plan and is 
comprised primarily of employees of the plan sponsor can manage a 
qualified default investment alternative when that committee, pursuant 
to plan documents, is a named fiduciary. To address this uncertainty, 
the Department is amending paragraph (e)(3)(i)(C) to make clear that 
such a committee of the plan sponsor may manage a qualified default 
investment alternative.
    Finally, the Department is amending paragraph (e)(4)(v) of the 
final regulation. As explained in the Supplementary Information to the 
final regulation, this provision establishes a ``grandfather''-type 
rule to treat stable value products and funds as qualified default 
investment alternatives solely for purposes of investments made before 
the effective date of the final regulation. The Department included 
this provision to accommodate employers who had selected stable value 
products or funds as their default investments before the regulation's 
effective date and who may not be able to transfer participants' and 
beneficiaries' assets out of such investments without incurring 
significant expenses.
    Following publication of the final regulation, the Department 
determined that the description of stable value products and funds as 
set forth in paragraph (e)(4)(v) may limit the availability of the 
``grandfather''-type relief, contrary to the intention of the 
Department. To ensure broad application of this relief to stable value 
products and funds, the Department is changing paragraph (e)(4)(v) of 
the final regulation to provide that stable value products or funds 
must invest primarily in investment products that are backed by state 
or federally regulated financial institutions. For example, these 
investment products may be issued directly by such institutions. 
Alternatively, the principal and accrued interest on the investment 

products may be backed by contracts issued by such institutions.
    The Department finds, in accordance with section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 553(b)), that notice and public 
comment is not necessary. This document merely amends a statement in 
the SUPPLEMENTARY INFORMATION to the final regulation regarding the 
application of a regulatory provision and modifies two provisions to 
address public uncertainty regarding their scope. For the same reason, 
the Department finds good cause for making this document effective upon 
publication in the Federal Register.

C. Regulatory Impact Analysis

    None of the correcting amendments being adopted herein will alter 
the analysis or data contained in the regulatory impact analysis of the 
final regulation. See 72 FR at 60466 (October 24, 2007).

List of Subjects in 29 CFR Part 2550

    Employee benefit plans, Exemptions, Fiduciaries, Investments, 
Pensions, Prohibited transactions, Real estate, Securities, Surety 
bonds, Trusts and trustees.

0
Accordingly, 29 CFR part 2550 is corrected by making the following 
correcting amendments:

PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY

0
1. The authority citation for part 2550 continues to read as follows:

    Authority: 29 U.S.C. 1135; sec. 657, Pub. L. 107-16, 115 Stat. 
38; 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. 
Sections 2550.404c-1 and 2550.404c-5 also issued under 29 U.S.C. 
1104. Sec. 2550.407c-3 also issued under 29 U.S.C. 1107. 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
2. Amend Sec.  2550.404c-5 by revising paragraphs (e)(3)(i)(C) and 
(e)(4)(v)(A) to read as follows:


Sec.  2550.404c-5  Fiduciary relief for investments in qualified 
default investment alternatives.

* * * * *
    (e) * * *
    (3) * * *
    (i) * * *
    (C) the plan sponsor, or a committee comprised primarily of 
employees of the plan sponsor, which is a named fiduciary within the 
meaning of section 402(a)(2) of the Act;
* * * * *
    (4) * * *
    (v) * * *
    (A) Subject to paragraph (e)(4)(v)(B) of this section, an 
investment product or fund designed to preserve principal; provide a 
rate of return generally consistent with that earned on intermediate 
investment grade bonds; and provide liquidity for withdrawals by 
participants and beneficiaries, including transfers to other investment 
alternatives. Such investment product or fund shall, for purposes of 
this paragraph (e)(4)(v), meet the following requirements:
    (1) There are no fees or surrender charges imposed in connection 
with withdrawals initiated by a participant or beneficiary; and
    (2) Such investment product or fund invests primarily in investment 
products that are backed by State or federally regulated financial 
institutions.
* * * * *

    Signed at Washington, DC, this 24th day of April, 2008.
Bradford P. Campbell,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. E8-9371 Filed 4-29-08; 8:45 am]

BILLING CODE 4510-29-P