[Federal Register Volume 62, Number 227 (Tuesday, November 25, 1997)]
[Rules and Regulations]
[Pages 62934-62936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30961]



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Part IX





Department of Labor





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Pension and Welfare Benefits Administration



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29 CFR Part 2510



Amendment to the Definition of Plan Assets; Participant Contributions; 
Final Rule

Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / 
Rules and Regulations

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2510

RIN 1210-AA59


Final Rule Amending the Definition of Plan Assets; Participant 
Contributions

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Final rule.

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SUMMARY: This document contains a final rule amending the Department of 
Labor's regulation published in the Federal Register on August 7, 1996, 
that defines when participant contributions to a pension benefit plan 
become plan assets for purposes of Title I of the Employee Retirement 
Income Security Act of 1974, as amended (ERISA). The amendment set 
forth in this notice harmonizes the Title I rules governing the 
definition of plan assets with the Internal Revenue Code (Code) rules 
governing the timing of deposits for Savings Incentive Match Plans for 
Employees (SIMPLE plans) that involve Individual Retirement Accounts 
(SIMPLE IRAs) and thereby simplifies compliance by small businesses.

EFFECTIVE DATE: This regulation is effective on November 25, 1997.

FOR FURTHER INFORMATION CONTACT: Rudy Nuissl, Office of Regulations and 
Interpretations, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Washington, DC (202) 219-8671; or William W. 
Taylor, Plan Benefits Security Division, Office of the Solicitor, U.S. 
Department of Labor, Washington, DC, (202) 219-9141. These are not 
toll-free numbers.

SUPPLEMENTARY INFORMATION: On March 27, 1997, the Department of Labor 
(the Department) published a notice of proposed rulemaking in the 
Federal Register at 62 FR 14760 (the ``proposal'') to amend a 
regulation which had been issued on August 7, 1996, at 61 FR 41220 (the 
``1996 regulation'') defining when certain monies that a participant 
pays to, or has withheld by, an employer for contribution to a plan are 
``plan assets'' for purposes of Title I of the Employee Retirement 
Income Security Act of 1974, as amended (ERISA), and the related 
prohibited transaction provisions of the Internal Revenue Code (the 
Code).\1\ The purpose of the proposed amendment was to harmonize the 
1996 regulation with the Code rules governing the timing of deposits 
for SIMPLE Plans that involve IRAs, in order to simplify compliance for 
small plans.
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    \1\ The Secretary of Labor has authority to issue regulations 
relating to most of section 4975 of the Internal Revenue Code 
pursuant to section 102 of Reorganization Plan No. 4 of 1978. 5 
U.S.C. App. 165, 43 FR 47713, October 17, 1978. For the sake of 
clarity, the remainder of the preamble refers only to Title I of 
ERISA. However, these references apply to the corresponding 
provisions of section 4975 of the Code as well.
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The 1996 Regulation

    Section 2510.3-102(a) of the 1996 regulation sets forth a general 
rule which provides that the assets of a plan include amounts that a 
participant or beneficiary pays to an employer, or amounts that a 
participant has withheld from his wages by an employer, for 
contribution to the plan as of the earliest date on which such 
contributions can reasonably be segregated from the employer's general 
assets. With respect to employee pension benefit plans covered by Title 
I of ERISA, section 2510.3-102(b) of the 1996 regulation further 
provides that in no event shall the date determined pursuant to section 
2510.3-102(a) occur later than the 15th business day of the month 
following the month in which the participant contribution amounts are 
received by the employer or in which such amounts would otherwise have 
been payable to the participant in cash.
    Except as provided in ERISA Sec. 403(b), plan assets are required 
to be held in trust by one or more trustees.\2\ ERISA Sec. 403(a), 29 
U.S.C. 1103(a). In addition, ERISA's fiduciary responsibility 
provisions apply to the management of plan assets. Among other things, 
these provisions make clear that the assets of a plan may not inure to 
the benefit of any employer and shall be held for the exclusive purpose 
of providing benefits to participants in the plan and their 
beneficiaries, and defraying reasonable expenses of administering the 
plan. ERISA Secs. 403-404, 29 U.S.C. 1103-1104. These provisions also 
prohibit a broad array of transactions involving plan assets. ERISA 
Secs. 403-408, 29 U.S.C. 1106-1108. Employers who fail to transmit 
promptly participant contributions, and plan fiduciaries who fail to 
collect those amounts in a timely manner, will violate the requirement 
that plan assets be held in trust; in addition, such employers and 
fiduciaries may be engaging in prohibited transactions.
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    \2\ ERISA Sec. 403(b) contains a number of exceptions to the 
trust requirement for certain types of assets, including assets 
which consist of insurance contracts, and for certain types of 
plans. In addition, the Secretary has issued a technical release, 
T.R. 92-01, which provides that, with respect to certain welfare 
plans (e.g. cafeteria plans), the Department will not assert a 
violation of the trust or certain other reporting requirements in 
any enforcement proceeding, or assess a civil penalty for certain 
reporting violations involving such plans solely because of a 
failure to hold participant contributions in trust. 57 FR 23272 
(June 2, 1992), 58 FR 45359 (Aug. 27, 1993).
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The Proposal

    On August 20, 1996, the Small Business Job Protection Act of 1996 
(the Act, Pub. L. 104-188) was signed into law. Section 1421 of the Act 
amended section 408(p) of the Code to provide that certain employers 
may establish SIMPLE plans. Under amended section 408(p) of the Code, 
an eligible employer may establish an employee pension benefit plan by 
making contributions to each eligible employee's SIMPLE IRA. Section 
408(p)(5)(A)(i) of the Code provides that an employer must make salary 
reduction elective contributions to each eligible employee's SIMPLE IRA 
not later than the close of the 30-day period following the last day of 
the month with respect to which the contributions are to be made.\3\ 
However, section 1421 of the Act did not amend Title I of ERISA, as it 
did the Code, with respect to when such participant contributions 
become assets of the plan.
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    \3\ The Department has taken the position that contributions to 
an employee benefit plan made at the election of the participant, 
whether made pursuant to a salary reduction agreement or otherwise, 
constitute amounts paid to or withheld by an employer (i.e., 
participant contributions) within the scope of Sec. 2510.3-102, 
without regard to the treatment of such contributions under the 
Internal Revenue Code. See 53 FR 29660 (Aug. 8, 1988).
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    In order to harmonize the Title I rules governing the definition of 
plan assets with section 408(p) of the Code, as amended by the Act, the 
Department proposed to amend 29 CFR 2510.3-102 to provide that salary 
reduction elective contributions under a SIMPLE plan that involves 
SIMPLE IRAs become plan assets as of the earliest date on which such 
contributions can reasonably be segregated from the employer's general 
assets, but in no event later than the 30th day following the month in 
which such amounts would otherwise have been payable to the participant 
in cash.
    The Department explained in the preamble to the proposed rule that, 
while the amendment would preserve the general rule set forth in 
section 2510.3-102(a) of the 1996 regulation governing when participant 
contributions to employee pension benefit plans become plan assets, it 
would amend 29 CFR 2510.3-102(b) of the 1996 regulation by specifying 
that, for purposes of Title I of ERISA, the maximum period during which 
salary reduction elective contributions under a SIMPLE plan that 
involves SIMPLE IRAs may be treated as other than plan

[[Page 62935]]

assets is the same number of days as the period within which the 
employer is required to deposit withheld contributions under a SIMPLE 
plan that involves SIMPLE IRAs under section 408(p) of the Code, as 
amended by the Act. The Department further explained in the preamble to 
the proposed rule that, for all other pension plans covered under Title 
I of ERISA, including SIMPLE 401(k) plans that meet the requirements of 
section 401(k)(11) of the Code, the maximum period would remain 15 
business days following the month in which participant contributions 
were received by the employer (for amounts that participants or 
beneficiaries pay to the employer) or would otherwise have been payable 
to the participants in cash (for amounts that the employer withholds 
from the participant's wages).

Discussion of the Comments and Final Rule

    The Department received only one comment letter in response to the 
March 27, 1997, notice of proposed rulemaking. The commenter expressed 
concern with regard to the statement in the preamble to the proposal at 
59 FR 14760 that ``employers who fail to transmit promptly participant 
contributions, and plan fiduciaries who fail to collect those amounts 
in a timely manner, will violate the requirement that plan assets be 
held in trust; in addition, such employers and fiduciaries may be 
engaging in prohibited transactions.'' Specifically, the commenter 
contended that this language is too broad and that financial 
institutions that are fiduciaries (by virtue of being investment 
advisers or otherwise) but have no control over when participant 
contributions are sent to them should not be subject to liability in 
connection with failures by employers to transmit participant 
contributions in a timely manner. The Department does not agree that 
the referenced preamble language should be modified or withdrawn. As 
noted at 61 FR 41226 in the preamble to the 1996 regulation, while it 
is the view of the Department that the plan sponsor (usually the 
employer) is primarily responsible for assuring that participant 
contributions are transmitted to the trustee in a timely manner, 
section 405(a)(3) of ERISA would impose a fiduciary duty on plan 
trustees in certain circumstances. See, for example, the guidance of 
ERISA's co-fiduciary liability provisions set forth in 29 CFR 2509.75-
5. Similar considerations would be relevant with respect to plan 
fiduciaries who are not necessarily trustees and who do not have 
control over when participant contributions are sent to them but who 
are involved in the process of investing such contributions.
    For the reasons set forth herein, the Department is by this notice 
adopting the amendment as proposed.

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires each 
Federal agency to perform an initial regulatory flexibility analysis 
(IRFA) for all proposed rules unless the head of the agency certifies 
that the rule will not, if promulgated, have a significant impact on a 
substantial number of small entities. Small entities include small 
businesses, organizations, and governmental jurisdictions. The 
Department published an IRFA with regard to the proposed amendment in 
the March 27, 1997, notice of proposed rulemaking, in accordance with 
the requirements of 5 U.S.C. 603. In the IRFA, the Department explained 
the basis for its belief that the proposed rule would not have a 
significant economic effect on a substantial number of small entities. 
Because the final rule amending the 1996 regulation is identical to the 
proposal and because no comments were received from the public in 
response to the IRFA included in the March 27, 1997, notice of proposed 
rulemaking, the Department has made a final determination that this 
final rule will not have a significant effect on a substantial number 
of small entities.

Executive Order 12866

    This regulatory action is not a ``significant rule'' within the 
meaning of Executive Order 12866 (58 FR 51735, Oct. 4, 1993) because it 
is not likely to result in: (1) An annual effect on the economy of $100 
million or more, or an adverse effect on a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities; (2) the 
creation of a serious inconsistency or interference with an action 
taken or planned by another agency; (3) a material alteration in the 
budgetary impacts of entitlements, grants, user fees or loan programs 
or the rights and obligations of recipients thereof; or (4) raising of 
novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in Executive Order 
12866.

Paperwork Reduction Act

    This final rule contains no information collection requirements 
which are subject to review and approval by the Office of Management 
and Budget under the Paperwork Reduction Act of 1995 (44 U.S.C. 3500 et 
seq.).

Unfunded Mandates Reform Act

    For purposes of Title II of the Unfunded Mandates Reform Act of 
1995, 5 U.S.C. 1531-1538, as well as Executive Order 12875, this final 
rule does not contain any federal mandate that may result in increased 
expenditures in either federal, State, local and tribal governments in 
the aggregate, or impose an annual burden exceeding $100 million on the 
private sector.

Congressional Review

    The Department has determined that this final rule is not a ``major 
rule'' as that term is defined in 5 U.S.C. 804, because it is not 
likely to result in (1) An annual effect on the economy of $100 million 
or more; (2) a major increase in costs or prices for consumers, 
individual industries, or federal, State or local government agencies, 
or geographic regions; or (3) significant adverse effects on 
competition, employment, investment, productivity, innovation, or on 
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic or export markets.

Statutory Authority

    This final rule is adopted pursuant to the authority contained in 
section 505 of ERISA (Pub. L. 93-406, 88 Stat. 894; 29 U.S.C. 1135) and 
section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 
17, 1978), effective December 31, 1978 (44 FR 1065, January 3, 1979), 3 
CFR 1978 Comp. 332 and under Secretary of Labor's Order No. 1-87, 52 FR 
13139 (Apr. 21, 1987).

List of Subjects in 29 CFR Part 2510

    Employee benefit plans, Employee Retirement Income Security Act, 
Pensions, Plan assets.

Final Rule

    For the reasons set out in the preamble, 29 CFR part 2510 is 
amended as forth below:

PART 2510--DEFINITIONS OF TERMS USED IN SUBCHAPTERS C, D, E, F, AND 
G OF THIS CHAPTER

    1. The authority for part 2510 continues to read as follows:

    Authority: Secs. 3(2), 111(c), 505, Pub. L. 93-406, 88 Stat. 
852, 894 (29 U.S.C. 1002(2), 1031, 1135) Secretary of Labor's Order 
No. 27-74, 1-86, 1-87, and Labor-Management Services Administration 
Order No. 2-9.

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    Section 2510.3-101 is also issued under sec. 102 of 
Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978), 
effective December 31, 1978 (44 FR 1065, January 3, 1978); 3 CFR 
1978 Comp. 332, and sec. 11018(d) of Pub. L. 99-272, 100 Stat. 82.
    Section 2510.3-102 is also issued under sec. 102 of 
Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978), 
effective December 31, 1978 (44 FR 1065, January 3, 1978); 3 CFR 
1978 Comp. 332.

    2. Paragraph (b) of Sec. 2510.3-102, as published in the Federal 
Register on August 7, 1996 at 61 FR 41233, is revised to read as 
follows:


Sec. 2510.3-102  Definition of ``plan assets''-- participant 
contributions.

* * * * *
    (b) Maximum time period for pension benefit plans. (1) Except as 
provided in paragraph (b)(2), of this section, with respect to an 
employee pension benefit plan as defined in section 3(2) of ERISA, in 
no event shall the date determined pursuant to paragraph (a) of this 
section occur later than the 15th business day of the month following 
the month in which the participant contribution amounts are received by 
the employer (in the case of amounts that a participant or beneficiary 
pays to an employer) or the 15th business day of the month following 
the month in which such amounts would otherwise have been payable to 
the participant in cash (in the case of amounts withheld by an employer 
from a participant's wages).
    (2) With respect to a SIMPLE plan that involves SIMPLE IRAs (i.e., 
Simple Retirement Accounts, as described in section 408(p) of the 
Internal Revenue Code), in no event shall the date determined pursuant 
to paragraph (a) of this section occur later than the 30th calendar day 
following the month in which the participant contribution amounts would 
otherwise have been payable to the participant in cash.
* * * * *
    Signed at Washington, DC, this 20th day of November 1997.
Olena Berg,
Assistant Secretary for Pension and Welfare Benefits, U.S. Department 
of Labor.
[FR Doc. 97-30961 Filed 11-24-97; 8:45 am]
BILLING CODE 4510-29-M