62934 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

1The 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.

2ERISA § 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).

3The 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 § 2510.3–102, without regard to

the treatment of such contributions under the

Internal Revenue Code. See 53 FR 29660 (Aug. 8,

1988).

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.

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.

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 § 403(b),

plan assets are required to be held in

trust by one or more trustees.2 ERISA

§ 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 §§ 403–404, 29 U.S.C. 1103–

1104. These provisions also prohibit a

broad array of transactions involving

plan assets. ERISA §§ 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.

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.

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
Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations 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 foreignbased 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.
62936 Federal Register / Vol. 62, No. 227 / Tuesday, November 25, 1997 / Rules and Regulations

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 § 2510.3–102, as

published in the Federal Register on

August 7, 1996 at 61 FR 41233, is

revised to read as follows:

§ 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