14760 Federal Register / Vol. 62, No. 59 / Thursday, March 27, 1997 / Proposed Rules

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).

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 § 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

Proposed Rule Amending the

Definition of Plan Assets; Participant

Contributions

AGENCY: Pension and Welfare Benefits

Administration, Department of Labor.

ACTION: Proposed rule.

SUMMARY: This document contains a

proposed rule that would amend the

Department of Labor’s final 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 proposed

amendment would harmonize 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

simplify compliance by small

businesses.

DATES: Written comments must be

submitted on or before May 27, 1997.

ADDRESSES: Interested persons are

invited to submit written comments

concerning this proposed rule to:

Pension and Welfare Benefits

Administration, Room N–5669, U.S.

Department of Labor, 200 Constitution

Ave., N.W., Washington, D.C. 20210.

Attention: Proposed Participant

Contribution Regulation Amendment.

FOR FURTHER INFORMATION CONTACT:

Amy J. Scheingold, Office of

Regulations and Interpretations, Pension

and Welfare Benefits Administration,

U.S. Department of Labor, Washington,

D.C. (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 August

7, 1996, the Department of Labor (the

Department) published a final

regulation at 61 FR 41220 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 Section

2510.3–102(a) of the final regulation sets

forth a general rule that 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

final 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 §§ 406–408, 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.

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

Savings Incentive Match Plans for

Employees (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 Individual

Retirement Account (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.

The Need for the Proposed Amendment

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

proposes 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 Proposed Amendment

The proposed rule contained in this

notice would preserve the general rule

set forth in section 2510.3–102(a)

governing when participant

contributions to employee pension

benefit plans become plan assets.

However, the proposed rule would

amend 29 CFR 2510.3–102(b) by

specifying that the maximum period

during which salary reduction elective

contributions under a SIMPLE plan that

involves SIMPLE IRA may be treated as

other than plan assets is the same
Federal Register / Vol. 62, No. 59 / Thursday, March 27, 1997 / Proposed Rules 14761

4This figure is based on the revenue estimates for

the Act prepared by the Joint Committee on

Taxation. These revenue estimates suggest that

approximately 300,000 SIMPLE IRAs will be

created for individuals who previously did not have

an employer-sponsored retirement plan. The small

employers eligible to establish such plans have

between 1 and 100 employees; on average, the small

employers eligible to establish such plan will have

50 employees. The number of SIMPLE IRAs

(300,000) divided by the average number of

employees (50) equals the estimated 6,000

employers offering this form of retirement account. 5See House Report 104–586 (filed May 20, 1996).

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. 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).

Effective Date of the Amendment

The Department is publishing this

proposed rule for notice and comment

and will promulgate this rule in final

form subsequent to such comment

period. The Department expects to issue

a final rule 30 days following the close

of the comment period. The Department

has determined to propose that the final

rule will be effective immediately upon

publication. Moreover, the Department

wishes to note that, pending adoption of

the final amendment proposed in this

notice, the Department will not assert a

violation in any enforcement proceeding

relating to salary reduction elective

contributions under a SIMPLE plan that

involves SIMPLE IRAs solely because

the earliest date on which participant

contributions could reasonably be made

to a plan is later than 15 business days

following the month in which such

amounts would otherwise have been

payable to the participant in cash, but

not more than 30 calendar days

following the month in which such

amounts would otherwise have been

payable to the participant in cash.

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 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. Although the Department

believes that the proposed rule will not

have a significant economic effect on a

substantial number of small entities, the

Department has elected to publish the

following initial regulatory flexibility

analysis in accordance with the

requirements of 5 U.S.C. 603.

(1) Why the Action Is Being Considered

The Department is promulgating this

regulation in order to harmonize Title I

regulations with the Code, as amended

by the Act. This is discussed in greater

detail in the Supplementary Information

section above.

(2) Objectives of, and Legal Basis for, the

Proposed Rule

The proposed regulation harmonizes

29 CFR 2510.3–102 with section

408(p)(5)(A)(i) of the Code, as amended

by the Act. This is discussed in greater

detail in the Supplementary Information

section above.

(3) Description and Estimate of Small

Entities to Which the Rule Will Apply

The proposed amendment would

apply only to those employers that make

salary reduction elective contributions

under a SIMPLE plan that involves

SIMPLE IRAs. These employers may be

individuals, businesses or other forprofit institutions, and not-for-profit

institutions. However, only employers

that have no more than 100 employees

who earned $5000 or more in

compensation during the preceding

calendar year are eligible to make these

contributions under the Code. No small

governmental jurisdictions will be

affected by this regulation because

governmental plans are not covered by

Title I of ERISA. It is estimated that

6,000 employers would be affected by

this proposed language. 4

(4) Description of Compliance

Requirements and Classes of Small

Entities Subject to Requirements

The proposed rule would impose no

additional reporting, recordkeeping or

other compliance requirements. Rather,

by harmonizing a recently issued Title

I regulation with the Code, eligible

small employers that make salary

reduction elective contributions to

SIMPLE plans that involve SIMPLE

IRAs will have a longer maximum time

period to comply with requirement that

participant contributions be placed in

trust. The proposed rule may affect

classes of small entities to the extent

that the entities choose to establish such

plans and to the extent that the such

contributions cannot be segregated from

the entities’ general assets earlier than

the maximum time period.

(5) Duplicative, Overlapping, or

Conflicting Federal Rules

The Department is not aware of any

relevant federal rules that duplicate,

overlap or conflict with the proposed

rule. It is the view of the Department

that harmonizing the Title I definition of

plans assets with respect to participant

contributions with section 408(p) of the

Code, thereby establishing a uniform set

of rules for salary reduction

contributions to SIMPLE plans that

involve SIMPLE IRAs, will simplify

plan establishment and administration.

(6) Available Alternatives

There are no significant alternatives to

the proposed rule which would

accomplish the stated objectives of the

Act yet have less of an impact on small

entities than the proposed rule. One

purpose of the Act is to encourage small

employers to adopt retirement plans by

permitting them to use simplified

retirement plans not subject to the

complex rules ordinarily applicable to

tax-qualified plans. 5 The proposed rule

reflects the accommodation to small

entities provided by the Act.

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 and material 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 entitlement,

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

The rule proposed in this notice is not

subject to the requirements of the

Paperwork Reduction Act of 1995 (44

U.S.C. 3501 et seq.) because it does not

contain an ‘‘information collection

request’’ as defined in 44 U.S.C.

3502(11).
14762 Federal Register / Vol. 62, No. 59 / Thursday, March 27, 1997 / Proposed Rules

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 proposed

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.

Statutory Authority

The proposed rule would be 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.

For the reasons set out in the

preamble, 29 CFR part 2510 is proposed

to be amended as follows:

PART 2510—DEFINITIONS OF TERMS

USED IN SUBCHAPTERS C, D, E, F,

AND G OF THIS CHAPTER

1. The authority citation 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.

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

proposed to be amended 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 21st day of

March 1997.

Olena Berg,

Assistant Secretary for Pension and Welfare

Benefits, Department of Labor.

[FR Doc. 97–7709 Filed 3–26–97; 8:45 am]

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