[Federal Register Volume 72, Number 31 (Thursday, February 15, 2007)]
[Rules and Regulations]
[Pages 7516-7524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-597]



[[Page 7515]]

-----------------------------------------------------------------------

Part II





Department of Labor





-----------------------------------------------------------------------



Employee Benefits Security Administration



-----------------------------------------------------------------------



29 CFR Parts 2550 and 2578



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; Final Rule

Federal Register / Vol. 72, No. 31 / Thursday, February 15, 2007 / 
Rules and Regulations

[[Page 7516]]


-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Parts 2550 and 2578

RIN 1210-AB16


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

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Interim final rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: This document contains an interim final rule amending 
regulations under the Employee Retirement Income Security Act of 1974 
(ERISA or the Act) that provide guidance and a fiduciary safe harbor 
for the distribution of benefits on behalf of participants or 
beneficiaries in terminated and abandoned individual account plans. The 
Department is amending these regulations to reflect changes enacted as 
part of the Pension Protection Act of 2006, Public Law 109-280, to the 
Internal Revenue Code of 1986 (the Code), under which a distribution of 
a deceased plan participant's benefit from an eligible retirement plan 
may be directly transferred to an individual retirement plan 
established on behalf of the designated nonspouse beneficiary of such 
participant. Specifically, the amended regulations require as a 
condition of relief under the fiduciary safe harbor that benefits for a 
missing, designated nonspouse beneficiary be directly rolled over to an 
individual retirement plan that fully complies with Code requirements. 
This interim final rule will affect fiduciaries, plan service 
providers, and participants and beneficiaries of individual account 
pension plans.

DATES: Effective and Applicability Dates: The amendments made by this 
rule are effective March 19, 2007. This interim final rule is 
applicable to distributions made on or after March 19, 2007.
    Comment Date: Written comments must be received by April 2, 2007.

ADDRESSES: To facilitate the receipt and processing of comments, the 
Department encourages interested persons to submit their comments 
electronically by e-mail to <a href="/cdn-cgi/l/email-protection#f194dcbea3b8b1959e9ddf969e87"><span class="__cf_email__" data-cfemail="6a0f472538232a0e0506440d051c">[email protected]</span></a>, or by using the Federal 
eRulemaking portal at www.regulations.gov (follow instructions for 
submission of comments). Persons submitting comments electronically are 
encouraged not to submit paper copies. Persons interested in submitting 
comments on paper should send or deliver their comments (at least three 
copies) to the Office of Regulations and Interpretations, Employee 
Benefits Security Administration, Room N-5669, U.S. Department of 
Labor, 200 Constitution Avenue, NW., Washington, DC 20210, Attn: 
Amendments to Distribution Safe Harbor and Abandoned Plans Regulation 
for Missing Nonspouse Beneficiaries. All comments received will be 
available to the public, without charge, online at www.regulations.gov 
and www.dol.gov/ebsa, and at the Public Disclosure Room, Employee 
Benefits Security Administration, Room N-1513, U.S. Department of 
Labor, 200 Constitution Avenue, NW., Washington, DC.

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

SUPPLEMENTARY INFORMATION:

A. Background

    This interim final rule amends two regulations under ERISA that 
facilitate the termination of individual account plans, including 
abandoned individual account plans, and the distribution of benefits 
from such plans. The first regulation, codified at 29 CFR 2550.404a-3, 
provides plan fiduciaries of terminated plans and qualified termination 
administrators (QTAs) of abandoned plans with a fiduciary safe harbor 
for making distributions on behalf of participants or beneficiaries who 
fail to make an election regarding a form of benefit distribution, 
commonly referred to as missing participants or beneficiaries. The 
second regulation, codified at 29 CFR 2578.1, establishes a procedure 
for financial institutions holding the assets of an abandoned 
individual account plan to terminate the plan and distribute benefits 
to the plan's participants or beneficiaries, with limited liability.\1\ 
Appendices to these two regulations contain model notices for notifying 
participants or beneficiaries of the plan's termination and 
distribution options.
---------------------------------------------------------------------------

    \1\ Under Sec.  2578.1(d)(2)(vii)(B), a QTA is directed to make 
distributions in accordance with the safe harbor regulation.
---------------------------------------------------------------------------

    The safe harbor regulation provides that both a fiduciary and a QTA 
will be deemed to have satisfied ERISA's prudence requirements under 
section 404(a) of the Act if the conditions of the safe harbor are met 
with respect to the distribution of benefits on behalf of missing 
participants from terminated individual account plans.\2\ In general, 
the regulation provides that a fiduciary or QTA qualifies for the safe 
harbor if a distribution is made to an individual retirement plan 
within the meaning of section 7701(a)(37) of the Code. See Sec.  
2550.404a-3(d)(1)(i). However in April 2006, when the Department 
published this safe harbor regulation, a distribution of benefits from 
an individual account plan to a nonspouse beneficiary was not 
considered an eligible rollover distribution under the provisions of 
section 402(c) of the Code and, therefore, could not be rolled over 
into an individual retirement plan.\3\ As a result, the safe harbor 
regulation mandated, among other requirements, the distribution of 
benefits on behalf of a missing nonspouse beneficiary to an account 
that was not an individual retirement plan. See Sec.  2550.404a-
3(d)(1)(ii). Consequently, such distributions were subject to income 
tax and mandatory tax withholding in the year distributed into the 
account.\4\
---------------------------------------------------------------------------

    \2\ 71 FR 20830 n. 21.
    \3\ See 26 CFR 1.402(c)-2, Q&A-12.
    \4\ 71 FR 20828 n.14.
---------------------------------------------------------------------------

    The Pension Protection Act changed the characterization of certain 
distributions from tax exempt plans and trusts to permit such 
distributions to qualify for eligible rollover distribution 
treatment.\5\ 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.\6\ These rollover distributions would not trigger 
immediate income tax consequences and mandatory tax withholding for the 
nonspouse beneficiary.
---------------------------------------------------------------------------

    \5\ Section 829 of the Pension Protection Act.
    \6\ 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 requirements of 
Code Sec.  401(a)(9)(B).
---------------------------------------------------------------------------

    In light of the Pension Protection Act's 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 
regulatory safe harbor for distributions from a terminated

[[Page 7517]]

individual account plan, including an abandoned plan, at 29 CFR 
2550.404a-3. These amendments 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. These amendments eliminate the prior 
safe harbor condition that required a distribution on behalf of a 
missing nonspouse beneficiary to be made only to an account other than 
an individual retirement plan. See Sec.  2550.404a-3(d)(1)(ii). 
Therefore, when these amendments become applicable, a distribution on 
behalf of a missing nonspouse beneficiary would satisfy this condition 
of the safe harbor only if directly rolled into an individual 
retirement plan that satisfies the requirements of new section 
402(c)(11) of the Code.\7\
---------------------------------------------------------------------------

    \7\ See also I.R.S. Notice 2007-07 (January 10, 2007).
---------------------------------------------------------------------------

    Conforming changes are made to the content requirements of the 
mandated participant and beneficiary termination notice and its model 
notice under the safe harbor (at the Appendix to Sec.  2550.404a-3). 
The amendments to 29 CFR 2578.1 also make conforming changes to the 
content of the required participant and beneficiary termination notice 
and model notice for abandoned plans (at Appendix C to Sec.  2578.1).
    Concurrently with publication of this rule, the Department is 
publishing proposed amendments to PTE 2006-06,\8\ which, when 
finalized, will clarify that the exemption provides relief to a QTA 
that designates itself or an affiliate as the provider of an inherited 
individual retirement plan for a missing, designated nonspouse 
beneficiary pursuant to the exemption's conditions. As noted in the 
preamble to the proposed amendments, however, the Department interprets 
PTE 2006-06 as currently available to the QTA for its self-selection as 
an inherited individual retirement plan provider subject to the 
conditions of the exemption.
---------------------------------------------------------------------------

    \8\ 71 FR 20856 (April 21, 2006).
---------------------------------------------------------------------------

B. Request for Comments

    The Department invites comments from interested persons on all 
aspects of the interim final rule. To facilitate the receipt and 
processing of comments, the Department encourages interested persons to 
submit their comments electronically by e-mail to <a href="/cdn-cgi/l/email-protection#d3b6fe9c819a93b7bcbffdb4bca5"><span class="__cf_email__" data-cfemail="fa9fd7b5a8b3ba9e9596d49d958c">[email protected]</span></a>, or by 
using the Federal eRulemaking portal at www.regulations.gov (follow 
instructions for submission of comments). Persons submitting comments 
electronically are encouraged not to submit paper copies. Persons 
interested in submitting comments on paper should send or deliver their 
comments (at least three copies) to the Office of Regulations and 
Interpretations, Employee Benefits Security Administration, Room N-
5669, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210, Attn: Amendments to Distribution Safe Harbor and 
Abandoned Plans Regulation for Missing Nonspouse Beneficiaries. All 
comments will be available to the public, without charge, at 
www.regulations.gov and www.dol.gov/ebsa, and in the Public Disclosure 
Room, N-1513, Employee Benefits Security Administration, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC.

C. Amendments Relating to the Safe Harbor for Distributions From 
Terminated Individual Account Plans

1. Section 2550.404a-3(d)--Conditions

    Paragraph (d)(1)(ii) of this section requires that the distribution 
of benefits on behalf of a nonspouse beneficiary of a participant be 
made to ``an account (other than an individual retirement plan)'' 
because historically such distribution was not eligible for rollover 
into an individual retirement plan. This condition is being revised to 
require that the distribution of benefits on behalf of a designated 
nonspouse beneficiary be rolled over into an inherited individual 
retirement plan that complies with the requirements of section 
402(c)(11) of the Code, as permitted under the Pension Protection Act 
for distributions occurring after December 31, 2006.
    Paragraph (d)(1)(iii)(C) of this section permits as an alternative 
distribution option that certain small benefits on behalf of a 
nonspouse beneficiary of a participant be distributed to ``an account 
(other than an individual retirement plan)'' that a financial 
institution, other than the qualified termination administrator, 
provides to the public at the time of the distribution. This 
alternative option is similarly being revised to require the rollover 
of benefits on behalf of a designated nonspouse beneficiary to an 
inherited individual retirement plan.
    Paragraph (d)(2)(ii)(A) of this section is being revised to 
incorporate the appropriate cross references to individual retirement 
plan and inherited individual retirement plan and eliminate reference 
to ``other account.''
    Paragraphs (d)(2)(iii), (d)(2)(iv) and (d)(3) of this section are 
being revised to incorporate the appropriate cross references to 
individual retirement plan and inherited individual retirement plan, 
and bank or savings association accounts for certain small amounts.

2. Section 2550.404a-3(e)--Notice to Participants and Beneficiaries

    Paragraphs (e)(1)(iv), (e)(1)(v) and (e)(1)(vi) of this section are 
being revised to incorporate the appropriate cross references to 
individual retirement plan and inherited individual retirement plan and 
eliminate reference to ``other account.''

3. Section 2550.404a-3(f)--Model Notice

    The appendix to this section contains a Notice of Plan Termination 
for terminated individual account plans other than abandoned plans that 
currently includes an optional paragraph referring to distributions to 
nonspouse beneficiaries. This paragraph is being deleted because 
distributions to nonspouse beneficiaries will no longer be required to 
be made to accounts other than individual retirement plans. A 
parenthetical is being added to the fourth paragraph to clarify that 
individual retirement plans established on behalf of missing, 
designated nonspouse beneficiaries are inherited individual retirement 
plans.

D. Amendments Relating to the Termination of Abandoned Individual 
Account Plans

1. Section 2578.1(d)(2)(vi)--Notify Participants

    Paragraph (d)(2)(vi)(A)(5)(ii) of this section is being revised to 
incorporate the appropriate cross reference to conditions for rollovers 
on behalf of nonspouse beneficiaries in Sec.  2550.404a-3(d)(1)(ii).
    Paragraphs (d)(2)(vi)(A)(5)(iii) and (d)(2)(vi)(A)(6) of this 
section are being revised to incorporate the appropriate cross 
references to individual retirement plan and inherited individual 
retirement plan in Sec.  2550.404a-3(d)(1)(i) and (d)(1)(ii) and 
eliminate reference to ``account.''
    Paragraphs (d)(2)(vi)(A)(7) and (d)(2)(vi)(A)(8) of this section 
are being revised to incorporate the appropriate cross references to 
individual retirement plan and inherited individual retirement plan in 
Sec.  2550.404a-3(d)(1)(i) and (d)(1)(ii).

2. Section 2578.1(i)--Model notices

    Appendix C to this section contains a Notice of Plan Termination 
for abandoned plans that currently includes an optional paragraph 
(``Option 2'') referring to distributions to nonspouse

[[Page 7518]]

beneficiaries. This optional paragraph is being deleted because 
distributions to nonspouse beneficiaries will no longer be required to 
be made to accounts other than individual retirement plans. To conform 
to this change, the instructions for ``Option 1'' are being revised to 
delete reference to ``participant's spouse.'' ``Option 3'' is 
renumbered as ``Option 2'' and the instructions are revised to 
eliminate reference to ``(or special account for non-spousal 
beneficiaries if you are a beneficiary other than the participant's 
spouse)'' and ``(or special non-spousal account).'' A parenthetical is 
being added to Option 1 and Option 2 to clarify that individual 
retirement plans established on behalf of missing, designated nonspouse 
beneficiaries are inherited individual retirement plans. ``Option 4'' 
is renumbered as ``Option 3.''

E. Good Cause Finding That Proposed Rulemaking Unnecessary

    Rulemaking under section 553 of the Administrative Procedure Act 
(APA) ordinarily involves publication of a notice of proposed 
rulemaking in the Federal Register and the public is given an 
opportunity to comment on the proposed rule. The APA authorizes 
agencies to dispense with proposed rulemaking procedures, however, if 
they find both good cause that such procedures are impracticable, 
unnecessary, or contrary to the public interest, and incorporate a 
statement of the finding with the underlying reasons in the interim 
final rule issued.
    In this case, the Department finds that it is unnecessary to 
undertake proposed rulemaking with regard to the amendments to the 
regulatory safe harbor for distributions from a terminated individual 
account plan, including an abandoned plan. The Department believes such 
rulemaking is unnecessary because it views these amendments to an 
existing regulatory scheme as technical, noncontroversial and merely 
adaptive of recent Code changes allowing distributions on behalf of 
missing nonspouse beneficiaries of deceased participants to be rolled 
over into tax-advantaged individual retirement plans. The Department 
therefore finds for good cause that notice and public procedure is 
unnecessary. It is publishing these amendments as an interim final rule 
and is including a request for comment.

F. Regulatory Impact Analysis

Summary

    By conforming regulations pertaining to distributions from certain 
terminated plans with recent changes to the Code, this interim final 
rule preserves for certain nonspouse beneficiaries of deceased 
participants the opportunity to take advantage of preferential tax 
treatment newly permitted by the Pension Protection Act for 
distributions after December 31, 2006. Nonspouse beneficiaries will 
benefit from the preservation, on their behalf, of tax-favored savings 
set aside for retirement. This interim final rule also will affect plan 
fiduciaries, including QTAs, by altering the procedures applicable to 
certain termination distributions. The Department anticipates that, 
rather than increasing costs, these amendments will reduce compliance 
costs modestly for plan fiduciaries and QTAs. Because the rule's new 
distribution procedures for terminated plans apply only to the narrow 
group of nonspouse beneficiaries who have not returned a distribution 
election, the Department believes that the rule's economic impact will 
be small, overall, but positive.\9\
---------------------------------------------------------------------------

    \9\ As described earlier, the Department is publishing, 
concurrently with publication of this rule, proposed amendments to 
PTE 2006-06, which will establish under the conditions of the 
exemption that a QTA may 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. In 
assessing the economic costs and benefits of this interim final 
rule, the Department has taken into account the proposed amendments 
to PTE 2006-06, which will make explicit the availability of the 
conditional relief to parties that follow the amended rules with 
respect to nonspouse distributions, a result that the Department 
believes will assist in the achievement of the purposes underlying 
the regulations.
---------------------------------------------------------------------------

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 regulatory 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.

Costs

    Plan fiduciaries and QTAs generally are not expected to change 
their use of service providers in connection with the termination and 
winding-up of plans as a result of the amendments made by this interim 
final rule. In addition, costs related to selecting institutions and 
establishing appropriate accounts and investments for benefits directly 
transferred to an inherited individual retirement plan are expected to 
be the same as costs related to establishing other types of accounts on 
behalf of nonspouse beneficiaries. The safeguards included in the safe 
harbor regulation to preserve assets, such as requiring that fees and 
expenses do not exceed certain limits, apply to both individual 
retirement plans and other accounts. Fiduciaries and QTAs that 
currently select separate institutions for making tax-deferred and 
taxable distributions may have modest administrative cost savings as a 
result of this rule because they will be able to distribute nonspouse 
benefits to inherited individual retirement plans with the same 
institutions to which other tax-deferred distributions are made.
    Plan fiduciaries and QTAs also will have reduced administrative 
costs as a result of not having to comply with otherwise applicable 
mandatory tax withholding requirements under the Code. The distribution 
of benefits to an account other than an individual retirement plan is 
considered a lump sum distribution under the Code, requiring a plan 
administrator to withhold a percentage of the taxable amount and send 
the withheld amount to the Internal Revenue Service as income tax 
withholding. This requirement to withhold does not apply to 
distributions made to inherited individual retirement plans. As the 
safe harbor regulation requires the rollover of distributions, except 
for certain small benefits, the administrative costs associated with 
mandatory tax withholding will be reduced.

[[Page 7519]]

Benefits

    When the Department published the safe harbor regulation for 
distributions from terminated individual account plans in April 2006, 
it was designed, in part, to prevent participants and beneficiaries of 
terminated plans, insofar as then possible under the Code, from losing 
the favorable tax treatment otherwise accorded distributions from 
qualified plans. As a result, the safe harbor regulation generally 
mandated that benefits on behalf of a participant or spouse be 
distributed to an individual retirement plan. Tax laws then in effect 
prevented the Department from extending this favorable tax treatment to 
nonspouse beneficiaries. This interim final rule, which takes into 
account the Pension Protection Act change enabling a nonspouse 
beneficiary to be treated as inheriting an individual retirement plan, 
will benefit nonspouse beneficiaries by enabling them to have continued 
tax-deferral of retirement savings, similar to that available to 
participants and spouses.
    As described earlier in the preamble, nonspouse beneficiaries will 
benefit from continued deferral of income taxes and distributions that 
are not subject to mandatory tax withholding. Under the new tax rules, 
distributions from an inherited individual retirement plan will have to 
be made under the Code's minimum distribution rules. While these 
distribution rules are generally more restrictive than what is allowed 
for participants and spouses, the Department believes that the 
additional period of tax deferral permitted under the new tax rules 
will be a significant benefit to nonspouse beneficiaries. Because 
benefits will continue to be held in tax-advantaged retirement 
vehicles, the interim final rule also serves to preserve retirement 
savings. At the same time, nonspouse beneficiaries retain the benefit 
of being able to make a distribution election and to elect a lump sum 
distribution if they choose.
    Based on the foregoing assessment, the Department concludes that 
promulgation of this interim final rule will provide substantial 
benefits without imposing additional costs.

Paperwork Reduction Act

    The information collections included in this interim final rule, 
together with information collections included in PTE 2006-06, are 
currently approved 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 interim final rule makes minor changes to 
the content requirements of the participant and beneficiary termination 
notices, as described earlier in the preamble. These conforming 
changes, which involve the deletion or substitution of a small number 
of words in each notice, do not increase the burden of the information 
collections and do not constitute a substantive or material 
modification of the existing information collection request approved 
under OMB control number 1210-0127. Accordingly, the Department has not 
made a submission for OMB approval of a revision in the burden 
estimates in connection with this interim final rule or the proposed 
amendments to PTE 2006-06, published simultaneously with this interim 
final rule.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and are likely to 
have a significant economic impact on a substantial number of small 
entities. Because these amendments are being published as an interim 
final rule, without prior notice and comment, the Regulatory 
Flexibility Act does not apply. Furthermore, because the interim final 
rule imposes no additional costs on employers or plans, the Department 
believes that it would not have a significant impact on a substantial 
number of small entities. Accordingly, the Department believes that no 
regulatory flexibility analysis would be required in any case under the 
RFA.

Congressional Review Act Statement

    The interim final rule being issued here is subject to the 
provisions of the Congressional Review Act provisions of the Small 
Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et 
seq.) and will be transmitted to Congress and the Comptroller General 
for review. The interim final rule is not a ``major rule'' as that term 
is defined in 5 U.S.C. 804, because it does not 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 and 
export markets.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), the interim final rule does not include any Federal mandate 
that may result in expenditures by State, local, or tribal governments, 
or impose an annual burden exceeding $100 million on the private 
sector.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires Federal agencies to adhere to 
specific criteria in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This interim final rule does not have 
federalism implications because it has no substantial direct effect on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Section 514 of ERISA provides, with 
certain exceptions specifically enumerated, that the provisions of 
Titles I and IV of ERISA supersede any and all laws of the States as 
they relate to any employee benefit plan covered under ERISA. The 
requirements implemented in the interim rule do not alter the 
fundamental provisions of the statute with respect to employee benefit 
plans, and as such would have no implications for the States or the 
relationship or distribution of power between the national government 
and the States.

List of Subjects

29 CFR Part 2550

    Employee benefit plans, Employee Retirement Income Security Act, 
Employee stock ownership plans, Exemptions, Fiduciaries, Investments, 
Investments foreign, Party in interest, Pensions, Pension and Welfare 
Benefit Programs Office, Prohibited transactions, Real estate, 
Securities, Surety bonds, Trusts and Trustees.

29 CFR Part 2578

    Employee benefit plans, Pensions, Retirement.

0
For the reasons set forth in the preamble, the Department of Labor 
amends 29 CFR chapter XXV as follows:

[[Page 7520]]

Title 29--Labor

    Subchapter F--Fiduciary Responsibility Under the Employee 
Retirement Income Security Act of 1974

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; 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. Sec. 2550.404c-1 also issued under 29 U.S.C. 
1104. Sec. 2550.407c-3 also issued under 29 U.S.C. 1107. Sec. 
2550.404a-2 also issued under 26 U.S.C. 401 note (sec. 657, Pub. L. 
107-16, 115 Stat. 38). 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.  2550.404a-3 by revising (d)(1)(ii), (d)(1)(iii)(C), 
(d)(2)(ii)(A), (d)(2)(iii), (d)(2)(iv), (d)(3), (e)(1)(iv), (e)(1)(v), 
(e)(1)(vi) and the appendix to read as follows:


Sec.  2550.404a-3  Safe Harbor for Distributions from Terminated 
Individual Account Plans.

* * * * *
    (d) * * *
    (1) * * *
    (ii) 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, to 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; or
    (iii) * * *
* * * * *
    (C) An individual retirement plan (described in paragraph (d)(1)(i) 
or (d)(1)(ii) of this section) offered by a financial institution other 
than the qualified termination administrator to the public at the time 
of the distribution.
    (2) * * *
    (ii) * * *
    (A) Seek to maintain, over the term of the investment, the dollar 
value that is equal to the amount invested in the product by the 
individual retirement plan (described in paragraph (d)(1)(i) or 
(d)(1)(ii) of this section), and
* * * * *
    (iii) All fees and expenses attendant to the transferee plan 
(described in paragraph (d)(1)(i) or (d)(1)(ii) of this section) or 
account (described in paragraph (d)(1)(iii)(A) of this section), 
including investments of such plan, (e.g., establishment charges, 
maintenance fees, investment expenses, termination costs and surrender 
charges), shall not exceed the fees and expenses charged by the 
provider of the plan or account for comparable plans or accounts 
established for reasons other than the receipt of a distribution under 
this section; and
    (iv) The participant or beneficiary on whose behalf the fiduciary 
makes a distribution shall have the right to enforce the terms of the 
contractual agreement establishing the plan (described in paragraph 
(d)(1)(i) or (d)(1)(ii) of this section) or account (described in 
paragraph (d)(1)(iii)(A) of this section), with regard to his or her 
transferred account balance, against the plan or account provider.
    (3) Both the fiduciary's selection of a transferee plan (described 
in paragraph (d)(1)(i) or (d)(1)(ii) of this section) or account 
(described in paragraph (d)(1)(iii)(A) of this section) and the 
investment of funds would not result in a prohibited transaction under 
section 406 of the Act, unless such actions are exempted from the 
prohibited transaction provisions by a prohibited transaction exemption 
issued pursuant to section 408(a) of the Act.
    (e) * * *
    (1) * * *
    (iv) A statement explaining that, if a participant or beneficiary 
fails to make an election within 30 days from receipt of the notice, 
the plan will distribute the account balance of the participant or 
beneficiary to an individual retirement plan (i.e., individual 
retirement account or annuity described in paragraph (d)(1)(i) or 
(d)(1)(ii) of this section) and the account balance will be invested in 
an investment product designed to preserve principal and provide a 
reasonable rate of return and liquidity;
    (v) A statement explaining what fees, if any, will be paid from the 
participant or beneficiary's individual retirement plan (described in 
paragraph (d)(1)(i) or (d)(1)(ii) of this section), if such information 
is known at the time of the furnishing of this notice;
    (vi) The name, address and phone number of the individual 
retirement plan (described in paragraph (d)(1)(i) or (d)(1)(ii) of this 
section) provider, if such information is known at the time of the 
furnishing of this notice; and
* * * * *
BILLING CODE 4510-29-P

[[Page 7521]]

[GRAPHIC] [TIFF OMITTED] TR15FE07.000


[[Page 7522]]



Subchapter G--Administration and Enforcement Under the Employee 
Retirement Income Security Act of 1974

PART 2578--RULES AND REGULATIONS FOR ABANDONED PLANS

0
3. The authority citation for part 2578.1 continues to read as follows:

    Authority: 29 U.S.C. 1135; 1104(a); 1103(d)(1).


0
4. Amend Sec.  2578.1 by revising (d)(2)(vi)(A)(5)(ii), 
(d)(2)(vi)(A)(5)(iii), (d)(2)(vi)(A)(6), (d)(2)(vi)(A)(7), 
(d)(2)(vi)(A)(8) and Appendix C to read as follows:


Sec.  2578.1  Termination of Abandoned Individual Account Plans

* * * * *
    (d) * * *
    (2) * * *
    (vi) * * *
    (A) * * *
    (5) * * *
    (ii) To an inherited individual retirement plan described in Sec.  
2550.404a-3(d)(1)(ii) of this chapter (in the case of a distribution on 
behalf of a distributee other than a participant or spouse),
    (iii) In any case where the amount to be distributed meets the 
conditions in Sec.  2550.404a-3(d)(1)(iii), to an interest-bearing 
federally insured bank account, the unclaimed property fund of the 
State of the last known address of the participant or beneficiary, or 
an individual retirement plan (described in Sec.  2550.404a-3(d)(1)(i) 
or (d)(1)(ii) of this chapter) or
* * * * *
    (6) In the case of a distribution to an individual retirement plan 
(described in Sec.  2550.404a-3(d)(1)(i) or (d)(1)(ii) of this chapter) 
a statement explaining that the account balance will be invested in an 
investment product designed to preserve principal and provide a 
reasonable rate of return and liquidity;
    (7) A statement of the fees, if any, that will be paid from the 
participant or beneficiary's individual retirement plan (described in 
Sec.  2550.404a-3(d)(1)(i) or (d)(1)(ii) of this chapter) or other 
account (described in Sec.  2550.404a-3(d)(1)(iii)(A) of this chapter), 
if such information is known at the time of the furnishing of this 
notice;
    (8) The name, address and phone number of the provider of the 
individual retirement plan (described in Sec.  2550.404a7-3(d)(1)(i) or 
(d)(1)(ii) of this chapter), qualified survivor annuity, or other 
account (described in Sec.  2550.404a-3(d)(1)(iii)(A) of this chapter), 
if such information is known at the time of the furnishing of this 
notice; and
* * * * *

[[Page 7523]]

[GRAPHIC] [TIFF OMITTED] TR15FE07.001


[[Page 7524]]


[GRAPHIC] [TIFF OMITTED] TR15FE07.002


    Signed at Washington, DC, this 5th day of February, 2007.
Bradford P. Campbell,
Acting Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 07-597 Filed 2-14-07; 8:45 am]
BILLING CODE 4510-29-C


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>