skip to page content
Secretary of Labor Thomas E. Perez
     DOL Home > Federal Register > Notices > EBSA
EBSA Notices

Adoption of Amendment to Prohibited Transaction Exemption 2006- 06; (PTE 2006-06) For Services Provided in Connection With the Termination of Abandoned Individual Account Plans   [10/7/2008]
[PDF]
FR Doc E8-23429
[Federal Register: October 7, 2008 (Volume 73, Number 195)]
[Notices]               
[Page 58629-58631]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07oc08-105]                         

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application Number D-11404]
RIN 1210-ZA12

 
Adoption of Amendment to Prohibited Transaction Exemption 2006-
06; (PTE 2006-06) For Services Provided in Connection With the 
Termination of Abandoned Individual Account Plans

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Adoption of Amendment to PTE 2006-06.

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

SUMMARY: This document amends PTE 2006-06 (71 FR 20856, Apr. 21, 2006), 
a prohibited transaction class exemption issued under the Employee 
Retirement Income Security Act of 1974 (ERISA). Among other things, PTE 
2006-06 permits a ``qualified termination administrator'' (QTA) of an 
individual account plan that has been abandoned by its sponsoring 
employer to select itself to provide services to the plan in connection 
with the plan's termination, and to pay itself fees for those services. 
In response to changes to the Internal Revenue Code of 1986 (the Code) 
enacted as part of the Pension Protection Act (PPA) of 2006, PTE 2006-
06 is amended to require, as a condition of relief under the exemption, 
that benefits for a missing, designated nonspouse beneficiary be 
directly rolled over into an inherited individual retirement plan that 
fully complies with Code requirements. This amendment also conforms to 
the Department's final rule amending regulations concerning the 
Termination of Abandoned Individual Account Plans at 29 CFR 2578.1 (the 
QTA Regulation), and the Safe Harbor for Distributions from Terminated 
Individual Account Plans at 29 CFR 2550.404a-3 (the Safe Harbor 
Regulation), which appears elsewhere in this issue of the Federal 
Register. The amendment to the class exemption affects plans, 
participants and beneficiaries of such plans and certain persons 
engaging in such transactions.

DATES: Effective Date: The class exemption is effective November 6, 
2008.

FOR FURTHER INFORMATION CONTACT: Brian Buyniski, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, (202) 693-8545 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION: On February 15, 2007, a notice was published 
in the Federal Register (72 FR 7461) of the pendency before the 
Department of a proposed amendment to PTE 2006-06. This class exemption 
(which was granted in connection with the Department's QTA Regulation, 
the Department's Safe Harbor Regulation and the Department's regulation 
relating to the Special Terminal Report for Abandoned Individual 
Account Plans at 29 CFR 2520.103-13,) provides an exemption from the 
restrictions of section 406(a)(1)(A) through (D), section 406(b)(1) and 
(b)(2) of the Employee Retirement Income Security Act of 1974 (ERISA or 
the Act) and from the taxes imposed by section 4975(a) and (b) of the 
Internal Revenue Code of 1986 (the Code), by reason of section 
4975(c)(1)(A) through (E) of the Code.
    The Department is granting the amendment on its own motion pursuant 
to section 408(a) of ERISA and section 4975(c)(2) of the Code, and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(55 FR 32836, 32847, August 10, 1990).\1\ The notice of pendency gave 
interested persons an opportunity to comment or request a public 
hearing on the proposal. No comments were received by the Department, 
nor were there any requests for a public hearing, in connection with 
the proposal. Accordingly, the amendment to the class exemption is 
adopted without change.
    The Department amends the class exemption to reflect amendments to 
the

[[Page 58630]]

Code that were adopted by enactment of the Pension Protection Act (PPA) 
of 2006 (Pub. L. 109-280, Aug. 17, 2006). Among other things, section 
829 of the PPA amended Code section 402(c) to permit the direct 
rollover of a deceased plan participant's benefit from an eligible 
retirement plan to an individual retirement plan established for the 
designated nonspouse beneficiary of such participant. In this 
connection, the Department amends its regulatory safe harbor for 
distributions from a terminated individual account plan, including an 
abandoned plan, to require that a deceased participant's benefit be 
directly rolled over to an inherited individual retirement plan 
established to receive a distribution on behalf of a missing, 
designated nonspouse beneficiary. Similarly, the Department, on its own 
motion, amends PTE 2006-06 to ensure conformity with the amended 
Abandoned Plan Regulations.\2\
---------------------------------------------------------------------------

    \1\ Section 102 of the Reorganization Plan No. 4 of 1978 (5 
U.S.C. app. at 214 (2000) generally transferred the authority of the 
Secretary of the Treasury to issue administrative exemptions under 
section 4975 of the Code to the Secretary of Labor.
    \2\ See in this issue of the Federal Register 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.
---------------------------------------------------------------------------

    As noted in the proposed amendment, the Department interprets the 
term ``account'' (other than an individual retirement plan) in section 
I(b)(1)(ii) and the term ``other account'' in section I(b)(3) and (4) 
of PTE 2006-06 to include an ``inherited individual retirement plan'' 
as used in the amended Safe Harbor Regulation in the context of a 
distribution to a nonspouse beneficiary that does not qualify for small 
account treatment under the regulatory safe harbor. Consequently, the 
exemption, prior to amendment, provided relief to a QTA that selected 
itself as the provider of an inherited individual retirement plan under 
the Safe Harbor Regulation. Accordingly, the Department has amended the 
covered transactions described in section I(b)(ii) of PTE 2006-06 to 
expressly provide that a distribution on behalf of a missing nonspouse 
beneficiary would qualify for exemptive relief only if directly rolled 
into an individual retirement plan that satisfies the requirements of 
new section 402(c)(11) of the Code.\3\
---------------------------------------------------------------------------

    \3\ See also I.R.S Notice 2007-07, 2007-5 I.R.B. 395.
---------------------------------------------------------------------------

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. 
Pursuant to the terms of the Executive Order, it has been determined 
that this action is not ``significant'' within the meaning of section 
3(f) of the Executive Order, and, therefore, is not subject to review 
by OMB.

Paperwork Reduction Act

    The information collections included in PTE 2006-06 are currently 
approved, together with information collections included in the safe 
harbor and termination of abandoned plans regulations, by the Office of 
Management and Budget (OMB) under OMB control number 1210-0127. This 
approval is currently scheduled to expire on June 20, 2009. The 
specific burden for the exemption includes a recordkeeping requirement 
for a QTA that terminates an abandoned plan and chooses to distribute 
the account balances of nonresponsive participants and beneficiaries 
into proprietary or affiliated individual retirement plans. These 
amendments do not make any changes to the information collections of 
the exemption. Accordingly, the Department has not made a submission 
for OMB approval in connection with the amendments.

Background

    PTE 2006-06 is comprised of five sections. Section I describes the 
transactions that are covered by the exemption. Section II contains 
conditions for the provision of termination services and the receipt of 
fees. Section III contains the conditions for distributions. Section IV 
contains the general recordkeeping provisions imposed on the QTA, and 
section V contains definitions.
    Section I(b) of the exemption currently provides relief from the 
restrictions of sections 406(a)(1)(A) through (D), 406(b)(1) and 
406(b)(2) of the Act and the taxes imposed by section 4975(a) and (b) 
of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, for a QTA to use its authority in connection with the termination 
of an abandoned individual account plan to designate itself or an 
affiliate as provider of an individual retirement plan \4\ or other 
account to receive the account balance of a participant or beneficiary 
who does not provide direction as to the disposition of such assets. 
The other accounts currently permitted by the exemption include: An 
account (other than an individual retirement plan, as described in 
paragraph (d)(1)(ii) of the Safe Harbor Regulation) for a distribution 
made to a distributee other than a participant or spouse; or an 
interest-bearing, federally insured bank or savings association account 
maintained in the name of the participant or beneficiary for 
distributions of $1,000 or less, as described in section (d)(1)(iii) of 
the Safe Harbor Regulation.
---------------------------------------------------------------------------

    \4\ For purposes of the class exemption, the term ``individual 
retirement plan'' means an individual retirement plan described in 
section 7701(a)(37) of the Code.
---------------------------------------------------------------------------

 C. Discussion of the Amendment

    Section 829 of the PPA 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 of such participant.\5\ 
These rollover distributions would not trigger immediate tax 
consequences and mandatory tax withholding for the nonspouse 
beneficiary. Accordingly, in light of the favorable changes to the 
Code, the Department is amending both PTE 2006-06 and the Safe Harbor 
Regulation to 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.
---------------------------------------------------------------------------

    \5\ 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 requirement of Code 
Sec.  401(a)(9)(B).
---------------------------------------------------------------------------

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of ERISA and section 4975(c)(2) of the Code does 
not relieve a fiduciary,

[[Page 58631]]

or other party in interest or disqualified person with respect to a 
plan, from certain other provisions of ERISA and the Code, including 
any prohibited transaction provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of ERISA which require, among other things, that a fiduciary act 
prudently and discharge his or her duties respecting the plan solely in 
the interests of the participants and beneficiaries of the plan. 
Additionally, the fact that a transaction is the subject of an 
exemption does not affect the requirement of section 401(a) of the Code 
that the plan must operate for the exclusive benefit of the employees 
of the employer maintaining the plan and their beneficiaries;
    (2) This exemption does not extend to transactions prohibited under 
section 406(b)(3) of the Act or section 4975(c)(1)(F) of the Code;
    (3) In accordance with section 408(a) of the Act and section 
4975(c)(2) of the Code, the Department finds that the exemption is 
administratively feasible, in the interests of the plan and of its 
participants and beneficiaries, and protective of the rights of 
participants and beneficiaries of such plans;
    (4) The amendment is applicable to a particular transaction only if 
the transaction satisfies the conditions specified in the exemption; 
and
    (5) The amendment is supplemental to, and not in derogation of, any 
other provisions of ERISA and the Code, including statutory or 
administrative exemptions and transitional rules. Furthermore, the fact 
that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction.

Amendment

    Under section 408(a) of the Act and section 4975(c)(2) of the Code 
and in accordance with the procedures set forth in 29 CFR 2570, Subpart 
B (55 FR 32836, 32847, August 10, 1990), the Department amends PTE 
2006-06 as set forth below:

Exemption * * *

I. Covered Transactions * * *

    (b) * * *
    (1) Designate itself or an affiliate as: (i) Provider of an 
individual retirement plan; (ii) provider, 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, of 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 under 
the circumstances described in section (d)(1)(ii) of the Safe Harbor 
Regulation for Terminated Plans (29 CFR section 2550.404a-3) (the Safe 
Harbor Regulation); or (iii) provider of an interest bearing, federally 
insured bank or savings association account maintained in the name of 
the participant or beneficiary, in the case of a distribution described 
in section (d)(1)(iii) of the Safe Harbor Regulation, for the 
distribution of the account balance of the participant or beneficiary 
of the abandoned individual account plan who does not provide direction 
as to the disposition of such assets;

V. Definitions * * *

    (b) The term ``individual retirement plan'' means an individual 
retirement plan described in section 7701(a)(37) of the Code. For 
purposes of section III of this exemption, the term ``individual 
retirement plan'' shall also include an inherited individual retirement 
plan (within the meaning of section 402(c)(11) of the Code) established 
to receive a distribution on behalf of a nonspouse beneficiary. 
Notwithstanding the foregoing, the term individual retirement plan 
shall not include an individual retirement plan which is an employee 
benefit plan covered by Title I of ERISA.

    Signed at Washington, DC, this 26th day of September, 2008.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations.
 [FR Doc. E8-23429 Filed 10-6-08; 8:45 am]

BILLING CODE 4510-29-P