[Federal Register: October 7, 2008 (Volume 73, Number 195)]
[Rules and Regulations]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2509
Amendment to Interpretive Bulletin 95-1
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Final rule.
SUMMARY: This document contains a final rule that amends Interpretive
Bulletin 95-1 to limit the application of the Bulletin to the selection
of annuity providers for defined benefit plans. Also appearing in
today's Federal Register is a final regulation, entitled ``Selection of
Annuity Providers--Safe Harbor for Individual Account Plans'', which
establishes a safe harbor for the selection of annuity providers for
the purpose of benefit distributions from individual account plans
covered by title I of the Employee Retirement Income Security Act
(ERISA). The amendment to Interpretive Bulletin 95-1, as well as the
safe harbor for annuity selections, will affect plan sponsors and
fiduciaries of individual account plans, and the participants and
beneficiaries covered by such plans.
DATES: This final rule is effective on December 8, 2008.
FOR FURTHER INFORMATION CONTACT: Janet A. Walters or Allison E.
Wielobob, Office of Regulations and Interpretations, Employee Benefits
Security Administration, U.S. Department of Labor, Washington, DC
20210, (202) 693-8510. This is not a toll-free number.
In 1995, the Department issued Interpretive Bulletin 95-1 (29 CFR
2509.95-1) (the IB), providing guidance concerning the fiduciary
standards under Part 4 of Title I of ERISA applicable to the selection
of annuity providers for purposes of pension plan benefit
distributions. In general, the IB makes clear that the selection of an
annuity provider in connection with benefit distributions is a
fiduciary act governed by the fiduciary standards of section 404(a)(1),
including the duty to act prudently and solely in the interest of the
plan's participants and beneficiaries. In this regard, the IB provides
that plan fiduciaries must take steps calculated to obtain the safest
annuity available, unless under the
circumstances it would be in the interest of the participants and
beneficiaries to do otherwise. The IB also provides that fiduciaries
must conduct an objective, thorough and analytical search for purposes
of identifying providers from which to purchase annuities and sets
forth six factors that should be considered by fiduciaries in
evaluating a provider's claims paying ability and creditworthiness.
In Advisory Opinion 2002-14A (Dec. 18, 2002) the Department
expressed the view that the general fiduciary principles set forth in
the IB with regard to the selection of annuity providers apply equally
to defined benefit and defined contribution plans. The opinion
recognized that, the selection of annuity providers by the fiduciary of
a defined contribution plan would be governed by section 404(a)(1) and,
therefore, such fiduciary, in evaluating claims paying ability and
creditworthiness of an annuity provider, should take into account the
six factors set forth in 29 CFR 2509.95-1(c).
During 2005, the ERISA Advisory Council created the Working Group
on Retirement Distributions & Options to study, in part, the nature of
the distribution options available to participants of defined
contribution plans. In November 2005, after public hearings and
testimony, the Advisory Council issued a report, entitled Report of the
Working Group on Retirement Distributions & Options,\1\ concluding that
many defined contribution plan distributions tend to be paid out in
lump sums which ``expose retirees to a wide range of risks including
the possibility of outliving assets, investment losses, and inflation
risk.'' The Advisory Council recommended that the Department revise the
IB to facilitate the availability of annuity options in defined
\1\ A copy of the Report can be found on the About EBSA page
under the heading ERISA Advisory Council at http://www.dol.gov/ebsa/
The Pension Protection Act of 2006 (the PPA) (Pub. L. 109-280, 120
Stat. 780) was enacted on August 17, 2006. Section 625 of the PPA
directs the Secretary to issue final regulations within one year of the
date of enactment, clarifying that the selection of an annuity contract
as an optional form of distribution from an individual account plan is
not subject to the safest available annuity standard under the IB and
is subject to all otherwise applicable fiduciary standards. On
September 12, 2007, the Department published an interim final
regulation (72 FR 52004) limiting the scope of Interpretive Bulletin
95-1, relating to the selection of annuity providers, to defined
benefit plans, as directed by section 625 of the Pension Protection Act
of 2006 (the PPA) (Pub. L. 109-280, 120 Stat. 780). The Department did
not receive any comments on that interim final rule and is issuing that
rule in final. Set forth below is an overview of the final rule. The
Department is also adopting a final regulation, published in today's
Federal Register, which establishes a safe harbor for the selection of
annuity providers for the purpose of benefit distributions from
individual account plans covered by title I of ERISA.
B. Overview of Final Rule
In order to implement the Congressional mandate of section 625 of
the PPA and to eliminate any confusion regarding the applicability of
the fiduciary standards set forth in IB 95-1 to the selection of
annuity providers for the purpose of benefit distributions from
individual account plans, the Department is amending the IB to provide
that it applies only to the selection of annuity providers for the
purpose of benefit distributions from a defined benefit pension plan.
C. Effective Date
This final rule is effective 60 days after the date of publication
in the Federal Register.
D. Regulatory Impact Analysis
Executive Order 12866 Statement
Under Executive Order 12866 (58 FR 51735), the Department must
determine whether a regulatory action is ``significant'' and therefore
subject to review by the Office of Management and Budget (OMB). Section
3(f) of the Executive Order defines a ``significant regulatory action''
as 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.
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 that are likely
to have a significant economic impact on a substantial number of small
entities. Section 604 of the RFA requires that the agency present a
final regulatory flexibility analysis in the publication of the notice
of final rulemaking describing the impact of the rule on small
entities. The Department has considered the likely impact of the final
rule on small entities in connection with its assessment under
Executive Order 12866, described above, and believes this rule will not
have a significant impact on a substantial number of small entities.
See notice of final rulemaking appearing in today's Federal Register
entitled ``Selection of Annuity Providers--Safe Harbor for Individual
Paperwork Reduction Act
This rulemaking is not subject to the requirements of the Paperwork
Reduction Act of 1995 (44 U.S.C. 301 et seq.) because it does not
contain ``collection of information'' requirements as defined in 44
U.S.C. 3502(3). Accordingly, this final rule is not being submitted to
the OMB for review under the Paperwork Reduction Act.
Congressional Review Act
The 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 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
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), the 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.
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 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 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 in 29 CFR Part 2509
Employee benefit plans, Pensions.
For the reasons set forth in the preamble, the Department amends
Chapter XXV of Title 29 of the Code of Federal Regulations as follows:
PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974
1. The authority citation for part 2509 is revised to read as follows:
Authority: 29 U.S.C. 1135. Secretary of Labor's Order 1-2003, 68
FR 5374 (Feb. 3, 2003). Sections 2509.75-10 and 2509.75-2 issued
under 29 U.S.C. 1052, 1053, 1054. Sec. 2509.75-5 also issued under
29 U.S.C. 1002. Sec. 2509.95-1 also issued under sec. 625, Pub. L.
109-280, 120 Stat. 780.
2. Section 2509.95-1 is amended by revising the section heading and
paragraph (a) to read as follows:
Sec. 2509.95-1 Interpretive bulletin relating to the fiduciary
standards under ERISA when selecting an annuity provider for a defined
benefit pension plan.
(a) Scope. This Interpretive Bulletin provides guidance concerning
certain fiduciary standards under part 4 of title I of the Employee
Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1104-1114,
applicable to the selection of an annuity provider for the purpose of
benefit distributions from a defined benefit pension plan (hereafter
``pension plan'') when the pension plan intends to transfer liability
for benefits to an annuity provider. For guidance applicable to the
selection of an annuity provider for benefit distributions from an
individual account plan see 29 CFR 2550.404a-4.
* * * * *
Signed at Washington, DC, this 29th day of September, 2008.
Bradford P. Campbell,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. E8-23433 Filed 10-6-08; 8:45 am]
BILLING CODE 4510-29-P