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Notice of Proposed Amendment to Prohibited Transaction Exemption 2006-06 (PTE 2006-06) for Services Provided in Connection With the Abandoned Plan Regulations; Notice and Proposed Rule   [12/12/2012]
[PDF]
Federal Register, Volume 77 Issue 239 (Wednesday, December 12, 2012)
[Federal Register Volume 77, Number 239 (Wednesday, December 12, 2012)]
[Notices]
[Pages 74055-74062]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29556]



[[Page 74055]]

Vol. 77

Wednesday,

No. 239

December 12, 2012

Part II





Department of Labor





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Employee Benefits Security Administration





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29 CFR Parts 2520, 2550, and 2578





Notice of Proposed Amendment to Prohibited Transaction Exemption 2006-
06 (PTE 2006-06) for Services Provided in Connection With the 
Termination of Abandoned Individual Account Plans; Amendments to the 
Abandoned Plan Regulations; Notice and Proposed Rule

Federal Register / Vol. 77 , No. 239 / Wednesday, December 12, 2012 / 
Notices

[[Page 74056]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application Number D-11657]
ZRIN EBSA-2012-0015


Notice of Proposed 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: Notice of Proposed Amendment to PTE 2006-06.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed amendment to PTE 
2006-06, 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.

DATES: Written comments and requests for a public hearing must be 
received by the Department on or before February 11, 2013.

ADDRESSES: All written comments and requests for a public hearing 
concerning the proposed amendment should be sent to the Office of 
Exemption Determinations, Employee Benefits Security Administration, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington DC 20210, Attention: PTE 2006-06 Amendment. Interested 
persons are also invited to submit comments and hearing requests to 
EBSA via email to: moffitt.betty@dol.gov or by fax to 202-219-0204 by 
the end of the scheduled comment period. The comments received will be 
available for public inspection in the Public Disclosure Room of the 
Employee Benefits Security Administration, U.S. Department of Labor, 
Room N-1513, 200 Constitution Avenue NW., Washington, DC 20210. 
Comments and hearing requests will also be available online at 
www.regulations.gov and www.dol.gov/ebsa, at no charge.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information), or confidential business information, 
that you do not want publicly disclosed. All comments may be posted on 
the Internet and can be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Chris Motta, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, (202) 693-8540 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency 
before the Department of a proposed amendment to PTE 2006-06. This 
amendment to PTE 2006-06 is being proposed in connection with the 
Department's proposed amendment of regulations relating to the 
Termination of Abandoned Individual Account Plans at 29 CFR 2578.1 (the 
QTA Regulation), the Safe Harbor for Distributions from Terminated 
Individual Account Plans at 29 CFR 2550.404a-3 (the Safe Harbor 
Regulation), and the Special Terminal Report for Abandoned Plans at 29 
CFR 2520.103-13 (collectively, the Abandoned Plan Regulations). The 
proposed amendments to the Abandoned Plan Regulations are being 
published simultaneously in this issue of the Federal Register. PTE 
2006-06 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.
    If adopted, this proposed amendment to PTE 2006-06 would affect 
plans, participants and beneficiaries of such plans, and certain 
persons engaging in the transactions covered by the class exemption.
    The Department is proposing 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\
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    \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.
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Executive Order 12866

    Under Executive Order 12866 (58 FR 51735), ``significant'' 
regulatory actions are subject to the requirements of the Executive 
Order and 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. It has been determined that that this 
proposed amendment is not ``significant'' under section 3(f) of the 
executive order. Accordingly, OMB has not reviewed the proposed 
amendment.
    PTE 2006-06 permits a QTA of an individual account plan that has 
been abandoned by its sponsoring employer to select itself or an 
affiliate to provide services to the plan in connection with the 
termination of the plan, and to pay itself or an affiliate fees for 
those services, provided that such fees are consistent with the 
conditions of the proposed exemption. The exemption also permits a QTA 
to: Designate itself or an affiliate as a provider of an individual 
retirement plan or other account; select a proprietary investment 
product as the initial investment for the rollover distribution of 
benefits for a participant or beneficiary who fails to make an election 
regarding the disposition of such benefits; and, pay itself or its 
affiliate in connection with the rollover.
    The proposed amendment to PTE 2006-06 would expand the definition 
of QTA to include Bankruptcy Trustees (described below) and certain 
persons designated by such trustees to act as QTAs. The Department is 
proposing the amendment because it has determined that, in certain 
instances, it may be appropriate for a Bankruptcy Trustee to provide 
termination services to a plan. Currently, PTE 2006-06 and the 
accompanying QTA regulations do not cover plans of sponsors involved in 
chapter 7 bankruptcy proceedings, because such plans are not considered 
to be abandoned due to the fact that the Bankruptcy Trustee assumes the 
role of the plan administrator under the Bankruptcy Code. Moreover, 
Bankruptcy Trustees cannot serve as

[[Page 74057]]

QTAs under the current regulation and PTE 2006-06 because they are 
unable to meet the QTA definition.
    Accordingly, as addressed more fully elsewhere in this preamble, 
the Department is proposing to expand the definition of QTA to include 
Bankruptcy Trustees and certain persons designated by them to act as 
QTAs in terminating and winding up the affairs of abandoned plans. As 
noted above, this proposed amendment to the class exemption is being 
published concurrently with proposed amendments to the Abandoned Plan 
Regulations. Because compliance with the QTA Regulation is required 
under the proposed amendment, the costs and benefits that would be 
associated with complying with the proposed amendment to the class 
exemption have been described and quantified in connection with the 
economic impact of the proposed amendment to the QTA Regulation.
    The Department believes that the proposed amendments to the 
Abandoned Plan Regulations and PTE 2006-06 will incentivize many 
bankruptcy trustees to carryout plan terminations consistent with 
ERISA, which the Department expects ultimately would benefit 
participants and beneficiaries of such plans by ensuring abandoned 
plans are terminated in an orderly and cost-effective manner.

Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 (PRA 
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data 
will be provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents 
can be properly assessed.
    The proposed amendment to PTE 2006-06 would only be used by QTAs 
that also take advantage of the proposed amendment to the QTA 
Regulation, which is published elsewhere in this issue of the Federal 
Register. The Department has combined the hour and cost burdens 
associated with the proposed amendment to the class exemption with the 
hour and cost burden associated with the amended proposed regulation, 
under one Information Collection Request (ICR) that will be filed with 
OMB. By combining the two ICRs, the Department believes that the 
regulated community will gain a better understanding of the overall 
burden impact of terminating abandoned plans pursuant to the proposed 
amendments. The specific burden for the proposed amendment to the class 
exemption includes a recordkeeping requirement for a Bankruptcy Trustee 
that terminates an abandoned plan and chooses to roll over the account 
balances of missing or nonresponsive participants into individual 
retirement plans offered by it or an affiliate. The hour and cost 
burden for the ICR are described more fully in the preamble to the 
proposed amendment to the regulation under the Paperwork Reduction Act 
section.

I. Background

    On April 21, 2006, the Department issued the Abandoned Plan 
Regulations.\2\ These Regulations facilitate the orderly, efficient 
termination of abandoned individual account plans by a QTA (described 
below) in order to give participants and beneficiaries of those plans 
access to the amounts held in their individual accounts, which are 
frequently unavailable to them because of the abandonment.\3\ 
Specifically, the Termination of Abandoned Individual Account Plans 
regulation establishes standards for financial institutions holding the 
assets of an abandoned individual account plan to terminate the plan 
and distribute benefits to the plan's participants and beneficiaries, 
with limited liability. The Safe Harbor for Distributions from 
Terminated Individual Account Plans regulation provides a fiduciary 
safe harbor for making distributions from terminated individual account 
plans on behalf of participants and beneficiaries who fail to make an 
election regarding the form of benefit distribution after the 
furnishing of notice. The Special Terminal Report for Abandoned Plans 
regulation establishes a simplified method for filing a terminal report 
for abandoned individual account plans.
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    \2\ See the Termination of Abandoned Individual Account Plans at 
29 CFR 2578.1 (77 FR 20820 at 20838); the Safe Harbor for 
Distributions from Terminated Individual Account Plans at 29 CFR 
2550.404a-3 (77 FR 20820 at 20850); and Special Terminal Report for 
Abandoned Plans at 29 CFR 2520.103-13 (77 FR 20820 at 20853).
    \3\ 77 FR 20820 at id.
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    On that same date, the Department granted PTE 2006-06.\4\ This 
class exemption facilitates the goal of the Abandoned Plan Regulations 
by permitting a QTA, under the conditions of the exemption, to, among 
other things, select itself or an affiliate to provide services to the 
plan, to pay itself or an affiliate fees for those services, and to pay 
itself fees for services provided prior to the plan's deemed 
termination, in connection with terminating the abandoned plan.
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    \4\ 71 FR 20856 (Apr. 21, 2006) as amended infra.
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    On October 7, 2008, the Department issued final rules amending the 
QTA Regulation and the Safe Harbor Regulation.\5\ These amendments were 
made in response to changes to the Internal Revenue Code of 1986 (the 
Code) enacted as part of the Pension Protection Act of 2006. On that 
same date, and for the same purpose, PTE 2006-06 was also amended.\6\ 
In this regard, as amended, the class exemption requires that benefits 
for a missing, designated nonspouse beneficiary be directly rolled over 
into an inherited individual retirement plan that fully complies with 
Code requirements.
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    \5\ See 73 FR 58459 at 58462 and 58465.
    \6\ See 73 FR 58629 (October 7, 2008).
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    As noted above, proposed amendments to the Abandoned Plan 
Regulations are being published simultaneously in this issue of the 
Federal Register. If adopted, these amendments, among other things, 
would permit a Bankruptcy Trustee to qualify as a QTA under the 
Abandoned Plan Regulations or to appoint an ``eligible designee'' to 
act as a QTA under the Abandoned Plan Regulations. Thereafter, the 
Bankruptcy Trustee or the ``eligible designee'' may provide certain 
services, pursuant to the requirements set forth in the Abandoned Plan 
Regulations, in connection with the termination of one or more 
individual account plans sponsored by the entity that is the subject of 
the proceeding.

II. Description of the Class Exemption

    PTE 2006-06 is comprised of five sections. Section I describes the 
transactions covered by the exemption. These transactions are divided 
into two categories. The first category of transactions (hereinafter, 
Covered Termination Transactions) involve the use by a QTA (described 
below) of its authority in connection with the termination of an 
abandoned individual account plan pursuant to the QTA Regulation,\7\ 
to: Select itself or an affiliate to provide services to the plan; 
receive fees for the services performed as a QTA; and pay itself fees 
for services provided to the plan prior to the

[[Page 74058]]

deemed termination of the plan. The second category of transactions 
(hereinafter, Covered Distribution Transactions) involves the use by a 
QTA of its authority in connection with the termination of an abandoned 
individual account plan pursuant to the QTA Regulation to: (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; 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; (2) 
make the initial investment of the account balance of the participant 
or beneficiary in the QTA's or its affiliate's proprietary investment 
product; (3) receive fees in connection with the establishment or 
maintenance of the individual retirement plan or other account; and (4) 
pay itself or an affiliate investment fees as a result of the 
investment of the individual retirement plan or other account assets in 
the QTA's or its affiliate's proprietary investment product.
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    \7\ Section I(a) of PTE 2006-06 incorrectly cites the QTA 
Regulation as Reg. Sec. 2550.404a-3. Section I(a) of this proposed 
amendment properly cites the QTA Regulation as Reg. Sec. 2578.1.
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    Section II contains conditions applicable to the Covered 
Termination Transactions. These conditions include the requirement that 
the fees and expenses paid to the QTA, and its affiliate, for services 
associated with the termination of a plan and the distribution of its 
benefits (hereinafter, Termination Services) \8\ be consistent with 
industry rates for such or similar services, based on the experience of 
the QTA.\9\ Section II provides further that the fees and expenses paid 
to the QTA, and its affiliate, may not exceed the rates ordinarily 
charged by the QTA (or affiliate) for the same or similar services 
provided to customers that are not plans terminated pursuant to the QTA 
regulation, if the QTA (or affiliate) provides the same or similar 
services to such other customers. Among the remaining conditions set 
forth in section II is the requirement that, with respect to a 
Termination Transaction, the requirements of the QTA Regulation are 
met.
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    \8\ The Department notes that the ``distribution'' services 
referenced in section II of PTE 2006-06 are distinguishable from the 
Distribution Transactions described in section I(b) of the class 
exemption. In this regard, the Distribution Transactions involve the 
investment of Plan assets in the QTA's proprietary investment 
vehicles. Section II ``distribution'' services relate to the 
transfer of Plan assets to Plan participants and/or investment 
vehicles that are unrelated to the QTA.
    \9\ See section II(b)(1) of PTE 2006-06.
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    Section III of PTE 2006-06 contains conditions applicable to the 
Covered Distribution Transactions. These conditions include the 
requirement that, with respect to a Covered Distribution Transaction, 
the conditions of the QTA Regulation are met. Section III additionally 
requires that, in connection with the notice to participants and 
beneficiaries requirement described in the QTA Regulation, a statement 
is provided explaining that: (1) If the participant or beneficiary 
fails to make an election within the 30-day period referenced in the 
QTA Regulation, the QTA will directly distribute the account balance to 
an individual retirement plan or other account offered by the QTA or 
its affiliate; and (2) the proceeds of the distribution may be invested 
in the QTA's (or affiliate's) own proprietary investment product, which 
is designed to preserve principal and provide a reasonable rate of 
return and liquidity. This section of the class exemption requires 
further that the terms of the individual retirement plan or other 
account, including the fees and expenses for establishing and 
maintaining the individual retirement plan or other account, may be no 
less favorable than those available to comparable individual retirement 
plans or other accounts established for reasons other than the receipt 
of a distribution described in the QTA Regulation. Among the remaining 
conditions set forth in section III is the requirement that the rate of 
return or the investment performance of the individual retirement plan 
or other account may be no less favorable than the rate of return or 
investment performance of an identical investment(s) that could have 
been made at the same time by comparable individual retirement plans or 
other accounts established for reasons other than the receipt of a 
distribution described in the QTA Regulation.
    Section IV contains the recordkeeping requirements for the QTA, and 
section V defines certain terms that appear in the class exemption. In 
this last regard, section V(a) currently provides that a termination 
administrator is ``qualified'' for purposes of the Abandoned Plan 
Regulations and the class exemption if: (1) The QTA is eligible to 
serve as a trustee or issuer of an individual retirement plan or other 
account, within the meaning of section 7701(a)(37) of the Code,\10\ and 
(2) the QTA holds plan assets of the plan considered abandoned. 
Accordingly, relief under the existing class exemption extends only to 
entities with experience providing services to plans that are subject 
to ERISA.
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    \10\ Section 7701(a)(37) of the Internal Revenue Code describes 
an ``individual retirement plan'' as an individual retirement 
account described in section 408(a) of the Code, and an individual 
retirement account described in section 408(b) of the Code. Section 
408(a) of the Code describes the term ``individual retirement 
account'' as meaning a trust created or organized in the United 
States for the exclusive benefit of an individual or his 
beneficiaries, if certain requirements are met. Section 408(b) of 
the Code describes the term ``individual retirement annuity'' as 
meaning an annuity contract, or an endowment contract, which meets 
certain requirements.
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III. Description of the Proposed Amendment to the Class Exemption

    When an entity that sponsors an individual account plan is 
liquidated under chapter 7 of title 11 of the United States Code, a 
person appointed as a bankruptcy trustee (a Bankruptcy Trustee) will, 
among other things, perform the obligations that otherwise would have 
been required of the bankrupt entity. Once appointed, the Bankruptcy 
Trustee is responsible for administering the plan, which may include 
taking the steps necessary to terminate the plan and wind up the 
affairs of the plan. A Bankruptcy Trustee who undertakes these plan 
responsibilities is a fiduciary with respect to the plan,\11\ and 
therefore subject to section 404 of ERISA.\12\ As noted in the preamble 
to PTE 2006-06, as proposed, a violation of section 406(a) and/or (b) 
of the Act may occur if the QTA determines to pay itself or an 
affiliate for services rendered to the plan from the assets of an 
abandoned

[[Page 74059]]

plan.\13\ Also, additional violations may occur if the QTA designates 
itself or an affiliate as the provider of an individual retirement plan 
or other account established for the benefit of participants and 
beneficiaries who do not make an election as to the form of 
distribution.
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    \11\ In this regard, section 3(21)(A)(i) of ERISA provides that 
a person is a ``fiduciary'' with respect to a plan to the extent he 
exercises any discretionary authority or discretionary control 
respecting management of such plan or exercises any authority or 
control respecting management or disposition of its assets. In 
addition, section 3(21)(A)(iii) of ERISA provides that a person is a 
``fiduciary'' with respect to a plan to the extent he has any 
discretionary authority or discretionary responsibility in the 
administration of such plan.
    \12\ Section 404 of ERISA requires, among other things, that a 
fiduciary shall discharge his duties with respect to a plan solely 
in the interest of the participants and beneficiaries and with the 
care, skill prudence, and diligence under the circumstances then 
prevailing that a prudent man acting in a like capacity and 
familiarity with such matters would use in the conduct of an 
enterprise of a like character and with like aims.
    \13\ In this regard, section 406(a)(1) of the Act prohibits, in 
part, a fiduciary of a plan from causing the plan to engage in a 
transaction that constitutes a direct or an indirect sale, exchange 
or leasing of any property between the plan and a party in interest; 
lending of money or other extension of credit between the plan and a 
party in interest; furnishing of goods, services, or facilities 
between the plan and a party in interest; and a transfer to, or use 
by or for the benefit of, a party in interest of any assets of the 
plan. Section 406(b)(1) and (b)(2) of the Act prohibits a fiduciary 
with respect to a plan from dealing with the assets of the plan in 
his own interest or for his own account; and from acting in his 
individual or in any other capacity in any transaction involving the 
plan on behalf of a party (or representing a party) whose interests 
are adverse to the interests of the plan or the interests of its 
participants or beneficiaries.
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    As described below, a Bankruptcy Trustee may determine that it is 
capable of prudently and expeditiously winding down the operations of 
an individual account plan. However, the relief currently provided by 
PTE 2006-06 generally does not extend to the provision of Termination 
Services by a Bankruptcy Trustee to a plan. In this regard, it is the 
understanding of the Department that Bankruptcy Trustees seldom hold 
custody of plan assets of the bankrupt plan sponsor. Thus, Bankruptcy 
Trustees are generally unable to meet the definition of QTA, as set 
forth in section V(a) of the existing class exemption.
    In addition, the provision of Termination Services by a Bankruptcy 
Trustee to a Plan is often outside the scope of relief intended by the 
Department for the existing class exemption.\14\ In this regard, the 
class exemption currently limits relief to entities that are eligible 
to serve as trustees or issuers of individual retirement plans and thus 
have experience providing services to individual account plans subject 
to ERISA.\15\ As noted above, the existing class exemption requires, 
among other things, that the fees and expenses paid to a QTA, and its 
affiliate, for Termination Services are consistent with industry rates, 
based on the experience of the QTA. This condition may have little or 
no relevance to Bankruptcy Trustees that have minimal or no experience 
providing services to ERISA-covered individual account plans.
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    \14\ It is also the understanding of the Department that 
Bankruptcy Trustees do not maintain proprietary investment vehicles, 
and thus do not, in the general course of their business activities, 
offer services associated with the Distribution Transactions. 
Accordingly, this proposed amendment does not extend relief for a 
Bankruptcy Trustee/QTA that designates itself or an affiliate to 
offer such services.
    \15\ In the preamble to the QTA Regulation, the Department 
further noted that in developing its criteria for QTAs, the 
Department limited QTA status to trustees or issuers of an 
individual account plan within the meaning of section 7701(a)(37) of 
the Code, because the standards applicable to such trustees and 
issuers are well understood by the regulated community and the 
Department is unaware of any problems attributable to weaknesses in 
the existing Code and regulatory standards for such persons. See 77 
FR 20820 at 20821.
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    Nevertheless, the Department recognizes that when the sponsor of an 
individual account plan is in liquidation pursuant to a Chapter 7 
bankruptcy proceeding, participants in the plan benefit to the extent 
the plan's operations are wound down properly and in an expeditious 
manner. The Department is proposing this amendment based on its belief 
that extending relief under the class exemption to Bankruptcy Trustees 
will enable these Trustees to carry out plan terminations consistent 
with ERISA and the Department's expectations.
    Accordingly, the Department is proposing to expand the definition 
of QTA to include Bankruptcy Trustees and certain persons designated by 
such trustees to act as QTAs. Specifically, this new category of QTA 
is: (1) A person appointed as a bankruptcy trustee pursuant to a 
liquidation proceeding under chapter 7 of title 11 of the United States 
Code, or (2) an ``eligible designee'' of such bankruptcy trustee (as 
described below). Given that a Bankruptcy Trustee may have little or no 
experience providing services to employee benefit plans, the Department 
is proposing to modify section II(b)(1) of the class exemption. The 
modification, which applies only to Bankruptcy Trustee/QTAs and not 
``eligible designees'' or other QTAs, eliminates the ``experience of 
the QTA'' component of the condition. In this regard, section II(b)(1) 
of this proposed amendment limits the total amount of compensation that 
may be paid to a Bankruptcy Trustee/QTA (or any affiliate) for 
Termination Services to an amount that is consistent with industry 
rates for such or similar services.\16\
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    \16\ This proposed amendment does not affect the obligations 
under the class exemption of a QTA that is not a Bankruptcy Trustee.
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    The Department notes that compliance with section II(b)(1) of this 
proposed amendment imposes an obligation on a Bankruptcy Trustee/QTA, 
prior to performing any Termination Service on behalf of a Plan, to 
investigate and determine that the fees and expenses proposed to be 
paid to such Bankruptcy Trustee/QTA are consistent with the amount the 
Plan would have to pay to an experienced service provider for the same 
or similar Termination Services. The Department believes that 
information currently available on the Department's Web site, as 
described in further detail below, will assist Bankruptcy Trustee/QTAs 
set fees for Termination Services in the manner required by section 
II(b)(1) of the proposed exemption. The Department recognizes that a 
Bankruptcy Trustee, once appointed to administer the termination of a 
Plan, may seek to appoint the Plan's custodian to provide Termination 
Services and/or Distribution Services to such Plan.\17\ The Department 
believes that the provision of Termination Services and/or Distribution 
Services by a plan custodian who has been retained in this manner to 
act as QTA would be consistent with the intended scope of the existing 
class exemption. Accordingly, the Department is proposing to expand the 
definition of QTA to include an ``eligible designee'' of a Bankruptcy 
Trustee. The proposed amendment defines an ``eligible designee'' to 
mean any entity appointed by a Bankruptcy Trustee/QTA, who: is eligible 
to serve as a trustee or issuer of an individual retirement plan; and 
holds assets of the plan(s) sponsored by the entity that is the subject 
of the chapter 7 liquidation proceeding. Given that ``eligible 
designees'' are plan custodians with experience providing services to 
employee benefit plans subject to ERISA, the Department believes that 
``eligible designees'' should be treated in the same manner as QTAs 
that are not Bankruptcy Trustee/QTAs. In this regard, the proposed 
amendment permits ``eligible designees'' to engage in all transactions 
covered by the exemption (i.e., Covered Termination Transactions and/or 
Covered Distribution Transactions) subject to the same conditions 
applicable to QTAs other than

[[Page 74060]]

Bankruptcy Trustee/QTAs. Accordingly, the fees and expenses paid to an 
``eligible designee''/QTA pursuant to section II(b)(1) of PTE 2006-06 
must be, among other things, based on the experience of such QTA.
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    \17\ The Department notes that the Act's general standards of 
fiduciary conduct would apply to this arrangement. In this regard, 
section 404 of the Act requires, among other things, that Bankruptcy 
Trustee/QTA discharge his or her duties in a prudent manner. 
Accordingly, a Bankruptcy Trustee/QTA who appoints an ``eligible 
designee'' would thereafter be responsible for monitoring the 
services provided by the ``eligible designee.'' The Department 
cautions that such monitoring, and the fee associated therewith, 
must be consistent with, and reflective of, the Plan's interest in 
having its operations wound down in an expeditious and cost 
effective manner. In this regard, the rates charged to the Plan by 
the Bankruptcy Trustee/QTA for monitoring the ``eligible designee'' 
must reflect the rates charged by a plan fiduciary for similar 
services, rather than the generally higher fees charged by 
bankruptcy trustees for legal services provided to the bankruptcy 
estate.
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    The Department reemphasizes to all entities seeking to take 
advantage of PTE 2006-06 that relief under that class exemption is 
conditioned upon, among other things, fulfilling the requirements set 
forth in the QTA Regulation. Accordingly, following a QTA's 
determination that an individual account plan has been abandoned,\18\ 
the QTA must furnish the Department with a notice that includes, among 
other things, an identification of any services considered necessary to 
wind up the plan in accordance with this section, the name of the 
service provider(s) that is expected to provide such services, and an 
itemized estimate of expenses attendant thereto expected to be paid out 
of plan assets by the qualified termination administrator.\19\ The 
Department cautions that, while all such notices are reviewed by the 
Department, any such notice furnished by a Bankruptcy Trustee/QTA will 
be subject to additional scrutiny by the Department to ensure that 
plans pay no more than reasonable compensation for Termination 
Services.\20\ At the beginning of the termination process, the 
Department conducts a review of the estimated expenses for 
reasonableness. In this regard, the Department will: Compare the QTA's 
estimated expenses to those of other QTAs; and consider also the facts 
and circumstances of the Plan in question. The Department notes that 
Plans are deemed terminated only after the Department establishes that 
the fees are reasonable.
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    \18\ The Proposed Amendment to the QTA Regulation provides that 
if an individual account plan's sponsor is in liquidation under 
chapter 7 of title 11 of the United States Code, the plan may be 
considered abandoned upon the entry of an order for relief, and the 
bankruptcy trustee, or an eligible designee, shall be the qualified 
termination administrator. See Paragraph (j)(1) of the Proposed 
Amendment to the QTA Regulation.
    \19\ See paragraph (c)(3)(iii) of the QTA Regulation.
    \20\ Paragraph (d)(2)(v) of the QTA Regulation provides, among 
other things, that expenses of plan administration shall be 
considered reasonable to the extent such expenses are consistent 
with industry rates for such or similar services.
---------------------------------------------------------------------------

    In addition, the Department notes that compliance with the QTA 
Regulation requires that each QTA file a ``Special Terminal Report for 
Abandoned Plans (STRAP)'' with the Department, and such Report must set 
forth, among other things, the total termination expenses paid by the 
plan and a separate schedule identifying each service provider and 
amount received, itemized by expense.\21\ Completed STRAPs are 
available on the Department's Web site: http://askebsa.dol.gov/AbandonedPlanSearch/UI/QTASearchResults.aspx. The Department expects 
that the information contained in these completed STRAPs, including the 
itemized fees set forth therein, will assist Bankruptcy Trustee/QTAs 
set fees for Termination Services in the manner required by section 
II(b)(1) of the proposed exemption. For further assistance regarding 
QTA participation in the abandoned plan program, Bankruptcy Trustee/
QTAs may contact the EBSA office for the region where the abandoned 
plan is located.
---------------------------------------------------------------------------

    \21\ See DOL Reg. Sec. 2520.103-13(b)(3).
---------------------------------------------------------------------------

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 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 discharge his or her duties respecting the plan solely 
in the interests of the participants and beneficiaries of the plan and 
in a prudent fashion in accordance with section 404(a)(1)(B) of the 
Act.
    (2) If granted, this proposed amendment does not extend to 
transactions prohibited under section 406(b)(3) of the Act or section 
4975(c)(1)(F) of the Code;
    (3) Before an amendment may be granted under section 408(a) of 
ERISA and 4975(c)(2) of the Code, the Department must find that the 
amendment 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 the plan;
    (4) If granted, the amendment is applicable to a particular 
transaction only if the transaction satisfies the conditions specified 
in the exemption; and
    (5) If granted, 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.

Proposed 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 part 2570, 
subpart B (55 FR 32836, 32847, August 10, 1990), the Department 
proposes to amend PTE 2006-06, effective as of the date the adopted 
amendment is published in the Federal Register. The entire exemption, 
as proposed to be amended, is set forth below:

I. Covered Transactions

    (a) 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, shall not apply to a QTA (as defined in paragraph 
(a)(1) or (a)(2) of section V) using its authority in connection with 
the termination of an abandoned individual account plan pursuant to the 
Department's regulation at 2578.1, relating to the Termination of 
Abandoned Individual Account Plans (the QTA Regulation) to:
    (1) Select itself or an affiliate to provide services to the plan;
    (2) Receive fees for the services performed as a QTA; and
    (3) Pay itself fees for services provided to the plan prior to the 
deemed termination of the plan, provided that the conditions set forth 
in sections II and IV of this exemption are satisfied.
    (b) 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, shall not apply to a QTA (as defined in paragraph 
(a)(1) or (a)(2)(ii) of section V) using its authority in connection 
with the termination of an abandoned individual account plan pursuant 
to the QTA Regulation to:
    (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

[[Page 74061]]

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;
    (2) Make the initial investment of the account balance of the 
participant or beneficiary in the QTA's or its affiliate's proprietary 
investment product;
    (3) Receive fees in connection with the establishment or 
maintenance of the individual retirement plan or other account; and
    (4) Pay itself or an affiliate investment fees as a result of the 
investment of the individual retirement plan or other account assets in 
the QTA's or its affiliate's proprietary investment product, provided 
that the conditions set forth in sections III and IV of this exemption 
are satisfied.

II. Conditions for Provision of Termination Services and Receipt of 
Fees in Connection Therewith

    (a) The requirements of the QTA Regulation are met. The QTA 
provides, in a timely manner, any other reasonably available 
information requested by the Department regarding the proposed 
termination.
    (b) Fees and expenses paid to the QTA, and its affiliate, in 
connection with the termination of the plan and the distribution of 
benefits:
    (1) Are consistent with industry rates for such or similar 
services, based on the experience of the QTA, and
    (2) Are not in excess of rates ordinarily charged by the QTA (or 
affiliate) for the same or similar services provided to customers that 
are not plans terminated pursuant to the QTA regulation, if the QTA (or 
affiliate) provides the same or similar services to such other 
customers. Notwithstanding the foregoing, solely with respect to a QTA 
described in section V(a)(2)(i) of this proposed class exemption, the 
requirement set forth in (b)(1) of this paragraph shall be deemed met 
to the extent that the fees and expenses paid to such QTA are: (i) For 
services necessary to wind-up the affairs of the plan and distribute 
benefits to the plan's participants and beneficiaries; and (ii) 
consistent with industry rates for such or similar services ordinarily 
charged by QTAs described in section V(a)(1)(i);
    (c) In the case of a transaction described in section I(a)(3):
    (1) Such services: (i) Were performed in good faith pursuant to the 
terms of a written agreement executed prior to the service provider 
becoming a QTA; or (ii) were performed pursuant to the QTA Regulation; 
and
    (2) The QTA, in the initial notification of plan abandonment 
described in section (c)(3) of the QTA Regulation: (i) Represents under 
penalty of perjury that such services were actually performed; and (ii) 
in the case of section II(c)(1)(i) above, provides the Department with 
a copy of the executed contract between the QTA and a plan fiduciary or 
the plan sponsor that authorized such services.

III. Conditions for Distributions

    (a) The conditions of the QTA Regulation are met.
    (b) In connection with the notice to participants and beneficiaries 
described in the QTA Regulation, a statement is provided explaining 
that:
    (1) If the participant or beneficiary fails to make an election 
within the 30-day period referenced in the QTA Regulation, the QTA will 
directly distribute the account balance to an individual retirement 
plan or other account offered by the QTA or its affiliate;
    (2) The proceeds of the distribution may be invested in the QTA's 
(or affiliate's) own proprietary investment product, which is designed 
to preserve principal and provide a reasonable rate of return and 
liquidity.
    (c) The individual retirement plan or other account is established 
and maintained for the exclusive benefit of the individual retirement 
plan account holder or other account holder, his or her spouse, or 
their beneficiaries.
    (d) The terms of the individual retirement plan or other account, 
including the fees and expenses for establishing and maintaining the 
individual retirement plan or other account, are no less favorable than 
those available to comparable individual retirement plans or other 
accounts established for reasons other than the receipt of a 
distribution described in the QTA Regulation.
    (e) Except in the case of a QTA providing a bank or savings account 
pursuant to section I(b)(1)(iii) of the exemption, the distribution 
proceeds are invested in an Eligible Investment Product(s), as defined 
in section V(c) of this class exemption.
    (f) The rate of return or the investment performance of the 
individual retirement plan or other account is no less favorable than 
the rate of return or investment performance of an identical 
investment(s) that could have been made at the same time by comparable 
individual retirement plans or other accounts established for reasons 
other than the receipt of a distribution described in the QTA 
Regulation.
    (g) The individual retirement plan or other account does not pay a 
sales commission in connection with the acquisition of an Eligible 
Investment Product.
    (h) The individual retirement plan account holder or other account 
holder must be able, within a reasonable period of time after his or 
her request and without penalty to the principal amount of the 
investment, to transfer his or her account balance to a different 
investment offered by the QTA or its affiliate, or to a different 
financial institution not related to the QTA or its affiliate.
    (i)(1) Fees and expenses attendant to the individual retirement 
plan or other account, including the investment of the assets of such 
plan or account, (e.g., establishment charges, maintenance fees, 
investment expenses, termination costs, and surrender charges) shall 
not exceed the fees and expenses charged by the QTA for comparable 
individual retirement plans or other accounts established for reasons 
other than the receipt of a distribution made pursuant to the QTA 
Regulation;
    (2) Fees and expenses attendant to the individual retirement plan 
or other account, with the exception of establishment charges, may be 
charged only against the income earned by the individual retirement 
plan or other account; and
    (3) Fees and expenses attendant to the individual retirement plan 
or other account are not in excess of reasonable compensation within 
the meaning of section 4975(d) (2) of the Code.

IV. Recordkeeping

    (a) The QTA maintains or causes to be maintained, for a period of 
six (6) years from the date the QTA provides notice to the Department 
of its determination of plan abandonment and its election to serve as 
the QTA described in the QTA Regulation, the records necessary to 
enable the persons described in paragraph (b) of this section to 
determine whether the applicable conditions of this exemption have been 
met. Such records must be readily available to assure accessibility by 
the persons identified in paragraph (b) of this section.
    (b) Notwithstanding any provisions of section 504(a)(2) and (b) of 
the Act, the records referred to in paragraph (a) of this section are 
unconditionally

[[Page 74062]]

available at their customary location for examination during normal 
business hours by--
    (1) Any duly authorized employee or representative of the 
Department of Labor or the Internal Revenue Service; and
    (2) Any account holder of an individual retirement plan or other 
account established pursuant to this exemption, or any duly authorized 
representative of such account holder.
    (c) A prohibited transaction will not be considered to have 
occurred if due to circumstances beyond the control of the QTA, the 
records necessary to enable the persons described in paragraph (b) to 
determine whether the conditions of the exemption have been met are 
lost or destroyed, and no party in interest other than the QTA shall be 
subject to the civil penalty that may be assessed under section 502(i) 
of the Act or to the taxes imposed by sections 4975(a) and (b) of the 
Code if the records are not maintained or are not available for 
examination as required by paragraph (b).
    (3) None of the persons described in paragraph (b)(2) of this 
section shall be authorized to examine the trade secrets of the QTA or 
its affiliates or commercial or financial information that is 
privileged or confidential.

V. Definitions

    (a) A termination administrator is ``qualified'' for purposes of 
the QTA Regulation and this proposed amendment if the requirements set 
forth in either subparagraph (1) or (2) below are met:
    (1)(i) The QTA is eligible to serve as a trustee or issuer of an 
individual retirement plan or other account, within the meaning of 
section 7701(a)(37) of the Code, and (ii) The QTA holds plan assets of 
the plan that is considered abandoned; or
    (2)(i) The QTA is a bankruptcy trustee in a liquidation proceeding 
under chapter 7 of title 11 of the United States Code with 
responsibility under 11 U.S.C 704(a)(11) to administer one or more 
individual account plans sponsored by the entity that is the subject of 
the proceeding, or (ii) The QTA is an ``eligible designee,'' as defined 
in section V(h) below, of such bankruptcy trustee.
    (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.
    (c) The term ``Eligible Investment Product'' means an investment 
product designed to preserve principal and provide a reasonable rate of 
return, whether or not such return is guaranteed, consistent with 
liquidity. For this purpose, the product must be offered by a Regulated 
Financial Institution as defined in paragraph (d) of this section and 
shall 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 or other account. Such term includes money 
market funds maintained by registered investment companies, and 
interest-bearing savings accounts and certificates of deposit of a bank 
or similar financial institution. In addition, the term includes 
``stable value products'' issued by a financial institution that are 
fully benefit-responsive to the individual retirement plan account 
holder or other account holder, i.e., that provide a liquidity 
guarantee by a financially responsible third party of principal and 
previously accrued interest for liquidations or transfers initiated by 
the individual retirement plan account holder or other account holder 
exercising his or her right to withdraw or transfer funds under the 
terms of an arrangement that does not include substantial restrictions 
to the account holder access to the individual retirement plan or other 
account's assets.
    (d) The term ``Regulated Financial Institution'' means an entity 
that: (i) Is subject to state or federal regulation, and (ii) is a bank 
or savings association, the deposits of which are insured by the 
Federal Deposit Insurance Corporation; a credit union, the member 
accounts of which are insured within the meaning of section 101(7) of 
the Federal Credit Union Act; an insurance company, the products of 
which are protected by state guaranty associations; or an investment 
company registered under the Investment Company Act of 1940.
    (e) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly controlling, controlled by, 
or under common control with, the person; or
    (2) Any officer, director, partner or employee of the person.
    (f) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (g) The term ``individual account plan'' means an individual 
account plan as that term is defined in section 3(34) of the Act.
    (h) The term ``eligible designee'' means any person or entity 
designated by a QTA described in section V(a)(2)(i) that is eligible to 
serve as a trustee or issuer of an individual retirement plan, within 
the meaning of section 7701(a)(37) of the Internal Revenue Code, and 
that holds assets of a plan described in section V(a)(2)(i).

    Signed at Washington, DC, September, 2012.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2012-29556 Filed 12-11-12; 8:45 am]
BILLING CODE 4510-29-P