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Trust Examination Manual
Appendix E Employee Benefit Law
ESOP
Requirements
Originally issued September 2, 1977 (42 FR 44393)
As revised through January 9, 1979 (44 FR 1978)
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In general -
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Type of plan. To be an "ESOP" (employee stock ownership plan), a plan
described in section 4975(e)(7)(A) must meet the
requirements of this section. See section 4975(e)(7)(B).
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Designation as ESOP. To be an ESOP, a plan must be formally designated as such
in the plan document.
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Continuing loan provisions under plan -
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Creation of protections and rights. The terms of an ESOP must formally provide
participants with certain protections and rights with respect to plan assets
acquired with the proceeds of an exempt loan. These protections and rights are
those referred to in the third sentence of 54.4975-7(b)(4), relating to
put, call, or other options and to buy-sell or similar arrangements, and in
54.4975-7(b)(10), (11), and (12), relating to put options.
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"Nonterminable" protections and rights. The terms of an ESOP must
also formally provide that these protections and rights are nonterminable.
Thus, if a plan holds or has distributed securities acquired with the proceeds
of an exempt loan and either the loan is repaid or the plan ceases to be an
ESOP, these protections and rights must continue to exist under the terms of
the plan. However, the protections and rights will not fail to be nonterminable
merely because they are not exercisable under 54.4975-7(b)(11) and (12)(ii).
For example, if, after a plan ceases to be an ESOP, securities acquired with
the proceeds of an exempt loan cease to be publicly traded, the 15-month period
prescribed by 54.4975-7(b)(11) includes the time when the securities are
publicly traded.
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No incorporation by reference of protections and rights. The formal
requirements of paragraph (a)(3)(i) and (ii) of this section must be set forth
in the plan. Mere reference to the third sentence of 54.4975-7(b)(4) and
to the provisions of 54.4975-7(b)(10), (11), and (12) is not sufficient.
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Certain remedial amendments. Notwithstanding the limits under
paragraph (a)(4) and (10) of this section on the retroactive effect of
plan amendments, a remedial plan amendment adopted before December 31,
1979, to meet the requirements of paragraph (a)(3)(i) and (ii) of this
section is retroactively effective as of the later of the date on which the
plan was designated as an ESOP or November 1, 1977.
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Retroactive amendment. A plan meets the
requirements of this section as of the date that it is designated as an ESOP if
it is amended retroactively to meet, and in fact does meet, such requirements
at any of the following times:
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12 months after the date on which the plan is designated as an ESOP;
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90 days after a determination letter is issued with respect to the
qualification of the plan as an ESOP under this section, but only if the
determination is requested by the time in paragraph (a)(4)(i) of this
section; or
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A later date approved by the district director.
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Addition to other plan. An ESOP may form a portion of a plan the balance of
which includes a qualified pension, profit-sharing, or stock bonus plan which
is not an ESOP. A reference to an ESOP includes an ESOP that forms a portion of
another plan.
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Conversion of existing plan to an ESOP. If an existing pension, profit-sharing,
or stock bonus plan is converted into an ESOP, the requirements of
section 404 of the Employee Retirement Income Security Act of 1974
(ERISA) (88 Stat. 877), relating to fiduciary duties, and section 401(a)
of the Code, relating to requirements for plans established for the exclusive
benefit of employees, apply to such conversion. A conversion may constitute a
termination of an existing plan. For definition of a termination, see the
regulations under section 411(d)(3) of the Code and section 4041(f)
of ERISA.
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Certain arrangements barred -
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Buy-sell agreements. An arrangement involving an ESOP that creates a put option
must not provide for the issuance of put options other than as provided under
54.4975-7 (b)(10), (11), and (12). Also, an ESOP must not otherwise
obligate itself to acquire securities from a particular security holder at an
indefinite time determined upon the happening of an event such as the death of
the holder.
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Integrated plans. A plan designated as an ESOP after November 1, 1977,
must not be integrated directly or indirectly with contributions or benefits
under Title II of the Social Security Act or any other State or Federal
law. ESOPs established and integrated before such date may remain integrated.
However, such plans must not be amended to increase the integration level or
the integration percentage. Such plans may in operation continue to increase
the level of integration if under the plan such increase is limited by
reference to a criterion existing apart from the plan.
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Effect of certain ESOP Provisions on
section 401(a) status -
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Exempt loan requirements. An ESOP will not fail to meet the requirements of
section 401(a)(2) merely because it gives plan assets as collateral for an
exempt loan under 54.4975-7(b)(5) or uses plan assets under
54.4975-7(b)(6) to repay an exempt loan in the event of default.
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Individual annual contribution limitation. An ESOP will not fail to meet the
requirements of section 401(a)(16) merely because annual additions under
section 415(c) are calculated with respect to employer contributions used
to repay an exempt loan rather than with respect to securities allocated to
participants.
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Income pass-through. An ESOP will not fail to meet the requirements of
section 401(a) merely because it provides for the current payment of
income under paragraph (f)(3) of this section.
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Transitional rules for ESOPs established before November 1, 1977. A plan
established before November 1, 1977, that otherwise satisfies the
provisions of this section constitutes an ESOP if it is amended by
December 31, 1977, to comply from November 1, 1977, with this section
even though before November 1, 1977, the plan did not satisfy
paragraphs (c) and (d)(2), (4), and (5) of this section.
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Additional transitional rules. Notwithstanding paragraph (a)(9) of this
section, a plan established before November 1, 1977, that otherwise
satisfies the provisions of this section constitutes an ESOP if by
December 31, 1977, it is amended to comply from November 1, 1977,
with this section even though before such date the plan did not satisfy the
following provisions of this section:
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Paragraph (a)(3) and (8)(iii);
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The last sentence of paragraph (d)(3), and
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Paragraph (f)(3). [Amended by T. D. 7571 on November 16, 1978,
43 FR 53718.]
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Plan designed to invest primarily in qualifying employer securities. A plan
constitutes an ESOP only if the plan specifically states that it is designed to
invest primarily in qualifying employer securities. Thus, a stock bonus plan or
a money purchase pension plan constituting an ESOP may invest part of its
assets in other than qualifying employer securities. Such plan will be treated
the same as other stock bonus plans or money purchase pension plans qualified
under section 401(a) with respect to those investments.
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Suspense Account. All assets acquired by an ESOP with the proceeds of an exempt
loan under section 4975(d)(3) must be
added to and maintained in a suspense account. They are to be withdrawn from
the suspense account by applying 54.4975-7(b)(8) and (15) as if all
securities in the suspense account were encumbered. Such assets acquired before
November 1, 1977, must be withdrawn by applying 54.4975-7(b)(8) or
the provision of the loan that controls release from encumbrance. Assets in
such suspense accounts are assets of the ESOP. Thus, for example, such assets
are subject to section 401(a)(2).
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Allocations to accounts of participants -
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In general. Except as provided in this section, amounts contributed to an ESOP
must be allocated as provided under 1.401-1(b)(ii) and (iii) of this
chapter, and securities acquired by an ESOP must be accounted for as provided
under 1.402(a)-1(b)(2)(ii) of this chapter.
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Assets withdrawn from suspense account. As of the end of each plan year, the
ESOP must consistently allocate to the participants' accounts non-monetary
units representing participants' interests in assets withdrawn from the
suspense account.
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Income. Income with respect to securities acquired with the proceeds of an
exempt loan must be allocated as income of the plan except to the extent that
the ESOP provides for the use of income from such securities to repay the loan.
Certain income may be distributed currently under paragraph (f)(3) of this
section.
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Forfeitures. If a portion of a participant's account is forfeited, qualifying
employer securities allocated under paragraph (d)(2) of this section must
be forfeited only after other assets. If interests in more than one class of
qualifying employer securities have been allocated to the participant's
account, the participant must be treated as forfeiting the same proportion of
each such class.
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Valuation. For purposes of 54.4975-7(b)(9)
and (12) and this section, valuations must be made in good faith and based on
all relevant factors for determining the fair market value of securities. In
the case of a transaction between a plan and a disqualified person, value must
be determined as of the date of the transaction. For all other purposes under
this subparagraph (5), value must be determined as of the most recent
valuation date under the plan. An independent appraisal will not in itself be a
good faith determination of value in the case of a transaction between a plan
and a disqualified person. However, in other cases, a determination of fair
market value based on at least an annual appraisal independently arrived at by
a person who customarily makes such appraisals and who is independent of any
party to a transaction under 54.4975-7(b)(9) and (12) will be deemed to
be a good faith determination of value. [Amended by T.D. 7571 on
November 16, 1978, 43 FR 53718.]
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Multiple plans -
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General rule. An ESOP may not be considered together with another plan for
purposes of applying section 401(a)(4) and (5) or section 410(b)
unless-
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The ESOP and such other plan exist on November 1, 1977; or
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Paragraph (e)(2) of this section is satisfied.
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Special rule for combined ESOPs. Two or more ESOPs, one or more of which does
not exist on November 1, 1977, may be considered together for purposes of
applying section 401(a)(4) and (5) or section 410(b) only if the
proportion of qualifying employer securities to total plan assets is
substantially the same for each ESOP and-
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The qualifying employer securities held by all ESOPs are all of the same class;
or
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The ratios of each class held to all such securities held is substantially the
same for each plan.
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Amended coverage, contribution, or benefit structure. For purposes of
paragraph (e)(1)(i) of this section, if the coverage, contribution, or
benefit structure of a plan that exists on November 1, 1977, is amended
after that date, as of the effective date of the amendment, the plan is no
longer considered to be a plan that exists on November 1, 1977. [Amended
by T.D. 7571 on November 16, 1978, 43 FR 53718.]
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Distribution -
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In general. Except as provided in paragraph (f)(2) and (3) of this
section, with respect to distributions, a portion of an ESOP consisting of a
stock bonus plan or a money purchase pension plan is not to be distinguished
from other such plans under section 401(a). Thus, for example, benefits
distributable from the portion of an ESOP consisting of a stock bonus plan are
distributable only in stock of the employer. Also, benefits distributable from
the money-purchase portion of the ESOP may be, but are not required to be,
distributable in qualifying employer securities.
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Exempt loan proceeds. If securities acquired with the proceeds of an exempt
loan available for distribution consist of more than one class, a distributee
must receive substantially the same proportion of each such class. However, as
indicated in paragraph (f)(1) of this section, benefits distributable from
the portion of an ESOP consisting of a stock bonus plan are distributable only
in stock of the employer.
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Income. Income paid with respect to qualifying employer securities acquired by
an ESOP in taxable years beginning after December 31, 1974, may be
distributed at any time after receipt by the plan to participants on whose
behalf such securities have been allocated. However, under an ESOP that is a
stock bonus plan, income held by the plan for a 2-year period or longer must be
distributed under the general rules described in paragraph (f)(1) of this
section. (See the last sentence of section 803(h), Tax Reform Act of
1976.) [Reg 54.4975-11 added by T. D. 7506 on August 30, 1977; amended
by T. D. 7571 on November 16, 1978, 43 FR 53718.]
Internal Revenue Service
Regulation 54.4975-12
26 C.F.R. 54.4975-12
Qualifying
Employer Security Defined
Originally Issued September 2, 1977 (42 FR 44394)
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In general. For purposes of section 4975(e)(8)
and this section, the term "qualifying employer security" means an
employer security which is -
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Stock or otherwise an equity security, or
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A bond, debenture, note, or certificate or other evidence of indebtedness which
is described in paragraphs (1), (2), and (3) of section 503(e).
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Special rule. In determining whether a bond, debenture, note, or certificate or
other evidence of indebtedness is described in paragraphs (1), (2), and
(3) of section 503(e), any organization described in section 401(a)
shall be treated as an organization subject to the provisions of
section 503. [Reg. 54.4975-12 added August 30, 1977, by T. D.
7506.]
Department of Labor
Pension and Welfare Benefits Administration Regulation
Regulation 2510.3-101
29 C.F.R. 2510.3-101.
"Plan
Assets" Defined
Originally issued November 13, 1986 (51 FR 41280)
Subsection (e) amended for a technical correction December 31, 1986
(51 FR 47226)
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In General.
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This section describes what constitute assets of a plan with respect to a
plan's investment in another entity for purposes of Subtitle A, and
Parts 1 and 4 of Subtitle 3, of Title I of the Act and
section 4975 of the Internal Revenue Code. Paragraph (a)(2)
contains a general rule relating to plan investments. Paragraphs (b)
through (f) define certain terms that are used in the application of the
general rule. Paragraph (g) describes how the rules in this section are to
be applied when a plan owns property jointly with others or where it acquires
an equity interest whose value relates solely to identified assets of an
issuer. Paragraph (h) contains special rules relating to particular kinds
of plan investments. Paragraph (i) describes the assets that a plan
acquires when it purchases certain guaranteed mortgage certificates.
Paragraph (j) contains examples illustrating the operation of this
section. The effective date of this section is set forth in paragraph (k).
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Generally, when a plan invests in another entity, the plan's assets include its
investment, but do not, solely by reason of such investment, include any of the
underlying assets of the entity. However, in the case of a plan's investment in
an equity interest of an entity that is neither a publicly-offered security nor
a security issued by an investment company registered under the Investment
Company Act of 1940 its assets include both the equity interest and an
undivided interest in each of the underlying assets of the entity, unless it is
established that -
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the entity is an operating company, or
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equity participation in the entity by benefit plan investors is not
significant.
Therefore, any person who exercises authority or control respecting the
management or disposition of such underlying assets, and any person who
provides investment advice with respect to such assets for a fee (direct or
indirect), is a fiduciary of the investing plan.
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"Equity Interests" and "Publicly-Offered Securities".
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The term "equity interest" means any interest in an entity other than
an instrument that is treated as indebtedness under applicable local law and
which has no substantial equity features. A profits interest in a partnership,
an undivided ownership interest in property and a beneficial interest in a
trust are equity interests.
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A "publicly-offered security" is a security that is freely
transferable, part of a class of securities that is widely held and either
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Part of a class of securities registered under section 12(b) or 12(g)
of the Securities Exchange Act of 1934, or
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Sold to the plan as part of an offering of securities to the public pursuant to
an effective registration statement under the Securities Act of 1933 and the
class of securities of which such security is a part is registered under the
Securities Exchange Act of 1934 within 120 days (or such later time as may
be allowed by the Securities and Exchange Commission) after the end of the
fiscal year of the issuer during which the offering of such securities to the
public occurred.
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For purposes of paragraph (b)(2), a class of securities is
"widely-held" only if it is a class of securities that is owned by
100 or more investors independent of the issuer and of one another. A class of
securities will not fail to be widely-held solely because subsequent to the
initial offering the number of independent investors falls below 100 as a
result of events beyond the control of the issuer.
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For purposes of paragraph (b)(2), whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. If a security is part of an offering in which
the minimum investment is $10,000 or less, however, the following factors
ordinarily will not, alone or in combination, affect a finding that such
securities are freely transferable -
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Any requirement that not less than a minimum number of shares or units of such
security be transferred or assigned by any investor, provided that such
requirement does not prevent transfer of all of the then remaining shares or
units held by an investor;
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Any prohibition against transfer or assignment of such security or rights in
respect thereof to an ineligible or unsuitable investor;
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Any restriction on, or prohibition against, any transfer or assignment which
would either result in a termination or reclassification of the entity for
federal or state tax purposes or which would violate any state or federal
statute, regulation, court order, judicial degree, or rule of law;
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Any requirement that reasonable transfer or administrative fees be paid in
connection with a transfer or assignment;
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Any requirement that advance notice of a transfer or assignment be given to the
entity and any requirement regarding execution of documentation evidencing such
transfer or assignment (including documentation setting forth representations
from either or both of the transferor or transferee as to compliance with any
restriction or requirement described in this paragraph (b)(4) or requiring
compliance with the entity's governing instruments);
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Any restriction on substitution of an assignee as a limited partner of a
partnership, including a general partner consent requirement, provided that the
economic benefits of ownership of the assignor may be transferred or assigned
without regard to such restriction or consent (other than compliance with any
other restriction described in this paragraph (b)(4));
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Any administrative procedure which establishes an effective date, or an event,
such as the completion of the offering, prior to which a transfer or assignment
will not be effective; and
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Any limitation or restriction on transfer or assignment which is not created or
imposed by the issuer or any person acting for or on behalf of such issuer.
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"Operating Company".
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An "operating company" is not an entity that is primarily engaged,
directly or through a majority owned subsidiary or subsidiaries, in the
production or sale of a product or service other than the investment of
capital. The term "operating company" includes an entity which is not
described in the preceding sentence, but which is a "venture capital
operating company" described in paragraph (d) or a "real estate
operating company" described in paragraph (e).
[Editorial Note: There is no subsection (c)(2).]
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"Venture Capital Operating Company".
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An entity is a "venture capital operating company" for the period
beginning on an initial valuation date described in paragraph (d)(5)(i)
and ending on the last day of the first "annual valuation period"
described in paragraph (d)(5)(ii) (in the case of an entity that is not a
venture capital operating company immediately before the determination) or for
the 12-month period following the expiration of an "annual valuation
period" described in paragraph (d)(5)(ii) (in the case of an entity
that is a venture capital operating company immediately before the
determination) if -
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On such initial valuation date, or at any time within such annual valuation
period, at least 50 percent of its assets (other than short-term
investments pending long-term commitment or distribution to investors), valued
at cost, are invested in venture capital investments described in
paragraph (d)(3)(i) or derivative investments described in
paragraph (d)(4); and
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During such 12-month period (or during the period beginning on the initial
valuation date and ending on the last day of the first annual valuation
period), the entity, in the ordinary course of its business, actually exercises
management rights of the kind described in paragraph (d)(3)(ii) with
respect to one or more of the operating companies in which it invests.
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(i)A venture capital operating company described in paragraph (d)(1) shall
continue to be treated as a venture capital operating company during the
"distribution period" described in paragraph (d)(2)(ii). An
entity shall not be treated as a venture capital operating company at any time
after the end of the distribution period.
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The "distribution period" referred to in paragraph (d)(2)(i)
begins on a date established by a venture capital operating company that occurs
after the first date on which the venture capital operating company has
distributed to investors the proceeds of at least 50 percent of the
highest amount of its investments (other than short-term investments made
pending long-term commitment or distribution to investors) outstanding at any
time from the date it commenced business (determined on the basis of the cost
of such investments) and ends on the earlier of -
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The date on which the company makes a "new portfolio investment", or
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The expiration of 10 years from the beginning of the distribution period.
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For purposes of paragraph (d)(2)(ii)(A), a "new portfolio
investment" is an investment other than -
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An investment in an entity in which the venture capital operating company had
an outstanding venture capital investment at the beginning of the distribution
period which has continued to be outstanding at all times during the
distribution period, or
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A short-term investment pending long-term commitment or distribution to
investors.
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(i) For purposes of this paragraph (d) a "venture capital
investment" is an investment in a operating company (other than a venture
capital operating company) as to which the investor has or obtains management
rights.
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The term "management rights" means contractual rights directly
between the investor and an operating company to substantially participate in,
or substantially influence the conduct of, the management of the operating
company.
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(I) An investment is a "derivative investment" for purposes of this
paragraph (d) if it is -
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A venture capital investment as to which the investor's management rights have
ceased in connection with a public offering of securities of the operating
company to which the investment relates, or
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An investment that is acquired by a venture capital operating company in the
ordinary course of its business in exchange for an existing venture capital
investment in connection with:
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A public offering of securities of the operating company to which the existing
venture capital investment relates, or
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A merger or reorganization of the operating company to which the existing
venture capital investment relates, provided that such merger or reorganization
is made for independent business reasons unrelated to extinguishing management
rights.
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An investment ceases to be a derivative investment on the later of:
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10 years from the date of the acquisition of the original venture capital
investment to which the derivative investment relates, or
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30 months from the date on which the investment becomes a derivative
investment.
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For purposes of this paragraph (d) and paragraph (e) -
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An "initial valuation date" is the later of -
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Any date designated by the company within the 12-month period ending with the
effective date of this section, or
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The first date on which an entity makes an investment that is not a short-term
investment of funds pending long-term commitment.
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An "annual valuation period" is a pre-established annual period, not
exceeding 90 days in duration, which begins no later than the anniversary
of an entity's initial valuation date. An annual valuation period, once
established may not be changed except for good cause unrelated to a
determination under this paragraph (d) or paragraph (e).
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"Real Estate Operating Company". An entity is a "real estate
operating company" for the period beginning on an initial valuation date
described in paragraph (d)(5)(i) and ending on the last day of the first
"annual valuation period" described in paragraph (d)(5)(ii) (in
the case of an entity that is not a real estate operating company immediately
before the determination) or for the 12-month period following the expiration
of an annual valuation period described in paragraph (d)(5)(ii) (in the
case of an entity that is a real estate operating company immediately before
the determination) if:
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On such initial valuation date, or on any date within such annual valuation
period, at least 50 percent of its assets, valued at cost (other than
short-term investments pending long-term commitment or distribution to
investors), are invested in real estate which is managed or developed and with
respect to which such entity has the right to substantially participate
directly in the management or development activities; and
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During such 12-month period (or during the period beginning on the initial
valuation date and ending on the last day of the first annual valuation period)
such entity in the ordinary course of its business is engaged directly in real
estate management or development activities.
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Participation by Benefit Plan Investors.
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Equity participation in an entity by benefit plan investors is
"significant" on any date if, immediately after the most recent
acquisition of any equity interest in the entity, 25 percent or more of
the value of any class of equity interests in the entity is held by benefit
plan investors (as defined in paragraph (f)(2)). For purposes of
determinations pursuant to this paragraph (f), the value of any equity
interests held by a person (other than a benefit plan investor) who has
discretionary authority or control with respect to the assets of the entity or
any person who provides investment advice for a fee (direct or indirect) with
respect to such assets, or any affiliate of such a person, shall be
disregarded.
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A "benefit plan investor" is any of the following -
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Any employee benefit plan (as defined in section 3(3)
of the Act), whether or not it is subject to the provisions of
Title I of the Act,
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Any plan described in section 4975(e)(1) of the Internal
Rev. Code,
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Any entity whose underlying assets include plan assets by reason of a plan's
investment in the entity.
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An "affiliate" of a person includes any person, directly or
indirectly, through one or more intermediaries, controlling, controlled by, or
under common control with the person. For purposes of this
paragraph (f)(3), "control", with respect to a person other than
an individual, means the power to exercise a controlling influence over the
management or policies of such person.
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Joint Ownership. For purposes of this section, where a plan jointly owns
property with others, or where the value of a plan's equity interest in an
entity relates solely to identified property of the entity, such property shall
be treated as the sole property of a separate entity.
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Specific Rules Relating to Plan Investment. Notwithstanding any other provision
of this section-
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Except where the entity is an investment company registered under the
Investment Company Act of 1940, when a plan acquires or holds an interest in
any of the following entities its assets include its investment and an
undivided interest in each of the underlying assets of the entity:
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A group trust which is exempt from taxation under section 501(a) of the
Internal Revenue Code pursuant to the principles of
Rev. Rul. 81-100, 1981-1 C.B. 326,
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A common or collective trust fund of a bank,
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A separate account of an insurance company, other than a separate account that
is maintained solely in connection with fixed contractual obligations of the
insurance company under which the amounts payable, or credited, to the plan and
to any participant or beneficiary of the plan (including an annuitant) are not
affected in any manner by the investment performance of the separate account.
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When a plan acquires or holds an interest in any entity (other than an
insurance company licensed to do business in a State) which is established or
maintained for the purpose of offering or providing any benefit described in
section 3(1) or section 3(2) of the Act
to participants or beneficiaries of the investing plan, its assets will include
its investment and an undivided interest in the underlying assets of that
entity.
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When a plan or a related group of plans owns all of the outstanding equity
interests (other than director's qualifying shares) in an entity, its assets
include those equity interests and all of the underlying assets of the entity.
This paragraph (h)(3) does not apply, however, where all of the
outstanding equity interests in an entity are qualifying employer securities
described in section 407(d)(5) of
the Act, owned by one or more eligible individual account plan(s) (as
defined in section 407(d)(3)
of the Act) maintained by the same employer, provided that substantially all of
the participants in the plan(s) are, or have been, employed by the issuer of
such securities or by members of a group of affiliated corporations (as
determined under section 407(d)(7) of the Act)
of which the issuer is a member.
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For purposes of paragraph (h)(3), a "related group" of employee
benefit plans consists of every group of two or more employee benefit plans
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Each of which receives 10 percent or more of its aggregate contributions
from the same employer or from members of the same controlled group of
corporations (as determined under section 1563(a) of the Internal Revenue
Code, without regard to section 1563(a)(4) thereof); or
-
Each of which is either maintained by, or maintained pursuant to a collective
bargaining agreement negotiated by, the same employee organization or
affiliated employee organizations. For purposes of this paragraph, an
"affiliate" of an employee organization means any person controlling,
controlled by, or under common control with such organization, and includes any
organization chartered by the same parent body, or governed by the same
constitution and bylaws, or having the relation of parent and subordinate.
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Governmental Mortgage Pools.
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Where a plan acquires a guaranteed governmental mortgage pool certificate, as
defined in paragraph (i)(2), the plan's assets include the certificate and
all of its rights with respect to such certificate under applicable law, but do
not, solely by reason of the plan's holding of such certificate, include any of
the mortgages underlying such certificate.
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A "guaranteed governmental mortgage pool certificate" is a
certificate backed by, or evidencing an interest in, specified mortgages or
participation interests therein and with respect to which interest and
principal payable pursuant to the certificate is guaranteed by the United
States or an agency or instrumentality thereof. The term "guaranteed
governmental mortgage pool certificate" includes a mortgage pool
certificate with respect to which interest and principal payable pursuant to
the certificate is guaranteed by:
-
The Government National Mortgage Association;
-
The Federal Home Loan Mortgage Corporation; or
-
The Federal National Mortgage Association.
-
Examples. [NOTE: Subsection (j) of the regulation is omitted.]
-
Effective Date and Transitional Rules.
-
In general, this section is effective for purposes of identifying the assets of
a plan or after March 13, 1987. Except as a defense, this section shall
not apply to investments in an entity in existence on March 13, 1987, if
no plan subject to Title I of the Act or plan described in section 4975(e)(1)
of the Code (other than a plan described in section 4975(g)(2)
or 4975(g)(3)) acquires an interest in the entity from an issuer
or underwriter at any time on or after March 13, 1987 except pursuant to a
contract binding on the plan in effect on March 13, 1987 with an issuer or
underwriter to acquire an interest in the entity.
-
Notwithstanding paragraph (k)(1), this section shall not, except as a
defense, apply to a real estate entity described in section 11018(a) of
Pub. L. 99-272.
Department of Labor
Regulation 2520.103-5
29 C.F.R. 2520.103-5
Transmittal and certification of information to plan administrator
for annual reporting purposes
(Collective
Investment Fund Reporting to Plan Administrators)
Originally issued September 10, 1978 (43 FR 10140)
-
General. In accordance with section 103(a)(2) of the Act, an insurance
carrier or other organization which provides benefits under the plan or holds
plan assets, a bank or similar institution which holds plan assets, or a plan
sponsor, shall transmit and certify such information as needed by the
administrator to file the annual report under section 104(a)(1)(A) of the
Act and 2520.104a-5 or 2520.104a-6:
-
Within 9 months after the close of the plan year which begins in 1975 or
September 30, 1976, whichever is later, and
-
Within 120 days after the close of any plan year which begins after
December 31, 1975.
-
Application. This requirement applies with respect to -
-
An insurance carrier or other organization which:
-
Provides from its general asset accounting funds for the payment of benefits
under a plan, or
-
Holds assets of a plan in a separate account;
-
A bank, trust company, or similar institution which holds assets of a plan in a
common or collective trust, separate trust, or custodial account; and
-
A plan sponsor as defined in section 3(16)(B)
of the Act.
-
Contents. The information required to be provided to the administrator shall
include -
-
In the case of an insurance carrier or other organization which -
-
Provides funds from its general asset account for the payment of benefits under
a plan, upon request of the plan administrator, such information as is
contained within the ordinary business records of the insurance carrier or
other organization and is needed by the plan administrator to comply with the
requirements of section 104(a)(1)(A) of the Act and 2520.104a-5
or 2520.104a-6;
-
Holds assets of a plan in a pooled separate account which is exempted from
certain reporting requirements under 2520.103-4, a copy of the annual
statement of assets and liabilities of the separate account for the fiscal year
of such account that ends with or within the plan year for which the annual
report is made, and a statement of the value of the plan's units of
participation in the separate account;
-
Holds assets of a plan in a separate account which is not exempted from certain
reporting requirements under 2520.103-4, a listing of all transactions of
the separate account and, upon request of the plan administrator, such
information as is contained within the ordinary business records of the
insurance carrier and is needed by the plan administrator to comply with the
requirements of section 104(a)(1)(A) of the Act and 2520.104a-5
or 2520.104a-6.
-
In the case of a bank, trust company, or similar institution holding assets of
a plan -
-
In a common or collective trust which is exempted from certain reporting
requirements under 2520.103-3, a copy of the annual statement of assets
and liabilities of the common or collective trust for the fiscal year of such
trust that ends with or within the plan year for which the annual report is
made, and a statement of the value of the plan's units of participation in the
common or collective trust.
-
In a trust which is not exempted from certain reporting requirements
under 2520.103-3, a listing of all transactions of the separate trust and,
upon request of the plan administrator, such information as is contained within
the ordinary business records of the bank, trust company, or similar
institution and is needed by the plan administrator to comply with the
requirements of section 104(a)(1)(A) of the Act and 2520.104a-5.
-
In a custodial account, upon request of the plan administrator, such
information as is contained within the ordinary business records of the bank,
trust company, or similar institution and is needed by the plan administrator
to comply with the requirements of section 104(a)(1)(A) of the Act
and 2520.104a-5 or 2520.104a-6.
-
In the case of a plan sponsor, a listing of all transactions directly or
indirectly involving plan assets engaged in by the plan sponsor and such
information as is needed by the plan administrator to comply with the
requirements of section 104(a)(1)(A) of the Act and 2520.104a-5
or 2520.104a-6.
-
Certification.
-
An insurance carrier or other organization a bank, trust company, or similar
institution, or plan sponsor, as described in paragraph (b) of this
section, shall certify to the accuracy and completeness of the information
described in paragraph (c) of this section by a written declaration which
is signed by a person authorized to represent the insurance carrier, bank, or
plan sponsor. Such certification will serve as a written assurance of the truth
of the facts stated therein.
-
Example of Certification. The XYZ Bank (Insurance Carrier) hereby certifies
that the foregoing statement furnished pursuant to
20 C.F.R. 2520.103-5(c) is complete and accurate.
Department of Labor
Regulation 2550.404a-1
C.F.R. 2550.404a-1
Investment
Duties (Prudence Regulation)
Originally issued June 26, 1979 (44 FR 37225)
The technical corrections of 4-4-78 and the amendment of 3-1-89
contained no changes to this regulation.
Recap |
Defines and explains the application of the Prudent
Man Rule in ERISA Section 404(a)(1)(B). |
The Preamble to the Final Regulation is included to
assist examiners in interpreting and applying this Rule. |
Editor's Note: Also refer to Interpretive
Bulletin 94-1, dealing with the prudence of social
("economically targeted" or ETI) investments. Also see
DOL ERISA Regulation 404c-1, which exempts fiduciaries from
certain ERISA liability if plans meet certain conditions and participants
direct their own investments.
Agency: Department of Labor.
Action: Final regulation.
Summary: This document contains a final regulation relating to the investment
duties of a fiduciary of an employee benefit plan under the Employee Retirement
Income Security Act of 1974 (the Act). The regulation is relevant to the
investment of assets of employee benefit plans for which fiduciaries have
investment duties, and, therefore, it affects participants, beneficiaries and
fiduciaries of all such plans.
Effective Date: July 23, 1979.
Final Regulation
-
In General. Section 404(a)(1)(B)
of the Employee Retirement Income Security Act of 1974
(the Act) provides, in part, that a fiduciary shall discharge his duties with
respect to a plan with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims.
-
Investment Duties.
-
With regard to an investment or investment course of action taken by a
fiduciary of an employee benefit plan pursuant to his investment duties, the
requirements of Section 404(a)(1)(B) of the
Act set forth in subsection (a) of this section are satisfied
if the fiduciary (A) has given appropriate consideration to those facts and
circumstances that, given the scope of such fiduciary's investment duties, the
fiduciary knows or should know are relevant to the particular investment or
investment course of action involved, including the role the investment or
investment course of action plays in that portion of the plan's investment
portfolio with respect to which the fiduciary has investment duties; and
(B) has acted accordingly.
-
For purpose of paragraph (1) of
this subsection, "appropriate consideration" shall include, but is
not necessarily limited to:
-
A determination by the fiduciary that the particular investment course of
action is reasonably designed, as part of the portfolio (or, where applicable,
that portion of the plan portfolio with respect to which the fiduciary has
investment duties), to further the purposes of the plan, taking into
consideration the risk of loss and the opportunity for gain (or other return)
associated with the investment or investment course of action, and
-
Consideration of the following factors as they relate to such portion of the
portfolio:
-
The composition of the portfolio with regard to diversification;
-
The liquidity and current rates of return of the portfolio relative to the
anticipated cash flow requirements of the plan, and
-
The projected return of the portfolio relative to the funding objectives of the
plan.
-
An investment manager appointed, pursuant to the provisions of
Section 402(c)(3) of the Act, to manage all or part of the assets
of a plan, may, for purposes of compliance with the provisions of
paragraphs (1) and (2) of this subsection, rely on, and act upon the basis
of, information pertaining to the plan provided by or at the direction of the
appointing fiduciary, if -
-
Such information is provided for the stated purpose of assisting the manager in
the performance of his investment duties, and
-
The manager does not know and has no reason to know that the information is
incorrect.
-
Definitions.
For purposes of this section:
-
The term "investment duties" means any duties imposed upon, or
assumed or undertaken by, a person in connection with the investment of plan
assets which make or will make such person a fiduciary of an employee benefit
plan or which are performed by such person as a fiduciary of an employee
benefit plan as defined in Section 3(21)(A)(i)
or (ii) of the Act.
-
The term "investment course of action" means any series or
program of investments or actions related to a fiduciary's performance of his
investment duties.
-
The term "plan" means an employee benefit plan to which Title
I of the Act applies.
For further information contact: Paul R. Antsen, Office of Fiduciary
Standards, Pension and Welfare Benefit Programs, U.S. Department of Labor,
Washington, D.C. 20216, (202) 522-8971, or Gregor B. McCurdy, Plan Benefits
Security Division, Office of the Solicitor, U.S. Department of Labor,
Washington, D.C. 20216. (202) 523-9141.
Supplemantary information: On April 25, 1978, notice was published in the
Federal Register (43 FR 17480)1 that the Department had under
consideration a proposal to adopt a regulation, 29 C.F.R. 2550.404a-1, under
section 404(a)(1)(B) of the Act, relating to the investment duties of a
fiduciary of an employee benefit plan. Section
404(a)(1)(B) of the Act provides, in part, that a fiduciary shall
discharge his duties with respect to an employee benefit plan with the care,
skill, prudence, and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use
in the conduct of an enterprise of a like character and with like aims (the
"Prudence" rule).2
Public comments were received, in response to the proposal, that generally
supported the tentative views of the Department reflected therein, although
many suggestions for specific revisions were offered. A few comments opposed
the adoption of the proposed or of any, regulation concerning these matters.
Among the reasons given in opposition to the adoption of the proposed
regulation were: (1) that the courts, rather than the Department, should
determine how the "prudence" rule is to be interpreted, (2) that
the Department's views regarding the requirements of the "Prudence"
rule, as reflected in the proposed regulation, are incorrect, (3) that it
is impractical to attempt to define "prudence" by regulation; and
(4) that the proposal did not accomplish its stated objectives. The
Department has considered the comments opposing adoption of the regulation, but
has not been persuaded that the interpretation of the requirements of the
"prudence" rule set forth below is incorrect. It believes, moreover,
that adoption of a regulation concerning the investment duties of fiduciaries
under the "prudence" rule is appropriate because such a regulation
would provide guidance for many plan fiduciaries in an important area of their
responsibilities under the Act.
Counsel for one group of interested persons, while supporting the proposed
regulation in principle, asked that they be given an opportunity to express
their views at a public hearing on the proposed regulation. They also suggested
that the regulation should, in any event, be republished to give interested
persons additional opportunity for comment. The Department has considered these
requests, but has determined that neither a public hearing nor republication of
a proposed regulation is necessary or appropriate.
Accordingly, after consideration of all the written comments received, the
Department has determined to adopt the proposed regulation as modified and set
forth below.
Discussion of the regulation
The legislative history of the Act indicates that the common law of trusts,
which forms the basis for and is federalized and codified in part 4 of
Title I of the Act, should, nevertheless, not be mechanically applied to
employee benefit plans.3 The "prudence" rule in the Act
sets forth a standard built upon, but that should and does depart from,
traditional trust law in certain respects.
The Department is of the opinion that (1) generally, the relative riskiness
of a specific investment or investment course of action does not render such
investment or investment course of action either per se prudent or per se
imprudent, and (2) the prudence of an investment decision should not be
judged without regard to the role that the proposed investment or investment
course of action plays with the overall plan portfolio. Thus, although
securities Issued by a small or new company may be a riskier investment than
securities issued by a "blue chip" company, the investment in the
former company may be entirely proper under the Act's prudence" rule.
Accordingly, paragraph (b)(1) of the regulation, as adopted, provides generally
that, with respect to an investment or investment course of action taken
pursuant to a fiduciary's investment duties, the requirements of the
"prudence" rule have been satisfied if the fiduciary has acted in a
manner consistent with appropriate consideration of the facts and circumstances
that the fiduciary knows or should know are relevant, including the role that
the investment or investment course of action plays in that portion of the
plan's investment portfolio with respect to which the fiduciary has investment
duties. Paragraph (b), as adopted, has been modified in response to certain
comments received on the regulation as originally proposed.
As a general observation, the comments received by the Department indicated that
many commentators were uncertain of the scope of the proposed regulation. In
particular, some commentators appear to have viewed the various factors and
conditions set forth in the proposal as a statement of requirements that must
necessarily be met in order to satisfy the requirements of the
"Prudence" rule. In this regard, it should be noted that the
regulation reflects the views of the Department as to a manner of satisfying
the requirements of the "prudence" rule, and does not purport to
impose any additional requirements or constraints upon plan fiduciaries. It
should also be noted that the Department does not view compliance with the
provisions of the regulation as necessarily constituting the exclusive method
for satisfying the requirements of the "prudence" rule. Rather, the
regulation is in the nature of a "safe harbor" provision; it is the
opinion of the Department that fiduciaries who comply with the provisions of
the regulation will have satisfied the requirements of the "prudence"
rule, but no opinion is expressed in the regulation as to the status of
activities undertaken or performed that do not so comply.
With regard to more particular matters, a number of comments suggested that one
condition of the proposal - that a fiduciary give appropriate
consideration to "all" relevant facts and circumstance - could
be read as establishing an impossible standard, especially for fiduciaries of
small plans, because (1) no fiduciary has unlimited resources to develop
all the information that one might deem to be relevant to a particular
investment decision, and (2) no fiduciary can be expected to consider all
the relevant facts and circumstances, whether or not of material significance.
Because section 404(a)(1)(B) of the Act provides
that it is the fiduciary's duties with respect to the plan which must be
discharged in accordance with the "prudence" rule, it appears to the
Department that the scope of those duties will determine, in part, the factors
which should be considered by a plan fiduciary in a given case. The nature of
those duties will, of course, depend on the facts and circumstances of the
case, including the nature of the arrangement between the fiduciary and the
plan. For that reason, the regulation, as adopted, does not distinguish among
classes of fiduciaries with respect to what particular duties may be involved.
The Department recognizes, however, that a fiduciary should be required neither
to expend unreasonable effort in discharging his duties. nor to consider
matters outside the scope of those duties. Accordingly, the regulation has been
modified to provide that consideration be given to those facts and
circumstances which take into account the scope of his investment duties, the
fiduciary knows or should know are relevant to the particular investment
decision involved. The scope of the fiduciary's inquiry in this respect,
therefore, is limited to those facts and circumstances that a prudent person
having similar duties and familiar with such matters would consider relevant.
Several commentators asserted that the regulation, in recognition of the Act's
provisions permitting delegation of investment duties to, and allocation among,
several fiduciaries, should permit a fiduciary who is responsible for the
management of plan assets to rely on information supplied by appropriate other
plan fiduciaries, and to act in accordance with policies and instructions
supplied by those persons in making decisions on the investment of plan assets.
Those comments, generally, addressed the situation where several investment
managers are involved in managing the assets of a plan, each being responsible
for a portion of the plan's investment portfolio.4 Under those
circumstances, it would not, in the view of the commentators, be appropriate to
require a fiduciary who is responsible for only a portion of the plan's
portfolio to take into consideration facts and circumstances relating to the
balance of the portfolio in making an investment decision. The Department
agrees, in part, with those comments. Accordingly, paragraph (b)(1) of the
regulation as adopted also provides that such a fiduciary need give appropriate
consideration to the role the proposed investment or investment course of
action plays in that portion only, of the plan's investment portfolio, with
respect to which the fiduciary has investment duties.
However, the Department cannot state that, under the foregoing circumstances, a
fiduciary is entitled blindly to rely upon instructions or policies established
by other plan fiduciaries. Similarly, the regulation does not provide, as
requested by one commentator, that the assets of a pooled investment fund may
be invested in accordance with its published investment objectives and policies
without requiring that consideration be given to the particular needs of any
individual plan that has an interest in the fund. It would appear that where
authority to manage part (or all) of the assets of a plan has been delegated to
one or more investment managers pursuant to section
402(c)(3) of the Act, the primary responsibility for determining that
the delegation is appropriate rests with the named fiduciary or fiduciaries
effecting the delegation. Nevertheless, the Department considers that each such
manager's investment duties, under section
404(a)(1)(B) of the Act, includes (among other things) a duty not to
act in accordance with a delegation of plan investment duties to the extent
that the manager either knows or should know that the delegation involves a
breach of fiduciary responsibility.5 Once the manager has considered
factors otherwise necessary to assure himself that the delegation of investment
authority and related specific instructions are appropriate, he may, in
exercising such authority and carrying out such instructions, rely upon
information provided to him in accordance with the provisions of new
paragraph (b)(3) of the regulation. That paragraph provides that an
investment manager responsible for the management of all or part of a plan's
assets pursuant to an appointment described in section
402(c)(3) of the Act may, for purposes o f complying with the
provisions of the regulation, rely upon certain information supplied to him by
or at the direction of the appointing fiduciary, provided that the manager
neither knows or should know that the information is incorrect.
Paragraph (b)(1) of the proposed regulation also been revised in order to make
clear that the fiduciary's acts do not satisfy the "prudence" rule
solely because the fiduciary had previously given consideration to relevant
facts and circumstances. Some comments questioned whether, under the regulation
as originally proposed, a fiduciary might be deemed to be "immunized"
once he had given such consideration, not withstanding the nature of his
subsequent acts. The regulation, as adopted, provides that it is the
"investment" or "investment course of action" in question
that will satisfy the requirements of the prudence rule if the criteria set
forth in the regulation are met.
Paragraph (b)(2) of the regulation sets forth factors that are to be included,
to the extent applicable, in an evaluation of an investment or investment
course of action if a fiduciary wishes to rely on the provisions of the
regulation. They are: (1) the composition of the portfolio with regard to
diversification; (2) the liquidity and current return of the portfolio
relative to the anticipated cash flow requirements of the plan; and
(3) the projected return of the portfolio relative to the objectives of
the plan. These factors are adopted substantially as proposed, except that the
first factor has been revised, in response to questions raised by some of the
comments, to make clear that the word "diversification" is to be
given its customary meaning as a mechanism for reducing the risk of large
losses; that factor, as originally proposed, referred to "diversification
of risk." The second factor has also been modified in order to make clear
that its principal subject matter is all anticipated cash requirements of the
plan, and not solely those arising by reason of payment of benefits. A fourth
factor set forth in the proposal which related to the "volatility" of
the portfolio, has been eliminated as a factor specifically to be considered
because, although paragraph (b)(2) as adopted sets forth factors which
must be considered in all cases in order to comply with the provisions of the
regulation6, the reference to volatility may be read, according to
some comments, as suggesting that only certain portfolio management techniques
are appropriate. Moreover, as discussed more fully below, the subject of risk
and opportunity for gain - which subsumes consideration of
"volatility" in some respects - is now addressed in
subparagraph (A) of paragraph (b)(2). A former fifth factor, which
read "the prevailing and projected economic conditions of the entities in
which the plan has invested and proposes to invest," is also deal t with
in that subparagraph.
Several commentators suggested that inclusion of that fifth factor in the
regulation would be contrary to the intent of the proposal because it focuses
attention on the individual investment, rather than on the aggregate plan
portfolio. Others objected to its inclusion on the ground that it is
antithetical to the theory of operation of certain "passive"
investment media (such as "index" funds) that acquire portfolios
designed to match the performance of various investment indices and that,
accordingly, have little or no discretion in altering the composition of their
portfolios.7
The regulation, however, is not intended to suggest either that any
relevant or material attributes of a contemplated investment may properly be
ignored or disregarded, or that a particular plan investment should be deemed
to be prudent solely by reason of the propriety of the aggregate risk/return
characteristics of the plan's portfolio. Rather, it is the Department's view
that an investment reasonably designed - as a part of the portfolio -
to further the purposes of the plan, and that is made upon appropriate
consideration of the surrounding facts and circumstances, should not be deemed
to be imprudent merely because the investment, standing alone, would have, for
example, a relatively high degree of risk. The Department also believes that
appropriate consideration of an investment to further the purposes of the plan
must include consideration of the characteristics of the investment itself.
Accordingly, paragraph (b)(2) of the regulation provides that, for
purposes of paragraph (b)(1), "appropriate consideration" shall
include a determination by the fiduciary that the particular investment or
investment course of action is reasonably designed, as part of the portfolio
for which the fiduciary is responsible, to further the purposes of the plan,
taking into account the risk of loss and the opportunity for gain (or other
return) associated with the investment or investment course of action.8
In the case of "passive" investment funds, referred to above, it
would seem that, to the extent the fund manager is managing plan assets,9
the investments made by the fund, as well as the plan's investment in the fund,
must meet the requirements of the "prudence" rule. However, to the
extent that an index fund, including the screen or filter process described
above at note 7, is reasonably designed to fulfill the fund manager's
fiduciary obligations with respect to a plan whose assets are managed therein,
such manager, acting in accordance with the fund's objective and its filter or
screen process, generally would be in compliance with the provisions of the
"prudence" rule, as described in the regulation, with respect to that
plan.
The terms "investment duties" and "investment course of
action" are defined in paragraphs (c)(1) and (2) of the
regulation. No comments were received regarding these definitions, and they
have been adopted substantially in the form proposed. New paragraph (c)(3)
has been added, defining the term "plan" to mean an employee benefit
plan to which Title I of the Act applies.
Discussion of certain other comments
Counsel for one group of commentators characterized the factors set forth in
paragraph (b)(2) as relating solely to the "investment merit" of
a particular investment or investment course of action. Because, in the view of
those commentators, the prudence of the acquisition or retention of a contract
Issued by an insurance company may involve factors besides "investment
merit", they suggested that the regulation should contain a separate
provision that would set forth two factors to be considered by a fiduciary, in
evaluating the prudence of the acquisition or retention of such a contract: the
risks assumed, and the services provided, by the insurance company. The
Department is unable to concur with the commentators' view that the regulation
as proposed dealt only with matters of "investment merit" as narrowly
perceived in the comment. The Department agrees that such factors as the risk
to be assumed and the services to be provided under a contract are pertinent to
any investment decision involving such contract. The regulation as adopted
specifically provides that, in order to come within the scope of the
regulation, a fiduciary shall consider the facts and circumstances the
fiduciary knows or should know are relevant to the investment decision, and
that the factors set forth in paragraph (b)(2) are not intended to be
exclusive. Accordingly, the Department believes that it is unnecessary to set
forth additional factors with respect to insurance contracts or other specific
types of investment.
Two commentators suggested that the Department clarify that the adoption of the
regulation would not result in fiduciaries being required to invest in
expensive systems or analyses to make investment decisions. Under the
"prudence" rule, the standard to which a fiduciary is held in the
proper discharge of his investment duties is defined, in part, by what a
prudent person acting in a like capacity and familiar with such matters would
do. Thus, for example, it would not seem necessary for a fiduciary of a plan
with assets of $50,000 to employ, in all respects, the same investment
management techniques as would a fiduciary of a plan with assets of
$50,000,000.
Numerous comments were received with respect to the factors set forth in
paragraph (b)(2). Several persons requested that the Department clarify or
define terms such as "diversification of risk". "risk,"
"volatility" and "liquidity." For example, some persons
asked what specific measurements of volatility, risk and liquidity should be
utilized by fiduciaries in making investment decisions for a plan. The
Department believes that, in view of the modifications (discussed above) made
in the regulation as adopted, it is neither necessary nor appropriate for the
regulation to contain such definitions. Several commentators asserted that
certain specific types of investments such as, for example, investment in small
or recently formed companies, or nonincome producing investments that are not
securities (such as, for example, certain precious metals and objects of art)
have not been viewed with favor, traditionally, as trust investments. Those
comments urged that the regulation specify the extent to which such investments
are permissible under the "prudence" rule. Other commentators made
reference to the traditional principle that trust investments should be income
producing, and suggested that the appropriate measure of investment
"return" should be defined to mean 'total return" - that
is, an aggregate return computed without regard to whether a contributing
factor thereto consists of income or capital items. Although the Department
considers that defining "return" would be beyond the appropriate
scope of this regulation, it believes that the "prudence" rule does
not require that every plan investment produce current income under all
circumstances. As indicated above and in the preamble to the proposed
regulation, the Department believes that the universe of investments
permissible under the "prudence" rule is not necessarily limited to
those permitted at common law.
However, the Department does not consider it appropriate to include in the
regulation any list of investments, classes of investment, or investment
techniques that might be permissible under the "prudence" rule. No
such list could be complete; moreover, the Department does not intend to create
or suggest a "legal list" of investments for plan fiduciaries.
The preamble to the proposed regulation stated (as does this preamble) that the
risk level of an investment does not alone make the investment per se prudent
or per se imprudent. Comments were received which asserted that such
proposition is inappropriate and would promote irresponsibility on the part of
plan fiduciaries. Other commentators not only agreed with the proposition, but
also suggested that it should be incorporated in the regulation. The Department
believes that both of these concerns are addressed by the modifications,
discussed above, made to paragraph (b)(2) of the regulation as adopted.
The Department has determined that this regulation is not a "significant
regulation" as defined in the Department's guidelines
(44 FR 5570, January 26, 1979) implementing Executive
Order 12044.
Statutory Authority
The regulation set forth below is adopted pursuant to the authority contained in
section 505 of the Act (Pub. L. 93-406, 88 Stat. 894
(29 USC 1135)). Although the regulation is an
"interpretative rule" within the meaning of
5 USC 553(d), the effective date of the regulation is
July 23, 1979, consistent with the statement of the Department, in
connection with the regulation as proposed. that such regulation would be
effective 30 days after its adoption.
Final Regulation
Accordingly, Part 2550 of Chapter XXV of Title 29 of the Code of Federal)
Regulations is amended by inserting in the appropriate place to read
2550.404a-1.
Signed at Washington, D.C, this 20th day of June 1979.
Ian D. Lanoff, Administrator
Pension and Welfare Benefit Programs
Labor-Management Services Administration
United States Department of Labor
- Footnotes -
-
See also 43 FR 27208 (June 23, 1978), in which notice was given of an extension
of the original comment period.
-
The regulation pertains only to the investment duties of a fiduciary of an
employee benefit plan. Section 404(a)(1)(B)
of the Act, however, requires that a fiduciary discharge all of his
duties in accordance with the "prudence" rule.
-
It should also be noted that although the proposed regulation made reference to
an additional requirement of section 404(a)(1) -
that the fiduciary discharge his duties solely in the interest of plan
participants and beneficiaries - that reference has been deleted from the
regulation as adopted. This was done to avoid suggesting that satisfaction of
the "prudence" rule with respect to an investment or investment
course of action necessarily implies satisfaction of that additional
requirement.
-
See, e.g., H.R. Rep. No. 1280, 93d Cong.,
2d Sess. 302 (1974).
-
See sections 403(a)(2) and
402(c)(3) of the Act.
-
Further, section 405(a) of the Act
provides, in part, that a plan fiduciary shall be liable for a breach of
fiduciary liability of another fiduciary with respect to the same plan if,
among other things, he has knowledge of such a breach and does not make
reasonable efforts to remedy it, or he has enabled such other fiduciary to
commit a breach by his failure to comply with the requirements of
section 404(a)(1) of the Act in the administration of his specific
responsibilities which give rise to his status as a fiduciary.
-
Paragraph (b)(2) of the regulation, as proposed, stated that the factors which
should be considered may include those listed. In order to reduce uncertainty,
reflected in the comments, regarding the application of the regulation, and in
view of the fact that the regulation is in the nature of a "safe
harbor" provision, paragraph (b)(2) has been restructured so as to
indicate the factors which should under all circumstances be considered by any
fiduciary who wishes to rely on the provisions of the rule.
-
It should be noted that index funds typically include a screen or filter
process by which portfolio investments for any such fund may be changed to
reflect significant adverse financial developments affecting any potential or
existing portfolio company, notwithstanding the continued inclusion of the
company in the index against which the fund is measured.
-
The term "risk" is used here in its ordinary sense, and refers to any
and all types of risk applicable to a particular investment or investment
course of action.
-
See, e.g., section 401(b) of the Act.
Department of Labor
Regulation 2550.404b-1
29 C.F.R. 2550.404b-1
Indicia
of Ownership
Originally issued October 4, 1977 (42 FR 54124)
Amended January 6, 1981 (46 FR 1267)
ERISA 404(b)
requires that plan assets be maintained within the jurisdiction of US District
Courts. With the advent of international investments, this is often
impractical. This regulation provides a means to keep investments at certain
types of non-US custodians. A special provision deals with Canada. |
-
No fiduciary may maintain the indicia of ownership of any assets of a plan
outside the jurisdiction of the district courts of the United States, unless:
-
Such assets are:
-
Securities issued by a person, as defined in section 3(9)
of the Employee Retirement Income Security Act of 1974 (Act) (other than an
individual), which is not organized under the laws of the United States or a
State and does not have its principal place of business within the United
States,
-
Securities issued by a government other than the government of the United
States or of a State, or any political subdivision, agency or instrumentality
of such a government,
-
Securities issued by a person, as defined in section 3(9)
of the Act (other than an individual), the principal trading market for
which securities is outside the jurisdiction of the district courts of the
United States, or
-
Currency issued by a government other than the government of the United States
if such currency is maintained outside the jurisdiction of the district courts
of the United States solely as an incident to the purchase, sale or maintenance
of securities described in paragraph (a)(1) of this section; and
-
(i) Such assets are under the management and control of a fiduciary which is a
corporation or partnership organized under the laws of the United States or a
State, which fiduciary has its principal place of business within the United
States and which is -
-
A bank as defined in section 202(a)(2) of the Investment Advisors Act of
1940 that has, as of the last day of its most recent fiscal year, equity
capital in excess of $1,000,000;
-
An insurance company which is qualified under the laws of more than one State
to manage, acquire, or dispose of any asset of a plan, which company has, as of
the last day of its most recent fiscal year, net worth in excess of $1,000,000
and which is subject to supervision and examination by the State authority
having supervision over insurance companies; or
-
An investment adviser registered under the Investment Advisers Act of 1940 that
has, as of the last day of its most recent fiscal year, total client assets
under its management and control in excess $50,000,000 and either
-
Shareholders' or partners' equity in excess of $750,000 or
-
All of its obligations and liabilities assumed or guaranteed by a person
described in paragraph (a)(2)(i)(A), (B), or (C)(1)
or (a)(2)(ii)(A)(2) of this section; or
-
Such indicia or ownership are either:
-
In the physical possession of, or, as a result of normal business operations,
are in transit to the physical possession of, a person which is organized under
the laws of the United States or a State, which person has its principal place
of business in the United States and which is -
-
A bank as defined in section 202(a)(2) of the Investment Advisers Act of
1940 that has, as of the last day of its most recent fiscal year, equity
capital in excess of $1,000,000;
-
A broker of dealer registered under the Securities Exchange Act of 1934 that
has, as of the last day of its most recent fiscal year, net worth in excess of
$750,000; or
-
A broker or dealer registered under the Securities Exchange Act of 1934 that
has all of its obligations and liabilities assumed or guaranteed by a person
described in paragraph (a)(2)(i)(A), (B), or (C)(1)
or (a)(2)(ii)(A)(2) of this section; or
-
Maintained by a broker or dealer, described in paragraph (a)(2)(ii)(A)(2)
or (3) of this section, in the custody of an entity designated by the
Securities and Exchange Commission as a "satisfactory control
location" with respect to such broker or dealer pursuant to
Rule 15c3-3 under the Securities Exchange Act of 1934 provided that:
-
Such entity holds the indicia of ownership as agent for the broker or dealer,
and
-
Such broker or dealer is liable to the plan to the same extent it would be if
it retained the physical possession of the indicia of ownership pursuant to
paragraph (a)(2)(ii)(A) of this section.
-
Maintained by a bank described in paragraph (a)(2)(ii)(A)(1), in the
custody of an entity that is a foreign securities depository, foreign clearing
agency which acts as a securities depository, or foreign bank which entity is
supervised or regulated by a government agency or regulatory authority in the
foreign jurisdiction having authority over such depositories, clearing agencies
or banks, provided that:
-
The foreign entity holds the indicia of ownership as agent for the bank;
-
The bank is liable to the plan to the same extent it would be if it retained
the physical possession of the indicia of ownership within the U.S.
-
The indicia of ownership are not subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign entity except for
their safe custody or administration;
-
Beneficial ownership of the assets represented by the indicia of ownership is
freely transferable without the payment of money or value other than for safe
custody or administration; and
-
Upon request by the plan fiduciary who is responsible for the selection and
retention of the bank, the bank identifies to such fiduciary the name, address
and principal place of business of the foreign entity which acts as custodian
for the plan pursuant to this paragraph (a)(2)(ii)(C), and the name and
address of the governmental agency or other regulatory authority that
supervises or regulates that foreign entity.
-
Notwithstanding any requirement of paragraph (a) of this section, a
fiduciary, with respect to a plan may maintain in Canada the indicia of
ownership of plan assets which are attributable to a contribution made on
behalf of a plan participant who is a citizen or resident of Canada, if such
indicia of ownership must remain in Canada in order for the plan to qualify for
and maintain tax exempt status under the laws of Canada or to comply with other
applicable laws of Canada or any Province of Canada.
-
For purposes of this regulation:
-
The term "management and control" means the power to direct the
acquisition or disposition through purchase, sale, pledging, or other means;
and
-
The term "depository" means any company, or agency or instrumentality
of government, that acts as a custodian of securities in connection with a
system for the central handling of securities whereby all securities of a
particular class or series or any issuer deposited within the system are
treated as fungible and may be transferred, loaned, or pledged by bookkeeping
entry without physical delivery of securities certificates.
Department of Labor
Regulation 2550.404c-1
29 C.F.R. 2550.404c-1.
ERISA
Section 404(c) Plans
Originally issued October 4, 1977 (42 FR 54124)
Amended January 26, 1981 (46 FR 1267)
-
In General.
-
Section 404(c) of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) provides that
if a pension plan that provides for individual accounts permits a participant
or beneficiary to exercise control over assets in his account and that
participant or beneficiary in fact exercises control over assets in his
account, then the participant or beneficiary shall not be deemed to be a
fiduciary by reason of his exercise of control and no person who is otherwise a
fiduciary shall be liable for any loss, or by reason of any breach, which
results from such exercise of control. This section describes the kinds of
plans that are "ERISA section 404(c) plans," the circumstances in
which a participant or beneficiary is considered to have exercised independent
control over the assets in his account as contemplated by section 404(c), and
the consequences of a participant's or beneficiary's exercise of control.
-
The standards set forth in this section are applicable solely for the purpose
of determining whether a plan is an ERISA
section 404(c) plan and whether a particular transaction engaged in by
a participant or beneficiary of such plan is afforded relief by section 404(c).
Such standards, therefore, are not intended to be applied in determining
whether, or to what extent, a plan which does not meet the requirements for an
ERISA section 404(c) plan or a fiduciary with respect to such a plan satisfies
the fiduciary responsibility or other provisions of title I of the Act.
-
ERISA section 404(c) plans -
-
In general. An "ERISA
section 404(c) plan" is an individual account plan described in
section 3(34) of the Act that:
-
Provides an opportunity for a participant or beneficiary to exercise control
over assets in his individual account (see paragraph (b)(2) of this section);
and
-
Provides a participant or beneficiary an opportunity to choose, from a broad
range of investment alternatives, the manner in which some or all of the assets
in his account are invested (see paragraph (b)(3) of this section).
-
Opportunity to exercise control.
-
A plan provides a participant or beneficiary an opportunity to exercise control
over assets in his account only if -
-
Under the terms of the plan, the participant or beneficiary has a reasonable
opportunity to give investment instructions (in writing or otherwise, with
opportunity to obtain written confirmation of such instructions) to an
identified plan fiduciary who is obligated to comply with such instructions
except as otherwise provided in paragraph (b)(2)(ii)(B) and (d)(2)(ii) of
this section; and
-
The participant or beneficiary is provided or has the opportunity to obtain
sufficient information to make informed decisions with regard to investment
alternatives available under the plan, and incidents of ownership appurtenant
to such investments. For purposes of this subparagraph, a participant or
beneficiary will not be considered to have sufficient investment information
unless -
-
The
participant or beneficiary is provided by an identified plan fiduciary (or a
person or persons designated by the plan fiduciary to act on his behalf):
-
An explanation that the plan is intended to constitute a plan described in
section 404(c) of the Employee Retirement Income Security Act, and
title 29 of the Code of Federal Regulations Section 2550.440c-1, and that the
fiduciaries of the plan may be relieved of liability for any losses which are
the direct and necessary result of investment instructions given by such
participant or beneficiary;
-
A description of the investment alternatives available under the plan and, with
respect to each designated investment alternative, a general description of the
investment objectives and risk and return characteristics of each such
alternative, including information relating to the type and diversification of
assets comprising the portfolio of the designated investment alternative;
-
Identification of any designated investment managers;
-
An explanation of the circumstances under which participants and beneficiaries
may give investment instructions and explanation of any specified limitations
on such instructions under the terms of the plan, including any restrictions on
transfer to or from a designated investment alternative and any restrictions on
the exercise of voting, tender and similar rights appurtenant to a
participant's or beneficiary's investment in an investment alternative;
-
A description of any transaction fees and expenses which affect the
participant's or beneficiary's account balance in connection with purchases or
sales of interests in investment alternatives (e.g., commissions, sales load,
deferred sales charges, redemption or exchange fees);
-
The name, address, and phone number of the plan fiduciary (and, if applicable,
the person or persons designated by the plan fiduciary to act on his behalf)
responsible for providing the information described in
paragraph (b)(2)(i)(B)(2) upon request of a participant or beneficiary and
a description of the information described in paragraph (b)(2)(i)(B)(2) which
may be obtained on request;
-
In the case of plans which
offer an investment alternative which is designed to permit a participant or
beneficiary to directly or indirectly acquire or sell any employer security
(employer security alternative), a description of the procedures established to
provide for the confidentiality of information relating to the purchase,
holding and sale of employer securities, and the exercise of voting, tender and
similar rights, by participants and beneficiaries, and the name, address and
phone number of the plan fiduciary, responsible for monitoring compliance with
the procedures (see paragraphs (d)(2)(ii)(E)(4)(vii), (viii) and (ix)
of this section); and
-
In the case of an investment alternative which is subject to the Securities Act
of 1933, and in which the participant or beneficiary has no assets invested,
immediately following the participant's or beneficiary's initial investment, a
copy of the most recent prospectus provided to the plan. This condition will be
deemed satisfied if the participant or beneficiary has been provided with a
copy of such most recent prospectus immediately prior to the participant's or
beneficiary's initial investment in such alternative;
-
Subsequent to an investment in a investment alternative, any materials provided
to the plan relating to the exercise of voting, tender or similar rights which
are incidental to the holding in the account of the participant or beneficiary
of an ownership interest in such alternative to the extent that such rights are
passed through to participants and beneficiaries under the terms of the plan,
as well as a description of or reference to plan provisions relating to the
exercise of voting, tender or similar rights.
-
The participants or beneficiary is provided by the identified plan fiduciary
(or a person or persons designated by the plan fiduciary to act on his behalf),
either directly or upon request, the following information, which shall be
based on the latest information available to the plan:
-
A description of the annual operating expenses of each designated investment
alternative (e.g., investment management fees, administrative fees, transaction
costs) which reduce the rate of return to participants and beneficiaries, and
the aggregate amount of such expenses expressed as a percentage of average net
assets of the designated investment alternative;
-
Copies of any prospectuses, financial statements and reports, and of any other
materials relating to the investment alternatives available under the plan, to
the extent such information is provided to the plan;
-
A list of the assets comprising the portfolio of each designated investment
alternative which constitute plan assets within the meaning of
29 C.F.R. 2510.3-101, the value of each such asset (or the
proportion of the investment alternative which it comprises), and, with respect
to each such asset which is a fixed rate investment contract issued by a bank,
savings and loan association or insurance company, the name of the issuer of
the contract, the term of the contract and the rate of return on the contract;
-
Information concerning the value of shares or units in designated investment
alternatives available to participants and beneficiaries under the plan, as
well as the past and current investment performance of such alternatives,
determined net of expenses, on a reasonable and consistent basis; and
-
Information concerning the value of shares or units in designated investment
alternatives held in the accounts of the participant or beneficiary.
-
A plan does not fail to provide an opportunity for a participant or beneficiary
to exercise control over his individual account merely because it -
-
Imposes charges for reasonable expenses. A plan may charge participants' and
beneficiaries' accounts for the reasonable expenses of carrying out investment
instructions, provided that procedures are established under the plan to
periodically inform such participants and beneficiaries of actual expenses
incurred with respect to their respective individual accounts;
-
Permits a fiduciary to decline to implement investment instructions by
participants and beneficiaries. A fiduciary may decline to implement
participant and beneficiary instructions which are described at
paragraph (d)(2)(ii) of this section, as well as instructions specified in
the plan, including instructions -
-
Which would result in a prohibited transaction described in
ERISA section 406 or section
4975 of the Internal Revenue Code, and
-
Which would generate income that would be taxable to the plan;
-
Imposes reasonable restrictions
on frequency of investment instructions. A plan may impose reasonable
restrictions on the frequency with which participants and beneficiaries may
give investment instructions. In no event however, is such a restriction
reasonable unless, with respect to each investment alternative made available
by the plan, it permits participants and beneficiaries to give investment
instructions with a frequency which is appropriate in light of the market
volatility to which the investment alternative may reasonably be expected to be
subject, provided that -
-
At least three of the investment alternatives made available pursuant to the
requirements of paragraph (b)(3)(i)(B) of this section, which constitute a
broad range of investment alternatives, permit participants and beneficiaries
to give investment instructions no less frequently than once within any three
month period; and
-
(i) At least one of the
investment alternatives meeting the requirements of
paragraph (b)(2)(ii)(C)(1) of this section permits participants and
beneficiaries to give investment instructions with regard to transfers into the
investment alternative as frequently as participants and beneficiaries are
permitted to give investment instructions with respect to any investment
alternative made available by the plan which permits participants and
beneficiaries to give investment instructions more frequently than once within
any three month period; or
-
With respect to each investment alternative which permits participants and
beneficiaries to give investment instructions more frequently than once within
any three month period, participants and beneficiaries are permitted to direct
their investments from such alternative into an income producing, low risk,
liquid fund, subfund, or account as frequently as their are permitted to give
investment instructions with respect to each such alternative and, with respect
to such fund, subfund or account, participants and beneficiaries are permitted
to direct investments from the fund, subfund or account to an investment
alternative meeting the requirements of paragraph (b)(2)(ii)(C)(1) as
frequently as they are permitted to give investment instructions with respect
to that investment alternative; and
-
With respect to transfers from
an investment alternative which is designed to permit a participant or
beneficiary to directly or indirectly acquire or sell any employer security
(employer security alternative) either:
-
All of the investment alternatives meeting the requirements of
paragraph (b)(2)(ii)(C)(1) of this section must permit participants and
beneficiaries to give investment instructions with regard to transfers into
each of the investment alternatives as frequently as participants and
beneficiaries are permitted to give investment instructions with respect to the
employer security alternative; or
-
Participants and beneficiaries are permitted to direct their investments from
each employer security alternative into an income producing, low risk, liquid,
fund, subfund, or account as frequently as they are permitted to give
investment instructions with respect to such employer security alternative and,
with respect to such fund, subfund, or account, participants and beneficiaries
are permitted to direct investments from the fund, subfund or account to each
investment alternative meeting the requirements of
paragraph (b)(2)(ii)(C)(1) as frequently as they are permitted to give
investment instructions with respect to each such investment alternative.
-
Paragraph (c) of this section describes the circumstances under which a
participant or beneficiary will be considered to have exercised independent
control with respect to a particular transaction.
-
Broad range of investment
alternatives.
-
A plan offers a broad range of investment alternatives only if the available
investment alternatives are sufficient to provide the participant or
beneficiary with a reasonable opportunity to:
-
Materially affect the potential return on amounts in his individual account
with respect to which he is permitted to exercise control and the degree of
risk to which such amounts are subject;
-
Choose from at least three investment alternatives:
-
Each of which is diversified;
-
Each of which has materially different risk and return characteristics;
-
Which in the aggregate enable the participant or beneficiary by choosing among
them to achieve a portfolio with aggregate risk and return characteristics at
any point within the range normally appropriate for the participant or
beneficiary; and
-
Each of which when combined with investments in the other alternatives tends to
minimize through diversification the overall risk of a participant's or
beneficiary's portfolio;
-
Diversify the investment of that
portion of his individual account with respect to which he in permitted to
exercise control so as to minimize the risk of large losses, taking into
account the nature of the plan and the size of participants' or beneficiaries'
accounts. In determining whether a plan provides the participant or beneficiary
with a reasonable opportunity to diversify his investments, the nature of the
investment alternatives offered by the plan and the size of the portion of the
individual's account over which he is permitted to exercise control must be
considered. Where such portion of the account of any participant or beneficiary
is so limited in size that the opportunity to invest in look-through investment
vehicles is the only prudent means to assure an opportunity to achieve
appropriate diversification, a plan may satisfy the requirements of this
paragraph only by offering look-through investment vehicles.
-
Diversification and look-through investment vehicles. Where look-through
investment vehicles are available as investment alternatives to participants
and beneficiaries, the underlying investments of the look-through investment
shall be considered in determining whether the plan satisfies the requirements
of subparagraphs (b)(3)(i)(B) and (b)(3()i)(C).
-
Exercise
of control.
-
In general. -
-
Sections 404(c)(1)
and 404(c)(2) of the Act and paragraphs (a) and (d) of
this section apply only with respect to a transaction where a participant or
beneficiary has exercised independent control in fact with respect to the
investment of assets in his individual account under an ERISA section 404(c)
plan.
-
For purposes of sections 404(c)(1)
and 4040(c)(2) [sic] of the Act and paragraphs (a) and (d) of this
section, a participant or beneficiary will be deemed to have exercised control
with respect to the exercise of voting, tender and similar rights appurtenant
to the participant's or beneficiary's ownership interest in an investment
alternative, provided that the participant's or beneficiary's investment in the
investment alternative was itself the result of an exercise of control, the
participant or beneficiary was provided a reasonable opportunity to give
instruction with respect to such incidents of ownership, including the
provision of the information described in paragraph (b)(2)(i)(B)(1)(ix) of
this section, and the participant or beneficiary has not failed to exercise
control by reason of the circumstances described in Paragraph (c)(2) with
respect to such incidents of ownership.
-
Independent control. Whether a participant or beneficiary has exercised
independent control in fact with respect to a transaction depends on the facts
and circumstances of the particular case. However, a participant's or
beneficiary's exercise of control is not independent in fact if:
-
The participant or beneficiary is subjected to improper influence by a plan
fiduciary or the plan sponsor with respect to the transaction;
-
A plan fiduciary has concealed material non-public facts regarding the
investment from the participant or beneficiary, unless the disclosure of such
information by the plan fiduciary to the participant or beneficiary would
violate any provision of federal law or any provision of state law which in not
preempted by the Act; or
-
The participant or beneficiary is legally incompetent and the responsible plan
fiduciary accepts the instructions of the participant or beneficiary knowing
him to be legally incompetent.
-
Transactions involving a fiduciary. In the case of a sale, exchange or leasing
of property (other than a transaction described in paragraph (d)(2)(ii)(E)
of this section) between an ERISA
section 404(c) plan and a plan fiduciary or an affiliate of such a
fiduciary, or a loan to a plan fiduciary or an affiliate of such a fiduciary,
the participant or beneficiary will not be deemed to have exercised independent
control unless the transaction is fair and reasonable to him. For purposes of
this paragraph (c)(3), a transaction will be deemed to be fair and
reasonable to a participant or beneficiary if he pays no more than, or receives
no less than, adequate consideration (as defined in
section 3(18) of the Act) in connection with the transaction.
-
No obligation to advise. A fiduciary has no obligation under part 4 of
Title I of this Act to provide investment advice to a participant or
beneficiary under an ERISA section 404(c)
plan.
-
Effect of independent exercise of
control.
-
Participant or beneficiary not a fiduciary. If a participant or beneficiary of
an ERISA section 404(c) plan
exercises independent control over assets in his individual account in the
manner described in paragraph (c), then such participant or beneficiary is
not a fiduciary of the plan by reason of such exercise of control.
-
Limitation on liability of plan fiduciaries -
-
If a participant or beneficiary of an ERISA
section 404(c) plan exercises independent control over assets in his
individual account in the manner described in paragraph (c), then no other
person who is a fiduciary with respect to such plan shall be liable for any
loss, or with respect to any breach of part 4 of Title I of the Act
that is the direct and necessary result of that participant's or beneficiary's
exercise of control.
-
Paragraph (d)(2)(i) does not apply with respect to any instruction, which
if implemented -
-
Would not be in accordance with the documents and instruments governing the
plan insofar as such documents and instruments are consistent with the
provisions of Title I of ERISA;
-
Would cause a fiduciary to maintain the indicia of ownership of any assets of
the plan outside the jurisdiction of the district courts of the United States
other than as permitted by section 404(b)
of the Act and 29 C.F.R. 2550.404b-1;
-
Would jeopardize the plan's tax qualified status under the Internal Revenue
Code;
-
Could result in a loss in excess of a participant's or beneficiary's account
balance; or
-
Would result in a direct or indirect:
-
Sale, exchange or lease of property between a plan sponsor or any affiliate of
the sponsor and the plan except for the acquisition or disposition of any
interest in a fund, subfund or portfolio managed by a plan sponsor or an
affiliate of the sponsor, or the purchase or sale of any qualifying employer
security (as defined in section 407(d)(5)
of the Act) which meets the conditions of section 408(e)
of ERISA and section (d)(2))(ii)(E)(4) below;
-
Loan to a plan sponsor or any affiliate of the sponsor;
-
Acquisition or sale of any employer real property (as defined in
section 407(d)(2) of the Act); or
-
Acquisition or sale of any employer security except to the extent that:
-
Such securities are qualifying employer securities (as defined in
section 407(d)(5) of the Act);
-
Such securities are stock or an equity interest in a publicly traded
partnership (as defined in section 7704(b) of the Internal Revenue Code
of 1986), but only if such partnership is an existing partnership as
defined in section 10211(c)(2)(A) of the Revenue Act of 1987 (Public
Law 100-203);
-
Such securities are publicly traded on a national exchange or other generally
recognized market;
-
Such securities are traded with sufficient frequency and in sufficient volume
to assure that participant and beneficiary directions to buy or sell the
security may be acted upon promptly and efficiently;
-
Information provided to shareholders of such securities is provided to
participants and beneficiaries with accounts holding such securities;
-
Voting, tender and similar rights with respect to such securities are passed
through to participants and beneficiaries with accounts holding such
securities;
-
Information relating to the purchase, holding, and sale of securities, and the,
exercise of voting, tender, and similar rights with respect to such securities
by participants and beneficiaries, is maintained in accordance with procedures
which are designed to safeguard the confidentiality of such information, except
to the extent necessary to comply with Federal laws or state laws not preempted
by the Act;
-
The plan designates a fiduciary who is responsible for ensuring that: The
procedures required under subparagraph (d)(2)(ii)(E)(4)(vii) are
sufficient to safeguard the confidentiality of the information described in
that subparagraph, such procedures are being followed, and the independent
fiduciary required by subparagraph (d)(2)(ii)(E)(4)(ix) is appointed; and
-
An independent fiduciary is appointed to carry out activities relating to any
situations which the fiduciary designated by the plan for purposes of
subparagraph (d)(2)(ii)(E)(4)(viii) determines involve a potential for
undue employer influence upon participants and beneficiaries, with regard to
the direct or indirect exercise of shareholder rights. For purposes of this
subparagraph, a fiduciary is not independent if the fiduciary is affiliated
with any sponsor of the plan.
-
The individual investment decisions of an investment manager who is designated
directly by a participant or beneficiary or who manages a look-through
investment vehicle in which a participant or beneficiary has invested are not
direct and necessary results of the designation of the investment manager or of
investment in the look-through investment vehicle. However, this
paragraph (d)(2)(iii) shall not be construed to result in liability under
section 405 of ERISA with respect to a fiduciary (other than the
investment manager) who would otherwise be relieved of liability by reason of
section 404(c)(2) of the Act and paragraph (d) of this section.
-
Prohibited Transactions. The relief provided by
section 404(c) of the Act and this section applies only to the
provisions of part 4 of title I of the Act. Therefore, nothing in
this section relieves a disqualified person from the taxes imposed by
sections 4975(a) and (b) of the Internal Revenue Code with
respect to the transactions prohibited by
section 4975(c)(1) of the Code.
-
Definitions. For purposes of this section:
-
Look-through investment vehicle
means:
-
An investment company described in section 3(a) of the Investment Company Act
of 1940, or a series investment company described in section 18(f) of the
1940 Act or any of the segregated portfolios of such company;
-
A common or collective trust fund or a pooled investment fund maintained by a
bank or similar institution, a deposit in a bank or similar institution, or a
fixed rate investment contract of a bank or similar institution;
-
A pooled separate account or a fixed rate investment contract of an insurance
company qualified to do business in a State; or
-
Any entity whose assets include plan assets by reason of a plan's investment in
the entity;
-
Adequate consideration
has the meaning given it in
section 3(18) of the Act and in any regulations under this
title;
-
An affiliate of a person includes the following:
-
Any person directly or indirectly controlling, controlled by, or under common
control with the person;
-
Any officer, director, partner, or employee, an employee of an affiliated
employer, relative (as defined in section 3(15)
of ERISA), brother, sister, or spouse of a brother or sister, of the
person; and
-
Any corporation or partnership of which the person is an officer director or
partner.
For purposes of this paragraph (e)(3), the term "control"
means, with respect to a person other than an individual, the power to exercise
a controlling influence over the management or policies of such person.
-
A designated investment alternative is a specific investment identified
by a plan fiduciary as an available investment alternative under the plan.
-
Examples. The provisions of this
section are illustrated by the following examples. Examples (5)
through (11) assume that the participant has exercised independent control
with respect to his individual account under an
ERISA section 404(c) plan described in paragraph (b) and has
not directed a transaction described in paragraph (d)(2)(ii).
-
Plan A is an individual account plan described in
section 3(34) of the Act. The plan states that a plan participant or
beneficiary may direct the plan administrator to invest any portion of his
individual account in a particular diversified equity fund managed by an entity
which is not affiliated with the plan sponsor, or any other asset
administratively feasible for the plan to hold. However, the plan provides that
the plan administrator will not implement certain listed instructions for which
plan fiduciaries would not be relieved of liability under
section 404(c) (see paragraph (d)(2)(ii)).
Plan participants and beneficiaries are permitted to give investment
instructions during the first week of each month with respect to the equity
fund and at any time with respect to other investments. The plan provides for
the pass-through of voting, tender and similar rights incidental to the holding
in the account of a participant or beneficiary of an ownership interest in the
equity fund or any other investment alternative available under the plan.
-
The plan administrator of plan A provides each participant and beneficiary with
the information described in subparagraphs (i), (ii), (iii), (iv), (v), (vi)
and (vii) of paragraph (b)(2)(i)(B)(1) upon their entry into the plan, and
provides updated information in the event of any material change in the
information provided.
-
Immediately following an investment by a participant or beneficiary in the
equity fund, the plan administrator provides a copy of the most recent
prospectus received from the fund to the investing participant or beneficiary.
-
Immediately following any investment by a participant or beneficiary in any
other investment alternative which is subject to the Securities Act of 1933,
the plan administrator provides the participant or beneficiary with the most
recent prospectus received from that investment alternative (see
paragraph (b)(2)(1)(B)(i)(viii)).
-
Finally, subsequent to any investment by a participant or beneficiary, the plan
administrator forwards to the investing participant or beneficiary any
materials provided to the plan relating to the exercise of voting, tender or
similar rights attendant to ownership of an interest in such investment (see
paragraph (b)(2)(1)(B)(i)(ix)).
-
Upon request, the plan administrator provides each participant or beneficiary
with copies of any prospectuses, financial statements and reports, and any
other materials relating to the investment alternatives available under the
plan which are received by the plan (see paragraph (b)(2)(i)(B)(2 )(ii)).
-
Also upon request, the plan administrator provides each participant and
beneficiary with the other information required by paragraph (b)(2)(i)(B)(2)
with respect to the equity fund, which is a designated investment alternative,
including information concerning the latest available value of the
participant's or beneficiary's interest in the equity fund (see
paragraph (b)(2)(i)(B)(2)(v)).
Plan A meets the requirements of paragraphs (b)(2)(i)(B)(1) and (2) of
this section regarding the provision of investment information.
Note: The regulation imposes no additional obligation on the administrator to
furnish or make available materials relating to the companies in which the
equity fund invests (e.g., prospectuses, proxies, etc.).
-
Plan C is an individual account plan described in
section 3(34) of the Act under which participants and
beneficiaries may choose among three investment alternatives which otherwise
meet the requirements of paragraph (b) of this section. The plan permits
investment instruction with respect to each investment alternative only on the
first 10 days of each calendar quarter, i.e., January 1-10, April 1-10,
July 1-10 and October 1-10. Plan C satisfies the condition of
paragraph (b)(2)(ii)(C)(1) that instruction be permitted not less
frequently than once within any three month period, since there is not any
three month period during which control could not be exercised.
-
Assume the same facts as in paragraph (f)(2), except that investment
instruction may only be given on January 1, April 1, July 1 and
October 1. Plan C is not an ERISA
section 404(c) plan because it does not satisfy the condition of
paragraph (b)(2)(ii)(C)(1) that instruction be permitted not less
frequently than once within any three month period. Under these facts, there is
a three month period, e.g., January 2 through April 1, during which
control could not be exercised by participants and beneficiaries.
-
Plan D is an individual account plan described in
section 3(34) of the Act under which participants and
beneficiaries may choose among three diversified investment alternatives which
constitute a broad range of investment alternatives. The plan also permits
investment instruction with respect to an employer securities alternative but
provides that a participant or beneficiary can invest no more than 25% of his
account balance in this alternative. This restriction does not affect the
availability of relief under section 404(c)
inasmuch as it does not relate to the three diversified investment alternatives
and, therefore, does not cause the plan to fail to provide an opportunity to
choose from a broad range of investment alternatives.
-
A participant, P, independently exercises control over assets in his
individual account plan by directing a plan fiduciary, F, to invest 100%
of his account balance in a single stock. P is not a fiduciary with respect to
the plan by reason of his exercise of control and F will not be liable for any
losses that necessarily result from P's investment instruction.
-
Assume the same facts as in paragraph (f)(5), except that P directs F to
purchase the stock from B, who is a party in interest with respect to the
plan. Neither P nor F has engaged in a transaction prohibited under
section 406 of the Act: P because he is not a fiduciary with respect to
the plan by reason of his exercise of control and F because he is not liable
for any breach of part 4 of Title I that is the direct and necessary
consequence of P's exercise of control. However, a prohibited transaction under
section 4975(c) of the Internal Revenue Code may have occurred,
and, in the absence of an exemption, tax liability may be imposed pursuant to
sections 495(a) and (b) of the Code.
-
Assume the same facts as in paragraph (f)(5), except that P does not specify
that the stock be purchased from B, and F chooses to purchase the stock from B.
In the absence of an exemption, F has engaged in a prohibited transaction
described in 406(a) of ERISA
because the decision to purchase the stock from B is not a direct or necessary
result of P's exercise or control.
-
Pursuant to the terms of the plan, plan fiduciary F designates three
reputable investment managers whom participants may appoint to manage assets in
their individual accounts. Participant P selects M, one of the designated
managers, to manage the assets in his account. M prudently manages P's account
for 6 months after which he incurs losses in managing the account through
his imprudence. M has engaged in a breach of fiduciary duty because M's
imprudent management of P's account is not a direct or necessary result of P's
exercise of control (the choice of M as manager). F has no fiduciary liability
for M's imprudence because he has no affirmative duty to advise P (see
paragraph (c)(4)) and because F is relieved of co-fiduciary liability by
reason of section 404(c)(2)
(see paragraph (d)(2)(iii)). F does have a duty to monitor M's performance
to determine the suitability of continuing M as an investment manager, however,
and M's imprudence would be a factor which F must consider in periodically
reevaluating its decision to designate M.
-
Participant P instructs plan fiduciary F to appoint G as his
investment manager pursuant to the terms of the plan which provide P total
discretion in choosing an investment manager. Through G's imprudence, G incurs
losses in managing P's account. G has engaged in a breach of fiduciary duty
because G's imprudent management of P's account is not a direct or necessary
result of P's exercise of control (the choice of G as manager). Plan fiduciary
F has no fiduciary liability for G's imprudence because F has no obligation to
advise P (see paragraph (c)(4)) and because F is relieved of co-fiduciary
liability for G's actions by reason of section 402(c)(2)
(see paragraph (d)(2)(iii)). In addition, F also has no duty to determine
the suitability of G as an investment manager because the plan does not
designate G as an investment manager.
-
Participant P directs a plan fiduciary, F, a bank, to invest all of the
assets in his individual account in a collective trust fund managed by F that
is designed to be invested solely in a diversified portfolio of common stocks.
Due to economic conditions, the value of the common stocks in the bank
collective trust fund declines while the value of publicly-offered fixed income
obligations remains relatively stable. F is not liable for any losses incurred
by P solely because his individual account was not diversified to include fixed
income obligations. Such losses are the direct result of P's exercise of
control; moreover, under paragraph (c)(4) of this section F has no
obligation to advise P regarding his investment decisions.
-
Assume the same facts as in paragraph (f)(10) except that F, in managing
the collective trust fund, invests the assets of the fund solely in a few
highly speculative stocks. F is liable for losses resulting from its imprudent
investment in the speculative stocks and for its failure to diversify the
assets of the account. This conduct involves a separate breach of F's fiduciary
duty that is not a direct or necessary result of P's exercise of control (see
paragraph (d)(2)(iii)).
-
Effective date.
-
In general. Except as provided in paragraph (g)(2), this section is
effective with respect to transactions occurring on or after the first day of
the second plan year beginning on or after October 13, 1992.
-
This section is effective with respect to transactions occurring under a plan
maintained pursuant to one or more collective bargaining agreements between
employee representatives and one or more employers ratified before
October 13, 1992 after the later of the date determined under
paragraph (g)(1) or the date on which the last collective bargaining
agreement terminates. For purposes of this paragraph (g)(2), any extension
or renegotiation of a collective bargaining agreement which is ratified on or
after October 13, 1992 is to be disregarded in determining the date on
which the agreement terminates.
-
Transactions occurring before the date determined under
subparagraph (g)(1) or (2) of this section, as applicable, are
governed by section 404(c) of, the Act without regard to the regulation.
Department of Labor
Delinquent Filer Voluntary Compliance Program
April
27, 1995 (60 FR 20874)
Recap
|
Permits delinquent plan administrators to comply with annual reporting
obligations under Title I of the ERISA with reduced civil penalties.
|
Agency: Department
of Labor, Employee Benefits Security Administration
Action: Grant of Class Exemption
Effective Date: March 28, 2002
Program
Section 1--Delinquent Filer
Voluntary Compliance (DFVC) Program
The
DFVC
Program is intended to afford eligible plan administrators (described in
Section 2 of this Notice) the opportunity to avoid the assessment of civil
penalties otherwise applicable to administrators who fail to file timely annual
reports for plan years beginning on or after January 1, 1988. Eligible
administrators may avail themselves of the
DFVC
Program by complying with the filing requirements and paying the civil
penalties specified in Section 3 or Section 4, as appropriate, of this Notice.
Section 2--Scope, Eligibility and
Effective Date
.01 Scope. The
DFVC
Program described in this Notice provides relief from assessment of civil
penalties otherwise applicable to plan administrators who fail or refuse to
file timely annual reports. Relief under this Program does not extend to
penalties that may be assessed for annual reports that are determined by the
Department to be incomplete or otherwise deficient.
.02 Eligibility. The
DFVC
Program is available only to a plan administrator that complies with the
requirements of Section 3 or Section 4, as appropriate, of this Notice prior to
the date on which the administrator is notified in writing by the Department of
a failure to file a timely annual report under Title I of ERISA.
.03 Effective date. The
DFVC
Program described herein shall be effective March 28, 2002. The Department
intends that this
DFVC
Program to be of indefinite duration; however, the Program may be modified from
time to time or terminated in the sole discretion of the Department upon
publication of notice in the Federal Register.
Section 3--Plan Administrators
Filing Annual Reports
.01 General. A plan administrator
electing to file a late annual report (Form 5500 Series Annual Return/Report)
under this
DFVC
Program must comply with the requirements of this Section 3.
.02 Filing a Complete Annual Report.
(a) The plan administrator must file
a complete Form 5500 Series Annual Return/Report, including all required
schedules and attachments, for each plan year for which the plan administrator
is seeking relief under the Program. This filing shall be sent to
PWBA
at the appropriate
EFAST
address listed in the instructions for the most current Form 5500 Annual
Return/Report, or electronically in accordance with the
EFAST
electronic filing requirements. See the
EFAST
Internet site at www.efast.dol.gov to view forms and instructions.
Note: Do not forward the applicable
penalty amount described in Section 3.03 to the
EFAST
addresses listed above.
(b) For purposes of subparagraph
(a), the plan administrator shall file either: (1) The Form 5500 Series Annual
Return/Report form (but not a Form 5500-R) issued for each plan year for which
the relief is sought, or (2) the most current Form 5500 Annual Return/Report
form issued (and, if necessary, indicate in the appropriate space on the first
page of the Form 5500 the plan year for which the annual return/report is being
filed). Forms may be obtained from the IRS by calling 1-800-TAX-FORM
(1-800-829-3676). Forms for certain pre-1999 plan years also are available
through the Internet sites for
PWBA
and the Internal Revenue Service (IRS) (www.dol.gov/dol/pwba,
www.irs.gov). For further information on
EFAST
filing requirements, see the
EFAST
Internet site (www.efast.dol.gov) and the instructions for the most current
Form 5500.
.03 Payment of Applicable Penalty
Amount.
(a) The plan administrator shall pay
the applicable penalty amount by submitting to the
DFVC
Program the information described in subparagraph (b) along with a check made
payable to the ``U.S. Department of Labor'' for the applicable penalty amount
determined in accordance with subparagraph (c). This separate submission shall
be made by mail to:
DFVC
Program,
PWBA, P.O. Box 530292, Atlanta, GA 30353-0292. The
annual returns/reports for multiple plans may not be included in a single
DFVC
Program submission. A separate submission to the
DFVC
Program (including a separate check for the applicable penalty amount) must be
made for each plan.
Note: Personal or private delivery
service cannot be made to this address.
(b)
(1) The administrator shall submit to the
DFVC
Program, with the applicable penalty amount, a paper copy of the Form 5500
Annual Return/Report filed as described in paragraph .02(a), without schedules
and attachments. In the event that the plan administrator files as described in
paragraph .02(a) using a 1998 or prior plan year form, a paper copy of only the
first page of the Form 5500 or Form 5500-C, as applicable, should be submitted
to the
DFVC
Program.
(2) In the case of a plan sponsored
by a Code section 501(c)(3) organization described in paragraph .03(c)(4), the
administrator shall clearly note ``501(c)(3) Plan'' in the upper-right hand
corner of the first page of the Form 5500 Annual Return/Report submitted to the
DFVC
Program (in Atlanta, Georgia). This notation should not be included on the
annual report filed with
PWBA
pursuant to paragraph .02 (in Lawrence, Kansas) because it may interfere with
the proper processing of the required report.
(c) The applicable penalty
amount shall be determined as follows:
(1) In the case of a plan with fewer
than 100 participants at the beginning of the plan year (or a plan that would
be treated as such a plan under the ``80-120'' participant rule described in 29
CFR
2520.103-1(d) for the subject plan year) (hereinafter ``small plan''), the
applicable penalty amount is $10 per day for each day the annual report is
filed after the date on which the annual report was due (without regard to any
extensions), not to exceed the greater of: $750 per annual report or, in the
case of a
DFVC
submission relating to more than one delinquent annual report filing for the
plan, $1,500 per plan.
(2) In the case of a plan with 100
or more participants at the beginning of the plan year (other than a plan that
is eligible to use and uses the ``80-120'' participant rule) (hereinafter
``large plan''), the applicable penalty amount is $10 per day for each day the
annual report is filed after the date on which the annual report was due
(without regard to any extensions), not to exceed the greater of: $2,000 per
annual report or, in the case of a
DFVC
submission relating to more than one delinquent annual report filing for the
plan, $4,000 per plan.
(3) In the case of a
DFVC
submission relating to more than one delinquent annual report filing for a
plan, the applicable penalty amount shall be determined by reference to
paragraph (c)(2) if for any plan year for which the submission is made the plan
was a ``large plan.''
(4) In the case of a plan
administrator filing an annual report for a ``small plan'' that is sponsored by
a Code section 501(c)(3) organization (including a Code section 403(b) plan),
the applicable penalty amount is $10 per day for each day the annual report is
filed after the date on which the annual report was due (without regard to any
extensions), not to exceed $750 per
DFVC
submission, including
DFVC
submissions that relate to more than one delinquent annual report filing for
the plan. This paragraph (c)(4) shall not apply if, as of the date the plan
files pursuant to this
DFVC
Program, there is a delinquent or late annual report due for a plan year for
which the plan was a ``large plan.'' See paragraph .03(b)(2) for special
instructions pertaining to small plans sponsored by Code section 501(c)(3)
organizations.
.04 Liability for Applicability
Amount.
The plan administrator is personally
liable for the payment of civil penalties assessed under section 502(c)(2) of
ERISA, therefore, civil penalties, including amounts paid under this
DFVC
Program, shall not be paid from the assets of an employee benefit plan.
Section 4--Plan Administrators
Filing Notices for Apprenticeship and Training Plans and Statements for ``Top
Hat'' Plans
.01 General. Administrators of
apprenticeship and training plans, described in 29
CFR
2520.104-22, and administrators of pension plans for a select group of
management or highly compensated employees, described in 29
CFR
2520.104-23(a) (``top hat plans''), who elect to file the applicable notice and
statement described in sections 2520.104-22 and 2520.104-23, respectively, as a
condition of relief from the annual reporting requirements may, in lieu of
filing any past due annual report and paying otherwise applicable civil
penalties, comply with the requirements of this Section 4. Administrators who
have complied with the requirements of this Section 4 shall be considered as
having elected compliance with the exemption(s) and/or alternative method of
compliance prescribed in
Secs. 2520.104-22, or 2520.104-23, as appropriate,
for all subsequent plan years.
.02 Filing Applicable Notice or
Statement with the U.S. Department of Labor.
The plan administrator must prepare
and file a notice or statement meeting the requirements of
Secs. 2520.104-22, or 2520.104-23, as appropriate.
The apprenticeship and training plan
notice described in Sec. 2520.104-22 shall be sent by mail or by private
delivery service to: Apprenticeship and Training Plan Exemption, Pension and
Welfare Benefits Administration, Room N-1513, U.S. Department of Labor, 200
Constitution Avenue NW., Washington, DC 20210.
The ``top hat'' plan statement
described in Sec. 2520.104-23 shall be sent by mail or by private delivery
service to: Top Hat Plan Exemption, Pension and Welfare Benefits
Administration, Room N-1513, U.S. Department of Labor, 200 Constitution Avenue
NW., Washington, DC 20210.
Note: A plan sponsor maintaining
more than one ``top hat'' plan is not required to file a separate statement for
each such plan. See Sec. 2520.104-23(b).
.03 Payment of Applicable Penalty
Amount.
(a) The plan administrator shall pay
the applicable penalty amount by submitting to the
DFVC
Program the information described in subparagraph (b) along with a check made
payable to the ``U.S. Department of Labor'' for the applicable penalty amount
determined in accordance with subparagraph (c). This submission shall be made
by mail to:
DFVC
Program,
PWBA, P.O. Box 530292, Atlanta, GA 30353-0292.
Note: Personal or private delivery
service cannot be made to this address.
(b) The administrator shall submit
to the
DFVC
Program with the applicable penalty amount the most current Form 5500 Annual
Return/Report (without schedules and attachments). For purposes of this
requirement, the plan administrators must complete Form 5500 line items 1a-1b,
2a-2c, 3a-3c, and use plan number 888 for all ``top hat'' plans and plan number
999 for all apprenticeship and training plans. In the case of plan sponsors
maintaining more than one ``top hat'' plan and plan sponsors maintaining more
than one apprenticeship and training plan described in Sec. 2520.104-22, the
plan administrator shall clearly identify each such plan on the Form 5500 filed
with the Department of Labor or on an attachment thereto. The plan
administrator also must sign and date the Form 5500.
(c) The applicable penalty amount is
$750 for each
DFVC
submission, without regard to the number of plans maintained by the same plan
sponsor for which notices and statements are filed pursuant to Section 4 and
without regard to the number of plan participants covered under such plan or
plans.
.04 Liability for Applicability
Amount.
The plan administrator is personally
liable for the payment of civil penalties assessed under section 502(c)(2) of
ERISA, therefore, civil penalties, including amounts paid under this
DFVC
Program, shall not be paid from the assets of an employee benefit plan.
Section 5--Waiver of Right to
Notice, Abatement of Assessment and Plan Status
.01 Payment of a penalty under the
terms of this
DFVC
Program constitutes, with regard to the filings submitted under the Program, a
waiver of an administrator's right both to receive notices of intent to assess
a penalty under Sec. 2560.502c-2 from the Department and to contest the
Department's assessment of the penalty amount.
.02 Although this Notice does not
provide relief from late filing penalties under the Code, the Internal Revenue
Service (IRS) has provided the Department with the following information. The
Code and the regulations
thereunder
require information to be filed on the Form 5500 Series Annual Return/Report
and provide the IRS with authority to
impose or assess penalties for
failing to timely file. The IRS has agreed to provide certain penalty relief
under the Code for delinquent Form 5500 Annual Returns/Reports filed for Title
I plans where the conditions of this
DFVC
Program have been satisfied. See IRS Notice 2002-23.
.03 Although this Notice does not
provide relief from late filing penalties under Title IV of ERISA, the Pension
Benefit Guaranty Corporation (PBGC) has provided the Department with the
following information. Title IV of ERISA and the regulations
thereunder
require information to be filed on the Form 5500 Series Annual Return/Report
and provide the PBGC with authority to assess penalties against a plan
administrator under ERISA Sec. 4071 for late filing of the Form 5500 Series
Annual Return/Report. The PBGC has agreed that it will not assess a penalty
against a plan administrator under ERISA Sec. 4071 for late filing of a Form
5500 Series Annual Return/Report filed for a Title I plan where the conditions
of this
DFVC
Program have been satisfied.
.04 Acceptance by the Department of
a filing and penalty payment made pursuant to this
DFVC
Program does not represent a
determinationby
the Department of Labor as to the status of the arrangement as a plan, the
particular type of plan under Title I or ERISA, the status of the plan sponsor
under the Code, or a determination by the Department of Labor that the
provisions of
Secs. 2520.104-22 or 2520.104-23 have been
satisfied.
Signed at Washington, DC, this 25th
day of March, 2002.
Ann L. Combs,
Assistant Secretary, Pension and
Welfare Benefits Administration, U.S. Department of Labor.
[FR Doc. 02-7514 Filed 3-27-02; 8:45
am]
Billing Code 4510-29-P
Department of Labor
Regulation 2550.407a-1
29 C.F.R. 2550.407a-1
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