Trust Examination Manual
DEPARTMENT
OF LABOR
Employee Benefits Security Administration
29 CFR Part 2550
Fiduciary
Responsibility Under the Employee Retirement Income Security Act of 1974 Automatic Rollover
Safe Harbor
SUMMARY:
Section 657 of the EGTRRA of 2001 amended IRC Section 401(a)(31)(B) to require qualfied imployer plans to automatically
rollover involuntary cash outs of more than $1,000 (but less than
$5,000) if the participant failed to affirmatively elect any other
plan options. This final regulation will affect employee pension benefit
plans, plan sponsors, administrators and fiduciaries, service providers,
and plan participants and beneficiaries.
DATES:
Effective Date: This final regulation is effective March 28, 2005.
Applicability Date: This final regulation shall apply to the rollover
of mandatory distributions made on or after March 28, 2005.
Subchapter
F—Fiduciary Responsibility Under the Employee Retirement Income Security Act of
1974
PART 2550—RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY
The
following new section is added to part 2550 to read as follows:
§ 2550.404a–2
Safe Harbor for Automatic Rollovers to Individual Retirement Plans.
(a)
In general.
(1)
Pursuant to section 657(c) of the Economic Growth
and Tax Relief Reconciliation Act of 2001, Public
Law 107–16, June 7, 2001, 115 Stat. 38, this section provides a safe harbor under which
a fiduciary of an employee pension benefit plan subject
to Title I of the Employee Retirement Income Security
Act of 1974, as amended (the Act), 29 U.S.C. 1001
et seq., will be deemed to have satisfied his or
her fiduciary duties under section 404(a) of the
Act in connection with an automatic rollover of a
mandatory distribution described in section 401(a)(31)(B)
of the Internal Revenue Code of 1986, as amended
(the Code). This section also provides a safe harbor
for certain other mandatory distributions not described
in section 401(a)(31)(B) of the Code.
(2)
The standards set forth in this section apply solely
for purposes of determining whether a fiduciary meets
the requirements of this safe harbor. Such standards
are not intended to be the exclusive means by which
a fiduciary might satisfy his or her responsibilities
under the Act with respect to rollovers of mandatory
distributions described in paragraphs (c) and (d)
of this section.
(b)
Safe harbor.
A
fiduciary that meets the conditions of paragraph (c) or paragraph
(d) of this section is deemed to have satisfied his or her duties
under section 404(a) of the Act with respect toboth the selection
of an individual retirement plan provider and the investment of funds
in connection with the rollover of mandatory distributions described
in those paragraphs to an individual retirement plan, within the meaning
of section 7701(a)(37) of the Code.
(c)
Conditions.
With
respect to an automatic rollover of a mandatory distribution described
in section 401(a)(31)(B) of the Code, a fiduciary shall qualify for
the safe harbor described in paragraph (b) of this section if:
(1)
The present value of the nonforfeitable accrued benefit,
as determined under section 411(a)(11) of the Code,
does not exceed the maximum amount under section
401(a)(31)(B) of the Code;
(2)
The mandatory distribution is to an individual retirement
plan within the meaning of section 7701(a)(37) of
the Code;
(3)
In connection with the distribution of rolled-over
funds to an individual retirement plan, the fiduciary
enters into a written agreement with an individual
retirement plan provider that provides: (i) The rolled-over
funds shall be invested in an investment product
designed to preserve principal and provide a reasonable
rate of return, whether or not such return is guaranteed,
consistent with liquidity; (ii) For purposes of paragraph
(c)(3)(i) of this section, the investment product
selected for the rolled-over funds shall seek to
maintain, over the term of the investment, the dollar
value that is equal to the amount invested in the
product by the individual retirement plan; (iii)
The investment product selected for the rolled-over funds shall be offered by a state or federally regulated financial
institution, which shall be: A bank or savings association,
the deposits of which are insured by the Federal
Deposit Insurance Corporation; a credit union, the
member accounts of which are insured within the meaning
of section 101(7) of the Federal Credit Union Act;
an insurance company, the products of which are protected
by State guaranty associations; or an investment
company registered under the Investment Company Act
of 1940; (iv) All fees and expenses attendant to
an individual retirement plan, including investments
of such plan, (e.g., establishment charges, maintenance
fees, investment expenses, termination costs and
surrender charges) shall not exceed the fees and
expenses charged by the individual retirement plan provider for comparable individual retirement
plans established for reasons other than the receipt
of a rollover distribution subject to the provisions
of section 401(a)(31)(B) of the Code; and (v) The
participant on whose behalf the fiduciary makes an
automatic rollover shall have the right to enforce
the terms of the contractual agreement establishing
the individual retirement plan, with regard to his
or her rolledover funds, against the individual retirement
plan provider.
(4)
Participants have been furnished a summary plan description,
or a summary of material modifications, that describes
the plan’s automatic rollover provisions effectuating the requirements of section 401(a)(31)(B)
of the Code, including an explanation that the mandatory
distribution will be invested in an investment product
designed to preserve principal and provide a reasonable
rate of return and liquidity, a statement indicating
how fees and expenses attendant to the individual
retirement plan will be allocated (i.e., the extent
to which expenses will be borne by the account holder
alone or shared with the distributing plan or plan
sponsor), and the name, address and phone number
of a plan contact (to the extent not otherwise provided
in the summary plan description or summary of material
modifications) for further information concerning
the plan’s automatic rollover provisions, the individual retirement plan provider and
the fees and expenses attendant to the individual
retirement plan; and
(5)
Both the fiduciary’s selection of an individual retirement plan and the investment of funds would
not result in a prohibited transaction under section
406 of the Act, unless such actions are exempted
from the prohibited transaction provisions by a prohibited
transaction exemption issued pursuant to section
408(a) of the Act.
(d)
Mandatory distributions of $1,000 or less.
A
fiduciary shall qualify for the protection afforded by the safe harbor
described in paragraph (b) of this section with respect to a mandatory
distribution of one thousand dollars ($1,000) or less described in
section 411(a)(11) of the Code, provided there is no affirmative distribution
election by the participant and the fiduciary makes a rollover distribution
of such amount into an individual retirement plan on behalf of such
participant in accordance with the conditions described in paragraph
(c) of this section, without regard to the fact that such rollover
is not described in section 401(a)(31)(B) of the Code.
(e)
Effective date.
This
section shall be effective and shall apply to any rollover of a mandatory
distribution made on or after March 28, 2005.
Signed
at Washington, DC, this 20th day of September, 2004.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration.
[FR Doc. 04–21591 Filed 9–27–04;
8:45 am]
BILLING CODE 4150–29–P
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