Abandoned Individual Account Plan Termination

Friday,
April 21, 2006

Part V

Department of Labor
Employee Benefits Security
Administration

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Class Exemption for Services Provided in
Connection With the Termination of
Abandoned Individual Account Plans;
Notice

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FOR FURTHER INFORMATION CONTACT:

DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[ZRIN 1210–ZA05; Prohibited Transaction
Exemption 2006–06; Application No. D–
11201]

Class Exemption for Services Provided
in Connection With the Termination of
Abandoned Individual Account Plans
Employee Benefits Security
Administration, Department of Labor.
ACTION: Grant of class exemption.
AGENCY:

This document contains a
final exemption from certain prohibited
transaction restrictions of the Employee
Retirement Income Security Act of 1974
(ERISA or the Act) and from certain
taxes imposed by the Internal Revenue
Code of 1986, as amended (the Code).
The exemption permits a ‘‘qualified
termination administrator’’ (QTA) of an
individual account plan that has been
abandoned by its sponsoring employer
to select itself or an affiliate to provide
services to the plan in connection with
the termination of the plan, to pay itself
or an affiliate fees for those services, and
to pay itself for services provided prior
to the plan’s deemed termination. The
exemption also permits a qualified
termination administrator of an
abandoned plan to: (1) Designate itself
or an affiliate as the provider of an
individual retirement plan or other
account for the distribution of a
participant or beneficiary who fails to
make an election regarding the
disposition of such benefits; (2) select a
proprietary investment product as the
initial investment for such plan or
account; (3) provide a federally insured
bank or savings association account for
small distributions; and (4) pay itself or
its affiliate fees in connection therewith.
This exemption is being granted in
connection with the Department’s final
regulation at 29 CFR 2578.1, relating to
the Termination of Abandoned
Individual Account Plans, the
Department’s final regulation at 29 CFR
2550.404a–3, relating to the Safe Harbor
for Distributions From Terminated
Individual Account Plans, and the
Department’s final regulation at 29 CFR
2520.103–13, relating to the Terminal
Report for Abandoned Individual
Account Plans, which are being
published simultaneously in this issue
of the Federal Register. The exemption
will affect individual account plans, the
participants and beneficiaries of such
plans, certain plan service providers,
and the fiduciaries of such plans.
DATES: Effective Date: The class
exemption is effective May 22, 2006.

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SUMMARY:

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Brian Buyniski, Office of Exemption
Determinations, Employee Benefits
Security Administration, U.S.
Department of Labor, Washington, DC
20210, (202) 693–8545. This is not a toll
free number.
SUPPLEMENTARY INFORMATION: On March
10, 2005, the Department published a
notice in the Federal Register (70 FR
12074) of the pendency of a proposed
class exemption from the restrictions of
sections 406(a)(1)(A) through (D),
406(b)(1) and (b)(2) of the Act and from
the taxes imposed by section 4975(a)
and (b) of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code.
The Department proposed the class
exemption on its own motion pursuant
to section 408(a) of the Act and section
4975(c)(2) of the Code, and in
accordance with the procedures set
forth in 29 CFR part 2570, subpart B (55
FR 32836, August 10, 1990).1
The notice of pendency gave
interested persons an opportunity to
comment or request a public hearing on
the proposal. Five (5) public comments
were received by the Department. No
requests for a public hearing were
received. Upon consideration of the
comments received, the Department has
determined to grant the proposed class
exemption subject to certain
modifications. These modifications and
the comments are discussed below.
Executive Order 12866
Under Executive Order 12866, the
Department must determine whether a
regulatory action is ‘‘significant’’ and
therefore subject to the requirements of
the Executive Order and review by the
Office of Management and Budget
(OMB). Under section 3(f), the order
defines a ‘‘significant regulatory action’’
as an action that is likely to result in a
rule (1) having an annual effect on the
economy of $100 million or more, or
adversely and materially affecting a
sector of the economy, productivity,
competition, jobs, the environment,
public health or safety, or State, local or
tribal governments or communities (also
referred to as ‘‘economically
significant’’); (2) creating serious
inconsistency or otherwise interfering
with an action taken or planned by
another agency; (3) materially altering
the budgetary impacts of entitlement
1 Section 102 of Reorganization Plan No. 4 of
1978, 5 U.S.C. App. 1 (1996) generally transferred
the authority of the Secretary of the Treasury to
issue exemptions under section 4975(c)(2) of the
Code to the Secretary of Labor.
For purposes of this exemption, references to
specific provisions of Title I of the Act, unless
otherwise specified, refer also to the corresponding
provisions of the Code.

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grants, user fees, or loan programs or the
rights and obligations of recipients
thereof; or (4) raising novel legal or
policy issues arising out of legal
mandates, the President’s priorities, or
the principles set forth in the Executive
Order. It has been determined that this
exemption is significant for ‘‘raising
novel policy issues’’ under section
3(f)(4) of the Executive Order.
Accordingly, the exemption has been
reviewed by OMB.
This exemption is being published
simultaneously with a group of three
regulatory actions (the Abandoned Plan
Regulations) that are also being issued
in final form. In the Department’s view,
the conditional relief provided by the
exemption is necessary in order to
effectuate the purposes underlying the
Abandoned Plan Regulations.
Accordingly, the Department’s basic
statement regarding the economic
benefits and costs of encouraging
efficient, effective termination of
abandoned plans, which is described in
detail in the preamble to the Abandoned
Plan Regulations, published elsewhere
in this issue of the Federal Register,
applies equally to this exemption. The
following provides more specific
analysis of the exemption and its
specific economic costs and benefits.
The purpose of the Abandoned Plan
Regulations is to facilitate the orderly,
efficient termination of abandoned
individual account plans in order to
give participants and beneficiaries of
those plans access to the amounts held
in their individual accounts, which are
frequently unavailable to them because
of the abandonment. The relief provided
by the exemption facilitates this goal by
permitting a QTA, under the conditions
of the exemption, to select itself or an
affiliate to provide services to the plan,
to pay itself or an affiliate fees for those
services, and to pay itself fees for
services provided prior to the plan’s
deemed termination, in connection with
terminating the abandoned plan.
Without the availability of the
exemptive relief, QTAs and their
affiliates would be unable to use plan
assets as a source of compensation for
their services; since those plan assets
are usually the only available source of
payment, QTAs would be highly
unlikely to undertake abandoned plan
terminations.
The exemption also permits a QTA to
designate itself or an affiliate as the
provider of an individual retirement
plan or other account for distributions
of benefits for which the participant or
beneficiary has failed to make an
election; select a proprietary investment
product as the initial investment for the
distributed benefits of a participant or

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Federal Register / Vol. 71, No. 77 / Friday, April 21, 2006 / Notices
beneficiary of a terminated plan who
fails to make an election regarding the
disposition of such benefits; provide
federally insured bank or savings
association accounts for small
distributions of such benefits; and pay
itself or its affiliate in connection with
such distributions. By removing the
barrier to use of proprietary or affiliated
investment vehicles for distributions for
which the participant or beneficiary has
failed to make investment decisions, the
exemption facilitates the winding-up of
abandoned plan terminations. Because
some proportion of the participants or
beneficiaries in virtually every
termination of an abandoned plan will
fail to make decisions regarding the
disposition of their benefits, QTAs will
need to make distribution decisions for
those benefits. Allowing QTAs to use
their own or affiliated investment
products to receive the distributions
will accelerate and simplify the orderly
termination and winding-up of a plan’s
affairs.
The exemption imposes certain
conditions on use of proprietary or
affiliated investments, including (1) the
condition that fees other than
establishment fees and expenses
attendant to an individual retirement
plan or account may be charged only
against the income earned by the
individual retirement plan or account
and (2) the condition that no sales
commissions may be imposed in
connection with acquiring an Eligible
Investment Product. The exemption also
conditions relief for payment for
services provided prior to a plan’s
deemed termination on the services’
being provided in good faith pursuant to
a written agreement and the QTA’s
providing the Department with a copy
of the written agreement and a
statement under penalty of perjury that
such services were actually performed.
In response to comments on the
proposed regulations concerning the
limitations on fees, the Department has
revised one of the Abandoned Plan
Regulations (the QTA Regulation,
discussed below under ‘‘Discussion of
Comments Received’’) to permit QTAs
to transfer certain small accounts to
bank or savings association accounts or
the unclaimed property fund of the
relevant state, but has determined not to
make further changes in the conditions
imposed on transactions under the
exemption. The Department believes
that these conditions, which shape the
transactions for which relief will be
available, are justified by the protection
they provide to participants and
beneficiaries.
The conditions appropriately limit the
extent to which a QTA may pay itself

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or its affiliate. Although the conditions
restrict the fees that QTAs and their
affiliates may receive for their services,
they protect against potential selfdealing and depletion of account
balances. In these circumstances, the fee
limitations substitute for an
independent fiduciary’s assessment of
the value of using products or services
of the QTA or its affiliate. Further,
QTAs are not required to make use of
proprietary or affiliated individual
retirement plans or accounts, but are
merely permitted by the exemption to
choose voluntarily whether to do so.
The Department believes that the fee
limitations will encourage a QTA to
make decisions regarding whether to
use its own or an affiliate’s individual
retirement plans or accounts and
investment products based not on the
availability of a pool of assets for
payment of fees, but on whether it will
be in the best interests of the
participants and beneficiaries to do so.
Paperwork Reduction Act
As part of its continuing effort to
reduce paperwork and respondent
burden, the Department of Labor
conducts a preclearance consultation
program to provide the general public
and Federal agencies with an
opportunity to comment on proposed
and continuing collections of
information in accordance with the
Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps
to ensure that respondents will be able
to provide the requested data in the
desired format; that the public
understands the Department’s collection
instruments; that the Department
minimizes the reporting burden it
imposes, both in time and financial
resources; and that the Department
properly assesses the impact of its
collection requirements on respondents.
Because QTAs that rely on the
exemption are required, as a condition
for the relief, to comply with the
requirements of the Abandoned Plan
Regulations, published elsewhere in this
issue of the Federal Register, the
Department has combined the
paperwork burden arising from the
exemption with the paperwork burden
attributable to the Abandoned Plan
Regulations, including specifically the
QTA Regulation, the Safe Harbor for
Distributions From Terminated
Individual Account Plans, and the
Terminal Report for Abandoned
Individual Account Plans, under one
Information Collection Request (ICR).
By combining these collections of
information, the Department believes
that the general public will gain a better
understanding of the burden impact as

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it relates to terminating plans. The
specific burden for the exemption
includes a recordkeeping requirement
for a QTA that terminates an abandoned
plan and chooses to distribute the
account balances of missing or
nonresponsive participants into
proprietary or affiliated individual
retirement plans or accounts and a
reporting requirement for a QTA that
intends to pay itself for services
provided to a plan prior to its deemed
termination. The reporting requirement
includes submitting to the Department a
copy of the written agreement under
which the services were provided,
together with a representation, under
penalty of perjury, that the services for
which reimbursement is sought were in
fact rendered. The hour and cost
burdens for the ICR are described more
fully in the preamble to the Abandoned
Plan Regulations under the section on
the Paperwork Reduction Act.
Discussion of Comments Received
The Department received five
comment letters regarding the proposed
class exemption.2 Additionally, the
Department received a number of
comments in connection with the
regulation relating to the Termination of
Abandoned Individual Account Plans
(the QTA Regulation) and the regulation
relating to the Safe Harbor for
Distributions from Terminated
Individual Account Plans (the Safe
Harbor Regulation). Interested persons
should refer to these regulations,
published elsewhere in this issue of the
Federal Register, for a discussion of
those comments.
The Department received several
comments regarding the fees associated
with the establishment of an account for
participants and beneficiaries who fail
to provide direction as to the
disposition of their account balances.
Two commenters requested that the
Department eliminate the requirement
in section III(i)(2) of the proposed
exemption that fees and expenses
attendant to the individual retirement
plan or other account, with the
exception of establishment charges, may
be charged only against the income
earned by the individual retirement
plan or other account.
The Department recognizes that the
fee limitations in the class exemption
may serve as a disincentive to a QTA
providing an individual retirement plan
for distributions from abandoned
2 The Department received one request for a
public hearing which was subsequently withdrawn
by the commenter after the Department informed
the commenter that the issues raised in the
comment letter would be addressed in the final
exemption.

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individual account plans, particularly
with respect to accounts with small
balances.3 In such cases, the QTA
Regulation permits the distribution to be
made to an interest-bearing federally
insured bank account in the name of the
participant or beneficiary, to the
unclaimed property fund of the state in
which the participant’s or beneficiary’s
last known address is located, or to an
individual retirement plan provided by
an unrelated financial institution. In
light of this modification to the QTA
Regulation, the Department does not
believe that further relief is warranted.
However, the Department has
determined to modify the final
exemption to provide relief for a QTA
(or its affiliate) that is a provider of an
interest-bearing, federally insured bank
or savings association account, to
designate itself or its affiliate as
provider of such an account for the
distribution of the account balances of
participants or beneficiaries who do not
provide direction as to the disposition
of such balances, and to receive fees in
connection with the establishment and
maintenance of such accounts for
distributions $1,000 or less.
A commenter also requested that the
Department clarify that a one-time
closing fee would be treated the same as
an establishment fee which, under the
exemption, is not limited to the amount
of income earned by the account. The
Department continues to believe that
only establishment fees may be charged
against the principal balance of the
account. All other fees, including
termination costs, can only be charged
against the income earned.
The commenter further requested that
the Department clarify whether an IRA
owner’s ability to transfer his or her
account to a different institution must
be made without penalty to principal.
Section III(h) of the proposed exemption
provided that the IRA owner may,
within a reasonable period of time after
his or her request and without penalty
to the principal amount of the
investment, transfer his or her account
balance to a different investment offered
by the QTA or its affiliate. The
commenter asked for clarification of
how this rule would apply if the transfer
was made to a different financial
institution. In response to this comment,
the Department does not believe that a
participant who determines to transfer
his or her account balance to a different
financial institution should be faced
with a penalty deducted from the
principal amount of the investment.
Thus, the final exemption has been
3 See the Safe Harbor Regulation at 2550.404a–3
at d(1)(iii).

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clarified to provide that the IRA owner
must be able to transfer his or her
account balance to a different financial
institution without penalty to the
principal.
Several comments addressed the
definitions contained in section V of the
proposed exemption. One commenter
recommended that the definition of
‘‘Eligible Investment Product’’ be
expanded to permit investments in
lifestyle, retirement date and other
balanced fund options. The commenter
stated that these options are designed
for long-term investors who choose not
to actively manage their accounts. The
Department notes that, given the nature
of the accounts governed by this
exemption, investments should be
designed to minimize risk, preserve
assets for retirement and maintain
liquidity until the IRA owner becomes
available to take control of his or her
account. Accordingly, the Department
has determined not to expand the
definition of ‘‘Eligible Investment
Product’’ as requested.
Several commenters requested
expansion of the definition of QTA in
the Regulation, as well as certain related
changes to the class exemption. For
reasons more fully set forth in the QTA
Regulation, the Department has
determined not to expand the definition
of QTA. In light of the determination
not to modify this final definition under
the QTA Regulation, no changes have
been made to the class exemption.
As proposed, the class exemption
permitted a QTA to select itself to
furnish services to the plan in its
capacity as a QTA, and to pay itself for
those services. It was suggested to the
Department that the final exemption
also should permit a QTA to pay itself
for services rendered prior to becoming
a QTA. Such services may have been
rendered in connection with a
determination of plan abandonment
under the QTA Regulation or pursuant
to an existing written contract
previously entered into with the plan
sponsor or other independent fiduciary
prior to the time the service provider
became the plan’s QTA.
After considering the issues, the
Department has expanded the class
exemption to permit a QTA to pay itself
for services rendered before becoming a
QTA. In this regard, the exemption
applies to two scenarios involving the
payment of fees. First, the exemption
permits the payment for services
provided pursuant to the terms of a
written contract previously entered into
with the plan sponsor, or other
independent fiduciary. This
modification recognizes that a service
provider might be viewed as exercising

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authority or control with respect to the
disposition of a plan’s assets, and
therefore acting as a fiduciary, when
paying itself fees from plan assets for
services under circumstances where the
service provider knows that there is no
plan fiduciary monitoring plan services
or otherwise responsible for the
management of the plan, as would be
the case in a plan that is determined to
have been abandoned by the plan
sponsor. Second, the exemption also
permits payment for services that were
not provided pursuant to a written
contract, but were rendered in
connection with a determination of plan
abandonment under the QTA
Regulation. Such services will generally
take place prior to the service provider
becoming a QTA.
One commenter on the QTA
Regulation requested clarification on
how a QTA would be able to effect a
distribution on behalf of a missing or
non-responsive participant in
circumstances when the benefit payable
is subject to the Code’s survivor annuity
requirements. The Department has
modified the final QTA Regulation by
adding a provision that provides that if
a QTA determines that the survivor
annuity requirements in section
401(a)(11) and 417 of the Code prevent
a distribution in accordance with the
Safe Harbor Regulation, the QTA shall
distribute benefits in any manner
reasonably determined to achieve
compliance with the survivor annuity
requirements of the Code.
Although the commenter did not
request exemptive relief for the
purchase of annuity contracts from the
QTA or an affiliate, it does not foreclose
future consideration of additional
exemptive relief if the requisite findings
under section 408(a) of the Act can be
made. Specifically, the Department is
interested in information with regard to
the types of products that are currently
available in the marketplace to
annuitize benefits, and the standards
and safeguards that the Department
would include in an exemption for the
purchase of such annuities.
Description of the Exemption
The class exemption has five sections.
Section I describes the transactions that
are covered by the exemption. Section II
contains conditions for the provision of
termination services and the receipt of
fees. Section III contains the conditions
for distributions. Section IV contains the
general recordkeeping provisions
imposed on the QTA, and section V
contains definitions.
Under section I(a), relief is provided
from the restrictions of sections
406(a)(1)(A) through (D), 406(b)(1) and

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406(b)(2) of the Act and the taxes
imposed by section 4975(a) and (b) of
the Code, by reason of section
4975(c)(1)(A) through (E) of the Code,
for a ‘‘qualified termination
administrator’’ (QTA) within the
meaning of section V(a) of the
exemption to use its authority in
connection with the termination of an
abandoned individual account plan to
select itself or an affiliate to provide
services to the plan, to receive fees for
services provided as a QTA, and to pay
itself fees for services provided to the
plan prior to the deemed termination of
the plan.
Section I(b) of the exemption provides
relief from the restrictions of sections
406(a)(1)(A) through (D), 406(b)(1) and
406(b)(2) of the Act and the taxes
imposed by section 4975(a) and (b) of
the Code, by reason of section
4975(c)(1)(A) through (E) of the Code,
for a QTA to use its authority in
connection with the termination of an
abandoned individual account plan to
designate itself or an affiliate as
provider of an individual retirement
plan or other account to receive the
account balance of a participant that
does not provide direction as to the
disposition of such assets. The other
accounts authorized by the exemption
include an account, other than an
individual retirement account, as
described in section (d)(1)(ii) of the Safe
Harbor Regulation, for a distribution
made to a distributee other than a
participant or spouse, and an interestbearing, federally insured bank or
savings association account for
distributions of less than $1,000, as
described in section (d)(1)(iii) of the
Safe Harbor Regulation.
Section I(b) of the class exemption
further permits the QTA to make the
initial investment of the distributed
proceeds in a proprietary investment
product, receive fees in connection with
the establishment or maintenance of the
individual retirement plan or other
account, and receive investment fees as
a result of the investment of the
individual retirement plan or other
account’s assets in a proprietary
investment product in which the QTA
or an affiliate has an interest.
Section II of the exemption describes
the conditions that apply to a
transaction described in section I(a) of
the exemption. The QTA must comply
with the requirements of the QTA
Regulation, which is published
elsewhere in this issue of the Federal
Register. Additionally, the QTA is
required to provide, in a timely manner,
any other reasonably available
information requested by the

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Department regarding the proposed
termination.
Under the exemption, fees and
expenses paid to the QTA and its
affiliate must be consistent with
industry rates for such or similar
services, based on the experience of the
QTA, and must not be in excess of rates
charged by the QTA (or its affiliate) for
the same or similar services provided to
customers that are not individual
account plans terminated pursuant to
the QTA Regulation, if the QTA (or its
affiliate) provides the same or similar
services to such other customers. The
reference to ‘‘industry rates’’ and ‘‘based
on the experience of the QTA’’ are
intended to enable a QTA who
possesses knowledge about the services
needed for a plan termination and
industry rates for such or similar
services, to engage or retain itself, an
affiliate, and other service providers
without going through a potentially
timely and costly bidding process.
With respect to payment to the QTA
for services provided to the plan prior
to its deemed termination, the
exemption provides relief in two
situations. First, the exemption covers
payment for services performed by a
service provider pursuant to the QTA
Regulation prior to the deemed
termination of the plan and the service
provider becoming a QTA. Such
services will generally have been
performed by the service provider in
determining that a plan has been
abandoned and in preparing the notice
of plan abandonment as required by
section (c)(3) of the QTA Regulation.
Second, the exemption covers
payment for services provided in good
faith pursuant to the terms of a written
agreement prior to the service provider
becoming a QTA. This includes services
provided under a valid, unexpired
contract, as well as the continuation of
such services after the contract had
expired. With respect to such services,
the QTA must demonstrate to the
Department, in its initial notification of
plan abandonment (as required in
section (c)(3) of the QTA Regulation), by
a representation under penalty of
perjury, that such services were actually
performed. The QTA also must provide
a copy of the executed contract between
the QTA and the plan fiduciary or plan
sponsor that authorized such services.
Section III contains conditions for
transactions described in section I(b) of
the exemption. In this regard, the
conditions of the QTA Regulation must
be met. In addition, the QTA must
inform the participant or beneficiary in
the notice required by section (d)(2)(vi)
of the QTA Regulation that: (1) Absent
his or her election within the 30-day

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period from receipt of the notice, the
QTA will directly distribute the account
balance of the participant or beneficiary
to an individual retirement plan or other
account offered by the QTA or its
affiliate; and (2) the account balance
may be invested in the QTA’s own
proprietary investment product, which
is designed to preserve principal and
provide a reasonable rate of return and
liquidity.
The exemption also requires that the
individual retirement plan or other
account must be established and
maintained for the exclusive benefit of
the individual retirement plan or other
account holder, his or her spouse or
their beneficiaries.
The terms of the individual retirement
plan or other account, including the fees
and expenses for establishing and
maintaining the individual retirement
plan or other account, must be no less
favorable than those available to
comparable individual retirement plans
or other accounts established for reasons
other than the receipt of a distribution
described in the QTA Regulation.
In addition, the exemption requires
that, other than in the case of a bank or
savings account described in section
I(b)(1)(iii) of the exemption for
distributions of less than $1,000, the
distribution must be invested in an
Eligible Investment Product, as defined
in section V(c) of the exemption. The
rate of return or the investment
performance received by the individual
retirement plan or other account from
an investment product must be no less
than that received by comparable
individual retirement plans or other
accounts that are not established
pursuant to the QTA Regulation but are
invested in the same product. For
example, the rate of return received by
the individual retirement plan for an
investment in a one-year certificate of
deposit which is an Eligible Investment
Product cannot be less than the rate of
return received by an individual
retirement plan or other account
established for reasons other than the
receipt of a distribution that is invested
in an identical one-year certificate of
deposit.
The exemption does not permit the
individual retirement plan or other
account to pay a sales commission in
connection with the acquisition of an
Eligible Investment Product.
Under the exemption, the individual
retirement plan or other account holder
must be able, within a reasonable period
of time after his or her request and
without penalty to the principal amount
of the investment, to transfer his or her
individual retirement plan or other
account balance to a different

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investment offered by the QTA or its
affiliate. Also, the individual retirement
plan holder or other account holder
must be able, within a reasonable period
of time after his or her request and
without penalty to the principal amount
of the investment, to transfer his or her
individual retirement plan or other
account balance to a different financial
institution not related to the QTA or its
affiliate.
Under the exemption, fees and
expenses attendant to the individual
retirement plan or other account,
including the investment of the assets of
such plan or account, (e.g.,
establishment charges, maintenance
fees, investment expenses, termination
costs, and surrender charges) must not
exceed the fees and expenses charged by
the QTA for comparable individual
retirement plans or other accounts
established for reasons other than the
receipt of a distribution made pursuant
to the QTA regulation. Additionally,
fees and expenses attendant to the
individual retirement plan or other
account, other than establishment
charges, may be charged only against
the income earned by the individual
retirement plan or other account.
Finally, fees and expenses shall not
exceed reasonable compensation within
the meaning of section 4975(d)(2) of the
Code.
Section IV of the exemption contains
a recordkeeping requirement. The QTA
must maintain records to enable certain
persons to determine whether the
applicable conditions of the class
exemption have been met. The records
must be made available for examination
by the IRS, the Department, and any
account holder or duly authorized
representative of such account holder of
an individual retirement plan or other
account, for at least six years from the
date the QTA provides notice to the
Department of its determination of plan
abandonment and its election to serve as
the QTA.
Lastly, section V of the exemption
contains certain definitions. The term
‘‘qualified termination administrator’’ is
defined in section V(a) as an entity that
is eligible to serve as a trustee or issuer
of an individual retirement plan within
the meaning of section 7701(a)(37) of
the Code and that holds the assets of the
abandoned plan.
The term ‘‘Eligible Investment
Product’’ is defined in section V(c) to
mean an investment product designed
to preserve principal and provide a
reasonable rate of return, whether or not
such return is guaranteed, consistent
with liquidity. In this regard, the
product must be offered by a Regulated
Financial Institution as defined in

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section V(d) and must seek to maintain,
over the term of the investment, a dollar
value that is equal to the amount
invested in the product by the
individual retirement plan or other
account. Such term includes money
market funds maintained by registered
investment companies and interestbearing savings accounts and certificates
of deposit of a bank or similar financial
institution. In addition, the term
includes stable value products issued by
a financial institution that are fully
benefit-responsive to the individual
retirement plan or other account holder.
For purposes of this class exemption,
the term ‘‘benefit responsive’’ means a
stable value product that provides a
liquidity guarantee by a financially
responsible third party of principal and
previously accrued interest for
liquidations or transfers initiated by the
individual retirement plan or other
account holder exercising his or her
right to withdraw or transfer funds
under the terms of an arrangement that
does not include substantial restrictions
to the account holder’s access to the
individual retirement plan or other
account assets.
The term ‘‘Regulated Financial
Institution’’ is defined in section V(d) to
mean an entity that: (i) Is subject to state
or federal regulation, and (ii) is a bank
or savings association, the deposits of
which are insured by the Federal
Deposit Insurance Corporation; a credit
union, the member accounts of which
are insured within the meaning of
section 101(7) of the Federal Credit
Union Act; an insurance company, the
products of which are protected by state
guaranty associations; or an investment
company registered under the
Investment Company Act of 1940.
General Information
The attention of interested persons is
directed to the following:
(1) The fact that a transaction is the
subject of an exemption under section
408(a) of the Act and section 4975(c)(2)
of the Code does not relieve a fiduciary
or other party in interest or disqualified
person from certain other provisions of
the Act and the Code, including any
prohibited transaction provisions to
which the exemption does not apply
and the general fiduciary responsibility
provisions of section 404 of the Act,
which require, among other things, that
a fiduciary discharge his duties with
respect to the plan solely in the interests
of the participants and beneficiaries of
the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of
the Act;
(2) In accordance with section 408(a)
of the Act and section 4975(c)(2) of the

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Code, the Department finds that the
exemption is administratively feasible,
in the interests of plans and their
participants and beneficiaries and
protective of the rights of participants
and beneficiaries of such plans;
(3) The exemption is applicable to a
transaction only if the conditions
specified in the exemption are met; and
(4) The exemption is supplemental to
and not in derogation of any other
provisions of the Act and the Code,
including statutory or administrative
exemptions and transitional rules.
Furthermore, the fact that a transaction
is subject to an administrative or
statutory exemption is not dispositive of
whether the transaction is in fact a
prohibited transaction.
Exemption
Accordingly, the following exemption
is granted under the authority of section
408(a) of the Act and section 4975(c)(2)
of the Code, and in accordance with the
procedures set forth in 29 CFR 2570,
subpart B (55 FR 32836, 32847, August
10, 1990).
I. Covered Transactions
(a) The restrictions of sections
406(a)(1)(A) through (D), 406(b)(1) and
406(b)(2) of the Act, and the taxes
imposed by section 4975(a) and (b) of
the Code, by reason of section
4975(c)(1)(A) through (E) of the Code,
shall not apply to a QTA, (as defined in
section V(a) of this class exemption),
using its authority in connection with
the termination of an abandoned
individual account plan pursuant to the
Department’s regulation at 2550.404a–3,
relating to the Termination of
Abandoned Individual Account Plans
(the QTA Regulation) to:
(1) Select itself or an affiliate to
provide services to the plan;
(2) Receive fees for the services
performed as a QTA; and
(3) Pay itself fees for services
provided to the plan prior to the
deemed termination of the plan,
provided that the conditions set forth in
sections II and IV of this exemption are
satisfied.
(b) The restrictions of sections
406(a)(1)(A) through (D), 406(b)(1) and
406(b)(2) of the Act, and the taxes
imposed by section 4975(a) and (b) of
the Code, by reason of section
4975(c)(1)(A) through (E) of the Code,
shall not apply to a QTA, using its
authority in connection with the
termination of an abandoned individual
account plan pursuant to the QTA
Regulation to:
(1) Designate itself or an affiliate as:
(i) Provider of an individual retirement
plan; (ii) provider of an account (other

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than an individual retirement plan)
under the limited circumstances
described in section (d)(1)(ii) of the Safe
Harbor Regulation for Terminated Plans
(2550.404a–3) (Safe Harbor Regulation);
or (iii) provider of an interest-bearing,
federally insured bank or savings
association account maintained in the
name of the participant or beneficiary,
in the case of a distribution described in
section (d)(1)(iii) of the Safe Harbor
Regulation, for the distribution of the
account balance of the participant or
beneficiary of the abandoned individual
account plan who does not provide
direction as to the disposition of such
assets;
(2) Make the initial investment of the
account balance of the participant or
beneficiary in the QTA’s or its affiliate’s
proprietary investment product;
(3) Receive fees in connection with
the establishment or maintenance of the
individual retirement plan or other
account; and
(4) Pay itself or an affiliate investment
fees as a result of the investment of the
individual retirement plan or other
account assets in the QTA’s or its
affiliate’s proprietary investment
product, provided that the conditions
set forth in sections III and IV of this
exemption are satisfied.
II. Conditions for Provision of
Termination Services and Receipt of
Fees in Connection Therewith
(a) The requirements of the QTA
Regulation are met. The QTA provides,
in a timely manner, any other
reasonably available information
requested by the Department regarding
the proposed termination.
(b) Fees and expenses paid to the
QTA, and its affiliate, in connection
with the termination of the plan and the
distribution of benefits:
(1) Are consistent with industry rates
for such or similar services, based on
the experience of the QTA, and
(2) Are not in excess of rates
ordinarily charged by the QTA (or
affiliate) for the same or similar services
provided to customers that are not plans
terminated pursuant to the QTA
regulation, if the QTA (or affiliate)
provides the same or similar services to
such other customers.
(c) In the case of a transaction
described in section I(a)(3):
(1) Such services: (i) Were performed
in good faith pursuant to the terms of a
written agreement executed prior to the
service provider becoming a QTA, or (ii)
were performed pursuant to the QTA
Regulation; and
(2) The QTA, in the initial notification
of plan abandonment described in
section (c)(3) of the QTA Regulation: (i)

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Represents under penalty of perjury that
such services were actually performed
and (ii) in the case of section II(c)(1)(i)
above, provides the Department with a
copy of the executed contract between
the QTA and a plan fiduciary or the
plan sponsor that authorized such
services.
III. Conditions for Distributions
(a) The conditions of the QTA
Regulation are met.
(b) In connection with the notice to
participants and beneficiaries described
in the QTA Regulation, a statement is
provided explaining that:
(1) If the participant or beneficiary
fails to make an election within the 30day period referenced in the QTA
Regulation, the QTA will directly
distribute the account balance to an
individual retirement plan or other
account offered by the QTA or its
affiliate;
(2) The proceeds of the distribution
may be invested in the QTA’s (or
affiliate’s) own proprietary investment
product, which is designed to preserve
principal and provide a reasonable rate
of return and liquidity.
(c) The individual retirement plan or
other account is established and
maintained for the exclusive benefit of
the individual retirement plan account
holder or other account holder, his or
her spouse, or their beneficiaries.
(d) The terms of the individual
retirement plan or other account,
including the fees and expenses for
establishing and maintaining the
individual retirement plan or other
account, are no less favorable than those
available to comparable individual
retirement plans or other accounts
established for reasons other than the
receipt of a distribution described in the
QTA Regulation.
(e) Except in the case of a QTA
providing a bank or savings account
pursuant to section I(b)(1)(iii) of the
exemption, the distribution proceeds are
invested in an Eligible Investment
Product(s), as defined in section V(c) of
this class exemption.
(f) The rate of return or the investment
performance of the individual
retirement plan or other account is no
less favorable than the rate of return or
investment performance of an identical
investment(s) that could have been
made at the same time by comparable
individual retirement plans or other
accounts established for reasons other
than the receipt of a distribution
described in the QTA Regulation.
(g) The individual retirement plan or
other account does not pay a sales
commission in connection with the

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20861

acquisition of an Eligible Investment
Product.
(h) The individual retirement plan
account holder or other account holder
must be able, within a reasonable period
of time after his or her request and
without penalty to the principal amount
of the investment, to transfer his or her
account balance to a different
investment offered by the QTA or its
affiliate, or to a different financial
institution not related to the QTA or its
affiliate.
(i)(1) Fees and expenses attendant to
the individual retirement plan or other
account, including the investment of the
assets of such plan or account, (e.g.,
establishment charges, maintenance
fees, investment expenses, termination
costs, and surrender charges) shall not
exceed the fees and expenses charged by
the QTA for comparable individual
retirement plans or other accounts
established for reasons other than the
receipt of a distribution made pursuant
to the QTA Regulation;
(2) Fees and expenses attendant to the
individual retirement plan or other
account, with the exception of
establishment charges, may be charged
only against the income earned by the
individual retirement plan or other
account; and
(3) Fees and expenses attendant to the
individual retirement plan or other
account are not in excess of reasonable
compensation within the meaning of
section 4975(d)(2) of the Code.
IV. Recordkeeping
(a) The QTA maintains or causes to be
maintained, for a period of six (6) years
from the date the QTA provides notice
to the Department of its determination
of plan abandonment and its election to
serve as the QTA described in the QTA
Regulation, the records necessary to
enable the persons described in
paragraph (b) of this section to
determine whether the applicable
conditions of this exemption have been
met. Such records must be readily
available to assure accessibility by the
persons identified in paragraph (b) of
this section.
(b) Notwithstanding any provisions of
section 504(a)(2) and (b) of the Act, the
records referred to in paragraph (a) of
this section are unconditionally
available at their customary location for
examination during normal business
hours by—
(1) Any duly authorized employee or
representative of the Department of
Labor or the Internal Revenue Service;
and
(2) Any account holder of an
individual retirement plan or other
account established pursuant to this

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Federal Register / Vol. 71, No. 77 / Friday, April 21, 2006 / Notices

exemption, or any duly authorized
representative of such account holder.
(c) A prohibited transaction will not
be considered to have occurred if due to
circumstances beyond the control of the
QTA, the records necessary to enable
the persons described in paragraph (b)
to determine whether the conditions of
the exemption have been met are lost or
destroyed, and no party in interest other
than the QTA shall be subject to the
civil penalty that may be assessed under
section 502(i) of the Act or to the taxes
imposed by sections 4975(a) and (b) of
the Code if the records are not
maintained or are not available for
examination as required by paragraph
(b).
(3) None of the persons described in
paragraph (b)(2) of this section shall be
authorized to examine the trade secrets
of the QTA or its affiliates or
commercial or financial information
that is privileged or confidential.

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V. Definitions
(a) A termination administrator is
‘‘qualified’’ for purposes of the QTA
Regulation and this exemption if:
(1) The QTA is eligible to serve as a
trustee or issuer of an individual
retirement plan or other account, within
the meaning of section 7701(a)(37) of
the Code, and
(2) The QTA holds plan assets of the
plan that is considered abandoned.
(b) The term ‘‘individual retirement
plan’’ means an individual retirement
plan described in section 7701(a)(37) of
the Code. For purposes of this
exemption, the term individual

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retirement plan shall not include an
individual retirement plan which is an
employee benefit plan covered by Title
I of ERISA.
(c) The term ‘‘Eligible Investment
Product’’ means an investment product
designed to preserve principal and
provide a reasonable rate of return,
whether or not such return is
guaranteed, consistent with liquidity.
For this purpose, the product must be
offered by a Regulated Financial
Institution as defined in paragraph (d) of
this section and shall seek to maintain,
over the term of the investment, the
dollar value that is equal to the amount
invested in the product by the
individual retirement plan or other
account. Such term includes money
market funds maintained by registered
investment companies, and interestbearing savings accounts and certificates
of deposit of a bank or similar financial
institution. In addition, the term
includes ‘‘stable value products’’ issued
by a financial institution that are fully
benefit-responsive to the individual
retirement plan account holder or other
account holder, i.e., that provide a
liquidity guarantee by a financially
responsible third party of principal and
previously accrued interest for
liquidations or transfers initiated by the
individual retirement plan account
holder or other account holder
exercising his or her right to withdraw
or transfer funds under the terms of an
arrangement that does not include
substantial restrictions to the account
holder access to the individual

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retirement plan or other account’s
assets.
(d) The term ‘‘Regulated Financial
Institution’’ means an entity that: (i) Is
subject to state or federal regulation, and
(ii) is a bank or savings association, the
deposits of which are insured by the
Federal Deposit Insurance Corporation;
a credit union, the member accounts of
which are insured within the meaning
of section 101(7) of the Federal Credit
Union Act; an insurance company, the
products of which are protected by state
guaranty associations; or an investment
company registered under the
Investment Company Act of 1940.
(e) An ‘‘affiliate’’ of a person includes:
(1) Any person directly or indirectly
controlling, controlled by, or under
common control with, the person; or
(2) Any officer, director, partner or
employee of the person.
(f) The term ‘‘control’’ means the
power to exercise a controlling
influence over the management or
policies of a person other than an
individual.
(g) The term ‘‘individual account
plan’’ means an individual account plan
as that term is defined in section 3(34)
of the Act.
Signed at Washington, DC, this 17th day of
April, 2006.
Ivan L. Strasfeld,
Director of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 06–3815 Filed 4–20–06; 8:45 am]
BILLING CODE 4150–29–P

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