Multiple Employer Plans
| Published date | 03 July 2019 |
| Citation | 84 FR 31777 |
| Record Number | 2019-14123 |
| Section | Proposed rules |
| Court | Internal Revenue Service |
Federal Register, Volume 84 Issue 128 (Wednesday, July 3, 2019)
[Federal Register Volume 84, Number 128 (Wednesday, July 3, 2019)]
[Proposed Rules]
[Pages 31777-31795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14123]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-121508-18]
RIN 1545-BO97
Multiple Employer Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document sets forth proposed regulations relating to the
tax qualification of plans maintained by more than one employer. These
plans, maintained pursuant to section 413(c) of the Internal Revenue
Code (Code), are often referred to as multiple employer plans or MEPs.
The proposed regulations would provide an exception, if certain
requirements are met, to the application of the ``unified plan rule''
for a defined contribution MEP in the event of a failure by an employer
participating in the plan to satisfy a qualification requirement or to
provide information needed to determine compliance with a qualification
requirement. These proposed regulations would affect MEPs, participants
in MEPs (and their beneficiaries), employers participating in MEPs, and
MEP plan administrators.
DATES: Comments and requests for a public hearing must be received by
October 1, 2019.
ADDRESSES: Submit electronic submissions via the Federal eRulemaking
Portal at www.regulations.gov (indicate IRS and REG-121508-18) by
following the online instructions for submitting comments. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn. The Department of the Treasury (Treasury Department) and
the IRS will publish for public availability any comment received to
its public docket, whether submitted electronically or in hard copy.
Send hard copy submissions to: CC:PA:LPD:PR (REG-121508-18), Room 5203,
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
121508-18), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC 20224.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Pamela
Kinard at (202) 317-6000 or Jamie Dvoretzky at (202) 317-4102;
concerning submission of comments or to request a public hearing, email
or call Regina Johnson at [email protected], (202)
317-5190, or (202) 317-6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document sets forth proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 413(c) of the Internal
Revenue Code (Code). Section 413(c) provides rules for the
qualification of a plan maintained by more than one
[[Page 31778]]
employer.\1\ A section 413(c) plan is often referred to as a multiple
employer plan (MEP).
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\1\ Section 210 of the Employee Retirement Income Security Act
of 1974, Public Law 93-406 (88 Stat. 829 (1974)), as amended
(ERISA), also provides rules relating to plans maintained by more
than one employer. Similar to section 413(c) of the Code, section
210(a) of ERISA states that the minimum participation standards,
minimum vesting standards, and benefit accrual requirements under
sections 202, 203, and 204 of ERISA, respectively, shall be applied
as if all employees of each of the employers were employed by a
single employer. Under section 101 of Reorganization Plan No. 4 of
1978 (43 FR 47713), the Secretary of the Treasury has interpretive
jurisdiction over section 413 of the Code, as well as ERISA section
210.
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Final regulations under section 413 were published in the Federal
Register on November 9, 1979, 44 FR 65061 (the final section 413
regulations). The final section 413 regulations apply to multiple
employer plans described in section 413(c) and to collectively
bargained plans described in section 413(b) (plans that are maintained
pursuant to certain collective-bargaining agreements between employee
representatives and one or more employers).
Pursuant to section 413(c) and the final section 413 regulations,
all of the employers maintaining a MEP (participating employers) are
treated as a single employer for purposes of certain section 401(a)
qualification requirements. For example:
Under section 413(c)(1) and Sec. 1.413-2(b), the rules
for participation under section 410(a) and the regulations thereunder
are applied as if all employees of each of the employers who maintain
the plan are employed by a single employer;
Under section 413(c)(2) and Sec. 1.413-2(c), in
determining whether a MEP is, with respect to each participating
employer, for the exclusive benefit of its employees (and their
beneficiaries), all of the employees participating in the plan are
treated as employees of each such employer; and
Under section 413(c)(3) and Sec. 1.413-2(d), the minimum
vesting standards under section 411 are applied as if all employers who
maintain the plan constitute a single employer.
Other rules are applied separately to each participating
employer.\2\ For example, under Sec. 1.413-2(a)(3)(ii), the minimum
coverage requirements of section 410(b) generally are applied to a MEP
on an employer-by-employer basis.
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\2\ Proposed rules at Sec. 1.413-2(e) and (f) (47 FR 54093)
were issued in 1982. Proposed Sec. 1.413-2(e) would have provided
that the minimum funding standard for a MEP is determined as if all
participants in the plan were employed by a single employer, and
proposed Sec. 1.413-2(f) would have provided rules relating to
liability for the excise tax on a failure to meet the minimum
funding standards. Because these rules were proposed in 1982, they
do not reflect 1988 changes to section 413(c)(4) that were made by
section 6058(a) of the Technical and Miscellaneous Revenue Act of
1988, Public Law 100-647 (102 Stat. 3342) (TAMRA). As amended by
TAMRA, section 413(c)(4) generally provides that in the case of a
plan established after December 31, 1988, and in the case of a plan
established before that date for which an election was made, each
employer is treated as maintaining a separate plan for purposes of
the minimum funding standards. The proposed rules at Sec. 1.413-
2(e) and (f) are outside the scope of these proposed regulations.
Therefore, paragraphs (e) and (f) are ``Reserved'' for future
rulemaking. The Treasury Department and the IRS note that taxpayers
must take into account the statutory changes made after the issuance
of the proposed regulations as of the effective dates of the
relevant legislation.
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A plan is not described in section 413(c) unless it is maintained
by more than one employer \3\ and is a single plan under section
414(l).\4\ See Sec. Sec. 1.413-2(a)(2)(i) and 1.413-1(a)(2). Under
Sec. 1.414(l)-1(b), a plan is a single plan if and only if, on an
ongoing basis, all of the plan assets are available to pay benefits to
employees who are covered by the plan and their beneficiaries.
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\3\ Section 1.413-2(a)(2), issued in 1979, provides that for
purposes of determining the number of employers maintaining a plan,
any employers described in section 414(b) that are members of a
controlled group of corporations or any employers described in
section 414(c) that are trades or businesses under common control,
whichever is applicable, are treated as if those employers are a
single employer. Because Sec. 1.413-2(a)(2) was issued in 1979, it
does not address section 414(m), which was added in 1980 by section
201(a) of the Miscellaneous Revenue Act of 1980, Public Law 96-605
(94 Stat. 3521). Section 414(m) provides that all employers in an
affiliated service group shall be treated as a single employer.
Although amendments to Sec. 1.413-2(a)(2) are outside the scope of
these proposed regulations, the Treasury Department and the IRS note
that taxpayers must take into account the statutory changes made
after the issuance of the proposed regulations as of the effective
dates of the relevant legislation.
\4\ On October 23, 2018 proposed Department of Labor regulations
were published in the Federal Register (83 FR 53534) clarifying the
circumstances in which employer groups or associations and
professional employer organizations can constitute ``employers''
within the meaning of section 3(5) of ERISA for purposes of
establishing or maintaining an individual account ``employee pension
benefit plan'' within the meaning of ERISA section 3(2). Those
proposed regulations state that an ``employee pension benefit plan''
under section 3(2) of ERISA must be established by an ``employer,''
defined in section 3(5) of ERISA to include an ``entity acting
indirectly in the interest of an employer in relation to an employee
benefit plan.'' The proposed Department of Labor regulations define
the terms ``bona fide group or association of employers'' and ``bona
fide professional employer organization'' and state that, with
respect to a ``multiple employer defined contribution pension
plan,'' these entities ``shall be deemed to be able to act in the
interest of an employer'' provided that certain conditions are met.
See proposed rules at 29 CFR 2510.3-55(a). The proposed Department
of Labor regulations solicit comments on, but do not address, other
types of entities that may be an employer under ERISA section 3(5).
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Under Sec. 1.413-2(a)(3)(iv) (sometimes referred to as the
``unified plan rule''), the qualification of a MEP is determined with
respect to all employers maintaining the MEP. Consequently, Sec.
1.413-2(a)(3)(iv) provides that ``the failure by one employer
maintaining the plan (or by the plan itself) to satisfy an applicable
qualification requirement will result in the disqualification of the
MEP for all employers maintaining the plan.'' Section 1.416-1, Q&A G-2,
includes a similar rule relating to the qualification of a MEP,
providing that a failure by a MEP to satisfy section 416 with respect
to employees of one participating employer means that all participating
employers in the MEP are maintaining a plan that is not a qualified
plan.\5\
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\5\ This rule is based on the unified plan rule in Sec. 1.413-
2(a)(3)(iv). Therefore, if a defined contribution MEP has an
unresponsive employer that fails to satisfy section 416 and the
defined contribution MEP meets the conditions for the exception to
the unified plan rule in these proposed regulations, the defined
contribution MEP will not be disqualified for the section 416
failure. For further information, see the discussion in part II of
the Explanation of Provisions section entitled Conditions for
Application of Exception to the Unified Plan Rule. The rules in
Sec. 1.416-1 are outside the scope of these proposed regulations,
but the Treasury Department and the IRS intend to address the topic
in a broader guidance project updating the regulations under section
416.
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Section 1101(a) of the Pension Protection Act of 2006 (PPA '06),
Public Law 109-280 (120 Stat. 780 (2006)), provides that the Secretary
has full authority to establish and implement EPCRS \6\ (or any
successor program) and any other employee plans correction policies,
including the authority to waive income, excise, or other taxes to
ensure that any tax, penalty, or sanction is not excessive and bears a
reasonable relationship to the nature, extent, and severity of the
failure. Section 1101(b) of PPA '06 provides that the Secretary shall
continue to update and improve EPCRS (or any successor program), giving
special attention to a number of items, including special concerns and
circumstances that small employers face with respect to compliance and
correction of compliance failures. EPCRS has been updated and expanded
several times, most recently in Rev. Proc. 2019-19, 2019-19 I.R.B.
1086. In addition, as provided for in Section 1101 of PPA '06, the
Treasury Department and the IRS are authorized to establish and
implement other employee plans correction policies, outside of EPCRS.
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\6\ The Employee Plans Compliance Resolution System (EPCRS) is a
comprehensive system of correction programs for sponsors of certain
retirement plans, including plans that are intended to satisfy the
qualification requirements of section 401(a). EPCRS provides
procedures for an employer to correct a plan's failure to satisfy an
applicable qualification requirement so that the failure does not
result in disqualification of the plan.
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On August 31, 2018, President Trump issued Executive Order 13847
(83 FR
[[Page 31779]]
45321 (Sept. 6, 2018)), titled ``Strengthening Retirement Security in
America'' (Executive Order). The Executive Order states that it shall
be the policy of the Federal Government to expand access to workplace
retirement plans for American workers and that enhancing workplace
retirement plan coverage is critical to ensuring that American workers
will be financially prepared to retire. The Executive Order also states
that, ``[e]xpanding access to [MEPs], under which employees of
different private-sector employers may participate in a single
retirement plan, is an efficient way to reduce administrative costs of
retirement plan establishment and maintenance and would encourage more
plan formation and broader availability of workplace retirement plans,
especially among small employers.'' \7\
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\7\ Id. at 45321.
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The Executive Order directs the Secretary of the Treasury to
``consider proposing amendments to regulations or other guidance,
consistent with applicable law and the policy set forth in . . . this
order, regarding the circumstances under which a MEP may satisfy the
tax qualification requirements . . . , including the consequences if
one or more employers that sponsored or adopted the plan fails to take
one or more actions necessary to meet those requirements.'' \8\ The
Executive Order further directs the Secretary of the Treasury to
consult with the Secretary of Labor in advance of issuing any such
proposed guidance, and the Secretary of Labor to take steps to
facilitate the implementation of any guidance, as appropriate and
consistent with applicable law.
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\8\ Id. at 45322.
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Stakeholders have expressed concerns about the risk that the
actions of one or more participating employers might disqualify a MEP
\9\ and that some employers are reluctant to join MEPs without an
exception to the unified plan rule. In particular, they have said that
the cooperation of participating employers is needed for compliance and
when a participating employer refuses to take the steps needed to
maintain qualification, the entire plan is at risk of being
disqualified. Stakeholders assert that without an exception to the
unified plan rule, many employers perceive that the benefits of joining
a MEP are outweighed by the risk of plan disqualification based on the
actions of an uncooperative participating employer.
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\9\ See also, U.S. Gov't Accountability Office, GAO-12-665,
``Federal Agencies Should Collect Data and Coordinate Oversight of
Multiple Employer Plans'' (September 2012) (https://www.gao.gov/assets/650/648285.pdf) (identifying the unified plan rule as a
potential problem for MEPs).
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Explanation of Provisions
I. Overview
In accordance with the Executive Order and the policy of expanding
workplace retirement plan coverage, these proposed regulations, which
were developed in consultation with the Secretary of Labor, would
provide an exception to the unified plan rule for certain defined
contribution MEPs. Under the proposed regulations, a defined
contribution MEP would be eligible for the exception to the unified
plan rule on account of certain qualification failures due to actions
or inaction by a participating employer, if the conditions set forth in
the proposed regulations are satisfied. The exception generally would
be available if the participating employer in a MEP is responsible for
a qualification failure that the employer is unable or unwilling to
correct. It would also be available if the participating employer fails
to comply with the section 413(c) plan administrator's request for
information about a qualification failure that the section 413(c) plan
administrator reasonably believes might exist. For the exception to the
unified plan rule to apply, certain actions are required to be taken,
including, in certain circumstances, a spinoff of the assets and
account balances attributable to participants who are employees of such
an employer to a separate plan and a termination of that plan.
For purposes of applying the exception to the unified plan rule,
under the proposed regulations: (1) A section 413(c) plan administrator
is defined as the plan administrator of a MEP, determined under the
rules of section 414(g); (2) a participating employer is defined as one
of the employers maintaining a MEP; (3) an unresponsive participating
employer is defined as a participating employer in a MEP that fails to
comply with reasonable and timely requests from the section 413(c) plan
administrator for information necessary to determine compliance with a
qualification requirement or fails to comply with reasonable and timely
requests from the section 413(c) plan administrator to take actions
that are needed to correct a failure to satisfy a qualification
requirement as it relates to the participating employer; and (4) an
employee is defined as a current or former employee of a participating
employer.
The exception to the unified plan rule would apply only in the case
of certain types of failures to satisfy the qualification requirements,
referred to in the proposed regulations as participating employer
failures. A participating employer failure is defined as either a known
qualification failure or a potential qualification failure. A known
qualification failure is defined as a failure to satisfy a
qualification requirement with respect to a MEP that is identified by
the section 413(c) plan administrator and is attributable solely to an
unresponsive participating employer. A potential qualification failure
is a failure to satisfy a qualification requirement with respect to a
MEP that the section 413(c) plan administrator reasonably believes
might exist, but the section 413(c) plan administrator is unable to
determine whether the qualification requirement is satisfied solely due
to an unresponsive participating employer's failure to provide data,
documents, or any other information necessary to determine whether the
MEP is in compliance with the qualification requirement as it relates
to the participating employer. For purposes of the definitions of known
qualification failure and potential qualification failure, an
unresponsive participating employer includes any employer that is
treated as a single employer with that unresponsive participating
employer under section 414(b), (c), (m), or (o).
II. Conditions for Application of Exception to Unified Plan Rule
Under the exception to the unified plan rule in the proposed
regulations, a defined contribution MEP would not be disqualified on
account of a participating employer failure, provided that the
following conditions are satisfied: (1) The MEP satisfies certain
eligibility requirements (such as a requirement to have established
practices and procedures to promote compliance and a requirement to
adopt relevant plan language); (2) the section 413(c) plan
administrator provides notice and an opportunity for the unresponsive
participating employer to take remedial action with respect to the
participating employer failure; (3) if the unresponsive participating
employer fails to take appropriate remedial action with respect to the
participating employer failure, the section 413(c) plan administrator
implements a spinoff; and (4) the section 413(c) plan administrator
complies with any information request that the IRS or a representative
of the spun-off plan makes in connection with an IRS examination of the
spun-off plan, including any information request
[[Page 31780]]
related to the participation of the unresponsive participating employer
in the MEP for years prior to the spinoff. A spinoff may either be a
spinoff that is initiated by the unresponsive participating employer
and implemented by the section 413(c) plan administrator, or a spinoff-
termination implemented by the section 413(c) plan administrator
pursuant to plan terms.
A. MEP's Eligibility for Exception to the Unified Plan Rule
Under the proposed regulations, a threshold condition for the
exception to the unified plan rule is that the MEP meet certain
eligibility requirements. Specifically, the proposed regulations would
require the section 413(c) plan administrator to have established
practices and procedures (formal or informal) that are reasonably
designed to promote and facilitate overall compliance with applicable
Code requirements, including procedures for obtaining information from
participating employers. In addition, the plan document would need to
include language describing the procedures that would be followed to
address participating employer failures, including the procedures that
the section 413(c) plan administrator would follow if, after receiving
notice from the section 413(c) plan administrator, an unresponsive
participating employer fails to take appropriate remedial action or to
initiate a spinoff from the MEP pursuant to the regulations.\10\
Finally, a MEP is not eligible for the exception to the unified plan
rule if, as of the date that the first notice is provided to an
unresponsive participating employer, the MEP is under examination. For
a description of the first notice, see part II.B. of this Explanation
of Provisions section, entitled Notice Requirements.
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\10\ Once final regulations are issued, the Treasury Department
and the IRS intend to publish guidance in the Internal Revenue
Bulletin setting forth model language that may be used for this
purpose.
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For purposes of the proposed regulations, a plan is under
examination if: (1) The plan is under an Employee Plans examination
(that is, an examination of a Form 5500 series, ``Annual Return/Report
of Employee Benefit Plan,'' or other examination by the Employee Plans
Office of the Tax Exempt and Government Entities Division of the IRS
(Employee Plans) (or any successor IRS office that has jurisdiction
over qualified retirement plans)); (2) the plan is under investigation
by the Criminal Investigation Division of the IRS (or its successor);
or (3) the plan is treated as under an Employee Plans examination under
special rules. Under these special rules, for example, a plan is under
an Employee Plans examination if the section 413(c) plan administrator,
or an authorized representative, has received verbal or written
notification of an impending Employee Plans examination, or of an
impending referral for an Employee Plans examination, or if a plan has
been under an Employee Plans examination and the plan has an appeal
pending with the IRS Office of Appeals (or its successor), or is in
litigation with the IRS, regarding issues raised in the Employee Plans
examination.
This definition of the term under examination is similar to the
definition in EPCRS. See Rev. Proc. 2019-19, section 5.08. However,
unlike in EPCRS, a plan is not under examination for purposes of these
proposed regulations merely because it is maintained by an employer
that is under an Exempt Organizations examination (that is, an
examination of a Form 990 series or other examination by the Exempt
Organizations Office of the Tax Exempt and Government Entities Division
of the IRS).
B. Notice Requirements
The proposed regulations would require the section 413(c) plan
administrator to provide up to three notices regarding a participating
employer failure to the unresponsive participating employer; with the
third notice, if applicable, also being provided to participants and
beneficiaries and the Department of Labor.\11\
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\11\ If the notices relate to a potential qualification failure,
and the potential qualification failure becomes a known
qualification failure, then a new series of notices may be required.
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The first notice must describe the participating employer failure
(or failures), as well as the remedial actions the unresponsive
participating employer would need to take to remedy the failure and the
employer's option to initiate a spinoff. The first notice must also
explain the consequences under plan terms if the unresponsive
participating employer neither takes appropriate remedial action with
respect to the participating employer failure nor initiates a spinoff,
including the possibility that a spinoff of the plan assets and account
balances attributable to the employees of that employer into a separate
single-employer plan would occur, followed by a termination of that
plan (as discussed in this preamble under the heading Spinoff-
Termination).
If, by the end of the 90-day period following the date the first
notice is provided, the unresponsive participating employer neither
takes appropriate remedial action nor initiates a spinoff, then no
later than 30 days after the expiration of that 90-day period, the
section 413(c) plan administrator must provide a second notice to that
employer. The second notice must include the information required to be
included in the first notice, and must also inform the employer that if
it fails either to take appropriate remedial action or to initiate a
spinoff within 90 days after the second notice then a notice describing
the participating employer failure and the consequences of not
correcting that failure will be provided to participants who are
employees of the unresponsive participating employer (and their
beneficiaries) and to the Department of Labor.
If, by the end of the 90-day period following the date the second
notice is provided, the unresponsive participating employer neither
takes appropriate remedial action nor initiates a spinoff, then no
later than 30 days after the expiration of that 90-day period, the
section 413(c) plan administrator must provide a third notice to the
unresponsive participating employer, to participants who are employees
of that employer (and their beneficiaries), and to the Department of
Labor.\12\ The third notice must include the information required to be
included in the first notice, the deadline for employer action, and an
explanation of any adverse consequences to participants in the event
that a spinoff-termination occurs, and state that the notice is being
provided to participants who are employees of the unresponsive
participating employer (and their beneficiaries) and to the Department
of Labor.
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\12\ The notice to the Department of Labor should be mailed to
the Employee Benefits Security Administration's Office of
Enforcement (or its successor office). The Office of Enforcement is
currently located at 200 Constitution Ave. NW, Suite 600,
Washington, DC 20210.
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C. Actions by Unresponsive Participating Employer
The proposed regulations provide that after the unresponsive
participating employer has received notice of the participating
employer failure, the employer has the opportunity to either take
appropriate remedial action or initiate a spinoff. The final deadline
for an unresponsive participating employer to take one of these actions
is 90 days after the third notice is provided. The consequences of the
employer's failure to meet this deadline are described in this
Explanation of Provisions section
[[Page 31781]]
under part II.E., entitled Spinoff-Termination.
The proposed regulations provide that an unresponsive participating
employer takes appropriate remedial action with respect to a potential
qualification failure if the employer provides data, documents, or any
other information necessary for the section 413(c) plan administrator
to determine whether a qualification failure exists. If (1) the
unresponsive participating employer provides this information, (2) the
section 413(c) plan administrator determines that, based on this
information, a qualification failure exists that is attributable solely
to that employer, and (3) the participating employer fails to comply
with reasonable and timely requests from the section 413(c) plan
administrator to take actions that are needed to correct that
qualification failure, then the qualification failure becomes a known
qualification failure. In that case, the MEP would be eligible for the
exception to the unified plan rule with respect to the known
qualification failure by satisfying the conditions with respect to that
known qualification failure, taking into account the rules described in
this Explanation of Provisions section under part II.D., entitled
Actions by Section 413(c) Plan Administrator Relating to Remedial
Action or Employer-Initiated Spinoff. An unresponsive participating
employer takes appropriate remedial action with respect to a known
qualification failure if the employer takes action, such as making
corrective contributions, that corrects, or enables the section 413(c)
plan administrator to correct, the known qualification failure.
As an alternative to taking appropriate remedial action with
respect to a potential or a known qualification failure, an
unresponsive participating employer may, after receiving notice of the
participating employer failure, initiate a spinoff by directing the
section 413(c) plan administrator to spin off plan assets and account
balances held on behalf of employees of that employer to a separate
single-employer plan established and maintained by that employer in a
manner consistent with plan terms. In that case, the section 413(c)
plan administrator must implement that spinoff, as described in this
Explanation of Provisions section under part II.D., entitled Actions by
Section 413(c) Plan Administrator Relating to Remedial Action or
Employer-Initiated Spinoff.
D. Actions by Section 413(c) Plan Administrator Relating to Remedial
Action or Employer-Initiated Spinoff
For purposes of applying the conditions of the exception to the
unified plan rule to a potential qualification failure that becomes a
known qualification failure, actions taken (including notices provided)
when the failure was a potential qualification failure are not taken
into account. For example, a notice that the section 413(c) plan
administrator provided in connection with the potential qualification
failure would not satisfy the notice requirements for the known
qualification failure. However, in determining whether the MEP is under
examination as of the date of the first notice describing the known
qualification failure, the section 413(c) plan administrator will be
treated as providing that notice on the date the first notice was
provided with respect to the related potential qualification failure,
but only if the following conditions are satisfied: (1) After
determining that a qualification failure exists, the section 413(c)
plan administrator makes a reasonable and timely request to the
participating employer to take actions that are needed to correct the
failure, and (2) as soon as reasonably practicable after the
participating employer fails to respond to that request, the section
413(c) plan administrator provides the first notice with respect to the
known qualification failure.
The Treasury Department and the IRS anticipate revising EPCRS to
provide that, if a 413(c) plan administrator provides the first notice
with respect to a participating employer failure under a MEP at a time
that the plan is not under examination, then the MEP will not be
considered to be under examination for purposes of determining whether
the participating employer failure is eligible to be corrected under
the Self Correction Program or Voluntary Correction Program components
of EPCRS. It is anticipated that this application of the term under
examination under EPCRS will be conditioned on the 413(c) plan
administrator complying with applicable conditions for the exception to
the unified plan rule and, for a known qualification failure with
respect to which the unresponsive participating employer takes
appropriate remedial action, taking any remaining action necessary to
correct the qualification failure as soon as reasonably practicable.
If an unresponsive participating employer takes appropriate
remedial action with respect to a known qualification failure, then the
section 413(c) plan administrator must take any remaining action
necessary to correct the qualification failure. If the section 413(c)
plan administrator fails to take any remaining action necessary to
correct the known qualification failure, the exception to the unified
plan rule will not apply and the section 413(c) plan may be
disqualified on account of that failure.
If, instead of taking appropriate remedial action (as described in
part II.C. of this Explanation of Provisions, entitled Actions by
Unresponsive Participating Employer), an unresponsive participating
employer initiates a spinoff of plan assets and account balances held
on behalf of employees of that employer to a separate single-employer
plan established and maintained by that employer, the section 413(c)
plan administrator must implement and complete a spinoff of the plan
assets and account balances held on behalf of the employees of the
employer that are attributable to employment by the employer within 180
days of the date on which it was initiated. The section 413(c) plan
administrator must also report the spinoff to the IRS (in the manner
prescribed by the IRS in forms, instructions, and other guidance).
E. Spinoff-Termination
If, after the first notice of a participating employer failure is
provided, the unresponsive participating employer neither takes
appropriate remedial action nor initiates a spinoff by the date that is
90 days after the third notice is provided, then, for the exception to
the unified plan rule to apply, there must be a spinoff of the plan
assets and account balances held on behalf of employees of the
unresponsive participating employer that are attributable to their
employment with that employer to a separate plan, followed by a
termination of that plan. The spinoff-termination must be pursuant to
plan terms and in accordance with the proposed regulations. The MEP
will satisfy this condition, if, as soon as reasonably practicable
after the deadline for action by the unresponsive participating
employer, the section 413(c) plan administrator: (1) Provides notice of
the spinoff-termination to participants who are employees of the
unresponsive participating employer (and their beneficiaries); (2)
stops accepting contributions from the unresponsive participating
employer; (3) implements a spinoff, in accordance with the transfer
requirements of section 414(l) and the anti-cutback requirements of
[[Page 31782]]
section 411(d)(6), of the plan assets and account balances held on
behalf of employees of the unresponsive participating employer that are
attributable to their employment by that employer to a separate single-
employer plan and trust that has the same plan administrator, trustee,
and substantive plan terms as the MEP; and (4) terminates the spun-off
plan and distributes assets of the spun-off plan to plan participants
and beneficiaries as soon as reasonably practicable after the plan
termination date.\13\
---------------------------------------------------------------------------
\13\ The Pension Benefit Guaranty Corporation's Missing
Participants Program provides a mechanism for distributing assets to
plan participants in a terminating plan. See 29 CFR 4050.201 through
4050.207. Use of the Pension Benefit Guaranty Corporation's Missing
Participants Program is optional for defined contribution plans.
Under the program, the Pension Benefit Guaranty Corporation locates
participants and beneficiaries who were missing when their plans
terminated. When found, depending on arrangements made by the plan,
the Pension Benefit Guaranty Corporation either provides the benefit
or information about where the participant's account is being held.
---------------------------------------------------------------------------
In terminating the spun-off plan, the section 413(c) plan
administrator must:
Reasonably determine whether, and to what extent, the
survivor annuity requirements of sections 401(a)(11) and 417 apply to
any benefit payable under the plan and take reasonable steps to comply
with those requirements (if applicable);
Provide each participant and beneficiary with a
nonforfeitable right to his or her accrued benefits as of the date of
plan termination, subject to income, expenses, gains, and losses
between that date and the date of distribution; and
Notify the participants and beneficiaries of their rights
under section 402(f).
In providing notice of the spinoff-termination to participants (and
their beneficiaries), the section 413(c) plan administrator must
provide information relating to the spinoff-termination to participants
who are employees of the unresponsive participating employer (and their
beneficiaries), including the following: (1) Identification of the MEP
and contact information for the section 413(c) plan administrator; (2)
the effective date of the spinoff-termination; (3) a statement that no
more contributions will be made to the MEP; (4) a statement that as
soon as practicable after the spinoff-termination, participants and
beneficiaries will receive a distribution from the spun-off plan; and
(5) a statement that before the distribution occurs, participants and
beneficiaries will receive additional information about their options
with respect to that distribution.
The section 413(c) plan administrator must report the spinoff-
termination to the IRS (in the manner prescribed by the IRS in forms,
instructions, and other guidance).
III. Other Rules
A. Form of Notices
Any notices required to be provided under the proposed regulations
may be provided in writing or in electronic form. For notices provided
to participants and beneficiaries, see generally Sec. 1.401(a)-21 for
rules permitting the use of electronic media to provide applicable
notices to recipients with respect to retirement plans.
B. Qualification of Spun-Off Plan
In the case of any plan that is spun off in accordance with the
proposed regulations, any participating employer failure that would
have affected the qualification of a MEP, but for the application of
the exception to the unified plan rule, will be a qualification failure
with respect to the spun-off plan. In the case of an employer-initiated
spinoff, see EPCRS (or its successors) for rules relating to correcting
qualification failures.
Under the authority provided by section 1101 of PPA '06, the
proposed regulations provide that distributions made from a spun-off
plan that is terminated in accordance with these regulations would not,
solely because of the participating employer failure, fail to be
eligible for favorable tax treatment accorded to distributions from
qualified plans (including that the distributions will be treated as
eligible rollover distributions under section 402(c)(4)), except as
provided in the next paragraph. Under section 1101 of PPA '06, Congress
gave the Secretary broad authority to establish employee plans
correction policies. In developing a correction policy for MEPs, it is
appropriate to treat distributions to rank-and-file participants
following a spinoff-termination as eligible for tax-favored treatment
in order to ensure that the tax or sanction is not excessive and bears
a reasonable relationship to the nature of the failure.\14\
---------------------------------------------------------------------------
\14\ In addition, a participating employer failure could either
be a known qualification failure or a potential qualification
failure. Treating distributions from a spun-off and terminated plan
relating to a potential qualification failure as ineligible for tax-
favored treatment does not bear a reasonable relationship to the
nature of the failure.
---------------------------------------------------------------------------
The regulations also provide that, notwithstanding the general rule
regarding favorable tax treatment for distributions from a plan
following spinoff-termination, the IRS reserves the right to pursue
appropriate remedies under the Code against any party (such as the
owner of the participating employer) who is responsible for the
participating employer failure resulting in the spinoff-termination.
The IRS may pursue appropriate remedies against a responsible party
even in the party's capacity as a participant or beneficiary under the
plan that is spun off and terminated (such as by not treating a plan
distribution made to the responsible party as an eligible rollover
distribution). This is similar to the approach adopted in EPCRS with
respect to terminating orphan plans. See Rev. Proc. 2019-19, section
6.02(2)(e)(i).
The proposed regulations also provide that the Commissioner may
provide additional guidance, such as in revenue rulings, notices, or
other guidance published in the Internal Revenue Bulletin, or in forms
and instructions, that the Commissioner determines to be necessary or
appropriate with respect to the requirements of the regulations.
Proposed Applicability Date
These regulations generally are proposed to apply on or after the
date of publication of the Treasury decision adopting these rules as
final regulations in the Federal Register. Until regulations finalizing
these proposed regulations are issued, taxpayers may not rely on the
rules set forth in these proposed regulations.
Availability of IRS Documents
For copies of recently issued revenue procedures, revenue rulings,
notices and other guidance published in the Internal Revenue Bulletin,
please visit the IRS website at www.irs.gov or contact the
Superintendent of Documents, U.S. Government Printing Office,
Washington, DC 20402.
Special Analyses
I. Regulatory Impact Analysis
Executive Orders 13771, 13563, and 12866 direct agencies to assess
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits, including potential economic, environmental, public
health and safety effects, distributive impacts, and equity. Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
The Executive Order 13771 designation for any final rule resulting from
the proposed regulation will be informed by comments received. The
preliminary Executive Order 13771 designation for this proposed rule is
deregulatory.
The proposed regulation has been designated by the Office of
Information
[[Page 31783]]
and Regulatory Affairs (OIRA) as significant under Executive Order
12866 pursuant to the Memorandum of Agreement (MOA, April 11, 2018)
between the Treasury Department and the Office of Management and Budget
regarding review of tax regulations.
1. Introduction and Need for Regulation
The U.S. retirement system is comprised of three main pillars of
savings: Social Security, workplace pension plans, and individual
savings. Yet, roughly 30% of American workers lack access to an
employer-sponsored savings vehicle (See Table 1 in Section 7 of this
Regulatory Impact Analysis, entitled Tables). This is particularly true
for employees at small firms, who are roughly half as likely to have
access to a retirement plan compared to employees at large firms. This
would lead to larger firms enjoying a competitive advantage in labor
markets. One factor that may prevent small firms from offering a plan
includes the high administrative costs associated with compliance. In
order to receive preferential tax treatment, a plan must meet certain
criteria specified in the Code and ensuring that those requirements are
met can be costly. Furthermore, the costs associated with managing
funds in retirement plans tends to be higher for a smaller pool of
assets (See Table 3 in Section 7, later), which is more likely to be
the case for smaller firms with fewer employees.
One solution that has developed for reducing these administrative
and asset management costs is the MEP, through which different
employers can form a single plan to take advantage of economies of
scale. Under the current regulations under section 413(c), however, the
unified plan rule creates a situation whereby should one employer fail
to comply with the qualification requirements, then the preferential
tax status for a qualified plan is lost for the entire MEP. The
proposed regulation provides an exception to the unified plan rule for
certain defined contribution MEPs, permitting compliant participating
employers to continue to maintain a qualified plan if certain
conditions are satisfied. Reducing the perceived risk that a MEP will
be disqualified could lead to more small employers to adopt these
plans.
2. Affected Entities
Based on the latest available data, as shown in Table 2, there are
about 4,630 defined contribution MEPs with approximately 4.4 million
total participants, 3.7 million of whom are active participants.
Defined contribution MEPs hold about $181 billion in assets. Fifty-six
percent of defined contribution MEP participants are in MEPs with
10,000 or more participants, and 98% are in MEPs with 100 or more
participants. As noted earlier, about 30% of employees do not have
access to a retirement savings plan through their employer. The
proposed regulation, which is limited to defined contribution MEPs, may
encourage both the creation of new defined contribution MEPs and the
expansion of existing defined contribution MEPs. As a result of the
proposed regulation, the cost of providing some existing employer-
sponsored retirement plans could fall, and some employees would gain
access to employer-sponsored retirement plans.
3. Baseline
The analysis in this section compares the proposed regulation to a
no-action baseline reflecting anticipated Federal income tax-related
behavior in the absence of these proposed regulations.
4. Benefits
a. Expanded Access to Coverage
Generally, employees rarely choose to save for retirement outside
of the workplace, despite having options to save in tax-favored savings
vehicles on their own; only about 10% of households without access to
an employer-sponsored plan made contributions to traditional or Roth
IRAs for 2014.\15\ Thus, the availability of workplace retirement plans
is a significant factor affecting whether individuals save for their
retirement. Yet, despite the advantages of workplace retirements plans,
access to such plans for employees of small businesses is relatively
low.
---------------------------------------------------------------------------
\15\ Based on tabulations from the Office of Tax Analysis'
microsimulation model.
---------------------------------------------------------------------------
The MEP structure may address significant concerns from employers
about the costs to set up and administer retirement benefit plans. In
order to participate in a MEP, employers would simply execute a
participation agreement or similar instrument setting forth the rights
and obligations of the MEP and participating employers. Each
participating employer would then be participating in a single plan,
rather than sponsoring its own separate plan. The individual employers
would not be directly responsible for the MEP's overall compliance with
reporting and disclosure obligations. Accordingly, the MEP structure
may address small employers' concerns regarding the cost associated
with fiduciary liability of sponsoring a retirement plan by effectively
transferring much of the legal risks and responsibilities to
professional fiduciaries who would be responsible for managing plan
assets and selecting investment menu options, among other things.
Participating employers' continuing involvement in the day-to-day
operations and administration of their MEP generally would be limited
to enrolling employees and forwarding employee and employer
contributions to the plan. Thus, participating employers would keep
more of their day-to-day focus on managing their businesses, rather
than their retirement plans.
The proposed regulation would reduce the risk to small businesses
participating in a MEP. Currently, if one participating employer fails
to meet the qualification requirements in the Code for preferential tax
treatment, then the entire plan may be disqualified, and employers
participating in a MEP and their employees would lose the tax benefits
of participating in a qualified retirement plan (deduction for
contributions, exclusion of investment returns, deferred income
recognition for employees). As a result, the current rule imposes an
undue burden on employers who satisfied their requirements but happened
to have a bad actor among their plan's other employers. The proposed
regulation minimizes this burden by allowing noncompliant or
unresponsive participating employers to be dealt with separately while
the other participating employers maintain a qualified plan. Thus, the
risk taken on by any one participating employer when joining a MEP is
reduced as the employer no longer needs to consider the actions of
other participating employers over which the employer exerts no
control. The proposed regulation may therefore encourage formation of
additional MEPs, as well as expanded participation in existing MEPs.
Because more plan formation and broader availability of such plans
is likely to occur due to the proposed regulations, especially among
small employers, the Treasury Department has determined that the
proposed regulation would increase access to retirement plans for many
American workers. However, the Treasury Department does not have
sufficient data to determine precisely the likely extent of increased
participation by small employers under the proposed regulation.
b. Reduced Fees and Administration Savings
Most MEPs could be expected to benefit from scale advantages that
small businesses do not currently enjoy and to pass on some of the
savings to participating employers and employees. Grouping small
employers together into
[[Page 31784]]
a MEP may facilitate savings through administrative efficiencies
(economies of scale) and potentially through price negotiation (market
power).
As scale increases, MEPs would spread fixed costs over a larger
pool of participating employers and employee participants. Scale
efficiencies can be very large with respect to asset management and may
be smaller, but still meaningful, with respect to recordkeeping. Also,
as scale increases, so does the negotiating power of MEPs. Negotiating
power matters when competition among financial services providers is
less than perfect, and they can command greater profits than in an
environment with perfect competition. Very large plans may exercise
their own market power to negotiate lower prices, translating into
savings for member employees and employee participants.
Sometimes, scale efficiencies would not translate into savings for
small employer members and their employee participants because
regulatory requirements applicable to large MEPs may be more stringent
than those applicable to most separate small plans. For example, some
small plans are exempt from annual reporting requirements, and many
others are subject to more streamlined reporting requirements than
larger plans. But in most cases, the savings from the scale efficiency
of MEPs would be greater than the savings from scale efficiencies that
other providers of bundled financial services may offer to small
employers.
First, the legal status of MEPs as a single large plan may
streamline certain regulatory burdens under the Code and title I of
ERISA. For example, a MEP can file a single annual return/report and
obtain a single bond in lieu of the multiple reports and bonds
necessary when other providers of bundled financial services administer
many separate plans.
Second, relative to separate small employer plans, a MEP operating
as a large single plan would likely secure substantially lower prices
from financial services companies. Asset managers commonly offer
proportionately lower prices, relative to assets invested, to larger
investors, under so-called tiered pricing practices. For example,
investment companies often offer lower-priced mutual fund share classes
to customers whose investments in a fund surpass specified break
points. These lower prices may reflect scale economies in any or all
aspects of administering larger accounts, such as marketing,
distribution, asset management, recordkeeping, and transaction
processing. MEPs that are larger would likely qualify for lower pricing
compared with separate plans of small employers. MEP participants that
benefit from lower asset-based fees would enjoy superior investment
returns net of fees.
The availability and magnitude of scale efficiencies may be
different with respect to different retirement plan services. For
example, asset management generally enjoys very large-scale
efficiencies. Investors of all kinds generally benefit by investing in
large co-mingled pools. Even within large pools, however, small
investors often pay higher fees than larger ones. Investors with more
assets to invest may pay lower costs when using mutual funds as
investment vehicles.
As with asset management, scale efficiencies often are available
with respect to other plan services. For example, the marginal costs of
services such as marketing and distribution, account administration,
and transaction processing often decrease as customer size increases.
Similarly, small pension plans sometimes incur high distribution costs,
reflecting commissions paid to agents and brokers who sell investment
products to plans. MEPs, as large customers, may enjoy scale
efficiencies in the acquisition of such services. It is also possible,
however, that the cost to MEPs of servicing many small employer-members
may diminish or even offset such efficiencies. Stated differently,
MEPs' scale efficiencies may not always exceed the scale efficiencies
from other providers of bundled financial services used by small
employers that sponsor separate plans. In addition, even if MEPs are
able to enjoy scale efficiencies greater than the scale efficiencies
available from other providers of bundled financial services, the scale
efficiencies of MEPs catering to small businesses would still likely be
smaller than the scale efficiencies enjoyed by very large single-
employer plans.
By reducing the risk to employers of participating in a MEP, the
proposed regulation would allow more MEPs to be established and to
pursue scale advantages. It would also extend scale advantages to some
existing MEPs that otherwise might have been too small to achieve them
and to small employers that absent the proposed regulation would have
offered separate plans (or no plans), but that under this proposed
regulation may participate in a MEP.
While MEP's scale advantages may be smaller than the scale
advantages enjoyed by very large single-employer plans, it nonetheless
is illuminating to consider the savings historically enjoyed by the
latter. For an illustration of how much investment fees vary based on
the amount of assets in a 401(k) plan, see Table 3 in Section 7 of this
Regulatory Impact Analysis entitled Tables. The table focuses on mutual
funds, which are the most common investment vehicle in 401(k) plans,
and shows that the average expense ratio is inversely related to plan
size. There are some important caveats to interpreting Table 3. The
first is that it does not include data for most of the smallest plans
since plans with fewer than 100 participants generally are not required
to submit audited financial statements with their Form 5500. The second
is that there is variation across plans in whether and to what degree
the cost of recordkeeping is included in the expense ratios.
Another method for comparing plan size advantages is a broader
measure called ``total plan cost'' calculated by BrightScope that
includes fees reported on the audited Form 5500. As Table 4 shows,
total plan cost yields generally similar results about the cost
differences facing small and large plans. Deloitte Consulting LLP, for
the Investment Company Institute, conducted a survey of 361 defined
contributions plans.\16\ The study calculates the ``all-in'' fee that
is comparable across plans, and included both administrative and
investment fees paid by the plan and participants. Generally, small
plans with 10 or fewer participants are paying approximately 50 basis
points more than plans with more than 1,000 participants. Generally,
small plans with 10 or fewer participants are paying about 90 basis
points more than large plans with more than 50,000 participants.
---------------------------------------------------------------------------
\16\ Deloitte Consulting and Investment Company Institute,
``Inside the Structure of Defined Contribution/401(k) Plan Fees,
2013: A Study Assessing the Mechanics of the `All-in' Fee'' (Aug.
2014) (available at https://www2.deloitte.com/content/dam/Deloitte/us/Documents/human-capital/us-cons-401k-fee-study-2013-082014.pdf).
---------------------------------------------------------------------------
The research studies described under this heading, Reduced Fees and
Administrative Costs, show that small plans and their participants
generally pay higher fees than large plans and their participants.
Because this rule would give many small employers the incentive to join
a MEP, some of which may become very large plans, many of these
employers would likely incur lower fees. Many employers that are not
currently offering any retirement plan may join a MEP, leading their
employees to save for retirement. Many employers already sponsoring a
retirement plan might decide to join a MEP instead. If there are lower
fees in the MEPs than in their previous plans,
[[Page 31785]]
those lower fees would translate into higher savings.
c. Reduced Reporting and Audit Costs
The potential for MEPs to enjoy reporting cost savings merits
separate attention because this potential is shaped not only by
economic forces, but also the reporting requirements applicable to
different plans. On the one hand, a MEP, as a single ERISA plan, can
file a single report and conduct a single audit, while separate plans
may be required to file separate reports and conduct separate audits.
On the other hand, a MEP, as a large plan generally is subject to more
stringent reporting and audit requirements than a small plan, which
likely files no or streamlined reports and undergoes no audits. With
respect to reporting and audits, MEPs may offer more savings to medium-
sized employers (with 100 or more retirement plan participants) that
are already subject to more stringent reporting and audit requirements
than to small employers. Small employers that otherwise would have
fallen outside of reporting and audit requirements sometimes would
incur slightly higher costs by joining MEPs. This cost increase may
still be offset by benefits described in other sections. From a broader
point of view, if auditing becomes more prevalent because small
employers join MEPs, that would lead to more and better quality data
that would improve security for employers, participants and
beneficiaries.
Sponsors of ERISA-covered retirement plans generally must file a
Form 5500 annually, with all required schedules and attachments. The
cost burden incurred to satisfy the Form 5500 related reporting
requirements varies by plan type, size and complexity. Analyzing the
2016 Form 5500 filings, the Department of Labor estimates that the
average cost to file the Form 5500 is as follows: $276 per filer for
small (generally less than 100 plan participants) single-employer
defined contribution plans eligible for Form 5500-SF; $437 per filer
for small single-employer defined contribution plans not eligible to
file Form 5500-SF; and $1,686 per filer for larger (generally 100
participants or more) single-employer defined contribution plans, plus
the cost of an audit.
Additional schedules and reporting may be required for large and
complex plans. For example, large retirement plans are required to
attach auditor's reports to their Form 5500. Most small plans are not
required to obtain or attach such reports. Hiring an auditor and
obtaining an audit report can be costly for plans, and audit fees may
increase as plans get larger or if plans are more complex. A recent
report states that the fee to audit a 401(k) plan ranges between $6,500
and $13,000.\17\
---------------------------------------------------------------------------
\17\ See https://www.thayerpartnersllc.com/blog/the-hidden-costs-of-a-401k-audit. However, in a comment letter received by the
Department of Labor in response to its October 23, 2018 (83 FR
53534), proposed rule clarifying the circumstances under which an
employer group or association or PEO may sponsor a MEP, an
association reported that the cost of its MEP audit was $24,000. See
comment letter #6 Employers Association of New Jersey, EANJ at
https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB88/00006.pdf.
---------------------------------------------------------------------------
If an employer joins a MEP, it may save some costs associated with
filing Form 5500 and fulfilling audit requirements to the extent the
MEP is considered a single plan under ERISA. Thus, one Form 5500 and
audit report would satisfy the reporting requirements, and each
participating employer would not need to file its own, separate Form
5500 and, for large plans or those few small plans that do not meet the
small plan audit waiver, an audit report. Assuming reporting costs are
shared by participating employers within a MEP, an employer joining a
MEP can save virtually all the reporting costs discussed above. Large
plans may enjoy even higher cost savings if audit costs are taken into
account.
It is less clear whether the self-employed would experience similar
reporting cost savings by joining a MEP. The Department of Labor
estimated these potential cost savings by comparing the reporting costs
of an employer that participates in a MEP rather than sponsoring its
own plan. However, several retirement savings options are already
available for self-employed persons, and most have minimal or no
reporting requirements. For example, both SEP IRA and SIMPLE IRA plans
are available for small employers and the self-employed and neither
option requires Form 5500 filings. Solo 401(k) plans are also available
for self-employed persons, and they may be exempt from the Form 5500-EZ
reporting requirement if plan assets are less than $250,000. Thus, if
self-employed individuals join a MEP, they would be unlikely to realize
reporting cost savings. In fact, it is possible that their reporting
costs may slightly increase, because the self-employed would share
reporting costs with other MEP participating employers that they would
otherwise not incur.\18\
---------------------------------------------------------------------------
\18\ However, self-employed participants, like all participants
in small plans, would benefit from these enhanced audit and
reporting requirements.
---------------------------------------------------------------------------
d. Reduced Bonding Costs
The potential for bonding cost savings in MEPs merits separate
attention. As noted above, ERISA section 412 and related regulations
generally require every fiduciary of an employee benefit plan and every
person who handles funds or other property of such a plan to be bonded.
ERISA's bonding requirements are intended to protect employee benefit
plans from risk of loss due to fraud or dishonesty on the part of
persons who handle plan funds or other property, generally referred to
as plan officials. A plan official must be bonded for at least 10
percent of the amount of funds he or she handles, subject to a minimum
bond amount of $1,000 per plan with respect to which the plan official
has handling functions. In most instances, the maximum bond amount that
can be required under ERISA with respect to any one plan official is
$500,000 per plan; however, the maximum required bond amount is
$1,000,000 for plan officials of plans that hold employer
securities.\19\
---------------------------------------------------------------------------
\19\ See DOL Field Assistance Bulletin 2008-04, https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2008-04.
---------------------------------------------------------------------------
Under the proposed regulation, MEPs generally might enjoy lower
bonding costs than would an otherwise equivalent collection of small,
separate plans, for two reasons. First, it might be less expensive to
buy one bond covering a large number of individuals who handle plan
funds than a large number of bonds covering the same individuals
separately or in small, more numerous groups. Second, the number of
people handling plan funds and therefore subject to ERISA's bonding
requirement in the context of a MEP may be smaller than in the context
of an otherwise equivalent collection of smaller, separate plans.
e. Increased Retirement Savings
The various effects of this rule, if finalized, may lead in
aggregate to increased retirement savings. As discussed above, many
employees would likely go from not having any access to a retirement
plan to having access through a MEP. This has the potential to result
in an increase in retirement savings, on average, for this group of
employees. While some employees may choose not to participate, surveys
indicate that a large number would participate. For a defined
contribution pension plan, about 73 percent of all employees with
access
[[Page 31786]]
participate in the plan.\20\ Among employees whose salary tends to be
in the lowest 10 percent of the salary range, this figure is about 40
percent.\21\ One reason that these take-up rates are relatively high is
that many plans use automatic enrollment to enroll newly hired
employees, as well as, sometimes existing employees. Automatic
enrollment is particularly prevalent among large plans; in 2017 about
74 percent of plans with 1,000-4,999 participants used automatic
enrollment, while only about 27 percent of plans with 1-49 participants
did.\22\
---------------------------------------------------------------------------
\20\ U.S. Bureau of Labor Statistics, National Compensation
Survey, Employee Benefits in the U.S. (March 2018).
\21\ Id.
\22\ Plan Sponsor Council of America, ``61st Annual Survey of
Profit Sharing and 401(k) Plans, Reflecting 2017 Plan Experience''
(2018), Table 111.
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Some workers may be saving in an IRA, either in an employer-
sponsored IRA, payroll deduction IRA, or on their own. If they begin
participating in a MEP 401(k), they would have the opportunity to take
advantage of higher contribution limits, and some individuals may begin
receiving employer contributions when participating in a MEP when they
did not previously.
In general, MEPs may offer participants a way to save for
retirement with lower overall costs. In particular, the fees are likely
to be lower than in most small plans and in retail IRAs. The savings in
fees would result in higher investment returns and thus higher
retirement savings.
f. Increased Labor Market Efficiency
The increased prevalence of MEPs would allow small employers the
opportunity to offer retirement benefits that are comparable to what
large employers provide. Since employees value retirement benefits,
this development would tend to shift talented employees toward small
businesses. Moreover, certain groups such as secondary earners in high
income families who have high marginal tax rates, and therefore larger
benefits from tax-preferred savings, might now be more inclined to work
for small businesses as those businesses might now offer a retirement
plan. Such shifts would make small businesses more competitive. The
ensuing reallocation of talent across different sectors of the economy
would increase efficiency.
5. Costs
While the proposed regulation effectively lowers the cost of
participation in a MEP among employers, the rule may also lead to
increased levels of noncompliance. For example, the section 413(c) plan
administrator may become less diligent about ensuring that
participating employers within a MEP are responsible employers. By
potentially increasing noncompliance, the proposed regulation would
impose new costs on section 413(c) plan administrators who are
ultimately responsible for managing unresponsive employers. In
particular, for a plan to maintain its tax-favored status, the section
413(c) plan administrator is required to send notice to an unresponsive
employer giving it 90 days to remedy the situation. If the unresponsive
employer fails to comply, the plan administrator must send a second
notice and then a final notice if the unresponsive employer still fails
to comply after specified time periods. In the event of the initiation
of the spinoff process, in which assets associated with an unresponsive
employer are separated into a new plan that is then terminated,
additional costs from the resulting compliance measures will be
incurred by the section 413(c) plan administrator, who among other
things is tasked with notifying all impacted participants and
beneficiaries. These additional costs may be directly passed on to
unresponsive employers. However, it's possible that section 413(c) plan
administrators may spread these costs across all participating
employers that would either absorb or pass those costs on to their
employees.
The proposed regulation may also indirectly lead to an increase in
investment fees by increasing uncertainty in the size of a MEP's asset
pool. For example, a plan may shrink considerably when assets of an
unresponsive participating employer are spun off depending on that
employer's share of the total asset pool. Since the cost savings in
investment fees is derived from economies of scale, introducing
uncertainty in plan size might induce management companies to increase
prices to account for that risk. This cost would likely be spread
across all employers participating in the MEP that might then pass
those costs on to their employees.
More general concerns pertaining to MEPs include their potential
for abuse, such as fraud, mishandling of plan assets, or charging
excessive fees.\23\ Relative to single-employer plans, MEPs may be more
susceptible to abuse since coordination across participating employers
may lead to confusion regarding each individual firm's fiduciary
responsibilities. On the other hand, the enhanced disclosure and audit
requirements applicable to large plans, together with the increased
number of employers participating in a plan, might call attention to
abuses that would have otherwise gone unnoticed had a small employer
established its own plan.
---------------------------------------------------------------------------
\23\ (83 FR 53534) (October 23, 2018).
---------------------------------------------------------------------------
6. Regulatory Alternatives
The Treasury Department and the IRS considered alternatives to the
proposed regulation. One alternative would have been to extend the
proposed regulations to include defined benefit MEPs. However, this
alternative was rejected because defined benefit plans raise additional
issues, including issues arising from the minimum funding requirements
and spinoff rules, such as the treatment in such a spinoff of any plan
underfunding or overfunding. Commenters are asked, in the Comments and
Requests for Public Hearing section of the preamble, to address those
issues, as well as the circumstances in which the exception to the
unified plan rule should be available to defined benefit plans.
The Treasury Department and the IRS also considered whether the
proposed regulation should include a more streamlined process for a
section 413(c) plan administrator to satisfy the requirements for the
exception to the unified plan rule. However, the notice requirements
are intended to ensure that the affected participating employers and
their employees are aware of the adverse consequences if the
unresponsive participating employer neither takes appropriate remedial
action nor initiates a spinoff, and the timing requirements are
intended to give the unresponsive participating employer an adequate
opportunity to take that remedial action or initiate a spinoff. These
procedural requirements strike a balance between providing protection
for unresponsive participating employers and their employees and not
unduly burdening defined contribution MEPs. In the Comments and
Requests for Public Hearing section of the preamble, commenters are
asked to address whether the regulations should add mechanisms to avoid
the potential for repetitive notices, as well as whether additional
procedures should be added to facilitate the resolution of disputes
between a section 413(c) plan administrator and an unresponsive
participating employer.
[[Page 31787]]
7. Tables
Table 1--Retirement Plan Coverage by Employer Size
----------------------------------------------------------------------------------------------------------------
Workers Establishments
-----------------------------------------------------
Share with Share
Establishment size: Number of workers access to a participating in Share offering a
retirement plan a retirement retirement plan
(%) plan (%) (%)
----------------------------------------------------------------------------------------------------------------
1-49...................................................... 49 34 45
50-99..................................................... 65 46 75
100-499................................................... 79 58 88
500+...................................................... 89 76 94
All....................................................... 66 50 48
----------------------------------------------------------------------------------------------------------------
Source: These statistics apply to private industry. U.S. Bureau of Labor Statistics, National Compensation
Survey, Employee Benefits in the U.S. (March 2018).
Table 2--Current Statistics on MEPS
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of MEPs Total participants Active participants Total assets
--------------------------------------------------------------------------------------------------------------------------------------------------------
MEP Defined Contribution Plans........ 4,630 4.4 million................... 3.7 million................... $181 billion.
As a share of all ERISA Defined 0.7% 4.4%.......................... 4.6%.......................... 3.2%.
Contribution Plans.
MEP Defined Contribution Plans........ 4,630 4.4 million................... 3.7 million................... $181 billion.
401(k) Plans...................... 4,391 4.1 million................... 3.4 million................... $166 billion.
Other Defined Contribution Plans.. 239 0.4 million................... 0.3 million................... $15 billion.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: The Department of Labor performed these calculations using the 2016 Research File of Form 5500 filings. The estimates are weighted and rounded,
which means they may not sum precisely. These estimates were derived by classifying a plan as a MEP if it indicated ``multiple employer plan'' status
on the Form 5500 Part 1 Line A and if it did not report collective bargaining.
Table 3--Average Expense Ratios of Mutual Funds in 401(k) Plans in Basis Points, 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
Balanced
Domestic International Domestic bond International Target date mutual funds
Plan assets equity mutual equity mutual mutual funds bond mutual funds mutual funds (non-target
funds funds date)
--------------------------------------------------------------------------------------------------------------------------------------------------------
$1M-$10M.......................................... 81 101 72 85 79 80
$10M-$50M......................................... 68 85 59 77 68 64
$50M-$100M........................................ 55 72 44 66 54 50
$100M-$250M....................................... 52 68 40 64 55 45
$250M-$500M....................................... 49 63 36 67 50 42
$500M-$1B......................................... 45 60 33 65 50 39
More than $1B..................................... 36 52 26 65 48 32
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Average expense ratios are expressed in basis points and asset-weighted. The sample includes plans with audited 401(k) filings in the
BrightScope database for 2015 and comprises 15,110 plans with $1.4 trillion in mutual fund assets. Plans were included if they had at least $1 million
in assets and between 4 and 100 investment options. BrightScope/ICI, ``The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k)
Plans, 2015'' (March 2018).
Table 4--Larger Plans Tend To Have Lower Fees Overall
----------------------------------------------------------------------------------------------------------------
Total plan cost (in basis points)
Plan assets --------------------------------------------------------
10th Percentile Median 90th Percentile
----------------------------------------------------------------------------------------------------------------
$1M-$10M............................................... 75 111 162
$10M-$50M.............................................. 61 91 129
$50M-$100M............................................. 37 65 93
$100M-$250M............................................ 22 54 74
$250M-$500M............................................ 21 48 66
$500M-$1B.............................................. 21 43 59
More than $1B.......................................... 14 27 51
----------------------------------------------------------------------------------------------------------------
Source: Data is plan-weighted. The sample is plans with audited 401(k) filings in the BrightScope database for
2015, which comprises 18,853 plans with $3.2 trillion in assets. Plans were included if they had at least $1
million in assets and between 4 and 100 investment options. BrightScope/ICI, ``The BrightScope/ICI Defined
Contribution Plan Profile: A Close Look at 401(k) Plans, 2015'' (March 2018).
[[Page 31788]]
II. Paperwork Reduction Act
The collection of information in these proposed regulations is in:
Sec. 1.413-2(g)(3)(i)(B) (requirement to adopt plan language); Sec.
1.413-2(g)(4) (requirement to provide notice with respect to a
participating employer failure); Sec. 1.413-2(g)(7)(i)(C) (requirement
that spun-off plan have the same substantive terms as MEP); and Sec.
1.413-2(g)(7)(i)(A) (requirement to provide notice of a spinoff-
termination). The collection of information contained in proposed Sec.
1.413-2(g) will be carried out by plan administrators of defined
contribution MEPs seeking to satisfy the conditions for the exception
to the unified plan rule. The collection of information in this notice
of proposed rulemaking has been submitted to the Office of Management
and Budget for review in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)).
1. Plan Amendment Adoption Requirement, Sec. 1.413-2(g)(3)(i)(B)
Section 1.413-2(g)(3)(i)(B) states that as a condition of the
exception to the unified plan rule, a defined contribution MEP must be
amended to include plan language that describes the procedures that
would be followed to address participating employer failures, including
the applicable procedures that apply if an unresponsive participating
employer does not respond to the section 413(c) plan administrator's
requests to remedy the failures.
A defined contribution MEP will not be eligible for the exception
to the unified plan rule if it does not satisfy this plan-language
requirement. Without it, the defined contribution MEP will not be able
to avail itself of the exception to the unified plan rule, and will
continue to be at risk of disqualification due to the actions or
inactions of a single unresponsive participating employer. Since only
one amendment is required, this is a one-time paperwork burden for each
defined contribution MEP. In addition, after final regulations are
issued, the IRS intends to publish a model plan amendment, which will
help to minimize the burden.
We estimate that the burden for this requirement under the
Paperwork Reduction Act of 1995 will be three hours per defined
contribution MEP. Given the size of the burden and the potential
benefits of satisfying the exception to the unified plan rule, we
estimate that approximately 80 percent of defined contribution MEPs
(3,704 MEPs \24\) will amend their plans to satisfy this condition.
Therefore, the total burden of this requirement is estimated to be
11,112 hours (3,704 defined contribution MEPs times three hours).
However, because each defined contribution MEP that adopts an amendment
will do so on a one-time basis, to determine an annual estimate, the
total time is divided by three, or 3,704 hours annually (3,704 defined
contribution MEPs times one hour).
---------------------------------------------------------------------------
\24\ This calculation uses data from the 2016 Form 5500,
``Annual Return/Report of Employee Benefit Plan.'' As noted earlier,
these filings indicate that there are approximately 4,630 defined
contribution MEPs.
---------------------------------------------------------------------------
2. Notice Requirements, Sec. 1.413-2(g)(4)
Notice is another condition of the exception to the unified plan
rule. The proposed regulations would require a section 413(c) plan
administrator to send up to three notices informing the unresponsive
participating employer of the participating employer failure and the
consequences if the employer fails to take remedial action or initiate
a spinoff from the defined contribution MEP. After each notice is
provided, the employer has 90 days to take appropriate remedial action
or initiate a spinoff from the defined contribution MEP. If the
employer takes those actions after the first or second notice is
provided, subsequent notices are not required. Thus, it is possible
that a section 413(c) plan administrator will send fewer than three
notices to an employer. However, because the notice requirements only
apply if an employer has already been unresponsive to the section
413(c) plan administrator's requests, we have estimated that in most
cases, all three notices will be provided.
We estimate that the burden of preparing the three notices will be
three hours. Most of this burden relates to the first notice, which
must describe the qualification failure and the potential consequences
if the employer fails to take action to address it. The burdens of
preparing the second and third notices are expected to be relatively
insignificant, given that these notices must generally repeat the
information that was included in the first notice. We estimate that
approximately 33.3 percent of all defined contribution MEPs (1,542
defined contribution MEPs) have or will have an unresponsive
participating employer, necessitating the sending of these notices on
an annual basis. Therefore, we estimate a burden of 4,626 hours (1,542
defined contribution MEPs times three hours). We expect to be able to
adjust these estimates based on experience after the regulations are
finalized.
Section 1.413-2(g)(4) also includes the burden of notice
distribution. All three notices must be sent to the unresponsive
participating employer. The third notice will also be provided to plan
participants who are employees of the unresponsive participating
employer and to the Department of Labor. We estimate that, on average,
a section 413(c) plan administrator will send the third notice to
approximately 50 recipients (employees of the unresponsive
participating employer, the employer, and the Department of Labor). We
expect that the burden of distributing these notices will be two hours
per defined contribution MEP, for a total burden of 3,084 hours (1,542
defined contribution MEPs times two hours).
3. Terms of Spun-Off Plan, Sec. 1.413-2(g)(7)(i)(C)
After the third notice is provided, Sec. 1.413-2(g)(7)(i)(C)
requires a section 413(c) plan administrator to implement a spinoff of
the plan assets attributable to employees of an unresponsive
participating employer. The assets must be spun-off into a separate
plan that has the same substantive plan terms as the defined
contribution MEP. We estimate that in a given year, a spinoff-
termination for an unresponsive participating employer will be made
with respect to 20 percent of all defined contribution MEPs (926
defined contribution MEPs therefore will be subject to this
requirement). We also estimate that the burden associated with the
requirement to create a spinoff plan will be 10 hours. Therefore, the
total burden is estimated to be 9,260 hours (926 defined contribution
MEPs times 10).
4. Notice of Spinoff-Termination, Sec. 1.413-2(g)(7)(i)(A)
A section 413(c) plan administrator implementing a spinoff-
termination pursuant to Sec. 1.413-2(g)(7) must provide notification
of the spinoff-termination to participants who are employees of the
unresponsive employer. This notice requirement is in Sec. 1.413-
2(g)(7)(i)(A). We estimate that in a given year, 20 percent of all
defined contribution MEPs (926 defined contribution MEPs) will
implement a spinoff-termination of an unresponsive participating
employer, and notice to participants will need to be provided with
respect to those spinoff-terminations.
Using the same numbers as the estimates for notice requirements
under Sec. 1.413-2(g)(4), we estimate that for a defined contribution
MEP that uses the
[[Page 31789]]
exception to the unified plan rule, approximately 50 notices of a
spinoff-termination will need to be sent to participants who are
employees of the unresponsive participating employer (and their
beneficiaries). We also estimate that the total burden for this
requirement is five hours. Based on this number, we estimate that the
burden of preparing and distributing the notices will be 4,630 hours
(926 defined contribution MEPs times five hours).
5. Reporting Spinoff or Spinoff-Termination to IRS, Sec. Sec. 1.413-
2(g)(6)(ii) and (g)(7)(iv)
Any spinoff or spinoff-termination from a defined contribution MEP
under the proposed regulations must be reported to the IRS (in
accordance with forms, instructions, and other guidance). Because the
IRS anticipates issuing a new form or revising an existing form for
this purpose, the estimated reporting burden associated with proposed
Sec. Sec. 1.413-2(g)(6)(ii) and (g)(7)(iv) will be reflected in the
reporting burden associated with those forms, and therefore is not
included here.
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP; Washington, DC
20224. Comments on the collection of information should be received by
September 3, 2019. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collections of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of service to provide information.
Estimated total average annual recordkeeping burden: 25,304 hours.
Estimated average annual burden per response: Between 7 and 27
hours.
Estimated number of recordkeepers: 926 to 3,704.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency determines that a proposal is not likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires the agency to present an
initial regulatory flexibility analysis (IRFA) of the proposed rule.
The Treasury Department and the IRS have not determined whether the
proposed rule, when finalized, will likely have a significant economic
impact on a substantial number of small entities. The determination of
whether creating an exception to the unified plan rule for defined
contribution MEPs will have a significant economic impact requires
further study. However, because there is a possibility of significant
economic impact on a substantial number of small entities, an IRFA is
provided in these proposed regulations. The Treasury Department and the
IRS invite comments on both the number of entities affected and the
economic impact on small entities.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel of Advocacy of the
Small Business Administration for comment on its impact on small
business.
1. Need for and Objectives of the Rule
As discussed earlier in this preamble, under the unified plan rule,
the failure of one employer participating in a MEP to satisfy a
qualification requirement or to provide information needed to determine
compliance with a qualification requirement puts the tax-favored status
of the entire MEP at risk. By creating an exception to the unified plan
rule, the proposed rule would ensure that, in certain circumstances,
compliant participating employers will continue to maintain a qualified
plan. Offering a workplace retirement plan is a valuable tool for small
businesses in recruiting and retaining employees. By retaining tax-
favored status in a defined contribution MEP, participating employers
will continue to be able to offer a workplace retirement plan for their
employees.
The proposed rule is expected to encourage the establishment of new
defined contribution MEPs, as well as increase the participation of
employers in existing defined contribution MEPs, in accordance with
Executive Order 13847 and the policy of expanding workplace retirement
plan coverage. MEPs are an efficient way to reduce costs and complexity
associated with establishing and maintaining defined contribution
plans, which could encourage more plan formation and broader
availability of more affordable workplace retirement savings plans,
especially among small employers and certain working owners. Thus, the
Treasury Department and the IRS intend and expect that the proposed
rule would deliver benefits primarily to the employees of many small
businesses and their families, as well as, many small businesses
themselves.
2. Affected Small Entities
The Small Business Administration estimates in its 2018 Small
Business Profile that 99.9 percent of United States businesses meet its
definition of a small business.\25\ The applicability of these proposed
regulations does not depend on the size of the business, as defined by
the Small Business Administration. The Treasury Department and the IRS
expect that the smallest businesses, those with less than 50 employees,
are most likely to benefit from the savings derived from retaining tax-
favored status in a defined contribution MEP, as well as increasing
participation in defined contribution MEPs, which are expected to occur
as a result of the proposed rule. In Section 7 of the Regulatory Impact
Analysis, see Table 1, which provides statistics on retirement plan
coverage by the size of the employer. These same types of employers,
which are disproportionately small businesses, are
[[Page 31790]]
more likely to participate in a workplace retirement plan after the
proposed rule is finalized. The proposed rule will also affect small
entities that participate in MEPs at the time the rule is finalized.
---------------------------------------------------------------------------
\25\ The Small Business Administration, Office of Advocacy, 2018
Small Business Profile. https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf. Last accessed 03/28/
2019. For purposes of the 2018 Small Business Profile, small
businesses are defined as firms employing fewer than 500 employees.
---------------------------------------------------------------------------
3. Impact of the Rule
Under the existing unified plan rule, a MEP may be disqualified due
to the actions of one unresponsive participating employer. Upon
disqualification, employers participating in a MEP and their employees
would lose the tax benefits of participating in a qualified retirement
plan (deduction for contributions, exclusion of investment returns, and
deferred income recognition for employees). By creating an exception to
the unified plan rule, the proposed regulation would allow a defined
contribution MEP to remain qualified and thereby retain tax-favored
benefits for participating employers and their employees. For example,
if a defined contribution MEP that would have otherwise been
disqualified satisfies the conditions for the exception to the unified
plan rule, small entities that participate in the MEP will be able to
continue to make contributions to the defined contribution MEP that are
deductible under section 404(a)(3).
In addition, as previously stated in the Special Analysis section
of this preamble, this proposed rule could potentially result in an
expansion of defined contribution MEPs, which could create a more
affordable option for retirement savings coverage for many small
businesses, thereby potentially yielding economic benefits for
participating employers and their employees. Some advantages of a
workplace retirement plan (including 401(k) plans, SEP-IRAs, and SIMPLE
IRAs) over IRA-based savings options outside the workplace include: (1)
Higher contribution limits; (2) potentially lower investment management
fees, especially in larger plans; (3) a well-established uniform
regulatory structure with important consumer protections, including
qualification requirements relating to protected benefits, vesting,
disclosures, and spousal protections; (4) automatic enrollment; and (5)
stronger protections from creditors. At the same time, workplace
retirement plans provide employers with choice among plan features and
the flexibility to tailor retirement plans that meet their business and
employment needs.
The ERISA recordkeeping and reporting requirements could decrease
for some small employers that would have maintained a single-employer
defined contribution plan but instead join a defined contribution MEP.
This includes costs associated with filing Form 5500 and fulfilling
audit requirements to the extent a MEP is considered a single plan
under ERISA. Thus, one Form 5500 and audit report would satisfy the
reporting requirements, and each participating employer would not need
to file its own, separate Form 5500 and, for large plans or those few
small plans that do not meet the small plan audit waiver, an audit
report.
The cost savings of an employer participating in a defined
contribution MEP may be partially offset by the costs of complying with
the conditions for the exception to the unified plan rule, including
new recordkeeping and reporting requirements. Additional costs from
these actions will be incurred by the section 413(c) plan
administrator, who among other things is tasked with adopting plan
language (Sec. 1.413-2(g)(3)(i)(B)), providing notice concerning a
participating employer failure to unresponsive participating employers,
participants, beneficiaries, and the Department of Labor (Sec. 1.413-
2(g)(4)), notifying participants and beneficiaries of a spinoff-
termination (Sec. 1.413-2(g)(7)(ii)), and implementing a spinoff of
the MEP assets related to an unresponsive participating employer and
creating a spun-off plan document (Sec. 1.413-2(g)(7)(i)). Although
the Treasury Department and the IRS do not have sufficient data to
determine precisely the likely extent of the increased costs of
compliance, the estimated burden of complying with the recordkeeping
and reporting requirements are described in the Paperwork Reduction Act
section of the preamble. While the burdens associated with the
recordkeeping and reporting requirements are imposed on the defined
contribution MEP and not the participating employers, those additional
costs may be directly passed on to participating employers.
Another partial offset to the cost savings is the potential for an
unresponsive participating employer to have its participation in a MEP
terminated as a result of the MEP's compliance with these proposed
regulations. The proposed regulations state that if an unresponsive
participating employer fails to take appropriate remedial action to
correct a qualification failure, one of the following actions must
occur in order for the MEP to meet the conditions for the exception to
the unified plan rule: (a) A spinoff initiated by the unresponsive
participating employer and implemented by the section 413(c) plan
administrator or (b) a spinoff-termination pursuant to plan terms. The
Treasury Department and the IRS anticipate that compared to the number
of small entities that will benefit from these proposed rules,
relatively few employers will have their plans spun-off or spun-off and
terminated.
As previously stated in the Regulatory Impact Analysis of this
preamble, the Treasury Department and the IRS considered alternatives
to the proposed regulations. One of the conditions that a defined
contribution MEP must satisfy in order to be eligible for the exception
to the unified plan rule is that the section 413(c) plan administrator
provides notice and an opportunity for the unresponsive participating
employer to take action with respect to the participating employer
failure. The proposed regulations would require that the section 413(c)
plan administrator provide up to three notices to the unresponsive
participating employer, informing the employer (and in some cases,
participants and the Department of Labor) of the participating employer
failure and the consequences for failing to take remedial action or
initiate a spinoff from the defined contribution MEP. After each notice
is provided, the unresponsive participating employer has 90 days to
take appropriate remedial action or initiate a spinoff from the defined
contribution MEP. For more information about the notice requirements,
see Section II.B of the Explanation of Provisions in this preamble.
In addition to the alternatives discussed in the Regulatory Impact
Analysis of this preamble, the Treasury Department and the IRS
considered whether the proposed regulations should reduce the number of
notices or the timing between providing notices in order for a section
413(c) plan administrator to satisfy this condition for the exception
to the unified plan rule. The notice and accompanying timing
requirements were provided for because the notice procedures are
intended to ensure that an unresponsive participating employer and its
employees are aware of the adverse consequences if the employer neither
takes appropriate remedial action nor initiates a spinoff, and the
timing requirements are intended to give the unresponsive participating
employer sufficient time to take that remedial action or initiate a
spinoff. The Treasury Department and the IRS believe that, given the
adverse consequences of a spinoff-termination to plan participants, the
notice and accompanying timing requirements strike a balance between
providing protection for unresponsive participating employers and their
[[Page 31791]]
employees and not unduly burdening the section 413(c) plan
administrators in defined contribution MEPs. In the Comments and
Requests for Public Hearing section of the preamble, commenters are
asked to address whether the regulations should add mechanisms to avoid
the potential for repetitive notices, as well as whether additional
procedures should be added to facilitate the resolution of disputes
between a section 413(c) plan administrator and an unresponsive
participating employer.
4. Duplicate, Overlapping, or Relevant Federal Rules
The proposed rule would not conflict with any relevant federal
rules. As discussed above, the proposed rule would merely create an
exception to the unified plan rule for defined contribution MEPs.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the Treasury Department and the IRS as prescribed in this preamble
under the ADDRESSES heading. The Treasury Department and the IRS
request comments on all aspects of the proposed rules. Comments
specifically are requested on the following topics:
The circumstances, if any, in which the exception to the
unified plan rule should be available to defined benefit plans (taking
into account issues arising from the minimum funding requirements and
spinoff rules for defined benefit plans, including the treatment in
such a spinoff of any plan underfunding or overfunding).
Whether the regulations should include additional
requirements for MEPs to be eligible for the exception to the unified
plan rule, including additional procedures to facilitate the resolution
of disputes between a section 413(c) plan administrator and an
unresponsive participating employer.
Whether the regulations should add appropriate mechanisms
to avoid the potential for repetitive notices or to shorten the notice
period for a potential qualification failure that becomes a known
qualification failure. Those mechanisms might include, for example,
treating the first notice that the section 413(c) plan administrator
provided in connection with the potential qualification failure as
satisfying the requirement to provide the first notice in connection
with the known qualification failure, with appropriate modification of
the second and third notices.
For purposes of a spinoff, how to treat participants who
have a single account with assets attributable to service with the
unresponsive participating employer and one or more other participating
employers, or who have a separate rollover account that is not
attributable to service with the unresponsive participating employer.
What additional guidance should be provided on terminating
a plan in the case of a spinoff-termination. This might include, for
example, rules that are similar to the relief provided in section 4,
Q&A-1, of Rev. Proc. 2003-86, 2003-2 C.B. 1211, that any other plan
maintained by an unresponsive participating employer will not be
treated as an alternative plan under Sec. 1.401(k)-1(d)(4)(i) for
purposes of the ability to make distributions upon termination of the
spun-off plan. It might also address the Sec. 1.411(a)-11(e)(1) rules
for distributions upon plan termination
Whether there are any studies that would help to quantify
the impact of the proposed regulations.
Also, consistent with the Executive Order, comments are
specifically requested on any steps that the Secretary of Labor should
take to facilitate the implementation of these proposed regulations.
The Department of Labor has informed the Treasury Department and the
IRS that a section 413(c) plan administrator implementing a spinoff-
termination may have concerns about its fiduciary responsibility both
to the MEP and to the spun-off plan, as well as potential prohibited
transaction issues. Commenters are encouraged to provide feedback on
these issues and address the need for additional interpretive guidance
or prohibited transaction exemptions from the Department of Labor to
facilitate the implementation of these regulations.\26\ Copies of
comments on these topics will be forwarded to the Department of Labor.
---------------------------------------------------------------------------
\26\ For an example of this type of interpretative guidance and
a related prohibited transaction exemption in the context of a
terminating abandoned plan, see 29 CFR 2578.1 (establishing
procedures for qualified termination administrators to terminate
abandoned plans and distribute benefits with limited liability under
title I of ERISA) and Prohibited Transaction Exemption 2006-06 (71
FR 20856, Apr. 21, 2006).
---------------------------------------------------------------------------
All comments will be available for public inspection and copying at
www.regulations.gov or upon request. A public hearing will be scheduled
if requested in writing by any person who timely submits written
comments. If a public hearing is scheduled, notice of the date, time,
and place of the public hearing will be published in the Federal
Register.
Drafting Information
The principal authors of these regulations are Jamie Dvoretzky and
Pamela Kinard, Office of Associate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment Taxes (EEE)). However, other
personnel from the IRS and the Treasury Department participated in the
development of these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.413-2 is amended by:
0
1. Removing paragraph (a)(3)(iv).
0
2. Adding and reserving paragraphs (e) and (f).
0
3. Adding paragraph (g).
The additions read as follows:
Sec. 1.413-2 Special rules for plans maintained by more than one
employer.
* * * * *
(e) [Reserved]
(f) [Reserved]
(g) Qualification of a section 413(c) plan--(1) General rule.
Except as provided in paragraph (g)(2) of this section, the
qualification of a section 413(c) plan under section 401(a) or 403(a),
taking into account the rules of section 413(c) and this section, is
determined with respect to all participating employers. Consequently,
the failure by one participating employer (or by the plan itself) to
satisfy an applicable qualification requirement will result in the
disqualification of the section 413(c) plan for all participating
employers.
(2) Exception to general rule for participating employer failures--
(i) In general. A section 413(c) plan that is a defined contribution
plan will not be disqualified on account of a participating employer
failure, provided that the following conditions are satisfied--
(A) The section 413(c) plan satisfies the eligibility requirements
of paragraph (g)(3) of this section;
(B) The section 413(c) plan administrator satisfies the notice
[[Page 31792]]
requirements described in paragraph (g)(4) of this section;
(C) If the unresponsive participating employer fails to take
appropriate remedial action with respect to the participating employer
failure, as described in paragraph (g)(5)(ii) of this section, the
section 413(c) plan administrator implements a spinoff described in
paragraph (g)(2)(ii) of this section; and
(D) The section 413(c) plan administrator complies with any
information request that the IRS or a representative of the spun-off
plan makes in connection with an IRS examination of the spun-off plan,
including any information request related to the participation of the
unresponsive participating employer in the section 413(c) plan for
years prior to the spinoff.
(ii) Spinoff. A spinoff is described in this paragraph (g)(2)(ii)
if it satisfies either of the following requirements--
(A) The spinoff is initiated by the unresponsive participating
employer, as described in paragraph (g)(5)(iii) of this section, and
implemented by the section 413(c) plan administrator, as described in
paragraph (g)(6)(ii) of this section; or
(B) The spinoff is a spinoff-termination pursuant to plan terms, as
described in paragraph (g)(7) of this section.
(iii) Definitions. The following definitions apply for purposes of
this paragraph (g):
(A) Employee. An employee is a current or former employee of a
participating employer.
(B) Known qualification failure. A known qualification failure is a
failure to satisfy a qualification requirement with respect to a
section 413(c) plan that is identified by the section 413(c) plan
administrator and is attributable solely to an unresponsive
participating employer. For purposes of this paragraph (g)(2)(iii)(B),
an unresponsive participating employer includes any employer that is
treated as a single employer with that unresponsive participating
employer under section 414(b), (c), (m), or (o)).
(C) Participating employer. A participating employer is one of the
employers maintaining a section 413(c) plan.
(D) Participating employer failure. A participating employer
failure is a known qualification failure or a potential qualification
failure.
(E) Potential qualification failure. A potential qualification
failure is a failure to satisfy a qualification requirement with
respect to a section 413(c) plan that the section 413(c) plan
administrator reasonably believes might exist, but the section 413(c)
plan administrator is unable to determine whether the qualification
requirement is satisfied solely due to an unresponsive participating
employer's failure to provide data, documents, or any other information
necessary to determine whether the section 413(c) plan is in compliance
with the qualification requirement as it relates to the participating
employer. For purposes of this paragraph (g)(2)(iii)(E), an
unresponsive participating employer includes any employer that is
treated as a single employer with that unresponsive participating
employer under section 414(b), (c), (m), or (o)).
(F) Section 413(c) plan administrator. A section 413(c) plan
administrator is the plan administrator of a section 413(c) plan,
determined under the rules of section 414(g).
(G) Unresponsive participating employer. An unresponsive
participating employer is a participating employer in a section 413(c)
plan that fails to comply with reasonable and timely requests from the
section 413(c) plan administrator for information needed to determine
compliance with a qualification requirement or fails to comply with
reasonable and timely requests from the section 413(c) plan
administrator to take actions that are needed to correct a failure to
satisfy a qualification requirement as it relates to the participating
employer.
(3) Eligibility for exception to general rule--(i) In general. To
be eligible for the exception described in paragraph (g)(2) of this
section, a section 413(c) plan must satisfy the following
requirements--
(A) Practices and procedures. The section 413(c) plan administrator
has established practices and procedures (formal or informal) that are
reasonably designed to promote and facilitate overall compliance with
applicable Code requirements, including procedures for obtaining
information from participating employers.
(B) Plan language. The section 413(c) plan document describes the
procedures that would be followed to address participating employer
failures, including the procedures that the section 413(c) plan
administrator would follow if the unresponsive participating employer
does not take appropriate remedial action or initiate a spinoff
pursuant to paragraph (g)(5) of this section.
(C) Not under examination. At the time the first notice described
in paragraph (g)(4)(i) of this section is provided to the unresponsive
participating employer, the section 413(c) plan is not under
examination under the rules of paragraph (g)(3)(ii) of this section.
(ii) Under examination. For purposes of this section, a plan is
under examination if--
(A) The plan is under an Employee Plans examination (that is, an
examination of a Form 5500 series or other examination by the Employee
Plans Office of the Tax Exempt and Government Entities Division of the
IRS (Employee Plans) (or any successor IRS office that has jurisdiction
over qualified retirement plans));
(B) The plan is under investigation by the Criminal Investigation
Division of the IRS (or its successor); or
(C) The plan is treated as under an Employee Plans examination
under the rules of paragraph (g)(3)(iii) of this section.
(iii) Certain plans treated as under an Employee Plans
examination--(A) Notification of pending examination. For purposes of
this section, a plan is treated as under an Employee Plans examination
if the section 413(c) plan administrator, or an authorized
representative, has received verbal or written notification from
Employee Plans of an impending Employee Plans examination, or of an
impending referral for an Employee Plans examination. A plan is also
treated as under an Employee Plans examination if it has been under an
Employee Plans examination and the plan has an appeal pending with the
IRS Office of Appeals (or its successor), or is in litigation with the
IRS, regarding issues raised in an Employee Plans examination.
(B) Pending determination letter application--(1) Possible failures
identified by IRS. For purposes of this section, a section 413(c) plan
is treated as under an Employee Plans examination if a Form 5300,
``Application for Determination for Employee Benefit Plan,'' Form 5307,
``Application for Determination for Adopters of Modified Volume
Submitter Plans,'' or Form 5310, ``Application for Determination for
Terminating Plan'' (or any successor form for one or more of these
forms) has been submitted with respect to the plan and the IRS agent
notifies the applicant of possible qualification failures, whether or
not the applicant is officially notified of an examination. This
includes a case in which, for example, a determination letter on plan
termination had been submitted with respect to the plan, and an IRS
agent notifies the applicant that there are partial termination
concerns. In addition, if, during the review process, the IRS agent
requests additional information that indicates the existence of a
failure not previously
[[Page 31793]]
identified by the applicant, then the plan is treated as under an
Employee Plans examination (even if the determination letter
application is subsequently withdrawn).
(2) Failures identified by determination letter applicant. For
purposes of paragraph (g)(3)(iii)(B)(1) of this section, an IRS agent
is not treated as notifying a determination letter applicant of a
possible qualification failure if the applicant (or the authorized
representative) has identified the failure, in writing, to the
reviewing IRS agent before the agent recognizes the existence of the
failure or addresses the failure in communications with the applicant.
For purposes of this paragraph (g)(3)(iii)(B)(2), submission of a
determination letter application does not constitute an identification
of a failure to the IRS.
(C) Aggregated plans. For purposes of this section, a plan is
treated as under an Employee Plans examination if it is aggregated for
purposes of satisfying the nondiscrimination requirements of section
401(a)(4), the minimum participation requirements of section
401(a)(26), the minimum coverage requirements of section 410(b), or the
requirements of section 403(b)(12)(A)(i), with any plan that is under
an Employee Plans examination. In addition, a plan is treated as under
an Employee Plans examination with respect to a failure of a
qualification requirement (other than those described in the preceding
sentence) if the plan is aggregated with another plan for purposes of
satisfying that qualification requirement (for example, section
401(a)(30), 415, or 416) and that other plan is under an Employee Plans
examination. For purposes of this paragraph (g)(3)(iii)(C), the term
aggregation does not include consideration of benefits provided by
various plans for purposes of the average benefits test set forth in
section 410(b)(2).
(4) Notice requirements. The section 413(c) plan administrator
satisfies the notice requirements with respect to a participating
employer failure if it satisfies the requirements of this paragraph
(g)(4).
(i) First notice. The section 413(c) plan administrator must
provide notice to the unresponsive participating employer describing
the participating employer failure, the remedial actions the employer
would need to take to remedy the failure, and the employer's option to
initiate a spinoff of plan assets and account balances attributable to
participants who are employees of that employer. In addition, the
notice must explain the consequences under plan terms if the
unresponsive participating employer neither takes appropriate remedial
action with respect to the participating employer failure nor initiates
a spinoff, including the possibility that a spinoff of assets and
account balances attributable to participants who are employees of that
employer would occur, followed by a termination of that plan.
(ii) Second notice. If, by the end of the 90-day period following
the date the first notice described in paragraph (g)(4)(i) of this
section is provided, the unresponsive participating employer neither
takes appropriate remedial action with respect to the participating
employer failure nor initiates a spinoff, then the section 413(c) plan
administrator must provide a second notice to the employer. The second
notice must be provided no later than 30 days after the expiration of
the 90-day period described in the preceding sentence. The second
notice must include the information required to be included in the
first notice and must also specify that if, within 90 days following
the date the second notice is provided, the employer neither takes
appropriate remedial action with respect to the participating employer
failure nor initiates a spinoff, a notice describing the participating
employer failure and the consequences of not correcting that failure
will be provided to participants who are employees of the unresponsive
participating employer (and their beneficiaries) and to the Department
of Labor.
(iii) Third notice. If, by the end of the 90-day period following
the date the second notice described in paragraph (g)(4)(ii) of this
section is provided, the unresponsive participating employer neither
takes appropriate remedial action with respect to the participating
employer failure nor initiates a spinoff, then the section 413(c) plan
administrator must provide a third notice to that employer. The third
notice must be provided no later than 30 days after the expiration of
the 90-day period described in the preceding sentence. Within this time
period, the third notice must also be provided to participants who are
employees of that employer (and their beneficiaries) and to the Office
of Enforcement of the Employee Benefits Security Administration in the
Department of Labor (or its successor office). The third notice must
include the information required to be included in the first notice,
the deadline for employer action, and an explanation of any adverse
consequences to participants in the event that a spinoff-termination
occurs, and state that the notice is being provided to participants who
are employees of the unresponsive participating employer (and their
beneficiaries) and to the Department of Labor.
(5) Actions by unresponsive participating employer--(i) In general.
An unresponsive participating employer takes appropriate remedial
action with respect to a participating employer failure for purposes of
paragraph (g)(2)(i)(C) of this section if it satisfies the requirements
of paragraph (g)(5)(ii) of this section. Alternatively, an unresponsive
participating employer initiates a spinoff with respect to a
participating employer failure for purposes of paragraph (g)(2)(ii)(A)
of this section if the employer satisfies the requirements of paragraph
(g)(5)(iii) of this section. The final deadline for an unresponsive
participating employer to take one of these actions is 90 days after
the third notice is provided. See paragraph (g)(7) of this section for
the consequences of the employer's failure to meet this deadline.
(ii) Appropriate remedial action--(A) Appropriate remedial action
with respect to potential qualification failure. An unresponsive
participating employer takes appropriate remedial action with respect
to a potential qualification failure if the employer provides data,
documents, or any other information necessary for the section 413(c)
plan administrator to determine whether a qualification failure exists.
If the unresponsive participating employer provides this information,
the section 413(c) plan administrator determines that, based on this
information, a qualification failure exists that is attributable solely
to that employer, and the participating employer fails to comply with
reasonable and timely requests from the section 413(c) plan
administrator to take actions that are needed to correct that
qualification failure, then the qualification failure becomes a known
qualification failure. In that case, the section 413(c) plan will be
eligible for the exception in paragraph (g)(2) of this section with
respect to the known qualification failure by satisfying the conditions
set forth in paragraph (g)(2) of this section with respect to that
known qualification failure, taking into account the rules of paragraph
(g)(6)(i) of this section.
(B) Appropriate remedial action with respect to known qualification
failure. An unresponsive participating employer takes appropriate
remedial action with respect to a known qualification failure if the
employer takes action, such as making corrective contributions, that
corrects, or enables the section 413(c) plan administrator to correct,
the known qualification failure.
[[Page 31794]]
(iii) Employer-initiated spinoff. An unresponsive participating
employer initiates a spinoff pursuant to this paragraph (g)(5)(iii) if,
after receiving a notice described in paragraph (g)(4) of this section,
the employer directs the section 413(c) plan administrator to spin off
plan assets and account balances held on behalf of its employees to a
separate single-employer plan established and maintained by that
employer in a manner consistent with plan terms.
(6) Actions by section 413(c) plan administrator--(i) Rules for a
potential qualification failure that becomes a known qualification
failure. For purposes of applying paragraph (g)(2) of this section to a
potential qualification failure that becomes a known qualification
failure, actions taken (including notices provided) when the failure
was a potential qualification failure are not taken into account. For
example, a notice that the section 413(c) plan administrator provided
in connection with the potential qualification failure would not
satisfy the notice requirements for the known qualification failure.
However, in determining whether the section 413(c) plan is under
examination, as described in paragraph (g)(3)(iii) of this section, as
of the date of the first notice describing the known qualification
failure, the section 413(c) plan administrator will be treated as
providing that notice on the date the first notice was provided with
respect to the related potential qualification failure, but only if the
following conditions are satisfied--
(A) After determining that a qualification failure exists, the
section 413(c) plan administrator makes a reasonable and timely request
to the participating employer to take actions that are needed to
correct the failure, and
(B) As soon as reasonably practicable after the participating
employer fails to respond to that request, the section 413(c) plan
administrator provides the first notice described in paragraph
(g)(4)(i) of this section with respect to the known qualification
failure.
(ii) Implementing employer-initiated spinoff. If an unresponsive
participating employer initiates a spinoff pursuant to paragraph
(g)(5)(iii) of this section by directing the section 413(c) plan
administrator to spin off the assets and account balances held on
behalf of its employees to a separate single-employer plan established
and maintained by the employer, the section 413(c) plan administrator
must implement and complete a spinoff of the assets and account
balances held on behalf of the employees of the employer that are
attributable to their employment by the employer within 180 days of the
date on which the unresponsive participating employer initiates the
spinoff. The section 413(c) plan administrator must report the spinoff
to the IRS (in the manner prescribed by the IRS in forms, instructions,
and other guidance).
(7) Spinoff-termination--(i) Spinoff. If the unresponsive
participating employer neither takes appropriate remedial action
described in paragraph (g)(5)(ii) of this section nor initiates a
spinoff pursuant to paragraph (g)(5)(iii) of this section, then, in
accordance with plan language, the section 413(c) plan administrator
must take the following steps as soon as reasonably practicable after
the deadline described in paragraph (g)(5)(i) of this section--
(A) Send notification of spinoff-termination to participants who
are employees of the unresponsive participating employer (and their
beneficiaries) as described in paragraph (g)(7)(iii) of this section.
(B) Stop accepting contributions from the unresponsive
participating employer;
(C) Implement a spinoff, in accordance with the transfer
requirements of section 414(l) and the anti-cutback requirements of
section 411(d)(6), of the plan assets and account balances held on
behalf of employees of the unresponsive participating employer that are
attributable to their employment by that employer to a separate single-
employer plan and trust that has the same plan administrator, trustee,
and substantive plan terms as the section 413(c) plan; and
(D) Terminate the spun-off plan and distribute assets of the spun-
off plan to plan participants (and their beneficiaries) as soon as
reasonably practicable after the plan termination date.
(ii) Termination of spun-off plan. In terminating the spun-off
plan, the section 413(c) plan administrator must--
(A) Reasonably determine whether, and to what extent, the survivor
annuity requirements of sections 401(a)(11) and 417 apply to any
benefit payable under the plan and take reasonable steps to comply with
those requirements (if applicable);
(B) Provide each participant and beneficiary with a nonforfeitable
right to his or her accrued benefits as of the date of plan
termination, subject to income, expenses, gains, and losses between
that date and the date of distribution; and
(C) Notify the participants and beneficiaries of their rights under
section 402(f).
(iii) Contents of the notification of spinoff-termination. For the
notice required to be provided in paragraph (g)(7)(i)(A), the section
413(c) plan administrator must provide information relating to the
spinoff-termination to participants who are employees of the
unresponsive participating employer (and their beneficiaries),
including the following--
(A) Identification of the section 413(c) plan and contact
information for the section 413(c) plan administrator;
(B) The effective date of the spinoff-termination;
(C) A statement that no more contributions will be made to the
section 413(c) plan;
(D) A statement that as soon as practicable after the spinoff-
termination, participants and beneficiaries will receive a distribution
from the spun-off plan; and
(E) A statement that before the distribution occurs, participants
and beneficiaries will receive additional information about their
options with respect to that distribution.
(iv) Reporting spinoff-termination. The section 413(c) plan
administrator must report a spinoff-termination pursuant to this
paragraph (g)(7) to the IRS (in the manner prescribed by the IRS in
forms, instructions, and other guidance).
(8) Other rules--(i) Form of notices. Any notice provided pursuant
to paragraph (g)(4) or (g)(7)(i)(A) of this section may be provided in
writing or in electronic form. For notices provided to participants and
beneficiaries, see generally Sec. 1.401(a)-21 for rules permitting the
use of electronic media to provide applicable notices to recipients
with respect to retirement plans.
(ii) Qualification of spun-off plan--(A) In general. In the case of
any plan that is spun off in accordance with paragraph (g)(6)(ii) or
(g)(7) of this section, any participating employer failure that would
have affected the qualification of the section 413(c) plan, but for the
application of the exception set forth in paragraph (g)(2) of this
section, will be a qualification failure with respect to the spun-off
plan.
(B) Favorable tax treatment upon termination. Notwithstanding
paragraph (g)(8)(ii)(A) of this section, distributions made from a
spun-off plan that is terminated in accordance with paragraph (g)(7) of
this section will not, solely because of the participating employer
failure, fail to be eligible for favorable tax treatment accorded to
distributions from qualified plans (including that the distributions
will be treated as eligible rollover distributions under section
402(c)(4)), except as
[[Page 31795]]
provided in paragraph (g)(8)(ii)(C) of this section.
(C) Exception for responsible parties. The IRS reserves the right
to pursue appropriate remedies under the Code against any party (such
as the owner of the participating employer) who is responsible for the
participating employer failure. The IRS may pursue appropriate remedies
against a responsible party even in the party's capacity as a
participant or beneficiary under the spun-off plan that is terminated
in accordance with paragraph (g)(7) of this section (such as by not
treating a plan distribution made to the responsible party as an
eligible rollover distribution).
(iii) Additional guidance. The Commissioner may provide additional
guidance in revenue rulings, notices, or other guidance published in
the Internal Revenue Bulletin, or in forms and instructions, that the
Commissioner determines to be necessary or appropriate with respect to
the requirements of this paragraph (g).
(9) Applicability date. This paragraph (g) applies on or after the
date of publication of the Treasury decision adopting these rules as
final regulations in the Federal Register.
Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2019-14123 Filed 7-2-19; 8:45 am]
BILLING CODE 4830-01-P
