Compliance March 1, 2004

DoL Releases EGTRRA IRA Rollover Rule

March 1, 2004 (PLANSPONSOR.com) - The US Department of Labor (DoL) has released a proposed regulation giving details about how plan sponsors and financial institutions can implement new requirements that certain plan distributions be rolled into an IRA.

Reported by

Fred Schneyer

By following the regulation covering distributions between $1,000 and $5,000 in which the participant doesn’t choose a distribution method, plan sponsors will meet their fiduciary responsibility for choosing the IRA or annuity provider and investment of the funds, the DoL said. The requirement was called for in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

The DoL said the proposed regulation protects retirement plan fiduciaries from liability under the Employee Retirement Income Security Act (ERISA) by providing a safe harbor in connection with choosing an institution to provide the individual retirement plans and the choice of investments for such plans.

To enjoy the safe harbor, plan fiduciaries must satisfy certain conditions relating to the types of institutions that are qualified to offer individual retirement plans, the investment products in which funds can be invested, and the limitations on the fees and expenses that may be assessed against the individual retirement plan funds.

“Preservation of retirement savings when workers change jobs is key to ensuring retirement security,” said Assistant Secretary of Labor Ann Combs of the Employee Benefits Security Administration (EBSA). “The proposed rule changes the landscape from one where workers cash out and spend small distributions to one where savings accumulate over time and are available when needed at retirement.”

The department also is proposing a class exemption. The proposed exemption would enable certain plan sponsors to use their own services and products in connection with rollovers from their own retirement plan.

Public comments on the proposed regulation and class exemption are scheduled to be published in the March 2, 2004 Federal Register. Comments should be submitted by April 1, 2004 to the Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5669, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210, Attn: Automatic Rollover Regulation.

Electronic responses may be addressed to e-ori@dol.gov and should be marked “Automatic Rollover Regulation” on the subject line. Comments on the proposed exemption should be addressed to the Office of Exemption Determinations in Room N5649 at the address above or by Internet to moffitt.betty@dol.gov .