non-qualifying assets regulations

Thursday,

October 19, 2000

Part IV

Department of LaborPension and Welfare BenefitsAdministration

29 CFR Part 2520Small Pension Plan Security Amendments;Final Rule

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62958 Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Rules and Regulations

1 See sections 101(b) and 103 of ERISA, and 29CFR 2520.103–1.

DEPARTMENT OF LABOR

Pension and Welfare BenefitsAdministration

29 CFR Part 2520

RIN 1210–AA73

Small Pension Plan SecurityAmendments

AGENCY: Pension and Welfare BenefitsAdministration, Department of Labor.ACTION: Final rule.

SUMMARY: This document contains afinal rule amending the regulationsgoverning the circumstances underwhich small pension plans are exemptfrom the requirements to engage anindependent qualified publicaccountant (IQPA) and to include areport of the accountant as part of theplan’s annual report under Title I of theEmployee Retirement Income SecurityAct of 1974, as amended (ERISA). Theseregulatory amendments provide awaiver of the IQPA annual examinationand report requirements for employeebenefit plans with fewer than 100participants at the beginning of the planyear. The amendments being made bythis final rule are designed to increasethe security of assets in small pensionplans by conditioning the waiver onenhanced disclosure of information toparticipants and beneficiaries and, incertain instances, improved fidelitybonding requirements. The amendmentsdo not affect the waiver for smallwelfare plans (such as group healthplans) under 29 CFR 2520.104–46.Conforming amendments are also beingmade to the simplified annual reportingrequirements for small pension plansspecified in 29 CFR 2520.104–41. Theseamendments affect participants andbeneficiaries covered by small pensionplans, sponsors and administrators ofsmall pension plans, and providers ofinvestment and administrative servicesto small pension plans.DATES: Effective Date: This rule iseffective December 18, 2000.Applicability Date: The amendmentsmade by this rule are applicable as ofthe first plan year beginning after April17, 2001.FOR FURTHER INFORMATION CONTACT: JohnKeene, Office of Regulations andInterpretations, Pension and WelfareBenefits Administration, Room N–5669,200 Constitution Avenue, N.W.,Washington, DC 20210, (202) 219–8521.This is not a toll-free number.SUPPLEMENTARY INFORMATION: OnDecember 1, 1999, the Departmentpublished in the Federal Register (64

FR 67436) proposed amendments to theregulations governing the circumstancesunder which small pension plans areexempt from the requirements to engagean independent qualified publicaccountant and to include an opinion ofthe accountant as part of the plan’sannual report under Title I of ERISA.The Department invited interestedpersons to submit written comments onthe proposed amendments. TheDepartment received 19 writtencomments from the public regarding theproposal. The following discussionsummarizes the proposed regulationand the major issues raised by thecommenters. It also explains theDepartment’s reasons for themodifications reflected in the finalregulation that is being published withthis notice.

A. BackgroundIn general, the administrator of an

employee benefit plan required to filean annual report under Title I of ERISAmust engage an IQPA and include theIQPA’s opinion as part of the plan’sannual report. These annual reportingrequirements can be satisfied by filingthe Form 5500 ‘‘Annual Return/Reportof Employee Benefit Plan’’ inaccordance with its instructions andrelated regulations.1 The requirementsgoverning the content of the opinionand report of the IQPA are set forth insection 103(a)(3)(A) of ERISA and 29CFR 2520.103–1(b). Section 104(a)(2)(A)of ERISA permits the Department toprescribe, by regulation, simplifiedannual reports for pension plans withfewer than 100 participants, and section103(a)(3)(A) permits the Department towaive the IQPA requirements forpension plans for which such simplifiedannual reporting has been prescribed.Section 104(a)(3) of ERISA permits theDepartment to prescribe exemptions andsimplified reporting and disclosurerequirements for welfare plans. Inaccordance with the Department’sauthority under sections 104(a)(2)(A)and 104(a)(3) of ERISA, the Departmentadopted, at 29 CFR 2520.104–41,simplified annual reportingrequirements for pension and welfarebenefit plans with fewer than 100participants. In addition, theDepartment, at 29 CFR 2520.104–46,prescribed for such small plans a waiverfrom the requirements of section103(a)(3)(A) to engage an IQPA and toinclude the opinion of the accountant aspart of the plan’s annual report.

Since the adoption of § 2520.104–46in 1976, the amount of assets held in

small pension plans has risendramatically and small pension planshave become increasingly importantretirement savings vehicles for agrowing number of American workers.Media coverage of a particularlyegregious case involvingmisappropriation of a small pensionplan’s assets over several years focusednational attention on the potentialvulnerability of small pension plans tofraud and abuse. The Department hashad experience with other smallpension plan cases involving serviceproviders, administrators or otherfiduciaries attempting to conceal fraudor misappropriations by falsifyingfinancial and other informationprovided to plan sponsors, trustees, andparticipants. Although such cases arerare and legal remedies often can bepursued in an effort to recover lostassets, the Department concluded, giventhe increasing extent to which workersare depending on their employment-based pension plans as a primary sourceof retirement income, that it isappropriate to take steps to improve thesecurity of assets in small pensionplans.

One approach the Departmentconsidered to improve the security ofassets in small pension plans was torequire all such plans to comply withthe audit requirements of section103(a)(3)(A) of ERISA. While subjectingthe assets of small pension plans to anannual audit would, in the view of theDepartment, provide a high degree ofcertainty that the assets reported on aplan’s annual report are actuallyavailable to pay benefits, theDepartment recognizes that the costsattendant to such a requirement may besignificant for many plans and plansponsors. Consistent with theDepartment’s goal of encouragingpension plan establishment andmaintenance, particularly in the smallbusiness community, the Departmentconcluded that engaging an accountantshould not be the only means by whichthe security of small plan pension assetscan be improved. Rather, in developingthe proposed regulation, the Departmentattempted to balance the interest inproviding secure retirement savings forparticipants and beneficiaries with theinterest in minimizing costs andburdens on small pension plans and thesponsors of those plans.

In assessing alternatives to amandatory audit requirement, theDepartment concluded that a three-pronged approach—focusing on (1) whoholds the plan’s assets, (2) enhanceddisclosure to participants andbeneficiaries and, (3) in limitedsituations, an improved bonding


62959Federal Register / Vol. 65, No. 203 / Thursday, October 19, 2000 / Rules and Regulations

2 Section 412 of ERISA and the regulations issuedthereunder, 29 CFR 2550.412–1, 2580.412–1 et seq.,set forth the bonding requirements generallyapplicable to ERISA-covered plans.

3 In this regard, 29 CFR 2580.412–14 requires thatthe amount of the section 412 bond be determinedby reference to the preceding reporting year. In thecase of new plans, with respect to which there isno preceding report year, § 2580.412–15 providesprocedures for making estimates for the currentyear.

4 Under the ‘‘80 to 120 rule,’’ if the number ofparticipants covered under the plan as of thebeginning of the plan year is between 80 and 120,and an annual report was filed as a small plan filerfor the prior year, the plan administrator may electto continue to file as a small plan filer and claimthe audit waiver even though the plan covered morethan 100 participants as of the beginning of the planyear. Conversely, a plan with fewer than 100participants as of the beginning of the plan year thatelects to continue to file a Form 5500 as a large planpursuant to the ‘‘80 to 120 rule’’ is not eligible toclaim the waiver afforded by this section to smallplan filers.

requirement—could enhance the levelof security and accountability whilekeeping administrative burdens andcosts to a minimum by building oncurrent recordkeeping, disclosure andbonding requirements and practices. Ingeneral, the Department believes thatstatements regarding plan assetsprepared by certain regulated financialinstitutions (such as banks, insurancecompanies, mutual funds, andregistered securities brokers), if madeavailable to participants andbeneficiaries, provide a reliable meansby which participants and beneficiariescan independently confirm that theassets reported by the plan as beingavailable to pay benefits as of the endof the plan year are, in fact, availableaccording to the books and records ofthe regulated financial institution. Suchdisclosure, in the Department’s view,reduces the likelihood of losses overlong periods due to acts of fraud ordishonesty. The Department alsobelieves that supplemental bondingrequirements will serve to reduce therisk of loss due to acts of fraud ordishonestly where a substantialpercentage of a plan’s assets are held byentities that may not be subject to stateor federal regulatory oversight. Thisapproach was set forth as proposed newconditions for obtaining a waiver under§ 2520.104–46 of the requirements toengage an IQPA and include the IQPA’sopinion as part of the plan’s annualreport.

B. Summary of the ProposalThe first part of the proposal focused

on the extent to which a plan’s assetsare held by regulated financialinstitutions. See Proposed § 2520.104–46(b)(1)(i)(A). The proposal used theterm ‘‘qualifying plan assets’’ inapplying the conditions of the waiver.‘‘Qualifying plan assets’’ were definedto include any assets held by: a bank orsimilar financial institution as definedin § 2550.408b-4(c); an insurancecompany qualified to do business underthe laws of a state; an organizationregistered as a broker-dealer under theSecurities Exchange Act of 1934; or anyother organization authorized to act asa trustee for individual retirementaccounts under section 408 of theInternal Revenue Code. The term‘‘qualifying plan assets’’ also includedassets that the Department believespresent little risk of loss to participantsand beneficiaries as a result of acts offraud or dishonesty: participant loansmeeting the requirements of section408(b)(1) of ERISA and qualifyingemployer securities as defined insection 407(d)(5) of ERISA. SeeProposed § 2520.104–46(b)(1)(ii).

The proposal provided, with respectto each plan year for which the waiveris claimed, that at least 95% of theassets of the plan must constitute‘‘qualifying plan assets’’ or that anyperson who handles assets that do notconstitute ‘‘qualifying plan assets’’ iscovered by a bond meeting therequirements of section 412 of ERISA,except that the amount of the bond isnot less than the value of such assets.2The 95% test was provided inrecognition of the fact that some smallplans may have assets (such as limitedpartnership or real estate interests) heldby parties that are not regulatedfinancial institutions. Only where morethan 5% of a plan’s assets do notconstitute ‘‘qualifying plan assets’’would the bonding component of theproposal apply.

The proposal required that thepercentage of a plan’s assets thatconstitute ‘‘qualifying plan assets’’ and,as appropriate, the amount ofsupplemental bond coverage necessaryto comply with the regulation must bedetermined for each plan year for whichthe waiver is claimed. Accordingly, theadministrator of a plan electing thewaiver must make the requireddeterminations as of the beginning ofthe plan year. The proposal providedthat, for purposes of this requirement,the required determinations are to bemade in a manner consistent with therequirements of section 412. Inasmuchas a determination that more than 5% ofa plan’s assets do not constitute‘‘qualifying plan assets’’ may necessitatean increase in the amount of the plan’ssection 412 bond, the Departmentconcluded that, assuming theadministrator does not elect to engagean IQPA, the determination of‘‘qualifying plan assets’’ should be madeon the same basis as the required bond.3

Under the second part of the proposal,the waiver of the IQPA requirementswas further conditioned on thedisclosure of certain information toparticipants and beneficiaries.Specifically, § 2520.104–46(b)(1)(i)(B)required that the summary annualreport (SAR) of a plan electing thewaiver include, in addition to the otherinformation required by § 2520.104b–10:(1) The name of each institution holding‘‘qualifying plan assets’’ and the amount

of such assets held by each institutionas of the end of the plan year; (2) thename of the surety company issuing thebond, if the plan has more than 5% ofits assets in non-qualifying plan assets;(3) a notice indicating that participantsand beneficiaries may, upon request andwithout charge, examine, or receivecopies of, evidence of the required bondand statements received from eachinstitution holding qualifying assets thatdescribe the assets held by theinstitution as of the end of the plan year;and (4) a notice stating that participantsand beneficiaries should contact theRegional Office of the U.S. Departmentof Labor’s Pension and Welfare BenefitsAdministration if they are unable toexamine or obtain copies of statementsreceived from each institution holdingqualifying assets or evidence of therequired bond, if applicable.

Nothing in the proposal affected theobligation of a plan that would beeligible for the audit waiver to file aForm 5500 ‘‘Annual Return/Report ofEmployee Benefit Plan,’’ including anyschedules or statements required by theinstructions to the form. On the otherhand, the proposal made it clear that aplan electing to file a Form 5500 as asmall pension plan pursuant to the ‘‘80to 120 rule’’ in § 2520.103–1(d) mayclaim the audit waiver in the samemanner and under the same conditionsas a plan with fewer than 100participants.4

Finally, conforming amendments tothe simplified annual reportingprovisions in § 2520.104–41 wereincluded in the proposal to clarify that,although other simplified reportingoptions would continue to be available,if an employee benefit plan with fewerthan 100 participants does not meet thecriteria set forth in § 2520.104–46, itwould be required to engage an IQPA toconduct an examination of the financialstatements of the plan, to include withthe plan’s annual report the financialstatements, notes and schedulesprescribed in section 103(b) of ERISAand 29 CFR 2520.103–1, and to includewithin the plan’s annual report a reportof an IQPA as prescribed in section



5 See the Department’s regulation at 29 CFR2550.401c–1 regarding the definition of plan assetsas it relates to insurance company general accounts.

6 According to the commenter, it is a commonpractice for a mutual fund to employ ‘‘registeredtransfer agents’’ to maintain records of shareholderaccounts, calculate and disburse dividends, andprepare and mail shareholder account statements,federal income tax information and othershareholder notices. Some transfer agents prepareand mail statements confirming shareholderinvestment transactions and account balances andmaintain customer service departments to respondto shareholder inquiries. Transfer agents areregulated by and subject to periodic examination bythe Securities and Exchange Commission (SEC)under the Securities Exchange Act of 1934. Amongother requirements, transfer agents must registerwith the SEC using a Form TA–1 and must fileannually with the SEC a report prepared by anindependent accountant concerning the transferagent’s system of accounting controls and relatedprocedures for the transfer of record ownership andthe safeguarding of related securities and funds. Forpurposes of the audit waiver, the Department wouldconsider statements from a registered transfer agentemployed by the mutual fund to be statements fromthe mutual fund.

103(a)(3)(A) of ERISA and 29 CFR2520.103–1(b)(5).

C. Summary of Public CommentsAs noted above, the Department

received 19 written comments regardingthe proposal. The commenters generallyexpressed the view that theDepartment’s proposal, for the mostpart, struck a reasonable balancebetween enhancing the level of securityand accountability for small pensionplan assets and minimizingadministrative burdens and costs onplans and plan sponsors. Thecommenters also generally concludedthat, although the proposal will imposenew costs on some small employers, theproposal was structured so that costs aregenerally proportionate to the risk andthe additional burdens should bemodest. The following discussionsummarizes the major issues raised bythe commenters and explains theDepartment’s reasons for themodifications reflected in the finalregulation.

1. Definition of Qualifying Plan AssetsSeveral commenters asked the

Department to clarify the terms ‘‘heldby’’ and ‘‘hold’’ as used in describingthe requirements that assets must beheld by certain regulated financialinstitutions and that year-endstatements regarding plan assets must befrom the financial institution holdingthe plan’s assets. See § 2520.104–46(b)(1)(i)(B)(1), (b)(1)(ii)(C), and(b)(1)(ii)(F). The Department intendedthat the ‘‘held’’ term as used in theproposal would generally have the samemeaning as it has in section 103(a)(2) ofERISA. Specifically, section 103(a)(2)provides that certain entities which‘‘holds’’ some or all of the assets of theplan must transmit and certify to theplan administrator informationregarding the assets that is needed bythe administrator to comply with anyrequirement of Title I of ERISA.Although section 103(a)(2) is limited toinsurance carriers and otherorganizations that hold plan assets in aseparate account and to banks andsimilar institutions that hold plan assetsin a common or collective trust, aseparate trust or a custodial account, theconcept of what constitutes ‘‘holding’’of a plan’s assets under the proposalwas intended to be the same as undersection 103(a)(2).

In that regard, two commentersrequested confirmation that certainarrangements involving use of ‘‘omnibusaccounts’’ by banks and registeredbroker-dealers would satisfy the‘‘holding’’ requirement. Thecommenters stated that many banks and

registered broker-dealers providevarious investment related services tosmall pension plans, often acting ascustodian, recordkeeper or investmentmanager. The commenters indicatedthat the bank or broker-dealer will keepinternal records tracking the specificassets that belong to each of their smallpension plan customers. The plans’assets may consist of individualsecurities (including stocks, bonds andmutual fund shares), real estate, limitedpartnerships or other types of assets. Inthe case of securities, according to thecommenters, banks and registeredbroker dealers often make trades for theplans in the bank’s or broker-dealer’sname through omnibus accounts, withmost of these trades being made throughdepositories, such as the DepositoryTrust Company, or through the NationalSecurities Clearing Corporation in thecase of mutual fund shares. In all thesecases, the securities are held in thename of the bank or broker-dealer onbehalf of the plans and the bank orbroker-dealer maintains internal recordsthat show what assets belong to whatplan. The Department agrees that suchomnibus account structures wouldconstitute the bank or registered broker-dealer ‘‘holding’’ the plan’s securitiesfor purposes of satisfying the auditwaiver requirements.

Other commenters asked forclarification of whether the Departmentintended to exclude from the definitionof ‘‘qualifying plan assets’’ certain typesof traditional plan investments, forexample, investments in mutual fundsand insurance company general accountcontracts, which may not involve aregulated financial institution ‘‘holding’’plan assets.5 The commenters noted thatit is not uncommon for small pensionplans to have an individual employee ofthe plan sponsor serve as the trustee ofthe plan. In such cases, plan assets maybe invested in mutual fund shares or inan insurance company general accountcontract with the individual trusteeholding the shares or contract in his orher name as trustee of the plan. Thecommenter stated that the plan may beunable to meet the conditions in theproposal for two reasons: (1) Plan assets,i.e., the mutual fund shares and theinsurance contract, will not be ‘‘held’’by a regulated financial institution, and(2) year-end statements regarding theassets will not be from an institution‘‘holding’’ the plan’s assets.

The Department stated in thepreamble to the proposal that ‘‘[i]ngeneral, the Department believes that

statements of plan assets prepared bycertain regulated financial institutions(such as banks, insurance companies,mutual funds, and securities broker-dealers), if made available toparticipants and beneficiaries, provide ameans by which participants andbeneficiaries can independently confirmthat the assets reported by the plan tobe available to pay benefits as of the endof the plan year were, in fact, availableaccording to the books and records ofthe institution holding the assets.’’ TheDepartment agrees with the commentersthat plan investments in mutual fundshares for which the registeredinvestment company maintains recordsof shareholder accounts and preparesand mails shareholder accountstatements provides a commensuratelevel of security and accountability tothat which would exist if the plan’sassets were held by and disclosurestatements were produced by a bank,insurance company, or registeredbroker-dealer.6 The Department believesthat the same is true for general accountcontracts of an insurance companyqualified to do business under the lawsof a state where the insurance companyprepares and mails statements to theplan regarding the value of the contractas of the end of the year and transactionactivity related to the contract duringthe plan year. Accordingly, the finalrule includes a change to the definitionof qualifying plan assets that is intendedto include such mutual fund shares andinsurance company general accountcontracts as ‘‘qualifying plan assets.’’See § 2520.104–46(b)(1)(ii)(D) & (E). Thefinal rule also includes correspondingchanges to the Summary Annual Report(SAR) and related disclosure provisionsto reflect the inclusion of mutual fundshares issued by a registered investmentcompany and general accountinvestment contracts issued by



insurance companies in the definition of‘‘qualifying plan assets.’’ See§ 2520.104–46(b)(1)(i).

Another commenter suggested thatassets of individual account plans thatare invested at the direction ofparticipants or beneficiaries should beincluded in the definition of ‘‘qualifyingplan assets.’’ The Department did notinclude such a provision in the proposalbecause information available to theDepartment regarding those assetsindicated that they generally wouldmeet the conditions in the proposal. Thecommenters stated, however, that theSAR disclosures and the requirement tomake financial institution statementsavailable to participants andbeneficiaries in individual accountplans, like 401(k) plans, could involvean extensive list of financial institutionsin cases where the plan provides abroad range of investment options. Also,the commenters noted that especially insuch individual account plans thatcover a very small number ofemployees, the proposed SARdisclosures could give all the plan’sparticipants and beneficiaries access toconfidential financial informationregarding the type and performance ofindividual account investments madeby other participants. The commentersindicated that this result wouldparticularly impact small businessowners who often have the largestaccounts in the plan, and, accordingly,could create a tension in the smallbusiness market that would beinconsistent with the Department’s goalof encouraging pension planestablishment and maintenance. Thecommenters suggested that theDepartment address this concern byincluding such participant-directedassets in the definition of qualifyingplan assets subject to the condition thatparticipants and beneficiaries arefurnished statements regarding theassets allocated to their individualaccounts at least annually directly froma qualified independent financialinstitution, such as a bank, insurancecompany, registered broker-dealer, ormutual fund.

The Department believes that, in thecase of an individual account plan, thesecurity and accountability objectives ofthe proposal can be met for assetsallocated to individual accounts if theparticipant or beneficiary has theopportunity to exercise control withrespect to those assets and theparticipant or beneficiary is provided, atleast annually, a statement from aregulated financial institutiondescribing the assets held (or issued) bysuch institution and the value of suchassets. In such a case, each participant

can effectively monitor the assets intheir individual accounts, and theregulated financial institutionstatements provide a reliable assurancethat the assets reported to be in theindividual account are in fact there.Accordingly, the definition of‘‘qualifying plan assets’’ has beenmodified in the final rule so that planadministrators of individual accountplans can rely on this alternativeapproach in determining whetherparticipant directed assets allocated toindividual accounts can be treated as‘‘qualifying plan assets’’ for purposes ofapplying the 95% test.

Another commenter suggested thatthe Department exclude qualifyingemployer securities from those assetsconsidered to be qualifying plan assets.The commenter stated that qualifyingemployer securities should not betreated as qualifying plan assets becausethey are ‘‘frequently mis-valued’’ andare subject to special rules. It was theintention of the Department inproposing these amendments toimprove the security of plan assetsagainst losses due to fraud or dishonestyby providing a means under which theexistence and amount of the plan’sinvestments could be independentlyverified by participants andbeneficiaries. The comment regardingvaluation practices raise issues that arebeyond the scope of the proposal, and,accordingly, the Department did notmake any changes to the proposal inresponse to this comment.

One commenter asked the Departmentto clarify in two respects the definitionof qualifying plan assets as applied toparticipant loans. The commenter askedwhether a loan that is treated as adistribution under section 72(p) of theInternal Revenue Code because itexceeds the maximum dollar limit setforth in Code 72(p)(2)(A)(1) will fail tobe a qualifying plan asset. Under theproposal, qualifying plan assetsincluded ‘‘any loan meeting therequirements of section 408(b)(1) of theAct and the regulations issuedthereunder.’’ Neither section 408(b)(1)of ERISA nor the Department’sregulations at § 2550.408b–1 expresslyplace a specific dollar limit onparticipant loans; however,§ 2550.408b–1(a)(1)(iii) requires thatloans must be made in accordance withspecific provisions regarding such loansset forth in the plan. Accordingly, to theextent that the plan terms regardingparticipant loans include limitsintended to ensure that the plan’s loanprogram complies with requirementsunder Code 72(p)(2), those plan termswould have to be complied with for the

loan to meet the requirements of section408(b)(1) of ERISA.

The commenter also asked whether aloan would be seen as continuing tosatisfy the requirements of section408(b)(1) of ERISA, and thereforecontinue to constitute a qualifying planasset, even after a participant was indefault under terms of the loanagreement. The Department includedparticipant loans within the term‘‘qualifying plan assets’’ because of thebelief that such loans are assets thatpresent little risk of loss to participantsand beneficiaries as a result of acts offraud or dishonesty. Even where aparticipant defaults on a loan, that factgenerally should not put the plan atgreater risk of loss due to fraud ordishonesty. Accordingly, theDepartment does not believe that thecharacterization of a participant loan as‘‘in default’’ should disqualify the loanfrom continuing to be treated as a‘‘qualifying plan asset.’’

One commenter suggested that theaudit waiver be conditioned on all theassets of the plan being held byqualifying financial institutions that fileForm 5500 annual reports with theDepartment regarding the assets theyhold. Several other commenters statedthat the 95% test was reasonable,provided adequate flexibility, and wasconsistent with the investment practicesof most small pension plans. It was not,and continues not to be, the intent of theDepartment to directly or indirectlyinfluence the type of investments heldby small pension plans throughapplication of the audit requirements.Rather, the Department continues tobelieve that all plan assets do not needto be held by a regulated financialinstitution to achieve the improvedlevel of security and accountability thatis the objective of this rulemaking.Rather, the definition of ‘‘qualifyingplan assets,’’ the disclosurerequirements, and the bondingcomponents of the rule provide planswith flexibility in structuring theirinvestment portfolios while alsoensuring an adequate level of securityand accountability. Accordingly, theDepartment did not adopt thissuggestion.

2. Fidelity Bonding RequirementsA number of commenters requested

clarification of what constitutes‘‘handling’’ for purposes of therequirement that persons who handlenon-qualifying plan assets must becovered by a fidelity bond in an amountequal to the value of the assets theyhandle. The term ‘‘handling’’ is definedin 29 CFR 2580.412–6 for purposes ofthe general fidelity bonding requirement



under section 412 of ERISA. Theproposal expressly required that personshandling non-qualifying plan assetswould have to be bonded ‘‘inaccordance with the requirements ofsection 412 of the Act and theregulations issued thereunder, exceptthat the amount of the bond shall not beless than the value of such assets.’’ SeeProposed § 2520.104–46(b)(1)(i)(A)(2).No change is being made in the finalrule to this aspect of the proposal.Accordingly, the definition of handlingin § 2580.412–6 would apply forpurposes of meeting the fidelity bondingconditions in § 2520.104–46 as amendedby the final rule.

The Department received severalcomments that focused on the amountof bonding coverage required under theproposal. One commenter was critical ofthe fidelity bonding provisions in theproposal because such bonds do notprotect against losses resulting fromimprudent investments and because thecommenter believed that ‘‘no amount ofincreased reporting or bonding willprevent a crook from being a crook.’’ Onthe other hand, a comment submittedfrom the surety industry suggested as analternative to the conditions in theproposal that the Department require100% of the assets of a small pensionplan be covered by a fidelity bond as themost effective way to increase theprotection of plans from losses due tofraud or dishonesty. Anothercommenter observed that under theproposal some plans would be able touse their general fidelity bond undersection 412 of ERISA to satisfy thefidelity bonding requirement in theproposal, and suggested that the amountof the fidelity bonding coverage beincreased to condition the audit waiveron the plan having a bond in an amountequal to 10% of all plan assets plus100% of all non-qualifying plan assets.

Although it may not be feasible todevelop a regulation that would make itimpossible for any plan to suffer anylosses due to fraud or dishonesty, theDepartment does not consider thatcircumstance to be a valid reason for notadopting this regulation which willprovide meaningful enhancements insecurity and accountability forparticipants and beneficiaries in smallpension plans. The Department also isnot prepared to adopt the suggestionthat 100% of all small pension plans’assets be required to be covered by afidelity bond because such arequirement would, in the Department’sview, impose more costs on plans andplan sponsors without providingsubstantially more security forqualifying plan assets. The 100%bonding approach suggested by the

commenter also would not provideparticipants and beneficiaries theimproved disclosures set forth in theproposal. Lastly, the Departmentrecognized in the proposal thatinasmuch as compliance with section412 generally requires a bond in anamount not less than 10% of all theplan’s funds or other property handled,the bond acquired for section 412purposes may in some cases be adequateto cover any non-qualifying assets underthe proposal. Even in those cases,however, the bond would still equal100% of the value of the non-qualifyingplan assets. Accordingly, theDepartment did not adopt any of thesuggested changes regarding the amountof fidelity bond coverage required to beeligible for the audit waiver.

The Department included fidelitybonding examples in the preamble tothe proposal in an effort to explain thefidelity bonding requirements in theproposal and the interaction betweenthose requirements and the generalfidelity bonding requirements undersection 412 of ERISA. To make thoseexamples easily accessible, theDepartment inserted the examples in thefinal rule as a new § 2520.104–46(b)(1)(iii)(B).

3. Disclosure

As noted above, under the proposal,the waiver of the requirement to engagean accountant is further conditioned onthe disclosure of certain information toparticipants and beneficiaries.Specifically, § 2520.104–46(b)(1)(i)(B)required that the SAR of a plan electingthe waiver include, in addition to theother information required by§ 2520.104b–10: (1) The name of theinstitution holding ‘‘qualifying planassets’’ and the amount of such assetsheld by each institution as of the end ofthe plan year; (2) the name of the suretycompany issuing the bond, if the planhas more than 5% of its assets in non-qualifying plan assets; (3) a noticeindicating that participants andbeneficiaries may, upon request andwithout charge, examine, or receivecopies of, evidence of the required bondand statements received from eachinstitution holding qualifying assetswhich describe the assets held by theinstitution as of the end of the plan year;and (4) a notice stating that participantsand beneficiaries should contact theRegional Office of the U.S. Departmentof Labor’s Pension and Welfare BenefitsAdministration if they are unable toexamine or obtain copies of statementsreceived from each institution holdingqualifying assets or evidence of therequired bond, if applicable.

One commenter noted that in manycases more than one regulated financialinstitution may hold plan assets andasked the Department to confirm thatmultiple statements from separateinstitutions could be used to satisfy theconditions in the proposal. As theDepartment explained when itpublished the proposal, the rule doesnot require the year-end statements tobe in any particular form, but thestatements, at a minimum, must identifythe institution holding the assets andthe amount of assets held as of the endof the year. The Department did notintend, and the language of the proposaldoes not require, that the plan receivea single statement from one financialinstitution.

Another commenter suggested thatthe SAR and other disclosurerequirements in the proposal should beapplied to all large plans required tofurnish SARs to participants, not justsmall pension plans. The commenter’ssuggestion called for regulatory changesthat would be beyond the scope of thisrulemaking which did not include anychanges in the information disclosure oraudit requirements applicable to largepension and welfare plans. Moreover,the annual reporting and auditrequirements applicable to large plansgenerally result in the availability ofmore comprehensive and detailedinformation about the plan’sinvestments than the disclosurerequirements in the proposal. Forexample, large plans with investmentportfolios are generally required toinclude various financial schedules intheir annual report, including a detailedlisting of the assets of the plan, and,pursuant to section 103(a)(3)(A) ofERISA, the IQPA report attached to theForm 5500 must include theaccountant’s opinion on whether thoseschedules ‘‘present fairly, and in allmaterial respects the informationcontained therein when considered inconjunction with the financialstatements taken as a whole.’’Participants and beneficiaries in suchlarge plans have a right, upon request,to examine and obtain copies of theForm 5500 and the IQPA report, and theSAR required to be furnished toparticipants must include a notificationof that right.

Several commenters indicated that thedisclosure requirements set forth in theproposal would require adjustments tothe way SARs are currently preparedand asked the Department to adopt lessdetailed SAR disclosures. For example,one commenter suggested that the SARbe required to state only the percentageof assets held by regulated institutionsand the amount of any fidelity bonds if



7 Several commenters asked questions about and/or suggested modifications of certain conclusionsregarding estimated costs and burdens associatedwith complying with the SAR and relateddisclosure requirements that were contained in theDepartment’s regulatory impact analysis publishedin the Federal Register along with the proposal.Those comments are addressed in the regulatoryimpact analysis section of this notice.

8 The final rule also includes qualifying employersecurities and participant loans in this newprovision in paragraph (b)(1)(i)(B)(1) to make itclear that the there are no special SAR disclosuresassociated with the treatment of such assets asqualifying plan assets.

plan does not meet the 95% test, alongwith a statement that participants andbeneficiaries have a right to examineand get copies, on request, of statementsfrom the institutions and evidence ofany required fidelity bond. Anothercommenter stated that adding moreinformation to that already required tobe given in the SAR may be confusingto many participants. The commentersuggested that including a ‘‘boilerplate’’notice in the SAR regarding thefinancial institution statements andfidelity bond would give participantsand beneficiaries interested inreviewing the materials knowledge oftheir availability at no cost. As notedabove, the Department believes thatfurnishing statements from certainregulated financial institutionsregarding the plan’s assets provides ameans by which participants andbeneficiaries can independently confirmthat the assets reported by the plan tobe available to pay benefits as of the endof the plan year were, in fact, available.Such disclosure, in the Department’sview, reduces the likelihood of lossesover long periods due to acts of fraud ordishonesty. The Department believesthat the security and accountabilityobjectives of the proposal are enhancedby the disclosure of the names ofinstitutions holding (or issuing in thecase of mutual fund shares and generalaccount investment contracts withinsurance companies) qualifying planassets and the amount of such assets. Ageneral disclosure that information isavailable upon request would not, in theview of the Department, provideparticipants with sufficient informationto make an informed decision onwhether to request the underlyingfinancial institution statements orevidence of bonds.7

The Department is making one changein the SAR disclosure requirements toaddress the inclusion, discussed above,of participant directed assets in thedefinition of qualifying plan assets. Asnoted above, the final rule provides in§ 2520.104–46(b)(1)(ii)(F) that, in thecase of an individual account plan thedefinition of ‘‘qualifying plan assets’’would include any assets in theindividual account of a participant orbeneficiary over which the participantor beneficiary has the opportunity toexercise control and with respect to

which the participant or beneficiary isfurnished, at least annually, a statementfrom one of the regulated financialinstitutions referred to in § 2520.104–46(b)(1)(ii)(C), (D) or (E) describing theassets held (or issued) by the institutionand the amount of such assets. A newprovision was added to the final rule tomake it clear that the SAR disclosurerequirements would not apply toindividual account assets that meet thedefinition of qualifying plan assetspursuant to the alternative described inparagraph (b)(1)(ii)(F). See § 2520.104–46(b)(1)(i)(B)(1).8

A commenter suggested that the finalregulation state that the requirement toprovide these individual accountstatements could be satisfied by givingparticipants and beneficiaries access toindividual account information via‘‘800’’ numbers, automated voiceresponse systems, website access, andother similar technologies. TheDepartment does not believe that accessto information is comparable toaffirmatively providing participants andbeneficiaries with information abouttheir accounts. Accordingly, the finalrule requires that, as with SARs, theindividual account statements must be‘‘furnished’’ to participants. See§ 2520.10 4–46(b)(1)(ii)(F). In thatregard, the Department notes that it hasa separate regulation project pendingunder § 2520.104b-1 that is focused onthe use of electronic communicationtechnologies by ERISA covered plans tosatisfy certain disclosure obligationsunder Part 1 of Title I, including theobligation to furnish SARs toparticipants. In the Department’s view,measures and methods acceptable forfurnishing SARs under the Department’sregulation at § 2520.104b-1 would alsobe acceptable for regulated financialinstitutions to use in furnishingindividual account statements underthis final regulation.

4. Miscellaneous IssuesOne commenter asked the Department

to exclude from the audit waiverrequirements plan assets in individualaccount plans belonging to owner-employees. The commenter posited thatowner-employees generally would notneed the additional disclosures set forthin the proposal. Another commenter ina similar vein argued that ‘‘top heavy’’plans should be exempt from the auditrequirement because ‘‘[b]y definition,60% or more of the accrued benefits of

a top-heavy plan are those of ‘‘keyemployees’’ as defined by IRC § 416(i)* * * [and] these are the type ofparticipants who are most likely to beable to police or monitor theperformance of their accrued benefits.’’The Department does not believe thatsuch carve outs for owner-employeeassets or top heavy plans would beappropriate. First, the Departmentbelieves that inclusion of participantdirected assets in individual accountplans and the related adjustments to thedisclosure provisions in the proposaladequately address the commenter’sconcerns regarding owner-employees.Second, ‘‘top heavy’’ status may varyfrom year to year which may result inintermittent and potentially confusingdisclosures to plan participants.Moreover, the rationale presented by thecommenter ignores the non-keyemployee participants in the plan. TheDepartment, accordingly, did not adoptthe carve-outs suggested by thesecommenters.

A commenter urged the Department toimprove the remedies available foraggrieved participants in cases wherethere have been losses due to fraud ordishonesty. The commenter observedthat participants often do not have thefinancial resources to retain experiencedERISA counsel even in cases of clearfiduciary violations, that fiduciaries incases involving interpretation of plandocuments may benefit from courts’reviewing their interpretations under adeferential ‘‘arbitrary and capricious’’standard, that statutory remedies arelimited in fiduciary cases and do notinclude compensatory and punitivedamages, and that courts may not awardfull attorney’s fee awards even in caseswhere the participant prevails. Thecommenter concluded that enhancingretirement security would be betteraccomplished by improving theremedies available to aggrieved planparticipants. Expanding the ERISAremedies available to participants andbeneficiaries in cases involving planlosses due to fraud or dishonesty would,in the Department’s view, generallyrequire legislation and, accordingly, isbeyond the scope of this administrativerulemaking.

5. Request for Public Comments onAlternatives

To aid in its effort to develop a cost-effective final regulation, theDepartment solicited views andcomments from the benefit plancommunity on whether there arealternative approaches that wouldprovide significant enhancements in thesecurity of small pension plan assetsand the accountability of persons



handling those assets and that would bemore effective or involve less cost andburden than this proposal. In thatregard, the Department specificallyinvited comments on requiring, asconditions of being eligible for the auditwaiver, that small pension plans (1)obtain a fidelity bond covering personswho handle plan funds in an amountequal to at least 80% of the value of theplan’s assets and (2) make available toparticipants and beneficiaries aschedule of the plan’s assets held forinvestment purposes as of the end of theplan year similar to the schedulecurrently required as part of the Form5500 annual report filed by pensionplans with 100 or more participants. Nocommenter supported this alternativeapproach. The two commenters thatspecifically addressed this alternativeconcluded that it would be moredisruptive and more costly for mostemployers and would be unlikely toprovide sufficient additional benefits toplan participants and beneficiaries tojustify the extra administrative costs andburden to small plan sponsors.

6. Effective DateFinally, several commenters requested

a delayed effective date to give smallpension plans sufficient time to complywith the new summary annual reportand bonding requirements provided forin this rule. The proposal envisionedthat the final regulation would beeffective 60 days after publication in theFederal Register. One commentersuggested that the new requirementsshould not be applicable until the laterof: (1) the first plan year beginning after180 days after the final regulation ispublished in the Federal Register, or (2)the first plan year beginning after thefirst surety bond policy expiration datethat is at least 60 days after theregulation is finalized. Anothercommenter asked that the effective datebe delayed for all plans until the firstplan year beginning on or after January1, 2002.

The Department believes that it isimportant to make this final ruleeffective in a timely fashion so thatparticipants and beneficiaries get theenhanced security and accountabilityprotections of the new audit waiverconditions. The Department is alsosensitive to the need for plans and plansponsors to have sufficient time to makeadjustments to comply with thedisclosure and bonding provisions inthe regulation. In light of the fact thatfidelity bonds may be issued for multi-year periods, although the amount of thecoverage is required to be set annually,an effective date based on the suretybond policy expiration date could

provide for a overly long period beforesome plans would be required tocomply with the new audit waiverconditions. Similarly, making theamendments effective for the first planyear beginning on or after January 1,2002, could provide a prolonged periodfollowing publication of the final rulefor plans with non-calendar fiscal yearsbefore they would have to comply withthe new SAR disclosure requirements(as long as four years for some planswith non-calendar fiscal years). TheDepartment believes that making theamendments applicable as of the firstplan year beginning after 180 days afterthe final regulation is published in theFederal Register provides an adequateperiod of time for plans and plansponsors to make any necessaryadjustments while not unduly delayingthe implementation of the new auditwaiver conditions. Accordingly, thefinal rule will be effective 60 days afterpublication in the Federal Register butthe amendments to the audit waiverconditions will be applicable as of thefirst plan year beginning after 180 daysafter the final regulation is published inthe Federal Register.

Executive Order 12866 StatementUnder Executive Order 12866, the

Department must determine whether aregulatory action is ‘‘significant’’ andtherefore subject to the requirements ofthe Executive Order and subject toreview by the Office of Management andBudget (OMB). Under section 3(f), theorder defines a ‘‘significant regulatoryaction’’ as an action that is likely toresult in a rule: (1) having an annualeffect on the economy of $100 millionor more, or adversely and materiallyaffecting a sector of the economy,productivity, competition, jobs, theenvironment, public health or safety, orState, local or tribal governments orcommunities (also referred to as‘‘economically significant’’); (2) creatingserious inconsistency or otherwiseinterfering with an action taken orplanned by another agency; (3)materially altering the budgetaryimpacts of entitlement grants, user fees,or loan programs or the rights andobligations of recipients thereof; or (4)raising novel legal or policy issuesarising out of legal mandates, thePresident’s priorities, or the principlesset forth in the Executive Order.

Pursuant to the terms of the ExecutiveOrder, it has been determined that thisaction is ‘‘significant’’ and subject toOMB review under Section 3(f)(4) of theExecutive Order. Consistent with theExecutive Order, the Department hasundertaken to assess the costs andbenefits of this regulatory action. The

Department’s assessment, and theanalysis underlying that assessment, isdetailed below.

Overview

This regulation is intended toaccomplish two purposes: to limitpension plan fraud and to provideparticipants and beneficiaries of smallpension plans with the information theyneed to monitor their plan assets and tohold plan fiduciaries accountable.Recent cases involving embezzlement orother misappropriations of pensionassets have focused national attentionon the potential vulnerability of smallpension plans to fraud and abuse. As aresult, the Department has determinedthat modifications to the small planaudit waiver (§ 2520.104–46) willenhance pension plan security.Imposing the additional conditions onthe audit waiver will help to reduce therisk of loss due to acts of fraud ordishonesty with small plan assets. Itwill also provide participants with moreinformation about their pension plans,thus better enabling them to helpprovide the checks and balances neededto ensure the integrity of the pensionplan.

The cost to small pension plans of theprovisions of this final rule will not belarge—it is estimated to be less than 1%of total annual administrative costs forall small pension plans. Estimates fromForm 5500 data indicate that most smallpension plans meet the requirement toobtain a waiver that at least 95% of theplan assets must be ‘‘qualifying planassets.’’ For the few plans not meetingthis requirement, the cost of obtaining afidelity bond to enable them to meet theconditions for a waiver is low relativeto the increased security provided toparticipants and beneficiaries. Likewise,the cost of meeting disclosurerequirements is small because, after aninitial start up cost to include newlanguage in the SAR and allow for theinclusion of additional detailconcerning qualifying plan assets, thesubsequent annual cost consists only ofupdating the SAR with data alreadyprovided at least annually by thefinancial institutions in the normalcourse of business. Other costs includea small cost for the preparation anddistribution of documents toparticipants and beneficiaries whorequest copies of statements fromfinancial institutions and evidence offidelity bonding.

The costs imposed by the additionalconditions this regulation places on theexisting small plan audit waiver areexpected to total $24.1 million



9 The cost estimates are derived from 1995 dataon pension plans and 1998 BLS data onoccupational wages as adjusted for non-wagecompensation and overhead.

annually.9 This total includes $714,000for all 605,115 small pension plans todetermine whether they satisfy theconditions for the audit waiver withrespect to the percentage of plan assetsheld by regulated financial institutions,$6.5 million to obtain additional fidelitybonding coverage for the 29,414 plansnot expected to meet the condition thatat least 95% of the plan’s assets are heldby a regulated financial institution,$16.3 million to satisfy additionaldisclosure conditions of the auditwaiver, and $628,000 to respond torequests by participants andbeneficiaries for copies of the statementsof financial institutions and evidence offidelity bonding. As explained furtherbelow, the cost estimates of the finalrule are greater than the $15.6 millionestimate presented in the proposal, dueprimarily to the adjustment of certainassumptions used in estimating therule’s impact. The revised estimates alsotake into account the substantivemodifications made to the proposal inthe development of the final rule.

In the Department’s view, the benefits(although not quantified) of the finalrule’s requirements for the IQPA waiveroutweigh the costs. The enhancedaccountability and security of smallpension plans resulting from theadditional IQPA waiver conditions willbenefit plan participants who arecounting on these pensions forretirement security. With minimumgovernment intervention, participantsand other parties to the plan will havean improved ability to verify andmonitor plan assets. Given the morethan $300 billion in small pension planassets, any increase in security andaccountability is valuable. Theadditional conditions will alsostrengthen confidence in the pensionsystem as a whole. The following itemshighlight other potential benefits of theregulation in a qualitative, and whenpossible, quantitative, way:

• Confidence in the private pensionsystem may be strengthened and mayresult in increased participation amongthe nearly 600,000 private wage andsalary workers who currently elect notto participate in a small plan that isoffered;

• In 1998, more than $6 million inpension plan assets were recovered as aresult of criminal investigations. If newconditions are imposed on the smallplan audit exemption, fewer assets maybe missing from plans in the futurebecause of the checks and balances put

in place by improved informationdisclosure;

• The investigations and litigationassociated with recovering assets ofsmall pension plans can be very costlyto private parties and to theGovernment. In 1998, nearly 6,000 civilinvestigations were initiated by theDepartment. If new conditions areimposed on the small plan auditexemption, losses will likely declineand fewer investigations of smallpension plans may be needed. This willhave the dual effect of loweringinvestigation-related costs for smallplans and permitting Federal authoritiesto enhance the security of otherparticipants by directing their effortselsewhere; and

• When workers discover that theirpension plan assets are missing or arejeopardized, worker productivitydeclines. Time at work may be spentinvestigating what happened to planassets, whether they will be restored,and whether retirement will be possiblewithout these pension assets. A moresecure system for monitoring pensionplan assets will reduce productivity lossto employers.

Comments on Estimated EconomicImpact

The Department received 19 writtencomments regarding the proposedregulation. Of these, the majoritycommended the Department for itsefforts to strike a reasonable balancebetween improving the security of smallpension plan assets and allowing smallplans and small plan sponsors tofunction efficiently without theimposition of undue administrativeburdens and costs. The principalconcerns of those commenters whofocused on the economic impact of theproposal related to the Department’sestimates of the costs to comply withthe bonding and disclosure provisions,as well as to the Department’smethodology for estimating the numberof plans potentially impacted by theproposed amendments to the waiver ofthe requirement to engage anindependent qualified publicaccountant. Specifically, commentersquestioned whether the cost burden forthe bond would be ‘‘nominal’’ as theDepartment suggested in the proposal,and whether the cost burden fordeveloping and modifying the SAR wasgreater than the Department hadestimated. These issues are addressed inmore detail below.

Four commenters addressed the costof the surety bond. The proposedregulation provided that, for each planyear for which the waiver is claimed, ifat least 95% of the assets of the plan do

not constitute ‘‘qualifying plan assets’’any person who handles assets that donot constitute qualifying plan assetsmust be covered by a bond meeting therequirements of section 412 of ERISA,except that the amount of the bond mustbe not less than the amount of suchassets. Based on Department data andconsultation with industryrepresentatives, the original estimate forthe average additional premium cost ofan enhanced surety bond was $200 perplan. One commenter questioned theDepartment’s conclusion that the cost ofadditional fidelity coverage would be‘‘nominal,’’ and whether, in fact,bonding under this regulation would beas broadly available to plans as undersection 412. The comment was based onthe fact that the enhanced bondrequirement applies to only a smallportion of the pension planpopulation—specifically, a populationwhich is not audited and whichmaintains less than 95% of its assets ina qualified financial institution. Thecommenter further questioned whether,even if a plan were able to obtain abond, it might be at a higher cost thanthat estimated by the Departmentbecause the requirement representedadverse selection against the surety. Inany case, the eventual premium costand impact on the availability of suretybonds under the proposal was viewedby the commenter as having apotentially high level ofunpredictability because surety bondsmeeting these requirements are notcurrently offered. Finally, thecommenter proposed that a surety mightrequest an audit by an independentaccountant, or subject the plan to othermore stringent underwritingrequirements, in order to issue a bondfor unqualified plan assets, resulting inadditional attendant costs to the plan orplan sponsor.

Before concluding that enhancedbonding offered a cost effective way ofprotecting small plan assets, theDepartment had originally consideredeliminating the waiver of the auditrequirement for all small plans that didnot meet the 95% requirement(approximately 37,000 plans). Inexamining the cost, however, theDepartment concluded that the auditcost, $230 million dollars for the 5% ofplans not meeting the 95% requirement,was too great in relation to otheralternatives. The Department thereforeexplored alternatives available toenhance pension plan security and theburdens imposed by these variousalternatives. The regulation was craftedby assessing the net benefits of thesealternatives and is intended to



accomplish the goal of increasedsecurity without imposing significantcosts on pension plans. Alternativesconsidered included on-site inspection,periodic reporting, additionalcompliance penalties, and additionalbonding as a stand-alone requirement.However, all of these options wereeither (1) extremely expensive (rangingin cost from $200 million to $4 billionpaid by plans or plan sponsors) andthus conflicted with the Department’spriority of creating a regulatoryenvironment that encourages pensionplan formation, (2) not feasible toimplement, or (3) would not havesufficiently enhanced small pensionplan security.

Both before and after the commentperiod, the Department consulted withindustry representatives about thepremium cost for a bond, including thedetails of their formal comment, and thepotential risk to the surety associatedwith accomplishing enhanced securitythrough bonding of non-qualified assets.Representatives emphasized that thecost for a bond covering plan assets notheld or issued by regulated financialinstitutions can only be assessed aftersome period of time in which lossexperience can accumulate and theindustry is able to evaluate the risk andrespond through pricing. It wasconsidered possible that, initially, dueto lack of actual experience, industrycosts would remain stable but wouldrequire an upward or downwardadjustment at a future date. It is alsopossible that sureties might respond toa perceived additional exposureassociated with segmenting the risk ofassets that inherently represent a greaterrisk of loss (i.e., the assets not held byfinancial institutions) by applying morestringent underwriting and rating thisrisk accordingly. The Department willmonitor this situation in the future and,if in the Department’s view seriousproblems arise, would consideramending this regulation. TheDepartment would welcome concernedparties notifying it of any problems theyencounter.

The Department agrees that theestimate of additional premium costsand other impacts on the market forfidelity bonds in near term and overtime bears a degree of uncertainty.However, as discussed with industryrepresentatives, the Department doesnot believe that non-qualifying assetsnecessarily represent an inherentlygreater risk of loss. Rather, the mannerin which they are held simply does notafford a mechanism for an independentconfirmation of the existence of theasset that is comparable to theconfirmation associated with statements

from regulated financial institutions, orwith an examination conducted by anIQPA. Industry representatives alsoagreed that the surety market as a wholeis very large, and that pricing isgenerally very affordable. It is alsoworth noting that, for some plans,compliance with the bondingrequirements under section 412 ofERISA will also cover the bondingrequirement under this regulation.Section 412 generally requires anyperson who handles plan funds or otherproperty to be bonded in an amount notless than 10 percent of the amount offunds handled. Unless the value of asmall plan’s non-qualifying plan assetsexceeds the value of 10 percent of totalplan funds or other property, there islikely to be no additional risk to thesurety or increase in bonding cost toplans because of this regulation.

Commenters and industryrepresentatives called attention topotential uncertainty in future costs, butdid not suggest that the estimate of anaverage of $200 in additional premiumwould result in an unreasonable costestimate. Accordingly, the Departmenthas not changed its earlier estimate of$200 as an average cost increase peraffected plan for an enhanced fidelitybond. Our analysis shows, therefore,that bonding continues to be the leastcostly alternative for increasing thesecurity of small plan assets, loweringaggregate costs by a factor of more than20 compared to other alternatives whilestill accomplishing the goal ofenhancing small pension plan security.

Four commenters suggested that theDepartment’s cost estimate for the SARdisclosure underestimated the costs thatwould be imposed on plans. Theregulation requires that, for a plan to beable to take advantage of the waiver ofan audit by an IQPA, a plan’s SAR mustinclude certain specific informationrelating to: the financial institutionswhich hold or issue plan assets;bonding; the right of participants andbeneficiaries to year-end statements ofthe financial institutions and bondinginformation; and a notice thatparticipants and beneficiaries maycontact the Regional Office of thePension and Welfare BenefitsAdministration, U.S. Department ofLabor, if they are unable to examine orobtain copies of the statements receivedby the plan from each institutionholding or issuing qualifying planassets, or evidence of the bond, ifapplicable. Two commenters suggestedthat most SARs are generated directly bysoftware packages that produce theForm 5500 annual report; therefore, theythought that inserting new languagemight require a programming change

and a greater start up expense to theplan than computed in the proposal. Inaddition to the initial changes, plans arealso required to make annualmodifications to the SAR which willreflect the current assets of the plan, theamount of the assets held or issued, andthe bonding at the end of the plan year.In its economic analysis of the proposedregulation, the Department did notinclude the cost of annual modificationof the SAR, because it was believed tobe nominal. Commenters questionedthis assumption as to the time it wouldtake to update the SAR, on an annualbasis, with the names of each regulatedfinancial institution holding or issuingplan assets and the year end amount ofthose assets. The commenters addedthat preparing an annual disclosuredocument, with multiple custodians,would take more time than thatattributed to the usual preparation of anSAR and, with the additional reportingof specific account totals, theDepartment should include a cost factorin the economic analysis for thisobligation. The Department hasresponded to these comments in threeways.

First, we have increased the costestimates for the start up changes to theSAR. Using the same basis used forburden estimates of the Form 5500annual report, the Department assumesthat 90% of SARs and 90% of thechanges required by the final rule willbe accomplished by service providers.Because the information required to beadded to the SAR by this regulation isnot currently separately reported bysmall pension plans as part of theirForm 5500 annual filing or currentlyused by Form 5500 software packages,it is likely, as commenters observed,that system modifications will berequired. Accordingly, the Departmentassumes that a systems analyst orfinancial manager will complete thework and has increased the hourly rateof the professional performing thisactivity from $39 to $57 per hour. Inresponse to comments indicating thatrevising an SAR will take more timethan previously anticipated, theDepartment has also increased itsassumption for the time required tomodify software and procedures toproduce an amended SAR disclosurefrom 15 minutes to 30 minutes.However, the Department believes thetime required to make these changes ismoderated by the economies of scaleresulting from those service providerswho have multiple client plans, andwhose efforts will result in a systematicSAR modification for multiple plans,usually as a part of a software package



integrated with Form 5500 preparationsoftware. Based on changes to costestimates for wage rates and timerequirements, the resulting cost estimatefor this SAR start up modification is$12.1 million, compared with the $5.9million originally estimated. Lastly,individual account plans are notincluded in this cost burden because analternative SAR disclosure for theseplans is now described in the finalregulation. This has the result oflowering the original cost estimate forsmall plans, although the net effect isthe $6.2 million increase.

Second, in response to comments, theDepartment added new paragraph(b)(1)(ii)(F) to § 2520.104.46 whichmodifies the SAR reportingrequirements under paragraphs(b)(1)(i)(B) in the case of individualaccount plans holding qualified planassets. This new paragraph providesthat, in the case of an individualaccount plan, the SAR disclosurerequirement may be satisfied as to anyassets in the individual account of aparticipant or beneficiary over whichthe participant or beneficiary has theopportunity to exercise control byhaving a regulated financial institutionreferred to in paragraphs (b)(1)(ii)(C), (D)or (E) of section 2520.104–46 furnish astatement, at least annually, toparticipants or beneficiaries describingthe assets held (or issued) by suchinstitution and the amount of suchassets. As described above, the changeto the regulation is warranted because ofthe existing protective features of the atleast annual reporting procedures forindividually directed individualaccounts. The change in the regulationwill eliminate the need for annualmodification of SARs for manyindividual account plans.

Third, the Department has includedin the final cost $4.2 million for annualmodification of the SAR to reflectchanges in the financial institutionsholding or issuing qualifying planassets, the amounts of assets, and/orfidelity bonding information. Becausethe information used to modify the SARis provided by the financial institutionsin the regular course of business and thetime needed to transfer the informationto the SAR was assumed to be minimal,the Department did not originallypropose a cost for such annualmodification of the SAR. However, theDepartment recognized that most SARsare completed by service providers in asystematic fashion, either through theuse of software packages interrelatedwith the preparation of the Form 5500or by means of extracting figures fromfinancial statements. The Departmentrecognizes that some plans may require

time to modify the SAR each year, butthe Department believes that this timewill be reduced to the extent that SARpreparation software and processes aremodified to accept new informationover time. The Department also believesthat some of the concerns of thecommenters with respect to annualmodification costs have been addressedthrough the alternative method to SARdisclosure for individually directedaccount plans.

Finally, the regulation requires thatplans furnish copies of year endstatements from financial institutionsand bonding information to thoseparticipants and beneficiaries whorequest them. For purposes of its costestimates, the Department assumes that5% of participants and beneficiarieswho are not in individually directedaccount plans will request thisinformation. The Department furtherassumes that participants andbeneficiaries with individual accountplans taking advantage of the alternativedisclosure approach under theregulation, i.e., those who receiveannual statements from a regulatedfinancial institution reporting on thevalue of their assets, will not requestthis general plan level information.Because the documents required to bedisclosed by the plan have already beenprovided by bonding companies andfinancial institutions, the aggregate costfor plans to produce the copies ofstatements and bonding information isestimated at $627,700, reflecting laborcosts of $15 per hour for assembling andphotocopying and distribution costs of$.37 per request. The aggregate costrepresents a reduction from the$995,000 estimated in the proposedregulation. The cost savings is a resultof excluding individual account planseligible to take advantage of thealternative disclosure approach underthe regulation.

Cost AnalysisThe requirements contained in this

final regulation were developed to bestconform to the actual investmentpatterns of small plans, rather than toalter these patterns. To understand theinvestment patterns of plans and thetypical percentage of plan assets thatwould meet the ‘‘qualifying plan assets’’requirement, we used Form 5500 data toexamine how pension plans report theirallocation of assets among variousinvestment categories. Plan assetallocation information on the Form 5500C/R formerly filed by small plans iscurrently limited to very generalcategories. Because of this lack ofdetailed financial information, the Form5500 filings of plans with more than 100

participants but less than $2 million inassets (within two standard deviationsof the mean asset value of small plans)were used as a proxy. We obtained adistribution of these plans based uponthe proportion of each plan’s assets thatare ‘‘qualifying plan assets.’’ We thenapplied this distribution to the actual1995 count of small plans toapproximate the current distribution ofsmall plans based on the proportion ofassets that are ‘‘qualifying plan assets.’’Form 5500 does not categorize‘‘qualifying plan assets,’’ nor does itidentify the holder of assets. Forpurposes of this analysis, we haveconsidered the nature of the asset to bean indicator of the holder of the asset.Accordingly, we assumed that assetsreported as cash, CD’s, U.S. GovernmentSecurities, corporate debt and equity,loans, employer securities, and thevalue of interests in direct filing entities,registered investment companies, andinsurance company general accounts aretypically held or issued by regulatedfinancial institutions, and as suchconstitute ‘‘qualified plan assets.’’

Based on a total of 605,000 smallplans, 1995 data, and using theassumptions outlined above, wedetermined that the vast majority of theassets of small plans are ‘‘qualifyingplan assets.’’ Specifically, for all but 5%of small pension plans, at least 95% ofplan assets constitute ‘‘qualifying planassets.’’ The plans that will not meet the95% threshold are atypical of theindustry standard and are sufficientlyfew in number such that additionalconditions for an audit waiver to protectparticipants and plan assets are bothwarranted and cost effective.

The Department received a commentthat expressed the view that the proxygroup used for assessing the number ofsmall plans that will not have 95% ofassets held or issued by regulatedfinancial institutions resulted in asignificantly inaccurate estimate of thenumber of plans impacted, and thus theultimate cost of the regulation. In thecommenter’s view, the distribution ofassets in plans with more than 100participants but less than $2 million inassets would be new plans, whichwould be attempting to minimizeadministrative costs. The commenterfurther suggests that the Departmentassumed a relationship between theholder of qualifying plan assets and themanner in which a plan is ‘‘trusteed’’(i.e., uses a corporate trustee such as abank as opposed to an individual personsuch as a representative of the plansponsor). Moreover, the commentersuggests delaying any action amendingthe audit waiver until an actual study of



the potentially impacted small planuniverse is conducted.

The Department notes that while thestatute clearly envisions the Departmentadopting rules intended to limit theadministrative burdens imposed onsmall plans to comply with the annualreporting provisions in ERISA, andalthough the more limited reportingrequirements actually in place for smallplans results in the availability of morelimited detail concerning the assets ofsmall plans, the annual reports filed bysmall plans do provide accurate datawith respect to the features of smallplans, their total income, expenses, andassets, and the breakdown of thoseassets in broad investment categories.The Department’s methodology indeveloping detailed estimates of smallplan assets by investment type involveddistributing the breakdown of assets ina slightly larger proxy group across theactual assets of the small planspotentially affected by this regulation.This larger group is still within twostandard deviations of the mean assetvalue of the plans with fewer than 100participants. The Department continuesto believe this approach offers areasonable basis for estimating detailneeded to accurately assess economicimpact, given that this level of detail isnot available under existing regulatoryrequirements.

Furthermore, this methodology resultsonly in an estimate of the types of assetsheld by small plans. The types of assets,such as mutual funds, marketablesecurities, or certificates of deposit, areassumed to be an indicator of who holdsthe assets and, thus, the extent to whichthey will be qualifying plan assets forpurposes of this regulation. Themethodology is not intended to identifythe trustee of the plan, nor is itnecessary to do so to assess theeconomic impact of the regulation. Asthe Department has indicated, it doesnot intend to alter the investmentchoices of small plans, or theirarrangements for designating a trustee,but rather to ensure that either amechanism is in place for regularconfirmation of the existence of smallplan assets by regulated financialinstitutions holding those assets, or thatenhanced bonding is in place. TheDepartment continues to be of the viewthat its approach to identifying theplans and assets potentially impacted isreasonable in light of the data availableto conduct this analysis.

Finally, as noted earlier, severalcommenters requested clarification ofthe definition of ‘‘qualifying planassets,’’ particularly with respect toassets allocated to individual accountplans in which individuals direct their

investments. As discussed in theSummary of Public Comments section,the Department agrees with thecommenters that the security andaccountability objectives of the proposalcan be met, in the case of an individualaccount plan, for assets over which theparticipant or beneficiary has theopportunity to exercise control if theparticipant or beneficiary is furnished,at least annually, a statement from aregulated financial institutiondescribing the assets held (or issued) bysuch institution and the amount of suchassets. The final rule includes suchassets within the definition of qualifyingplan assets. This has the effect ofreducing the number of plans otherwisesubject to the enhanced bondingrequirement from 37,000 to 29,400, andreducing the number of plans impactedby the new SAR disclosures from605,115 to 425,709. In addition tomeeting the Department’s objectiveswith respect to small plan asset security,this modification from the proposal alsolimits the potential for imposition ofdisclosure requirements in this rule thatduplicate the disclosure requirement ofother regulatory provisions, such asthose set forth in ERISA section 404(c)and related regulations, or disclosuresmade as part of normal businesspractice.

Regulatory Flexibility ActThe Regulatory Flexibility Act (5

U.S.C. 601 et seq.) (RFA) imposescertain requirements with respect toFederal rules that are subject to thenotice and comment requirements ofsection 553(b) of the AdministrativeProcedure Act (5 U.S.C. 551 et seq.) andwhich are likely to have a significanteconomic impact on a substantialnumber of small entities. Unless anagency certifies that a final rule will nothave a significant economic impact ona substantial number of small entities,section 603 of the RFA requires that theagency present a final regulatoryflexibility analysis describing theimpact of the rule on small entities atthe time of publication of the notice offinal rulemaking. Small entities includesmall businesses, organizations andgovernmental jurisdictions.

For purposes of analysis under theRFA, the Department continues toconsider a small entity to be anemployee benefit plan with fewer than100 participants. The basis of thisdefinition is found in section 104(a)(2)of ERISA, which permits the Secretaryof Labor to prescribe simplified annualreports for pension plans which coverfewer than 100 participants. Undersection 104(a)(3) of ERISA, the Secretarymay also provide for exemptions or

simplified annual reporting anddisclosure for welfare benefit plans.Pursuant to the authority of section104(a)(3) of ERISA, the Department haspreviously issued at 29 CFR 2520.104–20, 2520.104–21, 2520.104–41,2520.104–46 and 2520.104b–10 certainsimplified reporting provisions andlimited exemptions from reporting anddisclosure requirements for small plans,including unfunded or insured welfareplans covering fewer than 100participants and satisfying certain otherrequirements.

Further, while some large employersmay have small plans, in general mostsmall plans are maintained by smallemployers. Thus, the Departmentbelieves that assessing the impact of thisrule on small plans is an appropriatesubstitute for evaluating the effect onsmall entities. The definition of smallentity considered appropriate for thispurpose differs, however, from adefinition of small business which isbased on size standards promulgated bythe Small Business Administration(SBA) (13 CFR 121.201) pursuant to theSmall Business Act (15 U.S.C. 631 etseq.). No comments were received withrespect to the standard. Therefore, asummary of the final regulatoryflexibility analysis based on the 100participant size standard is presentedbelow.

The amount of assets in small pensionplans has grown nearly tenfold since1975, making small pension plans anincreasingly important retirementsavings vehicle for Americans. In lightof recent cases involving embezzlementor other misappropriations of pensionassets that have focused nationalattention on the potential vulnerabilityof small pension plans to fraud andabuse, this regulation has been writtento enhance the security andaccountability of small pension plans.

The rule amends the Department’sexisting waiver of examination andreport of IQPA for employee benefitplans under ERISA with fewer than 100participants. This rule impacts allclasses of small pension plans subject toTitle I of ERISA with fewer than 100participants. As shown by the regulatoryanalysis, the regulation accomplishesthe objective of enhancing pension plansecurity without imposing significantcosts via additional reporting,recordkeeping, or other compliancerequirements.

Under the regulation, for each year inwhich a waiver is claimed, at least 95per cent of the assets of the plan mustconstitute ‘‘qualifying plan assets’’ orany person who handles assets of theplan that do not constitute qualifyingplan assets must be bonded in



accordance with the requirements ofsection 412, except that the amount ofthe bond shall not be less than theamount of such assets. In 1995, therewere approximately 605,000 employeepension plans with fewer than 100participants that met the requirementsfor the audit waiver. The Departmentestimates that, under the regulation,only 29,400 small plans will not meetthe 95 per cent limit for qualifying planassets and will be required to eitherpurchase a fidelity bond or undergo anaudit. We assume that plans will choosethe less costly alternative of bonding tosatisfy the regulation. All 605,000 smallpension plans, however, will be subjectto SAR disclosure requirements, whichinclude adding new language to theSAR, providing copies of statementsfrom regulated financial institutions andbonding information free of charge toparticipants and beneficiaries whorequest them and, for those plans whichare not individual account plans,modifying the SAR on and annual basis.

The Department received 19comments regarding the proposal. Themajority commended the Departmentfor striking a reasonable balancebetween providing accountability andprotection for small pension plans andminimizing administrative costs andrecordkeeping. Four commenters raisedthe issue of bonding and its impact onsmall plans, specifically questioningwhether the cost of the bond would benominal as described in the proposal.Commenters expressed the view that asurety might respond to a perceivedadditional exposure associated withsegregating a particular group of planswhich have the potential of posinggreater risk to the surety because ofadverse selection by requesting an auditby an independent accountant orsubjecting the plan to other morestringent underwriting requirements.The Department had estimated that costof a fidelity bond to be $200 per plan.

Before determining that bonding wasthe best and most cost efficient way ofprotecting small assets, the Departmentconsidered several alternatives,including imposing an audit on allsmall plans that do not meet the 95%requirement, on-site inspection,periodic reporting, and eliminating theexisting small plan audit waiver forexamination and reporting by an IQPA.All of these options, however, wereeither extremely expensive (ranging incost from $200 million to $4 billion),thereby conflicting with theDepartment’s priority of creating aregulatory environment that encouragespension plan formation, not feasible toimplement, or would not havesufficiently enhanced small pension

plan security. After the commentperiod, the Department consulted withrepresentatives of the surety industry tofurther assess the impact of bonding onsmall plans. Taking into considerationthe information received from industryrepresentatives as well as othercomments received by the public, theDepartment has decided not to changeits original estimate of $200 per plan fora fidelity bond.

The actual cost of a bond, accordingto representatives from the suretyindustry, will best be determined aftersome period of time in which theindustry will be able to evaluate the riskinvolved. The cost of a premium maynot change initially, but could beadjusted upward or downward at somefuture date. On the other hand, the riskfor bonding small plans invested inassets which are not held or issued byregulated financial institutions will notbe any greater under the regulation thanit is now, and the industry risk factor forERISA plans is low. Industryrepresentatives did not believe thataudits would be required. Becauseunderwriting judgment is necessarilyapplied on a case-by-case basis, actualindustry experience will be the bestpredictor of premium cost. Our analysisof available information shows,therefore, that bonding is the least costlyalternative, lowering aggregate costs bya factor of more than 20 while similarlyaccomplishing the goal of enhancingsmall pension plan security.

It is also worth pointing out that, forsome small plans, compliance with theexisting bonding requirements undersection 412 of ERISA will also cover thebonding requirement under thisregulation. Section 412 requires that anyperson who handles funds or otherproperty must be bonded in an amountnot less than 10 percent of the amountof funds handled. Unless the value of asmall plan’s non-qualifying plan assetsexceeds the value of 10 percent of totalplan funds or other property handled,there is no additional cost to small plansbecause of this regulation.

For those plans that do not have 95%qualifying plan assets (approximately29,414 plans), the Department estimatesthat the cost for obtaining a bond willbe $574,000 for labor for a professional’stime at $39 per hour. This represents areduction in cost from the proposedestimate of $713,600. The Departmenthas made this adjustment because smallpension plans that are individualaccount plans, which are generallyinvested in mutual funds or insurancecompany investments, have beenprovided under the final regulation withan alternative disclosure approach thatshould result in a fewer number of these

plans needing to purchase a bond. Thecost to small plans for bond premiumsis therefore lower by $1,436,000. Theaggregate cost for labor and for thepremiums is $6.5 million, whichrepresents a cost savings of $1.5 millionfrom the original proposal. The per plancost for meeting the bondingrequirement is $220.

Commenters also suggested variouschanges to the proposed SAR disclosurerequirements. Under the regulation, theSAR must disclose to participants andbeneficiaries the names of the regulatedfinancial institutions which hold orissue qualified plan assets, the amountof those assets, the fact that the planmust furnish to participants andbeneficiaries on request statements fromthe financial institutions andinformation on bonding, and, finally,that if they do not receive the statementsand bonding information from the plan,they may contact the plan administratoror the Pension and Welfare BenefitsAdministration, U.S. Department ofLabor. A number of commenterssuggested that, as an alternative tolisting each financial institution and theamount of assets held or issued by theinstitution, the SAR could include amodel statement which explained thatthe statements were available toparticipants and beneficiaries onrequest. The Department consideredchanging the disclosure requirements toreflect this alternative, but determinedthat the protection offered by furnishingstatements and bonding informationabout the plans assets to participantsand beneficiaries was of primaryconsideration in guarding pension planassets. A general disclosure aboutavailability of information will not offerthe level of plan protection from fraudand dishonesty to participants andbeneficiaries that they will receive froma plan’s actually furnishing to them onan annual basis statements fromfinancial institutions and bondinginformation.

Certain commenters expressed theview that SAR disclosure for individualaccount plans should not includestatements concerning the amount ofassets held or issued by financialinstitutions. Participants andbeneficiaries in these plans regularlyreceive statements informing them oftheir asset allocation and the value ofthe assets in their individually directedaccounts. The commenters stated thatfurnishing statements from financialinstitutions which do not hold or issuetheir investments would not be relevantand would not offer additionalprotection from fraud or dishonesty. Inaddition, commenters were concernedabout the lack of privacy for individual



10 The data in the table was estimated in the sameway as that for pension plans with more than 100participants (see Executive Order 12866 Statement).

participant investors if very small planswere required to furnish the names ofthe financial institutions and theamount of assets they held to allparticipants. As a result of thesecomments, the Department has revisedthe regulation for individual accountplan disclosure. The Department agreedthat it was unnecessary to require smallplans to furnish duplicativeinformation. This has the effect ofeliminating both start up and annualmodification costs for individualaccount plans as well as protectingindividual investor privacy, withoutcompromising SAR disclosure.

As part of the disclosure requirementunder the regulation, plans must addnew language to the SAR. Becauseservice providers typically use softwareprograms to generate SARs, commentersindicated that estimates for revisingexisting programs which generate SARswould cost more than the Departmenthad estimated and would require aprofessional’s time. The Departmentagreed with this assessment andincreased its estimate for start up costsfor the additional time needed to rewriteexisting software programs. Due to thelack of data on the number of serviceproviders and the number of plans theyserve, the Department can notspecifically estimate a cost for a serviceprovider to make the required changes.The Department is aware, however, thatsome service providers serve very largenumbers of plans and believes that someeconomies of scale will arise from therepetition of processes. The Departmentalso increased labor costs for a

professional to $57 per hour from $39per hour to more accurately reflect thelevel of expertise required toaccomplish the revision. Therefore, forthe 425,709 non-individually directedsmall plans, the start up cost is $12.1million, based on a professional’s timeat $57 per hour. This represents anincrease of $6.5 million in start up costs.The start up cost per plan is $29.

Annual modification of the SARrequires updating the list of financialinstitutions holding qualified planassets, including the amount of thoseassets as expressed in the institutions’financial statements, and bondinginformation. Because planadministrators should receive fromqualifying financial institutionsstatements identifying plan assets heldor issued by that institution in order toproperly discharge their annualreporting and other obligations underERISA, no cost is associated withobtaining the statements. Originally, theDepartment did not include an estimatefor annual modification because there isno burden in obtaining the statementsfrom the financial institutions and littletime was involved in transferring theinformation to the SAR. However,commenters suggested that modifyingthe SAR to include a list of financialinstitutions holding or issuingqualifying plan assets and reporting thechanging amount of those assetsannually would require a professional’stime. The Department has consideredthese comments and believes that thecosts should include an adjustment forannual modification of the SAR. The

cost to plans, which are not individualaccount plans, for annual modificationof the SAR is $4.2 million base on aprofessional’s time at $39 per hour. Asexplained above, individual accountplans eligible for the alternativedisclosure approach set forth in the finalrule are not required to annually modifySAR information and are therefore notincluded in the cost estimate. For thoseplans meeting the 95% test, theaggregate annual disclosure cost of $4.2million translates to $6 per plan.

Finally, plans are required to furnishparticipants and beneficiaries withcopies of the financial institutionstatements and bonding informationupon request. Excluding participantsand beneficiaries in individual accountplans, the Department assumes that 5%of all small plan participants andbeneficiaries will request thisinformation. The cost to provide theinformation is $.6 million, whichincludes assembling and photocopyingby a clerical worker at $15 per hour andmailing costs of $.37 per mailing.Participants and beneficiaries ofindividual account plans are excludedbecause they are generally invested inmutual funds and receive statements, atleast annually, related to their personalaccounts.

When considering any regulatoryaction, it is important to consider theimpact on businesses of various sizes.Given that well over half of all smallpension plans (54%) have between 1and 10 participants, it is important tofocus on these small plans in particular.

ESTIMATES OF THE NUMBER AND PERCENTAGE OF VERY SMALL PENSION PLANS (1–9 PARTICIPANTS) NOT MEETING THE‘‘QUALIFYING PLAN ASSETS’’ TEST AT VARIOUS THRESHOLD LEVELS

Alternative threshold levels for qualifying plan assets

100% 95% 90% 85% 80% 75% <75%

Number of plans .................................................................. 186,142 20,377 10,771 9,402 8,737 8,100 49Percentage of plans ............................................................. 54 6 3 3 3 2 .01

As the above table shows,10 thepercent of plans with 1–9 participantsthat would meet the requirement that95% of assets be ‘‘qualifying plan

assets’’ is the same as that for all smallplans with fewer than 100 participantsas indicated below. Therefore, the 95%threshold is reasonable for all classes of

plans within the category of those withfewer than 100 participants.

ESTIMATES OF THE NUMBER AND PERCENTAGE OF SMALL PENSION PLANS (1–99 PARTICIPANTS) NOT MEETING THE‘‘QUALIFYING PLAN ASSETS’’ TEST AT VARIOUS THRESHOLD LEVELS


100% 95% 90% 85% 80% 75% <75%

Number of plans .................................................................. 339,967 29,414 11,409 9,037 7,855 6,743 0



ESTIMATES OF THE NUMBER AND PERCENTAGE OF SMALL PENSION PLANS (1–99 PARTICIPANTS) NOT MEETING THE‘‘QUALIFYING PLAN ASSETS’’ TEST AT VARIOUS THRESHOLD LEVELS—Continued


100% 95% 90% 85% 80% 75% <75%

Percentage of plans ............................................................. 56 4 2 2 1 1 0

Paperwork Reduction Act

In accordance with the PaperworkReduction Act of 1995 (44 U.S.C. 3501–3520) (PRA 95), the Departmentsubmitted the information collectionrequest (ICR) included in the proposedSmall Pension Plan SecurityAmendments to OMB for review andclearance at the time the Notice ofProposed Rulemaking (NPRM) waspublished in the Federal Register(December 1, 1999, 64 FR 67436). OMBapproved the revisions to the existinginformation collection, the ERISASummary Annual Report, under controlnumber 1210–0040 on February 2, 2000.This approval will expire on February28, 2003. Certain additional adjustmentshave been made to the ICR and theestimates of burden in response topublic comments. The informationcollection provisions of this final rule,as well as the adjustments made to theinformation collection provisions andthe burden estimates originallyincorporated in the proposal, arediscussed below.

The revisions to the small plan auditwaiver implemented by this final rulewill increase the security andaccountability of small pension plans,while minimizing the additionalpaperwork burden imposed on smallplans. No additional paperwork burdenis associated with two of the threeprovisions in the regulation—therequirement that 95% of plan assets be‘‘qualifying plan assets’’ and the moreprotective bonding requirement forthose plans not meeting the 95% test.For those plans which are notindividual account plans, additionalburden does arise from three otherprovisions: including new language inthe SAR; modifying the SAR annually toidentify the institutions holding orissuing qualifying plan assets andamounts of the assets reported by theinstitutions as of the end of the planyear, and; furnishing copies of financialinstitution statements and bondinginformation upon request.

It is assumed that adding theadditional language to the SAR formwill be accomplished by serviceproviders for 90% of plans, and in-house for the remaining plans. The startup cost is estimated to be $10.9 million

for the 90% of small plans using serviceproviders for 30 minutes of aprofessional’s time at $57 per hour. Thisamounts to about $3.6 million whenannualized over a three-year period. Thehourly burden for plans that will berequired to add additional informationto their SAR themselves (assumed to be10% of small plans) is 21,286 hours,based on 30 minutes of a professional’stime at $57 per hour. This estimate hasbeen adjusted from the one outlined inthe original proposal. The increase of$6.2 million is the result of anadjustment in the hourly rate for aprofessional from $39 per hour to $57per hour to reflect the fact that this workmay more likely be done by systemsanalysts and financial managers ratherthan the auditors and accountantspreviously assumed to perform the taskof revising the SAR format. We havealso adjusted the estimated timerequired to complete this work from 15minutes per plan to 30 minutes perplan.

These adjustments are the result ofcomments received in response to theNPRM that indicated that both thehourly rate for a professional and thetime allotted for drafting new SARlanguage and modifying existingsoftware and information managementprocedures to produce a detailed listingof qualifying assets by financialinstitution at year end were too low.The revised hourly rate is derived from1998 BLS data on occupational wagesfor financial managers, which is thehigher of the wage rates for financialmanagers and systems analysts, the twoprofessional categories assumed mostlikely to complete this work. Thechange in the hourly burden reflects areevaluation by the Department inresponse to comments of the time it willtake to make changes to a plan’s currentSAR, particularly where these changesmay involve rewriting an existingsoftware package. The Department alsorecognized that most SARs arecompleted by service providers in asystematic fashion, either through theuse of existing software packagesinterrelated with the preparation of theForm 5500 (which the SARsummarizes), or by means of extractingfigures from financial statementssupporting the Form 5500. In either

case, the service provider is expected tohave ready access to the year endstatements needed to set up anappropriate format for listinginstitutions and amounts, as well asmodifying the institutions and amountsfrom year to year, because thestatements must be used in thepreparation of the annual report.

Commenters noted, and theDepartment recognizes, that revisingsoftware or procedures may in manyinstances require more than 30 minutes.However, the Department believes thatthe time required to change the SARformat and procedures used to producethe detail figures will be moderated byseveral factors. First, with the exceptionof the institutions and amounts, and thename of the surety issuing the plan’sfidelity bond if the plan has more than5% of its assets in non-qualifying assets,the Department has supplied in§ 2520.104–46(b)(1)(i)(B)(3) and (4) thegeneral format of the language to beadded.

In addition, where service providersserve multiple client plans, it isassumed that they will achieve certainefficiencies in modifying systems andprocedures to generate the revised SARformat, resulting in lower per plan costs.The Department can not specificallyestimate this effect or develop anestimate of burden per service providerdue to the lack of information,especially with respect to small plans,on the number of service providers andnumber of providers servicing multipleplans. However, the Department isaware that some service providersprepare annual reports and SARs forvery large numbers of plans, andbelieves that economies of scale do arisein those situations, generally loweringestimates derived on a per plan basis.

Finally, the existing systems ofservice providers to small plans maymore readily accommodate the requiredformat changes to the extent that theseservice providers also have large planclients. As part of their annual reportingobligations, large pension plans arecurrently required to submit a listing ofassets held for investment that is similarin certain respects to the listing of theregulated financial institutions holdingqualifying assets and the amounts heldrequired under the final rule. Adjusting



11 See section 404(c) of ERISA and the regulationsissued thereunder, 29 CFR § 2550.404c–1 et seq.

12 The burden of the disclosure provisions of theDepartment’s regulation under section 404(c) ofERISA is accounted for separately under thecurrently approved OMB control number 1210–0090.

a system already designed to producethe listing of assets held for investmentmay require a smaller commitment ofresources to meet the SAR disclosureconditions of the final rule than revisinga system that does not include thiscapability. For these reasons, theDepartment considers 30 minutes perplan to be a reasonable estimate of theaverage time required for modificationof the SAR format.

The regulation also provides that aplan administrator must, on an annualbasis, modify the SAR to include thenames of regulated financial institutionsholding or issuing qualifying planassets, the amount of those assets at theend of the plan year, and certainbonding information. Originally, theDepartment did not include a costburden for the annual modification inthe proposal’s estimates because there isno burden associated with obtaining thestatements from the financialinstitutions and the amount of timerequired to transfer the information tothe SAR was believed to be nominal.Commenters, however, observed thatmodifying the SAR to include a list offinancial institutions holding or issuingqualified plan assets and reporting theamount of those assets would require aprofessional’s time each year toaccomplish because assets and amountswill typically change from year to year.The Department has taken thesecomments into consideration, andconcludes that they support anadjustment of the hour and cost burdensoriginally estimated for annualmodification of the SAR. Thisadjustment results in increases of 10,643hours and $3.7 million from priorestimates for the 425,709 plans requiredto modify the SAR for changes in theassets and amounts annually. Thisestimate is based on an average of 15minutes of a professional’s time at $39per hour each year, and the assumptionthat 90% of plans purchase services tocomply with SAR requirements. Again,some plans may require more time tomodify the SAR listing each year, butthe Department notes that the timerequired for annual modifications willbe reduced to the extent that plans andservice providers are in a position toinvest in the modification of systemsand SAR formatting to fully automatethe annual modification process.

It should be noted that theadjustments to the assumptionsdescribed above would have resulted inmore substantial increases in burdenestimates in the absence of themodification of the requirements of theproposal as they relate to thoseindividual account plans in whichinvestments are individually directed.

As described in detail above in theSummary of Public Comments sectionof this Notice, the Department hasmodified both the definition ofqualifying plan assets to includeparticipant directed assets underspecific circumstances and thedisclosure provisions as they relate toparticipant directed assets. Thesechanges have the effect of lowering thenumber of plans impacted by the SARand system design modification and theannual asset listing requirement from605,115 to 425,709 (179,406 small plansare reported on Form 5500 to haveindividually directed assets) whileensuring that the objectives of theregulation are met without theimposition of duplicative disclosureobligations. The participants in those179,406 plans represent 3,512,000 of the9,373,000 participants in all smallpension plans.

It is possible that the estimate ofindividual account plans that will beexcepted from the requirement to listassets, amounts, and institutions in theSAR because the investments areindividually directed, and accountstatements for these assets are providedby the financial institutions toparticipants at least annually, will differto some degree from the actual numberthat will be excepted. Because the Form5500 data element used to estimate thisnumber is an indicator that some or allof the assets of an individual accountplan filer are individually directed, nodata is available to support an estimateof the number of such plans in whichall assets are individually directed.However, the Department is aware thatthe assets not subject to individualdirection in these plans often includeparticipant loans and employersecurities, which are also excepted fromthe detailed SAR disclosurerequirement. Accordingly, theDepartment believes that the actualdegree of variation from the number ofplans assumed to be excepted will besmall.

In addition to addressing the privacyconcerns raised by commenters withrespect to the disclosure in the SAR ofassets and amounts held in individuallydirected accounts, the Department alsowished to address the coordination ofthe requirements of this rule with otherstatutory and regulatory requirements,11

as well as existing business practicesrelevant to individually directedaccount plans. While not all plans thatpermit participants or beneficiaries toexercise control over assets in theirindividual accounts for purposes of this

final rule would intend to meet all ofthe conditions of section 404(c) andrelated regulations, the Departmentbelieves that the majority of these plansdo customarily make the statements ofthe financial institutions holding theindividual account assets available toparticipants and beneficiaries at leastannually, either to satisfy the conditionsof section 404(c) 12 or as a result of thebusiness practice of advisingparticipants of their valued benefits.

Although the Department consideredalternatives in the development of thefinal rule that would retain someindividual-level SAR disclosure featuresfor individually directed accounts whileaddressing privacy concerns, itultimately concluded that providing anexception from plan level disclosureswhen statements from the regulatedfinancial institutions are in factprovided annually to individuallydirected account holders wouldadequately protect the assets of thesesmall plans while ensuring that theinformation collection is useful andnon-duplicative. As a result, the totalcost of system modification and annualmodifications to the SAR isapproximately $7 million lower than itwould have been had this exception notbeen considered an appropriateresponse in light of both publiccomment and the principles of thePaperwork Reduction Act.

Finally, plan administrators arerequired under the regulation to makeavailable for examination or furnishcopies of the statements from theregulated financial institutions and theevidence of bonding when less than95% of the assets of the plan arequalifying plans assets, to participantsand beneficiaries who request them. The3,512,000 participants in the 179,406small individual account plans in whichassets are reported on Form 5500 to beindividually directed are assumed to bereceiving annual statements related totheir particular accounts and aretherefore not included in the burdenestimates for furnishing documents onrequest. The Department assumes that5% of the remaining 5,681,000participants in small plans will requestthis information annually. Because thedocuments already have been providedby bonding companies and financialinstitutions, the cost of complianceinvolves 5 minutes to ready theappropriate documents for mailing and2 minutes of photocopying by a clericalworker, at $15 per hour, and mailing



costs of $.37 per mailing. The hourburden for the in house furnishing ofthe documents is estimated at 3,419.The cost burden for the 90% of plansassumed to purchase services to complywith the requirement to make thisadditional information available uponrequest is estimated at $576,479. Thisestimate is lower than the $995,000estimated in connection with theproposal due to the modification of theproposed requirements with respect toassets in the individual account of aparticipant or beneficiary over whichthe participant or beneficiary has theopportunity to exercise control, andwith respect to which the participant isfurnished a statement at least annuallydescribing the assets held or issued bythe financial institution issuing thestatement.

In summary, the estimated hour andcost burdens of the informationcollection provisions of this final ruleare as follows:

Agency: Pension and Welfare BenefitsAdministration, Department of Labor.

Title: ERISA Summary Annual ReportRequirement.

OMB Number: 1210–0040.Affected Public: Individuals or

households; Business or other for-profit;Not-for-profit institutions.

Frequency of Response: Annually.Total Respondents: 817,000.Total Responses: 235,000,000.Estimated Burden Hours: 1,404,924.Estimated Annual Cost (Capital/

Startup): $3,639,817.Estimated Annual Costs (Operating

and Maintenance): $115,687,000.Total Annualized Costs:

$119,327,000.Persons are not required to respond to

an information collection request unlessit displays a currently valid OMBcontrol number.

Unfunded Mandates Reform Act

For purposes of the UnfundedMandates Reform Act of 1995 (Pub. L.104–4), as well as Executive Order12875, this rule does not include anyFederal mandate that may result inexpenditures by State, local or tribalgovernments, and does not impose anannual burden exceeding $100 millionon the private sector.

Federalism Statement

Executive Order 13132 (August 4,1999) outlines fundamental principlesof federalism and requires theadherence to specific criteria by federalagencies in the process of theirformulation and implementation ofpolicies that have substantial directeffects on the States, the relationshipbetween the national government and

States, or on the distribution of powerand responsibilities among the variouslevels of government. This final ruledoes not have federalism implicationsbecause it has no substantial directeffect on the States, on the relationshipbetween the national government andthe States, or on the distribution ofpower and responsibilities among thevarious levels of government. Section514 of ERISA provides, with certainexceptions specifically enumerated, thatthe provisions of Titles I and IV ofERISA supercede any and all laws of theStates as they relate to any employeebenefit plan covered under ERISA.Further, this final rule amends annualreporting and disclosure regulations thathave been in effect in similar form formany years pursuant to theDepartment’s authority under section104(a)(2)(A) of ERISA to prescribe, byregulation, simplified annual reports forpension plans with fewer than 100participants. The amendmentsincorporated in this final rule do notalter the fundamental requirements ofthe statute with respect to the reportingand disclosure requirements foremployee benefit plans, and as suchhave no implications for the States orthe relationship or distribution of powerbetween the national government andthe States.

Small Business Regulatory EnforcementFairness Act

The final rule being issued here issubject to the provisions of the SmallBusiness Regulatory EnforcementFairness Act of 1996 (5 U.S.C. 801 etseq.) (SBREFA) and has beentransmitted to Congress and theComptroller General for review.

Statutory Authority

These regulations are issued pursuantto authority contained in section 505 ofERISA (Pub. L. 93–406, 88 Stat. 894, 29U.S.C. 1135) and sections 103(a) and104(a) of ERISA, as amended, (Pub. L.104–191, 110 Stat. 1936, 1951, 29 U.S.C.1023 and 1024) and under Secretary ofLabor’s Order No. 1–87, 52 FR 13139,April 21, 1987.

List of Subjects in 29 CFR Part 2520

Accountants, Disclosurerequirements, Employee benefit plans,Employee Retirement Income SecurityAct, Pension plans, and Reporting andrecordkeeping requirements.

For the reasons set out in thepreamble, Part 2520 of Chapter XXV ofTitle 29 of the Code of FederalRegulations is amended as follows:

PART 2520—RULES ANDREGULATIONS FOR REPORTING ANDDISCLOSURE

1. The authority for Part 2520continues to read as follows:

Authority: Secs. 101, 102, 103, 104, 105,109, 110, 111(b)(2), 111(c) and 505, Pub. L.93–406, 88 Stat. 840–52 and 894 (29 U.S.C.1021–1025, 1029–31, and 1135); Secretary ofLabor’s Order No. 27–74, 13–76, 1–87, andLabor Management Services AdministrationOrder 2–6.

Sections 2520.102–3, 2520.104b–1and 2520.104b–3 also are issued undersec. 101(a), (c) and (g)(4) of Pub. L. 104–191, 110 Stat. 1936, 1939, 1951 and1955, and sec. 603 of Pub. L. 104–204,110 Stat. 2935 (29 U.S.C. 1185 and1191c).

2. Section 2520.104–41 is amended byrevising paragraph (c) as follows:

§ 2520.104–41 Simplified annual reportingrequirements for plans with fewer than 100participants.

* * * * *(c) Contents. The administrator of an

employee pension or welfare benefitplan described in paragraph (b) of thissection shall file, in the mannerprescribed in § 2520.104a–5, acompleted Form 5500 ‘‘Annual Return/Report of Employee Benefit Plan,’’including any required schedules orstatements prescribed by theinstructions to the form, and, unlesswaived by § 2520.104–46, a report of anindependent qualified publicaccountant meeting the requirements of§ 2520.103–1(b).* * * * *

3. Section 2520.104–46 is amended byrevising paragraphs (b)(1) and (d) toread as follows:

§ 2520.104–46 Waiver of examination andreport of an independent qualified publicaccountant for employee benefit plans withfewer than 100 participants.

* * * * *(b) Application. (1)(i) The

administrator of an employee pensionbenefit plan for which simplified annualreporting has been prescribed inaccordance with section 104(a)(2)(A) ofthe Act and § 2520.104–41 is notrequired to comply with the annualreporting requirements described inparagraph (c) of this section, providedthat with respect to each plan year forwhich the waiver is claimed —

(A)(1) At least 95 percent of the assetsof the plan constitute qualifying planassets within the meaning of paragraph(b)(1)(ii) of this section, or

(2) Any person who handles assets ofthe plan that do not constitutequalifying plan assets is bonded in



accordance with the requirements ofsection 412 of the Act and theregulations issued thereunder, exceptthat the amount of the bond shall not beless than the value of such assets;

(B) The summary annual report,described in § 2520.104b–10, includes,in addition to any other requiredinformation:

(1) Except for qualifying plan assetsdescribed in paragraph (b)(1)(ii)(A), (B)and (F) of this section, the name of eachregulated financial institution holding(or issuing) qualifying plan assets andthe amount of such assets reported bythe institution as of the end of the planyear;

(2) The name of the surety companyissuing the bond, if the plan has morethan 5% of its assets in non-qualifyingplan assets;

(3) A notice indicating thatparticipants and beneficiaries may,upon request and without charge,examine, or receive copies of, evidenceof the required bond and statementsreceived from the regulated financialinstitutions describing the qualifyingplan assets; and

(4) A notice stating that participantsand beneficiaries should contact theRegional Office of the U.S. Departmentof Labor’s Pension and Welfare BenefitsAdministration if they are unable toexamine or obtain copies of theregulated financial institutionstatements or evidence of the requiredbond, if applicable; and

(C) in response to a request from anyparticipant or beneficiary, theadministrator, without charge to theparticipant or beneficiary, makesavailable for examination, or uponrequest furnishes copies of, eachregulated financial institution statementand evidence of any bond required byparagraph (b)(1)(i)(A)(2).

(ii) For purposes of paragraph (b)(1),the term ‘‘qualifying plan assets’’ means:

(A) Qualifying employer securities, asdefined in section 407(d)(5) of the Actand the regulations issued thereunder;

(B) Any loan meeting therequirements of section 408(b)(1) of theAct and the regulations issuedthereunder;

(C) Any assets held by any of thefollowing institutions:

(1) A bank or similar financialinstitution as defined in § 2550.408b–4(c);

(2) An insurance company qualifiedto do business under the laws of a state;

(3) An organization registered as abroker-dealer under the SecuritiesExchange Act of 1934; or

(4) Any other organization authorizedto act as a trustee for individualretirement accounts under section 408of the Internal Revenue Code.

(D) Shares issued by an investmentcompany registered under theInvestment Company Act of 1940;

(E) Investment and annuity contractsissued by any insurance companyqualified to do business under the lawsof a state; and,

(F) In the case of an individualaccount plan, any assets in theindividual account of a participant orbeneficiary over which the participantor beneficiary has the opportunity toexercise control and with respect towhich the participant or beneficiary isfurnished, at least annually, a statementfrom a regulated financial institutionreferred to in paragraphs (b)(1)(ii)(C), (D)or (E) of this section describing theassets held (or issued) by suchinstitution and the amount of suchassets.

(iii)(A) For purposes of this paragraph(b)(1), the determination of thepercentage of all plan assets consistingof qualifying plan assets with respect toa given plan year shall be made in thesame manner as the amount of the bondis determined pursuant to §§ 2580.412–11, 2580.412–14, and 2580.412–15.

(B) Examples. Plan A, which reportson a calendar year basis, has total assetsof $600,000 as of the end of the 1999plan year. Plan A’s assets, as of the endof year, include: investments in variousbank, insurance company and mutualfund products of $520,000; investmentsin qualifying employer securities of$40,000; participant loans, meeting therequirements of ERISA section408(b)(1), totaling $20,000; and a$20,000 investment in a real estatelimited partnership. Because the onlyasset of the plan that does not constitutea ‘‘qualifying plan asset’’ is the $20,000real estate investment and thatinvestment represents less than 5% ofthe plan’s total assets, no bond would berequired under the proposal as acondition for the waiver for the 2000plan year. By contrast, Plan B also hastotal assets of $600,000 as of the end ofthe 1999 plan year, of which $558,000constitutes ‘‘qualifying plan assets’’ and$42,000 constitutes non-qualifying planassets. Because 7%—more than 5%—ofPlan B’s assets do not constitute‘‘qualifying plan assets,’’ Plan B, as a

condition to electing the waiver for the2000 plan year, must ensure that it hasa fidelity bond in an amount equal to atleast $42,000 covering persons handlingnon-qualifying plan assets. Inasmuch ascompliance with section 412 requiresthe amount of bonds to be not less than10% of the amount of all the plan’sfunds or other property handled, thebond acquired for section 412 purposesmay be adequate to cover the non-qualifying plan assets without anincrease (i.e., if the amount of the bonddetermined to be needed for the relevantpersons for section 412 purposes is atleast $42,000). As demonstrated by theforegoing example, where a plan hasmore than 5% of its assets in non-qualifying plan assets, the bondrequired by the proposal is for the totalamount of the non-qualifying planassets, not just the amount in excess of5%.* * * * *

(d) Limitations. (1) The waiverdescribed in this section does not affectthe obligation of a plan described inparagraph (b) (1) or (2) of this section tofile a Form 5500 ‘‘Annual Return/Reportof Employee Benefit Plan,’’ includingany required schedules or statementsprescribed by the instructions to theform. See § 2520.104–41.

(2) For purposes of this section, anemployee pension benefit plan forwhich simplified annual reporting hasbeen prescribed includes an employeepension benefit plan which elects to filea Form 5500 as a small plan pursuantto § 2520.103–1(d) with respect to theplan year for which the waiver isclaimed. See § 2520.104–41.

(3) For purposes of this section, anemployee welfare benefit plan thatcovers fewer than 100 participants at thebeginning of the plan year includes anemployee welfare benefit plan whichelects to file a Form 5500 as a small planpursuant to § 2520.103–1(d) withrespect to the plan year for which thewaiver is claimed. See § 2520.104–41.

(4) A plan that elects to file a Form5500 as a large plan pursuant to§ 2520.103–1(d) may not claim a waiverunder this section.

Signed at Washington, D.C., this 16th dayof October, 2000.Leslie B. Kramerich,Acting Assistant Secretary, Pension andWelfare Benefits Administration, U.S.Department of Labor.[FR Doc. 00–26880 Filed 10–18–00; 8:45 am]BILLING CODE 4510–29–P


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