Under the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA"), qualified plans are required to roll over cash-outs between $1000 and $5000 to an IRA, unless the cash-out recipient elects otherwise. However, this automatic rollover rule does not become effective until the Department of Labor ("DOL") publishes safe harbor standards that plan administrators may follow to avoid fiduciary liability for choosing the IRA provider and the initial investment. On January 7, 2003, the DOL issued a request for information to assist it in drafting safe harbor rules for these automatic rollovers from qualified plans.
The DOL request for information poses 14 questions, several of which have multiple parts, including:
- What standards should apply for IRA providers to qualify under the safe harbor, and should the standards differ for individual retirement annuities vs. individual retirement accounts?
- What criteria should apply for an initial investment to qualify under the safe harbor, should any vehicles be excluded, and should mutual funds be limited to index funds or include all funds?
- What factors should be considered in determining the reasonableness of establishment costs, termination costs, maintenance fees, investment fees, and surrender charges?
- Is prohibited transaction relief needed to allow a plan sponsor or affiliate to be the IRA provider and, if so, what safeguards are appropriate?
- What legal impediments are plan administrators or financial institutions likely to encounter in connection with automatic rollovers?
- Is additional disclosure from the IRA provider needed?
- Should low cost IRA providers receive special consideration, and what criteria should be used to demonstrate low cost?
- Will the automatic rollover requirement impose additional costs on plans and participants?
The DOL also asked for information regarding current arrangements, including the range of various charges or fees currently charged for IRAs and the different factors applicable in triggering different levels of fees. Responses to the request for information should be submitted to DOL by March 10, 2003. Please contact us if you have any questions concerning the DOL’s request for information.
* Sutherland Legal Alerts are intended to provide clients with information on recent legal developments, not to render legal advice.
