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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
from Spencer’s Benefits Reports: A proposed update of the 20-year-old regulations governing procedures for prohibited transaction exemption requests has been proposed by the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) in the Aug. 30, 2010, Federal Register. Not only have technological advances in communications taken place since Reg. Sec. 2570, subpart B, was finalized in 1990, the EBSA has observed that a significant portion of individual exemption requests “involved transaction, terms, and safeguards which were remarkably similar to those contained in previously granted exemptions.”
The proposed regulation contains a number of “important substantive amendments,” according to the preamble to the regulations. Many of the changes involve the information that must accompany the exemption request. Several changes improve the notification to interested parties that the request has been made.
Prop. Reg. Sec. 2570.34 would require the inclusion of a chronology of the events leading up to the exemption transaction. The appraisal report that is submitted by an independent appraiser “must be current and not more than one year old as of the date of the transaction.” The appraisal report must now include the appraiser’s rationale for the appraisal, the appraiser’s credentials and a statement regarding the appraiser’s independence from the parties involved in the transaction. In addition, the report must specify the valuation methodology that was applied by the appraiser and documentation that supports the appraiser’s conclusions about the valuation.
When the DOL requires that a qualified, independent fiduciary be designated as a condition for the exemption, there must be a specialized statement from the independent fiduciary that discloses information about the independent fiduciary’s qualifications, duties, and independence from the parties involved in the transaction. The preamble states that “as a general matter, an independent fiduciary retained in connection with an exemption transaction must receive no more than a de minimis amount of compensation from the parties in interest to the transaction or their affiliates.” (Emphasis in original.)
Prop. Reg. Sec. 2570.35 requires additional information be provided about parties-in-interest. The application must disclose whether or not the assets of the plan(s) have been invested directly or indirectly in any other transactions with the party in interest involved in the exemption transaction, whether or not they were exempt. Such transactions may involve securities lending, extensions of credit, leases, or securities issued by the party in interest, among other things. For individual exemptions, the proposed regulation would require a net worth statement from any party in interest that provides a personal guarantee with respect to the exemption transaction.
Communication To Interested Parties
The notice to interested parties will be able to be delivered by electronic means, such as email, according to the proposed regulations, but only if it can be proved that electronic delivery can be made to the entire class of interested parties. Personal delivery or first class mail continue to be considered acceptable methods of furnishing the notice to interested parties. (Ed Note: The proposed regulation does not contain an option to send electronic notices to some interested parties and first class mail to others when some interested parties do not have email access.)
The DOL may require that interested parties be furnished a “Summary of Proposed Exemption (SPE)” when the DOL determines that the proposed exemption is “relatively complex” and the notice of proposed exemption may not be readily understandable by interested persons. The SPE must succinctly explain the essential facts and circumstances surrounding the proposed exemptions in a manner calculated to be understood by the average recipient.
According to the preamble, “Among other things, the SPE must objectively describe the exemption transaction and the parties thereto, the reasons why the plan seeks to engage in the transaction, and the conditions and safeguards proposed to protect the plan and its participants from potential abuse or unnecessary risk of loss in the event the DOL grants the exemption.” The DOL must approve the SPE before it is sent to interested parties.
The effective date of the regulation will be 60 days after the date of publication of the final rule in the Federal Register.
Comments on the proposed regulation are due on or before October 14. Comments may be submitted electronically by email to e-OED@dol.gov, via the Federal eRulemaking portal http://www.regulations.gov, or by paper (three copies) to the Office of Exemption Determinations, EBSA, Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington DC 20210, Attention: Prohibited Transaction Exemption Procedures Proposed Regulations.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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