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CCH® PENSION — 11/10/11

EBSA issues revised PT exemption procedures

The Employee Benefit Security Administration (EBSA) has issued final regulations governing the filing and applications for administrative exemptions from the prohibited transaction provisions of ERISA. The final regulations clarify and consolidate the Department of Labor's exemption procedures and provide a more comprehensive description of the prohibited transaction exemption process. The regulations are effective December 27, 2011 and apply to all exemption applications filed after that date.

Key changes made by final regs

The regulations update the prohibited transaction exemption procedures to reflect changes in the DOL's exemption practices since the previous exemption procedures were issued in 1990. The updated procedures are intended to promote the prompt and efficient consideration of all exemption applications by clarifying the types of information and documentation generally required for a complete filing, by affording expanded opportunities for the electronic submission of information and comments relating to an exemption, and by providing plan participants and other interested persons with a more thorough understanding of the exemption under consideration.

The final regulations retain the section-by-section topical structure of the prior rules, along with most of the operative language. The final regulations contain some differences from the proposed rules issued in August 2010.

Among the changes are:

• A modification of the term "affiliate" to clarify that the term applies to any employee or officer of the person who has direct or indirect authority, responsibility, or control regarding the custody, management, or disposition of plan assets involved in the subject exemption transaction.
• In defining the terms "qualified independent appraiser" and "qualified independent fiduciary," the DOL will operate under the presumption that, absent facts and circumstances indicating a lack of independence, such appraiser or fiduciary will be independent if the revenues it receives or is projected to receive, within the current federal income tax year, from parties in interest (and their affiliates) to the transaction are not more than 2% of such appraiser's or fiduciary's annual revenues based upon its prior income tax year. The regulations state that "Although the presumption does not apply when the aforementioned percentage exceeds 2%, an appraiser or fiduciary nonetheless may be considered independent based upon other facts and circumstances provided that the appraiser or fiduciary receives or is projected to receive revenues that are not more than 5% within the current federal income tax year, from parties in interest (and their affiliates) to the transaction based upon its prior income tax year."
• Under "Applications the Department will not ordinarily consider," a new paragraph has been issued describing the DOL's policy on confidentiality.
• Under its disclosure requirements for party in interest investments, the language in the final rules is modified by reverting to the existing requirement, contained in the prior rules, which require an applicant for an individual exemption to disclose information regarding any plan investments in loans to, property leased to, or securities issued by, any party in interest involved in the exemption transaction.

In its section on "Conferences and Final Denial Letters," the DOL has largely retained the language in the proposed regulations except for certain technical clarifications.

Source: EBSA final regulations, 76 FR 66637, October 27, 2011.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

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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