Adequate Consideration proposed regulations -- were they withdrawn

[Guest Matthew Newman]

Every treatise (RIA, CCH and numerous other CLE outlines, ERISA Treatises, etc.), not to mention my (and every other official) Code and Regulation set indicate that Prop. Reg. § 2510.18-3 (the adequate consideration) is alive and kicking. But defendants in litigation have pointed to a 1995 Fed. Register posting indicating that the Prop. Reg. was withdrawn as of 2/1/95, (this is from the March 8, 1995 Federal Register). I cannot understand how every source I've ever seen in this area, and some cases as well indicate that the prop reg is still out there. Does anyone have an explanation? If it is "withdrawn" does anyone still use this since one has to get guidance from somewhere until something more official comes along?

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[Guest Matthew Newman]

Sorry, I mistyped the prop reg cite. It's 2510.3-18. Also, the cite to the Federal Register which seems to indicate withdrawal, (at least of something) is 60 Fed. Reg. 23559.

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[RLL]

The proposed regulation has never been formally withdrawn by the DOL. For several years, it has been listed on the DOL reg agenda in the catagory of items for which there will be no action in the coming year.

The fact is that DOL has taken no further action on this reg for at least 12 years....does such inaction result in withdrawal under the Administrative Procedures Act? The 1995 Fed register posting was an error.....is it so hard to believe that a government agency would make a mistake?

I think it's outrageous that the DOL has not pursued finalizing this reg. Sec. 3(18)(B) of ERISA specifically contemplates that DOL would provide such guidance, and several federal courts have chastised DOL for its failure to comply with this requirement. It's ironic that DOL has repeated challenged folks over valuation issues in ESOPs of closely-held companies while at the same time failing to work on this reg.

[IRC401]

Just a reminder that a proposed regulation is not binding.

I wish that DoL auditors recognized that point.

[Guest Matthew Newman]

I have definitively learned that the proposed regulations were not (and never were) withdrawn. The "withdrawn" mention in the Federal Register in May 1995 indicated only that the DOL was no longer publishing a finalization target date. Later Federal Register entries on point all indicate that the proposed regulation is still in force and effect.

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[RLL]

The proposed regulation is not "in force and effect." It is not a temporary reg....it is merely proposed, and it will take effect only after it is adopted by the DOL as a final (or temporary) regulation (if that ever happens).