Section 87.7 - Prior Plan Vendor Participation(a) Prohibited activities. A prior plan vendor may not solicit business from employees or participants or otherwise participate in the plan until the prior plan vendor and the plan administrator have signed a vendor contract. No applications have been or will be accepted by the plan administrator for new prior plan vendors since January 1, 2000. For purposes of this Chapter, any language referring to prior plan vendor qualifications, eligibility or participation requirements remains necessary in order for the plan administrator to continue to assess whether the prior plan vendor remains an eligible vendor.(b) Eligibility requirements of a prior plan vendor. (1) Banks. The plan administrator shall disapprove a bank's application to become a prior plan vendor if: (A) the bank is not domiciled in the State of Texas;(B) the FDIC does not insure deposits with the bank; or(C) the bank is either not well-capitalized or is adequately capitalized but has not obtained a waiver to accept brokered deposits as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law 102-242, 105 Statute 2236, the Deficit Reduction Act of 2005 (P.L. 109-171), enacted on February 8, 2006, and the related regulations.(2) Credit unions. The plan administrator shall disapprove a credit union's application to become a prior plan vendor if: (A) The credit union is not authorized to do business in the State of Texas under either the Texas Credit Union Act (Texas Civil Statutes, Article 2461-1.01 et seq.) or the Federal Credit Union Act (12 United States Code, §1751);(B) the National Credit Union Administration and the National Credit Union Share Insurance Fund does not insure deposits with the credit union; or(C) the credit union does not agree to collateralize deferrals and investment income to the extent that: (i) they exceed the amounts insured by the National Credit Union Administration and National Credit Union Share Insurance Fund; and(ii) collateralization is required by the sections in this chapter.(3) Insurance companies. (A) Upon receiving an application from an insurance company to become a prior plan vendor, the plan administrator shall file a written request with the Texas Department of Insurance for information about the company.(B) The plan administrator shall disapprove an insurance company's application to become a prior plan vendor if the Texas Department of Insurance notifies the plan administrator that the insurance company: (i) does not have a certificate of authority to transact business in the State of Texas;(ii) is not a member of the Life, Accident, Health, and Hospital Service Insurance Guaranty Association; or(iii) is an impaired or insolvent insurer as defined in the Life, Accident, Health, and Hospital Service Insurance Guaranty Association Act (Insurance Code, Article 21.28-D).(4) Savings and loan associations. The plan administrator shall disapprove a savings and loan association's application to become a prior plan vendor if: (A) the savings and loan association is a foreign association without a certificate of authority to transact business in the State of Texas as defined and required by the Texas Savings and Loan Act (Texas Civil Statutes, Article 852a);(B) the FDIC does not insure deposits with the savings and loan association; or(C) the savings and loan association is either not well-capitalized or is adequately capitalized but has not obtained a waiver to accept brokered deposits as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law 102-242, 105 Statute 2236, the Deficit Reduction Act of 2005 (P.L. 109-171), enacted on February 8, 2006, and the related regulations.(5) Prior plan vendors of mutual funds. The plan administrator shall disapprove a vendor's application to become a prior plan vendor if the vendor proposes to offer a mutual fund as a qualified investment product and the mutual fund is not: (A) listed on the American Stock Exchange, Boston Stock Exchange, Midwest Stock Exchange, New York Stock Exchange, or a stock exchange approved by the securities commissioner of the State Securities Board in accordance with the Securities Act (Texas Civil Statutes, Article 581-1 et seq.);(B) designated or approved for designation on notice of issuance on the National Association of Securities Dealers Automated Quotation National Market System; or(C) registered with the securities commissioner.(c) Procedure for approving a prior plan vendor. (1) The home office of each prior plan vendor seeking participation in the plan must request an application package from the plan administrator. The plan administrator shall ensure that the application package contains a list of documents and other items that must be submitted to the plan administrator with the application.(2) The plan administrator may not approve a prior plan vendor for participation in the plan unless: (A) the plan administrator and the vendor sign a product contract concerning at least one of the vendor's investment products;(B) the vendor has a federal employers identification number; and(C) the vendor agrees to accept both transfers to and the investment of deferrals in its qualified investment products.(3) As a prerequisite to approving an application, the plan administrator shall require a prior plan vendor to: (A) execute an Employer Appointment of Agent form so that the vendor may file reports directly with the Internal Revenue Service; and(B) prove to the plan administrator's satisfaction that the vendor is capable of filing reports as required by § 87.19 of this title (relating to reporting and recordkeeping by prior plan vendors).(4) If the plan administrator approves an application, the plan administrator shall sign and send to the prior plan vendor a vendor contract that complies with the sections in this chapter and applicable law.(d) Contacts. (1) In the application package, a prior plan vendor shall designate one individual who will be: (A) receiving deferrals and investment income;(B) acting as a prior plan vendor representative or agent and accepting Plan funds in accordance with instructions on Plan forms;(C) answering questions about the balances of deferrals and investment income; and(D) serving as liaison between the plan administrator and vendor management concerning matters of administration and vendor reporting.(2) In addition to the requirements of paragraph (1) of this subsection, an out-of-state prior plan vendor shall designate a responsible and knowledgeable individual in Texas who the plan administrator may contact for information about the vendor's activities in the plan.(3) Each prior plan vendor shall update the designations and information required by this subsection no later than the 30th day after a change.(4) The designations and updates required by this subsection must contain the names, addresses, and business telephone numbers of the individuals designated.(e) Change of name or legal status by a prior plan vendor. (1) If a prior plan vendor's name or legal status changes through merger, sale, dissolution, or any other means, the prior plan vendor must notify the plan administrator in writing no later than the 30th day after the change. The notice must contain a detailed description of the transaction that causes the change.(2) If a change in legal status results in the prior plan vendor's participation in the plan being conducted by a different legal entity, the new entity must notify the plan administrator no later than the 90th day after the change for approval as a qualified vendor before the entity may participate in the plan. If the new entity is not approved, participant funds would then be transferred to the revised plan. Transfers under this paragraph shall be made in accordance with § 87.15(c) and (d) of this title (relating to Transfers) and shall not result in a fee or penalty being charged against the participant's account. Provided, however, that the plan administrator may, in its sole discretion, choose not to apply this paragraph, if it determines that it would be in the best interests of the plan and participants.(3) If a change in legal status results in a prior plan vendor's participation in the plan being conducted by a different legal entity that is also a prior plan vendor, participant funds may be transferred to that prior plan vendor, who then becomes responsible for the reporting requirements of the transferred funds.(f) Voluntary termination of participation in the plan. (1) A prior plan vendor may voluntarily terminate its participation in the plan after notifying, in writing, the plan administrator and all participants whose deferrals and investment income are invested in the vendor's qualified investment products. The prior plan vendor must ensure that the plan administrator and the participants receive the written notice no later than the 60th day before the effective date of the termination.(2) A prior plan vendor may establish the effective date of its termination from the plan. The prior plan vendor must clearly state the effective date in the written notice required by paragraph (1) of this subsection.(3) Notwithstanding paragraph (2) of this subsection, if the terminating prior plan vendor sponsors qualified investment products that have specific terms, such as a three-year certificate of deposit or a 30-day passbook account, the effective date of the prior plan vendor's termination may not be before the terms of all those products have expired for every participant unless approved by the plan administrator, the prior plan vendor must hold the participants, the plan and the plan administrator harmless from any fees or penalties that may be applicable in connection with such premature termination.(4) After receiving notice of termination, the plan administrator shall request each affected participant to submit a prior funds transfer form for the disposition of his or her deferrals and investment income. For each participant from whom the plan administrator has not received a prior funds transfer form by the effective date of the termination, the plan administrator shall initiate a transfer of all deferrals and investment income from the terminating vendor's qualified investment products to the revised plan.(5) When a prior plan vendor voluntarily terminates its participation in the plan, the vendor may not charge or permit to be charged a fee or penalty to participants, the plan or plan administrator for the transfers made after the notice of termination.(6) When a prior plan vendor that is an insurance company voluntarily terminates its participation in the plan, this paragraph applies in addition to the preceding paragraphs of this subsection. (A) In this paragraph, the term "terminated life insurance product" means a life insurance product that is no longer a qualified investment product because the life insurance company offering the product has voluntarily terminated the company's participation in the plan.(B) A participant whose deferrals and investment income have been invested in a terminated life insurance product may continue life insurance coverage with the insurance company offering the product.(C) An insurance company that voluntarily terminates its participation in the plan must offer continuing life insurance coverage to each participant whose deferrals and investment income were invested in a terminated life insurance product offered by the company. The insurance company must offer continuing coverage in a life insurance product that is comparable to the terminated life insurance product in which the participant's deferrals and investment income were invested.(D) The premiums for continuing life insurance coverage must be paid by the participant directly to the insurance company and may not be paid with deferrals or investment income.(E) A participant may exercise the right to continue life insurance coverage only if the participant mails to the insurance company written notice of the participant's intention to continue the coverage. The written notice must be postmarked no later than the 60th day after the effective date of the company's termination of participation in the plan. However, an insurance company may increase the 60-day time limit for a participant or for all participants.(F) When a participant elects to continue life insurance coverage, the insurance company with which coverage is continuing may not: (i) refuse to continue the life insurance;(ii) require a postponement or an interruption in coverage for any length of time;(iii) require the participant to provide evidence of insurability;(iv) require the participant to apply for coverage;(v) require the participant to select a different life insurance product from the product in which the participant's deferrals and investment income were invested before the company's participation in the plan terminated;(vi) discriminate in any manner against the participant because of the company's termination of its participation in the plan;(vii) treat the participant differently than the company would treat a non-participant with the same life insurance coverage; or(viii) increase the premiums charged to the participant solely because the company terminated its participation in the plan or because the participant elected to continue coverage.(G) A prior plan vendor must inform the participant in the written notice required by paragraph (1) of this subsection that the participant has the rights specified in this paragraph. A prior plan vendor must send a copy of this notice to the plan administrator.(H) If a prior plan vendor does not comply with subparagraph (G) of this paragraph, then a participant may exercise the right to continue insurance up to the 120th day after the prior plan vendor actually mails written notice to the participant, containing a full explanation of the participant's rights.(g) Inactive prior plan vendors. The plan administrator shall terminate the participation in the plan of an inactive prior plan vendor. See § 87.1 of this title (relating to Definitions).(h) Refusal to accept additional deferrals. (1) A prior plan vendor may not refuse to accept additional deferrals to any or all its qualified investment products, even if the refusal would be temporary.(2) If a prior plan vendor refuses to accept additional deferrals to all its qualified investment products, the plan administrator shall terminate the prior plan vendor's participation in the plan.(3) If a prior plan vendor refuses to accept additional deferrals to fewer than all its qualified investment products, the plan administrator shall terminate the participation in the plan of the qualified investment products that are not accepting additional deferrals.(i) Collateralization by banks. (1) This subsection applies only to prior plan vendors that are banks.(2) In this subsection, the term "deferred compensation information" means the cumulative total of all deferrals on deposit with the prior plan vendor as of the end of the previous month.(3) At the plan administrator's discretion, the plan administrator may require a prior plan vendor to report deferred compensation information and additional information to the data collection center no later than 1:00 p.m., central time, on a call-in day that the plan administrator considers necessary to evaluate the collateralization requirement under this subsection.(4) Once each quarter, a prior plan vendor shall furnish to the plan administrator the following information certified by its chief financial officer: (A) its current capital category as defined in the Prompt Corrective Action regulations, 12 Code of Federal Regulations, Part 325, Subpart B, i.e., well capitalized, adequately capitalized, etc.;(B) its total capital to risk-weighted assets ratio as defined in the applicable FDIC regulations;(C) its Tier 1 capital to total book assets ratio as defined in the applicable FDIC regulations;(D) its Tier 1 capital to risk-weighted ratio;(E) its most recent call report and/or other financial report that can be used to substantiate subparagraphs (A) - (D) of this paragraph; and(F) if applicable, evidence of a waiver from the FDIC that permits the prior plan vendor to accept brokered deposits.(5) A prior plan vendor shall immediately notify the plan administrator if the prior plan vendor's capital category changes before its next call report or if its waiver from the FDIC with regard to brokered deposits expires, is revoked, or materially changes.(6) A prior plan vendor must collateralize deferrals and investment income as required by the plan administrator. If a monthly report indicates that a prior plan vendor will lose or has lost FDIC pass-through insurance, the prior plan vendor shall immediately pledge additional collateral and comply with the directives of the plan administrator. The plan administrator may suspend or expel an under-collateralized prior plan vendor in accordance with § 87.21(a)(8) of this title (relating to Remedies).(7) A prior plan vendor may not require a participant to withdraw some or all of the participant's deferrals and investment income so that the prior plan vendor may avoid the collateralization requirements imposed by the plan administrator. A prior plan vendor may not establish a maximum amount of deferrals that a participant may invest in the vendor's qualified investment products.(8) Notwithstanding a prior plan vendor's reinvestment of deferrals and investment income in investment products offered by the prior plan vendor's trust department or by other prior plan vendors, the deferrals and investment income are deemed invested in the vendor's qualified investment products for the purpose of this subsection.(9) The plan administrator, in its discretion, may immediately transfer under-collateralized funds plus any amount reasonably necessary to prevent future under-collateralization. The transfer shall be carried out in accordance with the procedures set forth in § 87.15 of this title. The prior plan vendor may not charge the participant a fee or penalty due to a withdrawal of under-collateralized funds.(j) Collateralization by savings and loan associations. (1) This subsection applies only to a prior plan vendor that is a savings and loan association.(2) In this subsection, the term "deferred compensation information" means: (A) the amount by which the balance of each account as of the end of the previous month exceeds the amount insured by the FDIC; and(B) the number of accounts whose balances exceed the amount insured by the FDIC.(3) At the plan administrator's discretion, the plan administrator may require a prior plan vendor to report deferred compensation information and additional information to the data collection center no later than 1 p.m., central time, on a call-in day that the plan administrator considers necessary to evaluate the collateralization requirement under this subsection.(4) Once each quarter, a prior plan vendor shall furnish to the plan administrator the following information certified by its chief financial officer: (A) its current capital category as defined in the Prompt Corrective Action regulations, 12 Code of Federal Regulations, Part 325, Subpart B, i.e., well-capitalized, adequately capitalized, etc.;(B) its total capital to risk-weighted assets ratio as defined in the applicable FDIC regulations;(C) its Tier 1 capital to total book assets ratio as defined in the applicable FDIC regulations;(D) its Tier 1 capital to risk-weighted ratio;(E) its most recent call report and/or other financial report that can be used to substantiate subparagraphs (A) - (D) of this paragraph; and(F) if applicable, evidence of a waiver from the FDIC that permits the prior plan vendor to accept brokered deposits.(5) A prior plan vendor shall immediately notify the plan administrator if the prior plan vendor's capital category changes before its next call report or if its waiver from the FDIC with regard to brokered deposits expires, is revoked, or materially changes.(6) A prior plan vendor must collateralize deferrals and investment income as required by the plan administrator. If a monthly report indicates that a prior plan vendor will lose or has lost FDIC pass-through insurance, the prior plan vendor shall immediately pledge additional collateral and comply with the directives of the plan administrator. The plan administrator may suspend or expel an under-collateralized prior plan vendor in accordance with § 87.21(a)(8) of this title (relating to Remedies).(7) A prior plan vendor may not require a participant to withdraw some or all of the participant's deferrals and investment income so that the prior plan vendor may avoid the collateralization requirements imposed by the plan administrator. A prior plan vendor may not establish a maximum amount of deferrals that a participant may invest in the vendor's qualified investment products.(8) Notwithstanding a prior plan vendor's reinvestment of deferrals and investment income in investment products offered by the prior plan vendor's trust department or by other vendors, the deferrals and investment income are deemed invested in the vendor's qualified investment products for the purpose of this subsection.(9) The plan administrator, in its discretion, may immediately transfer under-collateralized funds plus any amount reasonably necessary to prevent future under-collateralization. The transfer shall be carried out in accordance with the procedures set forth in § 87.15 of this title. The prior plan vendor may not charge the participant a fee or penalty due to a withdrawal of under-collateralized funds.(k) Limits on account balances in credit unions. (1) This subsection applies only to a qualified vendor that is a credit union.(2) A prior plan vendor may not accept deferrals to an account if the deferrals would cause the balance of the account to exceed $250,000 (as amended), the amount insured by the National Credit Union Administration and National Credit Union Share Insurance Fund unless the vendor or participant has complied with paragraph (6) of this subsection.(3) In this subsection, the term "deferred compensation information" means: (A) the amount by which the balance of each account as of the end of the previous month exceeds $250,000 (as amended);(B) the qualified investment product in which the participant's future deferrals will be invested, in lieu of investing them in the credit union's qualified investment products.(C) the total amount by which the balances of all reported accounts exceed $250,000 (as amended).(4) Once each month, a prior plan vendor shall report deferred compensation information to the plan administrator no later than 1 p.m., central time, on a call-in day. If a prior plan vendor has no accounts that exceed $250,000 (as amended), the prior plan vendor must report that fact to the plan administrator.(5) The plan administrator shall notify the benefits coordinator for each participant whose account exceeds $250,000 (as amended). Upon receiving the notice, the benefits coordinator shall request the participant to specify in a change agreement: (A) the qualified investment product to which at least the amount in the account in excess of $250,000 (as amended) will be moved; and(B) the qualified investment product in which the participant's future deferrals will be invested, in lieu of investing them in the credit union's qualified investment products.(6) If a participant does not want funds in excess of $250,000 (as amended) transferred from the credit union, the participant may keep funds at the credit union if: (A) the credit union will pledge collateral for all funds in excess of $250,000 (as amended) in accordance with plan administrator procedures; or(B) the participant acknowledges and accepts the liability of uninsured funds through a signed statement on forms furnished by the plan administrator.(7) If a participant does not submit a change agreement to the benefits coordinator immediately after receiving a request from the participant's benefits coordinator in accordance with paragraph (5) of this subsection and if paragraph (6) of this subsection is not complied with, the benefits coordinator shall notify the plan administrator. Upon receiving the notification, the plan administrator shall: (A) initiate a transfer of the amount in the account in excess of $250,000 (as amended) in accordance with § 87.15 of this title; and(B) prohibit the participant from deferring additional amounts to the prior plan vendor's qualified investment products.(l) Audits. The plan administrator may audit or cause an audit to be performed of a current or former prior plan vendor related to the vendor's participation in the plan.(m) The plan administrator may expel a prior plan vendor that fails to maintain all requirements needed to become a prior plan vendor. Such vendor may not charge or permit to be charged a fee or penalty to participants, the plan or plan administrator for the transfers made due to expulsion.34 Tex. Admin. Code § 87.7
The provisions of this §87.7 adopted to be effective March 28, 1991, 16 TexReg 1560; amended to be effective January 10, 1992, 16 TexReg 7743; amended to be effective November 23, 1992, 17 TexReg 7911; amended to be effective January 1, 1994, 18 TexReg 8460; amended to be effective November 9, 1994, 19 TexReg 8617; amended to be effective September 19, 1995, 20 TexReg 6932; amended to be effective November 11, 1996, 21 TexReg 10766; amended to be effective July 10, 2000, 25 TexReg 6558; amended to be effective January 5, 2003, 27 TexReg 12370; amended to be effective September 11, 2003, 28 TexReg 7785; amended to be effective September 30, 2004, 29 TexReg9204;amendedto be effective September 14, 2006, 31 TexReg 7367; amended to be effective June 14, 2007, 32 TexReg 3357; amended to be effective December 31, 2007, 32 TexReg 10054