Proposed Rule2023-23782
Proposed Amendment to Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-1, and 86-128
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 3, 2023
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains a notice of pendency before the Department of Labor (the Department) of proposed amendments to Prohibited Transaction Exemptions (PTEs) 75-1, 77-4, 80-83, 83-1, and 86-128, exemptions from certain prohibited transaction provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the Code). The amendments would affect participants and beneficiaries of plans, IRA owners, and certain fiduciaries of plans and IRAs.
Full Text
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<title>Federal Register, Volume 88 Issue 212 (Friday, November 3, 2023)</title>
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[Federal Register Volume 88, Number 212 (Friday, November 3, 2023)]
[Proposed Rules]
[Pages 76032-76045]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-23782]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2550
[Application No. D-12094]
ZRIN 1210-ZA34
Proposed Amendment to Prohibited Transaction Exemptions 75-1, 77-
4, 80-83, 83-1, and 86-128
AGENCY: Employee Benefits Security Administration (EBSA), U.S.
Department of Labor.
ACTION: Notice of Proposed Amendment to Prohibited Transaction
Exemptions 75-1, 77-4, 80-83, 83-1, and 86-128.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of proposed amendments to
Prohibited Transaction Exemptions (PTEs) 75-1, 77-4, 80-83, 83-1, and
86-128, exemptions from certain prohibited transaction provisions of
the Employee Retirement Income Security Act of 1974 (ERISA) and the
Internal Revenue Code of 1986 (the Code). The amendments would affect
participants and beneficiaries of plans, IRA owners, and certain
fiduciaries of plans and IRAs.
DATES: Public Comments. Comments are due on or before January 2, 2024.
Public Hearing. The Department anticipates holding a public hearing
approximately 45 days following the date of publication in the Federal
Register. Specific information regarding the date, location, and
submission of requests to testify will be published in a notice in the
Federal Register.
Applicability Date. The Department proposes to make the final
amendment effective 60 days after it is published in the Federal
Register.
ADDRESSES: All written comments concerning the proposed amendments
should be sent to the Employee Benefits Security Administration, Office
of Exemption Determinations, U.S. Department of Labor through the
Federal eRulemaking Portal and identified by Application No. D-12094:
Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. at Follow
the instructions for submitting comments.
Docket: For access to the docket to read background documents,
including the plain-language summary of the proposal of not more than
100 words in length required by the Providing Accountability Through
Transparency Act of 2023, or comments, go to the Federal eRulemaking
Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
See SUPPLEMENTARY INFORMATION below for additional information
regarding comments.
FOR FURTHER INFORMATION CONTACT: Susan Wilker, telephone (202) 693-
8540, Office of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor (these are not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Comment Instructions
Warning: All comments received will be included in the public
record without change and will be made available online at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, including any personal information provided,
unless the comment includes information claimed to be confidential or
other information whose disclosure is restricted by statute. If you
submit a comment, EBSA recommends that you include your name and other
contact information, but DO NOT submit information that you consider to
be confidential, or otherwise protected (such as Social Security number
or an unlisted phone number), or confidential business information that
you do not want publicly disclosed. However, if EBSA cannot read your
comment due to technical difficulties and cannot contact you for
clarification, EBSA might not be able to consider your comment.
Additionally, the <a href="https://www.regulations.gov">https://www.regulations.gov</a> website is an ``anonymous
access'' system, which means EBSA will not know your identity or
contact information unless you provide it. If you send an email
directly to EBSA without going through <a href="https://www.regulations.gov">https://www.regulations.gov</a>,
your email address will be automatically captured and included as part
of the comment that is placed in the public record and made available
on the internet.
Background
As described elsewhere in this edition of the Federal Register, the
Department is proposing to amend the regulation defining when a person
renders ``investment advice for a fee or other compensation, direct or
indirect'' with respect to any moneys or other property of an employee
benefit plan, for purposes of the definition of a ``fiduciary'' in
section 3(21)(A)(ii) of the Employee Retirement Income Security Act of
1974 (ERISA or the Act) and in section 4975(e)(3)(B) of the Internal
Revenue Code (Code). The Department is also proposing, elsewhere in
this edition of the Federal Register, to amend prohibited transaction
exemption (PTE) 2020-02 to provide additional clarity for advice
fiduciaries and additional protections for plans and investors and PTE
84-24 to address specific issues that financial institutions face
complying with the conditions of PTE 2020-02 when distributing
annuities through independent agents.
The Department is hereby proposing amendments to existing PTEs 75-
1, 77-4, 80-83, 83-1, and 86-128 that currently provide relief for
investment advice fiduciaries to receive compensation when plans and
IRAs enter into certain transactions recommended by the fiduciaries as
well as certain related transactions. The ERISA and Code provisions at
issue generally prohibit fiduciaries with respect to employee benefit
plans and individual retirement accounts (IRAs) from engaging in self-
dealing in connection with transactions involving these plans and IRAs.
The proposed amendments would remove fiduciary investment advice, as
defined under ERISA and in a proposed regulation issued by the
Department that is found elsewhere in this issue of the Federal
Register, from the covered transactions in each exemption and make
certain other administrative changes. The Department is proposing these
amendments on its own motion, pursuant to its authority under ERISA
section 408(a) and Code section 4975(c)(2) and in accordance with
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637
(October 27, 2011)).\1\
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\1\ Reorganization Plan No. 4 of 1978 (5 U.S.C. App. 1 (2018))
generally transferred the authority of the Secretary of the Treasury
to grant administrative exemptions under Code section 4975 to the
Secretary of Labor.
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[[Page 76033]]
Current PTEs 75-1, 77-4, 80-83, 83-1, and 86-128
PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 currently provide
investment advice fiduciaries with relief for the following
transactions:
PTE 75-1 \2\ provides an exemption for broker-dealers, reporting
dealers, and banks to engage in certain classes of transactions with
employee benefit plans and IRAs. The exemption has five parts: \3\
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\2\ Exemptions from Prohibitions Respecting Certain Classes of
Transactions Involving Employee Benefit Plans and Certain Broker-
Dealers, Reporting Dealers and Banks, 40 FR 50845 (Oct. 31, 1975),
as amended at 71 FR 5883 (Feb. 3, 2006).
\3\ 71 FR 5883 (Feb. 3, 2006).
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<bullet> Part I provides relief for agency transactions and
services; \4\
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\4\ Part I(a) expired on May 1, 1978. It ultimately was replaced
by PTE 86-128 (51 FR 41686 (Nov. 18, 1986)).
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<bullet> Part II(1) permits the purchase or sale of a security
between an employee benefit plan or IRA and a broker-dealer registered
under the Securities Exchange Act of 1934 (15 U.S.C. 78a et. seq.), a
reporting dealer who makes primary markets in securities of the United
States Government or of any agency of the United States Government and
reports daily to the Federal Reserve Bank of New York its positions
with respect to Government securities and borrowings thereon, or a bank
supervised by the United States or a State. The exemption provided in
Part II(1) does not extend to the fiduciary self-dealing and conflicts
of interest prohibitions of ERISA and the Code;
<bullet> Part II(2) contains a special exemption for mutual fund
purchases (the mutual fund exemption) between fiduciaries and plans or
IRAs. Although it does provide relief for fiduciary self-dealing and
conflicts of interest, the mutual fund exemption is only available if
the fiduciary who decides on behalf of the plan or IRA to enter into
the transaction is not a principal underwriter for, or affiliated with,
the mutual fund;
<bullet> Part III permits a fiduciary to cause a plan or IRA to
purchase securities from a member of an underwriting syndicate other
than the fiduciary itself when the fiduciary is also a member of the
syndicate;
<bullet> Part IV permits a plan or IRA to purchase securities in a
principal transaction from a fiduciary that is a market maker with
respect to such securities; and
<bullet> Part V permits the extension of credit to a plan or IRA by
a broker-dealer in connection with the purchase or sale of securities;
PTE 77-4 \5\ provides relief for a plan's or IRA's purchase or sale
of open-end investment company shares where the investment adviser for
the open-end investment company is also a fiduciary to the plan or IRA;
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\5\ Class Exemption for Certain Transactions Between Investment
Companies and Employee Benefit Plans, 42 FR 18732 (Apr. 8, 1977).
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PTE 80-83 \6\ provides relief for a fiduciary causing a plan or IRA
to purchase a security when the proceeds of the securities issuance may
be used by the issuer to retire or reduce indebtedness to the fiduciary
or an affiliate;
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\6\ Class Exemption for Certain Transactions Involving Purchase
of Securities Where Issuer May Use Proceeds to Reduce or Retire
Indebtedness to Parties in Interest, 45 FR 73189 (Nov. 4, 1980), as
amended at 67 FR 9483 (March 1, 2002).
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PTE 83-1 \7\ provides relief for the sale of certificates in an
initial issuance of certificates by the sponsor of a mortgage pool to a
plan or IRA when the sponsor, trustee, or insurer of the mortgage pool
is a fiduciary with respect to the plan or IRA assets invested in such
certificates; and
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\7\ Class Exemption for Certain Transactions Involving Mortgage
Pool Investment Trusts, 48 FR 895 (Jan. 7, 1984), as amended at 67
FR 9483 (March 1, 2002).
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PTE 86-128 \8\ provides an exemption for certain types of
fiduciaries to use their authority to cause a plan or IRA to pay a fee
to the fiduciary, or its affiliate, for effecting or executing
securities transactions as agent for the plan. The exemption further
provides relief for these types of fiduciaries to act as agent in an
``agency cross transaction'' for both a plan or IRA and one or more
other parties to the transaction, and for such fiduciaries or their
affiliates to receive fees from the other party(ies) in connection with
the agency cross transaction. An agency cross transaction is defined in
the exemption as a securities transaction in which the same person acts
as agent for both any seller and any buyer for the purchase or sale of
a security.
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\8\ Class Exemption for Securities Transactions Involving
Employee Benefit Plans and Broker-Dealers, 51 FR 41686 (November 18,
1986), as amended at 67 FR 64137 (October 17, 2002).
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Other Advice Exemptions
PTE 2020-02
PTE 2020-02 \9\ permits investment advice fiduciaries to receive
compensation as a result of their advice, including as a result of
advice to roll over assets from an employee benefit plan to an IRA, and
to engage in certain principal transactions and was designed to promote
investment advice that is in the best interest of retirement investors
(e.g., plan participants and beneficiaries, and IRA owners). The
exemption's conditions emphasize mitigating conflicts of interest and
ensuring that retirement investors receive advice that is prudent and
loyal. An important objective of the exemption is to require fiduciary
investment advice providers to adhere to stringent standards that are
designed to ensure that their investment recommendations reflect the
best interest of plan and IRA investors. Accordingly, financial
institutions and investment professionals relying on PTE 2020-02 must:
(i) acknowledge their fiduciary status in writing; (ii) disclose their
services and material conflicts of interest; and adhere to impartial
conduct standards; (iii) adopt policies and procedures prudently
designed to ensure compliance with the impartial conduct standards and
mitigate conflicts of interest that could otherwise cause violations of
those standards; (iii) document and disclose the specific reasons that
any rollover recommendations are in the retirement investor's best
interest; (iv) and conduct an annual retrospective compliance review.
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\9\ Prohibited Transaction Exemption 2020-02, Improving
Investment Advice for Workers & Retirees 85 FR 82798 (Dec. 18,
2020).
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The Department is proposing an amendment to PTE 2020-02 that is
published separately in this edition of the Federal Register. The
proposed amendment to PTE 2020-02 would build on these existing
conditions to provide more protections for retirement investors
receiving advice and more certainty for financial institutions and
investment professionals complying with the exemption's conditions. In
this regard, among other things, the Department is proposing additional
disclosures to ensure that retirement investors have sufficient
information to make informed decisions about the costs of the
investment advice transaction and about the significance and severity
of the investment advice fiduciary conflicts of interest. The proposed
amendment also would provide more guidance for financial institutions
and investment professionals complying with the impartial conduct
standards and implementing the policies and procedures requirement. As
discussed in detail in the preamble to the amendment, these additional
conditions would provide important protections to retirement investors
by enhancing the existing protections of PTE 2020-02.
[[Page 76034]]
PTE 84-24
PTE 84-24 \10\ provides exemptive relief for certain prohibited
transactions that occur when plans or IRAs purchase insurance and
annuity contracts and shares in an investment company registered under
the Investment Company Act of 1940 (a mutual fund). The exemption
permits insurance agents, insurance brokers and pension consultants
that are parties in interest or fiduciaries with respect to plans and
IRAs to effect the purchase of the insurance or annuity contracts for
the plans or IRAs and receive a commission on the sale. The exemption
also is available for the prohibited transaction that occurs when the
insurance company selling the insurance or annuity contract is a party
in interest or disqualified person with respect to the plan or IRA.
Likewise, with respect to mutual fund transactions, PTE 84-24 permits
mutual fund principal underwriters that are parties in interest or
fiduciaries to effect the sale of mutual fund shares to plans or IRAs
and receive a commission on the transaction.
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\10\ 49 FR 13208 (April 3, 1983), as amended at 71 FR 5887 (Feb.
3, 2006).
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The Department is proposing an amendment to PTE 84-24 that is
published separately in this edition of the Federal Register that would
provide an alternative exemption for independent insurance agents to
receive insurance commissions in connection with recommendations of
annuity products if certain conditions are met that are similar to the
conditions contained in PTE 2020-02. These conditions are tailored to
protect retirement investors from the specific conflicts of interest
that arise when independent insurance agents are compensated through
insurance commissions. Additionally, the amendment would exclude
investment advice fiduciaries from the existing relief provided in the
current Section II of PTE 84-24, add a new eligibility provision for
investment advice transactions, and amend the current recordkeeping
condition to be similar to the recordkeeping provision in PTE 2020-02.
Description of Proposed Amendments to PTEs 75-1, 77-4, 80-83, 83-1, and
86-128
Providing for a single standard of care (which is currently found
in PTE 2020-02) that would apply universally to all fiduciary
investment advice, regardless of the specific type of product or advice
provider, will provide greater protection for retirement investors and
create a level playing field among investment advice providers.
Therefore, to ensure a universal standard of care for the provision of
investment advice that is based on the conditions of PTE 2020-02, the
Department is proposing to amend PTEs 75-1 Parts III & IV, 77-4, 80-83,
83-1, and 86-128 to include the following statement: ``Exception. No
relief from the restrictions of ERISA section 406(b) and the taxes
imposed by Code section 4975(a) and (b) by reason of Code sections
4975(c)(1)(E) and (F) is available for fiduciaries providing investment
advice within the meaning of ERISA section 3(21)(A)(ii) or Code section
4975(e)(3)(B) and regulations thereunder.''
As a result of this amendment, investment advice fiduciaries would
instead rely on the amended PTE 2020-02 for exemptive relief for
covered investment advice transactions. By providing exemptive relief
for fiduciary investment advice transactions under one exemption, PTE
2020-02, retirement investors would receive consistent protections when
receiving investment advice from investment professionals such that a
level playing regulatory playing field would apply regardless of the
investment product the advisor recommends. The Department requests
comment on this proposed change.
In addition to removing exemptive relief for investment advice
transactions, the Department also is proposing certain administrative
amendments to these exemptions, which are discussed below.
Amendments to PTE 75-1
The Department is proposing to revoke parts of PTE 75-1, which was
granted shortly after ERISA's passage to provide certainty to the
securities industry over the nature and extent to which ordinary and
customary transactions between broker-dealers and plans or IRAs would
be subject to ERISA's prohibited transaction rules.
PTE 75-1 Part I
PTE 75-1, Part I, paragraphs (b) and (c) provide exemptive relief
for certain non-fiduciary services provided by broker-dealers in
securities transactions. Code section 4975(d)(2), ERISA section
408(b)(2) and regulations thereunder, have clarified the scope of
relief for service providers to plans and IRAs.\11\ The Department
believes that the relief provided in Parts I(b) and I(c) of PTE 75-1
duplicates the relief available under the statutory exemptions at Code
section 4975(d)(2) and ERISA section 408(b)(2). Therefore, the
Department is proposing to revoke paragraphs (b) and (c) of Part I, and
requests comments on this proposed revocation.
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\11\ See 29 CFR 2550.408b-2; 42 FR 32390 (June 24, 1977);
Reasonable Contract or Arrangement under Section 408(b)(2)--Fee
Disclosure, Final Rule, 77 FR 5632 (Feb. 3, 2012).
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PTE 75-1, Part II
PTE 75-1, Part II(2), contains a special exemption for mutual fund
purchases (the mutual fund exemption) between fiduciaries and plans or
IRAs subject to minimal safeguards for retirement investors. The
conditions of the exemption require a fiduciary to customarily purchase
and sell securities for its own account in the ordinary course of its
business, the transaction to occur on terms at least as favorable to
the plan as an arm's length transaction with an unrelated party, and
records to be maintained.
The Department is proposing to revoke PTE 75-1, Part II(2), because
it has determined that it is not protective of retirement investors and
has been broadly interpreted beyond the Department's intention when it
was issued.\12\ The transactions that have been covered by PTE 75-1
Part II(2) are largely now covered by newer, more protective
exemptions, and fiduciaries providing investment advice on the purchase
or sale of a mutual fund security can rely on PTE 2020-02. Moreover,
fiduciaries providing investment management on the purchase or sale of
a mutual fund security can receive non-commission compensation under
PTE 77-4. The Department requests comment on this proposed revocation,
and also on how the remaining parts of PTE 75-1 Part II will be used.
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\12\ 81 FR 21181, 21199 (Apr. 8, 2016).
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The Department is further proposing to revise the recordkeeping
provisions of Section (e) of PTE 75-1, Part II. Section (e) currently
provides that records demonstrating compliance with the exemption must
be maintained by the plan or IRA involved in the transaction. The
proposed amendment would place the responsibility for maintaining such
records on the broker-dealer, reporting dealer, or bank engaging in the
transaction with such plan or IRA. The proposed amendment also would
provide that parties relying on the exemption do not have to disclose
trade secrets or other confidential information to members of the
public (i.e., plan fiduciaries, contributing employers or employee
organizations whose members are covered by the plan, participants and
beneficiaries and IRA owners), but that in the event a party refuses to
disclose information on this basis, it must
[[Page 76035]]
provide a written notice to the requester advising it of the reasons
for the refusal and that the Department may request such information on
the requester's behalf.
The Department requests comment regarding whether fiduciaries
providing discretionary investment management services on the purchase
or sale of a mutual fund security in a principal transaction need the
relief that is provided by PTE 75-1, Part II(2), and, if so, what
conditions would be appropriate.
Part 75-1, Part V
PTE 75-1, Part V permits a broker-dealer to extend credit to a plan
or IRA in connection with the purchase or sale of securities. It
originally did not permit the receipt of compensation for an extension
of credit by broker-dealers that are fiduciaries with respect to the
assets involved in the transaction. In 2016, the Department amended
this exemption to allow investment advice fiduciaries to receive
compensation when they extend credit to plans and IRAs to avoid a
failed securities transaction. As a condition of the amendment, the
failure of the purchase or sale of the securities could not have been
caused by the fiduciary or an affiliate. The Department also added a
definition of the term ``IRA'' as any account or annuity described in
Code section 4975(e)(1)(B) through (F), including, for example, an
individual retirement account described in section 408(a) of the Code
and a health savings account described in section 223(d) of the
Code.\13\ The amendment also revised the recordkeeping provisions of
PTE 75- 1, Part V, to require the broker-dealer engaging in the covered
transaction, as opposed to the plan or IRA, to maintain the records.
The Department is proposing to make these amendments to PTE 75-1 Part V
as it did in 2016.
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\13\ The Department has previously determined, after consulting
with the Internal Revenue Service (the IRS), that plans described in
4975(e)(1) of the Code are included within the scope of relief
provided by PTE 75-1 because it was issued jointly by the Department
and the IRS. See PTE 2002-13, 67 FR 9483 (Mar. 1, 2002) (preamble
discussion). For simplicity and consistency with the other new
exemptions and amendments to other existing exemptions published
elsewhere in this issue of the Federal Register, the Department has
adopted this specific definition of IRA.
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PTE 86-128
The Department is proposing certain administrative changes to PTE
86-128, which are not directly related to the provision of fiduciary
investment advice. As it did in 2016, the Department is proposing to
delete Section IV(a), which provides an exclusion from the conditions
of the exemption for certain plans not covering employees, including
IRAs, to increase the safeguards available to these retirement
investors. Therefore, investment advice fiduciaries to IRAs would have
to rely on another exemption, such as PTE 2020-02. Fiduciaries that
exercise full discretionary authority or control with respect to IRAs
could continue to rely on PTE 86-128, as long as they comply with all
of the exemption's conditions.
The Department is also proposing certain technical changes to the
exemption, including deleting subsection IV(b)(1), and redesignating
remaining sections as needed. The language currently in Section
IV(b)(1) excludes investment advice providers; however, investment
advice providers would be excluded from the exemption as a whole;
therefore, the exclusion does not need to be repeated in Section IV. As
a result of the deletion of Section IV(a) and IV(b)(1), the Department
is redesignating subsections IV(b)(2) and (3) as subsections IV(a)(1)
and (2), respectively, and Section IV(c) as Section IV(b).
The Department is proposing to revise the new Section IV(b) to
read: ``Recapture of profits. Sections III(a) and III(i) of this
exemption do not apply in cases where the person engaging in a covered
transaction returns or credits to the plan all profits earned by that
person in connection with the securities transactions associated with
the covered transaction.'' Discretionary trustees were first permitted
to rely on PTE 86-128 without meeting the ``recapture of profits''
provision pursuant to an amendment made in 2002 (2002 Amendment). To
effect this change, the 2002 Amendment revised Section III(a), which
had provided that ``[t]he person engaging in the covered transaction
[may not be] a trustee (other than a nondiscretionary trustee), or an
administrator of the plan, or an employer any of whose employees are
covered by the plan.'' Under the amendment, the reference to ``trustee
(other than a nondiscretionary trustee)'' was deleted from Section
III(a), and discretionary trustees had to satisfy certain additional
conditions set forth in Section III(h) and (i) to rely on the
exemption. Section III(h) provides that discretionary trustees may
engage in the covered transactions only with plans or IRAs with total
net assets of at least $50 million,\14\ and Section III(i) requires
discretionary trustees to provide additional disclosures. The
Department understands that after the 2002 Amendment, practitioners had
questions regarding whether discretionary trustees were permitted to
rely on the ``recapture of profits'' provision, which allows persons
identified in Section III(a) to engage in the covered transactions if
they return or credit to the plan or IRA all profits, as an alternative
to complying with Sections III(h) and (i). By deleting the reference to
discretionary trustees from Section III(a), the Department believes
that the 2002 Amendment inadvertently may have prevented trustees of
plans or IRAs from using the recapture of profits approach, and
instead, has limited the exemption to trustees that satisfy Section
III(h) and (i). This result was not intended, therefore, the Department
is proposing to modify the exemption to permit all trustees, regardless
of associated plan or IRA size, to utilize the recapture of profits
exception as they originally were permitted to do in PTE 86-128.
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\14\ Special rules apply under Section III(h) for pooled funds
and groups of plans maintained by a single employer or controlled
group of employers.
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In order to achieve this result, the Department has proposed an
amendment to section IV(c) providing that Sections III(a) and III(i) do
not apply in any case where the person engaging in the covered
transaction returns or credits to the plan or IRA all profits earned by
that person in connection with the securities transaction associated
with the covered transaction. In addition, the Department proposes to
reinsert a reference to trustees (other than nondiscretionary trustees)
in Section III(a) along with the existing references to plan
administrators and employers. Finally, the Department is proposing to
add a sentence to the end of Section III(a) stating: ``Notwithstanding
the foregoing, this condition does not apply to a trustee that
satisfies Section III(h) and (i).'' The purpose of these proposed
amendments is to clarify that trustees may engage in covered
transactions subject to the recapture of profits limitations in Section
V(b) of the exemption.
The Department is not proposing to amend PTE 86-128 to include
mutual fund principal transactions that are currently covered in PTE
75-1 Part II(2). The Department previously made such a change in 2016
to allow both investment advice and investment discretion mutual fund
principal fund transactions to rely on an amended PTE 86-128. However,
the Department now believes other exemptions, including PTE 2020-02,
provide sufficient relief for these types of transactions and enhanced
protection for retirement investors.
[[Page 76036]]
Lastly, the Department is proposing to add a new Section VII to PTE
86-128 that would require the fiduciary engaging in a transaction
covered by the exemption to maintain records necessary to enable
certain persons (described in proposed Section VII(b)) to determine
whether the conditions of this exemption have been met. The proposed
recordkeeping requirement is consistent with the recordkeeping
provisions contained in other existing class exemptions as well as the
recordkeeping provisions of proposed amendments to PTEs 84-24 and 2020-
02, which are published separately in this issue of the Federal
Register.
Executive Order 12866 and 13563 Statement
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects; distributive impacts; and equity). Executive
Order 13563 emphasizes the importance of quantifying costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
Under Executive Order 12866, as amended by Executive Order 14094,
``significant'' regulatory actions are subject to review by the Office
of Management and Budget (OMB). Section 3(f) of the Executive order
defines a ``significant regulatory action'' as an action that is likely
to result in a rule (1) having an annual effect on the economy of $200
million or more, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or state, local, or tribal governments or
communities; (2) creating a serious inconsistency or otherwise
interfering with an action taken or planned by another agency; (3)
materially altering the budgetary impacts of entitlement grants, user
fees, or loan programs or the rights and obligations of recipients
thereof; or (4) raising legal or policy issues for which centralized
review would meaningfully further the President's priorities or the
principles set forth in the Executive order. It has been determined
that this proposal is ``significant regulatory action'' within the
scope of section 3(f)(1) of the Executive order. Therefore, the
Department has provided an assessment of the proposal's potential
costs, benefits, and transfers, and OMB has reviewed this proposed
amendment pursuant to the Executive order.
Paperwork Reduction Act Statements
As part of its continuing effort to reduce paperwork and respondent
burden, the Department conducts a preclearance consultation program to
allow the general public and Federal agencies to comment on proposed
and continuing collections of information in accordance with the
Paperwork Reduction Act of 1995 (PRA). This helps to ensure that the
public understands the Department's collection instructions,
respondents can provide the requested data in the desired format,
reporting burden (time and financial resources) is minimized,
collection instruments are clearly understood, and the Department can
properly assess the impact of collection requirements on respondents.
Currently, the Department is soliciting comments concerning the
information collection requests (ICRs) included in the proposed
amendments to Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-
1, and 86-128. To obtain a copy of the ICRs, contact the PRA addressee
shown below or go to <a href="https://www.RegInfo.gov">https://www.RegInfo.gov</a>. The Department has
submitted a copy of the amendments to the OMB in accordance with 44
U.S.C. 3507(d) for review of its information collections. The
Department and OMB are particularly interested in comments that:
<bullet> Evaluate whether the collection of information is
necessary for the functions of the agency, including whether the
information will have practical utility;
<bullet> Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
<bullet> Enhance the quality, utility, and clarity of the
information to be collected; and
<bullet> Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology (e.g., permitting
electronically delivered responses).
Commenters may send their views on the Department's PRA analysis in
the same way they send comments in response to these proposed rules
(for example, through the <a href="http://www.regulations.gov">www.regulations.gov</a> website), including as
part of a comment responding to the broader proposal. Comments are due
by January 2, 2024 to ensure their consideration.
PRA Addressee: Address requests for copies of the ICR to James
Butikofer, Office of Research and Analysis, U.S. Department of Labor,
Employee Benefits Security Administration, 200 Constitution Avenue NW,
Room N-5718, Washington, DC 20210, or <a href="/cdn-cgi/l/email-protection#6e0b0c1d0f40011e1c2e0a010240090118"><span class="__cf_email__" data-cfemail="1a7f78697b34756a685a7e7576347d756c">[email protected]</span></a>. ICRs also are
available at <a href="https://www.RegInfo.gov">https://www.RegInfo.gov</a> (<a href="https://www.reginfo.gov/public/do/">https://www.reginfo.gov/public/do/</a>PRAMain).
Amendments to PTE 75-1
The Department proposes to amend PTE 75-1, Part V, to include a new
disclosure requirement requiring the plan or IRA to receive a written
disclosure of certain terms before the extension of credit. The
disclosure must include the rate of interest or other fees that will be
charged on such extension of credit, and the method of determining the
balance upon which interest will be charged. The plan or IRA must
additionally be provided with prior written disclosure of any changes
to these terms. The Department believes that it is a usual and
customary business practice to maintain records required to demonstrate
compliance with disclosure distribution regulations mandated by the
Securities and Exchange Commission (SEC). The Department believes that
this new disclosure requirement is consistent with the disclosure
requirement mandated by the SEC in 17 CFR 240.10b-16(1) for margin
transactions. Therefore, the Department concludes that this requirement
produces no additional burden to the public.
The Department is also amending PTE 75-1, Parts II and V to adjust
the recordkeeping requirement to shift the burden from plans and IRAs
to financial institutions. The amended class exemption requires as a
condition for relief that financial institutions engaging in the
exempted transactions (rather than the plans or IRAs) to retain or
cause to be maintained all records pertaining to such transactions for
six years and provide access to the records upon request to the
specified parties.
Finally, the Department is proposing to amend PTE 75-1 Parts III
and IV, which currently provide relief for investment advice
fiduciaries, by removing fiduciary investment advice from the covered
transactions. Investment advice providers would instead have to rely on
the amended PTE 2020-02 for exemptive relief covering investment advice
transactions.
Broker-dealers registered under the Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.), reporting dealers, and banks are eligible to
rely on the exemption. According to the SEC, approximately 3,508
broker-dealers
[[Page 76037]]
were SEC-registered as of December 2021.\15\ Not all broker-dealers
perform services for employee benefit plans. In 2021, 54 percent of
registered investment advisers provided employer-sponsored retirement
benefits consulting.\16\ Assuming the percentage of broker-dealers
provide advice to retirement plans is the same as the percent of
investment advisers providing services to plans, the Department
estimates 54 percent, or 1,894 broker-dealers, would be affected by PTE
75-1.
---------------------------------------------------------------------------
\15\ Estimates based on SEC's FOCUS filings and SEC's Form ADV
filings.
\16\ Cerulli Associates, U.S. RIA Marketplace 2022, Exhibit
5.10, Part 1, The Cerulli Report.
---------------------------------------------------------------------------
According to the Federal Deposit Insurance Corporation, there are
4,096 commercial banks as of March 31, 2023.\17\ If one-half of these
banks (about 2,048) and 54 percent of broker-dealers (about 1,894
broker-dealers) relied on this exemption, there would be approximately
3,942 respondents.\18\
---------------------------------------------------------------------------
\17\ Federal Insurance Deposit Corporation, Quarterly Banking
Profile, Statistics at a Glance- as of March 31, 2023, <a href="https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2023mar/industry.pdf">https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2023mar/industry.pdf</a>.
\18\ Reporting dealers covered by the exemption are not
accounted for separately because they are banks and security
brokerages that trade in U.S. Government Securities; thus, reporting
dealers are already accounted for in the number of broker-dealer
firms and banks. The New York Federal Reserve Bank reported 21
primary dealers on March 21, 2013. <a href="http://www.newyorkfed.org/markets/pridealers_current.html">http://www.newyorkfed.org/markets/pridealers_current.html</a>.
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Recordkeeping Requirements
The Department has assumed that financial service providers that
transact with employee benefit plans will maintain these records on
behalf of their client plans. Because of the sophisticated nature of
financial service providers and the regulation of the securities
industry by State and federal government, and by self-regulatory
organizations, the Department has assumed that the records required by
this class exemption are the same records kept in the normal course of
business, or in compliance with other requirements. The Department
requests comment on this assumption.
The Department has estimated that the additional time needed to
maintain records for the financial institutions to be consistent with
the exemption will be four hours per entity annually at a wage rate of
$190.63 per hour.\19\ Thus, the Department estimates it would take
15,768 hours at an equivalent cost of $3,005,854 to maintain the
records and make the records available for inspection.\20\
---------------------------------------------------------------------------
\19\ Internal Department calculation based on 2023 labor cost
data. For a description of the Department's methodology for
calculating wage rates, see <a href="https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf">https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf</a>.
\20\ The burden is estimated as follows: (3,942 financial
institutions x 4 hours) = 15,768 hours. A labor rate of $190.63 is
used for a financial manager. The labor rate is applied in the
following calculation: (3,942 x 4 hours) x $190.63 = $3,005,854.
Table 1--Hour Burden and Equivalent Cost Associated With Recordkeeping
----------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
----------------------------------------------------------------------------------------------------------------
Equivalent Equivalent
Activity Burden hours burden cost Burden hours burden cost
----------------------------------------------------------------------------------------------------------------
Financial Manager............................... 15,768 $3,005,854 15,768 $3,005,854
---------------------------------------------------------------
Total....................................... 15,768 3,005,854 15,768 3,005,854
----------------------------------------------------------------------------------------------------------------
Summary
In sum, the Department estimates the total burden hours for the
amended PTE 1975-1 is 15,768 hours at a total equivalent burden cost of
$3,005,854. The total cost burden is estimated to be de minimis. The
Department assumes that required records are maintained by the relevant
affected entities, the broker-dealers and banks. Thus, there are no
additional tasks performed outside of those performed by the brokerage
firms/banks.
The paperwork burden estimates are summarized as follows:
Type of Review: Revision of an existing collection.
Agency: Employee Benefits Security Administration, Department of
Labor.
Titles: Prohibited Transaction Exemption 75-1 (Security
Transactions with Broker-Dealers, Reporting Dealers and Banks).
OMB Control Number: 1210-0092.
Affected Public: Businesses or other for-profits; not for profit
institutions.
Estimated Number of Respondents: 3,942.
Estimated Number of Annual Responses: 3,942.
Frequency of Response: Initially, Annually, When engaging in
exempted transaction.
Estimated Total Annual Burden Hours: 15,768 hours.
Estimated Total Annual Burden Cost: $0.
Amendments to PTE 86-128
The Department is proposing to amend Section VI of PTE 86-128 to
require financial institutions to maintain or cause to be maintained
for six years the records necessary for the Department, IRS, plan
fiduciary, contributing employer or employee organization whose members
are covered by the plan, participants and beneficiaries and IRA owners
to determine whether conditions of this exemption have been met.
In addition, the amendment would impose conditions on IRAs. Section
III of the class exemption imposes the following requirements on
fiduciaries of employee benefit plans that effect or execute securities
transactions and the independent plan fiduciaries authorizing the plan
or IRA to engage in the transactions with the investment advice
provider (``authorizing fiduciary'') under the conditions contained in
the exemption:
(1) The authorizing fiduciary must provide the investment advice
provider with an advance written authorization for the transactions;
(2) The investment advice provider must provide the authorizing
fiduciary with information necessary to determine whether an
authorization should be made, including a copy of the exemption, a form
for termination, a description of the investment advice provider's
brokerage placement practices, and any other reasonably available
information regarding the matter that the authorizing fiduciary
requests;
(3) The investment advice provider must provide the authorizing
fiduciary with a termination form, at least annually, explaining that
the authorization is terminable at will, without penalty to the plan,
and that failure to return the form will result in continued
authorization for the
[[Page 76038]]
investment advice provider to engage in securities transactions on
behalf of the plan or IRA;
(4) The investment advice provider must provide the authorizing
fiduciary with either (a) a confirmation slip for each individual
securities transaction within 10 days of the transaction containing the
information described in Rule 10b-10(a)(1-7) under the Securities
Exchange Act of 1934, 17 CFR 240.10b-10 or (b) a quarterly report
containing certain financial information including the total of all
transaction-related charges incurred by the plan or IRA;
(5) The investment advice provider must provide the authorizing
fiduciary with an annual summary of the confirmation slips or quarterly
reports, containing all security transaction-related charges, the
brokerage placement practices (if changed), and a portfolio turnover
ratio;
(6) An investment advice provider who is a discretionary trustee
must provide the authorizing fiduciary with an annual report showing
separately the commissions paid to affiliated brokers and non-
affiliated brokers, on both a total dollar basis and a cents-per-share
basis.
Using data from 2021 Form 5500, the Department estimates that 1,257
unique plans hired service providers denoting on the Schedule C that
they were a discretionary trustee. Further, among these plans, 801 also
reported that they provided investment management services or received
investment management fees paid directly or indirectly by the plan.\21\
Based on these values, the Department estimates on average, 1,000 plans
have discretionary fiduciaries with full discretionary control. As
small plans do not file the Schedule C, this estimate may be an
underestimate. The Department requests comment on how many plans have
discretionary fiduciaries with full discretionary control and how many
would continue to rely on PTE 1986-128 under the proposed amendments.
---------------------------------------------------------------------------
\21\ Estimates based on 2021 Form 5500 data.
---------------------------------------------------------------------------
The Department estimates that of the estimated 1,000 plans
discussed above, 7.5 percent are new accounts or new financial advice
relationships.\22\ Based on these assumptions, the Department estimates
that 75 plans would be affected by the proposed amendments to PTE 1986-
128.\23\
---------------------------------------------------------------------------
\22\ EBSA identified 57,575 new plans in its 2021 Form 5500
filings, or 7.5 percent of all Form 5500 pension plan filings.
\23\ The number of new plans is estimated as: 1,000 plans x 7.5
percent of plans are new = 75 new plans.
---------------------------------------------------------------------------
The Department lacks reliable data on the number of managed IRAs
that would experience such a transaction in a given year. The
Department estimates that there are 10,000 managed IRAs. The Department
also does not have data on the number of new IRA accounts that are
opened each year. However, in 2022, of the 67.8 million IRA owners, 1.4
million, or approximately 2.1 percent, opened an IRA for the first
time.\24\ Inferring from this statistic, the Department estimates that
2.1 percent of IRA accounts are new each year. The Department
acknowledges that some IRA owners may have multiple IRAs, and as such,
this statistic may underestimate the percentage of new IRAs opened.\25\
This results in an estimate of 210 IRAs that are new accounts or new
financial advice relationships.\26\
---------------------------------------------------------------------------
\24\ Cerulli Associates, U.S. Retirement End-Investor 2023:
Fostering Comprehensive Relationships, The Cerulli Report.
\25\ The Department lacks data on the number of IRA owners that
own multiple IRAs. To provide scope of magnitude, one source
reported that in 2019, 19 percent of IRA owners contributed to both
a traditional IRA and Roth IRA. (See Investment Company Institute,
The Role of IRAs in U.S. Households' Saving for Retirement, 2020,
27(1) ICI Research Perspective, (2021).) This statistic does not
account for individuals who own multiple IRAs of each type or those
who did not contribute in 2019, but it provides a lower bound.
\26\ (10,000 managed IRAs x 2.1 percent of IRAs are new) = 210
IRAs.
---------------------------------------------------------------------------
The Department lacks reliable data on the number of investment
advice providers who are discretionary fiduciaries that would rely on
the amended exemption. For the purposes of this analysis, the
Department assumes that the number of discretionary fiduciaries relying
on the exemption is equal to the estimated number of broker-dealers
estimated to be affected by the amendments to PTE 2020-02, or 1,894
investment advice providers.\27\
---------------------------------------------------------------------------
\27\ Estimates are based on the SEC's FOCUS filings and Form ADV
filings for broker-dealers.
---------------------------------------------------------------------------
The Department requests comment on this assumption, particularly
with regard to what types of entities would be likely to rely on the
amended exemption, as well as any underlying data.
The following wage rates are assumed: an in-house rate of $159.34
for legal professionals and $63.45 for clerical staff.\28\ In addition,
the Department assumes that 100 percent of plans will use electronic
means to deliver the required information with no associated cost
burden. The Department also assumes that 94.2 percent of IRAs and
financial institutions will use electronic means to deliver the
required information with no associated cost burden.\29\ The Department
assumes that is similar to the percent receiving electronically under
the Department's 2020 electronic disclosure safe harbor.\30\ The
Department requests comments on these assumptions.
---------------------------------------------------------------------------
\28\ Internal Department calculation based on 2023 labor cost
data. For a description of the Department's methodology for
calculating wage rates, see <a href="https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf">https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf</a>.
\29\ The Department estimates approximately 94.2 percent of
retirement investors receive disclosures electronically. This is the
sum of the estimated share of retirement investors receiving
electronic disclosures under the 2002 electronic disclosure safe
harbor (58.2 percent) and the estimated share of retirement
investors receiving electronic disclosures under the 2020 electronic
disclosure safe harbor (36 percent).
\30\ 85 FR 31884 (May 27, 2020).
---------------------------------------------------------------------------
Recordkeeping Requirement
The Department is proposing to amend Section VI to require
financial institutions to maintain or cause to be maintained for six
years the records necessary for the Department, IRS, plan fiduciary,
contributing employer or employee organization whose members are
covered by the plan, participants and beneficiaries and IRA owners to
determine whether conditions of this exemption have been met.
Each of the 1,894 investment advice providers will maintain these
records on behalf of their client plans in their normal course of
business. Therefore, the Department has estimated that the additional
time needed to maintain records consistent with the exemption will only
require about one-half hour, on average annually for a financial
manager at an hourly rate of $190.63 to organize and collate the
documents. This results in 947 hours of burden at an equivalent cost of
$180,527.\31\ The recordkeeping requirement will also require 15
minutes of clerical time at an hourly rate of $63.45 to prepare and
send the documents for inspection, resulting in 474 hours of burden at
an equivalent cost of $30,044.\32\
---------------------------------------------------------------------------
\31\ The burden is estimated as follows: [(1,894 investment
advice providers x 30 minutes) / 60 minutes] = 947 hours. A labor
rate of $190.63 is used for a financial manager. The labor rate is
applied in the following calculation: [(1,894 investment advice
providers x 30 minutes) / 60 minutes] x $190.63 per hour = $180,527.
\32\ The burden is estimated as follows: 1,894 investment advice
providers x 15 minutes = 474 hours. A labor rate of $63.45 is used
for a clerical worker. The labor rate is applied in the following
calculation: [(1,894 investment advice providers x 15 minutes) / 60
minutes] x $63.45 per hour = $30,044.
---------------------------------------------------------------------------
In total, the recordkeeping requirement is expected to impose an
hour burden of 1,421 hours with an equivalent cost of $210,571.
[[Page 76039]]
Table 2--Hour Burden and Equivalent Cost Associated With Recordkeeping
----------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
----------------------------------------------------------------------------------------------------------------
Equivalent Equivalent
Activity Burden hours burden cost Burden hours burden cost
----------------------------------------------------------------------------------------------------------------
Financial Manager............................... 947 $180,527 947 $180,527
Clerical........................................ 474 30,044 474 30,044
---------------------------------------------------------------
Total....................................... 1,421 210,571 1,421 210,571
----------------------------------------------------------------------------------------------------------------
Written Authorization From the Authorizing Fiduciary to the Broker-
Dealer
Authorizing fiduciaries of new plans and IRAs entering into a
relationship with an investment advice provider are required to provide
the investment advice provider with an advance written authorization to
perform transactions for the plan or IRA. The Department estimates that
there are approximately 285 plans and IRAs that are new or that enter
new arrangements each year.\33\ Therefore, the Department estimates
that approximately 285 authorizing fiduciaries are expected to send an
advance written authorization. It is assumed that a legal professional
will spend 15 minutes per plan reviewing the disclosures and preparing
an authorization form. This results in an hour burden of 71 hours with
an equivalent cost of $11,353.\34\
---------------------------------------------------------------------------
\33\ 75 plans + 210 IRAs = 285 plans and IRAs that are new or
that enter new arrangements each year.
\34\ The burden is estimated as follows: [(285 plans and IRAs x
15 minutes per plan or IRA) / 60 minutes] = 71 hours. A labor rate
of $159.34 is used for a legal professional. The labor rate is
applied in the following calculation: [(285 plans and IRAs x 15
minutes per plan or IRA) / 60 minutes] x $159.34 per hour = $11,353.
---------------------------------------------------------------------------
To produce and distribute the authorization, the Department assumes
that 100 percent of plans and 94.2 percent of IRAs will use traditional
electronic methods at no additional burden, and the remaining 5.8
percent of IRAs will be mailed. The Department assumes that clerical
staff will spend 5 minutes preparing and sending the authorization,
resulting in an hour burden of approximately 24 hours with an
equivalent cost of $1,507.\35\ It is assumed that the authorization
will be two pages and paper authorizations will cost $0.76 each, which
results in a cost burden of $9.\36\
---------------------------------------------------------------------------
\35\ The burden is estimated as follows: [(285 plans or IRAs x 5
minutes per plan or IRA) / 60 minutes] = 24 hours; A labor rate of
$63.45 is used for a clerical worker. The labor rate is applied in
the following calculation: [(285 plans or IRAs x 5 minutes per IRA)
/ 60] x $63.45 = $1,507.
\36\ The burden is estimated as follows: (2 pages x $0.05 per
page) + $0.66 for postage = $0.76; The mailing rate is applied in
the following calculation: (210 authorizations for IRAs x 5.8
percent paper) x $0.76 = $9.
---------------------------------------------------------------------------
In total, the written authorization requirement is expected to
result in a total hour burden of 95 hours with an equivalent cost of
$12,860 and a total cost burden of $9.
Table 3--Hour Burden, Equivalent Cost, Postage and Material Cost Associated With the Written Authorization
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equivalent Equivalent
Activity Burden hours burden cost Pages Material cost Burden hours burden cost Pages Material cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Legal............................. 71 $11,353 0 $0 71 $11,353 0 $0
Clerical.......................... 24 1,507 2 9 24 1,507 2 9
---------------------------------------------------------------------------------------------------------------------
Total......................... 95 12,860 2 9 95 12,860 2 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Provision of Materials for Evaluation of Authorization of Transaction
Prior to a written authorization being made, the authorizing
fiduciary must be provided by the financial institution with a copy of
the exemption, a form for termination of authorization, a description
of broker's placement practices, and any other reasonably available
information. This information is assumed to be readily available.
To produce and distribute the materials, the Department assumes
that 94.2 percent of financial institutions will use traditional
electronic methods at no additional burden, while the remaining 5.8
percent of financial institutions will mail the materials. The
Department estimates that a clerical staff member will spend five
minutes to prepare and distribute the required information to the
authorizing fiduciary. This information will be sent to the 285 plans
and IRAs entering into an agreement with a financial institution, and
based on the above, the Department estimates that this requirement
results in an hour burden of 24 hours with an equivalent cost of
$1,507.\37\ It is assumed that this information will be seven pages and
paper distribution will cost $1.01 each, which results in a cost burden
of about $17.\38\
---------------------------------------------------------------------------
\37\ The burden is estimated as follows: [[(75 plans x 5 minutes
per plan) / 60 minutes] + [(210 IRAs x 5 minutes per IRA) / 60
minutes] = 24 hours; A labor rate of $63.45 is used for a clerical
worker. The labor rate is applied in the following calculation:
{[(75 plans x 5 minutes per plan) / 60 minutes] x $63.45{time} +
[{(210 IRAs x 5 minutes per IRA) / 60 minutes] x $63.45{time} =
$1,507.
\38\ The burden is estimated as follows: 7 pages x $0.05 per
page + $0.66 for postage = $1.01; The mailing rate is applied in the
following calculation: (75 plans x 5.8 percent paper x $1.01) + (210
materials packages for IRAs x 5.8 percent paper x $1.01) = $17.
---------------------------------------------------------------------------
In total, the written authorization requirement is expected to
result in a total hour burden of 24 hours with an equivalent cost of
$1,507 and a total cost burden of $17.
[[Page 76040]]
Table 4--Hour Burden, Equivalent Cost, Postage and Material Cost Associated With Provision of Materials for Transaction Authorization
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equivalent Equivalent
Activity Burden hours burden cost Pages Material cost Burden hours burden cost Pages Material cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clerical.......................... 24 $1,507 7 $17 24 $1,507 7 $17
---------------------------------------------------------------------------------------------------------------------
Total......................... 24 1,507 7 17 24 1,507 7 17
--------------------------------------------------------------------------------------------------------------------------------------------------------
Provision of an Annual Termination Form
Each authorizing fiduciary must be supplied annually with a form
expressly providing an election to terminate the written authorization.
It is assumed that legal professionals with each of the 1,894
investment advice providers will spend on average 15 minutes preparing
the termination forms, which results in an hour burden of 474 hours
with an equivalent cost of $75,447.\39\
---------------------------------------------------------------------------
\39\ The burden is estimated as follows: [(1,894 investment
advice providers x 15 minutes per financial institution) / 60
minutes] = 474 hours; A labor rate of $159.34 is used for a legal
professional. The labor rate is applied in the following
calculation: [(1,894 investment advice providers x 15 minutes per
financial institution) / 60 minutes] x $159.34 per hour = $75,447.
---------------------------------------------------------------------------
To produce and distribute the termination form to the 10,000 IRAs
and 1,000 plans, the Department assumes that 94.2 percent of financial
institutions will use traditional electronic methods at no additional
burden, while the remaining 5.8 percent of financial institutions will
mail the termination forms. The Department estimates that clerical
staff will spend five minutes per plan or IRA preparing and
distributing the termination forms resulting in an hour burden of 917
hours with an equivalent cost of $58,163.\40\ It is assumed that the
form will be two pages, so paper copies will cost $0.76 each, which
results in a cost burden of approximately $485.\41\
---------------------------------------------------------------------------
\40\ The burden is estimated as follows: [(1,000 plans x 5
minutes per plan) / 60 minutes] + [(10,000 IRAs x 5 minutes per IRA)
/ 60 minutes] = 917 hours. A labor rate of $63.45 is used for a
clerical worker. The labor rate is applied in the following
calculation: {[(1,000 plans x 5 minutes per plan) / 60 minutes] x
$63.45{time} + {[(10,000 IRAs x 5 minutes per IRA) / 60 minutes] x
$63.45{time} = $58,163.
\41\ The burden is estimated as follows: 2 pages x $0.05 per
page + $0.66 for postage = $0.76. The mailing rate is applied in the
following calculation: (1,000 plans x 5.8 percent paper x $0.76) +
(10,000 IRAs x 5.8 percent paper x $0.76) = $485.
---------------------------------------------------------------------------
In total, providing the annual termination form is expected to
impose an hour burden of 1,391 hours with an equivalent cost of
$133,610 and a total cost burden of $485.
Table 5--Hour Burden, Equivalent Cost, Postage and Material Cost Associated With Provision of the Annual Termination Form
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equivalent Equivalent
Activity Burden hours burden cost Pages Material cost Burden hours burden cost Pages Material cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Legal............................. 474 $75,447 0 $0 474 $75,447 0 $0
Clerical.......................... 917 58,163 2 485 917 58,163 2 485
---------------------------------------------------------------------------------------------------------------------
Total......................... 1,391 133,610 2 485 1,391 133,610 2 485
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transaction Reporting
The investment advice provider engaging in a covered transaction
must furnish the authorizing fiduciary with either a conformation slip
for each securities transaction or a quarterly report containing
specified information. As discussed above, the provision of the
confirmation already is required under SEC regulations. Therefore, if
the transaction reporting requirement is satisfied by sending
conformation slips, no additional hour and cost burden will occur.
Annual Statement
In addition to the transaction reporting requirement, investment
advice providers are required to send an annual report to each of the
11,000 authorizing fiduciaries \42\ containing the same information as
the quarterly report and also containing all security transaction-
related charges, the brokerage placement practices, and a portfolio
turnover ratio. Collecting and generating the information required for
the annual report is reported as a cost burden. Postage cost is not
included here as it is assumed that the annual statement will be sent
with the annual termination form and postage costs are accounted for
there. It is assumed that the annual statement will be five pages, and
the paper and print costs are $0.25 each.\43\ Therefore, the overall
cost burden for the paper and print costs are about $160.\44\
---------------------------------------------------------------------------
\42\ 1,000 plans + 10,000 IRAs = 11,000 plans and IRAs.
\43\ 5 pages x $0.05 per page = $0.25.
\44\ (11,000 plans and IRAs x 5.8 percent paper x $0.25) = $160.
---------------------------------------------------------------------------
In addition, it is assumed that the information that must be sent
annually could be sent together; therefore, the clerical staff hours
required to prepare and distribute the report has been included with
the provision of annual termination form requirement. Therefore, no
additional hour burden has been reported.
In total, providing the annual statement is expected to impose a
total cost burden of $160.
[[Page 76041]]
Table 6--Hour Burden, Equivalent Cost, Postage and Material Cost Associated With the Annual Statement
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equivalent Equivalent
Activity Burden hours burden cost Pages Material cost Burden hours burden cost Pages Material cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clerical.......................... 0 $0 5 $160 0 $0 5 $160
---------------------------------------------------------------------------------------------------------------------
Total......................... 0 0 5 160 0 0 5 160
--------------------------------------------------------------------------------------------------------------------------------------------------------
Report of Commissions Paid
A discretionary trustee must provide an authorizing fiduciary with
an annual report showing separately the commissions paid to affiliated
brokers and non-affiliated brokers, on both a total dollar basis and a
cents-per-share basis. The collecting and generation of the information
for the quarterly report is reported as a cost burden. The clerical
hour burden to prepare and distribute the report is included with the
provision of annual termination form requirement, because both items
are required to be sent annually.
A financial institution who is a discretionary trustee must provide
each of the 11,000 authorizing fiduciaries with an annual report
showing commissions paid to affiliated and non-affiliated brokers, on
both a total dollar and a cents-per-share basis. As the report is sent
annually, it is assumed that it could be sent with the transaction
report, therefore postage costs are not counted here. The Department
estimates that 94.2 percent of financial institutions will use
traditional electronic methods at no additional burden, while the
remaining 5.8 percent of financial institutions will mail the annual
reports. It is assumed that the report will be two pages, and the paper
and print costs are $0.10 each.\45\ Therefore, the overall cost burden
of the paper and print costs is $64.\46\
---------------------------------------------------------------------------
\45\ 2 pages x $0.05 per page = $0.10.
\46\ (11,000 plans and IRAs x 5.8 percent paper x $0.10) = $64.
---------------------------------------------------------------------------
Financial institutions are required to report specific transaction
fees and information to the plan fiduciaries. The information must be
tracked, assigned to specific plans, and reported. It is assumed that
it costs the financial institution $3.30 per plan or IRA to track this
information.\47\ With approximately 11,000 affected plans and IRAs,
this results in a cost burden of approximately $36,300 annually.\48\
---------------------------------------------------------------------------
\47\ This estimate is based on information from a Request for
Information and from industry sources.
\48\ (11,000 plans and IRAs x $3.30) = $36,300.
---------------------------------------------------------------------------
In total, providing the report is expected to impose a total cost
burden of $36,364.\49\
---------------------------------------------------------------------------
\49\ This estimate is calculated as: $64 + $36,300 = $36,364.
Table 7--Hour Burden, Equivalent Cost, Postage and Material Cost Associated With the Report of Commissions Paid
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equivalent Equivalent
Activity Burden hours burden cost Pages Material cost Burden hours burden cost Pages Material cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clerical.......................... 0 $0 2 $36,364 0 $0 2 $36,364
---------------------------------------------------------------------------------------------------------------------
Total......................... 0 0 2 36,364 0 0 2 36,364
--------------------------------------------------------------------------------------------------------------------------------------------------------
Summary
In total, the conditions of this exemption will result in the
production of 33,570 disclosures.\50\ The Department assumes that 100
percent of plans will use electronic methods to distribute the required
information, at de minimis burden. The Department also assumes that
94.2 percent of IRAs and financial institutions will use electronic
methods to distribute the required information, at de minimis burden,
while 1,943 \51\ disclosures will be on paper. Production and
distribution of disclosures will result in an overall hour burden of
2,929 hours with an equivalent cost of $358,548 and an overall cost
burden of $37,034.
---------------------------------------------------------------------------
\50\ The total number of disclosures is calculated in the
following manner: 285 (Written authorization disclosures) + 285
(Provision of materials for evaluation of authorization of
transaction) + 11,000 (Annual termination form) + 11,000 (Annual
Statement) + 11,000 (Report of Commissions Paid) = 33,570
disclosures.
\51\ The total number of paper disclosures is calculated in the
following manner: (210 Written authorization disclosures for IRAs x
5.8 percent paper) + (285 Provision of materials for evaluation of
authorization of transaction x 5.8 percent paper) + (11,000 Annual
termination form x 5.8 percent paper) + (11,000 Annual Statement x
5.8 percent paper) + (11,000 Report of Commissions Paid x 5.8
percent paper) = 1,943 disclosures.
---------------------------------------------------------------------------
The paperwork burden estimates are summarized as follows:
Type of Review: Revision to an existing collection.
Agency: Employee Benefits Security Administration, Department of
Labor.
Titles: PTE 86-128 (Securities Broker-Dealers).
OMB Control Number: 1210-0059.
Affected Public: Businesses or other for-profits; not for profit
institutions.
Estimated Number of Respondents: 2,179.
Estimated Number of Annual Responses: 33,570.
Frequency of Response: Initially, Annually, When engaging in
exempted transaction.
Estimated Total Annual Burden Hours: 2,929 hours.
Estimated Total Annual Burden Cost: $37,034.
Amendments to PTE 77-4, 80-83 and PTE 83-1
The Department has determined that PTE 77-4 and PTE 80-83 do not
have information collections impacted by the removal of advice from the
exemption. There is no paperwork burden related to PTE 83-1.
[[Page 76042]]
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \52\ imposes certain
requirements on rules subject to the notice and comment requirements of
section 553(b) of the Administrative Procedure Act or any other
law.\53\ Under section 603 of the RFA, agencies must submit an initial
regulatory flexibility analysis (IRFA) of a proposal that is likely to
have a significant economic impact on a substantial number of small
entities, such as small businesses, organizations, and governmental
jurisdictions. This proposed amended exemption, along with related
amended exemptions and a proposed rule amendment published elsewhere in
this issue of the Federal Register, is part of a rulemaking regarding
the definition of fiduciary investment advice, which the Department has
determined likely will have a significant economic impact on a
substantial number of small entities. The impact of this proposed
amendment on small entities is included in the IRFA for the entire
project, which can be found in the related notice of proposed
rulemaking found elsewhere in this edition of the Federal Register.
---------------------------------------------------------------------------
\52\ 5 U.S.C. 601 et seq.
\53\ 5 U.S.C. 601(2), 603(a); see also 5 U.S.C. 551.
---------------------------------------------------------------------------
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 \54\ requires
each federal agency to prepare a written statement assessing the
effects of any federal mandate in a proposed or final rule that may
result in an expenditure of $100 million or more (adjusted annually for
inflation with the base year 1995) in any 1 year by state, local, and
tribal governments, in the aggregate, or by the private sector. For
purposes of the Unfunded Mandates Reform Act, as well as Executive
Order 12875, this proposed amended exemption does not include any
Federal mandate that will result in such expenditures.
---------------------------------------------------------------------------
\54\ Public Law 104-4, 109 Stat. 48 (Mar. 22, 1995).
---------------------------------------------------------------------------
Federalism Statement
Executive Order 13132 outlines fundamental principles of
federalism. It also requires Federal agencies to adhere to specific
criteria in formulating and implementing policies that have
``substantial direct effects'' on the states, the relationship between
the national government and states, or on the distribution of power and
responsibilities among the various levels of government. Federal
agencies promulgating regulations that have these federalism
implications must consult with State and local officials, and describe
the extent of their consultation and the nature of the concerns of
State and local officials in the preamble to the final regulation.
Notwithstanding this, Section 514 of ERISA provides, with certain
exceptions specifically enumerated, that the provisions of Titles I and
IV of ERISA supersede any and all laws of the States as they relate to
any employee benefit plan covered under ERISA.
The Department does not intend this exemption to change the scope
or effect of ERISA section 514, including the savings clause in ERISA
section 514(b)(2)(A) for State regulation of securities, banking, or
insurance laws. Ultimately, the Department does not believe this
proposed class exemption has federalism implications because it has no
substantial direct effect on the States, on the relationship between
the National Government and the States, or on the distribution of power
and responsibilities among the various levels of Government.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption under
ERISA section 408(a) and Code section 4975(c)(2) does not relieve a
fiduciary, or other party in interest or disqualified person with
respect to a Plan, from certain other provisions of ERISA and the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
ERISA section 404 which require, among other things, that a fiduciary
act prudently and discharge his or her duties respecting the Plan
solely in the interests of the participants and beneficiaries of the
Plan. Additionally, the fact that a transaction is the subject of an
exemption does not affect the requirement of Code section 401(a) that
the Plan must operate for the exclusive benefit of the employees of the
employer maintaining the Plan and their beneficiaries; (2) Before the
proposed exemption may be granted under ERISA section 408(a) and Code
section 4975(c)(2), the Department must find that it is
administratively feasible, in the interests of Plans and their
participants and beneficiaries and IRA owners, and protective of the
rights of participants and beneficiaries of the Plan and IRA owners;
(3) If granted, the proposed exemption is applicable to a particular
transaction only if the transaction satisfies the conditions specified
in the exemption; and (4) The proposed exemption, if granted, is
supplemental to, and not in derogation of, any other provisions of
ERISA and the Code, including statutory or administrative exemptions
and transitional rules. Furthermore, the fact that a transaction is
subject to an administrative or statutory exemption is not dispositive
of whether the transaction is in fact a prohibited transaction.
Proposed Amendments to Class Exemptions Prohibited Transaction
Exemption 75-1, Exemptions From Prohibitions Respecting Certain Classes
of Transactions Involving Employee Benefit Plans and Certain Broker-
Dealers, Reporting Dealers and Banks
The Department proposes to amend Prohibited Transaction Exemption
75-1 under the authority of ERISA section 408(a) and Code section
4975(c)(2), and in accordance with the procedures set forth in 29 CFR
part 2570, subpart B (76 FR 66637, October 27, 2011).
I. PTE 75-1, Part I, Agency transactions and services, subparts (b)
and (c), are revoked in their entirety.
II. Part II, Principal transactions, the first sentence of subpart
(2) is revoked; the sentence beginning ``The exemptions set forth in
(1) and (2) is designated as Part II(2) and amended to read, ``The
exemption set forth in (1) above is subject to the following
conditions:'' and new section II(2)(d) is revised to delete the phrase
``Except with respect to transactions described in section (2)
above,''.
III. Part II, Principal transactions, sections (e) and (f) are
revised to read as follows: (e) The broker-dealer, reporting dealer, or
bank engaging in the covered transaction maintains or causes to be
maintained for a period of six years from the date of such transaction
such records as are necessary to enable the persons described in
paragraph (f) of this exemption to determine whether the conditions of
this exemption have been met, except that:
(1) No party in interest other than the broker-dealer, reporting
dealer, or bank engaging in the covered transaction, shall be subject
to the civil penalty, which may be assessed under section 502(i) of the
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if
such records are not maintained, or are not available for examination
as required by paragraph (f) below; and
(2) A prohibited transaction will not be deemed to have occurred
if, due to circumstances beyond the control of the broker-dealer,
reporting dealer, or bank, such records are lost or destroyed prior to
the end of such six-year period.
(f)(1) Notwithstanding anything to the contrary in subsections
(a)(2) and (b) of section 504 of the Act, the records referred to in
paragraph (e) are
[[Page 76043]]
reasonably available for examination during normal business hours by:
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(B) Any fiduciary of the plan or any duly authorized employee or
representative of such fiduciary;
(C) Any contributing employer and any employee organization whose
members are covered by the plan, or any authorized employee or
representative of these entities; or
(D) Any participant or beneficiary of the plan, or IRA owner, or
the duly authorized representative of such participant or beneficiary;
and
(2) None of the persons described in subparagraph (1)(B)-(D) above
shall be authorized to examine trade secrets or commercial or financial
information of the broker-dealer, reporting dealer, or bank which is
privileged or confidential, or records regarding a plan or IRA other
than the plan or IRA with respect to which they are the fiduciary,
contributing employer, employee organization, participant, beneficiary,
or IRA owner.
(3) Should such broker-dealer, reporting dealer, or bank refuse to
disclose information on the basis that such information is exempt from
disclosure, the broker-dealer, reporting dealer, or bank shall, by the
close of the thirtieth (30th) day following the request, provide a
written notice advising that person of the reasons for the refusal and
that the Department may request such information.
(4) Failure to maintain the required records necessary to determine
whether the conditions of this exemption have been met will result in
the loss of the exemption only for the transaction or transactions for
which records are missing or have not been maintained. It does not
affect the relief for other transactions.
For purposes of this exemption, the terms ``broker-dealer,''
``reporting dealer'' and ``bank'' shall include such persons and any
affiliates thereof, and the term ``affiliate'' shall be defined in the
same manner as that term is defined in 29 CFR 2510.3-21(e) and 26 CFR
54.4975-9(e).
IV. Part III, Underwritings, is amended by inserting a new section
III(h) to read as follows:
Exception. No relief from the restrictions of ERISA section 406(b)
and the taxes imposed by Code section 4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is available for fiduciaries providing
investment advice within the meaning of ERISA section 3(21)(A)(ii) or
Code section and regulations thereunder.
V. Part IV, Market-making, is amended by inserting a new section
IV(g) to read as follows:
Exception. No relief from the restrictions of ERISA section 406(b)
and the taxes imposed by Code section 4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is available for fiduciaries providing
investment advice within the meaning of ERISA section 3(21)(A)(ii) or
Code section 4975(e)(3)(B) and regulations thereunder.
VI. Part V, Extension of Credit, is amended by replacing Sections
(c) and (d) with the following: (c) Notwithstanding section (a)(2), a
fiduciary under ERISA section 3(21)(A)(ii) or Code section
4975(e)(3)(B) may receive reasonable compensation for extending credit
to a plan or IRA to avoid a failed purchase or sale of securities
involving the plan or IRA if:
(1) The potential failure of the purchase or sale of the securities
is not caused by such fiduciary or an affiliate;
(2) The terms of the extension of credit are at least as favorable
to the plan or IRA as the terms available in an arm's length
transaction between unaffiliated parties;
(3) Prior to the extension of credit, the plan or IRA receives
written disclosure of (i) the rate of interest (or other fees) that
will apply and (ii) the method of determining the balance upon which
interest will be charged, in the event that the fiduciary extends
credit to avoid a failed purchase or sale of securities, as well as
prior written disclosure of any changes to these terms. This section
(e)(3) will be considered satisfied if the plan or IRA receives the
disclosure described in Securities Exchange Act Rule 10b-16; \55\
---------------------------------------------------------------------------
\55\ 17 CFR 240.10b-16.
---------------------------------------------------------------------------
(d) The broker-dealer engaging in the covered transaction maintains
or causes to be maintained for a period of six years from the date of
such transaction in a manner that is reasonably accessible for
examination, such records as are necessary to enable the persons
described in paragraph (e) of this exemption to determine whether the
conditions of this exemption have been met with respect to a
transaction, except that:
(1) No party other than the broker-dealer engaging in the covered
transaction shall be subject to the civil penalty which may be assessed
under section 502(i) of the Act, or to the taxes imposed by section
4975(a) and (b) of the Code, if such records are not maintained, or are
not available for examination as required by paragraph (e) below; and
(2) A prohibited transaction will not be deemed to have occurred
if, due to circumstances beyond the control of the broker-dealer, such
records are lost or destroyed prior to the end of such six-year period.
(e)(1) Except as provided in paragraph (e)(2) of this exemption,
and notwithstanding anything to the contrary in subsections (a)(2) and
(b) of section 504 of the Act, the records referred to in paragraph (d)
are reasonably available at their customary location for examination
during normal business hours by:
(A) An authorized employee or representative of the Department of
Labor or the Internal Revenue Service,
(B) Any fiduciary of a plan that engaged in a transaction pursuant
to this exemption, or any authorized employee or representative of such
fiduciary;
(C) Any contributing employer and any employee organization whose
members are covered by a plan described in paragraph (e)(1)(B), or any
authorized employee or representative of these entities; or
(D) Any participant or beneficiary of a plan described in paragraph
(e)(1)(B), IRA owner or the authorized representative of such
participant, beneficiary or owner.
(2) None of the persons described in paragraph (e)(1)(B)-(D) of
this exemption are authorized to examine records regarding a
recommended transaction involving another investor, or privileged trade
secrets or privileged commercial or financial information, of the
broker-dealer engaging in the covered transaction, or information
identifying other individuals.
(3) Should the broker-dealer engaging in the covered transaction
refuse to disclose information on the basis that the information is
exempt from disclosure, the broker-dealer must, by the close of the
thirtieth (30th) day following the request, provide a written notice
advising the requestor of the reasons for the refusal and that the
Department may request such information.
(4) Failure to maintain the required records necessary to determine
whether the conditions of this exemption have been met will result in
the loss of the exemption only for the transaction or transactions for
which records are missing or have not been maintained. It does not
affect the relief for other transactions.
For purposes of this exemption, the terms ``party in interest,''
``disqualified person'' and ``fiduciary'' shall include such party in
interest, disqualified
[[Page 76044]]
person, or fiduciary, and any affiliates thereof, and the term
``affiliate'' shall be defined in the same manner as that term is
defined in 29 CFR 2510.3-21 and 26 CFR 54.4975-9. Also, for the
purposes of this exemption, the term ``IRA'' means any account or
annuity described in Code section 4975(e)(1)(B) through (F), including,
for example, an individual retirement account described in section
408(a) of the Code and a health savings account described in section
223(d) of the Code.
Prohibited Transaction Exemption 77-4, Class Exemption for Certain
Transactions Between Investment Companies and Employee Benefit Plans
The Department proposes to amend Prohibited Transaction Exemption
77-4 under the authority of ERISA section 408(a) and Code section
4975(c)(2), and in accordance with the procedures set forth in 29 CFR
part 2570, subpart B (76 FR 66637, October 27, 2011).
I. A new section II(g) is inserted to read as follows:
Exception. No relief from the restrictions of 406(b) and the taxes
imposed by section 4975(a) and (b) by reason of sections 4975(c)(1)(E)
and (F) is available for fiduciaries providing investment advice within
the meaning of section 3(21)(A)(ii) of ERISA or 4975(e)(3)(B) of the
Code and regulations thereunder.
Prohibited Transaction Exemption 80-83, Class Exemption for Certain
Transactions Involving Purchase of Securities Where Issuer May Use
Proceeds To Reduce or Retire Indebtedness to Parties in Interest
The Department proposes to amend Prohibited Transaction Exemption
80-83 under the authority of ERISA section 408(a) and Code section
4975(c)(2), and in accordance with the procedures set forth in 29 CFR
part 2570, subpart B (76 FR 66637, October 27, 2011).
I. A new section I.E. is inserted to read as follows:
Exception. No relief from the restrictions of 406(b) and the taxes
imposed by section 4975(a) and (b) by reason of sections 4975(c)(1)(E)
and (F) is available for fiduciaries providing investment advice within
the meaning of section 3(21)(A)(ii) of ERISA or 4975(e)(3)(B) of the
Code and regulations thereunder.
Prohibited Transaction Exemption 83-1, Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts
The Department proposes to amend Prohibited Transaction Exemption
83-1 under the authority of ERISA section 408(a) and Code section
4975(c)(2), and in accordance with the procedures set forth in 29 CFR
part 2570, subpart B (76 FR 66637, October 27, 2011).
I. A new section I.E. is inserted to read as follows:
Exception. No relief from the restrictions of 406(b) and the taxes
imposed by section 4975(a) and (b) by reason of sections 4975(c)(1)(E)
and (F) is available for fiduciaries providing investment advice within
the meaning of section 3(21)(A)(ii) of ERISA or 4975(e)(3)(B) of the
Code and regulations thereunder.
Prohibited Transaction Exemption 86-128, Class Exemption for Securities
Transactions Involving Employee Benefit Plans and Broker-Dealers
The Department proposes to amend Prohibited Transaction Exemption
86-128 under the authority of ERISA section 408(a) and Code section
4975(c)(2), and in accordance with the procedures set forth in 29 CFR
part 2570, subpart B (76 FR 66637, October 27, 2011).
I. New sections II(d) is inserted as follows:
(d) Exception. No relief from the restrictions of ERISA 406(b) and
the taxes imposed by Code section 4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is available for fiduciaries providing
investment advice within the meaning of ERISA section 3(21)(A)(ii) or
Code section 4975(e)(3)(B) and regulations thereunder.
II. Section IV(a) is deleted.
III. Section IV(b) is redesignated as Section IV(a), and IV(a)(1)
is deleted and Sections IV(b)(2) and (3) are redesignated as Sections
IV(b)(1) and (2).
IV. Section IV(c) is redesignated as Section IV(b) and is amended
to read:
(c) Recapture of profits. Sections III(a) and III(i) of this
exemption do not apply in any case where the person engaging in a
covered transaction returns or credits to the plan all profits earned
by that person in connection with the securities transactions
associated with the covered transaction.
V. The following is added to the end of Section III(a)
``Notwithstanding the foregoing, this condition does not apply to a
trustee that satisfies Section III(h) and (i).''
VI. New Section VII is inserted as follows:
Section VII. Recordkeeping Requirements
(a) The plan fiduciary engaging in a covered transaction maintains
or causes to be maintained for a period of six years, in a manner that
is reasonably accessible for examination, the records necessary to
enable the persons described in Section VI(b) to determine whether the
conditions of this exemption have been met, except that:
(1) If such records are lost or destroyed, due to circumstances
beyond the control of the plan fiduciary, then no prohibited
transaction will be considered to have occurred solely on the basis of
the unavailability of those records; and
(2) No party in interest, other than such plan fiduciary who is
responsible for complying with this paragraph (a), will be subject to
the civil penalty that may be assessed under ERISA section 502(i) or
the taxes imposed by Code section 4975(a) and (b), if applicable, if
the records are not maintained or are not available for examination as
required by paragraph (b) below; and
(b)(1) Except as provided below in subparagraph (2), or as
precluded by 12 U.S.C. 484, and notwithstanding any provisions of ERISA
section 504(a)(2) and (b), the records referred to in the above
paragraph are reasonably available at their customary location for
examination during normal business hours by--
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(B) Any fiduciary of the plan or any duly authorized employee or
representative of such fiduciary;
(C) Any contributing employer and any employee organization whose
members are covered by the plan, or any authorized employee or
representative of these entities; or
(D) Any participant or beneficiary of the plan or the authorized
representative of such participant or beneficiary.
(2) None of the persons described in subparagraph (1)(B)-(D) above
are authorized to examine privileged trade secrets or privileged
commercial or financial information of such fiduciary or are authorized
to examine records regarding a plan or IRA other than the plan or IRA
with which they are the fiduciary, contributing employer, employee
organization, participant, beneficiary or IRA owner.
(3) Should such plan fiduciary refuse to disclose information on
the basis that such information is exempt from disclosure, such plan
fiduciary must, by the close of the thirtieth (30th) day following the
request, provide a written notice advising the requestor of the reasons
for the refusal and that the Department may request such information.
(4) Failure to maintain the required records necessary to determine
whether
[[Page 76045]]
the conditions of this exemption have been met will result in the loss
of the exemption only for the transaction or transactions for which
records are missing or have not been maintained. It does not affect the
relief for other transactions.
Signed at Washington, DC, this 24th day of October, 2023.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 2023-23782 Filed 11-2-23; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on November 3, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.