Investment Advice-Participants and Beneficiaries, 3822-3853 [E9-710]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 74, Number 12 (Wednesday, January 21, 2009)]
[Rules and Regulations]
[Pages 3822-3853]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-710]



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Part III





Department of Labor





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 Employee Benefits Security Administration



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29 CFR Part 2550



Investment Advice--Participants and Beneficiaries; Final Rule

Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / 
Rules and Regulations

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

RIN 1210-AB13


 Investment Advice--Participants and Beneficiaries

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Final rule.

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SUMMARY: This document contains final rules under the Employee 
Retirement Income Security Act, and parallel provisions in the Internal 
Revenue Code of 1986, relating to the provision of investment advice by 
a fiduciary adviser to participants and beneficiaries in participant-
directed individual account plans, such as 401(k) plans, and 
beneficiaries of individual retirement accounts (and certain similar 
plans). These rules affect sponsors, fiduciaries, participants and 
beneficiaries of participant-directed individual account plans, as well 
as providers of investment and investment advice-related services to 
such plans.

DATES: These final rules are effective on March 23, 2009.

FOR FURTHER INFORMATION CONTACT: Fred Wong, Office of Regulations and 
Interpretations, Employee Benefits Security Administration, (202) 693-
8500. This is not a toll-free number.

SUPPLEMENTARY INFORMATION: 

A. Background

    Section 3(21)(A)(ii) of the Employee Retirement Income Security Act 
of 1974 (ERISA) and section 4975(e)(3)(B) of the Internal Revenue Code 
of 1986 (Code) include within the definition of ``fiduciary'' a person 
that renders investment advice for a fee or other compensation, direct 
or indirect, with respect to any moneys or other property of a plan, or 
has any authority or responsibility to do so.\1\ The prohibited 
transaction provisions of ERISA and the Code prohibit an investment 
advice fiduciary from using the authority, control or responsibility 
that makes it a fiduciary to cause itself, or a party in which it has 
an interest that may affect its best judgment as a fiduciary, to 
receive additional fees. As a result, in the absence of a statutory or 
administrative exemption, fiduciaries are prohibited from rendering 
investment advice to plan participants regarding investments that 
result in the payment of additional advisory and other fees to the 
fiduciaries or their affiliates. Section 4975 of the Code applies 
similarly to the rendering of investment advice by a fiduciary to an 
individual retirement account (IRA) beneficiary.
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    \1\ See also 29 CFR 2510.3-21(c) and 26 CFR 54.4975-9(c).
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    With the growth of participant-directed individual account plans, 
there has been an increasing recognition of the importance of 
investment advice to participants and beneficiaries in such plans. Over 
the past several years, the Department of Labor (Department) has issued 
various forms of guidance concerning when a person would be a fiduciary 
by reason of rendering investment advice and when the provision of 
investment advice might result in prohibited transactions.\2\ Most 
recently, Congress and the Administration, responding to the need to 
afford participants and beneficiaries greater access to professional 
investment advice, amended the prohibited transaction provisions of 
ERISA and the Code, as part of the Pension Protection Act of 2006 
(PPA),\3\ to permit a broader array of investment advice providers to 
offer their services to participants and beneficiaries responsible for 
investment of assets in their individual accounts and, accordingly, for 
the adequacy of their retirement savings.
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    \2\ See Interpretative Bulletin relating to participant 
investment education, 29 CFR 2509.96-1 (Interpretive Bulletin 96-1); 
Advisory Opinion (AO) 2005-10A (May 11, 2005); AO 2001-09A (December 
14, 2001); and AO 97-15A (May 22, 1997).
    \3\ Public Law 109-280, 120 Stat. 780 (Aug. 17, 2006).
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    Specifically, section 601 of the PPA added a statutory exemption 
under sections 408(b)(14) and 408(g) of ERISA. Parallel provisions were 
added to the Code at sections 4975(d)(17) and 4975(f)(8).\4\ Section 
408(b)(14) sets forth the investment advice-related transactions that 
will be exempt from the prohibitions of section 406 if the requirements 
of section 408(g) are met. The transactions described in section 
408(b)(14) are: The provision of investment advice to the participant 
or beneficiary with respect to a security or other property available 
as an investment under the plan; the acquisition, holding or sale of a 
security or other property available as an investment under the plan 
pursuant to the investment advice; and the direct or indirect receipt 
of compensation by a fiduciary adviser or affiliate in connection with 
the provision of investment advice or the acquisition, holding or sale 
of a security or other property available as an investment under the 
plan pursuant to the investment advice.
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    \4\ Under Reorganization Plan No. 4 of 1978 (43 FR 47713, Oct. 
17, 1978), 5 U.S.C. App. 1, 92 Stat. 3790, the authority of the 
Secretary of the Treasury to issue rulings under section 4975 of the 
Code has been transferred, with certain exceptions not here 
relevant, to the Secretary of Labor. Therefore, the references in 
this notice to specific sections of ERISA should be taken as 
referring also to the corresponding sections of the Code.
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    On December 4, 2006, the Department published a Request for 
Information (RFI) in the Federal Register soliciting information to 
assist the Department in the development of regulations under sections 
408(b)(14) and 408(g).\5\ Specifically, the Department invited 
interested persons to address the qualifications for the ``eligible 
investment expert'' that is required to certify that computer models 
used in connection with the statutory exemption meet the requirements 
of the statutory exemption. The Department also invited interested 
persons to provide information to assist the Department in developing 
procedures to be followed in certifying that a computer model meets the 
requirements of the statutory exemption. The Department also invited 
suggestions for a model disclosure form for purposes of the statutory 
exemption. In response to the RFI, the Department received 24 letters 
addressing a variety of issues presented by the statutory exemption. 
These comments were taken into account in developing the proposed 
regulations described below.
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    \5\ 71 FR 70429. The Department, on the same date, also 
published an RFI in the Federal Register soliciting information to 
assist the Department in determining, as required by PPA section 
601(b)(3), the feasibility of using computer models in connection 
with individual retirement accounts. 72 FR 70427.
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    On February 2, 2007, the Department issued Field Assistance 
Bulletin 2007-01 addressing certain issues presented by the new 
statutory exemption. This Bulletin affirmed that the enactment of 
sections 408(b)(14) and 408(g) did not invalidate or otherwise affect 
prior guidance of the Department relating to investment advice and that 
such guidance continues to represent the views of the Department.\6\ 
The Bulletin

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also confirmed the applicability of the principles set forth in section 
408(g)(10) [Exemption for plan sponsor and certain other fiduciaries] 
to plan sponsors and fiduciaries who offered investment advice 
arrangements with respect to which relief under the statutory exemption 
is not required. Finally, the Bulletin addressed the scope of the fee-
leveling requirement for purposes of an eligible investment advice 
arrangement described in section 408(g)(2)(A)(i).
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    \6\ In this regard, the Department cited the following: August 
3, 2006 Floor Statement of Senate Health, Education, Labor and 
Pensions Committee Chairman Enzi (who chaired the Conference 
Committee drafting legislation forming the basis of H.R. 4) 
regarding investment advice to participants in which he states, ``It 
was the goal and objective of the Members of the Conference to keep 
this advisory opinion [AO 2001-09A, SunAmerica Advisory Opinion] 
intact as well as other pre-existing advisory opinions granted by 
the Department. This legislation does not alter the current or 
future status of the plans and their many participants operating 
under these advisory opinions. Rather, the legislation builds upon 
these advisory opinions and provides alternative means for providing 
investment advice which is protective of the interests of plan 
participants and IRA owners.'' 152 Cong. Rec. S8,752 (daily ed. Aug. 
3, 2006) (statement of Sen. Enzi).
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    On August 22, 2008, the Department published in the Federal 
Register proposed regulations that would, upon adoption, implement the 
provisions of the statutory exemption for the provision of investment 
advice to participants and beneficiaries under sections 408(b)(14) and 
408(g) of the Act and the parallel provisions in the Code (73 FR 
49896). On the same date, the Department also published a proposed 
class exemption that, upon adoption, would establish alternative 
conditions for granting prohibited transaction relief in connection 
with the provision of investment advice, and thereby promote the broad 
availability of investment advice to both participants and 
beneficiaries in individual account plans and beneficiaries with 
individual retirement accounts (73 FR 49924). In response to these 
proposals, the Department received forty-three comment letters.
    On October 21, 2008, the Department held a public hearing at which 
interested members of the public were afforded an additional 
opportunity to present their views on the proposals. Eight 
organizations testified at the hearing.
    Set forth below is an overview of the final rules and an overview 
of the major comments received on the proposed rules and class 
exemption.

B. Overview of Final Sec.  2550.408g-1 and Public Comments

1. General

    As noted above, the Department published both a proposed regulation 
and a proposed class exemption pertaining to the furnishing of 
investment advice to participants and beneficiaries. In an effort to 
facilitate both use of and reference to the relief afforded by the 
statutory exemption and the class exemption, the Department has 
included both within a single final rule, discussed below. In this 
regard, a number of paragraph, subparagraph and other reference changes 
are reflected in the final rule to accommodate the merger of the two 
proposals, as well as other changes. The provisions applicable to the 
statutory exemption are set forth in paragraph (b) of the final rule 
and the provisions applicable to the class exemption are set forth at 
paragraph (d) of the final rule. In addition to the structural changes, 
the final rule, while retaining the general requirements and substance 
of the proposals, reflects a number of clarifying changes made in 
response to suggestions and concerns from commenters on the proposals. 
These suggestions and concerns are discussed below.
    Paragraph (a)(1) of the final rule describes the general scope of 
the final rule, referencing both the statutory exemption under sections 
408(b)(14) and 408(g)(1) of ERISA and sections 4975(d)(17) and 
4975(f)(8) of the Code for certain transactions in connection with the 
provision of investment advice, as set forth in paragraph (b) of the 
final rule, and the class exemption, issued pursuant to the 
Department's authority under section 408(a) of ERISA and section 
4975(c)(2) of the Code, for certain transactions not otherwise covered 
by the statutory exemption. In response to the concerns of some 
commenters that the conditions of the final rule might be construed as 
being applicable to all investment advice arrangements, without regard 
to whether the provision of advice pursuant to such arrangements 
involves prohibited transactions, paragraph (a)(1) makes clear that the 
requirements and conditions of the final rule apply solely for the 
relief described in the final rule and, accordingly, that no inferences 
should be drawn with respect to the requirements applicable to the 
provision of investment advice not addressed by the rule.
    Commenters also requested that the final rule make clear that 
nothing in the rule establishes an obligation on the part of plans or 
plan sponsors to provide investment advice. Other commenters requested 
that the Department reaffirm its view that neither the statutory 
exemption under section 408(g)(1) nor the regulations issued thereunder 
invalidate or otherwise affect prior guidance concerning the 
circumstances under which the provision of investment advice would not 
constitute a prohibited transaction. The Department addressed these 
concerns in paragraphs (a)(2) and (a)(3), respectively. Paragraph 
(a)(2) provides that nothing contained in ERISA section 408(g)(1), Code 
section 4975(f)(8), the regulation or the class exemption imposes an 
obligation on a plan fiduciary or any other party to offer, provide or 
otherwise make available any investment advice to a participant or 
beneficiary. Paragraph (a)(3) provides that nothing contained in those 
same provisions of ERISA and the Code, the regulation or the class 
exemption invalidates or otherwise affects prior regulations, 
exemptions, interpretive or other guidance issued by the Department 
pertaining to the provision of investment advice and the circumstances 
under which such advice may or may not constitute a prohibited 
transaction under section 406 of ERISA or section 4975 of the Code.\7\
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    \7\ See Field Assistance Bulletin 2007-1 (Feb. 2, 2007).
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    One commenter requested confirmation that the provision of 
investment advice pursuant to the final rule will not affect the relief 
accorded plan fiduciaries under section 404(c) of the Act. It is the 
view of the Department that there is nothing in the Act, Code, or this 
final rule that, in connection with the offering or provision of 
investment advice, would itself affect the availability of relief to 
plan sponsors or other fiduciaries of the plan (with the exception of 
the fiduciary advisers) otherwise available under section 404(c). The 
Department notes that, as explained in Field Assistance Bulletin 2007-
1, a plan sponsor or other fiduciary that prudently selects and 
monitors an investment advice provider will not be liable for the 
advice furnished by such provider to the plan's participants and 
beneficiaries, whether or not that advice is provided pursuant to the 
statutory exemption under section 408(b)(14).\8\ It is the view of the 
Department that section 404(c) and the Department's regulations 
thereunder do not limit the liability of fiduciary advisers that, 
pursuant to the exemptions contained in the final rule, specifically 
assume and acknowledge fiduciary responsibility for the provision of 
investment advice, within the meaning of section 3(21)(A)(ii) and the 
regulations issued thereunder, and related transactions; advice that 
clearly is intended to serve as the primary basis for investment 
decisions by plan participants and beneficiaries. Section 404(c) 
provides relief for acts which are the direct and necessary result of a 
participant's or beneficiary's exercise of control. The investment 
advice (and related transactions) covered by the exemption and 
furnished to participants and beneficiaries would not, in the 
Department's view, be the direct and necessary result of a 
participant's or

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beneficiary's exercise of control and, accordingly, the fiduciary 
adviser would not be relieved of liability for such advice. See 
examples at paragraphs (f)(8) and (f)(9) of Sec.  2550.404c-1.
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    \8\ See section 408(g)(10) and Field Assistance Bulletin 2007-1 
for a discussion of a fiduciary's duty to prudently select and 
monitor investment advisers.
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2. Statutory Exemption

a. General
    Paragraph (b) of the final rule specifically addresses the 
statutory exemption and applicable conditions set forth in section 
408(g)(1) of the Act. Like the proposal, these provisions generally 
track the requirements under section 408(g)(1) that must be satisfied 
in order for the investment advice-related transactions described in 
section 408(b)(14) to be exempt from the prohibitions of section 406.
    Paragraph (b)(1) provides that for purposes of the relief afforded 
for transactions described in section 408(b)(14) (and section 
4975(d)(17) of the Code) the investment advice must be provided by a 
fiduciary adviser under an ``eligible investment advice arrangement.'' 
The transactions described in section 408(b)(14) include the provision 
of investment advice to a participant or beneficiary with respect to a 
security or other property available as an investment under the plan; 
the acquisition, holding or sale of a security or other property 
available as an investment under the plan pursuant to the advice; and 
the direct or indirect receipt of fees or other compensation by the 
fiduciary adviser or an affiliate in connection with the provision of 
the advice or in connection with the acquisition, holding or sale of 
the security or other property.
    With regard to the scope of relief, one commenter requested that 
the Department clarify that transactions covered by the regulation and 
the class exemption include extensions of credit and similar 
transactions necessary to the execution and settlement of trades of 
securities. It is the view of the Department that transactions in 
connection with the provision of investment advice described in section 
3(21)(A)(ii) of ERISA include, for purposes of the statutory exemption 
and class exemption, otherwise permissible transactions necessary for 
the efficient execution and settlement of trades of securities, such as 
extensions of credit in connection with settlements.
    One commenter requested that the relief afforded by the regulation 
and class exemption be extended to investment advice provided to plan 
sponsors generally. The Department notes that the transactions 
described in 408(b)(14), with respect to which relief is given if the 
requirements of section 408(g)(1) are satisfied, are specifically 
limited to certain transactions that involve the provision of 
investment advice to a participant or beneficiary of a plan. The scope 
of both the regulation and the related class exemption, therefore, were 
limited to these transactions. While advice provided to plan 
fiduciaries such as plan sponsors may well be similar in many respects 
to advice provided to participants and beneficiaries, the Department 
does not believe it would be appropriate, as part of this final rule, 
without further notice and comment, to extend relief to transactions 
involving investment advice provided to plan sponsors. Accordingly, the 
Department has not adopted this suggestion.
    One commenter requested that the Department confirm that advice to 
a participant or beneficiary concerning the selection of an investment 
manager to manage some or all of the participant's or beneficiary's 
assets constitutes the provision of investment advice within the 
meaning of section 3(21)(A)(ii) of ERISA for purposes of the statutory 
exemption and the class exemption. It has long been the view of the 
Department that the act of making individualized recommendations of 
particular investment managers to plan fiduciaries may constitute the 
provision of investment advice within the meaning of section 3(21)(A). 
The fiduciary nature of that advice does not, in the Department's view, 
change merely because the advice is being given to a plan participant 
or beneficiary. Accordingly, it is the view of the Department that the 
recommending of investment managers to participants and beneficiaries 
may constitute the provision of investment advice for purposes of both 
the statutory and class exemption contained in this final rule.
    Paragraph (b)(2) provides that, for purposes of section 408(g)(1) 
of the Act and 4975(f)(8) of the Code, an ``eligible investment advice 
arrangement'' is an arrangement that meets the requirements of 
paragraph (b)(3), applicable to arrangements that use fee-leveling, or 
paragraph (b)(4), applicable to arrangements that use computer models, 
or both.
b. Arrangements using fee-leveling
    Paragraph (b)(3) sets forth the requirements applicable to 
investment advice arrangements that use fee-leveling under the 
statutory exemption. Paragraph (b)(3)(i) delineates the specific 
requirements that must be met. In this regard, paragraph (b)(3)(i)(A) 
of the final rule, like the proposal, requires that any investment 
advice must be based on generally accepted investment theories that 
take into account historic returns of different asset classes over 
defined periods of time, noting that additional considerations are not 
precluded from being taking into account.
    One commenter recommended that the investment advice also take into 
account investment management and other fees attendant to the 
recommended investment(s). The Department agrees that the fees and 
expenses attendant to an investment are an important consideration and 
should be factored into individualized recommendations. Given the 
Department's various regulatory initiatives directed toward enhancing 
the consideration of investment-related fees and expenses by plan 
fiduciaries and plan participants and beneficiaries,\9\ the Department 
believes that it is reasonable to expect fiduciary advisers, as well as 
their computer models, to take such fees and expenses into account in 
providing investment advice to the plan participants and beneficiaries. 
The Department, therefore, has added a new provision, at paragraph 
(b)(3)(i)(B), requiring arrangements that utilize fee-leveling to take 
into account investment management and other fees and expenses 
attendant to the recommended investments. Similar changes appear in 
paragraph (b)(4)(i)(B) for arrangements that use computer models, and 
paragraph (d)(6)(i)(B), applicable to arrangements for providing advice 
under the class exemption.
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    \9\ See ``Fiduciary Requirements for Disclosure in Participant-
Directed Individual Account Plans,'' 73 FR 43013 (July 23, 2008) 
(proposed rule); ``Reasonable Contract or Arrangement under Section 
408(b)(2)--Fee Disclosure; Proposed Rule,'' 73 FR 70987 (Dec. 13, 
2007); and Notice of adoption of revisions to annual return/report 
forms, 72 FR 64731, 64788-794, 64824-28 (Nov. 16, 2007) (form and 
instructions for the Schedule C (From 5500), ``Service Provider 
Information'').
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    Paragraph (b)(3)(i)(C) of the final rule requires that arrangements 
utilizing fee-leveling must take into account certain personal 
information furnished by a participant or beneficiary. In the proposal, 
this information related to age, life expectancy, retirement age, risk 
tolerance, other assets or sources of income and investment 
preferences. The Department received a number of comments on this 
provision. Many of the commenters requested clarification that the 
delineated factors were not mandatory, some of the commenters noting 
that the fiduciary adviser may not have the information, participants 
may not be willing to give the information or the information they 
furnish may be incomplete. Other commenters recommended that the

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information focus on ``time horizons'' rather than life expectancy or 
retirement age, noting the use of ``time horizons'' by the Financial 
Industry Regulatory Authority (FINRA) in its guidance on determining 
the suitability of a recommendation.
    For purposes of the final rule, the Department retained the factors 
delineated in the statute, section 408(g)(3)(B)(ii) of ERISA, as 
examples of the information investment advice should be capable of 
taking into account. The Department also has included in the final 
rule, as an additional factor, information pertaining to the 
participant's or beneficiary's current investments in designated 
investment options. The Department believes that these factors are so 
fundamental to meaningful investment advice, the Department is applying 
the personal information requirement to all advice provided under the 
statutory exemption and class exemption. However, the Department notes 
that the information is only required to be taken into account to the 
extent that a participant or beneficiary actually provides such 
information. There is no obligation, therefore, for a fiduciary adviser 
to factor in personal information that it does not have or that the 
participant or beneficiary fails or refuses to provide. Rather, the 
fiduciary adviser is merely required to request the personal 
information described in the final rule, and utilize such information 
only to the extent furnished. The Department has modified the text of 
the final rule to provide this clarification. The Department also has 
modified the language of the final rule to reference ``time horizons,'' 
and by parenthetical citation to life expectancy and retirement age as 
examples of such time horizons. Similar changes are reflected in 
paragraph (b)(4)(i)(C), for arrangements utilizing computer models, and 
paragraph (d)(6)(i)(C), applicable to arrangements for providing advice 
under the class exemption.
    Paragraphs (b)(3)(i)(D) and (E) of the final rule set forth the 
limitations on fees and compensation at the employee, agent and 
registered representative level and the fiduciary adviser level, 
respectively, applicable to arrangements utilizing fee-leveling under 
the statutory exemption. These limitations are unchanged from the 
proposal. Paragraph (b)(3)(i)(D) provides that any fees or other 
compensation (including salary, bonuses, awards, promotions, 
commissions or other things of value) received, directly or indirectly, 
by any employee, agent or registered representative that provides 
investment advice on behalf of a fiduciary adviser cannot vary 
depending on the basis of any investment option selected by a 
participant or beneficiary. Paragraph (b)(3)(i)(E) provides that any 
fees (including any commission or other compensation) received by the 
fiduciary adviser for investment advice or with respect to the sale, 
holding, or acquisition of any security or other property for purposes 
of investment of plan assets may not vary depending on the basis of any 
investment option selected by a participant or beneficiary.
    While a number of commenters supported the Department's application 
of the fee-leveling requirement, some commenters objected to the 
Department's implementation of the statutory provision, arguing that 
Congress, in an effort to eliminate the potential for conflicts of 
interest, intended the fee-leveling requirement to encompass not only 
the fiduciary adviser but also affiliates of the fiduciary adviser. The 
Department disagrees with this interpretation of the section 
408(g)(2)(A)(i). Shortly after enactment of the PPA, the Department 
issued Field Assistance Bulletin 2007-1 (February 2, 2007) setting 
forth its legal analysis of the fee-leveling requirements in section 
408(g)(2)(A)(i) of the Act.
    In that Bulletin, the Department noted that it is clear from 
section 408(g)(2)(A)(i) that only the fees or other compensation of the 
fiduciary adviser may not vary. The Department explained that, in 
contrast to other provisions of section 408(b)(14) and section 408(g), 
section 408(g)(2)(A)(i) references only the fiduciary adviser, not the 
fiduciary adviser or an affiliate. Inasmuch as a person, pursuant to 
section 408(g)(11)(A), can be a fiduciary adviser only if that person 
is a fiduciary of the plan by virtue of providing investment advice, an 
affiliate of a registered investment adviser, a bank or similar 
financial institution, an insurance company, or a registered broker 
dealer will be subject to the varying fee limitation only if that 
affiliate is providing investment advice to plan participants and 
beneficiaries. The Department further explained that, consistent with 
earlier guidance in this area, if the fees and compensation received by 
an affiliate of a fiduciary that provides investment advice do not vary 
or are offset against those received by the fiduciary for the provision 
of investment advice, no prohibited transaction would result solely by 
reason of providing investment advice and thus there would be no need 
for a prohibited transaction exemption, such as provided under sections 
408(b)(14) and 408(g).\10\ The Department concluded that, for purposes 
of section 408(g)(2)(A)(i), Congress could not have intended for the 
requirement that fees not vary depending on the basis of any investment 
options selected to extend to affiliates of the fiduciary adviser, 
unless, of course, the affiliate is also a provider of investment 
advice to a plan. This position continues to reflect the Department's 
legal analysis of section 408(g)(2)(A)(i) and, therefore, is reflected 
in the fee-leveling provisions of the final regulation.
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    \10\ See AO 97-15A and AO 2005-10A.
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    With regard to those commenters concerned about potential conflicts 
of interest influencing the investment advice recommendations, the 
Department believes that, while there may always be a few individuals 
who, without regard to limitations imposed by law, abuse their position 
of trust as fiduciaries, the safeguards established by the regulation, 
as well as the class exemption, will, in the Department's view, remove 
many of the incentives and create strong deterrents for abusive 
behavior. In this regard, we note that, in addition to the specific 
fee-leveling limitations, fiduciary advisers utilizing investment 
advice arrangements that employ fee-leveling must comply with the 
requirements of paragraphs (b)(5) [authorization by plan fiduciary], 
(b)(6) [annual audits], (b)(7) [advance and annual disclosure], (b)(8) 
[other conditions], and (e) [maintenance of records] of the final rule, 
each of which is discussed in more detail below.
    A number of commenters had questions or requested clarification of 
the fee-leveling requirements applicable to employees, agents, or 
registered representatives that provide advice on behalf of a fiduciary 
adviser, now set forth in paragraph (b)(3)(i)(D) of the final rule. One 
commenter asked for examples of things of value that an employee, agent 
or representative might receive, directly or indirectly, that would 
violate the rule. Paragraph (b)(3)(i)(D), like the proposal, delineates 
a number of types of compensation that, if varied based on investment 
options selected by a participant or beneficiary, would violate the 
rule, namely salary, bonuses, awards, commissions, or other things of 
value. Things of value would include trips, gifts and other things that 
while having a value, are not given in the form of cash.
    A number of commenters requested confirmation that bonus programs 
based on the overall profitability of the fiduciary adviser or its 
affiliate, or a designated business unit within the adviser's business 
would not violate the

[[Page 3826]]

fee-leveling requirement. The application of the fee-leveling is 
intended to be very broad in order to ensure that objectivity of the 
investment advice recommendations to plan participants and 
beneficiaries is not compromised by the advice provider's own financial 
interest in the outcome. Accordingly, almost every form of remuneration 
that takes into account the investments selected by participants and 
beneficiaries would likely violate the fee-leveling requirement of the 
final rule. On the other hand, it is conceivable that a compensation or 
bonus arrangement that is based on the overall profitability of an 
organization may be permissible to the extent that it can be 
established that the individual account plan and IRA investment advice 
and investment option components were excluded from, or constituted a 
negligible portion of, the calculation of the organization's 
profitability. The Department believes, however, that whether any 
particular salary, bonus, awards, promotions or commissions program 
meets or fails this fee-leveling requirement ultimately depends on the 
details of the program. In this regard, the Department notes that the 
details of such programs will be the subject of both a review and a 
report by an independent auditor as a condition for relief under the 
statutory and class exemption.
c. Arrangements Using Computer Models
    As with the general requirements for arrangements using fee-
leveling, and like the proposal in most respects, the final rule 
requires that arrangements utilizing computer models satisfy certain 
basic requirements.\11\ These requirements include the application of 
generally accepted investment theories (paragraph (b)(4)(i)(A)), the 
consideration of investment management and other fees and expenses 
attendant to recommended investments (paragraph (b)(4)(i)(B)), and the 
utilization of certain participant-provided information (paragraph 
(b)(4)(i)(C)). The changes to these requirements were discussed in 
connection with the fee-leveling provisions of the regulation.
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    \11\ In general, these requirements track the requirements set 
forth in section 408(g)(3)(B) of the Act.
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    Other conditions imposed on computer models require that such 
models utilize objective criteria to provide asset allocation 
portfolios (paragraph (b)(4)(i)(D)) and avoid recommendations that 
inappropriately favor investments options offered by the fiduciary 
adviser or that may generate greater income for the fiduciary adviser 
or those with a material affiliation or material contractual 
relationship with the fiduciary adviser (paragraph (b)(4)(i)(E)).
    As with the proposal, the language of the final rule makes clear 
that a computer model would not fail to meet the requirements of 
paragraph (b)(4)(i)(E) merely because the only investment options 
offered under the plan are options offered by the fiduciary adviser or 
a person with a material affiliation or material contractual 
relationship with the fiduciary adviser. The language also makes clear 
that a computer model cannot be designed and operated to 
inappropriately favor those investment options that generate the most 
income for the fiduciary adviser or a person with a material 
affiliation or material contractual relationship with the fiduciary 
adviser. The final rule defines a ``material affiliation'' and 
``material contractual relationship'' at paragraphs (c)(6) and (c)(7), 
respectively.
    One commenter requested clarification that the provisions of 
paragraph (b)(4)(i)(E) would not be violated where an IRA beneficiary 
requests investment advice with the understanding that the computer 
model will be providing only hold or sell recommendations with respect 
to investment options not offered through the IRA. While the Department 
believes that computer models should, with few exceptions, be required 
to model all investment options available under a plan or through an 
IRA, the Department does not believe that it is reasonable to expect 
that all computer models be capable of modeling the universe of 
investment options, rather than just those investment alternatives 
designated as available investments through the plan or IRA. 
Accordingly, it is the view of the Department that a computer model 
would not fail to meet the requirements of paragraph (b)(4)(i)(E) 
merely because it limits buy recommendations only to those investment 
options that can be bought through the plan or IRA, even if the model 
is capable of modeling hold and sell recommendations with respect to 
investments not available through the plan or IRA, provided, of course, 
that the plan participant or beneficiary or IRA beneficiary is fully 
informed of the model's limitations in advance of the recommendations, 
thereby enabling the recipient of advice to assess the usefulness of 
the recommendations. This view would also extend to the requirements of 
the class exemption at paragraph (d)(3).
    Paragraph (b)(4)(i)(F)(1) of the final rule, like the proposal, 
requires that a computer model take into account all ``designated 
investment options'' available under the plan without giving 
inappropriate weight to any investment option.\12\ The term 
``designated investment option'' is defined in paragraph (c)(1) of the 
final rule to mean any investment option designated by the plan into 
which participants and beneficiaries may direct the investment of 
assets held in, or contributed to, their individual accounts. The term 
``designated investment option'' does not include ``brokerage 
windows,'' ``self-directed brokerage accounts,'' or similar plan 
arrangements that enable participants and beneficiaries to select 
investments beyond those designated by the plan.
---------------------------------------------------------------------------

    \12\ See section 408(g)(3)(B)(v) of the Act.
---------------------------------------------------------------------------

    Paragraph (b)(4)(i)(F)(2)(i) also, like the proposal, provides that 
a computer model shall not be treated as failing to take all designated 
investment options into account merely because it does not take into 
account an investment option that constitutes an investment primarily 
in qualifying employer securities. While most of the commenters on the 
proposal supported the exclusion of qualifying employer securities, 
some commenters requested clarification as to whether the computer 
model nonetheless had to factor in the holding of such investments by a 
participant or beneficiary, without regard to buy, sell or hold 
recommendations.
    It is the view of the Department that, absent a specific request 
from the participant or beneficiary to exclude such assets from the 
modeled investment advice, a computer model must take into account the 
fact that the participant or beneficiary has such an investment when 
giving advice with respect to the participant's or beneficiaries 
remaining assets or investments. If, on the other hand, a participant 
or beneficiary elects not to have such investments factored into the 
modeled advice or does not provide such information and the computer 
model does not have such information, the model would not be required 
to take such assets into account in providing a recommendation. This 
approach, in the Department's view, is consistent with the requirement 
set forth in paragraph (b)(4)(i)(C) of the final rule that computer 
models take into account other assets and investment preferences of the 
participant or beneficiary. One commenter requested that the exclusion 
for qualifying employer securities be expanded to apply to other single 
asset funds, such as funds invested in stock

[[Page 3827]]

of prior employers or a spin-off company. The commenter did not 
indicate other types of single asset funds, or the extent to which they 
are offered as designated investment options under plans. The 
Department does not believe it has sufficient information at this time 
to extend similar treatment to any such investments.
    Other commenters requested that computer models not be required to 
include, among other things, options from predecessor plans (referred 
to as ``legacy options''), managed accounts, target date funds, and in-
plan annuity options, which they described as annuity purchase programs 
that serve as both accumulation and distribution options. With respect 
to legacy options, it is the view of the Department that to the extent 
participants continue to have an ability to further invest in such 
options, the options must be included within the computer model. If, on 
the other hand, participants are merely permitted to hold and sell 
investments in such options, it is the view of the Department that, as 
discussed above with respect to qualifying employer securities, unless 
a participant specifically elects to not have such investments taken 
into account, the model should take into account that the participant 
holds such assets. Similar to the above, a computer model would not, in 
the view of the Department, fail to meet the requirements of paragraph 
(b)(4)(i)(F)(1) merely because it limits buy recommendations only to 
those investment options that can be bought through the plan, even 
though the model is capable of modeling hold and sell recommendations 
with respect to other investments.
    A few commenters noted that certain types of investment options, 
such as managed accounts, life cycle-type funds, and funds that are 
designed to manage assets taking into account a particular risk level 
for the participant, rely on an investment manager to maintain the 
asset allocation appropriate to its particular fund, product or service 
and, therefore, that it serves no purpose to have such investments 
included in another unrelated overlaying asset allocation analysis. The 
Department agrees that where an investment fund, product or service is 
itself designed to maintain a particular asset allocation taking into 
account the time horizons (retirement age, life expectancy) or risk 
level of a participant, such fund should not be required to be included 
in the computer modeled investment advice. Similarly, the Department 
believes that where, in connection with an in-plan annuity option, with 
respect to which a participant may allocate a portion of his or her 
assets toward the purchase of an annuitized retirement benefit and 
those allocated assets are no longer available for investment at the 
time of the advice, the participant or beneficiary has, in effect, 
decided to treat those assets as no longer available for investment 
and, accordingly, such assets should not, in the view of the 
Department, be required to be modeled for purposes of buy, hold or sell 
recommendations. On the other hand, when such options are available to 
participants and beneficiaries, the Department believes that 
participants and beneficiaries receiving modeled recommendations should 
at the same time be furnished a general description of these options 
and how they operate. This disclosure will assure that participants and 
beneficiaries have information concerning all of their investment 
choices, not merely those that can be modeled by a computer. This 
treatment is set forth in paragraphs (b)(4)(i)(F)(2)(ii) and (iii).
    Thus, under paragraph (b)(4)(i)(F)(2)(ii) of the final rule, a 
computer model will not fail to meet the requirements of the regulation 
merely because it does not make recommendations relating to the 
acquisition, holding or sale of an investment fund, product or service 
that allocates the invested assets of a participant or beneficiary to 
achieve varying degrees of long-term appreciation and capital 
preservation through equity and fixed income exposures, based on a 
defined time horizon (such as retirement age or life expectancy) or 
level of risk of the participant or beneficiary (e.g., life cycle-type 
funds).
    Similarly, paragraph (b)(4)(i)(F)(2)(iii) provides that a computer 
model will not fail merely because it does not make recommendations 
with respect to an annuity option with respect to which a participant 
or beneficiary may allocate assets toward the purchase of a stream of 
retirement income payments guaranteed by an insurance company.
    As noted above, however, the foregoing exceptions from the modeling 
requirement apply only if participants and beneficiaries are provided, 
contemporaneous with the provision of investment advice generated by 
the computer model, information explaining the funds, products or 
services, or in the case of an annuity, the option.
    Paragraph (b)(4)(ii) of the final rule, like the proposal, requires 
that, prior to utilization of the computer model, the fiduciary adviser 
must obtain a written certification that the computer model meets the 
requirements of paragraph (b)(4)(i), discussed above. If the model is 
modified in a manner that may affect its ability to meet the 
requirements of paragraph (b)(4)(i), the fiduciary adviser, prior to 
utilization of the modified model, must obtain a new certification. The 
required certification must be made by an ``eligible investment 
expert,'' within the meaning of paragraph (b)(4)(iii) and must be made 
in accordance with the requirements of paragraph (b)(4)(iv).
    Paragraph (b)(4)(iii) of the final rule, like the proposal, defines 
an ``eligible investment expert'' to mean a person that, through 
employees or otherwise, has the appropriate technical training or 
experience and proficiency to analyze, determine and certify, in a 
manner consistent with paragraph (b)(4)(iv), whether a computer model 
meets the requirements of paragraph (b)(4)(i); except that the term 
eligible investment expert does not include any person that has any 
material affiliation or material contractual relationship with the 
fiduciary adviser, with a person with a material affiliation or 
material contractual relationship with the fiduciary adviser, or with 
any employee, agent, or registered representative of the foregoing.
    One commenter requested that the Department provide examples of 
adequate credentials for an ``eligible investment expert.'' The 
Department continues to believe that it is very difficult to define a 
specific set of academic or other credentials that would serve to 
define the appropriate expertise and experience for an eligible 
investment expert. Unfortunately, for the same reason it is difficult 
to define specific credentials for an eligible investment expert, it is 
difficult to provide examples of the one or a set of credentials that 
in every case would qualify an individual to make the required 
certifications. The Department also is concerned that, even if an 
example were possible, such an example may encourage unnecessary and 
inappropriate reliance on the example as a person considered by the 
Department to possess the necessary qualifications. For this reason, 
the Department has not provided any examples of credentials for 
eligible investment experts.
    One commenter inquired whether the eligible investment expert is 
required to be bonded for purposes of section 412 of ERISA. In the view 
of the Department, an eligible investment expert, in performing the 
computer model certification described in the final rule, would neither 
be acting as a fiduciary under ERISA, nor be ``handling'' plan assets 
such that the

[[Page 3828]]

bonding requirements would be applicable to the eligible investment 
expert.
    One commenter requested confirmation that a fiduciary adviser's 
selection and payment of an eligible investment expert is not itself a 
per se prohibited transaction. It is the view of the Department that, 
given the structure of the statutory exemption under section 408(g)(1) 
and the expectation that a fiduciary adviser will obtain a 
certification from an eligible investment expert, the selection and 
payment of the fiduciary adviser is not a per se conflict, provided 
that the eligible investment expert has neither a material affiliation 
or material contractual relationship with the fiduciary adviser. 
Moreover, the Department has made clear that the selection of an 
eligible investment expert is a fiduciary act governed by section 
404(a)(1) of the Act. See paragraph (b)(4)(v). Similarly, the selection 
and payment of an auditor to conduct the audit required under the 
statutory exemption or class exemption would not constitute a per se 
conflict of interest. As noted in the preamble to the proposal, while 
the rule gives latitude to a fiduciary adviser in selecting an eligible 
investment expert to certify a computer model, as the party seeking 
prohibited transaction relief under the exemption, the fiduciary 
adviser has the burden of demonstrating that all applicable 
requirements of the exemption are satisfied with respect to its 
arrangement.
    Paragraph (b)(4)(iv) of the final rule provides that a 
certification by an eligible investment expert shall be in writing and 
contain the following: An identification of the methodology or 
methodologies applied in determining whether the computer model meets 
the requirements of paragraph (b)(4)(i) of the final rule; an 
explanation of how the applied methodology or methodologies 
demonstrated that the computer model met the requirements of paragraph 
(b)(4)(i); and a description of any limitations that were imposed by 
any person on the eligible investment expert's selection or application 
of methodologies for determining whether the computer model meets the 
requirements of paragraph (b)(4)(i). In addition the certification is 
required to contain a representation that the methodology or 
methodologies were applied by a person or persons with the educational 
background, technical training or experience necessary to analyze and 
determine whether the computer model meets the requirements of 
paragraph (b)(4)(i); and a statement certifying that the eligible 
investment expert has determined that the computer model meets the 
requirements of paragraph (b)(4)(i). Finally the certification must be 
signed by the eligible investment expert. The Department received no 
comments on this provision and, accordingly, has adopted the provision 
as proposed.
d. Authorization by a Plan Fiduciary
    Paragraph (b)(5) of the final rule, consistent with section 
408(g)(4) of ERISA, the proposed rule and proposed class exemption, 
provides that the arrangement pursuant to which investment advice is 
provided to participants and beneficiaries must be expressly authorized 
by a plan fiduciary (or, in the case of an IRA, the IRA beneficiary) 
other than: The person offering the arrangement; any person providing 
designated investment options under the plan; or any affiliate of 
either. The final rule, like the proposals, further provides that, for 
purposes of such authorization, an IRA beneficiary will not be treated 
as an affiliate of a person solely by reason of being an employee of 
such person, thereby enabling employees of a fiduciary adviser to take 
advantage of investment advice arrangements offered by their employer 
under the exemption.
    A number of commenters requested that the authorizing language of 
both the statutory exemption and class exemption be modified to permit 
a fiduciary adviser to provide investment advice for the adviser's own 
plan. The Department does not believe it is necessary or appropriate to 
limit a fiduciary adviser's employee's choice of investment advice 
providers to only competitors of the fiduciary adviser. Accordingly, 
the Department has modified the authorization provisions of the final 
regulation and class exemption to permit a fiduciary adviser to provide 
advice to its own employees (or employees of an affiliate) pursuant to 
an arrangement under the final rule, provided that the fiduciary 
adviser or affiliate offers the same arrangement to participants and 
beneficiaries of unaffiliated plans in the ordinary course of its 
business. (See paragraphs (b)(5)(ii) and (d)(5)(ii) of the final rule). 
The Department notes, however, that neither the statutory exemption nor 
the class exemption provides relief for the selection of the fiduciary 
adviser or the arrangement pursuant to which advice will be provided. 
Accordingly, plan fiduciaries must nonetheless be prudent in their 
selection and may not, in contravention of section 406(b), use their 
position to benefit themselves. In this regard, the Department has 
indicated that if a fiduciary provides services to a plan without the 
receipt of compensation or other consideration (other than 
reimbursement of direct expenses properly and actually incurred in the 
performance of such services) the provision of such services does not, 
in and of itself, constitute an act described in section 406(b) of the 
Act.\13\
---------------------------------------------------------------------------

    \13\ See 29 CFR 2550.408b-2(e)(3).
---------------------------------------------------------------------------

    One commenter requested a clarification that, for purposes of the 
authorization provision, a plan sponsor-fiduciary would not be treated 
as the person providing a designated investment option under the plan 
with respect to an option that is designed to invest in qualifying 
employer securities. The Department did not intend, nor does it believe 
Congress intended, to exclude employer-plan fiduciaries from 
authorizing investment advice arrangements solely because the plan for 
which the arrangement is being authorized offers participants the 
opportunity to invest in qualifying employer securities. The Department 
has added a provision to both the regulation and class exemption for 
purposes of such clarification (see paragraphs (b)(5)(iii) and 
(d)(5)(iii), respectively, of the final rule).
    One commenter asked for a clarification as to whether an 
authorizing plan fiduciary can rely on the representations of a 
fiduciary adviser with respect to whether a computer model meets the 
requirements of the regulation. Plan fiduciaries have an obligation to 
prudently select, and periodically review that selection, fiduciary 
advisers.\14\ In connection with an otherwise prudent and reasonable 
selection and review process, the Department believes that an 
authorizing plan fiduciary, in the absence of any information to the 
contrary, may rely on the representations of a fiduciary adviser 
regarding the fiduciary adviser's compliance with the requirements of 
this rule.
---------------------------------------------------------------------------

    \14\ See discussion in Field Assistance Bulletin 2007-01.
---------------------------------------------------------------------------

e. Annual Audit
    Paragraph (b)(6) of the final rule sets forth the annual audit 
requirements for the statutory exemption.\15\ Paragraph (b)(6)(i), like 
the proposal, provides that the fiduciary adviser shall, at least 
annually, engage an independent auditor, who has appropriate technical 
training or experience and proficiency, and so represents in writing to 
the fiduciary adviser, to conduct an audit of the investment advice 
arrangements for compliance with the requirements of the regulation 
and, within 60 days

[[Page 3829]]

following completion of the audit, to issue a written report to the 
fiduciary adviser and, except with respect to an arrangement with an 
IRA, to each fiduciary who authorized the use of the investment advice 
arrangement, setting forth the specific findings of the auditor 
regarding compliance of the arrangement with the requirements of the 
regulation.
---------------------------------------------------------------------------

    \15\ The audit provisions are set forth in section 408(g)(6) of 
ERISA.
---------------------------------------------------------------------------

    Given the significant number of reports that an auditor would be 
required to send if the written report was required to be furnished to 
all IRA beneficiaries, the Department framed an alternative requirement 
for investment advice arrangements with IRAs. This alternative is set 
forth in paragraph (b)(6)(ii) of the final rule. The final rule, like 
the proposal, provides that, with respect to an arrangement with an 
IRA, the fiduciary adviser shall, within 30 days following receipt of 
the report from the auditor, furnish a copy of the report to the IRA 
beneficiary or make such report available on its Web site, provided 
that such beneficiaries are provided information, along with other 
required disclosures (see paragraph (b)(7) of the final rule), 
concerning the purpose of the report, and how and where to locate the 
report applicable to their account. With respect to making the report 
available on a Web site, the Department believes that this alternative 
to furnishing reports to IRA beneficiaries satisfies the requirement of 
section 104(d)(1) of the Electronic Signatures in Global and National 
Commerce Act (E-SIGN) \16\ that any exemption from the consumer consent 
requirements of section 101(c) of E-SIGN must be necessary to eliminate 
a substantial burden on electronic commerce and will not increase the 
material risk of harm to consumers. The Department solicited comments 
on this finding in the proposal, and received no comments in response.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 7004(d)(1) (2000).
---------------------------------------------------------------------------

    Obtaining consent from each IRA holder or participant before 
publication on the Web site would be a tremendous burden on the plan or 
IRA provider. This element, along with the broad availability of 
internet access and the lack of any direct consequences to any 
particular participant for a failure to review the audit for the 
participants and beneficiaries, supports these findings.
    Paragraph (b)(6)(ii) of the final rule also provides, like the 
proposal, that, when the report of the auditor identifies noncompliance 
with the requirements of the regulation, the fiduciary adviser must 
send a copy of the report to the Department. The final rule, like the 
proposal, requires that the fiduciary adviser submit the report to the 
Department within 30 days following receipt of the report from the 
auditor. This report will enable the Department to monitor compliance 
with the statutory or class exemption.
    For purposes of paragraph (b)(6), an auditor is considered 
independent if it does not have a material affiliation or material 
contractual relationship with the person offering the investment advice 
arrangement to the plan or any designated investment options under the 
plan. See paragraph (b)(6)(iii). The terms ``material affiliation'' and 
``material contractual relationship'' are defined in paragraphs (c)(6) 
and (7) of the final rule, respectively.
    With regard to the scope of the audit, paragraph (b)(6)(iv) of the 
final rule provides that the auditor shall review sufficient relevant 
information to formulate an opinion as to whether the investment advice 
arrangements, and the advice provided pursuant thereto, offered by the 
fiduciary adviser during the audit period were in compliance with the 
regulation. Paragraph (b)(6)(iv) further provides that it is not 
intended to preclude an auditor from using information obtained by 
sampling, as reasonably determined appropriate by the auditor, 
investment advice arrangements, and the advice pursuant thereto, during 
the audit period. The final rule, like the proposal, does not require 
an audit of every investment advice arrangement at the plan or 
fiduciary adviser-level or of all the advice that is provided under the 
exemption. In general, the final rule appropriately leaves to the 
auditor the determination as to the appropriate scope of its review and 
the extent to which it can rely on representative samples for 
determining compliance with the exemption.
    While the audit provisions contained in the final rule are, with 
respect to both the statutory exemption and the class exemption, 
identical to the proposed audit requirements, the final rule does 
contain new provisions making clear that, like the selection of an 
eligible investment expert to certify a computer model, the selection 
of the required auditor, for purposes of both the statutory exemption 
and the class exemption, is a fiduciary act governed by section 
404(a)(1) of ERISA. See paragraphs (b)(6)(v) and (d)(9)(v) of the final 
rule.
    A number of commenters raised issues or requested clarifications 
regarding various aspects of the audit requirements.
    One commenter requested that the Department establish that the 
first annual audit required by the statutory exemption would not be 
required to be completed until the end of 2009. Inasmuch as the audit 
and other provisions of the regulation relating to the statutory 
exemption closely track the provisions of the statutory exemption, the 
Department is not persuaded that there is a basis for deferring the 
completion of any otherwise required annual audit until the end of 
2009. However, for purposes of any audits required to be completed 
prior to the effective date of the final rule, the auditor may take 
into account good faith compliance with the statute in the absence of 
regulatory guidance.
    One commenter requested that the Department should lessen the 
burden on small advisers by modifying the audit requirement by, for 
example, requiring an audit only every three years, rather than 
annually. It is the view of the Department that the audit requirements 
of both the statutory and class exemption are critical protections for 
participants and beneficiaries in investment advice arrangements with 
respect to which there is a possibility that an adviser may act in its 
own self-interest rather than the interest of the plan's participants 
and beneficiaries. No information or data has been furnished to the 
Department that would support a finding that this risk to participants 
and beneficiaries is any less from small advisers than large adviser. 
Thus, the Department has no basis on which to determine what, if any, 
special relief should be afforded small advisers. The final rule, 
therefore, contains no special provisions for small advisers.
    Another commenter suggested that rather than furnishing copies of 
the audit report to authorizing fiduciaries and IRA beneficiaries, 
fiduciary advisers should be required to inform the parties of the 
availability of the reports and furnish such reports only in response 
to requests. The Department did not adopt this suggestion. The 
Department believes that, as with the audit, the reports of the auditor 
are important and should be furnished to each authorizing plan 
fiduciary. On the other hand, the Department recognizes that, in the 
case of IRAs, furnishing a report to every IRA beneficiary may be 
unduly burdensome and expensive, and, accordingly, provided a special 
rule that permits the making available of the report on the fiduciary 
adviser's Web site.
    One commenter requested that fiduciary advisers have an additional 
30 days to furnish the audit report to the authorizing plan 
fiduciaries. Another commenter requested that the final rule provide 60 
days for the furnishing of IRA-related audit reports. The Department 
did not adopt these

[[Page 3830]]

suggestions. The Department notes, however, that the 60-day period 
referenced in paragraphs (b)(6)(i)(B) and (d)(9)(i)(B) of the final 
rule is the period following completion of the audit during which the 
auditor is required to furnish its report to the fiduciary adviser and, 
with the exception of an arrangement with an IRA, to each authorizing 
fiduciary. The exception for arrangements with IRAs serves to relieve 
the auditor from fur