Reopening of Comment Period for Proposed Amendments to Class Prohibited Transaction Exemptions To Remove Credit Ratings Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, 33360-33363 [2021-13149]

Download as PDF khammond on DSKJM1Z7X2PROD with NOTICES 33360 Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices acting at the request of the designated federal trustees: National Oceanic and Atmospheric Administration (‘‘NOAA’’) and the United States Department of the Interior (‘‘DOI’’) through the United States Fish and Wildlife Service. The State of Louisiana is acting through its designated State trustees: The Louisiana Oil Spill Coordinator’s Office, Department of Public Safety & Corrections (‘‘LOSCO’’), Louisiana Department of Natural Resources (‘‘LDNR’’), Louisiana Department of Environmental Quality (‘‘LDEQ’’), Louisiana Department of Wildlife and Fisheries (‘‘LDWF’’), and the Coastal Protection and Restoration Authority (‘‘CPRA’’). This is a civil action brought against Defendant CITGO Petroleum Corp. for recovery of damages for injury to, destruction of, loss of, or loss of use of natural resources, under Section 1002 of the Oil Pollution Act (‘‘OPA’’), 33 U.S.C. 2702, and Section 2480 of the Louisiana Oil Spill Prevention and Response Act (‘‘OSPRA’’), La. Rev. Stat. 30:2480. The United States and Louisiana seek damages in order to compensate for and restore natural resources injured by CITGO’s oil discharge that occurred at CITGO refinery in Lake Charles, Louisiana, beginning on or about June 18, 2006. The United States and the State also seek to recover unreimbursed costs of assessing such injuries. The Complaint in this natural resource damages case was filed against CITGO concurrently with the lodging of the proposed Consent Decree. The Complaint alleges that CITGO is liable for damages under OPA and OSPRA. The Complaint alleges that CITGO discharged oil into the Indian Marais waterway, the Calcasieu River, and the Calcasieu Estuary in June 2006 and that natural resources were injured as a result of the discharge. Under the proposed Consent Decree, CITGO will pay a total of $19,688,149.83. Of this total, CITGO will pay $19.16 million to the trustees to restore, replace, or acquire the equivalent of the natural resources allegedly injured, destroyed, or lost as a result of the oil spill and $528,149.83 to reimburse the trustees for all remaining unpaid assessment costs. The publication of this notice opens a period for public comment on the proposed Consent Decree. Comments should be addressed to the Acting Assistant Attorney General, Environment and Natural Resources Division, and should refer to United States of America and Louisiana v. CITGO Petroleum Corp., D.J. Ref. No. 90–5–1–1–09112/1. All comments must be submitted no later than thirty (30) VerDate Sep<11>2014 19:19 Jun 23, 2021 Jkt 253001 days after the publication date of this notice. Comments may be submitted by either email or by mail: To submit comments: Send them to: By email ....... pubcomment-ees.enrd@ usdoj.gov. Acting Assistant Attorney General, U.S. DOJ—ENRD, P.O. Box 7611, Washington, DC 20044–7611. By mail ......... During the public comment period, the proposed Consent Decree may be examined and downloaded at this Justice Department website: https:// www.justice.gov/enrd/consent-decrees. We will provide a paper copy of the proposed Consent Decree upon written request and payment of reproduction costs. Please mail your request and payment to: Consent Decree Library, U.S. DOJ—ENRD, P.O. Box 7611, Washington, DC 20044–7611. Please enclose a check or money order for $7.75 (25 cents per page reproduction cost) payable to the United States Treasury. Thomas Carroll, Assistant Section Chief, Environmental Enforcement Section, Environment and Natural Resources Division. [FR Doc. 2021–13449 Filed 6–23–21; 8:45 am] BILLING CODE 4410–15–P DEPARTMENT OF LABOR Employee Benefits Security Administration [Application Number D–11681] RIN 1210–ZA18 Reopening of Comment Period for Proposed Amendments to Class Prohibited Transaction Exemptions To Remove Credit Ratings Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act Employee Benefits Security Administration, Department of Labor. ACTION: Notice of reopening of comment period. AGENCY: The Department of Labor is reopening the comment period on proposed amendments to six class exemptions from prohibited transaction rules set forth in the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (the Code). The exemptions are Prohibited Transaction Exemptions (PTEs) 75–1, 80–83, 81–8, 95–60, 97–41 and 2006–16. The proposed amendments relate to the use of credit SUMMARY: PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 ratings in the conditions of these class exemptions. Section 939A of the DoddFrank Wall Street Reform and Consumer Protection Act requires the Department to remove any references to or requirements of reliance on credit ratings from its class exemptions and to substitute standards of creditworthiness as the Department determines to be appropriate. This reopening of the comment period provides interested persons with the opportunity to submit additional comments on the proposed amendments due to the passage of time since the proposal was originally published in 2013. All comments received to date on the proposed amendments will be included in the public record and need not be resubmitted. The proposed amendments to the class exemptions would affect participants and beneficiaries of employee benefit plans and IRAs, fiduciaries of the plans and IRAs, and financial institutions that engage in transactions with, or provide services to, the plans and IRAs. DATES: The Department is reopening the comment period for proposed amendments to certain class exemptions that were published in the Federal Register on June 21, 2013 (78 FR 37572). Written comments and requests for a public hearing must be received by the Department on or before August 9, 2021. If the Department adopts final amendments, they would be effective 180 days after the date of their publication in the Federal Register. ADDRESSES: All written comments and requests for a public hearing 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–11681: Federal eRulemaking Portal: https:// www.regulations.gov at Docket ID number: EBSA 2012–0013 (follow the instructions for submitting comments). Warning: All comments received will be included in the public record without change and will be made available online at https:// www.regulations.gov, 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 E:\FR\FM\24JNN1.SGM 24JNN1 Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 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 https:// www.regulations.gov 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 https://www.regulations.gov, 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. FOR FURTHER INFORMATION CONTACT: Susan Wilker, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, (202) 693–8557 (this is not a toll-free number). SUPPLEMENTARY INFORMATION: Background In the Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank),1 Congress found that credit ratings of certain financial products proved to be inaccurate and had ‘‘contributed significantly to the mismanagement of risks by financial institutions and investors, which in turn adversely impacted the health of the economy in the United States and around the world.’’ 2 Dodd-Frank section 939A requires federal agencies, including the Department, to review any regulation that references or includes requirements regarding credit ratings, remove the references or requirements, and substitute standards of creditworthiness as the agency deems appropriate. Pursuant to Dodd-Frank section 939A, the Department conducted a review of its class prohibited transaction exemptions. In the absence of an exemption, ERISA and the Code prohibit certain transactions involving employee benefit plans and IRAs. Class exemptions allow parties to engage in specified transactions that would otherwise be prohibited, so long as the parties satisfy the conditions and definitional provisions of the exemption. Under ERISA section 408(a), the Department may grant prohibited transaction exemptions provided the Secretary of Labor finds that the exemption is (i) administratively feasible, (ii) in the interests of plans and their participants and beneficiaries, and 1 Public 2 Id., Law 111–203, 124 Stat. 1376 (2010). section 931(5). VerDate Sep<11>2014 19:19 Jun 23, 2021 Jkt 253001 (iii) protective of the rights of participants and beneficiaries of the plans.3 The Department’s review of its class exemptions identified Prohibited Transaction Exemptions (PTEs) 75–1, Parts III & IV,4 80–83,5 81–8,6 95–60,7 97–41,8 2006–16 9 (each, a ‘‘Class Exemption,’’ and collectively, the ‘‘Class Exemptions’’) as those including references to, or requiring reliance on, credit ratings. Each Class Exemption allows certain parties to engage in a financial transaction involving a plan or IRA, and, in each Class Exemption the Department conditioned the exemption on the security or other financial product or its issuer or guarantor receiving a specified minimum credit rating. The credit rating requirements range from a rating in one of the four highest generic categories of credit ratings (also known as an ‘‘investment grade’’ rating) to a rating in one of the two highest generic categories, from a nationally recognized statistical rating organization. The credit rating conditions are one component of the safeguards established in each Class Exemption to protect the interests of plans, their participants and beneficiaries, and IRA owners entering into transactions covered by the Class Exemptions. 2013 Proposal On June 21, 2013, following its review of the Class Exemptions, the Department issued proposed amendments to the Class Exemptions to remove references to, and requirements of reliance on, credit ratings (2013 Proposal).10 In drafting the proposed amendments, the Department focused on alternatives to credit ratings requirements set forth in three releases by the Securities and 3 Code section 4975(c)(2) authorizes the Secretary of the Treasury to grant exemptions from the parallel prohibited transaction provisions of the Code. Effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. (2018), transferred this authority from the Secretary of the Treasury to the Secretary of Labor. Therefore, this notice is issued solely by the Department. 4 40 FR 50845 (October 31, 1975), as amended by 71 FR 5883 (February 3, 2006). 5 45 FR 73189 (November 4, 1980), as amended by 67 FR 9483 (March 1, 2002). 6 46 FR 7511 (January 23, 1981), as corrected at 46 FR 10570 (February 3, 1981) and as amended by 50 FR 14043 (April 9, 1985) and 67 FR 9483 (March 1, 2002). 7 60 FR 35925 (July 12, 1995), as amended by 67 FR 9483 (March 1, 2002). 8 62 FR 42830 (August 8, 1997). 9 71 FR 63786 (October 31, 2006). 10 78 FR 37572 (June 21, 2013). The Department proposed the amendments on its own motion, pursuant to 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)). PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 33361 Exchange Commission (SEC). The SEC releases included proposed amendments to rules 2a–7 and 5b–3 (Rule 2a–7 and Rule 5b–3); 11 a final amendment to rule 10f–3 (Rule 10f–3),12 and a new rule 6a–5 (Rule 6a–5),13 all under the Investment Company Act of 1940. In the 2013 Proposal, the Department set forth the following approaches to the various credit ratings requirements in the Class Exemptions. For PTEs 75–1, Parts III and IV, and 80–83, which each conditioned the exemption in part on certain securities involved being ‘‘rated in one of the four highest rating categories by at least one nationally recognized statistical rating organization,’’ the Department proposed to replace this condition with a requirement that the securities be ‘‘(i) subject to no greater than moderate credit risk and (ii) sufficiently liquid that such securities can be sold at or near their fair market value within a reasonably short period of time.’’ In doing so, the Department relied on Rules 6a–5 and 10f–3. For PTE 81–8, which permits employee benefit plans and IRAs to invest in commercial paper that, among other things, possesses a rating in ‘‘one of the three highest rating categories by at least one nationally recognized statistical rating service,’’ the Department proposed instead to require the commercial paper to be ‘‘(i) subject to a minimal or low amount of credit risk based on factors pertaining to credit quality and the issuer’s ability to meet its short-term financial obligations and (ii) sufficiently liquid that such securities can be sold at or near their fair market value within a reasonably short period of time.’’ In doing so, the Department relied on Rule 10f–3 and the proposed amendment to Rule 2a–7. PTE 2006–16 allows securities lending transactions secured by foreign collateral including (i) foreign sovereign debt securities if the issue, issuer or guarantor has a rating in one of the two highest rating categories from a nationally recognized statistical rating organization, and (ii) irrevocable letters of credit issued by foreign banks with a counterparty rating of investment grade or better as determined by a nationally recognized statistical rating 11 References to Credit Ratings in Certain Investment Company Act Rules and Forms, Release Nos. 33–9193, IC–29592; 76 FR 12896 (March 9, 2011). 12 References to Ratings of Nationally Recognized Statistical Rating Organizations, Release Nos. 34– 60789, IC–28939; 74 FR 52358 (October 9, 2009). 13 Purchase of Certain Debt Securities by Business and Industrial Development Companies Relying on an Investment Company Act Exemption, Release No. IC–30268; 77 FR 70117 (November 23, 2012). E:\FR\FM\24JNN1.SGM 24JNN1 33362 Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices organization. The Department proposed to replace the requirement for foreign sovereign debt securities issue, issuer or guarantor to be in the two highest ratings categories with a requirement that they be ‘‘(i) subject to a minimal amount of credit risk, and (ii) sufficiently liquid that such securities can be sold at or near their fair market value in the ordinary course of business within seven calendar days.’’ In doing so, the Department relied on the proposed amendments to Rules 2a–7 and 5b–3. The Department proposed to replace the requirement that foreign banks issuing letters of credit receive an ‘‘investment grade’’ counterparty rating with a requirement that the bank’s ability to honor its commitments thereunder be subject to ‘‘no greater than moderate credit risk,’’ relying on Rule 6a–5. Finally, the Department proposed to eliminate certain references to credit ratings in PTEs 95–60 and 97–41 and replace them with references to credit quality.14 The Department received three comments in response to the 2013 Proposal. The comments were generally supportive of the Department’s approach in light of the statutory requirement to remove credit ratings references and requirements, and commenters did not suggest specific changes to the language of the amendments. Commenters did suggest that the Department provide additional guidance on satisfaction of the new standards, and requested that the Department delay finalizing the 2013 Proposal until the SEC had finalized all of its proposals. Following the receipt of these comments, the Department did not finalize the amendments as it focused on other priorities. Due to the passage of time, the Department is now seeking comments that take into account developments that have occurred since the Department issued and received comments on the 2013 Proposal. Other Regulators khammond on DSKJM1Z7X2PROD with NOTICES The SEC has finalized the amendments to Rules 2a–7 and 5b–3 since the Department’s 2013 Proposal. The SEC re-proposed an amendment to Rule 2a–7 in 2014, and finalized the amendment in 2015.15 The SEC also 14 See PTE 95–60 Section III(a)(2)(B) and PTE 97– 41 Section II(c)(2), discussed in the 2013 Proposal, 78 FR at 37579–80. 15 Removal of Certain References to Credit Ratings and Amendment to the Issuer Diversification Requirement in the Money Market Fund Rule (Reproposed Rule and Proposed Rule), 79 FR 47986 (August 14, 2014); Removal of Certain References to Credit Ratings and Amendment to the Issuer Diversification Requirement in the Money Market VerDate Sep<11>2014 19:19 Jun 23, 2021 Jkt 253001 finalized its amendment to Rule 5b–3 in 2014.16 While the SEC made changes to the language in response to comments, the final amendments generally took the same approach to replacing references to credit ratings with alternative methods for determining credit quality. Other regulators have also replaced credit rating standards in their regulations using different standards than the Department used in its 2013 Proposal. For example, in October 2013, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve Board), and the Federal Deposit Insurance Corporation (FDIC), issued a joint agreement to revise an existing agreement and replace references to credit ratings with alternative standards of creditworthiness consistent with Dodd-Frank.17 The revised agreement provides that a security is investment grade if the issuer of the security has an adequate capacity to meet financial commitments for the life of the asset. An issuer has adequate capacity to meet its financial commitments if the risk of default is low, and the full and timely repayment of principal and interest is expected. The National Credit Union Administration (NCUA) used similar language to define ‘‘investment grade’’ in the 2012 rule amendment.18 The rule provides that investment grade means the issuer of a security has an adequate capacity to meet the financial commitments under the security for the projected life of the asset or exposure, even under adverse economic conditions (12 CFR 704.2). An issuer has an adequate capacity to meet financial commitments if the risk of default by the obligor is low and the full and timely repayment of principal and interest on the security is expected. (Id.). NCUA also defined a higher standard, ‘‘minimal amount of credit risk,’’ as the amount of credit risk when the issuer of a security has a very strong capacity to meet all financial commitments under the security for the projected life of the asset or exposure, even under adverse economic conditions (Id.). An issuer has a very strong capacity to meet all financial commitments if the risk of default by the obligor is very low, and the full and Fund Rule (Final Rule), 80 FR 58124 (September 25, 2015). 16 Removal of Certain References to Credit Ratings under the Investment Company Act (Final Rule), 79 FR 1316 (January 8, 2014). 17 Uniform Agreement on the Classification and Appraisal of Securities Held by Depository Institutions (Agreement), October 29, 2013, available at https://www.federalreserve.gov/ supervisionreg/srletters/sr1318a1.pdf 18 Alternatives to the Use of Credit Ratings (Final Rule) 77 FR 74103 (December 13, 2012). PO 00000 Frm 00157 Fmt 4703 Sfmt 4703 timely repayment of principal and interest on the security is expected. (Id.) 2015–2016 Rulemaking In 2015 and 2016, the Department also engaged in a rulemaking regarding the definition of an investment advice fiduciary under ERISA and the Internal Revenue Code, which included publication of the Proposed Class Exemption for Principal Transactions in Certain Debt Securities between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (the Proposed Principal Transactions Exemption).19 The Proposed Principal Transactions Exemption included conditions imposing standards of creditworthiness that were similar to those provided in the 2013 Proposal. Specifically, under the proposal, a debt security purchased by or sold to a plan or IRA in a principal transaction with an investment advice fiduciary would have to ‘‘[p]ossess[ ] no greater than a moderate credit risk; and . . . [be] sufficiently liquid that the Debt Security could be sold at or near its fair market value within a reasonably short period of time.’’ In comparison to comments on the 2013 Proposal, the Department received significant comments on the standards of creditworthiness in the Proposed Principal Transactions Exemption. Commenters generally stated that the standard lacked objectivity, and some commenters expressed the view that the Department’s reliance on Rule 6a–5 was misplaced because the SEC used the standard in a different context. Further, commenters requested that the standard use the term ‘‘carrying value’’ rather than ‘‘fair market value.’’ Finally, one commenter suggested that the Department require financial institutions to establish policies and procedures to determine how credit risk and liquidity will be assessed, as a means of operationalizing the requirements. Based on these comments, the Department finalized the Principal Transactions Exemption with revised standards of creditworthiness that require the debt security to (i) possess ‘‘no greater than a moderate credit risk;’’ and (ii) be ‘‘sufficiently liquid’’ that it ‘‘could be sold at or near its carrying value within a reasonably short period of time.’’ 20 19 80 FR 21989 (April 20, 2015). Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs, 81 FR 21089, 21119–20 (April 8, 2016). The U.S. Court of Appeals for the Fifth Circuit later vacated the exemption on unrelated grounds. Chamber of Commerce of the United States v. U.S. Department of Labor, 885 F.3d 360 (5th Cir. 2018). 20 See E:\FR\FM\24JNN1.SGM 24JNN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 86, No. 119 / Thursday, June 24, 2021 / Notices Request for Comment DEPARTMENT OF LABOR Due to the passage of time since the 2013 Proposal was originally published, and to ensure that all interested parties have an opportunity to provide comments or new information, the Department is reopening the comment period and soliciting comments on all aspects of the 2013 Proposal. The Department specifically seeks comment regarding the following questions: • Are changes to the 2013 Proposal’s standards of creditworthiness necessary as a result of the SEC’s finalization of amendments to Rules 2a–7 and 5b–3? • Are changes to the 2013 Proposal’s standards of creditworthiness necessary as a result of other regulators’ actions removing references to credit ratings? For example, should the Department incorporate OCC, Federal Reserve Board, FDIC and/or NCUA standards developed for depository institutions? Have other regulators developed standards the Department should incorporate into the Class Exemptions? Are there particular challenges in the ERISA context to implementing any of those standards? • Are changes to the 2013 Proposal’s standards of creditworthiness necessary in light of business or other economic developments since the Department proposed changes to the Class Exemptions in 2013? • Should references to ‘‘fair market value’’ in the 2013 Proposal’s standards of creditworthiness be replaced with references to ‘‘carrying value’’? If so, please explain why. • Do commenters recommend that the Department require financial institutions to adopt policies and procedures for compliance with the standards of creditworthiness? If so, please describe the types of specific policies and procedures that would be helpful. Do financial institutions already have similar policies and procedures in place? Will 180 days provide sufficient time for financial institutions that currently do not currently such policies and procedures in place to adopt them? Employment and Training Administration Signed at Washington, DC, this 16th day of June 2021. Ali Khawar, Acting Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2021–13149 Filed 6–23–21; 8:45 am] BILLING CODE 4510–29–P VerDate Sep<11>2014 19:19 Jun 23, 2021 Jkt 253001 Agency Information Collection Activities; Comment Request; Distribution of Characteristics of the Insured Unemployed ACTION: Notice. The Department of Labor’s (DOL) Employment and Training Administration (ETA) is soliciting comments concerning a proposed extension for the authority to conduct the information collection request (ICR) titled, ‘‘Distribution of Characteristics of the Insured Unemployed.’’ This comment request is part of continuing Departmental efforts to reduce paperwork and respondent burden in accordance with the Paperwork Reduction Act of 1995 (PRA). DATES: Consideration will be given to all written comments received by August 23, 2021. ADDRESSES: A copy of this ICR with applicable supporting documentation, including a description of the likely respondents, proposed frequency of response, and estimated total burden, may be obtained free by contacting Sandra Trujillo by telephone at 202– 693–2933 (this is not a toll-free number), TTY 1–877–889–5627 (this is not a toll-free number), or by email at trujillo.sandra@dol.gov. Submit written comments about, or requests for a copy of, this ICR by mail or courier to the U.S. Department of Labor, Employment and Training Administration, Office of Unemployment Insurance, Room S– 4524, 200 Constitution Avenue NW, Washington, DC 20210; by email: trujillo.sandra@dol.gov; or by fax 202– 693–3975. FOR FURTHER INFORMATION CONTACT: Thomas Stengle by telephone at 202– 693–2991 (this is not a toll-free number) or by email at stengle.thomas@dol.gov. SUMMARY: Authority: 44 U.S.C. 3506(c)(2)(A). DOL, as part of continuing efforts to reduce paperwork and respondent burden, conducts a pre-clearance consultation program to provide the general public and Federal agencies an opportunity to comment on proposed and/or continuing collections of information before submitting them to the Office of Management and Budget (OMB) for final approval. This program helps to ensure requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, SUPPLEMENTARY INFORMATION: PO 00000 Frm 00158 Fmt 4703 Sfmt 4703 33363 collection instruments are clearly understood, and the impact of collection requirements can be properly assessed. The Distribution of Characteristics of the Insured Unemployed is a monthly snapshot of the demographic composition of the claimant population in the Unemployment Insurance (UI) system. It is based on those who file a claim in the week containing the 19th day of the month, which reflects unemployment during the week containing the 12th day of the month. This corresponds with the sample timeframe used by the Bureau of Labor Statistics for the production of labor force statistics they produce. This report serves a variety of socio-economic needs because it provides aggregate data reflecting UI claimants’ sex, race/ethnic group, age, industry, and occupation. The Social Security Act, Section 303(a)(6), authorizes this information collection. This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid Control Number. See 5 CFR 1320.5(a) and 1320.6. Interested parties are encouraged to provide comments to the contact shown in the ADDRESSES section. Comments must be written to receive consideration, and they will be summarized and included in the request for OMB approval of the final ICR. In order to help ensure appropriate consideration, comments should mention OMB control number 1205– 0009. Submitted comments will also be a matter of public record for this ICR and posted on the internet, without redaction. DOL encourages commenters not to include personally identifiable information, confidential business data, or other sensitive statements/ information in any comments. DOL is particularly interested in comments that: • Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; • Evaluate the accuracy of the agency’s estimate of the burden of the proposed collection of information, E:\FR\FM\24JNN1.SGM 24JNN1

Agencies

[Federal Register Volume 86, Number 119 (Thursday, June 24, 2021)]
[Notices]
[Pages 33360-33363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13149]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application Number D-11681]
RIN 1210-ZA18


Reopening of Comment Period for Proposed Amendments to Class 
Prohibited Transaction Exemptions To Remove Credit Ratings Pursuant to 
the Dodd-Frank Wall Street Reform and Consumer Protection Act

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Notice of reopening of comment period.

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SUMMARY: The Department of Labor is reopening the comment period on 
proposed amendments to six class exemptions from prohibited transaction 
rules set forth in the Employee Retirement Income Security Act of 1974 
(ERISA) and the Internal Revenue Code (the Code). The exemptions are 
Prohibited Transaction Exemptions (PTEs) 75-1, 80-83, 81-8, 95-60, 97-
41 and 2006-16. The proposed amendments relate to the use of credit 
ratings in the conditions of these class exemptions. Section 939A of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act requires 
the Department to remove any references to or requirements of reliance 
on credit ratings from its class exemptions and to substitute standards 
of creditworthiness as the Department determines to be appropriate. 
This reopening of the comment period provides interested persons with 
the opportunity to submit additional comments on the proposed 
amendments due to the passage of time since the proposal was originally 
published in 2013. All comments received to date on the proposed 
amendments will be included in the public record and need not be 
resubmitted. The proposed amendments to the class exemptions would 
affect participants and beneficiaries of employee benefit plans and 
IRAs, fiduciaries of the plans and IRAs, and financial institutions 
that engage in transactions with, or provide services to, the plans and 
IRAs.

DATES: The Department is reopening the comment period for proposed 
amendments to certain class exemptions that were published in the 
Federal Register on June 21, 2013 (78 FR 37572). Written comments and 
requests for a public hearing must be received by the Department on or 
before August 9, 2021. If the Department adopts final amendments, they 
would be effective 180 days after the date of their publication in the 
Federal Register.

ADDRESSES: All written comments and requests for a public hearing 
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-11681:
    Federal eRulemaking Portal: https://www.regulations.gov at Docket ID 
number: EBSA 2012-0013 (follow the instructions for submitting 
comments).
    Warning: All comments received will be included in the public 
record without change and will be made available online at https://www.regulations.gov, 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

[[Page 33361]]

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 https://www.regulations.gov 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 https://www.regulations.gov, 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.

FOR FURTHER INFORMATION CONTACT: Susan Wilker, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, (202) 693-8557 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    In the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank),\1\ Congress found that credit ratings of certain 
financial products proved to be inaccurate and had ``contributed 
significantly to the mismanagement of risks by financial institutions 
and investors, which in turn adversely impacted the health of the 
economy in the United States and around the world.'' \2\ Dodd-Frank 
section 939A requires federal agencies, including the Department, to 
review any regulation that references or includes requirements 
regarding credit ratings, remove the references or requirements, and 
substitute standards of creditworthiness as the agency deems 
appropriate.
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ Id., section 931(5).
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    Pursuant to Dodd-Frank section 939A, the Department conducted a 
review of its class prohibited transaction exemptions. In the absence 
of an exemption, ERISA and the Code prohibit certain transactions 
involving employee benefit plans and IRAs. Class exemptions allow 
parties to engage in specified transactions that would otherwise be 
prohibited, so long as the parties satisfy the conditions and 
definitional provisions of the exemption. Under ERISA section 408(a), 
the Department may grant prohibited transaction exemptions provided the 
Secretary of Labor finds that the exemption is (i) administratively 
feasible, (ii) in the interests of plans and their participants and 
beneficiaries, and (iii) protective of the rights of participants and 
beneficiaries of the plans.\3\
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    \3\ Code section 4975(c)(2) authorizes the Secretary of the 
Treasury to grant exemptions from the parallel prohibited 
transaction provisions of the Code. Effective December 31, 1978, 
section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 
(2018), transferred this authority from the Secretary of the 
Treasury to the Secretary of Labor. Therefore, this notice is issued 
solely by the Department.
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    The Department's review of its class exemptions identified 
Prohibited Transaction Exemptions (PTEs) 75-1, Parts III & IV,\4\ 80-
83,\5\ 81-8,\6\ 95-60,\7\ 97-41,\8\ 2006-16 \9\ (each, a ``Class 
Exemption,'' and collectively, the ``Class Exemptions'') as those 
including references to, or requiring reliance on, credit ratings. Each 
Class Exemption allows certain parties to engage in a financial 
transaction involving a plan or IRA, and, in each Class Exemption the 
Department conditioned the exemption on the security or other financial 
product or its issuer or guarantor receiving a specified minimum credit 
rating. The credit rating requirements range from a rating in one of 
the four highest generic categories of credit ratings (also known as an 
``investment grade'' rating) to a rating in one of the two highest 
generic categories, from a nationally recognized statistical rating 
organization. The credit rating conditions are one component of the 
safeguards established in each Class Exemption to protect the interests 
of plans, their participants and beneficiaries, and IRA owners entering 
into transactions covered by the Class Exemptions.
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    \4\ 40 FR 50845 (October 31, 1975), as amended by 71 FR 5883 
(February 3, 2006).
    \5\ 45 FR 73189 (November 4, 1980), as amended by 67 FR 9483 
(March 1, 2002).
    \6\ 46 FR 7511 (January 23, 1981), as corrected at 46 FR 10570 
(February 3, 1981) and as amended by 50 FR 14043 (April 9, 1985) and 
67 FR 9483 (March 1, 2002).
    \7\ 60 FR 35925 (July 12, 1995), as amended by 67 FR 9483 (March 
1, 2002).
    \8\ 62 FR 42830 (August 8, 1997).
    \9\ 71 FR 63786 (October 31, 2006).
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2013 Proposal

    On June 21, 2013, following its review of the Class Exemptions, the 
Department issued proposed amendments to the Class Exemptions to remove 
references to, and requirements of reliance on, credit ratings (2013 
Proposal).\10\ In drafting the proposed amendments, the Department 
focused on alternatives to credit ratings requirements set forth in 
three releases by the Securities and Exchange Commission (SEC). The SEC 
releases included proposed amendments to rules 2a-7 and 5b-3 (Rule 2a-7 
and Rule 5b-3); \11\ a final amendment to rule 10f-3 (Rule 10f-3),\12\ 
and a new rule 6a-5 (Rule 6a-5),\13\ all under the Investment Company 
Act of 1940.
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    \10\ 78 FR 37572 (June 21, 2013). The Department proposed the 
amendments on its own motion, pursuant to 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)).
    \11\ References to Credit Ratings in Certain Investment Company 
Act Rules and Forms, Release Nos. 33-9193, IC-29592; 76 FR 12896 
(March 9, 2011).
    \12\ References to Ratings of Nationally Recognized Statistical 
Rating Organizations, Release Nos. 34-60789, IC-28939; 74 FR 52358 
(October 9, 2009).
    \13\ Purchase of Certain Debt Securities by Business and 
Industrial Development Companies Relying on an Investment Company 
Act Exemption, Release No. IC-30268; 77 FR 70117 (November 23, 
2012).
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    In the 2013 Proposal, the Department set forth the following 
approaches to the various credit ratings requirements in the Class 
Exemptions. For PTEs 75-1, Parts III and IV, and 80-83, which each 
conditioned the exemption in part on certain securities involved being 
``rated in one of the four highest rating categories by at least one 
nationally recognized statistical rating organization,'' the Department 
proposed to replace this condition with a requirement that the 
securities be ``(i) subject to no greater than moderate credit risk and 
(ii) sufficiently liquid that such securities can be sold at or near 
their fair market value within a reasonably short period of time.'' In 
doing so, the Department relied on Rules 6a-5 and 10f-3.
    For PTE 81-8, which permits employee benefit plans and IRAs to 
invest in commercial paper that, among other things, possesses a rating 
in ``one of the three highest rating categories by at least one 
nationally recognized statistical rating service,'' the Department 
proposed instead to require the commercial paper to be ``(i) subject to 
a minimal or low amount of credit risk based on factors pertaining to 
credit quality and the issuer's ability to meet its short-term 
financial obligations and (ii) sufficiently liquid that such securities 
can be sold at or near their fair market value within a reasonably 
short period of time.'' In doing so, the Department relied on Rule 10f-
3 and the proposed amendment to Rule 2a-7.
    PTE 2006-16 allows securities lending transactions secured by 
foreign collateral including (i) foreign sovereign debt securities if 
the issue, issuer or guarantor has a rating in one of the two highest 
rating categories from a nationally recognized statistical rating 
organization, and (ii) irrevocable letters of credit issued by foreign 
banks with a counterparty rating of investment grade or better as 
determined by a nationally recognized statistical rating

[[Page 33362]]

organization. The Department proposed to replace the requirement for 
foreign sovereign debt securities issue, issuer or guarantor to be in 
the two highest ratings categories with a requirement that they be 
``(i) subject to a minimal amount of credit risk, and (ii) sufficiently 
liquid that such securities can be sold at or near their fair market 
value in the ordinary course of business within seven calendar days.'' 
In doing so, the Department relied on the proposed amendments to Rules 
2a-7 and 5b-3. The Department proposed to replace the requirement that 
foreign banks issuing letters of credit receive an ``investment grade'' 
counterparty rating with a requirement that the bank's ability to honor 
its commitments thereunder be subject to ``no greater than moderate 
credit risk,'' relying on Rule 6a-5.
    Finally, the Department proposed to eliminate certain references to 
credit ratings in PTEs 95-60 and 97-41 and replace them with references 
to credit quality.\14\
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    \14\ See PTE 95-60 Section III(a)(2)(B) and PTE 97-41 Section 
II(c)(2), discussed in the 2013 Proposal, 78 FR at 37579-80.
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    The Department received three comments in response to the 2013 
Proposal. The comments were generally supportive of the Department's 
approach in light of the statutory requirement to remove credit ratings 
references and requirements, and commenters did not suggest specific 
changes to the language of the amendments. Commenters did suggest that 
the Department provide additional guidance on satisfaction of the new 
standards, and requested that the Department delay finalizing the 2013 
Proposal until the SEC had finalized all of its proposals. Following 
the receipt of these comments, the Department did not finalize the 
amendments as it focused on other priorities. Due to the passage of 
time, the Department is now seeking comments that take into account 
developments that have occurred since the Department issued and 
received comments on the 2013 Proposal.

Other Regulators

    The SEC has finalized the amendments to Rules 2a-7 and 5b-3 since 
the Department's 2013 Proposal. The SEC re-proposed an amendment to 
Rule 2a-7 in 2014, and finalized the amendment in 2015.\15\ The SEC 
also finalized its amendment to Rule 5b-3 in 2014.\16\ While the SEC 
made changes to the language in response to comments, the final 
amendments generally took the same approach to replacing references to 
credit ratings with alternative methods for determining credit quality.
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    \15\ Removal of Certain References to Credit Ratings and 
Amendment to the Issuer Diversification Requirement in the Money 
Market Fund Rule (Re-proposed Rule and Proposed Rule), 79 FR 47986 
(August 14, 2014); Removal of Certain References to Credit Ratings 
and Amendment to the Issuer Diversification Requirement in the Money 
Market Fund Rule (Final Rule), 80 FR 58124 (September 25, 2015).
    \16\ Removal of Certain References to Credit Ratings under the 
Investment Company Act (Final Rule), 79 FR 1316 (January 8, 2014).
---------------------------------------------------------------------------

    Other regulators have also replaced credit rating standards in 
their regulations using different standards than the Department used in 
its 2013 Proposal. For example, in October 2013, the Office of the 
Comptroller of the Currency (OCC), the Board of Governors of the 
Federal Reserve System (Federal Reserve Board), and the Federal Deposit 
Insurance Corporation (FDIC), issued a joint agreement to revise an 
existing agreement and replace references to credit ratings with 
alternative standards of creditworthiness consistent with Dodd-
Frank.\17\ The revised agreement provides that a security is investment 
grade if the issuer of the security has an adequate capacity to meet 
financial commitments for the life of the asset. An issuer has adequate 
capacity to meet its financial commitments if the risk of default is 
low, and the full and timely repayment of principal and interest is 
expected. The National Credit Union Administration (NCUA) used similar 
language to define ``investment grade'' in the 2012 rule amendment.\18\ 
The rule provides that investment grade means the issuer of a security 
has an adequate capacity to meet the financial commitments under the 
security for the projected life of the asset or exposure, even under 
adverse economic conditions (12 CFR 704.2). An issuer has an adequate 
capacity to meet financial commitments if the risk of default by the 
obligor is low and the full and timely repayment of principal and 
interest on the security is expected. (Id.). NCUA also defined a higher 
standard, ``minimal amount of credit risk,'' as the amount of credit 
risk when the issuer of a security has a very strong capacity to meet 
all financial commitments under the security for the projected life of 
the asset or exposure, even under adverse economic conditions (Id.). An 
issuer has a very strong capacity to meet all financial commitments if 
the risk of default by the obligor is very low, and the full and timely 
repayment of principal and interest on the security is expected. (Id.)
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    \17\ Uniform Agreement on the Classification and Appraisal of 
Securities Held by Depository Institutions (Agreement), October 29, 
2013, available at https://www.federalreserve.gov/supervisionreg/srletters/sr1318a1.pdf
    \18\ Alternatives to the Use of Credit Ratings (Final Rule) 77 
FR 74103 (December 13, 2012).
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2015-2016 Rulemaking

    In 2015 and 2016, the Department also engaged in a rulemaking 
regarding the definition of an investment advice fiduciary under ERISA 
and the Internal Revenue Code, which included publication of the 
Proposed Class Exemption for Principal Transactions in Certain Debt 
Securities between Investment Advice Fiduciaries and Employee Benefit 
Plans and IRAs (the Proposed Principal Transactions Exemption).\19\ The 
Proposed Principal Transactions Exemption included conditions imposing 
standards of creditworthiness that were similar to those provided in 
the 2013 Proposal. Specifically, under the proposal, a debt security 
purchased by or sold to a plan or IRA in a principal transaction with 
an investment advice fiduciary would have to ``[p]ossess[ ] no greater 
than a moderate credit risk; and . . . [be] sufficiently liquid that 
the Debt Security could be sold at or near its fair market value within 
a reasonably short period of time.''
---------------------------------------------------------------------------

    \19\ 80 FR 21989 (April 20, 2015).
---------------------------------------------------------------------------

    In comparison to comments on the 2013 Proposal, the Department 
received significant comments on the standards of creditworthiness in 
the Proposed Principal Transactions Exemption. Commenters generally 
stated that the standard lacked objectivity, and some commenters 
expressed the view that the Department's reliance on Rule 6a-5 was 
misplaced because the SEC used the standard in a different context. 
Further, commenters requested that the standard use the term ``carrying 
value'' rather than ``fair market value.'' Finally, one commenter 
suggested that the Department require financial institutions to 
establish policies and procedures to determine how credit risk and 
liquidity will be assessed, as a means of operationalizing the 
requirements. Based on these comments, the Department finalized the 
Principal Transactions Exemption with revised standards of 
creditworthiness that require the debt security to (i) possess ``no 
greater than a moderate credit risk;'' and (ii) be ``sufficiently 
liquid'' that it ``could be sold at or near its carrying value within a 
reasonably short period of time.'' \20\
---------------------------------------------------------------------------

    \20\ See Class Exemption for Principal Transactions in Certain 
Assets Between Investment Advice Fiduciaries and Employee Benefit 
Plans and IRAs, 81 FR 21089, 21119-20 (April 8, 2016). The U.S. 
Court of Appeals for the Fifth Circuit later vacated the exemption 
on unrelated grounds. Chamber of Commerce of the United States v. 
U.S. Department of Labor, 885 F.3d 360 (5th Cir. 2018).

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[[Page 33363]]

Request for Comment

    Due to the passage of time since the 2013 Proposal was originally 
published, and to ensure that all interested parties have an 
opportunity to provide comments or new information, the Department is 
reopening the comment period and soliciting comments on all aspects of 
the 2013 Proposal. The Department specifically seeks comment regarding 
the following questions:
     Are changes to the 2013 Proposal's standards of 
creditworthiness necessary as a result of the SEC's finalization of 
amendments to Rules 2a-7 and 5b-3?
     Are changes to the 2013 Proposal's standards of 
creditworthiness necessary as a result of other regulators' actions 
removing references to credit ratings? For example, should the 
Department incorporate OCC, Federal Reserve Board, FDIC and/or NCUA 
standards developed for depository institutions? Have other regulators 
developed standards the Department should incorporate into the Class 
Exemptions? Are there particular challenges in the ERISA context to 
implementing any of those standards?
     Are changes to the 2013 Proposal's standards of 
creditworthiness necessary in light of business or other economic 
developments since the Department proposed changes to the Class 
Exemptions in 2013?
     Should references to ``fair market value'' in the 2013 
Proposal's standards of creditworthiness be replaced with references to 
``carrying value''? If so, please explain why.
     Do commenters recommend that the Department require 
financial institutions to adopt policies and procedures for compliance 
with the standards of creditworthiness? If so, please describe the 
types of specific policies and procedures that would be helpful. Do 
financial institutions already have similar policies and procedures in 
place? Will 180 days provide sufficient time for financial institutions 
that currently do not currently such policies and procedures in place 
to adopt them?

    Signed at Washington, DC, this 16th day of June 2021.
Ali Khawar,
Acting Assistant Secretary, Employee Benefits Security Administration, 
U.S. Department of Labor.
[FR Doc. 2021-13149 Filed 6-23-21; 8:45 am]
BILLING CODE 4510-29-P
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