Procedures Governing the Filing and Processing of Prohibited Transaction Exemption Applications, 4662-4704 [2024-00586]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 89, Number 16 (Wednesday, January 24, 2024)]
[Rules and Regulations]
[Pages 4662-4704]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00586]



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Vol. 89

Wednesday,

No. 16

January 24, 2024

Part II





Department of Labor





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Employee Benefits Security Administration





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29 CFR Part 2570





Procedures Governing the Filing and Processing of Prohibited 
Transaction Exemption Applications; Final Rule

Federal Register / Vol. 89 , No. 16 / Wednesday, January 24, 2024 / 
Rules and Regulations

[[Page 4662]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2570

RIN 1210-AC05


Procedures Governing the Filing and Processing of Prohibited 
Transaction Exemption Applications

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Final rule.

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SUMMARY: The Department of Labor (the Department) is adopting 
amendments to its existing procedure governing the filing and 
processing of applications for administrative exemptions from the 
prohibited transaction provisions of the Employee Retirement Income 
Security Act of 1974 (ERISA), the Internal Revenue Code of 1986 (the 
Code), and the Federal Employees' Retirement System Act of 1986 (FERSA) 
(the Amendments). The Secretary of Labor (the Secretary) is authorized 
to grant exemptions from the prohibited transaction provisions of 
ERISA, the Code, and FERSA and to establish an exemption procedure to 
provide for such relief. The Amendments update and supersede the 
Department's existing prohibited transaction exemption procedures.

DATES: The amendments in this rule are effective April 8, 2024.

FOR FURTHER INFORMATION CONTACT: Brian Shiker, telephone: (202) 693-
8552, email: [email protected], Office of Exemption Determinations, 
Employee Benefits Security Administration, U.S. Department of Labor 
(this is not a toll-free number).
    Customer Service Information: Individuals interested in obtaining 
information from the Department concerning ERISA and employee benefit 
plans may call the Employee Benefits Security Administration's Toll-
Free Hotline, at 1-866-444-EBSA (3272) or visit the Department's 
website (www.dol.gov/ebsa).

SUPPLEMENTARY INFORMATION:

Background

    Part 4 of Title I of ERISA establishes an extensive framework of 
standards and rules that govern the conduct of ERISA plan fiduciaries; 
collectively, these rules are designed to safeguard the integrity of 
employee benefit plans. As part of this structure, ERISA section 406(a) 
generally prohibits a plan fiduciary from causing the plan to engage in 
a variety of transactions with certain related parties, unless a 
statutory or administrative exemption applies to the transaction. These 
related parties (which include plan fiduciaries, sponsoring employers, 
unions, service providers, and other persons who may be in a position 
to exercise improper influence over a plan) are defined as ``parties in 
interest'' in ERISA section 3(14). ERISA section 406(b) generally 
prohibits a plan fiduciary from (1) dealing with the assets of a plan 
in their own interest or for their account, (2) acting in any 
transaction involving the plan on behalf of a party whose interests are 
adverse to those of the plan or its participants and beneficiaries, or 
(3) receiving any consideration for their own personal account from a 
party dealing with the plan in connection with a transaction involving 
plan assets, unless an exemption specifically applies to such conduct. 
To supplement these provisions, ERISA sections 406(a)(1)(E) and 407(a) 
impose restrictions on the nature and extent of plan investments in 
assets such as ``employer securities'' (as defined in ERISA section 
407(d)(1)) and ``employer real property'' (as defined in ERISA section 
407(d)(2)). The transactions prohibited under ERISA sections 406 and 
407 are referred to as ``prohibited transactions.''
    Most of the transactions prohibited by ERISA section 406 are 
likewise prohibited by Code section 4975, which imposes an excise tax 
on those transactions to be paid by each ``disqualified person'' 
(defined in Code section 4975(e)(2) in virtually the same manner as the 
term ``party in interest'' is defined in ERISA section 3(14)) who 
engages in the prohibited transactions.

Prohibited Transaction Exemptions

    Both ERISA and the Code contain various statutory exemptions from 
the prohibited transaction rules. These statutory exemptions were 
enacted by Congress to prevent the disruption of a number of customary 
business practices involving employee benefit plans, parties in 
interest, and fiduciaries. The statutory exemptions afford relief for 
transactions such as loans to participants and stock ownership plans, 
the provision of services necessary for the operation of a plan, 
certain investment advice transactions involving individual account 
plan participants and beneficiaries, and the investment of plan assets 
into deposits in certain financial institutions regulated by state or 
Federal agencies.
    In addition to the statutory exemptions, ERISA section 408(a) 
authorizes the Secretary to grant administrative exemptions from the 
restrictions of ERISA sections 406 and 407(a) in instances where the 
Secretary makes a finding on the record that relief is (1) 
administratively feasible, (2) in the interests of the plan and its 
participants and beneficiaries, and (3) protective of the rights of 
participants and beneficiaries of such plan. Similarly, Code section 
4975(c)(2) authorizes issuance of administrative exemptions from the 
prohibitions of Code section 4975(c)(1) subject to the same findings. 
Before an exemption is granted, notice of its pendency must be 
published in the Federal Register and interested persons must be given 
the opportunity to comment on the proposed exemption. If the exemption 
transaction involves potential fiduciary self-dealing or conflicts of 
interest, an opportunity for a public hearing must be provided.
    ERISA section 408(a) authorizes the Secretary to grant 
administrative exemptions on either an individual or a class basis. 
Class exemptions provide general relief from the restrictions of ERISA, 
the Code, and FERSA to those parties in interest who engage in the 
categories of transactions described in the exemption and who also 
satisfy the conditions stipulated by the exemption. Persons who are in 
conformity with all the requirements of a class exemption do not 
ordinarily decide to seek an individual exemption for the same 
transaction from the Department. Individual exemptions, by contrast, 
involve case-by-case determinations as to whether the specific facts 
represented by an applicant concerning an exemption transaction as well 
as the conditions applicable to such a transaction support a finding by 
the Department that the requirements for relief from the prohibited 
transaction provisions of ERISA, the Code, and FERSA have been 
satisfied in a particular instance. While the vast majority of 
administrative exemptions issued by the Department are the product of 
requests for relief from individual applicants or the broader employee 
benefits community, ERISA section 408(a) also authorizes the Department 
to initiate administrative exemptions on its own motion.
    In considering individual exemption requests from applicants, the 
Department exercises its authority under ERISA section 408(a) by 
carefully examining the decision-making process used by a plan's 
fiduciaries with respect to an exemption transaction, and the 
safeguards that are established against conflicts of interest. In 
general, the Department does not make determinations concerning the 
appropriateness or prudence of the investment proposals submitted by

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exemption applicants. However, the Department ordinarily will not 
favorably consider an exemption request if the Department believes that 
the proposed transactions are inconsistent with the fiduciary 
responsibility provisions of ERISA sections 403 and 404. To protect 
plans and their participants, the Department requires an exemption 
transaction to be designed to minimize the potential for conflicts of 
interest and self-dealing. Also, exemptions generally preclude 
unilateral action by the applicant that could disadvantage the plan.

Prohibited Transaction Exemption Procedure

    ERISA section 408(a) and Code section 4975(c)(2) direct the 
Secretary and the Secretary of the Treasury (the Secretaries), 
respectively, to establish procedures for granting administrative 
exemptions. In connection with this directive, ERISA section 3003(b) 
directs the Secretaries to consult and coordinate with each other with 
respect to the establishment of rules applicable to the granting of 
exemptions from the prohibited transaction restrictions of ERISA and 
the Code. Further, under ERISA section 3004, the Secretaries are 
authorized to develop rules on a joint basis that are appropriate for 
the efficient administration of ERISA.
    Pursuant to these statutory provisions, the Secretaries jointly 
issued an exemption procedure on April 28, 1975 (ERISA Procedure 75-1, 
40 FR 18471, also issued as Rev. Proc. 75-26, 1975-1 C.B. 722). Under 
this procedure, a person seeking an exemption under both ERISA section 
408(a) and Code section 4975 was obliged to file an exemption 
application with both the Internal Revenue Service (IRS) and the 
Department. However, requiring applicants to seek exemptive relief for 
the same transaction from two separate Federal departments soon proved 
administratively cumbersome.
    To resolve this problem, section 102 of Presidential Reorganization 
Plan No. 4 of 1978 (3 CFR, 1978 Comp., p. 332), reprinted in 5 U.S.C. 
app. at 672 (2006), and in 92 Stat. 3790 (1978)), effective on December 
31, 1978, transferred to the Secretary the authority of the Secretary 
of the Treasury to issue exemptions under Code section 4975, with 
certain enumerated exceptions. As a result, Congress gave the Secretary 
authority under Code section 4975(c)(2) and ERISA section 408(a) to 
issue individual and class administrative exemptions from the 
prohibited transaction restrictions of ERISA and the Code. The 
Secretary has delegated this authority, along with most of the 
Secretary's other responsibilities under ERISA, to the Assistant 
Secretary of Labor for the Employee Benefits Security 
Administration.\1\
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    \1\ See Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7, 
2009).
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    FERSA also contains prohibited transaction rules similar to those 
found in ERISA and the Code that are applicable to parties in interest 
with respect to the Federal Thrift Savings Fund established by FERSA. 
The Secretary is directed under FERSA to prescribe, by regulation, a 
procedure for granting administrative exemptions from certain of those 
prohibited transactions.\2\ The Secretary also delegated this 
rulemaking authority under FERSA to the Assistant Secretary of Labor 
for the Employee Benefits Security Administration.\3\
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    \2\ 5 U.S.C. 8477(c)(3).
    \3\ See Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7, 
2009).
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    Over time, the Department has issued additional guidance explaining 
its policies and practices relating to the consideration of exemption 
applications. In 1985, the Department published a statement of policy 
concerning the issuance of retroactive exemptions from the prohibited 
transaction provisions of ERISA section 406 and Code section 4975 
(ERISA Technical Release 85-1, January 22, 1985). This statement noted 
that, in evaluating future applications for retroactive exemptions, the 
Department would ordinarily take into account a variety of objective 
factors in determining whether a plan fiduciary had exhibited good 
faith conduct in connection with the past prohibited transaction for 
which relief is sought (such as whether the fiduciary had utilized a 
contemporaneous independent appraisal or reference to an objective 
third-party source, e.g., a stock exchange, in establishing the fair 
market value of the plan assets acquired or disposed of by the plan in 
connection with the transaction at issue). However, while noting that 
the satisfaction of such objective criteria might be indicative of a 
fiduciary's good faith conduct, the release cautioned that the 
Department would routinely examine the totality of facts and 
circumstances surrounding a past prohibited transaction before reaching 
a final determination on whether a retroactive exemption is warranted.
    In 1990, the Department published a final regulation (29 CFR 
2570.30 through 2570.52 (1991), reprinted in 55 FR 32847 (August 10, 
1990)), setting forth a revised exemption procedure that superseded 
ERISA Procedure 75-1 (the Exemption Procedure Regulation). This 
regulation, which became effective on September 10, 1990, reflected the 
jurisdictional changes made by Presidential Reorganization Plan No. 4 
and extended the scope of the exemption procedure to applications for 
relief from the FERSA prohibited transaction rules. In addition, the 
Exemption Procedure Regulation codified various informal exemption 
guidelines developed by the Department since the adoption of ERISA 
Procedure 75-1.
    In 1995, the Department issued a publication entitled ``Exemption 
Procedures under Federal Pension Law'' (the 1995 Exemption 
Publication). In addition to providing a brief overview of the 
exemption process, the 1995 Exemption Publication included definitions 
of technical terms such as ``qualified independent fiduciary,'' 
``qualified independent appraiser,'' and ``qualified appraisal 
report.'' These definitions, derived from conditions contained in 
previously granted exemptions, provide important guidance about the 
Department's standards concerning the independence, knowledge, and 
competence of third-party experts retained by a plan to review and 
oversee an exemption transaction, as well as the contents of the 
reports and representations the Department ordinarily requires from 
such experts.
    The Department published an updated Exemption Procedure Regulation 
in 2011 (29 CFR 2570.30 through 2570.52 (2011)).\4\ The updated 
Exemption Procedure Regulation revised the prohibited transaction 
exemption procedure to reflect changes in the Department's exemption 
practices since the previous exemption procedure was issued in 1990. 
Among other things, the Department consolidated elements of the 
exemption policies and guidance previously found in ERISA Technical 
Release 85-1 and the 1995 Exemption Publication within a single, 
comprehensive final regulation. The updated Exemption Procedure 
Regulation promoted the prompt and efficient consideration of all 
exemption applications by (1) clarifying the types of information and 
documentation generally required for a complete filing, (2) affording 
expanded opportunities for the electronic submission of information and 
comments relating to an exemption, and (3) providing plan participants 
and other interested persons with a more thorough understanding of the 
exemption under consideration.
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    \4\ 76 FR 66637 (October 27, 2011).

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    Most recently, on March 15, 2022, the Department published a 
proposed amendment to the Exemption Procedure Regulation (the Proposed 
Rule) that would update its existing procedures governing the filing 
and processing of applications for administrative exemptions from the 
prohibited transaction provisions of ERISA, the Code, and FERSA.\5\ The 
Department received 29 comment letters on the Proposed Rule before the 
public comment period ended on May 29, 2022.
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    \5\ 87 FR 14722 (March 15, 2022).
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    After consideration of the comments, including a written request 
for a public hearing, the Department held a virtual public hearing on 
September 15, 2022, which provided an opportunity for all interested 
parties to testify on material factual information regarding the 
Proposed Rule.\6\ Eight organizations were represented at the hearing. 
The Department reopened the Proposed Rule's public comment period on 
the hearing date. Following the hearing, the Department posted the 
hearing transcript to EBSA's website on October 6, 2022, and announced 
that the reopened comment period that began on the hearing date would 
close on October 28, 2022.\7\ Eight organizations submitted comments 
during the reopened comment period.
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    \6\ 87 FR 51299 (August 22, 2022).
    \7\ 87 FR 62751 (October 17, 2022).
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    After careful consideration of the comments and testimony, the 
Department is finalizing the Proposed Rule (the Final Amendment). The 
Final Amendment makes a number of changes to the Proposed Rule in 
response to comments, which are discussed in detail in the section 
below titled ``Changes to the Exemption Procedure Proposed Rule.''

Changes to the Exemption Procedure Proposed Rule

    The Department issued the Proposed Rule to promote a prompt, 
efficient, open, and transparent exemption application process. 
Accordingly, the Proposed Rule would make applicants explicitly aware 
of the information the Department requires and the specific steps it 
takes during the exemption application process to ensure that a 
thorough and complete record is created by which any impacted party, 
including plan participants and beneficiaries, can review and 
understand the decision-making process the Department engaged in when 
considering an exemption application. Specifically, in the Proposed 
Rule, the Department, among other things, proposed to (1) clarify the 
types of information and documentation required for a complete 
application, (2) revise the definitions of a ``qualified independent 
fiduciary'' and ``qualified independent appraiser'' to ensure their 
independence, (3) clarify the content of specific reports and documents 
applicants must submit to ensure that the Department receives 
sufficient information to make the requisite findings under ERISA 
section 408(a) to issue an exemption, (4) update various timing 
requirements to ensure clarity in the application review process, (5) 
clarify items that are included in the administrative record for an 
application and when the administrative record is available for public 
inspection, and (6) expand opportunities for applicants to submit 
information to the Department electronically.

General Comments on the Proposed Rule and the Need for Changes

    Before discussing specific changes the Department made to the 
Proposed Rule in this Final Amendment, the Department notes that many 
commenters raised general, broad objections to the Proposed Rule.\8\ 
Some commenters expressed concern that the Department had become more 
restrictive in its approach to exemptions and contended that the 
Proposed Rule would result in fewer exemptions. As evidence of this 
assertion, the commenters pointed to a decline in the number of 
exemptions the Department has issued over the last several years. The 
Department does not believe, however, that it has become unduly 
restrictive in its approach to exemptions. Instead, the number and 
frequency of granted exemptions reflects multiple factors, including 
market participants' increased ability to structure transactions in 
ways that avoid violating the prohibited transaction rules, the 
flexibility provided by many administrative class exemptions previously 
issued by the Department, the expansion of statutory exemptions, and 
market developments. The Department also notes that in the 2023 fiscal 
year, the Department granted 19 individual prohibited transaction 
exemptions, an increase in the number of exemptions from previous 
years.
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    \8\ These commenters consisted of parties from the financial 
services industry and their attorney representatives, as well as 
independent fiduciaries and appraisers.
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    One concern that the Department shares with many of the commenters 
is that the process was starting to become more drawn-out and longer 
than necessary. One reason the process is sometimes lengthy is that the 
Department frequently needs to follow-up with applicants to ensure that 
it has all of the information necessary to make the required statutory 
findings. This timeline was frustrating to everyone, and commenters 
noted it throughout their comments. While the commenters are correct 
that the Department intended to formalize many of its current exemption 
practices in this rulemaking process, its goal in doing so is to bring 
clarity and transparency to the exemption process, especially for plan 
participants and beneficiaries impacted by the exemption transaction, 
not to decrease the number of applications it receives or grants. The 
Department's reasoning is that by providing clearer expectations about 
what information should be included in exemption applications, some of 
the friction associated with the exemption process can be reduced 
because the Department will have less need to request additional 
information from applicants. This will make the entire process more 
accessible and efficient, especially for applicants that have less 
experience with the Department's exemption process. Contrary to the 
commenters' concerns, the Final Amendment is designed to help 
applicants navigate through the exemption process and not to dissuade 
them from applying for exemptions. The Final Amendment makes the 
exemption application process more efficient by reducing or eliminating 
delays caused when information is missing from exemption applications, 
and they are otherwise incomplete. It also tries to ensure that all 
entities have the same access to the exemption transaction process by 
making all steps of the process transparent.
    In addition, commenters stated that the Proposed Rule is overly 
prescriptive, burdensome, and costly. The Department reiterates that 
one of the main reasons it is amending the Exemption Procedure 
Regulation is to clarify the specific items it expects applicants to 
include with their exemption applications and provide information 
regarding the process by which the Department evaluates exemption 
applications. The Department can achieve this goal only if the 
requirements of the Final Amendment are sufficiently prescriptive, 
because by adding more specificity, the Department will make the 
exemption application process less burdensome and costly and more 
streamlined and efficient.
    The Department emphasizes that ERISA section 408(a) requires it to 
build an administrative record for the Department to make its required 
findings that an exemption transaction

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is (1) administratively feasible, (2) in the interest of the plan and 
its participants and beneficiaries, and (3) protective of its 
participants and beneficiaries. Under the current Exemption Procedure 
Regulation, the Department often engages in a drawn-out process where 
it makes several requests for additional information from the applicant 
after the submission of an application in the course of the 
Department's review. The information required under ERISA section 
408(a) is, however, the same whether it is included with the initial 
submission of an application or obtained through this drawn-out 
process. Making the Department's expectations clearer through the Final 
Amendment should streamline and expedite the application process, which 
should redound to the benefit of both applicants and the Department. 
These changes will also enhance the administrative feasibility for 
exemptions.
    Several commenters also urged the Department to withdraw the 
Proposed Rule and repropose it at a later date after receiving 
additional input from interested stakeholders. The Department disagrees 
with these commenters. The Department received comments from many 
different types of parties, representing financial institutions, 
fiduciaries, appraisers, plans, and participants and beneficiaries, 
among others during the initial comment period. The Department also 
notes that it provided interested stakeholders with multiple additional 
opportunities to provide their input on the Proposed Rule beyond their 
initial comments by (1) extending the initial public comment period, 
(2) holding a public hearing where the regulatory community expressed 
its views directly to the Department through written and oral 
testimony, and (3) reopening the comment period on the hearing date. 
Moreover, the Final Amendment improves the Department's exemption 
process and ultimately reduces applicants' burden; further delay would 
unnecessarily deprive the public of these benefits.
    One commenter raised a concern that the Department may apply the 
Proposed Rule's provisions regarding independent fiduciaries and 
appraisers to other areas, such as the employee stock ownership plan 
valuation rules under ERISA. In response to this comment, the 
Department notes that the Final Amendment applies only to the 
Department's rules regarding the filing and processing of exemption 
applications. If the Department decides to issue future guidance 
regarding other areas of ERISA that contains similar rules for 
fiduciaries and appraisers to those contained in the Final Amendment, 
notice and an opportunity to comment on such guidance would be provided 
to the public, consistent with the Administrative Procedure Act.
    Finally, several commenters objected to the Office of Management 
and Budget (OMB) and the Department's determination that the rule was 
not ``significant'' for purposes of Executive Order 12866. These 
commenters asserted that the Department should have included a 
regulatory impact analysis (RIA) with the Proposed Rule to assess its 
impact on plans, participants, and beneficiaries. In response to such 
comments, the Department has included an assessment of the potential 
costs and benefits of the Final Amendment, in accordance with section 
6(a)(3)(B)(ii) of Executive Order 12866 (as amended by Executive Order 
14094).\9\
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    \9\ The Department's RIA that is included in this Final 
Amendment was informed by comments that the Department received in 
response to its notice and comment solicitation in the Paperwork 
Reduction Act section of the Proposed Rule.
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Specific Rule Provisions

    The current Exemption Procedure Regulation consists of 23 
individual sections (Sec. Sec.  2570.30 through 2570.52) that are 
arranged by topic, and that generally reflect the chronological order 
of steps the Department takes to process an exemption application. This 
Final Amendment retains the current section-by-section topical 
structure and most of the operative language of the current Exemption 
Procedure Regulation. While the Department made some non-substantive 
revisions to the current Exemption Procedure Regulation to improve its 
readability and provide clarity that are not discussed in this 
preamble, the Department addresses all substantive amendments to the 
current Exemption Procedure Regulation in the section-by-section 
discussion below.

Section 2570.30

    Section 2570.30 sets forth the scope of the Exemption Procedure 
Regulation. It addresses the filing and processing of applications for 
both individual and class exemptions that the Department may propose 
and grant pursuant to ERISA section 408(a), Code section 4975(c)(2), 
FERSA, and on its own motion. Paragraph (b) broadly addresses the 
Department's power to issue exemptions. Similar to the Proposed Rule, 
the Department revises the regulatory text that is applicable to 
retroactive exemptions in the Final Amendment, to include a statement 
that the Department will review any retroactive exemption application 
to determine whether any plan participants or beneficiaries were harmed 
by the transaction for which retroactive relief is sought. This 
language reinforces the Department's existing policy that it, 
generally, will not support a request for a retroactive exemption 
involving a transaction that negatively impacted participants and 
beneficiaries. The Department notes that whether a transaction 
negatively impacts participants and beneficiaries will be determined 
based on the facts and circumstances, which will include a possible 
determination as to whether participants and beneficiaries were made 
whole for any harm. Further, the Department emphasizes in the Final 
Amendment that it will apply a high level of scrutiny to any 
retroactive exemption application using longstanding standards that 
have been previously set forth by the Department in the Exemption 
Procedure Regulation. As a result, the Department strongly suggests 
that a party that anticipates engaging in a transaction that would 
require retroactive exemptive relief contact the Department before 
engaging in the transaction.
    Paragraph (d) of the Proposed Rule provides, generally, that the 
issuance of an administrative exemption does not relieve a fiduciary or 
other party in interest or disqualified person with respect to a plan 
from the obligation to comply with certain other provisions of ERISA, 
the Code, or FERSA. For clarity, the Final Amendment adds additional 
text to the proposed paragraph (d) to clarify the impact of an 
administrative exemption under the Code. Specifically, the Final 
Amendment states that the issuance of an exemption does not affect the 
requirements of Code section 401(a), including that a plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries, or the rules with respect to other 
Code provisions, including that an administrative exemption with 
respect to a contribution to a pension plan does not affect the 
deductibility of the contribution under Code section 404.
    Paragraph (e) of the Final Amendment provides that the Department 
will not accept oral exemption applications or grant exemptions orally. 
Similar to the Proposed Rule, the Department has revised the regulatory 
text in the Final Amendment to clarify that the Department will provide 
feedback in response to oral inquiries, but it will not be bound by 
that feedback. The Department cannot give parties assurances that an 
exemption will be issued or whether a specific exemption condition will 
be required before it has

[[Page 4666]]

gone through the public exemption process, fully considered the record, 
and made a final determination. The Department also proposed to include 
language that any oral statements made by the party making the inquiry 
will become part of the administrative record. Commenters objected to 
this language on the basis that it would have a chilling effect on the 
regulated community's communications with the Department. As discussed 
in more detail below in Sec.  2570.32(d), the creation of an accurate 
and complete administrative record outweighs commenters' concerns and 
necessitates the inclusion of oral communications in the administrative 
record. However, in order to be responsive to commenters' concerns 
while ensuring an accurate and complete administrative record, the 
Department has streamlined the Final Amendment to omit language in the 
proposed paragraph (e) regarding oral communications. Instead, all 
issues pertaining to the administrative record, many previously 
highlighted by the Proposed Rule, including the inclusion of pre-
submission and oral communications, are addressed in Sec.  2570.32(d).
    Finally, the Department proposed to add a new paragraph (g), which 
would have provided that the Department issues administrative 
exemptions at its sole discretion based on the statutory criteria set 
forth in ERISA section 408(a) and Code section 4975(c)(2). Several 
commenters were concerned that the ``sole discretion'' language used 
here and in other sections of the Proposed Rule represented an attempt 
by the Department to leave stakeholders without a realistic opportunity 
to challenge its actions as arbitrary and capricious under the 
Administrative Procedure Act. For example, the commenters maintained 
that the Department could create a competitive imbalance by issuing two 
exemptions in identical circumstances with different conditions, or by 
refusing to give an exemption to one applicant that was given to a 
similarly situated applicant.
    The Department disagrees. While the proposed text correctly 
reflects that the decision to grant or deny an exemption ultimately is 
within the Department's sole discretion, the regulation could not 
circumvent the Administrative Procedure Act requirements nor does (or 
could) it purport to give the Department authority to act arbitrarily. 
Therefore, the Department has retained the language as proposed in the 
Final Amendment.
    In conjunction with this new paragraph (g), the Department proposed 
to add language stating that the existence of previously issued 
administrative exemptions is not determinative of whether the 
Department will propose future exemptions for applications with the 
same or similar facts, or whether a proposed exemption will contain the 
same conditions as a similar previously issued administrative 
exemption. The addition of this language reinforces the Department's 
existing policy that it has the sole discretionary authority to issue 
exemptions and is not bound by facts or conditions of prior exemptions 
in making determinations with respect to an exemption application. This 
policy allows the Department to retain sufficient flexibility to grant 
exemptions that are appropriate in an ever-changing business, 
legislative, and regulatory policy environment.
    Commenters objected to proposed paragraph (g) and argued that the 
Department should be bound or, at a minimum, influenced by previously 
issued administrative exemptions. These commenters believe that prior 
exemptions should establish precedent that stakeholders can reasonably 
rely on to foster predictability, efficiency, and consistent treatment 
of different applicants.
    It is reasonable for applicants to identify similar exemptions the 
Department previously has granted in certain situations as a starting 
point when submitting an exemption application to the Department. 
Applicants should be aware, however, that revisions and changes may be 
necessary based on the current facts and circumstances, whether they 
are driven by business, legislative, regulatory, or policy 
considerations. The Department endeavors to use the prohibited 
transaction class exemption process when the exemption transaction is 
reasonably understood to be a transaction that would benefit, and be 
protective of the interests of, participants and beneficiaries of 
numerous plans. When the Department is considering a prohibited 
transaction individual exemption, however, it is because the Department 
understands the transaction to be specific and unique to the party 
before it. Accordingly, parties that are facing similar, but not 
identical situations, are encouraged to seek their own exemption. 
Previously issued exemptions are instructive, and a useful starting 
point, but do not prevent the Department from considering each 
situation that comes before it in its entirety. As a result, the 
Department has modified the proposed paragraph (g) in the Final 
Amendment to provide that previously issued administrative exemptions 
may inform the Department's determination of whether to propose future 
exemptions based on the unique facts and circumstances of each 
application.
    Lastly, with respect to proposed paragraph (g), commenters raised 
concerns regarding the interplay between the Department's stance that 
applicants cannot rely on exemptions as precedents and the existing 
expedited review process the Department established in Prohibited 
Transaction Exemption 96-62 (commonly referred to as EXPRO).\10\ EXPRO 
permits the Department to perform an expedited review of an exemption 
application that is ``substantially similar'' to two other exemptions 
the Department has granted in the prior five years, as determined in 
the Department's sole discretion. The Department disagrees with the 
commenters' position that the Proposed Rule creates tension with EXPRO. 
Pursuant to proposed paragraph (g), the Department may use previously 
issued exemptions to inform its decisions regarding whether to grant 
individual exemptions. The EXPRO process merely uses prior exemptions 
to expeditiously inform the Department of whether an exemption would 
meet the requirements of ERISA section 408(a); it does not bind the 
Department to prior exemptions as precedent. Instead, before granting 
an exemption under EXPRO, the Department must determine, in its sole 
discretion, (1) whether a proposed transaction is ``substantially 
similar'' and (2) whether there is little, if any, risk of abuse or 
loss to plan participants and beneficiaries. Even if a transaction is 
substantially similar, the Department may deny an application under 
EXPRO if it finds that the particular transaction creates a risk of 
abuse or loss, or if it determines that the exemption transaction 
differs from the prior exemptions based on the Department's 
understanding of changes in present circumstances, whether business, 
legislative, regulatory, or policy.
---------------------------------------------------------------------------

    \10\ 67 FR 44622 (July 3, 2002).
---------------------------------------------------------------------------

Section 2570.31

    Section 2570.31 sets forth definitions that are used throughout the 
Exemption Procedure Regulation. While the Department did not propose to 
revise most of the definitions (other than to improve readability), the 
Department proposed substantive revisions to several existing 
definitions and added new definitions. These changes address issues 
that the Department has often experienced in its review of exemption 
applications.

[[Page 4667]]

    First, the Department proposed to revise the definition of 
``affiliate'' set forth in paragraph (a) to include:
     any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person. For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual; any officer, 
director, partner, employee, or relative (as defined in ERISA section 
3(15)) of any such person; or
     any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, partner, or 
five percent or more owner.
    In addition to rewording the text for clarity, the proposed revised 
definition would have included all employees and officers, rather than 
only those who are highly compensated (as defined in Code section 
4975(e)(2)(H)) or have direct or indirect authority, responsibility, or 
control regarding the custody, management, or disposition of plan 
assets involved in the subject exemption transaction to ensure that all 
parties that commonly serve as affiliates are captured, without a 
complicating reference to a Code citation.
    Although commenters maintained that the revised definition may have 
been too broad because it is overly inclusive and might capture parties 
that are not related to the exemption transaction, the Department is 
finalizing this definition as proposed. The revision reflects the 
affiliate definition the Department currently uses in individual and 
class exemptions and has proved to be both appropriately protective and 
workable.\11\
---------------------------------------------------------------------------

    \11\ See, e.g., PTE 2020-02 (85 FR 82798, December 18, 2020); 
PTE 2022-02 (87 FR 23245, April 19, 2022); PTE 2022-03 (87 FR 54264, 
September 2, 2022); and Proposed Exemption for Morgan Stanley & Co. 
LLC, and Current and Future Affiliates and Subsidiaries, Application 
No. D-11955 (86 FR 64695, November 18, 2021).
---------------------------------------------------------------------------

    The Department proposed to substantially revise the definition of 
the term ``qualified independent appraiser'' in paragraph (i) of the 
proposal. Commenters generally objected to the proposed changes 
because, according to them, such changes could result in a substantial 
reduction of the number of experienced appraisers available to 
represent the interests of plans in exemption transactions, and it 
would especially be harmful for smaller appraisers. They also indicated 
that the changes could result in further industry consolidation, which 
could lead to concentration of risks. After considering these comments, 
the Department has decided not to finalize the revised definition as 
proposed, and, except for the modifications discussed below, generally, 
has reverted to the qualified independent appraiser definition in the 
current Exemption Procedure Regulation.
    The Department made a few revisions to the Exemption Procedure 
Regulation text in the Final Amendment regarding the qualified 
independent appraiser definition to clarify the underlying meaning of 
the existing language. The Department requested comments on these 
definitions, including whether the ``proposed changes are clear [and 
whether they] appropriately reflect the manner in which entities 
interact with ERISA-covered plans and plan participants and 
beneficiaries.'' \12\ Based on this request for comment, the Department 
received input from the public that the proposed definition of 
qualified independent appraiser would better reflect the manner in 
which the appraiser interacted with plans if the definition were 
slightly changed. Specifically, the Final Amendment amends the 
qualified independent appraiser definition to provide that the 
Department generally will not conclude that an appraiser's independence 
is compromised solely based on the revenues it receives from parties in 
interest (and their affiliates) participating in the exemption 
transaction, as long as the appraiser neither receives nor is projected 
to receive more than two percent of its revenues within the current 
Federal income tax year from the parties in interest (and their 
affiliates). Although larger percentages merit more stringent scrutiny, 
an appraiser may be considered independent based upon other facts and 
circumstances provided that the appraiser neither receives nor is 
projected to receive more than five percent of its revenues within the 
current Federal income tax year from parties in interest (and their 
affiliates) participating in the exemption transaction.
---------------------------------------------------------------------------

    \12\ 87 FR 14725 (Mar. 15, 2022).
---------------------------------------------------------------------------

    While the amended definition returns to the two and five percent of 
revenue thresholds provided in the Exemption Procedure Regulation, the 
Department has modified the language in the Final Amendment to clarify 
that an appraiser whose revenue threshold is less than two percent is 
not automatically deemed independent. The Department may consider other 
facts and circumstances indicating that an appraiser is not independent 
regardless of its revenue threshold. For example, if an appraiser is 
likely to be retained by the applicant for additional appraisals due to 
its provision of an appraisal submitted with the exemption application, 
the Department may question whether the appraiser is truly independent. 
Further, the modified language emphasizes that appraisers with revenue 
thresholds that are between two and five percent could merit heightened 
scrutiny from the Department. The revised language in the Final 
Amendment strikes the appropriate balance of addressing commenters' 
concerns that the proposed changes could have negatively impacted the 
appraiser marketplace while giving appropriate weight to the 
participant-protective importance of an appraiser's independence based 
on all relevant facts and circumstances regardless of the appraiser's 
revenue percentage.
    The Department also proposed to revise the qualified independent 
appraiser definition in the Proposed Rule to provide that an appraiser 
must be independent of and unrelated to the qualified independent 
fiduciary involved with the exemption transaction. Commenters objected 
to the revision by asserting that many independent fiduciaries retain 
affiliates to perform appraisals and eliminating this practice would 
unnecessarily drive up the cost of an exemption application. After 
considering these comments, the Department has not included the 
proposed language in the Final Amendment.
    The Department also proposed to revise the definition of a 
``qualified appraisal report'' in paragraph (h)(2)(i) to require the 
appraiser to provide an appraisal report ``on behalf of the plan.'' 
Commenters representing appraisers stated that longstanding ethical 
standards of the valuation profession require appraisers to perform 
appraisals independently and without bias in favor of any party. All 
appraisal reports are based on objective criteria and may not be ``on 
the behalf'' of any party. After considering this information, the 
Department did not include the proposed language in the Final 
Amendment.
    The Department made similar amendments to the definition of 
``qualified independent fiduciary'' in paragraph (j) of the proposed 
Sec.  2570.31. As with the qualified independent appraiser definition, 
commenters expressed concern that the proposed changes to the qualified 
independent fiduciary definition would substantially reduce the number 
of experienced independent fiduciaries available to represent the 
interests of plans and participants and beneficiaries in exemption 
transactions, especially

[[Page 4668]]

smaller independent fiduciaries. After considering these concerns, the 
Department, generally, is not finalizing these provisions of the 
exemption as proposed and has mostly reverted to the language of the 
Exemption Procedure Regulation.
    The Department proposed to revise the independent fiduciary 
definition to:
     require the fiduciary to be independent from any other 
party involved in the development of the exemption request; and
     state that the Department would consider whether a 
fiduciary has an interest in the exemption transaction or in future 
transactions of the same nature or type in determining whether a 
fiduciary is independent.
    Beyond the broad objections described above regarding the changes 
to the definition, commenters stated these particular changes would 
result in the exclusion of experienced independent fiduciaries, leaving 
only inexperienced fiduciaries to represent the interests of plans and 
participants and beneficiaries. Commenters maintained that if a 
fiduciary develops expertise in a particular area, it would necessarily 
have an interest in future transactions, because future business drives 
a fiduciary to invest the resources necessary to develop expertise. 
While the Department is persuaded not to include the proposed change in 
the Final Amendment, it has revised the definition to provide that when 
the Department makes an independence determination based on all of the 
relevant facts and circumstances, that determination will include an 
evaluation of the extent to which the plan's counterparty in the 
exemption transaction participated or influenced the selection of the 
fiduciary. Using such explanatory language emphasizes the conflict of 
interest concerns, previously raised in the Proposed Rule, that the 
Department focuses on as part of its evaluation of fiduciary 
independence without unduly limiting those parties that may serve as 
independent fiduciaries.
    Second, as with the definition of a qualified independent 
appraiser, the Department proposed to revise the revenue threshold used 
to determine independence in the Proposed Rule. Commenters made the 
same objections to this proposed change by asserting that it could have 
a detrimental impact on the independent fiduciary marketplace. After 
considering these comments, the Department, generally, has not included 
the proposed changes in the Final Amendment and has largely reverted to 
the original revenue thresholds set forth in the existing Exemption 
Procedure Regulation. However, as with the definition of a qualified 
independent appraiser, the Department has revised the language in the 
Exemption Procedure Regulation in the Final Amendment to clarify the 
underlying intent of the existing language.
    Specifically, the Final Amendment states that the Department 
generally will not conclude that a fiduciary's independence is 
compromised solely based on the revenues it receives from parties in 
interest (and their affiliates) that are participating in the exemption 
transaction if the fiduciary neither receives nor is projected to 
receive more than two percent of its revenues within the current 
Federal income tax year from the parties in interest (and their 
affiliates). Although larger percentages merit more stringent scrutiny, 
a fiduciary may be considered independent based upon other facts and 
circumstances provided that the fiduciary neither receives nor is 
projected to receive more than five percent of its revenues within the 
current Federal income tax year from parties in interest (and their 
affiliates) participating in the exemption transaction.
    As with the qualified independent appraiser definition, the amended 
independent fiduciary definition in the Final Amendment retains the two 
and five percent of revenue standards thresholds set forth in the 
existing Exemption Procedure Regulation, but modifies the language to 
clarify that a fiduciary with revenues less than the two percent 
revenue threshold is not automatically deemed independent: the Final 
Amendment provides that the Department may consider other facts and 
circumstance indicating whether a fiduciary is independent regardless 
of its revenue threshold. Further, the Department has revised the 
language in the Final Amendment to emphasize that fiduciaries whose 
revenue thresholds are between two and five percent merit heightened 
scrutiny from the Department. The revised language addresses the 
commenters' concerns that the proposed changes could have negatively 
impacted the independent fiduciary marketplace while giving proper 
weight to the participant-protective independence of the fiduciary, 
initially raised as a concern in the Proposed Rule, based on all 
relevant facts and circumstances.
    Proposed paragraph (k) would have added a new definition of ``pre-
submission applicant'' that defines a pre-submission applicant as a 
party that contacts the Department, either orally or in writing, to 
inquire whether a party with a particular fact pattern would need to 
submit an exemption application and, if so, what conditions and relief 
would be applicable. This definition would not include a party that 
contacts the Department to inquire broadly without reference to a 
specific fact pattern. The Department has included this definition in 
the Final Amendment to clearly distinguish parties that make inquiries 
with the Department that could potentially lead to an exemption 
application from those that simply seek non-fact specific guidance from 
the Department. As discussed below, this distinction impacts how the 
Department addresses the inquiries and whether an administrative record 
is created when pre-submission applicants contact the Department 
regarding an exemption transaction.
    The Department also proposed to add a new definition of ``party 
involved in the exemption transaction'' that included the following:
    (1) a party in interest (as defined in paragraph (f));
    (2) any party (or its affiliate) that is engaged in the exemption 
transaction; and
    (3) any party (or its affiliate) that provides services with 
respect to the exemption transaction to either the plan or a party 
described in (1) or (2).
    The Department proposed to use this term to replace ``party in 
interest'' throughout the Exemption Procedure Regulation. After 
considering comments and reviewing whether the proposed switch to 
``party involved in the exemption transaction'' facilitated the 
Department's goals of transparency and efficiency, the Department has 
determined not to include this definition in the Final Amendment and is 
reverting the reference in the applicable provisions to the term 
``party in interest'' that is used in the current Exemption Procedure 
Regulation. Reverting to the term ``party in interest'' ensures that 
applicants can understand which parties are being addressed and can 
efficiently collect the information necessary to complete an 
application.

Section 2570.32

    Section 2570.32 addresses who may apply for an exemption and when 
the administrative record for an exemption application is created. The 
Department proposed two revisions to Sec.  2570.32. First, paragraph 
(a) would have been revised to describe persons who may apply for 
exemptions. The Department proposed to delete the language in paragraph 
(a) stating that ``the Department will initiate exemption proceedings 
upon the application of'' to

[[Page 4669]]

clarify that this paragraph addresses only those parties who are 
permitted to apply for an exemption. The Department has retained this 
revision in the Final Amendment as proposed because the revised 
language makes clear that paragraph (a) does not address whether the 
Department is required to initiate an exemption proceeding. The 
decision to initiate an exemption proceeding remains within the 
Department's sole discretion.
    The Department also proposed to add a new paragraph (d) to address 
questions applicants have frequently asked the Department regarding the 
creation of the administrative record for an exemption application that 
is available for public inspection. To reflect the addition of this 
content, the Department proposed adding ``and the administrative 
record'' to the heading of Sec.  2570.32. The Department has included 
these proposed revisions in the Final Amendment.
    The Department proposed in paragraph (d)(1) of the Proposed Rule to 
open the administrative record for public inspection beginning on the 
date a pre-submission applicant provides information regarding an 
exemption transaction to the Department, and it proposed in paragraph 
(d)(2) that all pre-submission documents and communications between the 
Department and pre-submission applicants would immediately become part 
of the administrative record that is open for public inspection.
    Commenters objected to this proposed change because, in their view, 
it would have a chilling effect on informal and anonymous 
communications between the Department and the regulated community. 
These commenters asserted that applicants would be less likely to start 
the exemption application process or otherwise approach the Department 
to discuss potential exemption transactions if every communication with 
the Department is included in the administrative record that is 
available to the public.
    The Department's objective in proposing to add paragraph (d)(1) to 
the Exemption Procedure Regulation was to ensure a complete and 
accurate administrative record while still encouraging applicants to 
communicate freely with the Department. As discussed in more detail 
below, the Final Amendment still requires pre-submission information to 
be a part of the administrative record. However, the Department 
acknowledges commenters' concerns about making information submitted 
during the pre-submission process immediately available for public 
disclosure. Therefore, the Department has modified the proposed 
language in paragraph (d)(1) in the Final Amendment to provide that the 
administrative record for an exemption application becomes open for 
public inspection, pursuant to Sec.  2570.51(a), on the date an 
applicant submits an exemption application to the Office of Exemption 
Determinations. This revision makes clear that the administrative 
record for an exemption transaction is not available for public 
inspection until an applicant formally submits a written exemption 
application to the Department. However, the Department also notes that 
paragraph (d)(1) is not meant to encourage extended negotiations 
between a potential applicant and the Department before it submits an 
exemption application, or to permit applicants to circumvent an open 
process by ``informally'' seeking an exemption from the Department, 
while maintaining that they have not yet formally applied. At its sole 
discretion, the Department may decline to engage in extended 
conversations without submission of a formal application that ensures 
an appropriately open and transparent process.
    While the Department acknowledges commenters' concerns regarding 
the inclusion of pre-submission information in the administrative 
record, including oral communications, the Department's position is 
that building an accurate and transparent record takes precedence over 
those concerns. In making its required statutory findings under ERISA 
section 408(a), the Department is required to build an administrative 
record to support its findings under ERISA section 408(a). The 
administrative record is incomplete without all of the information that 
informed the Department's determinations with respect to the 
application, including notes of oral communications with the 
Department.
    The Department emphasizes that the record is not developed solely 
for the benefit of the applicant; it is also available for review and 
consideration by all parties that may be affected by the exemption 
request, including participants and beneficiaries. The inclusion of 
pre-submission information in the public record ensures not only 
accuracy but transparency into the Department's exemption determination 
process. The record should contain all the information necessary to 
fully review the Department's ultimate decision. Not including all 
discussions between the applicant and the Department that inform the 
Department's decision may hinder, for example, a plan participant's 
ability to provide comments or additional facts that might be 
beneficial to the Department's review of the application or prevent a 
court from fully understanding the basis for the Department's exemption 
determination if an applicant or beneficiary legally challenges the 
Department's decision. The Department notes, too, that members of the 
public can continue to communicate anonymously with the Department 
pursuant to the requirements of Sec.  2570.33(d).
    Based on the Department's position that all pre-submission 
information, whether written or oral, must be included in the 
administrative record as of the date an applicant submits an exemption 
application, and building on the Proposed Rule's language, the 
Department has amended paragraph (d)(2) in the Final Amendment to 
provide that the administrative record includes, but is not limited to, 
the following: (1) the initial exemption application and any 
modifications or supplements thereto; (2) all correspondence with the 
applicant after the applicant submits the exemption application; and 
(3) any information submitted to the Department by the applicant in 
connection with the exemption application, whether such information is 
provided orally or in writing (as well as any comments and testimony 
received by the Department in connection with an application).
    The Department clarified paragraph (d)(2) of the Final Amendment in 
turn, by adding a new paragraph (d)(3) which states that, although the 
administrative record is open and available to the public only after an 
applicant submits an exemption application, the record includes any 
material documents or supporting information that an applicant 
submitted to the Department in connection with the transaction that is 
the subject of the application, whether orally or in writing, before 
the applicant formally submits an exemption application to the 
Department. The administrative record does not include documents or 
records of communications with the Department that are unrelated to the 
exemption transaction that is the subject of the application or are 
associated with an exemption application an applicant submits 
subsequent to the unrelated communications.
    Consistent with the goals outlined in the Proposed Rule, paragraphs 
(d)(2) and (3) of the Final Amendment clearly establish the documents 
and communications that the Department will include in the 
administrative record to add clarity and transparency to the 
Department's exemption

[[Page 4670]]

determination process. The new language expressly states that all 
information material to the Department's decision will be included, 
thereby ensuring the creation of an accurate and complete 
administrative record. The Department emphasizes, however, that 
pursuant to paragraph (d)(3), pre-submission information that is not 
material, such as inapplicable background information or information 
regarding other transactions that are not relevant to the exemption 
transaction, will not be included in the administrative record. Whether 
information is material for purposes of paragraph (d)(3) will be 
determined solely at the Department's discretion. Limiting pre-
submission information in this manner should address the most 
significant concerns of the commenters while fully addressing the 
Department's obligation to build a transparent, accurate, and complete 
administrative record for its determinations regarding an exemption 
application.
    In connection with commenters' concerns regarding the proposed 
inclusion of pre-submission documents and communications in the 
administrative record, several commenters requested the right to review 
and comment on or correct the Department's administrative record before 
the Department provides public access to it. The Department's position 
is that including such a right would be inconsistent with its goal of 
creating a record that accurately reflects the information the 
Department considered when making its determination. Allowing an 
applicant to edit the administrative record for its own exemption 
application would defeat the Department's goal of transparency for not 
only applicants, but all parties impacted by the transaction, as well 
as the general public. To the extent, however, that a party believes it 
is appropriate to correct any part of the public record, they are 
welcome to submit comments and clarifications which the Department also 
will include in the public record. The Department has determined that 
the need for an open, transparent, and fully developed process is best 
served by including all the information it received or reviewed when 
making an exemption determination in the administrative record at the 
time an exemption is proposed whether or not the Department relies on 
such information.
    Finally, the Department proposed to update paragraph (d)(4) of the 
Exemption Procedure Regulation to reflect modern methods of 
communication. The paragraph provides that if documents are required to 
be provided in writing by either the applicant or the Department, the 
documents could be provided either by mail or electronically, unless 
otherwise required by the Department at its sole discretion. The 
Department has adopted this provision in the Final Amendment as 
proposed.

Section 2570.33

    In Sec.  2570.33, the Department proposed to address applications 
the Department will not consider. Specifically, the Department proposed 
to revise the text of the Exemption Procedure Regulation to clarify 
when it will not consider an exemption application. First, the 
Department proposed to revise paragraph (a)(1), under which the 
Department may exclude exemption applications that fail to include 
current information. The Department intended that the proposed revision 
would clarify that the Department would treat an applicant's failure to 
include current information the same as an applicant's failure to 
include information. The premise of this revision is that absent 
current information, the Department cannot develop an accurate 
understanding of the facts sufficient to enable a review of the 
underlying application. The Department has adopted this provision in 
the Final Amendment as proposed.
    Second, the Department proposed to revise paragraph (a)(2), which 
generally excludes from consideration an application involving: (1) a 
transaction or transactions that are the subject of an investigation 
for possible violations of part 1 or 4 of subtitle B of Title I of 
ERISA or FERSA sections 8477 or 8478; or (2) a party in interest who is 
the subject of such an investigation or who is a defendant in an action 
by the Department or the IRS to enforce those provisions of ERISA or 
FERSA. The proposed revision would have expanded the existing exclusion 
to include any ERISA investigations (not only those pursuant to Title I 
of ERISA or FERSA sections 8477 and 8478), as well as investigations 
under any other Federal or state law. The proposal also would have 
expanded the limitation on applications from parties that are the 
subject of an investigation or a defendant in an action brought by the 
Department or the IRS to include any other regulatory agencies 
enforcing ERISA, the Code, FERSA, or any other Federal or state laws. 
Commenters argued that the new language was too expansive and would 
unnecessarily exclude potential applicants.
    The Department has determined that the proposed revision to 
paragraph (a)(2) should not be included in the Final Amendment because 
parties should not be excluded automatically due to these additional 
investigations (except for a failure to include required information), 
thereby reverting closer to the current Exemption Procedure Regulation. 
The proposed regulation broadly expanded the existing exclusion to 
include any ERISA investigation (not only sections 8477 and 8478), as 
well as any other Federal or state law. In response to the comments, 
the Department decided that a more limited expansion was more 
appropriate. The best approach is to require applicants to disclose 
investigations or other court or enforcement actions, which is 
addressed in Sec.  2570.34. Following this disclosure, the Department 
can make a fully informed decision regarding whether an exemption 
application should be accepted based on the facts and circumstances, 
rather than automatically rejecting an exemption application in this 
circumstance.
    The Department acknowledges that some commenters were concerned 
that these additional disclosures, and their inclusion in the 
administrative record, could lead the public to presume malfeasance on 
the part of applicants. The Department declines to adopt any changes 
based on this comment, because a complete and accurate record is 
essential to a transparent exemption process. The Department notes that 
applicants who are concerned about potential reputational harm may 
include an explanation or description of mitigating facts along with 
their disclosure for inclusion in the administrative record. The 
Department also notes that some of the required disclosures may already 
be reflected in publicly available disciplinary actions by other 
regulators or may have been disclosed by the applicant in another 
context. For example, an applicant that is a publicly-traded company 
may have already disclosed certain investigations or disciplinary 
actions as part of its filing of a Form 10-K with the Securities and 
Exchange Commission.
    The Department proposed to delete the language in the current 
paragraph (c) regarding the administrative record, because that topic 
is now addressed in revisions to Sec.  2570.32 discussed above. The 
Department has made this revision in the Final Amendment as proposed.
    The Department proposed to revise the part of paragraph (c) 
addressing the submission of confidential information. The current 
Exemption Procedure Regulation provides that if an applicant designates 
any information required by the rule or requested by the Department as 
confidential, the Department will determine whether the information is

[[Page 4671]]

material to the exemption determination. If it determines at its sole 
discretion that the information is material, the Department will not 
process the application unless the applicant withdraws the claim of 
confidentiality. The Department proposed to revise this language to 
clarify that it would not review an application that includes 
confidential information, with the exception of confidential 
designations by a Federal, State, or other governmental entity. This 
means that if an applicant submits any confidential information as part 
of an exemption application, the Department would not review the 
information nor process the exemption application. As a result, the 
Department would process the application only after the applicant 
withdraws its claim of confidentiality or revokes its submission of the 
confidential information. This change would support the Department's 
goal of increasing transparency while protecting confidential 
information and has adopted this provision in the Final Amendment as 
proposed.
    One commenter objected to the proposed revisions to paragraph (c) 
on the grounds that requiring an applicant to remove a claim of 
confidentiality with respect to material information will discourage 
applicants from submitting applications. The Department maintains that 
the need for transparency in the exemption application process 
overrides the commenter's concerns. The Department's record must be 
complete and accurate and available for public inspection. If 
information that should be included in the administrative record is 
excluded based on a claim of confidentiality, a third party could not 
review the full administrative record, which would impede the 
Department's goal of establishing a full and transparent exemption 
determination process. The Department's obligation to make proper 
findings is undermined by the submission of confidential documents and 
information that are insulated from public comment and evaluation.
    The revised language in the Final Amendment also states that by 
submitting an exemption application, an applicant consents to public 
disclosure of the entire administrative record pursuant to Sec.  
2570.51. This revision, consistent with the intent of the Proposed 
Rule, places applicants on notice that they are consenting to the 
public disclosure of all information in the administrative record when 
they submit an exemption application, which will lead to a fully 
transparent exemption process.
    The Department proposed adding a new paragraph (d) that governs 
communications with pre-submission applicants as newly defined in Sec.  
2570.31(k). The proposed language provided that the Department would 
not communicate with a pre-submission applicant or its representative, 
whether through written correspondence or a conference, if the pre-
submission applicant does not: (1) identify and fully describe the 
transaction for which exemptive relief is sought; (2) identify the 
applicant, the applicable plan(s), and the relevant parties to the 
exemption transaction; and (3) set forth the prohibited transaction 
provision(s) that the applicant believes are applicable.
    Commenters objected to this language, arguing that it would have a 
chilling effect on informal and anonymous pre-submission discussions 
between the Department and the regulated community. The Department 
understands the commenters' concerns, but it also must be able to 
associate informal guidance it provides with specific applications that 
are submitted. While the Department welcomes pre-submission requests 
for guidance, it is imperative that parties approaching the Department 
for such guidance regarding a specific exemption transaction provide 
the Department with sufficient information to allow it to properly 
attribute the guidance to a specific transaction and the relevant 
prohibited transaction provisions that are applicable to the 
transaction.
    Accordingly, the Final Amendment requires those seeking pre-
submission guidance to identify the transaction for which exemptive 
relief is sought, as well as the applicable prohibited transaction 
provision(s). However, to address commenters' concerns, the Department 
has not included the proposed language in the Final Amendment that 
would have required pre-submission applicants to identify the 
applicant, the applicable plan(s), and the relevant parties to the 
exemption transaction before the Department will communicate with a 
pre-submission applicant. Eliminating specific identifying information 
should address commenters' concerns regarding anonymity while ensuring 
that the Department obtains the complete information it needs to 
provide relevant advice to an anonymous pre-submission applicant.

Section 2570.34

    Section 2570.34 addresses information the Department requires 
applicants to include in an exemption application. While the Department 
proposed to expand the information the Department requires to be 
included in an application in some cases, the Department's intention in 
expanding the required information was to streamline the exemption 
process by ensuring that most of the information the Department needs 
to make an exemption determination is available to it when the 
application is submitted, which will expedite the exemption 
determination process.\13\ The Department specifically requested 
comments on the changes to the information required to be submitted as 
part of the application, including comments on whether the Department 
should consider other types of information.\14\
---------------------------------------------------------------------------

    \13\ 87 FR 14727 (Mar. 15, 2022).
    \14\ Id.
---------------------------------------------------------------------------

    Specifically, the Department proposed to revise paragraphs (a)(1) 
and (3) to require addresses, phone numbers, and email addresses for 
the applicants, representatives, and parties in interest. The 
Department proposed to require applicants to include this information 
in the initial exemption application to ensure that the Department can 
efficiently contact the proper parties.
    In addition, the Department proposed to replace the original 
paragraph (a)(4) with new paragraphs (a)(4), (5), and (7) to facilitate 
the Department's understanding of the decision-making process the 
applicant undertook to determine that it was necessary to submit an 
exemption application. Accordingly, the Department proposed for 
paragraph (a)(4) to require the applicant to include in its application 
a description of: (1) the reason(s) for engaging in the exemption 
transaction; (2) any material benefit that a party in interest involved 
in the exemption transaction may receive as a result of the subject 
transaction (including the avoidance of any materially adverse outcome 
by the party in interest as a result of engaging in the exemption 
transaction); and (3) the costs and benefits of the exemption 
transaction to the affected plan(s), participants, and beneficiaries, 
including quantification of those costs and benefits to the extent 
possible.
    Commenters objected to this language on the grounds that requiring 
the disclosure is burdensome and unnecessary. However, the Department 
views this information as an essential component of an exemption 
application, because it will facilitate the Department's understanding 
of the underlying rationale for the exemption transaction, including 
the costs and benefits for both the party in interest and the plan and 
its participants and

[[Page 4672]]

beneficiaries. For example, when an applicant that is a plan sponsor 
provides not only a rationale for engaging in the exemption 
transaction, but also a statement of the benefits to the sponsor, as 
well as the costs and benefits to the plan, the Department can more 
accurately determine whether it has sufficient information to make its 
findings under ERISA section 408(a). The Department needs to understand 
the scope and severity of the conflicts of interest associated with the 
transaction, as well as the potential costs and benefits of the 
transaction, before it can make a properly informed decision about the 
merits of the application and how best to structure a participant-
protective exemption. In addition, the requirement should not be too 
burdensome, because a fiduciary that is complying with its fiduciary 
obligations under ERISA section 404 should fully evaluate all the 
factors set forth in paragraph (a)(4) in the normal course of 
fulfilling its fiduciary responsibilities before deciding to seek an 
exemption or engage in the transaction at issue. Further, the 
Department notes that the required disclosures would likely be 
requested as part of the Department's normal review of an exemption 
application.
    Based on the foregoing, the Department is including the proposed 
revisions in the Final Amendment as proposed. The Department notes that 
it is not requiring a full actuarial or technical economic accounting 
with respect to a proposed exemption transaction but, instead, is 
requesting applicants to disclose information they obtain by performing 
a full review of the transaction, which includes, at a minimum, 
reviewing the material benefits and cost of the transaction for the 
plan and its participants and beneficiaries. The Department also notes 
that this information is already typically requested when the Office of 
Exemption Determinations reviews exemption applications, such that this 
information would eventually have to be provided during the 
Department's review of the application, and the Department's primary 
objective in requiring this information to be submitted with the 
initial application is to streamline the exemption determination 
process.
    The Department also proposed to add a new paragraph (a)(5) that 
would build on paragraph (a)(4) by proposing to require applicants to 
include with their exemption applications a detailed description of 
possible alternatives to the exemption transaction that would not 
involve a prohibited transaction and an explanation as to why the 
applicant did not pursue those alternatives. Commenters objected to 
this language by asserting that it would be burdensome, if not 
impossible, for an applicant to investigate and evaluate all potential 
approaches to a transaction. Further, commenters argued that ERISA does 
not require them to evaluate and exhaust all alternatives to an 
exemption transaction before submitting an exemption application.
    The Department recognizes that ERISA does not require an applicant 
to evaluate every imaginable option with respect to an exemption 
transaction and that doing so may prove impractical, and it did not 
intend to suggest otherwise. In response to the comments, but still 
recognizing the concerns the Department raised in the Proposed Rule, 
the Department has modified the language in the Final Amendment to 
provide that an applicant must submit a description of the alternatives 
to the exemption transaction that it considered or evaluated before 
submitting the exemption application and explain why those alternatives 
were not pursued with its exemption application. Thus, the Department 
simply requires an applicant to explain to the Department the process 
by which the applicant arrived at its decision to propose an exemption 
application. If as part of that decision-making process the applicant 
evaluated alternatives, the applicant must disclose those alternatives 
to the Department, along with the rationales for not selecting such 
alternatives, to provide the Department with insight into the 
applicant's decision-making process. Although the Department is not 
retaining the proposed amendment to paragraph (a)(5) that would have 
required an exhaustive review of all alternatives to an exemption 
transaction, the Department notes that a failure to consider and 
address reasonable alternatives to engaging in a prohibited transaction 
may provide grounds for the Department to deny an exemption 
application. The prohibited transaction rules are the starting point 
for the Department's evaluation of an exemption application, and those 
rules are designed to prohibit transactions that involve significant 
conflicts of interest. Considering the harm conflicts of interest can 
inflict on plans and participants and beneficiaries, and the challenges 
the Department faces in determining the full scope and severity of 
these conflicts and their potential impact on the affected plan and its 
participants and beneficiaries, it is reasonable for the Department to 
require the applicant to explain why the most protective and 
appropriate approach is not avoiding entering into a prohibited 
transaction that requires an exemption from the Department to comply 
with ERISA. The Department encourages applicants to evaluate whether 
the exemption transaction could be structured in a manner that would 
not result in a prohibited transaction. In many cases, the best way to 
protect participants' interests is not to engage in a transaction 
subject to significant conflicts of interest, but rather to avoid the 
conflicts of interest in the first place and structure the transaction 
to avoid the need for an exemption from otherwise illegal conduct.
    The Department proposed to insert a new paragraph (a)(7) that would 
replace the prior requirement that an applicant state why the 
transaction is customary to the industry with a requirement for the 
applicant to set forth a description of each conflict of interest or 
potential instance of self-dealing that would be permitted if the 
exemption is granted. Commenters expressed concern that complying with 
the proposed revision may be difficult and burdensome. The Department, 
however, disagrees with these concerns and has included the new 
paragraph in the Final Amendment as proposed. The Department is making 
this change because the Exemption Procedure Regulation's prior 
``customary to the industry'' language did not require applicants to 
sufficiently inform the Department of the conflicts of interest and 
instances of self-dealing involved in an exemption transaction or the 
costs and benefits to a plan and its participants and beneficiaries. 
The information required by the new language assists the Department in 
identifying the conflicts of interest and instances of self-dealing 
involved in an exemption transaction, and thereby facilitates the 
Department's analysis regarding whether the exemption transaction is 
structured to properly protect the interests of the plan and its 
participants and beneficiaries as required by ERISA section 408(a). As 
with information about applicants' decision-making processes, the 
Department notes it would need to request this information at some 
point during the application process to make its required statutory 
findings. By requesting this information upfront, as opposed to 
requesting it later in the application process, the Department is 
streamlining the exemption determination process and thereby reducing 
its associated burdens and costs.
    Together, the Final Amendment's new paragraphs (a)(4), (5), and (7) 
will help the Department better understand applicants' proposed 
exemption transactions and their implications for

[[Page 4673]]

plans, participants, and beneficiaries. They also will help ensure that 
the Department has sufficient information to make its required findings 
under ERISA section 408(a) regarding whether a requested exemption 
would be (1) administratively feasible, (2) in the interests of the 
plan and of its participants and beneficiaries, and (3) protective of 
the rights of participants and beneficiaries when the applicant submits 
its application to the Department.
    The final revisions to paragraph (a) are intended to provide 
consistency among exemption applications. The revised paragraph (a)(8) 
simply expands the disclosure requirement to include a statement 
regarding whether the transaction is the subject of investigation or 
enforcement actions by any regulatory authority. This change is 
consistent with the changes to Sec.  2570.33 that are discussed above 
and ensures that the Department has the information it needs to make an 
informed decision regarding an exemption application.
    The Department proposed to add a new paragraph (a)(10) that would 
require applicants that use the term ``affiliate'' in their exemption 
applications to include a statement that either (1) the definition of 
affiliate set forth in Sec.  2570.31(a) is applicable or (2) explains 
why a different affiliate definition should be applied. The Department 
added this language to encourage the use of a single, consistent 
affiliate definition among all applications, which will prevent issues 
that could result from different definitions of the term being used in 
different exemptions. The Department has adopted this requirement in 
the Final Amendment as proposed.
    Paragraph (b) addresses some of the Department's specific concerns 
with respect to exemption transactions. The most substantial change 
adds paragraph (b)(2), which requires applicants to include a statement 
in their applications that (A) the exemption transaction will be in the 
best interest of the plan and its participants and beneficiaries; (B) 
all compensation received, directly or indirectly, by a party involved 
in the exemption transaction will not exceed reasonable compensation 
within the meaning of ERISA section 408(b)(2) and Code section 
4975(d)(2); and (C) all of the statements to the Department, the plan, 
or, if applicable, the qualified independent fiduciary or qualified 
independent appraiser about the exemption transaction and other 
relevant matters will not be materially misleading at the time the 
statements are made. If the applicant does not include such a statement 
in its exemption application, the applicant must explain why these 
exemption standards should not be applicable to the exemption 
transaction.
    For purposes of paragraph (b), an exemption transaction is in the 
best interest of a plan if the plan fiduciary causing the plan to enter 
into the transaction determines, with the care, skill, prudence, and 
diligence under the circumstances then prevailing, that a prudent 
person acting in a like capacity and familiar with such matters would, 
in the conduct of an enterprise of a like character and with like aims, 
enter into the exemption transaction based on the circumstances and 
needs of the plan. Such fiduciary shall not place the financial or 
other interests of itself, a party to the exemption transaction, or any 
affiliate ahead of the interests of the plan or subordinate the plan's 
interests to those of any party or affiliate.
    In proposed paragraph (b)(2), the Department generally incorporated 
compliance with ``impartial conduct standards'' as formalized in 
Prohibited Transaction Exemption 2020-02 as a baseline condition for 
approved exemptions. Commenters, however, stated that the proposed new 
paragraph (b)(2) should not be included in the Final Amendment, because 
the impartial conduct standards are not applicable to all transactions. 
The Final Amendment, however, does not require the impartial conduct 
standards to be made applicable to all exemptions as a condition for 
the Department to grant them. The impartial conduct standards, however, 
are rooted in well-established fiduciary principles designed to address 
problems of agency and conflicts of interest, and as such, are often 
strong and flexible safeguards against abuse in transactions subject to 
the prohibited transaction rules. Accordingly, while the failure to 
propose adoption of such standards is not automatically disqualifying, 
the adoption of such standards as part of a proposed exemption can lend 
important support to a finding by the Department that the exemption 
transaction is in the interest of and protective of the plan and its 
participants and beneficiaries.
    Rather than mandating adoption of such standards, paragraph (b)(2) 
of this regulation provides applicants with an opportunity to explain 
why the impartial conduct standards should not be applicable to their 
exemption transactions. The applicant's inclusion of an explanation as 
to why the standards are not applicable provides the Department with 
necessary insight into the applicant's process of evaluating the 
conflicts of interest that may or may not be inherent in the proposed 
exemption transaction. As discussed above with respect to paragraph 
(a), understanding and addressing conflicts of interest is a necessary 
part of the process the Department must undertake when evaluating 
exemption transactions to make its required statutory findings under 
ERISA section 408(a).
    Commenters also objected to the inclusion of proposed paragraph 
(b)(2) on the grounds that the language runs counter to certain court 
decisions and Congressional intent. The Department disagrees with these 
assertions. As noted, the Final Amendment does not mandate the adoption 
of impartial conduct standards in every case, independently impose an 
enforceable obligation to comply with those standards, or purport to 
pre-decide the circumstances in which such conditions should be 
imposed. Instead, the Department is only requiring applicants to 
explain whether the standards would be met by the transaction at issue. 
This is clearly helpful information for the Department to have in 
reviewing exemptions for statutorily prohibited transactions, and for 
fiduciaries to consider before moving forward with transactions. The 
information allows the Department to address essential questions 
regarding whether a proposed exemption transaction is in the interests 
of and protective of the rights of the participants and beneficiaries. 
For example, knowing whether a transaction is in a plan's best interest 
can greatly inform the Department's statutorily mandated findings 
regarding whether the exemption transaction is in the interests of and 
protective of the rights of the participants and beneficiaries. 
Further, if the applicant informs the Department that the impartial 
conduct standards are not applicable, that knowledge will inform the 
Department's understanding of the transaction and its structure.
    Proposed paragraph (b)(4) (previously paragraph (b)(3)) proposed to 
provide that if an advisory opinion has been requested by any party to 
the exemption transaction from the Department with respect to any issue 
relating to the exemption transaction, the exemption application must 
include (1) a copy of the letter concluding the Department's action on 
the advisory opinion request; or (2) if the Department has not yet 
concluded its action on the request, a copy of the request or the date 
on which it was submitted together with the Department's correspondence 
control number as indicated in the acknowledgment letter. The 
Department proposed to revise this provision for readability and to 
require an applicant

[[Page 4674]]

to include with its application any opinion or guidance issued by the 
Department and any other opinions or guidance issued by Federal, State, 
or regulatory bodies regarding the exemption transaction. The 
modification expands the prior text to ensure that all relevant 
information regarding the exemption transaction, including guidance 
issued in connection to the transaction by other Federal, State, or 
regulatory bodies is available to the Department when making its 
determination whether to grant an exemption. The Department is 
including this change in the Final Amendment as proposed.
    The Department proposed to include a new paragraph (b)(7) that 
would require applicants that communicate with the Department either 
orally or in writing before submitting an exemption application to 
submit a statement setting forth the date(s) and with whom the 
applicant communicated before submitting the application. The 
Department added this language to work in tandem with the proposed 
revisions made to the Final Amendment in response to the requests made 
by multiple commenters that pre-submission applicants not be required 
to identify themselves. Since the Final Amendment permits certain 
anonymous discussions, paragraph (b)(7) now requires applicants that 
engaged in anonymous discussions to identify themselves to the 
Department so it can link prior anonymous discussions to the current 
applicant. Linking pre-submission communications to a current 
application ensures that the Department understands the entire context 
of an exemption application. The Department emphasizes, however, that 
this provision is only triggered when the applicant submits an 
exemption application.
    The Final Amendment also includes substantial revisions to the 
proposed requirements set forth in proposed paragraphs (c) through (f) 
regarding statements and documents about qualified independent 
appraisers and qualified independent fiduciaries that are involved in 
an exemption transaction. Even though the final version of Sec.  
2570.31 generally reverts to the previous definitions of qualified 
independent appraiser and qualified independent fiduciary, the 
Department has revised, consistent with the intent of the Proposed 
Rule, paragraphs (c) through (f) of Sec.  2570.34 to ensure that the 
appraiser and fiduciary are independent and that their valuations and 
oversight over the exemption transaction are accurate and reliable.
    The proposed revision to paragraph (c) addressed statements and 
documents included in the application by the qualified independent 
appraiser. The Department proposed to extend the provisions of 
paragraph (c) to auditors and accountants. As a result, proposed 
paragraph (c) applied to all statements submitted by appraisers, 
auditors, and accountants to ensure that the Department can rely on any 
and all financial documents submitted by third parties.
    More specifically, the Department proposed to revise several 
provisions that govern the information that must be included in any 
statements submitted by an appraiser, auditor, or accountant. First, 
the Department proposed to add a paragraph (c)(1) to require that 
statements include a signed and dated declaration under penalty of 
perjury that, to the best of the qualified independent appraiser's, 
auditor's, or accountant's knowledge and belief, all of the 
representations made in such statement are true and correct. Commenters 
objected to the proposed penalty of perjury requirement because, they 
argued, it would increase appraiser liability and discourage 
participation in the ERISA market. The Final Amendment does not require 
a declaration under penalty of perjury. Instead, it requires a 
certification that, to the best of the qualified independent 
appraiser's, auditor's, or accountant's knowledge and belief, all of 
the representations made in such statement are true and correct. The 
revised language in the Final Amendment balances the Department's need 
to ensure that an appraiser stands behind the accuracy of an appraisal 
report while reducing the potential chilling effect of a declaration 
under penalty of perjury.
    Next, the Department proposed to expand paragraph (c)(2) to 
specifically address the contractual obligations of the appraiser, 
auditor, or accountant. The proposed provision required a copy of the 
qualified independent appraiser's, auditor's, or accountant's 
engagement letter and, if applicable, contract with the plan describing 
the specific duties the appraiser, auditor, or accountant shall 
undertake to be included with an application. The proposal would have 
provided that the appraiser, auditor, or accountant's letter or 
contract may not: (1) include any provision that provides for the 
direct or indirect indemnification or reimbursement of the independent 
appraiser, auditor, or accountant by the plan or another party for any 
failure to adhere to its contractual obligations or to Federal and 
state laws applicable to the appraiser's, auditor's, or accountant's 
work; or (2) waive any rights, claims or remedies of the plan or its 
participants and beneficiaries under ERISA, the Code, or other Federal 
and state laws against the independent appraiser, auditor, or 
accountant with respect to the exemption transaction.
    Proposed paragraph (c)(2) would have prevented appraisers, 
auditors, and accountants from avoiding accountability to the plan and 
its participants by relying on indemnification or reimbursement 
provisions, whether direct or indirect, to avoid financial liability 
for their failure to comply with their contract or state or Federal 
law. When parties agree to relieve appraisers, auditors, and 
accountants from accountability through releases, waivers, and 
indemnification or reimbursement agreements, they undermine the 
protective conditions of the exemption, compromise the independence of 
their services, and cast doubt on the reliability of the service 
providers' work.
    Commenters objected to proposed paragraph (c)(2)'s prohibition of 
contractual indemnification provisions. They argued that the proposed 
prohibition would dramatically increase the potential liability of 
large appraisers that often are engaged to appraise hard-to-value 
assets. According to the commenters, this would lead large appraisers 
to shift their resources to providing financial advisory services to 
non-employee benefit plan clients, leaving small appraisers to service 
the employee benefit plan market.
    The Department is not persuaded by the commenters' concerns. The 
commenters did not provide any evidence that appraisers, accountants, 
or auditors would leave the marketplace if indemnification provisions 
were prohibited, and there is a large market of such professionals who 
will continue to serve plans, even if some of their colleagues choose 
not to render their services if they retain the liability assigned 
under state and Federal law for substandard work. In practice, the 
Department has issued numerous individual exemptions that prohibit such 
provisions without negative consequence.\15\
---------------------------------------------------------------------------

    \15\ See, e.g., PTE 2022-04 granted to the Children's Hospital 
of Philadelphia Pension Plan for Union-Represented Employees, 87 FR 
71358 (Nov. 11, 2022) and PTE 2021-03 granted to the Electrical 
Insurance Trustees Insurance Fund (the EIT Fund) and the Electrical 
Joint Apprenticeship and Training Trust, 86 FR 34054 (June 28, 
2021).
---------------------------------------------------------------------------

    Further, the possibility that some market participants might 
decline to provide professional appraisal, accounting, or auditing 
services is

[[Page 4675]]

outweighed by the Department's need to ensure that they render unbiased 
and professional services that meet state and Federal standards. For 
example, the function of independent appraisers in prohibited 
transactions is to provide an unbiased and objective statement of 
value. That function is undermined when the appraisers are relieved 
from responsibility and accountability for the proper discharge of 
their important work. Similarly, accountants and auditors play a 
fundamental role in ensuring that participants' interests are 
protected, but that role is compromised when the parties relieve them 
of liability and accountability for adherence to applicable legal 
standards.
    However, the Department understands that there are certain limited 
situations where a contractual indemnification provision may be 
appropriate such as when there are nuisance claims. As a result, the 
Department has revised proposed paragraph (c)(2) in the Final Amendment 
to provide that an appraiser, auditor or accountant's letter or 
contract may include a provision providing for reimbursement of legal 
expenses with respect to claims for any failure to adhere to the 
appraiser's, auditor's, or accountant's contractual obligations or to 
Federal and state laws applicable to the appraiser's, auditor's, or 
accountant's work, provided that: (A) the plan determines that the 
reimbursement is prudent following a good faith determination that the 
appraiser, auditor, or accountant likely did not fail to adhere to its 
contractual obligations or to Federal and state laws applicable to its 
work and will be able to repay the plan if it is found liable or enters 
into a settlement agreement based on an alleged breach; and (B) the 
letter or contract requires the appraiser, auditor, or accountant to 
repay all of the reimbursements in a timely fashion if the appraiser, 
auditor, or accountant enters into a settlement agreement regarding any 
asserted failure to adhere to its contractual obligations, or to state 
or Federal laws, or has been found liable for a breach of contract or 
violation of any Federal or state laws applicable to the appraiser's, 
auditor's, or accountant's work. The new language allows appraisers, 
auditors, and accountants and their clients to negotiate agreements 
regarding claims that are not likely to result in liability for the 
appraiser, auditor, or accountant.
    The Department also revised proposed paragraph (c)(4) in the Final 
Amendment to state that submitted documents must contain a detailed 
description of any relationship that the qualified independent 
appraiser, auditor, or accountant has had or may have with the plan or 
any party in interest involved in the exemption transaction or its 
affiliates that may influence its judgment, including a description of 
any past engagements with the appraiser, auditor, or accountant. The 
language builds on the Department's insistence, as outlined in the 
Proposed Rule, that independent parties involved in the exemption 
transaction must truly be independent.
    The Department notes that it proposed to include more expansive 
disclosure language; the proposal would have extended the disclosure 
requirement to apply to any parties involved in the exemption 
transaction and any parties involved in developing the proposed 
exemption request. Commenters objected to the proposal's language on 
the grounds that compliance was overly expansive and burdensome. They 
also disputed whether the language addressed any harm. To address these 
comments, the Department has revised the language in the Final 
Amendment to limit its application to parties in interest involved in 
the exemption transaction and their affiliates, and no longer extends 
the provision to include parties involved in developing the proposed 
exemption transaction. However, the Final Amendment retains the core 
requirement that relationships, past or present, with such parties in 
interest that may influence the appraiser, auditor, or accountant's 
judgment must be disclosed in the exemption application. This outcome 
settles at a middle ground between the Exemption Procedure Regulation 
and the Proposed Rule and balances the burden of disclosure with the 
Department's need to address instances in which a party has potentially 
conflicting relationships because it is dependent on or otherwise 
regularly involved with parties in interest or their affiliates.
    The Department proposed to include language in paragraph (c)(5) 
that the appraisal report must be prepared solely in the interest of 
the plan. This language reflected proposed language in Sec.  
2570.31(h). As discussed above, commenters stated that all appraisal 
reports are based on objective criteria and may not be ``on the 
behalf'' of any party. The Department did not intend to suggest that 
appraisals should be slanted in favor of any particular party, and 
accordingly, the Department has revised paragraph (c)(5) of the Final 
Amendment to provide that a written appraisal report must be prepared 
by a qualified independent appraiser who determines, to the best of 
their ability and in accordance with professional appraisal standards, 
the fair market value of the subject asset(s) without bias towards the 
plan's counterparty in the transaction or other interested parties. The 
Department notes that the final provision, which addresses the same 
concerns raised by the Proposed Rule, includes anti-bias language to 
emphasize that the appraisal report must not favor one party over 
another. Specifically, the Department is concerned that appraisals of 
employer stock often may be influenced by the employer in employee 
stock ownership plan transactions or that an appraiser may rely on 
information provided by the applicant without verifying the veracity of 
the information.
    The Department is deleting the statement in current paragraph 
(c)(4)(iii), now paragraph (c)(5)(iii), that requires an applicant to 
submit a new appraisal to the Department if an appraisal report is one 
year or more old. This deletion makes clear to applicants that they 
must submit a current appraisal report with their application when 
submitting it to the Department, and that the Department will not move 
forward with its analysis of an exemption transaction without receipt 
of a current appraisal report.
    The Final Amendment also makes changes in paragraph (c)(8). The 
revisions are discreet changes that are consistent with the revised 
definition of a qualified independent appraiser in Sec.  2570.31(i) and 
describe how the revenue limitations thereunder are calculated.
    The Department proposed to add a new paragraph (d) that would have 
required an applicant to include detailed information regarding the 
appraiser selection process. The preamble to proposed paragraph (d) 
explained that the Department's goal in proposing the disclosure was 
``to promote a prudent and loyal selection process to hire a qualified 
independent appraiser.'' \16\ In response to this proposal, commenters 
objected on the grounds that the information submitted as part of the 
process can be confidential and the fact that a party would be 
documented as not being selected in the public record could discourage 
parties from participating in the selection process. Commenters also 
argued that the Department does not have the statutory authority to 
insert itself into the fiduciary selection process.
---------------------------------------------------------------------------

    \16\ 87 FR 14729 (Mar. 15, 2022).
---------------------------------------------------------------------------

    The Department has modified the proposed provision in response to 
commenters' concerns. Paragraph (d) of the Final Amendment now states 
that an

[[Page 4676]]

applicant must include the following information with its exemption 
application: (1) a representation that the independent fiduciary 
prudently selected the appraiser after diligent review of the 
appraiser's technical training and proficiency with respect to the type 
of valuation at issue, the appraiser's independence from the plan's 
counterparties in the exemption transaction, and the absence of any 
material conflicts of interest with respect to the exemption 
transaction; (2) a representation that the appraiser is independent 
within the meaning of Sec.  2571.31(i); and (3) a representation that 
the independent appraiser has appropriate technical training and 
proficiency with respect to the specific details of the exemption 
transaction. This new requirement achieves the goal the Department 
identified in its proposal to ensure that applicants follow a prudent 
and loyal selection process when they hire a qualified independent 
appraiser. The Department specifically requested comments on these 
proposed revisions, ``including whether the Department should consider 
other types of information.'' \17\ Commenters pointed to other types of 
information the Department could request that would allow the 
Department to fulfill its stated objective and that would allay the 
commenters' concerns over the proposed requirements. Accordingly, the 
Final Amendment's requirement fulfills the Department's need to require 
applicants to follow a prudent and loyal selection process while 
addressing commenters' concerns.
---------------------------------------------------------------------------

    \17\ 87 FR 14727 (Mar. 15, 2022).
---------------------------------------------------------------------------

    The Department similarly revises the proposed new paragraph (e). 
Similar to proposed paragraph (d), proposed paragraph (e) would have 
required applicants to provide detailed information regarding the 
process by which an independent fiduciary was selected. Commenters 
raised similar concerns regarding this language. Therefore, as with 
paragraph (d), paragraph (e) of the Final Amendment has been revised to 
require applicants to include the following representations with their 
exemption applications: (1) a representation that an appropriate 
fiduciary without material conflicts of interest prudently selected the 
independent fiduciary after diligently reviewing the independent 
fiduciary's technical training and proficiency with respect to ERISA, 
the Code, and the specific details of the exemption transaction, and 
the sufficiency of the independent fiduciary's fiduciary liability 
insurance coverage; (2) a representation that the fiduciary retained to 
act as the independent fiduciary is independent within the meaning of 
Sec.  2570.31(j); and (3) a representation that the independent 
fiduciary has appropriate technical training and proficiency with 
respect to ERISA and the Code and the specific details of the exemption 
transaction. As with paragraph (d), the new paragraph promotes a 
prudent and loyal selection process while addressing commenters' 
concerns.
    In the Final Amendment, the Department revises paragraph (f), which 
specifies the information an applicant must include in the qualified 
independent fiduciary's statement required to be submitted with its 
application. As with the changes to the qualified independent 
appraiser's statement, these changes are designed to bolster 
independence and reliability.
    First, paragraph (f)(1) of the proposal would have required the 
statement to include a signed and dated declaration under penalty of 
perjury that, to the best of the qualified independent fiduciary's 
knowledge and belief, all of the representations made in such statement 
are true and correct. As with the proposal's paragraph (c)(1), 
commenters objected to the penalty of perjury requirement because it 
would increase independent fiduciary liability and discourage them from 
participating in the employee benefit plan market. In response to those 
commenters, the Final Amendment does not require a declaration under 
penalty of perjury, and, instead, requires a certification that, to the 
best of the qualified independent fiduciary's knowledge and belief, all 
of the representations made in such statement are true and correct. The 
revised language appropriately ensures that an independent fiduciary 
stands behind its statements and actions while avoiding the potential 
chilling impact of a declaration under penalty of perjury. Next, 
paragraph (f)(2) aims to prevent fiduciaries from avoiding 
accountability to the plan and its participants and beneficiaries by 
relying on indemnification or reimbursement provisions, whether direct 
or indirect, to avoid financial liability for their failure to comply 
with their contract or state or Federal law. When parties agree to 
relieve fiduciaries from accountability through releases, waivers, and 
indemnification or reimbursement agreements, they undermine the 
protective conditions of an applicable exemption, compromise the 
independence of their services, and cast doubt on the reliability of 
the service providers' work.
    As with the proposed paragraph (c)(2), commenters objected to the 
prohibition of contractual indemnification provisions in proposed 
paragraph (f)(2). They argued similarly that the prohibition on 
contractual indemnification provisions would dramatically increase the 
potential liability of independent fiduciaries that often are engaged 
to perform work with respect to exemption transactions. According to 
the commenters, this would lead large independent fiduciaries to shift 
their resources to providing fiduciary services to non-employee benefit 
plan clients, leaving small, inexperienced fiduciaries to service the 
employee benefit plan market.
    The Department does not agree with the commenters' concerns. First, 
the Department notes that ERISA section 410 already places limitations 
on indemnification provisions for fiduciaries. Second, the commenters 
did not provide any evidence that fiduciaries would leave the employee 
benefit plan marketplace if an indemnification provision were 
prohibited, and many independent fiduciaries will continue to serve 
plans, even if some of their colleagues choose not to render their 
services if they retain the liability assigned under state and Federal 
law for substandard work. As with qualified independent appraisers, the 
Department has, in recent practice, already required qualified 
independent fiduciaries to adhere to stricter requirements in recent 
exemptions without a negative effect on the independent fiduciary 
market.\18\ Furthermore, the possibility that some independent 
fiduciaries might decline to provide fiduciary services to the employee 
benefit plan market is outweighed by the Department's need to ensure 
that they render unbiased and professional services that meet state and 
Federal standards. Independent fiduciaries play a critical role in 
ensuring that participants' interests are protected, but that role is 
compromised when the parties relieve themselves of liability and 
accountability for adherence to applicable legal standards.
---------------------------------------------------------------------------

    \18\ See, e.g., Section II(f) of PTE 2023-12 (88 FR 11699. 
February 23, 2023); Section II(p) of PTE 2022-02 (87 FR 23245, April 
19, 2022); Section III(h) of PTE 2022-03 (87 FR 54264, September 2, 
2022); Section I(h) of PTE 2021-03 (86 FR 34054, June 28, 2021); 
Section III(n) of the Notice of Proposed Exemption Involving J.P. 
Morgan Securities LLC, J.P. Morgan Investment Management Inc., J.P. 
Morgan Securities, and Chase Wealth Management (86 FR 57446, October 
15, 2021).
---------------------------------------------------------------------------

    However, the Department does recognize that there are certain 
limited situations, such as nuisance claims,

[[Page 4677]]

where a contractual reimbursement provision may be appropriate. As a 
result, paragraph (f)(2) of the Final Amendment provides that the 
independent fiduciary's letter or contract may include a provision 
providing for reimbursement of legal expenses with respect to claims 
for any failure to adhere to the fiduciary's contractual obligations or 
to Federal and state laws applicable to the independent fiduciary's 
work, provided that (A) the plan determines that the reimbursement is 
prudent following a good faith determination that the independent 
fiduciary likely did not fail to adhere to its contractual obligations 
or to Federal and state laws applicable to the independent fiduciary's 
work and will be able to repay the plan if the fiduciary is found 
liable or enters into a settlement for the breach; and (B) the letter 
or contract requires the independent fiduciary to repay all of the 
reimbursements, in a timely fashion, in the event the independent 
fiduciary enters into a settlement agreement regarding any asserted 
failure to adhere to its contractual obligations, or to state or 
Federal laws, or has been found liable for a breach of contract or 
violation of any Federal or state laws applicable to the fiduciary's 
work. The new language allows independent fiduciaries and their clients 
to negotiate agreements to address claims that are not likely to result 
in liability for the fiduciary and is consistent with the underlying 
concerns previously laid out by the Proposed Rule. The Department 
requires the fiduciary selecting the independent fiduciary to make a 
good faith determination to fulfill its fiduciary obligations but does 
not require an exhaustive legal review. The Department also notes that 
despite the revised language, no language may be included in the letter 
or contract that runs afoul of ERISA section 410.
    In order to ensure that qualified independent fiduciaries have 
sufficient resources to compensate plans for any losses for which they 
are liable, the Department originally proposed language that would 
require fiduciaries to maintain a sufficient amount of fiduciary 
liability insurance to indemnify the plan for damages resulting from a 
breach by the independent fiduciary of either: (1) ERISA, the Code, or 
any other Federal or state law; or (2) its contract or engagement 
letter under proposed paragraph (f)(3). The insurance could not contain 
an exclusion for actions brought by the Secretary or any other Federal, 
State, or regulatory body, the plan, or plan participants and 
beneficiaries. Commenters objected to this language on the grounds that 
obtaining insurance that could meet the requirements of the language 
would be difficult, if not impossible. They also argued that the cost 
of such insurance would drive many independent fiduciaries to exit the 
employee benefit plan marketplace.
    The Department acknowledges the commenters' concerns but also wants 
to ensure that qualified independent fiduciaries have sufficient 
resources to compensate plans for any losses for which they are liable. 
Therefore, the Department has revised the proposed language in the 
Final Amendment to simply require applicants to include in their 
exemption applications a description of any fiduciary liability 
insurance policy maintained by the independent fiduciary that includes: 
(A) the amount of coverage available to indemnify the plan for damages 
resulting from a breach by the independent fiduciary of either ERISA, 
the Code, or any other Federal or state law or its contract or 
engagement letter; and (B) whether the insurance policy contains an 
exclusion for actions brought by the Secretary or any other Federal, 
State, or regulatory body, the plan, or plan participants or 
beneficiaries. Some entities that provide ERISA fiduciary services with 
respect to exemption transactions may not be either sufficiently liquid 
or sufficiently capitalized to address liability that might arise in 
connection with an exemption transaction. A prudent independent 
fiduciary must have sufficient insurance to address those issues. 
Therefore, the Department's position is that a prudent fiduciary should 
make a reasoned determination regarding the appropriate amount of 
insurance it should maintain to fulfill its fiduciary obligation to a 
plan and protect the plan's participants and beneficiaries. Revising 
paragraph (f)(2) in the Final Amendment to require a description of any 
fiduciary liability insurance policy maintained by the independent 
fiduciary allows the independent fiduciaries to make their own 
determinations regarding insurance, while also providing the Department 
with the information it needs to determine whether a proposed exemption 
is in the interest of and protective of the rights of participants and 
beneficiaries. Further, the information would assist the Department in 
determining whether it should request additional information regarding 
the independent fiduciary's assets, capital, or insurance in order to 
determine whether sufficient resources exist to cover a potential loss.
    The Department notes that the Final Amendment's independent 
fiduciary insurance disclosure requirement is uniquely imposed on 
independent fiduciaries because of their important role as a unique 
bulwark against conflicts of interest. Under ERISA's statutory 
framework, fiduciaries have central responsibility--and 
accountability--for the protection of plan participants' interests. 
Consequently, the Department is especially concerned that they have the 
financial wherewithal to make good on violations that injure plan 
participants. Independent fiduciaries may ultimately bear the 
responsibility of (1) making final decisions regarding determinations 
(e.g., approval of an appraisal) and (2) approving the overall 
exemption transaction. Independent fiduciaries also must make a 
determination as to whether a third-party service provider, such as an 
appraiser, has sufficient insurance, assets, and liquidity to address 
any liability that may arise from a failure to meet the service 
provider's contractually imposed obligations when determining whether 
to retain the service provider. Independent fiduciaries are critically 
important to ensuring that the exemptions are in the interest and 
protective of the plan and its participants and beneficiaries. 
Therefore, when they submit an exemption application, applicants should 
be positioned to carefully consider and disclose the independent 
fiduciary's ability to remedy any injuries caused by its fiduciary 
violations and make the plan whole for any losses caused by the 
independent fiduciary's failure to discharge its role properly.\19\
---------------------------------------------------------------------------

    \19\ The Department notes that the independent fiduciaries 
themselves are the parties best informed about their own ability to 
remedy any potential ERISA liability, and that the exemption process 
is not an adversarial proceeding in which the Department is in a 
position to adjudicate all the relevant facts. Accordingly, the 
Department's acceptance of these disclosures should not be viewed as 
a determination by the Department that an independent fiduciary has 
adequately addressed its ability to remedy any potential ERISA 
liability.
---------------------------------------------------------------------------

    Due to the qualified independent fiduciary's essential role in many 
exemptions, the Department makes additional changes to paragraph (f) in 
the Final Amendment that are consistent with the stated goals of the 
Proposed Rule to further bolster the qualified independent fiduciary's 
independence. First, paragraph (f)(6) of the Final Amendment expands 
the existing acknowledgement provision to require an acknowledgement 
that the fiduciary understands its duties and

[[Page 4678]]

responsibilities under ERISA, is acting as a fiduciary of the plan with 
respect to the exemption transaction, has no material conflicts of 
interest with respect to the exemption transaction, and is not acting 
as an agent or representative of the plan sponsor. The Final Amendment 
expands the acknowledgment to capture more potential conflicts. Under 
the Final Amendment, the fiduciary can no longer simply acknowledge 
that it is an ERISA fiduciary, but it also has to acknowledge that it 
is acting with respect to the transaction solely in the interest of the 
plan, not acting on behalf of the plan sponsor, and not subject to 
conflicts of interest.
    The Department also revises paragraph (f)(7) in the Final Amendment 
to provide that the qualified independent fiduciary must certify in 
writing that the exemption transaction complies with the impartial 
conduct standards set forth in paragraphs (b)(2)(i)(A) through (C). The 
Final Amendment revises paragraph (f)(9) to reflect the changes to the 
definition of a qualified independent fiduciary.
    The Department added a new paragraph (f)(10) to the Final Amendment 
that requires the qualified independent fiduciary to state that it has 
no conflicts of interest with respect to the exemption transaction that 
could affect the exercise of its best judgment as a fiduciary. The 
requirement puts the fiduciary on the record that it has no conflicts 
that could impact its judgment and, thereby, promotes compliance with 
the exemption's terms.
    In the proposal, the Department proposed to revise paragraph 
(f)(11) to require an applicant to address in its exemption application 
whether the qualified independent fiduciary has been under 
investigation or examination, or has been engaged in litigation or a 
continuing controversy. Specifically, the fiduciary would have been 
required to either (1) include a statement that within the last five 
years, the independent fiduciary has not been under investigation or 
examination by, and has not engaged in litigation or a continuing 
controversy with, the Department, the IRS, the Justice Department, the 
Pension Benefit Guaranty Corporation, the Federal Retirement Thrift 
Investment Board, or any other Federal or state entity involving 
compliance with provisions of ERISA, the Code, FERSA, or other Federal 
or state law; or (2) include a statement describing the applicable 
investigation, examination, litigation or controversy. Commenters 
objected to the breadth of the language, asserting that it would 
capture a wide universe of events that were not related to the 
interests of employee benefit plans.
    In response to the concerns, the Department revised paragraph 
(f)(11) in the Final Amendment to limit disclosure to require the 
independent fiduciary to include a statement that it has not been under 
investigation or examination by, and has not engaged in litigation 
investigations or controversies involving: (A) compliance with 
provisions of ERISA or FERSA; (B) its representation of or position or 
employment with any employee benefit plan, including investigations or 
controversies involving ERISA or the Code, or any other Federal or 
state law; (C) conduct of the business of a broker, dealer, investment 
adviser, bank, insurance company, or fiduciary; (D) income tax evasion; 
or (E) or any felony or conspiracy involving the larceny, theft, 
robbery, extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities.
    In the final amendment, the Department now is requiring applicants 
only to disclose events that are directly applicable to the provision 
of fiduciary services to employee benefit plans. Specifically, the 
Department has limited the disclosure to cover a fiduciary's work 
experience that is relevant to determining whether the fiduciary can 
meet the high standard to which it is held under ERISA, whether that 
experience is in the employee benefits field or another industry in 
which a fiduciary's ability to uphold its heightened obligations is 
reflected. These disclosures are essential to informing the 
Department's determination of whether the proposed independent 
fiduciary will be able to meet the heightened standards to which a 
fiduciary is held under ERISA, and the important role they would serve 
in overseeing transactions that otherwise would be prohibited under 
ERISA. The Department notes, for clarity, that the term employee 
benefit plan also refers to governmental and church plans.
    Paragraph (f)(12) connects with the Proposed Rule's paragraph 
(f)(11), which is slightly revised for clarity in the Final Amendment 
by requiring applicants to include in their exemption applications the 
qualified independent fiduciary's statement that within the last 13 
years, it has not been:
    (1) convicted or released from imprisonment, whichever is later, as 
a result of any felony involving abuse or misuse of such person's 
position or employment with an employee benefit plan or a labor 
organization; any felony arising out of the conduct of the business of 
a broker, dealer, investment adviser, bank, insurance company or 
fiduciary; income tax evasion; any felony involving the larceny, theft, 
robbery, extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities; conspiracy or attempt to commit any such crimes or a crime 
of which any of the foregoing crimes is an element; or any crime 
identified in ERISA section 411, regardless of whether the conviction 
occurred in a U.S. or foreign jurisdiction; or
    (2) convicted by a foreign court of competent jurisdiction or 
released from imprisonment, whichever is later, as a result of any 
crime that is substantially equivalent to an offense described in 
paragraph (f)(12)(i)(A)(1); or
    A statement describing a conviction or release from imprisonment 
described in paragraph (f)(12)(i)(A).
    For purposes of paragraph (f), a person is deemed to have been 
``convicted'' from the date of the judgment of the trial court (or the 
date of the judgment of any court in a foreign jurisdiction that is the 
equivalent of a U.S. Federal or state trial court), regardless of 
whether that judgment remains under appeal and regardless of whether 
the foreign jurisdiction considers a trial court judgment final while 
under appeal.
    Commenters raised concerns that the required disclosure of foreign 
convictions is overly expansive, burdensome, and confusing. The 
Department disagrees with these concerns and maintains that the burden 
imposed by this disclosure is minimal and moreover that the burden is 
outweighed by the Department's need to have information relevant to the 
qualifications and independence of the fiduciary and to the prudence 
and loyalty of the applicant's selection of the independent fiduciary. 
Further, the Department does not believe the requirement is overly 
expansive or confusing, because it is limited to convictions that are 
specifically related to a fiduciary's duties that are relevant to the 
Department's determination.
    Lastly, the Final Amendment narrows paragraph (g)(3) regarding 
other third-party experts. The paragraph now provides that the detailed 
description of any relationship is limited to parties in interest (or 
affiliates) involved in the exemption transaction. This revision is 
consistent with the changes made in the Final Amendment with respect to 
appraisers and fiduciaries.

[[Page 4679]]

Section 2570.35

    Section 2570.35 addresses information that must be included in an 
individual exemption application. The Department proposed multiple 
changes to Sec.  2570.35 for readability and consistency with changes 
made in other sections of the Exemption Procedure Regulation and 
included these changes in the Final Amendment. In addition, the 
Department included some minor changes in the Final Amendment that 
require applicants to provide the mail and email addresses of the plan 
and parties in interest to which the exemption application applies, as 
well as a reminder that applicants should not submit social security 
numbers with their applications.
    Beyond those changes, the Department proposed to revise paragraph 
(a)(6) to address foreign convictions more clearly, which was further 
revised in the Final Amendment solely for clarity. While the 
Department's position is that the current Exemption Procedure 
Regulation language includes foreign convictions, the proposal amended 
the provision to clearly require applicants to disclose whether, within 
the last 13 years, they or any party involved in the exemption 
transaction had been convicted by a foreign court of competent 
jurisdiction or released from imprisonment, whichever is later, as a 
result of any crime, however denominated by the laws of the relevant 
foreign government, that is substantially equivalent to an offense 
described in paragraph (a)(6)(i) and a description of the circumstances 
of any such conviction. For purposes of this section, a person is 
deemed to have been ``convicted'' from the date of the trial court's 
judgment (or the date of the judgment of any court in a foreign 
jurisdiction that is the equivalent of a U.S. Federal or state trial 
court), regardless of whether that judgment remains under appeal and 
the foreign jurisdiction considers a trial court judgment final while 
under appeal.
    Commenters objected to the inclusion of foreign convictions in the 
proposal because they asserted that their inclusion is not relevant to 
the exemption process and is inconsistent with guidance issued by the 
Department with respect to Prohibited Transaction Exemption 84-14.
    The Department disagrees with the commenters' position, and it has 
adopted the proposed changes in the Final Amendment. The Department's 
position is that clarifying the treatment of foreign convictions 
removes uncertainty from the exemption application process, which 
ensures that the Department receives all relevant information it needs 
to make an exemption determination. Applicants' foreign convictions for 
crimes involving self-interested and conflicted transactions are 
relevant to the Department's statutory findings because such 
convictions may indicate risk to the plan and its participants and 
beneficiaries. This information also informs the Department about how 
to handle potential conflicts of interest and enhances its ability to 
design protective conditions by clarifying whether a party is likely to 
comply with the terms of the exemption. For example, if a party has a 
history of fiduciary violations in foreign jurisdictions, the 
Department may look closer or impose different conditions with respect 
to an exemption that allows a party to engage in a transaction with 
potential fiduciary conflicts of interest. The Department also notes 
that the language of the Final Amendment is applicable solely to the 
exemption application process and is not an interpretation of 
Prohibited Transaction Exemption 84-14.
    The Department also proposed to revise paragraph (a)(7) to be 
consistent with the Department's approach to fiduciaries that have been 
the subject of investigation, examination, or litigation as set forth 
in Sec.  2570.34(f)(11). Commenters objected to the breadth of the 
language by asserting that it captures a wide universe of events that 
are not related to employee benefit plans.
    After considering these comments, consistent with Sec.  
2570.34(f)(11), the Department has limited the language in the proposed 
amendment to only require applicants to include information in their 
applications that is essential to the Department's evaluation of an 
independent fiduciary's ability to meet ERISA's fiduciary standards, 
which are the highest known to law.\20\ As revised, the provision in 
the Final Amendment is limited to those investigations, examinations, 
or litigation involving: (i) compliance with provisions of ERISA or 
FERSA; (ii) representation of or position or employment with any 
employee benefit plan, including investigations or controversies 
involving ERISA or the Code, or any other Federal or state law; (iii) 
conduct of the business of a broker, dealer, investment adviser, bank, 
insurance company, or fiduciary; (iv) income tax evasion; or (v) or any 
felony or conspiracy involving the larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds or securities. This 
change represents a subset of the investigations, examinations, and 
litigation matters that the Department proposed to include. This 
revision ensures that the Department has full knowledge of any 
potential issues or conflicts that may impact an independent 
fiduciary's duty to meet its ERISA obligations, while not requiring 
disclosures that are overly inclusive or burdensome.
---------------------------------------------------------------------------

    \20\ See, Donovan v. Bierwirth, 680 F.2d 263, 272 (2d Cir. 
1982).
---------------------------------------------------------------------------

    The Department also proposed to revise paragraph (a)(12), which 
required the applicant to state the percentage of plan assets affected 
by the exemption transaction to provide that if the exemption 
transaction includes the acquisition of an asset by the plan, the fair 
market value of the asset to be acquired must be included in both the 
numerator and denominator of the applicable fraction. The new language 
simply clarifies the Department's understanding of how to calculate the 
fair market value percentage in an acquisition so that the percentage 
accurately reflects the impact of the exemption transaction on overall 
plan assets. This language has been adopted in the Final Amendment 
without change.
    Paragraph (a)(18) requires applicants to provide information on 
which parties will bear the cost of the exemption application and 
notifying interested persons. The Proposed Rule would have explained 
that the disclosure is intended to capture all of the costs and fees 
associated with the exemption transaction, not just those immediately 
derived from the submission of the exemption application. This 
facilitates the Department's understanding of the true cost of a 
particular exemption transaction. This provision has thus been included 
in the Final Amendment without change.
    In addition, paragraph (a)(18) of the proposal included language 
that stated that a plan may not bear the costs of the exemption 
application, commissions, fees, and notification of interested persons 
unless the Department determines, in its sole discretion, that a 
compelling circumstance exists that necessitates the payment of these 
expenses by the plan. Commenters argued that allowing a plan to bear 
these costs is acceptable because many applications are solely for the 
benefit of a plan, and that prohibiting the plan from incurring such 
expenses was arbitrary. After consideration, the Department has 
determined not to include this language in the Final Amendment.
    Finally, the Department proposed to add a new paragraph (a)(20), 
which

[[Page 4680]]

would have required the applicant to state in its exemption application 
whether any prior transactions have occurred between (1) the plan or 
plan sponsor and (2) a party in interest involved in the exemption 
transaction. Requiring this information allows the Department to 
determine where the exemption transaction fits in the relationship 
between the plan and the parties in interest involved in the exemption 
transaction, and to evaluate whether the exemption transaction is part 
of a larger set of transactions or a pattern of practice. Therefore, 
the Department included that provision in the Final Amendment as 
proposed.
    The Department proposed a minor change to paragraph (b)(4). The 
current Exemption Procedure Regulation requires the application to 
contain a net worth statement with respect to any party in interest 
providing a personal guarantee with respect to the exemption 
transaction. The Department expanded this language to cover not just 
parties in interest, but any party providing such a guarantee. This 
change allows the Department to more accurately determine the value of 
any guarantee associated with the exemption transaction, and, 
therefore, has been included in the Final Amendment.
    In accordance with its discussion of Sec.  2570.30 regarding 
retroactive exemption requests, the Department proposed to make 
specific revisions to the requirements for retroactive exemptions in 
paragraph (d). For example, the Department proposed to amend current 
paragraph (d)(1) to state that the Department will consider exemption 
requests for retroactive relief only when (1) the safeguards necessary 
for the grant of a prospective exemption were in place at the time the 
parties entered into the exemption transaction, and (2) the plan and 
its participants and beneficiaries have not been harmed by the 
exemption transaction. An applicant for a retroactive exemption must 
demonstrate that the responsible plan fiduciaries acted in good faith 
by taking all appropriate steps necessary to protect the plan from 
abuse, loss, and risk at the time of the exemption transaction. An 
applicant should further explain and describe whether the exemption 
transaction could have been performed without engaging in a prohibited 
exemption transaction, and whether the goals of the exemption 
transaction could have been achieved through an alternative transaction 
that served the aims of the plan equally well.
    The Department's proposed revisions were intended to emphasize that 
the applicant must demonstrate that the plan and its participants and 
beneficiaries were not harmed by the exemption transaction for which an 
applicant requests retroaction relief. The Department cannot readily 
make the findings required by ERISA section 408(a) that the transaction 
is in the interests of the plan and its participants and beneficiaries 
and protective of their rights if, in fact, the transaction were 
harmful to plan participants and beneficiaries. The Department's 
determination of whether a transaction was harmful will be based on the 
facts and circumstances of the transaction, including whether the 
participant and beneficiaries were made whole. Further, the applicant 
must: (1) demonstrate that the plan fiduciaries took all appropriate 
steps necessary to prevent abuse, loss, and risk when the transaction 
took place; and (2) fully explain and describe whether the exemption 
transaction could have been performed without engaging in a prohibited 
exemption transaction, and whether the goals of the transaction could 
have been achieved through an alternative transaction that served the 
plan's objectives equally well.
    Including such information in the exemption application 
demonstrates to the Department that the fiduciaries were acting 
prudently to protect the plan and its participants and beneficiaries 
when the transaction took place. Therefore, the Department has 
finalized these revisions as proposed while making minor edits to the 
wording.
    In order to assist applicants in demonstrating that they acted in 
good faith when entering into a previously consummated exemption 
transaction, proposed paragraph (d)(2) provided factors the Department 
would consider when reviewing a retroactive exemption application. As 
proposed, paragraph (d)(2)(i) was revised to state that one of the 
factors the Department would consider is the involvement of an 
independent fiduciary before an exemption transaction occurs who acts 
on behalf of the plan and is qualified to negotiate, approve, and 
monitor the exemption transaction; provided, however, the Department 
could consider, at its sole discretion, an independent fiduciary's 
appointment and retrospective review after completion of the exemption 
transaction due to exigent circumstances. The Department proposed 
making these revisions to the prior language to clarify that, in 
certain exigent circumstances, the Department may consider, at its sole 
discretion, the approval of an independent fiduciary after the fact. 
The Department recognizes that under certain rare and extreme 
circumstances, an independent fiduciary's retroactive approval of the 
transaction may assist the Department in determining whether an 
applicant acted in good faith.
    The Department also proposed to revise paragraph (d)(2)(v) to 
assist with the good faith determination. The proposed revision 
required an applicant to submit evidence that the plan fiduciary did 
not engage in an act or transaction that the fiduciary should have 
known was prohibited under ERISA section 406 and/or Code section 4975. 
The proposed revision applied the more appropriate ERISA standard that 
a fiduciary is responsible not only for what it knows, but what it 
should have known. Setting forth this standard ensures that the plan 
fiduciary actively engaged and evaluated the exemption transaction. The 
Department is adopting this provision in the Final Amendment as 
proposed.
    Finally, the Department proposed to revise the last paragraph on 
retroactive exemptions. Specifically, proposed paragraph (d)(3) 
addressed the Department's position that it will not consider 
retroactive exemption requests if the exemption transaction resulted in 
a loss for the plan. The proposed revision made clear that the 
Department's starting presumption is that it will simply not consider 
such requests. However, the Department also proposed to clarify that 
the determination as to loss is only applied at the time of the 
exemption application. Thus, if the facts later show that the exemption 
transaction resulted in a loss months or years after the completion of 
the exemption application, that information is not relevant to the 
exemption determination, which is made based on the facts available at 
the time. The Department has adopted this revision in the Final 
Amendment as proposed.

Section 2570.36

    Section 2570.36 addresses where to file an exemption application. 
In the proposal, the Department proposed to modernize the submission 
process by no longer requiring a paper submission, and instead 
directing applicants to make their submissions to [email protected]. The 
revision retains applicants' right to submit a paper application and 
provides current information on the correct delivery addresses while 
noting that the address published in the Exemption Procedure Regulation 
may change over time. The Department has finalized the revision as 
proposed, and notes that it will provide the current submission address 
on its website.

[[Page 4681]]

Section 2570.37

    Section 2570.37 addresses an applicant's duty to supplement its 
exemption application. The Department proposed to revise paragraph (a) 
to state that applicants have a duty to promptly notify the Department 
of any material changes to facts or representations either during the 
Department's consideration of the application or following the 
Department's grant of an exemption. This duty only extends to the 
information that was provided at the time of the grant of the 
exemption. In paragraph (b), the Department includes the duty for 
applicants to disclose to the Department whether a party in interest 
participating in the exemption transaction is the subject of an 
investigation or enforcement action relating to an employee benefit 
plan by including investigative and enforcement actions by any Federal 
or state governmental entity, not just the Department, the IRS, the 
Justice Department, the Pension Benefit Guaranty Corporation, and the 
Federal Retirement Thrift Investment Board. The Department has included 
this provision in the Final Amendment as proposed, but it notes that 
solely for this purpose, SEC examinations are not included.

Section 2570.38

    Section 2570.38 addresses the issuance of tentative denial letters 
before the Department issues a final denial letter to an applicant. 
Tentative denial letters, often referred to as TD letters, inform the 
applicant that the Department has tentatively decided not to move 
forward with proposing an exemption, and describe the applicant's 
rights to request a conference and submit additional information. The 
Department proposed to revise the text to clarify that it may extend 
the 20-day period during which an applicant normally would be required 
to request a hearing or notify the Department of its intent to submit 
additional information following the issuance of a tentative denial 
letter at its sole discretion. The Department proposed to make this 
change to inform applicants that the 20-day period provides a hard 
deadline for the applicant to reply unless the Department chooses to 
extend the period at its sole discretion based on the facts and 
circumstances. The Department has made this change to the Final 
Amendment as proposed.

Section 2570.39

    Section 2570.39 addresses the applicant's ability to submit 
additional information. Consistent with other proposed revisions to the 
Exemption Procedure Regulation, the Department proposed a revision to 
update the manner by which the applicant may communicate with the 
Department. The Department also proposed to revise paragraph (b) to 
provide that, while the applicant is required to submit the additional 
information within 40 days after the date the Department issued a 
tentative denial letter, the Department may extend the time period at 
its sole discretion. The Department also proposed to make conforming 
changes throughout the section. As with Sec.  2570.38, the Department 
proposed this change to inform the applicant that the time period is a 
hard deadline, unless the Department chooses to extend the period 
pursuant to its own discretion based on the facts and circumstances.
    Finally, the Department proposed to delete paragraph (d). The 
paragraph provides that if an applicant could not submit all of the 
supplementary information within the 40-day time period (unless 
extended by the Department), it could withdraw the application and 
reinstate it at a later time. The Department proposed to delete this 
provision to be consistent with proposed changes to Sec.  2570.44, 
which covers withdrawn applications. As described below, the Department 
is amending its approach regarding withdrawals and reapplications in 
that section.
    The Department notes that the requirement in paragraph (b) that the 
certification accompanying the submission of additional information be 
made pursuant to a penalty of perjury is revised for consistency with 
Sec.  2570.34(c) and (f) to require a certification that all 
information provided to the Department is true and correct. Otherwise, 
the Department is including all of the proposed revisions to Sec.  
2570.39 as proposed.

Section 2570.40

    Section 2570.40 addresses conferences between the applicant, or its 
representative, and the Department. Current paragraph (b) provides 
that, generally, an applicant is entitled to only one conference under 
the Exemption Procedure Regulation. The Department proposed to retain 
this text, but the Department added additional language providing that 
the Department may request the applicant to participate in additional 
conferences at its sole discretion. The proposal provided that the 
Department would make such a request if it determines that additional 
conferences are appropriate based on the facts and circumstances of the 
exemption application.
    The Department also proposed to revise paragraphs (d) through (h), 
which govern the timing of conferences and the submission of 
information. As with changes to Sec. Sec.  2570.39 and 2570.40(b), the 
Department proposed to revise these sections to provide that the 
Department may, at its sole discretion, extend time periods. These 
changes were proposed to similarly inform the applicant that the time 
periods outlined in the section provide a hard deadline for the 
applicant, unless the Department, based on the facts and circumstances, 
chooses to extend the period pursuant to its own discretion.
    The Department also proposed to add a new paragraph (i) providing 
that the Department, at its sole discretion, may hold a conference with 
any party, including the qualified independent fiduciary or the 
qualified independent appraiser, regarding any matter related to an 
exemption request without the presence of the applicant or other 
parties to the exemption transaction or their representatives. Under 
the proposal, any such conferences could occur in addition to the 
conference with the applicant described in Sec.  2570.40(b). Commenters 
objected to this new paragraph, arguing that it is unnecessary and 
presumes malfeasance on the part of the applicant.
    The Department disagrees. The Department proposed to add this 
language to clarify that it is entitled to hold conferences with 
whomever it deems necessary. The new paragraph acknowledges that, under 
certain circumstances, the Department may need to meet with a third 
party to accurately assess the exemption application. The language does 
not presume or connote an applicant's malfeasance; it only recognizes 
the fact that certain parties, such as independent fiduciaries or 
appraisers, may be less restrained when discussing issues solely with 
the Department. For example, the Department may determine that a 
discussion with a qualified independent fiduciary without the presence 
of the applicant or its representative may provide additional insight 
into the qualified independent fiduciary's work if the applicant is not 
present to influence the explanation of the fiduciary's work product or 
limit the topics which are discussed.
    After considering the comments, the Department has included the 
revisions to Sec.  2570.40 in the Final Amendment as proposed.

Section 2570.41

    Section 2570.41 addresses final denial letters, which are the final 
action taken by the Department with respect to an

[[Page 4682]]

application if the Department has determined that an exemption will not 
be granted for an exemption transaction. The Department proposed to add 
a new paragraph (a), which provides that the Department would issue a 
final denial letter without issuing a tentative denial letter under 
Sec.  2570.38, or conducting a hearing on the exemption under either 
Sec.  2570.46 or Sec.  2570.47, (in other words, a direct denial) if 
the Department determines in its sole discretion, that: (1) the 
applicant has failed to submit information requested by the Department 
in a timely manner; (2) the information provided by the applicant does 
not meet the requirements of Sec. Sec.  2570.34 and 2570.35; or (3) a 
conference has been held between the Department and the applicant 
before the issuance of a tentative denial letter during which the 
Department and the applicant addressed the reasons for denial that 
otherwise would have been set forth in a tentative denial letter 
pursuant to Sec.  2570.38. While the language of Sec. Sec.  2570.38, 
2570.46, and 2570.47 does not require a tentative denial letter to be 
sent or a hearing to occur under all circumstances, the current 
language does not clearly state that the Department may issue a final 
denial letter without taking those steps. To eliminate uncertainty, the 
Department proposed to add the new text to make clear that, based on 
the reasons outlined above, the Department may issue final denial 
letters without tentative denial letters or hearings.
    Commenters objected to the new proposed paragraph (a) on the 
grounds that being issued a direct denial would deprive applicants of 
an opportunity to respond to concerns raised by the Department. In 
response, the Department clarifies that it would not issue a direct 
denial where there is active engagement between the applicant and the 
Department. The Department proposed to include this language solely to 
clarify that there are certain instances where, for administrative 
expediency, the Department can issue a final denial letter without 
issuing a tentative denial letter if the facts and circumstances 
preclude the Department from processing the application submitted by 
the applicant, or if an applicant fails to provide anything more than 
cursory information. For example, if an applicant submits an exemption 
application that is only one or two pages long and is unresponsive to 
the Department's request for additional information, under the proposed 
new paragraph, the Department may issue a final denial letter either 
immediately or following an initial short conference during which the 
applicant fails to provide any additional or requested information. 
Further, the Department proposed that it may issue a direct denial 
letter if an applicant submits a request for a retroactive exemption 
where the participants and beneficiaries were substantially harmed by 
the subject transaction.
    The Department also notes that it has modified Sec.  2570.45 to 
provide that applications denied under Sec.  2570.41(a) can be 
resubmitted for reconsideration. Those changes are discussed further 
below.
    The Department also proposed to add a new paragraph (e), which 
would provide that the Department will issue a final denial letter 
where the applicant either (1) asks to withdraw the exemption 
application, or (2) communicates to the Department that it is not 
interested in continuing the application process. This revision is 
consistent with the changes the Department is making in Sec.  2570.44. 
The Department proposed to add this text to formally memorialize the 
ultimate disposition of the application by issuing a final denial 
letter if the applicant decides it is no longer interested in an 
exemption, whether communicated through either a withdrawal or a 
statement of disinterest. The proposed revision would allow the 
Department to track and manage exemption applications more clearly.
    The Department has included all of the Proposed Rule's revisions to 
Sec.  2570.41 in the Final Amendment.

Section 2570.42

    When the Department makes an initial determination that the 
issuance of an exemption is warranted, Sec.  2570.42 provides that the 
Department must give interested parties notice and opportunity to 
comment through the publication of a proposed exemption in the Federal 
Register. The Department proposed to revise a portion of paragraph (d). 
Previously, the paragraph provided that when the proposed exemption 
includes relief from ERISA section 406(b), Code section 4975(c)(1)(E), 
or FERSA section 8477(c)(2), the proposed exemption must inform 
interested persons who would be adversely affected by the transaction 
of their right to request a hearing under Sec.  2570.46. The Department 
proposed to delete the reference to interested persons who would be 
adversely affected by the exemption transaction, thus making the text 
applicable to all interested persons who have been materially affected 
by the exemption. This revision was made to both reflect the difficulty 
in determining which parties are adversely affected and to ensure that 
all parties that might have relevant information to the Department's 
final determination are provided with an opportunity to communicate 
that information.
    The Department has retained its proposed revisions to Sec.  2570.42 
in the Final Amendment.

Section 2570.43

    Upon publication of a proposed exemption in the Federal Register, 
Sec.  2570.43 provides that the applicant must provide notice to 
interested persons of the pendency of the exemption. The section 
outlines the process by which the notice is drafted and provided. The 
Department proposed to revise paragraph (a) to delete ``adversely'' and 
replace it with ``materially'' when applying the term to the interested 
parties' right to a hearing to remain consistent with the proposal's 
revision to Sec.  2570.42 discussed above. The Department also proposed 
to make minor changes regarding how a commenter may submit their 
comment and added language to the existing text advising commenters not 
to disclose personal data or submit confidential or otherwise protected 
information.
    The Department has included these proposed amendments to Sec.  
2570.43 in the Final Amendment.

Section 2570.44

    Section 2570.44 addresses the withdrawal of an exemption 
application. The current Exemption Procedure Regulation is silent as to 
whether an applicant can withdraw its exemption application without the 
Department's issuance of a formal final denial letter. It has, however, 
been the Department's practice that applicants can withdraw their 
applications without the issuance of a final denial letter. In a 
revision to this practice, the Department proposed to revise paragraph 
(b) to provide explicitly that the Department will terminate all 
proceedings regarding the application upon receiving an applicant's 
withdrawal request and issue a final denial letter. The issuance of the 
final denial letter would formally close the application and allow the 
Department to better manage its inventory of exemption applications.
    The Department proposed to revise paragraph (d) to provide that if 
an applicant chooses to reapply after withdrawing their application, 
the applicant must update all previously furnished information with 
respect to the prior application and the exemption transaction. 
Applicants currently can

[[Page 4683]]

reapply without providing additional information after withdrawing 
their applications unless the request occurs more than two years after 
withdrawal. Applicants should be required to completely update all 
information when they reapply for an exemption, regardless of the time 
that has elapsed after their withdrawal. Therefore, the Proposed Rule 
would treat the withdrawal as a formal denial, which would shift the 
burden to the applicant to present an updated application to the 
Department for its review.
    Commenters raised concerns that the proposed denial and 
resubmission revisions would presume malfeasance or bias against 
resubmitted applications. The Department disagrees. The denial is an 
administrative action only, and it presents no bias against an 
application. Clearly shifting the resubmission burden to the applicant, 
without relying on an older submission that was withdrawn, is 
appropriate because the exemption application process starts from the 
premise that applicants must show how they meet the Exemption Procedure 
Regulation requirements. Additionally, requiring current information 
upon resubmission will benefit both the applicants and the Department 
by streamlining the review of resubmitted applications.
    Finally, the Department proposed to add a new paragraph (f) which 
states that, following the withdrawal of an exemption application, the 
administrative record will remain subject to public inspection pursuant 
to Sec.  2570.51. The Department proposed this change to clearly set 
forth its policy that the administrative record for an exemption will 
always be available for public inspection after it is created. The 
language was intended to clarify current practice and to make this 
section consistent with other revisions regarding the administrative 
record described above.
    After considering the comments, the Department has retained the 
Proposed Rule's revisions to Sec.  2570.44 in the Final Amendment.

Section 2570.45

    Section 2570.45 addresses formal requests for reconsideration 
following the Department's issuance of a final denial letter. The 
Department proposed to add new language to paragraph (a), which 
provides that applicants whose applications were denied without a 
tentative denial under Sec.  2570.41(a) may request reconsideration, 
and a new paragraph (g), which provides that a request for 
reinstatement of an exemption application following a withdrawal 
pursuant to Sec.  2570.44(d) is not a request for reconsideration 
governed by Sec.  2570.45. The Department proposed to add this text to 
draw a clear distinction between Sec. Sec.  2570.44 and 2570.45, and it 
has retained the proposed revisions in the Final Amendment.
    In addition, in response to commenters' concerns about final 
denials pursuant to Sec.  2570.41(a), the Department has added a new 
paragraph (h). Commenters expressed concern about Sec.  2570.41(a) 
foreclosing applicants' opportunities to respond to the Department. New 
paragraph (h) provides that the Department will reconsider applications 
that were previously denied under Sec.  2570.41(a)(1) or (2) for 
failure to timely respond to the Department's request for information 
or provide sufficient information, as long as the applications are 
cured upon submission for reconsideration. For applications that are 
cured upon resubmission, the Department will undertake the steps in the 
exemption procedure that remained when the Department issued the final 
denial letter. If the Department concludes that an exemption is not 
warranted, it will either hold a conference or issue a tentative denial 
letter before issuing a final denial. This change clarifies that those 
applicants whose applications are denied under Sec.  2570.41(a)(1) or 
(2) without a tentative denial letter or an equivalent conference will 
be afforded an opportunity to respond to the Department upon 
reconsideration.

Section 2570.46

    Section 2570.46 covers the right to a hearing with respect to a 
proposed exemption that provides relief from ERISA section 406(b), Code 
section 4975(c)(1)(E) or (F), or FERSA section 8477(c)(2) for any 
interested person who may be adversely affected by the exemption. The 
Department proposed to expand the right to a hearing to any person who 
may be materially affected by an exemption that provides the relief 
described in this section. The determination of whether a person is 
materially affected would be at the sole discretion of the Department. 
The proposal would delete the reference to interested persons to allow 
any party materially affected by the exemption to provide material 
information. Similarly, the Department proposed to change the word 
``adversely'' to ``materially'' to capture all relevant information 
with respect to the exemption transaction. Combined, these revisions 
would assist the Department in its review of the exemption transaction 
by ensuring that potentially helpful information is not excluded.
    The Department also proposed to make a minor revision to paragraph 
(b) that would explicitly state that the Department will hold a hearing 
when it is necessary to explore material factual information with 
respect to the proposed exemption. Factual information is limited to 
the proposed exemption to ensure that the hearing is relevant to the 
Department's exemption determination; information that is not material 
to the exemption transaction would not be sufficient to meet this 
requirement.
    The Department has adopted the Proposed Rule's revisions to Sec.  
2570.46 in the Final Amendment.

Section 2570.47

    The Department did not propose any changes to section Sec.  
2570.47, and the Final Amendment does not make any material revisions 
to Sec.  2570.47.

Section 2570.48

    Section 2570.48 restates the Department's ERISA section 408(a) 
statutory finding requirements. The Department's only proposed material 
change to this section is to clarify that the Department must make a 
finding that the exemption is administratively feasible ``for the 
Department,'' rather than administratively feasible for the applicant.
    The Department has retained the Proposed Rule's revisions to Sec.  
2570.48 in the Final Amendment.

Section 2570.49

    Section 2570.49 addresses the various effects of and limits on the 
grant of an exemption. The Department proposed to revise paragraph (e) 
to clarify that the determination regarding whether a particular 
statement contained in (or omitted from) an exemption application 
constitutes a material fact or representation based on the totality of 
the facts and circumstances would be made by the Department in its sole 
discretion. The proposed addition of the ``sole discretion'' language 
clarifies that the Department retains sole discretion with respect to 
the determination.
    The Department has retained this revision to Sec.  2570.49 in the 
Final Amendment.

Section 2570.50

    Section 2570.50 addresses the revocation and modification of 
existing exemptions. The Department proposed to substantially revise 
paragraph (a) to provide that, if material changes in facts, 
circumstances, or representations occur after an exemption takes 
effect, including if a qualified independent fiduciary resigns, is 
terminated, or is

[[Page 4684]]

convicted of a crime, the Department, at its sole discretion, may take 
steps to revoke or modify the exemption. If the qualified independent 
fiduciary resigns, is terminated, or is convicted of a crime, the 
proposal required the applicant to notify the Department within 30 days 
of the resignation, termination, or conviction. The applicant's failure 
to provide such notice could result in a determination that the 
conditions of the exemption have not been met and lead to the 
exemption's revocation. Further, under the proposal, the Department 
would reserve the right to request the applicant to provide the 
Department with any of the information required pursuant to Sec.  
2570.34(e) and (f) at a time determined by the Department at its sole 
discretion.
    The Department proposed to revise paragraph (a) beyond the material 
facts to address the qualified independent fiduciary. In many 
exemptions that employ qualified independent fiduciaries, the 
fiduciaries represent one of the exemption's core protective 
conditions. It is imperative that an applicant inform the Department if 
the independent fiduciary ceases to serve in that role because it 
resigns, is terminated, or is convicted of a crime. The Proposed Rule 
was written to ensure that the Department will be informed of the 
changed circumstances and require the applicant to take necessary 
actions to ensure the exemption continues to be in the interests of and 
protective of the rights of the plan and its participants and 
beneficiaries.
    In connection with the qualified independent fiduciary issue, the 
proposal also would have reserved the Department's right to request 
that the applicant provide any of the information required pursuant to 
Sec.  2570.34(e) and (f) at a time determined by the Department at its 
sole discretion. This change was proposed to assist the Department's 
ultimate disposition of the issue and ensure that the exemption remains 
protective.
    Commenters objected to the cumulative changes in paragraph (a) on 
the grounds that disclosing information after the issuance of an 
exemption would be burdensome, and that such a requirement would 
transform the Office of Exemption Determinations into an enforcement 
arm of the Department. While the revised paragraph (a) imposes 
additional requirements on an applicant after the issuance of an 
exemption, the new language would ensure that granted exemptions remain 
protective of plans and their participants and beneficiaries. Ensuring 
that an exemption remains protective of plans and their participants 
and beneficiaries in the face of changed circumstances relates to the 
Department's ability to make its statutorily required findings. Without 
the revised language, material changes could undermine the basis or 
availability of an issued exemption, whether intentional or not, 
without the Department's knowledge. Further, the new provision will 
help prevent, or at least provide notice of, the swapping of an 
independent fiduciary that was specifically agreed upon with the 
Department as an exemption condition for a fiduciary the Department 
might not otherwise approve.
    The Department proposed to amend paragraph (a) to provide a tool 
for the Department to evaluate exemptions on an ongoing basis, which 
would allow the Department to determine whether it can continue to make 
its statutory findings under ERISA section 408(a) with respect to an 
exemption it previously granted. While in some cases such submissions 
could result in the referral of potentially non-exempt prohibited 
transactions to EBSA's enforcement program, that is not the chief 
purpose of the submissions. Nevertheless, non-enforcement EBSA offices 
remain aware of potential ERISA violations and can, and do, 
appropriately refer parties to the Office of Enforcement or applicable 
regional offices when appropriate.
    Lastly, the Proposed Rule would have revised paragraph (c), which 
currently permits the Department's to revoke or modify an exemption 
under certain circumstances, which possibly could give the 
modifications retroactive effect. The proposal deleted the reservation 
of the Department's right to make retroactive changes, and instead 
provided that changes may only be made prospectively. The revision 
reflects the Department's concern that the ability to make retroactive 
changes undermines the legitimate interests of applicants, plans, 
participants, and beneficiaries to rely on exemptions that have been 
granted pursuant to specific conditions. Commenters indicated that the 
proposed language may create uncertainty about whether the Department 
might choose to revoke an exemption. The Department disagrees. The 
current Exemption Procedure Regulation already permits revocation, and 
the new provision, in fact, provides more certainty by eliminating the 
retroactive revocation language. In addition, the Department emphasizes 
that, per new paragraph (b), a revocation cannot occur without notice 
and comment.
    Accordingly, the Department has retained the Proposed Rule's 
revisions to Sec.  2570.50 in the Final Amendment.

Section 2750.51

    Section 2570.51 addresses public inspection and the provision of 
copies of the administrative record. The Department proposed to revise 
the current language in coordination with Sec.  2570.32(d), which 
addresses the administrative record and the information included in the 
administrative record. In the proposal, the Department clarified that 
the administrative record is open for public inspection and available 
to copy from the date the administrative record is established, as 
determined by Sec.  2570.32(d). In addition, the Department proposed to 
update paragraph (b) to allow copies of the administrative record to be 
furnished electronically.
    The Department has retained the Proposed Rule's revisions to Sec.  
2570.51 in the Final Amendment.

Effective Date

    This regulation is effective April 18, 2024.

Regulatory Impact Analysis

1.1. Background and Need for Regulation

    As discussed above, the Department's Exemption Procedure Regulation 
sets forth the process by which the Department makes exemption 
determinations with respect to applications for administrative relief 
from the prohibited transaction provisions of ERISA and the Code. The 
Final Amendment revises the current Exemption Procedure Regulation to 
promote the Department's goal of promptly and efficiently making 
exemption determinations pursuant to a transparent process that is 
available for public inspection and subject to public scrutiny.
    In order to accomplish this objective, the Final Amendment makes 
applicants aware of information the Department requires during the 
exemption application process based on recent practices the Department 
has used to process administrative exemption requests. The Final 
Amendment also revises the baseline Exemption Procedure Regulation to 
ensure creation of a thorough and complete administrative record. The 
revision will increase transparency and help any impacted party, 
including plan participants and beneficiaries, understand the 
information the Department considers when reviewing

[[Page 4685]]

exemption applications and the decisions the Department makes in making 
exemption determinations.
    As discussed below, the Department has examined the effects of this 
Final Amendment as required by Executive Order 12866,\21\ Executive 
Order 13563,\22\ the Paperwork Reduction Act of 1995,\23\ the 
Regulatory Flexibility Act,\24\ section 202 of the Unfunded Mandates 
Reform Act of 1995,\25\ Executive Order 13132,\26\ and the 
Congressional Review Act.\27\
---------------------------------------------------------------------------

    \21\ Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993).
    \22\ Improving Regulation and Regulatory Review, 76 FR 3821 
(Jan. 18, 2011).
    \23\ 44 U.S.C. 3506(c)(2)(A) (1995).
    \24\ 5 U.S.C. 601 et seq. (1980).
    \25\ 2 U.S.C. 1501 et seq. (1995).
    \26\ Federalism, 64 FR 153 (Aug. 4, 1999).
    \27\ 5 U.S.C. 804(2) (1996).
---------------------------------------------------------------------------

1.2. Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, select regulatory approaches that maximize net 
benefits (including potential economic, environmental, public health, 
and safety effects; distributive impacts; and equity). Executive Order 
13563 emphasizes the importance of quantifying costs and benefits, 
reducing costs, harmonizing rules, and promoting flexibility.
    Under Executive Order 12866 (the Executive order), ``significant'' 
regulatory actions are subject to review by the Office of Management 
and Budget (OMB).\28\ As amended by Executive Order 14094,\29\ entitled 
``Modernizing Regulatory Review,'' Executive order section 3(f) defines 
a ``significant regulatory action'' as an action that is likely to 
result in a rule that may (1) have an annual effect on the economy of 
$200 million or more (adjusted every three years by the Administrator 
of Office of Information and Regulatory Affairs (OIRA) for changes in 
gross domestic product); or adversely affect in a material way the 
economy, a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local, territorial, or 
tribal governments or communities; (2) create a serious inconsistency 
or otherwise interfere with an action taken or planned by another 
agency; (3) materially alter the budgetary impacts of entitlement 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or (4) raise legal or policy issues for which 
centralized review would meaningfully further the President's 
priorities or the principles set forth in the Executive order, as 
specifically authorized in a timely manner by the Administrator of OIRA 
in each case.
---------------------------------------------------------------------------

    \28\ Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993).
    \29\ Modernizing Regulatory Review, 88 FR 21879 (April 6, 2023).
---------------------------------------------------------------------------

    Pursuant to the terms of Executive Order 12866, OMB has determined 
that this action is ``significant'' within the meaning of section 3(f) 
of the Executive order. Therefore, the Department has provided an 
assessment of the potential costs, benefits, and transfers associated 
with the Final Amendment, which is presented below and has been 
reviewed by OMB in accordance with the requirements of the Executive 
order.

1.3. Affected Entities

    The Final Amendment affects individual retirement accounts, 
employee benefit plans, plan sponsors and fiduciaries, and participants 
and beneficiaries that are subject to the prohibited transaction rules 
set forth in ERISA, the Code, or FERSA. Based on recent exemption 
application activity, the Department estimates that it receives 
approximately 21 exemption applications annually.\30\
---------------------------------------------------------------------------

    \30\ This estimate is the rounded five-year average of 
applications received.
---------------------------------------------------------------------------

1.4. Benefits of Final Amendment

    The Department expects that the Final Amendment will achieve the 
Department's goal of bringing enhanced efficiency, clarity, and 
transparency to the exemption determination process. The Department 
will achieve this objective by including provisions in the Final 
Amendment that, among other things, (1) clarify the types of 
information and documentation required for a complete application, (2) 
revise the definitions of a qualified independent fiduciary and 
qualified independent appraiser to ensure their independence, (3) 
clarify the content of specific reports and documents applicants must 
submit to ensure that the Department receives sufficient information to 
make the requisite findings under ERISA section 408(a) to issue an 
exemption, (4) update various timing requirements to ensure clarity in 
the application review process, (5) clarify items that are included in 
the administrative record for an application and when the 
administrative record is available for public inspection, and (6) 
expand opportunities for applicants to submit information to the 
Department electronically.
    Also, the Department is requiring applicants to include more 
information upfront as part of their exemption applications, which will 
lead to an efficient determination process. Specifically, the 
Department is requiring applicants to include information relevant to 
the cost and benefits of the transaction, alternative transactions to 
the exemption transaction that were considered, the benefits derived by 
the parties involved, and explicit descriptions of all known conflicts 
involved with the transaction.
    The baseline Exemption Procedure Regulation already requires 
applicants to submit most of this information to the Department. The 
Department, however, is amending the Exemption Procedure Regulation to 
align more closely with the information the Department frequently 
requests from applicants to make its statutorily mandated findings, and 
to require such information to be submitted sooner in the process 
rather than after the Department requests it. Having the information 
provided with the application clarifies expectations about required 
information. Also, time is saved as back-and-forth discussions about 
required information are reduced. In doing this, the Department will 
make the exemption determination process more efficient. Increased 
efficiency also will result from the amendment to Sec.  2570.36 of the 
Exemption Procedure Regulation, which allows applicants to submit 
applications and supporting materials to the Department electronically.
    The Final Amendment also enhances the transparency of the exemption 
determination process by clarifying that the administrative record for 
an exemption application becomes open for public inspection and 
available for copying when an applicant submits its exemption 
application to the Department. At that time, in addition to the 
application itself, any information the applicant provided to the 
Department before it submitted its application, as well as any pre-
submission communications regarding the exemption transaction, will 
become part of the administrative record.

1.5. Costs Associated With the Final Amendment

    As discussed above, the Final Amendment requires applicants to 
include information in their exemption applications that frequently was 
requested during review. For example, under the Final Amendment, 
applicants must include in their applications a description of: (1) the 
reason(s) for engaging in the exemption transaction; (2) any material 
benefit that a party in interest involved in the exemption transaction 
may receive as a result of the

[[Page 4686]]

subject transaction (including the avoidance of any materially adverse 
outcome by the party in interest as a result of engaging in the 
exemption transaction); (3) the costs and benefits of the exemption 
transaction to the affected plan(s), participants, and beneficiaries, 
including quantification of those costs and benefits to the extent 
possible; (4) a description of the alternatives to the exemption 
transaction that it considered or evaluated before submitting the 
exemption application and an explanation of why those alternatives were 
not pursued; and (5) a description of each conflict of interest or 
potential instance of self-dealing that would be permitted if the 
exemption is granted.
    The Final Amendment also revises the baseline Exemption Procedure 
Regulation to expand the number of specialized parties from whom 
statements and documents must be included in exemption applications, 
such as auditors and accountants acting on the behalf of the plan (as 
well as independent fiduciaries and independent appraisers who already 
were covered). The required disclosures are expanded to cover any 
documents submitted by these parties in support of the application. 
These parties also are required to disclose, among other things, 
information regarding their contracts with the applicant, including, 
but not limited to, information on indemnification provisions, waivers, 
and relationships with other parties involved in the exemption 
transaction. In addition, the qualified independent fiduciaries and 
qualified independent appraisers are required to include specific 
information regarding conflicts of interest, fiduciary liability 
insurance, and whether the fiduciary has been under investigation or 
convicted of certain crimes.
    While including this information in the application could impose 
additional costs on some applicants compared to the baseline 
requirements of the current Exemption Procedure Regulation, as 
discussed below, these increased costs are modest and justified by the 
Department's need for this critical information to make its findings 
under ERISA section 408(a) and to promote increased efficiency as 
explained previously. Such information also will facilitate the 
Department's understanding of the underlying rationale for the 
exemption transaction, including the costs and benefits for both the 
party in interest and the plan and its participants and beneficiaries.
    The Final Amendment also requires information to be submitted by 
applicants with whom the Department engages on a pre-submission basis. 
Specifically, if an applicant communicated with the Department either 
orally or in writing before submitting an exemption application for the 
exemption transaction, the applicant or its representative must (1) 
identify and fully describe the exemption transaction; and (2) set 
forth the prohibited transactions that the applicant believes are 
applicable.
    Applicants who communicated with the Department prior to submitting 
an application also must submit a statement setting forth the date(s) 
and with whom the applicant communicated before submission. Linking 
pre-submission communications to a current application ensures that the 
Department understands the entire context of an exemption application. 
The Department emphasizes, however, that this provision is only 
triggered when the applicant submits a formal exemption application.
    Although the final amendment requires exemption applicants to 
submit information earlier than the baseline exemption procedure, as 
mentioned above, the Department expects that the final amendment will 
generate efficiency gains. Such gains will result because the open, 
transparent, and clear process implemented by final amendment will 
eliminate friction that is caused when the Department has back and 
forth discussion with applicants regarding information that is not 
included in an exemption application after the applicants submit their 
exemption application under the baseline Exemption Procedure 
Regulation. On balance, this final amendment will be cost neutral as a 
result of the efficiency gains that will be generated; however, the 
Department does not have sufficient data to quantify them. Based on the 
foregoing, the Department expects that this Final Amendment will result 
in modest increased labor costs to applicants compared to the baseline 
Exemption Procedure Regulation, which represent an upper bound because 
the efficiency gains that would offset such costs are not taken into 
account.
    Specifically, the Department estimates a total estimated cost 
increase to prepare the application of approximately $29,000. This 
estimate does not include cost savings generated by efficiency gains. 
Each of the 21 affected applicants could experience an increase of six 
hours per application divided among various professionals. It does 
include the cost savings associated with increased electronic 
submission of applications and supporting materials that the Department 
had sufficient data to quantify. The cost of individual components of 
the Final Amendment are presented in Table 1 and explained below.

                                Table 1--Labor Hours and Equivalent Cost Changes
----------------------------------------------------------------------------------------------------------------
                                       Additional hours   Additional hours   Additional costs   Additional costs
                                          (per plan)          (total)           (per plan)          (total)
----------------------------------------------------------------------------------------------------------------
Prepare Application: In House Legal                   1                 21            $159.34             $3,346
 Professional.......................
Prepare Application: Clerical.......                  1                 21              63.45              1,332
Prepare Application: Outside Legal                    1                 21             535.85             11,253
 Professional.......................
Prepare Application: Outside                          2                 42             610.04             12,811
 Fiduciary/Experts..................
Pre-Submission Conference, Do Not                     1                  5             159.34                797
 Apply..............................
Change to Submission Method (from                     0                  0             -16.45               -345
 mail to electronic)................
                                     ---------------------------------------------------------------------------
    Total...........................                  6                110           1,511.57             29,194
----------------------------------------------------------------------------------------------------------------

    On average, an in-house attorney with a labor and overhead cost 
estimated at a rate of $159.34 per hour is expected to spend 
approximately one additional hour in preparing the application for a 
total cost of $159.34 per plan, or $3,346 total for the 21 plans 
estimated to apply each year.\31\
---------------------------------------------------------------------------

    \31\ Unless otherwise noted, all wage rates are based on 
internal Department calculations based on 2020 labor cost data. For 
a description of the Department's methodology for calculating wage 
rates, see https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.

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[[Page 4687]]

    An additional hour of an attorney's time required to organize and 
prepare information is estimated for plans that choose to have a pre-
submission consultation and do not later apply. The Department assumes 
that five plans per year will conduct pre-submission consultations but 
not formally apply, at a per plan cost of $159.34 and $797 per year 
increase for this group of plans.
    Outside professionals are hired by the plan to handle certain 
fiduciary and service provider duties associated with the transaction, 
the valuation(s), and the preparation of the application materials. The 
amendments are estimated to increase the net time an outside legal 
professional takes to prepare the application by one hour per plan at a 
billing rate of $535.85 per hour.\32\ This results in a per plan cost 
of $535.85 and a total annual cost increase of $11,253 for the 21 plans 
assumed to apply. Both the outside fiduciary and appraiser or other 
service provider are assumed to require an additional hour to comply 
with the amended rules. The hourly rate for both is assumed to be 
$305.02, which results in an increase of $610.04 for each plan and a 
total of $12,811 for the 21 plans that are expected to apply annually.
---------------------------------------------------------------------------

    \32\ Outside legal billing rates are a blended rate based on the 
Laffey Matrix, which is available at https://www.laffeymatrix.com/see.html.
---------------------------------------------------------------------------

    The final labor component that is expected to change relates to 
clerical staff for whom the Department estimates labor and overhead 
cost of $63.45 per hour. The Department also estimates that an 
additional hour of clerical work will be associated with assisting 
outside professionals with preparation of the application, resulting in 
a cost increase of $63.45 per application, and a total of $1,332 for 
the 21 applications expected annually.
    The changes to Sec.  2570.36 of the baseline Exemption Procedure 
Regulation that allow for the application to be submitted 
electronically are expected to generate a cost savings of $16.45 per 
plan, for a total of $345 annually.

1.6. Uncertainty

    The number of exemption applications the Department receives may 
vary over time due to the macroeconomic health of the economy, and they 
may vary over the business cycle. For example, prohibited transaction 
exemption applications may deal with the sale of illiquid assets for 
which there is a limited market. Because of this, these assets are more 
likely to be liquidated while the market is distressed. Therefore, 
exemption applications for this type of transaction may increase if the 
macroeconomic economy is unhealthy. This variation in the number of 
applications is supported by the Department's application data.
    The Final Amendment itself may impact the number of applications 
the Department receives. For example, application volume could increase 
if potential applicants observe enhanced transparency in the exemption 
determination process and increased clarity about the information that 
is required to be included in an exemption application. As a result, 
the Department may receive more exemption applications because 
applicants may have increased confidence that their applications will 
be approved by the Department, since they are fully aware of the 
information the Department requires to be included in their 
applications and the Department's process for considering their 
applications.
    Finally, as discussed above, the Department maintains that this 
Final Amendment will be cost neutral due to the efficiency gains it 
will generate relative to the baseline Exemption Procedure Regulation, 
but it is uncertain regarding the amount of cost savings that will 
result from the efficiency gains, as the Department does not have 
sufficient information to quantify them.

1.7. Alternatives

    Although Executive order section 6(a)(3)(C) only requires the 
Department to assess the cost and benefits of feasible alternatives for 
rules that are significant under section 3(f)(1), the Department 
considered several alternatives to the provisions in the Final 
Amendment that are discussed in this section.
    First, the Department considered retaining the status quo. However, 
the status quo was not a feasible alternative because the Department 
has found that the baseline Exemption Procedure Regulation has not been 
working with maximum efficiency since the Exemption Procedure 
Regulation was last amended in 2011. Under the current Exemption 
Procedure Regulation, the Department has had to adopt the practice of 
requiring applicants to submit additional information that was not 
specifically provided for in the baseline Exemption Procedure 
Regulation to ensure that it has sufficient information to make the 
statutorily mandated findings under ERISA section 408(a) that an 
exemption request is (1) administratively feasible, (2) in the interest 
of the plan that is requesting the exemption and its participants and 
beneficiaries, and (3) protective of the rights of the plan's 
participants and beneficiaries. The Department found that many 
exemption applications did not contain sufficient information for the 
Department to make these findings, and a lot of back-and-forth 
communication was taking place between applicants and the Department to 
make sure that adequate information was provided to the Department for 
it to make its findings. This led the Department to make a policy 
decision that the baseline Exemption Procedure Regulation needs to be 
amended to require the specific information the Department needs to 
process exemption applications. The Department expects the selected 
alternative of requiring more information submitted with the 
application will in many instances, but not all, either maintain or 
reduce the costs for applications that are granted relative to the 
status quo.
    The Department also made a policy decision that an amendment to the 
Exemption Procedure Regulation is necessary to clarify when the 
administrative record opens for an exemption application and the items 
that are included in the administrative record. The creation of the 
administrative record for an exemption application is critically 
important because it commences the exemption determination process for 
an exemption application. The Department has received many questions 
from applicants over the years about when the administrative record 
opens and when the record is available for public review. Therefore, it 
is critical for the Department to clearly define when the 
administrative record is open in an amendment to the Exemption 
Procedure Regulation to ensure that the Department maintains an open 
and transparent exemption determination process.
    The Department also considered finalizing the entire amendment as 
proposed but, instead, made major changes to the proposal in the Final 
Amendment based on the public input the Department received in comment 
letters and testimony that was provided at the public hearing. These 
changes were made, in part, to reduce the burdens imposed on applicants 
by the proposal. For example, the proposal added a new Sec.  
2570.34(a)(5) that would have required applicants to include with their 
exemption applications a detailed description of possible alternatives 
to the exemption transaction that would not involve a

[[Page 4688]]

prohibited transaction, and why the applicant did not pursue those 
alternatives. Commenters objected, in part, to this language by 
asserting that it would be burdensome for an applicant to investigate 
and evaluate all potential approaches to a transaction before 
submitting an exemption application. The Department recognized this 
burden and modified the language in the Final Amendment to provide that 
an applicant must submit a description of the alternatives to the 
exemption transaction that it considered or evaluated before submitting 
the exemption application and explain why those alternatives were not 
pursued with its exemption application. The language no longer requires 
an exhaustive review; it only requires an applicant to explain to the 
Department the process by which the applicant arrived at its decision 
to propose an exemption application.
    As another example, the Department proposed to add a new Sec.  
2570.34(d) that would have required an applicant to include detailed 
information regarding the appraiser selection process. In response to 
the proposal, commenters raised multiple objections. Therefore, 
paragraph (d) of the Final Amendment states that an applicant must 
include the following information with its exemption application: (1) a 
representation that the independent fiduciary prudently selected the 
appraiser after diligent review of the appraiser's technical training 
and proficiency with respect to the type of valuation at issue, the 
appraiser's independence from the plan's counterparties in the 
exemption transaction, and the absence of any material conflicts of 
interest with respect to the exemption transaction; (2) a 
representation that the appraiser is independent within the meaning of 
Sec.  2570.31(i); and (3) a representation that the independent 
appraiser has appropriate technical training and proficiency with 
respect to the specific details of the exemption transaction. The Final 
Amendment's language has the effect of decreasing an applicant's burden 
by no longer requiring substantial disclosure and a specific delineated 
process. In addition to this burden reduction, the Department notes 
that it also made a similar change to Sec.  2570.34(e), which had a 
similar burden-reducing effect.
    The Department has determined that the totality of the expected 
benefits of the Final Amendment justify its costs. The Department's 
decision to publish the Final Amendment with modifications to the 
Proposed Rule will allow it to achieve its objective of making the 
exemption application process more efficient and transparent than the 
baseline process while minimizing the burden the Proposed Rule imposed 
on applicants. Accordingly, the Final Amendment is a necessary and 
beneficial regulation.

Paperwork Reduction Act Statement

    In accordance with the Paperwork Reduction Act of 1995 (PRA 95) (44 
U.S.C. 3506(c)(2)(A)), the Department solicited comments concerning the 
information collection request (ICR) included in the revision of the 
Exemption Procedure Regulation.\33\ At the same time, the Department 
also submitted an ICR to the OMB under OMB Control Number 1210-0060, in 
accordance with 44 U.S.C. 3507(d). No comments were received that led 
to an adjustment in burden estimates.
---------------------------------------------------------------------------

    \33\ 87 FR 14722.
---------------------------------------------------------------------------

    In connection with the publication of the Final Amendment, the 
Department is submitting the ICR to OMB requesting a revision of the 
information collection under OMB control number 1210-0060 reflecting 
the changes made by the final rules. A copy of the ICR may be obtained 
by contacting the person listed in the PRA Addressee section below or 
at www.RegInfo.gov.
    PRA Addressee: Address requests for copies of the ICR to James 
Butikofer, Office of Research and Analysis, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue NW, 
Room N-5718, Washington, DC 20210 or by email at: [email protected]. A 
copy of the ICR also may be obtained at https://www.RegInfo.gov.

Background

    Both ERISA and the Code contain various statutory exemptions from 
the prohibited transaction rules. In addition, ERISA section 408(a) 
authorizes the Secretary to grant administrative exemptions from the 
restrictions of ERISA sections 406 and 407(a), while Code section 
4975(c)(2) authorizes the Secretary of the Treasury or their delegate 
to grant exemptions from the prohibitions of Code section 4975(c)(1). 
ERISA section 408(a) and Code section 4975(c)(2) also direct the 
Secretary and the Secretary of the Treasury, respectively, to establish 
procedures to carry out the purposes of these sections.
    Under section 102 of Reorganization Plan No. 4 of 1978, the 
authority of the Secretary of the Treasury to issue exemptions under 
Code section 4975 was transferred, with certain enumerated exceptions 
not discussed herein, to the Secretary. Accordingly, the Secretary now 
possesses the authority under Code section 4975(c)(2), as well as under 
ERISA section 408(a), to issue individual and class exemptions from the 
prohibited transaction rules of ERISA and the Code.
    Under the baseline Exemption Procedure Regulation, the Department 
requires certain information to be provided in a written application 
for an exemption. The written application is an ICR for purposes of the 
PRA. Sections 2570.34 and 2570.35 of the baseline Exemption Procedure 
Regulation describe the information that must be supplied by the 
applicant, such as, but not limited to: identifying information (name, 
type of plan, Employer Identification Number (EIN) number, etc.); an 
estimate of the number of plan participants; a detailed description of 
the exemption transaction and the parties for which an exemption is 
requested; a statement regarding which section of ERISA is thought to 
be violated and whether transaction(s) involved have already been 
entered into; a statement of whether the transaction is customary in 
the industry; a statement of the hardship or economic loss, if any, 
which would result if the exemption were denied; and a statement 
explaining why the proposed exemption would be administratively 
feasible and in the interests of the plan and protective of the rights 
of plan participants and beneficiaries. In addition, the applicant must 
certify that the information supplied is accurate and complete.
    The Final Amendment expands the ICR contained in Sec. Sec.  2570.34 
and 2570.35 in several respects. First, the Final Amendment expands the 
information sought about the proposed exemption transaction, such as 
requiring a more detailed description of the exemption transaction, 
including the benefits derived by the parties and the costs and 
benefits to the plan; alternative transactions considered; and 
descriptions of all conflicts of interest and self-dealing. Second, the 
Final Amendment requires the inclusion of additional information in 
exemption applications, such as a statement regarding whether the 
exemption transaction is in the best interest of the plan and its 
participants and beneficiaries; expanded disclosures about any Advisory 
Opinions that the applicant requests with respect to any issue related 
to the exemption transaction; and expanded disclosures about relevant 
investigations by any Federal, State, or regulatory body.

[[Page 4689]]

    The Final Amendment also revises the ICR to expand the number of 
specialized parties from whom statements and documents must be included 
in exemption applications. The specialized parties covered by the 
existing requirements are expanded to include not just independent 
appraisers and fiduciaries, but also auditors and accountants acting on 
behalf of the plan, and the documents required to be disclosed are 
expanded to cover any documents submitted by those parties in support 
of the application. Specialized parties are required to disclose, among 
other things, additional information regarding their contracts with the 
applicant, including, but not limited to, information on 
indemnification provisions, waivers, and relationships with other 
parties involved in the exemption transaction. In addition, the 
qualified independent fiduciaries and qualified independent appraisers 
are required to include specific information regarding conflicts of 
interest, fiduciary liability insurance, and whether the fiduciary has 
been under investigation or convicted of certain crimes.
    In addition to the requirements created by the application 
described in Sec. Sec.  2570.33 and 2570.35, additional requirements 
are added by amending Sec.  2570.33(d) with respect to applicants that 
communicate with the Department on a pre-submission basis. 
Specifically, if an applicant desires to engage in a pre-submission 
conference or correspondence, the applicant or its representative must 
(1) identify and fully describe the exemption transaction; and (2) set 
forth the prohibited transactions that the applicant believes are 
applicable.
    Pre-submission applicants also must submit in their applications a 
statement setting forth the date(s) and with whom the applicant 
communicated before submitting the application. Linking pre-submission 
communications to a current application ensures that the Department 
understands the entire context of an exemption application. The 
Department emphasizes, however, that this provision is only triggered 
when the applicant submits a formal exemption application.
    Finally, the Department is amending Sec.  2570.36 to provide that 
the application and supporting documents may be submitted 
electronically. The Department expects that no longer requiring paper 
copies of documents to be submitted should reduce the burden associated 
with this ICR.
    In order to assess the hour and cost burden of the revision to the 
baseline ICR associated with the Exemption Procedure Regulation, the 
Department updated its estimate of the number of exemption requests it 
expects to receive, and the hour and cost burden associated with 
providing information required to be submitted by applicants, including 
the new information required. The Department also adjusted its estimate 
of the labor rates for professional and clerical help and the size of 
plans filing exemption requests with the Department. In the revised 
estimate, the costs of hiring outside service providers (such as law 
firms specializing in ERISA, outside appraisers, and financial experts) 
are accounted for as a cost burden. Requirements related to these 
services are more explicitly specified in the final rule than they were 
in the previous procedure, and any paperwork costs associated with 
these requirements are built into the estimated fees for outside 
services.
    The costs associated with the Final Amendment are dependent on pre-
submission conference and application activity. Pre-submission activity 
is a potential initial contact with the Department to discuss a 
potential exemption application. These have traditionally been informal 
discussions which were not cataloged or tracked by the Department. For 
purposes of this Final Amendment, we assume that five plans conduct 
pre-submission conferences but do not ultimately apply for an 
exemption. Given the change in structure of the pre-submission 
conferences, these five plans would incur an additional cost, which is 
captured in the ``Pre-Submission Application'' line item below. Based 
on 2018-2022 application activity, the Department assumes that it will 
receive 21 applications annually. Based on 2019-2021 data, the 
Department assumes that five exemption applications reach the pendency 
stage which requires publication in the Federal Register and 
distribution of notices to participants. These five exemption 
applications could be approved following the public comment period.
    The typical plan size is assumed to be 700 participants, which is 
based on a weighted average plan size. The rule also requires that, in 
cases where the facts associated with the application are complex, the 
plan, at the point of publication in the Federal Register, provide a 
summary of the proposed exemption (SPE) with the notice. The Department 
assumes this to occur in roughly half the cases, therefore three 
summaries will be required to be prepared.
    The estimated hours burden and equivalent costs associated with 
this level of activity are presented in Table 2.

                                                        Table 2--Hour and Equivalent Cost Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Number of
                                                                requests            Hours        Hourly labor cost     Hour burden     Equivalent  costs
                                                                         (A)                (B)                (C)              A * B          A * B * C
--------------------------------------------------------------------------------------------------------------------------------------------------------
Prepare Request: In House Legal Professional.............                 21                 11            $159.34                231            $36,808
Prepare Request: Clerical................................                 21                 11              63.45                231             14,657
Prepare Request: Outside Legal Professional..............                 21                 51             535.85              1,071            573,895
Prepare Request: Outside Fiduciary/Experts...............                 21                 42             305.03                882            269,036
Prepare Request (SPE): In House Legal Professional.......                  3                  2             159.34                  6                956
Distribute Notice: Clerical..............................                  5               5/60              63.45                292             18,506
Pre-Submission Application...............................                  5                  1             159.34                  5                797
                                                          ----------------------------------------------------------------------------------------------
    Total................................................  .................  .................  .................              2,718            914,655
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 4690]]

    As discussed above, the Final Amendment allows applicants to submit 
their applications and supporting material electronically, which the 
Department assumes all applicants will choose as their default 
application method. This results in an estimated cost savings of $16.45 
per applicant, for a total of $345. The distribution of the notices to 
plan participants is expected to be $144 and is summarized in Table 3 
below. The majority (95.8%) of the notices to participants are expected 
to be delivered electronically.\34\
---------------------------------------------------------------------------

    \34\ The Department estimates approximately 95.8% of 
participants receive disclosures electronically under the combined 
effects of the 2002 electronic disclosures safe harbor and the 2020 
electronic safe harbor. The Department estimates that 58.3% of 
participants will receive electronic disclosures under the 2002 safe 
harbor. According to the National Telecommunications and Information 
Agency (NTIA), 37.4% of individuals aged 25 and over have access to 
the internet at work. According to a Greenwald & Associates survey, 
84.0% of plan participants find it acceptable to make electronic 
delivery the default option, which is used as the proxy for the 
number of participants who will not opt-out of electronic disclosure 
that are automatically enrolled (for a total of 31.4% receiving 
electronic disclosure at work). Additionally, the NTIA reports that 
44.1% of individuals aged 25 and over have access to the internet 
outside of work. According to a Pew Research Center survey, 61.0% of 
internet users use online banking, which is used as the proxy for 
the number of internet users who will affirmatively consent to 
receiving electronic disclosures (for a total of 26.9% receiving 
electronic disclosure outside of work). Combining the 31.4% who 
receive electronic disclosure at work with the 26.9% who receive 
electronic disclosure outside of work produces a total of 58.3%. The 
remaining 41.7% of participants are subject to the 2020 safe harbor. 
According to the 2021 American Community Survey, 90.3% of the 
population has an internet subscription. The Department estimates 
that 0.5% of electronic disclosures will bounce back and will need 
to be sent a paper disclosure. Accordingly, for the 41.7% of 
participants not affected by the 2002 safe harbor, 89.8%, or an 
additional 37.4% (41.7% x 89.8%), are estimated to receive 
electronic disclosures under the 2020 safe harbor. In total, the 
Department estimates that 95.8% (58.3% + 37.4%) would receive 
electronic disclosures.

                                                                  Table 3--Cost Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Number of
                                                    Number of       pages per     Material and             Mailing costs                 Cost burden
                                                     notices         notice      printing costs
                                                            (A)             (C)             (D)  (E)..............................   A * B * (C * D + E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Distribute Notice..............................             203               1           $0.05  $0.63............................                  $138
Distribute SPE.................................             122               1            0.05  Included with Notice.............                     6
                                                --------------------------------------------------------------------------------------------------------
    Total......................................  ..............  ..............  ..............  .................................                   144
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The paperwork burden estimates are summarized below:
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Procedures Governing the Filing and Processing of Prohibited 
Transaction Exemption Applications.
    OMB Control Number: 1210-0060.
    Affected Public: Businesses or other for-profits.
    Type of Review: Revision.
    Estimated Number of Respondents: 21.
    Estimated Number of Annual Responses: 3,592.
    Frequency of Response: Annual or as needed.
    Estimated Total Annual Burden Hours: 2,718 hours.
    Estimated Total Annual Burden Cost: $144.

2. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.), and which are 
likely to have a significant economic impact on a substantial number of 
small entities. Unless the head of an agency certifies that a final 
rule will not have a significant economic impact on a substantial 
number of small entities, RFA section 604 requires that the agency 
present a final regulatory flexibility analysis at the time of the 
publication of the notice of final rulemaking describing the impact of 
the rule on small entities and seeking public comment on such impact.
    Under RFA section 605, the Department certified at the proposed 
rule stage that the rule would not have a significant economic impact 
on a substantial number of small entities. After considering comments 
that were submitted to the Department on the proposed rule and 
testimony from witnesses at the public hearing, as well as changes the 
Department made to the proposal in the Final Amendment in response to 
such comments and testimony, the Department is confident that the 
certification remains valid with respect to the Final Amendment. 
Therefore, the Assistant Secretary of the Employee Benefits Security 
Administration hereby certifies that the Final Amendment will not have 
a significant economic impact on a substantial number of small 
entities. The Department presents its basis for making this 
determination below.
    For purposes of the RFA, the Department continues to consider a 
small entity to be an employee benefit plan with fewer than 100 
participants.\35\ Further, while some large employers may have small 
plans, in general, small employers maintain most small plans. Thus, the 
Department maintains that assessing the impact of this Final Amendment 
on small plans is an appropriate substitute for evaluating the effect 
on small entities. The definition of small entity considered 
appropriate for this purpose differs, however, from the definition of 
``small business'' that is based on size standards promulgated by the 
Small Business Administration (SBA) (13 CFR 121.201) pursuant to the 
Small Business Act (15 U.S.C. 631 et seq.). The Department requested 
comment at the proposed rule stage on the appropriateness of the size 
standard used in evaluating the impact on small entities and received 
no comments.
---------------------------------------------------------------------------

    \35\ The basis for this definition is found in ERISA section 
104(a)(2), which permits the Secretary to prescribe simplified 
annual reports for pension plans that cover fewer than 100 
participants. Pursuant to the authority of ERISA section 104(a)(3), 
the Department has previously issued at 29 CFR 2520.104-20, 
2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-10 certain 
simplified reporting provisions and limited exemptions from 
reporting and disclosure requirements for small plans, including 
unfunded or insured welfare plans covering fewer than 100 
participants and satisfying certain other requirements. The 
Department has consulted with the SBA Office of Advocacy concerning 
use of this participant count standard for RFA purposes and has a 
memorandum of understanding with the Office of Advocacy to use the 
standard. Memorandum received from the U.S. Small Business 
Administration, Office of Advocacy on July 10, 2020.
---------------------------------------------------------------------------

    Using this standard, most plans seeking an exemption are large 
plans. Even if the Department assumes that all the 21 estimated plans 
seeking exemptions each year are small, based on the approximately 
652,934 ERISA-

[[Page 4691]]

covered small pension plans, the 21 plans annually seeking an exemption 
make up a very small percentage of all plans (0.0031 percent of small 
plans). The Department does not consider this to constitute a 
substantial number of small entities that would be sufficient to invoke 
that application of the RFA.

3. Congressional Review Act

    This Final Amendment is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and will be transmitted to Congress and the 
Comptroller General for review.

4. Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), the Final Amendment does not include any Federal mandate that 
may result in expenditures by State, local, or tribal governments, or 
impose an annual burden exceeding $100 million or more, adjusted for 
inflation, on the private sector.

5. Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires Federal agencies to adhere to 
specific criteria in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, or the relationship between the National Government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This Final Amendment does not have 
federalism implications because it has no substantial direct effect on 
the States, on the relationship between the National Government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. ERISA section 514 provides, with certain 
exceptions specifically enumerated, that the provisions of Titles I and 
IV of ERISA supersede any and all laws of the States as they relate to 
any employee benefit plan covered under ERISA. The requirements 
implemented in the Final Amendment do not alter the fundamental 
provisions of the statute with respect to employee benefit plans, and 
as such would have no implications for the States or the relationship 
or distribution of power between the National Government and the 
States.

List of Subjects in 29 CFR Part 2570

    Administrative practice and procedure, Employee benefit plans, 
Exemptions, Fiduciaries, Party in interest, Pensions, Prohibited 
transactions, Trusts and trustees.

    For the reasons set forth in the preamble, the Department amends 29 
CFR part 2570 as follows:

PART 2570--PROCEDURAL REGULATIONS UNDER THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT

0
1. The authority citation for part 2570 continues to read as follows:

    Authority: 5 U.S.C. 8477; 29 U.S.C. 1002(40), 1021, 1108, 1132, 
and 1135; sec. 102, Reorganization Plan No. 4 of 1978, 5 U.S.C. App 
at 672 (2006); Secretary of Labor's Order 3-2010, 75 FR 55354 
(September 10, 2010).
    Subpart I is also issued under 29 U.S.C. 1132(c)(8).


0
2. Revise subpart B to read as follows:

Subpart B--Procedures Governing the Filing and Processing of 
Prohibited Transaction Exemption Applications

Sec.
2570.30 Scope of this subpart.
2570.31 Definitions.
2570.32 Persons who may apply for exemptions and the administrative 
record.
2570.33 Applications the Department will not ordinarily consider.
2570.34 Information to be included in every exemption application.
2570.35 Information to be included in applications for individual 
exemptions only.
2570.36 Where to file an application.
2570.37 Duty to amend and supplement exemption applications.
2570.38 Tentative denial letters.
2570.39 Opportunities to submit additional information.
2570.40 Conferences.
2570.41 Final denial letters.
2570.42 Notice of proposed exemption.
2570.43 Notification of interested persons by applicant.
2570.44 Withdrawal of exemption applications.
2570.45 Requests for reconsideration.
2570.46 Hearings in opposition to exemptions from restrictions on 
fiduciary self-dealing and conflicts of interest.
2570.47 Other hearings.
2570.48 Decision to grant exemptions.
2570.49 Limits on the effect of exemptions.
2570.50 Revocation or modification of exemptions.
2570.51 Public inspection and copies.
2570.52 Effective date.


Sec.  2570.30  Scope of this subpart.

    (a) The rules of procedure set forth in this subpart apply to 
applications for prohibited transaction exemptions issued by the 
Department under the authority of:
    (1) Section 408(a) of the Employee Retirement Income Security Act 
of 1974 (ERISA);
    (2) Section 4975(c)(2) of the Internal Revenue Code of 1986 (the 
Code); or

    Note 1 to paragraph (a)(2). See H.R. Rep. No. 1280, 93d Cong., 
2d Sess. 310 (1974), and also section 102 of Presidential 
Reorganization Plan No. 4 of 1978 (3 CFR, 1978 Comp., p. 332, 
reprinted in 5 U.S.C. app. at 672 (2006), and in 92 Stat. 3790 
(1978)), effective December 31, 1978, which generally transferred 
the authority of the Secretary of the Treasury to issue 
administrative exemptions under section 4975(c)(2) of the Code to 
the Department.

    (3) The Federal Employees' Retirement System Act of 1986 (FERSA) (5 
U.S.C. 8477(c)(3)).
    (b) Under the rules of procedure in this subpart, the Department 
may conditionally or unconditionally exempt any fiduciary or 
transaction, or class of fiduciaries or transactions, from all or part 
of the restrictions imposed by ERISA section 406 and the corresponding 
restrictions of the Code and FERSA. While administrative exemptions 
granted under the rules in this subpart are ordinarily prospective in 
nature, it is possible that an applicant may obtain retroactive relief 
for past prohibited transactions if, among other things, the Department 
determines that appropriate safeguards were in place at the time the 
exemption transaction was consummated, and no plan participants or 
beneficiaries were harmed by the exemption transaction.
    (c) The rules in this subpart govern the filing and processing of 
applications for both individual and class exemptions that the 
Department may propose and grant pursuant to the authorities cited in 
paragraph (a) of this section. The Department may also propose and 
grant exemptions on its own motion, in which case the procedures 
relating to publication of notices, hearings, evaluation, and public 
inspection of the administrative record, and modification or revocation 
of previously granted exemptions will apply.
    (d) The issuance of an administrative exemption by the Department 
under the procedural rules in this subpart does not relieve a fiduciary 
or other party in interest or disqualified person with respect to a 
plan from the obligation to comply with certain other provisions of 
ERISA, the Code, or FERSA, including any prohibited transaction 
provisions to which the exemption does not apply, and the general 
fiduciary responsibility provisions of ERISA, if applicable, which 
require, among other things, fiduciaries to discharge their duties 
respecting the plan solely in the

[[Page 4692]]

interests of the participants and beneficiaries of the plan and in a 
prudent fashion; nor does it affect the requirements of Code section 
401(a), including that the plan must operate for the exclusive benefit 
of the employees of the employer maintaining the plan and their 
beneficiaries, or the rules with respect to other Code provisions, 
including that an administrative exemption with respect to a 
contribution to a pension plan does not affect the deductibility of the 
contribution under Code section 404.
    (e) The Department will not propose or issue exemptions upon oral 
request alone, nor will the Department grant exemptions orally. An 
applicant for an administrative exemption may request and receive oral 
feedback from Department employees in preparing an exemption 
application, which will not be binding on the Department in its 
processing of an exemption application or in its examination or audit 
of a plan.
    (f) The Department will generally treat any exemption application 
that is filed solely under ERISA section 408(a) or solely under Code 
section 4975(c)(2) as an exemption request filed under both ERISA 
section 408(a) and Code section 4975(c)(2) if it relates to a plan that 
is subject to both ERISA and the Code and the exemption transaction 
would be prohibited by both ERISA and the corresponding Code 
provisions.
    (g) The Department issues an administrative exemption at its sole 
discretion based on the statutory criteria set forth in ERISA section 
408(a) and Code section 4975(c)(2). The existence of previously issued 
administrative exemptions is not determinative of whether the 
Department will propose future exemptions for applications with the 
same or similar facts, or whether a proposed exemption will contain the 
same conditions as a previously issued administrative exemption. 
Previously issued administrative exemptions, however, may inform the 
Department's determination of whether to propose future exemptions 
based on the unique facts and circumstances of each application.


Sec.  2570.31  Definitions.

    For purposes of the procedures in this subpart, the following 
definitions apply:
    (a) An affiliate of a person means--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person. For purposes of this paragraph (a)(1), the term 
``control'' means the power to exercise a controlling influence over 
the management or policies of a person other than an individual;
    (2) Any officer, director, partner, employee, or relative (as 
defined in ERISA section 3(15)) of any such person; or
    (3) Any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, partner, or 
five percent or more owner.
    (b) A class exemption is an administrative exemption, granted under 
ERISA section 408(a), Code section 4975(c)(2), and/or 5 U.S.C. 
8477(c)(3), which applies to any transaction and party in interest 
within the class of transactions and parties in interest specified in 
the exemption when the conditions of the exemption are satisfied.
    (c) Department means the U.S. Department of Labor and includes the 
Secretary of Labor or their delegate exercising authority with respect 
to prohibited transaction exemptions to which this subpart applies.
    (d) Exemption transaction means the transaction or transactions for 
which an exemption is requested.
    (e) An individual exemption is an administrative exemption, granted 
under ERISA section 408(a), Code section 4975(c)(2), and/or 5 U.S.C. 
8477(c)(3), which applies only to the specific parties in interest and 
exemption transactions named or otherwise defined in the exemption.
    (f) A party in interest means a person described in ERISA section 
3(14) or 5 U.S.C. 8477(a)(4) and includes a disqualified person, as 
defined in Code section 4975(e)(2).
    (g) Pooled fund means an account or fund for the collective 
investment of the assets of two or more unrelated plans, including (but 
not limited to) a pooled separate account maintained by an insurance 
company and a common or collective trust fund maintained by a bank or 
similar financial institution.
    (h) A qualified appraisal report is any appraisal report that:
    (1) Is prepared by a qualified independent appraiser; and
    (2) Satisfies all the requirements set forth in Sec.  
2570.34(c)(5).
    (i) A qualified independent appraiser is any individual or entity 
with appropriate training, experience, and facilities to provide a 
qualified appraisal report regarding the particular asset or property 
appraised in the report, that is independent of and unrelated to any 
party in interest engaging in the exemption transaction (and their 
affiliates). In general, the Department determines an appraiser's 
independence based on all relevant facts and circumstances, such as the 
extent to which the plan's counterparty in the transaction participated 
in or influenced the selection of the appraiser. In making the 
independence determination, the Department will consider the amount of 
the appraiser's revenues and projected revenues for the current Federal 
income tax year (including amounts received for preparing the appraisal 
report) that will be derived from parties in interest (and their 
affiliates) relative to the appraiser's revenues from all sources for 
the appraiser's prior Federal income tax year. The Department generally 
will not conclude that an appraiser's independence is compromised 
solely based on the revenues it receives from the parties in interest 
(and their affiliates) that engaged in the exemption transaction, to 
the extent that the appraiser neither receives nor is projected to 
receive more than two (2) percent of its revenues within the current 
Federal income tax year from the parties in interest (and their 
affiliates). Although larger percentages merit more stringent scrutiny, 
an appraiser may be considered independent based upon other facts and 
circumstances provided that the appraiser neither receives nor is 
projected to receive more than five (5) percent of its revenues within 
the current Federal income tax year from parties in interest (and their 
affiliates) participating in the exemption transaction.
    (j) A qualified independent fiduciary is any individual or entity 
with appropriate training, experience, and facilities to act on behalf 
of the plan regarding the exemption transaction in accordance with the 
fiduciary duties and responsibilities prescribed by ERISA, that is 
independent of and unrelated to any party in interest engaging in the 
exemption transaction (and its affiliates). In general, the Department 
will make the determination of whether a fiduciary is independent based 
on all relevant facts and circumstances, such as the extent to which 
the plan's counterparty in the transaction participated in or 
influenced the selection of the fiduciary. In making this 
determination, the Department will also take into account, among other 
things, the amount of both the fiduciary's revenues and projected 
revenues for the current Federal income tax year (including amounts 
received for preparing fiduciary reports) that will be derived from 
parties in interest engaging in the exemption transaction (and their 
affiliates) relative to the fiduciary's revenues from all sources for 
the prior Federal income tax year. The Department generally will not 
conclude that a fiduciary's independence is

[[Page 4693]]

compromised solely based on the revenues it receives from parties in 
interest (and their affiliates) that engaged in the exemption 
transaction, to the extent that the fiduciary neither receives nor is 
projected to receive more than two (2) percent of its revenues within 
the current Federal income tax year from the parties in interest (and 
their affiliates). Although larger percentages merit more stringent 
scrutiny, a fiduciary may be considered independent based upon other 
facts and circumstances provided that the fiduciary neither receives 
nor is projected to receive more than five (5) percent of its revenues 
within the current Federal income tax year from the parties in interest 
(and their affiliates) that engaged in the exemption transaction.
    (k) A pre-submission applicant is a party that contacts the 
Department, either orally or in writing, to inquire whether a party 
with a particular fact pattern would need to submit an exemption 
application and, if so, what conditions and relief would be applicable. 
A party that contacts the Department to inquire broadly, without 
reference to a specific fact pattern, about prohibited transaction 
exemptions is not a pre-submission applicant.


Sec.  2570.32  Persons who may apply for exemptions and the 
administrative record.

    (a) The following persons may apply for exemptions:
    (1) Any party in interest to a plan who is or may be a party to the 
exemption transaction;
    (2) Any plan which is a party to the exemption transaction; or
    (3) In the case of an application for an exemption covering a class 
of parties in interest or a class of transactions, in addition to any 
person described in paragraphs (a)(1) and (2) of this section, an 
association or organization representing parties in interest who may be 
parties to the exemption transaction.
    (b) An application by or for a person described in paragraph (a) of 
this section may be submitted by the applicant or by an authorized 
representative. An application submitted by an authorized 
representative of the applicant must include proof of authority in the 
form of:
    (1) A power of attorney; or
    (2) A written certification from the applicant that the 
representative is authorized to file the application.
    (c) If the authorized representative of an applicant submits an 
exemption application to the Department together with proof of 
authority to file the application as required by paragraph (b) of this 
section, the Department will direct all correspondence and inquiries 
concerning the application to the representative unless requested to do 
otherwise by the applicant.
    (d)(1) The administrative record is open for public inspection, 
pursuant to Sec.  2570.51(a), from the date an applicant submits an 
application to the Office of Exemption Determinations.
    (2) The administrative record includes, but is not limited to, the 
initial exemption application and any modifications or supplements 
thereto; all correspondence with the applicant after the applicant 
submits the exemption application; and any information provided by the 
applicant in connection with the exemption application, whether 
provided orally or in writing (as well as any comments and testimony 
received by the Department in connection with an application).
    (3) Although the administrative record is open and available to the 
public only after an applicant submits an exemption application, the 
record includes any material documents or supporting information that 
was submitted to the Department in connection with the subject 
transaction of the application, whether orally or in writing, before 
formal submission of the application. The administrative record does 
not include records of communications with the Department which were 
either not with respect to the subject transaction of the application 
or not followed by the submission of an exemption application related 
to those communications.
    (4) If documents are required to be provided in writing, by either 
the applicant or the Department, the documents may be provided either 
by mail or electronically, unless otherwise indicated by the Department 
at its sole discretion.


Sec.  2570.33  Applications the Department will not ordinarily 
consider.

    (a) The Department ordinarily will not consider an application that 
fails to include all the information required by Sec. Sec.  2570.34 and 
2570.35 (or fails to include current information) or otherwise fails to 
conform to the requirements in this subpart.
    (b) An application for an individual exemption relating to a 
specific exemption transaction or transactions ordinarily will not be 
considered if the Department has under consideration a class exemption 
relating to the same type of transaction or transactions. 
Notwithstanding the preceding sentence, the Department may consider 
such an application if the issuance of the final class exemption is not 
imminent, and the Department determines that time constraints 
necessitate consideration of the exemption transaction on an individual 
basis.
    (c) If a party, excluding a Federal, state, or other governmental 
entity, designates any information submitted in connection with its 
exemption application as confidential, the Department will not process 
the application unless and until the applicant withdraws its claim of 
confidentiality. By submitting an exemption application, an applicant 
consents to public disclosure of the entire administrative record 
pursuant to Sec.  2570.51.
    (d) The Department will not engage a pre-submission applicant or 
its representative, whether through written correspondence or a 
conference, if the pre-submission applicant does not:
    (1) Identify and fully describe the exemption transaction; and
    (2) Set forth the prohibited transactions that the applicant 
believes are applicable.


Sec.  2570.34  Information to be included in every exemption 
application.

    (a) All applications for exemptions must contain the following 
information:
    (1) The name(s), address(es), phone number(s), and email 
address(es) of the applicant(s);
    (2) A detailed description of the exemption transaction, including 
the identification of all the parties in interest involved, a 
description of any larger integrated transaction of which the exemption 
transaction is a part, and a chronology of the events leading up to the 
exemption transaction;
    (3) The identity, address, phone number, and email address of any 
representatives for the affected plan(s) and parties in interest and 
what individuals or entities they represent;
    (4) A description of:
    (i) The reason(s) for engaging in the exemption transaction;
    (ii) Any material benefit that may be received by a party in 
interest (or its affiliates) as a result of the exemption transaction 
(including the avoidance of any materially adverse outcome by a party 
in interest (or its affiliates) as a result of engaging in the 
exemption transaction); and
    (iii) The costs and benefits of the exemption transaction to the 
affected plan(s), participants, and beneficiaries, including 
quantification of those costs and benefits to the extent possible;
    (5) A description of the alternatives to the exemption transaction 
that did not involve a prohibited transaction that were considered or 
evaluated by the

[[Page 4694]]

applicant before submitting its exemption application and the reason(s) 
why those alternatives were not pursued;
    (6) The prohibited transaction provisions from which exemptive 
relief is requested and the reason(s) why the exemption transaction 
would violate each such provision;
    (7) A description of each conflict of interest or potential 
instance of self-dealing that would be permitted if the exemption is 
granted;
    (8) Whether the exemption transaction is or has been the subject of 
an investigation or enforcement action by the Department, the Internal 
Revenue Service, or any other regulatory authority; and
    (9) The hardship or economic loss, if any, which would result to 
the person or persons on behalf of whom the exemption is sought, to 
affected plans, and to their participants and beneficiaries from denial 
of the exemption.
    (10) With respect to the exemption transaction's definition of 
affiliate, if applicable, either a statement that the definition of 
affiliate set forth in Sec.  2570.31(a) is applicable or a statement 
setting forth why a different affiliate definition should be applied.
    (b) All applications for exemption must also contain the following:
    (1) A statement explaining why the requested exemption would meet 
the requirements of ERISA section 408(a) by being--
    (i) Administratively feasible for the Department;
    (ii) In the interests of affected plans and their participants and 
beneficiaries; and
    (iii) Protective of the rights of participants and beneficiaries of 
affected plans.
    (2) A statement that either:
    (i)(A) The exemption transaction will be in the best interest of 
the plan and its participants and beneficiaries;
    (B) That all compensation received, directly or indirectly, by a 
party in interest (and its affiliates) involved in the exemption 
transaction does not exceed reasonable compensation within the meaning 
of ERISA section 408(b)(2) and Code section 4975(d)(2); and
    (C) That all statements to the Department, the plan, or, if 
applicable, the qualified independent fiduciary or qualified 
independent appraiser about the exemption transaction and other 
relevant matters are not materially misleading at the time the 
statements are made; or
    (ii) Explains why the exemption standards in paragraphs 
(b)(2)(i)(A) through (C) of this section are not applicable to the 
exemption transaction.
    (iii) For purposes of this paragraph (b)(2), an exemption 
transaction is in the best interest of a plan if the plan fiduciary 
causing the plan to enter into the exemption transaction determines, 
with the care, skill, prudence, and diligence under the circumstances 
then prevailing, that a prudent person acting in a like capacity and 
familiar with such matters would, in the conduct of an enterprise of a 
like character and with like aims, enter into the exemption transaction 
based on the circumstances and needs of the plan. Such fiduciary shall 
not place the financial or other interests of itself, a party in 
interest, or any affiliate ahead of the interests of the plan or 
subordinate the plan's interests to itself, or any other party or 
affiliate.
    (3) With respect to the notification of interested persons required 
by Sec.  2570.43:
    (i) A description of the interested persons to whom the applicant 
intends to provide notice;
    (ii) The manner in which the applicant will provide such notice; 
and
    (iii) An estimate of the time the applicant will need to furnish 
notice to all interested persons following publication of a notice of 
the proposed exemption in the Federal Register.
    (4) If any party to the exemption transaction has requested either 
an advisory opinion from the Department or any similar opinion or 
guidance from another Federal, state, or regulatory body with respect 
to any issue relating to the exemption transaction--
    (i) A copy of the opinion, letter, or similar document concluding 
the Department's or other entity's action on the request; or
    (ii) If the Department or other entity has not yet concluded its 
action on the request:
    (A) A copy of the request or the date on which it was submitted 
and, solely with respect to an advisory opinion request to the 
Department, the Department's correspondence control number as indicated 
in the acknowledgment letter; and
    (B) An explanation of the effect the issuance of an advisory 
opinion by the Department or similar opinion or guidance from another 
Federal, state, or regulatory body would have upon the exemption 
transaction.
    (5) If the application is to be signed by anyone other than the 
party in interest seeking exemptive relief on their own behalf, a 
statement which--
    (i) Identifies the individual signing the application and their 
position or title; and
    (ii) Briefly explains the basis of their familiarity with the 
matters discussed in the application.
    (6)(i) A declaration in the following form:
    I certify that I am familiar with the matters discussed in this 
application and, to the best of my knowledge and belief, the 
representations made in this application are true and correct.
    (ii) This certification must be dated and signed by:
    (A) The applicant, in its individual capacity, in the case of an 
individual party in interest seeking exemptive relief on their own 
behalf;
    (B) A corporate officer or partner if the applicant is a 
corporation or partnership;
    (C) A designated officer or official if the applicant is an 
association, organization, or other unincorporated enterprise; or
    (D) The plan fiduciary that has the authority, responsibility, and 
control with respect to the exemption transaction if the applicant is a 
plan.
    (7) If an applicant communicated with the Department either orally 
or in writing before submitting an exemption application for the 
exemption transaction, a statement setting forth the date(s) and with 
whom the applicant communicated before submitting the application.
    (c) Statements and documents from a qualified independent 
appraiser, auditor, or accountant, such as appraisal reports, analyses 
of market conditions, audits, or financial documents submitted to 
support an application for exemption must be accompanied by a statement 
of consent from such appraiser, auditor, or accountant acknowledging 
that the statement is being submitted to the Department as part of an 
exemption application. The statements by the qualified independent 
appraiser, auditor, or accountant must also contain the following 
written information:
    (1) A signed and dated certification stating that, to the best of 
the qualified independent appraiser's, auditor's, or accountant's 
knowledge and belief, the representations made in such statement are 
true and correct;
    (2) A copy of the qualified independent appraiser's, auditor's, or 
accountant's engagement letter and, if applicable, contract with the 
plan describing the specific duties the appraiser, auditor, or 
accountant shall undertake. The letter or contract may not:
    (i) Include any provision that provides for the direct or indirect 
indemnification or reimbursement of the independent appraiser, auditor, 
or

[[Page 4695]]

accountant by the plan or another party for any failure to adhere to 
its contractual obligations or to Federal and state laws applicable to 
the appraiser's, auditor's, or accountant's work. However, the letter 
or contract may include a provision providing for reimbursement of 
legal expenses with respect to claims for any failure to adhere to the 
appraiser's, auditor's, or accountant's contractual obligations or to 
Federal and state laws applicable to the appraiser's, auditor's, or 
accountant's work, provided that:
    (A) The plan determines that the reimbursement is prudent following 
a good faith determination that the appraiser, auditor, or accountant 
likely did not fail to adhere to the independent fiduciary's 
contractual obligations or to Federal and state laws applicable to the 
appraiser's, auditor's, or accountant's work and will be able to repay 
the plan; and
    (B) The letter or contract requires the appraiser, auditor, or 
accountant to repay all of the reimbursements, in a timely fashion, in 
the event the appraiser, auditor, or accountant enters into a 
settlement agreement regarding any asserted failure to adhere to its 
contractual obligations, or to state or Federal laws, or has been found 
liable for breach of contract or violation of any Federal or state laws 
applicable to the appraiser's, auditor's, or accountant's work; or
    (ii) Waive any rights, claims, or remedies of the plan or its 
participants and beneficiaries under ERISA, the Code, or other Federal 
and state laws against the independent appraiser, auditor, or 
accountant with respect to the exemption transaction;
    (3) A summary of the qualified independent appraiser's, auditor's, 
or accountant's qualifications to serve in such capacity;
    (4) A detailed description of any relationship that the qualified 
independent appraiser, auditor, or accountant has had or may have with 
the plan or any party in interest involved in the exemption transaction 
or its affiliates that may influence the appraiser, auditor, or 
accountant, including a description of any past engagements with the 
appraiser, auditor, or accountant;
    (5) A written appraisal report prepared by the qualified 
independent appraiser, which determines, to the best of the qualified 
independent appraiser's ability and in accordance with professional 
appraisal standards, the fair market value of the subject asset(s), 
without bias towards the plan's counterparty in the transaction or 
other interested parties:
    (i) The report must describe the method(s) used in determining the 
fair market value of the subject asset(s) and an explanation of why 
such method best reflects the fair market value of the asset(s);
    (ii) The report must consider any special benefit that a party in 
interest involved in the exemption transaction may derive from control 
of the asset(s), such as from owning an adjacent parcel of real 
property or gaining voting control over a company; and
    (iii) The report must be current and not more than one year old 
from the date of the exemption transaction, and a written update must 
be prepared by the qualified independent appraiser affirming the 
accuracy of the appraisal as of the date of the exemption transaction;
    (6) If the subject of the appraisal report is real property, the 
qualified independent appraiser shall submit a written representation 
that they are a member of a professional organization of appraisers 
that can sanction its members for misconduct;
    (7) If the subject of the appraisal report is an asset other than 
real property, the qualified independent appraiser shall submit a 
written representation describing the appraiser's prior experience in 
valuing assets of the same type; and
    (8) The qualified independent appraiser shall submit a written 
representation disclosing the percentage of its current revenue that is 
derived from any party in interest (or its affiliates) involved in the 
exemption transaction; in general, such percentage shall be computed 
with respect to the two separate disclosures by comparing, in 
fractional form:
    (i) The amount of the appraiser's projected revenues from the 
current Federal income tax year (including amounts received from 
preparing the appraisal report) that will be derived from any party in 
interest (or its affiliates) involved in the exemption transaction 
(expressed as a numerator); and
    (ii) The appraiser's revenues from all sources for the prior 
Federal income tax year (expressed as a denominator).
    (d) For those exemption transactions requiring the retention of a 
qualified independent appraiser, the applicant must include:
    (1) A representation that the independent fiduciary prudently 
selected the appraiser after diligent review of the appraiser's 
technical training and proficiency with respect to the type of 
valuation at issue, the appraiser's independence from the plan's 
counterparties in the exemption transaction, and the absence of any 
material conflicts of interest with respect to the exemption 
transaction;
    (2) A representation that the appraiser is independent within the 
meaning of Sec.  2571.31(i); and
    (3) A representation that the independent appraiser has appropriate 
technical training and proficiency with respect to the specific details 
of the exemption transaction.
    (e) For those exemption transactions requiring the retention of a 
qualified independent fiduciary to represent the interests of the plan, 
the applicant must include:
    (1) A representation that an appropriate fiduciary, without 
material conflicts of interest, prudently selected the independent 
fiduciary after diligent review of the independent fiduciary's 
technical training and proficiency with respect to ERISA, the Code, and 
the specific details of the exemption transaction, as well as the 
sufficiency of the independent fiduciary's fiduciary liability 
insurance;
    (2) A representation that the fiduciary retained to act as the 
independent fiduciary is independent within the meaning of Sec.  
2570.31(j);
    (3) A representation that the independent fiduciary has appropriate 
technical training and proficiency with respect to:
    (i) ERISA and the Code; and
    (ii) The specific details of the exemption transaction.
    (f) For exemption transactions requiring the retention of a 
qualified independent fiduciary to represent the interests of the plan, 
a statement must be submitted by such independent fiduciary that 
contains the following written information:
    (1) A signed and dated certification that, to the best of the 
qualified independent fiduciary's knowledge and belief, all the 
representations made in such statement are true and correct;
    (2) A copy of the qualified independent fiduciary's engagement 
letter and, if applicable, contract with the plan describing the 
fiduciary's specific duties. The letter or contract may not:
    (i) Contain any provisions that violate ERISA section 410;
    (ii) Include any provision that provides for the direct or indirect 
indemnification or reimbursement of the independent fiduciary by the 
plan or other party for any failure to adhere to its contractual 
obligations or to state or Federal laws applicable to the independent 
fiduciary's work, except that the letter or contract may include a 
provision providing for reimbursement of legal expenses with

[[Page 4696]]

respect to claims for any failure to adhere to the independent 
fiduciary's contractual obligations or to Federal and state laws 
applicable to the independent fiduciary's work, provided that:
    (A) The plan determines that the provision is prudent following a 
good faith determination that the independent fiduciary likely did not 
fail to adhere to the independent fiduciary's contractual obligations 
or to Federal and state laws applicable to the independent fiduciary's 
work and will be able to repay the plan; and
    (B) The letter or contract requires the independent fiduciary to 
repay all of the reimbursements, in a timely fashion, if the 
independent fiduciary enters into a settlement agreement regarding any 
asserted failure to adhere to its contractual obligations, or to state 
or Federal law, or has been found liable for breach of contract or 
violation of any Federal or state laws applicable to the independent 
fiduciary's work; or
    (iii) Waive any rights, claims, or remedies of the plan under 
ERISA, state, or Federal law against the independent fiduciary with 
respect to the exemption transaction;
    (3)(i) A description of any fiduciary liability insurance policy 
maintained by the independent fiduciary that includes:
    (A) The amount of coverage available to indemnify the plan for 
damages resulting from a breach by the independent fiduciary of either 
ERISA, the Code, or any other Federal or state law or its contract or 
engagement letter; and
    (B) Whether the insurance policy contains an exclusion for actions 
brought by the Secretary or any other Federal, state, or regulatory 
body; the plan; or plan participants or beneficiaries;
    (4) An explanation of the bases for the conclusion that the 
fiduciary is a qualified independent fiduciary, which also must include 
a summary of that person's or entity's qualifications to serve in such 
capacity and a description of any prior experience by that person or 
entity or other demonstrated characteristics of the fiduciary (such as 
special areas of expertise) that render that person or entity suitable 
to perform its duties as a qualified independent fiduciary on behalf of 
the plan with respect to the exemption transaction;
    (5) A detailed description of any relationship that the qualified 
independent fiduciary has had or may have with the plan and any party 
in interest involved in the exemption transaction (or its affiliates);
    (6) An acknowledgement by the qualified independent fiduciary that 
it understands its duties and responsibilities under ERISA; is acting 
as a fiduciary of the plan with respect to the exemption transaction; 
has no material conflicts of interest with respect to the exemption 
transaction; and is not acting as an agent or representative of the 
plan sponsor;
    (7) The qualified independent fiduciary's opinion on whether the 
exemption transaction would be in the interests of the plan and its 
participants and beneficiaries, protective of the rights of 
participants and beneficiaries of the plan, and in compliance with the 
standards set forth in paragraphs (b)(2)(i)(A) through (C) of this 
section, if applicable, along with a statement of the reasons on which 
the opinion is based;
    (8) If the exemption transaction is continuing in nature, a 
declaration by the qualified independent fiduciary that it is 
authorized to take all appropriate actions to safeguard the interests 
of the plan, and will, during the pendency of the exemption 
transaction:
    (i) Monitor the exemption transaction on behalf of the plan and its 
participants and beneficiaries on a continuing basis;
    (ii) Ensure that the exemption transaction remains in the interests 
of the plan and its participants and beneficiaries and, if not, take 
any appropriate actions available under the particular circumstances; 
and
    (iii) Enforce compliance with all conditions and obligations 
imposed on any party dealing with the plan with respect to the 
exemption transaction;
    (9) The qualified independent fiduciary shall submit a written 
representation disclosing the percentage of its current revenue that is 
derived from any party in interest involved in the exemption 
transaction (or its affiliates) with respect to both the prior Federal 
income tax year and current Federal income tax year; in general, such 
percentage shall be computed with respect to the two disclosures by 
comparing in fractional form:
    (i) The amount of the independent fiduciary's projected revenues 
from the current Federal income tax year that will be derived from 
parties in interest involved in the exemption transaction and their 
affiliates (expressed as a numerator); and
    (ii) The independent fiduciary's revenues from all sources 
(excluding fixed, non-discretionary retirement income) for the prior 
Federal income tax year (expressed as a denominator);
    (10) A statement that the independent fiduciary has no conflicts of 
interest with respect to the exemption transaction that could affect 
the exercise of its best judgment as a fiduciary;
    (11) Either:
    (i) A statement that, within the last five years, the independent 
fiduciary has not been under investigation or examination by, and has 
not engaged in litigation, or a continuing controversy with the 
Department, the Internal Revenue Service, the Justice Department, the 
Pension Benefit Guaranty Corporation, the Federal Retirement Thrift 
Investment Board, or any other Federal or state entity involving:
    (A) Compliance with provisions of ERISA or FERSA;
    (B) Its representation of or position or employment with any 
employee benefit plan, including investigations or controversies 
involving ERISA or the Code, or any other Federal or state law;
    (C) Conduct of the business of a broker, dealer, investment 
adviser, bank, insurance company, or fiduciary;
    (D) Income tax evasion; or
    (E) Any felony or conspiracy involving the larceny, theft, robbery, 
extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities; or
    (ii) A statement describing the applicable investigation, 
examination, litigation, or controversy; and
    (12)(i)(A) Either a statement that, within the last 13 years, the 
independent fiduciary has not been:
    (1) Convicted or released from imprisonment, whichever is later, as 
a result of any felony involving abuse or misuse of such person's 
position or employment with an employee benefit plan or a labor 
organization; any felony arising out of the conduct of the business of 
a broker, dealer, investment adviser, bank, insurance company, or 
fiduciary; income tax evasion; any felony involving the larceny, theft, 
robbery, extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities; conspiracy or attempt to commit any such crimes or a crime 
of which any of the foregoing crimes is an element; or any crime 
identified in ERISA section 411, regardless of whether the conviction 
occurred in a U.S. or foreign jurisdiction; or
    (2) Convicted by a foreign court of competent jurisdiction or 
released from imprisonment, whichever is later, as a result of any 
crime that is substantially equivalent to an offense described in 
paragraph (f)(12)(i)(A)(1) of this section; or
    (B) A statement describing a conviction or release from 
imprisonment described in paragraph (f)(12)(i)(A) of this section.

[[Page 4697]]

    (ii) For purposes of this paragraph (f), a person shall be deemed 
to have been ``convicted'' from the date of the judgment of the trial 
court (or the date of the judgment of any court in a foreign 
jurisdiction that is the equivalent of a U.S. Federal or state trial 
court), regardless of whether that judgment remains under appeal, and 
regardless of whether the foreign jurisdiction considers a trial court 
judgment final while under appeal.
    (g) Statements, as applicable, from other third-party experts, 
including but not limited to economists or market specialists, 
submitted on behalf of the plan to support an exemption application 
must be accompanied by a statement of consent from such expert 
acknowledging that the statement prepared on behalf of the plan is 
being submitted to the Department as part of an exemption application. 
Such statements must also contain the following written information:
    (1) A copy of the expert's engagement letter and, if applicable, 
contract with the plan describing the specific duties the expert will 
undertake;
    (2) A summary of the expert's qualifications to serve in such 
capacity; and
    (3) A detailed description of any relationship that the expert has 
had or may have with any party in interest (or its affiliates) involved 
in the exemption transaction that may influence the actions of the 
expert.
    (h) An application for exemption may also include a draft of the 
requested exemption which describes the exemption transaction and 
parties in interest for which exemptive relief is sought and the 
specific conditions under which the exemption would apply.


Sec.  2570.35  Information to be included in applications for 
individual exemptions only.

    (a) Except as provided in paragraph (c) of this section, every 
application for an individual exemption must include, in addition to 
the information specified in Sec.  2570.34, the following information:
    (1) The name, address, email address, telephone number, and type of 
plan or plans to which the requested exemption applies;
    (2) The Employer Identification Number (EIN) and the plan number 
(PN) used by such plan or plans in all reporting and disclosure 
required by the Department (individuals should not submit Social 
Security numbers);
    (3) Whether any plan or trust affected by the requested exemption 
is currently under investigation for violation of, or has ever been 
found by the Department, the Internal Revenue Service, or by a court to 
have violated, the exclusive benefit rule of Code section 401(a), Code 
section 4975(c)(1), ERISA sections 406 or 407(a), or 5 U.S.C. 
8477(c)(3), including a description of the circumstances surrounding 
such violation;
    (4) Whether any relief under ERISA section 408(a), Code section 
4975(c)(2), or 5 U.S.C. 8477(c)(3) has been requested by, or provided 
to, the applicant or any parties in interest (or their affiliates) 
involved in the exemption transaction and, if so, the exemption 
application number or the prohibited transaction exemption number;
    (5) Whether the applicant or any party in interest (or its 
affiliates) involved in the exemption transaction is currently, or has 
been within the last five years, a defendant in any lawsuits or 
criminal actions concerning its conduct as a fiduciary or party in 
interest with respect to any plan (other than lawsuits with respect to 
a routine claim for benefits), and a description of the circumstances 
of the lawsuits or criminal actions;
    (6)(i) Whether the applicant (including any person described in 
Sec.  2570.34(b)(6)(ii)) or any of the parties in interest involved in 
the exemption transaction has, within the last 13 years, been:
    (A) Convicted or released from imprisonment, whichever is later, as 
a result of any felony involving abuse or misuse of such person's 
position or employment with an employee benefit plan or a labor 
organization; any felony arising out of the conduct of the business of 
a broker, dealer, investment adviser, bank, insurance company, or 
fiduciary; income tax evasion; any felony involving the larceny, theft, 
robbery, extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities; conspiracy or attempt to commit any such crimes or a crime 
of which any of the foregoing crimes is an element; or any crime 
identified in ERISA section 411, regardless of whether the conviction 
occurred in a U.S. or foreign jurisdiction; or
    (B) Convicted by a foreign court of competent jurisdiction or 
released from imprisonment, whichever is later, as a result of any 
crime, however denominated by the laws of the relevant foreign 
government, that is substantially equivalent to an offense described in 
paragraph (a)(6)(i)(A) of this section and a description of the 
circumstances of any such conviction in paragraph (a)(6)(i)(A) or this 
paragraph (a)(6)(i)(B); and
    (ii) For purposes of this paragraph (a), a person shall be deemed 
to have been ``convicted'' from the date of the judgment of the trial 
court (or the date of the judgment of any court in a foreign 
jurisdiction that is the equivalent of a U.S. Federal or state trial 
court), regardless of whether that judgment remains under appeal and 
regardless of whether the foreign jurisdiction considers a trial court 
judgment final while under appeal;
    (7) Whether, within the last five years, any plan affected by the 
exemption transaction, the applicant, or any party in interest (or its 
affiliates) involved in the exemption transaction, has been under 
investigation or examination by, or has been engaged in litigation or a 
continuing controversy with, the Department, the Internal Revenue 
Service, the Justice Department, the Pension Benefit Guaranty 
Corporation, the Federal Retirement Thrift Investment Board, or any 
other regulatory body involving compliance with provisions of ERISA, 
FERSA, the Code, or any other Federal or state law involving:
    (i) Compliance with provisions of ERISA or FERSA;
    (ii) Representation of or position or employment with any employee 
benefit plan, including investigations or controversies involving ERISA 
or the Code, or any other Federal or state law;
    (iii) Conduct of the business of a broker, dealer, investment 
adviser, bank, insurance company, or fiduciary;
    (iv) Income tax evasion; or
    (v) Any felony or conspiracy involving the larceny, theft, robbery, 
extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities. If so, the applicant must provide a brief statement 
describing the investigation, examination, litigation, or controversy. 
The Department reserves the right to require the production of 
additional information or documentation concerning any of the matters 
in this paragraph (a)(7). In this regard, a denial of the exemption 
application may result from an applicant's failure to provide 
additional information requested by the Department;
    (8) Whether any plan affected by the requested exemption has 
experienced a reportable event under ERISA section 4043, and, if so, a 
description of the circumstances of any such reportable event;
    (9) Whether a notice of intent to terminate has been filed under 
ERISA section 4041 with respect to any plan affected by the requested 
exemption, and, if so, a description of the

[[Page 4698]]

circumstances for the issuance of the notice;
    (10) Names, addresses, phone numbers, and email addresses of all 
parties in interest (or their affiliates) involved in the exemption 
transaction;
    (11) The estimated number of participants and beneficiaries in each 
plan affected by the requested exemption as of the date of the 
application;
    (12) The percentage of the fair market value of the total assets of 
each affected plan that is involved in the exemption transaction. If 
the exemption transaction includes the acquisition of an asset by the 
plan, the fair market value of the asset to be acquired must be 
included in both the numerator and denominator of the fraction;
    (13) Whether the exemption transaction has been consummated or will 
be consummated only if the exemption is granted;
    (14) If the exemption transaction has already been consummated:
    (i) The circumstances which resulted in plan fiduciaries causing 
the plan(s) to engage in the exemption transaction before obtaining an 
exemption from the Department;
    (ii) Whether the exemption transaction has been terminated;
    (iii) Whether the exemption transaction has been corrected as 
defined in Code section 4975(f)(5);
    (iv) Whether Form 5330, Return of Excise Taxes Related to Employee 
Benefit Plans, has been filed with the Internal Revenue Service with 
respect to the exemption transaction; and
    (v) Whether any excise taxes due under Code section 4975(a) and 
(b), or any civil penalties due under ERISA section 502(i) or (l) by 
reason of the exemption transaction have been paid. If so, the 
applicant should submit documentation (e.g., a canceled check) 
demonstrating that the excise taxes or civil penalties were paid;
    (15) The name of every person who has authority or investment 
discretion over any plan assets involved in the exemption transaction 
and the relationship of each such person to the parties in interest 
involved in the exemption transaction and the affiliates of such 
parties in interest;
    (16) Whether the assets of the affected plan(s) are invested, 
directly or indirectly, in:
    (i) loans to any party in interest (or its affiliates) involved in 
the exemption transaction;
    (ii) Property leased to any party in interest (or its affiliates) 
involved in the exemption transaction; or
    (iii) Securities issued by any party in interest (or its 
affiliates) involved in the exemption transaction, and, if such 
investments exist, a statement for each of these three types of 
investments which indicates:
    (A) The type of investment to which the statement pertains;
    (B) The aggregate fair market value of all investments of this type 
as reflected in the plan's most recent annual report;
    (C) The approximate percentage of the fair market value of the 
plan's total assets as shown in such annual report that is represented 
by all investments of this type; and
    (D) The statutory or administrative exemption covering these 
investments, if any;
    (17) The approximate aggregate fair market value of the total 
assets of each affected plan;
    (18) The person(s) or entity who will bear the costs of:
    (i) The exemption application;
    (ii) Any commissions, fees, or costs associated with the exemption 
transaction, and any related transaction; and
    (iii) Notifying interested persons;
    (19) Whether an independent fiduciary is or will be involved in the 
exemption transaction and, if so, the names of the persons who will 
bear the cost of the fee payable to such fiduciary; and
    (20) Any prior transaction between:
    (i) The plan or plan sponsor; and
    (ii) Any party in interest (or its affiliates) involved in the 
exemption transaction.
    (b) Each application for an individual exemption must also include:
    (1) True copies of all contracts, deeds, agreements, and 
instruments, as well as relevant portions of plan documents, trust 
agreements, and any other documents bearing on the exemption 
transaction;
    (2) A discussion of the facts relevant to the exemption transaction 
that are reflected in the documents listed in paragraph (b)(1) of this 
section and an analysis of their bearing on the requested exemption;
    (3) A copy of the most recent financial statements of each plan 
affected by the requested exemption; and
    (4) A net worth statement with respect to any party that is 
providing a personal guarantee with respect to the exemption 
transaction.
    (c) Special rules for applications for individual exemption 
involving pooled funds are as follows:
    (1) The information required by paragraphs (a)(8) through (12) of 
this section is not required to be furnished in an application for 
individual exemption involving one or more pooled funds.
    (2) The information required by paragraphs (a)(1) through (7) and 
(13) through (19) of this section and by paragraphs (b)(1) through (3) 
of this section must be furnished in reference to the pooled fund, 
rather than to the plans participating therein. (For purposes of this 
paragraph (c)(2), the information required by paragraph (a)(16) of this 
section relates solely to other pooled fund transactions with, and 
investments in, parties in interest involved in the exemption 
transaction which are also sponsors of plans which invest in the pooled 
fund.)
    (3) The following information must also be furnished--
    (i) The estimated number of plans that are participating (or will 
participate) in the pooled fund; and
    (ii) The minimum and maximum limits imposed by the pooled fund (if 
any) on the portion of the total assets of each plan that may be 
invested in the pooled fund.
    (4) Additional requirements for applications for individual 
exemptions involving pooled funds in which certain plans participate 
are as follows:
    (i) This paragraph (c)(4) applies to any application for an 
individual exemption involving one or more pooled funds in which any 
plan participating therein--
    (A) Invests an amount which exceeds 20 percent of the total assets 
of the pooled fund; or
    (B) Covers employees of:
    (1) The party sponsoring or maintaining the pooled fund, or any 
affiliate of such party; or
    (2) Any fiduciary with investment discretion over the pooled fund's 
assets, or any affiliate of such fiduciary.
    (ii) The exemption application must include, with respect to each 
plan described in paragraph (c)(4)(i) of this section, the information 
required by paragraphs (a)(1) through (3), (5) through (7), (10), (12) 
through (16), (18), and (19) of this section. The information required 
by this paragraph (c)(4)(ii) must be furnished in reference to the 
plan's investment in the pooled fund (e.g., the names, addresses, phone 
numbers, and email addresses of all fiduciaries responsible for the 
plan's investment in the pooled fund (paragraph (a)(10) of this 
section), the percentage of the assets of the plan invested in the 
pooled fund (paragraph (a)(12) of this section), whether the plan's 
investment in the pooled fund has been consummated or will be 
consummated only if the exemption is granted (paragraph (a)(13) of this 
section, etc.)).
    (iii) The information required by this paragraph (c)(4) is in 
addition to the information required by paragraphs

[[Page 4699]]

(c)(2) and (3) of this section relating to information furnished by 
reference to the pooled fund.
    (5) The special rule and the additional requirements described in 
paragraphs (c)(1) through (4) of this section do not apply to an 
individual exemption request solely for the investment by a plan in a 
pooled fund. Such an application must provide the information required 
by paragraphs (a) and (b) of this section.
    (d)(1) Generally, the Department will consider exemption requests 
for retroactive relief only when:
    (i) The safeguards necessary for the grant of a prospective 
exemption were in place at the time the parties entered into the 
exemption transaction; and
    (ii) The plan and its participants and beneficiaries have not been 
harmed by the exemption transaction. An applicant for a retroactive 
exemption must demonstrate that the responsible plan fiduciaries acted 
in good faith by taking all appropriate steps necessary to protect the 
plan from abuse, loss, and risk at the time of the exemption 
transaction. An applicant should further explain and describe whether 
the exemption transaction could have been performed without engaging in 
a prohibited exemption transaction, and whether the goals of the 
transaction could have been achieved through an alternative transaction 
that served the aims of the plan equally well.
    (2) Among the factors that the Department will consider in making a 
finding that an applicant acted in good faith include the following:
    (i) The involvement of an independent fiduciary before an exemption 
transaction occurs who acts on behalf of the plan and is qualified to 
negotiate, approve, and monitor the exemption transaction; provided, 
however, the Department may consider, at its sole discretion, an 
independent fiduciary's appointment and retrospective review after 
completion of the exemption transaction due to exigent circumstances;
    (ii) The existence of a contemporaneous appraisal by a qualified 
independent appraiser or reference to an objective third party source, 
such as a stock or bond index;
    (iii) The existence of a bidding process or evidence of comparable 
fair market transactions with unrelated third parties;
    (iv) That the applicant has submitted an accurate and complete 
exemption application that contains documentation of all necessary and 
relevant facts and representations upon which the applicant relied. In 
this regard, the Department will accord appropriate weight to facts and 
representations which are prepared and certified by a source 
independent of the applicant;
    (v) That the applicant has submitted evidence that the plan 
fiduciary did not engage in an act or transaction with respect to which 
the fiduciary should have known, consistent with its ERISA fiduciary 
duties and responsibilities, was prohibited under ERISA section 406 
and/or Code section 4975. In this regard, the Department will accord 
appropriate weight to the submission of a contemporaneous, reasoned 
legal opinion of counsel, upon which the plan fiduciary relied in good 
faith before engaging in the act or transaction;
    (vi) That the applicant has submitted a statement of the 
circumstances which prompted the submission of the application for 
exemption and the steps taken by the applicant about the exemption 
transaction upon discovery of the violation;
    (vii) That the applicant has submitted a statement, prepared and 
certified by an independent person familiar with the types of 
transactions for which relief is requested, demonstrating that the 
terms and conditions of the exemption transaction (including, in the 
case of an investment, the return in fact realized by the plan) were at 
least as favorable to the plan as that obtainable in a similar 
transaction with an unrelated party; and
    (viii) Such other undertakings and assurances with respect to the 
plan and its participants that may be offered by the applicant which 
are relevant to the criteria under ERISA section 408(a) and Code 
section 4975(c)(2).
    (3) The Department, as a general matter, will not consider requests 
for retroactive exemptions if transactions or conduct with respect to 
which an exemption is requested resulted in a loss to the plan, as 
determined pursuant to the facts existing at the time of the exemption 
application. In addition, the Department will not consider requests for 
exemptions if the transactions are inconsistent with the general 
fiduciary responsibility provisions of ERISA sections 403 or 404 or the 
exclusive benefit requirements of Code section 401(a).


Sec.  2570.36  Where to file an application.

    The Department's prohibited transaction exemption program is 
administered by the Employee Benefits Security Administration (EBSA). 
Any exemption application governed by this subpart may be emailed to 
the Department at [email protected]. The applicant is not required to 
submit a paper copy if an electronic copy is submitted. An applicant 
may submit a paper copy of the application by mailing it via first-
class mail to: Employee Benefits Security Administration, Office of 
Exemption Determinations, U.S. Department of Labor, 200 Constitution 
Avenue NW, Suite 400 Washington, DC 20210 or via private carrier 
service to Employee Benefit Security Administration, U.S. Department of 
Labor, Office of Exemption Determinations, 122 C Street NW, Suite 400, 
Washington, DC 20001-2109. The mail or private carrier service 
addresses, however, are subject to change, and the applicant should 
confirm the address with the Office of Exemption Determinations before 
submitting a paper copy of an application.


Sec.  2570.37  Duty to amend and supplement exemption applications.

    (a) During the Department's consideration of an exemption 
application and following any grant by the Department of an exemption 
request, an applicant must promptly notify the Department in writing if 
they discover that any material fact or representation contained in the 
application or in any documents or testimony provided in support of the 
application was inaccurate at the time it was provided to the 
Department in support of the application. If any material fact or 
representation changes during this period, or if anything occurs that 
may affect the continuing accuracy of any such fact or representation, 
the applicant must promptly notify the Department in writing of the 
change. In addition, an applicant must promptly notify the Department 
in writing if it learns that a material fact or representation has been 
omitted from the exemption application.
    (b) If, at any time during the pendency of an exemption 
application, the applicant or any other party in interest who would 
participate in the exemption transaction becomes the subject of an 
investigation or enforcement action by the Department, the Internal 
Revenue Service, the Justice Department, the Pension Benefit Guaranty 
Corporation, the Federal Retirement Thrift Investment Board, or any 
other Federal or state governmental entity involving:
    (1) Compliance with provisions of ERISA or FERSA;
    (2) Representation of or position or employment with any employee 
benefit plan, including investigations or controversies involving ERISA 
or the Code, or any other Federal or state law;
    (3) Conduct of the business of a broker, dealer, investment 
adviser, bank, insurance company, or fiduciary;
    (4) Income tax evasion; or

[[Page 4700]]

    (5) Any felony or conspiracy involving the larceny, theft, robbery, 
extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities, the applicant must promptly notify the Department.
    (c) The Department may require an applicant to provide any 
documentation it considers necessary to verify any statements contained 
in the application or in supporting materials or documents.


Sec.  2570.38  Tentative denial letters.

    (a) If, after reviewing an exemption file, the Department 
tentatively concludes that it will not propose or grant the exemption, 
it will notify the applicant in writing. At the same time the 
Department provides the notification, the Department will also provide 
a brief statement of the reasons for its tentative denial.
    Note 1 to paragraph (a). As referenced in Sec.  2570.33(a)(1), the 
Department will not hold a conference with, or issue a tentative denial 
letter to, an applicant who does not submit a complete application, or 
an applicant who does not provide current information.
    (b) An applicant will have 20 days from the date of a tentative 
denial letter, unless the Department extends the time period at its 
sole discretion, to request a conference under Sec.  2570.40 and/or to 
notify the Department of its intent to submit additional information 
under Sec.  2570.39. If the Department does not receive a request for a 
conference or a notification of intent to submit additional information 
within that time, it will issue a final denial letter pursuant to Sec.  
2570.41.


Sec.  2570.39  Opportunities to submit additional information.

    (a) An applicant may notify the Department of its intent to submit 
additional information supporting an exemption application by 
telephone, by letter sent to the address furnished in the applicant's 
tentative denial letter, or electronically to the email address 
provided in the applicant's tentative denial letter. At the same time, 
the applicant should indicate generally the type of information that 
will be submitted.
    (b) The additional information an applicant intends to provide in 
support of the application must be in writing and received by the 
Department within 40 days from the date the Department issues the 
tentative denial letter unless the Department extends the time period 
at its sole discretion. All such information must be accompanied by a 
certification that all information provided to the Department is true 
and correct, and the certification must be dated and signed by a person 
qualified under Sec.  2570.34(b)(6) to sign such a declaration. The 
information may be submitted either electronically or by mail to the 
address specified in the letter.
    (c) If, for reasons beyond its control, an applicant is unable to 
submit all the additional information they intend to provide in support 
of their application within the period described in paragraph (b) of 
this section, they may request an extension of time to furnish the 
information. Such requests must be made before the expiration of the 
time period described in paragraph (b), and the request will be 
granted, in the Department's sole discretion, only in unusual 
circumstances and for a limited period as determined by the Department. 
The request may be made by telephone, mail, or electronically.
    (d) The Department will issue, without further notice, either by 
mail or electronically, a final denial letter denying the requested 
exemption pursuant to Sec.  2570.41 if--
    (1) The Department has not received the additional information that 
the applicant stated their intention to submit within the period 
described in paragraph (b) of this section, or within any additional 
period granted pursuant to paragraph (c) of this section; and
    (2) The applicant did not request a conference pursuant to Sec.  
2570.38(b).


Sec.  2570.40  Conferences.

    (a) Any conference between the Department and an applicant 
pertaining to a requested exemption will be held in Washington, DC, 
except that a telephone or electronic conference will be held at the 
applicant's request.
    (b) An applicant is entitled to only one conference with respect to 
any exemption application. The Department may hold additional 
conferences at its sole discretion if it determines additional 
conference(s) are appropriate. An applicant will not be entitled to a 
conference, however, if the Department has held a hearing on the 
exemption under either Sec.  2570.46 or Sec.  2570.47.
    (c) Insofar as possible, conferences will be scheduled as joint 
conferences with all applicants present if:
    (1) More than one applicant has requested an exemption with respect 
to the same or similar types of transactions;
    (2) The Department is considering the applications together as a 
request for a class exemption;
    (3) The Department contemplates not granting the exemption; and
    (4) More than one applicant has requested a conference.
    (d) In instances where the applicant has requested a conference 
pursuant to Sec.  2570.38(b) and also has submitted additional 
information pursuant to Sec.  2570.39, the Department will schedule a 
conference under this section for a date and time that occurs within 20 
days after the date on which the Department has provided either oral or 
written notification to the applicant that, after reviewing the 
additional information, it still is not prepared to propose the 
requested exemption or a later date determined at the Department's sole 
discretion. If, for reasons beyond its control, the applicant cannot 
attend a conference within the time limit described in this paragraph 
(d), the applicant may request an extension of time for the scheduling 
of a conference, provided that such request is made before the 
expiration of the time limit. The Department, at its sole discretion, 
will only grant such an extension in unusual circumstances and for a 
brief period.
    (e) In instances where the applicant has requested a conference 
pursuant to Sec.  2570.38(b) but has not expressed an intent to submit 
additional information in support of the exemption application as 
provided in Sec.  2570.39, the Department will schedule a conference 
under this section for a date and time that occurs within 40 days after 
the date of the issuance of the tentative denial letter described in 
Sec.  2570.38(a) or a later date determined at the sole discretion of 
the Department. If, for reasons beyond its control, the applicant 
cannot attend a conference within the time limit described in this 
paragraph (e), the applicant may request an extension of time for the 
scheduling of a conference, provided that such request is made before 
the expiration of the time limit. The Department, at its sole 
discretion, will only grant such an extension in unusual circumstances 
and for a brief period.
    (f) In instances where the applicant has requested a conference 
pursuant to Sec.  2570.38(b), notified the Department of its intent to 
submit additional information pursuant to Sec.  2570.39, and failed to 
furnish such information within 40 days after the date of issuance of 
the tentative denial letter, the Department will schedule a conference 
under this section for a date and time that occurs within 60 days after 
the date of the issuance of the tentative denial letter described in 
Sec.  2570.38(a) or a later date as determined at the sole discretion 
of the Department. If, for reasons

[[Page 4701]]

beyond its control, the applicant cannot attend a conference within the 
time limit described in this paragraph (f), the applicant may request 
an extension of time to schedule a conference, provided that such 
request is made before the expiration of the time limit. The 
Department, at its sole discretion, will only grant such an extension 
in unusual circumstances and for a brief period.
    (g) If the applicant fails to either timely schedule or appear for 
a conference agreed to by the Department pursuant to this section, the 
applicant will be deemed to have waived its right to a conference.
    (h) Within 20 days after the date of any conference held under this 
section, or a later date determined at the sole discretion of the 
Department, the applicant may submit to the Department (electronically 
or in paper form) any additional written data, arguments, or legal 
authorities discussed at the conference but not previously or 
adequately presented in writing. If, for reasons beyond its control, 
the applicant is unable to submit the additional information within 
this time limit, the applicant may request an extension of time to 
furnish the information, provided that such request is made before the 
expiration of the time limit described in this paragraph (h). The 
Department, at its sole discretion, will only grant such an extension 
in unusual circumstances and for a brief period.
    (i) The Department, at its sole discretion, may hold a conference 
with any party, including the qualified independent fiduciary or the 
qualified independent appraiser, regarding any matter related to an 
exemption request without the presence of the applicant or other 
parties involved in the exemption transaction, or their 
representatives. Any such conferences may occur in addition to the 
conference with the applicant described in paragraph (b) of this 
section.


Sec.  2570.41  Final denial letters.

    The Department will issue a final denial letter denying a requested 
exemption, either by mail or electronically, if:
    (a) Before issuing a tentative denial letter under Sec.  2570.38 or 
conducting a hearing on the exemption under either Sec.  2570.46 or 
Sec.  2570.47, the Department determines at its sole discretion that:
    (1) The applicant has failed to submit information requested by the 
Department in a timely manner;
    (2) The information provided by the applicant does not meet the 
requirements of Sec. Sec.  2570.34 and 2570.35; or
    (3) A conference was held between the Department and the applicant 
before the Department issued a tentative denial letter during which the 
Department and the applicant addressed the reasons for denial that 
otherwise would have been set forth in a tentative denial letter 
pursuant to Sec.  2570.38;
    (b) The conditions for issuing a final denial letter specified in 
Sec.  2570.38(b) or Sec.  2570.39(d) are satisfied;
    (c) After issuing a tentative denial letter under Sec.  2570.38 and 
considering the entire record in the case, including all written 
information submitted pursuant to Sec. Sec.  2570.39 and 2570.40, the 
Department decides not to propose an exemption or to withdraw an 
exemption it already proposed;
    (d) After proposing an exemption and conducting a hearing on the 
exemption under either Sec.  2570.46 or Sec.  2570.47 and after 
considering the entire record in the case, including the record of the 
hearing and any public comments, the Department decides to withdraw the 
proposed exemption; or
    (e) The applicant either:
    (1) Requests for the Department to withdraw the exemption 
application; or
    (2) Communicates to the Department that it is not interested in 
continuing the application process.


Sec.  2570.42  Notice of proposed exemption.

    If the Department tentatively decides that an administrative 
exemption is warranted, it will publish a notice of a proposed 
exemption in the Federal Register. In addition to providing notice of 
the pendency of the exemption before the Department, the notice will:
    (a) Explain the exemption transaction and summarize the information 
and reasons in support of proposing the exemption;
    (b) Describe the scope of relief and any conditions of the proposed 
exemption;
    (c) Inform interested persons of their right to submit comments to 
the Department (either electronically or in writing) relating to the 
proposed exemption and establish a deadline for receipt of such 
comments; and
    (d) If the proposed exemption includes relief from the prohibitions 
of ERISA section 406(b), Code section 4975(c)(1)(E) or (F), or FERSA 
section 8477(c)(2), inform interested persons who are materially 
affected by the grant of the exemption of their right to request a 
hearing under Sec.  2570.46 and establish a deadline for hearing 
requests to be submitted.


Sec.  2570.43  Notification of interested persons by applicant.

    (a) If a notice of proposed exemption is published in the Federal 
Register in accordance with Sec.  2570.42, the applicant must notify 
interested persons of the pendency of the exemption in the manner and 
within the time period specified in the application. If the Department 
determines that this notification would be inadequate, the applicant 
must obtain the Department's consent as to the manner and time period 
of providing the notice to interested persons. Any such notification 
must include:
    (1) A copy of the notice of proposed exemption as published in the 
Federal Register; and
    (2) A supplemental statement in the following form:
    You are hereby notified that the United States Department of Labor 
is considering granting an exemption from the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974, 
the Internal Revenue Code of 1986, or the Federal Employees' Retirement 
System Act of 1986. The exemption under consideration is summarized in 
the enclosed [Summary of Proposed

Exemption and described in greater detail in the accompanying] \1\ 
Notice of Proposed Exemption. As a person who may be affected by this 
exemption, you have the right to comment on the proposed exemption by 
[date].\2\ [If you may be materially affected by the grant of the 
exemption, you also have the right to request a hearing on the 
exemption by [date].] \3\
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    \1\ To be added in instances where the Department requires the 
applicant to furnish a Summary of Proposed Exemption to interested 
persons as described in paragraph (d) of this section.
    \2\ The applicant will write in this space the date of the last 
day of the time period specified in the notice of proposed 
exemption.
    \3\ To be added in the case of an exemption that provides relief 
from ERISA section 406(b) or corresponding sections of the Code or 
FERSA.
---------------------------------------------------------------------------

    All comments and/or requests for a hearing should be addressed to 
the Office of Exemption Determinations, Employee Benefits Security 
Administration, Room N-5461,\4\ U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210, ATTENTION: Application 
No.__.\5\ Comments and hearing requests may also be transmitted to the 
Department electronically at [email protected] or at https://www.regulations.gov (follow instructions for submission), and should 
prominently reference the application

[[Page 4702]]

number listed above. Individuals submitting comments or requests for a 
hearing on this matter are advised not to disclose sensitive personal 
data, such as social security numbers or information that they consider 
confidential or otherwise protected.
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    \4\ The applicant will fill in the room number of the Office of 
Exemptions Determinations. As of January 24, 2024, the room number 
of the Office of Exemption Determinations is N-5461.
    \5\ The applicant will fill in the exemption application number, 
which is stated in the notice of proposed exemption, as well as in 
all correspondence from the Department to the applicant regarding 
the application.
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    The Department will make no final decision on the proposed 
exemption until it reviews the comments received in response to the 
enclosed notice. If the Department decides to hold a hearing on the 
exemption request before making its final decision, you will be 
notified of the time and place of the hearing.
    (b) The method used by an applicant to furnish notice to interested 
persons must be reasonably calculated to ensure that interested persons 
actually receive the notice. In all cases, personal delivery and 
delivery by first-class mail will be considered reasonable methods of 
furnishing notice. If the applicant elects to furnish notice 
electronically, they must provide satisfactory proof that the entire 
class of interested persons will be able to receive the notice.
    (c) After furnishing the notification described in paragraph (a) of 
this section, an applicant must provide the Department with a written 
statement confirming that notice was furnished in accordance with the 
requirements in paragraph (b) of this section. This statement must be 
accompanied by a certification that the information provided in the 
statement and signed by a person qualified under Sec.  2570.34(b)(6) to 
sign such a declaration is true and correct. No exemption will be 
granted until the applicant furnishes such a certification to the 
Department.
    (d) In addition to the provision of notification required by 
paragraph (a) of this section, the Department, in its sole discretion, 
may also require an applicant to furnish interested persons with a 
brief summary of the proposed exemption (Summary of Proposed 
Exemption), written in a manner calculated to be understood by the 
average recipient, which objectively describes:
    (1) The exemption transaction and the parties in interest thereto;
    (2) Why the exemption transaction would violate the prohibited 
transaction provisions of ERISA, the Code, and/or FERSA from which 
relief is sought;
    (3) The reasons why the plan seeks to engage in the exemption 
transaction; and
    (4) The conditions and safeguards proposed to protect the plan and 
its participants and beneficiaries from potential abuse or unnecessary 
risk of loss in the event the Department grants the exemption.
    (e) Applicants who are required to provide interested persons with 
the Summary of Proposed Exemption described in paragraph (d) of this 
section shall furnish the Department with a copy of such summary for 
review and approval before its distribution to interested persons. Such 
applicants shall also provide confirmation to the Department that the 
Summary of Proposed Exemption was furnished to interested persons as 
part of the written statement and declaration required of exemption 
applicants by paragraph (c) of this section.


Sec.  2570.44  Withdrawal of exemption applications.

    (a) An applicant may withdraw an application for an exemption at 
any time by oral or written (including electronic) notice to the 
Department. A withdrawn application generally shall not prejudice any 
subsequent applications for the same exemption transaction submitted by 
an applicant.
    (b) Upon receiving an applicant's notice of withdrawal regarding an 
application for an individual exemption, the Department will issue a 
final denial letter in accordance with Sec.  2570.41(e) and will 
terminate all proceedings relating to the application. If a notice of 
proposed exemption has been published in the Federal Register, the 
Department will publish a notice in the Federal Register withdrawing 
the proposed exemption.
    (c) Upon receiving an applicant's notice of withdrawal regarding an 
application for a class exemption or an individual exemption that is 
being considered with other applications as a request for a class 
exemption, the Department will inform any other applicants for the 
exemption of the withdrawal. The Department will continue to process 
other applications for the same exemption. If all applicants for a 
particular class exemption withdraw their applications, the Department 
may either terminate all proceedings relating to the exemption or 
propose the exemption on its own motion.
    (d) If, following the withdrawal of an exemption application, an 
applicant decides to reapply for the same exemption, they may contact 
the Department in writing (including electronically) to request the 
Department to reinstate the application. The applicant should refer to 
the application number assigned to the original application. If, at the 
time the original application was withdrawn, any additional information 
required to be submitted to the Department under Sec.  2570.39 was 
outstanding, that information must accompany the request for 
reinstatement of the application. The applicant must also update all 
previously furnished information to the Department in connection with a 
withdrawn application.
    (e) Any request for reinstatement of a withdrawn application 
submitted in accordance with paragraph (d) of this section will be 
granted by the Department, and the Department will take whatever steps 
remained to process the application when the applicant withdrew the 
application.
    (f) Following the withdrawal of an exemption application, the 
administrative record will remain subject to public inspection and copy 
pursuant to Sec.  2570.51.


Sec.  2570.45  Requests for reconsideration.

    (a) The Department will entertain one request for reconsideration 
of an exemption application that the Department has denied pursuant to 
Sec.  2570.41 if the applicant either:
    (1) Presents significant new facts or arguments in support of the 
application, which, for good reason, could not have been submitted for 
the Department's consideration during its initial review of the 
exemption application; or
    (2) The applicant received a final denial letter pursuant to Sec.  
2570.41(a) before the Department issued a tentative denial letter under 
Sec.  2570.38 or conducted a hearing on the exemption under either 
Sec.  2570.46 or Sec.  2570.47.
    (b) An applicant must submit a request for reconsideration of a 
previously denied application within 180 days after the issuance of the 
final denial letter and include with the request a copy of the 
Department's final denial letter and a statement setting forth the new 
information and/or arguments that provide the basis for 
reconsideration.
    (c) A request for reconsideration must also be accompanied by a 
certification that the new information provided to the Department is 
true and correct, which is signed by a person qualified under Sec.  
2570.34(b)(6) to sign the certification.
    (d) If, after reviewing a request for reconsideration, the 
Department decides that the facts and arguments presented do not 
warrant reversal of its original decision to deny the exemption, it 
will send a letter to the applicant reaffirming that decision.
    (e) If, after reviewing a request for reconsideration, the 
Department decides to reconsider its final denial letter based on the 
new facts and arguments submitted by the applicant, it will notify the 
applicant of its intent to reconsider

[[Page 4703]]

the application in light of the new information presented. The 
Department will then take whatever steps remained to be completed to 
process the exemption application when it issued its final denial 
letter.
    (f) If, at any point during its subsequent processing of the 
application, the Department decides again that the exemption is 
unwarranted, it will issue a letter to the applicant affirming its 
final denial.
    (g) The Department does not consider a request for reinstatement of 
an exemption application pursuant to Sec.  2570.44(d) as a request for 
reconsideration governed by this section.
    (h) If an applicant whose application was finally denied pursuant 
to Sec.  2570.41(a)(1) or (2) cures the application by providing all 
required and requested information upon submission for reconsideration, 
the Department will reconsider the application under paragraph (e) of 
this section. If, upon reconsideration, the Department concludes that 
an exemption is not warranted, the Department will either hold a 
conference with the applicant under Sec.  2570.40 or issue a tentative 
denial pursuant to the procedures in Sec.  2570.38.


Sec.  2570.46  Hearings in opposition to exemptions from restrictions 
on fiduciary self-dealing and conflicts of interest.

    (a) Any person who may be materially affected by an exemption which 
the Department proposes to grant from the restrictions of ERISA section 
406(b), Code section 4975(c)(1)(E) or (F), or FERSA section 8477(c)(2) 
may request a hearing before the Department within the time period 
specified in the Federal Register notice of the proposed exemption. Any 
such request must state:
    (1) The name, address, telephone number, and email address of the 
person making the request;
    (2) The nature of the person's interest in the exemption and how 
the person would be materially affected by the exemption; and
    (3) A statement of the issues to be addressed and a general 
description of the evidence to be presented at the hearing.
    (b) The Department will grant a request for a hearing made in 
accordance with paragraph (a) of this section if a hearing is necessary 
to fully explore material factual issues with respect to the proposed 
exemption identified by the person requesting the hearing. The 
Department will publish a notice of such hearing in the Federal 
Register. The Department may decline to hold a hearing if:
    (1) The request for the hearing is not timely, or otherwise fails 
to include the information required by paragraph (a) of this section;
    (2) The only issues identified for exploration at the hearing are 
matters of law; or
    (3) The factual issues identified can be fully explored through the 
submission of evidence in written (including electronic) form.
    (c) An applicant for an exemption must notify interested persons if 
the Department schedules a hearing on the exemption. Such notification 
must be provided in the form, time, and manner prescribed by the 
Department. Ordinarily, however, adequate notification can be given by 
providing to interested persons a copy of the notice of hearing 
published by the Department in the Federal Register within 10 days 
after its publication, using any of the methods approved in Sec.  
2570.43(b).
    (d) After furnishing the notice required by paragraph (c) of this 
section, an applicant must submit a statement confirming that notice 
was given in the form, manner, and time prescribed. This statement must 
be accompanied by a certification that the information provided in the 
statement is true and correct, which is signed by a person qualified 
under Sec.  2570.34(b)(6) to sign a certification.


Sec.  2570.47  Other hearings.

    (a) In its sole discretion, the Department may schedule a hearing 
on its own motion if it determines that issues relevant to the 
exemption can be most fully or expeditiously explored at a hearing. The 
Department shall publish a notice of such hearing in the Federal 
Register.
    (b) An applicant for an exemption must notify interested persons of 
any hearing on an exemption scheduled by the Department in the manner 
described in Sec.  2570.46(c). In addition, the applicant must submit a 
certification subscribed as true and correct like that required in 
Sec.  2570.46(d).


Sec.  2570.48  Decision to grant exemptions.

    (a) The Department may not grant an exemption under ERISA section 
408(a), Code section 4975(c)(2), or 5 U.S.C. 8477(c)(3)(C) unless, 
following evaluation of the facts and representations comprising the 
administrative record of the proposed exemption (including any comments 
received in response to a notice of proposed exemption and the record 
of any hearing held in connection with the proposed exemption), it 
finds that the exemption meets the statutory requirements by being:
    (1) Administratively feasible for the Department;
    (2) In the interests of the plan (or the Thrift Savings Fund in the 
case of FERSA) and of its participants and beneficiaries; and
    (3) Protective of the rights of participants and beneficiaries of 
such plan (or the Thrift Savings Fund in the case of FERSA).
    (b) In each instance where the Department determines to grant an 
exemption, it shall publish a notice in the Federal Register which 
summarizes the transaction or transactions for which exemptive relief 
has been granted and specifies the conditions under which such 
exemptive relief is available.


Sec.  2570.49  Limits on the effect of exemptions.

    (a) An exemption does not take effect with respect to the exemption 
transaction unless the material facts and representations contained in 
the application and in any materials and documents submitted in support 
of the application were true and complete at the time of the submission 
of such material.
    (b) An exemption is effective only for the period of time specified 
and only under the conditions set forth in the exemption.
    (c) Only the specific parties to whom an exemption grants relief 
may rely on the exemption. If the notice granting an exemption does not 
limit exemptive relief to specific parties, all parties to the 
exemption transaction may rely on the exemption.
    (d) For exemption transactions that are continuing in nature, an 
exemption ceases to be effective if, during the continuation of the 
exemption transaction, there are material changes to the original facts 
and representations underlying such exemption or if one or more of the 
exemption's conditions cease to be met.
    (e) The determination as to whether, under the totality of the 
facts and circumstances, a particular statement contained in (or 
omitted from) an exemption application constitutes a material fact or 
representation is made by the Department in its sole discretion.


Sec.  2570.50  Revocation or modification of exemptions.

    (a) If, after an exemption takes effect, material changes in facts, 
circumstances, or representations occur, including whether a qualified 
independent fiduciary resigns, is terminated, or is convicted of a 
crime, the Department, at its sole discretion, may take steps to revoke 
or modify the exemption. If the qualified independent

[[Page 4704]]

fiduciary resigns, is terminated, or is convicted of a crime, the 
applicant must notify the Department within 30 days of the resignation, 
termination, or conviction, and the Department reserves the right to 
request the applicant to provide the Department with any of the 
information required pursuant to Sec.  2570.34(e) and (f) pursuant to a 
time determined by the Department at its sole discretion.
    (b) Before revoking or modifying an exemption, the Department will 
publish a notice of its proposed action in the Federal Register and 
provide interested persons with an opportunity to comment on the 
proposed revocation or modification. Before the Department publishes 
such notice, it will notify the applicant of the Department's proposed 
action and the reasons therefore. After the publication of the notice, 
the applicant will have the opportunity to comment on the proposed 
revocation or modification.
    (c) The revocation or modification of an exemption will have 
prospective effect only.


Sec.  2570.51  Public inspection and copies.

    (a) From the date the administrative record of each exemption is 
established pursuant to Sec.  2570.32(d), the administrative record of 
each exemption will be open for public inspection and copying at the 
EBSA Public Disclosure Room, U.S. Department of Labor, 200 Constitution 
Avenue NW, Washington, DC 20210.
    (b) Upon request, the staff of the Public Disclosure Room will 
furnish photocopies of an administrative record, or any specified 
portion of that record, for a specified charge per page; or, at the 
discretion of the Department, provide the administrative record 
electronically for a specified charge.


Sec.  2570.52  Effective date.

    This subpart is effective with respect to all exemptions filed with 
or initiated by the Department under ERISA section 408(a), Code section 
4975(c)(2), and/or 5 U.S.C. 8477(c)(3) at any time on or after April 8, 
2024. Applications for exemptions under ERISA section 408(a), Code 
section 4975(c)(2), and/or 5 U.S.C. 8477(c)(3) filed on or after 
December 27, 2011, but before April 8, 2024, are governed by 29 CFR 
part 2570 (revised effective December 27, 2011).

    Signed at Washington, DC, this 9th day of January 2024.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2024-00586 Filed 1-23-24; 8:45 am]
BILLING CODE 4510-29-P