Amendment to Prohibited Transaction Exemption 2020-02, 32260-32299 [2024-08066]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 89, Number 81 (Thursday, April 25, 2024)]
[Rules and Regulations]
[Pages 32260-32299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08066]



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Vol. 89

Thursday,

No. 81

April 25, 2024

Part V





Department of Labor





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Employee Benefits Security Administration





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29 CFR Part 2550





Amendment to Prohibited Transaction Exemption 2020-02; Final Rule

Federal Register / Vol. 89 , No. 81 / Thursday, April 25, 2024 / 
Rules and Regulations

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

[Application No. D-12057]
ZRIN 1210-ZA32


Amendment to Prohibited Transaction Exemption 2020-02

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

ACTION: Amendment to Class Exemption PTE 2020-02.

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SUMMARY: This document contains a notice of amendment to class 
prohibited transaction exemption (PTE) 2020-02, which provides relief 
for investment advice fiduciaries to receive certain compensation that 
otherwise would be prohibited. The amendment affects participants and 
beneficiaries of employee benefit plans, individual retirement account 
(IRA) owners, and fiduciaries with respect to such plans and IRAs.

DATES: The amendment is effective September 23, 2024.

FOR FURTHER INFORMATION CONTACT: Susan Wilker, telephone (202) 693-
8540, Office of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor (this is not a toll-free 
number).

SUPPLEMENTARY INFORMATION:

Background

    The Employee Retirement Income Security Act of 1974 (ERISA) 
provides, in relevant part, that a person is a fiduciary with respect 
to a plan to the extent they render investment advice for a fee or 
other compensation, direct or indirect, with respect to any moneys or 
other property of such plan, or have any authority or responsibility to 
do so.\1\ Title I of ERISA (referred to herein as Title I) imposes 
duties and restrictions on persons who are ``fiduciaries'' with respect 
to employee benefit plans. ERISA section 404 provides that Title I plan 
fiduciaries must act 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 use in the 
conduct of an enterprise of a like character and with like aims,'' and 
that they also must discharge their duties with respect to a plan 
``solely in the interest of the participants and beneficiaries.'' \2\
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    \1\ Section 3(21)(A)(ii) is codified at 29 U.S.C. 
1002(3)(21)(A)(ii). The provision is in Title I of the ERISA 
(referred to herein as Title I), which is codified in Title 29 of 
the U.S. Code. This preamble refers to the codified provisions in 
Title I by reference to sections of ERISA, as amended, and not by 
their numbering in Section 29 of the U.S. Code.
    \2\ ERISA section 404(a).
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    In addition to fiduciary obligations, ERISA has prohibited 
transaction rules that ``categorically bar[]'' plan fiduciaries from 
engaging in transactions deemed ``likely to injure the pension plan.'' 
\3\ These prohibitions broadly forbid a fiduciary from ``deal[ing] with 
the assets of the plan in his own interest or for his own account,'' 
and ``receiv[ing] any consideration for his own personal account from 
any party dealing with such plan in connection with a transaction 
involving the assets of the plan.'' \4\ Congress gave the Department of 
Labor (the Department) broad authority to grant conditional 
administrative exemptions from the prohibited transaction provisions, 
but only if the Department finds that the exemption is (1) 
administratively feasible for the Department, (2) in the interests of 
the plan and of its participants and beneficiaries, and (3) protective 
of the rights of participants and beneficiaries of such plan.\5\
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    \3\ Harris Trust Sav. Bank v. Salomon Smith Barney Inc., 530 
U.S. 238, 241-42 (2000) (citation and quotation marks omitted).
    \4\ ERISA section 406(b)(1), (3), 29 U.S.C. 1106(b)(1), (3).
    \5\ ERISA section 408(a), 29 U.S.C. 1108(a).
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    ERISA's Title II (also referred to herein as the Code), includes a 
parallel provision in section 4975(e)(3)(B), which defines a fiduciary 
of a tax-qualified plan, including individual retirement accounts 
(IRAs). Title II governs the conduct of fiduciaries to plans defined in 
Code section 4975(e)(1), which includes IRAs.\6\ Some plans defined in 
Code section 4975(e)(1) are also covered by Title I of ERISA, but the 
definitions of such plans are not identical. Although Title II does not 
directly impose specific duties of prudence and loyalty on fiduciaries 
as Title I does in ERISA section 404(a), it prohibits fiduciaries from 
engaging in conflicted transactions on many of the same terms as Title 
I.\7\ Under the Reorganization Plan No. 4 of 1978, which Congress 
subsequently ratified in 1984,\8\ Congress generally granted the 
Department authority to interpret the fiduciary definition and issue 
administrative exemptions from the prohibited transaction provisions in 
Code section 4975.\9\
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    \6\ For purposes of the final rule, the term ``IRA'' is defined 
as any account or annuity described in Code section 4975(e)(1)(B)--
(F), and includes individual retirement accounts, individual 
retirement annuities, health savings accounts, and certain other 
tax-advantaged trusts and plans.
    \7\ 26 U.S.C. 4975(c)(1); cf. id. at 4975(f)(5), which defines 
``correction'' with respect to prohibited transactions as placing a 
plan or an IRA in a financial position not worse than it would have 
been in if the person had acted ``under the highest fiduciary 
standards.''
    \8\ Sec. 1, Public Law 98-532, 98 Stat. 2705 (Oct. 19, 1984).
    \9\ 5 U.S.C. App. 752 (2018).
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    On December 18, 2020, the Department exercised this authority and 
adopted PTE 2020-02, a prohibited transaction exemption for investment 
advice fiduciaries with respect to employee benefit plans and IRAs. 
This exemption ensured that those saving for retirement could have 
access to high quality advice by requiring fiduciary advice providers 
to render advice that is in their plan and IRA customers' best interest 
in order to receive any compensation that would otherwise be prohibited 
by ERISA and the Code.
    On October 31, 2023, the Department released the proposed 
Retirement Security Rule: Definition of an Investment Advice Fiduciary 
(the Proposed Rule), along with proposed amendments to administrative 
prohibited transaction exemptions available to investment advice 
fiduciaries.\10\ The Department designed the Proposed Rule to ensure 
that the protections established by Titles I and II of ERISA would 
uniformly apply to all investment advice that is provided to 
``Retirement Investors'' \11\), concerning the investment of their 
retirement assets, and that Retirement Investors' reasonable 
expectations are honored when they receive investment advice from 
financial professionals who hold themselves out as trusted advice 
providers.
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    \10\ The proposals were released on the Department's website on 
October 31, 2023. They were published in the Federal Register on 
November 3, 2023, at 88 FR 75890, 88 FR 75979, 88 FR 76004, and 88 
FR 76032.
    \11\ As defined in Section V(l), Retirement Investor means a 
Plan, Plan participant or beneficiary, IRA, IRA owner or 
beneficiary, Plan fiduciary within the meaning of ERISA section 
(3)(21)(A)(i) or (iii) and Code section 4975(e)(3)(A) or (C) with 
respect to the Plan, or IRA fiduciary within the meaning of Code 
section 4975(e)(3)(A) or (C) with respect to the IRA.
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    At the same time the Department published the Proposed Rule, it 
also released the proposed amendment to PTE 2020-02 (the Proposed 
Amendment), proposed amendments to PTEs 75-1, 77-4, 80-83, 83-1, and 
86-128 that apply to the provision of investment advice (the Mass 
Amendment), and proposed amendments to PTE 84-24 and invited

[[Page 32261]]

all interested persons to submit written comments on each.\12\
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    \12\ The Proposed Amendment was released on October 31, 2023, 
and was published in the Federal Register on November 3, 2023. 88 FR 
75979.
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    The Department received written comments on the Proposed Amendment, 
and on December 12 and 13, 2023, it held a virtual public hearing where 
witnesses provided commentary on the Proposed Amendment. After 
carefully considering the comments it received and the testimony 
presented at the hearing, the Department is granting the final 
amendment to PTE 2020-02 that is discussed herein (the Final Amendment) 
on its own motion pursuant to its authority under ERISA section 408(a) 
and Code section 4975(c)(2) and in accordance with its exemption 
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637 
(October 27, 2011)).\13\
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    \13\ Reorganization Plan No. 4 of 1978 (5 U.S.C. App. 1 (2018)) 
generally transferred the authority of the Secretary of the Treasury 
to grant administrative exemptions under Code section 4975 to the 
Secretary of Labor. Procedures Governing the Filing and Processing 
of Prohibited Transaction Exemption Applications were amended 
effective April 8, 2024 (29 CFR part 2570, subpart B (89 FR 4662 
(January 24, 2024)).
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    Elsewhere in this edition of the Federal Register, the Department 
is finalizing (1) the Proposed Rule defining when a person renders 
``investment advice for a fee or other compensation, direct or 
indirect'' with respect to any moneys or other property of an employee 
benefit plan for purposes of the definition of a ``fiduciary'' in ERISA 
section 3(21)(A)(ii) and Code section 4975(e)(3)(B) (the 
``Regulation''), (2) the Mass Amendment, and (3) the amendment to PTE 
84-24.

Comments and Description of the Amendment to PTE 2020-02

    As discussed below, the Department is broadening PTE 2020-02 to 
cover more transactions and revising some of the exemption's conditions 
to emphasize the core standards underlying the exemption. Consistent 
with the Proposed Amendment and PTE 2020-02 as it was originally 
granted in December 2020, this Final Amendment ensures that trusted 
advisers adhere to fundamental standards of fiduciary conduct when they 
receive compensation that otherwise is prohibited by ERISA and the Code 
as a result of recommending investment products and services to 
Retirement Investors.\14\
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    \14\ When using the term ``adviser,'' the Department does not 
refer only to investment advisers registered under the Investment 
Advisers Act of 1940 or under state law, but rather to any person 
rendering fiduciary investment advice under the Regulation. For 
example, as used herein, an adviser can be an individual who is, 
among other things, a representative of a registered investment 
adviser, a bank or similar financial institution, an insurance 
company, or a broker-dealer.
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    Under these core standards, Financial Institutions \15\ and the 
``Investment Professionals'' \16\ who work for them must:
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    \15\ As defined in Section V(d) and including registered 
investment advisers, banks or similar institutions, insurance 
companies, broker-dealers and non-bank trustees.
    \16\ As defined in Section V(g)).
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     acknowledge their fiduciary status \17\ in writing to the 
Retirement Investor;
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    \17\ For purposes of this disclosure, and throughout the 
exemption, the term ``fiduciary status'' is limited to fiduciary 
status under Title I of ERISA, the Code, or both. While this 
exemption uses some of the same terms that are used in the SEC's 
Regulation Best Interest and/or in the Investment Advisers Act and 
related interpretive materials issued by the SEC or its staff, the 
Department retains interpretive authority with respect to 
satisfaction of this exemption.
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     disclose their services and material conflicts of interest 
to the Retirement Investor;
     adhere to Impartial Conduct Standards requiring them to:
    [cir] investigate and evaluate investments, provide advice, and 
exercise sound judgment in the same way that knowledgeable and 
impartial professionals would in similar circumstances (the Care 
Obligation);
    [cir] never place their own interests ahead of the Retirement 
Investor's interest, or subordinate the Retirement Investor's interests 
to their own (the Loyalty Obligation);
    [cir] charge no more than reasonable compensation and, if 
applicable, comply with Federal securities laws regarding ``best 
execution''; and
    [cir] avoid making misleading statements about investment 
transactions and other relevant matters;
     adopt firm-level policies and procedures prudently 
designed to ensure compliance with the Impartial Conduct Standards and 
mitigate conflicts of interest that could otherwise cause violations of 
those standards;
     document and disclose the specific reasons for any 
rollover recommendations; and
     conduct an annual retrospective compliance review.
    This Final Amendment builds on the existing conditions and:
     expands the exemption's scope to include recommendations 
of any investment product, regardless of whether the product is sold on 
a principal or agency basis;
     adds non-bank Health Savings Account (HSA) trustees and 
custodians to the definition of Financial Institution with respect to 
HSAs;
     revises the disclosure requirements in the Final Amendment 
to more closely track other regulators' disclosure requirements with 
respect to the provision of investment advice;
     limits 10-year disqualification to serious misconduct that 
has been determined in a court proceeding;
     provides new streamlined exemption provisions for 
Financial Institutions that give fiduciary advice in connection with a 
Request for Proposal (RFP) to provide investment management services as 
an ERISA section 3(38) investment manager; and
     makes certain other minor revisions to, and clarifications 
of, existing provisions of the exemption.
    In addition, although the Department proposed to expand the 
recordkeeping requirement in the exemption, the Final Amendment 
maintains the recordkeeping provisions already in PTE 2020-02 without 
change.
    The Final Amendment, which is described in more detail below, is 
part of the Department's broader package of changes to the definition 
of fiduciary advice and associated exemptions published elsewhere in 
today's Federal Register. The Department has worked to ensure that each 
separate regulatory action being finalized today, while capable of 
operating independently, works together within ERISA's existing 
framework. Together, these changes reduce the gap in protections that 
previously existed with respect to ERISA-covered investments and level 
the playing field for all investment advice fiduciaries. Still, the 
amended Regulation and each of the PTEs operate independently and 
should continue to do so if any component of the rulemaking is 
invalidated.
    The Department notes the views of some commenters that it should 
have delayed making changes so that Financial Institutions, Investment 
Professionals, and the Department could have gained more experience 
with PTE 2020-02, as currently written, or that it should even have 
foregone making any changes at all in light of new standards of care 
imposed on broker-dealers by the Securities and Exchange Commission 
(SEC), and on insurance companies and insurance agents by State 
insurance regulators. In making changes to PTE 2020-02, however, the 
Department has paid close attention to the work of other regulators, 
and sought to build upon and complement, rather than disrupt, their 
compliance structures. For example, the Department has designed the 
Final Amendment in manner that should place Financial Institutions that 
have already built robust compliance structures in compliance with the 
SEC's

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Regulation Best Interest: the Broker-Dealer Standard of Conduct 
(Regulation Best Interest) \18\ in a strong position to comply with the 
closely aligned revised conditions of PTE 2020-02.
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    \18\ 17 CFR Sec.  240.15l-1.
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    The Final Amendment also reflects the Department's ongoing review 
of issues of fact, law, and policy related to PTE 2020-02, and more 
generally, its regulation of fiduciary investment advice.\19\ Moreover, 
the changes described herein reflect the Department's experience 
facilitating compliance with PTE 2020-02, consideration of the input it 
received from meetings with stakeholders since the exemption originally 
was finalized in 2020, and the comments received, and testimony 
provided, at the virtual hearing in response to the Proposed Amendment 
and the proposed regulation.
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    \19\ See Emp. Benefits Sec. Admin. (EBSA), U.S. Dep't of Lab., 
New Fiduciary Advice Exemption: PTE 2020-02 Improving Investment 
Advice for Workers & Retirees Frequently Asked Questions (Apr. 
2021), (``2021 FAQs''), available at https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/new-fiduciary-advice-exemption.pdf. ``Q5. Will the Department take 
more actions relating to the regulation of fiduciary investment 
advice?: The Department is reviewing issues of fact, law, and policy 
related to PTE 2020-02, and more generally, its regulation of 
fiduciary investment advice. The Department anticipates taking 
further regulatory and sub-regulatory actions, as appropriate, 
including amending the investment advice fiduciary regulation, 
amending PTE 2020-02, and amending or revoking some of the other 
existing class exemptions available to investment advice 
fiduciaries. Regulatory actions will be preceded by notice and an 
opportunity for public comment. Additionally, although future 
actions are under consideration to improve the exemption, the 
Department believes that core components of PTE 2020-02, including 
the Impartial Conduct Standards and the requirement for strong 
policies and procedures, are fundamental investor protections which 
should not be delayed while the Department considers additional 
protections or clarifications.''
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    As discussed in greater detail below, the Department has concluded 
that, as amended, the exemption is flexible, workable, and provides a 
sound and uniform framework for Financial Institutions and Investment 
Professionals to provide high quality investment advice to Retirement 
Investors. The amended exemption also is broadly available to be relied 
on by Financial Institutions and Investment Professionals, without 
regard to their business model, fee structure, or type of product 
recommended, subject to their compliance with fundamental standards 
that protect Retirement Investors. To the extent that Financial 
Institutions and Investment Professionals honor terms of the amended 
exemption, Retirement Investors will benefit from the application of a 
common standard to all fiduciary investment advice recommendations to 
Retirement Investors that ensures they will receive prudent and loyal 
investment recommendations from Financial Institutions and Investment 
Professionals competing on a level playing field that is protective of 
Retirement Investors' interests.

Applicability Date

    The Final Amendment is applicable to transactions pursuant to 
investment advice provided on or after September 23, 2024 (the 
``Applicability Date''). For transactions engaged in pursuant to 
investment advice recommendations that were provided before the Final 
Amendment's Applicability Date, the prior version of PTE 2020-02 will 
remain available for all parties that are currently relying on the 
exemption.\20\
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    \20\ To the extent a party receives ongoing compensation for a 
recommendation that was made before the Applicability Date, 
including through a systematic purchase payment or trailing 
commission, the amended PTE 2020-02 would not apply unless and until 
new investment advice is provided.
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    Several commenters stated that the Proposed Amendment's 
Applicability Date (60-days after publication in the Federal Register) 
did not provide sufficient time for Financial Institutions and 
Investment Professionals to fully comply with the amended conditions. 
In response to these comments, the Department is adding a new Section 
VI, which provides a phase-in period for the one-year period beginning 
September 23, 2024. Thus, Financial Institutions and Investment 
Professionals may receive reasonable compensation under Section I of 
the amended exemption during this phase-in period if they comply with 
the Impartial Conduct Standards in Section II(a) and the fiduciary 
acknowledgment requirement under Section II(b)(1). This one-year phase-
in period is the same as the one-year compliance period the Department 
provided when it originally granted PTE 2020-02.
    The Department confirms that if a transaction occurred before the 
Applicability Date or pursuant to a systematic purchase program 
established before the Applicability Date, the restrictions of ERISA 
section 406(a)(1)(A), 406(a)(1)(D), and 406(b) and the sanctions 
imposed by Code section 4975(a) and (b), by reason of Code section 
4975(c)(1)(A), (D), (E) and (F), will not apply to: (1) the receipt, 
directly or indirectly, of reasonable compensation by a Financial 
Institution, Investment Professional, or any Affiliate and Related 
Entity, as such terms are defined in Section V, in connection with 
investment advice; or (2) the purchase or sale of an asset in a 
principal transaction, and the receipt of a mark-up, mark-down, or 
other payment, in either case as a result of the provision of 
investment advice within the meaning of ERISA section 3(21)(A)(ii) or 
Code section 4975(e)(3)(B) and regulations thereunder. Also, no party 
would be required to comply with the amended conditions for a 
transaction that occurred before the Applicability Date.

Expanded Exemption Scope

    The Department is expanding the scope of PTE 2020-02 in the Final 
Amendment to make it more broadly available, as requested by industry 
commenters. As amended, the exemption is available for Financial 
Institutions and Investment Professionals to receive reasonable 
compensation for recommending a broad range of investment products to 
Retirement Investors, including insurance and annuity products. Both 
the existing exemption and the Proposed Amendment provided narrower 
relief. Specifically, Section I(b) of the Proposed Amendment stated:

    This exemption permits Financial Institutions and Investment 
Professionals, and their Affiliates and Related Entities, to engage 
in the following transactions, including as part of a rollover from 
a Plan to an IRA as defined in Code section 4975(e)(1)(B) or (C), as 
a result of the provision of investment advice within the meaning of 
ERISA section 3(21)(A)(ii) and Code section 4975(e)(3)(B):
    (1) The receipt of reasonable compensation; and
    (2) The purchase or sale of an asset in a riskless principal 
transaction or a Covered Principal Transaction, and the receipt of a 
mark-up, mark-down, or other payment.

    Some commenters expressed concern that the scope of covered 
transactions in the Proposed Amendment was unduly limited. As support, 
some commenters pointed to the Department's proposed simultaneous 
repeal of other exemptions covering investment advice and expressed 
concern that they would need to rely on PTE 2020-02 or PTE 84-24 for 
any compensation for providing investment advice. One commenter noted 
that some investment advice fiduciaries that formerly could rely on the 
same exemption (e.g., PTE 77-4) for both advice and for other 
transactions, such as asset management, would now have to rely on 
multiple exemptions. Another commenter suggested that PTE 2020-02 was 
not a good substitute for PTE 77-4 because it was more burdensome.
    However, as the Department discussed in the preamble to the

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proposed Mass Amendment,\21\ the Department is seeking to provide a 
single standard of care that would apply universally to all fiduciary 
investment advice, regardless of the specific type of product or advice 
provider. This uniform regulatory structure for investment advice will 
provide greater protection for Retirement Investors and create a level 
playing field among investment advice providers by ensuring that advice 
transactions are subject to a common set of standards that are 
specifically designed to protect Retirement Investors from the inherent 
dangers posed by conflicts of interest and to ensure prudent advice. 
These common standards, which are included in both this exemption and 
the amended PTE 84-24, importantly include the Impartial Conduct 
Standards, the policies and procedures requirement, and the obligation 
to conduct annual retrospective reviews, each of which is further 
described below. In the Department's judgment, the advice transactions 
that were formerly covered by PTE 77-4 and the other exemptions 
affected by the Mass Amendment are just as deserving of these core 
protections as other advice transactions, and the need for protection 
is just as great.
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    \21\ 88 FR 76032.
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    Several commenters emphasized the need for a universal standard 
covering investment advice provided to Retirement Investors. These 
commenters described Retirement Investors who reasonably expect their 
relationship with an investment advice provider to be one in which they 
can--and should--place trust and confidence in the advice provider's 
recommendations. In light of the asymmetry of information and knowledge 
between a Retirement Investor and an advice provider, commenters noted 
that the Retirement Investor is at increased risk that the advice 
provider will prioritize its own compensation at the expense of the 
Retirement Investor's savings.
    To ensure that there is a common standard that Retirement Investors 
can rely on for all products and for all tax-advantaged retirement 
accounts, the Department is broadening this exemption to make it 
available for recommendations of all types of products by all fiduciary 
investment advice providers as defined in ERISA, the Code, and the 
final Regulation that the Department is issuing today.

Transactions With Parties In Interest

    In this Final Amendment, the Department is expanding the scope of 
the PTE 2020-02 to permit Financial Institutions, Investment 
Professionals, and their Affiliates and Related Entities, to receive 
reasonable compensation (including commissions, fees, mark ups, mark 
downs, and other payments) that would otherwise be prohibited under 
ERISA and the Code as a result of providing investment advice within 
the meaning of ERISA section 3(21)(A)(ii), Code section 4975(e)(3)(B), 
and the final Regulation to Retirement Investors, including as part of 
a rollover from an employee benefit plan to an IRA. This is a change 
from the Proposed Amendment, and from the exemption that was finalized 
in 2020, which granted limited relief for ``covered principal 
transactions'' and ``riskless principal transactions,'' as those terms 
were defined in the Proposed Amendment. The Final Amendment provides 
exemptive relief for all transactions--regardless of whether they are 
executed on a principal or agent basis. This expansion in the scope of 
the exemption responds to many commenters' concerns that the Proposed 
Amendment unduly narrowed the availability of the exemption, including 
the concerns of those who argued that the language in Section I of the 
exemption did not sufficiently clarify whether recommendations 
involving insurance and annuity products were covered transactions.
    This expansion in scope also responds to many industry commenters 
who expressed particular concern that the Proposed Amendment of PTE 
2020-02 and the proposed Mass Amendment would leave certain principal 
transactions that previously were covered by a class exemption without 
exemptive relief. Many of these commenters urged the Department to 
expand the scope of covered principal transactions in PTE 2020-02, 
including to provide relief for closed-end funds that are traded on a 
principal basis upon their inception. Some commenters asserted more 
generally that the Department was inappropriately substituting its own 
judgment for that of Retirement Investors and their fiduciary 
investment advice providers and effectively preventing Retirement 
Investors from purchasing a wide range of securities that are 
recommended.
    However, other commenters disagreed. Some commenters urged the 
Department to further narrow the scope of Covered Principal 
Transactions. For example, one commenter encouraged the Department to 
add the limitation ``for cash'' to the definition of Covered Principal 
Transaction, which would prevent in-kind transactions from being 
treated as covered principal transactions. This commenter asserted that 
such a change would reduce the complexity and the conflicts of interest 
that otherwise would be associated with such transactions. Other 
commenters generally supported the Department's Proposed Amendment with 
its limited coverage for principal transactions.
    Although the Department is expanding the scope of the exemption, 
the Department continues to be concerned about the heightened conflicts 
of interest inherent in principal transactions. Principal transactions 
involve the purchase from, or sale to, a Plan or an IRA of an 
investment on behalf of the Financial Institution's own account or the 
account of a person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the Financial Institution. Because an investment advice fiduciary 
engaging in a principal transaction is involved with both sides of the 
transaction, a Financial Institution or Investment Professional 
providing fiduciary investment advice in a principal transaction has a 
clear and direct conflict of interest.
    In addition, the securities that are typically traded in principal 
transactions often lack pre-trade price transparency and can be 
illiquid. As a result, Retirement Investors may find it especially 
challenging to evaluate the reasonableness of recommended principal 
transactions. Because of these challenges, there is a danger that 
Financial Institutions and Investment Professionals will favor their 
own interests by selling unwanted investments from their inventory to 
unwitting investors, overcharge investors, or otherwise take advantage 
of investors and put their interests ahead of the investors' interests. 
Historically, the Department has provided relief for principal 
transactions that is limited in scope and subject to additional 
protective conditions because of these concerns.
    After careful consideration of the comments, the Department is 
expanding the types of transactions that are covered by the exemption 
to ensure that Financial Institutions and Investment Professionals can 
recommend a wide variety of investment products to Retirement 
Investors. To the extent Financial Institutions and Investment 
Professionals comply with the stringent standards of care imposed by 
the Final Amendment and take seriously the exemption's requirements 
relating to policies and procedures, conflict mitigation, and 
retrospective review, the Department finds that the Final Amendment is 
both protective and flexible enough to accommodate a wide

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range of products, including relatively complex and risky investments. 
However, the Department cautions that, in order to comply with the 
exemptions' policies and procedures requirements, Financial 
Institutions selling products on a principal basis must carefully 
address how they will mitigate the inherent conflicts of interest 
associated with recommending these products to Retirement Investors.
    More generally, Financial Institutions and Investment Professionals 
must take special care to protect the interests of Retirement Investors 
and to avoid favoring their own financial interests at the expense of 
Retirement Investors' interests. The greater the dangers posed by 
conflicts of interest, complexity, or risk, the greater the care 
Investment Professionals and Financial Institutions must take to ensure 
that their investment recommendations are prudent, loyal, and 
unaffected by either the Financial Institutions' or the Investment 
Professionals' conflicts of interest.

Financial Institutions and Investment Professionals

    The amended exemption is broadly available for Financial 
Institutions and Investment Professionals, and their Affiliates and 
Related Entities, including (but not limited to) independent marketing 
organizations (IMOs), field marketing organization (FMOs), brokerage 
general agencies (BGAs) and others providing administrative support.
    In this Final Amendment, the Department has made some ministerial 
changes to the existing definitions of Investment Professionals, 
Affiliates and Related Entities for clarity. In particular, the 
Department has clarified that the definition of ``Related Entity'' 
includes two components: (i) a party that has an interest in an 
Investment Professional or Financial Institution; and (ii) a party in 
which an Investment Professional or Financial Institution has an 
interest, in either case when that interest may affect the fiduciary's 
best judgment as a fiduciary. The Department has also made ministerial 
changes, such as changing ``described'' to ``defined'' in referencing 
ERISA section 3(21)(A)(ii) and Code section 4975(e)(3)(B). Some 
commenters also suggested other changes in nomenclature, but the 
Department has concluded that the terms, as defined in the Final 
Amendment, are appropriately clear and consistent.
    The Final Amendment also broadens the definition of the term 
Financial Institution to include non-bank trustees or custodians that 
are approved to serve in these capacities under Treasury Regulation 26 
CFR 1.408-2(e) (as amended), but only to the extent they are serving as 
non-bank trustees or custodians with respect to HSAs. Several 
commenters requested the Department to expand the definition of 
Financial Institution under the exemption to include these non-bank 
trustees or custodians. As explained by some commenters, IRS-approved 
non-bank trustees and custodians are permitted to administer HSAs and 
are subject to numerous requirements under regulations and guidance 
issued by the Department of the Treasury.\22\ Some commenters stated 
that these non-bank trustees service a meaningful portion of the HSA 
market, and argued that without eligibility to use PTE 2020-02, they 
may be forced to exit the market. According to these commenters, with 
reduced competition and fewer choices, costs to HSA plan sponsors and 
participants could increase. One commenter further stated that the 
failure to include IRS-approved non-bank HSA trustees and custodians in 
the definition would be inconsistent with the intent of Congress to 
regulate such entities similarly to other Financial Institutions under 
ERISA and the Code.
---------------------------------------------------------------------------

    \22\ According to the commenter, in order for a non-bank trustee 
or custodian to receive this certification, the entity must submit a 
written application to the Commissioner of the IRS demonstrating, 
generally, its ability to act within the accepted rules of fiduciary 
conduct, its capacity to account for large numbers of 
accountholders, its fitness to handle funds normally associated with 
the handling of retirement funds, sufficient net worth, and that its 
procedures adhere to established rules of fiduciary conduct 
(including that all employees taking part in the performance of the 
entity's fiduciary duties are required to be bonded in an amount of 
at least $250,000). The entity is also required to undergo an annual 
audit of its books and records by a qualified public accountant to 
determine, among other things, whether the HSA accounts have been 
administered in accordance with applicable law. See Treasury 
Regulation 26 CFR 1.408-2(e) (as amended).
---------------------------------------------------------------------------

    After consideration of these comments, which were limited to 
concerns regarding HSAs, the Department is expanding the definition of 
Financial Institution in the Final Amendment to include non-bank 
trustees and non-bank custodians that are approved under Treasury 
Regulation 26 CFR 1.408-2(e) (as amended), but only to the extent they 
are serving in these capacities with respect to HSAs. The Department 
agrees with commenters that the initial and continuing requirements to 
remain certified by the Department of the Treasury as a non-bank 
trustee or custodian provide sufficient regulatory oversight of these 
entities to include them within the scope of this exemption as applied 
to HSAs. As amended, these non-bank trustees and custodians will be 
permitted to serve as Financial Institutions under Section V(d)(5). To 
implement this change, the Department is redesignating former Section 
V(e)(5) to (d)(6), which covers other entities that may become 
Financial Institutions under future individual exemptions.

Retirement Investors

    The Department is revising the definition of Retirement Investor in 
Section V(l) to be consistent with the definition in the final 
Regulation defining fiduciary investment advice. As revised, both the 
final Regulation and this Final Amendment define Retirement Investor to 
mean a Plan, Plan participant or beneficiary, IRA, IRA owner or 
beneficiary, Plan fiduciary within the meaning of ERISA section 
(3)(21)(A)(i) or (iii) and Code section 4975(e)(3)(A) or (C) with 
respect to the Plan, or IRA fiduciary within the meaning of Code 
section 4975(e)(3)(A) or (C) with respect to the IRA. The preamble to 
the final Regulation includes additional discussion of the term 
``Retirement Investor,'' which the Department is defining similarly in 
the Final Amendment to ensure its broad availability to investment 
advice fiduciaries.
    These revisions should alleviate some commenters' concerns that 
advice providers may provide advisory tools and assistance to 
fiduciaries who, in turn, render investment advice to Retirement 
Investors. As revised, neither the final Regulation nor this Final 
Amendment treats investment advice fiduciaries under section 
3(21)(A)(ii) of ERISA or Code section 4975(e)(3)(B) as Retirement 
Investors.

Exclusions

    The Department is also finalizing its amendment to Section I(c) of 
the exemption, which limits the availability of PTE 2020-02 in certain 
circumstances. Specifically, section I(c)(1) excludes from the 
exemption relief provided to Title I Plans if the Investment 
Professional, Financial Institution, or any Affiliate providing the 
investment advice is: (A) the employer whose employees are covered by 
the Plan; or (B) the Plan's named fiduciary or administrator. However, 
a named fiduciary or administrator or their Affiliate (including a 
Pooled Plan Provider (PPP) registered with the Department of Labor 
under 29 CFR 2510.3-44) may rely on the exemption if it is selected to 
provide investment advice by a fiduciary who is

[[Page 32265]]

Independent \23\ of the Financial Institution, Investment Professional, 
and their Affiliates. The Department received several comments opposed 
to this exclusion, arguing that Financial Institutions should be able 
to charge fees for advice to their own employees under the conditions 
of the exemption. The Department, however, is not modifying this 
provision, because its position continues to be that employers 
generally should not use their employees' retirement benefits as a 
potential source of revenue or profit, without additional safeguards. 
Employers can always render advice and receive reimbursement for their 
direct expenses incurred in transactions involving their employees 
without the need for the exemptive relief provided in this 
exemption.\24\
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    \23\ As defined in Section V(e), For purposes of subsection 
I(c)(1), a fiduciary is ``Independent'' of the Financial Institution 
and Investment Professional if:
    (1) the fiduciary is not the Financial Institution, Investment 
Professional, or an Affiliate;
    (2) the fiduciary does not have a relationship to or an interest 
in the Financial Institution, Investment Professional, or any 
Affiliate that might affect the exercise of the fiduciary's best 
judgment in connection with transactions covered by this exemption; 
and
    (3) the fiduciary does not receive and is not projected to 
receive within its current Federal income tax year, compensation or 
other consideration for its own account from the Financial 
Institution, Investment Professional, or an Affiliate, in excess of 
two (2) percent of the fiduciary's annual revenues based upon its 
prior income tax year.
    \24\ A few existing prohibited transaction exemptions apply to 
employers. See, e.g., ERISA section 408(b)(5) (statutory exemption 
that provides relief for the purchase of life insurance, health 
insurance, or annuities, from an employer with respect to a Plan or 
a wholly owned subsidiary of the employer).
---------------------------------------------------------------------------

    The Department also has determined that it is inappropriate for PTE 
2020-02 to be used by a Financial Institution or Investment 
Professional (or an affiliate thereof) that is the named fiduciary or 
plan administrator of a Title I Plan to receive additional compensation 
for providing investment advice to Retirement Investors who are 
participants in the Financial Institution's own Plan unless the 
Financial Institution or Investment Professional is selected to serve 
as an investment advice provider by a fiduciary that is Independent of 
them. Named fiduciaries and plan administrators have significant 
authority over plan operations and accordingly, it is imperative for 
the Financial Institution or Investment Professional to be selected by 
an Independent fiduciary who will monitor and hold them accountable for 
their performance as a provider of investment advice services to 
Retirement Investors covered by the Financial Institution's own Plan.

Pooled Employer Plans and Pooled Plan Providers

    The Proposed Amendment would have been available for advice to 
Pooled Employer Plans (PEPs). Amended Section I(c) of the exemption 
would have permitted Pooled Plan Providers (PPPs), as defined in 
Section V(j), and their Affiliates to rely upon the exemption to 
provide investment advice if they are Financial Institutions within the 
meaning of the exemption, notwithstanding their status as named 
fiduciaries or plan administrators. The preamble to the Proposed 
Amendment stated that a PPP can provide investment advice to a PEP 
within the framework of the exemption and would allow PEPs to receive 
investment advice in the same manner as other ERISA plans.\25\ While 
the Proposed Amendment would have created a separate category for PPPs, 
the Final Amendment clarifies that PPPs can rely on PTE 2020-02 when 
the PPP is selected by an Independent fiduciary. The change ensures 
that PPPs are treated in the same manner as any other Financial 
Institution.\26\
---------------------------------------------------------------------------

    \25\ 88 FR at 75982.
    \26\ Under ERISA section 3(43)(B)(iii) employers retain 
fiduciary responsibility for the selection and monitoring of the PPP 
and any other named fiduciary of the plan, and an employer would be 
able to make this independent selection.
---------------------------------------------------------------------------

    Commenters were generally supportive of the proposed approach, but 
some expressed concern about fiduciary and prohibited transaction 
issues related to a PPP's decision to hire affiliated parties or 
employer decisions to participate in a PEP. These issues are outside 
the scope of this exemption, because they are dependent on the 
particular facts and circumstances of a specific case. Accordingly, 
such issues would be better addressed outside the context of the relief 
provide in this Final Amendment, which is focused on the receipt of 
reasonable compensation as a result of providing investment advice.

Robo-Advice

    PTE 2020-02 initially excluded investment advice generated solely 
by an interactive website in which computer software-based models or 
applications provide investment advice based on investor-supplied 
personal information without any personal interaction with or advice 
from an Investment Professional (robo-advice). The Proposed Amendment 
included robo-advice within the scope of PTE 2020-02. While a few 
commenters expressed concern that the Department was favoring robo-
advice, most commenters supported the Department's proposed inclusion. 
The commenters asserted that the inclusion would simplify compliance 
for Financial Institutions and Investment Professionals and expand 
access to investment advice at a lower cost for Retirement Investors. 
One commenter argued that by allowing some robo-advice, the Department 
was making the exemption available for certain instances of 
discretionary investment management, as long as it was not provided by 
a human. However, the Department confirms that the exclusion in Section 
I(c)(2) limits the exemption to fiduciary investment advice.
    After considering these comments, the Department is finalizing this 
amendment as proposed to expand the scope of the exemption by removing 
Section I(c)(2), which excluded robo-advice from the exemption. As 
discussed in the preamble to the Proposed Amendment, the Department 
understands that Financial Institutions may use a combination of 
computer models and individual Investment Professionals to provide 
investment advice and implement a single set of policies and procedures 
that governs all investment recommendations. Like any other investment 
advice arrangement, Financial Institutions relying on computer models 
must satisfy the exemption's Impartial Conduct Standards and other 
protective conditions in order to receive exemptive relief. As stated 
above, the amended exemption is sufficiently protective and flexible to 
accommodate a wide range of investment advice arrangements, including 
robo-advice.
    Therefore, after reviewing the comments, the Department has not 
been presented with any evidence that would lead it to conclude that 
robo-advice arrangements cannot comply with the same conditions that 
are applicable to other investment advice arrangements. Additionally, 
the failure to include such arrangements in the amended exemption could 
reduce access to an important and cost-effective means of delivering 
investment advice to many participants and beneficiaries. The 
Department does not agree with the suggestion of a few commenters that 
the inclusion of robo-advice in the exemption would give such 
arrangements an unfair competitive advantage, inasmuch as they are 
subject to the same conditions as other advisory arrangements under the 
terms of the exemption.

[[Page 32266]]

Investment Discretion

    The Proposed Amendment would have redesignated Section I(c)(3) of 
PTE 2020-02 as Section I(c)(2) to exclude from the exemption investment 
advice that is provided to a Retirement Investor by a Financial 
Institution or Investment Professional when such Financial Institution 
or Investment Professional is serving in a fiduciary capacity other 
than as an investment advice fiduciary within the meaning of ERISA 
section 3(21)(A)(ii) and Code section 4975(e)(3)(B) (and the 
regulations issued thereunder). The Department is finalizing this 
provision as proposed. As discussed in the preamble to the Proposed 
Amendment, the Department does not intend to change the substance of 
this exclusion and is clarifying that Financial Institutions and 
Investment Professionals cannot rely on the exemption when they act in 
a fiduciary capacity other than as an investment advice fiduciary. The 
Department notes that other exemptions exist for other types of 
transactions, such as discretionary asset management.

Impartial Conduct Standards

Care Obligation and Loyalty Obligation

    The Department is retaining the substance of the exemption's 
requirement for Financial Institutions and Investment Professionals to 
act in the Retirement Investor's ``Best Interest'' and finalizing 
proposed clarifications. However, the Department is replacing the term 
``Best Interest'' in the Final Amendment with its two separate 
components: the Care Obligation and the Loyalty Obligation. The Final 
Amendment specifically refers to each obligation separately, although 
they are unchanged in substance from the previous version of PTE 2020-
02 and the Proposed Amendment. Both the Care Obligation and the Loyalty 
Obligation must be satisfied when investment advice is provided. As 
defined in amended Section V(b), to meet the Care Obligation, advice 
must reflect 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 use in the conduct of an 
enterprise of a like character and with like aims, based on the 
investment objectives, risk tolerance, financial circumstances, and 
needs of the Retirement Investor. As defined in amended Section V(h), 
to meet the Loyalty Obligation, the Financial Institution and 
Investment Professional must not place the financial or other interests 
of the Investment Professional, Financial Institution or any Affiliate, 
Related Entity, or other party ahead of the interests of the Retirement 
Investor or subordinate the Retirement Investor's interests to those of 
the Investment Professional, Financial Institution or any Affiliate, 
Related Entity.
    The Department is changing its nomenclature for these two 
obligations in response to comments that the phrase ``best interest'' 
was used in many contexts throughout this rulemaking and by various 
regulators with possibly different shades of meaning. For example, in 
paragraph (c)(1)(i) of the final Regulation, fiduciary status is based, 
in part, on whether a recommendation is made under circumstances that 
would indicate to a reasonable investor in like circumstances that the 
recommendation ``may be relied upon by the retirement investor as 
intended to advance the retirement investor's best interest.'' In the 
context of the final Regulation, however, ``best interest'' is not 
meant to refer to the specific requirements of the ``Best Interest'' 
standard used in PTE 2020-02, which incorporated ERISA's standards of 
prudence and loyalty, but rather to refer more colloquially to 
circumstances in which a reasonable investor would believe the advice 
provider is looking out for them and working to promote their 
interests. As discussed in the preamble to the proposed Amendment, the 
Department is also adding an example from the prior PTE 2020-02 
preamble to the operative text of Section II(a)(1) specifying that it 
is impermissible for the Investment Professional to recommend a product 
that is worse for the Retirement Investor because it is better for the 
Investment Professional's or the Financial Institution's bottom line.
    Similarly, in recommending whether a Retirement Investor should 
pursue a particular investment strategy through a brokerage or advisory 
account, the Investment Professional must base the recommendation on 
the Retirement Investor's financial interests, rather than any 
competing financial interests of the Investment Professional. For 
example, in order for an Investment Professional to recommend that a 
Retirement Investor enter into an arrangement requiring the Retirement 
Investor to pay an ongoing advisory fee to the Investment Professional, 
the Professional must prudently conclude that the Retirement Investor's 
interests would be better served by this arrangement than the payment 
of a one-time commission to buy and hold a long-term investment. In 
making recommendations as to account type, it is important for the 
Investment Professional to ensure that the recommendation carefully 
considers the reasonably expected total costs over time to the 
Retirement Investor, and that the Investment Professional base its 
recommendations on the financial interests of the Retirement Investor 
and avoid subordinating those interests to the Investment 
Professional's competing financial interests.
    It bears emphasis, that this standard should not be read as somehow 
foreclosing the Investment Professional and Financial Institution from 
being paid on a transactional basis or ongoing basis, nor does it 
foreclose investment advice on proprietary products or investments that 
generate third-party payments,\27\ or advice based on investment menus 
that are limited to such products, in part or whole. Financial 
Institutions and Investment Professionals are entitled to receive 
reasonable compensation that is fairly disclosed for their work. As 
further described below, Financial Institutions that offer a restricted 
menu of proprietary products or products that generate third-party 
payments must ensure their policies and procedures satisfy the 
conditions of Section II(c).
---------------------------------------------------------------------------

    \27\ The Department considers ``third-party payments'' to 
include such payments as sales charges when not paid directly to the 
Financial Institution, Investment Professional, or an Affiliate or 
Related Entity by a Retirement Investor; gross dealer concessions; 
revenue sharing payments; 12b-1 fees; distribution, solicitation or 
referral fees; volume-based fees; fees for seminars and educational 
programs; and any other compensation, consideration, or financial 
benefit provided to the Financial Institution, Investment 
Professional or an Affiliate or Related Entity by a third party as a 
result of a transaction covered by this exemption involving a 
Retirement Investor.
---------------------------------------------------------------------------

    The Department received many comments on the Impartial Conduct 
Standards. Several commenters supported the principles-based approach, 
which they asserted provide fundamental investor protections that are 
necessary to ensure the advice is in the interest of the Retirement 
Investors. Some commenters noted how many investment advice 
professionals already hold themselves to similar professional standards 
of conduct. One commenter, in particular, stated that these high 
standards have not resulted in less access to advice.
    Other commenters objected to the Impartial Conduct Standards. Some 
commenters argued that the Department does not have authority to 
include these conditions in a prohibited transaction exemption. 
According to these commenters, because the Care Obligation and Loyalty 
Obligation are based on ERISA's prudence and loyalty requirements in 
Title I, the Department cannot require these standards to apply

[[Page 32267]]

when advice is provided to an IRA or other Title II Plan. Some 
commenters suggested the Department instead rely on the standards 
finalized by the SEC or the National Association of Insurance 
Commissioners (NAIC). One commenter stated that the Department is 
deliberately extending ERISA Title I statutory duties of prudence and 
loyalty to brokers and insurance representatives who sell to IRA plans, 
although Title II has no such requirements.
    The Department disagrees with these commenters. ERISA section 
408(a) and Code section 4975(c)(2) expressly permit the Department 
(through the Reorganization Plan No. 4 of 1978) to grant ``a 
conditional or unconditional exemption'' as long as the exemption is 
``(A) administratively feasible, (B) in the interests of the plan and 
of its participants and beneficiaries, and (C) protective of the rights 
of participants and beneficiaries of the plan.'' \28\ Nothing in these 
provisions forbids the Department from drawing on the same common law 
standards of prudence and loyalty that have been used in analogous 
contexts for hundreds of years, requires the Department to limit 
conditions to novel provisions that Congress did not include anywhere 
else in ERISA's text, or expresses a preference for including standards 
taken from other State or Federal regulatory structures while 
disregarding those set forth in ERISA. These standards are an essential 
part of ensuring the advice is in the interest of and protective of 
Retirement Investors and are also administratively feasible and have 
been central to PTE 2020-02 since it was originally granted. In 
finalizing the Impartial Conduct Standards in 2020, the Department 
explained that this condition ``merely recognizes that fiduciaries of 
IRAs, if they seek to use this exemption for relief from prohibited 
transactions, should adhere to a best interest standard consistent with 
their fiduciary status and a special relationship of trust and 
confidence.'' \29\ Additionally, while Title I imposes a duty of care 
and a duty of loyalty on fiduciaries in all situations, the concept of 
care and loyalty are not unique to Title I or even to ERISA but are 
rather foundational principles of trust and agency law. The SEC imposes 
duties of care and loyalty on investment advisers and broker-dealers. 
The 2020 NAIC Suitability In Annuity Transactions Model Regulation 275 
(the ``NAIC Model Regulation'') also relies on underlying principles of 
care and loyalty. These core requirements are not singularly reserved 
for Title I of ERISA and the Department disagrees that it is 
inappropriate to apply these requirements to investment advice 
fiduciaries to Title II plans who want to engage in otherwise 
statutorily prohibited transactions.
---------------------------------------------------------------------------

    \28\ ERISA section 408(a), Code section 4975(c)(2).
    \29\ 85 FR 82822
---------------------------------------------------------------------------

    The Department received several comments on how this standard 
applies to insurance sales. A few commenters argued that the proposed 
revisions to PTE 2020-02 should take a different approach to recognize 
the unique aspects of its application to the insurance industry. 
Commenters pointed out differences between the NAIC Model Regulation 
standard and the exemption's Impartial Conduct Standards. One commenter 
accused the Department of ``entrapping insurance agents'' by holding 
them to the fiduciary standard based on their actions. However, a 
different commenter specifically supported the Department's proposal, 
stating that NAIC Model Regulation does not require producers to act in 
the ``best interest of their customers,'' and called out the need for a 
clear uniform standard.
    A few commenters specifically raised questions about the continued 
applicability of Question 18 from the 2021 FAQs.\30\ Question 18 asked, 
``[h]ow can insurance industry financial institutions comply with the 
exemption?'' In response, the Department confirmed that PTE 2020-02 is 
available for insurance products, particularly for independent 
producers that work with multiple insurance companies. The Department 
confirms that the Department's reasoning in the response to FAQ 18 
remains true for PTE 2020-02 as amended by the Final Amendment.
---------------------------------------------------------------------------

    \30\ See supra at note 19.
---------------------------------------------------------------------------

    The Department is aware that insurance companies often sell 
insurance products and fixed (including indexed) annuities through 
different distribution channels. While some insurance agents are 
employees of an insurance company, other insurance agents are 
independent, and work with multiple insurance companies. PTE 2020-02 
applies to all of these business models. In addition to PTE 2020-02, 
the Department is also simultaneously publishing amendments to PTE 84-
24 elsewhere in this edition of the Federal Register which provide a 
pathway to compliance for insurance companies that market their 
products through independent insurance agents, without requiring the 
companies to assume or acknowledge fiduciary status.
    However, insurance companies and agents may also rely upon PTE 
2020-02 to the same extent as other Financial Institutions and 
Investment Professionals to receive relief for the receipt of otherwise 
prohibited compensation as a result of investment recommendations, 
including commissions. To the extent an insurance company that markets 
its products through independent agents chooses to rely on PTE 2020-02, 
the independent insurance agent and the financial institution (i.e., 
the insurance company) must satisfy the exemption's conditions, 
including the fiduciary acknowledgement and the Impartial Conduct 
Standards with respect to that recommendation. In such cases, the 
insurance company must adopt policies and procedures to ensure it 
complies with the Impartial Conduct Standards and avoid incentives that 
place the insurance company's or the independent agent's interests 
ahead of the Retirement Investor's interest.
    While independent producers may recommend products issued by a 
variety of insurance companies, PTE 2020-02 does not require insurance 
companies to exercise supervisory responsibility with respect to 
independent producers' sales of the products of unrelated and 
unaffiliated insurance companies for which the insurance company does 
not receive any compensation or have any financial interest.\31\ When 
an insurance company is the supervisory financial institution for 
purposes of the exemption with respect to such an independent producer, 
its obligation is simply to ensure that the insurer, its affiliates, 
and related entities meet the exemption's terms with respect to the 
insurance company's annuity which is the subject of the transaction.
---------------------------------------------------------------------------

    \31\ As defined in PTE 84-24, an Independent Producer is ''a 
person or entity that is licensed under the laws of a State to sell, 
solicit or negotiate insurance contracts, including annuities, and 
that sells to Retirement Investors products of multiple unaffiliated 
insurance companies, and (1) is not an employee of an insurance 
company (including a statutory employee as defined under Code 
section 3121(d)(e)); or (2) is a statutory employee of an insurance 
company which has no financial interest int the covered 
transaction.''
---------------------------------------------------------------------------

    Under the exemption, the insurance company must:
     adopt and implement prudent supervisory and review 
mechanisms to safeguard the agent's compliance with the Impartial 
Conduct Standards when recommending the insurance company's products;
     avoid improper incentives to preferentially recommend the 
products, riders, and annuity features that are most lucrative for the 
insurance company at the customer's expense;
     ensure that the agent receives no more than reasonable 
compensation for its services in connection with the

[[Page 32268]]

transaction (e.g., by monitoring market prices and benchmarks for the 
insurance company's products, services, and agent compensation); and
     adhere to the disclosure and other conditions set forth in 
the exemption.
    Under the exemption, the obligation of the insurance company with 
respect to independent producers is to oversee the recommendation and 
sale of its products by the independent producer, not the 
recommendations and sales by the independent producer involving another 
insurance company's products. Insurance companies could also comply 
with the exemption by creating oversight and compliance systems through 
contracts with insurance intermediaries such as IMOs, FMOs or BGAs. As 
one possible approach, an insurance intermediary could eliminate 
compensation incentives across all the insurance companies that work 
with the insurance intermediary, assisting each of the insurance 
companies with their independent obligations under the exemption. This 
might involve the insurance intermediary's review of documentation 
prepared by insurance agents to comply with the exemption, as may be 
required by the insurance company, or the use of third-party industry 
comparisons available in the marketplace to help independent insurance 
agents recommend products that are prudent for their retirement 
investor customers.
    Finally, commenters raised an issue relating to administrative 
feasibility of PTE 2020-02 and its core conditions, arguing that it is 
too early to determine whether PTE 2020-02, as currently constituted, 
is administrable under ERISA section 408(a) and Code section 
4975(c)(2), and that the Department has not provided evidence to 
evaluate whether it is administrable. Other commenters questioned the 
administrative feasibility of both PTE 84-24 and PTE 2020-02 more 
generally and took issue with the added or expanded conditions of both 
exemptions.
    The Department notes, however, that the core conditions of both PTE 
2020-02 and PTE 84-24, including all the Impartial Conduct Standards, 
reflect core fiduciary obligations that have been present in ERISA 
since its passage nearly fifty years ago, and that the duties of care 
and loyalty are rooted in trust law obligations that long predate 
ERISA. The Department and the financial services industry have decades 
of experience with the administration of these requirements and the 
Department is confident that Financial Institutions, Insurers and 
investment professionals can adopt supervisory structures and make 
investment recommendations that meet basic standards of prudence and 
loyalty, and that do not involve overcharging or misleading Retirement 
Investors.
    Moreover, the changes to the exemptions accompany the Regulation, 
which makes significant changes to the prior rule on fiduciary 
investment advice, and those changes also reflect decades of experience 
with the prior rule and its shortcomings in the modern advice 
marketplace, as discussed in the preamble to the Regulation. In making 
revisions to PTE 2020-02, the Department has been careful to ensure 
that parties who are currently relying upon the exemption will be able 
to continue to do so, without undue additional burden or needless 
change, and many of the changes simply expand the scope of relief 
available. In addition, PTE 2020-02 and PTE 84-24 give firms 
considerable flexibility in adopting oversight structures to manage 
conflicts of interest and promote compliance. The Final Rule and the 
exemptions cover many transactions that would not have been treated as 
fiduciary advice prior to this rulemaking. Taken together, they fill 
gaps in the regulatory structure that were not effectively addressed by 
the 1975 rule or PTE 2020-02.
    Based on its long experience with the advice rule, the existing 
exemption structure, and the core Impartial Conduct Standards, the 
Department has concluded that the proposed changes are necessary, 
administrable and consistent with the protective standards of ERISA 
section 408 and Code section 4975(c)(2). The Department also notes that 
similar regulatory efforts have been initiated and successfully 
administered by other State and Federal regulators. These regulatory 
efforts and structures include New York's Rule 187,\32\ the NAIC Model 
Regulation, the SEC's Regulation Best Interest, and the regulation of 
advisers under the Investment Advisers Act.
---------------------------------------------------------------------------

    \32\ Suitability and Best Interest in Life Insurance and Annuity 
Transactions, 11 NYCRR 224.
---------------------------------------------------------------------------

Reasonable Compensation

    The Department is retaining in the Final Amendment the reasonable 
compensation and best execution standards from PTE 2020-02 as proposed. 
Section II(a)(2)(A) provides that the compensation received, directly 
or indirectly, by the Financial Institution, Investment Professional, 
their Affiliates and Related Entities for their fiduciary investment 
advice services provided to the Retirement Investor must not exceed 
reasonable compensation within the meaning of ERISA section 408(b)(2) 
and Code section 4975(d)(2). In addition, Section II(a)(2)(B) provides 
that the Financial Institution and Investment Professional must seek to 
obtain the best execution of the recommended investment transaction 
that is reasonably available under the circumstances as required by the 
Federal securities laws.
    The Department received some comments objecting to the reasonable 
compensation standard. Some commenters stated that this standard is not 
specific enough and could chill an Investment Professional's 
willingness to recommend certain products that carry high commissions. 
Other commenters argued that this practice would ultimately limit the 
range of products available to Retirement Investors.
    The Department is finalizing the reasonable compensation standard 
as proposed. The obligation to pay no more than reasonable compensation 
to service providers has been part of ERISA since its passage.\33\ For 
example, the ERISA section 408(b)(2) and Code section 4975(d)(2) 
statutory exemptions expressly require that all types of services 
arrangements involving Plans and IRAs result in the service provider 
receiving no more than reasonable compensation. When acting as service 
providers to Plans or IRAs, Investment Professionals and Financial 
Institutions have long been subject to this requirement, regardless of 
their fiduciary status.
---------------------------------------------------------------------------

    \33\ The default rule under common law likewise requires that a 
trustee's compensation be reasonable. E.g., Nat'l Assoc. for Fixed 
Annuities v. Perez, 217 F. Supp. 3d 1, 43-44 (D.D.C. 2016) 
(``[C]ommon law includes requirements of `reasonable compensation' 
for trustees . . . .'' (citations omitted)); Restatement (Third) of 
Trusts Sec.  38(1) (2003) (``A trustee is entitled to reasonable 
compensation out of the trust estate for services as trustee . . . 
.'').
---------------------------------------------------------------------------

    The reasonable compensation standard requires that compensation 
received by Financial Institutions and Investment Professionals not be 
excessive, as measured by the market value of the particular services, 
rights, and benefits the Investment Professional and Financial 
Institution are delivering to the Retirement Investor. Given the 
conflicts of interest associated with the commissions and other 
payments that are covered by the exemption and the potential for self-
dealing, it is particularly important for the Department to require 
Investment Professionals' and Financial Institutions' adherence to 
these statutory standards, which are rooted in common-law principles.
    The reasonable compensation standard applies to all covered 
transactions under the exemption,

[[Page 32269]]

including those involving investment products that bundle services and 
investment guarantees or other benefits, such as annuity products. In 
assessing the reasonableness of compensation in connection with covered 
transactions involving these products, it is appropriate to consider 
the value of the guarantees and benefits as well as the value of the 
services. When assessing the reasonableness of compensation, Financial 
Institutions and Investment Professionals generally must consider the 
value of all the services and benefits provided to Retirement Investors 
for the compensation, not just some of the services and benefits. If 
Financial Institutions and Investment Professionals need additional 
guidance in this respect, they should refer to the Department's 
regulatory interpretations under ERISA section 408(b)(2) and Code 
section 4975(d)(2).\34\
---------------------------------------------------------------------------

    \34\ See 29 CFR 2550.408b-2.
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No Materially Misleading Statements

    The Department is also retaining the requirement in Section 
II(a)(3) of PTE 2020-02 that prohibits Financial Institutions and 
Investment Professionals from making materially misleading statements 
to Retirement Investors. The Department is also clarifying that the 
prohibition against misleading statements applies to both written and 
oral statements. In particular, the Department is also clarifying that 
this condition is not satisfied if a Financial Institution or 
Investment Professional omits information that is needed to make the 
statement not misleading in light of the circumstances under which it 
was made.
    The Department received a comment expressing concern that this 
condition is too vague. The Department disagrees. As the Department 
explained when it granted PTE 2020-02, ``materially misleading 
statements are properly interpreted to include statements that omit a 
material fact necessary in order to make the statements, in light of 
the circumstances under which they were made, not misleading. 
Retirement Investors are clearly best served by statements and 
representations that are free from material misstatements and 
omissions.'' \35\ The Final Amendment merely adds clarity by 
incorporating this understanding into the exemption's operative text. 
Numerous courts have similarly recognized that statements can be 
misleading by virtue of material omissions, as well as by affirmative 
misstatements.\36\ This is not a unique or new concept for Financial 
Institutions. For example, in adopting Regulation Best Interest, the 
SEC reminded broker-dealers of their obligations under the anti-fraud 
provisions of Federal Securities laws for failure to disclose material 
information to their customers when they have a duty to make such 
disclosure.\37\ Financial Institutions and Investment Professionals 
best promote the interests of Retirement Investors by ensuring that 
their communications with their customers are not materially 
misleading.
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    \35\ 85 FR 82826.
    \36\ E.g., Vest v. Resolute FP US Inc., 905 F.3d 985, 990 (6th 
Cir. 2018) (``[A] material omission qualifies as misleading 
information.''); Kalda v. Sioux Valley Physician Partners, Inc., 481 
F.3d 639, 644 (8th Cir. 2007) (``Additionally, a fiduciary has a 
duty to inform when it knows that silence may be harmful and cannot 
remain silent if it knows or should know that the beneficiary is 
laboring under a material misunderstanding of plan benefits.'' 
(internal citations omitted)); Krohn v. Huron Mem'l Hosp., 173 F.3d 
542, 547 (6th Cir. 1999) (``[A] fiduciary breaches its duties by 
materially misleading plan participants, regardless of whether the 
fiduciary's statements or omissions were made negligently or 
intentionally.'') (emphasis added); see Mathews v. Chevron Corp., 
362 F.3d 1172, 1183 (9th Cir. 2004).
    \37\ 84 FR 33348, note 303. The Department observes that this 
requirement is also consistent with, for example, the requirement 
under section 206 of the Advisers Act, which bars an investment 
adviser from making materially false or misleading statements or 
omissions to any client or prospective client. See In the Matter of 
S Squared Tech. Corp., Release No. 1575 (SEC. Release No. Aug. 7, 
1996). The SEC's Rule 10b-5 under the Exchange Act imposes a similar 
requirement. 17 CFR 240.10b-5(b). See also SEC v. Cap. Gains Rsch. 
Bureau, Inc., 375 U.S. 180, 200 (1963) (``Failure to disclose 
material facts must be deemed fraud or deceit within its intended 
meaning'').
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    Accordingly, the Department is finalizing the provisions in the 
exemption related to materially misleading statements as proposed, with 
minor ministerial changes to the wording, such as moving the phrases 
``to the Retirement Investor'' and ``materially misleading'' for 
clarity.

Disclosure

    The Department is generally finalizing the disclosure conditions 
with some modifications to the Proposed Amendment, as discussed below. 
While many commenters raised concerns about the burden that would be 
imposed on Financial Institutions if the Department required additional 
disclosure, others expressed support for the Department to impose 
additional disclosure obligations. It is important that Retirement 
Investors have a clear understanding of the compensation, services, and 
conflicts of interest associated with recommendations if they are to 
make fully informed decisions. Additionally, clear and accurate 
disclosures can deter Financial Institutions and Investment 
Professionals from engaging in otherwise abusive practices that they 
would prefer not to expose.
    One commenter suggested revising the disclosure condition to 
provide that it is sufficient for the Retirement Investor to have 
received the disclosure, without necessarily placing the responsibility 
squarely on the Financial Institution and Investment Professional to 
make the required disclosures. The Department declines to change the 
exemption from the proposal in this manner. The Department notes that, 
while Financial Institutions can coordinate the transmittal of required 
disclosures with others and rely upon vendors and others to ensure 
transmittal, ultimately the responsibility to make required 
disclosures, including the fiduciary acknowledgement, rests with the 
Financial Institution and Investment Professionals as set out in the 
exemption. In the Department's view, the proper exercise of this 
responsibility is critical to ensuring that Retirement Investors 
receive important, accurate, and timely information, and to ensuring 
that Financial Institutions and Investment Professionals manage their 
fiduciary obligations with the seriousness they deserve.
    In the preamble to the Proposed Amendment, the Department requested 
comments regarding whether Financial Institutions should be required to 
provide additional disclosures on third-party compensation to 
Retirement Investors on a publicly available website. One potential 
benefit of such disclosure would be to provide information about 
conflicts of interest that could be used, not only by Retirement 
Investors, but by consultants and intermediaries who could, in turn, 
use the information to rate and evaluate various advice providers in 
ways that would assist Retirement Investors. Industry commenters 
generally opposed the condition, stating that it would impose 
significant costs to continuously maintain such a website without a 
commensurate benefit to the Retirement Investors.
    Based on these comments, the Department has determined not to 
include a website disclosure requirement as an exemption condition at 
this time. While the Department may reconsider this decision at some 
future date based on its experience with the Regulation and related 
exemptions, any such future amendments would be subject to public 
notice and comment through a formal rulemaking process. Consistent with 
the Recordkeeping conditions in Section IV, the Department intends, 
however, to

[[Page 32270]]

regularly request that Financial Institutions provide their investor 
disclosures to the Department to ensure that they are providing 
sufficient information in a manner that the Retirement Investor can 
understand, and that the disclosures are serving their intended 
purpose.

Fiduciary Acknowledgment

    The Department is retaining the requirement in PTE 2020-02 for 
Financial Institutions to provide a written acknowledgment of fiduciary 
status to the Retirement Investor. At or before the time a covered 
transaction (as defined in Section I(b) of the Final Amendment) occurs, 
the Financial Institution must provide a written acknowledgment that 
the Financial Institution and its Investment Professionals are 
providing fiduciary investment advice to the Retirement Investor and 
are fiduciaries under Title I of ERISA, Title II of ERISA, or both with 
respect to the investment recommendation. Section II(b)(2) also 
requires the Financial Institution to provide a written statement of 
the Care Obligation and Loyalty Obligation owed by the Investment 
Professional and Financial Institution to the Retirement Investor. This 
disclosure must also be provided at or before the Financial Institution 
engages in the transaction.
    The Department received many comments on this requirement. Some 
commenters supported clarifications that the acknowledgement must make 
clear that the recommendation is rendered in a fiduciary capacity, 
though some argued that the acknowledgment should be limited to 
specific transactions. For example, one commenter urged the Department 
to provide that the fiduciary acknowledgment must be an 
``unconditional'' acknowledgment of fiduciary status in order to 
effectively address artful drafting by a Financial Institution that is 
intended to evade actual fiduciary status. Another commenter provided 
examples of disclosures that Financial Institutions have in place that 
are misleading to Retirement Investors. Many of these misleading 
disclosures state that the Financial Institution has fiduciary status, 
but then note there are exceptions or limitations to when the Financial 
Institution is acting as a fiduciary, without clearly taking a position 
on the Financial Institution's fiduciary status with respect to the 
particular recommendation. At best, this drafting may leave the 
Retirement Investor with many questions about when they are receiving 
fiduciary advice. At worst, it may leave the Retirement Investor with 
the mistaken impression that all recommendations it receives are 
provided in a fiduciary capacity when only some recommendations are 
subject to the protective conditions of this exemption. The Department 
agrees with these concerns, which provide further evidence of the need 
for the Final Amendment to include an unambiguous written 
acknowledgement requirement. Similarly, the requirement for a written 
statement of the Care Obligation and Loyalty Obligation is necessary to 
provide Retirement Investors with a clear statement of the duties 
Financial Institutions owe them.
    Several commenters pointed to the history of Financial Institutions 
including fine print disclaimers of their fiduciary status. Disclosures 
have been used to undermine investors' reasonable expectations and the 
purpose of the fiduciary acknowledgment in Section II(b)(1) is to match 
the facts to the reasonable expectations of the Retirement Investor. 
Under the Final Amendment, Financial Institutions cannot acknowledge 
fiduciary status with respect to a recommendation, only to disclaim it 
in the fine print. The Final Amendment requires the Financial 
Institutions and Investment Professionals to acknowledge their 
fiduciary status with respect to the investment recommendation. This 
change prevents Financial Institutions from making the fiduciary 
acknowledgment and then including exclusions in fine print.
    The Department believes that the requirement, as finalized, makes 
it unambiguously clear that the recommendation must be acknowledged as 
made in a fiduciary capacity under ERISA or the Code. It would not be 
sufficient, for example, to have an acknowledgement provide that ``Firm 
A acknowledges fiduciary status under ERISA with respect to the 
recommendation to the extent the recommendation is treated by ERISA or 
Department of Labor regulations as fiduciary'' because that statement 
does not explain when a recommendation would be treated as falling 
under the fiduciary requirements of ERISA and the Code. In contrast, 
the Department's model language below says, ``We are making investment 
recommendations to you regarding your retirement plan account or 
individual retirement account as fiduciaries within the meaning of 
Title I of the Employee Retirement Income Security Act and/or the 
Internal Revenue Code, as applicable, which are laws governing 
retirement accounts.''
    A few commenters noted that neither Regulation Best Interest nor 
the NAIC Model Regulation requires a fiduciary acknowledgment. The 
Department recognizes that this is a difference between the 
requirements of this exemption and other sources of law. The point of 
the acknowledgment under PTE 2020-02 is to ensure that both the 
fiduciary and the Retirement Investor are clear that the particular 
recommendation is in fact made in a fiduciary capacity under ERISA or 
the Code, as defined under the regulation. The Retirement Investor 
should have no doubt as to the nature of the relationship or the 
associated compliance obligations. Anything short of that clear 
acknowledgment fails the exemption condition. It is not enough to alert 
the Retirement Investor to the fact that there may or may not be 
fiduciary obligations in connection with a particular recommendation, 
without stating that, in fact, the recommendation is made in the 
requisite fiduciary capacity.
    Some commenters expressed concern with the timing of the 
acknowledgment. These commenters stated that Financial Institutions and 
Investment Professionals might have to acknowledge fiduciary status 
before they actually receive compensation and know that they are 
fiduciaries. Some commenters asked whether this acknowledgment might 
itself be a misleading statement that would be impermissible under 
Section II(a)(3) of the exemption. To address this concern, the 
Department has revised the language in Section II(b)(1) of the Final 
Amendment to further clarify that the disclosure must be provided 
``[a]t or before the time a covered transaction occurs, as defined in 
Section I(b).'' In response to a specific comment, the Department is 
further clarifying that, ``[f]or purposes of the disclosures required 
by Section II(b)(1)-(4), the Financial Institution or Investment 
Professional is deemed to engage in a covered transaction on the later 
of (A) the date the recommendation is made or (B) the date the 
Financial Institution or Investment Professional becomes entitled to 
compensation (whether now or in the future) by reason of making the 
recommendation.'' This is revised from the Proposed Amendment, which 
would have required the disclosure to acknowledge fiduciary status 
``when making an investment recommendation.''
    The Department is making these clarifications to confirm that the 
Financial Institution does not have to provide a fiduciary 
acknowledgment at its first meeting with the Retirement

[[Page 32271]]

Investor. Instead, the fiduciary acknowledgment must be made at or 
before the time the covered transaction occurs.
    One commenter opined that the fiduciary acknowledgement condition 
constitutes ``compelled'' and ``viewpoint-based'' speech in violation 
of the First Amendment and warrants application of a `strict scrutiny' 
standard of review. As discussed in greater detail in the Regulation, 
neither the Regulation nor the Final Amendment prohibits speech based 
on content or viewpoint in any capacity. Instead, the Department simply 
imposes fiduciary duties on covered parties, and insists on adherence 
to Impartial Conduct Standards.
    The Department also received many comments regarding whether the 
proposed fiduciary acknowledgment and statement of Best Interest 
standard amounted to an enforceable contract with the Retirement 
Investor to adhere to the requirements of PTE 2020-02. As several 
commenters noted, however, PTE 2020-02 does not impose any contract or 
warranty requirements on Financial Institutions or Investment 
Professionals. Instead, it simply requires up-front clarity about the 
nature of the relationship and services being provided. In marked 
contrast to the 2016 rulemaking, the Department has imposed no 
obligation on Financial Institutions or Investment Professionals to 
enter into enforceable contracts with or to provide enforceable 
warranties to their customers. The only remedies for violations of the 
exemption's conditions, and for engaging in a non-exempt prohibited 
transaction, are those provided by Title I of ERISA, which specifically 
provides a right of action for fiduciary violations with respect to 
ERISA-covered plans, and Title II of ERISA, which provides for 
imposition of the excise tax under Code section 4975. Nothing in the 
exemption compels Financial Institutions to make contractually 
enforceable commitments, and as far as the exemption provides, they 
could expressly disclaim any enforcement rights other than those 
specifically provided by Title I of ERISA or the Code, without 
violating any of the exemption's conditions.
    For that reason, arguments that the fiduciary acknowledgment 
requirement is inconsistent with the Fifth Circuit's opinion in Chamber 
of Commerce v. United States Department of Labor, 885 F.3d 360, 384-85 
(5th Cir. 2018) (Chamber) are unsupported. In that case, the Fifth 
Circuit faulted the Department for having effectively created a private 
cause of action that Congress had not provided.\38\ Under this 
exemption the Department does not create new causes of actions, mandate 
enforceable contractual commitments, or expand upon the remedial 
provisions of ERISA or the Code. Requiring clarity as to the nature of 
the services and relationship is a far cry from the creation of a whole 
new cause of action or remedial scheme. The Department does not compel 
fiduciary status or create new causes of action. It merely conditions 
the availability of the exemption, which is only necessary for plan 
fiduciaries to receive otherwise prohibited compensation, on Financial 
Institutions and Investment Professionals providing clarity that the 
transaction, in fact, involves a fiduciary relationship. In addition, 
the Department does not purport to bind other State or Federal 
regulators in any way or to condition relief on the availability of 
remedies under other laws. It no more creates a new cause of action 
than any other exemption condition or regulatory requirement that 
requires full and fair disclosures of services and fees. Moreover, the 
requirement promotes compliance and supports investor choice by 
requiring clarity as to the fiduciary nature of the relationship that 
the Financial Institution or Investment Professional is undertaking 
with the Retirement Investor.
---------------------------------------------------------------------------

    \38\ Id. at 384-85. But see Nat'l Ass'n for Fixed Annuities v. 
Perez, 217 F. Supp. 3d 1, 37 (D.D.C. 2016) (upholding the challenged 
provision and noting that ``courts . . . have permitted IRA 
participants and beneficiaries to bring state law claims for breach 
of contract'' (citing Grund v. Del. Charter Guar. & Tr. Co., 788 F. 
Supp. 2d 226, 243-44 (S.D.N.Y. 2011))).
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    The Department has a statutory obligation to ensure that any 
exemptions from the prohibited transaction provisions are 
``administratively feasible,'' ``in the interests of,'' and 
``protective'' of the ``rights'' of Retirement Investors. The fiduciary 
acknowledgment provides critical support to the Department's ability to 
make these findings. The Department notes that conditions requiring 
entities to acknowledge their fiduciary status have become commonplace 
in recently granted exemptions over the past two years. In this regard, 
in 2022 and 2023, the Department granted over a dozen exemptions to 
private parties in which an entity was required to acknowledge its 
fiduciary status in writing as a requirement for exemptive relief.\39\ 
Written acknowledgement of fiduciary status was required by the 
Department as early as 1984, when the Department published PTE 84-
14,\40\ requiring an entity acting as a ``qualified professional asset 
manager'' (a QPAM) to have ``acknowledged in a written management 
agreement that it is a fiduciary with respect to each plan that has 
retained the QPAM.'' \41\ Fiduciary investment advice providers to IRAs 
have always been subject to suit in State courts on State-law theories 
of liability, and this rulemaking does not alter this reality. This 
rulemaking does not alter the existing framework for bringing suits 
under State law against IRA fiduciaries and does not aim to do so. 
State regulators remain free to structure legal relationships and 
liabilities as they see fit to the extent not inconsistent with Federal 
law.
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    \39\ See, e.g., PTE 2023-03, Blue Cross and Blue Shield 
Association Located in Chicago, Illinois (88 FR 11676, Feb. 23, 
2023); PTE 2023-04, Blue Cross and Blue Shield of Arizona, Inc., 
Located in Phoenix, Arizona (88 FR 11679, Feb. 23, 2023); PTE 2023-
05, Blue Cross and Blue Shield of Vermont Located in Berlin, Vermont 
(88 FR 11681, Feb. 23, 2023); PTE 2023-06, Hawaii Medical Service 
Association Located in Honolulu, Hawaii (FR 88 11684, Feb. 23, 
2023); PTE 2023-07, BCS Financial Corporation Located in Oakbrook 
Terrace, Illinois (88 FR 11686, Feb. 23, 2023); PTE 2023-08, Blue 
Cross and Blue Shield of Mississippi, A Mutual Insurance Company 
Located in Flowood, Mississippi (88 FR 11689, Feb. 23, 2023); PTE 
2023-09, Blue Cross and Blue Shield of Nebraska, Inc. Located in 
Omaha, Nebraska (88 FR 11691, Feb. 23, 2023); PTE 2023-10, BlueCross 
BlueShield of Tennessee, Inc. Located in Chattanooga, Tennessee (88 
FR 11694, Feb. 23, 2023); PTE 2023-11, Midlands Management 
Corporation 401(k) Plan Oklahoma City, OK (88 FR 11696, Feb. 23, 
2023); PTE 2023-16, Unit Corporation Employees' Thrift Plan, Located 
in Tulsa, Oklahoma (88 FR 45928, July 18, 2023); PTE 2022-02, 
Phillips 66 Company Located in Houston, TX (87 FR 23245, Apr. 19, 
2022); PTE 2022-03, Comcast Corporation Located in Philadelphia, PA 
(87 FR 54264, Sept. 2, 2022); PTE 2022-04, Children's Hospital of 
Philadelphia Pension Plan for Union-Represented Employees Located in 
Philadelphia, PA. (87 FR 71358, Nov. 22, 2022).
    \40\ 49 FR 9494 (March 13, 1984).
    \41\ PTE 84-14, Part V, Section (a).
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Model Disclosure

    To assist Financial Institutions and Investment Professionals in 
complying with these conditions of the exemption, the Department 
confirms the following model language will satisfy the disclosure 
requirement in Section II(b)(1) and (2):

    We are making investment recommendations to you regarding your 
retirement plan account or individual retirement account as 
fiduciaries within the meaning of Title I of the Employee Retirement 
Income Security Act and/or the Internal Revenue Code, as applicable, 
which are laws governing retirement accounts. The way we make money 
or otherwise are compensated creates some conflicts with your 
financial interests, so we operate under a special rule that 
requires us to act in your best interest and not put our interest 
ahead of yours.


[[Page 32272]]


    Under this special rule's provisions, we must:
     Meet a professional standard of care when making 
investment recommendations (give prudent advice) to you;
     Never put our financial interests ahead of yours when 
making recommendations (give loyal advice);
     Avoid misleading statements about conflicts of interest, 
fees, and investments;
     Follow policies and procedures designed to ensure that we 
give advice that is in your best interest;
     Charge no more than what is reasonable for our services; 
and
     Give you basic information about our conflicts of 
interest.
    While some commenters requested additional model language, the 
Department is not providing a model for the specific disclosures in 
Section II(b)(3), (4), and (5) because those disclosures will need to 
be tailored to the specific Financial Institution's business model. 
Although the model language above broadly applies to all the advice 
provider's recommendations, nothing in the exemption would prohibit the 
advice provider from limiting its fiduciary acknowledgment to specific 
recommendations or classes of recommendations if it was not acting as a 
fiduciary in other contexts. The exemption, however, will only cover 
recommendations that were subject to such an acknowledgment.

Relationship and Conflict of Interest Disclosure

    In response to comments, the Department is amending the disclosure 
requirements of PTE 2020-02. As finalized, Section II(b)(3)-(4) 
requires the Financial Institution to disclose in writing all material 
facts relating to the scope and terms of the relationship with the 
Retirement Investor, including:
    (3)(A) The material fees and costs that apply to the Retirement 
Investor's transactions, holdings, and accounts;
    (3)(B) The type and scope of services provided to the Retirement 
Investor, including any material limitations on the recommendations 
that may be made to them; and
    (4) All material facts relating to Conflicts of Interest that are 
associated with the recommendation.
    This final pre-transaction disclosure is based on the SEC's 
Regulation Best Interest disclosure requirements.\42\ The Department 
received many comments on the proposed disclosure obligations that 
focused, in particular, on differences between the SEC's Regulation 
Best Interest disclosures and the Department's proposed PTE 2020-02 
disclosures. Some commenters also asserted that the proposed disclosure 
requirements of PTE 2020-02 would have imposed a burden on Financial 
Institutions without providing sufficient incremental benefits to 
Retirement Investors, above and beyond those provided by Regulation 
Best Interest. In the view of many commenters, Regulation Best Interest 
and the SEC's client relationship summary (also called Form CRS) 
already provided sufficient disclosure in the context of securities 
recommendations and could serve as the model for a more uniform set of 
disclosure requirements applicable to Retirement Investors without as 
much additional cost and burden.
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    \42\ Similar obligations exist for investment advisers. ``Under 
its duty of loyalty, an investment adviser must eliminate or make 
full and fair disclosure of all conflicts of interest which might 
incline an investment adviser--consciously or unconsciously--to 
render advice which is not disinterested such that a client can 
provide informed consent to the conflict.'' 2019 Fiduciary 
Interpretation (84 FR 33671); see also SEC v. Cap. Gains Rsch. 
Bureau, Inc., 375 U.S. at 200 (``the darkness and ignorance of 
commercial secrecy are the conditions upon which predatory practices 
best thrive'').
---------------------------------------------------------------------------

    Other commenters expressed support for the Department's proposed 
amendments that would have clarified and tightened the existing PTE 
2020-02 disclosure requirements. These commenters supported ensuring 
that investors have sufficient information to make informed decisions 
about the costs of an investment advice transaction and about the 
significance and severity of the investment advice fiduciary's 
conflicts of interest. Some commenters also supported the proposed 
requirement for the disclosures to be written in plain English.
    The Department's determination to base the Final Amendment's 
disclosure obligations on the SEC's Regulation Best Interest disclosure 
obligations is intended to ensure that Retirement Investors receive 
critical information that they need to make informed investment 
decisions, while reducing compliance burdens by establishing disclosure 
requirements that are consistent with the SEC's requirements. This is 
also responsive to several comments the Department received that 
highlighted disclosure requirements that commenters argued were more 
burdensome than the SEC's Regulation Best Interest disclosure 
requirements. Although this condition does not specifically require the 
disclosure be in ``plain English'' the Department notes the importance 
of plain language principles to ensure the Retirement Investors 
understand the information they receive.\43\
---------------------------------------------------------------------------

    \43\ In finalizing Regulation Best Interest, the SEC encouraged 
broker-dealers to use plain English in preparing any disclosures 
they make. The SEC provided examples such as the use of short 
sentences and active voice, and avoidance of legal jargon, highly 
technical business terms, or multiple negatives, 84 FR 33368-69.
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    Some commenters were particularly concerned about the proposed 
requirement that Retirement Investors have the ``right to obtain 
specific information regarding costs, fees, and compensation, described 
in dollar amounts, percentages, formulas'' upon request based on the 
potential burden of such disclosures. Others supported the requirement, 
including one commenter stating that such information is necessary for 
Retirement Investors to make an informed judgment as to the costs of a 
transaction. After consideration of the comments, the Department has 
determined that the requirements to disclose material fees, costs, 
conflicts of interest, and services should be sufficient to permit the 
Retirement Investor to assess both the costs of transactions and the 
scope and severity of conflicts, without imposing an additional ``upon 
request'' disclosure obligation.
    In finalizing these disclosures based on the Regulation Best 
Interest disclosure obligation, however, the Department intends to 
monitor the effectiveness and utility of the disclosures closely to 
ensure they serve their intended purpose and give Retirement Investors 
full and fair notice of services, costs, charges, and conflicts of 
interest. Based upon its ongoing review of compliance and efficacy, the 
Department may revisit the scope and content of the disclosure 
obligations as part of future notice and comment rulemaking. At this 
time, the Department has concluded the best course of action is to 
align the disclosure conditions with the requirements of Regulation 
Best Interest, in order to provide a uniform and cost-effective 
approach to disclosures, consistent with the Department's statutory 
obligation to protect the interests of Retirement Investors.

Rollover Disclosure

    The Department has also decided to make revisions to the rollover 
disclosure requirements. Under Section II(b)(5), before engaging in or 
recommending that a Retirement Investor engage in a rollover from a 
Plan that is covered by Title I of ERISA, or making a recommendation to 
a Plan participant or beneficiary as to the post-rollover investment of 
assets currently held in a

[[Page 32273]]

Plan that is covered by Title I, the Financial Institution and 
Investment Professional must consider and document the bases for their 
recommendation to engage in the rollover, and must provide that 
documentation to the Retirement Investor. Relevant factors to be 
considered must include, to the extent applicable, but in any event are 
not limited to: (A) the alternatives to a rollover, including leaving 
the money in the Plan, if applicable; (B) the fees and expenses 
associated with the Plan and the recommended investment or account; (C) 
whether an employer or other party pays for some or all of the Plan's 
administrative expenses; and (D) the different levels of services and 
investments available under the Plan and the recommended investment or 
account. The Proposed Amendment specified that this requirement 
extended to recommended rollovers from a Plan to another Plan or IRA as 
defined in Code section 4975(e)(1)(B) or (C), from an IRA as defined in 
Code section 4975(e)(1)(B) or (C) to a Plan, from an IRA to another 
IRA, or from one type of account to another (e.g., from a commission-
based account to a fee-based account).
    In support of the rollover disclosure provision under the Proposed 
Amendment, one commenter highlighted the significance of a rollover 
decision and said that a ``careful analysis'' is needed, along with 
information about fees, expenses, and other investment options, in 
order to provide Retirement Investors with a ``well-supported'' 
recommendation. Another commenter suggested that the Department add 
consideration of a Retirement Investor's Social Security benefits.
    Several commenters expressed concerns over the burden of the 
rollover documentation and disclosure requirements. Some suggested that 
the requirements should be limited to the rollovers from Title I Plans 
to IRAs, rather than including IRA-to-IRA or account-to-account 
transactions. These commenters argued that the additional requirement 
would be of limited value to the Retirement Investors while imposing 
significant costs on the Financial Institutions. Commenters requested 
that certain types of transactions be excluded, such as those involving 
a ``required minimum distribution'' (RMD), an inherited IRA or 401(k) 
account, investment education, or IRA-to-IRA transfers. Commenters 
suggested Retirement Investors already receive enough information, and 
asked if the requirements of this disclosure would be relevant.
    The Department continues to believe that the information required 
to be included in the rollover disclosure is relevant to Retirement 
Investors. A Retirement Investor should understand what they are giving 
up in their employer's plan, as well as what they may gain from rolling 
over their retirement savings to an IRA. While the Department is not 
specifically adding a blanket requirement to document consideration of 
a Retirement Investor's Social Security benefit, it also agrees that 
the Retirement Investor's Social Security benefit may be an important 
component of the overall analysis to ensure any recommendation will 
meet the Care Obligation and Loyalty Obligation.
    In response to comments about the challenges posed by the 
documentation requirements outside the plan context, the Department is 
narrowing the required rollover disclosure requirement in Section 
II(b)(5) so that it only applies to recommendations to rollovers from 
Title I Plans. Under the Final Amendment, PTE 2020-02 no longer will 
require disclosures regarding advice for a Retirement Investor to roll 
over its account from one IRA to another IRA or to change account type. 
The Department is also clarifying the language to confirm that the 
disclosure only applies to advice to engage in a rollover 
recommendation to a Plan participant or beneficiary as to the post-
rollover investment of assets currently held in a Plan that is covered 
by Title I. The rollover disclosure requirement does not apply when a 
Financial Institution or Investment Professional does not make a 
recommendation, even if it does provide investment education.
    The Department received comments expressing concern that the 
information required for the rollover disclosure will not be available 
to Financial Institutions. A few commenters urged the Department to 
address this by requiring plans covered by Title I of ERISA to make 
more information publicly available on their Forms 5500. Other 
commenters simply stated that Investment Professionals and Financial 
Institutions would not be able to comply. As the Department explained 
in the preamble to the Proposed Amendment, however, Investment 
Professionals and Financial Institutions should make diligent and 
prudent efforts to obtain information about the fees, expenses, and 
investment options offered in the Retirement Investor's Plan account to 
comply with the amended rollover documentation and disclosure 
requirement of Section II(b)(5).
    As the Department also explained in the preamble to the Proposed 
Amendment, the necessary information should be readily available to the 
Retirement Investor as a result of Department regulations mandating 
disclosure of plan-related information to the Plan's participants and 
beneficiaries that is found at 29 CFR 2550.404a-5. If the Retirement 
Investor refuses to provide such information, even after a full 
explanation of its significance, and the information is not otherwise 
readily available, the Financial Institution and Investment 
Professional should make a reasonable estimate of a Plan's expenses, 
asset values, risk, and returns based on publicly available 
information. The Financial Institution and Investment Professional 
should document and explain the assumptions used in the estimate and 
their limitations. In such cases, the Department confirms that the 
Financial Institution and Investment Professional could rely on 
alternative data sources, such as the Plan's most recent Form 5500 or 
reliable benchmarks on typical fees and expenses for the type and size 
of the Plan that holds the Retirement Investor's assets.
    Moreover, while the Department is not imposing the same 
documentation and disclosure requirements on rollovers from IRA-to-IRA 
or from one account type to another, it is not relieving the fiduciary 
of its obligation under the Care Obligation and Loyalty Obligation to 
make prudent efforts to obtain information about the fees, expenses, 
and investment options offered in the different accounts or IRAs. It is 
hard to see how a fiduciary can make a prudent and loyal 
recommendation, without careful consideration of the financial merits 
of the alternative approaches. As the SEC has similarly observed with 
respect to Regulation Best Interest, although the Department has not 
imposed a specific documentation requirement comparable to the 
obligation for Plan to IRA rollovers, it is likely to be difficult for 
a firm to demonstrate compliance with its obligations, or to assess the 
adequacy of its policies and procedures, without documenting the basis 
for such recommendations.\44\
---------------------------------------------------------------------------

    \44\ See Staff Bulletin: Standards of Conduct for Broker-Dealers 
and Investment Advisers Care Obligations, Q16, available at https://www.sec.gov/tm/iabd-staff-bulletin-conflicts-interest.
---------------------------------------------------------------------------

Good Faith and Disclosures Prohibited by Law Exceptions

    The Department's Proposed Amendment would have added a new Section 
II(b)(6), which provides that

[[Page 32274]]

Financial Institutions will not fail to satisfy their disclosure 
obligations under Section II(b) solely because they make an error or 
omission in disclosing the required information while acting in good 
faith and with reasonable diligence. The Financial Institution must 
disclose the correct information as soon as practicable, but not later 
than 30 days after the date on which it discovers or reasonably should 
have discovered the error or omission. Similarly, Section II(b)(7) 
allows Investment Professionals and Financial Institutions to rely in 
good faith on information and assurances from the other entities that 
are not Affiliates as long as they do not know or have reason to know 
that such information is incomplete or inaccurate. Under Section 
II(b)(8), the Financial Institution is not required to disclose 
information pursuant to Section II(b) if such disclosure is otherwise 
prohibited by law.
    The Department did not receive substantive comments on these 
provisions and is finalizing these provisions as proposed.

Policies and Procedures

    Under Section II(c), Financial Institutions must establish, 
maintain, and enforce written policies and procedures prudently 
designed to ensure that the Financial Institution and its Investment 
Professionals comply with the Impartial Conduct Standards and other 
exemption conditions. The Financial Institution's policies and 
procedures must mitigate Conflicts of Interest to the extent that a 
reasonable person reviewing the policies and procedures and incentive 
practices as a whole would conclude that they do not create an 
incentive for a Financial Institution or Investment Professional to 
place their interests, or those of any Affiliate or Related Entity, 
ahead of the interests of the Retirement Investor. The Department 
proposed to amend section II(c) to provide that Financial Institutions 
may not use quotas, appraisals, performance or personnel actions, 
bonuses, contests, special awards, differential compensation, or other 
similar actions or incentives that are intended, or that a reasonable 
person would conclude are likely, to result in recommendations that do 
not meet the Care Obligation or Loyalty Obligation. In addition, the 
Proposed Amendment would require Financial Institutions to provide 
their complete policies and procedures to the Department upon request 
within 10 business days of request.
    The Department received many comments on the proposed amendments to 
the policies and procedures. Some of these commenters expressed support 
for the Department's clarifications, emphasizing the risks inherent in 
conflicted compensation. The Department also received comments in favor 
of the proposed requirement that Financial Institutions furnish to the 
Department complete policies and procedures within 10 business days, 
asserting that such a requirement would be a meaningful incentive for 
reasonably designed policies and procedures. Others asserted that the 
conditions were unworkable. Some commenters were particularly concerned 
about the requirement that Financial Institutions may not use quotas, 
appraisals, performance or personnel actions, bonuses, contests, 
special awards, differential compensation, or other similar actions or 
incentives that are intended, or that a reasonable person would 
conclude are likely, to result in recommendations that do not meet the 
Care Obligation or Loyalty Obligation.
    Some commenters read the Proposed Amendment as banning differential 
compensation. One commenter characterized it as an attack on 
educational meetings and asserted that it conflicted with Regulation 
Best Interest and Financial Industry Regulatory Authority (FINRA) 
rules. The Department disagrees with the commenters' characterizations. 
The provision neither bans differential compensation, nor prohibits 
educational meetings. Although ERISA prohibits conflicted transactions 
between a plan and a fiduciary, the Department has granted this 
exemption specifically to allow Financial Institutions to receive 
compensation that varies based on the products they sell and that 
otherwise would be prohibited under ERISA section 406(b) and Code 
section 4975(c)(1)(E) and (F). However, in order to do so, the 
Financial Institution must pay attention to the conflicts that are 
inherent in its compensation system and must take special care to 
ensure that it does not create or implement compensation practices that 
are intended, or that a reasonable person would conclude are likely, to 
result in recommendations that do not meet the Care Obligation or 
Loyalty Obligation. Based on the foregoing, the Department is 
finalizing Section II(c) as proposed with minor edits made for clarity.
    Some commenters argued that the Department should rely on other 
regulators' policies and procedures requirements. Other commenters 
expressed concern that other regulators are not sufficiently protective 
in this area. For example, although the NAIC Model Regulation 
technically requires that producers manage material conflicts of 
interest, it excludes cash and non-cash compensation from the 
definition of material conflicts of interest. Thus, the following forms 
of cash compensation are excluded from the NAIC Model Regulation as 
sources of conflicts of interest: any discount, concession, fee, 
service fee, commission, sales charge, loan, override, or cash benefit 
received by a producer in connection with the recommendation or sale of 
an annuity from an insurer, intermediary, or directly from the 
consumer; and the following types of ``non-cash compensation,'' are 
excluded: health insurance, office rent, office support and retirement 
benefits. In contrast, the SEC expressly requires investment advisers 
and broker-dealers to manage such conflicts, including commissions and 
other forms of compensation.\45\ The Department believes that a more 
uniform approach is appropriate so that all Retirement Investors are 
protected from conflicts of interest, and to ensure that investment 
recommendations are driven by the best interest of the Retirement 
Investor and not the competing interests of the Investment Professional 
in conflicted compensation arrangements, irrespective of the type of 
investment product recommended to them (e.g., a fixed indexed annuity 
as opposed to a security).
---------------------------------------------------------------------------

    \45\ Regulation Best Interest explicitly requires that broker-
dealers establish, maintain, and enforce written policies and 
procedures reasonably designed to identify and mitigate conflicts of 
interest at the associated person level. See generally 84 FR 33318, 
33388; see Exchange Act rule 15l-1(a)(2)(iii)(B). With regards to 
investment advisers, the SEC has stated that ``an adviser must 
eliminate or at least expose through full and fair disclosure all 
conflicts of interest which might incline an investment adviser--
consciously or unconsciously--to render advice which was not 
disinterested.'' Commission Interpretation Regarding Standard of 
Conduct for Investment Advisers, 84 FR 33669, 33671 (July 12, 2019). 
The SEC staff has also said, ``[w]hile compensation practices for 
financial professionals are an important potential source of 
conflicts of interest, the staff reminds firms that mitigating 
conflicts associated with these practices is just one aspect of how 
firms satisfy their conflict obligations.'' See Staff Bulletin: 
Standards of Conduct for Broker-Dealers and Investment Advisers 
Conflicts of Interest, available at https://www.sec.gov/tm/iabd-staff-bulletin-conflicts-interest.
---------------------------------------------------------------------------

    Accordingly, the Department is maintaining the language largely as 
proposed. While the Department acknowledges that many firms have 
already built protective structures based on SEC's Regulation Best 
Interest, the Investment Advisers Act of 1940,\46\ or PTE 2020-02, they 
should be able to build or rely upon existing systems of supervision 
and compliance to meet their obligations, rather than build whole new 
structures, as the SEC

[[Page 32275]]

observed with respect to broker-dealers' implementation of Regulation 
Best Interest.\47\ Like the SEC, in adopting the policies and 
procedures requirement for conflict management, the Department has 
deliberately chosen not to take a highly prescriptive and inflexible 
approach. Instead, the Final Amendment permits compliance with policies 
and procedures that accommodate a broad range of business models, so 
long as they meet the overarching goals of ensuring adherence to the 
Care and Loyalty Obligations. The Final Amendment's requirement for 
Financial Institutions' policies and procedures to mitigate Conflicts 
of Interest is essential for the Department to satisfy its obligations 
under ERISA section 408(a) and Code section 4975(c)(2). The policies 
and procedures condition provides Financial Institutions with the 
flexibility to have different business models based on their specific 
business needs, while still ensuring that the fiduciary investment 
advice they provide to Retirement Investors meets the Impartial Conduct 
Standards.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 80b-1 et seq.
    \47\ See Regulation Best Interest: The Broker-Dealer Standard of 
Conduct, Exchange Act Release No. 86031, 84 FR 33318, 33327 (June 5, 
2019) (``Reg BI Adopting Release''). (recognizing that ``some 
broker-dealers may rely on existing policies and procedures that 
address conflicts through methods such as compliance and supervisory 
systems that are consistent with the Conflict of Interest 
Obligation'' under Regulation Best Interest).
---------------------------------------------------------------------------

    The Department believes that Retirement Investors will best be 
protected by the objective standard provided under PTE 2020-02, which 
provides a strong benchmark for assessing policies and procedures. The 
exemption's principles-based standard focuses on whether a reasonable 
person would conclude that the Financial Institution's policies and 
procedures are likely to result in recommendations that do not meet the 
Care Obligation or Loyalty Obligation. This standard is consistent with 
Regulation Best Interest and provides an appropriate yardstick for 
assessing compliance while lending additional clarity and rigor to the 
obligation to manage adverse incentives. In addition, SEC-registered 
investment advisers are required to ``adopt and implement written 
policies and procedures reasonably designed to prevent violations, by 
[the adviser] and [its] supervised persons, of the [Advisers] Act and 
the rules that the Commission has adopted under the [Advisers Act].'' 
\48\ The approach in PTE 2020-02 provides the flexibility necessary for 
Financial Institutions to insulate Investment Professionals from 
conflicts of interest under the wide array of business and compensation 
models followed in today's marketplace.
---------------------------------------------------------------------------

    \48\ See Rule 206(4)-7 (17 CFR 275.206(4)-7).
---------------------------------------------------------------------------

    The Department understands that many Financial Institutions, 
particularly insurance companies, rely on educational conferences, and 
stresses that this provision does not prohibit them. The exemption 
merely requires reasonable guardrails for conferences, especially if 
they involve travel. These conferences must be structured in a manner 
that ensures they are not likely to lead Investment Professionals to 
make recommendations that do not meet the exemption's Care Obligation 
or Loyalty Obligation. In addition, the Department notes that properly 
designed incentives that are simply aimed at increasing the overall 
amount of retirement saving and investing, without promoting specific 
products, would not violate the policies and procedures requirement. 
Similarly, notwithstanding contrary language in the preamble to the 
Proposed Amendment, the Department recognizes that it can be 
appropriate to tie attendance at conferences to sales thresholds in 
certain circumstances (for example, insurance companies could not 
reasonably be expected to provide training for independent agents who 
are not recommending their products).
    On the other hand, Financial Institutions must take special care to 
ensure that training conferences held in vacation destinations are not 
designed to incentivize recommendations that run counter to Retirement 
Investor interests. Firms should structure training events to ensure 
that they are consistent with the Care and Loyalty Obligations. 
Recommendations to Retirement Investors should be driven by the 
interests of the investor in a secure retirement. Certainly, Financial 
Institutions should avoid creating situations where the training is 
merely incidental to the event, and an imprudent recommendation to a 
Retirement Investor is the only thing standing between an Investment 
Professional and a luxury getaway vacation.
    Similarly, the Department does not require Financial Institutions 
to categorically eliminate all sales quotas, appraisals, performance or 
personnel actions, bonuses, contests, special awards, differential 
compensation, sales contests, quotas, or bonuses. Rather, Financial 
Institutions are only required to eliminate such incentives that are 
``intended, or that a reasonable person would conclude are likely, to 
result in recommendations that do not meet the Care Obligation or 
Loyalty Obligation.''
    While the SEC limited its categorical prohibition on sales contests 
to time-limited contests, as one commenter observed, the SEC has 
emphasized that the limited prohibition in Regulation Best Interest 
should not be read as automatically permitting other activities. 
Instead, the SEC stressed that ``prohibiting certain incentives does 
not mean that all other incentives are presumptively compliant with 
Regulation Best Interest.'' \49\ The SEC noted that ``other incentives 
and practices that are not explicitly prohibited are permitted provided 
that the broker-dealer establishes reasonably designed policies and 
procedures to disclose and mitigate the incentives created, and the 
broker-dealer and its associated persons comply with the Care 
Obligation and the Disclosure Obligation'' (emphasis added).\50\ In 
fact, the SEC recognized that if a ``firm determines that the conflicts 
associated with these practices are too difficult to disclose and 
mitigate, the firm should consider carefully assessing whether it is 
able to satisfy its best interest obligation in light of the identified 
conflict and in certain circumstances, may wish to avoid such practice 
entirely.'' \51\
---------------------------------------------------------------------------

    \49\ Reg BI Adopting Release at 33397.
    \50\ Id. at 33327.
    \51\ Id. at 33397.
---------------------------------------------------------------------------

    The Department's conflict-mitigation language was not newly 
introduced in the Proposed Amendment; it has been part of the 
Department's interpretation of PTE 2020-02 since the Department issued 
the 2021 FAQs.\52\ For example, in Q16 of the FAQs, the Department 
asked what Financial Institutions should do to satisfy the standard of 
mitigation so that a reasonable person reviewing their policies and 
procedures and incentive practices as a whole would conclude that they 
do been not create an incentive for a Financial Institution or 
Investment Professional to place their interests ahead of the interest 
of the Retirement Investor.
---------------------------------------------------------------------------

    \52\ See supra note 19.
---------------------------------------------------------------------------

    In the FAQ, the Department wrote that Financial Institutions must 
take special care in developing and monitoring compensation systems to 
ensure that their Investment Professionals satisfy the fundamental 
obligation to provide advice that is in the Retirement Investor's best 
interest. By carefully designing their compensation structures, 
Financial Institutions can avoid incentive structures that a reasonable 
person would view as creating incentives for Investment Professionals 
to place their interests ahead of the Retirement

[[Page 32276]]

Investor's interests. Accordingly, Financial Institutions must be 
careful not to use quotas, bonuses, prizes, or performance standards as 
incentives that a reasonable person would conclude are likely to 
encourage Investment Professionals to make recommendations to 
Retirement Investors that do not meet the Care Obligation and Loyalty 
Obligation of the Final Amendment. The Financial Institution should aim 
to eliminate such conflicts to the extent possible, not create them.
    The FAQs went on to clarify that the Department recognizes firms 
cannot eliminate all conflicts of interest, however, and the exemption 
accordingly stresses the importance of mitigating such conflicts. For 
example, as one means of compliance, a firm could ensure level 
compensation for recommendations to invest in assets that fall within 
reasonably defined investment categories, and exercise heightened 
supervision as between investment categories to the extent that it is 
not possible for the institution to eliminate conflicts of interest 
between these categories. In this regard, the Department stresses that 
it is not imposing an obligation on firms to eliminate all differential 
compensation, but rather to manage any conflicts of interest caused by 
such differentials so that the interest of the Retirement Investor is 
paramount, rather than misaligned relative to the financial interests 
of the Investment Professional or Financial Institution. The Department 
also stresses that any transitional efforts to move to other 
compensation models or policies and procedures should be careful to 
avoid harm to existing investors' holdings. In making recommendations 
as to account type, it is important for the Investment Professional to 
ensure that the recommendation carefully considers the reasonably 
expected total costs over time to the Retirement Investor, and that the 
Investment Professional base its recommendations on the financial 
interests of the Retirement Investor and avoid subordinating those 
interests to the Investment Professional's competing financial 
interests. If, for example, a Retirement Investor had previously 
invested in front-end load shares, but the Financial Institution 
decided to move away from recommending such shares as part of its 
effort to better manage Conflicts of Interest, the Financial 
Institution and Investment Professional would need to pay close 
attention to the Care Obligation and Loyalty Obligation before advising 
the Retirement Investor to exchange or liquidate existing holdings in 
such shares after having already borne the front-end expense.
    Similarly, the Department disagrees with the few commenters who 
suggested that the conflict-mitigation requirement would necessarily 
prevent Financial Institutions and Investment Professionals from 
recommending such specific investments as Class A share mutual fund 
investors. One commenter specifically expressed concern that Retirement 
Investors may want to pay up front for certain additional rights that 
Class A shares can include, such as rights of appreciation (ROA) and/or 
rights of exchange (ROE). While the Department is not endorsing any 
particular products, the Department confirms that the exemption does 
not preclude the recommendation of such shares when the recommendation 
satisfies the Care Obligation and Loyalty Obligation for a particular 
Retirement Investor.
    More generally, Financial Institutions' policies and procedures 
must include supervisory oversight of investment recommendations, 
particularly in areas in which differential compensation remains. For 
example, Financial Institutions' policies and procedures could provide 
for increased monitoring of Investment Professional recommendations at 
or near compensation thresholds, recommendations at key liquidity 
events for investors (e.g., rollovers), and recommendations of 
investments that are particularly prone to conflicts of interest, such 
as proprietary products and principal-traded assets. However, in many 
circumstances, supervisory oversight is not an effective substitute for 
meaningful mitigation or elimination of dangerous compensation 
incentives. The Department continues to believe that its principles-
based approach to conflict management is the right one. It properly 
focuses Financial Institutions on conflict mitigation, recognizes the 
practical impossibility of eliminating all conflicts, and stresses 
Financial Institutions' fundamental responsibility to ensure that their 
policies and procedures for managing conflicts of interest are such 
that a reasonable person would conclude that the Financial Institution 
is avoiding incentives that are likely to encourage Investment 
Professionals to make recommendations to Retirement Investors that do 
not meet the Final Amendment's Care Obligation and Loyalty Obligation. 
While PTE 2020-02 does not require eliminating all conflicts, it does 
require Financial Institutions to take special care when addressing the 
conflicts that are present.

Proprietary Products

    In the Proposed Amendment, the Department requested comment on 
whether it should provide additional guidance regarding when a 
Financial Institution or Investment Professional, acting as a 
fiduciary, recommends its proprietary products to a Retirement 
Investor, and, if so, the type of guidance that would be most useful. A 
few commenters asserted that, despite the Department specifically 
stating that the exemption allows for investment advice on proprietary 
products or investments that generate third-party payments, the 
Department's additional guidance undermined that confirmation. One 
commenter took the opposite approach, and suggested the Department 
prohibit Financial Institutions and Investment Professionals from 
receiving third-party payments or require any third-party payments to 
be offset or rebated to the Retirement Investor.
    The Department is not prohibiting any types of compensation, and 
once again confirms that PTE 2020-02 does not preclude Financial 
Institutions from providing fiduciary investment advice on proprietary 
products or investments that generate third-party payments, or advice 
based on investment menus that are limited to such products, in part or 
whole. The principles-based nature of the exemption is applicable to 
all transactions. The Department further disagrees with comments that 
stated the Department imposed additional conditions on proprietary 
products. Instead, the Department has provided an example of how 
Financial Institutions may choose to comply with the exemption when 
recommending such products. The standards established by the exemption 
are the same for all Financial Institutions and Investment 
Professionals, and firms are given substantial leeway in developing 
policies and procedures that suit their business model, provided that 
those policies and procedures are crafted in such a way that a 
reasonable person reviewing the policies and procedures and incentive 
practices as a whole would conclude that they do not create an 
incentive for a Financial Institution or Investment Professional to 
place their interests ahead of the interests of the Retirement 
Investor.
    As described in the preamble to the Proposed Amendment, to the 
extent a recommendation of proprietary products is fiduciary investment 
advice under the Regulation, one way that a Financial Institution could 
meet the terms of the Proposed Amendment (and the Final Exemption) is 
by prudently doing the following:

[[Page 32277]]

     Document in writing its limitations on the universe of 
recommended investments, the Conflicts of Interest associated with any 
contract, agreement, or arrangement providing for its receipt of third-
party payments or associated with the sale or promotion of proprietary 
products.
     Document any services it will provide to Retirement 
Investors in exchange for third-party payments, as well as any services 
or consideration it will furnish to any other party, including the 
payor, in exchange for the third-party payments.
     Reasonably conclude that the limitations on the universe 
of recommended investments and Conflicts of Interest will not cause the 
Financial Institution or its Investment Professionals to receive 
compensation in excess of reasonable compensation for Retirement 
Investors as set forth in Section II(a)(2).
     Reasonably conclude that these limitations and Conflicts 
of Interest will not cause the Financial Institution or its Investment 
Professionals to recommend imprudent investments; and document in 
writing the bases for its conclusions.
     Inform the Retirement Investor clearly and prominently in 
writing that the Financial Institution limits the types of products 
that it and its Investment Professionals recommend to proprietary 
products and/or products that generate third-party payments.
    [cir] In this regard, the notice should not simply state that the 
Financial Institution or Investment Professional ``may'' limit 
investment recommendations based on whether the investments are 
proprietary products or generate third-party payments, without specific 
disclosure of the extent to which recommendations are, in fact, limited 
on that basis.
     Clearly explains its fees, compensation, and associated 
Conflicts of Interest to the Retirement Investor in plain language.
     Ensure that all recommendations are based on the 
Investment Professional's considerations of factors or interests such 
as investment objectives, risk tolerance, financial circumstances, and 
needs of the Retirement Investor.
     Ensure that, at the time of the recommendation, the amount 
of compensation and other consideration reasonably anticipated to be 
paid, directly or indirectly, to the Investment Professional, Financial 
Institution, or their Affiliates or Related Entities for their services 
in connection with the recommended transaction is not in excess of 
reasonable compensation within the meaning of ERISA section 408(b)(2) 
and Code section 4975(d)(2).
     Ensure that the Investment Professional's recommendation 
reflects 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 use in the conduct of an 
enterprise of a like character and with like aims, based on the 
investment objectives, risk tolerance, financial circumstances, and 
needs of the Retirement Investor; and the Investment Professional's 
recommendation is not based on the financial or other interests of the 
Investment Professional or the Investment Professional's consideration 
of any factors or interests other than the investment objectives, risk 
tolerance, financial circumstances, and needs of the Retirement 
Investor.
    An SEC Staff Bulletin entitled Standards of Conduct for Broker-
Dealers and Investment Advisers Conflicts of Interest additionally 
provides guidance on how to manage conflicts to ensure compliance with 
obligations of care and conflict management. The SEC staff Bulletin 
provides strong guidance on how firms and Investment Professionals can 
build policies and procedures properly aligned with the Care and 
Loyalty Obligations set forth in the Final Exemption.\53\
---------------------------------------------------------------------------

    \53\ See supra note 44, Staff Bulletin: Standards of Conduct for 
Broker-Dealers and Investment Advisers Conflicts of Interest, 
available at https://www.sec.gov/tm/iabd-staff-bulletin-conflicts-interest.
---------------------------------------------------------------------------

Providing Policies and Procedures to the Department

    The Department proposed Section II(c)(3) would have required 
Financial Institutions to provide their complete policies and 
procedures to the Department within 10 business days of request. One 
commenter expressed support, noting that this condition would provide a 
meaningful incentive for Financial Institutions to ensure that policies 
and procedures are reasonably designed. Another commenter strongly 
urged the Department to eliminate this condition and instead rely on 
its subpoena authority, if necessary. One comment requested more time 
to provide the certification to the Department. In response to these 
comments, although the Department expects that these reports should 
already be completed at the time of the request and easily located, it 
recognizes the possibility of inadvertent non-compliance because of the 
tight timeline and has modified the requirement in the Final Amendment 
to give Financial Institutions Insurers 30 days to provide the 
documentation.

Retrospective Review

    The Department is finalizing the proposed retrospective review 
requirement, with some ministerial changes for clarity. Section II(d) 
requires the Financial Institution to conduct a retrospective review, 
at least annually, that is reasonably designed to detect and prevent 
violations of, and achieve compliance with, the conditions of this 
exemption's requirements, including adherence to the Impartial Conduct 
Standards and establishing and implementing policies and procedures 
that govern compliance with the exemption's conditions. The Financial 
Institution must update its policies and procedures as business, 
regulatory, and legislative changes and events dictate, to ensure that 
its policies and procedures remain prudently designed, effective, and 
compliant with Section II(c). The methodology and results of the 
retrospective review must be reduced to a written report that is 
provided to a Senior Executive Officer of the Financial Institution.
    Under Section II(d)(3) the Senior Executive Officer must certify 
annually that the officer has reviewed the retrospective review report, 
that the Financial Institution has filed (or will file timely, 
including extensions) Form 5330 reporting any non-exempt prohibited 
transactions discovered by the Financial Institution in connection with 
investment advice covered under Code section 4975(e)(3)(B), corrected 
those transactions, and paid any resulting excise taxes owed under Code 
section 4975(a) or (b). The certification must also include that the 
Financial Institution has written policies and procedures that meet the 
requirements set forth in Section II(c), and that the Financial 
Institution has established a prudent process to modify such policies 
and procedures as required by Section II(d)(1).
    Under Section II(d)(4), the review, report, and certification must 
be completed no later than six months after the end of the period 
covered by the review. Section II(d)(5) requires that the Financial 
Institution retain the report, certification, and supporting data for a 
period of six years and make the report, certification, and supporting 
data available to the Department within 30 days of request to the 
extent permitted by law (including 12 U.S.C. 484 regarding limitations 
on visitorial powers for national banks).
    The Department received many comments on the retrospective review 
conditions. Some commenters

[[Page 32278]]

supported the requirement for Financial Institutions to undertake a 
regular process to ensure that their policies and procedures are 
reasonably designed to detect and prevent violations of, and achieve 
compliance with, the conditions of the exemption.
    Other commenters raised concern that the retrospective review 
requirement imposes significant burdens on Financial Institutions, 
while providing limited benefits to Retirement Investors. One commenter 
expressed specific concern that the Department's use of the terms 
``effective'' and ``compliant'' are undefined, creating unwarranted 
uncertainty for firms.
    This condition, as drafted, provides important protections for 
Retirement Investors. The obligation to periodically review the 
effectiveness of policies and procedures and to determine compliance is 
critical to ensuring that they achieve their intended protective 
purposes and are not mere window dressing. Without such periodic 
assessments, it would be hard for a Financial Institution to have 
confidence that its oversight structures are working to ensure 
compliance with the Impartial Conduct Standards. By uniformly requiring 
retrospective review, the exemption promotes fiduciaries' uniform 
compliance with the Impartial Conduct Standards, which is an important 
aim of this rulemaking. Furthermore, the Department has provided 
guidance on how Financial Institutions can structure their policies and 
procedures, which should assist Senior Executive Officers in making the 
required certifications.
    Several commenters specifically raised concerns with the proposed 
requirement that the Financial Institution has filed (or will file 
timely, including extensions) Form 5330 reporting any non-exempt 
prohibited transactions discovered by the Financial Institution in 
connection with investment advice covered under Code section 
4975(e)(3)(B), corrected those transactions, and paid any resulting 
excise taxes owed under Code section 4975(a) or (b). Some commenters 
argued the Department is exceeding the scope of its regulatory 
authority by conditioning relief on compliance with certain Code 
requirements.
    However, the Department notes that it is within its authority to 
ensure Financial Institutions engaging in otherwise prohibited 
transactions comply with the law, including by paying the excise taxes 
owed on non-exempt prohibited transactions. The amended Retrospective 
Review requirement is consistent with the Fifth Circuit's reasoning in 
Chamber. The Department is not creating new remedies or causes of 
action for violations of Title II of ERISA, but merely ensuring that 
parties comply with the excise taxes Congress specifically imposed on 
such violations. This approach is wholly consistent with the Fifth 
Circuit's observation that ``ERISA Title II only punishes violations of 
the `prohibited transactions' provision by means of IRS audits and 
excise taxes.'' \54\
---------------------------------------------------------------------------

    \54\ Chamber of Commerce v. U.S. Dep't of Labor, 885 F.3d 360, 
384 (5th Cir. 2018). For additional information regarding correcting 
prohibited transactions, see Voluntary Fiduciary Correction Program 
Under the Employee Retirement Income Security Act of 1974,71 FR 
20262 (Apr. 19, 2006).
---------------------------------------------------------------------------

    One commenter additionally argued this condition overstates the 
obligation to file Form 5330 because there is no obligation to file if 
a transaction is self-corrected and no excise tax is due. The commenter 
misreads the exemption, however. The Department is not imposing any 
additional requirements to file Form 5330; rather, it is merely 
requiring that transactions that are reportable to the IRS are in fact 
reported. The Department notes that while self-correction is permitted, 
such correction must be made in a permissible manner and within the 
allowable time frame.
    One commenter expressed concern about including this obligation as 
part of the Senior Executive Officer's certification. The Department 
notes, however, that it is the Financial Institution's obligation to 
correct the prohibited transaction, file IRS Form 5330, and pay the 
prohibited transaction excise tax, and so it is appropriate for the 
Senior Executive Officer to include this in the certification. The 
Department is including the excise tax requirement in the Final 
Amendment as proposed. The excise tax is the congressionally imposed 
sanction for engaging in a non-exempt prohibited transaction and 
provides a powerful incentive for compliance. Requiring certification 
by the Senior Executive Officer reinforces the importance of 
compliance, provides an important safeguard for compliance with the tax 
obligation when violations occur, and focuses the Institution's 
attention on instances where the conditions of this exemption have been 
violated, resulting in a non-exempt prohibited transaction.
    Another commenter suggested that the Department modify the 
conditions to expressly provide that these certifications and other 
obligations should be limited to an obligation of good faith and 
reasonable diligence in complying with the retrospective review 
required under Section II(d) of the Proposed Amendment and good faith 
calculation of any excise taxes payable with respect to such prohibited 
transactions. The Department is not making the commenter's requested 
specific text edits but notes that compliance with the Retrospective 
Review requirement of Section II(d) does not require perfection. For 
example, Section II(e) specifically allows Financial Institutions to 
correct violations that they find as part of their retrospective 
review.
    Careful retrospective review of the effectiveness of a Financial 
Institution's policies and procedures is essential to ensuring 
compliance with the Impartial Conduct Standards, and necessary for the 
Department to make its statutory findings to grant this exemption. The 
review must occur at least annually and must be performed carefully 
enough that the Senior Executive Officer can make the required 
certification. In this connection, the Department notes that findings 
of violations, in litigation or otherwise, do not necessarily mean that 
the Financial Institution's policies and procedures are inadequate, or 
that its retrospective review was insufficient. While such findings 
mean that the specific transaction at issue failed to meet the terms of 
the exemption, violated the prohibited transaction rules, and would be 
subject to the excise taxes and any available remedies under ERISA, it 
does not follow that the Financial Institution's policies and 
procedures are necessarily deficient. Rather, such violations should be 
reviewed for lessons learned and to determine if broader corrections 
are necessary to avoid recurrence. Even strong policies and procedures 
cannot be perfectly effective in avoiding isolated violations. Another 
commenter expressed concern that the retrospective review is too 
focused on the review of the policies and procedures and rather than 
impose a new, separate requirement, the Department should rely on other 
regulators' retrospective review requirements, or even turn those 
requirements into safe harbors. However, such requirements are not 
universal, and to the extent other regulators at self-regulatory 
organizations, such as FINRA, require retrospective review, the 
Financial Institutions would not need to develop whole new systems, but 
rather could build upon their existing review system to the extent it 
did not already fully satisfy the requirements of this exemption. The 
purpose of retrospective review is to assess the compliance of 
Financial Institutions and Investment Professionals with the specific

[[Page 32279]]

conditions of this exemption, ERISA, and the Code, as opposed to their 
compliance with different regulatory regimes, and to ensure corrective 
changes when necessary. These purposes would not be served by relying 
entirely on other regulators' review requirements, although the 
additional compliance burden should be minimal to the extent firms have 
built strong retrospective review procedures pursuant to such 
requirements.
    Some commenters addressed the requirement that Financial 
Institutions provide the retrospective review report, certification, 
and supporting data to the Department within 10 business days of 
request. One commenter expressed support, noting that this condition 
would provide a meaningful incentive for Financial Institutions to 
ensure that policies and procedures are reasonably designed. Others 
expressed concern. One commenter suggested Financial Institutions 
should have 30 days to provide the report, certification, and 
supporting data, consistent with the requirement to provide the 
Department's policies and procedures upon request. Although the 
Department expects that these reports should already be completed at 
the time of the request and easily located, it recognizes the 
possibility of inadvertent non-compliance because of the tight timeline 
and has modified the requirement to give Financial Institutions 30 days 
to provide the documentations.

Self-Correction

    Section II(e) of the Final Amendment provides that a non-exempt 
prohibited transaction will not occur due to a violation of this 
exemption's conditions with respect to a covered transaction if the 
following requirements are met: (1) either the violation did not result 
in investment losses to the Retirement Investor or the Financial 
Institution made the Retirement Investor whole for any resulting 
losses; (2) the Financial Institution corrects the violation (3) the 
correction occurs no later than 90 days after the Financial Institution 
learned of the violation or reasonably should have learned of the 
violation; and (4) the Financial Institution notifies the person(s) 
responsible for conducting the retrospective review during the 
applicable review cycle and the violation and correction is 
specifically set forth in the written report of the retrospective 
review required under subsection II(d)(2). The Department is finalizing 
the self-correction provision as proposed, except, in response to 
several comments, the Department is removing the requirement to notify 
the Department of each violation.
    Some commenters questioned the utility of this self-correction 
provision to advice providers seeking to comply. One commenter 
expressed specific concern that firms will be inclined to relax their 
approach to compliance based on the knowledge that, if violations occur 
and are detected, they can likely invoke the self-correction process 
and avoid sanctions. Another commenter requested clarification 
regarding how a Financial Institution would make a Retirement Investor 
whole for any resulting losses related to a violation of the conditions 
of the exemption. For example, if a condition has been violated and a 
rollover occurred, how would a Retirement Investor be made whole? In 
response to these comments, the Department notes that Financial 
Institutions are not required to use the self-correction provision. 
However, if a Financial Institution chooses to self-correct, it must 
make the Retirement Investor whole for any and all resulting losses. If 
a rollover recommendation out of a Title I Plan cannot be undone, the 
Financial Institution should calculate the amount of resulting losses, 
including estimated investment and tax losses, and restore the 
Retirement Investor to the position they would have occupied but for 
the breach.
    Some commenters raised concerns about the lack of a materiality 
threshold, and the requirement that all mistakes be reported and 
remediated, no matter how minor or inadvertent. In the Department's 
view, however, the self-correction provisions are measured and 
proportional to the nature of the injury. They simply require timely 
correction of the violation of the law and notice to the person 
responsible for retrospective review of the violation, so that the 
significance and materiality of the violation can be assessed by the 
appropriate person responsible for assessing the effectiveness of the 
firm's compliance oversight. In addition, to address commenters' 
concern about the burden associated with the self-correction provision, 
the Department deleted the requirement to report each correction to the 
Department in this Final Amendment. This change should ease the 
compliance burden. Furthermore, to the extent Financial Institutions 
would have been wary of utilizing the self-correction provision because 
they would have to report each self-correction to the Department, they 
should feel more comfortable correcting each violation they find that 
is eligible for self-correction after this modification. The Department 
notes, however, that it retains the authority to require Financial 
Institutions to provide evidence of self-corrections as part of its 
investigation program through the recordkeeping provisions in Section 
IV.

ERISA Section 3(38) Investment Managers

    Several commenters requested broad exceptions to the exemption for 
investment advice that is provided to sophisticated investors or from 
advice providers that receive level compensation. The Department is not 
granting that sort of exception to the general conditions of PTE 2020-
02. As discussed above, the amended exemption is broad and flexible and 
provides Financial Institutions with the flexibility to develop 
policies and procedures would allow a reasonable person reviewing its 
incentive practices as a whole to conclude that they do not create an 
incentive for a Financial Institution or Investment Professional to 
place their interests ahead of the Retirement Investors' interests. 
Financial Institutions that provide fiduciary investment advice can 
determine for themselves how they will comply with all the conditions 
of the exemption.
    Several commenters asked the Department to clarify whether they 
would become fiduciaries when marketing their services, and 
specifically whether responding to a request for proposal (RFP) to 
provide ongoing services as a fiduciary under ERISA section 3(38) would 
count as providing fiduciary investment advice if the other provisions 
of the Regulation are satisfied. The Department discussed in the 
preamble to the Regulation that merely touting the quality of, and 
providing information about, one's own advisory or management services 
would not be a covered recommendation (as defined in paragraph (f)(10) 
of the Regulation) that could lead to fiduciary status. However, to the 
extent a covered recommendation is made as part of hiring 
communications, it would be evaluated under all the parts of the 
Regulation.
    A few commenters on the Proposed Amendment expressed concern that 
if providing a covered recommendation in the context of an RFP could 
lead to fiduciary status, they might need to comply with PTE 2020-02 
merely to get hired, which they believed was unduly burdensome. In this 
regard, if a covered recommendation is made as part of an RFP process 
and all parts of the Regulation are satisfied, including the receipt of 
a ``fee or other compensation, direct or indirect,'' as a result of the 
fiduciary investment advice provided in

[[Page 32280]]

the context of the RFP, a prohibited transaction would occur.
    In response to these comments, the Department added a new section 
II(f) to the Final Amendment. The provision states that to the extent a 
Financial Institution or Investment Professional provides fiduciary 
investment advice to a Retirement Investor as part of its response to 
an RFP to provide investment management services as an ERISA section 
3(38) investment manager and subsequently is hired to act as an 
investment manager to the Retirement Investor, it may receive 
compensation as a result of the advice under this exemption if it 
complies solely with the Impartial Conduct Standards set forth in 
Section II(a).
    ERISA Section 3(38) investment managers are fiduciaries because by 
definition they must have the power to manage, acquire, or dispose of a 
plan's assets, and they are required by statute to acknowledge their 
fiduciary status. To respond to the concern expressed by the 
commenters, the Department has determined that parties that are 
ultimately hired to provide investment management services pursuant to 
an RFP should be able to rely on this exemption for the provision of 
investment advice in the hiring process as long as they comply with the 
Impartial Conduct Standards. The Department notes that ERISA 3(38) 
investment managers have discretion with respect to the investment of 
plan assets; therefore, they could not rely on PTE 2020-02 for the 
ongoing provision of investment management services after they are 
hired. Section II(f) is limited to the prohibited transaction 
associated with providing fiduciary investment advice in connection 
with the hiring process and does not relieve the investment manager 
from its obligation to refrain from engaging in any non-exempt 
prohibited transactions in the ongoing performance of its activities as 
an investment manager.

Eligibility

    The Department proposed to modify the eligibility provisions in 
Section III, which identify circumstances under which an Investment 
Professional or Financial Institution will become ineligible to rely on 
the exemption for a 10-year period. The Department proposed expanding 
ineligibility to include Financial Institutions that are Affiliates, 
rather than members of the more limited ``Controlled Group'' as defined 
in PTE 2020-02, and the Proposed Amendment also enumerated specific 
crimes (including foreign crimes) that could cause ineligibility in 
Section III(a). The Department also proposed to broaden the scope of 
the crimes that would have caused ineligibility by providing that a 
Financial Institution or Investment Professional becomes ineligible 
upon conviction of any of the specific enumerated crimes including 
foreign crimes, regardless of the underlying conduct, as opposed to 
only ``crimes arising out of such person's provision of investment 
advice to Retirement Investors'' as provided in PTE 2020-02.
    In the Proposed Amendment, the Department also proposed to add new 
ineligibility triggers that would make a Financial Institution or 
Investment Professional ineligible to rely on the exemption due to a 
systematic pattern or practice of failing to correct prohibited 
transactions, report those transactions to the IRS on Form 5330 and pay 
the resulting excise taxes imposed by Code section 4975 in connection 
with non-exempt prohibited transactions involving investment advice 
under Code section 4975(e)(3)(B).
    The Department also proposed making clarifying changes to the 
timing of the ineligibility provision that is set forth in Section 
III(b). The Department proposed that all entities would have become 
ineligible six months after the conviction date, the date the 
Department issued a written determination regarding a foreign 
conviction, or the date the Department issued a written ineligibility 
notice regarding other misconduct. As proposed, this six-month period 
would have replaced the one-year winding down period (referred to as 
the Transition Period in this Final Amendment). Furthermore, the 
Department clarified in the Proposed Amendment that ineligibility 
remains in effect until the occurrence of the earliest of the following 
events: (A) a subsequent judgment reversing a person's conviction, (B) 
10 years after the person became ineligible or is released from 
imprisonment, if later, or (C) the Department grants an individual 
exemption permitting reliance on this exemption, notwithstanding the 
conviction.
    The Department also proposed changes to Section III(c), which 
provided an opportunity to be heard. These proposed changes would have 
removed the separate opportunity to be heard by the Department that 
would have been granted following conviction by a U.S. Federal or State 
court and proposed providing an opportunity to be heard when the 
conviction is by a foreign court pursuant to proposed Section 
III(c)(1).
    Section III(c)(2) of the Proposed Amendment provided that the 
Department would have issued a written warning letter regarding the 
conduct and thereafter would have allowed Financial Institutions and 
Investment Professionals that have engaged in conduct described in 
proposed Section III(a)(2) to have had the opportunity to cure the 
behavior and to be heard in an evidentiary hearing by the Department. 
Following the proposed hearing, the Department would have decided 
whether to issue a written ineligibility notice for conduct described 
in proposed Section III(a)(2).
    Lastly, the Department proposed adding the heading ``Alternative 
exemptions'' in Section III(d), which is now Section III(c) in this 
Final Amendment, that would have described how a Financial Institution 
may continue business after becoming ineligible. The Final Amendment 
specifies that a Financial Institution or Investment Professional that 
is ineligible to rely on this exemption may rely on an existing 
statutory or separate class prohibited transaction exemption if one is 
available or may request an individual prohibited transaction exemption 
from the Department. Several commenters asserted that the proposed 
changes to the eligibility provisions of the exemption would have: 
greatly altered the ability of fiduciaries to reasonably rely on PTE 
2020-02; substantially broadened the conditions under which a fiduciary 
would be ineligible for reliance on PTE 2020-02; resulted in reduced 
choice and access for Retirement Investors; caused market disruption; 
been punitive; and provided the Department with the sole ability, for 
which it lacks the authority, to make Financial Institutions and 
Investment Professionals ineligible from providing fiduciary investment 
advice. A few commenters pointed to the Department's experience with 
ineligibility under PTE 84-14 Section I(g), though some argued that the 
Department did not sufficiently analyze the difference between the 
parties affected by PTE 84-14 and retail investors receiving investment 
advice. A few commenters argued the ineligibility provisions exceeded 
the Department's authority. One commenter claimed that Congress did not 
intend for the Department to have this degree of power. Another claimed 
the Department was granting to itself the ability to impose a ``death 
penalty'' on Financial Institutions. Generally, commenters requested 
that the Department not finalize the proposed amendments to the 
ineligibility provision; alternatively, they requested that the 
Department apply the changes only prospectively if

[[Page 32281]]

the Department moves forward with them.
    As explained further below, the Department continues to believe 
these eligibility provisions ensure that Financial Institutions provide 
strong oversight of Investment Professionals and that both the 
Financial Institution and the Investment Professional can be expected 
to ensure compliance with the exemption. Because of its supervisory 
responsibilities, and its control over the design and implementation of 
the policies and procedures, the Financial Institution's commitment to 
compliance is critical to the success of this exemption. While an 
occasional violation of the exemption will not result in 
disqualification for 10 years, Section III helps ensure that the 
Financial Institutions and Investment Professionals are willing and 
able to comply with the conditions of this exemption and protect 
investors from misconduct.
    As required by ERISA section 408(a) and Code section 4975(c)(2), 
the Department may only grant exemptions that are protective of and in 
the interests of plan participants and beneficiaries. As the Department 
explained when it originally granted PTE 2020-02, ``[t]he Department 
has determined that limiting eligibility in this manner serves as an 
important safeguard in connection with this very broad grant of relief 
from the self-dealing prohibitions of ERISA and the Code in this 
exemption.'' \55\ Therefore, after consideration of the comments the 
Department has determined to retain the eligibility provision of 
Section III with several important modifications discussed below.
---------------------------------------------------------------------------

    \55\ 85 FR 82841
---------------------------------------------------------------------------

Scope of Ineligibility

    Several commenters claimed the Proposed Amendment's expansion of 
the conditions for ineligibility to encompass not only the fiduciary 
but also any affiliate regardless of that affiliate's relationship with 
the fiduciary or its activity is regulatory overreach by the Department 
that unnecessarily exposes every fiduciary to an additional compliance 
risk. Some commenters argued that the exemption's definition of the 
term ``Affiliate'' is overly broad and creates an unreasonably large 
network of persons, most of whom will have absolutely no connection to 
the recommendations provided to Retirement Investors. These commenters 
were concerned that the actions of these Affiliates can cause 
ineligibility and drive financial services workers and companies out of 
business to the detriment of the Retirement Investors relying on their 
investment advice services. Other commenters stated that the proposed 
expansion of the scope of the ineligibility provisions is problematic 
and would have led to unintended consequences.
    Some commenters additionally stated the ineligibility provisions 
lack a proper nexus between the circumstances of the offense and the 
fiduciary services performed for the affected plans and requested the 
Department to concentrate the determination for ineligibility 
exclusively on the activities of the fiduciary itself and on any entity 
that is controlled by the fiduciary. Some commenters requested that the 
Department use the term ``Control Group'' in the ineligibility 
provisions of the Final Amendment, because it is less confusing and 
more well-defined than the term ``Affiliate.'' Another commenter 
recommended that the eligibility provisions focus on criminal conduct 
that involves the investment management of retirement assets and which 
exclusively involves (i) the fiduciary and (ii) any affiliate that the 
fiduciary controls or over which the fiduciary exercises a controlling 
influence. One commenter provided specific examples of how broadly 
``Affiliate'' could be interpreted.
    One commenter claimed that the Department has not expressed any 
justification for imposing ineligibility when an investment advice 
entity's affiliate is convicted of a crime unrelated to the 
transactions covered by the exemption. This commenter stated that ERISA 
section 411 does not impute convictions to affiliates or relatives and 
only provides for the disqualification of persons convicted of 
specified crimes from serving as a ``fiduciary'' or as a ``consultant 
or adviser to an employee benefit plan, including but not limited to 
any entity whose activities are in whole or substantial part devoted to 
providing goods or services to any employee benefit plan.''
    After consideration of these comments, the Department has 
determined to return to the use of the term ``Controlled Group'' in the 
Final Amendment for purposes of determining ineligibility under the 
exemption and has revised Section III(a) accordingly. The Final 
Amendment also adds Section III(a)(3) to the exemption, which defines 
Controlled Group by stating that an entity is in the same Controlled 
Group as a Financial Institution if the entity (including any 
predecessor or successor to the entity) would be considered to be in 
the same ``controlled group of corporations'' as the Financial 
Institution or ``under common control'' with the Financial Institution 
as those terms are defined in Code section 414(b) and (c) (and any 
regulations issued thereunder).
    However, the Department is retaining in the Final Amendment the 
proposed broader definition of crimes that cause ineligibility, because 
the Department remains concerned that the limitation of ``arising out 
of . . . provision of investment advice'' is too narrow. The crimes 
listed as disqualifying are extraordinarily serious. Implicit in some 
of the comments is the notion that the Department and Retirement 
Investors need not be concerned about serious crimes if they involved 
non-plan assets or non-advisory financial activities, such as asset 
management. In the Department's view, however, the commission of a 
serious crime, such as a felony involving embezzlement, price fixing, 
or criminal fraud, calls into question the parties' commitment to 
compliance with the law, loyalty to their customers, and insistence on 
appropriate oversight structures. In such circumstances, it would be 
imprudent for the Department to disregard the previous felonies on the 
basis that the crimes were aimed at another class of customers or 
parties. When Financial Institutions and Investment Professionals 
engage in such crimes, there is ample cause for concern, and little 
reason for either the Department or the Retirement Investor to be 
sanguine about future compliance with the terms of the exemption. In 
such circumstances, it is appropriate to insist that the parties seek 
an individual exemption at that point, which permits the Department to 
consider the specific facts of the crime, the possible need for 
additional exemption conditions, or the loss of the exemption, without 
grant of a new individual exemption.

Foreign Convictions

    Several commenters claimed that the Department has no basis for 
expanding the ineligibility provisions to include conduct by foreign 
affiliates and that including foreign affiliates is overbroad and will 
create unintended consequences, especially because the conduct that 
could lead to ineligibility does not need to relate directly to the 
provision of investment advice. These commenters claimed that 
disqualification would occur even where the only connection between the 
investment advice entity and the entity convicted of a foreign crime is 
a small, indirect ownership interest. The commenters stated that 
ineligibility will occur for conduct that is completely unrelated to 
the provision of fiduciary investment advice and for conduct in

[[Page 32282]]

which the fiduciary has not participated and about which it has no 
knowledge. One commenter asserted that a Financial Institution should 
not be disqualified for foreign activities unless such activities are 
convictions for disqualifying crimes under ERISA section 411.
    Several commenters focused on the inclusion of foreign crimes and 
stated that the proposed changes to the ineligibility provisions raise 
serious questions of fairness, national security, and U.S. sovereignty. 
These commenters claimed that ineligibility could result from the 
conviction of an affiliate in a foreign court for violation of foreign 
law without due process protections or the same level of due process 
afforded in the United States. Some commenters expressed concern that 
the proposed change sets up a false equivalence between and among 
foreign jurisdictions and that it is not credible to assume that the 
judicial systems of certain countries will be impartial and have 
criminal procedures and due process safeguards as afforded in U.S. 
Federal and State courts. Some commenters stated that it is not clear 
that the Department is equipped to make the ``substantially 
equivalent'' determination and could result in inconsistency and 
unfairness as well as, in some cases, a lack of due process. One 
commenter agreed that investment transactions that include retirement 
assets are increasingly likely to involve entities that may reside or 
operate in jurisdictions outside the U.S. and that reliance on PTE 
2020-02 therefore must appropriately be tailored to address criminal 
activity, whether occurring in the U.S. or in a foreign jurisdiction 
but this commenter nonetheless had concerns with the potential lack of 
due process in foreign jurisdictions.
    Other commenters were concerned that some foreign courts could 
become vehicles for hostile governments to achieve political ends as 
opposed to dispensing justice and potentially hostile foreign 
governments could interfere in the retirement marketplace for supposed 
wrongdoing that is wholly unrelated to managing retirement assets and 
these governments could potentially assert political influence over 
fiduciary advice providers that want to avoid a criminal conviction. 
One commenter recommended that the Proposed Amendment's foreign crime 
``substantially equivalent'' standard be amended so that ineligibility 
for a foreign criminal conviction applies only when the factual record 
of such conviction, when applied to United States Federal criminal law, 
would highly likely lead also to a criminal conviction in the U.S., as 
determined under appropriate regulatory authority by the Department's 
Office of the Solicitor.
    The Department notes these commenters' concerns, and as noted 
above, has reduced the scope of any possible disqualification by 
limiting the provision to the Controlled Group. However, the Department 
is retaining the inclusion of foreign convictions in the Final 
Amendment. Financial Institutions increasingly have a global reach, in 
their affiliations and in their investment transactions. Retirement 
assets are often involved in transactions that take place in entities 
that operate in foreign jurisdictions therefore making the criminal 
conduct of foreign entities relevant to eligibility under PTE 2020-02. 
An ineligibility provision that is limited to U.S. Federal and State 
convictions would ignore these realities and provide insufficient 
protection for Retirement Investors. Moreover, foreign crimes of the 
type enumerated in the exemption call into question a firm's culture of 
compliance just as much as domestic crimes and are signs of potential 
serious compliance and integrity failures, whether prosecuted 
domestically or in foreign jurisdictions.
    The Department does not expect that questions regarding 
``substantially equivalent'' will arise frequently, and even less so 
with the Final Amendment's use of the term ``Controlled Group'' instead 
of ``Affiliate,'' as discussed above. But, when these questions do 
arise, impacted entities may contact the Office of Exemption 
Determinations for guidance, as they have done for many years in 
connection with the eligibility provisions under the QPAM Exemption, 
PTE 84-14.\56\ As discussed in more detail below, the one-year 
Transition Period that has been added to the exemption and the ability 
to apply for an individual exemption provide affected parties with both 
the time and the opportunity to address with the Department any issues 
about the relevance of any specific foreign conviction and its 
applicability to ongoing relief pursuant to PTE 2020-02. Financial 
Institutions and Investment Professionals should interpret the scope of 
the eligibility provision broadly with respect to foreign convictions 
and consistent with the Department's statutorily mandated focus on the 
protection of Plans in ERISA section 408(a) and Code section 
4975(c)(2). In situations where a crime raises particularly unique 
issues related to the substantial equivalence of the foreign Criminal 
Conviction, the Financial Institutions and Investment Professionals may 
seek the Department's views regarding whether the foreign crime, 
conviction, or misconduct is substantially equivalent to a U.S. Federal 
or State crime. However, any Financial Institution and Investment 
Professional submitting a request for review should do so promptly, and 
whenever possible, before a judgment is entered in a foreign 
conviction.
---------------------------------------------------------------------------

    \56\ PTE 84-14 contains a similar eligibility provision which 
has long been understood to include foreign convictions. Impacted 
parties have successfully sought OED guidance regarding this 
eligibility provision whenever individualized questions or concerns 
arise. See, e.g., Prohibited Transaction Exemption (PTE) 2023-15, 88 
FR 42953 (July 5, 2023); 2023-14, 88 FR 36337 (June 2, 2023); 2023-
13, 88 FR 26336 (Apr. 28, 2023); 2023-02, 88 FR 4023 (Jan. 23, 
2023); 2023-01, 88 FR 1418 (Jan. 10, 2023); 2022-01, 87 FR 23249 
(Apr. 19, 2022); 2021-01, 86 FR 20410 (Apr. 19, 2021); 2020-01, 85 
FR 8020 (Feb. 12, 2020); PTE 2019-01, 84 FR 6163 (Feb. 26, 2019); 
PTE 2016-11, 81 FR 75150 (Oct. 28, 2016); PTE 2016-10, 81 FR 75147 
(Oct. 28, 2016); PTE 2012-08, 77 FR 19344 (March 30, 2012); PTE 
2004-13, 69 FR 54812 (Sept. 10, 2004).
---------------------------------------------------------------------------

    In the context of the PTE 84-14 Qualified Professional Asset 
Manager (QPAM) exemption, which has similar disqualification 
provisions, the Department is not aware of any potentially 
disqualifying foreign convictions having occurred in foreign nations 
that are intended to harm U.S.-based Financial Institutions and 
believes the likelihood of such an occurrence is rare. Further, the 
types of foreign crimes of which the Department is aware from recent 
PTE 84-14 QPAM individual exemption requests for relief from 
convictions have consistently related to the subject Financial 
Institution's management of financial transactions and/or culture of 
compliance. The underlying foreign crimes in those individual exemption 
requests have included: aiding and abetting tax fraud in France (PTE 
2016-10, 81 FR 75147 (October 28, 2016) corrected at 88 FR 85931 
(December 11, 2023), and PTE 2016-11, 81 FR 75150 (October 28, 2016) 
corrected at 89 FR 23612 (April 4, 2024)); attempting to peg, fix, or 
stabilize the price of an equity in anticipation of a block offering in 
Japan (PTE 2023-13, 88 FR 26336 (April 28, 2023)); illicit solicitation 
and money laundering for the purposes of aiding tax evasion in France 
(PTE 2019-01, 84 FR 6163 (February 26, 2019)); and spot/futures-linked 
market price manipulation in South Korea (PTE 2015-15, 80 FR 53574 
(September 4, 2015)).\57\
---------------------------------------------------------------------------

    \57\ On December 12, 2018, Korea's Seoul High Court for the 7th 
Criminal Division (the Seoul High Court) reversed the Korean Court's 
decision and declared the defendants not guilty; subsequently, 
Korean prosecutors appealed the Seoul High Court's decision to the 
Supreme Court of Korea., On December 21, 2023, the Supreme Court of 
Korea affirmed the reversal of the Korean Conviction, and it 
dismissed all judicial proceedings against DSK.

---------------------------------------------------------------------------

[[Page 32283]]

    However, to address the concern expressed in the public comments 
that convictions have occurred in foreign nations that are intended to 
harm U.S.-based Financial Institutions, the Department has revised 
Section III(a)(1)(B) in the Final Amendment to exclude foreign 
convictions that occur within foreign jurisdictions that are included 
on the Department of Commerce's list of ``foreign adversaries.'' \58\ 
Therefore, the Department will not consider foreign convictions that 
occur under the jurisdiction of the listed ``foreign adversaries'' as 
an ineligibility event. To reflect this change, the Department has 
added the phrase ``excluding convictions and imprisonment that occur 
within foreign countries that are included on the Department of 
Commerce's list of `foreign adversaries' that is codified in 15 CFR 
7.4'' to Section III(a)(1)(B).
---------------------------------------------------------------------------

    \58\ 15 CFR 7.4. The list of foreign adversaries currently 
includes the following foreign governments and non-government 
persons: The People's Republic of China, including the Hong Kong 
Special Administrative Region (China); the Republic of Cuba (Cuba); 
the Islamic Republic of Iran (Iran); the Democratic People's 
Republic of Korea (North Korea); the Russian Federation (Russia); 
and Venezuelan politician Nicol[aacute]s Maduro (Maduro Regime). The 
Secretary of Commerce's determination is based on multiple sources, 
including the National Security Strategy of the United States, the 
Office of the Director of National Intelligence's 2016-2019 
Worldwide Threat Assessments of the U.S. Intelligence Community, and 
the 2018 National Cyber Strategy of the United States of America, as 
well as other reports and assessments from the U.S. Intelligence 
Community, the U.S. Departments of Justice, State and Homeland 
Security, and other relevant sources. The Secretary of Commerce 
periodically reviews this list in consultation with appropriate 
agency heads and may add to, subtract from, supplement, or otherwise 
amend the list. Section III(a)(1)(B) of the Final Amendment will 
automatically adjust to reflect amendments the Secretary of Commerce 
makes to the list.
---------------------------------------------------------------------------

Due Process

    The Department received several comments regarding the conduct 
described in Section III(a)(2) as involving ``engaging in a systematic 
pattern or practice'' that can cause ineligibility and the 
ineligibility notice process. Generally, the comments argued that the 
Department had given itself too much authority to disqualify parties 
based on its own factual determinations without affording them 
sufficient due process protections and had also reserved for itself the 
sole authority to determine ineligibility without external review and 
without ensuring due process.
    A few commenters claimed that the Proposed Amendment has a 
procedural due process flaw that renders it unconstitutional under 
Article III of the Constitution, the Due Process Clause of the Fifth 
Amendment, and the Seventh Amendment. These commenters assert that 
courts have found that the sanction of depriving an entity of its 
ability to engage in its business is analogous to a criminal penalty 
and that only after sufficient due process can an individual be barred 
from engaging in an otherwise legal practice. These commenters express 
doubts about the ability of an administrative agency, like the 
Department, to assert this power without substantial additional 
procedural protections. Other commenters contended that the proposed 
process would have resulted in disqualification without any judicial 
recourse and that, by leaving too much discretion to the Department, 
would create uncertainty and adversely affect the availability of 
Retirement Investors to get sound advice. Some commenters asserted that 
the Department's ineligibility process was insufficient because it did 
not provide a chance for a hearing before an impartial administrative 
judge or Article III judge, no express right of appeal, and no formal 
procedures to present evidence, and provided the Department the sole 
discretion to prohibit the Investment Professional or Financial 
Institution from relying on PTE 2020-02.
    Some commenters also stated that while the six-month notice period 
provided in the Proposed Amendment may be adequate time to send a 
notice to Retirement Investors, it is insufficient time for a Financial 
Institution to determine an alternative means of complying with ERISA 
in order to continue to provide advice to Retirement Investors. These 
commenters requested that the Department modify the Proposed Amendment 
to provide for at least 12 months to wind-down advice or to find an 
alternative means of complying with ERISA following a finding of 
ineligibility. One commenter additionally claimed that it was 
problematic that the opportunity to be heard and to challenge a 
disqualification based upon a domestic conviction had been eliminated. 
Another commenter urged the Department to eliminate the opportunity to 
cure misconduct from the exemption. This commenter claimed that this 
provision undermines compliance and accountability by reassuring 
Investment Professionals and firms that, even if they engage in a 
``systemic pattern or practice'' of violating the conditions of the 
exemption, or even provide materially misleading information to the 
Department related to their conduct under the exemption, they will have 
the opportunity to cure and continue to rely on the exemption. The 
commenter asserted that Investment Professionals and firms who have 
engaged in these types of conduct will not desist from such misconduct 
during the lengthy cure period and, as a result, this provision 
threatens to expose Retirement Investors to continued harm. The 
commenter also requested that the Department eliminate any provision 
allowing Investment Professionals who are found ineligible to rely on 
PTE 2020-02 to nevertheless rely on other prohibited transaction 
exemptions or seek an individual transaction exemption from the 
Department. The commenter claimed that these provisions conflict with a 
proper regulatory approach that should seek to protect the public and 
deter misconduct by foreclosing exemptive relief to those Investment 
Professionals and firms who are demonstrably unfit to enjoy it.
    After consideration of the comments and to address commenters' due 
process concerns, the Department has determined to modify Section 
III(a)(2) of the ineligibility provisions. As amended, Section 
III(a)(2) of the Final Amendment describes disqualifying conduct, which 
will be subject to a one-year Transition Period, instead of the six-
month period originally proposed. The changes to the disqualifying 
conduct provisions of the exemption will remove the discretion of the 
Department from the ineligibility determination process regarding the 
occurrence of the Prohibited Misconduct under Section III(a)(2) while 
adding protections to the exemption by conditioning disqualification on 
determinations in court proceedings. Ineligibility under amended 
Section III(a)(2) will result from a Financial Institution or an 
Investment Professional being found in a final judgment or court-
approved settlement in a Federal or State criminal or civil court 
proceeding brought by the Department, the Department of the Treasury, 
the IRS, the SEC, the Department of Justice, the Federal Reserve, the 
Federal Deposit Insurance Corporation, the Office of the Comptroller of 
the Currency, the Commodity Futures Trading Commission, a State 
insurance or securities regulator, or State attorney general to have 
participated in one or more of the following categories of conduct 
irrespective of whether the court specifically considers this exemption 
or its terms: (A) engaging in a systematic pattern or practice of

[[Page 32284]]

conduct that violates the conditions of this exemption in connection 
with otherwise non-exempt prohibited transactions; (B) intentionally 
engaging in conduct that violates the conditions of this exemption in 
connection with otherwise non-exempt prohibited transactions; (C) 
engaging in a systematic pattern or practice of failing to correct 
prohibited transactions, report those transactions to the IRS on Form 
5330 or pay the resulting excise taxes imposed by Code section 4975 in 
connection with non-exempt prohibited transactions involving investment 
advice as defined under Code section 4975(e)(3)(B); or (D) providing 
materially misleading information to the Department, the Department of 
the Treasury, the Internal Revenue Service, the Securities and Exchange 
Commission, the Department of Justice, the Federal Reserve, the Federal 
Deposit Insurance Corporation, the Office of the Comptroller of the 
Currency, the Commodity Futures Trading Commission, a State insurance 
or securities regulator, or State attorney general in connection with 
the conditions of this exemption.
    In making this change to the Final Amendment, the Department has 
kept the same four triggers that it proposed in Section III(a)(2) of 
the Proposed Amendment. Rather than relying solely on the Department to 
determine whether a covered entity had engaged in one of these four 
triggers, however, the Department has determined that it is appropriate 
to limit eligibility to instances where a court has determined that a 
Financial Institution or Investment Professional has engaged in certain 
identified conduct. This underlying conduct is unchanged from the 
proposal. The Department agrees that relying on a determination from a 
court more appropriately balances the due process concerns raised by 
some comments. The Department also agrees with other commenters who 
emphasized that this identified conduct is a significant cause for 
concern, and that it is appropriate to condition ineligibility on a 
determination the Financial Institution or Investment Professional have 
engaged in this behavior.
    Under this Final Amendment, ineligibility under Section III(a)(2) 
will operate in a similar manner to ineligibility for a criminal 
conviction defined in Section III(a)(1), as ineligibility will be 
immediate, subject to the timing and scope of the ineligibility 
provisions in Section III(b), including the One-Year Transition Period. 
Specifically, a Financial Institution or an Investment Professional 
will only become ineligible after it has been determined in a final 
judgment or a court-approved settlement that the conduct set forth in 
Section III(a)(2) has occurred. By removing the Opportunity to be Heard 
and Ineligibility Notice process and providing that ineligibility is 
triggered only after a conviction, a court's final judgment, or a 
court-approved settlement, the Financial Institution, an entity in the 
same Controlled Group as the Financial Institution, or an Investment 
Professional will have the due process that is afforded in formal legal 
proceedings. Additionally, having ineligibility occur only after a 
conviction, court's final judgment, or court-approved settlement 
provides those entities and persons confronting ineligibility with 
ample notice and time to prepare for their ineligibility and operations 
during the ensuing One-Year Transition Period discussed below. An 
ineligible Financial Institution or Investment Professional would again 
become eligible to rely on this exemption if there is a subsequent 
judgment reversing the conviction or final judgment.

Timing of Ineligibility and One-Year Transition Period

    Several commenters expressed concern that the ineligibility 
provisions would apply retrospectively and urged the Department to 
confirm that ineligibility under the exemption would occur only on a 
prospective basis after finalization of the amended exemption. 
Additionally, some commenters asserted that the six-month period 
provided in the Proposed Amendment following ineligibility would be 
insufficient for Financial Institutions and Investment Professionals to 
prepare for any inability to provide retirement investment advice for a 
fee, determine an alternative means of complying with ERISA, and to 
prepare and submit an individual exemption application. One commenter 
argued that the change in the Proposed Amendment from a one-year 
transition period to six months was unduly punitive and contended that 
shortening the period would only mean that Retirement Investors would 
lose access to a trusted adviser sooner rather than later, generally 
for reasons entirely unrelated to the services provided to the 
Retirement Investor. Another commenter stated that providing a longer 
12-month period would enable Financial Institutions to find alternative 
compliant means to help Retirement Investors and would enable 
Retirement Investors to continue to receive investment recommendations 
in their best interest.
    One commenter claimed that the sudden real or impending loss of 
significant numbers of providers, or even a handful of the largest 
among them, as the result of their disqualification would cause chaos 
among plans, which would have no more than six months to find suitable 
replacements and impose harm on the Retirement Investors who had hired 
a disqualified firm. Another commenter argued that reducing the timing 
of ineligibility from one year to six months after a finding of 
ineligibility would make it more unlikely that the disqualified person 
could timely obtain an individual prohibited transaction exemption. The 
commenter stated that the result was especially significant because the 
Department was simultaneously proposing to eliminate alternative paths 
for exemptive relief for providing fiduciary investment advice under 
other class exemptions, making PTE 2020-02 the only available class 
exemption.
    In response to these comments, the Department confirms that 
ineligibility under Section III will be prospective and only 
convictions, final judgments, or court-approved settlements occurring 
after the Applicability Date of the Final Amendment exemption will 
cause ineligibility. The proposed six-month period before ineligibility 
begins has been removed from the amended exemption and amended Section 
III(b) requires ineligibility for the Financial Institution or 
Investment Professional to begin immediately upon the date of 
conviction, final judgment, or court-approved settlement that occurs on 
or after the Applicability Date of the exemption. The Department has 
replaced the six-month lag period for beginning of ineligibility with a 
One-Year Transition Period in Section III(b)(2) to provide Financial 
Institutions and Investment Professionals ample time to prepare for 
loss of the exemptive relief of PTE 2020-02, determine alternative 
means for compliance, prepare and protect Retirement Investors, and 
apply to the Department for an individual exemption.
    The Final Amendment provides that relief under the exemption during 
the One-Year Transition Period is available for a maximum period of one 
year after the Ineligibility Date if the Financial Institution and the 
Investment Professional provides notice to the Department at 
[email protected] within 30 days after ineligibility begins under Section 
III(b)(1). No relief will be available for any transactions (including 
past transactions) affected during the One-Year Transition Period 
unless the Financial Institution and the Investment

[[Page 32285]]

Professional complies with all the conditions of the exemption during 
such one-year period. The Department notes that it included the One-
Year Transition Period in the Final Amendment to reduce the costs and 
burdens associated with the possibility of ineligibility, and to give 
Financial Institutions and Investment Professionals ample opportunity 
to apply for individual exemptions with appropriate protective 
conditions.
    Financial Institutions and Investment Professionals may continue to 
rely on the exemption, as long as they comply with all of the 
exemption's conditions during that year. The One-Year Transition Period 
begins on the date of the conviction, the final judgment (regardless of 
whether that judgment remains under appeal), or court approved 
settlement. Financial Institutions or Investment Professionals that 
become ineligible to rely on this exemption may rely on a statutory 
prohibited transaction exemption if one is available or may seek an 
individual prohibited transaction exemption from the Department. In 
circumstances where the Financial Institution or Investment 
Professional becomes ineligible, the Department believes the interests 
of Retirement Investors are best protected by the procedural 
protections, public record, and notice and comment process associated 
with individual exemption applications. Through the process of an 
individual exemption application, the Department has unique authority 
to efficiently gather evidence, consider the issues, and craft 
protective conditions that meet the statutory standard. If the 
Department concludes, consistent with the statutory standards set forth 
in ERISA section 408(a) and Code section 4975(c)(2), that an individual 
exemption is appropriate, Retirement Investors remain free to make 
their own independent determinations whether to engage in transactions 
with the Financial Institution or Investment Professional.
    As provided under Section III(c), a Financial Institution or 
Investment Professional that is ineligible to rely on this exemption 
may request an individual prohibited transaction exemption from the 
Department. The Department encourages any Financial Institution or 
Investment Professional facing allegations that could result in 
ineligibility to begin the individual exemption application process as 
soon as possible. If the applicant becomes ineligible and the 
Department has not granted a final individual exemption, the Department 
will consider granting retroactive relief, consistent with its policy 
as set forth in 29 CFR 2570.35(d), which may require retroactive 
exemptions to include additional prospective conditions.

Form 5330

    The Department received several comments arguing that the 
imposition of ineligibility under Section III(a)(2)(C) based on the 
Financial Institution's failure to timely report any non-exempt 
prohibited transaction on IRS Form 5330 filing requirements and paying 
the associated excise tax payment is unworkable. These commenters 
generally stated that the provision constituted overreach by the 
Department because it has no statutory or regulatory enforcement 
authority to base ineligibility on the IRS' Form 5330 filing 
requirements. Other commenters claimed that Congress did not intend to 
give this kind of authority to the Department when it gave the 
Department the authority to grant prohibited transaction exemptions. 
The commenters stated that the Department has no legitimate need for 
this information and if Congress intended to give the Department this 
authority, it would have done so directly. One commenter questioned 
whether it would be a violation of the exemption if a Financial 
Institution or Investment Professional did not file a Form 5330 based 
on advice of an accountant or attorney.
    After considering these comments, the Department is retaining 
Section III(a)(2)(C)'s provisions for ineligibility based on the 
Financial Institution's or Investment Professional's engaging in a 
systematic pattern or practice of failing to correct prohibited 
transactions, report those transactions to the IRS on Form 5330 or pay 
the resulting excise taxes imposed by Code section 4975 in connection 
with non-exempt prohibited transactions involving investment advice as 
defined under Code section 4975(e)(3)(B). The excise tax is the 
Congressionally imposed sanction for engaging in non-exempt prohibited 
transaction and provides a powerful incentive for compliance with the 
participant-protective terms of this exemption. Insisting on compliance 
with the statutory obligation to pay the excise tax provides an 
important safeguard for compliance with the tax obligation when 
violations occur and focuses the Institution's attention on instances 
where the conditions of this exemption have been violated, resulting in 
a non-exempt prohibited transaction. Moreover, the failure to satisfy 
this condition calls into question the Financial Institution's or 
Investment Professional's commitment to regulatory compliance, as is 
critical to ensuring adherence to the conditions of this exemption 
including the Impartial Conduct Standards.
    By including this provision in the Final Amendment, the Department 
does not claim authority to impose taxes under the Code, and leaves 
responsibility for collecting the excise tax and managing related 
filings to the IRS. The Department merely asserts its clear authority 
to grant conditional or unconditional exemptions under ERISA section 
408(a) and Code section 4975(c). Since an obligation already exists to 
file the Form 5330 when parties engage in non-exempt prohibited 
transactions, the Department is merely conditioning relief in the 
exemption on their compliance with existing law. The condition provides 
important protections to Retirement Investors by enhancing the existing 
protections of PTE 2020-02.
    As discussed above, this Final Amendment provides that 
ineligibility under Section III(a)(2)(C) occurs following a court's 
finding or determination that Financial Institutions or Investment 
Professionals engaged in a systematic pattern or practice of failing to 
correct prohibited transactions, report those transactions to the IRS 
on Form 5330 or pay the resulting excise taxes imposed by Code section 
4975. Triggering a Financial Institution or an Investment 
Professional's ineligibility only after a court has found the conduct 
occurred removes the Department from the determination process and 
provides the Financial Institution and Investment Professional with the 
due process protections inherent in the judicial process. Ineligibility 
grounded on failures under this condition call into question the 
Financial Institution or an Investment Professional's ability to 
provide advice for a fee that complies with the obligations of this 
exemption, including the Care Obligation and the Loyalty Obligation.

Alternative Exemptions

    A Financial Institution or Investment Professional that is 
ineligible to rely on this exemption may rely on a statutory or 
separate administrative prohibited transaction exemption if one is 
available or may request an individual prohibited transaction exemption 
from the Department. To the extent an applicant requests retroactive 
relief in connection with an individual exemption application, the 
Department will consider the application in accordance with its 
retroactive exemption policy as set forth in 29 CFR 2570.35(d). The 
Department may require additional prospective compliance conditions as 
a

[[Page 32286]]

condition of providing retroactive relief. A few commenters expressed 
concern that the Alternative Exemptions process was not sufficient. One 
commenter in particular expressed concern with the length and expense 
of seeking to obtain an individual exemption, claiming this would 
result in harm to Plans.
    As discussed above, the violations that would trigger ineligibility 
are serious, call into question the parties' willingness or ability to 
comply with the obligations of the exemption, and have been determined 
in court supervised proceedings. In such circumstances, it is important 
that the parties seek individual relief from the Department if they 
would like to continue to have the benefit of an exemption that permits 
them to engage in conduct that would otherwise be illegal. As part of 
such an on the record process, they can present evidence and arguments 
on the scope of the compliance issues, the additional conditions 
necessary to safeguard Retirement Investor interests, and their ability 
and commitment to comply with protective conditions designed to ensure 
prudent advice and avoid the harmful impact of dangerous conflicts of 
interest.

Recordkeeping

    Section IV provides that the Financial Institution must maintain 
for a period of six years following the covered transaction records 
demonstrating compliance with this exemption and make such records 
available to the extent permitted by law, including 12 U.S.C. 484, to 
any authorized employee of the Department or the Department of the 
Treasury, which includes the Internal Revenue Service.
    While the Department proposed a broader recordkeeping condition in 
the Proposed Amendment, the Department has determined to maintain the 
recordkeeping condition as it is currently in PTE 2020-02. The 
Department is clarifying the language to confirm that records must be 
made available to authorized employees of the Internal Revenue Service 
as part of the Department of the Treasury. This clarification was in 
the preamble to the December 2020 grant of PTE 2020-02, and the 
Department is now adding it to the operative text.
    Although the proposed broader recordkeeping condition is consistent 
with other exemptions, the Department understands commenters' concerns 
that broader access to the documents could have a counterproductive 
impact on the formulation and documentation of appropriate firm 
oversight and control of recommendations by Investment Professionals. 
Although the Final Amendment narrows the recordkeeping obligation, uses 
this narrower recordkeeping, the Department intends to monitor 
Financial Institutions' compliance with the exemption closely and may 
revisit this to expand the recordkeeping requirement as appropriate. 
Future amendments would be preceded by notice and an opportunity for 
public comment.

Executive Order 12866 and 13563 Statement

    Executive Orders 12866 \59\ and 13563 \60\ direct agencies to 
assess all costs and benefits of available regulatory alternatives. If 
regulation is necessary, agencies must choose a regulatory approach 
that maximizes 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.
---------------------------------------------------------------------------

    \59\ 58 FR 51735 (Oct. 4, 1993).
    \60\ 76 FR 3821 (Jan. 21, 2011).
---------------------------------------------------------------------------

    Under Executive Order 12866, ``significant'' regulatory actions are 
subject to review by the Office of Management and Budget (OMB). As 
amended by Executive Order 14094,\61\ entitled ``Modernizing Regulatory 
Review,'' section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as any regulatory 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 the 
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.
---------------------------------------------------------------------------

    \61\ 88 FR 21879 (Apr. 6, 2023).
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    It has been determined that this amendment is significant within 
the meaning of section 3(f)(1) of the Executive Order. Therefore, the 
Department has provided an assessment of the amendment's costs, 
benefits, and transfers, and OMB has reviewed the rulemaking.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (PRA) (44 
U.S.C. 3506(c)(2)(A)), the Department solicited comments concerning the 
information collection requirements (ICRs) included in the proposed 
rulemaking. The Department received comments that addressed the burden 
estimates used in the analysis of the proposed rulemaking. The 
Department reviewed these public comments in developing the paperwork 
burden analysis and subsequently revised the burden estimates in the 
amendments to the PTEs discussed below.
    ICRs are available at RegInfo.gov (https://www.reginfo.gov/public/do/PRAMain). Requests for copies of the ICR or additional information 
can be sent to the PRA addressee:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
By mail.............................  James Butikofer, Office of
                                       Research and Analysis, Employee
                                       Benefits Security Administration,
                                       U.S. Department of Labor, 200
                                       Constitution Avenue NW, Room N-
                                       5718, Washington, DC 20210.
By email............................  [email protected].
------------------------------------------------------------------------

    The Department is amending PTE 2020-02 to revise the required 
disclosures to Retirement Investors receiving advice and to provide 
more guidance for Financial Institutions and Investment Professionals 
complying with the Impartial Conduct Standards and implementing the 
policies and procedures. This rulemaking is intended to align with 
other regulators' rules and standards of conduct. These requirements 
are ICRs subject to the PRA. Readers should note that the burden 
discussed below conforms to the requirements of the PRA and is not the 
incremental burden of the changes.\62\
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    \62\ For a more detailed discussion of the marginal costs 
associated with the amendments to PTE 2020-02, refer to the 
Regulatory Impact Analysis (RIA) in the Notice of Final Rulemaking 
published elsewhere in today's edition of the Federal Register.
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1.1 Preliminary Assumptions

    In the analysis discussed below, a combination of personnel would 
perform the tasks associated with the ICRs at an hourly wage rate of 
$65.99 for clerical personnel, $165.71 for a legal professional, and 
$228.00 for a financial advisor.\63\
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    \63\ Internal Department calculation based on 2023 labor cost 
data and adjusted for inflation to reflect 2024 wages. 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 32287]]

    In the proposal, the Department received several comments on the 
Department's labor cost estimate, particularly the cost for legal 
support, remarking that it was too low. The Department assumes that 
tasks involving legal professionals will be completed by a combination 
of legal professionals, likely consisting of attorneys, legal support 
staff, and other professionals and in-house and out-sourced 
individuals. The labor cost associated with these tasks is estimated to 
be $165.71, which is the Department's estimated labor cost for an in-
house attorney. The Department understands that some may feel this 
estimate is comparatively low to their experience, especially when 
hiring an outside ERISA legal expert. However, the Department has 
chosen this cost estimate understanding that it is meant to be an 
average, blended, or typical rate from a verifiable and repeatable 
source.
    For the purposes of this analysis, the Department assumes that the 
percent of Retirement Investors who are in employer-sponsored plans 
receiving electronic disclosures would be similar to the percent of 
plan participants receiving electronic disclosures under the 
Department's 2002 and 2020 electronic disclosure safe harbors.\64\ 
Accordingly, the Department estimates that 96.1 percent of the 
disclosures sent to Retirement Investors will be sent electronically, 
and the remaining 3.9 percent will be sent by mail.\65\
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    \64\ 67 FR 17263 (Apr. 9, 2002); 85 FR 31884 (May 27, 2020).
    \65\ The Department estimates that 58.3 percent of Retirement 
Investors receive electronic disclosures under the 2002 electronic 
disclosure safe harbor and that an additional 37.8 percent of 
Retirement Investors receive electronic disclosures under the 2020 
electronic disclosure safe harbor. In total, the Department 
estimates 96.1 percent (58.3 percent + 37.8 percent) of Retirement 
Investors receive disclosures electronically.
---------------------------------------------------------------------------

    One commenter suggested that this assumption overstates the use of 
electronic disclosures for IRA owners and that 60 percent would be more 
appropriate. The Department is not able to substantiate that suggestion 
but understands that IRA owners could be different than plan 
participants in regard to electronic delivery of documents. In 
response, the Department reevaluated its estimate. In this analysis, 
the Department assumes that approximately 71.8 percent of IRA owners 
will receive disclosures electronically, and the remaining 28.2 percent 
sent by mail.\66\
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    \66\ The Department used information from a Greenwald & 
Associates survey which reported that 84 percent of retirement plan 
participants find electronic delivery acceptable, and data from the 
National Telecommunications and Information Administration internet 
Use Survey which indicated that 85.5 percent of adults 65 and over 
use email on a regular basis, which is used as a proxy for internet 
fluency and usage. Therefore, the assumption is calculated as: (84% 
find electronic delivery acceptable) x (85.5% are internet fluent) = 
71.8% are internet fluent and find electronic delivery acceptable.
---------------------------------------------------------------------------

    Furthermore, the Department estimates that communications between 
businesses (such as disclosures sent from one Financial Institution to 
another) will be 100 percent electronic.
    For disclosures sent by mail, the Department estimates that 
entities will incur a cost of $0.68 \67\ for postage and $0.05 per page 
for material and printing costs.
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    \67\ United States Postal Service, First-Class Mail, United 
States Postal Service (2023), https://www.usps.com/ship/first-class-mail.htm.
---------------------------------------------------------------------------

1.2 Affected Entities

    The Department expects the same 18,632 entities that are affected 
by the existing PTE 2020-02 will be affected by the amendments to the 
PTE. The number of entities by type and size are summarized in the 
table below.\68\
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    \68\ For more information on how the number of each type and 
size of entity is estimated, refer to the Affected Entity section of 
the RIA in the Notice of Final Rulemaking published elsewhere in 
today's edition of the Federal Register.

                                   Table 1--Affected Entities by Type and Size
----------------------------------------------------------------------------------------------------------------
                                                                       Small           Large           Total
----------------------------------------------------------------------------------------------------------------
Broker-Dealer...................................................             431           1,489           1,920
    Retail......................................................             302           1,018           1,319
    Non-Retail..................................................             129             471             600
Registered Investment Adviser...................................           2,989          13,409          16,398
    SEC.........................................................             228           7,806           8,035
        Retail..................................................              85           4,859           4,944
        Non-Retail..............................................             144           2,947           3,091
    State.......................................................           2,760           5,603           8,363
        Retail..................................................           2,192           4,450           6,642
        Non-Retail..............................................             568           1,153           1,721
Insurer.........................................................              71              13              84
Robo-Adviser....................................................              10             190             200
Non-Bank Trustee................................................              31               0              31
        Total...................................................           3,531          15,101          18,632
----------------------------------------------------------------------------------------------------------------
Note: Values displayed are rounded to whole numbers; therefore, parts may not sum.

    In addition, the amendments may affect banks and credit unions 
selling non-deposit investment products. There are 4,614 federally 
insured depository institutions in the United States, consisting of 
4,049 commercial banks and 565 savings institutions.\69\ Additionally, 
there are 4,645 federally insured credit unions.\70\ In 2017, the GAO 
estimated that approximately two percent of credit unions have private 
deposit insurance.\71\ Based on this estimate, the Department estimates 
that there are approximately 95 credit unions with private deposit 
insurance and 4,740 credit unions in total.\72\
---------------------------------------------------------------------------

    \69\ Federal Deposit Insurance Corporation, Statistics at a 
Glance--as of September 30, 2023, https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2023mar/industry.pdf.
    \70\ National Credit Union Administration, Quarterly Credit 
Union Data Summary 2023 Q3, https://ncua.gov/files/publications/analysis/quarterly-data-summary-2023-Q3.pdf.
    \71\ GAO, Private Deposit Insurance: Credit Unions Largely 
Complied with Disclosure Rules, But Rules Should be Clarified, 
(March 29, 2017), https://www.gao.gov/products/gao-17-259.
    \72\ The total number of credit unions is calculated as: 4,645 
federally insured credit unions/(100%-2% of credit unions that are 
privately insured) = 4,740 total credit unions. The number of 
private credit unions is estimated as: 4,740 total credit unions-
4,645 federally insured credit unions = 95 credit unions with 
private deposit insurance.
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    In the proposal, the Department estimated that no banks or credit 
unions would be impacted by the amendments to PTE 2020-02. The 
Department requested comment on what other types

[[Page 32288]]

of activities banks or credit unions may engage in that would require 
reliance on PTE 2020-02. The Department did not receive any comments on 
this topic. However, the Department revisited a comment it received on 
PTE 2020-02 in 2020. This comment suggested that banks may be providing 
investment advice outside of networking arrangements, such as 
recommendations to roll over assets from a plan or IRA or advice to 
invest in deposit products.\73\ The Department agrees that, if the 
recommendation meets the facts and circumstances test for 
individualized best interest advice, or the adviser acknowledges 
fiduciary status, such transactions will require banks to comply with 
PTE 2020-02. The Department notes that some banks may need to comply 
with PTE 2020-02. However, the Department believes that in such cases, 
the banks, or their separately identifiable department or division, 
would be registered investment advisers and already included in the 
estimate of affected entities.\74\
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    \73\ Comment letter received from the American Bankers 
Association on the Notification of Proposed Class Exemption: 
Improving Advice for Workers & Retirees, (August 2020).
    \74\ For more information on the Department's consideration of 
banks and credit unions, refer to the Affected Entity section of the 
RIA in the Notice of Final Rulemaking published elsewhere in today's 
edition of the Federal Register.
---------------------------------------------------------------------------

    The Department recognizes that the rulemaking may change the number 
of Financial Institutions who choose to rely on PTE 2020-02. Consistent 
with its initial analysis in 2020, the proposal assumed that all 
entities eligible to rely on the existing PTE 2020-02 were relying on 
it. However, one commenter indicated that some entities eligible to use 
PTE 2020-02 had determined that their business practices did not 
trigger fiduciary status or modified their business practices to avoid 
relying upon it. The definitional changes in this rulemaking may now 
require these entities to now rely on PTE 2020-02. These entities will 
incur the full compliance costs of PTE 2020-02. In response to this 
concern, this analysis assumes that 30 percent of currently eligible 
entities would begin to rely on PTE 2020-02 in response to the 
rulemaking.\75\
---------------------------------------------------------------------------

    \75\ The Department is not aware of any source to determine the 
percent of firms currently eligible, but not using PTE 2020-02, but 
which now need to use the exemption. In response to the lack of 
information the Department selected a meaningful percent of firms 
that would be in this category, in order to provide an estimate of 
the cost to comply with PTE 2020-02. As a point of reference, each 
percentage point change to this assumption results in a 0.28 
percentage point change in the estimated total cost of compliance 
for PTE 2020-02.
---------------------------------------------------------------------------

1.3 Costs Associated With Disclosures for Investors, Production and 
Distribution

1.3.1 Costs Associated With Drafting and Modifying Relationship and 
Conflict of Interest Disclosure

    Section II(b) currently requires Financial Institutions to provide 
certain disclosures to Retirement Investors before engaging in a 
transaction pursuant to the exemption. These disclosures include:
     a written acknowledgment that the Financial Institution 
and its Investment Professionals are fiduciaries;
     a written description of the services to be provided and 
any material conflicts of interest of the Investment Professional and 
Financial Institution; and
     documentation of the Financial Institution and its 
Investment Professional's conclusions as to whether a rollover is in 
the Retirement Investor's best interest, before engaging in a rollover 
or offering recommendations on post-rollover investments.
    The Department is finalizing the disclosure conditions from the 
proposal with some modifications. In the proposal, the Department 
proposed requiring a written statement informing the investor of their 
right to obtain a written description of the Financial Institution's 
written policies and procedures and information regarding costs, fees, 
and compensation. The Department received several comments regarding 
its estimate of the number of annual requests per firm, and the cost 
burdens associated with the Provision of Disclosures. After reviewing 
the comments and existing disclosures associated with the rulemaking, 
the Department has removed this requirement. The modifications to the 
disclosure requirements included in the final rulemaking are described 
below.
    The following estimates reflect the ongoing paperwork burdens of 
the affected entities. Broker-dealers, registered investment advisers, 
and insurance companies that relied on the existing exemption were 
required to prepare certain disclosures under the existing PTE 2020-02. 
The estimates below reflect the paperwork burden these entities would 
incur to modify the current disclosures. This analysis does not include 
the transition costs already incurred for the existing PTE 2020-02 
exemption.

Written Acknowledgement of Fiduciary Status

    Of the 70 percent of the broker-dealers, registered investment 
advisers, and insurance companies assumed to be currently reliant on 
the existing exemption, the Department assumes that 10 percent will 
need to update their disclosures and that it will take a legal 
professional at a Financial Institution, on average, 10 minutes to 
update existing disclosures.
    Robo-advisers, non-bank trustees, and newly reliant broker-dealers, 
registered investment advisers, and insurance companies will need to 
draft the acknowledgement. The Department estimates that it will take a 
legal professional at these entities, on average, 30 minutes to draft 
the acknowledgement. Updating and drafting the acknowledgement is 
estimated to result in an estimated hour burden of 3,090 hours with an 
equivalent cost of $512,106.\76\
---------------------------------------------------------------------------

    \76\ The number of Financial Institutions needing to update 
their written acknowledgement is estimated as: (1,920 broker-dealers 
x 10% x (100%-30%)) + (8,035 SEC-registered investment advisers x 
10% x (100%-30%)) + (8,363 State-registered investment advisers x 
10% x (100%-30%)) + (84 insurers x 10% x (100%-30%)) = 1,288 
Financial Institutions updating existing disclosures. The number of 
Financial Institutions needing to draft their written 
acknowledgement is estimated as: 200 robo-advisers + 31 non-bank 
trustees + (1,920 broker-dealers x 30%) + (8,035 SEC-registered 
investment advisers x 30%) + (8,363 State-registered investment 
advisers x 30%) + (84 insurers x 30%) = 5,751 Financial Institutions 
drafting new disclosures. The burden is estimated as: (1,288 
Financial Institutions x (10 minutes / 60 minutes hours)) + (5,751 
Financial Institutions x (30 minutes / 60 minutes hours) = 3,090 
hours. A labor rate of $165.71 is used for a legal professional. The 
labor rate is applied in the following calculation: 3,090 burden 
hours x $165.71 = $512,106. Note: Due to rounding, values may not 
sum.

             Table 2--Hour Burden and Equivalent Cost Associated With the Fiduciary Acknowledgement
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Create Disclosure (Legal).......................           2,876        $476,531               0              $0

[[Page 32289]]

 
Update Disclosure (Legal).......................             215          35,575               0               0
                                                 ---------------------------------------------------------------
    Total.......................................           3,090         512,106               0               0
----------------------------------------------------------------------------------------------------------------

Written Statement of the Care Obligation and Loyalty Obligation

    As amended, PTE 2020-02 requires Financial Institutions to provide 
investors with a Written Statement of the Care Obligation and Loyalty 
Obligation disclosure. As presented in more detail in the preamble, 
this disclosure defines the Care Obligation and Loyalty Obligation as 
related to the investor's relationship with the Investment 
Professional.
    Most registered investment advisers and broker-dealers with retail 
investors already provide disclosures that the Department expects will 
satisfy these requirements.\77\
---------------------------------------------------------------------------

    \77\ Form CRS Relationship Summary; Amendments to Form ADV, 84 
FR 33492 (July 12, 2019).
---------------------------------------------------------------------------

    The Department expects that the written statement of Care 
Obligation and Loyalty Obligation will not take a significant amount of 
time to prepare and will be uniform across clients. The Department 
assumes that a legal professional employed by a broker-dealer or 
registered investment adviser, on average, will take 30 minutes to 
modify existing disclosures and that it will take insurers, robo-
advisers, and non-bank trustees, on average, one hour to prepare the 
statement. This results in an hour burden of 9,474 hours with an 
equivalent cost of $1,569,868.\78\
---------------------------------------------------------------------------

    \78\ The burden is estimated as: [(1,920 broker-dealers + 16,398 
registered investment advisers) x (30 minutes / 60 minutes hours)] + 
[(84 insurers + 200 robo-advisers + 31 non-bank trustees) x hour] = 
9,474 hours. A labor rate of $165.71 is used for a legal 
professional. The labor rate is applied in the following 
calculation: 9,474 burden hours x $165.71 = $1,569,868. Due to 
rounding values may not sum.

    Table 3--Hour Burden and Equivalent Cost Associated With the Statement of the Care and Loyalty Obligation
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................           9,474      $1,569,868               0              $0
                                                 ---------------------------------------------------------------
    Total.......................................           9,474       1,569,868               0               0
----------------------------------------------------------------------------------------------------------------

Relationship and Conflict of Interest Disclosure

    The rulemaking also revises on the existing requirement for a 
written description of the services provided to also require a 
statement on whether the Retirement Investor would pay for such 
services, directly or indirectly, including through third-party 
payments. This disclosure is consistent with the disclosure 
requirements under Regulation Best Interest. Accordingly, the 
Department expects that retail broker-dealers will not incur a cost to 
satisfy this requirement.
    For all other Financial Institutions which relied on the existing 
exemption (i.e. 70 percent of non-retail broker-dealers, registered 
investment advisers, and insurance companies), the Department assumes 
it will take a legal professional 30 minutes to update existing 
disclosures to include this information. Robo-advisers, non-bank 
trustees, and newly reliant non-retail broker-dealers, registered 
investment advisers, and insurance companies will need to draft the 
Relationship and Conflict of Interest disclosure, which the Department 
estimates will take a legal professional at a large institution five 
hours and a legal professional at a small institution one hour, on 
average, to prepare such a draft.\79\ This results in an estimated hour 
burden of 28,738 hours with an equivalent cost of $4,762,239.\80\
---------------------------------------------------------------------------

    \79\ The Department estimates that 10 robo-advisers and 31 non-
bank trustees are considered small entities.
    \80\ The number of Financial Institutions needing to update 
their written description of services to comply with the 
Relationship and Conflict of Interest disclosure is estimated as: 84 
insurers + ((16,398 registered investment advisers + 600 non-retail 
broker-dealers) x (100%-30%)) = 11,983 Financial Institutions 
updating existing disclosures. The number of Financial Institutions 
needing to draft their Relationship and Conflict of Interest 
disclosure is estimated as: (200 robo-advisers + 31 non-bank 
trustees) + ((600 non-retail broker-dealers + 16,398 registered 
investment advisers) x 30%) = 5,330 Financial Institutions drafting 
new disclosures. Of these entities, there are 976 small entities and 
4,354 large entities. The hours burden is calculated as: ((11,563 
entities updating x 30 minutes) + ((976small entities drafting x 1 
hour) + (4,354 large entities drafting x 5 hours)) = 28,738 burden 
hours. The labor rate is applied as: 28,738 burden hours x $165.71 = 
$4,762,239. Due to rounding values may not sum.

[[Page 32290]]



  Table 4--Hour Burden and Equivalent Cost Associated With the Relationship and Conflict of Interest Disclosure
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................          28,738      $4,762,239               0              $0
                                                 ---------------------------------------------------------------
    Total.......................................          28,738       4,762,239               0               0
----------------------------------------------------------------------------------------------------------------

1.3.2 Costs Associated With the Provision of Relationship and Conflict 
of Interest Disclosures

    As discussed above, the Department estimates that 96.1 percent of 
the disclosures sent to Retirement Investors will be sent 
electronically and that approximately 72 percent of IRA owners will 
receive disclosures electronically.
    The Department estimates that approximately 44.6 million Plan 
participants and 67.8 million IRA owners will receive disclosures 
annually, of which, 20.9 million (1.7 million Retirement Investors and 
19.1 million IRA owners) will receive paper disclosures.\81\ The 
Department estimates that preparing and sending each disclosure would 
take a clerical worker, on average, five minutes, resulting in an hour 
burden of 1,737,781 hours with an equivalent cost of $114,676,201.\82\
---------------------------------------------------------------------------

    \81\ This is estimated as (44,593,228 x 3.9%) + (67,781,000 x 
28.2%) = 20,853,378 paper disclosures. Due to rounding values may 
not sum.
    \82\ This burden is estimated as: [(20,853,378 disclosures x (5 
minutes / 60 minutes hours)] = 1,737,781 hours. The labor cost is 
estimated as: [(20,853,378 disclosures x (5 minutes / 60 minutes 
hours)] x $65.99 = $114,676,201. Due to rounding values may not sum.

              Table 5--Hour Burden and Equivalent Cost Associated Preparing and Sending Disclosures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Clerical........................................       1,737,781    $114,676,201       1,737,781    $114,676,201
                                                 ---------------------------------------------------------------
    Total.......................................       1,737,781     114,676,201       1,737,781     114,676,201
----------------------------------------------------------------------------------------------------------------

    The Department assumes that the disclosures would require four 
pages in total, resulting in a material and postage cost of 
$18,350,973.\83\
---------------------------------------------------------------------------

    \83\ The material and postage cost is estimated as: (20,853,378 
disclosures x 4 pages x $0.05) + (20,853,378 disclosures x $0.68 
postage) = $18,350,973. Due to rounding values may not sum.

                     Table 6--Material and Postage Cost Associated With Sending Disclosures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                    Activity                     ---------------------------------------------------------------
                                                       Pages           Cost            Pages           Cost
----------------------------------------------------------------------------------------------------------------
Material Cost...................................               4     $18,350,973               4     $18,350,973
                                                 ---------------------------------------------------------------
    Total.......................................               4      18,350,973               4      18,350,973
----------------------------------------------------------------------------------------------------------------

1.3.3 Costs Associated With the Rollover Disclosures

    The proposal proposed requiring disclosures for all rollovers, 
including those from plans to IRAs, from IRAs to other IRAs and from 
plans to plans. In the Final Amendment, the rollover disclosure will 
only be required for rollovers from a Plan that is covered by Title I, 
or recommendation to a Plan participant or beneficiary as to the post-
rollover investment of assets currently held in a Plan that is covered 
by Title I. According to Cerulli Associates, in 2022, almost 4.5 
million defined contribution (DC) plan accounts with $779 billion in 
assets were rolled over to an IRA.\84\
---------------------------------------------------------------------------

    \84\ According to Cerulli, in 2022, there were 4,485,059 DC 
plan-to-IRA rollovers and 707,104 DC plan-to-DC plan rollovers. (See 
Cerulli Associates, U.S. Retirement End-Investor 2023: Personalizing 
the 401(k) Investor Experience, Exhibit 6.02. The Cerulli Report.) 
These account estimates may include health savings accounts, Archer 
medical savings accounts, or Coverdell education savings accounts.
---------------------------------------------------------------------------

    As a best practice, the SEC already encourages firms to record the 
basis for significant investment decisions, such as rollovers, although 
doing so is not required under Regulation Best Interest or the Advisers 
Act. In addition, some firms may voluntarily document significant 
investment decisions to demonstrate compliance with applicable law, 
even if not required. SIFMA commissioned Deloitte to conduct a survey 
of its member firms to learn how they expected to implement Regulation 
Best Interest. The survey was conducted by December 31, 2019, prior to 
Regulation Best Interest's effective date of June 30, 2020. Just over 
half (52 percent) of the broker-dealers surveyed indicated they will 
require their financial advisers to provide the rationale documentation 
for rollover recommendations.\85\
---------------------------------------------------------------------------

    \85\ Deloitte, Regulation Best Interest: How Wealth Management 
Firms are Implementing the Rule Package, Deloitte, (Mar. 6, 2020).
---------------------------------------------------------------------------

    The Department estimates that documenting each rollover

[[Page 32291]]

recommendation will require 30 minutes for a personal financial adviser 
whose firms currently do not require rollover documentations and five 
minutes for financial advisers whose firms already require them to do 
so. This results in a labor cost estimate of $142.0 million.\86\
---------------------------------------------------------------------------

    \86\ The burden is estimated as: (4,485,059 rollovers x 48% x 
49% x (30 minutes / 60 minutes hours)) + (4,485,059 rollovers x 52% 
x 49% x (5 minutes / 60 minutes hours)) = 622,676 hours. A labor 
rate of $228.00 is used for a personal financial adviser. The labor 
rate is applied in the following calculation: 622,676 burden hours x 
$228.00 = $141,970,058. Due to rounding values may not sum.

               Table 7--Hour Burden and Equivalent Cost Associated With the Rollover Documentation
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Financial Adviser...............................         622,676    $141,970,058         622,676    $141,970,058
                                                 ---------------------------------------------------------------
    Total.......................................         622,676     141,970,058         622,676     141,970,058
----------------------------------------------------------------------------------------------------------------

    These rollover disclosures are expected to be two pages in length 
and accompany other documentation associated with the transactions at 
no additional postage cost. The materials cost is estimated as $0.05 
per page, totaling $8,571 annually.\87\
---------------------------------------------------------------------------

    \87\ The material and postage cost is estimated as: (4,485,059 
rollovers x 49% involving advice x 3.9% disclosures mailed x $0.05 
per page x 2 pages = $8,571. Note, the total values may not equal 
the sum of the parts due to rounding.

                   Table 8--Material and Postage Cost Associated With the Rollover Disclosure
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                    Activity                     ---------------------------------------------------------------
                                                       Pages           Cost            Pages           Cost
----------------------------------------------------------------------------------------------------------------
Material Cost...................................               2          $8,571               2          $8,571
                                                 ---------------------------------------------------------------
    Total.......................................               2           8,571               2           8,571
----------------------------------------------------------------------------------------------------------------

1.4 Costs Associated With Annual Report of Retrospective Review

    PTE 2020-02 currently requires Financial Institutions to conduct a 
retrospective review at least annually that is reasonably designed to 
prevent violations of, and achieve compliance with, the conditions of 
this exemption, the Impartial Conduct Standards, and the policies and 
procedures governing compliance with the exemption. The retrospective 
review must include a discussion of any self-corrections of violations.
    Many of the entities affected by PTE 2020-02 likely already have 
retrospective review requirements. Broker-dealers are subject to 
similar annual review and certification requirements under FINRA Rule 
3110,\88\ FINRA Rule 3120,\89\ and FINRA Rule 3130; \90\ SEC-registered 
investment advisers are already subject to retrospective review 
requirements under SEC Rule 206(4)-7; and insurance companies in many 
states are already subject to state insurance law based on the NAIC 
Model Regulation.\91\ Accordingly, in this analysis, the Department 
assumes that these entities will incur minimal costs to meet this 
requirement.
---------------------------------------------------------------------------

    \88\ Rule 3110. Supervision, FINRA Manual, https://www.finra.org/rules-guidance/rulebooks/finra-rules/3110.
    \89\ Rule 3120. Supervisory Control System, FINRA Manual, 
https://www.finra.org/rules-guidance/rulebooks/finra-rules/3120.
    \90\ Rule 3130. Annual Certification of Compliance and 
Supervisory Processes, FINRA Manual, https://www.finra.org/rules-guidance/rulebooks/finra-rules/3130.
    \91\ NAIC Model Regulation, Section 6.C.(2)(i) (The same 
requirement is found in the NAIC Suitability in Annuity Transactions 
Model Regulation (2010), Section 6.F.(1)(f).)
---------------------------------------------------------------------------

    In 2018, the Investment Adviser Association estimated that 92 
percent of SEC-registered investment advisers voluntarily provide an 
annual compliance program review report to senior management.\92\ The 
Department assumes that State-registered investment advisers exhibit 
similar retrospective review patterns as SEC-registered investment 
advisers. Accordingly, the Department estimates that eight percent, or 
1,312 investment advisers advising retirement plans will incur costs 
associated with producing a retrospective review report.
---------------------------------------------------------------------------

    \92\ 2018 Investment Management Compliance Testing Survey, 
Investment Adviser Association (Jun. 14, 2018), https://higherlogicdownload.s3.amazonaws.com/INVESTMENTADVISER/aa03843e-7981-46b2-aa49-c572f2ddb7e8/UploadedImages/publications/2018-Investment-Management_Compliance-Testing-Survey-Results-Webcast_pptx.pdf.
---------------------------------------------------------------------------

    The Department assumes that only 0.8 percent of registered 
investment advisers and ten percent of all other Financial Institutions 
will incur the total costs of producing the retrospective review 
report. This is estimated to take a legal professional five hours for 
small firms and 10 hours for large firms. This results in an annual 
hour burden of 3,156 hours and an equivalent cost burden of 
$522,907.\93\
---------------------------------------------------------------------------

    \93\ The burden is estimated as: [(431 small broker-dealers + 
(2,989 small registered-investment advisers x 8%) + 71 small 
insurers + 10 small robo-advisers + 30 small non-bank trustees) x 
10% x 5 hours] + [(1,489 large broker-dealers + (13,409 large 
registered-investment advisers x 8%) + 13 large insurers + 190 large 
robo-advisers + 1 large non-bank trustee) x 10% x 10 hours] = 3,156 
hours. The equivalent cost is estimated as: {[(431 small broker-
dealers + (2,989 small registered-investment advisers x 8%) + 71 
small insurers + 10 small robo-advisers + 30 small non-bank 
trustees) x 10% x 5 hours] + [(1,489 large broker-dealers + (13,409 
large registered-investment advisers x 8%) + 13 large insurers + 190 
large robo-advisers + 1 large non-bank trustee) x 10% x 10 
hours]{time}  x $165.71 = $522,907.
---------------------------------------------------------------------------

    Financial Institutions that already produce retrospective review 
reports voluntarily or in accordance with other regulators' rules 
likely will spend additional time to fully comply with this exemption 
condition such as revising their current retrospective review reports. 
This is estimated to take a financial professional one hour for small 
firms and two hours for large firms. This results in an annual hour

[[Page 32292]]

burden of 33,103 hours and an equivalent cost burden of $5,485,436.\94\
---------------------------------------------------------------------------

    \94\ The burden is estimated as: [(431 small broker-dealers + 
(2,989 small registered-investment advisers x 8%) + 71 small 
insurers + 10 small robo-advisers + 30 small non-bank trustees) x 
90% x 2 hours] + [(1,489 large broker-dealers + (13,409 large 
registered-investment advisers x 8%) + 13 large insurers + 190 large 
robo-advisers + 1 large non-bank trustee)) x 90% x 4 hours] = 33,103 
hours. The equivalent cost is estimated as: {[(431 small broker-
dealers + (2,989 small registered-investment advisers x 8%) + 71 
small insurers + 10 small robo-advisers + 30 small non-bank 
trustees) x 90% x 2 hours] + [(1,489 large broker-dealers + (13,409 
large registered-investment advisers x 8%) + 13 large insurers + 190 
large robo-advisers + 1 large non-bank trustee)) x 90% x 4 
hours]{time}  x $165.71 = $5,485,436.
---------------------------------------------------------------------------

    In addition to conducting the audit and producing a report, 
Financial Institutions also will need to review the report and certify 
the exemption. This is estimated to take the certifying officer two 
hours for small firms and four hours for large firms. This results in 
an hour burden of 67,467 and an equivalent cost burden of 
$13,375,426.\95\
---------------------------------------------------------------------------

    \95\ The burden is estimated as: [(431 small broker-dealers + 
(2,989 small registered-investment advisers x 8%) + 71 small 
insurers + 10 small robo-advisers + 30 small non-bank trustees) x 2 
hours] + [(1,488 large broker-dealers + (13,409 large registered-
investment advisers x 8%) + 13 large insurers + 190 large robo-
advisers + 1 large non-bank trustee)) x 4 hours] = 67,467 hours. The 
equivalent cost is estimated as: {[(431 small broker-dealers + 
(2,989 small registered-investment advisers x 8%) + 71 small 
insurers + 10 small robo-advisers + 30 small non-bank trustees) x 2 
hours] + [(1,489 large broker-dealers + (13,409 large registered-
investment advisers x 8%) + 13 large insurers + 190 large robo-
advisers + 1 large non-bank trustee)) x 4 hours]{time}  x $198.25 = 
$13,375,426.

               Table 10--Hour Burden and Equivalent Cost Associated With the Retrospective Review
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................          36,258      $6,008,343          36,258      $6,008,343
Senior Executive Staff..........................          67,467      13,375,426          67,467      13,375,426
                                                 ---------------------------------------------------------------
    Total.......................................         103,726      19,383,769         103,726      19,383,769
----------------------------------------------------------------------------------------------------------------

1.5 Costs Associated With Written Policies and Procedures

    Under the original exemption, Financial Institutions were already 
required to maintain their policies and procedures. Financial 
Institutions who are not covered under the existing exemption may need 
to develop policies and procedures. The Department estimates that, for 
entities newly reliant upon PTE 2020-02 due to this rulemaking, this 
requirement will take legal professionals 40 hours at a large firm and 
20 hours at a small firm in the first year.\96\ Retail broker-dealers 
and all registered investment advisors should have policies and 
procedures in place to satisfy other regulators that can be amended to 
comply with this rulemaking. The Department estimates it will take 10 
hours for small firms and 20 hours for large firms to amend their 
policies and procedures. The Department estimates the requirement to 
result in an hour burden of 111,864 with an equivalent cost of 
$18,536,977 in the first year.\97\
---------------------------------------------------------------------------

    \96\ The Department estimates that 3,531 entities, consisting of 
302 retail broker-dealers, 129 non-Retail broker-dealers, 85 SEC-
registered Retail registered investment advisers, 144 SEC-registered 
non-Retail registered investment advisers, 2,192 state registered 
Retail registered investment advisers, 568 state registered Non-
Retail registered investment advisers, 71 insurers and insurance 
agents, 10 robo-advisers, and 31 non-bank trustees, are considered 
small entities.
    \97\ The burden is estimated as follows: [(302 small retail 
broker-dealers + 85 small SEC-registered retail registered 
investment advisers + 144 small SEC-registered non-retail registered 
investment advisers + 2,192 small state registered retail registered 
investment advisers + 568 small state registered non-retail 
registered investment advisers) x 30% newly reliant on the PTE x 10 
hours] + {[(1,018 large retail broker-dealers + 129 small non-retail 
broker-dealers + 4,859 large SEC-registered retail registered 
investment advisers + 2,947 large SEC-registered non-retail 
registered investment advisers + 4,450 large state registered retail 
registered investment advisers + 1,153 large state registered non-
retail registered investment advisers + 71 insurers) x 30% newly 
reliant on the PTE] + (10 small robo-advisers + 30 small non-bank 
trustees) x 20 hours{time}  + {[(471 large non-retail broker-dealers 
+ 13 large insurers) x 30% newly reliant on the PTE] + 190 large 
robo-advisers + 1 large non-bank trustee) x 40 hours]{time}  = 
111,864 hours. The labor rate is applied in the following 
calculation: 111,864 burden hours x $165.71 = $18,536,977. Note, the 
total values may not equal the sum of the parts due to rounding.

          Table 11--Hour Burden and Equivalent Cost Associated With Developing Policies and Procedures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................         111,864     $18,536,977               0              $0
                                                 ---------------------------------------------------------------
    Total.......................................         111,864      18,536,977               0               0
----------------------------------------------------------------------------------------------------------------


[[Page 32293]]

    The Final Amendment requires Financial Institutions to review 
policies and procedures at least annually and to update them as needed 
to ensure they remain prudently designed, effective, and current. This 
includes a requirement to update and modify the policies and 
procedures, as appropriate, after considering the findings in the 
retrospective review report. For entities currently covered by PTE 
2020-02, the Department estimates that it will take a legal 
professional an additional five hours for all entities covered under 
the existing and amended exemption. The Department expects that in the 
first year, only entities already reliant on PTE 2020-02 will satisfy 
this requirement but all entities will be required to satisfy it in 
subsequent years. The Department estimates this will result an 
estimated first year hour burden of 65,559 with an equivalent cost of 
$10,863,864. In subsequent years, this will result in an annual hour 
burden of 93,161 hours with an equivalent cost of $15,437,780 in 
subsequent years.\98\
---------------------------------------------------------------------------

    \98\ The burden is estimated as follows: The first-year cost of 
updating policies and procedures for plans that currently have 
policies & procedures: [(302 small Retail broker-dealers + 85 small 
SEC-registered Retail registered investment advisers + 144 small 
SEC-registered non-retail registered investment advisers + 2,192 
small state registered retail registered investment advisers + 568 
small state registered non-retail registered investment advisers) x 
30% newly reliant on the PTE xx 10 hours] + {[(1,018 large Retail 
broker-dealers + 129 small Non-Retail broker-dealers + 4,859 large 
SEC-registered Retail registered investment advisers + 2,947 large 
SEC-registered Non-Retail registered investment advisers + 4,450 
large state registered Retail registered investment advisers + 1,153 
large state registered non-retail registered investment advisers + 
71 insurers) x 30% newly reliant on the PTE] + (10 small robo-
adviser) x 20 hours{time}  + {[(471 large Non-Retail broker-dealers 
+ 13 large insurers) x 70% already reliant on the PTE] + 190 large 
robo-advisers) = 14,143 entities x 5 hours = 65,559 hours. The labor 
rate is applied in the following calculation: 65,559 hours x $165.71 
= $10,863,864. In subsequent years the cost of updating is 
calculated as: (All 18,632 affected entities x 5 hours) = 93,161 
burden hours. The labor rate is applied in the following 
calculation: 93,161 burden hours x $165.71 burden hours = 
$15,437,780. Note, the total values may not equal the sum of the 
parts due to rounding.

    Table 12--Hour Burden and Equivalent Cost Associated With Reviewing and Updating Policies and Procedures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................          65,559     $10,863,864          93,161     $15,437,780
                                                 ---------------------------------------------------------------
    Total.......................................          65,559      10,863,864          93,161      15,437,780
----------------------------------------------------------------------------------------------------------------

    The amendments will require Financial Institutions to provide their 
complete policies and procedures to the Department upon request. Based 
on the number of cases in the past and current open cases that would 
merit such a request, the Department estimates that the Department 
would request 165 policies and procedures in the first year and 50 
policies and procedures in subsequent years. The Department estimates 
that it will take a clerical worker 15 minutes to prepare and send 
their complete policies and procedures to the Department resulting in 
an hourly burden of approximately 41 hours in the first year, with an 
equivalent cost of $2,722.\99\ In subsequent years, the Department 
estimates that the requirement would result in an hour burden of 
approximately 13 hours with an equivalent cost of $825.\100\ The 
Department assumes Financial Institutions would send the documents 
electronically and thus would not incur costs for postage or materials.
---------------------------------------------------------------------------

    \99\ The burden is estimated as: (165 x (15 minutes / 60 minutes 
hours)) = 41 hours. A labor rate of $65.99 is used for a clerical 
worker. The labor rate is applied in the following calculation: (165 
x (15 minutes / 60 minutes hours)) x $65.99 = $2,722. Note, the 
total values may not equal the sum of the parts due to rounding.
    \100\ The burden is estimated as: (50 x (15 minutes / 60 minutes 
hours)) = 13 hours. A labor rate of $65.99 is used for a clerical 
worker. The labor rate is applied in the following calculation: (50 
x (15 minutes / 60 minutes hours)) x $65.99 = $825. Note, the total 
values may not equal the sum of the parts due to rounding.

  Table 13--Hour Burden and Equivalent Cost Associated With Providing Policies and Procedures to the Department
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Clerical........................................              41          $2,722              13            $825
                                                 ---------------------------------------------------------------
    Total.......................................              41           2,722              13             825
----------------------------------------------------------------------------------------------------------------

1.6 Overall Summary

    The paperwork burden estimates are summarized as follows:
    Type of Review: Revision of an existing collection.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Fiduciary Transaction Exemption.
    OMB Control Number: 1210-0163.
    Affected Public: Business or other for-profit institution.
    Estimated Number of Respondents: 18,632.
    Estimated Number of Annual Responses: 114,609,171.
    Frequency of Response: Initially, Annually, and when engaging in 
exempted transaction.
    Estimated Total Annual Burden Hours: 2,599,221.
    Estimated Total Annual Burden Cost: $18,359,543.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \101\ imposes certain 
requirements on rules subject to the notice and comment requirements of 
section 553(b)

[[Page 32294]]

of the Administrative Procedure Act or any other law.\102\ Under 
section 604 of the RFA, agencies must submit a final regulatory 
flexibility analysis (FRFA) of a final rulemaking that is likely to 
have a significant economic impact on a substantial number of small 
entities, such as small businesses, organizations, and governmental 
jurisdictions. This amended exemption, along with related amended 
exemptions and a rule amendment published elsewhere in this issue of 
the Federal Register, is part of a rulemaking regarding the definition 
of fiduciary investment advice, which the Department has determined 
likely will have a significant economic impact on a substantial number 
of small entities. The impact of this amendment on small entities is 
included in the FRFA for the entire project, which can be found in the 
related notice of rulemaking found elsewhere in this edition of the 
Federal Register.
---------------------------------------------------------------------------

    \101\ 5 U.S.C. 601 et seq.
    \102\ 5 U.S.C. 601(2), 603(a); see 5 U.S.C. 551.
---------------------------------------------------------------------------

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 \103\ requires 
each Federal agency to prepare a written statement assessing the 
effects of any Federal mandate in a final rule that may result in an 
expenditure of $100 million or more (adjusted annually for inflation 
with the base year 1995) in any 1 year by state, local, and tribal 
governments, in the aggregate, or by the private sector.
---------------------------------------------------------------------------

    \103\ Public Law 104-4, 109 Stat. 48 (Mar. 22, 1995).
---------------------------------------------------------------------------

    For purposes of the Unfunded Mandates Reform Act, this exemption is 
expected to have an impact on the private sector. For the purposes of 
the exemption the regulatory impact analysis published with the final 
rule shall meet the UMRA obligations.

Federalism Statement

    Executive Order 13132 outlines fundamental principles of 
federalism. It also requires Federal agencies to adhere to specific 
criteria in formulating and implementing policies that have 
``substantial direct effects'' on the states, the relationship between 
the national government and states, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have these federalism 
implications must consult with State and local officials and describe 
the extent of their consultation and the nature of the concerns of 
State and local officials in the preamble to the final Regulation. 
Notwithstanding this, Section 514 of ERISA provides, with certain 
exceptions specifically enumerated, that the provisions of Titles I and 
IV of ERISA supersede any and all laws of the States as they relate to 
any employee benefit plan covered under ERISA.
    The Department has carefully considered the regulatory landscape in 
the states and worked to ensure that its regulations would not impose 
obligations on impacted industries that are inconsistent with their 
responsibilities under state law, including the obligations imposed in 
states that based their laws on the NAIC Model Regulation. Nor would 
these regulations impose obligations or costs on the state regulators. 
As discussed more fully in the final Regulation and in the preamble to 
PTE 84-24, there is a long history of shared regulation of insurance 
between the States and the Federal government. The Supreme Court 
addressed this issue and held that ``ERISA leaves room for 
complementary or dual federal or state regulation'' of insurance.\104\ 
The Department designed the final Regulation and exemptions to 
complement State insurance laws.\105\
---------------------------------------------------------------------------

    \104\ See John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. 
Bank, 510 U.S. 86, 98 (1993).
    \105\ See BancOklahoma Mortg. Corp. v. Capital Title Co., Inc., 
194 F.3d 1089 (10th Cir. 1999) (stating that McCarran-Ferguson Act 
bars the application of a Federal statute only if (1) the Federal 
statute does not specifically relate to the business of insurance; 
(2) a State statute has been enacted for the purpose of regulating 
the business of insurance; and (3) the Federal statute would 
invalidate, impair, or supersede the State statute); Prescott 
Architects, Inc. v. Lexington Ins. Co., 638 F. Supp. 2d 1317 (N.D. 
Fla. 2009); see also U.S. v. Rhode Island Insurers' Insolvency Fund, 
80 F.3d 616 (1st Cir. 1996). The Supreme Court has held that to 
``impair'' a State law is to hinder its operation or ``frustrate [a] 
goal of that law.'' Humana Inc. V. Forsyth, 525 U.S. 299, 308 
(1999).
---------------------------------------------------------------------------

    The Department does not intend this exemption to change the scope 
or effect of ERISA section 514, including the savings clause in ERISA 
section 514(b)(2)(A) for State regulation of securities, banking, or 
insurance laws. Ultimately, the Department does not believe this class 
exemption has federalism implications because it has no substantial 
direct effect on the States, on the relationship between the National 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under ERISA section 408(a) and/or Code section 4975(c)(2) does not 
relieve a fiduciary, or other Party in Interest with respect to a Plan 
or IRA, from certain other provisions of ERISA and the Code, including 
but not limited to any prohibited transaction provisions to which the 
exemption does not apply and the general fiduciary responsibility 
provisions of ERISA section 404 which require, among other things, that 
a fiduciary act prudently and discharge their duties respecting the 
Plan solely in the interests of the participants and beneficiaries of 
the Plan. Additionally, the fact that a transaction is the subject of 
an exemption does not affect the 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;
    (2) In accordance with ERISA section 408(a) and Code section 
4975(c)(2), and based on the entire record, the Department finds that 
this exemption is administratively feasible, in the interests of Plans, 
their participants and beneficiaries, and IRA owners, and protective of 
the rights of participants and beneficiaries of the Plan and IRA 
owners;
    (3) The Final Amendment is applicable to a particular transaction 
only if the transaction satisfies the conditions specified in the 
exemption; and
    (4) The Final Amendment is supplemental to, and not in derogation 
of, any other provisions of ERISA and the Code, including statutory or 
administrative exemptions and transitional rules. Furthermore, the fact 
that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction.
    The Department is granting the following amendment on its own 
motion, pursuant to its authority under ERISA section 408(a) and Code 
section 4975(c)(2) and in accordance with procedures set forth in 29 
CFR part 2570, subpart B (76 FR 66637 (October 27, 2011)).\106\
---------------------------------------------------------------------------

    \106\ Reorganization Plan No. 4 of 1978 (5 U.S.C. App. 1 (2018)) 
generally transferred the authority of the Secretary of the Treasury 
to grant administrative exemptions under Code section 4975 to the 
Secretary of Labor. Procedures Governing the Filing and Processing 
of Prohibited Transaction Exemption Applications were amended 
effective April 8, 2024 (29 CFR part 2570, subpart B (89 FR 4662 
(January 24, 2024)).
---------------------------------------------------------------------------

Prohibited Transaction Exemption 2020-02, Improving Investment Advice 
for Workers & Retirees

Section I--Transactions

(a) In General
    ERISA Title I (Title I) and the Internal Revenue Code (the Code) 
prohibit

[[Page 32295]]

fiduciaries, as defined therein, that provide investment advice to 
Plans and individual retirement accounts (IRAs) from receiving 
compensation that varies based on their investment advice and 
compensation that is paid from third parties. Title I and the Code also 
prohibit fiduciaries from engaging in purchases and sales with Plans or 
IRAs on behalf of their own accounts (principal transactions). This 
exemption permits Financial Institutions and Investment Professionals 
who comply with the exemption's conditions to receive otherwise 
prohibited compensation when providing fiduciary investment advice to 
Retirement Investors and engaging in principal transactions with 
Retirement Investors, as described below.
    Specifically, this exemption provides relief from the prohibitions 
of ERISA section 406(a)(1)(A), (D), and 406(b), and the sanctions 
imposed by Code section 4975(a) and (b), by reason of Code section 
4975(c)(1)(A), (D), (E), and (F), to Financial Institutions and 
Investment Professionals that provide fiduciary investment advice and 
engage in the conditions described in Section I, in accordance with the 
conditions set forth in Section II and are eligible pursuant to Section 
III, subject to the definitional terms and recordkeeping requirements 
in Sections IV and V. This exemption is available to allow Financial 
Institutions and Investment Professionals to receive reasonable 
compensation for recommending a broad range of investment products to 
Retirement Investors, including insurance and annuity products.
(b) Covered Transactions
    This exemption permits Financial Institutions and Investment 
Professionals, and their Affiliates and Related Entities, to engage in 
the following transactions, including as part of a rollover, as a 
result of the provision of investment advice within the meaning of 
ERISA section 3(21)(A)(ii) and Code section 4975(e)(3)(B) and 
regulations thereunder:
    (1) The receipt, directly or indirectly, of reasonable 
compensation; and
    (2) The purchase or sale of an investment product to or from a 
Retirement Investor, and the receipt of payment, including a mark-up or 
mark-down.
(c) Exclusions
    This exemption is not available if:
    (1) The Plan is covered by Title I of ERISA and the Investment 
Professional, Financial Institution, or any Affiliate is:
    (A) the employer of employees covered by the Plan, or
    (B) the Plan's named fiduciary or administrator; provided, however, 
that a named fiduciary or administrator or their Affiliate, including a 
Pooled Plan Provider (PPP) registered with the Department of Labor 
under 29 CFR 2510.3-44, may rely on the exemption if it is selected to 
provide investment advice by a fiduciary who is Independent of the 
Financial Institution, Investment Professional, and their Affiliates; 
or
    (2) The transaction involves the Investment Professional or 
Financial Institution acting in a fiduciary capacity other than as an 
investment advice fiduciary within the meaning of ERISA section 
3(21)(A)(ii)) and Code section 4975(e)(3)(B) and regulations 
thereunder.

Section II--Investment Advice Arrangement

    Section II(a) requires Investment Professionals and Financial 
Institutions to comply with Impartial Conduct Standards, including a 
Care Obligation and Loyalty Obligation, when providing fiduciary 
investment advice to Retirement Investors. Section II(b) requires 
Financial Institutions to acknowledge fiduciary status under Title I 
and/or the Code, and provide Retirement Investors with a written 
statement of the Care Obligation and Loyalty Obligation, a written 
description of the services they will provide and all material facts 
relating to Conflicts of Interest that are associated with their 
recommendations, and a rollover disclosure (if applicable). Section 
II(c) requires Financial Institutions to adopt policies and procedures 
prudently designed to ensure compliance with the Impartial Conduct 
Standards and other conditions of this exemption. Section II(d) 
requires the Financial Institution to conduct a retrospective review, 
at least annually, that is reasonably designed to detect and prevent 
violations of, and achieve compliance with, the Impartial Conduct 
Standards and the terms of this exemption. Section II(e) allows 
Financial Institutions to correct certain violations of the exemption 
conditions and continue to rely on the exemption for relief.
(a) Impartial Conduct Standards
    The Financial Institution and Investment Professional must comply 
with the following ``Impartial Conduct Standards'':
    (1) Investment advice must, at the time it is provided, satisfy the 
Care Obligation and Loyalty Obligation. As defined in Section V(b), to 
meet the Care Obligation, advice must reflect 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 use in the conduct of an enterprise of a like character and with 
like aims, based on the investment objectives, risk tolerance, 
financial circumstances, and needs of the Retirement Investor. As 
defined in Section V(h), to meet the Loyalty Obligation, the advice 
must not place the financial or other interests of the Investment 
Professional, Financial Institution or any Affiliate, Related Entity, 
or other party ahead of the interests of the Retirement Investor or 
subordinate the Retirement Investor's interests to their own. For 
example, in choosing between two commission-based investments offered 
and available to the Retirement Investor on a Financial Institution's 
product menu, it would be impermissible for the Investment Professional 
to recommend the investment that is worse for the Retirement Investor 
but better or more profitable for the Investment Professional or the 
Financial Institution. Similarly, in recommending whether a Retirement 
Investor should pursue a particular investment strategy through a 
brokerage or advisory account, the Investment Professional must base 
the recommendation on the Retirement Investor's financial interests, 
rather than any competing financial interests of the Investment 
Professional. For example, an Investment Professional generally could 
not recommend that the Retirement Investor enter into an arrangement 
requiring the Retirement Investor to pay an ongoing advisory fee to the 
Investment Professional, if the Retirement Investor's interests were 
better served by the payment of a one-time commission to buy and hold a 
long-term investment. In making recommendations as to account type, it 
is important for the Investment Professional to ensure that the 
recommendation carefully considers the reasonably expected total costs 
over time to the Retirement Investor, and that the Investment 
Professional base its recommendations on the financial interests of the 
Retirement Investor and avoid subordinating those interests to the 
Investment Professional's competing financial interests.
    (2)(A) The compensation received, directly or indirectly, by the 
Financial Institution, Investment Professional, their Affiliates and 
Related Entities for their services must not exceed reasonable 
compensation within the meaning of ERISA section 408(b)(2) and Code 
section 4975(d)(2); and (B) as required by the Federal securities laws,

[[Page 32296]]

the Financial Institution and Investment Professional must seek to 
obtain the best execution of the investment transaction reasonably 
available under the circumstances; and
    (3) The Financial Institution's and its Investment Professionals' 
statements to the Retirement Investor (whether written or oral) about 
the recommended transaction and other relevant matters must not be 
materially misleading at the time statements are made. For purposes of 
this paragraph, the term ``materially misleading'' includes omitting 
information that is needed to prevent the statement from being 
misleading to the Retirement Investor under the circumstances.
(b) Disclosure
    At or before the time a covered transaction occurs, as described in 
Section I(b) of this exemption, the Financial Institution must provide, 
in writing, the disclosures set forth in paragraphs (1)-(4) below to 
the Retirement Investor. For purposes of the disclosures required by 
Section II(b)(1)-(4), the Financial Institution or Investment 
Professional is deemed to engage in a covered transaction on the later 
of (A) the date the recommendation is made or (B) the date the 
Financial Institution or Investment Professional becomes entitled to 
compensation (whether now or in the future) by reason of making the 
recommendation.
    (1) A written acknowledgment that the Financial Institution and its 
Investment Professionals are providing fiduciary investment advice to 
the Retirement Investor and are fiduciaries under Title I of ERISA, 
Title II of ERISA, or both with respect to the recommendation;
    (2) A written statement of the Care Obligation and Loyalty 
Obligation, described in Section II(a), that is owed by the Investment 
Professional and Financial Institution to the Retirement Investor;
    (3) All material facts relating to the scope and terms of the 
relationship with the Retirement Investor, including:
    (A) The material fees and costs that apply to the Retirement 
Investor's transactions, holdings, and accounts; and
    (B) The type and scope of services provided to the Retirement 
Investor, including any material limitations on the recommendations 
that may be made to them; and
    (4) All material facts relating to Conflicts of Interest that are 
associated with the recommendation.
    (5) Rollover disclosure. Before engaging in or recommending that a 
Retirement Investor engage in a rollover from a Plan that is covered by 
Title I of ERISA, or making a recommendation to a Plan participant or 
beneficiary as to the post-rollover investment of assets currently held 
in a Plan that is covered by Title I of ERISA, the Financial 
Institution and Investment Professional must consider and document the 
bases for their recommendation to engage in the rollover, and must 
provide that documentation to the Retirement Investor. Relevant factors 
to consider must include, to the extent applicable, but in any event 
are not limited to:
    (A) the alternatives to a rollover, including leaving the money in 
the Plan, if applicable;
    (B) the fees and expenses associated with the Plan and the 
recommended investment or account;
    (C) whether an employer or other party pays for some or all of the 
Plan's administrative expenses; and
    (D) the different levels of services and investments available 
under the Plan and the recommended investment or account.
    (6) The Financial Institution will not fail to satisfy the 
conditions in Section II(b) solely because it, acting in good faith and 
with reasonable diligence, makes an error or omission in disclosing the 
required information, provided that the Financial Institution discloses 
the correct information as soon as practicable, but not later than 30 
days after the date on which it discovers or reasonably should have 
discovered the error or omission.
    (7) Investment Professionals and Financial Institutions may rely in 
good faith on information and assurances from the other entities that 
are not Affiliates as long as they do not know or have reason to know 
that such information is incomplete or inaccurate.
    (8) The Financial Institution is not required to disclose 
information pursuant to this Section II(b) if such disclosure is 
otherwise prohibited by law.
(c) Policies and Procedures
    (1) The Financial Institution establishes, maintains, and enforces 
written policies and procedures prudently designed to ensure that the 
Financial Institution and its Investment Professionals comply with the 
Impartial Conduct Standards and other exemption conditions.
    (2) The Financial Institution's policies and procedures must 
mitigate Conflicts of Interest to the extent that a reasonable person 
reviewing the policies and procedures and incentive practices as a 
whole would conclude that they do not create an incentive for the 
Financial Institution or Investment Professional to place their 
interests, or those of any Affiliate or Related Entity, ahead of the 
interests of the Retirement Investor. Financial Institutions may not 
use quotas, appraisals, performance or personnel actions, bonuses, 
contests, special awards, differential compensation, or other similar 
actions or incentives in a manner that is intended, or that a 
reasonable person would conclude are likely, to result in 
recommendations that do not meet the Care Obligation or Loyalty 
Obligation.
    (3) Financial Institutions must provide their complete policies and 
procedures to the Department upon request within 30 days of request.
(d) Retrospective Review
    (1) The Financial Institution conducts a retrospective review, at 
least annually, that is reasonably designed to detect and prevent 
violations of, and achieve compliance with the conditions of this 
exemption, including the Impartial Conduct Standards and the policies 
and procedures governing compliance with the exemption. The Financial 
Institution must update the policies and procedures as business, 
regulatory, and legislative changes and events dictate, to ensure that 
the policies and procedures remain prudently designed, effective, and 
compliant with Section II(c).
    (2) The methodology and results of the retrospective review must be 
reduced to a written report that is provided to a Senior Executive 
Officer of the Financial Institution.
    (3) The Senior Executive Officer must certify, annually, that:
    (A) The Senior Executive Officer has reviewed the retrospective 
review report;
    (B) The Financial Institution has filed (or will file timely, 
including extensions) Form 5330 reporting any non-exempt prohibited 
transactions discovered by the Financial Institution in connection with 
investment advice covered under Code section 4975(e)(3)(B), corrected 
those transactions, and paid any resulting excise taxes owed under Code 
section 4975(a) or (b);
    (C) The Financial Institution has written policies and procedures 
that meet the requirements set forth in Section II(c); and
    (D) The Financial Institution has a prudent process to modify such 
policies and procedures as required by Section II(d)(1).
    (4) The review, report, and certification must be completed no 
later than six months after the end of the period covered by the 
review.
    (5) The Financial Institution must retain the report, 
certification, and

[[Page 32297]]

supporting data for a period of six years and make the report, 
certification, and supporting data available to the Department within 
30 days of request to the extent permitted by law (including 12 U.S.C. 
484 regarding limitations on visitorial powers for national banks).
(e) Self-Correction
    A non-exempt prohibited transaction will not occur due to a 
violation of this exemption's conditions with respect to a covered 
transaction, provided:
    (1) Either the violation did not result in investment losses to the 
Retirement Investor or the Financial Institution made the Retirement 
Investor whole for any resulting losses;
    (2) The Financial Institution corrects the violation;
    (3) The correction occurs no later than 90 days after the Financial 
Institution learned of the violation or reasonably should have learned 
of the violation; and
    (4) The Financial Institution notifies the person(s) responsible 
for conducting the retrospective review during the applicable review 
cycle and the violation and correction is specifically set forth in the 
written report of the retrospective review required under subsection 
II(d)(2).
(f) ERISA Section 3(38) Investment Managers
    To the extent a Financial Institution or Investment Professional 
provides fiduciary investment advice to a Retirement Investor as part 
of its response to a request for proposal to provide investment 
management services under section 3(38) of ERISA, and is subsequently 
hired to act as investment manager to the Retirement Investor, it may 
receive compensation as a result of the advice under this exemption, 
provided that it complies with the Impartial Conduct Standards as set 
forth in Section II(a). This paragraph does not relieve the Investment 
Manager, however, from its obligation to refrain from engaging in any 
non-exempt prohibited transactions in the ongoing performance of its 
activities as an Investment Manager.

Section III--Eligibility

(a) General
    Subject to the timing and scope of ineligibility provisions set 
forth in subsection (b), an Investment Professional or Financial 
Institution will become ineligible to rely on this exemption with 
respect to any covered transaction, if on or after September 23, 2024, 
the Financial Institution, an entity in the same Controlled Group as 
the Financial Institution, or an Investment Professional has been:
    (1) Convicted by either:
    (A) a U.S. Federal or State court as a result of any felony 
involving abuse or misuse of such person's employee benefit plan 
position or employment, or position or employment with 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 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 
in which any of the foregoing crimes is an element; or a crime that is 
identified or described in ERISA section 411; or
    (B) a foreign court of competent jurisdiction as a result of any 
crime, however denominated by the laws of the relevant foreign or state 
government, that is substantially equivalent to an offense described in 
(A) above (excluding convictions that occur within a foreign country 
that is included on the Department of Commerce's list of ``foreign 
adversaries'' that is codified in 15 CFR 7.4 as amended); or
    (2) Found or determined in a final judgment or court-approved 
settlement in a Federal or State criminal or civil court proceeding 
brought by the Department, the Department of the Treasury, the Internal 
Revenue Service, the Securities and Exchange Commission, the Department 
of Justice, the Federal Reserve, the Federal Deposit Insurance 
Corporation, the Office of the Comptroller of the Currency, the 
Commodity Futures Trading Commission, a State insurance or securities 
regulator, or State attorney general to have participated in one or 
more of the following categories of conduct irrespective of whether the 
court specifically considers this exemption or its terms:
    (A) engaging in a systematic pattern or practice of conduct that 
violates the conditions of this exemption in connection with otherwise 
non-exempt prohibited transactions;
    (B) intentionally engaging in conduct that violates the conditions 
of this exemption in connection with otherwise non-exempt prohibited 
transactions;
    (C) engaged in a systematic pattern or practice of failing to 
correct prohibited transactions, report those transactions to the IRS 
on Form 5330 or pay the resulting excise taxes imposed by Code section 
4975 in connection with non-exempt prohibited transactions involving 
investment advice as defined under Code section 4975(e)(3)(B); or
    (D) provided materially misleading information to the Department, 
the Department of the Treasury, the Internal Revenue Service, the 
Securities and Exchange Commission, the Department of Justice, the 
Federal Reserve, the Federal Deposit Insurance Corporation, the Office 
of the Comptroller of the Currency, the Commodity Futures Trading 
Commission, a State insurance or securities regulator, or State 
attorney general in connection with the conditions of this exemption.
    (3) Controlled Group. An entity is in the same Controlled Group as 
a Financial Institution if the entity (including any predecessor or 
successor to the entity) would be considered to be in the same 
``controlled group of corporations'' as the Financial Institution or 
``under common control'' with the Financial Institution as those terms 
are defined in Code section 414(b) and (c) (and any regulations issued 
thereunder),
(b) Timing and Scope of Ineligibility
    (1) Ineligibility shall begin upon either:
    (A) the date of a conviction, which shall be the date of conviction 
by a U.S. Federal or State trial court described in Section III(a)(1) 
(or the date of the conviction of any trial court in a foreign 
jurisdiction that is the equivalent of a U.S. Federal or State trial 
court) that occurs on or after September 23, 2024, regardless of 
whether that conviction remains under appeal; or
    (B) the date of a final judgment (regardless of whether the 
judgment remains under appeal) or a court-approved settlement described 
in Section III(a)(2) that occurs on or after September 23, 2024.
    (2) One-Year Transition Period. A Financial Institution or 
Investment Professional that becomes ineligible under Section III(a) 
may continue to rely on this exemption for up to 12 months after its 
ineligibility begins as determined under subsection (1) if the 
Financial Institution or Investment Professional provides notice to the 
Department at [email protected] within 30 days after ineligibility begins.
    (3) A person will become eligible to rely on this exemption again 
only upon the earliest occurrence of the following:
    (A) the date of a subsequent judgment reversing such person's 
conviction or other court decision described in Section III(a);
    (B) 10 years after the person became ineligible under Section 
III(b)(1) or, if later, 10 years after the person was released from 
imprisonment as a result

[[Page 32298]]

of a crime described in Section III(a)(1); or
    (C) the effective date of an individual prohibited transaction 
exemption (under which the Department may impose additional conditions) 
permitting the person to continue to rely on this exemption.
(c) Alternative Exemptions
    A Financial Institution or Investment Professional that is 
ineligible to rely on this exemption may rely on an existing statutory 
or separate class prohibited transaction exemption if one is available 
or may request an individual prohibited transaction exemption from the 
Department. To the extent an applicant requests retroactive relief in 
connection with an individual exemption application, the Department 
will consider the application in accordance with its retroactive 
exemption policy set forth in 29 CFR 2570.35(d). The Department may 
require additional prospective compliance conditions as a condition of 
providing retroactive relief.

Section IV--Recordkeeping

    The Financial Institution must maintain for a period of six years 
following the covered transaction records demonstrating compliance with 
this exemption and make such records available to the extent permitted 
by law, including 12 U.S.C. 484, to any authorized employee of the 
Department or the Department of the Treasury, which includes the 
Internal Revenue Service.

Section V--Definitions

    (a) ``Affiliate'' means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the Investment Professional or Financial Institution. (For this 
purpose, ``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 the Investment Professional or 
Financial Institution; and
    (3) Any corporation or partnership of which the Investment 
Professional or Financial Institution is an officer, director, or 
partner.
    (b) Advice meets the ``Care Obligation'' if, with respect to the 
Retirement Investor, such advice reflects 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 
use in the conduct of an enterprise of a like character and with like 
aims, based on the investment objectives, risk tolerance, financial 
circumstances, and needs of the Retirement Investor.
    (c) A ``Conflict of Interest'' is an interest that might incline a 
Financial Institution or Investment Professional--consciously or 
unconsciously--to make a recommendation that is not distinterested.
    (d) ``Financial Institution'' means an entity that is not 
suspended, barred or otherwise prohibited (including under Section III 
of this exemption) from making investment recommendations by any 
insurance, banking, or securities law or regulatory authority 
(including any self-regulatory organization), that employs the 
Investment Professional or otherwise retains such individual as an 
independent contractor, agent or registered representative, and that 
is:
    (1) Registered as an investment adviser under the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) or under the laws of the 
state in which the adviser maintains its principal office and place of 
business;
    (2) A bank or similar financial institution supervised by the 
United States or a state, or a savings association (as defined in 
section 3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(b)(1)));
    (3) An insurance company qualified to do business under the laws of 
a state, that: (A) has obtained a Certificate of Authority from the 
insurance commissioner of its domiciliary state which has neither been 
revoked nor suspended; (B) has undergone and shall continue to undergo 
an examination by an independent certified public accountant for its 
last completed taxable year or has undergone a financial examination 
(within the meaning of the law of its domiciliary state) by the state's 
insurance commissioner within the preceding five years, and (C) is 
domiciled in a state whose law requires that an actuarial review of 
reserves be conducted annually and reported to the appropriate 
regulatory authority;
    (4) A broker or dealer registered under the Securities Exchange Act 
of 1934 (15 U.S.C. 78a et seq.);
    (5) A non-bank trustee or non-bank custodian approved under 
Treasury Regulation 26 CFR 1.408-2(e) (as amended), but only to the 
extent they are serving in these capacities with respect to Health 
Savings Accounts (HSAs), or
    (6) An entity that is described in the definition of Financial 
Institution in an individual exemption granted by the Department after 
the date of this exemption that provides relief for the receipt of 
compensation in connection with investment advice provided by an 
investment advice fiduciary under the same conditions as this class 
exemption.
    (e) For purposes of subsection I(c)(1), a fiduciary is 
``Independent'' of the Financial Institution and Investment 
Professional if:
    (1) the fiduciary is not the Financial Institution, Investment 
Professional, or an Affiliate;
    (2) the fiduciary does not have a relationship to or an interest in 
the Financial Institution, Investment Professional, or any Affiliate 
that might affect the exercise of the fiduciary's best judgment in 
connection with transactions covered by this exemption; and
    (3) the fiduciary does not receive and is not projected to receive 
within its current Federal income tax year, compensation or other 
consideration for its own account from the Financial Institution, 
Investment Professional, or an Affiliate, in excess of two (2) percent 
of the fiduciary's annual revenues based upon its prior income tax 
year.
    (f) ``Individual Retirement Account'' or ``IRA'' means any plan 
that is an account or annuity described in Code section 4975(e)(1)(B) 
through (F).
    (g) ``Investment Professional'' means an individual who:
    (1) Is a fiduciary of a Plan or an IRA by reason of the provision 
of investment advice defined in ERISA section 3(21)(A)(ii) or Code 
section 4975(e)(3)(B), or both, and the applicable regulations, with 
respect to the assets of the Plan or IRA involved in the recommended 
transaction;
    (2) Is an employee, independent contractor, agent, or 
representative of a Financial Institution; and
    (3) Satisfies the Federal and State regulatory and licensing 
requirements of insurance, banking, and securities laws (including 
self-regulatory organizations) with respect to the covered transaction, 
as applicable, and is not disqualified or barred from making investment 
recommendations by any insurance, banking, or securities law or 
regulatory authority (including any self-regulatory organization and by 
the Department under Section III of this exemption).
    (h) Advice meets the ``Loyalty Obligation'' if, with respect to the 
Retirement Investor, such advice does not place the financial or other 
interests of the Investment Professional, Financial Institution or any 
Affiliate, Related Entity, or other party ahead of the interests of the 
Retirement Investor, or subordinate the Retirement Investor's interests 
to those of the Investment Professional, Financial Institution or

[[Page 32299]]

any Affiliate, Related Entity, or other party.
    (i) ``Plan'' means any employee benefit plan described in ERISA 
section 3(3) and any plan described in Code section 4975(e)(1)(A).
    (j) A ``Pooled Plan Provider'' or ``PPP'' means a pooled plan 
provider described in ERISA section 3(44).
    (k) A ``Related Entity'' means any party that is not an Affiliate 
and (i) has an interest in an Investment Professional or Financial 
Institution that may affect the exercise of the fiduciary's best 
judgment as a fiduciary, or (ii) in which the Investment Professional 
or Financial Institution has an interest that may affect the exercise 
of the fiduciary's best judgment as a fiduciary.
    (l) ``Retirement Investor'' means a Plan, Plan participant or 
beneficiary, IRA, IRA owner or beneficiary, Plan fiduciary within the 
meaning of ERISA section (3)(21)(A)(i) or (iii) and Code section 
4975(e)(3)(A) or (C) with respect to the Plan, or IRA fiduciary within 
the meaning of Code section 4975(e)(3)(A) or (C) with respect to the 
IRA.
    (m) A ``Senior Executive Officer'' is any of the following: the 
chief compliance officer, the chief executive officer, president, chief 
financial officer, or one of the three most senior officers of the 
Financial Institution.

Section VI--Phase-In Period

    During the one-year period beginning September 23, 2024, Financial 
Institutions and Investment Professionals may receive compensation 
under Section I of this exemption if the Financial Institution and 
Investment Professional comply with the Impartial Conduct Standards set 
forth in Section II(a) and the fiduciary acknowledgment requirement set 
forth in Section II(b)(1).

    Signed at Washington, DC, this 10th day of April, 2024.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2024-08066 Filed 4-24-24; 8:45 am]
BILLING CODE 4510-29-P