Amendment to Prohibited Transaction Exemption 84-24, 32302-32344 [2024-08067]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 89, Number 81 (Thursday, April 25, 2024)]
[Rules and Regulations]
[Pages 32302-32344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08067]



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Vol. 89

Thursday,

No. 81

April 25, 2024

Part VI





 Department of Labor





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 Employee Benefits Security Administration





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29 CFR Part 2550





Amendment to Prohibited Transaction Exemption 84-24; 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-12060]
ZRIN 1210-ZA33


Amendment to Prohibited Transaction Exemption 84-24

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

ACTION: Amendment to Prohibited Transaction Exemption 84-24.

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SUMMARY: This document contains a notice of amendment to Prohibited 
Transaction Exemption (PTE) 84-24, an exemption from certain prohibited 
transaction provisions of the Employee Retirement Income Security Act 
of 1974 (ERISA) and the Internal Revenue Code of 1986 (the Code). The 
amendment affects participants and beneficiaries of plans, individual 
retirement account (IRA) owners, and certain fiduciaries of plans and 
IRAs.

DATES: The amendment is effective September 23, 2024.

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

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 has any authority or responsibility to 
do so. Title I of the ERISA (referred to herein as Title I), which 
generally applies to employer-sponsored plans, includes this provision 
in ERISA section 3(21)(A)(ii).\1\ ERISA's Title II (referred to herein 
as the Code), includes a parallel provision in Code section 
4975(e)(3)(B), which defines a fiduciary of a tax-qualified plan, 
including individual retirement accounts (IRAs).
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    \1\ Section 3(21)(A)(ii) of the Act is codified at 29 U.S.C. 
1002(3)(21)(A)(ii). As noted above, Title I of the Act was codified 
in Title 29 of the U.S. Code. As a matter of practice, this preamble 
refers to the codified provisions in Title I by reference to the 
sections of ERISA, as amended, and not by its numbering in the U.S. 
Code.
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    In addition to fiduciary obligations, ERISA and the Code 
``categorically bar[]'' plan fiduciaries from engaging in transactions 
deemed ``likely to injure the pension plan.'' \2\ 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.'' \3\ Congress also gave the Department of Labor (the Department) 
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.\4\
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    \2\ Harris Trust Sav. Bank v. Salomon Smith Barney Inc., 530 
U.S. 238, 241-42 (2000) (citation and quotation marks omitted).
    \3\ ERISA section 406(b)(1), (3), 29 U.S.C. 1106(b)(1), (3).
    \4\ ERISA section 408(a), 29 U.S.C. 1108(a). Under the 
Reorganization Plan No. 4 of 1978, which Congress subsequently 
ratified in 1984, Sec. 1, Public Law 98-532, 98 Stat. 2705 (Oct. 19, 
1984), Congress generally granted the Department authority to 
interpret the fiduciary definition and issue administrative 
exemptions from the prohibited transaction provisions in Code 
section 4975. 5 U.S.C. App. (2018).
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    On October 31, 2023, the Department released the proposed 
Retirement Security Rule: Definition of an Investment Advice Fiduciary, 
along with proposed amendments to PTE 2020-02 and other administrative 
prohibited transaction exemptions available to investment advice 
fiduciaries.\5\ The proposed rule was designed to ensure that the 
protections established by Titles I and II of ERISA would uniformly 
apply to all advice that Retirement Investors (receive concerning 
investment of their retirement assets in a way that ensures that 
Retirement Investors' reasonable expectations are honored when they 
receive advice from financial professionals who hold themselves out as 
trusted advice providers (Retirement Investors are defined to include 
Plans, Plan participants and beneficiaries, IRAs, IRA owners and 
beneficiaries, Plan fiduciaries 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 fiduciaries within the meaning of Code 
section 4975(e)(3)(A) or (C) with respect to the IRA).
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    \5\ 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.
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    At the same time, the Department released the proposed amendment to 
PTE 84-24 (the Proposed Amendment) and invited all interested persons 
to submit written comments.\6\ The Department also proposed amendments 
to PTEs 75-1, 77-4, 80-83, 83-1, 86-128, and 2020-02.
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    \6\ 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, held a virtual public hearing at which 
witnesses provided commentary on the Proposed Amendment. After 
carefully considering the comments it received and the testimony 
presented at the hearing, including representations Insurers have made 
to the Department regarding impediments they have confronted in 
complying with the current conditions of PTE 2020-02 when distributing 
annuities through independent agents (Independent Producers), the 
Department is granting this amendment to PTE 84-24 as provided 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)).\7\ Elsewhere in this 
edition of the Federal Register, the Department is finalizing (1) its 
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''), and (2) amendments to 
several existing prohibited transaction exemptions (PTEs)--namely PTEs 
75-1, 77-4, 80-83, 83-1, 86-128, and 2020-02--that apply to the 
provision of fiduciary investment advice.
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    \7\ 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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PTE 2020-02

    As described elsewhere in this edition of the Federal Register, the 
Department is also adopting amendments to PTE 2020-02. That exemption 
remains

[[Page 32303]]

generally available for all investment advice, including 
recommendations of insurance products. The Department maintains its 
long-held position that insurance companies can effectively exercise 
fiduciary oversight with respect to Independent Producers' 
recommendations of the insurance company's own products under PTE 2020-
02. PTE 2020-02 offers a broad, flexible, and principles-based approach 
that applies across different financial sectors and business models and 
provides relief for multiple categories of financial institutions and 
investment professionals, including insurance companies selling their 
products through Independent Producers. As fully discussed below, 
however, the Department is amending PTE 84-24 to provide a specially 
tailored, alternative exemption allowing an Independent Producer to 
receive commissions from an insurance company with respect to annuity 
recommendations of the insurance company's products.

Comments and Overview of the Amendment to PTE 84-24

Overview of Amended Exemption

    The Department is amending PTE 84-24 to exclude sales and 
compensation received as a result of providing investment advice within 
the meaning of ERISA section 3(21)(A)(ii) and Code section 
4975(e)(3)(B) and regulations thereunder from the existing relief 
provided in Section II, which the Department has redesignated as 
Section II(a). The amendment adds new Section II(b), which provides 
relief from the restrictions of ERISA sections 406(a)(1)(A), (D) and 
406(b) and the taxes imposed by Code section 4975(a) and (b) by reason 
of Code sections 4975(c)(1)(A), (D), (E) and (F) for Independent 
Producers that provide fiduciary investment advice and engage in the 
following transactions, including as part of a rollover, as a result of 
providing 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, by an Independent Producer 
of reasonable compensation; and
    (2) the sale of a non-security annuity contract or other insurance 
product that does not meet the definition of ``security'' under Federal 
securities laws.
    The exemption is subject to certain conditions. These conditions 
are similar to the conditions contained in amended PTE 2020-02, but the 
Department has tailored the conditions to protect Retirement Investors 
from the specific conflicts that can arise when Independent Producers 
that are compensated through commissions and other compensation provide 
investment advice to Retirement Investors regarding the purchase of an 
annuity. The amended exemption includes an eligibility provision in 
Section VIII for investment advice transactions and a new recordkeeping 
condition in Section IX that is similar to the recordkeeping provision 
in PTE 2020-02.

The Department's Role Related to the Sale of Insurance Products to 
Retirement Investors

    Several commenters raised concerns with the Department's approach 
to amending PTE 84-24 and insurance recommendations more generally. 
Some commenters argued that the Federal Government should not be 
regulating the sales of insurance products. They argued that the 
McCarran-Ferguson Act assigns to the States, not the Federal 
Government, primary authority to regulate the business of insurance. 
Furthermore, several commenters pointed out that many States have 
adopted the 2020 National Association of Insurance Commissioners (NAIC) 
Suitability In Annuity Transactions Model Regulation 275 (the NAIC 
Model Regulation), which imposes a ``best interest'' standard on 
insurance producers. Some commenters argued that the Department should 
rely entirely on the NAIC Model Regulation instead of relying on the 
specific standards in ERISA and the Code.
    However, many of these same commenters also noted that Insurers 
have long relied on the relief provided in PTE 84-24, thereby 
implicitly acknowledging that the Department has long regulated the 
business of insurance with respect to the sale of insurance products to 
Retirement Investors. ERISA and the Code broadly regulate Plan and IRA 
investments, including investments in insurance. As the Supreme Court 
held in Hancock v. Harris Trust,\8\ Congress enacted ERISA with the 
broad purpose of protecting retirement benefits, including benefits 
supported by insurance contracts. During the more than 45 years that 
has passed since the Department issued PTE 77-9, the predecessor to PTE 
84-24, it has consistently imposed conditions on insurance companies 
and agents receiving commissions and other compensation that would 
otherwise be prohibited under ERISA. Indeed, the interaction between 
the NAIC Model Regulation and the fiduciary protections under Title I 
and Title II of ERISA is explicitly recognized in the NAIC Model 
Regulation's safe harbor, which provides that recommendations and sales 
of annuities in compliance with comparable standards to the NAIC Model 
Regulation satisfy its requirements, including those applicable to 
fiduciaries under ERISA section 3(21) and Code section 4975(e)(3).\9\
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    \8\ See John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. 
Bank, 510 U.S. 86, 96 (1993) (noting ERISA's ``broadly protective 
purposes'' regarding retirement benefits and that fiduciary status 
applies to ``persons whose actions affect the amount of benefits 
retirement plan participants will receive'').
    \9\ NAIC Model Regulation at section 6.E.4.c.
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    In recent years, many States have increased investor protections 
with respect to recommendations to purchase annuities. These increased 
protections reflect a recognition by the States of the increased 
importance of ensuring that investors receive sound investment advice, 
as insurance products have grown in complexity and individuals have 
increasingly become dependent upon receiving sound advice from 
investment professionals, including insurance agents. The amendments to 
this exemption and related amendments to PTE 2020-02 supplement those 
State-law protections by ensuring that trusted professionals' 
recommendations of insurance products to Retirement Investors are 
subject to the same stringent standards of conduct that apply to 
recommendations of other investment products.
    Titles I and II of ERISA reflect a strong Federal interest in the 
regulation and protection of retirement investments and Retirement 
Investors. Critical to this Federal regulatory system are the 
prohibited transaction provisions, which preclude fiduciaries from 
engaging in a wide range of conflicted transactions with Retirement 
Investors, unless there is an applicable statutory exemption or the 
Department grants an administrative exemption with protective 
conditions carefully designed to protect Retirement Investors from 
injury associated with unregulated conflicts of interest. As compared 
to State insurance law, ERISA and the Code place greater emphasis on 
the stringent regulation of conflicts of interest and impose fiduciary 
obligations on persons who engage in important activities related to 
investment management or advice. PTE 84-24, together with PTE 2020-02, 
reflects the Department's independent statutory authority and 
obligation under ERISA section 408(a) and Code section 4975(c)(2) to 
ensure that it only grants exemptive relief for prohibited transactions 
that is protective of the rights of plan participants and

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beneficiaries and in their interests. The Department is finalizing this 
amendment consistent with its statutory obligation.
    Taken together, amended PTE 84-24 and PTE 2020-02 ensure that when 
trusted advisers,\10\ including Independent Producers, recommend 
insurance products to Retirement Investors, they will adhere to 
fundamental standards of fiduciary conduct subject to supervision by a 
responsible financial institution. Under the core standards of both 
amended exemptions investment professionals advice must:
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    \10\ 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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     acknowledge their fiduciary status \11\ in writing to the 
Retirement Investor;
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    \11\ 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 of 
1940 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.
    As discussed in greater detail below, the Department has concluded 
that amended PTEs 84-24 and 2020-02 flexible and workable exemptions 
that provide a sound and uniform framework for financial institutions 
and investment professionals to provide fiduciary investment advice to 
Retirement Investors. Taken together, these amended exemptions are 
broadly available for fiduciary investment advice, without regard to 
business model, fee structure, or type of product recommended, subject 
to financial institutions' and investment professionals' compliance 
with the fundamental standards for the protection of Retirement 
Investors set forth above. To the extent the terms of the exemptions 
are honored, Retirement Investors will benefit from the application of 
a common standard, applicable to all fiduciary recommendations to 
Retirement Investors, that ensures prudent and loyal investment 
recommendations from fiduciary investment advice providers competing on 
a level playing field that is protective of Retirement Investors. The 
chief difference between amended PTEs 2020-02 and 84-24, as discussed 
below, is that the Department amended PTE 84-24 to provide a pathway to 
compliance with the prohibited transaction rules for Independent 
Producers who recommend the products of multiple Insurers to Retirement 
Investors, without requiring those Insurers to assume or acknowledge 
their fiduciary status under ERISA and the Code.

Applicability Date

    This Final Amendment is applicable to transactions pursuant to 
investment advice provided on or after September 23, 2024 (the 
``Applicability Date''). For transactions pursuant to investment advice 
provided before the Applicability Date, the prior version of PTE 84-24 
will remain available for all insurance agents and insurance companies 
that currently rely on the exemption.\12\ Also, no party would be held 
to the amended conditions in Sections VII, VIII, IX or XI for a 
transaction that occurred before the Applicability Date of the amended 
exemption.
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    \12\ 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 84-24 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, which was set for 60 days after publication, did 
not provide sufficient time for parties to fully comply with the new 
conditions for receipt of reasonable compensation for investment 
advice. In response to these comments, the Department is adding a new 
Section XI, which provides a phase-in period for the one-year period 
beginning September 23, 2024. Thus, an Independent Producer may receive 
compensation under Section II(b) during the phase-in period if it 
complies with the Impartial Conduct Standards condition in Section 
VII(a) and the fiduciary acknowledgment condition under Section 
VII(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.

Excluding Investment Advice

    The amended PTE 84-24 excludes sales and compensation received as a 
result of the provision of investment advice from relief for the 
transactions described in Section III(a) through (f) of the exemption. 
However, relief remains available under those provisions for non-advice 
transactions. Investment advice fiduciaries must comply with the 
conditions in Sections VI-VIII that are tailored specifically for 
investment advice transactions. For clarity, the Department has 
included this limitation in each subsection of Section III(a) through 
(f) by adding the phrase ``if the sales commission is not received 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 the 
regulations issued thereunder)'' to the end of each subsection in 
Section III(a) through (f). The Department also is revising the 
disclosure conditions in Section V to reflect that these sections are 
not available for the receipt of compensation as a result of the 
provision of fiduciary investment advice.
    The Department notes that many types of fiduciaries are already 
excluded from the transactions in Sections III(a)-(d) of PTE 84-24. 
After the Applicability Date of the Final Amendment, the relief 
provided in these sections would remain available for non-fiduciaries 
and nondiscretionary trustees.\13\
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    \13\ Nondiscretionary trustees were added in 1984, in response 
to a request from the Investment Company Institute listing typical 
nondiscretionary or trustee services. In an April 21, 1980 letter, 
``ICI states nondiscretionary trustees and custodians:
    (a) Open and maintain plan accounts and, in the case of defined 
contribution plans, individual participant accounts, pursuant to the 
employer's instructions that those providing investment advice 
within the meaning of ERISA section 3(21)(A)(ii) and Code section 
4975(e)(3)(B) would be excluded under Section II(a).
    (b) Receive contributions from the employer and credit them to 
individual participant accounts in accordance with the employer's 
instructions;
    (c) Invest contributions and other plan assets in shares of a 
mutual fund or funds or other products such as insurance or annuity 
contracts designated by the employer, plan trustee, or participants, 
and reinvest dividends and other distributions in such investments;
    (d) Redeem, transfer, or exchange mutual fund shares or 
surrender insurance or annuity contracts as instructed by the 
employer, plan trustee, or participant;
    (e) Provide or maintain ``designation of beneficiary'' forms and 
make distributions from the trust or custodial account to 
participants or beneficiaries in accordance with the instructions of 
the employer, plan trustee, participants, or beneficiaries;
    (f) Deliver to participants or their employer all notices, 
prospectuses, and proxy statements, and vote proxies in accordance 
with the participants' instructions.
    (g) Maintain records of all contributions, investments, 
distributions, and other transactions and report them to the 
employer and participants;
    (h) Make necessary filings with the Internal Revenue Service and 
other government agencies;
    (i) Keep custody of the plan's assets;
    (j) Reply to and prepare correspondence, either directly or 
through the mutual fund distributor or adviser, regarding the 
investment account and the operation and interpretation of a master 
or prototype plan sponsored by the complex to which the 
nondiscretionary trustee or custodian belongs.
    In some situations, the trustee or custodian is empowered to 
amend the master or prototype plan; in others, this power resides in 
the sponsor of the master or prototype plan. ICI further describes 
the duties of the nondiscretionary trustees as ``ministerial'' and 
indicates that such trustees possess no decisional authority with 
respect to a plan's funding medium or subsequent purchases or 
sales.''

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    The relief for the transaction described in Section III(e) remains 
available for any insurance company that is a fiduciary or service 
provider (or both) with respect to the plan solely by reason of the 
sponsorship of a Pre-Approved Plan, if the purchase is not 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. The relief for the transactions described in Section III(f) 
remains available for any insurance company, Principal Underwriter, or 
investment company adviser that is a fiduciary or service provider (or 
both) with respect to the plan solely by reason of: (1) the sponsorship 
of a Pre-Approved Plan; or (2) the provision of nondiscretionary trust 
services to the plan; or (3) both (1) and (2), if the purchase is not 
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.\14\
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    \14\ The Department is not amending Section III(f) to remove the 
phrase ``investment company adviser,'' but notes that this relief is 
not available if the purchase is 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.
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Description of Changes to Existing PTE 84-24

    Section II of existing PTE 84-24 provides exemptive relief for the 
covered transactions described in Section III(a) through (f), which, as 
amended, does not include relief for the receipt of otherwise 
prohibited compensation in connection with the provision of investment 
advice. In the Proposed Amendment, the Department requested comments on 
whether parties will continue to use the relief in proposed section 
II(a) for the transactions outlined in Section III(a)-(f) and whether 
parties are currently relying on Section III(f) for Pre-Approved Plans. 
The Department received some comments indicating that Section III(f) is 
still relied on in the marketplace. Commenters described this relief as 
important for Pre-Approved Plan providers in connection with the 
purchase of mutual fund shares with plan assets when the principal 
underwriter of the mutual fund acts as the sponsor of the ``Pre-
Approved Plan'' document that is utilized by the plan, or the pre-
approved provider plan provides nondiscretionary trustee services to 
the plan. These commenters claim that the loss of Section III(f) relief 
would make it difficult to continue to offer these products to the 
marketplace and urge the Department to retain the provision. After 
consideration of these comments, the Department is retaining Section 
III(f) in the Final Amendment with a revision that changes references 
to a ``master or prototype plan'' to a ``Pre-Approved Plan,'' which is 
consistent with a change in terminology the IRS adopted in IRS Rev. 
Proc. 2017-41.
    The Department also received several comments on the terms Mutual 
Fund Commission and Insurance Sales Commission that the Department used 
in the Proposed Amendment. These commenters generally asserted that the 
proposed definition of Insurance Sales Commission was unduly narrow and 
should have included a broader range of compensation, as permitted 
under State insurance laws and, they argued, the Department's prior 
interpretations of PTE 84-24. These commenters argued that other forms 
of compensation were commonplace, and could be reasonable, beneficial 
to Retirement Investors, and fully disclosed.
    Some commenters asserted that the Proposed Amendment's definition 
of Insurance Sales Commission would prohibit the use of services 
provided by independent marketing organizations in connection with 
annuity sales marketing support, lead generation, technological 
assistance, back office and compliance support, and practice building 
and that, in the absence of these services, many Independent Producers 
would not survive. Some other commenters claimed that various benefits 
subject to continuing production and service requirements, such as 
health and retirement plan coverage and contributions, office 
allowances, travel expense reimbursements, and other benefits customary 
in the industry may not be allowed given the narrowness of these 
definitions.
    After consideration of the comments, the Department has removed the 
terms ``Mutual Fund Commission'' and ``Insurance Sales Commission'' 
from the exemption. To achieve consistency with existing PTE 84-24, the 
Department has reverted to using the term ``sales commission'' in 
Section III(a) through (f) of the Final Amendment, which is the same 
term that the Department used in PTE 84-24 before this amendment. 
Additionally, the Department clarifies the disclosures required by 
Section V(b)(1) for transactions under Section III(a) through (f) 
involving IRAs may be provided to the IRA owner instead of an unrelated 
fiduciary.
    Finally, the Department is making minor editorial changes by 
capitalizing defined terms where they are used in the existing sections 
of PTE 84-24, and moving the definitions from existing Section VI to 
new Section X. As amended, Section III(a)-(f) reads:

    (a) The receipt, directly or indirectly, by an insurance agent 
or broker or a pension consultant of a sales commission from an 
insurance company in connection with the purchase, with plan assets, 
of an insurance or annuity contract, if the sales commission is not 
received 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.
    (b) The receipt of a sales commission by a Principal Underwriter 
for an investment company registered under the Investment Company 
Act of 1940 (hereinafter referred to as an investment company) in 
connection with the purchase, with plan assets, of securities issued 
by an investment company if the sales commission is not received 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.
    (c) The effecting by an insurance agent or broker, pension 
consultant or investment company Principal Underwriter of a 
transaction for the purchase, with plan assets, of an insurance or 
annuity contract or

[[Page 32306]]

securities issued by an investment company if the purchase is not 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.
    (d) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company if the purchase is not 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.
    (e) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company which is a fiduciary or a service 
provider (or both) with respect to the plan solely by reason of the 
sponsorship of a Pre-Approved Plan if the purchase is not 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.
    (f) The purchase, with plan assets, of securities issued by an 
investment company from, or the sale of such securities to, an 
investment company or an investment company Principal Underwriter, 
when such investment company, Principal Underwriter, or the 
investment company investment adviser is a fiduciary or a service 
provider (or both) with respect to the plan solely by reason of: (1) 
the sponsorship of a Pre-Approved Plan; or (2) the provision of 
Nondiscretionary Trust Services to the plan; or (3) both (1) and 
(2); and the purchase is not 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.

    The Department notes that references to ``plan assets'' in Section 
III(a)-(f) include IRA assets and are not limited to ``Plans'' as 
defined in ERISA section 3(3) and described in Code section 
4975(e)(1)(A).

Recordkeeping

    The Department proposed revising all the recordkeeping provisions 
for PTE 84-24 by adding a new Section IX that would have required 
additional parties to be able to access the records. Many commenters 
expressed concern that the amended recordkeeping provisions would 
create unnecessary burden for Independent Producers. In response to 
these comments, the Department has scaled back the amended 
recordkeeping conditions in the exemption in a similar manner to 
changes the Department made to PTE 2020-02. In this Final Amendment, 
the Department is retaining the existing recordkeeping language in 
Section V(e) for transactions that do not involve the provision of 
fiduciary investment advice. The Department also is making minor 
editorial changes to this section for clarity, but generally is keeping 
the substantive requirements the same.
    In a new Section IX, the Department is adding recordkeeping 
language for Independent Producers providing fiduciary investment 
advice. Under this provision, the Independent Producer must maintain 
for a period of six years records demonstrating that it has complied 
with the conditions of this exemption and make such records available, 
to the extent permitted by law, to any authorized employee of the 
Department or the Department of the Treasury, which includes the 
Internal Revenue Service (IRS). This condition is consistent with the 
recordkeeping requirement in amended PTE 2020-02.

Fiduciary Investment Advice Exemption

    The Department is finalizing its Proposed Amendment for investment 
advice fiduciaries who are independent insurance agents, with certain 
changes discussed below, based on the comments. The conditions for 
investment advice are similar to those in PTE 2020-02, but take into 
account the unique compliance challenges faced in the independent agent 
distribution channel, while promoting a level playing field for all 
investment advice professionals.
    Several commenters criticized the Department's emphasis on 
uniformity. One commenter in particular stated that the Department was 
creating disadvantages for the insurance industry by amending PTE 84-
24. Several commenters argued that because insurance companies and 
producers have been relying on PTE 84-24 for 40 years, they should be 
able to continue doing so. Some of these same commenters also 
questioned the Department's authority to regulate the business of 
insurance in this manner.
    The Department disagrees with these commenters. Retirement 
Investors are no less in need of the protective conditions simply 
because the individual who is advising them relies on a different 
business model. Additionally, as discussed above, the Department has 
authority to regulate the business of insurance with respect to 
investment advice provided to Retirement Investors and has carefully 
tailored the conditions of this exemption to address the specific 
conflicts that can arise for Independent Producers that are compensated 
through commissions and other compensation when providing investment 
advice to Retirement Investors regarding the purchase of an annuity. 
Furthermore, the Department is providing additional time for insurance 
companies and producers that were relying on PTE 84-24 to come into 
compliance with the new conditions of this exemption or PTE 2020-02.
    As required by ERISA section 408(a) and Code section 4975(c)(2), 
the Department may only issue an exemption if it is protective and in 
the interests of Retirement Investors. This Final Amendment ensures 
that Retirement Investors receive advice subject to the same core 
fiduciary obligations when the investments are insurance products 
recommended by Independent Producers, as when they receive advice about 
other competing investment alternatives. In the Department's view, 
Retirement Investors are best protected by a uniform standard assuring 
them that recommendations by fiduciaries are prudent, loyal, and free 
from misrepresentations or excessive compensation. Retirement Investors 
equally need these fiduciary protections and safeguards against 
dangerous conflicts of interest, whether the trusted Investment 
Professional is recommending an insurance product or a security. And 
there is no reason to believe that an insurance agent is any less 
susceptible to conflicts of interest than other categories of 
investment professionals.
    The relief for fiduciary investment advice in Section II(b) for the 
covered transactions described in Section III(g) is generally similar 
to the relief provided in PTE 2020-02. Section VI provides conditions 
for transactions described in Section III(g) and requires the advice to 
be provided by an Independent Producer that is authorized to sell 
annuities from two or more unrelated Insurers. However, while PTE 2020-
02 is available for almost any fiduciary investment advice provider, 
the conditions in amended PTE 84-24 Sections VII-IX are tailored for 
investment advice that is provided to a Retirement Investor by an 
Independent Producer who works with multiple insurance companies to 
sell non-securities annuities or other insurance products that do not 
meet the definition of ``security'' under Federal securities laws.
    Some commenters questioned the administrative feasibility of the 
exemption pursuant to ERISA Section 408(a)(1) and Code section 
4975(c)(2), taking issue with the added or expanded conditions of 
proposed PTE 84-24. One commenter stated that the PTE's conditions 
would force covered entities to instead seek relief via individual 
exemptions and noted that the Department has been issuing fewer 
administrative exemptions in recent years.
    The Department disagrees with these assertions. The core conditions 
of PTE 84-24, including all the Impartial Conduct Standards, reflect 
core

[[Page 32307]]

fiduciary obligations that have been in ERISA since its passage nearly 
fifty years ago. The Department is confident that Independent 
Producers, who satisfy the fiduciary definition, can recommend covered 
insurance products in accordance with basic standards of care and 
loyalty, and without overcharging or misleading retirement investors.
    As described in detail below, the disclosure and conduct 
obligations imposed on Independent Producers are measured and 
achievable, and Insurers' oversight obligations are flexible, 
principles-based, and build on existing oversight responsibilities 
under State law. The Department has narrowed the scope of many of the 
amended PTE 84-24's conditions, also easing administration. These 
updates are discussed in detail in the sections to follow. The 
Department does not believe Independent Producers or Insurers will be 
unable to comply with PTE 84-24 or driven to seek individual 
exemptions. The amended PTE is not intended to push covered entities to 
apply for individual exemptions but is instead intended to require 
Independent Producers who provide investment advice for a fee to abide 
by a series of conditions uniquely crafted to mitigate conflicts of 
interest and protect Retirement Investor interests in these types of 
transactions.
    Moreover, the Department has accommodated Insurers that rely upon 
independent agents by providing that the supervising Insurer does not 
have to assume fiduciary responsibility for investment recommendations 
by Independent Producers. Also, PTE 2020-02 remains available both to 
Independent Producers and Insurers for transactions that fall outside 
the scope of PTE 84-24, or to the extent the Insurer takes on fiduciary 
responsibility.

Retirement Investors

    The Department is revising the definition of Retirement Investor in 
Section X(n) to be consistent with the definition in the final 
Regulation defining fiduciary investment advice. As revised, both the 
final Regulation and 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 ``Retirement Investor,'' which is 
defined in the same terms in this Final Amendment to ensure its broad 
availability to investment advice fiduciaries.

Related Entity

    The Department is clarifying the definition of ``Related Entity'' 
in Section X(m). 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).

Independent Producers

    The term ``Independent Producer'' is defined in Section X(d) as 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 under Code section 3121(d)(3)); or (2) 
is a statutory employee of an insurance company that has no financial 
interest in the covered transaction. The Department is revising the 
definition of Independent Producer to clarify that the exemption is 
available only when the Independent Producer is not an employee of an 
insurance company (including a statutory employee under Code section 
3121(d)(3)) or the Independent Producer is a statutory employee of an 
insurance company that has no financial interest in the covered 
transaction. Accordingly, the statutory employee would be treated as an 
Independent Producer, for purposes of this exemption, with respect to 
the recommended sale of an insurance product in which the statutory 
employer has no financial interest. To the extent, however, the 
statutory employee recommends products in which the employing insurance 
company has a financial interest, both the insurance company and the 
statutory employee would have to rely on PTE 2020-02 for relief from 
any resulting prohibited transactions.
    The Proposed Amendment would have limited the definition to exclude 
statutory employees entirely, but the Department is revising the 
definition in response to comments. Many commenters expressed concern 
that the proposed definition was too limited, and several commenters 
specifically requested that the Department make PTE 84-24 available for 
statutory employees of insurance companies. Some of these commenters 
sought broad relief for all recommendations by statutory employees, 
including recommendations in which their employing insurance company 
had a financial interest. These commenters described the relationship 
that an insurance company has with its statutory employees as the 
equivalent of the relationship between insurance companies and wholly 
independent producers who are not statutory employees. These commenters 
argued that a statutory employer cannot supervise statutory employees 
under PTE 2020-02. The Department also received comments, however, 
arguing for a narrower clarification permitting statutory employees to 
rely upon PTE 84-24 as Independent Producers only to the extent they 
were recommending the products of other insurance companies that did 
not employ them as statutory employees.
    In response to these comments, the Department has revised this 
definition to permit statutory employees to rely upon PTE 84-24 when 
they are recommending transactions in which the statutory employer does 
not have a financial interest. In such cases, the statutory employer is 
similarly situated to insurance companies that are working with wholly 
independent agents. The Final Amendment does not, however, allow 
statutory employees to rely on PTE 84-24 when they are recommending 
transactions with the insurance company that acts as their statutory 
employer. As reflected in the Treasury's implementing regulations,\15\ 
the statutory employee's principal business activity involves the 
solicitation of contracts for that one insurance company which 
ordinarily provides facilities and support to the statutory employee 
for that purpose, and these statutory employees often receive

[[Page 32308]]

health and other benefits from the ``employing'' insurance companies. 
Accordingly, the employing insurance company has a degree of potential 
control and influence over the conduct of the statutory employee, and 
the statutory employee has a corresponding commitment to that company 
that is not necessarily the same as in a relationship between a wholly 
independent agent and other Insurers.
---------------------------------------------------------------------------

    \15\ 26 CFR 31.3121(d)-1(d)(3)(ii) Full-time life insurance 
salesman. An individual whose entire or principal business activity 
is devoted to the solicitation of life insurance or annuity 
contracts, or both, primarily for one life insurance company is a 
full-time life insurance salesman. Such a salesman ordinarily uses 
the office space provided by the company or its general agent, and 
stenographic assistance, telephone facilities, forms, rate books, 
and advertising materials are usually made available to him without 
cost. An individual who is engaged in the general insurance business 
under a contract or contracts of service which do not contemplate 
that the individual's principal business activity will be the 
solicitation of life insurance or annuity contracts, or both, for 
one company, or any individual who devotes only part time to the 
solicitation of life insurance contracts, including annuity 
contracts, and is principally engaged in other endeavors, is not a 
full-time life insurance salesman.
---------------------------------------------------------------------------

    Given these differences, the Department has concluded that PTE 84-
24 is insufficiently protective of Retirement Investors with respect to 
recommendations of products in which the statutory employer has a 
financial interest. In such cases, both the employing insurance company 
and the statutory employee must rely on PTE 2020-02 for relief for 
prohibited transactions, just as similarly situated Financial 
Institutions rely on PTE 2020-02 with respect to recommendations of 
their proprietary products. Accordingly, statutory employees and the 
insurance companies would need to meet all the protective conditions of 
PTE 2020-02, including the requirement that the insurance company, 
acting as the supervising financial institution, acknowledge its 
fiduciary status with respect to the recommendation. However, when a 
statutory employee recommends transactions with an unrelated and 
unaffiliated insurance company, the statutory employee can rely on PTE 
84-24 and make the fiduciary acknowledgment as an Independent Producer. 
Consistent with the conditions of PTE 84-24, those transactions would 
be subject to the supervision of the unrelated insurance company. To 
the extent that statutory employers or other insurance companies 
believe that neither PTE 2020-02 nor PTE 84-24 is appropriate for their 
particular circumstances, they can also apply to the Department for an 
individual or class exemption, which may be subject to different or 
additional protective conditions.

Insurers

    The term ``Insurer'' as defined in Section X(f) is similar to the 
term ``Financial Institution'' defined in PTE 2020-02, except it would 
be limited to insurance companies. Even though amended PTE 84-24 does 
not require Insurers to be fiduciaries, an Independent Producer cannot 
rely on the exemption unless it is subject to oversight by an Insurer 
that satisfies the conditions set out in this Final Amendment. As under 
the NAIC Model Regulation and discussed in the policies and procedures 
section below, the Independent Producer must be subject to oversight by 
the Insurer whose products it recommends to the Retirement Investor, if 
the Independent Producer wants to rely on the exemption. As stated in 
Section VI(b), the Insurer will not necessarily become a fiduciary 
under ERISA or the Code merely by complying with this exemption's 
conditions. However, the Department cautions that Insurers selling 
insurance and annuity products through Independent Producers could 
become investment advice fiduciaries under ERISA and/or the Code 
through other actions they take. If the Insurers are fiduciaries, they 
could not rely on amended PTE 84-24 and would need to rely on a 
different prohibited transaction exemption, such as PTE 2020-02, for 
relief from ERISA section 406(b) and Code section 4975. The investment 
advice provisions of PTE 84-24 are solely available to the Independent 
Producer.
    To facilitate compliance with the amended exemption, Independent 
Producers and Insurers may rely on factual representations from each 
other, as long as they are reasonable in doing so. For example, an 
Independent Producer may generally rely on an Insurer's written report 
generated as part of its retrospective review required by Section 
VII(d), unless the Independent Producer knows (or should know) that the 
report is inaccurate or incomplete.
    Although the Department is creating a pathway for compliance for 
Independent Producers that permits insurance companies to oversee the 
conduct of Independent Producers under this Final Amendment without 
assuming fiduciary status, the Department remains concerned that 
without fiduciary status, insurance companies may not take the same 
measures to ensure that recommendations are sound and untainted by the 
Insurer's conflicts of interest. Accordingly, the Final Amendment does 
not provide prohibited transaction relief for the Insurer. If the 
Insurer itself is an investment advice fiduciary, it would instead have 
to rely on PTE 2020-02. In such a situation, the Independent Producer 
would still be able to receive compensation in connection with 
fiduciary investment advice related to the products of other Insurers, 
as long as those other Insurers complied with all conditions of amended 
PTE 84-24.

Exclusions

    The advice provisions of PTE 84-24 have exclusions that are similar 
to those in PTE 2020-02. Under Section VI(c)(1), relief under PTE 84-24 
is not available if the Plan is covered by Title I of ERISA and the 
Independent Producer, Insurer, or any Affiliate is (A) the employer of 
employees covered by the Plan, or (B) the Plan's named fiduciary or 
administrator. For example, an Independent Producer that sponsors a 
plan for its employees and provides investment advice to the Plan can 
only receive direct expenses and not reasonable compensation for the 
advice. However, there is an exception from this restriction in Section 
VI(c)(1)(B) that applies when the Plan's named fiduciary or 
administrator is selected by an independent fiduciary to provide 
investment advice to the Plan. Unlike PTE 2020-02, there is no specific 
exclusion for pooled employer plans in PTE 84-24, because the 
Department does not expect that pooled employer plans will need to rely 
on the limited relief provided in this exemption.
    Section VI(c)(2) excludes from Section III(g) transactions when the 
Independent Producer 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).

Impartial Conduct Standards of Amended PTE 84-24

    Similar to the final amendment to PTE 2020-02, amended PTE 84-24 
requires Independent Producers to comply with the Impartial Conduct 
Standards, which include the Care Obligation, Loyalty Obligation, and 
obligations to receive no more than reasonable compensation and not 
make misleading statements to Retirement Investors. These standards 
form the core protections of both exemptions that are available to 
investment advice fiduciaries.

Care Obligation and Loyalty Obligation

    The Department is adopting the substance of the Proposed 
Amendment's Best Interest standard. However, as in PTE 2020-02, the 
Department is replacing the term ``Best Interest'' with its two 
separate components: the Care Obligation and the Loyalty Obligation. 
Under the amended provision, investment advice must, at the time it is 
provided, satisfy the Care Obligation and Loyalty Obligation. The Final 
Amendment specifically refers to each obligation separately, although 
they are unchanged in substance. Both the Care Obligation and the 
Loyalty Obligation must be satisfied when investment advice is 
provided. As defined in Section X(b), to meet the Care Obligation, an 
advice must reflect the care, skill, prudence, and diligence

[[Page 32309]]

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 X(g), to meet 
the Loyalty Obligation, the Independent Producer must not place the 
financial or other interests of the Independent Producer, Insurer, or 
any Affiliate, Related Entity, or another party ahead of the interests 
of the Retirement Investor or subordinate the Retirement Investor's 
interests to those of the Independent Producer, Insurer, or any 
Affiliate, Related Entity, or another party. For example, in choosing 
between annuity products offered by Insurers whose products the 
Independent Producer is authorized to sell, the Independent Producer 
may not recommend a product that is worse for the Retirement Investor 
but better or more profitable for the Independent Producer or Insurer.
    As discussed in the preamble to the final amendment to PTE 2020-02, 
the Department is changing the way it refers to 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 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 Regulation, however, ``best interest'' is not meant to 
refer back to the elements of the precise regulatory or statutory 
definitions of prudence or 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.
    Several commenters stated that the Department does not have the 
authority to include the Impartial Conduct Standards in either PTE 84-
24 or PTE 2020-02 because doing so would improperly expand Title I 
fiduciary standards to entities solely covered by Title II. The 
Department disagrees with these commenters. As previously stated in 
this grant notice as well as the grant notice for PTE 2020-02 published 
elsewhere in today's issue of the Federal Register, Congress expressly 
permits the Department to issue exemptions to prohibited transactions 
as per ERISA Section 408(a) and, pursuant to the Reorganization Plan 
No. 4 of 1978, Code section 4975(c)(2).\16\ For a more detailed 
description of the comments received regarding the Department's 
authority to include the Impartial Conduct Standards in these 
prohibited transaction exemptions, please see the grant notice for PTE 
2020-02 published elsewhere in today's issue of the Federal Register.
---------------------------------------------------------------------------

    \16\ Under the Reorganization Plan No. 4 of 1978, which Congress 
subsequently ratified in 1984, Sec. 1, Public Law 98-532, 98 Stat. 
2705 (Oct. 19, 1984), Congress generally granted the Department 
authority to interpret the fiduciary definition and issue 
administrative exemptions from the prohibited transaction provisions 
in Code section 4975. 5 U.S.C. App. (2018).
---------------------------------------------------------------------------

    In addition to the general comments discussed in the preamble to 
the final amendment to PTE 2020-02, some commenters questioned the 
specific ability of Independent Producers to meet the proposed 
standards, and thus argued that the amendments to PTE 84-24 failed to 
meet the requirements laid out in ERISA section 408(a) and Code section 
4975(c)(2). Many of these same commenters stated that the NAIC standard 
was sufficiently protective and should be relied upon rather than the 
standards in PTE 84-24. Some commenters also raised objections to the 
Department imposing these standards on IRAs. Other commenters expressed 
support for the proposed standards, and one commenter argued that the 
Department's Proposed Amendment was necessary because the NAIC Model 
Regulation imposes a ``best interest'' standard in name only.
    The Department has considered these comments and determined that it 
is essential for Independent Producers to comply with the Care 
Obligation and Loyalty Obligation. The Department notes that these 
obligations are similar to the standard imposed by New York State in a 
rule issued by the New York Department of Financial Services entitled 
``Suitability and Best Interest in Life Insurance and Annuity 
Transactions'' (referred to as Rule 187). Section 242.4(b) of Rule 187 
provides that ``[t]he producer, or insurer where no producer is 
involved, acts in the best interest of the consumer when: (1) the 
producer's or insurer's recommendation to the consumer is based on an 
evaluation of the relevant suitability information of the consumer and 
reflects the care, skill, prudence, and diligence that a prudent person 
acting in a like capacity and familiar with such matters would use 
under the circumstances then prevailing. Only the interests of the 
consumer shall be considered in making the recommendation.'' Although 
Rule 187 has not been in force for a long time, the Department has not 
found any evidence suggesting that insurance producers, including 
Independent Producers, cannot comply with this standard. Nor is the 
Department aware of any evidence suggesting that this standard has 
inappropriately limited or restricted access to advice or insurance 
products in New York.
    The Department is confident that Independent Producers can comply 
with the Section VII(a) of amended PTE 84-24 and rejects any suggestion 
that Independent Producers cannot compete under the same framework of 
Impartial Conduct Standards that apply to other investment 
professionals and financial institutions under PTE 2020-02, including 
commission-based broker-dealers. Certainly, the Department believes 
that insurance products and annuities are often sound and valuable 
investments for Retirement Investors. There is nothing intrinsic to 
annuities or inherent in the Independent Producer distribution channel 
that suggests that Independent Producers cannot recommend annuities 
consistent with the Care Obligation and Loyalty Obligation, or that 
they cannot comply with the obligation to avoid overcharging or 
misleading Retirement Investors. To the contrary, Retirement Investors 
are best served by having recommendations governed by a common 
standard, applicable to all fiduciary investment advisers irrespective 
of investment product, that is focused on adherence to these basic 
obligations. By ensuring that fiduciary investment advice providers 
compete on a level playing field subject to a uniform standard, the 
Regulation and exemptions ensure that Retirement Investors' legitimate 
expectations of trust and confidence are honored, irrespective of the 
particular type of product recommended. Fiduciary recommendations to 
Retirement Investors should be uniformly driven by the investors' 
interests, rather than differences in regulatory stringency that give 
one class of investment professionals the unique ability to depart from 
basic standards of care and loyalty. Reasonable Compensation
    The Department is revising the reasonable compensation standard in 
Section VII(a)(2). The Proposed Amendment would have limited the 
compensation that an Independent Producer could receive to an 
``Insurance Sales Commission,'' defined to mean a sales commission paid 
by the Insurance Company or an Affiliate to the Independent Producer 
for the service of

[[Page 32310]]

recommending and/or effecting the purchase or sale of an insurance or 
annuity contract, including renewal fees and trailing fees, but 
excluding revenue sharing payments, administrative fees or marketing 
payments, payments from parties other than the Insurance Company or its 
Affiliates, or any other similar fees.
    The Department received several comments supporting this proposed 
limitation. One commenter noted the ``particularly acute conflicts of 
interest'' associated with sales of non-security annuities and 
supported not only limiting the compensation that could be paid, but 
also supported enhanced disclosure so that the Retirement Investors can 
understand the amount of money that the Independent Producer will make 
on the transaction. Another commenter similarly supported the 
Department's tailored approach that addresses the unique circumstances 
and challenges presented by these ``lightly regulated salespeople'' 
when they provide investment recommendations to Retirement Investors. 
The same commenter noted that limiting PTE 84-24 in this way would also 
further ensure a level playing field because any producer receiving 
other types of compensation would rely on PTE 2020-02. Yet another 
commenter criticized the NAIC Model Regulation's approach because it 
does not require insurers and producers to mitigate their compensation-
related conflicts of interest that often lead to consumers buying 
annuities that are not suitable for them.
    Many insurance industry commenters described this definition as 
overly narrow, noting that State insurance law does not limit 
compensation to commissions. Some commenters pointed to the NAIC Model 
Regulation, which specifically permits assistance with marketing, 
office support, retirement benefits, or other reasonable compensation, 
and other non-cash compensation. One commenter described the impact of 
the proposed limitation as contrary to the NAIC's work to develop a 
best interest standard, suggesting that it would reduce the investor 
choice that the NAIC had intended to preserve.
    Many commenters also objected to the limited compensation covered 
when compared to the broad relief provided in PTE 2020-02. These 
commenters asserted that it would be arbitrary for the Department to 
prohibit Independent Producers from receiving legal and disclosed 
compensation that would be permissible for a financial institution or 
investment professional to receive under PTE 2020-02. One specifically 
stated that this limitation was contrary to the Department's stated 
intent of creating a level playing field, arguing that with similar 
conditions in both exemptions, there was no valid reason for the 
Department to prohibit legal and disclosed compensation when received 
by independent insurance professionals, but not when it is received by 
other types of financial professionals.
    Some commenters argued that the limited definition was inconsistent 
with the Department's statement in footnote 10 of the Proposed 
Amendment's preamble that third party intermediary marketing 
organizations (IMOs) could compensate Independent Producers, presumably 
with compensation other than insurance commissions, as narrowly 
defined. In response to this comment, the Department confirms that all 
compensation under PTE 84-24 may be paid directly to IMOs or field 
market organizations (FMOs) which then compensate the individual 
Independent Producer who has provided investment advice. The Department 
also notes that ERISA section 408(b)(2) and Code section 4975(d)(2) are 
available for intermediaries providing non-fiduciary services.
    Another commenter stated that the proposed limitations on the types 
of compensation available for exemptive relief under PTE 84-24 would be 
so disruptive that it would call the continued availability of fixed 
annuity product distribution channels into question. This commenter 
stated that the compensation limits imposed by the Proposed Amendment 
would deprive investors of access to fixed annuities as a source of 
protection against the risks associated with market volatility and 
outliving one's assets. The commenter went on to state that, while the 
preamble language to the Proposed Amendment acknowledges the presence 
and vital role served by IMOs and FMOs in the training and support of 
Independent Producers, the Proposed Amendment would have provided no 
relief for any compensation received in connection with the sale of a 
recommended product other than so-called ``simple'' insurance 
commissions, directly paid by or on behalf of the insurance company.
    According to this same commenter, IMOs and FMOs support Independent 
Producer success and productivity through a variety of cash and non-
cash compensation structures, including revenue sharing and marketing 
allowances. This same commenter stated that non-cash compensation 
frequently includes the provision of value-added support including 
website construction and maintenance, sales leads, various forms of 
commercial advertising and computer software. According to this 
commenter, eligibility to receive such compensation is calibrated--at 
least to some extent--on Independent Producer productivity and on that 
basis is likely to be deemed by the Department under its new fiduciary 
definition as compensation received by an Independent Producer in 
connection with covered recommendations, necessitating prohibited 
transaction exemptive relief, but no such relief would be available 
under PTE 84-24 as it was proposed to be amended.
    After consideration of the public comments on limiting covered 
compensation to Insurance Sales Commissions, the Department has removed 
the proposed limitation to Insurance Sales Commissions and expanded the 
scope of the exemption to cover compensation as broadly as PTE 2020-02, 
including cash and non-cash compensation. In the Department's view, the 
Impartial Conduct Standards and other conditions of the exemption 
should adequately safeguard Retirement Investors from abuse, 
irrespective of the specific type of compensation. At the same time, 
the Department emphasizes that all compensation the Independent 
Producer receives in connection with a transaction pursuant to PTE 84-
24 must be reasonable within the meaning of ERISA section 408(b)(2) and 
Code section 4975(d)(2), and consistent with stringent policies and 
procedures designed to ensure Insurance Producers make recommendations 
to Retirement Investors that are consistent with the exemption's Care 
Obligation and Loyalty Obligation.

No Materially Misleading Statements

    Section VII(a)(3) provides the same prohibition on misleading 
statements that is part of PTE 2020-02. The Department is also 
clarifying that the prohibition against misleading statements applies 
to both written and oral statements. This provision requires that an 
Independent Producer's 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 the statements 
are made. For purposes of this condition, the term ``materially 
misleading'' includes the omission of information that is needed to 
prevent the statement from being misleading to the Retirement Investors 
under the circumstances.
    To the extent the Independent Producer provides materials, 
including marketing materials that are prepared and provided by the 
Insurer, this

[[Page 32311]]

condition also would require such materials not to be materially 
misleading to the Independent Producer's knowledge.

Disclosure

    The Department is generally finalizing the disclosure conditions 
with some modifications to the Proposed Amendment that are discussed 
below. As discussed in the preamble to the final amendment to PTE 2020-
02, while many commenters raised concerns about the burden imposed on 
financial institutions if the Department required additional 
disclosure, others expressed support for the Department imposing 
additional disclosure obligations. It is important that Retirement 
Investors have a clear understanding of the compensation, services, and 
conflicts of interest associated with recommendations so that they have 
sufficient information to make fully informed investment decisions. 
Additionally, clear and accurate disclosures can deter fiduciary 
investment advice providers from engaging in otherwise abusive 
practices that they would prefer not to expose to the light of day. 
Likewise, requiring a clear disclosure of otherwise hidden fees and 
conflicts involved in the sale of insurance products may serve to 
dissuade certain Insurers and Independent Producers from engaging in 
abusive sales practices, resulting in lower overall costs to 
consumers.\17\
---------------------------------------------------------------------------

    \17\ See, e.g., Santosh Anagol, Shawn Cole & Shayak Sarkar, 
Understanding the Advice of Commissions-Motivated Agents: Evidence 
from the Indian Life Insurance Market, 99(1) The Review of Economics 
and Statistics 1-15, (2015), https://doi.org/10.1162/REST_a_00625.
---------------------------------------------------------------------------

    In the preamble to the Proposed Amendment, the Department requested 
comments regarding whether Insurers or Independent Producers 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.
    After review of 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 rulemaking process. Consistent with the 
Recordkeeping conditions in Section IX, the Department intends, 
however, to regularly request that Independent Producers 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 disclosures in PTE 84-24 are similar to those in PTE 2020-02. 
This ensures that all Retirement Investors receiving fiduciary 
investment advice have the same information before engaging in a 
transaction, irrespective of product type. PTE 84-24 requires 
Independent Producers to provide certain disclosures at or before the 
time an investment advice transaction occurs. Section VII(b)(1) 
requires a fiduciary acknowledgement, but unlike PTE 2020-02, only the 
Independent Producer (and not the Insurer) must acknowledge in writing 
that it is a fiduciary providing investment advice to the Retirement 
Investor under Title I or II of ERISA or both.\18\ Section VII(b)(2) 
requires the Independent Producer to provide the Retirement Investor 
with a written statement of the Care Obligation and Loyalty Obligation 
that the Independent Producer owes to the Retirement Investor. For 
purposes of the disclosures required by Section II(b)(1)-(4), the 
Independent Producer is deemed to engage in a covered transaction on 
the later of (A) the date the recommendation is made or (B) the date 
the Independent Producer becomes entitled to compensation (whether now 
or in the future) by reason of making the recommendation.
---------------------------------------------------------------------------

    \18\ The Department cautions that an Insurer cannot insulate 
itself from fiduciary status merely by not making this 
acknowledgment. As noted above, an Insurer may become a fiduciary 
based on its actions.
---------------------------------------------------------------------------

    The fiduciary acknowledgment requirement is intended to make it 
unambiguously clear that the Independent Producer is making a 
recommendation to the Retirement Investor in a fiduciary capacity under 
ERISA or the Code. It would not be sufficient, for example, to have an 
acknowledgement say that ``I acknowledge fiduciary status under ERISA 
with respect the recommendation to the extent the recommendation is 
treated by ERISA or Department of Labor regulations as a fiduciary 
recommendation,'' because that statement does not inform the investor 
whether the Independent Producer is making the recommendation as a 
fiduciary. The point of the acknowledgment 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, so that there is no doubt as to the nature of the 
relationship or the associated compliance obligations. Anything short 
of definitive fiduciary acknowledgment would fail 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 
Independent Producer is making the recommendation in the requisite 
fiduciary capacity.
    As described in the preamble to PTE 2020-02, many commenters argued 
that the fiduciary acknowledgment requirement imposes contractual or 
warranty requirement on Independent Producers. Several other commenters 
noted, however, that neither PTE 84-24 nor PTE 2020-02 impose any 
contract or warranty requirements on fiduciary investment advice 
providers. Instead, the requirement simply ensures up-front clarity 
about the nature of the relationship and services being provided. The 
Department agrees with these commenters that this up-front clarity is 
important and does not impose any contract or warranty requirement. The 
fiduciary acknowledgment condition stands in marked contrast to the 
Department's 2016 rulemaking on fiduciary advice; the Department has 
imposed no obligation on fiduciary advice providers 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 engaging in a non-exempt prohibited transaction, are 
those provided by Title I of ERISA, which specifically provides a cause 
of action for fiduciary violations with respect to ERISA-covered Plans, 
and Title II of ERISA, which provides for imposition of the excise tax. 
Nothing in the exemption compels Independent Producers to make 
contractually enforceable commitments, and as far as the exemption 
provides, they could expressly disclaim any enforcement rights other 
than those specifically

[[Page 32312]]

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 for violations of the 
exemptions' terms. Under this Final Amendment, 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 between Independent Producers and Retirement Investors is 
a far cry from the creation of a whole new cause of action or remedial 
scheme.
    Rather than compel fiduciary status or create new causes of action, 
the Department merely conditions the availability of the exemption, 
which is only necessary for plan fiduciaries to receive otherwise 
prohibited compensation, on clarity that the transaction involves a 
fiduciary relationship. In addition, the Department does not purport to 
bind State or other 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 and supports 
Retirement Investor choice by requiring clarity as to the precise 
nature of the relationship that the firm or advice professional is 
undertaking.
    The Department additionally notes that conditions requiring 
entities to acknowledge their fiduciary status have become commonplace 
in recent exemptions the Department has granted over the past two 
years. For example, 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.\19\ Written acknowledgement of fiduciary status was 
first required by the Department as early as 1984, when the Department 
published PTE 84-14, 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.'' \20\
---------------------------------------------------------------------------

    \19\ 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).
    \20\ PTE 84-14, Part V, Section (a), (49 FR 9494, March 13, 
1984).
---------------------------------------------------------------------------

    One commenter additionally 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 preamble to the Regulation published elsewhere in 
today's Federal Register, neither the Regulation nor the final PTE 
amendments prohibit speech based on content or viewpoint in any 
capacity. Instead, the Regulation and PTEs simply impose fiduciary 
duties on covered parties, and insist on adherence to Impartial Conduct 
Standards.

Model Disclosure

    To assist Independent Producers in complying with these conditions 
of the exemption, the Department confirms that the following model 
language will satisfy Section VII(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.
    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 to you 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 you no more than what is reasonable for our 
services; and
     Give you basic information about our conflicts of 
interest.
    This model language generally applies to the Independent Producer's 
recommendations, however, the Independent Producer could also tailor 
the acknowledgment to limit it to an individual recommendation or 
subset of recommendations for which the Independent Producer is seeking 
prohibited transaction relief. However, Independent Producers can only 
rely on this exemption with respect to particular recommendations to 
the extent they have acknowledged their fiduciary status to Retirement 
Investors with respect to those recommendations.
    While some commenters requested additional model language, the 
Department is not providing model language for the specific material 
facts relating to the scope and terms of the relationship, conflict of 
interest, and basis for determination to recommend the annuity 
disclosures in Section VII(b)(3), (4), and (5), because those 
disclosures will need to be tailored to the specific business model.

Relationship and Conflict of Interest Disclosure

    Under Section VII(b)(3), the Independent Producer must disclose in 
writing all material facts relating to the scope and terms of the 
relationship with the Retirement Investor. This includes the material 
fees and costs that apply to the Retirement Investor's transactions, 
holdings, and accounts. The Independent Producer must also disclose the 
type and scope of services provided to the Retirement Investor, 
including any material limitations on the recommendations that may be 
made to the Retirement Investor. This description must include the 
products the Independent Producer is licensed and authorized to sell, 
inform the Retirement Investor in writing of any limits on the range of 
insurance products recommended, and identify the specific Insurers and 
specific

[[Page 32313]]

insurance products available to the Independent Producer for 
recommendation to the Retirement Investor. Further, under Section 
VII(b)(4), the Independent Producer must also disclose all material 
facts relating to Conflicts of Interest that are associated with the 
recommendation.
    One difference from PTE 2020-02 is that Independent Producers must 
also provide a notice describing the Retirement Investor's right to 
request additional information regarding cash compensation. If the 
Retirement Investor makes that request, the Independent Producer must 
give the investor a reasonable estimate of the amount of cash 
compensation to be received by the Independent Producer, which may be 
stated as a range of amounts or percentages; and whether the cash 
compensation will be provided through a one-time payment or through 
multiple payments, the frequency and amount of the payments, which may 
also be stated as a range of amounts or percentages. Although this is 
an additional obligation in PTE 84-24 that is not in PTE 2020-02, the 
Department notes this disclosure requirement closely parallels the 
obligations of an Independent Producer under Section 6.A.2.a.v and 
6.A.2.b of the NAIC Model Regulation \21\ and is similar to, but more 
limited than, the standard imposed by New York State in Section 30.3 of 
a rule issued by the New York Department of Financial Services entitled 
``Producer Compensation Transparency'' (referred to as Rule 194).\22\
---------------------------------------------------------------------------

    \21\ NAIC Model Regulation Section 6.A.2.a.v. provides that 
``[p]rior to the recommendation or sale of an annuity, the producer 
shall prominently disclose to the consumer . . . (v) A notice of the 
consumer's right to request additional information regarding cash 
compensation described in Subparagraph (b) of this paragraph.'' 
Section 6.A.2.b states that ``[u]pon request of the consumer or the 
consumer's designated representative, the producer shall disclose: 
(i) A reasonable estimate of the amount of cash compensation to be 
received by the producer, which may be stated as a range of amounts 
or percentages; and (ii) Whether the cash compensation is a one-time 
or multiple occurrence amount, and if a multiple occurrence amount, 
the frequency and amount of the occurrence, which may be stated as a 
range of amounts or percentages.''
    \22\ Section 30.3(a)(4) of Rule 194 provides that ``an insurance 
producer selling an insurance contract shall disclose the following 
information to the purchaser: . . . (4) that the purchaser may 
obtain information about the compensation expected to be received by 
the producer based in whole or in part on the sale, and the 
compensation expected to be received based in whole or in part on 
any alternative quotes presented by the producer, by requesting such 
information from the producer.'' If such a request is made, Section 
30.3(b) requires the producer to provide the following information: 
``(1) a description of the nature, amount, and source of any 
compensation to be received . . . ; (2) a description of any 
alternative quotes presented by the producer . . . ; (3) a 
description of any material ownership interest the insurance 
producer . . . has in the insurer . . . ; (4) a description of any 
material ownership interest the insurer . . . has in the insurance 
producer . . . ; and (5) a statement whether the insurance producer 
is prohibited by law from altering the amount of compensation 
received from the insurer based in whole or in part on the sale.''
---------------------------------------------------------------------------

    The Department thinks that this additional transparency is 
especially important in the context of PTE 84-24 because, in contrast 
to PTE 2020-02, the Insurer has not assumed fiduciary responsibility 
with respect to the recommendation or its compensation and incentive 
practices, and because of the importance of these financial incentives 
in driving investment recommendations. As noted above, it is important 
that Retirement Investors have a clear understanding of the 
compensation, services, and conflicts of interest associated with 
recommendations so that they have sufficient information to make fully 
informed investment decisions. Additionally, clear and accurate 
disclosures can deter Independent Producers and Insurers from engaging 
in otherwise abusive practices that they would prefer not to expose to 
the light of day. Likewise, requiring a clear disclosure of otherwise 
hidden fees and conflicts involved in the sale of insurance products 
may serve to dissuade Insurers and Independent Producers from making 
imprudent recommendations that are driven by outsized financial 
incentives, rather than the Retirement Investor's best interests, 
resulting in lower overall costs to consumers.\23\
---------------------------------------------------------------------------

    \23\ See, e.g., Santosh Anagol, Shawn Cole & Shayak Sarkar, 
Understanding the Advice of Commissions-Motivated Agents: Evidence 
from the Indian Life Insurance Market, 99(1) The Review of Economics 
and Statistics 1-15, (2015), https://doi.org/10.1162/REST_a_00625.
---------------------------------------------------------------------------

Best Interest Documentation and Rollover Disclosure

    Section VII(b)(5) additionally requires Independent Producers to 
consider and document their basis for the determination to recommend an 
annuity product to the Retirement Investor before the recommended 
annuity is sold. The Independent Producer must also provide this 
documentation to both the Retirement Investor and to the Insurer. The 
Department notes that the NAIC Model Regulation also requires producers 
to make a written record of any recommendation and document the basis 
for the recommendation.\24\
---------------------------------------------------------------------------

    \24\ Section 6.A.4.
---------------------------------------------------------------------------

    Consistent with the changes the Department is making to PTE 2020-
02, Section VII(b)(6) of the Final Amendment requires that, 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 Independent Producer must consider and document 
the bases for its recommendation that the Retirement Investor engage in 
the rollover transaction and must provide that documentation to both 
the Retirement Investor and the Insurer. Relevant factors the 
Independent Producer must consider include, to the extent applicable 
but 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; (C) whether an 
employer or other party pays for some or all of the Plan's 
administrative expenses under the Plan; and (D) the different levels of 
fiduciary protection, services, and investments available.
    The Department received many comments on this condition. As 
discussed in the preamble to the final amendment to PTE 2020-02, the 
Department received support for the rollover disclosure provision. For 
example, 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. Some commenters supporting the condition noted the 
conflicts of interest inherent with respect to many annuity sales and 
that annuity transactions can be extremely difficult and costly to 
reverse. The written documentation requirement ensures that Independent 
Producers undertake a careful analysis and document their reasoning for 
recommending these transactions, which will help ensure that their 
recommendations are well-supported and comply with the Impartial 
Conduct Standards.
    Other commenters expressed concern with the required rollover 
disclosure. For example, one commenter stated that it is unclear how an 
Independent Producer could compare fees and expenses of employer plans 
without an annuity option with a recommended annuity. According to this 
commenter, comparing annuities to other investment options are ``an 
apples-to-oranges comparison that would likely confuse a participant 
more than help.'' Another commenter characterized the condition as 
potentially requiring Independent

[[Page 32314]]

Producers to violate the law, because as described by the commenter 
Federal securities laws prohibit individuals from recommending or 
providing detailed information or advice about securities unless they 
have a securities license. Thus, according to the commenter, 
Independent Producers who do not have a securities license (as most do 
not) would be forced to either break the law to comply with this 
condition or undertake the expense and burden of obtaining the 
appropriate securities licenses.
    The Department disagrees with this characterization of the 
exemption condition. While Independent Producers are required to 
consider alternatives to the rollover from the Title I Plan into an 
annuity, they are not required to recommend or provide detailed 
information or advice about securities. Nothing in the exemption 
requires or suggests that Independent Producers are obligated to make 
advice recommendations as to investment products they are not qualified 
or legally permitted to recommend. The Department notes that nothing in 
the exemption or the Impartial Conduct Standards prohibits investment 
advice by ``insurance-only'' agents or requires such insurance 
specialists to render advice with respect to other categories of assets 
outside their specialty or expertise. There may be circumstances when 
the best advice an Independent Producer can give an investor is to 
bring in or work with another Investment Professional who can make a 
recommendation that is consistent with the Impartial Conduct Standards. 
A rollover recommendation should not be based solely on the Retirement 
Investor's existing investment allocation without any consideration of 
other investment options in the Retirement Investor's Title I Plan. The 
Independent Producer must carefully consider the options available to 
the investor, including options other than the Retirement Investor's 
existing Plan investments, before recommending that the participant 
roll assets out of the Title I Plan. Similarly, if an Independent 
Producer limits its recommendations to annuities or to a limited menu 
of annuities provided by specific insurers, it could not justify a 
recommendation that was imprudent on the basis that it was the most 
appropriate alternative from the Independent Producer's range of 
available investment alternatives. If none of the available annuity 
options could be recommended, without violating the Independent 
Producer's Care Obligation or Loyalty Obligation, it would need to 
refrain from recommending any of the offerings, even though it would 
mean turning away business.
    Other commenters expressed concern about the level of detail 
required and suggested that when enforcing this condition, the 
Department should take into account that fact that many Independent 
Producers are small businesses with minimal resources. Another 
commenter suggested that the Department should rely instead on language 
from the NAIC Model Regulation or the SEC's Regulation Best Interest.
    While the Department acknowledges these comments, it has determined 
to retain the rollover disclosure in amended PTE 84-24. As identified 
by some commenters, this disclosure provides important protections and 
information to Retirement Investors. This condition, which also matches 
Section II(b)(5) of the final amendment to PTE 2020-02, reflects the 
clear importance of sound advice with respect to rollovers. 
Recommendations to roll assets out of an ERISA-covered Plan often 
involve a Retirement Investor's lifetime savings and are critical to 
the investor's retirement security. For many Retirement Investors, the 
recommendation to roll their savings out of the Plan and invest those 
savings in an annuity expected to provide income for the rest of their 
life is the single most important recommendation they will ever 
receive.
    The importance of the rollover documentation and disclosure 
requirement is proportional to the importance of the advice, and 
rightly focuses the Independent Producer's attention on reasonable 
alternatives to the rollover and annuity purchase, comparative fees and 
expenses, and different levels of fiduciary protections, services, and 
investments available before and after the roll-over. Documenting the 
bases for the recommendations also enables the Insurer to verify 
compliance with its policies and procedures, and ensure they are 
adequate.
    As discussed in the preamble to amended PTE 2020-02, the Department 
is making a significant change to the disclosure provisions in the 
final amendments to both PTE 2020-02 and PTE 84-24 in response to 
comments. The Proposed Amendment specified that the rollover 
documentation and disclosure requirement would have 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 response to comments, the 
Department is narrowing the required rollover disclosure in the Final 
Amendment so that it only applies to rollovers from Title I Plans. 
Under amended PTE 84-24, Independent Producers are not required to 
document and disclose recommendations to roll assets over from one 
Title I Plan to another Title I Plan, from one IRA to another IRA or to 
change account types. Of course, these types of transactions may 
require Independent Producers' special attention, and as discussed 
further below, Insurers may wish to specify in their policies and 
procedures how they will manage these types of transactions.

Good Faith and Exception for Disclosures Prohibited by Law

    The Department is adding clarifications in Section VII(b)(7) of the 
Final Amendment that an Independent Producer will not fail to satisfy 
the disclosure conditions in Section VII(b) solely because they make an 
error or omission in disclosing the required information while acting 
in good faith and with reasonable diligence, provided that the 
Independent Producer 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. 
Similarly, Section VII(b)(8) allows Independent Producers to rely in 
good faith on information and assurances from each other and from 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. 
Additionally, under Section VII(b)(9), the Independent Producer is not 
required to disclose information pursuant to Section VII(b) if such 
disclosure is otherwise prohibited by law. These provisions are 
consistent with PTE 2020-02. The Department did not receive substantive 
comments on these provisions and is finalizing them as proposed.

Policies and Procedures

    While Independent Producers are free to recommend a variety of 
Insurers' products, they do not operate outside the control and 
influence of the Insurers whose products they recommend. To the 
contrary, these Insurers set the Independent Producers' compensation 
and incentives, provide training, oversee compliance with State law 
obligations and the Insurer's policies and procedures, and 
substantially determine how and whether an Independent Producer will be 
able to

[[Page 32315]]

recommend the Insurers' products. Because of their authority over the 
sale of their products and over the conduct of Independent Producers, 
the Insurers' actions and the financial incentives they create can 
promote or undermine participant interests.
    Despite the central and obvious importance of the Insurers 
themselves to the Independent Producer distribution channel, the 
Department has decided not to condition relief under this exemption on 
Insurers' acknowledgment of fiduciary status with respect to 
Independent Producers' recommendations. This decision takes into 
account many Insurers' strong concerns about being held accountable as 
fiduciaries for the actions of Independent Producers who are not 
subject to their control in the same way that, for example, common law 
employees are subject to their employer's control. However, the 
Department's ability to structure the exemption to cover Independent 
Producers and protect the interests of Retirement Investors importantly 
depends on the Independent Producers' ability to make recommendations 
that are subject to careful compliance-oriented institutional oversight 
by Insurers that is focused on Retirement Investors' best interests, 
and on the mitigation and avoidance of conflicts of interest.
    It is critically important to the success of this exemption that 
the Insurers, whose products Independent Producers recommend as 
fiduciaries, pay careful attention to any conflicts associated with 
Independent Producers' recommendations of their products, appropriately 
manage those conflicts of interest, and adopt and implement appropriate 
supervisory oversight mechanisms, as set forth below. Without these 
protections, the Department would be unable to conclude that this 
exemption is sufficiently protective of Retirement Investors and their 
interests and would have to consider imposing more stringent protective 
conditions or simply require Independent Producers and Insurers to rely 
on PTE 2020-02, which is broadly available to them even in the absence 
of this exemption.\25\
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    \25\ While this exemption does not require Insurers to 
acknowledge fiduciary status, Insurers can.by their own conduct, 
effectively make recommendations and assume fiduciary responsibility 
for those recommendations. When they do so, they should rely upon 
PTE 2020-02 for relief, inasmuch as this exemption provides relief 
only to the Independent Producers. The Department believes that the 
relief provided by this exemption is appropriately tailored to the 
Independent Producer distribution channel, but it will monitor 
performance under the exemption closely to ensure that it meets its 
protective purposes.
---------------------------------------------------------------------------

    Accordingly, Section VII(c)(1) conditions relief on the actions of 
the Insurer to establish, maintain, and enforce written policies and 
procedures for the review of each recommendation made by an Independent 
Producer before an annuity is issued to a Retirement Investor pursuant 
to an Independent Producer's recommendation. The policies and 
procedures must be prudently designed to ensure compliance with the 
Impartial Conduct Standards and other exemption conditions. The Insurer 
must prudently review the Independent Producer's recommendations of its 
products, and this review must be made without regard to the Insurer's 
own interests.
    Section VII(c)(2) further conditions relief on a requirement that 
the Insurer's policies and procedures 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 Independent Producer to place its 
interests, or those of the Insurer, or any Affiliate or Related Entity, 
ahead of the Retirement Investor's interest. In this regard, the 
Insurer must 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 to the Retirement Investor.
    As further explained below, this condition applies an objective 
standard focused on whether a reasonable person would conclude that the 
Insurer's actions or incentives were likely to result in 
recommendations that do not meet the Care Obligation or Loyalty 
Obligation. Insurers and Independent Producers must avoid and mitigate 
conflicts of interest to the extent possible and rely on oversight 
structures that prevent those conflicts of interest from driving 
investment recommendations, rather than the financial interests of 
Retirement Investors.
    Under Section VII(c)(3), the Insurer's policies and procedures must 
also include a prudent process for determining whether to authorize an 
Independent Producer to sell the Insurer's annuity contracts to 
Retirement Investors. Specifically, the Insurer must have a prudent 
process for identifying Independent Producers who have failed to adhere 
to the Impartial Conduct Standards, or who lack the necessary 
education, training, or skill to provide investment advice to 
Retirement Investors. A prudent process includes careful review of 
objective material, such as customer complaints, disciplinary history, 
and regulatory actions concerning the Independent Producer, as well as 
the Insurer's review of the Independent Producer's training, education, 
and conduct with respect to the Insurer's own products. The Insurer 
must document the basis for its initial determination that it can rely 
on the Independent Producer to adhere to the Impartial Conduct 
Standards and must review that determination at least annually as part 
of the retrospective review set forth in subsection (d) below.

Discussion of Comments

    The Department has made minor edits to the Policies and Procedures 
requirement in Section II(c) in response to commenters. To ensure 
Retirement Investors receive the same protections, whether they receive 
advice under PTE 2020-02 or PTE 84-24, the Department has made the 
policies and procedures conditions substantively identical, with a few 
specific obligations tailored to the insurance industry.

Obligation on Insurers

    Many commenters expressed concern that the Policies and Procedures 
requirement would be too difficult to meet for Insurers, who are not 
fiduciaries under the exemption. Some commenters argued the Policies 
and Procedures requirement was in conflict with State law. One 
commenter contrasted the Department's conditions with the NAIC 
requirements, which the commenter described as specific, actionable, 
and proportional to the relationship between insurer and agent. Another 
commenter described the proposed policies and procedures conditions as 
unworkable and objected to their departure from less demanding State 
laws, which the commenter said would not require the insurer to 
directly supervise each Independent Producer. A few commenters urged 
the Department to adopt the NAIC Model Regulation as a safe harbor.
    Other comments focused on practical challenges associated with some 
interpretations of the exemption's requirements. For example, one 
commenter argued that use of the term ``ensure'' was unacceptable 
because Insurers do not control Independent Producers and therefore 
cannot guarantee their compliance. Another commenter stated that 
requiring an insurer to review the recommendations of third-party 
products is an impossible task because they do not know those products 
and the products are not and

[[Page 32316]]

cannot be in their system for review. This commenter further questioned 
how an insurer can determine whether the recommendation is in the best 
interest of the Retirement Investor as compared to other products the 
Independent Producer is authorized to sell, if the Insurer is not 
required to supervise an Independent Producer's recommendations of 
other Insurers' products. This same commenter urged the Department to 
specify in the operative text that supervision does not include an 
obligation to consider and compare other companies' products. Another 
commenter also characterized the exemption as requiring Insurers to 
review all conduct of Independent Producers and stressed the fact that 
Insurers are not able to control all the actions of Independent 
Producers to the same degree as, for example, broker-dealers can 
regulate the conduct of their registered representatives.
    Other commenters supported the obligation imposed on Insurers. One 
commenter pointed to the greater risk that a recommendation in the 
independent channel will be tainted by conflicts of interest because 
there is no single institution overseeing each recommendation. To 
address these conflicts without imposing fiduciary status on all 
Insurers, each Insurer must exercise oversight over Independent 
Producers to the extent the Independent Producer is selling the 
Insurer's own products. To do this, the Insurer must have reasonably 
designed policies and procedures and must not encourage or reward 
producers for violating the Impartial Conduct Standards. Another 
commenter expressed significant concerns with the NAIC Model 
Regulation. Under the NAIC Model Regulation, insurers and producers are 
not required to mitigate the compensation-related conflicts of interest 
that are often responsible when consumers are given bad advice and end 
up buying annuities that are not suitable for them.
    The Department has considered these comments and continues to 
believe that the policies and procedures requirement is essential to 
the exemption. The Department is similarly not adopting the NAIC Model 
Regulation as a safe harbor. If trusted Independent Producers are to 
recommend insurance products to Retirement Investors, it is important 
that they are subject to proper oversight by the Insurer whose products 
they are recommending, and that those Insurers pay careful attention to 
financial incentives they create or administer that are misaligned with 
Retirement Investors' interests. Insurers choosing to rely on 
Independent Producers for distribution of their products should be able 
to comply with the protective and workable oversight obligations set 
out in Section VII(c). Moreover, while there are important differences 
between the requirements in Section VII(c) and the NAIC Model 
Regulation, as discussed below, the NAIC Model Regulation itself 
requires a significant level of supervision demonstrating that Insurers 
can (and already must) supervise producers. The NAIC Model Regulation 
specifically says, ``An insurer shall establish and maintain a 
supervision system that is reasonably designed to achieve the insurer's 
and its producers' compliance with this regulation.'' \26\
---------------------------------------------------------------------------

    \26\ Section 6.C(2). Similarly, Rule 187 Section 224.6 requires 
``An insurer shall establish, maintain, and audit a system of 
supervision that is reasonably designed to achieve the insurer's and 
producers' compliance.'' While Rule 187 imposes a higher standard of 
care than the NAIC Model Regulation and contains other provisions 
that are more protective of consumers than the NAIC Model 
Regulation, the Department has not identified statements from 
industry participants or other publicly available information 
indicating that carriers or distributors are withdrawing from the 
New York annuity market as a result of Rule 187.
---------------------------------------------------------------------------

    Even if Insurers were not already required to supervise Independent 
Producers under State law, the conditions in Section VII(c) do not 
place an excessive burden on Insurers. Section VII(c)(1) specifies that 
the policies and procedures must be prudently designed to ensure 
compliance with the Impartial Conduct Standards and other exemption 
conditions. The ``prudently designed'' standard does not require 
perfection with respect to every recommendation by every Independent 
Producer overseen by the Insurer. The Department recognizes that, even 
prudent oversight structures will not prevent every instance of 
inappropriate advice, and use of the word ``ensure'' was not intended 
to suggest otherwise. When an Independent Producer violates the terms 
of this exemption, notwithstanding the Insurer's adoption and 
implementation of a prudent oversight structure, the consequence is 
that the Independent Producer is responsible for the resulting 
prohibited transaction, not that the Insurer is disqualified from 
continuing to act as a supervisory Insurer under the exemption. On the 
other hand, if the Insurer fails to implement policies and procedures 
and conflict-management measures consistent with this exemption, 
Independent Producers could not rely on this exemption for relief from 
ERISA's prohibited transaction rules.
    In response to comments, the Department also confirms that Insurers 
are not required to police Independent Producers' recommendations of 
competitors' products. As specified in Section VII(c)(1), ``[a]n 
Insurer is not required to supervise an Independent Producer's 
recommendations to Retirement Investors of products other than 
annuities offered by the Insurer.'' Furthermore, Insurers could choose 
to comply with the policies and procedures requirement by creating 
oversight and compliance systems through contracts with insurance 
intermediaries such as IMOs, FMOs or brokerage general agencies (BGAs). 
Such intermediaries, for example, could eliminate compensation 
incentives across all the Insurers that work with the intermediary, 
review Independent Producers' documentations, and/or 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.
    The Department acknowledges, however, that this exemption's 
policies and procedures requirement is significantly more stringent 
than the standards imposed by the NAIC Model Regulation. This reflects 
the difference in ERISA's regulatory structure, which is profoundly 
concerned about the dangers posed by conflicts of interest as expressed 
in the prohibited transaction provisions of Title I and Title II of 
ERISA. Under ERISA Section 408(a) and Code section 4975(c)(2), the 
Department can grant an exemption only if the exemption is in the 
interest of plans and their participants and beneficiaries and 
protective of the rights of participants and beneficiaries. The more 
stringent requirements of this exemption's policies and procedures are 
necessary for the Department to make these findings, and to ensure 
uniform protection of Retirement Investors.
    In contrast to ERISA's stringent approach to conflicts of interest, 
the NAIC Model Regulation's requirements regarding mitigation of 
material conflicts of interest is not as protective as either the 
Department's approach under ERISA or the SEC's approach under 
Regulation Best Interest. This is made clear in the NAIC Model 
Regulation's definition of a ``material conflict of interest'' which 
expressly carves out all ``cash compensation or non-cash compensation'' 
from treatment as sources of conflicts of interest.\27\ ``Cash 
compensation'' that is excluded from the definition of a material 
conflict of interest is broadly defined to include ``any discount, 
concession, fee, service fee, commission, sales charge, loan,

[[Page 32317]]

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 ``non-cash compensation'' is also 
broadly defined to include ``any form of compensation that is not cash 
compensation, including, but not limited to, health insurance, office 
rent, office support and retirement benefits.'' \28\ The NAIC also 
expressly disclaimed that its standard creates fiduciary obligations, 
and the obligations in its NAIC Model Regulation differ in significant 
respects from those applicable to broker-dealers in the SEC's 
Regulation Best Interest or to investment advisers pursuant to the 
Advisers Act's fiduciary duty.\29\ For example, in addition to 
disregarding all forms of compensation as a source of material 
conflicts of interest, the NAIC Model Regulation's ``best interest'' 
standard is treated as satisfied if four component obligations are 
met--the care, disclosure, conflict of interest, and documentation 
obligations--but these components do not repeat the NAIC Model 
Regulation's best interest obligation not to put the producer's or 
insurer's interests before the customer's interest. Instead, they 
include a requirement ``to have a reasonable basis to believe the 
recommended option effectively addresses the consumer's financial 
situation, insurance needs, and financial objectives . . . .''
---------------------------------------------------------------------------

    \27\ NAIC Model Regulation at section 5.I.(2).
    \28\ Id. at section 5.B. and J.
    \29\ Section 6.A.(1)(d) of the NAIC Model Regulation provides, 
``[t]he requirements under this subsection do not create a fiduciary 
obligation or relationship and only create a regulatory obligation 
as established in this regulation.''
---------------------------------------------------------------------------

Obligation on Independent Producers

    Other commenters expressed concern that the obligation for Insurers 
to establish, maintain and enforce policies and procedures is too much 
of a burden for the Independent Producers who must comply with those 
policies and procedures. One commenter asserted that, from a practical 
perspective, it would be impossible for an Independent Producer to set 
up a system requiring the producer to follow different policies and 
procedures from different insurers, stating that it would inevitably 
lead to the producer's failure to meet the requirements of the Proposed 
Amendment. Another commenter stated that the obligation to figure out 
how to operate within different policies and procedures developed by 
different Insurers would drive many Independent Producers to reduce the 
number of Insurers for whom they sell and the number of different 
products they recommend. The commenter warned that this reduction could 
harm Retirement Investors because it would be based on the Independent 
Producer's own compliance burden, rather than the needs of Retirement 
Investors.
    The Department acknowledges that there may be variations in the 
requirements that Insurers impose on Independent Producers or 
intermediaries as a result of the requirements of this Final Amendment. 
However, Independent Producers already have the obligation to comport 
their conduct to the varying contractual arrangements and policies of 
different Insurers. As a practical matter, Independent Producers, 
either directly, or indirectly through their relationship with an IMO 
or other intermediary, must already conform their conduct to the 
requirements of the potentially varying policies and procedures of the 
different Insurers whose products they recommend. Similarly, as 
Independent Producers, they necessarily have to master the intricacies 
of varying--and often quite complex--annuity products, compensation 
policies and structures, and contractual requirements provided by 
multiple insurance companies. The additional burden, if any, of 
complying with some additional variation in these same Insurers' 
policies and procedures, all of which are aimed at promoting the 
uniform goal of ensuring compliance with the Impartial Conduct 
Standards, is amply justified by Retirement Investors' interest in 
receiving sound advice from trusted Investment Professionals that is 
prudent, loyal, and free from misleading statements and excessive 
compensation.

Incentives

    Commenters expressed particular concern about the requirement that 
Insurers 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. As noted in the preamble to PTE 2020-02, which contains 
essentially the same obligation, some commenters incorrectly read the 
Proposed Amendment as conditioning reliance on the exemption on 
elimination of all differentials in compensation. Other commenters 
viewed the exemption as prohibiting or limiting the use of Insurer-
funded training and educational conferences and programs. For example, 
some commenters expressed concern that, under the exemption's terms, 
Insurers would not be able to exclude Independent Producers from 
training conferences even though they did not make significant sales of 
the Insurer's products. Several commenters additionally suggested that 
the Department's approach to conflicts of interest is inconsistent with 
that of other regulators. These commenters described the preamble to 
the Proposed Amendment as reflecting a judgment call by the Department 
that such conflicts cannot be sufficiently mitigated and therefore must 
be eliminated, and one challenged the Department's authority to impose 
such anti-conflict policies on Insurers who had not acknowledged 
fiduciary status or undertaken to act in a fiduciary capacity to the 
extent the policies exceeded the requirements of State law. One 
commenter described the Department's requirements as conflicting with 
the NAIC Model Regulation, which the commenter said only prohibits 
incentives that are based on sales of specific annuities within a 
limited period of time.\30\
---------------------------------------------------------------------------

    \30\ NAIC Model Regulation section 6.C(2)(h).
---------------------------------------------------------------------------

    However, as noted in the preamble to the final amendment to PTE 
2020-02, which contains essentially the same requirement as this 
exemption, the exemption provision neither categorically bans 
differential compensation, nor prohibits Insurers from funding 
educational meetings. The exemption merely requires reasonable 
guardrails for conferences, especially if they involve travel. The 
exemption applies an objective standard focused on whether a reasonable 
person would conclude that the Insurer's actions or incentives were 
likely to result in recommendations that do not meet the Care 
Obligation or Loyalty Obligation. The Department recognizes that it is 
impossible to eliminate all conflicts of interest with respect to the 
commission-based sale of insurance products, and the Department is not 
demanding the impossible. Instead, the Department is requiring Insurers 
and Independent Producers to avoid and mitigate conflicts of interest 
to the extent possible and to rely on oversight structures that prevent 
those conflicts of interest from driving investment recommendations, 
rather than the financial interests of Retirement Investors. The 
Department further confirms that an Independent Producer may receive 
reasonable and customary deferred compensation or subsidized health or 
pension benefit arrangements such as typically provided to a statutory 
``employee'' as defined in Code section 3121(d)(3) without, in and of 
itself,

[[Page 32318]]

violating the conditions of this exemption. However, Insurers working 
with these statutory employees must ensure that their policies and 
procedures and incentive practices are reasonably and prudently 
designed as required by Section VII(c).
    While the Department acknowledges that the exemption imposes more 
stringent standards on Independent Producers than many State laws and 
the NAIC Model Rule, the exemption is fully consistent with the 
Department's authority and responsibilities under ERISA. The Department 
has conditioned relief from ERISA's prohibited transaction provisions 
on compliance with the exemption conditions based on its separate 
authority under Federal law, which governs Plan and IRA investments and 
fiduciary investment recommendations, irrespective of the type of 
investment product recommended, including insurance products and non-
insurance products alike.
    ERISA imposes an obligation on the Department to safeguard 
Retirement Investors from conflicts of interest. Under ERISA, in 
contrast to most State insurance laws, fiduciary advice providers are 
categorically prohibited from making investment recommendations that 
result in their receipt of variable compensation, unless permitted by a 
special exemption granted by statute or the Department. The Department 
can only grant exemptions that it finds are in the interest of and 
protective of Retirement Investors.\31\
---------------------------------------------------------------------------

    \31\ ERISA section 408(a)(2), (3); 29 U.S.C. 1108(a)(2), (3); 
Code section 4975(c)(2)(B), (C).
---------------------------------------------------------------------------

    Moreover, the conflicts of interest that give rise to prohibited 
transactions under Titles I and II of ERISA, include conflicts of 
interest associated with compensation, such as commissions and fees 
that the NAIC Model Regulation expressly excludes from treatment as 
material conflicts of interest. Specifically, the NAIC Model 
Regulation's definition of a ``material conflict of interest'' 
expressly carves out all ``cash compensation or non-cash compensation'' 
from treatment as sources of material conflicts of interest.\32\ This 
``cash compensation,'' which is excluded from the definition of a 
material conflict of interest, is broadly defined to include ``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.\33\ ``Non-cash compensation'' is also 
broadly defined to include ``any form of compensation that is not cash 
compensation, including but not limited to, health insurance, office 
rent, office support and retirement benefits.'' \34\
---------------------------------------------------------------------------

    \32\ NAIC Model Regulation at section 5.I.
    \33\ NAIC Model Regulation at section 5.B.
    \34\ NAIC Model Regulation at section 5.J.
---------------------------------------------------------------------------

    In contrast, the SEC, like the Department of Labor, recognizes that 
such compensation creates significant conflicts of interest, as 
recognized in its Regulation Best Interest and under the fiduciary duty 
of the Investment Advisers Act of 1940. In an FAQ regarding this 
regulation, SEC staff provided examples of common sources of conflicts 
of interest for broker-dealers, investment advisers, or financial 
professionals, and specifically included ``compensation, revenue or 
other benefits (financial or otherwise).'' \35\
---------------------------------------------------------------------------

    \35\ See Staff Bulletin: Standards of Conduct for Broker-Dealers 
and Investment Advisers Conflicts of Interest, Q2, available at 
https://www.sec.gov/tm/iabd-staff-bulletin-conflicts-interest.
---------------------------------------------------------------------------

    This Final Amendment appropriately follows Federal law, as 
expressed in ERISA, to protect Plan and IRA investors. The more 
stringent Federal protections adopted here with respect to Federally 
regulated retirement investments fully accord with ERISA's requirements 
and the authority conferred by Congress to the Department in ERISA 
section 408(a) and Code section 4975(c)(2) to protect Retirement 
Investors from harmful conflicts of interest.
    The Department has specifically granted this Final Amendment to 
permit Independent Producers to receive compensation that may vary 
based on their specific investment recommendations, such as sales 
commissions, that otherwise would be prohibited by ERISA's broad 
categorical prohibitions on the receipt of such conflicted compensation 
by fiduciaries. However, in order to receive such compensation when 
acting as fiduciaries, Independent Producers must recommend products 
only from Insurers that pay attention to the conflicts that are 
inherent in their compensation models and take special care to avoid 
creating or implementing 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 of this Final Amendment.
    However, as discussed above, because of Insurer concerns about 
being held responsible as fiduciaries for the conduct of Independent 
Producers whom they do not hire or control as common law employees, the 
Department has not conditioned relief on the Insurer's acknowledgement 
of fiduciary status with respect to the Independent Producer's 
recommendation of its insurance products. Instead, it simply requires 
that Independent Producers that receive otherwise prohibited 
compensation subject to appropriate oversight and incentive structures. 
Under the Final Amendment, the oversight is conducted by the same 
Insurers who create the incentive structures for the products in the 
first place and generally already have oversight responsibility over 
Independent Producers under State law.
    The Department understands that Insurers significantly rely on 
educational conferences for Independent Producers, as commenters 
indicated, and that such conferences and training can promote 
Retirement Investors' interests. Accordingly, the Department stresses 
that it is not prohibiting such conferences. However, participation in 
and reimbursement for these conferences must be structured in a manner 
to ensure they are not likely to cause Independent Producers to make 
recommendations that violate this 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.
    As noted in the preamble to the Final Amendment to PTE 2020-02, the 
Department also recognizes that it can be proper to tie attendance at 
conferences to appropriate 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, parties 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, parties 
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.

[[Page 32319]]

Reviewing Independent Producers

    Some commenters raised specific concerns with the requirement in 
Section VII(c)(3), which provides that the Insurer whose product is 
recommended has a prudent process for determining whether to authorize 
an Independent Producer to sell the Insurer's annuity contracts and to 
protect the Retirement Investor from Independent Producers who have 
failed to adhere to the Impartial Conduct Standards or who lack the 
necessary education, training, or skill. A prudent process would 
include review of such objective materials as customer complaints, 
disciplinary history, and regulatory actions concerning the Independent 
Producer, as well as the Insurer's review of the Independent Producer's 
training, education, and conduct with respect to the Insurer's own 
products. Section VII(d)(1) specifies that Insurers may rely in part on 
sampling to conduct their retrospective reviews, as long as any 
sampling or other method is designed to identify potential violations, 
problems, and deficiencies that need to be addressed.
    Some commenters objected to provisions in this proposed requirement 
that would have required a prudent process ``for taking action to 
protect Retirement Investors from Independent Producers who are likely 
to fail to adhere to the Impartial Conduct Standards,'' and several 
commenters said they do not know how to predict in advance the 
likelihood that a producer is ``likely to fail'' in the future. One 
commenter additionally asked the Department to state that these 
requirements could be limited to objective criteria such as a criminal 
background check, license verification, credit history check, and 
similar data readily available to the Insurer.
    In response to these commenters, the Department has not included 
the phrase ``or are likely to fail'' after ``who have failed'' in the 
Final Amendment, because it may have been read to require predictive 
powers, which the Department did not intend. The Department also agrees 
that a prudent process for reviewing Independent Producers must include 
a careful review of ``objective material,'' but the Department does not 
agree that a prudent process can be fully specified in advance by 
reference to a tightly limited set of objective materials and therefore 
has not adopted changes requested by commenters to further narrow the 
requirements of Section VII(c)(3).

Providing Policies and Procedures to the Department

    Proposed Section VII(c)(4) would have required Insurers to provide 
their complete policies and procedures to the Department upon request 
within 10 business days of the request. The provision is also part of 
the Policies and Procedures condition in PTE 2020-02 and was subject to 
comments in connection with that exemption. As described in the 
preamble to the final amendment to PTE 2020-02, 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. Another comment requested more time 
to provide the certification to the Department. In response to this 
comment, although the Department expects that the policies and 
procedures should be easily located, the Department also recognizes the 
possibility of inadvertent non-compliance because of the tight 
timeline. After considering these comments, the Department has retained 
Section VII(c)(4) but extended the time for Insurers to provide their 
complete policies and procedures to the Department from within 10 
business days as proposed to within 30 days of request.

Retrospective Review

    Under Section VII(d), the Insurer whose product the Independent 
Producer recommends must have a process for conducting a retrospective 
review of each Independent Producer at least annually that is 
reasonably designed to detect and prevent violations of, and achieve 
compliance with, the exemption's conditions. The retrospective review 
also includes a review of Independent Producers' documentation of 
rollover recommendations and required rollover disclosure. As part of 
this review, the Insurer is expected to prudently determine whether to 
continue to permit individual Independent Producers to sell the 
Insurer's annuity contracts to Retirement Investors. Additionally, the 
Insurer must update its policies and procedures as business, 
regulatory, and legislative changes and events dictate, and ensure that 
its policies and procedures remain prudently designed, effective, and 
compliant with Section VII(c). To ensure Retirement Investors receive 
the same protections, whether they receive advice under PTE 2020-02 or 
PTE 84-24, the Department has made the retrospective review conditions 
substantively identical, with a few specific obligations tailored to 
the insurance industry. In addition, under the Proposed Amendment, the 
Insurer was expected to give the Independent Producer the methodology 
and results of the retrospective review, including a description of any 
non-exempt prohibited transaction the Independent Producer engaged in 
with respect to investment advice defined under Code section 
4975(e)(3)(B), and instruct the Independent Producer to correct those 
prohibited transactions, report the transactions to the IRS on Form 
5330, pay the resulting excise taxes imposed by Code section 4975, and 
provide the Insurer with a certification that the Independent Producer 
has filed the Form 5330 within 30 days after the form is due (including 
extensions).
    Under the Proposed Amendment, the methodology and results of the 
retrospective review had to be reduced to a written report that is 
provided to a Senior Executive Officer of the Insurer. As proposed, 
that Senior Executive Officer also had to certify, annually, that:
    (A) The officer has reviewed the retrospective review report;
    (B) The Insurer has provided Independent Producers with the 
information required under (d)(2) and has received a certification that 
the Independent Producer has filed Form 5330 within 30 days after the 
form is due (including extensions);
    (C) The Insurer has established policies and procedures prudently 
designed to ensure that Independent Producers achieve compliance with 
the conditions of this exemption, and has updated and modified the 
policies and procedures as appropriate after consideration of the 
findings in the retrospective review report; and
    (D) The Insurer has in place a prudent process to modify such 
policies and procedures as set forth in Section VII(d)(1).
    The review, report, and certification was proposed to be completed 
no later than six months following the end of the period covered by the 
retrospective review. The Proposed Amendment would have required the 
Insurer to 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 10 business days of request.
    Some commenters supported the retrospective review condition and

[[Page 32320]]

supported having Insurers 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. However, other commenters raised concerns, viewing the 
condition as excessive and inefficient. Commenters asserted that it is 
both impractical and unnecessary for Insurers to review each 
recommendation and expressed concern about the volume of 
recommendations. One commenter requested confirmation that testing done 
as part of the retrospective review could rely on standard sampling and 
testing techniques. Another commenter pointed to the language in the 
preamble to the Proposed Amendment acknowledging that insurance 
companies working with Independent Producers have less direct control 
over the conduct and compensation of Independent Producers than over 
their employees. As a result, they stated that Insurers would not have 
access to the information they would need to effectively ensure that 
Independent Producers fully complied with the Impartial Conduct 
Standards and the other exemption conditions. One commenter expressed 
concern that under the exemption, Independent Producers are not 
required to provide Insurers with sufficient information for them to be 
able to conduct the retrospective review. Some commenters argued that 
the Department should instead rely on the NAIC Model Regulation's 
written report to senior management which details a review, with 
appropriate testing, reasonably designed to determine the effectiveness 
of the insurer's supervision system, the exceptions found, and 
corrective action taken or recommended, if any.
    Some commenters also raised specific concerns with the Senior 
Executive Officer certification requirement. They noted that other 
regulators typically require that certifications provide assurance that 
company systems or procedures are ``reasonably designed to achieve 
compliance,'' a standard that they asserted was lower than what is 
required for Independent Producers to achieve compliance with impartial 
conduct standards. Other commenters stated that the retrospective 
review should not consider the filing of the IRS Form 5330, arguing 
this is beyond the Department's regulatory authority. A few commenters 
raised specific concerns that Insurers were not the appropriate party 
to file Form 5330 under the Code. Others argued that requiring Insurers 
to file Form 5300 interfered with State regulation of insurance.
    One commenter requested more time to provide the certification to 
the Department. In response to this comment, 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 Insurers 30 days to provide the 
certification.
    The Department is finalizing the retrospective review requirement 
because of the fundamental importance of a regular review process to 
ensure that the Policies and Procedures are working and that 
Independent Producers are complying with the Impartial Conduct 
Standards. In response to commenters, the Department has added to 
Section (d)(1) a clarification that Insurers may rely in part on 
sampling of each Independent Producer's transactions to conduct their 
retrospective reviews, as long as any sampling or other method is 
designed to identify potential violations, problems, and deficiencies 
that need to be addressed.
    The Department is also making several other changes to specifics of 
the retrospective review provision. To address concerns from some 
commenters about having the Insurer file Form 5330, the Department is 
revising the filing obligation to be the responsibility of the 
Independent Producer, which is a fiduciary, and thus a ``disqualified 
person liable for the tax under Code section 4975 for participating in 
a prohibited transaction.'' \36\ However, the Insurer is expected to 
instruct the Independent Producer to correct those prohibited 
transactions, report the transactions to the IRS on Form 5330, pay the 
resulting excise taxes imposed by Code section 4975, and provide the 
Insurer with a certification that it has filed Form 5330 within 30 days 
after the form is due (including extensions). The Department is also 
revising Section VII(d)(3) for consistency with amended PTE 2020-02. 
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 Insurer. This is essential for Insurers to know that their 
Independent Producers are actually correcting prohibited transactions.
---------------------------------------------------------------------------

    \36\ IRS Form 5330 instructions https://www.irs.gov/pub/irs-pdf/i5330.pdf.
---------------------------------------------------------------------------

    The Department is also revising the Senior Executive Officer 
certification to incorporate the amended provisions regarding Form 
5330. Under the Final Amendment, the required certification states that 
the officer has reviewed the retrospective review report, the Insurer 
has provided Independent Producers with the information required under 
(d)(2), and the Insurer has received a certification that affected 
Independent Producers have filed Form 5330 within 30 days after the 
form is due (including extensions).

Self-Correction

    Section VII(e) allows the Independent Producer to correct 
violations to avoid a non-exempt prohibited transaction in certain 
circumstances. Self-correction is allowed in cases when either (1) the 
Independent Producer has refunded any charge to the Retirement 
Investor; or (2) the Insurer has rescinded a mis-sold annuity, canceled 
the contract, and waived the surrender charges. The correction must 
occur no later than 90 days after the Independent Producer learned of 
the violation or reasonably should have learned of the violation; the 
Independent Producer must notify the person(s) at the Insurer 
responsible for conducting the retrospective review during the 
applicable review cycle; and the violation and correction must be 
specifically set forth in the written report of the retrospective 
review required under Section VII(d)(2).
    The appropriate remedy for a non-exempt prohibited transaction 
involving an annuity purchase is rescission, which requires the insurer 
to cancel the contract and waive surrender charges. The correction must 
occur no later than 90 days after the Independent Producer learned, or 
reasonably should have learned, of the violation. Lastly, the 
Independent Producer must notify the person(s) at the Insurer 
responsible for conducting the retrospective review during the 
applicable review cycle and the violation and correction must 
specifically be set forth in the written retrospective review report.
    One commenter stated that it is unclear what is exactly meant by a 
``mis-sold'' annuity and what is supposed to happen if an agent and 
Insurer disagree in that regard. Thus, according to this commenter, it 
is unclear how the agent or Insurer in the case of retrospective review 
would even discover any non-exempt prohibited transaction. This same 
commenter also questioned whether all non-exempt prohibited 
transactions require rescission or whether there is a materiality 
threshold. This commenter also stated that the Proposed Amendment did 
not address the common situation where an Insurer

[[Page 32321]]

rescinds an annuity as a matter of customer service without determining 
or admitting any violation of laws or, in this case, noncompliance with 
impartial conduct standards. Finally, this commenter asked how 
situations would be handled where agents and Insurers disagree on the 
need for correction under PTE 84-24.
    As discussed in the preamble to PTE 2020-02 in response to 
comments, the Department notes that no one is required to use the self-
correction provision. Furthermore, not all violations of the exemption 
can be corrected under the self-correction provision. In addition, 
minor disclosure failures can be corrected under Section VII(b)((7), 
which provides that the Independent Producer will not fail to satisfy 
the disclosure conditions solely because it makes an error or omission 
in disclosing the required information while acting in good faith and 
with reasonable diligence. To avoid a violation of the exemption, the 
Independent Producer 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. 
Lastly, the Department notes that merely rescinding an annuity as a 
matter of customer service is not self-correcting if there was no 
violation to correct.
    While the Insurer may discover violations eligible for self-
correction as part of its retrospective review under Section VII(d), it 
is the Independent Producer's obligation to self-correct under Section 
VII(e) to avoid the resulting prohibited transaction and imposition of 
an excise tax. If there is disagreement, the Independent Producer 
ultimately has the responsibility as a fiduciary to decide whether to 
take action. Based on what the Insurer learns through the review 
process, and the specific facts and circumstances, a reasonable Insurer 
may conclude that it is imprudent to continue authorizing that 
Independent Producer to sell its annuity contracts and act accordingly. 
To the extent that the Independent Producer does not or cannot correct 
the violation, the consequence is that a prohibited transaction has 
occurred with attendant liability for the excise tax.
    As discussed in the proposal to PTE 2020-02, 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. 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 the commenters' 
concern about the burden associated with the self-correction provision, 
the Department has 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 parties are 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 that it 
may request Independent Producers to provide evidence of self-
corrections through the recordkeeping provisions in Section IX.

Eligibility

    The Proposed Amendment added Section VIII which identifies 
circumstances under which an Independent Producer would have become 
ineligible to rely on the exemption for 10 years, and also 
circumstances when an entity would not have been permitted to serve as 
an Insurer under this exemption for 10 years. The proposed eligibility 
provisions were similar to the provisions of Section III of PTE 2020-02 
and are intended to promote compliance with the exemption conditions. 
The Department continues to believe that the eligibility provisions are 
important to ensure that Independent Producers comply with the 
obligations of the exemption, subject to oversight by Insurers that 
take compliance with the exemption's conditions seriously. Therefore, 
after consideration of the comments, the Department has determined to 
retain the eligibility provision of Section VIII, but it has made 
several important modifications that are discussed below.
    Under the Final Amendment, an Independent Producer or Insurer can 
become ineligible as a result of a conviction by: (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).
    Independent Producers and Insurers also lose eligibility if they 
are 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 Department of Justice, a State insurance 
regulator, or State attorney general, to have participated in one or 
more of the following categories of misconduct irrespective of whether 
the court specifically considers this exemption or its terms: (A) 
engaging in a systematic pattern or practice of violating 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; or (C) providing materially 
misleading information to the Department, the Department of the 
Treasury, the Internal Revenue Service, the Department of Justice, a 
State insurance regulator, or State attorney general in connection with 
the conditions of the exemption.
    In addition, Independent Producers (but not Insurers) will become 
ineligible if they are 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 Department of Justice, a State 
insurance regulator, or State attorney general, to have 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

[[Page 32322]]

transactions involving investment advice under Code section 
4975(e)(3)(B).
    The Final Amendment specifies that an Insurer or Independent 
Producer 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 apply for an individual prohibited 
transaction exemption from the Department.
    Most of the comments the Department received on eligibility were 
combined with the comments submitted under PTE 2020-02 and were 
essentially the same. Those comments directly submitted under PTE 84-24 
are also very similar to the comments under PTE 2020-02 regarding 
eligibility. For additional discussion of the comments received 
regarding eligibility please see the grant notice for PTE 2020-02 
published elsewhere in today's issue of the Federal Register. Many 
commenters variously asserted that the proposed addition of the 
eligibility provisions to the exemptions exceeded the Department's 
authority; undermined parties' ability to rely on the exemptions; 
unduly broadened the conditions for eligibility; and would result in 
reduced choice and access to advice for Retirement Investors. 
Generally, these commenters requested that the Department not include 
the proposed ineligibility sections in the Final Amendment and 
requested that, if the Department does move forward with these 
sections, that it apply the provisions prospectively.

Scope of Ineligibility

    One commenter claims that the Proposed Amendment would impose 
unreasonably harsh sets of conditions on both Independent Producers and 
on Insurers, under which both would be under constant threat of loss of 
the exemption for a 10-year period and, in the case of Insurers, loss 
of the exemption could be triggered by events involving other parties 
over whom the Insurer has no direct involvement. Another commenter 
expressed concern that the proposed ineligibility provisions applied 
too broadly to insurance producers, insurance carriers and their 
foreign and domestic affiliates.
    Some commenters objected to the breadth of the provisions' 
application to ``Affiliates'' and requested that the Final Amendment 
instead use the term ``controlled group,'' which has a clear and well-
defined meaning. Some commenters similarly objected to the scope of 
conduct treated as disqualifying and asserted that disqualification 
should not extend to criminal conduct that does not involve the 
management of retirement assets.
    In response to the commenters, the Department has decided to use 
the term ``Controlled Group'' for purposes of ineligibility of Insurers 
under Section VIII(b) of the exemption and has revised that Section 
accordingly. The Final Amendment also adds Section VIII(b)(3), which 
defines Controlled Group. Under this definition, an entity is in the 
same Controlled Group as an Insurer 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 Insurer or ``under 
common control'' with the Insurer as those terms are defined in Code 
section 414(b) and (c) (and any regulations issued thereunder). The 
Department declines, however, to narrow the Final Amendments' 
definition of crimes to only those crimes that arise out of the 
provision of investment advice or the management of plan assets. The 
enumerated crimes in Section VIII reflect egregious misconduct, 
typically in a financial context, that is clearly relevant to the 
parties' willingness and commitment to comply with important legal 
obligations. There is little basis for concluding that Retirement 
Investors should be sanguine or that the Department should be confident 
of compliance when the Independent Producer or Insurer engages in 
serious crimes, such as embezzlement or financial fraud, but the 
specific victims were non-Retirement Investors. However, to the extent 
Independent Producers or Insurers have continued need for an exemption 
notwithstanding such a conviction, they can apply with the Department 
for an individual prohibited transaction exemption that would include 
appropriate protective conditions based on the Department's assessment 
of the particular facts and circumstances, and the remedial actions the 
parties have taken to ensure a prospective culture of compliance.

Foreign Convictions

    Several commenters claimed that the Department has no basis for 
expanding the ineligibility provisions to include ``substantially 
equivalent'' foreign crimes committed by foreign affiliates and that 
the inclusion of foreign affiliates is overbroad and will create 
unintended consequences, especially when the conduct does not need to 
relate directly to the provision of investment advice. These commenters 
stated that such inclusion will result in ineligibility for conduct 
that is unrelated to the provision of fiduciary investment advice and 
for conduct in which the fiduciary has not participated and about which 
it has no knowledge. Another commenter stated ineligibility could be 
triggered by events involving other parties over which the insurer has 
no direct involvement, such as the conviction of an affiliate company 
of any of the specified crimes under the laws of a foreign country.
    Several comments regarding PTEs 2020-02 and 84-24 stated that the 
proposed ineligibility provisions raised 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 a violation of foreign law without due process 
protections or without the same level of due process afforded in the 
United States. Some commenters state that it is not clear that the 
Department is equipped to make the ``substantially equivalent'' 
determination and doing so could result in inconsistency and 
unfairness. 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 the exemptions therefore must appropriately be tailored to 
address criminal activity, whether occurring in the U.S. or in a 
foreign jurisdiction, but noted their concerns with the potential lack 
of due process in foreign jurisdictions.
    Other commenters were concerned that some foreign courts could be 
vehicles for hostile governments to achieve political ends as opposed 
to dispensing justice and for interference in the retirement 
marketplace for supposed wrongdoing that is wholly unrelated to 
managing retirement assets. They further noted concerns that these 
governments could potentially assert political influence over fiduciary 
advice providers looking to avoid a foreign criminal conviction.
    After considering these comments, the Department is retaining the 
inclusion of foreign convictions in the Final Amendment. 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 84-24. 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 call into 
question an Insurer's and Independent Producer's culture of compliance 
just as much as domestic crimes, whether prosecuted domestically or in 
foreign jurisdictions.

[[Page 32323]]

    The Department does not expect that questions regarding 
``substantially equivalent'' will arise frequently, especially given 
the Final Amendment's use of the term ``Controlled Group'' instead of 
``Affiliate,'' as discussed above. But, when these questions do arise, 
those impacted may contact the Office of Exemption Determinations for 
guidance, as they have done for many years.\37\ 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, give 
parties both the time and the opportunity to address any issues about 
the relevance of any specific foreign conviction and its applicability 
to ongoing relief pursuant to PTE 84-24. Insurers and Independent 
Producers 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 Insurers and 
Independent Producers 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 Insurer or 
Independent Producer submitting a request for review should do so 
promptly, and whenever possible, before a judgment is entered in a 
foreign conviction.
---------------------------------------------------------------------------

    \37\ 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).
---------------------------------------------------------------------------

    The exemption for Qualified Professional Asset Managers (QPAMs), 
PTE 84-14, has a similar disqualification provision and the Department 
is not aware that any foreign convictions have occurred in foreign 
nations with respect to the QPAM exemption that are intended to harm 
U.S.-based financial institutions and believes there is a small 
likelihood of such occurrences. Further, the types of foreign crimes of 
which the Department is aware from its experience processing recent PTE 
84-14 QPAM individual exemption requests for relief from convictions 
have consistently related to the subject institution's management of 
financial transactions and/or culture of compliance. For example, 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 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)).\38\
---------------------------------------------------------------------------

    \38\ 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.
---------------------------------------------------------------------------

    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 VIII(a)(1)(B) and VIII(b)(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.'' \39\ Therefore, the Department will not consider foreign 
convictions that occur under the jurisdiction of the listed ``foreign 
adversaries'' as an ineligibility event and 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.
---------------------------------------------------------------------------

    \39\ 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. Sections VIII(a)(1)(B) and VIII(b)(1)(B) of the 
Final Amendment will automatically adjust to reflect amendments the 
Secretary of Commerce makes to the list.
---------------------------------------------------------------------------

Due Process

    The Department also received several comments regarding the 
proposed ineligibility notice process. The Proposed Amendment would 
have provided that the Department could issue a written ineligibility 
notice for (A) engaging in a systematic pattern or practice of 
violating the conditions of this exemption in connection with otherwise 
non-exempt prohibited transactions; (B) intentionally violating, or 
knowingly participating in violations of, 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, 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); or (D) 
providing materially misleading information to the Department in 
connection with the conditions of the exemption.
    Generally, these comments reflected the view that the Department 
had inappropriately asserted authority to determine ineligibility 
without external review and without appropriate due process 
protections. Commenters stressed that disqualification effectively 
imposed a 10-year ban, and many expressed the view that more procedural 
protections were necessary for such a significant consequence and that 
disqualification should be more tightly linked to failure to meet the 
conditions of the exemption. Some commenters contended that, by leaving 
too much discretion to the Department, the process would create 
uncertainty and adversely affect the ability of Retirement Investors to 
get sound advice. Some commenters expressed concern 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, an express right of appeal, and formal procedures 
for the presentation of evidence.
    Some commenters on both PTEs 2020-02 and 84-24 also stated that 
while the six-month period provided in

[[Page 32324]]

the exemption 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 the Department to revise the exemption to provide for at 
least 12 months to make the transition away from reliance on PTE 84-24 
or to find an alternative means of complying with ERISA following a 
finding of ineligibility.
    After consideration of the comments and to address the due process 
concerns, the Department has determined to modify Sections VIII(a)(2) 
and VIII(b)(2) of the ineligibility provisions. While maintaining the 
types of conduct that can lead to ineligibility, amended Section 
VIII(a)(2) and VIII(b)(2) of the Final Amendment removes the discretion 
of the Department from making the determination of whether the conduct 
has occurred and limits disqualification to court-supervised 
determinations.
    Under the provision as amended, ineligibility under Section 
VIII(a)(2) will occur as a result of an Independent Producer being 
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 IRS, the Department of 
Justice, a State insurance regulator, or a 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) 
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 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 Department of Justice, a 
State insurance regulator, or State attorney general in connection with 
the conditions of this exemption.
    Likewise, ineligibility under Section VIII(b)(2) will occur as a 
result of an Insurer being 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 IRS, the Department of Justice, a State insurance regulator, or a 
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 violating 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; or (C) providing materially misleading 
information to the Department, the Department of the Treasury, the 
Internal Revenue Service, the Department of Justice, a State insurance 
regulator, or State attorney general in connection with the conditions 
of this exemption.
    Ineligibility under Section VIII(a)(2) and (b)(2) will therefore 
operate in the same manner as ineligibility for a criminal conviction 
defined in Section VIII(a)(1) and (b)(1), subject to the timing and 
scope provisions in Section VIII(c). An Insurer or Independent Producer 
will become ineligible only after a court has found or determined in a 
final judgment or approved settlement that the conduct listed in 
Section VIII(a)(2) or (b)(2) has occurred. In response to concerns 
raised by commenters, the Department has made changes so that any 
ineligibility occurs only after a conviction, a court's final judgment, 
or a court approved settlement.
    Thus, ineligibility will follow a determination in civil or 
criminal court proceedings subject to the full array of procedural 
protections associated with legal proceedings overseen by courts and 
will include the normal judicial oversight associated with convictions, 
final judgments, and court approved settlements. In addition to 
providing sufficient due process, this revised ineligibility provision 
(i.e., having ineligibility occur only after a conviction, a court's 
final judgment, or a court approved settlement) gives those facing 
ineligibility ample notice and time to prepare for ineligibility and 
the resulting One-Year Transition Period discussed below. An ineligible 
Insurer or Independent Producer would become eligible to rely on this 
exemption again if there is a subsequent judgment reversing the 
conviction or final judgement.

Timing of Ineligibility and One-Year Transition Period

    Several commenters to both PTE 2020-02 and PTE 84-24 expressed 
concern that the eligibility 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 
amendment to the exemption. Additionally, some commenters asserted that 
the six-month period provided in the Proposed Amendment following 
ineligibility would be insufficient for Insurers and Independent 
Producers 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. Another 
commenter stated that providing a longer 12-month period would enable 
Insurers and Independent Producers 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 
significant disruption as Plans would have no more than six months to 
find suitable replacements and would impose harm on Retirement 
Investors who have hired a disqualified firm.
    The Department confirms that ineligibility under Section VIII will 
be prospective such that only convictions, final judgments, or court-
approved settlements occurring after the Applicability Date of this 
Final Amendment will cause ineligibility. In addition, the six-month 
lag period for eligibility has been replaced with the One-Year 
Transition Period in Section VIII(c)(2). Accordingly, while Section 
VIII(c) now provides that a party becomes ineligible upon the date of 
conviction, final judgment, or court-approved settlement that occurs 
after the Applicability Date of the exemption, the One-Year Transition 
period provides Insurers and Independent Producers ample time in which 
to prepare for the loss of the exemptive relief under PTE 84-24, 
determine alternative means for compliance, prepare and protect 
Retirement Investors, and apply for an individual exemption.
    The Final Amendment indicates that relief under the exemption 
during the

[[Page 32325]]

Transition Period is available for a maximum period of one year after 
the Ineligibility Date if the Insurers or Independent Producer, as 
applicable, submits a notice to the Department at [email protected] 
within 30 days after ineligibility begins under Section VIII(c). No 
relief will be available for any transactions (including past 
transactions) effected during the One-Year Transition Period unless the 
Insurer or Independent Producer 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 Insurers or Independent Producers an 
opportunity to apply to the Department for individual prohibited 
transaction exemptions with appropriate protective conditions.
    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. Insurers or 
Independent Producers that become ineligible to rely on this exemption 
may rely on a statutory prohibited transaction exemption, such as ERISA 
section 408(b)(14) and Code section 4975(d)(17), or separate 
administrative prohibited transaction exemption if one is available, or 
may seek an individual prohibited transaction exemption from the 
Department. In circumstances where the Insurers or Independent 
Producers become 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 the 
individual exemption applications process. When processing individual 
exemption applications, 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 can make their own 
independent determinations whether to engage in otherwise prohibited 
transactions with the Insurers or Independent Producers.
    The Department encourages any Insurers or Independent Producers 
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); 
the Department cautions that retroactive exemptions may require 
additional prospective compliance.

Form 5330

    The Department received comments that expressed concern over the 
imposition of ineligibility based on the Independent Producers' failure 
to make the required Code section 4975 excise tax filing and to comply 
with IRS Form 5330 filing requirements and excise tax payment 
obligations. Several commenters stated this provision is unreasonable 
and that the Department has no statutory or regulatory enforcement 
authority to base ineligibility on these Code provisions and claimed 
this was overreach by the Department. These commenters urged the 
Department to remove this provision from the exemption.
    The Department is retaining ineligibility based on failure 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 a 
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 
Independent Producer'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. Since an obligation already exists to file 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 84-24.
    Moreover, as discussed above, ineligibility under Section 
VIII(a)(2)(C) would only occur following a court finding that an 
Independent Producer 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. Imposing ineligibility only after such 
determinations in connection with court proceedings removes the 
Department from the determination process and provides ample due 
process.

Alternative Exemptions

    An Insurer or Independent Producer 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 condition of providing 
retroactive relief. A few commenters also 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

[[Page 32326]]

impact of dangerous conflicts of interest.
    One commenter also speculated that the loss of the exemption based 
on ineligibility would effectively require the Insurer to acknowledge 
fiduciary status in connection with any request for an individual 
exemption. The Department notes, however, that it would base any 
decisions on whether to grant such an exemption and the possible 
conditions it would include in such exemption, including the need for a 
fiduciary acknowledgment, on the particular facts and circumstances 
that were presented by an applicant.

Recordkeeping

    Section IX provides that Independent Producers and Insurers must 
maintain for a period of six years from the date of 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, including such employees of the Internal 
Revenue Service. While the Department had proposed a broader 
recordkeeping condition affording greater public access to the records, 
the Department has determined that the recordkeeping provisions for 
advice under PTE 84-24 should be narrowed consistent with those in PTE 
2020-02.
    Although the proposed broader recordkeeping condition was 
consistent with other exemptions, the Department understands 
commenters' concerns about broader access to the documents and has 
concern that broad access to the documents could have a 
counterproductive impact on the formulation and documentation of 
appropriate firm oversight and control of recommendations by 
Independent Producers. Therefore, the Department has determined this 
narrower recordkeeping language satisfies ERISA section 408(a) and Code 
section 4975(c)(2). However, the Department intends to monitor 
compliance with the exemption closely and may, in the future, expand 
the recordkeeping requirement if appropriate. Any future amendments 
would be preceded by notice and an opportunity for public comment.

Executive Order 12866 and 13563 Statement

    Executive Orders 12866 \40\ and 13563 \41\ 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.
---------------------------------------------------------------------------

    \40\ 58 FR 51735 (Oct. 4, 1993).
    \41\ 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,\42\ 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. 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.
---------------------------------------------------------------------------

    \42\ 88 FR 21879 (Apr. 6, 2023).
---------------------------------------------------------------------------

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 OMB will consider all written comments that they receive within 
30 days of publication of this notice. Written comments and 
recommendations for the information collection should be sent to 
https://www.reginfo.gov/public/do/PRAMain. Find this particular 
information collection by selecting ``Currently under 30-day Review--
Open for Public Comments'' or by using the search function.
    As discussed in detail above, PTE 84-24, as amended, will exclude 
compensation received as a result of the provision of investment advice 
from the existing relief provided in Section II, which will be 
redesignated as Section II(a) and add new Sections VI and -XI and 
redesignate the definitions as Section X, which will provide relief for 
investment advice limited to the narrow category of transactions in 
which an independent, insurance-only agent, or Independent Producer, 
provides investment advice to a Retirement Investor regarding an 
annuity or insurance contract. Additionally, as amended, the exemption 
requires the Independent Producers engaging in these transactions to 
adhere to certain Impartial Conduct Standards, including acting in the 
best interest of the Plans and IRAs when providing advice.

[[Page 32327]]

    Financial institutions and investment professionals that engage in 
all other investment advice transactions, including those involving 
captive or career insurance agents, will rely on PTE 2020-02 to receive 
exemptive relief for investment advice transactions. PTE 84-24 will 
require certain new disclosures, annual retrospective reviews, and 
compliance with policy and procedure requirements. 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.\43\
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    \43\ For a more detailed discussion of the marginal costs 
associated with the Amendments to PTE 84-24, refer to the Regulatory 
Impact Analysis (RIA) in the Notice of Proposed Rulemaking published 
elsewhere in today's edition of the Federal Register.
---------------------------------------------------------------------------

1.1 Preliminary Assumptions

    In the analysis discussed below, a combination of personnel will 
perform the tasks associated with the ICRs at an hourly wage rate of 
$165.29 for an Independent Producer, $65.99 for clerical personnel, and 
$165.71 for a legal professional, and $133.24 for a senior 
executive.\44\
---------------------------------------------------------------------------

    \44\ Internal Department calculation based on 2023 labor cost 
data. For a description of the Department's methodology for 
calculating wage rates, see https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.
---------------------------------------------------------------------------

    The Department does not have information on how many Retirement 
Investors, including Plan beneficiaries and participants and IRA 
owners, receive disclosures electronically from investment advice 
fiduciaries. For the purposes of this analysis in the Proposed 
Amendment, the Department assumed that the percent of Retirement 
Investors receiving disclosures electronically would be similar to the 
percent of Plan participants receiving disclosures electronically under 
the Department's 2002 and 2020 electronic disclosure rules, which was 
3.9 percent at the time.\45\ The Department received comment regarding 
this assumption presenting anecdotal evidence that the rate would be 
substantially lower, presumably due to the different characteristics of 
IRA and annuity consumers compared with actively working Plan 
participants. Accordingly, the Department revisited and revised the 
estimate to 71.8 percent of the disclosures sent to Retirement 
Investors being sent electronically, and the remaining 28.2 percent 
sent by mail.\46\ Furthermore, the Department estimates that 
communications between businesses (such as disclosures sent from one 
financial institution to another) will be 100 percent electronic.
---------------------------------------------------------------------------

    \45\ 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.
    \46\ 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.
---------------------------------------------------------------------------

    The Department assumes any documents sent by mail would be sent by 
First Class Mail, incurring a postage cost of $0.68 for each piece of 
mail.\47\ Additionally, the Department assumes that documents sent by 
mail would incur a material cost of $0.05 for each page.
---------------------------------------------------------------------------

    \47\ United States Post Service, First-Class Mail, (2023), 
https://www.usps.com/ship/first-class-mail.htm.
---------------------------------------------------------------------------

1.2 Costs Associated With Satisfying Conditions for Transactions 
Described in Section III(a)-(f)

    Insurance agents and brokers, pension consultants, insurance 
companies, and investment company principal underwriters are expected 
to continue to take advantage of the exemption for transactions 
described in Section III(a)-(f). The Department estimates that 3,030 
insurance agents and brokers, pension consultants, and insurance 
companies will continue to take advantage of the exemption for 
transactions described in Section III(a)-(f). This estimate is based on 
the following assumptions:
     According to the Insurance Information Institute, in 2022, 
there were 3,328 captive agents, which are insurance agents who work 
for only one insurance company.\48\ The Insurance Information Institute 
also found that life and annuity insurers accounted for 47.4 percent of 
all net premiums for the insurance industry in 2022.\49\ Thus, the 
Department estimates there are 1,577 insurance agents and brokers 
relying on the existing provisions.\50\
---------------------------------------------------------------------------

    \48\ Insurance Information Institute, A Firm Foundation: How 
Insurance Supports the Economy--Captives by State, 2021-2022, 
https://www.iii.org/publications/a-firm-foundation-how-insurance-supports-the-economy/a-50-state-commitment/captives-by-state (last 
visited August 25, 2023).
    \49\ Insurance Information Institute, Facts + Statistics: 
Industry Overview--Insurance Industry at-a-Glance, https://www.iii.org/fact-statistic/facts-statistics-industry-overview.
    \50\ The number of captive insurance agents is estimated as: 
3,328 captive agents x 47.4% = 1,577 captive insurance agents 
serving the annuity market.
---------------------------------------------------------------------------

     The Department expects that pension consultants would 
continue to rely on the existing PTE 84-24. Based on 2021 Form 5500 
data, the Department estimates that 1,011 pension consultants serve the 
retirement market.\51\
---------------------------------------------------------------------------

    \51\ Internal Department of Labor calculations based on the 
number of unique service providers listed as pension consultants on 
the 2021 Form 5500 Schedule C.
---------------------------------------------------------------------------

    In the Department's 2016 Regulatory Impact Analysis, it estimated 
that 398 insurance companies wrote annuities.\52\ The Department 
requested information on how the number of insurance companies 
underwriting annuities has changed since then but received no 
meaningful insight. The Department revisited the estimate and settled 
on a revised approach to bring the estimate more current. To form a 
basis for its assumption of insurance companies affected by the rule, 
the Department looked at the estimate of 398 insurance companies 
writing annuities used in the 2016 RIA. This assumption was based on 
data of insurance companies that reported receiving either individual 
or group annuity considerations in 2014.\53\ Comparatively, there were 
710 firms in the direct life insurance carrier industry in 2014.\54\ By 
these measures, in 2014, insurance companies writing annuities 
accounted for 56 percent of the direct life insurance carrier industry.
---------------------------------------------------------------------------

    \52\ This estimate is based on 2014 data from SNL Financial on 
life insurance companies that reported receiving either individual 
or group annuity considerations. (See Employee Benefits Security 
Administration, Regulating Advice Markets Definition of the Term 
``Fiduciary'' Conflicts of Interest--Retirement Investment Advice 
Regulatory Impact Analysis for Final Rule and Exemptions, (April 
2016), https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB32-2/ria.pdf.)
    \53\ Employee Benefits Security Administration, Regulating 
Advice Markets Definition of the Term ``Fiduciary'' Conflicts of 
Interest--Retirement Investment Advice Regulatory Impact Analysis 
for Final Rule and Exemptions, pp. 108-109 & 136-137, (April 2016), 
https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB32-2/ria.pdf.
    \54\ United States Census Bureau, 2014 SUSB Annual Data Tables 
by Establishment Industry, (December 2016).
---------------------------------------------------------------------------

    To gain more insight into annuity underwriting, as it pertains to 
the life insurance industry, the Department looked to the evolution of 
premiums. In 2014, annuity premiums accounted for 55 percent of life 
and annuity insurance

[[Page 32328]]

premiums.\55\ By 2020, annuities had fallen to 48 percent of life and 
annuity insurance premiums. Between 2020 and 2022, the percentage 
remained constant around 48 percent.\56\
---------------------------------------------------------------------------

    \55\ Insurance Information Institute, Life/Annuity Insurance 
Income Statement, 2014-2018, https://www.iii.org/table-archive/222464/file.
    \56\ Insurance Information Institute, Facts + Statistics: Life 
Insurance, (2024), https://www.iii.org/fact-statistic/facts-statistics-life-insurance#Direct%20Premiums%20Written%20By%20Line,%20Life/Annuity%20Insurance,%202020-2022.
---------------------------------------------------------------------------

     While premiums are not directly related to the number of 
firms, the Department thinks it is reasonable to assume that the 
percent of life insurance companies underwriting annuities may have 
declined slightly since 2014. For the purposes of this analysis, the 
Department assumed that approximately half of life insurance companies 
underwrite annuities. According to the 2021 Statistics of U.S. 
Businesses release, the most recent data available, there were 883 
firms in the direct life insurance carrier industry.\57\ The Department 
estimates that 442 life insurance companies underwrite annuities and 
will be affected by the amendments.
---------------------------------------------------------------------------

    \57\ United States Census Bureau, 2021 SUSB Annual Data Tables 
by Establishment Industry, (December 2023).
---------------------------------------------------------------------------

    In addition, investment company principal underwriters may rely on 
the exemption. In the Department's experience, investment company 
principal underwriters almost never use PTE 84-24. Therefore, the 
Department assumes that 20 investment company principal underwriters 
will engage in one transaction annually under PTE 84-24, 10 of which 
are assumed to service Title I Plans and 10 are assumed to service 
IRAs.
    Further, the Department estimates that there are approximately 
765,124 ERISA covered pension Plans \58\ and approximately 67.8 million 
IRAs.\59\ The Department estimates that 7.5 percent of Plans are new 
accounts or new financial advice relationships \60\ and that 3 percent 
of Plans will use the exemption for covered transactions.\61\ Based on 
these assumptions, the Department estimates that 1,727 Plans would be 
affected by the Final Amendments to PTE 84-24.\62\
---------------------------------------------------------------------------

    \58\ Employee Benefits Security Administration, United States 
Department of Labor, Private Pension Plan Bulletin: Abstract of 2021 
Form 5500 Annual Reports, Table A1 (2023; forthcoming).
    \59\ Cerulli Associates, 2023 Retirement-End Investor, Exhibit 
5.12. The Cerulli Report, (2023).
    \60\ EBSA identified 57,575 new plans in its 2021 Form 5500 
filings, or 7.5 percent of all Form 5500 pension plan filings.
    \61\ In 2020, 7 percent of traditional IRAs were held by 
insurance companies. (See Investment Company Institute, The Role of 
IRAs in US Households' Saving for Retirement, 2020, 27(1) ICI 
Research Perspective (2021), https://www.ici.org/system/files/attachments/pdf/per27-01.pdf.) This number has been adjusted 
downward to 3 percent to account for the fact that some transactions 
are not covered by this exemption.
    \62\ 765,124 plans x 7.525 percent of plans are new x 3 percent 
of plans with relationships with insurance agents or pension 
consultants [ap] 1,727 plans.
---------------------------------------------------------------------------

    The Department requested, but did not receive, comments on the 
assumptions used in the Proposed Amendment regarding annuity contracts 
affected by the rulemaking. However, in conjunction with updating its 
estimate of the number of Independent Producers the Department has 
revised its estimate of annual annuity transactions affected by the 
amendments to PTE 84-24, increasing the estimate from 52,449 to 
500,000.
    While there are several sources of information regarding total 
sales or size of the annuity market that are generally consistent, the 
same is not true for transaction activity, which can vary dramatically 
across quarters and between sources. To improve its estimate of annual 
annuity transactions affected by the amendments to PTE 84-24, the 
Department tried two approaches which both relied on LIMRA total fixed 
annuity sales data. 2023 LIMRA data indicates that 34 percent of fixed 
annuity sales were fixed-indexed annuities.\63\ Assuming sales are 
proportionate to transactions and using data from the Retirement Income 
Journal which reported roughly 109,863 fixed-indexed annuity products 
were sold in the fourth quarter of 2021,\64\ annualizing this number to 
439,452 the Department estimates that roughly 838,000 additional fixed-
rate annuities (other than fixed-indexed) were sold over the same 
period, for a total of 1.3 million fixed annuity transactions in 2021 
using this approach.
---------------------------------------------------------------------------

    \63\ LIMRA, Preliminary U.S. Individual Annuity Sales Survey, 
Fourth Quarter 2023, (2023), https://www.limra.com/siteassets/newsroom/fact-tank/sales-data/2023/q4/4q-annuity-sales.pdf.
    \64\ Pechter, K., Moore, S., Fixed Indexed Annuities: What's 
Changed (or Not) in Ten Years, (June, 2022), https://retirementincomejournal.com/article/fixed-indexed-annuities-a-retrospective/.
---------------------------------------------------------------------------

    The Department considered an alternative approach which estimated 
the number of annual transactions by dividing the total sales data from 
LIMRA described above by the average contract size as reported by the 
Retirement Income Journal, which is $147,860. Using the same 
proportional methodology described above, this approach yields an 
estimate of roughly 1.9 million transactions.
    Using this average of these estimates, the Department then applied 
the following assumptions to arrive at its final estimate. Using 
McKinsey data on annuity distribution channels, the Department assumes 
that third-party distribution channels account for 81 percent of the 
annuity sales volume.\65\ The Department further assumes that 80 
percent of these annuities are held in ERISA covered accounts or 
purchased with ERISA Plan assets \66\ and that 49 percent of 
transactions will rely on investment advice.\67\ This results in an 
estimate of roughly 500,000 ERISA covered fixed annuity transactions 
involving an Independent Producers providing advice to an investor.\68\
---------------------------------------------------------------------------

    \65\ McKinsey & Company, Redefining the future of life insurance 
and annuities distribution, (January, 2024), https://www.mckinsey.com/industries/financial-services/our-insights/redefining-the-future-of-life-insurance-and-annuities-distribution.
    \66\ The Department recognized that not all annuities sold are 
covered by this rulemaking, however data is not available to 
estimate what portion are covered with any sense of precision. 
Examples of non-covered transactions include use of non-retirement 
account funds to purchase an annuity and noncovered public sector 
plans being rolled into an annuity. The Department views 80% as a 
reasonable assumption as it includes most transactions while 
acknowledging that not all transactions are covered under this 
rulemaking. As a point of reference, each percentage point this 
assumption is changed results in a 1.25 percentage point change in 
the resulting estimate of ERISA covered transactions involving an 
Independent Producer providing advice to an investor.
    \67\ U.S. Retirement-End Investor 2023: Personalizing the 401(k) 
Investor Experience Fostering Comprehensive Relationships,'' The 
Cerulli Report, Exhibit 6.04.
    \68\ The final estimate is the rounded average of the two 
approaches described above. The calculations are as follows: 
[{[(109,863 fixed-indexed contracts written x 4 quarters) / 34% as 
the percentage of fixed-indexed to all fixed-rate contracts] x 81% 
sold by Independent Producers x 49% sold using investment advice x 
80% ERISA covered transactions{time}  + {[(148,860 avg. contract 
size /95.6 billion in annual fixed-indexed sales) /34% as the 
percentage of fixed-indexed to all fixed-rate contracts] x 81% sold 
by Independent Producers x 49% sold using investment advice x 80% 
ERISA covered transactions{time}  /2] [ap] 501,013, rounded to 
500,000.
---------------------------------------------------------------------------

    The Final Amendment excludes some entities currently relying on the 
exemption to receive compensation in connection with the provision of 
investment advice. As such, the Department acknowledges that the 
estimates discussed above may overestimate the entities able to rely on 
the exemption for relief for the transactions described in Section 
III(a)-(f).

1.2.1 Written Authorization From the Independent Plan Fiduciary

    Based on the estimates discussed above, the Department estimates 
that authorizing fiduciaries for 1,727 Plans and authorizing 
fiduciaries for 500,000

[[Page 32329]]

IRA transactions will be required to send an advance written 
authorization to the 3,040 financial institutions for IRAs \69\ for 
exemptive relief for the transactions described in Section III(a)-(f).
---------------------------------------------------------------------------

    \69\ This includes 3,030 insurance agents and brokers, pension 
consultants, and insurance companies and 10 investment company 
underwriters servicing IRAs.
---------------------------------------------------------------------------

    In the Plan universe, it is assumed that a legal professional will 
spend five hours per Plan reviewing the disclosures and preparing an 
authorization form. In the IRA universe, it is assumed that a legal 
professional working on behalf of the financial institution for IRAs 
will spend three hours drafting an authorization form for IRA holders 
to sign. This results in an hour burden of 17,756 hours with an 
equivalent cost of $2.9 million.\70\
---------------------------------------------------------------------------

    \70\ The burden is estimated as: (1,727 plans x 5 hours) + 
(3,040 financial institutions x 3 hours) [ap] 17,756 hours. A labor 
rate of approximately $165.71 is used for a legal professional. The 
labor rate is applied in the following calculation: [(1,727 plans x 
5 hours) + (3,040 financial institutions x 3 hours)] x $165.71 per 
hour [ap] $2,942,374.
---------------------------------------------------------------------------

    The Department expects that Plans and IRAs will send the written 
authorization through already established electronic means, and thus, 
the Department does not expect plans to incur any cost to send the 
authorization.
    In total, as presented in the table below, the written 
authorization requirement, under the new conditions of relief, is 
expected to result in an annual total hour burden of 17,756 hours with 
an equivalent cost of $2,942,374.

               Table 1--Hour Burden and Equivalent Cost Associated With the Written Authorization
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................          17,756      $2,942,374          17,756      $2,942,374
                                                 ---------------------------------------------------------------
    Total.......................................          17,756       2,942,374          17,756       2,942,374
----------------------------------------------------------------------------------------------------------------

1.2.2 Disclosure

    Based on the estimates discussed above, the Department estimates 
that approximately 3,050 financial institutions \71\ will continue to 
utilize the exemption for exemptive relief for the transactions 
described in Section III(a)-(f) for each plan and IRA. In total, the 
Department estimates that 3,040 entities will prepare disclosures for 
plans and 3,040 entities would prepare disclosures for IRAs. The 
Department assumes that an in-house attorney will spend one hour of 
legal staff time drafting the disclosure for plans and one hour of 
legal staff time drafting the disclosure for IRAs. This results in an 
hour burden of approximately 6,080 hours with an equivalent cost of 
$1,007,508.\72\
---------------------------------------------------------------------------

    \71\ This includes 3,030 insurance agents and brokers, pension 
consultants, and insurance companies and 20 investment company 
underwriters servicing plans and IRAs.
    \72\ The burden is estimated as: 3,040 financial institutions x 
(1 hour for plans + 1 hour for IRAs) [ap] 6,080 hours. A labor rate 
of approximately $165.71 is used for a legal professional. The labor 
rate is applied in the following calculation: [3,040 financial 
institutions x (1 hour for plans + 1 hour for IRAs)] x $165.71 per 
hour [ap] $1,007,508.
---------------------------------------------------------------------------

    The Department expects that the disclosures for Plans will be 
distributed through already established electronic means, and thus, the 
Department does not expect plans to incur any cost to send the 
disclosures. The Department lacks information on the proportion of the 
IRA contracts that will occur via Plan rollovers and therefore assumes 
all disclosures will be sent directly to the IRA customer. As 
previously stated, the Department estimates that 71.8 percent of 
disclosures for IRAs will be sent electronically at no additional 
burden. The remaining 28.2 percent of authorizations will be mailed. 
For paper copies, a clerical staff member is assumed to require two 
minutes to prepare and mail the required information to the IRA 
customer. This information will be sent to the 122,318 IRA customers 
plus the 10 investment company principal underwriters for IRAs entering 
into an agreement with an insurance agent, pension consultant, or 
mutual fund principal underwriter, and based on the above, the 
Department estimates that this requirement results in an hour burden of 
1,150 hours with an equivalent cost of $75,881.\73\
---------------------------------------------------------------------------

    \73\ The burden is estimated as: [(122,318 IRAs + 10 investment 
company principal underwriters for IRAs x 28.2 percent paper) x (2 
minutes / 60 minutes)] [ap] 1,150 hours. A labor rate of $65.99 is 
used for a clerical worker. The labor rate is applied in the 
following calculation: [(122,318 IRAs + 10 investment company 
principal underwriters for IRAs x 28.2 percent paper) x (2 minutes / 
60 minutes)] x $65.99 [ap] $75,881.
---------------------------------------------------------------------------

    In total, as presented in the table below, providing the pre-
authorization materials is expected to impose an annual total hour 
burden of 7,230 hours with an equivalent cost of $1,083,388.

                     Table 2--Hour Burden and Equivalent Cost Associated With the Disclosure
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................           6,080      $1,007,508           6,080      $1,007,508
Clerical........................................           1,150          75,881           1,150          75,881
                                                 ---------------------------------------------------------------
    Total.......................................           7,230       1,083,388           7,230       1,083,388
----------------------------------------------------------------------------------------------------------------

    The Department assumes that this information will include seven 
pages with 71.8 percent of disclosures distributed electronically 
through traditional electronic methods at no additional burden, and the 
remaining 28.2 percent of disclosures will be mailed. Accordingly, the 
Department

[[Page 32330]]

estimates an annual cost burden of approximately $35,531.\74\
---------------------------------------------------------------------------

    \74\ The material cost is estimated as: [(122,318 IRA 
authorizations + 10 investment company principal underwriters for 
IRAs) x 28.2 percent paper] x [$0.68 + ($0.05 x 7 pages)] = $35,531.

                        Table 3--Material and Postage Cost Associated With the Disclosure
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                                                       Pages        burden cost        Pages        burden cost
----------------------------------------------------------------------------------------------------------------
Material and Postage Cost.......................               7         $35,531               7         $35,531
                                                 ---------------------------------------------------------------
    Total.......................................               7          35,531               7          35,531
----------------------------------------------------------------------------------------------------------------

1.3 Costs Associated With Satisfying Conditions for Transactions 
Described in Section III(g)

    The amendment provides relief for Independent Producers that 
provide fiduciary investment advice and engage in the following 
transactions, including as part of a rollover, as a result of providing 
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, by an Independent Producer of reasonable 
compensation; and (2) the sale of a non-security annuity contract or 
other insurance product that does not meet the definition of 
``security'' under Federal securities laws. The Department expects that 
the Insurers covered by this Final Amendment will be insurance 
companies that directly write annuities.
    The amendments outline conditions pertaining to disclosure, 
policies and procedures, and retrospective reviews that need to be 
satisfied to rely on the exemption. These conditions are tailored to 
protect Retirement Investors from the specific conflicts that arise for 
Independent Producers when providing investment advice to Retirement 
Investors regarding the purchase of an annuity. The Department received 
several comments suggesting that its estimate for the number of 
Independent Producers was too low. While commenters provided estimates 
that were substantially higher, the commenters did not provide any 
documentation or basis for their suggestions. In response, the 
Department analyzed employment data from the March 2023 Current 
Population Survey to identify the number of self-employed workers in 
the ``Finance and Insurance'' industry whose occupation was listed as 
``Insurance Sales Agents.'' This identified 86,410 self-employed 
insurance sales agents in the Finance and Insurance industry.\75\ While 
the Department assumes that not all of these independent producers will 
sell annuities, it utilizes this number while recognizing that it 
likely reflects an over-estimate.
---------------------------------------------------------------------------

    \75\ EBSA Tabulations based off the March 2023 Current 
Population Survey.
---------------------------------------------------------------------------

    Insurance companies are primarily regulated by states and no single 
regulator maintains a nationwide count of insurance companies. Although 
state regulators track insurance companies, the total number of 
insurance companies cannot be calculated by aggregating individual 
state totals, because individual insurance companies often operate in 
multiple states. As mentioned above, the Department has updated its 
estimate of the number of insurance companies writing annuities for the 
398 presented in the 2016 Regulatory Impact Analysis, to 442 in this 
rulemaking.
    Some of these insurance companies may not sell any annuity 
contracts to IRAs or plans. Because of these data limitations, the 
Department includes all 442 insurance companies in its cost estimate, 
though this likely represents an upper bound.
    Insurance companies sell insurance products through (1) captive 
insurance agents that work for an insurance company as employees or as 
independent contractors who exclusively sell the insurance company's 
products and (2) independent agents who sell multiple insurance 
companies' products. Independent agents may contract directly with an 
insurance company or through an intermediary. In recent years, the 
market has seen a shift away from captive distribution toward 
independent distribution.\76\
---------------------------------------------------------------------------

    \76\ Ramnath Balasubramanian, Rajiv Dattani, Asheet Mehta, & 
Andrew Reich, Unbundling Value: How Leading Insurers Identify 
Competitive Advantage, McKinsey & Company, (June 2022), https://www.mckinsey.com/industries/financial-services/our-insights/unbundling-value-how-leading-insurers-identify-competitive-advantage; Sheryl Moore, The Annuity Model Is Broken, Wink Intel, 
(June 2022), https://www.winkintel.com/2022/06/the-annuity-model-is-broken-reprint/.
---------------------------------------------------------------------------

    The Department does not have strong data on the number of insurance 
companies using captive agents or Independent Producers. In the 
Proposed Amendment, the Department assumed that the number of companies 
selling annuities through captive or independent distribution channels 
would be proportionate to the sales completed by each respective 
channel. The Department requested comments on this assumption but did 
not receive any directly addressing it. In the Proposed Amendment, the 
Department based its estimate on the percent of sales completed by 
independent agents and career agents in the individual annuities 
distribution channel. This resulted in an estimate that approximately 
46 percent of sales are done through captive distribution channels and 
54 percent of sales are done through independent distribution channels.
    One source stated that 81 percent of individual annuities sales are 
conducted by non-captive, or independent, agents.\77\ The Department 
assumes that the percent of companies selling annuities through an 
independent distribution channel is proportionate to the percent of 
sales conducted through an independent distribution channel. The 
Department recognizes that the distribution of sales by distribution 
channel is likely different from the distribution of insurance 
companies by distribution channel.
---------------------------------------------------------------------------

    \77\ This study considers sales by independent agents, 
independent broker-dealers, national broker-dealers, and banks to be 
sales in the independent distribution channel, while sales by career 
agents and direct means are considered to be in the captive 
distribution channel. (See Ramnath Balasubramanian, Christian 
Boldan, Matt Leo, David Schiff, & Yves Vontobel, Redefining the 
Future of Life Insurance and Annuities Distribution, McKinsey & 
Company (January 2024), https://www.mckinsey.com/industries/financial-services/our-insights/redefining-the-future-of-life-insurance-and-annuities-distribution.)
---------------------------------------------------------------------------

    Also, the Department recognizes that some insurance companies use 
multiple distribution channels, though the Department did not receive 
any

[[Page 32331]]

comment on how common the use of multiple distribution channels is. 
Looking at the 10 insurance companies with highest annuity sales in 
2022, one relied on captive distribution channels, seven relied on 
independent distribution channels, and two relied on both.\78\ 
Accordingly, most insurance companies appear to primarily use either 
captive distribution or independent distribution. However, any entity 
using a captive insurance channel, or using both captive and 
independent channels, likely has already incurred most of the costs of 
this rulemaking under PTE 2020-02. Costs are estimated by assuming that 
entities using a third-party distribution system, even if they also use 
captive agents, will incur costs for the first time under amended PTE 
84-24. This assumption leads to an overestimation of the cost incurred 
by insurance companies.
---------------------------------------------------------------------------

    \78\ Annuity sales are based on LIMRA, U.S. Individual Fixed 
Annuity Sales Breakouts, 2022, https://www.limra.com/siteassets/
newsroom/fact-tank/sales-data/2022/q4/2022-ye_fixed-breakout-
results.pdf. Information on distribution channels is based on review 
of insurance company websites, SEC filings of publicly held firms, 
and other publicly available sources.
---------------------------------------------------------------------------

    Following from this assumption, the Department estimates that 84 
insurance companies distribute annuities through captive channels and 
will rely on PTE 2020-02 for transactions involving investment advice. 
Further, the Department estimates that 358 insurance companies 
distribute annuities through independent channels and will rely on PTE 
84-24 for transactions involving investment advice.\79\
---------------------------------------------------------------------------

    \79\ The number of insurance companies using captive 
distribution channels is estimated as 442 x 81% [ap] 358 insurance 
companies. The number of insurance companies using independent 
distribution channels is estimated as 442-358 [ap] 84 insurance 
companies.
---------------------------------------------------------------------------

    The Department estimates that 70 of the 442 insurance companies are 
large entities.\80\ In the Proposed Amendment, the Department requested 
data on how distribution channels differed by size of insurance company 
but did not receive any comments. In the absence of data relating to 
the distribution channel differences by firm size, the Department uses 
the aggregate rate in its estimates. That is, the Department assumes 
that 19 percent of large insurance companies (13 insurance companies) 
sell annuities through captive distribution channels, while the 
remaining 71 of the 84 insurance companies distributing annuities 
through captive channels are assumed to be small.\81\ Additionally, 81 
percent of large insurance companies (57 insurance companies) sell 
annuities through independent distribution channels, while the 
remaining 301 of the 358 insurance companies selling annuities through 
independent distribution channels are assumed to be small.\82\
---------------------------------------------------------------------------

    \80\ LIMRA estimates that, in 2016, 70 insurers had more than 
$38.5 million in sales. See LIMRA Secure Retirement Institute, U.S. 
Individual Annuity Yearbook: 2016 Data, (2017).
    \81\ The number of large insurance companies using a captive 
distribution channel is estimate as: 70 large insurance companies x 
19% [ap] 13 insurance companies. The number of small insurance 
companies using a captive distribution channel is estimated as: 84 
insurance companies--13 large insurance companies [ap] 71 small 
insurance companies.
    \82\ The number of large insurance companies using an 
independent distribution channel is estimate as: 70 large insurance 
companies x 81% [ap] 57 insurance companies. The number of small 
insurance companies using a captive distribution channel is 
estimated as: 358 insurance companies--57 large insurance companies 
[ap] 301 small insurance companies.
---------------------------------------------------------------------------

1.3.1 Disclosures

    As discussed above, the Department assumes that 86,410 Independent 
Producers service the retirement market, selling the products of 358 
insurance companies. For more generalized disclosures, the Department 
assumes that insurance companies will prepare and provide disclosures 
to Independent Producers selling their products. However, some of the 
disclosures are tailored specifically to the Independent Producer and-
or the transaction. The Department assumes that these disclosures will 
need to be prepared by the Independent Producer themselves. The 
Department recognizes that some may rely on intermediaries in the 
distribution channel to prepare more specific disclosures; however, the 
Department expects that the costs associated with the preparation would 
be covered by commissions retained by the intermediary for its 
services. The costs for the intermediary to prepare the disclosure may 
result in an increase in commission. The Department expects that this 
increase in commission will not exceed the cost of preparing the 
disclosure in house.
1.3.1.1 Written Acknowledgement That the Independent Producer Is a 
Fiduciary by the Independent Producer
    The Department is including a model statement in the preamble to 
PTE 84-24 that details what should be included in a fiduciary 
acknowledgment for Independent Producers.\83\ The Department assumes 
that the time associated with preparing the disclosures will be 
minimal. Further, these disclosures are expected to be uniform in 
nature. Accordingly, the Department estimates that these disclosures 
will not take a significant amount of time to prepare.
---------------------------------------------------------------------------

    \83\ 85 FR 82798, 82827 (Dec. 18, 2020). The model statement was 
also included in Frequently Asked Questions in April 2021, New 
Fiduciary Advice Exemption: PTE 2020-02 Improving Investment Advice 
for Workers & Retirees Frequently Asked Questions, Q13, (April 
2021), https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/new-fiduciary-advice-exemption.pdf.
---------------------------------------------------------------------------

    Due to the nature of Independent Producers, the Department assumes 
that most Insurers will make draft disclosures available to Independent 
Producers pertaining to their fiduciary status. However, the Department 
expects that a small percentage of Independent Producers may draft 
their own disclosures. The Department assumes that a legal professional 
for all 358 Insurers and an insurance sales agent for 5 percent of 
Independent Producers, or 4,320 Independent Producers, will spend 30 
minutes to produce a written acknowledgement in the first year. This 
results in an estimated burden of approximately 2,339 hours with an 
equivalent cost of $386,657 in the first year.\84\
---------------------------------------------------------------------------

    \84\ The burden is estimated as: [(358 Insurers + 4,320 
Independent Producers) x (30 minutes / 60 minutes)] [ap] 2,339 
hours. A labor rate of approximately $165.71 is used for a legal 
professional and $165.29 is used for an independent producer. The 
labor rates are applied in the following calculation: [(358 Insurers 
x (30 minutes / 60 minutes)) x $165.71] + [(4,320 Independent 
Producers x (30 minutes / 60 minutes)) x $165.71] [ap] $386,657.

             Table 4--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
----------------------------------------------------------------------------------------------------------------
Legal...........................................             179         $29,630               0              $0
Insurance Sales Agent...........................           2,160         357,026               0               0
                                                 ---------------------------------------------------------------

[[Page 32332]]

 
    Total.......................................           2,339         386,657               0               0
----------------------------------------------------------------------------------------------------------------

1.3.1.2 Written Statement of the Care Obligation and Loyalty Obligation
    As discussed above, the Department assumes that 86,410 Independent 
Producers service the retirement market, selling the products of 358 
Insurers. Due to the nature of Independent Producers, the Department 
assumes that most Insurers will make draft disclosures available to 
Independent Producers, pertaining to the annuities they offer. The 
Department assumes that an in-house attorney for all 358 Insurers and 
an insurance sales agent for 5 percent of Independent Producers, or 
4,320 Independent Producers, will spend 60 minutes to prepare the 
statement in the first year. This results in a burden of 4,678 hours 
with an equivalent cost of $773,313 in the first year.\85\
---------------------------------------------------------------------------

    \85\ The burden is estimated as: (358 Insurers + 4,320 
Independent Producers) x 1 hour [ap] 4,678 hours. A labor rate of 
approximately $165.71 is used for a legal professional and $165.29 
for an independent producer. The labor rates are applied in the 
following calculation: [(358 Insurers x 1 hour x $165.71) + (4,320 
Independent Producers x 1 hour x $165.29)] = $773,313.

 Table 5--Hour Burden and Equivalent Cost Associated With the Written Statement of the Best Interest Standard of
                                                    Care Owed
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................             358         $59,260               0              $0
Insurance Sales Agent...........................           4,320         714,053               0               0
                                                 ---------------------------------------------------------------
    Total.......................................           4,678         773,313               0               0
----------------------------------------------------------------------------------------------------------------

1.3.1.3. Written Description of All Material Facts
    As discussed above, the Department assumes that 86,410 Independent 
Producers service the retirement market, selling the products of 358 
insurance companies. For disclosures tailored more specifically to an 
individual Independent Producer, the Department assumes that the 
disclosure will need to be prepared by the Independent Producer. The 
Department recognizes that many Independent Producers may not have the 
internal resources to prepare such disclosure. The Department expects 
that some may rely on intermediaries in the distribution channel to 
prepare the disclosures and some may seek external legal support. 
However, the Department expects that the costs associated with the 
preparation will be covered by commission retained by the intermediary 
for its services or by the fee paid to external legal support. As such, 
the Department still attributes this cost back to the Independent 
Producer.
    Accordingly, the Department assumes that all 86,410 Independent 
Producers in this analysis would need to prepare the disclosure. The 
Department assumes that, for each of these Independent Producers, an 
attorney will spend three hours and five hours of legal staff time 
drafting the written description for small and large entities, 
respectively. This results in an hour burden of 260,967 hours with an 
equivalent cost of $43,244,858 in the first year.\86\
---------------------------------------------------------------------------

    \86\ The burden is estimated as: [(85,451 small independent 
producers x 3 hours) + (869 large independent producers x 5 hours)] 
[ap] 260,967 burden hours. Applying the labor rate of $165.71 is 
used for a legal professional. The labor rate is applied in the 
following calculation: [(85,451 small independent producers x 3 
hours) + (869 large independent producers x 5 hours)] x $165.71 = 
$43,244,858.

                 Table 6--Hour Burden and Equivalent Cost Associated With the All Material Facts
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................         260,967     $43,244,858               0              $0
                                                 ---------------------------------------------------------------
    Total.......................................         260,967      43,244,858               0               0
----------------------------------------------------------------------------------------------------------------


[[Page 32333]]

1.3.1.4--Before Recommending an Annuity, Engaging in a Rollover, or 
Making a Recommendation to a Plan Participant as to the Post-Rollover 
Investment of Assets Currently Held in a Plan, the Independent Producer 
Must Document Its Conclusions as to Whether the Recommendation Is in 
the Investor's Best Interest
    The amendment requires an Independent Producer to provide a 
disclosure to investors that documents their consideration as to 
whether a recommended annuity or rollover is in the Retirement 
Investor's best interest. Due to the nature of this disclosure, the 
Department assumes that the content of the disclosure will need to be 
prepared by the Independent Producer for each transaction. The 
Department recognizes that some may rely on intermediaries in the 
distribution channel, and some may seek external legal support to 
assist with drafting the disclosures. However, the Department expects 
that most Independent Producers will prepare the disclosure themselves.
    For the purposes of this analysis, and as developed in a preceding 
section, the Department estimates that 500,000 Retirement Investors 
will receive documentation on whether the recommended annuity is in 
their best interest each year.
    The Department assumes that, for each of these Retirement 
Investors, an Independent Producer will spend 30 minutes of their time 
drafting the documentation. This results in an estimated hour burden of 
250,000 hours with an equivalent cost of $41.3 million annually.\87\
---------------------------------------------------------------------------

    \87\ The burden is estimated as: 500,000 rollovers x (30 minutes 
/ 60 minutes) = 250,000 hours. A labor rate of approximately $165.29 
is used for an Independent Producer. The labor rate is applied in 
the following calculation: [500,000 rollovers x (30 minutes / 60 
minutes)] x $165.29 = $41,322,500.

               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
----------------------------------------------------------------------------------------------------------------
Insurance Sales Agent...........................         250,000     $41,322,500         250,000     $41,322,500
                                                 ---------------------------------------------------------------
    Total.......................................         250,000      41,322,500         250,000      41,322,500
----------------------------------------------------------------------------------------------------------------

1.3.1.5 Mailing Cost for Disclosures Sent From Independent Producers to 
Retirement Investors
    As discussed at the beginning of the cost section, the Department 
assumes that 28.2 percent of disclosures would be mailed. Accordingly, 
of the estimated 500,000 affected Retirement Investors, 141,000 
Retirement Investors are estimated to receive paper disclosures.\88\ 
The Department further estimates that 10% of these Retirement 
Investors, or 14,100, will request a second, more comprehensive 
disclosure related to the Independent Producer's compensation. For 
paper copies, the Independent Producer is assumed to require two 
minutes to prepare and mail the primary disclosure packet to the 
Retirement Investors, and 10 minutes to prepare and mail the second 
compensation disclosure, upon request. This requirement results in an 
estimated hour burden of 13,503 hours with an equivalent cost of 
$2,231,966.\89\
---------------------------------------------------------------------------

    \88\ This is estimated as: (500,000 Retirement Investors x 
28.2%) = 141,000 paper disclosures.
    \89\ This is estimated as: [141,000 paper disclosures x (2 
minutes / 60 minutes)] + [14,100 paper disclosures x (10 minutes) / 
60 minutes)] = 13,503 hours. A labor rate of $165.29 is used for an 
Independent Producer. The labor rate is applied in the following 
calculation: [141,000 paper disclosures x (2 minutes / 60 minutes)] 
+ [14,100 paper disclosures x (10 minutes / 60 minutes)] x $165.29= 
$2,231,966.

               Table 8--Hour Burden and Equivalent Cost Associated With Preparing the Disclosures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Insurance Sales Agent...........................          13,503      $2,231,966          13,503      $2,231,966
                                                 ---------------------------------------------------------------
    Total.......................................          13,503       2,231,966          13,503       2,231,966
----------------------------------------------------------------------------------------------------------------

    The Department assumes that this information will include seven 
pages, and that a second, optional compensation disclosure will be two 
pages, resulting in an annual cost burden for material and paper costs 
of $156,228.\90\
---------------------------------------------------------------------------

    \90\ This is estimated as: {141,000 rollovers resulting in a 
paper disclosure x [$0.68 postage + ($0.05 per page x 7 
pages)]{time}  + {14,100 secondary disclosures x [$0.68 postage + 
($0.05 per page x 2 pages)]{time}  = $156,228.

                         Table 9--Material Cost Associated With the General Disclosures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                       Pages        burden cost        Pages        burden cost
----------------------------------------------------------------------------------------------------------------
General Disclosures.............................               7        $145,230               7        $145,230
Compensation Disclosure.........................               2          10,998               2          10,998
                                                 ---------------------------------------------------------------

[[Page 32334]]

 
    Total.......................................               9         156,228               9         156,228
----------------------------------------------------------------------------------------------------------------

    Additionally, Independent Producers will be required to send the 
documentation to the Insurer. The Department expects that such 
documentation will be sent electronically and result in a de minimis 
burden.

1.3.2 Policies and Procedures

1.3.2.1 Insurers Must Establish, Maintain, and Enforce Written Policies 
and Procedures for the Review of Each Recommendation Before an Annuity 
Is Issued to a Retirement Investor, and the Insurer Review Its Policies 
and Procedures at Least Annually
    As discussed above, the Department estimates that 358 Insurers will 
need to meet this requirement, of which 301 are estimated to be small 
and 57 are estimated to be large.\91\ The Department assumes that, for 
each large insurance company, an in-house attorney will spend 40 hours 
of legal staff time drafting the written description, and for each 
small insurance company, an in-house attorney will spend 20 hours of 
legal staff time. This results in an hour burden of 8,286 hours with an 
equivalent cost of $1,373,123 in the first year.\92\
---------------------------------------------------------------------------

    \91\ The number of large insurance companies using an 
independent distribution channel is estimated as: (70 large 
insurance companies x 81%) [ap] 57 insurance companies. The number 
of small insurance companies using an independent distribution 
channel is estimated as: (358 insurance companies--57 large 
insurance companies) [ap] 301 small insurance companies.
    \92\ This is estimated as: [(301 small insurance companies x 20 
hours) + (57 large insurance companies x 40 hours)] [ap] 8,286 
hours. A labor rate of $165.71 is used for a legal professional. The 
labor rate is applied in the following calculation: [(301 small 
insurance companies x 20 hours) + (57 large insurance companies x 40 
hours)] x $165.71 [ap] $1,373,123.
---------------------------------------------------------------------------

    In the following years, the Department assumes for each insurance 
company, an in-house attorney will spend five hours of legal staff time 
reviewing the policies and procedures. This results in an hour burden 
of 1,788 hours with an equivalent cost of $296,302 in subsequent 
years.\93\
---------------------------------------------------------------------------

    \93\ This is estimated as: 358 insurance companies x 5 hours 
[ap] 1,788 hours. A labor rate of $165.71 is used for a legal 
professional. The labor rate is applied in the following 
calculation: (358 insurance companies x 5 hours) x $165.71 [ap] 
$296,302.
---------------------------------------------------------------------------

    The Final Amendment also requires Insurers to provide their 
complete policies and procedures to the Department upon request. Based 
upon prior experience, the Department estimates that it will request 
three policies and procedures in the first year and one in subsequent 
years for entities relying on PTE 84-24.\94\ The resulting cost is 
estimated at $49 in the first year, and $17 in subsequent years for a 
clerical worker to prepare and fulfil the request.\95\
---------------------------------------------------------------------------

    \94\ The number of requests in the first year is estimated as: 
358 Insurers x (165 requests in PTE 2020-02 /18,632 Financial 
Institutions in PTE 2020-02) [ap] 3 requests. The number of requests 
in subsequent years is estimated as: 358 insurance companies x (50 
requests in PTE 2020-02 /18,632 Financial Institutions in PTE 2020-
02) [ap] 1 request.
    \95\ The burden in the first year is estimated as: 3 requests x 
(15 minutes / 60 minutes) = 0.75 hours. A labor rate of $65.99 is 
used for a clerical worker. The labor rate is applied in the 
following calculation: 3 requests x (15 minutes / 60 minutes) x 
$65.99 = $49.49. The burden in subsequent years is estimated as: 1 
request x (15 minutes / 60 minutes) = 0.25 hours. A labor rate of 
$65.99 is used for a clerical worker. The labor rate is applied in 
the following calculation: 1 request x (15 minutes / 60 minutes) x 
$65.99 = $16.50.
---------------------------------------------------------------------------

    Insurers will also be required to review each of the Independent 
Producer's recommendations before an annuity is issued to a Retirement 
Investor to ensure compliance with the Impartial Conduct Standards and 
other conditions of this exemption. This requirement is consistent with 
the language in NAIC's 2010 model regulation 275, Suitability in 
Annuity Transactions,\96\ and the 2020 revisions to NAIC Model 
Regulation 275, which expanded the suitability standard to a best 
interest standard.\97\ Most states have adopted some form of the NAIC 
Model Regulation 275.\98\ Accordingly, the Department expects that 
Insurers will be prepared to undergo this review and approval process. 
The Department assumes that it will take a financial manager, with a 
labor rate of $198.25, an average of 30 minutes to review and provide a 
decision to the Independent Producer on rollover recommendations. 
Therefore, the Department estimates that this will have an equivalent 
cost of $49.6 million annually.\99\ The combined estimated burden 
associated with policies and procedures is presented below in Table 10.
---------------------------------------------------------------------------

    \96\ NAIC Model Suitability Regulations, Sec.  6(F)(1)(d) 
(2010), https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/25201.
    \97\ NAIC Model Suitability Regulations, Sec.  6(C)(1)(d) 
(2020), https://content.naic.org/sites/default/files/inline-files/MDL-275.pdf.
    \98\ As of October of 2021, only three states had not adopted 
some form of NAIC Model Regulation 275. (See A.D. Banker & Company, 
Annuity Best Interest State Map and FAQs, (October 2021), https://blog.adbanker.com/annuity-best-interest-state-map-and-faqs).
    \99\ The burden is calculated as: 500,000 transactions x (30 
minutes / 60 minutes) [ap] 250,000 hours. A labor rate of $198.25 is 
used for a financial manager. The labor rate is applied in the 
following calculation: [500,000 transactions x (30 minutes / 60 
minutes)] x $198.25 [ap] $49,562,500.

                Table 10--Hour Burden and Equivalent Cost Associated With Policies and Procedures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................           8,286      $1,373,123           1,788        $296,302
Clerical........................................            0.75              49            0.25              17
Financial Manager...............................         250,000      49,562,500         250,000      49,562,500
                                                 ---------------------------------------------------------------
    Total.......................................         258,287      50,935,672         251,788      49,858,818
----------------------------------------------------------------------------------------------------------------


[[Page 32335]]

1.3.3 Retrospective Review

    The Final Amendment requires Insurers to conduct a retrospective 
review at least annually. The review will be required to be reasonably 
designed to prevent violations of and achieve compliance with (1) the 
Impartial Conduct Standards, (2) the terms of this exemption, and (3) 
the policies and procedures governing compliance with the exemption. 
The review will be required to evaluate the effectiveness of the 
supervision system, any noncompliance discovered in connection with the 
review, and corrective actions taken or recommended, if any. Insurers 
will also be required to provide the Independent Producer with the 
underlying methodology and results of the retrospective review. For the 
Final Amendment, the Department has stated that Insurers may use 
sampling in their review of an Independent Producer's transactions so 
long as any sampling or other method is designed to identify potential 
violations, problems, and deficiencies that need to be addressed.
1.3.3.1 The Insurance Company Must Conduct a Retrospective Review, at 
Least Annually, for Each Independent Producer That Sells the Insurance 
Company's Annuity Contracts
    The Department estimates that 358 Insurers will need to meet this 
requirement. For this requirement the information collection is 
documenting
the findings of the retrospective review. The Department lacks data on, 
for a given insurance company, how many Independent Producers, on 
average, sell their annuities. For the purposes of this analysis, the 
Department assumes that, on average, each Independent Producer sells 
the products of three Insurers. From each of these Insurers, they may 
sell multiple products. As such, the Department assumes that each year, 
insurance companies would need to prepare a total of 259,230 
retrospective reviews,\100\ or on average, each insurance company will 
need to prepare approximately 725 retrospective reviews.\101\ The 
Department assumes that, for each Independent Producer selling an 
insurance company's products, a legal professional at the insurance 
company would spend one hour time, on average, drafting the 
retrospective review. This results in an estimated hour burden of 
259,230 hours with an equivalent cost of $43.0 million.\102\
---------------------------------------------------------------------------

    \100\ This is estimated as: 86,410 Independent Producers x 3 
insurance companies covered [ap] 259,230 retrospective reviews.
    \101\ This is estimated as: 259,230 retrospective reviews / 358 
entities [ap] 725 retrospective reviews, on average.

               Table 11--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...........................................         259,230     $42,957,003         259,230     $42,957,003
                                                 ---------------------------------------------------------------
    Total.......................................         259,230      42,957,003         259,230      42,957,003
----------------------------------------------------------------------------------------------------------------

1.3.3.2 Certification by the Senior Executive Officer of the Insurance 
Company

    The Department assumes it will take a Senior Executive Officer four 
hours to review and certify a report which details the retrospective 
review. This results in an annual hour burden of 1,430 hours with an 
equivalent cost of $190,594.\103\

   Table 12--Hour Burden and Equivalent Cost Associated With the Certification by the Senior Executive Officer
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Senior Executive Officer........................           1,430        $190,594           1,430        $190,594
                                                 ---------------------------------------------------------------
    Total.......................................           1,430         190,594           1,430         190,594
----------------------------------------------------------------------------------------------------------------

1.3.3.3 The Insurance Company Provides to the Independent Producer the 
Methodology and Results of the Retrospective Review
---------------------------------------------------------------------------

    \102\ This is estimated as: 259,230 retrospective reviews x 1 
hour [ap] 259,230 hours. A labor rate of $165.71 is used for a legal 
professional. The labor rate is applied in the following 
calculation: (259,230 retrospective reviews x 1 hour) x $165.71 [ap] 
$42,957,003.
    \103\ This is estimated as: 358 insurance companies x 4 hours 
[ap] 1,430 hours. A labor rate of $133.24 is used for a Senior 
Executive Officer. The labor rate is applied in the following 
calculation: (358 insurance companies x 4 hours) x $133.24 [ap] 
$190,594.
    \104\ This is estimated as: 259,230 retrospective reviews x (5 
minutes / 60 minutes) [ap] 21,603 hours. A labor rate of $65.99 is 
used for a clerical worker. The labor rate is applied in the 
following calculation: [259,230 retrospective reviews x (5 minutes / 
60 minutes)] x $65.99 [ap] $1,425,549.
---------------------------------------------------------------------------

    The Department assumes that the insurance company would provide the 
methodology and results electronically. The Department estimates that 
it would take clerical staff five minutes to prepare and send each of 
the estimated 259,230 retrospective reviews. This results in an annual 
hour burden of approximately 21,603 hours with an equivalent cost of 
$1,425,549 \104\ The Department expects that the results would be 
provided electronically and thus does not expect there to be any 
material costs with providing Independent Producers with the 
retrospective review.

[[Page 32336]]



   Table 13--Hour Burden and Equivalent Cost Associated With the Provision of the Results of the Retrospective
                                                     Review
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Clerical........................................          21,603      $1,425,549          21,603      $1,425,549
                                                 ---------------------------------------------------------------
    Total.......................................          21,603       1,425,549          21,603       1,425,549
----------------------------------------------------------------------------------------------------------------

1.3.4 Self-Correction

    The amendment requires an Independent Producer that chooses to use 
the self-correction provision of the exemption to notify the Insurer of 
any corrective actions taken. As discussed above, the Insurer must 
discuss corrective actions in the retrospective review. The Department 
does not have sufficient information to estimate how often violations 
will occur, or on how often Independent Producers will choose to use 
the self-correction provisions of the amendment. However, the 
Department expects that such violations and corrections will be rare. 
For illustration, the Department assumes that one percent of 
transactions will result in self-correction, this would result in 5,000 
notifications of self-correction being sent by Independent Producers to 
Insurers. The Department estimates that it will take an Independent 
Producer 30 minutes, on average, to draft and send a notification to 
the Insurer, resulting in an estimated burden of 2,500 hours and an 
annual cost of $413,225.\105\
---------------------------------------------------------------------------

    \105\ The burden is estimated as: [500,000 transaction x 1% of 
transactions resulting in self-correction x (30 minutes / 60 
minutes)] [ap] 2,500 hours. A labor rate of $165.29 is used for an 
Independent Producer. The labor rate is applied in the following 
calculation: [500,000 transaction x 1% of transactions resulting in 
self-correction x (30 minutes / 60 minutes)] x $165.29 [ap] 
$413,225.
---------------------------------------------------------------------------

    The self-correction provisions of this rulemaking allow entities to 
correct violations of the exemption in certain circumstances, when 
either (1) the Independent Producer has refunded any charge to the 
Retirement Investor or (2) the Insurer has rescinded a mis-sold 
annuity, canceled the contract, and waived the surrender charges. 
Without the self-correction provisions, an Independent Producer would 
be required to 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).

                    Table 14--Hour Burden and Equivalent Cost Associated With Self-Correction
----------------------------------------------------------------------------------------------------------------
                                                  Year 1                             Subsequent years
                                 -------------------------------------------------------------------------------
            Activity                                   Equivalent burden                      Equivalent  burden
                                     Burden hours            cost            Burden hours            cost
----------------------------------------------------------------------------------------------------------------
Clerical........................  2,500.............  $413,225..........  2,500.............  $413,225
                                 -------------------------------------------------------------------------------
    Total.......................  2,500.............  413,225...........  2,500.............  413,225
----------------------------------------------------------------------------------------------------------------

1.3.5 Recordkeeping Requirement

    The Final Amendment incorporates a new provision in PTE 84-24 that 
is similar to the recordkeeping provision in PTE 2020-02. In the 
Proposed Amendment, the Department proposed a broader recordkeeping 
requirement.
    For this analysis, the Department considers the cost for Insurers 
and Independent Producers complying with the recordkeeping 
requirements. The Department estimates that the additional time needed 
to maintain records to be consistent with the exemption would take two 
hours for an Independent Producer and two hours for a legal 
professional at an insurer, resulting in an hour burden of 173,535 
hours and an equivalent cost of $28.7 million.\106\
---------------------------------------------------------------------------

    \106\ This is estimated as: (86,410 Independent Producers + 358 
insurance companies) x 2 hours [ap] 173,535 hours. A labor rate of 
$165.29 is used for an Independent Producer and a rate of $165.71 
for an insurance company legal professional. The labor rate is 
applied in the following calculation: [(86,410 Independent Producers 
x 2 hours x $165.29) + (358 insurance companies x 2 hours x 
$165.71)] [ap] $28,683,939.

             Table 14--Hour Burden and Equivalent Cost Associated With the Recordkeeping Requirement
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
                                                 ---------------------------------------------------------------
                    Activity                                        Equivalent                      Equivalent
                                                   Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................         173,535     $28,683,939         173,535     $28,683,939
                                                 ---------------------------------------------------------------
    Total.......................................         173,535      28,683,939         173,535      28,683,939
----------------------------------------------------------------------------------------------------------------


[[Page 32337]]

1.4 Overall Summary

    These paperwork burden estimates are summarized as follows:
    Type of Review: Revision of an Existing Collection.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Prohibited Transaction Exemption (PTE) 84-24 for Certain 
Transactions Involving Insurance Agents and Brokers, Pension 
Consultants, Insurance Companies, and Investment Company Principal 
Underwriters.
    OMB Control Number: 1210-0158.
    Affected Public: Businesses or other for-profits; not for profit 
institutions.
    Estimated Number of Respondents: 89,818.
    Estimated Number of Annual Responses: 1,498,615.
    Frequency of Response: Initially, annually, when engaging in 
exempted transaction.
    Estimated Total Annual Burden Hours: 1,093,403 hours.
    Estimated Total Annual Burden Cost: $191,759.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \107\ imposes certain 
requirements on rules subject to the notice and comment requirements of 
section 553(b) of the Administrative Procedure Act or any other 
law.\108\ 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.
---------------------------------------------------------------------------

    \107\ 5 U.S.C. 601 et seq.
    \108\ 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 \109\ 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. For purposes 
of the Unfunded Mandates Reform Act, as well as Executive Order 12875, 
this amended exemption does not include any Federal mandate that will 
result in such expenditures.
---------------------------------------------------------------------------

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

Federalism Statement

    Executive Order 13132 outlines fundamental principles of 
federalism. It also requires Federal agencies to adhere to specific 
criteria in formulating and implementing policies that have 
``substantial direct effects'' on the states, the relationship between 
the national government and states, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have these federalism 
implications must consult with State and local officials and describe 
the extent of their consultation and the nature of the concerns of 
State and local officials in the preamble to the final regulation. 
Notwithstanding this, Section 514 of ERISA provides, with certain 
exceptions specifically enumerated, that the provisions of Titles I and 
IV of ERISA supersede any and all laws of the States as they relate to 
any employee benefit plan covered under ERISA.
    The Department 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 previously in this 
preamble,\110\ 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.\111\ 
The Department designed the final Regulation and exemptions to 
complement State insurance laws.\112\
---------------------------------------------------------------------------

    \110\ See ``The Department's Role Related to the Sale of 
Insurance Products to Retirement Investors,'' supra.
    \111\ See John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. 
Bank, 510 U.S. 86, 98 (1993).
    \112\ 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

[[Page 32338]]

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 amendments to the class 
exemption 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)).\113\
---------------------------------------------------------------------------

    \113\ 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)).
---------------------------------------------------------------------------

Amendment to PTE 84-24

Section I--Retroactive Application

    The restrictions of ERISA sections 406(a)(1)(A) through (D) and 
406(b) and the taxes imposed by Code section 4975 do not apply to any 
of the transactions described in section III of this exemption in 
connection with purchases made before November 1, 1977, if the 
conditions set forth in section IV are met.

Section II--Prospective Application

    (a) Except for the receipt of reasonable compensation and/or the 
sale of any property 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, the restrictions of ERISA 
sections 406(a)(1)(A) through (D) and 406(b) and the taxes imposed by 
Code section 4975 do not apply to any of the transactions described in 
section III(a)-(f) of this exemption in connection with purchases made 
after October 31, 1977, if the conditions set forth in sections IV and 
V are met.
    (b) Effective on the date that is September 23, 2024, the 
restrictions of ERISA sections 406(a)(1)(A), (D) and 406(b) and the 
taxes imposed by Code section 4975(a) and (b) by reason of Code 
sections 4975(c)(1)(A), (D), (E) and (F) do not apply to Independent 
Producers that provide fiduciary investment advice and engage in the 
transactions described in Section III(g), in accordance with the 
conditions set forth in Sections VI, VII, are satisfied, and the 
Independent Producer and Insurer are not ineligible under Section VIII, 
and subject to the definitional terms and recordkeeping requirements in 
Sections IX and X.

Section III--Transactions

    (a) The receipt, directly or indirectly, by an insurance agent or 
broker or a pension consultant of a sales commission from an insurance 
company in connection with the purchase, with plan assets, of an 
insurance or annuity contract, if the sales commission is not received 
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.
    (b) The receipt of a sales commission by a Principal Underwriter 
for an investment company registered under the Investment Company Act 
of 1940 (hereinafter referred to as an investment company) in 
connection with the purchase, with plan assets, of securities issued by 
an investment company if the sales commission is not received 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.
    (c) The effecting by an insurance agent or broker, pension 
consultant or investment company Principal Underwriter of a transaction 
for the purchase, with plan assets, of an insurance or annuity contract 
or securities issued by an investment company if the purchase is not 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.
    (d) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company if the purchase is not 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.
    (e) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company which is a fiduciary or a service 
provider (or both) with respect to the Plan solely by reason of the 
sponsorship of a Pre-approved Plan if the purchase is not 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.
    (f) The purchase, with plan assets, of securities issued by an 
investment company from, or the sale of such securities to, an 
investment company or an investment company Principal Underwriter, when 
such investment company, Principal Underwriter, or the investment 
company investment adviser is a fiduciary or a service provider (or 
both) with respect to the plan solely by reason of: (1) the sponsorship 
of a Pre-approved plan; or (2) the provision of Nondiscretionary Trust 
Services to the plan; or (3) both (1) and (2); and the purchase is not 
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.
    (g) An Independent Producer may engage in the following 
transactions, including as part of a rollover, as a result of providing 
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, by an Independent Producer 
of reasonable compensation; and
    (2) the sale of a non-security annuity contract or other insurance 
product that does not meet the definition of ``security'' under Federal 
securities laws.

Section IV--Conditions With Respect to Transactions Described in 
Section III(a)-(f)

    The following conditions apply to a transaction described in 
Section III(a)-(f):
    (a) The transaction is effected by the insurance agent or broker, 
pension consultant, insurance company or investment company Principal 
Underwriter in the ordinary course of its business as such a person.
    (b) The transaction is on terms at least as favorable to the plan 
as an arm's-length transaction with an unrelated party would be.
    (c) The combined total of all fees, commissions and other 
consideration received by the insurance agent or broker, pension 
consultant, insurance company, or investment company Principal 
Underwriter:
    (1) For the provision of services to the plan; and
    (2) In connection with the purchase of insurance or annuity 
contracts or securities issued by an investment company is not in 
excess of ``reasonable compensation'' within the contemplation of 
section 408(b)(2) and 408(c)(2) of ERISA and section 4975(d)(2) and 
4975(d)(10) of the Code.

[[Page 32339]]

If such total is in excess of ``reasonable compensation,'' the ``amount 
involved'' for purposes of the civil penalties of section 502(i) of 
ERISA and the excise taxes imposed by section 4975(a) and (b) of the 
Code is the amount of compensation in excess of ``reasonable 
compensation.''

Section V--Conditions for Transactions Described in Section III (a) 
Through (d)

    The following conditions apply to a transaction described in 
subsections (a), (b), (c) or (d) of section III:
    (a) The insurance agent or broker, pension consultant, insurance 
company, or investment company Principal Underwriter is not:
    (1) a trustee of the plan (other than a Nondiscretionary Trustee 
who does not render investment advice with respect to any assets of the 
plan),
    (2) a plan administrator (within the meaning of section 3(16)(A) of 
ERISA and section 414(g) of the Code),
    (3) a fiduciary who is authorized to manage, acquire, or dispose of 
the plan's assets on a discretionary basis, or
    (4) for transactions described in sections III (a) through (d) 
entered into after December 31, 1978, an employer any of whose 
employees are covered by the plan.
    Notwithstanding the above, an insurance agent or broker, pension 
consultant, insurance company, or investment company Principal 
Underwriter that is affiliated with a trustee or an investment manager 
(within the meaning of section VI(b)) with respect to a plan may engage 
in a transaction described in section III(a) through (d) of this 
exemption on behalf of the plan if such trustee or investment manager 
has no discretionary authority or control over the plan assets involved 
in the transaction other than as a Nondiscretionary Trustee.
    (b)(1) With respect to a transaction involving the purchase with 
plan assets of an insurance or annuity contract or the receipt of a 
sales commission thereon, the insurance agent or broker or pension 
consultant provides to an independent fiduciary or IRA owner with 
respect to the plan prior to the execution of the transaction the 
following information in writing and in a form calculated to be 
understood by a plan fiduciary who has no special expertise in 
insurance or investment matters:
    (A) If the agent, broker, or consultant is an affiliate of the 
insurance company, or if the ability of such agent, broker or 
consultant is limited by any agreement with such insurance company, the 
nature of such affiliation, limitation, or relationship;
    (B) The sales commission, expressed as a percentage of gross annual 
premium payments for the first year and for each of the succeeding 
renewal years, that will be paid by the insurance company to the agent, 
broker or consultant in connection with the purchase of the contract; 
and
    (C) For purchases made after June 30, 1979, a description of any 
charges, fees, discounts, penalties or adjustments which may be imposed 
under the contract in connection with the purchase, holding, exchange, 
termination or sale of such contract.
    (2) Following the receipt of the information required to be 
disclosed in subsection (b)(1), and prior to the execution of the 
transaction, the independent fiduciary or IRA owner acknowledges in 
writing receipt of such information and approves the transaction on 
behalf of the plan. Such fiduciary may be an employer of employees 
covered by the plan, but may not be an insurance agent or broker, 
pension consultant or insurance company involved in the transaction. 
Such fiduciary may not receive, directly or indirectly (e.g., through 
an Affiliate), any compensation or other consideration for his or her 
own personal account from any party dealing with the plan in connection 
with the transaction.
    (c)(1) With respect to a transaction involving the purchase with 
plan assets of securities issued by an investment company or the 
receipt of a sales commission thereon by an investment company 
Principal Underwriter, the investment company Principal Underwriter 
provides to an Independent fiduciary or IRA owner with respect to the 
plan, prior to the execution of the transaction, the following 
information in writing and in a form calculated to be understood by a 
plan fiduciary who has no special expertise in insurance or investment 
matters:
    (A) the nature of the relationship between the Principal 
Underwriter and the investment company issuing the securities and any 
limitation placed upon the Principal Underwriter by the investment 
company;
    (B) The sales commission, expressed as a percentage of the dollar 
amount of the plan's gross payment and of the amount actually invested, 
that will be received by the Principal Underwriter in connection with 
the purchase of the securities issued by the investment company; and
    (C) For purchases made after December 31, 1978, a description of 
any charges, fees, discounts, penalties, or adjustments which may be 
imposed under the securities in connection with the purchase, holding, 
exchange, termination or sale of such securities.
    (2) Following the receipt of the information required to be 
disclosed in subsection (c)(1), and prior to the execution of the 
transaction, the independent fiduciary or IRA owner approves the 
transaction on behalf of the plan. Unless facts or circumstances would 
indicate the contrary, such approval may be presumed if the fiduciary 
or IRA owner permits the transaction to proceed after receipt of the 
written disclosure. Such fiduciary may be an employer of employees 
covered by the plan, but may not be a Principal Underwriter involved in 
the transaction. Such fiduciary may not receive, directly or indirectly 
(e.g., through an affiliate), any compensation or other consideration 
for his or her own personal account from any party dealing with the 
plan in connection with the transaction.
    (d) With respect to additional purchases of insurance or annuity 
contracts or securities issued by an investment company, the written 
disclosure required under subsections (b) and (c) of this section V 
need not be repeated, unless--
    (1) More than three years have passed since such disclosure was 
made with respect to the same kind of contract or security, or
    (2) The contract or security being purchased or the commission with 
respect thereto is materially different from that for which the 
approval described in subsections (b) and (c) of this section was 
obtained.
    (e)(1) In the case of any transaction described in Section III(a), 
(b), or (c) of this exemption, the insurance agent or broker (or the 
insurance company whose contract is being described if designated by 
the agent or broker), pension consultant or investment company 
Principal Underwriter must retain or cause to be retained for a period 
of six years from the date of such transaction, the following:
    (A) The information disclosed pursuant to paragraphs (b), (c), and 
(d) of this section V;
    (B) Any additional information or documents provided to the 
fiduciary described in paragraphs (b) and (c) of this section V with 
respect to such transaction; and
    (C) The written acknowledgement described in paragraph (b) of this 
section.
    (2) A prohibited transaction will not be deemed to have occurred 
if, due to circumstances beyond the control of the insurance agent or 
broker, pension consultant, or Principal Underwriter,

[[Page 32340]]

such records are lost or destroyed prior to the end of such six-year 
period.
    (3) Notwithstanding anything to the contrary in ERISA section 
504(a)(2) and (b), such records must be made unconditionally available 
for examination during normal business hours by duly authorized 
employees or representatives of the Department of Labor, the Internal 
Revenue Service, plan participants and beneficiaries, any employer of 
plan participants and beneficiaries, and any employee organization 
whose members are covered by the plan.

Section VI--Conditions for Transactions Described in Section III(g)

    The following conditions apply to transactions described in Section 
III(g):
    (a) The Independent Producer is authorized to sell annuities from 
two or more unrelated Insurers.
    (b) The Independent Producer and the Insurer satisfy the applicable 
conditions in Sections VII and IX and are not ineligible under Section 
VIII. The Insurer will not necessarily become a fiduciary under ERISA 
or the Code merely by complying with this exemption's conditions.
    (c) Exclusions. The relief in Section III(g) is not available if:
    (1) The Plan is covered by Title I of ERISA and the Independent 
Producer, Insurer, 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 may rely on 
the exemption if it is selected to provide investment advice by a 
fiduciary who:
    (i) is not the Insurer, Independent Producer, or an Affiliate;
    (ii) does not have a relationship to or an interest in the Insurer, 
Independent Producer, or any Affiliate that might affect the exercise 
of the fiduciary's best judgment in connection with transactions 
covered by the exemption;
    (iii) does not receive and is not projected to receive within its 
current Federal income tax year, compensation or other consideration 
for their own account from the Insurer, Independent Producer, or an 
Affiliate in excess of two (2) percent of the fiduciary's annual 
revenues based upon its prior income tax year; or
    (iv) is not the IRA owner or beneficiary; or
    (2) The transaction involves the Independent Producer acting in a 
fiduciary capacity other than as an investment advice within the 
meaning of ERISA section 3(21)(A)(ii) and Code section 4975(e)(3)(B) 
and regulations thereunder.

Section VII--Investment Advice Arrangement

    Section VII(a) requires Independent Producers to comply with 
Impartial Conduct Standards, including a Care Obligation and Loyalty 
Obligation, when providing fiduciary investment advice to Retirement 
Investors. Section VII(b) requires Independent Producers to acknowledge 
fiduciary status under Title I of ERISA 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 the products they are licensed and authorized to sell, and 
all material facts relating to Conflicts of Interest that are 
associated with their recommendations. In addition, before the sale of 
a recommended annuity, Independent Producers must consider and document 
their conclusions as to whether the recommended annuity meets the Care 
Obligation and Loyalty Obligation. Independent Producers recommending a 
rollover must also provide additional disclosure as set forth in 
subsection (b) below. Section VII(c) requires Insurers to adopt 
policies and procedures prudently designed to ensure compliance with 
the Impartial Conduct Standards and other conditions of this exemption. 
Section VII(d) requires the Insurer 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 VII(e) allows 
Independent Producers to correct certain violations of the exemption 
conditions and continue to rely on the exemption for relief. In 
complying with this Section VII, the Independent Producer may 
reasonably rely on factual representations from the Insurer, and 
Insurers may rely on factual representations from the Independent 
Producer, as long as they do not have knowledge that such factual 
representations are incomplete or inaccurate.

(a) Impartial Conduct Standards

    The Independent Producer 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 X(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 X(g), to meet the Loyalty Obligation, the advice 
must not place the financial or other interests of the Independent 
Producer, Insurer or any Affiliate, Related Entity, or other party 
ahead of the Retirement Investor's interests, or subordinate the 
Retirement Investor's interests to those of the Independent Producer, 
Insurer or any Affiliate, Related Entity, or other party. For example, 
in choosing between annuity products offered by Insurers, whose 
products the Independent Producer is authorized to sell on a commission 
basis, it is not permissible for the Independent Producer to recommend 
a product that is worse for the Retirement Investor, but better or more 
profitable for the Independent Producer or the Insurer;
    (2) The compensation received, directly or indirectly, by the 
Independent Producer does not exceed reasonable compensation within the 
meaning of ERISA section 408(b)(2) and Code section 4975(d)(2); and
    (3) The Independent Producer's 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 transaction described in Section III(g) 
occurs, the Independent Producer provides, in writing, the disclosures 
set forth in paragraphs (1)-(5) below to the Retirement Investor. For 
purposes of the disclosures required by Section VII(b)(1)-(4), the 
Independent Producer is deemed to engage in a covered transaction on 
the later of (A) the date the recommendation is made or (B) the date 
the Independent Producer becomes entitled to compensation (whether now 
or in the future) by reason of making the recommendation.
    (1) A written acknowledgment that the Independent Producer is 
providing fiduciary investment advice to the Retirement Investor and is 
a fiduciary under Title I of ERISA, Title II of ERISA, or both with 
respect to the recommendation;

[[Page 32341]]

    (2) A written statement of the Care Obligation and Loyalty 
Obligation, described in Section VII(a) that is owed by the Independent 
Producer to the Retirement Investor;
    (3) All material facts relating to the scope and terms of the 
relationship with the Retirement Investor, including:
    (A) (i) The material fees and costs that apply to the Retirement 
Investor's transactions, holdings, and accounts,
    (ii) A notice of the Retirement Investor's right to request 
additional information regarding cash compensation;
    (iii) Upon request of the Retirement Investor in Section 
VII(b)(3)(A)(ii), the Independent Producer shall disclose: (I) A 
reasonable estimate of the amount of cash compensation to be received 
by the Independent Producer, which may be stated as a range of amounts 
or percentages; and (II) Whether the cash compensation will be provided 
through a one-time payment or through multiple payments, the frequency 
and amount of the payments, which may also be stated as a range of 
amounts or percentages.
    (B) The type and scope of services provided to the Retirement 
Investor, including any material limitations on the recommendations 
that may be made to the Retirement Investor; this description must 
include the products the Independent Producer is licensed and 
authorized to sell, inform the Retirement Investor in writing of any 
limits on the range of insurance products recommended, and identify the 
specific Insurers and specific insurance products available to 
Independent Producer for recommendation to the Retirement Investor; and
    (4) All material facts relating to Conflicts of Interest that are 
associated with the recommendation.
    (5) Before the sale of a recommended annuity, the Independent 
Producer considers and documents the basis for the determination to 
recommend the annuity to the Retirement Investor and provides that 
documentation to both the Retirement Investor and to the Insurer;
    (6) 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 Independent Producer 
must consider and document the bases for its recommendation to engage 
in the rollover, and must provide that documentation to both the 
Retirement Investor and to the Insurer. 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;
    (C) whether an employer or other party pays for some or all of the 
Plan's administrative expenses; and
    (D) the different levels of fiduciary protection, services, and 
investments available.
    (7) The Independent Producer will not fail to satisfy the 
conditions in Section VII(b) solely because it makes an error or 
omission in disclosing the required information while acting in good 
faith and with reasonable diligence, provided that the Independent 
Producer 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.
    (8) Independent Producers and Insurers may rely in good faith on 
information and assurances from each other and from other entities that 
are not Affiliates as long as they do not know or have a reason to know 
that such information is incomplete or inaccurate.
    (9) The Independent Producer is not required to disclose 
information pursuant to this Section VII(b) if such disclosure is 
otherwise prohibited by law.

(c) Policies and Procedures

    (1) The Insurer establishes, maintains, and enforces written 
policies and procedures for the review of each recommendation, before 
an annuity is issued to a Retirement Investor pursuant to an 
Independent Producer's recommendation, that are prudently designed to 
ensure compliance with the Impartial Conduct Standards and other 
exemption conditions. The Insurer's prudent review of the Independent 
Producer's specific recommendations must be made without regard to the 
Insurer's own interests. An Insurer is not required to supervise an 
Independent Producer's recommendations to Retirement Investors of 
products other than annuities offered by the Insurer.
    (2) The Insurer's policies and procedures 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 Independent Producer to place 
its interests, or those of the Insurer, or any Affiliate or Related 
Entity, ahead of the interests of the Retirement Investor. The Insurer 
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) The Insurer's policies and procedures include a prudent process 
for determining whether to authorize an Independent Producer to sell 
the Insurer's annuity contracts to Retirement Investors, and for taking 
action to protect Retirement Investors from Independent Producers who 
have failed to adhere to the Impartial Conduct Standards, or who lack 
the necessary education, training, or skill. A prudent process includes 
careful review of objective material, such as customer complaints, 
disciplinary history, and regulatory actions concerning the Independent 
Producer, as well as the Insurer's review of the Independent Producer's 
training, education, and conduct with respect to the Insurer's own 
products. The Insurer must document the basis for its initial 
determination that it can rely on the Independent Producer to adhere to 
the Impartial Conduct Standards, and must review that determination at 
least annually as part of the retrospective review set forth in 
subsection (d) below.
    (4) Insurers must provide their complete policies and procedures to 
the Department upon request within 30 days of request.

(d) Retrospective Review

    (1) The Insurer conducts a retrospective review of each Independent 
Producer, 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, 
including the effectiveness of the supervision system, the exceptions 
found, and corrective action taken or recommended, if any. The 
retrospective review also includes a review of Independent Producers' 
rollover recommendations and the required rollover disclosure. As part 
of this review, the Insurer prudently determines whether to continue to 
permit individual Independent Producers to sell the Insurer's annuity 
contracts to Retirement Investors. Additionally, the Insurer updates 
the policies and procedures as business, regulatory, and legislative 
changes and

[[Page 32342]]

events dictate, to ensure that the policies and procedures remain 
prudently designed, effective, and compliant with Section VII(c). 
Insurers may rely in part on sampling of each Independent Producer's 
transactions to conduct their retrospective reviews, as long as any 
sampling or other method is designed to identify potential violations, 
problems, and deficiencies that need to be addressed.
    (2) The Insurer provides to each Independent Producer the 
methodology and results of the retrospective review, including a 
description of any non-exempt prohibited transaction the Independent 
Producer engaged in with respect to investment advice defined under 
Code section 4975(e)(3)(B), and instructs the Independent Producer to:
    (A) correct those prohibited transactions;
    (B) report the transactions to the IRS on Form 5330;
    (C) pay the resulting excise taxes imposed by Code section 4975; 
and,
    (D) provide the Insurer with a copy of filed Form 5330 within 30 
days after the form is due (including extensions);
    (3) The methodology and results of the retrospective review are 
reduced to a written report that is provided to a Senior Executive 
Officer of the Insurer.
    (4) The Senior Executive Officer must certify, annually, that:
    (A) The Senior Executive Officer has reviewed the report of the 
retrospective review report;
    (B) The Insurer has provided Independent Producers with the 
information required under (d)(2) and has received a certification that 
the Independent Producer has filed Form 5330 within 30 days after the 
form is due (including extensions);
    (C) The Insurer has established written policies and procedures 
that meet the requirements of Section VII(c)(1); and
    (D) The Insurer has a prudent process in place to modify such 
policies and procedures as set forth in Section II(d)(1).
    (5) The review, report, and certification are completed no later 
than six months following the end of the period covered by the review.
    (6) The Insurer retains the report, certification, and supporting 
data for a period of six years and makes the report, certification, and 
supporting data available to the Department, within 30 days of request, 
to the extent permitted by law.

(e) Self-Correction

    A non-exempt prohibited transaction will not occur due to a 
violation of the exemption's conditions with respect to a transaction, 
provided:
    (1) Either the Independent Producer has refunded any charge to the 
Retirement Investor or the Insurer has rescinded a mis-sold annuity, 
cancelled the contract and waived the surrender charges;
    (2) The correction occurs no later than 90 days after the 
Independent Producer learned of the violation or reasonably should have 
learned of the violation; and
    (3) The Independent Producer notifies the person(s) at the Insurer 
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 Section VII(d)(3).

Section VIII--Eligibility

(a) Independent Producer

    Subject to the timing and scope of ineligibility provisions set 
forth in subsection (c), an Independent Producer will become ineligible 
to rely on the relief for transactions described in Section III(g), if, 
on or after September 23, 2024, the Independent Producer 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 Department of Justice, a State insurance 
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) 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 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 
Department of Justice, a State insurance regulator, or State attorney 
general in connection with the conditions of the exemption.

(b) Insurers

    Subject to the timing and scope of ineligibility provisions set 
forth in subsection (c), an entity will be ineligible to serve as an 
Insurer if, on or after September 23, 2024, the Insurer or an entity in 
the same Controlled Group as the Insurer has been:
    (1) Convicted by either:
    (A) a U.S. Federal or State court 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 the larceny, theft, robbery, extortion, forgery, 
counterfeiting, fraudulent concealment, embezzlement, fraudulent 
conversion, or misappropriation of funds or securities; conspiracy or 
attempt to commit any such crimes or a crime 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

[[Page 32343]]

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 Department of Justice, a State insurance 
regulator, or State attorney general to have participated in 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; or
    (C) providing materially misleading information to the Department, 
the Department of the Treasury, the Internal Revenue Service, the 
Department of Justice, a State insurance regulator, or State attorney 
general in connection with the conditions of the exemption.
    (3) Controlled Group. An entity is in the same Controlled Group as 
an Insurer 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 Insurer or ``under common control'' with the 
Insurer as those terms are defined in Code section 414(b) and (c) (and 
any regulations issued thereunder),

(c) Timing and Scope of Ineligibility

    (1) Ineligibility shall begin upon either:
    (A) the date of conviction, which shall be the date of conviction 
by a U.S. Federal or State trial court described in Section VIII(a)(1) 
or VIII(b)(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 the 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 VIII(a)(2) or VIII(b)(2) that occurs on or after September 
23, 2024.
    (2) One-Year Transition Period. An Independent Producer or Insurer 
that becomes ineligible under subsection VIII(a) or VIII(b) may 
continue to rely on this exemption or serve as an Insurer for up to 12 
months after its ineligibility begins as determined under subsection 
(c)(1) if the Independent Producer or Insurer, as applicable, provides 
notice to the Department at [email protected] within 30 days after 
ineligibility begins.
    (3) An Independent Producer will become eligible to rely on this 
exemption and an Insurer will become eligible to serve as an Insurer 
again only upon the earliest of the following occurs:
    (A) the date of a subsequent judgment reversing such person's 
conviction or other court decision described in Section VIII(a) or 
VIII(b);
    (B) 10 years after the person became ineligible as determined under 
subsection (c)(1) or if later, 10 years after the person was released 
from imprisonment as a result of a crime described in Section 
VIII(a)(1) or Section VIII(b)(1); or
    (C) the effective date an individual exemption granted by the 
Department, (under which the Department may impose additional 
conditions) permitting the person to continue its reliance on this 
exemption.

(d) Alternative Exemptions

    An Insurer or Independent Producer 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 condition of providing 
retroactive relief.

Section IX--Recordkeeping

    The Independent Producer and Insurer must maintain for a period of 
six years records demonstrating compliance with this exemption and 
makes such records available, to the extent permitted by law, to any 
authorized employee of the Department or the Department of the 
Treasury, which includes the Internal Revenue Service.

Section X--Definitions

    For purposes of this exemption, the terms ``insurance agent or 
broker,'' ``pension consultant,'' ``insurance company,'' ``investment 
company,'' and ``Principal Underwriter'' mean such persons and any 
Affiliates thereof. In addition, for purposes of this exemption:
    (a) ``Affiliate'' means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person (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 person; and
    (3) Any corporation or partnership of which the person 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 an 
Independent Producer--consciously or unconsciously--to make a 
recommendation that is not disinterested.
    (d) ``Independent Producer'' means 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)(3)); or
    (2) is a statutory employee of an insurance company that has no 
financial interest in the covered transaction.
    (e) ``Individual Retirement Account'' or ``IRA'' means any plan 
that is an account or annuity described in Code section 4975(e)(1)(B) 
through (F).
    (f) ``Insurer'' means 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

[[Page 32344]]

insurance commissioner within the preceding five years, (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; (D) 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 
the Department under Section VIII of this exemption), that retains the 
Independent Producer as an independent contractor, agent or registered 
representative.
    (g) Advice meets the ``Loyalty Obligation'' if, with respect to the 
Retirement Investor, such advice does not place the financial or other 
interests of the Independent Producer, Insurer, 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 Independent Producer, Insurer, or any Affiliate, Related Entity, or 
other party.
    (h) The term ``Nondiscretionary Trust Services'' means custodial 
services, services ancillary to custodial services, none of which 
services are discretionary, duties imposed by any provisions of the 
Code, and services performed pursuant to directions in accordance with 
ERISA section 403(a)(1).
    (i) The term ``Nondiscretionary Trustee'' of a plan means a trustee 
whose powers and duties with respect to the plan are limited to the 
provision of Nondiscretionary Trust Services. For purposes of this 
exemption, a person who is otherwise a Nondiscretionary Trustee will 
not fail to be a Nondiscretionary Trustee solely by reason of his 
having been delegated, by the sponsor of a Pre-Approved Plan, the power 
to amend such plan.
    (j) ``Plan'' means any employee benefit plan described in ERISA 
section 3(3) and any plan described in Code section 4975(e)(1)(A).
    (k) The term ``Pre-Approved Plan'' means a plan which is approved 
by the Internal Revenue Service pursuant to the procedure described in 
Rev. Proc. 2017-41, 2017-29 I.R.B. 92, or its successors.
    (l) A ``Principal Underwriter'' means a principal underwriter as 
that term is defined in section 2(a)(29) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-2(a)(29)).
    (m) A ``Related Entity'' means any party that is not an Affiliate, 
and (i) has an interest in an Independent Producer that may affect the 
exercise of the fiduciary's best judgment as a fiduciary, or (ii) in 
which the Independent Producer has an interest that may affect the 
exercise of the fiduciary's best judgment as a fiduciary.
    (n) ``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.
    (o) 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 
Insurer.

Section XI--Phase-In Period

    During the one-year period beginning September 23, 2024, 
Independent Producers may receive compensation under Section II(b) of 
this exemption if the Independent Producer complies with the Impartial 
Conduct Standards set forth in Section VII(a) and the fiduciary 
acknowledgment set forth in Section VII(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. 2024-08067 Filed 4-24-24; 8:45 am]
BILLING CODE 4510-29-P