Amendment to Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-1, and 86-128, 32346-32359 [2024-08068]
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Federal Register / Vol. 89, No. 81 / Thursday, April 25, 2024 / Rules and Regulations
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2550
[Application No. D–12094]
ZRIN 1210–ZA34
Amendment to Prohibited Transaction
Exemptions 75–1, 77–4, 80–83, 83–1,
and 86–128
Employee Benefits Security
Administration (EBSA), U.S.
Department of Labor.
ACTION: Amendments to Prohibited
Transaction Exemptions 75–1, 77–4, 80–
83, 83–1, and 86–128.
AGENCY:
This document contains a
notice of amendments to Prohibited
Transaction Exemptions (PTEs) 75–1,
77–4, 80–83, 83–1, and 86–128, which
are class exemptions 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
amendments (collectively, the Mass
Amendment) affect participants and
beneficiaries of plans, individual
retirement account (IRA) owners, and
certain fiduciaries of plans and IRAs.
DATES: The Mass Amendment is
effective September 23, 2024.
FOR FURTHER INFORMATION CONTACT:
Susan Wilker, telephone (202) 693–
8540, Office of Exemption
Determinations, Employee Benefits
Security Administration, U.S.
Department of Labor (these are not tollfree numbers).
SUPPLEMENTARY INFORMATION:
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SUMMARY:
Background
As described elsewhere in this edition
of the Federal Register, the Department
of Labor (Department) is amending the
regulation 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 section ERISA
3(21)(A)(ii) of ERISA and in Code
section 4975(e)(3)(B) (the ‘‘Regulation’’).
The Department also is amending PTE
2020–02 to provide additional clarity for
advice fiduciaries and protections for
retirement investors and PTE 84–24 to
address specific issues that insurance
companies face in complying with the
conditions of PTE 2020–02 when
distributing annuities through
independent agents, elsewhere in this
edition of the Federal Register.
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On October 31, 2023, the Department
released the proposed amendments to
PTEs 75–1, 77–4, 80–83, 83–1, and 86–
128 described below and invited all
interested persons to submit written
comments.1 The Department received
written comments on the proposed
amendments, and on December 12 and
13, 2023, held a public hearing at which
witnesses presented testimony. After
careful consideration of the comments
and testimony on the proposed
amendments, the Department is granting
the Mass Amendment with the
modifications discussed herein.
The amendments to PTEs 75–1, 77–4,
80–83, 83–1, and 86–128 remove relief
in those exemptions for the receipt of
compensation 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.
After this amendment is effective,
investment advice fiduciaries must meet
the conditions of PTE 2020–02 or PTE
84–24 for administrative relief when
they receive otherwise prohibited
compensation as a result of their
provision of investment advice within
the meaning of ERISA section
3(21)(A)(ii) and Code section
4975(e)(3)(B) and regulations thereunder
to Retirement Investors (defined as
plans, plan participants or 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).
As described in more detail below,
the Department also is amending PTE
75–1 by: (1) expanding the extension of
credit provision in Part V; and (2)
adding a definition of the term ‘‘IRA’’ in
Part V. The Department also is
amending PTE 86–128 by: (1) revising
the exemption’s ‘‘Recapture of Profits’’
exception; and (2) making certain
technical corrections and editorial
changes.
The ERISA and Code provisions at
issue generally prohibit fiduciaries with
respect to employee benefit plans and
IRAs from engaging in self-dealing in
connection with transactions involving
plans and IRAs. The Department is
granting these amendments pursuant to
1 The proposed amendments were released on
October 31, 2023, and were published in the
Federal Register on November 3, 2023. 88 FR
76032.
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its authority under ERISA section 408(a)
and Code section 4975(c)(2).2
Other Advice Exemptions
As discussed elsewhere in this edition
of the Federal Register, the Department
is amending investment advice
exemptions to ensure consistent and
protective standards apply to
investment advice. After considering the
comments it received, the Department
made significant changes to both PTEs
2020–02 and 84–24 to ensure that there
is an investment advice exemption
available that applies to an
appropriately wide range of situations.
Many comments raised issues, or
discussed concerns, with the
Department’s proposed amendments
collectively (rather than proposal by
proposal). In this same vein, the
Department considered these comments
holistically. For example, one
commenter expressed concern that it
would no longer be able to rely on PTE
77–4 for investment advice if the
proposed amendments were finalized
and was also concerned about whether
it could use PTE 2020–02. After
consideration of the comments, the
Department determined it would make
changes to PTE 2020–02 to revise
certain conditions and broaden its scope
rather than make changes to the Mass
Amendment proposal. Although the
changes to PTEs 2020–02 3 and 84–24 4
are discussed more completely in the
respective documents, the changes in
the three exemption documents reflect
the full scope of comments received.
The conditions to those exemptions, as
finalized, emphasize long-standing
principles of loyalty and prudence,
require careful management of conflicts
of interest, and are workable across
different compensation structures and
business models related to the provision
2 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.
3 PTE 2020–02 requires financial institutions and
investment professionals relying on the exemption
to: (i) acknowledge their fiduciary status in writing;
(ii) disclose their services and material conflicts of
interest; and adhere to impartial conduct standards;
(iii) adopt 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; (iv) document and disclose the specific
reasons that any rollover recommendations from
Title I plans to IRAs are in the retirement investor’s
best interest; (v) and conduct an annual
retrospective compliance review.
4 PTE 84–24 covers transactions with
independent insurance agents, and requires them to
comply with conditions similar to the amended
PTE 2020–02.
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of investment advice to Retirement
Investors.
The Department has concluded that
PTE 2020–02 and PTE 84–24 provide a
uniform and workable framework for
the definition of fiduciary under ERISA
with respect to the provision of
investment advice, and that the
protections now afforded by those
exemptions should be available to
Retirement Investors generally when
they receive recommendations from
trusted advisers. For all the reasons
described in the preambles to the
amendments to PTE 84–24 and PTE
2020–02, published elsewhere today in
this edition of the Federal Register, as
well as the associated Regulatory Impact
Analysis, the Department has
determined to condition relief from the
prohibited transaction rules for
fiduciary advice on the terms of PTE
84–24 and PTE 2020–02. Retirement
Investors will be best served by a
uniform protective standard focused on
the Impartial Conduct Standards, and
associated policies and procedures, as
set forth in the preambles and text of
those exemptions. In the Department’s
judgment, there is no reason in law or
policy to deprive Retirement Investors
who receive advice that was formerly
covered by the exemptions affected by
these Mass Amendment of the
protections now provided to all
Retirement Investors under PTE 84–24
and PTE 2020–02.
Summary of Proposed Amendments to
PTEs 75–1, 77–4, 80–83, 83–1, and 86–
128
The proposed Mass Amendment was
primarily aimed to ensure that all
parties relying on the exemptive relief
for the provision of investment advice
are held to level standards and
consistent criteria. In order to
accomplish this goal, the Department
proposed to amend PTEs 75–1 Parts III
and IV, 77–4, 80–83, 83–1, and 86–128
by removing exemptive relief for the
provision of fiduciary investment
advice. Specifically, the proposal would
have added the following statement to
each exemption: ‘‘Exception. No relief
from the restrictions of ERISA section
406(b) and the taxes imposed by Code
section 4975(a) and (b) by reason of
Code sections 4975(c)(1)(E) and (F) is
available for fiduciaries providing
investment advice within the meaning
of ERISA section 3(21)(A)(ii) or Code
section 4975(e)(3)(B) and regulations
thereunder.’’
This proposed amendment was
intended to ensure that retirement
investors would receive consistent and
appropriate protections when receiving
fiduciary investment advice. The
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Department proposed to accomplish this
by removing relief for fiduciary
investment advice from class
exemptions except for PTE 2020–02 and
PTE 84–24. The proposed amendment
was intended to ensure that Retirement
Investors received fiduciary investment
advice that reflected an appropriate
level of care and loyalty and financial
professionals could rely on a single
framework regardless of the business
model or the compensation structure.
The Department’s intention was to
create a level regulatory playing field
that would apply to all of the
investment products that fiduciary
investment providers may recommend
to Retirement Investors. Under the
proposed amendments, retirement
investors could expect to receive
substantially the same strong
protections with respect to fiduciary
investment recommendations,
irrespective of the type of investment
product that was recommended, and
advice providers would compete for
retirement investor’s business under a
common standard focused on the
investor’s best interest.
Discussion of the Comments to the Mass
Amendment in General
Commenters stated that the
Regulation and all the proposed
amendments, taken together, have
internal contradictions. These
commenters were concerned with
perceived inconsistencies, costly
conditions, and inefficient duplication
(including with respect to remedies).
According to these commenters, the
Department’s proposed changes would
result in uncertainties, unintended
consequences, counterproductive
effects, and needless litigation.
Commenters also expressed concern
about the comment period and the
proposed effective date. These general
comments, and comments about the
interaction between the Department’s
proposals are discussed both here and
in other final amendments, published
elsewhere in today’s edition of the
Federal Register.
Those commenters who focused on
the proposed Mass Amendment tied
their concerns to PTE 2020–02, and
what they characterized as the
Department’s approach of requiring all
fiduciary investment advice relief into
PTE 2020–02. In particular, one
commenter focused on certain
transactions that would have been
permitted by the class exemptions
affected by the Mass Amendment, but
which would have been excluded from
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PTE 2020–02, as proposed.5 At least one
commenter stated that the preamble to
the proposal failed to identify the
transactions being excluded from relief
or explain the Department’s rationale for
excluding such transactions, some of
which fiduciaries have been permitted
to engage in since ERISA was passed.
One of these commenters further opined
that the Department’s cost analysis in
these regards was insufficient, and that
the Administrative Procedure Act (the
APA) and Executive Orders 12866 and
13563 preclude this kind of ‘‘sleight-ofhand rulemaking.’’ Other commenters
cited the APA as well, and some also
stated that the Mass Amendment
exceeds the Department’s authority,
including under ERISA Section 408(a).6
Commenters expressed concern
regarding the proposed Mass
Amendment in light of the decision by
the U.S. Court of Appeals for the Fifth
Circuit, vacating the Department’s 2016
rulemaking with respect to fiduciary
advice.7 Other commenters stated the
proposed Mass Amendment would
constitute improper regulation of IRAs.
Many of the commenters on the
proposed Mass Amendment criticized
the Department’s approach as costly and
said the Department had not adequately
accounted for the costs to affected
parties. For example, one commenter
stated that, in their view, the majority of
the changes proposed by the
Department will be disruptive and
unhelpful. Another commenter stated
that the costs to the industry of
changing their reliance on all of these
5 One commenter stated that all of the following
investments could not be traded in the dealer
market under PTE 2020–02 as it currently exists:
equities (U.S. and foreign), asset-backed trusts, U.S.
bonds of entities other than corporations, certain
structured notes issued by U.S. corporations and
subject to registration requirements under the
Securities Act of 1933, currency, foreign corporate
bonds, foreign government bonds, Rule 144A
securities, privately issued real estate securities,
closed-end funds, equity IPOs, and debt IPOs. As
noted elsewhere, the amended exemptions are not
intended to limit the scope of the current
exemptions except with respect to the receipt of
compensation 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. In addition, as
discussed in the preamble to today’s amendments
to PTE 2020–02, and in its text, PTE 2020–02 has
been broadly amended to encompass compensation
for advice irrespective of the product
recommended.
6 ERISA section 408(a) and Code section
4975(c)(2), expressly permit the Department
(through the Reorganization Plan No. 4 of 1978) to
grant ‘‘a conditional or unconditional exemption’’
as long as the exemption is ‘‘(A) administratively
feasible, (B) in the interests of the plan and of its
participants and beneficiaries, and (C) protective of
the rights of participants and beneficiaries of the
plan.’’
7 See generally Chamber of Commerce v. U.S.
Dep’t of Lab., 885 F.3d 360 (5th Cir. 2018).
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exemptions would be high and was
insufficiently unanalyzed by the
Department. According to these
commenters, financial institutions have
established their policies, procedures,
compliance routines, risk assessments,
training and supervision structures to
accommodate the exemptions each has
chosen to use and requiring all of those
institutions to revamp their systems and
processes will be expensive and time
consuming. This commenter was
concerned that these costs were not
fully reflected in the Department’s cost
assessment or effective date of the
exemption. This commenter raised
threats of litigation and cautioned that
to the extent these changes are
ultimately invalidated, the industry and
the plans they serve will suffer
unnecessary costs and investment in
ultimately vacated rules. In the view of
this commenter, low and middleincome families would be
disproportionately harmed by these
changes, because it is the commenter’s
view that some firms and financial
professionals would no longer provide
fiduciary investment advice to low and
middle-income families. One
commenter disagreed that any changes
were appropriate because the
Department did not identify any harm.
Other commenters called the proposed
amendment ‘‘arbitrary and capricious.’’
Some of the commenters on these
amendments focused specifically on
concerns about an anticipated loss of
efficiency. These commenters described
PTEs 75–1, 77–4, 80–83, 83–1, and 86–
128 as designed to cover specific types
of transactions that financial services
firms commonly undertake for plan or
IRA investors. The conditions built into
those class exemptions were specifically
tailored to protect investors, while
allowing for efficient conduct of
ordinary and necessary plan
transactions. If the proposed Mass
Amendment is granted, these
commenters argued that the efficiencies
associated with the affected class
exemptions would be lost, resulting in
higher costs and fewer benefits to
investors, and perhaps other unintended
consequences. Another commenter
stated that the insurance industry’s
suitability standards far exceed any
other regulatory agency protections for
protecting retirement accounts.
Other commenters focused
specifically on the amendment to PTE
77–4. One commenter stated that
eliminating the availability of PTE 77–
4 for fiduciary investment advice would
be highly disruptive and would create
material new costs which would
ultimately be borne by plans and
participants. According to the
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commenter, PTE 77–4 already provides
robust protections for plans and
participants and these changes would
lead to increased costs that the
Department has failed to properly
identify, analyze, and account for, and
the costs of the disruption alone far
outweigh any theoretical benefit to
plans and participants. The commenter
stated that the outsized burden of
complying with the disclosure,
documentation, reporting, and
recordkeeping requirements of PTE
2020–02 may be too great for it to be
viewed as a viable alternative to PTE
77–4 in many cases. The commenter
added that the potential result of this is
that financial firms are likely to no
longer offer certain services to plans if
doing so would require them to rely on
PTE 2020–02.
Another commenter offered similar
views, adding that for over 45 years
financial institutions have relied on PTE
77–4 for both investment advice and
discretionary programs. According to
the commenter, the proposed
amendment would require firms to fully
inventory every product and service to
identify every use of PTE 77–4 and
determine whether the exemption can
continue to be used and, if not, whether
there are any viable alternatives. Other
commenters expressed concern that the
proposed amendments would result in
increased compliance costs, including
by having to rely on two class
exemptions when previously only one
was relied on. For example, a fiduciary
would have to comply with PTE 2020–
02 to recommend a particular program
but would have to comply with PTE 77–
4 to manage those assets.
One commenter cited several of the
reasons above to support the view that
the Mass Amendment is impermissible
under ERISA Section 408(a), adding that
many plans and participants would be
harmed by the Mass Amendment.
Commenters focused on the impact of
removing investment advice from PTE
86–128. According to one commenter,
the proposed changes do not address
situations where an adviser may have
limited discretion over the purchase and
sale of certain securities within an
advisory account, such as mutual funds
and exchange-traded funds (ETFs), but
acts on a non-discretionary basis with
respect to other securities within that
same account, such as fee-based variable
annuities or private placements. The
commenter urged the Department to
look more closely at the conditions of
the exemption in light of the fact that
PTE 86–128 deals only with agency
transactions in securities, a field that the
commenter characterized as fully
regulated by the SEC that requires
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substantial transaction-based reporting.
Other commenters stated that costs to
retirement investors would increase if
the proposal is adopted, because the
material cost savings PTE 86–128
provides for investors would be lost if
its relief is transferred to PTE 2020–02.
One of these commenters stated that, in
its members’ view, PTE 86–128
provided a significant economic benefit
to retirement investors when it is used,
because the investor effectively receives
two investment services for the price of
one.
At least one commenter cited the
difficulty small businesses face in
complying with complex regulations,
and one of these commenters stated that
the Department’s class exemptions
appear in ‘‘piecemeal’’ form on its
website. The commenter recommended
that the Department update its class
exemptions on its website to facilitate
the review of the current exemption text
(i.e., with all amendments
incorporated).
Numerous commenters expressed
strong support for the proposed Mass
Amendment, and the Department’s
proposal to move coverage of fiduciary
investment advice to PTEs 2020–02 and
84–24 to ensure consistency for all types
and forms of fiduciary investment
advice. One commenter argued that the
proposed changes were important and
would provide vulnerable retirement
investors with needed protection against
bad actors. Another commenter
emphasized the importance of a
baseline of protection for American
workers against predatory practices.
One commenter raised concerns with
the lack of transparency in the current
system and indicated that a single set of
standards would help increase
accountability for financial advisors and
would be an important step for restoring
public trust in the work that financial
advisors do. This same commenter also
stated that the care and loyalty
obligations proposed by the Department
in PTE 2020–02 and PTE 84–24 were
essential to ensure that investment
advice fiduciaries were acting in the
best interest of their clients and not for
their own financial gain. According to
this commenter, it would be
problematic for the Department to offer
exemptions that didn’t have these same
requirements.
Another commenter expressed
surprise that investment advisers did
not already have a uniform fiduciary
responsibility to put the interests of
their clients first and expressed
approval of the Department’s proposal.
A commenter stated the ‘‘the best
interest of the client should be the
advisor’s sole concern, with no
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secondary concern even coming into
deliberation.’’ Another commenter
discussed how investment funds are
vital to consumers, that the investment
funds deserve appropriate fiduciary
restrictions, and that such restrictions
were present in the Department’s
proposed changes. One commenter
viewed it as the government’s
responsibility to take steps to ensure
that people who need money in their
‘‘old age’’ could trust their adviser. This
commenter emphasized that the
government should take action to ensure
investment advisers worked to help
retirement investors save money on fees
while allowing savings to keep pace
with inflation. Another commenter
argued that it was imperative that
financial advisers have a fiduciary duty
to the retirement investor and no one
else. In the commenter’s view, this was
accomplished through the Department’s
proposal. One commenter asked that the
proposals be finalized as proposed, i.e.,
setting up PTEs 2020–02 and 84–24 for
all fiduciary investment advice, stating
that it would provide increased
protection for investors and would
result in advisers providing honest
information to retirement investors.
One commenter stated that retirement
investors should receive fair, unbiased
financial recommendations and that the
recommendations should not be
influenced by how much the adviser
stands to make on the recommendation.
This commenter also noted that, in their
view, requiring advisers to satisfy a
fiduciary obligation to their clients
should be the baseline minimum
requirement. This same commenter
expressed approval of the disclosure
and recordkeeping requirements in
PTEs 2020–02 and PTE 84–24, stating
that these requirements allow the
recommendations to be audited and
verified after the fact. In the view of this
commenter, this is necessary to ensure
that advisers can be held accountable
for irresponsible and illegal advice.
After reviewing the comments, the
Department has determined to finalize
its proposal to remove fiduciary
investment advice as covered
transactions from the exemptions
herein. Following consideration of the
different issues raised by commenters,
the Department continues to believe that
fiduciary investment advice is best
covered through a single set of
standards, as set forth in PTEs 2020–02
and 84–24. The Department agrees with
those commenters who raised concerns
that certain transactions would have
been unable to rely on PTE 2020–02 as
originally proposed. As described more
fully in the preamble to the final
amendment to PTE 2020–02, the
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Department is making changes to
broaden the scope of that exemption in
response to the commenters.
The Department agrees with those
commenters who emphasized the
importance of consistent standards and
practices for all investment advice for
Retirement Investors. The Department
also agrees with those commenters who
argued in favor of imposing consistent
care and loyalty obligations on all
fiduciary investment advisers,
regardless of the advice given or the
compensation received. In the
Department’s view, this is best
accomplished by reliance on a single set
of standards for all fiduciary investment
advice. As discussed in greater detail in
the preambles to the amendments to
PTE 2020–02 and PTE 84–24, published
elsewhere today in this edition of the
Federal Register, the Department has
worked to ensure that this single set of
standards works for a wide range of
business practices. Additionally, this set
of standards was specifically crafted to
build upon long-standing principles
found throughout ERISA and trust law.
The care obligation and loyalty
obligation, along with the required
disclosures, policies and procedures,
and retrospective review will ensure
that Retirement Investors are
appropriately protected.
It remains the Department’s intent,
however, to exclude from these
amended exemptions only the receipt of
compensation 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. After reviewing comments
that indicated its intent was unclear, the
Department has revised the final
amendment to reflect this intent more
clearly. Therefore, this final amendment
clarifies that relief from the restrictions
of ERISA section 406(b) and the taxes
imposed by Code section 4975(a) and (b)
by reason of Code sections 4975(c)(1)(E)
and (F) is not available for the receipt
of compensation as the 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.
Regarding comments that the
proposed transactions are already the
subject of different regulatory schemes,
the Department notes that this has been
the case since the passage of ERISA. The
fact that regulators with responsibility
for other state or Federal statutes and
who have different areas of authority
have imposed different conditions on
the entities subject to the amended class
exemptions does not foreclose the
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Department from meeting its
responsibility to ensure that the interest
of plans and Retirement Investors are
protected as required under ERISA
section 408(a) and Code section
4975(c)(2).
In addition, the Department has
revised its cost analysis for the
prohibited transactions, particularly for
PTE 2020–02 since more entities will be
relying on that exemption. Costs
associated with the proposed Mass
Amendment are discussed below. After
reviewing the entire record, the
Department maintains its position that
the enhanced protections afforded to
plans and IRAs, and the uniformity of
the regulatory environment, will
provide stability and savings to plans
and IRAs that outweighs the cost
concerns raised by commenters. The
Department also believes that the
imposition of a common set of
protective standards for a wide range of
advice transactions in PTE 84–24 and
PTE 2020–02 promotes efficiency and
clarity, inasmuch as one need only look
to the terms of these two exemptions,
which are materially similar, for relief
from advice transactions, rather than a
complex patchwork of exemptions
covering different transactions.
Regarding comments expressing
concern about the Mass Amendment in
light of the decision by the U.S. Court
of Appeals for the Fifth Circuit
referenced above, the Department does
not create new causes of actions,
mandate enforceable contractual
commitments, or expand upon the
remedial provisions of ERISA or the
Code. Regarding comments expressing
concern that the Mass Amendment
constitute improper regulation of IRAs,
the Department notes this rulemaking
does not alter the existing framework for
bringing suits under State law against
IRA fiduciaries and does not aim to do
so.
With respect to the comments above
regarding inconsistencies, alleged
duplicities, uncertainties, and
contradictions the Department has
strived herein and in the amendments
published elsewhere in today’s edition
of the Federal Register to address the
concerns and issues raised by
commenters. The Department
encourages parties to contact the
Department’s Office of Exemption
Determinations should any further
issues of ambiguity remain.
Regarding comments about the Mass
Amendment’s comment period and
effective date, the robust comment
period is described above and in the
preamble to the Regulation, and the
effective date of the Mass Amendment
is now 150 days following publication
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of the Mass Amendment in the Federal
Register.
Regarding comments expressing
concern that the Department has not
made its findings under ERISA Section
408(a), after considering the entire
record, the Department has determined
that the Mass Amendment will provide
important benefits that are in the
interest of affected plans and IRAs. The
Mass Amendment’s protective
conditions support a finding that the
Mass Amendment is protective of
affected plans and IRAs. The
Department believes that Mass
Amendment’s conditions also support a
finding that the Mass Amendment is
administratively feasible. For a detailed
discussion of the rationale, reasons, and
responses to comments about the
application of the exemption to advice
transactions, the Department refers
readers to the preambles to the
amendments to PTE 84–24 and PTE
2020–02, published elsewhere today in
this edition of the Federal Register.
The Department appreciates the
comment regarding its class exemption
website, and will strive to ensure its
exemptions, including amendments
thereto, are easily accessible.
Summary of Additional Proposed
Amendments to PTE 75–1 8
Proposed Amendments to PTE 75–1,
Part I, paragraphs (b) and (c): The
Department proposed to revoke PTE 75–
1, Part I, paragraphs (b) and (c), which
has provided exemptive relief for
certain non-fiduciary services provided
by broker-dealers in securities
transactions. As noted in the proposal,
the Department proposed to revoke the
relief provided in Parts I(b) and I(c) of
PTE 75–1, because it duplicates the
relief available under the statutory
exemptions under Code section
4975(d)(2) and ERISA section 408(b)(2)
and regulations thereunder.
Proposed Revocation of Part II(2) of
PTE 75–1: The Department proposed to
revoke Part II(2) of PTE 75–1 and
requested comment regarding whether
fiduciaries providing discretionary
investment management services in
connection with the purchase or sale of
a mutual fund security in a principal
transaction need the relief that is
provided by PTE 75–1, Part II(2), and, if
so, what conditions would be
appropriate.
Proposed Amendment to PTE 75–1,
Part II(f): The Department also proposed
8 The Department made the Proposed
Amendments to PTE 75–1 discussed below as part
of its 2016 rulemaking that was overturned by the
U.S. Court of Appeals for the Fifth Circuit. See
generally Chamber of Commerce v. U.S. Dep’t of
Lab., 885 F.3d 360 (5th Cir. 2018).
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to revise the recordkeeping provisions
of PTE 75–1, Part II(f) to place the
responsibility for maintaining such
records on the broker-dealer, reporting
dealer, or bank engaging in the
transaction with such plan or IRA rather
than on the plan or IRA. The proposed
amendment also would have required
the broker-dealer to make the records
reasonably available at their customary
location for examination during normal
business hours by: (A) Any duly
authorized employee or representative
of the Department or the Internal
Revenue Service; (B) Any fiduciary of
the plan or any duly authorized
employee or representative of such
fiduciary; (C) Any contributing
employer and any employee
organization whose members are
covered by the plan, or any authorized
employee or representative of these
entities; or (D) Any participant or
beneficiary of the plan or the authorized
representative of such participant or
beneficiary. In so doing, the proposal
expanded the list of entities and persons
eligible to receive these records, by
adding the persons described in (B), the
authorized representatives of the
entities in (C), and the authorized
representatives of the persons in (D).
None of the persons described in
subparagraph (1)(B)–(D) above would
have been authorized to examine
privileged trade secrets or privileged
commercial or financial information of
such fiduciary, nor are they authorized
to examine records regarding a plan or
IRA other than the plan or IRA with
which they are the fiduciary,
contributing employer, employee
organization, participant, beneficiary or
IRA owner.9
Proposed Amendments to 75–1, Part
V: The Department proposed to amend
PTE 75–1, Part V, which permits a
broker-dealer to extend credit to a plan
or IRA in connection with the purchase
or sale of securities. In the past, relief
under PTE 75–1, Part V, has been
limited in that the broker-dealer
extending credit was not permitted to
have or exercise any discretionary
authority or control (except as a directed
9 The proposed amendment provided that if such
plan fiduciary refused to disclose information on
the basis that such information is exempt from
disclosure, the plan fiduciary would have been
required to provide a written notice by the close of
the thirtieth (30th) day following the request
advising the requestor of the reasons for the refusal
and that the Department may request such
information. Finally, the proposed amendment
would have provided that failure to maintain the
required records necessary to determine whether
the conditions of this exemption have been met will
result in the loss of the exemption only for the
transaction or transactions for which records are
missing or have not been maintained. It would not
have affected the relief for other transactions.
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trustee) with respect to the investment
of the plan or IRA assets involved in the
transaction, nor render investment
advice within the meaning of 29 CFR
2510.3–21(c) with respect to those plan
assets, unless no interest or other
consideration was received by the
broker-dealer or any affiliate of the
broker-dealer in connection with the
extension of credit.
The Department was informed that
relief was needed for broker-dealers to
extend credit to plans and IRAs to avoid
failed securities transactions, and to
receive compensation in return. For
example, the Department understands
that broker-dealers can be required, as
part of their relationships with
clearinghouses, to complete securities
transactions entered into by the brokerdealer’s customers, even if a particular
customer does not perform on its
obligations. If a broker-dealer is required
to advance funds to settle a trade
entered into by a plan or IRA, or
purchase a security for delivery on
behalf of a plan or IRA as a result of a
failed security transaction, the result
can potentially be viewed as a loan of
money or other extension of credit to
the plan or IRA. Further, in the event a
broker-dealer steps into a plan’s or IRA’s
shoes in any particular transaction, it
may charge interest or other fees to the
plan or IRA. These transactions
potentially violate ERISA section
406(a)(1)(B) and Code section
4975(c)(1)(B) and (D).
In the Department’s view, the
extension of credit to avoid a failed
securities transaction currently falls
within the contours of the existing relief
provided by PTE 75–1, Part V, for
extensions of credit ‘‘[i]n connection
with the purchase or sale of securities.’’
Accordingly, broker-dealers that are not
investment advice fiduciaries, e.g., those
who execute transactions but do not
provide advice, were permitted to
receive compensation for extending
credit to avoid a failed securities
transaction under the exemption as
originally granted. Under the proposed
amendment, the Department would
have extended such relief to investment
advice fiduciaries.
Specifically, under the proposed
amendment to PTE 75–1, Part V(c), an
investment advice fiduciary could have
received reasonable compensation for
extending credit to a plan or IRA to
avoid a failed purchase or sale of
securities involving the plan or IRA. In
conjunction with the expanded relief in
the amended exemption, Proposed
Section (c) would have imposed several
conditions. First, the potential failure of
the purchase or sale of the securities
could not have been caused by the
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broker-dealer or any affiliate.
Additionally, the terms of the extension
of credit would have to be at least as
favorable to the plan or IRA as the terms
available in an arm’s length transaction
between unaffiliated parties. Finally, the
plan or IRA must have received written
disclosure of certain terms before the
extension of credit. This disclosure
would not have needed to be made on
a transaction by transaction basis, and
could have been part of an account
opening agreement or a master
agreement. The disclosure would have
been required to include the rate of
interest or other fees that will be
charged on such extension of credit, and
the method of determining the balance
upon which interest will be charged.
The plan or IRA must additionally
have been provided with prior written
disclosure of any changes to these
terms. The required disclosures were
intended to be consistent with the
requirements of Securities and
Exchange Act Rule 10b–16, which
governs broker-dealers’ disclosure of
credit terms in margin transactions.10
The Department also proposed to
make the same revisions to the
recordkeeping provisions of PTE 75–1,
Part V that were made to the
recordkeeping provisions of PTE 75–1,
Part II(f) that are described above. This
included expanding the persons and
entities eligible to receive certain
documents from a broker-dealer in the
same manner described above in the
PTE 75–1, Part II(f) discussion.
Finally, the Department proposed to
add a definition of the term ‘‘IRA’’ to
PTE 75–1, Part V. Under the proposed
definition the term IRA would have
meant any account or annuity described
in Code section 4975(e)(1)(B) through
(F), including, for example, an
individual retirement account described
in Code section 408(a) and a health
savings account described in Code
section 223(d).
Discussion of Comments on Additional
Proposed Amendments to PTE 75–1
Proposed Amendment to Part I(b) and
(c). One commenter asserted that
although Part I(b) and (c) transactions
are covered by 408(b)(2), the industry
still relies on Part I because: (1) it covers
the actual transaction, as well as
clearance, settlement or custodial
functions incidental thereto; and (2) it
provides clarification and relief
regarding the provision of research,
10 The Department understands that it is the
practice of many broker-dealers to provide such
disclosures to all customers, regardless of whether
the customer is presently opening a margin account.
To the extent such disclosure is provided, the
disclosure terms of the exemption are satisfied.
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analysis, availability of securities and
reports concerning issuers, industries,
securities or other property economic
factors or trends, portfolio strategy and
performance ‘‘under circumstances
which do not make such party in
interest or disqualified person a
fiduciary with respect to such plan.’’
After considering the comment, that
Department has determined not to
delete Part I(b) and (c) as was proposed.
Proposed Amendment to Part II. A
commenter opposed the Department’s
proposed revocation of Part II(2), stating
that the Department did not provide
adequate grounds to revoke this
exemption. According to this
commenter, this exemption remains the
bedrock of institutional dealer sales of
securities and there would be significant
cost and disruption if the Department
did revoke this relief.
More than one commenter expressed
concern that the proposed
recordkeeping amendment, which
would require broker-dealers, reporting
dealers and/or banks to provide certain
records to persons and entities that
include beneficiaries and employee
organizations, among others, may open
the door to privacy concerns, fishing
expeditions, abuse, and unnecessary
risk.
After considering the comments, the
Department has determined not to
finalize the revocation of PTE 75–1, Part
II(2) as was proposed. The Department
also is not finalizing: (1) the proposed
amendment that would have required
the broker-dealer, reporting dealer, or
bank engaging in the covered
transaction to satisfy the recordkeeping
requirement in Part II(e) of the
exemption; nor (2) the proposed
expansion of Part II(f) that would have
permitted additional parties to review
the records described in Part II(e).
Therefore, only the parties that are
entitled to examine the records
described in Part II(e) of the current
exemption may do so.
Proposed Amendment to Parts III and
IV. The Department proposed to amend
PTEs 75–1 Parts III and IV, by adding
the following statement to each
exemption: ‘‘Exception. No relief from
the restrictions of ERISA section 406(b)
and the taxes imposed by Code section
4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is
available for fiduciaries providing
investment advice within the meaning
of ERISA section 3(21)(A)(ii) or Code
section 4975(e)(3)(B) and regulations
thereunder.’’
One commenter stated that ‘‘the very
thing covered by these parts is not
permitted at all under PTE 2020–02.
Plans and retirement investors will lose
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32351
opportunities and trading efficiencies
they currently enjoy with no alternative
avenue open to them. Amazingly, the
cost analysis does not mention the cost
to plans or the market.’’
As described in the preamble to the
final amendment to PTE 2020–02, the
Department is expanding the scope of
that exemption to cover
recommendations of any investment
product, as long as the recommendation
meets the conditions of PTE 2020–02.
Therefore, all recommendations will be
subject to the same protective
conditions. Accordingly, the
Department is clarifying the language in
the proposed amendment to provide
that: ‘‘No relief from the restrictions of
ERISA section 406(b) and the taxes
imposed by Code section 4975(a) and (b)
by reason of Code sections 4975(c)(1)(E)
and (F) is available for the receipt of
compensation as a result of providing
investment advice within the meaning
of ERISA section 3(21)(A)(ii) or Code
section 4975(e)(3)(B) and regulations
thereunder.’’ Fiduciary advice providers
should look to amended PTE 2020–02
for relief.
Proposed Amendments to Part V. A
commenter stated that it is appropriate
to put the responsibility for
recordkeeping on the financial firm.
However, the commenter characterized
the proposed condition in the extension
of credit proposed amendment which
would have provided that the failure of
the purchase or sale of the securities
was not caused by the fiduciary or its
affiliate as a ‘‘mistake.’’ According to the
commenter, generally, when there is a
failure in the market, it is extremely
hard to tell the exact cause, so the relief
should not be conditioned on finger
pointing, which could create
unnecessary delays.
More than one commenter expressed
concern that the proposed expansion of
the recordkeeping amendment, which
would have required broker-dealers to
provide access to certain records for
examination by more persons and
entities than the current exemption
may, among other consequences, open
the door to privacy concerns, fishing
expeditions, abuse, and unnecessary
risk.
After considering the comments, the
Department has determined not to
finalize the proposed condition that
would have required the investment
advice fiduciary not to have caused the
potential failure of the purchase or sale
of the securities in the extension of
credit amendment. The Department has
determined that fiduciaries should be
able to extend credit in order to avoid
a failed securities transaction. The
Department did not receive any
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substantive comments on the IRA
definition, which it is finalizing to read
as follows: ‘‘Individual Retirement
Account’’ or ‘‘IRA’’ means any plan that
is an account or annuity described in
Code section 4975(e)(1)(B) through (F).
This language is consistent with the IRA
definition in PTE 2020–02. After
considering the comments, the
Department also is not amending the
recordkeeping provision in PTE 75–1
Part V.
Summary of Additional Proposed
Amendments to PTE 86–128
The Department proposed certain
administrative changes to PTE 86–128,
which are not directly related to the
provision of fiduciary investment
advice. The Department proposed to
delete Section IV(a), which provides an
exclusion from the conditions of the
exemption for certain plans not covering
employees, including IRAs, to increase
the safeguards available to these
Retirement Investors. Therefore, under
the proposed amendment, fiduciaries
that exercise full discretionary authority
or control with respect to IRAs could
have continued to rely on PTE 86–128
but would have had to meet the
protective conditions of this exemption
for IRAs as well as for Title I plans.
The Department also proposed certain
technical changes to the exemption,
including deleting subsection IV(b)(1),
and redesignating remaining sections as
needed. The language currently in
Section IV(b)(1) excludes fiduciary
investment advice providers; however,
under the proposed amendment,
fiduciary investment advice providers
would have been excluded from the
exemption as a whole; therefore, the
exclusion does not need to be repeated
in Section IV. As a result of the deletion
of Section IV(a) and IV(b)(1), the
Department proposed to redesignate
subsections IV(b)(2) and (3) as
subsections IV(a)(1) and (2),
respectively, Section IV(c) as Section
IV(b), and Section IV(d) as Section IV(c).
Redesignated Section IV(b) of the
proposed amendment would have
provided that certain conditions in
Section III do not apply in any case
where the person who is engaging in a
covered transaction returns or credits to
the plan all profits earned by that
person and any related entity in
connection with the securities
transactions associated with the covered
transaction. This provision is referred to
as the ‘‘Recapture of Profits’’ exception.
The Department provided an exception
from the conditions in Section III for the
recapture of profits due to the benefits
plans and IRAs would derive from such
arrangements.
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Discretionary trustees were first
permitted to rely on PTE 86–128
without meeting the Recapture of Profits
provision pursuant to an amendment in
2002 (the 2002 Amendment). Before the
2002 Amendment, Section III(a)
provided that ‘‘[t]he person engaging in
the covered transaction [may not be] a
trustee (other than a nondiscretionary
trustee), or an administrator of the plan,
or an employer any of whose employees
are covered by the plan.’’ Under the
2002 Amendment, the reference to
‘‘trustee (other than a nondiscretionary
trustee)’’ was deleted from Section III(a);
therefore, discretionary trustees had to
satisfy additional conditions set forth in
Section III(h) and (i) to rely on the
exemption.11
The Department understands that
after the 2002 Amendment, practitioners
questioned whether discretionary
trustees were permitted to rely on the
Recapture of Profits exception, which
allows persons identified in Section
III(a) to engage in the covered
transactions if they return or credit to
the plan or IRA all profits, as an
alternative to complying with Sections
III(h) and (i). By deleting the reference
to discretionary trustees from Section
III(a), the Department understands that
the 2002 Amendment inadvertently may
have prevented discretionary trustees of
plans or IRAs from using the Recapture
of Profits exception from the conditions
imposed by Section III of the exemption,
and instead, may have limited the relief
provided in the exemption to
discretionary trustees that satisfy that
additional conditions in Section III(h)
and (i). This result was not intended;
therefore, the Department proposed to
modify the exemption to permit all
discretionary trustees to utilize the
recapture of profits exception as they
originally were permitted to before the
2002 Amendment.
In order to achieve this result, the
Department proposed to amend
redesignated section IV(b) to provide
that Sections III(a), III(h), and III(i) do
not apply in any case where the person
engaging in the covered transaction
returns or credits to the plan or IRA all
profits earned by that person in
connection with the securities
transaction associated with the covered
transaction. In addition, the Department
proposed to reinsert a reference to
trustees (other than nondiscretionary
trustees) in Section III(a) along with the
existing references to plan
11 Section III(h) provides that discretionary
trustees may engage in the covered transactions
only with plans or IRAs with total net assets of at
least $50 million, and Section III(i) requires
discretionary trustees to provide additional
disclosures.
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administrators and employers. Finally,
the Department proposed to add a
sentence to the end of Section III(a)
stating that: ‘‘Notwithstanding the
foregoing, this condition does not apply
to a trustee (other than a
nondiscretionary trustee) that satisfies
Section III(h) and (i), and to all persons
identified in this paragraph that satisfy
the Recapture of Profits exception in
Section IV(b)).’’
The purpose of these proposed
amendments was to clarify that
discretionary trustees may engage in
covered transactions if they satisfy
Section III(h) and (i) of the exemption.
Moreover, the proposed amendment
would have clarified that all parties
identified in Section III(a)—
discretionary trustees, plan
administrators, or employers who have
any employees covered by the plan—
can engage in a transaction covered
under PTE 86–128 if they satisfy the
Recapture of Profits exception.
Lastly, the Department proposed to
add a new Section VII to PTE 86–128
that would have required the fiduciary
engaging in a covered transaction to
maintain records necessary to enable
certain persons (described in proposed
Section VII(b)) to determine whether the
conditions of this exemption have been
met.
Discussion of Comments to Additional
Proposed Amendments to PTE 86–128
Proposed Amendment to IV(a). At
least one commenter stated that the
Department did not consider the
disruption that would be caused by
eliminating the exclusion from the
exemption conditions for covered
transaction engaged in on behalf of
IRAs. Another commenter stated that
the Department did not explain how a
retail investor would benefit from, or
understand, complex and potentially
confusing disclosures they would have
been required to receive under the
proposed amendment, which are
intended for institutional, sophisticated
plan fiduciaries. The commenter stated
also that the proposed amendment does
not provide any guidance on how
persons engaging in covered
transactions under the exemption can
comply with the proposed amendment.
After considering these comments, the
Department has determined not to
eliminate the exclusion from the current
exemption conditions of PTE 86–128 for
covered transactions engaged in on
behalf of IRAs. The Department’s
objective for amending PTE 86–128 and
other affected exemptions is to ensure
that consistent and protective standards
apply to investment advice. The
Department does not intend to impose
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any additional obligations on entities
relying on PTE 86–128 at this time. The
Department notes, however, that it may
revisit the scope and content of PTE 86–
128 as part of future notice and
comment rulemaking.
Proposed Amendment to Part VII.
Some commenters raised concerns with
the proposed new recordkeeping
provision. One commenter stated that
absent such explanation or public
policy rationale, it is not necessary to
make the fiduciary’s records available to
the participants and beneficiaries (and
their authorized representatives). The
commenter recommended that the
Department delete the proposed
language that would allow retirement
investors and their authorized
representatives direct access to the
records of fiduciaries relying on PTE
86–128.
Another commenter also expressed
concerns about the proposed
recordkeeping condition. Among other
things, the commenter objected to
unions being allowed to have any record
of the plan. The commenter asserted
that this provision undermines the
careful balance of labor relations in this
country and argued that it is preempted
by the National Labor Relations Act.
After consideration of the comments,
the Department has deleted the
proposed recordkeeping requirements
applicable to Section VII of PTE 86–128.
However, as with PTE 2020–02, the
Department intends to monitor
compliance with the exemption closely
and may revisit whether expanding the
recordkeeping requirement is
appropriate in the future. Any future
amendments would be preceded by
notice and an opportunity for public
comment.
Other Proposed Change to PTE 86–
128. The Department did not receive
comments on the proposed technical
changes discussed above, or the
proposed modification that permits
discretionary trustees to utilize the
Recapture of Profits exception in
Section IV(d) of PTE 86–128 as was
permitted when the Department
originally issued PTE 86–128.
Therefore, the Department has finalized
these technical changes as proposed.
Executive Orders
Executive Orders 12866 12 and
13563 13 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,
12 58
13 76
FR 51735 (Oct. 4, 1993).
FR 3821 (Jan. 21, 2011).
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environmental, public health and safety
effects; distributive impacts; and equity.
Executive Order 13563 emphasizes the
importance of quantifying costs and
benefits, reducing costs, harmonizing
rules, and promoting flexibility.
Under Executive Order 12866,
‘‘significant’’ regulatory actions are
subject to review by the Office of
Management and Budget (OMB). As
amended by Executive Order 14094,14
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.
Paperwork Reduction Act Statements
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.
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32353
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 ebsa.opr@dol.gov
Preliminary Assumptions
The Department assumes that several
types of personnel will perform the
tasks associated with information
collection requests at an hourly wage
rate of $65.99 for clerical personnel,
$165.71 for a legal professional, $198.25
for a financial manager.15
In the proposal, the Department
received several comments on the
Department’s labor cost estimate,
particularly the cost for legal support,
remarking that it was too low. The
Department assumes that tasks
involving legal professionals will be
completed by a combination of legal
professionals, likely consisting of
attorneys, legal support staff, and other
professionals and in-house and outsourced individuals. The labor cost
associated with these tasks is estimated
to be $165.71, which is the
Department’s estimated labor cost for an
in-house attorney. The Department
understands that some may feel this
estimate is comparatively low to their
experience, especially when hiring an
outside ERISA legal expert. However,
the Department has chosen this cost
estimate understanding that it is meant
to be an average, blended, or typical rate
from a verifiable and repeatable source.
Removal of Investment Advice and PTE
2020–02
The Department is amending PTE 77–
4, PTE 75–1, PTE 80–83, PTE 83–1, and
PTE 86–128, to remove relief in those
exemptions for the receipt of
compensation as a result of the
provision of investment advice within
the meaning of ERISA section
3(21)(A)(ii) and Code section
15 Internal DOL calculation based on 2023 labor
cost data and adjusted for inflation to reflect 2024
wages. For a description of the Department’s
methodology for calculating wage rates, see:
Employee Benefits Security Administration, Labor
Cost Inputs Used in the Employee Benefits Security
Administration, Office of Policy and Research’s
Regulatory Impact Analyses and Paperwork
Reduction Act Burden Calculations, Employee
Benefits Security Administration, https://
www.dol.gov/sites/dolgov/files/EBSA/laws-andregulations/rules-and-regulations/technicalappendices/labor-cost-inputs-used-in-ebsa-opr-riaand-pra-burden-calculations-june-2019.pdf.
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4975(e)(3)(B) and regulations
thereunder. Investment advice providers
will instead have to rely on the
amended PTE 2020–02 or PTE 84–24 for
exemptive relief covering investment
advice transactions. For an estimate of
the costs incurred by entities now
reliant on PTE 2020–02, refer to the
discussion of the amendments to PTE
2020–02 and PTE 84–24 published in
this issue of today’ Federal Register.
In the proposal, the Department
received several comments that the
Mass Amendments would be costly and
disruptive. Some of the commenters
expressed concern that the exemptions
are tailored to specific types of
transactions and moving all investment
advice transactions to PTE 2020–02 and
PTE 84–24 would be burdensome.
Several commenters on the proposal
expressed concern about the cost
burden associated this change, with
many stating that the Department had
not considered the cost associated with
moving to PTE 2020–02. In
consideration of these comments, the
Department has increased its cost
estimates for entities newly relying on
PTE 2020–02 and PTE 84–24. The
increases include significant increases
in the cost estimates to review and
implement the rule and to establish
policies and procedures. For a complete
discussion of the cost estimates, refer to
the Paperwork Reduction Act sections
for PTE 2020–02 and PTE 84–24 or the
regulatory impact analysis in Retirement
Security Rule: Definition of an
Investment Advice Fiduciary, also
published in today’s Federal Register.
Amendments to PTE 75–1
Affected Entities
Broker-dealers registered under the
Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.), reporting dealers,
and banks are eligible to rely on the
exemption. According to the SEC,
approximately 3,490 broker-dealers
were SEC-registered as of December
2022.16 Not all broker-dealers perform
services for employee benefit plans. In
2022, 55 percent of registered
investment advisers provided employersponsored retirement benefits
consulting.17 Assuming the percentage
of broker-dealers providing advice to
retirement plans is the same as the
percent of investment advisers
providing services to plans, the
Department estimates 55 percent, or
1,919 broker-dealers, would be affected
by PTE 75–1.
According to the Federal Deposit
Insurance Corporation, there are 4,049
commercial banks as of September 30,
2023.18 If one-half of these banks (about
2,025) and 55 percent of broker-dealers
(about 1,919 broker-dealers) relied on
this exemption, there would be
approximately 3,944 respondents.19
Commission (SEC). The Department
believes that this new disclosure
requirement is consistent with the
disclosure requirement mandated by the
SEC in 17 CFR 240.10b–16(1) for margin
transactions. Therefore, the Department
concludes that this requirement
produces no additional burden to the
public.
Recordkeeping Requirements
In the proposal, the Department
proposed to amended PTE 75–1 Parts II
and V to adjust the recordkeeping
requirement to shift the burden from
plans and IRA owners to financial
institutions. In the final rulemaking, the
Department has decided to keep the
recordkeeping requirement unchanged
from the existing exemption.
The Department has assumed that
financial service providers that transact
with employee benefit plans will
maintain these records on behalf of their
client plans. Because of the
sophisticated nature of financial service
providers and the regulation of the
securities industry by State and Federal
government, and by self-regulatory
organizations, the Department has
assumed that the records required by
this class exemption are the same
records kept in the normal course of
business, or in compliance with other
requirements.
The Department has estimated that
the time needed to maintain records for
the financial institutions to be
consistent with the exemption will be
four hours per entity annually at a wage
rate of $198.25 per hour.20 Thus, the
Department estimates it would take
15,778 hours at an equivalent cost of
$3,127,949 to maintain the records and
make the records available for
inspection.21
Disclosure Requirements
Under Part V(c) of PTE 75–1, when a
fiduciary extends credit to avoid a failed
purchase or sale of securities, the plan
or IRA must receive written disclosure
of the rate of interest (or other fees) that
will apply and the method of
determining the balance upon which
interest will be charged, as well as prior
written disclosure of any changes to
these terms. The plan or IRA must also
be provided with prior written
disclosure of any changes to these
terms.
The Department believes that it is a
usual and customary business practice
to maintain records required to
demonstrate compliance with disclosure
distribution regulations mandated by
the Securities and Exchange
TABLE 1—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH RECORDKEEPING
Year 1
lotter on DSK11XQN23PROD with RULES7
Activity
Burden
hours
Subsequent years
Equivalent
burden cost
Burden
hours
Equivalent
burden cost
Financial Manager ...........................................................................................
15,778
$3,127,949
15,778
$3,127,949
Total ..........................................................................................................
15,778
3,127,949
15,778
3,127,949
16 Estimates based on SEC’s FOCUS filings and
SEC’s Form ADV filings.
17 Cerulli Associates, U.S. RIA Marketplace 2023,
Exhibit 5.10, Part 1, The Cerulli Report.
18 Federal Insurance Deposit Corporation,
Quarterly Banking Profile, Statistics at a Glance- as
of September 30, 2023, https://www.fdic.gov/
analysis/quarterly-banking-profile/statistics-at-aglance/2023sep/industry.pdf.
19 Reporting dealers covered by the exemption are
not accounted for separately because they are banks
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and security brokerages that trade in U.S.
Government Securities; thus, reporting dealers are
already accounted for in the number of brokerdealer firms and banks. The New York Federal
Reserve Bank reported 21 primary dealers on March
21, 2013. https://www.newyorkfed.org/markets/
pridealers_current.html.
20 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/
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21 The burden is estimated as follows: 3,944
financial institutions × 4 hours = 15,778 hours. A
labor rate of $198.25 is used for a financial manager.
The labor rate is applied in the following
calculation: (3,944 financial institutions × 4 hours)
× $198.25 = $3,127,949.
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Summary
In sum, the Department estimates the
total burden for the amended PTE 1975–
1 is 15,778 hours at a total equivalent
burden cost of $3,127,949. The total cost
burden is estimated to be de minimis.
The Department assumes that required
records are maintained by the relevant
affected entities, the broker-dealers and
banks. Thus, there are no additional
tasks performed outside of those
performed by the brokerage firms and
banks.
The paperwork burden estimates are
summarized as follows:
Type of Review: Revision of an
existing collection.
Agency: Employee Benefits Security
Administration, Department of Labor.
Titles: Prohibited Transaction
Exemption 75–1 (Security Transactions
with Broker-Dealers, Reporting Dealers
and Banks).
OMB Control Number: 1210–0092.
Affected Public: Businesses or other
for-profits; not for profit institutions.
Estimated Number of Respondents:
3,944.
Estimated Number of Annual
Responses: 3,944.
Frequency of Response: Initially,
Annually, When engaging in exempted
transaction.
Estimated Total Annual Burden
Hours: 15,778 hours.
Estimated Total Annual Burden Cost:
$0.
Amendments to PTE 86–128
Affected Entities
Using data from 2021 Form 5500, the
Department estimates that 1,257 unique
plans hired service providers denoting
on the Schedule C that they were a
discretionary trustee. Further, among
these plans, 801 also reported that they
provided investment management
services or received investment
management fees paid directly or
indirectly by the plan.22 Based on these
values, the Department estimates on
average, 1,000 plans have discretionary
fiduciaries with full discretionary
control. As small plans do not file the
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22 Estimates
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based on 2021 Form 5500 data.
21:41 Apr 24, 2024
Jkt 253001
Schedule C, this estimate may be an
underestimate.
In the proposal, a few commenters
expressed concern that disruption
would be caused by the amendments.
One commenter expressed concern that
the removal of investment advice would
increase costs to retirement investors, as
entities would need to comply with PTE
2020–02. The Department did not
receive comments specifically
addressing the Department’s estimates
of the number of entities that would
continue to rely on PTE 86–128 under
the proposed amendments and did not
receive any which directly discussed
plan reliance on PTE 86–128.
The Department estimates that of the
estimated 1,000 plans discussed above,
7.5 percent are new accounts or new
financial advice relationships.23 Based
on these assumptions, the Department
estimates that 75 plans would be
affected by the proposed amendments to
PTE 1986–128.24
The Department lacks reliable data on
the number of investment advice
providers who are discretionary
fiduciaries that would rely on the
amended exemption. For the purposes
of this analysis, the Department believes
that in trying to capture financial
entities engaging in cross trades with
discretionary control, the number of
dual-registered broker-dealers that
render services to retirement plans
provides an accurate estimate. As of
December 2022, there were
approximately 456 broker-dealers
registered as SEC- or state-registered
investment advisers.25 Consistent with
the assumptions made about brokerdealers affected by the amendments to
PTE 2020–02, the Department estimates
that 55 percent, or 251 broker-dealers
will be affected by the amendments.
The Department requested comment
on this assumption, particularly with
regard to what types of entities would
be likely to rely on the amended
23 EBSA identified 57,575 new plans in its 2021
Form 5500 filings, or 7.5 percent of all Form 5500
pension plan filings.
24 The number of new plans is estimated as: 1,000
plans × 7.5 percent of plans are new ≈ 75 new plans.
25 Estimates are based on the SEC’s FOCUS filings
and Form ADV filings.
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32355
exemption, as well as any underlying
data. The Department did not receive
any comments.
Written Authorizations, Evaluations,
Forms, Reports, and Statements
Written Authorization From the
Authorizing Fiduciary to the BrokerDealer
Authorizing fiduciaries of new plans
entering into a relationship with a
transacting fiduciary are required to
provide the transacting fiduciary with
an advance written authorization to
perform transactions for the plan. The
Department estimates that there are
approximately 75 plans that are new or
that enter new arrangements each
year.26 Therefore, the Department
estimates that approximately 75
authorizing fiduciaries are expected to
send an advance written authorization.
It is assumed that a legal professional
will spend 15 minutes per plan
reviewing the disclosures and preparing
an authorization form. This results in a
burden of 19 hours with an equivalent
cost of $3,107.27
To produce and distribute the
authorization, the Department assumes
that 100 percent of plans will use
traditional electronic methods at no
additional burden. The Department
assumes that clerical staff will spend
five minutes preparing and sending the
authorization, resulting in a burden of
approximately 6 hours with an
equivalent cost of $412.28
In total, the written authorization
requirement is expected to result in a
total burden of 25 hours with an
equivalent cost of $3,520.
26 75 plans that are new or that enter new
arrangements each year.
27 The burden is estimated as follows: 75 plans ×
(15 minutes per plan ÷ 60 minutes) ≈ 19 hours. A
labor rate of $165.71 is used for a legal professional.
The labor rate is applied in the following
calculation: [75 plans × (15 minutes per plan ÷ 60
minutes)] × $165.71 per hour ≈ $3,107.
28 The burden is estimated as follows: 75 plans ×
(5 minutes per plan ÷ 60 minutes) ≈ 6 hours. A labor
rate of $65.99 is used for a clerical worker. The
labor rate is applied in the following calculation:
[75 plans × (5 minutes per plan ÷ 60 minutes)] ×
$65.99 ≈ $412.
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Federal Register / Vol. 89, No. 81 / Thursday, April 25, 2024 / Rules and Regulations
TABLE 2—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH THE WRITTEN AUTHORIZATION
Year 1
Activity
Burden hours
Subsequent years
Equivalent
burden cost
Burden hours
Equivalent
burden cost
Legal ................................................................................................................
Clerical .............................................................................................................
19
6
$3,107
412
19
6
$3,107
412
Total ..........................................................................................................
25
3,520
25
3,520
Note: The total value may not sum due to rounding.
Provision of Materials for Evaluation of
Authorization of Transaction
Prior to a written authorization being
made, the authorizing fiduciary must be
provided by the financial institution
with a copy of the exemption, a form for
termination of authorization, a
description of broker’s placement
practices, and any other reasonably
distribute the required information to
the authorizing fiduciary. This
information will be sent to the 75 plans
entering into an agreement with a
financial institution, and based on the
above, the Department estimates that
this requirement results in a burden of
6 hours with an equivalent cost of
$412.29
available information. This information
is assumed to be readily available.
To produce and distribute the
materials, the Department assumes that
100 percent of financial institutions will
use traditional electronic methods at no
additional burden. The Department
estimates that a clerical staff member
will spend five minutes to prepare and
TABLE 3—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH PROVISION OF MATERIALS FOR TRANSACTION
AUTHORIZATION
Year 1
Activity
Burden hours
Subsequent Years
Equivalent
burden cost
Burden hours
Equivalent
burden cost
Clerical .............................................................................................................
6
$412
6
$412
Total ..........................................................................................................
6
412
6
412
Provision of an Annual Termination
Form
Each authorizing fiduciary must be
supplied annually with a form expressly
providing an election to terminate the
written authorization. It is assumed that
legal professionals with each of the 251
affected transacting fiduciaries will
spend on average 15 minutes preparing
clerical staff will spend five minutes per
plan preparing and distributing the
termination forms resulting in a burden
of 83 hours with an equivalent cost of
$5,499.31
In total, providing the annual
termination form is expected to impose
a burden of 146 hours with an
equivalent cost of $15,889.
the termination forms, which results in
a burden of 63 hours with an equivalent
cost of $10,390.30
To produce and distribute the
termination form to the 1,000 plans, the
Department assumes that 100 percent of
financial institutions will use traditional
electronic methods at no additional
burden. The Department estimates that
TABLE 4—HOUR BURDEN AND EQUIVALENT COST ASSOCIATED WITH PROVISION OF THE ANNUAL TERMINATION FORM
Year 1
Activity
Burden hours
Equivalent
burden cost
Burden hours
Equivalent
burden cost
Legal ................................................................................................................
Clerical .............................................................................................................
63
83
$10,390
5,499
63
83
$10,390
5,499
Total ..........................................................................................................
146
15,889
146
15,889
Transaction Reporting
The transacting fiduciary engaging in
a covered transaction must furnish the
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Subsequent years
29 The burden is estimated as follows: 75 plans ×
(5 minutes per plan ÷ 60 minutes) ≈ 6 hours. A labor
rate of $65.99 is used for a clerical worker. The
labor rate is applied in the following calculation:
[75 plans × (5 minutes per plan ÷ 60 minutes)] ×
$65.99 ≈ $412.
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21:41 Apr 24, 2024
Jkt 253001
authorizing fiduciary with either a
conformation slip for each securities
transaction or a quarterly report
containing specified information. As
discussed above, the provision of the
confirmation already is required under
30 The burden is estimated as follows: [251
transacting fiduciaries × (15 minutes per financial
institution ÷ 60 minutes)] ≈ 63 hours. A labor rate
of $165.71 is used for a legal professional. The labor
rate is applied in the following calculation: [251
transacting fiduciaries × (15 minutes per financial
institution ÷ 60 minutes)] × $165.71 per hour ≈
$10,390.
31 The burden is estimated as follows: 1,000 plans
× (5 minutes per plan ÷ 60 minutes) ≈ 83 hours. A
labor rate of $65.99 is used for a clerical worker.
The labor rate is applied in the following
calculation: [1,000 plans × (5 minutes per plan ÷ 60
minutes)] × $65.99 ≈ $5,499.
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Federal Register / Vol. 89, No. 81 / Thursday, April 25, 2024 / Rules and Regulations
SEC regulations. Therefore, if the
transaction reporting requirement is
satisfied by sending conformation slips,
no additional hour and cost burden will
occur.
Annual Statement
In addition to the transaction
reporting requirement, transacting
fiduciaries are required to send an
annual report to each of the 1,000
authorizing fiduciaries 32 containing the
same information as the quarterly report
and also containing all security
transaction-related charges, the
brokerage placement practices, and a
portfolio turnover ratio.
In addition, it is assumed that the
information that must be sent annually
could be sent together; therefore, the
clerical staff hours required to prepare
and distribute the report has been
included with the provision of annual
termination form requirement.
32357
brokers, on both a total dollar and a
cents-per-share basis. As the report is
sent annually, it is assumed that it could
be sent with the transaction report. The
Department estimates that 100 percent
of financial institutions will use
traditional electronic methods at no
additional burden.
Financial institutions are required to
report specific transaction fees and
information to the plan fiduciaries. The
information must be tracked, assigned to
specific plans, and reported. It is
assumed that it costs the financial
institution $3.30 per plan to track this
information.33 With approximately
1,000 affected plans, this results in a
cost burden of approximately $3,300
annually.34
In total, providing the report is
expected to impose a total cost burden
of $3,300.
Therefore, no additional hour or
equivalent cost burden has been
reported.
Report of Commissions Paid
A discretionary trustee must provide
an authorizing fiduciary with an annual
report showing separately the
commissions paid to affiliated brokers
and non-affiliated brokers, on both a
total dollar basis and a cents-per-share
basis. The collecting and generation of
the information for the quarterly report
is reported as a cost burden. The clerical
hour burden to prepare and distribute
the report is included with the
provision of annual termination form
requirement, because both items are
required to be sent annually.
A financial institution who is a
discretionary trustee must provide each
of the 1,000 authorizing fiduciaries with
an annual report showing commissions
paid to affiliated and non-affiliated
TABLE 5—HOUR BURDEN AND COST ASSOCIATED WITH REPORT OF COMMISSIONS PAID
Year 1
Subsequent years
Activity
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Burden hours
Cost burden
Burden hours
Cost burden
Clerical .............................................................................................................
0
$3,300
0
$3,300
Total ..........................................................................................................
0
3,300
0
3,300
Summary
In total, the conditions of this
exemption will result in the production
of 44,821 disclosures.35 The Department
assumes that 100 percent of plans and
financial institutions will use electronic
methods to distribute the required
information, at de minimis burden.
Production and distribution of
disclosures will result in an overall hour
burden of 177 hours with an equivalent
cost of $19,821 and an overall cost
burden of $3,300.
The paperwork burden estimates are
summarized as follows:
Type of Review: Revision to an
existing collection.
Agency: Employee Benefits Security
Administration, Department of Labor.
Titles: PTE 86–128 (Securities BrokerDealers).
OMB Control Number: 1210–0059.
Affected Public: Businesses or other
for-profits; not for profit institutions.
Estimated Number of Respondents:
326.
Estimated Number of Annual
Responses: 4,150.
32 1,000
plans.
estimate is based on information from a
Request for Information and from industry sources.
34 1,000 plans × $3.30 = $3,300.
33 This
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Frequency of Response: Initially,
Annually, When engaging in exempted
transaction.
Estimated Total Annual Burden
Hours: 177 hours.
Estimated Total Annual Burden Cost:
$3,300.
Amendments to PTE 77–4, 80–83 and
PTE 83–1
The Department has determined that
PTE 77–4 and PTE 80–83 do not have
information collections impacted by the
removal of advice from the exemption.
There is no paperwork burden related to
PTE 83–1.
Regulatory Flexibility Act
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.
The Regulatory Flexibility Act
(RFA) 36 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.37 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
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 38 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
35 The total number of disclosures is calculated in
the following manner: (75 Written authorization
disclosures) + (75 Provision of materials for
evaluation of authorization of transaction) + (1,000
Annual termination form) + (1,000 Annual
Statement) + (1,000 Report of Commissions Paid) +
(1,000 Information and fee tracking) = 4,150
disclosures.
36 5 U.S.C. 601 et seq.
37 5 U.S.C. 601(2), 603(a); see 5 U.S.C. 551.
38 Public Law 104–4, 109 Stat. 48 (Mar. 22, 1995).
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Federal Register / Vol. 89, No. 81 / Thursday, April 25, 2024 / Rules and Regulations
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, these amended exemptions do
not include any Federal mandate that
will result in such expenditures.
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Federalism Statement
Executive Order 13132 outlines
fundamental principles of federalism. It
also requires Federal agencies to adhere
to specific criteria in formulating and
implementing policies that have
‘‘substantial direct effects’’ on the states,
the relationship between the national
government and states, or on the
distribution of power and
responsibilities among the various
levels of government. Federal agencies
promulgating regulations that have
these federalism implications must
consult with State and local officials
and describe the extent of their
consultation and the nature of the
concerns of State and local officials in
the preamble to the final regulation.
Notwithstanding this, Section 514 of
ERISA provides, with certain exceptions
specifically enumerated, that the
provisions of Titles I and IV of ERISA
supersede any and all laws of the States
as they relate to any employee benefit
plan covered under ERISA.
The Department has carefully
considered the regulatory landscape in
the states and worked to ensure that its
regulations would not impose
obligations on impacted industries that
are inconsistent with their
responsibilities under state law,
including the obligations imposed in
states that based their laws on the NAIC
Model Regulation. Nor would these
regulations impose obligations or costs
on the state regulators. As discussed
more fully in the final Regulation and in
the preamble to PTE 84–24, there is a
long history of shared regulation of
insurance between the States and the
Federal government. The Supreme
Court addressed this issue and held that
‘‘ERISA leaves room for complementary
or dual federal or state regulation’’ of
insurance.39 The Department designed
the final Regulation and exemptions to
complement State insurance laws.40
39 See John Hancock Mut. Life Ins. Co. v. Harris
Trust & Sav. Bank, 510 U.S. 86, 98 (1993).
40 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.
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The Department does not intend for
these amendments 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 these amendments have
federalism implications because they
have 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 final
amendment to class exemptions 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 to the class
exemptions is applicable to a particular
transaction only if the transaction
satisfies the conditions specified in the
exemption; and
(4) The final amendment to the class
exemptions is supplemental to, and not
in derogation of, any other provisions of
ERISA and the Code, including statutory
or administrative exemptions and
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).
PO 00000
Frm 00014
Fmt 4701
Sfmt 4700
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 class
exemptions 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)).41
Amendments to Class Exemptions
Prohibited Transaction Exemption 75–
1, Exemptions From Prohibitions
Respecting Certain Classes of
Transactions Involving Employee
Benefit Plans and Certain BrokerDealers, Reporting Dealers and Banks
The Department amends Prohibited
Transaction Exemption 75–1 under the
authority of ERISA section 408(a) and
Code section 4975(c)(2), and in
accordance with the procedures set
forth in 29 CFR part 2570, subpart B (76
FR 66637 (October 27, 2011)).
I. Part III, Underwritings, is amended
by inserting a new section III(h) to read
as follows:
Exception. No relief from the
restrictions of ERISA section 406(b) and
the taxes imposed by Code section
4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is
available for the receipt of
compensation 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.
II. Part IV, Market-making, is
amended by inserting a new section
IV(g) to read as follows:
Exception. No relief from the
restrictions of ERISA section 406(b) and
the taxes imposed by Code section
4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is
available for the receipt of
compensation 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.
41 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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Federal Register / Vol. 89, No. 81 / Thursday, April 25, 2024 / Rules and Regulations
III. Part V, Extension of Credit, is
amended by adding new Section (c) as
follows and redesignating Sections (c)
and (d) as Sections (d) and (e),
respectively:
(c) Notwithstanding section (a)(2), a
fiduciary under ERISA section
3(21)(A)(ii) or Code section
4975(e)(3)(B) may receive reasonable
compensation for extending credit to a
plan or IRA to avoid a failed purchase
or sale of securities involving the plan
or IRA if:
(1) The terms of the extension of
credit are at least as favorable to the
plan or IRA as the terms available in an
arm’s length transaction between
unaffiliated parties;
(2) Prior to the extension of credit, the
plan or IRA receives written disclosure
of (i) the rate of interest (or other fees)
that will apply and (ii) the method of
determining the balance upon which
interest will be charged, in the event
that the fiduciary extends credit to
avoid a failed purchase or sale of
securities, as well as prior written
disclosure of any changes to these
terms. This section (c)(2) will be
considered satisfied if the plan or IRA
receives the disclosure described in
Securities Exchange Act Rule 10b–16; 42
For purposes of this exemption, the
terms ‘‘party in interest,’’ ‘‘disqualified
person’’ and ‘‘fiduciary’’ shall include
such party in interest, disqualified
person, or fiduciary, and any affiliates
thereof, and the term ‘‘affiliate’’ shall be
defined in the same manner as that term
is defined in 29 CFR 2510.3–21 and 26
CFR 54.4975–9. Also, for the purposes
of this exemption, the term ‘‘IRA’’
means any account or annuity described
in Code section 4975(e)(1)(B) through
(F).
Prohibited Transaction Exemption
77–4, Class Exemption for Certain
Transactions Between Investment
Companies and Employee Benefit Plans
The Department amends Prohibited
Transaction Exemption 77–4 under the
authority of ERISA section 408(a) and
Code section 4975(c)(2), and in
accordance with the procedures set
forth in 29 CFR part 2570, subpart B (76
FR 66637 (October 27, 2011)).
A new section II(g) is inserted to read
as follows:
lotter on DSK11XQN23PROD with RULES7
42 17
CFR 240.10b–16.
VerDate Sep<11>2014
21:41 Apr 24, 2024
Jkt 253001
Exception. No relief from the
restrictions of 406(b) and the taxes
imposed by section 4975(a) and (b) by
reason of sections 4975(c)(1)(E) and (F)
is available for the receipt of
compensation as a result of the
provision of investment advice within
the meaning of ERISA section
3(21)(A)(ii) or Code 4975(e)(3)(B) and
regulations thereunder.
Prohibited Transaction Exemption 80–
83, Class Exemption for Certain
Transactions Involving Purchase of
Securities Where Issuer May Use
Proceeds To Reduce or Retire
Indebtedness to Parties in Interest
The Department amends Prohibited
Transaction Exemption 80–83 under the
authority of ERISA section 408(a) and
Code section 4975(c)(2), and in
accordance with the procedures set
forth in 29 CFR part 2570, subpart B (76
FR 66637 (October 27, 2011)).
A new section I.E. is inserted to read
as follows:
Exception. No relief from the
restrictions of 406(b) and the taxes
imposed by Code sections 4975(a) and
(b) by reason of Code sections
4975(c)(1)(E) and (F) is available for the
receipt of compensation 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.
Transaction Exemption 83–1,
Exemption for Certain Transactions
Involving Mortgage Pool Investment
Trusts
The Department amends Prohibited
Transaction Exemption 83–1 under the
authority of ERISA section 408(a) and
Code section 4975(c)(2), and in
accordance with the procedures set
forth in 29 CFR part 2570, subpart B (76
FR 66637 (October 27, 2011)).
A new section I.E. is inserted to read
as follows:
Exception. No relief from the
restrictions of ERISA 406(b) and the
taxes imposed by Code sections 4975(a)
and (b) by reason of Code sections
4975(c)(1)(E) and (F) is available for the
receipt of compensation 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.
PO 00000
Frm 00015
Fmt 4701
Sfmt 9990
32359
Prohibited Transaction Exemption 86–
128, Class Exemption for Securities
Transactions Involving Employee
Benefit Plans and Broker-Dealers
The Department amends Prohibited
Transaction Exemption 86–128 under
the authority of ERISA section 408(a)
and Code section 4975(c)(2), and in
accordance with the procedures set
forth in 29 CFR part 2570, subpart B (76
FR 66637 (October 27, 2011)).
I. New sections II(d) is inserted as
follows:
(d) Exception. No relief from the
restrictions of ERISA 406(b) and the
taxes imposed by Code sections 4975(a)
and (b) by reason of Code sections
4975(c)(1)(E) and (F) is available for the
receipt of compensation 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.
II. Section III(a) is amended to read as
follows:
‘‘The person engaging in the covered
transaction is not a trustee (other than
a nondiscretionary trustee) or an
administrator of the plan, or an
employer any of whose employees are
covered by the plan. Notwithstanding
the foregoing, this condition does not
apply to a trustee (other than a
nondiscretionary trustee) that satisfies
Section III(h) and (i) of this exemption.’’
III. Section IV(b)(1) is deleted, and
Sections IV(b)(2) and (3) are
redesignated as Sections IV(b)(1) and
(2).
IV. Section IV(c) is amended to read
as follows:
(c) Recapture of profits. Sections III(a),
III(h), and III(i) of this exemption do not
apply in any case where the person
engaging in a covered transaction
returns or credits to the plan all profits
earned by that person in connection
with the securities transactions
associated with the covered transaction.
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. 2024–08068 Filed 4–24–24; 8:45 am]
BILLING CODE 4510–29–P
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]]>Agencies
[Federal Register Volume 89, Number 81 (Thursday, April 25, 2024)]
[Rules and Regulations]
[Pages 32346-32359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08068]
[[Page 32345]]
Vol. 89
Thursday,
No. 81
April 25, 2024
Part VII
Department of Labor
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Employee Benefits Security Administration
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29 CFR Part 2550
Amendment to Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-1,
and 86-128; Final Rule
Federal Register / Vol. 89, No. 81 / Thursday, April 25, 2024 / Rules
and Regulations
[[Page 32346]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2550
[Application No. D-12094]
ZRIN 1210-ZA34
Amendment to Prohibited Transaction Exemptions 75-1, 77-4, 80-83,
83-1, and 86-128
AGENCY: Employee Benefits Security Administration (EBSA), U.S.
Department of Labor.
ACTION: Amendments to Prohibited Transaction Exemptions 75-1, 77-4, 80-
83, 83-1, and 86-128.
-----------------------------------------------------------------------
SUMMARY: This document contains a notice of amendments to Prohibited
Transaction Exemptions (PTEs) 75-1, 77-4, 80-83, 83-1, and 86-128,
which are class exemptions 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
amendments (collectively, the Mass Amendment) affect participants and
beneficiaries of plans, individual retirement account (IRA) owners, and
certain fiduciaries of plans and IRAs.
DATES: The Mass Amendment is effective September 23, 2024.
FOR FURTHER INFORMATION CONTACT: Susan Wilker, telephone (202) 693-
8540, Office of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor (these are not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
As described elsewhere in this edition of the Federal Register, the
Department of Labor (Department) is amending the regulation 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 section ERISA 3(21)(A)(ii) of ERISA and in Code
section 4975(e)(3)(B) (the ``Regulation''). The Department also is
amending PTE 2020-02 to provide additional clarity for advice
fiduciaries and protections for retirement investors and PTE 84-24 to
address specific issues that insurance companies face in complying with
the conditions of PTE 2020-02 when distributing annuities through
independent agents, elsewhere in this edition of the Federal Register.
On October 31, 2023, the Department released the proposed
amendments to PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 described below
and invited all interested persons to submit written comments.\1\ The
Department received written comments on the proposed amendments, and on
December 12 and 13, 2023, held a public hearing at which witnesses
presented testimony. After careful consideration of the comments and
testimony on the proposed amendments, the Department is granting the
Mass Amendment with the modifications discussed herein.
---------------------------------------------------------------------------
\1\ The proposed amendments were released on October 31, 2023,
and were published in the Federal Register on November 3, 2023. 88
FR 76032.
---------------------------------------------------------------------------
The amendments to PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 remove
relief in those exemptions for the receipt of compensation 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.
After this amendment is effective, investment advice fiduciaries
must meet the conditions of PTE 2020-02 or PTE 84-24 for administrative
relief when they receive otherwise prohibited compensation as a result
of their provision of investment advice within the meaning of ERISA
section 3(21)(A)(ii) and Code section 4975(e)(3)(B) and regulations
thereunder to Retirement Investors (defined as plans, plan participants
or 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).
As described in more detail below, the Department also is amending
PTE 75-1 by: (1) expanding the extension of credit provision in Part V;
and (2) adding a definition of the term ``IRA'' in Part V. The
Department also is amending PTE 86-128 by: (1) revising the exemption's
``Recapture of Profits'' exception; and (2) making certain technical
corrections and editorial changes.
The ERISA and Code provisions at issue generally prohibit
fiduciaries with respect to employee benefit plans and IRAs from
engaging in self-dealing in connection with transactions involving
plans and IRAs. The Department is granting these amendments pursuant to
its authority under ERISA section 408(a) and Code section
4975(c)(2).\2\
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\2\ 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.
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Other Advice Exemptions
As discussed elsewhere in this edition of the Federal Register, the
Department is amending investment advice exemptions to ensure
consistent and protective standards apply to investment advice. After
considering the comments it received, the Department made significant
changes to both PTEs 2020-02 and 84-24 to ensure that there is an
investment advice exemption available that applies to an appropriately
wide range of situations. Many comments raised issues, or discussed
concerns, with the Department's proposed amendments collectively
(rather than proposal by proposal). In this same vein, the Department
considered these comments holistically. For example, one commenter
expressed concern that it would no longer be able to rely on PTE 77-4
for investment advice if the proposed amendments were finalized and was
also concerned about whether it could use PTE 2020-02. After
consideration of the comments, the Department determined it would make
changes to PTE 2020-02 to revise certain conditions and broaden its
scope rather than make changes to the Mass Amendment proposal. Although
the changes to PTEs 2020-02 \3\ and 84-24 \4\ are discussed more
completely in the respective documents, the changes in the three
exemption documents reflect the full scope of comments received. The
conditions to those exemptions, as finalized, emphasize long-standing
principles of loyalty and prudence, require careful management of
conflicts of interest, and are workable across different compensation
structures and business models related to the provision
[[Page 32347]]
of investment advice to Retirement Investors.
---------------------------------------------------------------------------
\3\ PTE 2020-02 requires financial institutions and investment
professionals relying on the exemption to: (i) acknowledge their
fiduciary status in writing; (ii) disclose their services and
material conflicts of interest; and adhere to impartial conduct
standards; (iii) adopt 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; (iv) document and disclose the specific reasons that any
rollover recommendations from Title I plans to IRAs are in the
retirement investor's best interest; (v) and conduct an annual
retrospective compliance review.
\4\ PTE 84-24 covers transactions with independent insurance
agents, and requires them to comply with conditions similar to the
amended PTE 2020-02.
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The Department has concluded that PTE 2020-02 and PTE 84-24 provide
a uniform and workable framework for the definition of fiduciary under
ERISA with respect to the provision of investment advice, and that the
protections now afforded by those exemptions should be available to
Retirement Investors generally when they receive recommendations from
trusted advisers. For all the reasons described in the preambles to the
amendments to PTE 84-24 and PTE 2020-02, published elsewhere today in
this edition of the Federal Register, as well as the associated
Regulatory Impact Analysis, the Department has determined to condition
relief from the prohibited transaction rules for fiduciary advice on
the terms of PTE 84-24 and PTE 2020-02. Retirement Investors will be
best served by a uniform protective standard focused on the Impartial
Conduct Standards, and associated policies and procedures, as set forth
in the preambles and text of those exemptions. In the Department's
judgment, there is no reason in law or policy to deprive Retirement
Investors who receive advice that was formerly covered by the
exemptions affected by these Mass Amendment of the protections now
provided to all Retirement Investors under PTE 84-24 and PTE 2020-02.
Summary of Proposed Amendments to PTEs 75-1, 77-4, 80-83, 83-1, and 86-
128
The proposed Mass Amendment was primarily aimed to ensure that all
parties relying on the exemptive relief for the provision of investment
advice are held to level standards and consistent criteria. In order to
accomplish this goal, the Department proposed to amend PTEs 75-1 Parts
III and IV, 77-4, 80-83, 83-1, and 86-128 by removing exemptive relief
for the provision of fiduciary investment advice. Specifically, the
proposal would have added the following statement to each exemption:
``Exception. No relief from the restrictions of ERISA section 406(b)
and the taxes imposed by Code section 4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is available for fiduciaries providing
investment advice within the meaning of ERISA section 3(21)(A)(ii) or
Code section 4975(e)(3)(B) and regulations thereunder.''
This proposed amendment was intended to ensure that retirement
investors would receive consistent and appropriate protections when
receiving fiduciary investment advice. The Department proposed to
accomplish this by removing relief for fiduciary investment advice from
class exemptions except for PTE 2020-02 and PTE 84-24. The proposed
amendment was intended to ensure that Retirement Investors received
fiduciary investment advice that reflected an appropriate level of care
and loyalty and financial professionals could rely on a single
framework regardless of the business model or the compensation
structure. The Department's intention was to create a level regulatory
playing field that would apply to all of the investment products that
fiduciary investment providers may recommend to Retirement Investors.
Under the proposed amendments, retirement investors could expect to
receive substantially the same strong protections with respect to
fiduciary investment recommendations, irrespective of the type of
investment product that was recommended, and advice providers would
compete for retirement investor's business under a common standard
focused on the investor's best interest.
Discussion of the Comments to the Mass Amendment in General
Commenters stated that the Regulation and all the proposed
amendments, taken together, have internal contradictions. These
commenters were concerned with perceived inconsistencies, costly
conditions, and inefficient duplication (including with respect to
remedies). According to these commenters, the Department's proposed
changes would result in uncertainties, unintended consequences,
counterproductive effects, and needless litigation. Commenters also
expressed concern about the comment period and the proposed effective
date. These general comments, and comments about the interaction
between the Department's proposals are discussed both here and in other
final amendments, published elsewhere in today's edition of the Federal
Register.
Those commenters who focused on the proposed Mass Amendment tied
their concerns to PTE 2020-02, and what they characterized as the
Department's approach of requiring all fiduciary investment advice
relief into PTE 2020-02. In particular, one commenter focused on
certain transactions that would have been permitted by the class
exemptions affected by the Mass Amendment, but which would have been
excluded from PTE 2020-02, as proposed.\5\ At least one commenter
stated that the preamble to the proposal failed to identify the
transactions being excluded from relief or explain the Department's
rationale for excluding such transactions, some of which fiduciaries
have been permitted to engage in since ERISA was passed. One of these
commenters further opined that the Department's cost analysis in these
regards was insufficient, and that the Administrative Procedure Act
(the APA) and Executive Orders 12866 and 13563 preclude this kind of
``sleight-of-hand rulemaking.'' Other commenters cited the APA as well,
and some also stated that the Mass Amendment exceeds the Department's
authority, including under ERISA Section 408(a).\6\
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\5\ One commenter stated that all of the following investments
could not be traded in the dealer market under PTE 2020-02 as it
currently exists: equities (U.S. and foreign), asset-backed trusts,
U.S. bonds of entities other than corporations, certain structured
notes issued by U.S. corporations and subject to registration
requirements under the Securities Act of 1933, currency, foreign
corporate bonds, foreign government bonds, Rule 144A securities,
privately issued real estate securities, closed-end funds, equity
IPOs, and debt IPOs. As noted elsewhere, the amended exemptions are
not intended to limit the scope of the current exemptions except
with respect to the receipt of compensation 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. In addition, as discussed in the preamble to today's
amendments to PTE 2020-02, and in its text, PTE 2020-02 has been
broadly amended to encompass compensation for advice irrespective of
the product recommended.
\6\ ERISA section 408(a) and Code section 4975(c)(2), expressly
permit the Department (through the Reorganization Plan No. 4 of
1978) to grant ``a conditional or unconditional exemption'' as long
as the exemption is ``(A) administratively feasible, (B) in the
interests of the plan and of its participants and beneficiaries, and
(C) protective of the rights of participants and beneficiaries of
the plan.''
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Commenters expressed concern regarding the proposed Mass Amendment
in light of the decision by the U.S. Court of Appeals for the Fifth
Circuit, vacating the Department's 2016 rulemaking with respect to
fiduciary advice.\7\ Other commenters stated the proposed Mass
Amendment would constitute improper regulation of IRAs.
---------------------------------------------------------------------------
\7\ See generally Chamber of Commerce v. U.S. Dep't of Lab., 885
F.3d 360 (5th Cir. 2018).
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Many of the commenters on the proposed Mass Amendment criticized
the Department's approach as costly and said the Department had not
adequately accounted for the costs to affected parties. For example,
one commenter stated that, in their view, the majority of the changes
proposed by the Department will be disruptive and unhelpful. Another
commenter stated that the costs to the industry of changing their
reliance on all of these
[[Page 32348]]
exemptions would be high and was insufficiently unanalyzed by the
Department. According to these commenters, financial institutions have
established their policies, procedures, compliance routines, risk
assessments, training and supervision structures to accommodate the
exemptions each has chosen to use and requiring all of those
institutions to revamp their systems and processes will be expensive
and time consuming. This commenter was concerned that these costs were
not fully reflected in the Department's cost assessment or effective
date of the exemption. This commenter raised threats of litigation and
cautioned that to the extent these changes are ultimately invalidated,
the industry and the plans they serve will suffer unnecessary costs and
investment in ultimately vacated rules. In the view of this commenter,
low and middle-income families would be disproportionately harmed by
these changes, because it is the commenter's view that some firms and
financial professionals would no longer provide fiduciary investment
advice to low and middle-income families. One commenter disagreed that
any changes were appropriate because the Department did not identify
any harm. Other commenters called the proposed amendment ``arbitrary
and capricious.''
Some of the commenters on these amendments focused specifically on
concerns about an anticipated loss of efficiency. These commenters
described PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 as designed to cover
specific types of transactions that financial services firms commonly
undertake for plan or IRA investors. The conditions built into those
class exemptions were specifically tailored to protect investors, while
allowing for efficient conduct of ordinary and necessary plan
transactions. If the proposed Mass Amendment is granted, these
commenters argued that the efficiencies associated with the affected
class exemptions would be lost, resulting in higher costs and fewer
benefits to investors, and perhaps other unintended consequences.
Another commenter stated that the insurance industry's suitability
standards far exceed any other regulatory agency protections for
protecting retirement accounts.
Other commenters focused specifically on the amendment to PTE 77-4.
One commenter stated that eliminating the availability of PTE 77-4 for
fiduciary investment advice would be highly disruptive and would create
material new costs which would ultimately be borne by plans and
participants. According to the commenter, PTE 77-4 already provides
robust protections for plans and participants and these changes would
lead to increased costs that the Department has failed to properly
identify, analyze, and account for, and the costs of the disruption
alone far outweigh any theoretical benefit to plans and participants.
The commenter stated that the outsized burden of complying with the
disclosure, documentation, reporting, and recordkeeping requirements of
PTE 2020-02 may be too great for it to be viewed as a viable
alternative to PTE 77-4 in many cases. The commenter added that the
potential result of this is that financial firms are likely to no
longer offer certain services to plans if doing so would require them
to rely on PTE 2020-02.
Another commenter offered similar views, adding that for over 45
years financial institutions have relied on PTE 77-4 for both
investment advice and discretionary programs. According to the
commenter, the proposed amendment would require firms to fully
inventory every product and service to identify every use of PTE 77-4
and determine whether the exemption can continue to be used and, if
not, whether there are any viable alternatives. Other commenters
expressed concern that the proposed amendments would result in
increased compliance costs, including by having to rely on two class
exemptions when previously only one was relied on. For example, a
fiduciary would have to comply with PTE 2020-02 to recommend a
particular program but would have to comply with PTE 77-4 to manage
those assets.
One commenter cited several of the reasons above to support the
view that the Mass Amendment is impermissible under ERISA Section
408(a), adding that many plans and participants would be harmed by the
Mass Amendment.
Commenters focused on the impact of removing investment advice from
PTE 86-128. According to one commenter, the proposed changes do not
address situations where an adviser may have limited discretion over
the purchase and sale of certain securities within an advisory account,
such as mutual funds and exchange-traded funds (ETFs), but acts on a
non-discretionary basis with respect to other securities within that
same account, such as fee-based variable annuities or private
placements. The commenter urged the Department to look more closely at
the conditions of the exemption in light of the fact that PTE 86-128
deals only with agency transactions in securities, a field that the
commenter characterized as fully regulated by the SEC that requires
substantial transaction-based reporting. Other commenters stated that
costs to retirement investors would increase if the proposal is
adopted, because the material cost savings PTE 86-128 provides for
investors would be lost if its relief is transferred to PTE 2020-02.
One of these commenters stated that, in its members' view, PTE 86-128
provided a significant economic benefit to retirement investors when it
is used, because the investor effectively receives two investment
services for the price of one.
At least one commenter cited the difficulty small businesses face
in complying with complex regulations, and one of these commenters
stated that the Department's class exemptions appear in ``piecemeal''
form on its website. The commenter recommended that the Department
update its class exemptions on its website to facilitate the review of
the current exemption text (i.e., with all amendments incorporated).
Numerous commenters expressed strong support for the proposed Mass
Amendment, and the Department's proposal to move coverage of fiduciary
investment advice to PTEs 2020-02 and 84-24 to ensure consistency for
all types and forms of fiduciary investment advice. One commenter
argued that the proposed changes were important and would provide
vulnerable retirement investors with needed protection against bad
actors. Another commenter emphasized the importance of a baseline of
protection for American workers against predatory practices. One
commenter raised concerns with the lack of transparency in the current
system and indicated that a single set of standards would help increase
accountability for financial advisors and would be an important step
for restoring public trust in the work that financial advisors do. This
same commenter also stated that the care and loyalty obligations
proposed by the Department in PTE 2020-02 and PTE 84-24 were essential
to ensure that investment advice fiduciaries were acting in the best
interest of their clients and not for their own financial gain.
According to this commenter, it would be problematic for the Department
to offer exemptions that didn't have these same requirements.
Another commenter expressed surprise that investment advisers did
not already have a uniform fiduciary responsibility to put the
interests of their clients first and expressed approval of the
Department's proposal. A commenter stated the ``the best interest of
the client should be the advisor's sole concern, with no
[[Page 32349]]
secondary concern even coming into deliberation.'' Another commenter
discussed how investment funds are vital to consumers, that the
investment funds deserve appropriate fiduciary restrictions, and that
such restrictions were present in the Department's proposed changes.
One commenter viewed it as the government's responsibility to take
steps to ensure that people who need money in their ``old age'' could
trust their adviser. This commenter emphasized that the government
should take action to ensure investment advisers worked to help
retirement investors save money on fees while allowing savings to keep
pace with inflation. Another commenter argued that it was imperative
that financial advisers have a fiduciary duty to the retirement
investor and no one else. In the commenter's view, this was
accomplished through the Department's proposal. One commenter asked
that the proposals be finalized as proposed, i.e., setting up PTEs
2020-02 and 84-24 for all fiduciary investment advice, stating that it
would provide increased protection for investors and would result in
advisers providing honest information to retirement investors.
One commenter stated that retirement investors should receive fair,
unbiased financial recommendations and that the recommendations should
not be influenced by how much the adviser stands to make on the
recommendation. This commenter also noted that, in their view,
requiring advisers to satisfy a fiduciary obligation to their clients
should be the baseline minimum requirement. This same commenter
expressed approval of the disclosure and recordkeeping requirements in
PTEs 2020-02 and PTE 84-24, stating that these requirements allow the
recommendations to be audited and verified after the fact. In the view
of this commenter, this is necessary to ensure that advisers can be
held accountable for irresponsible and illegal advice.
After reviewing the comments, the Department has determined to
finalize its proposal to remove fiduciary investment advice as covered
transactions from the exemptions herein. Following consideration of the
different issues raised by commenters, the Department continues to
believe that fiduciary investment advice is best covered through a
single set of standards, as set forth in PTEs 2020-02 and 84-24. The
Department agrees with those commenters who raised concerns that
certain transactions would have been unable to rely on PTE 2020-02 as
originally proposed. As described more fully in the preamble to the
final amendment to PTE 2020-02, the Department is making changes to
broaden the scope of that exemption in response to the commenters.
The Department agrees with those commenters who emphasized the
importance of consistent standards and practices for all investment
advice for Retirement Investors. The Department also agrees with those
commenters who argued in favor of imposing consistent care and loyalty
obligations on all fiduciary investment advisers, regardless of the
advice given or the compensation received. In the Department's view,
this is best accomplished by reliance on a single set of standards for
all fiduciary investment advice. As discussed in greater detail in the
preambles to the amendments to PTE 2020-02 and PTE 84-24, published
elsewhere today in this edition of the Federal Register, the Department
has worked to ensure that this single set of standards works for a wide
range of business practices. Additionally, this set of standards was
specifically crafted to build upon long-standing principles found
throughout ERISA and trust law. The care obligation and loyalty
obligation, along with the required disclosures, policies and
procedures, and retrospective review will ensure that Retirement
Investors are appropriately protected.
It remains the Department's intent, however, to exclude from these
amended exemptions only the receipt of compensation 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.
After reviewing comments that indicated its intent was unclear, the
Department has revised the final amendment to reflect this intent more
clearly. Therefore, this final amendment clarifies that relief from the
restrictions of ERISA section 406(b) and the taxes imposed by Code
section 4975(a) and (b) by reason of Code sections 4975(c)(1)(E) and
(F) is not available for the receipt of compensation as the 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.
Regarding comments that the proposed transactions are already the
subject of different regulatory schemes, the Department notes that this
has been the case since the passage of ERISA. The fact that regulators
with responsibility for other state or Federal statutes and who have
different areas of authority have imposed different conditions on the
entities subject to the amended class exemptions does not foreclose the
Department from meeting its responsibility to ensure that the interest
of plans and Retirement Investors are protected as required under ERISA
section 408(a) and Code section 4975(c)(2).
In addition, the Department has revised its cost analysis for the
prohibited transactions, particularly for PTE 2020-02 since more
entities will be relying on that exemption. Costs associated with the
proposed Mass Amendment are discussed below. After reviewing the entire
record, the Department maintains its position that the enhanced
protections afforded to plans and IRAs, and the uniformity of the
regulatory environment, will provide stability and savings to plans and
IRAs that outweighs the cost concerns raised by commenters. The
Department also believes that the imposition of a common set of
protective standards for a wide range of advice transactions in PTE 84-
24 and PTE 2020-02 promotes efficiency and clarity, inasmuch as one
need only look to the terms of these two exemptions, which are
materially similar, for relief from advice transactions, rather than a
complex patchwork of exemptions covering different transactions.
Regarding comments expressing concern about the Mass Amendment in
light of the decision by the U.S. Court of Appeals for the Fifth
Circuit referenced above, the Department does not create new causes of
actions, mandate enforceable contractual commitments, or expand upon
the remedial provisions of ERISA or the Code. Regarding comments
expressing concern that the Mass Amendment constitute improper
regulation of IRAs, the Department notes this rulemaking does not alter
the existing framework for bringing suits under State law against IRA
fiduciaries and does not aim to do so.
With respect to the comments above regarding inconsistencies,
alleged duplicities, uncertainties, and contradictions the Department
has strived herein and in the amendments published elsewhere in today's
edition of the Federal Register to address the concerns and issues
raised by commenters. The Department encourages parties to contact the
Department's Office of Exemption Determinations should any further
issues of ambiguity remain.
Regarding comments about the Mass Amendment's comment period and
effective date, the robust comment period is described above and in the
preamble to the Regulation, and the effective date of the Mass
Amendment is now 150 days following publication
[[Page 32350]]
of the Mass Amendment in the Federal Register.
Regarding comments expressing concern that the Department has not
made its findings under ERISA Section 408(a), after considering the
entire record, the Department has determined that the Mass Amendment
will provide important benefits that are in the interest of affected
plans and IRAs. The Mass Amendment's protective conditions support a
finding that the Mass Amendment is protective of affected plans and
IRAs. The Department believes that Mass Amendment's conditions also
support a finding that the Mass Amendment is administratively feasible.
For a detailed discussion of the rationale, reasons, and responses to
comments about the application of the exemption to advice transactions,
the Department refers readers to the preambles to the amendments to PTE
84-24 and PTE 2020-02, published elsewhere today in this edition of the
Federal Register.
The Department appreciates the comment regarding its class
exemption website, and will strive to ensure its exemptions, including
amendments thereto, are easily accessible.
Summary of Additional Proposed Amendments to PTE 75-1 8
---------------------------------------------------------------------------
\8\ The Department made the Proposed Amendments to PTE 75-1
discussed below as part of its 2016 rulemaking that was overturned
by the U.S. Court of Appeals for the Fifth Circuit. See generally
Chamber of Commerce v. U.S. Dep't of Lab., 885 F.3d 360 (5th Cir.
2018).
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Proposed Amendments to PTE 75-1, Part I, paragraphs (b) and (c):
The Department proposed to revoke PTE 75-1, Part I, paragraphs (b) and
(c), which has provided exemptive relief for certain non-fiduciary
services provided by broker-dealers in securities transactions. As
noted in the proposal, the Department proposed to revoke the relief
provided in Parts I(b) and I(c) of PTE 75-1, because it duplicates the
relief available under the statutory exemptions under Code section
4975(d)(2) and ERISA section 408(b)(2) and regulations thereunder.
Proposed Revocation of Part II(2) of PTE 75-1: The Department
proposed to revoke Part II(2) of PTE 75-1 and requested comment
regarding whether fiduciaries providing discretionary investment
management services in connection with the purchase or sale of a mutual
fund security in a principal transaction need the relief that is
provided by PTE 75-1, Part II(2), and, if so, what conditions would be
appropriate.
Proposed Amendment to PTE 75-1, Part II(f): The Department also
proposed to revise the recordkeeping provisions of PTE 75-1, Part II(f)
to place the responsibility for maintaining such records on the broker-
dealer, reporting dealer, or bank engaging in the transaction with such
plan or IRA rather than on the plan or IRA. The proposed amendment also
would have required the broker-dealer to make the records reasonably
available at their customary location for examination during normal
business hours by: (A) Any duly authorized employee or representative
of the Department or the Internal Revenue Service; (B) Any fiduciary of
the plan or any duly authorized employee or representative of such
fiduciary; (C) Any contributing employer and any employee organization
whose members are covered by the plan, or any authorized employee or
representative of these entities; or (D) Any participant or beneficiary
of the plan or the authorized representative of such participant or
beneficiary. In so doing, the proposal expanded the list of entities
and persons eligible to receive these records, by adding the persons
described in (B), the authorized representatives of the entities in
(C), and the authorized representatives of the persons in (D).
None of the persons described in subparagraph (1)(B)-(D) above
would have been authorized to examine privileged trade secrets or
privileged commercial or financial information of such fiduciary, nor
are they authorized to examine records regarding a plan or IRA other
than the plan or IRA with which they are the fiduciary, contributing
employer, employee organization, participant, beneficiary or IRA
owner.\9\
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\9\ The proposed amendment provided that if such plan fiduciary
refused to disclose information on the basis that such information
is exempt from disclosure, the plan fiduciary would have been
required to provide a written notice by the close of the thirtieth
(30th) day following the request advising the requestor of the
reasons for the refusal and that the Department may request such
information. Finally, the proposed amendment would have provided
that failure to maintain the required records necessary to determine
whether the conditions of this exemption have been met will result
in the loss of the exemption only for the transaction or
transactions for which records are missing or have not been
maintained. It would not have affected the relief for other
transactions.
---------------------------------------------------------------------------
Proposed Amendments to 75-1, Part V: The Department proposed to
amend PTE 75-1, Part V, which permits a broker-dealer to extend credit
to a plan or IRA in connection with the purchase or sale of securities.
In the past, relief under PTE 75-1, Part V, has been limited in that
the broker-dealer extending credit was not permitted to have or
exercise any discretionary authority or control (except as a directed
trustee) with respect to the investment of the plan or IRA assets
involved in the transaction, nor render investment advice within the
meaning of 29 CFR 2510.3-21(c) with respect to those plan assets,
unless no interest or other consideration was received by the broker-
dealer or any affiliate of the broker-dealer in connection with the
extension of credit.
The Department was informed that relief was needed for broker-
dealers to extend credit to plans and IRAs to avoid failed securities
transactions, and to receive compensation in return. For example, the
Department understands that broker-dealers can be required, as part of
their relationships with clearinghouses, to complete securities
transactions entered into by the broker-dealer's customers, even if a
particular customer does not perform on its obligations. If a broker-
dealer is required to advance funds to settle a trade entered into by a
plan or IRA, or purchase a security for delivery on behalf of a plan or
IRA as a result of a failed security transaction, the result can
potentially be viewed as a loan of money or other extension of credit
to the plan or IRA. Further, in the event a broker-dealer steps into a
plan's or IRA's shoes in any particular transaction, it may charge
interest or other fees to the plan or IRA. These transactions
potentially violate ERISA section 406(a)(1)(B) and Code section
4975(c)(1)(B) and (D).
In the Department's view, the extension of credit to avoid a failed
securities transaction currently falls within the contours of the
existing relief provided by PTE 75-1, Part V, for extensions of credit
``[i]n connection with the purchase or sale of securities.''
Accordingly, broker-dealers that are not investment advice fiduciaries,
e.g., those who execute transactions but do not provide advice, were
permitted to receive compensation for extending credit to avoid a
failed securities transaction under the exemption as originally
granted. Under the proposed amendment, the Department would have
extended such relief to investment advice fiduciaries.
Specifically, under the proposed amendment to PTE 75-1, Part V(c),
an investment advice fiduciary could have received reasonable
compensation for extending credit to a plan or IRA to avoid a failed
purchase or sale of securities involving the plan or IRA. In
conjunction with the expanded relief in the amended exemption, Proposed
Section (c) would have imposed several conditions. First, the potential
failure of the purchase or sale of the securities could not have been
caused by the
[[Page 32351]]
broker-dealer or any affiliate. Additionally, the terms of the
extension of credit would have to be at least as favorable to the plan
or IRA as the terms available in an arm's length transaction between
unaffiliated parties. Finally, the plan or IRA must have received
written disclosure of certain terms before the extension of credit.
This disclosure would not have needed to be made on a transaction by
transaction basis, and could have been part of an account opening
agreement or a master agreement. The disclosure would have been
required to include the rate of interest or other fees that will be
charged on such extension of credit, and the method of determining the
balance upon which interest will be charged.
The plan or IRA must additionally have been provided with prior
written disclosure of any changes to these terms. The required
disclosures were intended to be consistent with the requirements of
Securities and Exchange Act Rule 10b-16, which governs broker-dealers'
disclosure of credit terms in margin transactions.\10\
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\10\ The Department understands that it is the practice of many
broker-dealers to provide such disclosures to all customers,
regardless of whether the customer is presently opening a margin
account. To the extent such disclosure is provided, the disclosure
terms of the exemption are satisfied.
---------------------------------------------------------------------------
The Department also proposed to make the same revisions to the
recordkeeping provisions of PTE 75-1, Part V that were made to the
recordkeeping provisions of PTE 75-1, Part II(f) that are described
above. This included expanding the persons and entities eligible to
receive certain documents from a broker-dealer in the same manner
described above in the PTE 75-1, Part II(f) discussion.
Finally, the Department proposed to add a definition of the term
``IRA'' to PTE 75-1, Part V. Under the proposed definition the term IRA
would have meant any account or annuity described in Code section
4975(e)(1)(B) through (F), including, for example, an individual
retirement account described in Code section 408(a) and a health
savings account described in Code section 223(d).
Discussion of Comments on Additional Proposed Amendments to PTE 75-1
Proposed Amendment to Part I(b) and (c). One commenter asserted
that although Part I(b) and (c) transactions are covered by 408(b)(2),
the industry still relies on Part I because: (1) it covers the actual
transaction, as well as clearance, settlement or custodial functions
incidental thereto; and (2) it provides clarification and relief
regarding the provision of research, analysis, availability of
securities and reports concerning issuers, industries, securities or
other property economic factors or trends, portfolio strategy and
performance ``under circumstances which do not make such party in
interest or disqualified person a fiduciary with respect to such
plan.''
After considering the comment, that Department has determined not
to delete Part I(b) and (c) as was proposed.
Proposed Amendment to Part II. A commenter opposed the Department's
proposed revocation of Part II(2), stating that the Department did not
provide adequate grounds to revoke this exemption. According to this
commenter, this exemption remains the bedrock of institutional dealer
sales of securities and there would be significant cost and disruption
if the Department did revoke this relief.
More than one commenter expressed concern that the proposed
recordkeeping amendment, which would require broker-dealers, reporting
dealers and/or banks to provide certain records to persons and entities
that include beneficiaries and employee organizations, among others,
may open the door to privacy concerns, fishing expeditions, abuse, and
unnecessary risk.
After considering the comments, the Department has determined not
to finalize the revocation of PTE 75-1, Part II(2) as was proposed. The
Department also is not finalizing: (1) the proposed amendment that
would have required the broker-dealer, reporting dealer, or bank
engaging in the covered transaction to satisfy the recordkeeping
requirement in Part II(e) of the exemption; nor (2) the proposed
expansion of Part II(f) that would have permitted additional parties to
review the records described in Part II(e). Therefore, only the parties
that are entitled to examine the records described in Part II(e) of the
current exemption may do so.
Proposed Amendment to Parts III and IV. The Department proposed to
amend PTEs 75-1 Parts III and IV, by adding the following statement to
each exemption: ``Exception. No relief from the restrictions of ERISA
section 406(b) and the taxes imposed by Code section 4975(a) and (b) by
reason of Code sections 4975(c)(1)(E) and (F) is available for
fiduciaries providing investment advice within the meaning of ERISA
section 3(21)(A)(ii) or Code section 4975(e)(3)(B) and regulations
thereunder.''
One commenter stated that ``the very thing covered by these parts
is not permitted at all under PTE 2020-02. Plans and retirement
investors will lose opportunities and trading efficiencies they
currently enjoy with no alternative avenue open to them. Amazingly, the
cost analysis does not mention the cost to plans or the market.''
As described in the preamble to the final amendment to PTE 2020-02,
the Department is expanding the scope of that exemption to cover
recommendations of any investment product, as long as the
recommendation meets the conditions of PTE 2020-02. Therefore, all
recommendations will be subject to the same protective conditions.
Accordingly, the Department is clarifying the language in the proposed
amendment to provide that: ``No relief from the restrictions of ERISA
section 406(b) and the taxes imposed by Code section 4975(a) and (b) by
reason of Code sections 4975(c)(1)(E) and (F) is available for the
receipt of compensation as a result of providing investment advice
within the meaning of ERISA section 3(21)(A)(ii) or Code section
4975(e)(3)(B) and regulations thereunder.'' Fiduciary advice providers
should look to amended PTE 2020-02 for relief.
Proposed Amendments to Part V. A commenter stated that it is
appropriate to put the responsibility for recordkeeping on the
financial firm. However, the commenter characterized the proposed
condition in the extension of credit proposed amendment which would
have provided that the failure of the purchase or sale of the
securities was not caused by the fiduciary or its affiliate as a
``mistake.'' According to the commenter, generally, when there is a
failure in the market, it is extremely hard to tell the exact cause, so
the relief should not be conditioned on finger pointing, which could
create unnecessary delays.
More than one commenter expressed concern that the proposed
expansion of the recordkeeping amendment, which would have required
broker-dealers to provide access to certain records for examination by
more persons and entities than the current exemption may, among other
consequences, open the door to privacy concerns, fishing expeditions,
abuse, and unnecessary risk.
After considering the comments, the Department has determined not
to finalize the proposed condition that would have required the
investment advice fiduciary not to have caused the potential failure of
the purchase or sale of the securities in the extension of credit
amendment. The Department has determined that fiduciaries should be
able to extend credit in order to avoid a failed securities
transaction. The Department did not receive any
[[Page 32352]]
substantive comments on the IRA definition, which it is finalizing to
read as follows: ``Individual Retirement Account'' or ``IRA'' means any
plan that is an account or annuity described in Code section
4975(e)(1)(B) through (F). This language is consistent with the IRA
definition in PTE 2020-02. After considering the comments, the
Department also is not amending the recordkeeping provision in PTE 75-1
Part V.
Summary of Additional Proposed Amendments to PTE 86-128
The Department proposed certain administrative changes to PTE 86-
128, which are not directly related to the provision of fiduciary
investment advice. The Department proposed to delete Section IV(a),
which provides an exclusion from the conditions of the exemption for
certain plans not covering employees, including IRAs, to increase the
safeguards available to these Retirement Investors. Therefore, under
the proposed amendment, fiduciaries that exercise full discretionary
authority or control with respect to IRAs could have continued to rely
on PTE 86-128 but would have had to meet the protective conditions of
this exemption for IRAs as well as for Title I plans.
The Department also proposed certain technical changes to the
exemption, including deleting subsection IV(b)(1), and redesignating
remaining sections as needed. The language currently in Section
IV(b)(1) excludes fiduciary investment advice providers; however, under
the proposed amendment, fiduciary investment advice providers would
have been excluded from the exemption as a whole; therefore, the
exclusion does not need to be repeated in Section IV. As a result of
the deletion of Section IV(a) and IV(b)(1), the Department proposed to
redesignate subsections IV(b)(2) and (3) as subsections IV(a)(1) and
(2), respectively, Section IV(c) as Section IV(b), and Section IV(d) as
Section IV(c).
Redesignated Section IV(b) of the proposed amendment would have
provided that certain conditions in Section III do not apply in any
case where the person who is engaging in a covered transaction returns
or credits to the plan all profits earned by that person and any
related entity in connection with the securities transactions
associated with the covered transaction. This provision is referred to
as the ``Recapture of Profits'' exception. The Department provided an
exception from the conditions in Section III for the recapture of
profits due to the benefits plans and IRAs would derive from such
arrangements.
Discretionary trustees were first permitted to rely on PTE 86-128
without meeting the Recapture of Profits provision pursuant to an
amendment in 2002 (the 2002 Amendment). Before the 2002 Amendment,
Section III(a) provided that ``[t]he person engaging in the covered
transaction [may not be] a trustee (other than a nondiscretionary
trustee), or an administrator of the plan, or an employer any of whose
employees are covered by the plan.'' Under the 2002 Amendment, the
reference to ``trustee (other than a nondiscretionary trustee)'' was
deleted from Section III(a); therefore, discretionary trustees had to
satisfy additional conditions set forth in Section III(h) and (i) to
rely on the exemption.\11\
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\11\ Section III(h) provides that discretionary trustees may
engage in the covered transactions only with plans or IRAs with
total net assets of at least $50 million, and Section III(i)
requires discretionary trustees to provide additional disclosures.
---------------------------------------------------------------------------
The Department understands that after the 2002 Amendment,
practitioners questioned whether discretionary trustees were permitted
to rely on the Recapture of Profits exception, which allows persons
identified in Section III(a) to engage in the covered transactions if
they return or credit to the plan or IRA all profits, as an alternative
to complying with Sections III(h) and (i). By deleting the reference to
discretionary trustees from Section III(a), the Department understands
that the 2002 Amendment inadvertently may have prevented discretionary
trustees of plans or IRAs from using the Recapture of Profits exception
from the conditions imposed by Section III of the exemption, and
instead, may have limited the relief provided in the exemption to
discretionary trustees that satisfy that additional conditions in
Section III(h) and (i). This result was not intended; therefore, the
Department proposed to modify the exemption to permit all discretionary
trustees to utilize the recapture of profits exception as they
originally were permitted to before the 2002 Amendment.
In order to achieve this result, the Department proposed to amend
redesignated section IV(b) to provide that Sections III(a), III(h), and
III(i) do not apply in any case where the person engaging in the
covered transaction returns or credits to the plan or IRA all profits
earned by that person in connection with the securities transaction
associated with the covered transaction. In addition, the Department
proposed to reinsert a reference to trustees (other than
nondiscretionary trustees) in Section III(a) along with the existing
references to plan administrators and employers. Finally, the
Department proposed to add a sentence to the end of Section III(a)
stating that: ``Notwithstanding the foregoing, this condition does not
apply to a trustee (other than a nondiscretionary trustee) that
satisfies Section III(h) and (i), and to all persons identified in this
paragraph that satisfy the Recapture of Profits exception in Section
IV(b)).''
The purpose of these proposed amendments was to clarify that
discretionary trustees may engage in covered transactions if they
satisfy Section III(h) and (i) of the exemption. Moreover, the proposed
amendment would have clarified that all parties identified in Section
III(a)--discretionary trustees, plan administrators, or employers who
have any employees covered by the plan--can engage in a transaction
covered under PTE 86-128 if they satisfy the Recapture of Profits
exception.
Lastly, the Department proposed to add a new Section VII to PTE 86-
128 that would have required the fiduciary engaging in a covered
transaction to maintain records necessary to enable certain persons
(described in proposed Section VII(b)) to determine whether the
conditions of this exemption have been met.
Discussion of Comments to Additional Proposed Amendments to PTE 86-128
Proposed Amendment to IV(a). At least one commenter stated that the
Department did not consider the disruption that would be caused by
eliminating the exclusion from the exemption conditions for covered
transaction engaged in on behalf of IRAs. Another commenter stated that
the Department did not explain how a retail investor would benefit
from, or understand, complex and potentially confusing disclosures they
would have been required to receive under the proposed amendment, which
are intended for institutional, sophisticated plan fiduciaries. The
commenter stated also that the proposed amendment does not provide any
guidance on how persons engaging in covered transactions under the
exemption can comply with the proposed amendment.
After considering these comments, the Department has determined not
to eliminate the exclusion from the current exemption conditions of PTE
86-128 for covered transactions engaged in on behalf of IRAs. The
Department's objective for amending PTE 86-128 and other affected
exemptions is to ensure that consistent and protective standards apply
to investment advice. The Department does not intend to impose
[[Page 32353]]
any additional obligations on entities relying on PTE 86-128 at this
time. The Department notes, however, that it may revisit the scope and
content of PTE 86-128 as part of future notice and comment rulemaking.
Proposed Amendment to Part VII. Some commenters raised concerns
with the proposed new recordkeeping provision. One commenter stated
that absent such explanation or public policy rationale, it is not
necessary to make the fiduciary's records available to the participants
and beneficiaries (and their authorized representatives). The commenter
recommended that the Department delete the proposed language that would
allow retirement investors and their authorized representatives direct
access to the records of fiduciaries relying on PTE 86-128.
Another commenter also expressed concerns about the proposed
recordkeeping condition. Among other things, the commenter objected to
unions being allowed to have any record of the plan. The commenter
asserted that this provision undermines the careful balance of labor
relations in this country and argued that it is preempted by the
National Labor Relations Act.
After consideration of the comments, the Department has deleted the
proposed recordkeeping requirements applicable to Section VII of PTE
86-128. However, as with PTE 2020-02, the Department intends to monitor
compliance with the exemption closely and may revisit whether expanding
the recordkeeping requirement is appropriate in the future. Any future
amendments would be preceded by notice and an opportunity for public
comment.
Other Proposed Change to PTE 86-128. The Department did not receive
comments on the proposed technical changes discussed above, or the
proposed modification that permits discretionary trustees to utilize
the Recapture of Profits exception in Section IV(d) of PTE 86-128 as
was permitted when the Department originally issued PTE 86-128.
Therefore, the Department has finalized these technical changes as
proposed.
Executive Orders
Executive Orders 12866 \12\ and 13563 \13\ 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.
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\12\ 58 FR 51735 (Oct. 4, 1993).
\13\ 76 FR 3821 (Jan. 21, 2011).
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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,\14\ 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.
---------------------------------------------------------------------------
\14\ 88 FR 21879 (Apr. 6, 2023).
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It has been determined that this amendment is significant within
the meaning of section 3(f)(1) of the Executive Order. Therefore, the
Department has provided an assessment of the amendment's costs,
benefits, and transfers, and OMB has reviewed the rulemaking.
Paperwork Reduction Act Statements
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]
Preliminary Assumptions
The Department assumes that several types of personnel will perform
the tasks associated with information collection requests at an hourly
wage rate of $65.99 for clerical personnel, $165.71 for a legal
professional, $198.25 for a financial manager.\15\
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\15\ Internal DOL calculation based on 2023 labor cost data and
adjusted for inflation to reflect 2024 wages. For a description of
the Department's methodology for calculating wage rates, see:
Employee Benefits Security Administration, Labor Cost Inputs Used in
the Employee Benefits Security Administration, Office of Policy and
Research's Regulatory Impact Analyses and Paperwork Reduction Act
Burden Calculations, Employee Benefits Security Administration,
https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.
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In the proposal, the Department received several comments on the
Department's labor cost estimate, particularly the cost for legal
support, remarking that it was too low. The Department assumes that
tasks involving legal professionals will be completed by a combination
of legal professionals, likely consisting of attorneys, legal support
staff, and other professionals and in-house and out-sourced
individuals. The labor cost associated with these tasks is estimated to
be $165.71, which is the Department's estimated labor cost for an in-
house attorney. The Department understands that some may feel this
estimate is comparatively low to their experience, especially when
hiring an outside ERISA legal expert. However, the Department has
chosen this cost estimate understanding that it is meant to be an
average, blended, or typical rate from a verifiable and repeatable
source.
Removal of Investment Advice and PTE 2020-02
The Department is amending PTE 77-4, PTE 75-1, PTE 80-83, PTE 83-1,
and PTE 86-128, to remove relief in those exemptions for the receipt of
compensation as a result of the provision of investment advice within
the meaning of ERISA section 3(21)(A)(ii) and Code section
[[Page 32354]]
4975(e)(3)(B) and regulations thereunder. Investment advice providers
will instead have to rely on the amended PTE 2020-02 or PTE 84-24 for
exemptive relief covering investment advice transactions. For an
estimate of the costs incurred by entities now reliant on PTE 2020-02,
refer to the discussion of the amendments to PTE 2020-02 and PTE 84-24
published in this issue of today' Federal Register.
In the proposal, the Department received several comments that the
Mass Amendments would be costly and disruptive. Some of the commenters
expressed concern that the exemptions are tailored to specific types of
transactions and moving all investment advice transactions to PTE 2020-
02 and PTE 84-24 would be burdensome. Several commenters on the
proposal expressed concern about the cost burden associated this
change, with many stating that the Department had not considered the
cost associated with moving to PTE 2020-02. In consideration of these
comments, the Department has increased its cost estimates for entities
newly relying on PTE 2020-02 and PTE 84-24. The increases include
significant increases in the cost estimates to review and implement the
rule and to establish policies and procedures. For a complete
discussion of the cost estimates, refer to the Paperwork Reduction Act
sections for PTE 2020-02 and PTE 84-24 or the regulatory impact
analysis in Retirement Security Rule: Definition of an Investment
Advice Fiduciary, also published in today's Federal Register.
Amendments to PTE 75-1
Affected Entities
Broker-dealers registered under the Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.), reporting dealers, and banks are eligible to
rely on the exemption. According to the SEC, approximately 3,490
broker-dealers were SEC-registered as of December 2022.\16\ Not all
broker-dealers perform services for employee benefit plans. In 2022, 55
percent of registered investment advisers provided employer-sponsored
retirement benefits consulting.\17\ Assuming the percentage of broker-
dealers providing advice to retirement plans is the same as the percent
of investment advisers providing services to plans, the Department
estimates 55 percent, or 1,919 broker-dealers, would be affected by PTE
75-1.
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\16\ Estimates based on SEC's FOCUS filings and SEC's Form ADV
filings.
\17\ Cerulli Associates, U.S. RIA Marketplace 2023, Exhibit
5.10, Part 1, The Cerulli Report.
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According to the Federal Deposit Insurance Corporation, there are
4,049 commercial banks as of September 30, 2023.\18\ If one-half of
these banks (about 2,025) and 55 percent of broker-dealers (about 1,919
broker-dealers) relied on this exemption, there would be approximately
3,944 respondents.\19\
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\18\ Federal Insurance Deposit Corporation, Quarterly Banking
Profile, Statistics at a Glance- as of September 30, 2023, https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2023sep/industry.pdf.
\19\ Reporting dealers covered by the exemption are not
accounted for separately because they are banks and security
brokerages that trade in U.S. Government Securities; thus, reporting
dealers are already accounted for in the number of broker-dealer
firms and banks. The New York Federal Reserve Bank reported 21
primary dealers on March 21, 2013. https://www.newyorkfed.org/markets/pridealers_current.html.
---------------------------------------------------------------------------
Disclosure Requirements
Under Part V(c) of PTE 75-1, when a fiduciary extends credit to
avoid a failed purchase or sale of securities, the plan or IRA must
receive written disclosure of the rate of interest (or other fees) that
will apply and the method of determining the balance upon which
interest will be charged, as well as prior written disclosure of any
changes to these terms. The plan or IRA must also be provided with
prior written disclosure of any changes to these terms.
The Department believes that it is a usual and customary business
practice to maintain records required to demonstrate compliance with
disclosure distribution regulations mandated by the Securities and
Exchange Commission (SEC). The Department believes that this new
disclosure requirement is consistent with the disclosure requirement
mandated by the SEC in 17 CFR 240.10b-16(1) for margin transactions.
Therefore, the Department concludes that this requirement produces no
additional burden to the public.
Recordkeeping Requirements
In the proposal, the Department proposed to amended PTE 75-1 Parts
II and V to adjust the recordkeeping requirement to shift the burden
from plans and IRA owners to financial institutions. In the final
rulemaking, the Department has decided to keep the recordkeeping
requirement unchanged from the existing exemption.
The Department has assumed that financial service providers that
transact with employee benefit plans will maintain these records on
behalf of their client plans. Because of the sophisticated nature of
financial service providers and the regulation of the securities
industry by State and Federal government, and by self-regulatory
organizations, the Department has assumed that the records required by
this class exemption are the same records kept in the normal course of
business, or in compliance with other requirements.
The Department has estimated that the time needed to maintain
records for the financial institutions to be consistent with the
exemption will be four hours per entity annually at a wage rate of
$198.25 per hour.\20\ Thus, the Department estimates it would take
15,778 hours at an equivalent cost of $3,127,949 to maintain the
records and make the records available for inspection.\21\
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\20\ 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.
\21\ The burden is estimated as follows: 3,944 financial
institutions x 4 hours = 15,778 hours. A labor rate of $198.25 is
used for a financial manager. The labor rate is applied in the
following calculation: (3,944 financial institutions x 4 hours) x
$198.25 = $3,127,949.
Table 1--Hour Burden and Equivalent Cost Associated With Recordkeeping
----------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
---------------------------------------------------------------
Activity Equivalent Equivalent
Burden hours burden cost Burden hours burden cost
----------------------------------------------------------------------------------------------------------------
Financial Manager............................... 15,778 $3,127,949 15,778 $3,127,949
---------------------------------------------------------------
Total....................................... 15,778 3,127,949 15,778 3,127,949
----------------------------------------------------------------------------------------------------------------
[[Page 32355]]
Summary
In sum, the Department estimates the total burden for the amended
PTE 1975-1 is 15,778 hours at a total equivalent burden cost of
$3,127,949. The total cost burden is estimated to be de minimis. The
Department assumes that required records are maintained by the relevant
affected entities, the broker-dealers and banks. Thus, there are no
additional tasks performed outside of those performed by the brokerage
firms and banks.
The paperwork burden estimates are summarized as follows:
Type of Review: Revision of an existing collection.
Agency: Employee Benefits Security Administration, Department of
Labor.
Titles: Prohibited Transaction Exemption 75-1 (Security
Transactions with Broker-Dealers, Reporting Dealers and Banks).
OMB Control Number: 1210-0092.
Affected Public: Businesses or other for-profits; not for profit
institutions.
Estimated Number of Respondents: 3,944.
Estimated Number of Annual Responses: 3,944.
Frequency of Response: Initially, Annually, When engaging in
exempted transaction.
Estimated Total Annual Burden Hours: 15,778 hours.
Estimated Total Annual Burden Cost: $0.
Amendments to PTE 86-128
Affected Entities
Using data from 2021 Form 5500, the Department estimates that 1,257
unique plans hired service providers denoting on the Schedule C that
they were a discretionary trustee. Further, among these plans, 801 also
reported that they provided investment management services or received
investment management fees paid directly or indirectly by the plan.\22\
Based on these values, the Department estimates on average, 1,000 plans
have discretionary fiduciaries with full discretionary control. As
small plans do not file the Schedule C, this estimate may be an
underestimate.
---------------------------------------------------------------------------
\22\ Estimates based on 2021 Form 5500 data.
---------------------------------------------------------------------------
In the proposal, a few commenters expressed concern that disruption
would be caused by the amendments. One commenter expressed concern that
the removal of investment advice would increase costs to retirement
investors, as entities would need to comply with PTE 2020-02. The
Department did not receive comments specifically addressing the
Department's estimates of the number of entities that would continue to
rely on PTE 86-128 under the proposed amendments and did not receive
any which directly discussed plan reliance on PTE 86-128.
The Department estimates that of the estimated 1,000 plans
discussed above, 7.5 percent are new accounts or new financial advice
relationships.\23\ Based on these assumptions, the Department estimates
that 75 plans would be affected by the proposed amendments to PTE 1986-
128.\24\
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\23\ EBSA identified 57,575 new plans in its 2021 Form 5500
filings, or 7.5 percent of all Form 5500 pension plan filings.
\24\ The number of new plans is estimated as: 1,000 plans x 7.5
percent of plans are new [ap] 75 new plans.
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The Department lacks reliable data on the number of investment
advice providers who are discretionary fiduciaries that would rely on
the amended exemption. For the purposes of this analysis, the
Department believes that in trying to capture financial entities
engaging in cross trades with discretionary control, the number of
dual-registered broker-dealers that render services to retirement plans
provides an accurate estimate. As of December 2022, there were
approximately 456 broker-dealers registered as SEC- or state-registered
investment advisers.\25\ Consistent with the assumptions made about
broker-dealers affected by the amendments to PTE 2020-02, the
Department estimates that 55 percent, or 251 broker-dealers will be
affected by the amendments.
---------------------------------------------------------------------------
\25\ Estimates are based on the SEC's FOCUS filings and Form ADV
filings.
---------------------------------------------------------------------------
The Department requested comment on this assumption, particularly
with regard to what types of entities would be likely to rely on the
amended exemption, as well as any underlying data. The Department did
not receive any comments.
Written Authorizations, Evaluations, Forms, Reports, and Statements
Written Authorization From the Authorizing Fiduciary to the Broker-
Dealer
Authorizing fiduciaries of new plans entering into a relationship
with a transacting fiduciary are required to provide the transacting
fiduciary with an advance written authorization to perform transactions
for the plan. The Department estimates that there are approximately 75
plans that are new or that enter new arrangements each year.\26\
Therefore, the Department estimates that approximately 75 authorizing
fiduciaries are expected to send an advance written authorization. It
is assumed that a legal professional will spend 15 minutes per plan
reviewing the disclosures and preparing an authorization form. This
results in a burden of 19 hours with an equivalent cost of $3,107.\27\
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\26\ 75 plans that are new or that enter new arrangements each
year.
\27\ The burden is estimated as follows: 75 plans x (15 minutes
per plan / 60 minutes) [ap] 19 hours. A labor rate of $165.71 is
used for a legal professional. The labor rate is applied in the
following calculation: [75 plans x (15 minutes per plan / 60
minutes)] x $165.71 per hour [ap] $3,107.
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To produce and distribute the authorization, the Department assumes
that 100 percent of plans will use traditional electronic methods at no
additional burden. The Department assumes that clerical staff will
spend five minutes preparing and sending the authorization, resulting
in a burden of approximately 6 hours with an equivalent cost of
$412.\28\
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\28\ The burden is estimated as follows: 75 plans x (5 minutes
per plan / 60 minutes) [ap] 6 hours. A labor rate of $65.99 is used
for a clerical worker. The labor rate is applied in the following
calculation: [75 plans x (5 minutes per plan / 60 minutes)] x $65.99
[ap] $412.
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In total, the written authorization requirement is expected to
result in a total burden of 25 hours with an equivalent cost of $3,520.
[[Page 32356]]
Table 2--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........................................... 19 $3,107 19 $3,107
Clerical........................................ 6 412 6 412
---------------------------------------------------------------
Total....................................... 25 3,520 25 3,520
----------------------------------------------------------------------------------------------------------------
Note: The total value may not sum due to rounding.
Provision of Materials for Evaluation of Authorization of Transaction
Prior to a written authorization being made, the authorizing
fiduciary must be provided by the financial institution with a copy of
the exemption, a form for termination of authorization, a description
of broker's placement practices, and any other reasonably available
information. This information is assumed to be readily available.
To produce and distribute the materials, the Department assumes
that 100 percent of financial institutions will use traditional
electronic methods at no additional burden. The Department estimates
that a clerical staff member will spend five minutes to prepare and
distribute the required information to the authorizing fiduciary. This
information will be sent to the 75 plans entering into an agreement
with a financial institution, and based on the above, the Department
estimates that this requirement results in a burden of 6 hours with an
equivalent cost of $412.\29\
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\29\ The burden is estimated as follows: 75 plans x (5 minutes
per plan / 60 minutes) [ap] 6 hours. A labor rate of $65.99 is used
for a clerical worker. The labor rate is applied in the following
calculation: [75 plans x (5 minutes per plan / 60 minutes)] x $65.99
[ap] $412.
Table 3--Hour Burden and Equivalent Cost Associated With Provision of Materials for Transaction Authorization
----------------------------------------------------------------------------------------------------------------
Year 1 Subsequent Years
---------------------------------------------------------------
Activity Equivalent Equivalent
Burden hours burden cost Burden hours burden cost
----------------------------------------------------------------------------------------------------------------
Clerical........................................ 6 $412 6 $412
---------------------------------------------------------------
Total....................................... 6 412 6 412
----------------------------------------------------------------------------------------------------------------
Provision of an Annual Termination Form
Each authorizing fiduciary must be supplied annually with a form
expressly providing an election to terminate the written authorization.
It is assumed that legal professionals with each of the 251 affected
transacting fiduciaries will spend on average 15 minutes preparing the
termination forms, which results in a burden of 63 hours with an
equivalent cost of $10,390.\30\
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\30\ The burden is estimated as follows: [251 transacting
fiduciaries x (15 minutes per financial institution / 60 minutes)]
[ap] 63 hours. A labor rate of $165.71 is used for a legal
professional. The labor rate is applied in the following
calculation: [251 transacting fiduciaries x (15 minutes per
financial institution / 60 minutes)] x $165.71 per hour [ap]
$10,390.
---------------------------------------------------------------------------
To produce and distribute the termination form to the 1,000 plans,
the Department assumes that 100 percent of financial institutions will
use traditional electronic methods at no additional burden. The
Department estimates that clerical staff will spend five minutes per
plan preparing and distributing the termination forms resulting in a
burden of 83 hours with an equivalent cost of $5,499.\31\
---------------------------------------------------------------------------
\31\ The burden is estimated as follows: 1,000 plans x (5
minutes per plan / 60 minutes) [ap] 83 hours. A labor rate of $65.99
is used for a clerical worker. The labor rate is applied in the
following calculation: [1,000 plans x (5 minutes per plan / 60
minutes)] x $65.99 [ap] $5,499.
---------------------------------------------------------------------------
In total, providing the annual termination form is expected to
impose a burden of 146 hours with an equivalent cost of $15,889.
Table 4--Hour Burden and Equivalent Cost Associated With Provision of the Annual Termination Form
----------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
---------------------------------------------------------------
Activity Equivalent Equivalent
Burden hours burden cost Burden hours burden cost
----------------------------------------------------------------------------------------------------------------
Legal........................................... 63 $10,390 63 $10,390
Clerical........................................ 83 5,499 83 5,499
---------------------------------------------------------------
Total....................................... 146 15,889 146 15,889
----------------------------------------------------------------------------------------------------------------
Transaction Reporting
The transacting fiduciary engaging in a covered transaction must
furnish the authorizing fiduciary with either a conformation slip for
each securities transaction or a quarterly report containing specified
information. As discussed above, the provision of the confirmation
already is required under
[[Page 32357]]
SEC regulations. Therefore, if the transaction reporting requirement is
satisfied by sending conformation slips, no additional hour and cost
burden will occur.
Annual Statement
In addition to the transaction reporting requirement, transacting
fiduciaries are required to send an annual report to each of the 1,000
authorizing fiduciaries \32\ containing the same information as the
quarterly report and also containing all security transaction-related
charges, the brokerage placement practices, and a portfolio turnover
ratio.
---------------------------------------------------------------------------
\32\ 1,000 plans.
---------------------------------------------------------------------------
In addition, it is assumed that the information that must be sent
annually could be sent together; therefore, the clerical staff hours
required to prepare and distribute the report has been included with
the provision of annual termination form requirement. Therefore, no
additional hour or equivalent cost burden has been reported.
Report of Commissions Paid
A discretionary trustee must provide an authorizing fiduciary with
an annual report showing separately the commissions paid to affiliated
brokers and non-affiliated brokers, on both a total dollar basis and a
cents-per-share basis. The collecting and generation of the information
for the quarterly report is reported as a cost burden. The clerical
hour burden to prepare and distribute the report is included with the
provision of annual termination form requirement, because both items
are required to be sent annually.
A financial institution who is a discretionary trustee must provide
each of the 1,000 authorizing fiduciaries with an annual report showing
commissions paid to affiliated and non-affiliated brokers, on both a
total dollar and a cents-per-share basis. As the report is sent
annually, it is assumed that it could be sent with the transaction
report. The Department estimates that 100 percent of financial
institutions will use traditional electronic methods at no additional
burden.
Financial institutions are required to report specific transaction
fees and information to the plan fiduciaries. The information must be
tracked, assigned to specific plans, and reported. It is assumed that
it costs the financial institution $3.30 per plan to track this
information.\33\ With approximately 1,000 affected plans, this results
in a cost burden of approximately $3,300 annually.\34\
---------------------------------------------------------------------------
\33\ This estimate is based on information from a Request for
Information and from industry sources.
\34\ 1,000 plans x $3.30 = $3,300.
---------------------------------------------------------------------------
In total, providing the report is expected to impose a total cost
burden of $3,300.
Table 5--Hour Burden and Cost Associated With Report of Commissions Paid
----------------------------------------------------------------------------------------------------------------
Year 1 Subsequent years
Activity ---------------------------------------------------------------
Burden hours Cost burden Burden hours Cost burden
----------------------------------------------------------------------------------------------------------------
Clerical........................................ 0 $3,300 0 $3,300
---------------------------------------------------------------
Total....................................... 0 3,300 0 3,300
----------------------------------------------------------------------------------------------------------------
Summary
In total, the conditions of this exemption will result in the
production of 44,821 disclosures.\35\ The Department assumes that 100
percent of plans and financial institutions will use electronic methods
to distribute the required information, at de minimis burden.
Production and distribution of disclosures will result in an overall
hour burden of 177 hours with an equivalent cost of $19,821 and an
overall cost burden of $3,300.
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\35\ The total number of disclosures is calculated in the
following manner: (75 Written authorization disclosures) + (75
Provision of materials for evaluation of authorization of
transaction) + (1,000 Annual termination form) + (1,000 Annual
Statement) + (1,000 Report of Commissions Paid) + (1,000 Information
and fee tracking) = 4,150 disclosures.
---------------------------------------------------------------------------
The paperwork burden estimates are summarized as follows:
Type of Review: Revision to an existing collection.
Agency: Employee Benefits Security Administration, Department of
Labor.
Titles: PTE 86-128 (Securities Broker-Dealers).
OMB Control Number: 1210-0059.
Affected Public: Businesses or other for-profits; not for profit
institutions.
Estimated Number of Respondents: 326.
Estimated Number of Annual Responses: 4,150.
Frequency of Response: Initially, Annually, When engaging in
exempted transaction.
Estimated Total Annual Burden Hours: 177 hours.
Estimated Total Annual Burden Cost: $3,300.
Amendments to PTE 77-4, 80-83 and PTE 83-1
The Department has determined that PTE 77-4 and PTE 80-83 do not
have information collections impacted by the removal of advice from the
exemption. There is no paperwork burden related to PTE 83-1.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \36\ 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.\37\ 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.
---------------------------------------------------------------------------
\36\ 5 U.S.C. 601 et seq.
\37\ 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 \38\ 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
[[Page 32358]]
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, these amended exemptions do not include
any Federal mandate that will result in such expenditures.
---------------------------------------------------------------------------
\38\ 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 in the preamble to
PTE 84-24, there is a long history of shared regulation of insurance
between the States and the Federal government. The Supreme Court
addressed this issue and held that ``ERISA leaves room for
complementary or dual federal or state regulation'' of insurance.\39\
The Department designed the final Regulation and exemptions to
complement State insurance laws.\40\
---------------------------------------------------------------------------
\39\ See John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav.
Bank, 510 U.S. 86, 98 (1993).
\40\ 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 for these amendments 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 these
amendments have federalism implications because they have 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 final amendment to class exemptions 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 to the class exemptions is applicable to a
particular transaction only if the transaction satisfies the conditions
specified in the exemption; and
(4) The final amendment to the class exemptions 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 class
exemptions 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)).\41\
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\41\ 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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Amendments to Class Exemptions
Prohibited Transaction Exemption 75-1, Exemptions From Prohibitions
Respecting Certain Classes of Transactions Involving Employee Benefit
Plans and Certain Broker-Dealers, Reporting Dealers and Banks
The Department amends Prohibited Transaction Exemption 75-1 under
the authority of ERISA section 408(a) and Code section 4975(c)(2), and
in accordance with the procedures set forth in 29 CFR part 2570,
subpart B (76 FR 66637 (October 27, 2011)).
I. Part III, Underwritings, is amended by inserting a new section
III(h) to read as follows:
Exception. No relief from the restrictions of ERISA section 406(b)
and the taxes imposed by Code section 4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is available for the receipt of
compensation 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.
II. Part IV, Market-making, is amended by inserting a new section
IV(g) to read as follows:
Exception. No relief from the restrictions of ERISA section 406(b)
and the taxes imposed by Code section 4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is available for the receipt of
compensation 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.
[[Page 32359]]
III. Part V, Extension of Credit, is amended by adding new Section
(c) as follows and redesignating Sections (c) and (d) as Sections (d)
and (e), respectively:
(c) Notwithstanding section (a)(2), a fiduciary under ERISA section
3(21)(A)(ii) or Code section 4975(e)(3)(B) may receive reasonable
compensation for extending credit to a plan or IRA to avoid a failed
purchase or sale of securities involving the plan or IRA if:
(1) The terms of the extension of credit are at least as favorable
to the plan or IRA as the terms available in an arm's length
transaction between unaffiliated parties;
(2) Prior to the extension of credit, the plan or IRA receives
written disclosure of (i) the rate of interest (or other fees) that
will apply and (ii) the method of determining the balance upon which
interest will be charged, in the event that the fiduciary extends
credit to avoid a failed purchase or sale of securities, as well as
prior written disclosure of any changes to these terms. This section
(c)(2) will be considered satisfied if the plan or IRA receives the
disclosure described in Securities Exchange Act Rule 10b-16; \42\
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\42\ 17 CFR 240.10b-16.
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For purposes of this exemption, the terms ``party in interest,''
``disqualified person'' and ``fiduciary'' shall include such party in
interest, disqualified person, or fiduciary, and any affiliates
thereof, and the term ``affiliate'' shall be defined in the same manner
as that term is defined in 29 CFR 2510.3-21 and 26 CFR 54.4975-9. Also,
for the purposes of this exemption, the term ``IRA'' means any account
or annuity described in Code section 4975(e)(1)(B) through (F).
Prohibited Transaction Exemption 77-4, Class Exemption for Certain
Transactions Between Investment Companies and Employee Benefit Plans
The Department amends Prohibited Transaction Exemption 77-4 under
the authority of ERISA section 408(a) and Code section 4975(c)(2), and
in accordance with the procedures set forth in 29 CFR part 2570,
subpart B (76 FR 66637 (October 27, 2011)).
A new section II(g) is inserted to read as follows:
Exception. No relief from the restrictions of 406(b) and the taxes
imposed by section 4975(a) and (b) by reason of sections 4975(c)(1)(E)
and (F) is available for the receipt of compensation as a result of the
provision of investment advice within the meaning of ERISA section
3(21)(A)(ii) or Code 4975(e)(3)(B) and regulations thereunder.
Prohibited Transaction Exemption 80-83, Class Exemption for Certain
Transactions Involving Purchase of Securities Where Issuer May Use
Proceeds To Reduce or Retire Indebtedness to Parties in Interest
The Department amends Prohibited Transaction Exemption 80-83 under
the authority of ERISA section 408(a) and Code section 4975(c)(2), and
in accordance with the procedures set forth in 29 CFR part 2570,
subpart B (76 FR 66637 (October 27, 2011)).
A new section I.E. is inserted to read as follows:
Exception. No relief from the restrictions of 406(b) and the taxes
imposed by Code sections 4975(a) and (b) by reason of Code sections
4975(c)(1)(E) and (F) is available for the receipt of compensation 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.
Transaction Exemption 83-1, Exemption for Certain Transactions
Involving Mortgage Pool Investment Trusts
The Department amends Prohibited Transaction Exemption 83-1 under
the authority of ERISA section 408(a) and Code section 4975(c)(2), and
in accordance with the procedures set forth in 29 CFR part 2570,
subpart B (76 FR 66637 (October 27, 2011)).
A new section I.E. is inserted to read as follows:
Exception. No relief from the restrictions of ERISA 406(b) and the
taxes imposed by Code sections 4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is available for the receipt of
compensation 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.
Prohibited Transaction Exemption 86-128, Class Exemption for Securities
Transactions Involving Employee Benefit Plans and Broker-Dealers
The Department amends Prohibited Transaction Exemption 86-128 under
the authority of ERISA section 408(a) and Code section 4975(c)(2), and
in accordance with the procedures set forth in 29 CFR part 2570,
subpart B (76 FR 66637 (October 27, 2011)).
I. New sections II(d) is inserted as follows:
(d) Exception. No relief from the restrictions of ERISA 406(b) and
the taxes imposed by Code sections 4975(a) and (b) by reason of Code
sections 4975(c)(1)(E) and (F) is available for the receipt of
compensation 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.
II. Section III(a) is amended to read as follows:
``The person engaging in the covered transaction is not a trustee
(other than a nondiscretionary trustee) or an administrator of the
plan, or an employer any of whose employees are covered by the plan.
Notwithstanding the foregoing, this condition does not apply to a
trustee (other than a nondiscretionary trustee) that satisfies Section
III(h) and (i) of this exemption.''
III. Section IV(b)(1) is deleted, and Sections IV(b)(2) and (3) are
redesignated as Sections IV(b)(1) and (2).
IV. Section IV(c) is amended to read as follows:
(c) Recapture of profits. Sections III(a), III(h), and III(i) of
this exemption do not apply in any case where the person engaging in a
covered transaction returns or credits to the plan all profits earned
by that person in connection with the securities transactions
associated with the covered transaction.
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. 2024-08068 Filed 4-24-24; 8:45 am]
BILLING CODE 4510-29-P
