The Department is granting this prohibited transaction class exemption (PTE) in connection with its regulation under ERISA section 3(21)(A)(ii) and Code section 4975(e)(3)(B). The Regulation amends the definition of a "fiduciary" under ERISA and the Code to specify when a person is a fiduciary by reason of the provision of investment advice for a fee or other compensation regarding assets of a plan or IRA (i.e., an investment advice fiduciary). The Regulation replaces an existing regulation dating to 1975, with the aim of more appropriately distinguishing between the sorts of advice relationships that should be treated as fiduciary in nature and those that should not.
This PTE allows certain investment advice fiduciaries to receive various forms of compensation that, in the absence of an exemption, would be prohibited under ERISA and the Code. In this regard, ERISA and the Code generally prohibit fiduciaries from receiving payments from third parties and from acting on conflicts of interest, including using their authority to affect or increase their own compensation, in connection with transactions involving a plan or IRA. Certain types of fees and compensation, such as brokerage or insurance commissions, 12b-1 fees and revenue sharing payments, commonly paid to a broker-dealer, insurance agent or other fiduciary in connection with investment transactions entered into by plans or IRAs, fall within these prohibitions. This PTE would allow investment advice fiduciaries to receive compensation when plan participants or beneficiaries, IRAs, or certain small plans, purchase, hold or sell investment products based on the fiduciaries' advice, under conditions designed to safeguard the interests of these investors. Specifically, the PTE would apply when compensation is received in connection with a transaction involving a plan participant or beneficiary, an IRA, or a fiduciary of an employee benefit plan with less than 100 participants (referred to generally as "retirement investors"), in accordance with the adviser's advice.
To safeguard the interests of the plans and IRAs, the exemption would require the financial institution and the adviser to contractually acknowledge fiduciary status and commit to adhere to certain impartial conduct standards when providing advice to the plans and IRAs, including providing advice in their Best Interest. The financial institution would further be required to warrant that it has adopted policies and procedures designed to mitigate the impact of conflicts of interest and ensure that the individual advisers adhere to impartial conduct standards. The exemption would also require disclosure regarding adviser and financial institution fee practices. Additional conditions would apply to financial institutions that limit products available to advisers for recommendation based on third-party payments generated or based on the fact that they are proprietary products (i.e., products offered or managed by the financial institution or its affiliates). Financial institutions relying on the exemption would be required to notify the Department in advance of doing so. Finally, financial institutions making use of the exemption would have to maintain certain data, and make it available to the Department, to help evaluate the effectiveness of the exemption in safeguarding the interests of plans and IRAs.
US Code:
29 USC 1108
Name of Law: Employee Retirement Income Security Act of 1974
The Department is hereby submitting a nonmaterial/non-substantive change request to the Office of Management and Budget (OMB) regarding a modification made by the Departmentâs Final Conflict of Interest Rule to the information collection request (ICR) contained in the Departmentâs Best Interest Contract Exemption. The exemption was approved by OMB under control number 1210-0156 and is scheduled to expire on June 30, 2019.
Section IX of the final exemption requires financial institutions using the exemption to furnish a written statement of fiduciary status, specified disclosures, and a written commitment to adhere to impartial conduct standards to all retirement investors (in ERISA plans, Individual Retirement Accounts, and non-ERISA plans) prior to or at the same time as the execution of recommended transactions (the âTransition Disclosureâ).
Pursuant to the final rule, financial institutions using the Principal Transaction Exemption will not be required to send the Transition Disclosure. The modification to the ICR is deregulatory, because it eliminates the requirement to send an estimated 31 million Transition Disclosures resulting in an hour burden reduction of approximately 576,000 hours (at an equivalent cost of $31.8 million) and cost savings of approximately $11 million during the first year of the ICR approval period only. This savings produces an annualized reduction of the hour burden over the three year period shown in ROCIS of 200,000 hours (due to rounding) and no change to the cost burden (due to rounding).
For purposes of ROCIS database entries, the burden has been reduced over the three-year approval period to 2.6 million hours (rounded) and remains at $1.2 billion (rounded) annually.
$0
No
No
No
No
No
Uncollected
Chris Cosby 202 693-8540
Reginfo record details
No
On behalf of this Federal agency, I certify that the collection of information encompassed by this request complies with 5 CFR 1320.9 and the related provisions of 5 CFR 1320.8(b)(3).
The following is a summary of the topics, regarding the proposed collection of information, that the certification covers:
(i) Why the information is being collected;
(ii) Use of information;
(iii) Burden estimate;
(iv) Nature of response (voluntary, required for a benefit, or mandatory);
(v) Nature and extent of confidentiality; and
(vi) Need to display currently valid OMB control number;
If you are unable to certify compliance with any of these provisions, identify the item by leaving the box unchecked and explain the reason in the Supporting Statement.
BIC Exemption Nonsubstantive Change 3-31-17.docx
Regulatory Impact Analysis (Website).pdf
Best Interest Contract Exemption Conditions