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.
The proposed exemption would allow an individual investment advice fiduciary (an adviser) and the firm that employs or otherwise contracts with the adviser (a financial institution) to engage in principal transactions involving certain debt securities with plans and IRAs. The proposed exemption limits the type of debt securities that may be purchased or sold and contains conditions which the adviser and financial institution must satisfy in order to rely on the exemption. To safeguard the interests of plans and IRAs, the exemption would require the adviser and financial institution to contractually acknowledge fiduciary status and commit to adhere to certain impartial conduct standards when providing advice to the plan or IRA, including providing advice that is in the plan's or IRA's 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 the impartial conduct standards. The plan or IRA would be required to consent to the principal transactions following disclosure of the conflicts of interest associated with such transactions. Additional disclosure of the mark-up or mark-down applied to the prevailing market price of the security would be required and financial institutions would be subject to recordkeeping requirements.
The Department is issuing technical corrections to its final Principal Transactions Exemption which was published in the Federal Register on April 8, 2016 (81 FR 21089). All of the corrections either fix typographical errors or make minor clarifications to provisions that might otherwise be confusing.
US Code:
29 USC 1108
Name of Law: Employee Retirement Income Security Act
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 Principal Transaction Exemption. The exemption was approved by OMB under control number 1210-0157 and is scheduled to expire on June 30, 2019.
Section VII 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 2.5 million Transition Disclosures resulting in an hour burden reduction of approximately 40,000 hours (at an equivalent cost of $2.2 million) and cost savings of approximately $760,000 during the first year of the ICR approval period only. This savings produces an annualized reduction over the three year period shown in ROCIS of 13,000 hours (due to rounding) and $300,000 (due to rounding).
For purposes of ROCIS database entries, the burden has been reduced over the three-year approval period to 53,000 hours (rounded) and $939.4 million (rounded) annually.
No
No
No
No
No
Uncollected
Chris Cosby 202 693-8540
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.
Principal Transactions Exemption Nonsubstantive Change 3-31-17.docx
Regulatory Impact Analysis (Website).pdf
Conditions of Principal Transactions PTE