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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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Federal Register / Vol. 89, No. 81 / Thursday, April 25, 2024 / Rules and Regulations
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 [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
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. http://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).
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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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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:
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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.
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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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| File Type | application/pdf |
| File Modified | 2024-04-25 |
| File Created | 2024-04-25 |