82798 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

1Section 3(21)(A)(ii) of the Act is codified at 29 

U.S.C. 1002(3)(21)(A)(ii). As noted above, Title I of 

the Act was codified in Title 29 of the U.S. Code. 

As a matter of practice, this preamble refers to the 

codified provisions in Title I by reference to the 

sections of ERISA, as amended, and not by its 

numbering in the U.S. Code. 

2As noted above, Title II of the Act was codified 

in the Internal Revenue Code. 

3 29 CFR 2510.3–21(c)(1), 40 FR 50842 (October 

31, 1975). 

4 26 CFR 54.4975–9(c), 40 FR 50840 (October 31, 

1975). 

5ERISA section 406 and Code section 4975. Cf. 

Code section 4975(f)(5), which defines ‘‘correction’’ 

with respect to prohibited transactions as placing a 

Plan or an IRA in a financial position not worse 

than it would have been in if the person had acted 

‘‘under the highest fiduciary standards.’’ 6Reorganization 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. 7See Definition of the Term ‘‘Fiduciary’’; Conflict 

of Interest Rule—Retirement Investment Advice, 81 

FR 20945 (Apr. 8, 2016). 

8 885 F.3d 360 (5th Cir. 2018). 

9Available at www.dol.gov/agencies/ebsa/ 

employers-and-advisers/guidance/field-assistanceDEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2550 

[Application No. D–12011] 

ZRIN 1210–ZA29 

Prohibited Transaction Exemption 

2020–02, Improving Investment Advice 

for Workers & Retirees 

AGENCY: Employee Benefits Security 

Administration, U.S. Department of 

Labor. 

ACTION: Adoption of class exemption 

and interpretation. 

SUMMARY: This document contains a 

class exemption from certain prohibited 

transaction restrictions of the Employee 

Retirement Income Security Act of 1974, 

as amended (the Act). Title I of the Act 

codified a prohibited transaction 

provision in title 29 of the U.S. Code 

(referred to in this document as Title I). 

Title II of the Act codified a parallel 

provision now found in the Internal 

Revenue Code of 1986, as amended (the 

Code). These prohibited transaction 

provisions of Title I and the Code 

generally prohibit fiduciaries with 

respect to ‘‘plans,’’ including workplace 

retirement plans (Plans) and individual 

retirement accounts and annuities 

(IRAs), from engaging in self-dealing 

and receiving compensation from third 

parties in connection with transactions 

involving the Plans and IRAs. The 

provisions also prohibit purchasing and 

selling investments with the Plans and 

IRAs when the fiduciaries are acting on 

behalf of their own accounts (principal 

transactions). This exemption allows 

investment advice fiduciaries to plans 

under both Title I and the Code to 

receive compensation, including as a 

result of advice to roll over assets from 

a Plan to an IRA, and to engage in 

principal transactions, that would 

otherwise violate the prohibited 

transaction provisions of Title I and the 

Code. The exemption applies to 

Securities and Exchange Commission— 

and state-registered investment advisers, 

broker-dealers, banks, insurance 

companies, and their employees, agents, 

and representatives that are investment 

advice fiduciaries. The exemption 

includes protective conditions designed 

to safeguard the interests of Plans, 

participants and beneficiaries, and IRA 

owners. The class exemption affects 

participants and beneficiaries of Plans, 

IRA owners, and fiduciaries with 

respect to such Plans and IRAs. This 

notice also sets forth the Department’s 

final interpretation of when advice to 

roll over Plan assets to an IRA will be 

considered fiduciary investment advice 

under Title I and the Code. 

DATES: The exemption is effective as of: 

February 16, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Susan Wilker, telephone (202) 693– 

8557, or Erin Hesse, telephone (202) 

693–8546, Office of Exemption 

Determinations, Employee Benefits 

Security Administration, U.S. 

Department of Labor (these are not tollfree numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

The Employee Retirement Income 

Security Act of 1974 (the Act) provides, 

in relevant part, that a person is a 

fiduciary with respect to a ‘‘plan’’ to the 

extent he or she renders investment 

advice for a fee or other compensation, 

direct or indirect, with respect to any 

moneys or other property of such plan, 

or has any authority or responsibility to 

do so. Title I of the Act (referred to 

herein as Title I), which generally 

applies to employer-sponsored Plans 

(Title I Plans), includes this provision in 

section 3(21)(A)(ii).1 The Act’s Title II 

(referred to herein as the Code), 

includes a parallel provision in section 

4975(e)(3)(B), which defines a fiduciary 

of a tax-qualified plan, including IRAs.2

In 1975, the Department issued a 

regulation establishing a five-part test 

for fiduciary status under this provision 

of Title I.3 The 1975 regulation also 

applies to the definition of fiduciary in 

the Code, which is identical in its 

wording.4 Under the 1975 regulation, 

for advice to constitute ‘‘investment 

advice,’’ a financial institution or 

investment professional who is not a 

fiduciary under another provision of the 

statute must—(1) render advice as to the 

value of securities or other property, or 

make recommendations as to the 

advisability of investing in, purchasing, 

or selling securities or other property (2) 

on a regular basis (3) pursuant to a 

mutual agreement, arrangement, or 

understanding with the Plan, Plan 

fiduciary or IRA owner, that (4) the 

advice will serve as a primary basis for 

investment decisions with respect to 

Plan or IRA assets, and that (5) the 

advice will be individualized based on 

the particular needs of the Plan or IRA. 

A financial institution or investment 

professional that meets this five-part 

test, and receives a fee or other 

compensation, direct or indirect, is an 

investment advice fiduciary under Title 

I and under the Code. 

Investment advice fiduciaries, like 

other fiduciaries to Plans and IRAs, are 

subject to duties and liabilities 

established in Title I and the Code. 

Fiduciaries to Title I Plans must act 

prudently and with undivided loyalty to 

the plans and their participants and 

beneficiaries. Although these statutory 

fiduciary duties are not in the Code, 

both Title I and the Code contain 

provisions forbidding fiduciaries from 

engaging in certain specified 

‘‘prohibited transactions,’’ involving 

Plans and IRAs, including conflict of 

interest transactions.5 Under these 

prohibited transaction provisions, a 

fiduciary may not deal with the income 

or assets of a Plan or an IRA in his or 

her own interest or for his or her own 

account, and a fiduciary may not receive 

payments from any party dealing with 

the Plan or IRA in connection with a 

transaction involving assets of the Plan 

or IRA. The Department has authority in 

ERISA section 408(a) and Code section 

4975(c)(2) to grant administrative 

exemptions from the prohibited 

transaction provisions in Title I and the 

Code.6

In 2016, the Department finalized a 

new regulation that would have 

replaced the 1975 regulation, and 

granted new associated prohibited 

transaction exemptions.7 After the U.S. 

Court of Appeals for the Fifth Circuit 

vacated that rulemaking, including the 

new exemptions, in Chamber of 

Commerce of the United States v. U.S. 

Department of Labor in 2018 (the 

Chamber opinion),8 the Department 

issued Field Assistance Bulletin (FAB) 

2018–02, a temporary enforcement 

policy providing prohibited transaction 

relief to investment advice fiduciaries.9


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bulletins/2018-02. The Impartial Conduct Standards 

incorporated in the FAB were conditions of the new 

exemptions granted in 2016. See Best Interest 

Contract Exemption, 81 FR 21002 (Apr. 8, 2016), as 

corrected at 81 FR 44773 (July 11, 2016). 

10 85 FR 40834 (July 7, 2020). 

11 85 FR 40589 (July 7, 2020). 

12The amendment also corrected a typographical 

error in the original text of the 1975 regulation, at 

29 CFR 2510–3.21(e)(1)(ii). 

13 29 CFR 2509.96–1. 

14Hearing on Improving Investment Advice for 

Workers & Retirees, 85 FR 52292 (August 25, 2020). 

15For purposes of any rollover of assets from a 

Title I Plan to an IRA described in this preamble, 

the term ‘‘Plan’’ only includes an employee pension 

benefit plan described in ERISA section 3(2) or a 

plan described in Code section 4975(e)(1)(A), and 

the term ‘‘IRA’’ only includes an account or annuity 

described in Code section 4975(e)(1)(B) or (C). 

16References in the preamble to registered 

investment advisers include both SEC- and stateregistered investment advisers. 

17As defined in Section V(i) of the exemption, the 

term ‘‘Plan’’ means any employee benefit plan 

described in ERISA section 3(3) and any plan 

described in Code section 4975(e)(1)(A). In Section 

V(g), the term ‘‘Individual Retirement Account’’ or 

‘‘IRA’’ is defined as any account or annuity 

described in Code section 4975(e)(1)(B) through (F), 

including an Archer medical savings account, a 

health savings account, and a Coverdell education 

savings account. 

In the FAB, the Department stated it 

would not pursue prohibited transaction 

claims against investment advice 

fiduciaries who worked diligently and 

in good faith to comply with ‘‘Impartial 

Conduct Standards’’ for transactions 

that would have been exempted in the 

new exemptions, or treat the fiduciaries 

as violating the applicable prohibited 

transaction rules. The Impartial Conduct 

Standards have three components: A 

best interest standard; a reasonable 

compensation standard; and a 

requirement to make no misleading 

statements about investment 

transactions and other relevant matters. 

On July 7, 2020, the Department 

proposed this class exemption, which 

took into consideration the public 

correspondence and comments received 

by the Department since February 2017 

and responded to informal industry 

feedback seeking an administrative class 

exemption based on FAB 2018–02.10 On 

the same day, the Department issued a 

technical amendment to 29 CFR 2510– 

3.21, instructing the Office of the 

Federal Register to remove language that 

was added in 2016 and reinsert the text 

of the 1975 regulation.11 This 

ministerial action reflected the Fifth 

Circuit’s vacatur of the 2016 fiduciary 

rule.12 The technical amendment also 

reinserted into the CFR Interpretive 

Bulletin 96–1 relating to participant 

investment education, which had been 

removed and largely incorporated into 

the text of the 2016 fiduciary rule.13 The 

Department received 106 written 

comments on the proposed exemption, 

and on September 3, 2020, held a public 

hearing at which the commenters were 

permitted to give additional 

testimony.14

After careful consideration of the 

comments and testimony on the 

proposed exemption, the Department is 

granting the exemption. While the final 

exemption makes a number of 

significant changes in response to 

comments, it retains the proposal’s 

broad protective framework, including 

the Impartial Conduct Standards; 

disclosures, including a written 

acknowledgment of fiduciary status; 

policies and procedures prudently 

designed to ensure compliance with the 

Impartial Conduct Standards and that 

mitigate conflicts of interest; and a 

retrospective compliance review. The 

exemption, like the proposal, also 

specifies the circumstances in which 

Financial Institutions and Investment 

Professionals are ineligible to rely upon 

its terms. 

In response to commenters, the 

Department made a number of 

important changes. First, the final 

exemption’s recordkeeping 

requirements have been narrowed to 

allow only the Department and the 

Department of the Treasury to obtain 

access to a Financial Institution’s 

records as opposed to plan fiduciaries 

and other Retirement Investors. Second, 

the final exemption’s disclosure 

requirements have been revised to 

include written disclosure to Retirement 

Investors of the reasons that a rollover 

recommendation was in their best 

interest. Third, the final exemption’s 

retrospective review provision has been 

revised to provide that certification can 

be made by any Senior Executive 

Officer, as defined in the exemption, 

rather than requiring certification by the 

chief executive officer (or equivalent 

officer) as proposed. Fourth, a selfcorrection provision has also been 

added to the final exemption. 

This document also sets forth the 

Department’s final interpretation of the 

five-part test of investment advice 

fiduciary status for purposes of this 

exemption, and provides the 

Department’s views on when advice to 

roll over Title I Plan assets to an IRA 

will be considered fiduciary investment 

advice under Title I and the Code.15

Comments on the interpretation, which 

was proposed in the notice of proposed 

exemption, are discussed below. 

The Department has also provided 

explanation in the preamble to respond 

to issues raised during the comment 

period. Additionally, to the extent 

public comments were based on 

concerns about compliance and 

interpretive issues with the final 

exemption or the Act, the Department 

intends to support Financial 

Institutions, Investment Professionals, 

plan sponsors and fiduciaries, and other 

affected parties, with compliance 

assistance following publication of the 

final exemption. 

The Department further announces 

that FAB 2018–02 will remain in effect 

until December 20, 2021. This will 

provide a transition period for parties to 

develop mechanisms to comply with the 

provisions in the new exemption. 

The Department grants this 

exemption, which was proposed 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)). The Department finds that 

the exemption is administratively 

feasible, in the interests of Plans and 

their participants and beneficiaries and 

of IRA owners, and protective of the 

rights of participants and beneficiaries 

of Plans and IRA owners. The 

Department has determined that the 

exemption is an Executive Order (E.O.) 

13771 deregulatory action because it 

provides broader and more flexible 

exemptions that allow investment 

advice fiduciaries with respect to Plans 

and IRAs to receive compensation and 

engage in certain principal transactions 

that would otherwise be prohibited 

under Title I and the Code. 

Overview of the Final Exemption and 

Discussion of Comments Received 

This exemption is available to 

registered investment advisers, brokerdealers, banks, and insurance 

companies (Financial Institutions) and 

their individual employees, agents, and 

representatives (Investment 

Professionals) that provide fiduciary 

investment advice to Retirement 

Investors.16 The exemption defines 

Retirement Investors as Plan 

participants and beneficiaries, IRA 

owners, and Plan and IRA fiduciaries.17

Under the exemption, Financial 

Institutions and Investment 

Professionals can receive a wide variety 

of payments that would otherwise 

violate the prohibited transaction rules, 

including, but not limited to, 

commissions, 12b–1 fees, trailing 

commissions, sales loads, mark-ups and 

mark-downs, and revenue sharing 

payments from investment providers or 

third parties. The exemption’s relief 

extends to prohibited transactions 

arising as a result of investment advice 

to roll over assets from a Plan to an IRA, 

as detailed later in this exemption. The 


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82800 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

18As defined in Section V(a) of the exemption, an 

‘‘affiliate’’ includes: (1) Any person directly or 

indirectly through one or more intermediaries, 

controlling, controlled by, or under common 

control with the Investment Professional or 

Financial Institution. (For this purpose, ‘‘control’’ 

means the power to exercise a controlling influence 

over the management or policies of a person other 

than an individual); (2) any officer, director, 

partner, employee, or relative (as defined in ERISA 

section 3(15)), of the Investment Professional or 

Financial Institution; and (3) any corporation or 

partnership of which the Investment Professional or 

Financial Institution is an officer, director, or 

partner. 

19As defined in Section V(j) of the exemption, a 

‘‘related entity’’ is an entity that is not an affiliate, 

but in which the Investment Professional or 

Financial Institution has an interest that may affect 

the exercise of its best judgment as a fiduciary. 

20As articulated in the Department’s regulations, 

‘‘a fiduciary may not use the authority, control, or 

responsibility which makes such a person a 

fiduciary to cause a plan to pay an additional fee 

to such fiduciary (or to a person in which such 

fiduciary has an interest which may affect the 

exercise of such fiduciary’s best judgment as a 

fiduciary) to provide a service.’’ 29 CFR 2550.408b– 

2(e)(1). 

21See e.g., PTE 86–128, Class Exemption for 

Securities Transactions involving Employee Benefit 

Plans and Broker-Dealers, 51 FR 41686 (Nov. 18, 

1986), as amended, 67 FR 64137 (Oct. 17, 2002) 

(providing relief for a fiduciary’s use of its authority 

to cause a Plan or an IRA to pay a fee for effecting 

or executing securities transactions to the fiduciary, 

as agent for the Plan or IRA, and for a fiduciary to 

act as an agent in an agency cross transaction for 

a Plan or an IRA and another party to the 

transaction and receive reasonable compensation 

for effecting or executing the transaction from the 

other party to the transaction); PTE 84–24, Class 

Exemption for Certain Transactions Involving 

Insurance Agents and Brokers, Pension Consultants, 

Insurance Companies, Investment Companies and 

Investment Company Principal Underwriters, 49 FR 

13208 (Apr. 3, 1984), as corrected, 49 FR 24819 

(June 15, 1984), as amended, 71 FR 5887 (Feb. 3, 

2006) (providing relief for the receipt of a sales 

commission by an insurance agent or broker from 

an insurance company in connection with the 

purchase, with plan assets, of an insurance or 

annuity contract). 

exemption also allows Financial 

Institutions to engage in principal 

transactions with Plans and IRAs in 

which the Financial Institution 

purchases or sells certain investments 

from its own account. 

As noted above, Title I and the Code 

include broad prohibitions on selfdealing. Absent an exemption, a 

fiduciary may not deal with the income 

or assets of a Plan or an IRA in his or 

her own interest or for his or her own 

account, and a fiduciary may not receive 

payments from any party dealing with 

the Plan or IRA in connection with a 

transaction involving assets of the Plan 

or IRA. As a result, fiduciaries who use 

their authority to cause themselves or 

their affiliates 18 or related entities 19 to 

receive additional compensation violate 

the prohibited transaction provisions 

unless an exemption applies.20

This exemption conditions relief on 

the Investment Professional and 

Financial Institution investment advice 

fiduciaries providing advice in 

accordance with the Impartial Conduct 

Standards. In addition, the exemption 

requires Financial Institutions to 

acknowledge in writing their and their 

Investment Professionals’ fiduciary 

status under Title I and the Code, as 

applicable, when providing investment 

advice to the Retirement Investor, and to 

describe in writing the services to be 

provided and the Financial Institutions’ 

and Investment Professionals’ material 

conflicts of interest. Financial 

Institutions must document the reasons 

that a rollover recommendation is in the 

best interest of the Retirement Investor 

and provide that documentation to the 

Retirement Investor. Financial 

Institutions are required to adopt 

policies and procedures prudently 

designed to ensure compliance with the 

Impartial Conduct Standards and 

conduct a retrospective review of 

compliance. The exemption also 

provides, subject to additional 

safeguards, relief for Financial 

Institutions to enter into principal 

transactions with Retirement Investors, 

in which they purchase or sell certain 

investments from their own accounts. 

In order to ensure that Financial 

Institutions provide reasonable 

oversight of Investment Professionals 

and adopt a culture of compliance, the 

exemption provides that Financial 

Institutions and Investment 

Professionals will be ineligible to rely 

on the exemption if, within the previous 

10 years, they were convicted of certain 

crimes arising out of their provision of 

investment advice to Retirement 

Investors. They will also be ineligible if 

they engaged in systematic or 

intentional violation of the exemption’s 

conditions or provided materially 

misleading information to the 

Department in relation to their conduct 

under the exemption. Ineligible parties 

are permitted to rely on an otherwise 

available statutory exemption or 

administrative class exemption, or they 

can apply for an individual prohibited 

transaction exemption from the 

Department. This targeted approach of 

allowing the Department to give special 

attention to parties with certain criminal 

convictions or with a history of 

egregious conduct with respect to 

compliance with the exemption will 

provide meaningful protections for 

Retirement Investors. 

While the exemption’s eligibility 

provision provides an incentive to 

maintain an appropriate focus on 

compliance with legal requirements and 

with the exemption, it does not 

represent the only available 

enforcement mechanism. The 

Department has investigative and 

enforcement authority with respect to 

transactions involving Plans under Title 

I of ERISA, and it has interpretive 

authority as to whether exemption 

conditions have been satisfied. Further, 

ERISA section 3003(c) provides that the 

Department will transmit information to 

the Secretary of the Treasury regarding 

a party’s violation of the prohibited 

transaction provisions of ERISA section 

406. In addition, participants, 

beneficiaries, and fiduciaries with 

respect to Plans covered under Title I 

have a statutory cause of action under 

ERISA section 502(a) for fiduciary 

breaches and prohibited transactions 

under Title I. The exemption, however, 

does not expand Retirement Investors’ 

ability to enforce their rights in court or 

create any new legal claims above and 

beyond those expressly authorized in 

Title I or the Code, such as by requiring 

contracts and/or warranty provisions. 

Exemption Approach and Alignment 

With Other Regulators’ Conduct 

Standards 

This exemption provides relief that is 

broader and more flexible than the other 

prohibited transaction exemptions 

currently available for investment 

advice fiduciaries. Those exemptions 

generally provide relief to specific types 

of financial services providers, for 

discrete, specifically identified 

transactions, and often do not extend to 

compensation arrangements that 

developed after the Department first 

granted the exemptions.21 In 

comparison, this new exemption 

provides relief for multiple categories of 

Financial Institutions and Investment 

Professionals, and extends broadly to 

their receipt of reasonable compensation 

as a result of the provision of fiduciary 

investment advice. The conditions are 

principles-based rather than 

prescriptive, so as to apply across 

different financial services sectors and 

business models. The exemption 

provides additional certainty regarding 

covered compensation arrangements 

and avoids the complexity associated 

with requiring a Financial Institution to 

rely upon a patchwork of different 

exemptions when providing investment 

advice. 

The exemption’s principles-based 

approach is rooted in the Impartial 

Conduct Standards for fiduciaries 

providing investment advice. The 

Impartial Conduct Standards include a 

best interest standard, a reasonable 

compensation standard, and a 

requirement to make no misleading 

statements about investment 

transactions and other relevant matters. 


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22 85 FR 40842. 

23Regulation Best Interest: The Broker-Dealer 

Standard of Conduct, 84 FR 33318 (July 12, 2019) 

(Regulation Best Interest Release). 

24Commission Interpretation Regarding Standard 

of Conduct for Investment Advisers, 84 FR 33669 

(July 12, 2019). 

25Form CRS Relationship Summary; 

Amendments to Form ADV, 84 FR 33492 (July 12, 

2019) (Form CRS Relationship Summary Release). 

In addition to the SEC’s rulemaking, the 

Massachusetts Securities Division amended its 

regulations for broker-dealers to apply a fiduciary 

conduct standard, under which broker-dealers and 

their agents must ‘‘[m]ake recommendations and 

provide investment advice without regard to the 

financial or any other interest of any party other 

than the customer.’’ 950 Mass. Code Regs. 12.204 

& 12.207 as amended effective March 6, 2020. 

26NAIC Suitability in Annuity Transactions 

Model Regulation, Spring 2020, available at 

www.naic.org/store/free/MDL-275.pdf (NAIC Model 

Regulation). 

27 Iowa Code § 507B.48 (2020), available at 

https://iid.iowa.gov/sites/default/files/bi_af.pdf; 

Arizona Senate Bill 1557 (2020), available at 

www.azleg.gov/legtext/54Leg/2R/laws/0090.pdf. 

The New York State Department of Financial 

Services also amended its insurance regulations to 

establish a best interest standard in connection with 

life insurance and annuity transactions. New York 

State Department of Financial Services Insurance 

Regulation 187, 11 NYCRR 224, First Amendment, 

effective August 1, 2019 for annuity transactions. 

In the proposed exemption, the 

Department noted that the best interest 

standard was based on concepts of law 

and equity ‘‘developed in significant 

part to deal with the issues that arise 

when agents and persons in a position 

of trust have conflicting interests,’’ and 

accordingly, the standard is well-suited 

to the problems posed by conflicted 

investment advice.22 The Department 

believes that conditioning the 

exemption on satisfaction of the 

Impartial Conduct Standards protects 

the interests of Retirement Investors in 

connection with this broader grant of 

exemptive relief. 

The best interest standard in the 

exemption is broadly aligned with 

recent rulemaking by the Securities and 

Exchange Commission (SEC), in 

particular. On June 5, 2019, the SEC 

finalized a regulatory package relating to 

conduct standards for broker-dealers 

and investment advisers. The package 

included Regulation Best Interest which 

establishes a best interest standard 

applicable to broker-dealers when 

making a recommendation of any 

securities transaction or investment 

strategy involving securities to retail 

customers.23 The SEC also issued an 

interpretation of the fiduciary conduct 

standards applicable to investment 

advisers under the Investment Advisers 

Act of 1940 (SEC Fiduciary 

Interpretation).24 In addition, as part of 

the package, the SEC adopted new Form 

CRS, which requires broker-dealers and 

SEC-registered investment advisers to 

provide retail investors with a short 

relationship summary with specified 

information (SEC Form CRS).25

The exemption’s best interest 

standard is also aligned with the 

standard included in the National 

Association of Insurance Commissioners 

(NAIC)’s Suitability in Annuity 

Transactions Model Regulation (NAIC 

Model Regulation) which was updated 

in Spring 2020.26 The model regulation 

provides that all recommendations by 

agents and insurers must be in the best 

interest of the consumer and that agents 

and carriers may not place their 

financial interest ahead of the 

consumer’s interest. Both Iowa and 

Arizona have adopted updated rules 

following the update of the NAIC Model 

Regulation.27

Some commenters expressed general 

support for the approach taken in the 

proposed exemption, although they 

opposed certain specific conditions as 

discussed in greater detail below. 

Commenters cited the flexible, 

principles-based approach rather than a 

prescriptive approach to exemptive 

relief, and they also praised the 

proposed exemptive relief for a broad 

range of otherwise prohibited 

compensation types which they said did 

not favor certain market segments or 

arrangements. Many of these 

commenters supported what they 

viewed as the proposed exemption’s 

alignment with regulatory conduct 

standards under the securities laws, 

particularly Regulation Best Interest. 

The commenters said this approach 

would reduce compliance costs and 

burdens, which will ultimately benefit 

Retirement Investors through reduced 

fees. Commenters also stated that they 

believed the exemption’s approach 

would facilitate providing investment 

advice to Retirement Investors through 

a wide variety of methods. 

Some commenters urged the 

Department to more closely mirror 

Regulation Best Interest or offer an 

explicit safe harbor for compliance with 

Regulation Best Interest, or with any 

‘‘primary financial regulator’’ of the 

Financial Institution, rather than 

including additional conditions in the 

exemption. They argued that otherwise 

Financial Institutions would have to 

comply with two differing yet mostly 

redundant regimes, with their attendant 

additional costs and liability exposure, 

and that the Department had failed to 

show that Retirement Investors would 

be insufficiently protected by other 

regulators’ standards. Some commenters 

focused on conduct standards, 

disclosures, and policies and 

procedures as areas for increased 

alignment, which they said would 

further reduce compliance burdens. 

These comments, as they pertain to 

these particular aspects of the 

exemption, are discussed in greater 

detail below in their respective parts of 

the preamble. 

Commenters made similar points with 

respect to alignment with the NAIC 

Model Regulation. Some commenters 

asked the Department to go further in 

aligning the exemption’s terms to the 

NAIC Model Regulation, or even offer a 

safe harbor based on compliance with it. 

Commenters asserted that increased 

alignment is particularly important to 

allow for distribution of insurance 

products by independent insurance 

agents. Specifically, commenters 

expressed the view that the exemption 

establishes a structure of Financial 

Institution oversight for Investment 

Professionals that is incompatible with 

the independent agent distribution 

model, because independent insurance 

agents sell the products of more than 

one insurance company. They suggested 

that the NAIC Model Regulation better 

accommodated that business model. 

In contrast, many commenters 

opposed the approach taken in the 

proposed exemption as insufficiently 

protective of Retirement Investors, and 

urged the Department to withdraw the 

proposal. Some of these commenters 

expressed the view that the exemption 

would not satisfy the statutory criteria 

under ERISA section 408(a) for the 

granting of an exemption or, more 

generally, that the conditions would not 

protect Plans and IRAs and their 

participants and beneficiaries from the 

dangers of conflicts of interest and selfdealing. 

These commenters focused much of 

their opposition on the exemption’s 

alignment with Regulation Best Interest 

and the NAIC Model Regulation, which 

the commenters said do not encompass 

a ‘‘true’’ fiduciary standard. 

Commenters stated that the provisions 

of Regulation Best Interest and the NAIC 

Model Regulation restricting conflicts of 

interest do not sufficiently protect 

investors from conflicted investment 

advice. Furthermore, commenters stated 

that the Act was enacted to provide 

additional protections to individuals 

saving for retirement, above and beyond 

existing laws. Some commenters noted 

that at the time the Act was enacted, 

Congress was aware of other federal and 

state regulatory schemes and that there 

was no suggestion of congressional 

purpose to base compliance on federal 

securities laws or other regulatory 

schemes. 

Some commenters took the position 

that the alignment with the conduct 


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28Senior Executive Officer is defined in Section 

V(l) as any of the following: The chief compliance 

officer, the chief executive officer, president, chief 

financial officer, or one of the three most senior 

officers of the Financial Institution. 

29See ERISA section 2(a). 

30Contact information for regional offices of the 

Department’s Employee Benefits Security 

Administration is available at www.dol.gov/ 

agencies/ebsa/about-ebsa/about-us/regional-offices. 

31For simplicity, this preamble interpretation 

uses the term Retirement Investor, which is a 

defined term in the exemption. This is not intended 

to suggest that the interpretation is limited to 

Retirement Investors impacted by the class 

exemption. In this preamble interpretation, the term 

Retirement Investor is intended to refer more 

generally to Plan participants and beneficiaries and 

IRA owners. 

standards in Regulation Best Interest 

rendered many of the exemption’s other 

conditions, which are designed to 

support investment advice that meets 

the standards, too lax. Some 

commenters also opposed the breadth of 

the exemption. These commenters 

suggested that the exemption should not 

allow receipt of payments from third 

parties. Some commenters also opposed 

the exemption’s application to 

recommendations of proprietary 

products. Further, commenters also 

stated that the failure to provide a 

mechanism for IRA owners to enforce 

the Impartial Conduct Standards was a 

significant flaw in the exemption’s 

approach. Some of these commenters 

noted that the Department also lacks the 

authority to enforce the exemption with 

respect to these investors. 

The Department has carefully 

considered these comments on the 

exemption’s approach, its alignment 

with other regulators’ conduct 

standards, as well as the comments on 

specific provisions of the exemption 

discussed below. The Department has 

proceeded with granting the final 

exemption based on the view that the 

exemption will provide important 

protections to Retirement Investors in 

the context of a principles-based 

exemption that permits a broad range of 

otherwise prohibited compensation, 

including compensation from third 

parties and from proprietary products. 

In this regard, the Impartial Conduct 

Standards are strong fiduciary standards 

based on longstanding concepts in the 

Act and the common law of trusts. The 

exemption includes additional 

supporting conditions including a 

written acknowledgment of fiduciary 

status to ensure that the nature of the 

relationship is clear to Financial 

Institutions, Investment Professionals, 

and Retirement Investors; policies and 

procedures that require mitigation of 

conflicts of interest to the extent that a 

reasonable person reviewing the 

policies and procedures and incentive 

practices as a whole would conclude 

that they do not create an incentive for 

a Financial Institution or Investment 

Professional to place their interests 

ahead of the interest of the Retirement 

Investor; and documentation and 

disclosure to Retirement Investors of the 

reasons that a rollover recommendation 

is in the Retirement Investor’s best 

interest. 

The exemption does not include a 

provision permitting IRA owners to 

enforce the Impartial Conduct 

Standards. In developing the exemption, 

the Department was mindful of the Fifth 

Circuit’s Chamber opinion holding that 

the Department did not have authority 

to include certain contract requirements 

in the new exemptions enforceable by 

IRA owners as granted by the 2016 

fiduciary rulemaking. In addition, the 

Department intends to avoid any 

potential for disruption in the market 

for investment advice that may occur 

related to a contract requirement. 

Instead, the exemption includes many 

protective measures and targeted 

opportunities for the Department to 

review compliance within its existing 

oversight and enforcement authority 

under the Act. For example, Financial 

Institutions’ reports regarding their 

retrospective review are required to be 

certified by a Senior Executive Officer 28

of the Financial Institution and 

provided to the Department within 10 

business days of request. The exemption 

also includes eligibility provisions, 

discussed below, which the Department 

believes will encourage Financial 

Institutions and Investment 

Professionals to maintain an appropriate 

focus on compliance with legal 

requirements and with the exemption. 

The Department believes that general 

alignment with the other regulators’ 

conduct standards is beneficial in 

allowing for the development of 

compliance structures that lack 

complexity and unnecessary burden. 

The Department has not, however, 

offered a safe harbor based solely on 

compliance with regulatory conduct 

standards under federal or state 

securities laws. The Department 

disagrees with commenters’ arguments 

that the failure to do so will create a 

redundant, cost-ineffective regime, or 

one that could create unexpected 

liabilities at the edges. This exemption 

is offered as a deregulatory option for 

interested parties; it does not 

unilaterally impose any obligations. The 

additional conditions of the exemption 

provide important protections to 

Retirement Investors, who are investing 

through tax advantaged accounts and 

are the subject of unique protections 

under Title I and the Code.29 The 

approach in the final exemption 

exemplifies the Department’s important 

role in protecting Retirement Investors 

through promulgating only those 

exemptions that meet the requirements 

of ERISA section 408(a) and Code 

section 4975(c)(2). 

For the same reasons, the Department 

likewise declines to provide a safe 

harbor based on the NAIC Model 

Regulation. A uniform approach to 

safeguards for Retirement Investors 

receiving fiduciary investment advice in 

the insurance marketplace is 

particularly important given the 

potential for variation across state 

insurance laws. Moreover, although 

commenters expressed concern about 

the scope of an insurance company’s 

supervisory oversight responsibilities as 

a Financial Institution, the Department 

believes that the exemption is workable 

for the insurance industry, as discussed 

in greater detail below. 

Some commenters raised questions as 

to whether the Department intends to 

defer to the SEC or other regulators on 

enforcement and how the Department 

will treat violations under other 

regulatory regimes. The Department has 

worked with other regulatory agencies, 

including the SEC, in numerous cases 

that implicate violations under different 

laws. The interaction of findings or 

settlements in parallel suits or 

investigations is decidedly a case-bycase determination. The Department 

confirms that it will coordinate with 

other regulators, including the SEC, on 

enforcement strategies and will 

harmonize regimes to the extent 

possible, but will not defer to other 

regulators on enforcement under the 

Act. Retirement Investors who have 

concerns about whether they have 

received investment advice that is not in 

accordance with the Impartial Conduct 

Standards or other conditions of the 

exemption are encouraged to contact the 

Department.30

Interpretation of Fiduciary Investment 

Advice in Connection With Rollover 

Recommendations 

As stated in the proposed exemption, 

amounts accrued in a Title I Plan can 

represent a lifetime of savings, and often 

comprise the largest sum of money a 

worker has at retirement. Therefore, the 

decision to roll over assets from a Title 

I Plan to an IRA is potentially a very 

consequential financial decision for a 

Retirement Investor.31 A sound decision 

on the rollover will typically turn on 

numerous factors, including the relative 

costs associated with the new 

investment options, the range of 

available investment options under the 


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32Cerulli Associates, ‘‘U.S. Retirement Markets 

2019.’’ 33The exemption would also provide relief for 

investment advice fiduciaries under either Title I or 

the Code to receive compensation for advice to roll 

Plan assets to another Plan, to roll IRA assets to 

another IRA or to a Plan, and to transfer assets from 

one type of account to another, all limited to the 

extent such rollovers are permitted under 

applicable law. The analysis set forth in this section 

will apply as relevant to those transactions as well. 

For purposes of any rollover of assets between a 

Title I Plan and an IRA described in this preamble, 

the term ‘‘IRA’’ includes only an account or annuity 

described in Code section 4975(e)(1)(B) or (C). 

34 29 CFR 2510–3.21. 

35Similarly, the SEC and FINRA have each 

recognized that recommendations to roll over Plan 

assets to an IRA will almost always involve a 

securities transaction. See Regulation Best Interest 

Release, 84 FR 33339; FINRA Regulatory Notice 13– 

45 Rollovers to Individual Retirement Accounts 

(December 2013), available at www.finra.org/sites/ 

default/files/NoticeDocument/p418695.pdf. 

36Comments on the reinsertion of the five-part 

test are discussed in greater detail below in the 

section ‘‘Reinsertion of the Five-Part Test.’’ 

plan and the IRA, and the individual 

circumstances of the particular investor. 

Rollovers from Title I Plans to IRAs 

are expected to approach $2.4 trillion 

cumulatively from 2016 through 2020.32

These large sums of money eligible for 

rollover represent a significant revenue 

source for investment advice providers. 

A firm that recommends a rollover to a 

Retirement Investor can generally 

expect to earn transaction-based 

compensation such as commissions, or 

an ongoing advisory fee, from the IRA, 

but may or may not earn compensation 

if the assets remain in the Title I Plan. 

In light of potential conflicts of 

interest related to rollovers from Title I 

Plans to IRAs, Title I and the Code 

prohibit an investment advice fiduciary 

from receiving fees resulting from 

investment advice to Title I Plan 

participants to roll over assets from the 

plan to an IRA, unless an exemption 

applies. The exemption provides relief, 

as needed, for this prohibited 

transaction, if the Financial Institution 

and Investment Professional provide 

investment advice that satisfies the 

Impartial Conduct Standards and 

comply with the other applicable 

conditions discussed below.33 In 

particular, the Financial Institution is 

required to document the reasons that 

the advice to roll over was in the 

Retirement Investor’s best interest, and 

provide the documentation to the 

Retirement Investor. 

The preamble to the proposed 

exemption provided the Department’s 

proposed views on when advice to roll 

over Plan assets to an IRA should be 

considered fiduciary investment advice 

under the Department’s regulation 

defining fiduciary investment advice,34

and requested comment on all aspects of 

the interpretation. The proposed 

interpretation addressed both Advisory 

Opinion 2005–23A (the Deseret Letter) 

as well as the facts and circumstances 

analysis of rollover recommendations 

under the five-part test. The discussion 

also touched on the statutory 

definitional prerequisite that advice be 

provided ‘‘for a fee or other 

compensation, direct or indirect.’’ 

Comments on the proposed 

interpretation are discussed below. The 

Department has carefully considered 

these comments and has adopted the 

final interpretation, as follows. 

Deseret Letter 

The proposed exemption announced 

that, in determining the fiduciary status 

of an investment advice provider in the 

context of advice to roll over Title I Plan 

assets to an IRA, the Department does 

not intend to apply the analysis in the 

Deseret Letter stating that advice to roll 

assets out of a Title I Plan, even when 

combined with a recommendation as to 

how the distribution should be invested, 

did not constitute investment advice 

with respect to the Title I Plan. The 

Department believes that the analysis in 

the Deseret Letter was incorrect when it 

stated that advice to take a distribution 

of assets from a Title I Plan is not advice 

to sell, withdraw, or transfer investment 

assets currently held in the plan. A 

recommendation to roll assets out of a 

Title I Plan is necessarily a 

recommendation to liquidate or transfer 

the plan’s property interest in the 

affected assets and the participant’s 

associated property interest in plan 

investments.35 Typically the assets, fees, 

asset management structure, investment 

options, and investment service options 

all change with the decision to roll 

money out of a Title I Plan. Moreover, 

a distribution recommendation 

commonly involves either advice to 

change specific investments in the Title 

I Plan or to change fees and services 

directly affecting the return on those 

investments. Accordingly, the better 

view is that a recommendation to roll 

assets out of a Title I Plan is advice with 

respect to moneys or other property of 

the plan. An investment advice 

fiduciary making a rollover 

recommendation would be required to 

avoid prohibited transactions under 

Title I and the Code unless an 

exemption, including this one, applies. 

Some commenters supported the 

Department’s announcement that it 

would not apply the reasoning of the 

Deseret Letter but would rather 

approach the analysis of rollovers based 

on all the facts and circumstances under 

the five-part test. These commenters 

generally supported the possibility that 

rollover recommendations could be 

considered fiduciary investment advice 

if the five-part test is satisfied, 

particularly given the consequence of 

the decision to roll over large sums 

typically accumulated in a Retirement 

Investor’s workplace Plan. 

Some commenters stated the 

Department’s proposed interpretation 

did not go far enough in protecting 

Retirement Investors, and that all 

rollover recommendations should be 

deemed fiduciary investment advice 

regardless of whether the five-part test 

is satisfied. Commenters noted that 

financial professionals have adopted 

titles such as financial consultant, 

financial planner, and wealth manager. 

These commenters stated that 

reinsertion of the five-part test makes it 

all too easy for financial services 

providers to hold themselves out as 

acting in positions of trust and 

confidence, even as they effectively 

avoided fiduciary status by relying on 

the ‘‘regular basis,’’ ‘‘mutual agreement, 

arrangement, or understanding’’ and 

‘‘primary basis’’ prongs of the test.36

One commenter argued that a rollover 

recommendation should be viewed as 

always satisfying the ‘‘regular basis’’ 

prong because, in its view, there are two 

distinct steps—the decision to do a 

rollover, and the decision to invest its 

proceeds. 

Other commenters asserted that the 

facts-and-circumstances analysis would 

lead to uncertainty as to fiduciary status 

and that a consequence of that 

uncertainty is a potential reduction in 

access to advice. One commenter argued 

that would lead to more leakage, 

missing participants, and abandoned 

accounts. Commenters disagreed with 

the conclusion that rollover 

recommendations typically include 

investment recommendations. Many 

commenters expressed concern that the 

Department intended to apply the facts 

and circumstances analysis to 

transactions occurring in the past. They 

said the Department’s statement that it 

would no longer apply the reasoning in 

the Deseret Letter would expose 

financial services providers to liability 

for transactions entered into in the past. 

Some commenters asked for additional 

guidance on other types of interactions, 

including recommendations to increase 

contributions to a Plan. 

After careful consideration of these 

comments, the Department has 

determined that, consistent with the 

position taken in the proposal, the facts 

and circumstances analysis required by 

the five-part test applies to rollover 

recommendations. A recommendation 


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37For example, ERISA section 3(21) discusses a 

fiduciary relationship surrounding the ‘‘disposition 

of [plan] assets.’’ 

38Where a broker-dealer or investment adviser 

makes a recommendation or provides advice that 

does not meet the five-part test, the 

recommendation or advice could still be subject to 

Regulation Best Interest or the investment adviser’s 

fiduciary duty under securities laws, as applicable. 

39See Perez v. Mortgage Bankers Assoc., 575 U.S. 

92, 100–01 (2015). 

40On March 28, 2017, the Treasury Department 

and the IRS issued IRS Announcement 2017–4 

stating that the IRS will not apply § 4975 (which 

to roll assets out of a Title I Plan is 

advice with respect to moneys or other 

property of the plan and, if provided by 

a person who satisfies all of the 

requirements of the five-part test, 

constitutes fiduciary investment advice. 

This outcome is more aligned with both 

the facts and circumstances approach 

taken by Congress in drafting the Act’s 

statutory functional fiduciary test, and 

with an approach centered on whether 

the parties have entered into a 

relationship of trust and confidence.37

This outcome is also consistent with the 

Act’s goal of protecting the interests of 

Retirement Investors given the central 

importance to investors’ retirement 

security consequences of a decision to 

roll over Title I Plan assets. 

The Department agrees that not all 

rollover recommendations can be 

considered fiduciary investment advice 

under the five-part test set forth in the 

Department’s regulation. Parties can and 

do, for example, enter into one-time 

sales transactions in which there is no 

ongoing investment advice relationship, 

or expectation of such a relationship. If, 

for example, a participant purchases an 

annuity based upon a recommendation 

from an insurance agent without 

receiving subsequent, ongoing advice, 

the advice does not meet the ‘‘regular 

basis’’ prong as specifically required by 

the regulation.38 Nor is the Department 

persuaded by the commenter who 

suggested that a rollover transaction 

should always satisfy the regular basis 

prong on the grounds that it can be 

viewed as involving two separate 

steps—the rollover and a subsequent 

investment decision. These two steps do 

not, in and of themselves, establish a 

regular basis. 

The Department does not believe that 

its interpretation will lead to loss of 

access to investment advice due to 

uncertainty of financial services 

providers as to their fiduciary status. 

Taken together, the five-part test as 

interpreted here and Interpretive 

Bulletin 96–1, regarding participant 

investment education, provide Financial 

Institutions and Investment 

Professionals a clear roadmap for when 

they are, and are not, Title I and Code 

fiduciaries. Since the exemption 

provides prohibited transaction relief 

for rollover recommendations that do 

constitute fiduciary investment advice, 

Financial Institutions and Investment 

Professionals would be free to provide 

fiduciary investment advice and comply 

with the exemption to avoid a 

prohibited transaction. In this regard, 

some commenters specifically 

supported the proposed exemption as 

facilitating investment advice and 

options for consumers. Alternatively, 

financial services providers can choose 

not to provide fiduciary investment 

advice and have no need of this 

exemption. And, of course, the 

Department acknowledges some 

commenters’ observations that 

Retirement Investors may choose on 

their own to withdraw assets from a 

Title I Plan and roll over funds to an 

IRA; however, this exemption focuses 

on the interests of those Retirement 

Investors who do receive fiduciary 

investment advice. The Department 

further addresses concerns regarding 

purported uncertainty over whether 

certain relationships meet the prongs of 

the five-part test, including the ‘‘regular 

basis’’ and ‘‘mutual agreement’’ prongs, 

later in this preamble. 

Some commenters stated that the 

Department should have engaged in 

notice and comment prior to 

announcing that it would no longer 

apply the analysis in the Deseret Letter. 

Commenters said that the position in 

the Deseret Letter contributed to a 

longstanding understanding of the fivepart test which should be reversed only 

through the regulatory process. A 

commenter noted that, in 2016, the 

Department characterized the 2016 

fiduciary rule as ‘‘superseding’’ the 

Deseret Letter, and asserted that 

characterization as evidence that the 

Department’s procedure in this 

exemption proceeding is inadequate. 

The Department does not believe 

these comments have merit. Advisory 

opinions, such as the Deseret Letter, are 

interpretive statements that were not 

subject to the notice and comment 

process. As such, the Department need 

not go through notice and comment to 

offer a new interpretation of the 

regulation based on a better reading of 

governing statutory and regulatory 

authority, as here.39 Moreover, in this 

instance, the statements made in the 

preamble to the now-vacated 2016 

fiduciary rule are also unpersuasive as 

to the effect of the Deseret Letter for the 

same reasons. Rather than take the 2016 

fiduciary rule’s approach of removing 

the five-part test through an amendment 

to the Code of Federal Regulations and, 

thus, ‘‘superseding’’ the Deseret Letter, 

the Department now is only changing its 

view on the Deseret Letter (and 

specifically, one aspect of it). The fivepart test still applies without the Deseret 

Letter, as it did for decades before the 

letter. The 2016 fiduciary rule is not in 

effect, and statements made in the 

preamble to the vacated rule bear no 

weight. And, in this instance, the 

Department solicited and has had the 

benefit of public comment on its 

interpretation through the notice and 

comment process for the exemption. 

Comments regarding the Department’s 

compliance with Executive Order 13891 

are addressed later in this preamble. 

Nevertheless, in response to 

commenters expressing concern about 

the possibility of being held liable for 

past transactions that would not have 

been treated as fiduciary under the 

Deseret analysis, the Department will 

not pursue claims for breach of 

fiduciary duty or prohibited 

transactions against any party, or treat 

any party as violating the applicable 

prohibited transaction rules, for the 

period between 2005, when the Deseret 

Letter was issued, and February 16, 

2021, based on a rollover 

recommendation that would have been 

considered non-fiduciary conduct under 

the reasoning in the Deseret Letter. The 

Department recognizes that advisory 

opinions issued under ERISA Procedure 

76–1, while directly applicable only to 

their requester, see ERISA Procedure 

76–1 section 10, can also constitute ‘‘a 

body of experience and informed 

judgment to which the courts and 

litigants may properly resort for 

guidance.’’ Raymond B. Yates, M.D., 

P.C. Profit Sharing Plan v. Hendon, 541 

U.S. 1, 18 (2004) (quoting Skidmore v. 

Swift & Co., 323 U.S. 134, 140 (1944)). 

For this reason, and because the 

Department does not wish to disturb the 

reliance interests of those who looked to 

the Deseret Letter for guidance, the 

Department also does not expect or 

intend a private right of action to be 

viable for a transaction conducted in 

reliance on the Deseret Letter prior to 

that date. Further, the extension of the 

temporary enforcement policy in FAB 

2018–02 until its expiration on 

December 20, 2021 will allow parties a 

transition period during which the 

Department will not pursue prohibited 

transaction claims against investment 

advice fiduciaries who work diligently 

and in good faith to comply with the 

Impartial Conduct Standards for 

rollover recommendations or treat such 

fiduciaries as violating the applicable 

prohibited transaction rules.40


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provides excise taxes relating to prohibited 

transactions) and related reporting obligations with 

respect to any transaction or agreement to which 

the Labor Department’s temporary enforcement 

policy described in FAB 2017–01, or other 

subsequent related enforcement guidance, would 

apply. The Treasury Department and the IRS have 

confirmed that, for purposes of applying IRS 

Announcement 2017–4, this preamble discussion 

and FAB 2018–02 constitute ‘‘other subsequent 

related enforcement guidance.’’ 

41See ERISA section 408(b)(14) (providing a 

statutory exemption for transactions in connection 

with the provision of investment advice described 

in ERISA section 3(21)(A)(ii) to a participant or 

beneficiary of an individual account plan that 

permits such participant or beneficiary to direct the 

investment of assets in their individual account); 

Code section 4975(d)(17) (same); see also 

Interpretive Bulletin 96–1, 29 CFR 2509.96–1. 

42FINRA Regulatory Notice 13–45. 

43U.S. General Accountability Office, 401(k) 

Plans: Improved Regulation Could Better Protect 

Participants from Conflicts of Interest, GAO 11–119 

(Washington, DC 2011), available at www.gao.gov/ 

assets/320/315363.pdf. 

44 It is by no means uncommon to interpret 

regulatory or statutory terms phrased in the present 

to incorporate the future tense. See, e.g., 1 U.S.C. 

1. 

45Merely executing a sales transaction at the 

customer’s request also does not confer fiduciary 

status. 

Additionally, although the Department 

declines to set broad guidelines in this 

preamble for what is necessarily a factsand-circumstances determination about 

particular business practices, to the 

extent public comments were based on 

concerns about compliance and 

interpretive issues with the final 

exemption or the Act, the Department 

intends to support Financial 

Institutions, Investment Professionals, 

plan sponsors and fiduciaries, and other 

affected parties with compliance 

assistance following publication of the 

final exemption. 

Facts and Circumstances Analysis 

All the elements of the five-part test 

must be satisfied for the investment 

advice provider to be a fiduciary within 

the meaning of the regulatory definition, 

including the ‘‘regular basis’’ prong as 

well as requirements that the advice be 

provided pursuant to a ‘‘mutual’’ 

agreement, arrangement, or 

understanding that the advice will serve 

as ‘‘a primary basis’’ for investment 

decisions. In addition to satisfying the 

five-part test, a person must also receive 

a fee or other compensation to be an 

investment advice fiduciary under the 

provisions of Title I and the Code. 

If, under this facts and circumstances 

analysis, advice to roll Title I Plan assets 

over to an IRA is fiduciary investment 

advice under Title I, the fiduciary duties 

of prudence and loyalty under ERISA 

section 404 would apply to the initial 

instance of advice to take the 

distribution and to roll over the assets. 

Fiduciary investment advice concerning 

investment of the rollover assets and 

ongoing management of the assets, once 

distributed from the Title I Plan into the 

IRA, would be subject to obligations in 

the Code. For example, a broker-dealer 

who satisfies the five-part test with 

respect to a Retirement Investor in 

advising on assets in a Title I Plan, 

advises the Retirement Investor to move 

his or her assets from the plan to an 

IRA, and receives any fees or 

compensation incident to distributing 

those assets, will be a fiduciary subject 

to Title I, including section 404, with 

respect to the advice regarding the 

rollover. Following the rollover, the 

broker-dealer will be a fiduciary under 

the Code subject to the prohibited 

transaction provisions in Code section 

4975. 

Final Interpretation 

The Department acknowledges that a 

single instance of advice to take a 

distribution from a Title I Plan and roll 

over the assets would fail to meet the 

regular basis prong. Likewise, sporadic 

interactions between a financial services 

professional and a Retirement Investor 

do not meet the regular basis prong. For 

example, if a Retirement Investor who is 

assisted with a rollover expresses the 

intent to direct his or her own 

investments in a brokerage account, 

without any expectation of entering into 

an ongoing advisory relationship and 

without receiving repeated investment 

recommendations from the investment 

professional, the Department would not 

view the regular basis prong as being 

satisfied merely because the investor 

subsequently sought the professional’s 

advice in connection with another 

transaction long after receiving the 

rollover assistance. 

However, advice to roll over plan 

assets can also occur as part of an 

ongoing relationship or an intended 

ongoing relationship that an individual 

enjoys with his or her investment advice 

provider. In circumstances in which the 

investment advice provider has been 

giving advice to the individual about 

investing in, purchasing, or selling 

securities or other financial instruments 

through tax-advantaged retirement 

vehicles subject to Title I or the Code, 

the advice to roll assets out of a Title I 

Plan is part of an ongoing advice 

relationship that satisfies the regular 

basis prong. Similarly, advice to roll 

assets out of a Title I Plan into an IRA 

where the investment advice provider 

has not previously provided advice but 

will be regularly giving advice regarding 

the IRA in the course of a more lengthy 

financial relationship would be the start 

of an advice relationship that satisfies 

the regular basis prong. It is clear under 

Title I and the Code that advice to a 

Title I Plan includes advice to 

participants and beneficiaries in 

participant-directed individual account 

pension plans, so in these scenarios, 

there is advice to the Title I Plan— 

meaning the Plan participant or 

beneficiary—on a regular basis.41

This interpretation is consistent with 

the approach of other regulators and 

protects Plan participants and 

beneficiaries under today’s market 

practices, including the increasing 

prevalence of 401(k) Plans and selfdirected accounts. Numerous sources 

acknowledge that an outcome of advice 

given to a Retirement Investor to roll 

over Title I Plan assets is the 

compensation an advice provider 

receives from the investments made in 

an IRA. For example, in a 2013 notice 

reminding firms of their responsibilities 

regarding IRA rollovers, FINRA stated 

that ‘‘a financial adviser has an 

economic incentive to encourage an 

investor to roll plan assets into an IRA 

that he will represent as either a brokerdealer or an investment adviser 

representative.’’ 42 Similarly, in 2011, 

the U.S. Government Accountability 

Office (GAO) discussed the practice of 

cross-selling, in which 401(k) service 

providers sell Plan participants 

products and services outside of their 

Title I Plans, including IRA rollovers. 

GAO reported that industry 

professionals said ‘‘cross-selling IRA 

rollovers to participants, in particular, is 

an important source of income for 

service providers.’’ 43 These types of 

transactions can initiate a future, 

ongoing relationship.44

In applying the regular basis prong of 

the five-part test, however, the 

Department intends to preserve the 

ability of financial services 

professionals to engage in one-time sales 

transactions without becoming 

fiduciaries under the Act, including by 

assisting with a rollover.45 For example, 

such parties can make clear in their 

communications that they do not intend 

to enter into an ongoing relationship to 

provide investment advice and act in 

conformity with that communication. In 

the event that assistance with a rollover 

does in fact mark the beginning of an 

ongoing relationship, however, the 

functional fiduciary test under Title I 

and the Code appropriately covers the 

entire fiduciary relationship, including 

the first instance of advice. 

With respect to determining whether 

there is ‘‘a mutual agreement, 

arrangement, or understanding’’ that the 

investment advice will serve as ‘‘a 

primary basis for investment decisions,’’ 


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46A few commenters in the insurance industry 

and the brokerage industry cited statements in the 

Fifth Circuit’s Chamber opinion for the proposition 

that brokers-dealers and insurance agents would 

ordinarily not develop a relationship of trust and 

confidence with prospective customers so as to 

properly be considered fiduciaries under Title I and 

the Code. These comments related to the Fifth 

Circuit’s Chamber opinion are discussed later in 

this preamble. 

47See Regulation Best Interest, 17 CFR 240.15l– 

1(a) (‘‘A broker, dealer, or a natural person who is 

an associated person of a broker or dealer, when 

making a recommendation of any securities 

transaction or investment strategy involving 

securities (including account recommendations) to 

a retail customer, shall act in the best interest of the 

retail customer at the time the recommendation is 

made, without placing the financial or other interest 

of the broker, dealer, or natural person who is an 

associated person of a broker or dealer making the 

recommendation ahead of the interest of the retail 

customer.’’) and NAIC Model Regulation Section 

6.A. (‘‘A producer, when making a recommendation 

of an annuity, shall act in the best interest of the 

consumer under the circumstances known at the 

time the recommendation is made, without placing 

the producer’s or the insurer’s financial interest 

ahead of the consumer’s interest.’’). 

the Department intends to consider the 

reasonable understanding of each of the 

parties, if no mutual agreement or 

arrangement is demonstrated. Written 

statements disclaiming a mutual 

understanding or forbidding reliance on 

the advice as a primary basis for 

investment decisions will not be 

determinative, although such statements 

will be appropriately considered in 

determining whether a mutual 

understanding exists. Similarly, after 

consideration of the comments, the 

Department also intends to consider 

marketing materials in which Financial 

Institutions and Investment 

Professionals hold themselves out as 

trusted advisers, in evaluating the 

parties’ reasonable understandings with 

respect to the relationship. 

The Department believes that 

Financial Institutions and Investment 

Professionals who meet the five-part test 

and are investment advice fiduciaries 

relying on this exemption should clearly 

disclose their fiduciary status to their 

Retirement Investor customers. By 

making this disclosure, they provide 

important clarity to the Retirement 

Investor and put themselves in the best 

possible position to meet their fiduciary 

obligations and comply with the 

exemption. By setting clear expectations 

and acting accordingly, the mutual 

understanding prong of the five-part test 

should seldom be an issue for parties 

relying on the exemption. Similarly, if 

a Financial Institution or Investment 

Professional does not want to assume a 

fiduciary relationship or create 

misimpressions about the nature of its 

undertaking, it can clearly disclose that 

fact to its customers up-front, clearly 

disclaim any fiduciary relationship, and 

avoid holding itself out to its Retirement 

Investor customer as acting in a position 

of trust and confidence. 

The Department does not intend to 

apply the five-part test to determine 

whether the advice serves as ‘‘the’’ 

primary basis of investment decisions, 

as advocated by some commenters, but 

whether it serves as ‘‘a’’ primary basis, 

as the regulatory text provides. 

Comments on the Regular Basis 

Analysis 

Some commenters on the 

Department’s proposed interpretation of 

the regular basis prong asserted that the 

regular basis prong would always be 

satisfied under the interpretation, and, 

therefore, the prong was effectively 

being eliminated from the five-part test. 

In this regard, one commenter stated 

that every financial professional wants 

to develop an ongoing relationship with 

her customers. Commenters opposed the 

statement that a rollover 

recommendation could be the first step 

in an ongoing advice relationship that 

would satisfy the regular basis prong. 

Some commenters characterized this 

statement as allowing for the 

‘‘retroactive’’ imposition of fiduciary 

status on financial services providers in 

the event an ongoing relationship 

develops. Some commenters 

additionally opined that to be ‘‘regular,’’ 

the interactions would have to be more 

than discrete or episodic. Some 

commenters stated that the advice to a 

Retirement Investor in a Title I Plan 

should be viewed as distinct from the 

advice to the same Retirement Investor 

whose assets have been transferred to an 

IRA, for purposes of the analysis of the 

regular basis prong. Commenters also 

cautioned that the preamble statement 

about rollover advice following a preexisting advice relationship appeared to 

be overbroad with respect to the types 

of pre-existing advice relationships to 

which it would apply. 

Commenters in the insurance industry 

asked the Department to confirm that 

insurance transactions generally would 

not be considered fiduciary investment 

advice, because commenters said they 

occur infrequently and that ongoing 

interactions may occur but they are 

related to servicing the insurance or 

annuity contract. Some commenters 

objected to the Department’s statement 

in the preamble that agents who receive 

trailing commissions on annuity 

transactions may continue to provide 

ongoing recommendations or service 

with respect to the annuity. 

Commenters asserted that this method 

of compensation is paid for a variety of 

reasons and does not indicate an 

ongoing advice relationship.46

The Department has carefully 

considered these comments in clarifying 

its interpretation of the ‘‘regular basis’’ 

prong of the five-part test. The 

Department does not believe that the 

regular basis prong has effectively been 

eliminated by stating that this prong 

may be satisfied, in some cases, with the 

occurrence of first-time advice on 

rollovers that is intended to be the 

beginning of a long-term relationship. 

The regulation still requires, in all cases, 

that advice will be provided on a regular 

basis. The Department’s interpretation 

merely recognizes that the rollover 

recommendation can be the beginning 

of an ongoing advice relationship. It is 

important that fiduciary status extend to 

the entire advisory relationship. 

In this regard, when the parties 

reasonably expect an ongoing advice 

relationship at the time of the rollover 

recommendation, the regular basis 

prong is satisfied. This expectation can 

be shown by various kinds of objective 

evidence, of which some examples are 

discussed below, such as the parties 

agreeing to check-in periodically on the 

performance of the customer’s postrollover financial products. In such 

cases, the parties’ expectation at the 

time of the rollover recommendation 

appropriately demonstrates that the 

regular basis prong has been satisfied, 

and, if the other prongs of the test are 

satisfied, the financial service providers 

making the recommendation are 

appropriately treated as investment 

advice fiduciaries under Title I and the 

Code. Likewise, to the extent that 

financial service providers hold 

themselves out to the customer as 

providing such ongoing services, and 

meet the other elements of the five-part 

test, they are fiduciaries. 

In the Department’s view, the updated 

conduct standards adopted by the SEC 

and the NAIC reflect an 

acknowledgment of the fact that brokerdealers and insurance agents commonly 

provide investment and annuity 

recommendations to their customers.47

To the extent these professionals engage 

in an ongoing advice relationship, they 

will likely satisfy the regular basis 

prong. Moreover, the Department does 

not intend to interpret ‘‘regular basis’’ to 

be limited to relationships in which 

advice is provided at fixed intervals, as 

suggested by a commenter, but, instead, 

believes the term ‘‘regular basis’’ 

broadly describes a relationship where 

advice is recurring, non-sporadic, and 

expected to continue. When insurance 

agents or broker-dealers frequently or 

periodically make recommendations to 

their clients on annuity or investment 

products or features, or on the 


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48See supra, n. 41. 

49 5 U.S.C. App. (2018). 

50Presidential Statement of October 14, 1978 on 

Congressional Action on Reorganization Plan No. 4, 

1978, Weekly Compilation of Presidential 

Documents, Vol. 14, No. 42 (Aug. 10, 1978) 

(accompanying the Reorganization Plan No. 4 of 

1978, 5 U.S.C.A. App. 1, 43 FR 47713–16 (Oct. 17, 

1978)). 

investment of additional assets in 

existing products, they may meet the 

‘‘regular basis’’ prong of the five-part 

test, and are appropriately treated as 

fiduciaries, assuming that they meet the 

remaining elements of the fiduciary 

definition. 

The Department’s interpretation of the 

regular basis prong does not result in 

retroactive imposition of fiduciary 

status, as suggested by some 

commenters. As noted above, fiduciary 

status is determined by the facts as they 

exist at the time of the recommendation, 

including whether the parties, at that 

time, mutually intend an ongoing 

advisory relationship. Every 

relationship has a beginning, and the 

five-part test does not provide that the 

first instance of advice in an ongoing 

relationship is automatically free from 

fiduciary obligations. The fact that the 

relationship of trust and confidence 

starts with a recommendation to roll the 

investor’s retirement savings out of a 

Title I Plan is not an argument for 

treating the recommendation as nonfiduciary. Rather, fiduciary status 

extends to the entire advisory 

relationship, including the first—and 

often most important—advice on rolling 

the investor’s retirement savings out of 

the Title I Plan in the first place. A 

financial services provider that 

recommends that Retirement Investors 

roll potential life savings out of a Title 

I Plan with the expectation of offering 

ongoing advice to the same Retirement 

Investor whose retirement assets will 

now be held in an IRA should 

reasonably understand that the provider 

will be held to fiduciary standards. 

This does not mean that fiduciary 

status applies to a prior isolated 

interaction, if the facts and 

circumstances surrounding the 

interaction do not reflect that the 

interaction marked the beginning of an 

ongoing fiduciary advice relationship. 

The Department recognizes that 

relationships, and the parties’ 

understandings of their relationships, 

can change over time. The Department 

emphasizes that parties who do not 

wish to enter into an ongoing 

relationship can make that fact 

consistently clear in their 

communications and act accordingly. 

The Department disagrees with 

commenters who suggested that the 

‘‘regular basis’’ requirement must first 

be met with respect to the Title I Plan, 

and then again with respect to the IRA. 

Under the logic of this position, even if 

the investment advice provider 

specifically recommended the rollover 

to the IRA as part of a planned ongoing 

investment advice relationship, the 

‘‘regular basis’’ requirement would not 

be satisfied with respect to the rollover 

advice because there was only one 

instance of advice under the Title I Plan, 

notwithstanding the expectation of a 

continued advisory relationship with 

the same customer with respect to the 

same assets that were rolled out of the 

plan. Similarly, the argument asserts 

that even if the investment advice 

provider regularly advised the Plan 

participant on how to invest plan assets, 

recommended the rollover to an IRA, 

and then continued to give advice on 

the IRA account, the first instance of 

advice post-rollover did not count 

because the ‘‘regular basis’’ requirement 

had only been satisfied with respect to 

the Title I Plan, but not the IRA. 

In response, the Department notes 

that under Title I and the Code, advice 

to a Title I Plan includes advice to 

participants and beneficiaries in 

participant-directed individual account 

pension plans.48 Given that the identical 

five-part test definition appears in the 

regulatory definition under both Title I 

and the Code, the advice is rendered to 

the exact same Retirement Investor (first 

as a Plan participant and then as IRA 

owner), and the IRA assets are derived, 

in the first place, from that Retirement 

Investor’s Title I Plan account, it is 

appropriate to conclude that an ongoing 

advisory relationship spanning both the 

Title I Plan and the IRA satisfies the 

regular basis prong. It is enough, in the 

scenarios outlined above, that the same 

financial services provider is giving 

advice to the same person with respect 

to the same assets (or proceeds of those 

assets), pursuant to identical five-part 

tests. A different outcome could all too 

easily defeat legitimate investor 

expectations of trust and confidence by 

arbitrarily dividing an ongoing 

relationship of ongoing advice and 

uniquely carving out rollover advice 

from fiduciary protection. 

Further, the Department believes an 

approach that coordinates the five-part 

test under Title I with the identical test 

under the Code is consistent with the 

transfer of authority to the Department 

under Reorganization Plan No. 4 of 

1978.49 Pursuant to the Reorganization 

Plan, the Secretary of Labor has 

authority to issue regulations, rulings, 

opinions, and exemptions under Code 

section 4975, with some limited 

exceptions not relevant here. The 

message of the President that 

accompanied the Reorganization Plan 

indicated an intent to streamline 

administration of the Act, and to entrust 

the Department of Labor with 

responsibility to oversee fiduciary 

conduct.50

For similar reasons, the Department’s 

interpretation of the regular basis prong 

does not artificially distinguish between 

advice to a Retirement Investor in a 

Title I Plan and advice to the same 

Retirement Investor in an IRA, when 

evaluating a rollover recommendation 

made in the context of a pre-existing 

advice relationship. Likewise, the 

Department does not arbitrarily 

subdivide advice rendered to a plan 

sponsor on multiple Title I Plans. It is 

enough, in that case, that the parties 

have an ongoing advisory relationship 

with respect to Title I Plans. If, on the 

other hand, the investment professional 

only made recommendations to the 

investor on non-‘‘plan’’ assets held 

outside a Plan or an IRA, he or she 

would not meet the ‘‘regular basis’’ test 

based solely on additional one-time 

advice with respect to the Plan or IRA. 

To meet the regular basis prong in that 

circumstance, there must be ongoing 

advice to a ‘‘plan’’ (including Plans and 

IRAs). 

As indicated by the discussion above, 

whether insurance transactions will fall 

within or outside the scope of the 

fiduciary definition in Title I and the 

Code depends on the related facts and 

circumstances. Like other transactions 

involving Retirement Investors, 

insurance and annuity transactions 

must be evaluated based on application 

of the five-part test to the particular 

scenario. Some commenters raised 

concerns that trailing annuity 

commissions could be seen as 

indicating ongoing service that the 

Department would view as fiduciary 

investment advice. Other commenters 

asserted that the Department’s view on 

this point fails to recognize that 

insurance agents may receive trailing 

commissions for reasons wholly 

unrelated to their relationship with a 

Retirement Investor, and that how an 

agent is compensated does not impact 

whether the regular basis prong of the 

five-part test is satisfied. The 

Department clarifies that payment of a 

trailing commission will not, in and of 

itself, result in the Department taking 

the position that the regular basis prong 

of the five-part test is satisfied with 

respect to a transaction. On the other 

hand, if the trailing commission is 

intended to compensate a financial 

professional for providing advice to the 


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82808 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

Retirement Investor on an ongoing basis, 

the conclusion could be different, 

depending on the full facts and 

circumstances of the advice 

arrangement. 

Mutual Agreement, Arrangement, or 

Understanding That the Investment 

Advice Will Serve as a Primary Basis for 

Investment Decisions 

Similar to the comments discussed 

above, some commenters also asserted 

that the Department’s interpretation of 

the ‘‘mutual agreement, arrangement, or 

understanding’’ and the ‘‘primary basis’’ 

requirements is so broad as to render 

them meaningless. Some of these 

commenters objected to the statement 

that recommendations by financial 

professionals, particularly pursuant to a 

best interest standard or another 

requirement to provide advice based on 

the individualized needs of the 

Retirement Investor, will typically 

involve a reasonable understanding by 

both parties that the advice will serve as 

at least a primary basis for the decision. 

The commenters asserted that the 

statement is inconsistent with the fact 

that the broker-dealer and insurance 

regulatory regimes do not incorporate a 

fiduciary standard. A few commenters 

sought confirmation that compliance 

with Regulation Best Interest would not 

automatically result in satisfaction of 

the primary basis prong of the five-part 

test. Some commenters stated that 

investors may consult multiple financial 

professionals and, therefore, the 

response by any one professional should 

not be considered a primary basis for 

the investment decision. 

Some commenters opposed the 

Department’s interpretive statement that 

written disclaimers of fiduciary status or 

elements of the five-part test will not be 

determinative. They stated that this 

interpretation ignores the requirement 

of ‘‘mutuality.’’ Some commenters also 

criticized the statement that the fivepart test focuses on ‘‘a’’ primary basis, 

not ‘‘the’’ primary basis, although some 

acknowledged that ‘‘a’’ is, in fact, the 

word used in the regulation. 

Commenters said the interpretation is at 

odds with the common understanding 

of the word ‘‘primary’’ and will result in 

an unwarranted expansion of the fivepart test. Commenters also asserted that 

the statement in the Department’s 

interpretation conflated the primary 

basis requirement with a separate 

requirement for individualized advice. 

On the other hand, another commenter 

advocated that a Retirement Investor’s 

position as to whether there is an 

understanding for the advice to provide 

a primary basis for the investment 

decision should be provided a 

presumption of correctness, which can 

only be overcome with significant 

evidence. 

The Department is not persuaded by 

these comments to revise its 

interpretation. As stated above, the 

Department’s interpretation has not 

rendered these requirements of the fivepart test meaningless. Rather, the 

Department is appropriately applying 

the five-part test to current marketplace 

conduct and realities. The fact that a 

financial services professional is not 

considered a fiduciary under other laws, 

such as securities law or insurance law, 

is not a determinative factor under the 

five-part test. The focus is on the facts 

and circumstances surrounding the 

recommendation and the relationship, 

including whether those facts and 

circumstances give rise to a mutual 

agreement, arrangement, or 

understanding that the advice will serve 

as a primary basis for an investment 

decision. While satisfying the other laws 

may implicate parts of the test, fiduciary 

status applies only if all five prongs are 

satisfied. 

The Department does not interpret the 

‘‘primary basis’’ requirement as 

requiring proof that the advice was the 

single most important determinative 

factor in the Retirement Investor’s 

investment decision. This is consistent 

with the regulation’s reference to the 

advice as ‘‘a’’ primary basis rather than 

‘‘the’’ primary basis. Similarly, the fact 

that a Retirement Investor may consult 

multiple financial professionals about a 

particular investment does not indicate 

that the Department’s analysis is 

incorrect. If, in each instance, the 

parties reasonably understand that the 

advice is important to the Retirement 

Investor and could determine the 

outcome of the investor’s decision, that 

is enough to satisfy the ‘‘primary basis’’ 

requirement. Even so, all elements of 

the five-part test must be satisfied for a 

particular recommendation to be 

considered fiduciary investment advice, 

and if a Retirement Investor does not act 

on a recommendation made by a 

financial professional, the financial 

professional would not have any 

liability for that recommendation. 

The Department also recognizes that 

the requirement for ‘‘individualized’’ 

advice is separate from the ‘‘primary 

basis’’ requirement, but this does not 

mean that the individualized nature of 

a particular advice recommendation is 

irrelevant to whether the parties 

understood that the advice could serve 

as a ‘‘primary basis’’ for investment 

decisions. 

The Department also is not persuaded 

by commenters to change its position on 

the role of written disclaimers of 

fiduciary status or of elements of the 

five-part test. In the context of the 

rendering of investment advice by a 

financial services professional, written 

statements disclaiming a mutual 

understanding or forbidding reliance on 

the advice as a primary basis for 

investment decisions will not be 

determinative, although such statements 

can be appropriately considered in 

determining whether a mutual 

understanding exists. This 

interpretation will not deprive parties of 

the ability to define the nature of their 

relationship, but recognizes that there 

needs to be consistency in that respect. 

A financial services provider should 

not, for example, expect to avoid 

fiduciary status through a boilerplate 

disclaimer buried in the fine print, 

while in all other communications 

holding itself out as rendering best 

interest advice that can be relied upon 

by the customer in making investment 

decisions. While financial services 

professionals may contractually 

disclaim engaging in activities that 

trigger elements of the five-part test, 

such as rendering advice that can be 

relied upon as a primary basis for the 

Retirement Investor’s investment 

decisions, they must do so clearly and 

act accordingly to demonstrate that 

there is in fact no mutual agreement, 

arrangement, or understanding to the 

contrary. 

One commenter similarly requested 

that the Department confirm that brokerdealers can disclaim a mutual 

agreement, arrangement or 

understanding in cases in which they 

provide investment recommendations 

that comply with Regulation Best 

Interest. The Department declines to do 

so expressly. As discussed above, the 

Department has not provided a safe 

harbor in this exemption for compliance 

with other regulators’ conduct 

standards. The Department also declines 

in this exemption to set forth 

evidentiary burdens applied to establish 

a mutual understanding, including any 

presumptions as one commenter 

suggested. That question is better left to 

development by the courts or, if 

necessary, future guidance or 

rulemaking. The Department reiterates, 

however, that all prongs of the five-part 

test, including the regular basis prong, 

must be satisfied for a person or entity 

to be a fiduciary. Further, as noted 

above, a broker-dealer who does not 

wish to establish a fiduciary 

relationship in connection with a 

rollover may make clear in its 

communications that it does not intend 

to enter into an ongoing relationship to 


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51 Definition of the Term ‘‘Fiduciary’’; Conflict of 

Interest Rule—Retirement Investment Advice, 81 

FR 20946, 20968 (April 8, 2016). 

52See Frequently Asked Questions on Regulation 

Best Interest, available at www.sec.gov/tm/faqregulation-best-interest. 

53ERISA section 3(21)(A)(ii); Code section 

4975(e)(3)(B). 

54Preamble to the Department’s 1975 Regulation, 

40 FR 50842 (October 31, 1975). 

55 Id. 

56One commenter asserted that the Department’s 

interpretation was in substance a ‘‘legislative rule’’ 

which required notice and comment rulemaking, 

citing Am. Min. Cong. v. Mine Safety & Health 

Admin., 995 F.2d 1106, 1112 (D.C. Cir. 1993), and 

Chao v. Rothermel, 327 F.3d 223, 227 (3d Cir. 

2003). The Department disagrees that the factors 

cited in these cases are satisfied. In this regard, 

there would be an adequate legislative basis for 

enforcement in the absence of the interpretation; 

the preamble interpretation will not be published 

in the CFR; the Department has not invoked its 

general legislative authority; and for the reasons 

stated above, the interpretation does not effectively 

amend the five-part test. The Department further 

notes that the interpretation was subject to notice 

and comment as part of the proposal. 

provide investment advice and act in 

conformity with that communication. 

‘‘Hire Me’’ Communications 

Some commenters asked the 

Department to confirm that so-called 

‘‘hire me’’ communications, in which 

financial services professionals engage 

in introductory conversations to 

promote their advisory services to 

Retirement Investors, will not be treated 

as fiduciary communications under 

Title I and the Code. Commenters 

indicated that these types of 

communications are an important part 

of the process for a Retirement Investor 

to select an investment advice provider. 

A commenter pointed to statements in 

the Department’s 2016 fiduciary 

rulemaking about the ability of a person 

or firm to ‘‘tout the quality of his, her, 

or its own advisory or investment 

management services’’ without being 

considered an investment advice 

fiduciary.51 The commenter also 

pointed to an FAQ issued by the SEC 

staff in the context of Regulation Best 

Interest, which confirmed that, absent 

other factors, the SEC staff would not 

view this type of communication as a 

recommendation: 

I have been working with our mutual 

friend, Bob, for fifteen years, helping him to 

invest for his kids’ college tuition and for 

retirement. I would love to talk with you 

about the types of services my firm offers, 

and how I could help you meet your goals. 

Here is my business card. Please give me a 

call on Monday so that we can discuss.52

In the context of the present 

exemption proceeding, the Department 

does not believe that there should be 

significant concerns about introductory 

‘‘hire me’’ conversations. This is 

because all prongs of the five-part test 

must be satisfied for a financial services 

provider to be considered a fiduciary. 

Nevertheless, the Department confirms 

that the interpretive statements in this 

preamble are not intended to suggest 

that marketing activity of the type 

described above would be treated as 

investment advice covered under the 

five-part test. To the extent, however, 

that the marketing of advisory services 

is accompanied by an investment 

recommendation, such as a 

recommendation to invest in a 

particular fund or security, the 

investment recommendation would be 

covered if all five parts of the test were 

satisfied. 

For a Fee or Other Compensation, Direct 

or Indirect 

The Department’s preamble 

interpretation in the proposal noted that 

in addition to satisfying the five-part 

test, a person must receive a ‘‘fee or 

other compensation, direct or indirect’’ 

to be an investment advice fiduciary.53

The Department has long interpreted 

this requirement broadly to cover ‘‘all 

fees or other compensation incident to 

the transaction in which the investment 

advice to the plan has been rendered or 

will be rendered.’’ 54 The Department 

previously noted that ‘‘this may include, 

for example, brokerage commissions, 

mutual fund sales commissions, and 

insurance sales commissions.’’ 55 In the 

rollover context, fees and compensation 

received from transactions involving 

rollover assets would be incident to the 

advice to take a distribution from the 

Plan and to roll over the assets to an 

IRA. 

While commenters acknowledged this 

discussion is consistent with the 

Department’s longstanding interpretive 

position, they asserted that it is 

inconsistent with views expressed by 

the Fifth Circuit in the Chamber opinion 

and with the definition of a fiduciary in 

Title I and the Code. Responses to 

arguments about the fee requirement 

and the Chamber opinion follow in the 

next section. 

Procedural and Legal Arguments 

Many commenters asserted that the 

Department failed to comply with the 

Administrative Procedure Act because 

the interpretation of the five-part test set 

forth in the proposal, in their view, 

effectively amended the five-part test 

without appropriate procedures. As 

discussed above, the commenters 

expressed the view that the 

Department’s preamble interpretation 

effectively eliminated the ‘‘regular 

basis’’ and ‘‘mutual agreement, 

arrangement or understanding’’ prongs 

of the five-part test. A few commenters 

additionally suggested that providing 

the interpretation in the preamble of a 

proposed class exemption did not 

provide sufficient notice and 

opportunity for comment. 

The Department’s interpretation does 

not amend the five-part test, but only 

provides interpretive guidance, in the 

context of the relief provided in the new 

exemption, as to how that test applies 

to current practices in providing 

investment advice. The regulatory fivepart test has long been understood to 

provide a functional fiduciary test, and 

the Department’s interpretation is based 

on this understanding. The 

Department’s interpretation does not 

effectively eliminate any of the elements 

of the five-part test, but rather applies 

them to current marketplace conduct 

and harmonizes with the current 

regulatory environment.56

Some commenters opined that the 

Department’s proposed interpretation of 

the five-part test would result in parties 

being considered fiduciaries under Title 

I and the Code under circumstances that 

would be inconsistent with 

pronouncements and holdings by the 

Fifth Circuit in the Chamber opinion. In 

particular, commenters invoked 

statements by the court that fiduciary 

status is based on the existence of a 

relationship of trust and confidence. 

Commenters stated that at the time of 

the first instance of advice in an ongoing 

relationship, a financial services 

professional may not have developed a 

relationship of trust and confidence 

with its customer. 

In response, the Department notes 

that the Fifth Circuit’s Chamber opinion 

discussed approvingly the Department’s 

1975 regulation, which established the 

five-part test. The court did not indicate 

that, in an ongoing relationship, there 

should be any initial instances of advice 

free of fiduciary status until some later 

period in which a relationship of trust 

and confidence has been demonstrated 

repeatedly. To the contrary, the court 

expressed agreement that investment 

advisers registered under the Investment 

Advisers Act may appropriately be 

considered fiduciaries without 

indicating that fiduciary status would 

only apply after a period of time. Of 

particular importance, in the 

Department’s view, is the court’s 

approving discussion that the SEC has 

‘‘repeatedly held’’ that ‘‘[t]he very 

function of furnishing [investment 

advice for compensation]—learning the 

personal and intimate details of the 

financial affairs of clients and making 

recommendations as to purchases and 


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57 885 F.3d 360, 374 (5th Cir. 2018) (citing 

Hughes, Exchange Act Release No. 4048, 1948 WL 

29537, at *4, *7 (Feb. 18, 1948), aff’d sub nom., 

Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949) and 

Mason, Moran & Co., Exchange Act Release No. 

4832, 1953 WL 44092, at *4 (Apr. 23, 1953)). 

58 85 FR 40840 at n.40. 

59 Id. at 40840. 

60 Id. 

61 885 F.3d at 374 (discussing approvingly the 

Department’s Advisory Opinion 83–60 (Nov. 21 

1983) which provided that, ‘‘if, under the particular 

facts and circumstances, the services provided by 

the broker-dealer include the provision of 

‘investment advice’, as defined in regulation 

2510.3–21(c), it may be reasonably expected that, 

even in the absence of a distinct and identifiable fee 

for such advice, a portion of the commissions paid 

to the broker-dealer would represent compensation 

for the provision of such investment advice’’). 

62Executive Order 13891, 84 FR 55235 (Oct. 15, 

2019); Executive Order 13892, 84 FR 55238 (Oct. 

15, 2019). 

63See 85 FR 40840 (‘‘The Department requests 

comment on all aspects of this part of its 

proposal.’’). 

64See Presidential Memorandum on Fiduciary 

Duty Rule (Feb. 3, 2017), www.whitehouse.gov/ 

presidential-actions/presidential-memorandumfiduciary-duty-rule/. 

65The exemption includes a ‘‘bank or similar 

financial institution supervised by the United States 

or a state, or a savings association (as defined in 

section 3(b)(1) of the Federal Deposit Insurance Act 

(12 U.S.C. 1813(b)(1)).’’ The Department interprets 

this definition to extend to credit unions. 

sales of securities—cultivates a 

confidential and intimate 

relationship.’’ 57

The proposed exemption preamble 

included a discussion of some Financial 

Institutions paying unrelated parties to 

solicit clients for them in accordance 

with Rule 206(4)–3 under the 

Investment Advisers Act.58 The 

Department noted that advice by a paid 

solicitor to take a distribution from a 

Title I Plan and to roll over assets to an 

IRA could be part of ongoing advice to 

a Retirement Investor, if the Financial 

Institution that pays the solicitor 

provides ongoing fiduciary advice to the 

IRA owner. A commenter asserted that 

the interpretation appeared to confer 

fiduciary status on the solicitor in the 

absence of a relationship of trust or 

confidence, which would be 

impermissible under the Fifth Circuit’s 

opinion. The commenter further asked 

the Department to clarify whether the 

mere fact of an affiliation, such as 

between a broker-dealer and a registered 

investment adviser, would result in a 

recommendation by a broker-dealer 

being considered fiduciary investment 

advice if an ongoing relationship later 

developed with an affiliated registered 

investment adviser. 

The Department’s statement regarding 

paid solicitors was intended to ensure 

that Financial Institutions do not take 

the position that the actions of a party 

paid to solicit business for them would 

be considered distinct from any ongoing 

relationship that resulted. Although the 

Fifth Circuit’s Chamber opinion 

expressed agreement that investment 

advisers registered under the Investment 

Advisers Act may appropriately be 

considered fiduciaries under Title I and 

the Code, the opinion did not address 

the practice of paid solicitors. The 

Department confirms, however, that its 

statement about paid solicitors was not 

intended to suggest that a broker-dealer 

that makes an isolated recommendation 

would be considered a fiduciary if, 

entirely unrelated to the 

recommendation, an ongoing 

relationship developed with an 

affiliated investment adviser. 

Commenters likewise pointed to 

statements made in the proposed 

exemption preamble regarding the 

statutory requirement that, for fiduciary 

status to attach, advice must be 

provided ‘‘for a fee or other 

compensation, direct or indirect.’’ The 

preamble stated, ‘‘[i]n the rollover 

context, fees and compensation received 

from transactions involving rollover 

assets would be incident to the advice 

to take a distribution from the Plan and 

to roll over the assets to an IRA.’’ 59 This 

is consistent with the Department’s 

longstanding position that the statutory 

language covers ‘‘all fees or other 

compensation incident to the 

transaction in which the investment 

advice to the plan has been rendered or 

will be rendered.’’ 60

Commenters stated that the preamble 

interpretation is inconsistent with the 

statute because, in their view, the fee 

would be for completed sales, rather 

than for advice. Some commenters 

asserted that their view was supported 

by the Fifth Circuit’s Chamber opinion. 

The Fifth Circuit’s Chamber opinion, 

however, did not criticize the 

Department’s longstanding 

interpretation of this statutory 

requirement. The Fifth Circuit, in fact, 

indicated the interpretation is 

appropriate as applied to a party that 

has met the elements of the five-part 

test.61 The Department’s interpretation 

of the requirement of a ‘‘fee or 

compensation, direct or indirect’’ is 

consistent with the statutory language 

defining a fiduciary under Title I and 

the Code. Of course, this does not 

suggest that the Department intends to 

take the position that transactional 

compensation to an investment 

professional who does not meet the 

elements of the five-part test is a fee for 

advice. Rather, the Department 

recognizes that investment professionals 

may engage in non-fiduciary sales 

activity in which, as in many sales 

activities, recommendations are made to 

a customer. The Department’s 

interpretation respects the legitimate 

sales function of such a non-fiduciary 

investment professional. 

A few commenters additionally 

asserted that the Department’s preamble 

interpretation is inconsistent with 

Executive Orders 13891, Promoting the 

Rule of Law Through Improved Agency 

Guidance Documents, and 13892, 

Promoting the Rule of Law Through 

Transparency and Fairness in Civil 

Administrative Enforcement and 

Adjudication, which they described as 

requiring transparency and fairness, and 

as imposing notice and comment 

requirements, or new restrictions, on 

agencies when issuing guidance 

documents.62 Even assuming the 

preamble interpretation is guidance 

regulated by the Executive Orders, the 

proposed preamble statement provided 

notice of the interpretation and solicited 

public comments on it.63 Accordingly, 

the Department complied with the 

Executive Orders. 

A few commenters contended that the 

Department’s preamble interpretation is 

inconsistent with the characterization of 

the regulatory package as deregulatory. 

In the Department’s view, the 

exemption as a whole is deregulatory 

because it provides a broader and more 

flexible means under which investment 

advice fiduciaries to Plans and IRAs 

may receive compensation and engage 

in certain principal transactions that 

would otherwise be prohibited under 

Title I and the Code. Some commenters 

stated that the exemption effectively 

reinstates the 2016 fiduciary rule, and 

one asserted that the Department did so 

without addressing the President’s 

related concerns in his Memorandum on 

Fiduciary Duty Rule.64 As discussed 

above, the proposed exemption did not 

amend the 1975 regulation as the 2016 

fiduciary rule sought to undertake. In 

addition, unlike the 2016 fiduciary 

rulemaking, this project did not amend 

other, previously granted, prohibited 

transaction exemptions. 

Description of the Final Exemption 

Scope of Relief—Section I 

Financial Institutions 

The exemption is available to entities 

that satisfy the exemption’s definition of 

a ‘‘Financial Institution.’’ The 

exemption limits the types of entities 

that qualify as a Financial Institution to 

SEC- and state-registered investment 

advisers, broker-dealers, insurance 

companies, and banks.65 The definition 

is based on the entities identified in the 

statutory exemption for investment 

advice under ERISA section 408(b)(14) 


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Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 82811 

66ERISA section 408(g)(11)(A) and Code section 

4975(f)(8)(J)(i). 

67Some of the Department’s existing prohibited 

transaction exemptions would also apply to the 

transactions described in the next few paragraphs. 

68Regulation Best Interest Release, 84 FR 33319. 

69The SEC explained ‘‘key elements of the 

standard of conduct that applies to broker-dealers, 

at the time a recommendation is made, under 

Regulation Best Interest will be substantially similar 

to key elements of the standard of conduct that 

applies to investment advisers pursuant to their 

fiduciary duty under the Advisers Act.’’ Regulation 

Best Interest Release, 84 FR 33461. 

70The SEC explained that ‘‘[t]here are also key 

differences between Regulation Best Interest and 

the Advisers Act fiduciary standard that reflect the 

distinction between the services and relationships 

typically offered under the two business models. 

For example, an investment adviser’s fiduciary duty 

generally includes a duty to provide ongoing advice 

and monitoring, while Regulation Best Interest 

imposes no such duty and, instead, requires that a 

broker-dealer act in the retail customer’s best 

interest at the time a recommendation is made.’’ 

Regulation Best Interest Release, 84 FR 33321 

(emphasis in the original). 

71 84 FR 33319. 

72As noted above, fiduciaries who use their 

authority to cause themselves or their affiliates or 

related entities to receive additional compensation 

violate the prohibited transaction provisions unless 

an exemption applies. 29 CFR 2550.408b–2(e)(1). 

73As discussed above, the Department has long 

interpreted the requirement of a fee to cover ‘‘all 

fees or other compensation incident to the 

transaction in which the investment advice to the 

plan has been rendered or will be rendered.’’ 

Preamble to the Department’s 1975 Regulation, 40 

FR 50842 (October 31, 1975). 

and Code section 4975(d)(17), which are 

subject to well-established regulatory 

conditions and oversight 66 and have 

been deemed able to prudently mitigate 

certain conflicts of interest in their 

investment advice through adherence to 

tailored principles under the statutory 

exemption. The Department takes a 

similar approach here, and, therefore, is 

including the same group of entities. To 

fit within the definition of Financial 

Institution, the firm must not have been 

disqualified or barred from making 

investment recommendations by any 

insurance, banking, or securities law or 

regulatory authority (including any selfregulatory organization). 

The Department recognized in the 

proposed exemption that different types 

of Financial Institutions have different 

business models, and the exemption is 

drafted to apply flexibly to these 

institutions.67 Following is a discussion 

of the different types of Financial 

Institutions and comments received in 

connection with the definition. 

Broker-Dealers 

Broker-dealers provide a range of 

services to Retirement Investors, ranging 

from executing one-time transactions to 

providing personalized investment 

recommendations, and they may be 

compensated on a transactional basis 

such as through commissions.68 If 

broker-dealers that are investment 

advice fiduciaries with respect to 

Retirement Investors provide 

investment advice that affects the 

amount of their compensation, they 

must rely on an exemption. 

One commenter argued that brokerdealers should not be able to rely on the 

exemption because they are not 

fiduciaries under the securities laws. 

The fiduciary definition in Title I and 

the Code does not turn, however, on 

whether parties are characterized as 

fiduciaries under the securities laws, 

but rather on whether the persons 

rendering advice meet the conditions of 

the functional test of fiduciary status as 

set forth in the Department’s regulation. 

Moreover, the best interest standard 

applicable to broker-dealers under 

Regulation Best Interest is rooted in 

fiduciary principles.69

As discussed by the SEC, under the 

securities laws, a key difference 

between broker-dealers and investment 

advisers is that investment advisers 

typically have a duty to monitor their 

customers’ investments, whereas brokerdealers may more readily limit the 

scope of their obligations to the specific 

transactions recommended.70 Under 

Title I and the Code, investment advice 

fiduciaries are not necessarily obligated 

to assume a duty to monitor, absent an 

agreement, arrangement or 

understanding with their investor client 

to the contrary. The Department’s 

exemption places the transaction-based 

advice model on an even playing field 

with the investment adviser model, and 

applies fiduciary standards in both 

contexts that are generally consistent 

with the standards imposed by the SEC. 

In this manner, the exemption avoids 

undue expense and generally aligns its 

requirements with SEC requirements. 

Moreover, Congress included brokerdealers and registered investment 

advisers in the statutory advice 

exemption in ERISA section 408(b)(14) 

and Code section 4975(d)(17), according 

to the same set of conditions. 

Registered Investment Advisers 

Registered investment advisers 

generally provide ongoing investment 

advice and services and are commonly 

paid either an assets under management 

fee or a fixed fee.71 If a registered 

investment adviser is an investment 

advice fiduciary that charges only a 

level fee that does not vary on the basis 

of the investment advice provided, the 

registered investment adviser may not 

violate the prohibited transaction 

rules.72 However, if the registered 

investment adviser provides investment 

advice that causes itself to receive the 

level fee, such as through advice to roll 

over Plan assets to an IRA, the fee 

(including an ongoing management fee 

paid with respect to the IRA) is 

prohibited under Title I and the Code.73

Additionally, if a registered investment 

adviser that is an investment advice 

fiduciary is dually-registered as a 

broker-dealer, the registered investment 

adviser may engage in a prohibited 

transaction if it recommends a 

transaction that increases the firm’s 

compensation, such as for execution of 

securities transactions in its brokerage 

capacity. Of course, as discussed above, 

rollover recommendations or assistance 

with a rollover do not constitute 

fiduciary investment advice if the fivepart test, including the regular basis 

prong, is not satisfied. 

Commenters sought clarification of 

the exemption’s coverage of certain 

transactions particularly relevant to 

registered investment advisers. The 

commenters inquired about reliance on 

the exemption solely for a rollover 

recommendation, under circumstances 

in which the advice arrangement after 

the rollover does not involve prohibited 

transactions (e.g., the compensation 

arrangement involves only a level fee 

that does not vary on the basis of the 

investment transactions) or is not 

eligible for relief because it is 

discretionary. The Department confirms 

that the exemption is available for 

fiduciary investment advice regarding 

rollover transactions, even in situations 

where the exemption is not available (or 

needed) either before or after the 

rollover transaction. The commenter 

also inquired as to whether a financial 

services provider that serves as a 

discretionary investment manager to a 

Plan pursuant to ERISA section 3(38), a 

transaction that is not covered by the 

exemption, can rely on the exemption to 

provide fiduciary investment advice to 

the Plan’s participants and beneficiaries 

on distribution options. The Department 

confirms that the exemption is available 

in that circumstance as well. 

Insurance Companies 

Insurance companies commonly 

compensate insurance agents on a 

commission basis, which generally 

creates prohibited transactions when 

insurance agents are investment advice 

fiduciaries that provide investment 

advice to Retirement Investors in 

connection with the sales. The 

Department is aware that insurance 

companies often sell insurance products 

and fixed (including indexed) annuities 

through different distribution channels 


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82812 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

74Class Exemption for Certain Transactions 

Involving Insurance Agents and Brokers, Pension 

Consultants, Insurance Companies, Investment 

Companies and Investment Company Principal 

Underwriters, 49 FR 13208 (Apr. 3, 1984), as 

corrected, 49 FR 24819 (June 15, 1984), as amended, 

71 FR 5887 (Feb. 3, 2006). 

75Cf. NAIC Model Regulation Section 6.C.(2)(d) 

(‘‘The insurer shall establish and maintain 

procedures for the review of each recommendation 

prior to issuance of an annuity that are designed to 

ensure that there is a reasonable basis to determine 

that the recommended annuity would effectively 

address the particular consumer’s financial 

situation, insurance needs and financial objectives. 

Such review procedures may apply a screening 

system for the purpose of identifying selected 

transactions for additional review and may be 

accomplished electronically or through other means 

including, but not limited to, physical review. Such 

an electronic or other system may be designed to 

require additional review only of those transactions 

identified for additional review by the selection 

criteria’’); and (e) (‘‘The insurer shall establish and 

maintain reasonable procedures to detect 

recommendations that are not in compliance with 

subsections A, B, D and E. This may include, but 

is not limited to, confirmation of the consumer’s 

consumer profile information, systematic customer 

surveys, producer and consumer interviews, 

confirmation letters, producer statements or 

attestations and programs of internal monitoring. 

Nothing in this subparagraph prevents an insurer 

from complying with this subparagraph by applying 

sampling procedures, or by confirming the 

consumer profile information or other required 

information under this section after issuance or 

delivery of the annuity’’),. The prior version of the 

model regulation, which was adopted in some form 

by a number of states, also included similar 

provisions requiring systems to supervise 

recommendations. See Annuity Suitability (A) 

Working Group Exposure Draft, Adopted by the 

Committee Dec. 30, 2019, available at 

www.naic.org/documents/committees_mo275.pdf. 

(comparing 2020 version with prior version). 

76Cf. id., Section 6.C.(4) (‘‘An insurer is not 

required to include in its system of supervision: (a) 

A producer’s recommendations to consumers of 

products other than the annuities offered by the 

insurer’’). 

77NAIC Model Regulation Section 6.C.(4)(B). 

78 Id., Section 1.A. The Department also notes that 

the prior version of the Model Regulation, which 

was adopted in some form by a number of states, 

contains a similar statement. (‘‘The purpose of this 

regulation is to require insurers to establish a 

system to supervise recommendations and to set 

forth standards and procedures for 

recommendations to consumers that result in 

transactions involving annuity products so that the 

insurance needs and financial objectives of 

consumers at the time of the transaction are 

appropriately addressed.’’) 

than broker-dealers and registered 

investment advisers. While some 

insurance agents are employees of an 

insurance company, other insurance 

agents are independent, and work with 

multiple insurance companies. The final 

exemption applies to all of these 

business models. 

In the proposal, the Department 

suggested insurance companies would 

have several options for compliance. 

The proposal stated that insurance 

companies could comply with the new 

exemption by overseeing independent 

insurance agents; they could comply 

with the new exemption by creating 

oversight and compliance systems 

through contracts with insurance 

intermediaries such as independent 

marketing organizations (IMOs), field 

marketing organizations (FMOs) or 

brokerage general agencies (BGAs); or 

they could rely on the existing class 

exemption for insurance transactions, 

PTE 84–24,74 as an alternative. Further, 

the Department sought comment on 

whether the exemption should include 

insurance intermediaries as Financial 

Institutions for the recommendation of 

fixed (including indexed) annuity 

contracts, and if so, how the insurance 

intermediaries should be defined and 

whether additional protective 

conditions might be necessary with 

respect to the intermediaries. Discussion 

of comments on these aspects of the 

proposal follow. 

Direct Oversight 

In the proposal, the Department stated 

that insurance companies could 

supervise independent insurance agent 

Investment Professionals who provide 

investment advice on their products. To 

comply with the exemption, the 

Department stated that an insurance 

company could adopt and implement 

supervisory and review mechanisms 

and avoid improper incentives that 

preferentially push the products, riders, 

and annuity features that might 

incentivize Investment Professionals to 

provide investment advice to 

Retirement Investors that does not meet 

the Impartial Conduct Standards. 

Insurance companies could implement 

procedures to review annuity sales to 

Retirement Investors to ensure that they 

were made in satisfaction of the 

Impartial Conduct Standards, much as 

they may already be required to review 

annuity sales to ensure compliance with 

state-law suitability requirements.75 The 

Department stated in the proposal that 

insurance company Financial 

Institutions would be responsible only 

for an Investment Professional’s 

recommendation and sale of products 

offered to Retirement Investors by the 

insurance company in conjunction with 

fiduciary investment advice, and not 

unrelated and unaffiliated insurers.76

A few commenters took the position 

in response to the proposal that 

insurance companies are not set up in 

such a manner as to be able to act as 

Financial Institutions with respect to 

independent insurance agents, which 

they said would ultimately put 

insurance companies and insurance 

products at a competitive disadvantage. 

Commenters asserted that insurance 

companies do not have insight into or 

control over independent agents’ 

business and/or behavior and do not 

consent to or authorize their activities. 

While several commenters 

acknowledged that the proposal was 

consistent with the NAIC Model 

Regulation in providing that an 

insurance company Financial 

Institution would be responsible only 

for recommendations with respect to its 

own products, they argued that the 

proposed exemption deviated from the 

NAIC’s approach in failing to also state 

that insurers do not have to include in 

their supervisory systems 

‘‘consideration of or comparison to 

options available to the producer or 

compensation relating to those options 

other than annuities or other products 

offered by the insurer.’’ 77

In response, the Department notes 

that the NAIC Model Regulation 

contemplates that insurance companies 

will maintain a system of oversight with 

respect to insurance agents. Section I 

provides that the purpose of the Model 

Regulation is to ‘‘require producers, as 

defined in this regulation, to act in the 

best interest of the consumer when 

making a recommendation of an annuity 

and to require insurers to establish and 

maintain a system to supervise 

recommendations so that the insurance 

needs and financial objectives of 

consumers at the time of the transaction 

are effectively addressed.’’ 78

Accordingly, the Department believes 

that a system of oversight by insurance 

companies over independent insurance 

agents is achievable. 

In terms of the specific oversight 

requirements, the Department reiterates 

the statement in the proposal that the 

exemption requires insurance company 

Financial Institutions to be responsible 

only for an Investment Professional’s 

recommendation and sale of products 

offered to Retirement Investors by the 

insurance company in conjunction with 

fiduciary investment advice, and not an 

unrelated and unaffiliated insurer. The 

Department also clarifies, in response to 

commenters, that the exemption does 

not require consideration of or 

comparison to specific options available 

to an independent insurance agent or 

compensation relating to those options, 

other than annuities or other products 

offered by the insurer. The Department’s 

approach is consistent with the 

approach of the NAIC Model Regulation 

in this regard as well. However, the 

Department does not intend to suggest 

that insurance company Financial 

Institutions have no obligation to 

evaluate the financial inducements they 

offer to independent agents to ensure 

that the exemption’s standards are 


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79See supra n. 75. 

80NAIC Model Regulation, Section 6.C.(3)(a). 

satisfied. As discussed above, Financial 

Institutions can implement procedures 

to review annuity sales to Retirement 

Investors under fiduciary investment 

advice arrangements to ensure that they 

were made in satisfaction of the 

Impartial Conduct Standards, much as 

they may already be required to review 

annuity sales to ensure compliance with 

state-law suitability requirements.79

Insurance Intermediaries 

In the proposal, the Department stated 

that insurance companies could create a 

system of oversight and compliance by 

contracting with an insurance 

intermediary or other entity to 

implement policies and procedures 

designed to ensure that all of the agents 

associated with the intermediary adhere 

to the conditions of this exemption. 

Thus, for example, as one possible 

approach, the preamble stated that an 

insurance intermediary could eliminate 

compensation incentives across all the 

insurance companies that work with the 

insurance intermediary, assisting each 

of the insurance companies with their 

independent obligations under the 

exemption. This might involve the 

insurance intermediary’s review of 

documentation prepared by insurance 

agents to comply with the exemption, as 

may be required by the insurance 

company, or the use of third-party 

industry comparisons available in the 

marketplace to help independent 

insurance agents recommend products 

that are prudent for the Retirement 

Investors they advise. 

This type of arrangement is also 

contemplated by the NAIC Model 

Regulation, which provides that an 

insurer is not restricted from contracting 

for performance of supervisory review 

functions.80 Also, insurance 

intermediaries can receive payment for 

these services; to the extent they are 

‘‘affiliates’’ or ‘‘related entities’’ of the 

Financial Institution or Investment 

Professional, the exemption extends to 

their receipt of compensation so long as 

the conditions of the exemption are 

satisfied. 

One commenter that is an IMO 

supported the suggestion in the 

preamble that insurance intermediaries 

could serve this function. The 

commenter stated that it currently 

works with insurance companies to 

ensure that their policies and 

procedures are carried out by 

independent agents. The commenter 

took the position that it is positioned to 

work directly with insurance companies 

to ensure that the proper oversight and 

compliance systems are in place to 

comply with the exemption. 

PTE 84–24 

To the extent that insurance 

companies determine that the 

supervisory requirements of this 

exemption are not well-suited to their 

business models, it is important to note 

that insurance and annuity products can 

also continue to be recommended and 

sold under the existing exemption for 

insurance transactions, PTE 84–24. 

Unlike in the Department’s 2016 

fiduciary rulemaking, PTE 84–24 is not 

being amended in connection with the 

current proposed exemption. 

PTE 84–24 provides prohibited 

transaction relief for the ‘‘receipt, 

directly or indirectly, by an insurance 

agent or broker . . . of a sales 

commission from an insurance company 

in connection with the purchase, with 

plan assets, of an insurance or annuity 

contract.’’ The agent or broker must 

generally disclose its sales commission 

and receive written approval of the 

transaction from an independent 

fiduciary. 

A commenter expressed concern that 

the Department’s disavowal of the 

Deseret Letter would result in a 

requirement to provide the disclosures 

required by PTE 84–24 to a plan 

fiduciary, rather than the IRA owner, in 

the case of a rollover recommendation. 

The Department confirms that when a 

transaction under PTE 84–24 involves 

an IRA, the disclosure can be provided 

to the IRA owner. Further, to avoid 

uncertainty, the Department also 

confirms that an insurance intermediary 

can receive a part of the commission 

payment that is permitted under PTE 

84–24, provided the conditions of the 

exemption are satisfied. 

Insurance Intermediaries as Financial 

Institutions 

The Department also sought comment 

in the proposal as to whether the 

exemption’s definition of Financial 

Institution should be expanded to 

include insurance intermediaries. Under 

that approach, the insurance 

intermediary would implement the 

conditions of the exemption applicable 

to Financial Institutions, and insurance 

companies would not have to do so. 

Several commenters supported the 

addition of insurance intermediaries as 

Financial Institutions, in connection 

with their contention that insurance 

companies are not in a position to exert 

oversight over independent insurance 

agents because the independent agents 

sell products of other insurance 

companies as well. A few commenters 

stated that the insurance intermediaries 

are in a position to do so because of 

their proximity to and expertise working 

with independent insurance agents. The 

commenters stated that insurance 

intermediaries have greater insight into 

and control over the actions of 

independent insurance agents than 

insurance companies. Further, the 

commenters emphasized that insurance 

intermediaries are regulated by the 

states as insurance agencies, and they 

have sufficient resources and staff to act 

as Financial Institutions. These 

commenters also asserted insurance 

intermediaries’ similarity to the 

registered investment adviser business 

model and stated that a failure to 

include insurance intermediaries as 

Financial Institutions would result in a 

competitive disadvantage for insurance 

intermediaries and potentially less 

choice for Retirement Investors. 

Other commenters, however, 

indicated that insurance intermediaries 

are not in a position to oversee 

independent insurance agents because it 

is common for independent insurance 

agents to work with multiple 

intermediaries, raising issues as to 

whether multiple intermediaries would 

have to oversee the same independent 

agent. One commenter also indicated 

that independent agents have contracts 

or arrangements directly with the 

insurance company; by contrast, there is 

no contract or implied contract between 

insurance intermediaries and 

independent insurance agents, and 

insurance intermediaries do not direct 

the independent insurance agents’ 

recommendations to Retirement 

Investors. A few commenters asserted 

that unlike the other entities included in 

the definition of a Financial Institution, 

insurance intermediaries do not have a 

regulator that sets standards regarding 

oversight and supervisory policies and 

procedures. One commenter asserted 

that the exemption would need to 

include conditions addressing the 

Department’s oversight of insurance 

intermediaries if they were included in 

the definition of a Financial Institution. 

Another commenter urged the 

Department to work closely with 

insurance intermediaries before 

including them as Financial 

Institutions, so as to avoid imposing 

conditions that are impractical or 

burdensome. 

Based on the record before it, the 

Department has concluded that it 

should not expand the scope of the 

definition of Financial Institution to 

insurance intermediaries, such as IMOs, 

FMOs, or BGAs. These entities do not 

have supervisory obligations over 

independent insurance agents under 

state or federal law that are comparable 


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82814 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

81Citing 12 CFR part 9 (fiduciary activities of 

banks). 

to those of the other entities, such as 

insurance companies, banks, and 

broker-dealers, or a history of exercising 

such supervision in practice. They are 

generally described as wholesaling and 

marketing and support organizations, 

but not tasked with ensuring 

compliance with regulatory standards. 

In addition, they are not subject to the 

sort of capital and solvency 

requirements imposed on stateregulated insurance companies and 

banks. 

Commenters also did not provide 

specific suggestions for how to define 

the insurance intermediaries that could 

be Financial Institutions. One 

commenter suggested that Financial 

Institution status and its attendant 

compliance responsibilities should be 

placed on the intermediary that is 

closest to the Retirement Investor and 

the Investment Professional advising 

that investor. However, this suggestion 

does not alleviate the operational issues 

that would exist when an independent 

agent works with or through more than 

one intermediary. Commenters also did 

not offer suggestions as to substantive 

conditions that should be included to 

make up for the lack of regulatory 

oversight. The considerations above 

may not be insuperable obstacles to 

treating insurance intermediaries as 

Financial Institutions under the terms of 

a future exemption that is based on an 

appropriate record focused on such 

support organizations. The Department 

anticipates that any such exemption 

would specifically focus on the unique 

attributes, strengths, and weaknesses of 

these entities, and on any special 

conditions that would be necessary to 

ensure they are able to act in the 

necessary supervisory capacity as 

Financial Institutions. 

The Department also has maintained 

the provision in this exemption under 

which the definition of a Financial 

Institution can expand based upon 

subsequently granting individual 

exemptions to additional entities that 

are investment advice fiduciaries that 

meet the five-part test and are seeking 

to be treated as covered Financial 

Institutions. Thus, additional types of 

entities, such as IMOs, FMOs, or BGAs 

may separately apply for prohibited 

transaction relief to receive 

compensation in connection with the 

provision of investment advice, 

according to the same conditions that 

apply to the Financial Institutions 

covered by this exemption. If the 

Department grants to such an entity an 

individual exemption under ERISA 

section 408(a) and Code section 

4975(c)(2) after the date this exemption 

is granted, the expanded definition of 

Financial Institution in the individual 

exemption would be added to this class 

exemption so other entities that satisfy 

the definition could similarly use this 

class exemption. 

The Department acknowledges that 

some commenters felt this approach 

would put insurance intermediaries at a 

disadvantage as compared to other 

Financial Institutions. As discussed 

above, however, there is cause for 

concern about including insurance 

intermediaries in the final exemption on 

the same footing as the types of entities 

included in the Financial Institution 

definition. On the record before it, the 

Department has concluded that the 

better course of action is to invite any 

insurance intermediaries to apply for a 

separate exemption as part of a public 

notice and comment process that can 

specifically focus on their unique 

attributes, so that the Department can 

determine whether and how to grant 

exemptive relief, subject to appropriate 

definitional and protective conditions. 

Banks 

Banks and similar institutions are 

permitted to act as Financial Institutions 

under the exemption if they or their 

employees are investment advice 

fiduciaries with respect to Retirement 

Investors. The Department sought 

comment on whether banks and their 

employees provide investment advice to 

Retirement Investors, and if so, whether 

the proposal needed adjustment to 

address any unique aspects of their 

business models. 

A trade association representing 

banks submitted a comment that 

described a wide variety of interactions 

with banking customers, including IRA 

investment programs and bank 

networking arrangements and referral 

programs. The commenter stated that 

banks that render investment advice are 

fully subject to applicable federal and 

state banking laws governing fiduciary 

status and activities.81 The commenter 

expressed support for the exemption, so 

long as certain suggested changes were 

adopted to conform to banks’ distinct 

business model, particularly with 

respect to the retrospective review and 

the recordkeeping provision. The 

Department’s responses to these 

comments on the exemption are 

discussed below in the sections on the 

retrospective review and recordkeeping 

provision. 

Affiliates and Related Entities 

One commenter stated that the 

exemption text should include a 

definition of ‘‘affiliate’’ and ‘‘related 

entity.’’ The Department has added the 

definitions that previously appeared in 

the preamble of the proposed 

exemption, in Section V(a) and (j), 

respectively, of the final exemption text. 

An affiliate is defined as (1) any 

person directly or indirectly through 

one or more intermediaries, controlling, 

controlled by, or under common control 

with the Investment Professional or 

Financial Institution (for this purpose, 

‘‘control’’ means the power to exercise 

a controlling influence over the 

management or policies of a person 

other than an individual); (2) any 

officer, director, partner, employee, or 

relative (as defined in ERISA section 

3(15)), of the Investment Professional or 

Financial Institution; and (3) any 

corporation or partnership of which the 

Investment Professional or Financial 

Institution is an officer, director, or 

partner. A related entity is defined as an 

entity that is not an affiliate, but in 

which the Investment Professional or 

Financial Institution has an interest that 

may affect the exercise of its best 

judgment as a fiduciary. 

Another commenter stated that the 

Department should add foreign affiliates 

of banks, broker-dealers, insurance 

companies, and registered investment 

advisers to the entities covered by the 

exemption, given the increasingly global 

nature of retirement services. The 

proposed exemption indicated that 

relief would be available to affiliates 

and related entities of a Financial 

Institution and Investment Professional, 

if the Financial Institution and 

Investment Professional satisfied the 

exemption’s conditions. The 

Department did not exclude foreign 

affiliates in the proposal, and confirms 

that they are not excluded in the 

exemption, as finalized. 

Other Entities—Recordkeepers and HSA 

Providers 

One commenter requested that 

recordkeepers be included as Financial 

Institutions. To the extent that an entity 

hired to act as a recordkeeper to a Plan 

or an IRA falls within the list of defined 

Financial Institutions, it may rely upon 

the exemption. However, the 

Department declines to add a general 

category for recordkeepers to the 

definition. The Department does not 

believe a recordkeeper that is not also a 

bank, broker-dealer, insurance 

company, or registered investment 

adviser would have the requisite 

regulatory oversight to necessarily act as 

a Financial Institution. However, such 

parties can seek an individual 

exemption from the Department, as 


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82The exemption does not include relief from 

ERISA section 406(a)(1)(C) and Code section 

4975(c)(1)(C) for the furnishing of goods, services, 

or facilities between a Plan/IRA and a party in 

interest/disqualified person. The statutory 

exemptions in ERISA section 408(b)(2) and Code 

section 4975(d)(2) provide this necessary relief for 

Plan or IRA service providers, subject to the 

applicable conditions and accompanying 

regulations. 

provided in the definition of a Financial 

Institution in Section V(e). 

One commenter addressed health 

savings accounts (HSAs), indicating that 

the exemption should apply to advice to 

individuals with HSAs. The commenter 

did not indicate whether the definition 

of Financial Institution needed to be 

expanded to facilitate advice regarding 

HSAs. The exemption, as proposed and 

finalized, defines an IRA as ‘‘any 

account or annuity described in Code 

section 4975(e)(1)(B) through (F)’’ which 

includes a ‘‘health savings account 

described in [Code] section 223(d).’’ 

Therefore, advice may be provided to 

individuals with HSAs, subject to the 

conditions of the exemption. 

Investment Professionals 

As defined in the proposal, an 

Investment Professional is an individual 

who is a fiduciary of a Plan or an IRA 

by reason of the provision of investment 

advice, who is an employee, 

independent contractor, agent, or 

representative of a Financial Institution, 

and who satisfies the federal and state 

regulatory and licensing requirements of 

insurance, banking, and securities laws 

(including self-regulatory organizations) 

with respect to the covered transaction, 

as applicable. Similar to the definition 

of Financial Institution, this definition 

also includes a requirement that the 

Investment Professional has not been 

disqualified from making investment 

recommendations by any insurance, 

banking, or securities law or regulatory 

authority (including any self-regulatory 

organization). 

One commenter suggested that the 

exemption should require investment 

professionals to be certified by an 

accredited organization or state agency 

in financial planning issues. The 

Department has not adopted this 

suggestion because it does not have 

sufficient information in the record on 

this type of certification to incorporate 

it as a condition. 

Another commenter asked the 

Department to confirm that insurance 

agents unaffiliated with a broker-dealer 

or registered investment adviser are 

investment advice fiduciaries when 

providing investment advice to 

Retirement Investors through the sale of 

insurance products and fixed (including 

indexed) annuities, and are subject to 

the requirements under the exemption. 

The Department confirms that an 

insurance agent that meets the elements 

of the five-part test and receives a fee or 

other compensation, direct or indirect, 

with respect to a particular transaction, 

is a fiduciary with respect to that 

transaction. Under those circumstances, 

the insurance agent must avoid 

prohibited transactions or comply with 

a prohibited transaction exemption. 

Retirement Investors and Plans 

The exemption provides relief for 

specified Covered Transactions when 

Financial Institutions and Investment 

Professionals provide investment advice 

to Retirement Investors. A Retirement 

Investor is defined as (1) a participant 

or beneficiary of a Plan with authority 

to direct the investment of assets in his 

or her account or to take a distribution, 

(2) the beneficial owner of an IRA acting 

on behalf of the IRA, or (3) a fiduciary 

of a Plan or an IRA. A Plan for purposes 

of the exemption is defined as any 

employee benefit plan described in 

ERISA section 3(3) and any plan 

described in Code section 4975(e)(1)(A). 

An IRA is defined as any plan that is an 

account or annuity described in the 

other parts of section 4975(e)(1): 

Paragraphs 4975(e)(1)(B) through (F). 

A few commenters questioned the 

meaning of Retirement Investor with 

respect to the definition’s use of the 

word Plan. One commenter requested 

clarification that the use of the term 

Plan with respect to a Retirement 

Investor, in fact, included Title I welfare 

benefit plans despite the use of the word 

‘‘retirement.’’ Two other commenters 

requested that the definition of Plan 

specifically exclude Title I welfare 

benefit plans that do not include an 

investment component, such as health 

insurance plans, disability insurance 

plans, and term life insurance plans. 

While the exemption uses the term 

Retirement Investor throughout the 

exemption, the use of the term was not 

intended to exclude investment advice 

provided to Title I welfare benefit plans. 

In fact, the exemption’s definition of 

Plan states that it is defined, in part, by 

reference to ERISA section 3(3), which 

explicitly includes Title I welfare 

benefit plans. 

With respect to the request to exclude 

Plans that do not contain an investment 

component, the Department responds 

that the exemption is only necessary 

and available to fiduciaries who provide 

investment advice as described in the 

five-part test. If there is no fiduciary 

investment advice, the exemption 

would not be applicable or needed. In 

light of this limitation, the Department 

does not believe any further amendment 

to the definition of a Plan is necessary. 

Covered Transactions 

The exemption permits Financial 

Institutions and Investment 

Professionals, and their affiliates and 

related entities, to receive reasonable 

compensation as a result of providing 

fiduciary investment advice. The 

exemption specifically covers 

compensation received as a result of 

investment advice to roll over assets 

from a Plan to an IRA. The exemption 

also provides relief for a Financial 

Institution to engage in the purchase or 

sale of an asset in a riskless principal 

transaction or a Covered Principal 

Transaction, and receive a mark-up, 

mark-down, or other payment. The 

exemption provides relief from ERISA 

section 406(a)(1)(A) and (D) and 406(b) 

and Code section 4975(c)(1)(A), (D), (E), 

and (F).82

Section I(b)(1) of the exemption 

provides broad relief for Financial 

Institutions and Investment 

Professionals that are investment advice 

fiduciaries to receive all types of 

compensation as a result of their 

investment advice to Retirement 

Investors, so long as the compensation 

is reasonable. For example, it covers 

compensation received as a result of 

investment advice to acquire, hold, 

dispose of, or exchange securities and 

other investments. It also covers 

compensation received as a result of 

investment advice to take a distribution 

from a Plan or to roll over the assets to 

an IRA, or from investment advice 

regarding other similar transactions 

including (but not limited to) rollovers 

from one Plan to another Plan, one IRA 

to another IRA, or from one type of 

account to another account (e.g., from a 

commission-based account to a feebased account), all limited to the extent 

such rollovers are permitted under 

applicable law. 

Section I(b)(2) addresses the 

circumstance in which the Financial 

Institution may, in addition to providing 

investment advice, engage in a purchase 

or sale of an investment with a 

Retirement Investor and receive a markup or a mark-down or similar payment 

on the transaction. The exemption 

extends to both riskless principal 

transactions and Covered Principal 

Transactions. A riskless principal 

transaction is a transaction in which a 

Financial Institution, after having 

received an order from a Retirement 

Investor to buy or sell an investment 

product, purchases or sells the same 

investment product for the Financial 

Institution’s own account to offset the 

contemporaneous transaction with the 

Retirement Investor. Covered Principal 


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Transactions are defined in the 

exemption as principal transactions 

involving certain specified types of 

investments, discussed in more detail 

below. Principal transactions that are 

not riskless and that do not fall within 

the definition of Covered Principal 

Transaction are not covered by the 

exemption. 

General Comments on the Covered 

Transactions 

Several commenters expressed 

concern about the scope of the 

exemption extending to the receipt of 

payments from third parties, such as 

12b–1 fees and revenue sharing. One 

commenter also objected to relief for 

sales loads. The commenter opined that 

the market itself is moving away from 

these types of fees and expenses and 

numerous court decisions indicate that 

a Plan’s payment of such fees may be a 

violation of the duty of prudence. 

Another commenter likened this type of 

payment as akin to doctors taking 

kickbacks from pharmaceutical 

companies. Another commenter stated 

that the exemption should not provide 

relief for principal transactions and 

proprietary products. 

The Department believes that the 

flexibility provided under the 

exemption ensures that the various 

business models used by different 

Financial Institutions are 

accommodated under the exemption to 

ensure Retirement Investors have full 

access to their preferred advice provider 

and method of paying for advice. The 

conditions of the exemption are 

designed to ensure that Financial 

Institutions assess all sources of fees 

and revenue to identify and mitigate 

conflicts of interest that they create, and 

ultimately receive no more than 

reasonable compensation in connection 

with investment advice transactions. 

These conditions are designed to ensure 

that Financial Institutions and 

Investment Professionals act in the best 

interest of Retirement Investors, even if 

some sources of compensation come 

from 12b–1 fees, revenue sharing, sales 

loads, principal transactions, or 

proprietary products. The Department 

continues to believe that this principlesbased approach provides flexibility to 

Financial Institutions while ensuring all 

advice is in the best interest of 

Retirement Investors, compensation is 

limited to reasonable compensation, and 

Investment Professionals do not 

subordinate the Retirement Investors’ 

interest to their own. 

Another commenter asked the 

Department to expand the scope of relief 

in the exemption to ERISA section 

406(a)(1)(B) and Code section 

4975(c)(1)(B) for extensions of credit, in 

order to cover items such as overdraft 

protection, receipt of float, error 

corrections, settlement 

accommodations, short sales and other 

margin transactions, and paying fees in 

advance. 

The Department has not expanded the 

exemption as requested by the 

commenter. The commenter did not 

provide information on these 

transactions and how the exemption 

conditions would protect the interests of 

Retirement Investors engaging in the 

transactions. An existing exemption, 

PTE 75–1, Part V, provides relief for an 

extension of credit by a broker-dealer in 

connection with the purchase or sale of 

securities; however, the exemption does 

not extend to the receipt of 

compensation for the extension of credit 

if the broker-dealer renders fiduciary 

investment advice with respect to the 

transaction. This does not foreclose the 

Department, however, from considering 

expanding the relief in PTE 75–1, Part 

V, based upon a separate request for 

exemptive relief. 

Principal Transactions 

Principal transactions involve the 

purchase from, or sale to, a Plan or an 

IRA, of an investment, on behalf of the 

Financial Institution’s own account or 

the account of a person directly or 

indirectly, through one or more 

intermediaries, controlling, controlled 

by, or under common control with the 

Financial Institution. Because an 

investment advice fiduciary engaging in 

a principal transaction is on both sides 

of the transaction, the firm has a clear 

and direct conflict of interest. In 

addition, the securities typically traded 

in principal transactions often lack pretrade price transparency and Retirement 

Investors may, therefore, have difficulty 

in prospectively evaluating the fairness 

of a particular principal transaction. 

These investments also can be 

associated with low liquidity, low 

transparency, and the possible incentive 

to sell unwanted investments held by 

the Financial Institution. 

Consistent with the Department’s 

historical approach to prohibited 

transaction exemptions for fiduciaries, 

this exemption includes relief for 

principal transactions that is limited in 

scope and subject to additional 

conditions, as set forth in the definition 

of Covered Principal Transaction, 

described below. Importantly, certain 

transactions are not considered 

principal transactions for purposes of 

the exemption, and so can occur under 

the more general conditions. This 

includes the sale of an insurance or 

annuity contract, or a mutual fund 

transaction. 

Principal transactions that are 

‘‘riskless principal transactions’’ are 

covered under the exemption as well, 

subject to the general conditions. A 

riskless principal transaction is a 

transaction in which a Financial 

Institution, after having received an 

order from a Retirement Investor to buy 

or sell an investment product, purchases 

or sells the same investment product in 

a contemporaneous transaction for the 

Financial Institution’s own account to 

offset the transaction with the 

Retirement Investor. 

Limited Definition of ‘‘Covered 

Principal Transaction’’ 

The exemption uses the defined term 

Covered Principal Transaction to 

describe the types of non-riskless 

principal transactions that are covered 

under the exemption. For purchases 

from a Plan or an IRA, the term is 

broadly defined to include any security 

or other investment property. This is to 

reflect the possibility that a principal 

transaction will be needed to provide 

liquidity to a Retirement Investor. 

However, for sales to a Plan or an IRA, 

the exemption provides more limited 

relief. For sales, the definition of 

Covered Principal Transaction is limited 

to transactions involving: U.S. dollar 

denominated corporate debt securities 

offered pursuant to a registration 

statement under the Securities Act of 

1933, U.S. Treasury securities, debt 

securities issued or guaranteed by a U.S. 

federal government agency other than 

the U.S. Department of Treasury, debt 

securities issued or guaranteed by a 

government-sponsored enterprise (GSE), 

municipal securities, certificates of 

deposit, and interests in Unit 

Investment Trusts. In response to one 

commenter’s specific question as to 

whether the term ‘‘certificates of 

deposit’’ includes brokered certificates 

of deposit, the Department clarifies that 

the use of the term ‘‘certificates of 

deposit’’ includes brokered certificates 

of deposit that are sold in principal 

transactions. 

With respect to the definition of 

Covered Principal Transaction, some 

commenters wrote that there should not 

be a limit on the types of investments 

that can be sold by Financial 

Institutions to Retirement Investors, 

including one commenter who stated 

that the Department should eliminate or 

adjust exemption conditions that would 

limit Retirement Investors’ access to full 

service brokerage accounts, including 

access to principal markets. They 

argued that some products would 

generally only be available through a 


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83See ERISA section 408(a) and Code section 

4975(c)(2). 

principal transaction, and that the 

Department should not substitute its 

judgment for a fiduciary acting in 

accordance with the Act’s standards. 

Further, they stated that the existing 

limit is inconsistent with Regulation 

Best Interest which does not include 

any limitations on principal 

transactions, and that there were 

sufficient existing protections under 

securities laws. Commenters identified a 

variety of potential investments that 

they would like to see incorporated as 

Covered Principal Transactions, 

including foreign debt, structured notes, 

corporate debt in the secondary market, 

equity securities (including initial 

public offerings and national market 

system securities), new issues, issuers 

other than corporations, foreign 

currency, foreign securities, and closed 

end funds. 

The Department has considered these 

comments but has not expanded the 

exemption’s definition of a Covered 

Principal Transaction, including its 

enumerated list of investments. The 

definition of Covered Principal 

Transaction is intentionally narrow, 

based on the potentially acute conflicts 

of interest created by principal 

transactions. While commenters argued 

that the Department is substituting its 

own judgment for that of Financial 

Institutions and Investment 

Professionals, the Department believes 

that the risks created by principal 

transactions’ unique conflicts are great 

enough to only justify allowing 

otherwise prohibited transactions if 

those transactions are set within 

prescribed conditions specifically 

designed to address those conflicts of 

interest. Further, because the exemption 

is addressing transactions prohibited 

solely under Title I and the Code, 

whether the definition of a Covered 

Principal Transaction is consistent with 

Regulation Best Interest, or subject to 

other securities law protections, is not 

determinative. The Department is 

required to make findings as to whether 

the exemption is in the interests of, and 

protective of the rights of, Plan 

participants and beneficiaries and IRA 

owners.83 The Department stresses its 

obligation to exercise great care in 

authorizing transactions that Congress 

prohibited based upon their potential 

for abuse and resulting injury to Plan 

participants and IRA owners. Given the 

unique starting point—that Congress 

statutorily prohibited these transactions 

in Title I and the Code—the Department 

does not agree that the approach 

suggested by the commenters is 

appropriate. To the extent parties have 

interpretive questions regarding the 

scope of the exemption in this regard, 

the Department intends to support 

Financial Institutions, Investment 

Professionals, plan sponsors and 

fiduciaries, and other affected parties, 

with compliance assistance following 

publication of the final exemption. 

The Department believes the best way 

to address commenters’ concerns 

regarding additional investments is to 

include the provision allowing the 

definition of Covered Principal 

Transaction to expand upon the 

Department’s grant of an individual 

exemption covering a particular type of 

principal transaction. An individual 

exemption request would provide the 

Department with the opportunity to gain 

the additional information it would 

need to determine whether an 

investment should be included in this 

exemption. Further, individual 

exemptions are required to be published 

in the Federal Register and allow for 

public comment before they are 

finalized. These procedural 

requirements are protective of 

Retirement Investors. 

One commenter disagreed with the 

addition of investments through the 

individual prohibited transaction 

exemption process. The commenter 

argued that the addition of investments 

should be accomplished through a 

formal amendment to the exemption. 

The Department believes that the 

procedural requirements described in 

the preceding paragraph provide 

protections to Retirement Investors, and 

the ability to incorporate additional 

investments by adopting an individual 

exemption provides an appropriately 

streamlined approach to address 

discrete areas of scope within the class 

exemption. 

Credit Quality and Liquidity 

For sales of a debt security to a Plan 

or an IRA, the definition of Covered 

Principal Transaction requires the 

Financial Institution to adopt written 

policies and procedures related to credit 

quality and liquidity. Specifically, the 

policies and procedures must be 

reasonably designed to ensure that the 

debt security, at the time of the 

recommendation, has no greater than 

moderate credit risk and has sufficient 

liquidity that it could be sold at or near 

its carrying value within a reasonably 

short period of time. This standard is 

included to prevent the exemption from 

being available to Financial Institutions 

that recommend speculative or illiquid 

debt securities from their own accounts. 

A few commenters opposed the 

proposed condition requiring adoption 

of policies and procedures related to 

credit quality and liquidity. The 

commenters argued that this condition 

substitutes the Department’s judgment 

for that of the Retirement Investor. 

Further, they stated that the standards 

would be difficult to apply, requiring 

firms to look into the future to know 

whether a bond would be actively 

traded. One commenter stated 

specifically that a liquidity condition 

should not be included. 

The Department has considered these 

comments, but has included the credit 

quality and liquidity policies and 

procedures condition in the final 

exemption. Principal transactions are 

inherently conflicted transactions. As a 

result, the Department believes that 

unique conditions, such as the credit 

and liquidity requirements, address the 

heightened conflicts of interest and are 

specifically tailored to address conflicts 

inherent with respect to debt securities. 

The Department is not substituting its 

judgment for that of Retirement 

Investors; it is only setting necessary 

safeguards to prevent abuses by 

Financial Institutions relying on the 

exemption. Additionally, the 

Department notes that the exemption is 

not necessary for self-directed 

retirement accounts or transactions that 

do not involve fiduciary investment 

advice. Therefore, such truly selfdirected accounts and transactions may 

involve the purchase of any type of 

investment on a principal basis. 

Further, the Department does not 

believe the standards are unworkable. 

Financial Institutions regularly evaluate 

the credit risk associated with their 

investments and assess their liquidity. 

And it is important to note that the 

policies and procedures must be 

reasonably designed to ensure that the 

standards are met at the time of the 

transaction; the exemption does not 

require them to be satisfied for the 

duration of the investment. Indeed, a 

commenter who raised concerns about 

the requirement went on to point out 

ways a Financial Institution could 

reasonably consider the liquidity at the 

time of the transaction. This commenter 

stated that it is the very nature of bond 

trading that liquidity generally tends to 

diminish as bonds mature. The 

Department expects that a Financial 

Institution would consider this and 

other reasonably available information 

at the time of the transaction in 

designing its policies and procedures. It 

is also important to note that Financial 

Institutions may consider credit ratings 

as a part of a Financial Institution’s 

policies and procedures in this respect. 


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84See e.g., Seven Questions to Ask When 

Investing in Municipal Bonds, available at 

www.msrb.org/∼/media/pdfs/msrb1/pdfs/sevenquestions-when-investing.ashx. (‘‘[T]ax-exempt 

bonds may not be an efficient investment for certain 

tax advantaged accounts, such as an IRA or 401k, 

as the tax-advantages of such accounts render the 

tax-exempt features of municipal bonds redundant. 

Furthermore, since withdrawals from most of those 

accounts are subject to tax, placing a tax exempt 

bond in such an account has the effect of converting 

tax-exempt income into taxable income. Finally, if 

an investor purchases bonds in the secondary 

market at a discount, part of the gain received upon 

sale may be subject to regular income tax rates 

rather than capital gains rates.’’) 

85A few existing prohibited transaction 

exemptions apply to employers. See ERISA section 

408(b)(5), a statutory exemption that provides relief 

for the purchase of life insurance, health insurance, 

or annuities, from an employer with respect to a 

Plan or a wholly owned subsidiary of the employer. 

Municipal Bonds 

The exemption covers principal 

transactions involving municipal bonds, 

including tax-exempt municipal bonds. 

The Department cautions, however, that 

Financial Institutions and Investment 

Professionals should pay special care 

when recommending that Retirement 

Investors invest in municipal bonds. 

Tax-exempt municipal bonds are 

typically a poor choice for investors in 

Title I Plans and IRAs because the Plans 

and IRAs are already tax-advantaged 

and, therefore, do not benefit from 

paying for the bond’s tax-favored 

status.84

One commenter stated that no taxexempt investment (including taxexempt municipal bonds and certain 

annuities) should be included in the 

exemption, absent evidence that such 

investments are beneficial when 

purchased through a retirement account. 

The Department believes, however, that 

there are certain limited circumstances 

where these investments may benefit a 

Retirement Investor. For example, a 

particular municipal bond may have a 

higher tax-equivalent yield than a 

comparable taxable bond. Alternatively, 

a fiduciary adviser may conclude based 

upon careful analysis that a particular 

tax-exempt municipal bond carries less 

risk than a comparable corporate bond. 

Accordingly, the Department has not 

written the exemption to flatly exclude 

tax-exempt investments. However, given 

the increased risk of imprudence when 

making such recommendations, 

Financial Institutions and Investment 

Professionals may wish to document the 

reasons for any recommendation of a 

tax-exempt municipal bond or other taxexempt investment and why the 

recommendation is in the Retirement 

Investor’s best interest. 

Separate Exemption 

One commenter asserted that 

principal transaction relief should be 

provided through a separate exemption. 

The commenter argued that the 

exemption’s conditions are not 

sufficiently protective with respect to 

the unique nature of principal 

transactions. Instead, the commenter 

advocated for a separate prohibited 

transaction class exemption modeled 

after the statutory exemption for crosstrading in ERISA section 408(b)(19) and 

Code section 4975(d)(22). Using the 

statutory exemption as a model, the 

commenter suggested that the 

exemption include conditions such as 

minimum size requirements and a 

requirement that the transaction occur 

at the ‘‘independent current market 

price.’’ 

The Department has considered this 

suggestion, but has not adopted it. 

Although the Department agrees that the 

conflicts of interest in cross-trades are 

significant, the transactions 

contemplated by the statutory 

exemptions for cross-trades are not, in 

the Department’s view, necessarily so 

analogous to the principal transactions 

covered by this exemption that the 

conditions of the statutory exemption 

are easily applied in this context. The 

statutory exemption is aimed at 

discretionary investment managers that 

are managing large accounts, while this 

exemption is designed to include 

investment advice providers who may 

be providing advice in the retail market. 

It would be difficult, for example, for 

the Department to arrive at a minimum 

size that would be appropriate for 

engaging in principal transactions with 

retail investors. The Department also 

believes that combining relief for 

principal transactions within the 

exemption for other transactions arising 

out of the provision of fiduciary 

investment advice assists Financial 

Institutions and Investment 

Professionals in developing a 

comprehensive compliance approach. 

Exclusions 

Section I(c) provides that certain 

specific transactions are excluded from 

the exemption. The exemption retains 

the exclusions as proposed. Therefore, 

the exemption is not available for Title 

I Plans if the Investment Professional, 

Financial Institution, or an affiliate is (1) 

The employer of employees covered by 

the Plan; or (2) a named fiduciary or 

plan administrator, or an affiliate, who 

was selected to provide advice to the 

Plan by a fiduciary who is not 

independent. The exemption excludes 

investment advice generated solely by 

an interactive website in which 

computer software-based models or 

applications provide investment advice 

based on personal information each 

investor supplies through the website, 

without any personal interaction or 

advice with an Investment Professional 

(i.e., robo-advice). The exemption is also 

specifically limited to investment 

advice fiduciaries within the meaning of 

the five-part test and does not include 

discretionary arrangements. 

Employers, Named Fiduciaries, and 

Plan Administrators 

Section I(c)(1) of the exemption 

provides that the exemption does not 

extend to transactions involving Title I 

Plans if the Investment Professional, 

Financial Institution, or an affiliate is 

either (1) the employer of employees 

covered by the Plan; or (2) is a named 

fiduciary or plan administrator, or an 

affiliate thereof, who was selected to 

provide advice to the Plan by a fiduciary 

who is not independent of the Financial 

Institution, Investment Professional, and 

their affiliates. 

The Department believes that 

employers generally should not be in a 

position to use their employees’ 

retirement benefits as potential revenue 

or profit sources, without additional 

safeguards. Employers can always 

render advice and recover their direct 

expenses in transactions involving their 

employees without need of this 

exemption.85

Further, the Department does not 

intend for the exemption to be used by 

a Financial Institution or Investment 

Professional that is the named fiduciary 

or plan administrator of a Title I Plan or 

an affiliate thereof, unless the Financial 

Institution or Investment Professional is 

selected as an advice provider by a 

fiduciary (such as the employer 

sponsoring the Title I Plan) that is 

independent of them. Named fiduciaries 

and plan administrators have significant 

authority over plan operations and 

accordingly, the Department believes 

that any selection of these parties to also 

provide investment advice to the Title I 

Plan or its participants and beneficiaries 

should be made by an independent 

party who will also monitor the 

performance of the investment advice 

services. 

For purposes of the exemption, the 

plan sponsor or other fiduciary is 

independent of the Financial Institution 

and Investment Professional if: (1) The 

fiduciary is not the Financial 

Institution, Investment Professional, or 

an affiliate; (2) the fiduciary does not 

have a relationship to or an interest in 

the Financial Institution, Investment 

Professional, or any affiliate that might 

affect the exercise of the fiduciary’s best 

judgment in connection with 


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86 29 CFR 2570.31(j) (definition of ‘‘qualified 

independent fiduciary’’). 

87PEPs may not begin operating until January 1, 

2021. 

88 85 FR 36880 (June 18, 2020). 

89 29 CFR 2550.408g–1. 

transactions covered by the exemption; 

and (3) the fiduciary does not receive 

and is not projected to receive within 

the current federal income tax year, 

compensation or other consideration for 

his or her own account from the 

Financial Institution, Investment 

Professional, or an affiliate, in excess of 

2% of the fiduciary’s annual revenues 

based upon its prior income tax year. 

Some commenters urged the 

Department to delete the exclusion of 

employers as fiduciary investment 

advice providers to Title I Plans 

covering their own employees. The 

commenters stated that the conditions 

of the exemption are protective for 

transactions involving employees of the 

Financial Institution, and there is no 

reason to prevent employees from 

choosing their own advice provider and 

benefiting from their employer’s 

particular area of expertise. A different 

commenter raised the concern that 

employees would lose access to a 

valuable service their employer 

provides to others. In response, the 

Department notes that employers will 

continue to be able to provide such 

services to employees, just as they 

always have, if they recoup only their 

direct expenses. The Department has 

decided to maintain the exclusion as it 

was proposed, because of the 

Department’s concerns that the danger 

of abuse is compounded when the 

advice recipient receives 

recommendations from the employer, 

upon whom he or she depends for a job, 

to make investments in which the 

employer has a financial interest. 

Several commenters addressed the 

exclusion of named fiduciaries and plan 

administrators, unless selected by a 

fiduciary that is independent of them. 

One commenter sought clarification 

with respect to a particular factual 

scenario in which a plan sponsor 

appoints a bank as a directed trustee 

and named fiduciary. The commenter 

asked whether the exemption would 

require the bank to be selected to 

provide advice to the Title I Plan by the 

employer, and contended that this 

would result in disparate treatment as 

compared to other fiduciary service 

providers. For example, the commenter 

stated that the Title I Plan’s investment 

adviser can solicit rollovers without 

selection by the employer. 

The Department responds that the 

exemption would require a bank that is 

a named fiduciary to be selected by a 

fiduciary that is independent of the 

bank, as defined in the exemption. As 

noted above, this exclusion is based on 

the significant authority of named 

fiduciaries and plan administrators over 

Title I Plan operations. 

Some commenters focused on the 

‘‘independence’’ requirement under 

which the fiduciary selecting the advice 

provider cannot receive more than 2% 

of its income in the current tax year 

from the Financial Institution, 

Investment Professional, or an affiliate. 

The commenters urged the Department 

to increase the 2% limit to as high as 

20%. One commenter stated this 

definition was far more restrictive than 

any definition ever used by the 

Department. The Department disagrees 

that the 2% limitation is unduly 

restrictive, and notes that the 

Department’s exemption procedure 

regulation provides for a presumption 

that a 2% limitation will indicate that 

a fiduciary is independent.86 The 

Department did not increase the 2% 

limit so as to avoid any concern that 

compensation may impact the 

fiduciary’s selection of an advice 

provider for the Title I Plan. 

Pooled Employer Plans Under the 

SECURE Act 

In connection with the exemption’s 

exclusion of named fiduciaries and plan 

administrators unless selected by a 

fiduciary that is independent, several 

commenters requested additional 

guidance and clarification regarding the 

exemption’s application to Pooled 

Employer Plans (PEPs), which were 

authorized by the SECURE Act, passed 

in 2019.87 The SECURE Act mandates 

that a PEP must be established by a 

Pooled Plan Provider (PPP) that is 

designated as a named fiduciary, plan 

administrator, and the person 

responsible for specified administrative 

duties. Commenters envisioned that 

some PPPs would want to make 

investment advice available through 

PEPs, by utilizing themselves or an 

affiliate as the advice provider. 

Commenters requested clarification that 

an employer that participates in a PEP 

could be considered ‘‘independent’’ so 

that this exclusion would not be 

applicable despite the fact that the PPP 

or an affiliate is providing advice. 

The Department believes it is 

premature to address issues related to 

PEPs, given their recent origination, 

unique structure, and likelihood of 

significant variations in fact patterns 

and potential business models, as the 

PEPs’ sponsors decide how to structure 

their operations. In particular, the 

Department believes it is premature to 

provide any views regarding the 

‘‘independence’’ of participating 

employers. The Department recently 

published a request for information on 

prohibited transactions applicable to 

PEPs and is separately considering 

exemptions related to these types of 

Plans.88

Robo-Advice 

Section I(c)(2) of the exemption 

excludes from relief transactions that 

result from investment advice generated 

solely by an interactive website in 

which computer software-based models 

or applications provide investment 

advice that do not involve interaction 

with an Investment Professional 

(referred to herein as ‘‘pure roboadvice’’). ‘‘Hybrid’’ robo-advice 

arrangements, which involve both 

computer software models and personal 

investment advice from an Investment 

Professional, are permitted under the 

exemption. 

A detailed statutory exemption that 

specifically addresses computer model 

advice is set forth in ERISA section 

408(b)(14), (g), and Code section 

4975(d)(17) and 4975(f)(8), and the 

regulations thereunder.89 The statutory 

exemption includes specific conditions 

governing the operation of the computer 

model, including a requirement that the 

model apply generally accepted 

investment theories and that it operate 

in an unbiased manner, and the 

exemption further requires that an 

expert certify that the computer model 

meets certain of the exemption’s 

requirements. 

A number of commenters objected to 

the exclusion of pure robo-advice from 

the class exemption, arguing that there 

is no reason to treat it differently from 

other types of advice that are covered in 

the exemption. Commenters described 

robo-advice as providing a low-cost 

option that might become less available 

if it is not included in the exemption. 

Commenters indicated that covering 

pure robo-advice would allow Financial 

Institutions to adopt a single set of 

policies and procedures for all advice 

arrangements, and noted that the SEC 

does not treat robo-advice differently 

than other forms of advice. Some argued 

that the existence of a statutory 

exemption should not prevent the 

Department from issuing an 

administrative exemption, and that 

there are other examples in which 

multiple exemptions are available for a 

certain transaction. Some commenters 

argued that the statutory exemption is 

costly and cumbersome, and expressed 

concern about whether it extended to 


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90As noted above, the Department does not 

intend the exemption to expand Retirement 

Investors’ ability, such as by requiring contracts 

and/or warranty provisions, to enforce their rights 

in court or create any new legal claims above and 

beyond those expressly authorized in the Act, and 

the Department does not believe the exemption 

would create any such expansion. 

rollovers, even though the exemption 

does not, by its terms, exclude rollovers. 

The final exemption maintains the 

exclusion of pure robo-advice. As noted 

above, the statutory exemption in ERISA 

section 408(b)(14), (g), and Code section 

4975(d)(17) and 4975(f)(8), includes 

specific conditions that are tailored to 

computer-generated investment advice. 

This exemption, by contrast, is tailored 

to investment advice that is provided 

through a human Investment 

Professional who is supervised by a 

Financial Institution. The conditions of 

this exemption are not designed to 

address advice without an Investment 

Professional. Because of the different 

approaches, the Department does not 

believe that Financial Institutions 

would easily be able to develop a single 

set of conflict mitigation policies under 

this exemption that would govern both 

hybrid and pure robo-advice 

arrangements. The policies and 

procedures required by this exemption 

contemplate consideration of factors 

beyond those that may be considered in 

a pure robo-advice situation. A person 

may design a pure robo-advice model 

that incorporates other incentives than 

those addressed here. Further, without 

specificity as to how Financial 

Institutions’ policies and procedures 

would address pure robo-advice in a 

way that improved upon the existing 

exemption, the Department is not 

persuaded that extending this 

exemption to cover pure robo-advice is 

in the interests of Retirement Investors 

and is protective of their rights, as it 

must find under ERISA section 408(a)(2) 

and (3) and Code section 4975(c)(2)(B) 

and (C) before issuing a new exemption. 

For these reasons, the Department has 

decided to retain the exclusion from the 

exemption, as proposed. 

With regard to hybrid robo-advice 

arrangements that are covered by the 

exemption, one commenter suggested 

that the final exemption should require 

an Investment Professional who uses a 

computer model and deviates from its 

recommendation to provide the 

Retirement Investor with a written 

explanation of the reasons for the 

deviation. However, the Department has 

determined generally to avoid such a 

prescriptive approach to disclosure in 

the final exemption. Without additional 

information about the commenter’s 

concerns related to Investment 

Professionals deviating from computer 

generated recommendations, the 

Department does not believe that a 

specific disclosure requirement is 

necessary in such circumstances. 

Discretionary Arrangements 

Under Section I(c)(3), the exemption 

does not extend to transactions in which 

the Investment Professional is acting in 

a fiduciary capacity other than as an 

investment advice fiduciary. For clarity, 

Section I(c)(3) specifically cites the 

Department’s five-part test as the 

governing authority for status as an 

investment advice fiduciary. 

Several commenters opposed this 

exclusion and stated that the conditions 

of the exemption are sufficiently 

protective in the context of 

discretionary arrangements. These 

commenters indicated that Retirement 

Investors who want discretionary 

management services should not be 

treated differently than those receiving 

non-discretionary advice services. 

After consideration of the comments, 

the Department is adopting this 

exclusion as proposed. The protections 

that are included in the exemption were 

designed specifically for nondiscretionary investment advice 

arrangements, consistent with standards 

from other regulators regarding similar 

arrangements. The Department does not 

believe this will unfairly prejudice 

discretionary arrangements because the 

same pool of exemptions for 

discretionary arrangements currently 

exists that existed before this exemption 

was proposed. Additionally, the 

Department understands there are a 

variety of ways to avoid prohibited 

transactions in discretionary 

arrangements, including utilizing fee 

structures that ensure compensation 

does not vary based on investment 

choice. 

Moreover, the Department believes 

the differences between a discretionary 

and non-discretionary arrangement are 

not insignificant. For example, the 

potential for conflicts in a discretionary 

arrangement is heightened because 

most, if not all, of the investment 

transactions will occur without 

interaction with the Retirement 

Investor. The Department does not 

believe that the conditions of this 

exemption are appropriately tailored to 

address such conflicts. However, the 

Department remains open to requests for 

additional prohibited transaction relief 

for discretionary arrangements. 

Exemption Conditions 

Section II of the exemption sets forth 

the general conditions of the exemption. 

Section III establishes the eligibility 

requirements. Section IV requires 

parties to maintain records to 

demonstrate compliance with the 

exemption. Section V includes the 

defined terms used in the exemption. 

These sections are discussed below. In 

order to obtain prohibited transaction 

relief under the exemption, the 

Financial Institution and Investment 

Professional must comply with all of the 

conditions of the exemption, and may 

not waive or disclaim compliance with 

any of the conditions. Similarly, a 

Retirement Investor may not agree to 

waive any of the conditions. 

Investment Advice Arrangement— 

Section II 

Section II sets forth conditions that 

govern the Financial Institution’s and 

Investment Professional’s investment 

advice arrangement. As discussed in 

greater detail below, Section II(a) 

requires Financial Institutions and 

Investment Professionals to comply 

with the Impartial Conduct Standards 

by providing advice that is in 

Retirement Investors’ best interest, 

charging only reasonable compensation, 

and making no materially misleading 

statements about the investment 

transaction and other relevant matters. 

The Impartial Conduct Standards 

further require the Financial Institution 

and Investment Professional to seek to 

obtain the best execution of the 

investment transaction reasonably 

available under the circumstances, as 

required by the federal securities laws. 

Section II(b) requires Financial 

Institutions, prior to engaging in a 

transaction pursuant to the exemption, 

to provide a written disclosure to the 

Retirement Investor acknowledging that 

the Financial Institution and its 

Investment Professionals are fiduciaries 

under Title I and the Code, as 

applicable.90 The disclosure must also 

include a written description, accurate 

in all material respects, regarding the 

services to be provided and the 

Financial Institution’s and Investment 

Professional’s material conflicts of 

interest. Financial Institutions and 

Investment Professionals would also be 

required to document and disclose the 

reasons that a recommendation to roll 

over assets is in the Retirement 

Investor’s best interest. Under Section 

II(c), the Financial Institution is 

required to establish, maintain, and 

enforce written policies and procedures 

prudently designed to ensure that the 

Financial Institution and its Investment 

Professionals comply with the Impartial 

Conduct Standards. Section II(d) 


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91One commenter suggested that the exemption 

should be separated into different exemptions with 

different conditions to reflect diverse issues of 

Retirement Investors who are individuals, small 

plans, and large plans. The Department has not 

adopted that suggestion because of the concern that 

this would be overly complex for Financial 

Institutions to implement and could lead to 

concerns about technical violations of the 

exemptions. 

92See Donovan v. Mazzola, 716 F.2d 1226, 1232 

(9th Cir. 1983). 

93Regulation Best Interests’ best interest 

obligation provides that a ‘‘broker, dealer, or a 

natural person who is an associated person of a 

broker or dealer, when making a recommendation 

of any securities transaction or investment strategy 

involving securities (including account 

recommendations) to a retail customer, shall act in 

the best interest of the retail customer at the time 

the recommendation is made, without placing the 

financial or other interest of the broker, dealer, or 

natural person who is an associated person of a 

broker or dealer making the recommendation ahead 

of the interest of the retail customer.’’ 17 CFR 

240.15l-1(a)(1). 

94See SEC Fiduciary Interpretation, 84 FR 33671 

(‘‘An investment adviser’s fiduciary duty under the 

Advisers Act comprises a duty of care and a duty 

of loyalty. This fiduciary duty requires an adviser 

‘to adopt the principal’s goals, objectives, or 

ends.’ This means the adviser must, at all times, 

serve the best interest of its client and not 

subordinate its client’s interest to its own. In other 

words, the investment adviser cannot place its own 

interests ahead of the interests of its client.’’) 

(internal citations omitted). 

requires Financial Institutions to 

conduct an annual retrospective 

review.91 Finally, Section II(e) provides 

a mechanism for Financial Institutions 

to correct certain violations of the 

exemption conditions and maintain 

relief under the exemption. 

Impartial Conduct Standards—Section 

II(a) 

Financial Institutions and Investment 

Professionals must comply with the 

Impartial Conduct Standards by 

providing advice that is in Retirement 

Investors’ best interest, charging only 

reasonable compensation, and making 

no materially misleading statements 

about the investment transaction and 

other relevant matters. 

Best Interest Standard 

Section II(a)(1) requires investment 

advice that is, at the time it is provided, 

in the best interest of the Retirement 

Investor. Section V(b) of the exemption 

defines ‘‘best interest’’ advice as advice 

that ‘‘reflects the care, skill, prudence, 

and diligence under the circumstances 

then prevailing that a prudent person 

acting in a like capacity and familiar 

with such matters would use in the 

conduct of an enterprise of a like 

character and with like aims, based on 

the investment objectives, risk 

tolerance, financial circumstances, and 

needs of the Retirement Investor, and 

does not place the financial or other 

interest of the Investment Professional, 

Financial Institution or any affiliate, 

related entity or other party ahead of the 

interests of the Retirement Investor, or 

subordinate the Retirement Investor’s 

interests to their own.’’ 

This standard is based on 

longstanding concepts in the Act and 

the high fiduciary standards developed 

under the common law of trusts, and is 

intended to comprise objective 

standards of care and undivided loyalty, 

consistent with the requirements of 

ERISA section 404. These longstanding 

concepts of law and equity were 

developed in significant part to deal 

with the issues that arise when agents 

and persons in a position of trust have 

conflicting interests, and accordingly 

are well-suited to the problems posed by 

conflicted investment advice. 

The best interest standard is an 

objective standard that requires the 

Financial Institution and Investment 

Professional to investigate and evaluate 

investments, provide advice, and 

exercise sound judgment in the same 

way that knowledgeable and impartial 

professionals would. The standard of 

care is measured at the time the advice 

is provided, and not in hindsight.92 The 

standard does not measure compliance 

by reference to how investments 

subsequently performed or turn 

Financial Institutions and Investment 

Professionals into guarantors of 

investment performance; rather, the 

appropriate measure is whether the 

Investment Professional gave advice that 

was prudent and in the best interest of 

the Retirement Investor at the time the 

advice is provided. 

The standard also provides that 

Financial Institutions and Investment 

Professionals have a duty to ‘‘not place 

the financial or other interest of the 

Investment Professional, Financial 

Institution or any Affiliate, Related 

Entity or other party ahead of the 

interests of the Retirement Investor, or 

subordinate the Retirement Investor’s 

interests to their own.’’ The Department 

intends for the standard to be 

interpreted and applied consistently 

with the standard set forth in Regulation 

Best Interest 93 and the SEC’s 

interpretation regarding the conduct 

standard for investment advisers.94

This best interest standard allows 

Investment Professionals and Financial 

Institutions to provide investment 

advice despite having a financial or 

other interest in the transaction, so long 

as they do not place their own interests 

ahead of the interests of the Retirement 

Investor, or subordinate the Retirement 

Investor’s interests to their own. For 

example, in choosing between two 

investments equally available to the 

investor, it is not permissible for the 

Investment Professional to advise 

investing in the one that is worse for the 

Retirement Investor because it is better 

for the Investment Professional’s or the 

Financial Institution’s bottom line. 

Because the standard does not forbid the 

Financial Institution or Investment 

Professional from having an interest in 

the transaction, this standard does not 

foreclose the Investment Professional 

and Financial Institution from being 

paid, nor does it foreclose investment 

advice on proprietary products or 

investments that generate third party 

payments. This best interest standard 

also does not impose an unattainable 

obligation on Investment Professionals 

and Financial Institutions to somehow 

identify the single ‘‘best’’ investment for 

the Retirement Investor out of all the 

investments in the national or 

international marketplace, assuming 

such advice were even possible at the 

time of the transaction. 

Several commenters expressed 

support for the best interest standard 

and specifically for the phrasing aligned 

with Regulation Best Interest’s conduct 

standard. Commenters articulated 

benefits to both Retirement Investors 

and to Financial Institutions that will 

come from clarity and consistency of 

alignment with the SEC. Some 

commenters requested that the 

Department specifically provide a safe 

harbor based on compliance with the 

SEC’s requirements. According to these 

commenters, the Department should not 

merely rely on the phrasing in the 

securities regulations, but should also 

incorporate the securities laws 

enforcement through the SEC and 

FINRA. 

Some commenters objected to the 

incorporation of the best interest 

standard and other Impartial Conduct 

Standards as conditions of the 

exemption. They stated that the conduct 

standards are duplicative for 

transactions involving Title I Plans 

because of the standards set forth in 

ERISA section 404. Some specifically 

opposed the Department’s use of a 

prudence standard in the best interest 

standard. They noted that the specific 

word ‘‘prudence’’ is not included in the 

final Regulation Best Interest or in the 

NAIC Model Regulation, and, therefore, 

including it in the exemption standard 

would be an area of inconsistency. In 

addition, some commenters opined that 

the application of the best interest 

standard, including the prudence 

obligations, on IRAs is not permitted 

under the Fifth Circuit’s Chamber 

opinion. In particular, these 

commenters opined that the Fifth 

Circuit determined that the Department 


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95 In connection with the description of the best 

interest standard in the proposed exemption the 

Department included a footnote referencing Code 

section 4975(f)(5), which defines ‘‘correction’’ with 

respect to prohibited transactions as placing a Plan 

or an IRA in a financial position not worse than it 

would have been in if the person had acted ‘‘under 

the highest fiduciary standards.’’ The footnote 

stated that while the Code does not expressly 

impose a duty of loyalty on fiduciaries, the 

exemption’s best interest standard is intended to 

ensure adherence to the ‘‘highest fiduciary 

standards’’ when a fiduciary advises a Plan or an 

IRA owner under the Code. Commenters asked the 

Department to disavow this statement in the final 

exemption, asserting that the imposition of the 

Impartial Conduct Standards as an exemption 

condition for IRAs was rejected by the Fifth 

Circuit’s Chamber opinion. The Department 

disagrees with the commenters’ interpretation of the 

Fifth Circuit’s opinion, and its application to this 

exemption which applies only to plan fiduciaries 

who meet the five-part test and which does not 

impose contract or warranty requirements on these 

fiduciaries. 

96See Best Interest Contract Exemption, 81 FR 

21002, 21026 (April 8, 2016). 

97 Id. at 21029. 

98 Id. at 21080. 

99See e.g., Advisory Opinion 2008–05A (June 27, 

2008); Advisory Opinion No. 93–33A (Dec. 16, 

1993); Advisory Opinion 85–36A (Oct. 23, 1985); 

Letter to James K. Tam (June 14, 1983); Letter to 

Harold G. Korbee (Apr. 22, 1981). The Department 

has also repeated this articulation of the loyalty 

standard in recent proposed and final regulations. 

See Financial Factors in Selecting Plan Investments 

final rule, 85 FR 72846, 72847 (Nov. 13, 2020) (In 

describing prior guidance on environmental, social, 

and corporate governance investing, noting that the 

Department ‘‘has construed the requirements that a 

fiduciary act solely in the interest of, and for the 

exclusive purpose of providing benefits to, 

participants and beneficiaries as prohibiting a 

fiduciary from subordinating the interests of 

participants and beneficiaries in their retirement 

income to unrelated objectives.’’). See also 

Fiduciary Duties Regarding Proxy Voting and 

Shareholder Rights proposed rule, 85 FR 55219, 

52220–21 (September 4, 2020) (In discussing prior 

interpretations of proxy voting, noting that in 1994 

‘‘the Department also reiterated its view that ERISA 

does not permit fiduciaries, in voting proxies or 

exercising other shareholder rights, to subordinate 

the economic interests of participants and 

beneficiaries to unrelated objectives.’’). 

100SEC Fiduciary Interpretation, 84 FR 33671. 

was acting outside its authority by 

adding to the requirements of the Code 

provisions that Congress chose not to 

apply to such accounts. 

Other commenters maintained that 

the Department’s proposed best interest 

standard was not sufficiently protective 

of Retirement Investors. Commenters 

noted that the SEC described its 

standard as ‘‘separate and distinct from 

the fiduciary duty that has developed 

under the Advisers Act.’’ These 

commenters argued that the Department 

should condition the exemption on 

what they referred to as a ‘‘true’’ 

fiduciary standard. They stated this is 

what Congress intended as part of the 

statutory framework for tax-advantaged 

treatment accorded to retirement 

investments. Some commenters 

specifically objected to the exemption’s 

loyalty formulation, including that it 

was not a true loyalty standard and 

needed alternative wording such as 

‘‘without regard to’’ or ‘‘solely in the 

interest of.’’ 

The Department has included the best 

interest standard in the final exemption 

as it was proposed. The Department 

believes that the standard, in 

combination with the other conditions 

of the exemption, will protect the 

interests of Retirement Investors 

affected by the exemption. Although the 

standards of ERISA section 404 already 

apply to transactions involving Title I 

Plans and their participants and 

beneficiaries, incorporating the 

Impartial Conduct Standards as 

conditions of the exemption requires 

Financial Institutions to demonstrate 

compliance with the standards and 

increases the consequence of noncompliance because of the excise tax. 

This creates an important incentive for 

Financial Institutions to ensure 

compliance with the standards. For that 

reason, the Department does not believe 

the standards are unnecessary or 

duplicative for those Retirement 

Investors who are Title I Plan 

participants or beneficiaries. The 

Department also is not persuaded that it 

should eliminate the reference to 

‘‘prudence’’ from the best interest 

standard, given its importance in the 

Title I framework and longstanding 

application to the problems of agency 

that the exemption addresses. 

The Department does not believe that 

including the Impartial Conduct 

Standards as conditions for transactions 

involving IRAs is impermissible in light 

of the Fifth Circuit’s Chamber opinion. 

The Fifth Circuit’s opinion addressed 

the 2016 fiduciary rule and related 

exemptions, particularly the perceived 

‘‘over-inclusiveness’’ of the new 

definition of a fiduciary that the opinion 

indicated, in some circumstances, 

resulted in ordinary sales conduct 

activities causing a person to be 

classified as a fiduciary under Title I 

and the Code. Unlike the 2016 fiduciary 

rule and related exemptions, the present 

exemption provides relief to a more 

limited group of persons already 

deemed to be fiduciaries within the 

meaning of the five-part test and does 

not impose contract or warranty 

requirements on fiduciaries.95 Further, 

the Fifth Circuit observed that the fivepart test ‘‘captured the essence of a 

fiduciary relationship known to the 

common law as a special relationship of 

trust and confidence between the 

fiduciary and his client.’’ Chamber, 885 

F.3d 360, 364 (2018) (citation omitted). 

The same five-part test exists under the 

Code’s regulations, based on an 

identical definition of fiduciary in the 

Code. This exemption merely recognizes 

that fiduciaries of IRAs, if they seek to 

use this exemption for relief from 

prohibited transactions, should adhere 

to a best interest standard consistent 

with their fiduciary status and a special 

relationship of trust and confidence. 

The Department also disagrees with 

the suggestion that the best interest 

standard is not a ‘‘true’’ fiduciary 

standard. The Department 

acknowledges that the Best Interest 

Contract Exemption and other 

exemptions granted in association with 

the 2016 fiduciary rule used a loyalty 

formulation of ‘‘without regard to,’’ 

which was described as ‘‘a concise 

expression of Title I’s duty of loyalty, as 

expressed in section 404(a)(1)(A) of 

ERISA and applied in the context of 

advice.’’ 96 In connection with concerns 

expressed by commenters on those 

exemptions, however, the Department 

had to provide specific confirmation 

that the standard was not so exacting as 

to prevent a fiduciary from being paid.97

The Department also provided a special 

definition of ‘‘best interest’’ in section 

IV of the exemption to accommodate 

concerns about proprietary products 

and limited menus of investment 

options that generate third party 

payments.98 It is important to note that 

for decades the Department has also 

articulated the duty of loyalty in ERISA 

section 404 as prohibiting a fiduciary 

from ‘‘subordinating the interests of 

participants and beneficiaries in their 

retirement income to unrelated 

objectives.’’ 99

As set forth above, however, the 

Department notes that the exemption’s 

best interest standard requires Financial 

Institutions and Investment 

Professionals to not ‘‘place the financial 

or other interests of the Investment 

Professional, Financial Institution or 

any affiliate, related entity or other party 

ahead of the interests of the Retirement 

Investor, or subordinate the Retirement 

Investor’s interests to their own.’’ The 

duty not to subordinate the Retirement 

Investor’s interests to their own is the 

standard applicable to investment 

advisers, who are fiduciaries under 

securities laws.100 Although the SEC 

indicated in Regulation Best Interest 

that it was not subjecting broker-dealers 

to ‘‘a wholesale and complete 

application of the existing fiduciary 

standard under the Advisers Act,’’ it 

also said, ‘‘[a]t the time a 

recommendation is made, key elements 

of the Regulation Best Interest standard 

of conduct that applies to broker-dealers 

will be similar to key elements of the 


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101Regulation Best Interest Release, 84 FR 33321– 

33322. The SEC stated that the phrasing in 

Regulation Best Interest (‘‘without placing the 

financial or other interest . . . ahead of the interest 

of the retail customer’’) aligns with an investment 

adviser’s fiduciary duty, noting the discussion in 

the SEC Fiduciary Interpretation (‘‘This means the 

adviser must, at all times, serve the best interest of 

its client and not subordinate its client’s interest to 

its own. In other words, the investment adviser 

cannot place its own interests ahead of the interests 

of its client.’’) 84 FR 33671. 

102See, e.g., ERISA sections 502, 504, 505, and 

Reorganization Plan No. 4 of 1978. 

103One commenter asked the Department to 

explain the difference between the exemption’s best 

interest standard and a suitability standard. Given 

the recent developments in conduct standards 

applicable to broker-dealers and insurance agents, 

the Department does not believe it is appropriate or 

necessary for it to addresses these differences. 

fiduciary standard for investment 

advisers.’’ 101

Although the best interest standard is 

intended to be consistent with the 

securities law standards as discussed 

above, the Department declines to 

provide a safe harbor for compliance 

with the standards as interpreted by the 

SEC or FINRA. The Department 

confirms that it will coordinate with 

other regulators, including the SEC, on 

enforcement strategies and interpretive 

issues to the extent appropriate, but it 

cannot simply defer to other regulators 

on how best to discharge its own 

interpretive and enforcement 

responsibilities under Title I and the 

Code.102 When Congress enacted the 

Act, it made a deliberate decision to 

entrust the protection of Retirement 

Investors to the Secretary of Labor, 

subject to an overarching regulatory 

structure that departs in significant 

ways from the securities laws (e.g., by 

creating a prohibited transaction 

structure that flatly prohibits many 

transactions, such as those at issue in 

this exemption, unless the Department 

first grants an exemption after making 

statutorily required participantprotective findings). While the 

Department has exercised its discretion 

in this exemption to incorporate a best 

interest standard that it believes is 

consistent with the securities law 

standard, it nevertheless retains full 

interpretive responsibility over, and 

must account for, the Title I and Code 

provisions at issue in this exemption, as 

well as the terms of the exemption, and 

for the protection of Retirement 

Investors. 

Additional Guidance on the Best 

Interest Standard 

A few commenters requested 

additional guidance on the best interest 

standard. One commenter asked the 

Department to clarify how Title I’s 

standards differed from the Impartial 

Conduct Standards. Another commenter 

asked the Department to make clear 

what an Investment Professional would 

be required to do to satisfy the 

standards, other than engaging in a 

prudent process. In this regard, the 

Department notes that the exemption is 

applicable solely to ERISA section 406 

and Code section 4975; it does not 

provide an exemption from a Title I 

fiduciary’s obligations under ERISA 

section 404. 

As set forth above, the Department 

does not believe there is a distinction 

between ERISA’s section 404 standards 

of prudence and loyalty and the 

Impartial Conduct Standards, given that 

the best interest standard includes a 

prudence obligation and the Department 

has in the past described the duty of 

loyalty as prohibiting fiduciaries from 

subordinating the interests of 

participants and beneficiaries in their 

retirement income to unrelated 

objectives 

Financial Institutions wishing to be 

certain that they complied with the 

ERISA section 404 standard and the 

Impartial Conduct Standards would 

adopt rigorous policies and procedures 

to align the interests of Investment 

Professionals with their Retirement 

Investor customers, refrain from creating 

incentives for Investment Professionals 

to violate the Impartial Conduct 

Standards, and prudently oversee the 

implementation and enforcement of the 

policies and procedures. Investment 

Professionals would comply with the 

Financial Institution’s policies and 

procedures, engage in a prudent process 

in recommending investment products, 

and ensure that their advice does not 

put the interests of the Investment 

Professional, Financial Institution, or 

other party ahead of the interests of the 

Retirement Investor.103

One commenter asked the Department 

to clarify the remedies available to a 

participant under Title I who receives 

fiduciary investment advice to roll over 

assets from a Title I Plan to an IRA. 

Specifically, the commenter sought 

confirmation that whenever a 

participant is the recipient of advice, the 

participant retains all of the rights and 

remedies under Title I even if the 

investment advice provider is selected 

by the participant’s employer. The 

Department responds that individual 

participants and beneficiaries in a Title 

I Plan have a cause of action under 

ERISA section 502(a) for prohibited 

transactions, even if the investment 

advice provider is selected by the 

employer. As noted earlier, the Act does 

not permit exemptions to release 

fiduciaries from their Title I obligations 

under ERISA section 404 to a Plan, and 

its remedies remain available. 

Monitoring 

In connection with the best interest 

standard, several commenters raised 

concerns that the conditions of the 

exemption could require Financial 

Institutions to provide ongoing 

monitoring services of certain 

investment property. The Department 

stated in the preamble to the proposed 

exemption that: 

Financial Institutions should carefully 

consider whether certain investments can be 

prudently recommended to the individual 

Retirement Investor in the first place without 

ongoing monitoring of the investment. 

Investments that possess unusual complexity 

and risk, for example, may require ongoing 

monitoring to protect the investor’s interests. 

Some commenters interpreted this 

statement to require Financial 

Institutions and Investment 

Professionals to monitor certain 

investments. According to the 

commenters, any obligation for brokerdealers to monitor investments would 

be inconsistent with the securities laws. 

Another commenter stated that the 

monitoring requirement is inconsistent 

with the prudence standards because 

the Department’s regulation at 29 CFR 

2550.404a-1 regarding a fiduciary’s duty 

of prudence in connection with 

investment decisions does not require 

account monitoring. Commenters asked 

the Department to confirm that the 

exemption does not require Financial 

Institutions or Investment Professionals 

to provide monitoring, particularly 

where the Financial Institution clearly 

discloses it will not do so. Commenters 

also stated the Department should not 

impose ongoing monitoring 

requirements based on a vague standard 

of ‘‘unusual complexity and risk.’’ 

Other commenters asked for more 

guidance on when monitoring would be 

required. They requested more 

specificity on which investments are 

considered complex and risky as 

described in the preamble of the 

proposed exemption. Some commenters 

sought the Department’s assurance that 

annuities would not require ongoing 

monitoring. However, one commenter 

asserted that the Department’s statement 

on monitoring did not go far enough; an 

ongoing fiduciary relationship should 

require ongoing monitoring. At the very 

least, this commenter noted, the 

Department should adopt the position 

that the SEC takes with regard to 

investment advisers’ monitoring 

obligations, that for advice that is 

provided on a regular basis, there 

should be some duty to monitor 


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104See also Code section 4975(d)(2). 

105See also Code section 4975(c). 

consistent with the nature of that 

relationship. 

As was stated in the proposal, the 

Department confirms that nothing in the 

final exemption requires Financial 

Institutions or Investment Professionals 

to provide ongoing monitoring services. 

Of course, the exemption’s general 

prohibition against misleading 

statements applies, and Financial 

Institutions and Investment 

Professionals should be clear and 

candid with Retirement Investors about 

the existence, scope, and duration of 

any monitoring services. Accordingly, 

the Department does not believe it is 

requiring broker-dealers to engage in 

any activity that is not permitted under 

securities laws or that it is barring 

broker-dealers from recommending 

certain classes of investments. The 

Department did not require all Financial 

Institutions and Investment 

Professionals to offer monitoring 

because the exemption takes the 

approach of preserving the availability 

of a wide variety of investment advice 

arrangements and products. However, as 

part of making a best interest 

recommendation, the Department 

expects that Financial Institutions and 

Investment Professionals will consider 

whether the investment can be 

prudently recommended without some 

mechanism or plan for ongoing 

monitoring. To the extent that prudence 

requires ongoing monitoring, the final 

exemption does not require that such 

monitoring be done by the Financial 

Institution or Investment Professional; 

such monitoring could be performed by 

a third party, but the advice fiduciary 

should clearly explain the need for 

monitoring to the investor when making 

the recommendation. 

In response to requests for guidance 

identifying specific products that will 

require monitoring, or what constitutes 

a product of unusual complexity and 

risk, the Department notes that 

Financial Institutions and Investment 

Professionals will need to make these 

decisions on a case-by-case basis. The 

Department expects that Financial 

Institutions and Investment 

Professionals have the expertise 

necessary to evaluate the need for 

monitoring based on all the facts and 

circumstances. 

Reasonable Compensation 

Section II(a)(2) of the exemption 

includes a reasonable compensation 

standard. The exemption provides that 

compensation received, directly or 

indirectly, by the Financial Institution, 

Investment Professional, and their 

affiliates and related entities for their 

services is not permitted to exceed 

reasonable compensation within the 

meaning of ERISA section 408(b)(2) and 

Code section 4975(d)(2). 

The obligation to pay no more than 

reasonable compensation to service 

providers has been long recognized 

under Title I and the Code. The 

statutory exemptions in ERISA section 

408(b)(2) and Code section 4975(d)(2) 

expressly require all types of services 

arrangements involving Plans and IRAs 

to result in no more than reasonable 

compensation to the service provider. 

Investment Professionals and Financial 

Institutions—when acting as service 

providers to Plans or IRAs—have long 

been subject to this requirement, 

regardless of their fiduciary status. 

The reasonable compensation 

standard requires that compensation not 

be excessive, as measured by the market 

value of the particular services, rights, 

and benefits the Investment Professional 

and Financial Institution are delivering 

to the Retirement Investor. Given the 

conflicts of interest associated with the 

commissions and other payments that 

would be covered by the exemption, 

and the potential for self-dealing, it is 

particularly important that Investment 

Professionals and Financial Institutions 

adhere to these statutory standards, 

which are rooted in common law 

principles. 

The reasonable compensation 

standard applies to all transactions 

under the exemption, including 

investment products that bundle 

services and investment guarantees or 

other benefits, such as with annuities. In 

assessing the reasonableness of 

compensation in connection with these 

products, it is appropriate to consider 

the value of the guarantees and benefits 

as well as the value of the services. 

When assessing the reasonableness of a 

charge, one generally needs to consider 

the value of all the services and benefits 

provided for the charge, not just some. 

If parties need additional guidance in 

this respect, they should refer to the 

Department’s interpretations under 

ERISA section 408(b)(2) and Code 

section 4975(d)(2). 

One commenter expressed support for 

the proposed exemption’s reasonable 

compensation requirement. However, 

several other commenters maintained 

that the requirement is not specific 

enough and too lenient. The 

commenters objected to the exemption 

not requiring recommendation of 

investments with the lowest fees. One 

commenter stated that, by focusing on 

the ‘‘market value,’’ the standard may 

incorporate existing practices that 

involve conflicts of interest and inflated 

prices. The same commenter stated that 

applying a fact-specific test to the 

reasonableness of fees encourages 

investment advice providers to contrive 

reasons why compensation is 

reasonable. 

As the Department indicated in the 

preamble to the proposed exemption, 

and reiterates here, the reasonableness 

of fees will depend on all the facts and 

circumstances at the time of the 

recommendation. The Department 

outlines several of those factors below 

which are intended to ensure the 

objective reasonableness of the fee. 

Several factors inform whether 

compensation is reasonable, including 

the nature of the service(s) provided, the 

market price of the service(s) and/or the 

underlying asset(s), the scope of 

monitoring, and the complexity of the 

product. No single factor is dispositive 

in determining whether compensation is 

reasonable; the essential question is 

whether the charges are reasonable in 

relation to what the investor receives. 

The Department did not intend to 

suggest that reasonableness will be 

assessed solely against the existing 

market practices. The reasonable 

compensation standard will not be met 

if the fees bear little relationship to the 

value of the services actually rendered. 

And separately, the exemption will not 

be satisfied if the Financial Institution 

does not establish, maintain, and 

enforce written policies and procedures 

prudently designed to ensure that the 

Financial Institution and its Investment 

Professionals comply with the 

reasonable compensation standard in 

connection with covered fiduciary 

advice and transactions. 

One commenter stated that the 

reasonable compensation requirement is 

unnecessary because it is already 

applicable to Title I fiduciaries under 

ERISA section 408(b)(2).104 Another 

commenter asserted that the reference to 

ERISA section 408(b)(2) indicated the 

exemption would adopt not only the 

substance but the established process 

for reasonable compensation 

determinations (i.e., a determination 

made by an independent Plan or IRA 

fiduciary who engages the service 

provider). 

Incorporating the reasonable 

compensation standard as a condition of 

relief in this exemption increases the 

consequence of non-compliance and 

improves the protections of the 

exemption. It is also a critical protection 

in the context of an exemption which 

provides relief not only for prohibited 

transaction violations under section 

406(a) of ERISA, but for self-dealing 

violations under section 406(b).105 In 


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106Regulation Best Interest Release, 84 FR 33373, 

note 565. 

107SEC Fiduciary Interpretation, 84 FR 33674–75 

(Section II.B.2 ‘‘Duty to Seek Best Execution’’). 

the context of this exemption, the 

standard serves the important function 

of preventing investment advice 

fiduciaries from overcharging their 

Retirement Investor customers, despite 

the conflicts of interest associated with 

their compensation. 

In this regard, one commenter 

suggested that Investment Professionals 

should be required to disclose, in 

writing, the reasons that the Investment 

Professional is not recommending an 

investment with lower fees and the 

reasons the recommendation is more 

beneficial to the Retirement Investor. 

Thus, the Financial Institution would be 

required to demonstrate, in writing, that 

the compensation arising from an 

investment is reasonable and in the 

Retirement Investor’s best interest. 

Although the exemption places the 

burden on the Financial Institution and 

Investment Professional not to charge 

fees in excess of reasonable 

compensation, the Department declines 

to require documentation as suggested 

by the commenter. Under the 

exemption, the Financial Institution and 

Investment Professional are not required 

to recommend the transaction that is the 

lowest cost or that generates the lowest 

fees without regard to other relevant 

factors. In fact, the Department agrees 

with commenters that recommendations 

of the ‘‘lowest cost’’ security or 

investment strategy, without 

consideration of other factors, could in 

in some cases even violate the 

exemption. In addition, given the wide 

variety of investment products and fee 

structures available to investors, the 

commenter that asked for 

documentation did not provide a useful 

model to define lower fee investments 

that would serve as benchmarks for 

these purposes. 

One commenter suggested that the 

exemption text should specifically 

provide that the cost of an investment 

product is a factor, although it need not 

be the determinative factor, in applying 

the best interest standard. While the 

Department agrees that the cost of an 

investment product will be a factor in 

every recommendation, the best interest 

standard envisions that all of the 

characteristics of an investment 

product—not just its cost—will be 

evaluated based on Retirement 

Investors’ investment objectives, risk 

tolerance, financial circumstances, and 

needs. Therefore, the Department has 

not added a reference to cost to the best 

interest standard or elsewhere in the 

Impartial Conduct Standards. 

Best Execution 

Section II(a)(2)(B) of the exemption 

requires, in accordance with the federal 

securities laws, that the Financial 

Institution and Investment Professional 

seek to obtain the best execution of the 

investment transaction reasonably 

available under the circumstances. 

Financial Institutions and Investment 

Professionals subject to federal 

securities laws such as the Securities 

Act of 1933, the Securities Exchange Act 

of 1934, and the Investment Advisers 

Act of 1940, and rules adopted by 

FINRA and the Municipal Securities 

Rulemaking Board (MSRB), are 

obligated to adhere to a longstanding 

duty of best execution. As described 

recently by the SEC, ‘‘[a] broker-dealer’s 

duty of best execution requires a brokerdealer to seek to execute customers’ 

trades at the most favorable terms 

reasonably available under the 

circumstances.’’ 106 This condition 

complements the reasonable 

compensation standard set forth in the 

exemption. 

The Department applies the best 

execution requirement consistent with 

the federal securities laws. Financial 

Institutions that are FINRA members 

satisfy this subsection if they comply 

with the best execution standards under 

federal securities laws and FINRA rules 

2121 (Fair Prices and Commissions) and 

5310 (Best Execution and 

Interpositioning), or any successor rules 

in effect at the time of the transaction, 

as interpreted by FINRA. Financial 

Institutions engaging in a purchase or 

sale of a municipal bond satisfy this 

subsection if they comply with the 

standards in MSRB rules G–30 (Prices 

and Commissions) and G–18 (Best 

Execution), or any successor rules in 

effect at the time of the transaction, as 

interpreted by MSRB. Financial 

Institutions that are subject to and 

comply with the fiduciary duty under 

section 206 of the Investment Advisers 

Act—which, as described by the SEC, 

encompasses a duty to seek best 

execution—will also satisfy this 

subsection.107

One commenter expressed general 

support but also stated that the 

exemption should clarify that the ‘‘best 

execution’’ standard for executing 

portfolio transactions includes not only 

the price of the transaction itself but, if 

applicable, fees and expenses including 

commissions that provide the most 

favorable total cost or proceeds 

reasonably obtainable under the 

circumstances. In response, the 

Department notes that the exemption’s 

requirement that the Financial 

Institution and Investment Professional 

seek to obtain best execution is the 

second part of an overarching 

‘‘reasonable compensation’’ condition 

which is not limited to best execution. 

As outlined above, the best execution 

requirement is consistent with federal 

securities law, and compliance by the 

Financial Institution and Investment 

Professional with the applicable 

statutory and regulatory provisions is 

sufficient to comply with the 

requirement. The condition builds upon 

Section II(a)(2)(A), which requires that 

compensation not exceed reasonable 

compensation. To the extent that the 

applicable securities law provisions do 

not address certain fees and expenses, 

those amounts are still captured in the 

overall requirement that the 

compensation not exceed reasonable 

compensation. 

A number of commenters broadly 

objected to the inclusion of a best 

execution condition. The general 

critique was that the condition 

duplicates existing securities laws and 

is, therefore, unnecessary. In 

conjunction with this critique, multiple 

commenters argued that the best 

execution condition could result in the 

Department creating divergent and 

inconsistent interpretations of the best 

execution rule as compared to 

interpretations by FINRA, the SEC, and 

the MSRB. One commenter viewed the 

best execution requirement as an 

existing fiduciary obligation under 

ERISA section 404, stating that Title I 

fiduciaries are already obligated to seek 

to obtain the most favorable terms in a 

transaction, but should not lose the 

exemption for failure to do so. 

The Department has considered these 

comments, but determined to retain the 

best execution condition. With respect 

to the exemption’s application to 

Covered Principal Transactions, the 

condition will provide protection to 

Retirement Investors that may not be 

provided by the more general reasonable 

compensation requirement. The 

Department believes that the best 

execution requirement is a meaningful 

way to do so. The Department exercises 

its interpretive authority here to take the 

position that Financial Institutions and 

Investment Professionals that comply 

with applicable securities laws and their 

successors will satisfy this condition of 

the exemption, because of this 

requirement’s origination in securities 

law. As a result, the Department does 

not believe the condition will result in 

divergent or inconsistent interpretations 

of securities laws. 

Two additional commenters raised 

questions regarding the expansiveness 

of the condition. One commenter 


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108See, e.g., ERISA section 410 and see also 

ERISA Interpretive Bulletin 75–4—Indemnification 

of fiduciaries. (‘‘The Department of Labor interprets 

section 410(a) as rendering void any arrangement 

for indemnification of a fiduciary of an employee 

benefit plan by the plan. Such an arrangement 

would have the same result as an exculpatory 

clause, in that it would, in effect, relieve the 

fiduciary of responsibility and liability to the plan 

by abrogating the plan’s right to recovery from the 

fiduciary for breaches of fiduciary obligations.’’) 

objected to the best execution condition 

on the grounds that Financial 

Institutions might rely on third parties, 

such as trustees or custodians, to 

execute particular transactions with 

respect to which they provided 

investment advice. A second commenter 

requested that the Department clarify 

that the best execution requirement is 

limited to circumstances similar to 

those covered by FINRA rules 2121 and 

5310. With respect to both of these 

comments, the Department notes that 

the best execution condition is 

applicable as it would otherwise be 

applicable under the federal securities 

laws. 

Misleading Statements 

Section II(a)(3) requires that 

statements by the Financial Institution 

and its Investment Professionals to the 

Retirement Investor about the 

recommended transaction and other 

relevant matters are not materially 

misleading at the time they are made. 

Other relevant matters include fees and 

compensation, material conflicts of 

interest, and any other fact that could 

reasonably be expected to affect the 

Retirement Investor’s investment 

decisions. For example, the Department 

would consider it materially misleading 

for the Financial Institution or 

Investment Professional to include any 

exculpatory clauses or indemnification 

provisions in an arrangement with a 

Retirement Investor that are prohibited 

by applicable law.108

The Department received a few 

comments on this requirement in the 

proposal. One commenter stated this 

standard is unnecessary because 

misleading statements are already 

addressed by the proposal’s disclosure 

requirement. Another commenter asked 

the Department to clarify what is 

considered a ‘‘misleading statement.’’ 

Other commenters suggested that the 

Department expand the standard to 

specifically include material omissions 

because material omissions may be 

equally damaging to a Retirement 

Investor’s understanding. 

The Department has not changed the 

specific language in Section II(a)(3) from 

the proposal. Misleading statements are 

not necessarily addressed by the 

exemption’s disclosure requirement, 

which is limited to certain specific 

topics. Further, the Department notes 

that the requirement is to avoid 

‘‘materially misleading’’ statements, so 

as to provide a standard for the 

condition and avoid uncertainty. 

The Department agrees with 

commenters that materially misleading 

statements are properly interpreted to 

include statements that omit a material 

fact necessary in order to make the 

statements, in light of the circumstances 

under which they were made, not 

misleading. Retirement Investors are 

clearly best served by statements and 

representations that are free from 

material misstatements and omissions. 

Financial Institutions and Investment 

Professionals best promote the interests 

of Retirement Investors by ensuring that 

accurate communications are a 

consistent standard in all their 

interactions with their customers. 

In connection with the prohibition 

against misleading statements in Section 

II(a)(3), one commenter reacted to the 

Department’s preamble statement about 

exculpatory statements. The commenter 

objected on several grounds, including 

the view that this statement effectively 

incorporates state and local laws that 

may vary and, thus, undermines the 

Act’s aim to provide a uniform national 

standard in the retirement space. The 

commenter opined that this statement 

creates an uncertain and unworkable 

standard and even Financial Institutions 

that attempt to comply in good faith 

may lose the exemption if they 

inadvertently fail to comply with a law. 

The Department does not believe that 

the inclusion of an exculpatory 

statement that is prohibited by 

applicable law is fairly characterized as 

an inadvertent failure to comply with 

the law. Financial Institutions that 

provide fiduciary investment advice to 

Retirement Investors should be well 

aware of the laws in the jurisdictions 

within which they operate. If a 

Financial Institution fails to apprise 

itself of its legal responsibilities, it 

should not be permitted to rely upon an 

exemption that includes a best interest 

standard for advice that incorporates the 

principles of care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent person acting 

in a like capacity and familiar with such 

matters would use in the conduct of an 

enterprise of a like character and with 

like aims. Permitting false and 

misleading statements that have the 

effect of dissuading a Retirement 

Investor from seeking lawfully available 

remedies is not consistent with the 

requirement, under Title I and the Code, 

that the Department find that an 

exemption is protective of the rights of 

participants and beneficiaries of Plans 

and IRA owners. Furthermore, the 

Department notes that all Title I 

fiduciaries remain subject to the 

uniform fiduciary responsibility 

provisions in ERISA section 404 with 

respect to Title I Plan assets. Finally, the 

Department has included provisions in 

the exemption, which enable fiduciaries 

to cure violations of the exemption 

conditions, under certain 

circumstances, and thereby avoid loss of 

the exemption. 

Disclosure—Section II(b) 

Section II(b) of the exemption requires 

the Financial Institution to provide 

certain written disclosures to the 

Retirement Investor prior to engaging in 

any transactions pursuant to the 

exemption. The Financial Institution 

must acknowledge, in writing, that the 

Financial Institution and its Investment 

Professionals are fiduciaries under Title 

I and the Code, as applicable, with 

respect to any fiduciary investment 

advice provided by the Financial 

Institution or Investment Professional to 

the Retirement Investor. The Financial 

Institution must also provide a written 

description of the services to be 

provided and material conflicts of 

interest arising out of the services and 

any recommended investment 

transaction. The description must be 

accurate in all material respects. The 

Financial Institution also must provide 

documentation of the specific reasons 

that any recommendation to roll over 

assets from one Plan or IRA to another 

Plan or IRA, or from one type of account 

to another, is in the Retirement 

Investor’s best interest. 

The disclosure obligations are 

designed to protect Retirement Investors 

by enhancing the quality of information 

they receive in connection with 

fiduciary investment advice. The 

disclosures should be in plain English, 

taking into consideration Retirement 

Investors’ level of financial experience. 

The requirement can be satisfied 

through any disclosure, or combination 

of disclosures, required to be provided 

by other regulators so long as the 

disclosure required by Section II(b) is 

included. Once disclosure has been 

provided, the Financial Institution is 

not obligated to provide it again, except 

at the Retirement Investor’s request or if 

the information has materially changed. 

Written Fiduciary Acknowledgment 

Section II(b)(1) of the final exemption 

includes the requirement to provide 

Retirement Investors with a written 

fiduciary acknowledgment as proposed. 

This disclosure is designed to ensure 

that the fiduciary nature of the 


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relationship is clear to the Financial 

Institution and Investment Professional, 

as well as the Retirement Investor, at the 

time of the investment transaction. 

This exemption gives broad relief for 

a wide range of activities that fiduciaries 

otherwise would be prohibited from 

engaging in. Given this wide field of 

action, the Department has concluded 

that clear disclosure is one of the 

necessary protections for Retirement 

Investors. A Financial Institution and 

Investment Professional that seek to 

provide investment advice to a 

Retirement Investor and otherwise 

engage in a relationship that satisfies the 

five-part test should, at a minimum (if 

they wish to avail themselves of this 

particular exemption), make a conscious 

up-front determination of whether they 

are acting as fiduciaries; tell their 

Retirement Investor customers that they 

are rendering advice as fiduciaries; and, 

based on their conscious decision to act 

as fiduciaries, implement and follow the 

exemption’s conditions. The 

requirement also supports Retirement 

Investors’ ability to choose a provider of 

advice that is a fiduciary within the 

meaning of Title I and the Code. 

The written fiduciary 

acknowledgment supports the 

exemption’s objectives of preserving the 

availability of a wide variety of business 

models and expanding investor choice. 

Retirement Investors benefit from 

knowing if they are receiving advice 

from a fiduciary. Further, this disclosure 

increases the likelihood that Financial 

Institutions and Investment 

Professionals will take their compliance 

obligations seriously. This exemption 

contemplates that the Financial 

Institution and Investment Professional 

will put down a marker as fiduciaries 

when they indeed are acting as such. 

Financial Institutions and Investment 

Professionals may not rely on the 

exemption merely as a back-up 

protection for engaging in possible 

prohibited transactions when their 

ultimate intention is to deny the 

fiduciary nature of their investment 

advice. 

Model Language 

To assist Financial Institutions and 

Investment Professionals in complying 

with this condition of the exemption, 

the Department provides the following 

model fiduciary acknowledgment 

language as an example of language that 

will satisfy the disclosure requirement 

in Section II(b)(1): 

When we provide investment advice to you 

regarding your retirement plan account or 

individual retirement account, we are 

fiduciaries within the meaning of Title I of 

the Employee Retirement Income Security 

Act and/or the Internal Revenue Code, as 

applicable, which are laws governing 

retirement accounts. The way we make 

money creates some conflicts with your 

interests, so we operate under a special rule 

that requires us to act in your best interest 

and not put our interest ahead of yours. 

In addition, although the exemption 

does not require it, Financial 

Institutions and Investment 

Professionals could more fully explain 

the exemption’s terms with the 

following model disclosure: 

Under this special rule’s provisions, 

we must: 

• Meet a professional standard of care 

when making investment 

recommendations (give prudent advice); 

• Never put our financial interests 

ahead of yours when making 

recommendations (give loyal advice); 

• Avoid misleading statements about 

conflicts of interest, fees, and 

investments; 

• Follow policies and procedures 

designed to ensure that we give advice 

that is in your best interest; 

• Charge no more than is reasonable 

for our services; and 

• Give you basic information about 

conflicts of interest. 

Discussion of Comments 

A few commenters expressed support 

for the written fiduciary 

acknowledgment. A number of other 

commenters objected to the 

acknowledgment condition in the 

proposal. Some commenters stated that 

it would require them to say they were 

fiduciaries at the outset of a 

relationship, at a time when the ongoing 

nature of the relationship may be 

uncertain, which some commenters said 

would be unworkable. Some asserted 

that the written fiduciary 

acknowledgment requirement would 

deter some financial services providers 

from relying on the exemption because 

of fear of increased liability, thus 

causing Retirement Investors to lose 

access to the full range of investment 

advice arrangements. Several 

commenters argued that Financial 

Institutions will not be fiduciaries for all 

purposes, including under securities 

laws, and that the acknowledgement 

could confuse investors and also 

potentially undermine the purpose of 

the SEC’s Form CRS as a comprehensive 

source of investor information. Some of 

these commenters said that they already 

disclose their duties under the best 

interest standard under Regulation Best 

Interest and believed that a similar 

disclosure would more accurately 

characterize their duties to Retirement 

Investors under the exemption. Some of 

these commenters also said that the 

proposal was inconsistent with other 

exemptions such as PTE 84–24, which 

have traditionally covered such 

inadvertent fiduciaries. 

Some commenters said the disclosure 

was inconsistent with the Fifth Circuit’s 

Chamber opinion because the statement 

would determine fiduciary status, rather 

than the five-part test. Other 

commenters argued that the fiduciary 

acknowledgment could create a 

unilateral contract between the 

Financial Institution and the Retirement 

Investor, which they said was also 

impermissible in light of the Fifth 

Circuit’s Chamber opinion. Some 

expressed concern about interaction 

with other laws, including the 

possibility that the acknowledgment 

could be considered to create a 

‘‘contractual fiduciary duty’’ under 

Massachusetts securities law which 

could impose additional requirements 

on broker-dealers. 

Other commenters described the 

standard as not providing enough 

protection for Retirement Investors. 

According to these commenters, the 

exemption’s best interest standard is not 

a ‘‘true’’ fiduciary standard. Some 

commenters also indicated the lack of a 

‘‘true’’ fiduciary standard makes it 

misleading for Financial Institutions to 

disclose that they are fiduciaries and 

thereby causes Retirement Investors to 

expect protections that they will not in 

fact receive. These commenters pointed 

to the Act’s legislative purpose to 

provide tax-advantaged accounts with 

more protection for participants than 

other, existing standards. Some 

commenters noted that the Regulation 

Best Interest standard is new, and the 

Department cannot determine that it 

offers the necessary protections until it 

has been fully tested in the market. One 

commenter stated that the fiduciary 

acknowledgement would allow 

investment advice providers to ‘‘pose’’ 

as fiduciaries and give non-fiduciary 

advice to Retirement Investors, who are 

depending on them for important 

decisions. 

Some commenters suggested 

alternatives to the fiduciary 

acknowledgement, such as requiring an 

acknowledgment of the applicability of 

the best interest standard. Commenters 

said this would avoid unnecessary 

complexity and preserve Retirement 

Investors’ access to low-cost, high 

quality advice. One commenter 

suggested that the Department work on 

an expanded version of the SEC Form 

CRS which would explain the standards 

applicable to Title I and Code 

fiduciaries, broker-dealers, and 

investment advisers. However, other 

commenters opposed the idea of a 


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82828 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

109The SEC similarly stated with respect to its 

Form CRS, which describes the conduct standard 

applicable to broker-dealers and investment 

advisers, that it is not intended to create a private 

right of action. Form CRS Relationship Summary 

Release, 84 FR 33530. See also Regulation Best 

Interest Release 84 FR 33327 (‘‘Furthermore, we do 

not believe Regulation Best Interest creates any new 

private right of action or right of rescission, nor do 

we intend such a result.’’). 

disclosure of the best interest standard, 

expressing concern that any expansion 

of required disclosure would cause even 

more Retirement Investor confusion. 

According to these commenters, any 

problems associated with a fiduciary 

acknowledgment—including increased 

liability—could also apply to 

acknowledgment of the best interest 

standard. 

The Department has carefully 

considered comments on the 

requirement to provide written 

acknowledgment of fiduciary status. 

The Department believes the 

acknowledgment ensures clarity as to 

the nature of the relationship between 

the parties, supports Retirement 

Investors’ ability to choose a provider of 

advice that is a fiduciary within the 

meaning of Title I and the Code, and 

promotes compliance with the 

conditions of the exemption. To 

increase that clarity, the voluntary 

model disclosure includes disclosure of 

the best interest standard. Financial 

Institutions that do not want to act as 

fiduciaries can also make that clear and 

act accordingly. The five-part test, as 

interpreted above, and Interpretive 

Bulletin 96–1 regarding participant 

investment education, provide Financial 

Institutions and Investment 

Professionals a clear roadmap for 

determining when they are, and are not, 

Title I and Code fiduciaries. 

The Department disagrees with 

commenters who stated that the 

disclosure could be misleading to 

Retirement Investors because the 

exemption’s best interest standard is 

not, in their assessment, a ‘‘true’’ 

fiduciary standard. The exemption is 

only applicable to ‘‘fiduciaries’’ within 

the meaning of Title I and the Code. 

Accordingly, the acknowledgment does 

not mislead investors as to the nature of 

the advice relationship, but rather 

accurately recites the Financial 

Institution’s and Investment 

Professional’s fiduciary status under 

Title I and the Code. Moreover, as 

discussed above, although the best 

interest standard does not include a 

‘‘without regard to’’ formulation of the 

loyalty standard, the standard is 

consistent with interpretive statements 

by the Department as to Title I’s duty of 

loyalty in other contexts. 

With respect to the commenters who 

stated they should not have to 

acknowledge fiduciary status if they are 

uncertain as to whether they satisfy the 

five-part test, the Department believes, 

in light of the broad scope of relief in 

the exemption, that it is critical for 

Financial Institutions and Investment 

Professionals who choose to rely on the 

exemption to determine up-front if they 

intend to act as fiduciaries, and 

structure their relationship with the 

Retirement Investor accordingly. 

Financial Institutions are unlikely to 

comply fully with the exemption if they 

are simply relying on the exemption as 

a fallback position in the event that a 

primary argument of non-fiduciary 

status fails. Financial services providers 

that are not fiduciaries have no need of 

this exemption. Financial services 

providers that are fiduciaries, however, 

have a statutory obligation to adhere to 

the prohibited transaction rules or meet 

the terms of the exemption. Compliance 

with the law turns on financial services 

providers knowing whether or not they 

are acting as fiduciaries and acting in 

accordance with that understanding. 

This exemption is not designed as a 

backup method of compliance for 

Financial Institutions that intend to 

deny the fiduciary nature of their 

investment advice despite their actions 

to the contrary. Instead, it is intended to 

provide broad relief for parties who are 

indeed fiduciaries under the five-part 

test, as manifested by their purposes 

and actions, and who implement 

fiduciary structures to govern their 

relationship with their customers. In 

response to comments asserting 

inconsistency of this exemption with 

PTE 84–24, which does not require 

written fiduciary acknowledgment, the 

Department responds that it is the 

responsibility of the Department to craft 

exemptions to ensure they are protective 

of and in the interests of plans and plan 

participants. The conditions in the 

Department’s exemptions are designed 

to address the scope of the relief in the 

exemption and the attendant conflicts of 

interest. The Department has 

determined that the written fiduciary 

acknowledgment serves as an important 

safeguard in connection with the very 

broad grant of relief in this exemption 

from the self-dealing prohibitions of 

Title I and the Code. Other pre-existing 

prohibited transaction exemptions that 

do not have a fiduciary 

acknowledgment as a requirement, 

including statutory exemptions, remain 

available as alternatives. 

As for the related argument that some 

financial service providers will 

withdraw their services rather than 

provide their Retirement Investor 

customers a written fiduciary 

acknowledgment, the Department does 

not believe that will have significant 

effects on Retirement Investors’ choices. 

The exemption in fact offers new 

exemptive relief for Financial 

Institutions and Investment 

Professionals that provide fiduciary 

investment advice to Retirement 

Investors. Pre-existing exemptions, with 

different conditions, remain in place as 

alternatives. And, for Financial 

Institutions and Investment 

Professionals that are not fiduciaries, 

this exemption is unneeded. 

The Department also does not believe 

that the possibility of investor confusion 

or lack of understanding of the term 

‘‘fiduciary,’’ or concerns about the 

interaction with SEC Form CRS, present 

sound bases for eliminating the 

requirement. The acknowledgment does 

not contradict SEC Form CRS, and it is 

limited to fiduciary investment advice 

as defined in Title I and the Code. The 

Department believes that the model 

acknowledgment and additional 

voluntary model disclosure set forth 

above meets the objectives of the 

exemption by communicating the 

fiduciary status of the Financial 

Institution and Investment Professional 

as well as the requirement that they are 

operating under the exemption’s best 

interest standard. 

The Department does not intend that 

the fiduciary acknowledgment or any of 

the disclosure obligations create a 

private right of action as between a 

Financial Institution or Investment 

Professional and a Retirement Investor, 

and it does not intend that any of the 

exemption’s terms, including the 

acknowledgement, give rise to any 

causes of action beyond those expressly 

authorized by statute.109 Similarly, the 

fiduciary acknowledgement does not 

create a contractual fiduciary duty. 

ERISA section 502(a) provides a cause 

of action for fiduciary breaches and 

prohibited transactions with respect to 

Title I Plans (but not IRAs). Code 

section 4975 imposes a tax on 

disqualified persons participating in a 

prohibited transaction involving Plans 

and IRAs (other than a fiduciary acting 

only as such). These are the sole 

remedies for engaging in non-exempt 

prohibited transactions. The exemption 

does not create any new causes of 

action, nor does it require firms to make 

enforceable contractual commitments or 

give enforceable warranties to 

Retirement Investors, as was true of the 

2016 fiduciary rulemaking which the 

Fifth Circuit set aside in its Chamber 

opinion. 


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Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 82829 

110 Basic, Inc. v. Levinson, 485 U.S. 224 (1988). 

Description of Services and Material 

Conflicts of Interest 

Under Section II(b)(2) of the 

exemption, the Financial Institution 

must also provide a written description 

of the services to be provided and 

material conflicts of interest arising out 

of the services and any recommended 

investment transaction. The description 

must be accurate in all material 

respects. The Department believes 

disclosure of these items is necessary to 

ensure Retirement Investors receive 

information to assess the services that 

will be provided and related conflicts of 

interest. The disclosure requirement is 

principles-based and intended to allow 

flexibility to apply to a wide variety of 

business models and practices. 

While one commenter agreed with the 

Department that a principles-based 

approach to disclosure provides the 

flexibility necessary to apply to a wide 

variety of business models with respect 

to the services and conflict disclosure 

requirements, some commenters 

contended the required disclosures 

would be insufficiently protective of 

Retirement Investors. Some commenters 

focused on the Department’s position in 

the 2016 rulemaking that disclosure 

alone is ineffective in mitigating the 

impact of conflicts of interest. 

Some commenters opposed the ability 

to satisfy the disclosure requirement 

through disclosures required to be 

provided by other regulators, 

particularly in cases where such 

disclosures may not be in plain English. 

Commenters argued that other 

disclosure regimes, such as Forms CRS 

and ADV, are not sufficient and are not 

designed to comply with the Act. The 

same commenters also stated that the 

Department should ensure that 

Retirement Investors receive accurate, 

not misleading, information that does 

not omit any material conditions or 

information including information that 

the Financial Institution or Investment 

Professional knows or should know that 

the Retirement Investors needs to 

determine whether to maintain the 

advice relationship and/or 

investment(s). Some commenters 

supported allowing disclosure 

requirements to be satisfied by using 

disclosures such as Forms ADV and 

CRS. 

A commenter suggested specific 

additional items, perhaps in a model 

form, that should be included in the 

disclosure, including an estimate of the 

retirement savings needs of each 

participant and that the Department 

should develop a model disclosure and/ 

or test proposed disclosures for their 

effectiveness. Another commenter 

suggested that the Department should 

develop a highly prescriptive, one-page 

model form that would allow consumers 

to compare service providers. Other 

commenters requested full safe harbors 

based on disclosure requirements under 

securities laws or insurance laws. 

After consideration of the comments, 

the Department has determined to adopt 

the disclosure provisions as they were 

proposed. The Department believes the 

exemption’s disclosure of the provided 

services and associated conflicts is 

appropriate and important, and it is by 

no means the sole protection in the 

exemption. The disclosure requirement 

works in concert with the other 

protections, such as the Impartial 

Conduct Standards and policies and 

procedures, and reinforces the 

exemption’s important focus on conflict 

mitigation. The Department additionally 

stresses that conflict mitigation is not 

the sole purpose of disclosure, as some 

comments appeared to assume. In the 

Department’s view, disclosure also 

promotes consumer choice and permits 

Retirement Investors to enter into a 

professional relationship and make 

investments with a clear understanding 

of the nature of that relationship and of 

the investments’ salient features. These 

are important values, independent of 

their impact in mitigating conflicts. 

The Department’s approach in the 

proposal allowed for the disclosure to 

be satisfied through disclosures 

provided pursuant to other regulators’ 

requirements. Since the Department’s 

2016 rulemaking, other regulators have 

developed additional conflict of interest 

disclosure requirements and oversight 

that provide a greater measure of 

accountability and investor protection 

in the marketplace. Permitting use of 

other regulators’ disclosures was 

intended to minimize the potential for 

duplicative and voluminous disclosures 

which could contribute to reduced 

effectiveness. For this reason, the 

Department has declined to offer a 

model disclosure with respect to this 

aspect of the disclosure or add 

additional specific items to the required 

disclosure. Although the Department 

supports participants receiving 

information about retirement savings 

needs, for example, that type of a 

required disclosure is beyond the scope 

of this exemption proceeding. 

In response to commenters who 

expressed concern that the exemption’s 

approach would not ensure accurate 

and complete disclosures, the 

Department responds that the 

exemption text requires the disclosure 

of services to be provided and material 

conflicts of interest to be ‘‘accurate and 

not misleading in all material respects.’’ 

Inaccurate disclosures will not satisfy 

the exemption conditions, nor will 

disclosures with material omissions. 

However, the Department declines to 

specify that the disclosure must provide 

information that the Financial 

Institution or Investment Professional 

knows or should know the Retirement 

Investor needs to determine whether to 

maintain the advice relationship and/or 

the investments, out of concern that this 

sets up a standard for disclosure that 

may be difficult to satisfy. 

A commenter urged the Department to 

delete the written fiduciary 

acknowledgment and, instead, 

consistent with Regulation Best Interest, 

require disclosure instead of all material 

facts relating to the scope and terms of 

the relationship and all material facts 

relating to conflicts of interest that are 

associated with the recommendation. As 

discussed above, the Department has 

retained the written fiduciary 

acknowledgment in the final exemption 

as well as the requirement to disclose in 

writing the services to be provided and 

the material conflicts of interest. The 

Department did not adopt the approach 

taken in Regulation Best Interest, 

despite the belief that the exemption’s 

disclosure requirements involve similar 

information, because the exemption is 

available to Financial Institutions that 

are not subject to Regulation Best 

Interest and Department believes that a 

specific disclosure of fiduciary status is 

important to the goals of this exemption. 

However, the Department confirms 

that, like the Regulation Best Interest 

requirements, the standard for 

materiality for purposes of this 

obligation is consistent with the one the 

Supreme Court articulated in Basic v. 

Levinson,110 and, in the context of this 

exemption, the standard of materiality is 

centered on those facts that a reasonable 

Retirement Investor, as defined in the 

exemption, would consider important. 

Material conflicts of interest that would 

be required to be disclosed under the 

exemption would include, for example, 

conflicts associated with proprietary 

products, payments from third parties, 

and compensation arrangements. 

Commenters also requested additional 

guidance regarding satisfaction of the 

exemption’s disclosure obligations 

through (1) the use of disclosures 

required by other regulators or other 

Title I and Code requirements, or (2) 

safe harbors when such disclosures are 

used. Commenters argued this would 

avoid duplication and Retirement 

Investor confusion. In doing so, most 

commenters emphasized a desire to 

ensure harmonization between the 


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82830 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

111Regulation Best Interest Release, 84 FR 33360 

(‘‘Similarly, we encourage broker-dealers to record 

the basis for their recommendations, especially for 

more complex, risky or expensive products and 

significant investment decisions, such as rollovers 

and choice of accounts, as a potential way a brokerdealer could demonstrate compliance with the Care 

Obligation.’’). 

exemption condition and other 

disclosure regimes. 

While the exemption does not include 

specific safe harbors, the Department 

confirms that Financial Institutions may 

rely, in whole or in part, on other 

regulatory disclosures to satisfy certain 

aspects of this disclosure requirement, 

for example, the disclosures required 

under Regulation Best Interest and Form 

CRS, applicable to broker-dealers; Form 

ADV and Form CRS, applicable to 

registered investment advisers; and 

disclosures required under insurance 

and banking laws when such 

disclosures cover services to be 

provided and the Financial Institution’s 

and Investment Professional’s material 

Conflicts of Interest. Avoiding 

duplication of disclosures is important 

and the Department reiterates that the 

disclosure standard under this 

exemption may be satisfied in whole, or 

in part, by using other required 

disclosures to the extent those 

disclosures include information 

required to be disclosed by the 

exemption. Allowing the use of other 

disclosures to meet the disclosure 

standard under this exemption should 

serve to harmonize this exemption’s 

conditions with those of other 

disclosure regimes. 

The Department also confirms that the 

disclosure required by the exemption 

may be included with or accompanied 

by the disclosure provided to 

responsible Plan fiduciaries under 29 

CFR 2550.408b–2, as applicable, and 

that such disclosures may satisfy, in 

whole or in part, the disclosure 

obligations under this exemption when 

the fiduciary of the Plan is the 

Retirement Investor receiving advice, as 

defined in Section V(k)(3). However, if 

advice is provided to individual Plan 

participants, disclosure to the Plan 

fiduciary will not satisfy the disclosure 

obligation under the exemption. In such 

cases, the Retirement Investor is the 

individual participant receiving the 

investment advice, as defined in Section 

V(k)(1), and the disclosure obligation 

applies to that particular individual. 

The Department cautions Financial 

Institutions that the requirements under 

this exemption are not merely a ‘‘checkthe-box’’ activity. Rather, it is 

imperative that Financial Institutions 

engage in a careful analysis to identify 

their material conflicts so that they and 

their Investment Professionals are able 

to provide accurate disclosures and 

make recommendations that satisfy the 

best interest standard. The Department 

notes that although disclosures are 

required under the statutory exemption 

in ERISA section 408(b)(2) and the 

accompanying regulation at 29 CFR 

2550.408b–2, the 408(b)(2) disclosures 

do not require an accompanying focus 

on conflict mitigation. Relatedly, the 

408(b)(2) statutory exemption does not 

provide prohibited transaction relief 

from the self-dealing prohibited 

transactions in ERISA section 406(b). 

Documentation of Rollover 

Recommendation 

Section II(b)(3) of the final exemption 

requires Financial Institutions to 

provide Retirement Investors, prior to 

engaging in a rollover recommended 

pursuant to the exemption, with 

documentation of the specific reasons 

that the recommendation to roll over 

assets is in the best interest of the 

Retirement Investor. This requirement 

extends to recommended rollovers from 

a Plan to another Plan or IRA as defined 

in Code section 4975(e)(1)(B) or (C), 

from an IRA as defined in Code section 

4975(e)(1)(B) or (C) to a Plan, from an 

IRA to another IRA, or from one type of 

account to another (e.g., from a 

commission-based account to a feebased account). The requirement to 

document the specific reasons for these 

recommendations is part of the required 

policies and procedures, in Section 

II(c)(3). 

Rollover recommendations are a 

primary concern of the Department, as 

Financial Institutions and Investment 

Professionals may have a strong 

economic incentive to recommend that 

investors roll over assets into one of 

their institution’s IRAs, whether from a 

Plan or from an IRA account at another 

Financial Institution, or even between 

different account types. The decision to 

roll over assets from a Title I Plan to an 

IRA, in particular, may be one of the 

most important financial decisions that 

Retirement Investors make, as it may 

have a long-term impact on their legal 

rights and remedies and their retirement 

security. 

The requirement to document the 

reasons that a rollover is in the best 

interest of the Retirement Investor is 

included in the exemption’s policies 

and procedures provision to ensure that 

Financial Institutions and Investment 

Professionals take the time to form a 

prudent recommendation, and that a 

record is available for later review. The 

written record serves an important role 

in protecting Retirement Investors 

during this significant decision. The 

final exemption also includes the 

additional new provision in Section 

II(b)(3) requiring this documentation be 

provided to the Retirement Investor. 

Because of the special importance of 

rollover recommendations, the 

Department has concluded that 

Retirement Investors should be 

provided with the rollover 

documentation. 

Some commenters on the proposal 

expressed support for the requirement 

to document the reasons for rollover 

recommendations, although some 

suggested it be expanded to provide 

additional protections. One suggestion 

was for the requirement to apply to all 

recommendations or at least to an 

expanded list of consequential 

recommendations beyond rollovers. One 

commenter suggested that the written 

documentation of all recommendations 

should demonstrate how the 

recommendations comply with the 

Financial Institution’s written policies 

and procedures. Commenters also 

suggested additional factors to consider 

and document, including a clear 

examination of the long-term impact of 

any increased costs and why the added 

benefits justify those added costs, as 

well as consideration of economically 

significant features—such as surrender 

schedules and index annuity cap and 

participation rate—that the commenter 

indicated providers use in lieu of direct 

fees. One commenter provided an 

example of how the documentation 

could look, including scoring alternative 

investments. Another commenter 

indicated that the documentation 

requirement is not fully protective 

unless the documentation is provided to 

the Retirement Investor. 

Other commenters urged the 

Department not to include this 

condition in the final exemption. They 

wrote that the documentation 

requirement was overly burdensome on 

Financial Institutions, generally is not 

required in other exemptions, and 

would not provide meaningful 

protections to Retirement Investors. 

Commenters stated it may be difficult to 

obtain the required information and 

noted that the SEC chose specifically 

not to include this requirement in 

Regulation Best Interest, even though 

the SEC did encourage it as a good 

practice.111

Some commenters felt that the 

specific considerations identified in the 

preamble were too prescriptive, and the 

exemption should instead rely on a 

more principles-based approach, such 

as the Financial Institutions’ reasonable 

oversight of Investment Professionals. A 

few commenters requested clarification 

that the factors included in the 


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Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 82831 

112For example, in the Regulation Best Interest 

Release, the SEC identified a number of factors that 

should be considered by broker-dealers in 

determining whether a particular account would be 

in a particular retail customer’s best interest, 

including (1) the services and products provided in 

the account (ancillary services provided in 

conjunction with an account type, account 

monitoring services, etc.); (2) the projected cost to 

the retail customer of the account; (3) alternative 

account types available; (4) the services requested 

by the retail customer; and (5) the retail customer’s 

investment profile. The SEC also cited factors that 

should be considered by broker-dealers in making 

a recommendation to roll over Title I Plan assets to 

an IRA, including: Fees and expenses; level of 

service available; available investment options; 

ability to take penalty-free withdrawals; application 

of required minimum distributions; protection from 

creditors and legal judgments; holdings of employer 

stock; and any special features of the existing 

account. 84 FR 33382–83. 

113A commenter suggested a number of other 

factors that should be documented as part of the 

rollover recommendation, including: any incentives 

and/or fees the Financial Institution and/or the 

Investment Professional receives if they keep the 

account when employees leave their employer (i.e., 

maintaining the rollover account) or if they obtain 

additional fees for investments of the participants 

outside of the Plan; and fees and historic rates of 

return comparing the rollover recommendation and 

its proposed investment with the alternative(s), 

including leaving the assets in the current Plan, in 

a chart, over a 1, 5, and 10-year period. While the 

Department has chosen to take a less prescriptive 

and burdensome approach to the documentation 

and disclosure requirements than the commenter 

suggested, the Department stresses that Retirement 

Investors’ interests should be protected by the 

overarching obligations to adhere to the Impartial 

Conduct Standards and to implement policies and 

procedures that require mitigation of conflicts of 

interest to the extent that a reasonable person 

reviewing the Financial Institution’s policies and 

procedures and incentive practices would conclude 

that they do not create an incentive for a Financial 

Institution or Investment Professional to place their 

interests ahead of the interest of the Retirement 

Investor. The Department also agrees that a prudent 

fiduciary would consider the impact of fees and 

returns under alternative investments over timehorizons consistent with the Plan participant’s 

financial interests and needs. Such analyses, 

however, should turn on the fiduciary’s assessment 

of the unique facts and circumstances applicable to 

the Plan participant, as opposed to a single 

standardized analysis mandated by the Department 

for all cases. 

preamble are merely factors that 

Financial Institutions ‘‘may include’’ in 

their documentation but that Financial 

Institutions are ultimately permitted to 

use their judgment to determine the 

appropriate factors to be considered, 

depending on the facts and 

circumstances of particular Retirement 

Investors. On the other hand, a 

commenter supported the factors and 

suggested that the Department should 

include them in the exemption text. 

Certain commenters expressed further 

concern that the preamble discussion of 

the requirement did not appropriately 

weigh the benefits of a rollover 

(including the loss of the professional 

expertise and advice if the Retirement 

Investor chooses to stay in a workplace 

Plan) or other factors that are important 

to a Retirement Investor (such as access 

to distribution options, asset 

consolidation, and access to 

discretionary asset management). A 

commenter also asserted that the 

documentation should not extend to 

recommendations related to IRA 

transfers and transfers between 

brokerage and advisory accounts, 

asserting that these transfers are not 

irrevocable. 

Some commenters were concerned 

about potential enforcement related to 

this provision of the exemption. One 

asked the Department to state that 

Financial Institutions are not required to 

review and approve each 

recommendation on a case by case basis. 

Another requested a non-enforcement 

policy so that a Financial Institution 

would not lose the exemption if an 

Investment Professional failed to 

document the reasons for any specific 

transaction, as long as the Financial 

Institution worked diligently and in 

good faith to implement technology and 

systems to efficiently document and 

supervise rollover recommendations. 

One commenter requested a safe harbor 

from the requirement to document 

rollover recommendations as long as 

Regulation Best Interest is satisfied. 

Upon consideration of the comments, 

the Department has determined to 

include the documentation requirement 

in the exemption, as proposed. Given 

the importance of these decisions, the 

Department does not find it 

unnecessarily burdensome to require 

Financial Institutions and Investment 

Professionals to document their reasons 

for the recommendation. The 

documentation can provide an 

important opportunity for evaluation 

and oversight of these recommendations 

by Financial Institutions, Retirement 

Investors, and the Department, and is 

appropriate in the context of this broad 

exemption. Requiring specific 

documentation for rollover transactions 

provides appropriate protection of 

Retirement Investors while minimizing 

the burden on Financial Institutions that 

would be attached to documentation of 

all recommendations. By additionally 

requiring that the rollover 

documentation be provided to the 

Retirement Investor, the Department 

believes that the Retirement Investor 

will be better positioned to understand 

the significance of a rollover decision 

and how acting upon a rollover 

recommendation will satisfy the best 

interest standard under this exemption. 

The Department has retained the scope 

of the documentation requirement to 

include IRA transfers and transfers 

between brokerage and advisory 

accounts, even though those decisions 

may not be irrevocable, because they 

may involve significant cost, 

particularly over the long term. 

With respect to recommendations to 

roll assets out of an Title I Plan and into 

an IRA, the factors that a Financial 

Institution and Investment Professional 

should consider and document include 

the following: The Retirement Investor’s 

alternatives to a rollover, including 

leaving the money in his or her current 

employer’s Plan, if permitted, and 

selecting different investment options; 

the fees and expenses associated with 

both the Plan and the IRA; whether the 

employer pays for some or all of the 

Plan’s administrative expenses; and the 

different levels of services and 

investments available under the Plan 

and the IRA. For rollovers from another 

IRA or changes from a commissionbased account to a fee-based 

arrangement, a prudent 

recommendation would include 

consideration and documentation of the 

services that would be provided under 

the new arrangement. The Department 

agrees with commenters that the longterm impact of any increased costs and 

the reason(s) why the added benefits 

justify those added costs, as well as the 

impact of features such as surrender 

schedules and index annuity cap and 

participation rates, should be 

considered as part of any rollover 

recommendation, as relevant. 

In response to commenters who asked 

whether these factors cited in the 

proposal’s preamble are required to be 

documented in all cases, or whether 

they are suggested considerations, it is 

the Department’s view that these factors 

are relevant to a prudent fiduciary’s 

analysis of a rollover. It would be 

difficult to justify a rollover 

recommendation that did not consider 

these factors. Of course, the discussion 

of factors identified above is not 

intended to suggest that Financial 

Institutions and Investment 

Professionals may not consider other 

factors, including those that are 

important to a particular Retirement 

Investor, as part of their rollover 

recommendation.112 For that reason, the 

Department has not added the specific 

factors identified in the preamble to the 

exemption text, as a commenter 

suggested.113

To satisfy this condition for Title I 

Plan to IRA rollovers, the Department 

expects that Investment Professionals 

and Financial Institutions evaluating 

this type of potential rollover will make 

diligent and prudent efforts to obtain 

information about the existing Title I 

Plan and the participant’s interests in it. 

In general, such information should be 

readily available as a result of DOL 


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114FINRA has recognized that broker-dealers 

making a rollover recommendation should consider 

investment options among other factors. ‘‘The 

importance of this factor will depend in part on 

how satisfied the investor is with the options 

available under the plan under consideration. For 

example, an investor who is satisfied by the lowcost institutional funds available in some plans may 

not regard an IRA’s broader array of investments as 

an important factor.’’ See Regulatory Notice 13–45, 

supra note 42. 

115Section II(c)(3) of the exemption, regarding 

documentation of the reasons for a rollover 

recommendation, is discussed above in the section 

on the disclosure of the documentation. 

regulations mandating disclosure of 

Plan-related information to the Plan’s 

participants (see 29 CFR 2550.404a–5). 

If the Retirement Investor is unwilling 

to provide the information, even after a 

full explanation of its significance, and 

the information is not otherwise readily 

available, the Financial Institution and 

Investment Professional should make a 

reasonable estimation of expenses, asset 

values, risk, and returns based on 

publicly available information. The 

Financial Institution and Investment 

Professional should document and 

explain the assumptions used and their 

limitations. In such cases, the 

Investment Professional could rely on 

alternative data sources, such as the 

most recent Form 5500 or reliable 

benchmarks on typical fees and 

expenses for the type and size of Plan 

at issue. 

A few commenters suggested that 

Financial Institutions and Investment 

Professionals should not have to go 

beyond any information provided by 

Retirement Investors. One commenter 

suggested that Investment Professionals 

should not be compelled to make an 

estimate and should be permitted to 

include in the documentation: Any 

reasons why, in the absence of certain 

information, other information supports 

a recommendation; the fact that the 

Retirement Investor was unwilling to 

provide the relevant information; and/or 

that the Investment Professional after 

best efforts, was unable to obtain the 

relevant information. The Department 

concurs that the documentation can 

include these statements, but notes that 

the statements would not be sufficient 

as an alternative to the estimates 

described in the previous paragraph. 

Several commenters reacted to the 

proposed exemption’s preamble 

statement that the documentation 

should address the Retirement 

Investor’s alternatives to a rollover, 

including leaving the money in his or 

her current employer’s Plan, if 

permitted, and selecting different 

investment options. A commenter 

queried whether Investment 

Professionals would be required to 

reallocate plan investments into an ideal 

asset allocation. Some insurance 

industry commenters expressed concern 

that the requirement would cause them 

to evaluate non-insurance options 

which they asserted was not permitted 

under insurance laws. The preamble 

statement was not intended, however, to 

suggest that Investment Professionals 

need to make advice recommendations 

as to investment products they are not 

qualified or legally permitted to 

recommend. Instead, the Department 

was merely indicating that a rollover 

recommendation should not be based 

solely on the Retirement Investor’s 

existing allocation without any 

consideration of other investment 

options in the Plan.114 A prudent 

fiduciary would carefully consider the 

options available to the investor in the 

Plan, including options other than the 

Retirement Investor’s existing plan 

investments, before recommending that 

the participant roll assets out of the 

Plan. 

Likewise, the Department notes that 

nothing in the exemption or the 

Impartial Conduct Standards prohibits 

investment advice by ‘‘insurance-only’’ 

agents or requires such insurance 

specialists to render advice with respect 

to other categories of assets outside their 

specialty or expertise. An Investment 

Professional should disclose any 

limitation on the types of products he or 

she recommends, and refrain from 

recommending an annuity if it is not in 

the best interest of the Retirement 

Investor. If, for example, it would not be 

in the investor’s best interest for the 

investor to purchase an annuity in light 

of the investor’s liquidity needs, 

existing assets, lack of diversification, 

financial resources, or other 

considerations, the Investment 

Professional should not recommend the 

annuity purchase, even if that means the 

agent cannot make a sale. 

The exemption also does not mandate 

that a Financial Institution review 

documentation of each and every 

rollover recommendation. However, 

depending on the Financial Institution’s 

business model and the other methods 

available to mitigate conflicts of interest, 

regular review of some or all rollover 

recommendations may be an effective 

approach to compliance with the 

exemption. Because of the importance 

of this condition, the Department 

declines to provide a non-enforcement 

policy related to an Investment 

Professional’s failure to document the 

recommendation or a safe harbor for 

general compliance with Regulation 

Best Interest. However, an isolated 

failure will only expose the Financial 

Institution to liability for that 

recommended transaction. 

Timing of the Disclosure 

Some commenters urged the 

Department to modify the timing 

requirements of the disclosure. A few 

requested that, consistent with 

Regulation Best Interest, the Department 

allow the disclosure to be provided 

‘‘prior to or at the time of the 

recommendation.’’ Another commenter 

was concerned that Retirement Investors 

would not have sufficient time to review 

the information, and suggested that the 

disclosures should be provided 14 days 

before the close of the recommended 

transaction. 

The Department has included the 

disclosure timing requirements in the 

final exemption as proposed. Because 

the exemption requires the disclosure to 

be provided prior to the transaction, 

parties wishing to provide disclosure at 

the time of the recommendation would 

be permitted to do so. The Department 

has not adopted the suggestion that the 

exemption require disclosure at least 14 

days before the close of a recommended 

transaction due to concerns that this 

requirement could create an artificial 

timeframe that may, depending on the 

circumstances, prevent a Retirement 

Investor from entering into a beneficial 

transaction in a timely fashion. 

Policies and Procedures—Section II(c) 

Section II(c)(1) of the exemption 

establishes an overarching requirement 

that Financial Institutions establish, 

maintain, and enforce written policies 

and procedures prudently designed to 

ensure that the Financial Institution and 

its Investment Professionals comply 

with the Impartial Conduct Standards. 

Under Section II(c)(2), Financial 

Institutions’ policies and procedures are 

required to mitigate conflicts of interest 

to the extent that a reasonable person 

reviewing the policies and procedures 

and incentive practices as a whole 

would conclude that they do not create 

an incentive for a Financial Institution 

or Investment Professional to place their 

interests ahead of the interest of the 

Retirement Investor.115

As defined in section V(c), a Conflict 

of Interest is ‘‘an interest that might 

incline a Financial Institution or 

Investment Professional—consciously or 

unconsciously—to make a 

recommendation that is not in the Best 

Interest of the Retirement Investor.’’ 

Conflict mitigation is a critical 

condition of the exemption, and is 

important to the required findings under 

ERISA section 408(a) and Code section 


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4975(c)(2), that the exemption is in the 

interests of, and protective of, 

Retirement Investors. 

To comply with Section II(c)(2) of the 

exemption, Financial Institutions would 

need to identify and carefully focus on 

the conflicts of interest in their 

particular business models that may 

create incentives to place their interests 

ahead of the interest of Retirement 

Investors. Under the exemption 

condition, Financial Institutions’ 

policies and procedures must be 

prudently designed to, among other 

things, protect Retirement Investors 

from recommendations to make 

excessive trades, or to buy investment 

products, annuities, or riders that are 

not in the investor’s best interest or that 

allocate excessive amounts to illiquid or 

risky investments. Examples of policies 

and procedures and conflict mitigation 

strategies are provided later in this 

preamble. 

Some commenters on the proposal 

expressed the view that the policies and 

procedures requirement was not 

sufficiently protective because it is 

based on the exemption’s best interest 

standard, which the commenters 

believed was not a ‘‘true’’ fiduciary 

standard. Further, the commenters 

indicated that the exemption should 

include substantive provisions 

regarding the policies and procedures, 

beyond the statement that they must be 

prudent. One commenter suggested a 

number of specific provisions, including 

a description of the criteria that will be 

applied in determining that the 

recommendation did not place the 

interests of the Financial Institution or 

Investment Professional ahead of the 

interests of the Retirement Investor; a 

description of how the Financial 

Institution and Investment Professional 

will mitigate conflicts of interest; a 

requirement that the Financial 

Institution and investment professionals 

maintain written records showing the 

basis for each recommendation and how 

it complies with the written policies 

and procedures; the engagement of an 

independent compliance officer; 

identification, in the annual report, of 

the compliance officer and his or her 

qualifications; a statement describing 

the scope of the review conducted by 

the compliance officer; to the extent the 

self-review uncovers any violations of 

the policies and procedures, an 

unwinding of the transaction(s); and 

distribution of the self-review to all 

Retirement Investors receiving 

conflicted fiduciary investment advice. 

Another commenter expressed concern 

that the stated intention of the policies 

and procedures requirement did not 

align with what the proposal indicated 

would actually be accepted as 

demonstrating compliance. 

In the proposal, Section II(c)(2) 

provided that a Financial Institution’s 

policies and procedures would be 

required to mitigate conflicts of interest 

to the extent that the policies and 

procedures, and the Financial 

Institution’s incentive practices, when 

viewed as a whole, are prudently 

designed to avoid misalignment of the 

interests of the Financial Institution and 

Investment Professionals and the 

interests of Retirement Investors. Some 

commenters criticized the proposal’s 

approach to conflict mitigation, 

asserting that the proposal’s terms were 

vague and lacked sufficient specifics. 

For instance, one commenter noted 

disapprovingly that the proposal 

required that policies and procedures be 

designed to ‘‘mitigate’’ conflicts of 

interest rather than ‘‘eliminate’’ them. 

Another commenter took issue with the 

proposal’s suggestion that financial 

institutions should simply ‘‘consider 

minimizing’’ incentives that operate at 

the firm level. The commenter opined 

that the exemption’s language does not 

address how to minimize the conflicts 

associated with receipt of revenue 

sharing payments, for instance. 

Commenters also objected to the 

alignment of the best interest standard 

with the SEC’s regulatory standards, 

which they asserted were intentionally 

designed to avoid disruption of broker 

dealers’ highly conflicted business 

model. These commenters described the 

SEC standards as allowing that the vast 

majority of conflicted practices to 

continue unabated, and they said the 

same would be the case in the 

exemption. At the September 3, 2020, 

public hearing, several commenters 

warned the Department that the 

Regulation Best Interest standards were 

untested, and it was premature for the 

Department to rely on the SEC. Some 

commenters urged the Department to go 

further and describe specific lines of 

prohibited conduct. 

Commenters also criticized the 

proposal for suggesting that significant 

conflicts of interest can be addressed 

through more rigorous supervision, 

stating that firms often have no 

incentive to constrain the conduct that 

their practices encourage. One 

commenter pointed specifically to the 

preamble’s statement that a firm with 

‘‘significant variation in compensation 

across different investment products 

would need to implement more 

stringent supervisory oversight,’’ and 

noted that, in practice, when firms’ 

bottom lines also benefit from 

recommending the higher compensating 

investment products, they will likely 

turn a blind eye when their financial 

professionals improperly push those 

products. 

On the other hand, a few commenters 

urged the Department to increase 

alignment of the policies and 

procedures with securities laws, 

including Regulation Best Interest. A 

commenter requested the Department to 

clarify that, consistent with their 

understanding of Regulation Best 

Interest, firm-level conflicts must be 

disclosed or eliminated and any 

conflicts for the Investment Professional 

must be disclosed and mitigated. Other 

commenters asked that the wording of 

the policies and procedures be aligned 

to a greater degree with Regulation Best 

Interest and that the Department make 

clear that the satisfaction of other 

existing regulatory standards will satisfy 

the relevant conditions of the exemption 

for investment advice providers in order 

to eliminate confusion. Several 

commenters also asked the Department 

to acknowledge that ‘‘prudently’’ 

developed policies and procedures are 

the same as ‘‘reasonably’’ developed 

policies and procedures, or to simply 

revise the exemption requirement to use 

the term ‘‘reasonably designed’’ in 

accord with the text of Regulation Best 

Interest. These commenters opined that 

the difference between ‘‘prudence’’ and 

‘‘reasonableness’’ was either unclear or 

nonexistent. One commenter urged the 

Department to adopt a definition of 

commission-based incentives limited to 

ones where incentives are tied to the 

sale of specific financial or insurance 

products within a limited period of 

time. 

After consideration of all comments, 

the Department has adopted Section 

II(c)(1) as proposed. As discussed above, 

the Department believes that the best 

interest standard in the exemption is 

consistent with Title I’s fiduciary 

standard and that it is sufficiently 

protective of Retirement Investors’ 

interests. As the Department intends to 

retain interpretive authority with 

respect to satisfaction of the standards, 

it does not agree with commenters that 

it is necessary to defer action until 

further evaluation of the impact of 

Regulation Best Interest. 


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82834 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

116 85 FR 40845. 117The commenter’s other specific suggestions 

related to documentation of recommendations and 

to the retrospective review are discussed in the 

sections of the preamble on those requirements of 

the exemption. 

118See 85 FR 40845. 

119Regulation Best Interest Release, 84 FR 33394– 

97; NAIC Model Regulation, Section 6.C.(2)(h). 

120None of the conditions of the exemption are 

intended to categorically bar the provision of 

employee benefits to insurance company statutory 

employees, despite the practice of basing eligibility 

for such benefits on sales of proprietary products 

of the insurance company. See Code section 3121. 

However, the Department has revised 

Section II(c)(2) to provide that Financial 

Institutions’ policies and procedures 

must mitigate conflicts of interest ‘‘to 

the extent that a reasonable person 

reviewing the policies and procedures 

and incentive practices as a whole 

would conclude that they do not create 

an incentive for a Financial Institution 

or Investment Professional to place their 

interests ahead of the interest of the 

Retirement Investor.’’ The Department 

believes this revised phrasing provides 

a standard that more clearly 

communicates the intent that incentives 

must be mitigated, and provides a 

standard of mitigation based on the 

view of a ‘‘reasonable person.’’ The 

preamble to the proposed exemption 

communicated this type of ‘‘reasonable 

person’’ standard in discussing the 

meaning of the proposal’s standard to 

avoid misalignment of interests.116

The standard retains the requirement 

that the policies and procedures and 

incentive practices must be viewed as a 

whole, so that Financial Institutions 

have flexibility in adopting practices 

that both mitigate compensation 

incentives and use supervisory 

oversight to prudently ensure that the 

standard is satisfied. The exemption’s 

policies and procedures requirement is 

deliberately principles-based, enabling 

multiple types of Financial Institutions 

and Investment Professionals to rely 

upon the exemption in connection with 

providing investment advice to 

Retirement Investors. The Department 

agrees, however, with the commenter 

that suggested that the Financial 

Institution’s written policies and 

procedures would necessarily express 

the criteria for determining that the 

exemption’s standards will be met and 

describe the Financial Institution’s 

conflict mitigation methods.117

Although some commenters requested 

the elimination of certain practices or 

asserted that the exemption should 

include more specific provisions 

regarding conflict mitigation, the 

Department has maintained the 

approach from the proposal. The 

Department disagrees with the 

commenters who stated that the vast 

majority of conflicted practices can 

continue unabated under the 

exemption. This claim is expressly 

contrary to the proposal’s requirement 

that the policies and procedures be 

prudently designed to avoid 

misalignment of the interests of the 

Financial Institution and Investment 

Professional with the Retirement 

Investors they serve, which was 

clarified in this final exemption as 

discussed above. 

As stated in the preamble to the 

proposal, Financial Institutions that 

continue to offer transaction-based 

compensation would focus on both 

financial incentives to Investment 

Professionals and supervisory oversight 

of investment advice to meet the 

standards. The exemption lacks 

additional specific mandates regarding 

conflict mitigation in order to 

accommodate the wide variety of 

business models used throughout the 

financial services industry. The type 

and degree of conflicts is susceptible to 

change over time. The Department 

believes that prescriptive conflict 

mitigation provisions would decrease 

the utility of the exemption, now and in 

the future. 

Although a commenter criticized the 

suggestion that supervisory oversight 

can be protective, the Department 

believes that it is an important 

component of a Financial Institution’s 

policies and procedures. Given that the 

exemption permits Investment 

Professionals to be compensated on a 

transactional basis, it is not possible to 

fully mitigate compensation incentives 

and accordingly Financial Institutions 

will always be required to oversee 

recommendations. In this regard, the 

Department declines to adopt the 

position suggested by a commenter that, 

for purposes of the exemption, 

commission-based incentives are 

limited to ones where incentives are 

tied to the sale of specific financial or 

insurance products within a limited 

period of time. Among other things, this 

approach would be inconsistent with 

the broad definition of a conflict of 

interest in the exemption, as an interest 

that might incline a Financial 

Institution or Investment Professional— 

consciously or unconsciously—to make 

a recommendation that is not in the Best 

Interest of the Retirement Investor. 

As described above, one commenter 

identified a number of sales practices 

the commenter believed would still be 

permitted under the exemption, and 

stated that the exemption should more 

clearly limit incentive practices that a 

reasonable person would view as 

creating incentives to recommend 

investments that are not in Retirement 

Investors’ best interest. The Department 

notes that the preamble to the proposal 

described the exemption as requiring 

this level of conflict mitigation, and the 

final exemption was revised to use that 

standard so that the meaning would be 

clearer.118 Therefore, for example, the 

final exemption would not permit 

Financial Institutions to pay Investment 

Professionals significantly more to 

recommend one investment product 

over another, without putting in place 

stringent oversight mechanisms to 

ensure that the compensation structure 

does not incentivize recommendations 

that do not adhere to the exemption’s 

standards. 

The Department notes that regulators 

in the securities and insurance industry 

have adopted provisions requiring 

policies and procedures to eliminate 

sales contests and similar incentives 

such as sales quotas, bonuses, and noncash compensation that are based on 

sales of certain investments within a 

limited period of time.119 The 

Department intends to apply a 

principles-based approach to sales 

contests and similar incentives. To 

satisfy the exemption’s standard of 

mitigation, Financial Institutions would 

be required to carefully consider all 

performance and personnel actions and 

practices that could encourage violation 

of the Impartial Conduct Standards.120

The Department further notes that the 

exemption’s obligation to mitigate 

conflicts is not limited to conflicts of 

Investment Professionals. The conflict 

mitigation requirement in the policies 

and procedures obligation extends to 

the Financial Institution’s own interests, 

including interests in proprietary 

products and limited menus of 

investment options that generate third 

party payments. The Department 

believes this exemption’s standard of 

mitigation ensures that Financial 

Institutions will take a broad-based 

approach to addressing their conflicts of 

interest, which will provide a strong 

threshold foundation for the 

formulation of best interest investment 

recommendations. 

In response to commenters seeking 

guidance on the differences, if any, 

between the prudence standard under 

this part of the exemption and the 

reasonableness standards under the 

federal securities laws, the Department 

states that it does not have interpretive 

authority over the federal securities 

laws, and declines to provide 

interpretations as to how these 

standards may differ. The prudence 

requirement indicates a level of care, 


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121 In general, after the rollover, the ongoing 

receipt of compensation based on a fixed percentage 

of the value of assets under management may not 

require a prohibited transaction exemption. 

However, the Department cautions that certain 

practices such as ‘‘reverse churning’’ (i.e. 

recommending a fee-based account to an investor 

with low trading activity and no need for ongoing 

advice or monitoring) or recommending holding an 

asset solely to generate more fees may be prohibited 

transactions. This exemption would not be 

available for such practices because they would not 

satisfy the Impartial Conduct Standards. 

122As explained earlier, it is the Department’s 

view that a recommendation to roll assets out of a 

Plan is advice with respect to moneys or other 

property of the Plan. Advice to take a distribution 

of assets from a Title I Plan is advice to sell, 

withdraw, or transfer investment assets currently 

held in the Plan. A distribution recommendation 

commonly involves either advice to change specific 

investments in the Plan or to change fees and 

services directly affecting the return on those 

investments. 

123As one commenter noted, the scope of 

Regulation Best Interest and the Department’s 

exemption do not overlap precisely. Therefore, the 

commenter asked the Department to acknowledge 

that Financial Institutions developing policies and 

procedures will need to address interactions with 

Retirement Investors that are not addressed in 

Regulation Best Interest. This is another reason that 

the Department intends to maintain interpretive 

authority with respect to the exemption. 

124This is not to suggest that a Financial 

Institution that analyzes the conflicts associated 

with commission-based compensation incentives 

does not need to engage in a separate mitigation 

analysis with respect to the conflicts specifically 

associated with rollover recommendations as 

opposed to non-rollover recommendations. Nor 

does it suggest that every financial incentive can be 

effectively mitigated through oversight, no matter 

how severe the conflict of interest. As reflected in 

the SEC’s ban on time-limited sales contests, some 

incentive structures are too prone to abuse to permit 

as part of firm policies and procedures. 

skill, and diligence that a person acting 

in a like capacity and familiar with such 

matters would use in the conduct of an 

enterprise of a like character and with 

like aims. 

The Department offers the following 

examples of business models and 

practices that may present conflicts of 

interest that a Financial Institution 

would address through its policies and 

procedures: 

Example 1: A Financial Institution 

anticipates that prohibited conflicts of 

interest related to compensation in its 

business model will only arise in 

connection with advice to roll over Plan 

or IRA assets, because after the rollover, 

the Financial Institution and Investment 

Professional will provide ongoing 

investment advice and be compensated 

on a level-fee basis. The Financial 

Institutions decides to seek prohibited 

transaction relief in connection with 

rollover conflicts by relying upon the 

exemption.121 The Financial 

Institution’s policies and procedures 

would focus on rollover 

recommendations.122 Additionally, the 

policies and procedures should 

appropriately address how to document 

rollover recommendations, consistent 

with the requirement in Section II(c)(3) 

to document the reason for a rollover 

recommendation and why such 

recommendation is in the best interest 

of the Retirement Investor. 

Example 2: A Financial Institution 

intends to receive transaction-based 

compensation, and generate 

compensation for the Financial 

Institution and its Investment 

Professionals based on transactions that 

occur in a Retirement Investor’s 

accounts, such as through commissions. 

The Financial Institution’s policies and 

procedures would address the 

incentives created by these 

compensation arrangements. 

Example 3: Insurance company 

Financial Institutions can comply with 

the new exemption by supervising 

independent insurance agents, or by 

creating oversight and compliance 

systems through contracts with 

insurance intermediaries. The Financial 

Institution and/or intermediary would 

address incentives created with respect 

to independent agents’ 

recommendations of the Financial 

Institution’s insurance or annuity 

products. 

In connection with these examples, 

following is a discussion of various 

possible components of effective 

policies and procedures. While the 

Department is not adjusting the policies 

and procedures to provide a safe harbor 

for compliance with securities or other 

law, many of the conflict mitigation 

approaches identified below were 

identified by the SEC in Regulation Best 

Interest.123

Commission-Based Compensation 

Arrangements 

Financial Institutions that compensate 

Investment Professionals through 

transaction-based payments and 

incentives would be required to 

minimize the impact of these 

compensation incentives on fiduciary 

investment advice to Retirement 

Investors, so that the Financial 

Institution would be able to meet the 

exemption’s standard of conflict 

mitigation set forth in Section II(c)(2). 

As noted above, this standard would 

require mitigation of conflicts to the 

extent that a reasonable person 

reviewing the policies and procedures 

and incentive practices as a whole 

would conclude that they do not create 

an incentive for a Financial Institution 

or Investment Professional to place their 

interests ahead of the interest of the 

Retirement Investor. 

For commission-based compensation 

arrangements, Financial Institutions 

would be encouraged to focus on 

financial incentives to Investment 

Professionals and supervisory oversight 

of investment advice. These two aspects 

of the Financial Institution’s policies 

and procedures would complement 

each other, and Financial Institutions 

could retain the flexibility, based on the 

characteristics of their businesses, to 

adjust the stringency of each component 

provided that the exemption’s overall 

standards would be satisfied. Financial 

Institutions that significantly mitigate 

commission-based compensation 

incentives would have less need to 

rigorously oversee individual 

Investment Professionals and individual 

recommendations. Conversely, 

Financial Institutions that have 

significant variation in compensation 

across different investment products 

would need to implement the policies 

and procedures by using more stringent 

supervisory oversight.124

In developing compliance structures, 

the Department expects that Financial 

Institutions will also look to conflict 

mitigation strategies identified by the 

Financial Institutions’ other regulators. 

For illustrative purposes only, the 

following are non-exhaustive examples 

of practices identified as options by the 

SEC that could be implemented by 

Financial Institutions in compensating 

Investment Professionals: (1) Avoiding 

compensation thresholds that 

disproportionately increase 

compensation through incremental 

increases in sales; (2) minimizing 

compensation incentives for employees 

to favor one type of account over 

another; or to favor one type of product 

over another, proprietary or preferred 

provider products, or comparable 

products sold on a principal basis, for 

example, by establishing differential 

compensation based on neutral factors; 

(3) eliminating compensation incentives 

within comparable product lines by, for 

example, capping the credit that an 

associated person may receive across 

mutual funds or other comparable 

products across providers; (4) 

implementing supervisory procedures to 

monitor recommendations that are: Near 

compensation thresholds; near 

thresholds for firm recognition; involve 

higher compensating products, 

proprietary products, or transactions in 

a principal capacity; or, involve the 

rollover or transfer of assets from one 

type of account to another (such as 

recommendations to roll over or transfer 

assets in a Title I Plan account to an 

IRA) or from one product class to 

another; (5) adjusting compensation for 

associated persons who fail to 


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125Regulation Best Interest Release, 84 FR 33392. 

126For additional discussion of Financial 

Institution conflicts, see the preamble discussion 

below, ‘‘Proprietary Products and Limited Menus of 

Investment Products.’’ 

127Cf. NAIC Model Regulation, Section 6.C.(2)(d) 

(‘‘The insurer shall establish and maintain 

procedures for the review of each recommendation 

prior to issuance of an annuity that are designed to 

ensure that there is a reasonable basis to determine 

that the recommended annuity would effectively 

address the particular consumer’s financial 

situation, insurance needs and financial objectives. 

Such review procedures may apply a screening 

system for the purpose of identifying selected 

transactions for additional review and may be 

accomplished electronically or through other means 

including, but not limited to, physical review. Such 

an electronic or other system may be designed to 

require additional review only of those transactions 

identified for additional review by the selection 

criteria’’); and (e) (‘‘The insurer shall establish and 

maintain reasonable procedures to detect 

recommendations that are not in compliance with 

subsections A, B, D and E. This may include, but 

is not limited to, confirmation of the consumer’s 

consumer profile information, systematic customer 

surveys, producer and consumer interviews, 

confirmation letters, producer statements or 

attestations and programs of internal monitoring. 

Nothing in this subparagraph prevents an insurer 

from complying with this subparagraph by applying 

sampling procedures, or by confirming the 

consumer profile information or other required 

information under this section after issuance or 

delivery of the annuity’’). The prior version of the 

model regulation, which was adopted in some form 

by a number of states, also included similar 

provisions requiring systems to supervise 

recommendations. See Annuity Suitability (A) 

Working Group Exposure Draft, Adopted by the 

Committee Dec. 30, 2019, available at 

www.naic.org/documents/committees_mo275.pdf. 

(comparing 2020 version with prior version). 

128Cf. id., Section 6.C.(4) (‘‘An insurer is not 

required to include in its system of supervision: (a) 

A producer’s recommendations to consumers of 

products other than the annuities offered by the 

insurer’’). 

129Proprietary products include products that are 

managed, issued, or sponsored by the Financial 

Institution or any of its affiliates. 

130Third party payments include sales charges 

when not paid directly by the Plan or IRA; gross 

dealer concessions; revenue sharing payments; 

12b–1 fees; distribution, solicitation or referral fees; 

volume-based fees; fees for seminars and 

educational programs; and any other compensation, 

consideration or financial benefit provided to the 

Financial Institution or an affiliate or related entity 

by a third party as a result of a transaction involving 

a Plan or an IRA. 

adequately manage conflicts of interest; 

and (6) limiting the types of retail 

customer to whom a product, 

transaction or strategy may be 

recommended.125

Financial Institutions also must 

review and mitigate incentives at the 

Financial Institution level. Firms should 

establish or enhance the review process 

for investment products that may be 

recommended to Retirement Investors. 

This process should include procedures 

for identifying and mitigating conflicts 

of interest associated with the product 

or declining to recommend a product if 

the Financial Institution cannot 

effectively mitigate associated conflicts 

of interest.126

Insurance Companies 

To comply with the exemption, 

insurance company Financial 

Institutions could adopt and implement 

supervisory and review mechanisms 

and avoid improper incentives that 

preferentially push the products, riders, 

and annuity features that might 

incentivize Investment Professionals to 

provide investment advice to 

Retirement Investors that does not meet 

the Impartial Conduct Standards. 

Insurance companies could implement 

procedures to review annuity sales to 

Retirement Investors under fiduciary 

investment advice arrangements to 

ensure that they were made in 

satisfaction of the Impartial Conduct 

Standards, much as they may already be 

required to review annuity sales to 

ensure compliance with state-law 

suitability requirements.127

In this regard, as discussed above, 

insurance company Financial 

Institutions would be responsible only 

for an Investment Professional’s 

recommendation and sale of products 

offered to Retirement Investors by the 

insurance company in conjunction with 

fiduciary investment advice, and not to 

product sales of unrelated and 

unaffiliated insurers.128

Insurance companies could also 

create a system of oversight and 

compliance by contracting with an 

insurance intermediary or other entity 

to implement policies and procedures 

designed to ensure that all of the agents 

associated with the intermediary adhere 

to the conditions of this exemption. The 

intermediary could, for example, take 

action directly aimed at mitigating or 

eliminating compensation incentives. 

The intermediary could also review 

documentation prepared by insurance 

agents to comply with the exemption, as 

may be required by the insurance 

company, or use third-party industry 

comparisons available in the 

marketplace to help independent 

insurance agents recommend products 

that are prudent for the Retirement 

Investors they advise. 

Periodic Review of Policies and 

Procedures 

The Department notes that Financial 

Institutions complying with the 

exemption would need to review their 

policies and procedures periodically 

and reasonably revise them as necessary 

to ensure that the policies and 

procedures continue to satisfy the 

conditions of this exemption. In 

particular, the exemption requires 

ongoing vigilance as to the impact of 

conflicts of interest on the provision of 

fiduciary investment advice to 

Retirement Investors. As a matter of 

prudence, Financial Institutions should 

regularly review their policies and 

procedures to ensure that they are 

achieving their intended goal of 

ensuring compliance with the 

exemption and the provision of advice 

that satisfies the Impartial Conduct 

Standards. For example, to the extent 

new products, lines of business, or 

compensation structures are introduced, 

Financial Institutions should consider 

whether their policies and procedures 

continue to be appropriate and effective. 

To the extent that the policies are failing 

to achieve their goal of ensuring 

compliance, the deficiencies should be 

corrected. 

Proprietary Products and Limited Menus 

of Investment Products 

The best interest standard can be 

satisfied by Financial Institutions and 

Investment Professionals that provide 

investment advice on proprietary 

products or on a limited menu of 

investment options, including 

limitations to proprietary products 129

and products that generate third party 

payments.130 Product limitations can 

serve a beneficial purpose by allowing 

Financial Institutions and Investment 

Professionals to develop increased 

familiarity with the products they 

recommend. At the same time, limited 

menus, particularly if they focus on 

proprietary products and products that 

generate third party payments, can 

result in heightened conflicts of interest. 

Financial Institutions and their affiliates 

and related entities may receive more 

compensation than they would for 

recommending other products, and, as a 

result, Investment Professionals and 

Financial Institutions may have an 

incentive to place their interests ahead 

of the interest of the Retirement 

Investor. 

As the Department explained in the 

proposal, Financial Institutions and 

Investment Professionals providing 

investment advice on proprietary 

products or on a limited menu can 

satisfy the conditions of the exemption. 

They can do so by providing complete 

and accurate disclosure of their material 

conflicts of interest in connection with 

such products or limitations and 

adopting policies and procedures that 

mitigate conflicts to the extent that a 

reasonable person reviewing the 

policies and procedures and incentive 

practices as a whole would conclude 

that they do not create an incentive for 

a Financial Institution or Investment 

Professional to place their interests 


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ahead of the interest of the Retirement 

Investor. 

The Department envisions that 

Financial Institutions complying with 

the Impartial Conduct Standards and 

policies and procedures would carefully 

consider their product offerings and 

form a reasonable conclusion about 

whether the menu of investment options 

would permit Investment Professionals 

to provide fiduciary investment advice 

to Retirement Investors in accordance 

with the Impartial Conduct Standards. 

The exemption would be available if the 

Financial Institution prudently 

concludes that its offering of proprietary 

products, or its limitations on 

investment product offerings, in 

conjunction with the policies and 

procedures, would not create an 

incentive for Financial Institutions or 

Investment Professionals to place their 

interests ahead of the interest of the 

Retirement Investor. 

Several commenters expressed 

general support for the Department’s 

approach to proprietary products and 

limited menus. One commenter noted 

that practical considerations call for 

limiting the investment menu when 

thousands of mutual funds and 

securities exist on a Financial 

Institution’s platform. Another 

commenter agreed that Financial 

Institutions would form a reasonable 

conclusion about whether the limited 

menu supports recommendations that 

satisfy the Impartial Conduct Standards. 

Some commenters expressed concern 

about the exemption’s coverage of 

recommendations involving proprietary 

products or limited menus because it 

would allow recommendations of 

poorly performing, high commission 

products. One commenter stated the 

exemption should not extend to such 

recommendations, as they create the 

largest potential for conflicts that cannot 

be fully eliminated, and suggested that 

the Department require that such 

recommendations be handled through 

the individual prohibited transaction 

exemption process. Another commenter 

indicated that the proposal did not 

address some ‘‘non-financial structures’’ 

used in connection with rollovers, such 

as requirements imposed by service 

providers for investors to fill out lengthy 

forms in order to roll plan assets over to 

third-party entities, while 

simultaneously providing simple and 

easy mechanisms for rollovers from the 

Plan into proprietary products 

maintained by the provider. Another 

commenter thought the exemption 

should specifically require Financial 

Institutions to document their 

conclusions as to why their offering of 

proprietary products or limited menus, 

in conjunction with the policies and 

procedures, would not cause a 

misalignment of their interests with 

Retirement Investors. 

In response to comments, the 

Department has not restricted the 

exemption to exclude recommendations 

of proprietary products and products 

from a limited menu, or required them 

to be addressed solely through 

individual exemptions. The Department 

believes that the conditions of the class 

exemption, including the best interest 

standard, appropriately address 

concerns about proprietary products. 

The Department has not added a 

specific requirement that Financial 

Institutions document their conclusions 

as to why their offering of proprietary 

products or limited menus, in 

conjunction with the policies and 

procedures, would not create an 

incentive for the Financial Institutions 

or Investment Professionals to place 

their interests ahead of the interest of 

the Retirement Investor. However, the 

Department notes that this is a best 

practice and may serve the interests of 

Financial Institutions since they are 

required under Section IV to keep 

records demonstrating compliance with 

the exemption. Even though there is no 

specific documentation requirement, the 

Department expects a Financial 

Institution would be able to explain 

clearly the process it used in making 

this determination. The Department also 

cautions Financial Institutions and 

Investment Professionals about practices 

that selectively promote Retirement 

Investors’ purchase of products that are 

not in their best interest in the manner 

suggested by the commenter above (e.g., 

by making it much more burdensome 

for the Retirement Investor to rollover 

assets to one investment rather than 

another). Even if the practices do not 

directly involve the provision of 

fiduciary advice, they potentially 

undermine the required policies and 

procedures to mitigate conflicts of 

interest and may facilitate violations of 

fiduciary standards. Such practices 

should also be a matter of concern for 

the fiduciaries responsible for hiring the 

Financial Institutions and Investment 

Professionals to provide plan services. 

A few commenters sought 

clarification of the Department’s 

preamble statement that a Financial 

Institution’s policies and procedures 

should extend to circumstances in 

which the Financial Institution or 

Investment Professional determines that 

its proprietary products or limited menu 

do not offer Retirement Investors an 

investment option in their best interest 

when compared with other investment 

alternatives available in the 

marketplace. They sought confirmation 

that the Department did not intend to 

require Financial Institutions to 

compare their product offerings to all 

available investment alternatives, a 

confirmation they stated is consistent 

with guidance provided by the SEC on 

Regulation Best Interest. These 

commenters asserted that imposing such 

a requirement would serve to limit 

investor access to prudent investment 

advice, and could potentially require 

Investment Professionals that are 

insurance-only agents to compare 

annuities against securities, which they 

are not be licensed to sell, and which 

would potentially cause compliance 

issues under state securities laws. 

The Department confirms that the 

exemption does not require Financial 

Institutions to compare proprietary 

products with all other investment 

alternatives available in the 

marketplace. There is no obligation to 

perform an evaluation of every possible 

alternative, including those the 

Financial Institution or Investment 

Professional are not licensed to 

recommend, and the exemption does 

not contemplate that there is a single 

investment that is in a Retirement 

Investor’s best interest. The exemption 

merely provides that Financial 

Institutions and Investment 

Professionals cannot use a limited menu 

to justify making a recommendation that 

does not meet the Impartial Conduct 

Standards. 

Retrospective Review—Section II(d) 

Section II(d) of the exemption 

requires Financial Institutions to 

conduct a retrospective review, at least 

annually, that is reasonably designed to 

assist the Financial Institution in 

detecting and preventing violations of, 

and achieving compliance with, the 

Impartial Conduct Standards and the 

policies and procedures governing 

compliance with the exemption. While 

mitigation of Financial Institutions’ and 

Investment Professionals’ conflicts of 

interest is critical, Financial Institutions 

must also monitor Investment 

Professionals’ conduct to detect advice 

that does not adhere to the Impartial 

Conduct Standards or the Financial 

Institution’s policies and procedures. 

The methodology and results of the 

retrospective review must be reduced to 

a written report that is provided to one 

of the Financial Institution’s Senior 

Executive Officers. 

That officer is required to certify 

annually that: 

(A) The officer has reviewed the 

report of the retrospective review; 

(B) The Financial Institution has in 

place policies and procedures prudently 


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82838 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

131See FINRA rules 3110, 3120, and 3130. 

132See, e.g., Rule 206(4)–7(b) under the 

Investment Advisers Act of 1940. 

133The best interest standard and the comments 

received on it are discussed above in ‘‘Impartial 

Conduct Standards.’’ 

134Subsection (B) requires certification that ‘‘[t]he 

Financial Institution has in place policies and 

procedures prudently designed to achieve 

compliance with the conditions of this exemption;’’ 

and subsection (C) requires certification that ‘‘[t]he 

Financial Institution has in place a prudent process 

to modify such policies and procedures as business, 

regulatory and legislative changes and events 

dictate, and to test the effectiveness of such policies 

and procedures on a periodic basis, the timing and 

extent of which is reasonably designed to ensure 

continuing compliance with the conditions of this 

exemption.’’ 

designed to achieve compliance with 

the conditions of this exemption; and 

(C) The Financial Institution has in 

place a prudent process to modify such 

policies and procedures as business, 

regulatory and legislative changes and 

events dictate, and to test the 

effectiveness of such policies and 

procedures on a periodic basis, the 

timing and extent of which is 

reasonably designed to ensure 

continuing compliance with the 

conditions of this exemption. 

This retrospective review, report and 

certification must be completed no later 

than six months following the end of the 

period covered by the review. The 

Financial Institution is required to 

retain the report, certification, and 

supporting data for a period of six years. 

If the Department requests the written 

report, certification, and supporting data 

within those six years, the Financial 

Institution would make the requested 

documents available within 10 business 

days of the request, to the extent 

permitted by law including 12 U.S.C. 

484. The Department believes that the 

requirement to provide the written 

report within 10 business days will 

ensure that Financial Institutions 

diligently prepare their reports each 

year, resulting in meaningful protection 

of Retirement Investors. 

Financial Institutions can use the 

results of the review to find more 

effective ways to ensure that Investment 

Professionals are providing investment 

advice in accordance with the Impartial 

Conduct Standards and to correct any 

deficiencies in existing policies and 

procedures. Requiring a Senior 

Executive Officer to certify review of the 

report is a means of creating 

accountability for the review. This 

would serve the purpose of ensuring 

that more than one person determines 

whether the Financial Institution is 

complying with the conditions of the 

exemption and avoiding non-exempt 

prohibited transactions. If the officer 

does not have the experience or 

expertise to determine whether to make 

the certification, he or she would be 

expected to consult with a 

knowledgeable compliance professional 

to be able to do so. 

The retrospective review is based on 

FINRA rules governing how brokerdealers supervise associated persons,131

adapted to focus on the conditions of 

the exemption. The Department is aware 

that other Financial Institutions are 

subject to regulatory requirements to 

review their policies and procedures; 132

however, for the reasons stated above, 

the Department believes that the 

specific certification requirement in the 

exemption will serve to protect 

Retirement Investors in the context of 

conflicted investment advice 

transactions. 

Several commenters expressed 

support for a retrospective review but 

indicated the provision needs 

strengthening. One commenter stated 

that the requirement would be 

strengthened if the best interest 

standard is strengthened.133 One 

commenter suggested several methods 

of strengthening the exemption’s 

retrospective review requirements, 

including requiring an independent 

audit, requiring appointment of a 

compliance officer and identification of 

the compliance officer and his or her 

qualifications in the report, and 

requiring the report of the retrospective 

review to be provided to Retirement 

Investors. One commenter provided an 

example of how the report could look 

and criticized the Department’s 

statement that sampling would be 

permitted, asserting that the 

concentration of noncompliance is more 

likely to occur in large transactions. A 

few commenters stated the exemption 

should specify consequences of 

violations of the policies and 

procedures when such violations do not 

rise to the level of egregious patterns of 

misconduct. 

A number of commenters opposed the 

requirement, stating it is burdensome, 

costly and unnecessary. As support for 

this assertion, some commenters stated 

that other exemptions do not include 

this condition and it also is not a 

requirement of Regulation Best Interest. 

Some commenters urged the 

Department to avoid what they viewed 

as a separate ‘‘prescriptive’’ requirement 

in terms of ensuring that Financial 

Institutions satisfy the conditions of the 

exemption, in favor of a review 

incorporated into a firm’s policies and 

procedures. Some asserted that the other 

exemption conditions will provide a 

sufficient compliance structure and the 

consequences of failing to comply with 

the exemption will provide sufficient 

incentive for Financial Institutions to 

oversee their own compliance. One 

commenter said wording of the 

condition was too vague and could 

expose Financial Institutions to liability 

for not meeting the standard. A few 

commenters suggested eliminating 

subsections (B) and (C) of the 

certification requirement, and, instead, 

merely referencing Section II(c)’s 

policies and procedures requirement.134

Another commenter asked the 

Department to provide a safe harbor 

based on compliance with FINRA’s 

similar review requirement. 

As further described below, the 

Department has adopted the 

retrospective review requirement largely 

as proposed based on the view that 

compliance review is a critical 

component of a Financial Institution’s 

policies and procedures. Without this 

specific requirement, some Financial 

Institutions may take the position that 

adoption of policies and procedures is 

sufficient, without paying attention to 

whether the policies and procedures are 

prudently designed and whether 

Investment Professionals are complying 

with the policies and procedures and 

the Impartial Conduct Standards. The 

Department does not agree with those 

commenters who claimed such a review 

was unnecessary or overly burdensome. 

While some commenters expressed 

concern that the retrospective review 

needed strengthening, the Department 

notes the review must be signed and 

certified. The Department believes that 

requiring the results to be reduced to a 

written document certified by a Senior 

Executive Officer increases the 

likelihood that isolated compliance 

failures will be corrected before they 

become systemic. Although some 

commenters expressed the general view 

that the exemption relies upon selfpolicing, the requirement that Financial 

Institutions make their report available 

to the Department within 10 business 

days upon request ensures that the 

Department retains an appropriate level 

of oversight over exemption 

compliance. 

To maintain this principles-based 

approach, the Department did not 

mandate specific detailed components 

of the retrospective review. Financial 

Institutions will be free to design the 

review process in the context of their 

own business models and the particular 

conflicts of interest they face. Although 

the exemption does not specify that a 

compliance officer must be appointed, 

the Department envisions that Financial 

Institutions will, as a practical matter, 


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135Another commenter stated that the 

retrospective review should be required only once 

every three years. The Department has not adopted 

this suggestion. A review that is conducted as 

infrequently as once every three years would be 

unlikely to identify compliance concerns within a 

reasonable amount of time so as to prevent more 

systemic violations. 

assign a compliance role to an 

appropriate officer. 

The Department did not narrow 

subsections (B) and (C) of the 

certification requirements merely to 

reference the requirements of Section 

II(c) as suggested by a few commenters. 

The broader certification properly 

focuses the Financial Institution’s 

assessment of the ongoing effectiveness 

of the policies and procedures, the 

periodic testing of those policies and 

procedures, and the need to make 

modifications to the extent they are not 

working. A strong process to review the 

effectiveness of the Financial 

Institution’s policies and procedures 

and to make course corrections as 

necessary is critical to the protection of 

Retirement Investors affected by the 

exemption. 

In the proposal, the Department 

indicated that it envisioned that the 

review would involve testing a sample 

of transactions to determine 

compliance. In response to a comment 

that indicated sampling may not be 

appropriate since non-compliance may 

occur more frequently with respect to 

large transactions, the Department 

clarifies that an appropriate 

retrospective review would be aimed at 

detecting non-compliance across a wide 

range of transactions types and sizes, 

large and small, identifying deficiencies 

in the policies and procedures, and 

rectifying those deficiencies. For large 

Financial Institutions that conduct large 

numbers of transactions each year, 

sampling may not be the sole means of 

testing compliance, but it is an 

important and necessary component of 

any prudent review process, and should 

be performed in a manner designed to 

identify potential violations, problems, 

and deficiencies that need to be 

addressed. 

The Department considered the 

alternative of requiring a Financial 

Institution to engage an independent 

party to provide an external audit, as 

suggested by a commenter. Because of 

the potential costs of such audits, and 

the exemption’s reliance on the 

retrospective review process, the 

Department elected not to impose this 

additional requirement. The Department 

is not convinced that an independent, 

external audit would yield sufficient 

benefits in addition to the results of the 

retrospective review to justify the 

increased cost, especially in the case of 

smaller Financial Institutions without 

any past practice of actions that may 

render it ineligible to rely on this class 

exemption. The Department also has not 

included a requirement that the report 

of the retrospective review be provided 

to all Retirement Investors. As discussed 

below in the section on recordkeeping, 

the Department believes that Financial 

Institutions’ internal compliance 

documents should be available to 

regulators but not Retirement Investors, 

so as to promote full identification and 

remediation of compliance issues 

without undue concern about the 

widespread disclosure of the issues. 

The Department does not believe the 

requirement is too vague for Financial 

Institutions to know how to comply. 

The requirement that the review be 

‘‘reasonably designed’’ is consistent 

with reasonableness as a term 

commonly used in a variety of legal 

settings, and especially under the Act. 

Further, as noted above, the Department 

provided this approach to allow 

Financial Institutions flexibility in 

designing their compliance reviews. 

Although a retrospective review is not 

a requirement of Regulation Best 

Interest, as one commenter pointed out, 

the Department notes that an analogous 

requirement is already applicable to 

broker-dealers under FINRA rules. The 

Department declines to provide a safe 

harbor based on compliance with the 

FINRA rule because that rule is aimed 

at reviewing compliance with FINRA 

rules, not the Financial Institution’s 

separate compliance with the terms of 

this exemption. 

Some commenters said that a 

retrospective review was an unusual 

requirement for a class exemption, and 

that the Department had not pointed to 

any noncompliance to warrant such a 

condition. The Department, however, 

has routinely made independent audits 

a condition in individual exemptions. It 

is important that entities comply with 

the terms of the exemption and that the 

Department can readily verify such 

compliance. Here, the Department 

continues to believe that a retrospective 

review, which is less costly than an 

audit, strikes the appropriate balance for 

this class exemption. Additionally, the 

Department notes that it frequently 

imposes a recordkeeping requirement 

documenting compliance as a condition 

of exemption. In drafting a principlesbased exemption that works with 

different business models, the 

Department has determined that this 

retrospective review is a crucial way to 

determine compliance with the 

exemption, and to ensure covered 

entities review, enforce, and update 

their policies and procedures as needed. 

In response to commenters who asked 

the Department to specify the 

consequences of a violation discovered 

in the retrospective review, and other 

commenters who asked for the ability to 

correct compliance issues uncovered 

during the review, the Department has 

included a self-correction feature in the 

final exemption, as described below. If 

self-correction is not available or a 

Financial Institution decides not to selfcorrect, then the Financial Institution 

remains liable for a prohibited 

transaction associated with the 

transaction for which there was a 

failure. 

One commenter stated that the 

Department should not require 

Financial Institutions to provide the 

report within 10 business days of 

request by the Department because 

Financial Institutions may have 

legitimate difficulties meeting this 

requirement. However, this aspect of the 

exemption provides an important 

mechanism for the Department to 

ensure that Financial Institutions are 

taking their roles under the exemption 

seriously. The Department does not 

intend for Financial Institutions to 

prepare a retrospective review only after 

it has been requested by the 

Department. The exemption provides a 

separate deadline for the completion of 

each annual review, so the obligation to 

provide the accompanying report within 

10 business days of request will only 

apply to completed reports. For this 

reason, the Department has not 

extended the 10 business-day period.135

Another commenter requested a 

transition period for the retrospective 

review through 2022, for the creation 

and testing of the report that is required 

in connection with the retrospective 

review. The commenter suggested that 

so long as the Financial Institution is 

working towards creating and testing 

the process, it should be able to use the 

exemption. As there is not a specified 

form of the report, the Department does 

not believe an additional transition 

period is warranted. Because the report 

is annual and retrospective, preparation 

of the first report would not need to 

begin until at least one year after the 

exemption’s effective date, and the 

report does not need to be completed for 

an additional six months after that. The 

Department believes this will give the 

Financial Institution sufficient time to 

create and test its reporting methods. 

Furthermore, Financial Institutions that 

are subject to the FINRA regulation 

should already be conducting a similar 

type of review. The Department believes 

it would be inconsistent with the 

principles and protective nature of the 


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82840 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

136See Reorganization Plan No. 4 of 1978 and 

discussion supra. 

exemption to further delay 

implementation of the retrospective 

review. 

One commenter addressed the 

interaction of banking law with the 

requirement in Section II(d)(5) to 

provide the report of the retrospective 

review, the certification and supporting 

data available to the Department. The 

commenter stated that a provision of the 

National Bank Act, 12 U.S.C. 484, 

prohibits any person from exercising 

visitorial powers over national banks 

and federal savings associations except 

as authorized by federal law. The 

commenter requested that Section 

II(d)(5) be revised with the addition, at 

the end of the sentence, of, ‘‘except as 

prohibited under 12 U.S.C. 484.’’ 

Without conceding that the 

Department’s authority is limited by this 

provision, the Department has made the 

requested edit. 

One commenter indicated that the 

Department does not have jurisdiction 

to enforce the prohibited transaction 

rules for transactions involving IRAs, so 

the Department’s interest in and access 

to the report of the retrospective review 

should be limited to Title I Plan 

transactions. As the agency with 

authority to grant prohibited transaction 

exemptions under the Code, the 

Department retains the ability to 

determine whether the conditions of an 

exemption are being met by reviewing 

records for the purpose of determining 

parties’ compliance for IRAs.136

Senior Executive Officer Certification 

While the proposal stated that the 

Financial Institution’s chief executive 

officer (or equivalent) must certify the 

retrospective review, the final 

exemption provides, instead, that the 

retrospective review may be certified by 

any of the Financial Institution’s Senior 

Executive Officers. The exemption 

defines a ‘‘Senior Executive Officer’’ as 

any of the following: The chief 

compliance officer, the chief executive 

officer, president, chief financial officer, 

or one of the three most senior officers 

of the Financial Institution. In making 

this change, the Department accepts the 

views of a number of commenters that 

stated that the CEO should not be the 

only person who can provide a 

certification regarding the retrospective 

review. The Department does not 

believe that permitting the Financial 

Institution to choose whichever Senior 

Executive Officer it believes is most 

appropriate to perform the certification 

alters the protective nature of this 

condition. As commenters pointed out, 

other officers than the CEO, such as the 

chief compliance officer, may have more 

information, specific training, and be 

better able to understand the 

retrospective review. Further, no matter 

which Senior Executive Officer is 

selected to provide the certification, the 

definition of a Senior Executive Officer 

ensures that an officer of sufficient 

authority within the Financial 

Institution will be held accountable for 

oversight of exemption compliance. In 

this way, the Department believes that 

requiring certification will help 

reinforce a culture of compliance within 

the Financial Institution. 

One commenter raised concerns 

regarding the applicability of the CEO 

certification requirement in the banking 

regulatory environment, stating that this 

type of certification is unusual for bank 

CEOs. Another commenter worried 

more broadly that a CEO certification 

might interfere with other financial 

certifications required of the CEO or 

unduly burden corporate governance. 

The Department believes that allowing 

the certification to be performed by any 

Senior Executive Officer addresses these 

concerns while still preserving the 

protective nature of the condition. 

Some commenters objected to the 

certification requirement as a whole. 

They argued that the certification is 

burdensome and increases liability 

exposure without necessarily improving 

compliance. Others asserted 

certification is not required under 

Regulation Best Interest or the NAIC 

Model Regulation. On the other hand, 

some commenters acknowledged the 

similar existing requirements under 

FINRA but argued the requirement 

would be duplicative or should be 

harmonized. 

The certification provides an 

important protection of Retirement 

Investors by creating accountability for 

the retrospective review and report at an 

executive level within the Financial 

Institution. Without a requirement that 

a Senior Executive Officer be held 

accountable by certifying the review, 

there is no assurance that any person in 

the leadership of a Financial Institution 

will review or be aware of its contents. 

The Department is required to find that 

the exemption is protective of, and in 

the interests of, Plans and their 

participants and beneficiaries, and IRA 

owners. This condition is important to 

the Department’s ability to make these 

required findings. 

One commenter indicated that an 

exemption with the certification 

requirement would not be considered 

‘‘deregulatory’’ as was stated in the 

proposal. The Department responds that 

the exemption as a whole is 

deregulatory because it provides a 

broader and more flexible means for 

investment advice fiduciaries to Plans 

and IRAs to engage in certain 

transactions that would otherwise be 

prohibited under Title I and the Code. 

Financial Institutions remain free to 

structure their business in a manner that 

complies with the statutes and their 

prohibitions, or to request an individual 

exemption tailored to their specific 

business. 

Finally, one commenter requested 

that the Department state that signing 

the certification does not implicate 

personal liability for the signing officer 

under the Act. The Department 

responds that signing the certification 

would not, in and of itself, impact the 

officer’s personal liability under the Act; 

any such liability would be based on the 

officer’s status as a fiduciary, the Act’s 

statutory framework, and other relevant 

facts and circumstances. 

Self-Correction—Section II(e) 

The Department has added a new 

Section II(e) to the exemption, under 

which Financial Institutions will be able 

to correct certain violations of the 

exemption. Under the new Section II(e), 

the Department will not consider a nonexempt prohibited transaction to have 

occurred due to a violation of the 

exemption’s conditions, provided: (1) 

Either the violation did not result in 

investment losses to the Retirement 

Investor or the Financial Institution 

made the Retirement Investor whole for 

any resulting losses; (2) the Financial 

Institution corrects the violation and 

notifies the Department via email to 

IIAWR@dol.gov within 30 days of 

correction; (3) the correction occurs no 

later than 90 days after the Financial 

Institution learned of the violation or 

reasonably should have learned of the 

violation; and (4) the Financial 

Institution notifies the persons 

responsible for conducting the 

retrospective review during the 

applicable review cycle, and the 

violation and correction is specifically 

set forth in the written report of the 

retrospective review. 

While this section was not a part of 

the proposal, several commenters raised 

the issue of instituting a self-correction 

procedure as it related to the 

Department’s proposal requiring a 

retrospective review. Commenters 

requested that the Department provide a 

means for Financial Institutions, acting 

in good faith, to avoid loss of the 

exemption for violations of the 

conditions. Some commenters focused 

on minor or technical violations, others 

on violations in connection with 

specific conditions, such as allowing a 


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137 29 CFR 2550.408b–2(c)(1)(vii). 

138See PTE 84–14, Class Exemption for Plan 

Asset Transactions Determined by Independent 

Qualified Professional Asset Managers, 49 FR 9494 

(Mar. 13, 1984) as corrected at 50 FR 41430 (Oct. 

10, 1985), as amended at 67 FR 9483 (Mar. 1, 2002), 

70 FR 49305 (Aug. 23, 2005), and 75 FR 38837 (July 

6, 2010). 

139As described in more detail below, all 

references to the ‘‘Office of Exemption 

Determinations’’ have been replaced with 

references to the ‘‘Department.’’ 

correction for failure to provide 

disclosures. Some pointed to existing 

methods of correction allowed by the 

Department and other regulators, 

including the Department’s regulation 

under ERISA section 408(b)(2).137 One 

commenter specified that there should 

be a correction process in connection 

with the retrospective review, because 

failure to include this could put 

Financial Institutions in a difficult 

position of having discovered technical 

violations but not being able to cure 

them without being subject to an excise 

tax for the prohibited transaction. 

Upon consideration of the comments, 

the Department determined to provide 

this self-correction procedure. Although 

many commenters cited minor or 

technical violations, the Department 

does not view violations of any 

condition of the exemption as 

necessarily minor or technical. 

Accordingly, the section allows for 

correction even if a Retirement Investor 

has suffered investment losses, provided 

that the Retirement Investor is made 

whole. The Department believes that the 

self-correction provision will provide 

Financial Institutions with an additional 

incentive to take the retrospective 

review process seriously, timely identify 

and correct violations, and use the 

process to correct deficiencies in their 

policies and procedures, so as to avoid 

potential future penalties and lawsuits. 

Eligibility—Section III 

Section III of the exemption identifies 

circumstances under which an 

Investment Professional or Financial 

Institution will become ineligible to rely 

on the exemption for a period of 10 

years. The grounds for ineligibility 

involve certain criminal convictions or 

certain egregious conduct with respect 

to compliance with the exemption. 

Ineligible parties may rely on an 

otherwise available statutory exemption 

or administrative class exemption, or 

the parties can apply for an individual 

prohibited transaction exemption from 

the Department. This will allow the 

Department to give special attention to 

parties with certain criminal 

convictions or with a history of 

egregious conduct regarding compliance 

with the exemption. 

Many commenters expressed concern 

that the conditions of the proposed 

exemption were not sufficiently 

enforceable to provide meaningful 

protections. Commenters noted that, 

unlike the Best Interest Contract 

Exemption granted in connection with 

the 2016 fiduciary rule, this exemption 

did not include a contract or other 

means of making the Impartial Conduct 

Standards enforceable. Therefore, IRA 

owners would not have a mechanism to 

enforce the requirements of the 

exemption, and the Department lacks 

direct enforcement authority over Plans 

not covered by Title I. Even with respect 

to Retirement Investors in ERISAcovered Plans, some commenters 

described the structure of the exemption 

as effectively allowing the financial 

services industry to self-regulate; they 

said the exemption would permit the 

‘‘fox to guard the henhouse.’’ One 

commenter specifically criticized the 

proposed exemption’s eligibility 

provision as too weak to prevent or 

punish violations of the exemption. 

Other commenters were concerned that 

the eligibility provision did not provide 

any incentive for Financial Institutions 

to comply with the requirements of the 

exemption. 

Other commenters objected to the 

exemption including any eligibility 

provision, arguing that the Department’s 

investigative authority and existing 

consequences for prohibited 

transactions are sufficient. Some raised 

concerns that the exemption’s eligibility 

provision has no basis in the statute and 

may be unconstitutional. Some 

acknowledged that the Department’s 

QPAM class exemption has a similar 

provision related to criminal 

convictions, but one commenter argued 

this too, is impermissible.138 Some 

commenters cited the Fifth Circuit’s 

Chamber opinion as support for the 

position that the eligibility provision 

impermissibly expands the 

Department’s enforcement authority 

over IRAs. One commenter indicated 

that the eligibility provision would only 

serve to increase compliance 

complexity, costs, and burdens, along 

with compliance uncertainty, under the 

exemption. 

The Department has considered 

comments on the eligibility provision in 

Section III and has adopted it generally 

as proposed, but with non-substantive 

revisions.139 The Department disagrees 

with commenters that expressed the 

view that the exemption is essentially 

self-regulatory and that the Department 

should not proceed with the exemption 

because it lacks an express enforcement 

mechanism for IRA owners. The 

Department believes that the eligibility 

provision will encourage Financial 

Institutions and Investment 

Professionals to maintain an appropriate 

focus on compliance with legal 

requirements and with the exemption, 

and, therefore, it has not eliminated 

them as overly burdensome, as 

suggested by a commenter. The 

Department intends to use its 

investigative, enforcement, and referral 

authority to enforce compliance with 

the exemption, and it will impose 

ineligibility on Financial Institutions or 

Investment Professionals that 

demonstrate the type of compliance 

issues described in the exemption. The 

Department notes that, in developing 

the exemption, it was mindful of the 

Fifth Circuit’s Chamber opinion holding 

that the Department did not have 

authority to include certain contract 

requirements in the new exemptions 

enforceable by IRA owners granted as 

part of the 2016 fiduciary rulemaking. 

The Department’s approach was 

designed to avoid any potential for 

disruption in the market for investment 

advice that may occur related to a 

contract requirement. 

The Department disagrees that this 

eligibility provision is problematic 

simply because only one other class 

exemption includes this condition. It is 

the responsibility of the Department to 

craft exemptions to ensure they are 

protective of and in the interests of 

plans and plan participants. The 

conditions in the Department’s 

exemptions are designed to address the 

conflicts of interest raised by the 

transactions covered by the exemption. 

The Department has determined that 

limiting eligibility in this manner serves 

as an important safeguard in connection 

with this very broad grant of relief from 

the self-dealing prohibitions of ERISA 

and the Code in this exemption. 

The specific provision governing 

eligibility and the comments received 

on the provision are discussed in the 

next sections. 

Criminal Convictions 

An Investment Professional or 

Financial Institution will become 

ineligible upon the conviction of any 

crime described in ERISA section 411 

arising out of provision of advice to 

Retirement Investors, except as 

described below. Crimes described in 

ERISA section 411 are likely to directly 

contravene the Investment 

Professional’s or Financial Institution’s 

ability to maintain a high standard of 

integrity and will cast doubt on their 

ability to act in accordance with the 

Impartial Conduct Standards. The 

Department intends that the phrase 


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‘‘arising out of the provision of advice 

to Retirement Investors’’ be interpreted 

broadly to include, for example, a 

Financial Institution or Investment 

Professional embezzling money from the 

account of a Retirement Investor to 

whom they provide or provided 

investment advice. 

An Investment Professional will 

automatically become ineligible after a 

criminal conviction in ERISA section 

411 arising out of provision of advice to 

Retirement Investors. However, a 

Financial Institutions with such a 

criminal conviction may submit a 

petition to the Department and seek a 

determination that continued reliance 

on the exemption would not be contrary 

to the purposes of the exemption. 

Petitions must be submitted within 10 

business days of the conviction to the 

Department by email at IIAWR@dol.gov. 

Following submission of the petition, 

the Financial Institution has the 

opportunity to be heard, in person or in 

writing or both. Because of the 10- 

business day timeframe for submitting a 

petition, the Department does not 

expect the Financial Institution to set 

forth its entire position or argument in 

its initial petition. The opportunity to be 

heard in person will allow the Financial 

Institution to address the facts and 

circumstances more fully. The 

opportunity to be heard will be limited 

to one in-person conference unless the 

Department determines in its sole 

discretion to allow additional 

conferences. 

The Department’s determination as to 

whether to grant a Financial 

Institution’s petition to continue relying 

on the exemption following a criminal 

conviction will be based solely on its 

discretion. In determining whether to 

grant the petition, the Department will 

consider the gravity of the offense; the 

relationship between the conduct 

underlying the conviction and the 

Financial Institution’s system and 

practices in its retirement investment 

business as a whole; the degree to which 

the underlying conduct concerned 

individual misconduct, corporate 

managers, and/or policy; how recently 

the underlying conduct occurred and 

any related lawsuit; remedial measures 

taken by the Financial Institution upon 

learning of the underlying conduct; and 

such other factors as the Department 

determines in its discretion are 

reasonable in light of the nature and 

purposes of the exemption. The 

Department will consider whether any 

extenuating circumstances indicate that 

the Financial Institution should be able 

to continue to rely on the exemption 

despite the conviction. In sum, the 

Department will focus on the Financial 

Institution’s ability to fulfill its 

obligations under the exemption for the 

protection of Retirement Investors. 

Upon making a determination as to a 

Financial Institution’s petition, the 

Department will provide a written 

determination to the Financial 

Institution that states the basis for the 

determination. Denial of a Financial 

Institution’s petition will not 

necessarily indicate that the Department 

will not entertain a separate individual 

exemption request submitted by the 

same Financial Institution; however, 

any individual exemption is likely to be 

subject to additional protective 

conditions. The final exemption 

provides that Financial Institution will 

have 21 days after denial of the petition 

before becoming ineligible. This will 

allow Financial Institutions, and other 

Financial Institutions in the same 

Controlled Group, to assess their legal 

and operational options. 

Some commenters on the proposal 

expressed general agreement that a 

Financial Institution that is convicted of 

a crime should be ineligible for the 

exemption. One commenter believed 

there are due process concerns if 

ineligibility occurs at the time of 

conviction rather than allowing for an 

appeal. Other commenters stated that 

the Department can take action under 

ERISA section 411 to seek to disqualify 

an entity from acting as a fiduciary so 

a provision in the exemption is 

unnecessary. 

The Department believes that the 

criminal basis for ineligibility is 

appropriately applied in the context of 

both Title I Plans and IRAs. Despite the 

availability of action under ERISA 

section 411, it is appropriate to 

condition further reliance on the broad 

relief in the exemption more directly on 

the lack of such convictions, without 

the Department having to take further 

action. The Department does not agree 

that the application of the crimes listed 

in ERISA section 411 would not be 

permitted by the Fifth Circuit’s 

Chamber opinion. The 2016 fiduciary 

rule and related exemptions did not 

contain a comparable provision, and the 

Fifth Circuit did not address the issue. 

As part of its authority to craft 

exemptions and make findings under 

ERISA section 408(a) and Code section 

4975(c)(2), the Department is permitted 

to impose reasonable protective 

conditions, including those related to 

the conduct of those entrusted with 

investors’ funds. The Department does 

not view ERISA section 411 or the 

statutory penalties for exemption 

noncompliance as creating a negative 

inference that prohibits a criminal 

prohibition as part of this exemption, 

whether in the Title I or Code context, 

especially when both provisions share 

the same essential purpose. Further, the 

only consequence flowing from a 

violation of the criminal conviction 

provision of this exemption is the loss 

of eligibility to use the exemption; no 

further penalties attach. 

The Department also does not believe 

that the eligibility provision raises due 

process issues. The exemption 

specifically entitles the Financial 

Institution to submit a petition 

informing the Department of the 

conviction and seeking a determination 

that the Financial Institution’s 

continued reliance on the exemption 

would not be contrary to the purposes 

of the exemption. This process 

constitutes notice and an opportunity to 

be heard, and parties aggrieved by the 

denial of an exemption can appeal that 

final agency action under the 

Administrative Procedure Act. The 

Department also does not believe it is 

appropriate to defer ineligibility until 

the conclusion of an appeal because of 

the significant delay that an appeal may 

entail, during which time Retirement 

Investors’ interests may be at risk. 

The Department has also clarified, in 

response to another comment, that 

ineligible parties under this exemption 

may alternatively rely on a statutory 

exemption or an administrative class 

exemption, if one is available. Ineligible 

Financial Institutions may also request 

an individual exemption, subject to 

additional protective conditions as 

warranted, and with the same appeal 

rights. 

Conduct With Respect to Compliance 

With the Exemption 

Investment Professionals and 

Financial Institutions will also become 

ineligible if they are issued a written 

ineligibility notice from the Department 

stating that they (i) engaged in a 

systematic pattern or practice of 

violating the conditions of the 

exemption, (ii) intentionally violated 

the conditions of the exemption, or (iii) 

provided materially misleading 

information to the Department in 

connection with the Investment 

Professional’s or Financial Institution’s 

conduct under the exemption. These 

categories of noncompliance militate 

against the Investment Professional or 

Financial Institution continuing to rely 

on the broad prohibited transaction 

relief in the class exemption. Provided 

that a Financial Institution has 

established, maintained and enforced 

prudent policies and procedures as 

required by this exemption, a minor 

number of isolated violations of the 

conditions of the exemption does not 


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140 Individual Retirement Accounts, Formalizing 

Labor’s and IRS’s Collaborative Efforts Could 

Strengthen Oversight of Prohibited Transactions, 

GAO–19–495 (June 2019), available at 

www.gao.gov/assets/700/699575.pdf. 

141 585 U.S. __, 138 S.Ct. 2044 (2018). 

142See discussion on Scope of Relief—Section I, 

Affiliates and Related Entities. 

constitute a systematic pattern or 

practice. 

The exemption sets forth a process 

governing the issuance of the written 

ineligibility notice, as follows. Prior to 

issuing a written ineligibility notice, the 

Department will issue a written warning 

to the Investment Professional or 

Financial Institution, as applicable, 

identifying specific conduct that could 

lead to ineligibility, and providing a sixmonth opportunity to cure. At the end 

of the six-month period, if the 

Department determines that the conduct 

has persisted, it will provide the 

Investment Professional or Financial 

Institution with the opportunity to be 

heard, in person or in writing, before the 

Department issues the written 

ineligibility notice. If a written 

ineligibility notice is issued, it will state 

the basis for the determination that the 

Investment Professional or Financial 

Institution engaged in conduct 

warranting ineligibility. The final 

exemption provides that Financial 

Institution will have 21 days after the 

date of the written ineligibility notice 

before becoming ineligible. This will 

allow Financial Institutions, and other 

Financial Institutions in the same 

Controlled Group, to assess their legal 

and operational options. 

A number of commenters expressed 

opposition to this basis of ineligibility 

in the proposed exemption. Most of the 

opposition centered on the proposal’s 

specific references to the Office of 

Exemption Determinations (OED) in 

determining ineligibility. Commenters 

stated that the standards in the 

exemption are not objective or detailed 

and asserted this could result in a 

violation of due process, inconsistency, 

and unfairness. Further, because of 

these concerns, one commenter 

requested an appeals process beyond 

OED and another requested the use of 

administrative law judges. Some 

commenters raised concerns about the 

QPAM exemption and a few 

commenters cited a GAO report 

regarding OED procedures as evidence 

that OED should not be permitted to 

oversee this process.140 Some 

commenters cited a recent Supreme 

Court case, Lucia v. SEC, which they 

said struck down a similar structure.141

Other commenters stated that this 

eligibility provision overstepped the 

Department’s authority. 

In response to commenters, the 

eligibility provision has been nonsubstantively revised to state that the 

Department will determine eligibility. 

This will ensure that the Department, 

acting under the direction of the 

Secretary of Labor, maintains full 

responsibility for eligibility 

determinations under the exemption. As 

laid out in the Reorganization Plan No. 

4 of 1978, the Secretary of Labor has the 

authority to issue exemptions, oversee 

fiduciary conduct and prohibited 

transactions. Accordingly, the 

Department disagrees with those 

commenters who claim the Department 

lacks the appropriate authority, or is 

overstepping its role. On the contrary, 

the Department is acting squarely 

within the authority granted to it to 

issue regulations, rulings, opinions, and 

exemptions under Code section 4975. 

The Department believes that the 

eligibility provision does not need 

additional adjustments given that the 

exemption specifies an extensive 

process before a written ineligibility 

notice will be issued. The Department 

has clarified, in response to a comment, 

that ineligible parties under this 

exemption may alternatively rely on a 

statutory exemption or an 

administrative class exemption, if one is 

available. 

The Department also disagrees with 

those commenters who claim that the 

ineligibility provision is too vague as to 

be meaningful. The exemption clearly 

states that an entity will be provided 

with a statement of the specific conduct 

at issue, and will be provided with a 

six-month period to cure the conduct. 

Commenters expressed concerned that 

the Department did not provide a 

specific number of violations a 

Financial Entity may commit before 

such violations become egregious (and, 

therefore, disqualifying). The 

Department has crafted a principlesbased exemption, and does not consider 

it appropriate to set forth all of the 

possible ways in which an entity may 

engage in egregious conduct. The 

Department continues to believe that 

providing entities with specific notice 

and an opportunity to cure better 

balances the issues at stake. 

The Department also notes that, in 

connection with its earlier response to 

a commenter, clarifying that the scope 

of relief in this exemption extends to 

foreign affiliates of Financial 

Institutions,142 so too does the 

application of the eligibility provision 

regarding egregious conduct with 

respect to compliance with the 

exemption. As that commenter 

indicated, including relief for foreign 

affiliates is important, given the 

increasingly global nature of retirement 

services. The Department agrees, and, 

therefore, impresses upon Financial 

Institutions the importance of ensuring 

proper oversight of foreign affiliates 

with respect to compliance with the 

conditions of the exemption. If a foreign 

affiliate performs services in connection 

with a transaction covered by this 

exemption, but does so in a manner that 

is in violation of the conditions of this 

exemption, this will subject the 

Financial Institution to possible 

ineligibility under Section III(a)(2). 

Scope of Ineligibility 

A Financial Institution’s ineligibility 

would be triggered by its own 

conviction or receipt of a written 

ineligibility notice, or by the conviction 

or receipt of such a notice by another 

Financial Institution in the same 

Controlled Group. A Financial 

Institution is in the same Controlled 

Group with another Financial 

Institution if it would be considered in 

the same ‘‘controlled group of 

corporations’’ or ‘‘under common 

control’’ with the Financial Institution, 

as those terms are defined in Code 

section 414(b) and (c), in each case 

including the accompanying 

regulations. The Department is 

including in the eligibility provision 

other Financial Institutions in the same 

Controlled Group to ensure that a 

Financial Institution facing ineligibility 

for its actions affecting Retirement 

Investors cannot simply transfer its 

fiduciary investment advice business to 

another Financial Institution that is 

closely related and that also provides 

fiduciary investment advice to 

Retirement Investors, thus avoiding 

ineligibility entirely. The definition of 

Controlled Group is narrowly tailored to 

cover only other investment advice 

fiduciaries that share significant 

ownership. This definition ensures that 

a Financial Institution would not 

become ineligible based on the actions 

of an entity engaged in unrelated 

services that happens to share a small 

amount of common ownership. 

The proposed exemption provided 

that a Financial Institution is in a 

Control Group with another Financial 

Institution if, directly or indirectly, the 

Financial Institution owns at least 80 

percent of, is at least 80 percent owned 

by, or shares an 80 percent or more 

owner with, the other Financial 

Institution. If the Financial Institutions 

are not corporations, the proposal 

provided that ownership would be 

defined to include interests in the 

Financial Institution such as profits 

interest or capital interests in which, 


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directly or indirectly, the Financial 

Institution owns at least 80 percent of, 

is at least 80 percent owned by, or 

shares an 80 percent or more owner 

with, the other Financial Institution. For 

purposes of this provision, the proposal 

provided if the Financial Institutions are 

not corporations, ownership would be 

defined to include interests in the 

Financial Institution such as profits 

interest or capital interests. 

The Department stated in the proposal 

that the 80 percent threshold is 

consistent with the Code’s rules for 

determining when employees of 

multiple corporations should be treated 

as employed by the same employer, 

citing Code section 414(b). The 

Department also sought comment on 

this approach. In response, one 

commenter asserted that different forms 

of ownership would make it difficult to 

determine how to apply the 80% 

threshold suggested. Accordingly, the 

Department revised the definition to 

directly incorporate both definitions in 

both Code section 414(b) and 414(c) 

which address these arrangements. The 

Department believes these provisions 

will provide a well-known frame of 

reference for Financial Institutions and 

avoid uncertainty as to how the 

definition will be applied. 

A few other commenters opposed 

including Control Group members 

within the eligibility provision, as 

proposed. These commenters asserted 

that a common parent is not an 

indicator of any other connection 

between corporate entities; rather, these 

commenters stated that affiliates 

typically maintain different policies and 

procedures. One commenter asserted 

that conduct by the Financial 

Institution’s affiliates may not relate to 

investment advice or conduct involving 

Title I Plans or IRAs. This commenter 

stated that affiliates typically maintain 

different compliance policies and 

procedures and a Financial Institution 

and its affiliates are managed by 

different officers and compliance staff. 

Another commenter asserted that a 

Financial Institution may not know of 

the conviction of another Financial 

Institution in the same Controlled 

Group within 10 business days. Another 

commenter stated that independent 

firms may have common ownership but 

different business models or 

professional culture. 

The Department has not revised its 

approach in response to these 

comments. The eligibility provision and 

the definition of Controlled Group are 

narrowly drafted so that they identify 

conduct involving services to 

Retirement Investors, and also are 

limited to Financial Institutions, within 

the meaning of the exemption, that are 

Controlled Group members with a high 

level of common ownership. The 

Department continues to believe that the 

tailored definition of Controlled Group 

and provision that a Financial 

Institution becomes ineligible on the 

10th business day after conviction 

ensures that there is a culture of 

compliance across the Controlled Group 

for entities engaging in this otherwise 

prohibited transaction. The Department 

notes that given the high level of 

ownership, it is not unreasonable for the 

Financial Institution be aware of the 

conviction of another Financial 

Institution in the same Controlled 

Group and it should not be difficult for 

Financial Institutions to keep track of 

such convictions. Accordingly, the 

Department has not adjusted the 10 

business-day deadline. 

Period of Ineligibility 

The period of ineligibility under 

Section III is 10 years; however, the 

eligibility provision would apply 

differently to Investment Professionals 

and Financial Institutions. An 

Investment Professional that is 

convicted of a crime would become 

ineligible immediately upon the date 

the Investment Professional is convicted 

by a trial court, regardless of whether 

that judgment remains under appeal, or 

upon the date of the written ineligibility 

notice from the Department, as 

applicable. 

Financial Institutions, on the other 

hand, would have a one-year winding 

down period after becoming ineligible, 

during which they may continue to rely 

on the exemption, as long as they 

comply with the exemption’s other 

conditions during that year. The 

winding down period begins 10 

business days after the date of the trial 

court’s judgment, regardless of whether 

that judgment remains under appeal. 

Financial Institutions that timely submit 

a petition regarding the conviction 

would become ineligible 21 days after 

the date of a written notice of denial 

from the Department. Financial 

Institutions that become ineligible due 

to conduct with respect to exemption 

compliance would become ineligible 21 

days after the date of the written 

ineligibility notice from the Department 

and begin their winding down period at 

that point. 

Financial Institutions or Investment 

Professionals that become ineligible to 

rely on this exemption may rely on a 

statutory or administrative class 

prohibited transaction exemption if one 

is available or may seek an individual 

prohibited transaction exemption from 

the Department. The Department 

encourages any Financial Institution or 

Investment Professional facing 

allegations that could result in 

ineligibility, or that otherwise 

determines it may need individual 

prohibited transaction relief, to begin 

the application process as soon as 

possible. An applicant is not guaranteed 

an individual exemption, even if one is 

proposed. If an exemption is proposed, 

the Department is required to provide 

notice and a period of public comment 

and to consider those comments before 

granting an exemption. If an individual 

exemption applicant becomes ineligible 

and the Department has not granted a 

final individual exemption, the 

Department will consider additional 

retroactive relief, consistent with its 

policy as set forth in 29 CFR 2570.35(d). 

Retroactive relief may require inclusion 

of additional exemption conditions. 

Recordkeeping—Section IV 

Under Section IV of the exemption, 

Financial Institutions must maintain 

records for six years demonstrating 

compliance with the exemption. The 

Department generally includes a 

recordkeeping requirement in its 

administrative exemptions to ensure 

that parties relying on an exemption can 

demonstrate, and the Department can 

verify, compliance with the conditions 

of the exemption. Section IV requires 

that the records be made available, to 

the extent permitted by law, to any 

authorized employee of the Department 

or the Department of the Treasury. 

To demonstrate compliance with the 

exemption, Financial Institutions are 

required to maintain, among other 

things, documentation of rollover 

recommendations; their written policies 

and procedures adopted pursuant to 

Section II(c); and the report of the 

retrospective review, certification, and 

supporting data. Except with respect to 

rollovers, the Department does not 

expect Financial Institutions to 

document the reason for every 

investment recommendation made 

pursuant to the exemption. However, 

documentation may be especially 

important for recommendations of 

particularly complex products or 

recommendations that might, on their 

face, appear inconsistent with the best 

interest standard. 

One commenter supported the 

recordkeeping requirement as proposed 

but recommended extending the 

recordkeeping requirement to 10 years. 

The Department declines to extend the 

time period. The six-year time period is 

consistent with standard recordkeeping 

requirements imposed in many existing 

exemptions, and it is consistent with the 


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143See supra note 6. 

statute of limitation set forth in ERISA 

section 413. 

Other commenters opposed the scope 

of access to records in the proposed 

exemption. The proposal provided that 

records should be available for review 

by the following parties in addition to 

the Department: Any fiduciary of a Plan 

that engaged in an investment 

transaction pursuant to this exemption; 

any contributing employer and any 

employee organization whose members 

are covered by a Plan that engaged in an 

investment transaction pursuant to this 

exemption; or any participant or 

beneficiary of a Plan, or IRA owner that 

engaged in an investment transaction 

pursuant to this exemption. Several 

commenters stated that allowing parties 

other than the Department to review 

records would increase the burden 

placed on Financial Institutions. In 

particular, they expressed the view that 

parties might overwhelm Financial 

Institutions with requests for 

information in order to generate claims 

for use in litigation. Fear of potential 

litigation could, in turn, they argued, 

lead to a ‘‘culture of quiet’’ in which 

employees of Financial Institutions elect 

not to address compliance issues 

because of the fear of this disclosure. 

In response to these comments, the 

Department has revised the final 

exemption’s recordkeeping provisions 

so that access is limited to the 

Department and the Department of the 

Treasury, although, in connection with 

this change, the Department has revised 

Section II(b) of the exemption, as 

described above, to provide Retirement 

Investors with documentation of the 

reasons that a rollover recommendation 

made to them was in their best interest. 

The Department accepts that Financial 

Institutions may have concerns about 

internal compliance records, 

particularly the record of their 

retrospective reviews, becoming widely 

accessible. However, the Department 

believes that it is important for the 

exemption to be conditioned on 

Retirement Investors receiving 

documentation of the reasons for 

rollover recommendations made to 

them, to allow them to carefully 

evaluate those important 

recommendations. The Department also 

notes that even if the exemption does 

not require disclosure of certain records, 

Financial Institutions would not be 

precluded from providing them 

voluntarily as a matter of customer 

relations. 

One commenter raised concerns that 

the proposal’s recordkeeping 

requirements were inconsistent with 

certain ‘‘visitorial powers’’ under 

banking law, discussed above. The 

Department notes that the exemption, as 

well as the proposal, contains the 

limiting language ‘‘to the extent 

permitted by law including 12 U.S.C. 

484,’’ which the Department believes 

substantially addresses these concerns. 

A few commenters also asserted that 

the Department should not be permitted 

to request records regarding IRA 

transactions because the Department 

does not have enforcement jurisdiction 

over IRAs, and under the Fifth Circuit’s 

Chamber opinion, the records provision 

would be an impermissible attempt to 

usurp enforcement jurisdiction. In 

conjunction with this, one commenter 

suggested the Internal Revenue Service 

should be able to obtain records 

regarding IRAs. While the Department 

may lack certain enforcement 

jurisdiction with respect to IRAs, it does 

not lack the ability to issue exemptions 

to the prohibited transaction provisions 

under Code section 4975.143 The 

Department has authority to grant 

prohibited transaction exemptions, as 

well as the associated authority to 

determine whether the conditions of its 

exemption are being met by reviewing 

records for the purpose of determining 

that compliance. The Department does 

not, based on those same grounds, agree 

that a recordkeeping requirement that 

impacts IRAs is inconsistent with the 

Fifth Circuit’s Chamber opinion, which 

did not specifically address the issue. 

However, the Department has added the 

Department of the Treasury, which 

includes the Internal Revenue Service, 

as an additional regulator that can 

obtain a Financial Institution’s records 

under the exemption. 

Lastly, one commenter was concerned 

about the application of a 30-day 

requirement to notify the Department of 

a decision to withhold documents from 

parties other than the Department. 

Because the exemption has been 

modified to only provide for the 

Department’s and the Department of the 

Treasury’s review, the commenter’s 

concern has been addressed. 

Effective Date 

The exemption is effective 60 days 

after its publication in the Federal 

Register. This responds to several 

commenters who urged the Department 

to make the exemption available 

promptly. Some commenters requested 

that the exemption be effective 

immediately upon publication in the 

Federal Register, rather than after 60 

days. Another commenter, however, 

suggested that the exemption should be 

effective no earlier than July 1, 2021, 

180 days after the publication of the 

exemption, or 90 days after the end of 

the current public health emergency, 

because of market turmoil and COVID– 

19. 

The Department has retained the 60 

day effective date timeframe to permit 

transmittal of the exemption to Congress 

and the Comptroller General for review 

in accordance with the Congressional 

Review Act provisions of the Small 

Business Regulatory Enforcement 

Fairness Act of 1996 (5 U.S.C. 801 et 

seq.). As stated above, parties can 

continue to rely on FAB 2018–02 for 

one year following publication of the 

final exemption, so there will be a 

transition period for Financial 

Institutions to develop compliance 

structures. The Department has not 

delayed the effective date as suggested 

by one commenter. The Department 

believes that the exemption’s conditions 

provide protections of Retirement 

Investors even in the event of market 

turmoil, and, therefore, a delay in the 

effective date is not in the interests of 

Retirement Investors. 

Procedural Issues 

Following the proposal, the 

Department received comments about 

the process it has followed in this 

exemption proceeding. Some 

commenters requested that the 

Department extend the proposed 

exemption’s 30-day comment period. 

Many commenters also requested the 

Department hold a public hearing, 

which it did on September 3, 2020, 

although a few other commenters 

asserted that the procedure establishing 

the hearing was improper. Commenters 

in particular pointed to the more 

extensive comment period provided in 

the Department’s 2016 fiduciary 

rulemaking. 

The Department believes that its 

procedure with respect to the proposal 

was appropriate under applicable 

requirements, including the 

Administrative Procedure Act. The 

Department received and carefully 

reviewed 106 comments on the 

proposal. Further, the Department 

accommodated all requests by 

commenters to testify at the hearing, 

and this resulted in 21 organizations 

testifying. This hearing was broadcast 

publicly, and all interested parties were 

invited to watch the hearings. The 

hearings gave the Department time to 

hear oral testimony from these 21 

different organizations, and question 

them on aspects of the comments and 

their testimony. Moreover, the general 

issues and concerns raised by the 

proposal have been subject to significant 

amounts of commentary and discussion 

between the Department and the public 


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144ERISA section 3(21)(A)(ii); Code section 

4975(e)(3)(B). 

145Regulatory Planning and Review, 58 FR 51735 

(Oct. 4, 1993). 

146 Improving Regulation and Regulatory Review, 

76 FR 3821 (Jan. 21, 2011). 

since October 2010. In light of the 

narrower issues raised in the present 

exemption project as opposed to the 

2016 fiduciary rulemaking, as well as 

the public record developed on the 

proposal, the Department does not 

believe that the shorter comment period 

indicates an insufficient opportunity for 

public comment. 

Reinsertion of the Five-Part Test for 

Investment Advice Fiduciary Status 

On the same day as the Department 

published the proposed exemption, the 

Department issued a technical 

amendment to 29 CFR 2510–3.21 

instructing the Office of the Federal 

Register to remove language that was 

added in 2016 and reinsert the text of 

the 1975 regulation. The 1975 regulation 

established the five-part test for 

investment advice fiduciary status. 

Many commenters on the 

Department’s proposed exemption 

addressed the Department’s technical 

amendment reinserting the five-part 

test. Some commenters supported the 

technical amendment, stating that it 

provides welcome certainty to the 

regulated community as to the current 

legal definition of an investment advice 

fiduciary. Some commenters indicated 

that the five-part test properly defines 

an investment advice fiduciary. Some 

expressed the view that reinsertion of 

the five-part test was the appropriate 

response to the Fifth Circuit’s Chamber 

opinion. 

Many commenters expressed 

significant opposition to the reinsertion 

of the five-part test via the technical 

amendment, and the five-part test in 

general. They stated that the five-part 

test was established before the 

prevalence of 401(k) plans and IRAs, 

and is now outdated and ill-suited to 

address the complex investment 

products offered in today’s marketplace. 

They also said the five-part test is 

narrower than the statutory definition in 

Title I and the Code, which defines a 

fiduciary as anyone who ‘‘renders 

investment advice for a fee or other 

compensation, direct or indirect, with 

respect to any moneys or other property 

of such plan, or has any authority or 

responsibility to do so.’’ 144 These 

commenters said despite the 

Department’s preamble interpretation 

regarding rollovers, many rollovers 

would occur without the protections of 

a fiduciary standard. 

Commenters criticized several of the 

individual elements of the five-part test. 

The ‘‘regular basis’’ prong in particular, 

they said, creates loopholes for financial 

professionals to avoid fiduciary status 

while holding themselves out as trusted 

advisers. Some commenters particularly 

pointed to transactions involving nonsecurities which they said can involve 

significant conflicts of interest and may 

often be considered one-time 

transactions. Commenters also stated 

that the regular basis prong will mean 

that advice to a plan sponsor regarding 

investment options in a Title I Plan will 

rarely be fiduciary advice, which will 

adversely affect Plan participants’ 

investment options. The commenters 

also stated that disclaimers of a ‘mutual 

agreement’ or that the advice will serve 

as ‘a primary basis’ for investment 

decisions will be used to avoid 

application of the fiduciary standard. As 

a result of all these factors, the 

commenters said Retirement Investors 

would be harmed by unchecked 

conflicts of interest. 

Some of the commenters raised legal 

arguments in connection with the 

technical amendment reinserting the 

five-part test. The commenters stated 

the Department had discretion as to 

whether to reinstate the five-part test, 

and, therefore, should have provided 

notice, economic analysis, and an 

opportunity for public comment before 

it took action. 

While this exemption proceeding 

interprets aspects of the five-part test, 

including by providing a new 

interpretation as to how it applies to 

rollovers, this exemption has not put at 

issue the five-part test itself as codified 

at 26 CFR 54.4975–9 and 29 CFR 

2510.3–21. Thus, these comments are 

outside the scope of this exemption 

proceeding. 

Additionally, as stated in its technical 

amendment, the five-part test was 

reinstated by the Fifth Circuit’s decision 

in Chamber, not by any discretionary 

action of the Department. As a result of 

that decision, the 2016 fiduciary 

regulation and associated exemptions 

were vacated in toto. The Department 

merely directed the Office of the Federal 

Register to update the Code of Federal 

Regulations to correctly reflect current 

law. 

Finally, as explained below regarding 

the need for this rulemaking, this 

exemption appropriately takes into 

account the reasoning in the Fifth 

Circuit’s Chamber opinion and changes 

in the regulatory landscape that have 

occurred since the 2016 fiduciary 

rulemaking. 

Regulatory Impact Analysis 

Executive Orders 12866 and 13563 

Statement 

Executive Orders 12866 145 and 

13563 146 direct agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health, and safety 

effects; distributive impacts; and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying costs and benefits, reducing 

costs, harmonizing rules, and promoting 

flexibility. 

Under Executive Order 12866, 

‘‘significant’’ regulatory actions are 

subject to review by the Office of 

Management and Budget (OMB). 

Section 3(f) of the Executive Order 

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 $100 million or more or adversely and 

materially affect a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local, or tribal governments or 

communities (also referred to as 

‘‘economically significant’’); 

(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 novel legal or policy issues 

arising out of legal mandates, the President’s 

priorities, or the principles set forth in the 

Executive Order. 

The Department anticipates that this 

exemption is economically significant 

within the meaning of section 3(f)(1) of 

Executive Order 12866. Therefore, the 

Department provides the following 

assessment of the potential benefits and 

costs associated with this exemption. In 

accordance with Executive Order 12866, 

this exemption was reviewed by OMB. 

The final exemption will be 

transmitted to Congress and the 

Comptroller General for review in 

accordance with the Congressional 

Review Act provisions of the Small 

Business Regulatory Enforcement 

Fairness Act of 1996 (5 U.S.C. 801 et 

seq.). Pursuant to the Congressional 

Review Act, OMB has designated this 

final exemption as a ‘‘major rule,’’ as 

defined by 5 U.S.C. 804(2), because it 


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147Private Pension Plan Bulletin Historic Tables 

and Graphs 1975–2017, Employee Benefits Security 

Administration (Sep. 2018), www.dol.gov/sites/ 

dolgov/files/ebsa/researchers/statistics/retirementbulletins/private-pension-plan-bulletin-historicaltables-and-graphs.pdf. 

148The SEC’s Regulation Best Interest went into 

effect June 30, 2020. Although not a regulatory 

agency, the NAIC approved revisions to Model 

Regulation 275 in February 2020 and recommended 

adoption by state insurance regulators. According to 

a commenter in the insurance industry, the updated 

NAIC’s Model Regulation 275 has been finalized in 

two states (Arizona and Iowa), and four others 

(Idaho, Kentucky, Ohio, and Rhode Island) have 

publicly stated their intention to pursue adoption 

in late 2020 or early 2021. Other commenters expect 

the updated NAIC Model Regulation to be adopted 

in a majority of states within the next two to three 

years. These commenters also stated that the DoddFrank Act requires adoption of the NAIC Model 

Regulation amendments within five years to 

maintain exclusive state regulation of fixed annuity 

and insurance products. 

would be likely to result in an annual 

effect on the economy of $100 million 

or more. 

Need for Regulatory Action 

Participants in individual participantdirected defined contribution Plans (DC 

Plans) and IRA investors are responsible 

for investing their retirement savings, 

and they often seek high quality, 

impartial advice from financial service 

professionals to make prudent 

investment decisions. This is especially 

true as the share of total plan 

participation attributable to Defined 

Contribution (DC) Plans continues to 

grow. In 2017, 83 percent of DC Plan 

participation was attributable to 401(k) 

Plans, and 98 percent of 401(k) Plan 

participants were responsible for 

directing some or all of their account 

investments.147

Following the Fifth Circuit’s Chamber 

opinion, the Department issued a 

temporary enforcement policy under 

FAB 2018–02 and announced its intent 

to provide additional guidance in the 

future. Since then, as discussed earlier 

in this preamble, the regulatory 

landscape has changed as other 

regulators, including the SEC, have 

adopted enhanced conduct standards 

for financial services professionals.148

Some commenters claimed that the 

Department changed its previous 

position from its 2016 fiduciary 

rulemaking without providing detailed 

justification. In response to these 

comments, the Department more clearly 

specifies some of the factors that 

compelled it to take this action. First, 

the Department’s current action follows 

and is guided by the Fifth Circuit’s 

Chamber opinion decision that vacated 

the Department’s 2016 fiduciary rule 

and associated exemptions, in toto. The 

Department carefully studied the court’s 

decision and developed this exemption 

consistent with it. Second, the 

regulatory landscape has changed since 

the Department issued the 2016 

fiduciary rule and exemptions. At that 

time, no other regulators had adopted 

enhanced conduct standards of financial 

service professionals. Currently, other 

regulators such as the SEC and state 

insurance commissioners have adopted 

or are currently in the process of 

enhancing the conduct standards of 

financial service professionals. These 

developments encourage the 

Department to take these regulatory 

changes into account when taking this 

action. 

For instance, at the Department’s 

September 3, 2020, public hearing on 

the proposed exemption, a witness 

testified that financial services firms 

made fundamental changes in their 

business models for several years after 

the Department issued its 2016 fiduciary 

rule and the SEC issued Regulation Best 

Interest. Those changes include new 

commission and fee schedules, the 

elimination of certain products and 

services, and third-party revenue 

sources, modified compensation and 

incentive programs, and caps on mutual 

fund and annuity upfront fees and 

trailing commissions. Additionally, 

according to data in studies cited by 

some commenters, the Department’s 

2016 fiduciary rulemaking also 

correlated with financial service 

professionals transitioning to lower-fee 

products, which has remained the case 

even after the rulemaking was vacated 

by the Fifth Circuit, but when FAB 

2018–02 was in effect. 

In sum, the Department considered 

the changes in regulatory landscape, 

business practices, and product 

offerings as it developed this exemption. 

To the extent Financial Institutions have 

already implemented measures to 

mitigate conflicts of interest and reduce 

related investor harms, the benefits of 

this exemption will be reduced. 

Similarly, to the extent Financial 

Institutions have already incurred costs 

to comply with other regulators’ actions 

and the Department’s 2016 fiduciary 

rulemaking, the costs of this exemption 

also will be reduced. Accordingly, these 

changes are reflected in the baseline that 

the Department applies when it 

evaluates the benefits and costs 

associated with this exemption that are 

discussed below. 

Given this background, the 

Department believes that it is 

appropriate to replace the relief 

provided in FAB 2018–02 with a 

permanent exemption. The exemption 

will provide Financial Institutions and 

Investment Professionals with broader, 

more flexible prohibited transaction 

relief than is currently available, while 

safeguarding the interests of Retirement 

Investors. Offering a permanent 

exemption based on FAB 2018–02 will 

provide certainty to Financial 

Institutions and Investment 

Professionals that currently may be 

relying on the temporary enforcement 

policy. 

Benefits 

This exemption will generate several 

benefits. It will provide Financial 

Institutions and Investment 

Professionals with flexibility to choose 

between this new exemption or existing 

exemptions, depending on their needs 

and business models. In this regard, the 

exemption will help preserve different 

business models, compensation 

arrangements, and products that meet 

different needs in the market. This can, 

in turn, help preserve the existing wide 

availability of investment advice 

arrangements and products for 

Retirement Investors. Furthermore, the 

exemption will provide certainty for 

Financial Institutions and Investment 

Professionals that opted to comply with 

the enforcement policy the Department 

announced in FAB 2018–02 to continue 

with, and build upon, that compliance 

approach. Further, the exemption will 

ensure that investment advice satisfying 

the Impartial Conduct Standards is 

widely available to Retirement Investors 

without interruption. 

As described above, in FAB 2018–02, 

the Department announced a temporary 

enforcement policy that would apply 

until the issuance of further guidance. 

Its designation as ‘‘temporary’’ 

communicated its status as a 

transitional measure following the 

vacatur of the Department’s 2016 

fiduciary rulemaking. FAB 2018–02 was 

not intended to represent a permanent 

approach for prohibited transaction 

relief. This is due in part to the fact that 

FAB 2018–02 allows Financial 

Institutions to avoid enforcement action 

by the Department, but it does not (and 

cannot) provide relief from private 

litigation related to prohibited 

transactions. 

In addition to the more permanent 

relief it will provide, this exemption 

will have more specific conditions than 

FAB 2018–02, which requires only good 

faith compliance with the Impartial 

Conduct Standards. The conditions in 

the exemption are designed to support 

the provision of investment advice that 

meets the Impartial Conduct Standards. 

For example, the required policies and 

procedures and retrospective review 

work in concert with the Impartial 

Conduct Standards to help Financial 


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82848 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

149Mary Graham, Democracy by Disclosure: The 

Rise of Technopopulism (2002). When Congress 

required manufacturers to disclose how many 

pounds of toxic chemicals they released into the air, 

water, and land and required chief executives to 

sign off on these reports, some chief executives 

became aware of total toxic pollutions for the first 

time and publicly announced the future reductions 

at the same time or before they issued their reports. 

In response to the Nutrition Labeling and Education 

Act (NLEA), which mandated the uniform nutrition 

label, some food companies added healthier 

options. Furthermore, some food companies added 

healthier products before the NLEA was 

implemented but after enacted. (See Christine 

Moorman, Market-Level Effects of Information: 

Competitive Responses and Consumer Dynamics, 

Journal of Marketing Research, Vol. 35, No. 1 (Feb., 

1998). Another experimental study shows that 

when advisors have a choice to accept or reject 

conflicts of interest, advisors who would have to 

disclose their conflict would more likely to reject 

conflicts of interest, so that they have nothing to 

disclose except the absence of conflicts. (See Sah, 

Sunita, and George Loewenstein. ‘‘Nothing to 

declare: Mandatory and voluntary disclosure leads 

advisors to avoid conflicts of interest.’’ 

Psychological science 25.2 (2014): 575–584.). 

Institutions comply with the standards 

that will protect Retirement Investors. 

Some Financial Institutions may 

consider whether to rely on the 

Department’s existing exemptions rather 

than adopt the specific conditions in 

this new exemption. The existing 

exemptions generally condition relief on 

disclosure and cover narrowly tailored 

transactions and types of compensation 

arrangements as well as the parties that 

may rely on the exemption. For 

example, the existing exemptions were 

never amended to clearly cover thirdparty compensation arrangements, such 

as revenue sharing, that developed over 

time. Investment advice fiduciaries 

relying on some of the existing 

exemptions will be limited to the types 

of compensation that tend to be more 

transparent to Retirement Investors, 

such as commission payments. 

For a number of reasons, Financial 

Institutions may decide to rely on this 

new exemption, instead of the 

Department’s existing exemptions. First, 

this exemption is broadly available for 

a wide variety of investment advice 

transactions and compensation 

arrangements, which gives Financial 

Institutions greater flexibility and 

simplifies compliance. Additionally, 

Financial Institutions may determine 

that there is a marketing advantage to 

acknowledging their fiduciary status 

with respect to Retirement Investors, as 

required by the new exemption. 

Some commenters questioned the 

effectiveness of this disclosure because 

investors may decline to read or not 

fully understand such disclosures. In 

response to these concerns, the 

Department strongly encourages 

Financial Institutions to design 

disclosures that are easy to understand 

and written in plain English. The 

Department has provided model 

language that Financial Institutions may 

use for this purpose. The Department 

believes this required disclosure will 

further help Retirement Investors to 

make informed investment decisions. 

In addition, one study suggests that 

disclosure requirements sometimes 

directly affect disclosers’ actions. It 

showed that disclosers sometimes made 

changes to their practices before sending 

disclosures to consumers, especially 

when corporate reputation is 

particularly important. For example, 

corporate managers concerned with 

protecting market share or reputation 

often introduced lines of healthy 

products or tightened corporate 

governance before the public 

responded.149 This suggests that 

disclosures can be effective even when 

investors may not read or not fully 

understand them. 

As the exemption will apply to 

multiple types of investment advice 

transactions, it will potentially allow 

Financial Institutions to rely on one 

exemption for investment advice 

transactions under a single set of 

conditions. This approach may allow 

Financial Institutions to streamline 

compliance, as compared to relying on 

multiple exemptions with multiple sets 

of conditions, resulting in a lower 

overall compliance burden for some 

Financial Institutions. 

This exemption’s alignment with 

other regulatory conduct standards can 

result in a reduction in overall 

regulatory burden as well. As discussed 

earlier in this preamble, the exemption 

was developed in consideration of other 

regulatory conduct standards. The 

Department envisions that Financial 

Institutions and Investment 

Professionals that have already 

developed, or are in the process of 

developing, compliance structures for 

other regulators’ standards will be able 

to rely on the new exemption while 

incurring less costs than they otherwise 

would if other regulators’ compliance 

structures did not exist. 

As discussed above, the Department 

believes that the exemption will provide 

significant protections for Retirement 

Investors. The exemption relies in large 

measure on Financial Institutions’ 

reasonable oversight of Investment 

Professionals and their adoption of a 

culture of compliance. Accordingly, in 

addition to the Impartial Conduct 

Standards, the exemption includes 

conditions designed to support 

investment advice that meets those 

standards, such as the provisions 

requiring written policies and 

procedures, documentation of rollover 

recommendations, and retrospective 

review. However, the exemption will 

not expand Retirement Investors’ ability 

to enforce their rights in court or create 

any new legal claims above and beyond 

those expressly authorized in Title I or 

the Code, such as through required 

contracts and warranty provisions. 

Finally, this exemption provides that 

Financial Institutions and Investment 

Professionals with certain criminal 

convictions or that engage in egregious 

conduct with respect to compliance 

with the exemption would become 

ineligible to rely on the exemption, for 

a period of 10 years. Engaging in these 

types of conduct would suggest that the 

Financial Institution or Investment 

Professional is not able or willing to 

maintain a high standard of integrity 

and will cast doubt on their ability to 

act in accordance with the Impartial 

Conduct Standards. This will allow the 

Department to give special attention to 

parties with certain criminal 

convictions or with a history of 

egregious conduct regarding compliance 

with the exemption which should 

provide significant protections for 

Retirement Investors while preserving 

wide availability of investment advice 

arrangements and products. 

Although the Department expects this 

exemption to generate significant 

benefits, it does not have sufficient data 

to quantify such benefits. However, the 

Department expects the benefits to 

justify the compliance costs associated 

with this exemption because it creates 

an additional pathway for Financial 

Institutions to comply with the 

prohibited transaction provisions in 

Title I and the Code. This new pathway 

is broader than existing exemptions, 

and, thus, applies to a wider range of 

transactions and compensation 

arrangements and products than the 

relief that is currently available. The 

Department anticipates that entities will 

generally take advantage of this 

exemptive relief only if it is less costly 

than other alternatives currently 

available, including avoiding prohibited 

transactions or complying with an 

existing exemption. The Department 

requested comments in the proposal 

about the specific benefits that may flow 

from the exemption and invited 

commenters to submit quantifiable data 

that would support or contradict the 

Department’s expectations about 

benefits. In response, the Department 

received no comments or data that 

could help it quantify the benefits 

associated with this exemption. 


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150These estimates rely on the Employee Benefits 

Security Administration’s 2018 labor rate estimates. 

See Labor Cost Inputs Used in the Employee 

Benefits Security Administration, Office of Policy 

and Research’s Regulatory Impact Analyses and 

Paperwork Reduction Act Burden Calculation, 

Employee Benefits Security Administration (June 

2019), www.dol.gov/sites/dolgov/files/EBSA/lawsand-regulations/rules-and-regulations/technicalappendices/labor-cost-inputs-used-in-ebsa-opr-riaand-pra-burden-calculations-june-2019.pdf. 

151The costs would be $682 million over 10-year 

period, annualized to $79.9 million per year, if a 

three percent discount rate were applied. 

152 In the proposal, the Department used $138.41 

as an attorney’s hourly rate. For more details about 

the Department’s methodologies, see Labor Cost 

Inputs Used in the Employee Benefits Security 

Administration, Office of Policy and Research’s 

Regulatory Impact Analyses and Paperwork 

Reduction Act Burden Calculation, Employee 

Benefits Security Administration (June 2019), 

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. 

153 In the final exemption, the Department used 

$365.39 as an attorney’s hourly rate. This is an 

hourly rate estimate for an in-house compliance 

counsel, obtained from the SEC’s Regulation Best 

Interest Release, 84 FR 33455, footnote 1304: Hour 

for in-house compliance counsel. Available at 

www.govinfo.gov/content/pkg/FR-2019-07-12/pdf/ 

2019-12164.pdf. 

154Regulation Best Interest Release, 84 FR 33407. 

155 2019 Investment Management Compliance 

Testing Survey, Investment Adviser Association 

(Jun. 18, 2019), https://

higherlogicdownload.s3.amazonaws.com/ 

INVESTMENTADVISER/aa03843e-7981-46b2-aa49- 

c572f2ddb7e8/UploadedImages/about/190618_

IMCTS_slides_after_webcast_edits.pdf. 

156 If this assumption is relaxed to include all 

BDs, the costs would increase by $2.8 million for 

the first year. 

157The Department’s estimate of compliance 

costs does not include any state-registered BDs 

because the exception from SEC registration for BDs 

is very narrow. See Guide to Broker-Dealer 

Registration, Securities and Exchange Commission 

(Apr. 2008), www.sec.gov/reportspubs/investorpublications/divisionsmarketregbdguidehtm.html. 

158Form CRS Relationship Summary Release, 84 

FR 33564. 

Costs 

To estimate compliance costs 

associated with the exemption, the 

Department considers the changed 

regulatory baseline. For example, the 

Department assumes affected entities 

will likely incur only incremental costs 

if they are already subject to another 

regulator’s similar rules or 

requirements. Because this exemption is 

intended to align significantly with 

other regulators’ rules and standards of 

conduct, the Department expects that 

satisfying the exemption conditions will 

not be unduly burdensome. The 

Department estimates that the 

exemption would impose costs of more 

than $87.8 million in the first year and 

$78.9 million in each subsequent 

year.150 Over 10 years, the costs 

associated with the exemption would 

total approximately $562 million, 

annualized to $80.1 million per year 

(using a seven percent discount rate).151

Using a perpetual time horizon (to allow 

the comparisons required under E.O. 

13771), the annualized costs in 2016 

dollars are $57 million at a seven 

percent discount rate. These costs are 

broken down and explained below. 

More details are provided in the 

Paperwork Reduction Act section as 

well. The Department solicited any 

quantifiable data that would support or 

contradict any aspect of its analysis and 

received none. 

The Department also requested 

comments on this overall estimate and 

the cost burdens across different 

entities. In response, the Department 

received several comments concerning 

its proposed cost burden analysis. After 

careful reviews of those comments, the 

Department revised its cost estimate 

upward from the proposed cost 

estimate. For example, in the proposal, 

the Department applied an hourly rate 

for compliance attorneys based on the 

U.S. Bureau of Labor Statistics’ average 

attorney hourly rate.152 Because this rate 

is significantly lower than the average 

senior compliance officer’s hourly wage, 

one commenter noted that the wage 

suggested the Department believed such 

compliance activities would be handled 

by junior attorneys, rather than more 

senior compliance counsel. In response, 

the Department’s new cost burden 

analysis relies on a higher hourly wage 

rate that reflects the hourly wage of 

senior compliance attorneys in the 

financial services sector.153 Details of 

the comments and the Department’s 

revised cost estimates are discussed 

below. 

Affected Entities 

As a first step in its analysis, the 

Department examines the entities likely 

to be affected by the exemption. The 

exemption will potentially impact SECand state-registered investment advisers 

(IAs), broker-dealers (BDs), banks, and 

insurance companies, as well as their 

employees, agents, and representatives. 

The Department acknowledges that not 

all these entities will serve as 

investment advice fiduciaries to Plans 

and IRAs within the meaning of Title I 

and the Code. Additionally, because 

other exemptions are also currently 

available to these entities, it is unclear 

how widely Financial Institutions will 

rely upon this exemption and which 

firms are most likely to choose to rely 

on it. To err on the side of caution, the 

Department includes all entities eligible 

for this relief in its cost estimate. The 

Department solicited comments about 

which, and how many, entities would 

likely use this exemption. Although no 

commenters provided precise counts of 

entities that would use this exemption, 

many commenters expressed their 

support for an exemption that is broad 

and flexible enough to cover a wide 

range of transactions and circumstances. 

They further expressed their interest in 

consolidating multiple exemptions into 

one exemption to streamline 

compliance. As discussed earlier in this 

preamble, the Department clarified 

points raised by commenters and 

considered all comments in finalizing 

this exemption. Thus, the Department 

expects that this exemption will be 

widely used across different entities. 

Broker-Dealers (BDs) 

As of December 2018, there were 

3,764 registered BDs. Of those, 2,766, or 

approximately 73.5 percent, reported 

retail customer activities, while 998 

were estimated to have no retail 

customers.154 The Department does not 

have information about how many BDs 

provide investment advice to 

Retirement Investors, which, as defined 

in the exemption include Plan 

fiduciaries, Plan participants and 

beneficiaries, and IRA owners. 

However, according to one compliance 

survey, about 52 percent of IAs provide 

services to retirement plans.155

Assuming the same percentage of BDs 

provide advice to retirement plans, 

nearly 2,000 BDs will be affected by the 

exemption.156 This exemption may also 

impact BDs that provide investment 

advice to Retirement Investors that are 

Plan participants or beneficiaries, or 

IRA owners, but the Department does 

not have a basis to estimate the number 

of these BDs. The Department assumes 

that such BDs would be considered as 

providing recommendations to retail 

customers under the SEC’s Regulation 

Best Interest. 

To continue providing investment 

advice to retirement plans with respect 

to transactions that otherwise would be 

prohibited under Title I and the Code, 

this group of BDs will be able to rely on 

the exemption.157 Because BDs with 

retail customers are subject to the SEC’s 

Regulation Best Interest, they already 

comply with standards substantially 

similar to those set forth in the 

exemption. 

SEC-Registered Investment Advisers 

(IAs) 

As of December 2018, there were 

approximately 13,299 SEC-registered 

IAs.158 Generally, an IA must register 

with the appropriate regulatory 

authorities—the SEC or state securities 


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82850 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

159 Generally, a person that meets the definition 

of ‘‘investment adviser’’ under the Advisers Act 

(and is not eligible to rely on an enumerated 

exclusion) must register with the SEC, unless it: (i) 

Is prohibited from registering under Section 203A 

of the Advisers Act, or (ii) qualifies for an 

exemption from the Act’s registration requirement. 

An adviser precluded from registering with the SEC 

may be required to register with one or more state 

securities authorities. 

160After the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, an IA with $100 million 

or more in regulatory assets under management 

generally registers with the SEC, while an IA with 

less than $100 million registers with the state in 

which it has its principle office, subject to certain 

exceptions. For more details about the registration 

of IAs, see General Information on the Regulation 

of Investment Advisers, Securities and Exchange 

Commission (Mar. 11, 2011), www.sec.gov/ 

divisions/investment/iaregulation/memoia.htm; see 

also A Brief Overview: The Investment Adviser 

Industry, North American Securities Administrators 

Association (2019), www.nasaa.org/industryresources/investment-advisers/investment-adviserguide/. 

161The Department applied this exclusion rule 

across all types of IAs, regardless of registration 

(SEC registered versus state only) and retail status 

(retail versus nonretail). 

162 2019 Investment Management Compliance 

Testing Survey, supra note 155. 

163SEC Standards of Conduct Rulemaking: What 

It Means for RIAs, Investment Adviser Association 

(July 2019), https://

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INVESTMENTADVISER/aa03843e-7981-46b2-aa49- 

c572f2ddb7e8/UploadedImages/resources/IAAStaff-Analysis-Standards-of-ConductRulemaking2.pdf. 

164This excludes state-registered IAs that are also 

registered with the SEC or dual registered BDs. 

165Form CRS Relationship Summary Release. 

166 2019 Investment Management Compliance 

Testing Survey, supra note 155. 

167 2019 Investment Adviser Section Annual 

Report, North American Securities Administrators 

Association (May 2019), www.nasaa.org/wpcontent/uploads/2019/06/2019-IA-SectionReport.pdf. 

168 2018 Investment Adviser Section Annual 

Report, North American Securities Administrators 

Association (May 2018), www.nasaa.org/wpcontent/uploads/2018/05/2018-NASAA-IA-ReportOnline.pdf. 

169 2019 Investment Adviser Section Annual 

Report, supra note 167. 

170One comment letter from the insurance 

industry stated that about half of annuity products 

sold by insurance agents were IRA or tax-qualified 

products. This suggests that fewer than 386 of the 

insurers included in this analysis will be affected 

by this exemption. However, the comment did not 

provide data quantifying the number of insurers 

likely to be affected by or likely to use this 

exemption. 

171The FDIC reports there are 4,430 Commercial 

banks and 636 Savings Institutions (thrifts) for 

5,066 FDIC- Insured Institutions as of June 30, 2020. 

For more details, see Statistics at a Glance, Federal 

Deposit Insurance Corporation (Jun 30, 2020), 

www.fdic.gov/bank/statistical/stats/2020jun/ 

industry.pdf. 

172For more details about ‘‘networking 

arrangements,’’ see Conflict of Interest Final Rule, 

Regulatory Impact Analysis for Final Rule and 

Exemptions, U.S. Department of Labor (Apr. 2016), 

www.dol.gov/sites/dolgov/files/EBSA/laws-andregulations/rules-and-regulations/completedrulemaking/1210-AB32-2/ria.pdf. Financial 

Institutions that are broker-dealers, investment 

advisers, or insurance companies that participate in 

networking arrangements and provide fiduciary 

authorities.159 IAs registered with the 

SEC are generally larger than stateregistered IAs, both in staff and in 

regulatory assets under management 

(RAUM).160 SEC-registered IAs that 

provide investment advice to retirement 

plans and other Retirement Investors 

would be directly affected by the 

exemption. 

Some IAs are dual-registered as BDs. 

To avoid double counting when 

estimating compliance costs, the 

Department counted dually-registered 

entities as BDs and excluded them from 

the burden estimates of IAs.161

Therefore, the Department estimates 

there to be 12,940 SEC-registered IAs, a 

figure produced by subtracting the 359 

dually-registered IAs from the 13,299 

SEC-registered IAs. 

Similar to BDs, the Department 

assumes that about 52 percent of SECregistered IAs provide investment 

advice to retirement plans.162 Applying 

this assumption, the Department 

estimates that approximately 6,729 SECregistered IAs currently provide 

investment advice to retirement plans. 

An inestimable number of IAs may 

provide advice only to Retirement 

Investors that are Plan participants or 

beneficiaries or IRA owners, rather than 

the workplace retirement plans 

themselves. These IAs are fiduciaries, 

and they already operate under 

standards substantially similar to those 

required by the exemption.163

Accordingly, the exemption will pose 

no more than a nominal burden for 

these entities. 

State-Registered Investment Advisers 

As of December 2018, there were 

16,939 state-registered IAs.164 Of these 

state-registered IAs, 13,793 provide 

advice to retail investors, while 3,146 do 

not.165 State-registered IAs tend to be 

smaller than SEC-registered IAs, both in 

RAUM and staff. For example, 

according to one survey of both SECand state-registered IAs, about 47 

percent of respondent IAs reported 11 to 

50 employees.166 In contrast, an 

examination of state-registered IAs 

reveals about 80 percent reported only 

up to two employees.167 According to 

one report, 64 percent of state-registered 

IAs manage assets under $30 million.168

A study by the North American 

Securities Administrators Association 

found that about 16 percent of stateregistered IAs provide advice or services 

to retirement plans.169 Based on this 

study, the Department assumes that 16 

percent of state-registered IAs provide 

investment advice to retirement plans. 

Thus, the Department estimates that 

approximately 2,710 state-registered IAs 

provide advice to retirement plans and 

other Retirement Investors. 

Insurance Companies 

The exemption will affect insurance 

companies, which primarily are 

regulated by states. No single regulator 

records a national-level count of 

insurance companies. Although state 

regulators track insurance companies, 

the total number of insurance 

companies cannot be calculated by 

aggregating individual state totals 

because individual insurance 

companies often operate in multiple 

states. However, the NAIC estimates 

there were approximately 386 insurance 

companies directly writing annuities in 

2018. Some of these insurance 

companies may not sell any annuity 

contracts in the IRA or Title I retirement 

plan markets.170 Furthermore, insurance 

companies can rely on other existing 

exemptions instead of this exemption. 

Some insurance industry commenters 

questioned whether the Department’s 

existing exemptions offer realistic 

alternatives. In response to these 

concerns, the Department clarified 

earlier in this preamble that insurance 

companies can rely on other existing 

exemptions if such exemptions better fit 

their current business models. In the 

proposal, the Department invited 

comments about how many insurance 

companies would use this exemption. 

No commenters provided data that 

could help the Department more 

precisely quantify the number of 

insurance companies that will rely on 

this exemption or the associated 

compliance costs. Due to lack of data, 

the Department includes all 386 

insurance companies in its cost 

estimate, although this likely presents 

an upper bound. 

Banks 

There are 5,066 federally insured 

depository institutions in the United 

States.171 Banks will be permitted to act 

as Financial Institutions under the 

exemption if they or their employees are 

investment advice fiduciaries with 

respect to Retirement Investors. The 

Department nevertheless believes that 

most banks will not be affected by the 

exemption for the reasons discussed 

below. 

The Department understands that 

banks most commonly use ‘‘networking 

arrangements’’ to sell retail non-deposit 

investment products (RNDIPs), 

including, among other products, 

equities, fixed-income securities, 

exchange-traded funds, and variable 

annuities.172 Under such arrangements, 


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investment advice would be included in the counts 

in their respective sections. 

173A comment letter from the banking industry 

described various interactions with customers, 

including those related to RNDIP and IRA 

investment programs. According to this commenter, 

there are generally two types of bank IRA 

investment programs available for retirement 

customers: (i) Customer-directed bank IRA–CD and 

other bank deposit programs, and (ii) bank 

discretionary IRA programs. This commenter stated 

that they believe neither program would be required 

to rely on the exemption, which implies that most 

banks will not be affected by this exemption. 

174Except where specifically noted, all cost 

estimates are expressed in 2019 dollars throughout 

this document. 

175A written acknowledgment of fiduciary status 

would cost approximately $0.6 million, while a 

written description of the services offered and any 

material conflicts of interest would cost another 

$1.3 million. The Department assumes that 11,782 

Financial Institutions, comprising 1,957 BDs, 6,729 

SEC-registered IAs, 2,710 state-registered IAs, and 

386 insurers, are likely to engage in transactions 

covered under this exemption. For a detailed 

description of how the number of entities is 

estimated, see the Paperwork Reduction Act 

section, below. The $0.6 million cost associated 

with a written acknowledgment of fiduciary status 

is calculated as follows. The Department assumes 

that it will take each retail BD firm 15 minutes, each 

nonretail BD or insurance firm 30 minutes, and 

each registered IA five minutes to prepare a 

disclosure conveying fiduciary status at an hourly 

labor rate of $365.39, resulting in cost burden of 

$584,130. Accordingly, the estimated per-entity cost 

ranges from $30.45 for IAs to $182.7 for non-retail 

BDs and insurers. The $1.3 million costs associated 

with a written description of the services offered 

and any material conflicts of interest are calculated 

as follows. The Department assumes that it will take 

each retail BD or IA firm five minutes, each small 

nonretail BD or small insurer 60 minutes, and each 

large nonretail BDs or larger insurer five hours to 

prepare a disclosure conveying services provided 

and any conflicts of interest at an hourly labor rate 

of $365.39, resulting in cost burden of $1,348,628. 

Accordingly, the estimated per-entity cost ranges 

from $30.45 for retail broker-dealers and IAs to 

$182.7 for large non-retail BDs and insurers. 

176The Department estimates that approximately 

1.8 million Retirement Investors are likely to engage 

in transactions covered under this PTE, of which 

8.1 percent are estimated to receive paper 

disclosures. Distributing paper disclosures is 

estimated to take a clerical professional one minute 

per disclosure, at an hourly labor rate of $64.11, 

resulting in a cost burden of $151,341. Assuming 

the disclosures will require two sheets of paper at 

a cost $0.05 each, the estimated material cost for the 

paper disclosures is $14,164. Postage for each paper 

disclosure is expected to cost $0.55, resulting in a 

printing and mailing cost of $92,063. 

177The Department estimates approximately 56.4 

percent of participants receive disclosures 

electronically based on data from various data 

sources including the National 

Telecommunications and Information Agency 

(NTIA). In light of the 2020 Electronic Disclosure 

Regulation, the Department estimates that 

additional 35.5 percent of participants receive their 

disclosures electronically. In total, 91.9 percent of 

participants are expected to receive disclosures 

electronically. 

178U.S. Retirement-End Investor 2020: Helping 

Participants Navigating Uncertainty, The Cerulli 

Report (2020). 

179 Id. 

180The costs associated with documenting 

rollover recommendations are estimated and 

discussed in more details below in the section 

entitled ‘‘Costs associated with rollover 

Continued 

bank employees are limited to 

performing only clerical or ministerial 

functions in connection with brokerage 

transactions. However, bank employees 

may forward customer funds or 

securities and may describe, in general 

terms, the types of investment vehicles 

available from the bank and BD under 

the arrangement. Similar restrictions 

exist with respect to bank employees’ 

referrals of insurance products and IAs. 

Because of these limitations, the 

Department believes that in most cases 

such referrals will not constitute 

fiduciary investment advice within the 

meaning of the exemption. Due to the 

prevalence of banks using networking 

arrangements for transactions related to 

RNDIPs, the Department believes that 

most banks will not be affected with 

respect to such transactions.173

The Department does not have 

sufficient data to estimate the costs to 

banks of any other investment advice 

services, because it does not know how 

frequently banks use their own 

employees to perform activities that 

would be otherwise prohibited. The 

Department invited comments on the 

magnitude of such costs and solicited 

data that would facilitate their 

quantification in the proposal. No 

comments expressly discussed costs to 

banks nor provided data for the 

Department to quantify the compliance 

burden, if any, imposed on banks. 

Costs Associated With Disclosures 

The Department estimates the 

compliance costs associated with the 

exemption’s disclosure requirement will 

be approximately $2 million in the first 

year and $0.2 million per year in each 

subsequent year.174

Section II(b) of the exemption requires 

Financial Institutions to acknowledge, 

in writing, their status as fiduciaries 

under Title I and the Code, as 

applicable. In addition, Financial 

Institutions must furnish a written 

description of the services they provide 

and any material conflicts of interest. 

For many entities, including IAs, this 

condition will impose only modest 

additional costs, if any at all. Most IAs 

already disclose their status as a 

fiduciary and describe the types of 

services they offer in Form ADV. As of 

June 30, 2020, BDs with retail investors 

are also required to provide disclosures 

about services provided and conflicts of 

interest on Form CRS and pursuant to 

the disclosure obligation in Regulation 

Best Interest. Even among entities that 

currently do not provide such 

disclosures, such as insurance 

companies and some BDs, the 

Department believes that developing 

disclosures required in this exemption 

will not substantially increase costs 

because the required disclosures are 

clearly specified and limited in scope. 

Not all entities will decide to use the 

exemption. Some may instead rely on 

other existing exemptions that better 

align with their business models. 

However, for this cost estimation, the 

Department assumes that all eligible 

entities will use the exemption and 

incur, on average, modest costs. 

The Department estimates that 

developing disclosures that 

acknowledge fiduciary status and 

describe the services offered and any 

material conflicts of interest will cost 

regulated parties approximately $1.9 

million in the first year.175

The Department estimates that it will 

cost Financial Institutions about $0.2 

million to print and mail required 

disclosures to Retirement Investors, but 

it assumes most required disclosures 

will be electronically delivered to 

Retirement Investors.176 The 

Department assumes that approximately 

92 percent of participants who roll over 

their plan assets to IRAs will receive 

required disclosures electronically.177

According to one study, approximately 

3.6 million accounts in defined 

contribution plans were rolled over to 

IRAs in 2019.178 Of those, slightly less 

than half, 1.8 million, were rolled over 

by financial services professionals.179

Therefore, prior to transactions 

necessitated by rollovers, participants 

are likely to receive required disclosures 

from their Investment Professionals. In 

some cases, Financial Institutions and 

Investment Professionals may send 

required disclosures to participants, 

particularly those with participantdirected defined contribution accounts, 

before providing investment advice. 

The Financial Institution now must 

provide documentation of the specific 

reasons that any rollover 

recommendation is in the Retirement 

Investor’s best interest to the Retirement 

Investor. The Department estimates and 

presents costs associated with 

documenting rollover recommendations 

in the section below. Beyond the cost 

associated with producing the 

documentation, Financial Institutions 

may incur additional costs to provide 

such documentation to Retirement 

Investors. The Department expects that 

once the Financial Institutions 

document rollover recommendations, 

any additional costs for providing the 

documentation, such as printing and 

mailing costs, will be somewhat 

modest.180


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documentation.’’ To avoid double-counting, this 

section only includes associated distribution costs 

of such documentation. As discussed above, the 

Department estimates that approximately 92 

percent of Retirement Investors will receive 

disclosures electronically, eliminating printing and 

mailing costs. Thus, providing rollover 

documentation will increase costs by approximately 

$240,000. 

181The hourly wage estimate for an in-house 

compliance counsel was obtained from Regulation 

Best Interest Release, 84 FR 33455, note 1304, 

www.govinfo.gov/content/pkg/FR-2019-07-12/pdf/ 

2019-12164.pdf. 

182The Department assumes that 11,782 Financial 

Institutions, comprising 1,957 BDs, 6,729 SECregistered IAs, 2,710 state-registered IAs, and 386 

insurers, are likely to engage in transactions 

covered under this exemption. For a detailed 

description of how the number of entities is 

estimated, see the Paperwork Reduction Act 

section, below. The Department assumes that it will 

take a legal professional, at an hourly labor rate of 

$365.39, 22.5 minutes at each small retail BD, 45 

minutes at each large retail BD, five hours at each 

small nonretail BD, 10 hours at each large nonretail 

BD, 15 minutes at each small IA, 30 minutes at each 

large IA, five hours at each small insurer, and 10 

hours at each large insurer to meet the requirement. 

This results in a cost burden estimate of $4,393,011. 

Accordingly, the estimated per-entity cost ranges 

from $91.35 for small IAs to $3,653.90 for large nonretail BDs and insurers. These compliance cost 

estimates are not discounted. 

183See SEC Fiduciary Interpretation, 84 FR 

33669. 

184See Form ADV, 17 CFR 279.1 (1979). (Part 2A 

of Form ADV requires IAs to prepare narrative 

brochures that contain information such as the 

types of advisory services offered, fee schedules, 

disciplinary information, and conflicts of interest. 

For example, item 10.C of part 2A asks IAs to 

identify if certain relationships or arrangements 

create a material conflict of interest, and to describe 

the nature of the conflict and how to address it. If 

an IA recommends or selects other IAs for its 

clients, and receives compensation directly or 

indirectly from those advisers that creates a 

material conflict of interest, or has other business 

relationships with those advisers that create a 

material conflict of interest, an adviser must 

describe these practices, discuss the material 

conflicts of interest these practices create, and how 

the adviser addresses them. See Item 10.D of Part 

2A of Form ADV.) 

185 In the proposal, Section IV required that the 

records be made available to (1) any authorized 

employee of the Department, (2) any fiduciary of a 

Plan that engaged in an investment transaction 

pursuant to this exemption, (3) any contributing 

employer and any employee organization whose 

members are covered by a Plan that engaged in an 

investment transaction pursuant to this exemption, 

or (4) any participant or beneficiary of a Plan or an 

IRA owner that engaged in an investment 

transaction pursuant to this exemption. 

The Department sought further 

comments in the proposed RIA on the 

costs associated with the required 

disclosures. In response, a commenter 

argued that the associated hourly wage 

of a legal professional used in the 

Department’s cost estimate did not 

correspond to that of a compliance 

counselor. The Department 

acknowledges the importance of taking 

into account the level of experience and 

specialization of legal professionals in 

charge of compliance testing. 

Accordingly, the Department updated 

its legal professional’s hourly labor rate 

to reflect the typical compensation of 

those who provide such services to 

Financial Institutions.181

Costs Associated With Written Policies 

and Procedures 

The Department estimates that 

developing policies and procedures 

prudently designed to ensure 

compliance with the Impartial Conduct 

Standards will cost approximately $4.4 

million in the first year.182

The estimated compliance costs 

reflect the different regulatory baselines 

under which various entities are 

currently operating. For example, IAs 

already operate under a fiduciary 

standard substantially similar to that 

required under the exemption,183 and 

report how they address conflicts of 

interests in Form ADV.184 Similarly, 

BDs subject to the SEC’s Regulation Best 

Interest also operate under a standard 

that is substantially similar to the 

exemption. To comply fully with the 

exemption, however, these entities may 

need to review and amend their existing 

policies and procedures. These 

additional steps will impose additional, 

but not substantial, costs at the 

Financial Institution level. 

Insurers and non-retail BDs currently 

operating under a suitability standard in 

most states and largely relying on 

transaction-based forms of 

compensation, such as commissions, 

will be required to establish written 

policies and procedures that comply 

with the Impartial Conduct Standards if 

they choose to use this exemption. 

These activities will likely involve 

higher cost increases than those 

experienced by IAs and retail BDs. To 

a large extent, however, the entities 

facing potentially higher costs will 

likely elect to continue to rely on other 

existing exemptions. In this regard, the 

burden estimates on these entities are 

likely overestimated to the extent that 

many of them would not use this 

exemption. 

Smaller entities may have less 

complex business practices and 

arrangements than their larger 

counterparts, it may cost less for these 

entities to comply with the exemption. 

This is reflected in the compliance cost 

estimates presented in this economic 

analysis. 

Costs Associated With Annual Report of 

Retrospective Review 

Section II(d) of the exemption 

requires Financial Institutions to 

conduct an annual retrospective review 

reasonably designed to ensure that the 

Financial Institution is in compliance 

with the Impartial Conduct Standards 

and its own policies and procedures. 

Section II(d) further requires the 

institution to produce a written report 

on the review that is certified by a 

Senior Executive Officer of the 

institution. In the proposal, the 

Department required certification by the 

chief executive officer of the Financial 

Institution, however several comments 

stated that this requirement is overly 

burdensome and unnecessary. After 

careful deliberation, the Department 

changed the requirement to allow 

certification from a Senior Executive 

Officer, which is defined to include any 

of the following: The chief compliance 

officer, chief executive officer, 

president, chief financial officer, or one 

of the three most senior officers of the 

Financial Institution, to reduce any 

unnecessary burden. Furthermore, by 

having a Senior Executive Officer certify 

the report, any inadequacies or 

irregularities may be detected during the 

review process and addressed 

appropriately before becoming 

systematic failures. 

Some commenters suggested that this 

requirement could create the perverse 

incentive for a Financial Institution to 

carefully craft the language in the report 

to avoid any suggestion that any 

violation has occurred or even that its 

compliance could be improved. These 

commenters were particularly 

concerned because the penalty of 

noncompliance is severe—loss of 

exemption and exposure to litigation. In 

response to these comments, the 

Department amended the rule to allow 

Financial Institutions to self-correct 

certain violations of the exemption by 

following the procedures specified in 

Section II(e). Furthermore, Section IV 

now requires Financial Institution to 

make records available, to the extent 

permitted by law, to any authorized 

employee of the Department and the 

Department of the Treasury, not to 

others.185 The Department believes that 

these changes will minimize any 

perverse incentives and encourage 

Financial Institutions to use the 

retrospective review process for its 

intended purposes—to (1) detect any 

business models creating conflicts of 

interests, (2) test the adequacies of the 

policies and procedures, (3) identify any 

compliance areas for improvements, and 

(4) update and modify its compliance 

system based on the review results. As 

a result, protection for Retirement 

Investors will be strengthened without 

imposing any unnecessary burden on 

Financial Institutions. 

The Department estimates that this 

requirement will impose $15.9 million 


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186The Department assumes that 794 Financial 

Institutions, comprising 20 BDs, 538 SEC-registered 

IAs, 217 state-registered IAs, and 20 insurers, would 

be likely to incur costs associated with producing 

a retrospective review report. The Department 

estimates it will take a legal professional, at an 

hourly labor rate of $365.39, five hours for small 

firms and ten hours for large firms to produce a 

retrospective review report, resulting in an 

estimated cost burden of $2,569,337. The per-entity 

cost estimate ranges from $1,826.95 for small 

entities to $3,653.9 for large entities. In addition, 

the Department assumes that 11,782 Financial 

Institutions, comprising 1,957 BDs, 6,729 SECregistered IAs, 2,710 state-registered IAs, and 386 

insurers, would be likely to incur costs associated 

with adding and modifying this report. The 

Department estimates it will take a legal 

professional one hour for small firms and two hours 

for large firms to add and modify the report, 

resulting in an estimated cost burden of $7,573,614. 

The estimated per-entity cost ranges from $365.39 

for small entities to $730.78 for large entities. 

Lastly, the Department also assumes that 9,845 

Financial Institutions, comprising 20 BDs, 6,729 

SEC-registered IAs, 2,710 state-registered IAs, and 

386 insurers, would be likely to incur costs 

associated with reviewing and certifying the report. 

The Department estimates it will take a certifying 

officer two hours for small firms and four hours for 

large firms to review the report and certify the 

exemption, resulting in an estimated cost burden of 

$5,750,451. The estimated per-entity cost ranges 

from $331.26 for small entities to $584.12 for large 

entities. For a detailed description of how the 

number of entities for each cost burden is 

estimated, see the Paperwork Reduction Act 

section. 

187Rule 3110. Supervision, FINRA Manual, 

www.finra.org/rules-guidance/rulebooks/finrarules/3110. 

188Rule 3120. Supervisory Control System, 

FINRA Manual, www.finra.org/rules-guidance/ 

rulebooks/finra-rules/3120. 

189Rule 3130. Annual Certification of 

Compliance and Supervisory Processes, FINRA 

Manual, www.finra.org/rules-guidance/rulebooks/ 

finra-rules/3130. 

190The previous NAIC Suitability in Annuity 

Transactions Model Regulation (2010) was adopted 

by many states before the newer NAIC Model 

Regulation was approved in 2020. Both previous 

and updated Model Regulations contain standards 

similar to that of the written report of retrospective 

review required under the proposed exemption. 

191Suitability in Annuity Transactions Model 

Regulation, NAIC Regulation, Section 6.C.(2)(i). 

(The same requirement is found in the previous 

NAIC Suitability in Annuity Transactions Model 

Regulation (2010), Section 6.F.(1)(f).) 

192 2019 Investment Management Compliance 

Testing Survey, Investment Adviser Association 

(Jun. 18, 2019), https://

www.acacompliancegroup.com/blog/2019- 

investment-management-compliance-testingsurvey-results. 

193One commenter questioned the Department’s 

assumption that only the eight percent of SEC- and 

state-registered IAs that do not currently produce 

reports will incur costs to produce them. According 

to this commenter, to fully comply with this 

exemption, most of the IAs that currently produce 

reports will need to somewhat modify their current 

reports. The Department incorporated this comment 

in this analysis and now assumed that all entities 

will likely see somewhat modest increases in their 

costs to make any additional entries in their reports. 

For more details, see the discussion later in this 

section. 

194An examination of state-registered IAs reveals 

about 80 percent reported only up to two 

employees. See supra note 167. 

in costs in the first year.186 FINRA 

requires BDs to establish and maintain 

a supervisory system reasonably 

designed to facilitate compliance with 

applicable securities laws and 

regulations,187 to test the supervisory 

system, and to amend the system based 

on the testing.188 Furthermore, the BD’s 

chief executive officer (or equivalent 

officer) must annually certify that it has 

processes in place to establish, 

maintain, test, and modify written 

compliance policies and written 

supervisory procedures reasonably 

designed to achieve compliance with 

FINRA rules.189

Many insurance companies are 

already subject to similar standards.190

For instance, the NAIC’s Model 

Regulation contemplates that insurance 

companies establish a supervision 

system that is reasonably designed to 

comply with the Model Regulation and 

annually provide senior management 

with a written report that details 

findings and recommendations on the 

effectiveness of the supervision 

system.191 States that have adopted the 

Model Regulation also require insurance 

companies to conduct annual audits and 

obtain certifications from senior 

managers. Based on these regulatory 

baselines, the Department believes the 

compliance costs attributable to this 

requirement will be modest. 

SEC-registered IAs are already subject 

to Rule 206(4)–97, which requires them 

to adopt and implement written policies 

and procedures reasonably designed to 

ensure compliance with the Advisers 

Act, and rules adopted thereunder, and 

review them annually for adequacy and 

the effectiveness of their 

implementation. Under the same rule, 

SEC-registered IAs must designate a 

chief compliance officer to administer 

the policies and procedures. However, 

they are not required to produce a report 

detailing findings from its audit. 

Nonetheless, many seem to voluntarily 

produce reports after conducting 

internal reviews. One compliance 

testing survey reveals that about 92 

percent of SEC-registered IAs 

voluntarily provide an annual 

compliance program review report to 

senior management.192 Relying on this 

information, the Department estimates 

that only eight percent of SEC-registered 

IAs advising retirement plans will start 

to produce a retrospective review report 

for this exemption.193 The rest will 

incur some incremental costs to revise 

their existing review reports to fully 

satisfy the conditions related to this 

requirement. 

Due to lack of data, the Department 

based the cost estimates associated with 

state-registered IAs on the assumption 

that eight percent of state-registered IAs 

advising retirement plans currently do 

not produce compliance review reports, 

and, thus, will incur costs associated 

with the oversight conditions in the 

exemption. As discussed above, 

compared with SEC-registered IAs, 

state-registered IAs tend to be smaller in 

terms of RAUM and staffing, and, thus, 

may not have formal procedures in 

place to conduct retrospective reviews 

to ensure regulatory compliance. If that 

were often the case, the Department’s 

assumption would likely underestimate 

costs. However, because state-registered 

IAs tend to be smaller than their SECregistered counterparts, they tend to 

handle fewer transactions, limit the 

range of transactions they handle, and 

have fewer employees to supervise.194

Therefore, the costs associated with 

establishing procedures to conduct 

internal retrospective reviews and 

produce compliance reports will likely 

be low. 

One commenter mentioned that the 

Financial Institutions would likely 

revise their retrospective review reports 

to fully comply with the exemption 

even if they already produce the reports 

to comply with other regulators or to 

voluntarily improve their compliance 

system. The Department accepted this 

comment and incorporated in its 

compliance cost estimates potential 

burden increases on all entities relying 

on this exemption regardless of whether 

they already produce reports. However, 

the Department believes that this 

burden increase will be incremental, 

because the Department takes a 

principles-based approach in the 

exemption and provides Financial 

Institutions with flexibility to design 

and perform this review in a way that 

works best with their business model. 

Therefore, the Department expects 

Financial Institutions to develop and 

implement procedures that are least 

burdensome and work with their 

current system to meet the standard set 

forth in the exemption. 

According to another commenter, the 

Department did not estimate sufficient 

time for a certifying official to review 

and certify the retrospective review 

report. No commenters provided data 

the Department could use to more 

accurately estimate the burden 

associated with this requirement. 

Despite this lack of data, in response to 

these comments, the Department 

substantially increased its estimated 

burden associated with certification to 

dispel any misconception that this 


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195The Department assumes that it will take the 

certifying officer two hours (small firms) or four 

hours (large firms). If we assume that an average 

person reads 250 words per minute, this individual 

can read 30,000 words for two hours or 60,000 

words for four hours. This implies a retrospective 

review report would be approximately 125 pages to 

250 pages if this report is written in double space 

with 12 font size. 

196U.S. Retirement-End Investor 2020, supra note 

178. (To estimate costs associated with 

documenting rollovers, the Department did not 

include rollovers from plans to plans because planto-plan rollovers are unlikely to be mediated by 

Investment Professionals. Also plan-to-plan 

rollovers occur far less frequently than plan-to-IRA 

rollovers. Thus, even if plan-to-plan rollovers were 

included in the cost estimation, the impact would 

likely be small.) 

197 Id. 

198Another report suggested that a higher share, 

75 percent, of households owning IRAs held their 

IRAs through Investment Professionals. The same 

report indicated that about half of traditional IRAowning households with rollovers primarily relied 

on professional financial advisers for their rollover 

decisions. Note that this is household level data 

based on an IRA owners’ survey, which was not 

particularly focused on rollovers. (See Sarah 

Holden & Daniel Schrass, The Role of IRAs in US 

Households’ Saving for Retirement, 2019, ICI 

Research Perspective, vol. 25, no. 10 (Dec. 2019).) 

199U.S. Retirement-End Investor 2020, supra note 

178. 

200 Id. 

201 Id. 

202Regulation Best Interest Release, 84 FR 33360. 

203According to a comment letter about the 

proposed Regulation Best Interest, BDs have a 

strong financial incentive to retain records 

necessary to document that they have acted in the 

best interest of clients, even if it is not required. 

Another comment letter about the proposed 

Regulation Best Interest suggests that BDs generally 

maintain documentation for suitability purposes. 

204Regulation Best Interest: How Wealth 

Management Firms are Implementing the Rule 

Package, Deloitte (Mar. 6, 2020). (This report is 

based on a survey given to 48 SIFMA member firms 

providing financial advice and related services to 

retail customers. The survey ended on December 2, 

2019. Ninety percent of survey participant firms 

were dual registrants.) 

205Therefore, the Department estimates that 52 

percent of rollovers are done by financial 

professionals whose institutions already require 

such documentations. 

206 In 2019, a survey was conducted on financial 

services professionals who hold more than 50 

percent of their practice’s assets under management 

in employer-sponsored retirement plans. These 

financial services professionals include both BDs 

and IAs. Forty-five percent of those surveyed 

indicated that they make a proactive effort to 

pursue IRA rollovers from their DC plan clients, 

and approximately 32.6 percent reported that they 

function in a non-fiduciary capacity. Therefore, the 

Department assumes that approximately 67.4 

percent of financial service professionals serve their 

Plan clients as fiduciaries. (See U.S. Defined 

Contribution 2019: Opportunities for Differentiation 

in a Competitive Landscape, The Cerulli Report 

(2019).) The Department assumes that 67.4 percent 

of 1.8 million rollovers involving financial service 

professionals will likely be affected by this 

exemption. 

207The Department assumes that financial 

advisors whose firms do not currently document 

rollover justifications will take, on average, 30 

minutes per rollover to comply with this 

exemption. In contrast, financial advisors whose 

firms already require such documentation will take, 

on average, an additional five minutes per rollover 

to fully satisfy the requirement. The Department 

estimates over 335,000 burden hours in aggregate 

and slightly more than $65 million assuming 

$194.77 hourly rate for a personal financial advisor. 

requirement is a mere formality.195 The 

Department expects the certification 

process will facilitate on-going 

communications about compliance 

issues among senior executives and 

compliance staffers. 

In sum, the Department estimates that 

the costs associated with the 

retrospective review requirement of the 

exemption will be approximately $15.9 

million in the first year. 

Costs Associated With Rollover 

Documentation 

In 2019, slightly more than 3.6 

million defined contribution plan 

accounts rolled over to an IRA, while 

0.5 million accounts rolled over to other 

defined contribution plans.196 Not all 

rollovers were managed by financial 

services professionals. As discussed 

above, slightly less than half of all 

rollovers from plans to IRAs were 

handled by financial services 

professionals, while the rest were selfdirected.197 Based on this information, 

the Department estimates slightly less 

than 1.8 million participants obtained 

advice from financial services 

professionals.198 These rollovers tended 

to be larger than the self-directed 

rollovers. For example, in 2019, the 

average account balance of rollovers by 

financial services professionals was 

$169,000, whereas the average account 

balance of self-directed rollovers was 

$109,000.199 Some of these rollovers 

likely involved financial services 

professionals who were not fiduciaries 

under the Department’s five-part 

investment advice fiduciary test; thus, 

the actual number of rollovers affected 

by this exemption is likely lower than 

1.8 million. 

Many commenters discussed various 

issues concerning rollovers in the fivepart test context. In discussing rollovers, 

they sometimes distinguished new 

relationships between financial services 

professionals and investors from 

existing relationships. A close 

inspection of rollover data suggests that 

most rollovers do not occur in a 

vacuum. Specifically, 87 percent of 

rollovers handled by financial services 

professionals were executed by 

professionals with whom investors had 

an existing relationship, while only 13 

percent were handled by new financial 

services professionals.200 Furthermore, 

rollovers handled by existing financial 

service professionals were, on average, 

larger ($174,000) than rollovers handled 

by new financial service professionals 

($132,000).201

The exemption requires Financial 

Institutions to document why a 

recommended rollover is in the best 

interest of Retirement Investors and 

provide that documentation to the 

Retirement Investor. As a best practice, 

the SEC already encourages firms to 

record the basis for significant 

investment decisions, such as rollovers, 

although doing so is not required under 

Regulation Best Interest.202 In addition, 

some firms may voluntarily document 

significant investment decisions to 

demonstrate compliance with 

applicable law, even if not required.203

Therefore, in the proposal, the 

Department stated that it expects many 

Financial Institutions already document 

significant decisions like rollovers. 

One commenter disagreed with the 

Department, stating that the 

Department’s expectation was not 

realistic. However, a report 

commissioned by this commenter found 

that slightly more than half (52 percent) 

of asset management firms 

implementing Regulation Best Interest 

require their financial service 

professionals to document rollover 

recommendations. About half require 

documentation on all recommendations, 

while 56 percent require documentation 

for specific product recommendations, 

such as mutual funds and variable 

annuities.204 Since Regulation Best 

Interest is now in effect, the Department 

expects that these Financial Institutions 

already are implementing these policies 

and procedures. Therefore, the 

Department assumes that 52 percent of 

Financial Institutions already require 

documentation for rollover 

recommendations, and, thus, will face 

no more than an incremental burden 

increase.205 The remaining 48 percent 

will face a larger burden increase to 

implement new documentation 

procedures for rollover 

recommendations. 

In estimating costs associated with 

rollover documentations, the 

Department faces uncertainty in 

determining the number of rollovers 

affected by the exemption. The 

Department assumes that 67.4 percent of 

rollovers involving financial services 

professionals will be affected by the 

exemption.206 Using this assumption, 

the estimated costs will be $65 million 

per year.207 The Department 

acknowledges that uncertainty still 

remain, because the lack of available 

data makes it difficult to estimate how 

many financial services professionals 

may act in a fiduciary capacity when 

making certain rollover 

recommendations that meet all elements 


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208FINRA, Reg BI and Form CRS Firm Checklist. 

Also Regulation Best Interest Release 84 FR 33360 

(July 12, 2019). 

209Regulation Best Interest: How Wealth 

Management Firms are Implementing the Rule 

Package, Deloitte (Mar. 6, 2020). The participating 

firms in this study included dual-registrants, BDs 

and RIAs that were owned by or affiliated with 

banks, holding companies, insurance companies, 

and trust companies, as well as independent duallyregistered BDs and RIAs. 90% of participating firms 

were dual registrants. 

210 Id. 

211 Id. 

212The SEC’s Regulation Best Interest amended 

Rule 17a–4(e)(5) requires that BDs retain all records 

of the information collected from or provided to 

each retail customer pursuant to Regulation Best 

Interest for at least six years after the date the 

account was closed or the date on which the 

information was last replaced or updated, 

whichever comes first. FINRA Rule 4511 also 

requires its members to preserve for a period of at 

least six years those FINRA books and records for 

which there is no specified period under the FINRA 

rules or applicable Exchange Act rules. 

213The Department notes that the insurers most 

likely to use the exemption are generally not subject 

to the SEC’s Regulation Best Interest and FINRA 

rules. The Department understands, however, that 

some states’ insurance regulations require insurers 

to retain similar records for less than six years. For 

example, some states require insurers to maintain 

records for five years after the insurance transaction 

is completed. Thus, the recordkeeping requirement 

of the proposed exemption will likely impose an 

additional burden on the insurers that rely on this 

exemption. However, the Department expects most 

insurers to maintain records electronically. 

Electronic storage prices have decreased 

substantially as cloud services become more widely 

available. For example, cloud storage space costs, 

on average, $0.018 to $0.021 per GB per month. 

Some estimate that approximately 250,000 PDF files 

or other typical office documents can be stored on 

100GB. Accordingly, the Department believes that 

maintaining records in electronic storage for an 

additional year or two will not impose a significant 

cost burden on the affected insurers. (For more 

detailed pricing information of three large cloud 

service providers, see https://cloud.google.com/ 

products/calculator, https://azure.microsoft.com/ 

en-us/pricing/calculator, or https://

calculator.s3.amazonaws.com/index.html.) 

of the five-part test, and, thus, will be 

affected by the exemption. The 

Department invited comments and data 

that could help it more precisely 

estimate the number of rollovers 

affected by the exemption and did not 

receive any comments countering its 

67.4 percent assumption. Therefore, the 

Department maintained that assumption 

in its cost estimate. 

In addition, the Department invited 

comments about financial services 

professionals’ practices related to 

documenting rollover 

recommendations, particularly whether 

financial services professionals often 

use a form with a list of common 

reasons for rollovers and how long, on 

average, it would take for a financial 

services professional to document a 

rollover recommendation. One 

commenter stated that the Department’s 

proposed estimate was ambitious but 

reasonable, particularly for firms using 

compliance software to automate this 

process. This commenter, however, 

pointed out that the Department did not 

take into account the cost associated 

with purchasing compliance software. 

According to this commenter, the 

Department’s low estimate for time 

spent documenting rollovers suggests 

that hasty and superficial analysis 

would satisfy this requirement. The 

Department fervently disagrees with this 

claim. As explained in the proposal, the 

Department did not expect this 

requirement to create an undue burden 

for the following reasons: (1) Financial 

services professionals generally seek 

and gather information on investor 

profiles in accordance with other 

regulators’ rules; and (2) as a best 

practice, financial professionals often 

discuss the basis for their 

recommendations and associated risks 

with their clients.208 Because financial 

professionals already collect relevant 

information and discuss the basis for 

certain recommendations with clients, 

the Department believes that it would be 

relatively easy for them to document 

such information with respect to 

rollover recommendations. 

In addition, as discussed above, a 

report indicates that the majority of 

wealth management firms already 

require their financial service 

professionals to document rollover 

recommendations in response to 

Regulation Best Interest.209 According to 

the same report, almost eight in ten 

firms that require such documentation 

use a predetermined list for this 

purpose.210 Furthermore, approximately 

three out of four firms surveyed 

indicated that they would change their 

technology in response to Regulation 

Best Interest before it became 

effective.211 Some Financial Institutions 

might have elected not to enhance their 

technologies in the wake of Regulation 

Best Interest because they recently 

updated their technology capabilities or 

decided to rely more on manual 

processes. This implies that most 

Financial Institutions are not likely to 

incur large technological costs, such as 

purchasing compliance software to 

comply with this exemption. Therefore, 

the Department assumes Financial 

Institutions that have not enhanced 

technology capabilities for other 

regulator’s rule will take a mixed 

approach, combining current technology 

solutions with manual processes. 

In sum, the Department estimates that 

Financial Institutions already requiring 

rollover documentation will face no 

more than a nominal burden increase, 

and only to the extent that their current 

compliance systems do not meet the 

requirements of this exemption. Those 

firms currently not documenting 

rollover recommendations will likely 

face a larger, but still somewhat limited, 

burden increase due to the reasons 

discussed above. 

Costs Associated With Recordkeeping 

Section IV of the exemption requires 

Financial Institutions to maintain 

records demonstrating compliance with 

the exemption for six years. The 

Financial Institutions are required to 

make records available to the 

Department and the Department of the 

Treasury. Recordkeeping requirements 

in Section IV are generally consistent 

with requirements made by the SEC and 

FINRA.212 In addition, the 

recordkeeping requirements correspond 

to the six-year period in section 413 of 

ERISA. The Department understands 

that many firms already maintain 

records, as required in Section IV, as 

part of their regular business practices. 

Therefore, the Department expects that 

the recordkeeping requirement in 

Section IV would impose a negligible 

burden.213 The Department solicited 

comments regarding the recordkeeping 

burden in the proposed regulatory 

impact analysis but did not receive any 

comments disagreeing with the 

Department’s approach. Therefore, the 

Department took the same approach in 

this final regulatory impact analysis. 

Table 1 provides a summary of the 

associated costs discussed. 


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TABLE 1—ASSOCIATED COSTS SUMMARY

[$ Millions] 

Requirement First year Subsequent 

years 

Disclosures .............................................................................................................................................................. $2.2 $0.2 

Policies and Procedures .......................................................................................................................................... 4.4 - 

Rollover Documentation .......................................................................................................................................... 65.3 65.3 

Annual Report of Retrospective Review ................................................................................................................. 15.9 13.3 

Total .................................................................................................................................................................. 87.8 78.9 

Note: Totals in table may not sum precisely due to rounding. 

Regulatory Alternatives 

The Department considered various 

alternative approaches in developing 

this exemption that are discussed 

below. 

No New Exemption 

The Department considered merely 

leaving in place the existing exemptions 

that provide prohibited transaction 

relief for investment advice 

transactions. However, the existing 

exemptions generally apply to more 

limited categories of transactions and 

investment products, and they include 

conditions that are tailored to the 

particular transactions or products 

covered under each exemption. 

Therefore, under the existing 

exemptions, Financial Institutions may 

find it inefficient to implement advice 

programs for all the different products 

and services they offer. By providing a 

single set of conditions for a wide 

variety of investment advice 

transactions, this exemption allows the 

use and availability of investment 

advice for a variety of types of 

transactions in a manner that aligns 

with the conduct standards of other 

regulators, such as the SEC. 

Keeping FAB 2018–02 

Similarly, the Department considered 

keeping FAB 2018–02 in effect without 

finalizing this exemption. However, the 

Department rejected this alternative, 

because FAB 2018–02 was intended to 

be a temporary policy. Furthermore, 

replacing the relief provided in FAB 

2018–02 with a permanent exemption 

will provide certainty and stability to 

Financial Institutions and Investment 

Professionals that may currently be 

relying on the temporary enforcement 

policy. The final exemption includes 

conditions designed to support 

investment advice that meets the 

Impartial Conduct Standards. 

To provide a transition period for 

Financial Institutions relying on FAB 

2018–02 to comply with the final 

exemption, the Department has 

announced that FAB 2018–02 will 

remain in effect place for one year after 

the final exemption is published. This 

will allow some Financial Institutions to 

defer incurring compliance costs 

associated with this exemption for a 

limited period. The cost estimates 

discussed in this regulatory impact 

analysis are overstated to the extent 

such costs are deferred. On the other 

hand, the benefits discussed in this 

analysis will not be fully realized to the 

extent that some Financial Institutions 

rely on FAB 2018–02 during the 

transition period. However, the 

Department believes that most Financial 

Institutions will begin complying with 

all the conditions of the final exemption 

before the end of the transition period, 

because it provides protection from 

private litigation and Financial 

Institutions will be better positioned in 

an extremely competitive market. 

Including an Independent Audit 

Requirement in the Exemption 

This exemption will require Financial 

Institutions to conduct a retrospective 

review, at least annually, designed to 

detect and prevent violations of the 

Impartial Conduct Standards and to 

ensure compliance with the policies and 

procedures governing the exemption. 

The exemption does not require that the 

review be conducted by an independent 

party, allowing Financial Institutions to 

self-review. 

As an alternative to this approach, the 

Department considered requiring 

independent audits to ensure 

compliance under the exemption. The 

Department decided against this 

approach, because it is not convinced 

that an independent, external audit 

would yield sufficient benefits in 

addition to the results of the 

retrospective review to justify the 

increased cost, especially in the case of 

smaller Financial Institutions. This 

exemption instead requires that 

Financial Institutions provide a written 

report documenting the retrospective 

review, and supporting information, to 

the Department and within 10 business 

days of a request. The Department 

believes this requirement compels 

Financial Institutions to take the review 

obligation seriously, regardless of 

whether they choose to hire an 

independent auditor to conduct the 

review. 

While the proposal stated that the 

Financial Institution’s chief executive 

officer (or equivalent) must certify the 

retrospective review, the final 

exemption provides, instead, that the 

retrospective review may be certified by 

any of the Financial Institution’s Senior 

Executive Officers. The exemption 

defines a ‘‘Senior Executive Officer’’ as 

any of the following: The chief 

compliance officer, the chief executive 

officer, president, chief financial officer, 

or one of the three most senior officers 

of the Financial Institution. In making 

this change, the Department accepts the 

views of a number of commenters that 

stated that the CEO should not be the 

only person who can provide a 

certification regarding the retrospective 

review. 

Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995 (PRA 95) (44 

U.S.C. 3506(c)(2)(A)), the Department 

solicited comments concerning the 

information collection request (ICR) 

included in the proposed exemption 

entitled ‘‘Improving Investment Advice 

for Workers & Retirees’’ (85 FR 40834). 

At the same time, the Department also 

submitted an information collection 

request (ICR) to the Office of 

Management and Budget (OMB), in 

accordance with 44 U.S.C. 3507(d). 

OMB filed a comment on the proposed 

rule with the Department on September 

21, 2020, requesting the Department to 

provide a summary of comments 

received on the ICR and identify 

changes to the ICR made in response to 

the comments. OMB did not approve 

the ICR and requested the Department to 

file future submissions of the ICR under 

OMB control number 1210–0163. 

The Department received no 

comments that specifically addressed 

the paperwork burden analysis of the 


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214The Department’s 2018 hourly wage rate 

estimates include wages, benefits, and overhead, 

and are calculated as follows: Mean wage (from the 

2018 National Occupational Employment Survey, 

May 2018, www.bls.gov/news.release/archives/ 

ocwage_03292019.pdf), wages as a percent of total 

compensation (from the Employer Cost for 

Employee Compensation, December 2018, 

www.bls.gov/news.release/archives/ecec_

03192019.pdf), and overhead cost corresponding to 

each 2-digit NAICS code (from the Annual Survey 

of Manufacturers, December 2017, www.census.gov/ 

data/Tables/2016/econ/asm/2016-asm.html) 

multiplied by the percent of each occupation within 

that NAICS industry code based on a matrix of 

detailed occupation employment for each NAICS 

industry (from the BLS Office of Employment 

projections, 2016, www.bls.gov/emp/data/ 

occupational-data.htm). 

215For this analysis, ‘‘IRA holders’’ include 

rollovers from Title I Plans. 

information collections. Additionally, 

comments were submitted which 

contained information relevant to the 

costs and administrative burdens 

attendant to the proposed exemption. 

The Department considered such public 

comments in connection with making 

changes to the final exemption, 

analyzing the economic impact of the 

proposal, and developing the revised 

paperwork burden analysis summarized 

below. 

In connection with publication of this 

final exemption, the Department is 

submitting an ICR to OMB requesting 

approval of a new collection of 

information under OMB Control 

Number 1210–0163. The Department 

will notify the public when OMB 

approves the ICR. 

A copy of the ICR may be obtained by 

contacting the PRA addressee shown 

below or at www.RegInfo.gov. 

PRA Addressee: Address requests for 

copies of the ICR to G. Christopher 

Cosby, Office of Regulations and 

Interpretations, U.S. Department of 

Labor, Employee Benefits Security 

Administration, 200 Constitution 

Avenue NW, Room N–5718, 

Washington, DC, 20210. Telephone 

(202) 693–8425; Fax: (202) 219–5333; 

(cosby.chris@dol.gov). These are not 

toll-free numbers. ICRs submitted to 

OMB also are available at 

www.RegInfo.gov. 

As discussed in detail below, the 

exemption requires Financial 

Institutions and/or their Investment 

Professionals to (1) make certain 

disclosures to Retirement Investors, (2) 

adopt written policies and procedures, 

(3) document the basis for rollover 

recommendations, (4) prepare a written 

report of the retrospective review, and 

(5) maintain records showing that the 

conditions have been met to receive 

relief under the exemption. These 

requirements are ICRs subject to the 

Paperwork Reduction Act. The 

Department has made the following 

assumptions in order to establish a 

reasonable estimate of the paperwork 

burden associated with these ICRs: 

• Disclosures distributed 

electronically will be distributed via 

means already used by respondents in 

the normal course of business, and the 

costs arising from electronic distribution 

will be negligible; 

• Financial Institutions will use 

existing in-house resources to prepare 

the disclosures, policies and 

procedures, rollover documentations, 

and retrospective reviews, and to 

maintain the recordkeeping systems 

necessary to meet the requirements of 

the exemption; 

• A combination of personnel will 

perform the tasks associated with the 

ICRs at an hourly wage rate of $194.77 

for a personal financial advisor, $64.11 

for mailing clerical personnel, and 

$365.39 for a legal professional; 214

• Approximately 11,782 Financial 

Institutions will take advantage of the 

exemption and they will use the 

exemption in conjunction with 

transactions involving nearly all their 

clients that are defined benefit plans, 

defined contribution plans, and IRA 

holders.215

The exemption’s impact on the hour 

and cost burden associated with the 

Department’s information collections 

are discussed in more detail below. 

Disclosures, Documentation, 

Retrospective Review, and 

Recordkeeping 

Section II(b) of the exemption requires 

Financial Institutions to furnish 

Retirement Investors with a disclosure 

prior to engaging in a covered 

transaction. Section II(b)(1) requires 

Financial Institutions to acknowledge in 

writing that the Financial Institution 

and its Investment Professionals are 

fiduciaries under Title I and the Code, 

as applicable, with respect to any 

investment advice provided to the 

Retirement Investors. Section II(b)(2) 

requires Financial Institutions to 

provide a written description of the 

services they provide and any material 

conflicts of interest. The written 

description must be accurate in all 

material respects. Financial Institutions 

will generally be required to provide the 

disclosure to each Retirement Investor 

once, but Financial Institutions may 

need to provide updated disclosures to 

ensure accuracy. Section II(b)(3) 

requires Financial Institutions to 

provide the documentation of specific 

reasons for the rollover recommendation 

to the Retirement Investor. 

Section II(c)(1) of the exemption 

requires Financial Institutions to 

establish, maintain, and enforce written 

policies and procedures prudently 

designed to ensure that they and their 

Investment Professionals comply with 

the Impartial Conduct Standards. 

Section II(c)(2) further requires that the 

Financial Institutions design the 

policies and procedures to mitigate 

conflicts of interest. Section II(c)(3) of 

the exemption requires Financial 

Institutions to document the specific 

reasons for any rollover 

recommendation and show that the 

rollover is in the best interest of the 

Retirement Investor. 

Under Section II(d) of the exemption, 

Financial Institutions are required to 

conduct an annual retrospective review 

that is reasonably designed to prevent 

violations of the exemption’s Impartial 

Conduct Standards and the institution’s 

own policies and procedures. The 

methodology and results of the 

retrospective review are reduced to a 

written report that is certified by a 

Senior Executive Officer of the 

Financial Institution. The certifying 

officer will be required to verify that (1) 

the officer has reviewed the report of the 

retrospective review, (2) the Financial 

Institution has in place policies and 

procedures prudently designed to 

achieve compliance with the conditions 

of the exemption, and (3) the Financial 

Institution has a prudent process for 

modifying such policies and 

procedures. The process for modifying 

policies and procedures will need to be 

responsive to business, regulatory, and 

legislative changes and events, and the 

Financial Institution will be required to 

periodically test their effectiveness. The 

review, report, and certification must be 

completed no later than six months 

following the end of the period covered 

by the review. The Financial Institution 

will be required to retain the report, 

certification, and supporting data for at 

least six years, and to make these items 

available to the Department within 10 

business days of the request. 

Section IV sets forth the 

recordkeeping requirements in the 

exemption. 

Production and Distribution of Required 

Disclosures 

The Department assumes that 11,782 

Financial Institutions, comprising 1,957 


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216The SEC estimated that there were 3,764 BDs 

as of December 2018 (see Form CRS Relationship 

Summary Release). The IAA Compliance 2019 

Survey estimates that 52 percent of IAs have a 

pension consulting business. The estimated number 

of BDs affected by this exemption is the product of 

the SEC’s estimate of total BDs in 2018 and IAA’s 

estimate of the percent of IAs with a pension 

consulting business. 

217The SEC estimated that there were 12,940 

SEC-registered IAs that were not dually registered 

as BDs as of December 2018 (see Form CRS 

Relationship Summary Release). The IAA 

Compliance 2019 Survey estimates that 52 percent 

of IAs have a pension consulting business. The 

estimated number of IAs affected by this exemption 

is the product of the SEC’s estimate of SECregistered IAs in 2018 and the IAA’s estimate of the 

percent of IAs with a pension consulting business. 

218The SEC estimated that there were 16,939 

state-registered IAs that were not dually registered 

as BDs as of December 2018 (see Form CRS 

Relationship Summary Release). The NASAA 2019 

estimates that 16 percent of state-registered IAs 

have a pension consulting business. The estimated 

number of state-registered IAs affected by this 

exemption is the product of the SEC’s estimate of 

state-registered IAs in 2018 and NASAA’s estimate 

of the percent of state-registered IAs with a pension 

consulting business. 

219NAIC estimates that the number of insurers 

directly writing annuities as of 2018 is 386. 

220The Department assumes that it will take each 

retail BD firm 15 minutes, each nonretail BD or 

insurance firm 30 minutes, and each registered IA 

five minutes to prepare a disclosure conveying 

fiduciary status. 

221Burden hours are calculated by multiplying 

the estimated number of each firm type by the 

estimated time it will take each firm to prepare the 

disclosure. 

222The hourly cost burden is calculated by 

multiplying the burden hour of each firm associated 

with preparation of the disclosure by the hourly 

wage of a legal professional. 

223The Department assumes that it will take each 

retail BD or IA firm five minutes, each small 

nonretail BD or small insurer 60 minutes, and each 

large nonretail BDs or large insurer five hours to 

prepare a disclosure conveying services provided 

and conflicts of interest. 

224Burden hours are calculated by multiplying 

the estimated number of each firm type by the 

estimated time it will take each firm to prepare the 

disclosure. 

225The hourly cost burden is calculated by 

multiplying the burden hour of each firm associated 

with preparation of the disclosure by the hourly 

wage of a legal professional. 

226The Department estimates the number of 

affected Plans and IRAs be approximately equal to 

49 percent of rollovers from defined contribution 

plans to IRAs. Cerulli has estimated the number of 

accounts in defined contribution plans rolled into 

IRAs to be 3,593,592 (see U.S. Retirement-End 

Investor 2020, supra note 178). 

227According to data from the National 

Telecommunications and Information Agency 

(NTIA), 37.7 percent of individuals age 25 and over 

have access to the internet at work. According to 

a Greenwald & Associates survey, 84 percent of 

plan participants find it acceptable to make 

electronic delivery the default option, which is 

used as the proxy for the number of participants 

who will not opt-out of electronic disclosure if 

automatically enrolled (for a total of 31.7 percent 

receiving electronic disclosure at work). 

Additionally, the NTIA reports that 40.5 percent of 

individuals age 25 and over have access to the 

internet outside of work. According to a Pew 

Research Center survey, 61 percent of internet users 

use online banking, which is used as the proxy for 

the number of internet users who will affirmatively 

consent to receiving electronic disclosures (for a 

total of 24.7 percent receiving electronic disclosure 

outside of work). Combining the 31.7 percent who 

receive electronic disclosure at work with the 24.7 

percent who receive electronic disclosure outside of 

work produces a total of 56.4 percent who will 

receive electronic disclosure overall. In light of the 

2019 Electronic Disclosure Regulation, the 

Department estimates that 81.5 percent of the 

remaining 43.6 percent of individuals will receive 

the disclosures electronically. In total, 91.9 percent 

of participants are expected to receive disclosures 

electronically. 

228Burden hours are calculated by multiplying 

the estimated number of plans receiving the 

disclosures non-electronically by the estimated time 

it will take to prepare the physical disclosure. 

229The hourly cost burden is calculated as the 

burden hours associated with the physical 

preparation of each non-electronic disclosure by the 

hourly wage of a clerical professional. 

230The SEC estimated that there were 3,764 BDs 

as of December 2018 (see Form CRS Relationship 

Summary Release). The IAA Compliance 2019 

Survey estimates that 52 percent of IAs have a 

pension consulting business. The estimated number 

of BDs affected by this exemption is the product of 

the SEC’s estimate of total BDs in 2018 and IAA’s 

estimate of the percent of IAs with a pension 

consulting business. 

231The SEC estimated that there were 12,940 

SEC-registered IAs, who were not dually registered 

as BDs, as of December 2018 (see Form CRS 

Relationship Summary Release). The IAA 

Compliance 2019 Survey estimates that 52 percent 

of IAs have a pension consulting business. The 

estimated number of IAs affected by this exemption 

is the product of the SEC’s estimate of SECregistered IAs in 2018 and IAA’s estimate of the 

percent of IAs with a pension consulting business. 

232The SEC estimated that there were 16,939 

state-registered IAs who were not dually registered 

as BDs as of December 2018 (see Form CRS 

Relationship Summary Release). The NASAA 2019 

estimates that 16 percent of state-registered IAs 

have a pension consulting business. The estimated 

number of state-registered IAs affected by this 

exemption is the product of the SEC’s estimate of 

state-registered IAs in 2018 and NASAA’s estimate 

of the percent of state-registered IAs with a pension 

consulting business. 

233NAIC estimates that 386 insurers were directly 

writing annuities as of 2018. 

234The Department assumes that it will take each 

small retail BD 22.5 minutes, each large retail BD 

45 minutes, each small nonretail BD five hours, 

each large nonretail BD 10 hours, each small IA 15 

minutes, each large IA 30 minutes, each small 

insurer five hours, and each large insurer 10 hours 

to meet the requirement. 

235Burden hours are calculated by multiplying 

the estimated number of each firm type by the 

estimated time it will take each firm to establish, 

maintain, and enforce written policies and 

procedures. 

236The hourly cost burden is calculated as the 

burden hour of each firm associated with meeting 

the written policies and procedures requirement 

multiplied by the hourly wage of a legal 

professional. 

BDs,216 6,729 SEC-registered IAs,217

2,710 state-registered IAs,218 and 386 

insurance companies,219 are likely to 

engage in transactions covered under 

this exemption. Each will need to 

provide disclosures that (1) 

acknowledge its fiduciary status, and (2) 

identify the services it provides and any 

material conflicts of interest. The 

Department estimates that preparing a 

disclosure indicating fiduciary status 

would take a legal professional between 

five and 30 minutes, depending on the 

nature of the business,220 resulting in an 

hour burden of 1,599 221 and a cost 

burden of $584,130.222 Preparing a 

disclosure identifying services provided 

and conflicts of interest would take a 

legal professional an estimated five 

minutes to five hours, depending on the 

nature of the business,223 resulting in an 

hour burden of 3,691 224 and an 

equivalent cost burden of $1,348,628.225

The Department estimates that 

approximately 1.8 million Retirement 

Investors 226 have relationships with 

Financial Institutions and are likely to 

engage in transactions covered under 

this exemption. Of these 1.8 million 

Retirement Investors, it is assumed that 

8.1 percent 227 or 141,636 Retirement 

Investors, will receive paper 

disclosures. Distributing paper 

disclosures is estimated to take a 

clerical professional one minute per 

disclosure, resulting in an hourly 

burden of 2,361 228 and an equivalent 

cost burden of $151,341.229 Assuming 

the disclosures will require two sheets 

of paper at a cost $0.05 each, the 

estimated material cost for the paper 

disclosures is $14,164. Postage for each 

paper disclosure is expected to cost 

$0.55, resulting in a printing and 

mailing cost of $92,063. 

Written Policies and Procedures 

Requirement 

The Department assumes that 11,782 

Financial Institutions, comprising 1,957 

BDs,230 6,729 SEC-registered IAs,231

2,710 state registered IAs,232 and 386 

insurance companies,233 are likely to 

engage in transactions covered under 

this exemption. The Department 

estimates that establishing, maintaining, 

and enforcing written policies and 

procedures prudently designed to 

ensure compliance with the Impartial 

Conduct Standards will take a legal 

professional between 15 minutes and 10 

hours, depending on the nature of the 

business.234 This results in an hour 

burden of 12,023 235 and an equivalent 

cost burden of $4,393,011.236

Rollover Documentation Requirement 

To meet the requirement of the 

rollover documentation, Financial 

Institutions must document the specific 

reasons that any recommendation to roll 

over assets is in the best interest of the 

Retirement Investor. The Department 


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Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 82859 

237Cerulli has estimated the number of accounts 

in defined contribution plans rolled into IRAs to be 

3,593,591 (see U.S. Retirement-End Investor 2020, 

supra note 178). The Department estimates that 49 

percent of these rollovers will be handled by a 

financial professional. 

238See supra note 206. 

239See supra note 207. 

240See supra note 206. 

241See supra note 207. 

242Burden hours are calculated by multiplying 

the estimated number of rollovers affected by this 

proposed exemption by the estimated hours needed 

to document each recommendation. 

243The hourly cost burden is calculated as the 

burden hour of each firm associated with meeting 

the rollover documentation requirement multiplied 

by the hourly wage of a personal financial advisor. 

244Rule 3110. Supervision, FINRA Manual, 

www.finra.org/rules-guidance/rulebooks/finrarules/3110. 

245Rule 3120. Supervisory Control System, 

FINRA Manual, www.finra.org/rules-guidance/ 

rulebooks/finra-rules/3120. 246Rule 3130. Annual Certification of 

Compliance and Supervisory Processes, FINRA 

Manual, www.finra.org/rules-guidance/rulebooks/ 

finra-rules/3130. 247 2018 Investment Management Compliance 

Testing Survey, Investment Adviser Association 

(Jun. 14, 2018), https://

higherlogicdownload.s3.amazonaws.com/ 

INVESTMENTADVISER/aa03843e-7981-46b2-aa49- 

c572f2ddb7e8/UploadedImages/publications/2018- 

Investment-Management_Compliance-TestingSurvey-Results-Webcast_pptx.pdf. 248The SEC estimated that there were 12,940 

SEC-registered IAs that were not dually registered 

as BDs as of December 2018 (see Form CRS 

Relationship Summary Release). The IAA 

Compliance 2019 Survey estimates that 52 percent 

of IAs have a pension consulting business. The IAA 

Investment Management Compliance Testing 

Survey estimates that 92 percent of SEC-registered 

IAs provide an annual compliance program review 

report to senior management. The estimated 

number of IAs affected by this exemption who do 

not meet the retrospective review requirement is the 

product of the SEC’s estimate of SEC-registered IAs 

in 2018, the IAA’s estimate of the percent of IAs 

with a pension consulting business, and IAA’s 

estimate of the percent of IA’s who do not provide 

an annual compliance program review report. 

249The SEC estimated that there were 16,939 

state-registered IAs that were not dually registered 

as BDs as of December 2018 (see Form CRS 

Relationship Summary Release). The NASAA 2019 

estimates that 16 percent of state-registered IAs 

have a pension consulting business. The IAA 

Investment Management Compliance Testing 

Survey estimates that 92 percent of SEC-registered 

IAs provide an annual compliance program review 

report to senior management. The Department 

assumes state-registered IAs exhibit similar 

retrospective review patterns as SEC-registered IAs. 

The estimated number of state-registered IAs 

affected by this exemption is the product of the 

SEC’s estimate of state-registered IAs in 2018, 

NASAA’s estimate of the percent of state-registered 

IAs with a pension consulting business, and IAA’s 

estimate of the percent of IA’s who do not provide 

an annual compliance program review report. 

250NAIC Model Regulation, Section 6.C.(2)(i) 

(The same requirement is found in the NAIC 

Suitability in Annuity Transactions Model 

Regulation (2010), Section 6.F.(1)(f).) 

251Burden hours are calculated by multiplying 

the estimated number of each firm type by the 

estimated time it will take each firm to review the 

report and certify the exemption. 

252The hourly cost burden is calculated by 

multiplying the burden hours for reviewing the 

report and certifying the exemption requirement by 

the hourly wage of a legal professional. 

253For more detailed discussion, see the 

corresponding Cost section of the Regulatory Impact 

Analysis above. 

254 Due to lack of data, the Department estimates 

the hourly labor cost of a certifying officer to be that 

of a Financial Manager, as outlined on the 

Employee Benefits Security Administration’s 2018 

labor rate estimates. See Labor Cost Inputs Used in 

the Employee Benefits Security Administration, 

Office of Policy and Research’s Regulatory Impact 

Analyses and Paperwork Reduction Act Burden 

Calculation, Employee Benefits Security 

Administration (June 2019), www.dol.gov/sites/ 

dolgov/files/EBSA/laws-and-regulations/rules-andregulations/technical-appendices/labor-cost-inputsused-in-ebsa-opr-ria-and-pra-burden-calculationsContinued 

estimates that 1.8 million defined 

contribution plan accounts rolled into 

IRAs in accordance with advice from a 

financial services professional.237

Facing uncertainty, the Department 

assumes that 67.4 percent of rollovers 

will be affected by the exemption.238

Under this assumption, the Department 

estimates that the costs for documenting 

the basis for rollover decisions will 

come to $65 million per year.239 This 

was based on the assumption that most 

financial services professionals already 

incorporate documenting the basis for 

rollover recommendations in their 

regular business practices and another 

assumption that 67.4 percent of 

rollovers are handled by financial 

services professionals who act in a 

fiduciary capacity.240 The Department 

estimates that documenting each 

rollover recommendation will require 

30 minutes for a personal financial 

advisor whose firms currently do not 

require rollover documentations and 

five minutes for financial advisors 

whose firms already require them to do 

so,241 resulting in 335,330 242 burden 

hours and an equivalent cost burden of 

$65,313,770.243

Annual Retrospective Review 

Requirement 

Under the internal retrospective 

review requirement, a Financial 

Institution is required to (1) conduct an 

annual retrospective review reasonably 

designed to assist the Financial 

Institution in detecting and preventing 

violations of, and achieving compliance 

with the Impartial Conduct Standards 

and their policies and procedures; and 

(2) produce a written report that is 

certified by a Senior Executive Officer of 

the Financial Institution. 

The Department understands that, as 

per FINRA Rule 3110,244 FINRA Rule 

3120,245 and FINRA Rule 3130,246

broker-dealers are already held to a 

standard functionally identical to that of 

the retrospective review requirements of 

this exemption. Accordingly, in this 

analysis, the Department assumes that 

broker-dealers will incur minimal costs 

to meet this requirement. In 2018, the 

Investment Adviser Association 

estimated that 92 percent of SECregistered IAs voluntarily provide an 

annual compliance program review 

report to senior management.247 The 

Department estimates that only eight 

percent, or 538,248 of SEC-registered IAs 

advising retirement plans will incur 

costs associated with producing a 

retrospective review report. Due to lack 

of data, the Department assumes that 

state-registered IAs exhibit similar 

retrospective review patterns and 

estimates that eight percent, or 217,249

of state-registered IAs will also incur 

costs associated with producing a 

retrospective review report. 

As SEC-registered IAs are already 

subject to SEC Rule 206(4)–7, the 

Department assumes these IAs will 

incur minimal costs to satisfy the 

conditions related to this requirement. 

Insurance companies in many states are 

already subject state insurance law 

based on the NAIC’s Model 

Regulation.250 Thus, the Department 

assumes that insurance companies will 

incur negligible costs associated with 

producing a retrospective review report. 

This is estimated to take a legal 

professional five hours for small firms 

and 10 hours for large firms, depending 

on the nature of the business. This 

results in an hour burden of 7,032 251

and an equivalent cost burden of 

$2,569,337.252

Financial Institutions that already 

produce retrospective review reports 

voluntarily or in accordance with other 

regulators’ rules likely will spend 

additional time to fully comply with 

this exemption condition such as 

revising their current retrospective 

review reports. This is estimated to take 

a financial professional one hour for 

small firms and two hours for large 

firms, depending on the nature of the 

business. This results in an hour burden 

of 20,727 hours and an equivalent cost 

burden of $7,573,614. 

In addition to conducting the audit 

and producing a report, Financial 

Institutions also will need to review the 

report and certify the exemption. The 

Department substantially increased the 

burden hours associated with this 

requirement in response to concerns 

raised by a commenter that this is a 

superficial process.253 This is estimated 

to take the certifying officer two hours 

for small firms and four hours for large 

firms, depending on the nature of the 

business.254 This results in an hour 


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82860 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

june-2019.pdf. The Department assumes that it will 

take the certifying officer two hours for small firms 

and four hours for large firms. If we assume that an 

average person reads 250 words per minute, the 

certifying officer can read 30,000 words in two 

hours or 60,000 words in four hours. This implies 

a retrospective review report would be 

approximately 125 pages to 250 pages if this report 

is double-spaced with a with 12 point font size. 

255Burden hours are calculated by multiplying 

the estimated number of each firm type by the 

estimated time it will take each firm to review the 

report and certify the exemption. 

256The hourly cost burden is calculated by 

multiplying the burden hours for reviewing the 

report and certifying the exemption requirement by 

the hourly wage of a financial professional. 

257 5 U.S.C. 601 et seq. 

258 5 U.S.C. 601(2), 603(a); see also 5 U.S.C. 551. 

259 13 CFR 121.201. 

260 15 U.S.C. 631 et seq. 

261The Department consulted with the Small 

Business Administration Office of Advocacy in 

making this determination as required by 5 U.S.C. 

603(c). 

262 17 CFR parts 230, 240, 270, and 275, 

www.sec.gov/rules/final/33-7548.txt. 

263 Due to lack of available data, the Department 

includes state-registered IAs managing assets less 

than $30 million as small entities in this analysis. 

264See Form CRS Relationship Summary; 

Amendments to Form ADV, 84 FR 33492 (Jul. 12, 

2019). 

265 2019 Investment Management Compliance 

Testing Survey, Investment Adviser Association 

(Jun. 18, 2019), https://

higherlogicdownload.s3.amazonaws.com/ 

INVESTMENTADVISER/aa03843e-7981-46b2-aa49- 

c572f2ddb7e8/UploadedImages/about/190618_

IMCTS_slides_after_webcast_edits.pdf. 

266The SEC estimates there were approximately 

17,000 state-registered IAs (see Form CRS 

Relationship Summary; Amendments to Form ADV, 

84 FR 33492 (Jul. 12, 2019)). The Department 

estimates that about 64 percent of state-registered 

IAs manage assets less than $30 million, and it 

considers such entities small businesses. (See 2018 

Investment Adviser Section Annual Report, North 

American Securities Administrators Association 

(May 2018), www.nasaa.org/wp-content/uploads/ 

2018/05/2018-NASAA-IA-Report-Online.pdf.) 

Therefore, the Department estimates there were 

about 10,840 small, state-registered IAs. 

267Of the small, state-registered IAs, the 

Department estimates that 16 percent provide 

burden of 34,718 255 and an equivalent 

cost burden of $5,750,451.256

Overall Summary 

Overall, the Department estimates that 

in order to satisfy the exemption, 11,782 

Financial Institutions will produce 1.8 

million disclosures and notices 

annually. These disclosures and notices 

will result in 417,480 burden hours 

during the first year and 393,136 burden 

hours in subsequent years, at an 

equivalent cost of $87.7 million and 

$78.8 million respectively. The 

disclosures and notices in this 

exemption will also result in a total cost 

burden for materials and postage of 

$92,063 annually. 

These paperwork burden estimates 

are summarized as follows: 

• Type of Review: New collection.

• Agency: Employee Benefits Security

Administration, Department of Labor. 

• Title: Improving Investment Advice

for Workers & Retirees. 

• OMB Control Number: 1210–0163.

• Affected Public: Business or other

for-profit institution. 

• Estimated Number of Respondents:

11,782. 

• Estimated Number of Annual

Responses: 1,755,959. 

• Frequency of Response: Initially,

Annually, and when engaging in 

exempted transaction. 

• Estimated Total Annual Burden

Hours: 417,480 during the first year and 

393,136 in subsequent years. 

• Estimated Total Annual Burden

Cost: $92,063 during the first year and 

$92,063 in subsequent years. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(RFA) 257 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.258 Under section 604 of 

the RFA, agencies must submit a final 

regulatory flexibility analysis (FRFA) of 

a proposal that is likely to have a 

significant economic impact on a 

substantial number of small entities, 

such as small businesses, organizations, 

and governmental jurisdictions. 

The Department has determined that 

this final class exemption will likely 

have a significant economic impact on 

a substantial number of small entities. 

Therefore, the Department has prepared 

the FRFA presented below. 

Need for and Objectives of the Rule 

As discussed earlier in this preamble, 

the final class exemption will allow 

investment advice fiduciaries to receive 

compensation and engage in 

transactions that would otherwise 

violate the prohibited transaction 

provisions of Title I and the Code. As 

such, the final exemption will provide 

Financial Institutions and Investment 

Professionals with flexibility to address 

different business models and would 

lessen their overall regulatory burden by 

coordinating potentially overlapping 

regulatory requirements. The exemption 

conditions, including the Impartial 

Conduct Standards and other conditions 

supporting the standards, are expected 

to provide protections to Retirement 

Investors. Therefore, the Department 

expects that the final exemption will 

benefit Retirement Investors that are 

small entities and provide efficiencies to 

small Financial Institutions. 

Significant Issues Raised by Public 

Comments 

In response to the Department’s Initial 

Regulatory Flexibility Analysis (IRFA), 

no significant issue was raised by public 

comments. In the preamble to the 

proposed class exemption, the 

Department solicited comments 

regarding whether the proposed 

exemption would have a significant 

economic impact on a substantial 

number of small entities and received 

no comments in response. Moreover, the 

Department received no public 

comments from the Small Business 

Administration. As a result, the 

Department made no major changes to 

the IFRA. 

Affected Small Entities 

The Small Business Administration 

(SBA),259 pursuant to the Small 

Business Act,260 defines small 

businesses and issues size standards by 

industry. The SBA defines a small 

business in the Financial Investments 

and Related Activities Sector as a 

business with up to $41.5 million in 

annual receipts. Due to a lack of data 

and shared jurisdiction, for purpose of 

performing Regulatory Flexibility 

Analyses pursuant to section 601(3) of 

the Regulatory Flexibility Act, the 

Department, after consultation with 

SBA’s Office of Advocacy, defines small 

entities included in this analysis 

differently from the SBA definitions.261

For instance, in this analysis, the smallbusiness definitions for BDs and SECregistered IAs are consistent with the 

SEC’s definitions, as these entities are 

subject to the SEC’s rules as well as the 

Act.262 As with SEC-registered IAs, the 

size of state-registered IAs is determined 

based on total value of the assets they 

manage.263 The size of insurance 

companies is based on annual sales of 

annuities. The Department requested 

comments on the appropriateness of the 

size standard used to evaluate the 

impact of the proposed exemption on 

small entities and received no 

comments in response. In particular, the 

Department received no comments 

asserting that it is inappropriate for the 

Department to use size standards that 

are different from those promulgated by 

the SBA. 

In December 2018, there were 985 

small-business BDs and 528 SECregistered, small-business IAs.264 The 

Department estimates that 

approximately 52 percent of these 

small-businesses will be affected by the 

final class exemption.265 In December 

2018, the Department estimates there 

were approximately 10,840 small stateregistered IAs,266 of which about 1,700 

are estimated to be affected by the final 

exemption.267 There were 


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advice or services to retirement plans (see 2019 

Investment Adviser Section Annual Report, North 

American Securities Administrators Association, 

(May 2019)). 

268NAIC estimates that the number of insurers 

directly writing annuities as of 2018 is 386. 

269LIMRA estimates in 2016, 70 insurers had 

more than $38.5 million in sales. (See U.S. 

Individual Annuity Yearbook: 2016 Data, LIMRA 

Secure Retirement Institute (2017)). 

approximately 386 insurers directly 

writing annuities in 2018,268 316 of 

which the Department estimates are 

small entities.269 Table 1 summarizes 

the distribution of affected entities by 

size. 

TABLE 2—DISTRIBUTION OF AFFECTED ENTITIES BY SIZE

BDs SEC-registered IAs State-registered IAs Insurers 

Small ................................ 985 26% 528 4% 10,840 64% 316 82% 

Large ................................ 2,779 74% 12,412 96% 6,099 36% 70 18% 

Total .......................... 3,764 100% 12,940 100% 16,939 100% 386 100% 

Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

As discussed above, the final 

exemption provides Financial 

Institutions and Investment 

Professionals with flexibility to choose 

between the new final exemption or the 

Department’s existing exemptions, 

depending on their individual needs 

and business models. Furthermore, the 

final exemption provides Financial 

Institutions and Investment 

Professionals broader, more flexible 

prohibited transaction relief than is 

currently available, while safeguarding 

the interests of Retirement Investors. In 

this regard, this final exemption could 

present a less burdensome compliance 

alternative for some Financial 

Institutions because it would allow 

them to streamline compliance rather 

than rely on multiple exemptions with 

multiple sets of conditions. 

This final exemption simply provides 

an additional alternative pathway for 

Financial Institutions and Investment 

Professionals to receive compensation 

and engage in certain transactions that 

would otherwise be prohibited under 

Title I and the Code. Financial 

Institutions would incur costs to comply 

with conditions set forth in the final 

exemption. However, the Department 

believes the costs associated with those 

conditions are modest because the final 

exemption was developed in 

consideration of other regulatory 

conduct standards. The Department 

believes that many Financial 

Institutions and Investment 

Professionals have already developed 

compliance structures for similar 

regulatory standards. Therefore, the 

Department does not expect that the 

final exemption will impose a 

significant compliance burden on small 

entities. For example, the Department 

estimates that a small entity would 

incur, on average, an additional $3,034 

in compliance costs to meet the 

conditions of this final exemption. 

These additional costs represent 0.6 

percent of the net capital of BD with 

$500,000. A BD with less than $500,000 

in net capital is generally considered 

small, according to the SEC. 

Steps Taken To Minimize Impacts and 

Significant Alternatives Considered 

Section 604 of the RFA requires the 

Department to consider significant 

alternatives that would accomplish the 

stated objective, while minimizing any 

significant adverse impact on small 

entities. Title I and the Code rules 

governing advice on the investment of 

retirement assets overlap with SEC rules 

that govern the conduct of IAs and BDs 

who advise retail investors. The 

Department considered conduct 

standards set by other regulators, such 

as SEC, state insurance regulators, and 

FINRA, in developing the final 

exemption, with the goal of avoiding 

overlapping or duplicative 

requirements. To the extent the 

requirements overlap, compliance with 

the other disclosure or recordkeeping 

requirements can be used to satisfy the 

exemption, provided the conditions are 

satisfied. This will lead to overall 

regulatory efficiency. 

The Department describes below 

additional steps it has taken to 

minimize the significant economic 

impact on small entities consistent with 

the stated objectives of applicable 

statutes, including a statement of the 

factual, policy, and legal reasons for 

selecting the alternatives adopted in the 

final exemption. 

Revisions to Annual Retrospective 

Review Requirement: Under section II(d) 

of the final exemption, Financial 

Institutions are required to conduct an 

annual retrospective review that is 

reasonably designed to detect and 

prevent violations of, and achieve 

compliance with, the Impartial Conduct 

Standards and the institution’s own 

policies and procedures. The 

Department considered the alternative 

of requiring a Financial Institution to 

engage an independent party to provide 

an external audit. The Department 

elected not to require this condition to 

avoid the increased costs this approach 

would impose. Smaller Financial 

Institutions may have been 

disproportionately impacted by such 

costs, which would have been contrary 

to the Department’s goals of promoting 

access to investment advice for 

Retirement Investors. Further, the 

Department is not convinced that an 

independent, external audit would yield 

useful information commensurate with 

the cost, particularly to small entities. 

Instead, the final exemption requires 

that Financial Institutions to document 

their retrospective review, and provide 

it, and supporting information, to the 

Department, within 10 business days of 

request, to the extent permitted by law. 

Addition of Self-Correction Provision: 

The Department has added a new 

Section II(e) to the exemption, under 

which Financial Institutions will be able 

to correct certain violations of the 

exemption. Under the new Section II(e), 

the Department will not consider a nonexempt prohibited transaction to have 

occurred due to a violation of the 

exemption’s conditions, provided: (1) 

Either the violation did not result in 

investment losses to the Retirement 

Investor or the Financial Institution 

made the Retirement Investor whole for 

any resulting losses; (2) the Financial 

Institution corrects the violation and 

notifies the Department via email to 

IIAWR@dol.gov within 30 days of 

correction; (3) the correction occurs no 

later than 90 days after the Financial 

Institution learned of the violation or 

reasonably should have learned of the 

violation; and (4) the Financial 

Institution notifies the persons 

responsible for conducting the 

retrospective review during the 

applicable review cycle, and the 

violation and correction is specifically 

set forth in the written report of the 

retrospective review. 


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270Public Law 104–4, 109 Stat. 48 (1995). 

While this section was not a part of 

the proposal, several commenters 

requested that the Department provide a 

means for Financial Institutions, acting 

in good faith, to avoid loss of the 

exemption for violations of the 

conditions. One commenter specified 

that there should be a correction process 

in connection with the retrospective 

review, because failure to include this 

could put Financial Institutions in a 

difficult position of having discovered 

technical violations but not being able 

to cure them without being subject to an 

excise tax for the prohibited transaction. 

Upon consideration of the comments, 

the Department determined to provide 

this self-correction procedure. 

Accordingly, the section allows for 

correction even if a Retirement Investor 

has suffered investment losses, provided 

that the Retirement Investor is made 

whole. The Department believes that the 

self-correction provision will provide 

Financial Institutions with an additional 

incentive to take the retrospective 

review process seriously, timely identify 

and correct violations, and use the 

process to correct deficiencies in their 

policies and procedures, so as to avoid 

potential future penalties and lawsuits. 

Revision to Recordkeeping 

Requirements: Under Section IV of the 

exemption, Financial Institutions must 

maintain records for six years 

demonstrating compliance with the 

exemption. The Department generally 

includes a recordkeeping requirement in 

its administrative exemptions to ensure 

that parties relying on an exemption can 

demonstrate, and the Department can 

verify, compliance with the conditions 

of the exemption. The proposal 

provided that records should be 

available for review by the following 

parties in addition to the Department: 

Any fiduciary of a Plan that engaged in 

an investment transaction pursuant to 

this exemption; any contributing 

employer and any employee 

organization whose members are 

covered by a Plan that engaged in an 

investment transaction pursuant to this 

exemption; or any participant or 

beneficiary of a Plan, or IRA owner that 

engaged in an investment transaction 

pursuant to this exemption. Several 

commenters stated that allowing parties 

other than the Department to review 

records would increase the burden 

placed on Financial Institutions. In 

particular, they expressed the view that 

parties might overwhelm Financial 

Institutions with requests for 

information in order to generate claims 

for use in litigation. Fear of potential 

litigation, could in turn, they argued, 

lead to a ‘‘culture of quiet’’ in which 

employees of Financial Institutions elect 

not to address compliance issues 

because of the fear of this disclosure. In 

response to these comments, the 

Department has revised the final 

exemption’s recordkeeping provisions 

so that access is limited to the 

Department and the Department of the 

Treasury. 

Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 270 requires each 

federal agency to prepare a written 

statement assessing the effects of any 

federal mandate in a proposed or final 

rule that may result in an expenditure 

of $100 million or more (adjusted 

annually for inflation with the base year 

1995) in any one year by state, local, 

and tribal governments, in the aggregate, 

or by the private sector. For purposes of 

the Unfunded Mandates Reform Act, as 

well as Executive Order 12875, this 

exemption does not include any Federal 

mandate that will result in such 

expenditures. 

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. The Department does 

not believe this class exemption has 

federalism implications because it has 

no substantial direct effect on the states, 

on the relationship between the national 

government and the states, or on the 

distribution of power and 

responsibilities among the various 

levels of government. 

General Information 

The attention of interested persons is 

directed to the following: 

(1) The fact that a transaction is the 

subject of an exemption under ERISA 

section 408(a) and Code section 

4975(c)(2) does not relieve a fiduciary, 

or other party in interest or disqualified 

person with respect to a Plan or an IRA, 

from certain other provisions of Title I 

and the Code, including 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 

his or her 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 requirement of Code section 

401(a) that the Plan must operate for the 

exclusive benefit of the employees of 

the employer maintaining the Plan and 

its beneficiaries; 

(2) In accordance with section 408(a) 

of ERISA and section 4975(c)(2) of the 

Code, and based on the entire record, 

the Department finds that this 

exemption is administratively feasible, 

in the interests of Plans and their 

participants and beneficiaries and IRA 

owners, and protective of the rights of 

participants and beneficiaries of the 

Plan and IRA owners; 

(3) The exemption is applicable to a 

particular transaction only if the 

transaction satisfies the conditions 

specified in the exemption; and 

(4) The exemption is supplemental to, 

and not in derogation of, any other 

provisions of Title I and the Code, 

including statutory or administrative 

exemptions and transitional rules. 

Furthermore, the fact that a transaction 

is subject to an administrative or 

statutory exemption is not dispositive of 

whether the transaction is in fact a 

prohibited transaction. 

Improving Investment Advice for 

Workers & Retirees 

Section I—Transactions 

(a) In general. ERISA Title I (Title I) 

and the Internal Revenue Code (the 

Code) prohibit fiduciaries, as defined, 

that provide investment advice to Plans 

and individual retirement accounts 

(IRAs) from receiving compensation that 

varies based on their investment advice 

and compensation that is paid from 

third parties. Title I and the Code also 

prohibit fiduciaries from engaging in 

purchases and sales with Plans or IRAs 

on behalf of their own accounts 

(principal transactions). This exemption 

permits Financial Institutions and 

Investment Professionals who provide 

fiduciary investment advice to 

Retirement Investors to receive 

otherwise prohibited compensation and 

engage in riskless principal transactions 

and certain other principal transactions 

(Covered Principal Transactions) as 

described below. The exemption 

provides relief from the prohibitions of 

ERISA section 406(a)(1)(A), (D), and 

406(b), and the sanctions imposed by 


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Code section 4975(a) and (b), by reason 

of Code section 4975(c)(1)(A), (D), (E), 

and (F), if the Financial Institutions and 

Investment Professionals provide 

fiduciary investment advice in 

accordance with the conditions set forth 

in Section II and are eligible pursuant to 

Section III, subject to the definitional 

terms and recordkeeping requirements 

in Sections IV and V. 

(b) Covered transactions. This 

exemption permits Financial 

Institutions and Investment 

Professionals, and their Affiliates and 

Related Entities, to engage in the 

following transactions, including as part 

of a rollover from a Plan to an IRA as 

defined in Code section 4975(e)(1)(B) or 

(C), 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): 

(1) The receipt of reasonable 

compensation; and 

(2) The purchase or sale of an asset in 

a riskless principal transaction or a 

Covered Principal Transaction, and the 

receipt of a mark-up, mark-down, or 

other payment. 

(c) Exclusions. This exemption does 

not apply if: 

(1) The Plan is covered by Title I of 

ERISA and the Investment Professional, 

Financial Institution or any Affiliate is 

(A) the employer of employees covered 

by the Plan, or (B) a named fiduciary or 

plan administrator with respect to the 

Plan that was selected to provide advice 

to the Plan by a fiduciary who is not 

independent of the Financial 

Institution, Investment Professional, and 

their Affiliates; 

(2) The transaction is a result of 

investment advice generated solely by 

an interactive website in which 

computer software-based models or 

applications provide investment advice 

based on personal information each 

investor supplies through the website, 

without any personal interaction or 

advice with an Investment Professional 

(i.e., robo-advice); or 

(3) The transaction involves the 

Investment Professional acting in a 

fiduciary capacity other than as an 

investment advice fiduciary within the 

meaning of the regulations at 29 CFR 

2510.3–21(c)(1)(i) and (ii)(B) or 26 CFR 

54.4975–9(c)(1)(i) and (ii)(B) setting 

forth the test for fiduciary investment 

advice. 

Section II—Investment Advice 

Arrangement 

Section II requires Investment 

Professionals and Financial Institutions 

to comply with Impartial Conduct 

Standards, including a best interest 

standard, when providing fiduciary 

investment advice to Retirement 

Investors. In addition, the exemption 

requires Financial Institutions to 

acknowledge fiduciary status under 

Title I and/or the Code, and describe in 

writing the services they will provide 

and their material Conflicts of Interest. 

Finally, Financial Institutions must 

adopt policies and procedures 

prudently designed to ensure 

compliance with the Impartial Conduct 

Standards when providing fiduciary 

investment advice to Retirement 

Investors and conduct a retrospective 

review of compliance. 

(a) Impartial Conduct Standards. The 

Financial Institution and Investment 

Professional comply with the following 

‘‘Impartial Conduct Standards’’: 

(1) Investment advice is, at the time 

it is provided, in the Best Interest of the 

Retirement Investor. As defined in 

Section V(b), such advice reflects the 

care, skill, prudence, and diligence 

under the circumstances then prevailing 

that a prudent person acting in a like 

capacity and familiar with such matters 

would use in the conduct of an 

enterprise of a like character and with 

like aims, based on the investment 

objectives, risk tolerance, financial 

circumstances, and needs of the 

Retirement Investor, and does not place 

the financial or other interests of the 

Investment Professional, Financial 

Institution or any Affiliate, Related 

Entity, or other party ahead of the 

interests of the Retirement Investor, or 

subordinate the Retirement Investor’s 

interests to their own; 

(2)(A) The compensation received, 

directly or indirectly, by the Financial 

Institution, Investment Professional, 

their Affiliates and Related Entities for 

their services does not exceed 

reasonable compensation within the 

meaning of ERISA section 408(b)(2) and 

Code section 4975(d)(2); and (B) as 

required by the federal securities laws, 

the Financial Institution and Investment 

Professional seek to obtain the best 

execution of the investment transaction 

reasonably available under the 

circumstances; and 

(3) The Financial Institution’s and its 

Investment Professionals’ statements to 

the Retirement Investor about the 

recommended transaction and other 

relevant matters are not, at the time 

statements are made, materially 

misleading. 

(b) Disclosure. Prior to engaging in a 

transaction pursuant to this exemption, 

the Financial Institution provides the 

disclosures set forth in (1) and (2) to the 

Retirement Investor: 

(1) A written acknowledgment that 

the Financial Institution and its 

Investment Professionals are fiduciaries 

under Title I and the Code, as 

applicable, with respect to any fiduciary 

investment advice provided by the 

Financial Institution or Investment 

Professional to the Retirement Investor; 

(2) A written description of the 

services to be provided and the 

Financial Institution’s and Investment 

Professional’s material Conflicts of 

Interest that is accurate and not 

misleading in all material respects; and 

(3) Prior to engaging in a rollover 

recommended pursuant to the 

exemption, the Financial Institution 

provides the documentation of specific 

reasons for the rollover 

recommendation, required by Section 

II(c)(3), to the Retirement Investor. 

(c) Policies and Procedures. 

(1) The Financial Institution 

establishes, maintains, and enforces 

written policies and procedures 

prudently designed to ensure that the 

Financial Institution and its Investment 

Professionals comply with the Impartial 

Conduct Standards in connection with 

covered fiduciary advice and 

transactions. 

(2) Financial Institutions’ policies and 

procedures mitigate Conflicts of Interest 

to the extent that a reasonable person 

reviewing the policies and procedures 

and incentive practices as a whole 

would conclude that they do not create 

an incentive for a Financial Institution 

or Investment Professional to place their 

interests ahead of the interest of the 

Retirement Investor. 

(3) The Financial Institution 

documents the specific reasons that any 

recommendation to roll over assets from 

a Plan to another Plan or an IRA as 

defined in Code section 4975(e)(1)(B) or 

(C), from an IRA as defined in Code 

section 4975(e)(1)(B) or (C) to a Plan, 

from an IRA to another IRA, or from one 

type of account to another (e.g., from a 

commission-based account to a feebased account) is in the Best Interest of 

the Retirement Investor. 

(d) Retrospective Review. 

(1) The Financial Institution conducts 

a retrospective review, at least annually, 

that is reasonably designed to assist the 

Financial Institution in detecting and 

preventing violations of, and achieving 

compliance with, the Impartial Conduct 

Standards and the policies and 

procedures governing compliance with 

the exemption. 

(2) The methodology and results of 

the retrospective review are reduced to 

a written report that is provided to a 

Senior Executive Officer. 

(3) A Senior Executive Officer of the 

Financial Institution certifies, annually, 

that: 

(A) The officer has reviewed the 

report of the retrospective review; 


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82864 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

(B) The Financial Institution has in 

place policies and procedures prudently 

designed to achieve compliance with 

the conditions of this exemption; and 

(C) The Financial Institution has in 

place a prudent process to modify such 

policies and procedures as business, 

regulatory, and legislative changes and 

events dictate, and to test the 

effectiveness of such policies and 

procedures on a periodic basis, the 

timing and extent of which is 

reasonably designed to ensure 

continuing compliance with the 

conditions of this exemption. 

(4) The review, report and 

certification are completed no later than 

six months following the end of the 

period covered by the review. 

(5) The Financial Institution retains 

the report, certification, and supporting 

data for a period of six years and makes 

the report, certification, and supporting 

data available to the Department, within 

10 business days of request, to the 

extent permitted by law including 12 

U.S.C. 484. 

(e) Self-Correction. A non-exempt 

prohibited transaction will not occur 

due to a violation of the exemption’s 

conditions with respect to a transaction, 

provided: 

(1) Either the violation did not result 

in investment losses to the Retirement 

Investor or the Financial Institution 

made the Retirement Investor whole for 

any resulting losses; 

(2) The Financial Institution corrects 

the violation and notifies the 

Department of Labor of the violation 

and the correction via email to IIAWR@

dol.gov within 30 days of correction; 

(3) The correction occurs no later than 

90 days after the Financial Institution 

learned of the violation or reasonably 

should have learned of the violation; 

and 

(4) The Financial Institution notifies 

the person(s) responsible for conducting 

the retrospective review during the 

applicable review cycle and the 

violation and correction is specifically 

set forth in the written report of the 

retrospective review required under 

subsection II(d)(2). 

Section III—Eligibility 

(a) General. Subject to the timing and 

scope provisions set forth in subsection 

(b), an Investment Professional or 

Financial Institution will be ineligible to 

rely on the exemption for 10 years 

following: 

(1) A conviction of any crime 

described in ERISA section 411 arising 

out of such person’s provision of 

investment advice to Retirement 

Investors, unless, in the case of a 

Financial Institution, the Department 

grants a petition pursuant to subsection 

(c)(1) below that the Financial 

Institution’s continued reliance on the 

exemption would not be contrary to the 

purposes of the exemption; or 

(2) Receipt of a written ineligibility 

notice issued by the Department for (A) 

engaging in a systematic pattern or 

practice of violating the conditions of 

this exemption in connection with 

otherwise non-exempt prohibited 

transactions; (B) intentionally violating 

the conditions of this exemption in 

connection with otherwise non-exempt 

prohibited transactions; or (C) providing 

materially misleading information to the 

Department in connection with the 

Financial Institution’s or Investment 

Professional’s conduct under the 

exemption; in each case, as determined 

by the Department pursuant to the 

process described in subsection (c). 

(b) Timing and Scope of Ineligibility. 

(1) An Investment Professional shall 

become ineligible immediately upon (A) 

the date of the trial court’s conviction of 

the Investment Professional of a crime 

described in subsection (a)(1), regardless 

of whether that judgment remains under 

appeal; or (B) the date of the written 

ineligibility notice described in 

subsection (a)(2), issued to the 

Investment Professional. 

(2) A Financial Institution shall 

become ineligible following (A) the 10th 

business day after the conviction of the 

Financial Institution or another 

Financial Institution in the same 

Controlled Group of a crime described 

in subsection (a)(1) regardless of 

whether that judgment remains under 

appeal, or, if the Financial Institution 

timely submits a petition described in 

subsection (c)(1) during that period, 21 

days after the date of the Department’s 

written denial of the petition; or (B) 21 

days after the date of the written 

ineligibility notice, described in 

subsection (a)(2), issued to the Financial 

Institution or another Financial 

Institution in the same Controlled 

Group. 

(3) Controlled Group. A Financial 

Institution is in the same Controlled 

Group with another Financial 

Institution if it would be considered in 

the same ‘‘controlled group of 

corporations’’ or ‘‘under common 

control’’ with the Financial Institution, 

as those terms are defined in Code 

section 414(b) and (c), in each case 

including the accompanying 

regulations. 

(4) Winding Down Period. Any 

Financial Institution that is ineligible 

will have a one-year winding down 

period during which relief is available 

under the exemption subject to the 

conditions of the exemption other than 

eligibility. After the one-year period 

expires, the Financial Institution may 

not rely on the relief provided in this 

exemption for any additional 

transactions. 

(c) Opportunity to be heard. 

(1) Petitions under subsection (a)(1). 

(A) A Financial Institution that has 

been convicted of a crime described 

under subsection (a)(1) or another 

Financial Institution in the same 

Controlled Group may submit a petition 

to the Department informing the 

Department of the conviction and 

seeking a determination that the 

Financial Institution’s continued 

reliance on the exemption would not be 

contrary to the purposes of the 

exemption. Petitions must be submitted, 

within 10 business days after the date of 

the conviction, to the Department by 

email at IIAWR@dol.gov. 

(B) Following receipt of the petition, 

the Department will provide the 

Financial Institution with the 

opportunity to be heard, in person or in 

writing or both. The opportunity to be 

heard in person will be limited to one 

in-person conference unless the 

Department determines in its sole 

discretion to allow additional 

conferences. 

(C) The Department’s determination 

as to whether to grant the petition will 

be based solely on its discretion. In 

determining whether to grant the 

petition, the Department will consider 

the gravity of the offense; the 

relationship between the conduct 

underlying the conviction and the 

Financial Institution’s system and 

practices in its retirement investment 

business as a whole; the degree to which 

the underlying conduct concerned 

individual misconduct, or, alternately, 

corporate managers or policy; how 

recent was the underlying lawsuit; 

remedial measures taken by the 

Financial Institution upon learning of 

the underlying conduct; and such other 

factors as the Department determines in 

its discretion are reasonable in light of 

the nature and purposes of the 

exemption. The Department will 

provide a written determination to the 

Financial Institution that articulates the 

basis for the determination. 

(2) Written ineligibility notice under 

subsection (a)(2). Prior to issuing a 

written ineligibility notice, the 

Department will issue a written warning 

to the Investment Professional or 

Financial Institution, as applicable, 

identifying specific conduct implicating 

subsection (a)(2), and providing a sixmonth opportunity to cure. At the end 

of the six-month period, if the 

Department determines that the conduct 

persists, it will provide the Investment 


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Professional or Financial Institution 

with the opportunity to be heard, in 

person or in writing or both, before the 

Department issues the written 

ineligibility notice. The opportunity to 

be heard in person will be limited to 

one in-person conference unless the 

Department determines in its sole 

discretion to allow additional 

conferences. The written ineligibility 

notice will articulate the basis for the 

determination that the Investment 

Professional or Financial Institution 

engaged in conduct described in 

subsection (a)(2). 

(d) A Financial Institution or 

Investment Professional that is 

ineligible to rely on this exemption may 

rely on a statutory or separate 

administrative prohibited transaction 

exemption if one is available or seek an 

individual prohibited transaction 

exemption from the Department. To the 

extent an applicant seeks retroactive 

relief in connection with an exemption 

application, the Department will 

consider the application in accordance 

with its retroactive exemption policy as 

set forth in 29 CFR 2570.35(d). The 

Department may require additional 

prospective compliance conditions as a 

condition of retroactive relief. 

Section IV—Recordkeeping 

The Financial Institution maintains 

for a period of six years records 

demonstrating compliance with this 

exemption and makes such records 

available, to the extent permitted by law 

including 12 U.S.C. 484, to any 

authorized employee of the Department 

or the Department of the Treasury. 

Section V—Definitions 

(a) ‘‘Affiliate’’ means: 

(1) Any person directly or indirectly 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with the Investment 

Professional or Financial Institution. 

(For this purpose, ‘‘control’’ would 

mean the power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual); 

(2) Any officer, director, partner, 

employee, or relative (as defined in 

ERISA section 3(15)), of the Investment 

Professional or Financial Institution; 

and 

(3) Any corporation or partnership of 

which the Investment Professional or 

Financial Institution is an officer, 

director, or partner. 

(b) Advice is in a Retirement 

Investor’s ‘‘Best Interest’’ if such advice 

reflects the care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent person acting 

in a like capacity and familiar with such 

matters would use in the conduct of an 

enterprise of a like character and with 

like aims, based on the investment 

objectives, risk tolerance, financial 

circumstances, and needs of the 

Retirement Investor, and does not place 

the financial or other interests of the 

Investment Professional, Financial 

Institution or any Affiliate, Related 

Entity, or other party ahead of the 

interests of the Retirement Investor, or 

subordinate the Retirement Investor’s 

interests to their own. 

(c) A ‘‘Conflict of Interest’’ is an 

interest that might incline a Financial 

Institution or Investment Professional— 

consciously or unconsciously—to make 

a recommendation that is not in the Best 

Interest of the Retirement Investor. 

(d) A ‘‘Covered Principal 

Transaction’’ is a principal transaction 

that: 

(1) For sales to a Plan or an IRA: 

(A) Involves a U.S. dollar 

denominated debt security issued by a 

U.S. corporation and offered pursuant to 

a registration statement under the 

Securities Act of 1933, a U.S. Treasury 

Security, a debt security issued or 

guaranteed by a U.S. federal government 

agency other than the U.S. Department 

of Treasury, a debt security issued or 

guaranteed by a government-sponsored 

enterprise, a municipal security, a 

certificate of deposit, an interest in a 

Unit Investment Trust, or any 

investment permitted to be sold by an 

investment advice fiduciary to a 

Retirement Investor under an individual 

exemption granted by the Department 

after the effective date of this exemption 

that includes the same conditions as 

this exemption; and 

(B) If the recommended investment is 

a debt security, the security is 

recommended pursuant to written 

policies and procedures adopted by the 

Financial Institution that are reasonably 

designed to ensure that the security, at 

the time of the recommendation, has no 

greater than moderate credit risk and 

sufficient liquidity that it could be sold 

at or near carrying value within a 

reasonably short period of time; and 

(2) For purchases from a Plan or an 

IRA, involves any securities or 

investment property. 

(e) ‘‘Financial Institution’’ means an 

entity that is not disqualified or barred 

from making investment 

recommendations by any insurance, 

banking, or securities law or regulatory 

authority (including any self-regulatory 

organization), that employs the 

Investment Professional or otherwise 

retains such individual as an 

independent contractor, agent or 

registered representative, and that is: 

(1) Registered as an investment 

adviser under the Investment Advisers 

Act of 1940 (15 U.S.C. 80b-1 et seq.) or 

under the laws of the state in which the 

adviser maintains its principal office 

and place of business; 

(2) A bank or similar financial 

institution supervised by the United 

States or a state, or a savings association 

(as defined in section 3(b)(1) of the 

Federal Deposit Insurance Act (12 

U.S.C. 1813(b)(1))); 

(3) An insurance company qualified 

to do business under the laws of a state, 

that: (A) Has obtained a Certificate of 

Authority from the insurance 

commissioner of its domiciliary state 

which has neither been revoked nor 

suspended; (B) has undergone and shall 

continue to undergo an examination by 

an independent certified public 

accountant for its last completed taxable 

year or has undergone a financial 

examination (within the meaning of the 

law of its domiciliary state) by the 

state’s insurance commissioner within 

the preceding five years, and (C) is 

domiciled in a state whose law requires 

that an actuarial review of reserves be 

conducted annually and reported to the 

appropriate regulatory authority; 

(4) A broker or dealer registered under 

the Securities Exchange Act of 1934 (15 

U.S.C. 78a et seq.); or 

(5) An entity that is described in the 

definition of Financial Institution in an 

individual exemption granted by the 

Department after the date of this 

exemption that provides relief for the 

receipt of compensation in connection 

with investment advice provided by an 

investment advice fiduciary under the 

same conditions as this class exemption. 

(f) For purposes of subsection I(c)(1), 

a fiduciary is ‘‘independent’’ of the 

Financial Institution and Investment 

Professional if: (i) The fiduciary is not 

the Financial Institution, Investment 

Professional, or an Affiliate; (ii) the 

fiduciary does not have a relationship to 

or an interest in the Financial 

Institution, Investment Professional, or 

any Affiliate that might affect the 

exercise of the fiduciary’s best judgment 

in connection with transactions covered 

by the exemption; and (iii) the fiduciary 

does not receive and is not projected to 

receive within the current federal 

income tax year, compensation or other 

consideration for his or her own account 

from the Financial Institution, 

Investment Professional, or an Affiliate, 

in excess of 2% of the fiduciary’s annual 

revenues based upon its prior income 

tax year. 

(g) ‘‘Individual Retirement Account’’ 

or ‘‘IRA’’ means any plan that is an 

account or annuity described in Code 

section 4975(e)(1)(B) through (F). 


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82866 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Rules and Regulations 

(h) ‘‘Investment Professional’’ means 

an individual who: 

(1) Is a fiduciary of a Plan or an IRA 

by reason of the provision of investment 

advice described in ERISA section 

3(21)(A)(ii) or Code section 

4975(e)(3)(B), or both, and the 

applicable regulations, with respect to 

the assets of the Plan or IRA involved 

in the recommended transaction; 

(2) Is an employee, independent 

contractor, agent, or representative of a 

Financial Institution; and 

(3) Satisfies the federal and state 

regulatory and licensing requirements of 

insurance, banking, and securities laws 

(including self-regulatory organizations) 

with respect to the covered transaction, 

as applicable, and is not disqualified or 

barred from making investment 

recommendations by any insurance, 

banking, or securities law or regulatory 

authority (including any self-regulatory 

organization). 

(i) ‘‘Plan’’ means any employee 

benefit plan described in ERISA section 

3(3) and any plan described in Code 

section 4975(e)(1)(A). 

(j) A ‘‘Related Entity’’ is any party that 

is not an Affiliate, but in which the 

Investment Professional or Financial 

Institution has an interest that may 

affect the exercise of its best judgment 

as a fiduciary. 

(k) ‘‘Retirement Investor’’ means: 

(1) A participant or beneficiary of a 

Plan with authority to direct the 

investment of assets in his or her 

account or to take a distribution; 

(2) The beneficial owner of an IRA 

acting on behalf of the IRA; or 

(3) A fiduciary of a Plan or an IRA. 

(l) A ‘‘Senior Executive Officer’’ is any 

of the following: The chief compliance 

officer, the chief executive officer, 

president, chief financial officer, or one 

of the three most senior officers of the 

Financial Institution. 

Jeanne Klinefelter Wilson, 

Acting Assistant Secretary, Employee Benefits 

Security, Administration, U.S. Department of 

Labor. 

[FR Doc. 2020–27825 Filed 12–17–20; 8:45 am] 

BILLING CODE 4510–29–P 


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