Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22035 

(2) A prohibited transaction will not 

be deemed to have occurred if, due to 

circumstances beyond the control of the 

broker-dealer, reporting dealer, or bank, 

such records are lost or destroyed prior 

to the end of such six year period. 

(f)(1) Notwithstanding anything to the 

contrary in subsections (a)(2) and (b) of 

section 504 of the Act, the records 

referred to in paragraph (e) are 

unconditionally available for 

examination during normal business 

hours by: 

A. Any duly authorized employee or 

representative of the Department or the 

Internal Revenue Service; 

B. Any fiduciary of the plan or any 

duly authorized employee or 

representative of such fiduciary; 

C. Any contributing employer and any 

employee organization whose members 

are covered by the plan, or any 

authorized employee or representative 

of these entities; or 

D. Any participant or beneficiary of 

the plan or the duly authorized 

representative of such participant or 

beneficiary; and 

(2) None of the persons described in 

subparagraph (1)(B)–(D) above shall be 

authorized to examine trade secrets or 

commercial or financial information of 

the broker-dealer, reporting dealer, or 

bank which is privileged or 

confidential. 

(3) Should such broker-dealer, 

reporting dealer, or bank refuse to 

disclose information on the basis that 

such information is exempt from 

disclosure, the broker-dealer, reporting 

dealer, or bank shall, by the close of the 

thirtieth (30th) day following the 

request, provide a written notice 

advising that person of the reasons for 

the refusal and that the Department may 

request such information. 

For purposes of this exemption, the 

terms ‘‘broker-dealer,’’ ‘‘reporting 

dealer’’ and ‘‘bank’’ shall include such 

persons and any affiliates thereof, and 

the term ‘‘affiliate’’ shall be defined in 

the same manner as that term is defined 

in 29 CFR 2510.3–21(e) and 26 CFR 

54.4975–9(e). 

Signed at Washington, DC, this 14th day of 

April, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2015–08838 Filed 4–15–15; 11:15 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2550 

[Application Number D–11820] 

ZRIN 1210–ZA25 

Proposed Amendments to Class 

Exemptions 75–1, 77–4, 80–83 and 83– 

1 

AGENCY: Employee Benefits Security 

Administration (EBSA), U.S. 

Department of Labor. 

ACTION: Notice of proposed amendments 

to class exemptions. 

SUMMARY: This document contains a 

notice of pendency before the 

Department of Labor of proposed 

amendments to prohibited transaction 

exemptions (PTEs) 75–1, 77–4, 80–83 

and 83–1. Generally, the Employee 

Retirement Income Security Act of 1974 

(ERISA) and the Internal Revenue Code 

(the Code) prohibit fiduciaries with 

respect to employee benefit plans and 

individual retirement accounts (IRAs) 

from engaging in self-dealing, including 

using their authority, control or 

responsibility to affect or increase their 

own compensation. These existing 

exemptions generally permit fiduciaries 

to receive compensation or other 

benefits as a result of the use of their 

fiduciary authority, control or 

responsibility in connection with 

investment transactions involving plans 

or IRAs. The proposed amendments 

would require the fiduciaries to satisfy 

uniform Impartial Conduct Standards in 

order to obtain the relief available under 

each exemption. The proposed 

amendments would affect participants 

and beneficiaries of plans, IRA owners, 

and fiduciaries with respect to such 

plans and IRAs. 

DATES: Comments: Written comments 

must be received by the Department on 

or before July 6, 2015. 

Applicability: The Department 

proposes to make these amendments 

applicable eight months after 

publication of the final exemption in the 

Federal Register. 

ADDRESSES: All written comments 

concerning the proposed amendments 

to the class exemptions should be sent 

to the Office of Exemption 

Determinations by any of the following 

methods, identified by ZRIN: 1210– 

ZA25: 

Federal eRulemaking Portal: http:// 

www.regulations.gov at Docket ID 

number: EBSA–2014–0016. Follow the 

instructions for submitting comments. 

Email to: e-OED@ dol.gov. 

Fax to: (202) 693–8474. 

Mail: Office of Exemption 

Determinations, Employee Benefits 

Security Administration, (Attention: D– 

11820), U.S. Department of Labor, 200 

Constitution Avenue NW., Suite 400, 

Washington, DC 20210. 

Hand Delivery/Courier: Office of 

Exemption Determinations, Employee 

Benefits Security Administration, 

(Attention: D–11820), U.S. Department 

of Labor, 122 C St. NW., Suite 400, 

Washington, DC 20001. Instructions. All 

comments must be received by the end 

of the comment period. The comments 

received will be available for public 

inspection in the Public Disclosure 

Room of the Employee Benefits Security 

Administration, U.S. Department of 

Labor, Room N–1513, 200 Constitution 

Avenue NW., Washington, DC 20210. 

Comments will also be available online 

at www.regulations.gov, at Docket ID 

number: EBSA–2014–0016 and 

www.dol.gov/ebsa, at no charge. 

Warning: All comments will be made 

available to the public. Do not include 

any personally identifiable information 

(such as Social Security number, name, 

address, or other contact information) or 

confidential business information that 

you do not want publicly disclosed. All 

comments may be posted on the Internet 

and can be retrieved by most Internet 

search engines. 

FOR FURTHER INFORMATION CONTACT: 

Brian Shiker, Office of Exemption 

Determinations, Employee Benefits 

Security Administration, U.S. 

Department of Labor, (202) 693–8854 

(this is not a toll-free number). 

SUPPLEMENTARY INFORMATION: The 

Department is proposing the 

amendments to the class exemptions on 

its own motion, pursuant to ERISA 

section 408(a) and Code section 

4975(c)(2), and in accordance with the 

procedures set forth in 29 CFR part 

2570, subpart B (76 FR 66637 (October 

27, 2011)). 

Executive Summary 

Purpose of Regulatory Action 

The Department is proposing these 

amendments to existing class 

exemptions in connection with its 

proposed regulation defining a fiduciary 

under ERISA section 3(21)(A)(ii) and 

Code section 4975(e)(3)(B) (Proposed 

Regulation), published elsewhere in this 

issue of the Federal Register. The 

Proposed Regulation specifies when an 

entity is a fiduciary by reason of the 

provision of investment advice for a fee 

or other compensation regarding assets 

of a plan or IRA. If adopted, the 

Proposed Regulation would replace an 

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22036 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

1Code section 4975(c)(2) authorizes the Secretary 

of the Treasury to grant exemptions from the 

parallel prohibited transaction provisions of the 

Code. Reorganization Plan No. 4 of 1978 (5 U.S.C. 

app. at 214 (2000)) generally transferred the 

authority of the Secretary of the Treasury to grant 

administrative exemptions under Code section 4975 

to the Secretary of Labor. References in this 

document to sections of ERISA should be read to 

refer also to the corresponding sections of the Code. 

These proposed amendments to the class 

exemptions would apply to relief from the 

indicated prohibited transaction provisions of both 

ERISA and the Code. 

2ERISA section 404(a). 

3ERISA section 406. ERISA also prohibits certain 

transactions between a plan and a ‘‘party in 

interest.’’ 

existing regulation that was adopted in 

1975. The Proposed Regulation is 

intended to take into account the advent 

of 401(k) plans and IRAs, the dramatic 

increase in rollovers, and other 

developments that have transformed the 

retirement plan landscape and the 

associated investment market over the 

four decades since the existing 

regulation was issued. In light of the 

extensive changes in retirement 

investment practices and relationships, 

the Proposed Regulation would update 

existing rules to distinguish more 

appropriately between the sorts of 

advice relationships that should be 

treated as fiduciary in nature and those 

that should not. 

This notice proposes that new 

‘‘Impartial Conduct Standards’’ be made 

conditions of the following exemptions: 

PTEs 75–1, Part III, 75–1, Part IV, 77– 

4, 80–83 and 83–1. Fiduciaries would be 

required to act in accordance with these 

standards in transactions permitted by 

the exemptions. The standards will be 

uniformly imposed in multiple class 

exemptions, including new proposed 

exemptions published elsewhere in this 

issue of the Federal Register, to ensure 

that fiduciaries relying on the 

exemptions are held to a uniform set of 

standards and that these standards are 

applicable to transactions involving 

both plans and IRAs. The proposed 

amendments, if granted, would apply 

prospectively to fiduciaries relying on 

the exemptions. 

Section 408(a) of ERISA specifically 

authorizes the Secretary of Labor to 

grant administrative exemptions from 

ERISA’s prohibited transaction 

provisions.1 Regulations at 29 CFR 

2570.30 to 2570.52 describe the 

procedures for applying for an 

administrative exemption. Before 

granting an exemption, the Department 

must find that it 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 such 

plans and IRA owners. Interested parties 

are permitted to submit comments to the 

Department on these proposed 

amendments, through July 6, 2015. 

Additionally, the Department plans to 

hold an administrative hearing within 

30 days of the close of the comment 

period. The Department will ensure 

ample opportunity for public comment 

by reopening the record following the 

hearing and publication of the hearing 

transcript. Specific information 

regarding the date, location and 

submission of requests to testify will be 

published in a notice in the Federal 

Register. 

Summary of the Major Provisions 

The proposal would amend 

prohibited transaction exemptions 75–1, 

Part III, 75–1, Part IV, 77–4, 80–83 and 

83–1. Each proposed amendment would 

apply the same Impartial Conduct 

Standards. The amendments would 

require a fiduciary that satisfies ERISA 

section 3(21)(A)(i) or (ii), or the 

corresponding provisions of Code 

section 4975(e)(3)(A) or (B), with respect 

to the assets involved in the investment 

transaction, to meet the standards with 

respect to the investment transactions 

described in the applicable exemption. 

Regulatory Impact Analysis 

Executive Order 12866 and 13563 

Statement 

Under Executive Orders 12866 and 

13563, the Department must determine 

whether a regulatory action is 

‘‘significant’’ and therefore subject to 

the requirements of the Executive Order 

and subject to review by the Office of 

Management and Budget (OMB). 

Executive Orders 13563 and 12866 

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 both costs and benefits, of 

reducing costs, of harmonizing and 

streamlining rules, and of promoting 

flexibility. It also requires federal 

agencies to develop a plan under which 

the agencies will periodically review 

their existing significant regulations to 

make the agencies’ regulatory programs 

more effective or less burdensome in 

achieving their regulatory objectives. 

Under Executive Order 12866, 

‘‘significant’’ regulatory actions are 

subject to the requirements of the 

Executive Order and review by the 

Office of Management and Budget 

(OMB). Section 3(f) of Executive Order 

12866, defines a ‘‘significant regulatory 

action’’ as an action that is likely to 

result in a rule (1) having an annual 

effect on the economy of $100 million 

or more, or adversely and materially 

affecting 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’’ regulatory 

actions); (2) creating serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. Pursuant to the terms of the 

Executive Order, OMB has determined 

that this action is ‘‘significant’’ within 

the meaning of Section 3(f)(4) of the 

Executive Order. Accordingly, the 

Department has undertaken an 

assessment of the costs and benefits of 

the proposed amendment, and OMB has 

reviewed this regulatory action. 

Background 

Proposed Regulation 

As explained more fully in the 

preamble to the Department’s Proposed 

Regulation on the definition of fiduciary 

under ERISA section 3(21)(A)(ii) and 

Code section 4975(e)(3)(B), also 

published in this issue of the Federal 

Register, ERISA is a comprehensive 

statute designed to protect the interests 

of plan participants and beneficiaries, 

the integrity of employee benefit plans, 

and the security of retirement, health, 

and other critical benefits. The broad 

public interest in ERISA-covered plans 

is reflected in its imposition of stringent 

fiduciary responsibilities on parties 

engaging in important plan activities, as 

well as in the tax-favored status of plan 

assets and investments. One of the chief 

ways in which ERISA protects employee 

benefit plans is by requiring that plan 

fiduciaries comply with fundamental 

obligations rooted in the law of trusts. 

In particular, plan fiduciaries must 

manage plan assets prudently and with 

undivided loyalty to the plans and their 

participants and beneficiaries.2 In 

addition, they must refrain from 

engaging in ‘‘prohibited transactions,’’ 

which ERISA forbids because of the 

dangers posed by the fiduciaries’ 

conflicts of interest with respect to the 

transactions.3 When fiduciaries violate 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22037 

4ERISA section 409; see also ERISA section 405. 

5The Department of Treasury issued a virtually 

identical regulation, at 26 CFR 54.4975–9(c), which 

interprets Code section 4975(e)(3). 

6Advisory Opinion 76–65A (June 7, 1976). 

7The Department initially proposed an 

amendment to its regulation under ERISA section 

3(21)(A)(ii) and Code section 4975(e)(3)(B) on 

October 22, 2010, at 75 FR 65263. It subsequently 

announced its intention to withdraw the proposal 

and propose a new rule, consistent with the 

President’s Executive Orders 12866 and 13563, in 

order to give the public a full opportunity to 

evaluate and comment on the new proposal and 

updated economic analysis. 

ERISA’s fiduciary duties or the 

prohibited transaction rules, they may 

be held personally liable for the breach.4

In addition, violations of the prohibited 

transaction rules are subject to excise 

taxes under the Code. 

The Code also has rules regarding 

fiduciary conduct with respect to taxfavored accounts that are not generally 

covered by ERISA, such as IRAs. 

Although ERISA’s general fiduciary 

obligations of prudence and loyalty do 

not govern the fiduciaries of IRAs, these 

fiduciaries are subject to the prohibited 

transaction rules. In this context, 

fiduciaries engaging in the illegal 

transactions are subject to an excise tax 

enforced by the Internal Revenue 

Service. Unlike participants in plans 

covered by Title I of ERISA, under the 

Code, IRA owners cannot bring suit 

against fiduciaries under ERISA for 

violation of the prohibited transaction 

rules and fiduciaries are not personally 

liable to IRA owners for the losses 

caused by their misconduct. Elsewhere 

in this issue of the Federal Register, 

however, the Department is proposing 

two new class exemptions that would 

create contractual obligations for the 

adviser to adhere to certain standards 

(the Impartial Conduct Standards). IRA 

owners would have a right to enforce 

these new contractual rights. 

Under this statutory framework, the 

determination of who is a ‘‘fiduciary’’ is 

of central importance. Many of ERISA’s 

protections, duties, and liabilities hinge 

on fiduciary status. In relevant part, 

section 3(21)(A) of ERISA and section 

4975(e)(3) of the Code provide that a 

person is a fiduciary with respect to a 

plan or IRA to the extent he or she (1) 

exercises any discretionary authority or 

discretionary control with respect to 

management of such plan or IRA, or 

exercises any authority or control with 

respect to management or disposition of 

its assets; (2) renders investment advice 

for a fee or other compensation, direct 

or indirect, with respect to any moneys 

or other property of such plan or IRA, 

or has any authority or responsibility to 

do so; or, (3) has any discretionary 

authority or discretionary responsibility 

in the administration of such plan or 

IRA. 

The statutory definition deliberately 

casts a wide net in assigning fiduciary 

responsibility with respect to plan and 

IRA assets. Thus, ‘‘any authority or 

control’’ over plan or IRA assets is 

sufficient to confer fiduciary status, and 

any persons who render ‘‘investment 

advice for a fee or other compensation, 

direct or indirect’’ are fiduciaries, 

regardless of whether they have direct 

control over the plan’s or IRA’s assets 

and regardless of their status as an 

investment adviser or broker under the 

federal securities laws. The statutory 

definition and associated fiduciary 

responsibilities were enacted to ensure 

that plans and IRAs can depend on 

persons who provide investment advice 

for a fee to provide recommendations 

that are untainted by conflicts of 

interest. In the absence of fiduciary 

status, persons who provide investment 

advice would neither be subject to 

ERISA’s fundamental fiduciary 

standards, nor accountable for 

imprudent, disloyal, or tainted advice 

under ERISA or the Code, no matter 

how egregious the misconduct or how 

substantial the losses. Plans, individual 

participants and beneficiaries, and IRA 

owners often are not financial experts 

and consequently must rely on 

professional advice to make critical 

investment decisions. The statutory 

definition, prohibitions on conflicts of 

interest, and core fiduciary obligations 

of prudence and loyalty, all reflect 

Congress’ recognition in 1974 of the 

fundamental importance of such advice. 

In the years since then, the significance 

of financial advice has become still 

greater with increased reliance on 

participant-directed plans and IRAs for 

the provision of retirement benefits. 

In 1975, the Department issued a 

regulation, at 29 CFR 2510.3–21(c) 

defining the circumstances under which 

a person is treated as providing 

‘‘investment advice’’ to an employee 

benefit plan within the meaning of 

section 3(21)(A)(ii) of ERISA (the ‘‘1975 

regulation’’).5 The regulation narrowed 

the scope of the statutory definition of 

fiduciary investment advice by creating 

a five-part test that must be satisfied 

before a person can be treated as 

rendering investment advice for a fee. 

Under the regulation, for advice to 

constitute ‘‘investment advice,’’ an 

adviser who does not have discretionary 

authority or control with respect to the 

purchase or sale of securities or other 

property of the plan 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 or a plan 

fiduciary that (4) the advice will serve 

as a primary basis for investment 

decisions with respect to plan assets, 

and that (5) the advice will be 

individualized based on the particular 

needs of the plan. The regulation 

provides that an adviser is a fiduciary 

with respect to any particular instance 

of advice only if he or she meets each 

and every element of the five-part test 

with respect to the particular advice 

recipient or plan at issue. A 1976 

Department of Labor Advisory Opinion 

further limited the application of the 

statutory definition of ‘‘investment 

advice’’ by stating that valuations of 

employer securities in connection with 

employee stock ownership plan (ESOP) 

purchases would not be considered 

fiduciary advice.6

As the marketplace for financial 

services has developed in the years 

since 1975, the five-part test may now 

undermine, rather than promote, the 

statutes’ text and purposes. The 

narrowness of the 1975 regulation 

allows professional advisers, 

consultants and valuation firms to play 

a central role in shaping plan 

investments, without ensuring the 

accountability that Congress intended 

for persons having such influence and 

responsibility when it enacted ERISA 

and the related Code provisions. Even 

when plan sponsors, participants, 

beneficiaries and IRA owners clearly 

rely on paid consultants for impartial 

guidance, the regulation allows 

consultants to avoid fiduciary status and 

disregard ERISA’s fiduciary obligations 

of care and prohibitions on disloyal and 

conflicted transactions. As a 

consequence, these advisers can steer 

customers to investments based on their 

own self-interest, give imprudent 

advice, and engage in transactions that 

would otherwise be categorically 

prohibited by ERISA and Code, without 

any liability under ERISA or the Code. 

In the Proposed Regulation, the 

Department seeks to replace the existing 

regulation with one that more 

appropriately distinguishes between the 

sorts of advice relationships that should 

be treated as fiduciary in nature and 

those that should not, in light of the 

legal framework and financial 

marketplace in which plans and IRAs 

currently operate.7

The Proposed Regulation describes 

the types of advice that constitute 

‘‘investment advice’’ with respect to 

plan or IRA assets for purposes of the 

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22038 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

8Although the preamble adopts the phrase 

‘‘seller’s carve-out’’ as a shorthand way of referring 

to the carve-out and its terms, the regulatory carveout is not limited to sellers but rather applies more 

broadly to counterparties in arm’s length 

transactions with plan investors with financial 

expertise. 

9The Code does not contain a parallel provision. 

10See 29 CFR 2550.408b–2(e); 26 CFR 54.4975– 

6(a)(5). 

definition of a fiduciary at ERISA 

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

4975(e)(3)(B). The proposal provides, 

subject to certain carve-outs, that a 

person renders investment advice with 

respect to a plan or IRA if, among other 

things, the person provides, directly to 

a plan, a plan fiduciary, a plan 

participant or beneficiary, IRA or IRA 

owner one of the following types of 

advice: 

(1) A recommendation as to the 

advisability of acquiring, holding, 

disposing or exchanging securities or 

other property, including a 

recommendation to take a distribution 

of benefits or a recommendation as to 

the investment of securities or other 

property to be rolled over or otherwise 

distributed from a plan or IRA; 

(2) A recommendation as to the 

management of securities or other 

property, including recommendations as 

to the management of securities or other 

property to be rolled over or otherwise 

distributed from the plan or IRA; 

(3) An appraisal, fairness opinion or 

similar statement, whether verbal or 

written, concerning the value of 

securities or other property, if provided 

in connection with a specific 

transaction or transactions involving the 

acquisition, disposition or exchange of 

such securities or other property by the 

plan or IRA; and 

(4) A recommendation of a person 

who is also going to receive a fee or 

other compensation for providing any of 

the types of advice described in 

paragraphs (1) through (3), above. 

In addition, to be a fiduciary, such 

person must either (1) represent or 

acknowledge that it is acting as a 

fiduciary within the meaning of ERISA 

(or the Code) with respect to the advice, 

or (2) render the advice pursuant to a 

written or verbal agreement, 

arrangement or understanding that the 

advice is individualized to, or that such 

advice is specifically directed to, the 

advice recipient for consideration in 

making investment or management 

decisions with respect to securities or 

other property of the plan or IRA. 

For advisers who do not represent 

that they are acting as ERISA (or Code) 

fiduciaries, the Proposed Regulation 

provides that advice rendered in 

conformance with certain carve-outs 

will not cause the adviser to be treated 

as a fiduciary under ERISA or the Code. 

For example, under the seller’s carveout, counterparties in arm’s length 

transactions with plans may make 

investment recommendations without 

acting as fiduciaries if certain 

conditions are met.8 Similarly, the 

proposal contains a carve-out from 

fiduciary status for persons who provide 

appraisals, fairness opinions, or 

statements of value in specified contexts 

(e.g., with respect to ESOP transactions). 

The proposal additionally carves out 

from fiduciary status the marketing of 

investment alternative platforms, certain 

assistance in selecting investment 

alternatives and other activities. Finally, 

the Proposed Regulation contains a 

carve-out from fiduciary status for the 

provision of investment education. 

Prohibited Transactions 

Fiduciaries under ERISA and the 

Code are subject to certain prohibited 

transaction restrictions. ERISA section 

406(b)(1) and Code section 4975(c)(1)(E) 

prohibit a fiduciary from dealing with 

the income or assets of a plan or IRA in 

his own interest or his own account. 

ERISA section 406(b)(2) provides that a 

fiduciary with respect to an employee 

benefit plan shall not ‘‘in his individual 

or in any other capacity act in any 

transaction involving the plan on behalf 

of a party (or represent a party) whose 

interests are adverse to the interests of 

the plan or the interests of its 

participants or beneficiaries.’’ 9 ERISA 

section 406(b)(3) and Code section 

4975(c)(1)(F) prohibit a fiduciary from 

receiving any consideration for his own 

personal account from any party dealing 

with the plan or IRA in connection with 

a transaction involving the plan or IRA. 

Parallel regulations issued by the 

Departments of Labor and the Treasury 

explain that these provisions impose on 

fiduciaries a duty not to act on conflicts 

of interest that may affect the fiduciary’s 

best judgment on behalf of the plan or 

IRA.10

Prohibited Transaction Exemptions 

ERISA and the Code counterbalance 

the broad proscriptive effect of the 

prohibited transaction provisions with 

numerous statutory exemptions. For 

example, ERISA section 408(b)(14) and 

Code section 4975(d)(17) specifically 

exempt transactions in connection with 

the provision of fiduciary investment 

advice to a participant or beneficiary of 

an individual account plan or IRA 

owner, where the advice, resulting 

transaction, and the adviser’s fees meet 

certain conditions. ERISA and the Code 

also provide for administrative 

exemptions that the Secretary of Labor 

may grant on an individual or class 

basis if the Secretary finds that the 

exemption is (1) administratively 

feasible, (2) in the interests of plans and 

of their participants and beneficiaries 

and IRA owners and (3) protective of the 

rights of the participants and 

beneficiaries of such plans and IRA 

owners. 

Over the years, the Department has 

granted several conditional 

administrative class exemptions from 

the prohibited transactions provisions of 

ERISA and the Code pursuant to which 

fiduciaries may receive compensation or 

other benefits in connection with 

investment transactions by plans and 

IRAs, under circumstances that would 

otherwise violate ERISA section 406(b) 

and Code section 4975(c)(1)(E) and (F). 

The exemptions focus on specific types 

of transactions or specific types of 

compensation arrangements. Reliance 

on these exemptions is subject to certain 

conditions that the Department has 

found necessary to protect the interests 

of plans and IRAs. 

In connection with the development 

of the Department’s proposed definition 

of fiduciary under ERISA section 

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

4975(e)(3)(B), the Department has 

considered public input indicating the 

need for additional prohibited 

transaction relief for the wide variety of 

compensation structures that exist today 

in the marketplace for investment 

transactions. After consideration of the 

issue, the Department determined to 

propose, elsewhere in this issue of the 

Federal Register, two new class 

exemptions as well as amendments to 

two other existing class exemptions. 

These new and amended class 

exemptions provide relief for a 

fiduciary’s receipt of compensation or 

other benefit resulting from its provision 

of investment advice to plans and IRAs 

in the context of many different types of 

investment transactions. 

While each of the proposed new and 

amended class exemptions sets forth 

conditions that are tailored to their 

respective transactions, each also 

conditions relief on a fiduciary’s 

compliance with certain Impartial 

Conduct Standards. The Department has 

determined that the Impartial Conduct 

Standards comprise important baseline 

safeguards that should be required of 

fiduciaries relying on other existing 

exemptions providing relief for plan and 

IRA investment transactions. 

Accordingly, this notice proposes that 

the Impartial Conduct Standards be 

made conditions of the following 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22039 

11See ERISA section 404. 

12The Department notes that PTE 2002–13 

amended PTEs 80–83 and 83–1 so that the terms 

‘‘employee benefit plan’’ and ‘‘plan’’ refer to an 

employee benefit plan described in ERISA section 

3(3) and/or a plan described in section 4975(e)(1) 

of the Code. See 67 FR 9483 (March 1, 2002). At 

the same time, in the preamble to PTE 2002–13, the 

Department explained that it had determined, after 

consulting with the Internal Revenue Service, that 

plans described in 4975(e)(1) of the Code are 

included within the scope of relief provided by 

PTEs 75–1 and 77–4, because they were issued 

jointly by the Department and the Service. For 

simplicity and consistency with the other new 

proposed exemptions and proposed amendments to 

existing exemptions published elsewhere in this 

issue of the Federal Register, the Department has 

proposed this specific definition of IRA. 

13Exemptions from Prohibitions Respecting 

Certain Classes of Transactions Involving Employee 

Benefit Plans and Certain Broker-Dealers, Reporting 

Dealers and Banks, 40 FR 50845 (Oct. 31, 1975), as 

amended at 71 FR 5883 (Feb. 3, 2006). 

14Exemptions from Prohibitions Respecting 

Certain Classes of Transactions Involving Employee 

Benefit Plans and Certain Broker-Dealers, Reporting 

Dealers and Banks, 40 FR 50845 (Oct. 31, 1975), as 

amended at 71 FR 5883 (Feb. 3, 2006). 

15Class Exemption for Certain Transactions 

Between Investment Companies and Employee 

Benefit Plans, 42 FR 18732 (Apr. 8, 1977). 

16Class Exemption for Certain Transactions 

Involving Purchase of Securities Where Issuer May 

Use Proceeds to Reduce or Retire Indebtedness to 

Parties in Interest, 45 FR 73189 (Nov. 4, 1980), as 

amended at 67 FR 9483 (March 1, 2002). 

17Class Exemption for Certain Transactions 

Involving Mortgage Pool Investment Trusts, 48 FR 

895 (Jan. 7, 1983), as amended at 67 FR 9483 

(March 1, 2002). 

existing exemptions: PTEs 75–1, Part III, 

75–1, Part IV, 77–4, 80–83 and 83–1. 

Under the amendments, fiduciaries 

would be required to act in accordance 

with the Impartial Conduct Standards in 

transactions governed by the 

exemptions. This will result in 

additional protections for all plans, but 

most particularly for IRA owners. That 

is because fiduciaries’ dealings with 

IRAs are governed by the Code, not by 

ERISA,11 and the Code, unlike ERISA, 

does not directly impose responsibilities 

of prudence and loyalty on fiduciaries. 

The amendments to the exemptions 

would condition relief under the 

exemptions on the satisfaction of these 

responsibilities. For purposes of these 

amendments, the term IRA means any 

trust, account or annuity described in 

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

including, for example, an individual 

retirement account described in section 

408(a) of the Code and a health savings 

account described in section 223(d) of 

the Code.12 The impartial conduct 

standards will work across multiple 

class exemptions to ensure that these 

fiduciaries are held to a single set of 

standards and that these standards are 

applicable to both plans and IRAs. The 

proposed amendments, if granted, will 

apply prospectively to fiduciaries 

relying on the exemptions. 

Description of the Proposal 

The proposal would amend 

prohibited transaction exemptions 75–1, 

Part III, 75–1, Part IV, 77–4, 80–83 and 

83–1. Specifically, these exemptions 

provide the following relief: 

• PTE 75–1, Part III 13 permits a 

fiduciary to cause a plan or IRA to 

purchase securities from a member of an 

underwriting syndicate other than the 

fiduciary, when the fiduciary is also a 

member of the syndicate; 

• PTE 75–1, Part IV 14 permits a plan 

or IRA to purchase securities in a 

principal transaction from a fiduciary 

that is a market maker with respect to 

such securities; 

• PTE 77–4 15 provides relief for a 

plan’s or IRA’s purchase or sale of openend investment company shares where 

the investment adviser for the open-end 

investment company is also a fiduciary 

to the plan or IRA; 

• PTE 80–83 16 provides relief for a 

fiduciary causing a plan or IRA to 

purchase a security when the proceeds 

of the securities issuance may be used 

by the issuer to retire or reduce 

indebtedness to the fiduciary or an 

affiliate; and 

• PTE 83–1 17 provides relief for the 

sale of certificates in an initial issuance 

of certificates, by the sponsor of a 

mortgage pool to a plan or IRA, when 

the sponsor, trustee or insurer of the 

mortgage pool is a fiduciary with 

respect to the plan or IRA assets 

invested in such certificates. 

This proposal sets forth an 

amendment to each of these 

exemptions. Each of the amendments is 

tailored to the structure and language of 

the applicable exemption. Therefore, the 

terminology and numbering varies from 

amendment to amendment. Despite 

such variation, each amendment would 

apply the same Impartial Conduct 

Standards uniformly across each 

exemption. 

More specifically, the amendments 

would require a fiduciary that satisfies 

ERISA section 3(21)(A)(i) or (ii), or the 

corresponding provisions of Code 

section 4975(e)(3)(A) or (B), with respect 

to the assets involved in the investment 

transaction, to meet the Impartial 

Conduct Standards described in the 

applicable exemption. Under the 

proposed amendments’ first conduct 

standard, the fiduciary must act in the 

best interest of the plan or IRA. Best 

interest is defined to mean acting with 

the care, skill, prudence, and diligence 

under the circumstances then prevailing 

that a prudent person would exercise 

based on the investment objectives, risk 

tolerance, financial circumstances, and 

the needs of the plan or IRA when 

providing investment advice to the plan 

or IRA or managing the plan’s or IRA’s 

assets. Further, under the best interest 

standard, the fiduciary must act without 

regard to the financial or other interests 

of the fiduciary or its affiliates or any 

other party. Under this standard, the 

fiduciary must put the interests of the 

plan or IRA ahead of its own financial 

interests or those of any affiliate or other 

party. 

In this regard, the Department notes 

that while fiduciaries of plans covered 

by ERISA are subject to the ERISA 

section 404 standards of prudence and 

loyalty, the Code contains no provisions 

that hold IRA fiduciaries to those 

standards. However, as a condition of 

relief under the proposed amendments, 

both IRA and plan fiduciaries would 

have to agree to, and uphold, the best 

interest requirement. The best interest 

standard is defined to effectively mirror 

the ERISA section 404 duties of 

prudence and loyalty, as applied in the 

context of fiduciary investment advice. 

Failure to satisfy the best interest 

standard would render the exemption 

unavailable to the fiduciary with respect 

to compensation received in connection 

with the transaction. 

The second conduct standard requires 

that all compensation received by the 

fiduciary and its affiliates in connection 

with the applicable transaction be 

reasonable in relation to the total 

services they provide to the plan or IRA. 

The third conduct standard requires that 

statements about recommended 

investments, fees, material conflicts of 

interest, and any other matters relevant 

to a plan’s or IRA owner’s investment 

decisions, not be misleading. The 

Department notes in this regard that a 

fiduciary’s failure to disclose a material 

conflict of interest may be considered a 

misleading statement. Transactions that 

violate these requirements are not likely 

to be in the interests of plans, their 

participants and beneficiaries, or IRA 

owners, or protective of their rights. 

Unlike the new exemption proposals 

published elsewhere in the Federal 

Register, these proposed amendments 

do not require fiduciaries to 

contractually warrant compliance with 

applicable federal and state laws. 

However, the Department notes that 

significant violations of applicable 

federal or state law could also amount 

to violations of the Impartial Conduct 

Standards, such as the best interest 

standard, in which case these 

exemptions, as amended, would be 

deemed unavailable for transactions 

occurring in connection with such 

violations. 

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22040 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

Applicability Date 

The Department is proposing that 

compliance with the final regulation 

defining a fiduciary under ERISA 

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

4975(e)(3)(B) will begin eight months 

after publication of the final regulation 

in the Federal Register (Applicability 

Date). The Department proposes to make 

these amendments, if granted, 

applicable on the Applicability Date. 

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 from 

certain other provisions of ERISA 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 discharge his or her duties 

respecting the plan solely in the 

interests of the plan’s participants and 

beneficiaries and in a prudent fashion in 

accordance with ERISA section 

404(a)(1)(B); 

(2) Before an exemption may be 

granted under ERISA section 408(a) and 

Code section 4975(c)(2), the Department 

must find that the exemption is 

administratively feasible, in the 

interests of plans and their participants 

and beneficiaries and IRA owners, and 

protective of the rights of plans’ 

participants and beneficiaries and IRA 

owners; 

(3) If granted, an exemption will be 

applicable to a particular transactions 

only if the transactions satisfy the 

conditions specified in the 

amendments; and 

(4) If granted, the amended 

exemptions will be supplemental to, 

and not in derogation of, any other 

provisions of ERISA and the Code, 

including statutory or administrative 

exemptions and transitional rules. 

Furthermore, the fact that a transaction 

is subject to an administrative or 

statutory exemption is not dispositive of 

whether the transaction is in fact a 

prohibited transaction. 

Proposed Amendments to Class 

Exemptions 

I. Prohibited Transaction Exemption 75– 

1, Part III 

The Department proposes to amend 

Prohibited Transaction Exemption 75–1, 

Part III, under the authority of ERISA 

section 408(a) and Code section 

4975(c)(2), and in accordance with the 

procedures set forth in 29 CFR part 

2570, subpart B (76 FR 66637, October 

27, 2011). 

A. A new section III(f) is inserted to 

read as follows: 

(f) Standards of Impartial Conduct. If 

the fiduciary is a fiduciary within the 

meaning of ERISA section 3(21)(A)(i) or 

(ii), or Code section 4975(e)(3)(A) or (B), 

with respect to the assets of a plan or 

IRA involved in the transaction, the 

fiduciary must comply with the 

following conditions with respect to the 

transaction: 

(1) The fiduciary acts in the Best 

Interest of the plan or IRA. 

(2) All compensation received by the 

fiduciary in connection with the 

transaction is reasonable in relation to 

the total services the fiduciary provides 

to the plan or IRA. 

(3) The fiduciary’s statements about 

recommended investments, fees, 

material conflicts of interest, and any 

other matters relevant to a plan’s or IRA 

owner’s investment decisions, are not 

misleading. A ‘‘material conflict of 

interest’’ exists when a fiduciary has a 

financial interest that could affect the 

exercise of its best judgment as a 

fiduciary in rendering advice to a plan 

or IRA owner. For this purpose, a 

fiduciary’s failure to disclose a material 

conflict of interest relevant to the 

services the fiduciary is providing or 

other actions it is taking in relation to 

a plan’s or IRA owner’s investment 

decisions is deemed to be a misleading 

statement. 

For purposes of this section, a 

fiduciary acts in the ‘‘Best Interest’’ of 

the plan or IRA when the fiduciary acts 

with the care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent person would 

exercise based on the investment 

objectives, risk tolerance, financial 

circumstances, and needs of the plan or 

IRA, without regard to the financial or 

other interests of the fiduciary or any 

other party. Also for the purposes of this 

section, the term IRA means any trust, 

account or annuity described in Code 

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

including, for example, an individual 

retirement account described in section 

408(a) of the Code and a health savings 

account described in section 223(d) of 

the Code. 

B. Sections III(f) and III(g) are 

redesignated, respectively, as sections 

III(g) and III(h). 

II. Prohibited Transaction Exemption 

75–1, Part IV 

The Department proposes to amend 

Prohibited Transaction Exemption 75–1, 

Part IV, under the authority of ERISA 

section 408(a) and Code section 

4975(c)(2), and in accordance with the 

procedures set forth in 29 CFR part 

2570, subpart B (76 FR 66637, October 

27, 2011). 

A. A new section IV(e) is inserted to 

read as follows: 

(e) Standards of Impartial Conduct. If 

the fiduciary is a fiduciary within the 

meaning of ERISA section 3(21)(A)(i) or 

(ii), or Code section 4975(e)(3)(A), or 

(B), with respect to the assets of a plan 

or IRA involved in the transaction, the 

fiduciary must comply with the 

following conditions with respect to the 

transaction: 

(1) The fiduciary acts in the Best 

Interest of the plan or IRA. 

(2) All compensation received by the 

fiduciary in connection with the 

transaction is reasonable in relation to 

the total services the fiduciary provides 

to the plan or IRA. 

(3) The fiduciary’s statements about 

recommended investments, fees, 

material conflicts of interest, and any 

other matters relevant to a plan’s or IRA 

owner’s investment decisions, are not 

misleading. A ‘‘material conflict of 

interest’’ exists when a fiduciary has a 

financial interest that could affect the 

exercise of its best judgment as a 

fiduciary in rendering advice to a plan 

or IRA owner. For this purpose, a 

fiduciary’s failure to disclose a material 

conflict of interest relevant to the 

services the fiduciary is providing or 

other actions it is taking in relation to 

a plan’s or IRA owner’s investment 

decisions is deemed to be a misleading 

statement. 

For purposes of this section, a 

fiduciary acts in the ‘‘Best Interest’’ of 

the plan or IRA when the fiduciary acts 

with the care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent person would 

exercise based on the investment 

objectives, risk tolerance, financial 

circumstances, and needs of the plan or 

IRA, without regard to the financial or 

other interests of the fiduciary or any 

other party. Also for the purposes of this 

section, the term IRA means any trust, 

account or annuity described in Code 

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

including, for example, an individual 

retirement account described in section 

408(a) of the Code and a health savings 

account described in section 223(d) of 

the Code. 

B. Sections IV(e) and IV(f) are 

redesignated, respectively, as sections 

IV(f) and IV(g). 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22041 

III. Prohibited Transaction Exemption 

77–4 

The Department proposes to amend 

Prohibited Transaction Exemption 77–4 

under the authority of ERISA section 

408(a) and Code section 4975(c)(2), and 

in accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637, October 27, 2011). 

A new section II(g) is inserted to read 

as follows: 

(g) Standards of Impartial Conduct. If 

the fiduciary is a fiduciary within the 

meaning of ERISA section 3(21)(A)(i) or 

(ii), or Code section 4975(e)(3)(A), or 

(B), with respect to the assets of a plan 

or IRA involved in the transaction, the 

fiduciary must comply with the 

following conditions with respect to the 

transaction: 

(1) The fiduciary acts in the Best 

Interest of the plan or IRA. 

(2) All compensation received by the 

fiduciary and its affiliates in connection 

with the transaction is reasonable in 

relation to the total services the 

fiduciary provides to the plan or IRA. 

(3) The fiduciary’s statements about 

recommended investments, fees, 

material conflicts of interest, and any 

other matters relevant to a plan’s or IRA 

owner’s investment decisions, are not 

misleading. A ‘‘material conflict of 

interest’’ exists when a fiduciary has a 

financial interest that could affect the 

exercise of its best judgment as a 

fiduciary in rendering advice to a plan 

or IRA owner. For this purpose, a 

fiduciary’s failure to disclose a material 

conflict of interest relevant to the 

services the fiduciary is providing or 

other actions it is taking in relation to 

a plan’s or IRA owner’s investment 

decisions is deemed to be a misleading 

statement. 

For purposes of this section, a 

fiduciary acts in the ‘‘Best Interest’’ of 

the plan or IRA when the fiduciary acts 

with the care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent person would 

exercise based on the investment 

objectives, risk tolerance, financial 

circumstances, and needs of the plan or 

IRA, without regard to the financial or 

other interests of the fiduciary, any 

affiliate or other party. Also for the 

purposes of this section, the term IRA 

means any trust, account or annuity 

described in Code section 4975(e)(1)(B) 

through (F), including, for example, an 

individual retirement account described 

in section 408(a) of the Code and a 

health savings account described in 

section 223(d) of the Code. 

IV. Prohibited Transaction Exemption 

80–83 

The Department proposes to amend 

Prohibited Transaction Exemption 80– 

83 under the authority of ERISA section 

408(a) and Code section 4975(c)(2), and 

in accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637, October 27, 2011). 

A. A new section II(A)(2) is inserted 

to read as follows: 

(2) Standards of Impartial Conduct. If 

the fiduciary is a fiduciary within the 

meaning of ERISA section 3(21)(A)(i) or 

(ii), or Code section 4975(e)(3)(A), or 

(B), with respect to the assets of a plan 

or IRA involved in the transaction, the 

fiduciary must comply with the 

following conditions with respect to the 

transaction: 

(a) The fiduciary acts in the Best 

Interest of the plan or IRA. 

(b) All compensation received by the 

fiduciary and its affiliates in connection 

with the transaction is reasonable in 

relation to the total services the 

fiduciary provides to the plan or IRA. 

(c) The fiduciary’s statements about 

recommended investments, fees, 

material conflicts of interest, and any 

other matters relevant to a plan’s or IRA 

owner’s investment decisions, are not 

misleading. A ‘‘material conflict of 

interest’’ exists when a fiduciary has a 

financial interest that could affect the 

exercise of its best judgment as a 

fiduciary in rendering advice to a plan 

or IRA owner. For this purpose, a 

fiduciary’s failure to disclose a material 

conflict of interest relevant to the 

services the fiduciary is providing or 

other actions it is taking in relation to 

a plan’s or IRA owner’s investment 

decisions is deemed to be a misleading 

statement. 

For purposes of this section, a 

fiduciary acts in the ‘‘Best Interest’’ of 

the employee benefit plan or IRA when 

the fiduciary acts with the care, skill, 

prudence, and diligence under the 

circumstances then prevailing that a 

prudent person would exercise based on 

the investment objectives, risk 

tolerance, financial circumstances, and 

needs of the employee benefit plan or 

IRA, without regard to the financial or 

other interests of the fiduciary, any 

affiliate or other party. Also for the 

purposes of this section, the term IRA 

means any trust, account or annuity 

described in Code section 4975(e)(1)(B) 

through (F), including, for example, an 

individual retirement account described 

in section 408(a) of the Code and a 

health savings account described in 

section 223(d) of the Code. 

B. Section II(A)(2) is redesignated as 

section II(A)(3). 

V. Prohibited Transaction Exemption 

83–1 

The Department proposes to amend 

Prohibited Transaction Exemption 83–1 

under the authority of ERISA section 

408(a) and Code section 4975(c)(2), and 

in accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637, October 27, 2011). 

A. A new section II(B) is inserted to 

read as follows: 

(B) Standards of Impartial Conduct. 

Solely with respect to the relief 

provided under section I(B), if the 

sponsor, trustee or insurer of such pool 

who is a fiduciary is a fiduciary within 

the meaning of ERISA section 

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

4975(e)(3)(A), or (B), with respect to the 

assets of a plan or IRA involved in the 

transaction, the fiduciary must comply 

with the following conditions with 

respect to the transaction: 

(1) The fiduciary acts in the Best 

Interest of the plan or IRA. 

(2) All compensation received by the 

fiduciary and its affiliates in connection 

with the transaction is reasonable in 

relation to the total services the 

fiduciary and its affiliates provide to the 

plan or IRA. 

(3) The fiduciary’s statements about 

recommended investments, fees, 

material conflicts of interest, and any 

other matters relevant to a plan’s or IRA 

owner’s investment decisions, are not 

misleading. A ‘‘material conflict of 

interest’’ exists when a fiduciary has a 

financial interest that could affect the 

exercise of its best judgment as a 

fiduciary in rendering advice to a plan 

or IRA owner. For this purpose, a 

fiduciary’s failure to disclose a material 

conflict of interest relevant to the 

services the fiduciary is providing or 

other actions it is taking in relation to 

a plan’s or IRA owner’s investment 

decisions is deemed to be a misleading 

statement. 

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22042 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

For purposes of this section, a 

fiduciary acts in the ‘‘Best Interest’’ of 

the plan or IRA when the fiduciary acts 

with the care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent person would 

exercise based on the investment 

objectives, risk tolerance, financial 

circumstances, and needs of the plan or 

IRA, without regard to the financial or 

other interests of the plan or IRA to the 

financial interests of the fiduciary, any 

affiliate or other party. Also for the 

purposes of this section, the term IRA 

means any trust, account or annuity 

described in Code section 4975(e)(1)(B) 

through (F), including, for example, an 

individual retirement account described 

in section 408(a) of the Code and a 

health savings account described in 

section 223(d) of the Code. 

Signed at Washington, DC, this 14th day of 

April, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2015–08839 Filed 4–15–15; 11:15 am] 

BILLING CODE 4510–29–P 

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