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[Federal Register Volume 80, Number 75 (Monday, April 20, 2015)]
[Proposed Rules]
[Pages 22010-22020]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-08837]

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

[Application Number D-11850]
ZRIN: 1210-ZA25

Proposed Amendment to and Proposed Partial Revocation of 
Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions 
Involving Insurance Agents and Brokers, Pension Consultants, Insurance 
Companies and Investment Company Principal Underwriters

AGENCY: Employee Benefits Security Administration (EBSA), Department of 
Labor.

ACTION: Notice of Proposed Amendment to and Proposed Partial Revocation 
of PTE 84-24.

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[[Page 22011]]

SUMMARY: This document contains a notice of pendency before the 
Department of Labor of a proposed amendment to Prohibited Transaction 
Exemption (PTE) 84-24, an exemption from certain prohibited transaction 
provisions of the Employee Retirement Income Security Act of 1974 
(ERISA) and the Internal Revenue Code of 1986 (the Code). The ERISA and 
Code provisions at issue generally prohibit fiduciaries with respect to 
employee benefit plans and individual retirement accounts (IRAs) from 
engaging in self-dealing in connection with transactions involving 
these plans and IRAs. The exemption allows fiduciaries to receive 
compensation when plans and IRAs enter into certain insurance and 
mutual fund transactions recommended by the fiduciaries as well as 
certain related transactions. The proposed amendments would increase 
the safeguards of the exemption. This document also contains a notice 
of pendency before the Department of the proposed revocation of the 
exemption as it applies to IRA purchases of mutual fund shares and 
certain annuity contracts. The amendments and revocations would affect 
participants and beneficiaries of plans, IRA owners and certain 
fiduciaries of 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 this amendment and 
partial revocation applicable eight months after the publication of the 
final amendment and partial revocation in the Federal Register.

ADDRESSES: All written comments concerning the proposed amendment and 
proposed revocation to the class exemption 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-11850), 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-11850), 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, 200 Constitution Avenue NW., Suite 400, 
Washington, DC 20210, (202) 693-8824 (not a toll-free number).

SUPPLEMENTARY INFORMATION: The Department is proposing the amendment to 
PTE 84-24 \1\ 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)).
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    \1\ PTE 84-24, 49 FR 13208 (Apr. 3, 1984), as corrected, 49 FR 
24819 (June 15, 1984), as amended, 71 FR 5887 (Feb. 3, 2006).
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    Public Hearing: 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.

Executive Summary

Purpose of Regulatory Action

    This proposal is being published in the same issue of the Federal 
Register as the Department's proposed regulation that would amend the 
definition of a ``fiduciary'' of an employee benefit plan or an IRA 
under ERISA and the Internal Revenue Code (Proposed Regulation). 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 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.
    PTE 84-24 permits certain investment advice fiduciaries to receive 
commissions in connection with the purchase and sale of recommended 
insurance and annuity products and mutual fund shares by the plans and 
IRAs, and certain related transactions. In the absence of an exemption, 
ERISA and the Code generally prohibit fiduciaries from using their 
authority to affect or increase their own compensation. This proposal 
would revoke the exemption for certain transactions and amend the 
conditions under which fiduciaries may receive such compensation.
    The Secretary of Labor may grant and amend administrative 
exemptions from the prohibited transaction provisions of ERISA and the 
Code.\2\ Before granting an amendment to an exemption, the Department 
must find that the amended exemption is administratively feasible, in 
the interests of plans, their participants and beneficiaries and IRA 
owners, and protective of the rights of participants and beneficiaries 
of such plans and IRA owners. Interested parties are permitted to 
submit comments to the Department through July 6, 2015. The Department 
plans to hold an administrative hearing within 30 days of the close of 
the comment period.
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    \2\ Regulations at 29 CFR 2570.30 to 2570.52 describe the 
procedures for applying for an administrative exemption under ERISA. 
Code 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 issue administrative exemptions under Code section 4975 
to the Secretary of Labor.
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Summary of the Major Provisions

    PTE 84-24 currently provides an exemption for certain prohibited 
transactions that occur when plans or IRAs purchase insurance and 
annuity contracts and shares in an investment

[[Page 22012]]

company registered under the Investment Company Act of 1940 (a mutual 
fund). The exemption permits insurance agents, insurance brokers and 
pension consultants that are parties in interest or fiduciaries with 
respect to plans and IRAs to effect the purchase of the insurance or 
annuity contracts for the plans or IRAs and receive a commission on the 
sale. The exemption is also available for the prohibited transaction 
that occurs when the insurance company selling the insurance or annuity 
contract is a party in interest or disqualified person with respect to 
the plan or IRA. Likewise, with respect to mutual fund transactions, 
PTE 84-24 permits mutual fund principal underwriters that are parties 
in interest or fiduciaries to effect the sale of mutual fund shares to 
plans or IRAs, and receive a commission on the transaction.
    This proposal would make several changes to PTE 84-24. First, it 
would increase the safeguards of the exemption by requiring fiduciaries 
that rely on the exemption to adhere to certain ``Impartial Conduct 
Standards,'' including acting in the best interest of the plans and 
IRAs when providing advice, and by more precisely defining the types of 
payments that are permitted under the exemption.
    Second, on a going forward basis, the amendment would revoke relief 
for insurance agents, insurance brokers and pension consultants to 
receive a commission in connection with the purchase by IRAs of 
variable annuity contracts and other annuity contracts that are 
securities under federal securities laws and for mutual fund principal 
underwriters to receive a commission in connection with the purchase by 
IRAs of mutual fund shares.\3\ A new exemption for the receipt of 
compensation by fiduciaries that provide investment advice to IRA 
owners is proposed elsewhere in this issue of the Federal Register in 
the ``Best Interest Contract Exemption.'' The Department believes that 
the provisions in the Best Interest Contract Exemption better protect 
the interests of IRAs with respect to investment advice regarding 
securities products.
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    \3\ For purposes of this amendment, the terms ``Individual 
Retirement Account'' or ``IRA'' mean 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.
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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 
12866 and 13563 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 proposal, and OMB has reviewed this regulatory action.

Background

    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 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.\4\ In 
addition, they must refrain from engaging in ``prohibited 
transactions,'' which ERISA does not permit because of the dangers 
posed by the fiduciaries' conflicts of interest with respect to the 
transactions.\5\ When fiduciaries violate ERISA's fiduciary duties or 
the prohibited transaction rules, they may be held personally liable 
for the breach.\6\ In addition, violations of the prohibited 
transaction rules are subject to excise taxes under the Code.
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    \4\ ERISA section 404(a).
    \5\ ERISA section 406. ERISA also prohibits certain transactions 
between a plan and a ``party in interest.''
    \6\ ERISA section 409; see also ERISA section 405.
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    The Code also has rules regarding fiduciary conduct with respect to 
tax-favored 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 prohibited 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

[[Page 22013]]

adviser to adhere to certain standards (the Impartial Conduct 
Standards). IRA owners would have a right to enforce these new 
contractual obligations.
    Under this statutory framework, the determination of who is a 
``fiduciary'' is of central importance. Many of ERISA's and the Code'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.
    ERISA section 406(a)(1)(A)-(D) and Code section 4975(c)(1)(A)-(D) 
prohibit certain transactions between plans or IRAs and ``parties in 
interest,'' as defined in ERISA section 3(14), or ``disqualified 
persons,'' as defined in Code section 4975(e)(2). Fiduciaries and other 
service providers are parties in interest and disqualified persons 
under ERISA and the Code. As a result, they are prohibited from 
engaging in (1) the sale, exchange or leasing of property with a plan 
or IRA, (2) the lending of money or other extension of credit to a plan 
or IRA, (3) the furnishing of goods, services or facilities to a plan 
or IRA and (4) the transfer to or use by or for the benefit of a party 
in interest of plan assets.
    ERISA section 406(b) and Code section 4975(c)(1)(E) and (F) are 
aimed at fiduciaries only. These provisions generally prohibit a 
fiduciary from dealing with the income or assets of a plan or IRA in 
his or her own interest or his or her own account and from receiving 
payments from third parties in connection with transactions involving 
the plan or IRA. Parallel regulations issued by the Departments of 
Labor and the Treasury explain that these provisions impose on 
fiduciaries of plans and IRAs a duty not to act on conflicts of 
interest that may affect the fiduciary's best judgment on behalf of the 
plan or IRA. Under these provisions, a fiduciary may not cause a plan 
or IRA to pay an additional fee to such fiduciary, or to a person in 
which such fiduciary has an interest that may affect the exercise of 
the fiduciary's best judgment.
    In the Department's view, the receipt of a commission on the sale 
of an insurance or annuity contract or mutual fund shares by a 
fiduciary that recommended the investment violates the prohibited 
transaction provisions of ERISA section 406(b) and Code section 
4975(c)(1)(E) and (F). The effecting of the sale by a fiduciary or 
service provider is a service, potentially in violation of ERISA 
section 406(a)(1)(C) and Code section 4975(c)(1)(C). Finally, the 
purchase of an insurance or annuity contract by a plan or IRA from an 
insurance company that is a fiduciary, service provider or other party 
in interest or disqualified person, violates ERISA section 406(a)(1)(A) 
and (D) and Code section 4975(c)(1)(A) and (D).
    PTE 84-24 provides an exemption for these transactions for the 
following parties: insurance agents, insurance brokers, pension 
consultants, insurance companies and mutual fund principal 
underwriters. Currently, PTE 84-24 provides relief to these parties in 
connection with transactions involving both employee benefit plans, as 
defined in ERISA section 3(3), as well as IRAs and other plans 
described in Code section 4975, such as Archer MSAs described in Code 
section 220(d), health savings accounts described in Code section 
223(d) and Coverdell education savings accounts described in Code 
section 530.\7\
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    \7\ See PTE 2002-13, 67 FR 9483 (March 1, 2002) (preamble 
discussion of certain exemptions, including PTE 84-24, that apply to 
plans described in Code section 4975).
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    Specifically, PTE 84-24 permits insurance agents, insurance brokers 
and pension consultants to receive, directly or indirectly, a 
commission for selling insurance or annuity contracts to plans and 
IRAs. The exemption also permits the purchase by plans and IRAs of 
insurance and annuity contracts from insurance companies that are 
parties in interest or disqualified persons. The term ``insurance and 
annuity contract'' includes variable annuities.\8\
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    \8\ See PTE 77-9, 42 FR 32395 (June 24, 1977) (predecessor to 
PTE 84-24).
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    In the area of mutual fund transactions, PTE 84-24 permits the 
mutual fund's principal underwriter to receive commissions in 
connection with a plan's or IRA's purchase of mutual fund shares. The 
term ``principal underwriter'' is defined in the same manner as it is 
defined in section 2(a)(29) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(29)).\9\
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    \9\ The exemption also provides relief for: (1) The purchase, 
with plan assets, of an insurance or annuity contract from an 
insurance company which is a fiduciary or a service provider (or 
both) with respect to the plan solely by reason of the sponsorship 
of a master or prototype plan, and (2) The purchase, with plan 
assets, of mutual fund shares from, or the sale of such securities 
to, a mutual fund or mutual fund principal underwriter, when such 
mutual fund or its principal underwriter or investment adviser is a 
fiduciary or a service provider (or both) with respect to the plan 
solely by reason of: the sponsorship of a master or prototype plan 
or the provision of nondiscretionary trust services to the plan; or 
both.
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    PTE 84-24 contains conditions under which the transactions must 
occur in order for the exemption to apply. Generally, the exemption 
requires that the transaction involving the insurance or annuity 
contract or mutual fund shares be effected by the insurance agent, 
insurance broker, insurance company, pension consultant or mutual fund 
principal underwriter in the ordinary course of its business. The terms 
of the transaction must be at least as favorable to the plan or IRA as 
an arm's length transaction, and the party relying on the exemption 
must receive no more than reasonable compensation.
    Additionally, the exemption restricts the parties that may use the 
exemption. Accordingly, the insurance agent, insurance broker, pension 
consultant, insurance company or investment company principal 
underwriter, and their affiliates, may not be a plan administrator 
(within the meaning of ERISA section 3(16) and Code section 414(g)), or 
an employer of employees covered by the plan.
    Further, the insurance agent, insurance broker, pension consultant, 
insurance company or investment company principal underwriter may not 
be a trustee of the plan (other than a nondiscretionary trustee who 
does not render investment advice with respect to any assets of the 
plan) or a fiduciary who is expressly authorized in writing to manage, 
acquire or dispose of the assets of the plan on a discretionary basis 
(i.e., an investment manager). However, these entities may be 
affiliated with discretionary trustees or investment managers if the 
trustee or investment manager affiliate has no discretionary authority 
or control over the plan assets involved in the transaction other than 
as a nondiscretionary trustee.
    The exemption requires that certain disclosures be made to an 
independent fiduciary of the plan or IRA, following which the 
independent fiduciary must approve the transaction. In the case of the 
purchase of an insurance or annuity contract, the insurance agent, 
insurance broker or pension consultant must disclose its relationship 
with the insurance company, the sales commission it will receive 
(including for renewal years), and a description of any charges, fees, 
discounts, penalties or

[[Page 22014]]

adjustments which may be imposed under the recommended contract in 
connection with the purchase, holding, exchange, termination or sale of 
such contract.
    In the case of mutual fund shares, the principal underwriter 
similarly must disclose its relationship with the mutual fund, the 
sales commission it will receive, a description of any charges, fees, 
discounts, penalties, or adjustments which may be imposed under the 
recommended mutual fund shares in connection with the purchase, 
holding, exchange, termination or sale of such shares.
    If granted, this proposal would make changes, discussed below, to 
PTE 84-24, as well as a re-ordering of the sections of the exemption 
and the definitions set forth in the exemption.

Description of the Proposal

I. Impartial Conduct Standards

    This proposal would amend PTE 84-24 to require insurance agents, 
insurance brokers, pension consultants, insurance companies and mutual 
fund principal underwriters that are fiduciaries engaging in the 
exempted transactions to adhere to certain Impartial Conduct Standards. 
The Impartial Conduct Standards are set forth in a new proposed Section 
II.
    Under the first conduct standard, the insurance agent, insurance 
broker, pension consultant, insurance company or mutual fund principal 
underwriter would be required to act in the plan's or IRA's best 
interest when providing investment advice regarding the purchase of the 
insurance or annuity contract or mutual fund shares. Best interest is 
defined as 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. Further, under the 
best interest standard, the insurance agent, insurance broker, pension 
consultant, insurance company or mutual fund principal underwriter must 
act without regard to its own financial or other interests or those of 
any affiliate or other party. Under this standard, the fiduciary must 
put the interests of the plan or IRA ahead of the fiduciary's own 
financial interests or those of its affiliates or any 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 these standards. However, as a condition of relief under 
the proposed amendment, both IRA and plan fiduciaries would have to 
uphold the best interest and other Impartial Conduct Standards set 
forth in Section II. 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.
    The second conduct standard requires that the statements by the 
insurance agent, insurance broker, pension consultant, insurance 
company or mutual fund principal underwriter 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. For this purpose, the failure to disclose a material 
conflict of interest relevant to the services the entity 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. 
Transactions that violate the requirements are not likely to be in the 
interests of or protective of plans and their participants and 
beneficiaries and IRA owners.
    Unlike the new exemption proposals published elsewhere in the 
Federal Register, the Impartial Conduct Standards proposed herein do 
not include a requirement that the compensation received by the 
fiduciary and affiliates be reasonable. Such a requirement already 
exists under Section IV(c) of the exemption, and is therefore 
unnecessary in Section II.
    Additionally, unlike the new exemption proposals, this proposed 
amendment does 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, this 
exemption, as amended, would be deemed unavailable for transactions 
occurring in connection with such violations.

II. IRAs

    Since PTE 84-24 was initially granted,\10\ the amount of assets 
held in IRAs has grown dramatically. The financial services marketplace 
has become more complex, and compensation structures and the types of 
products offered have changed significantly beyond what the Department 
contemplated at the time. The fact that IRA owners generally do not 
benefit from the protections afforded by the fiduciary duties owed by 
plan sponsors to their employee benefit plans makes it all the more 
critical that their interests are protected by appropriate conditions 
in the Department's exemptions.
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    \10\ PTE 84-24 was preceded by PTE 77-9, 42 FR 32395 (June 24, 
1977), as corrected, 42 FR 33817 (July 1, 1977), and as amended, 44 
FR 1479 (Jan. 5, 1979) and 44 FR 52365 (Sept. 7, 1979).
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    In connection with the Department's Proposed Regulation on the 
definition of fiduciary the Department has also proposed, elsewhere in 
this issue of the Federal Register, new class exemptions applicable to 
investment advice fiduciaries. The proposed ``Best Interest Contract 
Exemption'' would permit investment advice fiduciaries to receive 
compensation in a broad range of transactions commonly entered into by 
retail retirement investors (plan participants and beneficiaries, IRA 
owners and small plan sponsors) including investment in stocks, bonds, 
mutual funds and insurance and annuity contracts, and it contains 
safeguards specifically crafted for these investors.
    The Best Interest Contract Exemption would require investment 
advice fiduciaries--including both the individual adviser and the firm 
that the adviser is employed by or otherwise the agent of--to 
contractually acknowledge fiduciary status, commit to adhere to basic 
standards of impartial conduct, adopt policies and procedures 
reasonably designed to minimize the harmful impact of conflicts of 
interest, and disclose basic information on their conflicts of 
interest. As a result, the exemption ensures that IRA owners have a 
contract-based claim to hold their fiduciary investment advisers 
accountable if they violate basic obligations of prudence and loyalty. 
Additionally, the Best Interest Contract Exemption would require 
detailed disclosure of fees associated with investments and the 
compensation received by investment advice fiduciaries in connection 
with the transactions.
    As the Best Interest Contract Exemption was designed for IRA owners 
and other investors that rely on fiduciary investment advisers in the 
retail marketplace, the Department believes that some of the 
transactions involving IRAs that are currently permitted under PTE 84-
24 should instead occur under the conditions of the Best Interest 
Contract Exemption, specifically, transactions involving variable 
annuity contracts and other annuity contracts that are securities under 
federal securities laws, and mutual fund shares. Therefore, this 
proposal would revoke relief in PTE 84-24 for such transactions. This 
change is

[[Page 22015]]

reflected in a proposed new Section I(b), setting forth the scope of 
the exemption. On the other hand, the Department has determined that 
transactions involving insurance and annuity contracts that are not 
securities can continue to occur under this exemption, with the added 
protections of the Impartial Conduct Standards.
    In this proposal, therefore, the Department has distinguished 
between transactions that involve securities and those that involve 
insurance products that are not securities. The Department believes 
that annuity contracts that are securities and mutual fund shares are 
distributed through the same channels as many other investments covered 
by the Best Interest Contract Exemption, and such investment products 
all have similar disclosure requirements under existing regulations. In 
that respect, the conditions of the proposed Best Interest Contract 
Exemption are appropriately tailored for such transactions.
    The Department is not certain that the conditions of the Best 
Interest Contract Exemption, including some of the disclosure 
requirements, would be readily applicable to insurance and annuity 
contracts that are not securities, or that the distribution methods and 
channels of insurance products that are not securities would fit within 
the exemption's framework. While the Best Interest Contract Exemption 
will be available for such products, the Department is seeking comment 
in that proposal on a number of issues related to use of that exemption 
for such insurance and annuity products.
    The Department requests comment on this approach. In particular, 
the Department requests comment on whether the proposal to revoke 
relief for securities transactions involving IRAs (i.e., annuities that 
are securities and mutual funds) but leave in place relief for IRA 
transactions involving insurance and annuity contracts that are not 
securities strikes the appropriate balance and is protective of the 
interests of the IRAs.

III. Commissions

    While PTE 84-24 provides an exemption for the specified parties to 
receive commissions in connection with the purchase of the insurance or 
annuity contracts and mutual fund shares, it does not currently contain 
a definition of commission. To provide certainty with respect to the 
payments permitted by the exemption, specific definitions for both (1) 
insurance commissions and (2) mutual fund commissions are now proposed 
in Section VI.
    Section VI(f) would define an insurance commission to mean a sales 
commission paid by the insurance company or an affiliate to the 
insurance agent, insurance broker or pension consultant for the service 
of effecting the purchase or sale of an insurance or annuity contract, 
including renewal fees and trailers that are paid in connection with 
the purchase or sale of the insurance or annuity contract. As proposed, 
insurance commissions would not include revenue sharing payments, 
administrative fees or marketing fees. Additionally, the term does not 
include payments from parties other than the insurance company or its 
affiliates, and it does not include payments that result from the 
underlying investments that are held pursuant to the insurance 
contract, such as payments derived from a variable annuity's 
investments.
    Section VI(i) would define a mutual fund commission to mean a 
commission or sales load paid either by the plan or the mutual fund for 
the service of effecting or executing the purchase or sale of mutual 
fund shares, but not a 12b-1 fee, revenue sharing payment, 
administrative fee or marketing fee.

IV. Recordkeeping Requirements

    A new proposed Section V to PTE 84-24 would require the fiduciary 
engaging in a transaction covered by the exemption to maintain records 
necessary to enable certain persons (described in proposed Section 
V(b)) to determine whether the conditions of this exemption have been 
met. This requirement would replace the more limited existing 
recordkeeping requirement in Section V(e). The proposed recordkeeping 
requirement is consistent with other existing class exemptions as well 
as the recordkeeping provisions of the other notices of proposed 
exemption published in this issue of the Federal Register, and is 
intended to be protective of rights of plan participants and 
beneficiaries and IRA owners by ensuring they and the Department can 
confirm the exemption has been satisfied.

V. Other

    Finally, the proposed amendment makes several minor changes in 
order to update PTE 84-24. The definitions have been reordered in 
alphabetical order for ease of use. Section I has been deleted because 
retroactive relief is no longer necessary, and Section II and III have 
been combined in order to increase readability and clarity. Finally, 
the term ``Act'' has been replaced with ``ERISA'' to reflect modern 
usage.

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 the amendments to and partial revocation of 
this exemption, if granted, applicable on the Applicability Date.

Paperwork Reduction Act Statement

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that the public 
understands the Department's collection instructions, respondents can 
provide the requested data in the desired format, reporting burden 
(time and financial resources) is minimized, collection instruments are 
clearly understood, and the Department can properly assess the impact 
of collection requirements on respondents.
    Currently, the Department is soliciting comments concerning the 
proposed information collection request (ICR) included in the Proposed 
Amendment to and Proposed Partial Revocation of Prohibited Transaction 
Exemption (PTE) 84-24 for Certain Transactions Involving Insurance 
Agents and Brokers, Pension Consultants, Insurance Companies, and 
Investment Company Principal Underwriters as part of its proposal to 
amend its 1975 rule that defines when a person who provides investment 
advice to an employee benefit plan or IRA becomes a fiduciary. A copy 
of the ICR may be obtained by contacting the PRA addressee shown below 
or at http://www.RegInfo.gov.
    The Department has submitted a copy of the proposed amendment to 
and proposed partial revocation of PTE 84-24 to the Office of 
Management and Budget (OMB) in accordance with 44 U.S.C. 3507(d) for 
review of its information collections. The Department and OMB are 
particularly interested in comments that:
     Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the

[[Page 22016]]

collection of information, including the validity of the methodology 
and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.

Comments should be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503; Attention: Desk Officer for the 
Employee Benefits Security Administration. OMB requests that comments 
be received within 30 days of publication of the Proposed Amendments to 
ensure their consideration.
    PRA Addressee: Address requests for copies of the ICR to G. 
Christopher Cosby, Office of Policy and Research, U.S. Department of 
Labor, Employee Benefits Security Administration, 200 Constitution 
Avenue NW., Room N-5718, Washington, DC 20210. Telephone (202) 693-
8410; Fax: (202) 219-5333. These are not toll-free numbers. ICRs 
submitted to OMB also are available at http://www.RegInfo.gov.
    As discussed in detail below, PTE 84-24, as amended, would require 
insurance agents and brokers, pension consultants, insurance companies, 
and investment company Principal Underwriters to make certain 
disclosures to and receive an advance written authorization from plan 
fiduciaries in order to receive relief from ERISA's and the Code's 
prohibited transaction rules for the receipt of compensation when plans 
enter into certain insurance and mutual fund transactions recommended 
by the fiduciaries. The proposed amendment would require insurance 
agents and brokers, pension consultants, insurance companies, and 
investment company Principal Underwriters relying on PTE 84-24 to 
maintain records necessary to prove that the conditions of the 
exemption have been met. These requirements are information collection 
requests (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:
     38% of disclosures to and advance authorizations from 
plans, as well as 50% of disclosures to and advance authorizations from 
IRAs will be distributed electronically via means already used by 
respondents in the normal course of business and the costs arising from 
electronic distribution will be negligible;
     Insurance agents and brokers, pension consultants, 
insurance companies, investment company Principal Underwriters, and 
plans will use existing in-house resources to prepare the legal 
authorizations and disclosures, and 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 $125.95 for a 
financial manager, $30.42 for clerical personnel, and $129.94 for a 
legal professional; and \11\
---------------------------------------------------------------------------

    \11\ The Department's estimated 2015 hourly labor rates include 
wages, other benefits, and overhead, and are calculated as follows: 
mean wage from the 2013 National Occupational Employment Survey 
(April 2014, Bureau of Labor Statistics http://www.bls.gov/news.release/pdf/ocwage.pdf); wages as a percent of total 
compensation from the Employer Cost for Employee Compensation (June 
2014, Bureau of Labor Statistics http://www.bls.gov/news.release/ecec.t02.htm); overhead as a multiple of compensation is assumed to 
be 25 percent of total compensation for paraprofessionals, 20 
percent of compensation for clerical, and 35 percent of compensation 
for professional; annual inflation assumed to be 2.3 percent annual 
growth of total labor cost since 2013 (Employment Costs Index data 
for private industry, September 2014 http://www.bls.gov/news.release/eci.nr0.htm).
---------------------------------------------------------------------------

     Eight percent of plans and nine percent of IRAs have 
relationships with insurance agents and brokers, pension consultants, 
and insurance companies.
     Approximately 1,300 insurance agents and brokers, pension 
consultants, and insurance companies will take advantage of this 
exemption with all of their client plans and IRAs.\12\
---------------------------------------------------------------------------

    \12\ As described in the regulatory impact analysis for the 
accompanying rule, the Department estimates that approximately 1,300 
insurance agents and pension consultants service the retirement 
market.
---------------------------------------------------------------------------

     Ten investment company Principal Underwriters will take 
advantage of this exemption and each will do so once with one client 
plan annually.\13\
---------------------------------------------------------------------------

    \13\ In the Department's experience, investment company 
Principal Underwriters almost never use PTE 84-24. Therefore, the 
Department assumes that ten investment company Principal 
Underwriters will engage in one transaction annually under PTE 84-
24.
---------------------------------------------------------------------------

Disclosures and Consent Forms
    In order to receive commissions in conjunction with the purchase of 
insurance or annuity contracts, section IV(b) of PTE 84-24 as amended 
requires the insurance agent or broker or pension consultant to obtain 
advance written authorization from a plan fiduciary or IRA holder 
independent of the insurance company (the independent fiduciary) 
following certain disclosures, including: if the agent, broker, or 
consultant is an Affiliate of the insurance company whose contract is 
being recommended, or if the ability of the agent, broker, or 
consultant to recommend insurance or annuity contracts is limited by 
any agreement with the insurance company, the nature of the 
affiliation, limitation, or relationship; the insurance commission; and 
a description of any charges, fees, discounts, penalties, or 
adjustments which may be imposed under the recommended contract.
    In order to receive commissions in conjunction with the purchase of 
securities issued by an investment company, section IV(c) of PTE 84-24 
as amended requires the investment company Principal Underwriter to 
obtain approval from an independent plan fiduciary following certain 
disclosures: if the person recommending securities issued by an 
investment company is the Principal Underwriter of the investment 
company whose securities are being recommended, the nature of the 
relationship and of any limitation it places upon the Principal 
Underwriter's ability to recommend investment company securities; the 
commission; and a description of any charges, fees, discounts, 
penalties, or adjustments which may be imposed under the recommended 
securities in connection with the purchase, holding, exchange, 
termination, or sale of the securities. Unless facts or circumstances 
would indicate the contrary, the approval required under section IV(c) 
may be presumed if the independent plan fiduciary permits the 
transaction to proceed after receipt of the written disclosure.
Legal Costs
    According to 2012 Annual Return/Report of Employee Benefit (Form 
5500) data and Internal Revenue Service Statistics of Income data, the 
Department estimates that there are approximately 677,000 ERISA covered 
pension plans and approximately 54.5 million individual retirement 
accounts (IRAs). Of these plans and IRAs, the Department assumes that 
6.5 percent are new plans/IRAs or plans/IRAs entering into 
relationships with new financial institutions and, as stated 
previously, eight percent of these new plans and nine percent of these 
new IRAs will engage in transactions covered under PTE 84-24 with 
insurance agents or brokers and pension consultants. In the

[[Page 22017]]

plan universe, the Department assumes that a legal professional will 
spend one hour per plan reviewing the disclosures and preparing an 
authorization form for each of the approximately 3,500 plans entering 
into new relationships each year. In the IRA universe, the Department 
assumes that a legal professional working on behalf of each of the 
1,300 insurance agents or pension consultants will spend one hour 
drafting an authorization form for IRA holders to sign. The Department 
also estimates that it will take two hours of legal time for each of 
the approximately 1,300 insurance companies and pension consultants, 
and one hour of legal time for each of the ten investment company 
Principal Underwriters, to produce the disclosures.\14\ This legal work 
results in a total of approximately 7,000 hours annually at an 
equivalent cost of $965,000.
---------------------------------------------------------------------------

    \14\ The Department assumes that it will require one hour of 
legal time per financial institution to prepare plan-oriented 
disclosures and one hour of legal time per financial institution to 
prepare IRA-oriented disclosures. Because insurance agents and 
pension consultants are permitted to use PTE 84-24 in their 
transactions with both plans and IRAs, this totals two hours of 
legal burden each. Because investment company principal underwriters 
are only permitted to use PTE 84-24 in their transactions with 
plans, this totals one hour of legal burden each.
---------------------------------------------------------------------------

Production and Distribution of Required Disclosures
    The Department estimates that approximately 54,000 plans and 4.9 
million IRAs have relationships with insurance agents or brokers and 
pension consultants and are likely to engage in transactions covered 
under this exemption. Of these 54,000 plans and 4.9 million IRAs, 
approximately 3,500 plans and 319,000 IRAs are new clients to the 
insurance agents or brokers and pension consultants each year. The 
Department assumes that ten plans have relationships with investment 
company Principal Underwriters that are new each year.
    The Department estimates that 3,500 plans will send insurance 
agents or brokers and pension consultants a two page authorization 
letter and 319,000 IRAs will receive a two page authorization letter 
from insurance agents or brokers and pension consultants each year. 
Prior to obtaining authorization, insurance companies and pension 
consultants will send the same 3,500 plans and 319,000 IRAs a seven 
page pre-authorization disclosure. Paper copies of the authorization 
letter and the pre-authorization disclosure will be mailed for 62 
percent of the plans and distributed electronically for the remaining 
38 percent. Paper copies of the authorization letter and the pre-
authorization disclosure will be mailed to 50 percent of the IRAs and 
distributed electronically to the remaining 50 percent. The Department 
estimates that electronic distribution will result in a de minimis 
cost, while paper distribution will cost approximately $231,000. Paper 
distribution of the letter and disclosure will also require two minutes 
of clerical preparation time resulting in a total of 11,000 hours at an 
equivalent cost of approximately $328,000.
    The Department estimates that ten plans will receive the seven page 
pre-transaction disclosure from investment company Principal 
Underwriters; 38 percent will be distributed electronically and 62 
percent will be mailed. The Department estimates that electronic 
distribution will result in a de minimis cost, while the paper 
distribution will cost $5. Paper distribution will also require two 
minutes of clerical preparation time resulting in a total of 12 minutes 
at an equivalent cost of $6. Approval to investment company Principal 
Underwriters will be granted orally at de minimis cost.
Recordkeeping Requirement
    Section V of PTE 84-24, as amended, would require insurance agents 
and brokers, insurance companies, pension consultants, and investment 
company Principal Underwriters to maintain or cause to be maintained 
for six years and disclosed upon request the records necessary for the 
Department, Internal Revenue Service, plan fiduciary, contributing 
employer or employee organization whose members are covered by the 
plan, plan participant, beneficiary or IRA owner, to determine whether 
the conditions of this exemption have been met.
    The Department assumes that each institution will maintain these 
records on behalf of their client plans in their normal course of 
business. Therefore, the Department has estimated that the additional 
time needed to maintain records consistent with the exemption will only 
require about one-half hour, on average, annually for a financial 
manager to organize and collate the documents or else draft a notice 
explaining that the information is exempt from disclosure, and an 
additional 15 minutes of clerical time to make the documents available 
for inspection during normal business hours or prepare the paper notice 
explaining that the information is exempt from disclosure. Thus, the 
Department estimates that a total of 45 minutes of professional time 
per financial institution per year would be required for a total hour 
burden of 1,000 hours at an equivalent cost of $92,000.
    In connection with the recordkeeping and disclosure requirements 
discussed above, Section V(b) (2) and (3) of PTE 84-24 provides that 
parties relying on the exemption do not have to disclose trade secrets 
or other confidential information to members of the public (i.e., plan 
fiduciaries, contributing employers or employee organizations whose 
members are covered by the plan, participants and beneficiaries and IRA 
owners), but that in the event a party refuses to disclose information 
on this basis, it must provide a written notice to the requester 
advising of the reasons for the refusal and advising that the 
Department may request such information. The Department's experience 
indicates that this provision is not commonly invoked, and therefore, 
the written notice is rarely, if ever, generated. Therefore, the 
Department believes the cost burden associated with this clause is de 
minimis. No other cost burden exists with respect to recordkeeping.
Overall Summary
    Overall, the Department estimates that in order to meet the 
conditions of this amended class exemption, almost 5,000 financial 
institutions and plans will produce 645,000 disclosures and notices 
annually. These disclosures and notices will result in over 19,000 
burden hours annually, at an equivalent cost of $1.4 million. This 
exemption will also result in a total annual cost burden of over 
$231,000.
    These paperwork burden estimates are summarized as follows:
    Type of Review: New collection (Request for new OMB Control 
Number).
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Titles: (1) Proposed Amendment to and Partial Revocation of 
Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions 
Involving Insurance Agents and Brokers, Pension Consultants, Insurance 
Companies and Investment Company Principal Underwriters.
    OMB Control Number: 1210-NEW.
    Affected Public: Business or other for-profit.
    Estimated Number of Respondents: 4,828.
    Estimated Number of Annual Responses: 644,669.
    Frequency of Response: Initially, Annually, When engaging in 
exempted transaction.
    Estimated Total Annual Burden Hours: 19,184 hours.

[[Page 22018]]

    Estimated Total Annual Burden Cost: $231,074.

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 a 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 their beneficiaries;
    (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 plan participants and beneficiaries and IRA owners;
    (3) If granted, an exemption is applicable to a particular 
transaction only if the transaction satisfies the conditions specified 
in the exemption; and
    (4) This amended exemption, if granted, 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.

Written Comments

    The Department invites all interested persons to submit written 
comments on the proposed amendment and proposed partial revocation to 
the address and within the time period set forth above. All comments 
received will be made a part of the public record for this proceeding 
and will be available for examination on the Department's Internet Web 
site. Comments should state the reasons for the writer's interest in 
the proposal. Comments received will be available for public inspection 
at the above address.

Proposed Amendment to PTE 84-24

    Under section 408(a) of the Employee Retirement Income Security Act 
of 1974, as amended (ERISA) and section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644 
(October 27, 2011)), the Department proposes to amend and restate PTE 
84-24 as set forth below:

Section I. Covered Transactions

    (a) Exemptions. The restrictions of ERISA section 406(a)(1)(A) 
through (D) and 406(b) and the taxes imposed by Code section 4975(a) 
and (b) by reason of Code section 4975(c)(1)(A) through (F), do not 
apply to any of the following transactions if the conditions set forth 
in Sections II, III, IV and V, as applicable, are met:
    (1) The receipt, directly or indirectly, by an insurance agent or 
broker or a pension consultant of an Insurance Commission from an 
insurance company in connection with the purchase, with plan assets, of 
an insurance or annuity contract.
    (2) The receipt of a Mutual Fund Commission by a Principal 
Underwriter for an investment company registered under the Investment 
Company Act of 1940 (an investment company) in connection with the 
purchase, with plan assets, of securities issued by an investment 
company.
    (3) The effecting by an insurance agent or broker, pension 
consultant or investment company principal underwriter of a transaction 
for the purchase, with plan assets, of an insurance or annuity contract 
or securities issued by an investment company.
    (4) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company.
    (5) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company which is a fiduciary or a service 
provider (or both) with respect to the plan solely by reason of the 
sponsorship of a Master or Prototype Plan.
    (6) The purchase, with plan assets, of securities issued by an 
investment company from, or the sale of such securities to, an 
investment company or an investment company Principal Underwriter, when 
the investment company, Principal Underwriter, or the investment 
company investment adviser is a fiduciary or a service provider (or 
both) with respect to the plan solely by reason of: (A) The sponsorship 
of a Master or Prototype Plan; or (B) the provision of Nondiscretionary 
Trust Services to the plan; or (C) both (A) and (B).
    (b) Scope of these Exemptions. The exemptions set forth in Section 
I(a) do not apply to the purchase by an Individual Retirement Account 
as defined in Section VI, of (1) a variable annuity contract or other 
annuity contract that is a security under federal securities laws, or 
(2) mutual fund shares.

Section II. Impartial Conduct Standards

    If the insurance agent or broker, pension consultant, insurance 
company or investment company Principal Underwriter is a fiduciary 
within the meaning of ERISA section 3(21)(A)(ii) or Code section 
4975(e)(3)(B) with respect to the assets involved in the transaction, 
the following conditions must be satisfied with respect to the 
transaction to the extent they are applicable to the fiduciary's 
actions:
    (a) When exercising fiduciary authority described in ERISA section 
3(21)(A)(ii) or Code section 4975(e)(3)(B) with respect to the assets 
involved in the transaction, the insurance agent or broker, pension 
consultant, insurance company or investment company Principal 
Underwriter acts in the Best Interest of the plan or IRA; and
    (b) The statements by the insurance agent or broker, pension 
consultant, insurance company or investment company Principal 
Underwriter 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. For this purpose, the 
insurance agent's or broker's, pension consultant's, insurance 
company's or investment company Principal Underwriter's failure to 
disclose a Material Conflict of Interest relevant to the services it 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.

Section III. General Conditions

    (a) The transaction is effected by the insurance agent or broker, 
pension consultant, insurance company or investment company Principal 
Underwriter in the ordinary course of its business as such a person.
    (b) The transaction is on terms at least as favorable to the plan 
or IRA as an arm's length transaction with an unrelated party would be.

[[Page 22019]]

    (c) The combined total of all fees, Insurance Commissions, Mutual 
Fund Commissions and other consideration received by the insurance 
agent or broker, pension consultant, insurance company, or investment 
company Principal Underwriter:
    (1) For the provision of services to the plan or IRA; and
    (2) In connection with the purchase of insurance or annuity 
contracts or securities issued by an investment company is not in 
excess of ``reasonable compensation'' within the contemplation of ERISA 
section 408(b)(2) and 408(c)(2) and Code section 4975(d)(2) and 
4975(d)(10). If the total is in excess of ``reasonable compensation,'' 
the ``amount involved'' for purposes of the civil penalties of ERISA 
section 502(i) and the excise taxes imposed by Code section 4975 (a) 
and (b) is the amount of compensation in excess of ``reasonable 
compensation.''

Section IV. Conditions for Transactions Described in Section I(a)(1) 
Through (4)

    The following conditions apply solely to a transaction described in 
paragraphs (a)(1), (2), (3) or (4) of Section I:
    (a) The insurance agent or broker, pension consultant, insurance 
company, or investment company Principal Underwriter is not (1) a 
trustee of the plan or IRA (other than a Nondiscretionary Trustee who 
does not render investment advice with respect to any assets of the 
plan), (2) a plan administrator (within the meaning of ERISA section 
3(16)(A) and Code section 414(g)), (3) a fiduciary who is expressly 
authorized in writing to manage, acquire or dispose of the assets of 
the plan or IRA on a discretionary basis, or (4) an employer any of 
whose employees are covered by the plan. Notwithstanding the above, an 
insurance agent or broker, pension consultant, insurance company, or 
investment company Principal Underwriter that is Affiliated with a 
trustee or an investment manager (within the meaning of Section VI(e)) 
with respect to a plan or IRA may engage in a transaction described in 
Section I(a)(1)-(4) of this exemption (if permitted under Section I(b)) 
on behalf of the plan or IRA if the trustee or investment manager has 
no discretionary authority or control over the assets of the plan or 
IRA involved in the transaction other than as a Nondiscretionary 
Trustee.
    (b)(1) With respect to a transaction involving the purchase with 
plan or IRA assets of an insurance or annuity contract or the receipt 
of an Insurance Commission thereon, the insurance agent or broker or 
pension consultant provides to an independent fiduciary with respect to 
the plan or IRA prior to the execution of the transaction the following 
information in writing and in a form calculated to be understood by a 
plan fiduciary who has no special expertise in insurance or investment 
matters:
    (A) If the agent, broker, or consultant is an Affiliate of the 
insurance company whose contract is being recommended, or if the 
ability of the agent, broker or consultant to recommend insurance or 
annuity contracts is limited by any agreement with the insurance 
company, the nature of the affiliation, limitation, or relationship;
    (B) The Insurance Commission, expressed as a percentage of gross 
annual premium payments for the first year and for each of the 
succeeding renewal years, that will be paid by the insurance company to 
the agent, broker or consultant in connection with the purchase of the 
recommended contract; and
    (C) A description of any charges, fees, discounts, penalties or 
adjustments which may be imposed under the recommended contract in 
connection with the purchase, holding, exchange, termination or sale of 
the contract.
    (2) Following the receipt of the information required to be 
disclosed in paragraph (b)(1), and prior to the execution of the 
transaction, the independent fiduciary acknowledges in writing receipt 
of the information and approves the transaction on behalf of the plan. 
The fiduciary may be an employer of employees covered by the plan, but 
may not be an insurance agent or broker, pension consultant or 
insurance company involved in the transaction. The fiduciary may not 
receive, directly or indirectly (e.g., through an Affiliate), any 
compensation or other consideration for his or her own personal account 
from any party dealing with the plan in connection with the 
transaction.
    (c)(1) With respect to a transaction involving the purchase with 
plan assets of securities issued by an investment company or the 
receipt of a Mutual Fund Commission thereon by an investment company 
Principal Underwriter, the investment company Principal Underwriter 
provides to an independent fiduciary with respect to the plan, prior to 
the execution of the transaction, the following information in writing 
and in a form calculated to be understood by a plan fiduciary who has 
no special expertise in insurance or investment matters:
    (A) If the person recommending securities issued by an investment 
company is the Principal Underwriter of the investment company whose 
securities are being recommended, the nature of the relationship and of 
any limitation it places upon the Principal Underwriter's ability to 
recommend investment company securities;
    (B) The Mutual Fund commission, expressed as a percentage of the 
dollar amount of the plan's gross payment and of the amount actually 
invested, that will be received by the Principal Underwriter in 
connection with the purchase of the recommended securities issued by 
the investment company; and
    (C) A description of any charges, fees, discounts, penalties, or 
adjustments which may be imposed under the recommended securities in 
connection with the purchase, holding, exchange, termination or sale of 
the securities.
    (2) Following the receipt of the information required to be 
disclosed in paragraph (c)(1), and prior to the execution of the 
transaction, the independent fiduciary approves the transaction on 
behalf of the plan. Unless facts or circumstances would indicate the 
contrary, the approval may be presumed if the fiduciary permits the 
transaction to proceed after receipt of the written disclosure. The 
fiduciary may be an employer of employees covered by the plan, but may 
not be a Principal Underwriter involved in the transaction. The 
fiduciary may not receive, directly or indirectly (e.g., through an 
Affiliate), any compensation or other consideration for his or her own 
personal account from any party dealing with the plan in connection 
with the transaction.
    (d) With respect to additional purchases of insurance or annuity 
contracts or securities issued by an investment company, the written 
disclosure required under paragraphs (b) and (c) of this Section IV 
need not be repeated, unless:
    (1) More than three years have passed since the disclosure was made 
with respect to the same kind of contract or security, or
    (2) The contract or security being recommended for purchase or the 
Insurance Commission or Mutual Fund Commission with respect thereto is 
materially different from that for which the approval described in 
paragraphs (b) and (c) of this Section was obtained.

Section V. Recordkeeping Requirements

    (a) The insurance agent or broker, pension consultant, insurance 
company or investment company Principal Underwriter engaging in the 
covered transactions maintains or causes to be maintained for a period 
of six years, in a manner that is accessible for audit and

[[Page 22020]]

examination, the records necessary to enable the persons described in 
Section V(b) to determine whether the conditions of this exemption have 
been met, except that:
    (1) If the records necessary to enable the persons described in 
Section V(b) below to determine whether the conditions of the exemption 
have been met are lost or destroyed, due to circumstances beyond the 
control of the insurance agent or broker, pension consultant, insurance 
company or investment company Principal Underwriter, then no prohibited 
transaction will be considered to have occurred solely on the basis of 
the unavailability of those records; and
    (2) No party in interest, other than the insurance agent or broker, 
pension consultant, insurance company or investment company Principal 
Underwriter shall be subject to the civil penalty that may be assessed 
under ERISA section 502(i) or the taxes imposed by Code section 4975(a) 
and (b) if the records are not maintained or are not available for 
examination as required by paragraph (b) below; and
    (b)(1) Except as provided below in subparagraph (2) and 
notwithstanding any provisions of ERISA section 504(a)(2) and (b), the 
records referred to in the above paragraph are unconditionally 
available at their customary location for examination during normal 
business hours by--
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (B) Any fiduciary of the plan or any duly authorized employee or 
representative of the 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 the participant or beneficiary or IRA 
owner; 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 insurance agent or broker, pension consultant, 
insurance company or investment company Principal Underwriter which is 
privileged or confidential.
    (3) Should the insurance agent or broker, pension consultant, 
insurance company or investment company Principal Underwriter refuse to 
disclose information on the basis that the information is exempt from 
disclosure, the insurance agent or broker, pension consultant, 
insurance company or investment company Principal Underwriter 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 the information.

Section VI. Definitions

    For purposes of this exemption:
    (a) The term ``Affiliate'' of a person means:
    (1) Any person directly or indirectly controlling, controlled by, 
or under common control with the person;
    (2) Any officer, director, employee (including, in the case of 
Principal Underwriter, any registered representative thereof, whether 
or not the person is a common law employee of the Principal 
Underwriter), or relative of any such person, or any partner in such 
person; or
    (3) Any corporation or partnership of which the person is an 
officer, director, or employee, or in which the person is a partner.
    (b) The insurance agent or broker, pension consultant, insurance 
company or investment company Principal Underwriter that is a fiduciary 
acts in the ``Best Interest'' of the plan or IRA is 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.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The terms ``Individual Retirement Account'' 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.
    (e) The terms ``insurance agent or broker,'' ``pension 
consultant,'' ``insurance company,'' ``investment company,'' and 
``Principal Underwriter'' mean such persons and any Affiliates thereof.
    (f) The term ``Insurance Commission'' mean a sales commission paid 
by the insurance company or an Affiliate to the insurance agent or 
broker or pension consultant for the service of effecting the purchase 
or sale of an insurance or annuity contract, including renewal fees and 
trailers, but not revenue sharing payments, administrative fees or 
marketing payments, or payments from parties other than the insurance 
company or its Affiliates.
    (g) The term ``Master or Prototype Plan'' means a plan which is 
approved by the Service under Rev. Proc. 2011-49, 2011-44 I.R.B. 608 
(10/31/2011), as modified, or its successors.
    (h) A ``Material Conflict of Interest'' exists when a person has a 
financial interest that could affect the exercise of its best judgment 
as a fiduciary in rendering advice to a plan or IRA.
    (i) The term ``Mutual Fund Commission'' means a commission or sales 
load paid either by the plan or the investment company for the service 
of effecting or executing the purchase or sale of investment company 
shares, but does not include a 12b-1 fee, revenue sharing payment, 
administrative fee or marketing fee.
    (j) The term ``Nondiscretionary Trust Services'' means custodial 
services, services ancillary to custodial services, none of which 
services are discretionary, duties imposed by any provisions of the 
Code, and services performed pursuant to directions in accordance with 
ERISA section 403(a)(1). The term ``Nondiscretionary Trustee'' of a 
plan or IRA means a trustee whose powers and duties with respect to the 
plan are limited to the provision of Nondiscretionary Trust Services. 
For purposes of this exemption, a person who is otherwise a 
Nondiscretionary Trustee will not fail to be a Nondiscretionary Trustee 
solely by reason of his having been delegated, by the sponsor of a 
Master or Prototype Plan, the power to amend the plan.
    (k) The term ``Principal Underwriter'' is defined in the same 
manner as that term is defined in section 2(a)(29) of the Investment 
Company Act of 1940 (15 U.S. C. 80a-2(a)(29)).
    (l) The term ``relative'' means a ``relative'' as that term is 
defined in ERISA section 3(15) (or a ``member of the family'' as that 
term is defined in Code section 4975(e)(6)), or a brother, a sister, or 
a spouse of a brother or a sister.

    Signed at Washington, DC, this 14th day of April, 2015.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 2015-08837 Filed 4-15-15; 11:15 am]
BILLING CODE 4510-29-P
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