[Federal Register Volume 88, Number 212 (Friday, November 3, 2023)]
[Proposed Rules]
[Pages 75979-76003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23780]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

[Application No. D-12057]
ZRIN 1210-ZA32


Proposed Amendment to Prohibited Transaction Exemption 2020-02

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Notice of Proposed Amendment to Class Exemption PTE 2020-02.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed amendment to class 
prohibited transaction exemption (PTE) 2020-02, which provides relief 
for certain compensation received by investment advice fiduciaries. The 
proposed amendment would affect participants and beneficiaries of 
Plans, IRA owners, and fiduciaries with respect to such Plans and IRAs.

DATES: Public Comments. Comments are due on or before January 2, 2024.
    Public Hearing. The Department anticipates holding a public hearing 
approximately 45 days following the date of publication in the Federal 
Register. Specific information regarding the date, location, and 
submission of requests to testify will be published in a notice in the 
Federal Register.
    Applicability Date. The Department proposes to make the final 
amendment effective 60 days after it is published in the Federal 
Register.

ADDRESSES: All written comments concerning the proposed amendment 
should be sent to the Employee Benefits Security Administration, Office 
of Exemption Determinations, U.S. Department of Labor through the 
Federal eRulemaking Portal and identified by Application No. D-12057:
    Federal eRulemaking Portal: Visit http://www.regulations.gov. 
Follow the instructions for sending comments.
    Docket: For access to the docket to read background documents or 
comments, including the plain-language summary of the proposal required 
by the Providing Accountability Through Transparency Act of 2023, 
please go to the Federal eRulemaking Portal at http://www.regulations.gov.
    See SUPPLEMENTARY INFORMATION below for additional information 
regarding comments.

FOR FURTHER INFORMATION CONTACT: Susan Wilker, telephone (202) 693-
8540, Office of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor (this is not a toll-free 
number).

SUPPLEMENTARY INFORMATION:

Comment Instructions

    Warning: All comments received will be included in the public 
record without change and will be made available online at http://www.regulations.gov, including any personal information provided, 
unless the comment includes information claimed to be confidential or 
other information whose disclosure is restricted by statute. If you 
submit a comment, EBSA recommends that you include your name and other 
contact information, but DO NOT submit information that you consider to 
be confidential, or otherwise protected (such as Social Security number 
or an unlisted phone number), or confidential business information that 
you do not want publicly disclosed. However, if EBSA cannot read your 
comment due to technical difficulties and cannot contact you for 
clarification, EBSA might not be able to consider your comment. 
Additionally, the http://www.regulations.gov website is an ``anonymous 
access'' system, which means EBSA will not know your identity or 
contact information unless you provide it. If you send an email 
directly to EBSA without going through http://www.regulations.gov, your 
email address will be automatically captured and included as part of 
the comment that is placed in the public record and made available on 
the internet.

Background

    The proposed amendment to PTE 2020-02 would provide additional 
protections for employee benefit plans described in ERISA section 3(3) 
and any plan described in Code section 4975(e)(1)(A) (Plans) and 
investors and additional clarity for investment advice fiduciaries 
seeking to receive compensation for their advice, including as a result 
of advice to roll over assets from a Plan to an individual retirement 
account (IRA), and to engage in principal transactions, that would 
otherwise violate the prohibited transaction provisions of Title I of 
the Employee Retirement Income Security Act of 1974 (ERISA) and 
Internal Revenue Code (Code) section 4975.
    As described elsewhere in this edition of the Federal Register, the 
Department is proposing to amend the regulation defining when a person 
renders ``investment advice for a fee or other compensation, direct or 
indirect'' with

[[Page 75980]]

respect to any moneys or other property of an employee benefit plan, 
for purposes of the definition of a ``fiduciary'' in section 
3(21)(A)(ii) of ERISA and in section 4975(e)(3)(B) of the Code. The 
Department also is proposing amendments to existing prohibited 
transaction exemptions (PTEs) 75-1, 77-4, 80-83, 83-1, 86-128, and 84-
24 elsewhere in this edition of the Federal Register.

Description of the Proposed Amendment to PTE 2020-02

    The Department is proposing to amend PTE 2020-02, which was 
designed to promote investment advice that is in the best interest of 
retirement investors (for example, Plan participants and beneficiaries, 
and IRA owners) by permitting advisers to receive compensation for the 
advice that is otherwise barred by statute so long as advisers comply 
with the terms of the exemption. The current exemption conditions 
emphasize mitigating conflicts of interest and ensuring that retirement 
investors receive advice that is prudent and loyal. An important 
objective of the existing exemption is to require fiduciary investment 
advice providers to adhere to stringent standards that are designed to 
ensure that their investment recommendations reflect the best interest 
of Plan and IRA investors. Accordingly, under the current framework of 
PTE 2020-02, Financial Institutions and Investment Professionals 
relying on the existing exemption must:
    <bullet> acknowledge their fiduciary status \1\ in writing;
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    \1\ For purposes of this disclosure, and throughout the 
exemption, the term fiduciary status is limited to fiduciary status 
under Title I of ERISA, the Code, or both. While this exemption and 
the SEC's Regulation Best Interest both use the term ``best 
interest,'' the Department retains interpretive authority with 
respect to satisfaction of this exemption.
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    <bullet> disclose their services and material conflicts of 
interest;
    <bullet> adhere to Impartial Conduct Standards requiring them to:
    [cir] investigate and evaluate investments, provide advice, and 
exercise sound judgment in the same way that knowledgeable and 
impartial professionals would (in other words, their recommendations 
must be ``prudent'');
    [cir] act with undivided loyalty to retirement investors when 
making recommendations (in other words, they must never place their own 
interests ahead of the retirement investor's interest, or subordinate 
the retirement investor's interests to their own);
    [cir] charge no more than reasonable compensation and comply with 
Federal securities laws regarding ``best execution''; and
    [cir] avoid making misleading statements about investment 
transactions and other relevant matters;
    <bullet> adopt policies and procedures prudently designed to ensure 
compliance with the Impartial Conduct Standards and mitigate conflicts 
of interest that could otherwise cause violations of those standards;
    <bullet> document and disclose the specific reasons that any 
rollover recommendations are in the retirement investor's best 
interest; and
    <bullet> conduct an annual retrospective compliance review.
The Department is proposing to maintain all of these core protections 
in PTE 2020-02 that provide fundamental investor protections.
    This proposed amendment would build on these existing conditions to 
provide more certainty for Retirement Investors receiving advice and 
Financial Institutions and Investment Professionals complying with the 
exemption's conditions. In this regard, the Department is proposing 
additional disclosures to ensure that Retirement Investors have 
sufficient information to make informed decisions about the costs of 
the investment advice transaction and about the significance and 
severity of the investment advice fiduciary's Conflicts of Interest. 
The proposed amendment also would provide more guidance for Financial 
Institutions and Investment Professionals complying with the Impartial 
Conduct Standards and implementing their policies and procedures.
    Importantly, the Department is not proposing to require a contract 
for investment advice to IRAs, as it did in 2016. Neither the existing 
PTE 2020-02 nor the proposed amendment creates any new causes of action 
or requires Financial Institutions to provide enforceable warranties to 
Retirement Investors. The primary penalty for an IRA fiduciary that 
engages in a non-exempt prohibited transaction by failing to satisfy 
the exemption conditions of amended PTE 2020-02 would be the prohibited 
transaction excise tax imposed under Code section 4975 and enforced by 
the Department of the Treasury and the Internal Revenue Service (IRS). 
This proposal would require Financial Institutions, as part of their 
retrospective review, to report any non-exempt prohibited transactions 
in connection with fiduciary investment advice by filing IRS Form 5330, 
correcting those transactions, and paying any resulting excise taxes. 
The proposed amendment would add failure to correct prohibited 
transactions, report those transactions to the IRS on Form 5330, and 
pay the resulting excise tax imposed under Code section 4975 to the 
list of behaviors that could make a Financial Institution ineligible to 
rely on PTE 2020-02 for ten years. The Department believes these 
proposed conditions would provide important protections to Retirement 
Investors by enhancing the existing protections of PTE 2020-02.

Effective Date

    PTE 2020-02 was originally published on December 18, 2020, and it 
became effective on February 16, 2021. The Department proposes that the 
amendment to PTE 2020-02 will be effective on the date that is 60 days 
after the publication of a final amendment in the Federal Register. 
This current exemption (PTE 2020-20) will remain effective under its 
existing conditions until the effective date of a final amendment, if 
granted.
    To provide absolute clarity, the Department confirms that the 
restrictions of ERISA section 406(a)(1)(A), 406(a)(1)(D), and 406(b) 
and the sanctions imposed by Code section 4975(a) and (b), by reason of 
Code section 4975(c)(1)(A), (D), (E) and (F), would not apply to the 
receipt of compensation by a Financial Institution, Investment 
Professional, or any Affiliate and Related Entity in connection with 
investment advice, if the recommendation were made before the effective 
date of the final amendment to PTE 2020-02, or if the compensation was 
received pursuant to a systematic purchase program established before 
the effective date of the final amendment. Also, no party would be 
required to comply with the amended conditions for a transaction that 
occurred before the effective date of the final amended exemption.

Exemption Scope

    The Department is proposing minor changes and clarifications to the 
scope of the exemption. PTE 2020-02 currently permits Financial 
Institutions, Investment Professionals, and their Affiliates and 
Related Entities to receive reasonable compensation as a result of 
providing fiduciary investment advice, including as a result of 
investment advice to roll over assets from a Plan to an IRA. Subject to 
additional conditions, the exemption also provides relief for Financial 
Institutions, Investment Professionals, Affiliates and Related Entities 
to engage in certain principal transactions, and to receive a mark-up, 
mark-down, or other payment. The Department is not proposing changes to 
these covered transactions.

[[Page 75981]]

    At the same time, the Department notes that more parties may need 
to rely on an amended PTE 2020-02, because of the Department's proposed 
amendment to the definition of ``fiduciary investment advice.'' If the 
new rule is adopted, parties that have not been fiduciaries under the 
five-part test may become fiduciaries in the future. In addition, the 
Department is proposing to amend other class prohibited transaction 
exemptions that provide relief for fiduciary investment advice.\2\ 
Parties that have been relying on those exemptions may choose to comply 
with the amended PTE 2020-02 instead. The Department requests comment 
on whether other or additional changes are needed to the scope of the 
exemption in light of the changes proposed elsewhere in this edition of 
the Federal Register.
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    \2\ Elsewhere in this edition of the Federal Register, the 
Department is proposing to amend PTEs 75-1, 77-4, 80-83, 84-24, and 
86-128.
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Covered Principal Transactions

    The Department is proposing minor changes to the definition of 
Covered Principal Transaction. As proposed, a ``Covered Principal 
Transaction'' is a principal transaction that:
    (1) For sales to a Plan or an IRA:
    (i) Involves a U.S. dollar denominated debt security issued by a 
U.S. corporation and offered pursuant to a registration statement under 
the Securities Act of 1933, a U.S. Treasury Security, a debt security 
issued or guaranteed by a U.S. federal government agency other than the 
Department of the Treasury, a debt security issued or guaranteed by a 
government-sponsored enterprise, a municipal security, a certificate of 
deposit, an interest in a Unit Investment Trust, or any investment 
permitted to be sold by an investment advice fiduciary to a Retirement 
Investor under an individual exemption granted by the Department after 
the effective date of this exemption that includes the same conditions 
as this exemption; and
    (ii) A debt security may only be recommended in accordance with 
written policies and procedures adopted by the Financial Institution 
that are reasonably designed to ensure that the security, at the time 
of the recommendation, has no greater than moderate credit risk and 
sufficient liquidity that it could be sold at or near carrying value 
within a reasonably short period of time; and
    (2) For purchases from a Plan or an IRA, involves any securities or 
investment property.
    This is very similar to the current definition in PTE 2020-02, with 
minor wording changes for clarity. The Department is considering 
revising the beginning of Section II(d) to read ``A `Covered Principal 
Transaction' is a principal transaction for cash that . . .'' Adding 
the phrase ``for cash'' would prevent in-kind transactions from being 
Covered Principal Transactions. The Department seeks comment on this 
revision and particularly would like to receive information regarding 
whether eliminating in-kind assets would reduce the complexity and 
conflicts of interest involved in these transactions.
    The Department is also proposing to add a definition of Riskless 
Principal Transaction to PTE 2020-02. Proposed Section V(l) provides 
that ``Riskless Principal Transaction'' means a transaction in which a 
Financial Institution, after having received an order from a Retirement 
Investor to buy or sell an asset, purchases or sells the asset for the 
Financial Institution's own account to offset the contemporaneous 
transaction with the Retirement Investor. A Riskless Principal 
Transaction is not a Covered Principal Transaction. While these are 
technically executed as principal transactions, the Department is not 
including them in the definition of Covered Principal Transaction. 
Thus, there is no limitation on the types of products that may be sold 
in a Riskless Principal Transaction. Adding the definition provides 
clarity regarding which transactions qualify as Riskless Principal 
Transactions. The Department requests comment on this definition. The 
Department notes that Financial Institutions should take care in 
determining that a product is eligible for a Covered Principal 
Transaction or Riskless Principal Transaction. These definitions are 
intentionally narrow, based on the potentially acute conflicts of 
interest created by principal transactions. If a Financial Institution 
later determines that an Investment Professional recommended a 
principal transaction that was neither a Covered Principal Transaction 
nor a Riskless Principal Transaction, then that transaction was not 
eligible for this exemption and may need to be reversed to put the 
Retirement Investor in the same position they would have been if the 
transaction had not occurred.

Financial Institutions, Investment Professionals, and Retirement 
Investors

    The Department is not proposing substantive changes to definitions 
of the parties that can rely on the exemption. PTE 2020-02 is available 
to Financial Institutions (registered investment advisers,\3\ broker-
dealers, banks,\4\ and insurance companies) and their Investment 
Professionals (individual employees, agents, and representatives) that 
provide fiduciary investment advice to Retirement Investors (Plan 
participants and beneficiaries, IRA owners, and Plan and IRA 
fiduciaries).\5\ As it did in 2020, the Department requests comment on 
this definition of Financial Institution and whether any other type of 
entity should be included.\6\
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    \3\ The definition of Financial Institution in Section V(e) 
includes an entity that is ``(1) Registered as an investment adviser 
under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) 
or under the laws of the state in which the adviser maintains its 
principal office and place of business.'' References in the preamble 
to registered investment advisers include both SEC- and state-
registered investment advisers.
    \4\ Section V(e)(2) includes ``A bank or similar financial 
institution supervised by the United States or a state, or a savings 
association (as defined in section 3(b)(1) of the Federal Deposit 
Insurance Act (12 U.S.C. 1813(b)(1)))'' In the preamble to PTE 2020-
02, the Department clarified that the Department interprets this 
definition to extend to credit unions.'' 85 FR 82811.
    \5\ As defined in Section V(i) of the exemption, the term 
``Plan'' means any employee benefit plan described in ERISA section 
3(3) and any plan described in Code section 4975(e)(1)(A). In 
Section V(g), the term ``Individual Retirement Account'' or ``IRA'' 
is defined as any account or annuity described in Code section 
4975(e)(1)(B) through (F), including an Archer medical savings 
account, a health savings account, and a Coverdell education savings 
account. While the Department uses the term ``Retirement Investor'' 
throughout this document, the exemption is not limited only to 
investment advice fiduciaries of employee pension benefit plans and 
IRAs. Relief would be available for investment advice fiduciaries of 
employee welfare benefit plans as well.
    \6\ 85 FR 40838 (``The Department seeks comment on the 
definition of Financial Institution in general and whether any other 
type of entity should be included. The Department also seeks comment 
as to whether the definition is overly broad, or whether Retirement 
Investors would benefit from a narrowed list of Financial 
Institutions. In addition, the Department requests comment on 
whether the definition of Financial Institution is sufficiently 
broad to cover firms that render advice with respect to investments 
in Health Savings Accounts (HSA), and about the extent to which Plan 
participants receive investment advice in connection with such 
accounts.'') In finalizing PTE 2020-02, the Department determined to 
not expand the scope of the exemption.
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    The Department is proposing a very minor change to the definition 
of ``Retirement Investor.'' Proposed Section V(l) defines Retirement 
Investor as ``(1) A participant or beneficiary of a Plan with authority 
to direct the investment of assets in his or her account or to take a 
distribution; (2) The beneficial owner of an IRA acting on behalf of 
the IRA; or (3) A fiduciary of a Plan or an IRA.'' In the proposed 
amendment, the definition of Retirement Investor is re-designated as 
Section V(n), and section V(n)(3) reads ``A fiduciary acting on behalf 
of a Plan or an IRA.'' The Department intends this

[[Page 75982]]

as a mere clarification that advice provided to a Plan or IRA fiduciary 
must be in the Best Interest of the Plan or IRA, and not the Best 
Interest of the fiduciary. The Department requests comment on whether 
additional clarifications are necessary.

Exclusions

    PTE 2020-02 Section I(c) provides that the exemption does not apply 
in certain situations. The Department is proposing changes to expand 
the availability of this exemption, to facilitate more Financial 
Institutions and Investment Professionals providing high quality advice 
to Retirement Investors.

Pooled Employer Plans (PEPs)

    PTE 2020-02 Section I(c)(1) currently provides an exclusion from 
the exemption if the Plan is covered by Title I of ERISA and the 
Investment Professional, Financial Institution or any Affiliate is (A) 
the employer of employees covered by the Plan, or (B) a named fiduciary 
or plan administrator with respect to the Plan that was selected to 
provide advice to the Plan by a fiduciary who is not independent of the 
Financial Institution, Investment Professional, and their Affiliates. 
In 2020, the Department received comments requesting additional 
guidance and clarification regarding the exemption's application to 
PEPs, which were authorized by the Setting Every Community Up for 
Retirement Enhancement Act of 2019 (SECURE Act).\7\ In finalizing PTE 
2020-02, the Department explained its belief that it was premature to 
address issues related to PEPs, given their recent origination, unique 
structure, and likelihood of significant variations in potential 
business models, as the Pooled Plan Providers (PPPs) were still 
deciding how to structure their operations.\8\ Based on PEP 
developments since December 2020, including the Department's final rule 
establishing registration requirements for PPPs under 29 CFR 2510.3-44, 
the Department is now proposing to change the exclusions so that PTE 
2020-02 clearly would cover investment advice provided by an Investment 
Professional, Financial Institution, or any Affiliate that is a PPP. 
The proposal amends the existing exclusion to clearly provide that a 
PPP can provide investment advice to a PEP within the framework of the 
exemption. This would allow PEPs to receive investment advice in the 
same manner as other ERISA plans. The proposed text would allow 
Investment Professionals, Financial Institutions, or any Affiliates to 
be a named fiduciary or plan administrator of the PEP, if that named 
fiduciary or plan administrator is a PPP that is registered with the 
Department under 29 CFR 2510.3-44. However, it would not provide relief 
for a PPP's decision to hire an affiliated or related party as an 
advice provider.
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    \7\ The SECURE Act was enacted as Division O of the Further 
Consolidated Appropriations Act, 2020 (Pub. L. 116-94, 133 Stat. 
2534 (Dec. 20, 2019)). The SECURE Act amended ERISA section 3(2) to 
authorize PEPs and added new ERISA sections 3(43) which establishes 
requirements for PEPs and 3(44), which establishes requirements for 
PPPs.
    \8\ 85 FR 82798, 82819 (Dec. 18, 2020).
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    To ensure PEPs are properly covered, the Department is also 
proposing certain changes to the definitions in Section V. The proposed 
amendment would add the defined terms ``PEP'' and ``PPP'' by 
referencing ERISA section 3(43) and 3(44), the statutory provisions 
defining PEPs and PPPs that were added to ERISA by the SECURE Act. The 
Department seeks comment on how PEPs and PPPs may use this exemption. 
For example, will advice be provided directly to the PEP, or will it be 
provided to the PPP in connection with the PEP? Will the exemption be 
used to provide advice to employers participating in the PEP?

Robo Advice

    The Department is proposing to remove PTE 2020-02 Section I(c)(2), 
which excludes investment advice generated solely by an interactive 
website in which computer software-based models or applications provide 
investment advice based on personal information each investor supplies 
through the website, without any personal interaction or advice with an 
Investment Professional (robo-advice). As explained in the preamble to 
PTE 2020-02, the statutory exemption in ERISA section 408(b)(14), (g), 
and Code section 4975(d)(17) and 4975(f)(8), includes specific 
conditions that are tailored to computer-generated investment advice. 
PTE 2020-02, by contrast, was tailored to investment advice that is 
provided through a human Investment Professional who is supervised by a 
Financial Institution. The Department is now proposing to amend PTE 
2020-02 to allow Financial Institutions providing investment advice 
through computer models to rely on the exemption. The Department 
understands that Financial Institutions may use a combination of 
computer models and individual Investment Professionals to provide 
investment advice and may wish to have a single set of policies and 
procedures that can govern all recommendations, regardless of whether a 
Retirement Investor speaks with an Investment Professional. Including 
computer-generated advice in this exemption would simplify Financial 
Institutions' compliance, so that a Retirement Investor could request 
an Investment Professional's assistance with a particular transaction, 
or an Investment Professional could review the computer model's 
recommendations, without separate analysis as to whether an Investment 
Professional has provided fiduciary investment advice.
    Like any other advice arrangement, Financial Institutions relying 
on computer models would have to satisfy the exemption's best interest 
standard and other protective conditions in order to satisfy PTE 2020-
02. For example, a computer model that preferentially recommends that a 
Retirement Investor purchase products that generate more income to the 
Financial Institution would not be permitted under this exemption. The 
Department is not, however, proposing to require Financial Institutions 
to comply with the conditions of the statutory exemption in ERISA 
408(g) \9\ in order to rely on PTE 2020-02. The Department believes 
that the additional conditions of this exemption, particularly the 
retrospective review and ineligibility provisions, would provide strong 
protections that are not a part of the statutory exemption. However, 
complying with the statutory exemption conditions could form the basis 
for policies and procedures that effectively mitigate Conflicts of 
Interest. To enhance their policies and procedures, it would be 
reasonable for a Financial Institution to incorporate some, but not 
all, of the statutory exemption conditions when relying on PTE 2020-02, 
although a Financial Institution could not merely pick and choose among 
the conditions of both exemptions in an attempt to avoid the meaningful 
conflict mitigation requirements each exemption provides. In other 
words, a Financial Institution must determine that its policies and 
procedures are, in fact, prudently designed to ensure compliance with 
the Best Interest standard, regardless of whether the policies and 
procedures include conditions taken from the statutory exemption.
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    \9\ ERISA section 408(g) and the regulations thereunder provide 
prohibited transaction relief for certain investment advice 
arrangements that use fee leveling or use computer models. See 29 
CFR 2550.408g-1 and Code section 4975(f)(8).
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    The Department requests comment on amending PTE 2020-02 to provide 
relief for Financial Institutions that provide investment advice 
through computer models without the involvement of an

[[Page 75983]]

Investment Professional. The Department also requests responses to the 
following questions:
    <bullet> Are Financial Institutions currently relying on the 
statutory exemption in ERISA section 408(g)?
    <bullet> Are Financial Institutions that use computer models 
providing advice in a manner that does not require a prohibited 
transaction exemption?
    <bullet> Would expanding PTE 2020-02 to include investment 
recommendations by computer models allow more conflicted investment 
advice?
    <bullet> Are Financial Institutions providing rollover advice via 
computer models?
    [cir] If so, would those Financial Institutions be able to provide 
the required Rollover disclosure in Section II(b)(5)?
    [cir] If not, are there other ways the Financial Institution can 
ensure that the Retirement Investor receives a full explanation of why 
the recommended product is in their Best Interest?
    <bullet> Are Financial Institutions using artificial intelligence 
to provide investment advice? If so, how are those Financial 
Institutions compensated for advice provided in this manner and do they 
rely on PTE 2020-02 or on the statutory exemption in ERISA section 
408(g)? Would recommendations that relied in whole or part on 
artificial intelligence require additional or separate conditions?

Investment Discretion

    Section I(c)(3) of PTE 2020-02 currently excludes transactions that 
involve the Investment Professional acting in a fiduciary capacity 
other than as an investment advice fiduciary within the meaning of the 
regulations issued by the Department and the Department of the 
Treasury/IRS,\10\ which set forth the definition of fiduciary 
investment advice. In the preamble to PTE 2020-02, the Department 
explained it was citing the Department's five-part test as the 
governing authority for status as an investment advice fiduciary.\11\
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    \10\ 29 CFR 2510.3-21(c)(1)(i) and (ii)(B) or 26 CFR 54.4975-
9(c)(1)(i) and (ii)(B).
    \11\ 85 FR 82798, 40842 (Dec. 18, 2020).
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    Now that the Department is proposing to amend the regulation 
defining an investment advice fiduciary, the Department is also 
proposing to simplify the language in the exemption. Specifically, the 
proposed amendment redesignates Section I(c)(3) as Section I(c)(2), 
which would exclude from the exemption advice provided in a fiduciary 
capacity other than as an investment advice fiduciary within the 
meaning of ERISA section 3(21)(A)(ii)) and Code section 4975(e)(3)(B) 
and the regulations issued thereunder. While the Department does not 
intend to change the substance of this exclusion, the Department is 
proposing to clarify that Financial Institutions and Investment 
Professionals cannot rely on the exemption if they act in a fiduciary 
capacity other than as an investment advice fiduciary.

Impartial Conduct Standards

Best Interest

    The Best Interest standard in PTE 2020-02 currently requires 
investment advice to be, at the time it is provided, in the Best 
Interest of the Retirement Investor. As defined in current Section 
V(b), Best Interest advice (1) reflects the care, skill, prudence, and 
diligence under the circumstances then prevailing that a prudent person 
acting in a like capacity and familiar with such matters would use in 
the conduct of an enterprise of a like character and with like aims, 
based on the investment objectives, risk tolerance, financial 
circumstances, and needs of the Retirement Investor, and (2) does not 
place the financial or other interests of the Investment Professional, 
Financial Institution or any Affiliate, Related Entity, or other party 
ahead of the interests of the Retirement Investor, or subordinate the 
Retirement Investor's interests to their own.
    The proposed amendment would retain the Best Interest standard from 
PTE 2020-02. To provide additional clarity, the Department is proposing 
to add an example to the operative text from the 2020-02 preamble 
specifying that it is impermissible for the Investment Professional to 
recommend a product that is worse for the Retirement Investor because 
it is better for the Investment Professional's or the Financial 
Institution's bottom line. In other words, the requirement for 
Investment Professionals not to subordinate the Retirement Investor's 
interests to their own is not satisfied if the Investment Professional 
merely considers the Retirement Investor's interests along with its own 
and the Financial Institution's in choosing which product to recommend 
to a Retirement Investor. The Department notes this standard is 
consistent with the SEC's standards for both registered investment 
advisers and broker-dealers.
    As the Department stated in the preamble to PTE 2020-02, this Best 
Interest standard allows Investment Professionals and Financial 
Institutions to provide investment advice despite having a financial or 
other interest in the transaction, so long as they do not place their 
own interests ahead of the interests of the Retirement Investor or 
subordinate the Retirement Investor's interests to their own. For 
example, in choosing between two investments offered and available to 
the investor from the Financial Institution, it is not permissible for 
the Investment Professional to advise investing in the one that is 
worse for the Retirement Investor but better for the Investment 
Professional's or the Financial Institution's bottom line. It bears 
emphasis, however, that this standard should not be read as somehow 
foreclosing the Investment Professional and Financial Institution from 
being paid on a transactional basis, nor does it foreclose investment 
advice on proprietary products or investments that generate Third-Party 
Payments, or advice based on investment menus that are limited to such 
products, in part or whole. Financial Institutions and Investment 
Professionals are entitled to receive reasonable compensation fairly 
disclosed for their work, as long as they do not subordinate the 
Retirement Investor's interests to their own and have appropriate 
policies and procedures to safeguard against imprudent or disloyal 
advice.
    Certainly, in many cases, it is in the Retirement Investor's best 
interest to receive advice from Investment Professionals that are 
compensated through commissions incurred on a transactional basis, 
rather than as part of an ongoing fee-based relationship (for example, 
pursuant to an advisory relationship subject to a recurring charge 
based on assets under management). In such cases, the fact that the 
Investment Professional received a commission for their services is not 
inconsistent with the principles set forth herein. Conversely, a 
recommendation to enter into a fee-based arrangement may, in certain 
cases, be inconsistent with the Best Interest standard. For example, 
``reverse churning,'' or recommending that a Retirement Investor 
continue to receive advice and hold assets subject to an ongoing 
advisory fee, in circumstances where the investor has low trading 
activity and little need for ongoing advice, would constitute a 
violation of the Impartial Conduct Standards and ERISA section 
406(b)(1) that is not covered by this exemption. In the discussion of 
the policies and procedures requirement under Section II(c), the 
Department provides additional guidance on how Financial Institutions 
that construct their investment menus with reference to proprietary 
products or Third-Party

[[Page 75984]]

payments can comply with the exemption.
    Finally, it should be noted that this Best Interest standard also 
does not impose an unattainable obligation on Investment Professionals 
and Financial Institutions to somehow identify the single ``best'' 
investment for the Retirement Investor out of all the investments in 
the national or international marketplace, assuming such advice were 
even possible at the time of the transaction.

Reasonable Compensation and Best Execution

    The Department is retaining the reasonable compensation and best 
execution standards from PTE 2020-02, with minor adjustments to the 
language. Section II(a)(2)(A) provides that the compensation received, 
directly or indirectly, by the Financial Institution, Investment 
Professional, their Affiliates and Related Entities for their fiduciary 
investment advice services provided to the Retirement Investor must not 
exceed reasonable compensation within the meaning of ERISA section 
408(b)(2) and Code section 4975(d)(2). In addition, Section II(a)(2)(B) 
provides that the Financial Institution and Investment Professional 
must seek to obtain the best execution of the recommended investment 
transaction that is reasonably available under the circumstances as 
required by the Federal securities laws.

No Misleading Statements

    The Department is also maintaining the requirement in Section 
II(a)(3), which prohibits Financial Institutions and Investment 
Professionals from making materially misleading statements to 
Retirement Investors. It is not sufficient for such statements to be 
technically accurate; therefore, the Department is clarifying that this 
condition is not satisfied if a Financial Institution or Investment 
Professional omits information that is needed to make the statement not 
misleading in light of the circumstances under which it was made. The 
Financial Institution and Investment Professional must consider whether 
the information provides data the Retirement Investor likely would need 
or want to know about the recommended investment and provide that 
information in a manner the Retirement Investor can understand.

Disclosure

    Section II(b) of PTE 2020-02 currently requires Financial 
Institutions to provide certain disclosures to Retirement Investors 
before engaging in a transaction pursuant to the exemption. The 
Financial Institution must provide a written acknowledgment that the 
Financial Institution and its Investment Professionals are fiduciaries 
under Title I of ERISA and the Code, as applicable, with respect to any 
investment recommendations provided by the Financial Institution or 
Investment Professional to the Retirement Investor. The Financial 
Institution must also provide an accurate written description of the 
services to be provided to the Retirement Investor and the Financial 
Institution's and Investment Professional's material Conflicts of 
Interest that is not misleading in all material respects. In addition, 
under current Section II(c)(3) of PTE 2020-02, before engaging in a 
rollover recommended pursuant to the exemption, the Financial 
Institution must provide Retirement Investors with documentation of 
specific reasons why the rollover recommendation is in the Retirement 
Investor's best interest.
    As part of this amendment to PTE 2020-02, the Department is 
proposing additional disclosures described below, which the Department 
has determined will help ensure that Retirement Investors have 
sufficient information to make an informed decision about the costs of 
the transaction and the significance and severity of the Financial 
Institution's Conflicts of Interest. The Department requests comment on 
these disclosures and is particularly interested in receiving 
information regarding whether additional or alternative information 
would be helpful to Retirement Investors. Since many Financial 
Institutions are already complying with PTE 2020-02, the Department is 
interested in hearing from those Financial Institutions and from 
investors about the helpfulness of the current disclosures and what 
information might provide additional protections.

Pre-Transaction Disclosure

    Before engaging in a transaction pursuant to this exemption, PTE 
2020-02 Section II(b)(1) currently requires the Financial Institution 
to provide a written acknowledgment that the Financial Institution and 
its Investment Professionals are fiduciaries under Title I of ERISA or 
the Code, or both, as applicable, with respect to any investment 
recommendations provided by the Financial Institution or Investment 
Professional to the Retirement Investor. The Department has become 
concerned that some parties misinterpret this condition and claim to 
satisfy it through artful phrasing that does not, in fact, tell the 
Retirement Investor if the recommendation is made by a fiduciary (for 
example, by saying they ``may'' be fiduciaries or that they are 
fiduciaries to the extent they meet the definition of fiduciary 
investment advice under the ERISA or the Code). Before executing a 
recommended transaction, however, a Retirement Investor should know 
whether the recommendation is coming from a Financial Institution or 
Investment Professional who is subject to the ERISA/Code fiduciary 
standard. Similarly, if the Financial Institution and Investment 
Professional are to comply with the law and meet the exemption's 
conditions, they should decide if they are acting as a fiduciary, 
inasmuch as their legal obligations and exemption conditions turn on 
fiduciary status under ERISA, the Code, or both.
    The proposed amendment would clarify the fiduciary acknowledgment 
requirement so that the Financial Institution must provide a written 
acknowledgment that the Financial Institution and its Investment 
Professionals are providing fiduciary investment advice to the 
Retirement Investor and are fiduciaries under Title I, the Code, or 
both when making an investment recommendation. If Financial 
Institutions and Investment Professionals are unwilling to meet this 
exemption condition, they must restructure their operations to avoid 
prohibited transactions.
    The Department is proposing to add a requirement in Section 
II(b)(2) that the Financial Institutions include with the initial 
disclosure a written statement of the Best Interest standard of care 
owed by the Investment Professional and Financial Institution to the 
Retirement Investor. PTE 2020-02 Section II(b)(2) currently requires a 
written description of the services to be provided and the Financial 
Institution's and Investment Professional's material Conflicts of 
Interest that is accurate and not misleading in all material respects. 
The Department is proposing to re-designate this provision as Section 
II(b)(3), replace ``all material respects'' with ``any material 
respect,'' and add a clarification that this description will include 
the amount the Retirement Investor will directly pay for such services 
and the amounts the Financial Institution and Investment Professional 
receive from other sources, including through Third-Party Payments. If, 
for example, the Retirement Investor will pay through commissions or 
transaction-based payments, the written statement must clearly disclose 
that fact. This description must be written in plain English, taking 
into consideration a Retirement Investor's level of financial

[[Page 75985]]

experience. As explained previously in the preamble to final PTE 2020-
02 published in 2020, the Department anticipates Financial Institutions 
are able to satisfy this disclosure requirement in part through 
disclosures required by other regulators.\12\ The Department requests 
comment whether additional specificity is needed, particularly as to 
the type of Third-Party Payments or other incentives provided to the 
Financial Institution.
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    \12\ ``While the exemption does not include specific safe 
harbors, the Department confirms that Financial Institutions may 
rely, in whole or in part, on other regulatory disclosures to 
satisfy certain aspects of this disclosure requirement, for example, 
the disclosures required under Regulation Best Interest and Form 
CRS, applicable to broker-dealers; Form ADV including Form CRS, 
applicable to registered investment advisers; and disclosures 
required under insurance and banking laws when such disclosures 
cover services to be provided and the Financial Institution's and 
Investment Professional's material Conflicts of Interest. Avoiding 
duplication of disclosures is important and the Department 
reiterates that the disclosure standard under this exemption may be 
satisfied in whole, or in part, by using other required disclosures 
to the extent those disclosures include information required to be 
disclosed by the exemption. Allowing the use of other disclosures to 
meet the disclosure standard under this exemption should serve to 
harmonize this exemption's conditions with those of other disclosure 
regimes.'' 85 FR at 82830.
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    The Department is also proposing a new Section II(b)(4) which would 
require Financial Institutions to inform Retirement Investors of their 
right to obtain specific information regarding costs, fees, and 
compensation that is described in dollar amounts, percentages, 
formulas, or other means reasonably designed to present materially 
accurate disclosure of their scope, magnitude, and nature. The 
Financial Institution must provide the information in sufficient detail 
for the Retirement Investor to make an informed judgment about the 
costs of the transaction and the significance and severity of Conflicts 
of Interest. This includes the total compensation that the Financial 
Institution and Investment Professional receive, not just the costs 
directly paid by the Retirement Investor. This disclosure also must 
describe how the Retirement Investor can receive the information free 
of charge. The Department is not proposing to require Financial 
Institutions to maintain records of every transaction or be able to 
quickly provide specific information regarding costs or fees generated 
by specific transactions. However, the Department is proposing to 
require Financial Institutions to maintain sufficient records to allow 
them to meaningfully respond to Retirement Investors' requests to 
demonstrate how the Financial Institution and its Investment 
Professionals are compensated in connection with their 
recommendations.\13\
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    \13\ In addition, Section IV already requires Financial 
Institutions to ``maintain[ ] for a period of six years records 
demonstrating compliance with this exemption and make[ ] such 
records available, to the extent permitted by law including 12 
U.S.C. 484, to any authorized employee of the Department or the 
Department of the Treasury.''
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    To assist Financial Institutions and Investment Professionals in 
complying with this exemption condition, the Department is providing 
the following model language that will satisfy Section II(b)(1), (2), 
and (4).

    When we make investment recommendations to you regarding your 
retirement plan account or individual retirement account, we are 
fiduciaries within the meaning of Title I of the Employee Retirement 
Income Security Act and/or the Internal Revenue Code, as applicable, 
which are laws governing retirement accounts. The way we make money 
creates some conflicts with your interests, so we operate under a 
special rule that requires us to act in your best interest and not 
put our interest ahead of yours. Under this special rule's 
provisions, we must:
    <bullet> Meet a professional standard of care when making 
investment recommendations (give prudent advice);
    <bullet> Never put our financial interests ahead of yours when 
making recommendations (give loyal advice);
    <bullet> Avoid misleading statements about conflicts of 
interest, fees, and investments;
    <bullet> Follow policies and procedures designed to ensure that 
we give advice that is in your best interest;
    <bullet> Charge no more than is reasonable for our services; and
    <bullet> Give you basic information about conflicts of interest.
    You can ask us for more information explaining costs, fees, and 
compensation, so that you may make an informed judgment about the 
costs of the transaction and about the significance and severity of 
the Conflicts of Interest. We will provide you with this information 
at no cost to you.

    Please note that the Department is not proposing to include model 
language for Section II(b)(3) because many different types of Financial 
Institutions will rely on this exemption and provide a wide range of 
services to Plans and Retirement Investors.

Rollover Disclosure

    The proposed amendment would clarify the rollover disclosure. While 
the current requirement is a part of both the disclosure conditions in 
Section II(b)(3) and the policies and procedures condition in Section 
II(c)(3) of PTE 2020-02, the proposed amendment would consolidate this 
into one condition in amended Section II(b)(5). This requirement 
extends to recommended rollovers from a Plan to another Plan or IRA as 
defined in Code section 4975(e)(1)(B) or (C), from an IRA as defined in 
Code section 4975(e)(1)(B) or (C) to a Plan, from an IRA to another 
IRA, or from one type of account to another (e.g., from a commission-
based account to a fee-based account).
    Before engaging in a rollover or making a recommendation to a Plan 
participant as to the post-rollover investment of assets currently held 
in a Plan, the Financial Institution, and Investment Professional must 
consider and document their conclusions as to whether a rollover is in 
the Retirement Investor's Best Interest and provide that documentation 
to the Retirement Investor. Relevant factors to consider must include 
but are not limited to:
    (i) the alternatives to a rollover, including leaving the money in 
the Plan or account type, as applicable;
    (ii) the comparative fees and expenses;
    (iii) whether an employer or other party pays for some or all 
administrative expenses; and
    (iv) the different levels of fiduciary protection, services and 
investments available.
    When considering the alternatives to a rollover recommendation, the 
Financial Institution and Investment Professional should not focus 
solely on the Retirement Investor's existing investment allocation 
without considering other investment options in the existing Plan or 
IRA.\14\
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    \14\ The Department included very similar language in its April 
2021 FAQs, Q15. When this policy was challenged in litigation, the 
court determined that that policy was a procedurally proper 
interpretive rule, and it was not arbitrary and capricious, because 
it is ``the type of documentation that . . . is precisely of the 
nature that a prudent investment advisor would undertake. 
Accordingly, it neither contradicts the 2020 Exemption nor goes 
beyond it.'' Am. Securities Asso'n v. Dep't of Labor, No. 8:22-cv-
330, 2023 WL 1967573, at *21 (M.D. Fla. Feb. 13, 2023).
---------------------------------------------------------------------------

    Investment Professionals and Financial Institutions should make 
diligent and prudent efforts to obtain information about the fees, 
expenses, and investment options offered in the Retirement Investor's 
Plan account. In general, such information should be readily available 
to the Retirement Investor as a result of Department regulations 
mandating disclosure of plan-related information to the plan's 
participants that is found at 29 CFR 2550.404a-5. If the Retirement 
Investor refuses to provide such information, even after a full 
explanation of its significance, and the information is not otherwise 
readily available, the Financial Institution and Investment 
Professional should make a reasonable estimate of a Plan's expenses, 
asset

[[Page 75986]]

values, risk, and returns based on publicly available information. The 
Financial Institution and Investment Professional should document and 
explain the assumptions used in the estimate and their limitations. In 
such cases, the Financial Institution and Investment Professional could 
rely on alternative data sources, such as the Plan's most recent Form 
5500 or reliable benchmarks on typical fees and expenses for the type 
and size of the Plan that holds the Retirement Investor's account. The 
Department welcomes comments on reliable benchmarks that could be used 
for this purpose.
    The Department notes it would be permissible under this exemption 
for a Financial Institution to charge a discrete fee for the rollover 
analysis and charge separately for advice following the rollover. Like 
all other service providers and investment advice fiduciaries, the 
Financial Institution may only charge reasonable compensation for the 
rollover analysis and must satisfy all other conditions of the 
exemption.

Web Disclosure

    The Department also seeks comment on whether Financial Institutions 
should be required to provide additional disclosures to Retirement 
Investors and the investing public. In particular, the Department is 
interested in receiving comments regarding whether it should require 
Financial Institutions to maintain a public website containing the pre-
transaction disclosure, a description of the Financial Institution's 
business model, associated Conflicts of Interest (including 
arrangements that provide Third-Party Payments), and a schedule of 
typical fees. The website could be formatted as a separate website, a 
web page on an existing website, or in some other way that is publicly 
accessible. If the Department were to add a web disclosure requirement, 
the Department would also require Financial Institutions to provide 
Retirement Investors with a link to the web disclosure (or a printed 
web address) as part of the pre-transaction disclosures currently 
required by Section II(b)(1)-(4).
    The Department is interested in receiving data and other 
information regarding the benefits of such a disclosure. The Department 
estimates that, if such a disclosure were required, it would require 
eight hours of labor annually from a computer programmer, on average, 
resulting in an annual cost of approximately $20.5 million.\15\ The 
Department welcomes comments on the accuracy of Department's estimates 
on the required time to maintain the disclosure, and how many Financial 
Institutions currently have the technology infrastructure to post a web 
disclosure. The Department is also interested in receiving any data 
that commenters may have that can inform an estimate of the extent to 
which Retirement Investors, investment consultants, and third-party 
intermediaries would visit and use a web page that includes such 
disclosures, and the extent to which such disclosures could drive 
better investor outcomes.
---------------------------------------------------------------------------

    \15\ The burden is estimated as: (19,290 entities x 8 hours) = 
154,320 hours. A labor rate of $133.05 is used for a computer 
programmer professional. The labor rate is applied in the following 
calculation: (19,290 entities x 8 hours) x $133.05 = $20,532,276.
---------------------------------------------------------------------------

    The Department contemplates that, to the extent applicable, the 
website would list all product manufacturers and other parties with 
whom the Financial Institution maintains arrangements that provide 
Third-Party Payments to the Investment Professional, the Financial 
Institution, or Affiliates with respect to specific investment products 
or classes of investments recommended to Retirement Investors; a 
description of the arrangements, including a statement on whether and 
how these arrangements impact Investment Professionals' compensation, 
and a statement on any benefits the Financial Institution provides to 
the product manufacturers or other parties in exchange for the Third-
Party Payments.
    The website may describe the above arrangements with product 
manufacturers, Investment Professionals, and others by reference to 
dollar amounts, percentages, formulas, or other means reasonably 
calculated to present a materially accurate description of the 
arrangements. Similarly, the Financial Institution may group 
disclosures on the website based on reasonably defined categories of 
investment products or classes, product manufacturers, Investment 
Professionals, and arrangements, and it may disclose reasonable ranges 
of values, rather than specific values as appropriate. Regardless of 
how it is constructed, the website should fairly disclose the scope, 
magnitude, and nature of the Financial Institution's compensation 
arrangements and Conflicts of Interest in sufficient detail to permit 
visitors to the website to make an informed judgment about the 
significance of the compensation practices and Conflicts of Interest 
with respect to transactions recommended by the Financial Institution 
and its Investment Professionals.

Good Faith

    Section II(b)(6) of the proposal would provide that the Financial 
Institution will not fail to satisfy the conditions in Section II(b) 
solely because it, acting in good faith and with reasonable diligence, 
makes an error or omission in disclosing the required information, or 
if the disclosure is temporarily inaccessible through no fault of the 
Financial Institution, provided that the Financial Institution 
discloses the correct information as soon as practicable, but not later 
than 30 days after the date on which it discovers or reasonably should 
have discovered the error or omission.
    Under proposed Section II(b)(7) of the amendment, Investment 
Professionals and Financial Institutions may rely in good faith on 
information and assurances from the other entities that are not 
Affiliates as long as they do not know that such information is 
incomplete or inaccurate. The proposed exemption makes clear in Section 
II(b)(8) that Financial Institutions will not be required to disclose 
information pursuant to this Section II(b) if such disclosure is 
otherwise prohibited by law.

Policies and Procedures

    Under PTE 2020-02, Section II(c), a Financial Institution must 
currently establish, maintain, and enforce written policies and 
procedures that it prudently designs to ensure that the Financial 
Institution and its Investment Professionals comply with the Impartial 
Conduct Standards. The proposed amendment clarifies, by adding examples 
to the operative text, some actions that Financial Institutions may not 
take because a reasonable person could conclude that they are likely to 
encourage Investment Professionals to make recommendations that are not 
in the Retirement Investors' Best Interest. The Department is not 
proposing changes to the underlying requirements applicable to these 
policies and procedures but is proposing to require Financial 
Institutions to provide their complete policies and procedures to the 
Department upon request within 10 business days of request.\16\
---------------------------------------------------------------------------

    \16\ Except where specified, as here, ``days'' refers to 
calendar days.
---------------------------------------------------------------------------

    The Financial Institution's policies and procedures must mitigate 
Conflicts of Interest to such an extent that a reasonable person 
reviewing the Financial Institution's policies and procedures and its 
incentive practices as

[[Page 75987]]

a whole would conclude that they do not create an incentive for the 
Financial Institution or Investment Professional to place its interests 
ahead of the Retirement Investor's interest.\17\ The policies and 
procedures must be prudently designed to protect Retirement Investors 
from recommendations to make excessive trades; to buy investment 
products, annuities, or riders that are not in the Retirement 
Investor's Best Interest; or to allocate excessive amounts to illiquid 
or risky investments. To satisfy Section II(c), Financial Institutions 
may not use quotas, appraisals, performance or personnel actions, 
bonuses, contests, special awards, differential compensation, or other 
similar actions or incentives that are intended, or that a reasonable 
person would conclude are likely, to encourage Investment Professionals 
to make recommendations that are not in Retirement Investors' Best 
Interest. A Financial Institution should not offer incentive vacations, 
or even paid trips to educational conferences, if the desirability of 
the destination is based on sales volume and satisfaction of sales 
quotas.
---------------------------------------------------------------------------

    \17\ The Department provided further guidance on the policies 
and procedures in Questions 16 and 17 of a set of Frequently Asked 
Questions available at https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/new-fiduciary-advice-exemption.pdf.
---------------------------------------------------------------------------

    The Financial Institution must pay close attention to any Conflicts 
of Interest that may exist within the Financial Institution itself. For 
example, it is not enough merely to pay Investment Professionals the 
same percentage of the Financial Institution's compensation for a 
recommended investment product, as for other products, if the Financial 
Institution receives more compensation from recommending that product 
rather than other products. In such cases, the ``level'' compensation 
percentage effectively directly transmits the Financial Institution's 
conflict of interest to the Investment Professional, as the Investment 
Professional's compensation is increased in direct proportion to the 
profitability of the investment to the firm. Thus, Section II(c) 
requires the Financial Institution to look carefully at its own 
incentives and ensure that all recommendations are focused on the 
Retirement Investor's Best Interest rather than the Financial 
Institution's interests.
    This is not to say the exemption is limited to certain types of 
Financial Institutions or investment products. Financial Institutions 
that offer a restricted menu of proprietary products or products that 
generate Third-Party Payments can establish, maintain, and enforce 
written policies and procedures that satisfy these requirements. For 
example, the Department would view a Financial Institution that 
authorizes a limited universe of investment recommendations as 
satisfying the policies and procedures requirement if it prudently does 
the following:
    <bullet> Documents in writing its limitations on the universe of 
recommended investments, the Conflicts of Interest associated with any 
contract, agreement, or arrangement providing for its receipt of Third-
Party Payments or associated with the sale or promotion of proprietary 
products.
    <bullet> Documents any services it will provide to Retirement 
Investors in exchange for Third-Party Payments, as well as any services 
or consideration it will furnish to any other party, including the 
payor, in exchange for the Third-Party Payments.
    <bullet> Reasonably concludes that the limitations on the universe 
of recommended investments and Conflicts of Interest will not cause the 
Financial Institution or its Investment Professionals to receive 
compensation in excess of reasonable compensation for Retirement 
Investors as set forth in Section II(a)(2).
    <bullet> Reasonably concludes that these limitations and Conflicts 
of Interest will not cause the Financial Institution or its Investment 
Professionals to recommend imprudent investments; and documents in 
writing the bases for its conclusions.
    <bullet> Informs the Retirement Investor clearly and prominently in 
writing that the Financial Institution limits the types of products 
that it and its Investment Professionals recommend to proprietary 
products and/or products that generate Third-Party Payments.
    [cir] In this regard, the notice should not simply state that the 
Financial Institution or Investment Professional ``may'' limit 
investment recommendations based on whether the investments are 
proprietary products or generate Third-Party Payments, without specific 
disclosure of the extent to which recommendations are, in fact, limited 
on that basis.
    <bullet> Clearly explains its fees, compensation, and associated 
Conflicts of Interest to the Retirement Investor in plain English.
    <bullet> Ensures that all recommendations are based on the 
Investment Professional's considerations of factors or interests such 
as investment objectives, risk tolerance, financial circumstances, and 
needs of the Retirement Investor.
    <bullet> At the time of the recommendation, the amount of 
compensation and other consideration reasonably anticipated to be paid, 
directly or indirectly, to the Investment Professional, Financial 
Institution, or their Affiliates or Related Entities for their services 
in connection with the recommended transaction is not in excess of 
reasonable compensation within the meaning of ERISA section 408(b)(2) 
and Code section 4975(d)(2).
    <bullet> The Investment Professional's recommendation reflects the 
care, skill, prudence, and diligence under the circumstances then 
prevailing that a prudent person acting in a like capacity and familiar 
with such matters would use in the conduct of an enterprise of a like 
character and with like aims, based on the investment objectives, risk 
tolerance, financial circumstances, and needs of the Retirement 
Investor; and the Investment Professional's recommendation is not based 
on the financial or other interests of the Investment Professional or 
on the Investment Professional's consideration of any factors or 
interests other than the investment objectives, risk tolerance, 
financial circumstances, and needs of the Retirement Investor.
    The Department intends this as an example of one way a Financial 
Institution could satisfy the policies and procedures requirement, but 
not the only way. The Department requests comment on whether additional 
guidance is needed regarding a Financial Institution or Investment 
Professional's recommendations of proprietary products to a Retirement 
Investor, and, if so, the type of guidance that would be most useful.

Retrospective Review

    The Department is proposing to retain the retrospective review in 
PTE 2020-02, Section II(d) with certain modifications. The review must 
be reasonably designed to detect and prevent violations of, and achieve 
compliance with, the conditions of the exemption, including the 
Impartial Conduct Standards, and the policies and procedures governing 
compliance with the exemption. The Department is clarifying that as 
part of the review, it expects Financial Institutions to determine 
whether they have complied with each exemption condition. This 
expectation is based in part on the premise that PTE 2020-02 currently 
requires the Financial Institution's Senior Executive Officer to 
certify that the Financial Institution has policies and procedures in 
place that are prudently designed to achieve compliance with the 
exemption conditions as part of the retrospective review. In order to 
make that

[[Page 75988]]

certification, the retrospective review must be reasonably designed to 
detect and prevent violations of, and achieve compliance with, all 
conditions of the exemption itself. Consistent with this expectation, 
the Department has received self-correction notifications summarizing 
the Financial Institution's annual retrospective review and identifying 
its failure to comply with a range of conditions.
    The Department is also adding a clarification that, as part of its 
retrospective review, the Financial Institution must update its 
policies and procedures as business, regulatory, and legislative 
changes and events dictate, and to ensure they remain prudently 
designed, effective, and compliant with Section II(c). This is intended 
as clarification of the current PTE 2020-02, which requires Financial 
Institutions ``maintain'' their policies and procedures and also 
requires the Senior Executive Officer's certification to include that 
the Financial Institution has in place a prudent process to modify the 
policies and procedures. The Department is proposing to add this 
language to Section II(d)(1) for clarity.
    In the Department's view, an annual review will generally be 
appropriate. However, Financial Institutions may choose to conduct 
their reviews more frequently and should do so as circumstances 
dictate. For example, if a Financial Institution knows or should know 
that non-exempt prohibited transactions or violations of either the 
Impartial Conduct Standards or policies and procedures conditions have 
occurred, the Financial Institution cannot wait until the next annual 
review to correct transactions or revise its policies and procedures.
    As the Department described in the preamble to PTE 2020-02 when it 
was finalized in 2020, an appropriate retrospective review would be 
aimed at detecting non-compliance across a wide range of transaction 
types and sizes, large and small, identifying deficiencies in the 
policies and procedures, and rectifying those deficiencies. For large 
Financial Institutions that conduct large numbers of transactions each 
year, sampling may not be the sole means of testing compliance, but it 
is an important and necessary component of any prudent review process 
and should be performed in a manner designed to identify potential 
violations, problems, and deficiencies that need to be addressed.\18\
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    \18\ 85 FR 82798, 82839 (Dec. 18, 2020).
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    The methodology and results of the retrospective review must be 
reduced to a written report that is provided to a Senior Executive 
Officer. The Department is proposing some edits to the Senior Executive 
Officer's report. The Department is making minor edits to reflect the 
clarifications to the retrospective review described above. In 
addition, the Department is proposing to amend Section II(d)(3) to 
require the Senior Executive Officer to certify that the Financial 
Institution has filed (or will file timely, including extensions) Form 
5330 to report to the IRS any non-exempt prohibited transactions 
discovered by the Financial Institution in connection with investment 
advice covered under Code section 4975(e)(3)(B). The certification must 
also include that the Financial Institution has corrected those 
transactions and paid any resulting excise taxes owed under Code 
section 4975. As further described below, the Department is proposing 
to amend other sections of PTE 2020-02 to ensure Financial Institutions 
pay the excise taxes owed on non-exempt prohibited transactions. In its 
decision vacating the 2016 rulemaking, the Fifth Circuit wrote that 
``ERISA Title II only punishes violations of the `prohibited 
transactions' provision by means of IRS audits and excise taxes.'' \19\ 
Consistent with this reasoning, the Department is proposing to require 
the Senior Executive Officer to carefully review transactions, correct 
violations, and pay any required excise taxes.
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    \19\ Chamber of Commerce v. U.S. Dep't of Labor, 885 F.3d 360, 
384 (5th Cir. 2018). For additional information regarding correcting 
prohibited transactions see Voluntary Fiduciary Correction Program 
Under the Employee Retirement Income Security Act of 1974, 71 FR 
20262 (Apr. 19, 2006).
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    The review, report, and certification must be completed no later 
than six months following the end of the period covered by the review. 
The Financial Institution must retain the report, certification and 
supporting data for six years, and provide such information to the 
Department within 10 business days of request, to the extent permitted 
by law including 12 U.S.C. 484 (regarding limitations on visitorial 
powers for national banks).

Self-Correction

    The Department is proposing to retain the self-correction in 
Section II(e) in amended PTE 2020-02. The exemption allows self-
correction in certain cases when either the violation did not result in 
investment losses to the Retirement Investor, or the Financial 
Institution made the Retirement Investor whole for any resulting 
losses. In this context, ``losses'' are not limited to recommendations 
that leave the Retirement Investor with fewer assets than originally 
invested. For example, if the Financial Institution's fees are 
excessive, the Financial Institution cannot keep the fees just because 
the Retirement Investor did not lose money in the transaction.
    Since finalizing PTE 2020-02, the Department has received several 
self-correction emails under Section II(e). Most of these emails 
describe late disclosures (including both fiduciary acknowledgments and 
rollover analyses) which may be corrected under PTE 2020-02 as long as 
all of the required information was provided to the Retirement 
Investor, even if not in writing, so that the Financial Institution is 
confident that the Retirement Investor had the information needed to 
make an informed investment decision before a transaction was executed 
pursuant to the Financial Institution or Investment Professional's 
recommendation.
    The Department has also received questions about the types of 
transactions that can be corrected under PTE 2020-02, Section II(e). If 
a recommendation satisfies all conditions of the exemption, but due to 
a clerical error the wrong asset is purchased or sold, the Financial 
Institution must correct this error as quickly as possible by ensuring 
the Retirement Investor's account is in the same position it would have 
been if the correct transaction had occurred. However, if an Investment 
Professional has recommended a transaction that was not in the 
Retirement Investor's Best Interest, the Retirement Investor may be 
prohibited from returning money to an ERISA account after it has been 
rolled over into an IRA. Even if the IRA investments have performed 
well since the rollover, the Retirement Investor may have been harmed 
by the loss of ERISA Title I's protections. The Department requests 
comment on whether additional clarifications are needed as to the types 
of transactions eligible for correction under Section II(e).

Eligibility

    The Department is proposing to retain the eligibility provision in 
Section III, which identifies circumstances under which an Investment 
Professional or Financial Institution will become ineligible to rely on 
the exemption for a period of 10 years. The Department continues to 
maintain that the eligibility provisions ensure that Financial 
Institutions provide reasonable oversight of Investment Professionals 
and that both adopt a culture of compliance. The Department is 
proposing certain changes to Section III, mostly for clarity. The 
Department requests comment on these proposed

[[Page 75989]]

changes and whether additional clarity is needed.
    The Department is proposing to expand ineligibility to include 
Financial Institutions that are Affiliates, rather than a more limited 
definition of ``Controlled Group.'' The Department remains concerned 
that a Financial Institution facing ineligibility for its actions 
affecting Retirement Investors could merely change its corporate form 
and continue to rely on the exemption. The Department understands there 
has been some confusion about what entities would be considered 
Financial Institutions in the same Controlled Group and has determined 
that by including Affiliates as opposed to Financial Institutions in 
the same Controlled Group, the provision will be better understood by 
the parties involved. Moreover, the inclusion of Affiliates ensures 
that Financial Institutions would be diligent in their obligation to 
monitor the actions of their Affiliates and foster a culture of 
compliance throughout the organization.
    The proposed amendment also would set forth the specific crimes 
(including foreign crimes) that could cause ineligibility in Section 
III(a). Under current PTE 2020-02, a Financial Institution or 
Investment Professional only becomes ineligible upon conviction of 
``crimes arising out of such person's provision of investment advice to 
Retirement Investors.'' The Department is proposing to broaden this to 
include the enumerated crimes, regardless of the conduct under which 
they arose. The Department is concerned that the limitation of 
``arising out of . . . provision of investment advice'' is too narrow. 
Like the addition of Affiliates, this will help foster a culture of 
compliance throughout the organization in recognition of the importance 
of investment advice to Retirement Investors. The Department requests 
comment on this change.
    Similar to the amended retrospective review provision, the 
Department is proposing to add ineligibility for a systematic pattern 
or practice of failing to correct prohibited transactions, report those 
transactions to the IRS on Form 5330 and pay the resulting excise taxes 
imposed by Code section 4975 in connection with non-exempt prohibited 
transactions involving investment advice under Code section 
4975(e)(3)(B) to Section II(a)(2). This proposed amendment would ensure 
that IRAs and other Title II plans actually report and pay an excise 
tax that they owe. A single missed excise tax would not make the 
Financial Institution ineligible for 10 years, but Financial 
Institutions that regularly disregard their legal obligation to pay 
excise taxes on prohibited transactions would need to find alternative 
relief.
    The Department is also making clarifying changes to the timing of 
the ineligibility designation set forth in Section III(b). While PTE 
2020-02 provides for different amounts of time before ineligibility, 
and then provides a one-year winding down period, the Department is 
proposing to simplify this process and create uniformity so that all 
entities would become ineligible six months after the conviction date, 
the date of the Department's written determination regarding a foreign 
conviction, or the date of the Department's written ineligibility 
notice regarding other misconduct, as applicable. In the Department's 
view, the one-year wind down created a long period in which 
noncompliance and inappropriate conduct could continue. This six-month 
period will take the place of the winding down period and provide ample 
time for Financial Institutions and Investment Professionals to inform 
Retirement Investors of their ineligibility and/or find alternative 
means of complying with ERISA. During the six months, the Financial 
Institution and Investment Professionals are still fiduciaries that are 
subject to all of the fiduciary requirements and prohibited transaction 
rules. Thus, Financial Institutions and Investment Professionals must 
continue to comply with the exemption during those six months, and any 
transactions that do not meet the terms of the exemption will be 
subject to excise tax and ERISA penalties.
    Furthermore, the Department has clarified that the ineligibility 
remains in effect until the earliest of: (A) a subsequent judgment 
reversing a person's conviction, (B) 10 years after the person became 
ineligible or is released from imprisonment, if later, or (C) the 
Department grants an individual exemption permitting reliance on this 
exemption, notwithstanding the conviction.
    The Department is proposing changes to Section III(c), which 
provides an opportunity to be heard. In a change from PTE 2020-02, 
Financial Institutions and Investment Professionals that become 
ineligible due to a conviction under Section III(a)(1)(A) would not 
have a separate opportunity to be heard by the Department following 
conviction by a U.S. Federal or state court of competent jurisdiction. 
A convicted advice provider has been provided due process by the U.S. 
court, and the criminal conduct underlying the conviction cannot be 
cured. Financial Institutions and Investment Professionals are required 
to act in the Best Interest of the Retirement Investor and in doing so, 
the Department expects them to act with a high degree of integrity and 
foster a culture of compliance. The criminal conduct underlying the 
conviction calls into question the advice provider's ability to act in 
the Retirement Investor's Best Interest, although a convicted Financial 
Institution or Investment Professional may be able to use other 
exemptions or apply for an individual exemption. The Department is 
proposing to provide an opportunity to be heard when the conviction is 
by a foreign court. Section III(c)(1) would allow Financial 
Institutions and Investment Professionals to submit a petition 
informing the Department of the conviction and seeking a determination 
that continued reliance on the exemption would not be contrary to the 
purposes of the exemption.
    Proposed Section III(c)(2) of the exemption would allow Financial 
Institutions and Investment Professionals that have engaged in conduct 
described in Section III(a)(2) to have the opportunity to cure the 
behavior and to be heard in an evidentiary hearing by the Department. 
Under this provision, before issuing a written ineligibility notice, 
the Department will issue a written warning to the Investment 
Professional or Financial Institution, as applicable, identifying the 
specific conduct, and provide a six-month period to cure the 
misconduct. At the end of the six-month period, if the Department 
determines that the Investment Professional or Financial Institution 
has not taken appropriate action to prevent recurrence of the 
disqualifying conduct, it will then provide an opportunity to be heard 
and present evidence, in person (including by phone or 
videoconference), or in writing, or a combination thereof. The 
evidentiary hearing will be limited to one conference unless the 
Department determines in its sole discretion to allow additional 
conferences. Following the hearing, the Department's determination 
whether to issue the ineligibility notice will be based solely on its 
discretion. If the Department issues a written ineligibility notice, 
the notice will articulate the basis for the determination that the 
Investment Professional or Financial Institution engaged in conduct 
described in Section III(a)(2).
    For all hearings under Section III(c), the Department will consider 
the following when making its determination:
    <bullet> the gravity of the offense;

[[Page 75990]]

    <bullet> the degree to which the underlying conduct concerned 
individual misconduct, or, alternately, corporate managers or policy;
    <bullet> recency of the conduct at issue;
    <bullet> any remedial measures the Investment Professional or 
Financial Institution has taken upon learning of the underlying 
conduct; and
    <bullet> other factors the Department determines in its discretion 
are reasonable in light of the nature and purposes of the exemption.
    The Department is also proposing to add the heading ``Alternative 
exemptions'' in Section III(d), which describes how a Financial 
Institution may continue business after becoming ineligible. The 
Department requests comments on the process described above, including 
whether it would be helpful to provide greater details about the 
evidentiary hearing and the written ineligibility notice, and, if so, 
what details are necessary.

Recordkeeping

    The Department is considering amending the recordkeeping provisions 
in Section IV to allow more parties to review the records necessary to 
determine whether the exemption is satisfied. The recordkeeping 
provisions of PTE 2020-02 allow only the Department and the Department 
of the Treasury to inspect books and records. The Department originally 
proposed that records should be available for review by additional 
parties but limited that access in the final exemption in response to 
comments. Commenters expressed concern that parties might ``overwhelm'' 
Financial Institutions with requests for use in litigation.
    Since PTE 2020-02 became effective, the Department has worked with 
Financial Institutions seeking to comply. The Department is of the view 
both that Financial Institutions could easily share their documentation 
of compliance and that Retirement Investors would benefit from access 
to that information. As described above, the Department is proposing 
additional disclosure requirements, which means some of this 
information would be provided to Retirement Investors without them 
needing to request to review records. In addition, the Department 
believes that most parties will likely not request records, and, when 
they do, the Department believes it is important that plans, unions and 
employee organizations, and participants and beneficiaries can access 
information they need to determine whether the exemption is satisfied 
and to understand how the Financial Institution and Investment 
Professional are acting in the Retirement Investor's Best Interest.
    The Department seeks feedback on whether to replace Section IV with 
the following:

    (a) The Financial Institution maintains the records necessary to 
enable the persons described in subsection (a)(2) below to determine 
whether the conditions of this exemption have been met with respect 
to a transaction for a period of six years from the date of the 
transaction in a manner that is reasonably accessible for 
examination. No prohibited transaction will be considered to have 
occurred solely on the basis of the unavailability of such records 
if they are lost or destroyed due to circumstances beyond the 
control of the Financial Institution before the end of the six-year 
period:
    (1) No party, other than the Financial Institution responsible 
for complying with this section IV, will be subject to the civil 
penalty that may be assessed under ERISA section 502(i) or the 
excise tax imposed by Code section 4975(a) and (b), if applicable, 
if the records are not maintained or available for examination as 
required by this section IV.
    (2) Except as provided in subsection (3) or precluded by 12 
U.S.C. 484 (regarding limitations on visitorial powers for national 
banks), and notwithstanding any provisions of ERISA section 
504(a)(2) and (b), the records are reasonably available at their 
customary location during normal business hours for examination by:
    (A) Any authorized employee of the Department or the IRS or 
another state or Federal regulator;
    (B) Any fiduciary of a Plan that engaged in a transaction 
pursuant to this exemption;
    (C) Any contributing employer and any employee organization 
whose members are covered by a Plan that engaged in a transaction 
pursuant to this exemption; or
    (D) Any participant or beneficiary of a Plan or beneficial owner 
of an IRA acting on behalf of the IRA that engaged in a transaction 
pursuant to this exemption.
    (3) None of the persons described in subsection (2)(B)-(D) above 
are authorized to examine records regarding a transaction involving 
another Retirement Investor, privileged trade secrets or privileged 
commercial or financial information of the Financial Institution, or 
information identifying other individuals.
    (4) If the Financial Institution refuses to disclose information 
to a person described in subsection (2)(B)-(D) above on the basis 
that the information is exempt from disclosure, the Financial 
Institution must provide a written notice advising the requestor of 
the reasons for its refusal and that the Department may request that 
such information be produced to the Department by the end of the 
thirtieth (30th) day following the Department's request.
    (b) A Financial Institution's failure to maintain the records 
necessary to determine whether the conditions of this exemption have 
been met will result in the loss of the exemption only for the 
transaction or transactions for which records are missing or have 
not been maintained. Such failure does not affect the relief for 
other transactions if the Financial Institution maintains required 
records for such transactions in compliance with this section IV.

The Department requests comment on both the burden to Financial 
Institutions and the benefits to Retirement Investors of being able to 
access this information on request.

Executive Order 12866 and 13563 Statement

    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 costs 
and benefits, reducing costs, harmonizing rules, and promoting 
flexibility.
    Under Executive Order 12866, as amended by Executive Order 14094, 
``significant'' regulatory actions are subject to review by the Office 
of Management and Budget (OMB). Section 3(f) of the Executive Order 
defines a ``significant regulatory action'' as an action that is likely 
to result in a rule (1) having an annual effect on the economy of $200 
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; (2) creating a 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 legal or policy issues for which centralized 
review would meaningfully further the President's priorities, or the 
principles set forth in the Executive Order. It has been determined 
that this proposal is a ``significant regulatory action'' within the 
scope of section 3(f)(1) of the Executive Order.
    Therefore, the Department has provided an assessment of the 
proposal's potential costs, benefits, and transfers, and OMB has 
reviewed this proposed amendment pursuant to the Executive Order.

Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department conducts a preclearance consultation program to 
allow the general public and Federal

[[Page 75991]]

agencies to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 
(PRA). This helps 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.
    The Department is soliciting comments regarding the information 
collection request (ICR) included in the proposed amendments to the 
ICR. To obtain a copy of the ICR, contact the PRA addressee below or go 
to RegInfo.gov. The Department has submitted a copy of the rule 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:
    <bullet> Evaluate whether the collection of information is 
necessary for the functions of the agency, including whether the 
information will have practical utility;
    <bullet> Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
    <bullet> Enhance the quality, utility, and clarity of the 
information to be collected; and
    <bullet> 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 
electronically delivered responses).
    Commenters may send their views on the Departments' PRA analysis in 
the same way they send comments in response to the proposed rule as a 
whole (for example, through the www.regulations.gov website), including 
as part of a comment responding to the broader proposed rule. Comments 
are due by January 2, 2024 to ensure their consideration.
    PRA Addressee: Address requests for copies of the ICR to James 
Butikofer, Office of Research and Analysis, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue NW, 
Room N-5718, Washington, DC 20210, or <a href="/cdn-cgi/l/email-protection#3d585f4e5c13524d4f7d595251135a524b"><span class="__cf_email__" data-cfemail="c4a1a6b7a5eaabb4b684a0aba8eaa3abb2">[email protected]</span></a>. ICRs also are 
available at http://www.RegInfo.gov (http://www.reginfo.gov/public/do/PRAMain).
    As discussed above in the preamble, the Department proposes to 
amend PTE 2020-02 to require the provision of additional disclosures to 
retirement investors receiving advice and to provide more guidance for 
financial institutions and investment professionals complying with the 
Impartial Conduct Standards and implementing the policies and 
procedures. This proposal is intended to align with other regulators' 
rules and standards of conduct.
    These requirements are ICRs subject to the PRA. Readers should note 
that the burden discussed below conforms to the requirements of the PRA 
and is not the incremental burden of the changes.\20\
---------------------------------------------------------------------------

    \20\ For a more detailed discussion of the marginal costs 
associated with the proposed amendments to PTE 2020-02, refer to the 
Regulatory Impact Analysis (RIA) in the Notice of Proposed 
Rulemaking published elsewhere in today's edition of the Federal 
Register.
---------------------------------------------------------------------------

1.1 Preliminary Assumptions

    In the analysis discussed below, a combination of personnel would 
perform the tasks associated with the ICRs at an hourly wage rate of 
$63.45 for clerical personnel, $133.05 for a computer programmer, and 
$159.34 for a legal professional, and $219.23 for a financial 
advisor.\21\
---------------------------------------------------------------------------

    \21\ Internal DOL calculation based on 2023 labor cost data. For 
a description of the Department's methodology for calculating wage 
rates, see https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf.
---------------------------------------------------------------------------

    The Department does not have information on how many retirement 
investors, including plan beneficiaries and participants and IRA 
owners, receive disclosures electronically from investment advice 
fiduciaries. For the purposes of this analysis, the Department assumes 
that the percent of retirement investors receiving disclosures 
electronically would be similar to the percent of plan participants 
receiving disclosures electronically under the Department's 2020 
electronic disclosure rules.\22\ Accordingly, the Department estimates 
that 94.2 percent of the disclosures sent to retirement investors would 
be sent electronically, and the remaining 5.8 percent would be sent by 
mail.\23\ The Department requests comment on these assumptions.
---------------------------------------------------------------------------

    \22\ 67 FR 17263.
    \23\ The Department estimates approximately 94.2% of retirement 
investors receive disclosures electronically, which is the sum of 
the estimated share of retirement investors receiving electronic 
disclosures under the 2002 electronic disclosure safe harbor (58.2%) 
and the estimated share of retirement investors receiving electronic 
disclosures under the 2020 electronic disclosure safe harbor 
(36.0%).
---------------------------------------------------------------------------

    The Department assumes any documents sent by mail would be sent by 
first class mail, incurring a postage cost of $0.66 for each piece of 
mail.\24\ Additionally, the Department assumes that documents sent by 
mail would incur a material cost of $0.05 for each page.
---------------------------------------------------------------------------

    \24\ U.S. Post Office, First-Class Mail, (2023), https://www.usps.com/ship/first-class-mail.htm.
    \25\ For more information on how the number of each type and 
size of entity is estimated, refer to the Affected Entity section of 
the RIA in the Notice of Proposed Rulemaking published elsewhere in 
today's edition of the Federal Register.
---------------------------------------------------------------------------

1.2 Affected Entities

    The Department expects the same 19,290 entities that are affected 
by the existing PTE 2020-02 would be affected by the proposed 
amendments to the PTE. The number of entities by type and size are 
summarized in the table below.\25\

                                   Table 1--Affected Entities by Type and Size
----------------------------------------------------------------------------------------------------------------
                                                                       Small           Large           Total
----------------------------------------------------------------------------------------------------------------
Broker-Dealer...................................................             395           1,499           1,894
Retail..........................................................             287           1,034           1,321
Non-Retail......................................................             108             465             573
Registered Investment Adviser...................................           2,996          12,986          15,982
SEC.............................................................             220           7,350           7,570
Retail..........................................................              74           4,570           4,644
Non-Retail......................................................             146           2,780           2,926
State...........................................................           2,776           5,636           8,412
Retail..........................................................           2,166           4,399           6,566
Non-Retail......................................................             610           1,237           1,847

[[Page 75992]]

 
Insurer.........................................................             151              32             183
Robo-Adviser....................................................              10             190             200
Pension Consultant..............................................             930              81           1,011
Investment Company Underwriter..................................              20               0              20
                                                                 -----------------------------------------------
    Total.......................................................           4,502          14,788          19,290
----------------------------------------------------------------------------------------------------------------

    In addition, the proposed amendments may affect banks and credit 
unions selling non-deposit investment products. There are 4,672 
federally insured depository institutions in the United States, 
consisting of 4,096 commercial banks and 576 savings institutions.\26\ 
Additionally, there are 4,686 federally insured credit unions.\27\ 
Moreover, in 2017, the U.S. Government Accountability Office estimated 
that approximately two percent of credit unions have private deposit 
insurance.\28\ Based on this estimate, the Department estimates that 
there are approximately 96 credit unions with private deposit insurance 
and 4,782 credit unions in total.\29\
---------------------------------------------------------------------------

    \26\ Federal Insurance Deposit Corporation, Statistics at a 
Glance--as of March 31, 2023, https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2023mar/industry.pdf.
    \27\ National Credit Union Administration, Quarterly Credit 
Union Data Summary 2023 Q2, https://ncua.gov/files/publications/analysis/quarterly-data-summary-2023-Q2.pdf.
    \28\ U.S. Government Accountability Office, Private Deposit 
Insurance: Credit Unions Largely Complied with Disclosure Rules, But 
Rules Should be Clarified, (March 29, 2017), https://www.gao.gov/products/gao-17-259.
    \29\ The total number of credit unions is calculated as: 4,686 
federally insured credit unions/(100%-2% of credit unions that are 
privately insured) = 4,782 total credit unions. The number of 
private credit unions is estimated as: 4,782 total credit unions - 
4,686 federally insured credit unions = 96 credit unions with 
private deposit insurance.
---------------------------------------------------------------------------

    The Department understands that banks most commonly use 
``networking arrangements'' to sell retail non-deposit investment 
products, including equities, fixed-income securities, exchange-traded 
funds, and variable annuities.\30\ Under such arrangements, bank 
employees are limited to performing only clerical or ministerial 
functions in connection with brokerage transactions. However, bank 
employees may forward customer funds or securities and may describe, in 
general terms, the types of investment vehicles available from the bank 
and broker-dealer under the arrangement. Similar restrictions on bank 
employees' referrals of insurance products and state-registered 
investment advisers exist.
---------------------------------------------------------------------------

    \30\ For more details about ``networking arrangements,'' see 
Employee Benefits Security Administration, Regulating Advice Markets 
Definition of the Term ``Fiduciary'' Conflicts of Interest--
Retirement Investment Advice Regulatory Impact Analysis for Final 
Rule and Exemptions, (April 2016), https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB32-2/ria.pdf. Financial institutions that are 
broker-dealers, investment advisers, or insurance companies that 
participate in networking arrangements and provide fiduciary 
investment advice would be included in the counts in their 
respective sections.
---------------------------------------------------------------------------

    Because of these limitations, the Department believes that, in most 
cases, such referrals would not constitute fiduciary investment advice 
within the meaning of the proposal. Due to the prevalence of banks 
using networking arrangements for transactions related to retail non-
deposit investment products, the Department believes that most banks 
would not be affected by PTE 2020-02 with respect to such transactions.
    The Department currently estimates that no banks or credit unions 
would be impacted by the proposed amendments to PTE 2020-02 but 
requests comments on this assumption. The Department is requesting 
comment on how frequently these entities use their own employees to 
perform activities that would otherwise be covered by the prohibited 
transaction provisions of ERISA and the Code. The Department seeks 
comment on the frequency with which bank or credit union employees 
recommend bank products to retirement investors and how they currently 
ensure such recommendations are prudent to the extent required by 
ERISA. The Department invites comments on the magnitude of any such 
costs and solicits data that would facilitate their quantification in 
the proposal.

1.3 Production and Distribution of Required Disclosures for Investors

1.3.1 Disclosure Requirements Under the Current PTE 2020-02

    Section II(b) currently requires financial institutions to provide 
certain disclosures to retirement investors before engaging in a 
transaction pursuant to the exemption. These disclosures include:
    <bullet> a written acknowledgment that the financial institution 
and its investment professionals are fiduciaries;
    <bullet> a written description of the services to be provided and 
any material conflicts of interest of the investment professional and 
financial institution; and
    <bullet> documentation of the financial institution and its 
investment professional's conclusions as to whether a rollover is in 
the retirement investor's best interest, before engaging in a rollover 
or offering recommendations on post-rollover investments.
    The following estimates reflect the ongoing paperwork burdens of 
the affected entities. Broker-dealers, registered investment advisers, 
and insurance companies were required to prepare these disclosures 
under the existing PTE 2020-02. The estimates below reflect paperwork 
burden these entities would incur to modify such exemption, but the 
Department assumes that these entities have already incurred costs 
related to drafting such disclosures.
    The Department estimates that preparing a disclosure indicating 
fiduciary status would take a legal professional at affected robo-
advisors, pension consultants, and investment company underwriters 30 
minutes, resulting in an hour burden of 616 hours and a cost burden of 
$98,074.\31\
---------------------------------------------------------------------------

    \31\ The burden is estimated as: [(200 robo-advisers + 1,011 
pension consultants + 20 investment company underwriters) x 30 
minutes] / 60 minutes = 616 hours. The burden is estimated as: [(200 
robo-advisers + 1,011 pension consultants + 20 investment company 
underwriters) x 30 minutes] / 60 minutes x $159.34 = $98,074.
---------------------------------------------------------------------------

    The proposed amendment makes minor edits to the written 
acknowledgment that the financial institution and its investment 
professional are fiduciaries. The Department does not have data on how 
many financial institutions would need to modify their disclosures in 
response to this amendment; however, the Department expects that the 
disclosures required under the existing form of PTE 2020-02 likely 
satisfy this requirement for most financial institutions covered under 
the existing exemption. For the purposes of this analysis, the 
Department assumes that 10 percent of financial entities under the 
existing exemption would need to update their disclosures and that it 
would take a legal professional at a financial

[[Page 75993]]

institution, on average, 10 minutes to update existing disclosures. 
Robo-advisers, pension consultants, and investment company underwrites, 
who are not covered under the existing exemption would need to draft 
the acknowledgement. Updating the acknowledgement is estimated to 
result in an hour burden of 301 hours with an equivalent cost of 
$47,961.\32\
---------------------------------------------------------------------------

    \32\ The number of financial entities needing to update their 
written acknowledgement is estimated as: (1,894 broker-dealers x 
10%) + (7,570 SEC-registered investment advisers x 10%) + (8,412 
state-registered investment advisers x 10%) + (183 insurers x 10%) = 
1,806 financial institutions updating existing disclosures. [(1,806 
financial institutions x 10 minutes) / 60 minutes] = 301 hours. The 
equivalent cost is estimated as: 301 hours x $159.34 = $47,961.

             Table 2--Hour Burden and Equivalent Cost Associated With the Fiduciary Acknowledgement
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................             917        $146,035               0              $0
                                                 ---------------------------------------------------------------
    Total.......................................             917         146,035               0               0
----------------------------------------------------------------------------------------------------------------

    The Department estimates that preparing a disclosure identifying 
services provided and conflicts of interest would take a legal 
professional at affected robo-advisers, pension consultants, and 
investment company underwriters one hour at small financial 
institutions and five hours at large financial institutions, resulting 
in an hour burden of 2,315 hours and an equivalent cost burden of 
$368,872.\33\
---------------------------------------------------------------------------

    \33\ The burden is estimated as: [(930 small pension consultants 
+ 10 small robo-adviser + 20 small investment company underwriters) 
x 1 hour] + [(81 large pension consultants + 190 large robo-
advisers) x 5 hours] = 2,315 hours. The equivalent cost is estimated 
as: {[(930 small pension consultants + 10 small robo-adviser + 20 
small investment company underwriters) x 1 hour] + [(81 large 
pension consultants + 190 large robo-advisers) x 5 hours]{time}  x 
$159.34 = $368,872.
---------------------------------------------------------------------------

    The proposed amendments would also expand on the existing 
requirement for a written description of the services provided to also 
require a statement on whether the retirement investor would pay for 
such services, directly or indirectly, including through third-party 
payments. The Department assumes it would take a legal professional at 
a financial institution under the existing exemption 30 minutes to 
update existing disclosures to include this information. This results 
in an hour burden of 9,030 hours and an equivalent cost burden of 
$1,438,761 in the first year.\34\
---------------------------------------------------------------------------

    \34\ The number of financial entities needing to update their 
written description of services is estimated as: 1,894 broker-
dealers + 15,982 registered investment advisers + 183 insurers = 
18,059 financial institutions updating existing disclosures. The 
burden is estimated as follows: [(18,059 financial institutions x 30 
minutes) / 60 minutes] = 9,030 hours. The equivalent cost is 
estimated as: [(18,059 financial institutions x 30 minutes) / 60 
minutes] x $159.34 = $1,438,761.

      Table 3--Hour Burden and Equivalent Cost Associated With the Written Description of Services Provided
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................          11,345      $1,807,633               0              $0
                                                 ---------------------------------------------------------------
    Total.......................................          11,345       1,807,633               0               0
----------------------------------------------------------------------------------------------------------------

    According to Cerulli Associates, in 2022, almost 4.5 million 
defined contribution (DC) plan accounts with $779 billion in assets 
were rolled over to an IRA. Additionally, 0.7 million DC plan accounts 
with $66 billion in assets were rolled over to other employer-sponsored 
plans.\35\ It is challenging to obtain reliable data on other types of 
rollovers such as IRA-to-IRA and defined benefit (DB) plan-to-IRA. The 
Department uses Internal Revenue Service (IRS) data from 2020 on 
overall rollovers into IRAs, which is 5.7 million taxpayers and $618 
billion.\36\ Adding in the figures for plan-to-plan rollovers, the 
Department estimates the total number of rollovers at 6.4 million 
accounts with $684 billion in assets. The Department requests comment 
on this estimate.
---------------------------------------------------------------------------

    \35\ According to Cerulli, in 2022, there were 4,485,059 DC 
plan-to-IRA rollovers and 707,104 DC plan-to-DC plan rollovers. (See 
Cerulli Associates, U.S. Retirement End-Investor 2023: Personalizing 
the 401(k) Investor Experience, Exhibit 6.02. The Cerulli Report.) 
These account estimates may include health savings accounts, Archer 
medical savings accounts, or Coverdell education savings accounts.
    \36\ Internal Revenue Service, SOI Tax Stats--Accumulation and 
Distribution of Individual Retirement Arrangement (IRA), Table 1: 
Taxpayers with Individual Retirement Arrangement (IRA) Plans, By 
Type of Plan, Tax Year 2020 (2023).
---------------------------------------------------------------------------

    Only rollovers overseen by an ERISA fiduciary would be affected by 
the proposed amendments to PTE 2020-02. The Department does not have 
compelling data on the percentage of rollovers that are overseen by an 
ERISA fiduciary. In 2022, 49 percent of DC plan-to-IRA rollovers, 
accounting for 63 percent of DC plan rollover assets, were 
intermediated by an adviser.\37\ For purposes of this analysis, the 
Department assumes that advisers intermediating rollovers are ERISA 
fiduciaries, which means the estimate is an upper bound. The Department 
applies the estimate made for DC plan-to-IRA rollovers to all types of 
rollovers. Accordingly, the Department estimates that 3.1 million 
rollovers and $431 billion in rollover assets would be affected by the 
proposed amendments to PTE 2020-02.\38\ The Department requests 
comments on these assumptions.
---------------------------------------------------------------------------

    \37\ According to Cerulli, 49 percent of rollovers were mediated 
by an adviser, while 37 percent were self-directed. The remaining 14 
percent were plan-to-plan rollovers. (See Cerulli Associates, U.S. 
Retirement-End Investor 2023: Personalizing the 401(k) Investor 
Experience Fostering Comprehensive Relationships, Exhibit 6.04. The 
Cerulli Report.)
    \38\ The number of affected rollovers is estimated as: 
(6,367,005 x 49%) = 3,119,832.

---------------------------------------------------------------------------

[[Page 75994]]

    The current PTE required rollover documentation from plans to IRAs. 
As a best practice, the SEC already encourages firms to record the 
basis for significant investment decisions, such as rollovers, although 
doing so is not required. In addition, some firms may voluntarily 
document significant investment decisions to demonstrate compliance 
with applicable law, even if not required. A report commissioned by 
this commenter found that slightly more than half (52 percent) of 
respondents will ``require best interest rationale documentation for 
rollover recommendations.'' \39\ The Department estimates that 
documenting each rollover recommendation will require 30 minutes for a 
personal financial advisor whose firms currently do not require 
rollover documentations and five minutes for financial advisors whose 
firms already require them to do so. The Department estimates that this 
will result in an hour burden of 883,953 hours with an equivalent cost 
of approximately $193.8 million.\40\ The Department requests comment on 
the time it would take to document the rollover recommendation.
---------------------------------------------------------------------------

    \39\ Deloitte, Regulation Best Interest: How Wealth Management 
Firms are Implementing the Rule Package, (March 6, 2020). This 
report was released before Regulation Best Interest was effective, 
so more broker-dealers may now document rollover recommendations. As 
such, this may represent an overestimate of the cost incurred to 
comply with this requirement.
    \40\ The burden is estimated as follows: (3,119,833 rollovers x 
48% x 30 minutes) + (3,119,833 rollovers x 52% x 5 minutes) = 
883,953 hours. A labor rate of $219.23 is used for a personal 
financial adviser. The labor rate is applied in the following 
calculation: {[(3,119,833 rollovers x 48% x 30 minutes) + (3,119,833 
rollovers x 52% x 5 minutes)] / 60 minutes{time}  x $219.23 = 
$193,788,961.

               Table 4--Hour Burden and Equivalent Cost Associated With the Rollover Documentation
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Financial Adviser...............................         883,953    $193,788,961         883,953    $193,788,961
                                                 ---------------------------------------------------------------
    Total.......................................         883,953     193,788,961         883,953     193,788,961
----------------------------------------------------------------------------------------------------------------

1.3.2. New Disclosure Requirements Under the Proposed Amended PTE 2020-
02

    As amended, PTE 2020-02 would require financial institutions to 
provide investors with the following additional disclosures:

    (1) a written statement of the best interest standard of care 
owed; and
    (2) a written statement that the retirement investor has the 
right to obtain specific information regarding costs, fees, and 
compensation.

    Under the Investment Advisers Act of 1940 and SEC Regulation Best 
Interest, most SEC-registered investment advisers and broker-dealers 
with retail investors already provide disclosures that the Department 
expects would satisfy these requirements.
    The proposed amendments would add a requirement for financial 
institutions to provide a written statement of the Best Interest 
standard of care owed. Under the Investment Advisers Act, the SEC's 
Regulation Best Interest, and Form CRS, most SEC-registered investment 
advisers and broker-dealers with retail investors are already required 
to provide disclosures that the Department expects would satisfy these 
requirements.
    The Department expects that the written statement of the Best 
Interest standard of care owed would not take a significant amount of 
time to prepare and would be uniform across clients. The Department 
assumes it would take a financial institution 30 minutes to prepare the 
statement, resulting in an hour burden of 10,352 hours and an 
equivalent cost burden of $1,649,488 in the first year.\41\
---------------------------------------------------------------------------

    \41\ The burden is estimated as follows: [(19,290 financial 
institutions x 30 minutes) / 60 minutes] = 10,352 hours. A labor 
rate of $159.34 is used for a lawyer. The labor rate is applied in 
the following calculation: [(19,290 financial institutions x 30 
minutes) / 60 minutes] x $159.34 = $1,649,488.

         Table 5--Hour Burden and Equivalent Cost Associated With the Best Interest Standard Disclosure
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................          10,352      $1,649,488               0              $0
                                                 ---------------------------------------------------------------
    Total.......................................          10,352       1,649,488               0               0
----------------------------------------------------------------------------------------------------------------

    For the added requirement of a written statement informing the 
investor of their right to obtain a written description of the 
financial institution's policies and procedures and information 
regarding costs, fees, and compensation, the Department expects that 
many financial institutions' disclosures, as required by the existing 
PTE 2020-02, already substantially comply with this regulation or would 
require modest adjustments to do so. The Department estimates that, on 
average, it would take a legal professional at broker-dealers and 
registered investment advisers, on average, 30 minutes to modify 
existing statements and that it would take insurers, robo-advisers, 
pension consultants, and investment company underwriters, on average, 
one hour to prepare the statement. This results in an hour burden of 
10,352 hours and a cost burden of $1,649,488 in the first year.\42\
---------------------------------------------------------------------------

    \42\ The burden is estimated as follows: [(1,894 broker-dealers 
+ 15,982 registered investment advisers) x 30 minutes] + [(183 
insurers + 200 robo-advisers + 1,011 pension consultants, and 20 
investment company underwriters) x 1 hour] = 10,352 hours. A labor 
rate of $159.34 is used for a legal professional. The labor rate is 
applied in the following calculation: {[(1,894 broker-dealers + 
15,982 registered investment advisers) x 30 minutes] + [(183 
insurers + 200 robo-advisers + 1,011 pension consultants, and 20 
investment company underwriters) x 1 hour]{time}  x $159.34 = 
$1,649,488.

---------------------------------------------------------------------------

[[Page 75995]]

    The Department does not have data on how often investors would 
request a written description of the financial institutions' policies 
and procedures and information regarding costs, fees, and compensation. 
The Department assumes that, on average, each financial institution 
would receive 10 such requests annually and that most financial 
institutions already have such information available. The Department 
requests comment on these assumptions. The Department estimates it 
would take a clerical worker five minutes to prepare and send the 
disclosure, regardless of whether it is sent electronically or by mail. 
This results in an annual hour burden of 16,075 with an equivalent cost 
of $1,019,959.\43\
---------------------------------------------------------------------------

    \43\ The burden is estimated as follows: [(19,290 financial 
institutions x 10 disclosures x 5 minutes) / 60 minutes] = 16,075 
hours. A labor rate of $63.45 is used for a clerical worker. The 
labor rate is applied in the following calculation: [(16,075 
financial institutions x 10 disclosures x 5 minutes) / 60 minutes] x 
$63.45 = $1,019,959.

   Table 6--Hour Burden and Equivalent Cost Associated With the Written Description Statement of the Right To
 Obtain a Written Description of the Financial Institution's Policies and Procedures and Provision of Requested
                                             Policies and Procedures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................          10,352      $1,649,488               0              $0
Clerical........................................          16,075       1,019,959          16,075       1,019,959
                                                 ---------------------------------------------------------------
    Total.......................................          26,427       2,669,447          16,075       1,019,959
----------------------------------------------------------------------------------------------------------------

    As discussed above, the Department assumes that 5.8 percent, or 
11,188, of these disclosures would not be sent electronically. 
Financial institutions would incur $0.66 for postage and $0.10 for the 
paper and printing costs of two pages for each of the disclosures that 
would not be sent electronically, which the Department estimates to 
cost $8,503.\44\
---------------------------------------------------------------------------

    \44\ ((19,290 financial institutions x 10 disclosures x 2 pages 
x $0.05) + (19,290 financial institutions x 10 disclosures x $0.66)) 
x 5.8% = $8,503.

  Table 7--Material and Postage Cost Associated With the Written Description Statement of the Right to Obtain a
 Written Description of the Financial Institution's Policies and Procedures and Provision of Requested Policies
                                                 and Procedures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                    Activity                           Pages           Cost            Pages           Cost
----------------------------------------------------------------------------------------------------------------
Material Cost...................................               2          $8,503               2          $8,503
                                                 ---------------------------------------------------------------
    Total.......................................               2           8,503               2           8,503
----------------------------------------------------------------------------------------------------------------

1.3.3. Provision of Disclosures

    Similar to the 2020 analysis, the Department assumes most required 
disclosures will be electronically delivered to plan fiduciaries. As 
discussed above, the Department assumes that approximately 5.8 percent 
of participants who roll over their plan assets to IRAs would not 
receive required disclosures electronically. The Department estimates 
that approximately 3.2 million retirement investors \45\ have 
relationships with financial institutions and are likely to engage in 
transactions covered under this PTE. Of these 3.2 million retirement 
investors, it is estimated that 5.8 percent, or 184,643 retirement 
investors, would receive paper disclosures.\46\ The Department 
estimates that preparing and sending each disclosure would take a 
clerical worker, on average, five minutes, resulting in an hour burden 
of 15,387 hours with an equivalent cost of $976,301.\47\
---------------------------------------------------------------------------

    \45\ According to Cerulli, in 2022, there were 707,104 DC plan-
to-DC plan rollovers. (See Cerulli Associates, U.S. Retirement End-
Investor 2023: Personalizing the 401(k) Investor Experience, Exhibit 
6.02. The Cerulli Report.) The Department also uses Internal Revenue 
Service (IRS) data from 2020 on overall rollovers into IRAs, which 
is 5,659,901 taxpayers. (See Internal Revenue Service, SOI Tax 
Stats--Accumulation and Distribution of Individual Retirement 
Arrangement (IRA), Table 1: Taxpayers with Individual Retirement 
Arrangement (IRA) Plans, By Type of Plan, Tax Year 2020. (2023).) 
The Department estimates the number of affected plans and IRAs to be 
equal to 50 percent of rollovers from retirement plans to IRAs. The 
total number of retirement investors that have relationships with 
financial institutions and are likely to engage in transacted 
covered under this PTE is estimated as: (707,104 DC plan-to-DC plan 
rollovers + 5,659,901 taxpayer with IRA rollovers) x 50 percent = 
3,183,503.
    \46\ This is estimated as: 3,183,503 rollovers x 5.8% = 184,643 
disclosures.
    \47\ This burden is estimated as: [(184,643 disclosures x 5 
minutes) / 60 minutes] = 15,387 hours. [(184,643 disclosures x 5 
minutes) / 60 minutes] x $63.45 = $976,301.

[[Page 75996]]



              Table 8--Hour Burden and Equivalent Cost Associated Preparing and Sending Disclosures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Clerical........................................          15,387        $976,301          15,387        $976,301
                                                 ---------------------------------------------------------------
    Total.......................................          15,387         976,301          15,387         976,301
----------------------------------------------------------------------------------------------------------------

    The Department assumes that the disclosures would require four 
pages in total, resulting in a material and postage cost of 
$158,793.\48\
---------------------------------------------------------------------------

    \48\ The material and postage cost is estimated as: (184,643 
disclosures x 4 pages x $0.05) + (184,643 disclosures x $0.66 
postage) = $158,793.

                     Table 9--Material and Postage Cost Associated With Sending Disclosures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                    Activity                           Pages           Cost            Pages           Cost
----------------------------------------------------------------------------------------------------------------
Material Cost...................................               4        $158,793               4        $158,793
                                                 ---------------------------------------------------------------
    Total.......................................               4         158,793               4         158,793
----------------------------------------------------------------------------------------------------------------

1.4 Costs Associated With Disclosures for PEPs

    Financial institutions providing investment advice for PEPs must 
provide to each participating employer an additional disclosure 
detailing any amounts the financial institution pays to or receives 
from the PPP or its affiliates in addition to any conflicts of interest 
that arise in connection with the investment advice it provides to a 
PEP. According to filings submitted to the Department, the Department 
estimates that there are 382 PEPs.\49\
---------------------------------------------------------------------------

    \49\ Department of Labor, Form PR, https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-pr.
---------------------------------------------------------------------------

    The Department does not have data on what percent of PEPs would be 
affected by the exemption. The Department assumes that on average, one 
financial institution would need to prepare one disclosure for each 
PEP. The Department estimates that, on average, it would take legal 
staff for each entity two hours to draft the disclosure, resulting in 
an hour burden of 764 hours with an equivalent cost of $121,736 in the 
first year.\50\ The Department requests comment on this assumption and 
how frequently PPPs would provide investment advice to a PEP within the 
framework of the exemption. According to filings submitted to the 
Department, the Department estimates that there are 955 employers in 
PEPs.\51\ The Department assumes that all of these disclosures will be 
sent electronically. Distributing the disclosures is estimated to take 
clerical personnel one minute per disclosure. This results in an hour 
burden of 16 hours, and assuming an hourly wage rate for clerical 
personnel of $63.45, the estimated equivalent cost burden is 
$1,010.\52\
---------------------------------------------------------------------------

    \50\ The burden is estimated as follows: 382 PEPs x 2 hours = 
764 hours. A labor rate of $159.34 is used for a lawyer. The labor 
rate is applied in the following calculation: 382 PEPs x 2 hours x 
$159.34 = $121,736.
    \51\ Based on 2021 EFAST filings as of August 22, 2023, the 
Department estimates that there were 955 employers in 382 PEPs. The 
Department does not have data on the number of employers since 
October 2022. To estimate the number of employees, the Department 
applies the ratio of employers to PEPs in October 2021 (955/382 
~2.5) to the updated number of PEPs. Accordingly, the Department 
estimates that there are 955 employers in PEPs (382 x 2.5 = 955). 
The inaugural filing deadline for Form 5500 filings for PEPs with 
plan years beginning after January 1, 2021 was July 31, 2022. The 
Department based its estimates on those filings it had received by 
August 22, 2023. However, since this is the first year PEPs could 
file, the Department anticipates that this understates the true 
number of PEPs affected by this proposed rule.
    \52\ The burden is estimated as follows: [(955 employers x 1 
minute) / 60 minutes] = 16 hours. A labor rate of $63.45 is used for 
a clerical worker. The labor rate is applied in the following 
calculation: [(955 employers x 1 minute) / 60 minutes] x $63.45 = 
$1,010.

           Table 10--Hour Burden and Equivalent Cost Associated With Preparing and Sending Disclosures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................             764        $121,736               0              $0
Clerical........................................              16           1,010              16           1,010
                                                 ---------------------------------------------------------------
    Total.......................................             780         122,746              16           1,010
----------------------------------------------------------------------------------------------------------------

1.5 Costs Associated With Annual Report of Retrospective Review

    The proposed amendment would require financial institutions to 
conduct a retrospective review at least annually. The review would be 
required to be reasonably designed to detect and prevent violations of, 
and achieve compliance with, (1) the conditions of this exemption, (2) 
the Impartial Conduct Standards, and (3) the policies and procedures 
governing compliance with the exemption. The Department is clarifying 
that the Financial Institution must update the policies and procedures 
as business, regulatory, and legislative changes and events dictate, to

[[Page 75997]]

ensure they remain prudently designed, effective, and compliant with 
the exemption. This report would need to be certified by a Senior 
Executive.
    Many of the entities affected by PTE 2020-02 likely already have 
retrospective review requirements. Broker-dealers are subject to 
retrospective review requirements under FINRA Rule 3110,\53\ FINRA Rule 
3120,\54\ and FINRA Rule 3130; \55\ SEC-registered investment advisers 
are already subject to retrospective review requirements under SEC Rule 
206(4)-7; and insurance companies in many states are already subject to 
state insurance law based on the NAIC's Model Regulation.\56\ 
Accordingly, in this analysis, the Department assumes that these 
entities will incur minimal costs to meet this requirement.
---------------------------------------------------------------------------

    \53\ Rule 3110. Supervision, FINRA Manual, https://www.finra.org/rules-guidance/rulebooks/finra-rules/3110.
    \54\ Rule 3120. Supervisory Control System, FINRA Manual, 
https://www.finra.org/rules-guidance/rulebooks/finra-rules/3120.
    \55\ Rule 3130. Annual Certification of Compliance and 
Supervisory Processes, FINRA Manual, https://www.finra.org/rules-guidance/rulebooks/finra-rules/3130.
    \56\ NAIC Model Regulation, Section 6.C.(2)(i). (The same 
requirement is found in the NAIC Suitability in Annuity Transactions 
Model Regulation (2010), Section 6.F.(1)(f).)
---------------------------------------------------------------------------

    In 2018, the Investment Adviser Association estimated that 92 
percent of SEC-registered investment advisers voluntarily provide an 
annual compliance program review report to senior management.\57\ The 
Department assumes that state-registered investment advisers exhibit 
similar retrospective review patterns as SEC-registered investment 
advisers. Accordingly, the Department estimates that eight percent, or 
1,279 investment advisers advising retirement plans will incur costs 
associated with producing a retrospective review report.
---------------------------------------------------------------------------

    \57\ 2018 Investment Management Compliance Testing Survey, 
Investment Adviser Association (Jun. 14, 2018), https://higherlogicdownload.s3.amazonaws.com/INVESTMENTADVISER/aa03843e-7981-46b2-aa49-c572f2ddb7e8/UploadedImages/publications/2018-Investment-Management_Compliance-Testing-Survey-Results-Webcast_pptx.pdf.
---------------------------------------------------------------------------

    The Department assumes that only ten percent of financial 
institutions will incur the total costs of producing the retrospective 
review report. This is estimated to take a legal professional five 
hours for small firms and 10 hours for large firms. This results in an 
annual hour burden of 3,715 hours and an equivalent cost burden of 
$591,948.\58\
---------------------------------------------------------------------------

    \58\ The burden is estimated as: [(395 small broker-dealers + 
(2,996 small registered-investment advisers x 8%) + 151 small 
insurers + 10 small robo-advisers + 930 small pension consultants + 
20 small investment company underwriters) x 10% x 5 hours] + [(1,499 
large broker-dealers + (12,986 large registered-investment advisers 
x 8%) + 32 large insurers + 190 large robo-advisers + 81 large 
pension consultants) x 10% x 10 hours] = 3,715 hours. The equivalent 
cost is estimated as: {[(395 small broker-dealers + (2,996 small 
registered-investment advisers x 8%) + 151 small insurers + 10 small 
robo-advisers + 930 small pension consultants + 20 small investment 
company underwriters) x 10% x 5 hours] + [(1,499 large broker-
dealers + (12,986 large registered-investment advisers x 8%) + 32 
large insurers + 190 large robo-advisers + 81 large pension 
consultants) x 10% x 10 hours]{time}  x $159.34 = $591,948.
---------------------------------------------------------------------------

    Financial Institutions that already produce retrospective review 
reports voluntarily or in accordance with other regulators' rules 
likely will spend additional time to fully comply with this exemption 
condition such as revising their current retrospective review reports. 
This is estimated to take a financial professional one hour for small 
firms and two hours for large firms. This results in an annual hour 
burden of 33,335 hours and an equivalent cost burden of $5,311,672.\59\
---------------------------------------------------------------------------

    \59\ The burden is estimated as: [(395 small broker-dealers + 
(2,996 small registered-investment advisers x 92%) + 151 small 
insurers + 10 small robo-advisers + 930 small pension consultants + 
20 small investment company underwriters) x 90% x 5 hours] + [(1,499 
large broker-dealers + (12,986 large registered-investment advisers 
x 92%) + 32 large insurers + 190 large robo-advisers + 81 large 
pension consultants) x 90% x 10 hours] = 33,335 hours.
    The equivalent cost is estimated as: {[(395 small broker-dealers 
+ (2,996 small registered-investment advisers x 92%) + 151 small 
insurers + 10 small robo-advisers + 930 small pension consultants + 
20 small investment company underwriters) x 90% x 5 hours] + [(1,499 
large broker-dealers + (12,986 large registered-investment advisers 
x 92%) + 32 large insurers + 190 large robo-advisers + 81 large 
pension consultants) x 90% x 10 hours]{time}  x $159.34 = 
$5,311,672.
---------------------------------------------------------------------------

    The proposed amendments would add a requirement to review policies 
and procedures at least annually and to update them as needed to ensure 
they remain prudently designed, effective, and current. This includes a 
requirement to update and modify the policies and procedures, as 
appropriate, after considering the findings in the retrospective review 
report. For entities currently covered by PTE 2020-02, the Department 
estimates that it would take a legal professional an additional 30 
minutes for all entities covered under the existing and amended 
exemption. The Department estimates this would result an annual hour 
burden of 9,645 with an equivalent cost of $1,536,834.\60\
---------------------------------------------------------------------------

    \60\ The burden is estimated as follows: [(19,290 x 30 minutes) 
/ 60 minutes] = 9,645 hours. A labor rate of $159.34 is used for a 
legal professional. The labor rate is applied in the following 
calculation: [(19,290 x 30 minutes) / 60 minutes] x $159.34 = 
$1,536,834.
---------------------------------------------------------------------------

    In addition to conducting the audit and producing a report, 
financial institutions also will need to review the report and certify 
the exemption. This is estimated to take the certifying officer two 
hours for small firms and four hours for large firms. This results in 
an hour burden of 68,156 and an equivalent cost burden of 
$12,992,578.\61\
---------------------------------------------------------------------------

    \61\ The burden is estimated as: [(395 small broker-dealers + 
(2,996 small registered-investment advisers) + 151 small insurers + 
10 small robo-advisers + 930 small pension consultants + 20 small 
investment company underwriters) x 2 hours] + [(1,499 large broker-
dealers + (12,986 large registered-investment advisers) + 32 large 
insurers + 190 large robo-advisers + 81 large pension consultants) x 
4 hours] = 68,156 hours. The equivalent cost is estimated as: {[(395 
small broker-dealers + (2,996 small registered-investment advisers) 
+ 151 small insurers + 10 small robo-advisers + 930 small pension 
consultants + 20 small investment company underwriters) x 2 hours] + 
[(1,499 large broker-dealers + (12,986 large registered-investment 
advisers) + 32 large insurers + 190 large robo-advisers + 81 large 
pension consultants) x 4 hours]{time}  x $190.63 = $12,992,578.

               Table 11--Hour Burden and Equivalent Cost Associated With the Retrospective Review
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Legal...........................................          46,695      $7,440,454          46,695      $7,440,454
Senior Executive Staff..........................          68,156      12,992,578          68,156      12,992,578
                                                 ---------------------------------------------------------------
    Total.......................................         114,851      20,433,032         114,851      20,433,032
----------------------------------------------------------------------------------------------------------------


[[Page 75998]]

1.6 Costs Associated With Written Policies and Procedures

    Under the original exemption, financial institutions were already 
required to maintain their policies and procedures. Robo-advisers, 
pension consultants, and investment company underwriters, who are not 
covered under the existing exemption may need to develop policies and 
procedures. The Department estimates that initially establishing, 
maintaining, and enforcing written policies and procedures prudently 
designed to ensure compliance with the Impartial Conduct Standards will 
take a legal professional five hours for small entities and 10 hours 
for large entities. The Department estimates the requirement would have 
an hour burden of 7,510 hours with an equivalent cost of $1,196,643 in 
the first year.\62\
---------------------------------------------------------------------------

    \62\ The burden is estimated as follows: [(930 small pension 
consultants + 10 small robo-adviser + 20 small investment company 
underwriters) x 5 hours] + [(81 large pension consultants + 190 
large robo-advisers) x 10 hours] = 7,510 hours. A labor rate of 
$159.34 is used for a legal professional. The labor rate is applied 
in the following calculation: {[(930 small pension consultants + 10 
small robo-adviser + 20 small investment company underwriters) x 5 
hours]{time}  x $159.34 = $1,196,643.

          Table 12--Hour Burden and Equivalent Cost Associated With Developing Policies and Procedures
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Clerical........................................           7,510      $1,196,463               0              $0
                                                 ---------------------------------------------------------------
    Total.......................................           7,510       1,196,643               0               0
----------------------------------------------------------------------------------------------------------------

    The proposed amendments would require financial institutions to 
provide their complete policies and procedures to the Department upon 
request. Based on the number of cases in the past and current open 
cases that would merit such a request, the Department estimates that 
the Department would request 165 policies and procedures in the first 
year and 50 policies and procedures in subsequent years. The Department 
estimates that it will take a clerical worker 15 minutes to prepare and 
send their complete policies and procedures to the Department resulting 
in an hourly burden of approximately 41 hours in the first year. 
Assuming an hourly wage rate for clerical personnel of $63.45, the 
estimated cost burden in the first year is $2,617.\63\ In subsequent 
years, the Department estimates that the requirement would result in an 
hour burden of approximately 13 hours with an equivalent cost of 
$793.\64\ The Department assumes financial institutions would send the 
documents electronically and thus would not incur costs for postage or 
materials.
---------------------------------------------------------------------------

    \63\ The burden is estimated as follows: [(165 policies and 
procedures x 15 minutes) / 60 minutes] = 41 hours. A labor rate of 
$63.45 is used for a clerical worker. The labor rate is applied in 
the following calculation: [(165 policies and procedures x 15 
minutes) / 60 minutes] x $63.45 = $2,617.
    \64\ The burden is estimated as follows: [(50 policies and 
procedures x 15 minutes) / 60 minutes] = 13 hours. A labor rate of 
$63.45 is used for a clerical worker. The labor rate is applied in 
the following calculation: [(50 policies and procedures x 15 
minutes) / 60 minutes] x $63.45 = $793.

  Table 13--Hour Burden and Equivalent Cost Associated With Providing Policies and Procedures to the Department
----------------------------------------------------------------------------------------------------------------
                                                              Year 1                     Subsequent years
----------------------------------------------------------------------------------------------------------------
                                                                    Equivalent                      Equivalent
                    Activity                       Burden hours     burden cost    Burden hours     burden cost
----------------------------------------------------------------------------------------------------------------
Clerical........................................              41          $2,617              13            $793
                                                 ---------------------------------------------------------------
    Total.......................................              41           2,617              13             793
----------------------------------------------------------------------------------------------------------------

1.7 Overall Summary

    The paperwork burden estimates are summarized as follows:
    Type of Review: Revision of an existing collection.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Fiduciary Proposed Transaction Exemption.
    OMB Control Number: 1210-0163.
    Affected Public: Business or other for-profit institution.
    Estimated Number of Respondents: 19,290.
    Estimated Number of Annual Responses: 6,504,119.
    Frequency of Response: Initially, Annually, and when engaging in 
exempted transaction.
    Estimated Total Annual Burden Hours: 1,044,050.
    Estimated Total Annual Burden Cost: $167,296.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \65\ imposes certain 
requirements on rules subject to the notice and comment requirements of 
section 553(b) of the Administrative Procedure Act or any other 
law.\66\ Under section 603 of the RFA, agencies must submit an initial 
regulatory flexibility analysis (IRFA) of a proposal that is likely to 
have a significant economic impact on a substantial number of small 
entities, such as small businesses, organizations, and governmental 
jurisdictions. This proposed amended exemption, along with related 
amended exemptions and a proposed rule amendment published elsewhere in 
this issue of the Federal Register, is part of a rulemaking regarding 
the definition of fiduciary investment advice, which the Department has 
determined likely will have a significant economic impact on a 
substantial number of small entities. The impact of this proposed 
amendment on small entities is included in the IRFA

[[Page 75999]]

for the entire project, which can be found in the related notice of 
proposed rulemaking found elsewhere in this edition of the Federal 
Register.
---------------------------------------------------------------------------

    \65\ 5 U.S.C. 601 et seq.
    \66\ 5 U.S.C. 601(2), 603(a); see 5 U.S.C. 551.
---------------------------------------------------------------------------

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 \67\ requires 
each Federal agency to prepare a written statement assessing the 
effects of any Federal mandate in a proposed or final rule that may 
result in an expenditure of $100 million or more (adjusted annually for 
inflation with the base year 1995) in any 1 year by state, local, and 
tribal governments, in the aggregate, or by the private sector. For 
purposes of the Unfunded Mandates Reform Act, as well as Executive 
Order 12875, this proposed amended exemption does not include any 
Federal mandate that will result in such expenditures.
---------------------------------------------------------------------------

    \67\ Public Law 104-4, 109 Stat. 48 (Mar. 22, 1995).
---------------------------------------------------------------------------

Federalism Statement

    Executive Order 13132 outlines fundamental principles of 
federalism. It also requires Federal agencies to adhere to specific 
criteria in formulating and implementing policies that have 
``substantial direct effects'' on the states, the relationship between 
the national government and states, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have these federalism 
implications must consult with State and local officials, and describe 
the extent of their consultation and the nature of the concerns of 
State and local officials in the preamble to the final regulation. 
Notwithstanding this, Section 514 of ERISA provides, with certain 
exceptions specifically enumerated, that the provisions of Titles I and 
IV of ERISA supersede any and all laws of the States as they relate to 
any employee benefit plan covered under ERISA.
    The Department does not intend this exemption to change the scope 
or effect of ERISA section 514, including the savings clause in ERISA 
section 514(b)(2)(A) for State regulation of securities, banking, or 
insurance laws. Ultimately, the Department does not believe this 
proposed class exemption has federalism implications because it has no 
substantial direct effect on the States, on the relationship between 
the National government and the States, or on the distribution of power 
and responsibilities among the various levels of government.

General Information

    The attention of interested persons is directed to the following: 
(1) The fact that a transaction is the subject of an exemption under 
ERISA section 408(a) and Code section 4975(c)(2) does not relieve a 
fiduciary, or other party in interest or disqualified person with 
respect to a Plan, 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 
act prudently and discharge his or her duties respecting the Plan 
solely in the interests of the participants and beneficiaries of the 
Plan. Additionally, the fact that a transaction is the subject of an 
exemption does not affect the requirement of Code section 401(a) that 
the Plan must operate for the exclusive benefit of the employees of the 
employer maintaining the Plan and their beneficiaries; (2) Before the 
proposed exemption may be granted under ERISA section 408(a) and Code 
section 4975(c)(2), 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 the Plan and IRA owners; 
(3) If granted, the proposed exemption is applicable to a particular 
transaction only if the transaction satisfies the conditions specified 
in the exemption; and (4) The proposed exemption, if granted, is 
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.
    The Department is proposing the following amendment on its own 
motion, pursuant to its authority under ERISA section 408(a) and Code 
section 4975(c)(2) and in accordance with procedures set forth in 29 
CFR part 2570, subpart B (76 FR 66637 (October 27, 2011)).\68\
---------------------------------------------------------------------------

    \68\ Reorganization Plan No. 4 of 1978 (5 U.S.C. App. 1 (2018)) 
generally transferred the authority of the Secretary of the Treasury 
to grant administrative exemptions under Code section 4975 to the 
Secretary of Labor.
---------------------------------------------------------------------------

Prohibited Transaction Exemption 2020-02, Improving Investment Advice 
for Workers & Retirees

Section I--Transactions

(a) In General
    ERISA Title I (Title I) and the Internal Revenue Code (the Code) 
prohibit fiduciaries, as defined, that provide investment advice to 
Plans and individual retirement accounts (IRAs) from receiving 
compensation that varies based on their investment advice and 
compensation that is paid from third parties. Title I and the Code also 
prohibit fiduciaries from engaging in purchases and sales with Plans or 
IRAs on behalf of their own accounts (principal transactions). This 
exemption permits Financial Institutions and Investment Professionals 
who provide fiduciary investment advice to Retirement Investors to 
receive otherwise prohibited compensation and engage in riskless 
principal transactions and certain other principal transactions 
(Covered Principal Transactions) as described below.
    The exemption provides relief from the prohibitions of ERISA 
section 406(a)(1)(A), (D), and 406(b), and the sanctions imposed by 
Code section 4975(a) and (b), by reason of Code section 4975(c)(1)(A), 
(D), (E), and (F), if the Financial Institutions and Investment 
Professionals provide fiduciary investment advice in accordance with 
the conditions set forth in Section II and are eligible pursuant to 
Section III, subject to the definitional terms and recordkeeping 
requirements in Sections IV and V.
(b) Covered Transactions
    This exemption permits Financial Institutions and Investment 
Professionals, and their Affiliates and Related Entities, to engage in 
the following transactions, including as part of a rollover from a Plan 
to an IRA as defined in Code section 4975(e)(1)(B) or (C), as a result 
of the provision of investment advice within the meaning of ERISA 
section 3(21)(A)(ii) and Code section 4975(e)(3)(B):
    (1) The receipt of reasonable compensation; and
    (2) The purchase or sale of an asset in a riskless principal 
transaction or a Covered Principal Transaction, and the receipt of a 
mark-up, mark-down, or other payment.
(c) Exclusions
    This exemption does not apply if:
    (1) The Plan is covered by Title I and the Investment Professional, 
Financial Institution, or any Affiliate providing investment advice is

[[Page 76000]]

    (A) the employer of employees covered by the Plan, or
    (B) the Plan's named fiduciary or administrator; provided however 
that a named fiduciary or administrator or their Affiliate may rely on 
the exemption if it is: (i) selected to provide investment advice by a 
fiduciary who is Independent of the Financial Institution, Investment 
Professional, and their Affiliates, or (ii) a Pooled Plan Provider 
(PPP) registered with the Department under 29 CFR 2510.3-44; or
    (2) The transaction involves the Investment Professional or 
Financial Institution acting in a fiduciary capacity other than as an 
investment advice fiduciary within the meaning of ERISA section 
3(21)(A)(ii) and Code section 4975(e)(3)(B).

Section II--Investment Advice Arrangement

    Section II(a) requires Investment Professionals and Financial 
Institutions to comply with Impartial Conduct Standards, including a 
best interest standard, when providing fiduciary investment advice to 
Retirement Investors. In addition, Section II(b) requires Financial 
Institutions to acknowledge fiduciary status under Title I and/or the 
Code, and provide investors with a statement of the best interest 
standard of care, a written description of the services they will 
provide and their Conflicts of Interest, rollover disclosure (as 
applicable), Financial Institution, and additional disclosure with 
respect to Pooled Employer Plans (as applicable). Section II(c) 
requires Financial Institutions to adopt policies and procedures 
prudently designed to ensure compliance with the Impartial Conduct 
Standards when providing fiduciary investment advice to Retirement 
Investors regarding compliance with the Impartial Conduct Standards. 
Section II(d) requires the Financial Institution to conduct a 
retrospective review of compliance with the Impartial Conduct Standards 
and the policies and procedures. Section II(e) allows Financial 
Institutions to correct certain violations of the exemption conditions 
and continue to rely upon the exemption for relief.
(a) Impartial Conduct Standards
    The Financial Institution and Investment Professional comply with 
the following ``Impartial Conduct Standards'':
    (1) Investment advice is, at the time it is provided, in the Best 
Interest of the Retirement Investor. As defined in Section V(b), such 
advice: (A) reflects the care, skill, prudence, and diligence under the 
circumstances then prevailing that a prudent person acting in a like 
capacity and familiar with such matters would use in the conduct of an 
enterprise of a like character and with like aims, based on the 
investment objectives, risk tolerance, financial circumstances, and 
needs of the Retirement Investor; and (B) does not place the financial 
or other interests of the Investment Professional, Financial 
Institution or any Affiliate, Related Entity, or other party ahead of 
the interests of the Retirement Investor, or subordinate the Retirement 
Investor's interests to their own. For example, in choosing between two 
investments offered and available to the Retirement Investor from the 
Financial Institution, it is not permissible for the Investment 
Professional to advise investing in the one that is worse for the 
Retirement Investor but better or more profitable for the Investment 
Professional or the Financial Institution.
    (2)(A) The compensation received, directly or indirectly, by the 
Financial Institution, Investment Professional, their Affiliates and 
Related Entities for their services does not exceed reasonable 
compensation within the meaning of ERISA section 408(b)(2) and Code 
section 4975(d)(2); and (B) as required by the Federal securities laws, 
the Financial Institution and Investment Professional seek to obtain 
the best execution of the investment transaction reasonably available 
under the circumstances; and
    (3) The Financial Institution's and its Investment Professionals' 
statements (written and oral) to the Retirement Investor about the 
recommended transaction and other relevant matters are not, at the time 
statements are made, materially misleading. For purposes of this 
paragraph, the term ``materially misleading'' includes omitting 
information that is needed to prevent the statement from being 
misleading to the Retirement Investor under the circumstances.
(b) Disclosure
    Prior to engaging in a transaction pursuant to this exemption, the 
Financial Institution provides the disclosures set forth in (1)-(4) to 
the Retirement Investor:
    (1) A written acknowledgment that the Financial Institution and its 
Investment Professionals are providing fiduciary investment advice to 
the Retirement Investor and are fiduciaries under Title I, the Code, or 
both when making an investment recommendation;
    (2) A written statement of the Best Interest standard of care owed 
by the Investment Professional and Financial Institution to the 
Retirement Investor;
    (3) A written description of the services to be provided and the 
Financial Institution's and Investment Professional's material 
Conflicts of Interest that is accurate and not misleading in any 
material respect. This description will include a statement on whether 
the Retirement Investor will pay for such services, directly or 
indirectly, including through Third-Party Payments. If, for example, 
the Retirement Investor will pay through commissions or transaction-
based payments, the written statement must clearly disclose that fact. 
This statement must be written in plain English, taking into 
consideration a Retirement Investor's level of financial experience;
    (4) A written statement that the Retirement Investor has the right 
to obtain specific information regarding costs, fees, and compensation, 
described in dollar amounts, percentages, formulas, or other means 
reasonably designed to present full and fair disclosure that is 
materially accurate in scope, magnitude, and nature, with sufficient 
detail to permit the Retirement Investor to make an informed judgment 
about the costs of the transaction and about the significance and 
severity of the Conflicts of Interest, and that describes how the 
Retirement Investor can get the information, free of charge;
    (5) Rollover disclosure. Before engaging in a rollover, or making a 
recommendation to a Plan participant as to the post-rollover investment 
of assets currently held in a Plan, the Financial Institution and 
Investment Professional must consider and document the basis for their 
conclusions as to whether a rollover is in the Retirement Investor's 
Best Interest, and must provide that documentation to the Retirement 
Investor. Relevant factors to consider must include but are not limited 
to:
    (A) the alternatives to a rollover, including leaving the money in 
the Plan or account type, as applicable;
    (B) the fees and expenses associated with the Plan and the 
recommended investment or account;
    (C) whether an employer or other party pays for some or all of the 
Plan's administrative expenses; and
    (D) the different levels of services and investments available 
under the Plan and the recommended investment or account.
    (6) The Financial Institution will not fail to satisfy the 
conditions in Section II(b) solely because it, acting in good faith and 
with reasonable diligence, makes an error or omission in disclosing the 
required information, provided that

[[Page 76001]]

the Financial Institution discloses the correct information as soon as 
practicable, but not later than 30 days after the date on which it 
discovers or reasonably should have discovered the error or omission.
    (7) Investment Professionals and Financial Institutions may rely in 
good faith on information and assurances from the other entities that 
are not Affiliates as long as they do not know or have reason to know 
that such information is incomplete or inaccurate.
    (8) The Financial Institution is not required to disclose 
information pursuant to this Section II(b) if such disclosure is 
otherwise prohibited by law.
(c) Policies and Procedures
    (1) The Financial Institution establishes, maintains, and enforces 
written policies and procedures prudently designed to ensure that the 
Financial Institution and its Investment Professionals comply with the 
Impartial Conduct Standards in connection with covered fiduciary advice 
and transactions.
    (2) The Financial Institution's policies and procedures mitigate 
Conflicts of Interest to the extent that a reasonable person reviewing 
the policies and procedures and incentive practices as a whole would 
conclude that they do not create an incentive for a Financial 
Institution or Investment Professional to place their interests ahead 
of the interests of the Retirement Investor. Financial Institutions may 
not use quotas, appraisals, performance or personnel actions, bonuses, 
contests, special awards, differential compensation, or other similar 
actions or incentives that are intended, or that a reasonable person 
would conclude are likely, to result in recommendations that are not in 
Retirement Investors' Best Interest.
    (3) Financial Institutions must provide their complete policies and 
procedures to the Department upon request within 10 business days of 
request.
(d) Retrospective Review
    (1) The Financial Institution conducts a retrospective review, at 
least annually, that is reasonably designed to assist the Financial 
Institution in detecting and preventing violations of, and achieving 
compliance with, this exemption, including the Impartial Conduct 
Standards and the policies and procedures governing compliance with the 
exemption. The Financial Institution updates the policies and 
procedures as business, regulatory, and legislative changes and events 
dictate, and to ensure they remain prudently designed, effective, and 
compliant with Section II(c).
    (2) The methodology and results of the retrospective review are 
reduced to a written report that is provided to a Senior Executive 
Officer.
    (3) A Senior Executive Officer of the Financial Institution 
certifies, annually, that:
    (A) The officer has reviewed the report of the retrospective 
review;
    (B) The Financial Institution has filed (or will file timely, 
including extensions) Form 5330 reporting any non-exempt prohibited 
transactions discovered by the Financial Institution in connection with 
investment advice covered under Code section 4975(e)(3)(B), corrected 
those transactions, and paid any resulting excise taxes owed under Code 
section 4975;
    (C) The Financial Institution has written policies and procedures 
that meet the conditions set forth in Section II(c)(1); and
    (D) The Financial Institution has in place a prudent process to 
modify such policies and procedures as set forth in Section II(d)(1).
    (4) The review, report, and certification are completed no later 
than six months following the end of the period covered by the review.
    (5) The Financial Institution retains the report, certification, 
and supporting data for a period of six years and makes the report, 
certification, and supporting data available to the Department, within 
10 business days of request, to the extent permitted by law including 
12 U.S.C. 484 (regarding limitations on visitorial powers for national 
banks).
(e) Self-Correction
    A non-exempt prohibited transaction will not occur due to a 
violation of the exemption's conditions with respect to a transaction, 
provided:
    (1) Either the violation did not result in investment losses to the 
Retirement Investor or the Financial Institution made the Retirement 
Investor whole for any resulting losses;
    (2) The Financial Institution corrects the violation and notifies 
the Department of Labor of the violation and the correction via email 
to <a href="/cdn-cgi/l/email-protection#4e07070f191c0e2a212260292138"><span class="__cf_email__" data-cfemail="a8e1e1e9fffae8ccc7c486cfc7de">[email protected]</span></a> within 30 days of correction;
    (3) The correction occurs no later than 90 days after the Financial 
Institution learned of the violation or reasonably should have learned 
of the violation; and
    (4) The Financial Institution notifies the person(s) responsible 
for conducting the retrospective review during the applicable review 
cycle and the violation and correction is specifically set forth in the 
written report of the retrospective review required under subsection 
II(d)(2).

Section III--Eligibility

(a) General
    Subject to the timing and scope provisions set forth in subsection 
(b) and the opportunity to be heard as set forth in subsection (c), an 
Investment Professional or Financial Institution will be ineligible to 
rely on the exemption with respect to any transaction, if the Financial 
Institution, its Affiliate, or Investment Professional is described in 
(1) or (2):
    (1) The Investment Professional or Financial Institution has been 
convicted either:
    (A) by a U.S. Federal or state court as a result of any felony 
involving abuse or misuse of such person's employee benefit plan 
position or employment, or position or employment with a labor 
organization; any felony arising out of the conduct of the business of 
a broker, dealer, investment adviser, bank, insurance company or 
fiduciary; income tax evasion; any felony involving larceny, theft, 
robbery, extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities; conspiracy or attempt to commit any such crimes or a crime 
in which any of the foregoing crimes is an element; or a crime that is 
identified or described in ERISA section 411; or
    (B) by a foreign court of competent jurisdiction as a result of any 
crime, however denominated by the laws of the relevant foreign or state 
government, that is substantially equivalent to an offense described in 
(A).
    For purposes of this section (a)(1), a person shall be deemed to 
have been convicted of a crime as of the ``conviction date,'' which is 
the date of the judgment of the trial court (or the date of the 
judgment of any court in a foreign jurisdiction that is the equivalent 
of a U.S. Federal or state trial court), regardless of whether that 
judgment remains under appeal.
    (2) The Investment Professional or Financial Institution has 
received a written ineligibility notice issued by the Department for:
    (A) engaging in a systematic pattern or practice of violating the 
conditions of this exemption in connection with otherwise non-exempt 
prohibited transactions;
    (B) intentionally violating the conditions of this exemption in 
connection with otherwise non-exempt prohibited transactions;

[[Page 76002]]

    (C) engaging in a systematic pattern or practice of failing to 
correct prohibited transactions, report those transactions to the IRS 
on Form 5330 and pay the resulting excise taxes imposed by Code section 
4975 in connection with non-exempt prohibited transactions involving 
investment advice under Code section 4975(e)(3)(B); or
    (D) providing materially misleading information to the Department 
in connection with the conditions of the exemption.
(b) Timing and Scope of Ineligibility
    (1) Ineligibility shall begin six months after:
    (A) the conviction date defined in Section (a)(1);
    (B) the date of the Department's written determination under 
Section (c)(1)(C) for a petition regarding a foreign conviction; or
    (C) the date of the written ineligibility notice described in 
subsection (a)(2).
    (2) A person shall become eligible to rely on this exemption again 
only upon the earliest of the following:
    (A) the date of a subsequent judgment reversing such person's 
conviction described in (a)(1);
    (B) 10 years after the person became ineligible under Section 
III(b)(1) or 10 years after the person was released from imprisonment 
as a result of a crime described in (a)(1), if later; or
    (C) the date, if any, the Department grants an individual exemption 
(which may impose additional conditions) to the person permitting its 
continued reliance on this exemption notwithstanding the conviction.
(c) Opportunity To Be Heard
    (1) Foreign Convictions.
    (A) A Financial Institution, its Affiliate, or an Investment 
Professional that has been convicted by a foreign court of competent 
jurisdiction as provided in subsection (a)(1)(B)), the Financial 
Institution or Investment Professional may submit a petition to the 
Department that informs the Department of the conviction and seeks the 
Department's determination that the Financial Institution's continued 
reliance on the exemption would not be contrary to the purposes of the 
exemption. Petitions must be submitted to the Department within 10 
business days after the conviction date by email to <a href="/cdn-cgi/l/email-protection#125b5b53454052767d7e3c757d64"><span class="__cf_email__" data-cfemail="80c9c9c1d7d2c0e4efecaee7eff6">[email protected]</span></a>.
    (B) Following receipt of the petition, the Department will provide 
the Investment Professional or Financial Institution with the 
opportunity to be heard in person (including by phone or 
videoconference), in writing, or a combination thereof. The opportunity 
to be heard will be limited to one conference unless the Department 
determines in its sole discretion to allow additional conferences.
    (C) Following the hearing, the Department will issue a written 
determination to the Financial Institution or Investment Professional, 
as applicable, articulating the basis for its determination whether or 
not to allow the Financial Institution or Investment Professional to 
continue relying on PTE 2020-02.
    (2) Written Ineligibility Notice. Prior to issuing a written 
ineligibility notice, the Department will issue a written warning to 
the Investment Professional or Financial Institution, as applicable, 
identifying specific conduct implicating subsection (a)(2) and 
providing a six-month opportunity to cure. At the end of the six-month 
period, if the Department determines that the Investment Professional 
or Financial Institution has not taken appropriate action to prevent 
recurrence of the disqualifying conduct, it will provide the Investment 
Professional or Financial Institution with the opportunity to be heard, 
in person (including by phone or videoconference), in writing, or a 
combination, before the Department issues the written ineligibility 
notice. The opportunity to be heard will be limited to one conference 
unless the Department determines in its sole discretion to allow 
additional conferences. The written ineligibility notice will 
articulate the basis for the determination that the Investment 
Professional or Financial Institution engaged in conduct described in 
subsection (a)(2).
    (3) Department's Considerations. For hearings under (c)(1) and 
(c)(2), the Department will consider: the gravity of the offense; the 
degree to which the underlying conduct concerned individual misconduct, 
or, alternately, corporate managers or policy; recency of the conduct 
at issue; any remedial measures taken; and other factors the Department 
determines in its discretion are reasonable in light of the nature and 
purposes of the exemption.
(d) Alternative Exemptions
    A Financial Institution or Investment Professional that is 
ineligible to rely on this exemption may rely on a statutory or 
separate administrative prohibited transaction exemption if one is 
available or seek an individual prohibited transaction exemption from 
the Department. To the extent an applicant seeks retroactive relief in 
connection with an exemption application, the Department will consider 
the application in accordance with its retroactive exemption policy as 
set forth in 29 CFR 2570.35(d). The Department may require additional 
prospective compliance conditions as a condition of retroactive relief.

Section IV--Recordkeeping

    The Financial Institution maintains for a period of six years 
records demonstrating compliance with this exemption and makes such 
records available, to the extent permitted by law including 12 U.S.C. 
484, to any authorized employee of the Department or the Department of 
the Treasury.

Section V--Definitions

    (a) ``Affiliate'' means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the Investment Professional or Financial Institution. (For this 
purpose, ``control'' would mean the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual);
    (2) Any officer, director, partner, employee, or relative (as 
defined in ERISA section 3(15)), of the Investment Professional or 
Financial Institution; and
    (3) Any corporation or partnership of which the Investment 
Professional or Financial Institution is an officer, director, or 
partner.
    (b) Advice is in a Retirement Investor's ``Best Interest'' if such 
advice (A) reflects the care, skill, prudence, and diligence under the 
circumstances then prevailing that a prudent person acting in a like 
capacity and familiar with such matters would use in the conduct of an 
enterprise of a like character and with like aims, based on the 
investment objectives, risk tolerance, financial circumstances, and 
needs of the Retirement Investor, and (B) does not place the financial 
or other interests of the Investment Professional, Financial 
Institution or any Affiliate, Related Entity, or other party ahead of 
the interests of the Retirement Investor, or subordinate the Retirement 
Investor's interests to their own.
    (c) A ``Conflict of Interest'' is an interest that might incline a 
Financial Institution or Investment Professional--consciously or 
unconsciously--to make a recommendation that is not in the Best 
Interest of the Retirement Investor.
    (d) A ``Covered Principal Transaction'' is a principal transaction 
that:
    (1) For sales to a Plan or an IRA:
    (A) Involves a U.S. dollar denominated debt security issued by a 
U.S. corporation and offered pursuant to

[[Page 76003]]

a registration statement under the Securities Act of 1933, a U.S. 
Treasury Security, a debt security issued or guaranteed by a U.S. 
federal government agency other than the U.S. Department of the 
Treasury, a debt security issued or guaranteed by a government-
sponsored enterprise, a municipal security, a certificate of deposit, 
an interest in a Unit Investment Trust, or any investment permitted to 
be sold by an investment advice fiduciary to a Retirement Investor 
under an individual exemption granted by the Department after the 
effective date of this exemption that includes the same conditions as 
this exemption; and
    (B) A debt security may only be recommended in accordance with 
written policies and procedures adopted by the Financial Institution 
that are reasonably designed to ensure that the security, at the time 
of the recommendation, has no greater than moderate credit risk and 
sufficient liquidity that it could be sold at or near carrying value 
within a reasonably short period of time; and
    (2) For purchases from a Plan or an IRA, involves any securities or 
investment property.
    (e) ``Financial Institution'' means an entity that is not 
suspended, barred or otherwise prohibited (including under Section III 
of this exemption) from making investment recommendations by any 
insurance, banking, or securities law or regulatory authority 
(including any self-regulatory organization), that employs the 
Investment Professional or otherwise retains such individual as an 
independent contractor, agent or registered representative, and that 
is:
    (1) Registered as an investment adviser under the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) or under the laws of the 
state in which the adviser maintains its principal office and place of 
business;
    (2) A bank or similar financial institution supervised by the 
United States or a state, or a savings association (as defined in 
section 3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(b)(1)));
    (3) An insurance company qualified to do business under the laws of 
a state, that: (A) has obtained a Certificate of Authority from the 
insurance commissioner of its domiciliary state which has neither been 
revoked nor suspended; (B) has undergone and shall continue to undergo 
an examination by an independent certified public accountant for its 
last completed taxable year or has undergone a financial examination 
(within the meaning of the law of its domiciliary state) by the state's 
insurance commissioner within the preceding five years, and (C) is 
domiciled in a state whose law requires that an actuarial review of 
reserves be conducted annually and reported to the appropriate 
regulatory authority;
    (4) A broker or dealer registered under the Securities Exchange Act 
of 1934 (15 U.S.C. 78a et seq.); or
    (5) An entity that is described in the definition of Financial 
Institution in an individual exemption granted by the Department after 
the date of this exemption that provides relief for the receipt of 
compensation in connection with investment advice provided by an 
investment advice fiduciary under the same conditions as this class 
exemption.
    (f) For purposes of subsection I(c)(1), a fiduciary is 
``Independent'' of the Financial Institution and Investment 
Professional if:
    (1) the fiduciary is not the Financial Institution, Investment 
Professional, or an Affiliate;
    (2) the fiduciary does not have a relationship to or an interest in 
the Financial Institution, Investment Professional, or any Affiliate 
that might affect the exercise of the fiduciary's best judgment in 
connection with transactions covered by the exemption; and
    (3) the fiduciary does not receive and is not projected to receive 
within the current Federal income tax year, compensation or other 
consideration for his or her own account from the Financial 
Institution, Investment Professional, or an Affiliate, in excess of 2% 
of the fiduciary's annual revenues based upon its prior income tax 
year.
    (g) ``Individual Retirement Account'' or ``IRA'' means any plan 
that is an account or annuity described in Code section 4975(e)(1)(B) 
through (F).
    (h) ``Investment Professional'' means an individual who:
    (1) Is a fiduciary of a Plan or an IRA by reason of the provision 
of investment advice described in ERISA section 3(21)(A)(ii) or Code 
section 4975(e)(3)(B), or both, and the applicable regulations, with 
respect to the assets of the Plan or IRA involved in the recommended 
transaction;
    (2) Is an employee, independent contractor, agent, or 
representative of a Financial Institution; and
    (3) Satisfies the Federal and state regulatory and licensing 
requirements of insurance, banking, and securities laws (including 
self-regulatory organizations) with respect to the covered transaction, 
as applicable, and is not disqualified or barred from making investment 
recommendations by any insurance, banking, or securities law or 
regulatory authority (including any self-regulatory organization).
    (i) ``Plan'' means any employee benefit plan described in ERISA 
section 3(3) and any plan described in Code section 4975(e)(1)(A).
    (j) A ``Pooled Employer Plan'' or ``PEP'' means a pooled employer 
plan described in ERISA section 3(43).
    (k) A ``Pooled Plan Provider'' or ``PPP'' means a pooled plan 
provider described in ERISA section 3(44).
    (l) ``Riskless Principal Transaction'' means a transaction in which 
a Financial Institution, after having received an order from a 
Retirement Investor to buy or sell an asset, purchases or sells the 
asset for the Financial Institution's own account to offset the 
contemporaneous transaction with the Retirement Investor. A Riskless 
Principal Transaction is not a Covered Principal Transaction.
    (m) A ``Related Entity'' is any party that is not an Affiliate, but 
which either has, or in which the Investment Professional or Financial 
Institution has, an interest that may affect best judgment as a 
fiduciary.
    (n) ``Retirement Investor'' means:
    (1) A participant or beneficiary of a Plan with authority to direct 
the investment of assets in their account or to take a distribution;
    (2) The beneficial owner of an IRA acting on behalf of the IRA; or
    (3) A fiduciary acting on behalf of a Plan or an IRA.
    (o) A ``Senior Executive Officer'' is any of the following: the 
chief compliance officer, the chief executive officer, president, chief 
financial officer, or one of the three most senior officers of the 
Financial Institution.
    (p) ``Third-Party Payments'' include sales charges when not paid 
directly to the Financial Institution by the Plan, from a participant 
or beneficiary's account, or from an IRA; gross dealer concessions; 
revenue sharing payments; 12-1 fees; distribution, solicitation or 
referral fees; volume-based fees; fees for seminars and educational 
programs; and any other compensation, consideration, or financial 
benefit provided to the Financial Institution or an Affiliate or 
Related Entity by a third party as a result of a transaction involving 
a Plan, participant or beneficiary account, or IRA.

    Signed at Washington, DC, this 24th day of October, 2023.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2023-23780 Filed 11-2-23; 8:45 am]
BILLING CODE 4510-29-P


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