75890 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2510 

RIN 1210–AC02 

Retirement Security Rule: Definition of 

an Investment Advice Fiduciary 

AGENCY: Employee Benefits Security 

Administration, Department of Labor. 

ACTION: Proposed rule. 

SUMMARY: This document contains a 

proposed amendment to the regulation 

defining when a person renders 

‘‘investment advice for a fee or other 

compensation, direct or indirect’’ with 

respect to any moneys or other property 

of an employee benefit plan, for 

purposes of the definition of a 

‘‘fiduciary’’ in the Employee Retirement 

Income Security Act of 1974 (Title I of 

ERISA or the Act). The proposal also 

would amend the parallel regulation 

defining for purposes of Title II of 

ERISA, a ‘‘fiduciary’’ of a plan defined 

in Internal Revenue Code (Code) section 

4975, including an individual 

retirement account. The Department 

also is publishing elsewhere in today’s 

Federal Register proposed amendments 

to Prohibited Transaction Exemption 

2020–02 (Improving Investment Advice 

for Workers & Retirees) and to several 

other existing administrative 

exemptions from the prohibited 

transaction rules applicable to 

fiduciaries under Title I and Title II of 

ERISA. 

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 

the Federal Register. 

ADDRESSES: You may submit written 

comments, identified by RIN 1210– 

AC02, by any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for sending comments. 

• Mail: Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration, Room N–5655, 

U.S. Department of Labor, 200 

Constitution Ave. NW, Washington, DC 

20210, Attention: Definition of 

Fiduciary—RIN 1210–AC02. 

Instructions: All submissions must 

include the agency name and Regulatory 

Identifier Number (RIN) for this 

rulemaking. If you submit comments 

electronically, do not submit paper 

copies. 

Warning: Do not include any 

personally identifiable information or 

confidential business information that 

you do not want publicly disclosed. 

Comments are public records posted on 

the internet as received and can be 

retrieved by most internet search 

engines. 

Docket: For access to the docket to 

read background documents, including 

the plain-language summary of the 

proposed rule of not more than 100 

words in length required by the 

Providing Accountability Through 

Transparency Act of 2023, or comments, 

go to the Federal eRulemaking Portal at 

https://www.regulations.gov. Comments 

will be available to the public, without 

charge, online at http://

www.regulations.gov and http://

www.dol.gov/agencies/ebsa and at the 

Public Disclosure Room, Employee 

Benefits Security Administration, Room 

N–1513, 200 Constitution Ave, NW, 

Washington, DC 20210. 

FOR FURTHER INFORMATION CONTACT: 

• For questions regarding the 

proposed rule: contact Luisa GrilloChope, Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration (EBSA), 202– 

693–8510. (Not a toll-free number). 

• For questions regarding the 

prohibited transaction exemptions: 

contact Susan Wilker, Office of 

Exemption Determinations, EBSA, 202– 

693–8540. (Not a toll-free number). 

• For questions regarding the 

Regulatory Impact Analysis: contact 

James Butikofer, Office of Research and 

Analysis, EBSA, 202–693–8434. (Not a 

toll-free number). 

Customer Service Information: 

Individuals interested in obtaining 

information from the Department of 

Labor concerning Title I of ERISA and 

employee benefit plans may call the 

Employee Benefits Security 

Administration (EBSA) Toll-Free 

Hotline, at 1–866–444–EBSA (3272) or 

visit the Department of Labor’s website 

(http://www.dol.gov/agencies/ebsa). 

SUPPLEMENTARY INFORMATION: 

A. Executive Summary 

The Department of Labor is proposing 

a new regulatory definition of an 

investment advice fiduciary for 

purposes of Title 1 and Title II of the 

Employee Retirement Income Security 

Act (ERISA). As compared to the 

existing regulatory definition, which 

dates to 1975, the proposal better 

reflects the text and the purposes of the 

statute and better protects the interests 

of retirement investors, consistent with 

the mission of the Department’s 

Employee Benefits Security 

Administration to ensure the security of 

the retirement, health, and other 

workplace-related benefits of America’s 

workers and their families. 

The Department proposes that a 

person would be an investment advice 

fiduciary under Title I and Title II of 

ERISA if they provide investment 

advice or make an investment 

recommendation to a retirement 

investor (i.e., a plan, plan fiduciary, 

plan participant or beneficiary, IRA, IRA 

owner or beneficiary or IRA fiduciary); 

the advice or recommendation is 

provided ‘‘for a fee or other 

compensation, direct or indirect,’’ as 

defined in the proposed rule; and the 

person makes the recommendation in 

one of the following contexts: 

• The person either directly or indirectly 

(e.g., through or together with any affiliate) 

has discretionary authority or control, 

whether or not pursuant to an agreement, 

arrangement, or understanding, with respect 

to purchasing or selling securities or other 

investment property for the retirement 

investor; 

• The person either directly or indirectly 

(e.g., through or together with any affiliate) 

makes investment recommendations to 

investors on a regular basis as part of their 

business and the recommendation is 

provided under circumstances indicating that 

the recommendation is based on the 

particular needs or individual circumstances 

of the retirement investor and may be relied 

upon by the retirement investor as a basis for 

investment decisions that are in the 

retirement investor’s best interest; or 

• The person making the recommendation 

represents or acknowledges that they are 

acting as a fiduciary when making 

investment recommendations. 

The proposal is designed to ensure 

that ERISA’s fiduciary standards 

uniformly apply to all advice that 

retirement investors receive concerning 

investment of their retirement assets in 

a way that ensures that retirement 

investors’ reasonable expectations are 

honored when receiving advice from 

financial professionals who hold 

themselves out as trusted advice 

providers. The Department’s proposal 

fills an important gap in those advice 

relationships where advice is not 

currently required to be provided in the 

retirement investor’s best interest, and 

the investor may not be aware of that 

fact. 

Together with proposed amendments 

to administrative exemptions from the 

prohibited transaction rules applicable 

to fiduciaries under Title I and Title II 

of ERISA published elsewhere in this 

issue of the Federal Register, the 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75891 

1The references in this document to a ‘‘fiduciary’’ 

are intended to mean an ERISA fiduciary unless 

otherwise stated. 

2 29 U.S.C. 1001, et seq. 

3Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 

(1983). 

4ERISA section 404, 29 U.S.C. 1104. 

5Harris Trust Sav. Bank v. Salomon Smith 

Barney Inc., 530 U.S. 238, 241–42 (2000) (citation 

and quotation marks omitted). 

6ERISA section 406(b)(1), (3), 29 U.S.C. 

1106(b)(1), (3). 

7ERISA section 408(a), 29 U.S.C. 1108(a). 

8This proposal includes some references to the 

Code in the context of discussions of Title II of 

ERISA involving specific provisions codified in the 

Code. The Department understands that references 

to the Code are useful but emphasizes that both 

Title I and Title II are covered by the same 

definition of fiduciary and the same general 

framework of prohibited transactions, and that, 

under both Title I and Title II, fiduciaries must 

comply with the conditions of an available 

prohibited transaction exemption in order to engage 

in an otherwise prohibited transaction. 

9For purposes of the proposed rule, the term 

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

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

includes individual retirement accounts, individual 

retirement annuities, health savings accounts, and 

certain other tax-advantaged trusts and plans. 

However, for purposes of any rollover of assets 

between a Title I Plan and an IRA described in this 

preamble, the term ‘‘IRA’’ includes only an account 

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

or (C). Additionally, while the Department uses the 

term ‘‘retirement investor’’ throughout this 

document to describe advice recipients, that is not 

intended to suggest that the fiduciary definition 

would apply only with respect to employee pension 

benefit plans and IRAs that are retirement savings 

vehicles. As discussed herein, the rule would apply 

with respect to plans as defined in Title I and Title 

II of ERISA that make investments. In this regard, 

see also proposed paragraph (f)(11) that provides 

that the term ‘‘investment property’’ ‘‘does not 

include health insurance policies, disability 

insurance policies, term life insurance policies, or 

other property to the extent the policies or property 

do not contain an investment component.’’ 

10 26 U.S.C. 4975(c)(1); cf. id. at 4975(f)(5), which 

defines ‘‘correction’’ with respect to prohibited 

transactions as placing a plan or an IRA in a 

financial position not worse than it would have 

been in if the person had acted ‘‘under the highest 

fiduciary standards.’’ 

11Sec. 1, Public Law 98–532, 98 Stat. 2705 (Oct. 

19, 1984). 

12 5 U.S.C. App. (2018). 

13ERISA section 3(21)(A), 29 U.S.C. 1002(21)(A). 

proposal is intended to protect the 

interests of retirement investors by 

requiring investment advice providers 

to adhere to stringent conduct standards 

and mitigate their conflicts of interest. 

The proposals’ compliance obligations 

are generally consistent with the best 

interest obligations set forth in the 

Securities and Exchange Commission’s 

(SEC’s) Regulation Best Interest and its 

Commission Interpretation Regarding 

Standard of Conduct for Investment 

Advisers (SEC Investment Adviser 

Interpretation), each released in 2019. 

The Department anticipates that the 

most significant benefits of the 

proposals will stem from the uniform 

application of the ERISA fiduciary 

standard and exemption conditions to 

investment advice to retirement 

investors. Under the proposals, advice 

providers would be subject to a common 

fiduciary standard that would reduce 

retirement investor exposure to 

conflicted advice that erodes investment 

returns and would be obligated to 

adhere to protective conflict-mitigation 

requirements.1 Requiring advice 

providers to compete under a common 

fiduciary standard will be especially 

beneficial with respect to those 

transactions that currently are not 

uniformly covered by fiduciary 

protections consistent with ERISA’s 

high standards, including 

recommendations to roll over assets 

from a workplace retirement plan to an 

IRA (e.g., in those cases in which the 

advice provider is not subject to Federal 

securities law standards and, as is often 

the case, does not have an ongoing and 

preexisting relationship with the 

customer); investment 

recommendations with respect to many 

commonly purchased retirement 

annuities, such as fixed index annuities; 

and investment recommendations to 

plan fiduciaries. 

B. Background 

1. Title I and Title II of ERISA and the 

1975 Rule 

ERISA2 is a ‘‘comprehensive statute 

designed to promote the interests of 

employees and their beneficiaries in 

employee benefit plans.’’ 3 Under the 

statutory framework, Title I of ERISA 

imposes duties and restrictions on 

individuals who are ‘‘fiduciaries’’ with 

respect to employee benefit plans. In 

particular, fiduciaries to Title I plans 

must adhere to duties of prudence and 

loyalty. ERISA section 404 provides that 

Title I plan fiduciaries must act with 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,’’ and they also must discharge 

their duties with respect to a plan 

‘‘solely in the interest of the participants 

and beneficiaries.’’ 4

These fiduciary duties, which are 

rooted in the common law of trusts, are 

reinforced by prohibitions against 

transactions involving conflicts of 

interest because of the dangers such 

transactions pose to plans and their 

participants. The prohibited transaction 

provisions of ERISA, including Title II 

of ERISA which is codified in the 

Internal Revenue Code (Code), 

‘‘categorically bar[]’’ plan fiduciaries 

from engaging in transactions deemed 

‘‘likely to injure the pension plan.’’ 5

These prohibitions broadly forbid a 

fiduciary from ‘‘deal[ing] with the assets 

of the plan in his own interest or for his 

own account,’’ and ‘‘receiv[ing] any 

consideration for his own personal 

account from any party dealing with 

such plan in connection with a 

transaction involving the assets of the 

plan.’’ 6 Congress also gave the 

Department authority to grant 

conditional administrative exemptions 

from the prohibited transaction 

provisions, but only if the Department 

finds that the exemption is (1) 

administratively feasible for the 

Department, (2) in the interests of the 

plan and of its participants and 

beneficiaries, and (3) protective of the 

rights of participants and beneficiaries 

of such plan.7

Title II of ERISA, codified in the 

Code,8 governs the conduct of 

fiduciaries to plans defined in Code 

section 4975(e)(1), which includes 

IRAs.9 Some plans defined in Code 

section 4975(e)(1) are also covered by 

Title I of ERISA, but the definitions of 

such plans are not identical. Although 

Title II, as codified in the Code, does not 

directly impose specific duties of 

prudence and loyalty on fiduciaries as 

in ERISA section 404(a), it prohibits 

fiduciaries from engaging in conflicted 

transactions on many of the same terms 

as Title I.10 Under the Reorganization 

Plan No. 4 of 1978, which Congress 

subsequently ratified in 1984,11 the 

Department was generally granted 

authority to interpret the fiduciary 

definition and issue administrative 

exemptions from the prohibited 

transaction provisions in Code section 

4975.12

Many of the protections, duties, and 

liabilities in both Title I and Title II of 

ERISA hinge on fiduciary status; 

therefore, the determination of who is a 

‘‘fiduciary’’ is of central importance. 

ERISA includes a statutory definition of 

a fiduciary at section 3(21)(A), which 

provides that a person is a fiduciary 

with respect to a plan to the extent the 

person (i) exercises any discretionary 

authority or discretionary control 

respecting management of such plan or 

exercises any authority or control 

respecting management or disposition of 

its assets, (ii) renders investment advice 

for a fee or other compensation, direct 

or indirect, with respect to any moneys 

or other property of such plan, or has 

any authority or responsibility to do so, 

or (iii) has any discretionary authority 

or discretionary responsibility in the 

administration of such plan.13 The same 


lotter on DSK11XQN23PROD with PROPOSALS3
75892 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

14 26 U.S.C. 4975(e)(3). 

15 40 FR 50842 (Oct. 31, 1975). 

16 40 FR 50840 (Oct. 31, 1975). The issuance of 

this regulation pre-dated The Reorganization Plan 

No. 4 of 1978, and thus authority to issue this 

regulatory definition under Title II of ERISA was 

still with the Department of the Treasury. 

17Regulation Best Interest: The Broker-Dealer 

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

18Commission Interpretation Regarding Standard 

of Conduct for Investment Advisers, 84 FR 33669 

(July 12, 2019). 

19Regulation Best Interest release, 84 FR 33318, 

33330 (July 12, 2019). 

20 Id. at 33318. 

21Available at www.naic.org/store/free/MDL– 

275.pdf. 

definition of a fiduciary is in Code 

section 4975(e)(3).14

These statutory definitions broadly 

assign fiduciary status for purposes of 

Title I and Title II of ERISA. Thus, ‘‘any 

authority or control’’ over plan assets is 

sufficient to confer fiduciary status, and 

any person who renders ‘‘investment 

advice for a fee or other compensation, 

direct or indirect’’ is an investment 

advice fiduciary, regardless of whether 

they have direct control over the plan’s 

assets, and regardless of their status 

under another statutory or regulatory 

regime. In the absence of fiduciary 

status, persons who provide investment 

advice would neither be subject to Title 

I of ERISA’s fundamental fiduciary 

standards, nor responsible under Title I 

and Title II of ERISA for avoiding 

prohibited transactions. The broad 

statutory definition, prohibitions on 

conflicts of interest, and core fiduciary 

obligations of prudence and loyalty (as 

applicable) all reflect Congress’ 

recognition in 1974, when it passed 

ERISA, of the fundamental importance 

of investment advice to protect the 

interests of retirement savers. 

In 1975, shortly after ERISA was 

enacted, the Department issued a 

regulation at 29 CFR 2510.3–21(c)(1) 

that defined the circumstances under 

which a person renders ‘‘investment 

advice’’ to an employee benefit plan 

within the meaning of section 

3(21)(A)(ii) of ERISA, such that said 

person would be a fiduciary under 

ERISA.15 The regulation narrowed the 

plain and expansive language of section 

3(21)(A)(ii), creating a five-part test that 

must be satisfied in order for a person 

to be treated as a fiduciary by reason of 

rendering investment advice. Under the 

five-part test, a person is a fiduciary 

only if they: (1) render advice as to the 

value of securities or other property, or 

make recommendations as to the 

advisability of investing in, purchasing, 

or selling securities or other property (2) 

on a regular basis (3) pursuant to a 

mutual agreement, arrangement, or 

understanding with the plan or a plan 

fiduciary that (4) the advice will serve 

as a primary basis for investment 

decisions with respect to plan assets, 

and that (5) the advice will be 

individualized based on the particular 

needs of the plan. The Department of 

the Treasury issued a virtually identical 

regulation under Code section 

4975(e)(3), at 26 CFR 54.4975–9(c)(1), 

which applies to plans defined in Code 

section 4975.16

Since 1975, the retirement plan 

landscape has changed significantly, 

with a shift from defined benefit plans 

(in which decisions regarding 

investment of plan assets are primarily 

made by professional asset managers) to 

defined contribution/individual account 

plans such as 401(k) plans (in which 

decisions regarding investment of plan 

assets are often made by plan 

participants themselves). In 1975, IRAs 

had only recently been created (by 

ERISA itself), and 401(k) plans did not 

yet exist. Retirement assets were 

principally held in pension funds 

controlled by large employers and 

professional money managers. Now, 

IRAs and participant-directed plans, 

such as 401(k) plans, have become more 

common retirement vehicles as opposed 

to traditional pension plans, and 

rollovers of employee benefit plan assets 

to IRAs are commonplace. Individuals, 

regardless of their financial literacy, 

have thus become increasingly 

responsible for their own retirement 

savings. 

The shift toward individual control 

over retirement investing (and the 

associated shift of risk to individuals) 

has been accompanied by a dramatic 

increase in the variety and complexity 

of financial products and services, 

which has widened the information gap 

between investment advice providers 

and their clients. Plan participants and 

other retirement investors may be 

unable to assess the quality of the 

advice they receive or be aware of and 

guard against the investment advice 

provider’s conflicts of interest. 

However, as a result of the five-part test 

in the 1975 rule, many investment 

professionals, consultants, and financial 

advisers have no obligation to adhere to 

the fiduciary standards in Title I of 

ERISA or to the prohibited transaction 

rules, despite the critical role they play 

in guiding plan and IRA investments. In 

many situations, this disconnect serves 

to undermine the reasonable 

expectations of retirement investors in 

today’s marketplace; a retirement 

investor may reasonably expect that the 

advice they are receiving is fiduciary 

advice even when it is not. If these 

investment advice providers are not 

fiduciaries under Title I or Title II of 

ERISA, they do not have obligations 

under Federal pension law to either 

avoid prohibited transactions or comply 

with the protective conditions in a 

prohibited transaction exemption (PTE). 

Recently, other regulators have 

recognized the need for change in the 

regulation of investment 

recommendations and have imposed 

enhanced conduct standards on 

financial professionals that make 

investment recommendations, including 

broker-dealers and insurance agents. As 

a result, the regulatory landscape today 

is very different than it was even five 

years ago. In 2019, the SEC adopted 

Regulation Best Interest, which 

established an enhanced best interest 

standard of conduct applicable to 

broker-dealers when making a 

recommendation of any securities 

transaction or investment strategy 

involving securities to retail 

customers.17 The SEC also issued its 

SEC Investment Adviser Interpretation, 

which addressed the conduct standards 

applicable to investment advisers under 

the Investment Advisers Act of 1940 

(Advisers Act).18 As the SEC has 

repeatedly stated, ‘‘key elements of the 

standard of conduct that applies to 

broker-dealers under Regulation Best 

Interest will be substantially similar to 

key elements of the standard of conduct 

that applies to investment advisers 

pursuant to their fiduciary duty under 

the Advisers Act.’’ 19 In this connection, 

the SEC has also stressed that 

Regulation Best Interest ‘‘aligns the 

standard of conduct with retail 

customers’ reasonable 

expectations[.]’’ 20

In 2020, the National Association of 

Insurance Commissioners (NAIC) also 

revised its Suitability In Annuity 

Transactions Model Regulation to 

provide that insurance agents must act 

in the consumer’s best interest, as 

defined by the Model Regulation, when 

making a recommendation of an 

annuity. Under the Model Regulation, 

insurers would also be expected to 

establish and maintain a system to 

supervise recommendations so that the 

insurance needs and financial objectives 

of consumers at the time of the 

transaction are effectively addressed.21

The goal of the NAIC working group 

was ‘‘to seek clear, enhanced standards 

for annuity sales so consumers 

understand the products they purchase, 

are made aware of any material conflicts 

of interest, and are assured those selling 

the products do not place their financial 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75893 

22See https://content.naic.org/cipr-topics/ 

annuity-suitability-best-interest-standard. 

23NAIC Annuity Suitability & Best Interest 

Standard web page, https://content.naic.org/ciprtopics/annuity-suitability-best-interest-standard. 

24The SEC stated in the Regulation Best Interest 

release that ‘‘there is broad acknowledgment of the 

benefits of, and support for, the continuing 

existence of the broker-dealer business model, 

including a commission or other transaction-based 

compensation structure, as an option for retail 

customers seeking investment recommendations.’’ 

84 FR 33318, 33319 (July 12, 2019). The NAIC 

Model Regulation, section 6.5.M defines a 

recommendation as ‘‘advice provided by a producer 

to an individual consumer that was intended to 

result or does result in a purchase, an exchange or 

a replacement of an annuity in accordance with that 

advice.’’ Section 5.B., defines ‘‘cash compensation’’ 

as ‘‘any discount, concession, fee, service fee, 

commission, sales charge, loan, override, or cash 

benefit received by a producer in connection with 

the recommendation or sale of an annuity from an 

insurer, intermediary, or directly from the 

consumer.’’ (Emphasis added). 

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

Interest Rule—Retirement Investment Advice, 81 FR 

20946 (Apr. 8, 2016). The Department issued its 

first proposal to amend the regulatory definition of 

an investment advice fiduciary in 2010. 75 FR 

65263 (Oct. 22, 2010). The first proposed 

rulemaking provided for a 90-day comment period, 

from October 22, 2010, through January 20, 2011. 

The comment period was extended for 14 days. The 

Department held a public hearing in Washington, 

DC, on March 1–2, 2011, after which the 

Department welcomed public comment for 15 days 

in order for commenters to supplement hearing 

testimony or otherwise provide additional 

comments. That proposal was withdrawn, and the 

Department issued a second proposal in 2015 along 

with related proposed prohibited transaction 

exemptions and proposed amendments to existing 

exemptions. 80 FR 21928 (Apr. 20, 2015). The 2015 

proposal and proposed related exemptions initially 

provided for 75-day comment periods, ending on 

July 6, 2015, but the Department extended the 

comment periods to July 21, 2015. Before finalizing 

the 2015 proposals, the Department held a public 

hearing in Washington, DC on August 10–13, 2015, 

at which over 75 speakers testified. The transcript 

of the hearing was made available on September 8, 

2015, and the Department provided additional 

opportunity for interested persons to submit 

comments on the proposal and proposed related 

exemptions or on the transcript until September 24, 

2015. A total of over 3,000 comment letters were 

received on the 2015 proposals. There were also 

over 300,000 submissions made as part of 30 

separate petitions submitted on the proposals. 

These comments and petitions, which came from 

consumer groups, plan sponsors, financial services 

companies, academics, elected government 

officials, trade and industry associations, and 

others, were both in support of and in opposition 

to the 2015 proposals. 

26This refers to the requirement in the 1975 

regulation that, in order for fiduciary status to 

attach, investment advice must be provided by the 

person ‘‘on a regular basis.’’ 29 CFR 2510.3– 

21(c)(1)(ii)(B). 

interests above consumers’ interests.’’ 22

According to the NAIC, as of August 23, 

2023, 43 jurisdictions have 

implemented the revisions to the model 

regulation.23

These regulatory efforts reflect the 

understanding that broker-dealers and 

insurance agents commonly make 

recommendations to their customers for 

which they are compensated as a regular 

part of their business; that investors rely 

upon these recommendations; and that 

regulatory protections are important to 

ensure that the advice is in the best 

interest of the retail customer, in the 

case of broker-dealers, or consumers, in 

the case of insurance agents.24 After 

careful review of the existing regulatory 

landscape, the Department too has 

concluded that existing regulations 

should be revised to reflect current 

realities in light of the text and purposes 

of Title I of ERISA and the Code. 

In the current landscape, the existing 

1975 regulation no longer serves 

ERISA’s purpose to protect the interests 

of retirement investors, especially given 

the growth of participant-directed 

investment arrangements and IRAs, the 

conflicts of interest associated with 

investment recommendations, and the 

pressing need for plan participants, IRA 

owners, and their beneficiaries to 

receive sound advice from sophisticated 

financial advisers when making critical 

investment decisions in an increasingly 

complex financial marketplace. As the 

SEC and NAIC recognized, many 

different types of financial 

professionals, including insurance 

agents, broker-dealers, advisers subject 

to the Advisers Act, and others, make 

recommendations to investors for which 

they are compensated, and investors 

rightly rely upon these 

recommendations with an expectation 

that they are receiving advice that is in 

their interest. Like these other 

regulators, the Department has 

concluded that it is appropriate to 

revisit the existing regulatory structure 

to ensure that it properly and uniformly 

protects the financial interests of 

retirement investors as Congress 

intended. As reflected in this regulatory 

package, after evaluation of the types of 

investment advisory relationships that 

should give rise to ERISA fiduciary 

status, the Department has concluded 

that it is appropriate to revise the 

regulatory definition of an investment 

advice fiduciary under Title I and Title 

II of ERISA in the manner set forth 

herein. 

2. Prior Rulemakings 

The Department began the process of 

reexamining the regulatory definition of 

an investment advice fiduciary under 

Title I and Title II of ERISA in 2010. 

After issuing two notices of proposed 

rules, conducting multiple days of 

public hearings, and over six years of 

deliberations, on April 8, 2016, the 

Department replaced the 1975 

regulation with a new regulatory 

definition (the ‘‘2016 Final Rule’’), 

which applied under Title I and Title II 

of ERISA.25 In the preamble to the 2016 

Final Rule, the Department noted that 

the 1975 five-part test had been created 

in a very different context and 

investment advice marketplace. The 

Department expressed concern that 

specific elements of the five-part test— 

which are not found in the text of Title 

I or Title II of ERISA—worked to defeat 

retirement investors’ legitimate 

expectations when they received 

investment advice from trusted advice 

providers in the modern marketplace for 

financial advice. 

The Department identified the 

‘‘regular basis’’ element 26 in the fivepart test as a particularly important 

example of the 1975 regulation’s 

shortcomings. The Department stated 

that the requirement that advice be 

provided on a ‘‘regular basis’’ had failed 

to draw a sensible line between 

fiduciary and non-fiduciary conduct 

and had undermined the Act’s 

protective purpose. The Department 

pointed to examples of transactions in 

which a discrete instance of advice can 

be of critical importance to the plan, 

such as a one-time purchase of a group 

annuity to cover all of the benefits 

promised to substantially all of a plan’s 

participants for the rest of their lives 

when a defined benefit plan terminates, 

or a plan’s expenditure of hundreds of 

millions of dollars on a single real estate 

transaction based on the 

recommendation of a financial adviser 

hired for purposes of that one 

transaction. 

The Department likewise expressed 

concern that the requirements in the 

1975 regulation of a ‘‘mutual agreement, 

arrangement, or understanding’’ that 

advice would serve as ‘‘a primary basis 

for investment decisions’’ had 

encouraged investment advice providers 

in the current marketplace to use fine 

print disclaimers as potential means of 

avoiding ERISA fiduciary status, even as 

they marketed themselves as providing 

tailored or individualized advice based 

on the retirement investor’s best 

interest. Additionally, the Department 

noted that the ‘‘primary basis’’ element 

of the five-part test appeared in tension 

with the statutory text and purposes of 

Title I and Title II of ERISA. If, for 

example, a prudent plan fiduciary hires 

multiple specialized advisers for an 

especially complex transaction, it 

should be able to rely upon any or all 

of the consultants that it hired to render 

advice regardless of arguments about 

whether one could characterize the 

advice, in some sense, as primary, 

secondary, or tertiary. 

In adopting the 2016 Final Rule, the 

Department presented an economic 


lotter on DSK11XQN23PROD with PROPOSALS3
75894 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

27U.S. Department of Labor, Fiduciary 

Investment Advice Regulatory Impact Analysis 

(2016), available at https://www.dol.gov/sites/ 

dolgov/files/EBSA/laws-and-regulations/rules-andregulations/completed-rulemaking/1210-AB32-2/ 

ria.pdf. 

28See 81 FR 20946, 20964 (Apr. 8, 2016). 

29 Id. at 20949 fn. 7 (citing Cerulli Associates, 

‘‘U.S. Retirement Markets 2015’’). 

30 Id. 

31 81 FR 21002 (Apr. 8, 2016). 

32 81 FR 21089 (Apr. 8, 2016). 

33 81 FR 21139 (Apr. 8, 2016); 81 FR 21147 (Apr. 

8, 2016); 81 FR 21181 (Apr. 8, 2016); 81 FR 21208 

(Apr. 8, 2016). 

analysis demonstrating that investment 

advice providers are compensated in 

ways that create conflicts of interest, 

which can bias investment advice and 

erode plan and IRA investment 

results.27 The Department noted that 

many of the consultants and advisers 

who provide investment-related advice 

and recommendations received 

compensation from the financial 

institutions whose investment products 

they recommend, and that this can give 

the consultants and advisers a strong 

bias, conscious or unconscious, to favor 

investments that provide them greater 

compensation rather than those that 

may be most appropriate for the 

retirement investors. The Department 

also found that consolidation of the 

financial services industry and 

developments in compensation 

arrangements multiplied the 

opportunities for self-dealing and 

reduced the transparency of fees. Most 

significantly, the Department explained 

in its analysis that, in the absence of the 

2016 Final Rule, the underperformance 

associated with conflicts of interest in 

the mutual funds segment alone could 

have cost IRA investors between $95 

billion and $189 billion over the 

following 10 years and between $202 

billion and $404 billion over the 

following 20 years. While these 

projected losses were substantial, they 

represented only a portion of what IRA 

investors stood to lose as a result of 

conflicted investment advice. 

The Department expected that 

compliance with the 2016 Final Rule 

would deliver large gains for retirement 

investors by reducing these losses. The 

Department cited evidence that holding 

broker-dealer representatives to 

fiduciary standards at the State level 

does not impair access to their services. 

Additionally, the Department noted that 

financial services firms already were 

moving toward more fee-based advice 

models, considering flatter 

compensation models, and integrating 

technology. The Department anticipated 

that the rule would accelerate these 

types of innovations for the benefit of 

plan and IRA investors. 

The 2016 Final Rule defined an 

investment advice fiduciary for 

purposes of Title I or Title II of ERISA 

in a way that would apply fiduciary 

status in a wider array of advice 

relationships than the five-part test in 

the 1975 regulation. The 2016 Final 

Rule generally covered: (1) 

recommendations by a person who 

represents or acknowledges that they are 

acting as a fiduciary within the meaning 

of ERISA; (2) advice rendered pursuant 

to a written or verbal agreement, 

arrangement or understanding that the 

advice is based on the particular 

investment needs of the retirement 

investor; and, most expansively, (3) 

recommendations directed to a specific 

retirement investor or investors 

regarding the advisability of a particular 

investment or management decision 

with respect to securities or other 

investment property of the plan or IRA. 

One main issue highlighted in the 

2016 Final Rule involved the protection 

of retirement investors in the context of 

recommendations to roll over assets 

from workplace retirement plans to 

IRAs.28 As the Department noted, 

decisions to take a benefit distribution 

or engage in rollover transactions are 

among the most, if not the most, 

important financial decisions that plan 

participants and beneficiaries and IRA 

owners and beneficiaries are called 

upon to make. The Department 

explained that when an individual is a 

participant in a workplace retirement 

plan, their employer or other plan 

sponsor has both the incentive and the 

fiduciary duty to facilitate sound 

investment choices, while in an IRA, 

both good and bad investment choices 

are more numerous, and investment 

advice providers often operate under 

conflicts of interest. The Department 

illustrated the consequence of these 

rollovers to both individuals and 

investment advice providers, by 

pointing out that rollovers from 

employee benefit plans to IRAs were 

expected to approach $2.4 trillion 

cumulatively from 2016 through 2020.29

Investment advice providers have a 

strong economic incentive to 

recommend that investors roll over 

assets into one of their institutions’ 

IRAs, whether from a plan or from an 

IRA account at another financial 

institution, or even between different 

account types. The 2016 Final Rule also 

specifically superseded a 2005 Advisory 

Opinion, 2005–23A (commonly known 

as the Deseret Letter) which had opined 

that it is not fiduciary investment advice 

under Title I of ERISA to make a 

recommendation as to distribution 

options from an employee benefit plan, 

even if accompanied by a 

recommendation as to where the 

distribution would be invested.30

On the same date it published the 

2016 Final Rule, the Department also 

published two new administrative class 

exemptions from the prohibited 

transaction provisions of Title I and 

Title II of ERISA: the Best Interest 

Contract Exemption (BIC Exemption) 31

and the Class Exemption for Principal 

Transactions in Certain Assets Between 

Investment Advice Fiduciaries and 

Employee Benefit Plans and IRAs 

(Principal Transactions Exemption).32

The Department granted the new 

exemptions with the objective of 

promoting the provision of investment 

advice that is in the best interest of 

retail investors such as plan participants 

and beneficiaries, IRA owners and 

beneficiaries, and certain plan 

fiduciaries, including small plan 

sponsors. 

The new exemptions included 

conditions designed to protect the 

interests of the retirement investors 

receiving advice. The exemptions 

required investment advice fiduciaries 

to adhere to the following ‘‘Impartial 

Conduct Standards’’: providing advice 

in retirement investors’ best interest; 

charging no more than reasonable 

compensation; and making no 

misleading statements about investment 

transactions and other important 

matters. In the case of IRAs and nonTitle I plans, the exemption required 

these standards to be set forth in an 

enforceable contract with the retirement 

investor, which also was required to 

include certain warranties and 

disclosures. The exemption further 

provided that parties could not rely on 

the exemption if they included 

provisions in their contracts disclaiming 

liability for compensatory remedies or 

waiving or qualifying retirement 

investors’ right to pursue a class action 

or other representative action in court. 

In conjunction with the new 

exemptions, the Department also made 

amendments to pre-existing exemptions, 

namely PTEs 75–1, 77–4, 80–83, 83–1, 

84–24 and 86–128, to require 

compliance with the Impartial Conduct 

Standards and to make certain other 

changes.33

3. Litigation Over the 2016 Rulemaking 

The 2016 Final Rule and related new 

and amended exemptions (collectively, 

the 2016 Rulemaking) was challenged in 

multiple lawsuits. In National 

Association for Fixed Annuities v. 

Perez, a district court in the District of 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75895 

34Nat’l Assoc. for Fixed Annuities v. Perez, 217 

F.Supp.3d 1 (D.D.C. 2016) [hereinafter NAFA]. On 

December 15, 2016, the U.S. Court of Appeals for 

the District of Columbia denied an emergency 

request to stay application of the definition or the 

exemptions pending an appeal of the district court’s 

ruling. Nat’l Assoc. for Fixed Annuities v. Perez, 

No. 16–5345, 2016 BL 452075 (D.C. Cir. 2016). 

35NAFA, 217 F. Supp. 3d at 23, 27–28. 

36 885 F.3d 676 (10th Cir. 2018); see Thrivent 

Financial for Lutherans v. Acosta, No. 16–CV– 

03289, 2017 WL 5135552 (D. Minn. Nov. 3, 2017) 

(granting the Department’s motion for a stay and the 

plaintiff’s motion for a preliminary injunction, with 

respect to Thrivent’s suit challenging the BIC 

Exemption’s bar on class action waivers as 

exceeding the Department’s authority and as 

unenforceable under the Federal Arbitration Act). 

37Chamber of Commerce v. Hugler, 231 F. Supp. 

3d 152 (N.D. Tex. Feb. 8, 2017) (finding, among 

other things, that in the 2016 Final Rule, the 

Department reasonably removed the ‘‘regular basis’’ 

requirement; and noting, ‘‘if anything, however, the 

five-part test is the more difficult interpretation to 

reconcile with who is a fiduciary under ERISA.’’). 

38See Chamber, 885 F.3d 360 (5th Cir. 2018). But 

see id. at 391 (‘‘Noting in the phrase ‘renders 

investment advice for a fee or other compensation’ 

suggests that the statute applies only in the limited 

context accepted by the panel majority.’’) (Stewart, 

C.J., dissenting). 

39 Id. at 369 (citing Nationwide Mut. Ins. Co. v. 

Darden, 503 U.S. 318, 322 (1992)); see id. at 376 

(‘‘In short, whether one looks at DOL’s original 

regulation, the SEC, Federal and state legislation 

governing investment adviser fiduciary status vis-a`- 

vis broker-dealers, or case law tying investment 

advice for a fee to ongoing relationships between 

adviser and client, the answer is the same: 

‘investment advice for a fee’ was widely interpreted 

hand in hand with the relationship of trust and 

confidence that characterizes fiduciary status.’’). 

But see id. at 392 (‘‘One area in which Congress has 

departed from the common law of trusts is with the 

statutory definition of ‘fiduciary.’ ERISA does not 

define ‘fiduciary’ ‘in terms of formal trusteeship, 

but in functional terms of control and authority 

over the plan, . . . thus expanding the universe of 

persons subject to fiduciary duties . . .’’) (Stewart, 

C.J., dissenting) (quoting Mertens v. Hewitt Assocs., 

508 U.S. 248, 262 (1993)). As discussed herein, in 

the period since the Fifth Circuit decision, the SEC 

and the National Association of Insurance 

Commissioners (NAIC) have moved forward with 

strengthened standards for recommendations 

provided by broker-dealers and insurance agents, 

respectively. 

40 Id. at 384. 

41 Id. 

42See id. 

43Code section 4975(a), (b). 

44Chamber, 885 F.3d 360, 384–85 (5th Cir. 2018); 

see Code section 4975. 

45Available at https://www.dol.gov/agencies/ 

ebsa/employers-and-advisers/guidance/fieldassistance-bulletins/2018-02. 46 85 FR 40834 (July 7, 2020). 47 Id. at 40835. 48 85 FR 40589 (July 7, 2020). 

Columbia upheld the 2016 Rulemaking 

in the context of a broad challenge on 

multiple grounds.34 Among other 

things, the court found that the 2016 

Final Rule comports with both the text 

and the purpose of ERISA, and it noted 

‘‘if anything, it is the five-part test—and 

not the current rule—that is difficult to 

reconcile with the statutory text. 

Nothing in the phrase ‘renders 

investment advice’ suggests that the 

statute applies only to advice provided 

‘on a regular basis.’ ’’ 35 Relatedly, in 

Market Synergy v. United States 

Department of Labor, the U.S. Court of 

Appeals for the Tenth Circuit affirmed 

a district court’s decision similarly 

upholding the 2016 Rulemaking as it 

applied to fixed indexed annuities.36

On March 15, 2018, however, the U.S. 

Court of Appeals for the Fifth Circuit 

(Fifth Circuit) overturned a district 

court’s decision upholding the validity 

of the 2016 Final Rule 37 and vacated the 

2016 Rulemaking in toto, in Chamber of 

Commerce v. United States Department 

of Labor (Chamber).38 The Fifth Circuit 

held that the 2016 Final Rule conflicted 

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

Code section 4975(e)(3)(B). Specifically, 

the Fifth Circuit found that the 2016 

Final Rule swept too broadly and 

extended to relationships that lacked 

‘‘trust and confidence,’’ which the court 

stated were hallmarks of the common 

law fiduciary relationship that Congress 

intended to incorporate into the 

statutory definitions. The court 

concluded that ‘‘all relevant sources 

indicate that Congress codified the 

touchstone of common law fiduciary 

status—the parties’ underlying 

relationship of trust and confidence— 

and nothing in the statute ‘requires’ 

departing from the touchstone.’’ 39

In addition to holding that the 2016 

Final Rule conflicted with the statutory 

definitions in Title I and Title II of 

ERISA, the Fifth Circuit in Chamber 

also determined that the 2016 

Rulemaking failed to honor the 

difference in the Department’s authority 

over employee benefit plans under Title 

I of ERISA and IRAs under Title II, by 

imposing ‘‘novel and extensive duties 

and liabilities on parties otherwise 

subject only to the prohibited 

transactions penalties.’’ 40 These 

included the conditions of the BIC 

Exemption and Principal Transactions 

Exemption that required financial 

institutions and individual fiduciary 

advisers to enter into contracts with 

their customers with specific duties, 

warranties, and disclosures, and forbade 

damages limitations and class action 

waivers.41 Under the Code, IRA 

investors do not have a private right of 

action.42 Instead, the primary remedy 

for a violation of the prohibited 

transaction provisions under the Code is 

the assessment of an excise tax.43 In the 

Fifth Circuit’s view, the Department had 

effectively exceeded its authority by 

giving IRA investors the ability to bring 

a private cause of action that Congress 

had not authorized.44

4. Field Assistance Bulletin No. 2018–02 

In response to the Fifth Circuit’s 

vacatur of the 2016 Rulemaking, on May 

7, 2018, the Department issued Field 

Assistance Bulletin 2018–02, Temporary 

Enforcement Policy on Prohibited 

Transactions Rules Applicable to 

Investment Advice Fiduciaries (FAB 

2018–02).45 FAB 2018–02 announced 

that, pending further guidance, the 

Department would not pursue 

prohibited transaction claims against 

fiduciaries who were working diligently 

and in good faith to comply with the 

Impartial Conduct Standards for 

transactions that would have been 

exempted in the BIC Exemption and 

Principal Transactions Exemption, or 

treat such fiduciaries as violating the 

applicable prohibited transaction rules. 

In adopting the temporary enforcement 

policy, the Department cited uncertainty 

about fiduciary obligations and the 

scope of exemptive relief following the 

court’s opinion that could disrupt 

existing investment advice 

arrangements to the detriment of 

retirement plans, retirement investors, 

and financial institutions, as well as the 

significant resources some financial 

institutions had devoted towards 

compliance with the BIC Exemption and 

the Principal Transactions Exemption. 

5. Subsequent Actions by the 

Department 

On July 7, 2020, the Department 

proposed a new prohibited transaction 

class exemption under Title I and Title 

II of ERISA for investment advice 

fiduciaries with respect to employee 

benefit plans and IRAs, called 

‘‘Improving Investment Advice for 

Workers & Retirees.’’ 46 The proposal 

stated it was in response to informal 

industry feedback seeking a permanent 

administrative class exemption based on 

FAB 2018–02.47 On the same day, the 

Department issued a technical 

amendment to the Code of Federal 

Regulations (CFR) reinserting the 1975 

regulation, reflecting the Fifth Circuit’s 

vacatur of the 2016 Final Rule.48 The 

technical amendment also reinserted 

into the CFR Interpretive Bulletin 96–1 

(IB 96–1) relating to participant 

investment education, which had been 

removed and largely incorporated into 

the text of the 2016 Final Rule. 

Additionally, the Department updated 

its website to reflect the fact that the 

pre-existing prohibited transaction 

exemptions that had been amended in 

the 2016 Rulemaking had been restored 

to their pre-amendment form, and also 

to reflect that the Department had 

withdrawn the Deseret Letter. 

On December 18, 2020, the 

Department adopted the Improving 


lotter on DSK11XQN23PROD with PROPOSALS3
75896 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

49 85 FR 82798 (Dec. 18, 2020). 

50New Fiduciary Advice Exemption: PTE 2020– 

02 Improving Investment Advice for Workers & 

Retirees Frequently Asked Questions, https://

www.dol.gov/agencies/ebsa/about-ebsa/ouractivities/resource-center/faqs/new-fiduciaryadvice-exemption. 

51Compl., Am. Sec. Ass’n. v. U.S. Dep’t of Labor, 

No. 8:22–CV–330VMC–CPT, 2023 WL 1967573 

(M.D. Fla. Feb. 13, 2023); Compl., Fed’n of Ams. for 

Consumer Choice v. U.S. Dep’t of Labor, No. 3:22– 

CV–00243–K–BT (N.D. Tex. Feb. 2, 2022). 

52Am. Sec. Ass’n. v. U.S. Dep’t of Labor, 2023 WL 

1967573, at * 22–23. 

53See Findings, Conclusions, and 

Recommendations of the United States Magistrate 

Judge, Fed’n of Ams. for Consumer Choice v. U.S. 

Dep’t of Labor, No. 3:22–CV–00243–K–BT, 2023 WL 

5682411, at *27–29 (N.D. Tex. June 30, 2023) 

[hereinafter FACC]. As of the date of this proposal, 

the district court judge has not yet taken action 

regarding the magistrate judge’s report and 

recommendations. 

54 84 FR 33318 (July 12, 2019). 

55 84 FR 33669 (July 12, 2019). 

56Form CRS Relationship Summary; 

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

2019). 

57Regulation Best Interest release, 84 FR 33318, 

33321 (July 12, 2019). 

58 Id. at 33318. 

59 Id. 

Investment Advice for Workers & 

Retirees exemption as PTE 2020–02.49

The exemption provides relief that is 

similar in scope to the BIC Exemption 

and the Principal Transactions 

Exemption, but it does not include 

contract or warranty provisions. The 

exemption expressly covers prohibited 

transactions resulting from both rollover 

advice and advice on how to invest 

assets within a plan or IRA, and 

imposes new conditions on investment 

advice fiduciaries providing such 

advice. In particular, PTE 2020–02 

mirrors the core of the BIC and Principal 

Transaction exemptions’ requirements 

of best interest standards of conduct and 

policies and procedures to ensure the 

advice is provided consistent with those 

standards. 

The preamble to PTE 2020–02 also 

included the Department’s 

interpretation of when advice to roll 

over assets from an employee benefit 

plan to an IRA would constitute 

fiduciary investment advice under the 

1975 regulation’s five-part test. As in the 

2016 Rulemaking, the Department again 

made clear in 2020 that rollover 

recommendations were a central 

concern in the regulation of fiduciary 

investment advice. Accordingly, the 

Department emphasized the importance 

to a retirement investor of the rollover 

decision, as well as the fact that 

investment advice providers may have a 

strong economic incentive to 

recommend that investors roll over 

assets into one of their institutions’ 

IRAs. 

The preamble interpretation 

confirmed the Department’s continued 

view that the Deseret Letter was 

incorrect, and that a recommendation to 

roll assets out of a Title I Plan is advice 

with respect to moneys or other 

property of the plan and, if provided by 

a person who satisfies all of the 

requirements of the regulatory test, 

constitutes fiduciary investment advice. 

The preamble interpretation also 

discussed when a recommendation to 

roll over assets from an employee 

benefit plan to an IRA would satisfy the 

‘‘regular basis’’ requirement. 

Additionally, the preamble set forth the 

Department’s interpretation of the 1975 

regulation’s requirement of ‘‘a mutual 

agreement, arrangement, or 

understanding’’ that the investment 

advice will serve as ‘‘a primary basis for 

investment decisions.’’ In April 2021, 

the Department issued Frequently 

Asked Questions (FAQs) that, among 

other things, summarized aspects of the 

preamble interpretation.50

The Department’s preamble 

interpretation and certain FAQs were 

challenged in two lawsuits filed after 

the issuance of PTE 2020–02.51 On 

February 13, 2023, the U.S. District 

Court for the Middle District of Florida 

issued an opinion vacating the policy 

referenced in FAQ 7 (entitled ‘‘When is 

advice to roll over assets from an 

employee benefit plan to an IRA 

considered to be on a ‘regular basis’?’’) 

and remanded it to the Department for 

future proceedings.52 On June 30, 2023, 

a magistrate judge in the Northern 

District of Texas filed a report with the 

judge’s findings, conclusions, and 

recommendations, including that the 

court should vacate portions of PTE 

2020–02 that permit consideration of 

actual or expected Title II investment 

advice relationships when determining 

Title I fiduciary status.53

6. Other Regulatory Developments 

U.S. Securities and Exchange 

Commission 

Since the vacatur of the Department’s 

2016 Rulemaking, other regulators have 

considered and adopted enhanced 

standards of conduct for investment 

professionals as a method of addressing, 

among other things, conflicts of interest. 

At the Federal level, on June 5, 2019, 

the SEC finalized a regulatory package 

relating to conduct standards for brokerdealers and investment advisers. The 

package included Regulation Best 

Interest, which established a best 

interest standard applicable to brokerdealers when making a recommendation 

of any securities transaction or 

investment strategy involving securities 

to retail customers.54 The SEC also 

issued its SEC Investment Adviser 

Interpretation regarding the conduct 

standards applicable to investment 

advisers under the Advisers Act.55 As 

part of the package, the SEC adopted 

new Form CRS, which requires 

registered investment advisers under the 

Advisers Act and registered brokerdealers to provide retail investors with 

a short relationship summary with 

specified information (SEC Form 

CRS).56

According to the SEC, these actions 

were designed to enhance and clarify 

the standards of conduct applicable to 

broker-dealers and investment advisers, 

help retail investors better understand 

and compare the services offered and 

make an informed choice of the 

relationship best suited to their needs 

and circumstances, and foster greater 

consistency in the level of protections 

provided by each regime, particularly at 

the point in time that a recommendation 

is made.57

The SEC’s Regulation Best Interest 

enhanced the broker-dealer standard of 

conduct ‘‘beyond existing suitability 

obligations.’’ 58 According to the SEC, 

this 

[A]lign[ed] the standard of conduct with 

retail customers’ reasonable expectations by 

requiring broker-dealers, among other things, 

to: Act in the best interest of the retail 

customer at the time the recommendation is 

made, without placing the financial or other 

interest of the broker-dealer ahead of the 

interests of the retail customer; and address 

conflicts of interest by establishing, 

maintaining, and enforcing policies and 

procedures reasonably designed to identify 

and fully and fairly disclose material facts 

about conflicts of interest, and in instances 

where [the SEC has] determined that 

disclosure is insufficient to reasonably 

address the conflict, to mitigate or, in certain 

instances, eliminate the conflict.59

Regulation Best Interest’s ‘‘best 

interest obligation’’ includes a 

Disclosure Obligation, a Care 

Obligation, a Conflict of Interest 

Obligation, and a Compliance 

Obligation. The Care Obligation requires 

broker-dealers, in making 

recommendations, to exercise 

reasonable diligence, care, and skill to: 

• Understand the potential risks, rewards, 

and costs associated with the 

recommendation, and have a reasonable basis 

to believe that the recommendation could be 

in the best interest of at least some retail 

customers; 

• Have a reasonable basis to believe that 

the recommendation is in the best interest of 

a particular retail customer based on that 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75897 

60 Id. at 33372. 

61 Id. at 33476. 

62 17 CFR 240.15l–1. 

63Regulation Best Interest release, 84 FR 33318, 

33320 (July 12, 2019). 

64 Id. at 33321. 

65 Id. at 33390. 

66 Id. at 33337. 

67 Id. at 33343–44. 

68 84 FR 33669 (July 12, 2019). 

69 Id. at 33671 (footnote omitted). 

70 Id. at 33670. 

71 Id. at 33671. 

72 Id. (footnote omitted). 

73 Id at 33670. See also id. n 17 citing authorities 

where the Commission previously recognized the 

broad scope of section 206 of the Advisers Act in 

a variety of contexts. 

74 84 FR 33492, 33493 (July 12, 2019). 

75 Id. SEC staff has since issued guidance on 

Regulation Best Interest, Form CRS, and related 

interpretations, including staff bulletins on care 

obligations, conflicts of interest, and account 

recommendations for retail investors, which are 

available at https://www.sec.gov/regulation-bestinterest. 

76 950 Mass. Code Regs. 12.204 & 12.207 as 

amended effective March 6, 2020; see Consent 

Order, In the Matter of Scottrade, Inc., No. E–2017– 

0045 (June 30, 2020); see also Enf’t Section of 

Massachusetts Sec. Div. of Office of Sec’y of 

Commonwealth v. Scottrade, Inc., 327 F. Supp. 3d 

345, 352 (D. Mass. 2018) (discussing enforcement 

actions under Massachusetts securities and other 

consumer protection laws). A challenge to the 

regulation was rejected by the Massachusetts 

Supreme Judicial Court. See Robinhood Fin. LLC v. 

Sec’y of Commonwealth of Mass, No. SJC–13381, 

2023 WL 5490571 (Mass. Aug. 25, 2023). 

retail customer’s investment profile and the 

potential risks, rewards, and costs associated 

with the recommendation and does not place 

the financial or other interest of the broker, 

dealer, or such natural person ahead of the 

interest of the retail customer; and 

• Have a reasonable basis to believe that a 

series of recommended transactions, even if 

in the retail customer’s best interest when 

viewed in isolation, is not excessive and is 

in the retail customer’s best interest when 

taken together in light of the retail customer’s 

investment profile and does not place the 

financial or other interest of the broker, 

dealer, or such natural person making the 

series of recommendations ahead of the 

interest of the retail customer.60

The Conflict of Interest Obligation 

requires the broker-dealer to establish, 

maintain and enforce written policies 

and procedures reasonably designed to: 

• Identify and at a minimum disclose, or 

eliminate, all conflicts of interest associated 

with such recommendations; 

• Identify and mitigate any conflicts of 

interest associated with such 

recommendations that create an incentive for 

a natural person who is an associated person 

of a broker or dealer to place the interest of 

the broker, dealer, or such natural person 

ahead of the interest of the retail customer; 

• Identify and disclose any material 

limitations placed on the securities or 

investment strategies involving securities 

that may be recommended to a retail 

customer and any conflicts of interest 

associated with such limitations, and prevent 

such limitations and associated conflicts of 

interest from causing the broker, dealer, or a 

natural person who is an associated person 

of the broker or dealer to make 

recommendations that place the interest of 

the broker, dealer, or such natural person 

ahead of the interest of the retail customer; 

and 

• Identify and eliminate any sales contests, 

sales quotas, bonuses, and non-cash 

compensation that are based on the sales of 

specific securities or specific types of 

securities within a limited period of time.61

A conflict of interest is defined as ‘‘an 

interest that might incline a broker, 

dealer, or a natural person who is an 

associated person of a broker or dealer— 

consciously or unconsciously—to make 

a recommendation that is not 

disinterested.’’ 62

The SEC stated that ‘‘[t]he 

Commission has crafted Regulation Best 

Interest to draw on key principles 

underlying fiduciary obligations, 

including those that apply to investment 

advisers under the Advisers Act, while 

providing specific requirements to 

address certain aspects of the 

relationships between broker-dealers 

and their retail customers.’’ 63 The SEC 

emphasized that, ‘‘[i]mportantly, 

regardless of whether a retail investor 

chooses a broker-dealer or an 

investment adviser (or both), the retail 

investor will be entitled to a 

recommendation (from a broker-dealer) 

or advice (from an investment adviser) 

that is in the best interest of the retail 

investor and that does not place the 

interests of the firm or the financial 

professional ahead of the interests of the 

retail investor.’’ 64 The SEC also noted 

that the standard of conduct cannot be 

satisfied through disclosure alone.65

The best interest standard in the 

SEC’s Regulation Best Interest applies to 

broker-dealers and their associated 

persons when they make a 

recommendation to a retail customer of 

any ‘‘securities transaction or an 

investment strategy involving securities 

(including account recommendations).’’ 

According to the SEC, this language 

encompasses recommendations to roll 

over or transfer assets in a workplace 

retirement plan account to an IRA, and 

recommendations to take a plan 

distribution.66 However, the SEC also 

stated that while Regulation Best 

Interest applies to advice regarding a 

person’s own retirement account such 

as a 401(k) account or IRA, it does not 

cover advice to workplace retirement 

plans themselves or to their legal 

representatives when they are receiving 

advice on the plan’s behalf.67

The SEC Investment Adviser 

Interpretation, published 

simultaneously with Regulation Best 

Interest, reaffirmed and in some cases 

clarified aspects of the fiduciary duty of 

an investment adviser under the 

Investment Advisers Act.68 The SEC 

stated that ‘‘an investment adviser’s 

fiduciary duty under the Investment 

Advisers Act comprises both a duty of 

care and a duty of loyalty.’’ 69 According 

to the SEC, ‘‘[t]his fiduciary duty is 

based on equitable common law 

principles and is fundamental to 

advisers’ relationships with their clients 

under the Advisers Act.’’ 70 The 

fiduciary duty under the Federal 

securities laws requires an adviser ‘‘to 

adopt the principal’s goals, objectives, 

or ends.’’ 71 The SEC stated: 

This means the adviser must, at all times, 

serve the best interest of its client and not 

subordinate its client’s interest to its own. In 

other words, the investment adviser cannot 

place its own interests ahead of the interests 

of its client. This combination of care and 

loyalty obligations has been characterized as 

requiring the investment adviser to act in the 

‘‘best interest’’ of its client at all times.72

The SEC further stated, ‘‘[t]he 

investment adviser’s fiduciary duty is 

broad and applies to the entire adviserclient relationship.’’ 73

The SEC also adopted a new required 

disclosure of a ‘‘Form CRS Relationship 

Summary,’’ under which registered 

investment advisers under the Advisers 

Act and broker-dealers must provide 

retail investors with certain information 

about the nature of their relationship 

with their financial professional. One of 

the purposes of the Form CRS is to help 

retail investors better understand and 

compare the services and relationships 

that investment advisers and brokerdealers offer in a way that is distinct 

from other required disclosures under 

the Federal securities laws.74 Form CRS 

also includes a link to a dedicated page 

on the SEC’s investor education website, 

Investor.gov, which offers educational 

information about broker-dealers and 

investment advisers, and other 

materials.75

State Legislative and Regulatory 

Developments 

Also, since the vacatur of the 

Department’s 2016 Rulemaking, there 

have been legislative and regulatory 

developments at the State level 

involving conduct standards. The 

Massachusetts Securities Division 

amended its regulations to apply a 

fiduciary conduct standard under which 

broker-dealers and their agents must 

‘‘[m]ake recommendations and provide 

investment advice without regard to the 

financial or any other interest of any 

party other than the customer.’’ 76


lotter on DSK11XQN23PROD with PROPOSALS3
75898 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

77Available at www.naic.org/store/free/MDL275.pdf. 

78NAIC Annuity Suitability & Best Interest 

Standard web page, https://content.naic.org/ciprtopics/annuity-suitability-best-interest-standard. 

79A producer is defined in section 5.L. of the 

Model Regulation as ‘‘a person or entity required to 

be licensed under the laws of this state to sell, 

solicit or negotiate insurance, including annuities.’’ 

Section 5.L. further provides that the term producer 

includes an insurer where no producer is involved. 

80NAIC Model Regulation, at section 6(A)(1)(a). 

81 Id. at section 6(A)(3). 

82 Id. at section 5(I). 

83 Id. at section 4(B)(1). 

84Section 6(d) of the Model Regulation provides, 

‘‘[t]he requirements under this subsection do not 

create a fiduciary obligation or relationship and 

only create a regulatory obligation as established in 

this regulation.’’ In recent insurance industry 

litigation against the Department, plaintiff 

Federation of Americans for Consumer Choice, Inc., 

stated that ‘‘[t]here is a world of difference’’ 

between the NAIC Model Regulation and ERISA’s 

fiduciary regime. See Pls.’ (1) Br. In Opp’n to Defs.’ 

Cross-Motion to Dismiss for Lack of Jurisdiction or, 

in the Alternative, for Summ. J., and (2) Reply Br. 

in Supp. of Pls. Mot. for Summ. J, 40, Fed’n of Ams. 

for Consumer Choice v. U.S. Dep’t of Labor, No. 

3:22–CV–00243–K–BT (Nov. 7, 2022) (comparing 

ERISA’s best interest requirement to NAIC Model 

Regulation 275, Sections 2.B and 6.A.(1)(d)). 

85 Id. at section 6(A)(1)(a)(iii). 

86Regulation Best Interest release, 84 FR 33318, 

33343–44 (July 12, 2019). Regulation Best Interest 

would apply, however, to retail customers receiving 

recommendations for their own retirement 

accounts. Id. 

87NAIC Model Regulation, at section 4(B)(1). 

The NAIC Model Regulation, updated 

in 2020, provides that insurance agents 

must act in the consumer’s ‘‘best 

interest,’’ as defined by the Model 

Regulation, when making a 

recommendation of an annuity, and 

insurers must establish and maintain a 

system to supervise recommendations 

so that the insurance needs and 

financial objectives of consumers at the 

time of the transaction are effectively 

addressed.77 According to the NAIC, as 

of August 23, 2023, 43 jurisdictions 

have implemented the revisions to the 

model regulation.78

The NAIC Model Regulation includes 

a best interest obligation comprised of a 

care obligation, a disclosure obligation, 

a conflict of interest obligation, and a 

documentation obligation, applicable to 

an insurance producer.79 If these 

specific obligations are met, the 

producer is treated as satisfying the 

overarching best interest standard as 

expressed in the NAIC Model 

Regulation. The care obligation states 

that the producer, in making a 

recommendation, must exercise 

reasonable diligence, care and skill to: 

• Know the consumer’s financial situation, 

insurance needs and financial objectives; 

• Understand the available 

recommendation options after making a 

reasonable inquiry into options available to 

the producer; 

• Have a reasonable basis to believe the 

recommended option effectively addresses 

the consumer’s financial situation, insurance 

needs and financial objectives over the life of 

the product, as evaluated in light of the 

consumer profile information; and 

• Communicate the basis or bases of the 

recommendation.80

The conflict of interest obligation 

requires the producer to ‘‘identify and 

avoid or reasonably manage and 

disclose material conflicts of interest, 

including material conflicts of interest 

related to an ownership interest.’’ 81

‘‘Material conflict of interest’’ is defined 

as ‘‘a financial interest of the producer 

in the sale of an annuity that a 

reasonable person would expect to 

influence the impartiality of a 

recommendation,’’ but the definition 

expressly carves out ‘‘cash 

compensation or non-cash 

compensation’’ from treatment as 

sources of conflicts of interest.82 The 

NAIC Model Regulation also provides 

that it does not apply to transactions 

involving contracts used to fund an 

employee pension or welfare plan 

covered by ERISA.83

The NAIC expressly disclaimed that 

its standard creates fiduciary 

obligations, and the obligations in the 

Model Regulation differ in significant 

respects from those applicable to brokerdealers in the SEC’s Regulation Best 

Interest.84 For example, in addition to 

disregarding compensation as a source 

of conflicts of interest, the specific care, 

disclosure, conflict of interest, and 

documentation requirements do not 

expressly incorporate the obligation not 

to put the producer’s or insurer’s 

interests before the customer’s interests, 

even though compliance with their 

terms is treated as meeting the ‘‘best 

interest’’ standard. Similarly, the Model 

Regulation’s care obligation does not 

repeat the ‘‘best interest’’ requirement 

but instead includes a requirement to 

‘‘have a reasonable basis to believe the 

recommended option effectively 

addresses the consumer’s financial 

situation, insurance needs and financial 

objectives . . . .’’ 85 Additionally, the 

obligation to comply with the ‘‘best 

interest’’ standard is limited to the 

individual producer, as opposed to the 

insurer responsible for supervising the 

producer. 

These regulatory changes cover many, 

but not all, of the assets held by 

retirement plans. Further, the SEC’s 

Regulation Best Interest and the NAIC 

Model Regulation are each limited in 

important ways in terms of application 

to advice provided to ERISA plan 

fiduciaries although this is not the case 

with the Advisers Act fiduciary 

obligations. For example, Regulation 

Best Interest does not cover advice to 

workplace retirement plans or their 

representatives (such as an employee of 

a small business who is a fiduciary of 

the business’s 401(k) plan).86 The NAIC 

Model Regulation does not apply to 

transactions involving contracts used to 

fund an employee pension or welfare 

plan covered by ERISA.87 The 

Department believes that retirement 

investors and the regulated community 

are best served by an ERISA fiduciary 

standard that applies uniformly to all 

investments that retirement investors 

may make with respect to their 

retirement accounts. Amendments to 

the ERISA regulation are necessary to 

achieve that result. 

7. Coordination With Other Agencies 

Under Title I and Title II of ERISA, 

the Department has primary 

responsibility for the regulation of 

fiduciaries’ advice to retirement 

investors. Because of the fundamental 

importance of retirement investments to 

workers’ financial security and the taxpreferred status of plans and IRAs, 

Congress defined the scope of fiduciary 

coverage broadly and imposed stringent 

obligations on fiduciaries, including 

prohibitions on conflicted transactions 

that do not have direct analogues under 

the securities and insurance laws. The 

fiduciary standards and prohibited 

transaction rules set forth in Title I and 

Title II of ERISA, as applicable, broadly 

apply to covered fiduciaries, 

irrespective of the particular investment 

product they recommend or their status 

as investment advisers under the 

Advisers Act, broker-dealers, insurance 

agents, bankers, or other status. This 

proposed regulatory approach is 

designed to ensure that the standards 

and rules applicable under Title I and 

Title II of ERISA are broadly uniform as 

applied to retirement investors across 

different categories of investment advice 

providers and advisory relationships. 

At the same time, however, many 

stakeholders have stressed the need to 

harmonize the Department’s efforts with 

potential rulemaking and rulemaking 

activities by other regulators, including 

the SEC’s standards of care for 

providing investment advice and the 

Commodity Futures Trading 

Commission’s (CFTC) business conduct 

standards for swap dealers (and 

comparable SEC standards for securitybased swap dealers). In addition, 

commenters have urged coordination 

with other agencies regarding IRA 

products and services. 

As the SEC has adopted regulatory 

standards for broker-dealers that are 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75899 

based on fiduciary principles of care 

and loyalty also applicable to 

investment advisers under the Advisers 

Act, and the NAIC has adopted a model 

law that includes a best interest 

standard, the Department believes that it 

is possible to honor the unique 

regulatory structure imposed by the law 

governing tax-preferred retirement 

investments, adopt a regulatory 

approach that provides a broadly 

uniform standard for all retirement 

investors, as contemplated by Title I and 

Title II of ERISA, and avoid the 

imposition of obligations that conflict 

with investment professionals’ 

obligations under other applicable laws. 

In particular, in the Department’s view, 

PTE 2020–02 is consistent with the 

requirements of the SEC’s Regulation 

Best Interest and the fiduciary 

obligations of investment advisers under 

the Advisers Act. Therefore, brokerdealers and investment advisers that 

have already adopted meaningful 

compliance mechanisms for Regulation 

Best Interest and the Advisers Act 

fiduciary duty, respectively, should be 

able to adapt easily to comply with the 

PTE. 

Nevertheless, to better understand 

whether the proposed rule and 

exemptions would subject investment 

advice providers to requirements that 

conflict with or add to their obligations 

under other Federal laws, the 

Department has continued consulting 

and coordinating with the SEC; other 

securities, banking, and insurance 

regulators; the Department of the 

Treasury, including the Federal 

Insurance Office; and the Financial 

Industry Regulatory Authority (FINRA), 

the independent regulatory authority of 

the broker-dealer industry. 

The Department has also continued 

consulting and coordinating with the 

Department of the Treasury and the 

Internal Revenue Service (IRS), 

particularly on the subject of IRAs, and 

will continue to do so through the 

rulemaking process. Although the 

Department has responsibility for 

issuing regulations and prohibited 

transaction exemptions under section 

4975 of the Code, which applies to 

IRAs, the IRS maintains general 

responsibility for enforcing the excise 

tax applicable to prohibited 

transactions. The IRS’s responsibilities 

extend to the imposition of excise taxes 

on fiduciaries who participate in 

prohibited transactions. As a result, the 

Department and the IRS share 

responsibility for addressing selfdealing by investment advice fiduciaries 

to tax-qualified plans and IRAs. 

C. Purpose of the Proposed Rule and 

Summary of the Major Provisions 

1. Purpose of the Proposed Rule 

Since the 1975 rule was adopted, 

developments in retirement savings 

vehicles and in the investment advice 

marketplace have altered the way 

retirement investors interact with 

investment advice providers. In 1975, 

retirement plans were primarily defined 

benefit plans, which were typically 

managed by sophisticated investment 

professionals. IRAs were not major 

market participants and 401(k) plans 

were not yet in existence. Today, 

however, plan participants, IRA owners, 

and their beneficiaries exercise direct 

authority over their investments, and 

depend upon a wide range of 

investment professionals, including 

broker-dealers, advisers subject to the 

Advisers Act, insurance agents, and 

others on how to make complex 

decisions about the management of 

retirement assets. 

These individual investors have far 

greater responsibility for decisions 

about their retirement savings than was 

true in 1975, when investment 

professionals directly managed plan 

investments. Individual investors 

routinely depend on the quality of the 

advice they receive from financial 

professionals who commonly hold 

themselves out as trusted advice 

providers. Because these professionals 

have inherent conflicts of interest, 

however, there is an ever-present danger 

that the investment advice the 

retirement investor receives will be 

driven, not by the best interest of the 

investor, but by the financial interests of 

the investment professional or firm 

whom they depend upon for advice that 

is in their interest. 

Certainly, when an investment 

professional satisfies all five conditions 

of the 1975 regulation with respect to a 

given instance of advice, the investment 

professional is properly treated as a 

fiduciary in accordance with the parties’ 

reasonable understanding of the nature 

of their relationship. However, the 1975 

test, as applied to the current 

marketplace is underinclusive because 

it fails to capture many circumstances in 

which an investor would reasonably 

believe they were receiving advice from 

an investment professional who was 

rendering services to the investor based 

upon the investor’s best interest. The 

Department’s experience in the current 

marketplace is that the five-part test—in 

particular, the ‘‘regular basis’’ 

requirement and the requirement of ‘‘a 

mutual agreement, arrangement, or 

understanding’’ that the investment 

advice will serve as ‘‘a primary basis for 

investment decisions’’—too often work 

to defeat legitimate retirement investor 

expectations of impartial advice and 

allow some advice relationships to 

occur where there is no best interest 

standard. 

These components of the five-part test 

are not found in the statute’s text, and 

in today’s marketplace, undermine 

legitimate investor understandings of a 

professional relationship centered 

around the investor’s best interest. In 

other words, there are currently many 

situations where the retirement investor 

reasonably expects that their 

relationship with the advice provider is 

one in which the investor can (and 

should) place trust and confidence in 

the recommendation, yet which are not 

covered by the current regulation. This 

proposal attempts to reconcile the 

regulatory text with the both the 

reasonable expectations of the 

retirement investor along with the 

statutory text and purpose. 

The proposed revised definition of an 

investment advice fiduciary under 

ERISA, as discussed in detail below, is 

consistent with the express text of the 

statutory definition and better protects 

the interests of retirement investors. The 

proposal comports with the broad 

language and protective purposes of the 

statute, while at the same time limiting 

the treatment of recommendations as 

ERISA fiduciary advice to those 

objective circumstances in which a 

retirement investor would reasonably 

believe that they can rely upon the 

advice as rendered by an investment 

professional who is acting in the 

investor’s best interest, rather than 

merely promoting their own competing 

financial interests at the investor’s 

expense. 

An important premise of Title I and 

Title II of ERISA is that fiduciaries’ 

conflicts of interest should not be left 

unchecked, but rather should be 

carefully regulated through rules 

requiring adherence to basic fiduciary 

norms and avoidance of prohibited 

transactions. The specific duties 

imposed on fiduciaries by Title I and 

Title II of ERISA stem from Congress’ 

judgment regarding the best way to 

protect the public interest in taxadvantaged benefit arrangements that 

are critical to workers’ financial and 

physical health. In contrast to the 

Federal securities laws and other 

regulatory regimes which can permit 

certain conflicts if prescribed disclosure 

obligations are met, the statutory 

prohibited transaction provisions in 

Title I and Title II of ERISA contemplate 

a more stringent approach for the 

protection of these tax-advantaged 

retirement savings. In this context, an 


lotter on DSK11XQN23PROD with PROPOSALS3
75900 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

88 Donovan v. Bierwirth, 680 F.2d 263, 272 n. 8 

(2d. Cir. 1982), cert denied, 459 U.S. 1069 (1982). 

89 5 U.S.C. App. 1 (2018). 

90Sec. 1, Public Law 98–532, 98 Stat. 2705 (Oct. 

19, 1984). 

91Sec. 102, 5 U.S.C. App. 1. 

92This proposed rule is accompanied by 

proposals (published elsewhere in the Federal 

Register) related to prohibited transaction 

exemptive relief. The proposals would amend 

existing PTEs, including PTE 2020–02, that allow, 

subject to protective conditions, investment advice 

fiduciaries to receive compensation and engage in 

transactions that otherwise would be prohibited. 

Unlike the PTEs that were a part of the 2016 

Rulemaking, these PTEs do not, and the 

amendments would not, include required contracts 

or warranties that the Fifth Circuit objected to. 

These prohibited transaction exemptions also do 

not exempt a party from status as a fiduciary, and 

therefore, the proposals do not affect the scope of 

the regulatory definition of an investment advice 

fiduciary. Rather, the exemption proposals involve 

an exercise of the statutory authority afforded to the 

Department by Congress to grant administrative 

relief from the strict prohibited transaction 

provisions in Title I and Title II of ERISA for 

beneficial transactions involving plans and IRAs. 

See section 408(a) of ERISA (requiring the 

Department to make findings before granting an 

exemption that the exemption is administratively 

feasible, in the interests of the plan or IRA and of 

its participants and beneficiaries, and protective of 

appropriately constructed regulatory 

definition of an investment advice 

fiduciary under Title I and Title II of 

ERISA is essential. 

While Congress enacted ERISA to give 

special protections to retirement 

investors based on the central 

importance of retirement assets to 

individuals’ financial security and the 

broader marketplace, ERISA’s regulation 

of advice has failed to keep up with 

changes in the marketplace, in marked 

contrast to other regulatory regimes. As 

noted above, the Department’s proposal 

follows the acts of other regulators who 

have similarly recognized the need to 

change the standards applicable to 

investment professionals to reflect 

current realities. It is appropriate that 

the Department, too, update its 

regulation to reflect the current 

marketplace, and to ensure that ERISA 

and the Code serve their protective 

purposes. When Congress enacted 

ERISA, it chose to impose a uniquely 

protective regime on the management 

and oversight of plan assets. The law’s 

aim was to protect the interests of plan 

participants and beneficiaries by 

imposing especially high standards on 

those who exercise functional authority 

over plan investments, including 

rendering investment advice for a fee. 

As many Courts have noted, ERISA’s 

obligations are the ‘‘highest known to 

the law.’’ 88 The 1975 rule as applied to 

current market conditions, however, 

undermines ERISA’s protective goals 

and defeats legitimate investor 

expectations of professional advice 

based upon their best interest. As 

discussed in more detail in the RIA, 

some retirement investors remain 

vulnerable to harm from conflicts of 

interest in the investment advice they 

receive because of the outdated 1975 

regulation. The Department, as opposed 

to other regulators, remains uniquely 

positioned to create a regulatory 

definition of an investment advice 

fiduciary under ERISA that is uniformly 

applicable to all the types of 

investments that retirement investors 

make. 

For example, the Department’s 

proposal fills an important gap 

regarding advice to plans and plan 

fiduciaries. Advice from broker-dealers 

to plans and plan fiduciaries is not 

protected by the SEC’s Regulation Best 

Interest. And the NAIC Model 

Regulation does not apply to 

transactions involving contracts used to 

fund retirement plans covered by 

ERISA. The fiduciary advice definition 

in Title I and Title II of ERISA, however, 

extends more broadly to cover advice to 

plan and IRA fiduciaries as well as plan 

participants, beneficiaries, and IRA 

owners and beneficiaries. This provides 

important protections to the retirement 

investors saving through these plans. 

The proposed rule would apply 

uniformly to advice to retirement 

investors within the ambit of Title I and 

Title II of ERISA, as is consistent with 

the text of the statutory definition which 

draws no distinctions between these 

different categories of retirement 

investors. 

The proposal also takes on special 

importance in creating uniform 

standards for investment transactions 

that are not covered by the Federal 

securities laws. Some types of plan and 

IRA investments, such as real estate, 

fixed indexed annuities, certificates of 

deposit, and other bank products, may 

not be subject to the SEC’s Regulation 

Best Interest, and there are a number of 

persons who provide investment advice 

services that are neither subject to the 

SEC’s Regulation Best Interest nor to the 

fiduciary obligations in the Advisers 

Act. An update to the regulatory 

definition of an investment advice 

fiduciary, for purposes of Title I and 

Title II of ERISA, will enhance 

protections of retirement investors. This 

approach reflects both the statutory text, 

which adopts a uniform approach to all 

assets held in tax-advantaged retirement 

plans, as well as sound public policy. 

When investment professionals hold 

themselves out to retirement investors 

as making recommendations based on 

the retirement investors’ best interests, 

their recommendations should be 

driven by a uniform fiduciary 

obligation, and not by perceptions that 

one category of investment product is 

subject to lower regulatory standards 

than another. 

Since ERISA’s enactment, the 

Department has been expressly given 

the authority under Title I of ERISA to 

issue regulations defining terms in Title 

I and to grant administrative exemptions 

from the prohibited transactions 

provisions. Pursuant to the President’s 

Reorganization Plan No. 4 of 1978,89

which Congress ratified in 1984,90 the 

Department’s authority was expanded to 

include authority to issue regulations, 

rulings, and opinions on the definition 

of a fiduciary with respect to Title II 

plans under the Code (including IRAs) 

and to grant administrative prohibited 

transaction exemptions applicable to 

them.91 Thus, the Department has clear 

authority to promulgate the regulatory 

definition of a fiduciary under both 

Title I and Title II of ERISA, and the 

Department has taken care in this 

proposal to honor the text and purposes 

of Title I and Title II of ERISA. 

2. Summary of the Major Provisions of 

the Proposed Rule 

The Department proposes that a 

person would be an investment advice 

fiduciary if they provide investment 

advice or make an investment 

recommendation to a retirement 

investor (i.e., a plan, plan fiduciary, 

plan participant or beneficiary, IRA, IRA 

owner or beneficiary, or IRA fiduciary); 

the advice or recommendation is 

provided ‘‘for a fee or other 

compensation, direct or indirect,’’ as 

defined in the proposed rule; and the 

person provides the advice or makes the 

recommendation in one of the following 

contexts: 

• The person either directly or indirectly 

(e.g., through or together with any affiliate) 

has discretionary authority or control, 

whether or not pursuant to an agreement, 

arrangement, or understanding, with respect 

to purchasing or selling securities or other 

investment property for the retirement 

investor; 

• The person either directly or indirectly 

(e.g., through or together with any affiliate) 

makes investment recommendations to 

investors on a regular basis as part of their 

business and the recommendation is 

provided under circumstances indicating that 

the recommendation is based on the 

particular needs or individual circumstances 

of the retirement investor and may be relied 

upon by the retirement investor as a basis for 

investment decisions that are in the 

retirement investor’s best interest; or 

• The person making the recommendation 

represents or acknowledges that they are 

acting as a fiduciary when making 

investment recommendations.92


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75901 

the rights of participants and beneficiaries of such 

plan or IRA); section 4975(c)(2) of the Code (same). 

93 Mertens v. Hewitt Assocs., 508 U.S. 248 (1993). 

In this regard, the Department notes that the SEC’s 

Regulation Best Interest also applies on a 

transactional basis. As stated by the SEC, ‘‘the 

provision of recommendations in a broker-dealer 

relationship is generally transactional and episodic, 

and therefore the final rule requires that brokerdealers act in the best interest of their retail 

customers at the time a recommendation is made 

and imposes no duty to monitor a customer’s 

account following a recommendation.’’ 84 FR 

33318, 33331 (July 12, 2019). 

94 IB 96–1, 29 CFR 2509.96–1. For purposes of 

this definition, a participant or beneficiary of the 

plan is not a ‘‘plan fiduciary’’ with respect to the 

plan. 

95See 29 CFR 2510.3–21(c)(1)(ii)(A) and 26 CFR 

54.4975–9(c)(1)(ii)(A) (emphasis added). See also 

paragraph (d) of the proposal, which provides that 

a person is not a fiduciary merely because they have 

certain specific discretion in connection with the 

execution of securities transactions. 

96As discussed below, the proposed rule would 

not impose on a fiduciary an automatic fiduciary 

obligation to continue to monitor an investment or 

a retirement investor’s activities to ensure the 

recommendations remain prudent and appropriate 

for the plan or IRA. The extent of a monitoring 

obligation would depend on whether the facts and 

circumstances indicate that the fiduciary has 

undertaken that responsibility. A fiduciary that 

assumes discretion over plan or IRA assets, 

however, would generally be viewed as assuming 

a monitoring obligation. 

It is important to note that each 

required component of the new 

proposed regulatory definition would 

have to be satisfied with respect to any 

particular recommendation for the 

recommendation to constitute fiduciary 

investment advice. In accordance with 

the statute, fiduciary status is 

determined on a transactional basis. 

Under the statutory text, a person is a 

fiduciary with respect to advice ‘‘to the 

extent . . . [they] render[] investment 

advice for a fee or other compensation, 

direct or indirect.’’ The proposed rule, 

like the statute, applies fiduciary status 

on a transaction-by-transaction basis. 

One is only a fiduciary ‘‘to the extent’’ 

the person making the recommendation 

meets the rule’s requirements with 

respect to the particular advice 

transaction at issue. 

The Department believes the test that 

it is proposing here better honors the 

statute and retirement investors’ 

legitimate expectations of impartial 

investment advice from trusted advice 

providers than the 1975 rule, while 

avoiding the danger of sweeping too 

broadly and covering recommendations 

that Congress might not have intended 

to cover. 

The Department’s proposal is also 

intended to be responsive to the Fifth 

Circuit’s emphasis on relationships of 

trust and confidence. The current 

proposal is much more narrowly 

tailored than the 2016 Final Rule, which 

treated as fiduciary advice, any 

compensated investment 

recommendation as long as it was 

directed to a specific retirement investor 

regarding the advisability of a particular 

investment or management decision 

with respect to securities or other 

investment property of the plan or IRA. 

In contrast, the proposal provides that 

fiduciary status would attach only if 

compensated recommendations are 

made in certain specified contexts, each 

of which describes circumstances in 

which the retirement investor can 

reasonably place their trust and 

confidence in the advice provider. The 

Department believes the approach in 

this proposal is consistent with the 

statutory definition that applies 

fiduciary status on a functional (and 

therefore, transactional) basis.93

The proposed regulatory definition of 

an investment advice fiduciary includes 

the following paragraphs, which are 

discussed in greater detail below. 

Paragraph (c) of the proposed regulation 

defines the term ‘‘investment advice.’’ 

Paragraph (d) retains the provision in 

the existing regulation regarding 

‘‘execution of securities transactions.’’ 

Paragraph (e) defines the phrase ‘‘for fee 

or other compensation, direct or 

indirect.’’ Paragraph (f) sets forth 

definitions used in the regulation. 

Paragraph (g) addresses applicability of 

the regulation. Paragraph (h) confirms 

the continued applicability of State law 

regulating insurance, banking, and 

securities. 

3. Covered Advice and 

Recommendations 

Paragraph (c)(1) of the proposed 

regulation provides that a person 

renders ‘‘investment advice’’ with 

respect to moneys or other property of 

a plan or IRA if the person makes a 

recommendation of any securities or 

other investment transaction or any 

investment strategy involving securities 

or other investment property to the 

plan, plan fiduciary, plan participant or 

beneficiary, IRA, IRA owner or 

beneficiary, or IRA fiduciary, subject to 

certain specified criteria. Paragraphs 

(c)(1)(i), (ii), and (iii) set forth three 

alternative contexts under which 

covered recommendations would 

constitute investment advice for 

purposes of the statutory definitions of 

an investment advice fiduciary in Title 

I and Title II of ERISA. As discussed 

herein, under each of these three 

contexts, the Department believes that 

retirement investors could reasonably 

place their trust and confidence in the 

advice provider. The proposal also 

makes clear that fiduciary status under 

Title I and/or Title II of ERISA may 

result from recommendations to any of 

the relevant plan actors, including not 

only the plan fiduciary, but also plan 

participants, IRA owners, and their 

beneficiaries. This is consistent with the 

Department’s longstanding position that 

advice to a plan participant or 

beneficiary is advice to the plan.94

Paragraph (c)(1)(i) 

In the first context, which is set forth 

in proposed paragraph (c)(1)(i), a person 

renders fiduciary ‘‘investment advice’’ 

within the meaning of ERISA section 

3(21) if the person rendering advice 

either directly or indirectly (e.g., 

through or together with any affiliate) 

has discretionary authority or control, 

whether or not pursuant to an 

agreement, arrangement or 

understanding, with respect to 

purchasing or selling securities or other 

investment property for the retirement 

investor. 

This proposed provision is similar to 

a provision in the 1975 rule that 

provides for investment advice fiduciary 

status if a covered recommendation is 

made and the person making the 

recommendation either directly or 

indirectly has ‘‘discretionary authority 

or control, whether or not pursuant to 

an agreement, arrangement, or 

understanding, with respect to 

purchasing or selling securities or 

property for the plan.’’ 95 The proposal 

would broaden this provision by 

referencing securities or other 

investment property of the retirement 

investor, not just an investment through 

a plan or IRA. 

Persons that have discretionary 

authority or control over the investment 

of a retirement investor’s assets 

necessarily are in a relationship of trust 

and confidence with respect to the 

retirement investor.96 Further, like the 

1975 provision, the proposal would 

extend to circumstances in which the 

person making the recommendation 

‘‘indirectly (e.g., through or together 

with any affiliate)’’ has discretionary 

authority or control over securities or 

other investment property; in this 

context, the use of ‘‘indirectly’’ 

generally refers to an arrangement in 

which an affiliate has discretionary 

authority or control. 

Paragraph (c)(1)(ii) 

The second context, in proposed 

paragraph (c)(1)(ii), sets forth that a 

person provides fiduciary ‘‘investment 

advice’’ if the person making the 

recommendation directly or indirectly 

(e.g., through or together with an 

affiliate) makes investment 

recommendations to investors on a 


lotter on DSK11XQN23PROD with PROPOSALS3
75902 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

97The Department also would not consider 

salaries of human resources employees of the plan 

sponsor to be a fee or other compensation in 

connection with or as a result of the educational 

services and materials that they provide to plan 

participants and beneficiaries. Further, the 

proposed rule does not alter the principles 

articulated in ERISA Interpretive Bulletin 75–8, D– 

2 (29 CFR 2509.75–8) (IB 75–8). IB 75–8 provides 

that persons who perform purely administrative 

functions for an employee benefit plan, within a 

framework of policies, interpretations, rules, 

practices and procedures made by other persons, 

but who have no power to make decisions as to 

plan policy, interpretations, practices or 

procedures, are not fiduciaries with respect to the 

plan by virtue of those purely ministerial functions. 

98As noted by the magistrate judge in Federation 

of Americans for Consumer Choice v. United States 

Dept. of Labor, the Fifth Circuit’s opinion ‘‘did not 

foreclose that Title I duties may reach those 

fiduciaries who, as aligned with Title I’s text, 

render advice, even for the first time, ‘for a fee or 

other compensation.’’’ Findings, Conclusions, and 

Recommendations of the United States Magistrate 

Judge, FACC, No. 3:22–CV–00243–K–BT, 2023 WL 

5682411, at *22 (N.D. Tex. June 30, 2023) (quoting 

ERISA section 3(21)(A)(ii), 29 U.S.C. 

1002(21)(A)(ii)) (emphasis in original). 

99The reference to ‘‘investment 

recommendations’’ here and elsewhere in the 

proposal does not indicate that the proposal is 

limited to broker-dealers, or parties who regularly 

provide advice or make recommendations in the 

securities or banking industries. The scope of the 

regulation would extend to recommendations 

involving securities or other investment property. 

Therefore, for example, insurance agents who 

regularly make recommendations to customers with 

respect to the purchase of annuity contracts would 

be considered to make investment 

recommendations to investors on a regular basis as 

part of their business. Proposed paragraph (f)(11) 

provides that the term ‘‘investment property’’ does 

not include health insurance policies, disability 

insurance policies, term life insurance policies, or 

other property to the extent the policies or property 

do not contain an investment component. 

100See Preamble to Prohibited Transaction 

Exemption 2020–02, Improving Investment Advice 

for Workers & Retirees, 85 FR 82798, 82808 (Dec. 

18, 2020) (discussing comments on whether the test 

focuses on ‘‘a’’ primary basis or ‘‘the’’ primary 

basis). 

regular basis as part of their business 

and the recommendation is provided 

under circumstances indicating the 

recommendation is based on the 

particular needs or individual 

circumstances of the retirement investor 

and may be relied upon by the 

retirement investor as a basis for 

investment decisions that are in the 

retirement investor’s best interest. 

The proposed provision applies only 

to advice rendered by a person who 

makes investment recommendations to 

investors ‘‘on a regular basis as part of 

their business.’’ As compared to the 

‘‘regular basis’’ prong of the 1975 

regulation, which the Department 

believes can work to undermine the 

current reasonable expectations of 

retirement investors, this proposed 

provision is properly focused on 

whether the advice provider is in the 

business of providing investment 

recommendations. The proposal’s 

updated regular basis requirement 

avoids concerns that the rule could 

sweep so broadly as to cover, for 

example, the car dealer who suggests 

that a consumer finance a purchase by 

tapping into retirement funds. 

Retirement investors would not 

typically view such persons as making 

investment recommendations based on 

the retirement investors’ individual 

financial interests, and the rule would 

not treat them as fiduciaries. Similarly, 

the human resources employees of a 

plan sponsor would not be considered 

investment advice fiduciaries under the 

proposed regulatory definition, because 

they do not regularly make investment 

recommendations to investors as part of 

their business.97

However, the proposal’s regular basis 

requirement would not defeat legitimate 

investor expectations by automatically 

excluding one-time advice from 

treatment as fiduciary investment 

advice.98 For example, the proposed 

rule would treat an insurance agent’s 

recommendation to invest a retiree’s 

retirement savings in an annuity as 

fiduciary advice if the agent regularly 

makes investment recommendations to 

investors, and the circumstances 

indicate that the recommendation is 

based on the retiree’s particular needs 

and circumstances and may be relied 

upon for making an investment decision 

that is in the investor’s best interest. 

Similarly, if the agent told the retiree 

that they were rendering fiduciary 

advice, the proposal would treat the 

recommendation as fiduciary advice 

even if was one-time advice. Over time, 

the Department has become concerned 

that 1975 regulation’s regular basis test 

served to defeat objective 

understandings of the nature of the 

professional relationship and the 

reliability of the advice as based on the 

investor’s best interest. 

By limiting the scope of those who 

may be an investment advice fiduciary 

to those who make investment 

recommendations as a regular part of 

their business, the Department believes 

that the proposed definition is 

appropriately tailored to those advice 

providers in whom retirement investors 

may reasonably place their trust and 

confidence. Whether someone gives 

investment recommendations on a 

regular basis as part of their business is 

an objective test based on the totality of 

facts and circumstances.99 The 

Department invites comment on this 

approach, including the extent to which 

the Department should consider the 

investor’s understandings as to whether 

the adviser regularly makes investment 

recommendations as part of their 

business. The Department seeks 

comment regarding examples of 

financial professionals who may be 

reasonably viewed by investors as 

giving investment advice but would not 

in fact meet the requirements laid out in 

this provision. 

Proposed paragraph (c)(1)(ii) further 

provides that, to count as fiduciary 

advice, the recommendation must be 

provided ‘‘under circumstances 

indicating that the recommendation is 

based on the particular needs or 

individual circumstances of the 

retirement investor and may be relied 

upon by the retirement investor as a 

basis for investment decisions that are 

in the retirement investor’s best 

interest.’’ 

This provision of the proposal is 

similar to, but improves upon, the parts 

of the 1975 regulation that require a 

‘‘mutual agreement, arrangement or 

understanding’’ that the advice will 

serve as ‘‘a primary basis’’ for the 

retirement investor’s investment 

decisions. Instead of the ‘‘mutual 

agreement, arrangement, or 

understanding’’ requirement—which 

over time has encouraged investment 

professionals to hold themselves out as 

trusted advisers while disclaiming 

fiduciary status in the fine print—the 

proposal would focus on the objective 

‘‘circumstances’’ surrounding the 

recommendation, including how the 

investment professional held 

themselves out to the retirement 

investor and described the services 

offered. The Department believes that 

the proposed language will better avoid 

loopholes and fine print disclaimers, 

while properly focusing on a reasonable 

understanding of the nature of their 

relationship. 

Further, the proposal does not include 

the 1975 regulation’s ‘‘primary basis’’ 

requirement, which has proved difficult 

to interpret and untethered from the 

extent to which the recommendation 

was presented as advice upon which the 

investor could rely in making a 

decision.100 Instead, the proposal has a 

requirement that the circumstances 

indicate that the recommendation ‘‘may 

be relied upon by the retirement 

investor as a basis for investment 

decisions that are in the retirement 

investor’s best interest.’’ 

Recommendations that meet this test 

can be outcome-determinative for the 

investor and are appropriately treated as 

fiduciary advice when the elements of 

the proposed rule are satisfied. 

In determining whether proposed 

paragraph (c)(1)(ii) is satisfied, the 

Department intends to examine the 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75903 

101See id. at 82803. 

102Chamber, 885 F.3d 360, 370 (5th Cir. 2018) 

(citing George M. Turner, Revocable Trusts § 3:2 

(Sept. 2016 Update)). 

103Available at https://www.dol.gov/agencies/ 

ebsa/about-ebsa/our-activities/resource-center/faqs/ 

choosing-the-right-person-to-give-you-investmentadvice. 

104 29 CFR 2550.408b–2(c)(1)(iv)(B). 105See ERISA section 408(g)(6)(A)(vii), 29 U.S.C. 

1108(g)(6)(A)(vii) (‘‘[T]he fiduciary adviser [must] 

provide[] to a participant or a beneficiary before the 

initial provision of the investment advice with 

regard to any security or other property offered as 

an investment option, a written notification (which 

may consist of notification by means of electronic 

communication) . . . that the adviser is acting as 

a fiduciary of the plan in connection with the 

provision of the advice . . . .’’). 

106Section II(b)(1). 107 85 FR 82798, 82827 (Dec. 18, 2020). 108This discussion of disclaimers applies to the 

regulation proposed herein, defining an investment 

Continued 

ways investment advice providers 

market themselves and describe their 

services. For example, some 

stakeholders have previously expressed 

concern that investment advice 

providers that adopt titles such as 

financial consultant, financial planner, 

and wealth manager, are holding 

themselves out as acting in positions of 

trust and confidence while 

simultaneously disclaiming status as an 

ERISA fiduciary.101 In the Department’s 

view, an investment advice provider’s 

use of such titles routinely involves 

holding themselves out as making 

investment recommendations that will 

be based on the particular needs or 

individual circumstances of the 

retirement investor and may be relied 

upon as a basis for investment decisions 

that are in the retirement investor’s best 

interest. 

Of course, whether a recommendation 

is provided under circumstances 

indicating that it is based on the 

particular needs or individual 

circumstances of the retirement investor 

and that it may be relied upon as a basis 

for investment decisions that are in the 

retirement investor’s best interest is 

only part of the consideration. Even if 

a recommendation satisfies a portion of 

the definition, it is not fiduciary 

investment advice unless each aspect is 

satisfied (e.g., to satisfy paragraph 

(c)(1)(ii), the person must also (directly 

or indirectly) make investment 

recommendations on a regular basis as 

part of their business). 

The Department invites comments on 

the extent to which particular titles are 

commonly perceived to convey that the 

investment professional is providing 

individualized recommendations that 

may be relied upon as a basis for 

investment decisions in a retirement 

investor’s best interest (and if not, why 

such titles are used). The Department 

also requests comment on whether other 

types of conduct, communication, 

representation, and terms of engagement 

of investment advice providers should 

merit similar treatment. 

Paragraph (c)(1)(iii) 

The third context identified in the 

proposal, in proposed paragraph 

(c)(1)(iii), is if the person making 

recommendations represents or 

acknowledges that they are acting as a 

fiduciary when making investment 

recommendations. An investment 

advice provider that acknowledges 

fiduciary status has expressly agreed 

that the customer may place trust and 

confidence in them. Furthermore, as 

discussed in the Fifth Circuit’s opinion, 

honesty is a general premise of a 

common law fiduciary relationship.102

This provision of the proposal would 

ensure that parties making a fiduciary 

representation or acknowledgment 

cannot subsequently deny their 

fiduciary status if a dispute arises, but 

rather must honor their words. 

For purposes of the proposal, 

paragraph (c)(1)(iii) is not limited to the 

circumstances in which the person 

specifically represents that they are a 

fiduciary for purposes of Title I or Title 

II of ERISA, or specifically cites any 

particular statutory provisions. It is 

enough that the investment advice 

provider told the retirement investor 

that the investment advice or 

investment recommendations were or 

will be made in a fiduciary capacity. As 

with the other contexts identified in 

proposed paragraph (c)(1), this is 

intended to align fiduciary status with 

the retirement investor’s reasonable 

expectations. A retirement investor who 

is told by a person that the person will 

be acting as a fiduciary reasonably and 

appropriately places their trust and 

confidence in such a person. 

In the retirement context, the 

Department has stressed the importance 

of clarity regarding the nature of an 

advice relationship and has encouraged 

retirement investors to ask advice 

providers about their status as an ERISA 

fiduciary with respect to retirement 

accounts and seek a written statement of 

the advice provider’s fiduciary status. 

The Department’s FAQs entitled 

Choosing the Right Person to Give You 

Investment Advice: Information for 

Investors in Retirement Plans and 

Individual Retirement Accounts state 

‘‘A written statement helps ensure that 

the fiduciary nature of the relationship 

is clear to both you and the investment 

advice provider at the time of the 

transaction, and limits the possibility of 

miscommunication.’’ 103

Many retirement investors may 

receive a written fiduciary 

acknowledgment due to compliance 

obligations of an investment advice 

provider. For example, retirement 

investors that are plan fiduciaries 

entering into an investment advice 

services arrangement on behalf of the 

plan are likely to receive an 

acknowledgment of fiduciary status 

from the provider as part of the 

disclosure obligations under ERISA 

section 408(b)(2) and the regulations 

thereunder.104 Further, an upfront 

written acknowledgment of fiduciary 

status is a requirement of several 

prohibited transaction exemptions 

available to investment advice 

fiduciaries, including the statutory 

exemption added by Congress at ERISA 

section 408(b)(14) 105 and the 

Department’s broad administrative 

exemption, PTE 2020–02.106

As discussed in the preamble to PTE 

2020–02, the Department believes that 

parties seeking to provide investment 

advice to retirement investors and 

relying on the exemption should, at a 

minimum, make a conscious up-front 

determination of whether they are 

acting as fiduciaries; tell their 

retirement investor customers that they 

are rendering advice as fiduciaries; and, 

based on their conscious decision to act 

as fiduciaries, implement and follow the 

exemption’s conditions.107

Disclaimers 

Paragraph (c)(1)(v) of the proposal 

addresses the impact of disclaimers on 

parties’ status as investment advice 

fiduciaries. The proposed paragraph 

provides that written statements by a 

person disclaiming status as a fiduciary 

under the Act, the Code, or this 

regulation, or disclaiming any of the 

conditions set forth in paragraph 

(c)(1)(ii), will not control to the extent 

they are inconsistent with the person’s 

oral communications, marketing 

materials, applicable State or Federal 

law, or other interactions with the 

retirement investor. The Department’s 

intent in including this paragraph in the 

proposal is to permit parties to define 

the nature of their relationship, but also 

to ensure that any disclaimer be 

consistent with oral communications or 

actions, marketing material, State and 

Federal law, and other interactions 

based on all relevant facts and 

circumstances. When the disclaimer is 

at odds with the investment advice 

provider’s oral communications, 

marketing material, State or Federal law, 

or other interactions, the disclaimer is 

insufficient to defeat the retirement 

investor’s legitimate expectations.108


lotter on DSK11XQN23PROD with PROPOSALS3
75904 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

advice fiduciary, and would not extend to a 

circumstance in which a financial professional has 

investment discretion over a retirement investor’s 

assets. 

109Regulation Best Interest release, 84 FR 33318, 

33335 (July 12, 2019); see id. at fn. 161 (providing 

citations to relevant FINRA guidance, including on 

the definition and contours of the term 

‘‘recommendation’’). 

110 Id. 

111 Id. 112 17 CFR 240.15l–1(a)(1). 

4. Recommendations Regarding 

Securities Transactions or Other 

Investment Transactions or Investment 

Strategies 

The definition of ‘‘investment advice’’ 

in proposed paragraph (c)(1) requires 

that there be ‘‘a recommendation 

regarding securities transactions or 

other investment transactions or 

investment strategies.’’ 

Recommendation 

Whether a person has made a 

‘‘recommendation’’ is a threshold 

element in establishing the existence of 

fiduciary investment advice. For 

purposes of the proposed rule, the 

Department views a recommendation as 

a communication that, based on its 

content, context, and presentation, 

would reasonably be viewed as a 

suggestion that the retirement investor 

engage in or refrain from taking a 

particular course of action. The analysis 

would apply equally to a 

communication that is made orally or in 

writing and would include electronic 

communications. The determination of 

whether a recommendation has been 

made would be an objective rather than 

a subjective inquiry. 

In this regard, the more individually 

tailored the communication is to a 

specific retirement investor or investors 

about, for example, a security, 

investment property, or investment 

strategy, the more likely the 

communication will be viewed as a 

recommendation; however, the 

Department cautions that the fact that a 

communication is made to a group 

rather than an individual would not be 

dispositive of whether a 

recommendation exists. Additionally, 

providing a selective list of securities to 

a particular retirement investor as 

appropriate for the investor would be a 

recommendation as to the advisability 

of acquiring securities even if no 

recommendation is made with respect 

to any one security. Furthermore, a 

series of actions, taken directly or 

indirectly (e.g., through or together with 

any affiliate), that may not constitute a 

recommendation when each action is 

viewed individually may amount to a 

recommendation when considered in 

the aggregate. Even if an action rises to 

the level of a recommendation, the 

advice is only fiduciary investment 

advice if the rest of the regulatory test 

is met. 

In evaluating whether a 

recommendation has been made under 

the proposal, the Department intends to 

take an approach similar to that taken 

by the SEC and FINRA in the brokerdealer context. In the SEC’s Regulation 

Best Interest, the SEC stated that it 

would apply the term as currently 

interpreted with respect to broker-dealer 

regulation for purposes of the suitability 

obligations, to achieve efficiencies for 

broker-dealers.109 The Department 

likewise believes that efficiencies will 

apply if it adopts a similar approach. 

In the Regulation Best Interest release, 

the SEC stated, 

[T]he determination of whether a brokerdealer has made a recommendation that 

triggers application of Regulation Best 

Interest should turn on the facts and 

circumstances of the particular situation and 

therefore, whether a recommendation has 

taken place is not susceptible to a bright line 

definition. Factors considered in determining 

whether a recommendation has taken place 

include whether the communication 

‘‘reasonably could be viewed as a ‘call to 

action’ ’’ and ‘‘reasonably would influence an 

investor to trade a particular security or 

group of securities.’’ The more individually 

tailored the communication to a specific 

customer or a targeted group of customers 

about a security or group of securities, the 

greater the likelihood that the 

communication may be viewed as a 

‘‘recommendation.’’ 110

The SEC did not include a formal 

definition of a recommendation in 

Regulation Best Interest, based on its 

view that the concept of a 

recommendation is fact-specific and not 

conducive to an express definition.111 In 

drafting this proposal, the Department 

has worked to ensure alignment with 

the regulatory regimes of the SEC and 

other regulatory agencies, and is 

proposing a similar approach. 

In the Department’s view, the 

framework established by the SEC for 

broker-dealers is consistent with 

ordinary understandings of ‘‘advice’’ 

and familiar to the broker-dealers that 

are regulated by the SEC. Accordingly, 

the Department would consider a 

recommendation for purposes of the 

SEC’s Regulation Best Interest as a 

recommendation for purposes of this 

proposed regulation. The Department 

seeks comment on whether the 

approach taken in the proposal is 

sufficiently clear, or whether an express 

definition would be preferable. 

Definition of the phrase 

‘‘recommendation of any securities 

transaction or other investment 

transaction or any investment strategy 

involving securities or other investment 

property.’’ 

Proposed paragraph (f)(10) defines the 

phrase ‘‘recommendation of any 

securities transaction or other 

investment transaction or any 

investment strategy involving securities 

or other investment property.’’ This 

phrase largely parallels the language in 

the SEC’s Regulation Best Interest, 

which applies to broker-dealers’ 

‘‘recommendation of any securities 

transaction or investment strategy 

involving securities (including account 

recommendations).’’ 112 The phrase’s 

broader reference to ‘‘other investment 

property’’ reflects the differences in 

jurisdiction between the SEC and the 

Department. 

Under proposed paragraph (f)(10), the 

phrase ‘‘recommendation of any 

securities transaction or other 

investment transaction or any 

investment strategy involving securities 

or other investment property’’ is defined 

as recommendations: 

• As to the advisability of acquiring, 

holding, disposing of, or exchanging, 

securities or other investment property, as to 

investment strategy, or as to how securities 

or other investment property should be 

invested after the securities or other 

investment property are rolled over, 

transferred, or distributed from the plan or 

IRA; 

• As to the management of securities or 

other investment property, including, among 

other things, recommendations on 

investment policies or strategies, portfolio 

composition, selection of other persons to 

provide investment advice or investment 

management services, selection of investment 

account arrangements (e.g., account types 

such as brokerage versus advisory) or voting 

of proxies appurtenant to securities; and 

• As to rolling over, transferring, or 

distributing assets from an employee benefit 

plan or IRA, including recommendations as 

to whether to engage in the transaction, and 

the amount, the form, and the destination of 

such a rollover, transfer, or distribution. 

Components of these proposed 

covered recommendations are discussed 

below. 

Recommendations Involving Securities, 

Other Investment Property, and 

Investment Strategy 

Paragraph (f)(10)(i) of the proposal 

describes, as covered recommendations, 

recommendations as to ‘‘the advisability 

of acquiring, holding, disposing of, or 

exchanging, securities or other 

investment property, as to investment 

strategy, or as to how securities or other 

investment property should be invested 

after the securities or other investment 

property are rolled over, transferred, or 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75905 

113Regulation Best Interest release, 84 FR 33318, 

33339 (July 12, 2019) (citing FINRA Rule 2111.03 

and FINRA Regulatory Notice 12–25, available at 

https://www.finra.org/rules-guidance/notices/12-2). 

114 17 CFR 240.15l–1(a)(1) (‘‘A broker, dealer, or 

a natural person who is an associated person of a 

broker or dealer, when making a recommendation 

of any securities transaction or investment strategy 

involving securities (including account 

recommendations) to a retail customer, shall act in 

the best interest of the retail customer at the time 

the recommendation is made, without placing the 

financial or other interest of the broker, dealer, or 

natural person who is an associated person of a 

broker or dealer making the recommendation ahead 

of the interest of the retail customer.’’) (emphasis 

added); SEC Investment Adviser Interpretation, 84 

FR at 33674 (‘‘An adviser’s fiduciary duty applies 

to all investment advice the investment adviser 

provides to clients, including advice about 

investment strategy, engaging a sub-adviser, and 

account type.’’). 

distributed from the plan or IRA.’’ 

Similar to the SEC and FINRA, the 

Department intends to interpret 

‘‘investment strategy’’ broadly, to 

include ‘‘among others, 

recommendations generally to use a 

bond ladder, day trading . . . or margin 

strategy involving securities, 

irrespective of whether the 

recommendations mention particular 

securities.’’ 113

The reference to ‘‘other investment 

property’’ is intended to capture other 

investments made by plans and IRAs 

that are not securities. This includes, 

but would not be limited to, nonsecurities annuities, banking products, 

and digital assets (regardless of status as 

a security). The Department does not see 

any basis for differentiating advice 

regarding investments in CDs, including 

investment strategies involving CDs 

(e.g., laddered CD portfolios), from other 

investment products, and therefore 

would interpret paragraph (f)(10) to 

cover such recommendations. 

The Department proposes that the 

term investment property, however, not 

include health insurance policies, 

disability insurance policies, term life 

insurance policies, and other property 

to the extent the policies or property do 

not contain an investment component. 

This is confirmed in a proposed 

definition of ‘‘investment property’’ in 

paragraph (f)(11). Although there can be 

situations in which a person 

recommending group health or 

disability insurance, for example, 

effectively exercises such control over 

the decision that the person is 

functionally exercising discretionary 

control over the management or 

administration of the plan as described 

in ERISA section 3(21)(A)(i) or section 

3(21)(A)(iii), the Department does not 

believe that the definition of investment 

advice in ERISA’s statutory text is 

properly interpreted or understood to 

cover a recommendation to purchase 

group health, disability, term life 

insurance, or similar insurance policies 

that do not have an investment 

component. 

Recommendations as to How Securities 

or Other Investment Property Should Be 

Invested After Rollover, Transfer, or 

Distribution 

Proposed paragraph (f)(10)(i) also 

references recommendations ‘‘as to how 

securities or other investment property 

should be invested after the securities or 

other investment property are rolled 

over, transferred, or distributed from the 

plan or IRA.’’ This proposed provision 

addresses an important concern of the 

Department that investment advice 

providers should not be able to avoid 

fiduciary responsibility for a rollover 

recommendation by focusing solely on 

the investment of assets after they are 

rolled over from the plan. In many or 

most cases, a recommendation to a plan 

participant or beneficiary regarding the 

investment of securities or other 

investment property after a rollover, 

transfer, or distribution involves an 

implicit recommendation to the 

participant or beneficiary to engage in 

the rollover, transfer, or distribution. 

Certainly, a prudent and loyal fiduciary 

generally could not make a 

recommendation on how to invest assets 

currently held in a plan after a rollover, 

without even considering the logical 

alternative of leaving the assets in the 

plan or evaluating how that option 

compares with the retirement investor’s 

likely investment experience postrollover. A fiduciary would violate 

ERISA’s 404 obligations if it 

recommended that a retirement investor 

roll the money out of the plan without 

proper consideration of how the money 

might be invested after the rollover. 

Moreover, even in those relatively 

rare circumstances in which there is no 

implicit rollover recommendation, 

advice to a plan participant on how to 

invest assets currently held in an 

ERISA-covered plan is ‘‘advice with 

respect to moneys or other property of 

such plan’’ within the meaning of 

section 3(21)(A)(ii) of ERISA, inasmuch 

as the assets at issue are still held by the 

plan. The Department requests 

comments on the proposed language, 

and on whether this approach will 

appropriately protect the interests of 

plan participants and beneficiaries, or 

whether another approach would be 

more protective. 

Recommendations on Strategies, 

Management of Securities or Other 

Investment Property, and Account 

Types 

Paragraph (f)(10)(ii) of the proposed 

rule describes, as covered 

recommendations, recommendations as 

to the management of securities or other 

investment property, including, among 

other things, recommendations on 

investment policies or strategies, 

portfolio composition, selection of other 

persons to provide investment advice or 

investment management services, 

selection of investment account 

arrangements (e.g., account types such 

as brokerage versus advisory), or the 

voting of proxies appurtenant to 

securities. The statutory text broadly 

refers to ‘‘investment advice . . . with 

respect to any moneys or other property 

of such plan.’’ Recommendations as to 

investment management or strategy fall 

within the most straightforward reading 

of the statutory text. Accordingly, the 

proposed regulation makes clear that 

covered investment advice is not 

artificially limited solely to 

recommendations to buy, sell, or hold 

particular securities or investment 

property to the exclusion of all the other 

important categories of investment 

advice that investment professionals 

routinely provide. 

This provision of the proposed 

regulation also makes clear that 

recommendations as to the selection of 

investment account arrangements would 

be covered. Accordingly, a 

recommendation to move from a 

commission-based account to an 

advisory fee-based account (or vice 

versa) would be a covered 

recommendation. The provision is 

consistent with the SEC’s Regulation 

Best Interest and the Advisers Act’s 

fiduciary obligations.114

Recommendation on the Selection of 

Other Persons To Provide Investment 

Advice or Investment Management 

Proposed paragraph (f)(10)(ii) extends 

to recommendations as to ‘‘selection of 

other persons to provide investment 

advice or investment management 

services.’’ Consistent with the 

Department’s longstanding position, the 

proposed regulation would cover the 

recommendation of another person to be 

entrusted with investment advice or 

investment management authority over 

retirement assets. Such 

recommendations are often critical to 

the proper management and investment 

of those assets and are fiduciary in 

nature if the other conditions of the 

proposed definition are satisfied. 

Recommendations of investment 

advisers or managers are no different 

than recommendations of investments 

that the plan or IRA may acquire and are 

often, by virtue of the track record or 


lotter on DSK11XQN23PROD with PROPOSALS3
75906 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

115The Department believes this approach is 

consistent with the SEC’s approach in Regulation 

Best Interest. In FAQs, the SEC described a scenario 

involving broker-dealer communications with a 

prospective retail customer that would not rise to 

the level of a recommendation. However, the SEC 

cautioned that a recommendation made in the 

context of a ‘‘hire me’’ conversation or otherwise 

would be subject to Regulation Best Interest. See 

Questions on Regulation Best Interest, available at 

https://www.sec.gov/tm/faq-regulation-best-interest. 

116See Fiduciary Duties Regarding Proxy Voting 

and Shareholder Rights, 85 FR 81658 (Dec. 16, 

2020) (‘‘In connection with proxy voting, the 

Department’s longstanding position is that the 

fiduciary act of managing plan assets includes the 

management of voting rights (as well as other 

shareholder rights) appurtenant to shares of 

stock.’’). 

information surrounding the capabilities 

and strategies that are employed by the 

recommended fiduciary, inseparable 

from recommendations as to the types of 

investments that the plan or IRA will 

acquire. For example, the assessment of 

an investment fund manager or 

management is often a critical part of 

the analysis of which fund to pick for 

investing plan or IRA assets. 

Under this proposal, the Department 

does not intend to suggest, however, 

that a person could become a fiduciary 

merely by engaging in the normal 

activity of marketing themselves as a 

potential fiduciary to be selected by a 

plan fiduciary or IRA owner, without 

making a recommendation of a 

securities transaction or other 

investment transaction or any 

investment strategy involving securities 

or other investment property. Touting 

the quality of one’s own advisory or 

investment management services would 

not trigger fiduciary obligations. This 

view is made clear by the language in 

proposed paragraph (f)(10)(ii) that 

extends to recommendations of ‘‘other 

persons’’ to provide investment advice 

or investment management services. 

However, this discussion should not 

be read to exempt a person from being 

a fiduciary with respect to any of the 

investment recommendations covered 

by proposed paragraphs (c)(1) and 

defined in proposed paragraph (f)(10). 

There is a line between an investment 

advice provider making claims as to the 

value of its own advisory or investment 

management services in marketing 

materials, on the one hand, and making 

recommendations to retirement 

investors on how to invest or manage 

their savings, on the other. An 

investment advice provider can 

recommend that a retirement investor 

enter into an advisory relationship with 

the provider without acting as a 

fiduciary. But when the investment 

advice provider recommends, for 

example, that the investor pull money 

out of a plan or invest in a particular 

fund, that advice may be given in a 

fiduciary capacity even if part of a 

presentation in which the provider is 

also recommending that the person 

enter into an advisory relationship. As 

proposed, the complete facts and 

circumstances surrounding each piece 

of advice would be considered. The 

Department believes that this is 

consistent with the functional fiduciary 

test laid out in the statute in which an 

entity is an investment advice fiduciary 

to the extent that they satisfy the 

definition. Just because one piece of 

advice is not fiduciary investment 

advice (here, the ‘‘hire me’’ 

recommendation) does not mean that 

the rest of the advice is necessarily 

excluded from the definition (here, the 

advice to pull money out of the plan 

and invest in a particular fund). The 

investment advice fiduciary could not 

prudently recommend that a plan 

participant roll money out of a plan into 

investments that generate a fee for the 

fiduciary but leave the participant in a 

worse position than if the participant 

had left the money in the plan. Thus, 

when a recommendation to ‘‘hire me’’ 

effectively includes a recommendation 

on how to invest or manage plan or IRA 

assets (e.g., whether to roll assets into an 

IRA or plan or how to invest assets if 

rolled over), that recommendation 

would need to be evaluated separately 

under the provisions in the proposed 

regulation.115

Proxy Voting Appurtenant to 

Ownership of Shares of Corporate Stock 

Proposed paragraph (f)(10)(ii) also 

extends to recommendations as to the 

‘‘voting of proxies appurtenant to 

securities.’’ The Department has long 

viewed the exercise of ownership rights 

as a fiduciary responsibility; 

consequently, advice or 

recommendations on the exercise of 

proxy or other ownership rights are 

appropriately treated as fiduciary in 

nature if the other conditions of the 

regulation are satisfied.116

Similar to other types of broad, 

generalized guidance that would not 

rise to the level of investment advice, 

however, guidelines or other 

information on voting policies for 

proxies that are provided to a broad 

class of investors without regard to a 

client’s individual interests or 

investment policy and that are not 

directed or presented as a recommended 

policy for the plan or IRA to adopt, 

would not rise to the level of a covered 

recommendation under the proposal. 

Similarly, a recommendation addressed 

to all shareholders in an SEC-required 

proxy statement in connection with a 

shareholder meeting of a company 

whose securities are registered under 

Section 12 of the Exchange Act, for 

example, soliciting a shareholder vote 

on the election of directors and the 

approval of other corporate action, 

would not, under the proposed rule, 

constitute fiduciary investment advice 

from the person who creates or 

distributes the proxy statement. 

Recommendations on Rollovers, Benefit 

Distributions, or Transfers From Plan or 

IRA 

Proposed paragraph (f)(10)(iii) 

describes, as a category of covered 

recommendations, recommendations 

‘‘as to rolling over, transferring, or 

distributing assets from an employee 

benefit plan or IRA, including 

recommendations as to whether to 

engage in the transaction, and the 

amount, the form, and the destination of 

such a rollover, transfer, or 

distribution.’’ This aspect of the 

proposal is consistent with the 

Department’s longstanding interest in 

protecting retirement investors in the 

context of a recommendation to roll 

over employee benefit plan assets to an 

IRA, as well as other recommendations 

to roll over, transfer, or distribute assets 

from a plan or IRA. 

The Department continues to believe 

that decisions to take a benefit 

distribution or engage in rollover 

transactions are among the most, if not 

the most, important financial decisions 

that plan participants and beneficiaries, 

and IRA owners and beneficiaries are 

called upon to make. The Department 

continues to believe that advice 

provided in connection with a rollover 

decision, even if not accompanied by a 

specific recommendation on how to 

invest assets, should be treated as 

fiduciary investment advice. A 

distribution recommendation involves 

either advice to change specific 

investments in the plan or to change 

fees and services directly affecting the 

return on those investments. Even if the 

assets would not be covered by Title I 

or Title II of ERISA when they are 

moved outside the plan or IRA, the 

recommendation to change the plan or 

IRA investments is investment advice 

under Title I or Title II of ERISA. 

Thus, recommendations on 

distributions (including rollovers or 

transfers into another plan or IRA) or 

recommendations to entrust plan assets 

to a particular IRA provider would fall 

within the scope of investment advice 

in this proposed regulation, and would 

be covered by Title I of ERISA, 

including the enforcement provisions of 

section 502(a). Further, in the 

Department’s view, the evaluation of 

whether a recommendation constitutes 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75907 

117Regulation Best Interest release, 84 FR 33318, 

33339 (July 12, 2019); SEC Investment Adviser 

Interpretation, 84 FR 33669, 33674 (July 12, 2019). 

118The 2016 Final Rule provided that, subject to 

specified conditions, certain transactions with 

independent fiduciaries with financial expertise 

would not constitute fiduciary investment advice. 

81 FR 20946, 20980 (Apr. 8, 2016). 

119High net worth investors and sophisticated 

investors are not carved out of protections under 

the SEC’s Regulation Best Interest or the Advisers 

Act fiduciary duty. 

120 84 FR 33318, 33319 (July 12, 2019). 

121NAIC Model Rule section 5.B. (emphasis 

added). 

fiduciary investment advice should be 

the same regardless of whether it is a 

recommendation to take a distribution 

or make a rollover to an IRA or a 

recommendation not to take a 

distribution or to keep assets in a plan. 

The proposal’s approach also aligns 

with the SEC’s Regulation Best Interest 

and Advisers Act fiduciary obligations, 

which extend to account 

recommendations generally as well as 

recommendations to roll over or transfer 

assets from one type of account to 

another.117

5. Application of Paragraph (c)(1) 

The proposal provides a general rule 

under which investment advice 

providers could determine their status 

through application of the facts and 

circumstances surrounding their 

interactions with their customers. To 

aid parties in conducting the analysis, 

the Department provides the following 

discussion of the application of the 

general rule in certain common 

circumstances and requests comment on 

the discussion. The Department also 

seeks comment on whether any 

adjustment should be made to the 

regulatory text to address issues 

discussed herein. 

Sophisticated Retirement Investors 

The proposed regulation does not 

include any special provision for 

recommendations to sophisticated 

advice recipients. Rather, under the 

proposal, fiduciary status would turn on 

the application of proposed paragraph 

(c)(1). In the absence of investment 

discretion (see proposed paragraph 

(c)(1)(i)) or a fiduciary acknowledgment 

(see proposed paragraph (c)(1)(iii)), the 

investment advice provider’s fiduciary 

or non-fiduciary status would depend 

on the parties’ understandings under the 

particular facts and circumstances (see 

proposed paragraph (c)(1)(ii)). 

The Department acknowledges that 

some commenters in previous 

rulemakings have asserted that a 

specific ‘‘counterparty’’ provision is 

necessary to avoid limiting plan and 

IRA investors’ choices in investment 

transactions.118 Commenters have 

suggested that the Department should 

adopt certain metrics, such as wealth or 

income, as conclusively establishing 

that the retirement investor has 

sufficient expertise and sophistication 

to foreclose fiduciary status of an advice 

provider. The Department is unaware, 

however, of compelling evidence that 

wealth and income are strong proxies 

for financial sophistication or 

inconsistent with a relationship of trust 

and confidence.119 Moreover, and 

independently, nothing in the statute’s 

text suggests that Congress intended to 

categorically deny fiduciary protection 

to ‘‘sophisticated investors.’’ Instead of 

a specific ‘‘counterparty’’ provision or a 

provision for sophisticated plan- and 

IRA-level fiduciaries, proposed 

paragraph (c)(1)(ii) generally states an 

appropriate test for fiduciary status to 

apply to a covered recommendation, 

even if made to a plan or IRA fiduciary. 

To the extent counterparties wish to 

avoid fiduciary status, they can avoid 

structuring their relationships to fall 

within the circumstances described in 

that subparagraph. 

In the context of ‘‘wholesaling’’ 

activity, which involves 

communications by product 

manufacturers or other financial service 

providers to financial intermediaries 

who then directly advise plans, 

participants, beneficiaries, and IRA 

owners and beneficiaries, the 

Department believes that 

communications to financial 

intermediaries would typically fall 

outside the scope of proposed paragraph 

(c)(1)(ii) because they would not involve 

recommendations based on the 

particular needs or individual 

circumstances of the plan or IRA 

serviced by the intermediary. There may 

also be other circumstances in which 

application of proposed paragraph 

(c)(1)(ii) would not result in a covered 

recommendation being treated as 

fiduciary investment advice. In general, 

however, the Department envisions that 

proposed paragraph (c)(1)(ii) would 

apply broadly to recommendations to 

plan and IRA fiduciaries acting on 

behalf of plans and IRAs. 

More fundamentally, the Department 

rejects the purported dichotomy 

between a mere ‘‘sales’’ 

recommendation to a counterparty, on 

the one hand, and advice, on the other, 

in the context of the retail market for 

investment products. As reflected in 

recent regulatory developments from 

both the SEC and NAIC, financial 

service industry marketing materials, 

and the industry’s comment letters 

reciting the guidance they provide to 

investors, sales and advice typically go 

hand in hand in the retail market. 

In the Department’s view, the updated 

conduct standards adopted by the SEC 

and the NAIC also reflect an 

acknowledgment of the fact that brokerdealers and insurance agents commonly 

provide paid investment and annuity 

recommendations to their customers. 

The SEC stated in the Regulation Best 

Interest release that ‘‘there is broad 

acknowledgment of the benefits of, and 

support for, the continuing existence of 

the broker-dealer business model, 

including a commission or other 

transaction-based compensation 

structure, as an option for retail 

customers seeking investment 

recommendations.’’ 120 The NAIC Model 

Regulation, section 6.5.M defines a 

recommendation as ‘‘advice provided by 

a producer to an individual consumer 

that was intended to result or does 

result in a purchase, an exchange or a 

replacement of an annuity in 

accordance with that advice.’’ Further, 

‘‘cash compensation’’ is defined as ‘‘any 

discount, concession, fee, service fee, 

commission, sales charge, loan, 

override, or cash benefit received by a 

producer in connection with the 

recommendation or sale of an annuity 

from an insurer, intermediary, or 

directly from the consumer.’’ 121 When 

retirement investors talk to investment 

advice providers about the investments 

they should make, they commonly pay 

for, and receive, advice within the 

meaning of the statutory definition. 

Platform Providers and Pooled 

Employer Plans 

Platform providers are entities that 

offer a platform or selection of 

investment alternatives to participantdirected individual account plans and 

their fiduciaries who choose the specific 

investment alternatives that will be 

made available to participants for 

investing their individual accounts. In 

connection with such offerings, 

platform providers may provide 

investment advice, or they may simply 

provide general financial information 

such as information on the historic 

performance of asset classes and of the 

investment alternatives available 

through the provider. 

In the case of a platform provider, 

application of the proposed regulation 

may often focus on whether the 

communications fall within the 

threshold definition of a 

‘‘recommendation.’’ As discussed in 

section 4, whether a recommendation 

exists under the proposal will turn on 

the degree to which a communication is 


lotter on DSK11XQN23PROD with PROPOSALS3
75908 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

122ERISA section 3(43), 29 U.S.C. 1002(43). 

123ERISA Section 3(43)(B), 29 U.S.C. 1002(43)(B). 

124 7 U.S.C. 6s(h). 

125 15 U.S.C. 78o–10(h). 

126 7 U.S.C. 6s(h)(5); 17 CFR 23.450. 

127 15 U.S.C. 78o–10(h)(4), (5). 

128See 17 CFR 23.400–451; Business Conduct 

Standards for Swap Dealers and Major Swap 

Participants With Counterparties, 77 FR 9734 (Feb. 

17, 2012); 17 CFR 240.15Fh–3–h–6; Business 

Conduct Standards for Security-Based Swap Dealers 

and Major Security-Based Swap Participants, 81 FR 

29960 (May 13, 2016). 

129The business conduct standards do not 

preclude a swap dealer from giving advice if it 

chooses to do so. See, e.g., 17 CFR 23.434 (imposing 

requirements on swap dealers that recommend a 

swap or trading strategy involving a swap to a 

counterparty); see also 17 CFR 240.15Fh–3(f) 

(similar provision applicable to security-based swap 

dealers). 

‘‘individually tailored’’ to the retirement 

investor or investors, and providing a 

selective list of securities to a particular 

retirement investor as appropriate for 

the investor would be a 

recommendation as to the advisability 

of acquiring securities even if no 

recommendation is made with respect 

to any one security. Therefore, the 

inquiry may turn on whether the 

provider presents the investments on 

the platform as having been selected for 

and appropriate for the investor (i.e., the 

plan and its participants and 

beneficiaries). In this regard, platform 

providers who merely identify 

investment alternatives using objective 

third-party criteria (e.g., expense ratios, 

fund size, or asset type specified by the 

plan fiduciary) to assist in selecting and 

monitoring investment alternatives, 

without additional screening or 

recommendations based on the interests 

of plan or IRA investors, would not be 

considered under the proposal to be 

making a recommendation. 

In the Department’s view, this same 

analysis is likely to apply in the context 

of pooled employer plans (PEPs), which 

are individual account plans established 

or maintained for the purpose of 

providing benefits to the employees of 

two or more employers, authorized in 

the Setting Every Community Up for 

Retirement Enhancement (SECURE) 

Act.122 PEPs are required to designate a 

pooled plan provider (PPP) who is a 

named fiduciary of the PEP.123 PPPs are 

in a unique statutory position in that 

they are granted full discretion and 

authority to establish the plan and all of 

its features, administer the plan, act as 

a fiduciary, hire service providers, and 

select investments and investment 

managers. When a PPP or another 

service provider interacts with an 

employer about investment options 

under the plan, whether they have made 

a recommendation under the proposal 

will turn, in part, on whether they 

present the investments as selected for, 

and appropriate for, the plan, its 

participants, or beneficiaries. 

Swaps and Security-Based Swaps 

Swaps and security-based swaps are a 

broad class of financial transactions 

defined and regulated under 

amendments to the Commodity 

Exchange Act and the Securities 

Exchange Act of 1934 (Securities 

Exchange Act) by the Dodd-Frank Act. 

Section 4s(h) of the Commodity 

Exchange Act 124 and section 15F of the 

Securities Exchange Act 125 establish 

similar business conduct standards for 

dealers and major participants in swaps 

or security-based swaps. Special rules 

apply for swap and security-based swap 

transactions involving ‘‘special 

entities,’’ a term that includes employee 

benefit plans covered under ERISA. 

Under the business conduct standards 

in the Commodity Exchange Act as 

added by the Dodd-Frank Act, swap 

dealers or major swap participants that 

act as counterparties to ERISA plans 

must, among other conditions, have a 

reasonable basis to believe that the 

plans have independent representatives 

who are fiduciaries under ERISA.126

Similar requirements apply for securitybased swap transactions.127 The CFTC 

and the SEC have issued final rules to 

implement these requirements.128

In the Department’s view, when 

Congress enacted the swap and securitybased swap provisions in the DoddFrank Act, including those expressly 

applicable to ERISA-covered plans, it 

did not intend to broadly impose ERISA 

fiduciary status on the plan’s 

counterparty as it engaged in regulated 

conduct as part of the swap or securitybased swap transaction with the 

employee benefit plan. The Department 

conferred with both the CFTC and the 

SEC at the time of those agencies’ 

rulemakings, and assured 

harmonization of any change in the 

ERISA fiduciary advice regulation so as 

to avoid unintended consequences. 

The Department makes the same 

assurance with respect to this proposed 

regulation. The disclosures required of 

plans’ counterparties under the business 

conduct standards would not generally 

constitute a ‘‘recommendation’’ as 

defined in the proposal, or otherwise 

compel the dealers or major participants 

to act as fiduciaries in swap and 

security-based swap transactions 

conducted pursuant to section 4s of the 

Commodity Exchange Act and section 

15F of the Securities Exchange Act. This 

includes disclosures regarding material 

risks, characteristics, incentives and 

conflicts of interest; disclosures 

regarding the daily mark of a swap or 

security-based swap and a 

counterparty’s clearing rights; 

disclosures necessary to ensure fair and 

balanced communications; and 

disclosures regarding the capacity in 

which a swap or security-based swap 

dealer or major swap participant is 

acting when a counterparty to a special 

entity, as required by the business 

conduct standards. 

This is not to say that a dealer or 

major participant would necessarily fall 

outside the scope of the proposed 

regulation if, in addition to providing 

the disclosures mandated above, it also 

chose to make specific investment 

recommendations to plan clients. In that 

circumstance, a swap dealer could 

become a fiduciary by virtue of their 

voluntary decision to make 

individualized investment 

recommendations to an ERISA-covered 

plan if the subparagraph’s conditions 

were met.129 To the extent dealers wish 

to avoid fiduciary status under the 

proposal, however, they can structure 

their relationships to avoid making such 

investment recommendations to plans. 

Additionally, clearing firms would not 

be investment advice fiduciaries under 

the proposed rule merely as a result of 

providing such services as valuations, 

pricing, and liquidity information. As 

discussed in greater detail in the next 

section, the proposed rule does not 

include valuation and similar services 

as a category of covered 

recommendations. 

Valuation of Securities and Other 

Investment Property 

This proposed rule does not include 

valuation services, appraisal services, or 

fairness opinions as categories of 

covered recommendations. In this 

regard, the Department notes that the 

definition of ‘‘recommendation of any 

securities transaction or other 

investment transaction or any 

investment strategy involving securities 

or other investment property’’ in 

proposed paragraph (f)(10) does not 

include reference to any of these 

functions. Accordingly, the provision of 

valuation services, appraisal services, or 

fairness opinions would not, in and of 

themselves, lead to fiduciary status 

under the proposed rule. The 

Department continues to believe issues 

related to valuation are best addressed 

through a separate rulemaking. 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75909 

130 40 FR 50842 (Oct. 31, 1975); 41 FR 56760, 

56762 (Dec. 29, 1976). 

131 41 FR 56760, 56762 (Dec. 29, 1976). 

132U.S. Department of Labor, Adv. Op. 83–60A 

(Nov. 21, 1983), available at https://www.dol.gov/ 

agencies/ebsa/about-ebsa/our-activities/resourcecenter/advisory-opinions/1983-60a. 

133 Id. 

134 Id.; see Letter from the Department of Labor 

to the Securities Industry Association (Mar. 1, 1984) 

(declining to modify this position); see also IB 96– 

1, 61 FR 29586, 29589 at fn. 3 (June 11, 1996) (‘‘The 

Department has expressed the view that, for 

purposes of section 3(21)(A)(ii), such fees or other 

compensation need not come from the plan and 

should be deemed to include all fees or other 

compensation incident to the transaction in which 

the investment advise [sic] has been or will be 

rendered.’’ (citations omitted)). 

135Regulation Best Interest release, 84 FR 33318, 

33319 (July 12, 2019). 

136 Id. 

137NAIC Model Regulation, at Section 6, 5. M. 

6. For a Fee or Other Compensation, 

Direct or Indirect 

Paragraph (e) of the proposal includes 

a definition of ‘‘for a fee or other 

compensation, direct or indirect,’’ for 

purposes of section 3(21)(A)(ii) of 

ERISA and section 4975(e)(3)(B) of the 

Code. The proposal provides: 

[A] person provides investment advice ‘‘for 

a fee or other compensation, direct or 

indirect,’’ if the person (or any affiliate) 

receives any explicit fee or compensation, 

from any source, for the advice or the person 

(or any affiliate) receives any other fee or 

other compensation, from any source, in 

connection with or as a result of the 

recommended purchase, sale, or holding of a 

security or other investment property or the 

provision of investment advice, including, 

though not limited to, commissions, loads, 

finder’s fees, revenue sharing payments, 

shareholder servicing fees, marketing or 

distribution fees, mark ups or mark downs, 

underwriting compensation, payments to 

brokerage firms in return for shelf space, 

recruitment compensation paid in 

connection with transfers of accounts to a 

registered representative’s new broker-dealer 

firm, expense reimbursements, gifts and 

gratuities, or other non-cash compensation. A 

fee or compensation is paid ‘‘in connection 

with or as a result of’’ such transaction or 

service if the fee or compensation would not 

have been paid but for the recommended 

transaction or provision of advice, including 

if eligibility for or the amount of the fee or 

compensation is based in whole or in part on 

the recommended transaction or the 

provision of advice. 

This proposed definition is consistent 

with the preamble of the 1975 

regulation, which states that ‘‘a fee or 

other compensation, direct or indirect’’ 

includes all fees or other compensation 

‘‘incident to the transaction in which 

the investment advice to the plan has 

been rendered or will be rendered,’’ 

including, for example, brokerage 

commissions, mutual fund sales 

commissions, and insurance sales 

commissions.130

As the Department explained in the 

preamble when it proposed the 

exemption now at PTE 77–9: 131

[T]he Department and the [IRS] stated in 

the preamble sections of the notices 

announcing the adoption of the [1975 

fiduciary definition] regulations that, until a 

more definitive statement is issued, the 

phrase ‘‘fee or other compensation, direct or 

indirect’’ for the rendering of investment 

advice for purposes of section 3(21)(A)(ii) of 

the Act and section 4975(e)(3)(B) of the Code 

should be deemed to include all fees or other 

compensation incidental to the transaction in 

which the investment advice to the plan has 

been rendered or will be rendered, and may 

therefore include insurance and mutual fund 

sales commissions. The Department and the 

[IRS] have not modified or revised this 

position, notwithstanding the contrary views 

expressed in several of the applications for 

class exemption. 

This proposed definition is also 

consistent with, for example, guidance 

the Department provided just eight 

years after the 1975 regulation was 

finalized. Specifically, an association 

that represented broker-dealers asked 

the Department to ‘‘clarify the status of 

broker-dealers under ERISA.’’ 132 The 

association posited that fiduciary status 

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

‘‘fee or other compensation, direct or 

indirect’’ provision) would not attach to 

broker-dealers ‘‘unless the broker-dealer 

provides investment advice for distinct, 

non-transactional compensation.’’ 133

The Department rejected this 

interpretation of ERISA section 

3(21)(A)(ii). The Department stated that, 

based on the facts and circumstances 

presented by each case, 

if . . . the services provided by the brokerdealer include the provision of ‘‘investment 

advice’’, as defined in regulation 2510.3– 

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

even in the absence of a distinct and 

identifiable fee for such advice, a portion of 

the commissions paid to the broker-dealer 

would represent compensation for the 

provision of such investment advice.134

As the proposed regulation makes 

clear, however, there must be a link 

between the transaction-based 

compensation and the investment 

professional’s recommendation. Under 

the terms of the proposal, the 

compensation is treated as paid ‘‘in 

connection with or as a result of’’ the 

provision of advice only if it would not 

have been paid but for the 

recommended transaction or the 

provision of advice, or if the investment 

advice provider’s eligibility for the 

compensation (or its amount) is based in 

whole or part on the recommended 

transaction or the provision of advice. 

Under the proposed definition, any 

fee that is paid explicitly for the 

provision of investment advice would 

fall within the proposed definition of 

‘‘for a fee or other compensation, direct 

or indirect.’’ This would include, for 

example, a fee paid to an investment 

adviser under the Advisers Act based on 

the retirement investor’s assets under 

management. 

A fee or other compensation received 

in connection with an investment 

transaction also would fall within the 

proposed definition of ‘‘for a fee or other 

compensation, direct or indirect.’’ This 

treatment of investment compensation 

is in accord with the actions of other 

State and Federal regulators, and with 

the modern marketplace for investment 

advice in which brokers and insurance 

agents can do far more than merely 

execute transactions or close sales. 

Investment professionals are commonly 

compensated for their advice through 

the payment of transaction-based fees, 

such as commissions, which are 

contingent on the investor’s decision to 

engage in the recommended transaction. 

The SEC acknowledged this in the 

Regulation Best Interest release, noting 

that ‘‘there is broad acknowledgment of 

the benefits of, and support for, the 

continuing existence of the brokerdealer business model, including a 

commission or other transaction-based 

compensation structure, as an option for 

retail customers seeking investment 

recommendations. ’’135 The SEC 

discussion further contemplated that 

commissions compensate broker-dealers 

for their recommendations, and may be 

the preferred method of investment 

advice compensation with respect to 

certain transactions. As an example, the 

SEC stated that retail customers seeking 

a long-term investment may determine 

that ‘‘paying a one-time commission to 

a broker-dealer recommending such an 

investment is more cost effective than 

paying an ongoing advisory fee to an 

investment adviser merely to hold the 

same investment.’’ 136 The Department 

agrees that there are benefits to ensuring 

a wide range of compensation structures 

remain available to retirement investors. 

Likewise, the NAIC Model Regulation 

acknowledged that insurance agents 

make recommendations and might be 

compensated for their recommendations 

through commissions. The NAIC Model 

Regulation defines a recommendation as 

‘‘advice provided by a producer to an 

individual consumer that was intended 

to result or does result in a purchase, an 

exchange or a replacement of an annuity 

in accordance with that advice.’’ 137 The 

definition of ‘‘cash compensation’’ in 

the model regulation is: ‘‘any discount, 

concession, fee, service fee, 


lotter on DSK11XQN23PROD with PROPOSALS3
75910 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

138 Id. at Section 5. B. 

139E.g., U.S. Department of Labor, Adv. Op. 83– 

60A (Nov. 21, 1983), available at https://

www.dol.gov/agencies/ebsa/about-ebsa/ouractivities/resource-center/advisory-opinions/1983- 

60a. 

140 29 U.S.C. 1108(b)(14). See Code section 

4975(d)(17) (parallel statutory exemption). 

141 29 U.S.C. 1108(b)(14) (emphasis added). 

142See Findings, Conclusions, and 

Recommendations of the United States Magistrate 

Judge, Federation of Americans for Consumer 

Choice v. U.S. Dep’t of Labor, No. 3:22–CV–00243– 

K–BT, 2023 WL 5682411, at *21 (N.D. Tex. June 30, 

2023) (‘‘The expansive choice of investment advice 

‘for other compensation’ indicates an intent to cover 

any transaction where the financial professional 

may receive conflicted income if they are acting as 

a trusted adviser.’’) 

143The definition of an IRA would also include 

an individual retirement annuity described in Code 

section 408(b), an Archer MSA described in Code 

section 220(d), and a Coverdell education savings 

account described in Code section 530. However, 

for purposes of any rollover of assets between a 

Title I Plan and an IRA described in this preamble, 

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

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

144U.S. Department of Labor, Adv. Op. 97–15A 

(May 22, 1997). 

commission, sales charge, loan, 

override, or cash benefit received by a 

producer in connection with the 

recommendation or sale of an annuity 

from an insurer, intermediary, or 

directly from the consumer.’’ 138

When an investment professional 

meets the five-part test set out in the 

1975 rule, or the fiduciary definition set 

forth in this proposal, the services 

rendered by the professional include 

individualized advice, and the 

compensation, including commission 

payments, is not merely for execution of 

a sale, but for the professional advice 

provided to the investor, as uniformly 

recognized by the Department’s 

previous guidance and by other State 

and Federal regulators.139

The statutory exemption for 

investment advice to participants and 

beneficiaries of individual account 

plans set forth in ERISA section 

408(b)(14) similarly recognizes that 

compensation for advice often comes in 

the form of commissions and 

transaction-based compensation.140

Accordingly, the exemption applies to 

transactions ‘‘in connection with the 

provision of investment advice 

described in section 3(21)(A)(ii)’’ 

including ‘‘the direct or indirect receipt 

of fees or other compensation by the 

fiduciary adviser or an affiliate thereof 

. . . . in connection with the provision 

of the advice or in connection with an 

acquisition, holding, or sale of a security 

or other property available as an 

investment under the plan pursuant to 

the investment advice.’’ 141

As has been true since the Department 

first proposed regulations under this 

section in 1975 and as discussed above, 

the Department understands the phrase 

‘‘for a fee or other compensation, direct 

or indirect’’ to encompass a broad array 

of compensation incident to the 

transaction.142 The Department requests 

comments on this portion of the 

proposal, including whether additional 

examples would be helpful. 

7. Other Definitions in the Proposed 

Rule 

In addition to the definitions 

discussed above, proposed paragraph (f) 

would define a variety of other pertinent 

terms for purposes of the proposed rule. 

The definitions generally track other 

definitions within Title I and Title II of 

ERISA and the Federal securities laws. 

The definitions in proposed paragraph 

(f), not otherwise discussed above, are: 

‘‘affiliate’’ (similar to that of paragraph 

(e)(1) of the 1975 rule); and ‘‘control’’ 

(similar to that of paragraph (e)(2) of the 

1975 rule). ‘‘Plan’’ refers to any plan 

described under section 3(3) of ERISA 

and any plan described in section 

4975(e)(1)(A) of the Code. For purposes 

of the proposal ‘‘IRA’’ refers to any 

account or annuity described in Code 

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

including, for example, an individual 

retirement account described in section 

408(a) of the Code and a health savings 

account described in section 223(d) of 

the Code.143 ‘‘Plan fiduciary’’ would use 

the same definition as described in 

section (3)(21)(A) of the Act and section 

4975(e)(3) of the Code; for these 

purposes, a participant or beneficiary of 

the plan who is receiving advice is not 

a ‘‘plan fiduciary’’ with respect to the 

plan. Under the proposed rule 

‘‘relative’’ refers to a person described in 

section 3(15) of the Act and section 

4975(e)(6) of the Code and also includes 

a sibling, or a spouse of a sibling. ‘‘Plan 

participant’’ or ‘‘participant’’ (for a plan 

described in section 3(3) of ERISA), 

would be a person described in section 

3(7) ERISA. 

8. Scope of Investment Advice Fiduciary 

Duty 

Paragraph (c)(2) of the proposal 

confirms that a person who is a 

fiduciary with respect to a plan or IRA 

by reason of rendering investment 

advice is not deemed to be a fiduciary 

regarding any assets of the plan or IRA 

with respect to which that person does 

not have or exercise any discretionary 

authority, control, or responsibility or 

with respect to which the person does 

not render or have authority to render 

investment advice defined by the 

proposed rule. On the other hand, 

nothing in paragraph (c)(2) exempts 

such a person from the provisions of 

section 405(a) of the Act concerning 

liability for violations of fiduciary 

responsibility by other fiduciaries or 

excludes such person from the 

definition of party in interest under 

section 3(14)(B) of the Act or section 

4975(e)(2) of the Code. This provision is 

unchanged from the current 1975 

regulation. 

The Department further notes that, if 

a person’s recommendations relate to 

the advisability of acquiring or 

exchanging securities or other 

investment property in a particular 

transaction, the proposed rule does not 

impose on the person an automatic 

fiduciary obligation to continue to 

monitor the investment or the 

retirement investor’s activities to ensure 

the recommendations remain prudent 

and appropriate for the plan or IRA. 

Instead, the obligation to monitor the 

investment on an ongoing basis would 

be a function of the reasonable 

expectations, understandings, 

arrangements, or agreements of the 

parties. 

Also, as has been made clear by the 

Department, there are a number of ways 

to provide fiduciary investment advice 

without engaging in transactions 

prohibited by Title I or Title II of ERISA 

because of the conflicts of interest they 

pose. For example, an investment 

advice provider can structure the fee 

arrangement to avoid a prohibited 

transaction (and the related conflicts of 

interest) by offsetting third party 

payments against direct fees agreed to 

by the retirement investor, as explained 

in advisory opinions issued by the 

Department.144 If there is not a 

prohibited transaction, then there is no 

need to comply with the terms of an 

exemption, though an investment 

advice fiduciary with respect to a Title 

I plan would still be required to comply 

with the statutory duties including 

prudence and loyalty. 

Proposed paragraph (d) of the 

regulation is identical to paragraph (d) 

of the 1975 regulation, apart from 

updated references. The paragraph 

specifically provides that the mere 

execution of a securities transaction at 

the direction of a plan or IRA owner 

would not be deemed to be fiduciary 

activity. The regulation’s scope remains 

limited to advice relationships, as 

delineated in its text, and does not cover 

transactions that are executed pursuant 

to specific direction in which no advice 

is provided. The Department seeks 

comment as to whether any updates to 

paragraph (d) are necessary. 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75911 

145 85 FR 40589 (July 7, 2020). 146 81 FR 20946, 20977 (Apr. 8, 2016). 

147See IB 96–1, Section (e) ‘‘Selection and 

Monitoring of Educators and Advisors.’’ 

9. Interpretive Bulletin 96–1 

The proposed regulation does not 

include a specific provision addressing 

investment education. Investment 

education is addressed in the 

Department’s IB 96–1, which was 

reinstated in 2020.145 IB 96–1 provides 

examples of four categories of 

information and materials regarding 

participant-directed individual account 

plans—plan information, general 

financial and investment information, 

asset allocation models, and interactive 

investment materials—that do not 

constitute investment advice. This is the 

case irrespective of who provides the 

information (e.g., plan sponsor, 

fiduciary, or service provider), the 

frequency with which the information is 

shared, the form in which the 

information and materials are provided 

(e.g., on an individual or group basis, in 

writing or orally, or via video or 

computer software), or whether an 

identified category of information and 

materials is furnished alone or in 

combination with other identified 

categories of information and materials. 

The IB states that there may be many 

other examples of information, 

materials, and educational services, 

which, if furnished to participants and 

beneficiaries, would not constitute 

‘‘investment advice.’’ 

Although the Department issued IB 

96–1 when the 1975 rule was in effect, 

the Department believes that the IB 

would continue to provide accurate 

guidance under the proposed regulation. 

If the proposed rule is finalized, the IB 

would continue to correctly describe the 

types of educational information and 

materials that should not be treated as 

‘‘recommendations’’ subject to the 

fiduciary advice definition. Although 

the IB specifically applies in the context 

of participants and beneficiaries in 

participant-directed individual account 

plans, the Department believes that the 

analysis it presents is valid regardless of 

whether the retirement investor is a 

plan participant, beneficiary, IRA 

owner, IRA beneficiary, or fiduciary. 

One important example of investment 

education is the provision of 

information about the benefits of 

increasing contributions to an employee 

benefit plan. Under IB 96–1, the 

provision of information on ‘‘the 

benefits of plan participation’’ and the 

‘‘benefits of increasing plan 

contributions’’ are both examples of 

‘‘plan information.’’ The Department 

confirms that, for purposes of the 

proposal, the provision of such 

information would not trigger fiduciary 

status. 

In the 2016 Final Rule, the 

Department incorporated the provisions 

of IB 96–1 into the regulatory text; as a 

result, certain provisions were 

specifically applicable to transactions 

involving IRAs. In addition, the 

Department made a few changes to the 

provisions. The Department clarified 

and expanded the category in IB 96–1 

from ‘‘General Financial and Investment 

Information’’ to ‘‘General financial, 

investment, and retirement 

information.’’ The revised category 

included information on ‘‘[g]eneral 

methods and strategies for managing 

assets in retirement (e.g., systemic 

withdrawal payments, annuitization, 

guaranteed minimum withdrawal 

benefits).’’ This change was intended to 

improve retirement security by 

facilitating the provision of information 

and education relating to retirement 

needs that extend beyond a participant’s 

or beneficiary’s date of retirement. Such 

information would be considered nonfiduciary education as long as the 

provider did not recommend a specific 

investment or investment strategy.146

The Department cautions however, 

that to the extent a provider goes 

beyond providing education and gives 

investment advice on a specific 

investment or investment strategy, it is 

not appropriate to broadly exempt those 

communications from fiduciary 

liability. The Department believes that 

such an approach would be especially 

inappropriate in cases in which a 

service provider offers ‘‘educational’’ 

services that systematically exceed the 

boundaries of education. In such cases, 

when firms or individuals make specific 

investment recommendations to plan 

participants, they should adhere to basic 

fiduciary norms of prudence and loyalty 

and take appropriate measures to 

protect plan participants and 

beneficiaries from the potential harm 

caused by conflicts of interest. 

An employer or other plan sponsor 

would not, however, become an 

investment advice fiduciary under the 

proposal merely because the employer 

or plan sponsor engaged a service 

provider to provide investment advice 

or because a service provider engaged to 

provide investment education crossed 

the line and provided investment advice 

in a particular case. On the other hand, 

whether the service provider renders 

fiduciary advice or non-fiduciary 

education, the proposed rule does not 

change the well-established fiduciary 

obligations that arise in connection with 

the selection and monitoring of plan 

service providers.147 Even if the service 

provider crosses the line and makes 

investment recommendations that go 

beyond mere ‘‘education,’’ the service 

provider will only be treated as an 

investment advice fiduciary to the 

extent that the full proposed regulatory 

definition is satisfied. Depending on the 

facts and circumstances, whether a 

service provider is an investment advice 

fiduciary under the proposal may 

require an inquiry into whether that 

service provider has held itself out as a 

fiduciary, whether that service provider 

regularly provides investment advice as 

part of the provider’s business, whether 

such advice is individualized, and 

whether the service provider received a 

fee or compensation (directly or 

indirectly) in connection with the 

advice. 

The Department seeks comment on 

this discussion of investment education. 

Do commenters agree that the examples 

of investment education information 

and materials identified in IB 96–1 and 

in the provisions of the 2016 Final Rule 

regarding investment education do not 

constitute a ‘‘recommendation’’ as 

described under the proposed rule? 

Further, do commenters believe that IB 

96–1 provides sufficient and 

appropriate guidance in conjunction 

with the provisions in this proposal, or 

do commenters support amending IB 

96–1 or incorporating any of its 

provisions into the final regulation? 

10. Application to Code Section 4975 

Certain provisions of Title I of ERISA, 

such as those relating to participation, 

benefit accrual, and prohibited 

transactions, also appear in Title II of 

ERISA, codified in the Code. This 

parallel structure ensures that the 

relevant provisions apply to Title I 

plans, whether or not they are ‘‘plans’’ 

defined in section 4975 of the Code, and 

to tax-qualified plans and IRAs, 

regardless of whether they are subject to 

Title I of ERISA. With regard to 

prohibited transactions, the ERISA Title 

I provisions generally authorize 

recovery of losses from, and imposition 

of civil penalties on, the responsible 

plan fiduciaries, while the Title II 

provisions impose excise taxes on 

persons engaging in the prohibited 

transactions. The definition of fiduciary 

is the same in section 4975(e)(3)(B) of 

the Code as the definition in section 

3(21)(A)(ii) of ERISA, and, as noted 

above, the Department’s 1975 regulation 

defining fiduciary investment advice is 

virtually identical to the regulation 


lotter on DSK11XQN23PROD with PROPOSALS3
75912 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

148 5 U.S.C. App. (2018). 

149 29 U.S.C. 1106–1108. 

150 Reorganization Plan No. 4 of 1978 also 

transferred to the Secretary of Labor the authority 

to grant administrative exemptions from the 

prohibited transaction provisions in section 4975 of 

the Code. See section 4975(c)(2) of the Code. 

151ERISA section 406, 29 U.S.C. 1106. 

152 Lockheed Corp. v. Spink, 517 U.S. 882 (1996); 

Comm’r v. Keystone Consol. Indus, Inc., 508 U.S. 

152 (1993). 

defining the term ‘‘fiduciary’’ under the 

Code. 

To rationalize the administration and 

interpretation of the parallel provisions 

in Title I and Title II of ERISA, 

Reorganization Plan No. 4 of 1978 

divided the interpretive and rulemaking 

authority for these provisions between 

the Secretaries of Labor and of the 

Treasury.148 Under the Reorganization 

Plan, which was prepared by the 

President and transmitted to Congress 

pursuant to the provisions of Chapter 9 

of Title 5 of the United States Code, the 

Department of Labor has authority to 

interpret the prohibited transaction 

provisions and the definition of a 

fiduciary in the Code. ERISA’s 

prohibited transaction rules, sections 

406 to 408,149 apply to Title I plans, and 

the Code’s corresponding prohibited 

transaction rules, 26 U.S.C. 4975(c), 

apply to tax-qualified pension plans, as 

well as other tax-advantaged 

arrangements, such as IRAs, that are not 

subject to the fiduciary responsibility 

and prohibited transaction rules in Title 

I of ERISA.150 In accordance with the 

above discussion, paragraph (g) of the 

proposal, entitled ‘‘Applicability’’ 

provides that the regulation defines a 

‘‘fiduciary’’ both for purposes of ERISA 

section 3(21)(A)(ii) and for the parallel 

provision in Code section 4975(e)(3)(B). 

Proposed paragraph (g) explains the 

applicability of Title I of ERISA and the 

Code in the specific context of rollovers. 

As that paragraph explains, ‘‘a person 

who satisfies paragraphs (c)(1) and (e) of 

this section in connection with a 

recommendation to a retirement 

investor that is an employee benefit 

plan as defined in section 3(3) of the 

Act, a fiduciary of such a plan, or a 

participant or beneficiary of such a plan, 

including a recommendation concerning 

the rollover of assets currently held in 

a plan to an IRA, is a fiduciary subject 

to the provisions of Title I of the Act.’’ 

With this example, the Department 

intends to clarify the application of Title 

I to recommendations made regarding 

rollovers from a Title I plan under the 

proposal. As discussed above, the 

Department had earlier taken a contrary 

position in the Deseret Letter, which 

was withdrawn. 

11. State Law 

Proposed paragraph (h) is entitled 

‘‘Continued applicability of state law 

regulating insurance, banking, or 

securities’’ and provides ‘‘[n]othing in 

this section shall be construed to affect 

or modify the provisions of section 514 

of Title I of the Act, including the 

savings clause in section 514(b)(2)(A) 

for State laws that regulate insurance, 

banking, or securities.’’ This paragraph 

of the proposal acknowledges that 

ERISA section 514 expressly saves State 

regulation of insurance, banking, and 

securities from ERISA’s express 

preemption provision, and confirms that 

the regulation is not intended 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 insurance, banking, or securities. 

D. Severability 

The Department is considering 

whether this proposal could continue to 

work even if certain aspects of the 

proposal were struck down by a court. 

In determining whether any aspects of 

this proposal could be severable the 

Department is focused on the text and 

purpose of ERISA. The Department 

requests comments regarding whether 

this proposal would be workable and 

appropriate if certain aspects were 

severed, or why it would not be 

workable or appropriate. Specifically, 

the Department is interested in hearing 

which aspects of the rule the public 

believes could or could not be severed, 

and the rationale behind those views. 

The Department expects to consider 

severability as it reviews comments and 

drafts a final rule. 

The Department generally intends 

discrete aspects of this regulatory 

package to be severable. For example, in 

the event that this regulatory package is 

finalized with both an updated 

regulatory definition of a fiduciary and 

amendments to the PTEs, the 

Department intends that the updated 

regulatory definition of a fiduciary 

would survive even if a court vacated 

any of the amendments to the PTEs 

leaving in place the previously granted 

versions of those PTEs. 

E. Effective Date 

The Department proposes to make the 

rule effective 60 days after publication 

of a final rule in the Federal Register. 

The Department requests comment on 

this proposed timeframe and whether 

parties believe that additional time is 

needed before the rule becomes 

applicable. 

F. Regulatory Impact Analysis 

This section analyzes the economic 

impact of the proposed rule and 

proposed amendments to the following 

class administrative exemptions (PTEs) 

providing relief from the prohibited 

transaction rules that are applicable to 

fiduciaries under Title I of ERISA and 

the Code: PTEs 2020–02, 84–24, 75–1, 

77–4, 80–83, 83–1, and 86–128. The 

Department is publishing the proposed 

amendments to the PTEs elsewhere in 

this issue of today’s Federal Register. 

Collectively, the proposed rule and 

amendments to the PTEs are referred to 

as ‘‘the proposal’’ for this section. 

Employment-based retirement plans 

and IRAs are critical to the retirement 

security of millions of America’s 

workers and their families. Because 

retirement investors often lack financial 

expertise, professional investment 

advice providers often play an 

important role in guiding their 

investment decisions. Prudent 

professional advice helps consumers set 

and achieve appropriate retirement 

savings and decumulation goals more 

effectively than consumers would on 

their own. For many years, the benefits 

of professional investment advice, 

however, have been persistently 

undermined by conflicts of interest that 

occur when financial services firms 

compensate individual investment 

advice providers in a manner that 

incentivizes them to steer consumers 

toward investments and transactions 

that yield higher profits for the firms. 

These practices can bias the investment 

advice that providers render to 

consumers and detrimentally impact 

their retirement savings by eroding plan 

and IRA investment results. 

Title I of ERISA imposes duties and 

restrictions on fiduciaries with respect 

to employee benefit plans. ERISA 

section 404 requires Title I plan 

fiduciaries to act with 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.’’ 

Further, fiduciaries must carry out their 

duties ‘‘solely in the interest of the 

participants and beneficiaries’’ of the 

plan. Title I of ERISA also includes 

prohibited transaction provisions that 

forbid fiduciaries from, among other 

things, self-dealing.151 The aim of the 

prohibited transaction provisions is to 

protect plans, their participants, and 

beneficiaries from dangerous conflicts of 

interest that threaten the safety and 

security of plan benefits.152

Title II of ERISA, codified in the 

Internal Revenue Code, governs the 

conduct of fiduciaries to tax-qualified 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75913 

153Cf. 26 U.S.C. 4975(c)(1), Code section 

4975(f)(5) defining ‘‘correction’’ with respect to 

prohibited transactions as placing a plan or an IRA 

in a financial position not worse than it would have 

been in if the person had acted ‘‘under the highest 

fiduciary standards.’’ 

154 76 FR 3821 (Jan. 21, 2011). 

155 58 FR 51735 (Oct. 4, 1993). 

156Public Law 96–354, 94 Stat. 1164 (Sept. 19, 

1980). 

157Public Law 104–4, 109 Stat. 48 (Mar. 22, 

1995). 

158 64 FR 43255 (Aug. 9, 1999). 

159 88 FR 21879 (Apr. 6, 2023). 

plans and IRAs. Although Title II does 

not directly impose specific duties of 

prudence and loyalty on fiduciaries as 

ERISA section 404(a) does, it prohibits 

fiduciaries from engaging in conflicted 

transactions on many of the same terms 

as Title I.153

The proposal focuses on the provision 

of fiduciary investment advice to ERISA 

retirement plans, participants, and IRA 

owners and seeks to reduce or eliminate 

the impacts of conflicts of interest on 

advice they receive. The proposal 

amends the definition of a fiduciary 

such that an investment advice provider 

is a fiduciary if the person provides 

advice or makes a recommendation on 

any securities transaction or other 

investment transaction or any 

investment strategy involving securities 

or other investment property to the 

plan, plan fiduciary, plan participant or 

beneficiary, IRA, IRA owner or IRA 

fiduciary (retirement investor), the 

advice or recommendation is provided 

‘‘for a fee or other compensation, direct 

or indirect,’’ as defined by the proposed 

rule, and (i), (ii) or (iii) is satisfied: 

(i) The person either directly or 

indirectly (e.g., through or together with 

any affiliate) has discretionary authority 

or control, whether or not pursuant to 

an agreement, arrangement or 

understanding, with respect to 

purchasing or selling securities or other 

investment property for the retirement 

investor; 

(ii) The person either directly or 

indirectly (e.g., through or together with 

any affiliate) makes investment 

recommendations to investors on a 

regular basis as part of its business and 

the recommendation is provided under 

circumstances indicating that the 

recommendation is based on the 

particular needs or individual 

circumstances of the retirement investor 

and may be relied upon by the 

retirement investor as a basis for 

investment decisions that are in the 

retirement investor’s best interest; or 

(iii) The person making the 

recommendation represents or 

acknowledges that they are acting as a 

fiduciary when making the investment 

recommendation. 

The proposed amendments to PTE 

2020–02 expand the scope of the 

exemption to cover certain transactions 

involving PEPs and transactions 

involving ‘‘pure’’ robo-advice providers. 

The amendments would provide greater 

specificity as to what information must 

be disclosed to retirement investors 

under the exemption and clarify that 

fiduciary acknowledgements must 

clearly indicate whether the entity is a 

fiduciary with respect to investment 

recommendations and advice. 

Additionally, the amendments would 

require financial institutions to notify 

retirement investors of their right to 

obtain additional information upon 

request, free of charge. The proposed 

amendments would also provide more 

guidance for financial institutions and 

investment professionals complying 

with PTE 2020–02’s requirements 

related to financial institutions’ policies 

and procedures. The amendments 

would also expand on which parties can 

request and receive records under the 

exemption’s recordkeeping provisions. 

PTE 84–24 would be amended to limit 

relief for investment advice to 

independent insurance producers (i.e., 

independent insurance agencies) that 

recommend annuities from an 

unaffiliated financial institution to 

retirement investors on a commission or 

fee basis. Additionally, PTEs 75–1 Parts 

III and IV, 77–4, 80–83, 83–1, and 86– 

128 would be amended to eliminate 

relief for transactions resulting from 

fiduciary investment advice, as defined 

under ERISA. 

Rather than look to an assortment of 

different exemptions with different 

conditions for different transactions, 

investment advice fiduciaries—apart 

from independent insurance 

producers—would generally be 

expected to rely solely on the amended 

PTE 2020–02 for exemptive relief for 

covered investment advice transactions. 

These amendments serve to give the 

same or similar requirement for the 

provision of retirement investment 

advice regardless of the market and 

investment product. 

The most significant benefits of the 

proposal are expected to result from (1) 

changing the definition of a fiduciary by 

amending the five-part test, (2) requiring 

advice given to a broader range of 

advice recipients, including plan 

fiduciaries and non-retail investors, to 

meet fiduciary standards under ERISA, 

(3) extending the application of the 

fiduciary best interest standard in the 

market for non-security annuities, 

creating a uniform standard across 

different retirement products, and (4) 

requiring that more rollover 

recommendations be in the retirement 

investor’s best interest. 

These proposed amendments 

generally align with the Investment 

Advisers Act of 1940 and the SEC’s 

Regulation Best Interest. In crafting this 

proposal, the Department has worked to 

align its proposed definition with 

Regulation Best Interest and the 

Advisers Act where it can. ERISA has a 

functional fiduciary test and imposes 

fiduciary status only to the extent the 

functional test is satisfied. The 

Department intends for the compliance 

obligations under this proposal to 

broadly align with the standards set by 

the SEC where practicable and has tried 

to accomplish such alignment in this 

proposal. The Department believes that 

by harmonizing the application of 

fiduciary duty for retirement investment 

advisers across regulatory regimes, 

retirement investors will benefit from 

more uniform protections from 

conflicted advice. While extending 

fiduciary duty to more entities will 

generate costs, the Department believes 

any new compliance costs will not be 

unduly burdensome as the proposal 

broadly aligns with those compliance 

obligations imposed under the 

Investment Advisers Act and the SEC’s 

Regulation Best Interest on investment 

advisers and broker-dealers, 

respectively, and simply expands them 

to larger portions of the retirement 

market. 

The Department of Labor has 

examined the effect of the proposal as 

required by Executive Order 13563,154

Executive Order 12866,155 the 

Regulatory Flexibility Act,156 section 

202 of the Unfunded Mandates Reform 

Act,157 and Executive Order 13132.158

1. Executive Orders 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives. If regulation is necessary, 

agencies must choose a regulatory 

approach that maximizes net benefits, 

including potential economic, 

environmental, public health and safety 

effects; distributive impacts; and equity. 

Executive Order 13563 emphasizes the 

importance of quantifying costs and 

benefits, reducing costs, harmonizing 

rules, and promoting flexibility. 

Under Executive Order 12866, 

‘‘significant’’ regulatory actions are 

subject to review by the Office of 

Management and Budget (OMB). As 

amended by Executive Order 14094,159

entitled ‘‘Modernizing Regulatory 

Review’’, section 3(f) of Executive Order 

12866 defines a ‘‘significant regulatory 


lotter on DSK11XQN23PROD with PROPOSALS3
75914 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

160ERISA section 406, 29 U.S.C. 1106. 

161 Lockheed Corp. v. Spink, 517 U.S. 882 (1996); 

Commissioner v. Keystone Consol. Industries, Inc., 

508 U.S. 152 (1993). 

162Employee 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-andregulations/rules-and-regulations/completedrulemaking/1210-AB32-2/ria.pdf. 

163Employee Benefits Security Administration, 

Private Pension Plan Bulletin Historical Tables and 

Graphs 1975–2020, (November 2022), Table E4, 

(November 2022), https://www.dol.gov/sites/dolgov/ 

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

action’’ as any regulatory action that is 

likely to result in a rule that may: 

(1) have an annual effect on the 

economy of $200 million or more 

(adjusted every three years by the 

Administrator of the Office of 

Information and Regulatory Affairs 

(OIRA) for changes in gross domestic 

product); or adversely affect in a 

material way the economy, a sector of 

the economy, productivity, competition, 

jobs, the environment, public health or 

safety, or State, local, territorial, or tribal 

governments or communities; 

(2) create a serious inconsistency or 

otherwise interfere with an action taken 

or planned by another agency; 

(3) materially alter the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or 

(4) raise legal or policy issues for 

which centralized review would 

meaningfully further the President’s 

priorities or the principles set forth in 

the Executive order, as specifically 

authorized in a timely manner by the 

Administrator of OIRA in each case. 

It has been determined that this 

proposal is significant within the 

meaning 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 the proposal. 

2. Need for Regulatory Action 

In preparing this analysis, the 

Department has reviewed recent 

regulatory and legislative actions 

concerning investment advice, market 

developments in industries providing 

investment advice, and research 

literature weighing in on investment 

advice. From this review, the 

Department believes there is compelling 

evidence that retirement investors 

remain vulnerable to harm from 

conflicts of interest in the investment 

advice they receive. Given this 

evidence, and the Department’s mission 

to ensure the security of retirement 

benefits of America’s workers and their 

families, the Department is proposing to 

amend the definition of fiduciary and 

certain exemption relief. 

Why Being a Fiduciary Matters 

As described above, fiduciaries under 

ERISA are subject to specific 

requirements. ERISA section 404 

requires Title I plan fiduciaries to act 

with the ‘‘care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent man 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.’’ Further, fiduciaries must 

carry out their duties ‘‘solely in the 

interest of the participants and 

beneficiaries’’ of the plan. Title II of 

ERISA, codified in the Internal Revenue 

Code, governs the conduct of fiduciaries 

to tax-qualified plans and IRAs. Under 

both Title I and Title II, fiduciaries are 

subject to prohibited transactions that 

forbid them from, among other things, 

self-dealing.160 The aim of the 

prohibited transaction provisions is to 

protect plans, their participants, and 

beneficiaries from dangerous conflicts of 

interest that threaten the safety and 

security of plan benefits.161

This combination of a high standard 

of conduct and personal liability for 

violations of the standard of conduct for 

Title I fiduciaries, and restrictions on 

behavior for Title I and Title II 

fiduciaries functions to protect plans, 

participants, and beneficiaries from 

fiduciary misdeeds. Previously, the 

Department conducted an economic 

analysis162 (2016 Regulatory Impact 

Analysis (RIA)) of then-current market 

conditions and the likely effects of 

expanding the definition of fiduciary to 

include more individuals. It reviewed 

evidence that included: 

• statistical comparisons finding 

poorer risk-adjusted investment 

performance in more conflicted settings; 

• experimental and audit studies 

revealing questionable investment 

advice provider conduct, including 

recommendations to withdraw from 

low-cost, well diversified portfolios and 

invest in higher-cost alternatives likely 

to deliver inferior results; 

• studies detailing gaps in consumers’ 

financial literacy, errors in their 

financial decision-making, and the 

inadequacy of disclosure as a consumer 

protection; 

• federal agency reports documenting 

abuse and investors’ vulnerability; 

• a study by the President’s Council 

of Economic Advisers that attributed 

$17 billion in annual IRA investor 

losses to advisory conflicts; 

• economic theory, which predicts 

that when expert investment advice 

providers have conflicts of interest, nonexpert investors will be harmed; and 

• international experience with 

harmful advisory conflicts and 

responsive reforms. 

The Department’s analysis found that 

conflicted advice was widespread, 

caused serious harm to retirement 

investors, and that disclosing conflicts 

alone would fail to adequately mitigate 

the conflicts or remedy the harm. The 

analysis concluded that extending 

fiduciary protections to more advice 

would reduce advisory conflicts and 

deliver substantial net gains for 

retirement investors. 

Changes in Retirement Savings Since 

the 1975 Regulation 

While the 1975 regulation that 

established the five-part test has 

remained fixed, the private retirement 

savings landscape has changed 

dramatically. In the late 1970s, private 

retirement savings were mainly held in 

large employer-sponsored defined 

benefit plans. Under the terms of these 

plans and the governing legal structure, 

the plans and plan sponsors promised 

fixed payments to retirees, generally 

based on a percentage of their 

compensation and years of employment 

with the sponsoring employer. Plan 

sponsors hired professional asset 

managers, who were subject to ERISA’s 

fiduciary obligations, to invest the 

funds, and the employers or other plan 

sponsors shouldered the risk that 

investment returns were insufficient to 

pay promised benefits. Individual plan 

participants did not take direct 

responsibility for management of the 

assets held by the plan and did not 

depend on expert advice for the sound 

management of funds, which were 

directly controlled by investment 

professionals. 

Since then, much of the responsibility 

for investment decisions in 

employment-based plans has shifted 

from these large private pension fund 

managers to individual retirement 

account participants, many with low 

levels of financial literacy. Over time, 

the share of participants covered by 

defined contribution plans, in which 

benefits are based on contributions and 

earnings within an individual account, 

grew substantially, from just 26 percent 

in 1975 to 78 percent in 2020.163 By 

2020, 94 percent of active participants 

in defined contribution plans had 

responsibility for directing the 

investment of some or all of their 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75915 

164Employee Benefits Security Administration, 

Private Pension Plan Bulletin: Abstract of 2020 

Form 5500 Annual Reports, Table D5, (November 

2022), https://www.dol.gov/sites/dolgov/files/EBSA/ 

researchers/statistics/retirement-bulletins/privatepension-plan-bulletins-abstract-2020.pdf. 

165U.S. Bureau of Labor Statistics, National 

Compensation Survey: Retirement Plan Provisions 

For Private Industry Workers in the United States, 

2022, Table 6, (April 2023), https://www.bls.gov/ 

ebs/publications/retirement-plan-provisions-forprivate-industry-workers-2022.htm. 

166Board of Governors of the Federal Reserve 

System, Financial Accounts of the United States: 

Flow of Funds, Balance Sheets, and Integrated 

Macroeconomic Accounts: Second Quarter 2022, 

Tables L.117 & L.118, (Sept. 9, 2022), https://

www.federalreserve.gov/releases/z1/20220909/

z1.pdf; Historical Series Z1/Z1/FL572000075.Q, Z1/ 

Z1/FL574090055.Q & Z1/Z1/LM893131573.Q. 

https://www.federalreserve.gov/datadownload/

Build.aspx?rel=z1. 

167Cerulli Associates, U.S. Retirement Markets 

2022: The Role of Workplace Retirement Plans in 

the War for Talent, Exhibit 8.06, (2023). 

168Congressional Research Services, The Social 

Security Retirement Age, (July 6, 2022), https://

sgp.fas.org/crs/misc/R44670.pdf. 

169Social Security Administration, Office of the 

Chief Actuary, Replacement Rates for Hypothetical 

Retired Workers, Actuarial Note, 2021.9, Tables B 

& D, (August 2021), https://www.ssa.gov/oact/ 

NOTES/ran9/an2021-9.pdf. 

170 Investors have suffered significant losses when 

an investment professional does not act in the 

investor’s best interest. For example, in 2021, the 

SEC settled with Teachers Insurance and Annuity 

Association of America (TIAA) for $97 million, 

citing disclosure violations and failure to 

implement policies and procedures. See https://

www.sec.gov/litigation/admin/2021/33-10954.pdf. 

While the SEC was able to settle, the Southern 

District of New York recently dismissed a 

complaint by plaintiffs in this same TIAA plan who 

argued that TIAA acted as an ERISA fiduciary when 

advising plan participants to roll over assets from 

their employer-sponsored plan to a TIAA managed 

account product. Although TIAA represented in 

market materials that it ‘‘[met] a fiduciary standard’’ 

when providing investment recommendations, the 

court found that it did not provide this advice on 

a regular basis and therefore did not satisfy the fivepart test to be considered an ERISA fiduciary. See 

Continued 

account balances.164 The Department 

could not have foreseen such a dramatic 

shift when it issued the existing 

fiduciary investment advice regulation 

in 1975. The passage of ERISA 

authorized IRAs in 1974, and IRAs 

remained in their infancy when the 

1975 rule was issued. The vast majority 

of consumers were not managing their 

own retirement savings, nor retaining 

investment advisers to do so, because 

401(k) plans did not even exist in 1975. 

Though workers have assumed more 

of the responsibility for their investment 

decisions, they at least still receive some 

fiduciary oversight and protections 

provided by ERISA while participating 

in employer-sponsored plans. However, 

often workers who change jobs or retire 

roll over their retirement savings to an 

IRA, where they assume full 

responsibility for investing the assets in 

the larger marketplace without those 

protections. Not only is it very common 

for defined contribution plan 

participants to roll over their retirement 

savings to an IRA, but it is also 

increasingly common among defined 

benefit plan participants. Defined 

benefit plan participants have the 

option to perform a rollover if their plan 

allows them to take a lump-sum 

payment when they separate from 

service. About 36 percent of private 

industry workers in traditional defined 

benefit plans have a lump-sum payment 

available at normal retirement, as do 

virtually all private industry workers in 

non-traditional defined benefit plans, 

such as cash balance plans.165

In 1981, private defined benefit plans 

held more than twice the assets in 

private defined contribution plans, and 

roughly 10 times more than IRA assets. 

By the first quarter of 2022, the order 

had reversed: IRAs held $13.2 trillion in 

assets, private defined contribution 

plans held $9.2 trillion, and private 

defined benefit plans held $3.7 trillion 

in assets.166 This trend is expected to 

continue as retirement investors are 

projected to move $4.5 trillion from 

defined contribution plans to IRAs from 

2022 through 2027.167

Moreover, workers have become more 

reliant on their retirement savings as 

Social Security benefits have eroded in 

recent decades. The age to receive full 

retirement benefits is gradually 

increasing from 65 to 67 between 2003 

and 2027. Those who claim Social 

Security before reaching full retirement 

age—which in 2021 was approximately 

60 percent of new retired-worker 

beneficiaries—receive reduced 

benefits.168 For a hypothetical medium 

wage earner who first claims benefits at 

age 65, their Social Security benefit, as 

a share of average career earnings, was 

more than 40 percent in 2005 but is 

projected to be only about 35 percent in 

2025.169

Investment Advice and the 1975 

Regulation 

As the nature of retirement savings 

has changed since 1975, investment 

advice has also evolved. Commercial 

relationships between corporate pension 

plan sponsors and fund managers and 

their consulting advisers have been 

supplanted by retail relationships 

between consumers and the trusted 

experts they turn to for help managing 

their 401(k) plan and IRA savings. 

Instead of ensuring that trusted 

advisers give prudent and unbiased 

advice in accordance with fiduciary 

norms, the 1975 regulation erected a 

multi-part series of technical 

impediments to fiduciary responsibility. 

The five-part test of the 1975 rule 

diverges from the express language of 

the statute and from its protective 

purposes by stating that advice must be 

on a ‘‘regular basis’’ and be ‘‘a primary 

basis for investment decisions’’ to 

confer fiduciary status. Without 

fiduciary status, the advice provider is 

free to disregard ERISA’s duties of 

prudence and loyalty and to engage in 

self-dealing transactions that would 

otherwise be flatly prohibited by ERISA 

and the Code because of the dangers 

they pose to plans and plan 

participants. 

While consumers often use financial 

advisers for investment advice related to 

their retirement savings, if an 

investment recommendation does not 

meet all five parts of the 1975 test, the 

adviser is not treated as a fiduciary 

under ERISA, no matter how complete 

the investor’s reliance on 

recommendations purported to be based 

on their best interest in light of their 

individual circumstances. 

For example, under the 1975 rule, if 

the advice is not given on a ‘‘regular 

basis,’’ it makes no difference if the 

person making the recommendation 

claims to make the recommendation 

based on the investor’s best interest and 

knows that the investor is relying on 

that recommendation. Thus, if a plan 

participant seeks advice on whether to 

roll over all their retirement savings, 

representing a lifetime of work, out of 

an ERISA-covered plan overseen by 

professional ERISA fiduciaries, to 

purchase an annuity, the person making 

the recommendation with respect to the 

purchase of the annuity has no 

obligation to adhere to a best interest 

standard unless they meet all prongs of 

the 1975 rule, including regularly giving 

advice to the plan participant. This is 

true even if the person giving the advice 

holds themselves out as an investment 

expert whose recommendation is based 

solely on a careful and individualized 

assessment of the investor’s needs, the 

plan participant has no investment 

expertise whatsoever, and both parties 

understand that the participant is 

relying upon the advice for the most 

important financial decision of their 

life. Because the advice was not 

rendered on a ‘‘regular basis,’’ the 

adviser has no obligation under ERISA 

to adhere to fiduciary standards, and 

thus would not be subject to ERISA’s 

prohibitions on disregarding the 

participants’ financial interests, 

recommending an annuity that is 

imprudent and ill-suited to the 

participant’s circumstances, and 

favoring the adviser’s own financial 

interests at the expense of the 

participant.170 An adviser who regularly 


lotter on DSK11XQN23PROD with PROPOSALS3
75916 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

Carfora v. TIAA, 631 F. Supp. 3d 125, 138 (S. D. 

N. Y. 2022). 

171Employee Benefits Security Administration, 

New Fiduciary Advice Exemption: PTE 2020–02 

Improving Investment Advice for Workers & 

Retirees Frequently Asked Questions, (April 2021), 

https://www.dol.gov/agencies/ebsa/about-ebsa/ouractivities/resource-center/faqs/new-fiduciaryadvice-exemption; Notably, although the 

Department does not think that a single instance of 

advice would satisfy the regular basis prong of the 

1975 regulation, a single piece of advice can be 

sufficient to satisfy the language of the statute. See 

Findings, Conclusions, and Recommendations of 

the United States Magistrate Judge, Federation of 

Ams. for Consumer Choice v. U.S. Dep’t of Labor, 

2023 WL 5682411, at *18, No. 3:22–CV–00243–K– 

BT, at 43 (N.D. Tex. June 30, 2023) (‘‘First-time 

advice may be sufficient to confer fiduciary status 

and is consistent with ERISA.’’) (emphasis added). 

172Employee Benefits Security Administration, 

New Fiduciary Advice Exemption: PTE 2020–02 

Improving Investment Advice for Workers & 

Retirees Frequently Asked Questions, (April 2021), 

https://www.dol.gov/agencies/ebsa/about-ebsa/ouractivities/resource-center/faqs/new-fiduciaryadvice-exemption. 

173 Id. 

174ASA v. U.S. Dep’t of Labor, No. 8:22–CV– 

330VMC–CPT, 2023 WL 1967573, at *14-*19 (M.D. 

Fla. Feb. 13, 2023). 

175 Id. at *16 (emphasis added). 

176 Id. at *17; id. (‘‘Because assets cease to be 

assets of an ERISA plan after the rollover is 

complete, any future provision of advice is, by 

nature, no longer to that ERISA plan.’’); Findings, 

Conclusions, and Recommendations of the United 

States Magistrate Judge, Federation of Americans 

for Consumer Choice v. U.S. Dep’t of Labor, No. 

3:22–CV–00243–K–BT, 2023 WL 5682411, at *18 

(N.D. Tex. June 30, 2023) (‘‘ERISA’s text defines 

Title I and Title II ‘plans’ distinctly. By utilizing 

these separate definitions, Congress indicated how 

each Title’s plans should be treated differently due 

to the nature of the relationship between financial 

professionals and retirement investors in Title I and 

Title II plans. As the New Interpretation purports 

to consider recommendations as to Title II plans 

when determining Title I fiduciary status, it 

conflicts with ERISA.’’) (internal citation omitted). 

177Annamaria Lusardi, Olivia Mitchell, & Vilsa 

Curto, Financial Literacy and Financial 

Sophistication in the Older Population, 13(4) 

Journal of Pension Economics and Finance 347– 

366, (October 2014). 

178Mark Egan, Gregor Matvos, & Amit Seru, The 

Market for Financial Adviser Misconduct, 127(1) 

Journal of Political Economy, (2019). 

179Mark Egan, Brokers vs. Retail Investors: 

Conflicting Interests and Dominated Products, 74(3) 

Journal of Finance 1217–1260, (June 2019). 

180 2016 RIA in this document refers to 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/rulesand-regulations/completed-rulemaking/1210-AB32- 

2/ria.pdf. 

181Employee 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, pp. 108–109 & 136– 

137, (April 2016), https://www.dol.gov/sites/dolgov/ 

files/EBSA/laws-and-regulations/rules-andregulations/completed-rulemaking/1210-AB32-2/ 

ria.pdf. 

182 Jill E. Fisch, Andrea Hasler, Annamaria 

Lusardi, & Gary Mottolo, New Evidence on the 

Financial Knowledge and Characteristics of 

Investors (October 2019), https://gflec.org/wpcontent/uploads/2019/10/FINRA_GFLEC_Investor_

FinancialIlliteracy_Report_FINAL.pdf?x20348. 

had rendered trivial advice about small 

plan investments, and met the other 

prongs of the multi-part test, would 

appropriately be treated as a fiduciary if 

they met the other requirements of the 

1975 rule, but not the person who on 

one occasion purported to give 

individualized advice to roll a lifetime 

of savings out of an ERISA-covered plan 

and place it in a fixed indexed annuity. 

This is not a sensible way to e draw 

distinctions in fiduciary status, and 

finds no support in the text of ERISA, 

which makes no mention of a ‘‘regular 

basis’’ requirement. 

When the Department issued PTE 

2020–02, it sought to ameliorate some of 

the effects of the regular basis 

requirement by suggesting that rollover 

advice could be treated as falling within 

the 1975 rule, if it was rendered at the 

beginning of an ongoing advisory 

relationship. Accordingly, in an April 

2021 FAQ, in the context of advice to 

roll over assets from an employee 

benefit plan to an IRA, the Department 

acknowledged that a single instance of 

advice would not satisfy the regular 

basis prong of the 1975 test 171 but 

explained that ‘‘advice to roll over plan 

assets can also occur as part of an 

ongoing relationship or as the beginning 

of an intended future ongoing 

relationship that an individual has with 

an investment advice provider.’’ 172 In 

other words, ‘‘when the investment 

advice provider has not previously 

provided advice but expects to regularly 

make investment recommendations 

regarding the IRA as part of an ongoing 

relationship, the advice to roll assets out 

of an employee benefit plan into an IRA 

would be the start of an advice 

relationship that satisfies the regular 

basis requirement.’’ 173

Ultimately, however, that policy 

interpretation was struck down as 

inconsistent with the text of the 1975 

rule.174 In American Securities 

Association v. United States 

Department of Labor, the court found 

that ‘‘the scope of the regular basis 

inquiry is limited to the provision of 

advice pertaining to a particular 

plan.’’ 175 Further, the court held that, 

‘‘[b]efore a rollover occurs, a 

professional who gives rollover advice 

does so with respect to an ERISAgoverned plan. However, after the 

rollover, any future advice will be with 

respect to a new non-ERISA plan, such 

as an IRA that contains new assets from 

the rollover. The professional’s one-time 

rollover advice is thus the last advice 

that he or she makes to the specific 

plan.’’ 176 Based on the court’s ruling, 

the only way for the Department to 

remedy the shortcomings of the ‘‘regular 

basis’’ test is through new rulemaking. 

Inexpert Customers 

Researchers have consistently found 

that many Americans demonstrate low 

levels of financial knowledge and lack 

basic understanding of investment 

strategies. In particular, households age 

50 and older and nearing retirement, 

‘‘fail to grasp essential aspects of risk 

diversification, asset valuation, portfolio 

choice, and investment fees.’’ 177 Such 

customers appear to be particularly 

vulnerable to receiving harmful advice. 

Egan et al. (2019) found that misconduct 

among investment advice professionals 

was higher in counties with populations 

that were less financially sophisticated, 

including those who are less educated 

and older.178 Retirement investors are in 

a poor position to assess the quality of 

the advice they receive, and the 

advisers’ incentives are often misaligned 

with the investors’ interests.179 The 

dependence of inexpert clients on 

advisers with significant conflicts of 

interest creates a large risk of 

investment advice and investment 

decisions that are not in the best interest 

of retirement investors. 

The Department’s 2016 RIA180

demonstrated that the balance of 

research and evidence indicates that the 

aggregate harm from cases in which 

consumers received bad advice due to 

investment advice providers’ conflicts 

of interest is significant. The complex 

nature of financial markets alone, 

particularly for insurance products, 

creates information asymmetry that 

makes it difficult for inexpert investors 

to navigate savings for retirement. 

Multiple studies cited found that 

retirement investors often lack a basic 

understanding of investment 

fundamentals.181 A subsequent 2018 

FINRA study of non-retired individuals 

age 25–65 found that those investors 

that only had retirement accounts 

through their employers routinely 

scored lower on financial literacy 

questions than active investors and that 

these workplace-only investors scored 

only two percentage points higher than 

the general population (32 percent 

versus 30 percent) on a composite 

question regarding interest, inflation 

and risk diversification.182 In addition 

to lacking rudimentary financial 

knowledge, many retirement investors 

do not understand the roles of different 

players in the investment industry and 

what those players are obligated to do. 

The SEC has commissioned several 

studies on whether investors can 

differentiate between different types of 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75917 

183Siegel & Gale, LLC, & Gelb Consulting Group, 

Inc, Results of Investor Focus Group Interviews 

About Proposed Brokerage Account Disclosures: 

Report to the Securities and Exchange Commission, 

(March 2005). 

184Angela Hung, Noreen Clancy, Jeff Dominitz, 

Eric Talley, Claude Berrebi, & Farrukh Suvankulov, 

Investor and Industry Perspectives on Investment 

Advisers and Broker-Dealers, RAND Institute for 

Civil Justice, (October 2008), https://www.sec.gov/ 

news/press/2008/2008-1_randiabdreport.pdf. 

185Brian Scholl, & Angela A. Hung, The Retail 

Market for Investment Advice, (October 2018), 

https://bit.ly/3hGGNj4. 

186Employee 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, pp. 108, (April 2016), 

https://www.dol.gov/sites/dolgov/files/EBSA/lawsand-regulations/rules-and-regulations/completedrulemaking/1210-AB32-2/ria.pdf. 

187Securities and Exchange Commission, Form 

CRS Relationship Summary: Amendments to Form 

ADV, (September 19, 2019). https://www.sec.gov/ 

info/smallbus/secg/form-crs-relationship-summary. 

188Pew Charitable Trusts, Many Workers have 

Limited Understanding of Retirement Plan Fees, 

(November 2017), https://www.pewtrusts.org/en/ 

research-and-analysis/issue-briefs/2017/11/manyworkers-have-limited-understanding-of-retirementplan-fees. 

189William Rogerson, Reputation and Product 

Quality, 14(2) The Bell Journal of Economics 508– 

516 (1983). 

190Employee 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, pp. 145–158, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 

191 Julie Agnew, Hazel Bateman, Christine Eckert, 

Fedor Iskhakov, Jordan Louviere, & Susan Thorp, 

Individual Judgment and Trust Formation: An 

Experimental Investigation of Online Financial 

Advice, Australian School of Business Research 

Paper No. 2013 ACTL21, (2014). 

192Council of Economic Advisors, The Effects of 

Conflicted Investment Advice on Retirement 

Savings, (2015), https://obamawhitehouse.

archives.gov/sites/default/files/docs/cea_coi_

report_final.pdf. 

193 Ibid. 

194For example, an ERISA plan investor who 

rolls $200,000 into an IRA, earns a 6 percent 

nominal rate of return with 2.3 percent inflation, 

and aims to spend down her savings in 30 years, 

would be able to consume $11,034 per year for the 

30-year period. A similar investor whose assets 

underperform by 0.5, 1, or 2 percentage points per 

year would only be able to consume $10,359, 

$9,705, or $8,466, respectively, in each of the 30 

years. The 0.5 and 1 percentage point figures 

represent estimates of the underperformance of 

retail mutual funds sold by potentially conflicted 

brokers. These figures are based on a large body of 

literature cited in the 2015 NPRM RIA, comments 

on the 2015 NPRM RIA, and testimony at the 

Department’s hearing on conflicts of interest in 

investment advice in August 2015. The 2 

percentage point figure illustrates a scenario for an 

individual where the impact of conflicts of interest 

is more severe than average. 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, p. 4, (April 2016), https://

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

195Council of Economic Advisors, The Effects of 

Conflicted Investment Advice on Retirement 

Savings, (2015), https://obamawhitehouse.

archives.gov/sites/default/files/docs/cea_coi_

report_final.pdf. 

investment service providers. A 2005 

study considered four focus groups in 

different geographic locations and found 

that investors were generally unclear 

about distinctions between brokerdealers, financial advisers, investment 

advisers, and financial planners and 

often used the terms 

indistinguishably.183 A 2008 household 

survey found that while most of the 

survey respondents had ‘‘a general sense 

of the difference in services offered by 

brokers and by investment advisers but 

that they are not clear about their 

specific legal duties.’’ 184 A 2018 study 

also evaluated four focus groups and 

found that participant understanding of 

the distinction between broker-dealers 

and investment advisers was low, even 

among those who were provided 

information describing the 

classifications of the two categories.185

If investors are unable to distinguish 

between types of advisers, they cannot 

be expected to understand legal 

distinctions of the standard to which 

that advice is held. 

Confusion regarding the different 

types of advice providers and the 

different standards of conduct to which 

they must adhere is often made worse 

by industry marketing and other 

practices.186 To attempt to address this, 

the SEC adopted as part of its 2019 

Rulemaking a new required disclosure 

of a ‘‘Form CRS Relationship 

Summary,’’ under which registered 

investment advisers and broker-dealers 

must provide retail investors with 

certain information about the nature of 

their relationship with the firm and its 

financial professionals in plain 

English.187 One of the purposes of the 

Form CRS is to help retail investors 

better understand and compare the 

services and relationships that 

investment advisers and broker-dealers 

offer in a way that is distinct from other 

required disclosures under the 

securities laws. 

In order for disclosures to be effective, 

however, investors must both review 

and understand them. Many 

disclosures, however, suffer from 

complexity, so investors overlook or 

misunderstand them and gloss over the 

information presented to them. A 2017 

survey of private-sector workers with 

retirement plans found only one-third 

had read any investment fee disclosure 

in the past year and only 25 percent of 

all respondents had both read and 

understood the information.188

Many investors also cannot effectively 

assess the quality of investment advice 

they receive. Research suggests that, in 

general, consumers often fail to fully 

comprehend the quality of professional 

services they receive, including services 

from doctors, lawyers, and banks in 

addition to investment advice 

providers.189 The 2016 RIA cited 

evidence that advice from providers 

often encouraged investors’ cognitive 

biases, such as return chasing, rather 

than correcting such biases. It cited 

research showing that payments made 

to broker-dealers influenced the advice 

provided to clients and that funds 

distributed through more conflicted 

broker channels tend to perform 

worse.190 Research also suggests that 

investors’ opinions of adviser quality 

can be manipulated. For instance, 

Agnew et al. (2014) found that if an 

adviser first provides good advice on a 

financial decision that is easy to 

understand, the client will subsequently 

trust bad advice on a more difficult or 

complicated topic.191 Investors who are 

unable to discern when they are 

receiving bad advice are at risk of being 

persuaded to make investment decisions 

that are not in their best interest. 

Overall, evidence demonstrates that 

the combination of inexpert customers 

and conflicted advisers results in 

investment underperformance and 

negative outcomes for investors. 

According to a 2015 report by the 

Council of Economic Advisers, 

approximately $1.7 trillion of IRA assets 

were invested in products with a 

payment structure that generates 

conflicts of interests.192 A substantial 

body of research has shown that IRA 

holders receiving conflicted investment 

advice can expect their investments to 

underperform by approximately 50 to 

100 basis points per year.193

As discussed in the 2016 RIA, the 

Department estimated that a 50 to 100 

basis point performance gap of brokersold funds would result in retirees 

losing $9 to $17 billion each year (or 

between 0.5 and 1 percentage point of 

return each year for $1.7 trillion in 

assets), $95 to $189 billion over 10 

years, and $202 and $404 billion over 20 

years. That means a retiree spending 

their savings down over 30 years would 

have 6 to 12 percent less to spend.194 If 

a retiree encounters conflicts of interest 

and experiences a 100-basis point 

reduction in performance, but still 

spends as though they were not 

encountering conflicts of interest, they 

would run out of retirement savings 

more than five years early.195


lotter on DSK11XQN23PROD with PROPOSALS3
75918 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

196 Vivek Bhattacharya, Gaston Illanes, & Manisha 

Padi, Fiduciary Duty and the Market for Financial 

Advice, Working Paper 25861 National Bureau of 

Economic Research (2020), https://www.nber.org/ 

papers/w25861. 

197Colleen Honigsberg, Edwin Hu, & Robert J. 

Jackson, Jr., 74 Regulatory Arbitrage and the 

Persistence of Financial Misconduct, Stanford Law 

Review 797, (2022). 

198Ben Charoenwong, Alan Kwan, & Tarik Umar, 

Does Regulatory Jurisdiction Affect the Quality of 

Investment-Adviser Regulation, 109(10) American 

Economic Review (October 2019), https://

www.aeaweb.org/articles?id=10.1257/aer.20180412. 

199Securities and Exchange Commission, Risk 

Alert: Observations from Broker-Dealer 

Examinations Related to Regulation Best Interest, 

(Jan. 30, 2023), https://www.sec.gov/file/exams-regbi-alert-13023.pdf. 

200FINRA, 2023 Report on FINRA’s Examination 

and Risk Monitoring Program, (Jan. 2023), https:// 

www.finra.org/sites/default/files/2023-01/2023- 

report-finras-examination-risk-monitoringprogram.pdf. 

201Securities and Exchange Commission, Risk 

Alert: Observations from Broker-Dealer 

Examinations Related to Regulation Best Interest, 

(Jan. 30, 2023), https://www.sec.gov/file/exams-regbi-alert-13023.pdf. 

202Securities and Exchange Commission, Staff 

Bulletin: Standards of Conduct for Broker Dealers 

and Investment Advisers Care Obligation, (Apr. 20, 

2023), https://www.sec.gov/tm/standards-conductbroker-dealers-and-investment-advisers. 

203North American Securities Administrators’ 

Association, Report and Findings of NASAA’s 

Regulation Best Interest Implementation 

Committee: National Examination Initiative Phase 

II (A), (Nov. 2021). 204 Kenneth Corbin, Reg BI Isn’t Working So Far. 

Exams Are Coming, Says NASAA, Barron’s (Nov. 5, 

2021). 205 James Langton, New Conduct Rules, Same Old 

Conflicts: NASAA, Advisor’s Edge (Nov. 4, 2021). 206Melanie Waddell, Reg BI Report Zooms in 

BDs’ Lack of Compliance, Think Advisor, (Nov. 5, 

2021). 207North American Securities Administrators’ 

Association, Report and Findings of NASAA’s 

Broker-Dealer Section Committee: National 

Examination Initiative Phase II (B), (Sept. 2023). 

Pervasiveness of Conflicts of Interest in 

Investment Advice 

In recent years, consolidation of the 

financial industry and innovations in 

products and compensation practices 

have multiplied opportunities for selfdealing and made fee arrangements less 

transparent to clients and regulators. 

The existence of safeguards in only 

certain markets, such as the recent 

adoption of Regulation Best Interest by 

the SEC regarding recommendations of 

securities transactions or investment 

strategies involving securities, creates 

incentives for agents to recommend 

conflicted products in less regulated 

markets. While the relative newness of 

Regulation Best Interest makes it 

challenging to quantify instances of 

these effects, there is research 

demonstrating similar impacts from 

other policies addressing financial 

conflicts of interest or misconduct that 

varied across markets. Bhattacharya et 

al. (2020) found that higher fiduciary 

standards are associated with the sale of 

higher quality annuity products.196

Honigsberg et al. (2022) showed that 

variation in regulatory oversight regimes 

leads to a situation where the worst 

financial advisers are operating in the 

most lightly regulated regimes.197

Charoenwong et al. (2019) found that 

under lighter regulation, advisers were 

more likely to receive complaints, 

particularly advisers with past 

complaints or with conflicts of 

interest.198 This proposal would extend 

protections associated with fiduciary 

status under ERISA, regardless of advice 

model, and reduce the gap in 

protections with respect to ERISAcovered investments. 

Conflicts of Interest After the SEC’s 

Regulation Best Interest 

Regulation Best Interest under the 

Securities Exchange Act of 1934 created 

a ‘‘best interest’’ standard of conduct for 

broker-dealers and associated persons 

when they make a recommendation to a 

retail customer of any securities 

transaction or investment strategy 

involving securities, including 

recommendation of types of accounts. 

While Regulation Best Interest does 

overlap with ERISA’s fiduciary 

standard, and reduces conflicts, the two 

standards do not align perfectly: 

Regulation Best Interest does not apply 

fiduciary accountability to all parties 

that provide investment advice to 

Retirement Investors and does not cover 

advice to non-retail investors. Moreover, 

Regulation Best Interest generally does 

not apply to recommendations of 

investment products that are not 

regulated as securities, such as many 

annuity products. Similarly. while there 

is a large overlap in the substance of the 

different regulatory regimes, in enacting 

ERISA, Congress provided special 

protections for tax-advantaged 

retirement savings that don’t apply more 

broadly. For example, Congress 

prohibited transactions (absent an 

exemption) that were determined to 

raise significant risk to retirement plan 

participants and beneficiaries. 

The SEC began conducting limited 

scope broker-dealer examinations and 

risk-based inspections in June 2020 to 

assess whether firms established written 

policies and procedures to comply with 

Regulation Best Interest and had made 

reasonable progress in implementing 

those policies and procedures. In their 

reviews, staff identified instances of 

deficient disclosure obligations, care 

obligations, periodic review and testing, 

and conflict of interest obligations.199

FINRA has identified similar 

deficiencies in its Report on 

Examination and Risk Monitoring 

Program.200 The SEC’s Division of 

Examination notes that in response to 

deficiency letters identifying these 

issues, many broker-dealers modified 

their practices, policies and 

procedures.201 In addition, the SEC 

released additional guidance in April 

2023 focused on the Care Obligation to 

continue to improve compliance with 

Regulation Best Interest.202

In the first year after the SEC’s 

compliance deadline for Regulation Best 

Interest, the North American Securities 

Administrators Association (NASAA) 

conducted a survey of 443 FINRA 

firms.203 The survey found that many 

broker-dealer firms were still utilizing 

the compliance programs they had in 

place prior to Regulation Best Interest, 

when the standard for retail advice was 

to recommend investments that were 

‘‘suitable’’ for the client.204 In addition, 

the percentage of broker-dealer firms 

surveyed that were offering complex, 

costly, and risky products increased by 

11 percent after Regulation Best Interest 

took effect. About 65 percent of brokerdealer firms did not discuss lower-cost 

or lower-risk products with their 

customers when they recommended 

complex, costly, and risky products. 

The survey also found that 24 to 30 

percent of broker-dealer firms were still 

using conflicted forms of compensation, 

including sales contests, differential or 

variable compensation, and other extra 

forms of compensation.205 In the first 

year after Regulation Best Interest took 

effect, only 35 percent of those brokerdealer firms recommending complex, 

costly, and risky products had ‘‘reduced 

the financial reward associated with 

these products by capping agent sales 

credits.’’ 206 In other words, the majority 

of broker-dealer firms that offered 

complex, costly and risky products had 

not restructured their financial reward 

structure in response to conflict 

mitigation requirements in SEC’s 

Regulation Best Interest. 

NASAA’s Broker-Dealer Section 

Committee concluded a subsequent 

review of over 200 examinations 

evaluating broker-dealers’ compliance of 

Regulation Best Interest by state 

examiners in 25 states, under its second 

and third year of implementation.207

This review revealed steady 

implementation progress, including that 

firms had been updating investor profile 

forms and policies and procedures; that 

firms recommending complex, costly or 

risky products were imposing 

restrictions based on ages, income/net 

worth and risk profiles; and that firms 

were utilizing cost-comparison tools to 

better consider reasonable investment 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75919 

208See Securities and Exchange Commission, 

Regulation Best Interest: A Small Entity Compliance 

Guide, (September 23, 2019), https://www.sec.gov/ 

info/smallbus/secg/regulation-bestinterest#Disclosure_Obligation; Securities and 

Exchange Commission, Staff Bulletin: Standards of 

Conduct for Broker-Dealers and Investment 

Advisers Account Recommendations for Retail 

Investors, (Mar. 20, 2022), https://www.sec.gov/tm/ 

iabd-staff-bulletin; Securities and Exchange 

Commission, Staff Bulletin: Standards of Conduct 

for Broker-Dealers and Investment Advisers Conflict 

of Interest, (Aug. 2, 2022), https://www.sec.gov/tm/ 

iabd-staff-bulletin-conflicts-interest; Securities and 

Exchange Commission, Staff Bulletin: Standards of 

Conduct for Broker-Dealers and Investment 

Advisers Care Obligation, (Apr. 20, 2023), https:// 

www.sec.gov/tm/standards-conduct-broker-dealersand-investment-advisers. 

209Securities and Exchange Commission, Risk 

Alert: Observations from Broker-Dealer 

Examinations Related to Regulation Best Interest, p. 

1, (Jan. 30, 2023), https://www.sec.gov/file/examsreg-bi-alert-13023.pdf. 

210See Securities and Exchange Commission, 

Press Release: SEC Charges Broker-Dealer with 

Violations of Regulation Best Interest and Fraud for 

Excessive Trading in Customer Accounts, (Sept. 28, 

2023), https://www.sec.gov/enforce/34-98619-s; SEC 

Charges Broker-Dealers with Violations of 

Regulation Best Interest and Form CRS Rules for 

Failing to Effect Delivery of Required Disclosures, 

(Sept. 28, 2023), https://www.sec.gov/enforce/34- 

98609-s; and SEC Charges Wisconsin Broker-Dealer 

with Violations of Regulation Best Interest, (Sept. 

22, 2023), https://www.sec.gov/enforce/34-98478-s. 

211Securities and Exchange Commission, Press 

Release: SEC Charges Firm and Five Brokers with 

Violations of Reg BI, (June 16, 2022), https://

www.sec.gov/news/press-release/2022-110. 

212Melanie Waddell, FINRA Fines Long Island 

BD Over Reg BI, Think Advisor, (Feb. 13, 2023), 

https://www.thinkadvisor.com/2023/02/13/finrafines-long-island-bd-over-reg-bi/. 

213 Veronika K. Pool, Clemens Sialm, & Irina 

Stefanescu, It Pays to Set the Menu: Mutual Fund 

Investment Options in 401(k) Plans, 71(4) Journal of 

Finance 1779–1812, (2016). 214The report’s findings were based on a 2002 to 

2003 examination of 24 pension consultants. See 

SEC, SEC Staff Report Concerning Examination of 

Select Pension Consultants, (May 16, 2005), http:// 

www.sec.gov/news/studies/pensionexamstudy.pdf. 

215 GAO Publication No. GAO–09–503T, Private 

Pensions: Conflicts of Interest Can Affect Defined 

Benefit and Defined Contribution Plans, (2009), 

https://www.gao.gov/assets/gao-09-503t.pdf. 216 GAO Publication No. GAO–11–119, 401(K) 

Plans: Improved Regulation Could Better Protect 

Participants from Conflicts of Interest, (2011), 

http://www.gao.gov/products/GAO-11-119. 

217Cerulli Associates, U.S. Retirement Markets 

2022: The Role of Workplace Retirement Plans in 

the War for Talent, Exhibit 8.06, (2023). Note that 

these numbers include public sector plans. 

218 Investment Company Institute, The Role of 

IRAs in US Households’ Savings for Retirement, 

2021, 28(1) ICI Research Perspective, (Jan. 2022), 

https://www.ici.org/system/files/2022-01/per28- 

01.pdf. 

219 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). 

alternatives. The report noted, however, 

that firms still struggle with considering 

reasonably available alternatives and 

conflict mitigation; ignoring lower cost 

and risk products when recommending 

complex, costly risk products and 

relying on financial incentives to sell 

them; and that firms have not enhanced 

point of sale disclosures. 

The SEC and FINRA have 

subsequently released additional 

guidance designed to clarify and 

strengthen compliance with Regulation 

Best Interest’s Consumer Protective 

conditions.208 The SEC announced in 

January 2023 that it intends to 

incorporate compliance with Regulation 

Best Interest into retail-focused 

examinations of broker-dealers 209 and 

both the SEC and FINRA have begun 

enforcement actions related to 

Regulation Best Interest.210 In June 

2022, the SEC charged a firm and five 

brokers for violating Regulation Best 

Interest and selling high-risk bonds to 

retirees and other retail investors.21

Meanwhile, FINRA levied its first 

Regulation Best Interest-related fine in 

October 2022 and suspended two New 

York-based brokers in February 2023.212

Conflicts of Interest in Advice Given to 

Plan Fiduciaries 

Concerns regarding investment advice 

extend to that received by ERISA plan 

fiduciaries. Pool et al. (2016) found that 

while mutual fund companies involved 

in plan management for 401(k) plans 

included both funds from their own 

family as well as unaffiliated funds in 

the menu of investment options, poor 

performing funds were less likely to be 

removed and more likely to be added to 

the menu if they were affiliated with the 

plan trustee.213 In 2005, the SEC found 

evidence that some pension consultants 

do not adequately disclose their 

conflicts and may steer plan fiduciaries 

to hire money managers based partly on 

the consultants’ own financial 

interests.214 The U.S. Government 

Accountability Office (GAO) found 

these inadequately disclosed conflicts 

were associated with substantial 

financial losses. GAO’s study found that 

between 2000 and 2004, plans 

associated with pension consultants 

without adequate disclosure of their 

conflicts of interest saw annual rates of 

return 1.2 to 1.3 percentage points lower 

than plans associated with pension 

consultants with adequate disclosure of 

conflicts of interest.215 In another study, 

GAO found that ERISA plan sponsors 

often are confused as to whether the 

advice they receive is fiduciary advice, 

and small plans in particular may suffer 

as a result.216 This confusion leaves 

plan participants vulnerable to lower 

returns due to conflicted advice. 

Conflicts of Interest in Rollover 

Recommendations or Advice 

The treatment of rollover 

recommendations or advice under the 

1975 rule has been a central concern in 

the Department’s regulation of fiduciary 

investment advice. The decision to roll 

over assets from a plan to an IRA is 

often the single most important 

financial decision a plan participant 

makes, involving a lifetime of retirement 

savings. 

Most IRA assets are attributable to 

rollover contributions, and the amount 

of assets rolled over to IRAs is large and 

expected to increase substantially. In 

2021, IRA rollovers from defined 

contribution plans increased by 4.9 

percent. Cerulli Associates estimates 

that aggregate rollover contributions to 

IRAs from 2022 to 2027 will surpass 

$4.5 trillion.217

The decision to roll over one’s 

retirement savings from an ERISAcovered employer-based plan into an 

IRA or other plan has significant 

consequences, and for many investors is 

the single most consequential advice 

they will receive and affects a lifetime 

of savings. About 57 percent of 

traditional IRA-owning households 

indicated that their IRAs contained 

rollovers from employer-sponsored 

retirement plans and of those 

households, 85 percent indicated they 

had rolled over their entire account 

balance in their most recent rollover.218

In 2020 more than 95 percent of the 

dollars flowing into IRAs came from 

rollovers, while the rest came from 

regular contributions.219

Retiring workers must decide how 

best to invest a career’s worth of 401(k) 

savings, and many look to an 

investment advice provider for 

guidance. Financial institutions face an 

innate conflict of interest, in that a 

financial institution that provides a 

recommendation or advice concerning a 

rollover to a retirement investor may 

expect to earn transaction-based 

compensation such as commissions 

and/or receive an ongoing advisory fee 

that it likely would not receive if the 

assets were to remain in an ERISAcovered plan. Further, under the 1975 

rule, if an investment advice provider 

makes a one-time recommendation that 

the worker move the entire balance of 

their retirement plan into an IRA and 

invest it in a particular annuity, then the 

advice provider has no fiduciary 

obligation under ERISA to honor the 

worker’s best interest unless this 

recommendation is part of an ‘‘ongoing’’ 

advice relationship. The resulting 

compensation represents a significant 

revenue source for investment advice 

providers. 


lotter on DSK11XQN23PROD with PROPOSALS3
75920 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

220 85 FR 82798, 82805, (Dec. 18, 2020). 

221American Securities Association v. U.S. Dep’t 

of Labor, No. 8:22–CV–330–VMC–CPT, 2023 WL 

1967573, at *14–*19, (M.D. Fla. Feb. 13, 2023) 

[hereinafter ASA]. 

222Conclusions, and Recommendations of the 

United States Magistrate Judge, FACC v. U.S. Dep’t 

of Labor, No. 3:22–CV–00243–K–BT, 2023 WL 

5682411, at *18-*19 (N.D. Tex. June 30, 2023) 

223See id. at *22–23. 

224For more information on the different 

regulatory regimes, Refer to the Regulatory Baseline 

section in this analysis. 

225Colleen Honigsberg, Edwin Hu, & Robert J. 

Jackson, Jr., 74 Regulatory Arbitrage and the 

Persistence of Financial Misconduct, Stanford Law 

Review 797, (2022). 

226Cerulli Associates, U.S. Annuity Markets 2021: 

Acclimating to Industry Trends and Changing 

Demand, Exhibit 1.06, The Cerulli Report, (2022). 

In the preamble to PTE 2020–02, the 

Department provided an interpretation 

of when advice or a recommendation to 

roll over assets from an employee 

benefit plan to an IRA would constitute 

fiduciary investment advice under the 

1975 regulation’s five-part test. The 

preamble interpretation confirmed the 

Department’s view that advice or a 

recommendation to roll assets out of a 

Title I Plan is advice with respect to 

moneys or other property of the plan 

and, if provided by a person who 

satisfies all of the requirements of the 

five-part test, constitutes fiduciary 

investment advice. The preamble 

interpretation also discussed when a 

recommendation to roll over employee 

benefit plans to an IRA would satisfy 

the ‘‘regular basis’’ requirement and the 

Department’s interpretation of the 

requirement of ‘‘a mutual agreement, 

arrangement, or understanding’’ that the 

investment advice will serve as ‘‘a 

primary basis for investment decisions.’’ 

Regarding the regular basis prong, the 

Department explained that ‘‘advice to 

roll assets out of a Title I Plan into an 

IRA where the investment advice 

provider has not previously provided 

advice but will be regularly giving 

advice regarding the IRA in the course 

of a lengthier financial relationship 

would be the start of an advice 

relationship that satisfies the regular 

basis prong.’’ 220 As discussed above, 

however, this interpretation of the 1975 

rule was rejected by the court in 

American Securities Association v. 

United States Department of Labor,221

and in the case of Federation of 

Americans for Consumer Choice v. 

United States Department of Labor,222

the magistrate judge has recommended 

that the district court also reject this 

interpretation. In their view, the 1975 

rule does not permit the Department to 

treat one-time rollover 

recommendations as ‘‘regular basis’’ 

advice based on the expectation of 

future advice on the management of the 

assets rolled out of the ERISA plan and 

into the IRA. Any change to the ‘‘regular 

basis’’ requirement requires a new 

rule.223

While PTE 2020–02 mitigates some of 

these concerns by requiring investment 

advice fiduciaries to render advice in 

their customer’s best interest in order to 

receive certain types of compensation 

from otherwise prohibited transactions 

resulting from rollover advice, the 

limitations of the existing five-part test 

for fiduciary status still result in 

significant portions of the retirement 

investment market operating outside of 

the PTE’s protections. 

Uniformity Across Markets and Product 

Types 

The current regulatory approach to 

investment advice results in standards 

that vary by advice market and 

investment product.224 As a result, 

retirement investors cannot rely on a 

single protective standard, and their 

exposure to risk is not only based on the 

types of products they invest in but also 

by who gives that advice or makes that 

recommendation and in what capacity 

they are acting. This creates investor 

confusion and makes room for 

regulatory arbitrage, where investment 

advice providers can use more favorable 

rules in one market to circumvent less 

favorable regulations elsewhere. The 

Department identifies the following 

nuances of the regulatory landscape as 

sources of investor confusion: 

• Regulation Best Interest only 

applies to recommendations made by 

broker-dealers to retail customers. As a 

result of this limitation, broker-dealers’ 

recommendations of securities 

transactions, investment strategies, plan 

design, and plan investment options to 

plan fiduciaries, fall outside its scope. 

This may be particularly confusing for 

small plan fiduciaries. 

• Securities laws (i.e., the Investment 

Advisers Act and Regulation Best 

Interest) may not apply to advice on 

investments such as real estate, fixed 

indexed annuities, commodities, 

certificates of deposit, and other bank 

products. 

• Variable annuities and some 

indexed annuities are considered 

securities and are subject to securities 

laws, while fixed annuities, including 

fixed indexed annuities, are subject to 

state law. As discussed in the 

Regulatory Baseline section, these laws 

vary significantly from state to state. 

This list is not exhaustive but 

provides a sense of how many 

seemingly similar investments are 

subject to widely different regulators 

and protective standards. 

Honigsberg et al. (2022) identified 

associated persons of broker-dealers 

who had been registered with FINRA 

between 2010 and 2020 but were no 

longer registered with the regulatory 

authority. Of those that exited, roughly 

a third continued providing financial 

advice under a different regulatory 

regime, of which eight percent had a 

history of serious misconduct while 

registered with FINRA. This share 

increased to 12 percent when you 

looked at those that were still providing 

financial advice as an insurance 

producer registered with the NAIC and 

13 percent when you looked at the 

National Futures Association members. 

The authors argued that the existing 

framework for regulating adviser 

misconduct creates incentives for the 

worst advisers to migrate to more poorly 

regulated state regimes.225

The risk posed by non-uniform 

regulatory environments is exemplified 

by the annuity market. A recent survey 

of insurers reported that 58 percent of 

insurers thought the SEC’s Regulation 

Best Interest had improved protections 

for consumers.226 However, as 

discussed above, generally only 

annuities considered securities are 

under the jurisdiction of the SEC. The 

remaining annuities are covered by state 

regulations that potentially hold those 

selling such insurance products to a 

lower standard. In crafting this 

proposal, the Department strove to craft 

a definition that hews to both the text 

and purpose of ERISA. 

An investor’s retirement account may 

hold a wide range of investment 

products, those products may touch 

multiple regulatory regimes, and the 

retirement investor may not be aware of 

the different standards. Once the 

investment products are held in a taxadvantaged retirement account, 

however, ERISA requires a uniform 

standard, applicable regardless of the 

type of investment product. This range 

of investment products held in 

retirement plans means that the 

regulatory definition of an investment 

advice fiduciary for purposes of Title I 

of ERISA and the Code takes on special 

importance in creating uniform 

standards for investment advice, 

particularly when a retirement investor 

may not realize the investment product 

is not covered by another regulatory 

regime such as federal securities laws. 

Need for Uniformity Concerning 

Rollovers 

The difference between types of 

products, such as securities subject to 

regulation by the SEC and nonVerDate Sep<11>2014 21:24 Nov 02, 2023 Jkt 262001 PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 E:\FR\FM\03NOP3.SGM 03NOP3

lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75921 

227 In addition to staff guidance, the Commission 

recognized in Regulation Best Interest that, ‘‘as part 

of determining whether a broker-dealer has a 

reasonable basis to believe that a recommendation 

is in the best interest of the retail customer, a 

broker-dealer generally should consider reasonably 

available alternatives offered by the broker-dealer’’ 

which the Commission viewed as ‘‘an inherent 

aspect of making a ‘best interest’ recommendation.’’ 

See Reg BI Adopting Release at 33381. 

228SEC, Staff Bulletin: Standards of Conduct for 

Broker-Dealers and Investment Advisers Account 

Recommendations for Retail Investors, (March 30, 

2022), https://www.sec.gov/tm/iabd-staff-bulletin. 

229 Ibid. 

230For more information, refer to the discussion 

in the Regulatory Baseline section on state 

legislation and regulation. 

231Matched file of Forms 1040, 1099–R, and 5498 

for Tax Year 2019. IRS, Statistics of Income 

Division, Individual Retirement Arrangements 

Study, February 2022. 

232Angela A. Hung, Noreen Clancy, Jeff Emmett 

Dominitz, Eric Talley, Claude Berrebi, & Farrukh 

Suvankulov, Investor and Industry Perspectives on 

Investment Advisers and Broker-Dealers, RAND 

Corporation, (2008), https://www.rand.org/pubs/

technical_reports/TR556.html. 

233Securities and Exchange Commission. 

‘‘Recommendation of the Investor as Purchaser 

Subcommittee Broker-Dealer Fiduciary Duty,’’ 

November 1, 2013. https://www.sec.gov/spotlight/ 

investor-advisory-committee-2012/fiduciary-dutyrecommendation.pdf. 

securities annuities subject to regulation 

by state insurance departments, creates 

problematic incentives for financial 

professionals to recommend certain 

products. 

Under the Investment Advisers Act 

and Regulation Best Interest, investment 

advisers and broker-dealers must have a 

reasonable basis to believe both the 

rollover itself and the account being 

recommended are in the retail investor’s 

best interest.227 SEC staff guidance 

recognizes that it would be difficult to 

have such a reasonable basis if, ‘‘you do 

not consider the alternative of leaving 

the retail investor’s investments in their 

employer’s plan, where that is an 

option.’’ 228 Moreover, broker-dealers 

and investment advisers are instructed 

to generally consider certain factors 

when making rollover recommendations 

to retail investors, specifically and 

without limitation, ‘‘costs; level of 

services available; features of the 

existing account, including costs; 

available investment options; ability to 

take penalty-free withdrawals; 

application of required minimum 

distributions; protection from creditors 

and legal judgments; and holdings of 

employer stock.’’ 229 As such, the SEC’s 

regulatory framework is likely to 

mitigate some of the aforementioned 

harms to retirement investors, but only 

in markets where it applies. 

In contrast, the NAIC Model 

Regulation #275, which is the basis for 

much of the state regulation on 

insurers,230 makes no direct reference to 

rollovers, and imposes a less stringent 

obligation on annuity recommendations 

than the best interest standard imposed 

on securities recommendations and 

investment advice by the SEC. Given the 

average rollover contribution to a 

traditional IRA in 2019 was $112,000,231

the variation in regulatory standards 

regarding rollover advice can result in 

widely disparate outcomes among 

similarly situated retirement investors 

based solely on who they sought for 

advice and whether that adviser was 

required to put the investor’s interests 

above their own. 

An update to the regulatory definition 

of an investment advice fiduciary, for 

purposes of Title I of ERISA and the 

Code, is necessary to enhance 

protections of retirement investors. This 

approach both reflects ERISA’s and the 

Code’s statutory text, which adopts a 

uniform approach, as well as sound 

public policy. Investment 

recommendations should be 

consistently governed solely by the best 

interest of retirement investors, rather 

than adviser perceptions that advice on 

one category of investment product is 

subject to different regulatory standards 

than another. 

How the Proposed Rule Addresses the 

Need for Regulatory Action 

The proposed amendments to the 

1975 rule would better reflect the text 

and purposes of the statute and would 

address inadequacies that the 

Department has observed during its 

decades of experience in implementing 

the 1975 rule. This proposal would 

honor the broad statutory definition of 

fiduciary by amending the five-part test 

to create a uniformly protective 

fiduciary standard for retirement 

investors, subject to firm-level oversight, 

designed to mitigate and eliminate the 

harmful effects of biased advice. The 

amendments to the 1975 rule and 

related exemptions would also 

eliminate the risk of regulatory 

arbitrage, in which an investment 

advice provider may operate in a 

particular market to evade more 

stringent regulation. For instance, under 

the current regulation, an independent 

producer selling an indexed annuity, a 

financial professional giving a 

retirement investor one-time advice to 

roll investments into an IRA, or a 

financial professional giving advice on 

one transaction, could portray 

themselves as serving the best interest of 

the investor while being held to lower 

care standard than financial 

professionals subject to the Investment 

Advisers Act of 1940 or the SEC’s 

Regulation Best Interest or the 

Department’s fiduciary standard. In 

contrast, the amended rule would 

broadly align the standard of care 

required of all financial professionals 

giving retirement investment advice 

with retirement investors’ reasonable 

expectations that those 

recommendations are trustworthy. This 

would in turn create a retirement market 

where all advisers compete under a 

uniform fiduciary standard, reducing 

investor exposure to harms from 

conflicted advice. 

The fiduciary standard, as buttressed 

by the protective conditions of PTE 

2020–02 and PTE 84–24, protects 

investors from getting investment 

recommendations that are improperly 

biased because of the advisers’ 

competing financial interests. It requires 

firms and advisers to put the interests of 

Retirement Investors first and to take 

appropriate action to mitigate and 

control conflicts of interest. These 

conditions should go a long way to 

redressing the dangers posed by biased 

advice. 

In addition, the proposed exemptions 

also give inexpert investors important 

information on the scope, severity, and 

magnitude of conflicts of interest. 

Moreover, by imposing a uniform 

fiduciary standard on conflicted 

advisers in the retirement marketplace, 

the proposed rule and exemptions 

reduce investor confusion about the 

standards governing advice. Retail 

investors who rely on expert advice are 

unlikely to have a sound understanding 

of differences in standards across 

various categories of investments and 

investment professionals.232 The SEC 

Investor Advisory Committee, when 

considering a uniform adoption of a 

standard of duty for investment advisers 

and broker-dealers in 2013, found that 

‘‘investors do not distinguish between 

broker-dealers and investment advisers, 

do not know that broker-dealers and 

investment advisers are subject to 

different legal standards, do not 

understand the difference between a 

suitability standard and a fiduciary 

duty, and expect broker-dealers and 

investment advisers alike to act in their 

best interest when giving advice and 

making recommendation.’’ 233

While these issues have been 

mitigated to a considerable degree by 

the imposition of a common ‘‘best 

interest’’ standard for broker-dealers 

governed by Regulation Best Interest 

and investment advisers subject to the 

Investment Advisers Act or state law, 

significant differences remain with 

respect to the standards governing 

investments that are not securities, such 

as fixed indexed annuities. Investor 

confusion is exacerbated by different 


lotter on DSK11XQN23PROD with PROPOSALS3
75922 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

234Employee 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, pp. 268–271, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 

235Employee 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, pp. 268–271, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 

236For more information on the relationship of 

best interest fiduciary standards and the protection 

of retirement investors, refer to the Benefits section 

of the RIA. 

237See Chamber, 885 F.3d 360 (5th Cir. 2018). 

238Aron Szapiro & Paul Ellenbogen, Early 

Evidence on the Department of Labor Conflict of 

Interest Rule: New Share Classes Should Reduce 

Conflicted Advice, Likely Improving Outcomes for 

Investors, Morningstar, (April 2017); Jasmin Sethi, 

Jake Spiegel, & Aron Szapiro, Conflicts of Interest 

in Mutual Fund Sales: What Do the Data Tell Us?, 

6(3) The Journal of Retirement 46–59, (2019); Lia 

Mitchell, Jasmin Sethi, & Aron Szapiro, Regulation 

Best Interest Meets Opaque Practices: It’s Time to 

Dive Past Superficial Conflicts of Interest, 

Morningstar, (November 2019), https://ccl.yale.edu/ 

sites/default/files/files/wp_Conflicts_Of_Interest_

111319%20FINAL.pdf; Mark Egan, Shan Ge, & 

Johnny Tang, Conflicting Interests and the Effect of 

Fiduciary Duty—Evidence from Variable Annuities, 

35(12) Review of Financial Studies 5334–5386 

(December 2022). 

regulatory regimes referencing a ‘‘best 

interest standard’’ while defining what 

that means and the protections that 

entails differently. 

Although the proposal will enhance 

disclosures of conflicts of interest, the 

Department stresses that disclosure 

alone is limited in its effectiveness at 

protecting investors from the dangers 

posed by conflicts of interest, as 

detailed in the RIA for the fiduciary rule 

the Department promulgated in 2016.234

As that document explained, there are 

myriad reasons to doubt that disclosure 

alone could effectively mitigate conflicts 

of interest, and available data support a 

finding that disclosure is not a reliable 

corrective for conflicts of interest: 

• Even with relatively clear 

disclosures, investors routinely ignore 

them and are hard pressed to 

understand them. Investors often lack 

the requisite financial expertise, 

disregard the materials they receive, and 

have trouble following the disclosures 

or parsing their significance. These 

problems can be compounded for older 

and more vulnerable retirement-age 

investors. 

• Merely disclosing a conflict of 

interest does not give the investor a 

working model on how to determine the 

impact of the conflict of interest on the 

advice they are receiving or of how to 

use the disclosure to make a better 

investment decision. While now on 

notice of the conflict, the inexpert 

customer remains dependent on the 

expert’s advice. 

• Disclosure can even exacerbate the 

harmful impacts of conflicts of interest, 

as when an adviser feels morally 

licensed to indulge the conflict of 

interest because they can now treat the 

customer as duly warned or as when 

they press harder to make the sale to 

offset possible concerns about disclosed 

conflicts. 

• Without a working model on how to 

take account of conflicts of interest, 

investors may overweight the advice 

based on the adviser’s perceived 

honesty for having disclosed the 

conflict, or unduly discount the advice 

and take a contrarian approach because 

of discomfort about the advice’s 

reliability. Investors may also feel 

pressure not to question the adviser’s 

integrity or deprive them of their 

livelihood. 

While disclosure of conflicts could, in 

some cases, change the adviser’s 

behavior for the better,235 mitigating or 

removing conflicts and requiring the 

adviser to adhere to a strong conduct 

standard with a mechanism for 

overseeing and enforcing compliance, 

when necessary, provides stronger 

incentives for advisers to provide 

investment advice that is in the best 

interest of the investor. These are the 

key components of the Department’s 

proposals, and the primary ways the 

Department expects the rule to address 

the problems posed by conflicted 

advice. 

While the SEC has addressed many of 

the Department’s concerns about 

conflicted advice, the impact is limited 

to advice in the SEC’s regulatory 

jurisdiction. This situation would be 

alleviated by the introduction of a 

uniform fiduciary standard for the broad 

range of retirement investment 

transactions in all regulatory spheres. 

Additional regulatory action is 

warranted due to the pervasiveness of 

conflicts of interest in this marketplace 

and the complexity of investing assets 

for retirement. The growing body of 

evidence underscores that best interest 

fiduciary standards play an important 

role in protecting retirement 

investors.236 One of the Department’s 

objectives in issuing this proposal is to 

abate these and similar harms in areas 

outside of SEC jurisdiction, to ensure 

that retirement investors’ assets outside 

the securities space are also protected 

from conflicted advice. This proposal 

would extend the fiduciary best interest 

standard to additional markets and 

investment product, including annuities 

and other non-securities. This proposal 

would apply to advice given to plan 

fiduciaries as well as plan participants. 

In addition, for retirement investors 

who already receive the protections in 

the Investment Advisers Act of 1940, 

Regulation Best Interest, and PTE 2020– 

02 under the regulatory baseline, this 

proposal would provide even stronger 

protections. Standards for mitigating 

conflicts under this proposal would be 

more rigorous and well-defined. 

3. Baseline 

Since the Department first took on the 

issues of fiduciary advice and conflicts 

of interest, there have been numerous 

developments in the regulatory 

environment and the financial markets 

in which they operate. 

Regulatory Baseline 

The problems of conflicted advice and 

supervisory structures for advice have 

received increased regulatory attention, 

resulting in action from the Department, 

the SEC, individual states, and the 

National Association of Insurance 

Commissioners (NAIC). The major 

actions are summarized below. 

Regulatory Baseline, the Department of 

Labor 

Many financial institutions undertook 

efforts to adapt to the Department’s 2016 

Final Rule. As such, the intended 

improvements in retirement investor 

outcomes appear to have been on track 

prior to the Fifth Circuit’s vacatur of the 

2016 Final Rule.237 Research suggests 

that the Department’s prior efforts 

produced positive changes in advice 

markets, even without fully taking 

effect, which were reinforced by the 

SEC’s actions. For instance, several 

studies found that the Department’s 

2016 Final Rule had a positive effect on 

conflicts of interest and that some 

categories of conflicts, such as bundled 

share classes of mutual funds and highexpense variable annuities, were 

reduced even after the DOL rule was 

struck down.238 The nature of the 

conflicts associated with bundled share 

classes and high-expense variable 

annuities are discussed later in this 

document. 

In 2020, the Department issued a 

technical amendment to the CFR to 

reinsert the 1975 rule and published 

PTE 2020–02. The exemption is 

available to registered investment 

advisers, broker dealers, banks, and 

insurance companies and their 

individual employees, agents, and 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75923 

239 ‘‘Hybrid robo-advice,’’ or advice that combines 

combine features of robo-advice and traditional 

investment advice, is included under the existing 

PTE 2020–02. 85 FR 82798, 82830 (Dec. 18, 2020). 

240The PTE 2020–02 preamble says: 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 commissionbased account to a fee-based account). The 

requirement to document the specific reasons for 

these recommendations is part of the required 

policies and procedures, in Section II(c)(3).’’ 

241Employee 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, pp. 30, (April 2016), 

https://www.dol.gov/sites/dolgov/files/EBSA/lawsand-regulations/rules-and-regulations/completedrulemaking/1210-AB32-2/ria.pdf. 

242Commission Interpretation Regarding 

Standard of Conduct for Investment Advisers, 84 FR 

33669 (July 12, 2019). 

243SEC Regulation Best Interest defines retail 

customer to include ERISA plan participants and 

beneficiaries, including IRA owners, but not ERISA 

fiduciaries. See 84 FR 33343–44 (July 12, 2019). 

This subject is further addressed in the affected 

entities section below. 

244The SEC’s Regulation Best Interest was 

adopted pursuant to the express and broad grant of 

rulemaking in Section 913(f) of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act. 

The SEC also required disclosure of a Customer 

Relationship Summary, adopted an interpretation of 

the fiduciary duty that investment advisers owe to 

their clients under the Investment Advisers Act, 

and published an interpretation of the ‘‘solely 

incidental’’ prong of the broker-dealer exclusion 

under the Investment Advisers Act. Under 

Regulation Best Interest, broker-dealers are required 

to act in the best interest of a retail customer when 

making a recommendation of any securities 

transaction or investment strategy involving 

securities to a retail customer and cannot place its 

own interests ahead of the customer’s interests. 

245The SEC also stated that ‘‘[t]he investment 

adviser-client relationship also has inherent 

conflicts of interest, including those resulting from 

an asset-based compensation structure that may 

provide an incentive for an investment adviser to 

encourage its client to invest more money through 

an adviser in order increase its AUM at the expense 

of the client.’’ 

246 84 FR 33319 (July 12, 2019). 

representatives that provide fiduciary 

investment advice to retirement 

investors. However, the exemption 

explicitly excluded investment advice 

solely generated by an interactive 

website, referred to as ‘‘pure roboadvice.’’ 239 Under the exemption, 

financial institutions and investment 

professionals can receive a wide variety 

of payments that would otherwise 

violate the prohibited transaction rules. 

The exemption’s relief extends to 

prohibited transactions arising as a 

result of investment advice to roll over 

assets from a plan to an IRA, under 

certain conditions. 

This exemption conditions relief on 

the investment professional and 

financial institution investment advice 

fiduciaries providing advice in 

accordance with the Impartial Conduct 

Standards. The Impartial Conduct 

Standards include a best interest 

standard, a reasonable compensation 

standard, and a requirement to make no 

misleading statements about investment 

transactions and other relevant matters. 

The best interest standard in the 

exemption is broadly aligned with the 

federal securities laws. In addition, the 

exemption requires financial 

institutions to acknowledge in writing 

the institution’s and their investment 

professionals’ fiduciary status under 

Title I and the Code, as applicable, 

when providing investment advice to 

the retirement investor, and to describe 

in writing the services to be provided 

and the financial institutions’ and 

investment professionals’ material 

conflicts of interest. Financial 

institutions must document the reasons 

that a rollover recommendation is in the 

best interest of the retirement investor 

and provide that documentation to the 

retirement investor.240 Financial 

institutions are required to adopt 

policies and procedures prudently 

designed to ensure compliance with the 

Impartial Conduct Standards and 

conduct a retrospective review of 

compliance. 

In order to ensure that financial 

institutions provide reasonable 

oversight of investment professionals 

and adopt a culture of compliance, the 

exemption provides that financial 

institutions and investment 

professionals will be ineligible to rely 

on the exemption if, within the previous 

10 years, they were convicted of certain 

crimes arising out of their provision of 

investment advice to retirement 

investors. They can also become 

ineligible if they engage in systematic or 

intentional violation of the exemption’s 

conditions or provided materially 

misleading information to the 

Department in relation to their conduct 

under the exemption. 

At the time PTE 2020–02 was 

finalized, the Department left in place 

other administrative exemptions that 

could be used to provide investment 

advice in place of PTE 2020–02, 

including the other PTEs being 

amended in this proposal. Leaving the 

other PTEs in place allowed for a varied 

landscape of conditions that could be 

used by different types of financial 

institutions to provide investment 

advice for different types of assets and 

financial products. The varied 

landscape of conditions allows for 

regulatory arbitrage where investment 

advice providers can use more favorable 

rules in one market to circumvent less 

favorable regulations elsewhere. 

Regulatory Baseline, the Securities and 

Exchange Commission 

The Investment Advisers Act of 1940, 

‘‘establishes a fiduciary duty for 

[investment advisers] roughly analogous 

to the fiduciary duties of care and 

loyalty established by ERISA for 

investment advisers to plans and plan 

participants.’’ 241 In an interpretation of 

the conduct standards applicable to 

investment advisers, the SEC wrote: 

An investment adviser’s fiduciary duty 

under the Advisers Act comprises a duty of 

care and a duty of loyalty. This fiduciary 

duty requires an adviser ‘‘to adopt the 

principal’s goals, objectives, or ends.’’ This 

means the adviser must, at all times, serve 

the best interest of its client and not 

subordinate its client’s interest to its own.242

In June 2019, the SEC adopted a 

package of rulemakings and 

interpretations designed to enhance the 

quality and transparency of retail 

investors’ relationships with investment 

advisers and broker-dealers.243 The 

package included Regulation Best 

Interest, the Form CRS, and publication 

of two separate interpretations under 

the Investment Advisers Act. 

Regulation Best Interest establishes a 

standard of conduct for broker-dealers 

and associated persons (unless 

otherwise indicated, together referred to 

as ‘‘broker-dealers’’) when they make a 

recommendation to a retail customer of 

any securities transaction or investment 

strategy involving securities.244 In 

adopting Regulation Best Interest, the 

SEC made findings consistent with the 

underlying premise of DOL’s recent 

rulemakings: that financial services 

firms’ conflicts of interest are harmful to 

investors. Specifically, in the Regulation 

Best Interest preamble, the SEC stated 

that: 

[l]ike many principal-agent relationships— 

including the investment adviser-client 

relationship—the relationship between a 

broker-dealer and a customer has inherent 

conflicts of interest, including those resulting 

from a transaction-based (e.g., commission) 

compensation structure and other brokerdealer compensation.245 These and other 

conflicts of interest may provide an incentive 

to a broker-dealer to seek to increase its own 

compensation or other financial interests at 

the expense of the customer to whom it is 

making investment recommendations.246

* * * * * 

Notwithstanding these inherent conflicts of 

interest in the broker-dealer-customer 

relationship, there is broad acknowledgment 

of the benefits of, and support for, the 

continuing existence of the broker-dealer 

business model, including a commission or 

other transaction-based compensation 

structure, as an option for retail customers 


lotter on DSK11XQN23PROD with PROPOSALS3
75924 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

247 Id. at 33319 (internal citation omitted). 

248FINRA Rule 2111(a). 

249 84 FR 33318 (July 12, 2019). 

250SEC’s Office of Compliance Inspections and 

Examinations, Examinations that Focus on 

Compliance with Regulation Best Interest, (April 7, 

2020), https://www.sec.gov/files/Risk%20Alert- 

%20Regulation%20Best%20Interest%20Exams.pdf. 

251SEC, Staff Bulletin: Standards of Conduct for 

Broker-Dealers and Investment Advisers Account 

Recommendations for Retail Investors, (March 30, 

2022), https://www.sec.gov/tm/iabd-staff-bulletin. 

252 Ibid. 

253Chairman Jay Clayton, Statement at the Open 

Meeting on Commission Actions to Enhance and 

Clarify the Obligations Financial Professionals Owe 

to our Main Street Investors, (June 5, 2019), https:// 

www.sec.gov/news/public-statement/statementclayton-060519-iabd. 

254Chairman Jay Clayton, Regulation Best Interest 

and the Investment Advisory Fiduciary Duty: Two 

Strong Standards that Protect and Provide Choice 

for Main Street Investors, SEC (July 8, 2019), 

https://www.sec.gov/news/speech/claytonregulation-best-interest-investment-adviserfiduciary-duty. 

255 Jill E. Fisch, Marion Laboure ́, & John A. 

Turner, The Disruptive Impact of FinTech on 

Retirement Systems: Chapter 2: The Emergence of 

the Robo-Advisor, Oxford University Press 13 

(2019). 

seeking investment recommendations . . . 

Nevertheless, concerns exist regarding (1) the 

potential harm to retail customers resulting 

from broker-dealer recommendations 

provided where conflicts of interest exist and 

(2) the insufficiency of existing broker-dealer 

regulatory requirements to address these 

conflicts when broker-dealers make 

recommendations to retail customers. More 

specifically, there are concerns that existing 

requirements do not require a broker-dealer’s 

recommendations to be in the retail 

customer’s best interest.247

Accordingly, the SEC stated that 

Regulation Best Interest enhances the 

broker-dealer standard of conduct 

beyond existing ‘‘suitability’’ 

obligations 248 and aligns the standard of 

conduct with customers’ reasonable 

expectations by requiring broker-dealers 

to act in the best interest of the retail 

customer at the time the 

recommendation is made, without 

placing the financial or other interest of 

the broker-dealer ahead of the retail 

customer’s interest; and, among other 

things, address conflicts of interest by 

disclosing and mitigating, or even 

eliminating, conflicts of interest.249

In particular, the best interest 

obligation for Regulation Best Interest is 

only satisfied if the broker-dealer 

complies with four component 

obligations: a Disclosure Obligation, 

which requires a broker-dealer to 

provide all material facts related to the 

scope and terms of the relationship with 

the retail customer and the conflicts of 

interests associated with the 

recommendation prior to or at the time 

of the recommendation; a Care 

Obligation, which requires a brokerdealer to exercise reasonable diligence, 

care, and skill when making 

recommendations to a retail customer; a 

Conflict of Interest Obligation, which 

requires the broker-dealer to establish, 

maintain and enforce written policies 

and procedures reasonably designed to 

address conflicts of interest associated 

with its recommendations to retail 

customers; and a Compliance 

Obligation, which requires brokerdealers to establish, maintain and 

enforce written policies and procedures 

reasonably designed to achieve 

compliance with Regulation Best 

Interest as a whole.250

Significantly, Regulation Best Interest 

applies to recommendations by brokerdealers to roll over or transfer assets in 

a workplace retirement plan accounts to 

an IRA and recommendations to take a 

plan distribution. The SEC has also 

issued staff guidance that under 

Regulation Best Interest and the 

Advisers Act’s fiduciary duty, when 

making a rollover recommendation, 

broker-dealers and investment advisers 

must consider costs, the level of services 

available, and features of existing 

accounts. The guidance notes that, ‘‘it 

would be difficult to form a reasonable 

basis to believe that a rollover 

recommendation is in the retail 

investor’s best interest and does not 

place your or your firm’s interests ahead 

of the retail investor’s interest, if you do 

not consider the alternative of leaving 

the retail investor’s investments in their 

employer’s plan, where that is an 

option.’’ 251

The standard of conduct in SEC’s 

Regulation Best Interest draws from key 

principles of fiduciary obligations, 

including those that apply to investment 

advisers under the Investment Advisers 

Act. As reiterated in Staff Bulletins 252

and speeches,253 254 Regulation Best 

Interest, as adopted, incorporates Care 

and Conflict of Interest Obligations 

substantially similar to the fiduciary 

duties under the Advisers Act of loyalty 

(to not subordinate their client’s interest 

to their own) and care (to ensure that 

advice is suitable and in the best 

interest of the client), to 

recommendations made by brokerdealers to their retail clients. 

Importantly, regardless of whether a 

retail investor chooses a broker-dealer or 

an investment adviser (or both), the 

retail investor will be entitled to a 

recommendation (from a broker-dealer) 

or advice (from an investment adviser) 

that is in the best interest of the retail 

investor and does not place the interests 

of the firm or the financial professional 

ahead of the interests of the retail 

investor. 

The SEC’s Regulation Best Interest 

covers advice that SEC-registered 

broker-dealers render to retail investors. 

Therefore, the affected firms and 

professionals include those making 

recommendations to the individual IRA 

and ERISA plan investors covered by 

this proposal. With respect to this area 

of overlap, the potential costs of this 

proposal are relatively limited, because 

the SEC actions and this proposal share 

many similarities and many firms have 

already built compliance structures 

based on SEC actions, the Department’s 

2016 Final Rule, and PTE 2020–02. 

The SEC also covers robo-advice, 

subjecting robo-advisers that meet the 

definition of ‘‘investment adviser’’ to 

regulation under the Investment 

Advisers Act of 1940. It states that roboadvisers have a fiduciary duty to 

provide advice in the best interest of 

their clients. In addition, if roboadvisers also hold customer assets, they 

must register with the SEC and FINRA 

as broker-dealers. In 2017, the SEC’s 

Division of Investment Management 

released regulatory compliance 

guidance for robo-advisers that included 

the need for adequate disclosure about 

the robo-adviser and the services it 

provides, the need to ensure that the 

robo-adviser is providing appropriate 

advice to its customers, and the need to 

adopt and implement appropriate 

compliance programs tailored to the 

automated nature of the robo-adviser’s 

services.255 This SEC guidance confirms 

that robo-advisers registered as 

investment advisers with the SEC are 

subject to the Investment Adviser Act’s 

legal requirements and fiduciary 

obligations. 

For brokers-dealers subject to 

Regulation Best Interest and investment 

advisers subject to the Investment 

Advisers Act, there is substantial 

overlap between SEC requirements and 

the obligations imposed by ERISA, the 

Code, and this regulatory project. 

Outside this area of overlap, however, 

current standards generally are lower, so 

the potential costs—and benefits—of 

this proposal may be more significant. 

For example, this proposal would apply 

to state-licensed insurance agents and 

state-registered brokers, who are not 

uniformly regulated by the SEC, when 

they provide investment advice to IRA 

or ERISA plan investors. It would also 

apply to broker-dealers who give 

fiduciary advice to ERISA plan 

fiduciaries, who are not included within 

Regulation Best Interest’s definition of a 

retail customer. Recommendations 

regarding plan and IRA investments in 

real estate, certificates of deposit, other 

bank products and fixed indexed 

annuities that are not considered 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75925 

256LIMRA, Record Annuity Sales in 2022 

Expected Continue into First Quarter 2023, (March 

8, 2023), https://www.limra.com/en/newsroom/ 

news-releases/2023/limra-record-annuity-sales-in2022-expected-to-continue-into-first-quarter-2023/. 

257States that have enacted legislation include 

Arizona, Connecticut, Florida, Hawaii, Idaho, 

Louisiana, Maryland, Michigan, Minnesota, 

Montana, Nebraska, Nevada, North Dakota, Oregon, 

Pennsylvania, South Dakota, Texas, Washington, 

and Wisconsin. States that have finalized regulation 

include Alabama, Alaska, Arizona, Arkansas, 

Colorado, Connecticut, Delaware, Georgia, Illinois, 

Iowa, Kansas, Kentucky, Maine, Maryland, 

Massachusetts, Minnesota, Mississippi, Montana, 

New Mexico, New York, North Carolina, Ohio, 

Oklahoma, Rhode Island, South Carolina, 

Tennessee, Virginia, West Virginia, and Wyoming. 

258For more information on the NAIC’s 

Suitability in Annuity Transactions Model 

Regulation, or Model Regulation #275, refer to the 

section entitled ‘‘NAIC Annuity Transactions Model 

Regulation #275’’ in this RIA. 

259The Massachusetts Supreme Judicial Court 

recently upheld the validity of the state’s fiduciary 

duty rule, holding that the Secretary of the 

Commonwealth had authority to promulgate it, that 

the Secretary’s authority was not an impermissible 

delegation of legislative power, that the rule did not 

override the common-law protections available to 

investors, and that the rule was not preempted by 

the SEC’s imposition of the Regulation Best Interest. 

Robinhood Fin. LLC v. Sec’y of Commonwealth, No. 

SJC–13381, 2023 WL 5490571, at *1, *6–15 (Mass. 

Aug. 25, 2023). 

securities under the federal securities 

laws are also not generally regulated by 

the SEC. 

The Department is especially 

concerned about the proper regulation 

of fixed index annuities, as they 

comprised 67 percent of the retail 

annuity market in 2022, an increase of 

42 percent from 2021, as investors 

hedged against rising interest rates.256

This growth in fixed annuity 

investments has increased the share of 

retirement savings residing in a less 

secure environment with fewer 

protections against conflicted advice 

compared to direct investors in mutual 

funds and securities. The Department 

anticipates the benefits to investors of 

extending fiduciary law principles to 

entities providing investment advice in 

currently less stringent regulatory 

regimes to be substantial. 

Regulatory Baseline, State Legislative 

and Regulatory Developments 

The appropriate baseline for this 

analysis is also informed by certain 

recent legislative and regulatory 

developments involving conduct 

standards at the state level. 

Summary of State Legislative and 

Regulatory Developments 

In a list compiled in July 2023, the 

Department identified 43 states that 

have enacted legislation, finalized 

regulation, or both that impose conduct 

standards and disclosure requirements 

on various financial institutions.257 The 

table below summarizes the enacted 

legislation and finalized regulation in 

each state, as well as the type of 

financial institution each regulation 

pertains to. This list includes states that 

have adopted the NAIC Model 

Regulation #275,258 in addition to states 

that have adopted conduct standards 

and disclosure requirements outside of 

NAIC Model Regulation #275. 

TABLE 1—STATES THAT HAVE ENACTED LEGISLATION OR FINALIZED REGULATION

State Legislation or 

regulation Title of legislation or regulation Affected entities 

Alabama ...................... Regulation .................. Suitability in Annuity Transactions .................. Insurers, Broker-Dealers, and Independent 

Producers. 

Alaska .......................... Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

Arizona ........................ Legislation .................. An Act Relating to Annuity Transactions ........ Insurers and Independent Producers. 

Regulation .................. Article 2—Transaction of Insurance ............... Insurers and Independent Producers. 

Arkansas ...................... Regulation .................. Stability in Annuity Transactions ..................... Insurers and Independent Producers. 

Colorado ...................... Regulation .................. Colorado Securities Act: Dishonest and Unethical Conduct.Investment Advisers, Investment Adviser 

Representatives, and Federal Covered Advisers. 

Regulation .................. Concerning Best Interest Obligations and Supervision in Annuity Transactions.Insurers and Independent Producers. 

Connecticut .................. Legislation .................. Consumers Doing Business with Financial 

Planners.

Financial Planners. 

Legislation .................. An Act Requiring Administrators of Certain 

Retirement Plans to Disclose Conflicts of 

Interest.

Administrators to Municipal 403(b) Plans. 

Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

Delaware ..................... Regulation .................. Stability in Annuity Transactions ..................... Insurers and Independent Producers. 

Florida .......................... Legislation .................. Consumer Protection ...................................... Insurers and Insurance Agents. 

Georgia ........................ Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

Hawaii .......................... Legislation .................. An Act Relating to Insurance .......................... Insurers and Independent Producers. 

Idaho ............................ Legislation .................. Annuity Consumer Protections Act ................. Insurers and Independent Producers. 

Illinois ........................... Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

Iowa ............................. Regulation .................. Rulemaking Related to Best Interest Standard for Insurance Professionals.Insurers and Independent Producers. 

Kansas ......................... Regulation .................. Policy and Procedure on Suitability in Annuity 

Transactions.

Insurers and Independent Producers. 

Kentucky ...................... Regulation .................. Stability in Annuity Transactions ..................... Insurers and Independent Producers. 

Louisiana ..................... Legislation .................. Provides Relative to Venue for Direct Actions 

by Third Parties Against Insurers.

Insurance Commissioner. 

Maine ........................... Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

Maryland ...................... Legislation .................. Financial Consumer Protection Act of 2018 ... N/A. 

Regulation .................. Suitability in Annuity Transaction .................... Insurers and Independent Producers. 

Massachusetts 259 ....... Regulation .................. Suitability in Annuity Transactions .................. Investment Advisers, Financial Planners, 

Broker-Dealers, Insurers, and Independent 

Producers. 

Regulation .................. Amendments to Fiduciary Conduct Standards Broker-Dealers and Agents. 

Regulation .................. Amendments to Investment Adviser Disclosure Regulations.Investment Advisers. 


lotter on DSK11XQN23PROD with PROPOSALS3
75926 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

260California, New Hampshire, and New Jersey 

have introduced legislation and/or regulation. 

261Based on internal Department analysis, the 

modified Model Regulation #275, including a best 

interest standard, was adopted by Alabama, Alaska, 

Arizona, Arkansas, Colorado, Connecticut, 

Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, 

Iowa, Kansas, Kentucky, Maine, Maryland, 

Massachusetts, Michigan, Minnesota, Mississippi, 

Montana, Nebraska, New Mexico, North Carolina, 

North Dakota, Ohio, Oregon, Pennsylvania, Rhode 

Island, South Carolina, South Dakota, Tennessee, 

Texas, Virginia, Washington, West Virginia, 

Wisconsin, and Wyoming. 

262NAIC, Annuity Suitability & Best Interest 

Standard, (August 2023), https://content.naic.org/ 

cipr-topics/annuity-suitability-best-intereststandard. 

TABLE 1—STATES THAT HAVE ENACTED LEGISLATION OR FINALIZED REGULATION—Continued 

State Legislation or 

regulation Title of legislation or regulation Affected entities 

Michigan ...................... Legislation .................. Amendments to An Act to Revise, Consolidate, and Classify the Law Relating to the 

Insurance and Surety Business.

Insurers and Independent Producers. 

Minnesota .................... Legislation .................. Annuity Suitability Regulation Modification ..... Insurers and Independent Producers. 

Regulation .................. Insurance Industry Trade Practices ................ Insurers and Independent Producers. 

Mississippi ................... Regulation .................. Annuity Transactions Model ........................... Insurers and Independent Producers. 

Montana ....................... Legislation .................. An Act to Revise Insurance Laws Related to 

Annuities.

Insurers and Independent Producers. 

Regulation .................. Securities Regulation ...................................... Investment Advisers, Investment Adviser 

Representatives, and Federal Covered Advisers. 

Nebraska ..................... Legislation .................. An Act relating to the Nebraska Protections in 

Annuity Transactions Act.

Insurers and Independent Producers. 

Nevada ........................ Legislation .................. An Act Relating to Financial Planners; Imposing a Fiduciary Duty on Broker-Dealers, 

Sales Representatives and Investment Advisers Who for Compensation Advise Other 

Persons Concerning the Investment of 

Money.

Broker-Dealers, Sales Representatives, Investment Advisers, and Investment Adviser 

Representatives. 

New Mexico ................. Regulation .................. Suitability and Annuity Transactions ............... Insurers and Independent Producers. 

New York ..................... Regulation .................. Suitability and Best Interests in Life Insurance 

and Annuity Transactions.

Insurers and Independent Producers. 

North Carolina ............. Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

North Dakota ............... Legislation .................. An Act Relating to Annuity Transaction Practices.Insurers and Independent Producers. 

Ohio ............................. Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

Oklahoma .................... Regulation .................. Standards of Ethical Practices ........................ Investment Advisers and Investment Adviser 

Representatives. 

Regulation .................. Standards of Ethical Practices for BrokerDealers and Their Agents.Broker-Dealers and Agents. 

Oregon ......................... Legislation .................. An Act Relating to Annuities ........................... Insurers and Independent Producers. 

Pennsylvania ............... Legislation .................. An Act amending the Insurance company 

Law of 1921.

Insurers and Independent Producers. 

Rhode Island ............... Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

South Carolina ............. Regulation .................. Suitability in Annuity Transactions .................. Independent Producers, Broker-Dealers, 

Agents, and Plan Fiduciaries. 

South Dakota ............... Legislation .................. An Act to Revise Annuity Sales Standards .... Broker-Dealers, Investment Advisers, Insurers, and Independent Producers. 

Tennessee ................... Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

Texas ........................... Legislation .................. Relating to Disclosures and Standards Required for Certain Annuity Transactions and 

Benefits Under Certain Annuity Contracts.

Insurers and Agents. 

Virginia ......................... Regulation .................. Rules Governing Suitability in Annuity Transactions.Insurers and Independent Producers. 

Washington .................. Legislation .................. Concerning the Best Interest Standard for 

Annuity Transactions.

Insurers and Independent Producers. 

West Virginia ............... Regulation .................. Suitability in Annuity Transactions .................. Insurers and Independent Producers. 

Wisconsin .................... Legislation .................. An Act Relating to Best Interest in Annuity 

Transactions.

Insurers, Independent Producers, Investment 

Advisers, and Broker-Dealers. 

Wyoming ...................... Regulation .................. Regulation Governing Suitability in Annuity 

Transactions.

Insurers and Independent Producers. 

In addition, three states, that have not 

yet enacted legislation or finalized 

regulations have introduced legislation 

or proposed regulations that would 

impose conduct standards and 

disclosure requirements on various 

financial institutions.260

NAIC Annuity Transactions Model 

Regulation #275 

As shown in the table above, much of 

the legislative and regulatory action 

among states focuses on insurers and 

independent producers. In February 

2020, the NAIC membership approved 

revisions to its Suitability in Annuity 

Transactions Model Regulation to 

include a ‘‘best interest’’ standard of 

conduct. When the Department 

conducted its analysis of states in July 

of 2023, 39 states had adopted the NAIC 

Model Regulation #275.261 Since then, 

additional states may have adopted the 

Model Regulation. In August 2023, the 

NAIC reported that 43 states had 

adopted it.262

The revisions were in response to 

both the SEC and the Department’s work 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75927 

263NAIC, Suitability in Annuity Transactions 

Model Regulation (#275) Best Interest Standard of 

Conduct Revisions Frequently Asked Questions, 

(May 10, 2021), https://content.naic.org/sites/ 

default/files/inline-files/Final%20FAQ%20July

%202021.pdf. 

264A producer is defined in section 5.L. of the 

model regulation as ‘‘a person or entity required to 

be licensed under the laws of this state to sell, 

solicit or negotiate insurance, including annuities.’’ 

Section 5.L. further provides that the term producer 

includes an insurer where no producer is involved. 

265 Id. at § 6(A)(1)(a)(iii). Members of the 

insurance industry have noted that ‘‘[t]here is a 

world of difference’’ between the NAIC model rule 

and ERISA’s fiduciary regime. See Brief of Plaintiffs 

at 39–40, FACC, No. 3:22–cv–00243–K–BN (Nov. 7, 

2022), ECF No. 48 (comparing ERISA’s best interest 

requirement to NAIC Model Regulation 275, 

Sections 2.B and 6.A.(1)(d)). 

266 84 FR 33318, 33458, 33491 (July 12, 2019). 

267Brief of Plaintiffs at 40, FACC, No. 3:22–CV– 

00243–K–BT (Nov. 7, 2022), ECF No. 48. 

268 Id. at 40–41 n.15. 

269 Id. 

270 Id. at 40. 

271 Investment Company Institute, Trends in the 

Expenses and Fees of Funds, 2021, 28(2) ICI 

Research Perspective (March 2022). 

272This study updated the analysis performed by 

Christoffersen, Evans, and Musto (2013) and 

examined the period from 1993 to 2017 in order to 

look at the impact of the Department’s Final Rule, 

taking into consideration preexisting marketplace 

trends, anticipatory effects, the April 2015 Proposal, 

and the April 2016 Final Rule. The study calculates 

the excess load as ‘‘the difference between loads 

predicted by a regression and actual load, given a 

Continued 

in the regulatory space and reflected 

some movement in the direction of 

greater uniformity, although significant 

differences remain, as partially 

discussed below.263 The NAIC Model 

Regulation includes a best interest 

obligation comprised of a care 

obligation, a disclosure obligation, a 

conflict of interest obligation, and a 

documentation obligation, applicable to 

an insurance producer.264 If these 

obligations are met, the producer is 

treated as satisfying the best interest 

standard. The care obligation states that 

the producer, in making a 

recommendation, must exercise 

reasonable diligence, care and skill to: 

• Know the consumer’s financial 

situation, insurance needs and financial 

objectives; 

• Understand the available 

recommendation options after making a 

reasonable inquiry into options 

available to the producer; 

• Have a reasonable basis to believe 

the recommended option effectively 

addresses the consumer’s financial 

situation, insurance needs and financial 

objectives over the life of the product, 

as evaluated in light of the consumer 

profile information; and 

• Communicate the basis or bases of 

the recommendation. 

The conflict of interest obligation 

requires the producer to ‘‘identify and 

avoid or reasonably manage and 

disclose material conflicts of interest, 

including material conflicts of interest 

related to an ownership interest.’’ 

‘‘Material conflict of interest’’ is defined 

as ‘‘a financial interest of the producer 

in the sale of an annuity that a 

reasonable person would expect to 

influence the impartiality of a 

recommendation,’’ but the definition 

expressly carves out ‘‘cash 

compensation or non-cash 

compensation’’ from treatment as 

sources of conflicts of interest. The 

NAIC Model Regulation also provides 

that it does not apply to transactions 

involving contracts used to fund an 

employee pension or welfare plan 

covered by ERISA. 

The NAIC expressly disclaimed that 

its standard creates fiduciary obligations 

and the obligations in the Model 

Regulation differ in significant respects 

from those in Regulation Best Interest. 

For example, in addition to disregarding 

compensation as a source of conflicts of 

interest, the specific care, disclosure, 

conflict of interest, and documentation 

requirements, do not expressly 

incorporate the obligation not to put the 

producer’s interests before the 

customer’s interests, even though 

compliance with their terms is treated 

as meeting the ‘‘best interest’’ standard. 

The care obligation in the Model 

Regulation only requires that the adviser 

‘‘[h]ave a reasonable basis to believe the 

recommended option effectively 

addresses the consumer’s financial 

situation.’’ 265 In contrast, Regulation 

Best Interest requires that, when making 

a recommendation, the broker-dealer 

‘‘exercises reasonable diligence, care, 

and skill to . . . [h]ave a reasonable 

basis to believe that the 

recommendation is in the best interest 

of a particular retail customer,’’ 266 and 

the exemptions proposed here, 

consistent with ERISA’s text, require 

that advice reflect 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. 

In recent insurance industry litigation 

against the Department, the plaintiffs 

described the differences between ‘‘the 

requirements of an ERISA fiduciary and 

an insurance agent operating under the 

NAIC model regulation [as] 

extensive.’’ 267 Among the numerous 

differences they identified is the fact 

that, ‘‘the NAIC model regulation does 

not define conflicts of interest or the 

requirements pertaining to such 

conflicts as broadly as ERISA.’’ 268

Additionally, they asserted that ‘‘the 

NAIC model regulation does not contain 

a ‘prudence’ standard’’ 269 and 

characterized ‘‘these best interest 

requirements . . . [as] a far cry from the 

obligations imposed on an ERISA 

fiduciary.’’ 270

The Department of Labor, uniquely 

among the regulators, can impose 

uniform standards for the provision of 

investment advice to retirement 

investors. It is neither limited to the 

regulation of securities, nor to insurance 

products, but rather can set a uniform 

fiduciary standard for the regulation of 

conflicts of interest with respect to any 

advice on any investment products 

recommended to retirement investors. 

The Department believes that retirement 

investors and the regulated community 

are best served by a consistent, 

protective, and understandable 

fiduciary standard. 

Market Conditions and Impacts of 

Conflicts of Interest 

Financial products, commission 

structures, and investment services are 

constantly evolving. The major market 

developments that the Department 

considered with respect to the proposed 

amendments are discussed below. 

Market Developments, Mutual Fund 

Share Classes 

The 2016 Final Rule and recent SEC 

actions highlighted inherent conflicts of 

interest in how broker-dealers or 

investment advisers are compensated 

for recommending certain share classes 

of mutual funds. Since then, share 

classes without traditional conflicts of 

interest have increased in popularity. 

For instance, data published by the 

Investment Company Institute (ICI) in 

2021 show that no-load mutual funds, 

or mutual funds without commissions, 

accounted for 46 percent of long-term 

mutual fund gross sales in 2000, 79 

percent in 2015, and 89 percent in 2021. 

The ICI attributed the increase in noload funds to two growing trends: 

investors paying intermediaries for 

advice through direct fees rather than 

indirectly through funds and the 

popularity of retirement accounts that 

invest in institutional, no-load share 

classes.271

Sethi, Spiegel, and Szapiro (2019) 

found that the Department’s 2016 Final 

Rule reduced flows into funds with 

excess loads or loads that were higher 

than would otherwise be expected based 

on the fund’s characteristics.272


lotter on DSK11XQN23PROD with PROPOSALS3
75928 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

number of other control variables.’’ See Jasmin 

Sethi, Jake Spiegel, & Aron Szapiro, Conflicts of 

Interest in Mutual Fund Sales: What Do the Data 

Tell Us?, 6(3) The Journal of Retirement 46–59 

(Winter 2019). 

273Lia Mitchell, Jasmin Sethi, & Aron Szapiro, 

Regulation Best Interest Meets Opaque Practices: 

It’s Time to Dive Past Superficial Conflicts of 

Interest, Morningstar (November 2019). 

274 Ibid. 

275 Ibid. 

276SEC, Annuities, (2021), https://

www.investor.gov/introduction-investing/investingbasics/glossary/annuities. 277Frank Fabozzi, The Handbook of Financial 

Instruments, 596–599 (2002). 278SEC, Annuities, (2021), https://

www.investor.gov/introduction-investing/investingbasics/glossary/annuities. 279The initial contract of a fixed annuity 

establishes an initial credited rate, a minimum 

guaranteed rate, and a bailout rate. The invested 

premiums grow at the specified credited rate and 

are added to the cash value of the annuity. The 

credited rate may be changed by the insurance 

company at a specified frequency. However, the 

interest rate is guaranteed to be no lower than the 

specified minimum guaranteed rate. If the credited 

rate falls below the bailout rate, the investor is able 

to withdraw all the funds without paying a 

surrender charge. See Frank Fabozzi, The 

Handbook of Financial Instruments, 599–601 

(2002). 

280SEC, Updated Investor Bulletin: Indexed 

Annuities, (July 2020), https://www.investor.gov/ 

introduction-investing/general-resources/newsalerts/alerts-bulletins/investor-bulletins/updated13. See also FINRA Rule 2330. 

281SEC, Annuities, (2021), https://

www.investor.gov/introduction-investing/investingbasics/glossary/annuities. 282Constantijn Panis & Kathik Padmanabhan, 

Literature Review of Conflicted Advice in Annuities 

Markets, Internal Report for Department of Labor 

(February 2023). 283Frank Fabozzi, The Handbook of Financial 

Instruments 596–599 (2002). 

284Mark Egan, Shan Ge, & Johnny Tang, 

Conflicting Interests and the Effect of Fiduciary 

Duty—Evidence from Variable Annuities, 35(12) 

The Review of Financial Studies 5334–5486 

(December 2022). 

285Cerulli Associates, U.S. Annuity Markets 2022: 

Acclimating to Industry Trends and Changing 

Demand, Exhibit 4.09. The Cerulli Report. 

286 Ibid. 

287Cerulli Associates, U.S. Annuity Markets 2022: 

Acclimating to Industry Trends and Changing 

Demand, Exhibit 2.07. The Cerulli Report. 

288Eversheds Sutherland. ‘‘Getting the Full 

Picture: The Emerging Best Interest and Fiduciary 

Duty Patchwork.’’ (August 2020), https://

www.jdsupra.com/legalnews/the-emergingpatchwork-of-fiduciary-54761/. 

289Colleen Honigsberg, Edwin Hu, & Robert J. 

Jackson, Jr., Regulatory Arbitrage and the 

Persistence of Financial Misconduct, 74 Stanford 

Law Review 797 (2022). 

Mitchell, Sethi, and Szapiro (2019) 

found while mutual funds with excess 

loads have historically received greater 

inflows, since 2010 the correlation 

between excess loads and inflows has 

been lower. The authors attribute this 

change to an ‘‘increased focus on broker 

practices’’ and ‘‘a culture of 

accountability.’’ 273

Meanwhile, other types of share 

classes have emerged and grown more 

prevalent, including unbundled and 

semi-bundled share classes. In a 

traditional, bundled share class, the 

investor pays the mutual fund a load or 

12b–1 fee, and the mutual fund pays a 

portion back to an intermediary, such as 

the intermediary that sold the fund to 

the investor. Alternatively, in an 

unbundled or ‘‘clean’’ share class, the 

investor pays any intermediaries 

directly, while in a semi-bundled share 

class, the fund pays sub-accounting fees 

for recordkeeping services and uses 

revenue sharing for other services, such 

as distribution.274 The different 

compensation arrangement for each of 

the types of share classes create 

different types and magnitudes of 

conflicts for financial professionals. 

Adoption of these new share classes 

has spread quickly. Mitchell, Sethi, and 

Szapiro (2019) found that between July 

2018 to August 2019, relatively few 

bundled share classes were launched 

into the market and that more bundled 

share classes closed in that time frame 

than semi-bundled and unbundled 

combined. Additionally, they found that 

unbundled share classes received 

almost five times as much new money 

as semi-bundled share classes. While 

flows to semi-bundled share classes 

fluctuated, they received net positive 

flows overall during this period.275

Market Developments, the Insurance 

Market 

Before it was vacated, the 2016 Final 

Rule had begun exerting substantial 

influence on financial advice and 

products in the insurance market, 

particularly with regard to annuities. 

There are three common types of 

annuities offered by insurance 

companies. 

• In a variable annuity, an insurance 

company invests in an investment 

option chosen by the investor, which is 

often a mutual fund.276 The return of 

the variable annuity reflects the return 

on the underlying investments. Variable 

annuities have often been referred to as 

‘‘mutual funds in an insurance 

wrapper.’’ 277

• In a fixed annuity, an insurance 

company agrees to pay the investor no 

less than a specified rate of interest 

during the asset accumulation phase 

and to pay a specified amount per dollar 

in the decumulation phase.278 279

• In an indexed annuity, an insurance 

company agrees to pay the investor 

returns linked to the performance of a 

market index. However, unlike a 

variable annuity, the terms in the 

contract and the method used to 

calculate gains and losses may result in 

actualized gains or losses that differ 

from the gains and losses experienced 

by the index.280

Annuity regulators also vary by type. 

While all annuity products are subject 

to state regulation, variable annuities 

and some indexed annuities are 

considered securities, and therefore are 

also subject to SEC and FINRA 

regulations.281 As the financial structure 

of each type of annuity varies, so does 

the risk of conflicted advice. Variable 

and fixed-indexed annuity commissions 

tend to be similar, while fixed rate 

income and immediate annuity 

commissions are generally lower.282

Similar to mutual funds, insurance 

agents and brokers are often 

compensated through load fees for 

selling variable annuities.283 The 

commission paid varies significantly, 

from as little as 0 percent to as much as 

10 percent of the investment with the 

most common amount being 7 

percent.284 The 2016 Final Rule 

discouraged sales of the typical load 

funds. Between 2016 and 2018, the sale 

of fee-based variable annuities, or Ishare class variable annuities, increased 

by 43 percent.285 Following the vacatur 

of the 2016 Final Rule in 2018, feebased variable annuity sales decreased, 

falling by 28 percent between 2018 and 

2020. More recently, sales have 

rebounded, increasing 76 percent 

between 2020 and 2021.286 The 

significant increases in I-share class 

variable annuities have been driven by 

demand for fee-based products among 

fee-based advisers. They have been the 

second most popular variable annuity 

contract type since 2016, though they 

still only comprised 9.5 percent of retail 

variable annuity sales in 2021.287 The 

Department does not have similar trend 

data on sales of fee-based fixed 

annuities. 

Summary 

The recent regulatory and market 

developments, combined with the 

judicial vacatur of the 2016 Final Rule, 

provide for a different baseline than the 

pre-2016 Final Rule baseline. While 

some reforms and improvements in the 

delivery of advice have endured despite 

the vacatur, without new regulatory 

action, gains made to some products 

and markets that are not covered by 

recent regulatory actions by the 

Department, SEC, or states, could be 

derailed. Other regulatory agencies have 

worked to reduce conflicts of interest, 

but this has resulted in a ‘‘patchwork’’ 

approach to regulating advice 

arrangements of retirement 

investments,288 which has already 

resulted in the most conflicted advisers 

moving to markets with the least 

oversight.289


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75929 

This proposal would extend 

important and effective protections 

broadly to retirement investors. 

Specifically, the proposal would replace 

the 1975 regulation’s five-part test with 

a new fiduciary status test, which would 

capture more financial investment 

transactions in which the investor is 

reasonably relying on the advice 

individualized to the investor’s 

financial needs and best interest. This 

proposal would also increase the 

number of rollover recommendations 

being considered as fiduciary advice, 

which would enhance protections to 

retirement investors, particularly in 

regard to recommendations regarding 

annuities. 

In accordance with OMB Circular A– 

4, Table 2 depicts an accounting 

statement summarizing the 

Departments’ assessment of the benefits, 

costs, and transfers associated with this 

regulatory action. The Department is 

unable to quantify all benefits, costs, 

and transfers of the proposal but has 

sought, where possible, to describe 

these non-quantified impacts. The 

effects in Table 2 reflect non-quantified 

impacts and estimated direct monetary 

costs resulting from the provisions of 

the proposal. 

The quantified costs are significantly 

lower than costs in the 2016 RIA due to 

the smaller scope of the proposal 

relative to the 2016 Final Rule as well 

as compliance structures adopted by the 

industry to reduce conflicted advice in 

response to state regulations, Regulation 

Best Interest, PTE 2020–02, and the 

Department’s 2016 Rulemaking. The 

methodology for estimating the costs of 

the proposed amendments to the rule 

and PTEs is consistent with the 

methodology and assumptions used in 

the 2020 analysis for the current PTE 

2020–02. 

TABLE 2—ACCOUNTING STATEMENT

Benefits: 

Non-Quantified (please also see the Transfers section of this table): 

• Increase uniformity in the regulation of financial advice for retirement investors, across different market 

segments and market participants.

• Protect consumers from losses that can result from 

advisory conflicts of interest (without unduly limiting 

consumer choice or adviser flexibility).

• Facilitate retirement investors’ trust in advisers.

• Facilitate more efficient capital allocation 

Costs Estimate Year dollar Discount rate Period 

covered 

Annualized ............................................................................... $221.1 2023 7 percent ................................ 2024–2033 

Monetized ($million/Year) ........................................................ 220.4 2023 3 percent ................................ 2024–2033 

Quantified Costs: 

The Department expects that entities would not incur additional costs from the proposed amendments to PTE 77–4, 

PTE 80–83, and PTE 83–1. However, the Department expects that entities would incur costs directly from the proposed amendments to the following PTEs:.

• The annualized cost estimates in PTE 2020–02 reflect estimated costs associated with reviewing the 

proposal, preparing written disclosures for investors, 

preparing written disclosures for PEPs, reviewing and 

updating policies and procedures, reviewing and updating the retrospective review, and preparing rollover 

documentation.

• The annualized cost estimates in PTE 84–24 reflect 

estimated costs associated with reviewing the rule, 

providing disclosures to retirement investors, establishing written policies and procedures, conducting a 

retrospective review, and maintaining recordkeeping.

• The annualized cost estimates in PTE 75–1 reflect 

estimated costs associated with maintaining recordkeeping.

• The annualized cost estimates in PTE 86–128 reflect 

estimated costs associated with maintaining recordkeeping. In addition, the annualized cost estimates in 

PTE 86–128 reflect estimated costs associated with 

extending the exemption requirements on IRAs. 

These costs include preparing and distributing the 

written authorization from the authorizing fiduciary to 

the broker-dealer, preparing and mailing the required 

information to the authorizing fiduciary, preparing and 

distributing the annual termination form, preparing 

and distributing the quarterly report, collecting and 

generating the information required for the annual report, and collecting and generating the information required for the report of commissions paid.


lotter on DSK11XQN23PROD with PROPOSALS3
75930 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

290Private Pension Plan Bulletin: Abstract of 2021 

Form 5500 Annual Reports, Employee Benefits 

Security Administration (2023; forthcoming), Table 

A1. Table A1 reports that there were 765,124 

pension plans, consisting of 46,388 defined benefit 

plans and 718,736 defined contribution plans. Due 

to a rounding discrepancy, the sum of defined 

benefit and defined contribution plans does not 

equal the aggregate of the plans. Additionally, some 

individuals participate in two or more plans, so the 

number of individuals covered is lower than the 

number of gross participants. 

TABLE 2—ACCOUNTING STATEMENT—Continued 

Transfers: 

Non-Quantified: 

The Benefits section provides a qualitative description of the 

expected gains to investors; however, the available data 

do not allow the Department to break down those gains 

into component social welfare ‘‘benefits’’ and ‘‘transfers.’’ 

Transfers identified in this analysis include: 

• Lower fees and expenses for participants paid to financial institutions.

• Reallocation of investment capital to different asset 

classes, share classes, or investment products.

• Shifts in the assets in plans and IRAs.

4. Affected Entities 

The table below summarizes the 

estimated number of entities that would 

be affected by the proposed 

amendments to the Rule and each of the 

PTEs. These estimates are discussed in 

greater detail below. 

TABLE 3—AFFECTED FINANCIAL ENTITIES

Prohibited transaction exemptions 

2020–02 75–1 77–4 80–83 86–128 84–24 

Retirement Plans ............................................................. 765,124 765,124 277,390 6,886 1,000 1,722 

Individual Retirement Accounts ....................................... 3,119,832 .................... .................... .................... 210 52,449 

Pooled Employer Plans ................................................... 382 .................... .................... .................... .................... ....................

Pooled Plan Providers ..................................................... 134 .................... .................... .................... .................... ....................

Broker-Dealers ................................................................. 1,894 1,894 .................... .................... .................... ....................

Discretionary Fiduciaries .................................................. .................... .................... .................... .................... 1,894 ....................

Registered Investment Advisers ...................................... 15,982 .................... .................... .................... .................... ....................

Pure Robo-Advisers ......................................................... 200 .................... .................... .................... .................... ....................

Insurance Companies ...................................................... 183 .................... .................... .................... .................... 215 

Captive Insurance Agents and Brokers ........................... 1,577 .................... .................... .................... .................... 1,577 

Insurance Producers ........................................................ .................... .................... .................... .................... .................... 4,000 

Banks ............................................................................... .................... 2,048 .................... 25 .................... ....................

Mutual Fund Companies .................................................. .................... .................... 812 .................... .................... ....................

Investment Company Principal Underwriters .................. 20 .................... .................... .................... .................... 20 

Pension Consultants ........................................................ 1,011 .................... .................... .................... .................... 1,011 

Plans and Participants 

The proposed amendments to the rule 

and related PTEs would affect plans that 

receive investment advice from a 

financial institution. Participants may 

be affected by advice they receive 

directly and by advice that is received 

by their plan’s administrators and 

fiduciaries. As of 2021, there were 

approximately 765,000 private sector 

retirement plans with 146 million 

participants and $13.2 trillion in assets 

that would be affected by these 

proposals. Approximately 46,000 of 

these plans were defined benefit plans, 

with 31 million participants and $3.7 

trillion in assets, and approximately 

719,000 are defined contribution plans 

with 115 million participants and $9.5 

trillion in assets.290 The Department 

recognizes that some plans, such as 

simplified employee pension (SEP) 

plans and Savings Incentive Match Plan 

for Employees IRA (SIMPLE IRA) plans, 

are exempt from filing and are not 

included in these estimates but would 

typically be affected by the proposal. 

The Department expects that 

participants in general would benefit 

from the stronger, uniform standards 

imposed by the proposed amendments 

to the rule and PTEs. 

Participants who receive investment 

advice would be directly affected by the 

proposed amendments, particularly 

participants receiving one-time advice 

as to whether they should roll over their 

retirement savings. These participants 

are discussed in the section on IRA 

owners, below. 

Similarly, plans receiving fiduciary 

investment advice would also be 

directly affected by the proposed 

amendments. The Department believes 

that most of these plan fiduciaries are 

compliant with the existing PTE 2020– 

02. Accordingly, the Department 

expects that plans would be only 

minimally affected by the proposed 

amendments to the rule. The 

Department requests comment on how 

plans currently compliant with PTE 

2020–02 would be affected. As 

amended, PTE 86–128, PTE 84–24, and 

PTE 77–4 would directly affect subsets 

of plans, described below. 

The proposed amendments to PTE 

86–128 would limit the scope of the 

amendment to transactions in which a 

fiduciary uses its fiduciary authority to 

cause the plan or IRA to pay a fee to 

such trustee for effectuating or 

executing securities transactions as an 

agent for the plan. Using 2021 Form 

5500 data, the Department estimates 

that 1,257 unique plans hired service 

providers that denoted on the Schedule 

C that they were a discretionary trustee. 

Further, among these plans, 801 plans 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75931 

291Estimates based on 2021 Form 5500 data. 

292EBSA identified 57,575 new plans in its 2021 

Form 5500 filings, or 7.5 percent of all Form 5500 

pension plan filings. 

293The number of new plans is estimated as: 

1,000 plans × 7.5 percent of plans are new = 75 new 

plans. The number of new IRAs is estimated as: 

10,000 IRAs × 2.1 percent of IRAs are new = 210 

new IRAs. 

294EBSA identified 57,575 new plans in its 2021 

Form 5500 filings, or 7.5 percent of all Form 5500 

pension plan filings. 

295 In 2020, 7 percent of traditional IRAs were 

held by insurance companies. See Investment 

Company Institute, The Role of IRAs in US 

Households’ Saving for Retirement, 2020, 27(1) ICI 

Research Perspective (2021), https://www.ici.org/ 

system/files/attachments/pdf/per27-01.pdf. This 

number has been adjusted downward to 3 percent 

to account for the fact that some transactions are not 

covered by this exemption. 

296 765,124 plans × 7.5 percent of plans are new 

× 3 percent of plans with relationships with 

insurance agents or pension consultants = 1,722 

plans. 

297The Department uses this estimate as a proxy 

for the percent of defined contribution plans that 

have service provider relationships with mutual 

fund companies. See Deloitte & Investment 

Company Institute, Defined Contribution/401(k) Fee 

Study, (August 2014). 

298Based on Form 5500 Data 2000–2010, defined 

benefit plans are approximately 33 percent less 

likely than defined contribution plans to be 

invested in a registered investment company. See 

Sarah Holden, The Economics of Providing 401(k) 

Plans: Services, Fees, and Expenses, Investment 

Company Institute (September 2010). 

299Private Pension Plan Bulletin: Abstract of 2021 

Form 5500 Annual Reports, Employee Benefits 

Security Administration (2023; forthcoming), Table 

A1. There are 765,124 pension plans, of which 

718,736 are defined contribution plans and 46,388 

are defined benefit plans. The number of plans with 

service provider relationships with mutual fund 

companies is estimated as: 718,736 defined 

contribution plans × 37% = 265,932; 46,388 defined 

benefit plans × 24.7% = 11,458. 

300Cerulli Associates, U.S. Retirement EndInvestor 2023: Personalizing the 401(k) Investor 

Experience, Exhibits 5.03 and 5.12. The Cerulli 

Report. 

301 Ibid. Exhibits 5.03 and 5.04. 

302The EBRI database has data on 11.3 million 

IRA accounts owned by 9.2 million individuals. See 

Craig Copeland, EBRI IRA Database: IRA Balances, 

Contributions, Rollovers, Withdrawals, and Asset 

Allocation, 2017 Update, EBRI Issue Brief, no. 513 

(2020). The Department uses this ratio as a proxy 

for the ratio for total IRA accounts to IRA owners 

in the following estimate: (11.3 million IRA 

accounts/9.2 million IRA owners) × 67,781,000 IRA 

owners = 83,252,750 IRA accounts. 

303Pew Charitable Trusts. ‘‘Pew Survey Explores 

Consumer Trend to Roll Over workplace Savings 

Into IRA Plans.’’ Issue Brief. (October 2021), https:// 

www.pewtrusts.org/en/research-and-analysis/issuebriefs/2021/09/pew-survey-explores-consumertrend-to-roll-over-workplace-savings-into-ira-plans. 

304According 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 6.05. The 

Cerulli Report. 

305 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). 

306Estimates for the number of IRAs may include 

some non-retirement accounts such as Health 

Savings Accounts, Archer medical savings 

accounts, and Coverdell education savings 

accounts. See the discussion on Code section 4975 

in the Background section of the preamble for more 

details. 

307According to Cerulli, 49 percent of rollovers 

were mediated by an adviser, while 37 percent were 

self-directed. The remaining 14 percent were planto-plan rollovers. See Cerulli Associates, U.S. 

Retirement-End Investor 2023: Personalizing the 

Continued 

also reported that the discretionary 

trustee provided investment 

management services or received 

investment management fees paid 

directly or indirectly by the plan.291

Based on the range of values (801 and 

1,257), the Department estimates on 

average, 1,000 plans have discretionary 

fiduciaries with full discretionary 

control. As small plans do not file the 

Schedule C, this estimate may be an 

underestimate. The Department requests 

comment on how many plans have 

discretionary fiduciaries with full 

discretionary control and how many 

would continue to rely on PTE 86–128 

under the proposed amendments. 

The Department estimates that of the 

estimated 1,000 plans discussed above, 

7.5 percent are new accounts or new 

financial advice relationships.292 Based 

on these assumptions, the Department 

estimates that 75 plans would be 

affected by the proposed amendments to 

PTE 86–128.293

For PTE 84–24, the Department 

estimates that 7.5 percent of plans are 

new accounts or new financial advice 

relationships 294 and that 3 percent of 

plans will use the exemption for 

covered transactions.295 Based on these 

assumptions, the Department estimates 

that 1,722 plans would be affected by 

the proposed amendments to PTE 84– 

24.296

To estimate the number of plans 

affected by the proposed amendments to 

PTE 77–4, the Department estimated the 

number of plans relying on a mutual 

fund company. The Department does 

not have data on what percentage of 

plans receive fiduciary advice through 

mutual fund companies. A 2013 

Deloitte/ICI survey found that 37 

percent of 401(k) plans have a mutual 

fund company as their service 

provider.297 Based upon ICI analyses 

and Form 5500 data that examines the 

percentage of plans that are invested in 

registered investment companies, the 

Department estimates that 24.7 percent 

of defined benefit plans have mutual 

fund companies as money managers.298

Applying these percentages to the 

universe of pension plans that filed a 

Form 5500 in 2021 yields a total of 

approximately 277,390 plans with 

service provider relationships with 

mutual fund companies.299 Thus, the 

Department estimates that 277,390 plans 

would be affected by the proposed 

amendments to PTE 77–4. The 

Department acknowledges that this 

estimate likely overestimates the 

number of plans affected by the 

proposed amendments. 

Individual Retirement Account (IRA) 

Owners 

The proposed amendments to the rule 

and PTEs 2020–02, 84–24, 75–1, and 

86–128 would also impact IRA owners 

receiving investment advice. According 

to Cerulli Associates, there were 67.8 

million IRA owners holding $11.5 

trillion in assets in 2022.300

Approximately 85 percent of the assets 

are held in traditional IRAs, 10 percent 

in Roth IRAs, and 5 percent in SEP, 

Salary Reduction Simplified Employee 

Pension (SARSEP), and SIMPLE 

IRAs.301 Some owners hold multiple 

IRAs. The Department estimates that the 

number of IRA accounts is 83.3 million 

by applying the ratio of IRA accounts to 

IRA owners observed in EBRI’s 

administrative database.302

The proposed amendments to the rule 

and PTE 2020–02 would affect 

retirement investors who roll over 

money from a plan or IRA into another 

plan or IRA. A 2020 survey found that 

46 percent of recent retirees who had at 

least $30,000 in retirement savings had 

rolled at least some of their savings into 

an IRA.303 According to Cerulli 

Associates, in 2022, almost 4.5 million 

DC plan accounts with $779 billion in 

assets were rolled over into an IRA. 

Additionally, 0.7 million DC plan 

accounts with $66 billion in assets were 

rolled over to other employer-sponsored 

plans.304 It is challenging to obtain 

detailed data on other types of rollovers 

such as IRA-to-IRA and DB plan-to-IRA. 

The Department used IRS data from 

2020 to estimate overall rollovers into 

IRAs, which is 5.7 million taxpayers 

and $618 billion.305 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.306 The 

Department requests comment on these 

estimates. 

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 will be overseen by an 

ERISA fiduciary under the amended 

rule. In 2022, 49 percent of DC plan-toIRA rollovers with 63 percent of DC 

plan rollover assets were intermediated 

by a financial adviser.307 Because the 


lotter on DSK11XQN23PROD with PROPOSALS3
75932 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

401(k) Investor Experience Fostering 

Comprehensive Relationships, Exhibit 6.04. The 

Cerulli Report. 

308The number of affected rollovers is estimated 

as: (6,367,005 × 49%) = 3,119,832. 

309Cerulli Associates, U.S. Retirement EndInvestor 2023: Fostering Comprehensive 

Relationships, The Cerulli Report. 

310The Department lacks data on the number of 

IRA owners that own multiple IRAs. To provide 

scope of magnitude, one source reported that in 

2019, 19 percent of IRA owners contributed to both 

a traditional IRA and Roth IRA. See Investment 

Company Institute, The Role of IRAs in U.S. 

Households’ Saving for Retirement, 2020, 27(1) ICI 

Research Perspective (2021), https://www.ici.org/ 

system/files/attachments/pdf/per27-01.pdf. This 

statistic does not account for individuals who own 

multiple of each type of IRA or those who did not 

contribute in 2019, but it provides a lower bound. 

311 In 2020, 7 percent of traditional IRAs were 

held by insurance companies. See Investment 

Company Institute, The Role of IRAs in U.S. 

Households’ Saving for Retirement, 2020, 27(1) ICI 

Research Perspective (2021), https://www.ici.org/ 

system/files/attachments/pdf/per27-01.pdf. This 

number has been adjusted downward to 3 percent 

to reflect the removal of transactions not covered by 

this exemption.). The number of IRAs affected is 

estimated as: (83,252,750 IRAs × 2.1% IRAs 

assumed to be new IRAs × 3% of IRAs held by 

insurance companies) = 52,449 IRAs. 

312 (10,000 managed IRAs × 2.1 percent of IRAs 

are new) = 210 IRAs. 

313 Department of Labor, Form PR, https://

www.dol.gov/agencies/ebsa/employers-andadvisers/plan-administration-and-compliance/ 

reporting-and-filing/form-pr. 

314The 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. The Department anticipates 

that this understates the true number of PEPs. 

Department assumes that advisers 

intermediating rollovers are ERISA 

fiduciaries, this estimate is an upper 

bound. The Department then applies the 

estimate of 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– 

02.308 The Department requests 

comments on these estimates. 

As amended, PTE 86–128 and PTE 

84–24 would each affect subsets of the 

number of IRAs discussed above. The 

Department’s estimates of the IRAs that 

would be affected by the proposed 

amendments to PTE 86–128 and PTE 

84–24 are discussed below. 

The proposed amendments to PTE 

84–24 would affect new IRA accounts. 

The Department does not have data on 

the number of new IRA accounts that 

are opened each year. However, in 2022, 

of the 67.8 million IRA owners, 1.4 

million, or approximately 2.1 percent, 

opened an IRA for the first time.309 The 

Department used this statistic to 

estimate that 2.1 percent of IRA 

accounts are new each year. The 

Department acknowledges that some 

IRA owners may have multiple IRAs, 

and as such, this statistic may 

underestimate the percentage of new 

IRAs opened.310 Additionally, the 

Department estimates that about 3 

percent of these new IRAs, or 

approximately 52,000 IRAs, would use 

PTE 84–24 for covered transactions.311

The Department requests comments on 

these assumptions, particularly with 

regard to the percent of IRAs that are 

new accounts each year. 

The proposed amendments to PTE 

86–128 would limit the scope of the 

amendment to transactions in which a 

fiduciary uses its fiduciary authority to 

cause the plan or IRA to pay a fee to 

such trustee for effectuating or 

executing securities transactions as an 

agent for the plan, without providing 

investment advice. The Department 

lacks reliable data on the number of 

managed IRAs that would experience 

such a transaction in a given year. For 

the purpose of this analysis, the 

Department assumes that there are 

10,000 managed IRAs. To err on the side 

of caution, the Department assumes that 

all managed IRAs would have a 

relationship with a discretionary 

fiduciary. As discussed above for PTE 

84–24, the Department assumes 2.1 

percent of IRA accounts are new each 

year. This results in an estimate of 210 

managed IRAs that are new accounts or 

new financial advice relationships.312

The Department requests comment on 

these estimates, particularly on the 

number of IRAs that are managed 

accounts. 

These estimates likely overestimate of 

the number of IRA owners that would 

be affected by the proposed 

amendments, since IRA owners would 

only be affected by the proposed rule 

and amendments to PTEs when they 

have a relationship with certain 

financial entities or are conducting 

financial certain transactions, as defined 

by the revised fiduciary definition and 

the conditions for exemptive relief of 

each PTE. In addition to the specific 

requests for comment, the Department 

welcomes general comments on how 

IRAs and rollovers are likely to be 

affected by the proposed amendments. 

Pooled Plan Providers and Pooled 

Employer Plans 

The proposed amendments to PTE 

2020–02 would affect PPPs and PEPs. 

As of August 22, 2023, 134 PPPs had 

filed an initial Form PR Pooled Plan 

Provider Registration (Form PR) and 382 

PEPs were registered with the 

Department, though this number does 

not include all PEPs operating on fiscal 

years whose filing deadline may be 

delayed.313 Due to these data 

limitations, the Department assumes a 

universe of 134 PPPs and 382 PEPs for 

its cost estimate.314

The Department does not have data 

on what percent of PPPs or PEPs would 

be affected by PTE 2020–02. For the 

purposes of this analysis, the 

Department assumes that all PPPS and 

PEPs would be affected. The 

Department requests comment on this 

assumption. 

Summary of Affected Financial Entities 

In its economic analysis for its 2020 

rulemaking, the Department included 

all financial institutions eligible for 

relief on a variety of transactions and 

compensation that may not have been 

covered by prior exemptions in its cost 

estimate. In 2020, the Department 

acknowledged that not all these entities 

will serve as investment advice 

fiduciaries to plans and IRAs within the 

meaning of Title I and the Code. 

Additionally, the Department 

acknowledged that because other 

exemptions are also currently available 

to these entities, it is unclear how 

widely financial institutions will rely 

upon the new exemptions and which 

firms are most likely to choose to rely 

on them. 

This analysis, like the analysis from 

2020, includes all financial institutions 

eligible for relief in its cost estimate. 

These estimates are subject to caveats 

similar to those in 2020. The 

Department requests comments on 

which, and how many, financial 

institutions may rely on each of the 

exemptions, as amended. 

Additionally, the proposed rule 

would expand the definition of a 

fiduciary such that an advice provider 

would be a fiduciary if they make an 

investment recommendation to a 

retirement investor for a fee or 

compensation and any of the following 

circumstances apply: (1) the advice 

provider (directly or indirectly) has 

investment discretion over the 

retirement investor’s assets, (2) the 

advice provider (directly or indirectly) 

provides investment recommendations 

on a regular basis as part of their 

business and the recommendation is 

provided under circumstances 

indicating that it is based on the 

particular needs or individual 

circumstances of the retirement investor 

and may be relied upon by the 

retirement investor as a basis for 

investment decisions that are in the 

retirement investor’s best interest, or (3) 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75933 

315 Generally, a person that meets the definition 

of ‘‘investment adviser’’ under the Investment 

Advisers Act (and is not eligible to rely on an 

enumerated exclusion) must register with the SEC, 

unless they are prohibited from registering under 

Section 203A of the Investment Advisers Act or 

qualify for an exemption from the Act’s registration 

requirement. An adviser precluded from registering 

with the SEC may be required to register with one 

or more state securities authorities. 

316After the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, an investment adviser 

with $110 million or more in regulatory assets 

under management generally registers with the SEC, 

while an investment adviser with less than $110 

million registers with the state in which it has its 

principal office, subject to certain exceptions. For 

more details about the registration of investment 

advisers. See Securities and Exchange Commission, 

General Information on the Regulation of 

Investment Advisers, (March 11, 2011), https://

www.sec.gov/investment/divisionsinvestmentia

regulationmemoiahtm; North American Securities 

Administrators Association, A Brief Overview: The 

Investment Adviser Industry, (2019), 

www.nasaa.org/industry-resources/investmentadvisers/investment-adviser-guide/. 

317North American Securities Administrators 

Association, 2018 Investment Adviser Section 

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

318 Investment Adviser Association, 2019 

Investment Management Compliance Testing 

Survey, (June 18, 2019), https://higherlogic

download.s3.amazonaws.com/

INVESTMENTADVISER/aa03843e-7981-46b2-aa49- 

c572f2ddb7e8/UploadedImages/about/190618_

IMCTS_slides_after_webcast_edits.pdf. 

319North American Securities Administrators 

Association, NASAA 2019 Investment Adviser 

Section Annual Report, (May 2019), 

www.nasaa.org/wp-content/uploads/2019/06/2019- 

IA-Section-Report.pdf. 

320Estimates are based on the SEC’s FOCUS 

filings and Form ADV filings. 

321The Department applied this exclusion rule 

across all types of investment advisers, regardless 

of registration (SEC-registered versus state only) and 

retail status (retail versus nonretail). 

322Estimates are based on the SEC’s FOCUS 

filings and Form ADV filings. 

323 In December 2018, 125 of the state-registered 

investment advisers were also registered with the 

SEC and 204 were dually registered as brokerdealers. See Form CRS Relationship Summary; 

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

2019). 

324Cerulli Associates, U.S. RIA Marketplace 

2022: Expanding Opportunities to Support 

Independence, Exhibit 5.10. The Cerulli Report. 

325The number of registered investment advisers 

is estimated as: [(14,389 SEC-registered investment 

advisers + 15,579 state-registered investment 

advisers) × 54%] = 16,182 registered investment 

advisers. 

326For more information on this estimate, refer to 

the Robo-Advisers discussion in the Affected 

Entities section. 

327As discussed below, the Department estimates 

that there are 200 pure robo-advisers. Accordingly, 

the Department estimates that 15,982 registered 

investment advisers would be affected by the 

proposed amendments and are not pure roboadvisers. The number of registered investment 

advisers is estimated as: [(14,389 SEC-registered 

investment advisers + 15,579 state-registered 

investment advisers) × 54%]¥200 robo-advisers = 

15,982 registered investment advisers. 

328 Investment Adviser Association, SEC 

Standards of Conduct Rulemaking: What It Means 

for RIAs, IAA Legal Staff Analysis (July 2019), 

https://higherlogicdownload.s3.amazonaws.com/

INVESTMENTADVISER/aa03843e-7981-46b2-aa49- 

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

329 Deloitte. ‘‘The Expansion of Robo-Advisory in 

Wealth Management.’’ (2016). 

330 Jill E. Fisch, Marion Laboure, & John A. 

Turner, The Emergence of the Robo-advisor, 

Wharton Pension Research Council Working Papers 

(2018). 

331Cerulli Associates, U.S. Retail Investor Advice 

Relationships 2022: Rethinking the Advice 

Continuum, Exhibit 3.02. The Cerulli Report. 

the advice provider represents or 

acknowledges they are a fiduciary when 

making investment recommendations. 

Registered Investment Advisers 

Registered investment advisers 

providing investment advice to 

retirement plans or retirement investors 

and registered investment advisers 

acting as pension consultants would be 

directly affected by the proposed 

amendments to PTE 2020–02. Generally, 

investment advisers must register with 

either the SEC or with state securities 

authorities, as appropriate.315

Investment advisers registered with 

the SEC are generally larger than stateregistered investment advisers, both in 

staff and in regulatory assets under 

management.316 For example, according 

to one report, 64 percent of stateregistered investment advisers manage 

assets under $30 million while 

investment advisers must register with 

the SEC if they manage assets of $110 

million or more.317 In addition, 

according to one survey of SECregistered investment advisers, about 47 

percent of SEC-registered investment 

advisers reported 11 to 50 employees.318

In contrast, an examination of stateregistered investment advisers reveals 

about 80 percent reported less than two 

employees.319

As of December 2021, there were 

14,714 SEC-registered investment 

advisers, of which 9,254 provided 

advice to retail investors while 5,460 

provided advice to non-retail investors. 

Of the 14,714 SEC-registered investment 

advisers, 325 were dual-registered as 

broker-dealers.320 To avoid double 

counting when estimating compliance 

costs, the Department counted dually 

registered firms as broker-dealers and 

excluded them from the count of 

registered investment advisers.321

Therefore, the Department estimates 

there to be 14,389 SEC-registered 

investment advisers. 

Additionally, as of December 2021, 

there were 15,987 state-registered 

investment advisers, of which 283 are 

dually registered as a broker-dealer.322

In 2018, 125 state-registered investment 

advisers were also registered with the 

SEC.323 To avoid double counting, the 

Department counted dually registered 

firms as broker-dealers and excluded 

them from the count of state-registered 

investment advisers. Similarly, the 

Department counted investment 

advisers registered with the SEC and a 

state as SEC-registered investment 

advisers. Accordingly, for the purposes 

of this analysis, the Department 

considers 15,579 state-registered 

investment advisers. 

In 2021, 54 percent of registered 

investment advisers provided employersponsored retirement benefits 

consulting.324 Based on this statistic, the 

Department estimates that 16,182 

registered investment advisers, 

including 7,770 SEC-registered 

investment advisers and 8,412 stateregistered investment advisers state, 

would be affected by the proposed 

amendments.325

As discussed in the Baseline section, 

PTE 2020–02 excludes investment 

advisers providing pure robo-advice. 

The proposed amendments would 

include these entities; however, pure 

robo-advisers would have a different 

baseline from registered investment 

advisers currently under PTE 2020–02. 

As discussed below, the Department 

estimates that there are 200 pure roboadvisers.326 Accordingly, the 

Department estimates that 15,982 

registered investment advisers who do 

not provide pure robo-advice are 

currently eligible for relief under PTE 

2020–02.327

The Department does not have data 

on how many of these firms provide 

advice only to retirement investors that 

are plan participants, plan beneficiaries, 

or IRA owners, rather than the 

workplace retirement plans themselves. 

These firms are fiduciaries under the 

Investment Advisers Act and already 

operate under standards broadly similar 

to those required by PTE 2020–02.328

Robo Advisers 

The proposed changes to PTE 2020– 

02 would make investment advice 

providers providing pure robo-advice 

eligible for relief under the exemption. 

While there has been a significant 

increase in robo-advice in recent 

years,329 the market for robo-advice has 

shifted away from pure robo-advice to a 

hybrid approach which combines 

features of robo-advisers and traditional 

human advisers.330 This is partly driven 

by investor preference. For instance, one 

survey found that only 45 percent of 

investors were comfortable using online 

only advice services.331 Another driver 

is larger financial institutions entering 

the market with hybrid robo-advice. 


lotter on DSK11XQN23PROD with PROPOSALS3
75934 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

332 Jill E. Fisch, Marion Laboure, & John A. 

Turner, The Emergence of the Robo-Advisor, 

Wharton Pension Research Council Working Papers 

(2018). 

333Andrew Welsch, Robo-Advisors Changed 

Investing. But Can They Survive Independently, 

Barron’s (February 2022), https://www.barrons.com/ 

articles/robo-advisors-changed-investing-but-canthey-survive-independently-51645172100. 

334SEC, Investor Bulletin: Robo-Advisers, 

(February 23, 2017), https://www.sec.gov/oiea/ 

investor-alerts-bulletins/ib_robo-advisers. 

335 Jonathan W. Lam, Robo-Advisors: A Portfolio 

Management Perspective, (April 2016). https://

economics.yale.edu/sites/default/files/2023-01/

Jonathan_Lam_Senior%20Essay%20Revised.pdf. 

336Facundo Abraham, Sergio L. Schmukler, & 

Jose Tessada, Robo-advisors: Investing Through 

Machines, World Bank Research and Policy Briefs 

134881 (2019). 

337Estimates are based on the SEC’s FOCUS 

filings and Form ADV filings. 

338Cerulli Associates, U.S. RIA Marketplace 

2022: Expanding Opportunities to Support 

Independence, Exhibit 5.10. The Cerulli Report. 

339The estimated of retail broker-dealers affected 

by this exemption is estimated as: (2,447 retail 

broker-dealers × 54%) = 1,321 retail broker dealers. 

The estimated number of non-retail broker-dealers 

affected by this exemption is estimated as: (1,061 

non-retail broker-dealers × 54%) = 573 non-retail 

broker dealers. The estimated number of total 

broker-dealers is 1,894 (1,321 + 573). 

340SEC Commission Interpretation Regarding the 

Solely Incidental Prong of the Broker-Dealer 

Exclusion From the Definition of Investment 

Adviser, 84 FR 33681, 33685–86 (July 12, 2019). 

While the first robo-advisers were standalone firms, many existing financial 

firms, including banks, broker-dealers, 

technology firms, and asset managers, 

have entered the market,332 many by 

acquiring existing pure robo-advice 

platforms.333

Robo-advisers offer varying services 

and different degrees of hands-on 

assistance.334 The most basic models 

use computer algorithms to offer 

investments deemed appropriate in 

terms of asset allocation and 

diversification based on the information 

supplied by the client on opening an 

account. These investments typically 

include low-cost mutual funds and 

exchange traded funds (ETFs), and 

automatically invest and rebalance 

funds based on a specified objective or 

risk tolerance. Most robo-advisers offer 

advice concerning taxable accounts and 

IRA accounts. The nature of robo-advice 

appeals to different investors than 

traditional investment advice does. 

While traditional advisers often target 

older investors with high net worth, 

robo-advice providers or other low-cost 

investment firms tend to attract young, 

technology-savvy investors with low 

balances.335

According to one source, there were 

200 robo-advisers in the United States 

in 2017.336 Robo-advisers are typically 

required to register with the SEC or state 

authorities. For the purposes of this 

analysis, the Department estimates that 

there are 200 pure robo-advisers that 

would be subject to the amended PTE 

2020–02 that are not subject to the 

current PTE 2020–02. The Department 

requests comment on how the number 

of robo-advisers in the market has 

evolved since 2017, what proportion of 

robo-advisers provide pure versus 

hybrid robo-advice, and what 

proportion of pure robo-advisers are 

likely to rely on the amended PTE 

2020–02. The Department also requests 

comment on whether robo-advisers 

operate as registered investment 

advisers, or if they can also operate as 

broker-dealers. 

Broker-Dealers 

The proposed amendments would 

modify PTE 75–1 such that brokerdealers would no longer be able to rely 

on the exemption for investment advice. 

The Department does not have 

information about how many of these 

firms provide investment advice to plan 

fiduciaries, plan participants and 

beneficiaries, and IRA owners. 

Under PTE 75–1, broker-dealers 

would still be able to receive reasonable 

compensation for extending credit to a 

plan or IRA to avoid a failed purchase 

or sale of securities involving the plan 

or IRA if (1) the potential failure of the 

purchase or sale of the securities is not 

caused by such fiduciary or an affiliate, 

and (2) the terms of the extension of 

credit are at least as favorable to the 

plan or IRA as the terms available in an 

arm’s length transaction between 

unaffiliated parties. Any broker-dealers 

seeking relief for investment advice, 

however, would be required to rely on 

the amended PTE 2020–02. 

According to data provided by the 

SEC, there were 3,508 registered brokerdealers as of December 2021. Of those, 

approximately 70 percent, or 2,447 

broker-dealers, reported retail customer 

activities, while approximately 30 

percent, or 1,061 broker-dealers, were 

estimated to have no retail customers.337

Not all broker-dealers perform 

services for employee benefit plans. In 

2021, 54 percent of registered 

investment advisers provided employersponsored retirement benefits 

consulting.338 Assuming the percentage 

of broker-dealers provide advice to 

retirement plans is the same as the 

percent of investment advisers 

providing services to plans, the 

Department assumes 54 percent, or 

1,894 broker-dealers, would be affected 

by the proposed amendments.339 The 

Department requests comment on this 

estimate. 

Discretionary Fiduciaries 

The proposed amendments to PTE 

86–128 would affect investment advice 

fiduciaries. The proposed amendments 

would remove provisions that had 

provided relief for certain plans not 

covering employees, such as IRAs. 

Investment advice fiduciaries to IRAs 

would, instead, have to rely on another 

exemption, such as PTE 2020–02. While 

fiduciaries that exercise full 

discretionary authority or control with 

respect to IRAs may continue to rely on 

the exemption, the proposed 

amendments to PTE 86–128 would 

impose additional requirements on 

fiduciaries of employee benefits plans 

that affect or execute securities 

transactions and the independent plan 

fiduciaries authorizing the plan or IRA 

to engage in the transactions with an 

authorizing fiduciary. 

The Department lacks reliable data on 

the number of investment advice 

providers who are discretionary 

fiduciaries that would rely on the 

amended exemption. For the purposes 

of this analysis, the Department assumes 

that the number of discretionary 

fiduciaries relying on the exemption is 

no larger than the estimated number of 

broker-dealers estimated to be affected 

by the amendments to PTE 2020–02, or 

1,894 investment advice providers 

while acknowledging the number is 

likely significantly smaller.340

The Department requests comment on 

this assumption, particularly with 

regard to what types of entities would 

be likely to rely on the amended 

exemption, as well as any underlying 

data. 

Insurance Companies 

The proposed amendments to PTE 

2020–02 and PTE 84–24 would affect 

insurance companies and captive 

agents. 

The existing version of PTE 84–24 

granted relief for captive insurance 

agents, insurance agents who are 

overseen by a single insurance 

company; however, the proposed 

amendments would exclude insurance 

companies and captive agents currently 

relying on the exemption for investment 

advice. These entities would be required 

to comply with the requirements of PTE 

2020–02 for relief involving investment 

advice. As a result, the estimates for 

PTE 84–24 discussed below likely 

overestimate the reliance on the 

exemption. The Department requests 

comment on the extent to which entities 

currently relying on PTE 84–24 would 

continue to rely on the exemption. 

Insurance companies are primarily 

regulated by states and no single 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75935 

341This estimate is based on 2014 data from SNL 

Financial on life insurance companies reported 

receiving either individual or group annuity 

considerations. 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. 

342LIMRA, Preliminary U.S. Annuity Second 

Quarter 2023 Sales Estimates, (2023), https://

www.limra.com/siteassets/newsroom/fact-tank/ 

sales-data/2023/q2/2q-2023-prelim-annuity-salesestimates-_final.pdf. 

343Cerulli Associates, U.S. Annuity Markets 2021: 

Acclimating to Industry Trends and Changing 

Demand, Exhibit 1.06. The Cerulli Report. 

344See Ramnath Balasubramanian, Rajiv Dattani, 

Asheet Mehta, & Andrew Reich, Unbundling Value: 

How Leading Insurers Identify Competitive 

Advantage, McKinsey & Company (June 2022), 

https://www.mckinsey.com/industries/financialservices/our-insights/unbundling-value-howleading-insurers-identify-competitive-advantage; 

Sheryl Moore, The Annuity Model Is Broken, Wink 

Intel (June 2022), https://www.winkintel.com/2022/ 

06/the-annuity-model-is-broken-reprint/. 

345According to the Insurance Information 

Institute, in 2022, independent broker dealers 

accounted for 20 percent of individual annuities 

sales, independent agents accounted for 18 percent 

of sales, career agents accounted for 15 percent of 

sales, banks accounted for 24 of sales, full-service 

national broker-dealers accounted for 17 percent of 

sales, direct response accounted for 3 percent of 

sales, and other methods accounted for 2 percent 

of sales. For the purposes of this analysis, the 

Department considers those sales made by career 

agents and full-service national broker-dealers to be 

‘‘captive,’’ and those made by independent brokerdealers and independent agents to be 

‘‘independent.’’ To estimate the proportion of sales 

completed through ‘‘captive’’ and ‘‘independent’’ 

channels, the Department excludes the 6% of sales 

associated with direct response and ‘‘other 

methods’’ from the calculation. The Department 

assumes that 46 percent of sales by banks are 

captive, while 54% of sales by banks are 

independent. See Insurance Information Institute, 

Facts + Statistics: Distribution Channels, (2023), 

https://www.iii.org/fact-statistic/facts-statisticsdistribution-channels. 

346The number of insurance companies using 

captive distribution channels is estimated as 398 × 

46% = 183 insurance companies. The number of 

insurance companies using independent 

distribution channels is estimated as 398¥183 = 

215 insurance companies. 

347LIMRA estimates that, in 2016, 70 insurers 

had more than $38.5 million in sales. See LIMRA 

Secure Retirement Institute, U.S. Individual 

Annuity Yearbook: 2016 Data, (2017). 

348The number of large insurance companies 

using a captive distribution channel is estimate as: 

70 large insurance companies × 46% = 32 insurance 

companies. The number of small insurance 

companies using a captive distribution channel is 

estimated as: 183 insurance companies¥32 large 

insurance companies = 151 small insurance 

companies. 

349The number of large insurance companies 

using an independent distribution channel is 

estimate as: 70 large insurance companies × 54% = 

38 insurance companies. The number of small 

insurance companies using a captive distribution 

channel is estimated as: 215 insurance 

companies¥38 large insurance companies = 177 

small insurance companies. 

regulator records a nationwide count of 

insurance companies. Although state 

regulators track insurance companies, 

the total number of insurance 

companies cannot be calculated by 

aggregating individual state totals, 

because individual insurance 

companies often operate in multiple 

states. In the Department’s 2016 RIA, it 

estimated that 398 insurance companies 

wrote annuities.341 The Department 

continues to use this estimate although 

the number may have changed during 

the intervening years. Furthermore, this 

may be an overestimate because some of 

these insurance companies may not sell 

annuity contracts in the IRA or Title I 

retirement plan markets. The 

Department requests information on the 

number of insurance companies 

underwriting annuities that would be 

affected by this proposal. 

Annuity sales reached record highs in 

2022. Total annuity sales in 2022 

amounted to $312.8 billion, while 

indexed annuity sales amounted to 

$79.8 billion, or approximately 26% of 

total annuity sales. During the first two 

quarters of 2023, indexed annuity sales 

accounted for 27% of total annuity 

sales.342

Recent legislative developments may 

lead to an expansion in this market. A 

2021 survey asked insurers what 

impacts they expected to see from the 

Setting Every Community Up for 

Retirement Enhancement Act of 2019 

(the SECURE Act). It found that 58 

percent of insurers thought the SECURE 

Act would result in a significant 

increase in the number of plan sponsors 

offering in-plan annuities, and 63 

percent of insurers thought the SECURE 

Act would lead to a significant increase 

in the number of plan participants 

allocating a portion of their plan 

balances to an annuity option.343 With 

increasing usage of annuities in plans, 

the future impact on plans, participants, 

assets, and insurance companies will be 

greater. It also increases the need for 

plan fiduciaries to receive advice that is 

subject to a best interest standard. 

Insurance companies sell insurance 

products through (1) their employees or 

‘‘captive insurance agents’’ that work 

directly for an insurance company or as 

independent contractors and 

exclusively sell the insurance 

company’s products, and/or (2) 

independent agents that sell multiple 

insurance companies’ products. In 

recent years, the market has seen a shift 

away from captive distribution towards 

independent distribution.344

The Department does not have strong 

data on the number of insurance 

companies using captive agents or 

independent producers. Based on data 

on the sales of individual annuities by 

distribution channel, the Department 

estimates that, of annuities distributed 

through either a captive or independent 

distribution channel, approximately 46 

percent of sales are done through 

captive distribution channels and 54 

percent of sales are done through 

independent distribution channels.345

For the purpose of this analysis, the 

Department assumes that the number of 

companies selling annuities through 

captive distribution channels and 

independent distribution channels is 

proportionate to the sales completed by 

each distribution channel. The 

Department recognizes that the 

distribution of sales by distribution 

channel is likely different from the 

distribution of insurance companies by 

distribution channel. The Department 

requests comment on how many 

insurance companies sell annuities 

through captive and independent 

distribution channels. The Department 

also requests comment on whether how 

many insurance companies may rely on 

both methods of distribution. 

Following from this assumption, the 

Department estimates that 183 

insurance companies distribute 

annuities through captive channels and 

would rely on PTE 2020–02 for 

transactions involving investment 

advice. Further, the Department 

estimates that 215 insurance companies 

distribute annuities through 

independent channels and would rely 

on PTE 84–24 for transactions involving 

investment advice.346

The Department estimates that 70 of 

the 398 insurance companies are large 

entities.347 In the absence of data 

relating to the distribution channel 

differences by firm size, the Department 

uses the aggregate rate in its estimates. 

That is, the Department assumes that 46 

percent of large insurance companies 

(32 insurance companies) sell annuities 

through captive distribution channels, 

while the remaining 151 insurance 

companies distributing annuities 

through captive channels are assumed 

to be small.348 Additionally, 54 percent 

of large insurance companies (38 

insurance companies) sell annuities 

through independent distribution 

channels, while the remaining 177 

insurance companies selling annuities 

through independent distribution 

channels are assumed to be small.349

The Department requests comment on 

this assumption. 

Independent Producers 

The proposal would also affect 

independent insurance producers that 

recommend annuities from unaffiliated 


lotter on DSK11XQN23PROD with PROPOSALS3
75936 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

350 Insurance Information Institute, Facts + 

Statistics: Distribution Channels—Sales of 

Individual Annuities By Distribution Channels, 

2018 and 2022, https://www.iii.org/fact-statistic/ 

facts-statistics-distribution-channels. LIMRA: 

Record Annuity Sales in 2022 Expected to Continue 

Into First Quarter 2023, (March 8, 2023). https://

www.limra.com/en/newsroom/news-releases/2023/ 

limra-record-annuity-sales-in-2022-expected-tocontinue-into-first-quarter-2023/#:∼:text=LIMRA

%20data%20show%20there%20was,

117%25)%20to%20%2421.8%20billion. 

351Annemarie McPherson Spears, 7 Findings 

From the 2022 Agency Universe Study, (October 13, 

2022), https://www.iamagazine.com/news/7- 

findings-from-the-2022-agency-universe-study?__

hstc=79369803.5fd6a87d75ca95f942e9dc

33fed281b9.1691447156981.1691447

156981.1691447156981.1&__hssc=7936

9803.3.1691447156981&__hsfp=2180945085. 

352 Internal Department of Labor calculations 

based on the number of unique service providers 

listed as pension consultants on the 2021 Form 

5500 Schedule C. This could be an underestimate 

as only plans with one hundred or more 

participants need to file a Schedule C and then only 

for service providers paid more than $5,000 during 

the plan year. To the extent small plans use 

different pension consultants the number would be 

underestimated. 

353Federal 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. 

354National Credit Union Administration, 

Quarterly Credit Union Data Summary 2023 Q2, 

https://ncua.gov/files/publications/analysis/ 

quarterly-data-summary-2023-Q2.pdf. 

355 GAO, 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. 

financial institutions to retirement 

investors, as well as the financial 

institutions whose products are 

recommended. While captive insurance 

agents are employees of an insurance 

company, other insurance agents are 

‘‘independent’’ and work with multiple 

insurance companies. Though these 

independent insurance producers may 

rely on PTE 2020–02, the Department 

believes they are more likely to rely on 

PTE 84–24, which is tailored to the 

industry under the proposal. For this 

reason, the Department only considers 

captive insurance agents in the analysis 

for PTE 2020–02. The Department 

requests comment on how captive 

insurance agents and independent 

insurance producers would be affected 

by the proposed amendments to PTE 

2020–02 and PTE 84–24. 

The Department estimates that the 

independent agent distribution channel 

has sales of about $56 billion since this 

channel is 18 percent of individual 

annuity sales and total U.S. annuity 

sales reached $312.8 billion in 2022.350

It is challenging to estimate the 

number of independent producers 

selling annuities to the retirement 

market. A new release referencing a 

study reported that there were 

approximately 40,000 independent 

property-casualty agents and brokers in 

the United States.351 The Department 

assumes that the number of 

independent producers selling annuities 

to the retirement market who would use 

the exemption under its proposed 

provisions would be about 10 percent of 

this figure, or 4,000 independent 

producers. This assumption is based on 

anecdotal evidence. The Department 

requests comment on these 

assumptions, as well as information as 

to how much of an independent 

producer’s business focuses on the 

retirement market (i.e., the shares of 

independent producers serving the 

retirement market that receive less than 

one percent of their sales from the 

retirement market, between one and 

twenty-five percent, between twentyfive and seventy-five percent, or more 

than seventy-five percent). 

The proposed amendments would not 

impose any conditions on insurance 

intermediaries, such as independent 

marketing organizations, field marketing 

organizations, or brokerage general 

agencies. These entities do not have 

supervisory obligations over 

independent insurance producers under 

state or federal law that are comparable 

to those of the other entities, such as 

insurance companies, banks, and 

broker-dealers, nor do they have a 

history of exercising such supervision in 

practice. They are generally described as 

wholesaling and marketing and support 

organizations that are not tasked with 

ensuring compliance with regulatory 

standards. In addition, they are not 

subject to the sort of capital and 

solvency requirements imposed on 

state-regulated insurance companies 

and banks. 

Pension Consultants 

The Department expects that pension 

consultants would continue to rely on 

the existing PTE 84–24. Based on 2021 

Form 5500 data, the Department 

estimates that 1,011 pension consultants 

serve the retirement market.352

The proposed amendment would 

exclude pension consultants for plans 

and IRAs currently relying on the 

existing PTE 84–24 for investment 

advice. As such, any pension 

consultants relying on the existing 

exemption for investment advice would 

be required to comply with PTE 2020– 

02 for relief. In this analysis, the 

Department includes pension 

consultants in the affected entities for 

continued relief for the existing 

provisions of PTE 84–24 as well as the 

amended PTE 2020–02. The Department 

acknowledges that this approach likely 

overestimates the entities and related 

costs to complying with the exemptions. 

The Department requests comment on 

whether pension consultants would 

continue to rely on the existing 

provisions of 84–24 or would rely on 

the amended 2020–02. 

Principal Company Underwriter 

The Department expects that some 

investment company principal 

underwriters for plans and IRAs rely on 

the existing PTE 84–24 for advice. The 

Department does not have data allowing 

it to estimate how many investment 

company principal underwriters would 

choose to rely on the exemption, but 

based on its experience, the Department 

expects investment company principal 

underwriters relying on PTE 84–24 to be 

rare. For the purposes of this analysis, 

the Department assumes that 10 

investment company principal 

underwriters for plans and 10 

investment company principal 

underwriters for IRAs would use this 

exemption once with one client plan. 

The proposed amendment would 

exclude investment company principal 

underwriters for plans and IRAs 

currently relying on the existing PTE 

84–24 for investment advice. As such, 

any principal company underwriter 

relying on the existing exemption for 

investment advice would be required to 

comply with PTE 2020–02 for relief. In 

this analysis, the Department includes 

principal company underwriters in the 

affected entities for continued relief for 

the existing provisions of PTE 84–24 as 

well as the amended PTE 2020–02. 

The Department acknowledges that 

this approach likely overestimates the 

entities and related costs to complying 

with the exemptions. The Department 

requests comment on whether principal 

company underwriters would continue 

to rely on the existing provisions of 84– 

24 or would rely on the amended 2020– 

02. 

Banks and Credit Unions 

The proposed amendments to PTE 

75–1, PTE 80–83, and PTE 2020–02 

would affect banks and credit unions. 

There are 4,672 federally insured 

depository institutions in the United 

States, consisting of 4,096 commercial 

banks and 576 savings institutions.353

Additionally, there are 4,686 federally 

insured credit unions.354 In 2017, the 

GAO estimated that approximately two 

percent of credit unions have private 

deposit insurance.355 Based on this 

estimate, the Department estimates that 

there are approximately 96 credit 

unions with private deposit insurance 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75937 

356The 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. 

357For 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. 

358 Investment Company Institute, 2023 

Investment Company Fact Book: A Review of 

Trends and Activities in the Investment Company 

Industry, (2023), https://www.ici.org/system/files/ 

2023-05/2023-factbook.pdf. 

and 4,782 credit unions in total.356 The 

Department requests comment on what 

proportion of credit unions offer IRAs 

and what proportion sell share 

certificate products. The Department 

also requests comment on how many 

banks and credit unions currently rely 

on PTE 2020–02, PTE 75–1, and PTE 

80–83 for investment advice. 

The proposed amendments would 

exclude entities currently relying on the 

existing PTE 75–1 and PTE 80–83 for 

investment advice. The Department 

does not have a reliable data source on 

how many banks currently rely on these 

exemptions. PTE 75–1 allows banks to 

engage in certain classes of transactions 

with employee benefit plans and IRAs. 

The Department assumes that half of 

these banks, or 2,048 banks would use 

PTE 75–1. As amended. PTE 80–83 

allows banks to purchase, on behalf of 

employee benefit plans, securities 

issued by a corporation indebted to the 

bank that is a party in interest to the 

plan. The Department estimates that 25 

fiduciary-banks with public offering 

services would rely annually on the 

amended PTE 80–83. The Department 

requests comment on how many banks 

currently rely on PTE 75–1 and PTE 80– 

83 and how many of these entities rely 

on the exemptions for relief concerning 

investment advice. 

Banks relying on the existing 

exemptions for investment advice 

would be required to comply with PTE 

2020–02 for relief for advice. Banks 

would be permitted to act as financial 

institutions under PTE 2020–02 if they 

or their employees are investment 

advice fiduciaries with respect to 

retirement investors. 

The Department understands that 

banks most commonly use ‘‘networking 

arrangements’’ to sell retail non-deposit 

investment products, including equities, 

fixed-income securities, exchangetraded funds, and variable annuities.357

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. The Department believes 

that, in most cases, such referrals would 

not constitute fiduciary investment 

advice within the meaning of the 

proposal. The Department, however, 

also requests comment on what other 

types of activities banks or credit unions 

may engage in that would require 

reliance on PTE 2020–02. 

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 

does not have sufficient data to estimate 

the costs to banks or credit unions of 

complying with PTE 2020–02 for 

investment advice services because it 

does not know 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 employees 

recommend their 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. 

Mutual Fund Companies 

The proposed amendments would 

modify PTE 77–4 such that mutual fund 

companies providing services to plans 

can no longer rely on the exemption 

when giving investment advice. Under 

the proposal, these mutual funds would 

need to rely on PTE 2020–02 for relief 

concerning investment advice. 

According to the ICI, in 2022, there 

were 812 mutual fund companies.358

The Department assumes that all of 

these companies are service providers to 

pension plans, providing investment 

management services. 

Mortgage Pool Sponsors 

PTE 83–1 provides relief for the sale 

of certificates in an initial issuance of 

certificates by the sponsor of a mortgage 

pool to a plan or IRA when the sponsor, 

trustee, or insurer of the mortgage pool 

is a fiduciary with respect to the plan or 

IRA assets invested in such certificates. 

The proposed amendments would 

modify PTE 83–1 to exclude exemptive 

relief for investment advice. Under the 

proposal, these entities would need to 

rely on PTE 2020–02 for relief 

concerning investment advice. The 

Department requests comment on how 

many of these entities currently rely on 

PTE 83–1 and how many of these 

entities rely on PTE 83–1 for investment 

advice. 

5. Benefits and Transfers 

The Department believes that, as a 

result of this proposal, retirement 

investors would achieve higher net 

returns on average in the long run by 

selecting better investments or paying 

lower fees. More specifically, this 

proposal would generate economic 

gains for retirement investors by: 

• increasing uniformity in the 

regulation of financial advice for 

retirement investors, across different 

market segments and market 

participants, 

• protecting consumers from losses 

that can result from advisory conflicts of 

interest (without unduly limiting 

consumer choice or adviser flexibility), 

• giving retirement investors 

increased trust and confidence in their 

advisers and in the reliability of their 

advice, and 

• facilitating more efficient capital 

allocation. 

These represent gains to investors, 

which may manifest as pure social 

welfare ‘‘benefits,’’ as some resources 

that were previously inefficiently used 

to acquire financial products and 

services are now available for more 

valuable uses. Other improvements may 

take the form of ‘‘transfers’’ of social 

welfare to retirement investors from 

other entities in society. The available 

data do not allow the Department to 

quantify the gains to investors or the 

components social welfare ‘‘benefits’’ 

and ‘‘transfers.’’ These transfers 

represent a beneficial gain to retirement 

investors and are a primary objective of 

the proposed rule and PTE. 

If some transactions have increased 

net returns for certain parties and 

decreased returns of equal magnitude 

for other parties, that would represent a 

transfer. If the increase in net returns for 

the first group is larger than the 

corresponding decrease for the second 

group, then only the equivalent portion 

would be transfers and the amount of 

the additional net returns would 

represent benefits. For example, nonVerDate Sep<11>2014 21:24 Nov 02, 2023 Jkt 262001 PO 00000 Frm 00049 Fmt 4701 Sfmt 4702 E:\FR\FM\03NOP3.SGM 03NOP3

lotter on DSK11XQN23PROD with PROPOSALS3
75938 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

359Alec Smith, Advisers, Brokers, and Online 

Platforms: How a Uniform Fiduciary Duty Will 

Better Serve Investors, 2017(3) Colum. Bus. L. Rev. 

1200–1243 (2017), https://doi.org/10.7916/

cblr.v2017i3.1730. 

360 Ibid. 

361Santosh Anagol, Shawn Cole & Shayak Sarkar, 

Understanding the Advice of CommissionsMotivated Agents: Evidence from the Indian Life 

Insurance Market, 99(1) The Review of Economics 

and Statistics 1–15, (2015), https://doi.org/10.1162/ 

REST_a_00625. 

362The Department identifies these areas as areas 

of concern because non-security investments and 

investment advice from broker-dealers to ERISA 

plan fiduciaries are not covered by recent SEC 

actions and pure robo-advice, while included in the 

SEC’s actions was excluded from the current PTE 

2020–02. For more information, refer to the 

Baseline discussion. 

363BrightScope and Washington, DC: Investment 

Company Institute. The BrightScope/ICI Defined 

Contribution Plan Profile: A Close Look at 401(k) 

Plans, 2019 (San Diego, CA: 2022). Available at 

retirement investors may have 

previously experienced lower prices 

and higher returns resulting from timing 

errors of retirement investors due to 

conflicted advice. As those conflicts are 

removed, those transactions may not 

occur, leading to a transfer from nonretirement investors to retirement 

investors. Moreover, it is possible that 

the financial industry would forego 

profits (e.g., as a result of conflicted 

advisers charging retirement investors 

lower fees), resulting in a transfer from 

investment advisers and associated 

service providers to retirement 

investors. 

As detailed later in this RIA, the 

magnitude of the gains to retirement 

investors, through benefits or transfers, 

is uncertain. As noted earlier, advisory 

conflicts—which this proposal, in 

harmony with federal securities laws, 

would mitigate—are very costly for 

retirement investors. The cost is high 

both on aggregate and for individual 

retirement investors, such as when a 

new retiree adheres to conflicted advice 

to transfer a career’s-worth of 401(k) 

savings into an over-priced annuity or a 

high-risk investment. 

Both the Department’s 2016 RIA and 

the SEC’s Regulation Best Interest 

analyses show that investors stand to 

gain much from the mitigation of 

advisory conflicts. This RIA provides a 

mainly qualitative discussion of the 

benefits of this proposal. The 

Department invites comments and data 

related to how it might quantify these 

benefits as part of the RIA of any final 

rule. 

Regulatory Uniformity 

This proposal would make the rules 

that govern fiduciary advice to plan and 

IRA investors more consistent with 

federal securities laws, and thereby 

promote clarity and efficiency. Under 

the current regulatory regime, bad actors 

are drawn to those markets with the 

least regulated products, where they are 

not required to prioritize retirement 

investors interest over their own when 

they make investment 

recommendations. By harmonizing 

advice regulations across all markets 

that are used by retirement investors, 

the Department can ensure that advisers 

all face the same regulatory standard. It 

would also remove incentives for 

investment advisers to steer 

recommendations in ways that 

customers cannot monitor and that run 

counter to the customers’ best interest. 

When contemplating a potential 

‘‘Financial Adviser Reform Act’’ that 

would ‘‘be uniform in its application of 

the fiduciary duties of loyalty and care 

across all financial advisers,’’ Smith 

(2017) noted that, ‘‘this uniformity 

would eliminate the ‘false distinction’ 

between investment service providers 

by recognizing the overlapping services 

they offer.’’ 359 Smith argued that 

creating a uniform standard ‘‘would 

both reduce consumer confusion as to 

what constitutes advice or 

recommendations and ensure that the 

uniform fiduciary duty is consistently 

applied in the investor’s favor by taking 

a broad approach to what constitutes 

investment advice and 

recommendations.’’ 360 Simply put, 

requiring that only some investment 

advisers advising retirement investors 

adhere to an ERISA fiduciary standard 

promotes recommendations that are 

driven by differences in the regulatory 

regime rather than by the products or 

investors’ interests. 

Research suggests that the problems 

resulting from differing regulatory 

regimes are not unique to the United 

States. For instance, Anagol et al. (2017) 

found that when agents selling life 

insurance in India were required to 

disclose commissions for one particular 

product, they were much less likely to 

recommend it to clients. Instead, the 

agents recommended products that did 

not have this requirement, but which 

had higher and opaque commissions.361

The authors conclude, ‘‘These results 

suggest that the disclosure requirements 

for financial products need to be 

consistent across the menu of 

substitutable products.’’ This 

underscores that regulatory regimes that 

are not uniform allow advisers to engage 

in regulatory arbitrage, leaving their 

clients vulnerable to conflicts of 

interest. 

This proposed rule would help create 

a uniform standard, as it would apply to 

all retirement investment advice. This 

would address concerns the Department 

has about lower standards for advice 

related to insurance products and other 

investments that are not securities, 

advice that broker-dealers render to 

ERISA plan fiduciaries, and roboadvice.362 The proposed rule’s broad 

application to all retirement investment 

advice would help different market 

participants and different financial 

products compete on similar terms for 

IRA and plan business. This would 

reduce the risk to retirement investors. 

Uniform, well-designed rules can make 

markets fairer for competitors and 

friendlier for customers, leading to more 

efficient market outcomes. They can 

also promote efficiency by allowing 

firms that offer multiple products or 

make recommendations in both the 

retail and non-retail market to utilize a 

common compliance structure. 

Financial services firms are already 

moving toward new approaches in how 

they offer advice, including more feebased advice models, flatter 

compensation models, and integrating 

technology. The proposed amendments 

to the rule and exemptions would help 

ensure that these new approaches 

evolve toward less conflicted and more 

innately impartial business models. 

These types of technology-enhanced 

models—whether pure robo-adviser or 

hybrid models—will contain the overall 

costs associated with providing 

investment advice and strategies and 

will help low-balance account holders 

obtain investment advice at an 

affordable cost. 

This proposal would generate 

additional economic benefits and 

transfers by extending important and 

effective protections broadly to cover all 

advice given to retirement investors. In 

this analysis, the Department identifies 

three specific areas in which retirement 

investors would benefit from an 

extension of protections: one-time 

advice regarding the rollover of assets, 

advice on non-security annuity 

products, and advice given to ERISA 

plan fiduciaries. These types of advice 

are discussed in the following sections. 

Protections Concerning Rollover 

Investment Advice 

The proposal would generate benefits 

for, and transfers to, savers by reducing 

conflicts related to one-time advice 

concerning rollovers. Frequently, 

participants are better off leaving their 

401(k) account in the retirement plan 

rather than rolling it over to an IRA, 

particularly if the 401(k) plan has low 

fees and high-quality investment 

options. Large 401(k) plans often have 

lower fees than IRAs, though smaller 

401(k) plans sometimes find it difficult 

to keep fees low.363 IRAs often utilize 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75939 

www.ici.org/files/2022/22-ppr-dcplan-profile401k.pdf. 

364Pew Charitable Trusts, Small Differences in 

Mutual Fund Fees Can Cut Billions from 

Americans’ Retirement Savings, Pew Charitable 

Trusts Issue Brief, (June 2022), https://

www.pewtrusts.org/-/media/assets/2022/05/

smalldifferenceinmutualfunds_brief_v1.pdf. 

365 Ibid. 

366 John Turner & Bruce W. Klein, Retirement 

Savings Flows and Financial Advice: Should You 

Roll Over Your 401(k) Plan?, 30(4) Benefits 

Quarterly 42–54 (2014), https://www.iscebs.org/ 

Documents/PDF/bqpublic/bq414f.pdf. 

367 John A. Turner, Bruce W. Klein & Norman P. 

Stein, Financial Illiteracy Meets Conflicted Advice: 

The Case of Thrift Savings Plan Rollovers, 3(4) The 

Journal of Retirement 47–65 (2015), https://doi.org/ 

10.3905/jor.2016.3.4.047. 

368Financial Industry Regulatory Authority, 

Annuities, Financial Industry Regulatory Authority, 

https://www.finra.org/investors/investing/ 

investment-products/annuities. 

369Frank Fabozzi, The Handbook of Financial 

Instruments 579, (2002), https://seeking

worldlywisdom.files.wordpress.com/2011/08/thehandbook-of-financial-instruments-fabozzi.pdf. 

370Securities and Exchange Commission, 

Annuities, Securities and Exchange Commission, 

https://www.investor.gov/introduction-investing/ 

investing-basics/glossary/annuities. 

371Office of Senator Elizabeth Warren, Villas, 

Castles, and Vacations: Americans’ New Protections 

from Financial Adviser Kickbacks, High Fees, & 

Commissions are at Risk (2017), https://

www.warren.senate.gov/files/documents/2017-2-3_

Warren_DOL_Rule_Report.pdf. 

372Frank Fabozzi, The Handbook of Financial 

Instruments 576–599, (2002), https://seekingworldly

wisdom.files.wordpress.com/2011/08/thehandbook-of-financial-instruments-fabozzi.pdf. 

373Susan Christoffersen, Richard Evans & David 

Musto, What Do Consumers’ Fund Flows Maximize? 

Evidence from Their Broker’s Incentives, 68(1) 

Journal of Finance 201–235 (February 2013), 

https://doi.org/10.1111/j.1540-6261.2012.01798.x. 

374Financial Industry Regulatory Authority, The 

Complicated Risks and Rewards of Indexed 

Annuities, Financial Industry Regulatory Authority, 

(July 2022), https://www.finra.org/investors/ 

insights/complicated-risks-and-rewards-indexedannuities. 

375Coryanne Hicks & Phillip Moeller, 17 Things 

You Need to Know About Annuities, U.S. News and 

World Report, (May 3, 2021), https://

money.usnews.com/investing/investing-101/ 

articles/things-you-need-to-know-now-aboutannuities. 

retail shares in mutual funds with 

substantially higher fees than the 

institutional share classes that 

employer-sponsored plans typically 

utilize. A 2022 Pew Charitable Trusts 

study analyzed the difference between 

median institutional and retail share 

class expense ratios across all mutual 

funds that offered at least one 

institutional share and one retail share 

in 2019. They found that the median 

retail shares of equity funds had annual 

expenses that were 37 percent higher 

than institutional shares. Over the 

course of saving for retirement, the 

impact of even small differences in fees 

was significant.364

The investment fiduciaries of 401(k) 

plans also have responsibilities under 

ERISA to act in the best interests of, and 

solely for the benefit of, the plan 

participants, whereas IRA providers do 

not have such responsibilities.365

Turner and Klein (2014) suggested that 

the services and investment 

performance associated with higher fees 

paid in an IRA are not necessarily 

justified,366 meaning a plan participant 

would be able to obtain similar 

investment performance and services in 

a lower cost 401(k) plan. For instance, 

Turner, Klein, and Stein (2015) found 

that most financial advisers told federal 

workers about the benefits of rolling 

over into an IRA, such as having a larger 

number of investment options and more 

lenient withdrawal options, without 

mentioning the higher costs that would 

be incurred relative to keeping their 

savings in the Thrift Savings Plan, 

which has extremely low fees.367

If fewer participants roll over their 

401(k) plan account balances into IRAs, 

and instead keep their account balances 

in plans sponsored by former or new 

employers, this would result in transfers 

between different segments of the 

market. To consider one example, there 

may be a transfer from service providers 

who specialize in serving IRAs to 

service providers who specialize in 

serving defined contribution plans. As a 

second example, retirement investors 

often pay lower fees in plans where they 

can access institutional share classes 

than they do in IRAs where they use 

retail share classes. This represents a 

transfer from actors in the financial 

industry to retirement investors. 

Protections Concerning Annuity 

Investment Advice 

The proposal would generate 

additional benefits by extending 

protections to investment advice from 

insurance agents or independent 

producers to IRA investors. The annuity 

products offered by insurance 

companies are notoriously complex, 

leaving retirement investors reliant on 

advice from the insurance agent, broker, 

or independent producer selling the 

annuity. The fees and adviser incentives 

are similarly complex, often in a way 

that can conceal the full magnitude of 

the fees. Other regulators have 

highlighted the complexity of many 

annuity products. For example, FINRA 

stated: 

Annuities are often products investors 

consider when they plan for retirement—so 

it pays to understand them. They also are 

often marketed as tax-deferred savings 

products. Annuities come with a variety of 

fees and expenses, such as surrender charges, 

mortality and expense risk charges and 

administrative fees. Annuities also can have 

high commissions, reaching seven percent or 

more.368

As described in the baseline 

discussion above, fixed annuities, 

variable annuities, and indexed 

annuities differ significantly in risk. For 

instance, while the insurer carries the 

investment risk for fixed annuities, the 

investor carries the investment risk for 

variable annuities and indexed 

annuities.369 Additionally, they differ in 

regulatory standards and the required 

protections owed to customers. While 

variable annuities and some indexed 

annuities are considered securities 

subject to SEC and FINRA regulation,370

the standard of care owed to a customer 

for other types of annuities depends on 

the state regulation. 

One area of concern for the 

Department is how financial entities 

selling annuities are compensated, 

which may result in a conflict of 

interest. According to the 2015 Warren 

Report, which examined 15 of the 

largest annuity companies in the United 

States, 87 percent of the annuity 

companies offered ‘‘kickbacks’’ to their 

agents in exchange for sales to 

retirees.371 Further, insurance agents, 

brokers, and independent producers are 

often compensated through load fees for 

selling variable and fixed annuities 

fees.372 As discussed in the Baseline 

section discussion on market 

developments in the insurance market, 

research has found load fees create a 

conflict of interest in investment advice, 

leading to decreased returns.373

The Department is also particularly 

concerned about vulnerable retirement 

investors who lack a basic 

understanding of investment 

fundamentals and the complexities 

associated with indexed annuities. 

FINRA cautions that, ‘‘indexed 

annuities are complex financial 

instruments, and retirement experts 

warn that such annuities include a 

number of features that may result in 

lower returns than an investor may 

expect.’’ 374 While indexed annuities 

have a minimum guaranteed rate of 

return tied to an underlying index, the 

guarantee rate does not cover all of a 

premium.375 Moreover, while the rate of 

return of the indexed annuity is linked 

to performance of the index, indexed 

annuity returns are subject to 

contractual limitations which effectively 

cap returns. FINRA identified the 

following contractual limitations 

observed in indexed annuities: 

• Participation rates explicitly set the 

percentage of index returns that are 

credited to the annuity; 

• Spread, margin, or asset fees are 

subtracted from the index returns; and 


lotter on DSK11XQN23PROD with PROPOSALS3
75940 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

376Financial Industry Regulatory Authority, The 

Complicated Risks and Rewards of Indexed 

Annuities, Financial Industry Regulatory Authority, 

(July 2022), https://www.finra.org/investors/ 

insights/complicated-risks-and-rewards-indexedannuities. 

377 Id. 

378Securities and Exchange Commission, 

Updated Investor Bulletin: Indexed Annuities, 

Securities and Exchange Commission, (July 2020), 

https://www.investor.gov/introduction-investing/ 

general-resources/news-alerts/alerts-bulletins/ 

investor-bulletins/updated-13. 

379 Id. 

380See e.g., California Department of Insurance, 

Deceptive Sales Practices When Purchasing 

Annuities, California Department of Insurance, 

http://www.insurance.ca.gov/0150-seniors/ 

0100alerts/DeceptiveSales.cfm; North Carolina 

Department of Insurance, Annuities and Senior 

Citizens, North Carolina Department of Insurance, 

https://www.ncdoi.gov/consumers/annuities/ 

annuities-and-senior-citizens; Mississippi Insurance 

Department, Annuities and Senior Citizens: Senior 

Citizens Should Be Aware Of Deceptive Sales 

Practices When Purchasing Annuities, Mississippi 

Insurance Department, https://www.mid.ms.gov/ 

consumers/annuities-senior-citizens.aspx; 

Kentucky Department of Insurance, Annuities and 

Senior Citizens Consumer Alert: Senior Citizens 

Should Be Aware of Deceptive Sales Practices When 

Purchasing Annuities, Kentucky Department of 

Insurance, https://insurance.ky.gov/ppc/ 

Documents/AnnuitiesandSenior.pdf; Massachusetts 

Division of Insurance, Annuities and Senior 

Citizens: Senior Citizens Should Be Aware Of 

Deceptive Sales Practices When Purchasing 

Annuities, Massachusetts Division of Insurance, 

https://www.mass.gov/service-details/annuitiesand-senior-citizens; Georgia Office of the 

Commissioner of Insurance and Safety Fire, 

Annuity Tips, Georgia Office of the Commissioner 

of Insurance and Safety Fire, https://

oci.georgia.gov/insurance-resources/annuity/ 

annuity-tips; South Dakota Division of Insurance, 

Consumer Alert: Annuities and Senior Citizens: 

Senior Citizens Should Be Aware Of Deceptive 

Sales Practices When Purchasing Annuities, South 

Dakota Division of Insurance, https://dlr.sd.gov/ 

insurance/publications/alerts/documents/ 

annuities_senior_citizens.pdf. 

381Minnesota Attorney General, Annuities: 

Unsuitable Investments for Seniors, Minnesota 

Attorney General, https://www.ag.state.mn.us/ 

consumer/Publications/AnnuitiesUnsuitable

InvforSeniors.asp. 

382 Ibid. 

383Mark Egan, Gregor Matvos, & Amit Seru, The 

Market for Financial Adviser Misconduct, 127(1) 

Journal of Political Economy (February 2019), 

https://www.journals.uchicago.edu/doi/10.1086/ 

700735. 

384 Vivek Bhattacharya, Gaston Illanes, & Manisha 

Padi, Fiduciary Duty and the Market for Financial 

Advice, Working Paper 25861 National Bureau of 

Economic Research (2020), https://www.nber.org/ 

papers/w25861. 

385 Ibid. 

386Board of Governors of the Federal Reserve 

System, Financial Accounts of the United States: 

Flow of Funds, Balance Sheets, and Integrated 

Macroeconomic Accounts: First Quarter 2023, Table 

L.227 Federal Reserve Statistical Release Z.1. (June 

8, 2023), https://www.federalreserve.gov/releases/ 

z1/. 

• Interest caps limit the returns if the 

underlying index sees large returns.376

FINRA also warns that indexed 

annuities may be able to change these 

contractual limitations, depending on 

the terms of the contract.377

In a 2020 investor alert, the SEC 

warned, ‘‘You can lose money buying an 

indexed annuity. Read your contract 

carefully to understand how your 

annuity works.’’ 378 The SEC listed 

several ways that investors in these 

products can lose money, including 

through surrender charges and 

withdrawals during a specified time 

period. The SEC further cautioned: 

• ‘‘Indexed annuity contracts describe 

both how the amount of return is 

calculated and what indexing method 

they use. Based on the contract terms 

and features, an insurance company 

may credit your indexed annuity with a 

lower return than the actual index’s 

gain.’’ 

• ‘‘Indexed annuity contracts 

commonly allow the insurance 

company to change some of these 

features periodically, such as the rate 

cap. Changes can affect your return. 

Read your contract carefully to 

determine what changes the insurance 

company may make to your 

annuity.’’ 379

The Department also has concerns 

about sales tactics of insurance agents, 

brokers, and independent producers for 

annuity products. A number of state 

regulators have issued website alerts 

regarding deceptive sales practices to 

sell annuities to seniors, including 

‘‘high-pressure sales pitch[es]’’ and 

‘‘quick-change tactics’’ in which an 

agent tries to convince an investor to 

change coverage quickly without time 

for adequate research. State regulators 

also warned that a licensed agent will be 

more than willing to show credentials 

and to question an agent’s 

‘‘[unwillingness or inability] to prove 

credibility’’ to prospective customers.380

One regulator noted, ‘‘With billions of 

dollars in sales to be made, insurance 

companies may offer commissions as 

high as 10 percent to agents to sell 

products like long-term deferred 

annuities to senior citizens.’’ 381 As 

described by the regulator: 

Some unscrupulous sellers use highpressure sales pitches, seminars, and 

telemarketing. Beware of agents who ‘‘cold 

call’’ you, contact you repeatedly, offer 

‘‘limited time offers,’’ show up without an 

appointment, or won’t meet with you if your 

family is present. Beware of estate planning 

‘‘seminars’’ that are actually designed to sell 

annuities. Beware of seminars that offer free 

meals or gifts. In the end, they are rarely free. 

Beware of agents who give themselves fake 

titles to enhance their credibility.382

Supporting this call for caution, Egan 

et al. (2019) found substantial amounts 

of misconduct disputes in the sales of 

annuities between 2005 and 2015.383

Research shows that fiduciary 

protections in the annuity markets lead 

to better outcomes for investors. By 

analyzing deferred annuity sales at a 

large financial services provider during 

2013 to 2015, Bhattacharya et al. (2020) 

found that fiduciary duty increases riskadjusted returns by 25 basis points.384

This results from a compositional shift 

in the set of products purchased by 

investors. Fiduciary duty protections 

tend to shift sales towards fixed indexed 

annuities and away from variable 

annuities. Within variable annuities, 

sales shifted towards products with 

more and higher quality investment 

options. The authors obtained these 

findings by exploiting the variation in 

fiduciary duties between broker-dealers 

and registered investment advisers as 

well as the variation between states as 

to whether broker-dealers are subject to 

a common law fiduciary duty. 

Bhattacharya et al. (2020) also found 

that fiduciary duty led to a 16 percent 

reduction in the number of brokerdealers, which they described as a 

‘‘potentially small’’ effect. There was no 

change in total annuity sales. 

Furthermore, the reduction in brokerdealers did not result in poor quality 

products being sold. The authors 

developed a model that shows that the 

benefits of improved advice under a 

fiduciary standard, offset by the 

reduction in the number of brokerdealers and the advice they provide, 

yields an overall effect of increasing 

average returns by 20 basis points. On 

the whole, these results indicate that 

this proposal would improve the quality 

of advice in the investment market and 

protect the welfare of investors and 

retirees.385

The Bhattacharya et al. (2020) model 

is particularly helpful in that it provides 

a framework to illustrate the 

quantitative impact of extending the 

fiduciary duty. It takes into account 

both empirical findings—the increase in 

returns of 25 basis points and the exit 

of 16 percent of the broker-dealers. 

While the model illustrates how these 

results would apply to the larger market, 

the results are still subject to the 

limitations of the empirical analysis, 

which looked only at certain types of 

annuities sold by one large firm. The 

authors examined the effects of 

variation in state-level fiduciary laws, 

but it is unclear how similar those 

would be to the effects of a national 

regulation. 

Approximately $3.8 trillion in 

pension entitlements are held in 

annuities at life insurance companies, 

including those within IRAs.386 The 

recommendation of many of these assets 

are already subject to a best interest 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75941 

387 0.20% × $3.6 trillion × 50% = $3.6 billion. 

388Mark Egan, Shan Ge, & Johnny Tang, 

Conflicting Interests and the Effect of Fiduciary 

Duty—Evidence from Variable Annuities, 35(12) 

The Review of Financial Studies 5334–5486 

(December 2022), https://academic.oup.com/rfs/ 

article-abstract/35/12/5334/6674521. 

389Ashley C. Vicere, Defining Fiduciary: Aligning 

Obligations with Expectations. 82(4) Brooklyn Law 

Review 1783 (2016), https://brooklynworks.

brooklaw.edu/blr/vol82/iss4/8/. 

390Advice provided by an investment adviser to 

a plan fiduciary is subject to the Advisers Act 

fiduciary duty. 

391 Veronika K. Pool, Clemens Sialm, & Irina 

Stefanescu, It Pays to Set the Menu: Mutual Fund 

Investment Options In 401(K) Plans, 71(4) The 

Journal of Finance 1779–1812 (August 2016), 

https://onlinelibrary.wiley.com/doi/abs/10.1111/ 

jofi.12411. 

392 Veronika K. Pool, Clemens Sialm, & Irina 

Stefanescu, Mutual Fund Revenue Sharing in 401(k) 

Plans, Vanderbilt Owen Graduate School of 

Management Research Paper (November 8, 2022), 

https://papers.ssrn.com/sol3/papers.cfm?abstract_

id=3752296. 

393 Ibid. 

394See Employee Benefits Security 

Administration, 2013–03A, Advisory Opinions, 

(2013), https://www.dol.gov/agencies/ebsa/aboutebsa/our-activities/resource-center/advisoryopinions/2013-03a. 

395Paul Gerrans & Douglas A. Hershey, Financial 

Adviser Anxiety, Financial Literacy, and Financial 

Advice Seeking, 51(1) Journal of Consumer Affairs 

54–90 (2017), https://www.jstor.org/stable/ 

44154765. 

396Winchester, Danielle & Sandra Huston, Trust 

Reduces Costs Associated with Consumer-Financial 

Planner Relationship, 71(4) Journal of Financial 

Service Professionals 80–91 (2017), https://web.p.

ebscohost.com/ehost/pdfviewer/pdfviewer?vid=

0&sid=1ca603cd-53ca-4cbb-99b1-5fd43782b0

c4%40redis. 

standard; for example, they were sold by 

a registered investment adviser or sold 

in a state with a fiduciary standard. It 

is difficult to know exactly how many 

assets fall into this category, but for 

illustrative purposes, let us assume that 

50 percent of the market is not currently 

subject to a best interest standard and 

would be under the proposal and would 

therefore expect an increase in average 

returns of 20 basis points as suggested 

by Bhattacharya et al. In this scenario, 

the expansion of fiduciary duty would 

lead to gains for investors (a mix of 

societal benefits and transfers) of $3.6 

billion, assuming a 20 basis point 

increase in returns.387

Good regulation may also improve the 

overall investment advice market. 

According to Egan, Ge, and Tang (2022), 

after the Department issued its 2016 

Final Rule, total variable annuity sales 

fell significantly—primarily driven by a 

52 percent decrease in annuities with 

expenses in the highest quartile, 

suggesting that broker-dealers 

responded to the 2016 Final Rule by 

placing greater weight on investor 

interests. These impacts persisted even 

after the rule was vacated by the Fifth 

Circuit. Critics of the Department’s 2016 

Final Rule often refer to a decline in 

variable annuity sales as evidence of the 

2016 Final Rule having negative effects. 

Egan, Ge, and Tang (2002) conclude, 

however, that investors on average 

experienced a net benefit from the Rule, 

even taking into account the fact that 

some investors were no longer 

participating in the annuity market.388

Other commenters observed that even if 

the 2016 Final Rule could have reduced 

investors’ access to certain services or 

products, the impact would have been 

on services and products that were not 

in the investors’ best interest.389

The benefits of this proposal’s 

application of fiduciary status to 

investment advice from insurance 

agents, brokers, and independent 

producers include eliminating the 

incentives for regulatory arbitrage by 

those agents. Without this proposal, 

insurers and insurance intermediaries 

can secure excess profits at investors’ 

expense by rewarding investment 

advice providers for giving biased 

advice in ways that broker-dealers 

operating under Regulation Best Interest 

cannot. 

Protections Concerning Advice Given to 

Plan Fiduciaries 

This proposal would also yield 

economic benefits by extending 

protections to advice given to ERISA 

plan fiduciaries. Accordingly, the 

proposal would ensure that investors 

and the Secretary could enforce the 

fiduciary protections by pursuing claims 

for fiduciary misconduct involving 

ERISA-covered plans. When a brokerdealer currently provides advice to plan 

fiduciaries, the advice is not covered by 

Regulation Best Interest because the 

plan fiduciaries are not retail 

customers.390 Pool et al. (2016) offered 

evidence that mutual fund companies 

acting as service providers to 401(k) 

plans display favoritism toward their 

own affiliated funds, even when their 

performance is worse, generating 

‘‘significant subsequent negative 

abnormal returns for participants 

investing in those funds.’’ 391 This 

proposal aims to reduce or eliminate 

such harmful favoritism. 

Pool et al. (2022) demonstrated that 

funds who offer defined contribution 

plan recordkeepers revenue-sharing 

payments are more likely to be added as 

investment options on plan menus and 

are also more likely to be retained. 

Additionally, plans whose menus 

include funds that share revenue had 

higher expense ratios resulting in 

significantly higher fees.392 Pool states 

that this is ‘‘consistent with the notion 

that . . . less transparent indirect 

payments allow record keepers to 

extract additional rents from plan 

participants.’’ 393 Fiduciaries can 

negotiate the specific formula and 

methodology under which revenue 

sharing will be credited to the plan or 

plan service providers, indirectly 

reducing the fees the plan pays which 

could in turn mitigate the conflict, but 

this requires a sophisticated 

understanding of the underlying 

agreement.394 Given the proliferation of 

fee arrangements for investment advice 

that are increasingly less transparent to 

clients and regulators as well as the 

variation in standards and safeguards 

across advice markets, the Department 

believes it is critical to extend 

protections associated with fiduciary 

status under ERISA, to protect 

retirement investors’ assets. 

Plan fiduciaries receive advice on 

many important topics. For defined 

contribution plans, these topics can 

include plan design provisions such as 

investment alternatives, whether the 

plan should have automatic enrollment, 

default contribution rates, and default 

investments. For defined benefit plans, 

it can include selection of investments 

and investment strategies as well as 

distribution options. Given the large 

number of participants in ERISA plans 

and the huge asset holdings of such 

plans, the benefits of protecting the 

advice received by plan fiduciaries is 

likely to be substantial. 

Increased Confidence in Advisers and in 

the Reliability of Their Advice 

The market for financial advice 

generally works best when investors 

trust investment advice providers and 

their trust is well-placed. Both 

conditions are necessary for optimal 

results. If investors distrust investment 

advice providers, they will incur higher 

costs to select a provider and monitor 

their conduct. Their provider may also 

incur higher costs to counter 

prospective and existing customers’ 

distrust. Distrustful investors may be 

less likely to obtain beneficial advice 

and more likely not to follow beneficial 

advice.395 Likewise, if investors trust 

investment advice providers more than 

is warranted, they may reduce their 

monitoring of the advisor’s actions and 

accept less transparency in policies, 

procedures and fees, making them more 

vulnerable to harm from advice that is 

biased by advisory conflicts.396 A 2019 

survey regarding the Australian 

financial advice industry reported that 

the biggest barriers for consumers in 

accessing financial advice are cost (35 

percent), limited financial 


lotter on DSK11XQN23PROD with PROPOSALS3
75942 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

397Australian Securities and Investments 

Commission, Report 627- Financial Advice: What 

Consumers Really Think, Australian Securities and 

Investments Commission, (August 2019), https:// 

download.asic.gov.au/media/5243978/rep627- 

published-26-august-2019.pdf. 

398Claude Montmarquette & Nathalie ViennotBriot, The Value of Financial Advice, 16(1) Annals 

of Economics and Finance 69–94 (2015), http://

aeconf.com/articles/may2015/aef160104.pdf. 

399 Jill E. Fisch, Tess Wilkinson-Ryan, & Kristin 

Firth, The Knowledge Gap in Workplace Retirement 

Investing and the Role of Professional Advisors, 

66(3) Duke Law Journal (2016), https://scholarship.

law.duke.edu/cgi/viewcontent.cgi?article=3875&

context=dlj. 

400 Id. 

401Ben Charoenwong, Alan Kwan, & Tarik Umar, 

Does Regulatory Jurisdiction Affect the Quality of 

Investment-Adviser Regulation, 109(10) American 

Economic Review (October 2019), https://

www.aeaweb.org/articles?id=10.1257/aer.20180412. 

402Lia Mitchell, Jasmin Sethi, & Aron Szapiro, 

Regulation Best Interest Meets Opaque Practices: 

It’s Time to Dive Past Surface-Level Conflicts, 

Morningstar (November 2019), https://ccl.yale.edu/ 

sites/default/files/files/wp_Conflicts_Of_Interest_

111319%20FINAL.pdf. 

403 Investment Company Institute, The Economics 

of Providing 401(k) Plans: Services, Fees, and 

Expenses, 2020, 27(6) ICI Research Perspective 

circumstances in which it is ‘‘not worth 

getting financial advice’’ (29 percent), 

the desire to manage an individual’s 

own finances (26 percent), a lack of trust 

(19 percent), or a lack of perceived value 

in paying for financial advice (18 

percent).397

By holding all retirement investment 

advice providers to standards that 

rightly instill trust, this proposal would 

facilitate efficient, trust-based 

relationships between retirement 

investors and investment advice 

providers of all types, so investors 

would be more likely to obtain and 

follow beneficial advice, at lower cost. 

There is extensive evidence that 

investors, including retail investors and 

ERISA plan fiduciaries, are often subject 

to behavioral biases that lead to costly 

systematic investment errors. There is 

evidence that good advice can improve 

saving and investing decisions. 

Accordingly, the proposal may result in 

a beneficial reallocation of investment 

capital. Montmarquette and ViennotBriot (2015) provided evidence that 

‘‘having a financial advisor for at least 

four years has a positive and significant 

impact on financial assets’’ and that 

‘‘the positive effect of advice on wealth 

creation cannot be explained by asset 

performance alone: the greater savings 

discipline acquired through advice 

plays the major role.’’ 398

Fisch et al. (2016) also provided 

evidence that ‘‘highlight[s] the potential 

value of professional advice in 

mitigating the effects of financial 

illiteracy in retirement planning.’’ 399

Fisch et al. recruited Amazon 

Mechanical Turk users (MTurk sample), 

a crowdsourcing marketplace, to 

allocate a hypothetical ten thousand 

dollars among ten investments options 

as part of a 401(k) plan. Separately, 

professional advisers—registered 

investment advisers, broker-dealers or 

dual registrants—were asked to allocate 

ten thousand dollars on behalf of a 

hypothetical 30-year-old, single client, 

with no children, a lower middle-class 

income and no substantial outside 

savings or investments. They found that 

professional advisers, on average, 

selected portfolios with higher returns, 

allocated more money to cheaper index 

funds, paid lower fees, and accessed 

more information in connection with 

the allocation decision than the MTurk 

sample. For example, professional 

advisers were ‘‘uniformly sensitive to 

the fact that the equity risk premium 

and the 30-year time horizon of the 

allocation decision warranted 

substantial equity exposure-facts that 

the low-literacy investors seemed to be 

unaware.’’ 400 Overall, professional 

advisers had a higher level of financial 

knowledge, which enabled them to 

make better retirement investing 

decisions from which unsophisticated 

investors could benefit. 

Enforcement 

Under the proposal, the full range of 

covered investment advice interactions 

with Title I plans would be subject to 

the Department’s robust enforcement 

program as well as to a private right of 

action. In general, participants and 

beneficiaries have the right to bring suit 

under ERISA 502(a) against fiduciaries 

who breach their duties and obligations 

to the plan, including engaging in nonexempt prohibited transactions. This 

private right of action, which ensures 

participants and beneficiaries have 

ready access to the Federal courts, 

provides critical protection of taxadvantaged retirement plans. For advice 

interactions not currently covered by 

relevant standards of conduct, such as 

much advice provided to plan 

fiduciaries, these enforcement measures 

will help to ensure the proposal is 

implemented effectively. For advice 

interactions that are subject to state 

regulation, under the proposal they will 

likely have stronger oversight, which 

will provide greater protections to 

investors. 

Charoenwong et al. (2019) showed 

that regulatory oversight has an 

important impact on investment 

advice.401 They studied a policy reform 

that did not affect the laws or rules that 

registered investment advisers were 

operating under; instead, it changed the 

regulatory oversight. The reform shifted 

some advisers from a federal regulator, 

the SEC, to state-securities regulators. 

Registered investment advisers who 

shifted to the state-securities regulators 

received 30–40 percent more complaints 

from customers, relative to the 

unconditional complaint rate. This 

effect mainly resulted from fiduciary 

violations. Furthermore, the vigor of the 

enforcement program mattered; the 

more resources a state-securities 

regulator had, the fewer complaints 

there tended to be. 

The proposal would also ensure the 

imposition of appropriate excise taxes 

for prohibited transactions involving 

both ERISA-covered plans and IRAs. As 

part of their retrospective review, 

financial institutions would be required 

to report to the Department of the 

Treasury any non-exempt prohibited 

transactions in connection with 

fiduciary investment advice, correct 

those transactions, and pay any 

resulting excise taxes. Failure to report, 

correct, and pay an excise tax, in 

addition to existing factors, would make 

a financial institution ineligible to rely 

on PTE 2020–02 and PTE 84–24. The 

Department believes these additional 

conditions would provide important 

protections to retirement investors by 

enhancing the existing protections of 

PTE 2020–02 and PTE 84–24. 

Implications for Retirement Savings 

Estimates 

To understand the potential 

magnitude of savings for retirement 

investors from the proposed rule, the 

Department believes the experience 

following the 2016 rulemaking and 

SEC’s Regulation Best Interest provides 

context. As discussed in the baseline 

discussion, the regulatory and market 

environments have shifted since the 

2016 Rule, and accordingly, the 

Department acknowledges that there is 

significant uncertainty about the 

magnitude of savings that would result 

for retirement investors as a result of the 

proposed rulemaking. The Department 

requests comment on this point. 

One major market development 

resulting from the 2016 Final Rule and 

exemptions involved the development 

of new mutual fund share classes 

designed to eliminate advisory conflicts 

attributable to variation in commissions. 

As discussed in the Baseline section, 

Mitchell, Sethi, and Szapiro (2019) 

found that the share classes that are less 

likely to have traditional conflicts of 

interest have become more popular in 

recent years.402 In 2020, 94 percent of 

401(k) mutual fund assets were invested 

in no-load funds, compared to 66 

percent in 2000.403


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75943 

Figure 5. (June 2021), https://www.ici.org/system/ 

files/2021-06/per27-06.pdf. 

404Employee 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, pp. 162, (April 2016), 

https://www.dol.gov/sites/dolgov/files/EBSA/lawsand-regulations/rules-and-regulations/completedrulemaking/1210-AB32-2/ria.pdf. 

405Aron Szapiro & Paul Ellenbogen, Early 

Evidence on the Department of Labor Conflict of 

Interest Rule: New Share Classes Should Reduce 

Conflicted Advice, Likely Improving Outcomes for 

Investors, Morningstar Policy Research (April 2017). 

406 Greg Iacurci, T Shares Are Dead, 

InvestmentNews (December 20, 2018), https://

www.investmentnews.com/t-shares-are-dead-77482. 

407According to the Investment Company 

Institute, in 2017, the total net assets invested in 

long-term mutual funds with front-end load fees 

was $1.99 trillion. See Investment Company 

Institute. ‘‘Trends in the Expenses and Fees of 

Funds, 2017.’’ Figure 20. ICI Research Perspective 

(April 2018), Vol. 24, No. 3. If it were assumed that 

all $1.99 trillion in assets were invested in A shares 

and that they were all then moved to T shares, then 

this would have translated into an estimated 

increase in returns of $4.98 billion for IRA 

investors. 

408Lia Mitchell, Jasmin Sethi, & Aron Szapiro, 

Regulation Best Interest Meets Opaque Practices: 

It’s Time to Dive Past Surface-Level Conflicts, 

Morningstar (November 2019), https://ccl.yale.edu/ 

sites/default/files/files/wp_Conflicts_Of_Interest_

111319%20FINAL.pdf. 

409 YiLi Chien, The Cost of Chasing Returns, 18 

Economic Synopses (2014), https://doi.org/ 

10.20955/es.2014.18. 

410 Geoffrey Friesen & Travis Sapp, Mutual Fund 

Flows and Investor Returns: An Empirical 

Examination of Fund Investor Timing Ability 31(9) 

Journal of Banking and Finance 2796–2816 (2007), 

https://www.sciencedirect.com/science/article/abs/ 

pii/S0378426607001422. 

411Mercer Bullard, Geoffrey C. Friesen, & Travis 

Sapp, Investor Timing and Fund Distribution 

Channels, Social Science Research Network (2008). 

412Susan Christoffersen, Richard Evans, & David 

Musto, What Do Consumers’ Fund Flows Maximize? 

Evidence From Their Broker’s Incentives, 68 Journal 

of Finance 201–235 (2013), https://onlinelibrary.

wiley.com/doi/abs/10.1111/j.1540- 

6261.2012.01798.x. 

413The performance reduction presented in 

Christoffersen, Evans and Musto (2013) does not 

include loads paid by investors in front-end-load 

funds. 

414Constantijn Panis & Karthik Padmanabhan, 

Buy Low, Sell High: The Ability of Investors to Time 

Purchases and Sales of Mutual Funds, Intensity, 

LLC. (August 14, 2023). Unpublished draft. 

415The commission paid varies significantly, 

from as little as 0 percent to as much as 10 percent 

of the investment with the most common amount 

being 7 percent. See Mark Egan, Shan Ge, & Johnny 

Tang, Conflicting Interests and the Effect of 

Fiduciary Duty—Evidence from Variable Annuities, 

35(12) The Review of Financial Studies 5334–5486 

(December 2022), https://academic.oup.com/rfs/ 

article-abstract/35/12/5334/6674521. 

416Mark Egan, Shan Ge, & Johnny Tang, 

Conflicting Interests and the Effect of Fiduciary 

Duty—Evidence from Variable Annuities, 35(12) 

Continued 

In the 2016 RIA, the Department 

estimated that broker-sold mutual funds 

underperformed direct-sold mutual 

funds by approximately 50 basis points 

per year.404 In response to this estimate, 

Morningstar opined that transparency 

improvements associated with such 

shares ‘‘should encourage advisors to 

provide high quality advice to remain 

competitive’’ and that ‘‘50 basis points 

is a reasonable estimate of savings to 

investors from reducing conflicted 

advice.’’ 405 Their support of the 

Department estimate was based on a 

study looking at mutual fund T shares. 

However, this share class has faded 

following the revocation of the 2016 

rule.406 As a result, it is largely 

uncertain how many retirement 

investors would have adopted the new 

share class had it been permitted to go 

fully into effect. For the purposes of this 

illustration, if it were assumed that half 

of the roughly $2.0 trillion assets 

invested in long-term mutual funds with 

front-end load fees were transitioned 

into T shares, investors could have 

saved approximately $5 billion.407

The Department acknowledges that 

the Morningstar study only looks at the 

IRA market, specifically examining 

share classes designed for retail 

investors. The proposed rule, of course, 

applies more broadly than just to IRAs. 

The Department believes the proposed 

rule would encourage continued market 

trends away from share classes with 

traditional conflicts of interest. 

However, Mitchell, Sethi, and Szapiro 

(2019) also found that the newer share 

classes appear to have their own 

conflicts that are opaque to investors 

and regulators, such as revenue 

sharing.408 Many of the commonly 

considered potential conflicts of interest 

are embedded in a bundled share class 

arrangement, where the investor pays 

the mutual fund a load or 12b–1 fee, and 

the mutual fund pays a portion back to 

an intermediary, such as the 

intermediary that sold the fund to the 

investor. Semi-bundled share classes 

use revenue sharing or sub-accounting 

fees. 

The damages associated with conflicts 

of interest in compensation structures 

are exacerbated in that many of these 

compensation structures incentivize 

excessive trading. Good advice can help 

investors avoid timing errors when 

trading by reducing panic-selling during 

large and abrupt downturns. However, 

conflicted advice providers may profit 

by encouraging investors’ natural 

inclination to trade more and ‘‘chase 

returns,’’ an activity that tends to 

produce harmful timing errors.409

Friesen and Sapp (2007) found that 

equity mutual fund investors made 

timing decisions that reduced fund 

investor average returns by 1.56 percent 

annually.410 Their evidence ‘‘suggests 

that those investors who are most likely 

relying on advice from a broker perform 

especially poorly from a timing 

standpoint.’’ Bullard, Friesen, and Sapp 

(2008) found that the difference in 

performance between load and no-load 

funds has two components: the 

difference in prospectus returns across 

share classes and the difference in 

investor returns resulting from 

differences in investor timing.411

Additionally, Christoffersen, Evans, and 

Musto (2013) found that as the size of 

the load-share increased, mutual fund 

returns decreased. This suggests that the 

greater the adviser’s conflict of interest, 

the worse off the IRA investor can 

expect to be.412 413

A Department-sponsored study by 

Panis and Padmanabhan (2023) 

examined how investors timed the 

purchase and sale of mutual funds 

between 2007 and June 2023. During the 

decade from 2007 to 2016, the authors 

found that investors in load funds had 

worse timing than investors in no-load 

funds, with an excess performance gap, 

comparing measures of the impact of 

purchase and sales timing, of 1.12 

percent per year for U.S. equity funds 

and 0.63 percent for all funds. After 

Regulation Best Interest took effect, the 

authors observed that there had been 

dramatic improvement in the timing of 

trades. Between July of 2020 and June 

of 2023, the excess performance gap was 

only 0.13 percent for U.S. equity funds 

and was negative, ¥0.11 percent, 

overall. This means that in the later 

period, looking across all funds in the 

aggregate, investors in load funds timed 

their transactions slightly better than 

investors in no-load funds. While it is 

not certain what factors underlie the 

reduction in timing errors, it is 

consistent with an interpretation that 

Regulation Best Interest enhanced the 

standard of conduct for broker-dealers 

to act in the best interest of retail 

customers and persuade their customers 

to refrain from return chasing 

behavior.414

The nature of the conflicts facing 

broker-dealers in the mutual fund space 

is similar to that facing insurance agents 

and independent producers in the 

annuity space. As discussed in the 

Baseline section, commissions earned 

by selling annuities vary considerably 

even within a certain type of product.415

For example, commissions for variable 

annuities vary widely, creating a strong 

incentive for brokers to sell some 

variable annuities over others. Egan, Ge, 

and Tang (2022) showed that variable 

annuity sales were four times more 

sensitive to brokers’ financial interests 

than to investors’ financial interests.416


lotter on DSK11XQN23PROD with PROPOSALS3
75944 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

The Review of Financial Studies 5334–5486 

(December 2022), https://academic.oup.com/rfs/ 

article-abstract/35/12/5334/6674521. 

417 Id. 

418This estimate is based on variable annuity 

assets in 2018 of $2.2 trillion, as reported in the 

referenced study. See Mark Egan, Shan Ge, & 

Johnny Tang, Conflicting Interests and the Effect of 

Fiduciary Duty—Evidence from Variable Annuities, 

35(12) The Review of Financial Studies 5346 

(December 2022), https://academic.oup.com/rfs/ 

article-abstract/35/12/5334/6674521. 

419Regulation Best Interest, 84 FR 33458, 33491 

(July 12, 2019). 

420Employee 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, pp. 108, (April 2016), 

https://www.dol.gov/sites/dolgov/files/EBSA/lawsand-regulations/rules-and-regulations/completedrulemaking/1210-AB32-2/ria.pdf. (‘‘many IRA 

investors lack sophistication’’); 136 (older 

individuals often ‘‘lack even a rudimentary 

understanding of stock and bond prices, risk 

diversification, portfolio choice, and investment 

fees’’); and 137 (‘‘only one-half of individuals aged 

50 and older in the United States can correctly 

answer two simple financial questions that involve 

calculations. Many respondents failed to correctly 

conclude that $100 would grow to more than $102 

after five years if interest accrues at 2 percent per 

year, while others were unable to determine that an 

account earning interest at 1 percent while inflation 

was 2 percent would lose buying power’’). 

421Employee 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, pp. 155–158, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 

422Employee 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, pp. 136–40, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 

423 Julie Agnew, Hazel Bateman, Christine Eckert, 

Fedor Iskhakov, Jordan Louviere, and Susan Thorp. 

Who Pays the Price for Bad Advice?: The Role of 

After the Department published its 

2015 proposal, sales of high-expense 

variable annuities fell by 52 percent, 

which Egan, Ge, and Tang (2022) 

attributed to sales becoming more 

sensitive to expenses and insurers 

increasing the availability of lowexpense products. In fact, the authors 

stated that the ‘‘regulatory change 

improved the distribution of products 

available to investors along the 

extensive margin, in terms of the 

annuities available for sale, as well as 

the intensive margin, in terms of the 

actual annuities sold by brokers.’’ Thus, 

the authors concluded, the 2016 Final 

Rule resulted in improved investor 

welfare, increasing risk-adjusted returns 

of investors by up to 30 basis points per 

year, with two-thirds of the effect 

associated with investors moving into 

lower-expense products and the 

remainder from sales of annuities with 

more desirable investment options and 

characteristics.417 The long-run impact 

of such a regulation can be estimated by 

applying the 30 basis point figure to the 

assets held in variable annuities in 

2018, which was $2.2 trillion, yielding 

a total annual increase in risk-adjusted 

returns of approximately $6.6 billion.418

Because the 2016 Final Rule was 

vacated, its long-run effects on the 

annuity market remain unknown. The 

current proposal, however, would help 

ensure a long-run positive impact on the 

market for variable annuities. 

The Department is also concerned 

about the risks faced by retirement 

investors purchasing indexed annuities. 

The benefits from improved investment 

advice from the proposal would differ 

from those estimated by Egan, Ge, and 

Tang (2022), as they would affect a 

different segment of the market with 

distinctive characteristics. 

The recent SEC actions extended new 

protections to retail customers advised 

by broker-dealers on securities 

transactions. According to the SEC, the 

Conflict of Interest Obligation under 

Regulation Best Interest is ‘‘intended to 

reduce the agency costs that arise when 

a broker-dealer and its associated 

persons provide a recommendation to a 

retail customer by addressing the effect 

of the associated person’s or brokerdealer’s conflicts of interest on the 

recommendation.’’ In its Economic 

Analysis, the SEC explored the market 

mechanisms by which this and other 

provisions would benefit retail 

investors. The SEC estimated that the 

present value of potential future mutual 

fund fee reductions after Regulation 

Best Interest would be between $14 

billion to $76 billion.419 The SEC 

separately estimated that the potential 

present value of improved future mutual 

fund performance net of fees (which 

would overlap with fee reductions) 

would be between $7 billion to $35 

billion. The SEC noted that these 

estimates represented only ‘‘some of the 

potential benefits’’ and that more 

benefits were expected. It also noted 

that while its estimates focused on 

mutual funds, it expected that ‘‘the 

same or similar dynamics could apply 

to other financial products.’’ 

As discussed above, the preliminary 

evidence that is available for the mutual 

fund and annuity markets following the 

2016 Final Rule and SEC’s Regulation 

Best Interest reinforces the Department’s 

view that well-designed reforms that 

raise advisory conduct standards and 

mitigate advisory conflicts would 

benefit retirement investors. The 

Department requests comment on how 

the investment advice market has 

evolved since following the enactment 

of such regulatory actions, with 

particular interest in how investment 

returns, net of fees, have changed for 

mutual funds and annuities. 

6. Impact of the Proposal on Small 

Savers 

Some observers have argued that 

some small savers, individuals, or 

households with low account balances 

or of modest means, will lose access to 

investment advice under this type of 

regulation and will be worse off. The 

Department has considered in detail the 

overall impact of the proposal on small 

savers. 

The Department recognizes that 

investment advice is often very valuable 

for small savers. There is also ample 

evidence and broad consensus that 

many U.S. consumers struggle to make 

and implement good retirement saving 

and investment decisions without 

effective help. Many lack the skills, 

motivation, or discipline to accumulate 

adequate savings, optimize their 

investment strategies, and thereby 

realize financial security in 

retirement.420 Less sophisticated 

investors may benefit from ‘‘handholding’’ to make sure they are taking 

basic steps such as saving adequately 

and allocating their investments with an 

appropriate amount of risk. 

The Department believes that small 

savers are especially vulnerable to the 

detrimental effects of conflicted advice. 

With fewer economic resources, small 

savers are particularly susceptible to 

any practices that diminish their 

resources by extracting unnecessary fees 

or by yielding lower returns. These 

savers cannot afford to lose any of their 

retirement savings. Yet conflicts 

sometimes lead advisers to recommend 

products with lower expected net 

returns than available alternatives. 

Consumers’ losses from advisory 

conflicts tend to exceed what can be 

justified as fair compensation for good 

advice as these consumers could often 

benefit more from competitively priced 

impartial advice.421 However, advisory 

conflicts have historically distorted the 

market in ways that have prevented 

consumers from accessing less 

conflicted investment alternatives. Less 

sophisticated investors frequently do 

not know how much they are paying for 

advice and are not equipped to 

effectively monitor the quality of the 

advice they receive.422 Indeed, Agnew 

et al. (2021) found in an experimental 

setting that younger, less financially 

literate, and less numerate participants 

were more likely to hire a low-quality 

adviser.423 It is possible that they do not 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75945 

Financial Vulnerability, Learning and Confirmation 

Bias,’’ ARC Centre of Excellence in Population 

Ageing Research, Working Paper 2021/19, (July 1, 

2021). 424Employee 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, pp. 143–144, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 425Employee 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, pp. 268–271, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 

426Constantijn W.A. Panis & Michael J. Brien, 

Savers With and Without a Pension (2015), https:// 

www.dol.gov/sites/dolgov/files/EBSA/researchers/ 

analysis/retirement/savers-with-and-without-apension.pdf. 

427 In 2022, participants with annual income 

between $15,000 and $150,000 invested less than 

0.5% of their defined contribution plan assets 

through a brokerage account. See Vanguard, How 

America Saves, (2023). https://institutional.

vanguard.com/content/dam/inst/iigtransformation/has/2023/pdf/has-insights/howamerica-saves-report-2023.pdf. 

428 John Beshears, Ruofei Guo, David Laibson, 

Brigitte C. Madrian, & James J. Choi, Automatic 

Enrollment with a 12% Default Contribution Rate 

(August 18, 2023), https://spinup-000d1a-wpoffload-media.s3.amazonaws.com/faculty/wpcontent/uploads/sites/27/2023/08/JPEF20230802.pdf. James Choi, David Laibson, Brigette 

Madrian, & Andrew Metrick, For Better or For 

Worse: Default Effects and 401(k) Savings Behavior, 

In Wise DA (ed.), Perspectives on the Economics of 

Aging. Chicago: University of Chicago Press, pp. 

81–121. https://spinup-000dla-wp-offloadmedia.s3.amazonaws.com/faculty/wp-content/ 

uploads/sites/27/2019/06/betterorworse.pdf. 

429Employee Benefits Security Administration, 

Regulating Advice Markets Definition of the Term 

‘‘Fiuciary’’ Conflicts of Interest—Retirement 

Investment Advice Regulatory Impact Analysis for 

Final Rule and Exemptions, pp. 312-318 & 366-372, 

(April 2016), https://www.dol.gov/sites/dolgov/files/ 

EBSA/laws-and-regulattions/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. ‘‘The 

Department believes that ‘small savers’ (that is, 

those individuals or households with low account 

balances and/or modest means) are most negatively 

impacted by the detrimental effects of conflicted 

advice. With fewer economic resources, small 

savers are particlarly vulnerable to any practices 

that diminish their resources by extracting 

unnecessary fees or by yielding lower returns.’’ (p. 

366.) 

430Employee 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, pp. 312–318, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 

431Employee 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, pp. 318–324, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 

432Employee 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, pp. 318, (April 2016), 

https://www.dol.gov/sites/dolgov/files/EBSA/lawsand-regulations/rules-and-regulations/completedrulemaking/1210-AB32-2/ria.pdf. 

433Employee 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, pp. 308–309, (April 

2016), https://www.dol.gov/sites/dolgov/files/EBSA/ 

laws-and-regulations/rules-and-regulations/ 

completed-rulemaking/1210-AB32-2/ria.pdf. 

434Employee 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, pp. 108–109 & 136– 

137, (April 2016), https://www.dol.gov/sites/dolgov/ 

files/EBSA/laws-and-regulations/rules-andregulations/completed-rulemaking/1210-AB32-2/ 

ria.pdf. 

435 Karthik Padmanabhan, Constantijn Panis & 

Timothy Tardiff, Review of Selected Studies and 

Comments in Response to the Department of 

Labor’s Conflicts of Interest 2015 Proposed Rule 

and Exemptions, (March 2016), https://

www.dol.gov/sites/dolgov/files/EBSA/researchers/ 

analysis/retirement/review-of-selected-studies-andcomments-in-response-to-the-dol-coi-2015- 

proposed-rule-and-exemptions.pdf. 

436Hispanic Leadership Fund and Quantria 

Strategies, LLC, Analysis of the Effects of the 2016 

Department of Labor Fiduciary Regulation on 

Retirement Savings and Estimate of the Effects of 

Reinstatement, (November 2021). 

understand the potential effects of their 

advisers’ conflicts.424 By itself, 

disclosure directly to the consumer is 

unlikely to change this without other 

protections also in place.425

Small investors often save using an 

ERISA plan. Frequently this is the main 

vehicle they use to save for retirement; 

in fact, approximately two-thirds of 

households participating in a pension 

plan do not own an IRA.426 This 

proposal will require advice given to the 

plan fiduciaries to meet a fiduciary 

standard. Improvements in plan design 

and selection of investments on the 

menu will benefit small savers. The vast 

majority of small savers choose 

investments from their plan’s platform 

rather than investing through a 

brokerage account, if their plan even 

offers a brokerage account option.427

Research shows that low-income 

participants tend to be influenced by 

default options more than high income 

participants.428 Small savers will benefit 

from plan fiduciaries choosing default 

options that are well selected and well 

monitored. 

During the 2016 Rulemaking, the 

Department devoted considerable 

attention to the question of small 

investors’ access to financial services, 

including advice.429 The Department 

believed that the rule would benefit 

small investors and generally would not 

adversely affect their access to 

advice.430 It noted ongoing market 

innovations that promised to make good 

advice more affordable and predicted 

that the rule would accelerate these 

efforts.431 However, the Department also 

acknowledged the potential for shortterm disruption and transition costs 432

and noted that the services of 

independent brokers and insurance 

agents might be most affected.433

The 2016 Rulemaking was 

significantly different than the current 

rulemaking in that it imposed a 

fiduciary obligation on virtually all 

investment recommendations 

specifically directed to retirement 

investors, imposed demanding contract 

and warranty requirements in the IRA 

market, which gave investors a direct 

cause of action against firms and 

advisers for breach of the Impartial 

Conduct Standards, and represented a 

significant break from the then-existing 

regulatory baseline. Confronted with 

these significant changes, a number of 

industry commenters both during the 

rulemaking process of the 2016 Final 

Rule, and in the period immediately 

following the rule’s finalization, 

expressed concern that the regulatory 

changes could erode small investors’ 

access to affordable advice and to some 

beneficial financial products, primarily 

based on surveys conducted by the 

industry of its members. 

The Department carefully reviewed 

such comments and papers prior to the 

publishing of the 2016 Final Rule and 

found many contained analytic flaws 

that rendered the comments’ 

conclusions unsupported and 

unreliable. The Department accordingly 

discussed in the 2016 RIA its points of 

concern with the comments’ methods 

and conclusions.434 The Department 

also sought assistance from an outside 

consultant to help review the comment 

letters and claims.435 The consultant 

generally found ‘‘the studies lacking in 

rigor, failing to recognize emerging 

alternatives to traditional offerings of 

investment advice, incorrectly equating 

the benefits of conflicted advice to those 

of non-conflicted advice, or suffering 

from logical fallacies.’’ 

In 2021, the Hispanic Leadership 

Fund and Quantria prepared a paper on 

the effects of reinstatement of the 2016 

Rule. Based on the same approach as 

Quantria’s prior paper, they estimated 

that reinstatement of the rule would 

reduce retirement savings of individuals 

with incomes below $100,000 by $140 

billion over 10 years.436 The 2021 

findings have shortcomings similar to 

those identified in the 2014 analysis, 

such as assuming such policy action 

would eliminate all financial advice 

received by these individuals or 

purporting causation from correlation. 

Padmanabhan, Panis, and Tardiff (2016) 


lotter on DSK11XQN23PROD with PROPOSALS3
75946 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

437U.S. Chamber of Commerce, The Data is In: 

The Fiduciary Rule Will Harm Small Retirement 

Savers, (Spring 2017), https://www.uschamber.com/ 

assets/archived/images/ccmc_fiduciaryrule_harms_

smallbusiness.pdf. 

438 Investment Company Institute comment letter 

August 7, 2017. https://www.ici.org/system/files/ 

attachments/17_conduct_sec_clayton_ltr.pdf. 

439 Deloitte, The DOL Fiduciary Rule: A Study in 

How Financial Institutions Have Responded and 

the Resulting Impacts on Retirement Investors, 

(August 9, 2017). 

440 Deloitte notes in the report that ‘‘The findings 

were made based on the analysis of information and 

data provided by the study participants to Deloitte. 

Deloitte has analyzed, aggregated and summarized 

the information provided, but was not asked to and 

did not independently verify, validate or audit the 

information presented by the study participants.’’ 

441Oxford Economics, How the Fiduciary Rule 

Increases Costs and Decreases Choice, (April 15, 

2017). 442Comment letter submitted by dated on April 

17, 2017 (#1413). 

443Comment letter by Lincoln Financial Network 

dated March 17, 2017 (#1420). 

444 John Crabb, The Fiduciary Rule Poll, 

International Financial Law Review, International 

Finance Law Review (October 2017), https://

media2.mofo.com/documents/171000-fiduciaryrule-poll.pdf. 

445Egan, Mark, Shan Ge, & Johnny Tang, 

Conflicting Interests and the Effect of Fiduciary 

Duty—Evidence from Variable Annuities, 35(12) 

The Review of Financial Studies 5334–5486. 

(December 2022). 

446Cerulli Associates, U.S. Broker/Dealer 

Marketplace 2016: Retooling for a New Competitive 

Landscape, The Cerulli Report. 

447Bruce Kelly, Plenty of Advisers Eager to Scoop 

Up ‘Orphaned’ Accounts, Investment News (August 

2017). 

448Blackrock, Elite RIA Study, (2017). 

point out that several of the paper’s key 

assertions, such as many advisers will 

not be willing to operate under the 

fiduciary standard set out by the 

Department’s rule, do not have 

empirical support and are not consistent 

with current practices. Furthermore, the 

paper’s findings are not applicable to 

the current proposal because it assumes 

reinstatement of the 2016 Rulemaking, 

which was markedly different than the 

current proposal. For instance, the 2016 

Final Rule required fiduciary advisers to 

enter into a written contract with a plan 

or IRA investor, which is not included 

in this proposal. 

Similarly, the U.S. Chamber of 

Commerce cited surveys indicating that 

firms reported they might limit the 

availability of advice in some customer 

arrangements after the 2016 Final Rule 

and predicted that ‘‘up to 7 million IRA 

owners could lose access to investment 

advice altogether.’’ 437 This prediction 

apparently did not consider the 

potential for customers to move to 

different firms or the availability of a 

full range of investment choices and 

advisory arrangements in the market as 

a whole. The Chamber of Commerce and 

others also pointed to an increase in the 

number of orphaned accounts from 

which advisers had resigned and argued 

that many small customers would move 

to automated advice arrangements.438

Additionally, in 2017, Deloitte 

prepared a report that suggested the 

2016 Final Rule had accelerated the 

trend toward fee-based accounts.439

Deloitte interviewed and collected data 

from 21 Securities Industry and 

Financial Markets Association (SIFMA) 

member firms regarding their response 

to the 2016 Final Rule as of June 9, 

2017, its initial applicability date.440 Of 

the member firms that participated in 

the study, nearly half reported that they 

maintained advice for all of their 

brokerage customers, while 29 percent 

limited advice and 24 percent 

eliminated advice. Firms that 

eliminated or limited their advised 

brokerage platforms gave retirement 

investors an option to either transition 

to a fee-based program, self-directed 

brokerage account, or in some cases, a 

new platform they were launching (e.g., 

robo-advice, call-center, self-directed). 

According to Deloitte, firms reported 

that many of the investors that moved 

into self-directed accounts either did 

not want to move to a fee-based account, 

had accounts too small to qualify for 

fee-based advisory accounts at the same 

firms, wished to retain investments that 

were not eligible for the same firms’ feebased accounts, or some combination. 

In a report for the Financial Services 

Institute, a trade group representing 

independent financial firms and 

advisers, Oxford Economics (2017), 

predicted that ‘‘smaller investors will be 

offered robo-investing type account 

services and that these small, often 

entry level, novice investors would lose 

access to personalized financial 

planning.’’ 441 According to a survey 

conducted by the Insured Retirement 

Institute, 70 percent of respondents 

either already had or were considering 

exiting smaller markets such as small 

employer-based plans and lower 

balance IRAs.442 In another survey, twothirds of responding advisers said they 

believed that small investors would 

have less access to professional 

financial advice.443

The preliminary market reaction to 

the 2016 Rule, however, differed from 

those expected by the studies discussed 

above and are inconsistent with more 

rigorous academic research. In a survey 

conducted in September 2017, 82 

percent of broker-dealers had not made 

changes to their handling of smaller, 

retail retirement accounts, although 

about 18 percent had raised their 

minimum account threshold and closed 

smaller accounts.444 In examining the 

effects of the 2016 Final Rule, Egan, Ge, 

and Tang (2022) found that while 

variable annuity sales had decreased, 

there is no evidence that the change 

affected investors with less wealth more 

than others. They concluded that 

variable annuity sales had become more 

sensitive to expenses and that insurers 

had increased the relative availability of 

low-expense products. Even if there is 

reporting error in the maximum upfront 

commission rates data, it would tend to 

understate the effect of brokerage 

commissions on investment 

transactions. Therefore, the study 

concluded that investor welfare had 

improved because of the 2016 

Rulemaking, despite the fact that it was 

vacated.445

A majority of surveyed independent 

registered investment advisers believed 

that small investors would not lose 

access to advice due to the 2016 Final 

Rule.446 Some expected that young 

advisers just starting out would serve 

any abandoned investors to build their 

clientele.447 According to one report, 

many larger and more productive 

registered investment advisers viewed 

robo-advice platforms as a tool to 

expand their client base and attract 

young and low-asset investors, not 

simply as a tool to reduce costs.448

The surveys, papers, and predictions 

described above do not support a 

finding that small investors would lose 

or have lost access to personalized 

advice as a result of fiduciary 

protections, even under the 2016 

Rulemaking, which imposed more 

onerous conditions—and liability—on 

firms and advisers than is true of the 

proposed rule and exemptions. The 

proposal broadly comports to 

Regulation Best Interest, and the 

Department is not aware of any 

substantial, documented reductions in 

access to advice as a result of Regulation 

Best Interest. 

The proposal accommodates different 

types of business models. Still, it is 

possible that, as the market evolves, 

small investors and the firms that serve 

them will increasingly move away from 

commission-based full-service or 

‘‘advised’’ brokerage accounts or 

commission-compensated advice from 

insurance agents. Instead, they may use 

one or more of the following: target-date 

funds (which adjusts risk allocation 

over time based on the target-date); 

receiving advice directly from 

investment firms (which allows for 

interaction with a live adviser though 

the advice tends to focus on in-house 

funds and investments); hourly 

engagement or subscription-based firms 

(which are particularly useful for 

financial planning); and robo-advice 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75947 

449Christine Benz & Jeremy Glaser, The Best 

Ways for Small Investors to Get Advice, 

Morningstar (February 21, 2017), https://

www.morningstar.com/articles/794212/the-bestways-for-smaller-investors-to-get-advice. 

450 Deloitte, The Expansion of Robo-Advisory in 

Wealth Management, (2016). 

451Sarah Holden, Jack VanDerhei, & Steven Bass, 

Target Date Funds: Evidence Points to Growing 

Popularity and Appropriate Use by 401(k) Plan 

Participants, Employee Benefit Research Institute 

(2021). 

452The U.K. Financial Conduct Authority, 

Evaluation of the Impact of the Retail Distribution 

Review and the Financial Advice Market Review, 

(December 2020), https://www.fca.org.uk/ 

publication/corporate/evaluation-of-the-impact-ofthe-rdr-and-famr.pdf. 

453The U.K. Financial Conduct Authority (FCA) 

has highlighted that digital advice can be more 

convenient for consumers and can offer efficiency 

and cost benefits to providers. See FCA, Feedback 

Statement on Call for Input: Regulatory Barriers to 

Innovation in Digital and Mobile Solutions (March 

2016), http://www.fca.org.uk/static/fca/article-type/ 

feedback%20statement/fs16-02.pdf). 

454Michael Wong, Financial Services: Weighing 

the Strategic Tradeoffs of the Fiduciary Rule, 

Morningstar (February 2017), https://

www.morningstar.com/articles/798573/financialservices-weighing-the-strategic-tradeoffs-of-thefiduciary-rule. 

455Wealthfront, Account Minimums to Invest 

with Wealthfront, Wealthfront, https://support.

wealthfront.com/hc/en-us/articles/210994423- 

Account-minimums-to-invest-with-Wealthfront. 

456One example is Betterment. See Betterment, 

Pricing at Betterment, Betterment, https://

www.betterment.com/pricing/. 

457 Jennifer Klass & Eric Perelman, Chapter 3: The 

Transformation of Investment Advice: Digital 

Investment Advisors as Fiduciaries, The Disruptive 

Impact of FinTech on Retirement Systems, Oxford 

University Press 38 (2019). 

458 Kara M. Stein, Comm’r, SEC, Surfing the 

Wave: Technology, Innovation, and Competition— 

Remarks at Harvard Law School’s Fidelity Guest 

Lecture Series, (November 9, 2015), https://

www.sec.gov/news/speech/surfing-wavetechnology-innovation-and-competition-remarksharvard-law-schools-fidelity. 

459Che-Wei Liu, Mochen Yang, & Ming-Hui Wen, 

Judge Me on My Losers: Does Adaptive RoboAdvisors Outperform Human Investors During the 

COVID–19 Financial Market Crash?, Production 

and Operations Management Forthcoming, 

(Accessed Aug. 31, 2023), https://doi.org/10.1111/

poms.14029. 

(which generally provides a customized 

investment mix based on information 

about the investor’s financial 

circumstances and existing investment 

assets).449 Robo-advisers and target-date 

funds, in particular, are rapidly gaining 

market share.450 451

The Department requests comment on 

research or data demonstrating how 

access to advice has changed, 

particularly for small savers, following 

the 2016 Final Rule, vacatur of the Final 

rule, recent regulatory actions taken by 

the Department and the SEC, and the 

increased use of technology to provide 

advice. 

The Department expects the proposed 

rule and exemptions would not 

significantly impact the overall 

availability of affordable investment 

advice but rather improve the quality of 

this advice as conflicts are removed. 

This would apply as well to small 

investors who continue to have access 

to advice. Furthermore, increasing the 

quality of advice provided to retirement 

plan fiduciaries will benefit many 

workers who are participating in a 

defined contribution or defined benefit 

pension plan. 

This is supported by the experience in 

the U.K., which adopted a far more 

aggressive stance in addressing 

conflicted advice than the Department 

proposed in the 2016 Rulemaking or the 

current proposals. When the U.K. 

initially banned commissions for 

investment advice and required more 

stringent qualifications for advisers 

under its Retail Distribution Review 

(RDR) in 2013, the advice rate fell both 

in the lead up to the regulatory change 

and in the years immediately following 

its implementation. However, more 

recent research has found evidence of 

improvements in the market since 2017, 

including a 35 percent increase in the 

number of U.K. adults that received 

financial advice, a 5 percent increase in 

the number of advisers, and a 9- 

percentage point increase in consumer 

awareness of automated advice,452

which suggested a greater focus on 

digital advice as a potential solution to 

provide low-cost investment advice 

with specifically tailored outcomes to 

individual investors at scale.453

The Department has reason to believe 

that such alternative forms of advice 

have become more available in the U.S. 

and, as in the U.K., are beneficial to 

small investors. In recent years, the 

investment advice market has seen an 

increase in financial technology and 

robo-advice service providers, which 

cater to small savers. In 2017, 

Morningstar noted that advances in 

financial technology could increase 

personal advisers’ productivity and 

streamline compliance, enabling them 

to offer higher service levels affordably 

to small investors even as they adapt 

business practices to mitigate conflicts 

of interest.454 Because the core portfolio 

management functions are performed by 

computer algorithm, robo-adviser 

services generally can be expanded 

more easily than traditional advisory 

services. The marginal cost incurred by 

a robo-adviser to serve additional 

customers is very small relative to that 

incurred by traditional advisers. Roboadvisers often serve investors with 

assets under $500,455 and some roboadvisers do not require a minimum 

investment at all.456 The financial needs 

of small investors often can be easily 

met by basic services and given the low 

balance of many such accounts, there 

may be little need or justification for a 

more intensively personalized (and 

expensive) strategy. The increasing 

presence of robo-advice has proved to 

be such an innovation. 

Many robo-advice providers claim to 

offer relatively conflict-free services, 

claiming no commission, no 

performance fees, and no compensation 

from third parties. Others claim to serve 

investors as fiduciaries. Robo-adviser 

offerings are typically comprised of 

ETFs that, in comparison to mutual 

funds, offer little room for revenue 

streams and payment shares that would 

create a conflict of interest for 

investment advisers (e.g., 12b–1 fees, 

subtransfer agent fees).457

Despite the increasing popularity of 

robo-advisers, empirical evidence on 

their performance and returns, 

especially during market downturns, is 

limited. In 2015, SEC Commissioner 

Kara Stein stated, ‘‘Do investors using 

robo-advisors appreciate that, for all 

their benefits, robo-advisors will not be 

on the phone providing counsel if there 

is a market crash?’’ 458 However, a 

recent study by Liu et al. (2021) looked 

specifically at the impact of using roboadvisers on investment performance 

during the 2020 financial crisis caused 

by the COVID–19 global pandemic.459

Using portfolio and transaction data 

from investors at a Taiwanese mutual 

fund online investment platform, Liu et 

al. (2021) found that robo-advice 

significantly reduced the losses 

experienced by investors during the 

crisis and that investors using roboadvice adjusted risk levels and trading 

to adapt to changes in the market while 

other investors did not. Younger users 

and those with less investment 

experience benefited the most from 

robo-advice. 

7. Reform in the United Kingdom 

As regulators in several countries 

have identified failures in their 

investment advice markets, they have 

undertaken a range of regulatory and 

legislative initiatives that directly 

address conflicted investment advice. 

One of the most studied initiatives 

occurred in the developed pension 

markets of the United Kingdom, where 

the Financial Conduct Authority (FCA) 

issued new regulations effective January 

1, 2013, called the Retail Distribution 

Review (RDR). The U.K. focused its new 

regulatory regime on more transparent 

fee-for-service compensation structures. 

The U.K. enacted an aggressive reform 

that banned commissions on all retail 

investment products, not just those 


lotter on DSK11XQN23PROD with PROPOSALS3
75948 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

460 ‘‘Non–advised’’ services, or execution-only 

sales, where no advice or recommendation is given, 

fall outside of the RDR. Thus, a commission is still 

permitted for non-advised annuity sales. The FCA 

is currently examining the risks that exist with the 

purchase of ‘‘non-advised’’ annuities. Please see: 

http://www.fca.org.uk/static/documents/ 

consultation-papers/cp15-30.pdf. 

461UK Financial Conduct Authority, Evaluation 

of the Impact of the Retail Distribution Review and 

the Financial Advice Market Review, U.K. Financial 

Conduct Authority, (December 2020), https://

www.fca.org.uk/publication/corporate/evaluationof-the-impact-of-the-rdr-and-famr.pdf. 

462The costs would be $1,880.2 million over 10- 

year period, annualized to $220.4 million per year 

if a 3 percent discount rate were applied. 463As noted above, the Department is proposing 

to amend the following exemptions: PTE 2020–02 

(Improving Investment Advice for Workers & 

Retirees), PTE 84–24 (Class Exemption for Certain 

Transactions Involving Insurance Agents and 

Brokers, Pension Consultants, Insurance 

Companies, and Investment Company Principal 

Underwriters), PTE 75–1 (Exemptions From 

Prohibitions Respecting Certain Classes of 

Transactions Involving Employee Benefit Plans and 

Certain Broker-Dealers, Reporting Dealers and 

Banks), PTE 80–83 (Class Exemption for Certain 

Transactions Between Investment Companies and 

Employee Benefit Plans), PTE 80–83 (Class 

Exemption for Certain Transactions involving 

Purchase of Securities where Issuer May Use 

Proceeds to Reduce or Retire Indebtedness to 

Parties In Interest), PTE 83–1 (Class Exemption for 

Certain Transactions Involving Mortgage Pool 

Investment Trusts) and PTE 86–128 (Class 

Exemption for Securities Transactions Involving 

Employee Benefit Plans and Broker-Dealers). 

related to retirement savings; 460

required that customers in the U.K. be 

charged directly for advice; and raised 

qualification standards for advisers. 

In marked contrast to these reforms, 

the Department’s proposal does not ban 

commissions or eliminate conflicted 

compensation structures, but rather 

relies upon conduct standards and 

oversight structures designed to 

minimize the harmful impact of 

conflicts of interest, while permitting a 

wide range of business practices and 

models. The Department’s proposal 

represents a middle ground between no 

reform and the outright bans on 

conflicted payments, allowing 

businesses to use a range of 

compensation practices while 

minimizing the harmful impact of 

conflicts of interest on the quality of 

advice. 

Moreover, the Department’s proposed 

regulatory action is narrower than the 

rules passed by the U.K. as it does not 

prescribe additional qualification 

standards for existing financial advisers 

or broadly ban commissions. Those 

rules also sought to overhaul the entire 

financial advice market, while this rule 

focuses on advice to retirement 

investors and seeks to harmonize all 

advice to retirement investors under a 

uniform standard and oversite structure 

including disclosure requirements, 

rather than the existing patchwork of 

regulatory standards. Still, an important 

aim of all these interventions is to 

reduce incentives for financial advisers 

to recommend investments that are not 

in their client’s best interest and thereby 

increase investor confidence in financial 

advice. 

The experience of the U.K. suggests 

that while there are transitional costs of 

overhauling the incentive structure and 

qualifications of the financial advisers, 

the changes have resulted in a modest 

increase in the number of adults 

accessing financial advice as well as 

their satisfaction with the advice they 

are receiving.461 In general, the U.K., 

experience, which was more broadly 

applied, indicates that these reforms 

will not result in a significant reduction 

of advice but will instead increase 

confidence in that advice’s value. 

8. Cost 

To estimate compliance costs 

associated with the proposal, the 

Department considers the marginal cost 

associated with the proposed 

amendments. The Department estimates 

that the proposal would impose total 

costs of $253.2 million in the first year 

and $216.2 million in each subsequent 

year. The estimated compliance costs 

associated with the proposed 

amendments in the rule and PTEs are 

summarized in the table below. Over 10 

years, the costs associated with the 

proposal would total approximately 

$1,553.1 million, annualized to $221.1 

million per year (using a 7 percent 

discount rate).462

TABLE 4—SUMMARY OF MARGINAL COST AND PER-ENTITY COST BY EXEMPTION

Total cost 

First year Subsequent 

years 

3(21)(A)(ii) of ERISA: ............................ ............................

PTE 2020–02 ............................................................................................................................................ $231,518,275 $197,282,110 

PTE 84–24 ................................................................................................................................................ 18,107,613 15,302,629 

Mass Amendments: ............................ ............................

PTE 75–1 .................................................................................................................................................. 3,005,854 3,005,854 

PTE 77–4 .................................................................................................................................................. 0 0 

PTE 80–83 ................................................................................................................................................ 0 0 

PTE 83–1 .................................................................................................................................................. 0 0 

PTE 86–128 .............................................................................................................................................. 609,487 609,487 

Total ................................................................................................................................................... 253,241,229 216,200,080 

The estimated costs associated with 

each exemption are broken down and 

explained below. More details can be 

found in the Paperwork Reduction Act 

sections of each respective exemption, 

also published in today’s Federal 

Register.463

The quantified costs are significantly 

lower than costs in the 2016 RIA due to 

the smaller scope of the proposal 

relative to the 2016 Final Rule as well 

as compliance structures adopted by the 

industry to reduce conflicted advice in 

response to state regulations, Regulation 

Best Interest, PTE 2020–02, and the 

Department’s 2016 Rulemaking. The 

methodology for estimating the costs of 

the proposed amendments to the rule 

and PTEs is consistent with the 

methodology and assumptions used in 

the 2020 analysis for the current PTE 

2020–02. 

Preliminary Assumptions and Cost 

Estimate Inputs 

The Department acknowledges that 

not all entities would decide to use the 

amended PTE 2020–02 and PTE 84–24 

for transactions resulting from fiduciary 

investment advice. Some may instead 

rely on other existing exemptions that 

better align with their business models. 

However, for this cost estimation, the 

Department assumes that all eligible 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75949 

464 67 FR 17263 (Apr. 9, 2002); 85 FR 31884 (May 

27, 2020). 

465The Department estimates 94.2 percent of 

retirement investors receive disclosures 

electronically. This is the sum of the estimated 

share of retirement investors receiving electronic 

disclosures under the 2002 electronic disclosure 

safe harbor (58.2 percent) and the estimated share 

of retirement investors receiving electronic 

disclosures under the 2020 electronic disclosure 

safe harbor (36 percent). 

466United States Postal Service, First-Class Mail, 

United States Postal Service (2023), https://

www.usps.com/ship/first-class-mail.htm. 

467 Internal DOL calculation based on 2023 labor 

cost data. For a description of the Department’s 

methodology for calculating wage rates, see Internal 

DOL calculation based on 2023 labor cost data. For 

a description of the Department’s methodology for 

calculating wage rates. See Employee Benefits 

Security Administration, Labor Cost Inputs Used in 

the Employee Benefits Security Administration, 

Office of Policy and Research’s Regulatory Impact 

Analyses and Paperwork Reduction Act Burden 

Calculations, Employee Benefits Security 

Administration, https://www.dol.gov/sites/dolgov/ 

files/EBSA/laws-and-regulations/rules-andregulations/technical-appendices/labor-cost-inputsused-in-ebsa-opr-ria-and-pra-burden-calculationsjune-2019.pdf. 

468The Department estimates that 15,982 

registered investment advisers that do not provide 

pure robo-advice. 

469For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 

entities would use the PTE 2020–02 and 

PTE 84–24 for such transactions. The 

Department recognizes that this may 

result in an overestimate. 

The Department does not have 

information on how many retirement 

investors—including plan beneficiaries, 

plan participants, and IRA owners— 

receive electronic disclosures from 

investment advice fiduciaries. For the 

purposes of this analysis, the 

Department assumes that the percent of 

retirement investors receiving electronic 

disclosures would be similar to the 

percent of plan participants receiving 

electronic disclosures under the 

Department’s 2020 and 2002 electronic 

disclosure safe harbors.464 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.465 For 

disclosure sent by mail, the Department 

estimates that entities will incur a cost 

of $0.66 466 for postage and $0.05 per 

page for material and printing costs. 

Additionally, the Department assumes 

that several types of personnel would 

perform the tasks associated with 

information collection requests at an 

hourly wage rate of $63.45 for clerical 

personnel, $128.11 for a top executive, 

$133.05 for a computer programmer, 

$158.94 for an insurance sales agent, 

$159.34 for a legal professional, $190.63 

for a financial manager, and $219.23 for 

a financial adviser.467

Finally, the Department assumes 

affected entities would likely incur only 

incremental costs if they were already 

subject to rules or requirements from the 

Department or another regulator. 

Costs Associated With Amendments to 

Section 3(21)(A)(ii) of the Employee 

Retirement Income Security Act of 1974 

and Section 4975(e)(3)(B) of the Code 

As discussed in the Affected Entities 

section, the proposed amendment to the 

rule would change the definition of a 

fiduciary such that some financial 

institutions previously not considered 

fiduciaries would be so under the 

proposed rule. Additionally, some 

financial institutions, who already 

provide fiduciary services for some 

clients or types of services, would be 

required to act as a fiduciary for more 

services under the proposed rule. 

Entities may incur some cost 

associated with the proposed 

amendments to regulations under 

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

4975(e)(3)(B) of the Code. While most of 

the cost incurred would be associated 

with the proposed amendments to 

related PTEs, entities who did not 

previously identify as a fiduciary may 

also incur some transition costs. These 

costs would likely differ significantly by 

type of financial institution. For 

instance, retail broker-dealers subject to 

Regulation Best Interest or registered 

investment advisers subject to the 

Investment Advisers Act would be 

closer to satisfying the requirements of 

a fiduciary under ERISA than an 

insurance company or independent 

producer selling annuity products. The 

Department requests comment on the 

costs these entities would incur as a 

result of becoming a fiduciary under 

this rule, as well as the underlying data 

to estimate these costs. The Department 

is particularly interested in costs that 

would not be incurred in satisfying the 

requirements to the PTEs, such as legal 

costs, fiduciary insurance costs, 

technology costs, human capital costs, 

or other costs of this nature. The 

Department also requests comment on 

how plans would be affected by the 

proposed rule. 

Costs Associated With PTE 2020–02 

The Department proposes to amend 

PTE 2020–02 to require the provision of 

additional disclosures to retirement 

investors receiving advice from 

financial institutions 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. As such, the 

Department expects that satisfying the 

proposal would not be unduly 

burdensome. 

Summary of Affected Entities 

The entities that the Department 

expects to be affected by the proposed 

amendments to the PTE are also affected 

by the existing PTE 2020–02. The 

Department estimates that 19,290 

financial institutions, composed of 

1,894 broker-dealers, 15,982 registered 

investment advisers,468 183 insurers, 

200 pure robo-advisers, 1,011 pension 

consultants, and 20 investment 

company underwriters would be 

affected by the proposed 

amendments.469

The Department recognizes that the 

proposed amendments may change the 

number of financial institutions who 

choose to rely on PTE 2020–02. 

Consistent with its initial analysis of the 

exemption in 2020, this analysis 

assumes that all eligible entities 

currently rely on the exemption and 

would continue to rely on the 

exemption if amended as proposed. As 

a result, this analysis does not reflect 

any change in the number of entities 

relying on the exemption in response to 

these amendments. The Department 

requests comment on how the proposed 

amendments might change the number 

of affected entities relying on PTE 2020– 

02. 

Additionally, the Department 

recognizes that entities within the 

insurance industry are subject to 

different regulatory regimes, depending 

on the types of products they offer. The 

Department does not have data on what 

proportion of entities are subject to the 

requirements in the NAIC Model 

regulation, or obligations subject to 

regulation by the SEC or state insurance 

departments. The analysis below 

considers cost to comply if the entity 

currently meets none of the 

requirements. This likely is an 

overestimate, as many of these entities 

are already meeting some, if not most, 

of the requirements of this proposal. 

The Department requests comments on 

this assumption. 

Costs To Review the Rule 

The Department estimates that all of 

the 19,290 financial institutions 

discussed above would be affected by 

the proposed amendments to PTE 2020– 

02 and would need to review the rule. 

The Department estimates that such a 

review would take a legal professional, 

on average, nine hours to review the 

rule, resulting in an estimated cost of 


lotter on DSK11XQN23PROD with PROPOSALS3
75950 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

470The burden is estimated as: (19,290 entities × 

9 hours) = 173,610 hours. A labor rate of $159.34 

is used for a legal professional. The labor rate is 

applied in the following calculation: (38,580 

entities × 9 hours) × $159.34 = $27,663,017. 

471The number of financial entities needing to 

update their written acknowledgement is estimated 

as: (1,894 broker-dealers × 10%) + (7,570 SECregistered investment advisers × 10%) + (8,412 

state-registered investment advisers × 10%) + (183 

insurers × 10%) = 1,806 financial institutions 

updating existing disclosures. The number of 

financial entities needing to draft their written 

acknowledgement is estimated as: 200 robo-advisers 

+ 1,011 pension consultants + 20 investment 

company underwriters = 1,231 financial institutions 

drafting new disclosures. The burden is estimated 

as: (1,806 financial institutions × (10 minutes ÷ 60 

minutes)) + (1,231 financial institutions × (30 

minutes ÷ 60 minutes) = 917 hours. A labor rate of 

$159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: [(1,806 

financial institutions × (10 minutes ÷ 60 minutes)) 

+ (1,231 financial institutions × (30 minutes ÷ 60 

minutes)] × $159.34 = $146,035. 

472As discussed in the Regulatory Flexibility Act 

analysis, the Department estimates that 10 roboadvisers, 930 pension consultants, and 20 

investment company underwriters are considered 

small entities. For more information, refer to the 

Affected Entities discussion in the Regulatory 

Flexibility Act section of this document. 

473The number of financial entities needing to 

update their written description of services is 

estimated as: (1,894 broker-dealers + 7,750 SECregistered investment advisers + 8,412 stateregistered investment advisers + 183 insurers) = 

18,059 financial institutions updating existing 

disclosures. The number of financial entities 

needing to draft their written description of services 

is estimated as: (200 robo-advisers + 1,011 pension 

consultants + 20 investment company underwriters) 

= 1,231 financial institutions drafting new 

descriptions. Of these, 960 financial institutions, or 

10 robo-advisers, 930 pension consultants, and 20 

investment company underwriters, are considered 

small entities. For more information, refer to the 

Affected Entities discussion in the Regulatory 

Flexibility Act section of this document. The 

burden is estimated as: (18,059 financial 

institutions × (30/60 hours)) + (960 small financial 

institutions × 1 hour) + [(1,231 financial 

institutions¥960 small financial institutions) × 5 

hours] = 11,345 hours. A labor rate of $159.34 is 

used for a legal professional. The labor rate is 

applied in the following calculation: {(18,059 

financial institutions × (30/60 minutes)) + (960 

small financial institutions × 1 hour) + [(1,231 

financial institutions –960 small financial 

institutions) × 5 hours]} × $159.34 = $1,807,712. 

$27.7 million in the first year.470 This 

estimate also assumes all effected 

financial institutions expend the effort, 

however, that may not be the case as 

other arrangements may exist where 

individual financial firms receive 

compliance assistants from other 

sources. The Department asks for 

comments on this estimate. 

Costs Associated With General 

Disclosures for Investors 

Costs Associated With Modifications of 

Existing Disclosure Requirements 

As discussed in the preamble, 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: 

(1) a written acknowledgment that the 

financial institution and its investment 

professionals are fiduciaries; 

(2) a written description of the 

services to be provided and any 

conflicts of interest of the investment 

professional and financial institution; 

and 

(3) 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. 

As discussed in more detail in the 

preamble and below, the proposed 

amendments make minor language edits 

to the existing disclosures. 

The proposed amendment makes 

minor edits to the written 

acknowledgment that the financial 

institution and its investment 

professionals are fiduciaries. Financial 

institutions would be required to 

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. 

This condition would not be met if the 

fiduciary acknowledgement states that 

the financial institution and its 

investment professionals ‘‘may’’ be 

fiduciaries or would become fiduciaries 

only ‘‘if’’ or ‘‘when’’ providing fiduciary 

investment advice as defined under the 

applicable regulation. 

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 institution, on average, 10 

minutes to update existing disclosures. 

Robo-advisers, pension consultants, and 

investment company underwriters, who 

are not covered under the existing 

exemption would need to draft the 

acknowledgement. The Department 

estimates that it would take a legal 

professional at these entities, on 

average, 30 minutes to draft the 

acknowledgement. Updating and 

drafting the acknowledgement is 

estimated to result in a cost of 

approximately $0.1 million in the first 

year.471

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. Robo-advisers, pension 

consultants, and investment company 

underwrites, who are not covered under 

the existing exemption, would need to 

draft a written description of services 

provided, which the Department 

estimates would take a legal 

professional a large institution five 

hours and a legal professional at a small 

institution one hour, on average, to 

prepare such a draft.472 The Department 

requests comment on how long it would 

take entities of varying size to prepare 

such a disclosure. This results in an 

estimated cost of approximately $1.8 

million in the first year.473

The Department requests comment on 

the average time estimates to satisfy 

each of the new requirements in the 

proposed amendments. 

Costs Associated With New Disclosure 

Requirements 

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, 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, 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 describes how the 

Retirement Investor can get the 

information, free of charge. 

Under the Investment Advisers Act 

and the SEC’s Regulation Best Interest, 

most registered investment advisers and 

broker-dealers with retail investors 

already provide disclosures that the 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75951 

474Form CRS Relationship Summary; 

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

2019). 

475The burden is estimated as: [(1,894 brokerdealers + 15,982 registered investment advisers) × 

(30 minutes ÷ 60 minutes)] + [(183 insurers + 200 

robo-advisers + 1,011 pension consultants, and 20 

investment company underwriters) × 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) × (30 

minutes ÷ 60 minutes)] + [(183 insurers + 200 roboadvisers + 1,011 pension consultants, and 20 

investment company underwriters) × 1 hour]} × 

$159.34 = $1,649,488. 

476The burden is estimated as: [(1,894 brokerdealers + 15,982 registered investment advisers) × 

(30 minutes ÷ 60 minutes)] + [(183 insurers + 200 

robo-advisers + 1,011 pension consultants, and 20 

investment company underwriters) × 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) × (30 

minutes ÷ 60 minutes)] + [(159 insurers + 200 roboadvisers + 1,060 pension consultants, and 20 

investment company underwriters) × 1 hour]} × 

$159.34 = $1,649,488. 

477The Department estimates the number of 

affected plans and IRAs to be equal to 50 percent 

of rollovers from retirement plans to IRAs. As 

discussed in the Affected Entities section, the 

Department estimates that there are 6,367,005 total 

rollovers annually. 

478The number of retirement investors receiving 

paper disclosures is estimated as: (3,183,503 

retirement investors × 5.8%) = 184,643 paper 

disclosures. 

479The cost is estimated as: (184,643 paper 

disclosures × 2 pages) × $0.05 = $18,464. 

480The burden is estimated as: (19,290 financial 

institutions × 10 disclosures) × (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: [(19,290 financial 

institutions × 10 disclosures) × (5 minutes ÷ 60 

minutes)] × $63.45 = $1,019,959. 

481The cost is estimated as: (19,290 financial 

institutions × 10 disclosures × 2 pages × $0.05) + 

(19,290 financial institutions × 10 disclosures × 

$0.66)) × (5.8%) = $8,503. 

482The cost in the first year is estimated as: 

($146,035 to prepare the written acknowledgment + 

$1,807,633 to prepare the written description of 

services provided + $1,649,488 to prepare the 

written statement of the Best Interest standard of 

care + $1,649,488 to prepare the written statement 

informing the investor of their right to obtain a 

written description of the financial institution’s 

policies and procedures + $18,464 to prepare and 

send disclosures + $1,019,959 to prepare requested 

written policies and procedures + $8,053 for 

material costs associated with requested policies 

and procedures) = $6,299,569. The cost in 

subsequent years is attributable to the $18,464 to 

prepare and send disclosures + $1,019,959 to 

prepare requested written policies and procedures 

+ $8,503 for material costs associated with 

requested policies and procedures = $1,046,926. 

Note that the total value may not equal the sum of 

the parts due to rounding. 

Department expects would satisfy these 

requirements.474

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 that a legal 

professional employed by a brokerdealer or registered investment advisers, 

on average, would take 30 minutes to 

modify existing disclosures 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 a cost estimate of 

approximately $1.7 million in the first 

year.475

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 would 

require financial institutions to 

maintain sufficient records to allow 

them to meaningfully respond to 

investors’ requests to demonstrate how 

the financial institution and its 

investment professionals are 

compensated in connection with their 

recommendations. The Department 

expects that many financial institutions’ 

disclosures already substantially 

comply with this regulation or would 

require modest adjustments to do so. To 

satisfy this requirement, the Department 

estimates that a legal professional for 

broker-dealers and registered 

investment advisers would require, 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 a 

cost estimate of approximately $1.7 

million in the first year.476

The Department requests comment on 

the average time estimates to satisfy 

each of the new requirements in the 

proposed amendments. 

Costs Associated With the Provision of 

Disclosures to Retirement Investors 

Financial institutions would incur 

costs associated with preparing and 

sending the new disclosure 

requirements. The Department does not 

have data on the number of retirement 

investors that have relationships with 

financial institutions that would engage 

in transactions covered under the 

amended exemption. For the purposes 

of this analysis, the Department uses the 

number of participants who roll over 

defined contribution plan assets to IRAs 

as a proxy for the number of retirement 

investors that would receive general 

disclosures. Accordingly, the 

Department estimates that 

approximately 3.2 million retirement 

investors have relationships with 

financial institutions and are likely to 

engage in transactions covered under 

this PTE.477

Of these 3.2 million retirement 

investors, it is assumed that 5.8 percent, 

or 184,643 retirement investors would 

receive paper disclosures.478 The 

Department assumes that there would 

not be a measurable increase in the time 

burden for a clerical worker to prepare 

the additional disclosures for 

individuals already receiving 

disclosures. The Department estimates 

that providing the additional 

disclosures would require two 

additional pages, resulting in a material 

cost estimate of $18,464.479

Financial institutions would also 

incur costs associated with preparing 

and sending requested written 

descriptions of policies and procedures 

and information regarding costs, fees, 

and compensation. The Department 

does not have data on how often 

investors would request this 

information. 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 comments on the assumption 

that financial institutions readily have 

this information available and the time 

necessary to gather such information. 

The Department estimates it would take 

a clerical worker five minutes to 

distribute, regardless of whether it is 

sent electronically or by mail. This 

results in an estimated cost of 

approximately $1.0 million.480 As 

discussed at the beginning of the cost 

section, the Department assumes that 

5.8 percent of these disclosures (11,188 

disclosures) would be mailed. 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, which the Department 

estimates to cost approximately 

$8,503.481

Summary Costs Associated With the 

General Disclosures 

The Department estimates that the 

total cost associated with preparing and 

providing the general disclosures 

discussed above would be 

approximately $6.3 million in the first 

year and $1.0 million in subsequent 

years.482

Costs Associated With Rollover 

Documentation and Disclosure for 

Financial Institutions 

Compared to the requirements in the 

existing exemption, the proposed 

amendment would clarify the rollover 

disclosure requirements in Sections 

II(b)(3) and II(c)(3) of PTE 2020–02. 

Before engaging in a rollover or making 


lotter on DSK11XQN23PROD with PROPOSALS3
75952 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

483For more information on how the number of 

IRA rollover is estimated, refer to the Affected 

Entities section. In light of ongoing litigation, the 

Department is assuming for purposes of this 

discussion that all Affected Entities will become 

subject to these requirements, regardless of whether 

they currently provide fiduciary investment advice. 

484 Deloitte, Regulation Best Interest: How Wealth 

Management Firms are Implementing the Rule 

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

485The burden is estimated as: (3,119,833 

rollovers x 48% × (30 minutes ÷ 60 minutes)) + 

(3,119,833 rollovers × 52% × (5 minutes ÷ 60 

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 × 48% × (30 minutes ÷ 60 

minutes)) + (3,119,833 rollovers × 52% × (5 minutes 

÷ 60 minutes)) × $219.23 = $193,788,961. 

486For more information on this estimate, refer to 

the Affected Entities section. 

487The burden is estimated as: (382 financial 

institutions × 2 hours) = 764 hours. A labor rate of 

$159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: (382 

financial institutions × 2 hours) × $159.34 = 

$121,736. 

488Estimates are based on 2021 EFAST filings as 

of August 22, 2023. 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. 

489The burden is estimated as: (955 employers × 

(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 × (1 minute ÷ 60 minutes)) × $63.45 = 

$1,010. 

a recommendation to a plan participant 

as to the post-rollover investment of 

assets, the 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 IRA, if 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. 

As discussed in the Affected Entities 

section, the Department estimates that 

3,119,832 rollovers would be affected by 

the proposed amendments to PTE 2020– 

02.483

As a best practice, the SEC already 

encourages firms to record the basis for 

significant investment decisions, such 

as rollovers, although doing so is not 

required under Regulation Best Interest. 

In addition, some firms may voluntarily 

document significant investment 

decisions to demonstrate compliance 

with applicable law, even if not 

required. SIFMA commissioned Deloitte 

to conduct a survey of its member firms 

to learn how they expected to 

implement Regulation Best Interest. The 

survey was conducted by December 31, 

2019, prior to Regulation Best Interest’s 

effective date of June 30, 2020. Just over 

half (52 percent) of the firms surveyed 

will require their financial advisers to 

provide best interest rationale 

documentation for rollover 

recommendations.484 The Department 

estimates that documenting each 

rollover recommendation will require 

30 minutes for a personal financial 

adviser whose firms currently do not 

require rollover documentations and 

five minutes for financial advisers 

whose firms already require them to do 

so. This results in an estimated annual 

cost of approximately $193.8 million.485

The Department requests comment on 

how long such documentation would 

take. 

The Department assumes financial 

institutions that do not have enhanced 

technology capabilities for other 

regulations will take a mixed approach, 

combining current technology solutions 

with manual processes. Accordingly, 

the Department estimates that financial 

institutions already requiring rollover 

documentation will face no more than a 

nominal burden increase, and only to 

the extent that their current compliance 

systems do not meet the requirements of 

this exemption. Those firms currently 

not documenting rollover 

recommendations will likely face a 

larger, but still somewhat limited 

burden. 

Costs Associated With Disclosures for 

PEPs 

Financial institutions providing 

investment advice for PEPs must give 

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 as of August 22, 2023, there 

are 382 PEPs and 134 PPPs.486

The Department does not have data 

on what percent of PEPs would be 

affected by the exemption. For the 

purposes of this analysis, the 

Department assumes that all PEPs 

would be affected. The Department 

requests comment on this assumption. 

The Department assumes that, on 

average, one financial institution would 

need to prepare one disclosure for each 

PEP in the first year. The Department 

requests comment on this assumption 

and how frequently PPPs would provide 

investment advice to a PEP within the 

framework of the exemption. The 

Department estimates that, on average, it 

would take a legal professional at each 

entity two hours to prepare the 

disclosure, resulting in a cost of 

approximately $0.1 million in the first 

year.487

In addition to providing the 

disclosure described above to each PEP, 

financial institutions must also provide 

these disclosures to each participating 

employer. According to filings 

submitted to the Department by August 

22, 2023, there are 955 employers in 

PEPs.488 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, 

resulting in an estimated cost of 

approximately $1,010.489

Costs Associated With Annual Report of 

Retrospective Review for Financial 

Institutions 

PTE 2020–02 currently requires 

financial institutions to conduct a 

retrospective review at least annually 

that is reasonably designed to prevent 

violations of, and achieve compliance 

with the conditions of this exemption, 

the Impartial Conduct Standards, and 

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, and to ensure they 

remain prudently designed, effective, 

and compliant with the exemption. 

Under the original exemption, financial 

institutions were already required to 

maintain their policies and procedures. 

The Department’s estimates for any 

additional cost for entities updating 

their policies and procedures are 

discussed in the discussion of costs 

associated with written policies and 

procedures for financial institutions, 

below. 

Robo-advisers, pension consultants, 

and investment company underwrites, 

who are not covered under the existing 

exemption, would incur costs associated 

with conducting the annual review. The 

Department does not have data on how 

many would incur costs associated with 

this requirement; however, the 

Department expects that many of these 

entities already develop an audit report. 

The Department assumes that 10 

percent of these entities do not currently 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75953 

490The number of total entities affected is 

estimated as: (200 robo-advisers + 1,011 pension 

consultants + 20 investment company underwriters) 

× 10% = 123 entities. As discussed in the 

Regulatory Flexibility Act analysis of this 

document, 10-robo advisers, 930 pension 

consultants, and 20 investment company 

underwriters are estimated to be small entities. The 

number of small entities affected is estimated as: 

(10 robo-advisers + 930 pension consultants + 20 

investment company underwriters) × 10% = 96 

small entities. 

491The burden is estimated as: (96 financial 

institutions × 5 hours) + (27 financial institutions 

× 10 hours) = 750 hours. A labor rate of $159.34 

is used for a legal professional. The labor rate is 

applied in the following calculation: [(96 financial 

institutions × 5 hours) + ((27 financial institutions 

× 10 hours)] × $159.34 = $119,505. 

492The number of total entities affected is 

estimated as: (200 robo-advisers + 1,011 pension 

consultants + 20 investment company underwriters) 

× 90% = 1,108 entities. As discussed in the 

Regulatory Flexibility Act analysis of this 

document, 10 robo-advisers, 930 pension 

consultants, and 20 investment company 

underwriters are estimated to be small entities. The 

number of small entities affected is estimated as: 

(10 robo-advisers + 930 pension consultants + 20 

investment company underwriters) × 90% = 864 

small entities. The burden is estimated as: (905 

financial institutions × 1 hours) + (248 financial 

institutions × 2 hours) = 1,401 hours. A labor rate 

of $159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: [(864 

financial institutions × 1 hour) + (244 financial 

institutions × 2 hours)] × $159.34 = $215,428. 

493The burden is estimated as: (960 financial 

institutions × 2 hours) + ((1,231¥ 960 financial 

institutions) × 4 hours) = 3,004 hours. A labor rate 

of $190.63 is used for a top executive. The labor rate 

is applied in the following calculation: [(960 

financial institutions × 2 hours) + ((1,231¥ 960 

financial institutions) × 4 hours)] × $190.63 = 

$572,653. 

494This is estimated as: ($119,505 + $215,428 + 

$572,653) = $907,586. 

495As discussed in the Regulatory Flexibility Act 

analysis, the Department estimates that 960 entities, 

consisting of 10 robo-advisers, 930 pension 

consultants, and 20 investment company 

underwriters, are considered small entities. For 

more information, refer to the Affected Entities 

discussion in the Regulatory Flexibility Act section 

of this document. 

496The burden is estimated as: (165 × (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 × (15 

minutes ÷ 60 minutes)) × $63.45 = $2,617. 

497The burden is estimated as: (50 × (15 minutes 

÷ 60 minutes)) = 12.5 hours. A labor rate of $63.45 

is used for a clerical worker. The labor rate is 

applied in the following calculation: (50 × (15 

minutes ÷ 60 minutes)) × $63.45 = $793. 

498The cost in the first year is estimated as: 

($2,635,404 + $2,617) = $2,638,021. The cost in 

subsequent years is estimated as: ($1,536,834 + 

$793) = $1,537,627. 

499The first-year total cost includes: ($27,663,017 

for rule review + $6,422,616 for general disclosures 

+ $193,788,961 for rollover disclosures + 907,585 

for the retrospective review + $2,736,095 for 

policies and procedures) = $231,518,275. The total 

cost in subsequent years includes: ($1,047,936 for 

general disclosures + $193,788,961 for rollover 

disclosures + 907,585 for the retrospective review 

+ $1,537,627 for policies and procedures) = 

$197,282,110. Note, the total values may not equal 

the sum of the parts due to rounding. 

produce an audit report, while the 

remaining 90 percent would need to 

make modifications to satisfy the 

requirements. This results in an 

estimate of 123 entities not currently 

producing audit reports, of which 96 are 

small entities and 27 are large 

entities.490 The Department requests 

comment on this assumption. 

The Department estimates that it 

would take a legal professional five 

hours for small firms and ten hours for 

large firms to produce a retrospective 

review report, resulting in an estimated 

cost of $0.1 million.491 The Department 

estimates that it would take a legal 

professional one hour for small firms 

and two hours for large firms to modify 

existing reports, on average. This results 

in an estimated cost of $0.2 million.492

The Department estimates it will take 

a certifying officer two hours for small 

firms and four hours for large firms to 

review the report and certify the 

exemption, resulting in an estimated 

cost burden of approximately $0.6 

million.493

The results in a total cost annual cost 

of $0.9 million.494

Costs Associated With Written Policies 

and Procedures for Financial 

Institutions 

The time required to establish, 

maintain, and enforce written policies 

and procedures prudently designed to 

ensure compliance with the Impartial 

Conduct Standards would depend on 

the size and complexity as of the 

financial institution. The Department 

estimates that this would take a legal 

professional 10 hours at a large firm and 

five hours at a small firm in the first 

year and 30 minutes in subsequent 

years.495 The Department assumes that 

most financial institutions affected by 

the existing exemption likely already 

satisfy much of this requirement, as it 

would be a customary business practice 

to periodically review required policies 

and procedures. 

The proposed amendments would 

also require financial institutions to 

provide their complete policies and 

procedures to the Department upon 

request. Based on the number of past 

cases as well as 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 assumes that a 

clerical worker would prepare and send 

their complete policies and procedures 

to the Department and that it would take 

them 15 minutes. The Department 

requests comment on these 

assumptions. The Department estimates 

that the requirement would result an 

estimated cost of approximately $2,600 

in the first year 496 and $790 in 

subsequent years.497 The Department 

assumes financial institutions would 

send the documents electronically and 

thus would not incur costs for postage 

or materials. 

This results in a total cost of $2.6 

million in the first year and $1.5 million 

in subsequent years.498

Summary of Total Cost for the Proposed 

Amendments to PTE 2020–02 

The Department estimates that in 

order to meet the additional conditions 

of the amended PTE 2020–02, affected 

entities would incur a total cost of 

$231.6 million and a per-firm cost of 

$12,002 in the first year and a total cost 

of $197.3 million and a per-firm cost of 

$10,227 in subsequent years.499

Costs Associated With PTE 84–24 

Currently, PTE 84–24 provides an 

exemption for insurance agents, 

insurance brokers, and pension 

consultants to receive a sales 

commission from an insurance company 

for the purchase of an insurance or 

annuity contract with plan or IRA 

assets. Relief is also provided for a 

principal underwriter for an investment 

company registered under the 

Investment Company Act of 1940 to 

receive a sales commission for the 

purchase of securities issued by the 

investment company with plan or IRA 

assets. 

The Department is proposing an 

amendment to PTE 84–24 that would 

exclude many investment advice 

fiduciaries from the existing relief. 

Except for independent producers, 

fiduciary advisers would be expected to 

rely on the relief provided by PTE 2020– 

02, rather than PTE 84–24. The 

proposed amendment would provide 

exemptive relief to fiduciaries who are 

independent producers that recommend 

annuities from an unaffiliated financial 

institution to retirement investors. 

Relief for independent producers 

depends on protective conditions that 

substantially mirror those contained in 

PTE 2020–02. The conditions are 

tailored to protect retirement investors 

from the specific conflicts that arise for 

independent producers who are 

compensated through commissions 

when providing investment advice to 

retirement investors regarding the 

purchase of an annuity. 

The Department recognizes that 

entities within the insurance industry 

are subject to different regulatory 

regimes, depending on the types of 

products they offer. The Department 

does not have data what proportion of 


lotter on DSK11XQN23PROD with PROPOSALS3
75954 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

500For more information on how the number of 

each entity type is calculated, refer to the Affected 

Entities section. 

501For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 

502The burden is estimated as: (5,246 entities × 

2 hours) = 10,492 hours. A labor rate of $159.34 is 

used for a legal professional. The labor rate is 

applied in the following calculation: (5,246 entities 

× 2 hours) × $159.34 = $1,671,795. 

503The burden is estimated as: (215 insurance 

companies + 200 independent producers) × (10 

minutes ÷ 60 minutes) = 69 hours. A labor rate of 

approximately $159.34 is used for a legal 

professional. The labor rate is applied in the 

following calculation: [(215 insurance companies + 

200 independent producers) × (10 minutes ÷ 60 

minutes)] × $159.34 = $11,021. 

504The burden is estimated as: (215 insurance 

companies + 200 independent producers) × (30 

minutes ÷ 60 minutes) = 208 hours. A labor rate of 

approximately $159.43 is used for a legal 

professional. The labor rate is applied in the 

following calculation: [(215 insurance companies + 

200 independent producers) × (30 minutes ÷ 60 

minutes)] × $159.34 = $33,063. 

505The burden is estimated as: (4,000 

independent producers × (30 minutes ÷ 60 

minutes)) = 2,000 hours. A labor rate of 

approximately $159.34 is used for a legal 

professional. The labor rate is applied in the 

following calculation: (4,000 independent 

entities are subject to the requirements 

in the NAIC Model regulation, SEC, or 

state insurance departments. The 

analysis below considers the full cost of 

compliance. This likely is an 

overestimate, as many of these entities 

are already meeting some, if not most, 

of the requirements of this proposal. 

The Department requests comment on 

this assumption. 

Summary of Affected Entities 

The Department expects that 5,246 

financial entities would be affected by 

the proposed amendments, consisting of 

1,011 pension consultants, 10 

investment company principal 

underwriters that service plans, 10 

investment company principal 

underwriters that service IRAs, 4,000 

independent producers, and 215 

insurance companies would be affected 

by the proposed amendments to PTE 

84–24.500 Additionally, the Department 

estimates that 1,722 plans would be 

affected by the proposed 

amendments.501

Costs to Rule Review 

The Department estimates that the 

financial entities—including pension 

consultants, investment company 

principal underwriters, and insurance 

companies—currently relying on the 

exemption and independent producers 

affected by the proposed amendments 

would need to review the rule. The 

Department estimates that such a review 

will take a legal professional, on 

average, two hours to review the rule, 

resulting in an estimated cost of 

approximately $1.7 million.502

Costs Associated With Disclosures for 

Investors 

The proposed amendment would 

require independent producers to 

provide disclosures to retirement 

investors before engaging in a 

transaction covered by this exemption. 

Under the proposed amendments, 

independent producers seeking relief 

would be required to provide: 

• a written fiduciary 

acknowledgement, 

• a written statement of the Best 

Interest standard of care owed, 

• a written description of the service 

provided by the independent producer 

and the products they are licensed to 

sell, 

• a written statement of the 

independent producer’s material 

conflicts of interest and the amount of 

insurance commission paid in 

connection with the purchase by a 

retirement investor of the recommended 

annuity, and 

• a written explanation of whether a 

rollover is in the retirement investor’s 

best interest before engaging in a 

rollover or making a recommendation to 

a plan participant. 

Costs Associated With Preparing 

General Disclosure Documents 

For more generalized disclosures, the 

Department assumes that insurance 

companies would prepare and provide 

disclosures to independent producers 

selling their products. However, some of 

the disclosures are tailored specifically 

to the independent producer. For these, 

the Department assumes that the 

disclosure would need to be prepared 

by the independent producer 

themselves. The Department recognizes 

that some may rely on intermediaries in 

the distribution channel to prepare more 

specific disclosures and that the costs 

associated with the preparation would 

be covered by a commission retained by 

the intermediary for its services. The 

costs for the intermediary to prepare the 

disclosure may result in an increase in 

commission. The Department expects 

that this increase in commission would 

not exceed the cost of preparing the 

disclosure in house. 

The Department is including model 

language in the preamble to PTE 84–24 

that details what should be included in 

fiduciary acknowledgment for financial 

institutions. The Department assumes 

that the time associated with preparing 

the disclosures would be minimal. 

Further, these disclosures are expected 

to be uniform in nature. Accordingly, 

the Department estimates that these 

disclosures would not take a significant 

amount of time to prepare. 

Due to the nature of independent 

producers, the Department assumes that 

most financial institutions would make 

draft disclosures available to 

independent producers, pertaining to 

their fiduciary status. However, the 

Department expects that a small 

percentage of independent producers 

may draft their own disclosures. The 

Department assumes that an in-house 

attorney for all 215 insurance 

companies and 5 percent of 

independent producers, or 200 

independent producers, would spend 10 

minutes of legal staff time to produce a 

written acknowledgement in the first 

year. This results in an estimated cost of 

approximately $11,000 in the first 

year.503

Regarding the required written 

statement of the Best Interest standard 

of care owed by the independent 

producer, the Department similarly 

assumes that most financial institutions 

would make draft disclosures available 

to independent producers. The 

Department assumes that an in-house 

attorney for all 215 insurance 

companies and 5 percent of 

independent producers, or 200 

independent producers, would spend 30 

minutes of legal staff time to prepare the 

statement in the first year. This results 

in an estimated cost of approximately 

$33,100 in the first year.504

The written description of the 

services provided and the products the 

independent producer is licensed to sell 

would likely need to be produced by the 

independent producer. The Department 

recognizes that many independent 

producers may not have the internal 

resources to prepare such disclosure. 

The Department expects that some may 

rely on intermediaries in the 

distribution channel to prepare the 

disclosures and some may seek external 

legal support. However, the Department 

expects that the costs associated with 

the preparation would be covered by 

commissions retained by the 

intermediary for its services or by the 

fee paid to external legal support. As 

such, the Department still attributes this 

cost to the independent producer. The 

Department requests comment on this 

assumption. 

Accordingly, the Department assumes 

that all 4,000 independent producers in 

this analysis would need to prepare the 

disclosure. The Department assumes 

that for each of these independent 

producers, an attorney would spend 30 

minutes of legal staff time drafting the 

written description. This results in an 

estimated cost of approximately $0.3 

million in the first year.505


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75955 

producers × (30 minutes ÷ 60 minutes)) × $159.34 

= $318,680. 

506The burden is estimated as: (4,000 

independent producers × 1 hour) = 4,000 hours. A 

labor rate of approximately $159.34 is used for a 

legal professional. The labor rate is applied in the 

following calculation: (4,000 independent 

producers × 1 hour) × $159.34 = $637,360. 

507For information on this estimate, refer to the 

estimate of IRAs affected by the proposed 

amendments to PTE 84–24 in the Affected Entities 

section. 

508The burden is estimated as: (52,449 rollovers 

× 1 hour) = 52,449 hours. A labor rate of 

approximately $158.94 is used for an independent 

producer. The labor rate is applied in the following 

calculation: (52,449 rollovers × 1 hour) × $158.94 

= $8,336,244. 

509For information on this estimate, refer to the 

estimate of IRAs affected by the proposed 

amendments to PTE 84–24 in the Affected Entities 

section. 

510This is estimated as: (52,449 retirement 

investors × 5.8%) = 3,042 paper disclosures. 

511This is estimated as: (3,042 paper disclosures 

× (5 minutes ÷ 60 minutes)) = 253.5 hours. A labor 

rate of $63.45 is used for a clerical worker. The 

labor rate is applied in the following calculation: 

(3,042 paper disclosures × (5 minutes ÷ 60 

minutes)) × $63.45 = $16,085. 

512This is estimated as: 3,042 rollovers resulting 

in a paper disclosure × [$0.66 postage + ($0.05 per 

page × 7 pages)] = $3,072. 

513The cost in the first year is estimated as: 

($11,021 for the disclosure confirming fiduciary 

status + $33,063 for the written statement of the 

Best Interest standard of care + $318,680 for the 

written description of services provided + $637,360 

for the statement on material conflicts of interest 

and commissions paid + $8,336,244 for the rollover 

disclosure + $16,085 to prepare and send 

disclosures + $3,072 for material and postage costs) 

= $9,355,525. The cost in subsequent years is 

estimated as: ($8,336,244 for the rollover disclosure 

+ $16,085 to prepare and send disclosures + $3,072 

for material and postage costs) = $8,355,401. Note, 

the total values may not equal the sum of the parts 

due to rounding. 

Similarly, the Department expects 

that the statement of the independent 

producer’s material conflicts of interest 

and the amount of insurance 

commission paid in connection with the 

purchase by a retirement investor of the 

recommended annuity would need to be 

prepared by the individual producer. As 

with the written statement on the 

description of services, the Department 

recognizes that many independent 

producers may not have the internal 

resources to prepare such disclosures, 

however they may already have similar 

statements to satisfy other legal 

requirements. The Department expects 

that some may rely on intermediaries in 

the distribution channel to prepare the 

disclosures and some may seek external 

legal support. However, the Department 

expects that the costs associated with 

the preparation would be covered by 

commissions retained by the 

intermediary for its services or by the 

fee paid to external legal support. As 

such, the Department still attributes this 

cost to the independent producer. The 

Department requests comment on this 

assumption. 

Accordingly, the Department assumes 

that all 4,000 independent producers in 

this analysis would need to prepare the 

disclosure. The Department assumes 

that, for each of these entities, an 

attorney would spend one hour of legal 

staff time drafting the written 

description. This results in an estimated 

cost of approximately $0.6 million the 

first year.506

Costs Associated With Documenting 

Whether a Rollover Is in the Investor’s 

Best Interest, Before Recommending an 

Annuity, 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 

In addition, the proposed amendment 

would require an independent producer 

to provide a disclosure to investors that 

documents their consideration as to 

whether a recommended annuity or 

rollover is in the retirement investor’s 

best interest. Due to the nature of this 

disclosure, the Department assumes that 

the content of the disclosure would 

need to be prepared by the independent 

producer. The Department recognizes 

that some may rely on intermediaries in 

the distribution channel, and some may 

seek external legal support to assist with 

drafting the disclosures. However, the 

Department expects that most 

independent producers would prepare 

the disclosure themselves. The 

Department requests comment on this 

assumption. 

The Department estimates that 52,449 

retirement investors would receive 

documentation on whether the 

recommended annuity is in their best 

interest each year.507 The Department 

assumes that, for each of these 

retirement investors, an independent 

producer would spend one hour of a 

financial manager’s time drafting the 

documentation. This results in an 

estimated cost of approximately $8.3 

million annually.508

Costs Associated With the Provision of 

Disclosures to Retirement Investors 

The Department does not have data 

on the number of retirement investors 

that have relationships with 

independent producers that would 

engage in transactions covered under 

the exemption. For the purposes of this 

analysis, the Department uses its 

estimate for the number of new IRA 

accounts held by insurance companies 

as a proxy for the number of retirement 

investors that have relationships with 

independent producers that would 

engage in transactions covered under 

the exemption. As such, the Department 

estimates that 52,449 retirement 

investors would receive documentation 

on whether the recommended annuity is 

in their best interest each year.509

As discussed at the beginning of the 

cost section, the Department assumes 

that 5.8 percent of disclosures sent to 

retirement investors would be mailed. 

Accordingly, of the estimated 52,449 

affected retirement investors, 3,042 

retirement investors are estimated to 

receive paper disclosures.510 For paper 

copies, a clerical staff member is 

assumed to require five minutes to 

prepare and mail the required 

information to the retirement investor. 

This requirement results in an estimated 

labor cost of approximately $16,100.511

The Department assumes that this 

information would include seven pages, 

resulting annual cost burden for 

material and paper costs of 

approximately $3,100.512

Additionally, independent producers 

would be required to send the 

documentation to the insurance 

company. The Department expects that 

such documentation would be sent 

electronically and result in a de minimis 

burden. The Department requests 

comment on this assumption. 

Summary Costs Associated With 

Disclosures 

The estimates described above result 

in a total cost estimate of $9.4 million 

in the first year and $8.4 million in 

subsequent years.513

Costs Associated With Policies and 

Procedures 

The proposed amendment would 

require insurance companies to 

establish, maintain, and enforce written 

policies and procedures to review each 

recommendation from an independent 

producer before an annuity is issued to 

a retirement investor. The insurance 

company’s policies and procedures 

must mitigate conflicts of interest to the 

extent that a reasonable person 

reviewing the policies and procedures 

and incentive practices as a whole 

would conclude that they do not create 

an incentive for the independent 

producer to place its interests, or those 

of the insurance, or any affiliate or 

related entity, ahead of the interests of 

the retirement investor. Insurance 

companies’ policies and procedures 

include a prudent process for 

determining whether to authorize an 

independent producer to sell the 

insurance company’s annuity contracts 

to retirement investors, and for taking 


lotter on DSK11XQN23PROD with PROPOSALS3
75956 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

514NAIC, Model Suitability Regulations, 

§ 6(F)(1)(d) NAIC (2010), https://naic.soutronglobal.

net/Portal/Public/en-GB/RecordView/Index/25201. 

515NAIC, Model Suitability Regulations, 

§ 6(F)(1)(d) NAIC (2010), https://naic.soutron

global.net/Portal/Public/en-GB/RecordView/Index/ 

25201. 

516This language was included in both the 2010 

and 2020 versions of Model Regulation 275. See 

NAIC, Model Suitability Regulations, § 6(F)(1)(d) 

NAIC (2010), https://naic.soutronglobal.net/Portal/ 

Public/en-GB/RecordView/Index/25201. ; NAIC, 

Model Suitability Regulations, § 6(F)(1)(d) NAIC 

(2020). 

517NAIC, Model Suitability Regulations, 

§ 6(F)(1)(d) NAIC (2010), https://naic.soutronglobal.

net/Portal/Public/en-GB/RecordView/Index/25201. 

518NAIC, Model Suitability Regulations, 

§ 6(F)(1)(d) NAIC (2020), https://content.naic.org/ 

sites/default/files/inline-files/MDL-275.pdf. 

519Based on internal Department analysis, the 

modified Model Regulation #275, including a best 

interest standard, was adopted by Alabama, Alaska, 

Arizona, Arkansas, Colorado, Connecticut, 

Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, 

Iowa, Kansas, Kentucky, Maine, Maryland, 

Massachusetts, Michigan, Minnesota, Mississippi, 

Montana, Nebraska, New Mexico, North Carolina, 

North Dakota, Ohio, Oregon, Pennsylvania, Rhode 

Island, South Carolina, South Dakota, Tennessee, 

Texas, Virginia, Washington, West Virginia, 

Wisconsin, and Wyoming. 

520NAIC. Suitability in Annuity Transactions 

Model Regulation (#275) Best Interest Standard of 

Conduct Revisions Frequently Asked Question, 

(May 2021). 

521This is estimated as: (177 small insurance 

companies × 5 hours) + (38 large insurance 

companies × 10 hours) = 1,265 hours. A labor rate 

of $159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: [(177 

small insurance companies × 5 hours) + (38 large 

insurance companies × 10 hours)] × $159.34 = 

$201,565. 

522This is estimated as: (215 insurance 

companies × 2 hours) = 430 hours. A labor rate of 

$159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: (215 

insurance companies × 2 hours) × $159.34 = 

$68,516. 

523The number of requests in the first year is 

estimated as 215 insurance companies × (165 

requests in PTE 2020–02/19,290 financial 

institutions in PTE 2020–02) = 2 requests. The 

number of requests in subsequent years is estimated 

as: 215 insurance companies × (50 requests in PTE 

2020–02/19,290 financial institutions in PTE 2020– 

02) = 1 request. 

524The burden is estimated as: (2 × (15 minutes 

÷ 60 minutes)) = 0.5 hours. A labor rate of $63.45 

is used for a clerical worker. The labor rate is 

applied in the following calculation: (2 × (15 

minutes ÷ 60 minutes)) × $63.45 = $32. 

525The burden is estimated as: (1 × (15 minutes 

÷ 60 minutes)) = 0.25 hours. A labor rate of $63.45 

is used for a clerical worker. The labor rate is 

applied in the following calculation: (1 × (15 

minutes ÷ 60 minutes)) × $63.45 = $16. 

526The cost in the first year is estimated as: 

($201,565 to develop policies and procedures + $32 

to provide policies and procedures upon request) = 

$201,597. The cost in subsequent years is estimated 

as: ($68,516 to review policies and procedures + 

$16 to provide policies and procedures upon 

request) = $68,532. Note, the total values may not 

equal the sum of the parts due to rounding. 

action to protect retirement investors 

from independent producers who have 

failed or are likely to fail to adhere to 

the impartial conduct standards, or who 

lack the necessary education, training, 

or skill. Finally, insurance companies 

must provide their complete policies 

and procedures to the Department 

within 10 days upon request. 

These requirements are consistent 

with, though more protective than, the 

requirements in NAIC Model Regulation 

275. Model Regulation 275 has been 

updated and revised several times; 

however, both the 2010 Model 

Regulation 275 514 and the 2020 

revisions to Model Regulation 275 515

include a requirement to ‘‘establish and 

maintain procedures for the review of 

each recommendation prior to issuance 

of an annuity.’’ 516 While the 2010 

version required such procedures ‘‘are 

designed to ensure that there is a 

reasonable basis to determine that a 

recommendation is suitable,’’ 517 the 

2020 version requires such procedures 

are ‘‘are designed to ensure there is a 

reasonable basis to determine that the 

recommended annuity would effectively 

address the particular consumer’s 

financial situation, insurance needs and 

financial objectives.’’ 518 The 2020 

revisions impose a higher best interest 

standard, compared to the suitability 

standard in 2010 standard. 

Most states have adopted some form 

of the Model Regulation 275, and, to 

date, 39 states have adopted the most 

recent version.519 The Harkin 

amendment, Section 989J of the DoddFrank Act requires states to adopt rules 

that meet or exceed the minimum 

requirements of model regulation 

modifications within five years of 

adoption.520

While many insurance companies 

may have policies and procedures in 

place that would largely satisfy the 

requirements of the proposed 

amendments, the Department expects 

that many would need to change and 

improve policies and procedures to be 

fully compliant. The Department 

requests comment on how extensive and 

costly changes to existing policies and 

procedures would need to be, both in 

terms of establishing and updating 

policies and procedures and in terms of 

the annual review in subsequent years. 

The Department expects that 

satisfying this requirement would be 

more time consuming for larger entities 

due to the complexity of their business. 

The Department assumes that, for each 

large insurance company, an in-house 

attorney would spend on average, 10 

hours of legal staff time drafting or 

modifying the policies and procedures, 

and for each small insurance company, 

an in-house attorney would spend on 

average, five hours of legal staff time. 

This results in an estimated cost of 

approximately $0.2 million in the first 

year.521 The Department requests 

comment on this assumption. 

In the following years, the Department 

assumes for each insurance company, 

an in-house attorney would spend two 

hours of legal staff time reviewing. This 

results in an estimated cost of 

approximately $68,500 in subsequent 

years.522

The proposed rule would also require 

insurance companies to review each of 

the independent producer’s 

recommendations before an annuity is 

issued to a retirement investor to ensure 

compliance with the Impartial Conduct 

Standards and other conditions of this 

exemption. Given the requirements 

established in both the 2010 and 2020 

versions of Model Regulation 275, the 

Department expects that reviewing 

recommendations before an annuity is 

issued is common industry practice. 

Accordingly, the Department expects 

that for those insurance companies 

already complying with Model 

Regulation 275, the cost to review and 

comply with the proposed amendment 

would be small. The Department lacks 

data on how many recommendations are 

already reviewed or how many 

additional recommendations would 

need to be reviewed based on this 

proposal. The Department requests data 

and comment to inform its estimate. 

The proposed amendments would 

also require insurance companies to 

provide their complete policies and 

procedures to the Department upon 

request. As discussed above for PTE 

2020–02, the Department estimates that 

it would request 165 policies and 

procedures in the first year and 50 in 

subsequent years. Assuming that the 

number of requests for the entities 

covered under PTE 2020–02 is 

equivalent to the number of requests for 

the entities covered under PTE 84–24, 

the Department assumes that it will 

request two policies and procedures 

from insurers in the first year and one 

request in subsequent years, on 

average.523 This results in an estimated 

cost of approximately $30 in the first 

year 524 and $15 in subsequent years.525

The Department believes that policies 

and procedures requested by the 

Department under the proposed PTE 

84–24 would be accounted for in the 

paperwork burden of PTE 2020–02. 

Accordingly, this analysis does not 

include an additional burden. 

The Department estimates that 

satisfying the requirements described 

above would result in an estimated total 

cost of approximately $0.2 million in 

first year and $68,500 in subsequent 

years.526


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75957 

527This is estimated as: (4,000 independent 

producers × 3 insurance companies covered) = 

12,000 retrospective reviews. 

528This is estimated as: (12,000 retrospective 

reviews/215 insurance companies) = 55.8 

retrospective reviews, on average. 

529This is estimated as: (12,000 retrospective 

reviews × 1 hour) = 12,000 hours. A labor rate of 

$159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: (12,000 

retrospective reviews × 1 hour) × $159.34 = 

$1,912,080. 

530This is estimated as: (12,000 retrospective 

reviews × (15 minutes ÷ 60 minutes)) = 3,000 hours. 

A labor rate of $128.11 is used for a senior 

executive officer. The labor rate is applied in the 

following calculation: (12,000 retrospective reviews 

× (15 minutes ÷ 60 minutes)) × $128.11 = $384,330. 

531This is estimated as: (12,000 retrospective 

reviews × (5 minutes ÷ 60 minutes)) = 1,000 hours. 

A labor rate of $63.45 is used for a clerical worker. 

The labor rate is applied in the following 

calculation: (12,000 retrospective reviews × (5 

minutes ÷ 60 minutes)) × $63.45 = $63,450. 

532The annual cost is estimated as: ($1,912,080 to 

conduct the retrospective review + $384,330 for the 

review of the retrospective review + $63,450 for the 

provision of the report to Independent Producers) 

= $2,359,860. 

533This is estimated as: (4,000 independent 

producers + 215 insurance companies) × 2 hours = 

8,430 hours. A labor rate of $158.94 is used for an 

independent producer and $159.34 for a legal 

professional at an insurance company. The labor 

rate is applied in the following calculation: (4,000 

independent producers × 2 hours × $159.34) + (215 

insurance companies × 2 hours × $158.34) = 

$1,340,036. 

Costs Associated With Retrospective 

Review 

The proposed amendment would 

require insurance companies to conduct 

a retrospective review at least annually. 

The review would be required to be 

reasonably designed to prevent 

violations of and achieve compliance 

with (1) the Impartial Conduct 

Standards, (2) the terms of this 

exemption, and (3) the policies and 

procedures governing compliance with 

the exemption. The review would be 

required to evaluate the effectiveness of 

the supervision system, any 

noncompliance discovered in 

connection with the review, and 

corrective actions taken or 

recommended, if any. The retrospective 

review must also include a review of 

independent producers’ rollover 

recommendations and the required 

rollover disclosure. As part of this 

review, the insurance company must 

prudently determine whether to 

continue to permit individual 

independent producers to sell the 

insurance company’s annuity contracts 

to retirement investors. Additionally, 

the insurance company must update the 

policies and procedures as business, 

regulatory, and legislative changes and 

events dictate, and to ensure they 

remain prudently designed, effective, 

and comply with the exemption. 

The insurance company annually 

must provide a written report to a 

Senior Executive Officer which details 

the review. The Senior Executive must 

annually certify that (A) the officer has 

reviewed the report of the retrospective 

review report; (B) the insurance 

company has, within 90 days of 

discovery, reported to the Department of 

the Treasury any non-exempt prohibited 

transaction discovered by the insurance 

company in connection with investment 

advice covered under Code section 

4975(e)(3)(B), advised the independent 

producer of the violation and any 

resulting excise taxes owed under Code 

section 4975, and notified the 

Department of Labor of the violation via 

email; (C) the insurance company has 

established policies and procedures 

prudently designed to ensure that 

independent producers achieve 

compliance with the conditions of this 

exemption, and has updated and 

modified the policies and procedures as 

appropriate after consideration of the 

findings in the retrospective review 

report; and (D) the insurance company 

has in place a prudent process to modify 

such policies and procedures. 

Insurers would also be required to 

provide the independent producer with 

the underlying methodology and results 

of the retrospective review. The 

Department assumes that the insurance 

company would provide the 

methodology and results electronically. 

The Department lacks data on the 

average number of independent 

producers selling annuities per 

insurance company. For the purposes of 

this analysis, the Department assumes 

that, on average, each independent 

producer sells the products of three 

insurance companies. From each of 

these insurance companies, they may 

sell multiple products. As such, the 

Department assumes that each year, 

insurance companies would need to 

prepare a total 12,000 retrospective 

reviews,527 or on average, each 

insurance company would need to 

prepare approximately 56 retrospective 

reviews.528 The Department requests 

comment on this estimate. 

The Department assumes that, for 

each independent producer selling an 

insurance company’s products, an inhouse attorney at the insurance 

company would spend one hour of legal 

staff time, on average, conducting and 

drafting the retrospective review. This 

results in an estimated cost of 

approximately $1.9 million.529

The Department assumes it would 

take a Senior Executive Officer 15 

minutes to review and certify the report. 

This results in an estimated annual cost 

of approximately $0.4 million.530

The Department assumes that the 

insurance company would provide the 

methodology and results electronically. 

The Department requests comment on 

this assumption. The Department 

estimates that it would take clerical staff 

five minutes each to prepare and send 

each of the estimated 12,000 

retrospective reviews. This results in an 

estimated annual cost of approximately 

$63,500.531 The Department expects that 

the results would be provided 

electronically, thus the Department does 

not expect there to be any material costs 

with providing independent producers 

with the retrospective review. 

The Department estimates that 

satisfying the requirements for 

retrospective reviews would result in an 

estimated total annual cost of 

approximately $2.4 million.532

Costs Associated With Recordkeeping 

The proposed amendment would 

change the current recordkeeping 

requirements to incorporate a new 

provision that is similar to the 

recordkeeping provision in PTE 2020– 

02. This requirement would replace the 

more limited existing recordkeeping 

requirement in the current version of 

PTE 84–24, which requires sufficient 

records to demonstrate that the 

conditions of the exemption have been 

met. The Department does not have data 

on how many pension consultants, 

insurance companies, and investment 

company principal underwriters would 

continue to rely on PTE 84–24 as 

amended without also complying with 

the amended PTE 2020–02. In this 

analysis, the Department assumes that 

all of the pension consultants and 

investment company principal 

underwriters continuing to rely on the 

amended PTE 84–24 would also rely on 

the amended on the PTE 2020–02. Thus, 

to avoid double counting the 

compliance cost, this analysis does not 

include the cost associated with the 

proposed recordkeeping requirement for 

these entities. 

For this analysis, the Department only 

considers the cost for insurance 

companies and independent producers 

complying with the proposed 

recordkeeping requirements. The 

Department estimates that the 

additional time needed to maintain 

records to be consistent with the 

exemption would require an 

independent producer two hours, 

resulting in an estimated cost of $1.3 

million.533

The proposed amendment would 

require fiduciaries engaging in all 

transactions covered by the exemption 

to maintain records necessary for the 


lotter on DSK11XQN23PROD with PROPOSALS3
75958 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

534The burden is estimated as: (4,000 

independent producers × 10 requests) × (30 minutes 

÷ 60 minutes) = 20,000 hours. A labor rate of 

$158.94 is used for an independent producer. The 

labor rate is applied in the following calculation: 

[(4,000 independent producers × 10 requests) × (30 

minutes ÷ 60 minutes)] × $158.94 = $3,178,800. 

535The annual cost is estimated as: ($1,340,036 to 

maintain records + $3,178,800 to distribute records) 

= $4,518,836. 

536The first-year total cost includes: ($1,671,795 

for rule review + $9,355,525 for general disclosures 

+ $201,597 for policies and procedures + 

$2,359,860 for the retrospective review + 

$4,518,836 for recordkeeping) = $18,107,613. The 

total cost in subsequent years includes: ($8,355,401 

for disclosures + $68,532 for policies and 

procedures + $2,359,860 for the retrospective 

review + $4,518,836 for recordkeeping) = 

15,302,629. Note, the total values may not equal the 

sum of the parts due to rounding. 

537For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 

538Employee 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, pp. 258, (April 2016), 

https://www.dol.gov/sites/dolgov/files/EBSA/lawsand-regulations/rules-and-regulations/completedrulemaking/1210-AB32-2/ria.pdf. 

539The burden is estimated as: (3,942 financial 

institutions × 4 hours) = 15,768 hours. A labor rate 

of $190.63 is used for a financial manager. The 

labor rate is applied in the following calculation: 

(3,942 × 4 hours) × $190.63 = $3,005,854. 

540This cost is the estimated $3,005,854 cost to 

maintain recordkeeping. 

following entities to determine whether 

the conditions of this exemption have 

been met. 

(1) any authorized employee of the 

Department or the IRS or another state 

or federal regulator, 

(2) any fiduciary of a plan that 

engaged in a transaction pursuant to this 

exemption, 

(3) any contributing employer and any 

employee organization whose members 

are covered by a plan that engaged in a 

transaction pursuant to this exemption, 

or 

(4) 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. 

The Department does not have data 

on how often independent producers 

would receive requests for records. For 

the purposes of this analysis, the 

Department assumes that, on average, 

independent producer would receive 10 

requests per year and that preparing and 

sending each request would take a legal 

professional, on average, 30 minutes. 

Based on these assumptions, the 

Department estimates that the proposed 

amendments would result in an annual 

cost of approximately $3.2 million.534

The Department requests comment on 

how often financial institutions would 

receive requests for records, who would 

prepare such reports, and how long the 

preparation of such records would take. 

This results in a total annual cost of 

$4.5 million associated with 

recordkeeping.535

Summary of Total Cost for the Proposed 

Amendments to PTE 84–24 

The Department estimates that in 

order to meet the additional conditions 

of the amended PTE 84–24, affected 

entities would incur a total cost of $18.1 

million in the first year and $15.3 

million in subsequent years.536

Costs Associated With the Mass 

Amendments 

The following analysis summarizes 

the proposed changes and associated 

costs to PTE 75–1, PTE 77–4, PTE 1980– 

3, and 86–128. For more information on 

the cost estimates, refer to the 

Paperwork Reduction Act statements for 

the proposed amendments, published 

elsewhere in today’s edition of the 

Federal Register. 

Costs Associated With PTE 75–1 

Summary of Affected Entities 

The amendment to PTE 75–1 would 

affect banks, reporting dealers, and 

broker-dealers registered under the 

Security Exchange Act of 1934. As 

discussed in the Affected Entities 

section above, the Department estimates 

that 1,894 broker-dealers and 2,048 

banks would use PTE 75–1.537

Costs Associated With Disclosure 

Requirements in Part V 

The Department proposes to amend 

PTE 75–1 Part V to allow an investment 

advice fiduciary to receive reasonable 

compensation for extending credit to a 

plan or IRA to avoid a failed purchase 

or sale of securities involving the plan 

or IRA if (1) the potential failure of the 

purchase or sale of the securities is not 

caused by such fiduciary or an affiliate, 

and (2) the terms of the extension of 

credit are at least as favorable to the 

plan or IRA as the terms available in an 

arm’s length transaction between 

unaffiliated parties. Prior to the 

extension of credit, the plan or IRA 

receives written disclosure, including 

the interest rate or other fees that will 

be charged on the credit extension as 

well as the method of determining the 

balance upon which interest will be 

charged. The Department believes that it 

is a usual and customary business 

practice to maintain records required to 

demonstrate compliance with SECmandated disclosure distribution 

regulations. The Department believes 

that this new requirement is consistent 

with the disclosure requirement 

mandated by the SEC in 17 CFR 

240.10b-16(1) for margin 

transactions.538 Therefore, the 

Department concludes that this 

requirement produces no additional 

burden to the public. 

Costs Associated With Recordkeeping in 

Parts II and V 

The Department is also amending PTE 

75–1 Parts II and V to adjust the 

recordkeeping requirement to shift the 

burden from plans and IRAs to financial 

institutions. The amended class 

exemption requires financial 

institutions engaging in the exempted 

transactions (rather than the plans or 

IRAs) to maintain all records pertaining 

to such transactions for six years and 

provide access to the records upon 

request to the specified parties. 

The Department has estimated that 

the amount of time needed for financial 

professional to maintain records for the 

financial institutions to be consistent 

with the exemption and to make the 

record available for inspection would 

require four hours, on average, resulting 

in an estimated cost of $3.0 million.539

Costs Associated With Removing 

Fiduciary Investment Advice From Parts 

III and IV 

Finally, the Department is proposing 

to amend PTE 75–1 Parts III and IV, 

which currently provide relief for 

investment advice fiduciaries, by 

removing fiduciary investment advice 

from the covered transactions. 

Investment advice providers would 

instead have to rely on the amended 

PTE 2020–02 for exemptive relief 

covering investment advice 

transactions. The Department believes 

that since investment advice providers 

were already required to provide 

records and documentation under PTE 

2020–02, this amendment would not 

result in additional costs. 

Summary of Total Cost for the Proposed 

Amendments to PTE 75–1 

The Department estimates that in 

order to meet the additional conditions 

of the amended PTE 75–1, affected 

entities would annually incur a total 

cost of $3.0 million.540

Costs Associated With PTE 77–4, PTE 

80–83, PTE 83–1 

Summary of Affected Entities 

The amendment to PTE 77–4 would 

affect mutual fund companies. As 

discussed in the Affected Entities 

section, the Department estimates that 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75959 

541For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 

542For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 

543For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 

544The burden is estimated as: (1,894 investment 

advice providers × (30 minutes ÷ 60 minutes)) = 947 

hours. A labor rate of $190.63 is used for a financial 

manager. The labor rate is applied in the following 

calculation: (1,894 investment advice providers × 

(30 minutes ÷ 60 minutes)) × $190.63 per hour = 

$180,527. 

545The burden is estimated as: (1,894 investment 

advice providers × (15 minutes ÷ 60 minutes)) = 474 

hours. A labor rate of $63.45 is used for a clerical 

worker. The labor rate is applied in the following 

calculation: (1,894 investment advice providers × 

(15 minutes ÷ 60 minutes)) × $63.45 per hour = 

$30,044. 

546The Department estimates that there are 

10,000 managed IRAs. Of these managed IRAs, the 

Department assumes that 2.1 percent are new 

accounts or new financial advice relationships See 

Cerulli Associates. ‘‘U.S. Retirement End-Investor 

2023: Personalizing the 401(k) Investor 

Experience.’’ Exhibit 6.02. The Cerulli Report., and 

that 100 percent of these managed IRAs will engage 

in transactions covered under this class exemption. 

These assumptions are applied in the following 

manner: 10,000 managed IRAs × 2.1 percent of 

plans are new × 100 percent of plans with brokerdealer relationships = 210 IRAs. 

547The burden is estimated as: (210 IRAs × (15 

minutes ÷ 60 minutes) per IRA) = 52.5 hours. A 

labor rate of $159.34 is used for a legal professional. 

The labor rate is applied in the following 

calculation: (210 IRA × (15 minutes ÷ 60 minutes)) 

per IRA) × $159.34 per hour = $8,365. 

548The burden is estimated as: (210 IRA × (5 

minutes ÷ 60 minutes) per IRA) = 17.5 hours. A 

labor rate of $63.45 is used for a clerical worker. 

The labor rate is applied in the following 

calculation: (210 IRA × (5 minutes ÷ 60 minutes) per 

IRA) × $63.45 = $1,110. 

549The burden is estimated as: (2 pages × $0.05 

per page) + $0.66 for postage = $0.76; The mailing 

rate is applied in the following calculation: (210 

authorizations for IRAs × 5.8%) × $0.76 = $9. 

550This is estimated as: ($8,365 to prepare the 

written authorization + $1,110 to send the written 

authorization + $9 for material costs) = $9,485. 

825 mutual fund companies would be 

affected by the amended PTE 77–4.541

PTE 80–83 allows banks to purchase, 

on behalf of employee benefit plans, 

securities issued by a corporation 

indebted to the bank that is a party in 

interest to the plan. The Department 

estimates that 25 fiduciary-banks with 

public offering services would be 

affected by the amended PTE 80–83.542

PTE 83–1 provides relief for the sale 

of certificates in an initial issuance of 

certificates by the sponsor of a mortgage 

pool to a plan or IRA when the sponsor, 

trustee, or insurer of the mortgage pool 

is a fiduciary with respect to the plan or 

IRA assets invested in such certificates. 

Summary of Total Cost for the Proposed 

Amendments to PTE 77–4, PTE 80–83, 

and PTE 83–1 

The Department is proposing to 

amend PTE 77–4, PTE 80–83, and PTE 

83–1 which currently include relief for 

investment advice fiduciaries, by 

removing fiduciary investment advice 

from the covered transactions. 

Investment advice providers would 

instead have to rely on the amended 

PTE 2020–02 for exemptive relief 

covering investment advice 

transactions. The Department believes 

that since investment advice providers 

were already required to provide 

documentation under PTE 2020–02, 

these amendments would not result in 

additional costs. 

Costs Associated With PTE 86–128 

The Department is proposing to 

amend Section VI of PTE 86–128 to 

require financial institutions to 

maintain for six years the records 

necessary for the Department, the IRS, 

the plan fiduciary, the contributing 

employer, or employee organization 

whose members are covered by the plan, 

plan participants, plan beneficiaries, 

and IRA owners to determine whether 

conditions of this exemption have been 

met. 

In addition, the amendment would 

extend and impose conditions on IRAs. 

Section III of PTE 86–128 imposes 

requirements on investment advice 

providers and the independent plan 

fiduciaries authorizing the IRA to 

engage in the transactions with the 

investment advice providers 

(‘‘authorizing fiduciary’’) under the 

conditions contained in the exemption. 

Summary of Affected Entities 

The amendment to PTE 86–128 would 

affect fiduciaries of employee benefit 

plans that effect or execute securities 

transactions and independent plan 

fiduciaries that authorize the plan or 

IRA to engage in the transactions. As 

discussed in the Affected Entities 

section, the Department estimates that 

1,894 investment advice providers 

would be affected by the proposed 

amendments to PTE 86–128. 

Additionally, the Department estimates 

that 10,000 IRAs will engage in 

transactions covered under this class 

exemption, of which 210 are new 

IRAs.543

With the removal of exemptive relief 

for investment advice, the Department 

requests comment on what types of 

financial institutions would continue to 

rely on PTE 86–128, as well as how 

many entities would do so. 

Additionally, the Department requests 

comment on how many plans or 

managed IRAs would receive services 

from these entities. 

Costs Associated With Recordkeeping 

Each of the estimated 1,894 

investment advice providers will 

maintain these records on behalf of their 

client plans in their normal course of 

business. The Department estimates that 

the additional time needed to maintain 

records consistent with the exemption 

would require a financial professional 

30 minutes annually, resulting in an 

estimated cost of $0.2 million.544 The 

Department estimates that the proposed 

amendments would also require 15 

minutes of clerical time to prepare and 

send the documents for inspection, 

resulting estimated cost of 

approximately $30,000.545

Costs Associated With Written 

Authorization From the Authorizing 

Fiduciary to the Investment Advice 

Provider 

Authorizing fiduciaries of IRAs 

entering into a relationship with an 

investment advice provider are required 

to provide the investment advice 

provider with advance written 

authorization to perform transactions for 

the IRA. The Department estimates that 

there are approximately 210 IRAs that 

are new or that enter new arrangements 

each year.546 Therefore, the Department 

estimates that approximately 210 

authorizing fiduciaries are expected to 

send an advance written authorization. 

It is assumed that a legal professional 

will spend 15 minutes per IRA 

reviewing the disclosures and preparing 

an authorization form, resulting in an 

estimated cost of approximately 

$8,400.547

As discussed at the beginning of the 

cost section, the Department assumes 

that 5.8 percent of these authorizations 

will be mailed. For paper and electronic 

authorizations, the Department assumes 

that clerical staff will spend five 

minutes per participant to prepare and 

send the authorization, resulting in an 

estimated labor cost of approximately 

$1,100.548 It is assumed that the 

authorization will be two pages and 

paper authorizations will cost $0.76 

each, which results in a cost burden of 

approximately $9.549

This results in a total cost for the 

written authorization of approximately 

$9,500.550

Cost Associated With the Provision of 

Materials for the Evaluation of 

Authorization of Transaction 

Prior to a written authorization, the 

investment advice provider must 

provide the authorizing fiduciary with a 

copy of the exemption, a form for 

termination of authorization, a 

description of broker’s placement 


lotter on DSK11XQN23PROD with PROPOSALS3
75960 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

551The burden is estimated as: (210 IRAs × (5 

minutes ÷ 60 minutes) per IRA) = 17.5 hours. A 

labor rate of $63.45 is used for a clerical worker. 

The labor rate is applied in the following 

calculation: (210 IRAs × (5 minutes ÷ 60 minutes) 

per IRA) × $63.45 = $1,110. 

552The burden is estimated as: (7 pages × $0.05 

per page) + $0.66 for postage = $1.01; The mailing 

rate is applied in the following calculation: (210 

materials packages for IRAs × 5.8%) × $1.01 = $12. 

553This is estimated as: ($1,110 to prepare the 

information + $12 for materials and postage) = 

$1,123. 

554The burden is estimated as: (1,894 investment 

advice providers × 1 hour per broker-dealer) = 1,894 

hours; A labor rate of $159.34 is used for a legal 

professional. The labor rate is applied in the 

following calculation: (1,894 investment advice 

providers × 1 hour per broker-dealer) × $159.34 per 

hour = $301,790. 

555For more information on how the number of 

IRAs is estimated, refer to the Affected Entities 

section. 

556The burden is estimated as: (10,000 IRAs × (5 

minutes ÷ 60 minutes) per IRA) = 833 hours. A 

labor rate of $63.45 is used for a clerical worker. 

The labor rate is applied in the following 

calculation: (10,000 IRAs × (5 minutes ÷ 60 

minutes) per IRA) × $63.45 per hour = $52,875. 

557The mailing cost is estimated as: (2 pages × 

$0.05 per page) + $0.66 for postage = $0.76; The 

mailing rate is applied in the following calculation: 

(10,000 IRAs × 5.8%) × $0.76 = $441. 

558This cost is estimated as: ($301,790 to prepare 

the termination form + $52,875 to distribute the 

termination form + $441 for material and postage 

costs) = $355,106. 

559The mailing cost is estimated as: (5 pages × 

$0.05 per page) = $0.25. The mailing cost is applied 

in the following calculation: (10,000 IRAs × 5.8%) 

× $0.25 = $145. 

560For more information on how the number of 

IRAs is estimated, refer to the Affected Entities 

section. 

561The mailing cost is estimated as: (2 pages × 

$0.05 per page) = $0.10. The mailing cost is applied 

in the following calculation: (10,000 IRAs × 5.8%) 

× $0.10 = $58. 

562This estimate is based on information from a 

Request for Information and from industry sources. 

563This burden is estimated as: (10,000 IRAs × 

$3.30) = $33,000. 

practices, and any other reasonably 

available information. The Department 

assumes that this information is readily 

available. As discussed at the beginning 

of the cost section, the Department 

assumes that 5.8 percent of these 

authorizations will be mailed, while the 

remaining 94.2 percent will be delivered 

electronically. A clerical staff member is 

assumed to require five minutes per 

participant to electronically send and 

mail the required information to the 

authorizing fiduciary. This information 

will be sent to the authorizing 

fiduciaries of 210 IRAs entering into an 

agreement with an investment advice 

provider. Based on the above, the 

Department estimates that this 

requirement results in estimated cost of 

approximately $1,100.551 It is assumed 

that this information will be seven pages 

and paper distribution will cost $1.01 

each, which results in an estimated cost 

of approximately $12.552

This results in a total cost of 

approximately $1,100.553

Costs Associated With the Provision of 

an Annual Termination Form 

Investment advice providers must 

annually supply each authorizing 

fiduciary with a form expressly 

providing an election to terminate the 

written authorization. It is assumed that 

legal professionals with each of the 

estimated 1,894 investment advice 

providers would spend one hour 

preparing the termination forms, which 

results in an estimated cost of 

approximately $0.3 million.554

As discussed in the Affected Entities 

section, the Department estimates that 

10,000 IRAs will engage in transactions 

covered under this class exemption and 

would receive the form.555 As discussed 

at the beginning of the cost section, the 

Department assumes that 5.8 percent of 

IRAs will receive paper copies of the 

termination forms. The Department 

estimates that clerical staff will spend 

five minutes per IRA preparing and 

distributing the paper and electronic 

termination forms, resulting in an 

estimated cost of approximately 

$52,900.556 It is assumed that the form 

will be two pages, so paper copies will 

cost $0.76 each for materials and 

postage, which results in a cost burden 

of approximately $441.557

This results in a total cost of 0.4 

million.558

Cost Associated With Transaction 

Reporting 

The investment advice provider 

engaging in a covered transaction must 

give the authorizing fiduciary either a 

confirmation slip for each securities 

transaction or a quarterly report. As 

discussed above, the provision of the 

confirmation is already required under 

SEC regulations. Therefore, if the 

transaction reporting requirement is 

satisfied by sending confirmation slips 

or quarterly reporting, no additional 

hour and cost burden will occur. 

Costs Associated With the Annual 

Statement 

Investment advice providers are 

required to send to each authorizing 

fiduciary an annual report that contains 

the same information as the quarterly 

report, including all security 

transaction-related charges, the 

brokerage placement practices, and a 

portfolio turnover ratio. As such, the 

Department does not expect that 

financial institutions would incur an 

additional burden to produce the annual 

statement, aside from what is already 

incurred to produce the quarterly report. 

Additionally, the Department assumes 

that this information could be sent with 

the annual termination form. Therefore, 

the clerical staff hours required to 

prepare and distribute the report, as 

well as postage costs, have been 

included with the provision of annual 

termination form requirement, and no 

additional burden has been reported. It 

is assumed that the annual statement 

will be five pages, and the paper and 

print costs are $0.25 each. Therefore, the 

overall cost burden for the paper and 

print costs are approximately $145.559

Costs Associated With the Report of 

Commissions Paid 

A discretionary trustee must provide 

an authorizing fiduciary with an annual 

report that separately shows the 

commissions paid to affiliated brokers 

and non-affiliated brokers on both a 

total dollar basis and a cents-per-share 

basis. The clerical hour burden to 

prepare and distribute the report is 

included with the provision of annual 

termination form requirement, because 

both items are required to be sent 

annually. However, the collecting and 

generating information for the report of 

commissions paid is reported as a cost 

burden. 

An investment advice provider that is 

a discretionary trustee must provide 

each of the 10,000 authorizing 

fiduciaries with this annual 

commissions report.560 As discussed at 

the beginning of the cost section, the 

Department assumes that 5.8 percent of 

investment advice providers will mail 

the annual reports. As the report is sent 

annually, it is assumed that it could be 

sent with the transaction report, 

therefore postage costs are not counted 

here. It is assumed that the report will 

be two pages, and the paper and print 

costs are $0.10 each. Therefore, the 

overall cost burden of the paper and 

print costs is approximately $58.561

Investment advice providers are 

required to report the total of all 

transaction-related charges incurred by 

the plan in connection with covered 

transactions, the allocation of such 

charges among various persons, as well 

as a conspicuous statement about the 

negotiability of brokerage commissions 

and an estimate of future commission 

rates to the plan fiduciaries. The 

information must be tracked, assigned to 

specific plans, and reported. It is 

assumed that it costs the investment 

advice provider $3.30 per IRA to track 

this information.562 With approximately 

10,000 affected IRAs, this results in a 

cost burden of approximately $33,000 

annually.563


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75961 

564This cost is estimated as: ($58 for material and 

post costs + $33,000 to track relevant information 

for mailing annual reports) = $33,058. 

565The annual cost is estimated as: ($180,527 for 

recordkeeping + $30,044 for preparing and sending 

documents for inspection + $9,485 for the written 

authorization + $1,123 for the materials for the 

evaluation of authorization of transaction + 

$355,106 for the annual termination form + $145 for 

materials for the annual statement + $33,058 for the 

report on commissions paid) = $609,487. Note, the 

total may not equal the sum of components due to 

rounding. 

This results in a total cost of 

approximately $33,100.564

Summary of Total Cost for the Proposed 

Amendments to PTE 86–128 

The Department estimates that in 

order to meet the additional conditions 

of the amended PTE 86–128, affected 

entities would annually incur a total 

cost of $0.6 million.565

9. Regulatory Alternatives 

The Department considered various 

alternative approaches in developing 

this proposal. Those alternatives are 

discussed below. 

Broader Rule 

The Department considered proposing 

a definition of an investment advice 

fiduciary that would be broader in 

scope, similar to the 2016 Final Rule. In 

promulgating the 2016 Final Rule, the 

Department expanded the definition of 

a fiduciary beyond the five-part test 

included in the 1975 regulation. The 

2016 Final Rule covered as fiduciary 

investment advice: 

• recommendations by a person who 

represents or acknowledges their 

fiduciary status under the Act or the 

Code; 

• advice rendered pursuant to a 

written or verbal agreement, 

arrangement or understanding that the 

advice is based on the particular 

investment needs of the retirement 

investor; 

• recommendations directed to a 

specific retirement investor or investors 

regarding the advisability of a particular 

investment or management decision 

with respect to securities or other 

investment property of the plan or IRA; 

and 

• recommendations to buy, sell or 

hold assets held in IRAs and non-ERISA 

plans. 

In developing this proposal, the 

Department has crafted a more focused 

definition that would consider the scope 

issues identified by the Fifth Circuit 

while still protecting retirement 

investors. The Department was also 

cognizant of stated concerns of some 

stakeholders that the compliance costs 

associated with the broader 2016 Final 

Rule would lead to adverse 

consequences such as increases in the 

cost of investment advice and potential 

loss of access by retirement investors 

with small account balances. 

The current proposal bases 

investment advice fiduciary status on 

circumstances that indicate the 

retirement investor may place trust and 

confidence in the recommendation as a 

professional recommendation based 

upon the particular needs of the 

investor. The proposal reflects the 

Department’s interpretation of the text 

of the statute, as informed by the Fifth 

Circuit’s emphasis on relationships of 

trust and confidence. Accordingly, the 

proposed definition, unlike the 2016 

Final Rule, does not automatically treat 

as fiduciary advice all compensated 

recommendations directed to a specific 

retirement investor regarding the 

advisability of a particular investment 

or management decision with respect to 

securities or other investment property 

of the plan or IRA. For example, an 

entity can satisfy the test under (c)(1)(ii) 

of this proposal, only if they satisfy each 

part, including the requirement that the 

retirement adviser provides investment 

advice on a regular basis as part of their 

business. This is more limiting than the 

2016 Final Rule, and it ensures that 

individuals like human resource 

professionals discussing 401(k) 

investment options, and the car 

salesman who recommends a retiree 

cash in their 401(k) for a new 

convertible are not caught up in the 

definition. In publishing this proposal, 

the Department was mindful of 

concerns with respect to the 2016 Final 

Rule, specifically regarding access to 

investment advice for all retirement 

investors. 

No Amendment to PTE 2020–02 

The Department considered not 

amending PTE 2020–02 and leaving the 

exemption in its present form. The 

Department supports the existing PTE 

2020–02 and has retained its core 

components in the amendment, 

including the Impartial Conduct 

Standards and the requirement for 

strong policies and procedures. These 

are fundamental investor protections 

that are necessary to ensure the 

financial institutions and investment 

professionals provide investment advice 

that is in the best interest of retirement 

investors. The retention of the core 

elements of PTE 2020–02 will also 

ensure that any work financial 

institutions have done to comply with 

PTE 2020–02 will prepare them to 

comply with the amended exemption. 

However, the Department believes 

that additional protections are necessary 

to ensure that fiduciary investment 

advice providers adhere to the stringent 

standards outlined in PTE 2020–02. 

Therefore, as discussed in detail earlier, 

the proposed amendments clarify and 

tighten the existing text of PTE 2020–02 

to enhance the disclosure requirements. 

In order to more fully protect retirement 

investors, the Department is proposing 

additional disclosures to ensure that 

investors have sufficient information to 

make informed decisions about the costs 

of an investment advice transaction and 

about the significance and severity of 

the investment advice fiduciary’s 

conflicts of interest. 

In addition to the need for additional 

protections, upon reviewing the 

implementation of PTE 2020–02, the 

Department determined it is necessary 

to provide financial institutions and 

investment professionals with 

additional guidance on implementing 

the exemption’s core elements. As a 

result, the proposed amendment would 

also provide more guidance on how to 

best comply with the Impartial Conduct 

Standards and implement the policies 

and procedures condition. 

No Amendment to PTE 84–24 

The Department is aware that 

insurance companies sometimes sell 

insurance products through 

independent agents that sell multiple 

insurance companies’ products. In 

connection with this business structure, 

when the Department finalized PTE 

2020–02, the Department explained that 

insurance companies could rely on 

either PTE 2020–02 or PTE 84–24. As a 

result, the Department considered the 

option of leaving PTE 84–24 unaltered. 

Through outreach with financial 

institutions after issuing PTE 2020–20, 

the Department heard concerns from 

insurance companies that distribute 

annuities through independent agents 

and believed that they may not be able 

to effectively comply with PTE 2020–02. 

This is primarily due to the difficulty 

insurers confront when overseeing 

independent insurance producers who 

do not work for any one insurance 

company and are not obligated to 

recommend only one company’s 

annuities. The Department understands 

that this compliance issue has been 

resolved by reliance on PTE 84–24. 

However, the Department is 

concerned that PTE 84–24, if left in its 

current state, offers few of the 

protections provided by PTE 2020–02. 

Further, insurance companies’ 

continued reliance on PTE 84–24 

instead of PTE 2020–02 could prevent 

retirement investors from being able to 

fully compare varying products and 

services. In order to address these 


lotter on DSK11XQN23PROD with PROPOSALS3
75962 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

566See 81 FR 21002 (Apr. 8, 2016). 

567See FR 21927 (Apr. 20, 2015). 

568See FR 20946, 20950–51 (Apr. 8, 2016). 

569 George Loewenstein, Daylian M. Cain & Sunita 

Sah, The Limits of Transparency: Pitfalls and 

Potential of Disclosing Conflicts of Interest, 101(3) 

American Economic Review 423–28, (May 2011). 

570Augustin Landier & David Thesmar, 

Regulating Systemic Risk Through Transparency: 

Tradeoffs in Making Data Public, Working Paper 

17664 National Bureau of Economic Research 

(December 2011), 320, https://www.nber.org/ 

system/files/working_papers/w17664/w17664.pdf. 

571For example: Randall A. Heron & Erik Lie, 

Does Backdating Explain the Stock Price Pattern 

Around Executive Stock Option Grants?, 83(2) 

Journal of Financial Economics 271–295 (2007).; 

Randall A. Heron & Erik Lie, What Fraction of Stock 

concerns, the Department proposes to 

amend PTE 84–24 to provide an 

exemption to independent insurance 

producers to sell annuities or other 

insurance products. The proposed 

amendment addresses insurance 

industry concerns regarding the 

workability of PTE 2020–02’s 

conditions, while providing a tailored 

exemption for insurance companies and 

independent agents that ensures that 

fiduciary investment advice with 

respect to all products is delivered 

pursuant to the same core principles 

that protect retirement investors. 

Including an Individual Contract 

Requirement 

The Department also considered 

amending PTE 2020–02 to include an 

enforceable written contract between 

the financial institution and the 

retirement investor. While the 

predecessor to PTE 2020–02, the Best 

Interest Contract Exemption,566 required 

such an enforceable contract, PTE 2020– 

02 did not include a contract or 

warranty provision enforceable by IRA 

owners. 

In crafting the proposed amendment, 

the Department reviewed the decision to 

not include an enforceable written 

contract in PTE 2020–02 but concluded 

that the better course of action was not 

to include such a requirement. Given 

that the Fifth Circuit found that the 

contractual requirement for IRAs 

exceeded the scope of the Department’s 

authority, a proposal attempting to 

reinstate that requirement would likely 

be invalidated in the Fifth Circuit, 

leading to uncertainty in the regulated 

community. Such uncertainty could 

lead to the potential for disruption in 

the market for investment advice, and in 

crafting an exemption that does not 

include an enforceable written contract, 

the Department intends to avoid this 

potential disruption. 

Instead, the exemption includes many 

protective measures and targeted 

opportunities for the Department to 

review compliance within its existing 

oversight and enforcement authority 

under ERISA. For example, financial 

institutions’ reports regarding their 

retrospective review are required to be 

certified by a senior executive officer of 

the financial institution and provided to 

the Department within 10 business days 

of request. The exemption also includes 

eligibility provisions, which the 

Department believes will encourage 

financial institutions and investment 

professionals to maintain an appropriate 

focus on compliance with legal 

requirements and with the exemption. 

The Department also intends to 

ensure that financial institutions relying 

on the exemption comply with excise 

tax provisions. The Department has 

proposed to bolster this protection by 

requiring financial institutions, as part 

of their retrospective review, to report to 

the Department of the Treasury any nonexempt prohibited transactions in 

connection with fiduciary investment 

advice, correct those transactions, and 

pay any resulting excise taxes. Further, 

the proposed amendment would add 

failure to report, correct, and pay an 

excise tax to the list of factors that could 

make a financial institution ineligible to 

rely on PTE 2020–02. The Department 

believes these additional conditions 

would provide important protections to 

retirement investors by enhancing the 

existing protections of PTE 2020–02. 

Relying on Disclosure Alone 

Some commenters responding to the 

2015 NPRM 567 argued that disclosure of 

potential adviser conflicts is, by itself, 

sufficiently protective of plan and IRA 

investors’ interests. According to these 

comments, if conflicts are transparent, 

then investors can choose between more 

and less conflicted advisers. The 

commenters advocated that the 

Department should issue broad PTEs 

that exempt all or almost all existing 

and potential adviser business models 

and compensation arrangements on the 

sole condition that material conflicts be 

disclosed. The Department does not 

believe that disclosure alone is 

adequately protective of retirement 

investors. The Department chose not to 

take that approach in the 2016 Final 

Rule and chooses not to take that 

approach with this proposal. 

As discussed above in the ‘‘Need for 

Regulatory Action’’ section, most 

retirement investors are not financially 

sophisticated, and even those who are 

financially sophisticated are unlikely to 

detect lapses in the quality of financial 

advice. Due to the complexity of some 

disclosures as well as investors’ 

propensity to ignore lengthy 

disclosures, disclosures often fail to 

accomplish their goals. Retirement 

investors regularly fail to understand 

advisers’ conflicts, let alone the impacts 

that those conflicts could have on their 

investments. A large body of research 

discussed in the RIA for the 2016 Final 

Rule suggested that disclosures alone 

can have, at best, a minor impact on 

conflicts, and can sometimes exacerbate 

the conflicted behavior.568 Advisers 

may inflate the bias in their advice to 

counteract any discounting that might 

occur because of the disclosure of 

conflicts.569 In addition, even when 

inexpert retirement investors receive 

easy-to-understand disclosures alerting 

them to conflicts, there is no ready way 

for them to use that knowledge to 

improve investment outcomes, 

inasmuch as they are still dependent on 

the adviser’s recommendations and 

expertise. 

Adding a Requirement for a Web 

Disclosure 

The Department considered amending 

PTE 2020–02 and PTE 84–24 to require 

financial institutions to disclosure the 

sources of third-party compensation 

received in connection with 

recommended investment products on a 

public web page. The Department 

believes such disclosures would allow 

market-based forces to extend 

protections to consumers by 

discouraging and eliminating the most 

conflicted compensation practices. 

Moreover, public disclosure of firms’ 

compensation arrangements with the 

third parties whose products they 

recommend would provide an 

additional focus on firm-level, as 

opposed to individual adviser-level, 

conflicts of interest. 

Such public disclosure could produce 

market effects similar to public 

disclosures required by the SEC (e.g., 

public companies’ 10–K filings). 

Conflicted compensation practices are 

often complex, opaque, and shrouded 

from view. Requiring public disclosure 

of conflicted compensation practices 

would allow investment professionals, 

experts, and consultants, as well as 

academic researchers, to draw attention 

to the concerning aspects of the 

conflicts and even rate firms based on 

the scope of their conflicts. As noted by 

Landier and Thesmar (2011), data 

availability feeds research intensity.570

A wide range of literature suggest that 

when financial data are available to 

researchers, these researchers uncover 

problematic behaviors and draw 

attention to the behaviors, which has 

the effect of curbing the practices in the 

future.571 Making compensation 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75963 

Option Grants to Top Executives Have Been 

Backdated or Manipulated?, 55(4) Management 

Science 513–525.; Mark Carhart, Ron Kaniel & 

Adam Reed, Leaning for the Tape: Evidence of 

Gaming Behavior in Equity Mutual Funds, 57(2) 

Journal of Finance 661–693 (2002).; Truong X. 

Duong & Felix Meschke, The Rise and Fall of 

Portfolio Pumping Among U.S. Mutual Funds, 60 

Journal of Corporate Finance (February 2020). 

572The burden is estimated as: (19,290 entities × 

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 × 8 hours) × $133.05 = 

$20,532,276. 

573The burden is estimated as: (215 insurance 

companies + 4,000 independent producers) × 8 

hours = 33,720 hours. A labor rate of $133.05 is 

used for a computer programmer professional. The 

labor rate is applied in the following calculation: 

(215 insurance companies + 4,000 independent 

producers) × 8 hours × $133.05 = $4,486,446. 

574The burden is estimated as follows: (19,290 

financial institutions × 10 requests) × (30 minutes 

÷ 60 minutes) = 96,450 hours. A labor rate of 

$159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: [(19,290 

financial institutions × 10 requests) × (30 minutes 

÷ 60 minutes)] × $159.34 = $15,368,343. 

575The Department assumes that financial 

services professionals would spend, on average, 10 

minutes to document the basis for rollover 

recommendations in addition to their work 

researching and determining the recommendations. 

The Department understands that financial services 

professionals seek and gather information regarding 

investor profiles in accordance with other 

regulators’ rules. Further, financial professionals 

often discuss the basis for their recommendations 

and associated risks with their clients as a best 

practice. After collecting relevant information and 

discussing the basis for certain recommendations 

with clients, the Department believes that it would 

take a relatively short time to document 

justifications for rollover recommendations. 

However, the Department welcomes comments 

about the burden hours associated with 

documenting rollover recommendations. 

information publicly available could 

allow intermediaries and consultants to 

package this information as part of their 

ratings and evaluations, likely 

improving investor information. 

Further, a web disclosure of this 

nature may encourage financial 

institutions to stop engaging in 

conflicted behaviors due to litigation 

risk from unsatisfied clients, risk of 

complaints made to the Department that 

might result in enforcement actions, and 

the risk to their public reputations. 

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 for PTE 

2020–02 572 And $$4.5 million for PTE 

84–24.573 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 the 

benefits of such a disclosure, as well as 

in any data that commenters may have 

that estimate how frequently retirement 

investors may visit a web page that 

includes such disclosures, and the 

extent to which various consultants and 

financial intermediaries would likely 

use the website to assist retirement 

investors and others. 

Allowing for More Parties To Review 

Records 

For the proposed amendment to PTE 

2020–02, the Department considered 

allowing more parties to review the 

records necessary to determine whether 

the exemption is satisfied, such as: 

• any authorized employee of the 

Department or the Department of the 

Treasury, 

• any fiduciary of a plan that engaged 

in a transaction pursuant to this 

exemption, 

• any contributing employer, any 

employee organization whose members 

are covered by a plan that engaged in a 

transaction pursuant to this exemption, 

and 

• 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. 

The Department does not have data 

on how often financial institutions 

would receive such requests. For the 

purposes of this analysis, the 

Department assumes that, on average, 

financial institutions would receive 10 

requests per year and that preparing and 

sending each request would take a legal 

professional, on average, 30 minutes. 

Based on these assumptions, the 

Department estimates that the proposed 

amendments would result in an annual 

cost of approximately $15.4 million.574

The Department requests comment on 

how often financial institutions would 

receive requests for records, who would 

prepare such reports, and how long the 

preparation of such records would take. 

10. Uncertainty 

In estimating costs associated with 

rollover documentations, the 

Department faces uncertainty in 

determining the number of rollovers 

affected by the amendments to PTE 

2020–02 and PTE 84–24. Some financial 

services professionals who do not 

generally serve as fiduciaries may act in 

a fiduciary capacity when making 

certain rollover recommendations, and 

thus will be affected by the exemptions. 

Alternatively, the opposite can also be 

true. Financial services professionals 

who generally serve as fiduciaries may 

act in a non-fiduciary capacity in 

handling certain rollover 

recommendations, and thus will not be 

affected by the exemptions. Thus, there 

is uncertainty in estimating the cost of 

compliance. 

The Department welcomes any 

comments and data that can help 

estimate the number of rollovers 

affected by the exemptions. The 

Department also invites comments 

about financial services professionals’ 

practices for documenting rollover 

recommendations, particularly the 

extent to which financial services 

professionals use standardized forms or 

templates to document the reasons for 

recommending rollovers and how long 

on average it would take for a financial 

services professional to document a 

rollover recommendation.575

While the Department expects that the 

proposed rule would result in lower fees 

and expenses for plan participants, the 

Department faces uncertainty in 

estimating the magnitude of savings. 

The Department welcomes any 

comments and data that can help 

estimate the amount of decrease in fees 

and expenses. The Department also 

expects the proposed rule would result 

in a reallocation of capital, but the 

Department faces uncertainty on 

estimating the new market equilibrium 

across products and services. The 

Department welcomes any comments 

and data that can help estimate how 

much capital may be reallocated and 

how much efficiency will be gained. 

G. 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 

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 prohibited 

transaction exemptions. To obtain a 

copy of the ICR, contact the PRA 

addressee below or go to RegInfo.gov. 

The Department has submitted a copy of 


lotter on DSK11XQN23PROD with PROPOSALS3
75964 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

576 5 U.S.C. 601 et seq. 

577 5 U.S.C. 601(2), 603(a); also see 5 U.S.C. 551. 

578U.S. Government Accountability Office, GAO– 

11–119, 401(K) Plans: Improved Regulation Could 

Better Protect Participants from Conflicts of Interest, 

U.S. Government Accountability Office (2011), 

http://www.gao.gov/products/GAO-11-119. 

579 Id. 

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: 

• Evaluate whether the collection of 

information is necessary for the 

functions of the agency, including 

whether the information will have 

practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

collection of information, including the 

validity of the methodology and 

assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology 

(e.g., permitting 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. 

ICRs are available at RegInfo.gov 

(reginfo.gov/public/do/PRAMain). 

Requests for copies of the ICR can be 

sent to the PRA addressee: 

By mail: James Butikofer, Office of 

Research and Analysis, Employee 

Benefits Security Administration, U.S. 

Department of Labor, 200 Constitution 

Avenue NW, Room N–5718, 

Washington, DC 20210. 

By email: ebsa.opr@dol.gov. 

There is no paperwork burden 

associated with the proposed rule. 

However, there is paperwork burden 

associated with the amendments to 

PTEs 75–1, 84–24, 86–128, and 2020– 

02. The Department estimates that the 

proposed amendments would not affect 

the paperwork burden related to PTEs 

77–4, 80–3, and 83–1.The PRA analysis 

for the amendments is included with 

each of the respective amendments. 

PTE 75–1 

Type of Review: Revision of an 

existing collection. 

Agency: Employee Benefits Security 

Administration, Department of Labor. 

Titles: Prohibited Transaction 

Exemption 75–1 (Security Transactions 

with Broker-Dealers, Reporting Dealers 

and Banks). 

OMB Control Number: 1210–0092. 

Affected Public: Businesses or other 

for-profits; not for profit institutions. 

Estimated Number of Respondents: 

3,942. 

Estimated Number of Annual 

Responses: 3,942. 

Frequency of Response: Initially, 

Annually, When engaging in exempted 

transaction. 

Estimated Total Annual Burden 

Hours: 15,768 hours. 

Estimated Total Annual Burden Cost: 

$0. 

PTE 84–24 

Type of Review: Revision of an 

Existing Collection. 

Agency: Employee Benefits Security 

Administration, Department of Labor. 

Title: Prohibited Transaction 

Exemption (PTE) 84–24 for Certain 

Transactions Involving Insurance 

Agents and Brokers, Pension 

Consultants, Insurance Companies, and 

Investment Company Principal 

Underwriters. 

OMB Control Number: 1210–0158. 

Affected Public: Businesses or other 

for-profits; not for profit institutions. 

Estimated Number of Respondents: 

7,221. 

Estimated Number of Annual 

Responses: 119,376. 

Frequency of Response: Initially, 

Annually, When engaging in exempted 

transaction. 

Estimated Total Annual Burden 

Hours: 123,726 hours. 

Estimated Total Annual Burden Cost: 

$8,457. 

PTE 86–128 

Type of Review: Revision to an 

existing collection. 

Agency: Employee Benefits Security 

Administration, Department of Labor. 

Titles: PTE 86–128 (Securities BrokerDealers). 

OMB Control Number: 1210–0059. 

Affected Public: Businesses or other 

for-profits; not for profit institutions. 

Estimated Number of Respondents: 

2,179. 

Estimated Number of Annual 

Responses: 33,570. 

Frequency of Response: Initially, 

Annually, When engaging in exempted 

transaction. 

Estimated Total Annual Burden 

Hours: 2,929 hours. 

Estimated Total Annual Burden Cost: 

$37,034. 

PTE 2020–02 

OMB Control Number: 1210–0163. 

Affected Public: Businesses or other 

for-profits; not for profit institutions. 

Estimated Number of Respondents: 

19,290. 

Estimated Number of Annual 

Responses: 6,504,119. 

Frequency of Response: Initially, 

Annually, When engaging in exempted 

transaction. 

Estimated Total Annual Burden 

Hours: 1,044,050 hours. 

Estimated Total Annual Burden Cost: 

$167,296. 

H. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(RFA) 576 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.577 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. Below 

is the Department’s IRFA. 

1. Need for and Objectives of the Rule 

As discussed earlier, the Department 

believes that changes to the marketplace 

since 1975, when ‘‘fiduciary’’ was first 

defined, have made the existing 

definition inadequate and obsolete. This 

proposal will update the definition of 

‘‘fiduciary’’ to reflect changes to the 

retirement and financial advice 

marketplaces since 1975 and add 

important protections to existing 

prohibited transaction class exemptions. 

More detail can be found in the ‘‘Need 

for Regulatory Action’’ section of this 

RIA. 

Smaller plans may be more exposed 

to conflicts of interest on the part of 

service providers, because they are less 

likely than larger plans to receive 

investment assistance from a service 

provider that is acting as a fiduciary. 

Smaller plans have historically received 

investment assistance from insurance 

brokers or broker-dealers, who may be 

subject to conflicts of interest.578 Larger 

plans may also have sufficient resources 

and in-house expertise to make 

investment decisions without outside 

assistance.579 Additionally, many 

sponsors of smaller plans may have a 

lack of knowledge of whether the 

providers to the plan are fiduciaries and 

how the provider’s compensation varies 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75965 

580 Id. 581 13 CFR 121.201. 582 15 U.S.C. 631 et seq. 583This is estimated on the percent of entities 

with less than $47.0 million for the industry 

Securities Brokerage, NAICS 523120. See NAICS 

Association, Count by NAICS Industry Sectors, 

NAICS Association, https://www.naics.com/ 

business-lists/counts-by-naics-code/. 584This is estimated on the percent of entities 

with less than $47.0 million for the industry 

Investment Advice, NAICS 523930. See NAICS 

Association, Count by NAICS Industry Sectors, 

NAICS Association, https://www.naics.com/ 

business-lists/counts-by-naics-code/. 

585For more information on this estimate, refer to 

the Affected Entities section of the RIA. 

586This is estimated on the percent of entities 

with less than $47.0 million for the industry 

Investment Advice, NAICS 523930. See NAICS 

Association, Count by NAICS Industry Sectors, 

NAICS Association, https://www.naics.com/ 

business-lists/counts-by-naics-code/. 

587The number of small investment advisers, who 

do not provide pure robo-advice, is estimated as: 

(16,182 investment advisers ¥ 200 robo-advisers) × 

98.7% = 15,775 small investment advisers. 

588For more information on this estimate, refer to 

the Affected Entities section of the RIA. 

589This is estimated on the percent of entities 

with less than $47.0 million for the industry 

Securities Brokerage, NAICS 523120. See NAICS 

Association, Count by NAICS Industry Sectors, 

NAICS Association, https://www.naics.com/ 

business-lists/counts-by-naics-code/. 

based on the investment options 

selected.580

2. Affected Small Entities 

The Small Business Administration 

(SBA) 581 582 defines small businesses 

and issues size standards by industry. 

The SBA defines a small business in the 

financial investments and related 

activities sector as a business with up to 

$47.0 million in annual receipts. Over 

97 percent of broker-dealers 583 and 99 

percent of registered investment 

advisers 584 are small businesses 

according to the SBA size standards. 

The Department requests comments 

on the appropriateness of the size 

standards used to evaluate the impact of 

the proposal on small entities. 

TABLE 5—AFFECTED SMALL FINANCIAL ENTITIES

Prohibited transaction exemptions 

2020–02 84–24 75–1 77–4 80–83 86–128 

Broker-Dealers .......................................................................... 1,835 ........................ 1,835 ........................ ........................ ........................

Registered Investment Advisers ............................................... 15,775 ........................ ........................ ........................ ........................ ........................

Pure Robo-Advisers ........................................................... 10 ........................ ........................ ........................ ........................ ........................

Discretionary Fiduciaries ........................................................... ........................ ........................ ........................ ........................ ........................ 1,835 

Insurance Companies ............................................................... 151 177 ........................ ........................ ........................ ........................

Insurance Producers ................................................................. ........................ 3,960 ........................ ........................ ........................ ........................

Banks ........................................................................................ ........................ ........................ 1,568 ........................ 19 ........................

Mutual Fund Companies ........................................................... ........................ ........................ ........................ 796 ........................ ........................

Investment Company Principal Underwriters ............................ 20 20 ........................ ........................ ........................ 20 

Pension Consultants ................................................................. 930 930 ........................ ........................ ........................ 930 

In its economic analysis for its 2020 

rulemaking, the Department included 

all entities eligible for relief on a variety 

of transactions and compensation that 

may not have been covered by prior 

exemptions in its cost estimate. In 2020, 

the Department acknowledged that not 

all these entities will serve as 

investment advice fiduciaries to plans 

and IRAs within the meaning of Title I 

and the Code. Additionally, the 

Department acknowledged that because 

other exemptions are also currently 

available to these entities, it is unclear 

how widely financial institutions will 

rely upon the new exemptions and 

which firms are most likely to choose to 

rely on it. 

This analysis, like the analysis from 

2020, includes all entities eligible for 

relief in its cost estimate. These 

estimates are subject to caveats like 

those in 2020, though this proposal will 

expand the parties that will be 

considered investment advice 

fiduciaries and also will narrow the 

exemption alternatives. 

The Department requests comments 

on which, and how many, entities may 

rely on each of the exemptions, as 

amended. 

Registered Investment Advisers 

Small, registered investment advisers 

who provide investment advice to 

retirement plans or retirement investors 

and registered investment advisers who 

act as pension consultants would be 

directly affected by the proposed 

amendments to PTE 2020–02. As 

discussed in the Affected Entities 

section of the RIA, the Department 

estimates that 16,182 registered 

investment advisers, including 200 

robo-advisers, would be affected by the 

proposed amendments.585 The 

Department estimates that 98.7 percent 

of broker-dealers are small businesses 

according to the SBA size standards.586

Based on these statistics, the 

Department estimates that 15,775 

registered investment advisers, 

including those registered with the SEC 

and the state, would be affected by the 

proposed amendments.587

Robo Advisers 

The proposed changes to PTE 2020– 

02 would affect robo-advisers. As 

discussed in the RIA, the Department 

estimates that 200 robo-advisers will be 

affected by the proposed amendments. 

The Department does not have 

information on how many of these roboadvisers would be considered small 

entities. The Department expects that 

most robo-advisers would not be 

considered small. For the purposes of 

this analysis, the Department assumes 

that 5 percent of robo-advisers, or 10 

robo-advisers, are small entities. The 

Department requests comment on these 

estimates. 

Broker-Dealers 

Small broker-dealers who provide 

investment advice to retirement plans or 

retirement investors and registered 

investment advisers who act as pension 

consultants would be directly affected 

by the proposed amendments to PTE 

2020–02. Additionally, the proposed 

amendments would modify PTE 75–1 

and PTE 86–128 such that small brokerdealers would no longer be able to rely 

on the exemption for investment advice. 

The Department does not have 

information about how many small 

broker-dealers provide investment 

advice to plan fiduciaries, plan 

participants and beneficiaries, and IRA 

owners. However, the Department 

believes that few broker-dealers, 

including small broker-dealers, will 

continue to rely on PTE 75–1 and PTE 

86–128 for transactions that do not 

involve investment advice. 

As discussed in the RIA, the 

Department assumes that 1,894 brokerdealers would be affected by the 

proposed amendments.588 The 

Department estimates that 96.9 percent 

of broker-dealers are small businesses 

according to the SBA size standards.589

Accordingly, the Department assumes 


lotter on DSK11XQN23PROD with PROPOSALS3
75966 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

590The estimated of retail broker-dealers affected 

by this exemption is estimated as: (1,894 brokerdealers × 96.9%) = 1,835 broker dealers. 

591For more information on this estimate, refer to 

the Affected Entities section of the RIA. 

592This is estimated on the percent of entities 

with less than $47.0 million for the industry 

Securities Brokerage, NAICS 523120. See NAICS 

Association, Count by NAICS Industry Sectors, 

NAICS Association, https://www.naics.com/ 

business-lists/counts-by-naics-code/. 

593The estimated of retail broker-dealers affected 

by this exemption is estimated as: (1,894 brokerdealers × 96.9%) = 1,835 broker dealers. 

594LIMRA estimates that, in 2016, 70 insurers 

had more than $38.5 million in sales. See LIMRA, 

U.S. Individual Annuity Yearbook: 2016 Data, 

LIMRA Secure Retirement Institute (2017). 

595The number of large insurance companies 

using a captive distribution channel is estimated as: 

(70 large insurance companies × 46%) = 32 

insurance companies. The number of small 

insurance companies using a captive distribution 

channel is estimated as: (183 insurance companies 

¥ 32 large insurance companies) = 151 small 

insurance companies. 

596The number of large insurance companies 

using an independent distribution channel is 

estimated as: (70 large insurance companies × 54%) 

= 38 insurance companies. The number of small 

insurance companies using an independent 

distribution channel is estimated as: (215 insurance 

companies ¥ 38 large insurance companies) = 177 

small insurance companies. 

597This is estimated on the percent of entities 

with annual receipts less than $15.0 million for the 

industry Insurance Agencies and Brokerages, 

NAICS 524210. See NAICS Association, Count by 

NAICS Industry Sectors, NAICS Association, 

https://www.naics.com/business-lists/counts-bynaics-code/.; Small Business Administration, Table 

of Size Standards, Small Business Administration, 

(December 2022), https://www.sba.gov/document/ 

support--table-size-standards. 

598The number of captive insurance agents is 

calculated as: (1,577 captive agents × 99.0%) = 

1,561 captive insurance agents serving the annuity 

market. 

599This is estimated on the percent of entities 

with annual receipts less than $15.0 million for the 

industry Insurance Agencies and Brokerages, 

NAICS 524210. See NAICS Association, Count by 

NAICS Industry Sectors, NAICS Association, 

https://www.naics.com/business-lists/counts-bynaics-code/; Small Business Administration, Table 

of Size Standards, Small Business Administration, 

(December 2022), https://www.sba.gov/document/ 

support--table-size-standards. 

that 1,835 small broker-dealers would 

be affected by the proposed 

amendments.590 The Department 

requests comment on this estimate. 

Discretionary Fiduciary 

The proposed amendments to PTE 

86–128 would delete Section IV(a), 

which provides an exclusion from the 

conditions of the exemption for certain 

plans not covering employees, including 

IRAs, to increase the safeguards 

available to these retirement investors. 

Therefore, investment advice fiduciaries 

to IRAs would have to rely on another 

exemption, such as PTE 2020–02. 

Fiduciaries that exercise full 

discretionary authority or control with 

respect to IRAs could continue to rely 

on PTE 86–128, as long as they comply 

with all of the exemption’s conditions. 

Under PTE 86–128, discretionary 

fiduciaries would still be able to effect 

or execute securities transactions. Any 

discretionary fiduciaries seeking relief 

for investment advice, however, would 

be required to rely on the amended PTE 

2020–02. The Department lacks reliable 

data on the number of investment 

advice providers who are discretionary 

fiduciaries that would rely on the 

amended exemption. 

For the purposes of this analysis, the 

Department assumes that the number of 

discretionary fiduciaries relying on the 

exemption is no larger than the 

estimated number of broker-dealers 

estimated to be affected by the 

amendments to PTE 2020–02. As 

discussed in the RIA, the Department 

assumes that 1,894 broker-dealers 

would be affected by the proposed 

amendments.591 The Department 

estimates that 96.9 percent of brokerdealers are small businesses according 

to the SBA size standards.592

Accordingly, the Department assumes 

that 1,835 small discretionary 

fiduciaries would be affected by the 

proposed amendments.593

The Department requests comment on 

this assumption, particularly with 

regard to what types of entities would 

be likely to rely on the amended 

exemption, as well as any underlying 

data. 

Insurance Companies 

The proposed amendments to PTE 

2020–02 and PTE 84–24 would affect 

small insurance companies and captive 

agents. The existing version of PTE 84– 

24 granted relief for captive insurance 

agents, overseen by insurance 

companies; however, the proposed 

amendments would exclude insurance 

companies and captive agents currently 

relying on the exemption for investment 

advice. These entities would be required 

to comply with the requirements of PTE 

2020–02 for relief involving investment 

advice. 

As discussed in the RIA, the 

Department estimates that 398 

insurance companies would be affected 

by the proposed rulemaking. The 

Department estimates that 70 of these 

entities are large entities.594 The 

Department does not have data on 

whether small insurance companies are 

more likely to rely on captive or 

independent distribution channels. For 

the purposes of this analysis, the 

Department assumes the percent of 

small insurance companies using each 

distribution channel is the same as for 

all insurance companies. That is, the 

Department assumes that 46 percent of 

insurance companies (183 insurance 

companies) sell annuities through 

captive distribution channels, of which 

151 are estimated to be small insurance 

companies and 32 are estimated to be 

large insurance companies.595

Additionally, 54 percent (215 insurance 

companies) sell annuities through 

independent distribution channels, of 

which 177 are estimated to be small 

insurance companies and the remaining 

38 are large insurance companies.596

The Department requests comment on 

this assumption. 

Captive Insurance Agents 

Additionally, as discussed in the 

Affected Entities section of the RIA, the 

Department estimates that 1,577 captive 

insurance agents would be affected by 

the proposed amendments. The 

Department estimates that 99 percent of 

these captive agents work for small 

entities.597 Thus, the Department 

estimates there are 1,561 captive 

insurance agents and brokers that would 

be affected by the proposed 

amendments.598

Independent Producers 

The proposal would also affect 

independent insurance producers that 

recommend annuities from unaffiliated 

financial institutions to retirement 

investors, as well as the financial 

institutions whose products are 

recommended. While captive insurance 

agents are employees of an insurance 

company, other insurance agents are 

‘‘independent’’ and work with multiple 

insurance companies. Though these 

independent insurance producers may 

rely on PTE 2020–02, the Department 

believes they are more likely to rely on 

PTE 84–24. For this reason, the 

Department only considers captive 

insurance agents in the analysis for PTE 

2020–02. The Department requests 

comment on how captive insurance 

agents and independent insurance 

producers would be affected by the 

proposed amendments to PTE 2020–02 

and PTE 84–24. 

The Independent Insurance Agents 

and Brokers of America estimated that 

there were 40,000 independent 

producers in 2022. The Department 

does not have data on what percent of 

independent producers serve the 

retirement market. For the purposes of 

this analysis, the Department assumes 

that 10 percent, or 4,000, of these 

independent producers serve the 

retirement market. The Department 

estimates that 99 percent of these 

entities are small entities.599 As such, 

the Department estimates that 3,960 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75967 

600This is estimated on the percent of entities 

with annual receipts less than $45.5 million for the 

industry Third Party Administration of Insurance 

and Pension Funds, NAICS 524292. See NAICS 

Association, Count by NAICS Industry Sectors, 

NAICS Association, https://www.naics.com/ 

business-lists/counts-by-naics-code/; Small 

Business Administration, Table of Size Standards, 

Small Business Administration, (December 2022), 

https://www.sba.gov/document/support--table-sizestandards. 

601This is estimated on the percent of entities 

with less than $47.0 million for the industry 

Investment Banking and Securities Intermediation, 

NAICS 523150. See NAICS Association, Count by 

NAICS Industry Sectors, NAICS Association, 

https://www.naics.com/business-lists/counts-bynaics-code/. 

602This is estimated on the percent of commercial 

banks with assets less than $850 million. See 

Federal Deposit Insurance Corporation, FOIA RIS 

Data Bulk Download, Federal Deposit Insurance 

Corporation, (December 2022), https://

www.fdic.gov/foia/ris/index.html; Small Business 

Administration, Table of Size Standards, Small 

Business Administration, (December 2022), https:// 

www.sba.gov/document/support--table-sizestandards. 

603The number of small commercial banks that 

would use PTE 75–1 is estimated as: (4,096 banks 

× 76.5%) = 3,135 small banks. 

604The number of small banks that would use 

PTE 80–83 is estimated as: (25 fiduciary-banks with 

public offering services × 76.5%) = 19 banks. 

605 Jim DiSalvo, Banking Trends: Has the Banking 

Industry Become Too Concentrated?, Federal 

Reserve Bank of Philadelphia, (2023), https://

www.philadelphiafed.org/-/media/frbp/assets/ 

economy/articles/economic-insights/2023/q1/bthas-the-banking-industry-become-tooconcentrated.pdf. 

606For more information on how the number of 

credit unions is estimated, refer to the Affected 

Entities section of the RIA. 

607 88 FR 18906 (March 29, 2023). 

608This is estimated on the percent of entities 

with annual receipts less than $40 million for the 

industry Open End Investment Fund, NAICS 

525910. See NAICS Association, Count by NAICS 

Industry Sectors, NAICS Association, https://

www.naics.com/business-lists/counts-by-naicscode/; Small Business Administration, Table of Size 

Standards, Small Business Administration, 

(December 2022), https://www.sba.gov/document/ 

support--table-size-standards. 

small independent producers would be 

affected by the proposed amendment. 

Pension Consultants 

The Department expects that pension 

consultants would continue to rely on 

the existing 84–24; however, the 

proposed amendment would exclude 

pension consultants for plans and IRAs 

currently relying on the existing PTE 

84–24 for investment advice. As such, 

any pension consultants relying on the 

existing exemption for investment 

advice would be required to comply 

with PTE 2020–02 for relief. In this 

analysis, the Department includes 

pension consultants in the affected 

entities for continued relief for the 

existing provisions of PTE 84–24 as well 

as the amended PTE 2020–02. 

As discussed in the Affected Entities 

section of the RIA, the Department 

estimates that 1,011 pension consultants 

serve the retirement market. The 

Department estimates that 

approximately 92 percent of these 

entities are small entities.600 As such, 

the Department estimates that 930 

pension consultants would be affected 

by the proposed amendments. 

Principal Company Underwriter 

The Department expects that some 

investment company principal 

underwriters for plans and IRAs rely on 

the existing PTE 84–24. The proposed 

amendment would exclude investment 

company principal underwriters for 

plans and IRAs currently relying on the 

existing PTE 84–24 for investment 

advice. As such, any principal company 

underwriter relying on the existing 

exemption for investment advice would 

be required to comply with PTE 2020– 

02 for relief. In this analysis, the 

Department includes principal company 

underwriters in the affected entities for 

continued relief for the existing 

provisions of PTE 84–24 as well as the 

amended PTE 2020–02. 

As discussed in the Affected Entities 

section, the Department assumes that 10 

investment company principal 

underwriters for plans and 10 

investment company principal 

underwriters for IRAs will use this 

exemption once with one client plan. 

The Department estimates that 

approximately 97 percent of these 

entities are small entities.601 As a result, 

the Department estimates that all 10 of 

the estimated small investment 

company principal underwriters for 

plans and all 10 of the estimated small 

investment company principal 

underwriters for IRAs would be affected 

by the proposed amendments. 

Banks and Credit Unions 

The proposed amendments to PTE 

80–83, PTE 75–1, and PTE 2020–02 

would affect banks. The proposed 

amendments would exclude banks 

currently relying on the existing PTE 

80–83 and PTE 75–1 for investment 

advice. Banks relying on the existing 

exemptions for investment advice 

would be required to comply with PTE 

2020–02 for relief. Banks with 

discretionary control could still rely on 

PTE 80–83 and PTE 75–1. 

The Department estimates that 

approximately 77 percent of commercial 

banks are small banks.602 As discussed 

in the Affected Entities section of the 

RIA, the Department estimates that 

4,096 banks would use the amended 

PTE 75–1, of which 3,135 commercial 

banks are estimated to be small.603

Additionally, in the Affected Entities 

section of the RIA, the Department 

estimates that 25 fiduciary-banks with 

public offering services would use the 

amended PTE 80–83, of which, 19 are 

estimated to be small.604 The 

Department recognizes that these 

estimates assume that the proportion of 

small banks using the aforementioned 

PTEs would be the same as the 

proposition of all banks using the PTEs. 

The Department recognizes that the 

banking industry within the United 

States is characterized by high market 

concentration.605 The Department 

requests comment on whether small 

banks are equally as likely as large 

banks to rely on such exemptions. 

The Department requests comments 

on how many small banks would seek 

exemptive relief under PTE 80–83 and 

PTE 75–1. 

As discussed in the Affected Entities 

section of the RIA, the proposed 

amendments could also affect credit 

unions that offer IRAs. The Department 

estimates that there are approximately 

4,782 credit unions.606 In 2023, the SBA 

estimated that there are 4,586 small 

credit unions.607 The Department 

requests comment on what proportion 

of small credit unions offer IRAs and 

what proportion sell share certificate 

products. Additionally, the Department 

requests comment on how many of 

these entities currently rely on PTE 

2020–02, 75–1, and PTE 80–83 for 

investment advice. 

Mutual Fund Companies 

The proposed amendments would 

modify PTE 77–4 such that mutual fund 

company as their providing services to 

plans can no longer rely on the 

exemption when giving investment 

advice. Under the proposal, these 

mutual funds would need to rely on 

PTE 2020–02 for relief concerning 

investment advice. 

As discussed in the Affected entities 

section of the RIA, the Department 

estimates that 812 mutual fund 

companies would be affected by the 

proposed amendments to PTE 77–4. The 

Department estimates that 

approximately 98 percent of these 

mutual fund companies, or 796 mutual 

fund companies, are small.608

Mortgage Pool Sponsors 

PTE 83–1 provides relief for the sale 

of certificates in an initial issuance of 

certificates by the sponsor of a mortgage 

pool to a plan or IRA when the sponsor, 

trustee, or insurer of the mortgage pool 

is a fiduciary with respect to the plan or 

IRA assets invested in such certificates. 

The proposed amendments would 

exclude exemptive relief for investment 

advice. Under the proposal, these 


lotter on DSK11XQN23PROD with PROPOSALS3
75968 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

609 85 FR 31884 (May 27, 2020); 67 FR 17263 

(Apr. 9, 2002). 

610The Department estimates approximately 94.2 

percent of retirement investors receive disclosures 

electronically. This is the sum of the estimated 

share of retirement investors receiving electronic 

disclosures under the 2002 electronic disclosure 

safe harbor (58.2 percent) and the estimated share 

of retirement investors receiving electronic 

disclosures under the 2020 electronic disclosure 

safe harbor (36 percent). 

611 Internal Department calculation based on 2023 

labor cost data. For a description of the 

Department’s methodology for calculating wage 

rates. See Employee Benefits Security 

Administration, Labor Cost Inputs Used in the 

Employee Benefits Security Administration, Office 

of Policy and Research’s Regulatory Impact 

Analyses and Paperwork Reduction Act Burden 

Calculations, Employee Benefits Security 

Administration, https://www.dol.gov/sites/dolgov/ 

files/EBSA/laws-and-regulations/rules-andregulations/technical-appendices/labor-cost-inputsused-in-ebsa-opr-ria-and-pra-burden-calculationsjune-2019.pdf. 

612For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section of the Regulatory Flexibility Act 

analysis. 

613The burden is estimated as: (18,721 entities × 

9 hours) = 168,489 hours. A labor rate of $159.34 

is used for a legal professional. The labor rate is 

entities would need to rely on PTE 

2020–02 for relief concerning 

investment advice. The Department 

requests comment on how many small 

entities currently rely on PTE 83–1, and 

how many of these entities rely on PTE 

83–1 for investment advice. 

3. Impact of the Rule 

The Department believes the costs 

associated with the proposed 

amendments are modest because the 

proposal was developed in 

consideration of other regulatory 

conduct standards. The Department 

believes that many financial institutions 

and investment professionals have 

already developed compliance 

structures for similar regulatory 

standards. The Department does not 

expect that the proposal will impose a 

significant compliance burden on small 

entities. As discussed, the Department 

estimates that the proposal would 

impose costs of approximately $253.2 

million in the first year and $216.2 

million in each subsequent year, of 

which approximately $248.0 million in 

the first year and $212.7 million in each 

subsequent year would be imposed on 

small financial institutions. 

The table below summarizes the 

estimated aggregate cost for small 

entities due to the proposed 

amendments to each exemption. The 

following section describes estimated 

cost for each entity type for each 

exemption. 

TABLE 6—SUMMARY OF TOTAL COST AND AVERAGE PER-ENTITY COST BY EXEMPTION

Total cost Per-entity cost 

First year Subsequent 

years First year Subsequent years 

PTE 84–24 ....................................................................................... $17,425,393 $14,733,328 $3,425 $2,896 

PTE 2020–02 ................................................................................... 227,505,836 194,922,497 18,029 2,757 

Mass Amendments: 

PTE 75–1 .................................................................................. 2,594,856 2,594,856 763 763 

PTE 77–4 .................................................................................. 0 0 0 0 

PTE 80–83 ................................................................................ 0 0 0 0 

PTE 83–1 .................................................................................. 0 0 0 0 

PTE 1986–128 .......................................................................... 444,296 444,296 242 242 

Total ................................................................................... 247,970,380 212,694,976 22,459 6,657 

Note: The sum of the columns may not sum to total due to rounding. 

Preliminary Assumptions and Cost 

Estimate Inputs 

The Department also assumes affected 

entities will likely incur only 

incremental costs if they are already 

subject to rules or requirements from the 

Department or another regulator. The 

Department acknowledges that not all 

entities will decide to use the amended 

PTE 2020–02 and PTE 84–24 for 

transactions resulting from fiduciary 

investment advice. Some may instead 

rely on other existing exemptions that 

better align with their business models. 

However, for this cost estimation, the 

Department assumes that all eligible 

entities will use the PTE 2020–02 and 

PTE 84–24 for such transactions. The 

Department recognizes that this may 

result in an overestimate, as not all 

entities will necessarily rely on these 

exemptions. 

The Department does not have 

information on how many retirement 

investors—including plan beneficiaries, 

plan participants, and IRA owners— 

receive electronic disclosures from 

investment advice fiduciaries. For the 

purposes of this analysis, the 

Department assumes that the percent of 

retirement investors receiving electronic 

disclosures would be similar to the 

percent of plan participants receiving 

electronic disclosures under the 

Department’s 2020 and 2002 electronic 

disclosure safe harbors.609 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.610 The 

Department requests comment on these 

assumptions. 

Additionally, the Department assumes 

that various types of personnel will 

perform the tasks associated with 

information collection requests at an 

hourly wage rate of $63.45 for clerical 

personnel, $128.11 for a top executive, 

$133.05 for a computer programmer, 

$158.94 for an insurance sales agent, 

$159.34 for a legal professional, $190.63 

for a financial manager, and $219.23 for 

a financial adviser.611

Cost Associated With PTE 2020–02 

Summary of Affected Entities 

As discussed in the Affected Entities 

section of the Regulatory Flexibility 

Analysis, the Department estimates that 

18,721 small financial institutions 

would be affected by the proposal, 

comprised of 1,835 broker-dealers, 

15,775 registered investment advisers, 

10 robo-advisers, 151 insurance 

companies, 20 investment company 

principal underwriters, and 930 pension 

consultants.612

Cost To Review the Rule 

The Department estimates that all 

18,721 of the small financial institutions 

affected would each need to review the 

rule, as it applies to their business. The 

Department estimates that such a review 

will take a legal professional, on 

average, nine hours to review the rule, 

resulting in a total cost of $26.9 

million.613


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75969 

applied in the following calculation: (18,721 

entities × 9 hours) × $159.34 = $26,847,037. 

614The number of financial entities needing to 

update their written acknowledgement is estimated 

as: (1,835 broker-dealers × 10%) + (15,775 

registered investment advisers × 10%) + (151 

insurers × 10%) = 1,776 financial institutions 

updating existing disclosures. The number of 

financial entities needing to draft their written 

acknowledgement is estimated as: (10 robo-advisers 

+ 930 pension consultants + 20 investment 

company underwriters) = 960 financial institutions 

drafting new disclosures. The burden is estimated 

as: (1,776 financial institutions × (10 minutes ÷ 60 

minutes)) + (960 financial institutions × (30 minutes 

÷ 60 minutes)) = 776 hours. A labor rate of $159.34 

is used for a legal professional. The labor rate is 

applied in the following calculation: [(1,776 

financial institutions × (10 minutes ÷ 60 minutes)) 

+ (960 financial institutions × (30 minutes ÷ 60 

minutes)] × $159.34 = $123,647. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

615The number of financial entities needing to 

update their written description of services is 

estimated as: (1,835 broker-dealers + 15,775 

registered investment advisers + 151 insurers) = 

17,761 financial institutions updating existing 

disclosures. The number of financial entities 

needing to draft their written description of services 

is estimated as: (10 robo-advisers + 930 pension 

consultants + 20 investment company underwriters) 

= 960 financial institutions drafting new 

descriptions. The burden is estimated as: (17,761 

financial institutions × (30 minutes ÷ 60 minutes)) 

+ (960 financial institutions × 1 hour) = 9,841 hours. 

A labor rate of $159.34 is used for a legal 

professional. The labor rate is applied in the 

following calculation: [(17,761 financial institutions 

× (30 minutes ÷ 60 minutes)) + (960 financial 

institutions × 1 hour)] × $159.34 = $1,567,985. For 

more information on the assumptions included in 

this calculation, refer to the RIA of this document. 

616The burden is estimated as: [(1,835 brokerdealers + 15,775 registered investment advisers) × 

(30 minutes ÷ 60 minutes)] + [(151 insurers + 10 

robo-advisers + 930 pension consultants + 20 

investment company underwriters) × 1 hour] = 

9,896 hours. A labor rate of $159.34 is used for a 

legal professional. The labor rate is applied in the 

following calculation: [(1,835 broker-dealers + 

15,775 registered investment advisers) × (30 

minutes ÷ 60 minutes)] + [(151 insurers + 10 roboadvisers + 930 pension consultants, and 20 

investment company underwriters) × 1 hour] × 

$159.34 = $1,576,828. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

617The burden is estimated as: [(1,835 brokerdealers + 15,775 registered investment advisers) × 

(30 minutes ÷ 60 minutes)] + [(151 insurers + 10 

robo-advisers + 930 pension consultants + 20 

investment company underwriters) × 1 hour] = 

9,916 hours. A labor rate of $159.34 is used for a 

legal professional. The labor rate is applied in the 

following calculation: [(1,835 broker-dealers + 

15,775 registered investment advisers) × (30 

minutes ÷ 60 minutes)] + [(151 insurers + 10 roboadvisers + 930 pension consultants, and 20 

investment company underwriters) × 1 hour] × 

$159.34 = $1,580,015. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

618Based on FOCUS data, the SEC reported that 

in 2018, there were 143,333,278 cumulative 

customer broker-dealer accounts. Of these accounts, 

the SEC estimates that the 287 small retail brokerdealers held 5,281 customer accounts. The 

Department used this to estimate that small brokerdealers hold 0.004 percent of the total customer 

accounts. The Department assumes that the market 

for other types of financial institutions matches the 

broker-dealer market and applied this percentage to 

all other accounts. Accordingly, the burden is 

estimated as: [(3,183,503 paper disclosures × 

0.004%) × 2 pages] × $0.05 = $0.74. The Department 

considers this to be a de minimis cost. 

619The burden is estimated as: (18,721 financial 

institutions × 10 disclosures) × (5 minutes ÷ 60 

minutes) = 15,601 hours. A labor rate of $63.45 is 

used for a clerical worker. The labor rate is applied 

in the following calculation: [(18,721 financial 

institutions × 10 disclosures) × (5 minutes ÷ 60 

minutes)] × $63.45 = $989,873. The material cost is 

estimated as: (18,721 financial institutions × 10 

disclosures × 2 pages × $0.05) + (18,721 financial 

institutions × 10 disclosures × $0.66)) × (5.8%) = 

$8,252. The total cost is estimated as: $989,873 + 

$8,252 = $998,125. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

620The Department assumes that the percent of 

PEPs that are serviced by small institutions is 

proportionate the percent of financial institutions 

that are estimated to be small. This percentage is 

estimated as: (18,721 small financial institutions/ 

19,290 financial institutions) = 97.1%. The number 

of PEPs services by small financial institutions is 

estimated as: (382 PEPs × 97.1%) = 371 PEPs. The 

burden is estimated as: (371 financial institutions 

× 2 hours) = 742 hours. A labor rate of $159.34 is 

used for a legal professional. The labor rate is 

applied in the following calculation: (371 financial 

institutions × 2 hours) × $159.34 = $118,230. For 

more information on the assumptions included in 

this calculation, refer to the RIA of this document. 

621As discussed in the RIA, according to filings 

submitted to the Department by August 22, 2023, 

there are 955 employers in PEPs. The Department 

does not have data on how many of these 

disclosures are service by small financial 

institutions. For the purposes of this analysis, the 

Department estimates that the number of employers 

in PEPs serviced by small financial institutions is 

proportionate the number of PEPs serviced by small 

financial institutions. Accordingly, the Department 

estimates the number of disclosures sent to 

employers of PEPs in this context as: 955 PEPs × 

(371/382) = 928 PEPs. 

622The burden is estimated as: (928 PEPs × 1 

minute) = 15 hours. A labor rate of $63.45 is used 

for a clerical worker. The labor rate is applied in 

the following calculation: (928 PEPs × 1 minute) × 

$63.45 = $981. The Department expects that these 

disclosures would be sent electronically. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

623For more information on how the number of 

IRA rollovers is estimated, refer to the Affected 

Entities section of the RIA. 

Cost Associated With Disclosures 

The proposed amendments would 

require small entities to modify existing 

general disclosures and develop 

additional general disclosures to those 

required under the existing exemption. 

For more information on the changed 

requirements for each disclosure, refer 

to the descriptions in the preamble and 

RIA of this document. The Department 

estimates the marginal cost for each of 

the disclosure requirements as: 

• Drafting or updating a written 

acknowledgement that the financial 

institution and its investment 

professional are fiduciaries is estimated 

to result in an aggregate cost of 

approximately $123,647.614

• Drafting or updating a written 

description of service provided is 

estimated to result in an aggregate cost 

of $1.6 million in the first year.615

• Drafting the written statement of the 

Best Interest standard of care owed is 

estimated to result in an aggregate cost 

of $1.6 million in the first year.616

• Drafting 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 is 

estimated to result in an aggregate cost 

of $1.6 million in the first year.617

• Preparing and sending the general 

disclosures described above is estimated 

to result in a de minimis marginal 

cost.618

• Preparing and sending requested 

written descriptions of policies and 

procedures and information regarding 

costs, fees, and compensation is 

estimated to result in an annual cost of 

$1.0 million.619

• Preparing disclosures for PEPs 

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 is estimated to 

result in an annual cost of 

approximately $118,230 in the first 

year.620 The Department estimates that 

this would result in 928 disclosures sent 

to employers of PEPs.621 This results in 

an annual cost of approximately 

$981.622

The Department estimates that the 

total cost for 18,721 small financial 

institutions to update their disclosure 

materials and distribute the newly 

required disclosures is $6.0 million 

during the first year and $1.0 million in 

each subsequent year. 

Cost Associated With Rollover 

Documentation and Disclosure 

As discussed in the cost section of the 

RIA, the Department estimates that, 

3,119,832 rollovers would be 

affected.623 The Department lacks 

reliable data on the number of rollovers 

that would involve small financial 

institutions. For the purposes of this 

analysis, the Department assumes the 

percent of rollovers conducted by small 

institutions is proportional to the 

percent of small financial institutions. 

Accordingly, the Department estimates 

that 99 percent of these rollovers, or 

3,088,633 rollovers, would involve 

small financial institutions. The 

Department requests comments on these 

assumptions. 

Applying these assumptions to the 

18,721 small financial institutions, 

using the same methodology described 

above to calculate the rollover 


lotter on DSK11XQN23PROD with PROPOSALS3
75970 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

624The burden is estimated as: (3,088,633 

rollovers × 48% × (30 minutes ÷ 60 minutes)) + 

(3,088,633 rollovers × 52% × (5 minutes ÷ 60 

minutes)) = 875,113 hours. A labor rate of $219.23 

is used for a personal financial adviser. The labor 

rate is applied in the following calculation: 

(3,088,633 rollovers × 48% × (30 minutes ÷ 60 

minutes)) + (3,088,633 rollovers × 52% × (5 minutes 

÷ 60 minutes)) × $219.23 = $191,850,954. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

625The number of small entities not currently 

producing audit reports is estimated as: (10 roboadvisers + 930 pension consultants + 20 investment 

company underwriters) × 10% = 96 small entities. 

The number of small entities needing to modify 

existing audit reports is estimated as: (10 roboadvisers + 930 pension consultants + 20 investment 

company underwriters) × 90% = 864 small entities. 

The burden is estimated as: (96 financial 

institutions × 5 hours) + (864 financial institutions 

× 1 hour) = 1,344 hours. A labor rate of $159.34 is 

used for a legal professional. The labor rate is 

applied in the following calculation: [(96 financial 

institutions × 5 hours) + 864 financial institutions 

× 1 hour)] × $159.34 = $214,153. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

626The burden is estimated as: (10 robo-advisers 

+ 930 pension consultants + 20 investment 

company underwriters) × 2 hours = 1,920 hours. A 

labor rate of $190.63 is used for a financial manager. 

The labor rate is applied in the following 

calculation: (10 robo-advisers + 930 pension 

consultants + 20 investment company underwriters) 

× 2 hours) × $190.63 = $366,010. 

627The burden is estimated as: (17,761 × (30 

minutes ÷ 60 minutes)) + (960 × 5 hours) = 13,681 

hours. A labor rate of $159.34 is used for a legal 

professional. The labor rate is applied in the 

following calculation: [(17,761 × (30 minutes ÷ 60 

minutes)) + (960 × 5 hours)] × $159.34 = $2,179,851. 

For more information on the assumptions included 

in this calculation, refer to the RIA of this 

document. 

628The burden is estimated as: (18,721 small 

financial institutions × (30 minutes ÷ 60 minutes)) 

= 9,361 hours. A labor rate of $159.34 is used for 

a legal professional. The labor rate is applied in the 

following calculation: (18,721 small financial 

institutions × (30 minutes ÷ 60 minutes)) × $159.34 

= $1,491,502. 

629The percent of financial institutions that are 

small is estimated as: (18,721 small financial 

institutions/19,290 financial institutions) = 97.1%. 

The number of policies and procedures requested 

from small financial entities in the first year is 

estimated as: (165 × 97.1%) = 160. The number of 

policies and procedures requested from small 

financial entities in the first year is estimated as: (50 

× 97.1%) = 49. 

630The burden is estimated as: (160 × (15 minutes 

÷ 60 minutes)) = 40 hours. A labor rate of $63.45 

is used for a clerical worker. The labor rate is 

applied in the following calculation: (160 × (15 

minutes ÷ 60 minutes)) × $63.45 = $2,538. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

631The burden is estimated as: (49 × (15 minutes 

÷ 60 minutes)) = 12 hours. A labor rate of $63.45 

is used for a clerical worker. The labor rate is 

applied in the following calculation: (49 × (15 

minutes ÷ 60 minutes)) × $63.45 = $777. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

documentation costs for all firms, the 

Department estimates a total annual cost 

of approximately $191.9 million.624

Costs Associated With Annual Report of 

Retrospective Review for Financial 

Institutions 

PTE 2020–02 requires financial 

institutions to conduct a retrospective 

review at least annually that is 

reasonably designed to prevent 

violations of and achieve compliance 

with the conditions of this exemption, 

Impartial Conduct Standards, and the 

policies and procedures governing 

compliance with the exemption. While 

entities covered by the existing 

exemption would not incur additional 

costs with this requirement, roboadvisers, pension consultants, and 

investment company underwrites, who 

are not covered under the existing 

exemption, would incur costs associated 

with conducting the annual review. 

This requirement is estimated to result 

in an annual aggregate cost of $0.2 

million.625

Additionally, the Department 

estimates the cost for a certifying officer 

to review the report and certify the 

exemption would result in an estimated 

annual cost burden of approximately 

$366,000.626

Cost Associated With Written Policies 

and Procedures 

Entities that were not previously 

complying with PTE 2020–02 would 

incur the cost to develop policies and 

procedures in the first year. The 

requirements to maintain and review 

policies and procedures is estimated to 

result in an aggregate cost of $2.2 

million in the first year 627 and $1.5 

million in subsequent years.628

The proposed amendments would 

also require financial institutions to 

provide their complete policies and 

procedures to the Department upon 

request. Based on the number of past 

cases as well as current open cases that 

would merit such a request, the 

Department estimates that the 

Department would request a total of 165 

policies and procedures in the first year 

and 50 policies and procedures in 

subsequent years. Assuming the number 

of requests from small institutions is 

proportionate to the number of small 

financial institutions, the Department 

estimates that it would request 160 

policies and procedures in the first year 

and 49 in subsequent years.629 The 

Department estimates that the 

requirement would result an estimated 

cost of approximately $2,538 in the first 

year 630 and $777 in subsequent 

years.631 The cost for a firm receiving 

the request would be approximately $80 

in years when a request is made and no 

cost in most years when no request is 

made. 

Summary of Total Cost 

The Department estimates that in 

order to meet the additional conditions 

of the amended PTE 2020–02, affected 

entities would incur a total cost of 

$227.5 million in the first year and 

$194.9 million in subsequent years. The 

cost by requirement and entity type is 

summarized in the table below. 

TABLE 7—THREE-YEAR AVERAGE COST BY TYPE OF ENTITY AND REQUIREMENT

Broker-dealer 

SEC 

registered 

investment 

adviser 

Stateregistered 

investment 

adviser 

Insurance 

company Robo-adviser Pension consultant 

Investment 

company 

underwriter 

Rule Review: 

Total ....................................................... $877,167 $3,571,765 $3,969,000 $72,181 $4,780 $444,559 $9,560 

Per-Entity ............................................... 478 478 478 478 478 478 478 

Disclosure: 

Total ....................................................... 249,624 1,016,368 1,129,414 28,559 2,414 224,469 4,827 

Per-Entity ............................................... 136 136 136 189 241 241 241 

Rollover Disclosure: 

Total ....................................................... 18,804,898 76,572,316 85,088,322 1,547,433 102,479 9,530,548 204,958 

Per-Entity ............................................... 2 2 2 2 2 2 2 

Policies and Procedures: 

Total ....................................................... 146,328 595,837 662,103 12,041 3,453 321,138 6,906 

Per-Entity ............................................... 80 80 80 80 345 345 345 

Retrospective Review: 

Total ....................................................... ........................ ........................ ........................ ........................ 6,043 562,032 12,087 

Per-Entity ............................................... ........................ ........................ ........................ ........................ 604 604 604 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75971 

632For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 

633The burden is estimated as: (5,087 entities × 

2 hours) = 10,174 hours. A labor rate of $159.34 is 

used for a legal professional. The labor rate is 

applied in the following calculation: (5,087 entities 

× 2 hours) × $159.34 = $1,621,125. 

634The burden is estimated as: [177 financial 

institutions + (3,960 independent producers × 5%)] 

× (10 minutes ÷ 60 minutes) = 63 hours. A labor 

rate of approximately $159.34 is used for a legal 

professional. The labor rate is applied in the 

following calculation: [(177 financial institutions + 

3,960 independent producers × 5%) × (10 minutes 

÷ 60 minutes)] × $159.34 = $9,959. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

635The burden is estimated as: [177 financial 

institutions + (3,960 independent producers × 5%)] 

× (30 minutes ÷ 60 minutes) = 188 hours. A labor 

rate of approximately $159.34 is used for a legal 

professional. The labor rate is applied in the 

following calculation: [(177 financial institutions + 

3,960 independent producers × 5%) × (30 minutes 

÷ 60 minutes)] × $159.34 = $29,876. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

636The burden is estimated as: (3,960 

independent producers × (30 minutes ÷ 60 

minutes)) = 1,980 hours. A labor rate of 

approximately $159.34 is used for a legal 

professional. The labor rate is applied in the 

following calculation: (3,960 independent 

producers × (30 minutes ÷ 60 minutes)) × $159.34 

= $315,493. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

637The burden is estimated as: (3,960 

independent producers × 1 hour) = 3,960 hours. A 

labor rate of approximately $159.34 is used for a 

legal professional. The labor rate is applied in the 

following calculation: (3,960 independent 

producers × 1 hour) × $159.34 = $630,986. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

638For information on this estimate, refer to the 

estimate of IRAs affected by the proposed 

amendments to PTE 84–24 in the Affected Entities 

section of the RIA. 

639This is estimated on the percent of entities 

with annual receipts less than $15.0 million for the 

industry Insurance Agencies and Brokerages, 

NAICS 524210. See NAICS Association, Count by 

NAICS Industry Sectors, NAICS Association, 

https://www.naics.com/business-lists/counts-bynaics-code/.; Small Business Administration, Table 

of Size Standards, Small Business Administration, 

(December 2022), https://www.sba.gov/document/ 

support--table-size-standards. 

640The burden is estimated as: (51,925 rollovers 

× 1 hour) = 51,925 hours. A labor rate of 

approximately $158.94 is used for an independent 

producer. The labor rate is applied in the following 

calculation: (51,925 rollovers × 1 hour) × $158.94 

Continued 

TABLE 7—THREE-YEAR AVERAGE COST BY TYPE OF ENTITY AND REQUIREMENT—Continued 

Broker-dealer 

SEC 

registered 

investment 

adviser 

Stateregistered 

investment 

adviser 

Insurance 

company Robo-adviser Pension consultant 

Investment 

company 

underwriter 

Total: 

Total ....................................................... 20,078,016 81,756,286 90,848,839 1,660,214 119,169 11,082,746 238,339 

Per-Entity ............................................... 696 696 696 749 1,671 1,671 1,671 

SBA: 

Threshold (in millions) ............................ 47.0 47.0 47.0 47.0 47.0 45.5 47.0 

Per-Entity Cost as a Percentage of SBA 

Threshold: 

0.001% 0.001% 0.001% 0.002% 0.004% 0.004% 0.004% 

Cost Associated With PTE 84–24 

Summary of Affected Entities 

As discussed in the Affected Entities 

section of the Regulatory Flexibility 

Analysis, the Department expects that 

5,087 small financial entities would be 

affected by the proposed amendments, 

including 930 pension consultants, 20 

investment company principal 

underwriters, 3,960 independent 

producers, and 177 insurance 

companies.632

Cost To Review the Rule 

The Department estimates that all 

5,087 of the small financial institutions 

affected would each need to review the 

rule, as it applies to their business. The 

Department estimates that such a review 

will take a legal professional, on 

average, two hours to review the rule, 

resulting in a total cost of $1.6 million 

in the first year.633

Costs Associated With Disclosures 

The proposed amendment would 

require small independent producers to 

provide disclosures to retirement 

investors before engaging in a 

transaction covered by this exemption. 

For more information on the changed 

requirements for each disclosure, refer 

to the descriptions in the preamble and 

RIA of this document. The Department 

estimates the marginal cost for each of 

the disclosure requirements as: 

• Drafting or updating a written 

acknowledgement that the financial 

institution and its investment 

professional are fiduciaries is estimated 

to result in an aggregate cost of 

approximately $10,000.634

• Drafting the written statement of the 

Best Interest standard of care owed is 

estimated to result in an aggregate cost 

$29,900.635

• Drafting or updating a written 

description of service provided is 

estimated to result in an aggregate cost 

of $0.3 million.636

• Drafting a written statement of the 

independent producer’s material 

conflicts of interest and the amount of 

insurance commission paid in 

connection with the purchase by a 

retirement investor of the recommended 

annuity is estimated to result in an 

aggregate cost of $0.6 million. 637

For small entities, the Department 

estimates that developing the 

disclosures described above would 

result in a total cost of $1.0 million the 

first year. 

Cost Associated With Rollover 

Documentation and Disclosure 

The proposed amendment would 

require an independent producer to 

provide a rollover disclosure that is 

similar to the disclosure required in the 

proposed amendment to PTE 2020–02. 

As discussed in the RIA, the Department 

assumes that such disclosures would be 

prepared by the independent producer. 

The Department requests comment on 

whether this would be true for small 

independent producers. 

In the RIA, the Department estimates 

that 52,449 retirement investors would 

receive documentation on whether the 

recommended annuity is in their best 

interest each year.638 The Department 

does not have data on what proportion 

of rollovers would be produced by small 

independent producers. For the 

purposes of this analysis, the 

Department assumes that the proportion 

of rollovers advised by small 

independent producers is equal to the 

proportion of independent producers 

that are small. The Department 

estimates that 99 percent of rollovers 

would be produced by small 

independent producers.639 The 

Department estimates small 

independent producers would need to 

provide 51,925 rollover disclosures 

annually. This results in an estimated 

cost of approximately $8.3 million 

annually.640 These costs likely reflect an 


lotter on DSK11XQN23PROD with PROPOSALS3
75972 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

= $8,252,960. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

641The labor cost is estimated as: (51,925 

disclosures × 5.8% sent by mail × (5 minutes ÷ 60 

minutes)) = 251 hours. A labor rate of $63.45 is 

used for a clerical worker. The labor rate is applied 

in the following calculation: (51,925 disclosures × 

5.8% sent by mail × (5 minutes ÷ 60 minutes)) × 

$63.45 = $15,926. The material cost is estimated as: 

3,012 rollovers resulting in a paper disclosure × 

[$0.66 postage + ($0.05 per page × 7 pages)] = 

$3,042. The total cost is estimated as: $15,926 + 

$3,042 = $18,968. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

642For more information on this estimate, refer to 

the RIA. 

643The number of retrospective reviews prepared 

by small insurance companies is estimated as: 

[12,000 × (177/215)] = 9,879 retrospective reviews. 

644This is estimated as: (9,879 retrospective 

reviews × 1 hour) = 9,879 hours. A labor rate of 

$159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: (9,879 

retrospective reviews × 1 hour) × $159.34 = 

$1,574,120. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

645The burden is estimated as: (9,879 

retrospective reviews × (15 minutes ÷ 60 minutes)) 

= 2,470 hours. A labor rate of $128.11 is used for 

a top executive. The labor rate is applied in the 

following calculation: (9,879 retrospective reviews 

× (15 minutes ÷ 60 minutes)) × $128.11 = $316,400. 

For more information on the assumptions included 

in this calculation, refer to the RIA of this 

document. 

646This is estimated as: (9,879 retrospective 

reviews × (5 minutes ÷ 60 minutes)) = 823 hours. 

A labor rate of $63.45 is used for a clerical worker. 

The labor rate is applied in the following 

calculation: (9,879 retrospective reviews × (5 

minutes ÷ 60 minutes)) × $63.45 = $52,235. For 

more information on the assumptions included in 

this calculation, refer to the RIA of this document. 

647This is estimated as: (177 small insurance 

companies × 5 hours) = 885 hours. A labor rate of 

$159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: (177 

small insurance companies × 5 hours) × $159.34 = 

$141,016. For more information on the assumptions 

included in this calculation, refer to the RIA of this 

document. 

648This is estimated as: (177 insurance 

companies × 2 hours) = 354 hours. A labor rate of 

$159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: (177 

insurance companies × 2 hours) × $159.34 = 

$56,406. For more information on the assumptions 

included in this calculation, refer to the RIA of this 

document. 

649The number of requests in the first year is 

estimated as 177 small insurance companies × (39 

requests in PTE 2020–02/4,430 small financial 

institutions in PTE 2020–02) = 2 requests. The 

number of requests in subsequent years is estimated 

as: 177 insurance companies × (12 requests in PTE 

2020–02/4,430 small financial institutions in PTE 

2020–02) = 1 request. The burden is estimated as: 

((2 × 15 minutes) ÷ 60 minutes) = 0.50 hours. A 

labor rate of $63.45 is used for a clerical worker. 

The labor rate is applied in the following 

calculation: ((2 × 15 minutes) ÷ 60 minutes) × 

$63.45 = $31.73. 

overestimate of the total cost, as it 

assumes that small independent 

producers would make the same 

number of recommended rollovers as 

the average independent producer. The 

Department requests comment on how 

many rollover recommendations a small 

independent producer is likely to make 

in a given year, on average. 

Costs Associated With the Provision of 

Disclosures to Retirement Investors 

The Department estimates that the 

number of disclosures that would need 

to be provided to retirement investors is 

equal to the number of rollover 

disclosures, or 51,925 disclosures. 

Preparing and sending the general 

disclosures described above is estimated 

to result in an estimated cost of 

approximately $18,968.641

Additionally, independent producers 

would be required to send the 

documentation to the insurance 

company. The Department expects that 

such documentation would be sent 

electronically and result in a de minimis 

burden. The Department requests 

comment on this assumption. 

Costs Associated With the Retrospective 

Review 

The proposed amendment would 

require small insurance companies to 

conduct a retrospective review at least 

annually. The review would be required 

to be reasonably designed to prevent 

violations of and achieve compliance 

with (1) the Impartial Conduct 

Standards, (2) the terms of this 

exemption, and (3) the policies and 

procedures governing compliance with 

the exemption. The review would be 

required to evaluate the effectiveness of 

the supervision system, any 

noncompliance discovered in 

connection with the review, and 

corrective actions taken or 

recommended, if any. Insurance 

companies would be required to 

annually provide a written report that 

details the review to a senior executive 

officer for certification. Insurance 

companies would also be required to 

provide the independent producer with 

the underlying methodology and results 

of the retrospective review. 

As discussed in the RIA, the 

Department estimates that insurance 

companies would need to prepare a 

total of 12,000 retrospective reviews.642

The Department does not have data on 

the proportion of retrospective reviews 

that would be prepared by small 

insurance companies. For the purpose 

of this analysis, the Department assumes 

that the number of retrospective reviews 

prepared by small insurance companies 

is proportionate to the number of small 

insurance companies. This results in an 

estimate of 9,879 retrospective 

reviews.643

The Department estimates that 

conducting and drafting the 

retrospective review would result in an 

estimated annual cost of $1.6 million.644

Additionally, the Department estimates 

the cost for a certifying officer to review 

the report and certify the exemption 

would result in an estimated cost 

burden of $0.3 million.645 Finally, the 

Department estimates that the 

requirement to provide the methodology 

and results to each independent 

producer would result in an annual cost 

of approximately $52,200.646

Costs Associated With Policies and 

Procedures 

The proposed amendment would 

require insurance companies to 

establish, maintain, and enforce written 

policies and procedures for the review 

of each independent producer’s 

recommendation before an annuity is 

issued to a retirement investor. The 

insurance company’s policies and 

procedures must mitigate conflicts of 

interest to the extent that a reasonable 

person reviewing the policies and 

procedures and incentive practices as a 

whole would conclude that they do not 

create an incentive for the independent 

producer to place its interests, or those 

of the insurance, or any affiliate or 

related entity, ahead of the interests of 

the retirement investor. Insurance 

companies’ policies and procedures 

include a prudent process for 

determining whether to authorize an 

independent producer to sell the 

insurance company’s annuity contracts 

to retirement investors, and for taking 

action to protect retirement investors 

from independent producers who have 

failed or are likely to fail to adhere to 

the impartial conduct standards, or who 

lack the necessary education, training, 

or skill. Finally, insurance companies 

must provide their complete policies 

and procedures to the Department 

within 10 days upon request. Finally, 

insurance companies must provide their 

complete policies and procedures to the 

Department within 10 days upon 

request. 

The Department estimates that 

drafting or modifying the policies and 

procedures and procedures would result 

in an estimated cost of approximately 

$0.1 million in the first year.647 The 

requirement to review policies and 

procedures annually would result in an 

estimated cost of approximately $56,400 

in subsequent years.648 Providing 

policies and procedures to the 

Department upon request is estimated to 

result in a de minimis annual cost.649


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75973 

650This is estimated as: (3,960 independent 

producers + 177 insurance companies) × 2 hours = 

8,274 hours. A labor rate of $158.94 is used for an 

independent producer. A labor rate of $159.34 is 

used for a legal professional. The labor rate is 

applied in the following calculation: [(3,960 

independent producers × 2 hours × $158.94) + (177 

insurance companies × 2 hours × $159.34)] = 

$1,315,211. 

651The burden is estimated as: (3,960 

independent producers × 10 requests) × (30 minutes 

÷ 60 minutes) = 19,800 hours. A labor rate of 

$158.94 is used for an independent producer. A 

labor rate of $159.34 is used for a legal professional. 

The labor rate is applied in the following 

calculation: [(3,960 independent producers × 10 

requests) × (30 minutes ÷ 60 minutes)] × $158.94 = 

$3,147,012. 

652For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities sections of the RIA and the Regulatory 

Flexibility Analysis. 

653For more information on these conditions, 

refer to the Preamble and RIA of this document. 

Costs Associated With the 

Recordkeeping 

The proposed amendment would 

amend the current recordkeeping 

requirements to incorporate new 

provisions that are similar to the 

recordkeeping provision in PTE 2020– 

02 for all entities relying on the 

exemption. The Department estimates 

that the additional time needed to 

maintain records for the financial 

institutions to be consistent with the 

exemption would require an insurance 

company and independent producer 

two hours annually, resulting in an 

estimated annual cost of $1.3 million.650

Additionally, the Department estimates 

that the requirement to distribute 

records upon request would result in an 

estimated annual cost of $3.1 million.651

Summary of Total Cost 

The Department estimates that in 

order to meet the additional conditions 

of the amended PTE 84–24, affected 

entities would incur a total cost of $17.4 

million in the first year and $14.7 

million in subsequent years. The perentity cost by type of entity is broken 

down in the table below. 

TABLE 8—COST BY TYPE OF ENTITY AND REQUIREMENT, FIRST YEAR

Independent 

producer 

Insurance 

agents and 

pension 

consultants 

Financial 

institutions/ 

insurance 

companies 

Mutual fund 

underwriters 

Rule Review: 

Total .......................................................................................................... $1,261,973 $296,372 $56,406 $6,374 

Per-Entity .................................................................................................. 319 319 319 319 

Disclosure: 

Total: ......................................................................................................... 9,239,440 ........................ 18,802 ........................

Per-Entity .................................................................................................. 2,434 ........................ 106 ........................

Policies and Procedures: 

Total .......................................................................................................... ........................ ........................ 141,048 ........................

Per-Entity .................................................................................................. ........................ ........................ 1,115 ........................

Retrospective Review: 

Total .......................................................................................................... ........................ ........................ 1,942,755 ........................

Per-Entity .................................................................................................. ........................ ........................ 10,976 ........................

Recordkeeping: 

Total .......................................................................................................... 4,405,817 ........................ 56,406 ........................

Per-Entity .................................................................................................. 397 ........................ 319 ........................

Total 

Total Cost ................................................................................................. 14,907,230 296,372 2,215,417 6,374 

Per-Entity Cost ......................................................................................... 3,960 319 12,835 319 

SBA: 

Threshold (in millions) .............................................................................. 15.0 45.5 47.0 47.0 

Per-Entity Cost as a Percentage of SBA Threshold ................................ 0.021% 0.001% 0.027% 0.001% 

Costs Associated With the Mass 

Amendments 

Cost Associated With PTE 75–1 

Summary of Affected Entities 

The amendment to PTE 75–1 would 

affect banks, reporting dealers, and 

broker-dealers registered under the 

Security Exchange Act of 1934. As 

discussed in the Affected Entities 

section above, the Department estimates 

that 3,403 financial institutions, 

comprised of 1,835 broker-dealers and 

1,568 banks, would use PTE 75–1.652

Costs Associated With Disclosure 

Requirements in Part V 

The Department proposes to amend 

PTE 75–1 Part V to allow an investment 

advice fiduciary to receive reasonable 

compensation for extending credit to a 

plan or IRA to avoid a failed purchase 

or sale of securities involving the plan 

or IRA if certain conditions are met.653

Prior to the extension of credit, the plan 

or IRA must receive written a 

disclosure, including the interest rate or 

other fees that will be charged on the 

credit extension as well as the method 

of determining the balance upon which 

interest will be charged. As discussed in 

the RIA, the Department expects that 

these disclosures are common business 

practice and would not create an 

additional burden on small brokerdealers or banks. 

Costs Associated With Recordkeeping in 

Parts II and V 

Additionally, the Department 

proposes to amend Parts II and V to 

adjust the recordkeeping requirement to 

shift the burden from plans and IRAs to 

financial institutions. The amended 

class exemption requires financial 

institutions engaging in the exempted 

transactions (rather than the plans or 

IRAs) to maintain all records pertaining 

to such transactions for six years and 

provide access to the records upon 

request to the specified parties. The 

Department estimates that the total cost 

for small financial institutions to 

maintain recordkeeping and provide 

access to records upon request is 

approximately $2.6 million annually 


lotter on DSK11XQN23PROD with PROPOSALS3
75974 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

654The burden is estimated as: (3,403 small 

financial institutions × 4 hours) = 13,612 hours. A 

labor rate of $190.63 is used for a financial manager. 

The labor rate is applied in the following 

calculation: (3,403 small financial institutions × 4 

hours) × $190.63 = $2,594,856. 

655For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 

656For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 657For more information on how the number of 

each type of entity is estimated, refer to the Affected 

Entities section. 658Based on data from the NAICS Association for 

NAICS code 523120, the Departments estimate the 

percent of businesses within the industry of 

Securities Brokerage with less than $47 million in 

annual sales. (See NAICS Association. ‘‘Market 

Analysis Profile: NAICS Code Annual Sales.’’ 

https://www.naics.com/business-lists/counts-bynaics-code/.) 

659The number of IRAs overseen by a small 

investment provider is estimated as: 10,000 IRAs × 

96.9% = 9,690 IRAs. The number of new IRAs 

overseen by a small investment provider is 

estimated as: 210 IRAs × 96.9% = 203 IRAs. 

and the per-firm cost is approximately 

$763 annually.654

Costs Associated With Removing 

Fiduciary Investment Advice From Parts 

III and IV 

Finally, the Department is proposing 

to amend Parts III and IV, which 

currently provide relief for investment 

advice fiduciaries, by removing 

fiduciary investment advice from the 

covered transactions. Investment advice 

providers would instead have to rely on 

the amended PTE 2020–02 for 

exemptive relief covering investment 

advice transactions. The Department 

believes that since investment advice 

providers were already required to 

provide records and documentation 

under PTE 2020–02, this amendment 

would not result in additional costs. 

Summary of Total Cost 

The Department estimates that in 

order to meet the additional conditions 

of the amended PTE 75–1, affected 

entities would annually incur a total 

cost of approximately $2.6 million and 

a per-firm cost of approximately $763. 

The per-entity cost by type of entity is 

broken down in the table below. 

TABLE 9—COST BY TYPE OF ENTITY AND REQUIREMENT

Broker-dealers Commercial 

banks 

Recordkeeping: 

Total .......................................................................................................................................................... $1,399,224 $1,195,631 

Per-Entity .................................................................................................................................................. 763 763 

Total: 

Total .......................................................................................................................................................... 1,399,224 1,195,631 

Per-Entity .................................................................................................................................................. 763 763 

SBA 

Threshold (in millions) .............................................................................................................................. 47.0 850 

Per-Entity Cost as a Percentage of SBA Threshold ................................................................................ 0.0016% 0.0001% 

Cost Associated With PTE 77–4, PTE 

80–83, and PTE 83–1 

Summary of Affected Entities 

The amendment to PTE 77–4 would 

affect mutual fund companies. As 

discussed in the Affected Entities 

section, the Department estimates that 

812 mutual fund companies would be 

affected by the amended PTE 77–4.655

PTE 80–83 allows banks to purchase, 

on behalf of employee benefit plans, 

securities issued by a corporation 

indebted to the bank that is a party in 

interest to the plan. The Department 

estimates that 19 small fiduciary-banks 

with public offering services would be 

affected by the amended PTE 80–83.656

PTE 83–1 provides relief for the sale 

of certificates in an initial issuance of 

certificates by the sponsor of a mortgage 

pool to a plan or IRA when the sponsor, 

trustee, or insurer of the mortgage pool 

is a fiduciary with respect to the plan or 

IRA assets invested in such certificates. 

Summary of Total Cost 

The Department is proposing to 

amend PTE 77–4, PTE 80–83, and PTE 

83–1 by removing fiduciary investment 

advice from the covered transactions. 

Investment advice providers would 

instead have to rely on the amended 

PTE 2020–02 for exemptive relief 

covering investment advice 

transactions. The Department believes 

that since investment advice providers 

were already required to provide such 

documentation under these exemptions, 

these amendments would result in a de 

minimis change for investment advice 

providers. Thus, these amendments 

would not result in measurable 

additional costs. 

Cost Associated With PTE 86–128 

Summary of Affected Entities 

The amendment to PTE 86–128 would 

affect fiduciaries of employee benefit 

plans that affect or execute securities 

transactions and independent plan 

fiduciaries that authorize the plan or 

IRA. As discussed in the Affected 

Entities section, the Department 

estimates that 1,835 investment advice 

providers would be affected by the 

proposed amendments to PTE 86–128. 

As discussed in the RIA, the 

Department estimates that 10,000 IRAs, 

will engage in transactions covered 

under this class exemption, of which 

210 are new IRAs.657 The Department 

estimates that 96.9 percent of these IRAs 

would be overseen by a small 

investment advice provider.658 As such, 

the Department estimates that, each 

year, there are 9,690 IRAs, of which 203 

are new IRAs that would be overseen by 

a small investment advice provider.659

Costs Associated With Recordkeeping 

The Department is proposing to 

amend Section VI of PTE 86–128 to 

require financial institutions to 

maintain for six years the records 

necessary for the Department, IRS, plan 

fiduciary, contributing employer or 

employee organization whose members 

are covered by the plan, participants 

and beneficiaries and IRA owners to 

determine whether conditions of this 

exemption have been met. As discussed 

above, the Department estimates that 

395 small-business investment advice 

providers will be affected by this 

recordkeeping requirement. Applying 

this assumption to the cost calculations 

described above, the Department 

estimates that the total cost for smallbusiness investment advice providers to 

maintain recordkeeping is $204,011 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75975 

660The burden is estimated as: 1,835 brokerdealers × ((30 minutes + 15 minutes) ÷ 60 minutes) 

= 1,376 hours. The labor rates of $190.63 and 

$63.45 are used for a financial manager and a 

clerical worker, respectively. The labor rate is 

applied in the following calculation: (1,835 brokerdealers × (30 minutes ÷ 60 minutes) × $190.63 per 

hour) + (1,835 broker-dealers × (15 minutes ÷ 60 

minutes) × $63.45) = $204,011. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

661The burden for a legal professional to prepare 

the authorization form is estimated as: 203 IRAs × 

(15 minutes ÷ 60 minutes) per IRA = 51 hours. A 

labor rate of $159.34 is used for a legal professional. 

The labor rate is applied in the following 

calculation: 203 IRA × (15 minutes ÷ 60 minutes) 

per IRA × $159.34 per hour = $8,087. The burden 

of clerical staff to send the authorization is 

estimated as: 203 IRA × (5 minutes ÷ 60 minutes) 

per IRA = 16 hours. A labor rate of $63.45 is used 

for a clerical worker. The labor rate is applied in 

the following calculation: 203 IRA × (5 minutes ÷ 

60 minutes) per IRA × $63.45 = $1,073. The 

material cost and postage cost associated with the 

authorization is estimated as: 203 authorizations for 

IRAs × 5.8% paper × $0.76 = $9. Therefore, the total 

cost to send an advance written authorization is 

estimated as: $8,087 + $1,073 + $9 = $9,169. For 

more information on the assumptions included in 

this calculation, refer to the RIA of this document. 

662The burden for a clerical worker to prepare the 

information is estimated as: 203 IRAs × (5 minutes 

÷ 60 minutes) per IRA = 17 hours. A labor rate of 

$63.45 is used for a clerical worker. The labor rate 

is applied in the following calculation: 203 IRAs × 

(5 minutes ÷ 60 minutes) per IRA × $63.45 per hour 

= $1,073. The material and postage cost are 

estimated as: 203 IRAs × 5.8% paper × (7 pages × 

$0.05 per page + $0.66 for postage) = $12. 

Therefore, the total cost to send the materials is 

estimated as: $1,073 + $12 = $1,085. For more 

information on the assumptions included in this 

calculation, refer to the RIA of this document. 

663The burden for a legal professional to prepare 

the forms is estimated as: 1,835 broker-dealers × (30 

minutes ÷ 60 minutes) = 918 hours. A labor rate of 

$159.34 is used for a legal professional. The labor 

rate is applied in the following calculation: 1,835 

broker-dealers × (30 minutes ÷ 60 minutes) × 159.34 

= $146,194. The burden for a clerical worker to 

prepare and send the forms is estimated as: 9,900 

IRAs × (5 minutes ÷ 60 minutes) = 808 hours. A 

labor rate of $63.45 is used for a clerical worker. 

The labor rate is applied in the following 

calculation: 9,690 IRAs × (5 minutes ÷ 60 minutes) 

× $63.45 = $51,236. The material and postage cost 

associated with the forms is estimated as: 9,690 

IRAs × 5.8% paper × (2 pages × $0.05 per page + 

$0.66 for postage) = $427. Therefore, total cost to 

prepare and send the annual termination form is 

estimated as: $146,194 + $51,236 + $427 = 

$197,857. For more information on the assumptions 

included in this calculation, refer to the RIA of this 

document. 

664The mailing cost is estimated as: 5 pages × 

$0.05 per page = $0.25. The mailing rate is applied 

in the following calculation: 9,690 IRAs × 5.8% 

paper × $0.25 = $141. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

665The mailing cost is estimated as: 2 pages × 

$0.05 per page = $0.10. The mailing cost is applied 

in the following calculation: 9,690 IRAs × 5.8% × 

$0.10 = $56. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

annually 660 and the per-firm cost is 

$111 annually. 

Cost Associated With the Written 

Authorization From the Authorizing 

Fiduciary to the Broker-Dealer 

Authorizing fiduciaries of IRAs 

entering into a relationship with an 

investment advice provider are required 

to provide the investment advice 

provider with advance written 

authorization to perform transactions for 

the IRA. As discussed in the Summary 

of Affected Entities section for this 

exemption in this analysis, the 

Department estimates that 

approximately 44 authorizing 

fiduciaries are expected to send an 

advance written authorization. 

Applying this assumption to the cost 

calculations described above, the 

Department estimates that the total cost 

to send an advance written 

authorization is approximately $9,169 

annually.661 The per-transaction cost is 

$45 annually, and the per-firm cost is $5 

annually. 

Cost Associated With the Provision of 

Materials for Evaluation of 

Authorization of Transaction 

Prior to a written authorization being 

made, the financial institution must 

provide the authorizing fiduciary with a 

copy of the exemption, a form for 

termination of authorization, a 

description of placement practices, and 

any other reasonably available 

information. This information is 

assumed to be readily available. As 

described above, the Department 

assumes this information will be sent to 

the 203 IRAs that enter into an 

agreement with a financial institution. 

Applying this assumption to the cost 

calculations described above, 

Department estimates that the total cost 

to send the materials is $1,085 

annually.662 The per-transaction cost is 

$5 annually, and the per-firm cost is 

$0.59 annually. 

Cost Associated With the Provision of 

an Annual Termination Form 

Financial institutions must annually 

supply each authorizing fiduciary with 

a form expressly providing an election 

to terminate the written authorization. 

The Department estimates that 395 

investment advice providers would 

prepare the termination form, and 9,690 

IRAs would receive the form. Applying 

these assumptions to the cost 

calculations described above, 

Department estimates that the total cost 

to prepare and send the annual 

termination form is approximately 

$197,857 annually.663 The pertransaction cost is $20 annually, and the 

per-firm cost is $108 annually. 

Transaction Reporting 

The investment advice provider 

engaging in a covered transaction must 

give the authorizing fiduciary either a 

confirmation slips for each securities 

transaction or a quarterly report 

containing specified information. As 

discussed above, the provision of the 

confirmation is already required under 

SEC regulations. Therefore, if the 

transaction reporting requirement is 

satisfied by sending confirmation slips, 

no additional hour and cost burden will 

occur. 

Annual Statement 

Broker-dealers are required to send an 

annual report to each authorizing 

fiduciary containing the same 

information as the quarterly report and 

all security transaction-related charges, 

the brokerage placement practices, and 

a portfolio turnover ratio. The 

Department assumes this information 

could be sent together. Therefore, the 

clerical staff hours required to prepare 

and distribute the report has been 

included with the provision of annual 

termination form requirement, and no 

additional burden has been reported. 

However, collecting and generating 

the information required for the annual 

report is reported as a burden. As 

discussed above, the Department 

estimates that 2,100 IRAs will receive an 

annual report. Applying these 

assumptions to the cost calculations 

described above, the Department 

estimates that the total cost to collect 

and generate information for the annual 

report is $141 annually.664 The peraccount cost is $0.01 annually, and the 

per-firm cost is $0.08 annually. 

Report of Commissions Paid 

A discretionary trustee must provide 

each authorizing fiduciary with an 

annual report that separately shows the 

commissions paid to affiliated brokers 

and non-affiliated brokers on both a 

total dollar basis and a cents-per-share 

basis. The burden to prepare and 

distribute the report is included with 

the provision of annual termination 

form requirement, because both items 

are required to be sent annually. 

However, the collection and generation 

of the information for the quarterly 

report is reported as a burden. As 

described above, the Department 

estimates that 2,100 IRAs will receive a 

report of the commissions paid. 

Applying this assumption to the cost 

calculations described above, the 

Department estimates that the total cost 

to collect and generate information for 

the report of commission paid is $56 

annually.665 The per-account cost is 


lotter on DSK11XQN23PROD with PROPOSALS3
75976 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

666This burden is estimated as: 9,690 IRAs × 

$3.30 = $31,977. For more information on the 

assumptions included in this calculation, refer to 

the RIA of this document. 

667This burden is estimated as: $56 + $31,977 = 

$32,033. 

668This estimate is based on the assumption that 

satisfying this requirement would require a 

computer programmer to spend, on average, 8 

hours. A labor rate of $133.05 is used for a 

computer programmer professional. The cost is 

estimated as: (4,512 small financial institutions × 8 

hours) × $133.05 = $4,802,573. 

669Unfunded Mandates Reform Act of 1995, 

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

$0.01 annually, and the per-firm cost is 

less than $0.03 annually. 

Financial institutions are also 

required to report total of all 

transaction-related charges incurred by 

the plan in connection with covered 

transactions, the allocation of such 

charges among various persons, as well 

as a conspicuous statement about the 

negotiability of brokerage commissions 

and an estimate of future commission 

rates to the plan fiduciaries. The 

information must be tracked, assigned to 

specific plans, and reported. As 

described above, the Department 

estimates that 9,690 IRAs will be 

affected by this requirement. Applying 

this assumption to the cost calculations 

described above, the Department 

estimates that the total cost to report 

this information is $31,977 annually.666

The per-account cost is $3.30 annually, 

and the per-firm cost is $17 annually. 

This results in a total annual cost of 

$32,033.667

Summary of Total Cost 

The Department estimates that in 

order to meet the additional conditions 

of the amended PTE 86–128, affected 

entities would annually incur a total 

cost of $444,296 and a per-firm cost of 

$242. The per-entity cost is broken 

down in the table below. 

TABLE 10—COST BY TYPE OF ENTITY AND REQUIREMENT

Total cost Per-entity cost 

Recordkeeping ................................................................................................................................................. $204,011 $111 

Written Authorization from the Authorizing Fiduciary to the Broker-Dealer .................................................... 9,169 5 

Provision of Materials for Evaluation of Authorization of Transaction ............................................................ 1,085 0.59 

Annual Termination Form ................................................................................................................................ 197,857 108 

Annual Statement ............................................................................................................................................ 141 0.08 

Report of Commissions Paid ........................................................................................................................... 32,033 17 

Total .......................................................................................................................................................... 444,296 242 

SBA Threshold (in millions) ............................................................................................................................................................. 47.0 

Per-Entity Cost as a Percentage of SBA Threshold ....................................................................................................................... 0.0005% 

4. Duplicate, Overlapping, or Relevant 

Federal Rules 

The rules in ERISA and the Code that 

govern advice on the investment of 

retirement assets overlap with SEC rules 

that govern the conduct of investment 

advisers and broker-dealers that advise 

retail investors. The Department 

considered conduct standards set by 

other regulators, such as SEC, NAIC, 

and FINRA, in developing the proposal, 

with the goal of avoiding overlapping or 

duplicative requirements. If the 

requirements overlap, compliance with 

the other disclosure or recordkeeping 

requirements can be used to satisfy the 

exemption, as long as the conditions are 

satisfied. 

5. Description of Alternatives 

Considered 

Section 604 of the RFA requires the 

Department to consider significant 

alternatives that would accomplish the 

stated objective, while minimizing any 

significant adverse impact on small 

entities. The Department tried to align 

the requirements in this proposal with 

the requirements set by other regulators 

to minimize regulatory burden. 

The Department considered not 

amending PTE 2020–02 and leaving the 

exemption in its present form. The 

Department supports the existing PTE 

2020–02 and has retained its core 

components in the amendment, 

including the Impartial Conduct 

Standards and the requirement for 

strong policies and procedures. 

However, the Department believes that 

additional protections are necessary to 

ensure that fiduciary investment advice 

providers adhere to the stringent 

standards outlined in PTE 2020–02. 

Therefore, the proposed amendments 

clarify and tighten the existing text of 

PTE 2020–02 to enhance the disclosure 

requirements and strengthen the 

disqualification provisions. 

The Department has considered 

requiring financial institutions to 

disclosure the sources of third-party 

compensation received in connection 

with recommended investment products 

on a public web page in PTE 2020–02. 

When considering this requirement, the 

Department discussed exempting small 

financial institutions from this 

disclosure. The Department estimates 

that such a disclosure would cost small 

entities $4.8 million 668 with an average 

per-entity cost of $1,064. The 

Department requests comment on 

whether small financial institutions 

current provide website disclosures or 

have the technological infrastructure to 

do so. 

I. Unfunded Mandate Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 669 requires each 

federal agency to prepare a written 

statement assessing the effects of any 

federal mandate in a proposed or final 

rule that may result in an expenditure 

of $100 million or more (adjusted 

annually for inflation with the base year 

1995) in any one year by state, local, 

and tribal governments, in the aggregate, 

or by the private sector. That threshold 

is approximately $177 million in 2023. 

For purposes of the Unfunded 

Mandates Reform Act, this proposal is 

expected to have an impact on the 

private sector. For the purposes of the 

proposal, the RIA shall meet the UMRA 

obligations. 

J. Federalism Statement 

Executive Order 13132 outlines the 

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 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75977 

consult with state and local officials 

throughout the process of developing 

the proposed regulation. 

As discussed throughout this analysis, 

this proposed regulatory action would 

affect the insurance industry pertaining 

to annuities. These entities are also 

regulated by states, many of whom, as 

discussed in the discussion of the 

regulatory baseline, have taken 

regulatory or legislative actions. The 

Department has carefully considered the 

regulatory landscape in the states and 

worked to ensure that its proposed 

regulations would not impose 

obligations on advisers that are 

inconsistent with their responsibilities 

under state law, including the 

obligations imposed in states that based 

their laws on the NAIC Model 

Regulation. Nor would these proposed 

regulations impose obligations or costs 

on the state regulators. As discussed 

above, however, the Department has 

increased the protections afforded by 

many of these laws, consistent with its 

own responsibilities under ERISA, and 

has endeavored to lend greater 

uniformity on the provision of advice to 

retirement investors, so that advisers 

covered by the rule must all abide by a 

uniform fiduciary standard. The 

Department has had discussions with 

state insurance regulators and stateregulated parties about these issues 

including the need to ensure that 

retirement investors have sufficient 

protection when receiving investment 

advice. The Department expects to 

continue discussions with state 

insurance regulators to ensure that this 

proposed regulation complements the 

protections provided by the NAIC 

Model Rule. The Department also 

expects to continue its discussion with 

state securities regulators. 

Authority 

This regulation is proposed pursuant 

to the authority in section 505 of ERISA 

(Pub. L. 93–406, 88 Stat. 894 (Sept. 2, 

1974); 29 U.S.C. 1135) and section 102 

of Reorganization Plan No. 4 of 1978 (43 

FR 47713 (Oct. 17, 1978)), 3 CFR, 1978 

Comp. 332, effective December 31, 1978 

(44 FR 1065 (Jan. 3, 1979)), 3 CFR, 1978 

Comp. 332, 5 U.S.C. App. 237, and 

under Secretary of Labor’s Order No. 1– 

2011, 77 FR 1088 (Jan. 9, 2012). 

List of Subjects in 29 CFR Part 2510 

Employee benefit plans, Employee 

Retirement Income Security Act, 

Pensions, Plan assets. 

For the reasons set forth in the 

preamble, the Department is proposing 

to amend part 2510 of subchapter B of 

Chapter XXV of Title 29 of the Code of 

Federal Regulations as follows: 

PART 2510—DEFINITIONS OF TERMS 

USED IN SUBCHAPTERS C, D, E, F, 

AND G OF THIS CHAPTER 

■ 1. The authority citation for part 2510 

is revised to read as follows: 

Authority: 29 U.S.C. 1002(1)–(8), 1002(13)– 

(16), 1002(20), 1002(21), 1002(34), 1002(37), 

1002(38), 1002(40)–(44), 1031, and 1135; Div. 

O, Title I, Sec. 101, Pub. L. 116–94, 133 Stat. 

2534 (Dec. 20, 2019); Div. T, Title I, Sec. 105, 

Pub. L. 117–328, 136 Stat. 4459 (Dec. 29, 

2022); Secretary of Labor’s Order 1–2011, 77 

FR 1088 (Jan. 9, 2012); Secs. 2510.3–21, 

2510.3–101 and 2510.3–102 also issued 

under Sec. 102 of Reorganization Plan No. 4 

of 1978, 5 U.S.C. App. 237 (E.O. 12108, 44 

FR 1065 (Jan. 3, 1979)), and 29 U.S.C. 1135 

note. Section 2510.3–38 also issued under 

Sec. 1(b) Pub. L. 105–72, 111 Stat. 1457 (Nov. 

10, 1997). 

■ 2. Revise § 2510.3–21 to read as 

follows: 

§ 2510.3–21 Definition of ‘‘Fiduciary.’’ 

(a)–(b) [Reserved] 

(c) Investment advice. (1) For 

purposes of section 3(21)(A)(ii) of the 

Employee Retirement Income Security 

Act of 1974 (the Act), section 

4975(e)(3)(B) of the Internal Revenue 

Code (Code), and this paragraph, a 

person renders ‘‘investment advice’’ 

with respect to moneys or other 

property of a plan or IRA if the person 

makes a recommendation of any 

securities transaction or other 

investment transaction or any 

investment strategy involving securities 

or other investment property (as defined 

in paragraph (f)(10) of this section) to 

the plan, plan fiduciary, plan 

participant or beneficiary, IRA, IRA 

owner or beneficiary or IRA fiduciary 

(retirement investor), and the person 

satisfies paragraphs (c)(1)(i), (ii), or (iii) 

of this section: 

(i) The person either directly or 

indirectly (e.g., through or together with 

any affiliate) has discretionary authority 

or control, whether or not pursuant to 

an agreement, arrangement, or 

understanding, with respect to 

purchasing or selling securities or other 

investment property for the retirement 

investor; 

(ii) The person either directly or 

indirectly (e.g., through or together with 

any affiliate) makes investment 

recommendations to investors on a 

regular basis as part of their business 

and the recommendation is provided 

under circumstances indicating that the 

recommendation is based on the 

particular needs or individual 

circumstances of the retirement investor 

and may be relied upon by the 

retirement investor as a basis for 

investment decisions that are in the 

retirement investor’s best interest; or 

(iii) The person making the 

recommendation represents or 

acknowledges that they are acting as a 

fiduciary when making investment 

recommendations. 

(iv) For purposes of this paragraph, 

when advice is directed to a plan or IRA 

fiduciary, the relevant retirement 

investor is both the plan or IRA and the 

fiduciary. 

(v) Written statements by a person 

disclaiming status as a fiduciary under 

the Act, the Code, or this section, or 

disclaiming the conditions set forth in 

paragraph (c)(1)(ii) of this section, will 

not control to the extent they are 

inconsistent with the person’s oral 

communications, marketing materials, 

applicable State or Federal law, or other 

interactions with the retirement 

investor. 

(2) A person who is a fiduciary with 

respect to a plan or IRA by reason of 

rendering investment advice (as defined 

in paragraph (c)(1) of this section) for a 

fee or other compensation, direct or 

indirect, with respect to any moneys or 

other property of such plan or IRA, or 

having any authority or responsibility to 

do so, shall not be deemed to be a 

fiduciary regarding any assets of the 

plan or IRA with respect to which such 

person does not have any discretionary 

authority, discretionary control, or 

discretionary responsibility, does not 

exercise any authority or control, does 

not render investment advice (as 

defined in paragraph (c)(1) of this 

section) for a fee or other compensation, 

and does not have any authority or 

responsibility to render such investment 

advice, provided that nothing in this 

paragraph shall be deemed to: 

(i) Exempt such person from the 

provisions of section 405(a) of the Act 

concerning liability for fiduciary 

breaches by other fiduciaries with 

respect to any assets of the plan; or 

(ii) Exclude such person from the 

definition of the term ‘‘party in interest’’ 

(as set forth in section 3(14)(B) of the 

Act) or ‘‘disqualified person’’ (as set 

forth in section 4975(e)(2) of the Code) 

with respect to any assets of the plan or 

IRA. 

(d) Execution of securities 

transactions. (1) A person who is a 

broker or dealer registered under the 

Securities Exchange Act of 1934, a 

reporting dealer who makes primary 

markets in securities of the United 

States Government or of an agency of 

the United States Government and 

reports daily to the Federal Reserve 

Bank of New York its positions with 

respect to such securities and 

borrowings thereon, or a bank 

supervised by the United States or a 

State, shall not be deemed to be a 


lotter on DSK11XQN23PROD with PROPOSALS3
75978 Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 

fiduciary, within the meaning of section 

3(21)(A) of the Act or section 

4975(e)(3)(B) of the Code, with respect 

to a plan or an IRA solely because such 

person executes transactions for the 

purchase or sale of securities on behalf 

of such plan or IRA in the ordinary 

course of its business as a broker, dealer, 

or bank, pursuant to instructions of a 

fiduciary with respect to such plan or 

IRA, if: 

(i) Neither the fiduciary nor any 

affiliate of such fiduciary is such broker, 

dealer, or bank; and 

(ii) The instructions specify 

(A) The security to be purchased or 

sold, 

(B) A price range within which such 

security is to be purchased or sold, or, 

if such security is issued by an openend investment company registered 

under the Investment Company Act of 

1940 (15 U.S.C. 80a–1, et seq.), a price 

which is determined in accordance with 

Rule 22c–1 under the Investment 

Company Act of 1940 (17 CFR 270.22c– 

1), 

(C) A time span during which such 

security may be purchased or sold (not 

to exceed five business days), and 

(D) The minimum or maximum 

quantity of such security which may be 

purchased or sold within such price 

range, or, in the case of a security issued 

by an open-end investment company 

registered under the Investment 

Company Act of 1940, the minimum or 

maximum quantity of such security 

which may be purchased or sold, or the 

value of such security in dollar amount 

which may be purchased or sold, at the 

price referred to in paragraph 

(d)(1)(ii)(B) of this section. 

(2) A person who is a broker-dealer, 

reporting dealer, or bank which is a 

fiduciary with respect to a plan or IRA 

solely by reason of the possession or 

exercise of discretionary authority or 

discretionary control in the management 

of the plan or IRA or the management 

or disposition of plan or IRA assets in 

connection with the execution of a 

transaction or transactions for the 

purchase or sale of securities on behalf 

of such plan or IRA which fails to 

comply with the provisions of 

paragraph (d)(1) of this section shall not 

be deemed to be a fiduciary regarding 

any assets of the plan or IRA with 

respect to which such broker-dealer, 

reporting dealer or bank does not have 

any discretionary authority, 

discretionary control, or discretionary 

responsibility, does not exercise any 

authority or control, does not render 

investment advice (as defined in 

paragraph (c)(1) of this section) for a fee 

or other compensation, and does not 

have any authority or responsibility to 

render such investment advice, 

provided that nothing in this paragraph 

shall be deemed to: 

(i) Exempt such broker-dealer, 

reporting dealer, or bank from the 

provisions of section 405(a) of the Act 

concerning liability for fiduciary 

breaches by other fiduciaries with 

respect to any assets of the plan; or 

(ii) Exclude such broker-dealer, 

reporting dealer, or bank from the 

definition, of the term ‘‘party in 

interest’’ (as set forth in section 3(14)(B) 

of the Act) or ‘‘disqualified person’’ (as 

set forth in section 4975(e)(2) of the 

Code) with respect to any assets of the 

plan or IRA. 

(e) For a fee or other compensation, 

direct or indirect. For purposes of 

section 3(21)(A)(ii) of the Act and 

section 4975(e)(3)(B) of the Code, a 

person provides investment advice ‘‘for 

a fee or other compensation, direct or 

indirect,’’ if the person (or any affiliate) 

receives any explicit fee or 

compensation, from any source, for the 

advice or the person (or any affiliate) 

receives any other fee or other 

compensation, from any source, in 

connection with or as a result of the 

recommended purchase, sale, or holding 

of a security or other investment 

property or the provision of investment 

advice, including, though not limited to, 

commissions, loads, finder’s fees, 

revenue sharing payments, shareholder 

servicing fees, marketing or distribution 

fees, mark ups or mark downs, 

underwriting compensation, payments 

to brokerage firms in return for shelf 

space, recruitment compensation paid 

in connection with transfers of accounts 

to a registered representative’s new 

broker-dealer firm, expense 

reimbursements, gifts and gratuities, or 

other non-cash compensation. A fee or 

compensation is paid ‘‘in connection 

with or as a result of’’ such transaction 

or service if the fee or compensation 

would not have been paid but for the 

recommended transaction or the 

provision of advice, including if 

eligibility for or the amount of the fee 

or compensation is based in whole or in 

part on the recommended transaction or 

the provision of advice. 

(f) Definitions. For purposes of this 

section— 

(1) The term ‘‘affiliate’’ means any 

person directly or indirectly, through 

one or more intermediaries, controlling, 

controlled by, or under common control 

with such person; any officer, director, 

partner, employee, representative, or 

relative (as defined in paragraph (f)(12) 

of this section) of such person; and any 

corporation or partnership of which 

such person is an officer, director, or 

partner. 

(2) The term ‘‘control’’ means the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

(3) The term ‘‘IRA’’ means any 

account or annuity described in Code 

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

including, for example, an individual 

retirement account described in section 

408(a) of the Code and a health savings 

account described in section 223(d) of 

the Code. 

(4) The term ‘‘IRA owner’’ means, 

with respect to an IRA, either the person 

who is the owner of the IRA or the 

person for whose benefit the IRA was 

established. 

(5) The term ‘‘IRA fiduciary’’ means a 

person described in section 4975(e)(3) of 

the Code with respect to an IRA. 

(6) The term ‘‘plan’’ means any 

employee benefit plan described in 

section 3(3) of the Act and any plan 

described in section 4975(e)(1)(A) of the 

Code. 

(7) The term ‘‘plan fiduciary’’ means 

a person described in section (3)(21)(A) 

of the Act and/or 4975(e)(3) of the Code 

with respect to a plan. For purposes of 

this section, a participant or beneficiary 

of the plan who is receiving advice is 

not a ‘‘plan fiduciary’’ with respect to 

the plan. 

(8) The term ‘‘plan participant’’ or 

‘‘participant’’ means, for a plan 

described in section 3(3) of the Act, a 

person described in section 3(7) of the 

Act. 

(9) The term ‘‘beneficiary’’ means, for 

a plan described in section 3(3) of the 

Act, a person described in section 3(8) 

of the Act. 

(10) The phrase ‘‘recommendation of 

any securities transaction or other 

investment transaction or any 

investment strategy involving securities 

or other investment property’’ means 

recommendations: 

(i) As to the advisability of acquiring, 

holding, disposing of, or exchanging, 

securities or other investment property, 

as to investment strategy, or as to how 

securities or other investment property 

should be invested after the securities or 

other investment property are rolled 

over, transferred, or distributed from the 

plan or IRA; 

(ii) As to the management of securities 

or other investment property, including, 

among other things, recommendations 

on investment policies or strategies, 

portfolio composition, selection of other 

persons to provide investment advice or 

investment management services, 

selection of investment account 

arrangements (e.g., account types such 

as brokerage versus advisory) or voting 

of proxies appurtenant to securities; and 


lotter on DSK11XQN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 212 / Friday, November 3, 2023 / Proposed Rules 75979 

(iii) As to rolling over, transferring, or 

distributing assets from a plan or IRA, 

including recommendations as to 

whether to engage in the transaction, the 

amount, the form, and the destination of 

such a rollover, transfer, or distribution. 

(11) The term ‘‘investment property’’ 

does not include health insurance 

policies, disability insurance policies, 

term life insurance policies, or other 

property to the extent the policies or 

property do not contain an investment 

component. 

(12) The term ‘‘relative’’ means a 

person described in section 3(15) of the 

Act and section 4975(e)(6) of the Code 

or a brother, a sister, or a spouse of a 

brother or sister. 

(g) Applicability. Effective December 

31, 1978, section 102 of the 

Reorganization Plan No. 4 of 1978, 5 

U.S.C. App. 237, transferred the 

authority of the Secretary of the 

Treasury to promulgate regulations of 

the type published herein to the 

Secretary of Labor. Accordingly, in 

addition to defining a ‘‘fiduciary’’ for 

purposes of section 3(21)(A)(ii) of the 

Act, this section applies to the parallel 

provision in section 4975(e)(3)(B) of the 

Code, which defines a ‘‘fiduciary’’ of a 

plan defined in Code section 4975 

(including an IRA) for purposes of the 

prohibited transaction provisions in the 

Code. For example, a person who 

satisfies paragraphs (c)(1) and (e) of this 

section in connection with a 

recommendation to a retirement 

investor that is an employee benefit 

plan as defined in section 3(3) of the 

Act, a fiduciary of such a plan, or a 

participant or beneficiary of such plan, 

including a recommendation concerning 

the rollover of assets currently held in 

a plan to an IRA, is a fiduciary subject 

to Title I of the Act. 

(h) Continued applicability of State 

law regulating insurance, banking, or 

securities. Nothing in this section shall 

be construed to affect or modify the 

provisions of section 514 of Title I of the 

Act, including the savings clause in 

section 514(b)(2)(A) for State laws that 

regulate insurance, banking, or 

securities. 

Signed at Washington, DC, this 24th day of 

October, 2023. 

Lisa M. Gomez, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2023–23779 Filed 11–2–23; 8:45 am] 

BILLING CODE 4510–29–P 

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. 

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 tollfree 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 


lotter on DSK11XQN23PROD with PROPOSALS3