[Federal Register Volume 88, Number 212 (Friday, November 3, 2023)]
[Proposed Rules]
[Pages 76004-76032]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23781]



[[Page 76004]]

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

[Application No. D-12060]
ZRIN 1210-ZA33


Proposed Amendment to Prohibited Transaction Exemption 84-24

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

ACTION: Notice of Proposed Amendment to Prohibited Transaction 
Exemption 84-24.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed amendment to 
Prohibited Transaction Exemption (PTE) 84-24, an exemption from certain 
prohibited transaction provisions of the Employee Retirement Income 
Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the 
Code). The amendment would affect participants and beneficiaries of 
plans, Individual Retirement Account (IRA) owners, and certain 
fiduciaries of 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 amendments 
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-12060.
    Federal eRulemaking Portal: Visit http://www.regulations.gov. 
Follow the instructions for sending comments.
    Docket: For access to the docket to read background documents and 
comments, including the plain-language summary of the proposal required 
by the Providing Accountability Through Transparency Act of 2023, or 
comments, 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, (202) 693-8540 (not a 
toll-free number), Office of Exemption Determinations, Employee 
Benefits Security Administration, U.S. Department of Labor.

SUPPLEMENTARY INFORMATION:

Comment Instructions

    Warning: All comments received will be included in the public 
record without change and will be made available online at 
regulations.gov. This includes any personal information provided, 
unless the comment includes information claimed to be confidential or 
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. 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. The 
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 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

    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 respect to any moneys or other property of an employee 
benefit plan, for purposes of the definition of a ``fiduciary'' in 
section 3(21)(A)(ii) of ERISA and in section 4975(e)(3)(B) of the Code. 
The Department also is proposing amendments to existing PTEs 75-1, 77-
4, 80-83, 83-1, 86-128, and 2020-02 elsewhere in this edition of the 
Federal Register.
    The Department is proposing to amend PTE 84-24 to address specific 
issues that Insurers confront in complying with the current conditions 
of PTE 2020-02 when distributing annuities through independent agents. 
The ERISA and Code provisions at issue generally prohibit employee 
benefit plan and IRA fiduciaries from engaging in self-dealing in 
connection with transactions involving these plans and IRAs. Currently, 
PTE 84-24 allows these fiduciaries to receive compensation when plans 
and IRAs enter into certain insurance and mutual fund transactions that 
the fiduciaries recommend, as well as certain related transactions. The 
proposed amendment would provide exemptive relief to fiduciaries who 
are Independent Producers that recommend annuities from an unaffiliated 
Insurer to Retirement Investors on a commission or fee basis if certain 
protective conditions are met.
    The Department is proposing this amendment on its own motion 
pursuant to its authority under ERISA section 408(a) and Code section 
4975(c)(2) and in accordance with procedures set forth in 29 CFR part 
2570, subpart B (76 FR 66637 (October 27, 2011)).\1\
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    \1\ Reorganization Plan No. 4 of 1978 (5 U.S.C. App. 1 (2018)) 
generally transferred the authority of the Secretary of the Treasury 
to grant administrative exemptions under Code section 4975 to the 
Secretary of Labor.
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Current PTE 84-24

    Currently, under PTE 84-24, plans and IRAs may purchase insurance 
or annuity contracts or investment company securities, and insurance 
agents or brokers, pension consultants, and principal underwriters may 
receive compensation as a result of these purchases.\2\ Originally 
proposed in 1976,\3\ PTE 84-24 covers several transactions in 
connection with the purchase of insurance and annuity contracts and the 
purchase and sale of securities issued by an investment company.
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    \2\ As defined in Section X(d), the term ``Individual Retirement 
Account'' or ``IRA'' means any plan that is an account or annuity 
described in Code section 4975(e)(1)(B) through (F), including an 
Archer medical savings account, a health savings account, and a 
Coverdell education savings account. While the Department uses the 
term ``Retirement Investor'' throughout this document, the exemption 
is not limited only to investment advice fiduciaries of employee 
pension benefit plans and IRAs. Relief would be available for 
investment advice fiduciaries of employee welfare benefit plans with 
an investment component as well.
    \3\ 41 FR 56760 (Dec. 29, 1976), finalized as PTE 77-9, 42 FR 
32395 (June 24, 1977)
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PTE 2020-02

    When the Department finalized PTE 2020-02 in December 2020, the 
Department explained that insurance companies could rely on either PTE 
2020-02 or PTE 84-24 regardless of whether they sell their products 
through captive or independent agents. In the preamble to the final PTE 
2020-02, the

[[Page 76005]]

Department stated that insurance companies working with independent 
agents can satisfy the conditions of PTE 2020-02 related to the 
required policies and procedures either by supervising independent 
insurance agents or by contracting with insurance intermediaries to do 
so.\4\ In April 2021, the Department provided further guidance in a set 
of Frequently Asked Questions (FAQs) regarding compliance with the 
exemption.\5\ Specifically, Question 18 of the FAQs provided that:
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    \4\ ``Insurance company Financial Institutions can comply with 
the new exemption by supervising independent insurance agents, or by 
creating oversight and compliance systems through contracts with 
insurance intermediaries. The Financial Institution and/or 
intermediary would address incentives created with respect to 
independent agents' recommendations of the Financial Institution's 
insurance or annuity products.'' 85 FR 82798, 82835 (Dec. 18, 2020).
    \5\ https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/new-fiduciary-advice-exemption.pdf
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    When an independent insurance agent recommends an annuity under 
the exemption, the agent and the financial institution (e.g., the 
insurance company) must satisfy the exemption's conditions, 
including the fiduciary acknowledgement and the Impartial Conduct 
Standards with respect to that transaction. In such cases, the 
insurance company must ensure that it has adopted policies and 
procedures to ensure compliance with the Impartial Conduct Standards 
and to avoid incentives that place the firm's or agent's interests 
ahead of the interests of retirement investors. While the 
independent agent may recommend products issued by a variety of 
insurance companies, PTE 2020-02 does not require insurance 
companies to exercise supervisory responsibility with respect to the 
practices of unrelated and unaffiliated insurance companies. When an 
insurance company is the supervisory financial institution for 
purposes of the exemption, its obligation is simply to ensure that 
the insurer, its affiliates, and related parties meet the 
exemption's terms with respect to the insurance company's annuity 
which is the subject of the transaction.

    Since issuing PTE 2020-02 and posting the FAQs on its website, the 
Department has conferred with representatives of insurance companies 
that distribute annuities through independent agents, regarding their 
compliance with the conditions of PTE 2020-02. At the meetings, the 
representatives almost universally asserted that the main compliance 
challenge they face in complying with PTE 2020-02 is that they cannot 
effectively exercise fiduciary authority over independent insurance 
agents who do not work for any one insurance company and are not 
obligated to recommend only one company's annuities. According to the 
insurance company representatives, unlike a broker-dealer that can 
readily control the products its representatives recommend and the 
compensation they receive, insurance companies working with independent 
agents have much less authority over the conduct and compensation of 
independent agents. These insurance companies also face much greater 
liability risk if they are required to provide a fiduciary 
acknowledgement, because they do not have the necessary control over 
the independent agents to manage the independent agent's product 
offerings and do not know the full range of products the independent 
agent is authorized to sell. Thus, despite the Department's compliance 
guidance provided in the preamble to PTE 2020-02 and FAQ 18, these 
parties represented to the Department that they prefer relying on 
existing PTE 84-24.
    While acknowledging these concerns, the Department continues to 
believe that insurance companies can effectively exercise fiduciary 
oversight with respect to independent agents' recommendations of their 
own products under PTE 2020-02. PTE 2020-02 is a broad, flexible, and 
principles-based approach that applies across different financial 
sectors and business models and provides relief for multiple categories 
of Financial Institutions and Investment Professionals, including 
insurance companies selling their products through independent agents, 
and it would continue to be so if the Department adopts the amendments 
to PTE 2020-02 that it is proposing today. The Department is proposing 
to amend PTE 84-24, however, to provide a narrowly tailored, 
alternative exemption allowing independent insurance agents to receive 
commissions from insurance companies with respect to annuity 
recommendations.
    As amended, PTE 84-24 would not require the insurance company to 
provide a fiduciary acknowledgement, and the insurance company would 
not be treated as a fiduciary merely because it exercised oversight 
responsibilities over independent insurance agents under the 
exemption.\6\ Instead, the proposed amendment would require the 
independent agent that recommends the annuity to make the fiduciary 
acknowledgement,\7\ and the insurance company selling its product 
through the independent agent only would be required to exercise 
supervisory authority over the independent agent's recommendation of 
its own products. The proposed amended exemption would be limited to 
commissions or fees as defined in the amendment, which would have to be 
fully disclosed to the Retirement Investor.
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    \6\ For purposes of this disclosure, and throughout the 
exemption, the term fiduciary status is limited to fiduciary status 
under Title I, the Code, or both. While this exemption and the SEC's 
Regulation Best Interest both use the term ``best interest,'' the 
Department retains interpretive authority with respect to 
satisfaction of this exemption.
    \7\ For purposes of this disclosure, and throughout the 
exemption, the term fiduciary status is limited to fiduciary status 
under Title I, the Code, or both.
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Overview of the Proposed Amendment to PTE 84-24

    The Department is proposing to amend PTE 84-24 so that investment 
advice fiduciaries would rely on a new section of PTE 84-24 for 
independent insurance agents (called Independent Producers) selling 
non-securities annuities or other insurance products not regulated by 
the Securities and Exchange Commission (SEC) to Retirement Investors. 
The proposed amendment would exclude investment advice fiduciaries from 
the current relief in PTE 84-24 while proposing relief under a new 
section of the exemption with specific conditions for independent 
insurance agents providing investment advice. The Department's 
objective in proposing this amendment is to provide a level playing 
field for all investment advice fiduciaries.
    To rely on the investment advice relief in this proposed amendment 
to PTE 84-24, the Independent Producers would have to sell annuities of 
two or more unrelated Insurers. Independent Producers that sell or 
recommend investment products other than annuities, such as mutual 
funds, stocks and bonds, and certificates of deposit must rely on PTE 
2020-02 when receiving fees or other compensation in connection with 
investment recommendations related to those products. The amended PTE 
84-24 would provide relief from the prohibited transaction rules only 
for the receipt of fully disclosed commissions or fees in connection 
with annuity recommendations or other insurance products not regulated 
by the SEC. In other respects, the proposed amendment to PTE 84-24 for 
investment advice would provide very similar protections to Retirement 
Investors as PTE 2020-02 and create a level playing field for all 
investment advice provided to Retirement Investors regardless of the 
investment products that are recommended.
    The Department is proposing to amend PTE 84-24 to exclude

[[Page 76006]]

investment advice fiduciaries from the existing relief provided in 
Section II, which would be redesignated as Section II(a). The proposed 
amendment would add Section II(b), which would provide investment 
advice fiduciaries with relief from the restrictions of ERISA sections 
406(a)(1)(D) and 406(b) and the taxes imposed by Code section 4975(a) 
and (b) by reason of Code sections 4975(c)(1)(E) and (F) if:
    <bullet> the fiduciary is an Independent Producer (as defined in 
Section X(d)),
    <bullet> the transactions are described in new Section III(g), and
    <bullet> the conditions set forth in new Sections VI, VII, and IX 
are satisfied.
    These conditions are similar to the conditions contained in PTE 
2020-02 but are tailored to protect Retirement Investors from the 
specific conflicts that can arise for Independent Producers that are 
compensated through commissions when providing investment advice to 
Retirement Investors regarding the purchase of an annuity. The 
Department also is proposing to add a new eligibility provision in 
Section VIII for investment advice transactions and amend the current 
recordkeeping condition in Section V(e) with a new recordkeeping 
provision in Section IX that is similar to the recordkeeping provision 
in PTE 2020-02.
    Although the Department is proposing a pathway for insurance 
companies to oversee the conduct of Independent Producers under the 
proposed amendment to PTE 84-24 without assuming fiduciary status, the 
Department remains concerned that, without fiduciary status, insurance 
companies may not take their supervisory obligations as seriously as 
they should. Accordingly, the proposed amendment does not provide 
relief for the Insurer, and it strictly limits the scope of relief to 
the Independent Producer's receipt of fully disclosed commissions. An 
Insurer must rely on PTE 2020-02 for relief if it is itself an 
investment advice fiduciary because it provides investment advice 
within the meaning of ERISA section 3(21)(A)(ii) and Code section 
4975(e)(3)(B) and the regulations issued thereunder. In addition, an 
Insurer's systematic failures to comply with the proposed exemption's 
conditions could result in Independent Producers' inability to rely on 
the amended exemption for relief with respect to recommendations of 
that Insurer's products. In such a situation, the Independent Producer 
would still be able to receive compensation in connection with 
fiduciary investment advice related to the products of other Insurers, 
as long as those other Insurers complied with all conditions of amended 
PTE 84-24.

Effective Date

    The Department proposes that the amendment will be effective on the 
date that is 60 days after the publication of a final amendment in the 
Federal Register. Prior to the effective date, PTE 84-24 would remain 
available for all insurance agents and insurance companies that 
currently rely on the exemption. Thus, the Department confirms that the 
restrictions of ERISA section 406(a)(1)(A), 406(a)(1)(D), and 406(b) 
and the sanctions imposed by Code section 4975(a) and (b), by reason of 
Code section 4975(c)(1)(A), (D), (E) and (F), would not apply to the 
receipt of compensation by an Insurer, Investment Professional, or any 
Affiliate and Related Entity in connection with investment advice, if 
the recommendation were made before the effective date or pursuant to a 
systematic purchase program established before the effective date. 
Also, no party would be held to the amended conditions for a 
transaction that occurred before the effective date of the amended 
exemption.

Description of Changes to Existing PTE 84-24

    Section II of existing PTE 84-24 provides exemptive relief for the 
covered transactions described in Section III(a) through (f). The 
Department is proposing minor language changes to capitalize defined 
terms where they are used in the existing sections of PTE 84-24, to 
update the references to a ``master or prototype plan'' to instead 
refer to a ``Pre-approved Plan,'' consistent with changes in IRS Rev. 
Proc. 2017-41, and to move the definitions from existing Section VI to 
new proposed Section X. As amended, Section III(a)-(f) would read:
    (a) The receipt, directly or indirectly, by an insurance agent or 
broker or a pension consultant of a Mutual Fund Commission or an 
Insurance Sales Commission from an insurance company in connection with 
the purchase, with plan assets, of an insurance or annuity contract;
    (b) The receipt of a Mutual Fund Commission by a Principal 
Underwriter for an investment company registered under the Investment 
Company Act of 1940 (hereinafter referred to as an investment company) 
in connection with the purchase, with plan assets, of securities issued 
by an investment company;
    (c) The effecting by an insurance agent or broker, pension 
consultant or investment company Principal Underwriter of a transaction 
for the purchase, with plan assets, of an insurance or annuity contract 
or securities issued by an investment company;
    (d) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company;
    (e) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company which is a fiduciary or a service 
provider (or both) with respect to the plan solely by reason of the 
sponsorship of a Pre-approved Plan; and
    (f) The purchase, with plan assets, of securities issued by an 
investment company from, or the sale of such securities to, an 
investment company or an investment company Principal Underwriter, when 
such investment company, Principal Underwriter, or the investment 
company investment adviser is a fiduciary or a service provider (or 
both) with respect to the plan solely by reason of: (1) the sponsorship 
of a Pre-approved Plan; or (2) the provision of Nondiscretionary Trust 
Services to the plan; or (3) both (1) and (2).
    The Department also is proposing the following amendments.

Excluding Investment Advice

    The Department is proposing to exclude investment advice 
fiduciaries from relief for the transactions described in Section 
III(a) through (f) of current PTE 84-24. Investment advice fiduciaries 
would be required to comply with the conditions in Sections VI-VIII, 
which are tailored specifically for investment advice. The Department 
notes that many types of fiduciaries are already excluded from the 
transactions in Sections III(a)-(d). The relief provided for in these 
sections would remain available for non-fiduciaries and 
nondiscretionary trustees,\8\ even if they

[[Page 76007]]

do not need all of the prohibited transaction relief provided. The 
relief for the transaction described in Section III(e) would be 
available for any insurance company that is a fiduciary (other than an 
investment advice fiduciary) or service provider (or both) with respect 
to the plan solely by reason of the sponsorship of a Pre-approved Plan. 
The relief for the transaction described in Section III(f) would be 
available for any insurance company, principal underwriter, or 
investment company adviser that is a fiduciary (other than an 
investment advice fiduciary) or service provider (or both) with respect 
to the plan solely by reason of: (1) the sponsorship of a Pre-approved 
Plan; or (2) the provision of nondiscretionary trust services to the 
plan; or (3) both (1) and (2).\9\
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    \8\ Nondiscretionary trustees were added in 1984, in response to 
a request from the Investment Company Institute listing typical 
nondiscretionary or trustee services. In an April 21, 1980 letter, 
``ICI states nondiscretionary trustees and custodians:
    (a) Open and maintain plan accounts and, in the case of defined 
contribution plans, individual participant accounts, pursuant to the 
employer's instructions;
    (b) Receive contributions from the employer and credit them to 
individual participant accounts in accordance with the employer's 
instructions;
    (c) Invest contributions and other plan assets in shares of a 
mutual fund or funds or other products such as insurance or annuity 
contracts designated by the employer, plan trustee, or participants, 
and reinvest dividends and other distributions in such investments;
    (d) Redeem, transfer, or exchange mutual fund shares or 
surrender insurance or annuity contracts as instructed by the 
employer, plan trustee, or participant;
    (e) Provide or maintain ``designation of beneficiary'' forms and 
make distributions from the trust or custodial account to 
participants or beneficiaries in accordance with the instructions of 
the employer, plan trustee, participants, or beneficiaries;
    (f) Deliver to participants or their employer all notices, 
prospectuses, and proxy statements, and vote proxies in accordance 
with the participants' instructions.
    (g) Maintain records of all contributions, investments, 
distributions, and other transactions and report them to the 
employer and participants;
    (h) Make necessary filings with the Internal Revenue Service and 
other government agencies;
    (i) Keep custody of the plan's assets;
    (j) Reply to and prepare correspondence, either directly or 
through the mutual fund distributor or adviser, regarding the 
investment account and the operation and interpretation of a master 
or prototype plan sponsored by the complex to which the 
nondiscretionary trustee or custodian belongs.
    In some situations, the trustee or custodian is empowered to 
amend the master or prototype plan; in others, this power resides in 
the sponsor of the master or prototype plan. ICI further describes 
the duties of the nondiscretionary trustees as ``ministerial'' and 
indicates that such trustees possess no decisional authority with 
respect to a plan's funding medium or subsequent purchases or 
sales.''
    \9\ The Department is not proposing to amend Section III(f) to 
remove the phrase ``investment company adviser,'' but notes that 
those providing investment advice within the meaning of ERISA 
section 3(21)(A)(ii) and Code section 4975(e)(3)(B) would be 
excluded under Section II(a).
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    The Department requests comment on whether the relief in proposed 
Section II(a) for the covered transactions in Section III(a)-(f) will 
be used by fiduciaries and non-fiduciaries. The Department further asks 
whether parties are currently relying on Sections III(e) and (f), 
involving Pre-approved Plans. To the extent Sections III(a) through (f) 
provide needed relief, the Department also asks whether the conditions 
in current Sections IV and V are sufficiently protective for the 
specific covered transactions.

Commissions

    The Department is proposing to replace the term ``sales 
commission,'' which is not defined in Section VI of existing PTE 84-24, 
with the more specific terms Mutual Fund Commission and Insurance Sales 
Commission. ``Insurance Sales Commission'' would be defined as a sales 
commission paid by the Insurance Company or an Affiliate to the 
Independent Producer \10\ for the service of recommending and/or 
effecting the purchase or sale of an insurance or annuity contract, 
including renewal fees and trailing fees but excluding revenue sharing 
payments, administrative fees or marketing payments, payments from 
parties other than the Insurance Company or its Affiliates, or any 
other similar fees. ``Mutual Fund Commission'' would be defined as a 
commission or sales load paid by either the Plan or the investment 
company for the service of effecting or executing the purchase of 
investment company securities, but does not include 12b-1 fees, revenue 
sharing payments, administrative fees, management fees, or marketing 
fees.
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    \10\ The Insurance Sales Commission may be paid directly to an 
intermediary such as an intermediary marketing organization (IMO) or 
field market organization) FMO, which then compensates the 
individual Independent Producer who has provided investment advice.
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    The Department is proposing to use these terms to clarify the types 
of compensation that can be received under the exemption. The 
Department is limiting the exemption to sales commissions on insurance 
or annuity contracts and investment company securities, as opposed to 
any related or alternative forms of compensation. This is consistent 
with the Department's historical understanding and intent. The 
exemption was originally granted in 1977, and the conditions were 
crafted with simple commission payments in mind. In the interim, the 
exemption was not amended or formally interpreted to broadly permit 
additional types of compensation. The proposed definitions would 
provide certainty regarding the payments permitted by the 
exemption.\11\ The Department requests comment on whether these defined 
terms appropriately capture the type of compensation that an 
Independent Producer may receive.
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    \11\ The Department has previously expressed this view on the 
scope of relief under PTE 84-24 in amending the exemption in 2016. 
``The Department does not believe this exemption was properly 
interpreted over the years to provide relief for payments such as 
administrative services fees, which are not akin to a commission. No 
determination has been made that the conditions of the exemption are 
protective in the context of such payments. Without further 
information on these fees, or suggested additional conditions 
addressed at these types of payments, the Department declines to 
take such an expansive approach to relief from the prohibited 
transaction rules under the terms of this exemption.'' 81 FR 21147, 
21166 (Apr. 8, 2016).
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Disclosures to IRA Owners

    Section V(b)(1) of PTE 84-24 currently requires insurance agents, 
brokers, or consultants to provide disclosures to an ``independent 
fiduciary'' before executing a transaction involving the purchase of an 
annuity with plan assets. That fiduciary must acknowledge receipt of 
the disclosure in writing and approve the transaction. The Department 
is proposing to clarify that for transactions involving IRAs, these 
disclosures may be provided to the IRA owner instead of an unrelated 
fiduciary. The Department requests comment on how frequently this 
provision is currently used, how frequently it would be used with the 
additional proposed changes to PTE 84-24 described below, how it is 
practically implemented today, and how the revised provision would be 
operationalized.

Discretionary Managers

    The Department proposes to clarify the exclusion for discretionary 
managers in current Section V(a)(3), which provides that the insurance 
agent or broker, pension consultant, insurance company, or investment 
company principal underwriter may not be a fiduciary who is expressly 
authorized in writing to manage, acquire or dispose of the plan's 
assets on a discretionary basis. The Department is proposing to amend 
this provision to exclude fiduciaries with discretionary authority, 
regardless of whether that authority has been conferred orally or in 
writing. As amended, proposed Section V(a)(3) would provide that the 
insurance agent or broker, pension consultant, insurance company, or 
investment company principal underwriter may not be a fiduciary who is 
authorized (formally or informally) to manage, acquire or dispose of 
the plan's assets on a discretionary basis. The Department intends for 
this change to be a mere clarification, but requests comment as to 
whether fiduciaries with oral authority to manage plan assets have been 
relying on PTE 84-24, because the current condition requires the 
fiduciary to be ``expressly authorized in writing.''

Recordkeeping

    The Department is proposing to add a new Section IX to PTE 84-24 
that would require fiduciaries engaging in all transactions covered by 
the exemption to maintain records necessary for the

[[Page 76008]]

following to determine that the conditions of this exemption have been 
met:
    (1) any authorized employee of the Department or the Internal 
Revenue Service 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.

    This requirement would replace the more limited existing 
recordkeeping requirement in current Section V(e).
    This proposed amendment to the recordkeeping requirement is 
consistent with the recordkeeping provision the Department has included 
in other existing class exemptions (including the proposed amendment to 
the recordkeeping provisions of PTE 2020-02). It is intended to protect 
the rights of plan participants, beneficiaries, and IRA owners by 
ensuring that they and the Department are provided with sufficient 
information to determine whether the exemption conditions have been 
satisfied.

Fiduciary Investment Advice Exemption

    The relief for fiduciary investment advice in proposed Section 
II(b) for the covered transactions described in proposed Section III(g) 
is generally similar to the relief provided in PTE 2020-02. However, 
while PTE 2020-02 is available for almost any fiduciary investment 
advice provider, the amended PTE 84-24 would be available only for 
investment advice that is provided to a Retirement Investor by an 
Independent Producer who works with multiple insurance companies to 
sell non-securities annuities or other insurance products not regulated 
by the SEC. The Department requests comment on whether to exclude these 
other insurance products not regulated by the SEC and limit Section 
III(g) to only non-securities annuities.
    Independent Producers relying on proposed Section III(g) may 
reasonably rely on factual representations from the Insurer, and the 
Insurer may reasonably rely on factual representations from the 
Independent Producer regarding compliance with the exemption 
conditions, as long as they do not know that such factual 
representations are incomplete or inaccurate. For example, the 
Independent Producer can rely on the Insurer's representations that it 
is maintaining the required documentation.
    Proposed Section VI provides conditions for transactions described 
in proposed Section III(g) and would require the advice to be provided 
by an Independent Producer that is authorized to sell annuities from 
two or more unrelated Insurers. The term ``Independent Producer'' would 
be defined in Section X as a person or entity that is licensed under 
the laws of a state to sell, solicit or negotiate insurance contracts, 
including annuities, and that sells products of multiple unaffiliated 
insurance companies to Retirement Investors but is not an employee of 
an insurance company (including a statutory employee under Code section 
3121). The term ``Retirement Investor'' would be defined in proposed 
Section X(o) to have the same meaning as it has in PTE 2020-02, and the 
term ``Insurer'' would be defined in proposed Section X(f) similarly to 
the definition of the term ``Financial Institution'' in PTE 2020-02, 
except it would be limited to insurance companies.
    Thus, proposed Section VI would limit the transactions described in 
proposed Section III(g) to the narrow category of transactions in which 
an independent, insurance-only agent provides investment advice to a 
Retirement Investor regarding a non-securities annuity or insurance 
contract. For all other investment advice transactions, including those 
by Independent Producers that do not satisfy the conditions of the 
amended PTE 84-24 and those involving captive or career insurance 
agents, the advice provider would have to rely on PTE 2020-02 to 
receive exemptive relief for investment advice transactions. The 
Department has determined that when non-independent agents recommend 
insurance products, the insurance company whose product is recommended 
should be willing and able to acknowledge its fiduciary status under 
ERISA and the Code when investment advice is provided to a Retirement 
Investor for a fee, because it has sufficient control over the agent 
and the products the agent recommends.
    Even though amended PTE 84-24 would not require Insurers to be 
fiduciaries, they would be subject to certain conditions when their 
products are recommended. Consistent with the NAIC Suitability in 
Annuity Transactions Model Regulation (the NAIC Model Regulation),\12\ 
and as discussed in the policies and procedures section below, the 
proposed exemption would require the Insurer whose product is being 
sold to provide meaningful supervision over the Independent Producer 
making the recommendation and sale to the Retirement Investor. As 
stated in proposed Section VI(b), the Insurer would not become an 
investment advice fiduciary under ERISA and/or the Code merely by 
complying with the applicable exemption conditions and providing the 
required supervision. However, the Department cautions that Insurers 
selling insurance and annuity products through Independent Producers 
could become an investment advice fiduciary under ERISA and/or the Code 
through other actions they take. If the Insurers are fiduciaries, they 
could not rely on amended PTE 84-24 and would need to rely on a 
different prohibited transaction exemption, such as PTE 2020-02, for 
relief from ERISA section 406(b) and Code section 4975.
---------------------------------------------------------------------------

    \12\ Available at https://content.naic.org/sites/default/files/inline-files/MDL-275.pdf.
---------------------------------------------------------------------------

    To facilitate compliance with the exemption, Independent Producers 
and Insurers may rely on factual representations from each other, as 
long as they are reasonable in doing so. For example, an Independent 
Producer may generally rely on an Insurer's written report generated as 
part of its retrospective review required by Section VII(d), unless the 
Independent Producer knows (or should know) that the report is 
inaccurate or incomplete.

Exclusions

    Section VI(c) proposes to exclude certain specific investment 
advice transactions. Under proposed Section VI(c)(1), the relief would 
not be available if the Plan is covered by Title I of ERISA and the 
Independent Producer, Insurer, or any Affiliate is the employer of 
employees covered by the Plan, or the Plan's named fiduciary or 
administrator. For example, an Independent Producer that sponsors a 
plan for its employees and provides the investment advice to the plan 
can only receive direct expenses and not reasonable compensation for 
the advice. However, there is an exception when the advice provider is 
selected by an independent fiduciary. Proposed Section VI(c)(2) would 
exclude transactions that involve the Independent Producer acting in a 
fiduciary capacity other than as an investment advice fiduciary. Unlike 
in PTE 2020-02, the Department is not proposing a specific provision 
for

[[Page 76009]]

pooled employer plans, because the Department does not expect that 
pooled employer plans would need to rely on the limited relief in this 
exemption. The Department requests comment on whether pooled employer 
plans as described in ERISA section 3(43) would rely on the investment 
advice relief in amended PTE 84-24.

Impartial Conduct Standards of Amended PTE 84-24

    Section VII(a) of the proposed amendment would condition relief for 
investment advice transactions described in proposed Section III(g) on 
the Independent Producer that is providing investment advice to 
Retirement Investors complying with the Impartial Conduct Standards 
that are the same as those in PTE 2020-02--i.e., acting in the 
Retirement Investor's Best Interest, receiving no more than reasonable 
compensation, and making no misleading statements--with some 
modifications to reflect the specifics of the independent agent 
channel. These standards are discussed below.

Best Interest

    The Best Interest standard would require the Independent Producer 
to provide investment advice that is in the Retirement Investor's Best 
Interest at the time it is provided. Proposed Section VII would rely on 
the same Best Interest standard from PTE 2020-02. As defined in 
proposed Section X(b), Best Interest advice reflects the care, skill, 
prudence, and diligence under the circumstances then prevailing that a 
prudent person acting in a like capacity and familiar with such matters 
would use in the conduct of an enterprise of a like character and with 
like aims, based on the investment objectives, risk tolerance, 
financial circumstances, and needs of the Retirement Investor, and does 
not place the financial or other interests of the Independent Producer, 
Insurer or any Affiliate, Related Entity, or other party ahead of the 
interests of the Retirement Investor, or subordinate the Retirement 
Investor's interests to those of the Independent Producer, Insurer or 
any Affiliate, Related Entity, or other party. For example, in choosing 
between annuity products offered by Insurers whose products the 
Independent Producer is authorized to sell, the Independent Producer 
may not recommend a product that is worse for the Retirement Investor 
but better or more profitable for the Independent Producer or Insurer.

Reasonable Compensation

    Like PTE 2020-02, the proposed exemption requires an Independent 
Producer's compensation to not exceed reasonable compensation within 
the meaning of ERISA section 408(b)(2) and Code section 4975(d)(2). To 
tailor this condition to the specifics of insurance sales, Section 
VII(a)(2) would require that the Independent Producer can only receive 
an Insurance Sales Commission as compensation in connection with the 
transaction.

No Misleading Statements

    Proposed Section VII(a)(3) provides the same prohibition on 
misleading statements that is part of PTE 2020-02. This provision 
requires an Independent Producer's statements to the Retirement 
Investor about the recommended transaction and other relevant matters 
to not be materially misleading at the time the statements are made. 
For purposes of this condition, the term ``materially misleading'' 
includes omitting information that is needed to make the statement not 
misleading in light of the circumstances under which it was made. To 
the extent the Independent Producer provides materials, including 
marketing materials that are prepared and provided by the Insurer, this 
condition also would require such materials not to be materially 
misleading to the Independent Producer's knowledge.

Disclosure

    Section VII(b) of the proposed amendment would require Independent 
Producers to provide disclosures to Retirement Investors before 
engaging in a transaction pursuant to this exemption. Similar to PTE 
2020-02, proposed Section VII(b)(1) would require a fiduciary 
acknowledgement, but unlike PTE 2020-02, only the Independent Producer 
and not the Insurer must acknowledge that it is a fiduciary providing 
investment advice to the Retirement Investor. Also similar to the 
proposed amendment to PTE 2020-02, the Department is proposing 
additional disclosures in PTE 84-24 Section VII(b) to help ensure that 
Retirement Investors have sufficient information to make an informed 
decision about the costs of the transaction and the significance and 
severity of the Independent Producer's conflicts of interest. The 
Department requests comment on these disclosures, particularly 
regarding whether additional or alternative information would be 
helpful to Retirement Investors receiving advice from Independent 
Producers. The Department is also interested in receiving comments 
regarding whether it should require Insurers or Independent Producers 
to maintain a public website containing the pre-transaction disclosure, 
a description of the Insurer's or Independent Producer's business 
model, associated Conflicts of Interest (including arrangements that 
provide third party payments), and a schedule of typical fees. The 
Department is interested in receiving data and other information 
regarding the benefits of such a web disclosure. The Department is also 
interested in receiving any data that commenters may have that can 
inform an estimate of the extent to which Retirement Investors, 
investment consultants, and third party intermediaries would visit and 
use a web page that includes such disclosures.

Pre-Transaction Disclosure

    Similar to PTE 2020-02, proposed Section VII(b)(1) would require a 
fiduciary acknowledgement, but unlike PTE 2020-02, only the Independent 
Producer and not the Insurer must acknowledge that it is a fiduciary 
providing investment advice to the Retirement Investor.\13\ Section 
VII(b)(2) would require the Independent Producer to provide the 
Retirement Investor with a written statement of the Best Interest 
standard of care that the Independent Producer owes to the Retirement 
Investor. Under Section VII(b)(3), the Independent Producer must 
provide a written description of the services to be provided and the 
Independent Producer's material Conflicts of Interest that is accurate 
and not misleading in any material respects. The description will 
include the products the Independent Producer is licensed and 
authorized to sell and inform the Retirement Investor in writing of any 
limits on the range of insurance products recommended. The Independent 
Producer must identify the specific Insurers and specific investment 
products available for recommendation.
---------------------------------------------------------------------------

    \13\ The Department cautions that an Insurer cannot insulate 
itself from fiduciary status merely by not making this 
acknowledgment. As noted above, an Insurer may become a fiduciary 
based on its actions.
---------------------------------------------------------------------------

    Under proposed Section VII(b)(4), the Independent Producer would 
also be required to provide a written statement of the amount of the 
Insurance Sales Commission it will be paid in connection with the 
purchase by the Retirement Investor of the recommended annuity. The 
statement must disclose the amount of the expected Insurance Sales 
Commission, in both dollars and as a percentage of gross annual premium 
payments. If applicable, the statement must also disclose the amount 
the Independent

[[Page 76010]]

Producer will be paid for the first year and each succeeding year.\14\
---------------------------------------------------------------------------

    \14\ Some insurers offer fee-based annuities which are generally 
designed for sale in fee-based distribution models. These annuities 
do not pay a sales commission and typically have no withdrawal 
charges or lower charges than under commissioned products. 
Compensation for sales of fee-based annuities is usually based on a 
percentage of the annuity's account value or some other methodology. 
Fee-based annuities are eligible for the relief provided by the 
proposed amendment if all the conditions of the exemption are met. 
If an Independent Producer recommends a fee-based annuity, the 
written statement must disclose the specific method for determining 
the amount of compensation for the first year and succeeding years, 
expressed both in dollars and as percentage of the account value (or 
other relevant value) to the extent possible.
---------------------------------------------------------------------------

    Under proposed Section VII(b)(5), the Independent Producer would 
also be required to provide a written statement informing the 
Retirement Investor of the right to obtain specific information 
regarding costs, fees, and compensation, and how to obtain it, free of 
charge. The statement must be written in plain English, taking into 
consideration the Retirement Investor's level of financial experience, 
and it must be accurate and not misleading. The cost, fee, and 
compensation information may be described in dollar amounts, 
percentages, formulas, or other means reasonably designed to be 
materially accurate in scope, magnitude, and nature of the 
compensation. The information must be detailed enough for the 
Retirement Investor to make an informed judgment about the transaction 
costs and the significance and severity of the Conflicts of Interest. 
For example, the Retirement Investor may ask how the Independent 
Producer would be compensated for recommending and selling other 
products they are authorized to sell and whether the Independent 
Producer is likely to receive more as a result of its recommendation 
than it would have received if it had recommended other annuities.
    The proposed requirement to disclose the amount of expected 
Insurance Sales Commission, expressed both in dollars and as a 
percentage of gross annual premium payments, if applicable, for the 
first year and for each of the succeeding years is consistent with the 
existing disclosure requirements in PTE 84-24 Section V(b)(1). The 
proposed requirement to disclose the range of compensation is intended 
to ensure that the Retirement Investor understands the magnitude of the 
Independent Producer's material Conflicts of Interest. Without a single 
Insurer overseeing each recommendation, Independent Producers must 
carefully analyze and disclose the various incentives available from 
different Insurers that could affect the recommendation. For this 
reason, proposed Section VII(b)(4) requires the Independent Producer to 
make specific disclosures before the sale of a recommended annuity. The 
Independent Producer must consider and document its conclusions that 
the recommended annuity is in the Retirement Investor's Best Interest 
and provide that documentation to the Retirement Investor and the 
Insurer.
    To assist Independent Producers in complying with this proposed 
exemption's disclosure conditions, the Department is providing the 
following proposed model language that will satisfy proposed Section 
VII(b)(1), (2), and (5).

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

    Please note that the Department is not proposing to include model 
language for Section VII(b)(3) or (4) that would describe services to 
be provided, the conflicts of interest, or the commissions paid because 
those will vary for each Independent Producer.

Best Interest Documentation and Rollover Disclosure

    Under proposed Section II(b)(6), before the sale of a recommended 
non-security annuity, the Independent Producer would consider and 
document its conclusions as to whether the recommended non-security 
annuity is in the Best Interest of the Retirement Investor. The 
Independent Producer must provide this documentation to both the 
Retirement Investor and to the Insurer whose products are being sold. 
The Department requests comment on whether this proposed condition 
should be expanded to other insurance products not regulated by the 
SEC.
    Proposed Section VII(b)(7) would further require Independent 
Producers to provide a rollover disclosure that is similar to the 
disclosure required in the proposed amendment to PTE 2020-02 Section 
II(b)(5). Before engaging in a rollover or making a recommendation to a 
Plan participant as to the post-rollover investment of assets currently 
held in a Plan, the Independent Producer must consider and document its 
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:
    <bullet> the alternatives to a rollover, including leaving the 
money in the Plan, if applicable,
    <bullet> the comparative fees and expenses,
    <bullet> whether an employer or other party pays for some or all 
administrative expenses, and
    <bullet> the different levels of fiduciary protection, services, 
and investments available.
    To assist the Insurer in satisfying its supervisory obligations, 
the Independent Producer must also provide the documentation to the 
Insurer.

Good Faith

    Proposed Section VII(b)(6) provides that Independent Producers and 
the Insurer may rely in good faith on information and assurances from 
other entities that are not Affiliates as long as they do not know or 
have reason to know that such information is incomplete or inaccurate. 
Proposed Section II(b)(7) confirms that the Independent Producer would 
not be required to disclose information that otherwise is prohibited by 
law.

Policies and Procedures

    The exemption depends on oversight by a responsible Insurer to 
ensure that appropriate policies and procedures are in place. While the 
exemption would not require the Insurer to act in a fiduciary capacity 
or to acknowledge fiduciary status, the Insurer would be expected to 
adopt and implement protective policies and procedures, and to 
carefully police recommendations of its own investment products. These 
requirements are consistent with supervisory requirements for insurance

[[Page 76011]]

companies under state insurance law, and do not require the Insurers to 
police Independent Producers' recommendations of competitors' products.
    Proposed Section VII(c) would require Insurers to establish, 
maintain, and enforce written policies and procedures. These conditions 
are similar to those in PTE 2020-02 Section II(c), including that 
compliance with these obligations are the Insurer's responsibility and 
not the Independent Producer's. Under proposed Section VII(c)(1), the 
Insurer must establish, maintain, and enforce written policies and 
procedures for the Insurer to review each of the Independent Producer's 
recommendations before an annuity is issued to a Retirement Investor. 
The policies and procedures must be prudently designed to ensure 
compliance with the Impartial Conduct Standards and other conditions of 
this exemption. This requirement is similar to that in PTE 2020-02 and 
is consistent with the language in NAIC Model Regulation Section 
6.C.(2)(d), which provides that ``[t]he insurer shall establish and 
maintain procedures for the review of each recommendation prior to 
issuance of an annuity that 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.'' Under the proposal, the 
Insurer's prudent review of the Independent Producer's specific 
recommendations must be made without regard to the Insurer's own 
interests or those of its affiliates and related entities.
    The Department notes that the NAIC Model Regulation contemplates 
that insurance companies will maintain a system of oversight with 
respect to insurance agents. Insurers could implement procedures to 
review annuity sales to Retirement Investors to ensure that they are 
made in compliance with the Impartial Conduct Standards similar to how 
they currently are required to review annuity sales to ensure 
compliance with the state-law suitability requirements.\15\ Section I 
of the NAIC Model Regulation provides that the purpose of the 
regulation is to ``require producers, as defined in this regulation, to 
act in the best interest of the consumer when making a recommendation 
of an annuity and to require insurers to establish and maintain a 
system to supervise recommendations so that the insurance needs and 
financial objectives of consumers at the time of the transaction are 
effectively addressed.'' \16\ Accordingly, the Department believes that 
a system of oversight by Insurers over Independent Producers is 
consistent with the obligations imposed by NAIC's Model Regulation, and 
is achievable under this proposed amendment to PTE 84-24.
---------------------------------------------------------------------------

    \15\ NAIC Model Regulation Section 6.C.(2)(d) provides that 
``[t]he insurer shall establish and maintain procedures for the 
review of each recommendation prior to issuance of an annuity that 
are designed to ensure that there is a reasonable basis to determine 
that the recommended annuity would effectively address the 
particular consumer's financial situation, insurance needs and 
financial objectives. Such review procedures may apply a screening 
system for the purpose of identifying selected transactions for 
additional review and may be accomplished electronically or through 
other means including, but not limited to, physical review. Such an 
electronic or other system may be designed to require additional 
review only of those transactions identified for additional review 
by the selection criteria''). Section 6.C.(2)(e) provides that 
``[t]he insurer shall establish and maintain reasonable procedures 
to detect recommendations that are not in compliance with 
subsections A, B, D and E. This may include, but is not limited to, 
confirmation of the consumer's consumer profile information, 
systematic customer surveys, producer and consumer interviews, 
confirmation letters, producer statements or attestations and 
programs of internal monitoring. Nothing in this subparagraph 
prevents an insurer from complying with this subparagraph by 
applying sampling procedures, or by confirming the consumer profile 
information or other required information under this section after 
issuance or delivery of the annuity.''
    \16\ Id., Section 1.A.
---------------------------------------------------------------------------

    In terms of the specific oversight requirements, the Department 
confirms that under the proposed amendment, an Insurer would only be 
required to supervise an Independent Producer's recommendations of the 
annuities it offers to Retirement Investors. The Insurer would not be 
required to review annuities offered by another institution. The 
Department also clarifies that the exemption would not require the 
Insurer to consider or compare the specific annuities that an 
Independent Producer sells or the compensation relating to those 
annuities, unless they are annuities the Insurer offers. This approach 
is also consistent with the approach of NAIC Model Regulation Section 
6.C.(4).\17\
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    \17\ NAIC Model Regulation Section 6.C.(4) provides that an 
insurer is not required to include in its system of supervision: (a) 
A producer's recommendations to consumers of products other than the 
annuities offered by the insurer; or (b) Consideration of or 
comparison to options available to the producer or compensation 
relating to those options other than annuities or other products 
offered by the insurer.
---------------------------------------------------------------------------

    Under proposed Section VII(c)(2), the Insurer's policies and 
procedures must mitigate Conflicts of Interest to the extent that a 
reasonable person reviewing the policies and procedures and the 
Insurer's 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 Insurer, or any Affiliate, ahead of the 
Retirement Investor's interests. The Insurer's procedures must identify 
and eliminate quotas, appraisals, bonuses, contests, special awards, 
differential compensation, riders and or other similar features that 
are intended, or that a reasonable person would conclude are likely, to 
incentivize Independent Producers to provide recommendations that do 
not meet the Impartial Conduct Standards. This is the same condition 
that applies to Financial Institutions under Section II(c)(2) of PTE 
2020-02. It is also consistent with, although more protective than, the 
narrower NAIC Model Regulation section 6.C.(2)(h), which prohibits an 
insurer from establishing sales contests, sales quotas, bonuses, and 
non-cash compensation that are based on sales of specific annuities 
within a limited period of time.
    Under proposed Section VII(c)(2), an Insurer could not offer 
incentive vacations, trips, or even educational conferences, if 
qualification for the vacation, trip or conference is based on sales 
volume or satisfaction of sales quotas. The Best Interest standard 
discussed above and defined in proposed Section X(b) clearly prohibits 
these types of incentives on the grounds they create undue conflicts of 
interest. Moreover, the Department believes that educational 
opportunities should be offered equally to all agents and not connected 
to sales volume, because training is a necessary component of providing 
Best Interest advice. This emphasis on Independent Producer training is 
consistent with NAIC Model Regulation section 6.C.(2)(c), which 
requires insurers to provide its producers with product-specific 
training and training materials that explain all material features of 
its annuity products.
    Under proposed Section VII(c)(3), the Insurer's policies and 
procedures must include a prudent process for determining whether to 
authorize an Independent Producer to sell the Insurer's annuity 
contracts to Retirement Investors. It must also include a prudent 
process 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. This is consistent with, but more 
protective than, NAIC Model Regulation section 7.B.(11), which requires 
an insurer to verify the producer has completed the annuity training 
course required under NAIC

[[Page 76012]]

Model Regulation section 7 before allowing the producer to sell an 
annuity product for that insurer.
    As part of a prudent evaluation of an Independent Producer's 
background, the Insurer must carefully review customer complaints, 
disciplinary history, and regulatory actions concerning the Independent 
Producer, as well as the Independent Producer's training, education, 
and conduct with respect to the Insurer's own products. The Insurer 
must document the basis for its initial determination that it can rely 
on the Independent Producer to adhere to the Impartial Conduct 
Standards, and it must review that determination at least annually as 
part of the retrospective review. The Department notes that Insurers 
may rely in part on an automated system to apply general standards and 
review formal discipline records, as long as careful, individual review 
is applied when the general review raises concerns. However, the 
Department expects that an Insurer would not work with an Independent 
Producer that either has been barred by any regulator from selling 
insurance or annuity contracts, or that is ineligible to rely on either 
PTE 2020-02 or the amended PTE 84-24 under proposed Section VIII. The 
Department requests comments on these requirements and is specifically 
interested in the systems Insurers currently use to determine whether 
Independent Producers are compliant with state insurance obligations. 
The Department is also interested in comments about how Insurers have 
operationalized the supervisory requirements in the NAIC Model 
Regulation.
    Under proposed Section VII(c)(4), Insurers must provide their 
complete policies and procedures to the Department within 10 days upon 
request. The Department believes that ensuring its access to policies 
and procedures will facilitate the quicker resolution of disputes and 
allow the Department, if it desires, to survey the policies and 
procedures for exemption compliance and effectiveness.

Retrospective Review

    Proposed Section VII(d) would require Insurers to conduct a 
retrospective review, at least annually. The retrospective review must 
be reasonably designed to detect and prevent violations of, and achieve 
compliance with the Impartial Conduct Standards, the terms of this 
exemption, and the policies and procedures governing compliance with 
the exemption, including 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 requirement is similar to that in Section 
II(d) of PTE 2020-02. However, unlike PTE 2020-02, Insurers under 
proposed Section VII(d) of PTE 84-24 must include in their review a 
prudent determination whether to continue to permit individual 
Independent Producers to sell the Insurer's annuity contracts to 
Retirement Investors. This review does not need to be as extensive as 
the initial decision to contract with an Independent Producer. An 
Insurer may consider any change in discipline records that are found in 
widely-available databases and rollover documentations that have been 
provided under Section VII(c)(5). Additionally, the Insurer 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 Section VII(c).
    Consistent with both PTE 2020-02 and the NAIC Model Regulation 
Section 6.C.(2)(i),\18\ proposed Section VII(d)(2) would require the 
Insurer to provide a Senior Executive Officer with an annual written 
report which details the review. Under Section VII(d)(3), the 
Department would further require the Insurer to provide the Independent 
Producer with the underlying methodology and results of the 
retrospective review. The Department understands that Insurers will 
conduct reviews for many different Independent Producers and confirms 
that Independent Producers only have the right to information about 
their own sales. There is no obligation to inform any Independent 
Producers of an unrelated Independent Producer's failure.
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    \18\ NAIC Model Reg Section 6.(C)(i) provides that: ``The 
insurer shall annually provide a written report to senior 
management, including to the senior manager responsible for audit 
functions, which details a review, with appropriate testing, 
reasonably designed to determine the effectiveness of the 
supervision system, the exceptions found, and corrective action 
taken or recommended, if any.''
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    Proposed Section VII(d)(4) would require a Senior Executive Officer 
of the Insurer to annually certify that:
    <bullet> The officer has reviewed the retrospective review report,
    <bullet> The Insurer has filed (or will file timely, including 
extensions) Form 5330, reporting any non-exempt prohibited transaction 
discovered by the Insurer in connection with investment advice covered 
under Code section 4975(e)(3)(B),
    <bullet> The Insurer has advised the Independent Producer of the 
violation and any resulting excise taxes owed under Code section 4975, 
and
    <bullet> The Insurer has notified the Department of Labor of the 
violation via email to <a href="/cdn-cgi/l/email-protection#f6a6a2b3a9cec2dbc4c2b692999ad8919980"><span class="__cf_email__" data-cfemail="19494d5c46212d342b2d597d7675377e766f">[email protected]</span></a>.
    <bullet> The Insurer 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
    <bullet> The Insurer has in place a prudent process to modify such 
policies and procedures as business, regulatory, and legislative 
changes and events dictate, as well as a prudent process to test the 
effectiveness of such policies and procedures on a periodic basis, to 
ensure its continuing compliance with the exemption's conditions.
    Under proposed Section VII(d)(5), the review, report, and 
certification must be completed no later than 6 months following the 
end of the period covered by the review, and proposed Section VII(d)(6) 
would require the Insurer to retain the report, certification, and 
supporting data for a period of six years and make the report, 
certification, and supporting data available to the Department, within 
10 business days of request, to the extent permitted by law.

Self-Correction

    While the Insurer is responsible for the retrospective review, 
proposed Section VII(e) would allow the Independent Producer to make 
the corrections needed to avoid a non-exempt prohibited transaction in 
certain circumstances. Self-correction would be allowed in cases when 
either (1) the Independent Producer has refunded any charge to the 
Retirement Investor or (2) the Insurer has rescinded a mis-sold 
annuity, canceled the contract, and waived the surrender charges. This 
is somewhat different from the self-correction provision in PTE 2020-
02, which is focused on investment losses. With a fixed annuity, the 
consumer is guaranteed not to lose any account value but can incur a 
charge (and hence a loss) if the contract is surrendered during the 
surrender charge period. The usual remedy for a mis-sold annuity is 
rescission, which requires the insurer to cancel the contract and waive 
surrender charges. Under the proposed amendment, the Independent 
Producer must notify the Department of the violation and the refund or 
rescission via email to <a href="/cdn-cgi/l/email-protection#0f5f5b4a50373b223d3b4f6b606321686079"><span class="__cf_email__" data-cfemail="1a4a4e5f45222e37282e5a7e7576347d756c">[email protected]</span></a> within 30 days of correction. 
The correction must occur no later than 90 days after the Independent 
Producer learned, or

[[Page 76013]]

reasonably should have learned, of the violation. Lastly, the 
Independent Producer must notify the person(s) at the Insurer 
responsible for conducting the retrospective review during the 
applicable review cycle and the violation and correction must 
specifically be set forth in the written retrospective review report.

Eligibility

    Section VIII of the proposed amendment identifies circumstances 
under which an Independent Producer or Insurer would become ineligible 
to rely on the exemption for 10 years, and also circumstances when an 
entity would not be permitted to serve as an Insurer under this 
exemption for 10 years. These eligibility provisions are similar to the 
provisions of Section III of PTE 2020-02, and are intended to promote 
compliance. Section VIII(a) describes how Independent Producers can 
become ineligible. The proposed amendment sets forth the specific 
crimes (including foreign crimes) that could cause ineligibility in 
Section III(a)(1). Independent Producers would also become ineligible 
if they are issued a written ineligibility notice from the Department 
stating that they: (A) engaged in a systematic pattern or practice of 
violating the conditions of this exemption; (B) intentionally violated, 
or knowingly participated in violations of, the conditions of this 
exemption; (C) engaged in a systematic pattern or practice of failing 
to correct prohibited transactions, report those transactions to the 
IRS on Form 5330, and pay excise taxes involving investment advice; or 
(D) provided materially misleading information to the Department in 
connection with the its conduct under the exemption. Independent 
Producers would become ineligible six months after the conviction date, 
the date of the Department's written determination regarding a foreign 
conviction, or the date of the Department's written ineligibility 
notice, as applicable. During the six-month period, the Independent 
Producers are still fiduciaries, subject to all of the fiduciary 
requirements and prohibited transaction rules. Thus, Independent 
Producers must continue to comply with the exemption during those six 
months, and any transactions that do not meet the terms of the 
exemption will be subject to excise tax and ERISA penalties. The 
ineligibility remains in effect until the earliest of: a subsequent 
judgement reversing a person's conviction, 10 years after the person 
became ineligible or is released from imprisonment, if later, or the 
Department grants an individual exemption permitting reliance on this 
exemption, notwithstanding the conviction.
    Section VIII(b) delineates similarly eligibility provisions for 
Insurers. An entity will be ineligible to serve as an Insurer with 
respect to the exemption if it has a conviction for a crime listed 
under Section VIII(b)(1) or has been determined to be ineligible under 
Section VIII(b)(2). Furthermore, because Insurers that fail to satisfy 
the conditions of this exemption would not necessarily engage in a non-
exempt prohibited transaction, their eligibility to rely on this 
exemption would not be linked to engaging in a systematic pattern or 
practice of failing to correct prohibited transactions, report those 
transactions to the IRS on Form 5330, and pay excise taxes imposed by 
Code section 4975 in connection with non-exempt prohibited transactions 
involving investment advice under Code section 4975(e)(3)(B). The 
Department notes that, as a fiduciary, before recommending an insurance 
product the Independent Producer is responsible for ensuring that the 
relevant insurance company is an Insurer permitted to sell its products 
through Independent Producers and Section VIII. The Independent 
Producer may reasonably rely on an Insurer's representations to it 
regarding the Insurer's continued eligibility under the exemption.
    Insurers would become ineligible six months after the conviction 
date, the date of the Department's written determination regarding a 
foreign conviction, or the date of the Department's written 
ineligibility notice, as applicable. Unlike Independent Producers, 
Insurers might not be fiduciaries; therefore, they might not be subject 
to all fiduciary requirements during the six-month period. As 
fiduciaries, the Independent Producers should be aware of whether they 
are selling products of any Insurers that will become ineligible within 
six months. The ineligibility remains in effect until the earliest of: 
a subsequent judgement reversing a person's conviction, 10 years after 
the person became ineligible or is released from imprisonment, if 
later, or the Department grants an individual exemption permitting 
reliance on this exemption, notwithstanding the conviction.
    Proposed Section VIII(c) would provide Independent Producers and 
Insurers with the opportunity to be heard. Like PTE 2020-02, there 
would be no separate evidentiary hearing following conviction by a U.S. 
federal or state court of competent jurisdiction, but Section 
XVIII(c)(1) would allow Insurers and Independent Producers to submit a 
petition informing the Department of the conviction and seeking a 
determination that continued reliance on the exemption would not be 
contrary to the purposes of the exemption.
    Proposed Section VIII(c)(2) would allow Independent Producers and 
Insurers to request an evidentiary hearing before becoming ineligible 
and losing access to the exemption. Before issuing a written 
ineligibility notice, the Department will issue a written warning to 
the Independent Producer or Insurer, as applicable, identifying 
specific conduct implicating proposed Section VIII(a)(2) or (b)(2), as 
applicable. The Insurer or Independent Producer then has a six-month 
opportunity to correct their conduct. At the end of the six-month 
period, if the Department determines that the Independent Producer or 
Insurer has not taken appropriate action to prevent recurrence of the 
disqualifying conduct, it will give the Independent Producer or Insurer 
the opportunity to be heard in person (including by phone or 
videoconference), in writing, or a combination thereof, before the 
Department issues the written ineligibility notice. The opportunity to 
be heard will be limited to one conference unless the Department 
determines in its sole discretion to allow additional conferences.
    Following a hearing for either foreign convictions or other 
misconduct, the Department's determination will be based solely on its 
discretion. The Department will consider the following when making its 
determination:
    <bullet> the gravity of the offense;
    <bullet> the degree to which the underlying conduct concerned 
individual misconduct, or, alternately, corporate managers or policy;
    <bullet> recency of the conduct at issue;
    <bullet> any remedial measures the Independent Producer or Insurer 
has taken upon learning of the underlying conduct; and
    <bullet> other factors the Department determines in its discretion 
are reasonable in light of the nature and purposes of the exemption.

    If the Department issues a written ineligibility notice, the notice 
will articulate the basis for the Department's determination that the 
Independent Producer or Insurer engaged in conduct described in Section 
VIII(a)(2).
    If an Insurer or Independent Producer is ineligible to rely on 
amended PTE 84-24, proposed Section VIII(d) provides that the Insurer 
or Independent Producer may rely on a statutory or

[[Page 76014]]

separate administrative prohibited transaction exemption if one is 
available or seek an individual prohibited transaction exemption from 
the Department. The Department notes that PTE 2020-02 will generally be 
available for insurance companies that are ineligible to serve as 
Insurers under PTE 84-24. However, the Department may, as part of its 
eligibility determination process, determine that an entity is not 
eligible for either PTE 2020-02 or PTE 84-24. The written warning, 
opportunity to be heard, and written ineligibility notice would each 
clearly state the exemption or exemptions for which ineligibility was 
being considered.
    If an Insurer cannot sell its products under PTE 84-24, the 
Department would consider an application for an individual exemption 
for that Insurer, and any resulting exemption would likely require the 
Insurer to be a fiduciary and acknowledge fiduciary status. If an 
applicant seeks retroactive relief in connection with an exemption 
application, the Department will consider the application in accordance 
with its retroactive exemption policy.\19\ The Department may require 
additional prospective compliance conditions as a condition of 
retroactive relief. The Department requests comments on the process 
described above, including whether it would be helpful to provide 
greater details about the evidentiary hearing and the written 
ineligibility notice, and, if so, what details are necessary.
---------------------------------------------------------------------------

    \19\ Set forth in 29 CFR 2570.35(d).
---------------------------------------------------------------------------

Recordkeeping

    As discussed above, the Department is proposing to add a new 
Section IX to PTE 84-24, which would require the party engaging in a 
transaction covered by the exemption to maintain records necessary to 
enable certain persons (described in proposed Section IX(a)(2)) to 
determine whether the conditions of this exemption have been met. This 
provision would apply to all of the conditions of PTE 84-24, replacing 
the more limited existing recordkeeping requirement in current Section 
V(e). This proposed recordkeeping requirement is consistent with PTE 
2020-02 and is intended to protect the rights of plan participants and 
beneficiaries and IRA owners by ensuring that they and the Department 
have sufficient information to confirm that that exemption conditions 
have been satisfied.

Executive Order 12866 and 13563 Statement

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects; distributive impacts; and equity). Executive 
Order 13563 emphasizes the importance of quantifying costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility.
    Under Executive Order 12866, as amended by Executive Order 14094, 
``significant'' regulatory actions are subject to review by the Office 
of Management and Budget (OMB). Section 3(f) of the Executive Order 
defines a ``significant regulatory action'' as an action that is likely 
to result in a rule (1) having an annual effect on the economy of $200 
million or more, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local, or tribal governments or 
communities; (2) creating a serious inconsistency or otherwise 
interfering with an action taken or planned by another agency; (3) 
materially altering the budgetary impacts of entitlement grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof; or (4) raising legal or policy issues for which centralized 
review would meaningfully further the President's priorities or the 
principles set forth in the Executive Order. It has been determined 
that this proposal is a ``significant regulatory action'' within the 
scope of section 3(f)(1) of the Executive Order.
    Therefore, the Department has provided an assessment of the 
proposal's potential costs, benefits, and transfers, and OMB has 
reviewed this proposed amendment pursuant to the Executive Order.

Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department conducts a preclearance consultation program to 
allow the general public and Federal agencies to comment on proposed 
and continuing collections of information in accordance with the 
Paperwork Reduction Act of 1995 (PRA). This helps ensure that the 
public understands the Department's collection instructions, 
respondents can provide the requested data in the desired format, 
reporting burden (time and financial resources) is minimized, 
collection instruments are clearly understood, and the Department can 
properly assess the impact of collection requirements on respondents.
    The Department is soliciting comments regarding the information 
collection request (ICR) included in the proposed amendments to the 
ICR. To obtain a copy of the ICR, contact the PRA addressee below or go 
to RegInfo.gov. The Department has submitted a copy of the rule to the 
OMB in accordance with 44 U.S.C. 3507(d) for review of its information 
collections. The Department and OMB are particularly interested in 
comments that:
    <bullet> Evaluate whether the collection of information is 
necessary for the functions of the agency, including whether the 
information will have practical utility;
    <bullet> Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
    <bullet> Enhance the quality, utility, and clarity of the 
information to be collected; and
    <bullet> Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology (e.g., permitting 
electronically delivered responses).
    Commenters may send their views on the Departments' PRA analysis in 
the same way they send comments in response to the proposed rule as a 
whole (for example, through the www.regulations.gov website), including 
as part of a comment responding to the broader proposed rule. Comments 
are due by January 2, 2024 to ensure their consideration.
    PRA Addressee: Address requests for copies of the ICR to James 
Butikofer, Office of Research and Analysis, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue NW, 
Room N-5718, Washington, DC 20210, or <a href="/cdn-cgi/l/email-protection#eb8e89988ac5849b99ab8f8487c58c849d"><span class="__cf_email__" data-cfemail="6e0b0c1d0f40011e1c2e0a010240090118">[email protected]</span></a>. ICRs also are 
available at http://www.RegInfo.gov (http://www.reginfo.gov/public/do/PRAMain).
    As discussed in detail above, PTE 84-24, as amended, would exclude 
investment advice fiduciaries from the existing relief provided in 
Section II, which would be redesignated as Section II(a) and add new 
Sections VI-VIII, which would provide relief for investment advice 
limited to the narrow category of transactions in which an

[[Page 76015]]

independent, insurance-only agent, or Independent Producer, provides 
investment advice to a Retirement Investor regarding an annuity or 
insurance contract. Additionally, as amended, the exemption requires 
the Independent Producers engaging in these transactions to adhere to 
certain Impartial Conduct Standards, including acting in the best 
interest of the plans and IRAs when providing advice.
    Financial institutions and investment professionals that engage in 
all other investment advice transactions, including those involving 
captive or career insurance agents would rely on PTE 2020-02 to receive 
exemptive relief for investment advice transactions. The amendment 
would revise the recordkeeping requirements for all entities relying on 
PTE 84-24. Additionally, for Independent Producers, the exemption would 
require entities to make certain new disclosures, conduct an annual 
retrospective review, and comply with policy and procedure 
requirements.
    These requirements are ICRs subject to the PRA. Readers should note 
that the burden discussed below conforms to the requirements of the PRA 
and is not the incremental burden of the changes.\20\
---------------------------------------------------------------------------

    \20\ For a more detailed discussion of the marginal costs 
associated with the proposed amendments to PTE 84-24, refer to the 
Notice of Proposed Rulemaking published elsewhere in today's edition 
of the Federal Register.
---------------------------------------------------------------------------

1.1 Preliminary Assumptions

    In the analysis discussed below, a combination of personnel would 
perform the tasks associated with the ICRs at an hourly wage rate of 
$158.94 for an Independent Producer, $63.45 for clerical personnel, and 
$159.34 for a legal professional, and $128.11 for a senior 
executive.\21\
---------------------------------------------------------------------------

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

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

    \22\ 67 FR 17263 (Apr. 9, 2002).
    \23\ The Department estimates approximately 94.2% of Retirement 
Investors receive disclosures electronically, which is the sum of 
the estimated share of Retirement Investors receiving electronic 
disclosures under the 2002 electronic disclosure safe harbor (58.2%) 
and the estimated share of Retirement Investors receiving electronic 
disclosures under the 2020 electronic disclosure safe harbor 
(36.0%).
---------------------------------------------------------------------------

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

    \24\ United States Post Service, First-Class Mail, (2023), 
https://www.usps.com/ship/first-class-mail.htm.
---------------------------------------------------------------------------

1.2 Costs Associated With Satisfying Conditions for Transactions 
Described in Section III(a)-(f)

    Insurance agents and brokers, pension consultants, insurance 
companies, and investment company principal underwriters are expected 
to continue to take advantage of the exemption for transactions 
described in Section III(a)-(f). The Department estimates that 2,986 
insurance agents and brokers, pension consultants, and insurance 
companies will continue to take advantage of the exemption for 
transactions described in Section III(a)-(f). This estimate is based on 
the following assumptions:
    <bullet> According to the Insurance Information Institute, in 2022, 
there were 3,328 captive agents, which are insurance agents who work 
for only one insurance company.\25\ The Insurance Information Institute 
also found that life and annuity insurers accounted for 47.4 percent of 
all net premiums for the insurance industry in 2022.\26\ Thus, the 
Department estimates there are 1,577 insurance agents and brokers 
relying on the existing provisions.\27\
---------------------------------------------------------------------------

    \25\ Insurance Information Institute, A Firm Foundation: How 
Insurance Supports the Economy--Captives by State, 2021-2022, 
https://www.iii.org/publications/a-firm-foundation-how-insurance-supports-the-economy/a-50-state-commitment/captives-by-state (last 
visited August 25, 2023).
    \26\ Insurance Information Institute, Facts + Statistics: 
Industry Overview- Insurance Industry at-a-Glance, https://www.iii.org/fact-statistic/facts-statistics-industry-overview.
    \27\ The number of captive insurance agents is estimated as: 
(3,328 captive agents x 47.4%) = 1,577 captive insurance agents 
serving the annuity market.
---------------------------------------------------------------------------

    <bullet> 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.\28\
---------------------------------------------------------------------------

    \28\ Internal Department of Labor calculations based on the 
number of unique service providers listed as pension consultants on 
the 2021 Form 5500 Schedule C.
---------------------------------------------------------------------------

    <bullet> In the Department's 2016 Regulatory Impact Analysis, it 
estimated that 398 insurance companies wrote annuities.\29\ The 
Department requests information on how the number of insurance 
companies underwriting annuities has changed since then.
---------------------------------------------------------------------------

    \29\ This estimate is based on 2014 data from SNL Financial on 
life insurance companies that 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.)
---------------------------------------------------------------------------

    In addition, investment company principals may rely on the 
exemption. In the Department's experience, investment company principal 
underwriters almost never use PTE 84-24. Therefore, the Department 
assumes that 20 investment company principal underwriters will engage 
in one transaction annually under PTE 84-24, 10 of which are assumed to 
service plans and 10 are assumed to service IRAs.
    The Department requests comments on how many entities currently 
rely on PTE 84-24 for transactions that do not involve investment 
advice and would continue to rely on the exemption as amended.
    Further, the Department estimates that there are approximately 
765,124 ERISA covered pension plans \30\ and approximately 67.8 million 
IRAs.\31\ The Department estimates that 7.5 percent of plans are new 
accounts or new financial advice relationships \32\ and that 3 percent 
of plans will use the exemption for covered transactions.\33\ Based on 
these assumptions, the Department estimates that 1,722 plans would be

[[Page 76016]]

affected by the proposed amendments to PTE 84-24.\34\
---------------------------------------------------------------------------

    \30\ Employee Benefits Security Administration, United States 
Department of Labor, Private Pension Plan Bulletin: Abstract of 2021 
Form 5500 Annual Reports, Table A1 (2023; forthcoming).
    \31\ Cerulli Associates, 2023 Retirement-End Investor, Exhibit 
5.12. The Cerulli Report, (2023).
    \32\ EBSA identified 57,575 new plans in its 2021 Form 5500 
filings, or 7.5 percent of all Form 5500 pension plan filings.
    \33\ 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.
    \34\ 765,124 plans x 7.5 percent of plans are new x 3 percent of 
plans with relationships with insurance agents or pension 
consultants = 1,722 plans.
---------------------------------------------------------------------------

    The proposed amendments to 84-24 would also 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.\35\ Inferring from this statistic, the 
Department estimates 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.\36\ 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.\37\
---------------------------------------------------------------------------

    \35\ Cerulli Associates, U.S. Retirement End-Investor 2023: 
Fostering Comprehensive Relationships, The Cerulli Report.
    \36\ The 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 US 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 IRAs of each type or those who did 
not contribute in 2019, but it provides a lower bound.
    \37\ 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 reflect the removal of transactions not 
covered by this exemption. The number of IRAs affected is estimated 
as: (83,252,750 IRAs x 2.1% IRAs assumed to be new IRAs x 3% of IRAs 
held by insurance companies) = 52,449 IRAs.
---------------------------------------------------------------------------

    The proposed amendment would exclude entities currently relying on 
the exemption, under the existing provisions for investment advice. As 
such, the Department acknowledges that the estimates discussed above 
may overestimate the entities able to rely on the exemption for relief 
for the transactions described in Section III(a)-(f). The Department 
requests comment or data on whether the relief in proposed Section 
II(a) for the covered transactions in Section III(a)-(f) would still be 
utilized after investment advice is excluded.

1.2.1. Written Authorization From the Independent Plan Fiduciary

    Based on the estimates discussed above, the Department estimates 
that authorizing fiduciaries for 1,722 plans and authorizing 
fiduciaries for 52,449 IRA holders would be required to send an advance 
written authorization to the 2,996 financial institutions for IRAs \38\ 
for exemptive relief for the transactions described in Section III(a)-
(f).
---------------------------------------------------------------------------

    \38\ This includes 2,986 insurance agents and brokers, pension 
consultants, and insurance companies and 10 investment company 
underwriters servicing IRAs.
---------------------------------------------------------------------------

    In the plan universe, it is assumed that a legal professional would 
spend five hours per plan reviewing the disclosures and preparing an 
authorization form. In the IRA universe, it is assumed that a legal 
professional working on behalf of the financial institution for IRAs 
will spend three hours drafting an authorization form for IRA holders 
to sign. This results in an hour burden of 17,598 hours with an 
equivalent cost of $2.8 million.\39\
---------------------------------------------------------------------------

    \39\ The burden is estimated as: (1,722 plans x 5 hours) + 
(2,996 financial institutions x 3 hours) = 17,598 hours. A labor 
rate of approximately $159.34 is used for a legal professional. The 
labor rate is applied in the following calculation: [(1,722 plans x 
5 hours) + (2,996 financial institutions x 3 hours)] x $159.34 per 
hour = $2,804,065.
---------------------------------------------------------------------------

    The Department expects that plans will send the written 
authorization through already established electronic means, and thus, 
the Department does not expect plans to incur any cost to send the 
authorization. The Department expects that 94.2 percent of written 
authorization for IRAs will be sent electronically at no additional 
burden. The remaining 5.8 percent of authorizations will be mailed. For 
paper authorizations, the Department assumes that clerical staff will 
spend two minutes preparing and sending the authorization resulting in 
an hour burden of approximately 101 hours with an equivalent cost of 
$6,434.\40\
---------------------------------------------------------------------------

    \40\ The burden is estimated as: ((52,449 IRAs x 5.8 percent 
paper x 2 minutes per plan) / 60 minutes) = 101 hours. A labor rate 
of $63.45 is used for a clerical worker. The labor rate is applied 
in the following calculation: ((52,449 IRAs x 5.8 percent paper x 2 
minutes per plan) / 60 minutes) x $63.45 per hour = $6,434.
---------------------------------------------------------------------------

    In total, as presented in the table below, the written 
authorization requirement, under the new conditions of relief, is 
expected to result in an annual total hour burden of 17,699 hours with 
an equivalent cost of $2,810,499.

               Table 1--Hour Burden and Equivalent Cost Associated With the Written Authorization
----------------------------------------------------------------------------------------------------------------
                                               Year 1                              Subsequent years
                               ---------------------------------------------------------------------------------
           Activity                                Equivalent burden
                                   Burden hours           cost           Burden hours     Equivalent burden cost
----------------------------------------------------------------------------------------------------------------
Legal.........................             17,598         $2,804,065             17,598               $2,804,065
Clerical......................                101              6,434                101                    6,434
                               ---------------------------------------------------------------------------------
    Total.....................             17,699          2,810,499             17,699                2,810,499
----------------------------------------------------------------------------------------------------------------

    The Department assumes 5.8 percent of authorizations for IRAs would 
be distributed by mail and that the authorization will include two 
pages. Accordingly, the Department estimates an annual cost burden of 
approximately $2,312.\41\
---------------------------------------------------------------------------

    \41\ The material cost is estimated as: (52,449 IRA 
authorizations x 5.8 percent paper) x [$0.66 + ($0.05 x 2)] = 
$2,312.

                  Table 2--Material and Postage Cost Associated With the Written Authorization
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
              Activity               ---------------------------------------------------------------------------
                                            Pages               Cost              Pages               Cost
----------------------------------------------------------------------------------------------------------------
Material and Postage Cost...........                  2             $2,312                  2             $2,312
                                     ---------------------------------------------------------------------------

[[Page 76017]]

 
    Total...........................                  2              2,312                  2              2,312
----------------------------------------------------------------------------------------------------------------

1.2.2. Disclosure

    Based on the estimates discussed above, the Department estimates 
that approximately 3,006 financial institutions \42\ would continue to 
utilize the exemption for exemptive relief for the transactions 
described in Section III(a)-(f) for each plan and IRA. In total, the 
Department estimates that 2,996 entities would prepare disclosures for 
plans and 2,996 entities would prepare disclosures for IRAs. The 
Department assumes that an in-house attorney will spend one hour of 
legal staff time drafting the disclosure for plans and one hour of 
legal staff time drafting the disclosure for IRAs. This results in an 
hour burden of 5,992 hours with an equivalent cost of $954,765.\43\
---------------------------------------------------------------------------

    \42\ This includes 2,986 insurance agents and brokers, pension 
consultants, and insurance companies and 20 investment company 
underwriters servicing plans and IRAs.
    \43\ The burden is estimated as: [2,996 financial institutions x 
(1 hour for plans + 1 hour for IRAs)] = 5,992 hours. A labor rate of 
approximately $159.34 is used for a legal professional. The labor 
rate is applied in the following calculation: [2,996 financial 
institutions x (1 hour for plans + 1 hour for IRAs)] x $159.34 per 
hour = $954,765.
---------------------------------------------------------------------------

    The Department expects that the disclosures for plans would be 
distributed through already established electronic means, and thus, the 
Department does not expect plans to incur any cost to send the 
disclosures. The Department expects that 94.2 percent of disclosures 
for IRAs will be sent electronically at no additional burden. The 
remaining 5.8 percent of authorizations will be mailed. For paper 
copies, a clerical staff member is assumed to require two minutes to 
prepare and mail the required information to the plan fiduciary. This 
information will be sent to the 52,449 IRAs plus the 10 investment 
company principal underwriters for IRAs entering into an agreement with 
an insurance agent, pension consultant, or mutual fund principal 
underwriter, and based on the above, the Department estimates that this 
requirement results in an hour burden of 84 hours with an equivalent 
cost of $6,435.\44\
---------------------------------------------------------------------------

    \44\ The burden is estimated as: {[(52,449 IRAs + 10 investment 
company principal underwriters for IRAs) x 5.8 percent paper x 2 
minutes] / 60 minutes = 101 hours. A labor rate of $63.45 is used 
for a clerical worker. The labor rate is applied in the following 
calculation: {[(52,449 IRAs + 10 investment company principal 
underwriters for IRAs) x 5.8 percent paper x 2 minutes] / 60 
minutes{time}  x $63.45 = $6,435.
---------------------------------------------------------------------------

    In total, as presented in the table below, providing the pre-
authorization materials is expected to impose an annual total hour 
burden of 6,093 hours with an equivalent cost of $961,200.

                     Table 3--Hour Burden and Equivalent Cost Associated With the Disclosure
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Legal...............................              5,992           $954,765              5,992           $954,765
Clerical............................                101              6,435                101              6,435
                                     ---------------------------------------------------------------------------
    Total...........................              6,093            961,200              6,093            961,200
----------------------------------------------------------------------------------------------------------------

    The Department assumes that this information will include seven 
pages with 94.2 percent of disclosures distributed electronically 
through traditional electronic methods at no additional burden, and the 
remaining 5.8 percent of disclosures will be mailed. Accordingly, the 
Department estimates an annual cost burden of approximately $2,313.\45\
---------------------------------------------------------------------------

    \45\ The material cost is estimated as: [(52,449 IRA 
authorizations + 10 investment company principal underwriters for 
IRAs) x 5.8 percent paper] x [$0.66 + ($0.05 x 7)] = $2,313.

                        Table 4--Material and Postage Cost Associated With the Disclosure
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
                                                         Equivalent burden                     Equivalent burden
                                            Pages               cost              Pages               cost
----------------------------------------------------------------------------------------------------------------
Material and Postage Cost...........                  7             $2,313                  7             $2,313
                                     ---------------------------------------------------------------------------
    Total...........................                  7              2,313                  7              2,313
----------------------------------------------------------------------------------------------------------------

1.3 Costs Associated With Satisfying Conditions for Transactions 
Described in Section III(g)

    The amendment would provide investment advice fiduciaries with 
relief for Independent Producers for transactions in which the 
Independent Producer receives an insurance sales commission as a result 
of the provision of investment advice, regarding the purchase of an 
annuity contract of a financial institution that is not an Affiliate. 
The Department expects that the financial institutions covered by this 
proposal would be insurance companies that directly write annuities. 
The proposed amendments outline conditions pertaining to disclosure,

[[Page 76018]]

policies and procedures, and retrospective reviews that need to be 
satisfied to rely on the exemption. These conditions are tailored to 
protect Retirement Investors from the specific conflicts that arise for 
Independent Producers when providing investment advice to Retirement 
Investors regarding the purchase of an annuity.
    The Independent Insurance Agents and Brokers of America estimated 
that there were 40,000 Independent Producers in 2022.\46\ The 
Department does not have data on what percent of Independent Producers 
service the retirement market. For the purposes of this analysis, the 
Department assumes that 10 percent, or 4,000, of these Independent 
Producers service the retirement market. The Department requests 
comment on this assumption.
---------------------------------------------------------------------------

    \46\ Annemarie 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=79369803.5fd6a87d75ca95f942e9dc33fed281b9.1691447156981.1691447156981.1691447156981.1&__hssc=79369803.3.1691447156981&__hsfp=2180945085.
---------------------------------------------------------------------------

    Insurance companies are primarily regulated by states and no single 
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 Regulatory Impact Analysis, 
it estimated that 398 insurance companies wrote annuities.\47\ The 
Department requests information on how the number of insurance 
companies underwriting annuities has changed since then.
---------------------------------------------------------------------------

    \47\ This estimate is based on 2014 data from SNL Financial on 
life insurance companies reported receiving either individual or 
group annuity considerations. (See Conflict of Interest Final Rule, 
Regulatory Impact Analysis for Final Rule and Exemptions, U.S. 
Department of Labor (April 2016), www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB32-2/ria.pdf).
---------------------------------------------------------------------------

    Some of these insurance companies may not sell any annuity 
contracts in the IRA or plans. Because of these data limitations, the 
Department includes all 398 insurance companies in its cost estimate, 
though this likely represents an upper bound.
    Insurance companies sell insurance products through (1) captive 
insurance agents that work for an insurance company as employees or as 
independent contractors who exclusively sell the insurance company's 
products and (2) independent agents who sell multiple insurance 
companies' products. In recent years, the market has seen a shift away 
from captive distribution toward independent distribution.\48\
---------------------------------------------------------------------------

    \48\ 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/financial-services/our-insights/unbundling-value-how-leading-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/.
---------------------------------------------------------------------------

    The Department does not have 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 approximately 46 percent of insurance 
companies underwriting annuities sell annuities through captive 
distribution channels, while 54 percent sell annuities through 
independent distribution channels.\49\ For the purposes of this 
analysis, the Department estimates that 215 insurance companies 
distribute annuities through independent channels and would rely on PTE 
84-24 for transactions involving investment advice.\50\
---------------------------------------------------------------------------

    \49\ According to the Insurance Information Institute, in 2022, 
20 percent of individual annuities were sold through independent 
broker-dealers, 18 percent through independent agents, 15 percent 
through career agents, 24 percent through banks, 17 percent through 
full-service national broker-dealers, 3 percent through direct-
response, and 2 percent through other methods. 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 broker-dealers and independent agents 
to be ``independent.'' The Department assumes that 46 percent of 
sales by banks are captive, while 54 percent of sales by banks are 
independent. As such, the Department assumes that 46 percent of 
sales are sold through captive channels {[15% + 17% + (46% x 24%)]/
(100%-6%){time} , while 54 percent of sales are sold through 
independent channels {[20% + 18% + (54% x 24%)]/(100%-6%){time} .
    \50\ The number of insurance companies using captive 
distribution channels is estimated as (398 x 46%) = 183 insurance 
companies. The number of insurance companies using independent 
distribution channels is estimated as (398-183) = 215 insurance 
companies.
---------------------------------------------------------------------------

    The Department estimates that 70 of the 398 insurance companies are 
large entities.\51\ 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 the remaining 32 large insurance companies.\52\ 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.\53\ 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, or how many, 
insurance companies may rely on both methods of distribution.
---------------------------------------------------------------------------

    \51\ LIMRA estimates that, in 2016, 70 insurers had more than 
$38.5 million in sales, which is the Small Business Administration's 
threshold for a large entity within the insurance industry. (See 
LIMRA, U.S. Individual Annuity Yearbook: 2016 Data, LIMRA Secure 
Retirement Institute (2017)).
    \52\ The number of large insurance companies using a captive 
distribution channel is estimated as: (70 large insurance companies 
x 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.
    \53\ The number of large insurance companies using an 
independent distribution channel is estimated as: (70 large 
insurance companies x 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.
---------------------------------------------------------------------------

1.3.1 Disclosures

    As discussed above, the Department assumes that 4,000 Independent 
Producers service the retirement market, selling the products of 215 
insurance companies. 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. The 
Department assumes that these disclosures 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; however, the Department expects that the 
costs associated with the preparation would be covered by commissions 
retained by the intermediary for its services.
1.3.1.1. Written Acknowledgement That the Independent Producer Is a 
Fiduciary by the Independent Producer
    The Department is including a model statement in the preamble to 
PTE 84-24 that details what should be included in a fiduciary 
acknowledgment for

[[Page 76019]]

financial institutions.\54\ 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.
---------------------------------------------------------------------------

    \54\ 85 FR 82798, 82827 (Dec. 18, 2020). The model statement was 
also included in Frequently Asked Questions in April 2021, New 
Fiduciary Advice Exemption: PTE 2020-02 Improving Investment Advice 
for Workers & Retirees Frequently Asked Questions, Q13, (April 
2021), https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/new-fiduciary-advice-exemption.pdf.
---------------------------------------------------------------------------

    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 financial institutions as well as 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 hour burden of approximately 
69 with an equivalent cost of $11,021 in the first year.\55\
---------------------------------------------------------------------------

    \55\ The burden is estimated as: {[(215 financial institutions + 
200 Independent Producers) x (10 minutes)] / 60 minutes{time}  = 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 financial institutions + 200 Independent 
Producers) x (10 minutes)] / 60 minutes{time}  x $159.34 = $11,021.

             Table 5--Hour Burden and Equivalent Cost Associated With the Fiduciary Acknowledgement
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Legal...............................                 69            $11,021                  0                 $0
                                     ---------------------------------------------------------------------------
    Total...........................                 69             11,021                  0                  0
----------------------------------------------------------------------------------------------------------------

1.3.1.2 Written Statement of the Best Interest Standard of Care Owed by 
the Independent Producer
    As discussed above, the Department assumes that 4,000 Independent 
Producers service the retirement market, selling the products of 215 
financial institutions. Due to the nature of Independent Producers, the 
Department assumes that most financial institutions would make draft 
disclosures available to Independent Producers, pertaining to the 
annuities they offer. The Department assumes that an in-house attorney 
for all 215 financial institutions as well as 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 hour burden of 208 hours with an equivalent cost of 
$33,063 in the first year.\56\
---------------------------------------------------------------------------

    \56\ The burden is estimated as: {[(215 financial institutions + 
200 Independent Producers) x (30 minutes)] / 60 minutes{time}  = 208 
hours. A labor rate of approximately $159.34 is used for a legal 
professional. The labor rate is applied in the following 
calculation: {[(215 financial institutions + 200 Independent 
Producers) x (30 minutes)] / 60 minutes{time}  x $159.34 = $33,063.

 Table 6--Hour Burden and Equivalent Cost Associated With the Written Statement of the Best Interest Standard of
                                                    Care Owed
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Legal...............................                208            $33,063                  0                 $0
                                     ---------------------------------------------------------------------------
    Total...........................                208             33,063                  0                  0
----------------------------------------------------------------------------------------------------------------

1.3.1.2. Written Description of the Services Provided and the Products 
the Independent Producer Is Licensed and Authorized To Sell
    As discussed above, the Department assumes that 4,000 Independent 
Producers service the retirement market, selling the products of 215 
insurance companies. For disclosures tailored more specifically to an 
individual Independent Producer, the Department assumes that the 
disclosure would need to be prepared 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 commission retained by the intermediary 
for its services or by the fee paid to external legal support. As such, 
the Department still attributes this cost back 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 hour burden of 2,000 hours with 
an equivalent cost of $318,680 in the first year.\57\
---------------------------------------------------------------------------

    \57\ The burden is estimated as: (4,000 Independent Producers x 
0.5 hours) = 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 Producers x 0.5 hours) x 
$159.34 = $318,680.

[[Page 76020]]



      Table 7--Hour Burden and Equivalent Cost Associated With the Written Description of Service Provided
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Legal...............................              2,000           $318,680                  0                 $0
                                     ---------------------------------------------------------------------------
    Total...........................              2,000            318,680                  0                  0
----------------------------------------------------------------------------------------------------------------

    1.3.1.4. A Written Statement of the Independent Producer's Material 
Conflicts of Interest and the Amount of the Insurance Commission that 
Would Be Paid to the Independent Producer in Connection With the 
Purchase by a Retirement Investor of the Recommended Annuity
    As discussed above, for disclosures tailored more specifically to 
an individual Independent Producer, the Department assumes that the 
disclosure would need to be prepared by the Independent Producer. The 
Department recognizes that many Independent Producers may not have the 
internal resources to prepare such disclosure, however they may already 
have a similar statement 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 the commission 
retained by the intermediary for its services or by the fee paid to 
external legal support. As such, the Department still attributes this 
cost back 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 hour burden of 4,000 hours with an equivalent cost 
of $637,360 in the first year.\58\
---------------------------------------------------------------------------

    \58\ The burden is estimated as: (4,000 Independent Producers x 
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 hours x $159.34) = $637,360.

  Table 8--Hour Burden and Equivalent Cost Associated With the Written Statement of the Independent Producer's
                                         Material Conflicts of Interest
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Legal...............................              4,000           $637,360                  0                 $0
                                     ---------------------------------------------------------------------------
    Total...........................              4,000            637,360                  0                  0
----------------------------------------------------------------------------------------------------------------

1.3.1.5 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, the Independent Producer 
Must Document Its Conclusions as to Whether a Rollover Is in the 
Investor's Best Interest
    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.
    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. \59\
---------------------------------------------------------------------------

    \59\ 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 reflect the removal of transactions not 
covered by this exemption.). The number of IRAs affected is 
estimated as: (83,252,750 IRAs x 2.1% IRAs assumed to be new IRAs x 
3% of IRAs held by insurance companies) = 52,449 IRAs.
---------------------------------------------------------------------------

    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 
hour burden of 52,449 hours with an equivalent cost of $8.3 million 
annually.\60\
---------------------------------------------------------------------------

    \60\ The burden is estimated as: (52,449 rollovers x 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 x 1 hour) x $158.94 = $8,336,244.

[[Page 76021]]



               Table 9--Hour Burden and Equivalent Cost Associated With the Rollover Documentation
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Insurance Sales Agent...............             52,449         $8,336,244             52,449         $8,336,244
                                     ---------------------------------------------------------------------------
    Total...........................             52,449          8,336,244             52,449          8,336,244
----------------------------------------------------------------------------------------------------------------

1.3.1.6 Mailing Cost for Disclosures Sent From Independent Producers to 
Retirement Investors
    As discussed at the beginning of the cost section, The Department 
assumes that 5.8 percent of disclosures would be mailed. Accordingly, 
of the estimated 52,449 affected Retirement Investors, 3,042 Retirement 
Investors are estimated to receive paper disclosures.\61\ 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 hour burden of 254 hours with 
an equivalent cost of $16,085.\62\
---------------------------------------------------------------------------

    \61\ This is estimated as: (52,449 Retirement Investors x 5.8%) 
= 3,042 paper disclosures.
    \62\ This is estimated as: [(3,042 paper disclosures x 5 
minutes) / 60 minutes] = 254 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 x 5 minutes) / 60 minutes] x 
$63.45 = $16,085.

               Table 10--Hour Burden and Equivalent Cost Associated With Preparing the Disclosures
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Clerical............................                254            $16,085                254            $16,085
                                     ---------------------------------------------------------------------------
    Total...........................                254             16,085                254             16,085
----------------------------------------------------------------------------------------------------------------

    The Department assumes that this information would include seven 
pages, resulting in an annual cost burden for material and paper costs 
of $3,072.\63\
---------------------------------------------------------------------------

    \63\ This is estimated as: 3,042 rollovers resulting in a paper 
disclosure x [$0.66 postage + ($0.05 per page x 7 pages)] = $3,072.

                             Table 11--Material Cost Associated With the Disclosures
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                            Pages               cost              Pages               cost
----------------------------------------------------------------------------------------------------------------
Cost................................                  7             $3,072                  7             $3,072
                                     ---------------------------------------------------------------------------
    Total...........................                  7              3,072                  7              3,072
----------------------------------------------------------------------------------------------------------------

    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.

1.3.2 Policies and Procedures

1.3.2.1 Financial Institutions Must Establish, Maintain, and Enforce 
Written Policies and Procedures for the Review of Each Recommendation 
Before an Annuity Is Issued to a Retirement Investor, and the Financial 
Institution Review Its Policies and Procedures at Least Annually
    As discussed above, the Department estimates that 215 financial 
institutions would need to meet this requirement, of which 177 are 
estimated to be small and 38 are estimated to be large.\64\ The 
Department assumes that, for each large insurance company, an in-house 
attorney would spend 10 hours of legal staff time drafting the written 
description, and for each small insurance company, an in-house attorney 
would spend 5 hours of legal staff time. This results in an hour burden 
of 1,265 hours with an equivalent cost of $201,565 in the first 
year.\65\
---------------------------------------------------------------------------

    \64\ The number of large insurance companies using an 
independent distribution channel is estimated as: (70 large 
insurance companies x 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.
    \65\ This is estimated as: [(177 small insurance companies x 5 
hours) + (38 large insurance companies x 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 x 5 hours) + (38 large insurance companies x 10 hours)] x 
$159.34 = $201,565.
---------------------------------------------------------------------------

    In the following years, the Department assumes for each insurance 
company, an in-house attorney would spend two hours of legal staff time 
reviewing the policies and procedures. This results in an hour burden 
of 430 hours with an

[[Page 76022]]

equivalent cost of $68,516 in subsequent years.\66\
---------------------------------------------------------------------------

    \66\ This is estimated as: (215 insurance companies x 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 x 2 hours) x $159.34 = $68,516.
---------------------------------------------------------------------------

    The proposed amendments would also require financial institutions 
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.\67\ This results in an estimated cost of approximately $32 in 
the first year \68\ and $16 in subsequent years.\69\
---------------------------------------------------------------------------

    \67\ The number of requests in the first year is estimated as 
215 insurance companies x (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 x (50 requests in PTE 2020-02/19,290 financial 
institutions in PTE 2020-02) = 1 request.
    \68\ The burden is estimated as: [(2 x 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 x 15 
minutes) / 60 minutes] x $63.45 = $31.73.
    \69\ The burden is estimated as: [(1 x 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 x 15 
minutes) / 60 minutes] x $63.45 = $15.86.
---------------------------------------------------------------------------

    Insurers would also be required 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. This requirement is consistent with 
the language in NAIC's 2010 Model Regulation 275, Suitability in 
Annuity Transactions,\70\ and the 2020 revisions to Model Regulation 
275, which expanded the suitability standard to a best interest 
standard.\71\ Most states have adopted some form of the Model 
Regulation 275.\72\ As such, the Department expects that reviewing 
recommendations before an annuity is issued is common industry 
practice. Accordingly, the Department expects that financial 
institutions would incur a de minimis burden to comply with the 
proposed amendments, when already complying with Model Regulation 275. 
The Department requests comment on this assumption.
---------------------------------------------------------------------------

    \70\ NAIC Model Suitability Regulations, Sec.  6(F)(1)(d) 
(2010), https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/25201.
    \71\ NAIC Model Suitability Regulations, Sec.  6(C)(1)(d) 
(2020), https://content.naic.org/sites/default/files/inline-files/MDL-275.pdf.
    \72\ As of October of 2021, only three states had not adopted 
some form of Model Regulation 275. (See A.D. Banker & Company, 
Annuity Best Interest State Map and FAQs, (October 2021), https://blog.adbanker.com/annuity-best-interest-state-map-and-faqs).

                Table 12--Hour Burden and Equivalent Cost Associated With Policies and Procedures
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Legal...............................              1,265           $201,565                430            $68,516
Clerical............................                  1                 32                  1                 16
                                     ---------------------------------------------------------------------------
    Total...........................              1,266            201,597                430             68,532
----------------------------------------------------------------------------------------------------------------

1.3.3. Retrospective Review
    The proposed amendment would require financial institutions to 
conduct a retrospective review at least annually. The review would be 
required to be reasonably designed to 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. Financial institutions would also be required 
to provide the Independent Producer with the underlying methodology and 
results of the retrospective review.
1.3.3.1. The Insurance Company Must Conduct a Retrospective Review, at 
Least Annually, for Each Independent Producer That Sells the Insurance 
Company's Annuity Contracts
    The Department estimates that 215 financial institutions would need 
to meet this requirement. For this requirement the information 
collection is documenting the findings of the retrospective review. The 
Departments lacks data on, for a given insurance company, how many 
Independent Producers, on average, sell their annuities. For the 
purposes of this analysis, the Department assumes that, on average, 
each Independent Producer sells the products of three financial 
institutions. From each of these financial institutions, they may sell 
multiple products. As such, the Department assumes that each year, 
insurance companies would need to prepare a total of 12,000 
retrospective reviews,\73\ or on average, each insurance company would 
need to prepare approximately 56 retrospective reviews.\74\ The 
Department requests comment on this estimate. The Department assumes 
that, for each Independent Producer selling an insurance company's 
products, an in-house attorney at the insurance company would spend one 
hour of legal staff time, on average, drafting the retrospective 
review. This results in an estimated hour burden of 12,000 hours with 
an equivalent cost of $1.9 million.\75\
---------------------------------------------------------------------------

    \73\ This is estimated as: (4,000 Independent Producers x 3 
insurance companies covered) = 12,000 retrospective reviews.
    \74\ This is estimated as: (12,000/215) = 55.81 retrospective 
reviews, on average
    \75\ This is estimated as: (12,000 retrospective reviews x 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 x 1 hour) x $159.34 = 
$1,912,080.

[[Page 76023]]



               Table 13--Hour Burden and Equivalent Cost Associated With the Retrospective Review
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden Hours           cost
----------------------------------------------------------------------------------------------------------------
Legal...............................             12,000         $1,912,080             12,000         $1,912,080
                                     ---------------------------------------------------------------------------
    Total...........................             12,000          1,912,080             12,000          1,912,080
----------------------------------------------------------------------------------------------------------------

1.3.3.2. Certification by the Senior Executive Officer of the Insurance 
Company
    The Department assumes it would take a Senior Executive Officer 15 
minutes to certify the report. This results in an annual hour burden of 
3,000 hours with an equivalent cost of $384,330.\76\
---------------------------------------------------------------------------

    \76\ This is estimated as: [(12,000 retrospective reviews x 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 x 15 
minutes) / 60 minutes] x $128.11 = $384,330.

   Table 14--Hour Burden and Equivalent Cost Associated With the Certification by the Senior Executive Officer
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Senior Executive Officer............              3,000           $384,330              3,000           $384,330
                                     ---------------------------------------------------------------------------
    Total...........................              3,000            384,330              3,000            384,330
----------------------------------------------------------------------------------------------------------------

1.3.3.3. The Insurance Company Provides to the Independent Producer the 
Methodology and Results of the Retrospective Review
    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 to prepare and send each of the estimated 
12,000 retrospective reviews. This results in an annual hour burden of 
1,000 hours with an equivalent cost of $63,450.\77\ 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.
---------------------------------------------------------------------------

    \77\ This is estimated as: [(12,000 retrospective reviews x 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 x 5 minutes) / 60 
minutes] x $63.45 = $63,450.

   Table 15--Hour Burden and Equivalent Cost Associated With the Provision of the Results of the Retrospective
                                                     Review
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Clerical............................              1,000            $63,450              1,000            $63,450
                                     ---------------------------------------------------------------------------
    Total...........................              1,000             63,450              1,000             63,450
----------------------------------------------------------------------------------------------------------------

1.3.4. Recordkeeping Requirement
    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 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 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.

[[Page 76024]]

    For this analysis, the Department 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 for the financial 
institutions to be consistent with the exemption would take an 
Independent Producer 2 hours, resulting in an hour burden of 8,430 
hours and an equivalent cost of $1.3 million.\78\
---------------------------------------------------------------------------

    \78\ This is estimated as: (4,000 Independent Producers + 215 
insurance companies) x 2 hours = 8,430 hours. A labor rate of 
$158.94 is used for an Independent Producer and a rate of $159.34 
for an insurance company legal professional. The labor rate is 
applied in the following calculation: [(4,000 Independent Producers 
x 2 hours x $158.94) + (215 insurance companies x 2 hours x 
$159.34)] = $1,340,036.

             Table 16--Hour Burden and Equivalent Cost Associated With the Recordkeeping Requirement
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Legal...............................              8,430         $1,340,036              8,430         $1,340,036
                                     ---------------------------------------------------------------------------
    Total...........................              8,430          1,340,036              8,430          1,340,036
----------------------------------------------------------------------------------------------------------------

    For the purposes of this analysis, the Department assumes that, on 
average, an 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 hour burden of 20,000 hours with an equivalent cost of 
approximately $3.2 million.\79\ The Department requests comment on how 
often financial institutions would receive requests for records and how 
long the preparation of such records would take.
---------------------------------------------------------------------------

    \79\ The burden is estimated as: {[(4,000 Independent Producers 
x 10 requests) x 30 minutes] / 60 minutes{time}  = 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 x 10 requests) x 30 minutes] / 60 minutes{time}  x $158.94 
= $3,178,800.

             Table 17--Hour Burden and Equivalent Cost Associated With the Recordkeeping Requirement
----------------------------------------------------------------------------------------------------------------
                                                     Year 1                           Subsequent years
                                     ---------------------------------------------------------------------------
              Activity                                   Equivalent burden                     Equivalent burden
                                         Burden hours           cost           Burden hours           cost
----------------------------------------------------------------------------------------------------------------
Independent Producer................             20,000         $3,178,800             20,000         $3,178,800
                                     ---------------------------------------------------------------------------
    Total...........................             20,000          3,178,800             20,000          3,178,800
----------------------------------------------------------------------------------------------------------------

1.4. Overall Summary

    These paperwork burden estimates are summarized as follows:
    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.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \80\ 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.\81\ Under section 603 of the RFA, agencies must submit an initial 
regulatory flexibility analysis (IRFA) of a proposal that is likely to 
have a significant economic impact on a substantial number of small 
entities, such as small businesses, organizations, and governmental 
jurisdictions. This proposed amended exemption, along with related 
amended exemptions and a proposed rule amendment published elsewhere in 
this issue of the Federal Register, is part of a rulemaking regarding 
the definition of fiduciary investment advice, which the Department has 
determined likely will have a significant economic impact on a 
substantial number of small entities. The impact of this proposed 
amendment on small entities is included in the IRFA for the entire 
project, which can be found in the related notice of proposed 
rulemaking found elsewhere in this edition of the Federal Register.
---------------------------------------------------------------------------

    \80\ 5 U.S.C. 601 et seq.
    \81\ 5 U.S.C. 601(2), 603(a); see also 5 U.S.C. 551.
---------------------------------------------------------------------------

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 \82\ requires 
each federal agency to prepare a written statement assessing the 
effects of any federal mandate in a proposed or final rule that may 
result in an expenditure of $100 million or more (adjusted annually for 
inflation with the base year 1995) in any 1 year by state, local, and 
tribal governments, in the aggregate, or by the private sector. For 
purposes of the Unfunded Mandates Reform Act, as well as Executive 
Order 12875, this proposed amended exemption does not include any 
Federal mandate that will result in such expenditures.
---------------------------------------------------------------------------

    \82\ Public Law 104-4, 109 Stat. 48 (Jan. 4, 1995).

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

[[Page 76025]]

Federalism Statement

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

General Information

    The attention of interested persons is directed to the following: 
(1) The fact that a transaction is the subject of an exemption under 
ERISA section 408(a) and Code section 4975(c)(2) does not relieve a 
fiduciary, or other party in interest or disqualified person with 
respect to a Plan, from certain other provisions of ERISA and the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
ERISA section 404 which require, among other things, that a fiduciary 
act prudently and discharge his or her duties respecting the Plan 
solely in the interests of the participants and beneficiaries of the 
Plan. Additionally, the fact that a transaction is the subject of an 
exemption does not affect the requirement of Code section 401(a) that 
the Plan must operate for the exclusive benefit of the employees of the 
employer maintaining the Plan and their beneficiaries; (2) Before the 
proposed exemption may be granted under ERISA section 408(a) and Code 
section 4975(c)(2), the Department must find that it is 
administratively feasible, in the interests of Plans and their 
participants and beneficiaries and IRA owners, and protective of the 
rights of participants and beneficiaries of the Plan and IRA owners; 
(3) If granted, the proposed exemption is applicable to a particular 
transaction only if the transaction satisfies the conditions specified 
in the exemption; and (4) The proposed exemption, if granted, is 
supplemental to, and not in derogation of, any other provisions of 
ERISA and the Code, including statutory or administrative exemptions 
and transitional rules. Furthermore, the fact that a transaction is 
subject to an administrative or statutory exemption is not dispositive 
of whether the transaction is in fact a prohibited transaction.
    The Department is proposing the following amendment on its own 
motion, pursuant to its authority under ERISA section 408(a) and Code 
section 4975(c)(2) and in accordance with procedures set forth in 29 
CFR part 2570, subpart B (76 FR 66637 (October 27, 2011)).\83\
---------------------------------------------------------------------------

    \83\ Reorganization Plan No. 4 of 1978 (5 U.S.C. App. 1 (2018)) 
generally transferred the authority of the Secretary of the Treasury 
to grant administrative exemptions under Code section 4975 to the 
Secretary of Labor.
---------------------------------------------------------------------------

Proposed Amendment to PTE 84-24

Section I--Retroactive Application

    The restrictions of sections 406(a)(1)(A) through (D) and 406(b) of 
the Act and the taxes imposed by section 4975 of the Code do not apply 
to any of the transactions described in section III of this exemption 
in connection with purchases made before November 1, 1977, if the 
conditions set forth in section IV are met.

Section II--Prospective Application

    (a) Except for fiduciaries providing investment advice within the 
meaning of ERISA section 3(21)(A)(ii) or Code section 4975(e)(3)(B) and 
regulations thereunder, the restrictions of section 406(a)(1)(A) 
through (D) and 406(b) of the Act and the taxes imposed by section 4975 
of the Code do not apply to any of the transactions described in 
section III(a)-(f) of this exemption in connection with purchases made 
after October 31, 1977, if the conditions set forth in sections IV, V 
and IX are met.
    (b) Effective on the date that is 60 days after the publication of 
a final amendment in the Federal Register, the restrictions of ERISA 
sections 406(a)(1)(D) and 406(b) and the taxes imposed by Code section 
4975(a) and (b) by reason of Code sections 4975(c)(1)(E) and (F) for 
fiduciaries providing investment advice within the meaning of ERISA 
section 3(21)(A)(ii) or Code section 4975(e)(3)(B) and regulations 
thereunder will not apply if the fiduciaries are Independent Producers, 
the transactions meet the requirements described in Section III(g), the 
conditions set forth in Sections VI, VII and IX are satisfied, and the 
Independent Producer and Insurer are not ineligible under Section VIII.

Section III--Transactions

    (a) The receipt, directly or indirectly, by an insurance agent or 
broker or a pension consultant of a Mutual Fund Commission or an 
Insurance Sales Commission from an insurance company in connection with 
the purchase, with plan assets, of an insurance or annuity contract.
    (b) The receipt of a Mutual Fund Commission by a Principal 
Underwriter for an investment company registered under the Investment 
Company Act of 1940 (hereinafter referred to as an investment company) 
in connection with the purchase, with plan assets, of securities issued 
by an investment company.
    (c) The effecting by an insurance agent or broker, pension 
consultant or investment company Principal Underwriter of a transaction 
for the purchase, with plan assets, of an insurance or annuity contract 
or securities issued by an investment company.
    (d) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company.
    (e) The purchase, with plan assets, of an insurance or annuity 
contract from an insurance company which is a fiduciary or a service 
provider (or both) with respect to the plan solely by reason of the 
sponsorship of a Pre-approved Plan.
    (f) The purchase, with plan assets, of securities issued by an 
investment company from, or the sale of such securities to, an 
investment company or an investment company Principal Underwriter, when 
such investment company, Principal Underwriter, or the investment 
company investment adviser is a fiduciary or a service provider (or 
both) with respect to the plan solely by reason of: (1) the sponsorship 
of a Pre-approved plan; or (2) the provision of Nondiscretionary Trust 
Services to the plan; or (3) both (1) and (2).
    (g) The receipt, directly or indirectly, by an Independent Producer 
of an Insurance Sales Commission as a result

[[Page 76026]]

of the provision of investment advice within the meaning of ERISA 
section 3(21)(A)(ii) and Code section 4975(e)(3)(B), regarding the 
purchase of a non-security annuity contract or other insurance product 
not regulated by the Securities and Exchange Commission (SEC) of an 
Insurer that is not an Affiliate, including as part of a rollover from 
a Plan to an IRA as defined in Code section 4975(e)(1)(B) or (C).

Section IV--Conditions With Respect to Transactions Described in 
Section III(a)-(f)

    The following conditions apply solely to a transaction described in 
Section III(a)-(f):
    (a) The transaction is effected by the insurance agent or broker, 
pension consultant, insurance company or investment company Principal 
Underwriter in the ordinary course of its business as such a person.
    (b) The transaction is on terms at least as favorable to the plan 
as an arm's-length transaction with an unrelated party would be.
    (c) The combined total of all fees, commissions and other 
consideration received by the insurance agent or broker, pension 
consultant, insurance company, or investment company Principal 
Underwriter:
    (1) For the provision of services to the plan; and
    (2) In connection with the purchase of insurance or annuity 
contracts or securities issued by an investment company is not in 
excess of ``reasonable compensation'' within the contemplation of 
section 408(b)(2) and 408(c)(2) of the Act and sections 4975(d)(2) and 
4975(d)(10) of the Code. If such total is in excess of ``reasonable 
compensation,'' the ``amount involved'' for purposes of the civil 
penalties of section 502(i) of the Act and the excise taxes imposed by 
section 4975(a) and (b) of the Code is the amount of compensation in 
excess of ``reasonable compensation.''

Section V--Conditions for Transactions Described in Section III(a) 
Through (d)

    The following conditions apply solely to a transaction described in 
subsections (a), (b), (c) or (d) of section III:
    (a) The insurance agent or broker, pension consultant, insurance 
company, or investment company Principal Underwriter is not
    (1) a trustee of the plan (other than a Nondiscretionary Trustee 
who does not render investment advice with respect to any assets of the 
plan),
    (2) a plan administrator (within the meaning of section 3(16)(A) of 
the Act and section 414(g) of the Code),
    (3) a fiduciary who is authorized to manage, acquire, or dispose of 
the plan's assets on a discretionary basis, or
    (4) for transactions described in sections III (a) through (d) 
entered into after December 31, 1978, an employer any of whose 
employees are covered by the plan.
    Notwithstanding the above, an insurance agent or broker, pension 
consultant, insurance company, or investment company Principal 
Underwriter that is affiliated with a trustee or an investment manager 
(within the meaning of section VI(b)) with respect to a plan may engage 
in a transaction described in section III(a) through (d) of this 
exemption on behalf of the plan if such trustee or investment manager 
has no discretionary authority or control over the plan assets involved 
in the transaction other than as a Nondiscretionary Trustee.
    (b)(1) With respect to a transaction involving the purchase with 
plan assets of an insurance or annuity contract or the receipt of an 
Insurance Sales Commission thereon, the insurance agent or broker or 
pension consultant provides to an independent fiduciary or IRA owner 
with respect to the plan prior to the execution of the transaction the 
following information in writing and in a form calculated to be 
understood by a plan fiduciary who has no special expertise in 
insurance or investment matters:
    (A) If the agent, broker, or consultant is an affiliate of the 
insurance company whose contract is being recommended, or if the 
ability of such agent, broker or consultant to recommend insurance or 
annuity contracts is limited by any agreement with such insurance 
company, the nature of such affiliation, limitation, or relationship;
    (B) The Insurance Sales Commission, expressed as a percentage of 
gross annual premium payments for the first year and for each of the 
succeeding renewal years, that will be paid by the insurance company to 
the agent, broker or consultant in connection with the purchase of the 
recommended contract; and
    (C) For purchases made after June 30, 1979, a description of any 
charges, fees, discounts, penalties or adjustments which may be imposed 
under the recommended contract in connection with the purchase, 
holding, exchange, termination or sale of such contract.
    (2) Following the receipt of the information required to be 
disclosed in subsection (b)(1), and prior to the execution of the 
transaction, the independent fiduciary or IRA owner acknowledges in 
writing receipt of such information and approves the transaction on 
behalf of the plan. Such fiduciary may be an employer of employees 
covered by the plan, but may not be an insurance agent or broker, 
pension consultant or insurance company involved in the transaction. 
Such fiduciary may not receive, directly or indirectly (e.g., through 
an Affiliate), any compensation or other consideration for his or her 
own personal account from any party dealing with the plan in connection 
with the transaction.
    (c)(1) With respect to a transaction involving the purchase with 
plan assets of securities issued by an investment company or the 
receipt of a Mutual Fund Commission thereon by an investment company 
Principal Underwriter, the investment company Principal Underwriter 
provides to an Independent fiduciary or IRA owner with respect to the 
plan, prior to the execution of the transaction, the following 
information in writing and in a form calculated to be understood by a 
plan fiduciary who has no special expertise in insurance or investment 
matters:
    (A) If the person recommending securities issued by an investment 
company is the Principal Underwriter of the investment company whose 
securities are being recommended, the nature of such relationship and 
of any limitation it places upon the Principal Underwriter's ability to 
recommend investment company securities;
    (B) The Mutual Fund Commission, expressed as a percentage of the 
dollar amount of the plan's gross payment and of the amount actually 
invested, that will be received by the Principal Underwriter in 
connection with the purchase of the recommended securities issued by 
the investment company; and
    (C) For purchases made after December 31, 1978, a description of 
any charges, fees, discounts, penalties, or adjustments which may be 
imposed under the recommended securities in connection with the 
purchase, holding, exchange, termination or sale of such securities.
    (2) Following the receipt of the information required to be 
disclosed in subsection (c)(1), and prior to the execution of the 
transaction, the independent fiduciary or IRA owner approves the 
transaction on behalf of the plan. Unless facts or circumstances would 
indicate the contrary, such approval may be presumed if the fiduciary 
or IRA owner permits the transaction to proceed after receipt of the 
written disclosure. Such fiduciary may be an employer of employees 
covered by the plan, but may not be a Principal Underwriter involved in 
the

[[Page 76027]]

transaction. Such fiduciary may not receive, directly or indirectly 
(e.g., through an affiliate), any compensation or other consideration 
for his or her own personal account from any party dealing with the 
plan in connection with the transaction.
    (d) With respect to additional purchases of insurance or annuity 
contracts or securities issued by an investment company, the written 
disclosure required under subsections (b) and (c) of this section V 
need not be repeated, unless--
    (1) More than three years have passed since such disclosure was 
made with respect to the same kind of contract or security, or
    (2) The contract or security being recommended for purchase or the 
commission with respect thereto is materially different from that for 
which the approval described in subsections (b) and (c) of this section 
was obtained.

Section VI--Conditions for Transactions Described in Section III(g)

    The following conditions apply solely to a transaction described in 
subsection (g) of section III:
    (a) The Independent Producer is authorized to sell annuities from 
two or more unrelated Insurers.
    (b) The Independent Producer and the Insurer satisfy the applicable 
conditions in Sections VII and IX and are not ineligible under Section 
VIII. The Insurer will not necessarily become a fiduciary under ERISA 
or the Code merely by complying with the exemption's conditions.
    (c) Exclusions.
    The relief in Section III(g) is not available if:
    (1) The Plan is covered by Title I of ERISA and the Independent 
Producer, Insurer, or any Affiliate is:
    (A) the employer of employees covered by the Plan, or
    (B) the Plan's named fiduciary or administrator; provided however 
that a named fiduciary or administrator or their Affiliate may rely on 
the exemption if it is selected to provide investment advice by a 
fiduciary who:
    (i) is not the Insurer, Independent Producer, or an Affiliate;
    (ii) does not have a relationship to or an interest in the Insurer, 
Independent Producer, or any Affiliate that might affect the exercise 
of the fiduciary's best judgment in connection with transactions 
covered by the exemption;
    (iii) does not receive and is not projected to receive within the 
current federal income tax year, compensation or other consideration 
for their own account from the Insurer, Independent Producer, or an 
Affiliate in excess of two (2) percent of the fiduciary's annual 
revenues based upon its prior income tax year; or
    (iv) is not the IRA owner or beneficiary; or
    (2) The Independent Producer transaction involves the Independent 
Producer and Insurer acting in a fiduciary capacity other than as an 
investment advice fiduciary within the meaning of ERISA section 
3(21)(A)(ii) and Code section 4975(e)(3)(B).

Section VII--Investment Advice Arrangement

    Section VII(a) requires Independent Producers to comply with 
Impartial Conduct Standards, including a Best Interest standard, when 
providing fiduciary investment advice to Retirement Investors. Section 
VII(b) requires Independent Producers to provide to Retirement 
Investors a written acknowledgement that the Independent Producer is a 
fiduciary under Title I of ERISA and/or the Code, a written statement 
of the Best Interest standard of care, a written description of the 
services they will provide and the products they are licensed and 
authorized to sell, and a written statement of their material Conflicts 
of Interest and the amount of the Insurance Commission that will be 
paid to them in connection with the purchase of the recommended annuity 
by a Retirement Investor. In addition, before the sale of a recommended 
annuity, Independent Producers must consider and document their 
conclusions as to whether the recommended annuity is in the Best 
Interest of the Retirement Investor. Independent Producers recommending 
a rollover must also provide additional disclosure as set forth in 
subsection (b), below. Section VII(c) requires Insurers to adopt 
policies and procedures prudently designed to ensure compliance with 
the Impartial Conduct Standards and other conditions of this exemption. 
Section VII(d) requires the Insurer to conduct a retrospective review, 
at least annually, that is reasonably designed to detect and prevent 
violations of, and achieve compliance with, the Impartial Conduct 
Standards and the terms of this exemption. Section VII(e) allows 
Independent Producers to correct certain violations of the exemption 
conditions and maintain relief under the exemption. In complying with 
this Section VII, the Independent Producer may reasonably rely on 
factual representations from the Insurer, and Insurers may rely on 
factual representations from the Independent Producer, as long as they 
do not have knowledge that such factual representations are incomplete 
or inaccurate.
(a) Impartial Conduct Standards
    (1) The Independent Producer's investment advice is, at the time it 
is provided, in the Retirement Investor's Best Interest. As defined in 
Section X(b), advice is in the Retirement Investor's Best Interest if 
it (A) reflects the care, skill, prudence, and diligence under the 
circumstances then prevailing that a prudent person acting in a like 
capacity and familiar with such matters would use in the conduct of an 
enterprise of a like character and with like aims, based on the 
investment objectives, risk tolerance, financial circumstances, and 
needs of the Retirement Investor, and (B) does not place the financial 
or other interests of the Independent Producer, Insurer or any 
Affiliate, Related Entity, or other party ahead of the Retirement 
Investor's interests, or subordinate the Retirement Investor's 
interests to those of the Independent Producer, Insurer or any 
Affiliate, Related Entity, or other party. For example, in choosing 
between annuity products offered by Insurers, whose products the 
Independent Producer is authorized to sell, it is not permissible for 
the Independent Producer to recommend a product that is worse for the 
Retirement Investor, but better or more profitable for the Independent 
Producer or the Insurer;
    (2) The Independent Producer receives no compensation in connection 
with the transaction other than the Insurance Sales Commission, and the 
Insurance Sales Commission does not exceed reasonable compensation 
within the meaning of ERISA section 408(b)(2) and Code section 
4975(d)(2); and
    (3) The Independent Producer's statements to the Retirement 
Investor about the recommended transaction and other relevant matters 
are not, at the time the statements are made, materially misleading. 
For purposes of this subsection, the term ``materially misleading'' 
includes omitting information that is needed to make the statement not 
misleading in light of the circumstances under which it was made.
(b) Disclosure
    Prior to engaging in a transaction described in Section III(g), the 
Independent Producer provides the disclosures set forth in paragraphs 
(1)-(5) to the Retirement Investor:
    (1) A written acknowledgment that the Independent Producer is a 
fiduciary under Title I and the Code, as applicable, with respect to 
any investment recommendation provided

[[Page 76028]]

by the Independent Producer to the Retirement Investor;
    (2) A written statement of the Best Interest standard of care owed 
by the Independent Producer to the Retirement Investor;
    (3) A written description of the services to be provided and the 
Independent Producer's material Conflicts of Interest that is accurate 
and not misleading in any material respects. The description will 
include the products the Independent Producer is licensed and 
authorized to sell. The description must inform the Retirement Investor 
in writing of any limits on the range of insurance products 
recommended. The Independent Producer must identify the specific 
Insurers and specific insurance products available for recommendation.
    (4) A written statement of the amount of the Insurance Commission 
that will be paid to the Independent Producer in connection with the 
purchase by a Retirement Investor of the recommended annuity. The 
statement must disclose the amount of expected Insurance Sales 
Commission, expressed both in dollars and as a percentage of gross 
annual premium payments, if applicable, for the first year and for each 
of the succeeding years.
    (5) 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 materially accurate disclosure of their 
scope, magnitude, nature with in 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 describe how the Retirement Investor can get the 
information, free of charge.
    (6) Before the sale of a recommended annuity, the Independent 
Producer considers and documents its conclusions as to whether the 
recommended annuity is in the Best Interest of the Retirement Investor 
and provides that documentation to both the Retirement Investor and to 
the Insurer;
    (7) Rollover disclosure. Before engaging in a rollover or making a 
recommendation to a Plan participant as to the post-rollover investment 
of assets currently held in a Plan, the Independent Producer must 
consider and document its conclusions as to whether a rollover is in 
the Retirement Investor's Best Interest and provide that documentation 
to both the Retirement Investor and to Insurer. Relevant factors to 
consider must include to the extent applicable, but in any event are 
not limited to:
    (A) the alternatives to a rollover, including leaving the money in 
the Plan, if applicable;
    (B) the comparative fees and expenses;
    (C) whether an employer or other party pays for some or all 
administrative expenses; and
    (D) the different levels of fiduciary protection, services, and 
investments available.
    (6) Independent Producers and Insurers may rely in good faith on 
information and assurances from the other entities that are not 
Affiliates as long as they do not know (or have a reason to know) that 
such information is incomplete or inaccurate.
    (8) The Independent Producer is not required to disclose 
information pursuant to this Section VII(b) if such disclosure is 
otherwise prohibited by law.
(c) Policies and Procedures
    (1) The Insurer establishes, maintains, and enforces written 
policies and procedures for the review of each recommendation before an 
annuity is issued to a Retirement Investor pursuant to an Independent 
Producer's recommendation that are prudently designed to ensure 
compliance with the Impartial Conduct Standards and other exemption 
conditions. The Insurer's prudent review of the Independent Producer's 
specific recommendations must be made without regard to the Insurer's 
own interests. An Insurer is not required to supervise an Independent 
Producer's recommendations to Retirement Investors of products other 
than annuities offered by the Insurer.
    (2) The Insurer's policies and procedures mitigate Conflicts of 
Interest to the extent that a reasonable person reviewing the policies 
and procedures and incentive practices as a whole would conclude that 
they do not create an incentive for the Independent Producer to place 
its interests, or those of the Insurer, or any Affiliate or Related 
Entity, ahead of the interests of the Retirement Investor. The 
Insurer's procedures identify and eliminate quotas, appraisals, 
performance or personnel actions, bonuses, contests, special awards, 
differential compensation, or other similar actions or incentives that 
are intended, or that a reasonable person would conclude are likely, to 
result in recommendations that are not in the Retirement Investor's 
Best Interest, or that subordinate the interests of the Retirement 
Investor to the Independent Producer's own interests, or those of the 
Insurer, or to make recommendations based on the Independent Producer's 
considerations of factors or interests other than the investment 
objectives, risk tolerance, financial circumstances, and needs of the 
Retirement Investor.
    (3) The Insurer's policies and procedures include a prudent process 
for determining whether to authorize an Independent Producer to sell 
the Insurer'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. A 
prudent process includes careful review of customer complaints, 
disciplinary history, and regulatory actions concerning the Independent 
Producer, as well as the Insurer's review of the Independent Producer's 
training, education, and conduct with respect to the Insurer's own 
products. The Insurer must document the basis for its initial 
determination that it can rely on the Independent Producer to adhere to 
the Impartial Conduct Standards, and must review that determination at 
least annually as part of the retrospective review set forth in 
subsection (d) below.
    (4) Insurers must provide their complete policies and procedures to 
the Department within 10 business days of request.
(d) Retrospective Review
    (1) The Insurer conducts a retrospective review, at least annually, 
that is reasonably designed to detect and prevent violations of, and 
achieve compliance with the conditions of the exemption, including the 
Impartial Conduct Standards, and the policies and procedures governing 
compliance with the exemption, including the effectiveness of the 
supervision system, the exceptions found, and corrective action 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 Insurer must 
prudently determine whether to continue to permit individual 
Independent Producers to sell the Insurer's annuity contracts to 
Retirement Investors. Additionally, the Insurer updates the policies 
and procedures as business, regulatory, and legislative changes and 
events dictate, and to ensure they remain prudently designed, 
effective, and compliant with Section VII(c).

[[Page 76029]]

    (2) The Insurer annually provides a written report to a Senior 
Executive Officer which details the review.
    (3) The Insurer provides to the Independent Producer the 
methodology and results of the retrospective review;
    (4) A Senior Executive Officer of the Insurer certifies, annually, 
that:
    (A) The officer has reviewed the report of the retrospective review 
report;
    (B) The Insurer has filed (or will file timely, including 
extensions) Form 5330 reporting any non-exempt prohibited transaction 
discovered by the Insurer 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 
to <a href="/cdn-cgi/l/email-protection#6d3d3928325559405f592d090201430a021b"><span class="__cf_email__" data-cfemail="247470617b1c1009161064404b480a434b52">[email protected]</span></a>.
    (C) The Insurer 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 Insurer has in place a prudent process to modify such 
policies and procedures as set forth in Section II(d)(1).
    (5) The review, report, and certification are completed no later 
than six months following the end of the period covered by the review.
    (6) The Insurer retains the report, certification, and supporting 
data for a period of six years and makes the report, certification, and 
supporting data available to the Department, within 10 business days of 
request, to the extent permitted by law.
(e) Self-Correction
    A non-exempt prohibited transaction will not occur due to a 
violation of the exemption's conditions with respect to a transaction, 
provided:
    (1) Either the Independent Producer has refunded any charge to the 
Retirement Investor or the Insurer has rescinded a mis-sold annuity, 
canceling the contract and waiving the surrender charges;
    (2) The Independent Producer notifies the Department of Labor of 
the violation and the refund or rescission via email to <a href="/cdn-cgi/l/email-protection#08585c4d57303c253a3c486c6764266f677e"><span class="__cf_email__" data-cfemail="48181c0d17707c657a7c082c2724662f273e">[email protected]</span></a> within 30 days of correction;
    (3) The correction occurs no later than 90 days after the 
Independent Producer learned of the violation or reasonably should have 
learned of the violation; and
    (4) The Independent Producer notifies the person(s) at the Insurer 
responsible for conducting the retrospective review during the 
applicable review cycle and the violation and correction is 
specifically set forth in the written report of the retrospective 
review required under Section VII(d)(2).

Section VIII--Eligibility

(a) Independent Producer
    Subject to the timing and scope provisions set forth in subsection 
(3), and the opportunity to be heard as set forth in subsection (c), an 
Independent Producer will be ineligible to rely on the relief for 
transactions described in Section III(g), if within 10 years preceding 
the transaction, the Independent Producer is described in (1) or (2):
    (1) The Independent Producer has been convicted either:
    (A) by a U.S. federal or state court as a result of any felony 
involving abuse or misuse of such person's employee benefit plan 
position or employment, or position or employment with a labor 
organization; any felony arising out of the conduct of the business of 
a broker, dealer, investment adviser, bank, insurance company or 
fiduciary; income tax evasion; any felony involving larceny, theft, 
robbery, extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds or 
securities; conspiracy or attempt to commit any such crimes or a crime 
in which any of the foregoing crimes is an element; or a crime that is 
identified or described in ERISA section 411; or
    (B) by a foreign court of competent jurisdiction as a result of any 
crime, however denominated by the laws of the relevant foreign or state 
government, that is substantially equivalent to an offense described in 
(A).
    For purposes of this section (a)(1), a person shall be deemed to 
have been convicted of a crime as of the ``conviction date,'' which is 
the date of the judgment of the trial court (or the date of the 
judgment of any court in a foreign jurisdiction that is the equivalent 
of a U.S. federal or state trial court), regardless of whether that 
judgment remains under appeal.
    (2) The Independent Producer has received a written ineligibility 
notice issued by the Department for:
    (A) engaging in a systematic pattern or practice of violating the 
conditions of this exemption in connection with otherwise non-exempt 
prohibited transactions;
    (B) intentionally violating, or knowingly participating in 
violations of, the conditions of this exemption in connection with 
otherwise non-exempt prohibited transactions;
    (C) engaging in a systematic pattern or practice of failing to 
correct prohibited transactions, report those transactions to the IRS 
on Form 5330, and pay the resulting excise taxes imposed by Code 
section 4975 in connection with non-exempt prohibited transactions 
involving investment advice under Code section 4975(e)(3)(B); or
    (D) providing materially misleading information to the Department 
in connection with the conditions of the exemption.
    (3) Ineligibility shall begin six months after:
    (A) the conviction date defined in Section (a)(1);
    (B) the date of the Department's written determination under 
Section (c)(1)(C) on a petition regarding a foreign conviction; or
    (C) the date of the written ineligibility notice described in 
subsection (a)(2).
    (4) An Independent Producer shall become eligible to rely on this 
exemption again only upon the earliest of the following:
    (A) the date of a subsequent judgment reversing such person's 
conviction;
    (B) 10 years after the person became ineligible under Section 
VIII(a)(3) or 10 years after the person was released from imprisonment 
as a result of a crime described in (a)(1) if later; or
    (C) the date, if any, the Department grants an individual exemption 
which may impose additional conditions) to the person permitting its 
continued reliance on this exemption, notwithstanding the conviction.
(b) Insurers
    Subject to the timing and scope provisions set forth in subsection 
(3), and the opportunity to be heard as set forth in subsection (c), an 
entity will be ineligible to serve as an Insurer if, within the 10 
years preceding the transaction:
    (1) The Insurer or the Affiliate has been convicted:
    (A) by a U.S. federal or state court of any felony involving abuse 
or misuse of such person's employee benefit plan position or 
employment, or position or employment with a labor organization; any 
felony arising out of the conduct of the business of a broker, dealer, 
investment adviser, bank, insurance company or fiduciary; income tax 
evasion; any felony involving the larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds or securities; 
conspiracy or

[[Page 76030]]

attempt to commit any such crimes or a crime in which any of the 
foregoing crimes is an element; or a crime that is identified or 
described in ERISA section 411; or
    (B) by a foreign court of competent jurisdiction as a result of any 
crime, however denominated by the laws of the relevant foreign or state 
government, that is substantially equivalent to an offense described in 
(A).
    For purposes of this Section (b)(1), a person shall be deemed to 
have been convicted of a crime as of the ``conviction date,'' which is 
the date of the judgment of the trial court (or the date of the 
judgment of any court in a foreign jurisdiction that is the equivalent 
of a U.S. federal or state trial court), regardless of whether that 
judgment remains under appeal.
    (2) The Insurer or an Affiliate has received a written 
ineligibility notice issued by the Department for:
    (A) engaging in a systematic pattern or practice of violating the 
conditions of this exemption in connection with otherwise non-exempt 
prohibited transactions;
    (B) intentionally violating, or knowingly participating in 
violation of, the conditions of this exemption in connection with 
otherwise non-exempt prohibited transactions; or
    (C) providing materially misleading information to the Department 
in connection with the conditions of the exemption.
    (3) Ineligibility shall begin six months after:
    (A) the conviction date as defined in Section (b)(1);
    (B) the Department's written determination under Section (c)(1)(C) 
for a petition regarding a foreign conviction; or
    (C) the date of the written ineligibility notice described in 
subsection (b)(2) above.
    (4) An entity shall become eligible to act as an Insurer under this 
exemption again only upon the earliest of the following:
    (A) the date of a subsequent judgment reversing such person's 
conviction;
    (B) 10 years after the person became ineligible under Section 
VIII(b)(3) or 10 years after the person was released from imprisonment 
as a result of a crime described in (b)(1), if later; or
    (C) the date, if any, the Department grants an individual exemption 
(which may impose additional conditions) to the person permitting its 
continued reliance on this exemption, notwithstanding the conviction.
(c) Opportunity To Be Heard
    (1) Foreign Convictions.
    (A) An Insurer, its Affiliate, or an Independent Producer that has 
been convicted by a foreign court of competent jurisdiction as provided 
in subsection (a)(1)(B) or (b)(1)(B), as applicable, may submit a 
petition to the Department that informs the Department of the 
conviction and seeks the Department's determination that continued 
reliance on the exemption would not be contrary to the purposes of the 
exemption. Petitions must be submitted to the Department within 10 
business days after the conviction date by email at <a href="/cdn-cgi/l/email-protection#6f26262e383d2f0b000341080019"><span class="__cf_email__" data-cfemail="135a5a52444153777c7f3d747c65">[email protected]</span></a>.
    (B) Following receipt of the petition, the Department will provide 
the Insurer or Independent Producer with the opportunity to be heard, 
in person (including by phone or videoconference), in writing, or a 
combination thereof. The opportunity to be heard will be limited to one 
conference unless the Department determines in its sole discretion to 
allow additional conferences.
    (C) Following the hearing, the Department will issue a written 
determination to the Insurer or Independent Producer, as applicable, 
articulating the basis for its determination whether or not to allow 
the Insurer or Independent Producer to continue relying on PTE 84-24.
    (2) Written Ineligibility Notice. Prior to issuing a written 
ineligibility notice, the Department will issue a written warning to 
the Independent Producer or Insurer, as applicable, identifying 
specific conduct implicating subsection (a)(2) or (b)(2), as 
applicable, and providing a six-month opportunity to cure. At the end 
of the six-month period, if the Department determines that the 
Independent Producer or Insurer has not taken appropriate action to 
prevent recurrence of the disqualifying conduct, it will provide the 
Independent Producer or Insurer with the opportunity to be heard, in 
person (including by phone or videoconference), or in writing, or a 
combination thereof, before the Department issues the written 
ineligibility notice. The opportunity to be heard will be limited to 
one conference unless the Department determines in its sole discretion 
to allow additional conferences. The written ineligibility notice will 
state the basis for the determination that the Independent Producer or 
Insurer engaged in conduct described in subsection (a)(2) or (b)(2), as 
applicable, and has not taken appropriate action to prevent recurrence 
of the disqualifying conduct.
    (3) Department's Considerations. For hearings under (c)(1) and 
(c)(2), the Department will consider: the gravity of the offense; the 
degree to which the underlying conduct concerned individual misconduct, 
or, alternately, corporate managers or policy; recency of the conduct 
at issue; any remedial measures taken; and other factors the Department 
determines in its discretion are reasonable in light of the nature and 
purposes of the exemption.
(d) Alternative Exemptions
    An Insurer or Independent Producer that is ineligible to rely on 
this exemption may rely on a statutory or separate administrative 
prohibited transaction exemption if one is available or seek an 
individual prohibited transaction exemption from the Department. To the 
extent an applicant seeks retroactive relief in connection with an 
exemption application, the Department will consider the application in 
accordance with its retroactive exemption policy as set forth in 29 CFR 
2570.35(d). The Department may require additional prospective 
compliance conditions as a condition of retroactive relief.

Section IX--Recordkeeping

    (a) The insurance agent or broker (or the insurance company whose 
contract is being described if designated by the agent or broker), 
pension consultant or investment company Principal Underwriter, 
Independent Producer or Insurer must maintain the records necessary to 
enable the persons described in subsection (a)(2) below to determine 
whether the conditions of this exemption have been met with respect to 
a transaction for a period of six years from the date of the 
transaction in a manner that is reasonably accessible for examination. 
No prohibited transaction will be considered to have occurred solely on 
the basis of the unavailability of such records if they are lost or 
destroyed due to circumstances beyond the control of the responsible 
party before the end of the six-year period.
    (1) No party, other than the party responsible for complying with 
this section IX, will be subject to the civil penalty that may be 
assessed under ERISA section 502(i) or the excise tax imposed by Code 
section 4975(a) and (b), if applicable, if the records are not 
maintained or available for examination as required by this section IX.
    (2) Except as provided in subsection (3), and notwithstanding any 
provisions of ERISA section 504(a)(2) and (b), the records are 
reasonably available at their customary location during normal business 
hours for examination by:

[[Page 76031]]

    (A) Any authorized employee of the Department or the Internal 
Revenue Service or another state or federal regulator;
    (B) Any fiduciary of a Plan that engaged in a transaction pursuant 
to this exemption;
    (C) Any contributing employer and any employee organization whose 
members are covered by a Plan that engaged in a transaction pursuant to 
this exemption; or
    (D) Any participant or beneficiary of a Plan or beneficial owner of 
an IRA acting on behalf of the IRA that engaged in a transaction 
pursuant to this exemption.
    (3) None of the persons described in subsection (2)(B)-(D) above 
are authorized to examine records regarding a transaction involving 
another Retirement Investor, privileged trade secrets or privileged 
commercial or financial information of the Insurer, or information 
identifying other individuals.
    (4) If a party refuses to disclose information to a person 
described in subsection (2)(B)-(D) above on the basis that the 
information is exempt from disclosure, the party must provide a written 
notice advising the requestor of the reasons for its refusal and that 
the Department may request that such information be produced to the 
Department by the end of the thirtieth (30th) day following the 
request.
    (b) A party's failure to maintain the records necessary to 
determine whether the conditions of this exemption have been met will 
result in the loss of the exemption only for the transaction or 
transactions for which records are missing or have not been maintained. 
Such failure does not affect the relief for other transactions if the 
responsible party maintains required records for such transactions in 
compliance with this section IV.

Section X--Definitions

    For purposes of this exemption, the terms ``insurance agent or 
broker,'' ``pension consultant,'' ``insurance company,'' ``investment 
company,'' and ``Principal Underwriter'' mean such persons and any 
Affiliates thereof. In addition, for purposes of this exemption:
    (a) ``Affiliate'' of a person means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person (For this purpose, ``control'' would mean the power to 
exercise a controlling influence over the management or policies of a 
person other than an individual);
    (2) Any officer, director, partner, employee, or relative (as 
defined in ERISA section 3(15)), of the person; and
    (3) Any corporation or partnership of which the person is an 
officer, director, or partner.
    (b) Advice is in a Retirement Investor's ``Best Interest'' if such 
advice (A) reflects the care, skill, prudence, and diligence under the 
circumstances then prevailing that a prudent person acting in a like 
capacity and familiar with such matters would use in the conduct of an 
enterprise of a like character and with like aims, based on the 
investment objectives, risk tolerance, financial circumstances, and 
needs of the Retirement Investor, and (B) does not place the financial 
or other interests of the Independent Producer, Insurer or any 
Affiliate, Related Entity, or other party ahead of the interests of the 
Retirement Investor, or subordinate the Retirement Investor's interests 
to those of the Independent Producer, Insurer or any Affiliate, Related 
Entity, or other party.
    (c) A ``Conflict of Interest'' is an interest that might incline an 
Independent Producer--consciously or unconsciously--to make a 
recommendation that is not in the Best Interest of the Retirement 
Investor.
    (d) ``Independent Producer'' means a person or entity that is 
licensed under the laws of a state to sell, solicit or negotiate 
insurance contracts, including annuities, and that sells to Retirement 
Investors products of multiple unaffiliated insurance companies but is 
not an employee of an insurance company (including a statutory employee 
under Code section 3121).
    (e) ``Individual Retirement Account'' or ``IRA'' means any plan 
that is an account or annuity described in Code section 4975(e)(1)(B) 
through (F).
    (f) ``Insurer'' means an insurance company qualified to do business 
under the laws of a state, that: (A) has obtained a Certificate of 
Authority from the insurance commissioner of its domiciliary state 
which has neither been revoked nor suspended; (B) has undergone and 
shall continue to undergo an examination by an independent certified 
public accountant for its last completed taxable year or has undergone 
a financial examination (within the meaning of the law of its 
domiciliary state) by the state's insurance commissioner within the 
preceding five years, (C) is domiciled in a state whose law requires 
that an actuarial review of reserves be conducted annually and reported 
to the appropriate regulatory authority; (D) is not disqualified or 
barred from making investment recommendations by any insurance, 
banking, or securities law or regulatory authority (including any self-
regulatory organization), that retains the Independent Producer as an 
independent contractor, agent or registered representative.
    (g) ``Insurance Sales Commission'' means a sales commission paid by 
the Insurance Company or an Affiliate to the Independent Producer for 
the service of recommending and/or effecting the purchase or sale of an 
insurance or annuity contract, including renewal fees and trailing 
fees, but excluding revenue sharing payments, administrative fees or 
marketing payments, payments from parties other than the Insurance 
Company or its Affiliates, or any other similar fees.
    (h) The term ``Mutual Fund Commission'' means a commission or sales 
load paid by either the Plan or the investment company for the service 
of effecting or executing the purchase of investment company 
securities, but does not include a 12b-1 fee, revenue sharing payment, 
administrative fee, or marketing fee.
    (i) The term ``Nondiscretionary Trust Services'' means custodial 
services, services ancillary to custodial services, none of which 
services are discretionary, duties imposed by any provisions of the 
Code, and services performed pursuant to directions in accordance with 
ERISA section 403(a)(1).
    (j) The term ``Nondiscretionary Trustee'' of a plan means a trustee 
whose powers and duties with respect to the plan are limited to the 
provision of Nondiscretionary Trust Services. For purposes of this 
exemption, a person who is otherwise a Nondiscretionary Trustee will 
not fail to be a Nondiscretionary Trustee solely by reason of his 
having been delegated, by the sponsor of a Pre-approved Plan, the power 
to amend such plan.
    (k) ``Plan'' means any employee benefit plan described in ERISA 
section 3(3) and any plan described in Code section 4975(e)(1)(A).
    (l) The term ``Pre-approved Plan'' means a plan which is approved 
by the Internal Revenue Service pursuant to the procedure described in 
Rev. Proc. 2017-44, 2017-29 I.R.B. 92, or its successors.
    (m) A ``Principal Underwriter'' means a principal underwriter as 
that term is defined in section 2(a)(29) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-2(a)(29)).
    (n) A ``Related Entity'' is any party that is not an Affiliate, but 
in which the Independent Producer has an interest that may affect the 
exercise of its best judgment as a fiduciary.

[[Page 76032]]

    (o) ``Retirement Investor'' means:
    (1) A participant or beneficiary of a Plan with authority to direct 
the investment of assets in their account or to take a distribution;
    (2) The beneficial owner of an IRA acting on behalf of the IRA; or
    (3) A fiduciary acting on behalf of a Plan or an IRA.
    (p) A ``Senior Executive Officer'' is any of the following: the 
chief compliance officer, the chief executive officer, president, chief 
financial officer, or one of the three most senior officers of the 
Insurer.

    Signed at Washington, DC, this 24th day of October, 2023.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2023-23781 Filed 11-2-23; 8:45 am]
BILLING CODE 4510-29-P


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