Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 65263 

C. Description of the Proposed 

Interpretive Rule 

The proposed interpretive rule would 

amend part 1450. Section 1450.1, Scope, 

would explain that part 1450 pertains to 

the Virginia Graeme Baker Pool and Spa 

Safety Act and that the statute is 

designed to prevent child drowning, 

drain entrapments, and eviscerations in 

pools and spas. 

Section 1450.2, Definitions, would 

define ‘‘public accommodations facility’’ 

at paragraph (a) as ‘‘an inn, hotel, motel, 

or other place of lodging, including, but 

not limited to, rental units rented on a 

bi-weekly or weekly basis.’’ 

List of Subjects in 16 CFR Part 1450 

Consumer protection, Infants and 

children, Law enforcement. 

E. Conclusion 

For the reasons stated above, the 

Commission proposes to amend part 

1450 of title 16 of the Code of Federal 

Regulations as follows: 

PART 1450—VIRGINIA GRAEME 

BAKER POOL AND SPA SAFETY ACT 

REGULATIONS 

1. The authority citation for part 1450 

continues to read as follows: 

Authority: 15 U.S.C. 2051–2089, 86 Stat. 

1207; 15 U.S.C. 8001–8008, 121 Stat. 1794. 

2. Section 1450.1 is added to read as 

follows: 

§ 1450.1 Scope. 

This part pertains to the Virginia 

Graeme Baker Pool and Spa Safety Act, 

(‘‘Act’’), 15 U.S.C. 8001 et seq., which is 

designed to prevent child drowning, 

drain entrapments and eviscerations in 

pools and spas. 

3. Add paragraph (a) to § 1450.2 to 

read as follows: 

§ 1450.2 Definitions. 

(a) Public accommodations facility 

means an inn, hotel, motel, or other 

place of lodging, including, but not 

limited to, rental units rented on a biweekly or weekly basis. 

* * * * * 

Dated: October 15, 2010. 

Todd A. Stevenson, 

Secretary, Consumer Product Safety 

Commission. 

[FR Doc. 2010–26520 Filed 10–19–10; 8:45 am] 

BILLING CODE 6355–01–P 

CONSUMER PRODUCT SAFETY 

COMMISSION 

16 CFR Part 1450 

Virginia Graeme Baker Pool and Spa 

Safety Act; Public Accommodation; 

Withdrawal of Proposed Rule 

AGENCY: Consumer Product Safety 

Commission. 

ACTION: Withdrawal of proposed rule. 

SUMMARY: In the Federal Register of 

March 15, 2010, the Consumer Product 

Safety Commission (‘‘CPSC’’ or 

‘‘Commission’’) issued a proposed 

interpretive rule that would interpret 

the term ‘‘public accommodations 

facility’’ as used in the Virginia Graeme 

Baker Pool and Spa Safety Act (‘‘VGB 

Act’’ or ‘‘Act’’) as ‘‘an inn, hotel, motel, 

or other place of lodging, except for an 

establishment located within a building 

that contains not more than five rooms 

for rent or hire and that is actually 

occupied by the proprietor of such 

establishment as the residence of such 

proprietor’’ (75 FR 12167). The 

Commission is withdrawing the March 

15, 2010 proposed interpretive rule and, 

elsewhere in this issue of the Federal 

Register, is issuing a new proposed 

interpretive rule with a 60-day comment 

period which would interpret ‘‘public 

accommodations facility’’ as ‘‘an inn, 

hotel, motel, or other place of lodging, 

including but not limited to, rental units 

rented on a bi-weekly or weekly basis.’’ 

DATES: The proposed interpretive rule is 

withdrawn as of October 22, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Barbara E. Little, Office of the General 

Counsel, Consumer Product Safety 

Commission, 4330 East West Highway, 

Bethesda, Maryland 20814; e-mail 

blittle@cpsc.gov. 

SUPPLEMENTARY INFORMATION: The 

Commission published a proposed 

interpretive rule on the definition of 

‘‘public accommodations facility in the 

Federal Register of March 15, 2010 (75 

FR 12167). The proposed interpretive 

rule would interpret ‘‘public 

accommodations facility’’ to mean: ‘‘An 

inn, hotel, motel, or other place of 

lodging, except for an establishment 

located within a building that contains 

not more than five rooms for rent or hire 

and that is actually occupied by the 

proprietor of such establishment as the 

residence of such proprietor.’’ 

CPSC staff prepared a draft final 

interpretative rule for the Commission’s 

approval, but, on August 4, 2010, the 

Commission voted to withdraw the 

proposed interpretive rule and to direct 

CPSC staff to draft a new proposed 

interpretive rule with a 60-day comment 

period and interpreting ‘‘public 

accommodations facility’’ as ‘‘an inn, 

hotel, motel, or other place of lodging, 

including, but not limited to, rental 

units rented on a bi-weekly or weekly 

basis.’’ The Commission preliminarily 

determined that the exception for an 

owner-occupied establishment located 

within a building that contains not more 

than five rooms for rent or hire is 

inappropriate in the context of pool and 

spa safety because the number of units 

for rent or hire has no bearing on the 

safety of the pool. In addition, the 

Commission wanted to make clear that 

a residential facility may become a 

‘‘place of lodging’’ if the facility were to 

offer a significant number of short term 

stays. 

Thus, the Commission, through this 

notice, is withdrawing the March 15, 

2010 proposed interpretive rule. 

Elsewhere in this issue of the Federal 

Register, the Commission is issuing a 

new proposed interpretive rule to 

interpret ‘‘public accommodations 

facility’’ in the VGB Act as ‘‘an inn, 

hotel, motel, or other place of lodging, 

including, but not limited to, rental 

units rented on a bi-weekly or weekly 

basis.’’ 

Dated: October 15, 2010. 

Todd A. Stevenson, 

Secretary, Consumer Product Safety 

Commission. 

[FR Doc. 2010–26521 Filed 10–21–10; 8:45 am] 

BILLING CODE 6355–01–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2510 

RIN 1210–AB32 

Definition of the Term ‘‘Fiduciary’’ 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Proposed rule. 

SUMMARY: This document contains a 

proposed rule under the Employee 

Retirement Income Security Act (ERISA) 

that, upon adoption, would protect 

beneficiaries of pension plans and 

individual retirement accounts by more 

broadly defining the circumstances 

under which a person is considered to 

be a ‘‘fiduciary’’ by reason of giving 

investment advice to an employee 

benefit plan or a plan’s participants. The 

proposal amends a thirty-five year old 

rule that may inappropriately limit the 

types of investment advice relationships 

that give rise to fiduciary duties on the 


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65264 Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 

1ERISA section 404(a). 

2ERISA section 406. 

3ERISA section 409. 

4Section 4975(e)(3) of the Internal Revenue Code 

of 1986, as amended (Code) provides a similar 

definition of the term fiduciary for purposes of 

Code section 4975. 

5 40 FR 50842 (Oct. 31, 1975). The Department of 

Treasury issued a virtually identical regulation, at 

26 CFR 54.4975–9(c), that interprets Code section 

4975(e)(3). 40 FR 50840 (Oct. 31, 1975). Under 

section 102 of Reorganization Plan No. 4 of 1978, 

5 U.S.C. App. 1 (1996), the authority of the 

Secretary of the Treasury to interpret section 4975 

of the Code has been transferred, with certain 

exceptions not here relevant, to the Secretary of 

Labor. References in this document to sections of 

ERISA should be read to refer also to the 

corresponding sections of the Code. 

part of the investment advisor. The 

proposed rule takes account of 

significant changes in both the financial 

industry and the expectations of plan 

officials and participants who receive 

investment advice; it is designed to 

protect participants from conflicts of 

interest and self-dealing by giving a 

broader and clearer understanding of 

when persons providing such advice are 

subject to ERISA’s fiduciary standards. 

For example, the proposed rule would 

define certain advisers as fiduciaries 

even if they do not provide advice on 

a ‘‘regular basis.’’ Upon adoption, the 

proposed rule would affect sponsors, 

fiduciaries, participants, and 

beneficiaries of pension plans and 

individual retirement accounts, as well 

as providers of investment and 

investment advice related services to 

such plans and accounts. 

DATES: Written comments on the 

proposed regulations should be 

submitted to the Department of Labor on 

or before January 20, 2011. 

FOR FURTHER INFORMATION CONTACT: Fred 

Wong, Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration (EBSA), (202) 

693–8500. This is not a toll-free number. 

ADDRESSES: To facilitate the receipt and 

processing of comment letters, the EBSA 

encourages interested persons to submit 

their comments electronically by e-mail 

to e-ORI@dol.gov (enter into subject 

line: Definition of Fiduciary Proposed 

Rule) or by using the Federal 

eRulemaking portal at http:// 

www.regulations.gov. Persons 

submitting comments electronically are 

encouraged not to submit paper copies. 

Persons interested in submitting paper 

copies should send or deliver their 

comments to the Office of Regulations 

and Interpretations, Employee Benefits 

Security Administration, Attn: 

Definition of Fiduciary Proposed Rule, 

Room N–5655, U.S. Department of 

Labor, 200 Constitution Avenue, NW., 

Washington, DC 20210. All comments 

will be available to the public, without 

charge, online at http:// 

www.regulations.gov and http:// 

www.dol.gov/ebsa and at the Public 

Disclosure Room, N–1513, Employee 

Benefits Security Administration, U.S. 

Department of Labor, 200 Constitution 

Avenue, NW., Washington, DC 20210. 

SUPPLEMENTARY INFORMATION: 

A. Background 

The Employee Retirement Income 

Security Act of 1974 (ERISA) is a 

comprehensive statute designed to 

promote the interests of participants in 

employee benefit plans and their 

beneficiaries by establishing standards 

of conduct, responsibility, and 

obligation for fiduciaries of those plans. 

ERISA imposes a number of stringent 

duties on those who act as plan 

fiduciaries, including a duty of 

undivided loyalty, a duty to act for the 

exclusive purposes of providing plan 

benefits and defraying reasonable 

expenses of administering the plan, and 

a stringent duty of care grounded in the 

prudent man standard from trust law.1

Congress supplemented these general 

duties by categorically barring, subject 

to exemption, certain ‘‘prohibited’’ 

transactions.2 Fiduciaries are personally 

liable for losses sustained by a plan that 

result from a violation of these rules.3

Section 3(21)(A) of ERISA provides in 

relevant part that a person is a fiduciary 

with respect to a plan to the extent (i) 

it exercises any discretionary authority 

or discretionary control with respect to 

management of such plan or exercises 

any authority or control with respect to 

management or disposition of its assets, 

(ii) it renders investment advice for a fee 

or other compensation, direct or 

indirect, with respect to any moneys or 

other property of such plan, or has any 

authority or responsibility to do so, or 

(iii) it has any discretionary authority or 

discretionary responsibility in the 

administration of such plan.4 On its 

face, section 3(21)(A)(ii) sets out a 

simple two-part test for determining 

fiduciary status: A person renders 

investment advice with respect to any 

moneys or other property of a plan, or 

has any authority or responsibility to do 

so; and the person receives a fee or other 

compensation, direct or indirect, for 

doing so. 

In 1975, shortly after ERISA was 

enacted, the Department issued a 

regulation, at 29 CFR 2510.3–21(c), that 

defines the circumstances under which 

a person renders ‘‘investment advice’’ to 

an employee benefit plan within the 

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

ERISA.5 A person who renders 

‘‘investment advice’’ under the 

regulation, and receives a fee or other 

compensation, direct or indirect, for 

doing so, is a fiduciary under section 

3(21)(A)(ii). The current regulation 

provides in relevant part as follows: 

(c) Investment advice. (1) A person shall be 

deemed to be rendering ‘‘investment advice’’ 

to an employee benefit plan, within the 

meaning of section 3(21)(A)(ii) of the 

Employee Retirement Income Security Act of 

1974 (the Act) and this paragraph, only if: 

(i) Such person renders advice to the plan 

as to the value of securities or other property, 

or makes recommendation as to the 

advisability of investing in, purchasing, or 

selling securities or other property; and 

(ii) Such person either directly or 

indirectly (e.g., through or together with any 

affiliate)— 

(A) Has discretionary authority or control, 

whether or not pursuant to agreement, 

arrangement or understanding, with respect 

to purchasing or selling securities or other 

property for the plan; or 

(B) Renders any advice described in 

paragraph (c)(1)(i) of this section on a regular 

basis to the plan pursuant to a mutual 

agreement, arrangement or understanding, 

written or otherwise, between such person 

and the plan or a fiduciary with respect to 

the plan, that such services will serve as a 

primary basis for investment decisions with 

respect to plan assets, and that such person 

will render individualized investment advice 

to the plan based on the particular needs of 

the plan regarding such matters as, among 

other things, investment policies or strategy, 

overall portfolio composition, or 

diversification of plan investments. 

The regulation significantly narrows 

the plain language of section 

3(21)(A)(ii), creating a 5-part test that 

must be satisfied in order for a person 

to be treated as a fiduciary by reason of 

rendering investment advice. For advice 

to constitute ‘‘investment advice,’’ an 

adviser who does not have discretionary 

authority or control with respect to the 

purchase or sale of securities or other 

property for the plan must— 

(1) Render advice as to the value of 

securities or other property, or make 

recommendations as to the advisability 

of investing in, purchasing or selling 

securities or other property 

(2) On a regular basis 

(3) Pursuant to a mutual agreement, 

arrangement or understanding, with the 

plan or a plan fiduciary, that 

(4) The advice will serve as a primary 

basis for investment decisions with 

respect to plan assets, and that 

(5) The advice will be individualized 

based on the particular needs of the 

plan. 

The Department further limited the 

term ‘‘investment advice’’ in a 1976 

advisory opinion. Under the facts 

described therein, the Department 

concluded that a valuation of closelyheld employer securities that an 

employee stock ownership plan (ESOP) 


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Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 65265 

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

76–65A). 

7The Department’s Employee Benefits Security 

Administration (EBSA) maintains a national 

enforcement project designed to identify and 

correct violations of ERISA in connection with 

Employee Stock Ownership Plans. One of the most 

common violations found is the incorrect valuation 

of employer securities. Another project, the 

Consultant/Adviser project (CAP) focuses on ERISA 

violations that may occur in connection with the 

receipt of improper, undisclosed compensation by 

pension consultants and other investment advisers. 

Information on the EBSA’s national enforcement 

projects can be found at http://www.dol.gov/ebsa/ 

erisa_enforcement.html. 

8Conflicts of Interest Can Affect Defined Benefit 

and Defined Contribution Plans, GAO 09–503T 

(Mar. 24, 2009). 9See footnote 7. 

would rely on in purchasing the 

securities would not constitute 

investment advice under the 

regulation.6

The current regulation has not been 

updated since its promulgation in 1975. 

Since that time, however, the retirement 

plan community has changed 

significantly, with a shift from defined 

benefit (DB) plans to defined 

contribution (DC) plans. The financial 

marketplace also has changed 

significantly, and the types and 

complexity of investment products and 

services available to plans have 

increased. With the resulting changes in 

plan investment practices, and 

relationships between advisers and their 

plan clients, the Department believes 

there is a need to re-examine the types 

of advisory relationships that should 

give rise to fiduciary duties on the part 

of those providing advisory services. In 

this regard, we note that recent 

Department enforcement initiatives 

indicate there are a variety of 

circumstances, outside those described 

in the current regulation, under which 

plan fiduciaries seek out impartial 

assistance and expertise of persons such 

as consultants, advisers and appraisers 

to advise them on investment-related 

matters.7 These persons significantly 

influence the decisions of plan 

fiduciaries, and have a considerable 

impact on plan investments. However, if 

these advisers are not fiduciaries under 

ERISA, they may operate with conflicts 

of interest that they need not disclose to 

the plan fiduciaries who expect 

impartiality and often must rely on their 

expertise, and have limited liability 

under ERISA for the advice they 

provide. Recent testimony by the 

Government Accountability Office 

noted an association between pension 

consultants with undisclosed conflicts 

of interest and lower returns for their 

client plans.8 The Department believes 

that amending the current regulation to 

establish additional circumstances 

where investment advice providers are 

subject to ERISA’s fiduciary 

responsibilities would better protect the 

interests of plans and their participants 

and beneficiaries. As a consequence of 

the current regulation, the Department’s 

investigations of investment advisers 

must focus on establishing each of the 

elements of the 5-part test rather than on 

the precise misconduct at issue in 

particular cases. Even if an adviser 

advises a plan about its investments for 

a fee, the plan relied upon the advice 

based upon reasonable belief that it was 

impartial, and the advice was wholly 

abusive, the Department must still prove 

each of the test’s five elements in order 

to assert a fiduciary breach. The 

Department does not believe that this 

approach to fiduciary status is 

compelled by the statutory language. 

Nor does the Department believe the 

current framework represents the most 

effective means of distinguishing 

persons who should be held 

accountable as fiduciaries from those 

who should not. For these reasons, the 

Department believes it is appropriate to 

update the ‘‘investment advice’’ 

definition to better ensure that persons, 

in fact, providing investment advice to 

plan fiduciaries and/or plan participants 

and beneficiaries are subject to ERISA’s 

standards of fiduciary conduct. 

B. Overview of Proposal 

1. Proposed Amendment to Regulation 

Under ERISA Section 3(21)(A)(ii) 

In general, the proposal amends 

paragraph (c) of Sec. 2510.3–21 by 

striking the current paragraph (c)(1), 

redesignating the current paragraph 

(c)(2) as paragraph (c)(5), and adding 

new paragraphs (c)(1) through (c)(4). 

New paragraph (c)(1) sets out the 

general rule that a person renders 

‘‘investment advice’’ for a fee or other 

compensation, direct or indirect, to an 

employee benefit plan, within the 

meaning of section 3(21)(A)(ii) of ERISA 

and the regulation, if the person 

provides advice or makes 

recommendations described in 

paragraph (c)(1)(i), directly or indirectly 

meets any of the conditions described in 

paragraph (c)(1)(ii), and receives a fee or 

other compensation, direct or indirect, 

for providing such advice or 

recommendations. New paragraph (c)(2) 

sets forth certain limitations in the 

application of paragraph (c). New 

paragraph (c)(3) provides guidance with 

respect to the meaning of the term ‘‘fee 

or other compensation, direct or 

indirect,’’ as used in section 3(21)(A)(ii) 

of ERISA. New paragraph (c)(4) clarifies 

the proposed amendment would apply 

for purposes of Code section 4975. 

a. Description of Advice 

Under paragraph (c)(1)(i)(A) of the 

proposal, the types of advice and 

recommendations that may result in 

fiduciary status under ERISA section 

3(21)(A)(ii) are: Advice, appraisals or 

fairness opinions concerning the value 

of securities or other property; 

recommendations as to the advisability 

of investing in, purchasing, holding, or 

selling securities or other property; or 

advice or recommendations as to the 

management of securities or other 

property. 

This provision encompasses the same 

types of investment-related advice and 

recommendations as covered by 

paragraph (c)(1)(i) of the current 

regulation, except for the following 

modifications. First, the proposal 

specifically includes the provision of 

appraisals and fairness opinions. As 

discussed above, the Department 

concluded in AO 76–65A that a 

valuation of closely held employer 

securities that would be relied on in the 

purchase of the securities by an ESOP 

would not constitute investment advice 

under the current regulation. However, 

a common problem identified in the 

Department’s recent ESOP national 

enforcement project involves the 

incorrect valuation of employer 

securities.9 Among these are cases 

where plan fiduciaries have reasonably 

relied on faulty valuations prepared by 

professional appraisers. The Department 

believes that application of the proposal 

to appraisals and fairness opinions 

rendered in connection with plan 

transactions may directly or indirectly 

address these issues, and align the 

duties of persons who provide these 

opinions with those of fiduciaries who 

rely on them. Accordingly, paragraph 

(c)(1)(i)(A)(1) of the proposal 

specifically includes the provision of 

appraisals and fairness opinions 

concerning the value of securities or 

other property. This paragraph is 

intended to supersede the Department’s 

conclusion in AO 76–65A, but is not 

limited to employer securities. 

Therefore, if a person is retained by a 

plan fiduciary to appraise real estate 

being offered to the plan for purchase, 

then the provision of the appraisal 

would fall within paragraph 

(c)(1)(i)(A)(1) of the proposal, and may 

result in fiduciary status under ERISA 

section 3(21)(A)(ii). The Department 

would expect a fiduciary appraiser’s 

determination of value to be unbiased, 

fair, and objective, and to be made in 

good faith and based on a prudent 

investigation under the prevailing 


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65266 Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 

10The fiduciary act of managing plan assets that 

are shares of corporate stock include the 

management of voting rights appurtenant to those 

shares of stock. 29 CFR 2509.08–2. 

11See 29 CFR 2509.96–1(c). 

12Advisory Opinion 2005–23A (Dec. 7, 2005). 

circumstances then known to the 

appraiser. 

Second, the proposal at paragraph 

(c)(1)(i)(A)(3) makes specific reference 

to advice and recommendations as to 

the management of securities or other 

property. This would include, for 

instance, advice and recommendations 

as to the exercise of rights appurtenant 

to shares of stock (e.g., voting proxies),10

and as to the selection of persons to 

manage plan investments. 

Finally, the proposal at paragraph 

(c)(1)(i)(B) makes clear that fiduciary 

status under section 3(21)(A)(ii) may 

result from the provision of advice or 

recommendations not only to a plan 

fiduciary, but also to a plan participant 

or beneficiary. This reflects the 

Department’s long-standing 

interpretation of the current 

regulation.11 The Department notes that 

it also has taken the position that, as a 

general matter, a recommendation to a 

plan participant to take an otherwise 

permissible plan distribution does not 

constitute investment advice within the 

meaning of the current regulation, even 

when that advice is combined with a 

recommendation as to how the 

distribution should be invested.12

Concerns have been expressed that, as a 

result of this position, plan participants 

may not be adequately protected from 

advisers who provide distribution 

recommendations that subordinate 

participants’ interests to the advisers’ 

own interests. The Department, 

therefore, is requesting comment on 

whether and to what extent the final 

regulation should define the provision 

of investment advice to encompass 

recommendations related to taking a 

plan distribution. The Department is 

specifically interested in information on 

other laws that apply to the provision of 

these types of recommendations, 

whether and how those laws safeguard 

the interests of plan participants, and 

the costs and benefits associated with 

extending the regulation to these types 

of recommendations. 

b. Conditions 

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

sets forth alternative conditions, at 

paragraphs (c)(1)(ii)(A) through (D), at 

least one of which must be met by a 

person rendering advice described in 

paragraph (c)(1)(i) in order for the 

person to be considered rendering 

investment advice under the proposal. 

The conditions may be met by the 

person acting directly or indirectly, 

such as through or together with an 

affiliate. These alternative conditions 

generally relate to the degree of 

authority, control, responsibility or 

influence that is possessed, directly or 

indirectly, by the person rendering the 

advice, and the reasonable expectations 

of the persons receiving the advice. The 

conditions at paragraphs (c)(1)(ii)(B) and 

(D) of the proposal are based on 

paragraphs (c)(1)(ii)(A) and (B) of the 

current regulation (which include 

elements of the 5-part test described 

above), but with modifications to 

simplify their application and broaden 

their scope. The conditions at 

paragraphs (c)(1)(ii)(A) and (C) are new, 

and are intended to broaden the scope 

of the regulation based on readilyascertainable criteria. 

Paragraph (c)(1)(ii)(A) of the proposal 

includes persons providing advice or 

recommendations described in 

paragraph (c)(1)(i) that represent or 

acknowledge that they are acting as a 

fiduciary within the meaning of ERISA 

with respect to such advice or 

recommendations. The Department 

believes that explicitly claiming ERISA 

fiduciary status, orally or in writing, 

enhances the adviser’s influence, and 

gives the advice recipient a reasonable 

expectation that the advice will be 

impartial and prudent. Therefore such a 

representation or acknowledgment in 

connection with provision of the advice 

or recommendations described in 

paragraph (c)(1)(i) is sufficient under the 

proposal to result in fiduciary status 

under section 3(21)(A)(ii) if provided for 

a fee or other compensation, direct or 

indirect. 

Paragraph (c)(1)(ii)(B) of the proposal 

includes persons providing the types of 

investment-related advice or 

recommendations described in 

paragraph (c)(1)(i) that are fiduciaries 

with respect to the plan within the 

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

ERISA. This provision is based on the 

condition in paragraph (c)(1)(ii)(A) of 

the current regulation, which is met if 

the person rendering advice directly or 

indirectly has discretionary authority or 

control with respect to purchasing or 

selling securities or other property for 

the plan. However, the proposal 

broadens the scope of this condition by 

referencing a person who is a fiduciary 

within the meaning of section 

3(21)(A)(i) or (iii) of ERISA, which is not 

limited to persons with authority or 

control relating to purchases or sales of 

investments for a plan. Specifically, 

section 3(21)(A)(i) and (iii) describe any 

person who exercises any discretionary 

authority or discretionary control with 

respect to management of the plan, 

exercises any authority or control with 

respect to management or disposition of 

its assets, or has any discretionary 

authority or discretionary responsibility 

in the administration of the plan. 

Paragraph (c)(1)(ii)(C) includes 

persons providing advice or 

recommendations described in 

paragraph (c)(1)(i) that are investment 

advisers within the meaning of section 

202(a)(11) of the Investment Advisers 

Act of 1940 (Advisers Act), 15 U.S.C. 

80b–2(a)(11). This section generally 

defines an ‘‘investment adviser’’ as any 

person who, for compensation, engages 

in the business of advising others as to 

the value of securities or the advisability 

of investing in, purchasing, or selling 

securities, or who promulgates analyses 

or reports concerning securities. 

However, section 202(a)(11) specifically 

excludes the following: (1) A bank, or 

any bank holding company as defined 

in the Bank Holding Company Act of 

1956, which is not an investment 

company, except that the term 

‘‘investment adviser’’ includes any bank 

or bank holding company to the extent 

that such bank or bank holding 

company serves or acts as an investment 

adviser to a registered investment 

company, but if such services or actions 

are performed through a separately 

identifiable department or division of a 

bank, the department or division, and 

not the bank itself, is deemed to be the 

investment adviser; (2) any lawyer, 

accountant, engineer, or teacher whose 

performance of such services is solely 

incidental to the practice of his or her 

profession; (3) any broker or dealer 

whose performance of such services is 

solely incidental to the conduct of his 

business as a broker or dealer and who 

receives no special compensation 

therefor; (4) the publisher of any bona 

fide newspaper, news magazine or 

business or financial publication of 

general and regular circulation; (5) any 

person whose advice, analyses, or 

reports relate to no securities other than 

securities which are direct obligations of 

or obligations guaranteed as to principal 

or interest by the United States, or 

securities issued or guaranteed by 

corporations in which the United States 

has a direct or indirect interest which 

shall have been designated by the 

Secretary of the Treasury, pursuant to 

section 3(a)(12) of the Securities 

Exchange Act of 1934, as exempted 

securities for the purposes of that Act; 

(6) any nationally recognized statistical 

rating organization, as that term is 

defined in section 3(a)(62) of the 

Securities Exchange Act of 1934, unless 

such organization engages in issuing 

recommendations as to purchasing, 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 65267 

13See Advisers Act section 202(a)(11)(A)–(G), 15 

U.S.C. 80b–2(a)(11)(A)–(G). 14SEC v. Capital Gains Research Bureau, Inc., 

375 U.S. 180 (1963). 15SEC Advisers Act Rel. No. 1393 (Nov. 29, 

1993). 

selling, or holding securities or in 

managing assets, consisting in whole or 

in part of securities, on behalf of others; 

or (7) such other persons designated by 

the Securities and Exchange 

Commission (SEC) by rules, regulations 

or orders.13 Courts have determined that 

these investment advisers owe fiduciary 

duties to their clients under the 

Advisers Act.14 In this regard, the SEC 

has stated: ‘‘the Investment Advisers Act 

imposes on investment advisers an 

affirmative duty to their clients of 

utmost good faith, full and fair 

disclosure of all material facts, and an 

obligation to employ reasonable care to 

avoid misleading their clients.’’ 15 Thus, 

the Department proposes to include 

these persons under the regulation. 

Paragraph (c)(1)(ii)(D) includes 

persons that provide advice or make 

recommendations described in 

paragraph (c)(1)(i) pursuant to an 

agreement, arrangement or 

understanding, written or otherwise, 

between such person(s) and the plan, a 

plan fiduciary, or a plan participant or 

beneficiary, that such advice may be 

considered in connection with making 

investment or management decisions 

with respect to plan assets, and will be 

individualized to the needs of the plan, 

a plan fiduciary, or a participant or 

beneficiary. 

Paragraph (c)(1)(ii)(D) of the proposal 

is based on the elements of the 5-part 

test contained in paragraph (c)(1)(ii)(B) 

of the current regulation which, as 

described above, requires that a person 

render advice on a regular basis to the 

plan pursuant to a mutual agreement, 

arrangement or understanding, written 

or otherwise, between such person and 

the plan or a fiduciary with respect to 

the plan, that such services will serve as 

a primary basis for investment decisions 

with respect to plan assets, and that 

such person will render individualized 

investment advice to the plan based on 

the particular needs of the plan 

regarding such matters as, among other 

things, investment policies or strategy, 

overall portfolio composition, or 

diversification of plan investments. The 

Department notes several differences 

between the proposal and current 

paragraph (c)(1)(ii)(B). The proposal 

does not require the advice to be 

provided on a regular basis. The 

Department has observed that in those 

instances where a plan fiduciary retains 

a service provider such as a consultant 

or appraiser to render advice, it often 

involves discrete advice with respect to 

distinct investment transactions, such as 

a purchase of employer securities. The 

Department does not believe that the 

significance of the advice on a plan 

fiduciary’s decisions diminishes merely 

because it is rendered only once, rather 

than on a regular basis, or that fiduciary 

status under section 3(21)(A)(ii) should 

depend on such a distinction. For 

example, a fiduciary may retain a 

person to provide advice on a particular 

real estate investment in the plan’s 

portfolio, and never have a reason to use 

this adviser again. Nevertheless, such 

advice may be critical to an important 

investment decision and the plan’s 

agreement with the adviser may give the 

plan every expectation that the adviser 

is competent and has no conflicts of 

interest. The Department also believes 

that removal of the regular basis 

requirement will help address 

uncertainty under the current regulation 

by eliminating difficult factual 

questions relating to what constitutes a 

regular basis, and when it begins and 

ends, and by making clear that fiduciary 

status applies to each instance advice is 

rendered. 

The proposal also does not require 

that the parties have a mutual 

understanding that the advice will serve 

as a primary basis for plan investment 

decisions. Nothing in ERISA compels 

conditioning fiduciary status on a 

requirement that an adviser and plan 

fiduciary have a mutual understanding 

as to the primacy of the advice given, in 

relation to other advice or information 

that the fiduciary may consider in 

making a decision. The Department 

believes that when a service provider is 

retained to render advice, the plan 

should generally be able to rely on the 

advice without regard to whether the 

parties intend it be a primary or lesser 

basis in the fiduciary’s decision-making. 

For example, in a complex investment 

decision, a plan fiduciary may need to 

consult advisers with different areas of 

investment expertise in order to make a 

prudent decision. The relative 

importance of the different kinds of 

advice that the plan fiduciary obtains 

may be impossible to discern, and 

should not affect the question of 

whether the adviser is a fiduciary. 

Accordingly, under the proposal it is 

sufficient if the understanding of the 

parties is that the advice will be 

considered in connection with making a 

decision relating to plan assets. The 

Department also believes this 

modification will simplify this 

condition by eliminating difficult 

factual issues surrounding the primacy 

of the advice rendered. Other changes 

are editorial in nature and intended to 

improve the readability of the provision. 

It is important to note generally that 

paragraphs (c)(1)(ii)(A), (B), (C) and (D) 

are independent, alternative conditions. 

Satisfaction of any one of these 

alternative conditions may result in 

fiduciary investment advice under the 

proposal if paragraph (c)(1)(i) also is 

satisfied. For example, a bank or a 

broker dealer that provides investment 

advice or recommendations described in 

paragraph (c)(1)(i) might fall within an 

exclusion from the definition of 

‘‘investment adviser’’ in section 

202(a)(11) of the Advisers Act, and 

therefore might not meet paragraph 

(c)(1)(ii)(C) of the proposal. 

Notwithstanding this exclusion, if the 

bank or broker dealer meets the 

requirements of paragraphs (c)(1)(ii)(A), 

(B) or (D), it would nevertheless be 

considered to render investment advice 

under the proposal. 

c. Limitations 

Paragraphs (c)(2) of the proposal sets 

forth certain limitations with respect to 

the application of paragraph (c)(1). 

Paragraph (c)(2)(i) provides that a 

person shall not be considered to be a 

person described in paragraph (c)(1) 

with respect to the provision of advice 

or recommendations if, with respect to 

a person other than a person described 

in paragraph (c)(1)(ii)(A), such person 

can demonstrate that the recipient of the 

advice knows or, under the 

circumstances, reasonably should know, 

that the person is providing the advice 

or making the recommendation in its 

capacity as a purchaser or seller of a 

security or other property, or as an agent 

of, or appraiser for, such a purchaser or 

seller, whose interests are adverse to the 

interests of the plan or its participants 

or beneficiaries, and that the person is 

not undertaking to provide impartial 

investment advice. This provision 

reflects the Department’s understanding 

that, in the context of selling 

investments to a purchaser, a seller’s 

communications with the purchaser 

may involve advice or 

recommendations, within paragraph 

(c)(1)(i) of the proposal, concerning the 

investments offered. The Department 

has determined that such 

communications ordinarily should not 

result in fiduciary status under the 

proposal if the purchaser knows of the 

person’s status as a seller whose 

interests are adverse to those of the 

purchaser, and that the person is not 

undertaking to provide impartial 

investment advice. However, the 

Department believes there is an inherent 

expectation of impartial investment 

advice from a person described in 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
65268 Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 

16The Department notes that, because such a 

fiduciary would be a party in interest to the plan 

under section 3(14)(A) of ERISA, such a transaction 

would be prohibited by section 406(a) of ERISA 

unless exempt pursuant to an available statutory or 

administrative prohibited transaction exemption. 

17The Department is not addressing any issues 

under the Advisers Act related to such a 

transaction. 18See generally 29 CFR 2509.96–1(d). 

19The Department notes, however, that such a 

service provider’s substitution or deletion of 

investment options selected by a plan fiduciary 

may, depending on the surrounding facts and 

circumstances, constitute an exercise of ‘‘authority 

or control respecting management or disposition of 

[a plan’s] assets’’ within the meaning of section 

3(21)(A)(i) of ERISA. See Advisory Opinion 97–16A 

(May 22, 1997). 

paragraph (c)(1)(ii)(A) (involving 

representations or acknowledgment of 

ERISA fiduciary status with respect to 

providing advice or recommendations). 

Accordingly, paragraph (c)(2)(i) does not 

apply to such a person. 

As an example, if a person selling 

securities to a plan is a fiduciary of the 

plan under section 3(21)(A)(i) or (iii) of 

ERISA (and therefore in paragraph 

(c)(1)(ii)(B) of the proposal),16 or is an 

investment adviser as defined in the 

Advisers Act (and therefore in 

paragraph (c)(1)(ii)(C) of the proposal),17

then the person may seek to utilize 

paragraph (c)(2)(i) to avoid fiduciary 

status under the proposal in connection 

with the sale. However, if the person 

also makes a representation of ERISA 

fiduciary status in connection with the 

sale, orally or in writing, then paragraph 

(c)(2)(i) would not be available. The 

Department intends that a person 

seeking to avoid fiduciary status under 

the proposal by reason of the 

application of paragraph (c)(2)(i) must 

demonstrate compliance with all 

applicable requirements of the 

limitation. 

Paragraph (c)(2)(ii) describes certain 

activities taken in connection with 

individual account plans that will not, 

in and of themselves, be treated as 

rendering investment advice for 

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

Paragraph (c)(2)(ii)(A) clarifies that the 

provision of investment education 

information and materials described in 

29 CFR 2509.96–1(d) will not constitute 

the rendering of investment advice 

under section 3(21)(A)(ii) of ERISA. In 

29 CFR 2509.96–1(d), the Department 

identified four specific categories of 

information and materials which, if 

furnished, alone or on combination, to 

plan participants or beneficiaries would 

not result in the rendering of investment 

advice under the current regulation. The 

Department reasoned that these 

categories of information and 

materials—plan information, general 

financial and investment information, 

asset allocation models, and interactive 

materials—would not involve advice or 

recommendations within the meaning of 

paragraph (c)(1)(i) of the current 

regulation.18 The proposed 

modifications to the advice and 

recommendations described in 

paragraph (c)(1)(i) would not change 

this conclusion. This is reflected in 

paragraph (c)(2)(ii)(A). The Department 

notes that the information and materials 

described in 29 CFR 2509.96–1(d) 

merely represent examples of the type of 

information and materials that may be 

furnished to a participant or beneficiary 

without being considered the rendering 

of investment advice under the 

proposal. 

Paragraphs (c)(2)(ii)(B) and 

(c)(2)(ii)(C) address certain common 

practices that have developed with the 

growth of participant-directed DC plans. 

Service providers such as recordkeepers 

and third party administrators 

sometimes make available a menu of 

investments from which a plan 

fiduciary selects a more limited menu 

that will be available under the plan for 

participant or beneficiary investment. 

The provider may simply offer a 

‘‘platform’’ of investments from which 

the plan fiduciary selects those 

appropriate for the plan, or the provider 

may select, or assist the plan fiduciary 

in selecting the investments that will be 

available under the plan. The service 

provider also sometimes retains the 

ability to later make changes to the 

plan’s investment menu, subject to 

advance approval by the plan fiduciary. 

In some instances, the provider and the 

plan fiduciary clearly understand that 

the provider is offering investments as 

to which the provider has financial or 

other relationships, and is not 

purporting to provide impartial 

investment advice regarding 

construction of the plan’s investment 

menu. In other instances, the plan 

fiduciary is relying on the provider’s 

impartial expertise in selecting an 

investment menu for the plan. Also, to 

assist in the plan fiduciary’s selection or 

monitoring of investments from those 

made available, such a service provider 

also might provide to the fiduciary 

general financial information and data 

regarding matters such as historic 

performance of asset classes and of the 

investments available through the 

provider. 

To help address any uncertainty as to 

how these arrangements are treated 

under the proposal, the Department is 

clarifying at paragraph (c)(2)(ii)(B) that, 

with respect to an individual account 

plan, the marketing or making available 

(e.g., through a platform or similar 

mechanism), without regard to the 

individualized needs of the plan, its 

participants, or beneficiaries, securities 

or other property from which a plan 

fiduciary may designate investment 

alternatives into which plan 

participants or beneficiaries may direct 

the investment of assets held in, or 

contributed to, their individual 

accounts, will not, by itself, be treated 

as the rendering of investment advice 

within the meaning of section 

3(21)(A)(ii) of ERISA if the person 

making available such investments 

discloses in writing to the plan fiduciary 

that the person is not undertaking to 

provide impartial investment advice.19

Paragraph (c)(2)(ii)(C) of the proposal 

further clarifies that, in connection with 

the activities described in paragraph 

(c)(2)(ii)(B), the provision of certain 

information and data to assist a plan 

fiduciary’s selection or monitoring of 

such plan investment alternatives will 

not be treated as rendering investment 

advice if the person providing such 

information or data discloses in writing 

to the plan fiduciary that the person is 

not undertaking to provide impartial 

investment advice. 

The Department recognizes that 

compliance with a number of ERISA’s 

reporting and disclosure provisions 

requires information on the value of 

plan assets. The Department does not 

intend, as a general matter, for such 

information provided solely for 

compliance purposes to fall within the 

type of advice described under that 

proposal. Paragraph (c)(2)(iii) provides 

that advice described in paragraph 

(c)(1)(i)(A)(1) does not encompass the 

preparation of a general report or 

statement that merely reflects the value 

of an investment of a plan or a 

participant or beneficiary, provided for 

purposes of compliance with the 

reporting and disclosure requirements 

of the Act, the Internal Revenue Code, 

and the regulations, forms and 

schedules issued thereunder, unless 

such report involves assets for which 

there is not a generally recognized 

market and serves as a basis on which 

a plan may make distributions to plan 

participants and beneficiaries. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 65269 

d. Fee Requirement 

A necessary element of fiduciary 

status under section 3(21)(A)(ii) of 

ERISA is that a person must render 

investment advice for a fee or other 

compensation, direct or indirect. 

Paragraph (c)(3) provides that purposes 

of section 3(21)(A)(ii), a fee or other 

compensation, direct or indirect, 

received by a person for rendering 

investment means any fee or 

compensation for the advice received by 

the person (or by an affiliate) from any 

source and any fee or compensation 

incident to the transaction in which the 

investment advice has been rendered or 

will be rendered. For example, the term 

fee or compensation includes, but is not 

limited to, brokerage, mutual fund sales, 

and insurance sales commissions. It 

includes fees and commissions based on 

multiple transactions involving different 

parties. 

e. Application Under Code Section 4975 

Code section 4975(e)(3) contains a 

provision that is parallel to ERISA 

section 3(21)(A)(ii) and defines the term 

‘‘fiduciary’’ for purposes of the 

prohibited transaction excise tax 

provisions in Code section 4975. In 

1975, the Department of the Treasury 

issued a regulation under Code section 

4975(e)(3), found at 26 CFR 54.4975– 

9(c), that parallels 29 CFR 2510.3–21(c). 

Under section 102 of Reorganization 

Plan No. 4 of 1978, 5 U.S.C. App. 1 

(1996), the authority of the Secretary of 

the Treasury to interpret section 4975 of 

the Code has been transferred, with 

certain exceptions not here relevant, to 

the Secretary of Labor. Paragraph (c)(4) 

clarifies that the proposed amendments 

to the definition of the term ‘‘fiduciary’’ 

in 29 CFR 2510.3–21(c) also apply for 

purposes of the application of Code 

section 4975 with respect to any plan 

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

regardless of whether such plan is an 

employee benefit plan. 

C. Effective Date 

The Department proposes that the 

regulations contained in this document 

will be effective 180 days after 

publication of the final regulations in 

the Federal Register. The Department 

invites comments on whether the final 

regulations should be made effective on 

a different date. 

D. Request for Comment 

The Department invites comments 

from interested persons on the proposed 

rule. To facilitate the receipt and 

processing of comment letters, the EBSA 

encourages interested persons to submit 

their comments electronically by e-mail 

to e-ORI@dol.gov (enter into subject 

line: Definition of Fiduciary Proposed 

Rule) or by using the Federal 

eRulemaking portal at http:// 

www.regulations.gov. Persons 

submitting comments electronically are 

encouraged not to submit paper copies. 

Persons interested in submitting paper 

copies should send or deliver their 

comments to the Office of Regulations 

and Interpretations, Employee Benefits 

Security Administration, Attn: 

Definition of Fiduciary Proposed Rule, 

Room N–5655, U.S. Department of 

Labor, 200 Constitution Avenue, NW., 

Washington, DC 20210. All comments 

will be available to the public, without 

charge, online at http:// 

www.regulations.gov and http:// 

www.dol.gov/ebsa and at the Public 

Disclosure Room, N–1513, Employee 

Benefits Security Administration, U.S. 

Department of Labor, 200 Constitution 

Avenue, NW., Washington, DC 20210. 

The comment period for the proposed 

regulations will end 90 days after 

publication of the proposed rule in the 

Federal Register. The Department 

believes that this period of time will 

afford interested persons an adequate 

amount of time to analyze the proposal 

and submit comments. Written 

comments on the proposed rule should 

be submitted to the Department on or 

before January 20, 2011. 

E. Regulatory Impact Analysis 

1. Executive Order 12866 Statement 

Under Executive Order 12866 (58 FR 

51735), the Department must determine 

whether a regulatory action is 

‘‘significant’’ and therefore 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 $100 

million or more, or adversely and 

materially affecting a sector of the 

economy, productivity, competition, 

jobs, the environment, public health or 

safety, or State, local or Tribal 

governments or communities (also 

referred to as ‘‘economically 

significant’’); (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 novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. OMB has determined that this 

rule is economically significant within 

the meaning of section 3(f)(1) of the 

Executive Order, because it is likely to 

have an effect on the economy of $100 

million in any one year. Accordingly, 

OMB has reviewed the rule pursuant to 

the Executive Order. The Department 

performed a comprehensive, unified 

analysis to estimate the costs and, to the 

extent feasible, provide a qualitative 

assessment of benefits attributable to the 

proposed rule for purposes of 

compliance with Executive Order 12866 

and the Regulatory Flexibility Act. The 

analysis is summarized in Table 1, 

below. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
65270 Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 

20 29 CFR 2510.3–21(c). 

21The scope of the regulation was further limited 

by the Department in a 1976 advisory opinion (AO 

76–65), in which it concluded that, under the facts 

described therein, a valuation of closely held 

employer securities that would be relied on in the 

purchase of the securities by an employee stock 

ownership plan (ESOP) would not constitute 

investment advice under the regulation. 

22See U.S. Department of Labor, Employee 

Benefits Security Administration, ‘‘Private Pension 

Plan Bulletin Historical Tables and Graphs,’’ 

January 2010, p. 1. This document can be found at 

http://www.dol.gov/ebsa/pdf/1975- 

2007historicaltables.pdf. Please note that the 

number of active participants in 1975 and 2007 are 

not directly comparable because of adjustments in 

the definition of a participant. This adjustment is 

explained in detail in the historical tables and 

graphs. 

23See, GAO, Conflicts of Interest Can Affect 

Defined Benefit and Defined Contribution Plans, 

GAO–09–503T, Testimony Before the 

Subcommittee on Health, Employment, Labor and 

Pensions, Education and Labor Committee, House 

of Representatives (March 24, 2009), accessible at 

http://www.gao.gov/new.items/d09503t.pdf. 

TABLE 1—ACCOUNTING TABLE

Benefits 

Annualized Monetized ($millions/year)—Not Quantified. 

Qualitative: The proposed regulation’s new definition of when a person is considered a ‘‘fiduciary’’ of a pension plan by reason of providing investment advice will discourage harmful conflicts of interest, improve service value, and enhance the Department’s ability to redress abuses 

and more effectively and efficiently allocate its enforcement resources. The proposed regulation also should help plans by giving them a 

means to seek recoupment of losses and disgorgement of ill-gotten gains from those newly-considered fiduciaries who engage in misconduct. 

While most of the recoupment will be transfers, they are welfare improving, because they return money to plans that would not have been 

taken from them if the service provider had been acting in the best interest of the plan and its participants and beneficiaries as required by 

ERISA. Given the magnitude of plan assets that may be affected, even a small service value improvement by a moderate number of plans 

could yield economically significant benefits. 

Costs ................................................................................................................................ Estimate Year dollar Discount 

rate 

Period 

covered 

Annualized Monetized ($millions/year) for service provider compliance review and implementation costs ....................................................................................................... 2.1 2010 7% 2011–2020 

1.9 2010 3% 2011–2020 

Annualized Monetized ($millions/year) for higher costs of doing business for service providers not previously covered by the fiduciary definition—Not Quantified. 

Qualitative: An increased number of service providers could become fiduciaries to the plans to whom they provide services. These service providers could experience higher costs of doing business due to increased liability. To the extent costs and liabilities rise, the plan service provider market could become compressed if plan service providers leave the market. As more service providers become fiduciaries, more transactions could violate ERISA prohibited transaction rules. Absent applicable prohibited transaction exemptions, service providers would have to 

restructure transactions and/or modify business practices. 

2. Background and Need for Regulatory 

Action 

As stated earlier in this preamble, 

section 3(21)(A)(ii) of ERISA defines a 

fiduciary as a person that renders 

investment advice to a plan for a fee or 

other compensation, direct or indirect, 

with respect to any moneys or other 

property of such plan, or has any 

authority or responsibility to do so. In 

1975, shortly after ERISA was enacted, 

the Department adopted a regulation 20

that significantly limited the broad 

statutory language. The current 

regulation provides that a person 

provides ‘‘investment advice’’ for 

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

ERISA only if it renders advice as to the 

purchase, sale, or value of securities or 

other property and either has 

discretionary authority or control with 

respect to the purchase of property for 

the plan, or, in the alternative, the 

person (1) renders advice as to the 

purchase, sale, or value of securities or 

other property, (2) on a regular basis, (3) 

pursuant to a mutual agreement, 

arrangement or understanding, written 

or otherwise, between such person and 

the plan or a plan fiduciary, that (4) the 

advice will serve as a primary basis for 

investment decisions with respect to 

plan assets, and that (5) the advice will 

be individualized based on the 

particular needs of the plan (hereinafter 

referred to as the ‘‘five-part test’’).21

Under the current regulation, a plan 

service provider must satisfy each 

element of the five-part test in order to 

be considered a fiduciary under ERISA 

section 3(21)(A)(ii) unless the service 

provider renders advice and has 

discretionary authority or control with 

respect to purchasing or selling 

securities or other property for the plan. 

The current regulation has not been 

updated since it was promulgated in 

1975. Since that time, the design and 

operation of employee benefit plans has 

changed significantly. One of the most 

dramatic changes has been the growth of 

defined contribution (DC) plans, 

specifically, 401(k) plans, which did not 

exist when the current regulation was 

promulgated. Department of Labor data 

show that from 1975 through 2007, the 

percentage of active participants 

covered by DC plans grew from 29% to 

78% and 90% of these active DC plan 

participants were covered by 401(k) 

plans.22 Importantly, about 89% of 

401(k) plans covering 95% of all active 

401(k) plan participants are participantdirected, which means that participants 

make investment decisions regarding 

the investment of assets held in their 

individual accounts by choosing from a 

diverse menu of designated investment 

alternatives selected by plan sponsors. 

In 2009, the Government 

Accountability Office (GAO) found that 

many opportunities exist in the 401(k) 

marketplace for plans to hire service 

providers that have business 

arrangements that could give rise to 

conflicts of interest.23 For example, the 

GAO noted that plans often hire 

consultants and other advisers to 

provide advice regarding investment 

options and products that should be 

offered under the plan and to monitor 

the performance of the selected 

investments. In some cases, consultants 

receive compensation from the 

investment companies whose products 

they recommend to the plan, which 

could lead them to steer the plans 

toward products for which they receive 

additional compensation. These 

arrangements can be harmful to plan 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 65271 

24See U.S. Securities and Exchange Commission, 

Office of Compliance Inspections and 

Examinations, Staff Report Concerning Examination 

of Select Pension Consultants (Washington, DC: 

May 16, 2005.). The report’s findings were based on 

a 2002 to 2003 examination of 24 pension 

consultants. The report can be accessed at http:// 

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

25The GAO found that DB pension plans using 

consultants with SEC-identified undisclosed 

conflicts earned returns 130 basis points lower than 

the others, which implies that bias may taint 

consultants’ advice. See e.g., GAO, Conflicts of 

Interest Involving High Risk of Terminated Plans 

Pose Enforcement Challenges, Defined Benefit 

Pension Report (June 2007), at http://www.gao.gov/ 

new.items/d07703.pdf. 

26See U.S. Securities and Exchange Commission, 

Office of Compliance Inspections and 

Examinations, Staff Report Concerning Examination 

of Select Pension Consultants, p. 6 (Washington, 

DC: May 16, 2005). 

participants, because the plan may pay 

excessive fees for the provided services, 

which could lower returns. Participants 

in participant-directed 401(k) plans are 

especially vulnerable in these 

situations, because they must rely on 

the assets in their individual accounts to 

meet their retirement income needs. 

There also is a greater potential for 

conflicts of interest to exist in the 

defined benefit pension plan service 

provider market than when the current 

regulation was promulgated. Due to the 

increased complexity of investment 

opportunities available to defined 

benefit plans, plan sponsors often seek 

investment advice from a broad range of 

service providers. Some of these service 

providers have business arrangements 

that can give rise to conflicts of interest. 

For example, in a May 2005 study,24 the 

Securities and Exchange Commission 

(SEC) staff found that 13 of the 24 

pension consultants examined or their 

affiliates had undisclosed conflicts of 

interest, because they provided products 

and services to pension plan advisory 

clients, money managers, and mutual 

funds on an ongoing basis without 

adequately disclosing these conflicts. 

The SEC staff also found that the 

majority of examined pension 

consultants had business relationships 

with broker-dealers that raised a number 

of concerns about potential harm to 

pension plans. 

The current regulation’s narrow 

approach to fiduciary status sharply 

limits the Department’s ability to protect 

plans and their participants and 

beneficiaries from conflicts of interest 

that may arise from the diverse and 

complex fee practices existing in today’s 

retirement plan services market and to 

devise effective remedies for 

misconduct when it occurs. In recent 

years, non-fiduciary service providers— 

such as consultants, appraisers, and 

other advisers—have abused their 

relationships with plans by 

recommending investments in exchange 

for undisclosed kickbacks from 

investment providers, engaging in bidrigging, misleading plan fiduciaries 

about the nature and risks associated 

with plans investments, and by giving 

biased,25 incompetent, and unreliable 

valuation opinions. Yet, no matter how 

egregious the abuse, plan consultants 

and advisers have no fiduciary liability 

under ERISA, unless they meet every 

element of the five-part test. 

In instances where a plan has relied 

upon abusive investment advice from a 

self-dealing consultant concerning an 

investment product on a single 

occasion, the Department would be 

unable to bring an action for fiduciary 

breach against the consultant, because 

the ‘‘regular basis’’ element of the 

current regulation’s five-part test would 

not be satisfied. The consultant would 

be absolved of liability regardless of the 

severity of the abuse or the extent of the 

plan’s reliance. This is true even if the 

consultant engaged in precisely the 

same conduct that would have been per 

se illegal if committed by an equally 

culpable consultant that met the current 

regulation’s ‘‘regular basis’’ test. 

For example, a plan’s purchase of 

annuity contracts is a major transaction, 

but it may occur only in connection 

with the plan’s termination. As a result, 

the Department could not pursue a civil 

enforcement action against an insurance 

brokerage company for accepting 

kickbacks from an annuity carrier while 

advising plans for a fee regarding the 

selection of annuity contracts. Even 

where the brokerage company’s 

recommendation was the primary basis 

for the plan’s choice of annuity 

providers, the brokers could not be held 

accountable as fiduciaries because the 

advice would not have been offered on 

a regular basis. 

Another anomaly associated with the 

current regulation is that the five-part 

test applies even to persons who 

represent themselves to the plan as 

fiduciaries in rendering investment 

advice. For example, a consultant could 

hold itself out as a plan fiduciary in a 

written contract with the plan, render 

investment advice for a fee, and still 

evade fiduciary status by showing that 

its advice was insufficiently ‘‘regular,’’ 

did not serve as a ‘‘primary basis’’ for the 

decision, or otherwise failed to meet 

each element of the five-part test. The 

current test also makes it easy for 

consultants to structure their actions to 

avoid fiduciary status. The SEC found 

evidence of this practice in its pension 

consultants examination and made the 

following statement regarding this issue 

in its report: ‘‘Many pension consultants 

believe they have taken appropriate 

actions to insulate themselves from 

being considered a ‘fiduciary’ under 

ERISA. As a result, it appears that many 

consultants believe they do not have 

any fiduciary relationships with their 

advisory clients * * *.’’ 26

An adviser’s recommendation may 

involve significant sums and matters of 

specialized expertise, and it may 

include professions of impartiality. 

However, unless the advice meets each 

element of the current regulation’s 

5-part test, ERISA’s remedies for lack of 

due diligence and disloyalty are 

unavailable to the plan. 

In contrast, when a fiduciary uses its 

position of trust to enrich itself by 

engaging in self-dealing and 

subordinating the plans’ interests to its 

own, it violates numerous provisions of 

ERISA, including its duty of loyalty 

provided in section 404 of ERISA and 

the prohibitions on self-dealing 

provided in section 406(b) of ERISA. 

Such a fiduciary also exposes itself to 

the broadest possible range of remedies 

under ERISA. 

Applying the current regulation in 

today’s service provider market has had 

a detrimental impact on EBSA’s 

allocation of its enforcement resources. 

EBSA seeks to focus its enforcement 

resources on areas that have the greatest 

impact on the protection of plan assets 

and participants’ benefits. To 

accomplish this goal, EBSA requires its 

field offices to place particular emphasis 

on certain national enforcement 

projects. The determination of fiduciary 

status is particularly important to two 

national enforcement projects: The 

Employee Stock Ownership Plan (ESOP) 

Project and the Consultant/Adviser 

Project (CAP). 

The ESOP project is designed to 

identify and correct violations of ERISA 

in connection with ESOPs, which are 

designed to invest primarily in 

employer securities. CAP focuses on the 

receipt of improper or undisclosed 

compensation by employee benefit plan 

consultants and other investment 

advisers. EBSA’s investigations seek to 

determine whether the receipt of such 

compensation, even when disclosed, 

violates ERISA because the adviser/ 

consultant leveraged its position with a 

benefit plan to generate additional fees 

for itself or its affiliates. When ERISA 

violations are uncovered, EBSA will 

seek corrective action for past violations 

as well as prospective relief to deter 

future violations. 

One of the most critical elements in 

bringing enforcement actions under the 

ESOP and CAP initiatives is establishing 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
65272 Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 

27While in general small plans are not required 

to file a Schedule C, some voluntarily file. Looking 

at Schedule C filings by small plans, the 

Department verified that most small plans reporting 

data on Schedule C used the same group of service 

providers as larger plans. 

28See U.S. Securities and Exchange Commission, 

Office of Compliance Inspections and 

Examinations, Staff Report Concerning Examination 

of Select Pension Consultants, p. 5 (Washington, 

DC: May 16, 2005). 

29See, GAO, Conflicts of Interest Can Affect 

Defined Benefit and Defined Contribution Plans, 

GAO–09–503T, Testimony Before the 

Subcommittee on Health, Employment, Labor and 

Pensions, Education and Labor Committee, House 

of Representatives (March 24, 2009), accessible at 

http://www.gao.gov/new.items/d09503t.pdf. 

30Examples include: Daniel B. Bergstresser et al., 

Assessing the Costs and Benefits of Brokers in the 

Mutual Fund Industry, Social Science Research 

Network Abstract 616981 (Sept. 2007). Mercer 

Bullard et al., Investor Timing and Fund 

Distribution Channels, Social Science Research 

Network Abstract 1070545 (Dec. 2007). Xinge Zhao, 

The Role of Brokers and Financial Advisors Behind 

Investment Into Load Funds, China Europe 

International Business School Working Paper (Dec. 

2005), at http://www.ceibs.edu/faculty/zxinge/ 

brokerrole-zhao.pdf. 

that a service provider is a fiduciary. In 

order to make this determination, 

investigators must gather evidence to 

support a finding for each element of 

the five-part test. In all cases, the 

analysis necessary to determine 

fiduciary status is very fact-intensive 

and requires extensive review of plan 

documents and contracts, client files, 

e-mails, investment documentation, 

accounting records, and interview 

statements to be obtained from service 

providers and their affiliates. 

Consequently, EBSA investigators 

routinely devote disproportionate time 

and resources establishing all elements 

of the five-part test, rather than focusing 

on the precise misconduct at issue in 

particular cases. 

Based on the foregoing, the 

Department has determined that 

regulatory action is necessary to adopt 

a definition of the term ‘‘fiduciary’’ that 

more closely reflects the broad statutory 

definition of the term, recognizes the 

diverse and complex fee practices that 

exist in today’s service provider market 

and their potential conflicts, accounts 

for the shift from DB to DC plans, 

expands the scope of fiduciary 

protections for plans and their 

participants and beneficiaries, and 

permits EBSA investigators and 

attorneys to focus their efforts on the 

adviser’s conduct rather than meeting 

the evidentiary requirements necessary 

to prove that all elements of the current 

regulation’s five-part test are satisfied. 

As discussed in further detail below, the 

Department believes that amending the 

current regulation by broadening the 

scope of service providers that would be 

considered fiduciaries would enhance 

the Department’s ability to redress 

service provider abuses that currently 

exist in the market, such as undisclosed 

fees, misrepresentation of compensation 

arrangements, and biased appraisals of 

the value of employer securities and 

other plan investments. 

4. Affected Entities 

The Department used data from the 

Schedule C of the 2007 Form 5500, the 

latest available complete data, to 

estimate the universe of plan service 

providers that would be affected by the 

proposed rule. Generally, plans with 

100 or more participants are required to 

report on Schedule C persons who 

rendered services to or who had 

transactions with the plan during the 

reporting year if the person received, 

directly or indirectly, $5,000 or more in 

reportable compensation in connection 

with services rendered or their position 

with the plan. The type of services 

provided by each service provider also 

must be reported. Based on the 

Schedule C service codes, the 

Department estimates that 5,300 unique 

service providers most likely provide 

investment- and valuation-related 

services covered under the proposed 

rule that could cause them to be 

considered fiduciaries. In order to 

provide a reasonable estimate, service 

providers reporting service codes 

corresponding to brokerage (real estate), 

brokerage (stocks, bonds, commodities), 

consulting (general), insurance agents 

and brokers, valuation services 

(appraisals, asset valuation, etc.) and 

investment evaluations were assumed to 

provide covered services. Note that the 

code for investment advisory services 

was omitted, because we assume that 

such service providers are ERISA 

fiduciaries. 

The Department acknowledges that its 

estimate may be imprecise. Although 

some small plans file Schedule C, small 

plans generally are not required to 

complete Schedule C. Therefore, there 

would be an underestimate of covered 

services providers to small plans if a 

substantial number of the service 

providers only service small plans. The 

Department, however, believes that its 

estimated number of covered service 

providers is reasonable, because most 

small plans use the same service 

providers as large plans.27 The 

Department invites comments regarding 

this estimate. 

5. Benefits 

The Department expects that 

amending its current regulation defining 

the circumstances under which a person 

is a fiduciary under ERISA as a result of 

providing investment advice will 

discourage harmful conflicts, improve 

service value, and enhance the 

Department’s ability to redress abuses 

and more effectively and efficiently 

allocate its enforcement resources. 

Although the Department is unable to 

quantify these benefits, the Department 

tentatively concludes they would justify 

their cost. 

a. Discouraging Harmful Conflicts 

Harmful arrangements generally are 

those that are tainted by unmitigated 

conflicts. These arrangements occur 

when a plan’s service providers strike 

deals that profit one another at the 

plan’s expense or subordinate the plan’s 

interest to someone else’s. As 

mentioned earlier, in a 2005 report,28

SEC staff identified certain undisclosed 

arrangements in the business practices 

of pension consultants that can give rise 

to conflicts of interest. The SEC found 

that the objectivity of advice provided 

by the examined pension consultants 

was called into question, because many 

pension consultants provided services 

both to pension plans who are their 

clients and money managers. In the 

report, the SEC stated that this raises 

concerns that pension consultants may 

steer clients to certain money managers 

and other vendors based on the 

consultant’s other business 

relationships and receipt of fees from 

these firms, rather than because 

selecting the money manager or other 

vendor was in the best interest of the 

plan and its participants and 

beneficiaries. 

Also, as noted earlier in this 

Regulatory Impact Analysis, a recent 

GAO study links undisclosed conflicts 

with 130 basis points of 

underperformance in defined benefit 

pension plans.29 A variety of academic 

studies further support the hypothesis 

that conflicts often erode the value 

provided to defined contribution 

pension plans by mutual funds and 

their distribution channels.30

Beneficial arrangements generally are 

those in which a plan’s service 

providers, in competition to provide the 

best value to the plan, deliver high 

quality services to the plan at the lowest 

cost, and act solely in the interest of 

their plan clients and the plan’s 

participants and beneficiaries. 

According fiduciary status to certain 

service providers that provide 

investment advice and valuation 

services to plans and their participants, 

and subjecting them to the full extent of 

remedies under ERISA, would 

discourage harmful conflicts and create 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 65273 

31See, GAO, Conflicts of Interest Can Affect 

Defined Benefit and Defined Contribution Plans, 

GAO–09–503T, Testimony Before the 

Subcommittee on Health, Employment, Labor and 

Pensions, Education and Labor Committee, House 

of Representatives (March 24, 2009), accessible at 

http://www.gao.gov/new.items/d09503t.pdf. 

32Please note that Department’s proposal also 

would benefit participants and beneficiaries of 

ERISA-covered plans, because section 502(a)(2) of 

ERISA allows them to assert a private right of action 

against plan fiduciaries who breach any of the 

responsibilities, obligations, or duties imposed on 

fiduciaries under Title I of ERISA. 

more beneficial arrangements in the 

pension plan service provider market by 

deterring service providers from 

engaging in self-dealing, acting 

imprudently, and subordinating their 

plan clients’ interests to other interests 

due to the liability exposure and 

negative publicity that would result 

from being sued for a fiduciary breach 

under ERISA. 

b. Improved Service Value 

Under the proposal, certain service 

providers that are not fiduciaries under 

the Department’s current regulation 

would be determined to be fiduciaries 

under ERISA. Based on this change, the 

Department expects that affected service 

providers will modify their business 

practices to ensure that they act solely 

in the interests of their employee benefit 

plan clients and the plans’ participants 

and beneficiaries as required by section 

404 of ERISA. Therefore, plans should 

receive better value for the service fees 

they pay. Advisers are more likely to act 

in accordance with ERISA’s high 

fiduciary standards if they know that 

they may be held to them. Where a plan 

suffers a loss because of an investment 

adviser’s imprudence or actions 

contrary to the plan’s interests, the plan 

will have remedies under ERISA to 

recoup its losses and disgorge the 

adviser’s ill-gotten gains. This should 

provide the ancillary benefit of 

improved returns on plan assets and 

larger account balances for participants 

and beneficiaries of individual account 

plans. 

While the improvement in service 

value that may result from the proposed 

rule is difficult to quantify, the 

Department believes that it has the 

potential to be very large. If just 10 

percent of plans realize a one basis 

point (0.01 percent of plan assets) 

service value improvement, it would be 

worth approximately $399 million over 

ten years using a seven percent discount 

rate and reporting in 2010 dollars. In 

addition, GAO’s study linking 

undisclosed conflicts with 130 basis 

points of underperformance suggests 

that value can be improved via service 

quality as well as price.31 Viewed in this 

context, the Department is confident 

that service value improvement could 

be substantial as a result of the proposed 

rule and may be economically 

significant (i.e., exceed $100 million 

annually). 

c. Improve Department’s Ability To 

Redress Abuse and Improve 

Enforcement Resource Allocation 

Amending the Department’s current 

regulation by broadening the scope of 

service providers that would be 

considered fiduciaries would enhance 

the Department’s ability to redress 

service provider abuses that currently 

exist in the market, such as undisclosed 

fees, misrepresentation of compensation 

arrangements, and biased appraisals of 

the value of employer securities and 

other plan investments.32 It also would 

allow the Department to more 

effectively and efficiently allocate its 

enforcement resources, which would 

directly benefit plans and their 

participants and beneficiaries by 

providing greater protections than are 

available under the current regulation. 

Specifically, the proposed rule would 

improve the Department’s ability to 

redress abuse, provide additional 

protection to plans and their 

participants and beneficiaries, and 

allocate its enforcement resources by: 

• Including as fiduciary investment 

advice appraisals and fairness opinions 

concerning value of securities or other 

property; 

• According fiduciary status to 

persons who render investment advice 

for a fee to a plan, its participants or 

beneficiaries and directly or indirectly 

represent or acknowledge that they are 

acting as a fiduciary within the meaning 

of ERISA in rendering the advice; and 

• Expediting the resolution of 

difficult factual questions and 

enforcement challenges by removing the 

requirements in the current regulation’s 

five-part test that investment advice 

must be provided on a regular basis 

based on the parties’ mutual 

understanding and that the advice will 

serve as a primary basis for plan 

investment decisions. 

These benefits are discussed in more 

detail below. 

Appraisals and Valuation Opinions: 

As discussed earlier in this preamble, 

EBSA’s national ESOP enforcement 

project is focused on identifying and 

correcting violations of ERISA in 

connection with ESOPs, which are 

designed to invest primarily in 

employer securities. A common 

violation found in the ESOP national 

enforcement project arises in cases 

where plan fiduciaries have reasonably 

relied on faulty valuations of securities 

prepared by professional appraisers. 

The proposed rule, which would 

supersede AO 76–65A, and therefore 

would apply to appraisals and fairness 

opinions rendered in connection with 

plan investment transactions would 

align the duties of persons who provide 

appraisals with those of fiduciaries who 

rely on these appraisals. As noted 

above, the provision in the proposed 

rule is not limited to employer 

securities. 

Persons Holding Themselves Out as 

Fiduciaries: The proposed rule provides 

that a person is a fiduciary if it (1) 

renders investment advice described in 

the proposal to a plan, plan fiduciary, or 

plan participant or beneficiary for a fee 

or other compensation and (2) directly 

or indirectly represents or acknowledges 

that it is acting as a fiduciary within the 

meaning of ERISA with respect to the 

plan in rendering the advice. Many 

pension plans rely heavily on the expert 

guidance provided by consultants and 

other advisers in managing the 

investment of plan assets. The 

Department believes that claiming 

ERISA fiduciary status enhances the 

adviser’s influence, and gives the advice 

recipient a reasonable expectation that 

the advice will be impartial and 

prudent. Therefore, the proposed rule 

provides that such a representation or 

acknowledgment in connection with 

advice is sufficient to constitute 

investment advice under the proposal 

which, if rendered for a direct or 

indirect fee or other compensation, 

would result in fiduciary status under 

section 3(21)(A)(ii) of ERISA. 

Simplifying Current Rule’s Five-Part 

Test: As stated earlier in this preamble, 

EBSA’s CAP project focuses on the 

receipt of improper, undisclosed 

compensation by pension consultants 

and other investment advisers, and 

whether the receipt of such 

compensation violates ERISA, because 

the adviser/consultant used its position 

with a benefit plan to generate 

additional fees for itself or its affiliates. 

One of the most substantial 

impediments confronting CAP 

investigators when bringing 

enforcement actions under the CAP 

program is proving that all elements of 

the current rule’s five-part test are met. 

As stated earlier, CAP investigators 

spend an inordinate amount of time 

gathering evidence to satisfy all 

elements of the five-part test rather than 

focusing on the misconduct involved in 

a particular case. 

The proposed rule would remove this 

impediment by eliminating the 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
65274 Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 

33Estimate based on the Department’s 

comparison of data reported on the 2005 and 2006 

Form 5500. 

requirement that advice must be 

provided on a ‘‘regular basis.’’ This 

condition bears no necessary 

relationship to the importance of the 

advice to the plan or the culpability of 

the adviser. The proposal also does not 

require the parties to have a mutual 

understanding that the advice will serve 

as a ‘‘primary basis’’ for plan investment 

decisions. This should allow EBSA to 

more efficiently allocate its enforcement 

resources, because investigators no 

longer would need to devote 

disproportionate time to prove that 

these elements of the five-part test are 

met. 

6. Costs 

The Department estimated the costs 

for the proposal over the ten-year time 

frame for purposes of this analysis and 

used information from the quantitative 

characterization of the service provider 

market presented above as a basis for 

these cost estimates. This 

characterization did not account for all 

service providers, but it does provide 

information on the segments of the 

service provider industry that are likely 

to be most affected by the proposal (i.e., 

those who provide investment- and 

valuation-related services to employee 

benefit plans). 

Most of the cost of the rule would be 

imposed on affected plan service 

providers. These service providers 

would need to review the proposed rule 

and determine whether their current 

service provider contracts and 

arrangements with plans, or activities 

carried out pursuant to them, would 

make them fiduciaries under the 

proposal. 

For purposes of this analysis, the 

Department assumes that all affected 

service providers will incur these initial 

compliance review costs. The 

Department believes that service 

providers will need to review their 

entire book of business, not each 

individual transaction or a plan-by-plan 

review, to determine whether they are 

fiduciaries, because service providers 

will enter into agreements with plans to 

provide similar types of services. The 

Department assumes that affected 

service providers will require on 

average 16 hours of legal professional 

time at a cost of approximately $119 per 

hour to perform the compliance review. 

Based on the foregoing, this cost is 

estimated to be approximately $10.1 

million in the first year. 

The Department also has estimated 

the initial compliance review and 

implementation costs for service 

providers newly entering the market 

(‘‘new service providers’’) to provide 

services to plans (either for the first time 

or by re-entry) beginning in 2012 and 

each year thereafter. The Department 

assumes that about eight percent of all 

service providers will be new in each 

year subsequent to 2011,33 and that 

these service providers will incur the 

same compliance review and 

implementation costs as existing service 

providers. Based on the foregoing, the 

Department estimates that new service 

providers will incur costs of 

approximately $845,000 in 2012 and 

thereafter. Estimates of the cost of the 

rule over the first ten years are reported 

in Table 2, below. 

The Department’s estimate regarding 

the time required for service providers 

to complete the compliance review to 

determine whether they are fiduciaries 

under the proposal as a result of 

providing investment advice to a plan or 

a plan participant or beneficiary is 

based on an average cost for large and 

small service providers to conduct the 

review. In developing this estimate, the 

Department has accounted for the fact 

that large service providers may require 

more time than small service providers 

to complete the compliance review due 

to the wide range of services they 

provide and the complexity of their 

business arrangements and affiliate 

relationships. The Department believes 

that the burden for service providers to 

complete the compliance review is 

mitigated by the fact that the proposal 

sets forth discrete types of advice and 

recommendations that constitute 

investment advice for purposes of 

ERISA section 3(21)(A)(ii). The 

Department welcomes public comments 

regarding this estimate. 

TABLE 2—MONETIZED COSTS OF RULE (2010 DOLLARS) 

Year 

Cost of legal 

review 

undiscounted 

(A) 

Total 3% 

discounting 

Total 7% 

discounting 

2011 ....................................................................................................................................... $10,138,000 $10,138,000 $10,138,000 

2012 ....................................................................................................................................... 845,000 820,000 790,000 

2013 ....................................................................................................................................... 845,000 796,000 738,000 

2014 ....................................................................................................................................... 845,000 773,000 690,000 

2015 ....................................................................................................................................... 845,000 751,000 644,000 

2016 ....................................................................................................................................... 845,000 729,000 602,000 

2017 ....................................................................................................................................... 845,000 708,000 563,000 

2018 ....................................................................................................................................... 845,000 687,000 526,000 

2019 ....................................................................................................................................... 845,000 667,000 492,000 

2020 ....................................................................................................................................... 845,000 647,000 460,000 

Total ................................................................................................................................ 17,741,000 16,715,000 15,642,000 

Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. 

7. Regulatory Alternatives 

As discussed elsewhere in the 

preamble to the proposal, plan service 

providers that fall within the 

Department’s rule might experience 

increased costs and liability exposure 

associated with ERISA fiduciary status. 

Consequently, these service providers 

might charge higher fees to plan clients, 

or limit or discontinue the availability 

of their services or products to ERISA 

plans. As further discussed below, the 

Department considered but rejected two 

regulatory alternatives, because these 

alternatives could lead to higher fees for 

plans and a compression of the plan 

service provider market. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 65275 

In developing this proposal, the 

Department sought to broaden the scope 

of the persons treated as ERISA 

fiduciaries, without creating an overlybroad or ambiguous standard that might 

unnecessarily disadvantage plans. As an 

alternative, the Department considered a 

proposal that would replace the current 

regulatory definition with the language 

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

provides simply that a person is a 

fiduciary if it renders investment advice 

for a fee or other compensation, direct 

or indirect, with respect to any moneys 

or other property of a plan, or has any 

authority or responsibility to do so. 

However, the Department believes this 

approach would not provide sufficient 

clarity for persons to determine whether 

they are ERISA fiduciaries. Without a 

sufficiently clear standard, a broad 

range of plan service providers, in order 

to mitigate or avoid any potential risks, 

might simply presume fiduciary status 

and charge higher fees to plan clients, 

or limit or discontinue the availability 

of their services or products to ERISA 

plans. The Department rejected this 

alternative. The Department’s proposal 

attempts to identify fiduciaries based on 

readily-ascertainable criteria related to 

their degree of authority, control, 

responsibility or influence and the 

expectations of the parties involved. 

The Department considered another 

alternative that would not have 

included in the proposal an explicit 

limitation applicable to service 

providers that offer of a ‘‘platform’’ of 

investment options. Defined 

contribution plans that permit 

participants to direct the investment of 

assets allocated to their accounts have 

become increasingly popular. Often, the 

service provider offering a platform, as 

an incidental part of its overall services, 

also provides the plan sponsor with 

general information and assistance in 

assessing the investments available for 

inclusion in the plan’s platform. The 

Department rejected this alternative, 

because if the proposal does not provide 

sufficient clarity as to whether their 

activities related to offering an 

investment platform would result in 

fiduciary status, these service providers 

might increase their fees, limit the types 

of investment-related information made 

available to plan sponsors, or cease 

offering their services to plans. In order 

to provide clarity, the Department’s 

proposal attempts to describe the 

circumstances under which merely 

offering a platform of investment 

options, and certain incidental services, 

will not cause a person to become an 

ERISA fiduciary. 

8. Uncertainty 

The Department’s estimates of the 

effects of this proposed rule are subject 

to uncertainty. The Department is 

confident that adopting a new definition 

of the term ‘‘fiduciary’’ should 

discourage harmful conflicts of interest, 

improve service value, and enhance the 

Department’s ability to redress abuses 

and more effectively and efficiently 

allocate its enforcement resources. 

However, it is uncertain about the 

magnitude of these benefits and 

potential costs. It is possible this rule 

could have a large market impact. 

For example, the Department is 

uncertain regarding whether, and to 

what extent, service provider costs 

would increase due to the proposed 

rule, and if so, whether the increased 

cost would be passed on to plans. The 

Department expects that more service 

providers would be determined to be 

fiduciaries under the proposed rule than 

under the current regulation. These 

service providers could experience 

higher costs of doing business due to the 

increased liability exposure that is 

associated with ERISA fiduciary status, 

such as fiduciary liability insurance 

costs, which could result in higher fees 

for their plan clients. The Department 

also is uncertain whether the service 

provider market will shrink because 

some service providers would view the 

increased costs and liability exposure 

associated with ERISA fiduciary status 

as outweighing the benefit of continuing 

to service the ERISA plan market. The 

Department does not have enough 

information to provide a specific 

number. However, it is possible that 

many plans currently employ service 

providers who would be considered 

fiduciaries for the first time under the 

proposal. 

Also, if more service providers are 

fiduciaries, more transactions would 

violate the self-dealing prohibitions 

contained in ERISA section 406(b). In 

order to avoid committing prohibited 

transactions, affected service providers 

would have to identify transactions that 

would be prohibited because they 

involve self-dealing, restructure these 

transactions, and modify their business 

practices in the absence of an applicable 

statutory, class, or individual prohibited 

transaction exemption. The Department 

is uncertain regarding the number of 

transactions that would have to be 

restructured, whether an applicable 

prohibited transaction exemption would 

be available for such transactions, and if 

not, the number of prohibited 

transactions exemption applications the 

Department could expect to receive 

regarding the transactions. The 

Department welcomes public comments 

regarding this issue. 

The Department believes its 

assumptions are reasonable based on the 

available information and tentatively 

concludes that the proposed regulation’s 

benefits would justify its costs. The 

Department invites comments that will 

help it assess the impact of areas where 

it is uncertain. 

9. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) imposes 

certain requirements with respect to 

Federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act (5 U.S.C. 551 et seq.) and 

which are likely to have a significant 

economic impact on a substantial 

number of small entities. Unless an 

agency determines that a proposal is not 

likely to have a significant economic 

impact on a substantial number of small 

entities, section 603 of the RFA requires 

the agency to present an initial 

regulatory flexibility analysis (IRFA) of 

the proposed rule. The Department’s 

IRFA of the proposed rule is provided 

below. 

a. Need for and Objectives of the Rule 

The Department has determined that 

regulatory action is necessary to adopt 

a definition of the term ‘‘fiduciary’’ that 

more closely reflects the broad statutory 

definition of the term, recognizes the 

diverse and complex fee practices that 

exist in today’s plan service provider 

market and their potential conflicts, 

accounts for the shift from DB to DC 

plans, expands the scope of fiduciary 

protections for plans and their 

participants and beneficiaries, and 

permits EBSA investigators and 

attorneys to focus their efforts on the 

adviser’s conduct rather than meeting 

the evidentiary requirements necessary 

to prove that all elements of the current 

regulation’s five-part test are satisfied. 

As discussed in further detail in the 

regulatory impact analysis above, the 

Department believes that amending the 

current regulation by broadening the 

scope of service providers, regardless of 

size, that would be considered 

fiduciaries would enhance the 

Department’s ability to redress service 

provider abuses that currently exist in 

the plan service provider market, such 

as undisclosed fees, misrepresentation 

of compensation arrangements, and 

biased appraisals of the value of 

employer securities and other plan 

investments. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
65276 Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 

b. Affected Small Entities 

The Department is unable to estimate 

the number of small service providers 

that would be affected by the proposal. 

These service providers generally 

consist of professional service 

enterprises that provide a wide range of 

services to plans, such as investment 

management or advisory services for 

plans or plan participants, and 

appraisal, consulting, brokerage, 

pension insurance advisory services, 

investment evaluations, or valuation 

services. Many of these service 

providers have special education, 

training, and/or formal credentials in 

fields such as ERISA and benefits 

administration, employee 

compensation, taxation, actuarial 

science, or finance. 

The Small Business Administration 

considers service providers with annual 

revenues of less than $7 million to be 

small entities. Using data from Schedule 

C of the Department’s 2007 Form 5500, 

which generally is used by plans with 

over 100 participants to report service 

providers that rendered services to or 

had transactions with the plan and 

received $5,000 or more in total direct 

or indirect compensation, the 

Department estimates that about 130 of 

the 5,300 affected service providers 

have total revenues reported on the 

Schedule C of over $7 million. Based on 

the foregoing, there would be 5,170 

service providers with revenues of less 

than $7 million; however, this estimate 

overstates the total number of small 

entities that would be affected by the 

proposal, because it does not include 

revenues from the nearly 626,000 small 

plans that are not required to file the 

Schedule C and revenues from other 

sources. 

c. Impact of the Proposal 

Small entities that are determined to 

be fiduciaries under the Department’s 

proposal will be required to act solely 

in the interest of their plan clients and 

participants and beneficiaries in 

connection with covered services. The 

Department believes that amending the 

current regulation to reflect additional 

circumstances where an investment 

advice provider is in a position of 

authority, control, responsibility, or 

influence with respect to a plan and its 

investment decisions is a critical 

component of protecting the interest of 

plans and the retirement income 

security of participants and 

beneficiaries. 

The Department also is unable to 

estimate the increased business costs 

small entities would incur if they were 

determined to be fiduciaries under the 

proposal. Such costs would include the 

expense of purchasing fiduciary liability 

insurance due to the increased liability 

exposure that is associated with ERISA 

fiduciary status. The Department 

estimates that, on average, affected 

service providers would incur a cost of 

$1,900 to determine whether a service 

provider’s contracts and arrangement 

with plans, or activities carried out 

pursuant to them, would make the 

service provider a fiduciary under the 

proposed rule. 

It is possible that some small service 

providers may find that the increased 

costs associated with ERISA fiduciary 

status outweigh the benefit of 

continuing to service the ERISA plan 

market; however, the Department does 

not have sufficient information to 

determine the extent to which this will 

occur. It is possible that the economic 

impact of the rule on small entities 

would not be as significant as it would 

be for large entities, because generally, 

small entities do not have as many 

business arrangements that give rise to 

conflicts of interest. Therefore, they 

would not be confronted with 

significant costs to restructure 

transactions that would be faced by 

large entities. 

The Department invites comments 

regarding all aspects of this IRFA. 

10. Paperwork Reduction Act 

The proposed rule is not subject to the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA 95) (44 

U.S.C. section 3501 et seq.), because it 

does not contain a collection of 

information as defined in 44 U.S.C. 

section 3502(3). 

11. Congressional Review Act 

The proposed rule is subject to the 

Congressional Review Act provisions of 

the Small Business Regulatory 

Enforcement Fairness Act of 1996 (5 

U.S.C. 801 et seq.) and, if finalized, will 

be transmitted to Congress and the 

Comptroller General for review. The 

proposed rule is a ‘‘major rule’’ as that 

term is defined in 5 U.S.C. 804, because 

it is likely to result in an annual effect 

on the economy of $100 million or 

more. 

12. Unfunded Mandates Reform Act 

For purposes of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), as well as Executive Order 

12875, the proposed rule does not 

include any Federal mandate that may 

result in expenditures by State, local, or 

Tribal governments in the aggregate of 

more than $100 million, adjusted for 

inflation, or increase expenditures by 

the private sector of more than $100 

million, adjusted for inflation. 

13. Federalism Statement 

Executive Order 13132 (August 4, 

1999) outlines fundamental principles 

of federalism, and requires the 

adherence to specific criteria by Federal 

agencies in the process of their 

formulation and implementation of 

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. This proposed 

rule does not have 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. Section 514 of 

ERISA provides, with certain exceptions 

specifically enumerated, that the 

provisions of Titles I and IV of ERISA 

supersede any and all laws of the States 

as they relate to any employee benefit 

plan covered under ERISA. The 

requirements implemented in the 

proposed rule have no implications for 

the States or the relationship or 

distribution of power between the 

national government and the States. 

Statutory Authority 

This regulation is proposed pursuant 

to the authority in section 505 of ERISA 

(Pub. L. 93–406, 88 Stat. 894; 29 U.S.C. 

1135) and section 102 of Reorganization 

Plan No. 4 of 1978 (43 FR 47713, 

October 17, 1978), effective December 

31, 1978 (44 FR 1065, January 3, 1979), 

3 CFR 1978 Comp. 332, and under 

Secretary of Labor’s Order No. 1–2003, 

68 FR 5374 (Feb. 3, 2003). 

List of Subjects in 29 CFR Part 2510 

Employee benefit plans, Employee 

Retirement Income Security Act, 

Pensions, Plan assets. 

For the reasons set forth in the 

preamble, Chapter XXV, subchapter F, 

part 2510 of Title 29 of the Code of 

Federal Regulations is proposed to be 

amended as follows: 

PART 2510—DEFINITION OF TERMS 

USED IN SUBCHAPTERS C, D, E, F, 

AND G OF THIS CHAPTER 

1. The authority citation for part 2510 

is revised to read as follows: 

Authority: 29 U.S.C. 1002(2), 1002(21), 

1002(37), 1002(38), 1002(40), 1031, and 1135; 

Secretary of Labor’s Order 1–2003, 68 FR 

5374; Secs. 2510.3–101 and 2510.3–102 also 

issued under sec. 102 of Reorganization Plan 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 65277 

No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 

Comp., p. 332 and E.O. 12108, 44 FR 1065, 

3 CFR, 1978 Comp., p. 275, and 29 U.S.C. 

1135 note. Section 2510.3–38 also issued 

under Sec. 1, Pub. L. 105–72, 111 Stat. 1457. 

2. In § 2510.3–21, revise paragraph (c) 

to read as follows: 

§ 2510.3–21 Definition of ‘‘Fiduciary.’’ 

* * * * * 

(c) Investment advice for a fee. (1) 

General. Except as provided in 

paragraph (c)(2) of this section, a person 

renders ‘‘investment advice’’ for a fee or 

other compensation, direct or indirect, 

to an employee benefit plan, within the 

meaning of section 3(21)(A)(ii) of the 

Employee Retirement Income Security 

Act of 1974 (the Act) and this 

paragraph, if: 

(i) Such person— 

(A)(1) Provides advice, or an appraisal 

or fairness opinion, concerning the 

value of securities or other property, 

(2) Makes recommendations as to the 

advisability of investing in, purchasing, 

holding, or selling securities or other 

property, or 

(3) Provides advice or makes 

recommendations as to the management 

of securities or other property, 

(B) To a plan, a plan fiduciary or a 

plan participant or beneficiary; 

(ii) Such person either directly or 

indirectly (e.g., through or together with 

any affiliate)— 

(A) Represents or acknowledges that it 

is acting as a fiduciary within the 

meaning of the Act with respect to 

providing advice or making 

recommendations described in 

paragraph (c)(1)(i) of this section; 

(B) Is a fiduciary with respect to the 

plan within the meaning of section 

3(21)(A)(i) or (iii) of the Act; 

(C) Is an investment adviser within 

the meaning of section 202(a)(11) of the 

Investment Advisers Act of 1940 (15 

U.S.C. 80b–2(a)(11)); or 

(D) Provides advice or makes 

recommendations described in 

paragraph (c)(1)(i) of this section 

pursuant to an agreement, arrangement 

or understanding, written or otherwise, 

between such person and the plan, a 

plan fiduciary, or a plan participant or 

beneficiary that such advice may be 

considered in connection with making 

investment or management decisions 

with respect to plan assets, and will be 

individualized to the needs of the plan, 

a plan fiduciary, or a participant or 

beneficiary. 

(2) Limitations. (i) For purposes of 

this paragraph (c), a person shall not be 

considered to be a person described in 

paragraph (c)(1) of this section with 

respect to the provision of advice or 

recommendations if, with respect to a 

person other than a person described in 

paragraph (c)(1)(ii)(A), such person can 

demonstrate that the recipient of the 

advice knows or, under the 

circumstances, reasonably should know, 

that the person is providing the advice 

or making the recommendation in its 

capacity as a purchaser or seller of a 

security or other property, or as an agent 

of, or appraiser for, such a purchaser or 

seller, whose interests are adverse to the 

interests of the plan or its participants 

or beneficiaries, and that the person is 

not undertaking to provide impartial 

investment advice. 

(ii) For purposes of this paragraph (c), 

the following acts in connection with an 

individual account plan (as defined in 

section 3(34) of the Act) shall not, in 

and of themselves, be treated as the 

rendering of investment advice for 

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

(A) Provision of investment education 

information and materials within the 

meaning of 29 CFR 2509.96–1(d); 

(B) Marketing or making available 

(e.g., through a platform or similar 

mechanism), without regard to the 

individualized needs of the plan, its 

participants, or beneficiaries, securities 

or other property from which a plan 

fiduciary may designate investment 

alternatives into which plan 

participants or beneficiaries may direct 

the investment of assets held in, or 

contributed to, their individual 

accounts, if the person making available 

such investments discloses in writing to 

the plan fiduciary that the person is not 

undertaking to provide impartial 

investment advice; 

(C) In connection with the activities 

described in paragraph (c)(2)(ii)(B), the 

provision of general financial 

information and data to assist a plan 

fiduciary’s selection or monitoring of 

such securities or other property as plan 

investment alternatives, if the person 

providing such information or data 

discloses in writing to the plan fiduciary 

that the person is not undertaking to 

provide impartial investment advice. 

(iii) For purposes of paragraph (c)(1)(i) 

of this section, the term ‘‘advice, or 

appraisal or fairness opinion’’ shall not 

include the preparation of a general 

report or statement that merely reflects 

the value of an investment of a plan or 

a participant or beneficiary, provided 

for purposes of compliance with the 

reporting and disclosure requirements 

of the Act, the Internal Revenue Code, 

and the regulations, forms and 

schedules issued thereunder, unless 

such report involves assets for which 

there is not a generally recognized 

market and serves as a basis on which 

a plan may make distributions to plan 

participants and beneficiaries. 

(3) Fee or other compensation. For 

purposes of this paragraph (c) and 

section 3(21)(A)(ii) of the Act, a fee or 

other compensation, direct or indirect, 

received by a person for rendering 

investment advice means any fee or 

compensation for the advice received by 

the person (or by an affiliate) from any 

source and any fee or compensation 

incident to the transaction in which the 

investment advice has been rendered or 

will be rendered. The term fee or 

compensation includes, for example, 

brokerage, mutual fund sales, and 

insurance sales commissions. It 

includes fees and commissions based on 

multiple transactions involving different 

parties. 

(4) Internal Revenue Code. Section 

4975(e)(3)(B) of the Internal Revenue 

Code of 1986 (Code) contains provisions 

parallel to section 3(21)(A)(ii) of the Act 

which define the term ‘‘fiduciary’’ for 

purposes of the prohibited transaction 

provisions in Code section 4975. 

Effective December 31, 1978, section 

102 of the Reorganization Plan No. 4 of 

1978, 5 U.S.C. App. 214 (2000 ed.) 

transferred the authority of the Secretary 

of the Treasury to promulgate 

regulations of the type published herein 

to the Secretary of Labor. All references 

herein to section 3(21)(A)(ii) of the Act 

should be read to include reference to 

the parallel provisions of section 

4975(e)(3)(B) of the Code. Furthermore, 

the provisions of this paragraph (c) shall 

apply for purposes of the application of 

Code section 4975 with respect to any 

plan described in Code section 

4975(e)(1). 

(5) A person who is a fiduciary with 

respect to a plan by reason of rendering 

investment advice (as defined in 

paragraph (c)(1) of this section) for a fee 

or other compensation, direct or 

indirect, with respect to any moneys or 

other property of such plan, or having 

any authority or responsibility to do so, 

shall not be deemed to be a fiduciary 

regarding any assets of the plan with 

respect to which such person does not 

have any discretionary authority, 

discretionary control or discretionary 

responsibility, does not exercise any 

authority or control, does not render 

investment advice (as defined in 

paragraph (c)(1) of this section) for a fee 

or other compensation, and does not 

have any authority or responsibility to 

render such investment advice, 

provided that nothing in this paragraph 

shall be deemed to: 

(i) Exempt such person from the 

provisions of section 405(a) of the Act 

concerning liability for fiduciary 

breaches by other fiduciaries with 

respect to any assets of the plan; or 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
65278 Federal Register / Vol. 75, No. 204 / Friday, October 22, 2010 / Proposed Rules 

(ii) Exclude such person from the 

definition of the term ‘‘party in interest’’ 

(as set forth in section 3(14)(B) of the 

Act) with respect to any assets of the 

plan. 

* * * * * 

Signed at Washington, DC, this 13th day of 

October 2010. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2010–26236 Filed 10–21–10; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF DEFENSE 

Corps of Engineers, Department of the 

Army 

33 CFR Part 334 

Pamlico Sound and Adjacent Waters, 

NC; Danger Zones for Marine Corps 

Operations 

AGENCY: U.S. Army Corps of Engineers, 

DoD. 

ACTION: Notice of proposed rulemaking 

and request for comments. 

SUMMARY: The U.S. Army Corps of 

Engineers (Corps) is proposing to amend 

its regulations to establish one new 

danger zone in Pamlico Sound near 

Marine Corps Air Station Cherry Point, 

North Carolina. Establishment of this 

danger zone will enable the Marine 

Corps to control access and movement 

of persons, vessels, and objects within 

the danger zone during live fire training 

exercises. 

DATES: Written comments must be 

received by November 22, 2010. 

ADDRESSES: You may submit comments, 

identified by docket number COE– 

2010–0037, by any of the following 

methods: 

Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

E-mail: david.b.olson@usace. 

army.mil. Include the docket number 

COE–2010–0037 in the subject line of 

the message. 

Mail: U.S. Army Corps of Engineers, 

Attn: CECW–CO (David B. Olson), 441 

G Street, NW., Washington, DC 20314– 

1000. 

Hand Delivery/Courier: Due to 

security requirements, we cannot 

receive comments by hand delivery or 

courier. 

Instructions: Direct your comments to 

docket number COE–2010–0037. All 

comments received will be included in 

the public docket without change and 

may be made available on-line at http: 

//regulations.gov, including any 

personal information provided, unless 

the commenter indicates that the 

comment includes information claimed 

to be Confidential Business Information 

(CBI) or other information whose 

disclosure is restricted by statute. Do 

not submit information that you 

consider to be CBI, or otherwise 

protected, through regulations.gov or 

e-mail. The regulations.gov Web site is 

an anonymous access system, which 

means we will not know your identity 

or contact information unless you 

provide it in the body of your comment. 

If you send an e-mail directly to the 

Corps without going through 

regulations.gov, your e-mail address 

will be automatically captured and 

included as part of the comment that is 

placed in the public docket and made 

available on the Internet. If you submit 

an electronic comment, we recommend 

that you include your name and other 

contact information in the body of your 

comment and with any disk or CD–ROM 

you submit. If we cannot read your 

comment because of technical 

difficulties and cannot contact you for 

clarification, we may not be able to 

consider your comment. Electronic 

comments should avoid the use of any 

special characters, any form of 

encryption, and be free of any defects or 

viruses. 

Docket: For access to the docket to 

read background documents or 

comments received, go to http:// 

www.regulations.gov. All documents in 

the docket are listed. Although listed in 

the index, some information is not 

publicly available, such as CBI or other 

information whose disclosure is 

restricted by statute. Certain other 

material, such as copyrighted material, 

is not placed on the Internet and will be 

publicly available only in hard copy 

form. 

FOR FURTHER INFORMATION CONTACT: Mr. 

David Olson, Headquarters, Operations 

and Regulatory Community of Practice, 

Washington, DC at 202–761–4922 or 

Richard K. Spencer, U.S. Army Corps of 

Engineers, Wilmington District, at 910– 

251–4172. 

SUPPLEMENTARY INFORMATION: Pursuant 

to its authorities in Section 7 of the 

Rivers and Harbors Act of 1917 (40 Stat. 

266; 33 U.S.C. 1) and Chapter XIX of the 

Army Appropriations Act of 1919 (40 

Stat. 892; 33 U.S.C. 3), the Corps 

proposes to amend the regulations in 

33 CFR part 334 by adding § 334.420 

(b)(1)(v) to establish an Intermittent 

Danger Zone abutting the existing 1.8 

mile Danger Zone [as described in 

§ 334.420(b)(1)(i)] in the Pamlico Sound 

and adjacent waters in Carteret County, 

North Carolina. The public is currently 

restricted from accessing the existing 1.8 

mile radius circular area and has limited 

access to three additional 0.5 mile 

radius circular danger zones described 

at §§ 334.420(b)(1)(ii), (iii), and (iv), but 

has unrestricted access to the 

surrounding waters. To better protect 

the public from potentially hazardous 

conditions during scheduled live fire 

training, Marine Corps Air Station 

Cherry Point has requested that the 

Corps establish the Intermittent Danger 

Zone that will enable the Marine Corps 

to ensure security and safety for the 

public. 

The current military training mission 

requires enhanced public safety and 

protection of vessels that operate in the 

vicinity of the Bombing Target-11 range. 

This proposed amendment to the 

current danger zone regulation at 33 

CFR 334.420 includes the addition of a 

danger zone in Pamlico Sound that 

abuts the existing 1.8 mile radius danger 

zone and extends out to 2.5 miles from 

the common center point. Establishment 

of this additional danger zone will allow 

the Marine Corps to minimize the 

public safety hazard resulting from the 

increased use of .50 caliber weapons 

firing from rotary-wing aircraft and 

small boats during training exercises at 

Bombing Target-11 Range. The new 

danger zone will optimize public safety 

and military training, and protect any 

vessels that operate in the vicinity of 

Bombing Target-11 Range. 

Procedural Requirements 

a. Review Under Executive Order 

12866. This proposed rule is issued 

with respect to a military function of the 

Defense Department and the provisions 

of Executive Order 12866 do not apply. 

b. Review Under the Regulatory 

Flexibility Act. This proposed rule has 

been reviewed under the Regulatory 

Flexibility Act (Pub. L. 96–354) which 

requires the preparation of a regulatory 

flexibility analysis for any regulation 

that will have a significant economic 

impact on a substantial number of small 

entities (i.e., small businesses and small 

governments). The Corps has 

determined that revising this proposed 

rule would have practically no 

economic impact on the public, or result 

in no anticipated navigational hazard or 

interference with existing waterway 

traffic. This proposed rule will have no 

significant economic impact on small 

entities. 

c. Review Under the National 

Environmental Policy Act. The Corps 

expects that the proposed rule will not 

have a significant impact to the quality 

of the human environment and, 


emcdonald on DSK2BSOYB1PROD with PROPOSALS