Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21989 

APPENDIX I FINANCIAL INSTITUTION ABC—WEB SITE DISCLOSURE MODEL FORM

Type of investment 

Provider, 

name, 

sub-type 

Transactional Ongoing 

Affiliate Special rules Charges to 

investor 

Compensation 

to firm 

Compensation 

to adviser 

Charges to 

investor 

Compensation 

to firm 

Compensation 

to adviser 

Non-Proprietary 

Mutual 

Fund 

(Load 

Fund).

XYZ MF 

Large 

Cap 

Fund, 

Class A 

Class B 

Class C.

[ • ]% sales 

load as applicable.

[ • ]% dealer 

concession.

[ • ]% of transactional fee 

Extent considered in 

annual 

bonus.

[ • ]% expense 

ratio.

[ • ]% 12b–1 

fee, revenue 

sharing (paid 

by fund/affiliate).

[ • ]% of ongoing fees.

Extent considered in annual bonus.

N/A ................. Breakpoints 

(as applicable) 

Contingent deferred 

shares 

charge (as 

applicable) 

Proprietary 

Mutual 

Fund 

(No 

load).

ABC MF 

Large 

Cap 

Fund.

No upfront 

charge.

N/A ................. N/A ................. [ • ]% expense 

ratio.

[ • ]% assetbased annual fee for 

shareholder 

servicing 

(paid by 

fund/affiliate).

[ • ]% of ongoing fees Extent considered in annual bonus.

[ • ]% assetbased investment advisory fee 

paid by fund 

to affiliate of 

Financial Institution.

N/A 

Equities, 

ETFs, 

Fixed 

Income.

................. $[ • ] commission per 

transaction.

$[ • ] commission per 

transaction.

[ • ]% of commission Extent considered in annual bonus.

N/A ................. N/A ................. N/A Extent 

considered 

in annual 

bonus.

N/A ................. N/A 

Annuities 

(Fixed 

and 

Variable).

Insurance 

Company A.

No upfront 

charge on 

amount invested.

$[ • ] commission (paid by 

insurer).

[ • ]% of commission Extent considered in annual bonus.

[ • ]% M&E fee 

[ • ]% underlying expense ratio.

$[ • ] Ongoing 

trailing commission 

(paid by underlying investment 

providers).

[ • ]% of ongoing fees Extent considered in annual bonus.

N/A ................. Surrender 

charge 

APPENDIX II FINANCIAL INSTITUTION

XZY—TRANSACTION DISCLOSURE

MODEL CHART

Your 

investment 

Total cost of your investment if held for: 

1 

year 

5 

years 

10 

years 

Asset 1 

Asset 2 

Asset 3 

Account 

fees 

Total 

[FR Doc. 2015–08832 Filed 4–15–15; 11:15 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2550 

[Application Number D–11713] 

ZRIN 1210–ZA25 

Proposed Class Exemption for 

Principal Transactions in Certain Debt 

Securities between Investment Advice 

Fiduciaries and Employee Benefit 

Plans and IRAs 

AGENCY: Employee Benefits Security 

Administration (EBSA), U.S. 

Department of Labor. 

ACTION: Notice of Proposed Class 

Exemption. 

SUMMARY: This document contains a 

notice of pendency before the U.S. 

Department of Labor of a proposed 

exemption from certain prohibited 

transactions provisions of the Employee 

Retirement Income Security Act of 1974 

(ERISA) and the Internal Revenue Code 

(the Code). The provisions at issue 

generally prohibit fiduciaries with 

respect to employee benefit plans and 

individual retirement accounts (IRAs) 

from purchasing and selling securities 

when the fiduciaries are acting on 

behalf of their own accounts (principal 

transactions). The exemption proposed 

in this notice would permit principal 

transactions in certain debt securities 

between a plan, plan participant or 

beneficiary account, or an IRA, and a 

fiduciary that provides investment 

advice to the plan or IRA, under 

conditions to safeguard the interests of 

these investors. The proposed 

exemption would affect participants and 

beneficiaries of plans, IRA owners, and 

fiduciaries with respect to such plans 

and IRAs. 

DATES: Comments: Written comments 

concerning the proposed class 

exemption must be received by the 

Department on or before July 6, 2015. 

Applicability: The Department 

proposes to make this exemption 

available eight months after publication 

of the final exemption in the Federal 

Register. 

ADDRESSES: All written comments 

concerning the proposed class 

exemption should be sent to the Office 

of Exemption Determinations by any of 

the following methods, identified by 

ZRIN: 1210–ZA25: 

Federal eRulemaking Portal: http://

www.regulations.gov at Docket ID 

number: EBSA–EBSA–2014–0016. 

Follow the instructions for submitting 

comments. 

Email to: e-OED@dol.gov. 

Fax to: (202) 693–8474. 

Mail: Office of Exemption 

Determinations, Employee Benefits 

Security Administration, (Attention: D– 

11713), U.S. Department of Labor, 200 

Constitution Avenue NW., Suite 400, 

Washington, DC 20210. 

Hand Delivery/Courier: Office of 

Exemption Determinations, Employee 

Benefits Security Administration, 

(Attention: D–11713), U.S. Department 

of Labor, 122 C St. NW., Suite 400, 

Washington, DC 20001. 

Instructions. All comments must be 

received by the end of the comment 

period. The comments received will be 

available for public inspection in the 

Public Disclosure Room of the 

Employee Benefits Security 

Administration, U.S. Department of 

Labor, Room N–1513, 200 Constitution 

Avenue NW., Washington, DC 20210. 

Comments will also be available online 

at www.regulations.gov, at Docket ID 

number: EBSA–2014–0016 and 

www.dol.gov/ebsa, at no charge. 

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21990 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

1Code section 4975(c)(2) authorizes the Secretary 

of the Treasury to grant exemptions from the 

parallel prohibited transaction provisions of the 

Code. Reorganization Plan No. 4 of 1978 (5 U.S.C. 

app. at 214 (2000)) generally transferred the 

authority of the Secretary of the Treasury to grant 

administrative exemptions under Code section 4975 

to the Secretary of Labor. This proposed exemption 

would provide relief from the indicated prohibited 

transaction provisions of both ERISA and the Code. 

2By using the term ‘‘adviser,’’ the Department 

does not intend to limit the exemption to 

investment advisers registered under the 

Investment Advisers Act of 1940 or under state law. 

As explained herein, an adviser must be an 

investment advice fiduciary of a plan or IRA who 

is an employee, independent contractor, agent, or 

registered representative of a registered investment 

adviser, bank, or registered broker-dealer. 

Warning: All comments will be made 

available to the public. Do not include 

any personally identifiable information 

(such as Social Security number, name, 

address, or other contact information) or 

confidential business information that 

you do not want publicly disclosed. All 

comments may be posted on the Internet 

and can be retrieved by most Internet 

search engines. 

FOR FURTHER INFORMATION CONTACT: 

Brian Shiker, Office of Exemption 

Determinations, Employee Benefits 

Security Administration, U.S. 

Department of Labor (202) 693–8824 

(not a toll-free number). 

SUPPLEMENTARY INFORMATION: The 

Department is proposing this class 

exemption on its own motion, pursuant 

to ERISA section 408(a) and Code 

section 4975(c)(2), and in accordance 

with the procedures set forth in 29 CFR 

part 2570, subpart B (76 FR 66637 

(October 27, 2011)). 

Public Hearing: The Department plans 

to hold an administrative hearing within 

30 days of the close of the comment 

period. The Department will ensure 

ample opportunity for public comment 

by reopening the record following the 

hearing and publication of the hearing 

transcript. Specific information 

regarding the date, location and 

submission of requests to testify will be 

published in a notice in the Federal 

Register. 

Executive Summary 

Purpose of Regulatory Action 

The Department is proposing this 

exemption in connection with its 

proposed regulation under ERISA 

section 3(21)(A)(ii) and Code section 

4975(e)(3)(B) (Proposed Regulation), 

published elsewhere in this issue of the 

Federal Register. The Proposed 

Regulation specifies when an entity is a 

fiduciary by reason of the provision of 

investment advice for a fee or other 

compensation regarding assets of a plan 

or IRA. If adopted, the Proposed 

Regulation would replace an existing 

regulation that was adopted in 1975. 

The Proposed Regulation is intended to 

take into account the advent of 401(k) 

plans and IRAs, the dramatic increase in 

rollovers, and other developments that 

have transformed the retirement plan 

landscape and the associated 

investment market over the four decades 

since the existing regulation was issued. 

In light of the extensive changes in 

retirement investment practices and 

relationships, the Proposed Regulation 

would update existing rules to 

distinguish more appropriately between 

the sorts of advice relationships that 

should be treated as fiduciary in nature 

and those that should not. 

The exemption proposed in this 

notice would allow investment advice 

fiduciaries to engage in purchases and 

sales of certain debt securities out of 

their inventory (i.e., engage in principal 

transactions) with plans, participant or 

beneficiary accounts, and IRAs, under 

conditions designed to safeguard the 

interests of these investors. In the 

absence of an exemption, these 

transactions would be prohibited under 

ERISA and the Code. In this regard, 

ERISA and the Code generally prohibit 

fiduciaries with respect to plans and 

IRAs from purchasing or selling any 

property to plans, participant or 

beneficiary accounts, or IRAs. 

Fiduciaries also may not engage in selfdealing or, under ERISA, act in any 

transaction involving the plan on behalf 

of a party whose interests are adverse to 

the interests of the plan or the interests 

of its participants and beneficiaries. 

When a fiduciary sells a security out of 

its own inventory in a principal 

transaction, it violates these 

prohibitions. 

ERISA section 408(a) specifically 

authorizes the Secretary of Labor to 

grant administrative exemptions from 

ERISA’s prohibited transaction 

provisions.1 Regulations at 29 CFR 

2570.30 to 2570.52 describe the 

procedures for applying for an 

administrative exemption. Before 

granting an exemption, the Department 

must find that it is administratively 

feasible, in the interests of plans and 

their participants and beneficiaries and 

IRA owners, and protective of the rights 

of participants and beneficiaries of such 

plans and IRA owners. Interested parties 

are permitted to submit comments to the 

Department through July 6, 2015. The 

Department plans to hold an 

administrative hearing within 30 days of 

the close of the comment period. 

Summary of the Major Provisions 

The proposed exemption would allow 

an individual investment advice 

fiduciary (an adviser) 2 and the firm that 

employs or otherwise contracts with the 

adviser (a financial institution) to 

engage in principal transactions 

involving certain debt securities, with 

plans, participant and beneficiary 

accounts, and IRAs. The proposed 

exemption limits the type of debt 

securities that may be purchased or sold 

and contains conditions which the 

adviser and financial institution must 

satisfy in order to rely on the 

exemption. To safeguard the interests of 

plans, participants and beneficiaries, 

and IRA owners, the exemption would 

require the adviser and financial 

institution to contractually acknowledge 

fiduciary status and commit to adhere to 

certain ‘‘Impartial Conduct Standards’’ 

when providing investment advice 

regarding the principal transaction to 

the plan fiduciary with authority to 

make investment decisions for the plan, 

the participant or beneficiary of a plan, 

or the IRA owner (referred to herein as 

retirement investors), including 

providing advice that is in their best 

interest. The financial institution would 

further be required to warrant that it has 

adopted policies and procedures 

designed to mitigate the impact of 

material conflicts of interest and ensure 

that the individual advisers adhere to 

the Impartial Conduct Standards. The 

retirement investor would be required to 

consent to the principal transactions 

following disclosure of the material 

conflicts of interest associated with such 

transactions and of the debt security’s 

pricing information. Financial 

institutions would be subject to 

recordkeeping requirements. 

Executive Order 12866 and 13563 

Statement 

Under Executive Orders 12866 and 

13563, the Department must determine 

whether a regulatory action is 

‘‘significant’’ and therefore subject to 

the requirements of the Executive Order 

and subject to review by the Office of 

Management and Budget (OMB). 

Executive Orders 13563 and 12866 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing and 

streamlining rules, and of promoting 

flexibility. It also requires federal 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21991 

3ERISA section 404(a). 

4ERISA section 406. ERISA also prohibits certain 

transactions between a plan and a ‘‘party in 

interest.’’ 

5ERISA section 409; see also ERISA section 405. 

6The Department of Treasury issued a virtually 

identical regulation, at 26 CFR 54.4975–9(c), which 

interprets Code section 4975(e)(3). 

agencies to develop a plan under which 

the agencies will periodically review 

their existing significant regulations to 

make the agencies’ regulatory programs 

more effective or less burdensome in 

achieving their regulatory objectives. 

Under Executive Order 12866, 

‘‘significant’’ regulatory actions are 

subject to the requirements of the 

Executive Order and review by the 

Office of Management and Budget 

(OMB). Section 3(f) of Executive Order 

12866, defines a ‘‘significant regulatory 

action’’ as an action that is likely to 

result in a rule (1) having an annual 

effect on the economy of $100 million 

or more, or adversely and materially 

affecting a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local or tribal governments or 

communities (also referred to as 

‘‘economically significant’’ regulatory 

actions); (2) creating serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. Pursuant to the terms of the 

Executive Order, OMB has determined 

that this action is ‘‘significant’’ within 

the meaning of Section 3(f)(4) of the 

Executive Order. Accordingly, the 

Department has undertaken an 

assessment of the costs and benefits of 

the proposed amendment, and OMB has 

reviewed this regulatory action. 

Background 

Proposed Regulation Defining a 

Fiduciary 

As explained more fully in the 

preamble to Department’s Proposed 

Regulation under ERISA section 

3(21)(A)(ii) and Code section 

4975(e)(3)(B), also published in this 

issue of the Federal Register, ERISA is 

a comprehensive statute designed to 

protect the interests of plan participants 

and beneficiaries, the integrity of 

employee benefit plans, and the security 

of retirement, health, and other critical 

benefits. The broad public interest in 

ERISA-covered plans is reflected in its 

imposition of stringent fiduciary 

responsibilities on parties engaging in 

important plan activities, as well as in 

the tax-favored status of plan assets and 

investments. One of the chief ways in 

which ERISA protects employee benefit 

plans is by requiring that plan 

fiduciaries comply with fundamental 

obligations rooted in the law of trusts. 

In particular, plan fiduciaries must 

manage plan assets prudently and with 

undivided loyalty to the plans and their 

participants and beneficiaries.3 In 

addition, they must refrain from 

engaging in ‘‘prohibited transactions,’’ 

which ERISA forbids because of the 

dangers posed by the fiduciaries’ 

conflicts of interest with respect to the 

transactions.4 When fiduciaries violate 

ERISA’s fiduciary duties or the 

prohibited transaction rules, they may 

be held personally liable for the breach.5

In addition, violations of the prohibited 

transaction rules are subject to excise 

taxes under the Code. 

The Code also has rules regarding 

fiduciary conduct with respect to taxfavored accounts that are not generally 

covered by ERISA, such as IRAs. 

Although ERISA’s general fiduciary 

obligations of prudence and loyalty do 

not govern the fiduciaries of IRAs, these 

fiduciaries are subject to the prohibited 

transaction rules. In this context 

fiduciaries engaging in the prohibited 

transactions are subject to an excise tax 

enforced by the Internal Revenue 

Service. Unlike participants in plans 

covered by Title I of ERISA, under the 

Code, IRA owners cannot bring suit 

against fiduciaries under ERISA for 

violation of the prohibited transaction 

rules and fiduciaries are not personally 

liable to IRA owners for the losses 

caused by their misconduct, nor can the 

Secretary of Labor bring suit to enforce 

the prohibited transaction rules. The 

exemption proposed herein, as well as 

another exemption for the receipt of 

compensation by investment advice 

fiduciaries published elsewhere in this 

issue of the Federal Register, would 

create contractual obligations for the 

adviser to adhere to certain standards 

(the Impartial Conduct Standards). IRA 

owners would have a right to enforce 

these new contractual rights. 

Under this statutory framework, the 

determination of who is a ‘‘fiduciary’’ is 

of central importance. Many of ERISA’s 

protections, duties, and liabilities hinge 

on fiduciary status. In relevant part, 

section 3(21)(A) of ERISA and section 

4975(e)(3) of the Code provide that a 

person is a fiduciary with respect to a 

plan or IRA to the extent he or she (1) 

exercises any discretionary authority or 

discretionary control with respect to 

management of such plan or IRA, or 

exercises any authority or control with 

respect to management or disposition of 

its assets; (2) renders investment advice 

for a fee or other compensation, direct 

or indirect, with respect to any moneys 

or other property of such plan or IRA, 

or has any authority or responsibility to 

do so; or, (3) has any discretionary 

authority or discretionary responsibility 

in the administration of such plan or 

IRA. 

The statutory definition deliberately 

casts a wide net in assigning fiduciary 

responsibility with respect to plan and 

IRA assets. Thus, ‘‘any authority or 

control’’ over plan or IRA assets is 

sufficient to confer fiduciary status, and 

any persons who render ‘‘investment 

advice for a fee or other compensation, 

direct or indirect’’ are fiduciaries, 

regardless of whether they have direct 

control over the plan’s or IRA’s assets 

and regardless of their status as an 

investment adviser or broker under the 

federal securities laws. The statutory 

definition and associated fiduciary 

responsibilities were enacted to ensure 

that plans and IRAs can depend on 

persons who provide investment advice 

for a fee to provide recommendations 

that are untainted by conflicts of 

interest. In the absence of fiduciary 

status, the providers of investment 

advice would neither be subject to 

ERISA’s fundamental fiduciary 

standards, nor accountable for 

imprudent, disloyal, or tainted advice 

under ERISA or the Code, no matter 

how egregious the misconduct or how 

substantial the losses. Plans, individual 

participants and beneficiaries, and IRA 

owners often are not financial experts 

and consequently must rely on 

professional advice to make critical 

investment decisions. In the years since 

then, the significance of financial advice 

has become still greater with increased 

reliance on participant-directed plans 

and IRAs for the provision of retirement 

benefits. 

In 1975, the Department issued a 

regulation, at 29 CFR 2510.3– 

21(c)(1975) defining the circumstances 

under which a person is treated as 

providing ‘‘investment advice’’ to an 

employee benefit plan within the 

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

(the ‘‘1975 regulation’’).6 The regulation 

narrowed the scope of the statutory 

definition of fiduciary investment 

advice by creating a five-part test that 

must be satisfied before a person can be 

treated as rendering investment advice 

for a fee. Under the regulation, for 

advice to constitute ‘‘investment 

advice,’’ an adviser who does not have 

discretionary authority or control with 

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21992 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

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

8The Department initially proposed an 

amendment to its regulation under ERISA section 

3(21)(A)(ii) and Code section 4975(e)(3)(B) on 

October 22, 2010, at 75 FR 65263. It subsequently 

announced its intention to withdraw the proposal 

and propose a new rule, consistent with the 

President’s Executive Orders 12866 and 13563, in 

order to give the public a full opportunity to 

evaluate and comment on the new proposal and 

updated economic analysis. 

9See NASD Notice to Members 01–23 and FINRA 

Regulatory Notices 11–02, 12–25 and 12–55. 

10Although the preamble adopts the phrase 

‘‘seller’s carve-out’’ as a shorthand way of referring 

to the carve-out and its terms, the regulatory carveout is not limited to sellers but rather applies more 

broadly to counterparties in arm’s length 

transactions with plan investors with financial 

expertise. 

respect to the purchase or sale of 

securities or other property of 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 regulation 

provides that an adviser is a fiduciary 

with respect to any particular instance 

of advice only if he or she meets each 

and every element of the five-part test 

with respect to the particular advice 

recipient or plan at issue. A 1976 

Department of Labor Advisory Opinion 

further limited the application of the 

statutory definition of ‘‘investment 

advice’’ by stating that valuations of 

employer securities in connection with 

employee stock ownership plan (ESOP) 

purchases would not be considered 

fiduciary advice.7

As the marketplace for financial 

services has developed in the years 

since 1975, the five-part test may now 

undermine, rather than promote, the 

statutes’ text and purposes. The 

narrowness of the 1975 regulation 

allows professional advisers, 

consultants and valuation firms to play 

a central role in shaping plan 

investments, without ensuring the 

accountability that Congress intended 

for persons having such influence and 

responsibility when it enacted ERISA 

and the related Code provisions. Even 

when plan sponsors, participants, 

beneficiaries and IRA owners clearly 

rely on paid consultants for impartial 

guidance, the regulation allows 

consultants to avoid fiduciary status and 

disregard the accompanying obligations 

of care and prohibitions on disloyal and 

conflicted transactions. As a 

consequence, these advisers can steer 

customers to investments based on their 

own self-interest, give imprudent 

advice, and engage in transactions that 

would otherwise be categorically 

prohibited by ERISA and the Code 

without liability under ERISA or the 

Code. 

In the Proposed Regulation, the 

Department seeks to replace the existing 

regulation with one that more 

appropriately distinguishes between the 

sorts of advice relationships that should 

be treated as fiduciary in nature and 

those that should not, in light of the 

legal framework and financial 

marketplace in which plans and IRAs 

currently operate.8 The Proposed 

Regulation describes the types of advice 

that constitutes ‘‘investment advice’’ 

with respect to plan or IRA assets for 

purposes of the definition of a fiduciary 

at ERISA section 3(21)(A)(ii) and Code 

section 4975(e)(3)(B). The proposal 

provides, subject to certain carve-outs, 

that a person renders investment advice 

with respect to a plan or IRA if, among 

other things, the person provides, 

directly to a plan, a plan fiduciary, a 

plan participant or beneficiary, IRA or 

IRA owner one of the following types of 

advice: 

(1) A recommendation as to the 

advisability of acquiring, holding, 

disposing or exchanging securities or 

other property, including a 

recommendation to take a distribution 

of benefits or a recommendation as to 

the investment of securities or other 

property to be rolled over or otherwise 

distributed from a plan or IRA; 

(2) A recommendation as to the 

management of securities or other 

property, including recommendations as 

to the management of securities or other 

property to be rolled over or otherwise 

distributed from the plan or IRA; 

(3) An appraisal, fairness opinion or 

similar statement, whether verbal or 

written, concerning the value of 

securities or other property, if provided 

in connection with a specific 

transaction or transactions involving the 

acquisition, disposition or exchange of 

such securities or other property by the 

plan or IRA; and 

(4) A recommendation of a person 

who is also going to receive a fee or 

other compensation for providing any of 

the types of advice described in 

paragraphs (1) through (3), above. 

In addition, to be a fiduciary, such 

person must either (1) represent or 

acknowledge that it is acting as a 

fiduciary within the meaning of ERISA 

(or the Code) with respect to the advice, 

or (2) render the advice pursuant to a 

written or verbal agreement, 

arrangement or understanding that the 

advice is individualized to, or that such 

advice is specifically directed to, the 

advice recipient for consideration in 

making investment or management 

decisions with respect to securities or 

other property of the plan or IRA. 

In the Proposed Regulation, the 

Department refers to FINRA guidance 

on whether particular communications 

should be viewed as 

‘‘recommendations’’ 9 within the 

meaning of the fiduciary definition, and 

requests comment on whether the 

Proposed Regulation should adhere to 

or adopt some or all of the standards 

developed by FINRA in defining 

communications which rise to the level 

of a recommendation. For more detailed 

information regarding the Proposed 

Regulation, see the Notice of the 

Proposed Regulation published in this 

issue of the Federal Register. 

For advisers who do not represent 

that they are acting as ERISA (or Code) 

fiduciaries, the Proposed Regulation 

provides that advice rendered in 

conformance with certain carve-outs 

will not cause the adviser to be treated 

as a fiduciary under ERISA or the Code. 

For example, under the seller’s carveout, counterparties in arm’s-length 

transactions with plans may make 

investment recommendations without 

acting as fiduciaries if certain 

conditions are met.10 Similarly, the 

proposal contains a carve-out from 

fiduciary status for providers of 

appraisals, fairness opinions, or 

statements of value in specified contexts 

(e.g., with respect to ESOP transactions). 

The proposal additionally carves out 

from fiduciary status the marketing of 

investment alternative platforms to 

plans, certain assistance in selecting 

investment alternatives, and other 

activities. Finally, the Proposed 

Regulation contains a carve-out from 

fiduciary status for the provision of 

investment education. 

Prohibited Transactions 

The Department anticipates that the 

Proposed Regulation will cover many 

investment professionals who do not 

currently consider themselves to be 

fiduciaries under ERISA or the Code. If 

the Proposed Regulation is adopted, 

these entities will become subject to the 

prohibited transaction restrictions in 

ERISA and the Code that apply 

specifically to fiduciaries. ERISA 

section 406(b)(1) and Code section 

4975(c)(1)(E) prohibit a fiduciary from 

dealing with the income or assets of a 

plan or IRA in his own interest or his 

own account. ERISA section 406(b)(2) 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21993 

11The Code does not contain this prohibition. 12The purchase or sale of a security in a principal 

transaction between a plan or IRA and a fiduciary 

also is prohibited by ERISA section 406(a)(1)(A) and 

(D) and Code section 4975(c)(1)(A) and (D). 

13See H.R. Rep. 93–1280, 93rd Cong., 2d Sess. 

307 (1974); see also ERISA Advisory Opinion 2004– 

05A (May 24, 2004). 

14 40 FR 50845 (Oct. 31, 1975), as amended, 71 

FR 5883 (Feb. 3, 2006). 

provides that a fiduciary shall not ‘‘in 

his individual or in any other capacity 

act in any transaction involving the plan 

on behalf of a party (or represent a 

party) whose interests are adverse to the 

interests of the plan or the interests of 

its participants or beneficiaries.’’ 11

ERISA section 406(b)(3) and Code 

section 4975(c)(1)(F) prohibit a fiduciary 

from receiving any consideration for his 

own personal account from any party 

dealing with the plan in connection 

with a transaction involving assets of 

the plan or IRA. Parallel regulations 

issued by the Departments of Labor and 

the Treasury explain that these 

provisions impose on fiduciaries of 

plans and IRAs a duty not to act on 

conflicts of interest that may affect the 

fiduciary’s best judgment on behalf of 

the plan or IRA. Given these 

prohibitions, conferring fiduciary status 

on particular investment advice 

activities will have important 

implications for many investment 

professionals. 

The purchase or sale of a security in 

a principal transaction between a plan 

or IRA and a fiduciary, resulting from 

the fiduciary’s provision of investment 

advice, raises issues under ERISA 

section 406(b) and Code section 

4975(c)(1)(E).12 Nevertheless, the 

Department recognizes that certain 

investment advice fiduciaries view the 

ability to execute principal transactions 

as integral to the economically efficient 

distribution of fixed income securities. 

The Department has carefully 

considered requests for exemptive relief 

for principal transactions in connection 

with the development of the Proposed 

Regulation, in light of the existing legal 

framework. In this regard, as further 

discussed below, fiduciaries who engage 

in principal transactions under certain 

circumstances can avoid the ERISA and 

Code restrictions. Moreover, there are 

existing statutory and administrative 

exemptions, also discussed below, that 

already provide prohibited transaction 

relief for fiduciaries engaging in 

principal transactions with plans and 

IRAs. This notice proposes a new class 

exemption which would provide 

additional prohibited transaction relief 

for investment advice fiduciaries to 

engage in principal transactions with 

plans and IRAs. 

1. Blind Transactions 

Certain principal transactions 

between a plan or IRA and an 

investment advice fiduciary may not 

need exemptive relief because they are 

blind transactions executed on an 

exchange. The ERISA Conference Report 

states that a transaction will, generally, 

not be a prohibited transaction if the 

transaction is an ordinary ‘‘blind’’ 

purchase or sale of securities through an 

exchange where neither the buyer nor 

the seller (nor the agent of either) knows 

the identity of the other party 

involved.13

2. Principal Transactions Permitted 

Under an Exemption 

ERISA and the Code counterbalance 

the broad proscriptive effect of the 

prohibited transaction provisions with 

numerous statutory exemptions. ERISA 

and the Code also provide for 

administrative exemptions that the 

Secretary of Labor may grant on an 

individual or class basis if the Secretary 

finds that the exemption is (1) 

administratively feasible, (2) in the 

interests of plans and their participants 

and beneficiaries, and (3) protective of 

the rights of the participants and 

beneficiaries of such plans. 

A. Statutory Exemptions 

ERISA section 408(b)(14) provides a 

statutory exemption for transactions 

entered into in connection with the 

provision of fiduciary investment advice 

to a participant or beneficiary of an 

individual account plan or an IRA 

owner. The exemption provides relief 

for, among other things, the acquisition, 

holding, or sale of a security or other 

property as an investment under the 

plan pursuant to the investment advice. 

As set forth in ERISA section 408(g), the 

exemption is available if the advice is 

provided under an ‘‘eligible investment 

advice arrangement’’ which either (1) 

‘‘provides that any fees (including any 

commission or other compensation) 

received by the fiduciary adviser for 

investment advice or with respect to the 

sale, holding or acquisition of any 

security or other property for purposes 

of investment of plan assets do not vary 

depending on the basis of any 

investment option selected’’ or (2) ‘‘uses 

a computer model under an investment 

advice program meeting the 

requirements of [ERISA section 

408(g)(3)].’’ Additional conditions 

apply. Code section 4975(d)(17) 

provides the same relief from the taxes 

imposed by Code section 4975(a) and 

(b). 

ERISA section 408(b)(16) provides 

relief for transactions involving the 

purchase or sale of securities between a 

plan and a party in interest, including 

an investment advice fiduciary, if the 

transactions are executed through an 

electronic communication network, 

alternative trading system, or similar 

execution system or trading venue. 

Among other conditions, subparagraph 

(B) of the statutory exemption requires 

that either: (i) ‘‘the transaction is 

effected pursuant to rules designed to 

match purchases and sales at the best 

price available through the execution 

system in accordance with applicable 

rules of the Securities and Exchange 

Commission or other relevant 

governmental authority,’’ or (ii) ‘‘neither 

the execution system nor the parties to 

the transaction take into account the 

identity of the parties in the execution 

of trades[.]’’ The transactions covered by 

ERISA section 408(b)(16) include 

principal transactions between a plan 

and an investment advice fiduciary. 

Code section 4975(d)(19) provides the 

same relief from the taxes imposed by 

Code section 4975(a) and (b). 

B. Administrative Exemptions 

An administrative exemption for 

certain principal transactions will 

continue to be available through PTE 

75–1.14 Specifically, PTE 75–1, Part IV, 

provides an exemption that is available 

to investment advice fiduciaries who are 

‘‘market-makers.’’ Relief is available 

from ERISA section 406 for the purchase 

or sale of securities by a plan or IRA, 

from or to a market-maker with respect 

to such securities who is also an 

investment advice fiduciary with 

respect to the plan or IRA, or an affiliate 

of such fiduciary. 

Further, Part II(1) of PTE 75–1 

currently provides relief from ERISA 

section 406(a) and Code section 

4975(c)(1)(A) through (D) for the 

purchase or sale of a security in a 

principal transaction between a plan or 

IRA and a broker-dealer registered 

under the Securities Exchange Act of 

1934. However, the exemption permits 

plans and IRAs to engage in principal 

transactions with broker-dealers only if 

they do not have or exercise any 

discretionary authority or control 

(except as a directed trustee) with 

respect to the investment of plan or IRA 

assets involved in the transaction, and 

do not render investment advice (within 

the meaning of 29 CFR 2510.3–21(c)) 

with respect to the investment of those 

assets. PTE 75–1, Part II(1) will continue 

to be available to parties in interest that 

are not fiduciaries and that satisfy its 

conditions. 

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15See Section VI(a) of the proposed exemption. 16See Section VI(f) of the proposed exemption. 

C. New Exemption Proposed in This 

Notice 

In response to public concerns, the 

Department is proposing in this notice 

additional relief for principal 

transactions in certain debt securities 

between a plan, participant or 

beneficiary account, or an IRA, and an 

investment advice fiduciary. While 

relief was informally requested with 

respect to a broad range of principal 

transactions (e.g., those involving 

equities, debt securities, futures, 

derivatives, currencies, etc.), the 

Department has elected to propose relief 

solely with respect to certain widelyheld debt securities. This limitation is 

based on the Department’s view that 

principal transactions involve a 

potentially severe conflict of interest 

when engaged in by a fiduciary with 

respect to a plan, participant or 

beneficiary account, or an IRA. The 

Department is concerned that, when 

acting as a principal in a transaction 

involving a plan, participant or 

beneficiary account, or an IRA, a 

fiduciary may have difficulty 

reconciling its duty to avoid conflicts of 

interest with its concern for its own 

financial interests. Of primary concern 

are issues involving liquidity, pricing, 

transparency, and the fiduciary’s 

possible incentive to ‘‘dump’’ unwanted 

assets. Accordingly, when crafting the 

exemption, the Department focused on 

debt securities as common investments 

of plans, participant or beneficiary 

accounts, and IRAs that may need to be 

sold on a principal basis because 

particular bond issues may be sold by 

only one or a limited number of 

financial institutions. Without an 

exemption, plans, participant or 

beneficiary accounts, and IRAs may face 

reduced choice in the market for these 

debt securities. 

Under this rationale, however, the 

Department is not persuaded at this 

point that additional exemptive relief 

for principal transactions involving 

other types of assets would be in the 

interests of, and protective of, plans, 

their participants and beneficiaries and 

IRA owners. Equity securities, for 

example, are widely available through 

agency transactions that do not involve 

the particular conflicts of interest 

associated with principal transactions. 

Other assets such as futures, derivatives 

and currencies, may possess a level of 

complexity and risk that would require 

a retirement investor to rely heavily on 

a fiduciary’s advice. In such cases, the 

Department is concerned that the class 

exemption proposed here would be 

insufficiently protective of plans, 

participants and beneficiaries, and IRA 

owners. 

The Department requests comment on 

the limitation of the proposed 

exemption to debt securities. Public 

input is requested on whether there are 

additional assets that are commonly 

held by plans, participant or beneficiary 

accounts, and IRAs that are sold 

primarily in principal transactions. 

Commenters should provide specifics 

about the characteristics of such assets 

and the proposed safeguards that would 

apply to an exemption permitting their 

sale in a principal transaction. To the 

extent interested parties believe it is 

possible or appropriate to provide relief 

for additional transactions, the 

Department would also invite 

applications for additional exemptions 

tailored to the unique characteristics of 

those transactions and protective of the 

interests of plan participants and IRA 

owners. 

Proposed Exemption for Principal 

Transactions in Certain Debt Securities 

Section I of the proposed exemption 

would provide relief for ‘‘Advisers’’ and 

‘‘Financial Institutions’’ to enter into 

‘‘principal transactions’’ in ‘‘debt 

securities’’ with plans and IRAs. The 

proposed exemption uses the term 

‘‘Retirement Investor’’ to describe the 

types of persons who can be investment 

advice recipients under the exemption, 

and the term ‘‘Affiliate’’ to describe 

people and entities with a connection to 

the Adviser or Financial Institution. 

These terms are defined in Section VI of 

this proposed exemption. The following 

sections discuss key definitional terms 

of the exemption as well as the scope 

and conditions of the proposed 

exemption. 

Defined Terms 

1. Adviser 

The proposed exemption 

contemplates that an individual person, 

an Adviser, will provide advice to the 

Retirement Investor. An Adviser must 

be an investment advice fiduciary of a 

plan or IRA who is an employee, 

independent contractor, agent, or 

registered representative of a ‘‘Financial 

Institution’’ (discussed in the next 

section), and the Adviser must satisfy 

the applicable banking and securities 

laws with respect to the covered 

transaction.15 Advisers may be, for 

example, registered representatives of 

broker-dealers registered under the 

Securities Exchange Act of 1934. 

2. Financial Institutions 

For purposes of the proposed 

exemption, a Financial Institution is the 

entity that employs an Adviser or 

otherwise retains the Adviser as an 

independent contractor, agent or 

registered representative.16 Financial 

Institutions must be registered 

investment advisers, banks, or registered 

broker-dealers. This limitation is based 

on the Department’s understanding that 

these entities may commonly sell debt 

securities out of inventory. The 

Department requests comment on 

whether there are other types of 

financial institutions that should be 

included in the definition. 

3. Affiliates 

The proposed exemption uses the 

term Affiliate to describe persons or 

entities with certain relationships to the 

Adviser and Financial Institution. An 

‘‘Affiliate’’ means: (1) any person 

directly or indirectly, through one or 

more intermediaries, controlling, 

controlled by, or under common control 

with the Adviser or Financial 

Institution; (2) any officer, director, 

employee, relative (as defined in ERISA 

section 3(15)) or member of family (as 

defined in Code section 4975(e)(6)), 

agent or registered representative of, or 

partner in such Adviser or Financial 

Institution; and (3) any corporation or 

partnership of which the Adviser or 

Financial Institution is an officer, 

director, or employee, or in which the 

Adviser or Financial Institution is a 

partner. For purposes of this definition, 

the term ‘‘control’’ means the power to 

exercise a controlling influence over the 

management or policies of a person 

other than an individual. 

4. Retirement Investor 

The proposed exemption uses the 

term ‘‘Retirement Investor,’’ to mean a 

plan fiduciary of a non-participant 

directed ERISA plan with authority to 

make investment decisions for the plan, 

a plan participant or beneficiary with 

authority to direct the investment of 

assets in his or her plan account or to 

take a distribution, or, in the case of an 

IRA, the beneficial owner of the IRA 

(i.e., the IRA owner). 

5. Principal Transaction 

For purposes of the proposed 

exemption, a principal transaction is a 

purchase or sale of a debt security 

where an Adviser or Financial 

Institution is purchasing from or selling 

to the plan, participant or beneficiary 

account, or IRA on behalf of the account 

of the Financial Institution or the 

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17The U.S. Securities and Exchange Commission 

has similarly referred to securities that are ‘subject 

to no greater than moderate credit risk’ and 

sufficiently liquid that [the security] can be sold at 

or near its carrying value within a reasonably short 

period of time’’ in setting standards of 

creditworthiness in its regulations. See, e.g., Rule 

6a–5 issued under Investment Company Act,17 CFR 

270.6a–5 (77 FR 70117, November 23, 2012). 

18See Section I(c)(1) of the proposed exemption. 

19See Section I(c)(2) of the proposed exemption. 

20See Section VI(f), defining the term 

‘‘Independent.’’ 

account of any person directly or 

indirectly, through one or more 

intermediaries, controlling, controlled 

by, or under common control with the 

Financial Institution. The Department 

requests comment as to whether, and on 

what grounds, relief is also necessary for 

the purchase or sale of a debt security 

from the Adviser’s own account in 

addition to the Financial Institution’s 

own account. 

6. Debt Securities 

The proposed exemption is limited to 

principal transactions in certain debt 

securities. For purposes of the 

exemption, the term ‘‘debt security,’’ is 

defined by reference to Rule 10b– 

10(d)(4) under the Securities Exchange 

Act of 1934. The categories of covered 

debt securities include securities that 

are (1) dollar denominated, issued by a 

U.S. corporation and offered pursuant to 

a registration statement under the 

Securities Act of 1933; (2) U.S. agency 

debt securities (as defined in FINRA 

Rule 6710(l)); and (3) U.S. Treasury 

securities (as defined in FINRA Rule 

6710(p)). 

The debt security may not have been 

issued by the Financial Institution or 

any Affiliate. Additionally, the debt 

security may not be purchased by the 

plan, participant or beneficiary account, 

or IRA, in an underwriting or 

underwriting syndicate in which the 

Financial Institution or any Affiliate is 

the underwriter or a member. Purchases 

by plans, participant or beneficiary 

accounts, or IRAs may occur, however, 

if a debt security originally 

underwritten by the Financial 

Institution or an Affiliate was later 

obtained for sale in the secondary 

market. 

The debt security must also possess 

no greater than moderate credit risk and 

be sufficiently liquid that the debt 

security could be sold at or near its fair 

market value within a reasonably short 

period of time. Debt securities subject to 

a moderate credit risk should possess at 

least average credit-worthiness relative 

to other similar debt issues. Moderate 

credit risk would denote current low 

expectations of default risk, with an 

adequate capacity for payment of 

principal and interest. These securities 

have a level of creditworthiness similar 

to investment grade securities.17

Scope of Relief in the Proposed 

Exemption 

The proposed exemption provides 

relief for principal transactions in debt 

securities between a plan, participant or 

beneficiary account, or IRA and a 

Financial Institution or an entity in a 

control relationship with the Financial 

Institution, when the principal 

transaction is a result of the Adviser’s 

and Financial Institution’s provision of 

investment advice. Relief is proposed 

from ERISA sections 406(a)(1)(A) and 

(D), and 406(b)(1) and (2), and the taxes 

imposed by Code section 4975(a) and 

(b), by reason of Code section 

4975(c)(1)(A), (D) and (E). Relief has not 

been proposed in this exemption from 

ERISA section 406(b)(3) and Code 

section 4975(c)(1)(F), which prohibit a 

plan fiduciary from receiving any 

consideration for its own personal 

account from any party dealing with the 

plan in connection with a transaction 

involving the assets of the plan. As a 

result, the proposed exemption does not 

include relief for the receipt by a 

fiduciary of consideration from a trading 

venue in connection with the execution 

of purchases and sales thereon (e.g., 

payment for order flow). 

Several limitations apply to the scope 

of the proposed exemption. First, relief 

is limited to Advisers whose fiduciary 

authority with respect to the plan, 

participant or beneficiary account, or 

IRA assets involved in the transaction is 

as a provider of investment advice.18

Advisers who have full investment 

discretion with respect to the assets of 

a plan, participant or beneficiary 

account, or IRA or who have 

discretionary authority over the 

administration of the plan, participant 

or beneficiary account, or IRA, for 

example, may not take advantage of 

relief under the exemption. 

Second, the exemption is not 

available to a transaction involving a 

plan covered by Title I of ERISA if the 

Adviser or Financial Institution, or any 

Affiliate is the employer of employees 

covered by the plan which is the 

recipient of the advice.19 This 

restriction on employers does not apply 

in the case of an IRA or other similar 

plan that is not covered by Title I of 

ERISA. Accordingly, an Adviser or 

Financial Institution may provide 

advice to the beneficial owner of an IRA 

who is employed by the Adviser, its 

Financial Institution or an Affiliate, and 

receive compensation as a result, 

provided the IRA is not covered by Title 

I of ERISA. 

Finally, the exemption does not apply 

if the Adviser or Financial Institution is 

a named fiduciary or plan administrator, 

as defined in ERISA section 3(16)(A) 

with respect to an ERISA plan, or an 

affiliate thereof, that was selected to 

provide advice to the plan by a fiduciary 

who is not independent of them.20 This 

provision is intended to disallow 

selection of Advisers and Financial 

Institutions by named fiduciaries or 

plan administrators that have an interest 

in them. 

Conditions of the Proposed Exemption 

Sections II–V of the proposal set forth 

the conditions of the exemption. All 

applicable conditions must be satisfied 

in order to avoid application of the 

specified prohibited transaction 

provisions of ERISA and the Code. The 

Department believes that these 

conditions are necessary for the 

Secretary to find that the exemption is 

administratively feasible, in the 

interests of plans, their participants and 

beneficiaries and IRA owners, and 

protective of the rights of the 

participants and beneficiaries of such 

plans and IRA owners. Under ERISA 

section 408(a)(2), and Code section 

4975(c)(2), the Secretary may not grant 

an exemption without making such 

findings. The proposed conditions are 

described below. 

Contractual Obligations (Section II) 

Section II(a) of the proposal requires 

that an Adviser and the Financial 

Institution enter into a written contract 

with the Retirement Investor prior to 

engaging in a principal transaction with 

a plan, participant or beneficiary 

account, or IRA. The contract must be 

executed by the Adviser and Financial 

Institution as well as the Retirement 

Investor, acting on behalf of the plan, 

participant or beneficiary account, or 

IRA. In the case of advice provided to 

a participant or beneficiary in a plan, 

the participant or beneficiary should be 

the Retirement Investor that is the party 

to the contract, on behalf of his or her 

individual account. 

The contract may be part of a master 

agreement with the Retirement Investor 

and does not require execution prior to 

each additional principal transaction. 

The exemption does not, by its terms, 

mandate an ongoing or long-term 

advisory relationship, but rather leaves 

that to the parties. The terms of the 

contract, along with other 

representations, agreements, or 

understandings between the Adviser, 

Financial Institution and Retirement 

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21996 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

Investor, will govern the ongoing or 

transactional nature of the relationship 

between the parties. 

The contract is the cornerstone of the 

proposed exemption, and the 

Department believes that by requiring a 

contract as a condition of the proposed 

exemption, it creates a mechanism by 

which a Retirement Investor can be 

alerted to the Adviser’s and Financial 

Institution’s obligations and be provided 

with a basis upon which its rights can 

be enforced. In order to comply with the 

exemption, the contract must contain 

every required element set forth in 

Section II(b)–(e) and also must not 

include any of the prohibited provisions 

described in Section II(f). It is intended 

that the contract creates actionable 

obligations with respect to both the 

Impartial Conduct Standards and the 

warranties, described below. In 

addition, failure to satisfy the 

Independent Conduct Standards will 

result in loss of the exemption. 

1. Fiduciary Status 

The proposal sets forth multiple 

contractual requirements. The first and 

most fundamental contractual 

requirement, which is set out in Section 

II(b) of proposal, is that both the Adviser 

and Financial Institution must 

acknowledge fiduciary status under 

ERISA or the Code, or both, with respect 

to the investment recommendations to 

the Retirement Investor regarding 

principal transactions. If this 

acknowledgment of fiduciary status 

does not appear in a contract with a 

Retirement Investor, the exemption is 

not satisfied with respect to principal 

transactions involving that Retirement 

Investor. This fiduciary 

acknowledgment is critical to ensuring 

that there is no uncertainty—before or 

after investment advice is given with 

regard to the principal transaction—that 

both the Adviser and Financial 

Institution are acting as fiduciaries 

under ERISA and the Code. 

Nevertheless, it is important to note that 

the contractual language is only 

required to apply to communications 

that are investment recommendations to 

the Retirement Investor regarding 

principal transactions. Compliance with 

all the exemption’s conditions is 

necessary only with respect to 

transactions that otherwise would 

constitute prohibited transactions under 

ERISA and the Code. 

2. Standards of Impartial Conduct 

Building upon the required 

acknowledgment of fiduciary status, the 

proposal additionally requires that both 

the Adviser and the Financial 

Institution contractually commit to 

adhering to specifically delineated 

Impartial Conduct Standards when 

providing investment advice to the 

Retirement Investor regarding principal 

transactions, and that they in fact do 

adhere to such standards. Therefore, if 

an Adviser and/or Financial Institution 

fail to comply with the Impartial 

Conduct Standards, relief under the 

exemption is no longer available and the 

contract is violated. 

Specifically, Section II(c)(1) of the 

proposal requires that under the 

contract the Adviser and Financial 

Institution provide advice regarding 

principal transactions that is in the 

‘‘best interest’’ of the Retirement 

Investor. Best interest is defined to 

mean that the Adviser and Financial 

Institution act with the care, skill, 

prudence, and diligence under the 

circumstances then prevailing that a 

prudent person would exercise based on 

the investment objectives, risk 

tolerance, financial circumstances, and 

the needs of the Retirement Investor 

when providing investment advice to 

the Retirement Investor. Further, under 

the best interest standard, the Adviser 

and Financial Institution must act 

without regard to the financial or other 

interests of the Adviser, Financial 

Institution, their Affiliates or any other 

party. Under this standard, the Adviser 

and Financial Institution must put the 

interests of the Retirement Investor 

ahead of the financial interests of the 

Adviser, Financial Institution, their 

Affiliates or any other party. 

The best interest standard set forth in 

this exemption is based on longstanding 

concepts derived from ERISA and the 

law of trusts. For example, ERISA 

section 404 requires a fiduciary to act 

‘‘solely in the interest of the participants 

. . . with the care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent man acting in 

a like capacity and familiar with such 

matters would use in the conduct of an 

enterprise of a like character and with 

like aims.’’ Similarly, both ERISA 

section 404(a)(1)(A) and the trust-law 

duty of loyalty require fiduciaries to put 

the interests of trust beneficiaries first, 

without regard to the fiduciaries’ own 

self-interest. Accordingly, the 

Department would expect the standard 

to be interpreted in light of forty years 

of judicial experience with ERISA’s 

fiduciary standards and hundreds more 

with the duties imposed on trustees 

under the common law of trusts. In 

general, courts focus on the process the 

fiduciary used to reach its 

determination or recommendation— 

whether the fiduciaries, ‘‘at the time 

they engaged in the challenged 

transactions, employed the proper 

procedures to investigate the merits of 

the investment and to structure the 

investment.’’ Donovan v. Mazzola, 716 

F.2d 1226, 1232 (9th Cir. 1983). 

Moreover, a fiduciary’s investment 

recommendation is measured based on 

the circumstances prevailing at the time 

of the transaction, not on how the 

investment turned out with the benefit 

of hindsight. 

In this regard, the Department notes 

that while fiduciaries of plans covered 

by ERISA are subject to the ERISA 

section 404 standards of prudence and 

loyalty, the Code contains no provisions 

that hold IRA fiduciaries to these 

standards. However, as a condition of 

relief under the proposed exemption, 

both IRA and plan fiduciaries would 

have to agree to, and uphold, the best 

interest requirement that is set forth in 

Section II(c). The best interest standard 

is defined to effectively mirror the 

ERISA section 404 duties of prudence 

and loyalty, as applied in the context of 

fiduciary investment advice. 

The Impartial Conduct Standards 

continue in Section II(c) of the proposal. 

Section II(c)(2) requires that the Adviser 

and Financial Institution agree that they 

will not enter into a principal 

transaction with the plan, participant or 

beneficiary account, or IRA if the 

purchase or sales price of the debt 

security (including the mark-up or 

mark-down) is unreasonable under the 

circumstances. Finally, Section II(c)(3) 

requires that the Adviser’s and 

Financial Institution’s statements about 

the debt security, fees, material conflicts 

of interest, and any other matters 

relevant to a Retirement Investor’s 

investment decisions, are not 

misleading. 

Under ERISA section 408(a) and Code 

section 4975(c), the Department cannot 

grant an exemption unless it first finds 

that the exemption is administratively 

feasible, in the interests of plans and 

their participants and beneficiaries and 

IRA owners, and protective of the rights 

of participants and beneficiaries of 

plans and IRA owners. An exemption 

permitting transactions that violate the 

requirements of Section II(c) would be 

unlikely to meet these standards. 

3. Warranty—Compliance With 

Applicable Law 

Section II(d) of the proposal requires 

that contract include certain warranties 

intended to be protective of the rights of 

Retirement Investors. In particular, to 

satisfy the exemption, the Adviser, and 

Financial Institution must warrant that 

they and their Affiliates will comply 

with all applicable federal and state 

laws regarding the rendering of the 

investment advice and the purchase and 

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21See Section VI(h) of the proposed exemption. 

sale of debt securities. This warranty 

must be in the contract but the 

exemption is not conditioned on 

compliance with the warranty. 

Accordingly, the failure to comply with 

applicable federal or state law could 

result in contractual liability for breach 

of warranty, but it would not result in 

loss of the exemption, as long as the 

breach did not involve a violation of one 

of the exemption’s other conditions 

(e.g., the best interest standard). Thus, 

for example, de minimis violations of 

state or federal law would not result in 

the loss of the exemption. 

4. Warranty—Policies and Procedures 

The Financial Institution must also 

contractually warrant that it has 

adopted written policies and procedures 

that are reasonably designed to mitigate 

the impact of material conflicts of 

interest that exist with respect to the 

provision of investment advice to 

Retirement Investors regarding principal 

transactions and ensure that individual 

Advisers adhere to the Impartial 

Conduct Standards described above. For 

purposes of the exemption, a material 

conflict of interest is deemed to exist 

when an Adviser or Financial 

Institution has a financial interest that 

could affect the exercise of its best 

judgment as a fiduciary in rendering 

advice to a Retirement Investor.21 Like 

the warranty on compliance with 

applicable law, discussed above, this 

warranty must be in the contract but the 

exemption is not conditioned on 

compliance with the warranty. Failure 

to comply with the warranty, however, 

could result in contractual liability for 

breach of warranty. 

As part of the contractual warranty on 

policies and procedures, the Financial 

Institution must state that in 

formulating its policies and procedures, 

it specifically identified material 

conflict of interests and adopted 

measures to prevent those material 

conflicts of interest from causing 

violations of the Impartial Conduct 

Standards. Further, the Financial 

Institution must state that neither it nor 

(to the best of its knowledge) its 

Affiliates will use quotas, appraisals, 

performance or personnel actions, 

bonuses, contests, special awards, 

differentiated compensation or other 

actions or incentives to the extent they 

would tend to encourage individual 

Advisers to make recommendations 

regarding principal transactions that are 

not in the best interest of Retirement 

Investors. 

While these warranties must be part 

of the contract between the Adviser and 

Financial Institution and the Retirement 

Investor, the proposal does not mandate 

the specific content of the policies and 

procedures. This flexibility is intended 

to allow Financial Institutions to 

develop policies and procedures that are 

effective for their particular business 

models, within the constraints of their 

fiduciary obligations and the Impartial 

Conduct Standards. A more detailed 

description of the policies and 

procedures requirement is included in 

the discussion of the similar 

requirement in the Proposed Exemption 

for the Receipt of Compensation by 

Investment Advice Fiduciaries, 

published in this same issue of the 

Federal Register. 

5. Contractual Disclosures 

Finally, Section II(e) of the proposal 

requires certain disclosures in the 

written contract. If the disclosures do 

not appear in a contract with a 

Retirement Investor, the exemption is 

not satisfied with respect to transactions 

involving that Retirement Investor. The 

written contract must (i) set forth the 

circumstances under which the Adviser 

and Financial Institution may engage in 

principal transactions with the plan, 

participant or beneficiary account, or 

IRA and (ii) identify and disclose the 

material conflicts of interest associated 

with principal transactions. The 

contract must also document the 

Retirement Investor’s affirmative written 

consent, on a prospective basis, to 

principal transactions with the Adviser 

or Financial Institution. Finally, the 

contract must inform the Retirement 

Investor (i) that the consent to principal 

transactions is terminable at will by the 

Retirement Investor at any time, without 

penalty to the plan, participant or 

beneficiary account, or IRA, and (ii) of 

the right to obtain complete information 

about all the fees and other payments 

currently associated with its 

investments. 

Enforcement of the Contractual 

Obligations 

The contractual conditions set forth in 

Section II of the proposal are 

enforceable. Plans, plan participants 

and beneficiaries, IRA owners, and the 

Department may use the contract as a 

tool to ensure compliance with the 

exemption. The Department notes, 

however, that this contractual tool 

creates different rights with respect to 

plans, participant and beneficiaries, IRA 

owners and the Department. 

1. IRA Owners 

The contract between the IRA owner 

and the Adviser and Financial 

Institution forms the basis of the IRA 

owner’s enforcement rights. As outlined 

above, the contract embodies obligations 

on the part of the Adviser and Financial 

Institution. The Department intends that 

all the contractual obligations (the 

Impartial Conduct Standards and the 

warranties) will be actionable by IRA 

owners. The most important of these 

contractual obligations for enforcement 

purposes is the obligation imposed on 

both the Adviser and the Financial 

Institution to comply with the Impartial 

Conduct Standards. Because these 

standards are contractually imposed, the 

IRA owner has a claim if, for example, 

the Adviser recommends an investment 

product that is not in fact in the best 

interest of the IRA owner. 

2. Plans, Plan Participants and 

Beneficiaries 

The protections of the exemption and 

contractual terms will also be 

enforceable by plans, plan participants 

and beneficiaries. Specifically, if an 

Adviser or Financial Institution receives 

compensation in a prohibited 

transaction but fails to satisfy any of the 

Impartial Conduct Standards or any 

other condition of the exemption, the 

Adviser and Financial Institution would 

be unable to qualify for relief under the 

exemption, and, as a result, could be 

liable under ERISA section 502(a)(2) 

and (3). An Adviser’s failure to comply 

with the exemption or the Impartial 

Conduct Standards would result in a 

non-exempt prohibited transaction and 

would likely constitute a fiduciary 

breach. As a result, a plan, plan 

participant or beneficiary would be able 

to sue under ERISA section 502(a)(2) or 

(3) to recover any loss in value to the 

plan (including the loss in value to an 

individual account), or to obtain 

disgorgement of any wrongful profits or 

unjust enrichment. Additionally, plans, 

participants and beneficiaries could 

enforce their obligations in an action 

based on breach of the agreement. 

3. The Department 

In addition, the Department will be 

able to enforce ERISA’s prohibited 

transaction provisions with respect to 

employee benefit plans, but not IRAs, in 

the event that the Adviser or Financial 

Institution receives compensation in a 

prohibited transaction but fails to 

comply with the Impartial Conduct 

Standards or any other conditions of the 

exemption. If any of the specific 

conditions of the exemption are not met, 

the Adviser and Financial Institution 

will have engaged in a non-exempt 

prohibited transaction, and the 

Department will be entitled to seek 

relief under ERISA section 502(a)(2) and 

(5). 

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4. Excise Taxes Under the Code 

In addition to the claims described 

above that may be brought by IRA 

owners, plans, plan participants and 

beneficiaries, and the Department, to 

enforce the contract and ERISA, 

Advisers and Financial Institutions that 

engage in prohibited transactions under 

the Code are subject to an excise tax. 

The excise tax is generally equal to 15% 

of the amount involved. Parties who 

have participated in a prohibited 

transaction for which an exemption is 

not available must pay the excise tax 

and file Form 5330 with the Internal 

Revenue Service. 

Prohibited Provisions 

Finally, in order to preserve these 

various enforcement rights, Section II(f) 

of the proposal provides that certain 

provisions may not be in the contract. 

If these provisions appear in a contract 

with a Retirement Investor, the 

exemption is not satisfied with respect 

to transactions involving that 

Retirement Investor. First, the proposal 

provides that the contract may not 

contain exculpatory provisions that 

disclaim or otherwise limit liability for 

an Adviser’s or Financial Institution’s 

violations of the contract’s terms. 

Second, the contract may not require the 

plan, IRA or Retirement Investor to 

agree to waive its right to bring or 

participate in a class action or other 

representative action in court in a 

contract dispute with the Adviser or 

Financial Institution. The right of a 

Retirement Investor to bring a classaction claim in court (and the 

corresponding limitation on fiduciaries’ 

ability to mandate class-action 

arbitration) is consistent with FINRA’s 

position that its arbitral forum is not the 

correct venue for class-action claims. As 

proposed, this section would not impact 

the ability of a Financial Institution or 

Adviser, and a Retirement Investor, to 

enter into pre-dispute binding 

arbitration agreement with respect to 

individual contract claims. The 

Department expects that most such 

individual arbitration claims under this 

exemption will be subject to FINRA’s 

arbitration procedures and consumer 

protections. The Department seeks 

comments on whether there are certain 

procedures and/or consumer protections 

that it should adopt or mandate for 

those contract disputes not covered by 

FINRA. 

General Conditions Applicable to Each 

Transaction (Section III) 

Section III of the proposal sets forth 

conditions that apply to the terms of 

each principal transaction entered into 

under the exemption. As noted above, 

Section III(a) of the proposal provides 

that the debt security being bought or 

sold must not have been issued or, at 

the time of the transaction, underwritten 

by the Financial Institution or any 

Affiliate. The debt security also must 

possess no greater than a moderate 

credit risk and be sufficiently liquid that 

the debt security could be sold at or 

near its fair market value within a 

reasonably short period of time. 

Section III(b) provides that the 

principal transaction may not be part of 

an agreement, arrangement, or 

understanding designed to evade 

compliance with ERISA or the Code, or 

to otherwise impact the value of the 

debt security. Such a condition protects 

against the Adviser or Financial 

Institution manipulating the terms of 

the principal transaction, either as an 

isolated transaction or as a part of a 

series of transactions, to benefit 

themselves or their Affiliates. Further, 

this condition would also prohibit an 

Adviser or Financial Institution from 

engaging in principal transactions with 

Retirement Investors for the purpose of 

ridding inventory of unwanted or poorly 

performing debt securities. 

Section III(c) of the proposal provides 

that the purchase or sale of the debt 

security must be for no consideration 

other than cash. By limiting a purchase 

or sale of debt securities to cash 

consideration, the Department intends 

that relief will not be provided for a 

principal transaction that is executed on 

an in-kind basis. 

Finally, Section III(d) of the proposal 

addresses the pricing of the principal 

transaction. Section III(d)(1) provides 

that the purchase or sale of the debt 

security must be executed at a price that 

the Adviser and Financial Institution 

reasonably believe is at least as 

favorable to the plan, participant or 

beneficiary account, or IRA than the 

price available to the plan, participant 

or beneficiary account, or IRA in a 

transaction that is not a principal 

transaction. Section III(d)(2) provides 

that the purchase or sale of the debt 

security must be at least as favorable to 

the plan, participant or beneficiary 

account, or IRA as the contemporaneous 

price for the debt security, or a similar 

security if a price is not available with 

respect to the same debt security, 

offered by two ready and willing 

counterparties that are not Affiliates in 

agency transactions. When evaluating 

the price offered by the counterparties, 

the Adviser and Financial Institution 

may take into account the resulting 

price to the plan, participant or 

beneficiary account, or IRA, including 

commissions. The Department intends 

that the proposal should allow a 

comparison between the actual cost to 

the plan, participant or beneficiary 

account, or IRA of the principal 

transaction (including the mark-up or 

mark-down) and the actual cost to the 

plan, participant or beneficiary account, 

or IRA of a non-principal transaction 

(e.g., an agency transaction) in the same 

or a similar debt security, including a 

commission. 

For purposes of Section III(d)(2), the 

similarity of a debt security should be 

construed in accordance with FINRA 

Rule 2121, or its successor, and the 

guidance promulgated thereunder. 

Generally, such guidance has stated that 

a similar debt security is one which is 

sufficiently similar to the subject debt 

security that it would serve as a 

reasonable alternative investment for 

the applicable investor. 

Disclosure Requirements (Section IV) 

Prior to engaging in a principal 

transaction, Section IV(a) of the 

proposal provides that the Adviser or 

Financial Institution must provide a 

pre-transaction disclosure to the 

Retirement Investor, either orally or in 

writing. The disclosure must notify the 

Retirement Investor that the purchase or 

sale of the debt security will be 

executed as a principal transaction 

between the Adviser or Financial 

Institution and the plan, participant or 

beneficiary account, or the IRA. Further, 

the disclosure must also provide the 

Retirement Investor with any available 

pricing information regarding the debt 

security, including two quotes obtained 

from unaffiliated parties required by 

Section III(d)(2). 

As proposed, the pre-transaction 

disclosure set forth in Section IV(a) 

would also include the mark-up or 

mark-down to be charged in connection 

with the principal transaction. The 

purpose of this requirement would be to 

permit the Retirement Investor to 

evaluate the compensation and other 

transaction costs associated with the 

principal transaction. The Department 

believes it is important that the 

Financial Institution and Adviser 

disclose the compensation they will 

receive before the Retirement Investor 

consents to engage in the principal 

transaction. 

For purpose of Section IV, the 

Department is considering defining a 

mark-up as the amount in excess of the 

‘‘prevailing market price’’ that a 

customer pays for the debt security. 

Mark-down would be defined as the 

amount by which the price of a debt 

security is reduced from the ‘‘prevailing 

market price’’ that a customer receives 

for the debt security. The Department is 

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22 17 CFR 240.10b–10. 

further considering whether to define 

the ‘‘prevailing market price’’ by 

reference to FINRA Rule 2121 and 

Supplementary Material .02 thereunder, 

which sets forth a methodology for 

determining the prevailing market price. 

We request comment on our proposed 

approach to the definition of mark-up 

and mark-down, and in particular, our 

potential reliance on the FINRA 

guidance in Rule 2121 for purposes of 

the disclosure requirement in this 

exemption. Would a disclosure of the 

mark-up/down as defined in this 

manner provide information that will be 

useful to Retirement Investors in 

evaluating the principal transaction? 

Are there practical difficulties with our 

approach? Are there other formulations 

of the mark-up mark-down definition 

that have advantages in these respects? 

Section IV(b) of the proposal provides 

that the Financial Institution must 

provide a written confirmation of the 

principal transaction in accordance with 

Rule 10b–10 under the Securities 

Exchange Act of 1934 22 that also 

includes disclosure of the mark-up, 

mark-down, or other payment to the 

Adviser, Financial Institution or 

Affiliate in connection with the 

Principal Transaction. 

Section IV(c) of the proposal provides 

that the Adviser or the Financial 

Institution must provide the Retirement 

Investor with an annual statement that 

lists the principal transactions engaged 

in during the year, provides the 

prevailing market price at which the 

debt security was purchased or sold, 

and provides the applicable mark-up or 

mark-down or other payment for each 

debt security. The annual statement 

must also remind the Retirement 

Investor that it may withdraw its 

consent to principal transactions at any 

time, without penalty to the plan, 

participant or beneficiary account, or 

IRA. The annual statement may be 

provided in combination with other 

statements provided to the Retirement 

Investor by the Adviser or Financial 

Institution. 

Finally, Section IV(d) of the proposal 

provides that, upon reasonable request, 

the Adviser or Financial Institution 

must provide the Retirement Investor 

with additional information regarding 

the debt security and the transaction for 

any principal transaction that has 

occurred within the past 6 years 

preceding the date of the request. 

Recordkeeping (Section V) and 

Definitions (Section VI) 

Section V of the proposal establishes 

a recordkeeping requirement, and 

Section VI sets forth definitions that are 

used in the proposed exemption. 

Applicability Date 

The Department is proposing that 

compliance with the final regulation 

defining a fiduciary under ERISA 

section 3(21)(A)(ii) and Code section 

4975(e)(3)(B) will begin eight months 

after publication of the final regulation 

in the Federal Register (Applicability 

Date). The Department proposes to make 

this exemption, if granted, available on 

the Applicability Date. 

No Relief Proposed From ERISA Section 

406(a)(1)(C) or Code section 

4975(c)(1)(C) for the Provision of 

Services 

If granted, this proposed exemption 

will not provide relief from a 

transaction prohibited by ERISA section 

406(a)(1)(C), or from the taxes imposed 

by Code section 4975(a) and (b) by 

reason of Code section 4975(c)(1)(C), 

regarding the furnishing of goods, 

services or facilities between a plan and 

a party in interest. The provision of 

investment advice to a plan under a 

contract with a fiduciary is a service to 

the plan and compliance with this 

exemption will not relieve an Adviser or 

Financial Institution of the need to 

comply with ERISA section 408(b)(2), 

Code section 4975(d)(2), and applicable 

regulations thereunder. 

Paperwork Reduction Act Statement 

As part of its continuing effort to 

reduce paperwork and respondent 

burden, the Department conducts a 

preclearance consultation program to 

provide the general public and Federal 

agencies with an opportunity to 

comment on proposed and continuing 

collections of information in accordance 

with the Paperwork Reduction Act of 

1995 (PRA) (44 U.S.C. 3506(c)(2)(A)). 

This helps to ensure that the public 

understands the Department’s collection 

instructions, respondents can provide 

the requested data in the desired format, 

reporting burden (time and financial 

resources) is minimized, collection 

instruments are clearly understood, and 

the Department can properly assess the 

impact of collection requirements on 

respondents. 

Currently, the Department is soliciting 

comments concerning the proposed 

information collection request (ICR) 

included in the Proposed Class 

Exemption for Principal Transactions in 

Certain Debt Securities between 

Investment Advice Fiduciaries and 

Employee Benefit Plans and IRAs as 

part of its proposal to amend its 1975 

rule that defines when a person who 

provides investment advice to an 

employee benefit plan, participant or 

beneficiary, or IRA owner, becomes a 

fiduciary. A copy of the ICR may be 

obtained by contacting the PRA 

addressee shown below or at http://

www.RegInfo.gov. 

The Department has submitted a copy 

of the Proposed Class Exemption for 

Principal Transactions in Certain Debt 

Securities between Investment Advice 

Fiduciaries and Employee Benefit Plans 

and IRAs to the Office of Management 

and Budget (OMB) in accordance with 

44 U.S.C. 3507(d) for review of its 

information collections. The 

Department and OMB are particularly 

interested in comments that: 

• Evaluate whether the collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

collection of information, including the 

validity of the methodology and 

assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., permitting electronic submission of 

responses. 

Comments should be sent to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 20503; 

Attention: Desk Officer for the 

Employee Benefits Security 

Administration. OMB requests that 

comments be received within 30 days of 

publication of the Proposed Investment 

Advice Initiative to ensure their 

consideration. 

PRA Addressee: Address requests for 

copies of the ICR to G. Christopher 

Cosby, Office of Policy and Research, 

U.S. Department of Labor, Employee 

Benefits Security Administration, 200 

Constitution Avenue NW, Room N– 

5718, Washington, DC 20210. 

Telephone (202) 693–8410; Fax: (202) 

219–5333. These are not toll-free 

numbers. ICRs submitted to OMB also 

are available at http://www.RegInfo.gov. 

As discussed in detail below, the 

proposed class exemption would permit 

principal transactions in certain debt 

securities between a plan, participant or 

beneficiary account, or an IRA, and a 

financial institution or certain of its 

affiliates. The proposed class exemption 

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23As described in the regulatory impact analysis 

for the accompanying rule, the Department 

estimates that approximately 2,619 broker-dealers 

service the retirement market. The Department 

anticipates that the exemption will be used 

primarily, but not exclusively, by broker-dealers. 

Further, the Department assumes that all brokerdealers servicing the retirement market will use the 

exemption. Beyond the 2,619 broker-dealers, the 

Department estimates that almost 200 other 

financial institutions will use the exemption. 

24The Department’s estimated 2015 hourly labor 

rates include wages, other benefits, and overhead, 

and are calculated as follows: Mean wage from the 

2013 National Occupational Employment Survey 

(April 2014, Bureau of Labor Statistics http://

www.bls.gov/news.release/pdf/ocwage.pdf); wages 

as a percent of total compensation from the 

Employer Cost for Employee Compensation (June 

2014, Bureau of Labor Statistics http://www.bls.gov/ 

news.release/ecec.t02.htm); overhead as a multiple 

of compensation is assumed to be 25 percent of 

total compensation for paraprofessionals, 20 

percent of compensation for clerical, and 35 percent 

of compensation for professional; annual inflation 

assumed to be 2.3 percent annual growth of total 

labor cost since 2013 (Employment Costs Index data 

for private industry, September 2014 http://

www.bls.gov/news.release/eci.nr0.htm). 

would require financial institutions and 

their advisers to enter into a contractual 

arrangement with the retirement 

investor (i.e., the plan fiduciary, 

participant or beneficiary, or the IRA 

owner), make certain disclosures to the 

retirement investors and maintain 

records necessary to prove that the 

conditions of the exemption have been 

met for a period of six (6) years from the 

date of each principal transaction. These 

requirements are ICRs subject to the 

PRA. 

The Department has made the 

following assumptions in order to 

establish a reasonable estimate of the 

paperwork burden associated with these 

ICRs: 

• Approximately 2,800 financial 

institutions 23 will utilize the proposed 

exemption to engage in principal 

transactions and eight percent will be 

new each year; 

• Financial Institutions and advisers 

will use existing in-house resources to 

obtain the required quotes and maintain 

the recordkeeping systems necessary to 

meet the requirements of the exemption; 

and 

• A combination of personnel will 

perform the tasks associated with the 

ICRs at an hourly wage rate of $125.95 

for a financial manager, $30.42 for 

clerical personnel, $79.67 for an IT 

professional, and $129.94 for a legal 

professional.24

Obtaining Quotes 

In order to engage in principal 

transactions, Section III(d) of the 

proposed class exemption requires 

financial institutions to obtain two price 

quotes from unaffiliated parties in 

agency transactions. The Department 

estimates that ten percent of defined 

benefit (DB) plans that obtain 

investment advice from fiduciaries will 

engage in principal transactions. These 

plans are assumed to engage in one 

transaction per year requiring a total of 

approximately 2,000 quotes annually. 

Similarly, the Department estimates that 

ten percent of defined contribution (DC) 

plans that do not allow participants to 

direct investments that obtain 

investment advice from fiduciaries will 

engage in principal transactions. These 

plans are assumed to engage in one 

transaction per year requiring a total of 

approximately 6,000 quotes annually. 

The Department estimates that one 

percent of DC plan participants, who 

direct their own investments and obtain 

investment advice from fiduciaries, will 

engage in 12 principal transactions 

annually (one per month) requiring 

approximately 261,000 quotes. Finally, 

the Department estimates that ten 

percent of IRA owners who obtain 

investment advice from fiduciaries will 

engage in principal transactions. They 

are assumed to engage in one 

transaction per year requiring a total of 

approximately 4 million quotes 

annually. 

Overall, the terms of this exemption 

will result in financial institutions and 

advisers obtaining approximately 4.3 

million quotes per year. The Department 

assumes that a financial manager will 

spend five minutes to obtain the quotes. 

Therefore, obtaining quotes will 

produce approximately 359,000 hours of 

burden annually at an equivalent cost of 

$45.2 million. 

Contract 

In order to engage in principal 

transactions under this proposed class 

exemption, Section II requires financial 

institutions and advisers to enter into a 

written contract with retirement 

investors affirmatively stating that the 

financial institution and adviser are 

fiduciaries under ERISA or the Code 

with respect to recommendations 

regarding principal transactions, and 

that the financial institution and adviser 

will act in the best interest of the 

retirement investor. 

The Department assumes that 

financial institutions already maintain 

contracts with their clients. Drafting the 

contractual provisions required by 

Section II and inserting them into the 

existing contracts will require 24 hours 

of legal time during the first year that 

the financial institution uses the class 

exemption. This legal work results in 

approximately 67,000 hours of burden 

during the first year and approximately 

5,000 hours of burden during 

subsequent years at an equivalent cost 

of $8.7 million and $699,000 

respectively. 

Because the Department assumes that 

financial institutions already maintain 

contracts with their clients, the required 

contractual provisions will not require 

any additional costs for production or 

distribution. 

Disclosures and Statement 

The conditions of this PTE require the 

financial institution and adviser to make 

certain disclosures to the retirement 

investor. These disclosures include the 

two price quotes obtained from 

unaffiliated parties in agency 

transactions, other available pretransaction pricing information, as well 

as the mark-up/mark-down to be 

charged, and an annual statement 

describing all transactions made during 

the year. The quotes and pre-transaction 

pricing and mark-up disclosures may be 

made orally or in writing. The 

Department assumes that all financial 

institutions and advisers will use the 

oral option at no additional burden. 

The Department estimates that 2 

million plans and IRAs will receive a 

one-page annual statement. DB and DC 

plans that do not allow participants to 

direct investments will receive the 

statement electronically at de minimis 

cost. The statement will be distributed 

electronically to 38 percent of the 

11,000 DC plan participants and 50 

percent of 2 million IRA holders at de 

minimis cost. Paper statements will be 

mailed to 62 percent of DC plan 

participants and 50 percent of IRA 

owners. The Department estimates that 

electronic distribution will result in de 

minimis cost, while paper distribution 

will cost approximately $548,000. Paper 

distribution will also require two 

minutes of clerical time to print and 

mail the statement, resulting in 34,000 

hours at an equivalent cost of $1 million 

annually. 

Confirmation 

The conditions of this PTE require the 

financial institution to provide a 

confirmation notice upon completion of 

each transaction. The Department 

believes that providing confirmation 

notices is a regular and customary 

business practice, and therefore no 

additional burden is imposed by this 

requirement. 

Recordkeeping Requirement 

Section V of the class exemption 

requires the financial institution to 

maintain or cause to be maintained for 

six years and disclosed upon request the 

records necessary for the Department, 

Internal Revenue Service, plan 

fiduciary, contributing employer or 

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25For purposes of this proposed exemption, 

references to ERISA should be read to refer as well 

to the corresponding provisions of the Code. 

employee organization whose members 

are covered by the plan, participants, 

beneficiaries and IRA owners to 

determine whether the conditions of 

this exemption have been met in a 

manner that is accessible for audit and 

examination. 

The Department assumes that each 

financial institution will maintain these 

records in the normal course of 

business. Therefore, the Department has 

estimated that the additional time 

needed to maintain records consistent 

with the exemption will only require 

about one-half hour, on average, 

annually for a financial manager to 

organize and collate the documents or 

else draft a notice explaining that the 

information is exempt from disclosure, 

and an additional 15 minutes of clerical 

time to make the documents available 

for inspection during normal business 

hours or prepare the paper notice 

explaining that the information is 

exempt from disclosure. Thus, the 

Department estimates that a total of 45 

minutes of professional time per firm 

would be required for a total hour 

burden of 2,100 hours at an equivalent 

cost of $198,000. 

In connection with this recordkeeping 

and disclosure requirements discussed 

above, Section V(b)(2) and (3) provides 

that financial institutions relying on the 

exemption do not have to disclose trade 

secrets or other confidential information 

to members of the public (i.e., plan 

fiduciaries, contributing employers or 

employee organizations whose members 

are covered by the plan, participants 

and beneficiaries and IRA owners), but 

that in the event they refuse to disclose 

information on this basis, they must 

provide a written notice to the requester 

advising of the reasons for the refusal 

and advising that the Department may 

request such information. The 

Department’s experience indicates that 

this provision is not commonly invoked, 

and therefore, the written notice is 

rarely, if ever, generated. Therefore, the 

Department believes the cost burden 

associated with this clause is de 

minimis. No other cost burden exists 

with respect to recordkeeping. 

IT Costs 

The Department estimates that 

updating computer systems to insert the 

contract provisions into existing 

contracts, maintain the required records, 

and insert the required markup 

information into existing confirmation 

notices will require eight hours of IT 

staff time during the first year that the 

financial institution uses the PTE. This 

IT work results in approximately 22,000 

hours of burden during the first year 

and approximately 1,800 hours of 

burden during subsequent years at an 

equivalent cost of $1.8 million and 

$142,000 respectively. 

Overall Summary 

Overall, the Department estimates that 

in order to meet the conditions of this 

class exemption, financial institutions 

and advisers will obtain approximately 

4.3 million price quotes and distribute 

an additional 2 million statements 

annually. Obtaining these quotes, 

distributing statements, adjusting 

contracts, and maintaining records that 

the conditions of the exemption have 

been fulfilled will result in a total of 

484,000 hours of burden during the first 

year and 402,000 hours of burden in 

subsequent years. The equivalent cost of 

this burden is $51.1million during the 

first year and $47.2 million in 

subsequent years. This exemption will 

result in a materials and postage cost 

burden of $548,000 annually. 

These paperwork burden estimates 

are summarized as follows: 

Type of Review: New collection 

(Request for new OMB Control 

Number). 

Agency: Employee Benefits Security 

Administration, Department of Labor. 

Titles: (1) Proposed Exemption for 

Principal Transactions in Certain Debt 

Securities between Investment Advice 

Fiduciaries and Employee Benefit Plans 

and IRAs and (2) Proposed Investment 

Advice Regulation. 

OMB Control Number: 1210–NEW. 

Affected Public: Business or other forprofit. 

Estimated Number of Respondents: 

2,800. 

Estimated Number of Annual 

Responses: 6,333,921. 

Frequency of Response: When 

engaging in exempted transaction; 

Annually. 

Estimated Total Annual Burden 

Hours: 484,072 hours during the first 

year, 401,643 in subsequent years. 

Estimated Total Annual Burden Cost: 

$548,079. 

General Information 

The attention of interested persons is 

directed to the following: 

(1) The fact that a transaction is the 

subject of an exemption under ERISA 

section 408(a) and Code section 

4975(c)(2) does not relieve a fiduciary or 

other party in interest or disqualified 

person with respect to a plan or IRA 

from certain other provisions of ERISA 

and the Code, including any prohibited 

transaction provisions to which the 

exemption does not apply and the 

general fiduciary responsibility 

provisions of ERISA section 404 which 

require, where applicable, among other 

things, that a fiduciary discharge his or 

her duties respecting the plan solely in 

the interests of the plan’s participants 

and beneficiaries and in a prudent 

fashion in accordance with ERISA 

section 404(a)(1)(B); 

(2) If granted, this class exemption 

does not extend to transactions 

prohibited under ERISA section 

406(a)(1)(B) and (C), ERISA section 

406(b)(3) and Code section 

4975(c)(1)(B), (C), and (F); 

(3) Before a class exemption may be 

granted under ERISA section 408(a) and 

Code section 4975(c)(2), the Department 

must find that the class exemption is 

administratively feasible, in the 

interests of plans and their participants 

and beneficiaries and IRA owners, and 

protective of the rights of the plan’s 

participants and beneficiaries and IRA 

owners; 

(4) If granted, this class exemption 

will be applicable to a particular 

transaction only if the transaction 

satisfies the conditions specified in the 

class exemption; and 

(5) If granted, this class exemption 

will be supplemental to, and not in 

derogation of, any other provisions of 

ERISA and the Code, including statutory 

or administrative exemptions and 

transitional rules. Furthermore, the fact 

that a transaction is subject to an 

administrative or statutory exemption is 

not dispositive of whether the 

transaction is in fact a prohibited 

transaction. 

Proposed Exemption 

The Department is proposing the 

following exemption under the 

authority of ERISA section 408(a) and 

Code section 4975(c)(2), and in 

accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637, October 27, 2011).25

Section I—Exemption 

(a) In general. ERISA and the Internal 

Revenue Code prohibit fiduciary 

advisers to employee benefit plans 

(Plans) and individual retirement plans 

(IRAs) from self-dealing, including 

receiving compensation that varies 

based on their investment 

recommendations. ERISA and the Code 

also prohibit fiduciaries from engaging 

in securities purchases and sales with 

Plans or IRAs on behalf of their own 

accounts (Principal Transactions). This 

exemption permits certain persons who 

provide investment advice to 

Retirement Investors (i.e., fiduciaries of 

Plans, Plan participants or beneficiaries, 

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or IRA owners) to engage in certain 

Principal Transactions as described 

below. 

(b) Exemption for Certain Principal 

Transactions. This exemption permits 

an Adviser or Financial Institution to 

engage in the purchase or sale of a Debt 

Security in a Principal Transaction with 

a Plan, participant or beneficiary 

account, or IRA, and receive a mark-up, 

mark-down or other payment for 

themselves or any Affiliate, as a result 

of the Adviser’s and Financial 

Institution’s advice. As detailed below, 

parties seeking to rely on the exemption 

must contractually acknowledge 

fiduciary status, agree to adhere to 

Impartial Conduct Standards in 

rendering advice, disclose Material 

Conflicts of Interest associated with 

Principal Transactions and obtain the 

prospective written consent of the Plan 

or IRA; warrant that they have adopted 

policies and procedures designed to 

mitigate the dangers posed by Material 

Conflicts of Interest; disclose important 

information about the cost of the 

security in the Principal Transaction 

and retain certain records. This 

exemption provides relief from ERISA 

section 406(a)(1)(A) and (D) and section 

406(b)(1) and (2), and the taxes imposed 

by Code section 4975(a) and (b), by 

reason of Code section 4975(c)(1)(A), 

(D), and (E). The Adviser and Financial 

Institution must comply with the 

conditions of Sections II–V. 

(c) Scope of this exemption: This 

exemption does not apply if: 

(1) The Adviser: (i) Exercises any 

discretionary authority or discretionary 

control respecting management of the 

assets of the Plan or IRA involved in the 

transaction or exercises any 

discretionary authority or control 

respecting management or the 

disposition of the assets; or (ii) has any 

discretionary authority or discretionary 

responsibility in the administration of 

the Plan or IRA; or 

(2) The Plan is covered by Title I of 

ERISA and (i) the Adviser, Financial 

Institution or any Affiliate is the 

employer of employees covered by the 

Plan, or (ii) the Adviser or Financial 

Institution is a named fiduciary or plan 

administrator (as defined in ERISA 

section 3(16)(A)) with respect to the 

Plan, or an affiliate thereof, that was 

selected to provide investment advice to 

the plan by a fiduciary who is not 

Independent. 

Section II—Contract, Impartial 

Conduct, and Other Requirements 

(a) Contract. Prior to engaging in the 

Principal Transaction, the Adviser and 

Financial Institution enter into a written 

contract with the Retirement Investor, 

acting on behalf of the Plan, participant 

or beneficiary account, or IRA, that 

incorporates the terms required by 

Section II(b)–(e). 

(b) Fiduciary. The written contract 

affirmatively states that the Adviser and 

Financial Institution are fiduciaries 

under ERISA or the Code, or both, with 

respect to any investment 

recommendation to the Retirement 

Investor regarding Principal 

Transactions. 

(c) Impartial Conduct Standards. The 

Adviser and Financial Institution 

affirmatively agree to, and comply with, 

the following: 

(1) When providing investment advice 

to a Retirement Investor regarding the 

Principal Transaction, the Adviser and 

Financial Institution will provide 

investment advice that is in the Best 

Interest of the Retirement Investor (i.e., 

advice that reflects the care, skill, 

prudence, and diligence under the 

circumstances then prevailing that a 

prudent person would exercise based on 

the investment objectives, risk 

tolerance, financial circumstances, and 

needs of the Retirement Investor, 

without regard to the financial or other 

interests of the Adviser, Financial 

Institution, or any Affiliate or other 

party); 

(2) The Adviser and Financial 

Institution will not enter into a 

Principal Transaction with the Plan, 

participant or beneficiary account, or 

IRA if the purchase or sales price of the 

Debt Security (including the mark-up or 

mark-down) is unreasonable under the 

circumstances; and 

(3) The Adviser’s and Financial 

Institution’s statements about the Debt 

Security, fees, Material Conflicts of 

Interest, the Principal Transaction, and 

any other matters relevant to a 

Retirement Investor’s investment 

decision in the Debt Security, are not 

misleading. 

(d) Warranty. The Adviser and 

Financial Institution affirmatively 

warrant the following: 

(1) The Adviser, Financial Institution 

and Affiliates will comply with all 

applicable federal and state laws 

regarding the rendering of the 

investment advice and the purchase and 

sale of the Debt Security; 

(2) The Financial Institution has 

adopted written policies and procedures 

reasonably designed to mitigate the 

impact of Material Conflicts of Interest 

and to ensure that its individual 

Advisers adhere to the Impartial 

Conduct Standards set forth in Section 

II(c); 

(3) In formulating its policies and 

procedures, the Financial Institution has 

specifically identified Material Conflicts 

of Interest and adopted measures to 

prevent the Material Conflicts of Interest 

from causing violations of the Impartial 

Conduct Standards set forth in Section 

II(c); and 

(4) Neither the Financial Institution 

nor (to the best of its knowledge) any 

Affiliate uses quotas, appraisals, 

performance or personnel actions, 

bonuses, contests, special awards, 

differentiated compensation or other 

actions or incentives to the extent they 

would tend to encourage individual 

Advisers to make recommendations 

regarding Principal Transactions that 

are not in the Best Interest of the 

Retirement Investor. 

(e) Principal Transaction Disclosures. 

The written contract must specifically: 

(1) Set forth in writing (i) the 

circumstances under which the Adviser 

and Financial Institution may engage in 

Principal Transactions with the Plan, 

participant or beneficiary account, or 

IRA and (ii) identify and disclose the 

Material Conflicts of Interest associated 

with Principal Transactions; 

(2) Document the Retirement 

Investor’s affirmative written consent, 

on a prospective basis, to Principal 

Transactions between the Adviser or 

Financial Institution and the Plan, 

participant or beneficiary account, or 

IRA; and 

(3) Inform the Retirement Investor (i) 

that the consent set forth in Section 

II(e)(2) is terminable at will by the 

Retirement Investor at any time, without 

penalty to the Plan or IRA, and (ii) of 

the right to obtain complete information 

about all the fees and other payments 

currently associated with its 

investments. 

(f) Prohibited Contractual Provisions. 

The written contract shall not contain 

the following: 

(1) Exculpatory provisions 

disclaiming or otherwise limiting 

liability of the Adviser or Financial 

Institution for a violation of the 

contract’s terms; and 

(2) A provision under which the Plan, 

IRA or the Retirement Investor waives 

or qualifies its right to bring or 

participate in a class action or other 

representative action in court in a 

dispute with the Adviser or Financial 

Institution. 

Section III—General Conditions 

(a) Debt Security. The Debt Security 

being purchased or sold: 

(1) Was not issued by the Financial 

Institution or any Affiliate; 

(2) Is not purchased by the Plan, 

participant or beneficiary account, or 

IRA in an underwriting or underwriting 

syndicate in which the Financial 

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Institution or any Affiliate is the 

underwriter or a member; 

(3) Possesses no greater than a 

moderate credit risk; and 

(4) Is sufficiently liquid that the Debt 

Security could be sold at or near its fair 

market value within a reasonably short 

period of time. 

(b) Arrangement. The Principal 

Transaction is not part of an agreement, 

arrangement, or understanding designed 

to evade compliance with ERISA or the 

Code, or to otherwise impact the value 

of the Debt Security. 

(c) Cash. The purchase or sale of the 

Debt Security is for cash. 

(d) Pricing. The purchase or sale of 

the Debt Security is executed at a price 

that: 

(1) The Adviser and Financial 

Institution reasonably believe is at least 

as favorable to the Plan, participant or 

beneficiary account, or IRA than the 

price available to the Plan, participant 

or beneficiary account, or IRA in a 

transaction that is not a Principal 

Transaction; and 

(2) Is at least as favorable to the Plan, 

participant or beneficiary account, or 

IRA as the contemporaneous price for 

the Debt Security, or a similar security 

if a price is not available with respect 

to the same Debt Security, offered by 

two ready and willing counterparties 

that are not Affiliates. 

When comparing the price offered by 

the counterparties referred to in (2), the 

Adviser and Financial Institution may 

take into account a commission as part 

of the resulting price to the Plan, 

participant or beneficiary account, or 

IRA, as compared to the price of the 

Debt Security, including any mark-up or 

mark-down. 

Section IV—Disclosure Requirements 

(a) Pre-Transaction Disclosure. Prior 

to engaging in the Principal Transaction, 

the Adviser or Financial Institution 

provides the following, orally or in 

writing, to the Retirement Investor: 

(1) A statement that the purchase or 

sale of the Debt Security will be 

executed as a Principal Transaction 

between the Adviser or Financial 

Institution and the Plan, participant or 

beneficiary account, or IRA; and 

(2) Any available pricing information 

regarding the Debt Security, including 

the two quotes obtained pursuant to 

Section III(d). The mark-up or markdown or other payment that will be 

charged also must be disclosed. 

(b) Confirmation. The Financial 

Institution provides a written 

confirmation of the Principal 

Transaction in accordance with Rule 

10b–10 under the Securities Exchange 

Act of 1934 that also includes disclosure 

of the mark-up, mark-down, or other 

payment to the Adviser, Financial 

Institution or Affiliate in connection 

with the Principal Transaction. 

(c) Annual Disclosure. The Adviser or 

Financial Institution provides the 

following written information to the 

Retirement Investor, annually, within 45 

days of the end of the applicable year, 

in a single disclosure: 

(1) A list identifying each Principal 

Transaction engaged in during the 

applicable period, the prevailing market 

price at which the Debt Security was 

purchased or sold, and the applicable 

mark-up or mark-down or other 

payment for each Debt Security; and 

(2) A statement that the consent 

required pursuant to Section II(e)(2) is 

terminable at will, without penalty to 

the Plan or IRA. 

(d) Upon Request. Upon the 

Retirement Investor’s reasonable 

request, prior to or following the 

completion of a Principal Transaction, 

the Adviser or Financial Institution 

must provide the Retirement Investor 

with additional information regarding 

the Debt Security and its purchase or 

sale; provided that such request may not 

relate to a Principal Transaction that 

was executed more than six (6) years 

from the date of the request. 

Section V—Recordkeeping 

(a) The Financial Institution 

maintains for a period of six (6) years 

from the date of each Principal 

Transaction the records necessary to 

enable the persons described in Section 

V(b) to determine whether the 

conditions of this exemption have been 

met, except that: 

(1) If such records are lost or 

destroyed, due to circumstances beyond 

the control of the Financial Institution, 

then no prohibited transaction will be 

considered to have occurred solely on 

the basis of the unavailability of those 

records; and 

(2) No party other than the Financial 

Institution that is engaging in the 

Principal Transaction shall be subject to 

the civil penalty that may be assessed 

under ERISA section 502(i) or to the 

taxes imposed by Code sections 4975(a) 

and (b) if the records are not maintained 

or are not available for examination as 

required by Section V(b). 

(b) 

(1) Except as provided in Section 

V(b)(2) and notwithstanding any 

provisions of ERISA sections 504(a)(2) 

and 504(b), the records referred to in 

Section V(a) are unconditionally 

available at their customary location for 

examination during normal business 

hours by: 

(i) Any duly authorized employee or 

representative of the Department or the 

Internal Revenue Service; 

(ii) any fiduciary of the Plan or IRA 

that was a party to a Principal 

Transaction described in this 

exemption, or any duly authorized 

employee or representative of such 

fiduciary; 

(iii) any employer of participants and 

beneficiaries and any employee 

organization whose members are 

covered by the Plan, or any authorized 

employee or representative of these 

entities; and 

(iv) any participant or beneficiary of 

the Plan, or the beneficial owner of an 

IRA. 

(2) None of the persons described in 

subparagraph (1)(ii) through (iv) are 

authorized to examine trade secrets of 

the Financial Institution, or commercial 

or financial information which is 

privileged or confidential; and 

(3) Should the Financial Institution 

refuse to disclose information on the 

basis that such information is exempt 

from disclosure, the Financial 

Institution must by the close of the 

thirtieth (30th) day following the 

request, provide a written notice 

advising the requestor of the reasons for 

the refusal and that the Department may 

request such information. 

Section VI—Definitions 

(a) ‘‘Adviser’’ means an individual 

who: 

(1) Is a fiduciary of a Plan or IRA 

solely by reason of the provision of 

investment advice described in ERISA 

section 3(21)(A)(ii) or Code section 

4975(e)(3)(B), or both, and the 

applicable regulations, with respect to 

the Assets involved in the transaction; 

(2) Is an employee, independent 

contractor, agent, or registered 

representative of a Financial Institution; 

and 

(3) Satisfies the applicable banking, 

and securities laws with respect to the 

covered transaction. 

(b) ‘‘Affiliate’’ of an Adviser or 

Financial Institution mean: 

(1) Any person directly or indirectly, 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with the Adviser or 

Financial Institution. For this purpose, 

the term ‘‘control’’ means the power to 

exercise a controlling influence over the 

management or policies of a person 

other than an individual; 

(2) Any officer, director, employee, 

relative (as defined in ERISA section 

3(15)) or member of family (as defined 

in Code section 4975(e)(6)), agent or 

registered representative of, or partner 

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in the Adviser or Financial Institution; 

and 

(3) Any corporation or partnership of 

which the Adviser or Financial 

Institution is an officer, director, or 

employee, or in which the Adviser or 

Financial Institution is a partner. 

(c) Investment advice is in the ‘‘Best 

Interest’’ of the Retirement Investor 

when the Adviser and Financial 

Institution providing the advice act with 

the care, skill, prudence, and diligence 

under the circumstances then prevailing 

that a prudent person would exercise 

based on the investment objectives, risk 

tolerance, financial circumstances, and 

needs of the Retirement Investor, 

without regard to the financial or other 

interests of the Adviser, Financial 

Institution, any Affiliate or other party. 

(d) ‘‘Debt Security’’ means a ‘‘debt 

security’’ as defined in Rule 10b– 

10(d)(4) of the Exchange Act that is: 

(1) U.S. dollar denominated, issued by 

a U.S. corporation and offered pursuant 

to a registration statement under the 

Securities Act of 1933; 

(2) An ‘‘Agency Debt Security’’ as 

defined in FINRA Rule 6710(l) or its 

successor; or 

(3) A ‘‘U.S. Treasury Security’’ as 

defined in FINRA Rule 6710(p) or its 

successor. 

(e) ‘‘Financial Institution’’ means the 

entity that (i) employs the Adviser or 

otherwise retains such individual as an 

independent contractor, agent or 

registered representative, and (ii) 

customarily purchases or sells Debt 

Securities for its own account in the 

ordinary course of its business, and that 

is: 

(1) Registered as an investment 

adviser under the Investment Advisers 

Act of 1940 (15 U.S.C. 80b–1 et seq.) or 

under the laws of the state in which the 

adviser maintains its principal office 

and place of business; 

(2) A bank or similar financial 

institution supervised by the United 

States or state, or a savings association 

(as defined in section 3(b)(1) of the 

Federal Deposit Insurance Act (12 

U.S.C. 1813(b)(1))), but only if the 

advice resulting in the compensation is 

provided through a trust department of 

the bank or similar financial institution 

or savings association which is subject 

to periodic examination and review by 

federal or state banking authorities; and 

(3) A broker or dealer registered under 

the Securities Exchange Act of 1934 (15 

U.S.C. 78a et seq.). 

(f) ‘‘Independent’’ means a person 

that: 

(1) Is not the Adviser or Financial 

Institution or an Affiliate; 

(2) Does not receive compensation or 

other consideration for his or her own 

account from the Adviser, Financial 

Institution or an Affiliate; and 

(3) Does not have a relationship to or 

an interest in the Adviser, Financial 

Institution or an Affiliate that might 

affect the exercise of the person’s best 

judgment in connection with 

transactions described in this 

exemption. 

(g) ‘‘Individual Retirement Account’’ 

or ‘‘IRA’’ means any trust, account or 

annuity described in Code section 

4975(e)(1)(B) through (F), including, for 

example, an individual retirement 

account described in Code section 

408(a) and a health savings account 

described in Code section 223(d). 

(h) A ‘‘Material Conflict of Interest’’ 

exists when an Adviser or Financial 

Institution has a financial interest that 

could affect the exercise of its best 

judgment as a fiduciary in rendering 

advice to a Retirement Investor 

regarding Principal Transactions. 

(i) ‘‘Plan’’ means an employee benefit 

plan described in ERISA section 3(3) 

and any plan described in Code section 

4975(e)(1)(A). 

(j) ‘‘Principal Transaction’’ means a 

purchase or sale of a Debt Security 

where an Adviser or Financial 

Institution is purchasing from or selling 

to a Plan, participant or beneficiary 

account, or IRA on behalf of the 

Financial Institution’s own account or 

the account of a person directly or 

indirectly, through one or more 

intermediaries, controlling, controlled 

by, or under common control with the 

Financial Institution. 

(k) ‘‘Retirement Investor’’ means: 

(1) A fiduciary of a non-participant 

directed Plan subject to Title I of ERISA 

with authority to make investment 

decisions for the Plan; 

(2) A participant or beneficiary of a 

Plan subject to Title I of ERISA with 

authority to direct the investment of 

assets in his or her Plan account or to 

take a distribution; or 

(3) The beneficial owner of an IRA 

acting on behalf of the IRA. 

Signed at Washington, DC, this 14th day of 

April, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2015–08833 Filed 4–15–15; 11:15 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2550 

[Application Number D–11687] 

ZRIN 1210–ZA25 

Proposed Amendment to Prohibited 

Transaction Exemption (PTE) 75–1, 

Part V, Exemptions From Prohibitions 

Respecting Certain Classes of 

Transactions Involving Employee 

Benefit Plans and Certain BrokerDealers, Reporting Dealers and Banks 

AGENCY: Employee Benefits Security 

Administration (EBSA), U.S. 

Department of Labor. 

ACTION: Notice of Proposed Amendment 

to PTE 75–1, Part V. 

SUMMARY: This document contains a 

notice of pendency before the 

Department of Labor of a proposed 

amendment to PTE 75–1, Part V, a class 

exemption from certain prohibited 

transactions provisions of the Employee 

Retirement Income Security Act of 1974 

(ERISA) and the Internal Revenue Code 

(the Code). The provisions at issue 

generally prohibit fiduciaries of 

employee benefit plans and individual 

retirement accounts (IRAs), from 

lending money or otherwise extending 

credit to the plans and IRAs and 

receiving compensation in return. PTE 

75–1, Part V, permits the extension of 

credit to a plan or IRA by a brokerdealer in connection with the purchase 

or sale of securities; however, it does 

not permit the receipt of compensation 

for an extension of credit by brokerdealers that are fiduciaries with respect 

to the assets involved in the transaction. 

The amendment proposed in this notice 

would permit investment advice 

fiduciaries to receive compensation 

when they extend credit to plans and 

IRAs to avoid a failed securities 

transaction. The proposed amendment 

would affect participants and 

beneficiaries of plans, IRA owners, and 

fiduciaries with respect to such plans 

and IRAs. 

DATES: Comments: Written comments 

concerning the proposed class 

exemption must be received by the 

Department on or before July 6, 2015. 

Applicability: The Department 

proposes to make this amendment 

applicable eight months after 

publication of the final amendment in 

the Federal Register. 

ADDRESSES: All written comments 

concerning the proposed amendment to 

the class exemption should be sent to 

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