22010 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

15For purposes of this proposed amendment, 

references to ERISA should be read to refer as well 

to the corresponding provisions of the Code. 16 17 CFR 240.10b–16. 

ERISA section 408(a) and Code section 

4975(c)(2), the Department must find 

that the class exemption as amended is 

administratively feasible, in the 

interests of the plan and of its 

participants and beneficiaries and IRA 

owners, and protective of the rights of 

the plan’s participants and beneficiaries 

and IRA owners; 

(3) If granted, a class exemption is 

applicable to a particular transaction 

only if the transaction satisfies the 

conditions specified in the class 

exemption; and 

(4) If granted, this amended 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 Amendment 

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),15 the 

Department proposes to amend PTE 75– 

1, Part V, to read as follows: 

The restrictions of section 406 of the 

Employee Retirement Income Security 

Act of 1974 (the Act) and the taxes 

imposed by section 4975(a) and (b) of 

the Internal Revenue Code of 1986 (the 

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

the Code, shall not apply to any 

extension of credit to an employee 

benefit plan or an individual retirement 

account (IRA) by a party in interest or 

a disqualified person with respect to the 

plan or IRA, provided that the following 

conditions are met: 

(a) The party in interest or 

disqualified person: 

(1) Is a broker or dealer registered 

under the Securities Exchange Act of 

1934; and 

(2) Does not have or exercise any 

discretionary authority or control 

(except as a directed trustee) with 

respect to the investment of the plan or 

IRA assets involved in the transaction, 

nor does it render investment advice 

(within the meaning of 29 CFR 2510.3– 

21) with respect to those assets, unless 

no interest or other consideration is 

received by the party in interest or 

disqualified person or any affiliate 

thereof in connection with such 

extension of credit. 

(b) Such extension of credit: 

(1) Is in connection with the purchase 

or sale of securities; 

(2) Is lawful under the Securities 

Exchange Act of 1934 and any rules and 

regulations promulgated thereunder; 

and 

(3) Is not a prohibited transaction 

within the meaning of section 503(b) of 

the Code. 

(c) Notwithstanding section (a)(2), a 

fiduciary within the meaning of ERISA 

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

4975(e)(3)(B) may receive reasonable 

compensation for extending credit to a 

plan or IRA to avoid a failed purchase 

or sale of securities involving the plan 

or IRA if: 

(1) The potential failure of the 

purchase or sale of the securities is not 

the result of action or inaction by such 

fiduciary or an affiliate; 

(2) The terms of the extension of 

credit are at least as favorable to the 

plan or IRA as the terms available in an 

arm’s length transaction between 

unaffiliated parties; 

(3) Prior to the extension of credit, the 

plan or IRA receives written disclosure 

of (i) the rate of interest (or other fees) 

that will apply and (ii) the method of 

determining the balance upon which 

interest will be charged, in the event 

that the fiduciary extends credit to 

avoid a failed purchase or sale of 

securities, as well as prior written 

disclosure of any changes to these 

terms. This Section (c)(3) will be 

considered satisfied if the plan or IRA 

receives the disclosure described in the 

Securities and Exchange Act Rule 10b– 

16;16 and 

(d) The broker-dealer engaging in the 

covered transaction maintains or causes 

to be maintained for a period of six 

years from the date of such transaction 

such records as are necessary to enable 

the persons described in paragraph (e) 

of this exemption to determine whether 

the conditions of this exemption have 

been met, except that: 

(1) No party other than the brokerdealer engaging in the covered 

transaction shall be subject to the civil 

penalty which may be assessed under 

section 502(i) of the Act, or to the taxes 

imposed by section 4975(a) and (b) of 

the Code, if such records are not 

maintained, or are not available for 

examination as required by paragraph 

(e) below; and 

(2) A prohibited transaction will not 

be deemed to have occurred if, due to 

circumstances beyond the control of the 

broker-dealer, such records are lost or 

destroyed prior to the end of such sixyear period. 

(e) Notwithstanding anything to the 

contrary in subsections (a)(2) and (b) of 

section 504 of the Act, the records 

referred to in paragraph (d) are 

unconditionally available for 

examination during normal business 

hours by duly authorized employees of 

(1) the Department of Labor, (2) the 

Internal Revenue Service, (3) plan 

participants and beneficiaries and IRA 

owners, (4) any employer of plan 

participants and beneficiaries, and (5) 

any employee organization any of 

whose members are covered by such 

plan. 

For purposes of this exemption, the 

terms ‘‘party in interest,’’ ‘‘disqualified 

person’’ and ‘‘fiduciary’’ shall include 

such party in interest, disqualified 

person, or fiduciary, and any affiliates 

thereof, and the term ‘‘affiliate’’ shall be 

defined in the same manner as that term 

is defined in 29 CFR 2510.3–21(e) and 

26 CFR 54.4975–9(e). Also for the 

purposes of this exemption, the term 

‘‘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 section 408(a) of 

the Code and a health savings account 

described in section 223(d) of the Code. 

Signed at Washington, DC, this 14th day of 

April, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2015–08836 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–11850] 

ZRIN: 1210–ZA25 

Proposed Amendment to and 

Proposed Partial Revocation of 

Prohibited Transaction Exemption 

(PTE) 84–24 for Certain Transactions 

Involving Insurance Agents and 

Brokers, Pension Consultants, 

Insurance Companies and Investment 

Company Principal Underwriters 

AGENCY: Employee Benefits Security 

Administration (EBSA), Department of 

Labor. 

ACTION: Notice of Proposed Amendment 

to and Proposed Partial Revocation of 

PTE 84–24. 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22011 

1PTE 84–24, 49 FR 13208 (Apr. 3, 1984), as 

corrected, 49 FR 24819 (June 15, 1984), as amended, 

71 FR 5887 (Feb. 3, 2006). 

2Regulations at 29 CFR 2570.30 to 2570.52 

describe the procedures for applying for an 

administrative exemption under ERISA. Code 

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 issue administrative 

exemptions under Code section 4975 to the 

Secretary of Labor. 

SUMMARY: This document contains a 

notice of pendency before the 

Department of Labor of a proposed 

amendment to Prohibited Transaction 

Exemption (PTE) 84–24, an exemption 

from certain prohibited transaction 

provisions of the Employee Retirement 

Income Security Act of 1974 (ERISA) 

and the Internal Revenue Code of 1986 

(the Code). The ERISA and Code 

provisions at issue generally prohibit 

fiduciaries with respect to employee 

benefit plans and individual retirement 

accounts (IRAs) from engaging in selfdealing in connection with transactions 

involving these plans and IRAs. The 

exemption allows fiduciaries to receive 

compensation when plans and IRAs 

enter into certain insurance and mutual 

fund transactions recommended by the 

fiduciaries as well as certain related 

transactions. The proposed amendments 

would increase the safeguards of the 

exemption. This document also contains 

a notice of pendency before the 

Department of the proposed revocation 

of the exemption as it applies to IRA 

purchases of mutual fund shares and 

certain annuity contracts. The 

amendments and revocations would 

affect participants and beneficiaries of 

plans, IRA owners and certain 

fiduciaries of plans and IRAs. 

DATES: Comments: Written comments 

must be received by the Department on 

or before July 6, 2015. 

Applicability: The Department 

proposes to make this amendment and 

partial revocation applicable eight 

months after the publication of the final 

amendment and partial revocation in 

the Federal Register. 

ADDRESSES: All written comments 

concerning the proposed amendment 

and proposed revocation to the 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–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– 

11850), 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–11850), 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. 

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, 200 Constitution 

Avenue NW., Suite 400, Washington, 

DC 20210, (202) 693–8824 (not a tollfree number). 

SUPPLEMENTARY INFORMATION: The 

Department is proposing the 

amendment to PTE 84–24 1 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 

This proposal is being published in 

the same issue of the Federal Register 

as the Department’s proposed regulation 

that would amend the definition of a 

‘‘fiduciary’’ of an employee benefit plan 

or an IRA under ERISA and the Internal 

Revenue Code (Proposed Regulation). 

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. 

PTE 84–24 permits certain investment 

advice fiduciaries to receive 

commissions in connection with the 

purchase and sale of recommended 

insurance and annuity products and 

mutual fund shares by the plans and 

IRAs, and certain related transactions. 

In the absence of an exemption, ERISA 

and the Code generally prohibit 

fiduciaries from using their authority to 

affect or increase their own 

compensation. This proposal would 

revoke the exemption for certain 

transactions and amend the conditions 

under which fiduciaries may receive 

such compensation. 

The Secretary of Labor may grant and 

amend administrative exemptions from 

the prohibited transaction provisions of 

ERISA and the Code.2 Before granting 

an amendment to an exemption, the 

Department must find that the amended 

exemption is administratively feasible, 

in the interests of plans, 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 

PTE 84–24 currently provides an 

exemption for certain prohibited 

transactions that occur when plans or 

IRAs purchase insurance and annuity 

contracts and shares in an investment 

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22012 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

3For purposes of this amendment, the terms 

‘‘Individual Retirement Account’’ or ‘‘IRA’’ mean 

any trust, account or annuity described in Code 

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

example, an individual retirement account 

described in section 408(a) of the Code and a health 

savings account described in section 223(d) of the 

Code. 

4ERISA section 404(a). 

5ERISA section 406. ERISA also prohibits certain 

transactions between a plan and a ‘‘party in 

interest.’’ 

6ERISA section 409; see also ERISA section 405. 

company registered under the 

Investment Company Act of 1940 (a 

mutual fund). The exemption permits 

insurance agents, insurance brokers and 

pension consultants that are parties in 

interest or fiduciaries with respect to 

plans and IRAs to effect the purchase of 

the insurance or annuity contracts for 

the plans or IRAs and receive a 

commission on the sale. The exemption 

is also available for the prohibited 

transaction that occurs when the 

insurance company selling the 

insurance or annuity contract is a party 

in interest or disqualified person with 

respect to the plan or IRA. Likewise, 

with respect to mutual fund 

transactions, PTE 84–24 permits mutual 

fund principal underwriters that are 

parties in interest or fiduciaries to effect 

the sale of mutual fund shares to plans 

or IRAs, and receive a commission on 

the transaction. 

This proposal would make several 

changes to PTE 84–24. First, it would 

increase the safeguards of the exemption 

by requiring fiduciaries that rely on the 

exemption to adhere to certain 

‘‘Impartial Conduct Standards,’’ 

including acting in the best interest of 

the plans and IRAs when providing 

advice, and by more precisely defining 

the types of payments that are permitted 

under the exemption. 

Second, on a going forward basis, the 

amendment would revoke relief for 

insurance agents, insurance brokers and 

pension consultants to receive a 

commission in connection with the 

purchase by IRAs of variable annuity 

contracts and other annuity contracts 

that are securities under federal 

securities laws and for mutual fund 

principal underwriters to receive a 

commission in connection with the 

purchase by IRAs of mutual fund 

shares.3 A new exemption for the 

receipt of compensation by fiduciaries 

that provide investment advice to IRA 

owners is proposed elsewhere in this 

issue of the Federal Register in the 

‘‘Best Interest Contract Exemption.’’ The 

Department believes that the provisions 

in the Best Interest Contract Exemption 

better protect the interests of IRAs with 

respect to investment advice regarding 

securities products. 

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 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing and 

streamlining rules, and of promoting 

flexibility. It also requires federal 

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 proposal, and OMB has reviewed 

this regulatory action. 

Background 

As explained more fully in the 

preamble to the Department’s Proposed 

Regulation on the definition of fiduciary 

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 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.4 In 

addition, they must refrain from 

engaging in ‘‘prohibited transactions,’’ 

which ERISA does not permit because 

of the dangers posed by the fiduciaries’ 

conflicts of interest with respect to the 

transactions.5 When fiduciaries violate 

ERISA’s fiduciary duties or the 

prohibited transaction rules, they may 

be held personally liable for the breach.6

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. Elsewhere 

in this issue of the Federal Register, 

however, the Department is proposing 

two new class exemptions that would 

create contractual obligations for the 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22013 

7See PTE 2002–13, 67 FR 9483 (March 1, 2002) 

(preamble discussion of certain exemptions, 

including PTE 84–24, that apply to plans described 

in Code section 4975). 

8See PTE 77–9, 42 FR 32395 (June 24, 1977) 

(predecessor to PTE 84–24). 

9The exemption also provides relief for: (1) The 

purchase, with plan assets, of an insurance or 

annuity contract from an insurance company which 

is a fiduciary or a service provider (or both) with 

respect to the plan solely by reason of the 

sponsorship of a master or prototype plan, and (2) 

The purchase, with plan assets, of mutual fund 

shares from, or the sale of such securities to, a 

mutual fund or mutual fund principal underwriter, 

when such mutual fund or its principal underwriter 

or investment adviser is a fiduciary or a service 

provider (or both) with respect to the plan solely 

by reason of: the sponsorship of a master or 

prototype plan or the provision of nondiscretionary 

trust services to the plan; or both. 

adviser to adhere to certain standards 

(the Impartial Conduct Standards). IRA 

owners would have a right to enforce 

these new contractual obligations. 

Under this statutory framework, the 

determination of who is a ‘‘fiduciary’’ is 

of central importance. Many of ERISA’s 

and the Code’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. 

ERISA section 406(a)(1)(A)–(D) and 

Code section 4975(c)(1)(A)–(D) prohibit 

certain transactions between plans or 

IRAs and ‘‘parties in interest,’’ as 

defined in ERISA section 3(14), or 

‘‘disqualified persons,’’ as defined in 

Code section 4975(e)(2). Fiduciaries and 

other service providers are parties in 

interest and disqualified persons under 

ERISA and the Code. As a result, they 

are prohibited from engaging in (1) the 

sale, exchange or leasing of property 

with a plan or IRA, (2) the lending of 

money or other extension of credit to a 

plan or IRA, (3) the furnishing of goods, 

services or facilities to a plan or IRA and 

(4) the transfer to or use by or for the 

benefit of a party in interest of plan 

assets. 

ERISA section 406(b) and Code 

section 4975(c)(1)(E) and (F) are aimed 

at fiduciaries only. These provisions 

generally prohibit a fiduciary from 

dealing with the income or assets of a 

plan or IRA in his or her own interest 

or his or her own account and from 

receiving payments from third parties in 

connection with transactions involving 

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. Under these provisions, 

a fiduciary may not cause a plan or IRA 

to pay an additional fee to such 

fiduciary, or to a person in which such 

fiduciary has an interest that may affect 

the exercise of the fiduciary’s best 

judgment. 

In the Department’s view, the receipt 

of a commission on the sale of an 

insurance or annuity contract or mutual 

fund shares by a fiduciary that 

recommended the investment violates 

the prohibited transaction provisions of 

ERISA section 406(b) and Code section 

4975(c)(1)(E) and (F). The effecting of 

the sale by a fiduciary or service 

provider is a service, potentially in 

violation of ERISA section 406(a)(1)(C) 

and Code section 4975(c)(1)(C). Finally, 

the purchase of an insurance or annuity 

contract by a plan or IRA from an 

insurance company that is a fiduciary, 

service provider or other party in 

interest or disqualified person, violates 

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

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

PTE 84–24 provides an exemption for 

these transactions for the following 

parties: insurance agents, insurance 

brokers, pension consultants, insurance 

companies and mutual fund principal 

underwriters. Currently, PTE 84–24 

provides relief to these parties in 

connection with transactions involving 

both employee benefit plans, as defined 

in ERISA section 3(3), as well as IRAs 

and other plans described in Code 

section 4975, such as Archer MSAs 

described in Code section 220(d), health 

savings accounts described in Code 

section 223(d) and Coverdell education 

savings accounts described in Code 

section 530.7

Specifically, PTE 84–24 permits 

insurance agents, insurance brokers and 

pension consultants to receive, directly 

or indirectly, a commission for selling 

insurance or annuity contracts to plans 

and IRAs. The exemption also permits 

the purchase by plans and IRAs of 

insurance and annuity contracts from 

insurance companies that are parties in 

interest or disqualified persons. The 

term ‘‘insurance and annuity contract’’ 

includes variable annuities.8

In the area of mutual fund 

transactions, PTE 84–24 permits the 

mutual fund’s principal underwriter to 

receive commissions in connection with 

a plan’s or IRA’s purchase of mutual 

fund shares. The term ‘‘principal 

underwriter’’ is defined in the same 

manner as it is defined in section 

2(a)(29) of the Investment Company Act 

of 1940 (15 U.S.C. 80a–2(a)(29)).9

PTE 84–24 contains conditions under 

which the transactions must occur in 

order for the exemption to apply. 

Generally, the exemption requires that 

the transaction involving the insurance 

or annuity contract or mutual fund 

shares be effected by the insurance 

agent, insurance broker, insurance 

company, pension consultant or mutual 

fund principal underwriter in the 

ordinary course of its business. The 

terms of the transaction must be at least 

as favorable to the plan or IRA as an 

arm’s length transaction, and the party 

relying on the exemption must receive 

no more than reasonable compensation. 

Additionally, the exemption restricts 

the parties that may use the exemption. 

Accordingly, the insurance agent, 

insurance broker, pension consultant, 

insurance company or investment 

company principal underwriter, and 

their affiliates, may not be a plan 

administrator (within the meaning of 

ERISA section 3(16) and Code section 

414(g)), or an employer of employees 

covered by the plan. 

Further, the insurance agent, 

insurance broker, pension consultant, 

insurance company or investment 

company principal underwriter may not 

be a trustee of the plan (other than a 

nondiscretionary trustee who does not 

render investment advice with respect 

to any assets of the plan) or a fiduciary 

who is expressly authorized in writing 

to manage, acquire or dispose of the 

assets of the plan on a discretionary 

basis (i.e., an investment manager). 

However, these entities may be affiliated 

with discretionary trustees or 

investment managers if the trustee or 

investment manager affiliate has no 

discretionary authority or control over 

the plan assets involved in the 

transaction other than as a 

nondiscretionary trustee. 

The exemption requires that certain 

disclosures be made to an independent 

fiduciary of the plan or IRA, following 

which the independent fiduciary must 

approve the transaction. In the case of 

the purchase of an insurance or annuity 

contract, the insurance agent, insurance 

broker or pension consultant must 

disclose its relationship with the 

insurance company, the sales 

commission it will receive (including 

for renewal years), and a description of 

any charges, fees, discounts, penalties or 

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22014 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

10PTE 84–24 was preceded by PTE 77–9, 42 FR 

32395 (June 24, 1977), as corrected, 42 FR 33817 

(July 1, 1977), and as amended, 44 FR 1479 (Jan. 

5, 1979) and 44 FR 52365 (Sept. 7, 1979). 

adjustments which may be imposed 

under the recommended contract in 

connection with the purchase, holding, 

exchange, termination or sale of such 

contract. 

In the case of mutual fund shares, the 

principal underwriter similarly must 

disclose its relationship with the mutual 

fund, the sales commission it will 

receive, a description of any charges, 

fees, discounts, penalties, or 

adjustments which may be imposed 

under the recommended mutual fund 

shares in connection with the purchase, 

holding, exchange, termination or sale 

of such shares. 

If granted, this proposal would make 

changes, discussed below, to PTE 84– 

24, as well as a re-ordering of the 

sections of the exemption and the 

definitions set forth in the exemption. 

Description of the Proposal 

I. Impartial Conduct Standards 

This proposal would amend PTE 84– 

24 to require insurance agents, 

insurance brokers, pension consultants, 

insurance companies and mutual fund 

principal underwriters that are 

fiduciaries engaging in the exempted 

transactions to adhere to certain 

Impartial Conduct Standards. The 

Impartial Conduct Standards are set 

forth in a new proposed Section II. 

Under the first conduct standard, the 

insurance agent, insurance broker, 

pension consultant, insurance company 

or mutual fund principal underwriter 

would be required to act in the plan’s 

or IRA’s best interest when providing 

investment advice regarding the 

purchase of the insurance or annuity 

contract or mutual fund shares. Best 

interest is defined as acting 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 plan or IRA. Further, 

under the best interest standard, the 

insurance agent, insurance broker, 

pension consultant, insurance company 

or mutual fund principal underwriter 

must act without regard to its own 

financial or other interests or those of 

any affiliate or other party. Under this 

standard, the fiduciary must put the 

interests of the plan or IRA ahead of the 

fiduciary’s own financial interests or 

those of its affiliates or any other party. 

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 amendment, 

both IRA and plan fiduciaries would 

have to uphold the best interest and 

other Impartial Conduct Standards set 

forth in Section II. 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 second conduct standard requires 

that the statements by the insurance 

agent, insurance broker, pension 

consultant, insurance company or 

mutual fund principal underwriter 

about recommended investments, fees, 

material conflicts of interest, and any 

other matters relevant to a plan’s or IRA 

owner’s investment decisions, are not 

misleading. For this purpose, the failure 

to disclose a material conflict of interest 

relevant to the services the entity is 

providing or other actions it is taking in 

relation to a plan’s or IRA owner’s 

investment decisions is deemed to be a 

misleading statement. Transactions that 

violate the requirements are not likely to 

be in the interests of or protective of 

plans and their participants and 

beneficiaries and IRA owners. 

Unlike the new exemption proposals 

published elsewhere in the Federal 

Register, the Impartial Conduct 

Standards proposed herein do not 

include a requirement that the 

compensation received by the fiduciary 

and affiliates be reasonable. Such a 

requirement already exists under 

Section IV(c) of the exemption, and is 

therefore unnecessary in Section II. 

Additionally, unlike the new 

exemption proposals, this proposed 

amendment does not require fiduciaries 

to contractually warrant compliance 

with applicable federal and state laws. 

However, the Department notes that 

significant violations of applicable 

federal or state law could also amount 

to violations of the Impartial Conduct 

Standards, such as the best interest 

standard, in which case, this exemption, 

as amended, would be deemed 

unavailable for transactions occurring in 

connection with such violations. 

II. IRAs 

Since PTE 84–24 was initially 

granted,10 the amount of assets held in 

IRAs has grown dramatically. The 

financial services marketplace has 

become more complex, and 

compensation structures and the types 

of products offered have changed 

significantly beyond what the 

Department contemplated at the time. 

The fact that IRA owners generally do 

not benefit from the protections afforded 

by the fiduciary duties owed by plan 

sponsors to their employee benefit plans 

makes it all the more critical that their 

interests are protected by appropriate 

conditions in the Department’s 

exemptions. 

In connection with the Department’s 

Proposed Regulation on the definition of 

fiduciary the Department has also 

proposed, elsewhere in this issue of the 

Federal Register, new class exemptions 

applicable to investment advice 

fiduciaries. The proposed ‘‘Best Interest 

Contract Exemption’’ would permit 

investment advice fiduciaries to receive 

compensation in a broad range of 

transactions commonly entered into by 

retail retirement investors (plan 

participants and beneficiaries, IRA 

owners and small plan sponsors) 

including investment in stocks, bonds, 

mutual funds and insurance and 

annuity contracts, and it contains 

safeguards specifically crafted for these 

investors. 

The Best Interest Contract Exemption 

would require investment advice 

fiduciaries—including both the 

individual adviser and the firm that the 

adviser is employed by or otherwise the 

agent of—to contractually acknowledge 

fiduciary status, commit to adhere to 

basic standards of impartial conduct, 

adopt policies and procedures 

reasonably designed to minimize the 

harmful impact of conflicts of interest, 

and disclose basic information on their 

conflicts of interest. As a result, the 

exemption ensures that IRA owners 

have a contract-based claim to hold 

their fiduciary investment advisers 

accountable if they violate basic 

obligations of prudence and loyalty. 

Additionally, the Best Interest Contract 

Exemption would require detailed 

disclosure of fees associated with 

investments and the compensation 

received by investment advice 

fiduciaries in connection with the 

transactions. 

As the Best Interest Contract 

Exemption was designed for IRA owners 

and other investors that rely on 

fiduciary investment advisers in the 

retail marketplace, the Department 

believes that some of the transactions 

involving IRAs that are currently 

permitted under PTE 84–24 should 

instead occur under the conditions of 

the Best Interest Contract Exemption, 

specifically, transactions involving 

variable annuity contracts and other 

annuity contracts that are securities 

under federal securities laws, and 

mutual fund shares. Therefore, this 

proposal would revoke relief in PTE 84– 

24 for such transactions. This change is 

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reflected in a proposed new Section I(b), 

setting forth the scope of the exemption. 

On the other hand, the Department has 

determined that transactions involving 

insurance and annuity contracts that are 

not securities can continue to occur 

under this exemption, with the added 

protections of the Impartial Conduct 

Standards. 

In this proposal, therefore, the 

Department has distinguished between 

transactions that involve securities and 

those that involve insurance products 

that are not securities. The Department 

believes that annuity contracts that are 

securities and mutual fund shares are 

distributed through the same channels 

as many other investments covered by 

the Best Interest Contract Exemption, 

and such investment products all have 

similar disclosure requirements under 

existing regulations. In that respect, the 

conditions of the proposed Best Interest 

Contract Exemption are appropriately 

tailored for such transactions. 

The Department is not certain that the 

conditions of the Best Interest Contract 

Exemption, including some of the 

disclosure requirements, would be 

readily applicable to insurance and 

annuity contracts that are not securities, 

or that the distribution methods and 

channels of insurance products that are 

not securities would fit within the 

exemption’s framework. While the Best 

Interest Contract Exemption will be 

available for such products, the 

Department is seeking comment in that 

proposal on a number of issues related 

to use of that exemption for such 

insurance and annuity products. 

The Department requests comment on 

this approach. In particular, the 

Department requests comment on 

whether the proposal to revoke relief for 

securities transactions involving IRAs 

(i.e., annuities that are securities and 

mutual funds) but leave in place relief 

for IRA transactions involving insurance 

and annuity contracts that are not 

securities strikes the appropriate 

balance and is protective of the interests 

of the IRAs. 

III. Commissions 

While PTE 84–24 provides an 

exemption for the specified parties to 

receive commissions in connection with 

the purchase of the insurance or annuity 

contracts and mutual fund shares, it 

does not currently contain a definition 

of commission. To provide certainty 

with respect to the payments permitted 

by the exemption, specific definitions 

for both (1) insurance commissions and 

(2) mutual fund commissions are now 

proposed in Section VI. 

Section VI(f) would define an 

insurance commission to mean a sales 

commission paid by the insurance 

company or an affiliate to the insurance 

agent, insurance broker or pension 

consultant for the service of effecting 

the purchase or sale of an insurance or 

annuity contract, including renewal fees 

and trailers that are paid in connection 

with the purchase or sale of the 

insurance or annuity contract. As 

proposed, insurance commissions 

would not include revenue sharing 

payments, administrative fees or 

marketing fees. Additionally, the term 

does not include payments from parties 

other than the insurance company or its 

affiliates, and it does not include 

payments that result from the 

underlying investments that are held 

pursuant to the insurance contract, such 

as payments derived from a variable 

annuity’s investments. 

Section VI(i) would define a mutual 

fund commission to mean a commission 

or sales load paid either by the plan or 

the mutual fund for the service of 

effecting or executing the purchase or 

sale of mutual fund shares, but not a 

12b–1 fee, revenue sharing payment, 

administrative fee or marketing fee. 

IV. Recordkeeping Requirements 

A new proposed Section V to PTE 84– 

24 would require the fiduciary engaging 

in a transaction covered by the 

exemption to maintain records 

necessary to enable certain persons 

(described in proposed Section V(b)) to 

determine whether the conditions of 

this exemption have been met. This 

requirement would replace the more 

limited existing recordkeeping 

requirement in Section V(e). The 

proposed recordkeeping requirement is 

consistent with other existing class 

exemptions as well as the recordkeeping 

provisions of the other notices of 

proposed exemption published in this 

issue of the Federal Register, and is 

intended to be protective of rights of 

plan participants and beneficiaries and 

IRA owners by ensuring they and the 

Department can confirm the exemption 

has been satisfied. 

V. Other 

Finally, the proposed amendment 

makes several minor changes in order to 

update PTE 84–24. The definitions have 

been reordered in alphabetical order for 

ease of use. Section I has been deleted 

because retroactive relief is no longer 

necessary, and Section II and III have 

been combined in order to increase 

readability and clarity. Finally, the term 

‘‘Act’’ has been replaced with ‘‘ERISA’’ 

to reflect modern usage. 

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 

the amendments to and partial 

revocation of this exemption, if granted, 

applicable on the Applicability Date. 

Paperwork Reduction Act Statement 

As part of its continuing effort to 

reduce paperwork and respondent 

burden, the Department of Labor 

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 Amendment 

to and Proposed Partial Revocation of 

Prohibited Transaction Exemption (PTE) 

84–24 for Certain Transactions 

Involving Insurance Agents and Brokers, 

Pension Consultants, Insurance 

Companies, and Investment Company 

Principal Underwriters as part of its 

proposal to amend its 1975 rule that 

defines when a person who provides 

investment advice to an employee 

benefit plan or IRA 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 amendment to and 

proposed partial revocation of PTE 84– 

24 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 

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22016 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

11The 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). 

12As described in the regulatory impact analysis 

for the accompanying rule, the Department 

estimates that approximately 1,300 insurance agents 

and pension consultants service the retirement 

market. 

13 In the Department’s experience, investment 

company Principal Underwriters almost never use 

PTE 84–24. Therefore, the Department assumes that 

ten investment company Principal Underwriters 

will engage in one transaction annually under PTE 

84–24. 

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 

Amendments 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, PTE 84– 

24, as amended, would require 

insurance agents and brokers, pension 

consultants, insurance companies, and 

investment company Principal 

Underwriters to make certain 

disclosures to and receive an advance 

written authorization from plan 

fiduciaries in order to receive relief from 

ERISA’s and the Code’s prohibited 

transaction rules for the receipt of 

compensation when plans enter into 

certain insurance and mutual fund 

transactions recommended by the 

fiduciaries. The proposed amendment 

would require insurance agents and 

brokers, pension consultants, insurance 

companies, and investment company 

Principal Underwriters relying on PTE 

84–24 to maintain records necessary to 

prove that the conditions of the 

exemption have been met. These 

requirements are information collection 

requests (ICRs) subject to the Paperwork 

Reduction Act. 

The Department has made the 

following assumptions in order to 

establish a reasonable estimate of the 

paperwork burden associated with these 

ICRs: 

• 38% of disclosures to and advance 

authorizations from plans, as well as 

50% of disclosures to and advance 

authorizations from IRAs will be 

distributed electronically via means 

already used by respondents in the 

normal course of business and the costs 

arising from electronic distribution will 

be negligible; 

• Insurance agents and brokers, 

pension consultants, insurance 

companies, investment company 

Principal Underwriters, and plans will 

use existing in-house resources to 

prepare the legal authorizations and 

disclosures, and maintain the 

recordkeeping systems necessary to 

meet the requirements of the exemption; 

• 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, and $129.94 for a 

legal professional; and 11

• Eight percent of plans and nine 

percent of IRAs have relationships with 

insurance agents and brokers, pension 

consultants, and insurance companies. 

• Approximately 1,300 insurance 

agents and brokers, pension consultants, 

and insurance companies will take 

advantage of this exemption with all of 

their client plans and IRAs.12

• Ten investment company Principal 

Underwriters will take advantage of this 

exemption and each will do so once 

with one client plan annually.13

Disclosures and Consent Forms 

In order to receive commissions in 

conjunction with the purchase of 

insurance or annuity contracts, section 

IV(b) of PTE 84–24 as amended requires 

the insurance agent or broker or pension 

consultant to obtain advance written 

authorization from a plan fiduciary or 

IRA holder independent of the 

insurance company (the independent 

fiduciary) following certain disclosures, 

including: if the agent, broker, or 

consultant is an Affiliate of the 

insurance company whose contract is 

being recommended, or if the ability of 

the agent, broker, or consultant to 

recommend insurance or annuity 

contracts is limited by any agreement 

with the insurance company, the nature 

of the affiliation, limitation, or 

relationship; the insurance commission; 

and a description of any charges, fees, 

discounts, penalties, or adjustments 

which may be imposed under the 

recommended contract. 

In order to receive commissions in 

conjunction with the purchase of 

securities issued by an investment 

company, section IV(c) of PTE 84–24 as 

amended requires the investment 

company Principal Underwriter to 

obtain approval from an independent 

plan fiduciary following certain 

disclosures: if the person recommending 

securities issued by an investment 

company is the Principal Underwriter of 

the investment company whose 

securities are being recommended, the 

nature of the relationship and of any 

limitation it places upon the Principal 

Underwriter’s ability to recommend 

investment company securities; the 

commission; and a description of any 

charges, fees, discounts, penalties, or 

adjustments which may be imposed 

under the recommended securities in 

connection with the purchase, holding, 

exchange, termination, or sale of the 

securities. Unless facts or circumstances 

would indicate the contrary, the 

approval required under section IV(c) 

may be presumed if the independent 

plan fiduciary permits the transaction to 

proceed after receipt of the written 

disclosure. 

Legal Costs 

According to 2012 Annual Return/

Report of Employee Benefit (Form 5500) 

data and Internal Revenue Service 

Statistics of Income data, the 

Department estimates that there are 

approximately 677,000 ERISA covered 

pension plans and approximately 54.5 

million individual retirement accounts 

(IRAs). Of these plans and IRAs, the 

Department assumes that 6.5 percent are 

new plans/IRAs or plans/IRAs entering 

into relationships with new financial 

institutions and, as stated previously, 

eight percent of these new plans and 

nine percent of these new IRAs will 

engage in transactions covered under 

PTE 84–24 with insurance agents or 

brokers and pension consultants. In the 

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14The Department assumes that it will require 

one hour of legal time per financial institution to 

prepare plan-oriented disclosures and one hour of 

legal time per financial institution to prepare IRAoriented disclosures. Because insurance agents and 

pension consultants are permitted to use PTE 84– 

24 in their transactions with both plans and IRAs, 

this totals two hours of legal burden each. Because 

investment company principal underwriters are 

only permitted to use PTE 84–24 in their 

transactions with plans, this totals one hour of legal 

burden each. 

plan universe, the Department assumes 

that a legal professional will spend one 

hour per plan reviewing the disclosures 

and preparing an authorization form for 

each of the approximately 3,500 plans 

entering into new relationships each 

year. In the IRA universe, the 

Department assumes that a legal 

professional working on behalf of each 

of the 1,300 insurance agents or pension 

consultants will spend one hour 

drafting an authorization form for IRA 

holders to sign. The Department also 

estimates that it will take two hours of 

legal time for each of the approximately 

1,300 insurance companies and pension 

consultants, and one hour of legal time 

for each of the ten investment company 

Principal Underwriters, to produce the 

disclosures.14 This legal work results in 

a total of approximately 7,000 hours 

annually at an equivalent cost of 

$965,000. 

Production and Distribution of Required 

Disclosures 

The Department estimates that 

approximately 54,000 plans and 4.9 

million IRAs have relationships with 

insurance agents or brokers and pension 

consultants and are likely to engage in 

transactions covered under this 

exemption. Of these 54,000 plans and 

4.9 million IRAs, approximately 3,500 

plans and 319,000 IRAs are new clients 

to the insurance agents or brokers and 

pension consultants each year. The 

Department assumes that ten plans have 

relationships with investment company 

Principal Underwriters that are new 

each year. 

The Department estimates that 3,500 

plans will send insurance agents or 

brokers and pension consultants a two 

page authorization letter and 319,000 

IRAs will receive a two page 

authorization letter from insurance 

agents or brokers and pension 

consultants each year. Prior to obtaining 

authorization, insurance companies and 

pension consultants will send the same 

3,500 plans and 319,000 IRAs a seven 

page pre-authorization disclosure. Paper 

copies of the authorization letter and the 

pre-authorization disclosure will be 

mailed for 62 percent of the plans and 

distributed electronically for the 

remaining 38 percent. Paper copies of 

the authorization letter and the preauthorization disclosure will be mailed 

to 50 percent of the IRAs and 

distributed electronically to the 

remaining 50 percent. The Department 

estimates that electronic distribution 

will result in a de minimis cost, while 

paper distribution will cost 

approximately $231,000. Paper 

distribution of the letter and disclosure 

will also require two minutes of clerical 

preparation time resulting in a total of 

11,000 hours at an equivalent cost of 

approximately $328,000. 

The Department estimates that ten 

plans will receive the seven page pretransaction disclosure from investment 

company Principal Underwriters; 38 

percent will be distributed 

electronically and 62 percent will be 

mailed. The Department estimates that 

electronic distribution will result in a de 

minimis cost, while the paper 

distribution will cost $5. Paper 

distribution will also require two 

minutes of clerical preparation time 

resulting in a total of 12 minutes at an 

equivalent cost of $6. Approval to 

investment company Principal 

Underwriters will be granted orally at 

de minimis cost. 

Recordkeeping Requirement 

Section V of PTE 84–24, as amended, 

would require insurance agents and 

brokers, insurance companies, pension 

consultants, and investment company 

Principal Underwriters 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 employee 

organization whose members are 

covered by the plan, plan participant, 

beneficiary or IRA owner, to determine 

whether the conditions of this 

exemption have been met. 

The Department assumes that each 

institution will maintain these records 

on behalf of their client plans in their 

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 

financial institution per year would be 

required for a total hour burden of 1,000 

hours at an equivalent cost of $92,000. 

In connection with the recordkeeping 

and disclosure requirements discussed 

above, Section V(b) (2) and (3) of PTE 

84–24 provides that parties 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 a party 

refuses to disclose information on this 

basis, it 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. 

Overall Summary 

Overall, the Department estimates that 

in order to meet the conditions of this 

amended class exemption, almost 5,000 

financial institutions and plans will 

produce 645,000 disclosures and notices 

annually. These disclosures and notices 

will result in over 19,000 burden hours 

annually, at an equivalent cost of $1.4 

million. This exemption will also result 

in a total annual cost burden of over 

$231,000. 

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 Amendment to 

and Partial Revocation of Prohibited 

Transaction Exemption (PTE) 84–24 for 

Certain Transactions Involving 

Insurance Agents and Brokers, Pension 

Consultants, Insurance Companies and 

Investment Company Principal 

Underwriters. 

OMB Control Number: 1210–NEW. 

Affected Public: Business or other forprofit. 

Estimated Number of Respondents: 

4,828. 

Estimated Number of Annual 

Responses: 644,669. 

Frequency of Response: Initially, 

Annually, When engaging in exempted 

transaction. 

Estimated Total Annual Burden 

Hours: 19,184 hours. 

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22018 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

Estimated Total Annual Burden Cost: 

$231,074. 

General Information 

The attention of interested persons is 

directed to the following: 

(1) The fact that a transaction is the 

subject of an exemption under ERISA 

section 408(a) and Code section 

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

other party in interest or disqualified 

person with respect to a plan from 

certain other provisions of ERISA and 

the Code, including any prohibited 

transaction provisions to which the 

exemption does not apply and the 

general fiduciary responsibility 

provisions of ERISA section 404 which 

require, among other things, that a 

fiduciary discharge his or her duties 

respecting a plan solely in the interests 

of the participants and beneficiaries of 

the plan. Additionally, the fact that a 

transaction is the subject of an 

exemption does not affect the 

requirement of Code section 401(a) that 

the plan must operate for the exclusive 

benefit of the employees of the 

employer maintaining the plan and their 

beneficiaries; 

(2) Before an exemption may be 

granted under ERISA section 408(a) and 

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

must find 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 plan 

participants and beneficiaries and IRA 

owners; 

(3) If granted, an exemption is 

applicable to a particular transaction 

only if the transaction satisfies the 

conditions specified in the exemption; 

and 

(4) This amended exemption, if 

granted, 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. 

Written Comments 

The Department invites all interested 

persons to submit written comments on 

the proposed amendment and proposed 

partial revocation to the address and 

within the time period set forth above. 

All comments received will be made a 

part of the public record for this 

proceeding and will be available for 

examination on the Department’s 

Internet Web site. Comments should 

state the reasons for the writer’s interest 

in the proposal. Comments received will 

be available for public inspection at the 

above address. 

Proposed Amendment to PTE 84–24 

Under section 408(a) of the Employee 

Retirement Income Security Act of 1974, 

as amended (ERISA) and section 

4975(c)(2) of the Internal Revenue Code 

of 1986, as amended (the Code), and in 

accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637, 66644 (October 27, 2011)), 

the Department proposes to amend and 

restate PTE 84–24 as set forth below: 

Section I. Covered Transactions 

(a) Exemptions. The restrictions of 

ERISA section 406(a)(1)(A) through (D) 

and 406(b) and the taxes imposed by 

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

of Code section 4975(c)(1)(A) through 

(F), do not apply to any of the following 

transactions if the conditions set forth in 

Sections II, III, IV and V, as applicable, 

are met: 

(1) The receipt, directly or indirectly, 

by an insurance agent or broker or a 

pension consultant of an Insurance 

Commission from an insurance 

company in connection with the 

purchase, with plan assets, of an 

insurance or annuity contract. 

(2) The receipt of a Mutual Fund 

Commission by a Principal Underwriter 

for an investment company registered 

under the Investment Company Act of 

1940 (an investment company) in 

connection with the purchase, with plan 

assets, of securities issued by an 

investment company. 

(3) The effecting by an insurance 

agent or broker, pension consultant or 

investment company principal 

underwriter of a transaction for the 

purchase, with plan assets, of an 

insurance or annuity contract or 

securities issued by an investment 

company. 

(4) The purchase, with plan assets, of 

an insurance or annuity contract from 

an insurance company. 

(5) The purchase, with plan assets, of 

an insurance or annuity contract from 

an insurance company which is a 

fiduciary or a service provider (or both) 

with respect to the plan solely by reason 

of the sponsorship of a Master or 

Prototype Plan. 

(6) The purchase, with plan assets, of 

securities issued by an investment 

company from, or the sale of such 

securities to, an investment company or 

an investment company Principal 

Underwriter, when the investment 

company, Principal Underwriter, or the 

investment company investment adviser 

is a fiduciary or a service provider (or 

both) with respect to the plan solely by 

reason of: (A) The sponsorship of a 

Master or Prototype Plan; or (B) the 

provision of Nondiscretionary Trust 

Services to the plan; or (C) both (A) and 

(B). 

(b) Scope of these Exemptions. The 

exemptions set forth in Section I(a) do 

not apply to the purchase by an 

Individual Retirement Account as 

defined in Section VI, of (1) a variable 

annuity contract or other annuity 

contract that is a security under federal 

securities laws, or (2) mutual fund 

shares. 

Section II. Impartial Conduct 

Standards 

If the insurance agent or broker, 

pension consultant, insurance company 

or investment company Principal 

Underwriter is a fiduciary within the 

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

Code section 4975(e)(3)(B) with respect 

to the assets involved in the transaction, 

the following conditions must be 

satisfied with respect to the transaction 

to the extent they are applicable to the 

fiduciary’s actions: 

(a) When exercising fiduciary 

authority described in ERISA section 

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

4975(e)(3)(B) with respect to the assets 

involved in the transaction, the 

insurance agent or broker, pension 

consultant, insurance company or 

investment company Principal 

Underwriter acts in the Best Interest of 

the plan or IRA; and 

(b) The statements by the insurance 

agent or broker, pension consultant, 

insurance company or investment 

company Principal Underwriter about 

recommended investments, fees, 

Material Conflicts of Interest, and any 

other matters relevant to a plan’s or IRA 

owner’s investment decisions, are not 

misleading. For this purpose, the 

insurance agent’s or broker’s, pension 

consultant’s, insurance company’s or 

investment company Principal 

Underwriter’s failure to disclose a 

Material Conflict of Interest relevant to 

the services it is providing or other 

actions it is taking in relation to a plan’s 

or IRA owner’s investment decisions is 

deemed to be a misleading statement. 

Section III. General Conditions 

(a) The transaction is effected by the 

insurance agent or broker, pension 

consultant, insurance company or 

investment company Principal 

Underwriter in the ordinary course of its 

business as such a person. 

(b) The transaction is on terms at least 

as favorable to the plan or IRA as an 

arm’s length transaction with an 

unrelated party would be. 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22019 

(c) The combined total of all fees, 

Insurance Commissions, Mutual Fund 

Commissions and other consideration 

received by the insurance agent or 

broker, pension consultant, insurance 

company, or investment company 

Principal Underwriter: 

(1) For the provision of services to the 

plan or IRA; and 

(2) In connection with the purchase of 

insurance or annuity contracts or 

securities issued by an investment 

company is not in excess of ‘‘reasonable 

compensation’’ within the 

contemplation of ERISA section 

408(b)(2) and 408(c)(2) and Code section 

4975(d)(2) and 4975(d)(10). If the total is 

in excess of ‘‘reasonable compensation,’’ 

the ‘‘amount involved’’ for purposes of 

the civil penalties of ERISA section 

502(i) and the excise taxes imposed by 

Code section 4975 (a) and (b) is the 

amount of compensation in excess of 

‘‘reasonable compensation.’’ 

Section IV. Conditions for Transactions 

Described in Section I(a)(1) Through (4) 

The following conditions apply solely 

to a transaction described in paragraphs 

(a)(1), (2), (3) or (4) of Section I: 

(a) The insurance agent or broker, 

pension consultant, insurance company, 

or investment company Principal 

Underwriter is not (1) a trustee of the 

plan or IRA (other than a 

Nondiscretionary Trustee who does not 

render investment advice with respect 

to any assets of the plan), (2) a plan 

administrator (within the meaning of 

ERISA section 3(16)(A) and Code 

section 414(g)), (3) a fiduciary who is 

expressly authorized in writing to 

manage, acquire or dispose of the assets 

of the plan or IRA on a discretionary 

basis, or (4) an employer any of whose 

employees are covered by the plan. 

Notwithstanding the above, an 

insurance agent or broker, pension 

consultant, insurance company, or 

investment company Principal 

Underwriter that is Affiliated with a 

trustee or an investment manager 

(within the meaning of Section VI(e)) 

with respect to a plan or IRA may 

engage in a transaction described in 

Section I(a)(1)–(4) of this exemption (if 

permitted under Section I(b)) on behalf 

of the plan or IRA if the trustee or 

investment manager has no 

discretionary authority or control over 

the assets of the plan or IRA involved 

in the transaction other than as a 

Nondiscretionary Trustee. 

(b)(1) With respect to a transaction 

involving the purchase with plan or IRA 

assets of an insurance or annuity 

contract or the receipt of an Insurance 

Commission thereon, the insurance 

agent or broker or pension consultant 

provides to an independent fiduciary 

with respect to the plan or IRA prior to 

the execution of the transaction the 

following information in writing and in 

a form calculated to be understood by a 

plan fiduciary who has no special 

expertise in insurance or investment 

matters: 

(A) If the agent, broker, or consultant 

is an Affiliate of the insurance company 

whose contract is being recommended, 

or if the ability of the agent, broker or 

consultant to recommend insurance or 

annuity contracts is limited by any 

agreement with the insurance company, 

the nature of the affiliation, limitation, 

or relationship; 

(B) The Insurance Commission, 

expressed as a percentage of gross 

annual premium payments for the first 

year and for each of the succeeding 

renewal years, that will be paid by the 

insurance company to the agent, broker 

or consultant in connection with the 

purchase of the recommended contract; 

and 

(C) A description of any charges, fees, 

discounts, penalties or adjustments 

which may be imposed under the 

recommended contract in connection 

with the purchase, holding, exchange, 

termination or sale of the contract. 

(2) Following the receipt of the 

information required to be disclosed in 

paragraph (b)(1), and prior to the 

execution of the transaction, the 

independent fiduciary acknowledges in 

writing receipt of the information and 

approves the transaction on behalf of 

the plan. The fiduciary may be an 

employer of employees covered by the 

plan, but may not be an insurance agent 

or broker, pension consultant or 

insurance company involved in the 

transaction. The fiduciary may not 

receive, directly or indirectly (e.g., 

through an Affiliate), any compensation 

or other consideration for his or her own 

personal account from any party dealing 

with the plan in connection with the 

transaction. 

(c)(1) With respect to a transaction 

involving the purchase with plan assets 

of securities issued by an investment 

company or the receipt of a Mutual 

Fund Commission thereon by an 

investment company Principal 

Underwriter, the investment company 

Principal Underwriter provides to an 

independent fiduciary with respect to 

the plan, prior to the execution of the 

transaction, the following information 

in writing and in a form calculated to be 

understood by a plan fiduciary who has 

no special expertise in insurance or 

investment matters: 

(A) If the person recommending 

securities issued by an investment 

company is the Principal Underwriter of 

the investment company whose 

securities are being recommended, the 

nature of the relationship and of any 

limitation it places upon the Principal 

Underwriter’s ability to recommend 

investment company securities; 

(B) The Mutual Fund commission, 

expressed as a percentage of the dollar 

amount of the plan’s gross payment and 

of the amount actually invested, that 

will be received by the Principal 

Underwriter in connection with the 

purchase of the recommended securities 

issued by the investment company; and 

(C) A description of any charges, fees, 

discounts, penalties, or adjustments 

which may be imposed under the 

recommended securities in connection 

with the purchase, holding, exchange, 

termination or sale of the securities. 

(2) Following the receipt of the 

information required to be disclosed in 

paragraph (c)(1), and prior to the 

execution of the transaction, the 

independent fiduciary approves the 

transaction on behalf of the plan. Unless 

facts or circumstances would indicate 

the contrary, the approval may be 

presumed if the fiduciary permits the 

transaction to proceed after receipt of 

the written disclosure. The fiduciary 

may be an employer of employees 

covered by the plan, but may not be a 

Principal Underwriter involved in the 

transaction. The fiduciary may not 

receive, directly or indirectly (e.g., 

through an Affiliate), any compensation 

or other consideration for his or her own 

personal account from any party dealing 

with the plan in connection with the 

transaction. 

(d) With respect to additional 

purchases of insurance or annuity 

contracts or securities issued by an 

investment company, the written 

disclosure required under paragraphs 

(b) and (c) of this Section IV need not 

be repeated, unless: 

(1) More than three years have passed 

since the disclosure was made with 

respect to the same kind of contract or 

security, or 

(2) The contract or security being 

recommended for purchase or the 

Insurance Commission or Mutual Fund 

Commission with respect thereto is 

materially different from that for which 

the approval described in paragraphs (b) 

and (c) of this Section was obtained. 

Section V. Recordkeeping 

Requirements 

(a) The insurance agent or broker, 

pension consultant, insurance company 

or investment company Principal 

Underwriter engaging in the covered 

transactions maintains or causes to be 

maintained for a period of six years, in 

a manner that is accessible for audit and 

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22020 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

examination, 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 the records necessary to enable 

the persons described in Section V(b) 

below to determine whether the 

conditions of the exemption have been 

met are lost or destroyed, due to 

circumstances beyond the control of the 

insurance agent or broker, pension 

consultant, insurance company or 

investment company Principal 

Underwriter, then no prohibited 

transaction will be considered to have 

occurred solely on the basis of the 

unavailability of those records; and 

(2) No party in interest, other than the 

insurance agent or broker, pension 

consultant, insurance company or 

investment company Principal 

Underwriter shall be subject to the civil 

penalty that may be assessed under 

ERISA section 502(i) or the taxes 

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

if the records are not maintained or are 

not available for examination as 

required by paragraph (b) below; and 

(b)(1) Except as provided below in 

subparagraph (2) and notwithstanding 

any provisions of ERISA section 

504(a)(2) and (b), the records referred to 

in the above paragraph are 

unconditionally available at their 

customary location for examination 

during normal business hours by— 

(A) Any duly authorized employee or 

representative of the Department or the 

Internal Revenue Service; 

(B) Any fiduciary of the plan or any 

duly authorized employee or 

representative of the fiduciary; 

(C) Any contributing employer and 

any employee organization whose 

members are covered by the plan, or any 

authorized employee or representative 

of these entities; or 

(D) Any participant or beneficiary of 

the plan or the duly authorized 

representative of the participant or 

beneficiary or IRA owner; and 

(2) None of the persons described in 

subparagraph (1)(B)–(D) above shall be 

authorized to examine trade secrets or 

commercial or financial information of 

the insurance agent or broker, pension 

consultant, insurance company or 

investment company Principal 

Underwriter which is privileged or 

confidential. 

(3) Should the insurance agent or 

broker, pension consultant, insurance 

company or investment company 

Principal Underwriter refuse to disclose 

information on the basis that the 

information is exempt from disclosure, 

the insurance agent or broker, pension 

consultant, insurance company or 

investment company Principal 

Underwriter shall, by the close of the 

thirtieth (30th) day following the 

request, provide a written notice 

advising that person of the reasons for 

the refusal and that the Department may 

request the information. 

Section VI. Definitions 

For purposes of this exemption: 

(a) The term ‘‘Affiliate’’ of a person 

means: 

(1) Any person directly or indirectly 

controlling, controlled by, or under 

common control with the person; 

(2) Any officer, director, employee 

(including, in the case of Principal 

Underwriter, any registered 

representative thereof, whether or not 

the person is a common law employee 

of the Principal Underwriter), or relative 

of any such person, or any partner in 

such person; or 

(3) Any corporation or partnership of 

which the person is an officer, director, 

or employee, or in which the person is 

a partner. 

(b) The insurance agent or broker, 

pension consultant, insurance company 

or investment company Principal 

Underwriter that is a fiduciary acts in 

the ‘‘Best Interest’’ of the plan or IRA is 

when the fiduciary acts 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 plan or IRA, without regard 

to the financial or other interests of the 

fiduciary, any affiliate or other party. 

(c) The term ‘‘control’’ means the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

(d) The terms ‘‘Individual Retirement 

Account’’ 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 section 408(a) of 

the Code and a health savings account 

described in section 223(d) of the Code. 

(e) The terms ‘‘insurance agent or 

broker,’’ ‘‘pension consultant,’’ 

‘‘insurance company,’’ ‘‘investment 

company,’’ and ‘‘Principal Underwriter’’ 

mean such persons and any Affiliates 

thereof. 

(f) The term ‘‘Insurance Commission’’ 

mean a sales commission paid by the 

insurance company or an Affiliate to the 

insurance agent or broker or pension 

consultant for the service of effecting 

the purchase or sale of an insurance or 

annuity contract, including renewal fees 

and trailers, but not revenue sharing 

payments, administrative fees or 

marketing payments, or payments from 

parties other than the insurance 

company or its Affiliates. 

(g) The term ‘‘Master or Prototype 

Plan’’ means a plan which is approved 

by the Service under Rev. Proc. 2011– 

49, 2011–44 I.R.B. 608 (10/31/2011), as 

modified, or its successors. 

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

exists when a person has a financial 

interest that could affect the exercise of 

its best judgment as a fiduciary in 

rendering advice to a plan or IRA. 

(i) The term ‘‘Mutual Fund 

Commission’’ means a commission or 

sales load paid either by the plan or the 

investment company for the service of 

effecting or executing the purchase or 

sale of investment company shares, but 

does not include a 12b-1 fee, revenue 

sharing payment, administrative fee or 

marketing fee. 

(j) The term ‘‘Nondiscretionary Trust 

Services’’ means custodial services, 

services ancillary to custodial services, 

none of which services are 

discretionary, duties imposed by any 

provisions of the Code, and services 

performed pursuant to directions in 

accordance with ERISA section 

403(a)(1). The term ‘‘Nondiscretionary 

Trustee’’ of a plan or IRA means a 

trustee whose powers and duties with 

respect to the plan are limited to the 

provision of Nondiscretionary Trust 

Services. For purposes of this 

exemption, a person who is otherwise a 

Nondiscretionary Trustee will not fail to 

be a Nondiscretionary Trustee solely by 

reason of his having been delegated, by 

the sponsor of a Master or Prototype 

Plan, the power to amend the plan. 

(k) The term ‘‘Principal Underwriter’’ 

is defined in the same manner as that 

term is defined in section 2(a)(29) of the 

Investment Company Act of 1940 (15 

U.S. C. 80a-2(a)(29)). 

(l) The term ‘‘relative’’ means a 

‘‘relative’’ as that term is defined in 

ERISA section 3(15) (or a ‘‘member of 

the family’’ as that term is defined in 

Code section 4975(e)(6)), or a brother, a 

sister, or a spouse of a brother or a 

sister. 

Signed at Washington, DC, this 14th day of 

April, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2015–08837 Filed 4–15–15; 11:15 am] 

BILLING CODE 4510–29–P 

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