31584 Federal Register / Vol. 78, No. 101 / Friday, May 24, 2013 / Notices 

1 45 FR 28545 (April 29, 1980), as corrected at 45 

FR 35040 (May 23, 1980) and amended at: 65 FR 

17540 (April 3, 2000); 67 FR 9483 (March 1, 2002); 

67 FR 9485 (March 1, 2002); and 71 FR 17917 (April 

7, 2006). 

2Section 102 of the Reorganization Plan No. 4 of 

1978 (5 U.S.C. App. 1 [1996]) generally transferred 

the authority of the Secretary of the Treasury to 

issue administrative exemptions under section 4975 

of the Code to the Secretary of Labor. 

3Hereinafter, references to specific provisions of 

ERISA should be read as referring also to the 

corresponding provisions of section 4975 of the 

Code. 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

[Application Number D–11716] 

RIN 1210–ZA21 

Notice of Proposed Amendment to 

Prohibited Transaction Exemption 80– 

26 (PTE 80–26) For Certain Interest 

Free Loans to Employee Benefit Plans 

AGENCY: Employee Benefits Security 

Administration, U.S. Department of 

Labor. 

ACTION: Notice of Proposed Amendment 

to PTE 80–26. 

SUMMARY: This document contains a 

notice of pendency before the 

Department of Labor (the Department) of 

a proposed amendment to PTE 80–26. 

PTE 80–26 is a class exemption that 

permits parties in interest with respect 

to employee benefit plans to make 

certain interest free loans and 

extensions of credit to such plans, 

provided the conditions of the 

exemption are met. The proposed 

amendment, if adopted, would give 

retroactive and temporary exemptive 

relief for certain guarantees of the 

payment of debits to plan investment 

accounts (including IRAs) by parties in 

interest to such plans as well as certain 

loans and loan repayments made 

pursuant to such guarantees. The 

proposed amendment would affect 

employee benefit plans described in 

section 3(3) of the Employee Retirement 

Income Security Act of 1974, as 

amended (ERISA or the Act), and plans 

described in section 4975(e)(1) of the 

Internal Revenue Code of 1986, as 

amended (the Code), the participants 

and beneficiaries of such plans, and 

parties in interest with respect to those 

plans engaging in the described 

transactions. 

DATES: If adopted, the proposed 

amendment will be effective from 

January 1, 1975, until the date that is six 

months after the date on which an 

adopted amendment is published in the 

Federal Register. Written comments and 

requests for a public hearing should be 

received by the Department on or before 

July 23, 2013. 

ADDRESSES: All written comments and 

requests for a public hearing concerning 

the proposed amendment should be sent 

to the Office of Exemption 

Determinations, Employee Benefits 

Security Administration, Room N–5700, 

U.S. Department of Labor, 200 

Constitution Avenue NW., Washington, 

DC 20210, Attention: PTE 80–26 

Amendment. Interested persons are also 

invited to submit comments and hearing 

requests to EBSA, by the end of the 

scheduled comment period, via email 

to: moffitt.betty@dol.gov or by using the 

Federal eRulemaking portal at http:// 

regulations.gov, Docket ID: EBSA–2012– 

0030 (following the instructions for the 

submission of comments found on this 

Web site). 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 and hearing requests will 

also be available online at 

www.regulations.gov 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 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: 

Chris Motta, Office of Exemption 

Determinations, Employee Benefits 

Security Administration, U.S. 

Department of Labor, (202) 693–8540 

(this is not a toll-free number). 

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 

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’’); (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, it has been determined that this 

action is not ‘‘significant’’ within the 

meaning of section 3(f) of the Executive 

Order and therefore is not subject to 

review by OMB. 

SUPPLEMENTARY INFORMATION: Notice is 

hereby given of the pendency before the 

Department of a proposed amendment 

to PTE 80–26.1 PTE 80–26 provides an 

exemption from the restrictions of 

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

406(b)(2) of ERISA and from the taxes 

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

the Code, by reason of section 

4975(c)(1)(B) and (D) of the Code. 

The proposed amendment was 

requested by the Securities Industry and 

Financial Markets Association (SIFMA) 

pursuant to section 408(a) of ERISA and 

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

accordance with the procedures set 

forth in 29 CFR Part 2570, Subpart B (76 

FR 66637, October 27, 2011).2 SIFMA 

requests that the relief provided by this 

proposed amendment to PTE 80–26 

include relief from section 406(b)(1) of 

ERISA and section 4975(c)(1)(E) of the 

Code.3 In addition to proposing certain 

relief requested by SIFMA, the 

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Federal Register / Vol. 78, No. 101 / Friday, May 24, 2013 / Notices 31585 

4The general exemption is set forth in section IV 

of PTE 80–26. Sections I–III of the exemption 

provided relief for limited time periods, all of 

which have expired. 

5See Amendment to Prohibited Transaction 

Exemption 80–26 (PTE 80–26) for Certain Interest 

Free Loans to Employee Benefit Plans, 71 FR 17917 

(April 7, 2006). 

6 67 FR 9483. 

7The Department notes that various terms are 

used throughout this proposed amendment to PTE 

80–26 to describe the types of provisions at issue. 

For example, there are references to ‘‘security 

interests,’’ ‘‘indemnification agreements,’’ and 

‘‘cross-collateralization agreements,’’ discussed 

below. For simplicity, where possible, the 

Department uses the term indemnification 

agreement to refer generically to such provisions. 

Department is proposing on its own 

motion another amendment to PTE 80– 

26. 

A. General Background 

The prohibited transaction provisions 

of the Act generally prohibit 

transactions between a plan and a party 

in interest (including a fiduciary) with 

respect to such plan. Specifically, 

section 406(a)(1)(B) and (D) of the Act 

provides that a fiduciary with respect to 

a plan shall not cause the plan to engage 

in a transaction, if he knows or should 

know that such transaction constitutes a 

direct or indirect— 

(B) lending of money or other 

extension of credit between the plan 

and a party in interest; and 

(D) transfer to, or use by or for the 

benefit of, a party in interest, of any 

assets of the plan. 

Section 4975(c)(1)(B) and (D) of the 

Code contain parallel provisions with 

respect to plans described in section 

4975(e)(1) of the Code. 

Accordingly, unless a statutory or 

administrative exemption is applicable, 

loans, including interest free loans, 

extensions of credit, and repayment of 

such loans, between a plan and a party 

in interest, are prohibited. 

In addition, section 406(b)(1) and 

(b)(2) of the Act prohibits a fiduciary 

with respect to a plan from dealing with 

the assets of the plan in his own interest 

or for his own account, and from acting 

in his individual capacity or any other 

capacity in any transaction involving 

the plan on behalf of a party (or 

representing a party) whose interests are 

adverse to the interests of the plan or 

the interests of its participants or 

beneficiaries. Section 4975(c)(1)(E) of 

the Code contains a parallel provision to 

section 406(b)(1) of the Act. Section 

4975 of the Code does not contain a 

parallel provision with respect to 

section 406(b)(2) of the Act. 

Prohibited transactions that involve 

plans described in section 4975(e)(1) of 

the Code, including individual 

retirement accounts (IRAs), are 

generally subject to taxation under 

section 4975 of the Code. Additionally, 

section 408(e)(2) of the Code provides 

that if, during any taxable year of the 

individual for whose benefit any IRA is 

established, that individual or his or her 

beneficiary (hereinafter, an IRA Owner) 

engages in any transaction prohibited by 

section 4975 with respect to such 

account, such account ceases to be an 

IRA as of the first day of such taxable 

year. 

B. Description of Class Exemption 

The general exemption in PTE 80– 

26,4 as amended effective December 15, 

2004, permits the lending of money or 

other extension of credit from a party in 

interest or disqualified person to an 

employee benefit plan, and the 

repayment of such loan or other 

extension of credit in accordance with 

its terms or other written modifications 

thereof, if: 

(a) No interest or other fee is charged 

to the plan, and no discount for 

payment in cash is relinquished by the 

plan, in connection with the loan or 

extension of credit; 

(b) The proceeds of the loan or 

extension of credit are used only— 

(1) for the payment of ordinary 

operating expenses of the plan, 

including the payment of benefits in 

accordance with the terms of the plan 

and periodic premiums under an 

insurance or annuity contract, or 

(2) for a purpose incidental to the 

ordinary operation of the plan; 

(c) The loan or extension of credit is 

unsecured; 

(d) The loan or extension of credit is 

not directly or indirectly made by an 

employee benefit plan; 

(e) The loan is not described in 

section 408(b)(3) of ERISA and the 

regulations promulgated thereunder (29 

CFR 2550.408b–3) or section 4975(d)(3) 

of the Code and the regulations 

promulgated thereunder (26 CFR 

54.4975–7(b)); and 

(f)(1) Any loan described in section 

IV(b)(1) that is entered into on or after 

April 7, 2006 and that has a term of 60 

days or longer must be made pursuant 

to a written loan agreement that 

contains all of the material terms of 

such loan; 

(2) Any loan described in (b)(2) of this 

paragraph that is entered into for a term 

of 60 days or longer must be made 

pursuant to a written loan agreement 

that contains all of the material terms of 

such loan. 

For transactions that meet these 

conditions, the restrictions of ERISA 

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

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

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

by reason of section 4975(c)(1)(B) and 

(D) of the Code, do not apply. 

The most recent amendment to PTE 

80–26 was finalized on April 7, 2006, 

but was generally effective December 

15, 2004. The purpose of the 

amendment was to eliminate a 

requirement of the exemption that the 

proceeds of certain loans or extensions 

of credit be used only for a period of no 

more than three business days.5

Additionally, as part of the amendment, 

the Department added conditions (e) 

and (f), above. The effective date of 

those conditions relates to the date of 

the publication of the final amendment 

as opposed to the effective date of the 

proposed amendment. 

On March 1, 2002, the Department 

adopted an amendment affecting several 

class exemptions, including PTE 80– 

26.6 The amendment defines the terms 

‘‘employee benefit plan’’ and ‘‘plan’’ for 

purposes of the affected class 

exemptions as ‘‘an employee benefit 

plan described in ERISA section 3(3) 

and/or a plan described in section 

4975(e)(1) of the Code.’’ Accordingly, 

the Department clarified that PTE 80–26 

provided relief for transactions 

involving IRAs. 

C. Background on This Proposed 

Amendment to PTE 80–26 

On October 27, 2009, the Department 

issued Advisory Opinion 2009–03A, 

which states that the grant by an IRA 

Owner to a broker of a security interest 

in the IRA Owner’s non-IRA accounts 

with the broker, in order to cover 

indebtedness of, or arising from, the 

IRA, would be an impermissible 

‘‘extension of credit’’ under section 

4975(c)(1)(B) of the Code. Thereafter, on 

October 20, 2011, the Department issued 

Advisory Opinion 2011–09A, which 

states that an IRA Owner’s agreement to 

indemnify the broker for losses suffered 

by the IRA account with the broker 

(hereinafter, an indemnification 

agreement) 7 is not within the scope of 

relief provided by PTE 80–26. The 

Department opined that the proceeds of 

such an indemnification agreement 

would not be used to pay ordinary 

operating expenses of the plan or for a 

purpose incidental to the ordinary 

operation of the plan, as required by 

section IV(b) of the exemption. 

Subsequent to the issuance of 

Advisory Opinion 2011–09A, several 

practitioners informally notified the 

Department that documents governing 

the investment of an IRA’s or any other 

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31586 Federal Register / Vol. 78, No. 101 / Friday, May 24, 2013 / Notices 

plan’s assets frequently contain 

provisions that may raise issues under 

section 406(a)(1)(B) of the Act as well as 

section 4975(c)(1)(B) of the Code, both 

of which prohibit the lending of money 

or other extensions of credit between a 

plan and a party in interest or 

disqualified person. These practitioners 

state that account opening agreements, 

described below, contain standard 

‘‘cross-collateralization’’ provisions 

which permit a broker or other financial 

institution (hereinafter, unless 

otherwise noted, a financial institution) 

to transfer assets between multiple 

accounts that an individual has 

established with the financial 

institution in order to cover investmentrelated losses or costs attributable to one 

such account. For example, where an 

IRA Owner opens an IRA and a personal 

investment account with a financial 

institution, and executes with the 

financial institution an account opening 

agreement that has a crosscollateralization provision covering both 

accounts, the financial institution 

would be authorized, pursuant to the 

cross-collateralization provision, to, 

thereafter, either: Transfer assets from 

the IRA Owner’s personal investment 

account to the IRA to cover certain 

losses or costs or expenses attributable 

to the IRA; or transfer assets from the 

IRA to the IRA Owner’s personal 

investment account to cover certain 

losses or costs or expenses attributable 

to the personal investment account. The 

Department understands the mechanics 

of the former arrangement to operate as 

follows: if an expense attributable to an 

IRA is debited to that account, and the 

amount of such debit exceeds the 

amount of assets held in the account, a 

cross-collateralization provision permits 

a financial institution to debit the IRA 

Owner’s personal investment account 

for that expense, and make a 

corresponding credit of the same 

amount to the IRA account. 

The practitioners expressed concern 

that, consistent with Advisory Opinion 

2009–03A, a cross-collateralization 

provision that constitutes a grant to a 

financial institution of a security 

interest in an IRA Owner’s non-IRA 

accounts with the financial institution 

in order to cover indebtedness of the 

IRA, may be an impermissible 

‘‘extension of credit’’ under section 

4975(c)(1)(B) of the Code. The 

practitioners expressed further concern 

that, consistent with Advisory Opinion 

2011–09A, such impermissible 

‘‘extension of credit’’ may not be within 

the scope of relief provided by PTE 

80–26. 

On December 12, 2011, the Internal 

Revenue Service (the IRS) issued 

Announcement 2011–81. The 

Announcement provides temporary 

relief with respect to IRAs in 

circumstances in which the IRA Owners 

have signed certain indemnification 

agreements or granted certain security 

interests that may have an effect on their 

IRAs. Specifically, in the 

Announcement the IRS states that 

‘‘[p]ending further action by the 

[Department] and until issuance of 

further guidance from the IRS 

superseding [the Announcement], the 

IRS will determine the tax consequences 

relating to an IRA without taking into 

account the consequences that might 

otherwise result from a prohibited 

transaction under section 4975 due to 

entering into any indemnification 

agreement or any cross-collateralization 

agreement similar to the agreements 

described in [the Department’s] 

Advisory Opinions 2009–03A and 

2011–09A, provided there has been no 

execution or other enforcement 

pursuant to the agreement against the 

assets of an IRA of the individual 

granting the security interest or entering 

into the cross-collateralization 

agreement.’’ 

D. Request for Exemptive Relief by 

SIFMA 

The Securities Industry and Financial 

Markets Association (SIFMA) submitted 

a letter to the Department dated 

December 12, 2011. In the letter, SIFMA 

states that, prior to Advisory Opinion 

2009–03, most practitioners believed 

that indemnification agreements and 

other grants of security interests such as 

those described in Advisory Opinions 

2009–03A and 2011–09A, if never 

called upon, did not violate the 

prohibited transaction provisions of 

ERISA or the Code. According to 

SIFMA, most practitioners believed 

further that even if these 

indemnification agreements were seen 

as prohibited transactions, PTE 80–26 

extended exemptive relief to such 

transactions. SIFMA indicated that 

indemnification agreements were 

commonly used in futures, brokerage, 

options and other similar agreements. 

In the December 12, 2011 letter, 

SIFMA states also that Code section 

408(e)(2)(A) provides that if an 

individual who is an IRA Owner 

engages in any transaction with his or 

her IRA that is prohibited by Code 

section 4975, the IRA is treated as if it 

were distributed (and thus loses its taxqualified status) as of the first day of the 

year in which the transaction took 

place. SIFMA expresses concern that 

after Advisory Opinion 2009–03A, the 

practical impact of Advisory Opinion 

2011–09A is that, absent immediate 

relief, millions of IRA Owners may be 

concerned that their accounts could be 

disqualified and subject to taxation as of 

the date they entered into the 

indemnification agreement. 

Likewise, according to SIFMA, relief 

is necessary for plans other than IRAs 

because of the Department’s conclusion 

that an indemnification agreement, 

uncalled upon, violates section 

4975(c)(1)(B) of the Code. Since the 

wording of section 406(a)(1)(B) of the 

Act contains nearly identical language, 

SIFMA expressed concern that standard 

indemnification agreements entered into 

with other types of plans may, in the 

Department’s view, violate that section 

of the Act as well. In SIFMA’s view, 

retroactive relief would eliminate 

concerns about potentially incorrect 

past Form 5500 filings, and eliminate 

questions from auditors with respect to 

past related party transactions. 

SIFMA subsequently submitted an 

application for a class exemption or 

amendment to PTE 80–26. Therein, 

SIFMA states that brokerage, futures and 

other investment agreements (‘‘Account 

Opening Agreements’’) typically contain 

language requiring all ‘‘related 

accounts’’ to indemnify the service 

provider against debits in an account, 

regardless of whether those debits are 

caused by unpaid fees, unpaid taxes, 

unpaid third-party fees, or trading 

losses. According to SIFMA, 

indemnification language contained in 

Account Opening Agreements is not 

uniform, and the term ‘‘related 

accounts’’ may not be defined with 

specificity. 

SIFMA provided several examples 

regarding the mechanics of an 

indemnification agreement. SIFMA 

describes a scenario, for instance, in 

which an IRA has an Account Opening 

Agreement with a broker-dealer which 

provides that if a debit arises in the IRA 

account that remains unpaid after 

demand, the IRA owner, who also has 

a personal account at the broker-dealer, 

guarantees the payment of the debit 

from that personal account. If, for 

example, the IRA account directs that a 

security be sold but fails to deliver the 

security for settlement, and there are 

costs to cancel the trade, there will be 

a debit to the IRA that could be charged 

to the IRA owner’s personal account if 

insufficient funds exist in the IRA 

account. SIFMA also noted that 

indemnification agreements can involve 

situations in which funds are available 

in a plan account but would result in 

adverse consequences if they were used 

to pay the indebtedness. An IRA that 

owns a private fund interest that is not 

immediately liquid, but needs to pay an 

accountant to prepare a UBIT return is 

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Federal Register / Vol. 78, No. 101 / Friday, May 24, 2013 / Notices 31587 

8The Department notes however, that a sponsor 

of a plan subject to Title I of ERISA who entered 

into an account opening agreement permitting 

indemnification by the plan of the sponsor’s 

corporate accounts, where such plan sponsor 

actually maintained a corporate account with the 

same financial institution, may have engaged in a 

violation of section 404 of ERISA. Class 

exemptions, including the one proposed herein, if 

granted, do not provide relief for fiduciaries with 

respect to the fiduciary responsibility provisions of 

section 404. 

an example. The accountant’s fee causes 

a debit in the IRA account that cannot 

be satisfied without liquidating the 

private fund interest under unfavorable 

terms. Consequently, pursuant to the 

indemnification agreement, the debit 

may be charged to the IRA owner’s 

personal account. Each of these 

examples could apply to a plan sponsor 

who establishes the plan’s account and 

maintains a corporate account with the 

same financial institution. 

SIFMA requests three categories of 

exemptive relief for IRAs and other 

plans. First, SIFMA requests a 

retroactive exemption, effective January 

1, 1975, for indemnification agreements, 

as described herein, in favor of a 

financial institution entered into by an 

IRA or any other plan, regardless of 

whether the indemnification agreement 

has been called upon, executed or 

enforced. 

Second, SIFMA requests a temporary 

exemption that would provide relief for 

such indemnification agreements until a 

date that is 12 months after final relief 

is issued. According to SIFMA, this 

temporary relief, if granted, would 

provide banks and nonbank custodians, 

brokers, futures commission merchants 

and other financial institutions the time 

necessary to determine how to amend 

their account documents to either 

eliminate the indemnification 

agreements or to revise the provisions in 

a way that will be compliant with the 

Department’s position. 

Third, SIFMA requests a prospective 

exemption to explicitly permit plan 

sponsors, the self-employed, and IRA 

Owners to indemnify their IRAs and 

other plans so that these entities may 

continue to engage in short sales, 

margin transactions, options and 

futures. 

E. Scope and Purpose of the Proposed 

Amendment 

As described in further detail below, 

this proposed amendment, if adopted, 

would provide retroactive and 

temporary relief, as requested by 

SIFMA. Such relief would be provided 

for a ‘‘Covered Extension of Credit.’’ The 

exemption defines this term as an 

indemnification agreement, crosscollateralization agreement or other 

grant of a security interest in favor of a 

financial institution, as set forth in an 

Account Opening Agreement between a 

plan and the financial institution, by 

which (1) assets in a Plan Account 

guarantee the payment of amounts 

debited to a Related Account, or (2) 

assets in a Related Account guarantee 

the payment of amounts debited to a 

Plan Account. The term Covered 

Extension of Credit does not include a 

loan or payment under such agreement 

or security interest. A Plan Account is 

an account established with a financial 

institution by an employee benefit plan 

as defined in section 3(3) of ERISA or 

a plan as defined in section 4975(e)(1) 

of the Code. A Related Account is an 

account established pursuant to an 

Account Opening Agreement with the 

financial institution that also covers a 

Plan Account and/or guarantees the 

payment of debits to the Plan Account. 

Retroactive and temporary relief is 

additionally proposed for the lending of 

money (a Covered Loan) by a Related 

Account to a Plan Account, pursuant to 

a Covered Extension of Credit, if the 

Related Account is not itself a Plan 

Account. Thus, although exemptive 

relief is being proposed herein for a 

Covered Extension of Credit between a 

Plan Account and a Related Account, 

where such Related Account may itself 

be a Plan Account, exemptive relief for 

a Covered Loan would not apply to 

loans from Plan Accounts. Finally, the 

retroactive and temporary relief extends 

to the repayment by a Plan Account to 

a Related Account of a Covered Loan 

(Covered Repayment). 

The Department is proposing the 

relief described above solely to enable 

financial institutions to remove Covered 

Extensions of Credit from Account 

Opening Agreements and conclude any 

outstanding Covered Loans that may 

exist. The Department believes that 

broad retroactive and temporary 

exemptive relief for Covered Extension 

of Credit arrangements is appropriate 

due to apparently widespread 

misunderstanding as to the application 

of the prohibited transaction provisions 

and PTE 80–26 to the subject 

transactions. The Department is of the 

view that, due to practitioners’ good 

faith belief in their compliance with the 

prohibited transaction and class 

exemption provisions as applied to 

these transactions, it is appropriate to 

propose exemptive relief that, if 

adopted, would enable an IRA to 

maintain its status under the Code, 

notwithstanding that the IRA has been 

subject to a Covered Extension of Credit 

arrangement. Similarly, the Department 

believes that it is appropriate to propose 

relief that would enable a plan fiduciary 

to avoid the costs and uncertainties that 

may otherwise have arisen from the 

plan’s participation in a Covered 

Extension of Credit arrangement. The 

Department has also included 

retroactive relief from section 406(b)(1) 

of ERISA and section 4975(c)(1)(E) of 

the Code to cover the situation in which 

a plan fiduciary entered into an 

indemnification agreement which 

would have permitted payment of debits 

by a Plan Account to a Related Account 

maintained by such plan fiduciary.8

The Department is not proposing 

permanent prospective exemptive relief 

herein for Covered Extensions of Credit 

(and loans and loan repayments 

resulting therefrom), as requested by 

SIFMA. In this regard, SIFMA has not 

proposed conditions that would address 

the proper oversight, monitoring, and 

reporting of a Covered Loan or a 

Covered Repayment, or that would 

otherwise support a finding that 

Covered Extension of Credit 

arrangements are protective of affected 

IRAs or other plans. The Department 

notes, however, that future exemptive 

relief may be available to the extent all 

of the requisite findings under section 

408(a) of ERISA can be made. 

F. Description of the Proposed 

Amendment 

The proposed amendment, if adopted, 

would add a new section to PTE 80–26, 

entitled Section V. Temporary 

Exemption, and would also re-designate 

the Definitions section of PTE 80–26 as 

Section VI. Definitions. The proposed 

amendment does not otherwise affect 

the relief set forth in section IV of the 

existing class exemption. 

As proposed, section V would contain 

relief from ERISA sections 406(a)(1)(B) 

and (D) and 406(b)(1) and (b)(2), as well 

as Code sections 4975(a) and (b), by 

reason of section 4975(c)(1)(B), (D) and 

(E), for: (1) A Covered Extension of 

Credit; (2) a Covered Loan to a Plan 

Account that is made in connection 

with a Covered Extension of Credit; and 

(3) a Covered Repayment. The terms 

Covered Extension of Credit, Covered 

Loan, Plan Account, Covered 

Repayment, Related Account and 

Account Opening Agreement are 

defined in section VI of the proposed 

amendment, and are also described 

below. 

If adopted as proposed, the relief 

contained in section V would extend 

from January 1, 1975, until the date that 

is six months after the date a final 

amendment is adopted in the Federal 

Register. The Department believes that 

six months prospective relief provides 

financial institutions ample time to 

remove Covered Extensions of Credit 

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from clients’ Account Opening 

Agreements, particularly in light of the 

fact that financial institutions were put 

on notice of the Department’s views on 

these indemnification agreements in 

2011. 

The transactions described in section 

V of this proposed amendment are 

subject to several of the existing 

conditions applicable to loans and 

extensions of credit described in section 

IV (b)(1) or (b)(2) of PTE 80–26. Section 

V provides that, in connection with a 

Covered Extension of Credit, Covered 

Loan or Covered Repayment: no interest 

or other fee may be charged to the IRA 

or plan; no discount for payment in cash 

is relinquished by the IRA or any other 

plan; and no Covered Loan is made by 

an IRA or any other plan. As noted 

previously, exemptive relief is being 

proposed herein for a Covered Loan 

only to the extent that, among other 

things, the Covered Loan is made to a 

Plan Account by a non-plan Related 

Account. Section V provides also that a 

Covered Loan may not be the type of 

loan described in section 408(b)(3) of 

ERISA and the regulations promulgated 

thereunder (29 CFR 2550.408b–3) or 

section 4975(d)(3) of the Code and the 

regulations promulgated thereunder (26 

CFR 54.4975–7(b)). 

The Department is proposing several 

additional conditions that would be 

applicable to the covered transactions. 

In this regard, section V of the proposed 

amendment requires that a Covered 

Extension of Credit be set forth in a 

written brokerage, futures and other 

investment agreement (i.e., an Account 

Opening Agreement) between an IRA or 

any other plan and a financial 

institution, and that such financial 

institution be subject to oversight by a 

regulatory agency or a self-regulatory 

organization. The Department believes 

that such oversight is necessary given 

the lack of independent safeguards 

associated with Covered Extensions of 

Credit, as such arrangements are 

understood by the Department. 

The Department believes also that a 

Covered Loan from a Related Account to 

a Plan Account should arise from an 

account debit to the Plan Account that 

is lawful under relevant federal laws, 

rules and regulations. Accordingly, 

section V requires that any Covered 

Loan by a Related Account to a Plan 

Account must result from a lawful Plan 

Account-incurred cost (including a fee, 

expense, investment loss, or tax). To 

ensure that the proposed amendment is 

administratively feasible, section V 

requires that, for purposes of the 

proposed amendment, the amount of a 

Covered Loan from a Related Account to 

a Plan Account shall be no greater than 

the amount of the cost, fee, expense, 

loss or tax incurred by the Plan Account 

(which must be, as noted above, a 

lawful cost under applicable law, rules 

and regulations) for which the Covered 

Loan is being made. The amount of any 

Covered Repayment of a Covered Loan 

by a Plan Account to a Related Account 

must be no greater than the original 

Covered Loan amount. Accordingly, 

where, for example, a Plan Account has 

incurred a $50 expense that meets the 

terms of the proposed amendment, the 

Covered Loan amount by a Related 

Account to the Plan Account must be no 

greater than $50, and any Covered 

Repayment by the Plan Account to the 

Related Account must also not exceed 

$50. 

Section VI of the proposed 

amendment adds six defined terms to 

that section. The term Covered 

Extension of Credit is defined to mean 

an indemnification agreement, crosscollateralization agreement or other 

grant of a security interest in favor of a 

financial institution, as set forth in an 

Account Opening Agreement between a 

plan and the financial institution, which 

guarantees the payment of debits to (or 

by) a Plan Account by (or to) a Related 

Account. The Department notes that this 

definition is intended to provide broad 

relief for Plan Accounts that have been 

subject to a Covered Extension of Credit, 

and that remain subject to a Covered 

Extension of Credit until six months 

following the date on which this 

proposed amendment is adopted. The 

scope of the term Covered Loan is 

narrower. This term is defined in 

section VI to mean the lending of money 

by a Related Account to a Plan Account, 

including by means of a debit to the 

Related Account and a corresponding 

credit to the Plan Account, where the 

Covered Loan is made pursuant to a 

Covered Extension of Credit. As such, 

the term Covered Loan does not include 

a loan by a Plan Account to a Related 

Account, notwithstanding that such 

loan may be authorized by an Account 

Opening Agreement. A Covered 

Repayment is defined to mean a 

repayment by a Plan Account to a 

Related Account of a Covered Loan. A 

Plan Account is defined to mean an 

account established with a financial 

institution by an employee benefit plan 

as defined in section 3(3) of ERISA or 

a plan as defined in section 4975(e)(1) 

of the Code. The term Related Account 

is defined in section VI to mean an 

investment account established with a 

financial institution by a person or 

entity, where such account is subject to 

an Account Opening Agreement with 

the financial institution that also covers 

a Plan Account and/or guarantees the 

payment of debits to the Plan Account. 

Finally, the term Account Opening 

Agreement is defined as a written 

brokerage, futures or other investment 

agreement. 

G. Additional Proposed Amendments 

on the Department’s Own Motion 

As noted above, PTE 80–26 was most 

recently amended effective December 

15, 2004. Therein, the Department 

eliminated a previous requirement of 

the exemption that the proceeds of 

certain loans or extensions of credit be 

used only for a period of no more than 

three business days. The Department 

also added two new conditions, 

conditions IV(e) and (f). Condition IV(e) 

provides that: ‘‘[t]he loan is not 

described in section 408(b)(3) of ERISA 

and the regulations promulgated 

thereunder (29 CFR 2550.408b–3) or 

section 4975(d)(3) of the Code and the 

regulations promulgated thereunder (26 

CFR 54.4975–7(b))[.]’’ 

To clarify that this condition applies 

equally to extensions of credit, the 

Department is proposing to amend 

condition IV(e) as follows: 

‘‘[t]he loan or other extension of credit is 

not described in section 408(b)(3) of ERISA 

and the regulations promulgated thereunder 

(29 CFR 2550.408b–3) or section 4975(d)(3) 

of the Code and the regulations promulgated 

thereunder (26 CFR 54.4975–7(b))[.]’’ 

Additionally, for consistency, the 

Department is proposing to replace the 

phrase ‘‘loan or extension of credit,’’ 

wherever it is used in sections of PTE 

80–26 that have not expired, with the 

phrase ‘‘loan or other extension of 

credit.’’ 

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 section 

408(a) of ERISA and section 4975(c)(2) 

of the Code 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 section 404 of ERISA 

which require, among other things, that 

a fiduciary act prudently and discharge 

his or her duties respecting the plan 

solely in the interests of the participants 

and beneficiaries of the plan. 

Additionally, the fact that a transaction 

is the subject of an exemption does not 

affect the requirement of section 401(a) 

of the Code that the plan must operate 

for the exclusive benefit of the 

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employees of the employer maintaining 

the plan and their beneficiaries; 

(2) This exemption does not currently 

extend to transactions prohibited under 

section 406(b)(1) and (3) of the Act or 

section 4975(c)(1)(E) or (F) of the Code. 

If granted, the proposed amendment 

would provide limited relief to certain 

transactions prohibited under section 

406(b)(1) of the Act and section 

4975(c)(1)(E) of the Code; 

(3) Before an exemption may be 

granted under section 408(a) of ERISA 

and section 4975(c)(2) of the Code, the 

Department must find that the 

exemption is administratively feasible, 

in the interests of the plan and of its 

participants and beneficiaries, and 

protective of the rights of participants 

and beneficiaries of the plan; 

(4) If granted, the proposed 

amendment is applicable to a particular 

transaction only if the transaction 

satisfies the conditions specified in the 

exemption; and 

(5) The proposed amendment, 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 and Hearing 

Request 

The Department invites all interested 

persons to submit written comments or 

requests for a public hearing on the 

proposed amendment to the address and 

within the time period set forth above. 

All comments received will be made a 

part of the record. Comments and 

requests for a hearing should state the 

reasons for the writer’s interest in the 

proposed exemption. Comments 

received will be available for public 

inspection at the above address. 

Proposed Amendment 

Under section 408(a) of the Act and 

section 4975(c)(2) of the Code and in 

accordance with the procedures set 

forth in 29 CFR 2570, Subpart B (76 FR 

66637, 66644, October 27, 2011), the 

Department proposes to amend PTE 80– 

26 as set forth below: 

Section I. Retroactive General 

Exemption 

Effective January 1, 1975 until 

December 14, 2004 the restrictions of 

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

406(b)(2) of the Act, and the taxes 

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

the Code, by reason of section 

4975(c)(1)(B) and (D) of the Code, shall 

not apply to the lending of money or 

other extension of credit from a party in 

interest or disqualified person to an 

employee benefit plan, nor to the 

repayment of such loan or other 

extension of credit in accordance with 

its terms or written modifications 

thereof, if: 

(a) No interest or other fee is charged 

to the plan, and no discount for 

payment in cash is relinquished by the 

plan, in connection with the loan or 

extension of credit; 

(b) The proceeds of the loan or 

extension of credit are used only— 

(1) for the payment of ordinary 

operating expenses of the plan, 

including the payment of benefits in 

accordance with the terms of the plan 

and periodic premiums under an 

insurance or annuity contract, or 

(2) for a period of no more than three 

business days, for a purpose incidental 

to the ordinary operation of the plan; 

(c) The loan or extension of credit is 

unsecured; and 

(d) The loan or extension of credit is 

not directly or indirectly made by an 

employee benefit plan. 

Section II: Temporary Exemption 

Effective November 1, 1999 through 

December 31, 2000, the restrictions of 

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

406(b)(2) of the Act, and the taxes 

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

the Code, by reason of section 

4975(c)(1)(B) and (D) of the Code, shall 

not apply to the lending of money or 

other extension of credit from a party in 

interest or disqualified person to an 

employee benefit plan, nor to the 

repayment of such loan or other 

extension of credit in accordance with 

its terms or written modifications 

thereof, if: 

(a) No interest or other fee is charged 

to the plan, and no discount for 

payment in cash is relinquished by the 

plan, in connection with the loan or 

extension of credit; 

(b) The proceeds of the loan or 

extension of credit are used only for a 

purpose incidental to the ordinary 

operation of the plan which arises in 

connection with the plan’s inability to 

liquidate, or otherwise access its assets 

or access data as a result of a Y2K 

problem. 

(c) The loan or extension of credit is 

unsecured; 

(d) The loan or extension of credit is 

not directly or indirectly made by an 

employee benefit plan; and 

(e) The loan or extension of credit 

begins on or after November 1, 1999 and 

is repaid or terminated no later than 

December 31, 2000. 

Section III. September 11, 2001 Market 

Disruption Exemption 

Effective September 11, 2001 through 

January 9, 2002, the restrictions of 

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

406(b)(2) of the Act, and the taxes 

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

the Code, by reason of section 

4975(c)(1)(B) and (D) of the Code, shall 

not apply to the lending of money or 

other extension of credit from a party in 

interest or disqualified person to an 

employee benefit plan, nor to the 

repayment of such loan or other 

extension of credit in accordance with 

its terms or written modifications 

thereof, if: 

(a) No interest or other fee is charged 

to the plan, and no discount for 

payment in cash is relinquished by the 

plan, in connection with the loan or 

extension of credit; 

(b) The proceeds of the loan or 

extension of credit are used only for a 

purpose incidental to the ordinary 

operation of the plan which arises in 

connection with difficulties 

encountered by the plan in liquidating, 

or otherwise accessing its assets, or 

accessing its data in a timely manner as 

a direct or indirect result of the 

September 11, 2001 disruption; 

(c) The loan or extension of credit is 

unsecured; 

(d) The loan or extension of credit is 

not directly or indirectly made by an 

employee benefit plan; and 

(e) The loan or extension of credit 

begins on or after September 11, 2001, 

and is repaid or terminated no later than 

January 9, 2002. 

Section IV. Prospective General 

Exemption 

Effective as of December 15, 2004, the 

restrictions of section 406(a)(1)(B) and 

(D) and section 406(b)(2) of the Act, and 

the taxes imposed by section 4975(a) 

and (b) of the Code, by reason of section 

4975(c)(1)(B) and (D) of the Code, shall 

not apply to the lending of money or 

other extension of credit from a party in 

interest or disqualified person to an 

employee benefit plan, nor to the 

repayment of such loan or other 

extension of credit in accordance with 

its terms or written modifications 

thereof, if: 

(a) No interest or other fee is charged 

to the plan, and no discount for 

payment in cash is relinquished by the 

plan, in connection with the loan or 

other extension of credit; 

(b) The proceeds of the loan or other 

extension of credit are used only— 

(1) for the payment of ordinary 

operating expenses of the plan, 

including the payment of benefits in 

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accordance with the terms of the plan 

and periodic premiums under an 

insurance or annuity contract, or 

(2) for a purpose incidental to the 

ordinary operation of the plan; 

(c) The loan or other extension of 

credit is unsecured; 

(d) The loan or other extension of 

credit is not directly or indirectly made 

by an employee benefit plan; 

(e) The loan or other extension of 

credit is not described in section 

408(b)(3) of ERISA and the regulations 

promulgated thereunder (29 CFR 

2550.408b–3) or section 4975(d)(3) of 

the Code and the regulations 

promulgated thereunder (26 CFR 

54.4975–7(b)); and 

(f)(1) Any loan described in section 

IV(b)(1) that is entered into on or after 

April 7, 2006 and that has a term of 60 

days or longer must be made pursuant 

to a written loan agreement that 

contains all of the material terms of 

such loan; 

(2) Any loan described in (b)(2) of this 

paragraph that is entered into for a term 

of 60 days or longer must be made 

pursuant to a written loan agreement 

that contains all of the material terms of 

such loan. 

Section V: Temporary Exemption 

The restrictions of section 406(a)(1)(B) 

and (D) and section 406(b)(1) and (b)(2) 

of the Act, and the taxes imposed by 

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

reason of section 4975(c)(1)(B), (D) and 

(E) of the Code, shall not apply, from 

January 1, 1975, until the date that is six 

months following the date a final 

amendment is published in the Federal 

Register, to: (1) A Covered Extension of 

Credit, as defined in section VI(e); (2) a 

Covered Loan, as defined in section 

VI(f); and (3) a Covered Repayment (as 

defined in section VI(g)) if: 

(a) No interest or other fee is charged 

to the plan, and no discount for 

payment in cash is relinquished by the 

plan, in connection with the Covered 

Extension of Credit, Covered Loan, or 

Covered Repayment; 

(b) The Covered Extension of Credit is 

set forth in an Account Opening 

Agreement between a plan and a 

financial institution, where the financial 

institution is subject to oversight by a 

regulatory agency or a self-regulatory 

organization; 

(c) The Covered Loan is not directly 

or indirectly made by a plan; 

(d) The Covered Extension of Credit 

and the Covered Loan are not described 

in section 408(b)(3) of ERISA and the 

regulations promulgated thereunder (29 

CFR 2550.408b–3) or section 4975(d)(3) 

of the Code and the regulations 

promulgated thereunder (26 CFR 

54.4975–7(b)); 

(e) The Covered Loan arose from a 

lawful cost (including a fee, expense, 

investment loss or tax); and 

(f) The amount of a Covered Loan 

from a Related Account to a Plan 

Account is no greater than and relates 

to an amount debited to the Plan 

Account in connection with an expense 

described in paragraph (e) of this 

section. The amount of a Covered 

Repayment of a Covered Loan must not 

be greater than the original Covered 

Loan amount. 

Section VI. Definitions 

(a) For purposes of section II, a ‘‘Y2K 

problem’’ is a disruption of computer 

operations resulting from a computer 

system’s inability to process data 

because such system recognizes years 

only by the last two digits, causing a 

‘‘00’’ entry to be read as the year ‘‘1900’’ 

rather than the year ‘‘2000.’’ 

(b) For purposes of section III, the 

‘‘September 11, 2001 disruption’’ is the 

disruption to the United States financial 

and securities markets and/or the 

operation of persons providing 

administrative services to employee 

benefit plans, resulting from the acts of 

terrorism that occurred on September 

11, 2001; 

(c) For purposes of this exemption, 

the terms ‘‘employee benefit plan’’ and 

‘‘plan’’ refer to an employee benefit plan 

described in ERISA section 3(3) and/or 

a plan described in section 4975(e)(1) of 

the Code; 

(d) For purposes of section V, the term 

‘‘Plan Account’’ means an account 

established with a financial institution 

by an employee benefit plan described 

in section 3(3) of ERISA or a plan 

described in section 4975(e)(1) of the 

Code. 

(e) For purposes of section V, the term 

‘‘Covered Extension of Credit’’ means an 

indemnification agreement, crosscollateralization agreement or other 

grant of a security interest in favor of a 

financial institution, as set forth in an 

Account Opening Agreement between a 

plan and the financial institution, which 

guarantees the payment of debits to (or 

by) a Plan Account by (or to) a Related 

Account, but does not include a loan or 

payment under such agreement or 

security interest; 

(f) For purposes of section V, the term 

‘‘Covered Loan’’ means a loan to a Plan 

Account by a Related Account, 

including by means of a debit to a 

Related Account and a corresponding 

credit to the Plan Account, where the 

Covered Loan is made pursuant to a 

Covered Extension of Credit; 

(g) For purposes of section V, the term 

‘‘Covered Repayment’’ means the 

repayment by a Plan Account to a 

Related Account of a Covered Loan. 

(h) For purposes of section V, the term 

‘‘Related Account’’ means an 

investment account established with a 

financial institution by a person or 

entity, where such account is subject to 

an Account Opening Agreement with 

the financial institution that also covers 

a Plan Account and/or guarantees the 

payment of debits to the Plan Account. 

(i) For purposes of section V, the term 

‘‘Account Opening Agreement’’ means a 

written brokerage, futures or other 

investment agreement. 

Signed at Washington, DC, this 20th day of 

May, 2013. 

Lyssa E. Hall, 

Director, Office of Exemption Determinations, 

Employee Benefits Security Administration, 

U. S. Department of Labor. 

[FR Doc. 2013–12362 Filed 5–23–13; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employment and Training 

Administration 

[TA–W–81,253] 

Sears Holdings Management 

Corporation, A Division Of Sears 

Holdings Corporation, Hoffman 

Estates, Illinois; Notice of Negative 

Determination on Reconsideration 

On August 3, 2012, the Department of 

Labor issued an Affirmative 

Determination Regarding Application 

for Reconsideration for the workers and 

former workers of Sears Holdings 

Management Corporation, Hoffman 

Estates, Illinois (subject firm). The 

Department’s Notice of determination 

was published in the Federal Register 

on August 14, 2012 (77 FR 48550). 

Pursuant to 29 CFR 90.18(c), 

reconsideration may be granted under 

the following circumstances: 

(1) If it appears on the basis of facts 

not previously considered that the 

determination complained of was 

erroneous; 

(2) If it appears that the determination 

complained of was based on a mistake 

in the determination of facts not 

previously considered; or 

(3) If in the opinion of the Certifying 

Officer, a misinterpretation of facts or of 

the law justified reconsideration of the 

decision. 

During the initial investigation, the 

Department received information that 

the petitioners worked in different units 

of the subject firm: one petitioner 

worked in the marketing unit, another 

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