21960 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

(e) Internal Revenue Code. Section 

4975(e)(3) of the Code contains 

provisions parallel to section 3(21)(A) of 

the Act which define the term 

‘‘fiduciary’’ for purposes of the 

prohibited transaction provisions in 

Code section 4975. Effective December 

31, 1978, section 102 of the 

Reorganization Plan No. 4 of 1978, 5 

U.S.C. App. 237 transferred the 

authority of the Secretary of the 

Treasury to promulgate regulations of 

the type published herein to the 

Secretary of Labor. All references herein 

to section 3(21)(A) of the Act should be 

read to include reference to the parallel 

provisions of section 4975(e)(3) of the 

Code. Furthermore, the provisions of 

this section shall apply for purposes of 

the application of Code section 4975 

with respect to any plan described in 

Code section 4975(e)(1). 

(f) Definitions. For purposes of this 

section— 

(1) ‘‘Recommendation’’ means a 

communication that, based on its 

content, context, and presentation, 

would reasonably be viewed as a 

suggestion that the advice recipient 

engage in or refrain from taking a 

particular course of action. 

(2)(i) ‘‘Plan’’ means any employee 

benefit plan described in section 3(3) of 

the Act and any plan described in 

section 4975(e)(1)(A) of the Code, and 

(ii) ‘‘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. 

(3) ‘‘Plan participant’’ means for a 

plan described in section 3(3) of the Act, 

a person described in section 3(7) of the 

Act. 

(4) ‘‘IRA owner’’ means with respect 

to an IRA either the person who is the 

owner of the IRA or the person for 

whose benefit the IRA was established. 

(5) ‘‘Plan fiduciary’’ means a person 

described in section (3)(21) of the Act 

and 4975(e)(3) of the Code. 

(6) ‘‘Fee or other compensation, direct 

or indirect’’ for purposes of this section 

and section 3(21)(A)(ii) of the Act, 

means any fee or compensation for the 

advice received by the person (or by an 

affiliate) from any source and any fee or 

compensation incident to the 

transaction in which the investment 

advice has been rendered or will be 

rendered. The term fee or other 

compensation includes, for example, 

brokerage fees, mutual fund and 

insurance sales commissions. 

(7) ‘‘Affiliate’’ includes: Any person 

directly or indirectly, through one or 

more intermediaries, controlling, 

controlled by, or under common control 

with such person; any officer, director, 

partner, employee or relative (as defined 

in section 3(15) of the Act) of such 

person; and any corporation or 

partnership of which such person is an 

officer, director or partner. 

(8) ‘‘Control’’ for purposes of 

paragraph (f)(7) of this section means 

the power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

Signed at Washington, DC, this 14th day of 

April, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2015–08831 Filed 4–15–15; 11:15 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2550 

[Application No. D–11712] 

ZRIN 1210–ZA25 

Proposed Best Interest Contract 

Exemption 

AGENCY: Employee Benefits Security 

Administration (EBSA), U.S. 

Department of Labor. 

ACTION: Notice of Proposed Class 

Exemption. 

SUMMARY: This document contains a 

notice of pendency before the U.S. 

Department of Labor of a proposed 

exemption from certain prohibited 

transactions provisions of the Employee 

Retirement Income Security Act of 1974 

(ERISA) and the Internal Revenue Code 

(the Code). The provisions at issue 

generally prohibit fiduciaries with 

respect to employee benefit plans and 

individual retirement accounts (IRAs) 

from engaging in self-dealing and 

receiving compensation from third 

parties in connection with transactions 

involving the plans and IRAs. The 

exemption proposed in this notice 

would allow entities such as brokerdealers and insurance agents that are 

fiduciaries by reason of the provision of 

investment advice to receive such 

compensation when plan participants 

and beneficiaries, IRA owners, and 

certain small plans purchase, hold or 

sell certain investment products in 

accordance with the fiduciaries’ advice, 

under protective conditions to safeguard 

the interests of the plans, participants 

and beneficiaries, and IRA owners. The 

proposed exemption would affect 

participants and beneficiaries of plans, 

IRA owners and fiduciaries with respect 

to such plans and IRAs. 

DATES: Comments: Written comments 

concerning the proposed class 

exemption must be received by the 

Department on or before July 6, 2015. 

Applicability: The Department 

proposes to make this exemption 

available eight months after publication 

of the final exemption in the Federal 

Register. We request comment below on 

whether the applicability date of certain 

conditions should be delayed. 

ADDRESSES: All written comments 

concerning the proposed class 

exemption should be sent to the Office 

of Exemption Determinations by any of 

the following methods, identified by 

ZRIN: 1210–ZA25: 

Federal eRulemaking Portal: http://

www.regulations.gov at Docket ID 

number: EBSA–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– 

11712), 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–11712), 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: 

Karen E. Lloyd or Brian L. Shiker, Office 

of Exemption Determinations, Employee 

Benefits Security Administration, U.S. 

Department of Labor (202) 693–8824 

(this is not a toll-free number). 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21961 

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

of the Treasury to grant exemptions from the 

parallel prohibited transaction provisions of the 

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

app. at 214 (2000)) generally transferred the 

authority of the Secretary of the Treasury to grant 

administrative exemptions under Code section 4975 

to the Secretary of Labor. This proposed exemption 

would provide relief from the indicated prohibited 

transaction provisions of both ERISA and the Code. 

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

does not intend to limit the exemption to 

investment advisers registered under the 

Investment Advisers Act of 1940 or under state law. 

As explained herein, an adviser is an individual 

who can be a representative of a registered 

investment adviser, a bank or similar financial 

institution, an insurance company, or a brokerdealer. 

SUPPLEMENTARY INFORMATION: The 

Department is proposing this class 

exemption on its own motion, pursuant 

to ERISA section 408(a) and Code 

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

with the procedures set forth in 29 CFR 

part 2570 (76 FR 66637 (October 27, 

2011)). 

Public Hearing: The Department plans 

to hold an administrative hearing within 

30 days of the close of the comment 

period. The Department will ensure 

ample opportunity for public comment 

by reopening the record following the 

hearing and publication of the hearing 

transcript. Specific information 

regarding the date, location and 

submission of requests to testify will be 

published in a notice in the Federal 

Register. 

Executive Summary 

Purpose of Regulatory Action 

The Department is proposing this 

exemption in connection with its 

proposed regulation under ERISA 

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

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

published elsewhere in this issue of the 

Federal Register. The Proposed 

Regulation would amend the definition 

of a ‘‘fiduciary’’ under ERISA and the 

Code to specify when a person 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 dating to 1975. The Proposed 

Regulation is intended to take into 

account the advent of 401(k) plans and 

IRAs, the dramatic increase in rollovers, 

and other developments that have 

transformed the retirement plan 

landscape and the associated 

investment market over the four decades 

since the existing regulation was issued. 

In light of the extensive changes in 

retirement investment practices and 

relationships, the Proposed Regulation 

would update existing rules to 

distinguish more appropriately between 

the sorts of advice relationships that 

should be treated as fiduciary in nature 

and those that should not. 

The exemption proposed in this 

notice (‘‘the Best Interest Contract 

Exemption’’) was developed to promote 

the provision of investment advice that 

is in the best interest of retail investors 

such as plan participants and 

beneficiaries, IRA owners, and small 

plans. ERISA and the Code generally 

prohibit fiduciaries from receiving 

payments from third parties and from 

acting on conflicts of interest, including 

using their authority to affect or increase 

their own compensation, in connection 

with transactions involving a plan or 

IRA. Certain types of fees and 

compensation common in the retail 

market, such as brokerage or insurance 

commissions, 12b-1 fees and revenue 

sharing payments, fall within these 

prohibitions when received by 

fiduciaries as a result of transactions 

involving advice to the plan participants 

and beneficiaries, IRA owners and small 

plan sponsors. To facilitate continued 

provision of advice to such retail 

investors and under conditions 

designed to safeguard the interests of 

these investors, the exemption would 

allow certain investment advice 

fiduciaries, including broker-dealers 

and insurance agents, to receive these 

various forms of compensation that, in 

the absence of an exemption, would not 

be permitted under ERISA and the 

Code. 

Rather than create a set of highly 

prescriptive transaction-specific 

exemptions, which has generally been 

the regulatory approach to date, the 

proposed exemption would flexibly 

accommodate a wide range of current 

business practices, while minimizing 

the harmful impact of conflicts of 

interest on the quality of advice. The 

Department has sought to preserve 

beneficial business models by taking a 

standards-based approach that will 

broadly permit firms to continue to rely 

on common fee practices, as long as 

they are willing to adhere to basic 

standards aimed at ensuring that their 

advice is in the best interest of their 

customers. 

ERISA section 408(a) specifically 

authorizes the Secretary of Labor to 

grant administrative exemptions from 

ERISA’s prohibited transaction 

provisions.1 Regulations at 29 CFR 

2570.30 to 2570.52 describe the 

procedures for applying for an 

administrative exemption. Before 

granting an exemption, the Department 

must find that the exemption is 

administratively feasible, in the 

interests of plans and their participants 

and beneficiaries and IRA owners, and 

protective of the rights of participants 

and beneficiaries of plans and IRA 

owners. Interested parties are permitted 

to submit comments to the Department 

through July 6, 2015. The Department 

plans to hold an administrative hearing 

within 30 days of the close of the 

comment period. 

Summary of the Major Provisions 

The proposed exemption would apply 

to compensation received by investment 

advice fiduciaries—both individual 

‘‘advisers’’ 2 and the ‘‘financial 

institutions’’ that employ or otherwise 

contract with them—and their affiliates 

and related entities that is provided in 

connection with the purchase, sale or 

holding of certain assets by plans and 

IRAs. In particular, the exemption 

would apply when prohibited 

compensation is received as a result of 

advice to retail ‘‘retirement investors’’ 

including plan participants and 

beneficiaries, IRA owners, and plan 

sponsors (or their employees, officers or 

directors) of plans with fewer than 100 

participants making investment 

decisions on behalf of the plans and 

IRAs. 

In order to protect the interests of the 

plan participants and beneficiaries, IRA 

owners, and small plan sponsors, the 

exemption would require the adviser 

and financial institution to contractually 

acknowledge fiduciary status, commit to 

adhere to basic standards of impartial 

conduct, warrant that they have adopted 

policies and procedures reasonably 

designed to mitigate any harmful impact 

of conflicts of interest, and disclose 

basic information on their conflicts of 

interest and on the cost of their advice. 

The adviser and firm must commit to 

fundamental obligations of fair dealing 

and fiduciary conduct—to give advice 

that is in the customer’s best interest; 

avoid misleading statements; receive no 

more than reasonable compensation; 

and comply with applicable federal and 

state laws governing advice. This 

standards-based approach aligns the 

adviser’s interests with those of the plan 

or IRA customer, while leaving the 

adviser and employing firm the 

flexibility and discretion necessary to 

determine how best to satisfy these 

basic standards in light of the unique 

attributes of their business. All financial 

institutions relying on the exemption 

would be required to notify the 

Department in advance of doing so. 

Finally, all financial institutions making 

use of the exemption would have to 

maintain certain data, and make it 

available to the Department, to help 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21962 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

3ERISA section 404(a). 

4ERISA section 406. ERISA also prohibits certain 

transactions between a plan and a ‘‘party in 

interest.’’ 

5ERISA section 409; see also ERISA section 405. 

evaluate the effectiveness of the 

exemption in safeguarding the interests 

of the plan participants and 

beneficiaries, IRA owners, and small 

plans. 

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 

they will periodically review their 

existing significant regulations to make 

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 an 

‘‘economically significant’’ regulatory 

action); (2) creating serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. Pursuant to the terms of the 

Executive Order, OMB has determined 

that this action is ‘‘significant’’ within 

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

Executive Order. Accordingly, the 

Department has undertaken an 

assessment of the costs and benefits of 

the proposed exemption, and OMB has 

reviewed this regulatory action. 

Background 

Proposed Regulation Defining a 

Fiduciary 

As explained more fully in the 

preamble to the Department’s Proposed 

Regulation under ERISA section 

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

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

issue of the Federal Register, ERISA is 

a comprehensive statute designed to 

protect the interests of plan participants 

and beneficiaries, the integrity of 

employee benefit plans, and the security 

of retirement, health, and other critical 

benefits. The broad public interest in 

ERISA-covered plans is reflected in its 

imposition of fiduciary responsibilities 

on parties engaging in important plan 

activities, as well as in the tax-favored 

status of plan assets and investments. 

One of the chief ways in which ERISA 

protects employee benefit plans is by 

requiring that plan fiduciaries comply 

with fundamental obligations rooted in 

the law of trusts. In particular, plan 

fiduciaries must manage plan assets 

prudently and with undivided loyalty to 

the plans and their participants and 

beneficiaries.3 In addition, they must 

refrain from engaging in ‘‘prohibited 

transactions,’’ which ERISA does not 

permit because of the dangers posed by 

the fiduciaries’ conflicts of interest with 

respect to the transactions.4 When 

fiduciaries violate ERISA’s fiduciary 

duties or the prohibited transaction 

rules, they may be held personally liable 

for the breach.5 In addition, violations 

of the prohibited transaction rules are 

subject to excise taxes under the Code. 

The Code also has rules regarding 

fiduciary conduct with respect to taxfavored accounts that are not generally 

covered by ERISA, such as IRAs. 

Although ERISA’s general fiduciary 

obligations of prudence and loyalty do 

not govern the fiduciaries of IRAs, these 

fiduciaries are subject to the prohibited 

transaction rules. In this context, 

fiduciaries engaging in the prohibited 

transactions are subject to an excise tax 

enforced by the Internal Revenue 

Service. Unlike participants in plans 

covered by Title I of ERISA, IRA owners 

do not have a statutory right to bring 

suit against fiduciaries for violation of 

the prohibited transaction rules and 

fiduciaries are not personally liable to 

IRA owners for the losses caused by 

their misconduct. Nor can the Secretary 

of Labor bring suit to enforce the 

prohibited transactions rules on behalf 

of IRA owners. The exemption proposed 

herein, as well as the Proposed Class 

Exemption for Principal Transactions in 

Certain Debt Securities between 

Investment Advice Fiduciaries and 

Employee Benefit Plans and IRAs, 

published elsewhere in this issue of the 

Federal Register, would create 

contractual obligations for fiduciaries to 

adhere to certain standards (the 

Impartial Conduct Standards) if they 

want to take advantage of the 

exemption. IRA owners would have a 

right to enforce these new contractual 

rights. 

Under the 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, ERISA section 3(21)(A) 

and Code section 4975(e)(3) provide that 

a person is a fiduciary with respect to 

a plan or IRA to the extent he or she (i) 

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; (ii) 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, (iii) has any discretionary 

authority or discretionary responsibility 

in the administration of such plan or 

IRA. 

The statutory definition deliberately 

casts a wide net in assigning fiduciary 

responsibility with respect to plan and 

IRA assets. Thus, ‘‘any authority or 

control’’ over plan or IRA assets is 

sufficient to confer fiduciary status, and 

any persons who render ‘‘investment 

advice for a fee or other compensation, 

direct or indirect’’ are fiduciaries, 

regardless of whether they have direct 

control over the plan’s or IRA’s assets 

and regardless of their status as an 

investment adviser or broker under the 

federal securities laws. The statutory 

definition and associated 

responsibilities were enacted to ensure 

that plans, plan participants, and IRA 

owners can depend on persons who 

provide investment advice for a fee to 

provide recommendations that are 

untainted by conflicts of interest. In the 

absence of fiduciary status, the 

providers of investment advice are 

neither subject to ERISA’s fundamental 

fiduciary standards, nor accountable for 

imprudent, disloyal, or tainted advice 

under ERISA or the Code, no matter 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21963 

6The Department of Treasury issued a virtually 

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

interprets Code section 4975(e)(3). 

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

8The Department initially proposed an 

amendment to its regulation defining a fiduciary 

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

4975(e)(3)(B) on October 22, 2010, at 75 FR 65263. 

It subsequently announced its intention to 

withdraw the proposal and propose a new rule, 

consistent with the President’s Executive Orders 

12866 and 13563, in order to give the public a full 

opportunity to evaluate and comment on the new 

proposal and updated economic analysis. 

9See NASD Notice to Members 01–23 and FINRA 

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

10Although the preamble adopts the phrase 

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

Continued 

how egregious the misconduct or how 

substantial the losses. Retirement 

investors typically are not financial 

experts and consequently must rely on 

professional advice to make critical 

investment decisions. In the years since 

then, the significance of financial advice 

has become still greater with increased 

reliance on participant directed plans 

and IRAs for the provision of retirement 

benefits. 

In 1975, the Department issued a 

regulation, at 29 CFR 2510.3– 

21(c)(1975), defining the circumstances 

under which a person is treated as 

providing ‘‘investment advice’’ to an 

employee benefit plan within the 

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

(the ‘‘1975 regulation’’).6 The 1975 

regulation narrowed the scope of the 

statutory definition of fiduciary 

investment advice by creating a five-part 

test that must be satisfied before a 

person can be treated as rendering 

investment advice for a fee. Under the 

1975 regulation, for advice to constitute 

‘‘investment advice,’’ an adviser who 

does not have discretionary authority or 

control with respect to the purchase or 

sale of securities or other property of the 

plan must (1) render advice as to the 

value of securities or other property, or 

make recommendations as to the 

advisability of investing in, purchasing 

or selling securities or other property (2) 

on a regular basis (3) pursuant to a 

mutual agreement, arrangement or 

understanding, with the plan or a plan 

fiduciary that (4) the advice will serve 

as a primary basis for investment 

decisions with respect to plan assets, 

and that (5) the advice will be 

individualized based on the particular 

needs of the plan. The regulation 

provides that an adviser is a fiduciary 

with respect to any particular instance 

of advice only if he or she meets each 

and every element of the five-part test 

with respect to the particular advice 

recipient or plan at issue. A 1976 

Department of Labor Advisory Opinion 

further limited the application of the 

statutory definition of ‘‘investment 

advice’’ by stating that valuations of 

employer securities in connection with 

employee stock ownership plan (ESOP) 

purchases would not be considered 

fiduciary advice.7

As the marketplace for financial 

services has developed in the years 

since 1975, the five-part test may now 

undermine, rather than promote, the 

statutes’ text and purposes. The 

narrowness of the 1975 regulation 

allows advisers, brokers, consultants 

and valuation firms to play a central 

role in shaping plan investments, 

without ensuring the accountability that 

Congress intended for persons having 

such influence and responsibility. Even 

when plan sponsors, participants, 

beneficiaries and IRA owners clearly 

rely on paid consultants for impartial 

guidance, the regulation allows many 

advisers to avoid fiduciary status and 

the accompanying fiduciary obligations 

of care and prohibitions on disloyal and 

conflicted transactions. As a 

consequence, under ERISA and the 

Code, these advisers can steer customers 

to investments based on their own selfinterest, give imprudent advice, and 

engage in transactions that would 

otherwise be prohibited by ERISA and 

the Code. 

In the Department’s Proposed 

Regulation defining a fiduciary under 

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

section 4975(e)(3)(B), the Department 

seeks to replace the existing regulation 

with one that more appropriately 

distinguishes between the sorts of 

advice relationships that should be 

treated as fiduciary in nature and those 

that should not, in light of the legal 

framework and financial marketplace in 

which IRAs and plans currently 

operate.8 Under the Proposed 

Regulation, plans include IRAs. 

The Proposed Regulation describes 

the types of advice that constitute 

‘‘investment advice’’ with respect to 

plan or IRA assets for purposes of the 

definition of a fiduciary at ERISA 

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

4975(e)(3)(B). The proposal provides, 

subject to certain carve-outs, that a 

person renders investment advice with 

respect to assets of a plan or IRA if, 

among other things, the person 

provides, directly to a plan, a plan 

fiduciary, a plan participant or 

beneficiary, IRA or IRA owner, one of 

the following types of advice: 

(1) A recommendation as to the 

advisability of acquiring, holding, 

disposing or exchanging securities or 

other property, including a 

recommendation to take a distribution 

of benefits or a recommendation as to 

the investment of securities or other 

property to be rolled over or otherwise 

distributed from a plan or IRA; 

(2) A recommendation as to the 

management of securities or other 

property, including recommendations as 

to the management of securities or other 

property to be rolled over or otherwise 

distributed from the plan or IRA; 

(3) An appraisal, fairness opinion or 

similar statement, whether verbal or 

written, concerning the value of 

securities or other property, if provided 

in connection with a specific 

transaction or transactions involving the 

acquisition, disposition or exchange of 

such securities or other property by the 

plan or IRA; and 

(4) a recommendation of a person who 

is also going to receive a fee or other 

compensation in providing any of the 

types of advice described in paragraphs 

(1) through (3), above. 

In addition, to be a fiduciary, such 

person must either (i) represent or 

acknowledge that it is acting as a 

fiduciary within the meaning of ERISA 

(or the Code) with respect to the advice, 

or (ii) render the advice pursuant to a 

written or verbal agreement, 

arrangement or understanding that the 

advice is individualized to, or that such 

advice is specifically directed to, the 

advice recipient for consideration in 

making investment or management 

decisions with respect to securities or 

other property of the plan or IRA. 

In the Proposed Regulation, the 

Department refers to FINRA guidance 

on whether particular communications 

should be viewed as 

‘‘recommendations’’9 within the 

meaning of the fiduciary definition, and 

requests comment on whether the 

Proposed Regulation should adhere to 

or adopt some or all of the standards 

developed by FINRA in defining 

communications which rise to the level 

of a recommendation. For more detailed 

information regarding the Proposed 

Regulation, see the Notice of the 

Proposed Regulation published in this 

issue of the Federal Register. 

For advisers who do not represent 

that they are acting as ERISA or Code 

fiduciaries, the Proposed Regulation 

provides that advice rendered in 

conformance with certain carve-outs 

will not cause the adviser to be treated 

as a fiduciary under ERISA or the Code. 

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

transactions with plans may make 

investment recommendations without 

acting as fiduciaries if certain 

conditions are met.10 The proposal also 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21964 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

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

broadly to counterparties in arm’s length 

transactions with plan investors with financial 

expertise. 

11Subsequent to the issuance of these regulations, 

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

(2010), divided rulemaking and interpretive 

authority between the Secretaries of Labor and the 

Treasury. The Secretary of Labor was provided 

interpretive and rulemaking authority regarding the 

definition of fiduciary in both Title I of ERISA and 

the Internal Revenue Code. 

12 29 CFR 2550.408b–2(e); 26 CFR 54.4975– 

6(a)(5). 

contains a carve-out from fiduciary 

status for providers of appraisals, 

fairness opinions, or statements of value 

in specified contexts (e.g., with respect 

to ESOP transactions). The proposal 

additionally includes a carve-out from 

fiduciary status for the marketing of 

investment alternative platforms to 

plans, certain assistance in selecting 

investment alternatives and other 

activities. Finally, the Proposed 

Regulation carves out the provision of 

investment education from the 

definition of an investment advice 

fiduciary. 

Prohibited Transactions 

The Department anticipates that the 

Proposed Regulation will cover many 

investment professionals who do not 

currently consider themselves to be 

fiduciaries under ERISA or the Code. If 

the Proposed Regulation is adopted, 

these entities will become subject to the 

prohibited transaction restrictions in 

ERISA and the Code that apply 

specifically to fiduciaries. ERISA 

section 406(b)(1) and Code section 

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

dealing with the income or assets of a 

plan or IRA in his own interest or his 

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

provides that a fiduciary shall not ‘‘in 

his individual or in any other capacity 

act in any transaction involving the plan 

on behalf of a party (or represent a 

party) whose interests are adverse to the 

interests of the plan or the interests of 

its participants or beneficiaries.’’ As this 

provision is not in the Code, it does not 

apply to transactions involving IRAs. 

ERISA section 406(b)(3) and Code 

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

from receiving any consideration for his 

own personal account from any party 

dealing with the plan or IRA in 

connection with a transaction involving 

assets of the plan or IRA. 

Parallel regulations issued by the 

Departments of Labor and the Treasury 

explain that these provisions impose on 

fiduciaries of plans and IRAs a duty not 

to act on conflicts of interest that may 

affect the fiduciary’s best judgment on 

behalf of the plan or IRA.11 The 

prohibitions extend to a fiduciary 

causing 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 as a 

fiduciary. Likewise, a fiduciary is 

prohibited from receiving compensation 

from third parties in connection with a 

transaction involving the plan or IRA, or 

from causing a person in which the 

fiduciary has an interest which may 

affect its best judgment as a fiduciary to 

receive such compensation.12 Given 

these prohibitions, conferring fiduciary 

status on particular investment advice 

activities can have important 

implications for many investment 

professionals. 

In particular, investment 

professionals typically receive 

compensation for services to retirement 

investors in the retail market through a 

variety of arrangements. These include 

commissions paid by the plan, 

participant or beneficiary, or IRA, or 

commissions, sales loads, 12b–1 fees, 

revenue sharing and other payments 

from third parties that provide 

investment products. The investment 

professional or its affiliate may receive 

such fees upon the purchase or sale by 

a plan, participant or beneficiary 

account, or IRA of the product, or while 

the plan, participant or beneficiary 

account, or IRA, holds the product. In 

the Department’s view, receipt by a 

fiduciary of such payments would 

violate the prohibited transaction 

provisions of ERISA section 406(b) and 

Code section 4975(c)(1)(E) and (F) 

because the amount of the fiduciary’s 

compensation is affected by the use of 

its authority in providing investment 

advice, unless such payments meet the 

requirements of an exemption. 

Prohibited Transaction Exemptions 

ERISA and the Code counterbalance 

the broad proscriptive effect of the 

prohibited transaction provisions with 

numerous statutory exemptions. For 

example, ERISA section 408(b)(14) and 

Code section 4975(d)(17) specifically 

exempt transactions in connection with 

the provision of fiduciary investment 

advice to a participant or beneficiary of 

an individual account plan or IRA 

owner where the advice, resulting 

transaction, and the adviser’s fees meet 

certain conditions. The Secretary of 

Labor may grant administrative 

exemptions under ERISA and the Code 

on an individual or class basis if the 

Secretary finds that the exemption is (1) 

administratively feasible, (2) in the 

interests of plans and their participants 

and beneficiaries and IRA owners, and 

(3) protective of the rights of the 

participants and beneficiaries of such 

plans and IRA owners. 

Over the years, the Department has 

granted several conditional 

administrative class exemptions from 

the prohibited transactions provisions of 

ERISA and the Code. The exemptions 

focus on specific types of compensation 

arrangements. Fiduciaries relying on 

these exemptions must comply with 

certain conditions designed to protect 

the interests of plans and IRAs. In 

connection with the development of the 

Proposed Regulation, the Department 

has considered comments suggesting the 

need for additional prohibited 

transaction exemptions for the wide 

variety of compensation structures that 

exist today in the marketplace for 

investments. Some commentators have 

suggested that the lack of such relief 

may cause financial professionals to cut 

back on the provision of investment 

advice and the availability of products 

to plan participants and beneficiaries, 

IRAs, and smaller plans. 

After consideration of the issue, the 

Department has determined to propose 

the new class exemption described 

below, which applies to investment 

advice fiduciaries providing advice to 

plan participants and beneficiaries, 

IRAs, and certain employee benefit 

plans with fewer than 100 participants 

(referred to as ‘‘retirement investors’’). 

The exemption would apply broadly to 

many common types of otherwise 

prohibited compensation that such 

investment advice fiduciaries may 

receive, provided the protective 

conditions of the exemption are 

satisfied. The Department is also 

seeking public comment on whether it 

should issue a separate streamlined 

exemption that would allow advisers to 

receive otherwise prohibited 

compensation in connection with 

advice to invest in certain high-quality 

low-fee investments, subject to fewer 

conditions. 

Elsewhere in this issue of the Federal 

Register, the Department is also 

proposing a new class exemption for 

‘‘principal transactions’’ for investment 

advice fiduciaries selling certain debt 

securities out of their own inventories to 

plans and IRAs. 

Lastly, the Department is also 

proposing, elsewhere in this issue of the 

Federal Register, amendments to the 

following existing class prohibited 

exemptions, which are particularly 

relevant to broker-dealers and other 

investment advice fiduciaries. 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21965 

13Class Exemption for Securities Transactions 

Involving Employee Benefit Plans and BrokerDealers, 51 FR 41686 (Nov. 18, 1986), amended at 

67 FR 64137 (Oct. 17, 2002). 

14Exemptions from Prohibitions Respecting 

Certain Classes of Transactions Involving Employee 

Benefit Plans and Certain Broker-Dealers, Reporting 

Dealers and Banks, 40 FR 50845 (Oct. 31, 1975), as 

amended at 71 FR 5883 (Feb. 3, 2006). 

15Class Exemption for Certain Transactions 

Involving Insurance Agents and Brokers, Pension 

Consultants, Insurance Companies, Investment 

Companies and Investment Company Principal 

Underwriters, 49 FR 13208 (Apr. 3, 1984), amended 

at 71 FR 5887 (Feb. 3, 2006). 

Prohibited Transaction Exemption 

(PTE) 86–128 13 currently allows an 

investment advice fiduciary to cause a 

plan or IRA to pay the investment 

advice fiduciary or its affiliate a fee for 

effecting or executing securities 

transactions as agent. To prevent 

churning, the exemption does not apply 

if such transactions are excessive in 

either amount or frequency. The 

exemption also allows the investment 

advice fiduciary to act as the agent for 

both the plan and the other party to the 

transaction (i.e., the buyer and the seller 

of securities), and receive a reasonable 

fee. To use the exemption, the fiduciary 

cannot be a plan administrator or 

employer, unless all profits earned by 

these parties are returned to the plan. 

The conditions of the exemption require 

that a plan fiduciary independent of the 

investment advice fiduciary receive 

certain disclosures and authorize the 

transaction. In addition, the 

independent fiduciary must receive 

confirmations and an annual ‘‘portfolio 

turnover ratio’’ demonstrating the 

amount of turnover in the account 

during that year. These conditions are 

not presently applicable to transactions 

involving IRAs. 

The Department is proposing to 

amend PTE 86–128 to require all 

fiduciaries relying on the exemption to 

adhere to the same impartial conduct 

standards required in the Best Interest 

Contract Exemption. At the same time, 

the proposed amendment would 

eliminate relief for investment advice 

fiduciaries to IRA owners; instead they 

would be required to rely on the Best 

Interest Contract Exemption for an 

exemption for such compensation. In 

the Department’s view, the provisions in 

the Best Interest Contract Exemption 

better address the interests of IRAs with 

respect to transactions otherwise 

covered by PTE 86–128 and, unlike plan 

participants and beneficiaries, there is 

no separate plan fiduciary in the IRA 

market to review and authorize the 

transaction. Investment advice 

fiduciaries to plans would remain 

eligible for relief under the exemption, 

as would investment managers with full 

investment discretion over the 

investments of plans and IRA owners, 

but they would be required to comply 

with all the protective conditions, 

described above. Finally, the 

Department is proposing that PTE 86– 

128 extend to a new covered 

transaction, for fiduciaries to sell 

mutual fund shares out of their own 

inventory (i.e. acting as principals, 

rather than agents) to plans and IRAs 

and to receive commissions for doing 

so. This transaction is currently the 

subject of another exemption, PTE 75– 

1, Part II(2) (discussed below) that the 

Department is proposing to revoke. 

Several changes are proposed with 

respect to PTE 75–1, a multi-part 

exemption for securities transactions 

involving broker-dealers and banks, and 

plans and IRAs.14 Part I(b) and (c) 

currently provide relief for certain nonfiduciary services to plans and IRAs. 

The Department is proposing to revoke 

these provisions, and require persons 

seeking to engage in such transactions to 

rely instead on the existing statutory 

exemptions provided in ERISA section 

408(b)(2) and Code section 4975(d)(2), 

and the Department’s implementing 

regulations at 29 CFR 2550.408b–2. In 

the Department’s view, the conditions of 

the statutory exemption are more 

appropriate for the provision of services. 

PTE 75–1, Part II(2), currently 

provides relief for fiduciaries to receive 

commissions for selling mutual fund 

shares to plans and IRAs in a principal 

transaction. As described above, the 

Department is proposing to provide 

relief for these types of transactions in 

PTE 86–128, and so is proposing to 

revoke PTE 75–1, Part II(2), in its 

entirety. As discussed in more detail in 

the notice of proposed amendment/

revocation, the Department believes the 

conditions of PTE 86–128 are more 

appropriate for these transactions. 

PTE 75–1, Part V, currently permits 

broker-dealers to extend credit to a plan 

or IRA in connection with the purchase 

or sale of securities. The exemption 

does not permit broker-dealers that are 

fiduciaries to receive compensation 

when doing so. The Department is 

proposing to amend PTE 75–1, Part V, 

to permit investment advice fiduciaries 

to receive compensation for lending 

money or otherwise extending credit to 

plans and IRAs, but only for the limited 

purpose of avoiding a failed securities 

transaction. 

PTE 84–24 15 covers transactions 

involving mutual fund shares, or 

insurance or annuity contracts, sold to 

plans or IRAs by pension consultants, 

insurance agents, brokers, and mutual 

fund principal underwriters who are 

fiduciaries as a result of advice they give 

in connection with these transactions. 

The exemption allows these investment 

advice fiduciaries to receive a sales 

commission with respect to products 

purchased by plans or IRAs. The 

exemption is limited to sales 

commissions that are reasonable under 

the circumstances. The investment 

advice fiduciary must provide 

disclosure of the amount of the 

commission and other terms of the 

transaction to an independent fiduciary 

of the plan or IRA, and obtain approval 

for the transaction. To use this 

exemption, the investment advice 

fiduciary may not have certain roles 

with respect to the plan or IRA such as 

trustee, plan administrator, or fiduciary 

with written authorization to manage 

the plan’s assets and employers. 

However it is available to investment 

advice fiduciaries regardless of whether 

they expressly acknowledge their 

fiduciary status or are simply functional 

or ‘‘inadvertent’’ fiduciaries that have 

not expressly agreed to act as fiduciary 

advisers, provided there is no written 

authorization granting them discretion 

to acquire or dispose of the assets of the 

plan or IRA. 

The Department is proposing to 

amend PTE 84–24 to require all 

fiduciaries relying on the exemption to 

adhere to the same impartial conduct 

standards required in the Best Interest 

Contract Exemption. At the same time, 

the proposed amendment would revoke 

PTE 84–24 in part so that investment 

advice fiduciaries to IRA owners would 

not be able to rely on PTE 84–24 with 

respect to (1) transactions involving 

variable annuity contracts and other 

annuity contracts that constitute 

securities under federal securities laws, 

and (2) transactions involving the 

purchase of mutual fund shares. 

Investment advice fiduciaries would 

instead be required to rely on the Best 

Interest Contract Exemption for 

compensation received in connection 

with these transactions. The Department 

believes that investment advice 

transactions involving annuity contracts 

that are treated as securities and 

transactions involving the purchase of 

mutual fund shares should occur under 

the conditions of the Best Interest 

Contract Exemption due to the 

similarity of these investments, 

including their distribution channels 

and disclosure obligations, to other 

investments covered in the Best Interest 

Contract Exemption. Investment advice 

fiduciaries to ERISA plans would 

remain eligible for relief under the 

exemption with respect to transactions 

involving all insurance and annuity 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21966 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

16See Section VIII(c) of the proposed exemption, 

defining the term ‘‘Asset,’’ and the preamble 

discussion in the ‘‘Scope of Relief in the Best 

Interest Contract Exemption’’ section below. 

17See Section VIII(c) of the proposed exemption. 

18While the Department uses the term 

‘‘Retirement Investor’’ throughout this document, 

the proposed exemption is not limited only to 

investment advice fiduciaries of employee pension 

benefit plans and IRAs. Relief would be available 

for investment advice fiduciaries of employee 

welfare benefit plans as well. 

19See Section VIII(a) of the proposed exemption. 

20See Section VIII(e) of the proposed exemption. 

21See Section VIII(b) and (k) of the proposed 

exemption. 

22See Section VIII(l) of the proposed exemption. 

contracts and mutual fund shares and 

the receipt of commissions allowable 

under that exemption. Investment 

advice fiduciaries to IRAs could still 

receive commissions for transactions 

involving non-securities insurance and 

annuity contracts, but they would be 

required to comply with all the 

protective conditions, described above. 

Finally, the Department is proposing 

amendments to certain other existing 

class exemptions to require adherence 

to the impartial conduct standards 

required in the Best Interest Contract 

Exemption. Specifically, PTEs 75–1, 

Part III, 75–1, Part IV, 77–4, 80–83, and 

83–1, would be amended. Other than 

the amendments described above, 

however, the existing class exemptions 

will remain in place, affording 

additional flexibility to fiduciaries who 

currently use the exemptions or who 

wish to use the exemptions in the 

future. The Department seeks comment 

on whether additional exemptions are 

needed in light of the Proposed 

Regulation. 

Proposed Best Interest Contract 

Exemption 

As noted above, the exemption 

proposed in this notice provides relief 

for some of the same compensation 

payments as the existing exemptions 

described above. It is intended, 

however, to flexibly accommodate a 

wide range of current business 

practices, while minimizing the harmful 

impact of conflicts of interest on the 

quality of advice. The exemption 

permits fiduciaries to continue to 

receive a wide variety of types of 

compensation that would otherwise be 

prohibited. It seeks to preserve 

beneficial business models by taking a 

standards-based approach that will 

broadly permit firms to continue to rely 

on common fee practices, as long as 

they are willing to adhere to basic 

standards aimed at ensuring that their 

advice is in the best interest of their 

customers. This standards-based 

approach stands in marked contrast to 

existing class exemptions that generally 

focus on very specific types of 

investments or compensation and take a 

highly prescriptive approach to 

specifying conditions. The proposed 

exemption would provide relief for 

common investments 16 of retirement 

investors under the umbrella of one 

exemption. It is intended that this 

updated approach will ease compliance 

costs and reduce complexity while 

promoting the provision of investment 

advice that is in the best interest of 

retirement investors. 

Section I of the proposed exemption 

would provide relief for the receipt of 

prohibited compensation by ‘‘Advisers,’’ 

‘‘Financial Institutions,’’ ‘‘Affiliates’’ 

and ‘‘Related Entities’’ for services 

provided in connection with a purchase, 

sale or holding of an ‘‘Asset’’ 17 by a 

plan or IRA as a result of the Adviser’s 

advice. The exemption also uses the 

term ‘‘Retirement Investor’’ to describe 

the types of persons who can be advice 

recipients under the exemption.18 These 

terms are defined in Section VIII of this 

proposed exemption. The following 

sections discuss these key definitional 

terms of the exemption as well as the 

scope and conditions of the proposed 

exemption. 

Entities Defined 

1. Adviser 

The proposed exemption 

contemplates that an individual person, 

an Adviser, will provide advice to the 

Retirement Investor. An Adviser must 

be an investment advice fiduciary of a 

plan or IRA who is an employee, 

independent contractor, agent, or 

registered representative of a ‘‘Financial 

Institution’’ (discussed in the next 

section), and the Adviser must satisfy 

the applicable federal and state 

regulatory and licensing requirements of 

insurance, banking, and securities laws 

with respect to the receipt of the 

compensation.19 Advisers may be, for 

example, registered representatives of 

broker-dealers registered under the 

Securities Exchange Act of 1934, or 

insurance agents or brokers. 

2. Financial Institutions 

For purposes of the proposed 

exemption, a Financial Institution is the 

entity that employs an Adviser or 

otherwise retains the Adviser as an 

independent contractor, agent or 

registered representative.20 Financial 

Institutions must be registered 

investment advisers, banks, insurance 

companies, or registered broker-dealers. 

3. Affiliates and Related Entities 

Relief is also proposed for the receipt 

of otherwise prohibited compensation 

by ‘‘Affiliates’’ and ‘‘Related Entities’’ 

with respect to the Adviser or Financial 

Institution.21 Affiliates are (i) any 

person directly or indirectly through 

one or more intermediaries, controlling, 

controlled by, or under common control 

with the Adviser or Financial 

Institution; (ii) any officer, director, 

employee, agent, registered 

representative, relative, member of 

family, or partner in, the Adviser or 

Financial Institution; and (iii) any 

corporation or partnership of which the 

Adviser or Financial Institution is an 

officer, director or employee or in which 

the Adviser or Financial Institution is a 

partner. For this purpose, ‘‘control’’ 

means the power to exercise a 

controlling influence over the 

management or policies of a person 

other than an individual. Related 

Entities are entities other than Affiliates 

in which an Adviser or Financial 

Institution has an interest that may 

affect their exercise of their best 

judgment as fiduciaries. 

4. Retirement Investor 

The proposed exemption uses the 

term ‘‘Retirement Investor’’ to describe 

the types of persons who can be 

investment advice recipients under the 

exemption. The Retirement Investor 

may be a plan participant or beneficiary 

with authority to direct the investment 

of assets in his or her plan account or 

to take a distribution; in the case of an 

IRA, the beneficial owner of the IRA 

(i.e., the IRA owner); or a plan sponsor 

(or an employee, officer or director 

thereof) of a non-participant-directed 

ERISA plan that has fewer than 100 

participants.22

Scope of Relief in the Best Interest 

Contract Exemption 

The Best Interest Contract Exemption 

set forth in Section I would provide 

prohibited transaction relief for the 

receipt by Advisers, Financial 

Institutions, Affiliates and Related 

Entities of a wide variety of 

compensation forms as a result of 

investment advice provided to the 

Retirement Investors, if the conditions 

of the exemption are satisfied. 

Specifically, Section I(b) of the 

proposed exemption provides that the 

exemption would permit an Adviser, 

Financial Institution and their Affiliates 

and Related Entities to receive 

compensation for services provided in 

connection with the purchase, sale or 

holding of an Asset by a plan, 

participant or beneficiary account, or 

IRA, as a result of an Adviser’s or 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21967 

23Relief is also proposed from ERISA section 

406(a)(1)(D) and Code section 4975(c)(1)(D), which 

prohibit transfer of plan assets to, or use of plan 

assets for the benefit of, a party in interest 

(including a fiduciary). 24See Section VIII(c) of the proposed exemption. 

Financial Institution’s investment 

advice to a Retirement Investor. 

The proposed exemption would apply 

to the restrictions of ERISA section 

406(b) and the sanctions imposed by 

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

of Code section 4975(c)(1)(E) and (F). 

These provisions prohibit conflict of 

interest transactions and receipt of 

third-party payments by investment 

advice fiduciaries.23 For relief to be 

available under the exemption, the 

Adviser and Financial Institution must 

comply with the applicable conditions, 

including entering into a contract that 

acknowledges fiduciary status and 

requires adherence to certain Impartial 

Conduct Standards. 

The types of compensation payments 

contemplated by this proposed 

exemption include commissions paid 

directly by the plan or IRA, as well as 

commissions, trailing commissions, 

sales loads, 12b–1 fees, and revenue 

sharing payments paid by the 

investment providers or other third 

parties to Advisers and Financial 

Institutions. The exemption also would 

cover other compensation received by 

the Adviser, Financial Institution or 

their Affiliates and Related Entities as a 

result of an investment by a plan, 

participant or beneficiary account, or 

IRA, such as investment management 

fees or administrative services fees from 

an investment vehicle in which the 

plan, participant or beneficiary account, 

or IRA invests. 

As proposed, the exemption is limited 

to otherwise prohibited compensation 

generated by investments that are 

commonly purchased by plans, 

participant and beneficiary accounts, 

and IRAs. Accordingly, the exemption 

defines the ‘‘Assets’’ that can be sold 

under the exemption as bank deposits, 

CDs, shares or interests in registered 

investment companies, bank collective 

funds, insurance company separate 

accounts, exchange-traded REITs, 

exchange-traded funds, corporate bonds 

offered pursuant to a registration 

statement under the Securities Act of 

1933, agency debt securities as defined 

in FINRA Rule 6710(l) or its successor, 

U.S. Treasury securities as defined in 

FINRA Rule 6710(p) or its successor, 

insurance and annuity contracts (both 

securities and non-securities), 

guaranteed investment contracts, and 

equity securities within the meaning of 

17 CFR 230.405 that are exchangetraded securities within the meaning of 

17 CFR 242.600. However, the 

definition does not encompass any 

equity security that is a security future 

or a put, call, straddle, or any other 

option or privilege of buying an equity 

security from or selling an equity 

security to another without being bound 

to do so.24

Prohibited compensation received for 

investments that fall outside the 

definition of Asset would not be 

covered by the exemption. Limiting the 

exemption in this manner ensures that 

the investments needed to build a basic 

diversified portfolio are available to 

plans, participant and beneficiary 

accounts, and IRAs, while limiting the 

exemption to those investments that are 

relatively transparent and liquid, many 

of which have a ready market price. The 

Department also notes that many 

investment types and strategies that 

would not be covered by the exemption 

can be obtained through pooled 

investment funds, such as mutual funds, 

that are covered by the exemption. 

Request for Comment. The 

Department requests comment on the 

proposed definition of Assets, in 

particular: 

• Do commenters agree we have 

identified all common investments of 

retail investors? 

• Have we defined individual 

investment products with enough 

precision that parties will know if they 

are complying with this aspect of the 

exemption? 

• Should additional investments be 

included in the scope of the exemption? 

Commenters urging addition of other 

investment products should fully 

describe the characteristics and fee 

structures associated with the products, 

as well as data supporting their position 

that the product is a common 

investment for retail investors. 

The Department encourages parties to 

apply to the Department for individual 

or class exemptions for types of 

investments not covered by the 

exemption to the extent that they 

believe the proposed package of 

exemptions does not adequately cover 

beneficial investment practices for 

which appropriate protections could be 

crafted in an exemption. 

Limitation to Prohibited Compensation 

Received As a Result of Advice to 

Retirement Investors 

The Department proposed this 

exemption to promote the provision of 

investment advice to retail investors 

that is in their best interest and 

untainted by conflicts of interest. The 

exemption would permit receipt by 

Advisers and Financial Institutions of 

otherwise prohibited compensation 

commonly received in the retail market, 

such as commissions, 12b–1 fees, and 

revenue sharing payments, subject to 

conditions designed specifically to 

protect the interests of the investors. For 

consistency with these objectives, the 

exemption would apply to the receipt of 

such compensation by Advisers, 

Financial Institutions and their 

Affiliates and Related Entities only 

when advice is provided to retail 

Retirement Investors, including plan 

participants and beneficiaries, IRA 

owners, and plan sponsors (including 

the sponsor’s employees, officers, and 

directors) acting on behalf of nonparticipant-directed plans that have 

fewer than 100 participants. As 

discussed in the preamble to the 

Proposed Regulation and in the 

associated Regulatory Impact Analysis, 

these investors are particularly 

vulnerable to abuse. The proposed 

exemption is designed to protect these 

investors from the harmful impact of 

conflicts of interest, while minimizing 

the potential disruption to a retail 

market that relies upon many forms of 

compensation that ERISA would 

otherwise prohibit. 

The Department believes that 

investment advice in the institutional 

market is best addressed through other 

approaches. Accordingly, the proposed 

exemption does not extend to 

transactions involving certain larger 

ERISA plans—those with more than 100 

participants. Advice providers to these 

plans are already accustomed to 

operating in a fiduciary environment 

and within the framework of existing 

prohibited transaction exemptions, 

which tightly constrain the operation of 

conflicts of interest. As a result, 

including large plans within the 

definition of Retirement Investor could 

have the undesirable consequence of 

reducing protections provided under 

existing law to these investors, without 

offsetting benefits. In particular, it could 

have the undesirable effect of increasing 

the number and impact of conflicts of 

interest, rather than reducing or 

mitigating them. 

While the Department believes that 

the Best Interest Contract Exemption is 

not the appropriate way to address any 

potential concerns about the impact of 

the expanded fiduciary definition on 

large plans, the Department agrees that 

an adjustment is necessary to 

accommodate arm’s length transactions 

with plan investors with financial 

expertise. Accordingly, as part of this 

regulatory project, the Department has 

separately proposed a seller’s carve-out 

in the Proposed Conflict of Interest 

Regulation. Under the terms of that 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21968 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

25The Department notes that plan participants 

and beneficiaries in ERISA plans can be Retirement 

Investors regardless of the number of participants 

in such plan. Therefore, the 100-participant 

limitation does not apply when advice is provided 

directly to the participants and beneficiaries. 

26See Section VIII(f), defining the term 

‘‘Independent.’’ 27For purposes of this proposed exemption, 

however, the Department does not view a riskless 

principal transaction involving mutual fund shares 

as an excluded principal transaction. 

carve-out, persons who provide 

recommendations to certain ERISA plan 

investors with financial expertise (but 

not to plan participants or beneficiaries, 

or IRA owners) can avoid fiduciary 

status altogether. The seller’s carve-out 

was developed to avoid the application 

of fiduciary status to a plan’s 

counterparty in an arm’s length 

commercial transaction in which the 

plan’s representative has no reasonable 

expectation of impartial advice. When 

the carve-out’s terms are satisfied, it is 

available for transactions with plans 

that have more than 100 participants. 

The Department recognizes, however, 

that there are smaller non-participantdirected plans for which the plan 

sponsor (or an employee, officer or 

director thereof) is responsible for 

choosing the specific investments and 

allocations for their participating 

employees. The Department believes 

that these small plan fiduciaries are 

appropriately categorized with plan 

participants and beneficiaries and IRA 

owners, as retail investors. For this 

reason, the proposed exemption’s 

definition of Retirement Investor 

includes plan sponsors (or employees, 

officers and directors thereof) of plans 

with fewer than 100 participants.25 As 

a result, the exemption would extend to 

advice providers to such smaller plans. 

The proposed threshold of fewer than 

100 participants is intended to 

reasonably identify plans that will most 

benefit from both the flexibility 

provided by this exemption and the 

protections embodied in its conditions. 

The threshold also mirrors the Proposed 

Regulations’ 100-or-more participant 

threshold for the seller’s carve-out. That 

threshold recognizes the generally 

greater sophistication possessed by 

larger plans’ discretionary fiduciaries, as 

well as the greater vulnerability of retail 

investors, such as small plans. As 

explained in more detail in the 

preamble to the Proposed Regulation, 

investment recommendations to small 

plans, IRA owners and plan participants 

and beneficiaries do not fit the ‘‘arms 

length’’ characteristics that the seller’s 

carve-out is designed to preserve. 

Recommendations to retail investors are 

routinely presented as advice, 

consulting, or financial planning 

services. In the securities markets, 

brokers’ suitability obligations generally 

require a significant degree of 

individualization, and research has 

shown that disclaimers are ineffective in 

alerting typically unsophisticated 

investors to the dangers posed by 

conflicts of interest, and may even 

exacerbate the dangers. Most retail 

investors lack financial expertise, are 

unaware of the magnitude and impact of 

conflicts of interest, and are unable 

effectively to assess the quality of the 

advice they receive. 

The 100 or more threshold is also 

consistent with that applicable for 

similar purposes under existing rules 

and practices. The Regulatory 

Flexibility Act (5 U.S.C. 601 et seq.) 

(RFA) imposes certain requirements 

with respect to Federal rules that are 

subject to the notice and comment 

requirements of section 553(b) of the 

Administrative Procedure Act (5 U.S.C. 

551 et seq.) and which are likely to have 

a significant economic impact on a 

substantial number of small entities. For 

purposes of the RFA, the Department 

considers a small entity to be an 

employee benefit plan with fewer than 

100 participants. The basis of this 

definition is found in section 104(a)(2) 

of ERISA that permits the Secretary of 

Labor to prescribe simplified annual 

reports for pension plans that cover 

fewer than 100 participants. Under 

current Department rules, such small 

plans generally are eligible for 

streamlined reporting and relieved of 

related audit requirements. 

The Department invites comment on 

the proposed exemption’s limitation to 

prohibited compensation received as a 

result of advice to Retirement Investors. 

In particular, we ask whether 

commenters support the limitation as 

currently formulated, whether the 

definitions should be revised, or 

whether there should not be an 

exclusion with respect to such larger 

plans at all. Commenters on this subject 

are also encouraged to address the 

interaction of the exemption’s limitation 

with the scope of the seller’s carve-out 

in the Proposed Regulation. Finally, we 

request comment on whether the 

exemption should be expanded to cover 

advice to plan sponsors (including the 

sponsor’s employees, officers, and 

directors) of participant-directed plans 

with fewer than 100 participants on the 

composition of the menu of investment 

options available under such plans, and 

if so, whether additional or different 

conditions should apply. 

Exclusions in Section I(c) of the 

Proposed Exemption 

Section I(c) of the proposal sets forth 

additional exclusions from the 

exemption. Section I(c)(1) provides that 

the exemption would not apply to the 

receipt of prohibited compensation from 

a transaction involving an ERISA plan if 

the Adviser, Financial Institution or 

Affiliate is the employer of employees 

covered by the ERISA plan. The 

Department believes that due to the 

special nature of the employer/

employee relationship, an exemption 

permitting an Adviser and Financial 

Institution to profit from investments by 

employees in their employer-sponsored 

plan would not be in the interest of, or 

protective of, the plans and their 

participants and beneficiaries. This 

restriction does not apply, however, in 

the case of an IRA or other similar plan 

that is not covered by Title I of ERISA. 

Accordingly, an Adviser or Financial 

Institution may provide advice to the 

beneficial owner of an IRA who is 

employed by the Adviser, its Financial 

Institution or an Affiliate, and receive 

prohibited compensation as a result, 

provided the IRA is not covered by Title 

I of ERISA. 

Section I(c)(1) further provides that 

the exemption does not apply if the 

Adviser or Financial Institution is a 

named fiduciary or plan administrator, 

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

with respect to an ERISA plan, or an 

affiliate thereof, that was selected to 

provide advice to the plan by a fiduciary 

who is not independent of them.26 This 

provision is intended to disallow 

selection of Advisers and Financial 

Institutions by named fiduciaries or 

plan administrators that have an interest 

in them. 

Section I(c)(2) provides that the 

exemption does not extend to 

prohibited compensation received when 

the Adviser engages in a principal 

transaction with the plan, participant or 

beneficiary account, or IRA.27 A 

principal transaction is a transaction in 

which the Adviser engages in a 

transaction with the plan, participant or 

beneficiary account, or IRA, on behalf of 

the account of the Financial Institution 

or another person directly or indirectly, 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with the Financial 

Institution. Principal transactions 

involve conflicts of interest not 

addressed by the safeguards of this 

proposed exemption. Elsewhere in 

today’s Federal Register, the 

Department is proposing an exemption 

for investment advice fiduciaries to 

engage in principal transactions 

involving certain debt securities. The 

proposed exemption for principal 

transactions contains conditions 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21969 

28See also Section VIII(a), defining the term 

‘‘Adviser.’’ 

specific to those transactions but is 

designed to align with this proposed 

exemption so as to ease parties’ ability 

to comply with both exemptions with 

respect to the same investor. 

Section I(c)(3) provides that the 

exemption would not cover prohibited 

compensation that is received by an 

Adviser or Financial Institution as a 

result of investment advice that is 

generated solely by an interactive Web 

site in which computer software-based 

models or applications provide 

investment advice to Retirement 

Investors based on personal information 

each investor supplies through the Web 

site without any personal interaction or 

advice from an individual Adviser. 

Such computer derived advice is often 

referred to as ‘‘robo-advice.’’ While the 

Department believes that computer 

generated advice that is delivered in this 

manner may be very useful to 

Retirement Investors, relief will not be 

included in the proposal. As the 

marketplace for such advice is still 

evolving in ways that both appear to 

avoid conflicts of interest that would 

violate the prohibited transaction rules, 

and minimize cost, the Department 

believes that inclusion of such advice in 

this exemption could adversely modify 

the incentives currently shaping the 

market for robo-advice. Furthermore, a 

statutory prohibited transaction 

exemption at ERISA section 408(g) 

covers computer-generated investment 

advice and is available for robo-advice 

involving prohibited transactions if its 

conditions are satisfied. See 29 CFR 

2550.408g–1. 

Finally, Section I(c)(4) provides that 

the exemption is limited to Advisers 

who are fiduciaries by reason of 

providing investment advice.28 Advisers 

who have full investment discretion 

with respect to plan or IRA assets or 

who have discretionary authority over 

the administration of the plan or IRA, 

for example, are not affected by the 

Proposed Regulation and are therefore 

not the subject of this exemption. 

Conditions of the Proposed Exemption 

Sections II–V of the proposal list the 

conditions applicable to the Best 

Interest Contract Exemption described 

in Section I. All applicable conditions 

must be satisfied in order to avoid 

application of the specified prohibited 

transaction provisions of ERISA and the 

Code. The Department believes that 

these conditions are necessary for the 

Secretary to find that the exemption is 

administratively feasible, in the 

interests of plans and of their 

participants and beneficiaries, and IRA 

owners and protective of the rights of 

the participants and beneficiaries of 

such plans and IRA owners. Under 

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

section 4975(c)(2), the Secretary may 

not grant an exemption without making 

such findings. The proposed conditions 

of the exemption are described below. 

Contractual Obligations Applicable to 

the Best Interest Contract Exemption 

(Section II) 

Section II(a) of the proposal requires 

that an Adviser and Financial 

Institution enter into a written contract 

with the Retirement Investor prior to 

recommending that the plan, participant 

or beneficiary account, or IRA, 

purchase, sell or hold an Asset. The 

contract must be executed by both the 

Adviser and the Financial Institution as 

well as the Retirement Investor. In the 

case of advice provided to a plan 

participant or beneficiary in a 

participant-directed individual account 

plan, the participant or beneficiary 

should be the Retirement Investor that 

is the party to the contract, on behalf of 

his or her individual account. 

The contract may be part of a master 

agreement with the Retirement Investor 

and does not require execution prior to 

each additional recommendation to 

purchase, sell or hold an Asset. The 

exemption, in particular the 

requirement to adhere to a best interest 

standard, does not mandate an ongoing 

or long-term advisory relationship, but 

rather leaves that to the parties. The 

terms of the contract, along with other 

representations, agreements, or 

understandings between the Adviser, 

Financial Institution and Retirement 

Investor, will govern whether the nature 

of the relationship between the parties 

is ongoing or not. 

The contract is the cornerstone of the 

proposed exemption, and the 

Department believes that by requiring a 

contract as a condition of the proposed 

exemption, it creates a mechanism by 

which a Retirement Investor can be 

alerted to the Adviser’s and Financial 

Institution’s obligations and be provided 

with a basis upon which its rights can 

be enforced. In order to comply with the 

exemption, the contract must contain 

every required element set forth in 

Section II(b)–(e) and also must not 

include any of the prohibited provisions 

described in Section II(f). It is intended 

that the contract creates actionable 

obligations with respect to both the 

Impartial Conduct Standards and the 

warranties, described below. In 

addition, failure to satisfy the Impartial 

Conduct Standards will result in loss of 

the exemption. 

It should be noted, however, that 

compliance with the exemption’s 

conditions is necessary only with 

respect to transactions that otherwise 

would constitute prohibited 

transactions under ERISA and the Code. 

The exemption does not purport to 

impose conditions on the management 

of investments held outside of ERISAcovered plans and IRAs. Accordingly, 

the contract and its conditions are 

mandatory only with respect to 

investments held by plans and IRAs. 

1. Fiduciary Status 

The proposal sets forth multiple 

contractual requirements. The first and 

most fundamental contractual 

requirement, which is set out in Section 

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

Adviser and Financial Institution must 

acknowledge fiduciary status under 

ERISA or the Code, or both, with respect 

to any recommendations to the 

Retirement Investor to purchase, sell or 

hold an Asset. If this acknowledgment 

of fiduciary status does not appear in a 

contract with a Retirement Investor, the 

exemption is not satisfied with respect 

to transactions involving that 

Retirement Investor. This fiduciary 

acknowledgment is critical to ensuring 

that there is no uncertainty—before or 

after investment advice is given with 

regard to the Asset—that both the 

Adviser and Financial Institution are 

acting as fiduciaries under ERISA and 

the Code with respect to that advice. 

The acknowledgment of fiduciary 

status in the contract is nonetheless 

limited to the advice to the Retirement 

Investor to purchase, sell or hold the 

Asset. The Adviser and Financial 

Institution do not become fiduciaries 

with respect to any other conduct by 

virtue of this contractual requirement. 

2. Standards of Impartial Conduct 

Building upon the required 

acknowledgment of fiduciary status, the 

proposal additionally requires that both 

the Adviser and the Financial 

Institution contractually commit to 

adhering to certain specifically 

delineated Impartial Conduct Standards 

when providing investment advice to 

the Retirement Investor regarding 

Assets, and that they in fact do adhere 

to such standards. Therefore, if an 

Adviser and/or Financial Institution fail 

to comply with the Impartial Conduct 

Standards, relief under the exemption is 

no longer available and the contract is 

violated. 

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

proposal requires that under the 

contract the Adviser and Financial 

Institution provide advice regarding 

Assets that is in the ‘‘best interest’’ of 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21970 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

29See Section VIII(h) of the proposed exemption. 

the Retirement Investor. Best interest is 

defined to mean that the Adviser and 

Financial Institution act with the care, 

skill, prudence, and diligence under the 

circumstances then prevailing that a 

prudent person would exercise based on 

the investment objectives, risk 

tolerance, financial circumstances, and 

the needs of the Retirement Investor, 

when providing investment advice to 

them. Further, under the best interest 

standard, the Adviser and Financial 

Institution must act without regard to 

the financial or other interests of the 

Adviser, Financial Institution or their 

Affiliates or any other party. Under this 

standard, the Adviser and Financial 

Institution must put the interests of the 

Retirement Investor ahead of the 

financial interests of the Adviser, 

Financial Institution or their Affiliates, 

Related Entities or any other party. 

The best interest standard set forth in 

this exemption is based on longstanding 

concepts derived from ERISA and the 

law of trusts. For example, ERISA 

section 404 requires a fiduciary to act 

‘‘solely in the interest of the participants 

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

diligence under the circumstances then 

prevailing that a prudent man acting in 

a like capacity and familiar with such 

matters would use in the conduct of an 

enterprise of a like character and with 

like aims.’’ Similarly, both ERISA 

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

duty of loyalty require fiduciaries to put 

the interests of trust beneficiaries first, 

without regard to the fiduciaries’ own 

self-interest. Accordingly, the 

Department would expect the standard 

to be interpreted in light of forty years 

of judicial experience with ERISA’s 

fiduciary standards and hundreds more 

with the duties imposed on trustees 

under the common law of trusts. In 

general, courts focus on the process the 

fiduciary used to reach its 

determination or recommendation— 

whether the fiduciaries, ‘‘at the time 

they engaged in the challenged 

transactions, employed the proper 

procedures to investigate the merits of 

the investment and to structure the 

investment.’’ Donovan v. Mazzola, 716 

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

Moreover, a fiduciary’s investment 

recommendation is measured based on 

the circumstances prevailing at the time 

of the transaction, not on how the 

investment turned out with the benefit 

of hindsight. 

In this regard, the Department notes 

that while fiduciaries of plans covered 

by ERISA are subject to the ERISA 

section 404 standards of prudence and 

loyalty, the Code contains no provisions 

that hold IRA fiduciaries to these 

standards. However, as a condition of 

relief under the proposed exemption, 

both IRA and plan fiduciaries would 

have to agree to, and uphold, the best 

interest and Impartial Conduct 

Standards, as set forth in Section II(c). 

The best interest standard is defined to 

effectively mirror the ERISA section 404 

duties of prudence and loyalty, as 

applied in the context of fiduciary 

investment advice. 

In addition to the best interest 

standard, the exemption imposes other 

important standards of impartial 

conduct in Section II(c) of the proposal. 

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

and Financial Institution agree that they 

will not recommend an Asset if the total 

amount of compensation anticipated to 

be received by the Adviser, Financial 

Institution, and their Affiliates and 

Related Entities in connection with the 

purchase, sale or holding of the Asset by 

the plan, participant or beneficiary 

account, or IRA, will exceed reasonable 

compensation in relation to the total 

services they provide to the applicable 

Retirement Investor. The obligation to 

pay no more than reasonable 

compensation to service providers is 

long recognized under ERISA. See 

ERISA section 408(b)(2), 29 CFR 

2550.408b–2(a)(3), and 29 CFR 

2550.408c–2. The reasonableness of the 

fees depends on the particular facts and 

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

requires that the Adviser’s and 

Financial Institution’s statements about 

Assets, fees, material conflicts of 

interest, and any other matters relevant 

to a Retirement Investor’s investment 

decisions, not be misleading. 

Under ERISA section 408(a) and Code 

section 4975(c), the Department cannot 

grant an exemption unless it first finds 

that the exemption is administratively 

feasible, in the interests of plans and 

their participants and beneficiaries and 

IRA owners, and protective of the rights 

of participants and beneficiaries of 

plans and IRA owners. An exemption 

permitting transactions that violate the 

requirements of Section II(c) would be 

unlikely to meet these standards. 

3. Warranty—Compliance With 

Applicable Law 

Section II(d) of the proposal requires 

that the contract include certain 

warranties intended to be protective of 

the rights of Retirement Investors. In 

particular, to satisfy the exemption, the 

Adviser, and Financial Institution must 

warrant that they and their Affiliates 

will comply with all applicable federal 

and state laws regarding the rendering 

of the investment advice, the purchase, 

sale or holding of the Asset and the 

payment of compensation related to the 

purchase, sale and holding. Although 

this warranty must be included in the 

contract, the exemption is not 

conditioned on compliance with the 

warranty. Accordingly, the failure to 

comply with applicable federal or state 

law could result in contractual liability 

for breach of warranty, but it would not 

result in loss of the exemption, as long 

as the breach did not involve a violation 

of one of the exemption’s other 

conditions (e.g., the best interest 

standard). De minimis violations of state 

or federal law would be unlikely to 

violate the exemption’s other 

conditions, such as the best interest 

standard, and would not typically result 

in the loss of the exemption. 

4. Warranty—Policies and Procedures 

The Financial Institution must also 

contractually warrant that it has 

adopted written policies and procedures 

that are reasonably designed to mitigate 

the impact of material conflicts of 

interest that exist with respect to the 

provision of investment advice to 

Retirement Investors and ensure that 

individual Advisers adhere to the 

Impartial Conduct Standards described 

above. For purposes of the exemption, a 

material conflict of interest is deemed to 

exist when an Adviser or Financial 

Institution has a financial interest that 

could affect the exercise of its best 

judgment as a fiduciary in rendering 

advice to a Retirement Investor 

regarding an Asset.29 Like the warranty 

on compliance with applicable law, 

discussed above, this warranty must be 

in the contract but the exemption is not 

conditioned on compliance with the 

warranty. Failure to comply with the 

warranty could result in contractual 

liability for breach of warranty. 

As part of the contractual warranty on 

policies and procedures, the Financial 

Institution must state that in 

formulating its policies and procedures, 

it specifically identified material 

conflicts of interest and adopted 

measures to prevent those material 

conflicts of interest from causing 

violations of the Impartial Conduct 

Standards. Further, the Financial 

Institution must state that neither it nor 

(to the best of its knowledge) its 

Affiliates or Related Entities will use 

quotas, appraisals, performance or 

personnel actions, bonuses, contests, 

special awards, differentiated 

compensation or other actions or 

incentives to the extent they would tend 

to encourage individual Advisers to 

make recommendations that are not in 

the best interest of Retirement Investors. 

While these warranties must be part 

of the contract between the Adviser and 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21971 

30These examples should not be read as 

retracting views the Department expressed in prior 

Advisory Opinions regarding how an investment 

advice fiduciary could avoid prohibited 

transactions that might result from differential 

compensation arrangements. Specifically, in 

Advisory Opinion 2001–09A, the Department 

concluded that the provision of fiduciary 

investment advice would not result in prohibited 

transactions under circumstances where the advice 

provided by the fiduciary with respect to 

investment funds that pay additional fees to the 

fiduciary is the result of the application of 

methodologies developed, maintained and overseen 

by a party independent of the fiduciary in 

accordance with the conditions set forth in the 

Advisory Opinion. A computer model also can be 

used as part of an advice arrangement that satisfies 

the conditions under the prohibited transaction 

exemption in ERISA section 408(b)(14) and (g), 

described above. 

31As previously noted, this exemption is not 

available for advice generated solely by a computer 

model and provided to the Retirement Investor 

electronically without live advice. Nevertheless, 

this exemption remains available in the 

hypothetical because the advice is delivered by a 

live Adviser. 

32See footnote 31 supra. Certain types of feeoffset arrangements may result in avoidance of 

prohibited transactions altogether. In Advisory 

Opinion Nos. 97–15A and 2005–10A, the 

Department explained that a fiduciary investment 

adviser could provide investment advice to a plan 

with respect to investment funds that pay it or an 

affiliate additional fees without engaging in a 

prohibited transaction if those fees are offset against 

fees that the plan otherwise is obligated to pay to 

the fiduciary. 

Financial Institution and the Retirement 

Investor, the proposal does not mandate 

the specific content of the policies and 

procedures. This flexibility is intended 

to allow Financial Institutions to 

develop policies and procedures that are 

effective for their particular business 

models, within the constraints of their 

fiduciary obligations and the Impartial 

Conduct Standards. 

Under the proposal, a Financial 

Institution’s policies and procedures 

must not authorize compensation or 

incentive systems that would tend to 

encourage individual Advisers to make 

recommendations that are not in the 

best interest of Retirement Investors. 

Consistent with the general approach in 

the proposal to the Financial 

Institution’s policies and procedures, 

however, there are no particular 

required compensation or employment 

structures. Certainly, one way for a 

Financial Institution to comply is to 

adopt a ‘‘level-fee’’ structure, in which 

compensation for Advisers does not 

vary based on the particular investment 

product recommended. But the 

exemption does not mandate such a 

structure. The Department believes that 

the specific implementation of this 

requirement is best determined by the 

Financial Institution in light of its 

particular circumstances and business 

models. 

For further clarification, the 

Department sets forth the following 

examples of broad approaches to 

compensation structures that could help 

satisfy the contractual warranty 

regarding the policies and procedures. 

In connection with all these examples, 

it is important that the Financial 

Institution carefully monitor whether 

the policies and procedures are, in fact, 

working to prevent the provision of 

biased advice. The Financial Institution 

must correct isolated or systemic 

violations of the Impartial Conduct 

Standards and reasonably revise 

policies and procedures when failures 

are identified. 

Example 1: Independently certified 

computer models.30 The Adviser provides 

investment advice that is in accordance with 

an unbiased computer model created by an 

independent third party. Under this example, 

the Adviser can receive any form or amount 

of compensation so long as the advice is 

rendered in strict accordance with the 

model.31

Example 2: Asset-based compensation. The 

Financial Institution pays the Adviser a 

percentage, which does not vary based on the 

types of investments, of the dollar amount of 

assets invested by the plans, participant and 

beneficiary accounts, and IRAs with the 

Adviser. Under this example, assume the 

Financial Institution established the 

percentage as 0.1% on a quarterly basis. If a 

plan, participant or beneficiary account, or 

IRA, invested a total of $10,000 with the 

Adviser, divided 25% in equity securities, 

50% in proprietary mutual funds, and 25% 

in bonds underwritten by non-Related 

Entities, and did not withdraw any of the 

money within the quarter, the Adviser would 

receive 0.1% of the $10,000. 

Example 3: Fee offset. The Financial 

Institution establishes a fee schedule for its 

services. It accepts transaction-based 

payments directly from the plan, participant 

or beneficiary account, or IRA, and/or from 

third party investment providers. To the 

extent the payments from third party 

investment providers exceed the established 

fee for a particular service, such amounts are 

rebated to the plan, participant or beneficiary 

account, or IRA. To the extent third party 

payments do not satisfy the established fee, 

the plan, participant or beneficiary account, 

or IRA is charged directly for the remaining 

amount due.32

Example 4: Differential Payments Based 

on Neutral Factors. The Financial Institution 

establishes payment structures under which 

transactions involving different investment 

products result in differential compensation 

to the Adviser based on a reasonable 

assessment of the time and expertise 

necessary to provide prudent advice on the 

product or other reasonable and objective 

neutral factors. For example, a Financial 

Institution could compensate an Adviser 

differently for advisory work relating to 

annuities, as opposed to shares in a mutual 

fund, if it reasonably determined that the 

time to research and explain the products 

differed. However, the payment structure 

must be reasonably designed to avoid 

incentives to Advisers to recommend 

investment transactions that are not in 

Retirement Investors’ best interest. 

Example 5: Alignment of Interests. The 

Financial Institution’s policies and 

procedures establish a compensation 

structure that is reasonably designed to align 

the interests of the Adviser with the interests 

of the Retirement Investor. For example, this 

might include compensation that is primarily 

asset-based, as discussed in Example 2, with 

the addition of bonuses and other incentives 

paid to promote advice that is in the Best 

Interest of the Retirement Investor. While the 

compensation would be variable, it would 

align with the customer’s best interest. 

These examples are not exhaustive, 

and many other compensation and 

employment arrangements may satisfy 

the contractual warranties. The 

exemption imposes a broad standard for 

the warranty and policies and 

procedures requirement, not an 

inflexible and highly-prescriptive set of 

rules. The Financial Institution retains 

the latitude necessary to design its 

compensation and employment 

arrangements, provided that those 

arrangements promote, rather than 

undermine, the best interest and 

Impartial Conduct Standards. 

Whether a Financial Institution 

adopts one of the specific approaches 

taken in the examples above or a 

different approach, the Department 

expects that it will engage in a good 

faith process to prudently establish and 

oversee policies and procedures that 

will effectively mitigate conflicts of 

interest and ensure adherence to the 

Impartial Conduct Standards. To this 

end, Financial Institutions may also 

want to consider designating an 

individual or group responsible for 

addressing material conflicts of interest 

issues. An internal compliance officer or 

a committee could monitor adherence to 

the Impartial Conduct Standards and 

consider ways to ensure compliance. 

The individual or group could also 

develop procedures for reporting 

material conflicts of interest and for 

handling external and internal 

complaints within the Financial 

Institution, and disciplinary measures 

for non-compliance with the Impartial 

Conduct Standards. Additionally, 

Financial Institutions should consider 

how best to inform and train individual 

Advisers on the Impartial Conduct 

Standards and other requirements of the 

exemption. 

Additionally, Financial Institutions 

could consider the following 

components of effective policies and 

procedures relating to an Adviser’s 

compensation: (i) Avoiding creating 

compensation thresholds that enable an 

Adviser to increase his or her 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21972 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

33See FINRA Report on Conflicts of Interest, 

October 2013. 

34To the extent compliance with this information 

request requires Advisers and Financial Institutions 

to obtain such information from entities that are not 

closely affiliated with them, the Adviser or 

Financial Institution may supply such information 

to the Retirement Investor in compliance with the 

exemption provided the Adviser and Financial 

Institution act in good faith and do not know that 

the materials are incomplete or inaccurate. For 

purposes of the proposed exemption, Affiliates 

within the meaning of Section VIII(b)(1) and (2) are 

considered closely affiliated such that the good 

faith reliance would not apply. 

compensation disproportionately 

through an incremental increase in 

sales; (ii) monitoring activity of 

Advisers approaching compensation 

thresholds such as higher payout 

percentages, back-end bonuses, or 

participation in a recognition club, such 

as a President’s Club; (iii) maintaining 

neutral compensation grids that pay the 

Adviser a flat payout percentage 

regardless of product type sold (so long 

as they do not merely transmit the 

Financial Institution’s conflicts to the 

Adviser); (iv) refraining from providing 

higher compensation or other rewards 

for the sale of proprietary products or 

products for which the firm has entered 

into revenue sharing arrangements; (v) 

stringently monitoring 

recommendations around key liquidity 

events in the investor’s lifecycle where 

the recommendation is particularly 

significant (e.g. when an investor rolls 

over his pension or 401(k) account); and 

(vi) developing metrics for good and bad 

behavior (red flag processes) and using 

clawbacks of deferred compensation to 

adjust compensation for employees who 

do not properly manage conflicts of 

interest.33

The Department seeks comments on 

all aspects of its discussion of the sorts 

of policies and procedures that will 

satisfy the required contractual 

warranties of Section II(d)(2)–(4). In 

particular, the Department requests 

comments on whether the exemption 

should be more prescriptive about the 

terms of policies and procedures, or 

provide more detailed examples of 

acceptable policies and procedures. In 

addition, the Department requests 

comments on whether commenters 

believe the examples describe policies 

and procedures that would achieve the 

investor-protective objectives of the 

exemption. 

5. Contractual Disclosures 

Finally, Section II(e) of the proposal 

requires certain disclosures in the 

written contract. If the disclosures do 

not appear in a contract with a 

Retirement Investor, the exemption is 

not satisfied with respect to transactions 

involving that Retirement Investor. 

First, Section II(e)(1) provides that the 

Financial Institution and the Adviser 

must identify in the written contract any 

material conflicts of interest. This 

disclosure may be a general description 

of the types of material conflicts of 

interest applicable to the Financial 

Institution and Adviser, provided the 

disclosure also informs the Retirement 

Investor that a more specific description 

that is kept current is available on the 

Financial Institution’s Web site (web 

address provided) and by mail, upon 

request of the Retirement Investor. 

Second, Section II(e)(2) requires that 

the written contract must inform the 

Retirement Investor of the right to 

obtain complete information about all of 

the fees currently associated with the 

Assets in which it is invested, including 

all of the fees payable to the Adviser, 

Financial Institution, and any Affiliates 

and Related Entities in connection with 

such investments. The fee information 

must be complete, and it must include 

both the direct and the indirect fees 

paid by the plan or IRA.34 Section 

II(e)(3) provides that the written 

contract also must disclose to the 

Retirement Investor whether the 

Financial Institution offers proprietary 

products or receives third party 

payments with respect to the purchase, 

sale or holding of any Asset. Third party 

payments, for purposes of this 

exemption, are defined as sales charges 

(when not paid directly by the plan, 

participant or beneficiary account, or 

IRA), 12b–1 fees, and other payments 

paid to the Adviser, Financial 

Institution or any Affiliate or Related 

Entity by a third party as a result of the 

purchase, sale or holding of an Asset by 

a plan, participant or beneficiary 

account, or IRA. A proprietary product 

is defined for purposes of this 

exemption as a product that is managed 

by the Financial Institution or any of its 

Affiliates. In conjunction with this 

disclosure, the contract must provide 

the address of a Web page that discloses 

the compensation arrangements entered 

into by the Adviser and the Financial 

Institution, as required by Section III(c) 

of the proposal and discussed below. 

Enforcement of the Contractual 

Obligations 

The contractual requirements set forth 

in Section II of the proposal are 

enforceable. Plans, plan participants 

and beneficiaries, IRA owners, and the 

Department may use the contract as a 

tool to ensure compliance with the 

exemption. The Department notes, 

however, that this contractual tool 

creates different rights with respect to 

plans, participants and beneficiaries, 

IRA owners and the Department. 

1. IRA Owners 

The contract between the IRA owner 

and the Adviser and Financial 

Institution forms the basis of the IRA 

owner’s enforcement rights. As outlined 

above, the contract embodies obligations 

on the part of the Adviser and Financial 

Institution. The Department intends that 

all the contractual obligations (the 

Impartial Conduct Standards and the 

warranties) will be actionable by IRA 

owners. The most important of these 

contractual obligations for enforcement 

purposes is the obligation imposed on 

both the Adviser and the Financial 

Institution to comply with the Impartial 

Conduct Standards. Because these 

standards are contractually imposed, the 

IRA owner has a contract claim if, for 

example, the Adviser recommends an 

investment product that is not in the 

best interest of the IRA owner. 

2. Plans, Plan Participants and 

Beneficiaries 

The protections of the exemption and 

contractual terms will also be 

enforceable by plans, plan participants 

and beneficiaries. Specifically, if an 

Adviser or Financial Institution 

received compensation in a prohibited 

transaction but failed to satisfy any of 

the Impartial Conduct Standards or any 

other condition of the exemption, the 

Adviser and Financial Institution would 

be unable to qualify for relief under the 

exemption, and, as a result, could be 

liable under ERISA section 502(a)(2) 

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

with the exemption or the Impartial 

Conduct Standards would result in a 

non-exempt prohibited transaction and 

would likely constitute a fiduciary 

breach. As a result, a plan, plan 

participant or beneficiary would be able 

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

(3) to recover any loss in value to the 

plan (including the loss in value to an 

individual account), or to obtain 

disgorgement of any wrongful profits or 

unjust enrichment. Additionally, plans, 

participants and beneficiaries could 

enforce their obligations in an action 

based on breach of the agreement. 

3. The Department 

In addition, the Department would be 

able to enforce ERISA’s prohibited 

transaction and fiduciary duty 

provisions with respect to employee 

benefit plans, but not IRAs, in the event 

that the Adviser or Financial Institution 

received compensation in a prohibited 

transaction but failed to comply with 

the exemption or the Impartial Conduct 

Standards. If, for example, any of the 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21973 

35See proposed definition of Affiliate, Section 

VIII(b)(1) and (b)(2). 

specific conditions of the exemption are 

not met, the Adviser and Financial 

Institution will have engaged in a nonexempt prohibited transaction, and the 

Department will be entitled to seek 

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

(5). 

4. Excise Taxes Under the Code 

In addition to the claims described 

above that may be brought by IRA 

owners, plans, plan participants and 

beneficiaries, and the Department, to 

enforce the contract and ERISA, 

Advisers and Financial Institutions that 

engage in prohibited transactions under 

the Code are subject to an excise tax. 

The excise tax is generally equal to 15% 

of the amount involved. Parties who 

have participated in a prohibited 

transaction for which an exemption is 

not available must pay the excise tax 

and file Form 5330 with the Internal 

Revenue Service. 

Prohibited Provisions 

Finally, in order to preserve these 

various enforcement rights, Section II(f) 

of the proposal provides that certain 

provisions may not be part of the 

contract. If these provisions appear in a 

contract with a Retirement Investor, the 

exemption is not satisfied with respect 

to transactions involving that 

Retirement Investor. First, the proposal 

requires that the contract may not 

contain exculpatory provisions that 

disclaim or otherwise limit liability for 

an Adviser’s or Financial Institution’s 

violations of the contract’s terms. 

Second, the contract may not require the 

Retirement Investor to agree to waive or 

qualify its right to bring or participate in 

a class action or other representative 

action in court in a contract dispute 

with the Adviser or Financial 

Institution. The right of a Retirement 

Investor to bring a class-action claim in 

court (and the corresponding limitation 

on fiduciaries’ ability to mandate classaction arbitration) is consistent with 

FINRA’s position that its arbitral forum 

is not the correct venue for class-action 

claims. As proposed, this section would 

not affect the ability of a Financial 

Institution or Adviser, and a Retirement 

Investor, to enter into a pre-dispute 

binding arbitration agreement with 

respect to individual contract claims. 

The Department expects that most 

individual arbitration claims under this 

exemption will be subject to FINRA’s 

arbitration procedures and consumer 

protections. The Department seeks 

comments on whether there are certain 

procedures and/or consumer protections 

that it should adopt or mandate for 

those disputes not covered by FINRA. 

Disclosure Requirements for Best 

Interest Contract Exemption (Section III) 

In order to facilitate access to 

information on Financial Institution and 

Adviser compensation, the proposal 

requires both public disclosure and 

disclosure to Retirement Investors. 

1. Web Page 

Section III(c) of the proposal requires 

that the Financial Institution maintain a 

public Web page that provides several 

different types of information. The Web 

page must show the direct and indirect 

material compensation payable to the 

Adviser, Financial Institution and any 

Affiliate for services provided in 

connection with each Asset (or, if 

uniform across a class of Assets, the 

class of Assets) that a plan, participant 

or beneficiary account, or an IRA, is able 

to purchase, hold, or sell through the 

Adviser or Financial Institution, and 

that a plan, participant or beneficiary 

account, or an IRA has purchased, held, 

or sold within the last 365 days, the 

source of the compensation, and how 

the compensation varies within and 

among Asset classes. The Web page 

must be updated at reasonable intervals, 

not less than quarterly. The 

compensation may be expressed as a 

monetary amount, formula or 

percentage of the assets involved in the 

purchase, sale or holding. 

The information provided by the Web 

page will provide a broad base of 

information about the various pricing 

and compensation structures adopted by 

Financial Institutions and Advisers. The 

Department believes that the data 

provided on the Web page will provide 

information that can be used by 

financial information companies to 

analyze and provide information 

comparing the practices of different 

Advisers and Financial Institutions. 

Such information will allow a 

Retirement Investor to evaluate costs 

and Advisers’ and Financial 

Institutions’ compensation practices. 

The Web page information must be 

provided in a manner that is easily 

accessible to a Retirement Investor and 

the general public. Appendix I to this 

notice is an exemplar of a possible web 

disclosure. In addition, the Web page 

must also contain a version of the same 

information that is formatted in a 

machine-readable manner. The 

Department recognizes that machine 

readable data can be formatted in many 

ways. Therefore, the Department 

requests comment on the format and 

data fields that should be required 

under such a condition. 

2. Individual Transactional Disclosure 

In Section III(a), the exemption 

requires point of sale disclosure to the 

Retirement Investor, prior to the 

execution of the investment transaction, 

regarding the all-in cost and anticipated 

future costs of recommended Assets. 

The disclosure is designed to make as 

clear and salient as possible the total 

cost that the plan, participant or 

beneficiary account, or IRA will incur 

when following the Adviser’s 

recommendation, and to provide cost 

information that can be compared across 

different Assets that are recommended 

for investment. In addition, the 

projection of the costs over various 

holding periods would inform the 

Retirement Investor of the cumulative 

impact of the costs over time and of 

potential costs when the investment is 

sold. 

As proposed, the disclosure 

requirement of Section III(a) would be 

provided in a summary chart designed 

to direct the Retirement Investor’s 

attention to a few important data points 

regarding fees, in a time frame that 

would enable the Retirement Investor to 

discuss other (possibly less costly) 

alternatives with the Adviser prior to 

executing the transaction. The 

disclosure chart does not have to be 

provided again with respect to a 

subsequent recommendation to 

purchase the same investment product, 

so long as the chart was previously 

provided to the Retirement Investor 

within the past 12 months and the total 

cost has not materially changed. 

To the extent compliance with the 

point of sale disclosure requires 

Advisers and Financial Institutions to 

obtain cost information from entities 

that are not closely affiliated with them, 

they may rely in good faith on 

information and assurances from the 

other entities, as long as they do not 

know that the materials are incomplete 

or inaccurate. This good faith reliance 

applies unless the entity providing the 

information to the Adviser and 

Financial Institution is (1) a person 

directly or indirectly through one or 

more intermediaries, controlling, 

controlled by, or under common control 

with the Adviser or Financial 

Institution; or (2) any officer, director, 

employee, agent, registered 

representative, relative (as defined in 

ERISA section 3(15)), member of family 

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

of, or partner in, the Adviser or 

Financial Institution.35

The required chart would disclose 

with respect to each Asset 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21974 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

recommended, the ‘‘total cost’’ to the 

plan, participant or beneficiary account, 

or IRA, of the investment for 1-, 5- and 

10-year periods expressed as a dollar 

amount, assuming an investment of the 

dollar amount recommended by the 

Adviser, and reasonable assumptions 

about investment performance, which 

must be disclosed. 

As defined in the proposal, the ‘‘total 

cost’’ of investing in an asset means the 

sum of the following, as applicable: 

Acquisition costs, ongoing costs, 

disposition costs, and any other costs 

that reduce the asset’s rate of return, are 

paid by direct charge to the plan, 

participant or beneficiary account, or 

IRA, or reduce the amounts received by 

the plan, participant or beneficiary 

account, or IRA (e.g., contingent fees, 

such as back-end loads, including those 

that phase out over time, with such 

terms explained beneath the table). The 

terms ‘‘acquisition costs,’’ ‘‘ongoing 

costs,’’ and ‘‘disposition costs,’’ are 

defined in the proposal. Appendix II to 

this proposal contains a model chart 

that may be used to provide the 

information required under this section. 

Use of the model chart is not 

mandatory. However, use of an 

appropriately completed model chart 

will be deemed to satisfy the 

requirement of Section III(a). 

Request for comment. The 

Department requests comment on the 

design of this proposed point of sale 

disclosure, as well as issues related to 

the ability of the Adviser to provide the 

disclosure and whether it will provide 

information that is meaningful to 

Retirement Investors. In general, 

commenters are asked to address the 

anticipated cost of compliance with the 

point of sale disclosure and whether the 

disclosure as we have described it will 

provide information that is more useful 

to Retirement Investors than other 

similar disclosures that are required 

under existing law. As discussed below 

in more detail, the Department requests 

comment on whether the disclosure can 

be designed to provide information that 

would result in a useful comparison 

among Assets; whether it is feasible for 

Advisers and Financial Institutions to 

obtain reliable information to complete 

the chart at the time it would be 

required to be provided to the 

Retirement Investor; and whether the 

disclosure, without information on 

other characteristics of the investment, 

would improve Retirement Investors’ 

ability to make informed investment 

decisions. 

Design. As explained above, the 

proposal contemplates a chart with the 

following information: All-in cost of the 

Asset, and the cost if held for 1-, 5-, and 

10 years. The all-in cost would be 

calculated with the following 

components: ‘‘acquisition costs,’’ 

‘‘ongoing costs,’’ ‘‘disposition costs,’’ 

and ‘‘other.’’ The Department seeks 

comment on all aspects of this 

approach. In particular, we ask: 

• Are the all-in costs of the 

investments permitted under the 

proposal capable of being reflected 

accurately in the chart? 

• Are all-in costs already reflected in 

the summary prospectuses for certain 

investments? 

• Have we correctly identified the 

possible various costs associated with 

the permitted investments? 

• Should the point of sale disclosure 

requirement be limited to certain events, 

such as opening a new account or 

rolling over existing investments? If so, 

what changes would be needed to the 

model chart? 

• Are our proposed definitions of the 

various costs clear enough to result in 

information that is reasonably 

comparable across different Financial 

Institutions? 

• Is it possible to attribute all the 

costs to the account of a particular plan, 

participant or beneficiary, or IRA? 

• How should long-term costs be 

measured? 

Feasibility. The point of sale 

disclosure is proposed to be an 

individualized disclosure provided 

prior to the execution of the transaction. 

The Department seeks comment on 

whether there are practical impediments 

to the creation and disclosure of the 

chart in the time frame proposed. 

Therefore, we ask: 

• Will Advisers and Financial 

Institutions have access to the 

information required to be disclosed in 

the chart? 

• Are there existing systems at 

Financial Institutions that could 

produce the disclosure required in this 

proposal? If not, what is the cost of 

developing a system to comply? 

• What are the costs associated with 

providing the disclosure? 

• Would the costs be reduced if the 

Adviser and Financial Institution could 

provide the disclosure for full portfolios 

of investments, rather than for each 

investment recommendation separately? 

• Would the costs be reduced if the 

timing of the disclosure was more 

closely aligned with the SEC’s 

disclosure requirements applicable to 

broker-dealers (i.e. at or before the 

completion of the transaction), rather 

than point of sale? 

• Are there particular asset classes for 

which this kind of point of sale 

disclosure is more feasible or less 

feasible? What share of assets held by 

Retirement Investors or share of 

transactions executed by Advisers and 

Financial Institutions fall within the 

asset classes for which the point of sale 

disclosure is more feasible and less 

feasible? 

• Are there particular asset classes for 

which all the information that would be 

required to be disclosed in the chart is 

currently required in a similar format 

under existing law? 

• Would the required disclosure be 

more feasible or less costly if a narrative 

statement were required instead of a 

summary chart? 

Impact. The point of sale disclosure 

would be intended to inform the 

Retirement Investor of the costs 

associated with the investment. Would 

such a disclosure in this simple format 

provide information that is meaningful 

and likely to improve a Retirement 

Investor’s decision making? We ask for 

input on the following: 

• Would the simplified format result 

in the communication of information 

that is accurate, and contribute to 

informed investment decisions? 

• Do commenters recommend an 

alternative format or alternative 

disclosures? 

• Would the relative fees associated 

with different types of investment 

products, without a required disclosure 

of the relative risks of the product (i.e., 

mutual fund ongoing fees versus a onetime brokerage commission for a stock 

transaction) contribute to informed 

investment decisions? 

• In the absence of a required 

benchmark, is the disclosure of the allin fees of a particular investment 

helpful to the Retirement Investor? If 

not, how could a benchmark be crafted 

for the various Assets permitted to be 

sold under the proposal? 

Alternative. Instead of the point of 

sale disclosure as proposed, would a 

‘‘cigarette warning’’-style disclosure be 

as effective and less costly? For 

example, the disclosure could read: 

Investors are urged to check loads, 

management fees, revenue-sharing, 

commissions, and other charges before 

investing in any financial product. These fees 

may significantly reduce the amount you are 

able to invest over time and may also 

determine your adviser’s take-home pay. If 

these fees are not reported in marketing 

materials or made apparent by your 

investment adviser, do not forget to ask about 

them. 

3. Individual Annual Disclosure 

Section III(b) of the proposal requires 

individual disclosure in the form of an 

annual disclosure. Specifically, the 

proposal requires the Adviser or 

Financial Institution to provide each 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21975 

36Class Exemption for Certain Transactions 

Involving Insurance Agents and Brokers, Pension 

Consultants, Insurance Companies, Investment 

Companies and Investment Company Principal 

Underwriters, 49 FR 13208 (Apr. 3, 1984), amended 

at 71 FR 5887 (Feb. 3, 2006). 

Retirement Investor with an annual 

written disclosure within 45 days of the 

end of the applicable year. The annual 

disclosure must include: (i) A list 

identifying each Asset purchased or 

sold during the applicable period and 

the price at which the Asset was 

purchased or sold; (ii) a statement of the 

total dollar amount of all fees and 

expenses paid by the plan, participant 

or beneficiary account, or IRA, both 

directly and indirectly, with respect to 

each Asset purchased, held or sold 

during the applicable period; and (iii) a 

statement of the total dollar amount of 

all compensation received by the 

Adviser and Financial Institution, 

directly or indirectly, from any party, as 

a result of each Asset sold, purchased or 

held by the plan, participant or 

beneficiary account, or IRA, during the 

applicable period. This disclosure is 

intended to show the Retirement 

Investor the impact of the cost of the 

Adviser’s advice on the investments by 

the plan, participant or beneficiary 

account, or IRA. 

The Department requests comment on 

this disclosure, in light of the potential 

point of sale disclosure. We are 

particularly interested in comments 

discussing whether both disclosures 

would be helpful and, if not, which 

would be more useful to Retirement 

Investors? 

4. Non-Security Insurance and Annuity 

Contracts. 

Section III(a) and (b) will apply to all 

Assets as defined in the proposal. This 

includes insurance and annuity 

contracts that are securities under 

federal securities law, such as variable 

annuities, and insurance and annuity 

contracts that are not, such as fixed 

annuities. The Department requests 

comment on whether the types of 

information required in the Section 

III(a) and (b) disclosures are applicable 

and available with respect to insurance 

and annuity contracts that are not 

securities. 

In this regard, we note that PTE 84– 

24 36 is an existing exemption under 

which certain investment advice 

fiduciaries can receive commissions on 

insurance and annuity contracts and 

mutual fund shares that are purchased 

by plans and IRAs. Elsewhere in this 

issue of the Federal Register, the 

Department has proposed to revoke 

relief under PTE 84–24 as it applies to 

IRA transactions involving annuity 

contracts that are securities (including 

variable annuity contracts) and mutual 

fund shares. 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 critical 

that their interests are protected by 

appropriate conditions in the 

Department exemptions. In our view, 

this proposed Best Interest Contract 

Exemption contains conditions that are 

uniquely protective of IRA owners. 

The Department has determined 

however that PTE 84–24 should remain 

available for investment advice 

fiduciaries to receive commissions for 

IRA (and plan) purchases of insurance 

and annuity contracts that are not 

securities. This distinction is due in part 

to uncertainty as to whether the 

disclosure requirements proposed 

herein are readily applicable to 

insurance and annuity contracts that are 

not securities, and whether the 

distribution methods and channels of 

insurance products that are not 

securities fit within this exemption’s 

framework. 

The Department requests comment on 

this approach. In particular, we ask 

whether we have drawn the correct 

lines between insurance and annuity 

products that are securities and those 

that are not, in terms of our decision to 

continue to allow IRA transactions 

involving non-security insurance and 

annuity contracts to occur under the 

conditions of PTE 84–24 while requiring 

IRA transactions involving securities to 

occur under the conditions of this 

proposed Best Interest Contract 

Exemption. 

In order for us to evaluate our 

approach, we request public comment 

the current disclosure requirements 

applicable to insurance and annuity 

contracts that are not securities. Can 

Section III(a) and (b) can be revised with 

respect to such non-securities insurance 

and annuity contracts to provide 

meaningful information to investors as 

to the costs of such investments and the 

overall compensation received by 

Advisers and Financial Institutions in 

connection with the transactions? In 

addition, the Department requests 

information on the distribution methods 

and channels applicable to insurance 

and annuity products that are not 

securities. What are common structures 

of insurance agencies? 

Finally, we request public input as to 

whether any conditions of this proposed 

Best Interest Contract Exemption, other 

than the disclosure conditions 

discussed above, would be inapplicable 

to non-security insurance and annuity 

products? Are any aspects of this 

exemption particularly difficult for 

insurance companies to comply with? 

Range of Investment Options (Section 

IV) 

Section IV(a) of the proposal requires 

a Financial Institution to offer for 

purchase, sale, or holding and the 

Adviser to make available to the plan, 

participant or beneficiary account, or 

IRA, for purchase, sale or holding a 

broad range of investment options. 

These investment options should enable 

an Adviser to make recommendations to 

the Retirement Investor with respect to 

all of the asset classes reasonably 

necessary to serve the best interests of 

the Retirement Investor in light of the 

Retirement Investor’s objectives, risk 

tolerance and specific financial 

circumstances. The Department believes 

that ensuring that an Adviser has a wide 

range of investment options at his or her 

disposal is the most likely method by 

which a Retirement Investor can be 

assured of developing a balanced 

investment portfolio. 

The Department recognizes, however, 

that some Financial Institutions limit 

the investment products that a 

Retirement Investor may purchase, sell 

or hold based on whether the products 

generate third-party payments or are 

proprietary products, or for other 

reasons (e.g., the firms specialize in 

particular asset classes or product 

types). Both Financial Institutions and 

Advisers often rely on the ability to sell 

proprietary products or the ability to 

generate additional revenue through 

third-party payments to support their 

business models. The proposal permits 

Financial Institutions with such 

business models to rely on the 

exemption provided additional 

conditions are satisfied. 

The additional conditions are set forth 

in Section IV(b) of the proposal. First, 

before limiting the investment products 

a Retirement Investor may purchase, sell 

or hold, the Financial Institution must 

make a specific written finding that the 

limitations do not prevent the Adviser 

from providing advice that is in the best 

interest of the Retirement Investors (i.e., 

advice that reflects the care, skill, 

prudence, and diligence under the 

circumstances then prevailing that a 

prudent person would exercise based on 

the investment objectives, risk 

tolerance, financial circumstances, and 

needs of the Retirement Investor, 

without regard to the financial or other 

interests of the Adviser, Financial 

Institution or any Affiliate, Related 

Entity, or other party) or from otherwise 

adhering to the Impartial Conduct 

Standards. 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21976 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

Second, the proposal provides that 

the payments received in connection 

with these limited menus be reasonable 

in relation to the value of specific 

services provided to Retirement 

Investors in exchange for the payments 

and not in excess of the services’ fair 

market value. This is more specific than 

the reasonable compensation 

requirement set forth in the contract 

under Section II because of the 

limitation placed by the Financial 

Institution on the investments available 

for Adviser recommendation. The 

Department intends to ensure that such 

additional payments received in 

connection with the advice are for 

specific services to Retirement 

Investors. 

The proposal additionally provides 

that the Financial Institution or Adviser, 

before giving any recommendations to a 

Retirement Investor, must give clear 

written notice to the Retirement Investor 

of any limitations placed by the 

Financial Institution on the investment 

products offered by the Adviser. In this 

regard, it is insufficient for the notice 

merely to state that the Financial 

Institution ‘‘may’’ limit investment 

recommendations, without specifically 

disclosing the extent to which the 

Financial Institution in fact does so. 

Finally, the proposal would require 

an Adviser or Financial Institution to 

notify the Retirement Investor if the 

Adviser does not recommend a 

sufficiently broad range of investment 

options to meet the Retirement 

Investor’s needs. For example, the 

Department envisions the provision of 

such a notice when the Adviser and 

Financial Institution provide advice 

with respect to a limited class of 

investment products, but those products 

do not meet a particular investor’s 

needs. The Department requests 

comment on whether it is possible to 

state this standard with more 

specificity, or whether more detailed 

guidance is needed for parties to 

determine when compliance with the 

condition would be necessary. The 

Department also requests comment on 

whether any specific disclosure is 

necessary to inform the Retirement 

Investor about the particular conflicts of 

interest associated with Advisers that 

recommend only proprietary products, 

and, if so, what the disclosure should 

say. 

The conditions of Section IV do not 

apply to an Adviser or Financial 

Institution with respect to the provision 

of investment advice to a participant or 

beneficiary of a participant directed 

individual account plan concerning the 

participant’s or beneficiary’s selection of 

designated investment options available 

under the plan, provided the Adviser 

and Financial Institution did not 

provide advice to the responsible plan 

fiduciary regarding the menu of 

designated investment options. In such 

circumstances, the Adviser and 

Financial Institution are not responsible 

for the limitations on the investment 

options. 

EBSA Disclosure and Recordkeeping 

(Section V) 

1. Notification to the Department of 

Reliance on the Exemption 

Before receiving prohibited 

compensation in reliance on Section I of 

this exemption, Section V(a) of the 

proposal requires that the Financial 

Institution notify the Employee Benefits 

Security Administration of the intention 

to rely on this exemption. The notice 

need not identify any specific plan or 

IRA. The notice will remain in effect 

until it is revoked in writing. The 

Department envisions accepting the 

notice via email and regular mail. 

This is a notice provision only and 

does not require any approval or finding 

by the Department that the Financial 

Institution is eligible for the exemption. 

Once a Financial Institution has sent the 

notice, it can immediately begin to rely 

on the exemption provided the 

conditions are satisfied. 

2. Data Request 

Section V(b) of the proposed 

exemption also would require Financial 

Institutions to maintain certain data, 

which is specified in Section IX, for six 

years from the date of the applicable 

transaction. The data request would 

require Financial Institutions to 

maintain and disclose to the Department 

upon request specific information 

regarding purchases, sales, and holdings 

by Retirement Investors made pursuant 

to advice provided by Advisers and 

Financial Institutions relying on the 

proposed exemption. Financial 

Institutions may maintain this 

information in any form that may be 

readily analyzed by the Department or 

simply as raw data. Receipt of this 

additional data will assist the 

Department in assessing the 

effectiveness of the exemption. 

No party, other than the Financial 

Institution responsible for compliance, 

will be subject to the taxes imposed by 

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

applicable, if the Financial Institution 

fails to maintain the data or the data are 

not available for examination. 

Request for Comment. The proposed 

data request covers certain information 

with respect to investment inflows, 

outflows and holdings, and returns, by 

plans, participant and beneficiary 

accounts, and IRAs and is intended to 

assist the Department in evaluating the 

effectiveness of the exemption. We 

request comment on whether these are 

the appropriate data points for the 

covered Assets. Are the terms used clear 

enough to result in information that is 

reasonably comparable across different 

Financial Institutions? Or should we 

include precise definitions of inflows, 

outflows, holdings, returns, etc.? If so, 

please suggest specifically how these 

terms should be defined. Are different 

terms needed to request comparable 

information regarding insurance and 

annuity contracts that are not securities? 

3. General Recordkeeping 

Finally, Section V(c) and (d) of the 

proposal contains a general 

recordkeeping requirement applicable to 

the Financial Institution. The general 

recordkeeping requirement relates to the 

records necessary for the Department 

and certain other entities to determine 

whether the conditions of this 

exemption have been satisfied. 

Effect of Failure To Comply With 

Conditions 

If the exemption is granted, relief 

under the Best Interest Contract 

Exemption will be available only if all 

applicable conditions described above 

are satisfied. Satisfaction of the 

conditions is determined on a 

transaction by transaction basis, 

however. Thus, the effect of 

noncompliance with a condition 

depends on whether the condition 

applies to a single transaction or 

multiple transactions. For example, if an 

Adviser fails to provide a transaction 

disclosure in accordance with Section 

III(a) with respect to an Asset purchased 

by a plan, participant or beneficiary 

account, or an IRA, the relief provided 

by the Best Interest Contract Exemption 

would be unavailable to the Adviser and 

Financial Institution only for the 

otherwise prohibited compensation 

received in connection with the 

investment in that specific Asset by the 

plan, participant or beneficiary account, 

or IRA. More broadly, if an Adviser and 

Financial Institution fail to enter into a 

contract with a Retirement Investor in 

accordance with Section II, relief under 

the Best Interest Contract Exemption 

would be unavailable solely with 

respect to the investments by that 

Retirement Investor, not all Retirement 

Investors to which the Adviser and 

Financial Institution provide advice. 

However, if a Financial Institution fails 

to comply with a condition that is 

necessary for all transactions involving 

investment advice to Retirement 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21977 

37The condition requiring the purchase to be 

made for cash only is not intended to preclude 

purchases with plan or IRA contributions, but 

rather to preclude transactions effected in-kind 

through an exchange of securities or other assets. 

In-kind exchanges would not be permitted as part 

of this class exemption due to the potential need 

for conditions relating to valuation of the assets to 

be exchanged. 

Investors, such as the maintenance of 

the Web page required by Section III(c), 

the Financial Institution will not be 

eligible for the relief under the Best 

Interest Contract Exemption for all 

prohibited transactions entered into 

during the period in which the failure 

to comply existed. 

Supplemental Exemptions 

1. Proposed Insurance and Annuity 

Exemption (Section VI) 

The Best Interest Contract Exemption, 

as set forth above, permits Advisers and 

Financial Institutions to receive 

compensation that would otherwise be 

prohibited by the self-dealing and 

conflicts of interest provisions of ERISA 

and the Code. ERISA and the Code 

contain additional prohibitions on 

certain specific transactions between 

plans and IRAs and ‘‘parties in interest’’ 

and ‘‘disqualified persons,’’ including 

service providers. These additional 

prohibited transactions include: (i) The 

purchase or sale of an asset between a 

plan/IRA and a party in interest/

disqualified person, and (ii) the transfer 

of plan/IRA assets to a party in interest/ 

disqualified person. These prohibited 

transactions are subject to excise tax and 

personal liability for the fiduciary. 

A plan’s or IRA’s purchase of an 

insurance or annuity product would be 

a prohibited transaction if the insurance 

company has a pre-existing relationship 

with the plan/IRA as a service provider, 

or is otherwise a party in interest/

disqualified person. In the Department’s 

view, this circumstance is common 

enough in connection with 

recommendations by Advisers and 

Financial Institutions to warrant 

proposal of an exemption for these types 

of transactions in conjunction with the 

Best Interest Contract Exemption. The 

Department anticipates that the 

fiduciary that causes a plan’s or IRA’s 

purchase of an insurance or annuity 

product would not be the Adviser or 

Financial Institution but would instead 

be another fiduciary, such as a plan 

sponsor or IRA owner, acting on the 

Adviser’s or Financial Institution’s 

advice. Because the party requiring 

relief for this prohibited transaction is 

separate and independent of the Adviser 

and Financial Institution, the 

Department is proposing this exemption 

subject to discrete conditions described 

below. 

Although there is an existing 

exemption which would often cover 

these transactions, PTE 84–24, the 

Department is proposing elsewhere in 

this issue of the Federal Register to 

revoke that exemption to the extent it 

provides relief for transactions 

involving IRAs’ purchase of variable 

annuity contracts and other annuity 

contracts that are securities under 

federal securities law. We have therefore 

decided to provide an exemption for 

these transactions as part of this 

document, both to ensure that relief is 

available for transactions involving IRAs 

but also for ease of compliance for 

transactions involving other Retirement 

Investors (i.e., plan participants, 

beneficiaries and small plan sponsors). 

As with the Best Interest Contract 

Exemption, relief under the proposed 

insurance and annuity exemption in 

Section VI would not extend to a plan 

covered by Title I of ERISA where (i) the 

Adviser, Financial Institution or any 

Affiliate is the employer of employees 

covered by the plan, or (ii) the Adviser 

or Financial Institution is a named 

fiduciary or plan administrator (as 

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

respect to the plan, or an affiliate 

thereof, that has not been selected by a 

fiduciary that is Independent. The 

conditions proposed for the insurance 

and annuity exemption are that the 

transaction must be effected by the 

insurance company in the ordinary 

course of its business as an insurance 

company, the combined total of all fees 

and compensation received by the 

insurance company is not in excess of 

reasonable compensation under the 

circumstances, the purchase is for cash 

only, and that the terms of the purchase 

are at least as favorable to the plan as 

the terms generally available in an arm’s 

length transaction with an unrelated 

party.37

2. Exemption for Pre-Existing 

Transactions (Section VII) 

Section VII of the proposal would 

provide an exemption for Advisers, 

Financial Institutions, and their 

Affiliates and Related Entities in 

connection with transactions that 

occurred prior to the applicability date 

of the Proposed Regulation, if adopted. 

Specifically, the exemption would 

provide relief from ERISA sections 

406(a)(1)(D) and 406(b) for the receipt of 

prohibited compensation, after the 

applicability date of the regulation, by 

an Adviser, Financial Institution and 

any Affiliate or Related Entity for 

services provided in connection with 

the purchase, sale or holding of an Asset 

before the applicability date. The 

Department is proposing this exemption 

to provide relief for investment 

professionals that may have provided 

advice prior to the applicability date of 

the regulation but did not consider 

themselves fiduciaries. Their receipt 

after the applicability date of ongoing 

periodic payments of compensation 

attributable to a purchase, sale or 

holding of an Asset by a plan, 

participant or beneficiary account, or 

IRA, prior to the applicability date of 

the regulation might otherwise raise 

prohibited transaction concerns. 

The Department is also proposing this 

exemption for Advisers and Financial 

Institutions who were considered 

fiduciaries before the applicability date, 

but who entered into transactions 

involving plans and IRAs before the 

applicability date in accordance with 

the terms of a prohibited transaction 

exemption that has since been amended. 

Section VII would permit Advisers, 

Financial Institutions, and their 

Affiliates and Related Entities, to 

receive compensation such as 12b–1 

fees, after the applicability date, that is 

attributable to a purchase, sale or 

holding of an Asset by a plan, 

participant or beneficiary account, or an 

IRA, that occurred prior to the 

applicability date. 

In order to take advantage of this 

relief, the exemption would require that 

the compensation must be received 

pursuant to an agreement, arrangement 

or understanding that was entered into 

prior to the applicability date of the 

regulation, and that the Adviser and 

Financial Institution not provide 

additional advice to the plan or IRA, 

regarding the purchase, sale or holding 

of the Asset after the applicability date 

of the regulation. Relief would not be 

extended to compensation that is 

excluded pursuant to Section I(c) of the 

proposal or to compensation received in 

connection with a purchase or sale 

transaction that, at the time it was 

entered into, was a non-exempt 

prohibited transaction. The Department 

requests comment on whether there are 

other areas in which exemptions would 

be desirable to avoid unforeseen 

consequences in connection with the 

timing of the finalization of the 

Proposed Regulation. 

3. Low Fee Streamlined Exemption 

While the flexibility of the Best 

Interest Contract Exemption is designed 

to accommodate a wide range of current 

business practices and avoid the need 

for highly prescriptive regulation, the 

Department acknowledges that there 

may be actors in the industry that would 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21978 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

prefer a more prescriptive approach. 

The Department believes that both 

approaches could be desirable and 

could, if designed properly, minimize 

the harmful impact of conflicts of 

interest on the quality of advice. 

Accordingly, in addition to the Best 

Interest Contract Exemption, the 

Department is also considering issuing a 

separate streamlined exemption that 

would allow Advisers and Financial 

Institutions (and their Affiliates and 

Related Entities) to receive otherwise 

prohibited compensation in connection 

with plan, participant and beneficiary 

accounts, and IRA investments in 

certain high-quality low-fee 

investments, subject to fewer 

conditions. However, at this point, the 

Department has been unable to 

operationalize this concept and 

therefore has not proposed text for such 

a streamlined exemption. Instead, we 

seek public input to assist our 

consideration and design of the 

exemption. 

A low-fee streamlined exemption is 

an attractive idea that, if properly 

crafted, could achieve important goals. 

It could minimize the compliance 

burdens for Advisers offering highquality low-fee investment products 

with minimal potential for material 

conflicts of interest, as discussed further 

below. Products that met the conditions 

of the streamlined exemption could be 

recommended to plans, participants and 

beneficiaries, and IRA owners, and the 

Adviser could receive variable and 

third-party compensation as a result of 

those recommendations, without 

satisfying some or all of the conditions 

of the Best Interest Contract Exemption. 

The streamlined exemption could 

reward and encourage best practices 

with respect to optimizing the quality, 

amount, and combined, all-in cost of 

recommended financial products, 

financial advice, and other related 

services. In particular, a streamlined 

exemption could be useful in enhancing 

access to quality, affordable financial 

products and advice by savers with 

smaller account balances. Additionally, 

because it would be premised on a fee 

comparison, it would apply only to 

investments with relatively simple and 

transparent fee structures. 

In this regard, the Department 

believes that certain high-quality 

investments are provided pursuant to 

fee structures in which the payments are 

sufficiently low that they do not present 

serious potential material conflicts of 

interest. In theory, a streamlined 

exemption with relatively few 

conditions could be constructed around 

such investments. Facilitating 

investments in such high-quality lowfee products would be consistent with 

the prevailing (though by no means 

universal) view in the academic 

literature that posits that the optimal 

investment strategy is often to buy and 

hold a diversified portfolio of assets 

calibrated to track the overall 

performance of financial markets. Under 

this view, for example, a long-term 

recommendation to buy and hold a lowpriced (often passively managed) target 

date fund that is consistent with the 

investor’s future risk appetite trajectory 

is likely to be sound. As another 

example, under this view, a mediumterm recommendation to buy and hold 

(for 5 or perhaps 10 years) an 

inexpensive, risk-matched balanced 

fund or combination of funds, and 

afterward to review the investor’s 

circumstances and formulate a new 

recommendation also is likely to be 

sound. 

If it could be constructed 

appropriately, a streamlined exemption 

for high-quality low-fee investments 

could be subject to relatively few 

conditions, because the investments 

present minimal risk of abuse to plans, 

participants and beneficiaries, and IRA 

owners. The aim would be to design 

conditions with sufficient objectivity 

that Advisers and Financial Institutions 

could proceed with certainty in their 

business operations when 

recommending the investments. The 

Department does not anticipate that 

such a streamlined exemption would 

require Advisers and Financial 

Institutions to undertake the contractual 

commitments to adhere to the Impartial 

Conduct Standards or adopt anticonflict policies and procedures with 

respect to advice given on such 

products, as is proposed in the Best 

Interest Contract Exemption. However, 

some of the required disclosures 

proposed in the Best Interest Contract 

Exemption would likely be imposed in 

the streamlined exemption. 

The Department has initially focused 

on mutual funds as the only type of 

investment widely held by Retirement 

Investors that would be readily 

susceptible to the type of expense 

calculations necessary to implement the 

low-fee streamlined exemption. This is 

due to the transparency associated with 

mutual fund investments and, in 

particular, the requirement that the 

mutual fund disclose its fees and 

operating expenses in its prospectus. 

Accordingly, data on mutual fund fees 

and expenses is widely available. 

Within the category of mutual fund 

investments, the Department is 

considering whether the streamlined 

exemption would be available to funds 

with all-in fees below a certain amount. 

However, the Department lacks data 

regarding the characteristics of mutual 

funds with low all-in fees. 

Consequently, we are exploring whether 

the streamlined exemption should 

contain additional conditions to 

safeguard the interests of plans, 

participants and beneficiaries, and IRA 

owners. For example, the streamlined 

exemption could require that the 

investment product be ‘‘broadly 

diversified to minimize risk for targeted 

return,’’ or ‘‘calibrated to provide a 

balance of risk and return appropriate to 

the investor’s circumstances and 

preferences for the duration of the 

recommended holding period.’’ 

However, we recognize that adding 

conditions might undercut the 

usefulness of the streamlined 

exemption. 

Request for Comment. The 

Department requests comment on these 

possible initial terms of a streamlined 

exemption and other questions relating 

to the technical design of such an 

exemption and its likely utility to 

Advisers and Financial Institutions. 

Additionally, the Department requests 

public input on the likely consequences 

of the establishment of a low-fee 

streamlined exemption. 

Design. The Department requests 

public input on the technical design 

challenges in defining high-quality lowfee investment products that would 

satisfy the policy goals of the 

streamlined exemption. We are 

concerned that there may be no single, 

objective way to evaluate fees and 

expenses associated with mutual funds 

(or other investments) and no single cutoff to determine when fees are 

sufficiently low. One cut-off could be 

too low for some investors’ needs and 

too high for others’. A very low cut-off 

would strongly favor passively managed 

funds. A high cut-off would permit 

recommendations that may not be 

sound and free from bias. Multiple cutoffs for different product categories 

would be complex and would risk 

introducing bias between the categories. 

In addition, it is unclear whether 

mutual funds with the lowest fees 

necessarily represent the highest quality 

investments for Retirement Investors. As 

noted above, the streamlined exemption 

would not expressly contain a ‘‘best 

interest’’ standard. 

To further aid in the design of the 

streamlined exemption, the Department 

requests comments on the questions 

below. The Regulatory Impact Analysis 

for the Proposed Regulation, published 

elsewhere in this issue of the Federal 

Register, describes additional questions 

the Department is considering regarding 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21979 

the development of a low-fee 

streamlined exemption. 

• Should the streamlined exemption 

cover investment products other than 

mutual funds? The streamlined 

exemption would be based on the 

premise that low-cost investment 

products distributed pursuant to 

relatively unconflicted fee structures 

present minimal risk of abuse to plans, 

participants and beneficiaries, and IRA 

owners. In order to design a streamlined 

exemption for the sale of such products, 

the products must have fee structures 

that are transparent, publicly available, 

and capable of being compared reliably. 

Are there other investments commonly 

held by Retirement Investors that meet 

these criteria? 

• How should the fee calculation be 

performed? How should fees be defined 

for the fee calculation to ensure a useful 

metric? Should the fee calculation 

include both ongoing management/

administrative fees and one-time 

distribution/transactional costs? What 

time period should the fee calculation 

cover? Should it cover fees as projected 

over future time periods (e.g., one, five 

and ten year periods) to lower the 

impact of one-time transactional costs 

such as sales loads? If so, what discount 

rate should be used to determine the 

present value of future fees? 

• How should the Department 

determine the fee cut-off? If the 

Department established a streamlined 

exemption for low-fee mutual funds and 

other products, how would the precise 

fee cut-off be determined? How often 

should it be updated? What are 

characteristics of mutual funds with 

very low fees? Should the cut-off be 

based on a percentage of the assets 

invested (i.e., a specified number of 

basis points) or as a percentile of the 

market? If a percentile, how should 

reliable data be obtained to determine 

fund percentiles? Are there available 

and appropriate sources of industry 

benchmarking data? Should the 

Department collect data for this 

purpose? Is the range of fees in the 

market known? Are there data that 

would suggest that mutual funds with 

relatively low fees are (or are not) high 

quality investments for a wide variety of 

Retirement Investors? 

• Should the low-fee cutoff be 

applied differently to different types of 

funds? Should a single fee cut-off apply 

broadly to all mutual funds, or would 

that exclude entire categories of funds 

with certain investment strategies? 

Would it be appropriate to develop subcategories of funds for the fee cut-offs? 

If so, how should the sub-categories be 

defined? 

• Should ETFs be covered? Within 

the category of mutual funds, should 

exchange-traded funds (ETFs) be 

covered under the streamlined 

exemption? If so, how would the 

commission associated with an ETF 

transaction be incorporated into the 

low-fee calculation? 

• What, if any, conditions other than 

low fees should be required as part of 

the streamlined exemption? If the 

streamlined exemption covers only 

mutual funds, are conditions relating to 

their availability and transparent pricing 

unnecessary? Are conditions relating to 

liquidity necessary? Should funds 

covered by the streamlined exemption 

be required to be broadly diversified to 

minimize risk for targeted return? 

Should the streamlined exemption 

contain a requirement that the 

investment be calibrated to provide a 

balance of risk and return appropriate to 

the investor’s circumstances and 

preferences for the duration of the 

recommended holding period? Should 

the funds be required to meet the 

requirements of a ‘‘qualified default 

investment alternative,’’ as described in 

29 CFR 2550.404c–5? 

• How should the low-fee cut-off be 

communicated to Advisers and 

Financial Institutions? Should the 

initial cut-off and subsequent updates 

be written as a condition of the 

exemption, or publicized through other 

formats? How would Advisers and 

Financial Institutions be sure that 

certain funds meet the low-fee cut-off? 

By what means and how frequently 

should Advisers and Financial 

Institutions be required to confirm that 

mutual funds that they recommend (or 

recommended in the past) continue to 

meet the low-fee cut-off? 

• How could consumers police the 

low-fee cut-off? What enforcement 

mechanism could be used to assure that 

the Advisers taking advantage of such a 

safe harbor are correctly analyzing 

whether their products meet the cut-off? 

Utility. In addition to seeking 

comment on the technical design of the 

streamlined exemption, the Department 

asks for information on whether the 

low-fee streamlined exemption would 

effectively reduce the compliance 

burden for a significant number of 

Advisers and Financial Institutions. 

Because of its design, the low-fee 

streamlined exemption would generally 

apply on a product-by-product basis 

rather than at the Financial Institution 

level, unless the Financial Institution 

and its Advisers exclusively advise 

retail customers to invest in the low-fee 

products. Therefore, the Department 

asks: 

• Would Advisers and Financial 

Institutions restrict their business 

models to offer only the low-fee mutual 

funds that the Department envisions 

covering in the streamlined exemption? 

Or, would Advisers that offer products 

outside the streamlined exemption 

(higher-fee mutual funds as well as 

other investment products such as 

stocks and bonds) rely on the 

streamlined exemption for the low-fee 

mutual fund investments and the Best 

Interest Contract Exemption for the 

other investments? If Advisers and 

Financial Institutions had to implement 

the safeguards required by the Best 

Interest Contract Exemption for many of 

their Retirement Investor customers, 

would the availability of the 

streamlined exemption result in 

material cost savings to them? 

• How do low-fee investment 

products compensate Advisers for 

distribution? Do low-fee funds tend to 

pay sales loads, revenue sharing and 

12b–1 fees? If not, how would Advisers 

and Financial Institutions be 

compensated within the low-fee 

confines of the streamlined exemption? 

• What design features would be most 

likely to enhance the utility of the lowfee streamlined exemption? 

Consequences. The Department seeks 

the public’s views on the potential 

consequences of granting a streamlined 

exemption for certain types of 

investments. 

• Would a streamlined exemption 

limited to low-fee mutual fund 

investments or other categories of 

investments be in the interests of plans 

and their participants and beneficiaries? 

Would the availability of the 

streamlined exemption discourage 

Advisers and Financial Institutions from 

offering other types of investments, 

including higher-cost mutual funds, 

even if the offering of such other 

investments would be in the best 

interest of the plan, participant or 

beneficiary, or IRA owner? Would the 

streamlined exemption have the 

beneficial effect of reducing investment 

costs? On the other hand, could the 

streamlined exemption result in some of 

the lowest-cost investment products 

increasing their fees to the cut-off 

threshold? Would it expand the number 

of Financial Institutions that developed 

low-fee options, making them more 

widely available? 

• How would the streamlined 

exemption affect the marketplace for 

investment products? Would a low-fee 

streamlined exemption have the 

unintended effect of unduly promoting 

certain investment styles? Which types 

of Advisers and Financial Institutions 

would be most affected and would they 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21980 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

38 40 FR 50845 (Oct. 31, 1975). 

39 Id., as amended at 71 FR 5883 (Feb. 3, 2006). 

40 48 FR 895 (Jan. 7, 1983). 

41 69 FR 57964 (Sept. 28, 2004). 

42 71 FR 63786 (Oct. 31, 2006). 

43See the notices with respect to these proposals, 

published elsewhere in this issue of the Federal 

Register. 44See Section II(b). 45See Section II(c). 

46See Section II(d)(2)–(4). 

47See Section V(a). 

48See Section V(c). 

49 In this regard, the Department anticipates 

making the Impartial Conduct Standards 

amendments to PTEs 86–128 and 84–24 effective as 

of the Applicability Date. 

be likely to revise their business models 

in response? Would there be increased 

competition among Advisers and 

Financial Institutions to offer 

investment products with lower fees? 

Would Retirement Investors have more 

choices to diversify while paying less in 

fees? Would Financial Institutions and 

Advisers offer other incentives to 

Retirement Investors in order to sell 

specific products? 

Availability of Other Prohibited 

Transaction Exemptions 

Certain existing exemptions, 

including amendments thereto and 

superseding exemptions, provide relief 

for specific types of transactions that are 

outside of the scope of this proposed 

exemption. A person seeking relief for a 

transaction covered by one of those 

existing exemptions would need to 

comply with its requirements and 

conditions. Those exemptions are as 

follows: 

(1) PTE 75–1 (Part III),38 which 

provides relief for a plan’s acquisition of 

securities during an underwriting or 

selling syndicate from any person other 

than a fiduciary who is a member of the 

syndicate. 

(2) PTE 75–1 (Part V),39 which 

exempts an extension of credit to a plan 

from a party in interest. 

(3) PTE 83–1,40 which provides relief 

for certain transactions involving 

mortgage pool investment trusts and 

pass-through certificates evidencing 

interests therein. 

(4) PTE 2004–16,41 which provides 

relief for a fiduciary of the plan who is 

the employer of employees covered 

under the plan to establish individual 

retirement plans for certain mandatory 

distributions on behalf of separated 

employees at a financial institution that 

is itself or an affiliate, and also select a 

proprietary investment product as the 

initial investment for the plan. 

(5) PTE 2006–16,42 which exempts 

certain loans of securities by plans to 

broker-dealers and banks and provides 

relief for the receipt of compensation by 

a fiduciary for services rendered in 

connection with the securities loans. 

Applicability Date 

The Department is proposing that 

compliance with the final regulation 

defining a fiduciary under ERISA 

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

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

after publication of the final regulation 

in the Federal Register (Applicability 

Date). The Department proposes to make 

this exemption, if granted, available on 

the Applicability Date. Further, the 

Department is proposing to revoke relief 

for transactions involving IRAs from 

two existing exemptions, PTEs 86–128 

and 84–24, as of the Applicability 

Date.43 As a result, Advisers and 

Financial Institutions, including those 

newly defined as fiduciaries, will 

generally have to comply with this 

exemption to receive many common 

forms of compensation in transactions 

involving IRAs. 

The Department recognizes that 

complying with the requirements of the 

exemption may represent a significant 

adjustment for many Advisers and 

Financial Institutions, particularly in 

their dealings with IRA owners. At the 

same time, in the Department’s view, it 

is essential that Advisers and Financial 

Institutions wishing to receive 

compensation under the exemption 

institute certain conditions for the 

protection of IRA customers as of the 

Applicability Date. These safeguards 

include: Acknowledging fiduciary 

status,44 complying with the Impartial 

Conduct Standards,45 adopting anticonflict policies and procedures,46

notifying EBSA of the use of the 

exemption,47 and recordkeeping.48 The 

Department requests comment on 

whether Financial Institutions 

anticipate that there will be existing 

contractual obligations or other barriers 

that would prevent them from 

implementing the exemption’s policies 

and procedures requirement in this time 

frame. 

The Department also specifically 

requests comment on whether it should 

delay certain other conditions of the 

exemption as applicable to IRA 

transactions for an additional period 

(e.g., three months) following the 

Applicability Date. For example, one 

possibility would be to delay the 

requirement that Advisers and Financial 

Institutions execute a contract with their 

IRA customers for an additional threemonth period, as well as the disclosure 

requirements in Sections III and the data 

collection requirements described in 

Section IX. This phased approach 

would give Financial Institutions 

additional time to review and refine 

their policies and procedures and to put 

new compliance systems in place, 

without exposure to contractual liability 

to the IRA owners. 

The Department does not believe that 

such additional delay would be 

warranted for Advisers and Financial 

Institutions with respect to transactions 

involving ERISA plan sponsors and 

ERISA plan participants and 

beneficiaries. Advisers and Financial 

Institutions to ERISA plans and their 

participants and beneficiaries are 

accustomed to working within the 

existing exemptions, such as PTEs 86– 

128 and 84–24, and such exemptions 

would remain available to them while 

they develop systems for complying 

with this exemption.49 Nevertheless, the 

Department also requests comments on 

the appropriate period for phasing in 

some or all of the exemption’s 

conditions with respect to ERISA plans 

as well as IRAs. 

The Department additionally notes 

that, elsewhere in this issue of the 

Federal Register, it has proposed to 

revoke another existing exemption, PTE 

75–1, Part II(2), in its entirety in 

connection with a proposed amendment 

to PTE 86–128. The Department 

requests comment on whether this 

exemption is widely used and whether 

it should delay revocation for some 

period after the Applicability Date while 

Advisers and Financial Institutions 

develop systems for complying with 

PTE 86–128. 

No Relief Proposed From ERISA Section 

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

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

Services 

If granted, this proposed exemption 

will not provide relief from a 

transaction prohibited by ERISA section 

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

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

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

regarding the furnishing of goods, 

services or facilities between a plan and 

a party in interest. The provision of 

investment advice to a plan under a 

contract with a plan fiduciary is a 

service to the plan and compliance with 

this exemption will not relieve an 

Adviser or Financial Institution of the 

need to comply with ERISA section 

408(b)(2), Code section 4975(d)(2), and 

applicable regulations thereunder. 

Paperwork Reduction Act Statement 

As part of its continuing effort to 

reduce paperwork and respondent 

burden, the Department conducts a 

preclearance consultation program to 

provide the general public and Federal 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21981 

50The 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). 

51As described in the regulatory impact analysis 

for the accompanying rule, the Department 

estimates that approximately 2,619 broker dealers 

service the retirement market. The Department 

anticipates that the exemption will be used 

primarily, but not exclusively, by broker-dealers. 

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

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

Department estimates that almost 200 other 

financial institutions will use the exemption. 

52The Department welcomes comment on this 

estimate. 

53For purposes of this analysis, ‘‘IRA holders’’ 

include rollovers from ERISA plans. 

54The Department assumes that nearly all 

financial institutions already maintain Web sites 

and that updates to the disclosure required by 

Section III(c) could be automated. Therefore, the IT 

costs required by Section III(c) would be almost 

exclusively start-up costs. The Department invites 

comment on these assumptions. 

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 Best Interest Contract 

Exemption (PTE) 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 PTE to the Office of Management 

and Budget (OMB) in accordance with 

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

information collections. The 

Department and OMB are particularly 

interested in comments that: 

• Evaluate whether the collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

collection of information, including the 

validity of the methodology and 

assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., permitting electronic submission of 

responses. 

Comments should be sent to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 20503; 

Attention: Desk Officer for the 

Employee Benefits Security 

Administration. OMB requests that 

comments be received within 30 days of 

publication of the proposed PTE to 

ensure their consideration. 

PRA Addressee: Address requests for 

copies of the ICR to G. Christopher 

Cosby, Office of Policy and Research, 

U.S. Department of Labor, Employee 

Benefits Security Administration, 200 

Constitution Avenue NW., Room N– 

5718, Washington, DC 20210. 

Telephone (202) 693–8410; Fax: (202) 

219–5333. These are not toll-free 

numbers. ICRs submitted to OMB also 

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

As discussed in detail below, the PTE 

would require financial institutions and 

their advisers to enter into a contractual 

arrangement with retirement investors 

making investment decisions on behalf 

of the plan or IRA (i.e., plan participants 

or beneficiaries, IRA owners, or small 

plan sponsors (or employees, officers or 

directors thereof)), and make certain 

disclosures to the retirement investors 

and the Department in order to receive 

relief from ERISA’s prohibited 

transaction rules for the receipt of 

compensation as a result of a financial 

institution’s and its adviser’s advice 

(i.e., prohibited compensation). 

Financial institutions would be required 

to maintain records necessary to prove 

that the conditions of the exemption 

have been met. These requirements are 

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: 

• Disclosures distributed 

electronically will be distributed via 

means already used by respondents in 

the normal course of business and the 

costs arising from electronic distribution 

will be negligible; 

• Financial institutions will use 

existing in-house resources to prepare 

the contracts and disclosures, adjust 

their IT systems, 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, $79.67 for an IT 

professional, and $129.94 for a legal 

professional; 50

• Approximately 2,800 financial 

institutions 51 will take advantage of this 

exemption and they will use this 

exemption in conjunction with 

transactions involving nearly all of their 

clients that are small defined benefit 

and defined plans, participant directed 

defined contribution plans, and IRA 

holders.52 53 Eight percent of financial 

institutions (approximately 224) will be 

new firms beginning use of this 

exemption each year. 

Contract, Disclosures, and Notices 

In order to receive prohibited 

compensation under this PTE, Section II 

requires financial institutions and 

advisers to enter into a written contract 

with retirement investors affirmatively 

stating that they are fiduciaries under 

ERISA or the Code with respect to any 

recommendations to the retirement 

investor to purchase, sell or hold 

specified assets, and that the financial 

institution and adviser will give advice 

that is in the best interest of the 

retirement investor. 

Section III(a) requires the adviser to 

furnish the retirement investor with a 

disclosure prior to the execution of the 

purchase of the asset stating the total 

cost of investing in the asset. Section 

III(b) requires the adviser or financial 

institution to furnish the retirement 

investor with an annual statement 

listing all assets purchased or sold 

during the year, as well as the 

associated fees and expenses paid by the 

plan, participant or beneficiary account, 

or IRA, and the compensation received 

by the financial institution and the 

adviser. Section III(c) requires the 

financial institution to maintain a 

publicly available Web page displaying 

the compensation (including its source 

and how it varies within asset classes) 

that would be received by the adviser, 

the financial institution and any affiliate 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21982 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

54The Department assumes that nearly all 

financial institutions already maintain Web sites 

and that updates to the disclosure required by 

Section III(c) could be automated. Therefore, the IT 

costs required by Section III(c) would be almost 

exclusively start-up costs. The Department invites 

comment on these assumptions. 

with respect to any asset that a plan, 

participant or beneficiary account, or 

IRA could purchase through the adviser. 

If the financial institution limits the 

assets available for sale, Section IV 

requires the financial institution to 

furnish the retirement investor with a 

written description of the limitations 

placed on the menu. The adviser must 

also notify the retirement investor if it 

does not recommend a sufficiently 

broad range of assets to meet the 

retirement investor’s needs. 

Finally, before the financial 

institution begins engaging in 

transactions covered under this PTE, 

Section V(a) requires the financial 

institution to provide notice to the 

Department of its intent to rely on this 

proposed PTE. 

Legal Costs 

The Department estimates that 

drafting the PTE’s contractual 

provisions, the notice to the 

Department, and the limited menu 

disclosure will require 60 hours of legal 

time for financial institutions during the 

first year that the financial institution 

uses the PTE. This legal work results in 

approximately 168,000 hours of burden 

during the first year and approximately 

13,000 hours of burden during 

subsequent years at an equivalent cost 

of $21.8 million and $1.7 million 

respectively. 

IT Costs 

The Department estimates that 

updating computer systems to create the 

required disclosures, insert the contract 

provisions into existing contracts, 

maintain the required records, and 

publish information on the Web site 

will require 100 hours of IT staff time 

for financial institutions during the first 

year that the financial institution uses 

the PTE.54 This IT work results in 

approximately 280,000 hours of burden 

during the first year and approximately 

22,000 hours of burden during 

subsequent years at an equivalent cost 

of $22.3 million and $1.8 million 

respectively. 

Production and Distribution of Required 

Contract, Disclosures, and Notices 

The Department estimates that 

approximately 21.3 million plans and 

IRAs have relationships with financial 

institutions and are likely to engage in 

transactions covered under this PTE. 

The Department assumes that 

financial institutions already maintain 

contracts with their clients. Therefore, 

the required contractual provisions will 

be inserted into existing contracts with 

no additional cost for production or 

distribution. 

The Department assumes that 

financial institutions will send 

approximately 24 point-of-sale 

transaction disclosures each year to 

37,000 small defined benefit plans and 

small defined contribution plans that do 

not allow participants to direct 

investments. All of these disclosures 

will be sent electronically at de minimis 

cost. Financial institutions will send 

two point-of-sale transaction disclosures 

each year to 1.1 million defined 

contribution plans participants and 20.2 

million IRA holders. These disclosures 

will be distributed electronically to 75 

percent of defined contribution plan 

participants and IRA holders. Paper 

copies of the disclosure will be given to 

25 percent of defined contribution plan 

participants and IRA holders. Further, 

15 percent of the paper copies will be 

mailed, while the other 85 percent will 

be hand-delivered during in-person 

meetings. The Department estimates 

that electronic distribution will result in 

de minimis cost, while paper 

distribution will cost approximately 

$1.3 million. Paper distribution will 

also require one minute of clerical time 

to print the disclosure and one minute 

of clerical time to mail the disclosure, 

resulting in 204,000 hours at an 

equivalent cost of $6.2 million annually. 

The Department estimates that 21.3 

million plans and IRAs will receive an 

annual statement. Small defined benefit 

and defined contribution plans that do 

not allow participants to direct 

investments will receive a ten page 

statement electronically at de minimis 

cost. Defined contribution plan 

participants and IRA holders will 

receive a two page statement. This 

statement will be distributed 

electronically to 38 percent of defined 

contribution plan participants and 50 

percent of IRA holders. Paper 

statements will be mailed to 62 percent 

of defined contribution plan 

participants and 50 percent of IRA 

holders. The Department estimates that 

electronic distribution will result in de 

minimis cost, while paper distribution 

will cost approximately $6.3 million. 

Paper distribution will also require two 

minutes of clerical time to print and 

mail the disclosure, resulting in 359,000 

hours at an equivalent cost of $10.9 

million annually. 

For purposes of this estimate, the 

Department assumes that nearly all 

financial institutions using the PTE will 

limit their investment menus in some 

way and provide the limited menu 

disclosure. Accordingly, during the first 

year of the exemption the Department 

estimates that all of the 21.3 million 

plans and IRAs would receive the onepage limited menu disclosure. In 

subsequent years, approximately 1.7 

million plans and IRAs would receive 

the one-page limited menu disclosure. 

Small defined benefit and defined 

contribution plans that do not allow 

participants to direct investments would 

receive the disclosure electronically at 

de minimis cost. The disclosure would 

be distributed electronically to 75 

percent of defined contribution plan 

participants and IRA holders. Paper 

copies of the disclosure would be given 

to 25 percent of defined contribution 

plan participants and IRA holders. 

Further, 15 percent of the paper copies 

would be mailed, while the other 85 

percent would be hand-delivered during 

in-person meetings. The Department 

estimates that electronic distribution 

would result in de minimis cost, while 

paper distribution would cost 

approximately $922,000 during the first 

year and approximately $74,000 in 

subsequent years. Paper distribution 

would also require one minute of 

clerical time to print the disclosure and 

one minute of clerical time to mail the 

disclosure, resulting in 244,000 hours in 

the first year and 20,000 hours in 

subsequent years at an equivalent cost 

of $7.4 million and $595,000 

respectively. If, as seems likely, many 

financial institutions choose not to limit 

the universe of investment 

recommendations, we would expect the 

actual costs to be substantially smaller. 

Finally, the Department estimates that 

all of the 2,800 financial institutions 

would mail the required one-page notice 

to the Department during the first year 

and approximately 224 new financial 

institutions would mail the required 

one-page notice to the Department in 

subsequent years. Producing and 

distributing this notice would cost 

approximately $1,500 during the first 

year and approximately $100 in 

subsequent years. Producing and 

distributing this notice would also 

require 2 minutes of clerical time 

resulting in a burden of approximately 

93 hours during the first year and 

approximately 7 hours in subsequent 

years at an equivalent cost of $2,800 and 

$200 respectively. 

Recordkeeping Requirement 

Section V(b) requires financial 

institutions to maintain investment 

return data in a manner accessible for 

examination by the Department for six 

years. Section V(c) and (d) requires 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21983 

financial institutions 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, and participants, 

beneficiaries and IRA owners to 

determine whether the conditions of 

this exemption have been met in a 

manner that is accessible for audit and 

examination. 

Most of the data retention 

requirements in Section V(b) are 

consistent with data retention 

requirements made by the SEC and 

FINRA. In addition, the data retention 

requirements correspond to the six year 

statute of limitations in Section 413 of 

ERISA. Insofar as the data retention time 

requirements in Section V(b) are 

lengthier than those required by the SEC 

and FINRA, the Department assumes 

that retaining data for an additional time 

period is a de minimis additional 

burden. 

The records required in Section V(c) 

and Section V(d) are generally kept as 

regular and customary business 

practices. 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 would be required 

for a total hour burden of 2,100 hours 

at an equivalent cost of $198,000. 

In connection with this recordkeeping 

and disclosure requirements discussed 

above, Section V(d)(2) and (3) provide 

that financial institutions relying on the 

exemption do not have to disclose trade 

secrets or other confidential information 

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

fiduciaries, contributing employers or 

employee organizations whose members 

are covered by the plan, participants 

and beneficiaries and IRA owners), but 

that in the event a financial institution 

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 

PTE, 2,800 financial institutions will 

produce 86 million disclosures and 

notices during the first year of this PTE 

and 66.4 million disclosures and notices 

during subsequent years. These 

disclosures and notices will result in 1.3 

million burden hours during the first 

year and 620,000 burden hours in 

subsequent years, at an equivalent cost 

of $68.9 million and $21.4 million 

respectively. The disclosures and 

notices in this exemption will also 

result in a total cost burden for materials 

and postage of $8.6 million during the 

first year and $7.7 million during 

subsequent years. 

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 Best Interest 

Contract Exemption. 

OMB Control Number: 1210–NEW. 

Affected Public: Business or other forprofit. 

Estimated Number of Respondents: 

2,800. 

Estimated Number of Annual 

Responses: 85,985,156 in the first year 

and 66,394,985 in subsequent years. 

Frequency of Response: Initially, 

Annually, and When engaging in 

exempted transaction. 

Estimated Total Annual Burden 

Hours: 1,256,862 during the first year 

and 619,766 in subsequent years. 

Estimated Total Annual Burden Cost: 

$8,582,764 during the first year and 

$7,733,247 in subsequent years. 

General Information 

The attention of interested persons is 

directed to the following: 

(1) The fact that a transaction is the 

subject of an exemption under ERISA 

section 408(a) and Code section 

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

other party in interest or disqualified 

person with respect to a plan or IRA 

from certain other provisions of ERISA 

and the Code, including any prohibited 

transaction provisions to which the 

exemption does not apply and the 

general fiduciary responsibility 

provisions of ERISA section 404 which 

require, among other things, that a 

fiduciary discharge his or her duties 

respecting the plan solely in the 

interests of the participants and 

beneficiaries of the plan. Additionally, 

the fact that a transaction is the subject 

of an exemption does not affect the 

requirement of Code section 401(a) that 

the plan must operate for the exclusive 

benefit of the employees of the 

employer maintaining the plan and their 

beneficiaries; 

(2) Before 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 participants 

and beneficiaries of the plan and IRA 

owners; 

(3) If granted, the proposed exemption 

is applicable to a particular transaction 

only if the transaction satisfies the 

conditions specified in the exemption; 

and 

(4) The proposed exemption, if 

granted, 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 exemption to the address 

and within the time period set forth 

above. All comments received will be 

made a part of the record. Comments 

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 Exemption 

Section I—Best Interest Contract 

Exemption 

(a) In general. ERISA and the Internal 

Revenue Code prohibit fiduciary 

advisers to employee benefit plans 

(Plans) and individual retirement plans 

(IRAs) from receiving compensation that 

varies based on their investment 

recommendations. Similarly, fiduciary 

advisers are prohibited from receiving 

compensation from third parties in 

connection with their advice. This 

exemption permits certain persons who 

provide investment advice to 

Retirement Investors, and their 

associated financial institutions, 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21984 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

affiliates and other related entities, to 

receive such otherwise prohibited 

compensation as described below. 

(b) Covered transactions. This 

exemption permits Advisers, Financial 

Institutions, and their Affiliates and 

Related Entities to receive compensation 

for services provided in connection with 

a purchase, sale or holding of an Asset 

by a Plan, participant or beneficiary 

account, or IRA, as a result of the 

Adviser’s and Financial Institution’s 

advice to any of the following 

‘‘Retirement Investors:’’ 

(1) A participant or beneficiary of a 

Plan subject to Title I of ERISA with 

authority to direct the investment of 

assets in his or her Plan account or to 

take a distribution; 

(2) The beneficial owner of an IRA 

acting on behalf of the IRA; or 

(3) A plan sponsor as described in 

ERISA section 3(16)(B) (or any 

employee, officer or director thereof) of 

a non-participant-directed Plan subject 

to Title I of ERISA with fewer than 100 

participants, to the extent it acts as a 

fiduciary who has authority to make 

investment decisions for the Plan. 

As detailed below, parties seeking to 

rely on the exemption must 

contractually agree to adhere to 

Impartial Conduct Standards in 

rendering advice regarding Assets; 

warrant that they have adopted policies 

and procedures designed to mitigate the 

dangers posed by Material Conflicts of 

Interest; disclose important information 

relating to fees, compensation, and 

Material Conflicts of Interest; and retain 

documents and data relating to 

investment recommendations regarding 

Assets. The exemption provides relief 

from the restrictions of ERISA section 

406(a)(1)(D) and 406(b) and the 

sanctions imposed by Code section 

4975(a) and (b), by reason of Code 

section 4975(c)(1)(D), (E) and (F). The 

Adviser and Financial Institution must 

comply with the conditions of Sections 

II–V to rely on this exemption. 

(c) Exclusions. This exemption does 

not apply if: 

(1) The Plan is covered by Title I of 

ERISA, and (i) the Adviser, Financial 

Institution or any Affiliate is the 

employer of employees covered by the 

Plan, or (ii) the Adviser or Financial 

Institution is a named fiduciary or plan 

administrator (as defined in ERISA 

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

Plan, or an affiliate thereof, that was 

selected to provide advice to the Plan by 

a fiduciary who is not Independent; 

(2) The compensation is received as a 

result of a transaction in which the 

Adviser is acting on behalf of its own 

account or the account of the Financial 

Institution, or the account of a person 

directly or indirectly, through one or 

more intermediaries, controlling, 

controlled by, or under common control 

with the Financial Institution (i.e., a 

principal transaction); 

(3) The compensation is received as a 

result of investment advice to a 

Retirement Investor generated solely by 

an interactive Web site in which 

computer software-based models or 

applications provide investment advice 

based on personal information each 

investor supplies through the Web site 

without any personal interaction or 

advice from an individual Adviser (i.e., 

‘‘robo advice’’); or 

(4) The Adviser (i) exercises any 

discretionary authority or discretionary 

control respecting management of the 

Plan or IRA assets involved in the 

transaction or exercises any authority or 

control respecting management or 

disposition of the assets, or (ii) has any 

discretionary authority or discretionary 

responsibility in the administration of 

the Plan or IRA. 

Section II—Contract, Impartial 

Conduct, and Other Requirements 

(a) Contract. Prior to recommending 

that the Plan, participant or beneficiary 

account, or IRA purchase, sell or hold 

the Asset, the Adviser and Financial 

Institution enter into a written contract 

with the Retirement Investor that 

incorporates the terms required by 

Section II(b)–(e). 

(b) Fiduciary. The written contract 

affirmatively states that the Adviser and 

Financial Institution are fiduciaries 

under ERISA or the Code, or both, with 

respect to any investment 

recommendations to the Retirement 

Investor. 

(c) Impartial Conduct Standards. The 

Adviser and the Financial Institution 

affirmatively agree to, and comply with, 

the following: 

(1) When providing investment advice 

to the Retirement Investor regarding the 

Asset, the Adviser and Financial 

Institution will provide investment 

advice that is in the Best Interest of the 

Retirement Investor (i.e., advice that 

reflects the care, skill, prudence, and 

diligence under the circumstances then 

prevailing that a prudent person would 

exercise based on the investment 

objectives, risk tolerance, financial 

circumstances, and needs of the 

Retirement Investor, without regard to 

the financial or other interests of the 

Adviser, Financial Institution or any 

Affiliate, Related Entity, or other party); 

(2) When providing investment advice 

to the Retirement Investor regarding the 

Asset, the Adviser and Financial 

Institution will not recommend an Asset 

if the total amount of compensation 

anticipated to be received by the 

Adviser, Financial Institution, Affiliates 

and Related Entities in connection with 

the purchase, sale or holding of the 

Asset by the Plan, participant or 

beneficiary account, or IRA, will exceed 

reasonable compensation in relation to 

the total services they provide to the 

Retirement Investor; and 

(3) The Adviser’s and Financial 

Institution’s statements about the Asset, 

fees, Material Conflicts of Interest, and 

any other matters relevant to a 

Retirement Investor’s investment 

decisions, will not be misleading. 

(d) Warranties. The Adviser and 

Financial Institution affirmatively 

warrant the following: 

(1) The Adviser, Financial Institution, 

and Affiliates will comply with all 

applicable federal and state laws 

regarding the rendering of the 

investment advice, the purchase, sale 

and holding of the Asset, and the 

payment of compensation related to the 

purchase, sale and holding of the Asset; 

(2) The Financial Institution has 

adopted written policies and procedures 

reasonably designed to mitigate the 

impact of Material Conflicts of Interest 

and ensure that its individual Advisers 

adhere to the Impartial Conduct 

Standards set forth in Section II(c); 

(3) In formulating its policies and 

procedures, the Financial Institution has 

specifically identified Material Conflicts 

of Interest and adopted measures to 

prevent the Material Conflicts of Interest 

from causing violations of the Impartial 

Conduct Standards set forth in Section 

II(c); and 

(4) Neither the Financial Institution 

nor (to the best of its knowledge) any 

Affiliate or Related Entity uses quotas, 

appraisals, performance or personnel 

actions, bonuses, contests, special 

awards, differential compensation or 

other actions or incentives to the extent 

they would tend to encourage 

individual Advisers to make 

recommendations that are not in the 

Best Interest of the Retirement Investor. 

Notwithstanding the foregoing, the 

contractual warranty set forth in this 

Section II(d)(4) does not prevent the 

Financial Institution or its Affiliates and 

Related Entities from providing 

Advisers with differential compensation 

based on investments by Plans, 

participant or beneficiary accounts, or 

IRAs, to the extent such compensation 

would not encourage advice that runs 

counter to the Best Interest of the 

Retirement Investor (e.g., differential 

compensation based on such neutral 

factors as the difference in time and 

analysis necessary to provide prudent 

advice with respect to different types of 

investments would be permissible). 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21985 

(e) Disclosures. The written contract 

must specifically: 

(1) Identify and disclose any Material 

Conflicts of Interest; 

(2) Inform the Retirement Investor 

that the Retirement Investor has the 

right to obtain complete information 

about all the fees currently associated 

with the Assets in which it is invested, 

including all of the direct and indirect 

fees paid payable to the Adviser, 

Financial Institution, and any Affiliates; 

and 

(3) Disclose to the Retirement Investor 

whether the Financial Institution offers 

Proprietary Products or receives Third 

Party Payments with respect to the 

purchase, sale or holding of any Asset, 

and of the address of the Web site 

required by Section III(c) that discloses 

the compensation arrangements entered 

into by Advisers and the Financial 

Institution. 

(f) Prohibited Contractual Provisions. 

The written contract shall not contain 

the following: 

(1) Exculpatory provisions 

disclaiming or otherwise limiting 

liability of the Adviser or Financial 

Institution for a violation of the 

contract’s terms; and 

(2) A provision under which the Plan, 

IRA or Retirement Investor waives or 

qualifies its right to bring or participate 

in a class action or other representative 

action in court in a dispute with the 

Adviser or Financial Institution. 

Section III—Disclosure Requirements 

(a) Transaction Disclosure. 

(1) Disclosure. Prior to the execution 

of the purchase of the Asset by the Plan, 

participant or beneficiary account, or 

IRA, the Adviser furnishes to the 

Retirement Investor a chart that 

provides, with respect to each Asset 

recommended, the Total Cost to the 

Plan, participant or beneficiary account, 

or IRA, of investing in the Asset for 

1-, 5- and 10-year periods expressed as 

a dollar amount, assuming an 

investment of the dollar amount 

recommended by the Adviser and 

reasonable assumptions about 

investment performance that are 

disclosed. 

The disclosure chart required by this 

section need not be provided with 

respect to a subsequent 

recommendation to purchase the same 

investment product if the chart was 

previously provided to the Retirement 

Investor within the past twelve months 

and the Total Cost has not materially 

changed. 

(2) Total Cost. The ‘‘Total Cost’’ of 

investing in an Asset means the sum of 

the following, as applicable: 

(A) Acquisition costs. Any costs of 

acquiring the Asset that are paid by 

direct charge to the Plan, participant or 

beneficiary account, or IRA, or that 

reduce the amount invested in the Asset 

(e.g., any loads, commissions, or markups on Assets bought from dealers, and 

account opening fees, if applicable). 

(B) Ongoing costs. Any ongoing (e.g., 

annual) costs attributable to fees and 

expenses charged for the operation of an 

Asset that is a pooled investment fund 

(e.g., mutual fund, bank collective 

investment fund, insurance company 

pooled separate account) that reduces 

the Asset’s rate of return (e.g., amounts 

attributable to a mutual fund expense 

ratio and account fees). This includes 

amounts paid by the pooled investment 

fund to intermediaries, such as sub-TA 

fees, sub-accounting fees, etc. 

(C) Disposition costs. Any costs of 

disposing of or redeeming an interest in 

the Asset that are paid by direct charge 

to the Plan, participant or beneficiary 

account, or IRA, or that reduce the 

amounts received by the Plan, 

participant or beneficiary account, or 

IRA (e.g., surrender fees, back-end 

loads, etc., that are always applicable 

(i.e., do not sunset), mark-downs on 

assets sold to dealers, and account 

closing fees, if applicable). 

(D) Others. Any costs not described in 

(A)–(C) that reduce the Asset’s rate of 

return, are paid by direct charge to the 

Plan, participant or beneficiary account, 

or IRA, or reduce the amounts received 

by the Plan, participant or beneficiary 

account, or IRA (e.g., contingent fees, 

such as back-end loads that phase out 

over time (with such terms explained 

beneath the table)). 

(3) Model Chart. Appendix II to this 

exemption contains a model chart that 

may be used to provide the information 

required under this Section III(a). Use of 

the model chart is not mandatory. 

However, use of an appropriately 

completed model chart will be deemed 

to satisfy the requirements of this 

Section III(a). 

(b) Annual Disclosure. The Adviser or 

Financial Institution provides the 

following written information to the 

Retirement Investor, annually, within 45 

days of the end of the applicable year, 

in a succinct single disclosure: 

(1) A list identifying each Asset 

purchased or sold during the applicable 

period and the price at which the Asset 

was purchased or sold; 

(2) A statement of the total dollar 

amount of all fees and expenses paid by 

the Plan, participant or beneficiary 

account, or IRA (directly and indirectly) 

with respect to each Asset purchased, 

held or sold during the applicable 

period; and 

(3) A statement of the total dollar 

amount of all compensation received by 

the Adviser and Financial Institution, 

directly or indirectly, from any party, as 

a result of each Asset sold, purchased or 

held by the Plan, participant or 

beneficiary account, or IRA during the 

applicable period. 

(c) Web page. 

(1) The Financial Institution 

maintains a Web page, freely accessible 

to the public, which shows the 

following information: 

(A) The direct and indirect material 

compensation payable to the Adviser, 

Financial Institution and any Affiliate 

for services provided in connection with 

each Asset (or, if uniform across a class 

of Assets, the class of Assets) that a 

Plan, participant or beneficiary account, 

or an IRA is able to purchase, hold, or 

sell through the Adviser or Financial 

Institution, and that a Plan, participant 

or beneficiary account, or an IRA has 

purchased, held, or sold within the last 

365 days. The compensation may be 

expressed as a monetary amount, 

formula or percentage of the assets 

involved in the purchase, sale or 

holding; and 

(B) The source of the compensation, 

and how the compensation varies 

within and among Assets. 

(2) The Financial Institution’s Web 

page provides access to the information 

in (1)(A) and (B) in a machine readable 

format. 

Section IV—Range of Investment 

Options 

(a) General. The Financial Institution 

offers for purchase, sale or holding, and 

the Adviser makes available to the Plan, 

participant or beneficiary account, or 

IRA for purchase, sale or holding, a 

range of Assets that is broad enough to 

enable the Adviser to make 

recommendations with respect to all of 

the asset classes reasonably necessary to 

serve the Best Interests of the 

Retirement Investor in light of its 

investment objectives, risk tolerance, 

and specific financial circumstances. 

(b) Limited Range of Investment 

Options. Section (a) notwithstanding, a 

Financial Institution may limit the 

Assets available for purchase, sale or 

holding based on whether the Assets are 

Proprietary Products, generate Third 

Party Payments, or for other reasons, 

and still rely on the exemption, 

provided that: 

(1) The Financial Institution makes a 

specific written finding that the 

limitations it has placed on the Assets 

made available to an Adviser for 

purchase, sale or holding by Plans, 

participant and beneficiary accounts, 

and IRAs do not prevent the Adviser 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21986 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

from providing advice that is in the Best 

Interest of the Retirement Investor (i.e., 

advice that reflects the care, skill, 

prudence, and diligence under the 

circumstances then prevailing that a 

prudent person would exercise based on 

the investment objectives, risk 

tolerance, financial circumstances, and 

needs of the Retirement Investor, 

without regard to the financial or other 

interests of the Adviser, Financial 

Institution or any Affiliate, Related 

Entity, or other party) or otherwise 

adhering to the Impartial Conduct 

Standards; 

(2) Any compensation received in 

connection with a purchase, sale or 

holding of the Asset by a Plan, 

participant or beneficiary account, or an 

IRA, is reasonable in relation to the 

value of the specific services provided 

to the Retirement Investor in exchange 

for the payments and not in excess of 

the services’ fair market value; 

(3) Before giving investment 

recommendations to Retirement 

Investors, the Adviser or Financial 

Institution gives the Retirement Investor 

clear written notice of the limitations 

placed on the Assets that the Adviser 

may offer for purchase, sale or holding 

by a Plan, participant or beneficiary 

account, or an IRA. Notice is 

insufficient if it merely states that the 

Financial Institution or Adviser ‘‘may’’ 

limit investment recommendations 

based on whether the Assets are 

Proprietary Products or generate Third 

Party Payments, or for other reasons, 

without specific disclosure of the extent 

to which recommendations are, in fact, 

limited on that basis; and 

(4) The Adviser notifies the 

Retirement Investor if the Adviser does 

not recommend a sufficiently broad 

range of Assets to meet the Retirement 

Investor’s needs. 

(c) ERISA plan participants and 

beneficiaries. Some Advisers and 

Financial Institutions provide advice to 

participants in ERISA-covered 

participant directed individual account 

Plans in which the menu of investment 

options is selected by an Independent 

Plan fiduciary. In such cases, provided 

the Adviser and Financial Institution 

did not provide investment advice to 

the Plan fiduciary regarding the 

composition of the menu, the Adviser 

and Financial Institution do not have to 

comply with Section IV(a)–(c) in 

connection with their advice to 

individual participants and 

beneficiaries on the selection of Assets 

from the menu provided. This exception 

is not available for advice with respect 

to investments within open brokerage 

windows or otherwise outside the Plan’s 

designated investment options. 

Section V—Disclosure to the 

Department and Recordkeeping 

(a) EBSA Disclosure. Before receiving 

compensation in reliance on the 

exemption in Section I, the Financial 

Institution notifies the Department of 

Labor of the intention to rely on this 

class exemption. The notice will remain 

in effect until revoked in writing by the 

Financial Institution. The notice need 

not identify any Plan or IRA. 

(b) Data Request. The Financial 

Institution maintains the data that is 

subject to request pursuant to Section IX 

in a manner that is accessible for 

examination by the Department for six 

(6) years from the date of the transaction 

subject to relief hereunder. No party, 

other than the Financial Institution 

responsible for complying with this 

paragraph (b), will be subject to the 

taxes imposed by Code section 4975(a) 

and (b), if applicable, if the data is not 

maintained or not available for 

examination as required by paragraph 

(b). 

(c) Recordkeeping. The Financial 

Institution maintains for a period of six 

(6) years, in a manner that is accessible 

for examination, the records necessary 

to enable the persons described in 

paragraph (d) of this Section to 

determine whether the conditions of 

this exemption have been met, except 

that: 

(1) If such records are lost or 

destroyed, due to circumstances beyond 

the control of the Financial Institution, 

then no prohibited transaction will be 

considered to have occurred solely on 

the basis of the unavailability of those 

records; and 

(2) No party, other than the Financial 

Institution responsible for complying 

with this paragraph (c), will 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 applicable, if the records are not 

maintained or are not available for 

examination as required by paragraph 

(d), below. 

(d) (1) Except as provided in 

paragraph (d)(2) of this Section, and 

notwithstanding any provisions of 

ERISA section 504(a)(2) and (b), the 

records referred to in paragraph (c) of 

this Section are unconditionally 

available at their customary location for 

examination during normal business 

hours by: 

(A) Any authorized employee or 

representative of the Department or the 

Internal Revenue Service; 

(B) Any fiduciary of a Plan that 

engaged in a purchase, sale or holding 

of an Asset described in this exemption, 

or any authorized employee or 

representative of such fiduciary; 

(C) Any contributing employer and 

any employee organization whose 

members are covered by a Plan 

described in paragraph (d)(1)(B), or any 

authorized employee or representative 

of these entities; or 

(D) Any participant or beneficiary of 

a Plan described in paragraph (B), IRA 

owner, or the authorized representative 

of such participant, beneficiary or 

owner; and 

(2) None of the persons described in 

paragraph (d)(1)(B)–(D) of this Section 

are authorized to examine privileged 

trade secrets or privileged commercial 

or financial information, of the 

Financial Institution, or information 

identifying other individuals. 

(3) Should the Financial Institution 

refuse to disclose information on the 

basis that the information is exempt 

from disclosure, the Financial 

Institution must, by the close of the 

thirtieth (30th) day following the 

request, provide a written notice 

advising the requestor of the reasons for 

the refusal and that the Department may 

request such information. 

Section VI—Insurance and Annuity 

Contract Exemption 

(a) In general. In addition to 

prohibiting fiduciaries from receiving 

compensation from third parties and 

compensation that varies on the basis of 

the fiduciaries’ investment advice, 

ERISA and the Internal Revenue Code 

prohibit the purchase by a Plan, 

participant or beneficiary account, or 

IRA of an insurance or annuity product 

from an insurance company that is a 

service provider to the Plan or IRA. This 

exemption permits a Plan, participant or 

beneficiary account, or IRA to purchase 

an Asset that is an insurance or annuity 

contract in accordance with an 

Adviser’s advice, from a Financial 

Institution that is an insurance company 

and that is a service provider to the Plan 

or IRA. This exemption is provided 

because purchases of insurance and 

annuity products are often prohibited 

purchases and sales involving insurance 

companies that have a pre-existing party 

in interest relationship to the Plan or 

IRA. 

(b) Covered transaction. The 

restrictions of ERISA section 

406(a)(1)(A) and (D), and the sanctions 

imposed by Code section 4975(a) and 

(b), by reason of Code section 

4975(c)(1)(A) and (D), shall not apply to 

a fiduciary’s causing the purchase of an 

Asset that is an insurance or annuity 

contract by a non-participant-directed 

Plan subject to Title I of ERISA that has 

fewer than 100 participants, participant 

or beneficiary account, or IRA, from a 

Financial Institution that is an 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21987 

insurance company and that is a party 

in interest or disqualified person, if: 

(1) The transaction is effected by the 

insurance company in the ordinary 

course of its business as an insurance 

company; 

(2) The combined total of all fees and 

compensation received by the insurance 

company and any Affiliate is not in 

excess of reasonable compensation 

under the circumstances; 

(3) The purchase is for cash only; and 

(4) The terms of the purchase are at 

least as favorable to the Plan, participant 

or beneficiary account, or IRA as the 

terms generally available in an arm’s 

length transaction with an unrelated 

party. 

(c) Exclusion: The exemption in this 

Section VI does not apply if the Plan is 

covered by Title I of ERISA, and (i) the 

Adviser, Financial Institution or any 

Affiliate is the employer of employees 

covered by the Plan, or (ii) the Adviser 

and Financial Institution is a named 

fiduciary or plan administrator (as 

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

respect to the Plan, or an affiliate 

thereof, that was selected to provide 

advice to the plan by a fiduciary who is 

not Independent. 

Section VII—Exemption for PreExisting Transactions 

(a) In general. ERISA and the Internal 

Revenue Code prohibit Advisers, 

Financial Institutions and their 

Affiliates and Related Entities from 

receiving variable or third-party 

compensation as a result of the 

Adviser’s and Financial Institution’s 

advice to a Plan, participant or 

beneficiary, or IRA owner. Some 

Advisers and Financial Institutions did 

not consider themselves fiduciaries 

within the meaning of 29 CFR 2510– 

3.21 before the applicability date of the 

amendment to 29 CFR 2510–3.21 (the 

Applicability Date). Other Advisers and 

Financial Institutions entered into 

transactions involving Plans, participant 

or beneficiary accounts, or IRAs before 

the Applicability Date, in accordance 

with the terms of a prohibited 

transaction exemption that has since 

been amended. This exemption permits 

Advisers, Financial Institutions, and 

their Affiliates and Related Entities, to 

receive compensation, such as 12b–1 

fees, in connection with the purchase, 

sale or holding of an Asset by a Plan, 

participant or beneficiary account, or an 

IRA, as a result of the Adviser’s and 

Financial Institution’s advice, that 

occurred prior to the Applicability Date, 

as described and limited below. 

(b) Covered transaction. Subject to the 

applicable conditions described below, 

the restrictions of ERISA section 

406(a)(1)(D) and 406(b) and the 

sanctions imposed by Code section 

4975(a) and (b), by reason of Code 

section 4975(c)(1)(D), (E) and (F), shall 

not apply to the receipt of compensation 

by an Adviser, Financial Institution, and 

any Affiliate and Related Entity, for 

services provided in connection with 

the purchase, holding or sale of an 

Asset, as a result of the Adviser’s and 

Financial Institution’s advice, that was 

purchased, sold, or held by a Plan, 

participant or beneficiary account, or an 

IRA before the Applicability Date if: 

(1) The compensation is not excluded 

pursuant to Section I(c) of the Best 

Interest Contract Exemption; 

(2) The compensation is received 

pursuant to an agreement, arrangement 

or understanding that was entered into 

prior to the Applicability Date; 

(3) The Adviser and Financial 

Institution do not provide additional 

advice to the Plan regarding the 

purchase, sale or holding of the Asset 

after the Applicability Date; and 

(4) The purchase or sale of the Asset 

was not a non-exempt prohibited 

transaction pursuant to ERISA section 

406 and Code section 4975 on the date 

it occurred. 

Section VIII—Definitions 

For purposes of these exemptions: 

(a) ‘‘Adviser’’ means an individual 

who: 

(1) Is a fiduciary of a Plan or IRA 

solely by reason of the provision of 

investment advice described in ERISA 

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

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

applicable regulations, with respect to 

the Assets involved in the transaction; 

(2) Is an employee, independent 

contractor, agent, or registered 

representative of a Financial Institution; 

and 

(3) Satisfies the applicable federal and 

state regulatory and licensing 

requirements of insurance, banking, and 

securities laws with respect to the 

covered transaction. 

(b) ‘‘Affiliate’’ of an Adviser or 

Financial Institution means— 

(1) Any person directly or indirectly 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with the Adviser or 

Financial Institution. For this purpose, 

‘‘control’’ means the power to exercise 

a controlling influence over the 

management or policies of a person 

other than an individual; 

(2) Any officer, director, employee, 

agent, registered representative, relative 

(as defined in ERISA section 3(15)), 

member of family (as defined in Code 

section 4975(e)(6)) of, or partner in, the 

Adviser or Financial Institution; and 

(3) Any corporation or partnership of 

which the Adviser or Financial 

Institution is an officer, director or 

employee or in which the Adviser or 

Financial Institution is a partner. 

(c) An ‘‘Asset,’’ for purposes of this 

exemption, includes only the following 

investment products: Bank deposits, 

certificates of deposit (CDs), shares or 

interests in registered investment 

companies, bank collective funds, 

insurance company separate accounts, 

exchange-traded REITs, exchange-traded 

funds, corporate bonds offered pursuant 

to a registration statement under the 

Securities Act of 1933, agency debt 

securities as defined in FINRA Rule 

6710(l) or its successor, U.S. Treasury 

securities as defined in FINRA Rule 

6710(p) or its successor, insurance and 

annuity contracts, guaranteed 

investment contracts, and equity 

securities within the meaning of 17 CFR 

230.405 that are exchange-traded 

securities within the meaning of 17 CFR 

242.600. Excluded from this definition 

is any equity security that is a security 

future or a put, call, straddle, or other 

option or privilege of buying an equity 

security from or selling an equity 

security to another without being bound 

to do so. 

(d) Investment advice is in the ‘‘Best 

Interest’’ of the Retirement Investor 

when the Adviser and Financial 

Institution providing the advice act with 

the care, skill, prudence, and diligence 

under the circumstances then prevailing 

that a prudent person would exercise 

based on the investment objectives, risk 

tolerance, financial circumstances, and 

needs of the Retirement Investor, 

without regard to the financial or other 

interests of the Adviser, Financial 

Institution or any Affiliate, Related 

Entity, or other party. 

(e) ‘‘Financial Institution’’ means the 

entity that employs the Adviser or 

otherwise retains such individual as an 

independent contractor, agent or 

registered representative and that is: 

(1) Registered as an investment 

adviser under the Investment Advisers 

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

under the laws of the state in which the 

adviser maintains its principal office 

and place of business; 

(2) A bank or similar financial 

institution supervised by the United 

States or state, or a savings association 

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

Federal Deposit Insurance Act (12 

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

resulting in the compensation is 

provided through a trust department of 

the bank or similar financial institution 

or savings association which is subject 

to periodic examination and review by 

federal or state banking authorities; 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

21988 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

(3) An insurance company qualified 

to do business under the laws of a state, 

provided that such insurance company: 

(A) Has obtained a Certificate of 

Authority from the insurance 

commissioner of its domiciliary state 

which has neither been revoked nor 

suspended, 

(B) Has undergone and shall continue 

to undergo an examination by an 

Independent certified public accountant 

for its last completed taxable year or has 

undergone a financial examination 

(within the meaning of the law of its 

domiciliary state) by the state’s 

insurance commissioner within the 

preceding 5 years, and 

(C) Is domiciled in a state whose law 

requires that actuarial review of reserves 

be conducted annually by an 

Independent firm of actuaries and 

reported to the appropriate regulatory 

authority; or 

(4) A broker or dealer registered under 

the Securities Exchange Act of 1934 (15 

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

(f) ‘‘Independent’’ means a person 

that: 

(1) Is not the Adviser, the Financial 

Institution or any Affiliate relying on 

the exemption, 

(2) Does not receive compensation or 

other consideration for his or her own 

account from the Adviser, the Financial 

Institution or Affiliate; and 

(3) Does not have a relationship to or 

an interest in the Adviser, the Financial 

Institution or Affiliate that might affect 

the exercise of the person’s best 

judgment in connection with 

transactions described in this 

exemption. 

(g) ‘‘Individual Retirement Account’’ 

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

annuity described in Code section 

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

example, an individual retirement 

account described in section 408(a) of 

the Code and a health savings account 

described in section 223(d) of the Code. 

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

exists when an Adviser or Financial 

Institution has a financial interest that 

could affect the exercise of its best 

judgment as a fiduciary in rendering 

advice to a Retirement Investor 

regarding an Asset. 

(i) ‘‘Plan’’ means any employee 

benefit plan described in section 3(3) of 

the Act and any plan described in 

section 4975(e)(1)(A) of the Code. 

(j) ‘‘Proprietary Product’’ means a 

product that is managed by the 

Financial Institution or any of its 

Affiliates. 

(k) ‘‘Related Entity’’ means any entity 

other than an Affiliate in which the 

Adviser or Financial Institution has an 

interest which may affect the exercise of 

its best judgment as a fiduciary. 

(l) ‘‘Retirement Investor’’ means— 

(1) A participant or beneficiary of a 

Plan subject to Title I of ERISA with 

authority to direct the investment of 

assets in his or her Plan account or to 

take a distribution, 

(2) The beneficial owner of an IRA 

acting on behalf of the IRA, or 

(3) A plan sponsor as described in 

ERISA section 3(16)(B) (or any 

employee, officer or director thereof), of 

a non-participant-directed Plan subject 

to Title I of ERISA that has fewer than 

100 participants, to the extent it acts as 

a fiduciary with authority to make 

investment decisions for the Plan. 

(m) ‘‘Third-Party Payments’’ mean 

sales charges when not paid directly by 

the Plan, participant or beneficiary 

account, or IRA, 12b–1 fees and other 

payments paid to the Financial 

Institution or an Affiliate or Related 

Entity by a third party as a result of the 

purchase, sale or holding of an Asset by 

a Plan, participant or beneficiary 

account, or IRA. 

Section IX—Data Request 

Upon request by the Department, a 

Financial Institution that relies on the 

exemption in Section I shall provide, 

within a reasonable time, but in no 

event longer than six (6) months, after 

receipt of the request, the following 

information for the preceding six (6) 

year period: 

(a) Inflows. At the Financial 

Institution level, for each Asset 

purchased, for each quarter: 

(1) The aggregate number and identity 

of shares/units bought; 

(2) The aggregate dollar amount 

invested and the cost to the Plan, 

participant or beneficiary account, or 

IRA associated with the purchase; 

(3) The revenue received by the 

Financial Institution and any Affiliate in 

connection with the purchase of each 

Asset disaggregated by source; and 

(4) The identity of each revenue 

source (e.g., mutual fund, mutual fund 

adviser) and the reason the 

compensation was paid. 

(b) Outflows. At the Financial 

Institution level for each Asset sold, for 

each quarter: 

(1) The aggregate number of and 

identity of shares/units sold; 

(2) The aggregate dollar amount 

received and the cost to the Plan, 

participant or beneficiary account, or 

IRA, associated with the sale; 

(3) The revenue received by the 

Financial Institution and any Affiliate in 

connection with the sale of each Asset 

disaggregated by source; and 

(4) The identity of each revenue 

source (e.g., mutual fund, mutual fund 

adviser) and the reason the 

compensation was paid. 

(c) Holdings. At the Financial 

Institution level for each Asset held at 

any time during each quarter: 

(1) The aggregate number and identity 

of shares/units held at the end of such 

quarter; 

(2) The aggregate cost incurred by the 

Plan, participant or beneficiary account, 

or IRA, during such quarter in 

connection with the holdings; 

(3) The revenue received by the 

Financial Institution and any Affiliate in 

connection with the holding of each 

Asset during such quarter for each Asset 

disaggregated by source; and 

(4) The identity of each revenue 

source (e.g., mutual fund, mutual fund 

adviser) and the reason the 

compensation was paid. 

(d) Returns. At the Retirement 

Investor level: 

(1) The identity of the Adviser; 

(2) The beginning-of-quarter value of 

the Retirement Investor’s Portfolio; 

(3) The end-of-quarter value of the 

Retirement Investor’s Portfolio; and 

(4) Each external cash flow to or from 

the Retirement Investor’s Portfolio 

during the quarter and the date on 

which it occurred. 

For purposes of this subparagraph (d), 

‘‘Portfolio’’ means the Retirement 

Investor’s combined holding of assets 

held in a Plan account or IRA advised 

by the Adviser. 

(e) Public Disclosure. The Department 

reserves the right to publicly disclose 

information provided by the Financial 

Institution pursuant to subparagraph 

(d). If publicly disclosed, such 

information would be aggregated at the 

Adviser level, and the Department 

would not disclose any individually 

identifiable financial information 

regarding Retirement Investor accounts. 

Signed at Washington, DC, this 14th day of 

April, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

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

APPENDIX I FINANCIAL INSTITUTION ABC—WEB SITE DISCLOSURE MODEL FORM

Type of investment 

Provider, 

name, 

sub-type 

Transactional Ongoing 

Affiliate Special rules Charges to 

investor 

Compensation 

to firm 

Compensation 

to adviser 

Charges to 

investor 

Compensation 

to firm 

Compensation 

to adviser 

Non-Proprietary 

Mutual 

Fund 

(Load 

Fund).

XYZ MF 

Large 

Cap 

Fund, 

Class A 

Class B 

Class C.

[ • ]% sales 

load as applicable.

[ • ]% dealer 

concession.

[ • ]% of transactional fee 

Extent considered in 

annual 

bonus.

[ • ]% expense 

ratio.

[ • ]% 12b–1 

fee, revenue 

sharing (paid 

by fund/affiliate).

[ • ]% of ongoing fees.

Extent considered in annual bonus.

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

(as applicable) 

Contingent deferred 

shares 

charge (as 

applicable) 

Proprietary 

Mutual 

Fund 

(No 

load).

ABC MF 

Large 

Cap 

Fund.

No upfront 

charge.

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

ratio.

[ • ]% assetbased annual fee for 

shareholder 

servicing 

(paid by 

fund/affiliate).

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

[ • ]% assetbased investment advisory fee 

paid by fund 

to affiliate of 

Financial Institution.

N/A 

Equities, 

ETFs, 

Fixed 

Income.

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

transaction.

$[ • ] commission per 

transaction.

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

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

considered 

in annual 

bonus.

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

Annuities 

(Fixed 

and 

Variable).

Insurance 

Company A.

No upfront 

charge on 

amount invested.

$[ • ] commission (paid by 

insurer).

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

[ • ]% M&E fee 

[ • ]% underlying expense ratio.

$[ • ] Ongoing 

trailing commission 

(paid by underlying investment 

providers).

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

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

charge 

APPENDIX II FINANCIAL INSTITUTION

XZY—TRANSACTION DISCLOSURE

MODEL CHART

Your 

investment 

Total cost of your investment if held for: 

1 

year 

5 

years 

10 

years 

Asset 1 

Asset 2 

Asset 3 

Account 

fees 

Total 

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

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2550 

[Application Number D–11713] 

ZRIN 1210–ZA25 

Proposed Class Exemption for 

Principal Transactions in Certain Debt 

Securities between Investment Advice 

Fiduciaries and Employee Benefit 

Plans and IRAs 

AGENCY: Employee Benefits Security 

Administration (EBSA), U.S. 

Department of Labor. 

ACTION: Notice of Proposed Class 

Exemption. 

SUMMARY: This document contains a 

notice of pendency before the U.S. 

Department of Labor of a proposed 

exemption from certain prohibited 

transactions provisions of the Employee 

Retirement Income Security Act of 1974 

(ERISA) and the Internal Revenue Code 

(the Code). The provisions at issue 

generally prohibit fiduciaries with 

respect to employee benefit plans and 

individual retirement accounts (IRAs) 

from purchasing and selling securities 

when the fiduciaries are acting on 

behalf of their own accounts (principal 

transactions). The exemption proposed 

in this notice would permit principal 

transactions in certain debt securities 

between a plan, plan participant or 

beneficiary account, or an IRA, and a 

fiduciary that provides investment 

advice to the plan or IRA, under 

conditions to safeguard the interests of 

these investors. The proposed 

exemption would affect participants and 

beneficiaries of plans, IRA owners, and 

fiduciaries with respect to such plans 

and IRAs. 

DATES: Comments: Written comments 

concerning the proposed class 

exemption must be received by the 

Department on or before July 6, 2015. 

Applicability: The Department 

proposes to make this exemption 

available eight months after publication 

of the final exemption in the Federal 

Register. 

ADDRESSES: All written comments 

concerning the proposed class 

exemption should be sent to the Office 

of Exemption Determinations by any of 

the following methods, identified by 

ZRIN: 1210–ZA25: 

Federal eRulemaking Portal: http://

www.regulations.gov at Docket ID 

number: EBSA–EBSA–2014–0016. 

Follow the instructions for submitting 

comments. 

Email to: e-OED@dol.gov. 

Fax to: (202) 693–8474. 

Mail: Office of Exemption 

Determinations, Employee Benefits 

Security Administration, (Attention: D– 

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

Constitution Avenue NW., Suite 400, 

Washington, DC 20210. 

Hand Delivery/Courier: Office of 

Exemption Determinations, Employee 

Benefits Security Administration, 

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

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

Washington, DC 20001. 

Instructions. All comments must be 

received by the end of the comment 

period. The comments received will be 

available for public inspection in the 

Public Disclosure Room of the 

Employee Benefits Security 

Administration, U.S. Department of 

Labor, Room N–1513, 200 Constitution 

Avenue NW., Washington, DC 20210. 

Comments will also be available online 

at www.regulations.gov, at Docket ID 

number: EBSA–2014–0016 and 

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

mstockstill on DSK4VPTVN1PROD with PROPOSALS2