[Federal Register Volume 80, Number 75 (Monday, April 20, 2015)]
[Proposed Rules]
[Pages 22035-22042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-08839]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

[Application Number D-11820]
ZRIN 1210-ZA25


Proposed Amendments to Class Exemptions 75-1, 77-4, 80-83 and 83-
1

AGENCY: Employee Benefits Security Administration (EBSA), U.S. 
Department of Labor.

ACTION: Notice of proposed amendments to class exemptions.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor of proposed amendments to prohibited transaction 
exemptions (PTEs) 75-1, 77-4, 80-83 and 83-1. Generally, the Employee 
Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue 
Code (the Code) prohibit fiduciaries with respect to employee benefit 
plans and individual retirement accounts (IRAs) from engaging in self-
dealing, including using their authority, control or responsibility to 
affect or increase their own compensation. These existing exemptions 
generally permit fiduciaries to receive compensation or other benefits 
as a result of the use of their fiduciary authority, control or 
responsibility in connection with investment transactions involving 
plans or IRAs. The proposed amendments would require the fiduciaries to 
satisfy uniform Impartial Conduct Standards in order to obtain the 
relief available under each exemption. The proposed amendments would 
affect participants and beneficiaries of plans, IRA owners, and 
fiduciaries with respect to such plans and IRAs.

DATES: Comments: Written comments must be received by the Department on 
or before July 6, 2015.
    Applicability: The Department proposes to make these amendments 
applicable eight months after publication of the final exemption in the 
Federal Register.

ADDRESSES: All written comments concerning the proposed amendments to 
the class exemptions 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-11820), 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-11820), U.S. Department 
of Labor, 122 C St. NW., Suite 400, Washington, DC 20001. Instructions. 
All comments must be received by the end of the comment period. The 
comments received will be available for public inspection in the Public 
Disclosure Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue NW., 
Washington, DC 20210. Comments will also be available online at 
www.regulations.gov, at Docket ID number: EBSA-2014-0016 and 
www.dol.gov/ebsa, at no charge.
    Warning: All comments will be made available to the public. Do not 
include any personally identifiable information (such as Social 
Security number, name, address, or other contact information) or 
confidential business information that you do not want publicly 
disclosed. All comments may be posted on the Internet and can be 
retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Brian Shiker, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, (202) 693-8854 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION: The Department is proposing the amendments 
to the class exemptions on its own motion, pursuant to ERISA section 
408(a) and Code section 4975(c)(2), and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637 
(October 27, 2011)).

Executive Summary

Purpose of Regulatory Action

    The Department is proposing these amendments to existing class 
exemptions in connection with its proposed regulation defining a 
fiduciary under ERISA section 3(21)(A)(ii) and Code section 
4975(e)(3)(B) (Proposed Regulation), published elsewhere in this issue 
of the Federal Register. The Proposed Regulation specifies when an 
entity is a fiduciary by reason of the provision of investment advice 
for a fee or other compensation regarding assets of a plan or IRA. If 
adopted, the Proposed Regulation would replace an

[[Page 22036]]

existing regulation that was adopted in 1975. The Proposed Regulation 
is intended to take into account the advent of 401(k) plans and IRAs, 
the dramatic increase in rollovers, and other developments that have 
transformed the retirement plan landscape and the associated investment 
market over the four decades since the existing regulation was issued. 
In light of the extensive changes in retirement investment practices 
and relationships, the Proposed Regulation would update existing rules 
to distinguish more appropriately between the sorts of advice 
relationships that should be treated as fiduciary in nature and those 
that should not.
    This notice proposes that new ``Impartial Conduct Standards'' be 
made conditions of the following exemptions: PTEs 75-1, Part III, 75-1, 
Part IV, 77-4, 80-83 and 83-1. Fiduciaries would be required to act in 
accordance with these standards in transactions permitted by the 
exemptions. The standards will be uniformly imposed in multiple class 
exemptions, including new proposed exemptions published elsewhere in 
this issue of the Federal Register, to ensure that fiduciaries relying 
on the exemptions are held to a uniform set of standards and that these 
standards are applicable to transactions involving both plans and IRAs. 
The proposed amendments, if granted, would apply prospectively to 
fiduciaries relying on the exemptions.
    Section 408(a) of ERISA specifically authorizes the Secretary of 
Labor to grant administrative exemptions from ERISA's prohibited 
transaction provisions.\1\ Regulations at 29 CFR 2570.30 to 2570.52 
describe the procedures for applying for an administrative exemption. 
Before granting an exemption, the Department must find that it is 
administratively feasible, in the interests of plans and their 
participants and beneficiaries and IRA owners, and protective of the 
rights of participants and beneficiaries of such plans and IRA owners. 
Interested parties are permitted to submit comments to the Department 
on these proposed amendments, through July 6, 2015. Additionally, 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.
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    \1\ Code section 4975(c)(2) authorizes the Secretary of the 
Treasury to grant exemptions from the parallel prohibited 
transaction provisions of the Code. Reorganization Plan No. 4 of 
1978 (5 U.S.C. app. at 214 (2000)) generally transferred the 
authority of the Secretary of the Treasury to grant administrative 
exemptions under Code section 4975 to the Secretary of Labor. 
References in this document to sections of ERISA should be read to 
refer also to the corresponding sections of the Code. These proposed 
amendments to the class exemptions would apply to relief from the 
indicated prohibited transaction provisions of both ERISA and the 
Code.
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Summary of the Major Provisions

    The proposal would amend prohibited transaction exemptions 75-1, 
Part III, 75-1, Part IV, 77-4, 80-83 and 83-1. Each proposed amendment 
would apply the same Impartial Conduct Standards. The amendments would 
require a fiduciary that satisfies ERISA section 3(21)(A)(i) or (ii), 
or the corresponding provisions of Code section 4975(e)(3)(A) or (B), 
with respect to the assets involved in the investment transaction, to 
meet the standards with respect to the investment transactions 
described in the applicable exemption.

Regulatory Impact Analysis

Executive Order 12866 and 13563 Statement

    Under Executive Orders 12866 and 13563, the Department must 
determine whether a regulatory action is ``significant'' and therefore 
subject to the requirements of the Executive Order and subject to 
review by the Office of Management and Budget (OMB). Executive Orders 
13563 and 12866 direct agencies to assess all costs and benefits of 
available regulatory alternatives and, if regulation is necessary, to 
select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety effects, 
distributive impacts, and equity). Executive Order 13563 emphasizes the 
importance of quantifying both costs and benefits, of reducing costs, 
of harmonizing and streamlining rules, and of promoting flexibility. It 
also requires federal agencies to develop a plan under which the 
agencies will periodically review their existing significant 
regulations to make the agencies' regulatory programs more effective or 
less burdensome in achieving their regulatory objectives.
    Under Executive Order 12866, ``significant'' regulatory actions are 
subject to the requirements of the Executive Order and review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866, defines a ``significant regulatory action'' as an action that is 
likely to result in a rule (1) having an annual effect on the economy 
of $100 million or more, or adversely and materially affecting a sector 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or State, local or tribal governments or 
communities (also referred to as ``economically significant'' 
regulatory actions); (2) creating serious inconsistency or otherwise 
interfering with an action taken or planned by another agency; (3) 
materially altering the budgetary impacts of entitlement grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof; or (4) raising novel legal or policy issues arising out of 
legal mandates, the President's priorities, or the principles set forth 
in the Executive Order. Pursuant to the terms of the Executive Order, 
OMB has determined that this action is ``significant'' within the 
meaning of Section 3(f)(4) of the Executive Order. Accordingly, the 
Department has undertaken an assessment of the costs and benefits of 
the proposed amendment, and OMB has reviewed this regulatory action.

Background

Proposed Regulation

    As explained more fully in the preamble to the Department's 
Proposed Regulation on the definition of fiduciary under ERISA section 
3(21)(A)(ii) and Code section 4975(e)(3)(B), also published in this 
issue of the Federal Register, ERISA is a comprehensive statute 
designed to protect the interests of plan participants and 
beneficiaries, the integrity of employee benefit plans, and the 
security of retirement, health, and other critical benefits. The broad 
public interest in ERISA-covered plans is reflected in its imposition 
of stringent fiduciary responsibilities on parties engaging in 
important plan activities, as well as in the tax-favored status of plan 
assets and investments. One of the chief ways in which ERISA protects 
employee benefit plans is by requiring that plan fiduciaries comply 
with fundamental obligations rooted in the law of trusts. In 
particular, plan fiduciaries must manage plan assets prudently and with 
undivided loyalty to the plans and their participants and 
beneficiaries.\2\ In addition, they must refrain from engaging in 
``prohibited transactions,'' which ERISA forbids because of the dangers 
posed by the fiduciaries' conflicts of interest with respect to the 
transactions.\3\ When fiduciaries violate

[[Page 22037]]

ERISA's fiduciary duties or the prohibited transaction rules, they may 
be held personally liable for the breach.\4\ In addition, violations of 
the prohibited transaction rules are subject to excise taxes under the 
Code.
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    \2\ ERISA section 404(a).
    \3\ ERISA section 406. ERISA also prohibits certain transactions 
between a plan and a ``party in interest.''
    \4\ ERISA section 409; see also ERISA section 405.
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    The Code also has rules regarding fiduciary conduct with respect to 
tax-favored 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 illegal transactions are subject to an 
excise tax enforced by the Internal Revenue Service. Unlike 
participants in plans covered by Title I of ERISA, under the Code, IRA 
owners cannot bring suit against fiduciaries under ERISA for violation 
of the prohibited transaction rules and fiduciaries are not personally 
liable to IRA owners for the losses caused by their misconduct. 
Elsewhere in this issue of the Federal Register, however, the 
Department is proposing two new class exemptions that would create 
contractual obligations for the adviser to adhere to certain standards 
(the Impartial Conduct Standards). IRA owners would have a right to 
enforce these new contractual rights.
    Under this statutory framework, the determination of who is a 
``fiduciary'' is of central importance. Many of ERISA's protections, 
duties, and liabilities hinge on fiduciary status. In relevant part, 
section 3(21)(A) of ERISA and section 4975(e)(3) of the Code provide 
that a person is a fiduciary with respect to a plan or IRA to the 
extent he or she (1) exercises any discretionary authority or 
discretionary control with respect to management of such plan or IRA, 
or exercises any authority or control with respect to management or 
disposition of its assets; (2) renders investment advice for a fee or 
other compensation, direct or indirect, with respect to any moneys or 
other property of such plan or IRA, or has any authority or 
responsibility to do so; or, (3) has any discretionary authority or 
discretionary responsibility in the administration of such plan or IRA.
    The statutory definition deliberately casts a wide net in assigning 
fiduciary responsibility with respect to plan and IRA assets. Thus, 
``any authority or control'' over plan or IRA assets is sufficient to 
confer fiduciary status, and any persons who render ``investment advice 
for a fee or other compensation, direct or indirect'' are fiduciaries, 
regardless of whether they have direct control over the plan's or IRA's 
assets and regardless of their status as an investment adviser or 
broker under the federal securities laws. The statutory definition and 
associated fiduciary responsibilities were enacted to ensure that plans 
and IRAs can depend on persons who provide investment advice for a fee 
to provide recommendations that are untainted by conflicts of interest. 
In the absence of fiduciary status, persons who provide investment 
advice would neither be subject to ERISA's fundamental fiduciary 
standards, nor accountable for imprudent, disloyal, or tainted advice 
under ERISA or the Code, no matter how egregious the misconduct or how 
substantial the losses. Plans, individual participants and 
beneficiaries, and IRA owners often are not financial experts and 
consequently must rely on professional advice to make critical 
investment decisions. The statutory definition, prohibitions on 
conflicts of interest, and core fiduciary obligations of prudence and 
loyalty, all reflect Congress' recognition in 1974 of the fundamental 
importance of such advice. 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) 
defining the circumstances under which a person is treated as providing 
``investment advice'' to an employee benefit plan within the meaning of 
section 3(21)(A)(ii) of ERISA (the ``1975 regulation'').\5\ The 
regulation narrowed the scope of the statutory definition of fiduciary 
investment advice by creating a five-part test that must be satisfied 
before a person can be treated as rendering investment advice for a 
fee. Under the regulation, for advice to constitute ``investment 
advice,'' an adviser who does not have discretionary authority or 
control with 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.\6\
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    \5\ The Department of Treasury issued a virtually identical 
regulation, at 26 CFR 54.4975-9(c), which interprets Code section 
4975(e)(3).
    \6\ Advisory Opinion 76-65A (June 7, 1976).
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    As the marketplace for financial services has developed in the 
years since 1975, the five-part test may now undermine, rather than 
promote, the statutes' text and purposes. The narrowness of the 1975 
regulation allows professional advisers, consultants and valuation 
firms to play a central role in shaping plan investments, without 
ensuring the accountability that Congress intended for persons having 
such influence and responsibility when it enacted ERISA and the related 
Code provisions. Even when plan sponsors, participants, beneficiaries 
and IRA owners clearly rely on paid consultants for impartial guidance, 
the regulation allows consultants to avoid fiduciary status and 
disregard ERISA's fiduciary obligations of care and prohibitions on 
disloyal and conflicted transactions. As a consequence, these advisers 
can steer customers to investments based on their own self-interest, 
give imprudent advice, and engage in transactions that would otherwise 
be categorically prohibited by ERISA and Code, without any liability 
under ERISA or the Code. In the Proposed Regulation, the Department 
seeks to replace the existing regulation with one that more 
appropriately distinguishes between the sorts of advice relationships 
that should be treated as fiduciary in nature and those that should 
not, in light of the legal framework and financial marketplace in which 
plans and IRAs currently operate.\7\
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    \7\ The Department initially proposed an amendment to its 
regulation under ERISA section 3(21)(A)(ii) and Code section 
4975(e)(3)(B) on October 22, 2010, at 75 FR 65263. It subsequently 
announced its intention to withdraw the proposal and propose a new 
rule, consistent with the President's Executive Orders 12866 and 
13563, in order to give the public a full opportunity to evaluate 
and comment on the new proposal and updated economic analysis.
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    The Proposed Regulation describes the types of advice that 
constitute ``investment advice'' with respect to plan or IRA assets for 
purposes of the

[[Page 22038]]

definition of a fiduciary at ERISA section 3(21)(A)(ii) and Code 
section 4975(e)(3)(B). The proposal provides, subject to certain carve-
outs, that a person renders investment advice with respect to a plan or 
IRA if, among other things, the person provides, directly to a plan, a 
plan fiduciary, a plan participant or beneficiary, IRA or IRA owner one 
of the following types of advice:
    (1) A recommendation as to the advisability of acquiring, holding, 
disposing or exchanging securities or other property, including a 
recommendation to take a distribution of benefits or a recommendation 
as to the investment of securities or other property to be rolled over 
or otherwise distributed from a plan or IRA;
    (2) A recommendation as to the management of securities or other 
property, including recommendations as to the management of securities 
or other property to be rolled over or otherwise distributed from the 
plan or IRA;
    (3) An appraisal, fairness opinion or similar statement, whether 
verbal or written, concerning the value of securities or other 
property, if provided in connection with a specific transaction or 
transactions involving the acquisition, disposition or exchange of such 
securities or other property by the plan or IRA; and
    (4) A recommendation of a person who is also going to receive a fee 
or other compensation for providing any of the types of advice 
described in paragraphs (1) through (3), above.

In addition, to be a fiduciary, such person must either (1) represent 
or acknowledge that it is acting as a fiduciary within the meaning of 
ERISA (or the Code) with respect to the advice, or (2) render the 
advice pursuant to a written or verbal agreement, arrangement or 
understanding that the advice is individualized to, or that such advice 
is specifically directed to, the advice recipient for consideration in 
making investment or management decisions with respect to securities or 
other property of the plan or IRA.
    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 carve-out, counterparties in arm's length 
transactions with plans may make investment recommendations without 
acting as fiduciaries if certain conditions are met.\8\ Similarly, the 
proposal contains a carve-out from fiduciary status for persons who 
provide appraisals, fairness opinions, or statements of value in 
specified contexts (e.g., with respect to ESOP transactions). The 
proposal additionally carves out from fiduciary status the marketing of 
investment alternative platforms, certain assistance in selecting 
investment alternatives and other activities. Finally, the Proposed 
Regulation contains a carve-out from fiduciary status for the provision 
of investment education.
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    \8\ Although the preamble adopts the phrase ``seller's carve-
out'' as a shorthand way of referring to the carve-out and its 
terms, the regulatory carve-out is not limited to sellers but rather 
applies more broadly to counterparties in arm's length transactions 
with plan investors with financial expertise.
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Prohibited Transactions

    Fiduciaries under ERISA and the Code are subject to certain 
prohibited transaction restrictions. 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 with respect to an 
employee benefit plan 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.'' \9\ 
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 the plan or IRA. Parallel regulations issued by 
the Departments of Labor and the Treasury explain that these provisions 
impose on fiduciaries a duty not to act on conflicts of interest that 
may affect the fiduciary's best judgment on behalf of the plan or 
IRA.\10\
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    \9\ The Code does not contain a parallel provision.
    \10\ See 29 CFR 2550.408b-2(e); 26 CFR 54.4975-6(a)(5).
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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. ERISA and the Code also provide for administrative 
exemptions that the Secretary of Labor may grant on an individual or 
class basis if the Secretary finds that the exemption is (1) 
administratively feasible, (2) in the interests of plans and of 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 pursuant to which fiduciaries may 
receive compensation or other benefits in connection with investment 
transactions by plans and IRAs, under circumstances that would 
otherwise violate ERISA section 406(b) and Code section 4975(c)(1)(E) 
and (F). The exemptions focus on specific types of transactions or 
specific types of compensation arrangements. Reliance on these 
exemptions is subject to certain conditions that the Department has 
found necessary to protect the interests of plans and IRAs.
    In connection with the development of the Department's proposed 
definition of fiduciary under ERISA section 3(21)(A)(ii) and Code 
section 4975(e)(3)(B), the Department has considered public input 
indicating the need for additional prohibited transaction relief for 
the wide variety of compensation structures that exist today in the 
marketplace for investment transactions. After consideration of the 
issue, the Department determined to propose, elsewhere in this issue of 
the Federal Register, two new class exemptions as well as amendments to 
two other existing class exemptions. These new and amended class 
exemptions provide relief for a fiduciary's receipt of compensation or 
other benefit resulting from its provision of investment advice to 
plans and IRAs in the context of many different types of investment 
transactions.
    While each of the proposed new and amended class exemptions sets 
forth conditions that are tailored to their respective transactions, 
each also conditions relief on a fiduciary's compliance with certain 
Impartial Conduct Standards. The Department has determined that the 
Impartial Conduct Standards comprise important baseline safeguards that 
should be required of fiduciaries relying on other existing exemptions 
providing relief for plan and IRA investment transactions. Accordingly, 
this notice proposes that the Impartial Conduct Standards be made 
conditions of the following

[[Page 22039]]

existing exemptions: PTEs 75-1, Part III, 75-1, Part IV, 77-4, 80-83 
and 83-1.
    Under the amendments, fiduciaries would be required to act in 
accordance with the Impartial Conduct Standards in transactions 
governed by the exemptions. This will result in additional protections 
for all plans, but most particularly for IRA owners. That is because 
fiduciaries' dealings with IRAs are governed by the Code, not by 
ERISA,\11\ and the Code, unlike ERISA, does not directly impose 
responsibilities of prudence and loyalty on fiduciaries. The amendments 
to the exemptions would condition relief under the exemptions on the 
satisfaction of these responsibilities. For purposes of these 
amendments, the term IRA means any trust, account or annuity described 
in Code section 4975(e)(1)(B) through (F), including, for example, an 
individual retirement account described in section 408(a) of the Code 
and a health savings account described in section 223(d) of the 
Code.\12\ The impartial conduct standards will work across multiple 
class exemptions to ensure that these fiduciaries are held to a single 
set of standards and that these standards are applicable to both plans 
and IRAs. The proposed amendments, if granted, will apply prospectively 
to fiduciaries relying on the exemptions.
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    \11\ See ERISA section 404.
    \12\ The Department notes that PTE 2002-13 amended PTEs 80-83 
and 83-1 so that the terms ``employee benefit plan'' and ``plan'' 
refer to an employee benefit plan described in ERISA section 3(3) 
and/or a plan described in section 4975(e)(1) of the Code. See 67 FR 
9483 (March 1, 2002). At the same time, in the preamble to PTE 2002-
13, the Department explained that it had determined, after 
consulting with the Internal Revenue Service, that plans described 
in 4975(e)(1) of the Code are included within the scope of relief 
provided by PTEs 75-1 and 77-4, because they were issued jointly by 
the Department and the Service. For simplicity and consistency with 
the other new proposed exemptions and proposed amendments to 
existing exemptions published elsewhere in this issue of the Federal 
Register, the Department has proposed this specific definition of 
IRA.
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Description of the Proposal

    The proposal would amend prohibited transaction exemptions 75-1, 
Part III, 75-1, Part IV, 77-4, 80-83 and 83-1. Specifically, these 
exemptions provide the following relief:
    <bullet> PTE 75-1, Part III \13\ permits a fiduciary to cause a 
plan or IRA to purchase securities from a member of an underwriting 
syndicate other than the fiduciary, when the fiduciary is also a member 
of the syndicate;
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    \13\ Exemptions 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).
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    <bullet> PTE 75-1, Part IV \14\ permits a plan or IRA to purchase 
securities in a principal transaction from a fiduciary that is a market 
maker with respect to such securities;
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    \14\ Exemptions 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).
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    <bullet> PTE 77-4 \15\ provides relief for a plan's or IRA's 
purchase or sale of open-end investment company shares where the 
investment adviser for the open-end investment company is also a 
fiduciary to the plan or IRA;
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    \15\ Class Exemption for Certain Transactions Between Investment 
Companies and Employee Benefit Plans, 42 FR 18732 (Apr. 8, 1977).
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    <bullet> PTE 80-83 \16\ provides relief for a fiduciary causing a 
plan or IRA to purchase a security when the proceeds of the securities 
issuance may be used by the issuer to retire or reduce indebtedness to 
the fiduciary or an affiliate; and
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    \16\ Class Exemption for Certain Transactions Involving Purchase 
of Securities Where Issuer May Use Proceeds to Reduce or Retire 
Indebtedness to Parties in Interest, 45 FR 73189 (Nov. 4, 1980), as 
amended at 67 FR 9483 (March 1, 2002).
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    <bullet> PTE 83-1 \17\ provides relief for the sale of certificates 
in an initial issuance of certificates, by the sponsor of a mortgage 
pool to a plan or IRA, when the sponsor, trustee or insurer of the 
mortgage pool is a fiduciary with respect to the plan or IRA assets 
invested in such certificates.
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    \17\ Class Exemption for Certain Transactions Involving Mortgage 
Pool Investment Trusts, 48 FR 895 (Jan. 7, 1983), as amended at 67 
FR 9483 (March 1, 2002).
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    This proposal sets forth an amendment to each of these exemptions. 
Each of the amendments is tailored to the structure and language of the 
applicable exemption. Therefore, the terminology and numbering varies 
from amendment to amendment. Despite such variation, each amendment 
would apply the same Impartial Conduct Standards uniformly across each 
exemption.
    More specifically, the amendments would require a fiduciary that 
satisfies ERISA section 3(21)(A)(i) or (ii), or the corresponding 
provisions of Code section 4975(e)(3)(A) or (B), with respect to the 
assets involved in the investment transaction, to meet the Impartial 
Conduct Standards described in the applicable exemption. Under the 
proposed amendments' first conduct standard, the fiduciary must act in 
the best interest of the plan or IRA. Best interest is defined to mean 
acting with the care, skill, prudence, and diligence under the 
circumstances then prevailing that a prudent person would exercise 
based on the investment objectives, risk tolerance, financial 
circumstances, and the needs of the plan or IRA when providing 
investment advice to the plan or IRA or managing the plan's or IRA's 
assets. Further, under the best interest standard, the fiduciary must 
act without regard to the financial or other interests of the fiduciary 
or its affiliates or any other party. Under this standard, the 
fiduciary must put the interests of the plan or IRA ahead of its own 
financial interests or those of any affiliate or other party.
    In this regard, the Department notes that while fiduciaries of 
plans covered by ERISA are subject to the ERISA section 404 standards 
of prudence and loyalty, the Code contains no provisions that hold IRA 
fiduciaries to those standards. However, as a condition of relief under 
the proposed amendments, both IRA and plan fiduciaries would have to 
agree to, and uphold, the best interest requirement. 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. Failure to satisfy the best interest standard would 
render the exemption unavailable to the fiduciary with respect to 
compensation received in connection with the transaction.
    The second conduct standard requires that all compensation received 
by the fiduciary and its affiliates in connection with the applicable 
transaction be reasonable in relation to the total services they 
provide to the plan or IRA. The third conduct standard requires that 
statements about recommended investments, fees, material conflicts of 
interest, and any other matters relevant to a plan's or IRA owner's 
investment decisions, not be misleading. The Department notes in this 
regard that a fiduciary's failure to disclose a material conflict of 
interest may be considered a misleading statement. Transactions that 
violate these requirements are not likely to be in the interests of 
plans, their participants and beneficiaries, or IRA owners, or 
protective of their rights.
    Unlike the new exemption proposals published elsewhere in the 
Federal Register, these proposed amendments do not require fiduciaries 
to contractually warrant compliance with applicable federal and state 
laws. However, the Department notes that significant violations of 
applicable federal or state law could also amount to violations of the 
Impartial Conduct Standards, such as the best interest standard, in 
which case these exemptions, as amended, would be deemed unavailable 
for transactions occurring in connection with such violations.

[[Page 22040]]

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 these amendments, if granted, applicable on 
the Applicability Date.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under ERISA section 408(a) and Code section 4975(c)(2) does not relieve 
a fiduciary or other party in interest or disqualified person with 
respect to a plan from certain other provisions of ERISA and the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
ERISA section 404 which require, among other things, that a fiduciary 
discharge his or her duties respecting the plan solely in the interests 
of the plan's participants and beneficiaries and in a prudent fashion 
in accordance with ERISA section 404(a)(1)(B);
    (2) 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 plans' participants and beneficiaries and IRA owners;
    (3) If granted, an exemption will be applicable to a particular 
transactions only if the transactions satisfy the conditions specified 
in the amendments; and
    (4) If granted, the amended exemptions will be supplemental to, and 
not in derogation of, any other provisions of ERISA and the Code, 
including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction.

Proposed Amendments to Class Exemptions

I. Prohibited Transaction Exemption 75-1, Part III

    The Department proposes to amend Prohibited Transaction Exemption 
75-1, Part III, under the authority of ERISA section 408(a) and Code 
section 4975(c)(2), and in accordance with the procedures set forth in 
29 CFR part 2570, subpart B (76 FR 66637, October 27, 2011).
    A. A new section III(f) is inserted to read as follows:
    (f) Standards of Impartial Conduct. If the fiduciary is a fiduciary 
within the meaning of ERISA section 3(21)(A)(i) or (ii), or Code 
section 4975(e)(3)(A) or (B), with respect to the assets of a plan or 
IRA involved in the transaction, the fiduciary must comply with the 
following conditions with respect to the transaction:
    (1) The fiduciary acts in the Best Interest of the plan or IRA.
    (2) All compensation received by the fiduciary in connection with 
the transaction is reasonable in relation to the total services the 
fiduciary provides to the plan or IRA.
    (3) The fiduciary's statements about recommended investments, fees, 
material conflicts of interest, and any other matters relevant to a 
plan's or IRA owner's investment decisions, are not misleading. A 
``material conflict of interest'' exists when a fiduciary has a 
financial interest that could affect the exercise of its best judgment 
as a fiduciary in rendering advice to a plan or IRA owner. For this 
purpose, a fiduciary's failure to disclose a material conflict of 
interest relevant to the services the fiduciary is providing or other 
actions it is taking in relation to a plan's or IRA owner's investment 
decisions is deemed to be a misleading statement.
    For purposes of this section, a fiduciary acts in the ``Best 
Interest'' of the plan or IRA when the fiduciary acts with the care, 
skill, prudence, and diligence under the circumstances then prevailing 
that a prudent person would exercise based on the investment 
objectives, risk tolerance, financial circumstances, and needs of the 
plan or IRA, without regard to the financial or other interests of the 
fiduciary or any other party. Also for the purposes of this section, 
the term IRA means any trust, account or annuity described in Code 
section 4975(e)(1)(B) through (F), including, for example, an 
individual retirement account described in section 408(a) of the Code 
and a health savings account described in section 223(d) of the Code.
    B. Sections III(f) and III(g) are redesignated, respectively, as 
sections III(g) and III(h).

II. Prohibited Transaction Exemption 75-1, Part IV

    The Department proposes to amend Prohibited Transaction Exemption 
75-1, Part IV, under the authority of ERISA section 408(a) and Code 
section 4975(c)(2), and in accordance with the procedures set forth in 
29 CFR part 2570, subpart B (76 FR 66637, October 27, 2011).
    A. A new section IV(e) is inserted to read as follows:
    (e) Standards of Impartial Conduct. If the fiduciary is a fiduciary 
within the meaning of ERISA section 3(21)(A)(i) or (ii), or Code 
section 4975(e)(3)(A), or (B), with respect to the assets of a plan or 
IRA involved in the transaction, the fiduciary must comply with the 
following conditions with respect to the transaction:
    (1) The fiduciary acts in the Best Interest of the plan or IRA.
    (2) All compensation received by the fiduciary in connection with 
the transaction is reasonable in relation to the total services the 
fiduciary provides to the plan or IRA.
    (3) The fiduciary's statements about recommended investments, fees, 
material conflicts of interest, and any other matters relevant to a 
plan's or IRA owner's investment decisions, are not misleading. A 
``material conflict of interest'' exists when a fiduciary has a 
financial interest that could affect the exercise of its best judgment 
as a fiduciary in rendering advice to a plan or IRA owner. For this 
purpose, a fiduciary's failure to disclose a material conflict of 
interest relevant to the services the fiduciary is providing or other 
actions it is taking in relation to a plan's or IRA owner's investment 
decisions is deemed to be a misleading statement.
    For purposes of this section, a fiduciary acts in the ``Best 
Interest'' of the plan or IRA when the fiduciary acts with the care, 
skill, prudence, and diligence under the circumstances then prevailing 
that a prudent person would exercise based on the investment 
objectives, risk tolerance, financial circumstances, and needs of the 
plan or IRA, without regard to the financial or other interests of the 
fiduciary or any other party. Also for the purposes of this section, 
the term IRA means any trust, account or annuity described in Code 
section 4975(e)(1)(B) through (F), including, for example, an 
individual retirement account described in section 408(a) of the Code 
and a health savings account described in section 223(d) of the Code.
    B. Sections IV(e) and IV(f) are redesignated, respectively, as 
sections IV(f) and IV(g).

[[Page 22041]]

III. Prohibited Transaction Exemption 77-4

    The Department proposes to amend Prohibited Transaction Exemption 
77-4 under the authority of ERISA section 408(a) and Code section 
4975(c)(2), and in accordance with the procedures set forth in 29 CFR 
part 2570, subpart B (76 FR 66637, October 27, 2011).
    A new section II(g) is inserted to read as follows:
    (g) Standards of Impartial Conduct. If the fiduciary is a fiduciary 
within the meaning of ERISA section 3(21)(A)(i) or (ii), or Code 
section 4975(e)(3)(A), or (B), with respect to the assets of a plan or 
IRA involved in the transaction, the fiduciary must comply with the 
following conditions with respect to the transaction:
    (1) The fiduciary acts in the Best Interest of the plan or IRA.
    (2) All compensation received by the fiduciary and its affiliates 
in connection with the transaction is reasonable in relation to the 
total services the fiduciary provides to the plan or IRA.
    (3) The fiduciary's statements about recommended investments, fees, 
material conflicts of interest, and any other matters relevant to a 
plan's or IRA owner's investment decisions, are not misleading. A 
``material conflict of interest'' exists when a fiduciary has a 
financial interest that could affect the exercise of its best judgment 
as a fiduciary in rendering advice to a plan or IRA owner. For this 
purpose, a fiduciary's failure to disclose a material conflict of 
interest relevant to the services the fiduciary is providing or other 
actions it is taking in relation to a plan's or IRA owner's investment 
decisions is deemed to be a misleading statement.
    For purposes of this section, a fiduciary acts in the ``Best 
Interest'' of the plan or IRA when the fiduciary acts with the care, 
skill, prudence, and diligence under the circumstances then prevailing 
that a prudent person would exercise based on the investment 
objectives, risk tolerance, financial circumstances, and needs of the 
plan or IRA, without regard to the financial or other interests of the 
fiduciary, any affiliate or other party. Also for the purposes of this 
section, the term IRA means any trust, account or annuity described in 
Code section 4975(e)(1)(B) through (F), including, for example, an 
individual retirement account described in section 408(a) of the Code 
and a health savings account described in section 223(d) of the Code.

IV. Prohibited Transaction Exemption 80-83

    The Department proposes to amend Prohibited Transaction Exemption 
80-83 under the authority of ERISA section 408(a) and Code section 
4975(c)(2), and in accordance with the procedures set forth in 29 CFR 
part 2570, subpart B (76 FR 66637, October 27, 2011).
    A. A new section II(A)(2) is inserted to read as follows:
    (2) Standards of Impartial Conduct. If the fiduciary is a fiduciary 
within the meaning of ERISA section 3(21)(A)(i) or (ii), or Code 
section 4975(e)(3)(A), or (B), with respect to the assets of a plan or 
IRA involved in the transaction, the fiduciary must comply with the 
following conditions with respect to the transaction:
    (a) The fiduciary acts in the Best Interest of the plan or IRA.
    (b) All compensation received by the fiduciary and its affiliates 
in connection with the transaction is reasonable in relation to the 
total services the fiduciary provides to the plan or IRA.
    (c) The fiduciary's statements about recommended investments, fees, 
material conflicts of interest, and any other matters relevant to a 
plan's or IRA owner's investment decisions, are not misleading. A 
``material conflict of interest'' exists when a fiduciary has a 
financial interest that could affect the exercise of its best judgment 
as a fiduciary in rendering advice to a plan or IRA owner. For this 
purpose, a fiduciary's failure to disclose a material conflict of 
interest relevant to the services the fiduciary is providing or other 
actions it is taking in relation to a plan's or IRA owner's investment 
decisions is deemed to be a misleading statement.
    For purposes of this section, a fiduciary acts in the ``Best 
Interest'' of the employee benefit plan or IRA when the fiduciary acts 
with the care, skill, prudence, and diligence under the circumstances 
then prevailing that a prudent person would exercise based on the 
investment objectives, risk tolerance, financial circumstances, and 
needs of the employee benefit plan or IRA, without regard to the 
financial or other interests of the fiduciary, any affiliate or other 
party. Also for the purposes of this section, the term IRA means any 
trust, account or annuity described in Code section 4975(e)(1)(B) 
through (F), including, for example, an individual retirement account 
described in section 408(a) of the Code and a health savings account 
described in section 223(d) of the Code.
    B. Section II(A)(2) is redesignated as section II(A)(3).

V. Prohibited Transaction Exemption 83-1

    The Department proposes to amend Prohibited Transaction Exemption 
83-1 under the authority of ERISA section 408(a) and Code section 
4975(c)(2), and in accordance with the procedures set forth in 29 CFR 
part 2570, subpart B (76 FR 66637, October 27, 2011).
    A. A new section II(B) is inserted to read as follows:
    (B) Standards of Impartial Conduct. Solely with respect to the 
relief provided under section I(B), if the sponsor, trustee or insurer 
of such pool who is a fiduciary is a fiduciary within the meaning of 
ERISA section 3(21)(A)(i) or (ii), or Code section 4975(e)(3)(A), or 
(B), with respect to the assets of a plan or IRA involved in the 
transaction, the fiduciary must comply with the following conditions 
with respect to the transaction:
    (1) The fiduciary acts in the Best Interest of the plan or IRA.
    (2) All compensation received by the fiduciary and its affiliates 
in connection with the transaction is reasonable in relation to the 
total services the fiduciary and its affiliates provide to the plan or 
IRA.
    (3) The fiduciary's statements about recommended investments, fees, 
material conflicts of interest, and any other matters relevant to a 
plan's or IRA owner's investment decisions, are not misleading. A 
``material conflict of interest'' exists when a fiduciary has a 
financial interest that could affect the exercise of its best judgment 
as a fiduciary in rendering advice to a plan or IRA owner. For this 
purpose, a fiduciary's failure to disclose a material conflict of 
interest relevant to the services the fiduciary is providing or other 
actions it is taking in relation to a plan's or IRA owner's investment 
decisions is deemed to be a misleading statement.

[[Page 22042]]

    For purposes of this section, a fiduciary acts in the ``Best 
Interest'' of the plan or IRA when the fiduciary acts with the care, 
skill, prudence, and diligence under the circumstances then prevailing 
that a prudent person would exercise based on the investment 
objectives, risk tolerance, financial circumstances, and needs of the 
plan or IRA, without regard to the financial or other interests of the 
plan or IRA to the financial interests of the fiduciary, any affiliate 
or other party. Also for the purposes of this section, the term IRA 
means any trust, account or annuity described in Code section 
4975(e)(1)(B) through (F), including, for example, an individual 
retirement account described in section 408(a) of the Code and a health 
savings account described in section 223(d) of the Code.

    Signed at Washington, DC, this 14th day of April, 2015.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 2015-08839 Filed 4-15-15; 11:15 am]
BILLING CODE 4510-29-P