22004 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

in the Adviser or Financial Institution; 

and 

(3) Any corporation or partnership of 

which the Adviser or Financial 

Institution is an officer, director, or 

employee, or in which the Adviser or 

Financial Institution is a partner. 

(c) Investment advice is in the ‘‘Best 

Interest’’ of the Retirement Investor 

when the Adviser and Financial 

Institution providing the advice act with 

the care, skill, prudence, and diligence 

under the circumstances then prevailing 

that a prudent person would exercise 

based on the investment objectives, risk 

tolerance, financial circumstances, and 

needs of the Retirement Investor, 

without regard to the financial or other 

interests of the Adviser, Financial 

Institution, any Affiliate or other party. 

(d) ‘‘Debt Security’’ means a ‘‘debt 

security’’ as defined in Rule 10b– 

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

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

a U.S. corporation and offered pursuant 

to a registration statement under the 

Securities Act of 1933; 

(2) An ‘‘Agency Debt Security’’ as 

defined in FINRA Rule 6710(l) or its 

successor; or 

(3) A ‘‘U.S. Treasury Security’’ as 

defined in FINRA Rule 6710(p) or its 

successor. 

(e) ‘‘Financial Institution’’ means the 

entity that (i) employs the Adviser or 

otherwise retains such individual as an 

independent contractor, agent or 

registered representative, and (ii) 

customarily purchases or sells Debt 

Securities for its own account in the 

ordinary course of its business, and that 

is: 

(1) Registered as an investment 

adviser under the Investment Advisers 

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

under the laws of the state in which the 

adviser maintains its principal office 

and place of business; 

(2) A bank or similar financial 

institution supervised by the United 

States or state, or a savings association 

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

Federal Deposit Insurance Act (12 

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

advice resulting in the compensation is 

provided through a trust department of 

the bank or similar financial institution 

or savings association which is subject 

to periodic examination and review by 

federal or state banking authorities; and 

(3) A broker or dealer registered under 

the Securities Exchange Act of 1934 (15 

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

(f) ‘‘Independent’’ means a person 

that: 

(1) Is not the Adviser or Financial 

Institution or an Affiliate; 

(2) Does not receive compensation or 

other consideration for his or her own 

account from the Adviser, Financial 

Institution or an Affiliate; and 

(3) Does not have a relationship to or 

an interest in the Adviser, Financial 

Institution or an Affiliate that might 

affect the exercise of the person’s best 

judgment in connection with 

transactions described in this 

exemption. 

(g) ‘‘Individual Retirement Account’’ 

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

annuity described in Code section 

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

example, an individual retirement 

account described in Code section 

408(a) and a health savings account 

described in Code section 223(d). 

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

exists when an Adviser or Financial 

Institution has a financial interest that 

could affect the exercise of its best 

judgment as a fiduciary in rendering 

advice to a Retirement Investor 

regarding Principal Transactions. 

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

plan described in ERISA section 3(3) 

and any plan described in Code section 

4975(e)(1)(A). 

(j) ‘‘Principal Transaction’’ means a 

purchase or sale of a Debt Security 

where an Adviser or Financial 

Institution is purchasing from or selling 

to a Plan, participant or beneficiary 

account, or IRA on behalf of the 

Financial Institution’s own account or 

the account of a person directly or 

indirectly, through one or more 

intermediaries, controlling, controlled 

by, or under common control with the 

Financial Institution. 

(k) ‘‘Retirement Investor’’ means: 

(1) A fiduciary of a non-participant 

directed Plan subject to Title I of ERISA 

with authority to make investment 

decisions for the Plan; 

(2) A participant or beneficiary of a 

Plan subject to Title I of ERISA with 

authority to direct the investment of 

assets in his or her Plan account or to 

take a distribution; or 

(3) The beneficial owner of an IRA 

acting on behalf of the IRA. 

Signed at Washington, DC, this 14th day of 

April, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

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

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2550 

[Application Number D–11687] 

ZRIN 1210–ZA25 

Proposed Amendment to Prohibited 

Transaction Exemption (PTE) 75–1, 

Part V, Exemptions From Prohibitions 

Respecting Certain Classes of 

Transactions Involving Employee 

Benefit Plans and Certain BrokerDealers, Reporting Dealers and Banks 

AGENCY: Employee Benefits Security 

Administration (EBSA), U.S. 

Department of Labor. 

ACTION: Notice of Proposed Amendment 

to PTE 75–1, Part V. 

SUMMARY: This document contains a 

notice of pendency before the 

Department of Labor of a proposed 

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

exemption from certain prohibited 

transactions provisions of the Employee 

Retirement Income Security Act of 1974 

(ERISA) and the Internal Revenue Code 

(the Code). The provisions at issue 

generally prohibit fiduciaries of 

employee benefit plans and individual 

retirement accounts (IRAs), from 

lending money or otherwise extending 

credit to the plans and IRAs and 

receiving compensation in return. PTE 

75–1, Part V, permits the extension of 

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

or sale of securities; however, it does 

not permit the receipt of compensation 

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

to the assets involved in the transaction. 

The amendment proposed in this notice 

would permit investment advice 

fiduciaries to receive compensation 

when they extend credit to plans and 

IRAs to avoid a failed securities 

transaction. The proposed amendment 

would affect participants and 

beneficiaries of plans, IRA owners, and 

fiduciaries with respect to such plans 

and IRAs. 

DATES: Comments: Written comments 

concerning the proposed class 

exemption must be received by the 

Department on or before July 6, 2015. 

Applicability: The Department 

proposes to make this amendment 

applicable eight months after 

publication of the final amendment in 

the Federal Register. 

ADDRESSES: All written comments 

concerning the proposed amendment to 

the class exemption should be sent to 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22005 

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 issue 

administrative exemptions under Code section 4975 

to the Secretary of Labor. This amendment to PTE 

75–1, Part V, would provide relief from the 

indicated prohibited transaction provisions of both 

ERISA and the Code. 

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– 

11687), 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–11687), 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: 

Susan Wilker, Office of Exemption 

Determinations, Employee Benefits 

Security Administration, U.S. 

Department of Labor, (202) 693–8824 

(this is not a toll-free number). 

SUPPLEMENTARY INFORMATION: The 

Department is proposing this 

amendment on its own motion, 

pursuant to ERISA section 408(a) and 

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

accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637 (October 27, 2011)). 

Public Hearing: The Department plans 

to hold an administrative hearing within 

30 days of the close of the comment 

period. The Department will ensure 

ample opportunity for public comment 

by reopening the record following the 

hearing and publication of the hearing 

transcript. Specific information 

regarding the date, location and 

submission of requests to testify will be 

published in a notice in the Federal 

Register. 

Executive Summary 

Purpose of Regulatory Action 

The Department is proposing this 

amendment to PTE 75–1, Part V, in 

connection with its proposed regulation 

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

Code section 4975(e)(3)(B) (Proposed 

Regulation), published elsewhere in this 

issue of the Federal Register. The 

Proposed Regulation specifies when an 

entity is a fiduciary by reason of the 

provision of investment advice for a fee 

or other compensation regarding assets 

of a plan or IRA (i.e., an investment 

advice fiduciary). If adopted, the 

Proposed Regulation would replace an 

existing regulation that was adopted in 

1975. The Proposed Regulation is 

intended to take into account the advent 

of 401(k) plans and IRAs, the dramatic 

increase in rollovers, and other 

developments that have transformed the 

retirement plan landscape and the 

associated investment market over the 

four decades since the existing 

regulation was issued. In light of the 

extensive changes in retirement 

investment practices and relationships, 

the Proposed Regulation would update 

existing rules to distinguish more 

appropriately between the sorts of 

advice relationships that should be 

treated as fiduciary in nature and those 

that should not. 

This notice proposes an amendment 

to PTE 75–1, Part V, that would allow 

broker-dealers that are investment 

advice fiduciaries to receive 

compensation when they extend credit 

to plans and IRAs to avoid failed 

securities transactions entered into by 

the plan or IRA. In the absence of an 

exemption, these transactions would be 

prohibited under ERISA and the Code. 

In this regard, ERISA and the Code 

generally prohibit fiduciaries from 

lending money or otherwise extending 

credit to plans and IRAs, and from 

receiving compensation in return. 

ERISA section 408(a) specifically 

authorizes the Secretary of Labor to 

grant administrative exemptions from 

the 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, their participants and 

beneficiaries and IRA owners, and 

protective of the rights of participants 

and beneficiaries of such plans and IRA 

owners. Interested parties are permitted 

to submit comments to the Department 

through July 6, 2015. The Department 

plans to hold an administrative hearing 

within 30 days of the close of the 

comment period. 

Summary of the Major Provisions 

The amendment to PTE 75–1, Part V, 

proposed in this notice would allow 

investment advice fiduciaries that are 

broker-dealers to receive compensation 

when they lend money or otherwise 

extend credit to plans or IRAs to avoid 

the failure of a purchase or sale of a 

security. The proposed exemption 

contains conditions that the brokerdealer lending money or otherwise 

extending credit must satisfy in order to 

take advantage of the exemption. In 

particular, the potential failure of the 

securities transaction may not be a 

result of the action or inaction of the 

fiduciary, and the terms of the extension 

of credit must be at least as favorable to 

the plan or IRA as terms the plan or IRA 

could obtain in an arm’s length 

transaction with an unrelated party. 

Certain advance written disclosures 

must be made to the plan or IRA, in 

particular, with respect to the rate of 

interest or other fees charged for the 

loan or other extension of credit. 

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 

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22006 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

2ERISA section 404(a). 

3ERISA section 406. ERISA also prohibits certain 

transactions between a plan and a ‘‘party in 

interest.’’ 

4ERISA section 409; see also ERISA section 405. 

5The Department of Treasury issued a virtually 

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

interprets Code section 4975(e)(3). 

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 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 the 

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 

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. 

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. 

Under the 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 (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 fiduciary 

responsibilities were enacted to ensure 

that plans and IRAs can depend on 

persons who provide investment advice 

for a fee to provide recommendations 

that are untainted by conflicts of 

interest. In the absence of fiduciary 

status, the providers of investment 

advice would neither be subject to 

ERISA’s fundamental fiduciary 

standards, nor accountable for 

imprudent, disloyal, or tainted advice 

under ERISA or the Code, no matter 

how egregious the misconduct or how 

substantial the losses. Plans, individual 

participants and beneficiaries, and IRA 

owners often are not financial experts 

and consequently must rely on 

professional advice to make critical 

investment decisions. The significance 

of financial advice has become still 

greater with increased reliance on 

participant-directed plans and IRAs for 

the provision of retirement benefits. 

In 1975, the Department issued a 

regulation, at 29 CFR 2510.3– 

21(c)(1975) defining the circumstances 

under which a person is treated as 

providing ‘‘investment advice’’ to an 

employee benefit plan within the 

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

(the ‘‘1975 regulation’’).5 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 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22007 

6Advisory Opinion 76–65A (June 7, 1976). 

7The 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. 

8Although the preamble adopts the phrase 

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

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

more broadly to counterparties in arm’s length 

transactions with plan investors with financial 

expertise. 

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

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 

the accompanying 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 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 plans and IRAs currently 

operate.7 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 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 carveout,’’ 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 the 

fiduciary status for providers of 

appraisals, fairness opinions, or 

statements of value in specified contexts 

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

The proposal additionally carves out 

from fiduciary status the marketing of 

investment alternative platforms, certain 

assistance in selecting investment 

alternatives and other activities. Finally, 

the Proposed Regulation contains a 

carve-out from fiduciary status for the 

provision of investment education. 

Prohibited Transactions 

The Department anticipates that the 

Proposed Regulation will cover many 

broker-dealers 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 to 

fiduciaries. The lending of money or 

other extension of credit between a 

fiduciary and a plan or IRA, and the 

plan’s or IRA’s payment of 

compensation to the fiduciary in return 

may be prohibited by ERISA section 

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

4975(c)(1)(B) and (D). 

As relevant to this notice, the 

Department understands that brokerdealers can be required, as part of their 

relationships with clearing houses, to 

complete securities transactions entered 

into by the broker-dealer’s customers, 

even if a particular customer does not 

perform on its obligations. If a brokerdealer is required to advance funds to 

settle a trade entered into by a plan or 

IRA, or purchase a security for delivery 

on behalf of a plan or IRA, the result can 

potentially be viewed as a loan of 

money or other extension of credit to 

the plan or IRA. Further, in the event a 

broker-dealer steps into a plan’s or IRA’s 

shoes in any particular transaction, it 

may charge interest or other fees to the 

plan or IRA. These transactions 

potentially violate ERISA section 

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

4975(c)(1)(B) and (D). 

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22008 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

9See PTE 86–128, Exemption for Securities 

Transactions Involving Employee Benefit Plans and 

Broker-Dealers, 51 FR 41686 (November 18, 1986), 

as amended, 67 FR 64137 (October 17, 2002). 

10 40 FR 50845 (October 31, 1975), as amended, 

71 FR 5883 (February 3, 2006). 11See Preamble to PTE 75–1, Part V, 40 FR 50845 

(Oct. 31, 1975); ERISA Advisory Opinion 86–12A 

(March 19, 1986). 

12Because of this limitation, the Department 

views it as unnecessary to condition this exemption 

on the fiduciary’s adherence to the impartial 

conduct standards, including the best interest 

standard, that are incorporated into the newly 

proposed exemptions and proposed amendments to 

other existing exemptions. 

13 17 CFR 240.10b-16. 

14The Department has previously 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 PTE 

75–1 because it was issued jointly by the 

Department and the Service. See PTE 2002–13, 67 

FR 9483 (March 1, 2002) (preamble discussion). For 

simplicity and consistency with the other new 

proposed exemptions and proposed amendments to 

other existing exemptions published elsewhere in 

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 resulting from the 

provision of fiduciary investment advice 

to a participant or beneficiary of an 

individual account plan or IRA owner, 

including extensions of short term 

credit for settlements of securities 

trades, 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, 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 class 

exemptions from the prohibited 

transactions provisions of ERISA and 

the Code. The Department has, for 

example, permitted investment advice 

fiduciaries to receive compensation 

from a plan or IRA (i.e., a commission) 

for executing or effecting securities 

transactions as agent for the plan.9

Elsewhere in this issue of the Federal 

Register, a new ‘‘Best Interest Contract 

Exemption’’ is proposed for the receipt 

of compensation by fiduciaries who 

provide investment advice to IRAs, plan 

participants, and certain small plans. 

Receipt by fiduciaries of compensation 

that varies, or compensation from third 

parties, as a result of advice to plans, 

would otherwise violate ERISA section 

406(b) and Code section 4975(c). As part 

of the re-proposal of the regulation 

defining a fiduciary, the Department is 

proposing to condition these existing 

and newly-proposed exemptions on the 

fiduciary’s commitment to adhere to 

certain impartial professional conduct 

standards; in particular, when providing 

investment advice that results in 

varying or third-party compensation, 

investment advice fiduciaries will be 

required to act in the best interest of the 

plans and IRAs they are advising. 

The class exemptions described above 

do not provide relief for any extensions 

of credit that may be related to a plan’s 

or IRA’s investment transactions. PTE 

75–1, Part V,10 permits such an 

extension of credit to a plan or IRA by 

a broker-dealer in connection with the 

purchase or sale of securities. 

Specifically, the Department has 

acknowledged that the exemption is 

available for extensions of credit for: the 

settlement of securities transactions; 

short sales of securities; the writing of 

option contracts on securities, and 

purchasing of securities on margin.11

Relief under PTE 75–1, Part V, is 

limited in that the broker-dealer 

extending credit may not have or 

exercise any discretionary authority or 

control (except as a directed trustee) 

with respect to the investment of the 

plan or IRA assets involved in the 

transaction, nor render investment 

advice within the meaning of 29 CFR 

2510.3–21(c) with respect to those plan 

assets, unless no interest or other 

consideration is received by the brokerdealer or any affiliate of the brokerdealer in connection with the extension 

of credit. Therefore, broker-dealers that 

are deemed fiduciaries under the 

amended regulation would not be able 

to receive compensation for extending 

credit under PTE 75–1, Part V. 

As part of its development of the 

Proposed Regulation, the Department 

has considered public input indicating 

the need for additional prohibited 

transaction exemptions for investment 

advice fiduciaries. The Department was 

informed that relief was needed for 

broker-dealers to extend credit to plans 

and IRAs to avoid failed securities 

transactions, and to receive 

compensation in return. In the 

Department’s view, the extension of 

credit to avoid a failed securities 

transaction falls within the contours of 

the existing relief provided by PTE 75– 

1, Part V, for extensions of credit ‘‘[i]n 

connection with the purchase or sale of 

securities.’’ Accordingly, broker-dealers 

that are not fiduciaries may receive 

compensation for extending credit to 

avoid a failed securities transaction. The 

Department is proposing this 

amendment to extend such relief to 

investment advice fiduciaries. 

Description of the Proposal 

This proposed amendment would add 

a new Section (c) to PTE 75–1, Part V, 

that would provide an exception to the 

requirement that fiduciaries not receive 

compensation under the exemption. 

Section (c) would provide that a 

fiduciary within the meaning of ERISA 

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

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

compensation for extending credit to a 

plan or IRA to avoid a failed purchase 

or sale of securities involving the plan 

or IRA. 

In conjunction with such relief, 

Section (c) includes several conditions. 

First, the potential failure of the 

purchase or sale of the securities may 

not be the result of the action or 

inaction by the broker-dealer or any 

affiliate.12 Additionally, the terms of the 

extension of credit must be at least as 

favorable to the plan or IRA as the terms 

available in an arm’s length transaction 

between unaffiliated parties. 

Finally, the plan or IRA must receive 

written disclosure of certain terms prior 

to the extension of credit. This 

disclosure does not need to be made on 

a transaction by transaction basis, and 

can be part of an account opening 

agreement or a master agreement. The 

disclosure must include the rate of 

interest or other fees that will be 

charged on such extension of credit, and 

the method of determining the balance 

upon which interest will be charged. 

The plan or IRA must additionally be 

provided with prior written disclosure 

of any changes to these terms. 

The required disclosures are intended 

to be consistent with the requirements 

of Securities and Exchange Act Rule 

10b–16,13 which governs broker-dealers’ 

disclosure of credit terms in margin 

transactions. The Department 

understands that it is the practice of 

many broker-dealers to provide such 

disclosures to all customers, regardless 

of whether the customer is presently 

opening a margin account. To the extent 

such disclosure is provided, the 

disclosure terms of the proposed 

exemption would be satisfied. 

The proposal would define the term 

‘‘IRA’’ as 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.14 The 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 22009 

this issue of the Federal Register, the Department 

has proposed this specific definition of IRA. 

proposed amendment also would revise 

the recordkeeping provisions of the 

exemption to require the broker-dealer 

engaging in the covered transaction, as 

opposed to the plan or IRA, to maintain 

the records. The proposed revision to 

the recordkeeping requirement would 

make it consistent with other existing 

class exemptions as well as the 

recordkeeping provisions of the other 

notices of proposed exemption 

published in this issue of the Federal 

Register. 

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 the publication of the final 

regulation in the Federal Register 

(Applicability Date). The Department 

proposes to make this amendment, if 

granted, applicable on the Applicability 

Date. 

No Relief Proposed From ERISA Section 

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

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

Services 

If the proposed amendment is 

granted, the 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 or between 

an IRA and a disqualified person. The 

provision of investment advice to a plan 

or IRA is a service to the plan or IRA 

and compliance with this exemption 

will not relieve an investment advice 

fiduciary 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 of Labor 

conducts a preclearance consultation 

program to provide the general public 

and Federal agencies with an 

opportunity to comment on proposed 

and continuing collections of 

information in accordance with the 

Paperwork Reduction Act of 1995 (PRA) 

(44 U.S.C. 3506(c)(2)(A)). This helps to 

ensure that the public understands the 

Department’s collection instructions; 

respondents can provide the requested 

data in the desired format; reporting 

burden (time and financial resources) is 

minimized; collection instruments are 

clearly understood; and the Department 

can properly assess the impact of 

collection requirements on respondents. 

Currently, the Department is soliciting 

comments concerning the proposed 

information collection request (ICR) 

included in the Proposed Amendment 

to Prohibited Transaction Exemption 

(PTE) 75–1, Part V, Exemptions from 

Prohibitions Respecting Certain Classes 

of Transactions Involving Employee 

Benefit Plans and Certain BrokerDealers, Reporting Dealers and Banks, as 

part of its proposal to amend its 1975 

rule that defines when a person who 

provides investment advice to an 

employee benefit plan or IRA becomes 

a fiduciary. A copy of the ICR may be 

obtained by contacting the PRA 

addressee shown below or at http://

www.RegInfo.gov. 

The Department has submitted a copy 

of the Proposed Amendment to PTE 75– 

1, Part V, to the Office of Management 

and Budget (OMB) in accordance with 

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

information collections. The 

Department and OMB are particularly 

interested in comments that: 

• Evaluate whether the collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

collection of information, including the 

validity of the methodology and 

assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., permitting electronic submission of 

responses. 

Comments should be sent to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 20503; 

Attention: Desk Officer for the 

Employee Benefits Security 

Administration. OMB requests that 

comments be received within 30 days of 

publication of the Proposed Investment 

Advice Initiative to ensure their 

consideration. 

PRA Addressee: Address requests for 

copies of the ICR to G. Christopher 

Cosby, Office of Policy and Research, 

U.S. Department of Labor, Employee 

Benefits Security Administration, 200 

Constitution Avenue NW., Room N– 

5718, Washington, DC 20210. 

Telephone (202) 693–8410; Fax: (202) 

219–5333. These are not toll-free 

numbers. ICRs submitted to OMB also 

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

As discussed in detail below, Section 

(c)(3) of the proposed amendment 

requires that prior to the extension of 

credit, the plan must receive from the 

fiduciary written disclosure of (i) the 

rate of interest (or other fees) that will 

apply and (ii) the method of 

determining the balance upon which 

interest will be charged in the event that 

the fiduciary extends credit to avoid a 

failed purchase or sale of securities, as 

well as prior written disclosure of any 

changes to these terms. Section (d) 

requires broker-dealers engaging in the 

transactions to maintain records 

demonstrating compliance with the 

conditions of the PTE. These 

requirements are information collection 

requests (ICRs) subject to the Paperwork 

Reduction Act. 

The Department believes that the 

disclosure requirement is consistent 

with the disclosure requirement 

mandated by the Securities and 

Exchange Commission (SEC) in 17 CFR 

240.10b–16(1) for margin transactions. 

Although the SEC does not mandate any 

recordkeeping requirement, the 

Department believes that it would be a 

usual and customary business practice 

for financial institutions to maintain any 

records necessary to prove that required 

disclosures had been distributed in 

compliance with the SEC’s rule. 

Therefore, the Department concludes 

that these ICRs produce no additional 

burden to the public. 

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 a class exemption 

amendment may be granted under 

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

15For purposes of this proposed amendment, 

references to ERISA should be read to refer as well 

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

ERISA section 408(a) and Code section 

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

that the class exemption as amended is 

administratively feasible, in the 

interests of the plan and of its 

participants and beneficiaries and IRA 

owners, and protective of the rights of 

the plan’s participants and beneficiaries 

and IRA owners; 

(3) If granted, a class exemption is 

applicable to a particular transaction 

only if the transaction satisfies the 

conditions specified in the class 

exemption; and 

(4) If granted, this amended class 

exemption will be supplemental to, and 

not in derogation of, any other 

provisions of ERISA and the Code, 

including statutory or administrative 

exemptions and transitional rules. 

Furthermore, the fact that a transaction 

is subject to an administrative or 

statutory exemption is not dispositive of 

whether the transaction is in fact a 

prohibited transaction. 

Proposed Amendment 

Under the authority of ERISA section 

408(a) and Code section 4975(c)(2), and 

in accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (76 

FR 66637, October 27, 2011),15 the 

Department proposes to amend PTE 75– 

1, Part V, to read as follows: 

The restrictions of section 406 of the 

Employee Retirement Income Security 

Act of 1974 (the Act) and the taxes 

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

the Internal Revenue Code of 1986 (the 

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

the Code, shall not apply to any 

extension of credit to an employee 

benefit plan or an individual retirement 

account (IRA) by a party in interest or 

a disqualified person with respect to the 

plan or IRA, provided that the following 

conditions are met: 

(a) The party in interest or 

disqualified person: 

(1) Is a broker or dealer registered 

under the Securities Exchange Act of 

1934; and 

(2) Does not have or exercise any 

discretionary authority or control 

(except as a directed trustee) with 

respect to the investment of the plan or 

IRA assets involved in the transaction, 

nor does it render investment advice 

(within the meaning of 29 CFR 2510.3– 

21) with respect to those assets, unless 

no interest or other consideration is 

received by the party in interest or 

disqualified person or any affiliate 

thereof in connection with such 

extension of credit. 

(b) Such extension of credit: 

(1) Is in connection with the purchase 

or sale of securities; 

(2) Is lawful under the Securities 

Exchange Act of 1934 and any rules and 

regulations promulgated thereunder; 

and 

(3) Is not a prohibited transaction 

within the meaning of section 503(b) of 

the Code. 

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

fiduciary within the meaning of ERISA 

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

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

compensation for extending credit to a 

plan or IRA to avoid a failed purchase 

or sale of securities involving the plan 

or IRA if: 

(1) The potential failure of the 

purchase or sale of the securities is not 

the result of action or inaction by such 

fiduciary or an affiliate; 

(2) The terms of the extension of 

credit are at least as favorable to the 

plan or IRA as the terms available in an 

arm’s length transaction between 

unaffiliated parties; 

(3) Prior to the extension of credit, the 

plan or IRA receives written disclosure 

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

that will apply and (ii) the method of 

determining the balance upon which 

interest will be charged, in the event 

that the fiduciary extends credit to 

avoid a failed purchase or sale of 

securities, as well as prior written 

disclosure of any changes to these 

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

considered satisfied if the plan or IRA 

receives the disclosure described in the 

Securities and Exchange Act Rule 10b– 

16;16 and 

(d) The broker-dealer engaging in the 

covered transaction maintains or causes 

to be maintained for a period of six 

years from the date of such transaction 

such records as are necessary to enable 

the persons described in paragraph (e) 

of this exemption to determine whether 

the conditions of this exemption have 

been met, except that: 

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

transaction shall be subject to the civil 

penalty which may be assessed under 

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

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

the Code, if such records are not 

maintained, or are not available for 

examination as required by paragraph 

(e) below; and 

(2) A prohibited transaction will not 

be deemed to have occurred if, due to 

circumstances beyond the control of the 

broker-dealer, such records are lost or 

destroyed prior to the end of such sixyear period. 

(e) Notwithstanding anything to the 

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

section 504 of the Act, the records 

referred to in paragraph (d) are 

unconditionally available for 

examination during normal business 

hours by duly authorized employees of 

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

Internal Revenue Service, (3) plan 

participants and beneficiaries and IRA 

owners, (4) any employer of plan 

participants and beneficiaries, and (5) 

any employee organization any of 

whose members are covered by such 

plan. 

For purposes of this exemption, the 

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

person’’ and ‘‘fiduciary’’ shall include 

such party in interest, disqualified 

person, or fiduciary, and any affiliates 

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

defined in the same manner as that term 

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

26 CFR 54.4975–9(e). Also for the 

purposes of this exemption, the term 

‘‘IRA’’ means any trust, account or 

annuity described in Code section 

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

example, an individual retirement 

account described in section 408(a) of 

the Code and a health savings account 

described in section 223(d) of the Code. 

Signed at Washington, DC, this 14th day of 

April, 2015. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2015–08836 Filed 4–15–15; 11:15 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2550 

[Application Number D–11850] 

ZRIN: 1210–ZA25 

Proposed Amendment to and 

Proposed Partial Revocation of 

Prohibited Transaction Exemption 

(PTE) 84–24 for Certain Transactions 

Involving Insurance Agents and 

Brokers, Pension Consultants, 

Insurance Companies and Investment 

Company Principal Underwriters 

AGENCY: Employee Benefits Security 

Administration (EBSA), Department of 

Labor. 

ACTION: Notice of Proposed Amendment 

to and Proposed Partial Revocation of 

PTE 84–24. 

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