This section of the FEDERAL REGISTER

contains documents other than rules or

proposed rules that are applicable to the

public. Notices of hearings and investigations,

committee meetings, agency decisions and

rulings, delegations of authority, filing of

petitions and applications and agency

statements of organization and functions are

examples of documents appearing in this

section.

Notices Federal Register

49924 

Vol. 73, No. 164 

Friday, August 22, 2008 

1Section 102 of Reorganization Plan No. 4 of 

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

the authority of the Secretary of the Treasury to 

issue exemptions under section 4975(c)(2) of the 

Code to the Secretary of Labor. For purposes of this 

proposed exemption, references to specific 

provisions of Title I of the Act, unless otherwise 

specified, refer also to the corresponding provisions 

of the Code. 

2See also 29 CFR 2510.3–21(c). 

3Public Law 109–280, 120 Stat. 780 (Aug. 17, 

2006). 

4See PPA section 601(b). Under Reorganization 

Plan No. 4 of 1978 (43 FR 47713, October 17, 1978), 

5 U.S.C. App.1, 92 Stat. 3790, the authority of the 

Secretary of the Treasury to issue rulings under 

section 4975 of the Code has been transferred, with 

certain exceptions not here relevant, to the 

Secretary of Labor. Therefore, the references in this 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

RIN 1210–ZA14 

Proposed Class Exemption for the 

Provision of Investment Advice to 

Participants and Beneficiaries of SelfDirected Individual Account Plans and 

IRAs 

AGENCY: Employee Benefits Security 

Administration, DOL. 

ACTION: Notice of proposed class 

exemption. 

SUMMARY: This document contains a 

notice of pendency before the 

Department of Labor (Department) of a 

proposed class exemption from certain 

prohibited transaction restrictions of the 

Employee Retirement Income Security 

Act of 1974, as amended (ERISA, or the 

Act), and from certain taxes imposed by 

the Internal Revenue Code of 1986, as 

amended (Code). If granted, the 

proposed exemption would permit the 

provision of investment advice 

described in section 3(21)(A)(ii) of the 

Act by a fiduciary adviser to a 

participant or beneficiary in an 

individual account plan or individual 

retirement accounts (and certain similar 

plans), the acquisition, holding or sale 

of a security or other property pursuant 

to the investment advice, and the direct 

or indirect receipt of fees or other 

compensation by the fiduciary adviser 

(or any employee, agent, registered 

representative or affiliate thereof) in 

connection with such transactions. The 

proposed exemption, if granted, would 

affect sponsors, fiduciaries, participants 

and beneficiaries of participant-directed 

individual account plans, as well as 

providers of investments and 

investment advice-related services to 

such plans. 

DATES: Written comments on the 

proposed exemption should be 

submitted to the Department of Labor on 

or before October 6, 2008. 

ADDRESSES: To facilitate the receipt and 

processing of comment letters, the 

Employee Benefits Security 

Administration (EBSA) encourages 

interested persons to submit their 

comments electronically by e-mail to eORI@dol.gov (Subject: Investment 

Advice Class Exemption), or by using 

the Federal eRulemaking portal at 

http://www.regulations.gov (follow 

instructions for submission of 

comments). Persons submitting 

comments electronically are encouraged 

not to submit paper copies. Persons 

interested in submitting paper copies 

should send or deliver their comments 

to the Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration, Attn: 

Investment Advice Class Exemption, 

Room N–5655, U.S. Department of 

Labor, 200 Constitution Avenue, NW., 

Washington, DC 20210. All comments 

will be available to the public, without 

charge, online at http:// 

www.regulations.gov and http:// 

www.dol.gov/ebsa and at the Public 

Disclosure Room, N–1513, Employee 

Benefits Security Administration, U.S. 

Department of Labor, 200 Constitution 

Avenue, NW., Washington, DC 20210. 

FOR FURTHER INFORMATION CONTACT: Fred 

Wong, Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration, (202) 693– 

8500. This is not a toll free number. 

SUPPLEMENTARY INFORMATION: This 

document contains a notice of pendency 

before the Department of a proposed 

class exemption from the restrictions of 

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

from the taxes imposed by section 

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

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

Department is proposing this class 

exemption pursuant to section 408(a) of 

the Act and section 4975(c)(2) of the 

Code, and in accordance with the 

procedures set forth in 29 CFR part 

2570, subpart B (55 FR 32836, August 

10, 1990).1 All section references herein 

are to sections of ERISA unless 

otherwise indicated. 

A. Background 

Section 3(21)(A)(ii) of the Act 

includes within the definition of 

‘‘fiduciary’’ a person that renders 

investment advice for a fee or other 

compensation, direct or indirect, with 

respect to any moneys of other property 

of a plan, or has any authority or 

responsibility to do so.2 The prohibited 

transaction provisions of ERISA and the 

Code prohibit an investment advice 

fiduciary from using the authority, 

control or responsibility that makes it a 

fiduciary to cause itself, or a party in 

which it has an interest that may affect 

its best judgment as a fiduciary, to 

receive additional fees. As a result, in 

the absence of a statutory or 

administrative exemption, fiduciaries 

are prohibited from rendering 

investment advice to plan participants 

regarding investments that result in the 

payment of additional advisory and 

other fees to the fiduciaries or their 

affiliates. 

With the growth of participantdirected individual account plans, there 

has been an increasing recognition of 

the importance of investment advice to 

participants and beneficiaries in such 

plans. Most recently, Congress and the 

Administration, responding to the need 

to afford participants and beneficiaries 

greater access to professional 

investment advice, amended the 

prohibited transaction provisions of 

ERISA and the Code, as part of the 

Pension Protection Act of 2006 (PPA),3

to permit a broader array of investment 

advice providers to offer their services 

to participants and beneficiaries 

responsible for investment of assets in 

their individual accounts and, 

accordingly, for the adequacy of their 

retirement savings. Specifically, section 

601(a) of the PPA added a statutory 

exemption under sections 408(b)(14) 

and 408(g) of ERISA. Parallel provisions 

were added to the Code at section 

4975(d)(17) and 4975(f)(8).4


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notice to specific sections of ERISA should be taken 

as referring also to the corresponding sections of the 

Code. 

5PPA section 601(b)(3)(C)(i). 

Section 408(b)(14) of ERISA provides 

that certain investment advice-related 

transactions will be exempt from the 

prohibitions of section 406 if the 

requirements of section 408(g) are met. 

Section 408(g) of ERISA requires that 

investment advice must be provided by 

a fiduciary adviser under an ‘‘eligible 

investment advice arrangement’’ that 

meets a ‘‘level fee’’ requirement (ERISA 

section 408(g)(2)(A)(i)) or a ‘‘computer 

model’’ requirement (ERISA section 

408(g)(2)(A)(ii)). However, PPA section 

601(b)(3)(C) restricts the general 

availability of an eligible investment 

advice arrangement based on utilization 

of a computer model for certain plans 

described in Code section 4975(e)(1) 

(collectively referred to herein as 

Individual Retirement Accounts or 

IRAs), unless the Secretary of Labor, in 

consultation with the Secretary of the 

Treasury, determines that there is a 

computer model investment advice 

program that may be utilized by an IRA 

to provide investment advice to the 

account beneficiary which meets the 

requirements described in PPA section 

601(b)(3)(B).5

On December 4, 2006, the Department 

published two Requests for Information 

in the Federal Register soliciting 

information to assist the Department in 

the development of regulations under 

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

and in making its determination with 

respect to the utilization of computer 

models for IRAs. 71 FR 70429; 71 FR 

70427. Concurrent with the publication 

of this document, the Department 

reported to Congress its determination 

that there exist computer models that 

meet the requirements described in PPA 

section 601(b)(3)(B). In addition, 

appearing elsewhere in today’s Federal 

Register, the Department is publishing 

proposed regulations that would 

implement the provisions of the 

statutory exemption for the provision of 

investment advice to participants and 

beneficiaries under sections 408(b)(14) 

and 408(g), and parallel provisions in 

Code section 4975. 

This class exemption is intended to 

complement the adoption of those 

implementing regulations by furthering 

the availability of individualized 

investment advice to both participants 

and beneficiaries in participant-directed 

individual account plans and IRA 

beneficiaries under circumstances not 

encompassed in the statutory exemption 

or implementing regulations, as 

described below. 

B. Overview of Proposed Class 

Exemption 

1. General 

In general, the proposed class 

exemption, like the statutory exemption 

and proposed regulations published 

thereunder (proposed 29 CFR 

2550.408g–1), provides relief from 

otherwise prohibited transactions 

relating to the provision of investment 

advice to the participant or beneficiary 

with respect to a security or other 

property available as an investment 

under a plan or IRA; the acquisition, 

holding or sale of a security or other 

property available as an investment 

under a plan or IRA pursuant to the 

investment advice; and the direct or 

indirect receipt of compensation by a 

fiduciary adviser or affiliate in 

connection with the provision of 

investment advice or the acquisition, 

holding or sale of a security or other 

property available as an investment 

under the plan or IRA pursuant to the 

investment advice. 

Unlike the statutory exemption and 

proposed regulations, however, the class 

exemption would provide relief for 

individualized investment advice to 

individuals following the furnishing of 

recommendations generated by a 

computer model or, in the case of IRAs 

with respect to which modeling is not 

feasible, the furnishing of certain 

investment education material. The 

computer generated advice 

recommendations and investment 

education materials are intended to 

provide individual account plan 

participants and beneficiaries and IRA 

beneficiaries with a context for 

assessing and evaluating the 

individualized investment advice 

contemplated by the exemption. Also 

unlike the statutory exemption and 

proposed regulations, the class 

exemption, as discussed below, applies 

the fee-leveling limits solely to the 

compensation received by the 

employee, agent or registered 

representative providing the advice on 

behalf of the fiduciary adviser, as 

distinguished from compensation 

received by the fiduciary adviser on 

whose behalf the employee, agent or 

registered representative is providing 

such advice. 

2. Scope of Exemption—Sections I and 

II 

Sections I and II of the proposal 

define the scope of the class exemption. 

Section I provides that, with respect to 

the provision of advice to participants 

and beneficiaries of individual account 

plans, the restrictions of sections 406(a) 

and 406(b) of ERISA and the sanctions 

resulting from the application of section 

4975 of the Code, by reason of section 

4975(c)(1)(A) through (F) of the Code, 

shall not apply to the provision of 

investment advice described in section 

3(21)(A)(ii) of the Act by a fiduciary 

adviser to a participant or beneficiary of 

an individual account plan that permits 

such participant or beneficiary to direct 

the investment of their individual 

accounts; the acquisition, holding, or 

sale of a security or other property 

pursuant to the investment advice; and, 

except as otherwise provided in the 

exemption, the direct or indirect receipt 

of fees or other compensation by the 

fiduciary adviser (or any employee, 

agent, registered representative or 

affiliate thereof) in connection with the 

provision of the advice or in connection 

with an acquisition, holding, or sale of 

a security or other property pursuant to 

the investment advice. Section II 

provides the same relief with respect to 

the sanctions resulting from the 

application of section 4975 of the Code, 

by reason of section 4975(c)(1)(A) 

through (F) of the Code, for investment 

advice to beneficiaries of IRAs. 

3. Conditions—Section III 

General—Paragraphs (a)–(d) 

Paragraphs (a) through (c) set forth 

general requirements relating to the 

arrangements and investment advice 

covered by the exemption, without 

regard to whether a fiduciary adviser 

uses a computer model or levels fees in 

connection with the providing of 

individualized investment advice. 

Paragraph (a) provides that the 

investment advice arrangement must be 

authorized by a plan fiduciary (or, in the 

case of an IRA, the IRA beneficiary) 

other than: the person offering the 

investment advice arrangement; any 

person providing designated investment 

options under the plan; or any affiliate 

of either. The terms designated 

investment options and affiliate are 

defined in Section IV, described below. 

Paragraph (a) further provides that for 

purposes of such authorization, an IRA 

beneficiary will not be treated as an 

affiliate of a person solely by reason of 

being an employee of such person, 

thereby, enabling employees of a 

fiduciary adviser to take advantage of 

the investment advice arrangements 

offered by their employer under the 

exemption. Paragraph (b) requires that 

the provided investment advice be 

based on certain generally accepted 

investment theories. Paragraph (c) 

requires that the investment advice 

must take into account information 

furnished by a participant or 

beneficiary. 


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6 In general, paragraph (3)(B) of section 408(g) 

provides that a computer model under an 

investment advice program must apply certain 

generally accepted investment theories, utilize 

relevant information about the participant, utilize 

prescribed objective criteria to provide asset 

allocation portfolios comprised of investment 

options available under the plan, operate in a 

manner that is not biased in favor of certain 

investments, and take into account all investment 

options under the plan in specifying how a 

participant’s account balance should be invested. 

Paragraph (3)(C) of section 408(g) requires that a 

computer model utilized under an investment 

advice program be certified as meeting the 

requirements of paragraph (3)(B) by an eligible 

investment expert. Proposed regulations being 

published in today’s Federal Register provide 

further guidance with respect to the computer 

model requirements contained in ERISA section 

408(g)(3). 

7See Field Assistance Bulletin 2007–01 (February 

2, 2007). 8See AO 2001–09A, footnote 11 (‘‘whether a 

party is ‘independent’ for purposes of the subject 

analysis will generally involve a determination as 

to whether there exists a financial interest (e.g., 

compensation, fees, etc.), ownership interest, or 

other relationship, agreement or understanding that 

would limit the ability of the party to carry out its 

responsibility beyond the control, direction or 

influence of the fiduciary’’). 

Paragraph (d) of Section III requires 

that the fiduciary adviser must provide 

advice in accordance with paragraph (e) 

or paragraph (f) or both. As discussed 

below, paragraph (e) generally requires 

the provision of investment advice 

generated by a computer model in 

advance of providing individualized, 

non-computer modeled advice. 

Paragraph (f) requires that investment 

advice be provided in a manner with 

respect to which fees or other 

compensation received by an employee, 

agent or registered representative 

providing investment advice on behalf 

of a fiduciary adviser do not vary based 

on the investment option selected by the 

participant or beneficiary. Paragraph (d) 

also permit the provision of investment 

advice using a combination of computer 

generated advice and fee-leveling. 

Use of Computer Models—Paragraph (e) 

Paragraph (e)(1) requires that, prior to 

the provision of other investment advice 

covered by the class exemption, 

participants and beneficiaries must be 

furnished with investment 

recommendations generated by a 

computer model. The computer model 

must either meet the requirements of 

ERISA section 408(g)(3)(B) and (C) 6 or 

meet the requirements of section 

408(g)(3)(B) and be designed and 

maintained by a person independent of 

the fiduciary adviser (and any of the 

adviser’s affiliates) and utilize 

methodologies and parameters 

determined appropriate solely by the 

independent person. If the conditions of 

section III are satisfied, then the class 

exemption provides relief, as described 

in sections I and II, in connection with 

both the investment advice generated by 

the computer model and the noncomputer model generated investment 

advice subsequently provided. 

In order to satisfy paragraph (e)(1), a 

computer model must, at least, meet the 

requirements of section 408(g)(3)(B) and 

the regulations issued thereunder 

applicable to a computer model that 

serves as the basis of an eligible 

investment advice arrangement under 

the statutory exemption and related 

regulations (proposed 29 CFR 

2550.408g–1(d)(1)). Additionally, unless 

the computer model is developed and 

maintained by a person independent of 

the fiduciary adviser (and its affiliates), 

the computer model must be certified, 

in accordance with ERISA section 

408(g)(3)(C) and related regulations 

(proposed 29 CFR 2550.408g–1(d)(2)), as 

satisfying those requirements. Thus, 

unless the computer model is developed 

and maintained by an independent 

person, the model must meet the same 

requirements, including certification, as 

under the statutory exemption and 

related regulations. With respect to the 

inclusion of independently developed 

and maintained computer models under 

paragraph (e)(1), the Department opined 

in Advisory Opinion 2001–09A (Dec. 

14, 2001) (AO 2001–09A) that an 

investment adviser providing 

investment advice regarding 

investments that pay additional fees to 

the adviser could avoid prohibited 

transaction issues under ERISA section 

406(b)(1) and (3) by utilizing computer 

methodologies developed, maintained 

and overseen by an independent person 

to generate the advice provided. This 

continues to be the view of the 

Department.7 However, as with 

investment advice provided under the 

statutory exemption, the Department 

believes that plan participants and 

beneficiaries may want the flexibility to 

obtain other investment advice after 

receiving computer-generated advice, 

and advisers may be willing to offer 

such services. Accordingly, paragraph 

(e)(1) similarly encompasses 

transactions in connection with 

investment advice received after 

investment advice generated by a 

computer model developed and 

maintained by a person independent of 

the fiduciary adviser and its affiliates. 

For purposes of this paragraph, the term 

‘‘independent’’ is defined in paragraph 

(h) of Section IV. The Department notes, 

however, that it continues to believe 

that what constitutes ‘‘independent’’ for 

purposes of the analysis in AO 2001–

09A is an inherently factual question,8

and that no inferences should be drawn 

with regard to the effect of the definition 

contained in paragraph (h) of section IV 

on the analysis in AO 2001–09A. 

The general requirement for computer 

model investment advice set forth in 

paragraph (e)(1) also applies to IRAs, 

unless the fiduciary adviser determines 

that the types or number of investment 

choices available to an IRA beneficiary 

reasonably precludes the use of a 

computer model meeting of the 

requirements of section ERISA 

408(g)(3)(B). See paragraph (e)(2) of 

Section III. If the fiduciary adviser so 

concludes, paragraph (e)(2) of Section III 

requires that the beneficiary be provided 

certain investment education-type 

materials, such as graphs, pie charts, 

case studies, worksheets, or interactive 

software or similar programs, that reflect 

or produce asset allocation models 

taking into account the age (or time 

horizon) and risk profile of the 

beneficiary, to the extent known. 

Paragraph (e)(2) also sets forth some 

general standards intended to ensure the 

reasonableness and objectivity of the 

materials furnished. These materials, 

like the investment advice generated by 

a computer model required under 

paragraph (e)(1), are intended to provide 

a means by which a participant or 

beneficiary may assess the 

individualized advice provided by the 

fiduciary adviser, taking into account 

whether and to what extent the 

individualized advice deviates from the 

computer generated advice or 

education-type materials furnished in 

advance by the fiduciary adviser. 

Paragraph (e)(3) of Section III requires 

that the investment advice provided 

does not recommend investment 

options that may generate for the 

fiduciary adviser, or certain other 

persons, greater income than other 

options of the same asset class, unless 

the fiduciary adviser prudently 

concludes that the recommendation is 

in the best interest of the participant or 

beneficiary and explains the basis for 

that conclusion to the participant or 

beneficiary. Section III(e)(4), described 

below, imposes a specific 

documentation requirement with 

respect to any such advice. Section 

III(e)(3) does not apply to investment 

advice generated solely by use of a 

computer model described in paragraph 

(e)(1)(A) or (B) of section III. 

Paragraph (e)(4) of Section III 

generally requires that not later than 30 

days following the provision of 

investment advice under paragraph (e), 

the individual providing the advice on 

behalf of the fiduciary adviser must 

document the basis of any investment 

option(s) recommended to a participant 

or beneficiary, including an explanation 


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9For a description of computer model limitations, 

see proposed regulations published in today’s 

Federal Register. 

as to how such recommendation relates 

to the recommendations or information 

provided or generated pursuant to 

paragraph (e)(1) or, if applicable, 

paragraph (e)(2). As an example, in the 

case of an IRA described in paragraph 

(e)(2) with respect to which a fiduciary 

adviser provides several generic asset 

allocation portfolios prior to rendering 

investment advice, the documentation 

required by paragraph (e)(4) must 

include explanations as to the asset 

allocation portfolio on which the 

investment advice is based, including 

reasons for its selection or deviation 

from those provided, and how the 

recommended investments provide the 

appropriate asset class exposures 

consistent with the portfolio. 

Paragraph (e)(4) further requires that 

with respect to any investment advice 

that recommends investment options 

that may generate for the fiduciary 

adviser, or certain persons, greater 

income than other options of the same 

asset class, the individual providing the 

investment advice on behalf of the 

fiduciary adviser must, not later than 30 

days following its provision, document 

the basis for concluding that the 

recommendation is in the best interest 

of the participant or beneficiary. As 

with the requirements of paragraph 

(e)(3), this requirement does not apply 

to investment advice generated solely by 

use of a computer model described in 

paragraph (e)(1)(A) or (B) of Section III. 

Paragraph (e)(5) provides that the 

documentation required by paragraph 

(e)(4) must be retained in accordance 

with the exemption’s record-retention 

provision, section paragraph (n) of 

Section III, described below. 

Use of Fee-Leveling—Paragraph (f) 

Paragraph (f) of Section III requires 

that any fees or other compensation 

(including salary, bonuses, awards, 

promotions, commissions or any other 

thing of value) received, directly or 

indirectly, by an employee, agent or 

registered representative providing 

advice on behalf of the fiduciary adviser 

pursuant to the class exemption do not 

vary depending on the basis of any 

investment option selected by a 

participant or beneficiary. The 

Department notes that, in contrast to the 

fee-leveling requirement under the 

statutory exemption as described above 

and interpreted in proposed regulations 

being published in today’s Federal 

Register, the fee-leveling requirement 

under paragraph (f) applies only to the 

individual who provides investment 

advice. In this regard, the Department is 

persuaded that the safeguards provided 

for in the class exemption are sufficient 

to permit the application of the feeleveling requirement at the individuallevel, rather than fiduciary adviserentity level, without compromising the 

availability of informed, unbiased, and 

objective investment advice for 

participants and beneficiaries. 

Disclosure—Paragraphs (g)–(h) 

The disclosure provisions set forth in 

paragraph (g) of Section III generally 

track the disclosure provisions of the 

proposed regulations. See proposed 29 

CFR 2550.408g–1(g). In this regard, 

paragraph (g) of Section III requires that 

a fiduciary adviser furnish certain 

information, without charge, to a 

participant or beneficiary in advance of 

the initial provision of investment 

advice under the class exemption, and 

at least once each year thereafter during 

which the adviser provides investment 

advice to the participant or beneficiary 

under the class exemption. 

Pursuant to paragraph (g)(1), a 

fiduciary adviser is required to provide 

to participants and beneficiaries a 

written notification describing: The role 

of any party that has a material 

affiliation or material contractual 

relationship with the fiduciary adviser 

in the development of the computer 

model described in paragraph (e)(1) or 

materials described in section paragraph 

(e)(2) of Section III and in the selection 

of investment options available under 

the plan; the past performance and 

historical rates of return of the 

designated investment options available 

under the plan or IRA to the extent such 

information is not otherwise provided; 

all fees or other compensation relating 

to the advice that the fiduciary adviser 

or any affiliate thereof is to receive 

(including compensation provided by 

any third party) in connection with the 

provision of the advice or in connection 

with the sale, acquisition, or holding of 

the security or other property; and of 

any material affiliation or material 

contractual relationship of the fiduciary 

adviser or affiliates thereof in the 

security or other property. 

The notification also is required to 

explain the manner, and under what 

circumstances, any participant or 

beneficiary information provided under 

the investment advice arrangement will 

be used or disclosed, and the types of 

services provided by the fiduciary 

adviser in connection with the 

provision of investment advice by the 

fiduciary adviser, including, with 

respect to an arrangement that utilizes a 

computer model pursuant to paragraph 

(e)(1), any limitations on the ability of 

the computer model to take into account 

an investment option that constitutes an 

investment primarily in qualifying 

employer securities, as provided for in 

proposed 29 CFR 2550.408g–1(d)(1)(v). 

This disclosure of limitations on a 

computer model’s ability to take into 

account investments in qualifying 

employer securities parallels a similar 

requirement contained in the proposed 

regulations under section 408(g)(3) 

being published today.9

In addition to the foregoing, the 

notification must inform participants 

and beneficiaries that the fiduciary 

adviser is acting as a fiduciary of the 

plan in connection with the provision of 

the advice, and that the participants or 

beneficiaries may separately arrange for 

the provision of advice by another 

adviser, that could have no material 

affiliation with, and receives no fees or 

other compensation in connection with, 

the security or other property 

recommended to the participant or 

beneficiary. 

Paragraph (g)(2)(i) provides that the 

information furnished pursuant to 

paragraph (g)(1) must be written in a 

clear and concise manner and in a 

manner calculated to be understood by 

the average plan participant and is 

sufficiently accurate and comprehensive 

to reasonably apprise such participants 

and beneficiaries of the information 

required to be disclosed. Paragraph 

(g)(2)(ii) notes that the appendix to 

proposed 29 CFR 2550.408g–1 contains 

a model disclosure form that may be 

used to provide the required notification 

of information described in paragraph 

(g)(1)(iii). Paragraph (g)(2)(ii) makes 

clear that use of the model is voluntary. 

However, use of an appropriately 

completed model disclosure form will 

be deemed to satisfy the requirements of 

paragraphs (g)(1) and (2)(i) with respect 

to such information. 

Paragraph (g)(3) indicates that 

required notification may be provided 

in written or electronic form. 

Paragraph (g)(4) requires that the 

fiduciary adviser provide, without 

charge, updated information to the 

advice recipient concerning any 

material change to the information 

required to be provided to the advice 

recipient under section III(g) at a time 

reasonably contemporaneous to the 

change in information. 

Paragraph (h) requires that the 

fiduciary adviser provide appropriate 

disclosure, in connection with the sale, 

acquisition, or holding of the security or 

other property, in accordance with all 

applicable securities laws. 


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10 15 U.S.C. 7004(d)(1) (2000). 

Policies and Procedures—Paragraph (i) 

Paragraph (j) of Section III requires 

that the fiduciary adviser adopt and 

follow written policies and procedures 

that are designed to assure compliance 

with the conditions of the exemption. 

The Department believes that the 

maintenance of such policies and 

procedures will help ensure compliance 

with the exemption, as well as support 

a finding that, for purposes of section 

408(a)(1), the exemption is 

administratively feasible. In this regard, 

the Department notes that, as discussed 

below, the auditor engaged pursuant to 

paragraph (j) is required to review a 

fiduciary adviser’s compliance with its 

policies and procedures. 

Annual Audit—Paragraph (j) 

The annual audit requirements of this 

proposed class exemption generally 

track the audit requirements applicable 

to investment advice arrangements 

offered under the statutory exemption 

and regulations issued thereunder, 

appearing elsewhere in today’s Federal 

Register. See proposed 29 CFR 

2550.408g–1(f). 

Paragraph (j)(1)(i) of Section III of the 

proposed class exemption requires that, 

at least annually, the fiduciary adviser 

engage an independent auditor to 

conduct an audit, and prepare a report 

with respect thereto and setting forth its 

specific findings, to determine 

compliance with the policies and 

procedures required under paragraph (i) 

of Section III and the requirements of 

the class exemption. The auditor, within 

60 days following the completion of the 

audit, must furnish its report to the 

fiduciary adviser and, except with 

respect to an arrangement with an IRA, 

to the fiduciary that authorized the 

investment advice arrangement, as 

required under paragraph (a) of Section 

III. The audit must be conducted by an 

auditor who has appropriate technical 

training or experience and proficiency 

and so represents in writing to the 

fiduciary adviser. Paragraph (j)(2) 

provides that for purposes of paragraph 

(j)(1), an auditor is considered 

independent if it does not have a 

material affiliation or material 

contractual relationship with the person 

offering the investment advice 

arrangement to the plan or IRA or any 

person providing designated investment 

options under the plan or IRA. 

Paragraph (j)(1)(ii) contains additional 

requirements that apply with respect to 

an arrangement with an IRA. Under this 

provision, the fiduciary adviser, within 

30 days following receipt of the report 

from the auditor, as described in 

paragraph (j)(1)(i), must furnish a copy 

of the report to the IRA beneficiary or 

make such report available on its Web 

site, provided, however, that with 

respect to availability on a Web site, 

such IRA beneficiaries must be provided 

information, with the information 

required to be furnished pursuant to 

section III(g)(1), concerning the purpose 

of the report, and how and where to 

locate the report applicable to their 

account. With respect to making the 

report available on a Web site, the 

Department believes that this alternative 

to furnishing reports to IRA 

beneficiaries satisfies the requirement of 

section 104(d)(1) of the Electronic 

Signatures in Global and National 

Commerce Act (E–SIGN) 10 that any 

exemption from the consumer consent 

requirements of section 101(c) of E–

SIGN must be necessary to eliminate a 

substantial burden on electronic 

commerce and will not increase the 

material risk of harm to consumers. The 

Department solicits comments on this 

finding. Further, in the event that the 

report of the auditor identifies 

noncompliance with the policies and 

procedures required by section III(i) or 

the conditions of the class exemption, 

the fiduciary adviser, within 30 days 

following receipt of the report from the 

auditor, must send a copy of the report 

to the Department at the address 

provided in the class exemption. 

Paragraph (j)(3) provides that, in 

conducting the audit required in (j)(1), 

the auditor must review sufficient 

relevant information to formulate an 

opinion as to whether the investment 

advice arrangements, and the advice 

provided pursuant thereto, offered by 

the fiduciary adviser during the audit 

period were in compliance with the 

policies and procedures required under 

paragraph (i) of Section III and the 

requirements of the class exemption. 

Paragraph (j)(3) also makes clear, 

however, that it does not preclude an 

auditor from using information obtained 

by sampling, as reasonably determined 

appropriate by the auditor, investment 

advice arrangements, and the advice 

pursuant thereto, during the audit 

period. 

Miscellaneous Conditions—Paragraphs 

(k)–(m) 

Paragraphs (k)–(m) track provisions of 

the statutory exemption and proposed 

regulations, appearing elsewhere in 

today’s Federal Register. See proposed 

29 CFR 2550.408g–1(h). Paragraph (k) of 

Section III requires that the sale, 

acquisition or holding of a security or 

other property on behalf of a plan or 

IRA under the exemption must occur 

solely at the direction of the recipient of 

the investment advice. Paragraph (l) 

requires that the compensation received 

by the fiduciary adviser and affiliates 

thereof in connection with the sale, 

acquisition or holding of the security or 

other property must be reasonable. 

Paragraph (m) requires that the terms of 

the sale, acquisition or holding of the 

security or other property must be at 

least as favorable to the plan or IRA as 

an arm’s length transaction with an 

unrelated party would be. 

Record Retention—Paragraph (n) 

Paragraph (n) of Section III provides 

that the fiduciary adviser must 

maintain, in a manner accessible for 

audit or examination, for a period not 

less than six years after the provision of 

investment advice any records 

necessary to determine, explain or 

verify compliance with the conditions 

of the class exemption. 

4. Definitions—Section IV 

Section IV defines certain terms that 

apply for purposes of the class 

exemption. In general, the definitions 

applied for purposes of the class 

exemption comport with the definitions 

applied to terms under the statutory 

exemption and the proposed 

regulations, appearing elsewhere in 

today’s Federal Register. See proposed 

29 CFR 2550.408g–1(j). 

As a threshold matter, this proposed 

class exemption would be available only 

in connection with investment advice 

provided by a fiduciary adviser. 

Paragraph (a) defines the term 

‘‘fiduciary adviser.’’ This definition 

tracks the statutory definition of that 

term. 

Paragraph (b) defines the term 

‘‘registered representative’’ of another 

entity to mean a person described in 

section 3(a)(18) of the Securities 

Exchange Act of 1934 (substituting the 

entity for the broker or dealer referred 

to in such section) or a person described 

in section 202(a)(17) of the Investment 

Advisers Act of 1940 (substituting the 

entity for the investment adviser 

referred to in such section). Paragraph 

(c) defines the term ‘‘individual 

retirement account’’ and paragraph (d) 

defines the term ‘‘affiliate’’ for purposes 

of the class exemption. 

As with the proposed regulations, the 

proposed class exemption, at paragraphs 

(e) and (f), respectively, also defines the 

terms ‘‘material affiliation’’ and 

‘‘material contractual relationship.’’

Paragraph (e)(1) defines a person with a 

‘‘material affiliation’’ with another 

person as: any affiliate of the other 

person; any person directly or indirectly 

owning, controlling, or holding, 5 


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percent or more of the interests of such 

other person; and any person 5 percent 

or more of whose interests are directly 

or indirectly owned, controlled, or held, 

by such other person. The Department 

notes that the definition of material 

affiliation includes an affiliate, as 

defined in paragraph (d) of section IV, 

and that, whereas the definition of 

affiliate focuses on voting securities 

owned, controlled or held, the 

definition of material affiliate focuses 

not only on the voting interests, but also 

on any interest. In this regard, paragraph 

(e)(2) defines the term ‘‘interest’’ for 

purposes of paragraph (e)(1). 

Paragraph (f) provides that persons 

have a ‘‘material contractual 

relationship’’ if payments made by one 

person to the other person pursuant to 

written contracts or agreements between 

the persons exceed 10 percent of the 

gross revenue, on an annual basis, of 

such other person. The Department 

believes that one person’s receipt of 

more than 10 percent of gross revenue 

from another person is sufficiently 

significant to be considered material. 

However, the Department specifically 

invites comments on whether the 

percentage test should be higher or 

lower and, if so, why. 

Paragraph (g) defines ‘‘control’’ to 

mean the power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

Paragraph (h) of Section IV defines, 

for purposes of paragraph (e)(1) of 

Section III, the term ‘‘independent’’ to 

mean a person that is not an affiliate of 

the other person and does not have a 

material affiliation or material 

contractual relationship with the other 

person. 

For purposes of paragraphs (a), (g)(1) 

and (j)(2) of Section III of the proposal, 

paragraph (i) of Section IV defines the 

term ‘‘designated investment option’’ to 

mean any investment option designated 

by the plan into which participants and 

beneficiaries may direct the investment 

of assets held in, or contributed to, their 

individual accounts. However, the term 

‘‘designated investment option’’ does 

not include ‘‘brokerage windows,’’ ‘‘selfdirected brokerage accounts,’’ or similar 

plan arrangements that enable 

participants and beneficiaries to select 

investments beyond those designated by 

the plan. 

5. Effect of Noncompliance—Section V 

Section V clarifies that the class 

exemption will not apply to any 

transaction (described in section I or II) 

in connection with the provision of 

investment advice to an individual 

participant or beneficiary with respect 

to which the conditions of the 

exemption have not been satisfied. In 

addition, in the case of a pattern or 

practice of noncompliance with any of 

the conditions, the exemption will not 

apply to any transaction in connection 

with the provision of investment advice 

provided by the fiduciary adviser during 

the period over which the pattern or 

practice extended. 

C. Effective Date 

The Department is proposing an 

effective date for the proposed class 

exemption which is 90 days after the 

publication of the final exemption in the 

Federal Register. 

D. General Information 

The attention of interested persons is 

directed to the following: 

(1) The fact that a transaction is the 

subject of an exemption under section 

408(a) of the Act and section 4975(c)(2) 

of the Code does not relieve a fiduciary 

or other party in interest or disqualified 

person from other provisions of the Act 

and the Code, including any prohibited 

transaction provisions to which the 

exemption does not apply and the 

general fiduciary responsibility 

provisions of section 404 of the Act. 

Section 404 requires, among other 

things, that a fiduciary discharge its 

duties with respect to the plan 

prudently and solely in the interests of 

the plan’s participants and beneficiaries. 

A transaction’s qualification for an 

exemption also does not affect the 

requirement of section 401(a) of the 

Code that the plan must operate for the 

exclusive benefit of the employees of 

the employer maintaining the plan and 

their beneficiaries; 

(2) If granted, the proposed exemption 

will apply to a transaction only if the 

conditions specified in the exemption 

are met; and 

(3) The proposed exemption, if 

granted, will be supplemental to, and 

not in derogation of, any other 

provisions of the Act and the Code, 

including statutory or administrative 

exemptions and transitional rules. 

E. Written Comments 

Interested persons are encouraged to 

submit written comments on the 

proposed exemption. Comments are due 

not later than 45 days after the date of 

publication of the proposal in the 

Federal Register. The Employee 

Benefits Security Administration 

encourages interested persons to submit 

their comments electronically by e-mail 

to e-ORI@dol.gov (Subject: Investment 

Advice Class Exemption). Persons 

submitting comments electronically are 

encouraged not to submit paper copies. 

Persons interested in submitting paper 

copies should refer to the information 

set forth above under ADDRESSES for the 

specific information relating to the 

delivery comments. All comments will 

be available to the public, without 

charge, online at http://www.dol.gov/ 

ebsa and at the Public Disclosure Room, 

N–1513, Employee Benefits Security 

Administration, U.S. Department of 

Labor, 200 Constitution Avenue, NW., 

Washington, DC 20210. 

F. Executive Order 12866; Paperwork 

Reduction Act 

The Department’s full Regulatory 

Impact Analysis for the class exemption 

proposed herein and rules proposed 

under the statutory exemption for 

investment advice can be found in the 

preamble to those proposed rules 

appearing elsewhere in today’s Federal 

Register . 

G. Proposed Exemption 

The Department has under 

consideration the grant of the following 

class exemption under the authority of 

section 408(a) of ERISA and section 

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

accordance with the procedures set 

forth in 29 CFR Part 2570, Subpart B (55 

FR 32836, 32847, August 10, 1990). 

Section I—Proposed Exemption for the 

Provision of Investment Advice to 

Participants and Beneficiaries of 

Individual Account Plans 

The restrictions of sections 406(a) and 

406(b) of ERISA and the sanctions 

resulting from the application of section 

4975 of the Code, by reason of section 

4975(c)(1)(A) through (F) of the Code, 

shall not apply to: 

(a) The provision of investment 

advice described in section 3(21)(A)(ii) 

of the Act by a fiduciary adviser to a 

participant or beneficiary of an 

individual account plan that permits 

such participant or beneficiary to direct 

the investment of their individual 

accounts; 

(b) the acquisition, holding, or sale of 

a security or other property pursuant to 

the investment advice; and 

(c) except as otherwise provided in 

this exemption, the direct or indirect 

receipt of fees or other compensation by 

the fiduciary adviser (or any employee, 

agent, registered representative or 

affiliate thereof) in connection with the 

provision of the advice or in connection 

with an acquisition, holding, or sale of 

a security or other property pursuant to 

the investment advice, provided that the 

conditions set forth in section III below 

are met. 


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Section II—Proposed Exemption for the 

Provision of Investment Advice to 

Beneficiaries of Individual Retirement 

Accounts 

The sanctions resulting from the 

application of section 4975 of the Code, 

by reason of section 4975(c)(1)(A) 

through (F) of the Code, shall not apply 

to: 

(a) The provision of investment 

advice described in section 

4975(e)(3)(B) of the Code by a fiduciary 

adviser to a beneficiary of an Individual 

Retirement Account (IRA) that permits 

such beneficiary to direct the 

investment of the assets of his or her 

IRA; 

(b) the acquisition, holding, or sale of 

a security or other property pursuant to 

the investment advice; and 

(c) except as otherwise provided in 

this exemption, the direct or indirect 

receipt of fees or other compensation by 

the fiduciary adviser (or any employee, 

agent, registered representative or 

affiliate thereof) in connection with the 

provision of the advice or in connection 

with an acquisition, holding, or sale of 

a security or other property pursuant to 

the investment advice, provided that the 

conditions set forth in section III below 

are met. 

Section III. Conditions 

(a) The arrangement pursuant to 

which investment advice is provided to 

participants and beneficiaries is 

expressly authorized in advance by a 

plan fiduciary (or, in the case of an IRA, 

the IRA beneficiary) other than: The 

person offering the investment advice 

arrangement; any person providing 

designated investment options under 

the plan; or any affiliate of either. 

Provided, however, that for purposes of 

the preceding, in the case of an IRA, an 

IRA beneficiary will not be treated as an 

affiliate of a person solely by reason of 

being an employee of such person. 

(b) The investment advice is based on 

generally accepted investment theories 

that take into account the historic 

returns of different asset classes over 

defined periods of time; provided, 

however, that nothing herein shall 

preclude any investment advice from 

being based on generally accepted 

investment theories that take into 

account additional considerations. 

(c) The investment advice takes into 

account information furnished by a 

participant or beneficiary relating to age, 

life expectancy, retirement age, risk 

tolerance, other assets or sources of 

income and investment preferences, 

although nothing herein shall preclude 

any investment advice from taking into 

account additional information that a 

participant or beneficiary may provide. 

(d) The fiduciary adviser provides 

advice in accordance with paragraph (e) 

or (f), or both. 

(e)(1) Except as provided in 

subparagraph (2), before providing other 

investment advice covered by this 

exemption, participants and 

beneficiaries shall be furnished with 

investment recommendations generated 

by a computer model that—(A) meets 

the requirements of ERISA section 

408(g)(3)(B) and (C); or (B) meets the 

requirements of section 408(g)(3)(B) and 

was designed and is maintained by a 

person independent of the fiduciary 

adviser (and any of the adviser’s 

affiliates) and utilizes methodologies 

and parameters determined appropriate 

solely by the independent person, 

without influence from the fiduciary 

adviser (or any of the adviser’s 

affiliates); 

(2) In the case of an IRA with respect 

to which the types or number of 

investment choices reasonably 

precludes the use of a computer model 

meeting the requirements of section 

408(g)(3)(B) of ERISA to generate 

investment recommendations, before 

providing other investment advice 

covered by this exemption, beneficiaries 

shall be furnished with material, such as 

graphs, pie charts, case studies, 

worksheets, or interactive software or 

similar programs, that reflect or produce 

asset allocation models taking into 

account the age (or time horizon) and 

risk profile of the beneficiary, to the 

extent known. Nothing shall preclude 

the furnishing of material, in addition to 

the foregoing, reflecting asset allocation 

portfolios of hypothetical individuals 

with different time horizons and risk 

profiles. For purposes of any materials 

provided pursuant to this subparagraph 

(2): (A) models must be based on 

generally accepted investment theories 

that take into account the historic 

returns of different asset classes (e.g., 

equities, bonds, or cash) over defined 

periods of time; (B) such models must 

operate in a manner that is not biased 

in favor of investments offered by the 

fiduciary adviser or a person with a 

material affiliation or material 

contractual relationship with the 

fiduciary adviser; and (C) all material 

facts and assumptions on which such 

models are based (e.g., retirement ages, 

life expectancies, income levels, 

financial resources, replacement income 

ratios, inflation rates, and rates of 

return) accompany the models; 

(3) The investment advice provided 

does not recommend investment 

options that may generate for the 

fiduciary adviser or any employee, agent 

or registered representative, or any 

affiliate thereof, or any person with a 

material affiliation or material 

contractual relationship with the 

foregoing, greater income than other 

options of the same asset class, unless 

the adviser prudently concludes that the 

recommendation is in the best interest 

of the participant or beneficiary and 

explains the basis for that conclusion to 

the participant or beneficiary. This 

subparagraph (3) shall not apply to 

investment advice generated solely by 

use of a computer model described in 

clause (A) or (B) of subparagraph (1); 

(4) Not later than 30 days following 

the provision of investment advice 

under this paragraph (e), the employee, 

agent or registered representative 

providing the advice on behalf of the 

fiduciary adviser shall document the 

basis of any investment option(s) 

recommended to a participant or 

beneficiary, including an explanation as 

to how such recommendation relates to 

the recommendations or information 

provided or generated pursuant to 

subparagraph (1) or (2) of this paragraph 

(e); and, with respect to any investment 

advice (other than generated solely by a 

computer model described in clause (A) 

or (B) of subparagraph (1)) that 

recommends investment options that 

may generate for the fiduciary adviser or 

any employee, agent or registered 

representative, or any affiliate thereof, 

or any person with a material affiliation 

or material contractual relationship with 

the foregoing, greater income than other 

options of the same asset class, the basis 

for concluding that the recommendation 

is in the best interest of the participant 

or beneficiary; 

(5) Any documentation required by 

subparagraph (4) of this paragraph (e) 

shall be retained in accordance with 

paragraph (n) of this section. 

(f) Any fees or other compensation 

(including salary, bonuses, awards, 

promotions, commissions or any other 

thing of value) received, directly or 

indirectly, by an employee, agent or 

registered representative providing 

advice on behalf of the fiduciary adviser 

pursuant to this exemption (as 

distinguished from any compensation 

received by the fiduciary adviser on 

whose behalf the employee, agent or 

registered representative is providing 

such advice) do not vary depending on 

the basis of any investment option 

selected by a participant or beneficiary. 

(g)(1) The fiduciary adviser provides, 

without charge, to the participant or 

beneficiary before the initial provision 

of investment advice under this 

exemption, and at least once each year 

thereafter during which the fiduciary 

adviser provides investment advice to 

the participant or beneficiary, written 

notification: (i) Of the role of any party 


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that has a material affiliation or material 

contractual relationship with the 

fiduciary adviser in the development of 

the computer model described in 

paragraph (e)(1) of this section or, if 

applicable, the materials described in 

paragraph (e)(2) of this section, and, to 

the extent applicable, in the selection of 

investment options available under the 

plan, (ii) of the past performance and 

historical rates of return of the 

designated investment options available 

under the plan or IRA to the extent such 

information is not otherwise provided, 

(iii) of all fees or other compensation 

relating to the advice that the fiduciary 

adviser or any affiliate thereof is to 

receive (including compensation 

provided by any third party) in 

connection with the provision of the 

advice or in connection with the sale, 

acquisition, or holding of the security or 

other property, (iv) of any material 

affiliation or material contractual 

relationship of the fiduciary adviser or 

affiliates thereof in the security or other 

property, (v) of the manner, and under 

what circumstances, any participant or 

beneficiary information provided under 

the arrangement will be used or 

disclosed, (vi) of the types of services 

provided by the fiduciary adviser in 

connection with the provision of 

investment advice by the fiduciary 

adviser, including, with respect to an 

arrangement that utilizes a computer 

model pursuant to paragraph (e)(1), any 

limitations on the ability of the 

computer model to take into account an 

investment option that constitutes an 

investment primarily in qualifying 

employer securities, as provided for at 

29 CFR 2550.408g–1(d)(1)(v), (vii) that 

the fiduciary adviser is acting as a 

fiduciary of the plan in connection with 

the provision of the investment advice, 

and (viii) that a recipient of the advice 

may separately arrange for the provision 

of advice by another adviser, that could 

have no material affiliation with, and 

receives no fees or other compensation 

in connection with, the security or other 

property; 

(2)(i) Such notification must be 

written in a clear and conspicuous 

manner and in a manner calculated to 

be understood by the average plan 

participant and shall be sufficiently 

accurate and comprehensive to 

reasonably apprise such participants 

and beneficiaries of the information 

required to be disclosed; (ii) the 

appendix to 29 CFR 2550.408g–1 

contains a model disclosure form that 

may be used to provide the notification 

of information described in paragraph 

(g)(1)(iii). Use of the model disclosure 

form is not mandatory. However, use of 

an appropriately completed model 

disclosure form will be deemed to 

satisfy the requirements of paragraphs 

(g)(1) and (2)(i) with respect to such 

information. 

(3) Such notification may, in 

accordance with 29 CFR 2520.104b–1, 

be provided in written or electronic 

form. 

(4) At all times during the provision 

of advisory services to the participant or 

beneficiary pursuant to this exemption, 

the fiduciary adviser provides, without 

charge, accurate information to the 

recipient of the advice concerning any 

material change to the information 

required to be provided to the recipient 

of the advice at a time reasonably 

contemporaneous to the change in 

information. 

(h) The fiduciary adviser provides 

appropriate disclosure, in connection 

with the sale, acquisition, or holding of 

the security or other property, in 

accordance with all applicable 

securities laws. 

(i) The fiduciary adviser adopts and 

follows written policies and procedures 

that are designed to assure compliance 

with the conditions of this exemption. 

(j)(1) The fiduciary adviser—

(i) at least annually, engages an 

independent auditor, who has 

appropriate technical training or 

experience and proficiency and so 

represents in writing to the fiduciary 

adviser, to (A) conduct an audit, and 

prepare a report with respect thereto 

and setting forth its specific findings, to 

determine compliance with the policies 

and procedures of paragraph (i) of this 

section and the requirements of this 

exemption, and (B) within 60 days 

following the completion of the audit, 

furnish its report to the fiduciary 

adviser, and, except with respect to an 

arrangement with an IRA, to the 

fiduciary who authorized the 

arrangement pursuant to which 

investment advice under this exemption 

is provided; and 

(ii) with respect to an arrangement 

with an IRA—(A) within 30 days 

following receipt of the report from the 

auditor, furnishes a copy of the report 

to the IRA beneficiary or makes such 

report available on its Web site, 

provided that such beneficiaries are 

provided information, with the 

information required to be disclosed 

pursuant to paragraph (g)(1) of this 

section, concerning the purpose of the 

report, and how and where to locate the 

report applicable to their account, and 

(B) in the event that the report of the 

auditor identifies noncompliance with 

the policies and procedures required by 

paragraph (i) or the conditions of this 

exemption, within 30 days following 

receipt of the report from the auditor, 

sends a copy of the report to the 

Department of Labor at the following 

address: Investment Advice Class 

Exemption Notification, U.S. 

Department of Labor, Employee Benefits 

Security Administration, Room N–1513, 

200 Constitution Ave., NW., 

Washington, DC 20210; 

(2) for purposes of subparagraph (1), 

an auditor is considered independent if 

it does not have a material affiliation or 

material contractual relationship with 

the person offering the investment 

advice arrangement to the plan or IRA 

or any designated investment options 

under the plan or IRA; 

(3) for purposes of the audit described 

in subparagraph (1), the auditor shall 

review sufficient relevant information to 

formulate an opinion as to whether the 

investment advice arrangements, and 

the advice provided pursuant thereto, 

offered by the fiduciary adviser during 

the audit period were in compliance 

with the policies and procedures of 

paragraph (i) of this section and the 

requirements of this exemption; 

provided, however, that nothing in this 

subparagraph shall preclude an auditor 

from using information obtained by 

sampling, as reasonably determined 

appropriate by the auditor, investment 

advice arrangements, and the advice 

pursuant thereto, during the audit 

period. 

(k) The sale, acquisition or holding of 

a security or other property on behalf of 

a plan or IRA occurs solely at the 

direction of the recipient of the 

investment advice. 

(l) The compensation received by the 

fiduciary adviser and affiliates thereof 

in connection with the sale, acquisition 

or holding of the security or other 

property is reasonable. 

(m) The terms of the sale, acquisition 

or holding of the security or other 

property are at least as favorable to the 

plan or IRA as an arm’s length 

transaction would be. 

(n) The fiduciary adviser maintains, 

in a manner accessible for audit or 

examination, for a period not less than 

six years after the provision of 

investment advice under this 

exemption, any records necessary to 

determine, explain or verify compliance 

with the conditions of this exemption. 

Section IV. Definitions 

(a) Fiduciary Adviser—means, with 

respect to a plan, a person who is a 

fiduciary of the plan by reason of the 

provision of investment advice 

described in section 3(21)(A)(ii) of the 

Act by the person to the participant or 

beneficiary of the plan and who is—


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(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 fiduciary maintains its principal 

office and place of business, 

(2) A bank or similar financial 

institution referred to in section 

408(b)(4) of the Act 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 

is provided through a trust department 

of the bank or similar financial 

institution which is subject to periodic 

examination and review by Federal or 

State banking authorities, or 

(3) An insurance company qualified 

to do business under the laws of a State, 

or 

(4) A person registered as a broker or 

dealer under the Securities Exchange 

Act of 1934 (15 U.S.C. 78a et seq.), or 

(5) An affiliate of a person described 

in any of clauses (1) through (4) above, 

or 

(6) An employee, agent, or registered 

representative of a person described in 

clauses (1) through (5) above who 

satisfies the requirements of applicable 

insurance, banking, and securities laws 

relating to the provision of the advice. 

(b) Registered Representative—a 

registered representative of another 

entity means a person described in 

section 3(a)(18) of the Securities 

Exchange Act of 1934 (15 U.S.C. 

78c(a)(18)) (substituting the entity for 

the broker or dealer referred to in such 

section) or a person described in section 

202(a)(17) of the Investment Advisers 

Act of 1940 (15 U.S.C. 80b–2(a)(17)) 

(substituting the entity for the 

investment adviser referred to in such 

section). 

(c) Individual Retirement Account or 

IRA means—(1) an individual 

retirement account described in section 

408(a) of the Code; (2) an individual 

retirement annuity described in section 

408(b) of the Code; (3) an Archer MSA 

described in section 220(d) of the Code; 

(4) a health savings account described in 

section 223(d) of the Code; (5) a 

Coverdell education savings account 

described in section 530 of the Code; or 

(6) a trust, plan, account, or annuity 

which, at any time, has been determined 

by the Secretary of the Treasury to be 

described in any preceding 

subparagraph of this paragraph [i.e., (1) 

through (5) above]. 

(d) Affiliate—unless specifically 

provided otherwise, an affiliate of 

another person means—

(1) Any person directly or indirectly 

owning, controlling, or holding with 

power to vote, 5 percent or more of the 

outstanding voting securities of such 

other person; 

(2) Any person 5 percent or more of 

whose outstanding voting securities are 

directly or indirectly owned, controlled, 

or held with power to vote, by such 

other person; 

(3) Any person directly or indirectly 

controlling, controlled by, or under 

common control with, such other 

person; and 

(4) Any officer, director, partner, 

copartner, or employee of such other 

person. 

(e) Material Affiliation—(1) a person 

with a ‘‘material affiliation’’ with 

another person means—

(A) any affiliate of the other person; 

(B) Any person directly or indirectly 

owning, controlling, or holding, 5 

percent or more of the interests of such 

other person; 

(C) Any person 5 percent or more of 

whose interests are directly or indirectly 

owned, controlled, or held, by such 

other person. 

(2) For purposes of subparagraph 

(e)(1) of this section, the term ‘‘interest’’

means with respect to an entity—

(A) The combined voting power of all 

classes of stock entitled to vote or the 

total value of the shares of all classes of 

stock of the entity if the entity is a 

corporation; 

(B) The capital interest or the profits 

interest of the entity if the entity is a 

partnership; or 

(C) The beneficial interest of the 

entity if the entity is a trust or 

unincorporated enterprise. 

(f) Material Contractual 

Relationship—persons have a ‘‘material 

contractual relationship’’ if payments 

made by one person to the other person 

pursuant to written contracts or 

agreements between the persons exceed 

10 percent of the gross revenue, on an 

annual basis, of such other person. 

(g) Control—means the power to 

exercise a controlling influence over the 

management or policies of a person 

other than an individual. 

(h) Independent—for purposes of 

section III(e)(1), a person is 

‘‘independent’’ of another person if it is 

not an affiliate of the other person, and 

does not have a material affiliation or 

material contractual relationship with 

the other person. 

(i) Designated Investment Option—

means any investment option 

designated by the plan into which 

participants and beneficiaries may 

direct the investment of assets held in, 

or contributed to, their individual 

accounts. The term ‘‘designated 

investment option’’ shall not include 

‘‘brokerage windows,’’ ‘‘self-directed 

brokerage accounts,’’ or similar plan 

arrangements that enable participants 

and beneficiaries to select investments 

beyond those designated by the plan. 

Section V. Noncompliance With Terms 

of the Exemption 

This exemption shall not apply to any 

transaction (described in Section I or II 

of this exemption) in connection with 

the provision of investment advice to an 

individual participant or beneficiary 

with respect to which the conditions of 

this exemption have not been satisfied. 

In addition, in the case of a pattern or 

practice of noncompliance with any of 

the conditions of this exemption, the 

exemption shall not apply to any 

transaction in connection with the 

provision of investment advice provided 

by the fiduciary adviser during the 

period over which the pattern or 

practice extended. 

Signed at Washington, DC, this 15th day of 

August, 2008. 

Bradford P. Campbell, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. E8–19273 Filed 8–21–08; 8:45 am] 

BILLING CODE 4510–29–P 


rwilkins on PROD1PC63 with NOTICES3