Retirement Choice Protection Act of 2015

To amend the Internal Revenue Code of 1986 and the Employee Retirement Income and Security Act of 1974 to provide for a best interest standard for advice fiduciaries, and for other purposes. 1. Short title This Act may be cited as the Retirement Choice Protection Act of 2015 2. Transfer to Secretary of the Treasury of authorities regarding individual retirement plans (a) In general Section 102 of Reorganization Plan No. 4 of 1978 (ratified and affirmed as law by Public Law 98–532 (1) in subsection (a)— (A) by striking and (B) by striking and (C) by inserting after clause (iii) the following: (iv) regulations, rulings, opinions, and exemptions relating to individual retirement accounts described in section 408(a) of the Code and individual retirement annuities described in section 408(b) of the Code, including simplified employee pensions under section 408(k) of the Code and simple retirement accounts under section 408(p) of the Code; and (v) regulations described in section 103(b) of this Plan; ; and (2) by adding at the end the following new flush sentence: The Secretary of the Treasury shall consult with the Securities and Exchange Commission in prescribing regulations, rulings, opinions, and exemptions under subsection (a)(iv) that provide guidance of general application as to the professional standards of care (whether involving fiduciary, suitability, or other standards) owed by brokers and investment advisors to owners and account holders of accounts and annuities described in such subsection. (b) Joint authority Section 103 of such Plan is amended— (1) by striking In the case of (a) In the case of (2) by adding at the end the following: (b) (1) The Secretary of the Treasury and the Secretary of Labor shall have joint authority to issue regulations described in this subsection, and any such regulations shall be issued jointly by such Secretaries. (2) A regulation is described in this subsection if (i) the regulation is not described in clause (i), (ii), (iii), or (iv) of section 102(a) of this Plan and (ii) defines or interprets a term or requirement that is included in section 4975 of the Code or section 406 of ERISA. The determination of whether any regulation is described in this subsection shall be made without regard to whether any such term or requirement is also used or defined in any other provision of the Code or ERISA. . (c) Effective date (1) In general The amendments made by this section shall apply to regulations, rulings, opinions, and exemptions which have not been finalized as of July 8, 2013. (2) Transition Any final regulation, ruling, opinion, or exemption described in section 102(a)(iv) or 103(b) of Reorganization Plan No. 4 of 1978 (as added by the amendments made by this section) which was issued by the Secretary of Labor before July 9, 2013, shall apply until such time as such regulation, ruling, opinion, or exemption is revoked or modified pursuant to such amendments. 3. Best interest standard for advice fiduciaries (a) Amendments to the Internal Revenue Code of 1986 (1) Best interest standard for advice fiduciaries regarding iras and non-erisa plans Section 4975(c) (7) Best interest recommendation rule for advice fiduciaries to iras and non-erisa plans (A) Best interest prohibited transaction For purposes of this section and with respect to plans not subject to section 404 of title I, subtitle B of the Employee Retirement Income Security Act of 1974 (relating to fiduciary obligations), the term prohibited transaction (B) Best interest recommendation (i) For purposes of this paragraph, the term best interest recommendation (ii) Best interest recommendations may include, without limitation, recommendations that— (I) are based on a limited range of products, providers or offerings (including recommendations that include, or are limited only to, proprietary products and providers), where such limits are clearly disclosed to the advice recipient at any time prior to a transaction based on the recommendation, or (II) may result in variable compensation to the person (or its affiliate), such as transaction, services, placement, or other types of compensation that differ by product or service, where the receipt of such compensation is clearly disclosed to the advice recipient. (iii) For purposes of this paragraph, clear disclosure of variable compensation means notification at any time prior to a transaction based on the person’s recommendation, in a manner calculated to be understood by the average individual, of the following information, which can be provided in one or more statements or documents: (I) The person (or its affiliate) may receive varying amounts of fees or other compensation or consideration with respect to recommended transactions. (II) The amount of any fee or other compensation or consideration that is directly payable to the person (or its affiliate) from the plan or advice recipient with respect to recommended transactions, provided that any such amount may be expressed in terms of a monetary amount, formula, percentage of assets, per capita charge, or estimate or range of such compensation or consideration. (III) A description of the types and ranges of indirect compensation that may be paid to the person (or its affiliate) by any third party in connection with recommended transactions, provided that any such ranges may be expressed in terms of a monetary amount, formula, percentage of assets, per capita charge, or estimate of such compensation or consideration. (IV) Upon the advice recipient’s request prior to the transaction, a disclosure of the specific amounts of compensation described in subclause (II) or (III) that the person will receive in connection with the particular transaction, provided that any such amounts may be expressed in terms of a monetary amount, formula, percentage of assets, per capita charge, or estimate of such compensation or consideration. No recommendation will fail to be a best interest recommendation solely because the person, acting in good faith and with reasonable diligence, makes an error or omission in disclosing the information specified in this subparagraph, provided that the person discloses the correct information to the advice recipient as soon as practicable, but not later than 30 days from the date on which the person knows of such error or omission. (C) Correction For purposes of this section and notwithstanding subsection (f)(5) to the contrary, the terms correction correct (D) Calculation of amount involved For purposes of this section and notwithstanding subsection (f)(4) to the contrary, the term amount involved . (2) Modification of existing statutory exemptions to Apply the best interest standard to advice fiduciaries of iras and non-erisa plans through section 4975(c)(7) Section 4975(d) of such Code is amended by deleting the language preceding paragraph (1) and replacing it with the following: (d) Exemptions Except as provided in subsection (f)(6), the prohibitions provided in subsection (c)(1) shall not apply to— . (3) Definition of investment advice Subparagraph (B) of subsection 4975(e)(3) of such Code is amended to read as follows: (B) renders investment advice for a fee or other compensation, direct or indirect, with respect to moneys or other property of such plan, or has any authority or responsibility to do so. Investment advice means a recommendation— (i) as to the advisability of acquiring, holding, disposing, or exchanging securities or other investment 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 the plan; (ii) 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 (iii) of a person who is also going to receive a fee or other compensation for providing any of the types of advice described in clause (i) or (ii); Provided that property management of securities . (4) Definition of investment advice Section 4975(e)(3) of such Code is amended by striking the period at the end of subparagraph (C) and inserting a comma and by adding the following new subparagraphs (D) and (E): (D) The extent of a fiduciary’s obligations as such can be defined and limited pursuant to a mutual agreement, arrangement, or understanding between the person and the party engaging the person as a fiduciary to the plan. Such limitations can include limits on scope, timing, and responsibility to provide ongoing monitoring or advice services. (E) A person shall not be deemed to be a fiduciary on account of section 4975(e)(3)(B) if such person meets one or more of the following: (i) Counterparties and services providers In such person’s capacity as a counterparty, service provider, or representative thereof, the person provides advice to a plan fiduciary who is independent of such person and who is independent of the plan sponsor, with respect to an arm’s-length service arrangement, sale, purchase, loan, or bilateral contract between the plan and person, each a transaction (ii) Swap transactions The person is a counterparty, service provider or representative thereof in connection with a swap or security-based swap, as defined in section 1(a) of the Commodity Exchange Act ( 7 U.S.C. 1(a) 15 U.S.C. 78c(a) (iii) Employees In his or her capacity as an employee of any employer or employee organization sponsoring the plan or an affiliate of such plan sponsor, the person provides the advice (directly or indirectly) to the plan, plan fiduciary, participant, or beneficiary, and he or she receives no fee or other compensation, direct or indirect, in connection with the advice beyond the employee’s normal compensation for work performed for the employer or employee organization or an affiliate. In such cases, such an employee is not rendering investment advice for a fee or other compensation. No inference is intended with respect to whether any other person shall be treated as rendering investment advice for a fee or other compensation. (iv) Platform providers The person merely markets and makes available to a plan (including its participants, beneficiaries, and fiduciaries (which includes an owner of an individual retirement plan (as defined in section 7701(a)(37)))), without regard to the individualized needs of the plan, its participants, or beneficiaries, securities or other property through a platform or similar mechanism (which may consist of or include one or more annuity contracts) from which a plan fiduciary may select or monitor investment alternatives, including qualified default investment alternatives, into which plan participants or beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts, if the person discloses in writing to the plan fiduciary that the person is not undertaking to provide impartial investment advice or to give advice as a fiduciary (within the meaning of this paragraph) when establishing or maintaining the platform. (v) Selection and monitoring assistance The person merely identifies investment alternatives that meet objective criteria specified by the plan fiduciary (including an owner of an individual retirement plan (as defined in section 7701(a)(37))), participant, or beneficiary (e.g., stated parameters concerning expense ratios, size of fund, type of asset, or credit quality); or merely provides objective financial data and comparisons with independent benchmarks to the plan fiduciary, participant or beneficiary. (vi) Financial reports and valuations The person provides or reports valuation information, but does not represent in writing that it is undertaking to provide such valuation information as a fiduciary (within the meaning of this subsection). (vii) Education The person provides the information— (I) described in Department of Labor Interpretive Bulletin 96–1 (29 C.F.R. 2509.96–1, as in effect on January 1, 2015); (II) described in Department of Labor Interpretive Bulletin 96–1 (29 C.F.R. 2509.96–1, as in effect on January 1, 2015) but for the fact that such education is provided to a plan or plan fiduciary; (III) described in Department of Labor Interpretive Bulletin 96–1 (29 C.F.R. 2509.96–1, as in effect on January 1, 2015) but for the fact that such education is provided to an owner of an individual retirement plan (as defined in section 7701(a)(37)); (IV) to participants and beneficiaries regarding the factors to consider in deciding whether to elect to receive a distribution from a plan or an individual retirement plan (as defined in section 7701(a)(37)) and whether to roll over such distribution to a plan or an individual retirement plan (as defined in section 7701(a)(37)); such education can include examples of different distribution and rollover alternatives, so long as all material facts and assumptions on which the examples are based accompany the examples; or (V) any additional information treated as education by the Secretary of Labor. . (5) Exemption to preserve investor choice Section 4975(d) of such Code is amended by adding at the end thereof the following new paragraph: (24) with respect to transactions described in section 4975(c)(1) (A)–(F), any transaction or service in connection with the provision of investment advice described in section 4975(e)(3)(B) if the conditions under subparagraphs (A), (B), and (C) are satisfied: (A) The provision of investment advice with respect to the transaction is subject to subsection (c)(7) or section 404 of title I, subtitle B of the Employee Retirement Income Security Act of 1974 (relating to fiduciary obligations). (B) The conditions of section 4975(d)(2) are satisfied when otherwise applicable. (C) With respect to plans subject to section 404 of title I, subtitle B of the Employee Retirement Income Security Act of 1974, the investment advice may include recommendations that— (i) are based on a limited range of products, providers, or offerings (including recommendations that include, or are limited only to, proprietary products and providers), where such limits are clearly disclosed to the advice recipient at any time prior to a transaction based on the recommendation, or (ii) may result in variable compensation to the person (or its affiliate), such as transaction, services, placement, or other types of compensation that differ by product or service, where the receipt of such compensation is clearly disclosed to the advice recipient. (D) For purposes of this paragraph, clear disclosure of variable compensation means notification at any time prior to a transaction based on the person’s recommendation, in a manner calculated to be understood by the average individual, of the following information, which can be provided in one or more statements or documents: (i) The person (or its affiliate) may receive varying amounts of fees or other compensation or consideration with respect to recommended transactions. (ii) The amount of any fee or other compensation or consideration that is directly payable to the person (or its affiliate) from the plan or advice recipient with respect to recommended transactions, provided that any such amount may be expressed in terms of a monetary amount, formula, percentage of assets, per capita charge, or estimate or range of such compensation or consideration. (iii) A description of the types and ranges of indirect compensation that may be paid to the person (or its affiliate) by any third party in connection with the recommended transaction, provided that any such range may be expressed in terms of a monetary amount, formula, percentage of assets, per capita charge or estimate of such compensation or consideration. (iv) Upon the advice recipient’s request prior to the transaction, a disclosure of the specific amounts of compensation described in clause (ii) or (iii) that the person will receive in connection with the particular transaction, provided that any such amounts may be expressed in terms of a monetary amount, formula, percentage of assets, per capita charge, or estimate of such compensation or consideration. The disclosure requirements described in this subparagraph will not fail to be met solely because the person, acting in good faith and with reasonable diligence, makes an error or omission in disclosing the information specified in this subsection, provided that the person discloses the correct information to the advice recipient as soon as practicable, but not later than 30 days from the date on which the person knows of such error or omission. . (6) Effective date The amendments made by this subsection shall apply on or after the 1st day of the 36th month after the date of the enactment of this Act, but the exemption added under section 4975(d)(24) of such Code shall be available immediately upon enactment of this Act for persons meeting its conditions (including the conditions of a best interest recommendation which may not be effective at such time). The Secretary of Labor is prohibited from amending any rules or administrative positions promulgated under section 3(21) of ERISA or section 4975(e)(3) of such Code (including Department of Labor Interpretive Bulletin 96–1 (29 C.F.R. 2509.96–1) and Department of Labor Advisory Opinion 2005–23A) prior to the effective date of this Act, and no such rules or positions promulgated by the Secretary of Labor prior to the date of the enactment of this Act, but not yet effective or applicable, may become effective prior to the effective date of this Act. (7) Grandfathered transactions and services The amendments made to section 4975(e)(3)(B) of such Code by this Act shall not apply to any services if such services— (A) were rendered prior to the effective date of this Act, (B) relate to a transaction entered into prior to the effective date of this Act, (C) were paid for prior to the effective date of this Act, or (D) are not described in subparagraph (A), (B), or (C) but the person performing the services does not receive more compensation (either as a fixed dollar amount or as a percentage of assets) as a result of the services than the person is contractually eligible to receive for such services prior to the effective date of this Act. (b) Amendments to the Employee Retirement Income Security Act of 1974 (1) Definition of investment advice Subparagraph (A) of section 3(21) of the Employee Retirement Security Act of 1974 is amended by amending clause (ii) to read as follows: (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to moneys or other property of such plan, or has any authority or responsibility to do so. Investment advice means a recommendation— (I) as to the advisability of acquiring, holding, disposing, or exchanging securities or other investment 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 the plan; (II) 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 (III) of a person who is also going to receive a fee or other compensation for providing any of the types of advice described in subclause (I) or (II); Provided that property management of securities . (2) Definition of investment advice Subsection 3(21) of such Act is amended by adding the following new subparagraphs (C) and (D): (C) The extent of a fiduciary’s obligations as such can be defined and limited pursuant to a mutual agreement, arrangement, or understanding between the person and the party engaging the person as a fiduciary to the plan. Such limitations can include limits on scope, timing, and responsibility to provide ongoing monitoring or advice services. (D) A person shall not be deemed to be a fiduciary on account of subparagraph (A)(ii) if such person meets one or more of the following: (i) Counterparties and services providers In such person’s capacity as a counterparty, service provider, or representative thereof, the person provides advice to a plan fiduciary who is independent of such person and who is independent of the plan sponsor, with respect to an arm’s-length service arrangement, sale, purchase, loan, or bilateral contract between the plan and person, each a transaction (ii) Swap transactions The person is a counterparty, service provider or representative thereof in connection with a swap or security-based swap, as defined in section 1(a) of the Commodity Exchange Act ( 7 U.S.C. 1(a) 15 U.S.C. 78c(a) (iii) Employees In his or her capacity as an employee of any employer or employee organization sponsoring the plan or an affiliate of such plan sponsor, the person provides the advice (directly or indirectly) to the plan, plan fiduciary, participant, or beneficiary, and he or she receives no fee or other compensation, direct or indirect, in connection with the advice beyond the employee’s normal compensation for work performed for the employer or employee organization or an affiliate. In such cases, such an employee is not rendering investment advice for a fee or other compensation. No inference is intended with respect to whether any other person shall be treated as rendering investment advice for a fee or other compensation. (iv) Platform providers The person merely markets and makes available to a plan (including its participants, beneficiaries, and fiduciaries), without regard to the individualized needs of the plan, its participants, or beneficiaries, securities or other property through a platform or similar mechanism (which may consist of or include one or more annuity contracts) from which a plan fiduciary may select or monitor investment alternatives, including qualified default investment alternatives, into which plan participants or beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts, if the person discloses in writing to the plan fiduciary that the person is not undertaking to provide impartial investment advice or to give advice as a fiduciary (within the meaning of this subsection) when establishing or maintaining the platform. (v) Selection and monitoring assistance The person merely identifies investment alternatives that meet objective criteria specified by the plan fiduciary, participant, or beneficiary (e.g., stated parameters concerning expense ratios, size of fund, type of asset, or credit quality); or merely provides objective financial data and comparisons with independent benchmarks to the plan fiduciary, participant or beneficiary. (vi) Financial reports and valuations The person provides or reports valuation information, but does not represent in writing that it is undertaking to provide such valuation information as a fiduciary (within the meaning of this subsection). (vii) Education The person provides the information— (I) described in Department of Labor Interpretive Bulletin 96–1 (29 C.F.R. 2509.96–1, as in effect on January 1, 2015); (II) described in Department of Labor Interpretive Bulletin 96–1 (29 C.F.R. 2509.96–1, as in effect on January 1, 2015) but for the fact that such education is provided to a plan or plan fiduciary; (III) to participants and beneficiaries regarding the factors to consider in deciding whether to elect to receive a distribution from a plan or an individual retirement plan (as defined in section 7701(a)(37) section 7701(a)(37) (IV) any additional information treated as education by the Secretary. . (3) Exemption to preserve investor choice Section 408(b) of such Act is amended by adding at the end thereof the following new paragraph: (21) with respect to transactions described in sections 406(a) and 406(b), any transaction or service in connection with the provision of investment advice described in section 3(21)(A)(ii) if the conditions under subparagraphs (A), (B), and (C) are satisfied: (A) The provision of investment advice with respect to the transaction is subject to section 404. (B) The conditions of section 408(b)(2) are satisfied when otherwise applicable. (C) The investment advice may include recommendations that— (i) are based on a limited range of products, providers, or offerings (including recommendations that include, or are limited only to, proprietary products and providers), where such limits are clearly disclosed to the advice recipient at any time prior to a transaction based on the recommendation, or (ii) may result in variable compensation to the person (or its affiliate), such as transaction, services, placement, or other types of compensation that differ by product or service, where the receipt of such compensation is clearly disclosed to the advice recipient. (D) For purposes of this paragraph, clear disclosure of variable compensation means notification at any time prior to a transaction based on the person’s recommendation, in a manner calculated to be understood by the average individual, of the following information, which can be provided in one or more statements or documents: (i) The person (or its affiliate) may receive varying amounts of fees or other compensation or consideration with respect to recommended transactions. (ii) The amount of any fee or other compensation or consideration that is directly payable to the person (or its affiliate) from the plan or advice recipient with respect to recommended transactions, provided that any such amount may be expressed in terms of a monetary amount, formula, percentage of assets, per capita charge, or estimate or range of such compensation or consideration. (iii) A description of the types and ranges of indirect compensation that may be paid to the person (or its affiliate) by any third party in connection with the recommended transaction, provided that any such ranges may be expressed in terms of a monetary amount, formula, percentage of assets, per capita charge or estimate of such compensation or consideration. (iv) Upon the advice recipient’s request prior to the transaction, a disclosure of the specific amounts of compensation described in clauses (ii) and (iii) that the person will receive in connection with the particular transaction, provided that any such amounts may be expressed in terms of a monetary amount, formula, percentage of assets, per capita charge, or estimate of such compensation or consideration. The disclosure requirements described in this paragraph will not fail to be met solely because the person, acting in good faith and with reasonable diligence, makes an error or omission in disclosing the information specified in this subsection, provided that the person discloses the correct information to the advice recipient as soon as practicable, but not later than 30 days from the date on which the person knows of such error or omission. . (4) Effective date The amendments made by this subsection shall apply on or after the 1st day of the 36th month after the date of the enactment of this Act, but the exemption added under section 408(b)(21) of the Employee Retirement Security Act of 1974 shall be available immediately upon enactment of this Act for persons meeting its conditions (including the conditions of a best interest recommendation which may not be effective at such time). The Secretary of Labor is prohibited from amending any rules or administrative positions promulgated under section 3(21) of ERISA or section 4975(e)(3) (5) Grandfathered transactions and services The amendments made to section 3(21)(A)(ii) by this Act shall not apply to any services if such services— (A) were rendered prior to the effective date of this Act, (B) relate to a transaction entered into prior to the effective date of this Act, (C) were paid for prior to the effective date of this Act, or (D) are not described in subparagraph (A), (B), or (C) but the person performing the services does not receive more compensation (either as a fixed dollar amount or as a percentage of assets) as a result of the services than the person is contractually eligible to receive for such services prior to the effective date of this Act. 4. Regulations The Secretary of the Treasury and the Secretary of Labor shall make rules, in accordance with subchapter II of chapter 5

Summary: Retirement Choice Protection Act of 2015 This bill amends Reorganization Plan No. 4 of 1978 to transfer from the Department of Labor to the Department of the Treasury regulatory authority for Individual Retirement Accounts (IRAs), retirement annuities, Simplified Employee Pensions, and Simple IRAs. The bill amends the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA) to establish a best interest standard for fiduciaries who provide advice to investors in IRAs and plans not subject to ERISA. The best interest standard allows a financial advisor to make investment recommendations and receive compensation with respect to certain financial products, including proprietary products, if such advisor makes certain required disclosures.