279
participant, or beneficiary, the fiduciary adviser 
provides to the recipient of the advice, at a time 
reasonably contemporaneous with the initial 
provision of the advice, a written notification 
(which may consist of notification by means of 
electronic communication)—
‘‘(i) of all fees or other compensation 
relating to the advice that the fiduciary ad-
viser or any affiliate thereof is to receive 
(including compensation provided by any 
third party) in connection with the provi-
sion of the advice or in connection with the 
sale, acquisition, or holding of the security 
or other property, 
‘‘(ii) of any material affiliation or con-
tractual relationship of the fiduciary ad-
viser or affiliates thereof in the security or 
other property, 
‘‘(iii) of any limitation placed on the 
scope of the investment advice to be pro-
vided by the fiduciary adviser with respect 
to any such sale, acquisition, or holding of 
a security or other property, 
‘‘(iv) of the types of services provided 
by the fiduciary adviser in connection with
280
the provision of investment advice by the 
fiduciary adviser, 
‘‘(v) that the adviser is acting as a fi-
duciary of the plan in connection with the 
provision of the advice, and 
‘‘(vi) 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 receive no 
fees or other compensation in connection 
with the security or other property, 
‘‘(B) the fiduciary adviser provides appro-
priate disclosure, in connection with the sale, 
acquisition, or holding of the security or other 
property, in accordance with all applicable secu-
rities laws, 
‘‘(C) the sale, acquisition, or holding oc-
curs solely at the direction of the recipient of 
the advice, 
‘‘(D) the compensation received by the fi-
duciary adviser and affiliates thereof in connec-
tion with the sale, acquisition, or holding of the 
security or other property is reasonable, and 
‘‘(E) the terms of the sale, acquisition, or 
holding of the security or other property are at
281
least as favorable to the plan as an arm’s 
length transaction would be. 
‘‘(2) STANDARDS FOR PRESENTATION OF IN-
FORMATION.—
‘‘(A) IN
GENERAL.—The notification re-
quired to be provided to participants and bene-
ficiaries under paragraph (1)(A) shall be writ-
ten in a clear and conspicuous manner and in 
a manner calculated to be understood by the av-
erage plan participant and shall be sufficiently 
accurate and comprehensive to reasonably ap-
prise such participants and beneficiaries of the 
information required to be provided in the noti-
fication. 
‘‘(B) MODEL FORM FOR DISCLOSURE OF 
FEES AND OTHER COMPENSATION.—The Sec-
retary shall issue a model form for the disclo-
sure of fees and other compensation required in 
paragraph (1)(A)(i) which meets the require-
ments of subparagraph (A). 
‘‘(3) EXEMPTION CONDITIONED ON MAKING RE-
QUIRED
INFORMATION
AVAILABLE
ANNUALLY, ON 
REQUEST, 
AND
IN
THE
EVENT
OF
MATERIAL 
CHANGE.—The requirements of paragraph (1)(A) 
shall be deemed not to have been met in connection
282
with the initial or any subsequent provision of advice 
described in paragraph (1) to the plan, participant, 
or beneficiary if, at any time during the provision of 
advisory services to the plan, participant, or bene-
ficiary, the fiduciary adviser fails to maintain the in-
formation described in clauses (i) through (iv) of 
subparagraph (A) in currently accurate form and in 
the manner described in paragraph (2) or fails—
‘‘(A) to provide, without charge, such cur-
rently accurate information to the recipient of 
the advice no less than annually, 
‘‘(B) to make such currently accurate in-
formation available, upon request and without 
charge, to the recipient of the advice, or 
‘‘(C) in the event of a material change to 
the information described in clauses (i) through 
(iv) of paragraph (1)(A), to provide, without 
charge, such currently accurate information to 
the recipient of the advice at a time reasonably 
contemporaneous to the material change in in-
formation. 
‘‘(4) MAINTENANCE FOR 6 YEARS OF EVIDENCE 
OF COMPLIANCE.—A fiduciary adviser referred to in 
paragraph (1) who has provided advice referred to in 
such paragraph shall, for a period of not less than
283
6 years after the provision of the advice, maintain 
any records necessary for determining whether the 
requirements of the preceding provisions of this sub-
section and of subsection (b)(14) have been met. A 
transaction prohibited under section 406 shall not be 
considered to have occurred solely because the 
records are lost or destroyed prior to the end of the 
6-year period due to circumstances beyond the con-
trol of the fiduciary adviser. 
‘‘(5) EXEMPTION FOR PLAN SPONSOR AND CER-
TAIN OTHER FIDUCIARIES.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), a plan sponsor or other person who 
is a fiduciary (other than a fiduciary adviser) 
shall not be treated as failing to meet the re-
quirements of this part solely by reason of the 
provision of investment advice referred to in 
section 3(21)(A)(ii) (or solely by reason of con-
tracting for or otherwise arranging for the pro-
vision of the advice), if—
‘‘(i) the advice is provided by a fidu-
ciary adviser pursuant to an arrangement 
between the plan sponsor or other fidu-
ciary and the fiduciary adviser for the pro-
284
vision by the fiduciary adviser of invest-
ment advice referred to in such section, 
‘‘(ii) the terms of the arrangement re-
quire compliance by the fiduciary adviser 
with the requirements of this subsection, 
and 
‘‘(iii) the terms of the arrangement 
include a written acknowledgment by the 
fiduciary adviser that the fiduciary adviser 
is a fiduciary of the plan with respect to 
the provision of the advice. 
‘‘(B) CONTINUED DUTY OF PRUDENT SE-
LECTION OF ADVISER AND PERIODIC REVIEW.—
Nothing in subparagraph (A) shall be construed 
to exempt a plan sponsor or other person who 
is a fiduciary from any requirement of this part 
for the prudent selection and periodic review of 
a fiduciary adviser with whom the plan sponsor 
or other person enters into an arrangement for 
the provision of advice referred to in section 
3(21)(A)(ii). The plan sponsor or other person 
who is a fiduciary has no duty under this part 
to monitor the specific investment advice given 
by the fiduciary adviser to any particular recipi-
ent of the advice.
285
‘‘(C) AVAILABILITY OF PLAN ASSETS FOR 
PAYMENT FOR ADVICE.—Nothing in this part 
shall be construed to preclude the use of plan 
assets to pay for reasonable expenses in pro-
viding investment advice referred to in section 
3(21)(A)(ii). 
‘‘(6) DEFINITIONS.—For purposes of this sub-
section and subsection (b)(14)—
‘‘(A) FIDUCIARY ADVISER.—The term ‘fi-
duciary adviser’ means, with respect to a plan, 
a person who is a fiduciary of the plan by rea-
son of the provision of investment advice by the 
person to the plan or to a participant or bene-
ficiary and who is—
‘‘(i) registered as an investment ad-
viser 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, 
‘‘(ii) a bank or similar financial insti-
tution referred to in section 408(b)(4) 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
286
the advice is provided through a trust de-
partment of the bank or similar financial 
institution or savings association which is 
subject to periodic examination and review 
by Federal or State banking authorities, 
‘‘(iii) an insurance company qualified 
to do business under the laws of a State, 
‘‘(iv) a person registered as a broker 
or dealer under the Securities Exchange 
Act of 1934 (15 U.S.C. 78a et seq.), 
‘‘(v) an affiliate of a person described 
in any of clauses (i) through (iv), or 
‘‘(vi) an employee, agent, or registered 
representative of a person described in any 
of clauses (i) through (v) who satisfies the 
requirements 
of 
applicable 
insurance, 
banking, and securities laws relating to the 
provision of the advice. 
‘‘(B) AFFILIATE.—The term ‘affiliate’ of 
another entity means an affiliated person of the 
entity (as defined in section 2(a)(3) of the In-
vestment Company Act of 1940 (15 U.S.C. 
80a–2(a)(3))). 
‘‘(C) 
REGISTERED
REPRESENTATIVE.—
The term ‘registered representative’ of another
287
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) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to advice referred to 
in section 3(21)(A)(ii) of the Employee Retirement In-
come Security Act of 1974 provided on or after January 
1, 2006. 
SEC. 602. AMENDMENTS TO INTERNAL REVENUE CODE OF 
1986 PROVIDING PROHIBITED TRANSACTION 
EXEMPTION FOR PROVISION OF INVESTMENT 
ADVICE. 
(a) 
EXEMPTION
FROM
PROHIBITED
TRANS-
ACTIONS.—Subsection (d) of section 4975 of the Internal 
Revenue Code of 1986 (relating to exemptions from tax 
on prohibited transactions) is amended—
(1) in paragraph (14), by striking ‘‘or’’ at the 
end;
288
(2) in paragraph (15), by striking the period at 
the end and inserting ‘‘; or’’; and 
(3) by adding at the end the following new 
paragraph: 
‘‘(16) any transaction described in subsection 
(f)(7)(A) in connection with the provision of invest-
ment advice described in subsection (e)(3)(B)(i), in 
any case in which—
‘‘(A) the investment of assets of the plan 
is subject to the direction of plan participants 
or beneficiaries, 
‘‘(B) the advice is provided to the plan or 
a participant or beneficiary of the plan by a fi-
duciary adviser in connection with any sale, ac-
quisition, or holding of a security or other prop-
erty for purposes of investment of plan assets, 
and 
‘‘(C) 
the 
requirements 
of 
subsection 
(f)(7)(B) are met in connection with the provi-
sion of the advice.’’. 
(b) 
ALLOWED
TRANSACTIONS
AND
REQUIRE-
MENTS.—Subsection (f) of such section 4975 (relating to 
other definitions and special rules) is amended by adding 
at the end the following new paragraph:
289
‘‘(7) PROVISIONS
RELATING
TO
INVESTMENT 
ADVICE PROVIDED BY FIDUCIARY ADVISERS.—
‘‘(A) TRANSACTIONS ALLOWABLE IN CON-
NECTION WITH INVESTMENT ADVICE PROVIDED 
BY FIDUCIARY ADVISERS.—The transactions re-
ferred to in subsection (d)(16), in connection 
with the provision of investment advice by a fi-
duciary adviser, are the following: 
‘‘(i) the provision of the advice to the 
plan, participant, or beneficiary; 
‘‘(ii) the sale, acquisition, or holding 
of a security or other property (including 
any lending of money or other extension of 
credit associated with the sale, acquisition, 
or holding of a security or other property) 
pursuant to the advice; and 
‘‘(iii) the direct or indirect receipt of 
fees or other compensation by the fiduciary 
adviser or an affiliate thereof (or any em-
ployee, agent, or registered representative 
of the fiduciary adviser or affiliate) in con-
nection with the provision of the advice or 
in connection with a sale, acquisition, or 
holding of a security or other property pur-
suant to the advice.
290
‘‘(B) REQUIREMENTS RELATING TO PROVI-
SION OF INVESTMENT ADVICE BY FIDUCIARY 
ADVISERS.—The requirements of this subpara-
graph (referred to in subsection (d)(16)(C)) are 
met in connection with the provision of invest-
ment advice referred to in subsection (e)(3)(B), 
provided to a plan or a participant or bene-
ficiary of a plan by a fiduciary adviser with re-
spect to the plan in connection with any sale, 
acquisition, or holding of a security or other 
property for purposes of investment of amounts 
held by the plan, if—
‘‘(i) in the case of the initial provision 
of the advice with regard to the security or 
other property by the fiduciary adviser to 
the plan, participant, or beneficiary, the fi-
duciary adviser provides to the recipient of 
the advice, at a time reasonably contem-
poraneous with the initial provision of the 
advice, a written notification (which may 
consist of notification by means of elec-
tronic communication)—
‘‘(I) of all fees or other com-
pensation relating to the advice that 
the fiduciary adviser or any affiliate
291
thereof is to receive (including com-
pensation provided by any third 
party) in connection with the provi-
sion of the advice or in connection 
with the sale, acquisition, or holding 
of the security or other property, 
‘‘(II) of any material affiliation 
or contractual relationship of the fidu-
ciary adviser or affiliates thereof in 
the security or other property, 
‘‘(III) of any limitation placed on 
the scope of the investment advice to 
be provided by the fiduciary adviser 
with respect to any such sale, acquisi-
tion, or holding of a security or other 
property, 
‘‘(IV) of the types of services 
provided by the fiduciary adviser in 
connection with the provision of in-
vestment advice by the fiduciary ad-
viser, 
‘‘(V) that the adviser is acting as 
a fiduciary of the plan in connection 
with the provision of the advice, and
292
‘‘(VI) that a recipient of the ad-
vice may separately arrange for the 
provision of advice by another adviser, 
that could have no material affiliation 
with and receive no fees or other com-
pensation in connection with the secu-
rity or other property, 
‘‘(ii) the fiduciary adviser provides ap-
propriate disclosure, in connection with the 
sale, acquisition, or holding of the security 
or other property, in accordance with all 
applicable securities laws, 
‘‘(iii) the sale, acquisition, or holding 
occurs solely at the direction of the recipi-
ent of the advice, 
‘‘(iv) 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, and 
‘‘(v) the terms of the sale, acquisition, 
or holding of the security or other property 
are at least as favorable to the plan as an 
arm’s length transaction would be.
293
‘‘(C) STANDARDS FOR PRESENTATION OF 
INFORMATION.—The notification required to be 
provided to participants and beneficiaries under 
subparagraph (B)(i) shall be written in a clear 
and conspicuous manner and in a manner cal-
culated 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 provided in the notification. 
‘‘(D) EXEMPTION CONDITIONED ON MAK-
ING REQUIRED INFORMATION AVAILABLE ANNU-
ALLY, ON REQUEST, AND IN THE EVENT OF MA-
TERIAL
CHANGE.—The requirements of sub-
paragraph (B)(i) shall be deemed not to have 
been met in connection with the initial or any 
subsequent provision of advice described in sub-
paragraph (B) to the plan, participant, or bene-
ficiary if, at any time during the provision of 
advisory services to the plan, participant, or 
beneficiary, the fiduciary adviser fails to main-
tain the information described in subclauses (I) 
through (IV) of subparagraph (B)(i) in cur-
rently accurate form and in the manner re-
quired by subparagraph (C), or fails—