The Department is granting this
prohibited transaction class exemption (PTE) in connection with its
regulation under ERISA section 3(21)(A)(ii) and Code section
4975(e)(3)(B). The Regulation amends the definition of a
"fiduciary" under ERISA and the Code to specify when a person is a
fiduciary by reason of the provision of investment advice for a fee
or other compensation regarding assets of a plan or IRA (i.e., an
investment advice fiduciary). The Regulation replaces an existing
regulation dating to 1975, with the aim of more appropriately
distinguishing between the sorts of advice relationships that
should be treated as fiduciary in nature and those that should not.
This PTE allows certain investment advice fiduciaries to receive
various forms of compensation that, in the absence of an exemption,
would be prohibited under ERISA and the Code. In this regard, ERISA
and the Code generally prohibit fiduciaries from receiving payments
from third parties and from acting on conflicts of interest,
including using their authority to affect or increase their own
compensation, in connection with transactions involving a plan or
IRA. Certain types of fees and compensation, such as brokerage or
insurance commissions, 12b-1 fees and revenue sharing payments,
commonly paid to a broker-dealer, insurance agent or other
fiduciary in connection with investment transactions entered into
by plans or IRAs, fall within these prohibitions. This PTE would
allow investment advice fiduciaries to receive compensation when
plan participants or beneficiaries, IRAs, or certain small plans,
purchase, hold or sell investment products based on the
fiduciaries' advice, under conditions designed to safeguard the
interests of these investors. Specifically, the PTE would apply
when compensation is received in connection with a transaction
involving a plan participant or beneficiary, an IRA, or a fiduciary
of an employee benefit plan with less than 100 participants
(referred to generally as "retirement investors"), in accordance
with the adviser's advice. To safeguard the interests of the plans
and IRAs, the exemption would require the financial institution and
the adviser to contractually acknowledge fiduciary status and
commit to adhere to certain impartial conduct standards when
providing advice to the plans and IRAs, including providing advice
in their Best Interest. The financial institution would further be
required to warrant that it has adopted policies and procedures
designed to mitigate the impact of conflicts of interest and ensure
that the individual advisers adhere to impartial conduct standards.
The exemption would also require disclosure regarding adviser and
financial institution fee practices. Additional conditions would
apply to financial institutions that limit products available to
advisers for recommendation based on third-party payments generated
or based on the fact that they are proprietary products (i.e.,
products offered or managed by the financial institution or its
affiliates). Financial institutions relying on the exemption would
be required to notify the Department in advance of doing so.
Finally, financial institutions making use of the exemption would
have to maintain certain data, and make it available to the
Department, to help evaluate the effectiveness of the exemption in
safeguarding the interests of plans and IRAs.
US Code:
29
USC 1108 Name of Law: Employee Retirement Income Security Act
of 1974
The Department is hereby
submitting a nonmaterial/non-substantive change request to the
Office of Management and Budget (OMB) regarding a modification made
by the Department’s Final Conflict of Interest Rule to the
information collection request (ICR) contained in the Department’s
Best Interest Contract Exemption. The exemption was approved by OMB
under control number 1210-0156 and is scheduled to expire on June
30, 2019. Section IX of the final exemption requires financial
institutions using the exemption to furnish a written statement of
fiduciary status, specified disclosures, and a written commitment
to adhere to impartial conduct standards to all retirement
investors (in ERISA plans, Individual Retirement Accounts, and
non-ERISA plans) prior to or at the same time as the execution of
recommended transactions (the “Transition Disclosure”). Pursuant to
the final rule, financial institutions using the Principal
Transaction Exemption will not be required to send the Transition
Disclosure. The modification to the ICR is deregulatory, because it
eliminates the requirement to send an estimated 31 million
Transition Disclosures resulting in an hour burden reduction of
approximately 576,000 hours (at an equivalent cost of $31.8
million) and cost savings of approximately $11 million during the
first year of the ICR approval period only. This savings produces
an annualized reduction of the hour burden over the three year
period shown in ROCIS of 200,000 hours (due to rounding) and no
change to the cost burden (due to rounding). For purposes of ROCIS
database entries, the burden has been reduced over the three-year
approval period to 2.6 million hours (rounded) and remains at $1.2
billion (rounded) annually.
$0
No
No
No
No
No
Uncollected
Chris Cosby 202
693-8540
No
On behalf of this Federal agency, I certify that
the collection of information encompassed by this request complies
with 5 CFR 1320.9 and the related provisions of 5 CFR
1320.8(b)(3).
The following is a summary of the topics, regarding
the proposed collection of information, that the certification
covers:
(i) Why the information is being collected;
(ii) Use of information;
(iii) Burden estimate;
(iv) Nature of response (voluntary, required for a
benefit, or mandatory);
(v) Nature and extent of confidentiality; and
(vi) Need to display currently valid OMB control
number;
If you are unable to certify compliance with any of
these provisions, identify the item by leaving the box unchecked
and explain the reason in the Supporting Statement.
BIC Exemption Nonsubstantive Change 3-31-17.docx
Regulatory Impact Analysis (Website).pdf
Best Interest Contract Exemption Conditions