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. The information collections in the Department’s Best
Interest Contract Exemption contain start-up costs, which were
described as Year 1 costs in the original ICR, and ongoing costs,
which were described as Year 2 and Year 3 costs in the original
ICR. The Department’s Final Rule extends the transition period
through July 1, 2019. This rule has the effect of making the Year 2
and Year 3 costs inactive for the remainder of the existing
approval of the ICR and spreads the Year 1 costs across the full
existing three year approval period. The modification to the ICR is
deregulatory, because it eliminates the requirement to produce a
total of 144.6 million disclosures during the second and third
years of the ICR’s approval period resulting in a total hour burden
reduction of approximately 5.7 million hours (at an equivalent cost
of $741.4 million) and a total cost savings of approximately $1.1
billion during the second and third years of the ICR approval
period only. This savings produces an annualized reduction in the
number of responses over the three year period shown in ROCIS of
48,200,000 disclosures (due to rounding), an annualized reduction
of the hour burden of 1,891,000 hours (due to rounding), and a
$377,200,000 reduction 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 11,300,000 responses
(rounded), 709,000 hours (rounded), and $822,800,000 (rounded)
annually.
$0
No
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 10-3-17.docx
Regulatory Impact Analysis (Website).pdf
Best Interest Contract Exemption Conditions