Fiduciary PTE SS Jun 1 2020

SUPPORTING STATEMENT FOR PAPERWORK REDUCTION ACT 1995 SUBMISSION

The Department of Labor, Employee Benefits Security Administration requests a control number for this new information collection.

A. Justification

1. Explain the circumstances that make the collection of information necessary. Identify any legal or administrative requirements that necessitate the collection. Attach a copy of the appropriate section of each statute and regulation mandating or authorizing the collection of information.

The Secretary of Labor may grant and amend administrative exemptions from the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and the Internal Revenue Code of 1986, as amended (the Code).¹ Before granting an exemption, the Department must find that the exemption is administratively feasible, in the interests of plans, their participants and beneficiaries and IRA owners, and protective of the rights of participants and beneficiaries of such plans and IRA owners.

This proposed class exemption would exempt from certain prohibited transaction restrictions of ERISA, and the Code. The prohibited transaction provisions of ERISA and the Code generally prohibit fiduciaries with respect to employee benefit plans (Plans) and individual retirement accounts and annuities (IRAs) from engaging in self-dealing and receiving compensation from third parties in connection with transactions involving the Plans and IRAs, and from purchasing and selling investments with the Plans and IRAs when the fiduciaries are acting on behalf of their own accounts (principal transactions). The exemption would allow investment advice fiduciaries to receive compensation and engage in principal transactions that would otherwise violate the prohibited transaction provisions of ERISA and the Code. This would include compensation resulting from advice to roll over assets from a Plan to an IRA. The exemption would apply to registered investment advisers (IAs), broker dealers (BDs), banks, insurance companies, and their employees, agents, and representatives that are investment advice fiduciaries. The exemption would include protective conditions designed to safeguard the interests of Plans, participants and beneficiaries, and IRA owners. The new class exemption would affect participants and beneficiaries of Plans, IRA owners and fiduciaries with respect to such Plans and IRAs.

Investment professionals typically receive compensation for services to retirement investors in the retail market through a variety of arrangements, which would typically violate the prohibited transaction rules applicable to plan fiduciaries. These include commissions paid by the plan, participant or beneficiary, or IRA, or commissions, sales loads, 12b-1 fees, revenue sharing and other payments from third parties that provide investment products. A fiduciary’s receipt of such payments would generally violate the prohibited transaction provisions of ERISA section 406(b) and Code section 4975(c)(1)(E) and (F) because the amount of the fiduciary’s compensation is affected by the use of its authority in providing investment advice, unless such payments meet the requirements of an exemption.

The information collection in Section II(b) of the proposed exemption would require financial institutions to acknowledge, in writing, their status as fiduciaries under the ERISA and the Code. In addition, the institutions would be required to furnish a written description of the services they provide and any material conflicts of interest that are accurate in all material respects. Financial institutions would generally be required to provide the disclosure to each retirement investor once, but financial institutions may need to provide updated disclosures to ensure accuracy. Most IAs already disclose their status as a fiduciary and describe the types of services they offer in Form ADV. However, not all entities would decide to rely on the proposed exemption. Some may instead rely on other existing exemptions that better align with their business models.

Section II(c)(1) of the Proposed PTE would require financial institutions to establish, maintain, and enforce written policies and procedures designed to ensure that they and their investment professionals comply with the Impartial Conduct Standards. Section II(c)(2) would further require that the institutions design the policies and procedures to mitigate conflicts of interest.

Section II(c)(3) of the Proposed PTE would require financial institutions to document the specific reasons for any rollover recommendation and show that the rollover is in the best interest of the retirement investor.

Under Section II(d) of the Proposed PTE, financial institutions would be required to conduct an annual retrospective review that is reasonably designed to prevent violations of the Proposed PTE’s Impartial Conduct Standards and the institution’s own policies and procedures. The methodology and results of the retrospective review would be reduced to a written report that is provided to the financial institution’s chief executive officer and chief compliance officer (or equivalent officers). The chief executive officer would be required to certify that (1) the officer has reviewed the report of the retrospective review, and (2) the financial institution has in place policies and procedures prudently designed to achieve compliance with the conditions of the Proposed PTE, and (3) the financial institution has a prudent process for modifying such policies and procedures. The process for modifying policies and procedures would need to be responsive to business, regulatory, and legislative changes and events, and the chief executive officer would be required to periodically test their effectiveness. The review, report, and certification would be completed no later than six months following the end of the period covered by the review. The financial institution would be required to retain the report, certification, and supporting data for at least six years, and to make these items available to the Department, any other federal or state regulator of the financial institution, or any applicable self-regulatory organization within 10 business days.

Section IV of the proposed exemption would require financial institutions to maintain records demonstrating compliance with the exemption for six years. The institutions would also be required to make records available to regulators, plans, and participants, as permitted by law. Recordkeeping requirements in section IV are generally consistent with Securities and Exchange Commission (SEC) and Financial Institution Regulatory Authority (FINRA) requirements.² In addition, the recordkeeping requirements correspond to the six-year period in section 413 of ERISA. The Department understands that many firms already maintain records, as required in section IV, as part of their regular business practices. Therefore, the Department expects that the recordkeeping requirement in section IV would impose a negligible burden.

2. Indicate how, by whom, and for what purpose the information is to be used. Except for a new collection, indicate the actual use the agency has made of the information received from the collection.

The information that advice fiduciaries would be required to produce under the proposed exemption would create protective conditions designed to safeguard the interest of Plans, participants, beneficiaries, and IRA owners. These requirements also provide plan participants with needed information to help them understand services offered and the related conflicts of interests associated with those conflicts.

To qualify for the proposed exemption, investment advice fiduciaries (i.e. registered IAs, BDs, banks, and insurance companies) would be required to:

1. make disclosures to inform retirement investors of their fiduciary status, services offered, and material conflicts of interest;

2. establish, maintain, and enforce written policies and procedures designed to ensure that they and their investment professionals comply with the Impartial Conduct Standards;

3. document the specific reasons for any rollover recommendation and show that the rollover is in the best interest of the retirement investor;

4. conduct an annual retrospective review that is reasonably designed to prevent violations of the Proposed PTE’s Impartial Conduct Standards and the institution’s own policies and procedures; and

5. maintain records so that parties relying on an exemption can demonstrate, and the Department can verify, compliance with the conditions of the exemption.

3. Describe whether, and to what extent, the collection of information involves the use of automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses, and the basis for the decision for adopting this means of collection. Also describe any consideration for using information technology to reduce burden.

The proposed exemption assumes that 92 percent of required disclosures would be sent electronically,³ which the Department assumes would be distributed through means already used by respondents in the normal course of business. The Department assumes that the costs arising from electronic distribution would be negligible.

To mitigate conflicts of interest, insurance companies could implement an electronic screening process to review all annuity sales to ensure that they were made in satisfaction of the Impartial Conduct Standards.⁴

4. Describe efforts to identify duplication. Show specifically why similar information already available cannot be used or modified for use for the purposes described in Item 2 above.

As discussed above, the ERISA and Code rules governing investment advice on the investment of retirement assets overlap with SEC rules that govern the conduct of IAs and BDs who advise retail investors. The Department considered conduct standards set by other regulators, such as SEC, NAIC, and FINRA, in developing the proposed exemption, with the goal of avoiding overlapping or duplicative requirements. To the extent the requirements overlap, compliance with the other disclosure or recordkeeping requirements can be used to satisfy the exemption conditions, provided the conditions are satisfied. In this regard, there is no duplicate requirements because entities are able to satisfy the requirements of both this proposed exemption and of the other applicable laws.

5. If the collection of information impacts small businesses or other small entities, describe any methods used to minimize burden.

It is necessary for the information collection to apply equally to large and small entities to ensure that participants and beneficiaries and IRA owners are protected when their plans and IRAs engage in transactions that otherwise would be prohibited under ERISA and the Code. However, because smaller entities generally have less complex business practices and arrangements than their larger counterparts, it would likely cost less for them to comply with the exemption.

6. Describe the consequence to federal program or policy activities if the collection is not conducted or is conducted less frequently, as well as any technical or legal obstacles to reducing burden.

This information collection does not involve reporting to the Federal government, and the requirements of this proposed exemption are only mandatory if financial institutions that are fiduciaries wish to utilize the class exemption.

The contract, policies, and procedures, disclosure and recordkeeping requirements are necessary to ensure that the exemption is protective of the rights of participants and beneficiaries as required under ERISA section 408(a) and Code section 4975(c)(2).

7. Explain any special circumstances that would cause an information collection to be conducted in a manner:

   • Requiring respondents to report information to the agency more often than quarterly;

   • Requiring respondents to prepare a written response to a collection of information in fewer than 30 days after receipt of it;

   • Requiring respondents to submit more than an original and two copies of any document;

   • Requiring respondents to retain records, other than health, medical, government contract, grant-in-aid, or tax records for more than three years;

   • In connection with a statistical survey, that is not designed to produce valid and reliable result that can be generalized to the universe of study;

   • Requiring the use of a statistical data classification that has not been reviewed and approved by OMB;

   • That includes a pledge of confidentiality that is not supported by authority established in statute or regulation, that is not supported by disclosure and data security policies that are consistent with the pledge, or which unnecessarily impedes sharing of data with other agencies for compatible confidential use; or

   • Requiring respondents to submit proprietary trade secret, or other confidential information unless the agency can demonstrate that it has instituted procedures to protect the information’s confidentiality to the extent permitted by law.

Because this exemption is granted under section 408(a) of ERISA and section 4975(c)(2) of the Code, the exclusion from the three-year guideline for record retention set forth in 5 CFR 1320.5 is applicable. Furthermore, as a result of statutory recordkeeping requirements in ERISA, the Code, and other federal laws, financial institutions that rely on this proposed exemption, for the most part, have adopted six-year recordkeeping as standard business practice in order to satisfy those separate recordkeeping requirements.

Participants, beneficiaries and IRA owners; Plan Fiduciaries; and contributing employers/employee organizations should be able to request only information applicable to their own transactions, and not privileged trade secrets or privileged commercial or financial information of the Financial Institution, or information identifying other individuals.

8. If applicable, provide a copy and identify the date and page number of publication in the Federal Register of the agency’s notice, required by 5 CFR 1320.8(d), soliciting comments on the information collection prior to submission to OMB. Summarize public comments received in response to that notice and describe actions taken by the agency in response to these comments. Specifically address comments received on cost and hour burden.

Describe efforts to consult with persons outside the agency to obtain their views on the availability of data, frequency of collection, the clarity of instructions and recordkeeping, disclosure, or reporting format (if any), and on the data elements to be recorded, disclosed, or reported.

Consultation with representatives of those from whom information is to be obtained or those who must compile records should occur at least once every 3 years – even if the collection of information activity is the same as in prior periods. There may be circumstances that may preclude consultation in a specific situation. These circumstances should be explained.

In addition to requesting public comment on the proposed regulation, the NPRM solicits public comment on the paperwork burden of the proposed regulation. The Office of Management and Budget has 60 days to review the information collection request, but must allow at least 30 days for public comment. Therefore, the PRA section of the proposed rule requests the public to send comments within 30 days to ensure their consideration. (5 CFR 1320.11(c); 5 CFR 1320.11(e)).

9. Explain any decision to provide any payment or gift to respondents, other than remuneration of contractors or grantees.

No payments or gifts are provided to respondents.

10. Describe any assurance of confidentiality provided to respondents and the basis for the assurance in statute, regulation, or agency policy.

None.

11. Provide additional justification for any questions of a sensitive nature, such as sexual behavior and attitudes, religious beliefs, and other matters that are commonly considered private. This justification should include the reasons why the agency considers the questions necessary, the specific uses to be made of the information, the explanation to be given to person from whom the information is requested, and any steps to be taken to obtain their consent.

There are no questions of a sensitive nature; therefore, no additional justification is necessary.

12. Provide estimates of the hour burden of the collection of information. The statement should:

• Indicate the number of respondents, frequency of response, annual hour burden, and an explanation of how the burden was estimated. Unless directed to do so, agencies should not conduct special surveys to obtain information on which to base hour burden estimates. Consultation with a sample (fewer than 10) of potential respondents is desirable. If the hour burden on respondents is expected to vary widely because of difference in activity, size, or complexity, show the range of estimated hour burden, and explain the reasons for the variance. Generally, estimates should not include burden hours for customary and usual business practices.

• If this request for approval covers more than one form, provide separate hour burden estimates for each form and aggregate the hour burdens.

• Provide estimates of annualized cost to respondents for the hour burdens for collection of information, identifying and using appropriate wage rate categories. The cost of contracting out or paying outside parties for information collection activities should not be included here.

The Department estimates that 11,782 financial institutions would rely on the Proposed PTE, including 1,957 BDs,⁵ 6,729 SEC-registered investment advisers,⁶ 2,710 state-registered IAs,⁷ and 386 insurers.⁸ As the Department believes that referrals by banks are not likely to constitute fiduciary investment advice within the meaning of the proposed exemption, banks are not considered in this analysis. The Department assumes that financial institutions would use the Proposed PTE in conjunction with transactions involving nearly all of their clients that are defined benefits plans, defined contribution plants, and IRA holders.⁹

The Department also assumes that financial institutions would use existing in-house resources to prepare the disclosures, policies and procedures, rollover documentation, and retrospective reviews and to maintain the recordkeeping systems necessary to meet the requirements of the Proposed PTE.

Costs Associated with Disclosures

Section II(b) of the Proposed PTE would require financial institutions to furnish retirement investors with a disclosure prior to engaging in a covered transaction. Section II(b)(1) would require financial institutions to acknowledge in writing that the institution and its investment professionals are fiduciaries under ERISA and the Code, with respect to any investment advice provided to the retirement investors. Section II(b)(2) would require financial institutions to provide a written description of the services it provides and any material conflicts of interest. Financial institutions would generally be required to provide the disclosure to each retirement investor once, but financial institutions may need to provide updated disclosures to ensure accuracy.

While not all financial institutions may choose to use the proposed exemption, the Department assumes that all eligible entities would for the purposes of cost estimation. Each of the estimated 11,782 financial institutions would need to develop and distribute required disclosures.

The Department estimates that developing of a disclosure indicating fiduciary status would take a legal professional between 5 and 30 minutes, depending on the nature of the business,¹⁰ resulting in an hour burden of 1,599.¹¹ Assuming an hourly wage rate for a legal professional of $138.41, ¹²  the estimated cost burden is $221,276.¹³

Developing a disclosure identifying services provided and conflicts of interest would take a legal professional an estimated 5 minutes to 5 hours, depending on the nature of the business,¹⁴ resulting in an hour burden of 3,691.¹⁵ Assuming an hourly wage rate for a legal professional of $138.41, ¹⁶  the estimated cost burden is $510,877.¹⁷

The Department estimates that approximately 1.8 million retirement investors¹⁸ have relationships with financial institutions and are likely to engage in transactions covered under this PTE. Of these 1.8 million retirement investors, it is assumed that 8.1 percent¹⁹, or 146,083 retirement investors, would receive paper disclosures. Distributing paper disclosures is estimated to take clerical personnel 1 minute per disclosure, resulting in an hourly burden of 2,435.²⁰ Assuming an hourly wage rate for clerical personnel of $64.11, ²¹  the estimated cost burden is $156,094.²²

Costs Associated with Written Policies and Procedures

Section II(c)(1) of the Proposed PTE would require financial institutions to establish, maintain, and enforce written policies and procedures designed to ensure that they and their investment professionals comply with the Impartial Conduct Standards. Section II(c)(2) would further require that the institutions design the policies and procedures to mitigate conflicts of interest.

The Department estimates that establishing, maintaining, and enforcing written policies and procedures to ensure compliance with the Impartial Conduct Standards would take a legal professional, at each of the 11,782 financial institutions, between 15 minutes and 10 hours, depending on the nature of the business.²³ This results in an hour burden of 12,023.²⁴ Assuming an hourly wage rate for a legal professional of $138.41,²⁵  the estimated cost burden would be $1,664,127.²⁶

Costs Associated with Rollover Documentation

Section II(c)(3) of the Proposed PTE would require financial institutions to document the specific reasons for any rollover recommendation and show that the rollover is in the best interest of the retirement investor.

The Department estimates that 1.8 million retirement plan accounts²⁷ were rolled into IRAs in accordance with advice from a financial professional. Of those 1.8 million retirement plan accounts, the Department assumes that approximately two-thirds²⁸ of rollovers involving financial services professionals would be affected by this proposed exemption because the rest of rollovers involve financial services professionals who do not act in a fiduciary capacity under the five-part test or already incorporate documentation of rollover recommendations in their regular business routine as a best practice. Further, the Department estimates that documenting each rollover recommendation would take a personal financial adviser 10 minutes, resulting in 203,447²⁹ burden hours. Assuming an hourly wage rate for a personal financial adviser of $194.77, ³⁰  the estimated cost burden would be $39,626,306.³¹

Costs Associated with Annual Report of Retrospective Review

Under Section II(d) of the Proposed PTE, financial institutions would be required to conduct an annual retrospective review that is reasonably designed to prevent violations of the Proposed PTE’s Impartial Conduct Standards and the institution’s own policies and procedures. The methodology and results of the retrospective review would be reduced to a written report that is provided to the financial institution’s chief executive officer and chief compliance officer (or equivalent officers).

The Department estimates that of the estimated 11,782 financial institutions affected by the proposed rule, only 794 do not currently meet the internal retrospective review requirement.

As per FINRA Rule 3110³², FINRA Rule 3120³³, and FINRA Rule 3130³⁴, BDs are likely already held to a standard similar to that of the retrospective review requirements of this proposed exemption. Accordingly, in this analysis, the Department assumes that BDs would incur minimal costs to meet this requirement. The Department assumes that one percent of affected BDs, or 20 BDs, would incur costs to meet the audit report requirement.

In 2018, the Investment Adviser Association estimated that 92 percent of SEC-registered IAs voluntarily provide an annual compliance program review report to senior management.³⁵ Therefore, the Department estimates that only 8 percent, or 538,³⁶ of SEC-registered IAs advising retirement plans would incur costs associated with producing a retrospective review report. Due to lack of data, the Department assumes that state-registered IAs exhibit similar retrospective review patterns and estimates that 8 percent, or 217,³⁷ of state-registered IAs would also incur costs associated with producing a retrospective review report. The Department assumes that five percent of affected insurers or 20³⁸ would incur costs associated with producing a retrospective review report.

As SEC-registered IAs are already subject to SEC Rule 206(4)-7 and insurers in many states are already subject to NAIC’s Model Regulation, ³⁹ the Department assumes these entities would incur minimal costs to satisfy the conditions related to this requirement.

The Department estimates it would take a legal professional five hours for small firms and 10 hours for large firms to produce the reports. This results in an hour burden of 7,032⁴⁰ and an equivalent cost burden of $973,297.⁴¹

In addition to conducting the audit and producing a report, the Department estimates that of the 11,782 financial institutions affected by the proposed exemption, 9,845⁴² would need to review the report and certify the exemption. This is estimated to take a financial professional 15 minutes for small firms and 30 minutes for large firms, depending on the nature of the business. This results in an hour burden of 4,340⁴³ and an equivalent cost burden of $718,806

Summary

As seen in the tables below, the Department estimates that the overall burden associated with this exemption would total 234,565 hours during the first year and 217,253 hours in subsequent years. The equivalent costs would total $43.9 million during the first year and $41.5 million in subsequent years.

First Year Activity	Total Annual Burden Hours	Hourly Rate	Monetized Value of Respondent Time
Development of Disclosure of Fiduciary Status	1,599	$138.41	$221,276
Development of Disclosure of Services Provided	3,691	$138.41	$510,877
Preparation for Distribution of Disclosures	2,435	$64.11	$156,094
Development of Written Policies and Procedures	12,023	$138.41	$1,664,127
Rollover Documentation	203,447	$194.77	$39,626,306
Review of Audit Report and Certification	4,340	$165.63	$718,806
Production of Audit Report	7,032	$138.41	$973,297
Totals for First Year	234,565		$43,870,783

Subsequent Year Activity	Total Annual Burden Hours	Hourly Rate	Monetized Value of Respondent Time
Preparation for Distribution of Disclosures	2,435	$64.11	$156,094
Rollover Documentation	203,447	$194.77	$39,626,306
Review of Audit Report and Certification	4,340	$165.63	$718,806
Production of Audit Report	7,032	$138.41	$973,297
Totals for Subsequent Year	217,253		$41,474,503

Note: Totals in table may not sum precisely due to rounding.

13. Provide an estimate of the total annual cost burden to respondents or recordkeepers resulting from the collection of information. (Do not include the cost of any hour burden shown in Items 12 or 14).

The Department estimates that approximately 1.8 million retirement investors⁴⁴ have relationships with financial institutions and would be likely to engage in transactions covered under this PTE. Of these 1.8 million retirement investors, the Department assumes that 8.1 percent,⁴⁵ or 146,083 retirement investors, would receive paper disclosures. Assuming the disclosures would require two sheets of paper at a cost $0.05 each, the estimated material cost for the paper disclosures is $14,608. Postage for each paper disclosure is expected to cost $0.55, resulting in a mailing cost of $80,346. The total print cost is $94,954.

In its analysis, the Department assumes that disclosures distributed electronically would be distributed through channels already used by respondents in the normal course of business.

14. Provide estimates of annualized cost to the federal government. Also, provide an description of the method used to estimate cost, which should include quantification of hours, operations expenses (such as equipment, overhead, printing, and support staff), and any other expense that would not have been incurred without this collection of information. Agencies also may aggregate cost estimates from Items, 12, 13, and 14 in a single table.

There are no ongoing costs to the Federal government.

15. Explain any reasons for any program changes or adjustments.

This is a new information collection.

16. For collection of information whose results will be published, outline plans for tabulation, and publication. Address any complex analytical techniques that will be used. Provide the time schedule for the entire project, including beginning and ending dates of the collection of information, completion of report, publication dates, and other actions.

This is not a collection of information for statistical use and there are no plans to publish the results of this collection.

17. If seeking approval to not display the expiration date for OMB approval of the information collection, explain the reasons that display would be inappropriate.

The collection of information will display a currently valid OMB control number.

18. Explain each exception to the certification statement.

There are no exceptions to the certification statement.

B. Collection of Information Employing Statistical Methods.

Not applicable.

1 Regulations at 29 CFR section 2570.30 to 2570.52 describe the procedures for applying for an administrative exemption under ERISA. Code section 4975(c)(2) authorizes the Secretary of the Treasury to grant exemptions from the parallel prohibited transaction provisions of the Code. Reorganization Plan No. 4 of 1978 (5 U.S.C. app. at 214 (2000)) generally transferred the authority of the Secretary of the Treasury to issue administrative exemptions under Code section 4975 to the Secretary of Labor.

2 The SEC’s Regulation Best Interest amended Rule 17a–4(e)(5) to require that BDs retain all records of the information collected from or provided to each retail customer pursuant to Regulation Best Interest for at least 6 years after the earlier of the date the account was closed or the date on which the information was last replaced or updated. FINRA Rule 4511 also requires its members preserve for a period of at least 6 years those FINRA books and records for which there is no specified period under the FINRA rules or applicable Exchange Act rules.

3 The Department estimates approximately 56 percent of participants receive disclosures electronically under the 2002 electronic disclosure safe harbor, and additional 36 percent of participants receive them electronically under the Department’s new electronic disclosure safe harbor.

4 Cf. NAIC Suitability in Annuity Transactions Model Regulation, Model 275 Draft, Adopted by the Committee Spring, 2020, Section 6.C.(2)(d) (“The insurer shall establish and maintain procedures for the review of each recommendation prior to issuance of an annuity that are designed to ensure that there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer’s financial situation, insurance needs and financial objectives. Such review procedures may apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means including, but not limited to, physical review. Such an electronic or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria”); and (e) (“The insurer shall establish and maintain reasonable procedures to detect recommendations that are not in compliance with subsections A, B, D and E. This may include, but is not limited to, confirmation of the consumer’s consumer profile information, systematic customer surveys, producer and consumer interviews, confirmation letters, producer statements or attestations and programs of internal monitoring. Nothing in this subparagraph prevents an insurer from complying with this subparagraph by applying sampling procedures, or by confirming the consumer profile information or other required information under this section after issuance or delivery of the annuity”), available at https://www.naic.org/store/free/MDL-275.pdf.

5 The SEC estimated that there were 3,764 BDs as of December 2018 (see Form CRS Relationship Summary, supra note 7). The IAA Compliance 2019 Survey estimates that 52 percent of IAs have a pension consulting business. The estimated number of BDs affected by this exemption is the product of the SEC’s estimate of total BDs in 2018 and IAA’s estimate of the percent of investment advisers with a pension consulting business.

6 The SEC estimated that there were 12,940 SEC-registered investment advisers that were not dually registered as BDs as of December 2018 (see Form CRS Relationship Summary, supra note 7). The IAA Compliance 2019 Survey estimates that 52 percent of IAs have a pension consulting business. The estimated number of IAs affected by this exemption is the product of the SEC’s estimate of SEC-registered IAs in 2018 and the IAA’s estimate of the percent of IAs with a pension consulting business.

7 The SEC estimated that there were 16,939 state-registered IAs that were not dually registered as BDs as of December 2018 (see Form CRS Relationship Summary, supra note 7). The NASAA 2019 estimates that 16 percent of state-registered IAs have a pension consulting business. The estimated number of state-registered IAs affected by this exemption is the product of the SEC’s estimate of state-registered IAs in 2018 and NASAA’s estimate of the percent of state-registered IAs with a pension consulting business.

8 NAIC estimates that the number of insurers directly writing annuities as of 2018 is 386.

9 For this analysis, “IRA holders” include rollovers from ERISA plans. The Department welcomes comments on this estimate.

10 The Department assumes that it would take each retail broker dealer firm 15 minutes, each nonretail BD or insurance firm 30 minutes, and each registered IA 5 minutes to prepare a disclosure conveying fiduciary status.

11 Burden hours are calculated by multiplying the estimated number of each firm type by the estimated time it would take each firm to prepare the disclosure.

12 The Department’s 2018 hourly wage rate estimates include wages, benefits, and overhead, and are calculated as follows: mean wage data from the 2018 National Occupational Employment Survey (May 2018, https://www.bls.gov/news.release/archives/ocwage_03292019.pdf), wages as a percent of total compensation from the Employer Cost for Employee Compensation (December 2018, https://www.bls.gov/news.release/archives/ecec_03192019.pdf), and overhead cost corresponding to each 2-digit NAICS code from the Annual Survey of Manufacturers (December 2017, https://www.census.gov/data/Tables/2016/econ/asm/2016-asm.html) multiplied by the percent of each occupation within that NAICS industry code based on a matrix of detailed occupation employment for each NAICS industry from the BLS Office of Employment projections (2016, https://www.bls.gov/emp/data/occupational-data.htm).

13 The hourly cost burden is calculated by multiplying the burden hour of each firm associated with preparation of the disclosure by the hourly wage of a legal professional.

14 The Department assumes that it would take each retail BD or IA firm 5 minutes, each small nonretail BD or small insurer 60 minutes, and each large nonretail BDs or larger insurer 5 hours to prepare a disclosure conveying services provided and any conflicts of interest.

15 Burden hours are calculated by multiplying the estimated number of each firm type by the estimated time it would take each firm to prepare the disclosure.

16 The Department’s 2018 hourly wage rate estimates include wages, benefits, and overhead, and are calculated as follows: mean wage data from the 2018 National Occupational Employment Survey (May 2018, https://www.bls.gov/news.release/archives/ocwage_03292019.pdf), wages as a percent of total compensation from the Employer Cost for Employee Compensation (December 2018, https://www.bls.gov/news.release/archives/ecec_03192019.pdf), and overhead cost corresponding to each 2-digit NAICS code from the Annual Survey of Manufacturers (December 2017, https://www.census.gov/data/Tables/2016/econ/asm/2016-asm.html) multiplied by the percent of each occupation within that NAICS industry code based on a matrix of detailed occupation employment for each NAICS industry from the BLS Office of Employment projections (2016, https://www.bls.gov/emp/data/occupational-data.htm).

17 The hourly cost burden is calculated by multiplying the burden hour of each firm associated with preparation of the disclosure by the hourly wage of a legal professional.

18 The Department estimates the number of affected plans and IRAs be equal to 50 percent of rollovers from plans to IRAs. Cerulli has estimated the number of plans rolled into IRAs to be 3,622,198 (see U.S. Retirement-End Investor 2019, supra note 24).

19 According to data from the National Telecommunications and Information Agency (NTIA), 37.7 percent of individuals age 25 and over have access to the internet at work. According to a Greenwald & Associates survey, 84 percent of plan participants find it acceptable to make electronic delivery the default option, which is used as the proxy for the number of participants who will not opt-out of electronic disclosure if automatically enrolled (for a total of 31.7 percent receiving electronic disclosure at work). Additionally, the NTIA reports that 40.5 percent of individuals age 25 and over have access to the internet outside of work. According to a Pew Research Center survey, 61 percent of internet users use online banking, which is used as the proxy for the number of internet users who will affirmatively consent to receiving electronic disclosures (for a total of 24.7 percent receiving electronic disclosure outside of work). Combining the 31.7 percent who receive electronic disclosure at work with the 24.7 percent who receive electronic disclosure outside of work produces a total of 56.4 percent who will receive electronic disclosure overall. In light of the 2019 Electronic Disclosure Regulation, the Department estimates that 81.5 percent of the remaining 43.6 percent of individuals would receive the disclosures electronically. In total, 91.9 percent of plans are expected to receive the disclosure electronically.

20 Burden hours are calculated by multiplying the estimated number of plans receiving the disclosures non-electronically by the estimated time it would take to prepare the physical disclosure.

21 The Department’s 2018 hourly wage rate estimates include wages, benefits, and overhead, and are calculated as follows: mean wage data from the 2018 National Occupational Employment Survey (May 2018, https://www.bls.gov/news.release/archives/ocwage_03292019.pdf), wages as a percent of total compensation from the Employer Cost for Employee Compensation (December 2018, https://www.bls.gov/news.release/archives/ecec_03192019.pdf), and overhead cost corresponding to each 2-digit NAICS code from the Annual Survey of Manufacturers (December 2017, https://www.census.gov/data/Tables/2016/econ/asm/2016-asm.html) multiplied by the percent of each occupation within that NAICS industry code based on a matrix of detailed occupation employment for each NAICS industry from the BLS Office of Employment projections (2016, https://www.bls.gov/emp/data/occupational-data.htm).

22 The hourly cost burden is calculated as the burden hours associated with the physical preparation of each non-electronic disclosure by the hourly wage of a clerical professional.

23 The Department assumes that it would take each small retail BD 22.5 minutes, each large retail BD 45 minutes, each small nonretail BD 5 hours, each large nonretail BD ten hours, each small IA 15 minutes, each large IA 30 minutes, each small insurer 5 hours, and each large insurer 10 hours to meet the requirement.

24 Burden hours are calculated by multiplying the estimated number of each firm type by the estimated time it would take each firm to establish, maintain, and enforce written policies and procedures.

25 The Department’s 2018 hourly wage rate estimates include wages, benefits, and overhead, and are calculated as follows: mean wage data from the 2018 National Occupational Employment Survey (May 2018, https://www.bls.gov/news.release/archives/ocwage_03292019.pdf), wages as a percent of total compensation from the Employer Cost for Employee Compensation (December 2018, https://www.bls.gov/news.release/archives/ecec_03192019.pdf), and overhead cost corresponding to each 2-digit NAICS code from the Annual Survey of Manufacturers (December 2017, https://www.census.gov/data/Tables/2016/econ/asm/2016-asm.html) multiplied by the percent of each occupation within that NAICS industry code based on a matrix of detailed occupation employment for each NAICS industry from the BLS Office of Employment projections (2016, https://www.bls.gov/emp/data/occupational-data.htm).

26 The hourly cost burden is calculated as the burden hour of each firm associated with meeting the written policies and procedures requirement multiplied by the hourly wage of a legal professional.

27 Cerulli has estimated the number of plans rolled into IRAs to be 3,622,198 (see U.S. Retirement-End Investor 2019, supra note 24). The Department estimates that 50 percent of these rollovers would be handled by a financial professional.

28 In 2019, a survey was conducted of financial services professionals (including BDs and IAs) who hold more than 50 percent of their practice’s assets under management in employer-sponsored retirement plans. In addition, 45 percent of those professionals indicated that they make a proactive effort to pursue IRA rollovers from their DC plan clients. According to this survey, approximately 32.6 percent responded that they function in a non-fiduciary capacity. Therefore, the Department assumes that approximately 67.4 percent of financial service professionals serve their Plan clients as fiduciaries. See U.S. Defined Contribution 2019: Opportunities for Differentiation in a Competitive Landscape, The Cerulli Report (2019).

29 Burden hours are calculated by multiplying the estimated number of rollovers affected by this proposed exemption by the estimated hours needed to document each recommendation.

30 The Department’s 2018 hourly wage rate estimates include wages, benefits, and overhead, and are calculated as follows: mean wage data from the 2018 National Occupational Employment Survey (May 2018, https://www.bls.gov/news.release/archives/ocwage_03292019.pdf), wages as a percent of total compensation from the Employer Cost for Employee Compensation (December 2018, https://www.bls.gov/news.release/archives/ecec_03192019.pdf), and overhead cost corresponding to each 2-digit NAICS code from the Annual Survey of Manufacturers (December 2017, https://www.census.gov/data/Tables/2016/econ/asm/2016-asm.html) multiplied by the percent of each occupation within that NAICS industry code based on a matrix of detailed occupation employment for each NAICS industry from the BLS Office of Employment projections (2016, https://www.bls.gov/emp/data/occupational-data.htm).

31The hourly cost burden is calculated as the burden hour of each firm associated with meeting the rollover documentation requirement multiplied by the hourly wage of a personal financial advisor.

32 Rule 3110. Supervision, FINRA Manual, www.finra.org/rules-guidance/rulebooks/finra-rules/3110.

33 Rule 3120. Supervisory Control System, FINRA Manual, www.finra.org/rules-guidance/rulebooks/finra-rules/3120.

34 Rule 3130. Annual Certification of Compliance and Supervisory Processes, FINRA Manual, www.finra.org/rules-guidance/rulebooks/finra-rules/3130.

35 2018 Investment Management Compliance Testing Survey, Investment Adviser Association (Jun. 14, 2018), https://higherlogicdownload.s3.amazonaws.com/INVESTMENTADVISER/aa03843e-7981-46b2-aa49-c572f2ddb7e8/UploadedImages/publications/2018-Investment-Management_Compliance-Testing-Survey-Results-Webcast_pptx.pdf.

36 The SEC estimated that there were 12,940 SEC-registered IAs that were not dually registered as BDs as of December 2018 (see Form CRS Relationship Summary, supra note 7). The IAA Compliance 2019 Survey estimates that 52 percent of IAs have a pension consulting business. The IAA Investment Management Compliance Testing Survey estimates that 92 percent of SEC-registered IAs provide an annual compliance program review report to senior management. The estimated number of IAs affected by this exemption who do not meet the retrospective review requirement is the product of the SEC’s estimate of SEC-registered IAs in 2018, the IAA’s estimate of the percent of IAs with a pension consulting business, and IAA’s estimate of the percent of IA’s who do not provide an annual compliance program review report.

37 The SEC estimated that there were 16,939 state-registered IAs that were not dually registered as BDs as of December 2018 (see Form CRS Relationship Summary, supra note 7). The NASAA 2019 estimates that 16 percent of state-registered IAs have a pension consulting business. The IAA Investment Management Compliance Testing Survey estimates that 92 percent of SEC-registered IAs provide an annual compliance program review report to senior management. The Department assumes state-registered IAs exhibit similar retrospective review patterns as SEC-registered IAs. The estimated number of state-registered IAs affected by this exemption is the product of the SEC’s estimate of state-registered IAs in 2018, NASAA’s estimate of the percent of state-registered IAs with a pension consulting business, and IAA’s estimate of the percent of IA’s who do not provide an annual compliance program review report. .

38 NAIC estimates that the number of insurers directly writing annuities as of 2018 is 386; the Department estimated five percent of these insurers would incur costs to meet the requirement.

39 Suitability in Annuity Transactions Model Regulation, section 6 C(2)(i), National Association of Insurance Commissioners (spring 2020), www.naic.org/store/free/MDL-275.pdf. (The same requirement is found in the previous NAIC Suitability in Annuity Transactions Model Regulation (2010), section 6 F(1)(f).)

40 Burden hours are calculated by multiplying the estimated number of each firm type by the estimated time it would take each firm to review the report and certify the exemption.

41 The hourly cost burden is calculated by multiplying the burden hours for reviewing the report and certifying the exemption requirement by the hourly wage of a legal professional.

42 The Department estimates that 11,782 financial institutions would be affected by the proposed exemption, including 1,957 BDs. However, as BDs are already held to largely similar standards under FINRA, the Department assumes only one percent of the affected BDs would need to take additional action. All of the other affected entities would be expected to need to take additional action to meet the requirement.

43 Burden hours are calculated by multiplying the estimated number of each firm type by the estimated time it would take each firm to review the report and certify the exemption.

44 The Department estimates the number of affected plans and IRAs would equal to 50 percent of rollovers from plans to IRAs. Cerulli has estimated the number of plans rolled into IRAs to be 3,622,198 (see U.S. Retirement-End Investor 2019, supra note 24).

45 According to data from the National Telecommunications and Information Agency (NTIA), 37.7 percent of individuals age 25 and over have access to the internet at work. According to a Greenwald & Associates survey, 84 percent of plan participants find it acceptable to make electronic delivery the default option, which is used as the proxy for the number of participants who will not opt-out of electronic disclosure if automatically enrolled (for a total of 31.7 percent receiving electronic disclosure at work). Additionally, the NTIA reports that 40.5 percent of individuals age 25 and over have access to the internet outside of work. According to a Pew Research Center survey, 61 percent of internet users use online banking, which is used as the proxy for the number of internet users who will affirmatively consent to receiving electronic disclosures (for a total of 24.7 percent receiving electronic disclosure outside of work). Combining the 31.7 percent who receive electronic disclosure at work with the 24.7 percent who receive electronic disclosure outside of work produces a total of 56.4 percent who will receive electronic disclosure overall. In light of the Department’s 2020 Electronic Disclosure Regulation, the Department estimates that 81.5 percent of the remaining 43.6 percent of individuals would receive the disclosures electronically. In total, 91.9 percent of plans are expected to receive the disclosure electronically.