Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions Involving Insurance…

Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies and Investment Company Principal Underwriters

SUMMARY: This document contains a notice of pendency before the Department of Labor of a proposed amendment to Prohibited Transaction Exemption (PTE) 84-24, an exemption from certain prohibited transaction provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the Code). The ERISA and Code provisions at issue generally prohibit fiduciaries with respect to employee benefit plans and individual retirement accounts (IRAs) from engaging in self-dealing in connection with transactions involving these plans and IRAs. The exemption allows fiduciaries to receive compensation when plans and IRAs enter into certain insurance and mutual fund transactions recommended by the fiduciaries as well as certain related transactions. The proposed amendments would increase the safeguards of the exemption. This document also contains a notice of pendency before the Department of the proposed revocation of the exemption as it applies to IRA purchases of mutual fund shares and certain annuity contracts. The amendments and revocations would affect participants and beneficiaries of plans, IRA owners and certain fiduciaries of plans and IRAs.

EFFECTIVE DATE: Comments: Written comments must be received by the Department on or before July 6, 2015.

Applicability: The Department proposes to make this amendment and partial revocation applicable eight months after the publication of the final amendment and partial revocation in the Federal Register .

ADDRESSES: All written comments concerning the proposed amendment and proposed revocation to the class exemption should be sent to the Office of Exemption Determinations by any of the following methods, identified by ZRIN: 1210-ZA25:

Federal eRulemaking Portal: http://www.regulations.gov at Docket ID number: EBSA-2014-0016. Follow the instructions for submitting comments.

Email to: [email protected].

Fax to: (202) 693-8474.

Mail: Office of Exemption Determinations, Employee Benefits Security Administration, (Attention: D-11850), U.S. Department of Labor, 200 Constitution Avenue NW., Suite 400, Washington, DC 20210.

Hand Delivery/Courier: Office of Exemption Determinations, Employee Benefits Security Administration, (Attention: D-11850), U.S. Department of Labor, 122 C St. NW., Suite 400, Washington, DC 20001.

Instructions. All comments must be received by the end of the comment period. The comments received will be available for public inspection in the Public Disclosure Room of the Employee Benefits Security Administration, U.S. Department of Labor, Room N-1513, 200 Constitution Avenue NW., Washington, DC 20210. Comments will also be available online at www.regulations.gov, at Docket ID number: EBSA-2014-0016 and www.dol.gov/ebsa, at no charge.

Warning: All comments will be made available to the public. Do not include any personally identifiable information (such as Social Security number, name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Brian Shiker, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Suite 400, Washington, DC 20210, (202) 693-8824 (not a toll-free number).

SUPPLEMENTARY INFORMATION: The Department is proposing the amendment to PTE 84-24 /1/ on its own motion, pursuant to ERISA section 408(a) and Code section 4975(c)(2), and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637 (October 27, 2011)).

FOOTNOTE 1 PTE 84-24, 49 FR 13208 (Apr. 3, 1984), as corrected, 49 FR 24819 (June 15, 1984), as amended, 71 FR 5887 (Feb. 3, 2006). END FOOTNOTE

Public Hearing: The Department plans to hold an administrative hearing within 30 days of the close of the comment period. The Department will ensure ample opportunity for public comment by reopening the record following the hearing and publication of the hearing transcript. Specific information regarding the date, location and submission of requests to testify will be published in a notice in the Federal Register .

Executive Summary

Purpose of Regulatory Action

This proposal is being published in the same issue of the Federal Register as the Department's proposed regulation that would amend the definition of a "fiduciary" of an employee benefit plan or an IRA under ERISA and the Internal Revenue Code (Proposed Regulation). The Proposed Regulation specifies when an entity is a fiduciary by reason of the provision of investment advice for a fee or other compensation regarding assets of a plan or IRA. If adopted, the Proposed Regulation would replace an existing regulation that was adopted in 1975. The Proposed Regulation is intended to take into account the advent of 401(k) plans and IRAs, the dramatic increase in rollovers, and other developments that have transformed the retirement plan landscape and the associated investment market over the four decades since the existing regulation was issued. In light of the extensive changes in retirement investment practices and relationships, the Proposed Regulation would update existing rules to distinguish more appropriately between the sorts of advice relationships that should be treated as fiduciary in nature and those that should not.

PTE 84-24 permits certain investment advice fiduciaries to receive commissions in connection with the purchase and sale of recommended insurance and annuity products and mutual fund shares by the plans and IRAs, and certain related transactions. In the absence of an exemption, ERISA and the Code generally prohibit fiduciaries from using their authority to affect or increase their own compensation. This proposal would revoke the exemption for certain transactions and amend the conditions under which fiduciaries may receive such compensation.

The Secretary of Labor may grant and amend administrative exemptions from the prohibited transaction provisions of ERISA and the Code. /2/ Before granting an amendment to an exemption, the Department must find that the amended 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. Interested parties are permitted to submit comments to the Department through July 6, 2015. The Department plans to hold an administrative hearing within 30 days of the close of the comment period.

FOOTNOTE 2 Regulations at 29 CFR 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. END FOOTNOTE

Summary of the Major Provisions

PTE 84-24 currently provides an exemption for certain prohibited transactions that occur when plans or IRAs purchase insurance and annuity contracts and shares in an investment company registered under the Investment Company Act of 1940 (a mutual fund). The exemption permits insurance agents, insurance brokers and pension consultants that are parties in interest or fiduciaries with respect to plans and IRAs to effect the purchase of the insurance or annuity contracts for the plans or IRAs and receive a commission on the sale. The exemption is also available for the prohibited transaction that occurs when the insurance company selling the insurance or annuity contract is a party in interest or disqualified person with respect to the plan or IRA. Likewise, with respect to mutual fund transactions, PTE 84-24 permits mutual fund principal underwriters that are parties in interest or fiduciaries to effect the sale of mutual fund shares to plans or IRAs, and receive a commission on the transaction.

This proposal would make several changes to PTE 84-24. First, it would increase the safeguards of the exemption by requiring fiduciaries that rely on the exemption to adhere to certain "Impartial Conduct Standards," including acting in the best interest of the plans and IRAs when providing advice, and by more precisely defining the types of payments that are permitted under the exemption.

Second, on a going forward basis, the amendment would revoke relief for insurance agents, insurance brokers and pension consultants to receive a commission in connection with the purchase by IRAs of variable annuity contracts and other annuity contracts that are securities under federal securities laws and for mutual fund principal underwriters to receive a commission in connection with the purchase by IRAs of mutual fund shares. /3/ A new exemption for the receipt of compensation by fiduciaries that provide investment advice to IRA owners is proposed elsewhere in this issue of the Federal Register in the "Best Interest Contract Exemption." The Department believes that the provisions in the Best Interest Contract Exemption better protect the interests of IRAs with respect to investment advice regarding securities products.

FOOTNOTE 3 For purposes of this amendment, the terms "Individual Retirement Account" or "IRA" mean any trust, account or annuity described in Code section 4975(e)(1)(B) through (F), including, for example, an individual retirement account described in section 408(a) of the Code and a health savings account described in section 223(d) of the Code. END FOOTNOTE

Executive Order 12866 and 13563 Statement

--This is a summary of a Federal Register article originally published on the page number listed below--

Notice of Proposed Amendment to and Proposed Partial Revocation of PTE 84-24.

CFR Part: "29 CFR Part 2550"

Citation: "80 FR 22010"

Document Number: "ZRIN: 1210-ZA25"

Federal Register Page Number: "22010"

"Proposed Rules"