Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016-01); Class Exemption for Principal…

Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02); Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24)

SUMMARY: This document proposes to extend the special transition period under sections II and IX of the Best Interest Contract Exemption and section VII of the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs. This document also proposes to delay the applicability of certain amendments to Prohibited Transaction Exemption 84-24 for the same period. The primary purpose of the proposed amendments is to give the Department of Labor the time necessary to consider possible changes and alternatives to these exemptions. The Department is particularly concerned that, without a delay in the applicability dates, regulated parties may incur undue expense to comply with conditions or requirements that it ultimately determines to revise or repeal. The present transition period is from June 9, 2017, to January 1, 2018. The new transition period would end on July 1, 2019. The proposed amendments to these exemptions would affect participants and beneficiaries of plans, IRA owners and fiduciaries with respect to such plans and IRAs.

EFFECTIVE DATE: Comments must be submitted on or before September 15, 2017.

ADDRESSES: All written comments should be sent to the Office of Exemption Determinations by any of the following methods, identified by RIN 1210-AB82:

Federal eRulemaking Portal: http://www.regulations.gov at Docket ID number: EBSA-2017-0004. Follow the instructions for submitting comments.

Email to: [email protected].

Mail: Office of Exemption Determinations, EBSA, (Attention: D-11712, 11713, 11850), U.S. Department of Labor, 200 Constitution Avenue NW., Suite 400, Washington, DC 20210.

Hand Delivery/Courier: OED, EBSA (Attention: D-11712, 11713, 11850), U.S. Department of Labor, 122 C St. NW., Suite 400, Washington, DC 20001.

Comments will be available for public inspection in the Public Disclosure Room, EBSA, 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-2017-0004 and www.dol.gov/ebsa, at no charge. Do not include personally identifiable information or confidential business information that you do not want publicly disclosed. Comments online can be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Brian Shiker, telephone (202) 693-8824, Office of Exemption Determinations, Employee Benefits Security Administration.

SUPPLEMENTARY INFORMATION:

A. Procedural Background

ERISA and the 1975 Regulation

Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), in relevant part provides that a person is a fiduciary with respect to a plan to the extent he or she renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so. Section 4975(e)(3)(B) of the Internal Revenue Code ("Code") has a parallel provision that defines a fiduciary of a plan (including an individual retirement account or annuity (IRA)). The Department of Labor ("the Department") in 1975 issued a regulation establishing a five-part test under this section of ERISA. See 29 CFR 2510.3-21(c)(1) (2015). /1/ The Department's 1975 regulation also applied to the definition of fiduciary in the Code.

FOOTNOTE 1 The 1975 Regulation was published as a final rule at 40 FR 50842 (Oct. 31, 1975). END FOOTNOTE

The New Fiduciary Rule and Related Exemptions

On April 8, 2016, the Department replaced the 1975 regulation with a new regulatory definition (the "Fiduciary Rule"). The Fiduciary Rule defines who is a "fiduciary" of an employee benefit plan under section 3(21)(A)(ii) of ERISA as a result of giving investment advice to a plan or its participants or beneficiaries. The Fiduciary Rule also applies to the definition of a "fiduciary" of a plan in the Code. The Fiduciary Rule treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a wider array of advice relationships than was true under the 1975 regulation. On the same date, the Department published two new administrative class exemptions from the prohibited transaction provisions of ERISA (29 U.S.C. 1106) and the Code (26 U.S.C. 4975(c)(1)): The Best Interest Contract Exemption (BIC Exemption) and the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (Principal Transactions Exemption), as well as amendments to previously granted exemptions (collectively referred to as "PTEs," unless otherwise indicated). The Fiduciary Rule and PTEs had an original applicability date of April 10, 2017.

Presidential Memorandum

By Memorandum dated February 3, 2017, the President directed the Department to prepare an updated analysis of the likely impact of the Fiduciary Rule on access to retirement information and financial advice. The President's Memorandum was published in the Federal Register on February 7, 2017, at 82 FR 9675. On March 2, 2017, the Department published a notice of proposed rulemaking that proposed a 60-day delay of the applicability date of the Rule and PTEs. The proposal also sought public comments on the questions raised in the Presidential Memorandum and generally on questions of law and policy concerning the Fiduciary Rule and PTEs. /2/ The Department received nearly 200,000 comment and petition letters expressing a wide range of views on the proposed 60-day delay. Approximately 15,000 commenters and petitioners supported a delay of 60 days or longer, with some requesting at least 180 days and some up to 240 days or a year or longer (including an indefinite delay or repeal); 178,000 commenters and petitioners opposed any delay whatsoever at that time.

FOOTNOTE 2 82 FR 12319. END FOOTNOTE

First Delay of Applicability Dates

On April 7, 2017, the Department promulgated a final rule extending the applicability date of the Fiduciary Rule by 60 days from April 10, 2017, to June 9, 2017 ("April Delay Rule"). /3/ It also extended from April 10 to June 9, the applicability dates of the BIC Exemption and Principal Transactions Exemption and required investment advice fiduciaries relying on these exemptions to adhere only to the Impartial Conduct Standards as conditions of those exemptions during a transition period from June 9, 2017, through January 1, 2018. The April Delay Rule also delayed the applicability of amendments to an existing exemption, Prohibited Transaction Exemption 84-24 (PTE 84-24), until January 1, 2018, other than the Impartial Conduct Standards, which became applicable on June 9, 2017. Lastly, the April Delay Rule extended for 60 days, until June 9, 2017, the applicability dates of amendments to other previously granted exemptions. The 60-day delay was considered appropriate by the Department at that time, including for the Impartial Conduct Standards in the BIC Exemption and Principal Transactions Exemption, while compliance with other conditions for transactions covered by these exemptions, such as requirements to make specific disclosures and representations of fiduciary compliance in written communications with investors, was postponed until January 1, 2018, by which time the Department intended to complete the examination and analysis directed by the Presidential Memorandum.

FOOTNOTE 3 82 FR 16902. END FOOTNOTE

Request for Information

On July 6, 2017, the Department published in the Federal Register a Request for Information (RFI). 82 FR 31278. The purpose of the RFI was to augment some of the public commentary and input received in response to the March 2, 2017, request for comments on issues raised in the Presidential Memorandum. In particular, the RFI sought public input that could form the basis of new exemptions or changes to the Rule and PTEs. The RFI also specifically sought input regarding the advisability of extending the January 1, 2018, applicability date of certain provisions in the BIC Exemption, the Principal Transactions Exemption, and PTE 84-24. Comments relating to extension of the January 1, 2018, applicability date of certain provisions were requested by July 21, 2017. All other comments were requested by August 7, 2017. As of July 21, the Department had received approximately 60,000 comment and petition letters expressing a wide range of views on whether the Department should grant an additional delay and what should be the duration of any such delay. These comments are discussed in Section C, below, in connection with the proposed amendments.

B. Current Transition Period

BIC Exemption (PTE 2016-01) and Principal Transactions Exemption (PTE 2016-02)

Although the Fiduciary Rule, BIC Exemption, and Principal Transactions Exemption first became applicable on June 9, 2017, transition relief is provided throughout the current Transition Period, which runs from June 9, 2017, through January 1, 2018. "Financial Institutions" and "Advisers," as defined in the exemptions, who wish to rely on these exemptions for covered transactions during this period must adhere to the "Impartial Conduct Standards" only. In general, this means that Financial Institutions and Advisers must give prudent advice that is in retirement investors' best interest, charge no more than reasonable compensation, and avoid misleading statements. /4/

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

Notice of proposed amendments to PTE 2016-01, PTE 2016-02, and PTE 84-24.

CFR Part: "29 CFR Part 2550"

Citation: "82 FR 41365"

Document Number: "ZRIN 1210-ZA27"

Federal Register Page Number: "41365"

"Proposed Rules"