[Federal Register: August 22, 2008 (Volume 73, Number 164)]
[Notices]
[Page 49924-49932]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22au08-132]
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Notices
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains documents other than rules
or proposed rules that are applicable to the public. Notices of hearings
and investigations, committee meetings, agency decisions and rulings,
delegations of authority, filing of petitions and applications and agency
statements of organization and functions are examples of documents
appearing in this section.
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[[Page 49924]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
RIN 1210-ZA14
Proposed Class Exemption for the Provision of Investment Advice
to Participants and Beneficiaries of Self-Directed Individual Account
Plans and IRAs
AGENCY: Employee Benefits Security Administration, DOL.
ACTION: Notice of proposed class exemption.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (Department) of a proposed class exemption from
certain prohibited transaction restrictions of the Employee Retirement
Income Security Act of 1974, as amended (ERISA, or the Act), and from
certain taxes imposed by the Internal Revenue Code of 1986, as amended
(Code). If granted, the proposed exemption would permit the provision
of investment advice described in section 3(21)(A)(ii) of the Act by a
fiduciary adviser to a participant or beneficiary in an individual
account plan or individual retirement accounts (and certain similar
plans), the acquisition, holding or sale of a security or other
property pursuant to the investment advice, and the direct or indirect
receipt of fees or other compensation by the fiduciary adviser (or any
employee, agent, registered representative or affiliate thereof) in
connection with such transactions. The proposed exemption, if granted,
would affect sponsors, fiduciaries, participants and beneficiaries of
participant-directed individual account plans, as well as providers of
investments and investment advice-related services to such plans.
DATES: Written comments on the proposed exemption should be submitted
to the Department of Labor on or before October 6, 2008.
ADDRESSES: To facilitate the receipt and processing of comment letters,
the Employee Benefits Security Administration (EBSA) encourages
interested persons to submit their comments electronically by e-mail to
e-ORI@dol.gov (Subject: Investment Advice Class Exemption), or by using
the Federal eRulemaking portal at http://www.regulations.gov (follow
instructions for submission of comments). Persons submitting comments
electronically are encouraged not to submit paper copies. Persons
interested in submitting paper copies should send or deliver their
comments to the Office of Regulations and Interpretations, Employee
Benefits Security Administration, Attn: Investment Advice Class
Exemption, Room N-5655, U.S. Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210. All comments will be available to
the public, without charge, online at http://www.regulations.gov and
http://www.dol.gov/ebsa and at the Public Disclosure Room, N-1513,
Employee Benefits Security Administration, U.S. Department of Labor,
200 Constitution Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Fred Wong, Office of Regulations and
Interpretations, Employee Benefits Security Administration, (202) 693-
8500. This is not a toll free number.
SUPPLEMENTARY INFORMATION: This document contains a notice of pendency
before the Department of a proposed class exemption from the
restrictions of section 406(a) and 406(b) of the Act and from the taxes
imposed by section 4975(a) and (b) of the Code, by reason of section
4975(c)(1) of the Code. The Department is proposing this class
exemption pursuant to section 408(a) of the Act and section 4975(c)(2)
of the Code, and in accordance with the procedures set forth in 29 CFR
part 2570, subpart B (55 FR 32836, August 10, 1990).\1\ All section
references herein are to sections of ERISA unless otherwise indicated.
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\1\ Section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C.
App. 1 (1996), generally transferred the authority of the Secretary
of the Treasury to issue exemptions under section 4975(c)(2) of the
Code to the Secretary of Labor. For purposes of this proposed
exemption, references to specific provisions of Title I of the Act,
unless otherwise specified, refer also to the corresponding
provisions of the Code.
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A. Background
Section 3(21)(A)(ii) of the Act includes within the definition of
``fiduciary'' a person that renders investment advice for a fee or
other compensation, direct or indirect, with respect to any moneys of
other property of a plan, or has any authority or responsibility to do
so.\2\ The prohibited transaction provisions of ERISA and the Code
prohibit an investment advice fiduciary from using the authority,
control or responsibility that makes it a fiduciary to cause itself, or
a party in which it has an interest that may affect its best judgment
as a fiduciary, to receive additional fees. As a result, in the absence
of a statutory or administrative exemption, fiduciaries are prohibited
from rendering investment advice to plan participants regarding
investments that result in the payment of additional advisory and other
fees to the fiduciaries or their affiliates.
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\2\ See also 29 CFR 2510.3-21(c).
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With the growth of participant-directed individual account plans,
there has been an increasing recognition of the importance of
investment advice to participants and beneficiaries in such plans. Most
recently, Congress and the Administration, responding to the need to
afford participants and beneficiaries greater access to professional
investment advice, amended the prohibited transaction provisions of
ERISA and the Code, as part of the Pension Protection Act of 2006
(PPA),\3\ to permit a broader array of investment advice providers to
offer their services to participants and beneficiaries responsible for
investment of assets in their individual accounts and, accordingly, for
the adequacy of their retirement savings. Specifically, section 601(a)
of the PPA added a statutory exemption under sections 408(b)(14) and
408(g) of ERISA. Parallel provisions were added to the Code at section
4975(d)(17) and 4975(f)(8).\4\
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\3\ Public Law 109-280, 120 Stat. 780 (Aug. 17, 2006).
\4\ See PPA section 601(b). Under Reorganization Plan No. 4 of
1978 (43 FR 47713, October 17, 1978), 5 U.S.C. App.1, 92 Stat. 3790,
the authority of the Secretary of the Treasury to issue rulings
under section 4975 of the Code has been transferred, with certain
exceptions not here relevant, to the Secretary of Labor. Therefore,
the references in this notice to specific sections of ERISA should
be taken as referring also to the corresponding sections of the
Code.
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[[Page 49925]]
Section 408(b)(14) of ERISA provides that certain investment
advice-related transactions will be exempt from the prohibitions of
section 406 if the requirements of section 408(g) are met. Section
408(g) of ERISA requires that investment advice must be provided by a
fiduciary adviser under an ``eligible investment advice arrangement''
that meets a ``level fee'' requirement (ERISA section 408(g)(2)(A)(i))
or a ``computer model'' requirement (ERISA section 408(g)(2)(A)(ii)).
However, PPA section 601(b)(3)(C) restricts the general availability of
an eligible investment advice arrangement based on utilization of a
computer model for certain plans described in Code section 4975(e)(1)
(collectively referred to herein as Individual Retirement Accounts or
IRAs), unless the Secretary of Labor, in consultation with the
Secretary of the Treasury, determines that there is a computer model
investment advice program that may be utilized by an IRA to provide
investment advice to the account beneficiary which meets the
requirements described in PPA section 601(b)(3)(B).\5\
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\5\ PPA section 601(b)(3)(C)(i).
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On December 4, 2006, the Department published two Requests for
Information in the Federal Register soliciting information to assist
the Department in the development of regulations under ERISA section
408(b)(14) and 408(g), and in making its determination with respect to
the utilization of computer models for IRAs. 71 FR 70429; 71 FR 70427.
Concurrent with the publication of this document, the Department
reported to Congress its determination that there exist computer models
that meet the requirements described in PPA section 601(b)(3)(B). In
addition, appearing elsewhere in today's Federal Register, the
Department is publishing proposed regulations that would implement the
provisions of the statutory exemption for the provision of investment
advice to participants and beneficiaries under sections 408(b)(14) and
408(g), and parallel provisions in Code section 4975.
This class exemption is intended to complement the adoption of
those implementing regulations by furthering the availability of
individualized investment advice to both participants and beneficiaries
in participant-directed individual account plans and IRA beneficiaries
under circumstances not encompassed in the statutory exemption or
implementing regulations, as described below.
B. Overview of Proposed Class Exemption
1. General
In general, the proposed class exemption, like the statutory
exemption and proposed regulations published thereunder (proposed 29
CFR 2550.408g-1), provides relief from otherwise prohibited
transactions relating to the provision of investment advice to the
participant or beneficiary with respect to a security or other property
available as an investment under a plan or IRA; the acquisition,
holding or sale of a security or other property available as an
investment under a plan or IRA pursuant to the investment advice; and
the direct or indirect receipt of compensation by a fiduciary adviser
or affiliate in connection with the provision of investment advice or
the acquisition, holding or sale of a security or other property
available as an investment under the plan or IRA pursuant to the
investment advice.
Unlike the statutory exemption and proposed regulations, however,
the class exemption would provide relief for individualized investment
advice to individuals following the furnishing of recommendations
generated by a computer model or, in the case of IRAs with respect to
which modeling is not feasible, the furnishing of certain investment
education material. The computer generated advice recommendations and
investment education materials are intended to provide individual
account plan participants and beneficiaries and IRA beneficiaries with
a context for assessing and evaluating the individualized investment
advice contemplated by the exemption. Also unlike the statutory
exemption and proposed regulations, the class exemption, as discussed
below, applies the fee-leveling limits solely to the compensation
received by the employee, agent or registered representative providing
the advice on behalf of the fiduciary adviser, as distinguished from
compensation received by the fiduciary adviser on whose behalf the
employee, agent or registered representative is providing such advice.
2. Scope of Exemption--Sections I and II
Sections I and II of the proposal define the scope of the class
exemption. Section I provides that, with respect to the provision of
advice to participants and beneficiaries of individual account plans,
the restrictions of sections 406(a) and 406(b) of ERISA and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1)(A) through (F) of the Code, shall not
apply to the provision of investment advice described in section
3(21)(A)(ii) of the Act by a fiduciary adviser to a participant or
beneficiary of an individual account plan that permits such participant
or beneficiary to direct the investment of their individual accounts;
the acquisition, holding, or sale of a security or other property
pursuant to the investment advice; and, except as otherwise provided in
the exemption, the direct or indirect receipt of fees or other
compensation by the fiduciary adviser (or any employee, agent,
registered representative or affiliate thereof) in connection with the
provision of the advice or in connection with an acquisition, holding,
or sale of a security or other property pursuant to the investment
advice. Section II provides the same relief with respect to the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1)(A) through (F) of the Code, for
investment advice to beneficiaries of IRAs.
3. Conditions--Section III
General--Paragraphs (a)-(d)
Paragraphs (a) through (c) set forth general requirements relating
to the arrangements and investment advice covered by the exemption,
without regard to whether a fiduciary adviser uses a computer model or
levels fees in connection with the providing of individualized
investment advice. Paragraph (a) provides that the investment advice
arrangement must be authorized by a plan fiduciary (or, in the case of
an IRA, the IRA beneficiary) other than: the person offering the
investment advice arrangement; any person providing designated
investment options under the plan; or any affiliate of either. The
terms designated investment options and affiliate are defined in
Section IV, described below. Paragraph (a) further provides that for
purposes of such authorization, an IRA beneficiary will not be treated
as an affiliate of a person solely by reason of being an employee of
such person, thereby, enabling employees of a fiduciary adviser to take
advantage of the investment advice arrangements offered by their
employer under the exemption. Paragraph (b) requires that the provided
investment advice be based on certain generally accepted investment
theories. Paragraph (c) requires that the investment advice must take
into account information furnished by a participant or beneficiary.
[[Page 49926]]
Paragraph (d) of Section III requires that the fiduciary adviser
must provide advice in accordance with paragraph (e) or paragraph (f)
or both. As discussed below, paragraph (e) generally requires the
provision of investment advice generated by a computer model in advance
of providing individualized, non-computer modeled advice. Paragraph (f)
requires that investment advice be provided in a manner with respect to
which fees or other compensation received by an employee, agent or
registered representative providing investment advice on behalf of a
fiduciary adviser do not vary based on the investment option selected
by the participant or beneficiary. Paragraph (d) also permit the
provision of investment advice using a combination of computer
generated advice and fee-leveling.
Use of Computer Models--Paragraph (e)
Paragraph (e)(1) requires that, prior to the provision of other
investment advice covered by the class exemption, participants and
beneficiaries must be furnished with investment recommendations
generated by a computer model. The computer model must either meet the
requirements of ERISA section 408(g)(3)(B) and (C) \6\ or meet the
requirements of section 408(g)(3)(B) and be designed and maintained by
a person independent of the fiduciary adviser (and any of the adviser's
affiliates) and utilize methodologies and parameters determined
appropriate solely by the independent person. If the conditions of
section III are satisfied, then the class exemption provides relief, as
described in sections I and II, in connection with both the investment
advice generated by the computer model and the non-computer model
generated investment advice subsequently provided.
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\6\ In general, paragraph (3)(B) of section 408(g) provides that
a computer model under an investment advice program must apply
certain generally accepted investment theories, utilize relevant
information about the participant, utilize prescribed objective
criteria to provide asset allocation portfolios comprised of
investment options available under the plan, operate in a manner
that is not biased in favor of certain investments, and take into
account all investment options under the plan in specifying how a
participant's account balance should be invested. Paragraph (3)(C)
of section 408(g) requires that a computer model utilized under an
investment advice program be certified as meeting the requirements
of paragraph (3)(B) by an eligible investment expert. Proposed
regulations being published in today's Federal Register provide
further guidance with respect to the computer model requirements
contained in ERISA section 408(g)(3).
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In order to satisfy paragraph (e)(1), a computer model must, at
least, meet the requirements of section 408(g)(3)(B) and the
regulations issued thereunder applicable to a computer model that
serves as the basis of an eligible investment advice arrangement under
the statutory exemption and related regulations (proposed 29 CFR
2550.408g-1(d)(1)). Additionally, unless the computer model is
developed and maintained by a person independent of the fiduciary
adviser (and its affiliates), the computer model must be certified, in
accordance with ERISA section 408(g)(3)(C) and related regulations
(proposed 29 CFR 2550.408g-1(d)(2)), as satisfying those requirements.
Thus, unless the computer model is developed and maintained by an
independent person, the model must meet the same requirements,
including certification, as under the statutory exemption and related
regulations. With respect to the inclusion of independently developed
and maintained computer models under paragraph (e)(1), the Department
opined in Advisory Opinion 2001-09A (Dec. 14, 2001) (AO 2001-09A) that
an investment adviser providing investment advice regarding investments
that pay additional fees to the adviser could avoid prohibited
transaction issues under ERISA section 406(b)(1) and (3) by utilizing
computer methodologies developed, maintained and overseen by an
independent person to generate the advice provided. This continues to
be the view of the Department.\7\ However, as with investment advice
provided under the statutory exemption, the Department believes that
plan participants and beneficiaries may want the flexibility to obtain
other investment advice after receiving computer-generated advice, and
advisers may be willing to offer such services. Accordingly, paragraph
(e)(1) similarly encompasses transactions in connection with investment
advice received after investment advice generated by a computer model
developed and maintained by a person independent of the fiduciary
adviser and its affiliates. For purposes of this paragraph, the term
``independent'' is defined in paragraph (h) of Section IV. The
Department notes, however, that it continues to believe that what
constitutes ``independent'' for purposes of the analysis in AO 2001-09A
is an inherently factual question,\8\ and that no inferences should be
drawn with regard to the effect of the definition contained in
paragraph (h) of section IV on the analysis in AO 2001-09A.
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\7\ See Field Assistance Bulletin 2007-01 (February 2, 2007).
\8\ See AO 2001-09A, footnote 11 (``whether a party is
`independent' for purposes of the subject analysis will generally
involve a determination as to whether there exists a financial
interest (e.g., compensation, fees, etc.), ownership interest, or
other relationship, agreement or understanding that would limit the
ability of the party to carry out its responsibility beyond the
control, direction or influence of the fiduciary'').
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The general requirement for computer model investment advice set
forth in paragraph (e)(1) also applies to IRAs, unless the fiduciary
adviser determines that the types or number of investment choices
available to an IRA beneficiary reasonably precludes the use of a
computer model meeting of the requirements of section ERISA
408(g)(3)(B). See paragraph (e)(2) of Section III. If the fiduciary
adviser so concludes, paragraph (e)(2) of Section III requires that the
beneficiary be provided certain investment education-type materials,
such as graphs, pie charts, case studies, worksheets, or interactive
software or similar programs, that reflect or produce asset allocation
models taking into account the age (or time horizon) and risk profile
of the beneficiary, to the extent known. Paragraph (e)(2) also sets
forth some general standards intended to ensure the reasonableness and
objectivity of the materials furnished. These materials, like the
investment advice generated by a computer model required under
paragraph (e)(1), are intended to provide a means by which a
participant or beneficiary may assess the individualized advice
provided by the fiduciary adviser, taking into account whether and to
what extent the individualized advice deviates from the computer
generated advice or education-type materials furnished in advance by
the fiduciary adviser.
Paragraph (e)(3) of Section III requires that the investment advice
provided does not recommend investment options that may generate for
the fiduciary adviser, or certain other persons, greater income than
other options of the same asset class, unless the fiduciary adviser
prudently concludes that the recommendation is in the best interest of
the participant or beneficiary and explains the basis for that
conclusion to the participant or beneficiary. Section III(e)(4),
described below, imposes a specific documentation requirement with
respect to any such advice. Section III(e)(3) does not apply to
investment advice generated solely by use of a computer model described
in paragraph (e)(1)(A) or (B) of section III.
Paragraph (e)(4) of Section III generally requires that not later
than 30 days following the provision of investment advice under
paragraph (e), the individual providing the advice on behalf of the
fiduciary adviser must document the basis of any investment option(s)
recommended to a participant or beneficiary, including an explanation
[[Page 49927]]
as to how such recommendation relates to the recommendations or
information provided or generated pursuant to paragraph (e)(1) or, if
applicable, paragraph (e)(2). As an example, in the case of an IRA
described in paragraph (e)(2) with respect to which a fiduciary adviser
provides several generic asset allocation portfolios prior to rendering
investment advice, the documentation required by paragraph (e)(4) must
include explanations as to the asset allocation portfolio on which the
investment advice is based, including reasons for its selection or
deviation from those provided, and how the recommended investments
provide the appropriate asset class exposures consistent with the
portfolio.
Paragraph (e)(4) further requires that with respect to any
investment advice that recommends investment options that may generate
for the fiduciary adviser, or certain persons, greater income than
other options of the same asset class, the individual providing the
investment advice on behalf of the fiduciary adviser must, not later
than 30 days following its provision, document the basis for concluding
that the recommendation is in the best interest of the participant or
beneficiary. As with the requirements of paragraph (e)(3), this
requirement does not apply to investment advice generated solely by use
of a computer model described in paragraph (e)(1)(A) or (B) of Section
III.
Paragraph (e)(5) provides that the documentation required by
paragraph (e)(4) must be retained in accordance with the exemption's
record-retention provision, section paragraph (n) of Section III,
described below.
Use of Fee-Leveling--Paragraph (f)
Paragraph (f) of Section III requires that any fees or other
compensation (including salary, bonuses, awards, promotions,
commissions or any other thing of value) received, directly or
indirectly, by an employee, agent or registered representative
providing advice on behalf of the fiduciary adviser pursuant to the
class exemption do not vary depending on the basis of any investment
option selected by a participant or beneficiary. The Department notes
that, in contrast to the fee-leveling requirement under the statutory
exemption as described above and interpreted in proposed regulations
being published in today's Federal Register, the fee-leveling
requirement under paragraph (f) applies only to the individual who
provides investment advice. In this regard, the Department is persuaded
that the safeguards provided for in the class exemption are sufficient
to permit the application of the fee-leveling requirement at the
individual-level, rather than fiduciary adviser-entity level, without
compromising the availability of informed, unbiased, and objective
investment advice for participants and beneficiaries.
Disclosure--Paragraphs (g)-(h)
The disclosure provisions set forth in paragraph (g) of Section III
generally track the disclosure provisions of the proposed regulations.
See proposed 29 CFR 2550.408g-1(g). In this regard, paragraph (g) of
Section III requires that a fiduciary adviser furnish certain
information, without charge, to a participant or beneficiary in advance
of the initial provision of investment advice under the class
exemption, and at least once each year thereafter during which the
adviser provides investment advice to the participant or beneficiary
under the class exemption.
Pursuant to paragraph (g)(1), a fiduciary adviser is required to
provide to participants and beneficiaries a written notification
describing: The role of any party that has a material affiliation or
material contractual relationship with the fiduciary adviser in the
development of the computer model described in paragraph (e)(1) or
materials described in section paragraph (e)(2) of Section III and in
the selection of investment options available under the plan; the past
performance and historical rates of return of the designated investment
options available under the plan or IRA to the extent such information
is not otherwise provided; all fees or other compensation relating to
the advice that the fiduciary adviser or any affiliate thereof is to
receive (including compensation provided by any third party) in
connection with the provision of the advice or in connection with the
sale, acquisition, or holding of the security or other property; and of
any material affiliation or material contractual relationship of the
fiduciary adviser or affiliates thereof in the security or other
property.
The notification also is required to explain the manner, and under
what circumstances, any participant or beneficiary information provided
under the investment advice arrangement will be used or disclosed, and
the types of services provided by the fiduciary adviser in connection
with the provision of investment advice by the fiduciary adviser,
including, with respect to an arrangement that utilizes a computer
model pursuant to paragraph (e)(1), any limitations on the ability of
the computer model to take into account an investment option that
constitutes an investment primarily in qualifying employer securities,
as provided for in proposed 29 CFR 2550.408g-1(d)(1)(v). This
disclosure of limitations on a computer model's ability to take into
account investments in qualifying employer securities parallels a
similar requirement contained in the proposed regulations under section
408(g)(3) being published today.\9\
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\9\ For a description of computer model limitations, see
proposed regulations published in today's Federal Register.
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In addition to the foregoing, the notification must inform
participants and beneficiaries that the fiduciary adviser is acting as
a fiduciary of the plan in connection with the provision of the advice,
and that the participants or beneficiaries may separately arrange for
the provision of advice by another adviser, that could have no material
affiliation with, and receives no fees or other compensation in
connection with, the security or other property recommended to the
participant or beneficiary.
Paragraph (g)(2)(i) provides that the information furnished
pursuant to paragraph (g)(1) must be written in a clear and concise
manner and in a manner calculated to be understood by the average plan
participant and is sufficiently accurate and comprehensive to
reasonably apprise such participants and beneficiaries of the
information required to be disclosed. Paragraph (g)(2)(ii) notes that
the appendix to proposed 29 CFR 2550.408g-1 contains a model disclosure
form that may be used to provide the required notification of
information described in paragraph (g)(1)(iii). Paragraph (g)(2)(ii)
makes clear that use of the model is voluntary. However, use of an
appropriately completed model disclosure form will be deemed to satisfy
the requirements of paragraphs (g)(1) and (2)(i) with respect to such
information.
Paragraph (g)(3) indicates that required notification may be
provided in written or electronic form.
Paragraph (g)(4) requires that the fiduciary adviser provide,
without charge, updated information to the advice recipient concerning
any material change to the information required to be provided to the
advice recipient under section III(g) at a time reasonably
contemporaneous to the change in information.
Paragraph (h) requires that the fiduciary adviser provide
appropriate disclosure, in connection with the sale, acquisition, or
holding of the security or other property, in accordance with all
applicable securities laws.
[[Page 49928]]
Policies and Procedures--Paragraph (i)
Paragraph (j) of Section III requires that the fiduciary adviser
adopt and follow written policies and procedures that are designed to
assure compliance with the conditions of the exemption. The Department
believes that the maintenance of such policies and procedures will help
ensure compliance with the exemption, as well as support a finding
that, for purposes of section 408(a)(1), the exemption is
administratively feasible. In this regard, the Department notes that,
as discussed below, the auditor engaged pursuant to paragraph (j) is
required to review a fiduciary adviser's compliance with its policies
and procedures.
Annual Audit--Paragraph (j)
The annual audit requirements of this proposed class exemption
generally track the audit requirements applicable to investment advice
arrangements offered under the statutory exemption and regulations
issued thereunder, appearing elsewhere in today's Federal Register. See
proposed 29 CFR 2550.408g-1(f).
Paragraph (j)(1)(i) of Section III of the proposed class exemption
requires that, at least annually, the fiduciary adviser engage an
independent auditor to conduct an audit, and prepare a report with
respect thereto and setting forth its specific findings, to determine
compliance with the policies and procedures required under paragraph
(i) of Section III and the requirements of the class exemption. The
auditor, within 60 days following the completion of the audit, must
furnish its report to the fiduciary adviser and, except with respect to
an arrangement with an IRA, to the fiduciary that authorized the
investment advice arrangement, as required under paragraph (a) of
Section III. The audit must be conducted by an auditor who has
appropriate technical training or experience and proficiency and so
represents in writing to the fiduciary adviser. Paragraph (j)(2)
provides that for purposes of paragraph (j)(1), an auditor is
considered independent if it does not have a material affiliation or
material contractual relationship with the person offering the
investment advice arrangement to the plan or IRA or any person
providing designated investment options under the plan or IRA.
Paragraph (j)(1)(ii) contains additional requirements that apply
with respect to an arrangement with an IRA. Under this provision, the
fiduciary adviser, within 30 days following receipt of the report from
the auditor, as described in paragraph (j)(1)(i), must furnish a copy
of the report to the IRA beneficiary or make such report available on
its Web site, provided, however, that with respect to availability on a
Web site, such IRA beneficiaries must be provided information, with the
information required to be furnished pursuant to section III(g)(1),
concerning the purpose of the report, and how and where to locate the
report applicable to their account. With respect to making the report
available on a Web site, the Department believes that this alternative
to furnishing reports to IRA beneficiaries satisfies the requirement of
section 104(d)(1) of the Electronic Signatures in Global and National
Commerce Act (E-SIGN) \10\ that any exemption from the consumer consent
requirements of section 101(c) of E-SIGN must be necessary to eliminate
a substantial burden on electronic commerce and will not increase the
material risk of harm to consumers. The Department solicits comments on
this finding. Further, in the event that the report of the auditor
identifies noncompliance with the policies and procedures required by
section III(i) or the conditions of the class exemption, the fiduciary
adviser, within 30 days following receipt of the report from the
auditor, must send a copy of the report to the Department at the
address provided in the class exemption.
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\10\ 15 U.S.C. 7004(d)(1) (2000).
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Paragraph (j)(3) provides that, in conducting the audit required in
(j)(1), the auditor must review sufficient relevant information to
formulate an opinion as to whether the investment advice arrangements,
and the advice provided pursuant thereto, offered by the fiduciary
adviser during the audit period were in compliance with the policies
and procedures required under paragraph (i) of Section III and the
requirements of the class exemption. Paragraph (j)(3) also makes clear,
however, that it does not preclude an auditor from using information
obtained by sampling, as reasonably determined appropriate by the
auditor, investment advice arrangements, and the advice pursuant
thereto, during the audit period.
Miscellaneous Conditions--Paragraphs (k)-(m)
Paragraphs (k)-(m) track provisions of the statutory exemption and
proposed regulations, appearing elsewhere in today's Federal Register.
See proposed 29 CFR 2550.408g-1(h). Paragraph (k) of Section III
requires that the sale, acquisition or holding of a security or other
property on behalf of a plan or IRA under the exemption must occur
solely at the direction of the recipient of the investment advice.
Paragraph (l) requires that the compensation received by the fiduciary
adviser and affiliates thereof in connection with the sale, acquisition
or holding of the security or other property must be reasonable.
Paragraph (m) requires that the terms of the sale, acquisition or
holding of the security or other property must be at least as favorable
to the plan or IRA as an arm's length transaction with an unrelated
party would be.
Record Retention--Paragraph (n)
Paragraph (n) of Section III provides that the fiduciary adviser
must maintain, in a manner accessible for audit or examination, for a
period not less than six years after the provision of investment advice
any records necessary to determine, explain or verify compliance with
the conditions of the class exemption.
4. Definitions--Section IV
Section IV defines certain terms that apply for purposes of the
class exemption. In general, the definitions applied for purposes of
the class exemption comport with the definitions applied to terms under
the statutory exemption and the proposed regulations, appearing
elsewhere in today's Federal Register. See proposed 29 CFR 2550.408g-
1(j).
As a threshold matter, this proposed class exemption would be
available only in connection with investment advice provided by a
fiduciary adviser. Paragraph (a) defines the term ``fiduciary
adviser.'' This definition tracks the statutory definition of that
term.
Paragraph (b) defines the term ``registered representative'' of
another entity to mean a person described in section 3(a)(18) of the
Securities Exchange Act of 1934 (substituting the entity for the broker
or dealer referred to in such section) or a person described in section
202(a)(17) of the Investment Advisers Act of 1940 (substituting the
entity for the investment adviser referred to in such section).
Paragraph (c) defines the term ``individual retirement account'' and
paragraph (d) defines the term ``affiliate'' for purposes of the class
exemption.
As with the proposed regulations, the proposed class exemption, at
paragraphs (e) and (f), respectively, also defines the terms ``material
affiliation'' and ``material contractual relationship.'' Paragraph
(e)(1) defines a person with a ``material affiliation'' with another
person as: any affiliate of the other person; any person directly or
indirectly owning, controlling, or holding, 5
[[Page 49929]]
percent or more of the interests of such other person; and any person 5
percent or more of whose interests are directly or indirectly owned,
controlled, or held, by such other person. The Department notes that
the definition of material affiliation includes an affiliate, as
defined in paragraph (d) of section IV, and that, whereas the
definition of affiliate focuses on voting securities owned, controlled
or held, the definition of material affiliate focuses not only on the
voting interests, but also on any interest. In this regard, paragraph
(e)(2) defines the term ``interest'' for purposes of paragraph (e)(1).
Paragraph (f) provides that persons have a ``material contractual
relationship'' if payments made by one person to the other person
pursuant to written contracts or agreements between the persons exceed
10 percent of the gross revenue, on an annual basis, of such other
person. The Department believes that one person's receipt of more than
10 percent of gross revenue from another person is sufficiently
significant to be considered material. However, the Department
specifically invites comments on whether the percentage test should be
higher or lower and, if so, why.
Paragraph (g) defines ``control'' to mean the power to exercise a
controlling influence over the management or policies of a person other
than an individual.
Paragraph (h) of Section IV defines, for purposes of paragraph
(e)(1) of Section III, the term ``independent'' to mean a person that
is not an affiliate of the other person and does not have a material
affiliation or material contractual relationship with the other person.
For purposes of paragraphs (a), (g)(1) and (j)(2) of Section III of
the proposal, paragraph (i) of Section IV defines the term ``designated
investment option'' to mean any investment option designated by the
plan into which participants and beneficiaries may direct the
investment of assets held in, or contributed to, their individual
accounts. However, the term ``designated investment option'' does not
include ``brokerage windows,'' ``self-directed brokerage accounts,'' or
similar plan arrangements that enable participants and beneficiaries to
select investments beyond those designated by the plan.
5. Effect of Noncompliance--Section V
Section V clarifies that the class exemption will not apply to any
transaction (described in section I or II) in connection with the
provision of investment advice to an individual participant or
beneficiary with respect to which the conditions of the exemption have
not been satisfied. In addition, in the case of a pattern or practice
of noncompliance with any of the conditions, the exemption will not
apply to any transaction in connection with the provision of investment
advice provided by the fiduciary adviser during the period over which
the pattern or practice extended.
C. Effective Date
The Department is proposing an effective date for the proposed
class exemption which is 90 days after the publication of the final
exemption in the Federal Register.
D. General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or disqualified
person from other provisions of the Act and the Code, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of section 404 of
the Act. Section 404 requires, among other things, that a fiduciary
discharge its duties with respect to the plan prudently and solely in
the interests of the plan's participants and beneficiaries. A
transaction's qualification for an exemption also does not affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) If granted, the proposed exemption will apply to a transaction
only if the conditions specified in the exemption are met; and
(3) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and the Code,
including statutory or administrative exemptions and transitional
rules.
E. Written Comments
Interested persons are encouraged to submit written comments on the
proposed exemption. Comments are due not later than 45 days after the
date of publication of the proposal in the Federal Register. The
Employee Benefits Security Administration encourages interested persons
to submit their comments electronically by e-mail to e-ORI@dol.gov
(Subject: Investment Advice Class Exemption). Persons submitting
comments electronically are encouraged not to submit paper copies.
Persons interested in submitting paper copies should refer to the
information set forth above under Addresses for the specific
information relating to the delivery comments. All comments will be
available to the public, without charge, online at http://www.dol.gov/
ebsa and at the Public Disclosure Room, N-1513, Employee Benefits
Security Administration, U.S. Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210.
F. Executive Order 12866; Paperwork Reduction Act
The Department's full Regulatory Impact Analysis for the class
exemption proposed herein and rules proposed under the statutory
exemption for investment advice can be found in the preamble to those
proposed rules appearing elsewhere in today's Federal Register .
G. Proposed Exemption
The Department has under consideration the grant of the following
class exemption under the authority of section 408(a) of ERISA and
section 4975(c)(2) of the Code, and in accordance with the procedures
set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August
10, 1990).
Section I--Proposed Exemption for the Provision of Investment Advice to
Participants and Beneficiaries of Individual Account Plans
The restrictions of sections 406(a) and 406(b) of ERISA and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1)(A) through (F) of the Code, shall not
apply to:
(a) The provision of investment advice described in section
3(21)(A)(ii) of the Act by a fiduciary adviser to a participant or
beneficiary of an individual account plan that permits such participant
or beneficiary to direct the investment of their individual accounts;
(b) the acquisition, holding, or sale of a security or other
property pursuant to the investment advice; and
(c) except as otherwise provided in this exemption, the direct or
indirect receipt of fees or other compensation by the fiduciary adviser
(or any employee, agent, registered representative or affiliate
thereof) in connection with the provision of the advice or in
connection with an acquisition, holding, or sale of a security or other
property pursuant to the investment advice, provided that the
conditions set forth in section III below are met.
[[Page 49930]]
Section II--Proposed Exemption for the Provision of Investment Advice
to Beneficiaries of Individual Retirement Accounts
The sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) through (F) of the Code, shall
not apply to:
(a) The provision of investment advice described in section
4975(e)(3)(B) of the Code by a fiduciary adviser to a beneficiary of an
Individual Retirement Account (IRA) that permits such beneficiary to
direct the investment of the assets of his or her IRA;
(b) the acquisition, holding, or sale of a security or other
property pursuant to the investment advice; and
(c) except as otherwise provided in this exemption, the direct or
indirect receipt of fees or other compensation by the fiduciary adviser
(or any employee, agent, registered representative or affiliate
thereof) in connection with the provision of the advice or in
connection with an acquisition, holding, or sale of a security or other
property pursuant to the investment advice, provided that the
conditions set forth in section III below are met.
Section III. Conditions
(a) The arrangement pursuant to which investment advice is provided
to participants and beneficiaries is expressly authorized in advance by
a plan fiduciary (or, in the case of an IRA, the IRA beneficiary) other
than: The person offering the investment advice arrangement; any person
providing designated investment options under the plan; or any
affiliate of either. Provided, however, that for purposes of the
preceding, in the case of an IRA, an IRA beneficiary will not be
treated as an affiliate of a person solely by reason of being an
employee of such person.
(b) The investment advice is based on generally accepted investment
theories that take into account the historic returns of different asset
classes over defined periods of time; provided, however, that nothing
herein shall preclude any investment advice from being based on
generally accepted investment theories that take into account
additional considerations.
(c) The investment advice takes into account information furnished
by a participant or beneficiary relating to age, life expectancy,
retirement age, risk tolerance, other assets or sources of income and
investment preferences, although nothing herein shall preclude any
investment advice from taking into account additional information that
a participant or beneficiary may provide.
(d) The fiduciary adviser provides advice in accordance with
paragraph (e) or (f), or both.
(e)(1) Except as provided in subparagraph (2), before providing
other investment advice covered by this exemption, participants and
beneficiaries shall be furnished with investment recommendations
generated by a computer model that--(A) meets the requirements of ERISA
section 408(g)(3)(B) and (C); or (B) meets the requirements of section
408(g)(3)(B) and was designed and is maintained by a person independent
of the fiduciary adviser (and any of the adviser's affiliates) and
utilizes methodologies and parameters determined appropriate solely by
the independent person, without influence from the fiduciary adviser
(or any of the adviser's affiliates);
(2) In the case of an IRA with respect to which the types or number
of investment choices reasonably precludes the use of a computer model
meeting the requirements of section 408(g)(3)(B) of ERISA to generate
investment recommendations, before providing other investment advice
covered by this exemption, beneficiaries shall be furnished with
material, such as graphs, pie charts, case studies, worksheets, or
interactive software or similar programs, that reflect or produce asset
allocation models taking into account the age (or time horizon) and
risk profile of the beneficiary, to the extent known. Nothing shall
preclude the furnishing of material, in addition to the foregoing,
reflecting asset allocation portfolios of hypothetical individuals with
different time horizons and risk profiles. For purposes of any
materials provided pursuant to this subparagraph (2): (A) models must
be based on generally accepted investment theories that take into
account the historic returns of different asset classes (e.g.,
equities, bonds, or cash) over defined periods of time; (B) such models
must operate in a manner that is not biased in favor of investments
offered by the fiduciary adviser or a person with a material
affiliation or material contractual relationship with the fiduciary
adviser; and (C) all material facts and assumptions on which such
models are based (e.g., retirement ages, life expectancies, income
levels, financial resources, replacement income ratios, inflation
rates, and rates of return) accompany the models;
(3) The investment advice provided does not recommend investment
options that may generate for the fiduciary adviser or any employee,
agent or registered representative, or any affiliate thereof, or any
person with a material affiliation or material contractual relationship
with the foregoing, greater income than other options of the same asset
class, unless the adviser prudently concludes that the recommendation
is in the best interest of the participant or beneficiary and explains
the basis for that conclusion to the participant or beneficiary. This
subparagraph (3) shall not apply to investment advice generated solely
by use of a computer model described in clause (A) or (B) of
subparagraph (1);
(4) Not later than 30 days following the provision of investment
advice under this paragraph (e), the employee, agent or registered
representative providing the advice on behalf of the fiduciary adviser
shall document the basis of any investment option(s) recommended to a
participant or beneficiary, including an explanation as to how such
recommendation relates to the recommendations or information provided
or generated pursuant to subparagraph (1) or (2) of this paragraph (e);
and, with respect to any investment advice (other than generated solely
by a computer model described in clause (A) or (B) of subparagraph (1))
that recommends investment options that may generate for the fiduciary
adviser or any employee, agent or registered representative, or any
affiliate thereof, or any person with a material affiliation or
material contractual relationship with the foregoing, greater income
than other options of the same asset class, the basis for concluding
that the recommendation is in the best interest of the participant or
beneficiary;
(5) Any documentation required by subparagraph (4) of this
paragraph (e) shall be retained in accordance with paragraph (n) of
this section.
(f) Any fees or other compensation (including salary, bonuses,
awards, promotions, commissions or any other thing of value) received,
directly or indirectly, by an employee, agent or registered
representative providing advice on behalf of the fiduciary adviser
pursuant to this exemption (as distinguished from any compensation
received by the fiduciary adviser on whose behalf the employee, agent
or registered representative is providing such advice) do not vary
depending on the basis of any investment option selected by a
participant or beneficiary.
(g)(1) The fiduciary adviser provides, without charge, to the
participant or beneficiary before the initial provision of investment
advice under this exemption, and at least once each year thereafter
during which the fiduciary adviser provides investment advice to the
participant or beneficiary, written notification: (i) Of the role of
any party
[[Page 49931]]
that has a material affiliation or material contractual relationship
with the fiduciary adviser in the development of the computer model
described in paragraph (e)(1) of this section or, if applicable, the
materials described in paragraph (e)(2) of this section, and, to the
extent applicable, in the selection of investment options available
under the plan, (ii) of the past performance and historical rates of
return of the designated investment options available under the plan or
IRA to the extent such information is not otherwise provided, (iii) of
all fees or other compensation relating to the advice that the
fiduciary adviser or any affiliate thereof is to receive (including
compensation provided by any third party) in connection with the
provision of the advice or in connection with the sale, acquisition, or
holding of the security or other property, (iv) of any material
affiliation or material contractual relationship of the fiduciary
adviser or affiliates thereof in the security or other property, (v) of
the manner, and under what circumstances, any participant or
beneficiary information provided under the arrangement will be used or
disclosed, (vi) of the types of services provided by the fiduciary
adviser in connection with the provision of investment advice by the
fiduciary adviser, including, with respect to an arrangement that
utilizes a computer model pursuant to paragraph (e)(1), any limitations
on the ability of the computer model to take into account an investment
option that constitutes an investment primarily in qualifying employer
securities, as provided for at 29 CFR 2550.408g-1(d)(1)(v), (vii) that
the fiduciary adviser is acting as a fiduciary of the plan in
connection with the provision of the investment advice, and (viii) that
a recipient of the advice may separately arrange for the provision of
advice by another adviser, that could have no material affiliation
with, and receives no fees or other compensation in connection with,
the security or other property;
(2)(i) Such notification must be written in a clear and conspicuous
manner and in a manner calculated to be understood by the average plan
participant and shall be sufficiently accurate and comprehensive to
reasonably apprise such participants and beneficiaries of the
information required to be disclosed; (ii) the appendix to 29 CFR
2550.408g-1 contains a model disclosure form that may be used to
provide the notification of information described in paragraph
(g)(1)(iii). Use of the model disclosure form is not mandatory.
However, use of an appropriately completed model disclosure form will
be deemed to satisfy the requirements of paragraphs (g)(1) and (2)(i)
with respect to such information.
(3) Such notification may, in accordance with 29 CFR 2520.104b-1,
be provided in written or electronic form.
(4) At all times during the provision of advisory services to the
participant or beneficiary pursuant to this exemption, the fiduciary
adviser provides, without charge, accurate information to the recipient
of the advice concerning any material change to the information
required to be provided to the recipient of the advice at a time
reasonably contemporaneous to the change in information.
(h) The fiduciary adviser provides appropriate disclosure, in
connection with the sale, acquisition, or holding of the security or
other property, in accordance with all applicable securities laws.
(i) The fiduciary adviser adopts and follows written policies and
procedures that are designed to assure compliance with the conditions
of this exemption.
(j)(1) The fiduciary adviser--
(i) at least annually, engages an independent auditor, who has
appropriate technical training or experience and proficiency and so
represents in writing to the fiduciary adviser, to (A) conduct an
audit, and prepare a report with respect thereto and setting forth its
specific findings, to determine compliance with the policies and
procedures of paragraph (i) of this section and the requirements of
this exemption, and (B) within 60 days following the completion of the
audit, furnish its report to the fiduciary adviser, and, except with
respect to an arrangement with an IRA, to the fiduciary who authorized
the arrangement pursuant to which investment advice under this
exemption is provided; and
(ii) with respect to an arrangement with an IRA--(A) within 30 days
following receipt of the report from the auditor, furnishes a copy of
the report to the IRA beneficiary or makes such report available on its
Web site, provided that such beneficiaries are provided information,
with the information required to be disclosed pursuant to paragraph
(g)(1) of this section, concerning the purpose of the report, and how
and where to locate the report applicable to their account, and (B) in
the event that the report of the auditor identifies noncompliance with
the policies and procedures required by paragraph (i) or the conditions
of this exemption, within 30 days following receipt of the report from
the auditor, sends a copy of the report to the Department of Labor at
the following address: Investment Advice Class Exemption Notification,
U.S. Department of Labor, Employee Benefits Security Administration,
Room N-1513, 200 Constitution Ave., NW., Washington, DC 20210;
(2) for purposes of subparagraph (1), an auditor is considered
independent if it does not have a material affiliation or material
contractual relationship with the person offering the investment advice
arrangement to the plan or IRA or any designated investment options
under the plan or IRA;
(3) for purposes of the audit described in subparagraph (1), the
auditor shall review sufficient relevant information to formulate an
opinion as to whether the investment advice arrangements, and the
advice provided pursuant thereto, offered by the fiduciary adviser
during the audit period were in compliance with the policies and
procedures of paragraph (i) of this section and the requirements of
this exemption; provided, however, that nothing in this subparagraph
shall preclude an auditor from using information obtained by sampling,
as reasonably determined appropriate by the auditor, investment advice
arrangements, and the advice pursuant thereto, during the audit period.
(k) The sale, acquisition or holding of a security or other
property on behalf of a plan or IRA occurs solely at the direction of
the recipient of the investment advice.
(l) The compensation received by the fiduciary adviser and
affiliates thereof in connection with the sale, acquisition or holding
of the security or other property is reasonable.
(m) The terms of the sale, acquisition or holding of the security
or other property are at least as favorable to the plan or IRA as an
arm's length transaction would be.
(n) The fiduciary adviser maintains, in a manner accessible for
audit or examination, for a period not less than six years after the
provision of investment advice under this exemption, any records
necessary to determine, explain or verify compliance with the
conditions of this exemption.
Section IV. Definitions
(a) Fiduciary Adviser--means, with respect to a plan, a person who
is a fiduciary of the plan by reason of the provision of investment
advice described in section 3(21)(A)(ii) of the Act by the person to
the participant or beneficiary of the plan and who is--
[[Page 49932]]
(1) Registered as an investment adviser under the Investment
Advisers Act of 1940 (15 U.S.C. 80b-1 et seq. ) or under the laws of
the State in which the fiduciary maintains its principal office and
place of business,
(2) A bank or similar financial institution referred to in section
408(b)(4) of the Act or a savings association (as defined in section
3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1)),
but only if the advice is provided through a trust department of the
bank or similar financial institution which is subject to periodic
examination and review by Federal or State banking authorities, or
(3) An insurance company qualified to do business under the laws of
a State, or
(4) A person registered as a broker or dealer under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.), or
(5) An affiliate of a person described in any of clauses (1)
through (4) above, or
(6) An employee, agent, or registered representative of a person
described in clauses (1) through (5) above who satisfies the
requirements of applicable insurance, banking, and securities laws
relating to the provision of the advice.
(b) Registered Representative--a registered representative of
another entity means a person described in section 3(a)(18) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) (substituting
the entity for the broker or dealer referred to in such section) or a
person described in section 202(a)(17) of the Investment Advisers Act
of 1940 (15 U.S.C. 80b-2(a)(17)) (substituting the entity for the
investment adviser referred to in such section).
(c) Individual Retirement Account or IRA means--(1) an individual
retirement account described in section 408(a) of the Code; (2) an
individual retirement annuity described in section 408(b) of the Code;
(3) an Archer MSA described in section 220(d) of the Code; (4) a health
savings account described in section 223(d) of the Code; (5) a
Coverdell education savings account described in section 530 of the
Code; or (6) a trust, plan, account, or annuity which, at any time, has
been determined by the Secretary of the Treasury to be described in any
preceding subparagraph of this paragraph [i.e., (1) through (5) above].
(d) Affiliate--unless specifically provided otherwise, an affiliate
of another person means--
(1) Any person directly or indirectly owning, controlling, or
holding with power to vote, 5 percent or more of the outstanding voting
securities of such other person;
(2) Any person 5 percent or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote, by such other person;
(3) Any person directly or indirectly controlling, controlled by,
or under common control with, such other person; and
(4) Any officer, director, partner, copartner, or employee of such
other person.
(e) Material Affiliation--(1) a person with a ``material
affiliation'' with another person means--
(A) any affiliate of the other person;
(B) Any person directly or indirectly owning, controlling, or
holding, 5 percent or more of the interests of such other person;
(C) Any person 5 percent or more of whose interests are directly or
indirectly owned, controlled, or held, by such other person.
(2) For purposes of subparagraph (e)(1) of this section, the term
``interest'' means with respect to an entity--
(A) The combined voting power of all classes of stock entitled to
vote or the total value of the shares of all classes of stock of the
entity if the entity is a corporation;
(B) The capital interest or the profits interest of the entity if
the entity is a partnership; or
(C) The beneficial interest of the entity if the entity is a trust
or unincorporated enterprise.
(f) Material Contractual Relationship--persons have a ``material
contractual relationship'' if payments made by one person to the other
person pursuant to written contracts or agreements between the persons
exceed 10 percent of the gross revenue, on an annual basis, of such
other person.
(g) Control--means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
(h) Independent--for purposes of section III(e)(1), a person is
``independent'' of another person if it is not an affiliate of the
other person, and does not have a material affiliation or material
contractual relationship with the other person.
(i) Designated Investment Option--means any investment option
designated by the plan into which participants and beneficiaries may
direct the investment of assets held in, or contributed to, their
individual accounts. The term ``designated investment option'' shall
not include ``brokerage windows,'' ``self-directed brokerage
accounts,'' or similar plan arrangements that enable participants and
beneficiaries to select investments beyond those designated by the
plan.
Section V. Noncompliance With Terms of the Exemption
This exemption shall not apply to any transaction (described in
Section I or II of this exemption) in connection with the provision of
investment advice to an individual participant or beneficiary with
respect to which the conditions of this exemption have not been
satisfied. In addition, in the case of a pattern or practice of
noncompliance with any of the conditions of this exemption, the
exemption shall not apply to any transaction in connection with the
provision of investment advice provided by the fiduciary adviser during
the period over which the pattern or practice extended.
Signed at Washington, DC, this 15th day of August, 2008.
Bradford P. Campbell,
Assistant Secretary, Employee Benefits Security Administration,
Department of Labor.
[FR Doc. E8-19273 Filed 8-21-08; 8:45 am]
BILLING CODE 4510-29-P