Amendment to Prohibited Transaction Exemption 84-24 (PTE 84-24)
For Certain Transactions Involving Insurance Agents and Brokers,
Pension Consultants, Insurance Companies, Investment Companies and
Investment Company Principal Underwriters
[02/03/2006]
Volume 71, Number 23, Page 5887-5890
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application D-11069]
Amendment to Prohibited Transaction Exemption 84-24 (PTE 84-24)
For Certain Transactions Involving Insurance Agents and Brokers,
Pension Consultants, Insurance Companies, Investment Companies and
Investment Company Principal Underwriters
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Adoption of Amendment to PTE 84-24.
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SUMMARY: This document amends PTE 84-24, a class exemption that
provides relief for certain transactions relating to the purchase, with
plan assets, of investment company securities or insurance or annuity
contracts, and the payment of associated sales commissions to insurance
agents or brokers, pension consultants, or investment company principal
underwriters that are parties in interest with respect to such plan.
The amendment extends relief to purchase transactions involving
insurance agents and brokers, pension consultants, and investment
company principal underwriters whose affiliates exercise investment
discretion over plan assets that are not involved in the transaction.
DATES: The amendment is effective February 3, 2006.
FOR FURTHER INFORMATION CONTACT: Christopher Motta, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, (202) 693-8540 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION: On September 14, 2004, notice was published
in the Federal Register (69 FR 55463) of the pendency before the
Department of a proposed amendment to PTE 84-24 (49 FR 13208 (April 3,
1984) as corrected at 49 FR 24819 (June 15, 1984)). PTE 84-24 provides
an exemption from the restrictions of section 406(a)(1)(A) through (D)
and section 406(b) of the Employee Retirement Income Security Act of
1974 (ERISA or the Act) and from the taxes imposed by section 4975(a)
and (b) of the Code, by reason of section 4975(c)(1)(A) through (F) of
the Code.\1\
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\1\ References to section 406 of ERISA as they appear throughout
this amendment should be read to refer as well to the corresponding
provisions of section 4975 of the Internal Revenue Code of 1986, as
amended (the Code).
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The amendment to PTE 84-24 was proposed by the Department on its
own motion, pursuant to 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).\2\ The
notice of pendency gave interested persons an opportunity to comment or
to request a hearing on the proposed amendment. The Department received
one comment on the proposed amendment. That comment, from the
Investment Company Institute, supported the amendment as proposed. The
Department did not receive a request for a public hearing.
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\2\ Section 102 of the Reorganization Plan No. 4 of 1978 (5
U.S.C. App. at 214, 2000 ed.) generally transferred the authority of
the Secretary of the Treasury to issue administrative exemptions
under section 4975 of the Code to the Secretary of Labor.
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For the sake of convenience, the entire text of PTE 84-24, as
amended, has been reprinted in this notice.
Executive Order 12866 Statement
Under Executive Order 12866, the Department must determine whether
a regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f), the order defines a
``significant regulatory action'' as an action that is likely to result
in a rule (1) having an annual effect on the economy of $100 million or
more, or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
This amendment has been drafted and reviewed in accordance with
Executive Order 12866, section 1(b), Principles of Regulation. The
Department has determined that this amendment is not a ``significant
regulatory action'' under Executive Order 12866, section 3(f).
Accordingly, it does not require an assessment of potential costs and
benefits under section 6(a)(3) of that order.
[[Page 5888]]
Paperwork Reduction Act
This amendment does not contain any ``collection of information''
as defined in the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et
seq.) (PRA) and therefore is not subject to the requirements of the
PRA. The recordkeeping requirement that is one of the conditions
imposed under PTE 84-24 (section V(e)(1)), both prior to this amendment
and hereinafter, has been approved by OMB as part of the information
collection request assigned OMB control number 1210-0059. The approval
is currently scheduled to expire on August 31, 2008.
Description of the Exemption, as Amended
PTE 84-24 provides relief for certain classes of transactions
involving purchases with plan assets of insurance or annuity contracts
and of securities issued by registered investment companies, and the
receipt of sales commissions in connection therewith. Section I and
section II of PTE 84-24 provide retroactive and prospective relief for
covered transactions. Section III describes the transactions covered by
the class exemption as follows: (a) The direct or indirect receipt by
an insurance agent or broker or a pension consultant of a sales
commission from an insurance company in connection with the purchase,
with plan assets of an insurance or annuity contract; (b) the receipt
of a sales commission by a principal underwriter for an investment
company registered under the Investment Company Act of 1940
(hereinafter, an investment company) in connection with the purchase,
with plan assets, of securities issued by an investment company; (c)
the effecting by an insurance agent or broker, pension consultant or
investment company principal underwriter of a transaction for the
purchase, with plan assets, of an insurance or annuity contract or
securities issued by an investment company; (d) the purchase, with plan
assets, of an insurance or annuity contract from an insurance company;
(e) the purchase, with plan assets, of an insurance or annuity contract
from an insurance company which is a fiduciary or a service provider
(or both) with respect to the plan solely by reason of the sponsorship
of a master or prototype plan; and (f) the purchase, with plan assets,
of securities issued by an investment company from, or the sale of such
securities to, an investment company or an investment company principal
underwriter, when such investment company, principal underwriter, or
the investment company investment adviser is a fiduciary or a service
provider (or both) with respect to the plan solely by reason of: (1)
The sponsorship of a master or prototype plan; or (2) the provision of
nondiscretionary trust services to the plan; or (3) both (1) and (2).
Section IV contains general conditions applicable to all
transactions described in section III. Section V of the class exemption
contains conditions specific to transactions described in section
III(a) through (d). Section VI defines certain terms that are used in
the class exemption. Section VI(b) defines the terms ``insurance agent
or broker,'' ``pension consultant,'' ``insurance company,''
``investment company,'' and ``principal underwriter'' to mean such
persons and any affiliates thereof.
Section V excludes certain persons from engaging in transactions
covered by the class exemption. In this regard, sections V(a)(1) and
V(a)(3) provided that the insurance agent or broker, pension
consultant, insurance company, or investment company principal
underwriter may not engage in a covered transaction if such person is a
trustee of the plan (other than a nondiscretionary trustee who does not
render investment advice with respect to any assets of the plan) or a
fiduciary who is expressly authorized in writing to manage, acquire or
dispose of the assets of the plan on a discretionary basis. The
amendment adopted by this notice provides a limited exception to such
restrictions (which otherwise remain in effect). In this regard,
section V(a), as amended, now provides that, notwithstanding the
restriction contained therein, an insurance agent or broker, pension
consultant, insurance company, or investment company principal
underwriter that is affiliated with a trustee or investment manager
with respect to a plan may engage in a transaction described in section
III(a) through (d) of this exemption on behalf of a plan if such
trustee or investment manager has no discretionary authority or control
over the plan assets involved in the transaction other than as a
nondiscretionary trustee.\3\
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\3\ As described in the notice of proposed amendment to PTE 84-
24, the Department and the Service previously took the view that the
class exemption extends relief to a plan's purchase of an insurance
or annuity contract through an agent or broker affiliated with an
entity that manages certain of the plan's assets to the extent that
the investment manager is not, with respect to the transaction, a
fiduciary expressly authorized in writing to manage, acquire, or
dispose of, on a discretionary basis, the assets of the plan
involved in the purchase transaction. See letter from the Department
of the Service to John A. Cardon, Esq., et al., part 6 (October 31,
1977).
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The amendment adopted in this notice also modifies the definition
of the term ``nondiscretionary trust services'' in section VI(g) of PTE
84-24 to permit a party to use the exemption, notwithstanding its
affiliation with a nondiscretionary trustee, including a directed
trustee that performs such services pursuant to directions in
accordance with ERISA section 403(a)(1), with respect to the plan
assets involved in the transaction.
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 ERISA and section 4975(c)(2) of the Code does
not relieve a fiduciary, or other party in interest or disqualified
person with respect to a plan, from certain other provisions of ERISA
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 ERISA which require, among other things,
that a fiduciary discharge his or her duties respecting the plan solely
in the interests of the participants and beneficiaries of the plan; nor
does it 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) In accordance with section 408(a) of ERISA and 4975(c)(2) of
the Code, the Department makes the following determinations:
(i) The amendment set forth herein is administratively feasible;
(ii) the amendment set forth herein is in the interests of plans
and of their participants and beneficiaries; and
(iii) the amendment set forth herein is protective of the rights of
participants and beneficiaries of plans;
(3) The amendment is applicable to a particular transaction only if
the transaction satisfies the conditions specified in the exemption;
and
(4) The amendment is supplemental to, and not in derogation of, any
other provisions of ERISA and the Code, including statutory or
administrative exemptions and transitional rules. Furthermore, the fact
that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction.
Exemption
Accordingly, PTE 84-24 is amended under the authority of section
408(a) of the Employee Retirement Income
[[Page 5889]]
Security Act of 1974 (the Act) and section 4975(c)(2) of the Internal
Revenue Code of 1986, as amended (the Code), and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990), as set forth below:
Section I--Retroactive Application
The restrictions of sections 406(a)(1)(A) through (D) and 406(b) of
the Act and the taxes imposed by section 4975 of the Code do not apply
to any of the transactions described in section III of this exemption
in connection with purchases made before November 1, 1977, if the
conditions set forth in section IV are met.
Section II--Prospective Application
The restrictions of section 406(a)(1)(A) through (D) and 406(b) of
the Act and the taxes imposed by section 4975 of the Code do not apply
to any of the transactions described in section III of this exemption
in connection with purchases made after October 31, 1977, if the
conditions set forth in sections IV and V are met.
Section III--Transactions
(a) The receipt, directly or indirectly, by an insurance agent or
broker or a pension consultant of a sales commission from an insurance
company in connection with the purchase, with plan assets, of an
insurance or annuity contract.
(b) The receipt of a sales commission by a principal underwriter
for an investment company registered under the Investment Company Act
of 1940 (hereinafter referred to as an investment company) in
connection with the purchase, with plan assets, of securities issued by
an investment company.
(c) The effecting by an insurance agent or broker, pension
consultant or investment company principal underwriter of a transaction
for the purchase, with plan assets, of an insurance or annuity contract
or securities issued by an investment company.
(d) The purchase, with plan assets, of an insurance or annuity
contract from an insurance company.
(e) The purchase, with plan assets, of an insurance or annuity
contract from an insurance company which is a fiduciary or a service
provider (or both) with respect to the plan solely by reason of the
sponsorship of a master or prototype plan.
(f) The purchase, with plan assets, of securities issued by an
investment company from, or the sale of such securities to, an
investment company or an investment company principal underwriter, when
such investment company, principal underwriter, or the investment
company investment adviser is a fiduciary or a service provider (or
both) with respect to the plan solely by reason of: (1) The sponsorship
of a master or prototype plan; or (2) the provision of nondiscretionary
trust services to the plan; or (3) both (1) and (2).
Section IV--Conditions With Respect to Transactions Described in
Section III
(a) The transaction is effected by the insurance agent or broker,
pension consultant, insurance company or investment company principal
underwriter in the ordinary course of its business as such a person.
(b) The transaction is on terms at least as favorable to the plan
as an arm's-length transaction with an unrelated party would be.
(c) The combined total of all fees, commissions and other
consideration received by the insurance agent or broker, pension
consultant, insurance company, or investment company principal
underwriter:
(1) For the provision of services to the plan; and
(2) In connection with the purchase of insurance or annuity
contracts or securities issued by an investment company is not in
excess of ``reasonable compensation'' within the contemplation of
section 408(b)(2) and 408(c)(2) of the Act and sections 4975(d)(2)and
4975(d)(10) of the Code. If such total is in excess of ``reasonable
compensation,'' the ``amount involved'' for purposes of the civil
penalties of section 502(i) of the Act and the excise taxes imposed by
section 4975 (a) and (b) of the Code is the amount of compensation in
excess of ``reasonable compensation.''
Section V--Conditions for Transactions Described in Section III (a)
Through (d)
The following conditions apply solely to a transaction described in
paragraphs (a), (b), (c) or (d) of section III:
(a) The insurance agent or broker, pension consultant, insurance
company, or investment company principal underwriter is not (1) a
trustee of the plan (other than a nondiscretionary trustee who does not
render investment advice with respect to any assets of the plan), (2) a
plan administrator (within the meaning of section 3(16)(A) of the Act
and section 414(g) of the Code), (3) a fiduciary who is expressly
authorized in writing to manage, acquire or dispose of the assets of
the plan on a discretionary basis, or (4) for transactions described in
sections III (a) through (d) entered into after December 31, 1978, an
employer any of whose employees are covered by the plan.
Notwithstanding the above, an insurance agent or broker, pension
consultant, insurance company, or investment company principal
underwriter that is affiliated with a trustee or an investment manager
(within the meaning of section VI(b)) with respect to a plan may engage
in a transaction described in section III(a) through (d) of this
exemption on behalf of the plan if such trustee or investment manager
has no discretionary authority or control over the plan assets involved
in the transaction other than as a nondiscretionary trustee.
(b)(1) With respect to a transaction involving the purchase with
plan assets of an insurance or annuity contract or the receipt of a
sales commission thereon, the insurance agent or broker or pension
consultant provides to an independent fiduciary with respect to the
plan prior to the execution of the transaction the following
information in writing and in a form calculated to be understood by a
plan fiduciary who has no special expertise in insurance or investment
matters:
(A) If the agent, broker, or consultant is an affiliate of the
insurance company whose contract is being recommended, or if the
ability of such agent, broker or consultant to recommend insurance or
annuity contracts is limited by any agreement with such insurance
company, the nature of such affiliation, limitation, or relationship;
(B) The sales commission, expressed as a percentage of gross annual
premium payments for the first year and for each of the succeeding
renewal years, that will be paid by the insurance company to the agent,
broker or consultant in connection with the purchase of the recommended
contract; and
(C) For purchases made after June 30, 1979, a description of any
charges, fees, discounts, penalties or adjustments which may be imposed
under the recommended contract in connection with the purchase,
holding, exchange, termination or sale of such contract.
(2) Following the receipt of the information required to be
disclosed in paragraph (b)(1), and prior to the execution of the
transaction, the independent fiduciary acknowledges in writing receipt
of such information and approves the transaction on behalf of the plan.
Such fiduciary may be an employer of employees covered by the plan, but
may not be an insurance agent or broker, pension consultant or
insurance company involved in the transaction. Such fiduciary may not
receive, directly or indirectly (e.g. through an affiliate), any
compensation
[[Page 5890]]
or other consideration for his or her own personal account from any
party dealing with the plan in connection with the transaction.
(c)(1) With respect to a transaction involving the purchase with
plan assets of securities issued by an investment company or the
receipt of a sales commission thereon by an investment company
principal underwriter, the investment company principal underwriter
provides to an independent fiduciary with respect to the plan, prior to
the execution of the transaction, the following information in writing
and in a form calculated to be understood by a plan fiduciary who has
no special expertise in insurance or investment matters:
(A) If the person recommending securities issued by an investment
company is the principal underwriter of the investment company whose
securities are being recommended, the nature of such relationship and
of any limitation it places upon the principal underwriter's ability to
recommend investment company securities;
(B) The sales commission, expressed as a percentage of the dollar
amount of the plan's gross payment and of the amount actually invested,
that will be received by the principal underwriter in connection with
the purchase of the recommended securities issued by the investment
company; and
(C) For purchases made after December 31, 1978, a description of
any charges, fees, discounts, penalties, or adjustments which may be
imposed under the recommended securities in connection with the
purchase, holding, exchange, termination or sale of such securities.
(2) Following the receipt of the information required to be
disclosed in paragraph (c)(1), and prior to the execution of the
transaction, the independent fiduciary approves the transaction on
behalf of the plan. Unless facts or circumstances would indicate the
contrary, such approval may be presumed if the fiduciary permits the
transaction to proceed after receipt of the written disclosure. Such
fiduciary may be an employer of employees covered by the plan, but may
not be a principal underwriter involved in the transaction. Such
fiduciary may not receive, directly or indirectly (e.g. through an
affiliate), any compensation or other consideration for his or her own
personal account from any party dealing with the plan in connection
with the transaction.
(d) With respect to additional purchases of insurance or annuity
contracts or securities issued by an investment company, the written
disclosure required under paragraphs (b) and (c) of this section V need
not be repeated, unless--
(1) More than three years have passed since such disclosure was
made with respect to the same kind of contract or security, or
(2) The contract or security being recommended for purchase or the
commission with respect thereto is materially different from that for
which the approval described in paragraphs (b) and (c) of this section
was obtained.
(e)(1)) In the case of any transaction described in paragraphs (a),
(b), or (c) of section III, the insurance agent or broker (or the
insurance company whose contract is being described if designated by
the agent or broker), pension consultant or investment company
principal underwriter shall retain or cause to be retained for a period
of six years from the date of such transaction, the following:
(A) The information disclosed pursuant to paragraphs (b), (c), and
(d) of this section V;
(B) Any additional information or documents provided to the
fiduciary described in paragraphs (b) and (c) of this section V with
respect to such transaction; and
(C) The written acknowledgement described in paragraph (b) of this
section.
(2) A prohibited transaction will not be deemed to have occurred
if, due to circumstances beyond the control of the insurance agent or
broker, pension consultant, or principal underwriter, such records are
lost or destroyed prior to the end of such six-year period.
(3) Notwithstanding anything to the contrary in section 504(a)(2)
and (b) of the Act, such records are unconditionally available for
examination during normal business hours by duly authorized employees
or representatives of the Department of Labor, the Internal Revenue
Service, plan participants and beneficiaries, any employer of plan
participants and beneficiaries, and any employee organization any of
whose members are covered by the plan.
Section VI--Definitions
For purposes of this exemption:
(a) The term ``principal underwriter'' is defined in the same
manner as that term is defined in section 2(a)(29) of the Investment
Company Act of 1940 (15 U.S.C. 80a-2(a)(29)).
(b) The terms ``insurance agent or broker,'' ``pension
consultant,'' ``insurance company,'' ``investment company,'' and
``principal underwriter'' mean such persons and any affiliates thereof.
(c) The term ``affiliate'' of a person means:
(1) Any person directly or indirectly controlling, controlled by,
or under common control with such person;
(2) Any officer, director, employee (including, in the case of
principal underwriter, any registered representative thereof, whether
or not such person is a common law employee of such principal
underwriter), or relative of any such person, or any partner in such
person; or
(3) Any corporation or partnership of which such person is an
officer, director, or employee, or in which such person is a partner.
(d) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(e) The term ``relative'' means a ``relative'' as that term is
defined in section 3(15) of the Act (or a ``member of the family'' as
that term is defined in section 4975(e)(6) of the Code), or a brother,
a sister, or a spouse of a brother or a sister.
(f) The term ``master or prototype plan'' means a plan which is
approved by the Service under Rev. Proc. 72-7, 1972-1 C.B. 715, or Rev.
Proc. 72-8, 1972-1 C.B. 716, or their successors.
(g) ``The term ``nondiscretionary trust services'' means custodial
services, services ancillary to custodial services, none of which
services are discretionary, duties imposed by any provisions of the
Code, and services performed pursuant to directions in accordance with
ERISA section 403(a)(1). The term ``nondiscretionary trustee'' of a
plan means a trustee whose powers and duties with respect to the plan
are limited to the provision of nondiscretionary trust services. For
purposes of this exemption, a person who is otherwise a
nondiscretionary trustee will not fail to be a nondiscretionary trustee
solely by reason of his having been delegated, by the sponsor of a
master or prototype plan, the power to amend such plan.
Signed at Washington, DC this 30th day of January, 2006.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. E6-1504 Filed 2-2-06; 8:45 am]
BILLING CODE 4520-29-P
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